PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:
Action taken:
Amendment of Parts 74, 82 and sections 70.1, 80.2; repeal of section 79.2 and addition of new section 79.2 to Title 20 NYCRR.
Statutory authority:
Tax Law, sections 171, subd. First; 472 (1); 475 (not subdivided); and L. 2010, ch. 134, part D
Finding of necessity for emergency rule:
Preservation of general welfare.
Specific reasons underlying the finding of necessity:
Chapter 134 of the Laws of 2010 was enacted on June 21, 2010. Part D of Chapter 134, which increased the rate of excise tax on cigarettes, took effect July 1, 2010, and applied to all cigarettes possessed in the state by any person for sale and all cigarettes used in the state by any person on or after July 1, 2010. Part D of Chapter 134 of the Laws of 2010 also imposed a tax on the inventory of cigarettes possessed for sale in New York State and any unaffixed stamps as of the close of business June 30, 2010, based on the increased rate of tax. This rule relates to the implementation of these statutory provisions. This rule also set the commissions allowable to cigarette agents for affixing cigarette stamps relating to the new rate of tax. Without the amendments, the regulation would not provide a rate of commission for affixing cigarette stamps at the new tax rate. In addition, the rule provided procedures relating to the inventory of cigarettes possessed for sale in New York State and any unaffixed stamps required to be taken by all agents, wholesale dealers and retail dealers as of the close of business on June 30, 2010, and the tax due attributable to the increase.
Due to the statutory effective date of these changes, the rule was previously adopted as an emergency measure on June 29, 2010. The June 29, 2010, emergency measure is scheduled to expire on September 26, 2010. The proposal to make the rule permanent was proposed on August 11, 2010, and will not be effective until the date that the Notice of Adoption is published in the State Register. The earliest date the Notice of Adoption may be published is November 3, 2010. This emergency readoption is effective on the date that the Notice of Emergency Adoption is filed with the Department of State (September 13, 2010) and will remain in effect for a period of 60 days (November 11, 2010.) Accordingly, this emergency readoption is required to ensure that the New York State commission rates remain effective and licensed cigarette agents receive a commission from New York State for their services.
Subject:
Cigarette tax.
Purpose:
To implement statutory provisions and set commissions to agents for affixing cigarette stamps relating to the new rate of tax.
Substance of emergency rule:
This rule amends the Cigarette Tax and the Cigarette Marketing Standards regulations, as published in Title 20 NYCRR, in response to legislative changes enacted on June 21, 2010, by Part D of Chapter 134 of the Laws of 2010.
Part D of Chapter 134 of the Laws of 2010 amended Article 20 of the Tax Law to increase the excise tax on cigarettes from $2.75 for each 20 cigarettes, or fraction thereof, to $4.35, effective July 1, 2010. It also imposes a tax on the inventory of cigarettes possessed for sale in New York State and any unaffixed stamps as of the close of business on June 30, 2010, based on the increased rate of excise tax. The purpose of the rule is to make necessary regulatory changes related to implementation of these provisions and set the rate of commissions allowable to cigarette agents for affixing cigarette stamps relating to the new rate of tax. The amendments also update the calculation of the basic cost of cigarettes for purposes of the Cigarette Marketing Standards Act (CMSA). The rule was previously adopted as an emergency measure on June 29, 2010.
Sections 1, 2, 3 and 5 of the rule make technical and conforming amendments to sections 70.1, 74.1, 74.2 and 74.5, respectively, of the Cigarette Tax regulations to reflect the statutory increase in the excise tax on cigarettes and the new denominations of stamps relating to the new rate of tax.
Section 4 of the rule amends section 74.3 of the regulations, which provides the schedule by which commissions (pursuant to section 472 of the Tax Law) are allowed to licensed cigarette agents as compensation for affixing stamps to packages of cigarettes. The rule amends current language to reflect the change in the amount of tax payment represented by the tax stamps, which is the basis upon which the commissions are computed. The current percentage rates and related threshold used to compute commissions are not amended by this rule, resulting in an increase in the commissions on a per stamp basis.
Section 6 of the rule repeals section 79.2 of the regulations and adds a new section 79.2 to reflect the additional amount of tax on the inventory of cigarettes possessed for sale in New York State and any unaffixed tax stamps as of the close of business on June 30, 2010, based on the increased rate of excise tax. For purposes of taking the required June 30, 2010, close of business inventories, the rule allows dealers that operate vending machines to estimate the contents of such machines at one-half of their normal fill capacities. This provision results from the fact that it may not be possible to take an actual physical inventory of every machine a dealer operates in the State on a given day. The rule also outlines the procedures by which a tax on existing inventories will be reported and paid. Pursuant to the statutory provisions, the additional amount of tax on existing inventories must be paid no later than September 20, 2010.
