File No. 546

Senate, April 13, 2004

The Committee on Finance, Revenue and Bonding reported through SEN. DAILY of the 33rd Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT IMPLEMENTING THE GOVERNOR'S BUDGET RECOMMENDATIONS REGARDING REVENUE, TOBACCO PRODUCT MANUFACTURERS AND TRANSFERS OF CERTAIN FUNDS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 12-412 of the general statutes, as amended by section 98 of public act 03-1 of the June 30 special session, is amended by adding subdivision (115) as follows (Effective July 1, 2005) :

(NEW) (115) (A) Sales of magazines, including publications which only contain puzzles, by subscription; (B) sales of newspapers.

Sec. 2. Subsection (c) of section 12-494 of the general statutes, as amended by section 40 of public act 03-2, is repealed and the following is substituted in lieu thereof (Effective from passage) :

(c) In addition to the tax imposed under subsection (a) of this section, any targeted investment community, as defined in section 32-222, or any municipality in which properties designated as manufacturing plants under section 32-75c are located, may, on or after March 15, 2003, [but prior to July 1, 2004, ] impose an additional tax on each deed, instrument or writing, whereby any lands, tenements or other realty is granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, when the consideration for the interest or property conveyed equals or exceeds two thousand dollars, which additional tax shall be at the rate of one-fourth of one per cent of the consideration for the interest in real property conveyed by such deed, instrument or writing. The revenue from such additional tax shall become part of the general revenue of the municipality in accordance with section 12-499.

Sec. 3. Subdivision (2) of subsection (a) of section 12-458 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage) :

(2) On said date and coincident with the filing of such return each distributor shall pay to the commissioner for the account of the purchaser or consumer a tax (A) on each gallon of such fuels sold or used in this state during the preceding calendar month of twenty-six cents on and after January 1, 1992, twenty-eight cents on and after January 1, 1993, twenty-nine cents on and after July 1, 1993, thirty cents on and after January 1, 1994, thirty-one cents on and after July 1, 1994, thirty-two cents on and after January 1, 1995, thirty-three cents on and after July 1, 1995, thirty-four cents on and after October 1, 1995, thirty-five cents on and after January 1, 1996, thirty-six cents on and after April 1, 1996, thirty-seven cents on and after July 1, 1996, thirty-eight cents on and after October 1, 1996, thirty-nine cents on and after January 1, 1997, thirty-six cents on and after July 1, 1997, thirty-two cents on and after July 1, 1998, and twenty-five cents on and after July 1, 2000; and (B) in lieu of said taxes, each distributor shall pay a tax on each gallon of gasohol, as defined in section 14-1, sold or used in this state during such preceding calendar month, of twenty-five cents on and after January 1, 1992, twenty-seven cents on and after January 1, 1993, twenty-eight cents on and after July 1, 1993, twenty-nine cents on and after January 1, 1994, thirty cents on and after July 1, 1994, thirty-one cents on and after January 1, 1995, thirty-two cents on and after July 1, 1995, thirty-three cents on and after October 1, 1995, thirty-four cents on and after January 1, 1996, thirty-five cents on and after April 1, 1996, thirty-six cents on and after July 1, 1996, thirty-seven cents on and after October 1, 1996, thirty-eight cents on and after January 1, 1997, thirty-five cents on and after July 1, 1997, thirty-one cents on and after July 1, 1998, and twenty-four cents on and after July 1, 2000, and twenty-five cents on and after July 1, 2004; and (C) in lieu of such rate, on each gallon of diesel fuel, propane or natural gas sold or used in this state during such preceding calendar month, of eighteen cents on and after September 1, 1991, and twenty-six cents on and after August 1, 2002.

Sec. 4. Section 13b-61a of the general statutes, as amended by section 65 of public act 03-1 of the June 30 special session, is repealed and the following is substituted in lieu thereof (Effective July 1, 2004) :

Notwithstanding the provisions of section 13b-61, as amended, for calendar quarters ending on or after September 30, 1998, and prior to September 30, 1999, the Commissioner of Revenue Services shall deposit into the Special Transportation Fund established under section 13b-68, as amended, five million dollars of the amount of funds received by the state from the tax imposed under section 12-587 on the gross earnings from the sales of petroleum products attributable to sales of motor vehicle fuel, for calendar quarters ending September 30, 1999, and prior to September 30, 2000, the commissioner shall deposit into the Special Transportation Fund nine million dollars of the amount of such funds received by the state from the tax imposed under said section 12-587 on the gross earnings from the sales of petroleum products attributable to sales of motor vehicle fuel; for calendar quarters ending September 30, 2000, and prior to September 30, 2002, the commissioner shall deposit into the Special Transportation Fund eleven million five hundred thousand dollars of the amount of such funds received by the state from the tax imposed under said section 12-587, on the gross earnings from the sales of petroleum products attributable to sales of motor vehicle fuel, for the calendar quarters ending September 30, 2002, and prior to September 30, 2003, the commissioner shall make no deposit into the Special Transportation Fund, [five million dollars of the amount of such funds received by the state from the tax imposed under said section 12-587 on the gross earnings from the sales of petroleum products attributable to sales of motor vehicle fuel, and for the calendar quarter ending September 30, 2003, and each calendar quarter thereafter, the commissioner shall deposit into the Special Transportation Fund, five million two hundred fifty thousand dollars of the amount of such funds received by the state from the tax imposed under said section 12-587 on the gross earnings from the sales of petroleum products attributable to sales of motor vehicle fuel] for the calendar quarters ending September 30, 2003, and prior to September 30, 2004, the commissioner shall deposit into the Special Transportation Fund, two million six hundred twenty-five thousand dollars of the amount of such funds received by the state from the tax imposed under said section 12-587 on the gross earnings from the sales of petroleum products attributable to sales of motor vehicle fuel, and for the calendar quarter ending September 30, 2004, and each calendar quarter thereafter, the commissioner shall deposit into the Special Transportation Fund, two million dollars of the amount of such funds received by the state from the tax imposed under said section 12-587 on the gross earnings from the sales of petroleum products attributable to sales of motor vehicle fuel.

