SECTION 3.751. Special Fee on Certain Cigarettes and Cigarette Tobacco Products; Definitions, Imposition of Fee, and Reports

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Brand family--Each style of cigarettes or cigarette tobacco products sold under the same trademark. The term includes any style of cigarettes or cigarette tobacco products that have a brand name, trademark, logo, symbol, motto, selling message, recognizable pattern of colors, or other indication of product identification that is identical to, similar to, or identifiable with a previously known brand of cigarettes or cigarette tobacco products.

(2) Cigarette--A roll for smoking that is made of tobacco or tobacco mixed with another ingredient, wrapped or covered with a material other than tobacco, and is not a cigar.

(3) Cigarette tobacco product--Roll-your-own (RYO) tobacco or tobacco that, because of the tobacco's appearance, type, packaging, or labeling, is suitable for use in making cigarettes and is likely to be offered to or purchased by a consumer for that purpose.

(4) Credit amendment--An amendment to the master settlement agreement that offers a credit to subsequent participating manufacturers for fees paid under this section with respect to their products in a form agreed on by settling states, as defined in the master settlement agreement, with aggregate allocable shares, as defined in the master settlement agreement, equal to at least 99.937049%; by the original participating manufacturers, as defined in the master settlement agreement; and by subsequent participating manufacturers whose aggregate market share, expressed as a percentage of the total number of individual cigarettes sold in the United States, the District of Columbia, and Puerto Rico during the calendar year at issue, as measured by excise taxes collected by the federal government, and in the case of cigarettes sold in Puerto Rico, by arbitrios de cigarillos collected by the Puerto Rico taxing authority, is greater than 2.5%. For purposes of the calculation of subsequent participating manufacturer market share under this subchapter, 0.09 ounces of roll-your-own tobacco constitutes one cigarette.

(5) Distributor--A person who is authorized to purchase cigarettes in unstamped packages or receives untaxed tobacco products for the purpose of making a first sale in this state from manufacturers; a person who is authorized to stamp cigarette packages; a person who ships, transports, or imports cigarettes or tobacco products into this state; a person who acquires, possesses, and makes a first sale of cigarettes or tobacco products in this state; or a person who manufactures or produces cigarettes or tobacco products.

(6) Fee or monthly fee--The fee imposed under Health and Safety Code, §161.603 (Fee Imposed).

(7) Manufacturer--A person who manufactures, fabricates, or assembles cigarettes or cigarette tobacco products, or causes or arranges for the manufacture, fabrication, or assembly of cigarettes or cigarette tobacco products, for sale or distribution. The term also includes a person who is the first importer into the United States of cigarettes or cigarette tobacco products manufactured, fabricated, or assembled outside the United States.

(8) Master settlement agreement--The settlement agreement entered into on November 23, 1998, by 46 states and leading United States tobacco manufacturers, as amended as of September 1, 2013. Texas is not a party to the master settlement agreement.

(9) Non-settling manufacturer--A manufacturer of cigarettes or cigarette tobacco products that did not sign a Texas tobacco settlement agreement.

(10) Non-settling manufacturer cigarettes--Cigarettes manufactured, fabricated, assembled, or imported into the United States by a non-settling manufacturer.

(11) Non-settling manufacturer cigarette tobacco products--Cigarette tobacco products manufactured, fabricated, assembled, or imported into the United States by a non-settling manufacturer.

(12) Settling manufacturer--A manufacturer of cigarettes or cigarette tobacco products that signed a Texas tobacco settlement agreement.

(13) Subsequent participating manufacturer--Tobacco manufacturers that signed on to the master settlement agreement on or after November 23, 1998, and that have not signed a Texas tobacco settlement agreement. For purposes of this section, a subsequent participating manufacturer is also a non-settling manufacturer. A manufacturer may not be treated as a subsequent participating manufacturer for purposes of this section unless it has provided to the comptroller notice and proof, in the form and manner the comptroller may prescribe, that it is a subsequent participating manufacturer.

