SB-1017, As Passed House, September 23, 2014

SUBSTITUTE FOR

SENATE BILL NO. 1017

A bill to amend 1993 PA 327, entitled

"Tobacco products tax act,"

by amending section 7 (MCL 205.427), as amended by 2012 PA 325.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 7. (1) Beginning May 1, 1994, a tax is levied on the sale

of tobacco products sold in this state as follows:

(a) Through July 31, 2002, for cigars, noncigarette smoking

tobacco, and smokeless tobacco, 16% of the wholesale price.

(b) For cigarettes, 37.5 mills per cigarette.

the tax levied in subdivision (b), an additional 15 mills per

cigarette.

(d) Beginning August 1, 2002, for cigarettes, in addition to

the tax levied in subdivisions (b) and (c), an additional 10 mills

per cigarette.

(e) Beginning July 1, 2004, for cigarettes, in addition to the

tax levied in subdivisions (b), (c), and (d), an additional 37.5

mills per cigarette.

(f) Beginning August 1, 2002 and through June 30, 2004, for

cigars, noncigarette smoking tobacco, and smokeless tobacco, 20% of

the wholesale price.

(g) Beginning July 1, 2004, for cigars, noncigarette smoking

tobacco, and smokeless tobacco, 32% of the wholesale price.

However, beginning November 1, 2012 and through October 31, 2016,

the amount of tax levied under this subdivision on cigars shall not

exceed 50 cents per individual cigar.

(2) On or before the twentieth day of each calendar month,

every licensee under section 3 other than a retailer, unclassified

acquirer licensed as a manufacturer, or vending machine operator

shall file a return with the department stating the wholesale price

of each tobacco product other than cigarettes purchased, the

quantity of cigarettes purchased, the wholesale price charged for

all tobacco products other than cigarettes sold, the number of

individual packages of cigarettes and the number of cigarettes in

those individual packages, and the number and denominations of

stamps affixed to individual packages of cigarettes sold by the

licensee for each place of business in the preceding calendar

month. The return shall also include the number and denomination of

unaffixed stamps in the possession of the licensee at the end of

the preceding calendar month. Wholesalers shall also report

accurate inventories of cigarettes, both stamped and unstamped at

the end of the preceding calendar month. Wholesalers and

unclassified acquirers shall also report accurate inventories of

affixed and unaffixed stamps by denomination at the beginning and

end of each calendar month and all stamps acquired during the

preceding calendar month. The return shall be signed under penalty

of perjury. The return shall be on a form prescribed by the

department and shall contain or be accompanied by any further

information the department requires. The department may also

require licensees to report cigarette acquisition, purchase, and

sales information in other formats and frequency.

(3) To cover the cost of expenses incurred in the

administration of this act, at the time of the filing of the

return, the licensee shall pay to the department the tax levied in

subsection (1) for tobacco products sold during the calendar month

covered by the return, less compensation equal to the following:

(a) One percent of the total amount of the tax due on tobacco

products sold other than cigarettes.

(b) Through July 31, 2002, 1.25% of the total amount of the

tax due on cigarettes sold.

tax due on cigarettes sold and, beginning on June 20, 2012, for

sales of untaxed cigarettes to Indian tribes in this state, an

amount equal to 1.5% of the total amount of the tax due on those

cigarettes sold as if those cigarette sales were taxable sales

under this act.

(d) Beginning on the first calendar month following the

implementation of the use of digital stamps as provided in section

5a(2), for licensees who are stamping agents, 0.5% of the total

amount of the tax due on cigarettes sold and, for sales of untaxed

cigarettes to Indian tribes in this state, 0.5% of the total amount

of the tax due on those cigarettes sold as if those cigarette sales

were taxable sales under this act, until the stamping agent is

compensated in an amount equal to the direct cost actually incurred

by the stamping agent for the purchase of upgrades to technology

and equipment, excluding the equipment reimbursed under subdivision

(e), that are necessary to affix the digital stamp as determined by

the department. Compensation under this subdivision may also be

claimed by a stamping agent for the direct costs actually incurred

by the stamping agent, as determined by the department and

reflected in the net purchase price, for the initial and 1-time

purchase of case packers or similar machines or conveyors as

follows:

(i) Case packers or similar machines to be used exclusively to

repack cigarette cartons into case boxes after digital stamps have

been applied by eligible equipment to the individual packages of

cigarettes contained within those cigarette cartons. Compensation

under this subparagraph may only be claimed by a stamping agent if

the case packers or similar machines are in addition to, and not a

replacement for, 1 or more case packers or similar machines used in

connection with cigarette stamping machines which do not use the

digital stamp authorized under this act.

