RULES AND REGULATIONS
Title 61--REVENUE
DEPARTMENT OF REVENUE
[61 PA. CODE CHS. 71--73, 75--77, 79, 83 AND 85]
Cigarette Tax
[28 Pa.B. 979] The Department of Revenue (Department), under the authority in section 6 of The Fiscal Code (FC) (72 P. S. § 6); section 1291 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 8291); and sections 209-A, 214-A, 215-A and 227-A of the act of April 9, 1929 (P. L. 343, No. 176) (72 P. S. §§ 209-A, 214-A, 215-A and 227-A), by this order adopts amendments to Part I, Subpart B, Article III (relating to cigarette and beverage taxes) to read as set forth in Annex A.
Purpose of Amendments
As a result of the act of July 2, 1993 (P. L. 250, No. 46) (act) known as The Cigarette Sales and Licensing Act (code), which amended the FC by adding Article II-A (relating to cigarette sales and licensing) and repealing various provisions of Article XII (relating to cigarette tax) of the TRC, the Department is deleting the existing text of Article III (relating to cigarette and beverage taxes) and replacing it with regulations that are consistent with the act. The Department is also deleting provisions that were not helpful or that simply reiterated statutory provisions such as The Administrative Code of 1929.
Explanation of Regulatory Requirements
Chapter 71. General Provisions Section 71.4 (relating to definitions) defines terms used in Article III. Section 71.5 (relating to cigarette tax stamps) provides for the method of purchase of, payment for and affixation of cigarette tax stamps. Section 71.6 (relating to refunds or credits for cigarette tax stamps) describes the refund or credit process for affixed and unaffixed tax stamps. Section 71.7 (relating to exemptions from tax) describes when a cigarette stamping agent may sell cigarettes to purchasers who qualify for tax exempt status.
Section 71.8 (relating to sample cigarettes) specifies when a sample package of cigarettes may be unstamped and when it must have tax stamps affixed. Section 71.9 (relating to cigarette stamping agent report requirements) describes the report due date and penalties. Section 71.10 (relating to cigarette dealer record requirements) describes the types of records that cigarette dealers are required to keep, the retention period of the records and the fine provisions for violation of the record requirements.
Section 71.11 (relating to examination of records, equipment and premises) provides that all dealers provide the Department the means, facilities and opportunity to examine books, records, cigarette inventory, premises and equipment to determine compliance with the FC and code. Section 71.11 also sets forth the fine provisions for any person who prevents or hinders the Department in its examinations.
Chapter 72. Cigarette Dealer Licenses Section 72.1 (relating to licensing of dealers) describes the licensing requirements of cigarette stamping agents, wholesalers and retailers. Section 72.2 (relating to posting of license) explains that all dealers shall conspicuously display their licenses at the locations for which issued; this section also sets forth the fine provisions for violations thereof. Section 72.3 (relating to assignment of license) states that a dealer's license is not assignable and that any attempt to do so will result in the cancellation of the license. Section 72.4 (relating to timing of application for renewal of existing license) describes the deadlines for the renewal process.
When the Department denies a license application or request for renewal, § 72.5(a) (relating to denials, revocations and suspensions) describes where the notice will be mailed, what the notice will contain, the hearing process and the continued operation of the dealer after receiving the notice. Section 72.5(b) explains the process relating to the revocation or suspension of a license. Section 72.6 (relating to change in status of cigarette dealer's business) describes certain specific circumstances which require Department notification. Section 72.7 (relating to cigarette vending machines) details requirements for dealers who operate cigarette vending machines. Section 72.7 also describes the circumstances under which dealers may relocate vending machines and obtain extra vending machine decals.
Chapter 73. Imposition, Method of Payment
and Refunds of TaxThe Department is deleting Subchapters A--C, and the heading for Subchapter D. However, the text of the Subchapter D is being retained.
Chapter 76. Unfair Sales of Cigarettes Section 76.1 (relating to dealer's cost of doing business) describes the cost of doing business for a cigarette stamping agent, wholesaler and retailer. The section also provides for an application to lower a dealer's cost of doing business and what the application shall contain. The Department's review and determination regarding the dealer's application is explained along with an example which shows how the determination is made. Section 76.2 (relating to combination sales and inducements) places certain restrictions on the contemporaneous sale of cigarette and noncigarette items.
Section 76.3 (relating to promotional sales plans) provides that only cigarette manufacturers may sponsor or initiate a promotional sales plan that lowers the price of cigarettes below the cost of the dealer. The section also details promotional sales plans that involve the affixation of coupons to cigarettes and retailer redemption of manufacturer-issued coupons. Finally, the section provides that a dealer may sponsor or initiate a promotional sales plan if the plan does not result in the sale of cigarettes at a price below the cost of that dealer.
To bring Article III into conformity with current statutory provisions, this rulemaking deletes the following chapters: Chapter 71; Chapter 75; Chapter 77; Chapter 79 and Chapter 83. With the adoption of comprehensive cigarette tax regulations, § 85.1 (relating to definitions) is deemed unnecessary and is therefore deleted.
Affected Parties
There are approximately 20,000 cigarette stamping agent, wholesale and retail licensees who will be affected by this rulemaking.
Comment and Response Summary
Notice of proposed rulemaking was published at 27 Pa.B. 3790 (August 2, 1997). This rulemaking is being adopted with changes to the proposed rulemaking to read as set forth in Annex A.
