PRINTER'S NO. 2635
No. 2106 Session of 1981
INTRODUCED BY WILSON AND DOMBROWSKI, DECEMBER 7, 1981
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE,
DECEMBER 7, 1981
AN ACT
1 To prevent unfair competition and unfair trade practices in the
2 sale of cigarettes; to prohibit sales of cigarettes below
3 cost; to protect and stabilize the collection of taxes on the
4 sale of cigarettes and revenues from the licensing of persons
5 engaged in the sale of cigarettes; to confer powers and
6 impose duties on the Department of Revenue and on persons, as
7 herein defined, engaged in the sale of cigarettes at retail
8 or wholesale; and providing remedies and imposing penalties
9 for violations thereof.
10 The General Assembly finds that the advertising, offering for
11 sale or sale of cigarettes below cost in the retail or wholesale
12 trade with the intent of injuring competitors or destroying or
13 substantially lessening competition are unfair and deceptive
14 business practices; and that such practices adversely affect the
15 collection of taxes from the sale of cigarettes and permit fees
16 required of persons engaged in the sale of cigarettes. It is
17 hereby declared to be the policy of this Commonwealth to promote
18 the public welfare by prohibiting such sales and it is the
19 purpose of this act to carry out that policy in the public
20 interest.
1 TABLE OF CONTENTS
2 Section 1. Short title.
3 Section 2. Definitions.
4 Section 3. Sales at less than cost.
5 Section 4. Cost to the wholesaler.
6 Section 5. Cost to the retailer.
7 Section 6. Combination sales.
8 Section 7. Sales by wholesale dealers.
9 Section 8. Sales exceptions.
10 Section 9. Transactions permitted to meet lawful
11 competition.
12 Section 10. Sales contracts void.
13 Section 11. Admissible evidence.
14 Section 12. Sales outside ordinary channels.
15 Section 13. Cost survey.
16 Section 14. General power of the department.
17 Section 15. Remedies.
18 Section 16. Revocation of license.
19 Section 17. Enforcement.
20 Section 18. Repeal.
21 Section 19. Effective date.
22 The General Assembly of the Commonwealth of Pennsylvania
23 hereby enacts as follows:
24 Section 1. Short title.
25 This act shall be known and may be cited as the "Cigarette
26 Sales Below Cost Act."
27 Section 2. Definitions.
28 The following words and phrases when used in this act shall
29 have, unless the context clearly indicates otherwise, the
30 meanings given to them in this section:
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1 "Basic cost of cigarettes." The invoice cost of cigarettes
2 to the retailer or wholesaler, as the case may be, or the
3 replacement cost of cigarettes to the retailer or wholesaler, as
4 the case may be, in the quantity last purchased, whichever is
5 lower, less all trade discounts, except cash discounts, to which
6 shall be added the full value of any tax stamps which may be
7 required by any cigarettes tax act of this Commonwealth and by
8 ordinance of any municipality thereof in effect or hereafter
9 enacted.
10 "Cigarette." Any roll for smoking made wholly or in part of
11 tobacco, irrespective of size or shape and whether or not such
12 tobacco is flavored, adulterated or mixed with any other
13 ingredient, the wrapper or cover of which is made of paper or
14 any other substance or material, excepting tobacco.
15 "Department." The Department of Revenue.
16 "Person." Any individual firm, association, company
17 partnership, corporation, joint stock company, club agency,
18 syndicate, municipal corporation or other political subdivision
19 of this Commonwealth, trust, receiver, trustee, fiduciary and
20 conservator.
21 "Retailer." Any person who operates a store, stand, booth or
22 concession for the purpose of making sales of cigarettes at
23 retail including sales through vending machines.
24 "Sale." Any transfer for a consideration, exchange, barter,
25 gift, offer for sale and distribution in any manner or by any
26 means whatsoever.