(ii) Conveyors to be used exclusively for that portion of a

cigarette stamping line that is necessary for and dedicated to

cigarette stamping operations using eligible equipment to affix

digital stamps to individual packages of cigarettes to be sold in

this state. Compensation under this subparagraph may only be

claimed by a stamping agent if the cigarette stamping line served

by the conveyors is in addition to 1 or more distinct and existing

cigarette stamping lines using stamping machines which do not use

the digital stamp authorized under this act and that compensation

shall not exceed a total of 50% of the amount reimbursed under

subdivision (e) for any particular stamping agent.

(iii) Compensation under subparagraphs (i) and (ii) shall also

include any applicable sales or use taxes paid, and shipping and

crating charges actually incurred, by the stamping agent in

connection with the purchase, but shall exclude any other costs

incurred by the stamping agent not otherwise expressly provided for

in this subdivision, including, but not limited to, charges for

installation and ongoing maintenance.

(e) Beginning in the first calendar month following the

implementation of the use of digital stamps as provided in section

5a(2) and continuing for the immediately succeeding 17 months, for

licensees who are stamping agents, reimbursement of direct costs

actually incurred by the stamping agent, as determined by the

department, for the initial purchase of eligible equipment in an

amount equal to 5.55% of the total net purchase price of the

eligible equipment necessary to affix the digital stamp. The

reimbursement provided under this subdivision shall also include

reimbursement for any applicable sales or use taxes paid and

shipping and crating charges actually incurred by the stamping

agent for the initial purchase of eligible equipment, but shall

exclude reimbursement for any other costs incurred by the stamping

agent not otherwise expressly provided for in this subdivision,

including, but not limited to, charges for installation ~~or for~~ and

ongoing maintenance related to eligible equipment. A stamping agent

may only receive reimbursement under this subdivision to the extent

that the eligible equipment purchased by the stamping agent does

not exceed the total number of the stamping agent's existing

equipment as certified by the stamping agent on a form prescribed

by the department.

(f) Beginning in the first calendar month following the

implementation of the use of digital stamps as provided in section

5a(2), for licensees who are stamping agents, reimbursement of

qualified equipment costs actually incurred by the stamping agent,

not otherwise compensated or reimbursed under subdivision (d) or

(e), as determined by the department. The reimbursement provided

under this subdivision shall not exceed $60,000.00 for all stamping

agents combined.

(4) Every licensee and retailer who, on August 1, 2002, has on

hand for sale any cigarettes upon which a tax has been paid

pursuant to subsection (1)(b) shall file a complete inventory of

those cigarettes before September 1, 2002 and shall pay to the

department at the time of filing this inventory a tax equal to the

difference between the tax imposed in subsection (1)(b), (c), and

(d) and the tax that has been paid under subsection (1)(b). Every

licensee and retailer who, on August 1, 2002, has on hand for sale

any cigars, noncigarette smoking tobacco, or smokeless tobacco upon

which a tax has been paid pursuant to subsection (1)(a) shall file

a complete inventory of those cigars, noncigarette smoking tobacco,

and smokeless tobacco before September 1, 2002 and shall pay to the

department at the time of filing this inventory a tax equal to the

difference between the tax imposed in subsection (1)(f) and the tax

that has been paid under subsection (1)(a).

(5) Every licensee and retailer who, on July 1, 2004, has on

hand for sale any cigarettes upon which a tax has been paid

pursuant to subsection (1)(b), (c), and (d) shall file a complete

inventory of those cigarettes before August 1, 2004 and shall pay

to the department at the time of filing this inventory a tax equal

to the difference between the tax imposed in subsection (1)(b),

(c), (d), and (e) and the tax that has been paid under subsection

(1)(b), (c), and (d). Every licensee and retailer who, on July 1,

2004, has on hand for sale any cigars, noncigarette smoking

tobacco, or smokeless tobacco upon which a tax has been paid

pursuant to subsection (1)(f) shall file a complete inventory of

those cigars, noncigarette smoking tobacco, and smokeless tobacco

before August 1, 2004 and shall pay to the department at the time

of filing this inventory a tax equal to the difference between the

tax imposed in subsection (1)(g) and the tax that has been paid

under subsection (1)(f). The proceeds derived under this subsection

shall be credited to the Michigan medicaid benefits trust fund

created under section 5 of the Michigan trust fund act, 2000 PA

489, MCL 12.255.

