Chapter 1346: TOBACCO PRODUCT MANUFACTURER ESCROW ACCOUNTS

1346.01 Tobacco product manufacturer escrow account definitions.

(A) "Adjusted for inflation" means increased in accordance with the formula for inflation adjustment set forth in exhibit C to the Master Settlement Agreement.

(B) "Affiliate" means a person who directly or indirectly owns or controls, is owned or controlled by, or is under common ownership or control with, another person. Solely for purposes of this definition, the terms "owns," "is owned" and "ownership" mean ownership of an equity interest, or the equivalent thereof, of ten per cent or more, and the term "person" means an individual, partnership, committee, association, corporation or any other organization or group of persons.

(C) "Allocable share" means allocable share as that term is defined in the Master Settlement Agreement.

(D)

(1) "Cigarette" means any product that contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains any of the following:

(a) Any roll of tobacco wrapped in paper or in any substance not containing tobacco;

(b) Tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette; or

(c) Any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in division (D)(1)(a) of this section.

(2) The term "cigarette" includes "roll-your-own" (i.e., any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes). For purposes of this definition of "cigarette," 0.09 ounces of "roll-your-own" tobacco shall constitute one individual "cigarette."

(E) "Master Settlement Agreement" means the settlement agreement (and related documents) entered into on November 23, 1998 by the state and leading United States tobacco product manufacturers.

(F) "Qualified escrow fund" means an escrow arrangement with a federally or state chartered financial institution having no affiliation with any tobacco product manufacturer and having assets of at least one billion dollars where such arrangement requires that such financial institution hold the escrowed funds' principal for the benefit of releasing parties and prohibits the tobacco product manufacturer placing the funds into escrow from using, accessing or directing the use of the funds' principal except as consistent with section 1346.02 of the Revised Code.

(G) "Released claims" means released claims as that term is defined in the Master Settlement Agreement.

(H) "Releasing parties" means releasing parties as that term is defined in the Master Settlement Agreement.

(I)

(1) "Tobacco product manufacturer" means an entity that after the effective date of this section directly (and not exclusively through any affiliate):

(a) Manufactures cigarettes anywhere that such manufacturer intends to be sold in the United States, including cigarettes intended to be sold in the United States through an importer (except where such importer is an original participating manufacturer (as that term is defined in the Master Settlement Agreement) that will be responsible for the payments under the Master Settlement Agreement with respect to such cigarettes as a result of the provisions of subsections II(mm) of the Master Settlement Agreement and that pays the taxes specified in subsection II(z) of the Master Settlement Agreement, and provided that the manufacturer of such cigarettes does not market or advertise such cigarettes in the United States);

(b) Is the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer does not intend to be sold in the United States; or

(c) Becomes a successor of an entity described in division (I)(1)(a) or (b) of this section.

(2) The term "tobacco product manufacturer" shall not include an affiliate of a tobacco product manufacturer unless such affiliate itself falls within any of division (I)(1)(a), (b), or (c) of this section.

(J) "Units sold" means the number of individual cigarettes sold in the state by the applicable tobacco product manufacturer (whether directly or through a distributor, retailer or similar intermediary or intermediaries) during the year in question, as measured by excise taxes collected by the state on packs (or "roll-your-own" tobacco containers) bearing the excise tax stamp of the state. The department of taxation shall promulgate such regulations as are necessary to ascertain the amount of state excise tax paid on the cigarettes of such tobacco product manufacturer for each year.

Effective Date: 06-30-1999

1346.02 Joining settlement or making deposits into qualified escrow fund.

Any tobacco product manufacturer selling cigarettes to consumers within the state (whether directly or through a distributor, retailer or similar intermediary or intermediaries) after June 30, 1999 shall do one of the following:

(A) Become a participating manufacturer (as that term is defined in section II(jj) of the Master Settlement Agreement) and generally perform its financial obligations under the Master Settlement Agreement; or

(B)

(1) Place into a qualified escrow fund by April 15 of the year following the year in question the following amounts (as such amounts are adjusted for inflation):

1999: $.0094241 per unit sold after June 30, 1999;

2000: $.0104712 per unit sold;

For each of 2001 and 2002: $.0136125 per unit sold;

For each of 2003 through 2006: $.0167539 per unit sold;

For each of 2007 and each year thereafter: $.0188482 per unit sold.

(2) A tobacco product manufacturer that places funds into escrow pursuant to division (B)(1) of this section shall receive the interest or other appreciation on such funds as earned. Such funds themselves shall be released from escrow only under the following circumstances:

(a) To pay a judgment or settlement on any released claim brought against such tobacco product manufacturer by the state or any releasing party located or residing in the state. Funds shall be released from escrow under division (B)(2)(a) of this section:

(i) In the order in which they were placed into escrow; and

(ii) Only to the extent and at the time necessary to make payments required under such judgment or settlement.

