GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1993

S	1 

SENATE BILL 1025

Short Title:  Cigarette Tax - No Stamps.	(Public)
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Sponsors: Senators Kerr; and Cooper.
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Referred to:  Finance.
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May 4, 1993

A BILL TO BE ENTITLED
AN ACT TO PROVIDE FOR PAYMENT OF THE CIGARETTE TAX BY REPORTING RATHER THAN BY TAX STAMPS.
The General Assembly of North Carolina enacts:
Section 1.  Part 2 of Article 2A of Chapter 105 of the General Statutes, with the exception of G.S. 105-113.7, is repealed.
Sec. 2.  Parts 1 and 3 of Article 2A of Chapter 105 of the General Statutes are consolidated with one another and with G.S. 105-113.7 into a single Article without separate Parts.
Sec. 3. Article 2A of Chapter 105 of the General Statutes, as amended by Sections 1 and 2 of this act, reads as rewritten:
"ARTICLE 2A.
"Schedule B-A.  Tobacco Products Tax.
"§ 105-113.2. Short title.
This Article may be cited as the 'Tobacco Products Tax Act' or 'Tobacco Products Tax Article.'
"§ 105-113.3.  Scope of tax; administration.
(a)	Scope. – The taxes imposed by this Article shall be collected only once on the same tobacco product. Except as permitted by Article 2 of this Chapter, a city or county may not levy a privilege license tax on the sale of tobacco products.
(b)	Administration. – Except as provided in this Article, Article 9 of this Chapter applies to this Article.  
"§ 105-113.4. Definitions.
The following definitions apply in this Article:
(1)	Cigar. – A roll of tobacco wrapped in a substance that contains tobacco, other than a cigarette.
(1a)	Cigarette. – Any of the following:
a.	A roll of tobacco wrapped in paper or in a substance that does not contain tobacco.
b.	A roll of tobacco wrapped in a substance that contains tobacco and that, 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 a consumer as a cigarette described in subpart a. of this subdivision.
	(2) 	Cost price. – The price a person liable for the tax on tobacco products other than cigarettes imposed by this Article paid for the products, before any discount, rebate, or allowance or the tax imposed by this Article.
	(4)	Repealed by Session Laws 1991, c. 689, s. 267.
			(6)	Manufacturer. – A person who manufactures or produces tobacco products.
(7)	Package. – The individual packet, can, box, or other container used to contain and to convey tobacco products to the consumer.
	(8) 	Person. – An individual, a firm, a partnership, an association, a corporation, or any other organization or group acting as a unit.
	(9)	Retail dealer. – A person who sells a tobacco product to the ultimate consumer of the product.
	(10)	Sale. – A transfer, a trade, an exchange, or a barter, in any manner or by any means, with or without consideration.
(10a)	Secretary. – The Secretary of Revenue.
	(11a)	Tobacco product. – A cigarette, a cigar, or any other product that contains tobacco and is intended for inhalation or oral use.
		(14)	Wholesale dealer. – A person who makes tobacco products or who acquires tobacco products for sale to another wholesale dealer or to a retail dealer.
"§ 105-113.4A. Licenses.
(a)	General. – To obtain a license required by this Article, an applicant must apply to the Secretary and pay the tax due for the license. A license is not transferable or assignable and must be displayed at the place of business for which it is issued.
(b)	Refund. – A refund of a license tax is allowed only when the tax was collected or paid in error. No refund is allowed when a license holder surrenders a license or the Secretary revokes a license.
(c)	Duplicate or Amended License. – Upon application to the Secretary, a license holder may obtain without charge one of the following:
(1)	A duplicate license, if the license holder establishes that the original license has been lost, destroyed, or defaced.
(2)	An amended license, if the license holder establishes that the location of the place of business for which the license was issued has changed.
A duplicate or amended license shall state that it is a duplicate or amended license, as appropriate.
(d)	Surrender of License. – If a wholesale dealer voluntarily surrenders its license, the Secretary shall revoke the license without notice or hearing.
"§ 105-113.5 through 105-113.6. Repealed.
"§ 105-113.7.  Tax with respect to inventory on effective date of tax increase.
Every wholesale dealer subject to the taxes levied in this Article who, on the effective date of a tax increase under this Article, has on hand any tobacco products shall file a complete inventory of the tobacco products within 20 days after the effective date of the increase, and shall pay an additional tax to the Secretary when filing the inventory.  The amount of tax due is the amount due based on the difference between the former tax rate and the increased tax rate. 
"§ 105-113.8 through 105-113.34. Repealed.
