TAF-10-10-00004-P Certification by Cigarette Stamping Agents

3/10/10 N.Y. St. Reg. TAF-10-10-00004-P

NEW YORK STATE REGISTER

VOLUME XXXII, ISSUE 10

March 10, 2010

RULE MAKING ACTIVITIES

DEPARTMENT OF TAXATION AND FINANCE

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. TAF-10-10-00004-P

Certification by Cigarette Stamping Agents

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Addition of section 74.6 to Title 20 NYCRR.

Statutory authority:

Tax Law, sections 171, subdivision First; 471; and 475

Subject:

Certification by cigarette stamping agents.

Purpose:

To implement statutory changes requiring stamping agents to certify to their compliance with the Cigarette Tax.

Text of proposed rule:

Section 1. A new section 74.6 is added to such regulations to read as follows:

74.6 Agent certification (Tax Law sections 471(1) and (4))

(a) "General." (1) Pursuant to section 471(4) of the Tax Law, no person, including but not limited to a tobacco product manufacturer, may sell unstamped packages of cigarettes to any agent until the person selling the unstamped packages of cigarettes (the supplier) receives a certification from such agent purchasing the unstamped packages of cigarettes certifying, in good faith and under penalty of perjury, that none of the unstamped packages of cigarettes the agent will purchase for resale in or into New York State will be resold by the agent in violation of the terms of Article 20 of the Tax Law.

(2) Before an agent may purchase unstamped packages of cigarettes for resale in or into New York State, the agent must provide to the supplier and to the department, in good faith, a certification, under penalty of perjury, that none of the unstamped packages of cigarettes the agent purchases from the supplier will be resold by the agent in violation of the terms of Article 20 of the Tax Law.

(b) "Contents of certification." The certification required by section 471(4) of the Tax Law shall provide, under penalty of perjury, that none of the unstamped packages of cigarettes the agent will purchase for resale in or into New York State from the supplier will be resold by the agent in violation of the terms of Article 20 of the Tax Law or in violation of any rule or regulation adopted pursuant to Article 20. The certification must specifically provide that:

(1) the agent will not resell unstamped packages of cigarettes in or into New York State, except as specifically authorized by law;

(2) the agent will not affix stamps to packages of cigarettes unless the certifications provided for in section 1399-pp of the Public Health Law pursuant to section 480-b of the Tax Law have been provided by the cigarette manufacturer;

(3) the agent will not affix stamps to packages of cigarettes that have not been certified by the cigarette manufacturer and marked as provided for in section 156-c of the Executive Law pursuant to section 480-b of the Tax Law;

(4) the certification applies to each of the agent's purchases for the entire period covered by the certification;

(5) the agent will only make sales of untaxed packages of cigarettes to Indian nations or tribes or to reservation cigarette sellers that are in accordance with subdivision (f) of this section.

(c) "List of suppliers." Certifications filed with the department must include a list of suppliers from whom the agent will purchase or otherwise acquire unstamped packages of cigarettes.

(d) "Period covered by the certification."

(1) The certification must be filed with the supplier and with the department prior to the first purchase of unstamped packages of cigarettes by the agent from the supplier on or after the date this rule first applies.

(2) An amended certification and list of suppliers must be filed with the department before the first purchase of unstamped packages of cigarettes from a supplier not listed on the current certification.

(3) The agent will be required to provide a new certification to each supplier and to the department each year on or before the date prescribed by the department.

(e) "Certification signature requirements." (1) The proprietor must sign the certification on behalf of a proprietorship; a general partner must sign the certification on behalf of a partnership; and the president, vice president, treasurer, assistant treasurer, chief accounting officer, or other officer duly authorized must sign on behalf of a corporation.

