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H0082.....................................................by APPROPRIATIONS
TOBACCO SETTLEMENT - Adds to existing law to implement the Tobacco
Settlement Master Agreement regarding litigation between various states and
the major tobacco companies so that the state of Idaho can receive funding
from the settlement.
01/19 House intro - 1st rdg - to printing
01/20 Rpt prt - to 2nd rdg
01/21 2nd rdg - to 3rd rdg
01/22 3rd rdg - PASSED - 59-3-8
AYES -- Alltus, Barraclough, Bell, Bieter, Black, Boe, Bruneel,
Callister, Campbell, Clark, Cuddy, Deal, Denney, Ellsworth,
Field(13), Field(20), Gagner, Geddes, Gould, Hadley, Hammond,
Hansen(23), Henbest, Hornbeck, Jaquet, Jones, Kempton, Kendell,
Kjellander, Kunz, Lake, Limbaugh, Linford, Mader, Marley, McKague,
Montgomery, Mortensen, Moyle, Pischner, Pomeroy, Ridinger, Ringo,
Schaefer, Sellman, Smith, Stevenson, Stoicheff, Stone, Taylor,
Tilman, Tippets, (Miller)(Trail), Watson, Wheeler, Williams, Wood,
Zimmermann, Mr Speaker
NAYS -- Barrett, Judd, Meyer
Absent and excused -- Chase, Crow, Hansen(29), Kellogg, Loertscher,
Reynolds, Robison, Sali
Floor Sponsor - Bell
Title apvd - to Senate
01/26 Senate intro - 1st rdg - to St Aff
02/03 Rpt out - rec d/p - to 2nd rdg
02/04 2nd rdg - to 3rd rdg
02/05 3rd rdg - PASSED - 30-0-5
AYES--Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron,
Crow, Danielson, Darrington, Davis, Deide, Dunklin, Frasure, Ingram,
Keough, King, Lee, McLaughlin, Noh, Parry, Richardson, Riggs, Risch,
Schroeder, Sorensen, Stegner, Stennett, Thorne, Wheeler, Whitworth
NAYS--None
Absent and excused--Geddes, Hawkins, Ipsen, Sandy, Twiggs
Floor Sponsor - Parry
Title apvd - to House
02/08 To enrol
02/09 Rpt enrol - Sp signed
02/10 Pres signed
02/11 To Governor
02/12 Governor signed
Session Law Chapter 7
Effective: 07/01/99
H0082|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fifth Legislature First Regular Session - 1999IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 82 BY APPROPRIATIONS COMMITTEE 1 AN ACT 2 RELATING TO THE TOBACCO MASTER SETTLEMENT AGREEMENT; AMENDING TITLE 39, IDAHO 3 CODE, BY THE ADDITION OF A NEW CHAPTER 78, TITLE 39, IDAHO CODE, TO PRO- 4 VIDE LEGISLATIVE FINDINGS AND PURPOSE; TO DEFINE TERMS AND TO PROVIDE 5 REQUIREMENTS FOR TOBACCO PRODUCT MANUFACTURERS SELLING CIGARETTES TO CON- 6 SUMERS WITHIN IDAHO. 7 Be It Enacted by the Legislature of the state of Idaho: 8 SECTION 1. That Title 39, Idaho Code, be, and the same is hereby amended 9 by the addition thereto of a NEW CHAPTER , to be known and desig- 10 nated as Chapter 78, Title 39, Idaho Code, and to read as follows: 11 CHAPTER 78 12 TOBACCO MASTER SETTLEMENT AGREEMENT 13 39-7801. FINDINGS AND PURPOSE. (a) Cigarette smoking presents serious 14 public health concerns to the state of Idaho ("state") and to the citizens of 15 the state. The surgeon general has determined that smoking causes lung cancer, 16 heart disease and other serious diseases, and that there are hundreds of thou- 17 sands of tobacco-related deaths in the United States each year. These diseases 18 most often do not appear until many years after the person in question begins 19 smoking. 20 (b) Cigarette smoking also presents serious financial concerns for the 21 state. Under certain health-care programs, the state may have a legal obliga- 22 tion to provide medical assistance to eligible persons for health conditions 23 associated with cigarette smoking, and those persons may have a legal entitle- 24 ment to receive such medical assistance. 25 (c) Under these programs, the state pays millions of dollars each year to 26 provide medical assistance for these persons for health conditions associated 27 with cigarette smoking. 28 (d) It is the policy of the state that financial burdens imposed on the 29 state by cigarette smoking be borne by tobacco product manufacturers rather 30 than by the state to the extent that such manufacturers either determine to 31 enter into a settlement with the state or are found culpable by the courts. 32 (e) On November 23, 1998, leading United States tobacco product manufac- 33 turers entered into a settlement agreement, entitled the "Master Settlement 34 Agreement," with the state. The Master Settlement Agreement obligates these 35 manufacturers, in return for a release of past, present and certain future 36 claims against them as described therein, to pay substantial sums to the state 37 (tied in part to their volume of sales); to fund a national foundation devoted 38 to the interests of public health; and to make substantial changes in their 39 advertising and marketing practices and corporate culture, with the intention 40 of reducing underage smoking. 