(14) Texas tobacco settlement agreement--This term means either:

(A) the Comprehensive Settlement Agreement and Release filed on January 16, 1998, in the United States District Court, Eastern District of Texas, in the case styled The State of Texas v. The American Tobacco Co., et al., No. 5-96CV-91, and all subsequent amendments; or

(B) the settlement agreement entered into on March 20, 1997, regarding the matter described in subparagraph (A) of this paragraph, but only as to companies that signed that agreement on that date.

(b) Fee imposed. A fee is imposed on the sale, use, consumption, or distribution in this state of non-settling manufacturer cigarettes and non-settling manufacturer cigarette tobacco products. The fee is in addition to any other privilege, license, fee, or tax required or imposed by state law. The fee shall be collected only once on each cigarette or cigarette tobacco product on which it is due. Except as otherwise provided by this section, Tax Code, Chapter 154 (Cigarette Tax) or 155 (Cigars and Tobacco Products Tax) governs the imposition, collection, payment, administration, and enforcement of the fee in the same manner as the taxes imposed by those chapters, as appropriate.

(c) Fee exempt. The fee does not apply to cigarettes or cigarette tobacco products:

(1) that a settling manufacturer claims as its own and that are included in computing payments to be made by that settling manufacturer under a Texas tobacco settlement agreement; or

(2) that are sold into another state for resale to consumers outside of this state, provided that the sale is reported to the state into which the cigarettes are sold under 15 U.S.C. Section 376 (Reports to State Tobacco Tax Administrator).

(d) Fee rate increases. Beginning in January 2014, and in January of each following year, the comptroller shall compute the rate of the fee applicable during that calendar year by increasing the rate for the preceding calendar year by the greater of three percent or the actual total annual percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) for December, as published by the Bureau of Labor Statistics of the United States Department of Labor. The new computed rate will take effect February 1st of each year and be valid for 12 consecutive months.

(e) Allowance of credit for fee. A distributor claiming, under Tax Code Chapters 154 and 155, an authorized cigarette or tobacco tax credit for products subject to the fee may take a fee credit in the same reporting period.

(f) Distributor's report, payment of monthly fee, and cigarette stamping allowance.

(1) On or before the last day of each month on the comptroller's website, the comptroller shall publish and maintain a list of the names and brand families of settling manufacturers, non-settling manufacturers, subsequent participating manufacturers, and the effective date of any credit amendment, if any has been adopted.

(2) A distributor filing a required report under Tax Code, §154.210 (Distributor's Report) or §155.111 (Distributor's Report), shall, in addition to the information required by those sections, include summary data in the required reports and remit the fee. Distributors shall electronically, in the prescribed comptroller format, provide the detailed information required by Health and Safety Code, §161.605 (Distributor's Report and Payment of Monthly Fee). All cigarette and tobacco distributor reports and payments must be filed on or before the 25th day of each month following the month in which the transactions take place.

(3) A distributor is entitled to an additional stamping allowance of 0.5% of the face value of all stamps purchased under Tax Code, §154.041 (Stamp Required), for providing the service of affixing stamps to cigarette packages; remitting the fee; and filing required reports. The maximum cigarette stamping allowance is 3.0% of the face value of all stamps purchased.

(g) Report to attorney general. Non-settling manufacturers offering or planning to offer cigarettes or cigarette tobacco products for sale or distribution in Texas must report, on form prescribed by the attorney general, to the attorney general. Reported information will be made available to the comptroller.

(h) Penalties for noncompliance. Tax Code, Chapter 154 or 155, as appropriate, will be the basis for penalties in administering violations of Health and Safety Code, Chapter 161, Subchapter V (Fee on Cigarettes and Cigarette Tobacco Products Manufactured By Certain Companies).

(i) Audit or inspection. The comptroller or attorney general is entitled to conduct reasonable periodic audits or inspections of the financial records of a non-settling manufacturer and its distributors to ensure compliance.

Source Note: The provisions of this §3.751 adopted to be effective October 18, 2015, 40 TexReg 7097; amended to be effective February 11, 2020, 45 TexReg 918