(2) The certification must be sworn to or affirmed:

(i) before a New York State notary public or any other person authorized by section 298 of the Real Property Law if the certification is sworn to or affirmed in New York State, or

(ii) before any officer authorized by, and in the manner described in, section 299 of the Real Property Law if the certification is sworn to or affirmed outside New York State. The proof of authority of the officer issuing the oath or witnessing the affirmation must meet the requirements of section 299-a of the Real Property Law.

(f) "Sales of cigarettes to Indian nations or tribes and reservation cigarette sellers."

(1) In order to ensure an adequate quantity of cigarettes on qualified reservations that may be purchased by an Indian nation or tribe for its official use or by qualified Indians on their qualified reservations without payment of taxes, the Indian nation or tribe or reservation cigarette seller shall be entitled to purchase up to a certain number of untaxed packages of cigarettes, as determined pursuant to this subdivision.

(2) The amount of untaxed packages of cigarettes for each Indian nation or tribe shall be an amount determined by the department based upon the probable demand of the qualified Indians on the nation's or tribe's qualified reservation plus the amount needed for official nation or tribal use.

(i) Probable demand shall be determined by reference to, among other data, the United States average cigarette consumption per capita, as compiled for the most recently completed calendar or fiscal year, multiplied by the number of qualified Indians for each such affected Indian nation or tribe. Each September, the department will determine the annual amount of untaxed packages of cigarettes for each of the Indian nations or tribes for the forthcoming twelve-month period beginning December 1. The annual amount of untaxed packages of cigarettes will be determined using a probable demand methodology as follows: (A) the most recent U.S. Census data on tribal populations in New York State is obtained and then increased by ten percent for each Indian nation or tribe to allow for potential undercounting in Census enumeration and for nation or tribal use and (B) each Indian nation's or tribe's adjusted population is then multiplied by average annual per capita consumption amounts, as produced annually by the federal government, for cigarettes. The estimated annual consumption amounts for each Indian nation or tribe are then prorated to quarterly periods for each of the four quarters beginning with the first day of December, March, June, and September. The quarterly consumption amounts are then rounded upward to accommodate cases of 300 packs of 20 cigarettes. Using the methodology above for the twelve-month period beginning December 1, 2009, the quarterly amounts of untaxed packages of cigarettes for each of the Indian nations or tribes for any quarterly period during which these provisions apply are calculated in the table below. As indicated in subparagraph (ii) of this paragraph, these amounts are subject to adjustment based on evidence provided by the Indian nations or tribes as to their actual consumption amounts for these periods.

Indian Nation or Tribe:	NYS Population (2000 census)	Quarterly Cigarette Amount (Packs)
Cayuga	947	20,100
Oneida	1,473	31,200
Onondaga	2,866	60,600
Poospatuck (Unkechauge)	376	8,100
Seneca (Allegany, Cattaraugus, Oil Springs)	7,967	168,600
Shinnecock	1,915	40,500
St. Regis Mohawk	13,784	291,600
Tonawanda Band of Senecas	256	5,700
Tuscarora	1,025	21,900
Total	30,610	648,300

(ii) In making a determination of probable demand, the department shall take into consideration any evidence submitted by the recognized governing body of an Indian nation or tribe relating to such probable demand (e.g., a verifiable record of previous sales to qualified Indians or other statistical evidence) and/or relating to the amount needed for such nation=s or tribe=s official use. In the case of the annual determination made by the department in September, any such evidence submitted by October 31 will be taken into consideration and any adjustments will be made prior to the twelve-month period beginning December 1 to which the determination relates.

(iii) The department shall publish on its Web site the amount of untaxed packages of cigarettes that may be sold for each Indian nation or tribe during each quarter.

(3) Agents must report to the department sales of untaxed packages of cigarettes to an Indian nation or tribe, a reservation cigarette seller or any other person on a qualified reservation. Such report must be made within 24 hours of such sales (regardless of whether such time period ends on a Saturday, Sunday, or public holiday) and in a manner as prescribed by the department. From these reports, the department will determine and publish information on its Web site concerning the remaining amount of cigarettes that may be sold during the quarter with respect to each Indian nation or tribe without exceeding the amount determined pursuant to paragraph (2) of this subdivision.