Sec. 5. (NEW) (Effective July 1, 2004) Notwithstanding any provision of the general statutes, for the fiscal year ending June 30, 2005, five hundred thousand dollars of the balance of the Tobacco and Health Trust Fund shall be transferred to the Children's Health Initiative account in the Department of Public Health to continue support for the Easy Breathing Program and any remaining balance in the Tobacco and Health Trust Fund shall be credited to the resources of the General Fund.

Sec. 6. (NEW) (Effective July 1, 2004) Notwithstanding any provision of the general statutes, for the fiscal year ending June 30, 2005, the sum of one million five hundred thousand dollars shall be transferred to the resources of the General Fund from the pretrial account established under section 54-56k of the general statutes.

Sec. 7. (NEW) (Effective October 1, 2004) As used in sections 7 to 14, inclusive, of this act:

(1) "Brand family" means all styles of cigarettes sold under the same trade mark and differentiated from one another by means of additional modifiers or descriptors, including, but not limited to, menthol, lights, kings and 100's, and includes any use of a brand name, alone or in conjunction with any other word, trademark, logo, symbol, motto, selling message, recognizable pattern of colors, or any other indicia of product identification identical or similar to, or identifiable with, a previously known brand of cigarettes;

(2) "Cigarette" has the same meaning as provided in section 4-28h of the general statutes;

(3) "Commissioner" means the Commissioner of Revenue Services;

(4) "Nonparticipating manufacturer" means any tobacco product manufacturer that is not a participating manufacturer;

(5) "Participating manufacturer" has the meaning as provided in section II(jj) of the Master Settlement Agreement, as defined in section 4-28h of the general statutes, and all amendments thereto;

(6) "Qualified escrow fund" has the same meaning as provided in section 4-28h of the general statutes;

(7) "Stamper" means, in the case of cigarettes other than roll-your-own tobacco, a person that under chapter 214 of the general statutes may lawfully purchase unstamped packages of cigarettes and affix Connecticut cigarette tax stamps to such packages, and, in the case of roll-your-own tobacco, a person licensed as a distributor under chapter 214a of the general statutes and required to pay the tax due on such tobacco under said chapter 214a;

(8) "Tobacco product manufacturer" has the same meaning as provided in section 4-28h of the general statutes; and

(9) "Units sold" has the same meaning as provided in section 4-28h of the general statutes.

Sec. 8. (NEW) (Effective October 1, 2004) (a) Any tobacco product manufacturer whose cigarettes are sold in this state, whether directly or through a distributor, retailer or similar intermediary or intermediaries, shall execute a certification annually on a form prescribed by the commissioner, certifying under penalty of law for false statement that, as of the date of such certification, such tobacco product manufacturer is either a participating manufacturer or is in full compliance with the provisions of sections 4-28h to 4-28j, inclusive, of the general statutes. Such tobacco product manufacturer shall deliver such certificate to the commissioner and Attorney General no later than April thirtieth of each year. Each tobacco product manufacturer shall maintain all invoices and documentation of sales and other such information relied upon for such certification for a period of five years unless otherwise required by law to maintain them for a longer period of time.

(b) If a tobacco product manufacturer is a participating manufacturer, such manufacturer shall include in its certification a list of its brand families. The participating manufacturer shall update such list thirty days prior to any addition to, or modification of, its brand families by executing and delivering a supplemental certification to the Attorney General and the commissioner.

(c) If the tobacco product manufacturer is a nonparticipating manufacturer, such manufacturer shall include in its certification: (1) A list of all of its brand families and the number of units of each brand family that were sold in the state during the preceding calendar year; (2) a list of all of its brand families that have been sold in the state at any time during the current calendar year; (3) an indication, by an asterisk, of any brand family sold in the state during the preceding calendar year that is no longer being sold in the state as of the date of such certification; and (4) the name and address of any other manufacturer of such brand families in the preceding or current calendar year. Each nonparticipating manufacturer shall update such list thirty days prior to any addition to, or modification of, its brand families by executing and delivering a supplemental certification to the Attorney General and the commissioner.

(d) If the tobacco product manufacturer is a nonparticipating manufacturer, such manufacturer shall further (1) certify that such nonparticipating manufacturer is registered to do business in this state pursuant to title 33 or 34 of the general statutes as a foreign corporation or business entity or has appointed an agent for service of process and provided notice thereof as required by section 10 of this act, (2) certify that such nonparticipating manufacturer has established and continues to maintain a qualified escrow fund and has executed a qualified escrow agreement that governs the qualified escrow fund, (3) certify that such nonparticipating manufacturer is in full compliance with the provisions of sections 4-28h to 4-28j, inclusive, of the general statutes and sections 7 to 14, inclusive, of this act, and any regulations adopted under sections 4-28h to 4-28j, inclusive, of the general statutes and sections 7 to 14, inclusive, of this act, and (4) provide (A) the name, address and telephone number of the financial institution where the nonparticipating manufacturer has established such qualified escrow fund required pursuant to the provisions of sections 4-28h to 4-28j, inclusive, of the general statutes and all regulations adopted under sections 4-28h to 4-28j, inclusive, of the general statutes; (B) the account number of such qualified escrow fund and subaccount number for the state of Connecticut; (C) the amount that such nonparticipating manufacturer placed in such fund for cigarettes sold in the state during the preceding calendar year, the date and amount of each such deposit, and such evidence or verification as may be deemed necessary by the commissioner or the Attorney General, to confirm the foregoing; and (D) the amounts of and dates of any withdrawal or transfer of funds the nonparticipating manufacturer made at any time from such fund or from any other qualified escrow fund into which it ever made escrow payments pursuant to the provisions of sections 4-28h to 4-28j, inclusive, of the general statutes and all regulations adopted under sections 4-28h to 4-28j, inclusive, of the general statutes.

(e) A tobacco product manufacturer may not include in its certification a brand family unless (1) in the case of a participating manufacturer, the participating manufacturer affirms that the brand family is to be deemed to be its cigarettes for purposes of calculating its payments under the Master Settlement Agreement for the relevant year, in the volume and shares determined pursuant to the Master Settlement Agreement; and (2) in the case of a nonparticipating manufacturer, such nonparticipating manufacturer affirms that the brand family is to be deemed to be its cigarettes for purposes of sections 4-28h to 4-28j, inclusive, of the general statutes. Nothing in this section shall be construed as limiting or otherwise affecting the state's right to maintain that a brand family constitutes cigarettes of a different tobacco product manufacturer for purposes of calculating payments under the Master Settlement Agreement or for purposes of sections 4-28h to 4-28j, inclusive, of the general statutes.

