PROPOSED RULEMAKING
DEPARTMENT OF REVENUE
[61 PA. CODE CHS. 71--73, 75--77, 79,
83 AND 85]
Cigarette Tax
[27 Pa.B. 3790] The Department of Revenue (Department), under the authority contained in section 6 of The Fiscal Code (FC) (72 P. S. § 6); section 1291 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 8291); and sections 209-A, 214-A, 215-A and 227-A of the act of April 9, 1929 (P. L. 343, No. 176) (72 P. S. §§ 209-A, 214-A, 215-A and 227-A(a)), proposes to delete §§ 71.1 and 71.3; Chapter 73, Subchapters A--C; Chapters 75, 77, 79, 83 and 85.
In addition, the Department is proposing to add §§ 71.4--71.11 and to add Chapters 72 and 76 (relating to cigarette dealer licenses; unfair sales of cigarettes) to read as set forth in Annex A.
Purpose
As a result of the act of July 2, 1993 (P. L. 250, No. 46) (Act 1993-46) known as The Cigarette Sales and Licensing Act (code), which amended the FC by adding Article II-A (relating to cigarette sales and licensing) and repealed various provisions of Article XII (relating to cigarette tax) in the TRC, the Department is proposing to delete the existing text of Article III (relating to cigarette and beverage taxes) and replace it with regulations that are consistent with the act. The Department is also proposing to delete provisions that were not helpful or that simply reiterated statutory provisions such as The Administrative Code of 1929.
Explanation of Regulatory Requirements
Chapter 71. Cigarette Tax Section 71.4 (relating to definitions) defines terms used in Article III. Section 71.5 (relating to cigarette tax stamps) provides for the method of purchase of, payment for and affixation of cigarette tax stamps. Section 71.6 (relating to refunds or credits for cigarette tax stamps) describes the refund or credit process for affixed and unaffixed tax stamps. Section 71.7 (relating to exemptions from tax) describes when a stamping agent may sell cigarettes to purchasers who qualify for tax exempt status.
Section 71.8 (relating to sample cigarettes) specifies when a sample package of cigarettes may be unstamped and when it must have tax stamps affixed. Section 71.9 (relating to cigarette dealer report requirements) describes the reporting requirements for cigarette stamping agents, wholesalers and retailers. Section 71.10 (relating to cigarette dealer record requirements) describes the types of records that cigarette dealers are required to keep, the retention period of the records and the fine provisions for violation of the record requirements.
Section 71.11 (relating to examination of records, equipment and premises) provides that all dealers shall provide the Department the means, facilities and opportunity to examine books, records, cigarette inventory, premises and equipment to determine compliance with the FC and code. Section 71.11 also sets forth the fine provisions for any person who prevents or hinders the Department in its examinations.
Chapter 72. Cigarette Dealer Licenses Section 72.1 (relating to cigarette stamping agent licenses) describes the documentation required by an applicant for a stamping agent license or a renewal of license. Section 72.2 (relating to posting of license) explains that all dealers shall conspicuously display their licenses at the locations for which issued; this section also sets forth the fine provisions for violations thereof. Section 72.3 (relating to assignment of license) states that a dealer's license is not assignable and that any attempt to do so will result in the cancellation of the license. Section 72.4 (relating to timing of application for renewal of existing license) describes the deadlines for the renewal process.
When the Department denies a license application or request for renewal, § 72.5(a) (relating to denials, revocations and suspensions) describes where the notice will be mailed, what the notice will contain, the hearing process and the continued operation of the dealer after receiving the notice. Section 72.5(b) explains the process relating to the revocation or suspension of a license. Section 72.6 (relating to change in status of cigarette dealer's business) describes certain specific circumstances which require Department notification. Section 72.7 (relating to cigarette vending machines) details requirements for dealers who operate cigarette vending machines. Section 72.7 also describes the circumstances under which dealers may relocate vending machines and obtain extra vending machine decals.
Chapter 73. Imposition, Method of Payment and Refunds of Tax The Department proposes to delete Subchapters A--C, and the heading for Subchapter D. However, the text of the subchapter, §§ 73.51--73.57, is retained.
Chapter 76. Unfair Sales of Cigarettes Section 76.1 (relating to dealer's cost of doing business) describes the cost of doing business for a stamping agent, wholesaler and retailer. The section also provides for an application to lower a dealer's cost of doing business and what the application shall contain. The Department's review and determination regarding the dealer's application is explained along with an example which shows how the determination is made. Section 76.2 (relating to combination sales and inducements) places certain restrictions on the contemporaneous sale of cigarette and noncigarette items.
