PRIOR PRINTER'S NO. 1018 PRINTER'S NO. 1702
No. 889 Session of 1989
INTRODUCED BY RHOADES, FUMO, GREENLEAF, SALVATORE, MELLOW,
BAKER, BODACK, SHAFFER, MADIGAN, PECORA, LINCOLN, STOUT,
LEWIS, LYNCH, PUNT, SCANLON AND O'PAKE, MAY 8, 1989
SENATOR ARMSTRONG, FINANCE, AS AMENDED, NOVEMBER 14, 1989
AN ACT
1 Amending the act of May 20, 1949 (P.L.1584, No.478), entitled
2 "An act defining and prohibiting unfair sales of cigarettes;
3 conferring powers and imposing duties on the Department of
4 Revenue and on persons, as herein defined, engaged in the
5 sale of cigarettes at retail or wholesale; providing for the
6 suspension and revocation of Cigarette Tax Permits; and
7 providing remedies and penalties for violations," further
8 defining certain terms; regulating sales; providing remedies;
9 conferring powers upon the Attorney General; and providing
10 penalties.
11 The General Assembly of the Commonwealth of Pennsylvania
12 hereby enacts as follows:
13 Section 1. The definitions of "wholesaler," "retailer,"
14 "basic cost of cigarettes," "cost to the wholesaler" and "cost
15 to the retailer" in section 2 of the act of May 20, 1949
16 (P.L.1584, No.478), known as the Unfair Cigarette Sales Act, are
17 amended and the section is amended by adding definitions to
18 read:
19 Section 2. Definitions.--The following words, terms and
20 phrases, when used in this act, shall have the meaning ascribed
21 to them in this section, except where the context clearly
1 indicates a different meaning.
2 * * *
3 (d) ["Wholesaler" shall mean and include any person who
4 purchases cigarettes direct from the manufacturer or from any
5 other person who purchases from a manufacturer and sells at
6 least seventy-five per centum (75%) of all such cigarettes
7 purchased by him to others for resale.] "Wholesaler" shall mean
8 and include:
9 (1) Any person, other than the cigarette stamping agent,
10 who, in the usual course of business, purchases cigarettes and
11 sells, within this Commonwealth, at least seventy-five per
12 centum (75%) of all such cigarettes purchased by him or her to
13 retail dealers, other wholesale dealers, or any other persons
14 who shall buy said cigarettes from him or her for the purpose of
15 resale to the ultimate consumer: Provided, That such person
16 maintains a separate established place of business for the
17 receiving, storage and distribution of cigarettes.
18 (2) Any person who is engaged in the business of
19 distributing cigarettes through vending machines to the ultimate
20 consumer by means of placing said cigarette vending machines,
21 owned or leased by him, in various outlets within the
22 Commonwealth, and who pays to the owner or lessee of the
23 premises a commission or rental for the use of said premises:
24 Provided, That such vending machine operator shall operate at
25 least ten vending machines: And, provided further, That said
26 vending machine operator meets all the other requirements for
27 licensing of wholesalers under this article, including
28 maintaining a separate established place of business for the
29 receiving, storage and distribution of cigarettes.
30 (3) Any person who owns and operates no less than five
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1 stores which ARE retail outlets having one hundred per centum <--
2 (100%) common ownership, who services such retail outlets by the
3 maintenance of an established place of business for the
4 receiving, storage and distribution of cigarettes, and who
5 purchases cigarettes from a cigarette stamping agency or another
6 wholesaler for resale to the ultimate consumer or a business
7 entity which is granted the right to engage in the business of
8 offering, selling or distributing goods or service under a
9 marketing plan or system prescribed by the grantor of that
10 right, for which a direct or indirect fee is paid, such grant
11 commonly called a franchise agreement: Provided, That such
12 person maintains complete and accurate records of all purchases
13 and sales in his or her main office and also in the retail
14 outlet and otherwise meets the requirements for licensing of
15 wholesalers under this act. THE ACT OF MARCH 4, 1971 (P.L.6, <--
16 NO.2), KNOWN AS THE "TAX REFORM CODE OF 1971."
17 (e) "Retailer" shall mean and include any person who sells
18 cigarettes at retail, including a wholesaler or a cigarette
19 stamping agent for the purposes of its sale to consumers.
