Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 13, chapter 37, Arizona Revised Statutes, is amended by adding section 13-3711, to read:

START_STATUTE13-3711. Unlawful commercial use of cigarette machines; civil penalties; forfeiture; classification

A. It is unlawful to use or make available for use for commercial purposes a machine that is capable of making cigarettes or other tobacco products except if the machine is to be used exclusively for the owner's personal consumption or use and the machine is not located on a retail or other business premises.

B. The Department of Revenue is authorized to seize the machine and all related tubes, papers, tobacco products and materials, which shall be forfeited to this State following the process prescribed in section 42-1124. All forfeited tobacco products shall also be destroyed pursuant to Section 42-1124.

C. A person who knowingly violates this section is guilty of a class 6 felony and is also subject to the following:

1. The revocation or termination of a license issued pursuant to section 42-3201.

2. A civil penalty not to exceed fifty thousand dollars for each violation.

3. An injunction to restrain a threatened or actual violation of this section.

4. Recovery by this state for all of the following:

(a) The cost of any investigation related to a violation of this section.

(b) The cost of the action related to a violation of this section.

Sec. 2. Section 44-7101, Arizona Revised Statutes, is amended to read:

START_STATUTE44-7101. Tobacco product manufacturers escrow accounts; model statute

This state enacts the model statute described in the master settlement agreement entered into on November 23, 1998 between this state and certain United States tobacco product manufacturers as exhibit T as follows:

Section 1. Findings and Purpose.

(a) Cigarette smoking presents serious public health concerns to the state and to the citizens of the state.� The surgeon general has determined that smoking causes lung cancer, heart disease and other serious diseases, and that there are hundreds of thousands of tobacco‑related deaths in the United States each year.� These diseases most often do not appear until many years after the person in question begins smoking.

(b) Cigarette smoking also presents serious financial concerns for the state.� Under certain health‑care programs, the state may have a legal obligation to provide medical assistance to eligible persons for health conditions associated with cigarette smoking, and those persons may have a legal entitlement to receive such medical assistance.

(c) Under these programs, the state pays millions of dollars each year to provide medical assistance for these persons for health conditions associated with cigarette smoking.

(d) It is the policy of the state that financial burdens imposed on the state by cigarette smoking be borne by tobacco product manufacturers rather than by the state to the extent that such manufacturers either determine to enter into a settlement with the state or are found culpable by the courts.

(e) On November 23, 1998, leading United States tobacco product manufacturers entered into a settlement agreement, entitled the "master settlement agreement," with the state. The master settlement agreement obligates these manufacturers, in return for a release of past, present and certain future claims against them as described therein, to pay substantial sums to the state (tied in part to their volume of sales); to fund a national foundation devoted to the interests of public health; and to make substantial changes in their advertising and marketing practices and corporate culture, with the intention of reducing underage smoking.

(f) It would be contrary to the policy of the state if tobacco product manufacturers who determine not to enter into such a settlement could use a resulting cost advantage to derive large, short‑term profits in the years before liability may arise without ensuring that the state will have an eventual source of recovery from them if they are proven to have acted culpably. It is thus in the interest of the state to require that such manufacturers establish a reserve fund to guarantee a source of compensation and to prevent such manufacturers from deriving large, short‑term profits and then becoming judgment‑proof before liability may arise.

Section 2. Definitions.

(a) "Adjusted for inflation" means increased in accordance with the formula for inflation adjustment set forth in exhibit C to the master settlement agreement.

(b) "Affiliate" means a person who directly or indirectly owns or controls, is owned or controlled by, or is under common ownership or control with, another person.� Solely for purposes of this definition, the terms "owns," "is owned" and "ownership" mean ownership of an equity interest, or the equivalent thereof, of ten percent or more, and the term "person" means an individual, partnership, committee, association, corporation or any other organization or group of persons.

(d) "Cigarette" means any product that contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains (1) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (2) tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette; or (3) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in clause (1) of this definition.� The term "cigarette" includes "roll‑your‑own" (i.e., any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes). For purposes of this definition of "cigarette," 0.09 ounces of "roll‑your‑own" tobacco shall constitute one individual "cigarette."

(e) "Master settlement agreement" means the settlement agreement (and related documents) entered into on November 23, 1998 by the state and leading United States tobacco product manufacturers.