Section 76.3 (relating to promotional sales plans) provides that only cigarette manufacturers may sponsor or initiate a promotional sales plan that lowers the price of cigarettes below the cost of the dealer. The section also details promotional sales plans that involve the affixation of coupons to cigarettes and retailer redemption of manufacturer-issued coupons. Finally, the section provides that a dealer may sponsor or initiate a promotional sales plan if the plan does not result in the sale of cigarettes at a price below the cost of that dealer.
To bring Article III into conformity with current statutory provisions, this proposed rulemaking proposes to delete the following: §§ 71.1 and 71.3; Chapter 75; Chapter 77; Chapter 79 and Chapter 83. With the proposal of comprehensive cigarette tax regulations, Chapter 85 (relating to cigarette tax pronouncements--statement of policy) is deemed unnecessary and is proposed to be deleted.
Fiscal Impact
The Department has determined that the proposed rulemaking will have no fiscal impact on the Commonwealth.
Paperwork
The proposed rulemaking will not generate additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The rulemaking will become effective upon final publication in the Pennsylvania Bulletin. These regulations are scheduled for review within 5 years of final publication. No sunset date has been assigned.
Contact Person
Interested persons are invited to submit in writing any comments, suggestions or objections regarding the proposed rulemaking to Anita M. Doucette, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061, within 30 days of the date of the publication of this notice in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on July 23, 1997, the Department submitted a copy of this proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House and Senate Committees on Finance. In addition to submitting the proposed rulemaking, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1 ''Regulatory Review and Promulgation.'' A copy of this material is available to the public upon request.
If IRRC has objections to any portion of the proposed rulemaking, it will notify the Department within 30 days of the close of the public comment period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review of objections raised, prior to final-form publication of the regulations, by the Department, the General Assembly and the Governor.
ROBERT A. JUDGE, SR.
SecretaryFiscal Note: 15-349. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart B. GENERAL FUND REVENUES
ARTICLE III. CIGARETTE AND BEVERAGE TAXES
CHAPTER 71. CIGARETTE TAX (Editor's Note: The Department is proposing to delete §§ 71.1 and 71.3 as they currently appear in 61 Pa. Code, pages 9--12 (serial pages (188583)--(188584) (89251) and (89252).)
§ 71.1. (Reserved).
§ 71.3. (Reserved).
§ 71.4. Definitions.
The following words and terms, when used in this article, have the following meanings, unless the context clearly indicates otherwise:
Act--The Cigarette Tax Act, Article XII of the TRC (72 P. S. §§ 8201--8297).
Basic cost of cigarettes--The gross price of cigarettes from the manufacturer to a dealer in the quantities stated including freight and handling charges and the full face value of any tax which may be required by law.
Code--The Cigarette Sales and Licensing Act, Article II-A of the FC (72 P. S. §§ 201-A--203-A).
Cost of doing business--The dealer's aggregate costs for its previous 12-month reporting period, as determined by accounting principles regularly employed in the determination of costs for the purpose of Federal income tax reporting, including direct and indirect costs, such as product costs, freight charges, labor costs, costs of equipment, rental and maintenance expenses, cigarette licenses, preopening expenses, management fees, rents, depreciation, selling costs, maintenance expenses, interest expenses, delivery costs, all types of license fees, all types of taxes, insurance, advertising costs and any central and regional administrative expenses.
Cost of the retailer--The basic cost of cigarettes to a retailer, which includes the cost of the wholesaler and stamping agent, plus a markup to cover the retailer's cost of doing business, which cost of doing business, in the absence of satisfactory proof of a lesser cost, is presumed to be 6% of the basic cost of cigarettes to the retailer.
Cost of the stamping agent--The basic cost of cigarettes to a stamping agent.
Cost of the wholesaler--The basic cost of cigarettes to a wholesaler, which includes the cost of the stamping agent, plus a markup to cover the wholesaler's cost of doing business, which cost of doing business, in the absence of satisfactory proof of a lesser cost, is presumed to be 4% of the basic cost of cigarettes to the wholesaler.
Dealer--A Pennsylvania-licensed stamping agent, wholesaler or retailer.
