HOUSE AMENDED
PRIOR PRINTER'S NOS. 1018, 1702, 2048 PRINTER'S NO. 2217
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
AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES,
AS AMENDED, MAY 30, 1990
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 providing penalties; and making an appropriation.
10 The General Assembly of the Commonwealth of Pennsylvania
11 hereby enacts as follows:
12 Section 1. The definitions of "wholesaler," "retailer,"
13 "basic cost of cigarettes," "cost to the wholesaler" and "cost
14 to the retailer" in section 2 of the act of May 20, 1949
15 (P.L.1584, No.478), known as the Unfair Cigarette Sales Act, are
16 amended and the section is amended by adding definitions to
17 read:
18 Section 2. Definitions.--The following words, terms and
19 phrases, when used in this act, shall have the meaning ascribed
20 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 is engaged in operating a chain store.
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1 (d.1) "Chain store" shall mean any person who owns and
2 operates no less than five retail outlets in this Commonwealth,
3 having one hundred per centum (100%) common ownership, who
4 purchases cigarettes from a cigarette stamping agency or another
5 wholesaler for resale to the ultimate consumer: Provided, That
6 such person maintains complete and accurate records of all
7 purchases and sales in his or her main office and also in the
8 retail outlet. For purposes of this act, the term "chain store"
9 shall also include franchisees.
10 (d.2) "Franchisee" shall mean any person engaged in the sale
11 of cigarettes, who is granted the right to engage in the
12 business of offering, selling or distributing goods or service
13 under a marketing plan or system prescribed in substantial part
14 by the grantor of that right, for which a direct or indirect fee
15 is paid, and whose franchisor franchises five or more retail
16 outlets in this Commonwealth through which cigarettes are sold.
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
19890S0889B2217 - 3 -
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, which includes the cost of doing business by the
17 cigarette stamping agent with respect to sales of cigarettes to
18 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,
19890S0889B2217 - 4 -
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 as a percentage and applied to the basic cost of
16 cigarettes, which includes the cost of doing business by the
17 wholesaler with respect to sales of cigarettes to retailers. In
18 the absence of filing of satisfactory proof of a lesser or
19 higher cost of doing business by the retailer making the sale,
20 the cost of doing business by the retailer shall be presumed to
21 be six per centum (6%) of the sum of the "basic cost of <--
22 cigarettes" to the retailer plus the cost of doing business by <--
23 the wholesaler with respect to cigarettes sold to retail
24 dealers. When a retailer establishes a lesser or higher cost of
25 doing business than the presumptive six per centum (6%) cost of
26 doing business, such lesser or higher cost of doing business may
27 be used to compute the "cost of the retailer" for a period of
28 time no greater than six (6) months, at the end of which time
29 the "cost to the retailer" shall be computed using the
30 presumptive six per centum (6%) cost of doing business, unless
19890S0889B2217 - 5 -
1 the retailer again establishes a lesser or higher cost of doing
2 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 "BASIC COST OF CIGARETTES" TO THE CIGARETTE <--
29 STAMPING AGENT PLUS THE COST OF doing business by the cigarette
30 stamping agent as evidenced by the accounting standards and
19890S0889B2217 - 6 -
1 methods regularly employed by said agent in his determination of
2 costs for the purpose of Federal income tax reporting for the
3 total operation of his establishment, and must include, without
4 limitation, labor, (including salaries of executives and
5 officers), rent, depreciation, selling costs, maintenance of
6 equipment, delivery costs, interest payable, all types of
7 licenses, taxes, insurance and advertising expressed as a
8 percentage and applied to the basic cost of cigarettes. In the
9 case of sales at retail by cigarette stamping agents, the "cost
10 of the cigarette stamping agent" shall be the same as the "cost
11 of the retailer." There shall be determined a separate cost of
12 the cigarette stamping agent for sales to wholesale dealers, and
13 for sales to retail dealers. In the absence of filing of
14 satisfactory proof of a lesser or higher cost of doing business
15 of the cigarette stamping agent making the sale, the cost of
16 doing business shall be presumed to be two per centum (2%) of
17 the basic cost of cigarettes for sales to wholesale dealers.