(4) Before selling any amount of untaxed packages of cigarettes to an Indian nation or tribe, a reservation cigarette seller or any other person on a qualified reservation, agents must exercise due diligence in determining that the sale of such untaxed packages of cigarettes will not cause the total amount of untaxed packages of cigarettes to exceed the amount determined pursuant to paragraph (2) of this subdivision. Specifically, agents must ascertain from the information published by the department pursuant to paragraph (3) of this subdivision that the untaxed packages of cigarettes may be sold without exceeding the amount of untaxed packages of cigarettes determined pursuant to this subdivision or, if the system set forth in section 471-e of the Tax Law is in effect, such sales must be made in accordance with such system.

(5) The sale by an agent of untaxed packages of cigarettes in excess of the amount determined pursuant to paragraph (2) of this subdivision constitutes a violation of the terms of Article 20 of the Tax Law.

(6) If any provision contained in this section, or the application thereof, shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of this section, but shall be confined to the particular provision directly involved in the controversy in which such judgment shall have been rendered, and the applicability of such provision to persons not parties to the controversy in which such judgment shall have been rendered, or to other circumstances, shall not be affected thereby.

Section 2. This rule shall take effect on the date that the Notice of Adoption is published in the State Register and shall apply to tax periods commencing with the first quarter, as described in this rule, beginning after such date. The department shall consider any evidence relating to probable demand submitted prior to the effective date of the rule by the recognized governing body of an Indian nation or tribe and shall make the determination of probable demand for the initial quarterly period or periods to which the rule applies as soon as practicable following the effective date and prior to the initial quarterly period to which the rule applies.

Text of proposed rule and any required statements and analyses may be obtained from:

John W. Bartlett, Tax Regulations Specialist 4, Department of Taxation and Finance, Taxpayer Guidance Division, Building 9, W. A. Harriman Campus, Albany, NY 12227, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Regulatory Impact Statement

1. Statutory authority: Tax Law, sections 171, subd. First; 471; and 475. Section 171, subdivision First provides general authority for the Commissioner of Taxation and Finance to make reasonable rules and regulations that may be necessary for the exercise of the Commissioner's powers and the performance of his or her duties under the Tax Law. Section 471(1) imposes the tax on cigarettes, except where the State is "without power to impose such tax." Section 471(4) provides that cigarette stamping agents must provide suppliers and the Department with a certification, under penalty of perjury, that cigarettes will not be resold in violation of Article 20 of the Tax Law, which imposes the cigarette tax. Section 475 authorizes the Commissioner specifically to administer the tax on cigarettes and tobacco products imposed under Article 20 of the Tax Law, and also provides that returns may be required to be filed at such times and containing such information as may be prescribed.

2. Legislative objectives: The rule is being proposed pursuant to such authority to help enable the Department to better ensure compliance with the provisions contained in Article 20 of the Tax Law that call for the imposition of cigarette taxes. The rule provides a method whereby agents can determine whether their sales of untaxed packages of cigarettes would be in excess of the amount necessary for the use and consumption by the Indian nations or tribes and their members to better enable the agents to certify their compliance with Article 20, as required by section 471(4) of the Tax Law, with respect to their sales involving Indian reservations.

3. Needs and benefits: The rule implements the statutory provisions of section 471(4) of the Tax Law, which requires stamping agents who purchase unstamped packages of cigarettes from any person, including, but not limited to, a tobacco product manufacturer, that are intended for resale in or into New York State, to provide that person and the Department with a certification, under penalty of perjury, that the cigarettes will not be resold in violation of Article 20 of the Tax Law.