Sec. 9. (NEW) (Effective October 1, 2004) (a) (1) Not later than July 1, 2005, the commissioner shall develop and make available for public inspection, on the Department of Revenue Services' website and in such other forms as the commissioner deems appropriate, a directory listing of all tobacco product manufacturers that have provided current and accurate certifications conforming to the requirements of section 8 of this act and all brand families that are listed in such certifications. The commissioner shall update the directory as necessary in order to correct mistakes and to add or remove a tobacco product manufacturer or brand family to keep the directory current and in conformity with the requirements of sections 7 to 14, inclusive, of this act.

(2) The commissioner shall not include or retain in such directory the name or brand families of any manufacturer that has failed to provide the required certification or whose certification the commissioner determines is not in compliance with the provisions of section 8 of this act, unless such violation has been remedied to the satisfaction of the commissioner.

(3) The commissioner shall not include or retain in the directory any brand family of a nonparticipating manufacturer if the commissioner concludes: (A) All escrow payments required pursuant to the provisions of sections 4-28h to 4-28j, inclusive, of the general statutes for any period for any brand family, whether or not listed by such nonparticipating manufacturer, have not been fully paid into a qualified escrow fund governed by a qualified escrow agreement that has been approved by the Attorney General, or (B) any outstanding final judgment, including interest thereon, for a violation of sections 4-28h to 4-28j, inclusive, of the general statutes has not been fully satisfied for such brand family and such manufacturer.

(b) It shall be unlawful for any person:

(1) To affix a tax stamp to a package or other container of cigarettes of a tobacco product manufacturer or brand family not included in the directory; and

(2) To sell, offer, possess for sale or distribute in this state, cigarettes of a tobacco product manufacturer or brand family not included in the directory.

(c) A violation of subsection (b) of this section shall be a class A misdemeanor.

(d) Any person who violates subsection (b) of this section engages in an unfair and deceptive trade practice in violation of section 42-110b of the general statutes.

(e) A determination by the commissioner not to include a brand family or tobacco product manufacturer in the directory maintained pursuant to this section or to remove such brand family or manufacturer from the directory shall be subject to review in the manner prescribed by section 12-311 of the general statutes.

Sec. 10. (NEW) (Effective October 1, 2004) (a) Any nonparticipating manufacturer that has not registered to do business in this state, pursuant to title 33 or 34 of the general statutes, as a foreign corporation or business entity shall, as a condition precedent to having its brand families listed or retained in the directory maintained pursuant to section 9 of this act, appoint and continually engage without interruption the services of an agent in this state to act as agent for the service of process on whom all process and any action or proceeding against it concerning or arising out of the enforcement of the provisions of sections 7 to 14, inclusive, of this act and the provisions of sections 4-28h to 4-28j, inclusive, of the general statutes may be served in any manner authorized by law. Such service shall constitute legal and valid service of process on the nonparticipating manufacturer. The nonparticipating manufacturer shall provide the name, address, telephone number and proof of the appointment and availability of such agent to, and to the satisfaction of, the commissioner and the Attorney General.

(b) A nonparticipating manufacturer shall provide notice to the commissioner and the Attorney General at least thirty calendar days prior to termination of the authority of an agent and shall further provide proof, to the satisfaction of the commissioner and the Attorney General, of the appointment of a new agent no less than five calendar days prior to the termination of an existing agent appointment. In the event an agent terminates an agency, the nonparticipating manufacturer shall notify the commissioner and the Attorney General of such termination not later than five calendar days after such termination and shall include proof, to the satisfaction of the commissioner and the Attorney General, of the appointment of a new agent.

(c) Any nonparticipating manufacturer whose products are sold in this state without appointing or designating an agent as required in this section shall be deemed to have appointed the Secretary of the State as such agent and may be proceeded against in courts of this state by service of process upon the Secretary of the State, except that the appointment of the Secretary of the State as such agent shall not satisfy the condition precedent to having the brand families of the nonparticipating manufacturer listed or retained in the directory.

Sec. 11. (NEW) (Effective January 1, 2005) (a) Not later than twenty-five days after the end of each month, and more frequently if so directed by the commissioner, each stamper shall submit such information as the commissioner requires to facilitate compliance with sections 7 to 14, inclusive, of this act, including, but not limited to, a list by brand family of the total number of cigarettes, or in the case of roll-your-own tobacco, the equivalent stick count, for which the stamper affixed stamps during the previous month. The stamper shall maintain, and make available to the commissioner for a period of five years, all invoices and documentation of purchases and sales of all nonparticipating manufacturer cigarettes and any other information relied upon in reporting to the commissioner. Each stamper shall provide and update as necessary an electronic mail address to the commissioner.

(b) The commissioner may disclose to the Attorney General any information received under sections 7 to 14, inclusive, of this act and requested by the Attorney General for purposes of determining compliance with and enforcing the provisions of sections 7 to 14, inclusive, of this act. The commissioner and the Attorney General shall share with each other the information received under sections 7 to 14, inclusive, of this act, and may share such information with other federal, state or local agencies only for purposes of enforcement of sections 7 to 14, inclusive, of this act, the provisions of sections 4-28h to 4-28j, inclusive, of the general statutes or corresponding laws of other states.

(c) The Attorney General may require at any time from a nonparticipating manufacturer proof of the amount of money in the qualified escrow fund maintained by such manufacturer for the purpose of compliance with provisions of sections 4-28h to 4-28j, inclusive, of the general statutes. Such proof shall be provided to such manufacturer by the financial institution in which such manufacturer has established such fund. Such proof shall include the amount of money in such fund, exclusive of interest, the amount and date of each deposit to such fund and the amount and date of each withdrawal from such fund.

