HF 91

as introduced - 88th Legislature (2013 - 2014) Posted on 01/17/2013 01:25pm

A bill for an act
relating to taxation; tobacco; increasing the excise tax; repealing the health
impact fee; appropriating money; amending Minnesota Statutes 2012, sections
270C.56, subdivision 1; 297F.01, subdivisions 3, 19, by adding a subdivision;
297F.05, subdivisions 1, 3, 4, by adding a subdivision; 297F.24, subdivision 1;
297F.25, subdivision 1; 325D.32, subdivision 2; repealing Minnesota Statutes
2012, sections 16A.725; 256.9658.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2012, section 270C.56, subdivision 1, is amended to read:

Subdivision 1.

Liability imposed.

A person who, either singly or jointly with
others, has the control of, supervision of, or responsibility for filing returns or reports,
paying taxes, or collecting or withholding and remitting taxes and who fails to do so, or a
person who is liable under any other law, is liable for the payment of taxes arising under
chapters 295, 296A, 297A, 297F, and 297G, or sections deleted text begin 256.9658, deleted text end 290.92, and 297E.02,
and the applicable penalties and interest on those taxes.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 2.

Minnesota Statutes 2012, section 297F.01, subdivision 3, is amended to read:

Subd. 3.

Cigarette.

"Cigarette" means any roll for smoking made wholly or in part
of tobacco deleted text begin , deleted text end new text begin that weighs 4.5 pounds or less per thousand:
new text end

new text begin (1) new text end the wrapper or cover of which is made of paper or another substance or material
except tobacco new text begin ; or
new text end

new text begin (2) wrapped in any substance containing tobacco, however labeled or named, which,
because of its appearance, size, the type of tobacco used in the filler, or its packaging,
pricing, marketing, or labeling, is likely to be offered to or purchased by consumers as
a cigarette, as defined in clause (1), unless it is wrapped in whole tobacco leaf and does
not have a cellulose acetate or other cigarette-like filter new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 3.

Minnesota Statutes 2012, section 297F.01, is amended by adding a subdivision
to read:

new text begin Subd. 10b. new text end

new text begin Moist Snuff. new text end

new text begin "Moist snuff" means any finely cut, ground, or powdered
smokeless tobacco that is intended to be placed or dipped in the mouth.
new text end

Sec. 4.

Minnesota Statutes 2012, section 297F.01, subdivision 19, is amended to read:

Subd. 19.

Tobacco products.

"Tobacco products" means any product containing,
made, or derived from tobacco that is intended for human consumption, whether chewed,
smoked, absorbed, dissolved, inhaled, snorted, sniffed, or ingested by any other means,
or any component, part, or accessory of a tobacco product, including, but not limited
to, cigars; deleted text begin little cigars; deleted text end cheroots; stogies; periques; granulated, plug cut, crimp cut,
ready rubbed, and other smoking tobacco; snuff; snuff flour; cavendish; plug and twist
tobacco; fine-cut and other chewing tobacco; shorts; refuse scraps, clippings, cuttings
and sweepings of tobacco, and other kinds and forms of tobacco; but does not include
cigarettes as defined in this section. Tobacco products excludes any tobacco product
that has been approved by the United States Food and Drug Administration for sale as
a tobacco cessation product, as a tobacco dependence product, or for other medical
purposes, and is being marketed and sold solely for such an approved purpose.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 5.

Minnesota Statutes 2012, section 297F.05, subdivision 1, is amended to read:

Subdivision 1.

Rates; cigarettes.

A tax is imposed upon the sale of cigarettes in
this state, upon having cigarettes in possession in this state with intent to sell, upon any
person engaged in business as a distributor, and upon the use or storage by consumers, at
the following rates:

(1) on cigarettes weighing not more than three pounds per thousand, deleted text begin 24 deleted text end new text begin 141.5 new text end mills
on each such cigarette; and

(2) on cigarettes weighing more than three pounds per thousand, deleted text begin 48 deleted text end new text begin 283 new text end mills on
each such cigarette.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 6.

