SB-0472, As Passed House, March 2, 2016

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 472

A bill to amend 1999 PA 244, entitled

"An act to require tobacco product manufacturers to place funds in

escrow for medical expenses incurred by the state due to tobacco

related illnesses; to establish a formula for determining the

amount of the escrow; to establish the conditions for release of

funds from escrow; to prescribe powers and duties of the attorney

general; and to provide for civil penalties for violation of this

act,"

by amending sections 1 and 2 (MCL 445.2051 and 445.2052), section 2

as amended by 2003 PA 286.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. As used in this act:

(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 10%

or more, and the term "person" means an individual, partnership,

committee, association, corporation, or any other organization or

group of persons.

settlement agreement.

(d) "Cigarette" means any product that contains nicotine, is

intended to be burned or heated under ordinary conditions of use,

and consists of or contains (i) any roll of tobacco wrapped in

paper or in any substance not containing tobacco; or (ii) 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 (iii) 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 clause (i) of this

definition. 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 1 individual "cigarette".

(e) "Inflation adjustment" means that term as defined in the

master settlement agreement.

(f) "Master settlement agreement" means the settlement

agreement (and related documents) entered into on November 23,

1998, and incorporated into a consent decree and final judgment

entered into on December 7, 1998, in Kelley Ex Rel. Michigan v

Philip Morris Incorporated, et al., Ingham ~~county~~ County circuit

court, docket no. 96-84281CZ.

(g) "Original participating manufacturer" means that term as

defined in the master settlement agreement.

(h) "Participating manufacturer" means that term as defined in

the master settlement agreement.

(i) "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 $1,000,000,000.00 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 2(2) of this act.

(j) "Released claims" means that term as defined in the master

settlement agreement.

(k) "Releasing parties" means that term as defined in the

master settlement agreement.

(l) "Tobacco product manufacturer" means an entity that after

the date of enactment of this act directly (and not exclusively

through any affiliate) meets 1 or more of the following:

(i) 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 that will be responsible for the payments under the

master settlement agreement with respect to such cigarettes as a

result of the provisions of subsection 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).

(ii) 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.

(iii) Becomes a successor of an entity described in

subparagraph (i) or (ii).

(m) The term "tobacco product manufacturer" as defined in

subdivision (l) does not include an affiliate of a tobacco product

manufacturer unless the affiliate itself falls within 1 or more of

subdivision (l)(i) to (iii).

(n) "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. Units sold shall also include 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 to which the state had power to under federal law, but

did not, impose or collect an excise tax. The department of

treasury ~~shall~~ may promulgate such ~~regulations~~ rules as are

necessary to ascertain the amount of ~~state excise tax paid on the~~

~~cigarettes~~ units sold of such tobacco product manufacturer for each

year.

Sec. 2. (1) Any tobacco product manufacturer selling

cigarettes to consumers within the state (whether directly or

through a distributor, retailer, or similar intermediary or

intermediaries) after the date of enactment of this act shall do 1

of the following:

(a) Become a participating manufacturer and generally perform

its financial obligations under the master settlement agreement.

(b) 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):

(i) 1999: $.0094241 per unit sold after the date of enactment

of this act.

(ii) 2000: $.0104712 per unit sold.

(iii) For each of 2001 and 2002: $.0136125 per unit sold.

(iv) For each of 2003 through 2006: $.0167539 per unit sold.

(v) For each of 2007 and each year thereafter: $.0188482 per

unit sold.

(2) The escrow fund deposits required by this section shall be

made in quarterly installments following the quarter in which sales

took place. For purposes of this section, the calendar year shall

be divided into the following quarters: January 1 through March 31;

April 1 through June 30; July 1 through September 30; and October 1

through December 31. Deposits for sales for each quarter shall be

made according to the following schedule:

(a) Deposits for sales occurring in the first quarter, January

1 through March 31, are due April 30 of the same year. A

certification of the first quarter deposit shall be filed with the

department of treasury no later than May 15 of the same year.

(b) Deposits for sales occurring in the second quarter, April

1 through June 30, are due July 31 of the same year. A

certification of the second quarter deposit must be filed with the

department of treasury no later than August 15 of the same year.

through September 30, are due October 31 of the same year. A

certification of the third quarter deposit shall be filed with the

department of treasury no later than November 15 of the same year.

(d) Deposits for sales occurring in the fourth quarter,

October 1 through December 31, are due January 31 of the following

year. A certification of the fourth quarter deposit shall be filed

with the department of treasury no later than February 15 of the

year following the year in which the cigarettes were sold.

(3) For each of the quarters, the quarterly deposit shall be

based upon units sold in that quarter together with the inflation

adjustment provided by the department of treasury. An annual

reconciliation deposit shall be made on or before April 15 of the

year following the year in which the cigarettes were sold to

account for the actual annual inflation adjustment. A statement of

the reconciliation deposit and the final reconciled deposit figures

shall be included with the annual certification, due on or before

April 30 of the year following the year in which the cigarettes

were sold. Additionally, the annual certification required under

section 6d of the tobacco product tax act, 1993 PA 327, MCL

205.426d, shall include the final reconciled deposit figures.