20 * * *
21 (h) "Basic cost of cigarettes" shall mean the invoice cost
22 of cigarettes to the retailer, cigarette stamping agent or
23 wholesaler, as the case may be, or the replacement cost of
24 cigarettes to the retailer, cigarette stamping agent or
25 wholesaler, as the case may be, within thirty days prior to the
26 date of sale in the quantity last purchased, whichever is lower,
27 [less all trade discounts and customary discounts for cash,] but
28 not less any discounts such as stamping commission or discount,
29 prompt payment discount or anticipatory or promotional discounts
30 which may be withdrawn at any time, to which shall be added the
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1 full face value of any tax which may be required by any
2 cigarette tax act of this Commonwealth now in effect or
3 hereafter enacted, if not already included by the manufacturer
4 in his list price.
5 (i) "Cost [to] of the wholesaler" shall mean the "basic cost
6 of cigarettes" to the wholesaler plus the cost of doing business
7 by the wholesaler [and must include, without limitation, labor
8 costs (including salaries of executives and officers), rent,
9 depreciation, selling costs, maintenance of equipment, delivery
10 costs, all types of licenses, taxes, insurance, and advertising]
11 as evidenced by the accounting standards and methods regularly
12 employed by the wholesaler in his determination of costs for the
13 purpose of Federal income tax reporting for the total operation
14 of his establishment, including direct and indirect costs,
15 expressed as a percentage and applied to the basic cost of
16 cigarettes, plus WHICH INCLUDES the cost of doing business by <--
17 the cigarette stamping agent with respect to sales of cigarettes
18 to wholesalers. There shall be determined a separate cost of the
19 wholesaler for sales to retail dealers. In the absence of filing
20 satisfactory proof of a lesser or higher cost of doing business
21 by the [wholesaler making the sale, the cost of doing business
22 by the wholesaler shall be presumed to be four per centum (4%)
23 of the "basic cost of cigarettes" to the wholesaler.] wholesaler
24 with respect to sales to retail dealers the cost of doing
25 business shall be presumed to be two per centum (2%) of the
26 basic cost of cigarettes. When a wholesaler establishes a lesser
27 or higher cost of doing business than the presumptive two per
28 centum (2%) cost of doing business, such lesser or higher cost
29 of doing business may be used to compute the "cost of the
30 wholesaler" for a period of time no greater than six (6) months,
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1 at the end of which time the "cost of the wholesaler" shall be
2 computed using the presumptive two per centum (2%) cost of doing
3 business, unless the wholesaler again establishes a lesser or
4 higher cost of doing business.
5 (j) "Cost [to] of the retailer" shall mean the "basic cost
6 of cigarettes" to the retailer plus the cost of doing business
7 by the retailer [and must include, without limitation, labor
8 costs (including salaries of executives and officers), rent,
9 depreciation, selling costs, maintenance of equipment, delivery
10 costs, all types of licenses, taxes, insurance, and advertising]
11 as evidenced by the accounting standards and methods regularly
12 employed by the retailer in his determination of costs for the
13 purpose of Federal income tax reporting for the total operation
14 of his establishment, including direct and indirect costs
15 expressed or AS a percentage and applied to the basic cost of <--
16 cigarettes, plus WHICH INCLUDES the cost of doing business by <--
17 the cigarette stamping agent WHOLESALER with respect to sales of <--
18 cigarettes to retailers. In the absence of filing of
19 satisfactory proof of a lesser or higher cost of doing business
20 by the retailer making the sale, the cost of doing business by
21 the retailer shall be presumed to be six per centum (6%) of the
22 sum of the "basic cost of cigarettes" to the retailer plus the
23 cost of doing business by the wholesaler with respect to
24 cigarettes sold to retail dealers. When a retailer establishes a
25 lesser or higher cost of doing business than the presumptive six
26 per centum (6%) cost of doing business, such lesser or higher
27 cost of doing business may be used to compute the "cost of the
28 retailer" for a period of time no greater than six (6) months,
29 at the end of which time the "cost to the retailer" shall be
30 computed using the presumptive six per centum (6%) cost of doing
19890S0889B1702 - 5 -
1 business, unless the retailer again establishes a lesser or
2 higher cost of doing business.