The Department received comments from the public and the Independent Regulatory Review Commission (IRRC). No comments were received from the House Finance Committee or the Senate Finance Committee.
Public comments indicated approval of the rulemaking as proposed and requested that the rulemaking be adopted at the earliest opportunity to enable enforcement of the code.
The amendments to the proposed rulemaking in response to comments from IRRC are as follows:
(1) In §§ 71.9(a)(2), 72.7(b) and 76.1(d)(2)(iii), the Department proposed language that would require the submission of other information as the Department may require. IRRC made the comment that if the Department is aware that additional information could be required, the specifics regarding the information should be set forth in this rulemaking and the general language removed. The Department agreed to the removal of the general language and has amended the sections accordingly. In addition, proposed § 71.9(a)(1) is amended to delete the listing of information in subparagraphs (i) and (ii) because the information listed is addressed in the cigarette tax report which the cigarette stamping agent is required to file with the Department.
IRRC also suggested that the language in § 71.9(b) contained a vague requirement for reporting because it is based upon an undefined volume of business or number of vending machines. The subsection also requires a report to contain information that was not specified in the regulation. The Department agreed that the reporting requirement was vague and unnecessary; therefore, the subsection was deleted.
(2) IRRC suggested that Chapter 72, did not clearly establish the categories or the requirements associated with the various licenses for dealers, stamping agents, wholesalers and retailers and that provisions should be added to Chapter 72 to establish and set forth the requirements for the different licenses. The Department has incorporated this suggestion by adding specific provisions regarding the different licenses to § 72.1.
(3) In § 76.1(e)(4), IRRC expressed a concern with the clarity of the provision and questioned how it will be implemented. In addition, IRRC suggested the Department define who would be considered a ''similarly-licensed dealer''; how a lower cost of doing business would be applied to similarly-licensed dealers and how the other dealers will be notified of the new lower cost of doing business. In response to IRRC's concerns, the Department has deleted the term ''similarly-licensed'' and has added a phrase so that the paragraph reads in part, '' . . . will apply to all dealers throughout this Commonwealth holding the same licenses as referenced in § 72.1 (relating to licensing of dealers).''
With regard to the notification of the new lower cost of doing business, section 227-A(a) of the FC specifically provides that, ''Authorization to sell below the presumptive minimum prices shall be in writing published in the Pennsylvania Bulletin and otherwise in conformance with the requirements of this article and shall contain a statement that the authorization is effective forty-five days after the issuance of the writing and is valid for twelve months therefrom.''
(4) Section 71.5(b)(3) allowed cigarette stamping agents to pay for cigarette tax stamps by using cigarette tax credits issued by the Department. IRRC suggested that the Department explain what these tax credits are, how the mechanism works procedurally and if the credits are limited to those referenced in § 71.6, then § 71.6 should be referenced in § 71.5(b)(3). The tax credits are limited to cigarette tax credits and § 71.5(b)(3) has been amended to reference § 71.6. Information regarding how the mechanism works procedurally relates to internal Departmental procedure and can be ascertained by contacting the Miscellaneous Tax Division of the Bureau of Business Trust Fund Taxes.
(5) Clarity recommendations from IRRC are as follows:
* The proposed rulemaking made no reference to the deletion of the current title of Chapter 71 ''General Provisions,'' it simply stated the title in the Department's proposal ''Cigarette Tax.'' After consideration, the Department notes that the original title is more applicable, therefore, the proposed title has been deleted and the original title ''General Provisions'' has been added.
* The definition of ''code'' in § 71.4 in the proposed rulemaking incorrectly referenced only three sections of Article II-A. The Department has corrected the typographical error in the final-form regulations.
* IRRC identified several definitions that were used throughout the proposed rulemaking but were not defined in § 71.4, including ''cigarette,'' ''cigarette vending machine,'' ''Department,'' ''retailer,'' ''sale'' and ''wholesaler.'' The Department's rationale for not including the terms in the proposal was that the terms are adequately defined in the FC and a regulation should not simply reiterate the statute. However, to provide guidance to taxpayers, the definitions have been added to § 71.4, with the exception of the term ''Department,'' which is currently defined in § 1.1 (relating to definitions).
In addition, the term ''stamping agent'' in § 71.4 has been changed to ''cigarette stamping agent'' to more closely track the statute. The change has been made when the term appears throughout this rulemaking.
* The Department incorporated IRRC's suggestion to delete the phrase '' . . . or destroying same.'' in § 71.5(c)(3) and replaced it with the phrase, ''or by destroying the improperly stamped cigarettes.''
* Section 71.7 provided an application process for exemptions from tax; however, the section did not set forth a time period in which the Department will respond to the applicant. In accordance with IRRC's suggestion that a time frame be added, the Department has amended the section to provide that the Department will evaluate the request for an exemption certificate within 90 days of receipt.
* In § 72.7(a), IRRC stated that the regulation provided that, ''In addition to requirements stated under the code . . . ;'' however, the text is directly from the code and there is no addition to the code. IRRC suggested deleting the introductory phrase and replacing it the requirements for the name and address of the owner and the operator as required by 72 P. S. § 231-A. The Department agreed with IRRC's suggestion and has amended the section accordingly.
* IRRC indicated that § 76.2(2) references § 71.6; however, the correct reference is § 71.8. The typographical error has been corrected in the final-form regulations.