41 (f) It would be contrary to the policy of the state if tobacco product 42 manufacturers who determine not to enter into such a settlement could use a 2 1 resulting cost advantage to derive large, short-term profits in the years 2 before liability may arise without ensuring that the state will have an even- 3 tual source of recovery from them if they are proven to have acted culpably. 4 It is thus in the interest of the state to require that such manufacturers 5 establish a reserve fund to guarantee a source of compensation and to prevent 6 such manufacturers from deriving large, short-term profits and then becoming 7 judgment-proof before liability may arise. 8 39-7802. DEFINITIONS. (a) "Adjusted for inflation" means increased in 9 accordance with the formula for inflation adjustment set forth in Exhibit C to 10 the Master Settlement Agreement. 11 (b) "Affiliate" means a person who directly or indirectly owns or con- 12 trols, is owned or controlled by, or is under common ownership or control 13 with, another person. Solely for purposes of this definition, the terms 14 "owns," "is owned" and "ownership" mean ownership of an equity interest, or 15 the equivalent thereof, of ten percent (10%) or more, and the term "person" 16 means an individual, partnership, committee, association, corporation or any 17 other organization or group of persons. 18 (c) "Allocable share" means allocable share as that term is defined in 19 the Master Settlement Agreement. 20 (d) "Cigarette" means any product that contains nicotine, is intended to 21 be burned or heated under ordinary conditions of use, and consists of or con- 22 tains: (1) any roll of tobacco wrapped in paper or in any substance not con- 23 taining tobacco; or (2) tobacco, in any form, that is functional in the prod- 24 uct, which, because of its appearance, the type of tobacco used in the filler, 25 or its packaging and labeling, is likely to be offered to, or purchased by, 26 consumers as a cigarette; or (3) any roll of tobacco wrapped in any substance 27 containing tobacco which, because of its appearance, the type of tobacco used 28 in the filler, or its packaging and labeling, is likely to be offered to, or 29 purchased by, consumers as a cigarette described in clause (1) of this defini- 30 tion. The term "cigarette" includes "roll-your-own" (i.e., any tobacco which, 31 because of its appearance, type, packaging, or labeling is suitable for use 32 and likely to be offered to, or purchased by, consumers as tobacco for making 33 cigarettes). For purposes of this definition of "cigarette," 0.09 ounces of 34 "roll-your-own" tobacco shall constitute one (1) individual "cigarette." 35 (e) "Master Settlement Agreement" means the settlement agreement (and 36 related documents) entered into on November 23, 1998, by the state and leading 37 United States tobacco product manufacturers. 38 (f) "Qualified escrow fund" means an escrow arrangement with a federally 39 or state-chartered financial institution having no affiliation with any 40 tobacco product manufacturer and having assets of at least one billion dollars 41 ($1,000,000,000) where such arrangement requires that such financial institu- 42 tion hold the escrowed funds' principal for the benefit of releasing parties 43 and prohibits the tobacco product manufacturer placing the funds into escrow 44 from using, accessing or directing the use of the funds' principal except as 45 consistent with section 39-7803, Idaho Code. 46 (g) "Released claims" means released claims as that term is defined in 47 the Master Settlement Agreement. 48 (h) "Releasing parties" means releasing parties as that term is defined 49 in the Master Settlement Agreement. 