Operating expenses--A dealer's cost of doing business decreased by the dealer's cost of goods sold.
Promotional sales plan--The placement upon the premises of a dealer of literature, premiums, displays, goods, wares, merchandise or other material designed to stimulate, encourage or induce the purchase of cigarettes by the consumer, or a marketing plan that involves a price reduction or gift offered in conjunction with the sale of cigarettes that causes a dealer to be in violation of the code or act.
Stamping agent--A person who is licensed as such by the Department for the purpose of affixing cigarette tax stamps to packages of cigarettes and transmitting the proper tax to the Commonwealth.
§ 71.5. Cigarette tax stamps.
(a) Method of purchase. A stamping agent shall purchase cigarette tax stamps by presenting to the Department or one of its authorized agents, Form REV-1043, Cigarette Stamping Agency Purchase Order, listing the stamping agent's name, license number, address, telephone number and the amount of tax stamps desired for purchase.
(b) Method of payment. Stamping agents may pay for cigarette tax stamps in exchange for any combination of the following:
(1) Cash.
(2) Approved credit up to the face amount of the security filed with and approved by the Department as required by section 1215 of the act (72 P. S. § 8215).
(i) Payment for tax stamps purchased on credit is due by the 15th of the month following the month in which the stamping agent purchased the tax stamps.
(ii) If a licensed stamping agent who purchases cigarette tax stamps on credit fails to remit full payment for accumulated cigarette tax stamps purchased on credit by the due date, the credit privileges may be suspended or revoked by the Department.
(3) Cigarette tax credits issued by the Department, which shall be presented to the Department at the time the purchase order for cigarette tax stamps is placed.
(c) Affixation of tax stamps.
(1) Tax stamps shall be affixed to each individual pack of cigarettes in an aggregate denomination equal to the amount of tax imposed upon the number of cigarettes contained therein.
(2) Tax stamps shall be affixed to the bottom of each pack of cigarettes so that they are clearly visible to subsequent purchasers. Stamps shall be canceled in ink with the licensed stamping agent's identification number.
(3) Improperly stamped cigarettes shall be treated as unstamped cigarettes and shall be subject to confiscation and forfeiture under the act. The Department will dispose of cigarettes forfeited under the act by either selling the cigarettes to a licensed cigarette stamping agent or a cigarette manufacturer, or by destroying same.
§ 71.6. Refunds or credits for cigarette tax stamps.
(a) Affixed tax stamps. A refund or credit for cigarette tax stamps purchased by a stamping agent which have been affixed to packages of cigarettes will be made to the agent upon satisfactory proof presented to the Department that the tax-stamped cigarettes have been withdrawn from the market because they are unsaleable, sold to persons exempt from the tax under the act, or lost or destroyed by fire, casualty or Act of God. A refund will not be granted for cigarette tax paid upon stamped cigarettes that have been stolen.
(1) A stamping agent's refund or credit shall be based upon the face value of the stamps, less commissions allowed the stamping agent under the act.
(2) If the cigarettes are returned to the manufacturer, the stamping agent shall give to the Department a sworn statement by the manufacturer certifying receipt of the returned cigarettes.
(b) Unaffixed tax stamps. The Department may issue a refund or a credit to present or former stamping agents for previously-purchased, unaffixed tax stamps when the Department deems a refund or credit appropriate such as when a stamping agent is no longer qualified to affix tax stamps, when a stamping agent is in liquidation, when a stamping agent possesses damaged tax stamps that are unfit for use or when a stamping agent possesses stamps that have been superseded by stamps of a newer design or denomination.
(1) The Department will issue a refund or credit for unaffixed tax stamps for the actual amount of cigarette tax paid for the stamps if satisfactory proof is presented to the Department within the time permitted under section 1253 of the act (72 P. S. § 8253). A claim for a refund or credit may not be filed when cigarette tax stamps have not been paid for in full. The Department will determine whether the stamping agent is entitled to either a refund or credit and the method of payment.
(2) Unaffixed stamps shall accompany the claim, which shall be sent to the Department by registered mail or other method approved by the Department.
§ 71.7. Exemptions from tax.
