NY State Senate Bill 2015-S3722

Archive: Last Bill Status - In Senate Committee Investigations And Government Operations Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Date of Action	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 06, 2016	referred to investigations and government operations
Feb 17, 2015	referred to investigations and government operations

2015-S3722 (ACTIVE) - Details

Current Committee:: Senate Investigations And Government Operations
Law Section:: Tax Law
Laws Affected:: Add §472-a, amd §472, Tax L
Versions Introduced in Other Legislative Sessions:: 2009-2010: S3896
2011-2012: S2895
2013-2014: S1849
2017-2018: S2380

2015-S3722 (ACTIVE) - Summary

Relates to the use of an advanced system for securing tobacco taxes; requires exclusive use of encrypted counterfeit-resistant cigarette tax stamps to provide a commission to agents for the purpose of leasing or the purchase of machinery and a sell-through provision for retailers.

2015-S3722 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:S3722

TITLE OF BILL:

An act to amend the tax law, in relation to requiring the exclusive
use of encrypted counterfeit-resistant cigarette tax stamps to provide
a commission to agents for the purpose of leasing or the purchase of
machinery and a sell-through provision for retailers

PURPOSE:

To require the Department of Taxation and Finance to adopt the use of
an encrypted; cigarette tax security system to prevent cigarette stamp
counterfeiting and improve State revenue collections.  The
implementation of this proven, state-of-the-art system will provide
the Department with the ability to monitor product distribution and
shipments, increase collections on excise taxes and sales taxes owed
to the state and municipalities.

The 2008 excise tax increase produced a tremendous opportunity to
circumvent the law with the use of counterfeit tax stamps. When this
Counterfeit-resistant stamping process is utilized; in New York, the
Commissioner of the Department of Taxation and Finance will have
gained new technologies to access data, improve compliance, and
bolster enforcement efforts to reduce black-market sales of illegal
cigarette products in New York State. The bill allows the Commissioner

of the Department of Taxation and Finance to mitigate the costs of the
lease or purchase of the machinery and/or equipment for stamping
agents, and provides a product 'sell through' period for cigarette
retailers to sell inventory previously stamped with the state's heat
applied decal tax stamp.

JUSTIFICATION:

Increased Federal, State and local taxation is driving up the costs of
a pack of cigarettes, making the smuggling and sale of illegal
products more lucrative. In 2006. the State Health Department
estimated that New York State might be losing as much as $576 million
in taxes through the illegal sales of untaxed cigarettes. Other
estimates show that up to 35 percent of the cigarettes sold in New
York State are not stamped legally by the State. The Federal
government acknowledges that New York is losing hundreds of millions
of dollars in uncollected revenues due to the sale of illegally
stamped cigarettes, and those profits from these illegal sales goes
directly to organized crime, terrorist organizations, as well as to
China, Vietnam, North Korea.

The U.S. House Committee on Homeland Security completed an
investigation on cigarette smuggling in New York. They discovered that
terrorist organizations such as Hamas and Hezbollah are benefiting
from untaxed cigarette smuggling as New York State loses hundreds of
millions of dollars in tax revenue. A May 200. Wall Street Journal
article reported on the arrest of Queens resident Rafea al-Nablisi,
who was smuggling 12,000 cartons of cigarettes a week. Similar arrests
and convictions have occurred in Western New York and Upstate. The
Wall Street Journal reported that "butt-leggers" could make over $1
million on each tractor-trailer load of smuggled cigarettes.


California is the first state to drop the utilization of the 50-year
old "heat-applied decal tax stamps" with the implementation of the
encrypted counterfeit-resistance cigarette tax stamp. The California
Board of Equalization has credited additional licensing procedures,
improved enforcement and the encrypted stamping of every pack of
cigarettes with bringing in additional revenues of over $100 million
dollars in just the first phase of operation. A California Auditor's
report showed that the use of the encrypted stamp "increased cigarette
tax Compliance..." California is now looking to expand the use of this
technology on additional regulated products.

The implementation of a similar system in New York should prove
equally beneficial. The application of an encrypted tax stamp will
provide New York with additional security. In addition, state
enforcement agents will use hand-held devices to monitor shipments and
to detect false or illegal stamped products for sale. Store operators
will be able to use special retail scanners to authenticate products.
The process can provide the Tax Department with up-to-date, accurate
data on cigarette shipments and sales statewide. Finally, when
operational, future revisions on the encrypted stamp to secure the
stamp's integrity can be accomplished with computer programming and/or
software revisions.

Encryption technologies will be implemented in Canada and
Massachusetts this year. Similar encryption technologies are used
today to protect and secure the world's currencies. This process will
benefit New York State, local governments residents and legitimate
business owners by reducing tax evasion, the collection of owed
revenues, (excise taxes and sales taxes), greater enforcement and
reduced criminal activities in our communities.

FISCAL IMPLICATIONS:

New York has stamped cigarette sales are approximately one-half of
California. New machines needed for the application of the new digital
encrypted stamping are typically leased at an estimated price of
$1.500 per month. The encrypted stamping will regain tens of millions
of dollars in lost revenues to the State of New York in the first year
of operation.