Section 7 of the rule amends section 80.2 of the regulations to reflect the new rate of tax in the computation of the basic cost of cigarettes for purposes of the CMSA.
Sections 8, 9, 10, and 11of the rule make technical amendments to sections 82.2, 82.3, 82.4 and 82.5 of the Cigarette Marketing Standards regulations, respectively, to reflect the change to the basic cost of cigarettes made by section 7 of the rule. These changes are carried through the illustrations outlining the minimum prices at which cigarettes may be sold at various points in the distribution chain.
This notice is intended
to serve only as a notice of emergency adoption. This agency intends to adopt the provisions of this emergency rule as a permanent rule, having previously submitted to the Department of State a notice of proposed rule making, I.D. No. TAF-35-10-00003-P, Issue of September 1, 2010. The emergency rule will expire November 11, 2010.
Text of 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, (518) 457-2254, email: tax_regulations@tax.state.ny.us
Regulatory Impact Statement
1. Statutory authority: Tax Law, sections 171, subdivision First; 472(1); 475 (not subdivided), of the Tax Law; and Part D of Chapter 134 of the Laws of 2010. Section 171, subdivision First of the Tax Law provides for the Commissioner of Taxation and Finance to make reasonable rules and regulations consistent with the law that may be necessary for the exercise of the Commissioner's powers and the performance of the Commissioner's duties under the Tax Law. Section 472(1) of the Tax Law directs the Commissioner to prescribe stamps and authorizes the Commissioner to prescribe commissions. Section 475 (not subdivided) of the Tax Law provides such authority to the Commissioner specifically with respect to the cigarette tax imposed by Article 20 of the Tax Law. Part D of Chapter 134 of the Laws of 2010 amended sections 471(1) and 471-a of the Tax Law to increase the tax on cigarettes from $2.75 to $4.35 for each 20 cigarettes or fraction thereof. In addition, Part D of Chapter 134 imposes a tax on inventories of cigarettes possessed for sale in New York State based on the increased cigarette tax, subject to the terms and conditions as the Commissioner of Taxation and Finance may prescribe.
2. Legislative objectives: The rule is being proposed pursuant to such authority to administer statutory amendments made by Part D of Chapter 134 of the Laws of 2010 to increase the rate of the cigarette tax imposed by Article 20 of the Tax Law. This statutory rate increase was necessary to provide additional revenue for the 2010 - 2011 state fiscal year to support health care programs.
3. Needs and benefits: Part D of Chapter 134 of the Laws of 2010 amended Article 20 of the Tax Law to increase the tax on cigarettes from $2.75 to $4.35 for each 20 cigarettes or fraction thereof effective July 1, 2010. Additionally, Part D of Chapter 134 imposes a tax on the inventory of cigarettes possessed for sale in New York State and any unaffixed stamps as of the close of business June 30, 2010, based on the increased rate of tax.
The purpose of these amendments is to make necessary regulatory changes related to the implementation of these provisions, including providing procedures relating to the tax on the inventory, and to set the commissions allowable to cigarette agents for affixing cigarette stamps based on the new face value of such stamps as of July 1, 2010. In providing for commissions, the rule maintains the current percentage rates per stamp and related threshold amount to which different rates apply. The resulting effect will be an increase in the amount of commission allowable per stamp to take into consideration the amount of the July 1, 2010 tax increase. Finally, the rule updates the calculation of the basic cost of cigarettes.