A stamping agent may sell cigarettes to purchasers who qualify for tax exempt status as enumerated in section 1209 of the act (72 P. S. § 8209) if the Department approves the purchaser's request for an exemption certificate. To obtain an exemption certificate, a purchaser shall file an application that shall state the purchaser's basis for exemption. Upon receipt and approval of the application by the Department, the Department will issue an exemption certificate to the purchaser. An exemption certificate shall be valid until surrendered by the purchaser or revoked by the Department for violating a provision listed in the act or the code.
§ 71.8. Sample cigarettes.
(a) Packages of sample cigarettes containing five or fewer cigarettes, which are to be furnished to consumers free of charge as provided in the act, shall be unstamped and prominently identified as ''Sample Cigarettes Not for Sale--All Applicable State Taxes Paid.''
(b) Packages of sample cigarettes containing six or more cigarettes shall be affixed with Pennsylvania cigarette tax stamps in accordance with the act and code.
§ 71.9. Cigarette dealer report requirements.
(a) Cigarette stamping agents.
(1) Every licensed stamping agent shall establish a fiscal or calendar monthly reporting period. The stamping agent shall file with the Department on or before the 20th day following the end of each fiscal or calendar month a cigarette tax report covering the preceding month on a form prescribed by the Department which shall show:
(i) The number of unstamped and foreign-stamped cigarettes which were:
(A) On hand on the first day of the preceding month.
(B) Purchased or acquired during the preceding month.
(C) On hand on the last day of the preceding month.
(D) Sold, credited or disposed of during the preceding month.
(ii) The number of cigarette tax stamps which were:
(A) On hand on the first day of the preceding month.
(B) Purchased during the preceding month.
(C) On hand on the last day of the preceding month.
(D) Affixed to packages of cigarettes or otherwise disposed of during the preceding month.
(2) The stamping agent shall also submit other information the Department may require.
(b) Wholesalers and retailers. The Department may require reports from a wholesaler or retailer whose volume of business or number of vending machines make it advisable that the dealer file the reports. The reports shall contain information the Department may require.
(c) Penalties. A dealer who violates this section shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
§ 71.10. Cigarette dealer record requirements.
(a) Each dealer shall:
(1) Obtain invoices covering all purchases of cigarettes whether tax stamped or unstamped.
(2) Maintain receiving records of cigarettes which include the following:
(i) The date.
(ii) The invoice number.
(iii) The quantity.
(iv) The brand.
(v) The supplier name.
(3) Except for retailers, maintain records on the sale of cigarettes, including:
(i) The name and address of the purchaser.
(ii) The amount of cigarettes sold.
(iii) The charge for cigarettes sold.
(4) Retain invoices covering all purchases of Pennsylvania cigarette tax stamps.
(5) Except for retailers, maintain a record of names and addresses of all other cigarette dealers to whom cigarettes are sold.
(6) Prepare credit memoranda with the date the following transactions were completed:
(i) For wholesalers, transactions involving cigarettes returned by customers to a wholesaler's stock.
(ii) For stamping agents, transactions involving unstamped and stamped cigarettes returned to manufacturers.
(b) Dealers shall keep and maintain the records mentioned under subsection (a) for 4 years at the location for which the license is issued.
(c) A dealer who violates subsection (b) shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
§ 71.11. Examination of records, equipment and premises.
(a) Dealers shall provide the Department and its authorized agents the means, facilities and opportunity to examine the dealers' books, records, cigarette inventory, premises and equipment to determine compliance with the act and code.
(b) A person who prevents or hinders the Department or designated agent from examining the items stated in subsection (a) shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
CHAPTER 72. CIGARETTE DEALER LICENSES Sec.
72.1 Cigarette stamping agent licences. 72.2. Posting of license. 72.3 Assignment of license. 72.4. Timing of application for renewal of existing license. 72.5. Denials, revocation and suspensions. 72.6. Change in status of cigarette dealer's business. 72.7. Cigarette vending machines. § 72.1. Cigarette stamping agent licenses.
To satisfy section 204-A(a)(3) of the code (72 P. S. § 204-A(3)), an applicant for a stamping agent license or renewal of a stamping agent license shall provide the Department with the following documentation:
(1) A detailed description of the applicant's business activities, including a history of the applicant's experience in the wholesale cigarette business. An applicant seeking a renewal of a license need not follow this requirement.
(2) Curent financial statements.
§ 72.2. Posting of license.
(a) Dealers shall conspicuously display their licenses at the locations for which issued. Dealers operating vending machines shall post their licenses at their business headquarters as listed in their license application.