Revisions the Department has made as a result of its internal review of the proposed rulemaking:
(1) Section 71.6(a) has been amended to clarify that a credit will not be granted for cigarette tax paid upon stamped cigarettes that have been stolen.
(2) A revision to the section and subsection titles for § 71.9 was made to more appropriately reflect the content of the section and subsection.
(3) Section 72.1(a)(1)(iii)(A) and (b)(1)(ii)(B) has been amended to clarify that the applicant shall provide the Department with current financial statements that are prepared in accordance with generally accepted accounting principles.
(4) Section 76.1(e)(2) has been amended to clarify that the Department's approval of a dealer's application to sell at less than the presumptive cost of doing business is valid for 12 months from the effective date of the approval or until the effective date of the approval of a subsequent dealer's application, whichever occurs first.
Comments that did not result in amendments to the proposed rulemaking are as follows:
(1) IRRC indicated that the definition of ''cost of the stamping agent'' in § 71.4 varied significantly from the statutory definition and suggested that the Department expand the definition to include more detail from the statutory definition. The Department did not believe a change to the definition was necessary because the inclusion of the entire definition from the statute would create confusion and would be redundant. The statutory definition contains information that is addressed in other areas of the regulations and therefore does not need to be reiterated in this definition.
(2) The definition of ''cost of doing business'' in § 71.4 used wording that is not used in the act and IRRC recommended that the wording be reviewed for consistency with the act. The Department has reviewed its wording and believes that it is consistent with the statute and provides the public with a clearer definition.
(3) IRRC suggested that the Department amend § 71.6(b)(1) to specifically state the time period referenced in 72 P. S. § 8253 instead of simply referencing the statutory citation. The Department believes referring to the statutory citation is appropriate in this situation because if the statutory provision is amended, which it was since the drafting of this proposal, the regulatory language would be inaccurate and misleading to the public.
Fiscal Impact
The Department has determined that the amendments will have no fiscal impact on the Commonwealth.
Paperwork
The amendments will not generate additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The amendments will become effective upon final publication in the Pennsylvania Bulletin. The amendments are scheduled for review within 5 years of final publication. No sunset date has been assigned.
Contact Person
The contact person for an explanation of the final-form regulations is Anita M. Doucette, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on July 23, 1997, the Department submitted a copy of the notice of proposed rulemaking, published at 27 Pa.B. 3790, to IRRC and the Chairpersons of the House Committee on Finance and the Senate Committee on Finance for review and comment. In compliance with section 5(b.1) of the Regulatory Review Act, the Department also provided IRRC and the Committees with copies of comments received, as well as other documentation.
In preparing these final-form regulations, the Department has considered the comments received from IRRC, the Committees and the public.
These final-form regulations were deemed approved by the Senate and House Committees on December 22, 1997. IRRC met on January 13, 1998, and approved the final-form regulations in accordance with section 5(c) of the Regulatory Review Act.
Findings
The Department finds that:
(1) Public notice of intention to adopt the regulations has been given under to sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The final-form regulations are necessary and appropriate for the administration and enforcement of the authorizing statute.
Order
The Department, acting under the authorizing statute, orders that:
(a) The regulations of the Department, 61 Pa. Code Chapters 71--73, 75--77, 79, 83 and 85, are amended by adding §§ 71.4--71.11, 72.1--72.7 and 76.1--76.3 and by deleting §§ 71.1, 71.3, 73.1--73.8, 73.21--73.28, 73.30, 73.31, 73.41--73.44, 75.1--75.10, 75.21--75.26, 74.31--75.35, 75.41, 75.61, 75.62, 77.1--77.3, 77.11, 79.1, 79.2, 79.11, 83.1, 83.2, 83.11--83.17, 83.31--83.33, 83.41, 83.42, 83.51--83.55, 83.71, 83.72, 83.81, 83.91, 83.92, 83.101--83.114, 83.121--83.124, 83.131, 83.141, 83.151, 83.161--83.163 and 85.1 to read as set forth in Annex A.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary of the Department shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
ROBERT A. JUDGE, Sr.,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 28 Pa.B. 588 (January 31, 1998).)
Fiscal Note: Fiscal Note 15-349 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart B. GENERAL FUND REVENUES
ARTICLE III. CIGARETTE AND BEVERAGE TAXES
CHAPTER 71. GENERAL PROVISIONS § 71.1. (Reserved).
§ 71.3. (Reserved).
§ 71.4. Definitions.
The following words and terms, when used in this article, have the following meanings, unless the context clearly indicates otherwise:
Act--The Cigarette Tax Act, Article XII of the TRC (72 P. S. §§ 8201--8297).
Basic cost of cigarettes--The gross price of cigarettes from the manufacturer to a dealer in the quantities stated including freight and handling charges and the full face value of any tax which may be required by law.
Cigarette stamping agent--A person who is licensed as such by the Department for the purpose of affixing cigarette tax stamps to packages of cigarettes and transmitting the proper tax to the Commonwealth.
Cigarettes--Any roll for smoking made wholly or in part of tobacco, irrespective of size or shape, and whether or not the 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, excepting tobacco. The term does not include cigars.
Cigarette vending machine--A mechanical or electrical device from which cigarettes are dispensed for a consideration.
Code--The Cigarette Sales and Licensing Act, Article II-A of the FC (72 P. S. §§ 201-A--230-A).