"§ 105-113.35.  Tax on tobacco products.
	(a)	Tax. – An excise tax is levied on cigarettes at the rate of two and one-half mills per individual cigarette.  An excise tax is levied on tobacco products other than cigarettes at the rate of two percent (2%) of the cost price of the products. The tax levied in this section does not apply to the following:
(1)	A tobacco product sold outside the State.
(2)	A tobacco product sold to the federal government.
(3)	A sample tobacco product other than cigarettes distributed without charge.
(4)	Sample cigarettes distributed without charge in packages containing five or fewer cigarettes.
(5)	Cigarettes in a package of cigarettes given without charge by the manufacturer of the cigarettes to an employee of the manufacturer who works in a factory where cigarettes are made, if the cigarettes are not taxed by the federal government.
(b)	Primary Liability. – The wholesale dealer or retail dealer who first acquires or otherwise handles tobacco products subject to the tax imposed by this section is liable for the tax imposed by this section. A wholesale dealer or retail dealer who brings into this State a tobacco product made outside the State is the first person to handle the tobacco product in this State. A wholesale dealer or retail dealer who is the original consignee of a tobacco product that is made outside the State and is shipped into the State is the first person to handle the tobacco product in this State.
(c)	Secondary Liability. – A retail dealer who acquires non-tax-paid tobacco products subject to the tax imposed by this section from a wholesale dealer is liable for any tax due on the tobacco products. A retail dealer who is liable for tax under this subsection may not deduct a discount from the amount of tax due when reporting the tax. 
(d)	Manufacturer's Option. – A manufacturer who is not a retail dealer and who ships tobacco products to either a wholesale dealer or retail dealer licensed under this Article may apply to the Secretary to be relieved of paying the tax imposed by this section on the tobacco products. Once granted permission, a manufacturer may choose not to pay the tax until otherwise notified by the Secretary. To be relieved of payment of the tax imposed by this section, a manufacturer must comply with the requirements set by the Secretary.
(e)	Non-Tax-Paid Cigarettes for Personal Use. – The Secretary may provide by rule that an individual may bring into this State from another state for that individual's personal use a maximum number of non-tax-paid cigarettes, not to exceed 600.
(f)	A wholesale dealer in possession of packages of 'stale' or otherwise unsalable cigarettes upon which the tax has been paid may return the packages to the manufacturer and apply to the Secretary for refund of the tax.  The application shall be on a form prescribed by the Secretary and shall be accompanied by an affidavit from the manufacturer stating the number of cigarettes returned to the manufacturer by the applicant.  The Secretary shall refund the tax paid on the unsalable cigarettes, less the discount allowed, to the applicant.
"§ 105-113.36.  Wholesale dealer and retail dealer must obtain license; investigation of certain applicants.
(a)	A wholesale dealer shall obtain for each place of business a continuing tobacco products license and shall pay a tax of twenty-five dollars ($25.00) for the license. A retail dealer shall obtain for each place of business a continuing tobacco products license and shall pay a tax of ten dollars ($10.00) for the license. A 'place of business' is a place where a wholesale dealer or a retail dealer makes tobacco products or where a wholesale dealer or a retail dealer receives or stores non-tax-paid tobacco products.
(b)	When a person applies for a wholesale dealer's license to deal in cigarettes, the Secretary may investigate the applicant to determine if the information the applicant submits with the application is accurate and if the applicant is eligible to be licensed as a wholesale dealer.  The Secretary may decline to issue a wholesale dealer's license to an applicant when the Secretary has reasonable cause to believe any of the following:
(1)	That the applicant has willfully withheld information requested by the Secretary for the purpose of determining the applicant's eligibility for the license.
(2)	That information submitted with the application is false or misleading.
(3)	That the application is not made in good faith.
"§ 105-113.37.  Payment of tax.
(a)	Monthly Report. – Except for tax on a designated sale under subsection (b), the taxes levied by this Article are payable when a report is required to be filed. A report is due on a monthly basis. A monthly report covers sales and other activities occurring in a calendar month and is due within 20 days after the end of the month covered by the report. A report shall be filed on a form provided by the Secretary and shall contain the information required by the Secretary.
(b)	Designation of Exempt Sale. – A wholesale dealer who sells a tobacco product to a person who has notified the wholesale dealer in writing that the person intends to resell the item in a transaction that is exempt from tax under G.S. 105-113.35(a)(1) or (2) may, when filing a monthly report under subsection (a), designate the quantity of tobacco products sold to the person for resale. A wholesale dealer shall report a designated sale on a form provided by the Secretary.
