HBA-AMW C.S.H.B. 2378 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2378 By: Kuempel Ways & Means 4/9/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Because of federal and state taxes, the price of American manufactured cigarettes intended for export is significantly less than American manufactured cigarettes designated for domestic consumption. Before 1999, wholesalers were legally able to buy large volumes of cigarettes manufactured in the United States but intended for export, pay all required taxes and duties for reimportation of the products, and market the export products at a significant discount from the product sold for domestic consumption. This retailing process deceived consumers who believed that the export cigarettes were of the same quality as cigarettes intended for domestic consumption. C.S.H.B. 2378 prohibits a stamp from being affixed to cigarettes that violate federal regulations, establishes a system for identifying and monitoring tax stamping, and establishes prohibitions relating to certain cigarettes. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 2378 amends the Tax Code to prohibit a person from affixing a stamp to a package of cigarettes if the package contains cigarettes with respect to which any person is not in compliance with federal regulations relating to submission of ingredient information to federal authorities, imports of certain cigarettes, or previously exported tobacco products, and any other federal law or implementing federal regulation (Sec. 154.0415, Tax Code). The bill requires the comptroller of public accounts (comptroller) to design and furnish stamps in a manner that permits identification of the person that affixed the stamp to the particular package of cigarettes by means of a number or other mark on the stamp. The bill requires the comptroller to maintain for at least four years the information identifying the person that affixed the stamp to each package of cigarettes (Sec. 154.053). The bill provides that a distributor must include in the distributor's records of purchase or receipt and in the report the distributor is required to deliver to the comptroller of public accounts a copy of customs certificates for all cigarettes imported into the United States to which the distributor has affixed a tax stamp (Secs. 154.201 and 154.210). The bill adds that a person must knowingly affix stamps to prohibited cigarettes in order for the person to commit an offense (Sec. 154.5025). The bill amends the Business & Commerce Code to authorize a person who sells, distributes, or manufactures cigarettes and who sustains direct economic or commercial injury as a result of a violation of affixing stamps to prohibited cigarettes or a violation of the prohibitions relating to certain cigarettes to bring an action in good faith for appropriate injunctive relief in addition to any other remedy provided by law (Sec. 35.49). C.S.H.B. 2378 amends the Penal Code to provide that a person commits a felony if the person knowingly acquires, holds, owns, possesses, or transports for sale or distribution in this state or the person knowingly imports or causes to be imported into this state for sale or distribution in this state certain contraband cigarettes. The bill also provides that this offense is punishable by a fine not to exceed $5,000, imprisonment in the institutional division of the Texas Department of Criminal Justice for not more than five years, or both the fine and imprisonment (Sec. 48.015). EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2378 modifies the original bill by requiring the comptroller of public accounts (comptroller) to place a number, rather than a serial number, on a stamp for identification and requiring the comptroller to maintain the identifying information for four, rather than three years. The bill removes the provision from the original bill that specifies that the information identifying the person who affixed the stamp to each package of cigarettes is not confidential or exempt from disclosure to the public (Sec. 154.053, Tax Code). The substitute adds provisions regarding cigarettes that are prohibited from having stamps affixed to the packages, information included in distributor's reports, and violations of the prohibitions against affixing stamps to certain cigarettes (Secs. 154.015, 154.201, 154.210, and 154.5025). The substitute also adds provisions regarding prohibitions relating to certain cigarettes and remedies for violations of these prohibitions and prohibitions against affixing stamps to certain cigarettes (Sec. 48.015, Penal Code and Sec. 35.49, Business & Commerce Code). The substitute removes provisions in the original bill regarding the applicability of tax stamp requirements to cigarettes intended for personal use or for duty-free sales and for resale within a customs territory, distributor's reports required to be filed with the comptroller, and seizure and destruction of certain contraband cigarettes.