(f) "Qualified escrow fund" means an escrow arrangement with a federally or state chartered financial institution having no affiliation with any tobacco product manufacturer and having assets of at least $1,000,000,000 where such arrangement requires that such financial institution hold the escrowed funds' principal for the benefit of releasing parties and prohibits the tobacco product manufacturer placing the funds into escrow from using, accessing or directing the use of the funds' principal except as consistent with section 3(B)(2) of this act.

(g) "Released claims" means released claims as that term is defined in the master settlement agreement.

(h) "Releasing parties" means releasing parties as that term is defined in the master settlement agreement.

(i) "Tobacco product manufacturer" means an entity that after the date of enactment of this act directly (and not exclusively through any affiliate):

(1) Manufactures cigarettes anywhere that such manufacturer intends to be sold in the United States, including cigarettes intended to be sold in the United States through an importer (except where such importer is an original participating manufacturer (as that term is defined in the master settlement agreement) that will be responsible for the payments under the master settlement agreement with respect to such cigarettes as a result of the provisions of subsection II(MM) of the master settlement agreement and that pays the taxes specified in subsection II(Z) of the master settlement agreement, and provided that the manufacturer of such cigarettes does not market or advertise such cigarettes in the United States);

(2) Is the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer does not intend to be sold in the United States; or

(3) Becomes a successor of an entity described in paragraph (1) or (2).

The term "tobacco product manufacturer" shall not include an affiliate of a tobacco product manufacturer unless such affiliate itself falls within any of (1)‑(3) above.

(j) "Units sold" means the number of individual cigarettes sold in the state by the applicable tobacco product manufacturer (whether directly or through a distributor, retailer or similar intermediary or intermediaries) during the year in question, as measured by:

(1) With regard to cigarettes, state tobacco excise taxes and tribal tobacco luxury taxes collected by the state or pre-collected on packs (or "roll‑your‑own" tobacco containers) bearing the a tobacco excise tax stamp of the state.

(2) With regard to roll-your-own tobacco, state tobacco excise taxes collected by the state and tribal tobacco luxury taxes paid pursuant to section 42-3302.

The department of revenue shall promulgate such regulations as are necessary to ascertain the amount of state excise tax paid on the cigarettes of such tobacco product manufacturer for each year.� The term units sold does not include cigarettes or roll-your-own tobacco that are exempt from state tobacco excise taxes pursuant to section 42-3304.

Section 3. Requirements.

Any tobacco product manufacturer selling cigarettes to consumers within the state (whether directly or through a distributor, retailer or similar intermediary or intermediaries) after the date of enactment of this act shall do one of the following:

(a) Become a participating manufacturer (as that term is defined in section II(jj) of the master settlement agreement) and generally perform its financial obligations under the master settlement agreement; or

(b) (1) place into a qualified escrow fund by April 15 of the year following the year in question the following amounts (as such amounts are adjusted for inflation):

2000:� $.0104712 per unit sold after the date of enactment of this act;

For each of 2001 and 2002:� $.0136125 per unit sold;

For each of 2003 through 2006:� $.0167539 per unit sold;

For each of 2007 and each year thereafter:� $.0188482 per unit sold.

(2) A tobacco product manufacturer that places funds into escrow pursuant to paragraph (1) shall receive the interest or other appreciation on such funds as earned. Such funds themselves shall be released from escrow only under the following circumstances:

(a) 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 subparagraph (i) in the order in which they were placed into escrow and (ii) only to the extent and at the time necessary to make payments required under such judgment or settlement;

(b) 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 the state in a particular year was greater than the master settlement agreement payments, as determined pursuant to section IX(i) of that agreement including after final determination 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 such tobacco product manufacturer; or

(c) To the extent not released from escrow under subparagraphs (a) or (b), funds shall be released from escrow and revert back to such tobacco product manufacturer twenty‑five years after the date on which they were placed into escrow.

(3) Each tobacco product manufacturer that elects to place funds into escrow pursuant to this subsection shall annually certify to the attorney general that it is in compliance with this subsection.� The attorney general may bring a civil action on behalf of the state against any tobacco product manufacturer that fails to place into escrow the funds required under this section.� Any tobacco product manufacturer that fails in any year to place into escrow the funds required under this section shall:

(a) Be required within 15 days to place such funds into escrow as shall bring it into compliance with this section.� The court, upon a finding of a violation of this subsection, may impose a civil penalty to be paid to the general fund of the state in an amount not to exceed 5 percent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed 100 percent of the original amount improperly withheld from escrow;

(b) In the case of a knowing violation, be required within 15 days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a knowing violation of this subsection, may impose a civil penalty to be paid to the general fund in an amount not to exceed 15 percent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed 300 percent of the original amount improperly withheld from escrow; and

(c) In the case of a second knowing violation, be prohibited from selling cigarettes to consumers within the state (whether directly or through a distributor, retailer or similar intermediary) for a period not to exceed 2 years.

