An Act increasing the rate of tax imposed on little cigars under the tobacco products wholesale sales and use tax to equal the tax rate imposed on cigarettes under the cigarette tax, amending and supplementing P.L.1990, c.39.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 2 of P.L.1990, c.39 (C.54:40B-2) is amended to read as follows:

2. As used in sections 2 through 14 and section 20 of [this act] P.L.1990, c.39 (C.54:40B-1 et al.):

"Consumer" means a person except a distributor, manufacturer or wholesaler who acquires a tobacco product for consumption, storage or use in this State;

"Director" means the Director of the Division of Taxation in the Department of the Treasury;

"Distributor" means

a person engaged in the business of selling tobacco products in this State who brings, or causes to be brought into this State from without the State a tobacco product for sale within this State,

a person who makes or manufactures tobacco products in this State for sale in the State,

a person engaged in the business of selling tobacco products without this State who ships or transports tobacco products to a person in this State to be sold to a retail dealer, or

a person who receives tobacco products on which the tax has not or will not be paid by another distributor;

"Dry snuff" means any finely cut, ground or powdered smokeless tobacco that is intended to be sniffed through the nasal cavity, but does not include moist snuff;

"Little cigar" means any roll for smoking made wholly or in part of tobacco, or other substance or substances other than tobacco, irrespective of size, shape or flavoring, which is wrapped or covered by a wrapper or cover made of tobacco, or any other substance or material containing tobacco, and which weighs, excluding the weight of any packaging or any mouthpiece or tip, not more than four pounds per 1,000 units.

"Manufacturer" means a person, wherever resident or located, who manufactures or produces, or causes to be manufactured or produced, a tobacco product and sells, uses, stores or distributes the product regardless of whether it is intended for sale, use or distribution within or without this State;

"Moist snuff" means any finely cut, ground or powdered smokeless tobacco that is intended to be placed or dipped in the oral cavity, but does not include dry snuff;

"Person" means an individual, firm, corporation, copartnership, joint venture, association, receiver, trustee, guardian, executor, administrator, or any other person acting in a fiduciary capacity, or an estate, trust or group or combination acting as a unit, the State Government and any political subdivision thereof, and the plural as well as the singular, unless the intention to give a more limited meaning is disclosed by the context;

"Place of business" means a place where a tobacco product is sold or where a tobacco product is brought or kept for the purpose of sale or consumption, including so far as may be applicable a vessel, vehicle, airplane, train or vending machine;

"Retail dealer" means a person who is engaged in this State in the business of selling any tobacco product at retail. A person placing a tobacco product vending machine at, or on any premises shall be deemed to be a retail dealer for each vending machine;

"Sale" means any sale, transfer, exchange, barter, or gift, in any manner or by any means whatsoever;

"Tobacco product" means any product containing any tobacco for personal consumption including, but not limited to, cigars, little cigars, cigarillos, chewing tobacco, pipe tobacco, smoking tobacco and their substitutes, and dry and moist snuff, but does not include cigarette as defined in section 102 of the "Cigarette Tax Act," P.L.1948, c.65 (C.54:40A-1 et seq.);

"Treasurer" means the State Treasurer;

"Use" means the exercise of any right or power incidental to the ownership of a tobacco product, including a sale at retail;

"Wholesale price" means the actual price for which a manufacturer sells tobacco products to a distributor; and

"Wholesaler" means a person, wherever resident or located, other than a distributor as defined herein, who:

a. purchases tobacco products from any other person who purchases from the manufacturer and who acquires tobacco products solely for the purpose of bona fide resale to retail dealers or to other persons for the purposes of resale only; or

b. services retail outlets by the maintenance of an established place of business for the purchase of tobacco products including, but not limited to, the maintenance of warehousing facilities for the storage and distribution of tobacco products.

