Session of 1999
SENATE BILL No. 339
By Committee on Ways and Means
2-24
9 AN ACT concerning tobacco; relating to the master settlement agree-
10 ment; concerning payment of moneys to the state; concerning
11 enforcement.
12
13 Be it enacted by the Legislature of the State of Kansas:
14 Section 1. (a) Cigarette smoking presents serious public health con-
15 cerns to the state and to the citizens of the state. The surgeon general
16 has determined that smoking causes lung cancer, heart disease and other
17 serious diseases, and that there are hundreds of thousands of tobacco-
18 related deaths in the United States each year. These diseases most often
19 do not appear until many years after the person in question begins
20 smoking.
21 (b) Cigarette smoking also presents serious financial concerns for the
22 state. Under certain health-care programs, the state may have a legal
23 obligation to provide medical assistance to eligible persons for health con-
24 ditions associated with cigarette smoking, and those persons may have a
25 legal entitlement to receive such medical assistance.
26 (c) Under these programs, the state pays millions of dollars each year
27 to provide medical assistance for these persons for health conditions as-
28 sociated with cigarette smoking.
29 (d) It is the policy of the state that financial burdens imposed on the
30 state by cigarette smoking be borne by tobacco product manufacturers
31 rather than by the state to the extent that such manufacturers either
32 determine to enter into a settlement with the state or are found culpable
33 by the courts.
34 (e) On November 23, 1998, leading United States tobacco product
35 manufacturers entered into a settlement agreement, entitled the "master
36 settlement agreement," with the state. The master settlement agreement
37 obligates these manufacturers, in return for a release of past, present and
38 certain future claims against them as described therein, to pay substantial
39 sums to the state (tied in part to their volume of sales); to fund a national
40 foundation devoted to the interests of public health and to make sub-
41 stantial changes in their advertising and marketing practices and corpo-
42 rate culture, with the intention of reducing underage smoking.
43 (f) It would be contrary to the policy of the state if tobacco product
44 manufacturers who determine not to enter into such a settlement could
45 use a resulting cost advantage to derive large, short-term profits in the
46 years before liability may arise without ensuring that the state will have
47 an eventual source of recovery from them if they are proven to have acted
48 culpably. It is thus in the interest of the state to require that such man-
49 ufacturers establish a reserve fund to guarantee a source of compensation
50 and to prevent such manufacturers from deriving large, short-term profits
51 and then becoming judgment-proof before liability may arise.
52 Sec. 2. As used in this act:
53 (a) "Adjusted for inflation" means increased in accordance with the
54 formula for inflation adjustment set forth in exhibit C to the master set-
55 tlement agreement.
56 (b) "Affiliate" means a person who directly or indirectly owns or con-
57 trols, is owned or controlled by, or is under common ownership or control
58 with, another person. Solely for purposes of this definition, the terms
59 "owns," "is owned" and "ownership" mean ownership of an equity inter-
60 est, or the equivalent thereof, of 10% or more, and the term "person"
61 means an individual, partnership, committee, association, corporation or
62 any other organization or group of persons.
63 (c) "Allocable share" means allocable share as that term is defined in
64 the master settlement agreement.
65 (d) "Cigarette" means any product that contains nicotine, is intended
66 to be burned or heated under ordinary conditions of use and consists of
67 or contains (1) any roll of tobacco wrapped in paper or in any substance
68 not containing tobacco; or (2) tobacco, in any form, that is functional in
69 the product, which, because of its appearance, the type of tobacco used
70 in the filler or its packaging and labeling, is likely to be offered to, or
71 purchased by, consumers as a cigarette; or (3) any roll of tobacco wrapped
72 in any substance containing tobacco which, because of its appearance, the
73 type of tobacco used in the filler or its packaging and labeling, is likely to
74 be offered to, or purchased by, consumers as a cigarette described in
75 clause (1) of this subsection (d). The term "cigarette" includes "roll-your-
76 own" (i.e., any tobacco which, because of its appearance, type, packaging
77 or labeling is suitable for use and likely to be offered to, or purchased by,
78 consumers as tobacco for making cigarettes). For purposes of this defi-
79 nition of "cigarette," 0.09 ounces of "roll-your-own" tobacco shall con-
80 stitute one individual "cigarette."
81 (e) "Master settlement agreement" means the settlement agreement
82 (and related documents) entered into on November 23, 1998, by the state
83 and leading United States tobacco product manufacturers.
84 (f) "Qualified escrow fund" means an escrow arrangement with a fed-
85 erally or state chartered financial institution having no affiliation with any
86 tobacco product manufacturer and having assets of at least
87 $1,000,000,000 where such arrangement requires that such financial in-
88 stitution hold the escrowed funds' principal for the benefit of releasing
89 parties and prohibits the tobacco product manufacturer placing the funds
90 into escrow from using, accessing or directing the use of the funds' prin-
91 cipal except as consistent with subsection (b)(2) of section 3 and amend-
92 ments thereto.
93 (g) "Released claims" means released claims as that term is defined
94 in the master settlement agreement.
95 (h) "Releasing parties" means releasing parties as that term is defined
96 in the master settlement agreement.
