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Tobacco Manufacturers
INITIAL STATEMENT OF REASONS
NON-PARTICIPATING TOBACCO MANUFACTURERS RESERVE FUND REGULATIONS
I. General Purpose of Regulations
On November 23, 1998, leading United States tobacco product manufacturers entered into a settlement agreement, entitled the Master Settlement Agreement, with the state through the California Attorney General. The Master Settlement Agreement obligates these tobacco product manufacturers to pay substantial sums to the state (tied in part to their volume of sales). As provided in the Master Settlement Agreement, the Attorney General recommended, and the California Legislature adopted reserve fund requirements for tobacco product manufacturers who determine not to enter into the Master Settlement Agreement (Calif. Health & Saf. Code, '' 104555 - 104557). As recommended by the Attorney General, the legislature determined that it would be contrary to the policy of the state if tobacco product manufacturers which do not participate in the Master Settlement Agreement could use a resulting cost advantage to derive large, short-term profits in the years before liability may arise without ensuring that the state will have an eventual source of recovery from them. The legislature determined that it is in the interest of the state to require that these non-participating manufacturers establish a reserve fund to guarantee a source of compensation and to prevent those manufacturers from becoming judgment proof before liability may arise. Health and Safety Code section 104557(c) authorizes the Attorney General to enforce compliance with Health and Safety Code sections 104555 through 104557. Health and Safety Code section 104557 and Article 5, section 13 of the California Constitution authorize the Attorney General to adopt regulations to make uniform and ensure adequate enforcement of Health and Safety Code sections 10455 through 104557. Consequently, by law, and as provided in the Master Settlement Agreement, the Attorney General is responsible for regulating the reserve fund requirements of tobacco product manufacturers which determine not to participate in the Master Settlement Agreement.
Health and Safety Code sections 10455 through 104557 provide that non-participating tobacco product manufacturers must establish reserve funds based upon their volume of cigarette sales in California. The reserve funds are to be deposited into escrow accounts. Every April 30, the non-participating manufacturers must certify compliance with the reserve fund requirements to the Attorney General. The Attorney General is authorized to enforce compliance by non-participating tobacco product manufacturers with the reserve fund requirements. The primary purpose of the proposed regulations is to describe the tobacco products that are subject to the reserve fund requirements, the confirmation of compliance and the reporting required to allow monitoring and enforcement of compliance, the certification of compliance required along with the certification form, and the required escrow agreement terms along with the agreement form. The proposed regulations are intended to make specific and clear what is required and to assist non-participating tobacco product manufacturers in complying with the reserve fund requirements.
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II. Specific Purpose of Each Regulation
- Proposed section 999.10.a implements Health and Safety Code sections 104555 through 104557 by specifying that a Acigarette@ means the products described in section 104556(d) which are subject to the reserve fund requirements that require certification of compliance to the Attorney General, and that definitions for Adistributor@ (Rev. & Tax. Code, ' 3011) and Awholesaler@ (Rev. & Tax. Code, ' 3016) are those in the specified sections of the Revenue and Taxation Code. Proposed section 999.10.b specifies the confirmation of compliance and the reporting required of tobacco product manufacturers, distributors and wholesalers to allow monitoring and enforcement of compliance.
- Proposed section 999.11 specifies the certificate of compliance form which is to be used uniformly by non-participating tobacco product manufacturers.
- Proposed section 999.12 specifies the conditions required in escrow agreements, which are uniformly required of non-participating tobacco product manufacturers.
- Proposed section 999.13 specifies the escrow agreement form which is to be used uniformly by non-participating tobacco product manufacturers.
III. Technical Studies Relied Upon
The Attorney General did not rely upon any technical, theoretical or empirical study, report or other similar document in proposing these regulations.
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IV. Alternatives to the Proposed Regulations
The Attorney General is authorized to enforce compliance by non-participating tobacco product manufacturers with the reserve fund requirements. Adoption of regulations to implement these requirements is legally necessary to specify uniform procedures and forms for complying. It is also necessary to make specific, and clear what is deemed compliance by the Attorney General and to ensure adequate monitoring of compliance with the reserve fund requirements. In addition to providing clarity, the proposed regulations serve to make compliance easier for non-participating tobacco product manufacturers by specifying what is required and providing the necessary forms for their use. There is no feasible alterative to the adoption of regulations to achieve these goals.
V. Economic Impact on Business
Except as required by the legislature in Health and Safety Code sections 104555-104557, these proposed regulations do not have any cost impact on non-participating tobacco product manufacturers.
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