50 (i) "Tobacco product manufacturer" means an entity that after the date of 51 enactment of this act directly (and not exclusively through any affiliate): 52 (1) Manufactures cigarettes anywhere that such manufacturer intends to be 53 sold in the United States, including cigarettes intended to be sold in the 54 United States through an importer (except where such importer is an origi- 3 1 nal participating manufacturer (as that term is defined in the Master Set- 2 tlement Agreement) that will be responsible for the payments under the 3 Master Settlement Agreement with respect to such cigarettes as a result of 4 the provisions of subsections II(mm) of the Master Settlement Agreement 5 and that pays the taxes specified in subsection II(z) of the Master Set- 6 tlement Agreement, and provided that the manufacturer of such cigarettes 7 does not market or advertise such cigarettes in the United States); 8 (2) Is the first purchaser anywhere for resale in the United States of 9 cigarettes manufactured anywhere that the manufacturer does not intend to 10 be sold in the United States; or 11 (3) Becomes a successor of an entity described in paragraph (1) or (2) of 12 this subsection. 13 The term "tobacco product manufacturer" shall not include an affiliate of a 14 tobacco product manufacturer unless such affiliate itself falls within any of 15 paragraphs (1) through (3) of this subsection. 16 (j) "Units sold" means the number of individual cigarettes sold in the 17 state by the applicable tobacco product manufacturer (whether directly or 18 through a distributor, retailer or similar intermediary or intermediaries) 19 during the year in question, as measured by excise taxes collected by the 20 state on packs (or "roll-your-own" tobacco containers) bearing the excise tax 21 stamp of the state. The state tax commission shall promulgate such rules as 22 are necessary to ascertain the amount of state excise tax paid on the ciga- 23 rettes of such tobacco product manufacturer for each year. 24 39-7803. REQUIREMENTS. Any tobacco product manufacturer selling ciga- 25 rettes to consumers within the state (whether directly or through a distribu- 26 tor, retailer or similar intermediary or intermediaries) after the date of 27 enactment of this act shall do one (1) of the following: 28 (a) Become a participating manufacturer (as that term is defined in sec- 29 tion II(jj) of the Master Settlement Agreement) and generally perform its 30 financial obligations under the Master Settlement Agreement; or 31 (b) (1) Place into a qualified escrow fund by April 15 of the year fol- 32 lowing the year in question the following amounts (as such amounts are 33 adjusted for inflation): 34 1999: $.0094241 per unit sold after the date of enactment of this 35 act; 36 2000: $.0104712 per unit sold; 37 For each of 2001 and 2002: $.0136125 per unit sold; 38 For each of 2003 through 2006: $.0167539 per unit sold; 39 For each of 2007 and each year thereafter: $.0188482 per unit sold. 40 All per unit numbers are subject to verification. 41 (2) A tobacco product manufacturer that places funds into escrow pursuant 42 to paragraph (1) of this subsection shall receive the interest or other 43 appreciation on such funds as earned. Such funds themselves shall be 44 released from escrow only under the following circumstances: 45 (A) To pay a judgment or settlement on any released claim brought 46 against such tobacco product manufacturer by the state or any releas- 47 ing party located or residing in the state. Funds shall be released 48 from escrow under this subparagraph: (i) in the order in which they 49 were placed into escrow; and (ii) only to the extent and at the time 50 necessary to make payments required under such judgment or settle- 51 ment; 52 (B) To the extent that a tobacco product manufacturer establishes 53 that the amount it was required to place into escrow in a particular 54 year was greater than the state's allocable share of the total pay- 4 1 ments that such manufacturer would have been required to make in that 2 year under the Master Settlement Agreement (as determined pursuant to 3 section IX(i)(2) of the Master Settlement Agreement, and before any 4 of the adjustments or offsets described in section IX(i)(3) of that 5 Agreement other than the inflation adjustment) had it been a partici- 6 pating manufacturer, the excess shall be released from escrow and 7 revert back to such tobacco product manufacturer; or 8 (C) To the extent not released from escrow under subparagraphs (A) 9 or (B) of this paragraph, funds shall be released from escrow and 10 revert back to such tobacco product manufacturer twenty-five (25) 11 years after the date on which they were placed into escrow. 