Each failure to make an annual deposit required under this section shall constitute a separate violation and the violator shall pay to the attorney general the costs and attorney fees incurred during a successful prosecution under paragraph (3).

(c) Notwithstanding subparagraph (b), paragraph 2 of this section, a tobacco product manufacturer that elects to place funds into escrow pursuant to subparagraph (b), paragraph 1 of this section may make an irrevocable assignment of its interest in the funds to the benefit of this state.� The assignment shall be permanent and apply to all funds in the escrow account or that may subsequently come into the account, including those funds deposited into the escrow account before the assignment is executed, those funds deposited into the escrow account after the assignment is executed and interest or other appreciation on the funds. The tobacco product manufacturer, the attorney general and the financial institution where the escrow account is maintained may make amendments to the qualified escrow account agreement as may be necessary to effectuate an assignment of rights executed pursuant to this subparagraph or a withdrawal of monies from the escrow amount pursuant to subparagraph (b), paragraph 2 of this section.� An assignment of rights executed pursuant to this subparagraph shall be in writing, shall be signed by a duly authorized representative of the tobacco products manufacturer making the assignment and shall become effective on delivery of the assignment to the attorney general and the financial institution where the escrow account is maintained.� An assignment of escrow funds shall not be made by a tobacco product manufacturer unless and until the Attorney General provides written approval to the tobacco product manufacturer.

(d) Notwithstanding subparagraph (b), paragraph 2 of this section, any escrow funds assigned to the state pursuant to subparagraph (c) of this section shall be withdrawn by the state on the approval of the Attorney General. Any funds withdrawn pursuant to this subparagraph shall be deposited in the Consumer protection-consumer Fraud Revolving Fund established by section 44-1531.01 and shall be calculated on a dollar‑for‑dollar basis as a credit against any judgment or settlement described in subparagraph (b), paragraph 2 of this section that may be obtained against the tobacco product manufacturer that has assigned the funds in the escrow account.� This section does not relieve a tobacco product manufacturer from any past, current or future obligations that the manufacturer may have pursuant to this section or section 44-7111.

Section 4. Effect of judicial action.

If section 3, subparagraph (b), paragraph 2, subdivision (b) is held by a court of competent jurisdiction to be unconstitutional, the following provisions apply in its place:

To the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow 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 (as determined pursuant to section IX(i)(2) of the 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) had it been a participating manufacturer, the excess shall be released from escrow and revert back to such tobacco product manufacturer; or

Any holding of unconstitutionality or the repeal of section 3, subparagraph (b), paragraph 2, subdivision (b) of this statute does not impair or invalidate any other portion of this statute or the application of this statute to any other person or circumstance and the remaining portions of this statute continue in full force and effect. END_STATUTE

Sec. 3. Section 44-7111, Arizona Revised Statutes, is amended to read:

START_STATUTE44-7111. Tobacco; nonparticipating manufacturers; civil penalty; violation; classification

This state enacts the model nonparticipating manufacturers legislation as follows:

Section 1. Findings and Purpose.

The legislature finds that violations of section 44‑7101 threaten the integrity of the tobacco master settlement agreement, the fiscal soundness of the state and the public health. The legislature finds that enacting procedural enhancements will aid the enforcement of section 44‑7101 and thereby safeguard the master settlement agreement, the fiscal soundness of the state and the public health.

Section 2. Definitions.

(a) "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 "100s", and includes any 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.

(b) "Cigarette" has the same meaning prescribed in section 44‑7101.

(d) "Director" means the director of the department.

(e) "Distributor" has the same meaning prescribed in section 42‑3001.

(f) "Master settlement agreement" has the same meaning prescribed in section 44‑7101.

(g) "Nonparticipating manufacturer" means any tobacco product manufacturer that is not a participating manufacturer.

(h) "Participating manufacturer" has the meaning given that term in section II(jj) of the master settlement agreement and all amendments thereto.

(i) "Qualified escrow fund" has the same meaning prescribed in section 44‑7101.