Cost of doing business--The dealer's aggregate costs for its previous 12-month reporting period, as determined by accounting principles regularly employed in the determination of costs for the purpose of Federal income tax reporting, including direct and indirect costs, such as product costs, freight charges, labor costs, costs of equipment, rental and maintenance expenses, cigarette licenses, preopening expenses, management fees, rents, depreciation, selling costs, maintenance expenses, interest expenses, delivery costs, all types of license fees, all types of taxes, insurance, advertising costs and any central and regional administrative expenses.
Cost of the retailer--The basic cost of cigarettes to a retailer, which includes the cost of the wholesaler and cigarette stamping agent, plus a markup to cover the retailer's cost of doing business, which cost of doing business, in the absence of satisfactory proof of a lesser cost, is presumed to be 6% of the basic cost of cigarettes to the retailer.
Cost of the stamping agent--The basic cost of cigarettes to a cigarette stamping agent.
Cost of the wholesaler--The basic cost of cigarettes to a wholesaler, which includes the cost of the stamping agent, plus a markup to cover the wholesaler's cost of doing business, which cost of doing business, in the absence of satisfactory proof of a lesser cost, is presumed to be 4% of the basic cost of cigarettes to the wholesaler.
Dealer--A Pennsylvania-licensed cigarette stamping agent, wholesaler or retailer.
Operating expenses--A dealer's cost of doing business decreased by the dealer's cost of goods sold.
Promotional sales plan--The placement upon the premises of a dealer of literature, premiums, displays, goods, wares, merchandise or other material designed to stimulate, encourage or induce the purchase of cigarettes by the consumer, or a marketing plan that involves a price reduction or gift offered in conjunction with the sale of cigarettes that causes a dealer to be in violation of the code or act.
Retailer--
(i) A person who, in the usual course of business, purchases or receives cigarettes from any source whatsoever for the purpose of sale to the ultimate consumer.
(ii) A person who, in the usual course of business, owns, leases or otherwise operates one or more vending machines for the purpose of sale of cigarettes to the ultimate consumer.
(iii) A person who buys, sells, transfers or deals in cigarettes for profit and is not licensed as a cigarette stamping agent or wholesaler.
Sale--A transfer for a consideration, in exchange, as barter, as a gift, as an offer for sale or in distribution, in any manner or by any means whatsoever.
Wholesaler--
(i) A person who, in the usual course of business, purchases cigarettes from a cigarette stamping agent or other wholesaler and receives, stores, sells and distributes within this Commonwealth at least 75% of all the cigarettes purchased by him to retail dealers or wholesale dealers or any combination who shall buy the cigarettes from him for the purpose of resale to the ultimate consumer, if the person maintains an established place of business for the receiving, storage and distribution of cigarettes.
(ii) A person who is engaged in the business of distributing cigarettes through vending machines to the ultimate consumer by means of placing the cigarette vending machines, owned or leased by him, in various outlets within this Commonwealth and who pays to the owner or lessee of the premises a commission or rental for the use of the premises, if the vending machine operator operates at least ten vending machines. In addition, the vending machine operator shall meet the other requirements for licensing of wholesalers under this article, including maintaining an established place of business for the receiving, storage and distribution of cigarettes.
(iii) A person, including a franchisee, who owns and operates at least five retail outlets in this Commonwealth, having 100% common ownership, who purchases cigarettes from a cigarette stamping agency or another wholesaler for resale to the ultimate consumer. In addition, the person shall maintain complete and accurate records of all purchases and sales in his main office and also in the retail outlet.
§ 71.5. Cigarette tax stamps.
(a) Method of purchase. A cigarette stamping agent shall purchase cigarette tax stamps by presenting to the Department or one of its authorized agents, Form Rev-1043, Cigarette Stamping Agency Purchase Order, listing the cigarette stamping agent's name, license number, address, telephone number and the amount of tax stamps desired for purchase.
(b) Method of payment. Cigarette stamping agents may pay for cigarette tax stamps in exchange for any combination of the following:
(1) Cash.
(2) Approved credit up to the face amount of the security filed with and approved by the Department as required by section 1215 of the act (72 P. S. § 8215).
(i) Payment for tax stamps purchased on credit is due by the 15th of the month following the month in which the cigarette stamping agent purchased the tax stamps.
(ii) If a licensed cigarette stamping agent who purchases cigarette tax stamps on credit fails to remit full payment for accumulated cigarette tax stamps purchased on credit by the due date, the credit privileges may be suspended or revoked by the Department.
(3) Cigarette tax credits issued by the Department under § 71.6 (relating to refunds or credits for cigarette tax stamps), which shall be presented to the Department at the time the purchase order for cigarette tax stamps is placed.
(c) Affixation of tax stamps.
(1) Tax stamps shall be affixed to each individual pack of cigarettes in an aggregate denomination equal to the amount of tax imposed upon the number of cigarettes contained therein.
(2) Tax stamps shall be affixed to the bottom of each pack of cigarettes so that they are clearly visible to subsequent purchasers. Stamps shall be canceled in ink with the licensed cigarette stamping agent's identification number.
(3) Improperly stamped cigarettes shall be treated as unstamped cigarettes and shall be subject to confiscation and forfeiture under the act. The Department will dispose of cigarettes forfeited under the act by either selling the cigarettes to a licensed cigarette stamping agent or a cigarette manufacturer, or by destroying the improperly stamped cigarettes.
§ 71.6. Refunds or credits for cigarette tax stamps.