(6) The department may require the payment of the tax imposed

by this act upon the importation or acquisition of a tobacco

product. A tobacco product for which the tax under this act has

once been imposed and that has not been refunded if paid is not

subject upon a subsequent sale to the tax imposed by this act.

(7) An abatement or refund of the tax provided by this act may

be made by the department for causes the department considers

expedient. The department shall certify the amount and the state

treasurer shall pay that amount out of the proceeds of the tax.

(8) A person liable for the tax may reimburse itself by adding

to the price of the tobacco products an amount equal to the tax

levied under this act.

(9) A wholesaler, unclassified acquirer, or other person shall

not sell or transfer any unaffixed stamps acquired by the

wholesaler or unclassified acquirer from the department. A

wholesaler or unclassified acquirer who has any unaffixed stamps on

hand at the time its license is revoked or expires, or at the time

it discontinues the business of selling cigarettes, shall return

those stamps to the department. The department shall refund the

value of the stamps, less the appropriate discount paid.

(10) If the wholesaler or unclassified acquirer has unsalable

packs returned from a retailer, secondary wholesaler, vending

machine operator, wholesaler, or unclassified acquirer with stamps

affixed, the department shall refund the amount of the tax less the

appropriate discount paid. If the wholesaler or unclassified

acquirer has unaffixed unsalable stamps, the department shall

exchange with the wholesaler or unclassified acquirer new stamps in

the same quantity as the unaffixed unsalable stamps. An application

for refund of the tax shall be filed on a form prescribed by the

department for that purpose, within 4 years from the date the

stamps were originally acquired from the department. A wholesaler

or unclassified acquirer shall make available for inspection by the

department the unused or spoiled stamps and the stamps affixed to

unsalable individual packages of cigarettes. The department may, at

its own discretion, witness and certify the destruction of the

unused or spoiled stamps and unsalable individual packages of

cigarettes that are not returnable to the manufacturer. The

wholesaler or unclassified acquirer shall provide certification

from the manufacturer for any unsalable individual packages of

cigarettes that are returned to the manufacturer.

(11) On or before the twentieth of each month, each

manufacturer shall file a report with the department listing all

sales of tobacco products to wholesalers and unclassified acquirers

during the preceding calendar month and any other information the

department finds necessary for the administration of this act. This

report shall be in the form and manner specified by the department.

(12) Each wholesaler or unclassified acquirer shall submit to

the department an unstamped cigarette sales report on or before the

twentieth day of each month covering the sale, delivery, or

distribution of unstamped cigarettes during the preceding calendar

month to points outside of ~~Michigan.~~ this state. A separate

schedule shall be filed for each state, country, or province into

which shipments are made. For purposes of the report described in

this subsection, "unstamped cigarettes" means individual packages

of cigarettes that do not bear a Michigan stamp. The department may

provide the information contained in this report to a proper

officer of another state, country, or province reciprocating in

this privilege.

(13) As used in subsection (3):

(a) "Eligible equipment" means a cigarette tax stamping

machine that meets all of the following conditions:

(i) Was purchased by a stamping agent who was licensed as a

stamping agent as of December 31, 2011.

(ii) Enables the stamping agent to affix digital stamps to

individual packages of cigarettes in accordance with the

requirements under section 6a(2).

(iii) Was purchased to be used for the primary purpose of

permitting the stamping agent to affix digital stamps to individual

packages of cigarettes to be sold in this state following the

implementation of the use of digital stamps as provided in section

5a(2).

(b) "Existing equipment" means a cigarette tax stamping

machine that meets all of the following conditions:

(i) Was owned by a person who was licensed as a stamping agent

as of December 31, 2011.

(ii) Was a cigarette tax stamping machine used prior to January

1, 2012 by the stamping agent to apply stamps using stamp rolls of

30,000 stamps.

service by a stamping agent that included conveyors and additional

associated electrical line and compressed air line before August

15, 2014 in connection with the implementation of a digital

stamping line under a pilot program with the department as

determined by the department. Qualified equipment does not include