27 "Sell at retail," "sale at retail" and "retail sales." Any
28 transfer of title to cigarettes for a valuable consideration,
29 made in the ordinary course of trade or usual conduct of the
30 seller's business, to the purchaser for consumption or use,
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1 including sales through vending machines.
2 "Sell at wholesale," "sale at wholesale" and "wholesale
3 sales." Any bona fide transfer of title to cigarettes for a
4 valuable consideration, made in the ordinary course of trade or
5 in the usual conduct of the wholesaler's business, to a retailer
6 for the purpose of resale.
7 "Wholesaler." Any person who purchases cigarettes direct
8 from the manufacturer or from any other person who purchases
9 from a manufacturer and sells at least 75% of all such
10 cigarettes purchased by him to others for resale. Nothing
11 contained herein shall prevent a person from qualifying in
12 different capacities as both a wholesaler and retailer under the
13 applicable provisions of this act.
14 Section 3. Sales at less than cost.
15 (a) Violations enumerated.--It shall be unlawful and a
16 violation of this act:
17 (1) For any retailer, wholesaler or other person with
18 intent to injure competitors or destroy or substantially
19 lessen competition:
20 (i) to advertise, offer to sell, or sell, at retail
21 or wholesale, cigarettes at less than cost as defined in
22 this act, to such retailer or wholesaler, as the case may
23 be; or
24 (ii) to offer a rebate in price, to give a rebate in
25 price, to offer a concession of any kind, or to give a
26 concession of any kind or nature whatsoever in connection
27 with the sale of cigarettes;
28 (2) For any retailer:
29 (i) to induce or attempt to induce or to procure or
30 attempt to procure the purchase of cigarettes at a price
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1 less than cost to wholesaler as defined in this act; or
2 (ii) to induce or attempt to induce or to procure or
3 attempt to procure any rebate or concession of any kind
4 or nature whatsoever in connection with the purchase of
5 cigarettes.
6 (b) Penalties.--Any retailer or wholesaler who shall
7 advertise, offer to sell or sell cigarettes at retail or
8 wholesale in violation of this act shall, for a first offense,
9 upon summary conviction thereof, be sentenced to pay a fine not
10 exceeding $200, and, in default thereof, shall be sentenced to
11 undergo imprisonment for not more than 60 days; and for a second
12 or subsequent offense, be guilty of a misdemeanor, and, upon
13 conviction thereof, be sentenced to pay a fine not exceeding
14 $500, or to undergo imprisonment not exceeding six months, or
15 both. Each advertisement, offer for sale or sale of cigarettes
16 in violation of this act shall constitute a separate violation
17 of this act and shall subject the offender to penalties hereby
18 prescribed.
19 (c) Evidence.--Evidence of advertisement, offering to sell
20 or sale of cigarettes by any retailer, or wholesaler at less
21 than cost to him or evidence of any offer of a rebate in price
22 or the giving of a rebate in price or an offer of a concession
23 or the giving of a concession of any kind or nature whatsoever
24 in connection with the sale of cigarettes or the inducing or
25 attempt to induce or the procuring or the attempt to procure the
26 purchase of cigarettes at a price less than cost to the
27 wholesaler or the retailer shall be prima facie evidence of
28 intent and likelihood to injure competition and to destroy or
29 substantially lessen competition.
30 Section 4. Cost to the wholesaler.
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1 (a) Calculation of cost.--The term "cost to the wholesaler"
2 shall mean the basic cost of cigarettes to the wholesaler plus
3 the cost of doing business by the wholesaler, as evidenced by
4 the standards and methods of accounting regularly employed by
5 said wholesaler in his determination of costs for the purpose of
6 Federal income tax reporting, for the total operation of his
7 establishment, and must include, without limitation, labor costs
8 (including salaries of executives and officers), rent,
9 depreciation, selling costs, maintenance of equipment, delivery
10 costs, interest payable, all types of licenses, taxes, insurance
11 and advertising, expressed as a percentage and applied to the
12 basic cost of cigarettes.