97 (i) "Tobacco product manufacturer" means an entity that after the
98 date of enactment of this act directly (and not exclusively through any
99 affiliate):
100 (1) Manufactures cigarettes anywhere that such manufacturer in-
101 tends to be sold in the United States, including cigarettes intended to be
102 sold in the United States through an importer, except where such im-
103 porter is an original participating manufacturer, as that term is defined
104 in the master settlement agreement, that will be responsible for the pay-
105 ments under the master settlement agreement with respect to such cig-
106 arettes as a result of the provisions of subsections II(mm) of the master
107 settlement agreement and that pays the taxes specified in subsection II(z)
108 of the master settlement agreement, and provided that the manufacturer
109 of such cigarettes does not market or advertise such cigarettes in the
110 United States);
111 (2) is the first purchaser anywhere for resale in the United States of
112 cigarettes manufactured anywhere that the manufacturer does not intend
113 to be sold in the United States; or
114 (3) becomes a successor of an entity described in paragraph (1) or
115 (2). The term "tobacco product manufacturer" shall not include an affil-
116 iate of a tobacco product manufacturer unless such affiliate itself falls
117 within any of parts (1) - (3) of subsection (i) above.
118 (j) "Units sold" means the number of individual cigarettes sold in the
119 state by the applicable tobacco product manufacturer (whether directly
120 or through a distributor, retailer or similar intermediary or intermediar-
121 ies) during the year in question, as measured by excise taxes collected by
122 the state on packs (or "roll-your-own" tobacco containers) bearing the
123 excise tax stamp of the state. The department of revenue shall promulgate
124 such rules and regulations as are necessary to ascertain the amount of
125 state excise tax paid on the cigarettes of such tobacco product manufac-
126 turer for each year.
127 Sec. 3. Any tobacco product manufacturer selling cigarettes to con-
128 sumers within the state (whether directly or through a distributor, retailer
129 or similar intermediary or intermediaries) after the effective date of this
130 act shall do one of the following:
131 (a) Become a participating manufacturer (as that term is defined in
132 section II(jj) of the master settlement agreement) and generally perform
133 its financial obligations under the master settlement agreement; or
134 (b) (1) place into a qualified escrow fund by April 15 of the year
135 following the year in question the following amounts (as such amounts
136 are adjusted for inflation):
137 (A) 1999: $.0094241 per unit sold after the effective date of this act;
138 (B) 2000: $.0104712 per unit sold;
139 (C) for each of 2001 and 2002: $.0136125 per unit sold;
140 (D) for each of 2003 through 2006: $.0167539 per unit sold;
141 (E) for each of 2007 and each year thereafter: $0188482 per unit sold.
142 All per unit numbers under this paragraph (b)(1) are subject to
143 verification.
144 (2) A tobacco product manufacturer that places funds into escrow
145 pursuant to paragraph (1) of subsection (b) shall receive the interest or
146 other appreciation on such funds as earned. Such funds themselves shall
147 be released from escrow only under the following circumstances:
148 (A) To pay a judgment or settlement on any released claim brought
149 against such tobacco product manufacturer by the state or any releasing
150 party located or residing in the state. Funds shall be released from escrow
151 under this subparagraph (i) in the order in which they were placed into
152 escrow and (ii) only to the extent and at the time necessary to make
153 payments required under such judgment or settlement;
154 (B) to the extent that a tobacco product manufacturer establishes that
155 the amount it was required to place into escrow in a particular year was
156 greater than the state's allocable share of the total payments that such
157 manufacturer would have been required to make in that year under the
158 master settlement agreement (as determined pursuant to section IX(i)(2)
159 of the master settlement agreement, and before any of the adjustments
160 or offsets described in section IX(i)(3) of that agreement other than the
161 inflation adjustment) had it been a participating manufacturer, the excess
162 shall be released from escrow and revert back to such tobacco product
163 manufacturer; or
164 (C) to the extent not released from escrow under subparagraphs (A)
165 or (B) of paragraph (2) of subsection (b), funds shall be released from
166 escrow and revert back to such tobacco product manufacturer 25 years
167 after the date on which they were placed into escrow.
168 (3) Each tobacco product manufacturer that elects to place funds into
169 escrow pursuant to this subsection shall annually certify to the attorney
170 general that it is in compliance with this subsection. The attorney general
171 may bring a civil action on behalf of the state against any tobacco product
172 manufacturer that fails to place into escrow the funds required under this
173 section. Any tobacco product manufacturer that fails in any year to place
174 into escrow the funds required under this section shall:
175 (A) Be required within 15 days to place such funds into escrow as
176 shall bring it into compliance with this section. The court, upon a finding
177 of a violation of this subsection, may impose a civil penalty to be credited
178 to the state general fund in an amount not to exceed 5% of the amount
179 improperly withheld from escrow per day of the violation and in a total
180 amount not to exceed 100% of the original amount improperly withheld
181 from escrow;
182 (B) in the case of a knowing violation, be required within 15 days to
183 place such funds into escrow as shall bring it into compliance with this
184 section. The court, upon a finding of a knowing violation of this subsec-
185 tion, may impose a civil penalty to be paid to the state general fund in an
186 amount not to exceed 15% of the amount improperly withheld from es-
187 crow per day of the violation and in a total amount not to exceed 300%
188 of the original amount improperly withheld from escrow; and
189 (C) in the case of a second knowing violation, be prohibited from
190 selling cigarettes to consumers within the state (whether directly or
191 through a distributor, retailer or similar intermediary) for a period not to
192 exceed two years.
193 Each failure to make an annual deposit required under this section
194 shall constitute a separate violation. A tobacco products manufacturer
195 who is found in violation of this section shall pay, in addition to other
196 amounts assessed under this section and pursuant to law, the costs and
197 attorney's fees incurred by the state during a successful presentation un-
198 der this paragraph (3).
199 Sec. 4. This act shall take effect and be in force from and after its
200 publication in the Kansas register.