(cf: P.L.2006, c.37, s.4)

2. Section 3 of P.L.1990, c.39 (C.54:40B-3) is amended to read as follows:

3. a. There is imposed a tax of 30% upon the wholesale price upon the sale, use or distribution of a tobacco product within this State, except that: (1) if the tobacco product is moist snuff, the tax shall be imposed as provided in section 3 of P.L.2006, c.37 (C.54:40B-3.1); and (2) if the tobacco product is a little cigar, the tax shall be imposed as provided in section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

b. Unless a tobacco product has already been or will be subject to the wholesale sales tax imposed in subsection a. of this section, if a distributor or wholesaler uses a tobacco product within this State, there is imposed upon the distributor or wholesaler a compensating use tax of 30% measured by the sales price of a similar tobacco product to a distributor, except that: (1) if the tobacco product is moist snuff, the tax shall be imposed as provided in section 3 of P.L.2006, c.37 (C.54:40B-3.1); and (2) if the tobacco product is a little cigar, the tax shall be imposed as provided in section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

c. Unless a wholesale use tax is due pursuant to subsection b. of this section, if a distributor or wholesaler has not paid the wholesale sales tax imposed in subsection a. of this section upon a sale that is subject to the wholesale sales tax imposed in that subsection a., there is imposed upon the retail dealer or consumer chargeable for the sale a compensating use tax of 30% of the price paid or charged for the tobacco product, except that: (1) if the tobacco product is moist snuff, the tax shall be imposed as provided in section 3 of P.L.2006, c.37 (C.54:40B-3.1); and (2) if the tobacco product is a little cigar, the tax shall be imposed as provided in section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill), which shall be collected in the manner provided in subsection b. of section 5 of [this act] P.L.1990, c.39 (C.54:40B-5).

(cf: P.L.2006, c.37, s.5)

3. (New section) a. There is imposed a tax upon the sale, use or distribution of a little cigar within this State by a distributor or wholesaler to a retail dealer or consumer at the rate of $0.135 for each little cigar.

b. Unless a little cigar has already been or will be subject to the wholesale sales tax imposed in subsection a. of this section, if a distributor or wholesaler uses a little cigar within this State, there is imposed upon the distributor or wholesaler a compensating use tax at the rate of $0.135 for each little cigar.

c. Unless a compensating use tax is due pursuant to subsection b. of this section, if a distributor or wholesaler has not paid the wholesale sales tax imposed in subsection a. of this section upon a sale that is subject to the wholesale sales tax imposed in that subsection a., there is imposed upon the retail dealer or consumer chargeable for the sale a compensating use tax at the rate of $0.135 for each little cigar, which shall be collected in the manner provided in subsection b. of section 5 of P.L.1990, c.39 (C.54:40B-5).

4. Section 5 of P.L.1990, c.39 (C.54:40B-5) is amended to read as follows:

5. a. Every distributor or wholesaler required to pay the tax imposed by this act shall be personally liable for the tax imposed under this act.

b. If a distributor or wholesaler fails to pay the tax imposed by this act when required to pay the same, then in addition to all other rights, obligations and remedies provided, the compensating use tax imposed in subsection c. of section 3 of P.L.1990, c.39 (C.54:40B-3), section 3 of P.L.2006, c.37 (C.54:40B-3.1), or section 3 of P.L. , c. ) (C. ) (pending before the Legislature as this bill) shall be payable by the retail dealer or consumer directly to the director, and it shall be the duty of the retail dealer or consumer to file a return, on a form prescribed by the director, with the director and to pay the tax to the director within 20 days of the date the tax was required to be paid or at other times as specified by the director.

(cf: P.L.2001, c.448, s.4)

5. (New section) A retail dealer shall make an inventory of each little cigar in that retail dealer's possession at the close of business on the last day of the first month following the effective date of P.L. , c. (pending before the Legislature as this bill), or at such other date and time as may be designated by the director, and shall make and file a return with the director, in such form as may be prescribed by the director, on or before the twentieth day of the second month following the effective date of P.L. , c. (pending before the Legislature as this bill) stating the brand, quantity, and purchase price paid for each little cigar in that retail dealer's possession. The retail dealer shall, at the time the return is made and filed with the director, pay to the director the tax imposed pursuant to section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill) which is in excess of any tax previously paid pursuant to section 3 of P.L.1990, c.39 (C.54:40B-3) on those little cigars in that retail dealer's possession.