Minnesota Statutes 2012, section 297F.05, is amended by adding a subdivision
to read:

new text begin Subd. 1a. new text end

new text begin Annual indexing. new text end

new text begin Each year the commissioner shall adjust the dollar
amounts under subdivision 1 by the annual percentage change that the commissioner
determines applies to the tax rate under the adjustment procedure in section 297F.25,
subdivision 1, for the following calendar year. The commissioner shall publish the
resulting rate by November 1 and the rate applies to sales made on or after January 1 of
the following year.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2014.
new text end

Sec. 7.

Minnesota Statutes 2012, section 297F.05, subdivision 3, is amended to read:

Subd. 3.

Rates; tobacco products.

new text begin (a) new text end A tax is imposed upon all tobacco products
in this state and upon any person engaged in business as a distributor, at the rate of deleted text begin 35
deleted text end new text begin 95 new text end percent of the wholesale sales price of the tobacco products. The tax is imposed at
the time the distributor:

(1) brings, or causes to be brought, into this state from outside the state tobacco
products for sale;

(2) makes, manufactures, or fabricates tobacco products in this state for sale in
this state; or

(3) ships or transports tobacco products to retailers in this state, to be sold by those
retailers.

new text begin (b) Notwithstanding paragraph (a), a minimum tax equal to the rate imposed on a
pack of 20 cigarettes weighing not more than three pounds per thousand, as established
under section 297F.05, subdivision 1, is imposed on:
new text end

new text begin (1) each ounce of loose, granulated, plug cut, crimp cut, or other tobacco intended
for smoking; and
new text end

new text begin (2) each container of moist snuff.
new text end

new text begin For purposes of this subdivision, a "container" means a container marketed or packaged
by the manufacturer, distributor, or retailer for separate sale to a retail purchaser.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013, except the minimum
tax under paragraph (b) is effective January 1, 2014.
new text end

Sec. 8.

Minnesota Statutes 2012, section 297F.05, subdivision 4, is amended to read:

Subd. 4.

Use tax; tobacco products.

A tax is imposed upon the use or storage by
consumers of tobacco products in this state, and upon such consumers, at the rate of deleted text begin 35 deleted text end new text begin 95
new text end percent of the cost to the consumer of the tobacco products new text begin or the minimum tax under
subdivision 3, paragraph (b), whichever is greater new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 9.

Minnesota Statutes 2012, section 297F.24, subdivision 1, is amended to read:

Subdivision 1.

Fee imposed.

(a) A fee is imposed upon the sale of nonsettlement
cigarettes in this state, upon having nonsettlement cigarettes in possession in this state
with intent to sell, upon any person engaged in business as a distributor, and upon the use
or storage by consumers of nonsettlement cigarettes. The fee equals a rate of deleted text begin 1.75 deleted text end new text begin 2.5
new text end cents per cigarette.

(b) The purpose of this fee is to:

(1) ensure that manufacturers of nonsettlement cigarettes pay fees to the state that
are comparable to costs attributable to the use of the cigarettes;

(2) prevent manufacturers of nonsettlement cigarettes from undermining the state's
policy of discouraging underage smoking by offering nonsettlement cigarettes at prices
substantially below the cigarettes of other manufacturers; and

(3) fund such other purposes as the legislature determines appropriate.

Sec. 10.

Minnesota Statutes 2012, section 297F.25, subdivision 1, is amended to read:

Subdivision 1.

Imposition.

