Senate Bill No. 372
(By Senator Tomblin, Mr. President, Walker,
Prezioso, Plymale, Sharpe, Wooton, Ross, Hunter, McCabe,
Redd, Snyder, Unger, Sprouse, Jackson, Craigo, Bowman,
Schoonover, Dittmar, Edgell, Fanning, Minard, Bailey,
Helmick, Kessler and Ball)
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[Introduced February 1, 1999;
referred to the Committee on Health and Human Resources;
and then to the Committee on Finance.]
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A BILL to amend chapter sixteen of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, by adding
thereto a new article, designated article nine-b, relating
to implementation of the tobacco master settlement
agreement; providing for escrow of funds; and setting civil
penalties.
Be it enacted by the Legislature of West Virginia:
That chapter sixteen of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, be amended by
adding thereto a new article, designated article nine-b, to read
as follows:
ARTICLE 9B. IMPLEMENTING TOBACCO MASTER SETTLEMENT AGREEMENT.
§16-9B-1. Findings and purpose.
(a) Cigarette smoking presents serious public health
concerns to the state and to the citizens of the state. The
surgeon general has determined that smoking causes lung cancer,
heart disease and other serious diseases, and that there are
hundreds of thousands of tobacco-related deaths in the United
States each year. These diseases most often do not appear until
many years after the person in question begins smoking.
(b) Cigarette smoking also presents serious financial
concerns for the state. Under certain health-care programs, the
state may have a legal obligation to provide medical assistance
to eligible persons for health conditions associated with
cigarette smoking, and those persons may have a legal entitlement
to receive such medical assistance.
(c) Under these programs, the state pays millions of dollars
each year to provide medical assistance for these persons for
health conditions associated with cigarette smoking.
(d) It is the policy of the state that financial burdens
imposed on the state by cigarette smoking be borne by tobacco
product manufacturers rather than by the state to the extent that such manufacturers either determine to enter into a settlement
with the state or are found culpable by the courts.
(e) On the twenty-third day of November, one thousand nine
hundred ninety-eight, leading United States tobacco product
manufacturers entered into a settlement agreement, entitled the
"master settlement agreement", with the state. The master
settlement agreement obligates these manufacturers, in return for
a release of past, present and certain future claims against them
as described therein, to pay substantial sums to the state (tied
in part to their volume of sales); to fund a national foundation
devoted to the interests of public health; and to make
substantial changes in their advertising and marketing practices
and corporate culture, with the intention of reducing underage
smoking.
(f) It would be contrary to the policy of the state if
tobacco product manufacturers who determine not to enter into
such a settlement could use a resulting cost advantage to derive
large, short-term profits in the years before liability may arise
without ensuring that the state will have an eventual source of
recovery from them if they are proven to have acted culpably. It
is thus in the interest of the state to require that such manufacturers establish a reserve fund to guarantee a source of
compensation and to prevent such manufacturers from deriving
large, short-term profits and then becoming judgment-proof before
liability may arise.
§16-9B-2. Definitions.
(a) "Adjusted for inflation" means increased in accordance
with the formula for inflation adjustment set forth in Exhibit C
to the master settlement agreement.
(b) "Affiliate" means a person who directly or indirectly
owns or controls, is owned or controlled by, or is under common
ownership or control with, another person. Solely for purposes
of this definition, the terms "owns," "is owned" and "ownership"
mean ownership of an equity interest, or the equivalent thereof,
of ten percent or more, and the term "person" means an
individual, partnership, committee, association, corporation or
any other organization or group of persons.
(c) "Allocable share" means allocable share as that term is
defined in the master settlement agreement.