13 (b) Presumption.--In the absence of the filing with the
14 department of satisfactory proof of a lesser or higher cost of
15 doing business by the wholesaler making the sale, the cost of
16 doing business by the wholesaler shall be presumed to be 5% of
17 the basic cost of cigarettes to the wholesaler.
18 (c) Fractions.--Any fractional part of a cent in cost to the
19 wholesaler per carton of ten packages of cigarettes shall be
20 rounded off to the next higher cent.
21 Section 5. Cost to the retailer.
22 (a) Calculation of cost.--The term "cost to the retailer"
23 shall mean the basic cost of cigarettes plus the cost of doing
24 business set forth in section 4(a), (b) and (c), to which shall
25 be added the cost of doing business by the retailer, as
26 evidenced by the standards and methods of accounting regularly
27 employed by said retailer in his determination of costs for the
28 purpose of Federal income tax reporting for the total operation
29 of his establishment, and must include, without limitation,
30 labor costs (including salaries of executives and officers),
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1 rent, depreciation, selling costs, maintenance of equipment,
2 delivery costs, interest payable, all types of licenses, taxes,
3 insurance and advertising expressed as a percentage and applied
4 to the basic cost of cigarettes.
5 (b) Presumption.--In the absence of the filing with the
6 department of satisfactory proof of a lesser or higher cost of
7 doing business by the retailer making the sale, the cost of
8 doing business by the retailer shall be presumed to be 8% of the
9 basic cost of cigarettes to the retailer. Any fractional part of
10 a cent in cost to the retailer per carton of ten packages of
11 cigarettes shall be rounded off to the next higher cent.
12 (c) Order of presumed costs.--In the case of any person who
13 purchases cigarettes for sale at retail from any manufacturer of
14 cigarettes without resort to a wholesaler as such, such person
15 shall be deemed, for the purposes of this act, to be engaged in
16 the sale of cigarettes both as a wholesaler and retailer and as
17 such, and in the absence of filing with the department
18 satisfactory proof of lesser or higher cost of doing business,
19 the cost of doing business shall be the presumed cost of doing
20 business of the wholesaler and the retailer, in that order.
21 Section 6. Combination sales.
22 In all advertisements, offers for sale or sales involving two
23 or more items, at least one of which items is cigarettes, at a
24 combined price and in all advertisements, offers for sale or
25 sales involving the giving of any concession of any kind
26 whatsoever (whether it be coupons or otherwise), the retailer's
27 or wholesaler's selling price shall not be below the cost to the
28 retailer or the cost to the wholesaler, respectively, of the
29 cigarettes included in such transactions, and the invoice cost,
30 whether the same be paid by the retailer, the wholesaler or any
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1 other person, of all other articles, products, commodities and
2 concessions included in such transactions, to which invoice cost
3 shall be added, the cost of doing business in the case of the
4 wholesaler and the retailer, respectively, as such cost is
5 defined in sections 4 and 5.
6 Section 7. Sales by wholesale dealers.
7 When one wholesaler sells cigarettes to any wholesaler, the
8 former shall not be required to include in his selling price to
9 the latter, cost to the wholesaler, as provided in section 4
10 except that no such sale shall be made at a price less than the
11 basic cost of cigarettes but the latter wholesaler, upon resale
12 to a retailer or for consumption or use, shall be deemed to be
13 the wholesaler governed by sections 4 and 5.