(d) In addition to the information requested to be submitted pursuant to subsection (a) of this section and section 8 of this act, the commissioner may require a stamper or tobacco product manufacturer to submit any additional information including, but not limited to, samples of the packaging or labeling of each brand family, as is necessary to enable the Attorney General to determine whether a tobacco product manufacturer is in compliance with the provisions of sections 7 to 14, inclusive, of this act.

(e) To promote compliance with the provisions of sections 7 to 14, inclusive, of this act, the commissioner may adopt regulations, in accordance with the provisions of chapter 54 of the general statutes, requiring a tobacco product manufacturer subject to the requirements of subsection (c) of section 8 of this act to make the escrow deposits required in quarterly installments during the year in which the sales covered by such deposits are made. The commissioner may require production of information sufficient to enable the commissioner to determine the adequacy of the amount of the installment deposit.

Sec. 12. (NEW) (Effective October 1, 2004) (a) In addition to any other civil or criminal remedy provided by law, upon a determination that a stamper has violated subsection (b) of section 9 of this act or any regulation adopted under sections 7 to 14, inclusive, of this act, the commissioner, after a hearing, may revoke or suspend the license of such stamper in the manner provided by section 12-295 of the general statutes. Each stamp affixed and each offer to sell cigarettes in violation of subsection (b) of section 9 of this act shall constitute a separate violation. The commissioner may also assess such stamper a civil penalty in an amount not to exceed the greater of five hundred per cent of the retail value of the cigarettes, or five thousand dollars, upon a determination of violation of subsection (b) of section 9 of this act.

(b) Any cigarettes that have been sold, offered for sale or possessed for sale in this state, in violation of subsection (b) of section 9 of this act shall be deemed contraband goods under section 12-305 of the general statutes and such cigarettes shall be subject to seizure as provided in section 12-305 of the general statutes. All such cigarettes so seized shall be destroyed and not resold.

(c) The Attorney General, on behalf of the commissioner, may seek an injunction to restrain a threatened or actual violation of subsection (b) of section 9 of this act or subsections (a) or (d) of section 11 of this act by a stamper and to compel the stamper to comply with said subsections. The commissioner may adopt regulations, in accordance with the provisions of chapter 54 of the general statutes, to effect the purposes of this section.

Sec. 13. (NEW) (Effective October 1, 2004) (a) In any action brought by the state to enforce the provisions of sections 7 to 12, inclusive, of this act, the state shall be entitled to recover, when it is the prevailing party, the costs of investigation, expert witness fees, costs of the action and reasonable attorneys' fees.

(b) If a court determines that a person has violated the provisions of sections 7 to 12, inclusive, of this act, the court shall order any profits, gains, gross receipts or other benefits from the violation to be paid to the state. Unless otherwise expressly provided in sections 7 to 12, inclusive, of this act, the remedies or penalties provided by sections 7 to 12, inclusive, of this act are cumulative to each other and to the remedies or penalties available under all other laws of this state.

(c) No person shall be issued a license or granted a renewal of a license to act as a stamper unless such person has certified in writing, under penalty for false statements, that such person will comply with sections 7 to 12, inclusive, of this act.

Sec. 14. (NEW) (Effective October 1, 2004) If a court of competent jurisdiction finds that the provisions of sections 7 to 14, inclusive, of this act and sections 4-28h to 4-28j, inclusive, of the general statutes conflict and cannot be reconciled, then sections 4-28h to 4-28j, inclusive, of the general statutes shall supersede the provisions of sections 7 to 14, inclusive, of this act. If any section, subsection, subdivision, subparagraph, sentence, clause or phrase of sections 7 to 14, inclusive, of this act causes sections 4-28h to 4-28j, inclusive, of the general statutes to no longer constitute a qualifying or model statute, as those terms are defined in the Master Settlement Agreement, then that portion of sections 7 to 14, inclusive, of this act shall not be valid. If any section, subsection, subdivision, subparagraph, sentence, clause or phrase of sections 7 to 14, inclusive, of this act is for any reason held to be invalid, unlawful or unconstitutional, such decision shall not affect the validity of the remaining portions of sections 7 to 14, inclusive, of this act or any part thereof.

Sec. 15. Subsection (b) of section 4-28i of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2004) :

(b) A tobacco product manufacturer that places funds into escrow pursuant to subsection (a) of this section shall receive the interest, or other appreciation on such funds, as earned. Such funds shall be released from escrow only (1) 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 subdivision in the order in which the funds were placed into escrow and only to the extent and at such time as is necessary to make payments required under such judgment or settlement; (2) to the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow on account of units sold in this state 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 had it been a participating manufacturer, as such payments are determined pursuant to section IX(i) (2) of that 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] the Master Settlement Agreement payments, as determined pursuant to section IX(i) of said agreement including after final determinations of all adjustments, that such manufacturer would have been required to make on account of such units sold had it been a participating manufacturer, the excess shall be released from escrow and revert back to [that] such tobacco product manufacturer; or (3) to the extent not released from escrow under subdivision (1) or (2) of this subsection, funds shall be released from escrow and revert back to such tobacco product manufacturer twenty-five years after the date on which such funds were placed into escrow.

Sec. 16. (Effective from passage) If a court of competent jurisdiction holds that subdivision (2) of subsection (b) of section 4-28i of the general statutes, as amended by section 15 of this act, is unconstitutional, then the amendment to said subsection made by said section 15 shall not be given effect.

Sec. 17. Section 4-28e of the general statutes is amended by adding subsection (f) as follows (Effective July 1, 2004) :

(NEW) (f) For the fiscal year ending June 30, 2005, and each fiscal year thereafter, the sum of one hundred thousand dollars is appropriated to the Department of Revenue Services and the sum of twenty-five thousand dollars is appropriated to the office of the Attorney General for the enforcement of the provisions of sections 7 to 13, inclusive, of this act and sections 4-28h to 4-28j, inclusive.