3 In the case of any person who purchases cigarettes for sale
4 at retail from any manufacturer of cigarettes without resort to
5 a wholesaler as such, such person shall be deemed, for the
6 purposes of this act, to be engaged in the sale of cigarettes
7 both as a wholesaler and retailer and as such, shall be subject
8 both to the wholesale and retail mark-up provisions of this act,
9 in the order named.
10 (k) "Cost of doing business" shall mean that amount, as
11 evidenced by the standards and methods of accounting regularly
12 employed in the determination of costs for the purpose of
13 Federal income tax reporting, for the total operation of the
14 establishment for the previous twelve (12) month-period, and
15 must include, but shall not be limited to, all direct costs,
16 including, where applicable, inbound freight charges, labor
17 costs to affix tax indicia, cost of equipment to affix hand
18 stamps, ink, glue, rental and maintenance expenses for the
19 cigarette tax machine, State and local cigarette licenses, and
20 indirect overhead costs and expenses paid or incurred such as,
21 preopening expenses, management fees, labor costs (including
22 salaries of executives and officers), rents, depreciation,
23 selling costs, maintenance expenses, interest expenses, delivery
24 costs, all types of licenses, all types of taxes, insurance,
25 advertising and any central and regional administrative
26 expenses.
27 (l) "Cost of the cigarette stamping agent" shall mean the
28 basic cost of doing business by the cigarette stamping agent as
29 evidenced by the accounting standards and methods regularly
30 employed by said agent in his determination of costs for the
19890S0889B1702 - 6 -
1 purpose of Federal income tax reporting for the total operation
2 of his establishment, and must include, without limitation,
3 labor, (including salaries of executives and officers), rent,
4 depreciation, selling costs, maintenance of equipment, delivery
5 costs, interest payable, all types of licenses, taxes, insurance
6 and advertising expressed as a percentage and applied to the
7 basic cost of cigarettes. In the case of sales at retail by
8 cigarette stamping agents, the "cost of the cigarette stamping
9 agent" shall be the same as the "cost of the retailer." There
10 shall be determined a separate cost of the cigarette stamping
11 agent for sales to wholesale dealers, and for sales to retail
12 dealers. In the absence of filing of satisfactory proof of a
13 lesser or higher cost of doing business of the cigarette
14 stamping agent making the sale, the cost of doing business shall
15 be presumed to be two per centum (2%) of the basic cost of
16 cigarettes for sales to wholesale dealers., and five per centum <--
17 (5%) of the basic cost of cigarettes with respect to sales to
18 retail.
19 When a cigarette stamping agent establishes a lesser or
20 higher cost of doing business than the presumptive costs
21 contained herein, such lesser or higher cost of going DOING <--
22 business may be used to compute the "cost of the cigarette
23 stamping agent" for a period of time no greater than six (6)
24 months, at the end of which time the "cost of the cigarette
25 stamping agent" shall be computed using the presumptive costs
26 contained herein, unless the cigarette stamping agent again
27 establishes a lesser or higher cost of doing business.