6. This act shall take effect immediately and apply to little cigars sold or otherwise disposed of on or after the first day of the second month next following the date of enactment.

STATEMENT

This bill increases the tax imposed on little cigars to equal the rate of tax imposed on cigarettes by modifying the current assessment of tax on little cigars under the tobacco products wholesale sales and use tax from a tax based on a percentage of the wholesale price of the product to a per-cigar tax identical to the rate of tax imposed on cigarettes under the cigarette tax.

The tobacco products wholesale sales and use tax is a State tax imposed on every sale of a tobacco product, other than cigarettes, by a distributor or wholesaler to a retail dealer or consumer. The tax is imposed at the rate of 30 percent on the invoice price the distributor pays to purchase the tobacco product from the manufacturer. Distributors and wholesalers who sell tobacco products at retail or otherwise use tobacco products are also subject to a compensating use tax of 30 percent measured by the sales price of a similar tobacco product sold by a manufacturer to a distributor.

The 30 percent rate of tax on the wholesale price of tobacco products does not, however, apply to moist snuff (subject to tax at a rate of $0.75 per ounce on the net weight of the snuff), and will not, as a result of the bill, apply to little cigars. This bill modifies the tobacco products wholesale sales and use tax to carve out a similar but separate tax with a separate and distinct rate upon the sale, use, or distribution of little cigars within this State by a distributor or wholesaler to a retail dealer or consumer. A corresponding use tax similarly applies to distributors and wholesalers that sell little cigars at retail or otherwise use little cigars without having paid the sales tax component of the tax.

The bill provides that the tax rate imposed on little cigars is identical to the rate of tax imposed on cigarettes, and is intended to be collected and administered in a similar form and manner as provided under the wholesale sales and use tax. Under current law, cigarettes are subject to the State cigarette tax at a rate of $0.135 for each cigarette, or $2.70 per pack of 20 cigarettes.

For purposes of the bill, a little cigar is any roll for smoking made wholly or in part of tobacco, or other substance or substances other than tobacco, irrespective of size, shape or flavoring, which is wrapped or covered by a wrapper or cover made of tobacco, or any other substance or material containing tobacco, and which weighs, excluding the weight of any packaging or any mouthpiece or tip, not more than four pounds per 1,000 units. Little cigars are, therefore, different from cigarillos and other cigars because of their weight, and different from cigarettes because of the substance of the wrapper. Cigarillos and other cigars typically weigh more than four pounds per 1,000 units, and cigarettes are wrapped in paper or any other substance, other than tobacco.

Apart from the substance of the wrap, little cigars share certain similarities with cigarettes. They are shaped, packaged, and often sold 20 to a pack like cigarettes. They contain shredded tobacco and have tan paper-like wrappers made from tobacco. They are tipped with cellulose-acetate filters, and are displayed, at retail, alongside cigarettes.

These similarities are not a coincidence. According to a paper published in the American Journal of Public Health in 2007, in the late 1960s certain tobacco companies designed and developed little cigars to look and feel and taste as close to cigarettes as legally possible, and marketed these products to appeal to cigarette smokers. At that time, tobacco companies took advantage of the fact that little cigars were cheaper and taxed less than cigarettes, and made no effort to discredit the notion that little cigars were less addictive or less harmful than cigarettes.

Although little cigars went largely unnoticed following their introduction, sales of the product have climbed during the last decade. Research suggests that between 1997 and 2007 national sales of little cigars increased by 240 percent. Health experts contend some of this increase may be attributable to the public's shifting perceptions of cigars, but others note that the increase may be tied to the price and tax that applies. A pack of little cigars remains, on average, several dollars less than a pack of cigarettes, in part because of lower state taxes imposed on these products.

By increasing the tax on little cigars to equal the rate of tax on cigarettes, this bill eliminates the disparity in tax between two similar tobacco products that are designed and developed to provide the same smoking sensations, and produce the same or similar adverse health effects. The additional tax will make little cigars less appealing to current cigarette smokers seeking a cheaper alternative, and ensure the tobacco product is not used to attract non-smoking teens and young adults.