(d) "Cigarette" means any product that contains nicotine, is
intended to be burned or heated under ordinary conditions of use,
and consists of or contains: (1) Any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (2) tobacco,
in any form, that is functional in the product, which, because of
its appearance, the type of tobacco used in the filler, or its
packaging and labeling, is likely to be offered to, or purchased
by, consumers as a cigarette; or (3) any roll of tobacco wrapped
in any substance containing tobacco which, because of its
appearance, the type of tobacco used in the filler, or its
packaging and labeling, is likely to be offered to, or purchased
by, consumers as a cigarette as that term is described in this
subsection. The term "cigarette" includes "roll-your-own" which
means any tobacco which, because of its appearance, type,
packaging, or labeling is suitable for use and likely to be
offered to, or purchased by, consumers as tobacco for making
cigarettes. For purposes of this definition of cigarette, 0.09
ounces of "roll-your-own" tobacco shall constitute one individual
cigarette.
(e) "Master settlement agreement" means the settlement
agreement (and related documents) entered into on the
twenty-third day of November, one thousand nine hundred
ninety-eight, by the state and leading United States tobacco
product manufacturers.
(f) "Qualified escrow fund" means an escrow arrangement with
a federally- or state- chartered financial institution having no
affiliation with any tobacco product manufacturer and having
assets of at least $1,000,000,000 where such arrangement requires
that such financial institution hold the escrowed funds'
principal for the benefit of releasing parties and prohibits the
tobacco product manufacturer placing the funds into escrow from
using, accessing or directing the use of the funds' principal
except as consistent with paragraphs (B) and (C), subdivision
(2), subsection (b), section three of this article.
(g) "Released claims" means released claims as that term is
defined in the master settlement agreement.
(h) "Releasing parties" means releasing parties as that term
is defined in the master settlement agreement.
(i) "Tobacco product manufacturer" means an entity that
after the date of enactment of this article directly (and not
exclusively through any affiliate):
(1) Manufactures cigarettes anywhere that such manufacturer
intends to be sold in the United States, including cigarettes
intended to be sold in the United States through an importer
(except where such importer is an original participating manufacturer as that term is defined in the master settlement
agreement) that will be responsible for the payments under the
master settlement agreement with respect to such cigarettes as a
result of the provisions of subsections II(mm) of the master
settlement agreement and that pays the taxes specified in
subsection II(z) of the master settlement agreement, and provided
that the manufacturer of such cigarettes does not market or
advertise such cigarettes in the United States;
(2) Is the first purchaser anywhere for resale in the United
States of cigarettes manufactured anywhere that the manufacturer
does not intend to be sold in the United States; or
(3) Becomes a successor of an entity described in
subdivision (1) or (2) of this subsection.
The term "tobacco product manufacturer" shall not include an
affiliate of a tobacco product manufacturer unless such affiliate
itself falls within any of the provisions of this subsection.
(j) "Units sold" means the number of individual cigarettes
sold in the state by the applicable tobacco product manufacturer
(whether directly or through a distributor, retailer or similar
intermediary or intermediaries) during the year in question, as
measured by excise taxes collected by the state on packs or "roll-your-own" tobacco containers bearing the excise tax stamp
of the state. The department of tax and revenue shall promulgate
such rules as are necessary to ascertain the amount of state
excise tax paid on the cigarettes of such tobacco product
manufacturer for each year.
§16-9B-3. Requirements.
Any tobacco product manufacturer selling cigarettes to
consumers within the state (whether directly or through a
distributor, retailer or similar intermediary or intermediaries)
after the date of enactment of this article shall do one of the
following:
(a) Become a participating manufacturer (as that term is
defined in section II(jj) of the master settlement agreement) and
generally perform its financial obligations under the master
settlement agreement; or
(b) (1) Place into a qualified escrow fund by the fifteenth
day of April of the year following the year in question the
following amounts, adjusted for inflation:
(A) For the year one thousand nine hundred ninety-nine:
$.0094241 per unit sold after the date of enactment of this
article;
(B) For the year two thousand: $.0104712 per unit sold
after the date of enactment of this article;
(C) For each of the years two thousand one or two thousand
two: $.0136125 per unit sold after the date of enactment of this
article;
(D) For each of the years two thousand three through two
thousand six: $.0167539 per unit sold after the date of
enactment of this article; and
(E) For the year two thousand seven or each year thereafter:
$.0188482 per unit sold after the date of enactment of this
article.