28 (m) "Cigarette stamping agent" shall mean any person who is
29 licensed as such by the Department of Revenue for the purpose of
30 affixing cigarette tax stamps to packages of cigarettes and
19890S0889B1702 - 7 -
1 transmitting the proper tax to the Commonwealth, who maintains
2 separate warehousing facilities for the purpose of receiving and
3 distributing cigarettes and conducting his business, and who has
4 received commitments from at least two (2) cigarette
5 manufacturers whose aggregate market share is at least forty per
6 centum (40%) of the Commonwealth cigarette market and who
7 purchases cigarettes directly from cigarette manufacturers OR IS <--
8 A MANUFACTURER OF CIGARETTES.
9 Section 2. Sections 3, 12, 13 and 14 of the act are amended
10 to read:
11 Section 3. Sales at Less Than Cost.--
12 (a) It shall be unlawful [for any retailer or wholesaler,
13 with intent to injure competitors or destroy or substantially
14 lessen competition, to advertise, offer to sell or sell, at
15 retail or wholesale, cigarettes at less than cost to such
16 retailer or wholesaler, as the case may be.]:
17 [(b) Evidence of advertisement, offering to sell or sale of
18 cigarettes by any retailer or wholesaler at less than cost to
19 him shall be prima facie evidence of intent to injure
20 competitors and to destroy or substantially lessen competition.]
21 (1) For any cigarette stamping agent, wholesale dealer or
22 retail dealer, with intent to injure competitors or destroy or
23 substantially lessen competition, or with intent to avoid the
24 collection or paying over of such taxes as may be required by
25 law, to advertise, offer to sell or sell cigarettes at less than
26 cost of such cigarette stamping agent, wholesale dealer or
27 retail dealer, as the case may be.
28 (2) For any wholesaler:
29 (i) to induce or attempt to induce or to procure or attempt
30 to procure the purchase of cigarettes at a price less than the
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1 cost of the cigarette stamping agent with respect to sales to
2 wholesaler; or
3 (ii) to induce or attempt to induce or to procure or attempt
4 to procure any rebate or concession of any kind or nature
5 whatsoever in connection with the purchase of cigarettes.
6 (3) For any retail dealer:
7 (i) to induce or attempt to induce or to procure or attempt
8 to procure the purchase of cigarettes at a price less than the
9 cost to the cigarette stamping agent for sales to retail
10 dealers, if purchased from an agent, or at a price less than the
11 cost of the wholesaler; or
12 (ii) to induce or attempt to induce or to procure or attempt
13 to procure any rebate or concession of any kind or nature
14 whatsoever in connection with the purchase of cigarettes.
15 (b) Evidence of advertisement, offering to sell or sale of
16 cigarettes by any cigarette stamping agent, wholesaler or retail
17 dealer at less than cost, or evidence of any offer of a rebate
18 in price, or giving of a rebate in price, or an offer of a
19 concession, or the giving of a concession of any kind or nature
20 whatsoever in connection with the sale of cigarettes, or the
21 inducing or attempt to induce or to the procuring or the attempt
22 to procure the purchase of cigarettes at a price less than cost
23 of the cigarette stamping agent, wholesaler, or the retail
24 dealer shall be prima facie evidence of intent to injure
25 competitors and to destroy or substantially lessen competition
26 or of intent to avoid the collection or paying over of such
27 taxes as may be required by law. Evidence of a final selling
28 cost which is not the invoice cost, or an invoice which does not
29 include allowable discounts, rebates, allowances or free or
30 discounted merchandise relating to the sale of cigarettes, when
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1 used by the cigarette stamping agent, wholesaler or retailer
2 shall be prima facie evidence of violation of this act.
3 Section 12. Remedies.--(a) The [Department of Revenue]
4 Attorney General of this Commonwealth, in the case of any
5 violation or threatened violation of this act, or any person
6 injured by any violation or who shall suffer injury from any
7 threatened violation of this act, may maintain an action in any
8 court of competent jurisdiction to prevent, restrain or enjoin
9 such violation or threatened violation. If in such action a
10 violation or threatened violation of this act shall be
11 established, the court shall enjoin and restrain or otherwise
12 prohibit such violation or threatened violation and in addition
13 thereto the court shall assess in favor of the plaintiff and
14 against the defendant the costs of suit, including reasonable
15 attorneys' fees. In any such action it shall not be necessary
16 that actual damages to the plaintiff be alleged or proved, but
17 where alleged and proved by a plaintiff, other than the
18 [Department of Revenue] Attorney General, the plaintiff in said
19 action, in addition to such injunctive relief and costs of suit,
20 including reasonable attorneys' fees, shall be entitled to
21 recover from the defendant the actual damages sustained by him.