(b) To the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow on account of units sold in the state in a particular year was greater than the Master Settlement Agreement payments, as determined pursuant to section IX(i) of that Agreement including after final determination of all adjustments, that such manufacturer would have been required to make on account of such units sold had it been a participating manufacturer, the excess shall be released from escrow and revert back to such tobacco product manufacturer; or

(c) To the extent not released from escrow under division (B)(2)(a) or (b) of this section, funds shall be released from escrow and revert back to such tobacco product manufacturer twenty-five years after the date on which they were placed into escrow.

(3) Each tobacco product manufacturer that elects to place funds into escrow pursuant to division (B) of this section shall annually certify to the attorney general that it is in compliance with division (B) of this section. The attorney general may bring a civil action on behalf of the state against any tobacco product manufacturer that fails to place into escrow the funds required under this section. Any tobacco product manufacturer that fails in any year to place into escrow the funds required under this section shall:

(a) Be required within fifteen days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a violation of division (B) of this section, may impose a civil penalty to be paid to the general revenue fund of the state in an amount not to exceed five per cent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed one hundred per cent of the original amount improperly withheld from escrow;

(b) In the case of a knowing violation, be required within fifteen days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a knowing violation of division (B) of this section, may impose a civil penalty to be paid to the general revenue fund of the state in an amount not to exceed fifteen per cent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed three hundred per cent of the original amount improperly withheld from escrow; and

(c) In the case of a second knowing violation, be prohibited from selling cigarettes to consumers within the state (whether directly or through a distributor, retailer or similar intermediary) for a period not to exceed two years.

Each failure to make an annual deposit required under this section shall constitute a separate violation.

Effective Date: 09-26-2003

1346.03 Tax information confidential.

Any information provided to the attorney general by the department of taxation in accordance with division (C)(5) of section 5703.21 of the Revised Code shall not be disclosed publicly by the attorney general except when it is necessary to facilitate compliance with and enforcement of section 1346.01 or 1346.02 of the Revised Code.

Effective Date: 06-30-1999; 2008 HB562 06-24-2008

1346.04 Tobacco product manufacturers definitions.

As used in this section and sections 1346.05 to 1346.10 of the Revised Code:

(A) "Brand family" means all styles of cigarettes sold under the same trademark and differentiated from one another by means of additional modifiers or descriptors, including, but not limited to, "menthol," "lights," "kings," and "100s." "Brand family" includes cigarettes sold under any brand name (whether that name is used alone or in conjunction with any other word), trademark, logo, symbol, motto, selling message, recognizable pattern of colors, or other indicia of product identification identical or similar to, or identifiable with, a previous brand of cigarettes.

(B) "Cigarette," "Master Settlement Agreement," "qualified escrow fund," "tobacco product manufacturer," and "units sold" have the same meanings as in section 1346.01 of the Revised Code.

(C) "Nonparticipating manufacturer" means any tobacco product manufacturer that is not a participating manufacturer.

(D) "Participating manufacturer" means a participating manufacturer as that term is defined in section II(jj) of the Master Settlement Agreement and all amendments to that agreement.

(E) "Stamping agent" means a person who is authorized to affix tax stamps to packages or other containers of cigarettes under section 5743.03 of the Revised Code or a person who is required to pay the excise tax imposed on cigarettes and other tobacco products under sections 5743.03 and 5743.51 of the Revised Code.

Effective Date: 09-26-2003

1346.05 Annual certification of tobacco product manufacturers - directory.

(A)

(1) Every tobacco product manufacturer whose cigarettes are sold in this state either directly or through a distributor, retailer, or other intermediary shall execute and deliver to the attorney general an annual certification, made under penalty of falsification, stating that, as of the date of the certification, the tobacco manufacturer is either a participating manufacturer or a nonparticipating manufacturer in full compliance with section 1346.02 of the Revised Code, including full compliance with all quarterly installment payment requirements, if required to make such payments by an administrative rule adopted by the attorney general. The certification shall be on a form prescribed by the attorney general and shall be filed not later than the thirtieth day of April in each year.

(2) Each participating manufacturer shall include in its certification a list of its brand families. Thirty days before making any additions to or modifications of its brand families, a participating manufacturer shall update its brand family list by executing and delivering a supplemental certification to the attorney general.