EFFECTIVE DATE:

This act shall take effect immediately, provided, however, that
section 2 shall take effect 180 days following the awarding of such
contract pursuant to this act; provided further that any produced in
the possession of a cigarette retail dealer on the effective date of
this act and stamped to the commissioner's satisfaction may continue
to be offered for sale and sold to cigarette Purchasers.

2015-S3722 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  3722

                       2015-2016 Regular Sessions

                            I N  S E N A T E

                            February 17, 2015
                               ___________

Introduced by Sen. ESPAILLAT -- read twice and ordered printed, and when
  printed to be committed to the Committee on Investigations and Govern-
  ment Operations

AN  ACT to amend the tax law, in relation to requiring the exclusive use
  of encrypted counterfeit-resistant cigarette tax stamps to  provide  a
  commission  to  agents  for  the purpose of leasing or the purchase of
  machinery and a sell-through provision for retailers

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  The  tax  law is amended by adding a new section 472-a to
read as follows:
  S 472-A. TOBACCO TAX SECURITY. 1. PURSUANT TO THE POWERS VESTED IN THE
COMMISSIONER UNDER SECTION FOUR HUNDRED SEVENTY-TWO OF THIS ARTICLE, THE
COMMISSIONER SHALL INCORPORATE A SYSTEM FOR SECURING TOBACCO  TAXES  DUE
TO  THE  STATE.  SUCH  A SYSTEM SHALL BE COMPRISED, AT A MINIMUM, OF THE
FOLLOWING:
  (A) THE USE OF ENCRYPTED TAX STAMPS BY STAMPING AGENTS LICENSED PURSU-
ANT TO SECTION FOUR HUNDRED SEVENTY-TWO OF  THIS  ARTICLE.  SUCH  STAMPS
SHALL BE ENCRYPTED TO IDENTIFY, AT A MINIMUM:
  (I)  THE  NAME AND ADDRESS OF THE LICENSED STAMPING AGENT AFFIXING THE
STAMP;
  (II) THE DATE THE STAMP WAS AFFIXED TO THE PRODUCT; AND
  (III) THE DENOMINATED VALUE OF THE STAMP OR METER IMPRESSION.
  (B) THE SECURE MANAGEMENT OF ANY DATA REQUIRED UNDER PARAGRAPH (A)  OF
THIS SUBDIVISION AND OTHER DATA AS MAY BE REQUIRED BY THE COMMISSIONER;
  (C)  THE ENFORCEMENT OF SECTION FOUR HUNDRED SEVENTY-TWO OF THIS ARTI-
CLE, INCLUDING SUCH DEVICES AS MAY BE USED BY THE DEPARTMENT  AND  OTHER
STATE EMPLOYEES AUTHORIZED BY THE COMMISSIONER.
  2. SUCH ENCRYPTED TAX STAMPS SHALL:
  (A)  BE  PRODUCED  IN A PROVEN SECURE FACILITY CERTIFIED IN ACCORDANCE
WITH THE SECURITY ASSISTANCE STANDARDS ESTABLISHED IN TWO THOUSAND  FIVE

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD08834-01-5

S. 3722                             2

BY  THE  AMERICAN  NATIONAL  STANDARDS  INSTITUTE AND THE NORTH AMERICAN
SECURITY PRODUCTS ORGANIZATION;
  (B)  INCORPORATE  A  MINIMUM  OF FOUR LAYERS OF OVERT, SEMI-COVERT AND
COVERT DATA;
  (C) BE APPLIED BY MACHINES  WHEREUPON  THE  ENCRYPTED  DATA  SHALL  BE
INSTANTANEOUSLY CAPTURED AND STORED BY AND FOR THE DEPARTMENT;
  (D)  BE  READABLE  AND TRACEABLE FROM THE POINT OF STAMP PRODUCTION TO
SUCH POINT AS DEEMED APPROPRIATE BY THE COMMISSIONER; AND
  (E) BE CAPABLE OF BEING READ BY A SCANNING OR SIMILAR DEVICE THAT  CAN
BE  UTILIZED BY ENFORCEMENT AGENTS OF THE STATE AND OTHERS DEEMED APPRO-
PRIATE BY THE COMMISSIONER.
  S 2.  The department of taxation and finance shall issue a request for
proposal for the purpose of providing the system  described  in  section
472-a  of  the  tax  law, as added by section one of this act, within 90
days of the effective date of this act.   Bids  from  qualified  vendors
shall  be  received  by  the department of taxation and finance no later
than 60 days following the issuance of the  request  for  proposal.  Any
contract  issued pursuant to this section shall be issued within 90 days
following receipt of bids and installation of such system  completed  by
the successful bidder within 180 days of the issuance of such contract.
  S  3. Subdivision 1 of section 472 of the tax law, as amended by chap-
ter 629 of the laws of 1996 and as further amended  by  section  104  of
part A of chapter 62 of the laws of 2011, is amended to read as follows:
  1.  The  commissioner  shall  prescribe, prepare and furnish stamps of
such denominations and quantities as may be necessary for the payment of
the tax on cigarettes imposed by this article, and may from time to time
and as often as he deems advisable provide for the issuance  and  exclu-
sive  use  of stamps of a new design and forbid the use of stamps of any
other design, in the manner and with the effect provided in section  two
hundred  seventy-four  of  this  chapter.  The  commissioner  shall make
provisions for the sale of such stamps at such places and at such  times
as  he  may  deem necessary and may license agents for such purpose. The
commissioner may license dealers in cigarettes,  who  maintain  separate
warehousing  facilities  for  the  purpose of receiving and distributing
cigarettes and conducting their business, who have received  commitments
from at least two [cigarette] manufacturers whose aggregate market share
is  at least forty percent of the New York state [cigarette] market, and
importers, exporters and manufacturers of cigarettes, and other  persons
within  or without the state as agents to buy or affix stamps to be used
in paying the tax herein imposed, but an agent shall at all  times  have
the right to appoint the person in his employ who is to affix the stamps
to  any  cigarettes  under  the agent's control. The fee for filing such
application for an agent's license shall be one  thousand  five  hundred
dollars,  unless  such  fee  has  been  paid during the preceding twelve
months, in which case, the fee for a new license shall be  one  thousand
dollars.  All  of  the provisions of section four hundred eighty OF THIS
ARTICLE relating to wholesale dealers' licenses, including the procedure
for suspension, revocation, refusal to license and for hearings,  except
for  paragraphs (c) and (g) of subdivision one of such section, shall be
applicable to agents' licenses applied for or granted pursuant  to  this
section, as if such provisions had been set forth in full in this subdi-
vision  and  had  expressly referred to the applicant for, or the holder
of, an agent's license. Whenever the commissioner shall sell and deliver
to any such agent any such stamps,  such  agent  shall  be  entitled  to
receive  as  compensation for his services and expenses as such agent in
selling or affixing such stamps, and to retain out of the moneys  to  be