(4) ~~(2)~~ A tobacco product manufacturer that places funds into

escrow pursuant to subsection (1)(b) shall receive the interest or

other appreciation on the funds as earned. The funds themselves

shall be released from escrow only under 1 or more of the following

circumstances:

(a) To pay a judgment or settlement on any released claim

brought against the tobacco product manufacturer by the state or

any releasing party located or residing in the state. Funds shall

be released from escrow under this subdivision in the order in

which they were placed into escrow and 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.

(a) or (b), funds shall be released from escrow and revert back to

such tobacco product manufacturer 25 years after the date on which

they were placed into escrow.

(d) If a court of competent jurisdiction determines that

subdivision (b) as amended by the amendatory act that added this

subdivision is unconstitutional, subdivision (b) does not apply.

(5) ~~(3)~~ Each tobacco product manufacturer that elects to place

funds into escrow pursuant to subsection (1)(b) shall ~~annually~~ on a

quarterly and annual basis certify to the department of treasury

that it is in compliance with 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 be subject to all of the following that are

applicable:

(a) Shall be required within 15 days to place sufficient funds

into escrow to bring it into compliance with this section. The

court, upon a finding of a violation of this subsection, may impose

a civil penalty to be paid to the general fund of the state in an

amount not to exceed 5% of the amount improperly withheld from

escrow per day of the violation and in a total amount not to exceed

100% of the original amount improperly withheld from escrow.

(b) In the case of a knowing violation, shall be required

within 15 days to place sufficient funds into escrow to bring it

into compliance with this section. The court, upon a finding of a

knowing violation of this subsection, may impose a civil penalty to

be paid to the general fund of this state in an amount not to

exceed 15% of the amount improperly withheld from escrow per day of

the violation and in a total amount not to exceed 300% of the

original amount improperly withheld from escrow.

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 2 years.

(6) ~~(4)~~ For purposes of subsection ~~(3),~~ (5), each failure to

make a quarterly or an annual deposit required under subsection

(1)(b) shall constitute a separate violation.

(7) ~~(5)~~ If, following a court determination described in

subsection ~~(2)(d),~~ (4)(d), a court of competent jurisdiction

determines that subsection ~~(2)~~ (4) without subsection ~~(2)(b)~~ (4)(b)

is unconstitutional, then this subsection applies. A tobacco

product manufacturer that places funds into escrow pursuant to

subsection (1)(b) shall receive the interest or other appreciation

on the funds as earned. The funds themselves shall be released from

escrow only under 1 or more of the following circumstances:

(a) To pay a judgment or settlement on any released claim

brought against the tobacco product manufacturer by the state or

any releasing party located or residing in the state. Funds shall

be released from escrow under this subdivision in the order in

which they were placed into escrow and 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 in

a particular year was greater than the state's allocable share of

the total payments that such manufacturer would have been required

to make in that year under the master settlement agreement (as

determined pursuant to section IX(i)(2) of the master settlement

agreement, and before any of the adjustments or offsets described

in section IX(i)(3) of the master settlement agreement other than

the inflation adjustment) had it been a participating manufacturer,

the excess shall be released from escrow and revert back to such

tobacco product manufacturer.

(a) or (b), funds shall be released from escrow and revert back to

such tobacco product manufacturer 25 years after the date on which

they were placed into escrow.

(8) Notwithstanding subsection (4), a tobacco product

manufacturer that elects to place funds into escrow pursuant to

subsection (1)(b) may make an irrevocable assignment of its

interest in the funds to the benefit of the state. Such assignment

shall be permanent and apply to all funds in the subject escrow

account or that may subsequently come into the account, including

those deposited into the escrow account prior to the assignment

being executed, those deposited into the escrow account after the

assignment is executed, and interest or other appreciation on the

funds. The tobacco product manufacturer, the Michigan department of

treasury, and the financial institution where the escrow account is

maintained may make such amendments to the qualified escrow account

agreement as may be necessary to effectuate an assignment of rights

executed pursuant to this subsection or a withdrawal of funds from

the escrow account pursuant to subsection (4). An assignment of

rights executed pursuant to this section shall be in writing,

signed by a duly authorized representative of the tobacco products

manufacturer making the assignment, and shall become effective upon

delivery of the assignment to the Michigan department of treasury

and the financial institution where the escrow account is

maintained.

(9) Notwithstanding subsection (4), any escrow funds assigned

to the state pursuant to subsection (1)(a) shall be withdrawn by

the state upon the request by the treasurer and approval of the

attorney general. Any funds withdrawn pursuant to this subsection

shall be deposited into the general fund and shall be calculated on

a dollar-for-dollar basis as a credit against any judgment or

settlement described in subsection (4) which may be obtained

against the tobacco product manufacturer who has assigned the funds

in the subject escrow account. Nothing in this section shall be

construed to relieve a tobacco product manufacturer from any past,

current, or future obligations the manufacturer may have pursuant

to this act.

(10) ~~(6)~~ If this act or any portion of the amendatory act that

added this subsection is held by a court of competent jurisdiction

to be unconstitutional, the remaining portions of this act shall