12 (3) Each tobacco product manufacturer that elects to place funds into 13 escrow pursuant to this section shall annually certify to the attorney 14 general that it is in compliance with this section. The attorney general 15 may bring a civil action on behalf of the state against any tobacco prod- 16 uct manufacturer that fails to place into escrow the funds required under 17 this section. Any tobacco product manufacturer that fails in any year to 18 place into escrow the funds required under this section shall: 19 (A) Be required within fifteen (15) days to place such funds into 20 escrow as shall bring it into compliance with this section. The 21 court, upon a finding of a violation of this section, may impose a 22 civil penalty to be paid to the general fund of the state in an 23 amount not to exceed five percent (5%) of the amount improperly with- 24 held from escrow per day of the violation and in a total amount not 25 to exceed one hundred percent (100%) of the original amount improp- 26 erly withheld from escrow; 27 (B) In the case of a knowing violation, be required within fifteen 28 (15) days to place such funds into escrow as shall bring it into com- 29 pliance with this section. The court, upon a finding of a knowing 30 violation of this section, may impose a civil penalty to be paid to 31 the general fund of the state in an amount not to exceed fifteen per- 32 cent (15%) of the amount improperly withheld from escrow per day of 33 the violation and in a total amount not to exceed three hundred per- 34 cent (300%) of the original amount improperly withheld from escrow; 35 and 36 (C) In the case of a second knowing violation, be prohibited from 37 selling cigarettes to consumers within the state (whether directly or 38 through a distributor, retailer or similar intermediary) for a period 39 not to exceed two (2) years. 40 Each failure to make an annual deposit required under this section shall 41 constitute a separate violation. 42 (4) In any action brought under this section, the court shall award the 43 attorney general, if he is the prevailing party, reasonable costs, 44 expenses and attorney's fees in bringing his action.
STATEMENT OF PURPOSE
RS 08572C1
On November 23, 1998, Idaho entered into a historic settlement
agreement with leading United States tobacco manufacturing
companies. The agreement requires these manufacturers, in part, to
pay substantial sums of money to the State of Idaho and to make
substantial changes in their advertising and marketing practices
and corporate culture, with the intention of reducing underage
smoking. It would be contrary to the policy of the State of Idaho
if tobacco manufacturers who determine not to enter into such a
settlement could use a resulting costs 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 of Idaho to require that such
manufacturers establish a reserve fund to guarantee a source of
compensation and to prevent them from deriving large, shortterm
profits and then becoming judgement-proof before liability may
arise.
This legislation addresses that concern by requiring tobacco
product manufacturers to either become a participating manufacturer
under the November 23, 1998, settlement agreement or annually
contribute into a qualified escrow account an amount of money based
upon cigarette sales for the previous year. The qualified escrow
account shall be at the manufacturer's selection. Money in the
account not released to satisfy a judgement obtained against the
manufacturer shall revert back to the manufacturer 25 years after
it was first deposited.
In addition to the above reason to this legislation, in the
November 23, 1998, settlement agreement, it states that if the
settling manufacturers lose market share as a result of compliance
with the terms of the settlement agreement to nonsettling
manufacturers, then Idaho's share shall be reduced three percentage
points for every one percentage point in market share reduction
that is over two percent, unless this legislation is passed. For
every state that enacts this legislation, the settlement
agreement's "non-participant manufacturer adjustment" provisions
shall not apply.
FISCAL NOTE
No financial impact to the State of Idaho is expected. If a
manufacturer violates the terms of this legislation, the Attorney
General can recover all attorney fees incurred in enforcement of
the legislation's provisions.
CONTACT: Senator Atwell J. Parry, Idaho State Senate
Phone: 334-4735
STATEMENT OF PURPOSE/FISCAL NOTE Bill No. H82