4. Costs: (a) Costs to regulated persons: The regulated parties directly affected by this rule are 73 licensed cigarettes agents; approximately 265 licensed wholesale dealers (including the licensed cigarette agents), 103 of which are strictly vending machine operators; and approximately 22,000 licensed retail dealers (including approximately 4,500 that have multiple locations). Part D of Chapter 134 of the Laws of 2010 increased the tax on cigarettes imposed by Article 20 from $2.75 to $4.35 for each 20 cigarettes or fraction thereof. The impact of the statutory increase in cigarette tax, which is ultimately borne by consumers, depends on the volumes involved. There is no tax liability impact on the regulated parties for the implementation of and continuing compliance with the rule, as the increased cigarette tax reflected in the rule and the tax on the inventory based on the increased rate of tax are imposed by statute. Regulated parties needed to conduct an inventory of the cigarettes and any unaffixed cigarette tax stamps as of the close of business on June 30, 2010. Based on this inventory, returns are required to be filed and any additional tax on this inventory based on the increased cigarette tax will need to be paid. This is necessitated by Part D of Chapter 134 of the Laws of 2010, which imposes a tax on such inventory and sets the payment date. Amendments to reflect the increased rate of cigarette tax in section 74.3 of the regulations, relating to the commissions allowed to cigarette agents, will affect commissions allowed. The current percentage rates and related threshold for determining commissions are not amended by the rule and will apply to the increased rate of cigarette tax. As a result of the statutory increase and the retention of the current percentage rates and related threshold for determining commissions, annual stamping agent commissions (which are set by regulation and are paid out as a fraction of the applicable tax rate) will increase by approximately $850,000 in the first full year of the increase. Smaller agents will likely receive the benefits of the commission rate applying to the increased tax for a longer period through the calendar year than larger agents because the commission rate is higher for amounts up to a specified dollar amount.
(b) Costs to the State and its local governments including this agency: This rule does not have a revenue impact on New York State or its local governments. As a result of the statutory increase and the retention of the current percentage rates and related threshold for determining commissions, annual stamping agent commissions (which are set by regulation and are paid out as a fraction of the applicable tax rate) will increase by approximately $850,000 in the first full year of the increase. It is estimated that the implementation and continued administration of this rule will have no fiscal impact on the Department of Taxation and Finance.
(c) Information and methodology: These conclusions are based upon the application of the current commission rate to stamps at the higher rate of tax and the anticipated volumes of cigarettes subject to tax, as well as an analysis of the rule from the Department's Taxpayer Guidance Division, Office of Tax Policy Analysis, Office of Counsel, Audit Division, Office of Budget and Management Analysis, and 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: Under the statute and in accordance with the rule, which has been adopted as an emergency measure, regulated parties need to file a return on or before September 20, 2010, showing the quantity of cigarettes possessed for sale in New York State and any unaffixed cigarette tax stamps, as of the close of business on June 30, 2010. This is necessitated by Part D of Chapter 134 of the Laws of 2010, which imposes a tax on such inventory and sets the payment date. Form CG-11, Cigarette Floor Tax Return, has been mailed to affected parties and is available on the Department's Web site.
The rule provides that the tax should be paid by check or money order. Allowing electronic payments associated with this one-time limited time filing requirement would not be practical.
7. Duplication: These amendments do not duplicate any existing Federal or State requirements.
8. Alternatives: The majority of the amendments made by the rule are a direct result of statutory changes. An alternative to amending section 74.3 of the regulations as is done by the rule would have been to reduce the rates of commissions allowed to agents in order to maintain the same amount of commission per stamp. Retaining the rate of commissions and applying that rate to the higher amount of tax results in an increase in the commissions on a per stamp basis. This is consistent with the handling of commissions for previous rate increases. Section 79.2 of the regulations provides for taking a physical inventory of all cigarettes possessed in the State as of close of business on June 30, 2010. Subdivision (b) of section 79.2 provides for estimating of vending machines that cannot be physically inventoried of close of business on June 30, 2010, rather than requiring each vending machine in the state to be physically inventoried. Allowing commissions to increase and providing an alternative for physical inventorying of each vending machine in the state will have a positive impact on regulated parties.
9. Federal standards: The rule does not exceed any minimum standards of the Federal government for the same or similar subject areas.
10. Compliance schedule: Part D of Chapter 134 of the Laws of 2010, requires all agents, wholesale dealers and retail dealers to pay an amount of tax on all cigarettes and unaffixed cigarette tax stamps in inventory as of the close of business on June 30, 2010, based on the increased rate of tax. This amount of tax due must be paid by September 20, 2010. The rule, which was adopted as an emergency measure, provides for the filing of returns by September 20, 2010, showing the quantity of such cigarettes and unaffixed stamps as of the June 30, 2010, close of business inventory. A notice explaining the cigarette tax increase and the related tax on inventory as of the close of business on June 30, 2010, along with Form CG-11, Cigarette Floor Tax Return, have been mailed to affected parties and are available on the Department's Web site.
Regulatory Flexibility Analysis
1. Effect of rule: There are 73 licensed cigarettes agents; approximately 265 licensed wholesale dealers (including the licensed cigarette agents), 103 of which are strictly vending machine operators; and approximately 22,000 licensed retail dealers (including approximately 4,500 that have multiple locations), some of which may be small businesses as defined in section 102(8) of the State Administrative Procedure Act, which will be affected by this rule.