(b) A dealer who violates subsection (a) shall be subject to a $100 fine for the first offense, a $200 fine for the second offense and a $300 fine for the third and any further offense.
§ 72.3. Assignment of license.
A dealer's license is not assignable. An attempt to assign a dealer's license shall immediately result in the cancellation of the license.
§ 72.4. Timing of application for renewal of existing license.
(a) A dealer shall apply for a renewal of its license by January 15 of the year in which its license expires.
(b) A dealer who files an application for renewal of its license after January 15 of the year in which its license expires is not permitted to operate under the existing license after the last day of February of that same year. In this instance, the Department will treat the application for renewal as an application for a new license and the dealer shall be prohibited from stamping or selling cigarettes until its application is approved by the Department.
§ 72.5. Denials, revocations and suspensions.
(a) Denial of license application and requests for renewal.
(1) Whenever the Department denies a license application or request for renewal, the Department will send a notice by registered or certified mail at the last known address of the applicant or dealer. The notice will set forth the basis of the Department's denial and inform the applicant or dealer that the Department's actions may be protested through a hearing process. To avail itself of the hearing process, the applicant or dealer shall file a complaint with the Department's Cigarette Licensing, Marketing and Control Board within 30 days after the mailing date set forth in the notice under section 207-A of the code (72 P. S. § 207-A).
(2) A dealer may continue to operate under its license for a 30-day period following the mailing date set forth in the denial notice. If the dealer files an appeal with the Cigarette Licensing, Marketing and Control Board, the dealer may continue to operate under its license during the period of administrative appeal before the Board.
(b) Revocation or suspension of license. Whenever the Department determines that a dealer has committed a violation of the act or code that would result in the suspension or revocation of that dealer's license, the Department will file a complaint with the Cigarette Licensing, Marketing and Control Board under the procedures in section 207-A of the code. Within 30 days after the termination of a hearing, the Board shall recommend its decision to the Secretary. If the Secretary's decision results in the suspension or revocation of the dealer's license, the dealer shall immediately surrender its license to the Department, notwithstandng the dealer's right of further administrative or judicial appeal.
§ 72.6. Change in status of cigarette dealer's business.
A cigarette dealer shall immediately inform the Department, in writing, prior to or immediately after:
(1) Taking actions that would change any information on the dealer's license application or as last reported to the Department, including a change of name or, if the dealer is a corporation or partnership, a change in the dealer's officers, directors or partners.
(2) Filing a certificate of dissolution with the Pennsylvania Department of State or filing a similar document in another jurisdiction.
(3) Filing a voluntary petition in bankruptcy or receivership or receiving notice of an involuntary bankruptcy petition.
(4) Merging or consolidating with another business.
(5) Terminating business activities.
(6) If the dealer is a corporation, the acquisition by any person or entity of 10% or more of the number of shares of voting stock of the corporation.
§ 72.7. Cigarette vending machines.
(a) Decal and location. In addition to the requirements stated under the code, a dealer who operates a cigarette vending machine shall satisfy the following requirements:
(1) Each cigarette vending machine shall have a current decal issued by the Department which shall be affixed by its adhesive to and conspicuously displayed on each machine.
(2) Each dealer, at the time of the dealer's application for a license or request for renewal, shall provide the Department with a list identifying the location of each vending machine in this Commonwealth from which cigarettes will be sold, specifying the establishment, address and county.
(b) Notification of business relocation. A dealer that relocates vending machines shall notify the Department in writing within 10 days after the relocation. The notification to the Department shall include the dealer's name, its license number, the location of the vending machine, specifying the establishment, address and county, as well as other information that the Department may require.
(c) Extra cigarette vending machine decals. A dealer may subsequently request extra decals for new vending machines which will be placed in additional locations without identifying the actual locations. These requests for decals are limited to no more than ten or 10% of the listed locations previously on file with the Department, whichever is greater. Once the new vending machines are placed in operation, the dealer shall, within 10 business days, notify the Department of the locations of the additional vending machines, specifying the establishment, address and county. The Department will revoke additional decals if the dealer fails to notify the Department of the locations of the additional vending machines.
(Editor's Note: The Department is proposing to delete Chapter 73, Subchapters A--C and Chapter 75 as they currently appear in 61 Pa. Code at pages 12--24 (serial pages (89252) and (83027)--(83040) and pages 75-1--75-12 (serial pages (105805)--(105808), (131529), (131530), (105811), (105812) and (131531)--(131534).)