Sec. 18. Subsection (b) of section 12-15 of the general statutes, as amended by section 238 of public act 03-6 of the June 30 special session, is repealed and the following is substituted in lieu thereof (Effective from passage) :

(b) The commissioner may disclose (1) returns or return information to (A) an authorized representative of another state agency or office, upon written request by the head of such agency or office, when required in the course of duty or when there is reasonable cause to believe that any state law is being violated, or (B) an authorized representative of an agency or office of the United States, upon written request by the head of such agency or office, when required in the course of duty or when there is reasonable cause to believe that any federal law is being violated, provided no such agency or office shall disclose such returns or return information, other than in a judicial or administrative proceeding to which such agency or office is a party pertaining to the enforcement of state or federal law, as the case may be, in a form which can be associated with, or otherwise identify, directly or indirectly, a particular taxpayer except that the names and addresses of jurors or potential jurors and the fact that the names were derived from the list of taxpayers pursuant to chapter 884 may be disclosed by the judicial branch; (2) returns or return information to the Auditors of Public Accounts, when required in the course of duty under chapter 23; (3) returns or return information to tax officers of another state or of a Canadian province or of a political subdivision of such other state or province or of the District of Columbia or to any officer of the United States Treasury Department or the United States Department of Health and Human Services, authorized for such purpose in accordance with an agreement between this state and such other state, province, political subdivision, the District of Columbia or department, respectively, when required in the administration of taxes imposed under the laws of such other state, province, political subdivision, the District of Columbia or the United States, respectively, and when a reciprocal arrangement exists; (4) returns or return information in any action, case or proceeding in any court of competent jurisdiction, when the commissioner or any other state department or agency is a party, and when such information is directly involved in such action, case or proceeding; (5) returns or return information to a taxpayer or its authorized representative, upon written request for a return filed by or return information on such taxpayer; (6) returns or return information to a successor, receiver, trustee, executor, administrator, assignee, guardian or guarantor of a taxpayer, when such person establishes, to the satisfaction of the commissioner, that such person has a material interest which will be affected by information contained in such returns or return information; (7) information to the assessor or an authorized representative of the chief executive officer of a Connecticut municipality, when the information disclosed is limited to (A) a list of real or personal property that is or may be subject to property taxes in such municipality, or (B) a list containing the name of each person who is issued any license, permit or certificate which is required, under the provisions of this title, to be conspicuously displayed and whose address is in such municipality; (8) real estate conveyance tax return information or controlling interest transfer tax return information to the town clerk or an authorized representative of the chief executive officer of a Connecticut municipality to which the information relates; (9) estate tax returns and estate tax return information to the Probate Court Administrator or to the court of probate for the district within which a decedent resided at the date of the decedent's death, or within which the commissioner contends that a decedent resided at the date of the decedent's death or, if a decedent died a nonresident of this state, in the court of probate for the district within which real estate or tangible personal property of the decedent is situated, or within which the commissioner contends that real estate or tangible personal property of the decedent is situated; (10) returns or return information to the Secretary of the Office of Policy and Management for purposes of subsection (b) of section 12-7a; (11) return information to the Jury Administrator, when the information disclosed is limited to the names, addresses, federal Social Security numbers and dates of birth, if available, of residents of this state, as defined in subdivision (1) of subsection (a) of section 12-701, as amended; (12) pursuant to regulations adopted by the commissioner, returns or return information to any person to the extent necessary in connection with the processing, storage, transmission or reproduction of such returns or return information, and the programming, maintenance, repair, testing or procurement of equipment, or the providing of other services, for purposes of tax administration; (13) without written request and unless the commissioner determines that disclosure would identify a confidential informant or seriously impair a civil or criminal tax investigation, returns and return information which may constitute evidence of a violation of any civil or criminal law of this state or the United States to the extent necessary to apprise the head of such agency or office charged with the responsibility of enforcing such law, in which event the head of such agency or office may disclose such return information to officers and employees of such agency or office to the extent necessary to enforce such law; (14) names and addresses of operators, as defined in section 12-407, as amended, to tourism districts, as defined in section 10-397; [and] (15) names of each licensed dealer, as defined in section 12-285, and the location of the premises covered by the dealer's license; and (16) to a tobacco product manufacturer that places funds into escrow pursuant to the provisions of subsection (a) of section 4-28i, return information of a distributor licensed under the provisions of chapter 214 or chapter 214a, provided the information disclosed is limited to information relating to such manufacturer’s sales to consumers within this state, whether directly or through a distributor, dealer or similar intermediary or intermediaries, of cigarettes, as defined in section 4-28h, and further provided there is reasonable cause to believe that such manufacturer is not in compliance with section 4-28i.

Sec. 19. (Effective from passage) Section 98 of public act 03-1 of the June 30 special session is repealed.

Sec. 20. (Effective July 1, 2004) Section 65 of public act 03-1 of the June 30 special session is repealed.

The following fiscal impact statement and bill analysis are prepared for the benefit of members of the General Assembly, solely for the purpose of information, summarization, and explanation, and do not represent the intent of the General Assembly or either House thereof for any purpose:

OFA Fiscal Note and OLR Bill Analysis

sSB-35

AN ACT IMPLEMENTING THE GOVERNOR'S BUDGET RECOMMENDATIONS REGARDING REVENUE, TOBACCO PRODUCT MANUFACTURERS AND TRANSFERS OF CERTAIN FUNDS.

OFA FISCAL IMPACT:

State Impact:

Note: GF=General Fund; TF=Transportation Fund

Municipal Impact:

OLR SUMMARY:

This bill:

1. extends the sales and use tax on newspapers and magazines for an additional year,

2. makes permanent the current authority for 18 municipalities to charge a higher municipal real estate conveyance tax,

3. increases the tax on gasohol,

4. reduces quarterly revenue allocations to the Special Transportation Fund starting in FY 2005,

5. allocates funds for FY 2005 to the Department of Public Health’s Easy Breathing Program,

6. transfers money from the Tobacco and Health Trust Fund and the Pre-Trial Account to the General Fund, and

7. adopts additional provisions to enforce the tobacco settlement agreement between the state and tobacco manufacturers.

EFFECTIVE DATE: Various, see below.

§§ 1 & 19—SALES TAX EXEMPTION FOR NEWPAPERS AND MAGAZINES

OFA Fiscal Impact:

Delaying the sales and use tax exemption for newspapers and magazines, until July 1, 2005, is anticipated to result in a General Fund revenue gain of $10.0 million in FY 05.