The rule provides procedures to be followed for the certification process, such as certification signature and swearing requirements, as well as the time periods covered by the certification. In addition, in order to facilitate the agent certification with respect to sales involving Indian reservations, the rule also provides a method whereby agents can determine whether their sales of untaxed packages of cigarettes would be in excess of the amount necessary for use or consumption by the Indian nations or tribes and their members. The rule sets forth a methodology for computing probable demand of the Indian nations or tribes and their members and special reporting requirements for sales of untaxed packages of cigarettes to Indian nations or tribes and reservation cigarette sellers, and provides for the publication on the Department's Web site of amounts of untaxed packages of cigarettes that may be sold for each Indian nation or tribe.

4. Costs: (a) Costs to regulated parties. The regulated parties affected by this rule are approximately 75 cigarette stamping agents located in New York State. Although the implementation of the statutory amendments regarding the certification of stamping agents will have fiscal consequences in terms of collection and payment of taxes that are already due under the Tax Law, the consequences are the result of the statute imposing the taxes. There will be no tax liability costs to these regulated parties for the implementation of and continuing compliance with this rule. The requirement for agents to provide the certification to their suppliers and to the Department is statutory. There are approximately 6 to 8 stamping agents who currently make sales involving Indian reservations that will be required to report their sales of untaxed packages of cigarettes involving Indian reservations to the Department within 24 hours. This will be a simple notification, resulting in minimal administrative costs.

(b) Costs to the State and its local governments including this agency. The cost of the development of the forms (CG-213 and CG-213-I) that stamping agents will be required to file and the cost of the technical memorandum that will be issued to explain the rule are attributable to the implementation of the statutory changes. In addition the cost associated with administering the statutory amendment is estimated at $22,500 (50% staff time of a Tax Technician, salary grade 14). There are minimal administrative costs to the Department associated with receipt of the agents reports related to the sales of untaxed packages of cigarettes to Indian nations or tribes and creating and maintaining the Web content. Overall, it is estimated that the implementation and continued administration of the proposed amendment will have minimal fiscal impact on the Department. Although the implementation of the statutory amendments regarding the certification of stamping agents will have fiscal consequences in terms of collection of taxes that are due under the Tax Law, the consequences are the result of the statute imposing the taxes. This rule itself does not have any State or local fiscal consequences apart from the statutory amendments.

(c) Information and methodology. This analysis is based on review of the rule and statutory requirements and discussions among personnel from the Department's Office of Tax Policy Analysis, Office of Counsel, Office of Tax Enforcement and the Office of Budget and Management Analysis, including the Management Analysis and Project Services Bureau.

5. Local government mandates: The rule imposes no mandates upon any county, city, town, village, school district, fire district, or other special district.

6. Paperwork: The rule imposes additional reporting on agents making sales of untaxed packages of cigarettes to an Indian nation or tribe, a reservation cigarette seller or any other person on a reservation. These agents must notify the Department within 24 hours of the sale.

7. Duplication: There are no relevant rules or other legal requirements of the Federal or State governments in effect that duplicate, overlap, or conflict with this rule.

8. Alternatives: An alternative method to limit the amount of untaxed packages being sold involving Indian reservations to amounts necessary for use or consumption by Indian nations or tribes and their members would be the coupon system set forth in section 471-e of the Tax Law. This rule does not implement this system, which has proved problematic and is the subject of litigation. This rule introduces a probable demand formula developed by the Department to estimate the demand for cigarettes by Indian nations or tribes and their members. Although other states have implemented various approaches to assure a quantity of untaxed cigarettes, the rule provides that the Department will use Federal data because it is the most reliable and consistent source of information regarding cigarette demand.

9. Federal standards: This rule does not exceed any minimum standards of the Federal government for the same or similar subject area.

10. Compliance schedule: The rule will take effect on the date that the Notice of Adoption is published in the State Register and will apply to tax periods commencing with the first sales tax quarter (i.e., quarter beginning September 1, December 1, March 1, or June 1), beginning after such date.