(3) Each nonparticipating manufacturer shall include all of the following in its certification:

(a) A list of all of its brand families and the number of units sold during the preceding calendar year for each brand family, and a list of all of its brand families that have been sold in the state at any time during the current calendar year. The list shall indicate, by an asterisk, any brand family that was sold in the state during the preceding calendar year and that is no longer being sold in the state as of the date of the certification. The list shall identify by name and address any other manufacturer in the preceding or current year of the brand families included on the list. Thirty days before making any additions to or modifications of its brand families, a nonparticipating manufacturer shall update its brand family list by executing and delivering a supplemental certification to the attorney general.

(b) A statement that the nonparticipating manufacturer is registered to do business in this state, or has appointed an agent for service of process in this state and provided notice of that appointment as required by section 1346.06 of the Revised Code;

(c) A certification that the nonparticipating manufacturer has established and continues to maintain a qualified escrow fund under section 1346.02 of the Revised Code and that the qualified escrow fund is governed by a qualified escrow agreement executed by the nonparticipating manufacturer and reviewed and approved by the attorney general;

(d) All of the following information regarding the qualified escrow fund the nonparticipating manufacturer is required to establish and maintain under section 1346.02 of the Revised Code and the rules adopted under that section:

(i) The name, address, and telephone number of the financial institution at which the nonparticipating manufacturer has established its qualified escrow fund;

(ii) The account number of the qualified escrow fund and any subaccount number for the state;

(iii) The amount that the nonparticipating manufacturer deposited in the qualified escrow fund for cigarettes sold in the state during the preceding calendar year, the date and amount of each deposit, and any evidence or verification the attorney general deems necessary to confirm those deposits;

(iv) The amount and date of any withdrawal or transfer of funds the nonparticipating manufacturer made at any time from any qualified escrow fund into which it ever made payments under section 1346.02 of the Revised Code and the rules adopted under that section.

(e) A statement that the nonparticipating manufacturer is in full compliance with this section and sections 1346.02 , 1346.06 , and 1346.07 of the Revised Code and any rules adopted under those sections.

(4)

(a) No tobacco product manufacturer shall include a brand family in its certification unless either of the following applies:

(i) In the case of a participating manufacturer, the participating manufacturer affirms that the cigarettes in the brand family shall be deemed to be its cigarettes for the purpose of calculating its payments under the Master Settlement Agreement for the relevant year in the volume and shares determined pursuant to that agreement.

(ii) In the case of a nonparticipating manufacturer, the nonparticipating manufacturer affirms that the cigarettes in the brand family shall be deemed to be its cigarettes for the purpose of section 1346.02 of the Revised Code.

(b) Nothing in this section limits or shall be construed to limit the state's authority to determine that the cigarettes in a brand family constitute the cigarettes of another tobacco product manufacturer for the purpose of calculating payments under the Master Settlement Agreement or for the purpose of section 1346.02 of the Revised Code.

(5) Each tobacco product manufacturer shall maintain all invoices and documentations of sales and other information relied upon for its certification for a period of at least five years.

(B)

(1) Except as otherwise provided in division (B)(3) of this section, the attorney general shall develop and publish on its web site a directory listing all tobacco product manufacturers that have provided current and accurate certifications under division (A) of this section and all brand families listed in those certifications.

(2)

(a) The attorney general shall update the directory as necessary to correct mistakes or to add or remove a tobacco product manufacturer or brand family to keep the directory in conformity with the requirements of this section. At least ten days before any tobacco product manufacturer or brand family is added to or removed from the directory, the attorney general shall publish notice of the pending addition or removal online in the directory and shall notify the tax commissioner of those pending changes. At least ten days before such addition or removal, the tax commissioner shall transmit by electronic mail or other practicable means to each stamping agent notice of the pending addition or removal.

(b) Unless an agreement between a stamping agent and a tobacco product manufacturer provides otherwise, a tobacco product manufacturer that is removed from the directory or whose brand family is removed from the directory shall refund to the stamping agent any money paid by the stamping agent to the tobacco product manufacturer for cigarettes of that tobacco product manufacturer that are in the possession of the stamping agent at the time the stamping agent receives notice of the pending removal of the tobacco product manufacturer or a brand family of that tobacco product manufacturer from the directory under division (B)(2)(a) of this section.

(c) The tax commissioner shall notify the attorney general of any tobacco product manufacturer that fails to refund money to a stamping agent under division (B)(2)(b) of this section. The attorney general shall not restore to the directory any tobacco product manufacturer or brand family of a tobacco product manufacturer until the tobacco product manufacturer has paid the stamping agent any required refund. Once a required refund has been so paid, the tax commissioner shall notify the attorney general of that payment.