(a) Affixed tax stamps. A refund or credit for cigarette tax stamps purchased by a cigarette stamping agent which have been affixed to packages of cigarettes will be made to the agent upon satisfactory proof presented to the Department that the tax-stamped cigarettes have been withdrawn from the market because they are unsaleable, sold to persons exempt from the tax under the act, or lost or destroyed by fire, casualty or Act of God. A refund or credit will not be granted for cigarette tax paid upon stamped cigarettes that have been stolen.
(1) A cigarette stamping agent's refund or credit shall be based upon the face value of the stamps, less commissions allowed the cigarette stamping agent under the act.
(2) If the cigarettes are returned to the manufacturer, the cigarette stamping agent shall give to the Department a sworn statement by the manufacturer certifying receipt of the returned cigarettes.
(b) Unaffixed tax stamps. The Department may issue a refund or a credit to present or former cigarette stamping agents for previously-purchased, unaffixed tax stamps when the Department deems a refund or credit appropriate such as when a cigarette stamping agent is no longer qualified to affix tax stamps, when a cigarette stamping agent is in liquidation, when a cigarette stamping agent possesses damaged tax stamps that are unfit for use or when a cigarette stamping agent possesses stamps that have been superseded by stamps of a newer design or denomination.
(1) The Department will issue a refund or credit for unaffixed tax stamps for the actual amount of cigarette tax paid for the stamps if satisfactory proof is presented to the Department within the time permitted under section 1253 of the act (72 P. S. § 8253). A claim for a refund or credit may not be filed when cigarette tax stamps have not been paid for in full. The Department will determine whether the cigarette stamping agent is entitled to either a refund or credit and the method of payment.
(2) Unaffixed stamps shall accompany the claim, which shall be sent to the Department by registered mail or other method approved by the Department.
§ 71.7. Exemptions from tax.
A cigarette stamping agent may sell cigarettes to purchasers who qualify for tax exempt status as enumerated in section 1209 of the act (72 P. S. § 8209) if the Department approves the purchaser's request for an exemption certificate. The Department will evaluate the request for an exemption certificate within 90 days of receipt. To obtain an exemption certificate, a purchaser shall file an application that shall state the purchaser's basis for exemption. Upon receipt and approval of the application by the Department, the Department will issue an exemption certificate to the purchaser. An exemption certificate shall be valid until surrendered by the purchaser or revoked by the Department for violating a provision listed in the act or the code.
§ 71.8. Sample cigarettes.
(a) Packages of sample cigarettes containing five or fewer cigarettes, which are to be furnished to consumers free of charge as provided in the act, shall be unstamped and prominently identified as ''Sample Cigarettes Not for Sale--All Applicable State Taxes Paid.''
(b) Packages of sample cigarettes containing six or more cigarettes shall be affixed with Pennsylvania cigarette tax stamps in accordance with the act and code.
§ 71.9. Cigarette stamping agent report requirements.
(a) Report due date. Every licensed cigarette stamping agent shall establish a fiscal or calendar monthly reporting period. The cigarette stamping agent shall file with the Department on or before the 20th day following the end of each fiscal or calendar month a cigarette tax report covering the preceding month on a form prescribed by the Department.
(b) Penalties. A cigarette stamping agent who violates this section shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
§ 71.10. Cigarette dealer record requirements.
(a) Each dealer shall:
(1) Obtain invoices covering all purchases of cigarettes whether tax stamped or unstamped.
(2) Maintain receiving records of cigarettes which include the following:
(i) The date.
(ii) The invoice number.
(iii) The quantity.
(iv) The brand.
(v) The supplier name.
(3) Except for retailers, maintain records on the sale of cigarettes, including:
(i) The name and address of the purchaser.
(ii) The amount of cigarettes sold.
(iii) The charge for cigarettes sold.
(4) Retain invoices covering all purchases of Pennsylvania cigarette tax stamps.
(5) Except for retailers, maintain a record of names and addresses of all other cigarette dealers to whom cigarettes are sold.
(6) Prepare credit memoranda with the date the following transactions were completed:
(i) For wholesalers, transactions involving cigarettes returned by customers to a wholesaler's stock.
(ii) For cigarette stamping agents, transactions involving unstamped and stamped cigarettes returned to manufacturers.
(b) Dealers shall keep and maintain the records mentioned under subsection (a) for 4 years at the location for which the license is issued.
(c) A dealer who violates subsection (b) shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
§ 71.11. Examination of records, equipment and premises.
(a) Dealers shall provide the Department and its authorized agents the means, facilities and opportunity to examine the dealers' books, records, cigarette inventory, premises and equipment to determine compliance with the act and code.
(b) A person who prevents or hinders the Department or designated agent from examining the items stated in subsection (a) shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
CHAPTER 72. CIGARETTE DEALER LICENSES § 72.1. Licensing of dealers.
(a) Licensing of cigarette stamping agents.
(1) The Department may license as its agent for a 1-year period and may renew the license for further periods of 1 year if the agent is and remains of good moral character who meets the requirements imposed by the following provisions for the privilege of operating as a cigarette stamping agent:
(i) The applicant is a wholesale dealer licensed by the Commonwealth.
(ii) The applicant maintains warehousing facilities, adequate to protect the revenue, for the purpose of receiving, storing and distributing cigarettes and conducting business.