(2) A tobacco product manufacturer that places funds into
escrow pursuant to this subsection shall receive the interest or
other appreciation on such funds as earned. Such funds
themselves shall be released from escrow only under the following
circumstances:
(A) To pay a judgment or settlement on any released claim
brought against such tobacco product manufacturer by the state or
any releasing party located or residing in the state. Funds
shall be released from escrow under this paragraph: (i) In the
order in which they were placed into escrow; and (ii) only to the extent and at the time necessary to make payments required under
such judgment or settlement;
(B) To the extent that a tobacco product manufacturer
establishes that the amount it was required to place into escrow
in a particular year was greater than the state's allocable share
of the total payments that such manufacturer would have been
required to make in that year under the master settlement
agreement (as determined pursuant to section IX(i)(2) of the
master settlement agreement, and before any of the adjustments or
offsets described in section IX(i)(3) of that agreement other
than the inflation adjustment) had it been a participating
manufacturer, the excess shall be released from escrow and revert
back to such tobacco product manufacturer; or
(C) To the extent not released from escrow under paragraph
(A) or (B), funds shall be released from escrow and revert back
to the tobacco product manufacturer twenty-five years after the
date on which they were placed into escrow.
(3) Each tobacco product manufacturer that elects to place
funds into escrow pursuant to this subsection shall annually
certify to the attorney general that it is in compliance with
this subsection. The attorney general may bring a civil action on behalf of the state against any tobacco product manufacturer
that fails to place into escrow the funds required under this
section. Any tobacco product manufacturer that fails in any year
to place into escrow the funds required under this section shall:
(A) Be required within fifteen days to place such funds into
escrow as shall bring it into compliance with this section. The
court, upon a finding of a violation of this subsection, may
impose a civil penalty, to be paid to the general fund of the
state, in an amount not to exceed five percent of the amount
improperly withheld from escrow per day of the violation and in
a total amount not to exceed one hundred percent of the original
amount improperly withheld from escrow;
(B) In the case of a knowing violation, be required within
fifteen days to place such funds into escrow as shall bring it
into compliance with this section. The court, upon a finding of
a knowing violation of this subsection, may impose a civil
penalty, to be paid to the general fund of the state, in an
amount not to exceed fifteen percent of the amount improperly
withheld from escrow per day of the violation and in a total
amount not to exceed three hundred percent of the original amount
improperly withheld from escrow; and
(C) In the case of a second knowing violation, be prohibited
from selling cigarettes to consumers within the state (whether
directly or through a distributor, retailer or similar
intermediary) for a period not to exceed two years. Each
failure to make an annual deposit required under this section
shall constitute a separate violation.
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(NOTE: The purpose of this bill is to establish a reserve
fund to guarantee a source of compensation from tobacco product
manufacturers who do not enter into the master settlement
agreement between the state and tobacco manufacturers. The bill
provides for civil penalties for violations of the provisions.
This article is new; therefore, strike-throughs and
underscoring have been omitted.
)
HEALTH AND HUMAN RESOURCES COMMITTEE AMENDMENTS
On page ___, section two, line ___, after the word "state"
by striking out the remainder of the paragraph and inserting in
lieu thereof the following: The tax commissioner shall propose
legislative rules for promulgation, in accordance with article
three, chapter twenty-nine of this code, as are necessary to
ascertain the amount of state excise tax paid on the cigarettes
of such tobacco product manufacturer for each year.;
On page ___, section three, line ___, by striking out the
words "after the date of enactment of this article";
On page ___, section three, line ___, by striking out the
word "or" and inserting in lieu thereof the word "and";
On page ___, section three, line ___, by striking out the
words "after the date of enactment of this article";
On page ___, section three, line ___s five and six, by striking out the
words "after the date of enactment of this article";
On page eight___, section three, lines eight and nine___, by striking out the
words "after the date of enactment of this article";
And,
On page nine___, section three, line ten___, after the letter "(B)"
by inserting the words "of this paragraph".