2. Compliance requirements: Part D of Chapter 134 of the Laws of 2010, requires all agents, wholesale dealers and retail dealers, including small businesses, to pay an amount of tax on all cigarettes possessed for sale in New York State and unaffixed cigarette tax stamps in inventory as of the close of business on June 30, 2010, based on the increased rate of tax. This amount of tax due must be paid by September 20, 2010. The rule, which has been adopted as an emergency measure, provides that returns must be filed by September 20, 2010, showing the quantity of all cigarettes and unaffixed stamps as of the June 30, 2010, close of business inventory. The rule provides procedures relating to the tax on the inventory, including rules for the physical inventory of cigarettes in vending machines.
3. Professional services: The rule itself imposes no requirements for professional services upon regulated parties that are small businesses. Depending on the nature or volume of a taxpayer's inventory of cigarettes and/or unaffixed tax stamps, a taxpayer may deem it necessary to employ additional professional services in order to comply with the provisions of the floor tax imposed by the statute.
4. Compliance costs: Section 5 of Part D of Chapter 134 of the Laws of 2010 increased the tax on cigarettes imposed by Article 20 from $2.75 to $4.35 for each 20 cigarettes or fraction thereof. While there will be no additional costs imposed on state or local governments, including the department, by the rule, the statutory amendments necessitate some form changes. The impact of the statutory increase in cigarette tax, which is ultimately borne by consumers, depends on the volumes involved. There is no tax liability impact on regulated parties that are small businesses, for the implementation of and continuing compliance with the rule as the increased cigarette tax reflected in the rule and the tax on the inventory based on the increased rate of tax are imposed by statute. Regulated parties that are small businesses needed to conduct an inventory of the cigarettes and any unaffixed cigarette tax stamps as of the close of business on June 30, 2010. Based on this inventory, returns are required to be filed and any additional tax on this inventory based on the increased cigarette tax will need to be paid. This is necessitated by section 13 of Part D of Chapter 134 of the Laws of 2010, which imposes a tax on such inventory and sets the payment date.
Amendments to reflect the increased rate of cigarette tax in section 74.3 of the regulations, relating to the commissions allowed to cigarette agents, will affect commissions allowed. The current percentage rates and related threshold for determining commissions are not amended by the rule and will apply to the increased rate of cigarette tax. As a result of the statutory increase, annual stamping agent commissions (which are set by regulation and are paid out as a fraction of the applicable tax rate) will increase by approximately $850,000 in the first full year of the increase. Smaller agents will likely receive the benefits of the commission rate applying to the increased tax for a longer period through the calendar year than larger agents because the commission rate is higher for amounts up to a specified dollar amount.
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: The majority of the amendments made by the rule are a direct result of statutory changes. An alternative to amending section 74.3 of the regulations as is done by the rule would have been to reduce the rates of commissions allowed to agents in order to maintain the same amount of commission per stamp. Retaining the rate of commissions and applying that rate to the higher amount of tax results in an increase in the commissions on a per stamp basis. This is consistent with the handling of commissions for previous rate increases. Section 79.2 of the regulations provides for taking a physical inventory of all cigarettes possessed in the State as of close of business on June 30, 2010. Subdivision (b) of section 79.2 provides for estimating of vending machines that cannot be physically inventoried of close of business on June 30, 2010, rather than requiring each vending machine in the state to be physically inventoried. Allowing commissions to increase and providing an alternative for physical inventorying of each vending machine in the state will have a positive impact on regulated parties that are small businesses.
7. Small business and local government participation: The following organizations have been given an opportunity to participate in the rule's development: the Association of Towns of New York State; Empire State Development, Division of Small Business; the National Federation of Independent Businesses; the New York Association of Convenience Stores; the New York State Association Counties; the New York Conference of Mayors and Municipal Officials; the New York State Department of State, Office of Coastal, Local Government, and Community Sustainability; the Small Business Council of the New York State Business Council; the Retail Council of New York State; and the New York State Association of Wholesale Marketers and Distributors.
Rural Area Flexibility Analysis
1. Types and estimated numbers of rural areas: There are 73 licensed cigarettes agents; approximately 265 licensed wholesale dealers (including the licensed cigarette agents), 103 of which are strictly vending machine operators; and approximately 22,000 licensed retail dealers (including approximately 4,500 that have multiple locations); some of which are located in rural areas as defined in section 102(10) of the State Administrative Procedure Act. There are 44 counties in the 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).