(iii) The applicant is a person of good moral character and of reasonable financial stability and is reasonably experienced in the wholesale cigarette business. To satisfy this requirement, an applicant shall provide the Department with:
(A) A detailed description of the applicant's business activities, including a history of the applicant's experience in the wholesale cigarette business. An applicant seeking a renewal of a license need not follow this requirement.
(B) Current financial statements prepared in accordance with generally accepted accounting principles.
(iv) The applicant, or any shareholder controlling more than 10% of the stock if the applicant is a corporation or any officer or director if the applicant is a corporation has not been convicted of any crime involving moral turpitude.
(v) The applicant has filed required State tax reports and paid any State taxes not subject to a timely perfected administrative or judicial appeal or subject to an authorized deferred payment plan.
(2) The cigarette stamping agency license is valid for one specific location only.
(3) The Department may reject an application for a new or renewal license if it finds that any of the requirements in paragraph (1) or (2) have not been met or finds that applicant or licensee has:
(i) Failed to disclose material information required.
(ii) Made a material false statement in his application.
(iii) Violated any provisions of the code, the act or this article.
(4) For purposes of this section, a person convicted of committing any felony, any infamous crime or any crime involving moral turpitude is not a person of good moral character and will not be licensed as a cigarette stamping agent.
(b) Licensing of wholesalers.
(1) Applicants for a wholesale license or renewal thereof shall meet the following requirements:
(i) The premises on which the applicant proposes to conduct business are adequate to protect the revenue.
(ii) The applicant is a person of reasonable financial stability and reasonable business experience. To satisfy this requirement, an applicant shall provide the Department with:
(A) A detailed description of the applicant's business activities, including a history of the applicant's experience in the wholesale cigarette business. An applicant seeking a renewal of a license is not required to follow this requirement.
(B) Current financial statements prepared in accordance with generally accepted accounting principles.
(iii) The applicant, or any shareholder controlling more than 10% of the stock if the applicant is a corporation or any officer or director if the applicant is a corporation, has not been convicted of any crime involving moral turpitude.
(iv) The applicant has not failed to disclose any material information required by the Department, including information that the applicant has complied with this article by providing a signed statement, under penalty of perjury, of adherence to State presumptive minimum prices or written approval from the Department to sell at a specific different price.
(v) The applicant has not made a material false statement in his application.
(vi) The applicant has not violated any provision of the code, the act or this article.
(vii) The applicant has filed the required State tax reports and paid any State taxes not subject to a timely perfected administrative or judicial appeal or subject to an authorized deferred payment plan.
(2) The wholesale dealer's license is valid for one specific location only.
(c) Licensing of retailers. An applicant for a retail license or renewal thereof shall meet the following requirements:
(1) The premises in which the applicant proposes to conduct business are adequate to protect the revenues.
(2) The applicant has not failed to disclose any material information required by the Department, including information that the applicant has complied with this article by providing a signed statement, under penalty of perjury, of adherence to State presumptive minimum prices or written approval from the Department to sell at a specific different price.
(3) The applicant has not made any material false statement in the application.
(4) The applicant has not violated any provision of the act, the code or this article.
(5) The applicant has filed the required State tax reports and paid any State taxes not subject to a timely perfected administrative or judicial appeal or subject to an authorized deferred payment plan.
§ 72.2. Posting of license.
(a) Dealers shall conspicuously display their licenses at the locations for which issued. Dealers operating vending machines shall post their licenses at their business headquarters as listed in their license application.
(b) A dealer who violates subsection (a) shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
§ 72.3. Assignment of license.
A dealer's license is not assignable. An attempt to assign a dealer's license shall immediately result in the cancellation of the license.
§ 72.4. Timing of application for renewal of existing license.
(a) A dealer shall apply for a renewal of its license by January 15 of the year in which its license expires.
(b) A dealer who files an application for renewal of its license after January 15 of the year in which its license expires is not permitted to operate under the existing license after the last day of February of that same year. In this instance, the Department will treat the application for renewal as an application for a new license and the dealer shall be prohibited from stamping or selling cigarettes until its application is approved by the Department.
§ 72.5. Denials, revocations and suspensions.
(a) Denial of license application and requests for renewal.
(1) Whenever the Department denies a license application or request for renewal, the Department will send a notice by registered or certified mail at the last known address of the applicant or dealer. The notice will set forth the basis of the Department's denial and inform the applicant or dealer that the Department's actions may be protested through a hearing process. To avail itself of the hearing process, the applicant or dealer shall file a complaint with the Department's Cigarette Licensing, Marketing and Control Board within 30 days after the mailing date in the notice under section 207-A of the code (72 P. S. § 207-A).
(2) A dealer may continue to operate under its license for a 30-day period following the mailing date in the denial notice. If the dealer files an appeal with the Cigarette Licensing, Marketing and Control Board, the dealer may continue to operate under its license during the period of administrative appeal before the Board.
(b) Revocation or suspension of license. Whenever the Department determines that a dealer has committed a violation of the act or the code that would result in the suspension or revocation of that dealer's license, the Department will file a complaint with the Cigarette Licensing, Marketing and Control Board under the procedures in section 207-A of the code. Within 30 days after the termination of a hearing, the Board shall recommend its decision to the Secretary. If the Secretary's decision results in the suspension or revocation of the dealer's license, the dealer shall immediately surrender its license to the Department, notwithstanding the dealer's right of further administrative or judicial appeal.
§ 72.6. Change in status of cigarette dealer's business.