18 When a cigarette stamping agent establishes a lesser or
19 higher cost of doing business than the presumptive costs
20 contained herein, such lesser or higher cost of doing business
21 may be used to compute the "cost of the cigarette stamping
22 agent" for a period of time no greater than six (6) months, at
23 the end of which time the "cost of the cigarette stamping agent"
24 shall be computed using the presumptive costs contained herein,
25 unless the cigarette stamping agent again establishes a lesser
26 or higher cost of doing business.
27 (m) "Cigarette stamping agent" shall mean any person who is
28 licensed as such by the Department of Revenue for the purpose of
29 affixing cigarette tax stamps to packages of cigarettes and
30 transmitting the proper tax to the Commonwealth, who maintains
19890S0889B2217 - 7 -
1 separate warehousing facilities for the purpose of receiving and
2 distributing cigarettes and conducting his business, and who has
3 received commitments from at least two (2) cigarette
4 manufacturers whose aggregate market share is at least forty per
5 centum (40%) of the Commonwealth cigarette market and who
6 purchases cigarettes directly from cigarette manufacturers or is
7 a manufacturer of cigarettes.
8 Section 2. Sections 3, 13 and 14 of the act are amended to
9 read:
10 Section 3. Sales at Less Than Cost.--
11 (a) It shall be unlawful [for any retailer or wholesaler,
12 with intent to injure competitors or destroy or substantially
13 lessen competition, to advertise, offer to sell or sell, at
14 retail or wholesale, cigarettes at less than cost to such
15 retailer or wholesaler, as the case may be.]:
16 [(b) Evidence of advertisement, offering to sell or sale of
17 cigarettes by any retailer or wholesaler at less than cost to
18 him shall be prima facie evidence of intent to injure
19 competitors and to destroy or substantially lessen competition.]
20 (1) For any cigarette stamping agent, wholesale dealer or
21 retail dealer, with intent to injure competitors or destroy or
22 substantially lessen competition, or with intent to avoid the
23 collection or paying over of such taxes as may be required by
24 law, to advertise, offer to sell or sell cigarettes at less than
25 cost of such cigarette stamping agent, wholesale dealer or
26 retail dealer, as the case may be.
27 (2) For any wholesaler:
28 (i) to induce or attempt to induce or to procure or attempt
29 to procure the purchase of cigarettes at a price less than the
30 cost of the cigarette stamping agent with respect to sales to
19890S0889B2217 - 8 -
1 wholesaler; or
2 (ii) to induce or attempt to induce or to procure or attempt
3 to procure any rebate or concession of any kind or nature
4 whatsoever in connection with the purchase of cigarettes.
5 (3) For any retail dealer:
6 (i) to induce or attempt to induce or to procure or attempt
7 to procure the purchase of cigarettes at a price less than the
8 cost to the cigarette stamping agent for sales to retail
9 dealers, if purchased from an agent, or at a price less than the
10 cost of the wholesaler; or
11 (ii) to induce or attempt to induce or to procure or attempt
12 to procure any rebate or concession of any kind or nature
13 whatsoever in connection with the purchase of cigarettes.
14 (b) Evidence of advertisement, offering to sell or sale of
15 cigarettes by any cigarette stamping agent, wholesaler or retail
16 dealer at less than cost, or evidence of any offer of a rebate
17 in price, or giving of a rebate in price, or an offer of a
18 concession, or the giving of a concession of any kind or nature
19 whatsoever in connection with the sale of cigarettes, or the
20 inducing or attempt to induce or to the procuring or the attempt
21 to procure the purchase of cigarettes at a price less than cost
22 of the cigarette stamping agent, wholesaler, or the retail
23 dealer shall be prima facie evidence of intent to injure
24 competitors and to destroy or substantially lessen competition
25 or of intent to avoid the collection or paying over of such
26 taxes as may be required by law. Evidence of a final selling
27 cost which is not the invoice cost, or an invoice which does not
28 include allowable discounts, rebates, allowances or free or
29 discounted merchandise relating to the sale of cigarettes, when
30 used by the cigarette stamping agent, wholesaler or retailer
19890S0889B2217 - 9 -
1 shall be prima facie evidence of violation of this act.