(j) "Tobacco product manufacturer" has the same meaning prescribed in section 44‑7101.

(k) "Units sold" has the same meaning prescribed in section 44‑7101.

Section 3. Certifications; Directory; Tax Stamps.

(a) Certification. Every tobacco product manufacturer whose Cigarettes are sold in this state, whether directly or through a distributor, retailer or similar intermediary or intermediaries, shall execute and deliver on a form prescribed by the attorney general a certification to the director and attorney general not later than the thirtieth day of April each year, certifying that, as of the date of the certification, the tobacco product manufacturer either is a participating manufacturer or is in full compliance with section 44‑7101, section 3(b), including all quarterly installment payments required by regulations as may be promulgated by the attorney general pursuant to section 5(f) of this article.

(1) A participating manufacturer shall include in its certification a list of its brand families.� The participating manufacturer shall update the 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 director.

(2) A nonparticipating manufacturer shall include in its certification (i) a list of all of its brand families and the number of units sold for each brand family that were sold in the state during the preceding calendar year, (ii) a list of all of its brand families that have been sold in the state at any time during the current calendar year, (iii) indicating by an asterisk, 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 the certification and (iv) identifying by name and address any other manufacturer of the brand families in the preceding or current calendar year. The nonparticipating manufacturer shall update the list thirty calendar days prior to any addition to or modification of its brand families by executing and delivering a supplemental certification to the attorney general and director.�

(3) In the case of a nonparticipating manufacturer, the certification shall further certify:

(a) That the nonparticipating manufacturer is registered to do business in the state or has appointed a resident agent for service of process and provided notice thereof as required by section 4.

(b) That the nonparticipating manufacturer (i) has established and continues to maintain a qualified escrow fund and (ii) has executed a qualified escrow agreement that has been reviewed and approved by the attorney general and that governs the qualified escrow fund.

(c) That the nonparticipating manufacturer is in full compliance with section 44‑7101, section (3)(b) and this article, and any regulations promulgated pursuant thereto;

(d) (i) The name, address and telephone number of the financial institution where the nonparticipating manufacturer has established the qualified escrow fund required pursuant to section 44‑7101, section 3(b) and all regulations promulgated pursuant thereto, (ii) the account number of the qualified escrow fund and any subaccount number for the state, (iii) the amount the nonparticipating manufacturer placed in the fund for cigarettes sold in the state during the preceding calendar year, the date and amount of each deposit and such evidence or verification as may be deemed necessary by the attorney general to confirm the foregoing and (iv) the amount of and date of any withdrawal or transfer of funds the nonparticipating manufacturer made at any time from the fund or from any other qualified escrow fund into which it ever made escrow payments pursuant to section 44‑7101, section 3(b) and all regulations promulgated pursuant thereto.

(4) A tobacco product manufacturer may not include a brand family in its certification unless (i) 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 (ii) in the case of a nonparticipating manufacturer, the nonparticipating manufacturer affirms that the brand family is to be deemed to be its cigarettes for purposes of section 44‑7101, section 3(b).� 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 section 44‑7101.

(5) Tobacco product manufacturers shall maintain all invoices and documentation of sales and other information relied upon for the certification for a period of five years, unless otherwise required by law to maintain them for a greater period of time.

(b) Directory of cigarettes approved for stamping and sale.� Not later than ninety days after the effective date of this article, the attorney general shall develop and publish on the attorney general's web site a directory listing all tobacco product manufacturers that have provided current and accurate certifications conforming to the requirements of section 3(a) and all brand families that are listed in those certifications (the "directory"), except as noted below.�

(1) The attorney general shall not include or retain in the directory the name or brand families of any nonparticipating manufacturer that fails to provide the required certification or whose certification the attorney general determines is not in compliance with sections 3(a)(2) and (3), unless the attorney general has determined that the violation has been cured to the satisfaction of the attorney general.

(2) Neither a tobacco product manufacturer nor brand family shall be included or retained in the directory if the attorney general concludes, in the case of a nonparticipating manufacturer, that (i) any escrow payment required pursuant to section 44‑7101, section 3(b) for any period for any brand family, whether or not listed by the nonparticipating manufacturer, has not been fully paid into a qualified escrow fund governed by a qualified escrow agreement that has been approved by the attorney general, or (ii) any outstanding final judgment, including interest thereon, for a violation of section 44‑7101 has not been fully satisfied for the brand family or the manufacturer.

(3) The attorney general 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 in conformity with the requirements of this article.