A cigarette dealer shall immediately inform the Department, in writing, prior to or immediately after:
(1) Taking actions that would change any information on the dealer's license application or as last reported to the Department, including a change of name or, if the dealer is a corporation or partnership, a change in the dealer's officers, directors or partners.
(2) Filing a certificate of dissolution with the Department of State or filing a similar document in another jurisdiction.
(3) Filing a voluntary petition in bankruptcy or receivership or receiving notice of an involuntary bankruptcy petition.
(4) Merging or consolidating with another business.
(5) Terminating business activities.
(6) If the dealer is a corporation, the acquisition by any person or entity of 10% or more of the number of shares of voting stock of the corporation.
§ 72.7. Cigarette vending machines.
(a) Licenses.
(1) Each cigarette vending machine shall have a current license, evidenced by a decal issued by the Department, which shall be affixed by its adhesive to and conspicuously displayed on each machine. Each cigarette vending machine shall also have the name and address of the owner and the name and address of the operator conspicuously and visibly displayed on each machine.
(2) Each dealer, at the time of the dealer's application for a license or request for renewal, shall provide the Department with a list identifying the location of each vending machine in this Commonwealth from which cigarettes will be sold, specifying the establishment, address and county.
(b) Notification of business relocation. A dealer that relocates vending machines shall notify the Department in writing within 10 days after the relocation. The notification to the Department shall include:
(1) The dealer's name.
(2) The dealer's license number.
(3) The location of the vending machine, specifying the establishment, address and county.
(c) Extra cigarette vending machine decals. A dealer may subsequently request extra decals for new vending machines which will be placed in additional locations without identifying the actual locations. These requests for decals are limited to no more than ten or 10% of the listed locations previously on file with the Department, whichever is greater. Once the new vending machines are placed in operation, the dealer shall, within 10 business days, notify the Department of the locations of the additional vending machines, specifying the establishment, address and county. The Department will revoke additional decals if the dealer fails to notify the Department of the locations of the additional vending machines.
CHAPTER 73. IMPOSITION, METHOD OF PAYMENT AND REFUNDS OF TAX (Editor's Note: Subchapters A--C and the heading for Subchapter D are deleted. However, the text of Subchapter D, §§ 73.51--73.57 is retained.)
§§ 73.1--73.8. (Reserved)
§§ 73.21--73.31. (Reserved).
§§ 73.41--73.44. (Reserved).
CHAPTER 75. (Reserved)
CHAPTER 76. UNFAIR SALES OF CIGARETTES § 76.1. Dealer's cost of doing business.
(a) Cigarette stamping agent.
(1) The cost of doing business for a cigarette stamping agent is presumed to be the basic cost of cigarettes to the cigarette stamping agent for sales to wholesalers.
(2) Except as provided in subsection (e), a cigarette stamping agent may not sell cigarettes to a wholesaler at less than the cost of the stamping agent.
(b) Wholesaler.
(1) The cost of doing business for a wholesaler is presumed to be 4% of the basic cost of cigarettes to the wholesaler for sales to retailers.
(2) Except as provided in subsection (e), a wholesaler may not sell cigarettes to a retailer at less than the cost of the wholesaler.
(c) Retailer.
(1) The cost of doing business for a retailer is presumed to be 6% of the basic cost of cigarettes to the retailer for sales to the ultimate consumer.
(2) Except as provided in subsection (e), a retailer may not sell cigarettes to the ultimate consumer at less than the cost of the retailer.
(d) Application to lower dealer's cost of doing business.
(1) A dealer who wishes to lower its cost of doing business shall submit an application to the Department.
(2) An application for permission to sell at less than a dealer's presumed cost of doing business shall contain:
(i) A copy of the dealer's most recently filed Federal and State Income Tax return forms, including all associated schedules and attachments.
(ii) A nonrefundable fee of $200 to cover the Department's costs of administering the application, including the review and audit of the petitioning dealer's financial statements. If the Department determines that a field audit is necessary to approve or disapprove a request, an hourly rate, as established by the Department, will be charged to the dealer requesting approval for time spent in preparing the field audit. This amount will be in addition to the $200 nonrefundable fee.
(e) Review and determination.
(1) The Department will review and evaluate the information provided by the cigarette dealer and will determine whether the dealer's cost of doing business is lower than the presumed cost of doing business in effect at that time.
(2) The Department's approval of a dealer's application to sell at less than the presumptive cost of doing business is valid for 12 months from the effective date of the approval or until the effective date of the approval of a subsequent dealer's application, whichever occurs first.
(3) If a dealer with permission to sell at less than the presumptive cost of doing business fails to submit a new application that is approved by the Department by the expiration of the 12-month period, the permission previously given to the dealer will be automatically revoked on the last day of the 12-month period.
(4) The Department's approval of a petitioning cigarette stamping agent, wholesaler or retailer's lower cost of doing business will apply to all dealers throughout this Commonwealth holding the same licenses as referenced in § 72.1 (relating to licensing of dealers). For example, if the Department approves a particular retailer's request to lower the presumptive 6% cost of doing business to 5%, all Pennsylvania retailers would also be permitted to use 5% as their cost of doing business.
(5) In determining whether an applicant/dealer's cost of doing business is lower than the presumed cost of doing business for that particular type of dealer, the Department will divide the applicant's operating expenses for the applicable 12-month period by the applicant's total cost of doing business for that same period.