Regulatory Flexibility Analysis

1. Effect of rule: The rule will affect approximately 75 cigarette stamping agents, some of which may be small businesses as defined in section 102(8) of the State Administrative Procedure Act. The rule does not distinguish between different business sizes. The rule affects all stamping agents in the same manner, regardless of the size of the business operation. Those agents selling untaxed packages of cigarettes involving Indian reservations will need to notify the Department within 24 hours of the sales.

2. Compliance requirements: The rule will not impose any adverse economic impact or any additional reporting, recordkeeping, or compliance requirements on local governments. Section 471(4) of the Tax Law provides that every cigarette stamping agent that purchases unstamped packages of cigarettes from any person, including, but not limited to, a tobacco product manufacturer, that are intended for resale in or into New York State, must provide that person and the Tax Department with a certification on an annual basis under penalty of perjury that the cigarettes will not be resold in violation of Article 20 of the Tax Law. The rule provides further guidance pertaining to certification requirements. The rule imposes an additional reporting requirement on agents making sales of untaxed packages of cigarettes to an Indian nation or tribe, a reservation cigarette seller or any other person on a reservation. These agents must notify the Department within 24 hours of the sale.

3. Professional services: The rule imposes no requirements for professional services upon small businesses or local governments. However, an affected stamping agent may decide to use professional services, in addition to those it may already employ to prepare its tax returns, to comply with the certification paperwork required pursuant to the statute and set forth in the rule.

4. Compliance costs: There are no compliance costs to local governments as a result of this rule. The regulated parties affected by this rule are approximately 75 cigarette stamping agents located in New York State. There will be no tax liability costs to these regulated parties for the implementation of and continuing compliance with this rule. The requirement for agents to provide the certification to their suppliers and to the Department is statutory. There are approximately 6 to 8 stamping agents who currently make sales involving Indian reservations that will be required to report their sales of untaxed packages of cigarettes involving Indian reservations to the Department within 24 hours. This will be a simple notification, resulting in minimal administrative costs.

5. Economic and technological feasibility: The rule does not impose any economic or technological compliance burdens on small businesses or local governments.

6. Minimizing adverse impact: This rule relates to the statutory requirement that every cigarette stamping agent that purchases unstamped packages of cigarettes from any person, including, but not limited to, a tobacco product manufacturer, that are intended for resale in or into New York State, must provide that person and the Department with a certification on an annual basis under penalty of perjury that the cigarettes will not be resold in violation of Article 20 of the Tax Law. The rule also provides procedures to be followed for the certification process, such as certification signature and swearing requirements, as well as the time periods covered by the certification. In addition, in order to facilitate the agent certification with respect to sales involving Indian reservations, the rule provides a method whereby agents can determine whether their sales of untaxed packages of cigarettes would be in excess of the amount necessary for use or consumption by the Indian nations or tribes and their members. The rule sets forth a methodology for computing probable demand of the Indian nations or tribes and their members and special reporting requirements for sales of untaxed packages of cigarettes to Indian nations or tribes and reservation cigarette sellers, and provides for the publication on the Department's Web site of amounts of untaxed packages of cigarettes that may be sold for each Indian nation or tribe.

7. Small business participation: The following organizations are being notified that the Department is developing this rule: the Association of Towns of New York State; the Division of Local Government Services of New York State Department of State; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York State Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; the Retail Council of New York State; the New York Association of Convenience Stores; and the New York State Association of Wholesale Marketers and Distributors.

Rural Area Flexibility Analysis

1. Types and estimated numbers of rural areas: The rule will affect approximately 75 cigarette stamping agents some of which may be located in rural areas as defined by section 102(10) of the State Administrative Procedure Act. There are 44 counties throughout this State that are rural areas (having a population of less than 200,000) and 9 more counties having towns that are rural areas (with population densities of 150 or fewer people per square mile). The rule affects all cigarette stamping agents in the same way; it does not distinguish between cigarette stamping agents located in rural, suburban, or metropolitan areas of this State.