14 Section 8. Sales exceptions.
15 This act shall not apply to sales at retail or sales at
16 wholesale made:
17 (1) as an isolated transaction and not in the usual
18 course of business;
19 (2) where cigarettes are advertised, offered for sale or
20 sold in bona fide clearance sales for the purpose of
21 discontinuing trade in such cigarettes and said advertising,
22 offer to sell, or sale shall state the reason therefor and
23 the quantity of such cigarettes advertised, offered for sale
24 or to be sold;
25 (3) where cigarettes are advertised, offered for sale or
26 sold as imperfect or damaged, and said advertising, offer to
27 sell or sale shall state the reason therefor and the quantity
28 of such cigarettes advertised, offered for sale or to be
29 sold;
30 (4) where cigarettes are sold, upon the final
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1 liquidation of a business; or
2 (5) where cigarettes are advertised, offered for sale or
3 sold by any fiduciary or other officer acting under the order
4 or direction of any court.
5 Section 9. Transactions permitted to meet lawful competition.
6 (a) Price.--Any retailer may advertise, offer to sell or
7 sell cigarettes at a price made in good faith to meet the lawful
8 price of a competitor who is selling the same article in this
9 Commonwealth at cost to him as a retailer as prescribed in this
10 act. Any wholesaler may advertise, offer to sell or sell
11 cigarettes at a price made in good faith to meet the lawful
12 price of a competitor who is rendering the same type of service
13 and is selling the same article at cost to him as a wholesaler
14 as prescribed in this act. The price of cigarettes advertised,
15 offered for sale or sold under the exceptions specified in
16 section 8 shall not be considered the price of a competitor and
17 shall not be used as a basis for establishing prices below cost,
18 nor shall the price established at a bankruptcy sale be
19 considered the price of a competitor within the purview of this
20 section.
21 (b) Establishment of cost by surveys.--In the absence of
22 proof of the price of a competitor, under this section, the
23 lowest cost to the retailer, or the lowest cost to the
24 wholesaler, as the case may be, determined by any cost survey,
25 made pursuant to section 13 may be deemed the price of a
26 competitor, within the meaning of this section.
27 Section 10. Sales contracts void.
28 Any contract, expressed or implied, made by any person in
29 violation of any of the provisions of this act, is declared to
30 be an illegal and void contract and no recovery thereon shall be
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1 made.
2 Section 11. Admissible evidence.
3 (a) Scope of evidence.--In determining cost to the retailer
4 and cost to the wholesaler the department or a court shall
5 receive and consider as bearing on the bona fides of such cost,
6 evidence tending to show that any person complained against
7 under any of the provisions of this act purchased cigarettes,
8 with respect to the sale of which complaint is made, at a
9 fictitious price, or upon terms, or in such a manner, or under
10 such invoices, as to conceal the true cost, discounts or terms
11 of purchase and shall also receive and consider as bearing on
12 the bona fides of such cost, evidence of the normal, customary
13 and prevailing terms and discounts in connection with other
14 sales of a similar nature in the trade area or state.
15 (b) Promotional material.--Merchandise given gratis or
16 payment made to a retailer or wholesaler by the manufacturer
17 thereof for display or advertising, or promotion purposes, or
18 otherwise, shall not be considered in determining the cost of
19 cigarettes to the retailer or wholesaler.
20 Section 12. Sales outside ordinary channels.
21 In establishing the cost of cigarettes to the retailer or
22 wholesaler, the invoice cost of said cigarettes purchased at a
23 forced, bankrupt or closeout sale, or other sale outside the
24 ordinary channels of trade, may not be used as a basis for
25 justifying a price lower than one based upon the replacement
26 cost of the cigarettes to the retailer or wholesaler in the
27 quantity last purchased, through the ordinary channels of trade.
28 Section 13. Cost survey.
29 Where a cost survey pursuant to recognized statistical and
30 cost accounting practices has been made for the trading area in
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1 which a violation of this act is committed or charged to
2 determine and establish on the basis of actual existing
3 conditions the lowest cost to wholesalers or the lowest cost to
4 retailers within the said area, such cost survey shall be deemed
5 competent evidence in any action or proceeding under this act as
6 tending to prove actual cost to the wholesaler or actual cost to
7 the retailer complained against, but any party against whom any
8 such cost survey may be introduced in evidence shall have the
9 right to offer evidence tending to prove any inaccuracy of such
10 cost survey or any state of facts which would impair its
11 probative value.