(3) The attorney general shall not include or retain in the directory a nonparticipating manufacturer or a brand family of a nonparticipating manufacturer if any of the following applies:

(a) The nonparticipating manufacturer fails to provide the required certification under this section, or the attorney general determines that the certification is not in compliance with the requirements of this section, unless the attorney general determines that the violation has been cured to the attorney general's satisfaction.

(b) The attorney general determines that any escrow payment required under section 1346.02 of the Revised Code for any period for any brand family of the nonparticipating manufacturer, regardless of whether the brand family is listed by the nonparticipating manufacturer in its certification under this section, has not been fully paid into a qualified escrow fund governed by a qualified escrow agreement that has been approved by the attorney general.

(c) The attorney general determines that the nonparticipating manufacturer has not fully satisfied any outstanding final judgment, including interest, for a violation of section 1346.02 of the Revised Code.

(4) Each stamping agent shall provide an electronic mail address to the tax commissioner for the purpose of receiving notifications under division (B)(2) of this section. As necessary, each stamping agent shall update the agent's electronic mail address with the tax commissioner.

(C)

(1) No person shall do any of the following:

(a) Affix a tax stamp to a package or other container of cigarettes of a tobacco product manufacturer or a brand family that is not included in the directory;

(b) Sell, offer for sale, or possess for sale in this state cigarettes of a tobacco product manufacturer or a brand family that is not included in the directory;

(c) Sell or distribute cigarettes that have had a tax stamp affixed while the tobacco product manufacturer or brand family of those cigarettes was not included in the directory;

(d) Acquire, hold, own, possess, transport, import, or cause to be imported cigarettes that the person knows or should know are intended for distribution or sale in this state and that have had a tax stamp affixed while the tobacco product manufacturer or brand family of those cigarettes was not included in the directory;

(e) Acquire, hold, own, possess, transport, import, or cause to be imported cigarettes that the person knows or should know are intended for distribution or sale in this state and that are the cigarettes of a tobacco product manufacturer or a brand family that is not included in the directory.

(2) Except as otherwise provided in this division, a violation of division (C)(1) of this section is a misdemeanor of the first degree. If the offender has a previous conviction for a violation of that division, a violation of division (C)(1) of this section is a felony of the fourth degree.

(3) Any cigarettes sold, offered for sale, or possessed for sale in violation of division (C)(1) of this section shall be considered contraband under section 5743.21 of the Revised Code, and those cigarettes shall be subject to seizure and forfeiture under that section. Cigarettes so seized and forfeited shall not be resold and shall be destroyed.

Effective Date: 09-26-2003

1346.06 Nonparticipating manufacturer to appoint agent.

(A)

(1) Any nonresident or foreign nonparticipating manufacturer that has not registered to do business in the state as a foreign corporation or business entity, as a condition precedent to having its brand families included or retained in the directory developed and published by the attorney general under section 1346.05 of the Revised Code, shall appoint, and continually engage without interruption the services of, an agent in the state to act as agent for the service, in any manner authorized by law, of all process pertaining to any action or proceeding in the courts of this state against the manufacturer concerning or arising out of the enforcement of this chapter.

(2) Service on a nonparticipating manufacturer's agent shall constitute legal and valid service of process on the manufacturer.

(3) A nonparticipating manufacturer shall provide the attorney general, to the satisfaction of the attorney general, with proof of the appointment of, and notice of the name, address, telephone number, and availability of, the manufacturer's agent.

(B)

(1) If a nonparticipating manufacturer decides to terminate its agent's appointment, the manufacturer shall provide notice of the termination to the attorney general thirty calendar days prior to the termination and shall provide proof, to the satisfaction of the attorney general, of the appointment of a new agent not less than five calendar days prior to the termination.

(2) If a nonparticipating manufacturer's agent terminates the agent's appointment, the manufacturer shall provide notice of the termination to the attorney general and include proof, to the satisfaction of the attorney general, of the appointment of a new agent within five calendar days of the termination.

(C)

(1) Any nonparticipating manufacturer whose cigarettes are sold in the state and who has not appointed and continually engaged an agent in accordance with divisions (A) and (B) of this section shall be deemed to have appointed the secretary of state as the manufacturer's agent and may be proceeded against in any action or proceeding in the courts of the state described in division (A) of this section by service of process on the secretary of state.

(2) The deemed appointment of the secretary of state as a nonparticipating manufacturer's agent does not satisfy the requirements of divisions (A)(3)(b) and (B)(1) of section 1346.05 of the Revised Code that a nonparticipating manufacturer that has not registered to do business in the state shall appoint an agent for service of process as a condition precedent to the existence of an accurate certification permitting the manufacturer's brand families to be included or retained in the directory.