2 Section 13. Department of Revenue; Powers and Duties.--The
3 administration of this act is hereby vested in the Department of
4 Revenue of this Commonwealth. Such department [may] shall adopt
5 rules and regulations for the enforcement of this act and [may]
6 shall from time to time make or cause to be made one or more
7 cost surveys to establish the lowest "cost of the cigarette
8 stamping agent," the lowest "cost [to] of the retailer" and the
9 lowest "cost [to] of the wholesaler," as defined in this act,
10 for the State or such trading area or areas therein as it shall
11 define. Any such survey made or caused to be made by the
12 department may be used for the purposes specified in section
13 eleven of this act. Regulations shall provide a procedure for
14 licensees to prove a cost different from the State presumptive
15 costs, including proof of lower costs, filing of petition, cost
16 allocation, data to be submitted and guidelines necessary to
17 implement this act. Authorization to sell below the State's
18 presumptive minimum shall be in writing and otherwise in
19 conformance with the requirements of this act, and shall contain
20 a statement that the authorization is effective forty-five (45)
21 days after the issuance of the writing and is valid for six (6)
22 months. The Department of Revenue may, upon notice and after
23 hearing, suspend or revoke any permit issued under the
24 provisions of the Cigarette Tax Act (Act of March 24, 1949,
25 Pamphlet Laws 336), for failure of the permittee to comply with
26 any of the provisions of this Unfair Cigarette Sales Act. Any
27 person aggrieved by any decision or order of the department
28 suspending or revoking any such permit may appeal from such
29 decision or order, as provided in the Administrative Agency Law
30 (Act of June 4, 1945, Pamphlet Laws 1388), as amended.
19890S0889B2217 - 10 -
1 Section 14. Penalty.--[Any retailer or wholesaler who shall
2 advertise, offer to sell or sell cigarettes at retail or
3 wholesale in violation of the provisions of this act shall, for
4 a first offense, upon summary conviction thereof, be sentenced
5 to pay a fine not exceeding two hundred dollars ($200), and, in
6 default thereof, shall be sentenced to undergo imprisonment for
7 not more than sixty (60) days; and for a second or subsequent
8 offense, be guilty of a misdemeanor, and, upon conviction
9 thereof, be sentenced to pay a fine not exceeding five hundred
10 dollars ($500), or to undergo imprisonment not exceeding six
11 months, or both. Each advertisement, offer for sale or sale of
12 cigarettes in violation of the provisions of this act shall
13 constitute a separate violation of the provisions of this act
14 and shall subject the offender to the penalties hereby
15 prescribed. Proof of any such advertisement, offer to sell or
16 sale by any retailer or wholesaler in contravention of the
17 policy of this act shall be prima facie evidence of a violation
18 of this act.] (a) The license of any cigarette stamping agent
19 or wholesaler or retailer who violates any of the provisions of
20 this article may be suspended, after due notice and opportunity
21 of hearing, for a period of not less than five (5) days nor more
22 than thirty (30) days for a first offense, and shall be revoked
23 or suspended for any subsequent offense.
24 (b) In addition to the penalty provided in subsection (a) of
25 this section, upon conviction of a first offense, the cigarette
26 stamping agent or wholesaler or retailer shall be sentenced to
27 pay a fine of not less than two thousand five hundred dollars
28 ($2,500) nor more than five thousand dollars ($5,000). For
29 subsequent offenses, the agent, wholesaler or retailer shall,
30 upon conviction thereof, be sentenced to pay a fine of not less
19890S0889B2217 - 11 -
1 than five thousand dollars ($5,000) nor more than fifteen
2 thousand dollars ($15,000).
3 Section 3. The sum of $300,000, or as much thereof as may be
4 necessary, is hereby appropriated to the Department of Revenue
5 for the fiscal year July 1, 1990, to June 30, 1991, to carry out
6 the provisions of this act.
7 Section 4. This act shall take effect in 60 days.
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