A wholesale dealer is not required to pay tax on a designated sale when filing a monthly report. The wholesale dealer shall pay the tax due on all other sales in accordance with this section. A wholesale dealer or a customer of a wholesale dealer may not delay payment of the tax due on a tobacco product by failing to pay tax on a sale that is not a designated sale or by overstating the quantity of tobacco products that will be resold in a transaction exempt under G.S. 105-113.35(a)(1) or (2).
A person who does not sell a tobacco product in a transaction exempt under G.S. 105-113.35(a)(1) or (2) after a wholesale dealer has failed to pay the tax due on the sale of the item to the person in reliance on the person's written notification of intent is liable for the tax and any penalties and interest due on the designated sale. If the Secretary determines that a tobacco product reported as a designated sale is not sold as reported, the Secretary shall assess the person who notified the wholesale dealer of an intention to resell the item in an exempt transaction for the tax due on the sale and any applicable penalties and interest. A wholesale dealer who does not pay tax on a tobacco product in reliance on a person's written notification of intent to resell the item in an exempt transaction is not liable for any tax assessed on the item. 
(c)	Repealed by Session Laws 1991 (Regular Session, 1992), c. 955, s. 12, effective July 15, 1992.
"§ 105-113.38.  Bond.
The Secretary may require a wholesale dealer or a retail dealer to furnish a bond in an amount that adequately protects the State from loss if the dealer fails to pay taxes due under this Article.  A bond shall be conditioned on compliance with this Article, shall be payable to the State, and shall be in the form required by the Secretary.  The Secretary shall proportion a bond amount to the anticipated tax liability of the wholesale dealer or retail dealer.  The Secretary shall periodically review the sufficiency of bonds required of dealers, and shall increase the amount of a required bond when the amount of the bond furnished no longer covers the anticipated tax liability of the wholesale dealer or retail dealer.  The Secretary shall decrease the amount of a required bond when the Secretary determines that a smaller bond amount will adequately protect the State from loss.
"§ 105-113.39.  Discount.
A wholesale dealer or a retail dealer who is primarily liable under G.S. 105-113.35(b)	for the excise taxes imposed by this Article and who files a timely report under G.S. 105-113.37 may deduct from the amount due with the report a discount of four percent (4%).  This discount covers losses due to damage to tobacco products, expenses incurred in preparing the records and reports required by this Article, and the expense of furnishing a bond.
"§ 105-113.40. Records to be kept; identification of vending machines.
Every wholesale dealer and retail dealer shall keep accurate records of the dealer's purchases, inventories, and sales of tobacco products.  These records shall be open at all times for inspection by the Secretary or an authorized representative of the Secretary.  Each vending machine that dispenses tobacco products must be marked to identify its owner in the manner required by the Secretary.
"§ 105-113.40A Penalties.
(a)	Civil Penalty. – If a person fails or refuses to pay a tax due under this Article, in lieu of the applicable civil penalty provided in Article 9 of this Chapter, a penalty shall be added to the tax due in an amount equal to fifty percent (50%) of the tax due.
(b)	Criminal Penalty. – The criminal penalties provided in Article 9 of this Chapter apply to this Article; in addition, violation of any provision of this Article is a misdemeanor punishable by a fine, imprisonment, or both in the discretion of the court.
(c)	Revocation or Suspension of License. – If a wholesale dealer violates this Article or ceases to act in the capacity for which the license was issued, the Secretary shall give the wholesale dealer 10 days' notice of a hearing in writing, specifying the time and place of the hearing and requiring the wholesale dealer to show cause why its license should not be revoked.  The notice may be served personally or by registered mail directed to the last known address of the wholesale dealer.  After holding the hearing the Secretary may revoke or suspend the wholesale dealer's license.  After holding the hearing, if the Secretary finds that the wholesale dealer has been convicted of an offense under this Article, the Secretary may also revoke or suspend any license the wholesale dealer holds under G.S. 105-65.1, 105-102.5(b)(7), 105-164.4, 105-164.5, 105-164.6, or 105-164.29.  The wholesale dealer may appeal the Secretary's decision as provided in Article 9 of this Chapter.
(d)	Effect of Revocation or Suspension of License. – A wholesale dealer whose license is suspended or revoked may not sell tobacco products or permit tobacco products to be sold.  The expiration, transfer, surrender, continuance, renewal, or extension of a license issued under this Article does not bar or abate any disciplinary, penal, or regulatory proceeding or action."
Sec. 4.  This act becomes effective January 1, 1994.