(4) A distributor that has lawfully affixed stamps to cigarettes and subsequently is unable to sell those cigarettes lawfully because the cigarettes have been removed from the directory pursuant to section 3(b)(2) of this article, may apply to the department for a refund of the cost of such stamps.

(5) Every distributor shall provide and update as necessary an electronic mail address to the director and attorney general for the purpose of receiving any notifications as may be required by this article.

(6) A tobacco product manufacturer included in the directory may request that a new brand family be added to the directory by executing and delivering a supplemental certification with the necessary information to the attorney general and the director.� Not later than forty‑five business days after receiving such a request, and at such earlier time as is reasonable to do so, the attorney general shall either (i) certify the new brand family or (ii) deny the request. However, in cases where the attorney general reasonably determines that it needs additional information to ascertain whether the requestor is the tobacco product manufacturer of the new brand family, the attorney general may take whatever additional time is reasonably needed to process the request, to locate and assemble information or documents needed to process the request, and to notify persons or agencies affected by the request.

(c) Prohibition against stamping or sale of cigarettes not in the directory. It shall be unlawful for any person (1) to affix a stamp to a package or other container of cigarettes of a tobacco product manufacturer or brand family not included in the directory or (2) to sell, offer or possess for sale, in this state, cigarettes of a tobacco product manufacturer or brand family not included in the directory.

(d) A nonparticipating manufacturer shall post a bond for the exclusive benefit of this State if (i) its cigarettes were not sold in the State during any one of the four preceding calendar quarters, (ii) it or any person affiliated with it failed to make a full and timely escrow deposit due under section 44-7101 during any of the five preceding calendar years, unless the failure was not knowing or reckless and was promptly cured on notice or (iii) it or any person affiliated with it, or any of its brands or brands of a person affiliated with it, were removed from the state directory of any State during any of the five preceding calendar years, unless the removal was determined to have been erroneous or illegal.� Entities are affiliated with each other if one directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the other.

(e) The bond shall be posted at least ten days in advance of each calendar quarter as a condition to the nonparticipating manufacture and its brand families being included in the state directory for that quarter.� The amount of the bond shall be the greater of (i) the greatest required escrow amount due from the nonparticipating manufacturer or its predecessor for any of the twelve preceding calendar quarters or (ii) fifty thousand dollars.

(f) If a nonparticipating manufacturer that posted a bond has failed to make or have made on its behalf deposits equal to the full amount owed for a quarter within fifteen days following the due date of the quarter under section 5, subparagraph (g), the state may execute on the bond in the amount equal to any remaining amount of the escrow due.� Amounts that the state collects on a bond shall be deposited into the State treasury and shall reduce the amount of escrow due from that nonparticipating manufacturer in the dollar amount collected.� Escrow obligations above the amount collected on the bond remain due from that nonparticipating manufacturer and, as provided in any joint and several provision in this section, from the importers that sold its cigarettes during that calendar quarter.

(g) The office of the attorney general shall adopt rules necessary to implement subparagraphs (d), (e) and (f) of this section.

(h) Nonparticipating manufacturers located outside the United States must provide a declaration in a form prescribed by the attorney general from each of its importers into the United States of any of its brand families, that the importer accepts joint and several liability with the nonparticipating manufacturer for all escrow deposits due pursuant to section 44-7101 as well as all penalties and other relief available to the State pursuant to section 44-7101 and this section.� The declaration shall appoint a resident agent for service of process in this state pursuant to section 4. The Declarations shall be submitted as part of the certifications required pursuant to this section and updated at least thirty days before any other importer begins the importation of the manufacturer's cigarettes.� Failure to comply with this subparagraph is grounds for removal from the Directory.� For the purposes of this subparagraph, "Importer" has the same meaning as in 27 code of federal regulations 41.11.

(i) The Attorney General shall have the authority to not retain or refuse to include any brand family or tobacco product manufacturer that (i) does not certify that it is subject to the enforcement of section 44‑7101, this section and section 36-798.06 without any immunity, (ii) provides incorrect, false or misleading statements in any certification submitted to this State pursuant to section 44-7101 or this section or with regard to any year or (iii) was previously or is currently not in compliance with any other federal or state laws, including another state's qualifying statute as defined in the Master Settlement Agreement or if the attorney general has reason to believe that the tobacco product manufacturer will not comply with the laws.