2. Reporting, recordkeeping and other compliance requirements; and professional services: Part D of Chapter 134 of the Laws of 2010, requires all agents, wholesale dealers and retail dealers in rural areas to pay an amount of tax on all cigarettes possessed for sale in New York State and unaffixed cigarette tax stamps in inventory as of the close of business on June 30, 2010, based on the increased rate of tax. This amount of tax due must be paid by September 20, 2010. The rule, which has been adopted as an emergency measure, provides that returns must be filed by September 20, 2010, showing the quantity of all cigarettes and unaffixed stamps as of the June 30, 2010, close of business inventory. The rule provides procedures relating to the tax on the inventory, including rules for the physical inventory of cigarettes in vending machines.
The rule itself imposes no requirements for professional services upon regulated parties in rural areas. Depending on the nature or volume of a taxpayer's inventory of cigarettes and/or unaffixed tax stamps, a taxpayer may deem it necessary to employ additional professional services in order to comply with the provisions of the floor tax imposed by the statute.
3. Costs: Part D of Chapter 134 of the Laws of 2010 increased the tax on cigarettes imposed by Article 20 from $2.75 to $4.35 for each 20 cigarettes or fraction thereof. The impact of the statutory increase in cigarette tax, which is ultimately borne by consumers, depends on the volumes involved. There is no tax liability impact on the regulated parties in rural areas for the implementation of and continuing compliance with the rule as the increased cigarette tax reflected in the rule and the tax on the inventory based on the increased rate of tax are imposed by statute. Regulated parties in rural areas needed to conduct an inventory of the cigarettes and any unaffixed cigarette tax stamps as of the close of business on June 30, 2010. Based on this inventory, returns are required to be filed and any additional tax on this inventory based on the increased cigarette tax will need to be paid. This is necessitated by Part D of Chapter 134 of the Laws of 2010, which imposes a tax on such inventory and sets the payment date.
Amendments to reflect the increased rate of cigarette tax in section 74.3 of the regulations, relating to the commissions allowed to cigarette agents, will affect commissions allowed. The current percentage rates and related threshold for determining commissions are not amended by the rule and will apply to the increased rate of cigarette tax. As a result of the statutory increase, annual stamping agent commissions (which are set by regulation and are paid out as a fraction of the applicable tax rate) will increase by approximately $850,000 in the first full year of the increase.
4. Minimizing adverse impact: The majority of the amendments made by the rule are a direct result of statutory changes. An alternative to amending section 74.3 of the regulations as is done by the rule would have been to reduce the rates of commissions allowed to agents in order to maintain the same amount of commission per stamp. Retaining the rate of commissions and applying that rate to the higher amount of tax results in an increase in the commissions on a per stamp basis. This is consistent with the handling of commissions for previous rate increases. Section 79.2 of the regulations provides for taking a physical inventory of all cigarettes possessed in the State as of close of business on June 30, 2010. Subdivision (b) of section 79.2 provides for estimating of vending machines that cannot be physically inventoried of close of business on June 30, 2010, rather than requiring each vending machine in the state to be physically inventoried. Allowing commissions to increase and providing an alternative for physical inventorying of each vending machine in the state will have a positive impact on regulated parties in rural areas.
5. Rural area participation: The following organizations have been given an opportunity to participate in the rule's development: the Association of Towns of New York State; Empire State Development, Division of Small Business; the National Federation of Independent Businesses; the New York Association of Convenience Stores; the New York State Association of Counties; the New York Conference of Mayors and Municipal Officials; the New York State Department of State, Office of Coastal, Local Government, and Community Sustainability; the Small Business Council of the New York State Business Council; the Retail Council of New York State; and the New York State Association of Wholesale Marketers and Distributors.
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 will have no impact on jobs and employment opportunities. This rule amends the Cigarette Tax and the Cigarette Marketing Standards regulations, as published in Title 20 NYCRR, in response to legislative changes enacted on June 21, 2010, by Part D of Chapter 134 of the Laws of 2010. Part D of Chapter 134 increases the excise tax on cigarettes and imposes a tax on the inventory of cigarettes possessed for sale in New York State and any unaffixed stamps as of the close of business June 30, 2010, based on the increased rate of excise tax. The purpose of the rule is to make necessary regulatory changes related to the implementation of these provisions and set the rate of commissions allowable to cigarette agents for affixing cigarette stamps relating to the new rate of tax. The amendments also update the calculation of the basic cost of cigarettes. These amendments will have no impact on jobs or employment opportunities.