CHAPTER 73. IMPOSITION, METHOD OF PAYMENT AND REFUNDS OF TAX
Subchapter A. [IMPOSITION AND RATE OF TAX] (Reserved) §§ 73.1--73.8. (Reserved).
Subchapter B. [METHOD OF PAYMENT OF TAX] (Reserved) §§ 73.21--73.31. (Reserved).
Subchapter C. [REFUNDS AND ALLOWANCES] (Reserved) §§ 73.41--73.44. (Reserved).
Subchapter D. [EMERGENCY AND LIMITED MALT BEVERAGE TAX CREDIT] (Reserved)
CHAPTER 75. (Reserved)
CHAPTER 76. UNFAIR SALES OF CIGARETTES Sec.
76.1. Dealer's cost of doing business. 76.2 Combination sales and inducements. 76.3. Promotional sales plans. § 76.1. Dealer's cost of doing business.
(a) Stamping agent.
(1) The cost of doing business for a stamping agent is presumed to be the basic cost of cigarettes to the stamping agent for sales to wholesalers.
(2) Except as provided in subsection (e), a stamping agent may not sell cigarettes to a wholesaler at less than the cost of the stamping agent.
(b) Wholesaler.
(1) The cost of doing business for a wholesaler is presumed to be 4% of the basic cost of cigarettes to the wholesaler for sales to retailers.
(2) Except as provided in subsection (e), a wholesaler may not sell cigarettes to a retailer at less than the cost of the wholesaler.
(c) Retailer.
(1) The cost of doing business for a retailer is presumed to be 6% of the basic cost of cigarettes to the retailer for sales to the ultimate consumer.
(2) Except as provided in subsection (e), a retailer may not sell cigarettes to the ultimate consumer at less than the cost of the retailer.
(d) Application to lower dealer's cost of doing business.
(1) A dealer who wishes to lower its cost of doing business shall submit an application to the Department.
(2) An application for permission to sell at less than a dealer's presumed cost of doing business shall contain:
(i) A copy of the dealer's most recently filed Federal and State Income Tax return forms, including all associated schedules and attachments.
(ii) A nonrefundable fee of $200 to cover the Department's costs of administering the application, including the review and audit of the petitioning dealer's financial statements. If the Department determines that a field audit is necessary to approve or disapprove a request, an hourly rate, as established by the Department, will be charged to the dealer requesting approval for time spent in preparing the field audit. This amount will be in addition to the $200 nonrefundable fee.
(iii) Other information requested by the Department or as may be necessary to review the application.
(e) Review and determination.
(1) The Department will review and evaluate the information provided by the cigarette dealer and will determine whether the dealer's cost of doing business is lower than the presumed cost of doing business in effect at that time.
(2) The Department's approval of a dealer's application to sell at less than the presumptive cost of doing business is valid for 12 months from the effective date of the approval or until the approval of a subsequent dealer's application, whichever occurs first.
(3) If a dealer with permission to sell at less than the presumptive cost of doing business fails to submit a new application that is approved by the Department by the expiration of the 12-month period, the permission previously given to the dealer will be automatically revoked on the last day of the 12-month period.
(4) The Department's approval of a petitioning stamping agent, wholesaler or retailer's lower cost of doing business will apply to all similarly-licensed dealers throughout this Commonwealth. For example, if the Department approves a particular retailer's request to lower the presumptive 6% cost of doing business to 5%, all Pennsylvania retailers would also be permitted to use 5% as their cost of doing business.
(5) In determining whether an applicant/dealer's cost of doing business is lower than the presumed cost of doing business for that particular type of dealer, the Department will divide the applicant's operating expenses for the applicable 12-month period by the applicant's total cost of doing business for that same period.
Example. Wholesaler is in the business of selling cigarettes, candy and various food items to retailers throughout the United States. In its application to sell cigarettes to retailers at a price lower than the 4% presumptive cost of doing business markup, Wholesaler provides the following financial information for the year ending 12/31/XX:Total cost of goods sold
$575 millionTotal cost of doing business
$650 millionThe Wholesaler's operating expenses equal $75 million, which is its total cost of doing business less its total cost of goods sold. This amount is then divided by Wholesaler's total cost of doing business ($75 million/$650 million), which equals approximately 11.53%. This percentage represents the applicant's actual percentage cost of doing business. Because this percentage is greater than the 4% presumptive cost of doing business markup, the Wholesaler is unable to show that it can sell its cigarettes at a lower cost of doing business and the Department would deny its application.(6) In determining a dealer's actual cost of doing business, the Department will determine the amount of the constructive cost of property or services upon which the dealer's actual cost of doing business is calculated when the Department determines that the dealer's financial records are not indicative of the true value of property or services received by the dealer.