(j) The attorney general has the authority to require the submission of all information, certifications, affidavits and other materials that the attorney general deems appropriate to determine compliance with this section and other related laws, including the grounds for not retaining or not including any brand family or tobacco product manufacturer.

Section 4. Agent for Service of Process.

(a) Requirement for agent for service of process.� Any nonresident or foreign nonparticipating manufacturer that has not registered to do business in the state as a foreign corporation or business entity shall, as a condition precedent to having its brand families included or retained in the directory, 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 this article and section 44‑7101, may be served in any manner authorized by law.� Such service on the agent constitutes legal and valid service of process on the nonparticipating manufacturer. The nonparticipating manufacturer shall provide the name, address, phone number and proof of the appointment and availability of the agent to and to the satisfaction of the attorney general.

(b) The nonparticipating manufacturer shall provide notice to the attorney general thirty calendar days prior to termination of the authority of an agent and shall further provide proof to the satisfaction of the attorney general of the appointment of a new agent not less than five calendar days prior to the termination of an existing agent appointment.� In the event an agent terminates an agency appointment, the nonparticipating manufacturer shall notify the attorney general of the termination within five calendar days and shall include proof to the satisfaction of the attorney general of the appointment of a new agent.

(c) Any nonparticipating manufacturer whose cigarettes are sold in this state and who has not appointed and engaged an agent as herein required shall be deemed to have appointed the secretary of state as the agent and may be proceeded against in courts of this state by service of process upon the secretary of state; provided, however, that the appointment of the secretary of state as the agent shall not satisfy the condition precedent to having the brand families of the nonparticipating manufacturer included or retained in the directory.

Section 5. Reporting of Information; Escrow Installments.

(a) Reporting by distributors.� Not later than twenty calendar days after the end of each calendar quarter, and more frequently if so directed by the director, each distributor shall submit such information as the director requires to facilitate compliance with this article, including, but not limited to, a list by brand family of the total number of cigarettes or, in the case of roll your own, the equivalent stick count, for which the distributor affixed stamps during the previous calendar quarter or otherwise paid the tax due for the cigarettes. The distributor shall maintain, and make available to the director and the attorney general, all invoices and documentation of sales of all nonparticipating manufacturer cigarettes and any other information relied upon in reporting to the director for a period of five years.

(b) Disclosure of information. The department is authorized to disclose to the attorney general any information received under this article and requested by the attorney general for purposes of determining compliance with and enforcing the provisions of this article. The department and attorney general shall share with each other the information received under this article, and may share the information with other federal, state or local agencies only for purposes of enforcement of this article, section 44‑7101 or corresponding laws of other states.

(c) If a tobacco product manufacturer required to establish a qualified escrow fund under section 44‑7101, section 3(b) disputes the attorney general's determination of the amount that the manufacturer is required to deposit into escrow and the attorney general determines that the dispute can likely be resolved by information contained in reports submitted by distributors to the department indicating sales or purchases of the manufacturer's cigarettes, then the attorney general shall produce the relevant portions of the reports to the manufacturer. However, before disclosing the foregoing information, the attorney general may require the manufacturer to provide all records related to its sales of the cigarettes in dispute. The disclosure provided by the attorney general to a tobacco product manufacturer pursuant to this subsection shall be limited to information concerning the cigarettes alleged by the state to be subject to the requirements of section 44‑7101, section 3(b), may be used by the manufacturer only for the limited purpose of determining the appropriate escrow deposit, and may not be disclosed by the manufacturer to any third parties.

(d) Verification of qualified escrow fund.� The attorney general may require at any time from the nonparticipating manufacturer, proof from the financial institution in which the manufacturer has established a qualified escrow fund for the purpose of compliance with section 44‑7101, section 3(b) of the amount of money in the fund, exclusive of interest, the amount and the date of each deposit to the fund, and the amount and date of each withdrawal from the fund.

(e) Requests for additional information. In addition to the information required to be submitted pursuant to this article, the director and attorney general may require a distributor 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 this article.

(f) Quarterly escrow installments.� To promote compliance with the provisions of this article, the attorney general may promulgate regulations requiring tobacco product manufacturers subject to the requirements of section 3(a)(2) to make the escrow deposits required in quarterly installments during the year in which the sales covered by the deposits are made:

(1) In circumstances where the attorney general reasonably concludes that a manufacturer may not fully and timely comply with section 44‑7101, section 3(b).

(2) Where manufacturers have not made escrow deposits pursuant to section 44‑7101, section 3(b) during the preceding calendar year.