Effective Date: 09-26-2003

1346.07 Records maintained by stamping agent.

(A) Not later than the last day of each month or less frequently if so directed by the tax commissioner, each stamping agent shall submit information for the previous month or for the relevant time period, if directed by the tax commissioner to make the submission less frequently, which the tax commissioner requires to facilitate compliance with sections 1346.05 to 1346.10 of the Revised Code. The information shall include, but is not limited to, a list by brand family of the total number of cigarettes, or, in the case of roll-your-own, the equivalent stick count, for which the stamping agent during the period covered by the report affixed stamps or otherwise paid the tax due.

The stamping agent shall maintain and make available to the tax commissioner all invoices and documentations of sales of all nonparticipating manufacturer cigarettes and any other information the agent relies upon in submitting information under this division to the tax commissioner. This duty shall be for a period of five years from the date of each submission of information under this division.

(B) The attorney general at any time may require a nonparticipating manufacturer to provide proof, from the financial institution in which the manufacturer has established a qualified escrow fund under section 1346.02 of the Revised Code, of the amount of money in the fund, exclusive of interest, the amount and date of each deposit in the fund, and the amount and date of each withdrawal from the fund.

(C) In addition to the information required to be submitted or provided to the tax commissioner and the attorney general under divisions (A) and (B) of this section, the attorney general may require a stamping agent or tobacco product manufacturer to submit any additional information necessary to enable the attorney general to determine whether a manufacturer is in compliance with sections 1346.05 to 1346.10 of the Revised Code. The information shall include, but is not limited to, samples of the packaging or labeling of each brand family.

(D) The tax commissioner and the attorney general shall share information received under sections 1346.05 to 1346.10 of the Revised Code for purposes of determining compliance with and enforcement of those sections. The tax commissioner and the attorney general also may share information received under these sections with federal, state, or local agencies for purposes of the enforcement of this chapter or corresponding laws of other states.

Effective Date: 09-26-2003

1346.08 Administrative rules.

(A) The tax commissioner and the attorney general may adopt administrative rules necessary to implement sections 1346.05 to 1346.10 of the Revised Code.

(B) Subject to the requirements of section 1346.05 of the Revised Code, the attorney general may adopt an administrative rule requiring a tobacco product manufacturer to make required escrow deposits in quarterly installments during the year in which the sales covered by the deposits are made. If the attorney general adopts such a rule, the tax commissioner may require a tobacco product manufacturer or a stamping agent to produce information sufficient to enable the tax commissioner and the attorney general to determine the adequacy of the amount of an installment deposit.

Effective Date: 09-26-2003

1346.09 Remedies and penalties.

(A) The attorney general, on behalf of the tax commissioner, may seek an injunction to restrain a threatened or actual violation of division (C)(1) of section 1346.05 of the Revised Code or division (A) or (C) of section 1346.07 of the Revised Code by a stamping agent and to compel the stamping agent to comply with those divisions.

(B) In any action brought by the state to enforce sections 1346.05 to 1346.10 of the Revised Code, the state shall be entitled to recover the costs of the investigation, expert witness fees, court costs, and reasonable attorney's fees.

(C) If a court determines that a person has violated any prohibition or other provision of sections 1346.05 to 1346.10 of the Revised Code, the court shall order that the person's profits, gain, gross receipts, or other benefit from the violation be disgorged and paid to the general revenue fund of the state.

(D) Unless otherwise expressly provided, the remedies or penalties provided by this chapter are cumulative to each other and to the remedies or penalties available under all other laws of the state.

Effective Date: 09-26-2003

1346.10 Revocation of license of stamping agent for violations.

(A) In lieu of or in addition to any other remedy provided by law, upon a determination that a stamping agent has violated division (C)(1) of section 1346.05 of the Revised Code or any administrative rule adopted under sections 1346.05 to 1346.10 of the Revised Code, the tax commissioner may revoke the license of the stamping agent in the manner provided by section 5743.18 of the Revised Code.

(B) For each violation of division (C)(1) of section 1346.05 of the Revised Code, in addition to any other penalty provided by law, the tax commissioner may impose a fine in an amount not to exceed the greater of five hundred per cent of the retail value of the cigarettes involved or five thousand dollars. The fine shall be imposed in the manner provided by section 5743.081 of the Revised Code.

For the purpose of this division, each stamp affixed to a package of cigarettes and each sale or offer for sale of cigarettes in violation of division (C)(1) of section 1346.05 of the Revised Code shall constitute a separate violation.

Effective Date: 09-26-2003