(a) A tax is imposed on distributors on the sale of
cigarettes by a cigarette distributor to a retailer or cigarette subjobber for resale in this
state. The tax is equal to deleted text begin 6.5 percent of deleted text end new text begin the combined tax rate under section 297A.62,
multiplied by new text end the weighted average retail price and must be expressed in cents per pack
rounded to the nearest one-tenth of a cent. The weighted average retail price must be
determined annually, with new rates published by November 1, and effective for sales
on or after January 1 of the following year. The weighted average retail price must be
established by surveying cigarette retailers statewide in a manner and time determined by
the commissioner. The commissioner shall make an inflation adjustment in accordance
with the Consumer Price Index for all urban consumers inflation indicator as published in
the most recent state budget forecast. The commissioner shall use the inflation factor for
the calendar year in which the new tax rate takes effect. If the survey indicates that the
average retail price of cigarettes has not increased relative to the average retail price in
the previous year's survey, then the commissioner shall not make an inflation adjustment.
The determination of the commissioner pursuant to this subdivision is not a "rule" and is
not subject to the Administrative Procedure Act contained in chapter 14. For packs of
cigarettes with other than 20 cigarettes, the tax must be adjusted proportionally.

(b) Notwithstanding paragraph (a), and in lieu of a survey of cigarette retailers, the
tax calculation of the weighted average retail price for the sales of cigarettes from August
1, 2011, through December 31, 2011, shall be calculated by: (1) increasing the average
retail price per pack of 20 cigarettes from the most recent survey by the percentage change
in a weighted average of the presumed legal prices for cigarettes during the year after
completion of that survey, as reported and published by the Department of Commerce
under section 325D.371; (2) subtracting the sales tax included in the retail price; and (3)
adjusting for expected inflation. The rate must be published by May 1 and is effective for
sales after July 31. If the weighted average of the presumed legal prices indicates that the
average retail price of cigarettes has not increased relative to the average retail price in the
most recent survey, then no inflation adjustment must be made. For packs of cigarettes
with other than 20 cigarettes, the tax must be adjusted proportionally.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 11.

Minnesota Statutes 2012, section 325D.32, subdivision 2, is amended to read:

Subd. 2.

Cigarettes.

"Cigarettes" means and includes any roll for smoking, made
wholly or in part of tobacco, irrespective of size and shape and whether or not such
tobacco is flavored, adulterated or mixed with any other ingredient, the wrapper or cover
of which is made of paper or any other substance or material except new text begin whole new text end tobacco new text begin leaf,
and includes any cigarette as defined in section 297F.01, subdivision 3 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 12. new text begin FLOOR STOCKS TAX.
new text end

new text begin Subdivision 1. new text end

new text begin Cigarettes. new text end

new text begin (a) A floor stocks tax is imposed on every person
engaged in the business in this state as a distributor, retailer, subjobber, vendor,
manufacturer, or manufacturer's representative of cigarettes, on the stamped cigarettes and
unaffixed stamps in the person's possession or under the person's control at 12:01 a.m. on
July 1, 2013. The tax is imposed at the rate of 80 mills on each cigarette.
new text end

new text begin (b) Each distributor, on or before July 11, 2013, shall file a return with the
commissioner of revenue, in the form the commissioner prescribes, showing the stamped
cigarettes and unaffixed stamps on hand at 12:01 a.m. on July 1, 2013, and the amount
of tax due on the cigarettes and unaffixed stamps. Each retailer, subjobber, vendor,
manufacturer, or manufacturer's representative, on or before July 11, 2013, shall file
a return with the commissioner, in the form the commissioner prescribes, showing the
cigarettes on hand at 12:01 a.m. on July 1, 2013, and the amount of tax due on the
cigarettes. The tax imposed by this section is due and payable on or before August 8,
2013, and after that date bears interest at the rate of one percent per month.
new text end

new text begin Subd. 2. new text end

new text begin Audit and enforcement. new text end

new text begin The tax imposed by this section is subject to
the audit, assessment, interest, appeal, refund, penalty, enforcement, administrative, and
collection provisions of Minnesota Statutes, chapters 270C and 297F. The commissioner
of revenue may require a distributor to receive and maintain copies of floor stocks fee
returns filed by all persons requesting a credit for returned cigarettes.
new text end

new text begin Subd. 3. new text end

new text begin Deposit of proceeds. new text end

new text begin The commissioner of revenue shall deposit the
revenues from the tax under this section in the state treasury and credit them to the
general fund.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 13. new text begin INTERIM SALES TAX RATE.
new text end