12 Section 14. General power of the department.
13 The Department of Revenue may, in the manner provided by law,
14 adopt rules and regulations for the enforcement of this act and
15 may undertake a cost survey as provided for in section 13.
16 Section 15. Remedies.
17 (a) Injunction.--The department in the case of any violation
18 or threatened violation of this act, or any person injured by
19 any violation or who shall suffer injury from any threatened
20 violation of this act, may maintain an action in any court of
21 competent jurisdiction to prevent, restrain or enjoin such
22 violation or threatened violation. If in such action a violation
23 or threatened violation of this act shall be established, the
24 court shall enjoin and restrain or otherwise prohibit such
25 violation or threatened violation and in addition thereto the
26 court shall assess in favor of the plaintiff and against the
27 defendant the costs of suit, including reasonable attorneys'
28 fees. In any such action it shall not be necessary that actual
29 damages to the plaintiff be alleged or proved, but where alleged
30 and proved by a plaintiff, other than the Department of Revenue,
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1 the plaintiff in said action, in addition to such injunctive
2 relief and costs of suit, including reasonable attorneys' fees,
3 shall be entitled to recover from the defendant the actual
4 damages sustained by him.
5 (b) Action for damages.--In the event that no injunctive
6 relief is sought or required, any person injured by a violation
7 of this act may maintain an action for damages and costs of suit
8 in any court of competent jurisdiction.
9 Section 16. Revocation of license.
10 (a) Grounds, period and procedure.--In addition to sections
11 3 and 15, the department is empowered to suspend or revoke the
12 license or any licenses of any person, licensed under the act of
13 July 22, 1970 (P.L.513, No.178), known as the "Pennsylvania
14 Cigarette Tax Act." No license shall be suspended or revoked
15 except upon notice to the licensee and after a hearing as
16 prescribed by the department. The department, upon a finding
17 that the licensee has failed to comply with any provisions of
18 this act or any rule or regulation promulgated thereunder, shall
19 suspend the license or licenses of the licensee for a period of
20 not less than five nor more than 30 consecutive business days
21 and if the department finds the offender has been guilty of
22 willful and persistent violations, it may revoke said person's
23 license or licenses.
24 (b) Reinstatement.--Any person whose license or licenses
25 have been revoked may apply to the department at the expiration
26 of one year for a reinstatement of the license. The license may
27 be reinstated if it appears to the satisfaction of the
28 department the applicant will comply with this act and the rules
29 and regulations promulgated hereunder.
30 (c) Unlawful sales.--No person whose license has been
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1 suspended or revoked shall sell cigarettes or permit cigarettes
2 to be sold during the period of such suspension or revocation on
3 the premises occupied by him, or upon other premises controlled
4 by him or others, or in any other manner or form whatever.
5 (d) Construction of act.--Any disciplinary proceedings or
6 action shall not be barred or abated by the expiration,
7 transfer, surrender, continuance, renewal or extension of any
8 license issued under the provisions of the "Pennsylvania
9 Cigarette Tax Act."
10 (e) Appeal.--Any person aggrieved by any decision or order
11 of the department suspending or revoking any such license or
12 licenses may appeal from such decision or order, as provided in
13 Title 2 of the Pennsylvania Consolidated Statutes (relating to
14 administrative law and procedure).
15 Section 17. Enforcement.
16 In order to effectuate the purpose of this act, it shall be
17 the duty of the department to carry out the enforcement
18 provisions hereof in accordance with the laws of this
19 Commonwealth.
20 Section 18. Repeal.
21 The act of May 20, 1949 (P.L.1584, No.478), known as the
22 "Unfair Cigarette Sales Act," is repealed.
23 Section 19. Effective date.
24 This act shall take effect in 60 days.
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