2. Reporting, recordkeeping and other compliance requirements; and professional services: Section 471(4) of the Tax Law provides that every cigarette stamping agent that purchases unstamped packages of cigarettes from any person, including, but not limited to, a tobacco product manufacturer, that are intended for resale in or into New York State, must provide that person and the Department with a certification on an annual basis under penalty of perjury that the cigarettes will not be resold in violation of Article 20 of the Tax Law. The rule provides further guidance pertaining to certification requirements. The rule imposes an additional reporting on agents making sales of untaxed packages of cigarettes to an Indian nation or tribe, a reservation cigarette seller or any other person on a reservation. These agents must notify the Department within 24 hours of the sale. The rule does not require professional services. An affected stamping agent may decide to use professional services, in addition to those it may already employ to prepare its tax returns, to comply with the certification paperwork required pursuant to the statute and set forth in the rule. The rule does not impose any requirements on public entities in rural areas.

3. Costs: There are no variations in costs for public or private concerns in rural areas. The regulated parties affected by this rule are approximately 75 cigarette stamping agents located in New York State. The requirement for agents to provide the certification to their suppliers and to the Department is statutory. There are approximately 6 to 8 stamping agents who currently make sales involving Indian reservations that will be required to report their sales of untaxed packages of cigarettes involving Indian reservations to the Department within 24 hours. This will be a simple notification, resulting in minimal administrative costs. With regard to the affected stamping agents located in rural areas or elsewhere, there will be no tax liability impact.

4. Minimizing adverse impact: This rule relates to the statutory requirement that every cigarette stamping agent that purchases unstamped packages of cigarettes from any person, including, but not limited to, a tobacco product manufacturer, that are intended for resale in or into New York State, must provide that person and the Tax Department with a certification on an annual basis under penalty of perjury that the cigarettes will not be resold in violation of Article 20 of the Tax Law. The rule also provides procedures to be followed for the certification process, such as certification signature and swearing requirements, as well as the time periods covered by the certification. In addition, in order to facilitate the agent certification with respect to sales involving Indian reservations, the rule provides a method whereby agents can determine whether their sales of untaxed packages of cigarettes would be in excess of the amount necessary for use or consumption by the Indian nations or tribes and their members. The rule sets forth a methodology for computing probable demand of the Indian nations or tribes and their members and special reporting requirements for sales of untaxed packages cigarettes to Indian nations or tribes and reservation cigarette sellers, and provides for the publication on the Department's Web site of amounts of untaxed packages of cigarettes that may be sold for each Indian nation or tribe.

5. Rural area participation: The following organizations are being notified that the Department is developing this rule: the Association of Towns of New York State; the Division of Local Government Services of New York State Department of State; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York State Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; the Retail Council of New York State; the New York Association of Convenience Stores, and the New York State Association of Wholesale Marketers and Distributors. These organizations include members in rural areas.

Job Impact Statement

A Job Impact Statement is not being submitted with this rule because it is evident from the subject matter of the rule that it would have no adverse impact on jobs and employment opportunities.

This rule adds new section 74.6, Agent Certification, to implement the statutory provisions of section 471(4) of the Tax Law. It also provides procedures to be followed for the certification process, such as certification signature and swearing requirements, as well as the time periods covered by the certification. In addition, in order to facilitate the agent certification with respect to sales involving Indian reservations, the rule also provides a method whereby agents can determine whether their sales of untaxed packages of cigarettes would be in excess of the amount necessary for use or consumption by the Indian nations or tribes and their members. The rule sets forth a methodology for computing probable demand of the Indian nations or tribes and their members and special reporting requirements for sales of untaxed packages of cigarettes to Indian nations or tribes and reservation cigarette sellers, and provides for the publication on the Department’s Web site of amounts of untaxed packages of cigarettes that may be sold for each Indian nation or tribe.