new text begin Notwithstanding the provisions of Minnesota Statutes, section 297F.25, the
commissioner shall adjust the weighted average retail price in section 297F.25, subdivision
1, on July 1, 2013, to reflect the price changes under this act. This weighted average
shall be used to compute cigarette sales tax under Minnesota Statutes, section 297F.25,
subdivision 1, until December 31, 2013, when the commissioner shall resume annual
adjustments to the weighted average sales price. The commissioner's determination of
the adjustment that takes effect on January 1, 2014, must be limited to the change in the
weighted average retail that occurs during calendar year 2013 but after July 15, 2013.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 14. new text begin TOBACCO TAX COLLECTION REPORT.
new text end

new text begin Subdivision 1. new text end

new text begin Report to legislature. new text end

new text begin (a) The commissioner of revenue shall report
to the 2014 legislature on the tobacco tax collection system, including recommendations
to improve compliance under the excise tax for both cigarettes and other tobacco products.
The purpose of the report is to provide information and guidance to the legislature on
improvements to the tobacco tax collection system to:
new text end

new text begin (1) provide a unified system of collecting both the cigarette and other tobacco
taxes, regardless of category, size, or shape, that ensures the highest reasonable rates of
tax collection;
new text end

new text begin (2) discourage tax evasion; and
new text end

new text begin (3) help to prevent illegal sale of tobacco products, which may make these products
more accessible to youth.
new text end

new text begin (b) In the report, the commissioner shall:
new text end

new text begin (1) provide a detailed review of the present excise tax collection and compliance
system as it applies to both cigarettes and other tobacco products. This must include
an assessment of the levels of compliance for each category of products and the effect
of the stamping requirement on compliance for each category of products and the effect
of the stamping requirement on compliance rates for cigarettes relative to other tobacco
products. It also must identify any weaknesses in the system;
new text end

new text begin (2) survey the methods of collection and enforcement used by other states or nations,
including identifying and discussing emerging best practices that ensure tracking of both
cigarettes and other tobacco products and result in the highest rates of tax collection and
compliance. These best practices must consider high-technology alternatives, such as use
of bar codes, radio-frequency identification tags, or similar mechanisms for tracking
compliance;
new text end

new text begin (3) evaluate the adequacy and effectiveness of the existing penalties and other
sanctions for noncompliance;
new text end

new text begin (4) evaluate the adequacy of the resources allocated by the state to enforce the
tobacco tax and prevention laws; and
new text end

new text begin (5) make recommendations on implementation of a comprehensive tobacco tax
collection system for Minnesota that can be implemented by January 1, 2014, including:
new text end

new text begin (i) recommendations on the specific steps needed to institute and implement the new
system, including estimates of the state's costs of doing so and any additional personnel
requirements;
new text end

new text begin (ii) recommendations on methods to recover the cost of implementing the system
from the industry;
new text end

new text begin (iii) evaluation of the extent to which the proposed system is sufficiently flexible
and adaptable to adjust to modifications in the construction, packaging, formatting, and
marketing of tobacco products by the industry; and
new text end

new text begin (iv) recommendations to modify existing penalties or to impose new penalties or
other sanctions to ensure compliance with the system.
new text end

new text begin Subd. 2. new text end

new text begin Due date. new text end

new text begin The report required by subdivision 1 is due January 1, 2014.
new text end

new text begin Subd. 3. new text end

new text begin Procedure. new text end

new text begin The report required under this section must be made in the
manner provided under Minnesota Statutes, section 3.195. In addition, copies must be
provided to the chairs and ranking minority members of the legislative committees and
divisions with jurisdiction over taxation.
new text end

new text begin Subd. 4. new text end

new text begin Appropriation. new text end

new text begin (a) $100,000 is appropriated from the general fund to the
commissioner of revenue for fiscal year 2014 for the cost of preparing the report under
subdivision 1.
new text end

new text begin (b) The appropriation under this subdivision is a onetime appropriation and is not
included in the base budget.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 15. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2012, sections 16A.725; and 256.9658, new text end new text begin are repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end