S. 3722                             3

paid  by him for such stamps, a commission on the par value thereof. The
commissioner is hereby authorized to prescribe  a  schedule  of  commis-
sions, not exceeding five per centum, allowable to such agent for buying
and affixing such stamps. Such schedule shall be uniform with respect to
the different types of stamps used, and may be on a graduated scale with
respect to the number of stamps purchased, PROVIDED HOWEVER, SUCH AGENTS
SHALL  BE  ENTITLED  TO  AN  ADDED  COMMISSION IN EXCESS OF THE FIVE PER
CENTUM TO BE DETERMINED BY THE COMMISSIONER TO  MITIGATE  THE  COSTS  TO
SUCH AGENTS IN RELATION TO THE LEASE OR PURCHASE OF THE MACHINERY AND/OR
EQUIPMENT NECESSARY TO APPLY OR AFFIX SUCH STAMPS AS REQUIRED IN SECTION
FOUR  HUNDRED  SEVENTY-TWO-A  OF THIS ARTICLE.  The commissioner may, in
his discretion, permit an agent to pay for  such  stamps  within  thirty
days  after  the date of purchase and may require any such agent to file
with the department [of taxation and finance] a bond issued by a  surety
company  approved  by  the  superintendent  of  financial services as to
solvency and responsibility and authorized to transact business  in  the
state  or  other security acceptable to the commissioner, in such amount
as the commissioner may fix, to secure the payment of any sums due  from
such  agent  pursuant  to  this  article. If securities are deposited as
security under this subdivision, such securities shall be  kept  in  the
custody  of  the  commissioner and may be sold by the commissioner if it
becomes necessary so to do in order to recover any sums  due  from  such
agent  pursuant  to  this  article,  but no such sale shall be had until
after such agent shall have had opportunity to litigate the validity  of
any  tax if it elects so to do. Upon any such sale, the surplus, if any,
above the sums due under this article shall be returned to such agent.
  S 4. The department of  taxation  and  finance  shall,  following  the
implementation period and annually thereafter, report to the legislature
and to the governor on the effectiveness of the provisions of this act.
  S  5.  This act shall take effect immediately, provided, however, that
section two of this act shall take effect on the one  hundred  eightieth
day  following  the  awarding  of  such  contract  pursuant to this act;
provided further that any product  in  the  possession  of  a  cigarette
retail  dealer  on  the  effective  date  of this act and stamped to the
commissioner of taxation and finance's satisfaction may continue  to  be
offered for sale and sold to cigarette purchasers.

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Senate Bill S3722

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Archive: Last Bill Status - In Senate Committee Investigations And Government Operations Committee

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2015-S3722 (ACTIVE) - Details

2015-S3722 (ACTIVE) - Summary

2015-S3722 (ACTIVE) - Sponsor Memo

2015-S3722 (ACTIVE) - Bill Text download pdf

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Sponsored By

Adriano Espaillat

Archive: Last Bill Status - In Senate Committee Investigations And Government Operations Committee

Actions

2015-S3722 (ACTIVE) - Details

2015-S3722 (ACTIVE) - Summary

2015-S3722 (ACTIVE) - Sponsor Memo

2015-S3722 (ACTIVE) - Bill Text download pdf

Comments