Example. Wholesaler is in the business of selling cigarettes, candy and various food items to retailers throughout the United States. In its application to sell cigarettes to retailers at a price lower than the 4% presumptive cost of doing business markup, Wholesaler provides the following financial information for the year ending 12/31/XX:
Total cost of goods sold $ 575 million Total cost of doing business $ 650 million The Wholesaler's operating expenses equal $75 million, which is its total cost of doing business less its total cost of goods sold. This amount is then divided by Wholesaler's total cost of doing business ($75 million/$650 million), which equals approximately 11.53%. This percentage represents the wholesaler's actual percentage cost of doing business. Because this percentage is greater than the 4% presumptive cost of doing business markup, the Wholesaler is unable to show that it can sell its cigarettes at a lower cost of doing business and the Department would deny its application.(6) In determining a dealer's actual cost of doing business, the Department will determine the amount of the constructive cost of property or services upon which the dealer's actual cost of doing business is calculated when the Department determines that the dealer's financial records are not indicative of the true value of property or services received by the dealer.
(i) The constructive cost of the dealer's receipt of property or services shall be the cost which would be charged in an arms-length transaction.
(ii) If the purchase of property or services occurs between a parent and a subsidiary, affiliate or controlled corporation, there shall be a refutable presumption that because of the common interest the transaction was not at arms-length.
§ 76.2. Combination sales and inducements.
Except for in § 76.3 (relating to promotional sales plans), a dealer may not:
(1) Sell cigarettes in combination with other noncigarette merchandise if the total sales price for the cigarettes and all other noncigarette items included in the sale is less than the sum of the cost to the dealer of the cigarettes and noncigarette items. The dealer's invoice shall contain a description of the cigarette and noncigarette merchandise, including its selling price or its wholesale value.
(2) Give cigarettes free of charge, except in the case of specially-packaged manufacturers' samples that are designated on the package as not to be sold in accordance with § 71.8 (relating to sample cigarettes).
(3) Make a rebate, advertising allowance or other concession in connection with the sale of cigarettes whereby the cigarettes are in effect sold below their cost to the dealer.
(4) Make secret extensions to certain purchasers of special services or privileges in connection with the sale of cigarettes that are not extended to all purchasers upon like terms and conditions.
§ 76.3. Promotional sales plans.
(a) Only cigarette manufacturers may sponsor or initiate a promotional sales plan that lowers the price of cigarettes below the cost of the dealer.
(b) Every dealer on whose premises a manufacturer's promotional sales plan is being conducted shall obtain a written statement from the manufacturer which describes the promotional sales plan and indicates the plan's duration.
(c) When a manufacturer's promotional sales plan involves the affixation of coupons to a retailer's inventory of cigarettes, the retailer shall receive payment from the manufacturer representing the value of the coupons prior to the retailer's customers' purchase of the coupon-affixed cigarettes. The retailer shall also retain documentation showing the manufacturer's payment of the coupons' value. For example, if the cost of the retailer for a package of cigarettes is $2 and a 50¢ coupon is affixed to the package, the retailer may accept the coupon, sell the package of cigarettes for $1.50 and be in compliance with the act and the code only if the retailer possesses evidence that the manufacturer prepaid the value of the 50¢ coupon to the retailer prior to the retailer's sale of the package of cigarettes.
(d) Retailers may redeem manufacturer-issued coupons issued to the general public that reduce the retail purchase price of cigarettes below the cost of the retailer as long as the manufacturer reimburses the retailer for the redeemed coupon and the retailer maintains documentation showing the sale of the cigarettes to its customers and the manufacturer's subsequent reimbursement. For example, if the cost of the retailer is $18 per carton of cigarettes and the retailer sells the carton for $18, the retailer may accept a $1 coupon that reduces the cost of the retailer to $17 and not be in violation of the code or act. However, the retailer may not sell the carton at $17 unless the retail customer tenders a valid $1 manufacturer coupon.
(e) A dealer participating in a manufacturer's promotional sales plan which is not evidenced by a coupon and which occurs subsequent to the dealer's purchase of cigarettes from that manufacturer is in violation of the code.
(f) A dealer may sponsor or initiate a promotional sales plan if the plan does not result in the sale of cigarettes at a price below the cost of that dealer.
CHAPTER 77. (Reserved). §§ 77.1--77.3. (Reserved).
§ 77.11. (Reserved).
CHAPTER 79. (Reserved) § 79.1. (Reserved).
§ 79.2. (Reserved).
§ 79.11. (Reserved)
CHAPTER 83. (Reserved) § 83.1. (Reserved).
§ 83.2. (Reserved).
§§ 83.11--83.17. (Reserved).
§§ 83.31--83.33. (Reserved).
§ 83.41. (Reserved).
§ 83.42. (Reserved).
§§ 83.51--83.55. (Reserved).
§ 83.71. (Reserved).
§ 83.72. (Reserved).
§ 83.81. (Reserved).
§ 83.91. (Reserved).
§ 83.92. (Reserved).
§§ 83.101--83.114. (Reserved).
§§ 83.121--83.124 (Reserved).
§ 83.131. (Reserved).
§ 83.141. (Reserved).
§ 83.151. (Reserved).
§§ 83.161--83.163. (Reserved).
CHAPTER 85. (Reserved) § 85.1. (Reserved).
[Pa.B. Doc. No. 98-290. Filed for public inspection February 13, 1998, 9:00 a.m.]
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