OLR Analysis

This bill exempts newspaper and magazine subscription sales from the 6% sales and use tax starting July 1, 2005, thus maintaining the tax on such sales for an additional year. Under current law, a tax exemption for such sales is scheduled to take effect on July 1, 2004.

EFFECTIVE DATE: July 1, 2005

§ 2—MUNICIPAL REAL ESTATE CONVEYANCE TAX

OFA Fiscal Impact:

The provision would result in a revenue gain (compared to current law) of approximately $8 to $12 million per year if all 18 towns elected to continue or impose the additional .25% tax.

Based on a recent survey, 14 towns (Bloomfield, Bridgeport, East Hartford, Groton, Hamden, Hartford, Meridian, Middletown, New Britain, New London, Norwalk, Norwich, Waterbury, Windham) currently impose the optional .25% tax while the remaining 4 towns (Bristol, New Haven, Southington, and Stamford) do not impose the optional .25% tax.

OLR Analysis

The bill makes permanent a law that gives 18 towns the option of adding 0.25% to the municipal real estate conveyance tax rate. The option is currently scheduled to expire on June 30, 2004.

Under current law, the basic municipal real estate conveyance tax for all towns is 0.25% of the sale price until June 30, 2004. Under both current law and the bill, the basic rate is scheduled to drop to 0.11% on July 1, 2004. Thus, the bill reduces the total municipal real estate conveyance tax in those towns opting for the additional tax from 0.5% to 0.36% of the sales price.

The towns eligible to exercise the option of adding a quarter point to their real estate conveyance tax rate are (1) the 17-targeted investment communities and (2) any town that has a manufacturing plant that qualifies for enterprise zone benefits. The following towns are eligible: Bloomfield, Bridgeport, Bristol, East Hartford, Groton, Hamden, Hartford, Meriden, Middletown, New Britain, New Haven, New London, Norwalk, Norwich, Southington, Stamford, Waterbury, and Windham.

EFFECTIVE DATE: Upon passage

§ 3—GASOHOL TAX

OFA Fiscal Impact:

This section is anticipated to result in a revenue gain to the Special Transportation Fund of approximately $200, 000 per year as a result of increasing the motor fuels tax on gasohol tax from 24 to 25-cents per gallon.

Additionally, the provision will preclude a potential revenue loss to the Special Transportation Fund of up to $15 million per year. When the state eliminated the use of MTBE, beginning on January 1, 2004, gasoline started to be formulated using ethanol. Gasoline containing at least 10% ethanol is subject to the 24-cent per gallon gasohol tax instead of the 25-cent per gallon gasoline tax. An analysis of motor fuel taxes remitted since January 2004 does not suggest that gasoline distributors have applied the lower rate to the current formulated gasoline sold in Connecticut. Therefore, to date, the state has not experienced a reduction in motor fuel tax revenue.

OLR Analysis

The bill increases the motor fuel tax on gasohol from 24 to 25 cents per gallon as of July 1, 2004. This makes the gasohol tax the same as the gasoline tax.

EFFECTIVE DATE: Upon passage

§§ 4 & 20—REVENUE TRANSFERS TO THE SPECIAL TRANSPORTATION FUND

OFA Fiscal Impact:

This section will result in a revenue gain to the General fund of $5 million in FY 05 and $13 million per year in FY 06 and each year thereafter. There will also be a corresponding revenue loss to the Special Transportation Fund of $5 million in FY 05 and $13 million in FY 06 and each year thereafter.

OLR Analysis

The bill reduces quarterly allocations of motor fuel tax revenue to the Special Transportation Fund (STF) starting in FY 2005. It also eliminates special provisions on STF revenue transfers established in the 2003 budget act and makes other special provisions of the 2003 deficit reduction and budget acts permanent (see Table 1) .

TABLE 1: QUARTERLY STF REVENUE ALLOCATIONS

(millions)

EFFECTIVE DATE: July 1, 2004

§ 5—TOBACCO AND HEALTH TRUST FUND REVENUE TRANSFER

OFA Fiscal Impact:

The provision is anticipated to result in on-time revenue gain to the General Fund of approximately $117, 000 in FY 05.

The current balance in the Tobacco Health Trust Fund is approximately $617, 000.

OLR Analysis

For FY 2005, the bill requires $500, 000 of the balance in the Tobacco and Health Trust Fund to be transferred to the Department of Public Health’s Children’s Health Initiative Account to continue to support the Easy Breathing Program. It transfers the fund’s remaining balance to the General Fund.

The 2003 budget act already transfers $12 million from the Tobacco and Health Trust Fund to the General Fund for FY 2005. The money in the trust fund comes from tobacco company lawsuit settlement payments.

EFFECTIVE DATE: July 1, 2004

§ 6—PRE-TRIAL ACCOUNT REVENUE TRANSFER

OFA Fiscal Impact:

The provision will result in a one-time General Fund revenue gain of $1.5 million in FY 05.

OLR Analysis

For FY 2005, the bill transfers $1.5 million from the Pre-Trial Account to the General Fund. The account is funded in part by fees paid by people participating in state pre-trial alcohol or drug education programs after being charged with (1) driving under the influence of liquor or drugs or with a blood alcohol level above the legal limit or (2) possession of illegal drugs or sale or possession of drug paraphernalia.

EFFECTIVE DATE: July 1, 2004

§§ 7-18—TOBACCO SETTLEMENT PROVISIONS

OFA Fiscal Impact:

To the extent that the provisions strengthen the current laws regarding cigarette manufacturers who are not party to the Master Settlement Agreement (MSA) , it will help to ensure that manufacturers participating in the agreement will not withhold future tobacco settlements payments to Connecticut.

The MSA signed between the participating states and cigarette manufacturers contains assessments against a state’s tobacco settlement payments if a state does not enact and enforce legislation concerning cigarette manufacturers that are not party to the MSA.

Section 17 appropriates $100, 000 per year to the Department of Revenue Services and $25, 000 per year to the Attorney General’s Office from the Tobacco Settlement Fund for administrative costs associated with enforcing provisions relating to the tobacco settlement agreement.