22 (b) In the event that no injunctive relief is sought or
23 required, any person injured by a violation of this act may
24 maintain an action for damages and costs of suit in any court of
25 competent jurisdiction.
26 Section 13. Department of Revenue; Powers and Duties.--The
27 administration of this act is hereby vested in the Department of
28 Revenue of this Commonwealth. Such department [may] shall adopt
29 rules and regulations for the enforcement of this act and [may]
30 shall from time to time make or cause to be made one or more
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1 cost surveys to establish the lowest "cost of the cigarette
2 stamping agent, the lowest" "cost [to] of the retailer" and the
3 lowest "cost [to] of the wholesaler," as defined in this act,
4 for the State or such trading area or areas therein as it shall
5 define. Any such survey made or caused to be made by the
6 department may be used for the purposes specified in section
7 eleven of this act. Regulations shall provide a procedure for
8 licensees to prove a cost different from the State presumptive
9 costs, including proof of lower costs, filing of petition, cost
10 allocation, data to be submitted and guidelines necessary to
11 implement this act. Authorization to sell below the State's
12 presumptive minimum shall be in writing and otherwise in
13 conformance with the requirements of this act, and shall contain
14 a statement that the authorization is effective forty-five (45)
15 days after the issuance of the writing and is valid for six (6)
16 months. The Department of Revenue may, upon notice and after
17 hearing, suspend or revoke any permit issued under the
18 provisions of the Cigarette Tax Act (Act of March 24, 1949,
19 Pamphlet Laws 336), for failure of the permittee to comply with
20 any of the provisions of this Unfair Cigarette Sales Act. Any
21 person aggrieved by any decision or order of the department
22 suspending or revoking any such permit may appeal from such
23 decision or order, as provided in the Administrative Agency Law
24 (Act of June 4, 1945, Pamphlet Laws 1388), as amended.
25 Section 14. Penalty.--[Any retailer or wholesaler who shall
26 advertise, offer to sell or sell cigarettes at retail or
27 wholesale in violation of the provisions of this act shall, for
28 a first offense, upon summary conviction thereof, be sentenced
29 to pay a fine not exceeding two hundred dollars ($200), and, in
30 default thereof, shall be sentenced to undergo imprisonment for
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1 not more than sixty (60) days; and for a second or subsequent
2 offense, be guilty of a misdemeanor, and, upon conviction
3 thereof, be sentenced to pay a fine not exceeding five hundred
4 dollars ($500), or to undergo imprisonment not exceeding six
5 months, or both. Each advertisement, offer for sale or sale of
6 cigarettes in violation of the provisions of this act shall
7 constitute a separate violation of the provisions of this act
8 and shall subject the offender to the penalties hereby
9 prescribed. Proof of any such advertisement, offer to sell or
10 sale by any retailer or wholesaler in contravention of the
11 policy of this act shall be prima facie evidence of a violation
12 of this act.] (a) The license of any cigarette stamping agent
13 or wholesaler or retailer who violates any of the provisions of
14 this article may be suspended, after due notice and opportunity
15 of hearing, for a period of not less than five (5) days nor more
16 than thirty (30) days for a first offense, and shall be revoked
17 or suspended for any subsequent offense.
18 (b) In addition to the penalty provided in subsection (a) of
19 this section, upon conviction of a first offense, the cigarette
20 stamping agent or wholesaler or retailer shall be sentenced to
21 pay a fine of not less than two thousand five hundred dollars
22 ($2,500) nor more than five thousand dollars ($5,000). For
23 subsequent offenses, the agent, wholesaler or retailer shall,
24 upon conviction thereof, be sentenced to pay a fine of not less
25 than five thousand dollars ($5,000) nor more than fifteen
26 thousand dollars ($15,000).
27 Section 3. This act shall take effect in 60 days.
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