The attorney general may require production of information sufficient to enable the attorney general to determine the adequacy of the amount of the installment deposit.

(g) A tobacco product manufacturer that is subject to the requirements of section 3(a)(2) shall make the required escrow deposits in quarterly installments during the year in which the sales covered by the deposits are made.� The attorney general may require the production of information that is sufficient to enable the attorney general to determine the adequacy of the amount of the installment deposit.

Section 6. Penalties and Other Remedies.

(a) License revocation and civil penalty.� In addition to or in lieu of any other civil or criminal remedy provided by law, upon a determination that a distributor has violated section 3(c) or any regulation adopted pursuant to this article, the director may revoke or suspend the license of the distributor in the manner provided by title 41, chapter 6, article 10 for contested cases. Each stamp affixed and each sale or offer to sell cigarettes in violation of section 3(c) shall constitute a separate violation. The director may also impose 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 section 3(c) or any regulations promulgated pursuant thereto.� The penalty shall be imposed in the manner provided by title 41, chapter 6, article 10 for contested cases.

(b) Contraband and seizure. Any cigarettes that have been sold, offered for sale or possessed for sale in this state in violation of section 3(c) shall be deemed contraband and the cigarettes shall be subject to seizure by the department and forfeiture, and all the cigarettes so seized and forfeited shall be destroyed and not resold.

(c) Injunction. The attorney general, on behalf of the director, may seek an injunction to restrain a threatened or actual violation of section 3(c), 5(a) or 5(d) by a distributor and to compel the distributor to comply with those sections. In any action brought pursuant to this section, the state shall be entitled to recover the costs of investigation, costs of the action and reasonable attorney fees.

(d) Unlawful sale and distribution.� It shall be unlawful for a person to (i) sell or distribute cigarettes, or (ii) acquire, hold, own, possess, transport, import or cause to be imported cigarettes, that the person knows or should know are intended for distribution or sale in the state in violation of section 3(c). A violation of this section is a class 1 misdemeanor.

(e) Deceptive trade practice. A person who violates section 3(c) engages in an unlawful practice in violation of section 44‑1522.� Standing to bring an action to enforce title 44, chapter 10, article 7 for violation of section 3(c) shall lie solely with the attorney general.

Section 7. Miscellaneous Provisions.

(a) Notice and review of determination. A determination of the attorney general to not include or to remove from the directory a brand family or tobacco product manufacturer shall be subject to review as an appealable agency action in the manner prescribed by title 41, chapter 6, article 10.

(b) Dates. For the year 2003, the first report of distributors required by section 5(a) shall be due thirty calendar days after the effective date of this article. The certifications by a tobacco product manufacturer described in section 3(a) shall be due forty‑five calendar days after the effective date and the directory described in section 3(b) shall be published or made available within ninety calendar days after the effective date.

(c) Promulgation of regulations. The department and the attorney general may promulgate regulations necessary to effect the purposes of this article.

(d) Recovery of costs and fees by attorney general.� In any action brought by the state to enforce this article, the state shall be entitled to recover the costs of investigation, expert witness fees, costs of the action and reasonable attorney fees.

(e) Disgorgement of profits for violations of article.� If a court determines that a person has violated this article, the court shall order any profits, gain, gross receipts or other benefit from the violation to be disgorged and paid to the state general fund.� Unless otherwise expressly provided, the remedies or penalties provided by this article are cumulative to each other and to the remedies or penalties available under all other laws of this state.

(f) Construction and severability. If a court of competent jurisdiction finds that the provisions of this article and section 44‑7101 conflict and cannot be harmonized, then the provisions of section 44‑7101 shall control.� If any section, subsection, subdivision, paragraph, sentence, clause or phrase of this article causes section 44‑7101 to no longer constitute a qualifying or model statute, as those terms are defined in the master settlement agreement, then that portion of this article shall not be valid.� If any section, subsection, subdivision, paragraph, sentence, clause or phrase of this article is for any reason held to be invalid, unlawful or unconstitutional, the decision shall not affect the validity of the remaining portions of this article or any part thereof. END_STATUTE

Sec. 4. Exemption from rulemaking

For the purposes of implementing sections 44-7701 and 44-7111, Arizona Revised Statutes, as amended by this act, the Attorney General is exempt from the rule making requirements of title 41, chapter 6, Arizona Revised Statutes, for one year after the effective date of this act.