(i) The constructive cost of the dealer's receipt of property or services shall be the cost which would be charged in an arms-length transaction.
(ii) When the purchase of property or services occurs between a parent and a subsidiary, affiliate or controlled corporation, there shall be a refutable presumption that because of the common interest the transaction was not at arms-length.
§ 76.2. Combination sales and inducements.
Except for the provisions mentioned under § 76.3 (relating to promotional sales plans), a dealer may not:
(1) Sell cigarettes in combination with other non-cigarette merchandise if the total sales price for the cigarettes and all other noncigarette items included in the sale is less than the sum of the cost to the dealer of the cigarettes and noncigarette items. The dealer's invoice shall contain a description of the cigarette and noncigarette merchandise, including its selling price or its wholesale value.
(2) Give cigarettes free of charge, except in the case of specially-packaged manufacturers' samples that are designated on the package as not to be sold in accordance with § 71.6 (relating to sample cigarettes).
(3) Make a rebate, advertising allowance or other concession in connection with the sale of cigarettes whereby the cigarettes are in effect sold below their cost to the dealer.
(4) Make secret extensions to certain purchasers of special services or privileges in connection with the sale of cigarettes that are not extended to all purchasers upon like terms and conditions.
§ 76.3. Promotional sales plans.
(a) Only cigarette manufacturers may sponsor or initiate a promotional sales plan that lowers the price of cigarettes below the cost of the dealer.
(b) Every dealer on whose premises a manufacturer's promotional sales plan is being conducted shall obtain a written statement from the manufacturer which describes the promotional sales plan and indicates the plan's duration.
(c) When a manufacturer's promotional sales plan involves the affixation of coupons to a retailer's inventory of cigarettes, the retailer shall receive payment from the manufacturer representing the value of the coupons prior to the retailer's customers' purchase of the coupon-affixed cigarettes. The retailer shall also retain documentation showing the manufacturer's payment of the coupons' value. For example, if the cost of the retailer for a package of cigarettes is $2 and a 50¢ coupon is affixed to the package, the retailer may accept the coupon, sell the package of cigarettes for $1.50 and be in compliance with the act and code only if the retailer possesses evidence that the manufacturer prepaid the value of the 50¢ coupon to the retailer prior to the retailer's sale of the package of cigarettes.
(d) Retailers may redeem manufacturer-issued coupons issued to the general public that reduce the retail purchase price of cigarettes below the cost of the retailer as long as the manufacturer reimburses the retailer for the redeemed coupon and the retailer maintains documentation showing the sale of the cigarettes to its customers and the manufacturer's subsequent reimbursement. For example, if the cost of the retailer is $18 per carton of cigarettes and the retailer sells the carton for $18, the retailer may accept a $1 coupon that reduces the cost of the retailer to $17 and not be in violation of the code or act. However, the retailer may not sell the carton at $17 unless the retail customer tenders a valid $1 manufacturer coupon.
(e) A dealer participating in a manufacturer's promotional sales plan which is not evidenced by a coupon and which occurs subsequent to the dealer's purchase of cigarettes from that manufacturer is in violation of the code.
(f) A dealer may sponsor or initiate a promotional sales plan if the plan does not result in the sale of cigarettes at a price below the cost of that dealer.
CHAPTER 77. (Reserved)
CHAPTER 79. (Reserved)
CHAPTER 83. (Reserved)
CHAPTER 85. (Reserved) (Editor's Note: The Department is proposing to delete Chapters 77, 79, 83 and 85 as they currently appear in 61 Pa. Code at pages 77-1--77-4, 79-1, 79-2, 47--68, 85-1 and 85-2 (serial pages (105817)--(105826), (119453), (119454), (83073)--(83078), (35942)--(35945), (87097), (87098), (35948)--(35951), (83081), (83082) and (188585)--(188588).)
[Pa.B. Doc. No. 97-1209. Filed for public inspection August 1, 1997, 9:00 a.m.]
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