OLR Analysis

ENFORCEMENT

All Tobacco Product Manufacturers (§§ 7, 8)

By law, tobacco product manufacturers that sell cigarettes in Connecticut must either (1) enter into, and perform financial obligations under, the master settlement agreement between Connecticut and four leading tobacco companies or (2) pay into a qualified escrow account a specified amount for each cigarette they sell in the state. Tobacco companies that choose the former option are considered to be “participating manufacturers” and those that choose the latter are “nonparticipating manufacturers.”

The bill requires manufacturers whose cigarettes are directly or indirectly sold in Connecticut to certify, under penalty of false statement, to the Department of Revenue Services (DRS) commissioner and the attorney general by April 30 every year that, as of the certification date, they are either participating in the master settlement agreement or complying with escrow requirements for nonparticipating manufacturers. (Making a false statement on a document other than a certified prevailing wage law payroll is a class A misdemeanor punishable by a fine of up to $2, 000, up to one year in jail, or both.)

Each manufacturer must include with its certification a list of its brand families. Under the bill, a “brand family” is all styles of cigarettes (such as menthol, lights, kings, or 100s) sold under the same trademark. A brand family includes cigarettes identified with a previously known brand through such things as the same or similar brand names, trademarks, logos, symbols, mottos, selling messages, or recognizable color patterns.

A manufacturer can include a brand family in its certification only if its cigarettes were used to calculate either its master settlement agreement payment for the relevant year or payments to its escrow fund. Under the bill, the state retains the right to maintain that a particular brand family belongs to another manufacturer for purposes of calculating master settlement or escrow fund payments.

Thirty days before adding to or modifying its brand families, a manufacturer must update its list by executing and delivering a supplemental certification to the commissioner and the attorney general.

EFFECTIVE DATE: October 1, 2004

Nonparticipating Manufacturers (§ 8(c) , (d) )

A nonparticipating manufacturer’s certification must also include:

1. a list of its brand families and the number of units of each sold in Connecticut in the preceding calendar year, with an asterisk marking any no longer being sold here;

2. a list of its brand families sold in the state during the current year;

3. the name and address of any other company manufacturing the brand families in the preceding or current year;

4. the name, address, and telephone number of the financial institution where it has established the qualified escrow fund;

5. the account numbers for the fund and for the Connecticut subaccount;

6. the amount placed in the fund for cigarettes sold in Connecticut during the preceding calendar year, with the date and amount of each deposit and whatever confirming evidence or verification the commissioner or attorney general considers necessary; and

7. the amounts and dates of any withdrawals or transfers it made from the escrow fund or from any other qualified escrow fund that it ever paid into under the state’s tobacco settlement law and regulations.

The bill also requires each nonparticipating manufacturer to certify annually that it:

1. is either registered to do business in Connecticut or has appointed an agent for service of process here and notified the commissioner and the attorney general of the agent’s name, telephone number, and address;

2. has established and maintains a qualified escrow fund and executed a qualified escrow agreement governing the fund; and

3. complies with the state’s tobacco settlement law, the bill, and their regulations.

Manufacturers must keep all records and other information they relied on for their certifications for five years, unless the law requires them to keep records longer.

EFFECTIVE DATE: October 1, 2004

DRS Directory (§ 9(a) , (e) )

The bill requires the DRS commissioner, by July 1, 2005, to develop and make available to the public on the DRS website and in other appropriate forms, a directory of (1) manufacturers that have provided current and accurate certifications and (2) all brand families listed in those certifications. The commissioner cannot list the name and brand families of any manufacturer that has not:

1. filed the required certification or whose certification the commissioner determines does not meet the bill’s requirements;

2. made all required escrow payments to qualified funds governed by approved escrow agreements for any period or brand family, whether or not the manufacturer listed the brand family on its certification;

3. fully satisfied any outstanding final judgment, including interest, for violating the tobacco settlement law.

The commissioner’s determination not to include a brand family or manufacturer in, or to remove either from, her directory is subject to the same appeal hearings available to those aggrieved by any of the commissioner’s other actions relating to cigarette taxes and licensing. The commissioner must update the directory as needed.

EFFECTIVE DATE: October 1, 2004

Prohibitions And Penalties (§§ 9, 12, 13)

The bill makes it illegal for anyone to:

1. put Connecticut tax stamps on cigarettes whose manufacturer or brand family is not listed in the DRS directory or

2. sell, offer to sell, distribute, or possess for sale unlisted cigarettes in Connecticut.

Under the bill, it is a class A misdemeanor and an unfair and deceptive trade practice to violate these prohibitions. A class A misdemeanor is punishable by a fine of up to $2, 000, up to one year in jail, or both.

The bill allows the DRS commissioner, in addition to other criminal or civil penalties, after a hearing and using the regular procedure for revoking or suspending a cigarette distributor’s or dealer’s license, to revoke or suspend the license of a tax stamper (i.e., anyone allowed to put Connecticut tax stamps on cigarettes) who violates these prohibitions and any regulations adopted under the bill. Each stamp affixed to, and each offer to sell, cigarettes from an unlisted brand family or manufacturer is a separate violation. The bill also allows the commissioner to levy a maximum civil penalty of 500% of the retail value of the cigarettes or $5, 000, whichever is greater.

It makes cigarettes sold or offered for sale in violation of its provisions contraband and applies existing confiscation, search, and forfeiture procedures to such cigarettes. It requires cigarettes seized and not sold as contraband to be destroyed.

The bill allows the attorney general, on the DRS commissioner’s behalf, to ask for an injunction (1) against actual or threatened violations of the sale prohibitions or the stamper reporting and record keeping requirements and (2) to compel stampers to comply with these provisions.

The bill prohibits the commissioner from issuing or renewing a stamper’s license if he does not certify, in writing and under penalty of false statement, that he will comply with the bill.

When it prevails in any action to enforce the bill, the state is entitled to its costs for investigation, for bringing the action, and for expert witness and reasonable attorneys’ fees. The court must order anyone it determines has violated the bill to pay to the state any profits, gains, gross receipts, or other benefits it received from the violation. Unless expressly provided, the bill’s remedies and penalties are cumulative both with each other and with those available under other state laws.

EFFECTIVE DATE: October 1, 2004

Tax Stamper Reports (§ 11(a) )

The bill requires stampers to give the DRS commissioner, within 25 days after the end of every month and more often if the commissioner directs, information she requires. The information must include a list, by brand family, of the total number of cigarettes, or an equivalent count for roll-your-own tobacco (under the tobacco settlement law, each 0.09 ounces of such tobacco equals one cigarette) , on which the stamper put tax stamps. The bill requires stampers to maintain for five years, and make available to the commissioner, sales documentation and other information they rely on for the report.

The bill requires each stamper to give the commissioner an e-mail address and to update it as needed.

EFFECTIVE DATE: January 1, 2005

Additional Information And Reporting (§ 11(c) , (d) )

The bill allows the attorney general to require any nonparticipating manufacturer, at any time, to provide proof of how much money is in its qualified escrow fund, including the amount excluding interest, and the amount and date of each deposit and withdrawal. It requires the financial institution where the fund is established to provide the proof to the manufacturer.

In addition to the specified information, the bill allows the DRS commissioner to require a stamper or manufacturer covered by the state tobacco settlement law to submit other information, including samples of each brand family’s packaging or labels, needed to allow the attorney general to determine a manufacturer’s compliance with the bill.

EFFECTIVE DATE: January 1, 2005

Disclosure And Information Sharing (§ 11(b) )

The bill allows the commissioner to disclose to the attorney general any information she receives under the bill that he requests to determine compliance and to enforce its provisions. It requires the commissioner and the attorney general to share information they receive with each other and allows them to share it with other state, federal, and local agencies, but only to enforce the bill or Connecticut’s or other states’ tobacco settlement laws.

EFFECTIVE DATE: January 1, 2005

Quarterly Escrow Payments (§ 11(e) )

The bill allows the DRS commissioner to adopt regulations requiring nonparticipating manufacturers to make escrow deposits quarterly in the same year that the sales covered by the payment occur. It allows the commissioner to require information to determine whether the quarterly payments are adequate.

EFFECTIVE DATE: January 1, 2005

Agent For Service Of Process Requirements (§ 10)

As a condition of having its brand families listed in the DRS directory, the bill requires nonparticipating manufacturers not registered to do business here to appoint and maintain a Connecticut agent for receiving notice of any process, action, or proceeding against it under the bill or under the state tobacco settlement law or its regulations. Any process served on the agent constitutes legal and valid service on the nonparticipating manufacturer. The manufacturer must give the attorney general and the DRS commissioner the agent’s name, address, and telephone number, along with satisfactory proof of his appointment and availability.

A nonparticipating manufacturer must give the commissioner and the attorney general 30 calendar days notice before terminating its agent’s authority and proof that it appointed a new agent at least five days before ending its existing agent’s appointment. If its agent resigns, the manufacturer must notify the officials and provide proof of a new appointment no more than five days later.

The bill requires the secretary of the state to be the agent for service of process for any nonparticipating manufacturer whose products are sold in Connecticut but who has not appointed an agent. Proceedings against such a manufacturer may be brought by serving process on the secretary, but the secretary’s appointment does not satisfy the agent appointment requirement for having the manufacturer’s brand families listed in the DRS directory.

EFFECTIVE DATE: October 1, 2004

Severability And Relationship To Tobacco Settlement Law (§ 14)

If a court finds that any of the foregoing enforcement provisions conflict with those of the state tobacco settlement law, the tobacco settlement law prevails. The bill also invalidates any of its parts that cause the state tobacco settlement law to lose its status as a qualifying or model statute under the tobacco master settlement agreement and specifies that any invalidated parts do not affect the validity of the remainder of the bill.

EFFECTIVE DATE: October 1, 2004

EXCESS ESCROW ACCOUNT REFUNDS (§§ 15, 16)

The bill changes the conditions for refunding excess escrow account payments to nonparticipating manufacturers. Under current law, funds may be released from an escrow account if the manufacturer shows that the amount it had to place in escrow in any year was more than Connecticut’s share of the total payment it would have had to make for the year if it had participated in the settlement agreement, before any required adjustments or offsets. The bill instead allows release only if the manufacturer shows that the amount it had to pay on account of its Connecticut sales was greater than all its required master settlement agreement payments would have been, after final determination of all adjustments.

It invalidates the change if it is found unconstitutional by an appropriate court.

EFFECTIVE DATE: July 1, 2004 for the change in escrow refund conditions; upon passage for the provision invalidating the change if a court finds it unconstitutional.

FUNDING (§ 17)

Starting with FY 2005, the bill appropriates $100, 000 annually to DRS and $25, 000 annually to the Attorney General’s Office from the Tobacco Settlement Fund. The funds must be used to enforce the bill and the state tobacco settlement law.

EFFECTIVE DATE: July 1, 2004

DISCLOSURE OF DISTRIBUTOR TAX INFORMATION (§ 18)

The bill allows the DRS commissioner to disclose certain information from a licensed cigarette distributor’s cigarette tax returns to a nonparticipating manufacturer. The commissioner may disclose information only when (1) it relates to sales of the manufacturer’s cigarettes to consumers in Connecticut, either directly or through a cigarette distributor, dealer, or similar intermediary and (2) there is reasonable cause to believe that the manufacturer is not complying with escrow payment requirements.

EFFECTIVE DATE: Upon passage

BACKGROUND

Cigarette Licensees

Anyone wishing to sell cigarettes in the state must have a license from DRS. There are two kinds of licenses. Cigarette manufacturers, wholesalers, and large-scale cigarette retailers (those who operate five or more retail outlets or 25 or more cigarette vending machines) are licensed as “distributors.” All other sellers are considered “dealers.”

Model Statute

The state tobacco settlement law is the “model statute” required under the tobacco master settlement agreement. States without model statutes have their allotments from the settlement reduced by up to 65%.

Unfair and Deceptive Trade Practice

The Connecticut Unfair Trade Practices Act (CUTPA) prohibits businesses from engaging in unfair and deceptive acts or practices. CUTPA allows the Department of Consumer Protection commissioner to issue regulations defining what constitutes an unfair trade practice, investigate complaints, issue cease and desist orders, order restitution in cases involving less than $5, 000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. The act also allows individuals to bring suit. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys fees; and impose civil penalties of up to $5, 000 for willful violations and $25, 000 for violating a restraining order.

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable Substitute