A BILL TO BE ENTITLED
AN ACT to improve compliance with the tobacco escrow statute.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 66‑290 is amended by adding the following new subdivisions to read:
"§ 66‑290.  Definitions.
As used in this Article:
…
(3a)	'Brand family' means all styles of cigarettes sold under the same trademark and differentiated from one another by means of additional modifiers including, but not limited to, "menthol", "lights", "kings", and "100s".
…
(4a)	'Distributor' has the same meaning as defined in G.S. 105-113.4.
…
(5a)	'Nonparticipating manufacturer' means a tobacco product manufacturer that is not a participating manufacturer.
(5b)	'Participating manufacturer' has the same meaning as defined in section II(jj) of the Master Settlement Agreement.
…."
SECTION 2.  G.S. 66‑291(a)(1) reads as rewritten:
"(1)	Become a participating manufacturer  and generally perform its financial obligations under the Master Settlement Agreement; or".
SECTION 3.  Article 37 of Chapter 66 of the General Statutes is amended by adding a new section to read:
"§ 66-292. Compliance certification.
(a)	It shall be unlawful for any person, including any distributor, to pay the tax levied under Part 2 of Article 2A of Chapter 105 of the General Statutes for cigarettes belonging to a brand family of a nonparticipating manufacturer if the brand family is not included on the nonparticipating manufacturers' list issued pursuant to subsection (b) of this section. Cigarettes otherwise subject to the levy of the tax but made ineligible for the levy under this section are non-tax-paid cigarettes.
(b)	As a supplement to the list prepared pursuant to G.S. 105-113.4C, the Office of the Attorney General shall prepare the following separate lists and shall make those lists available for public inspection. The Office of the Attorney General shall update the supplemental lists as necessary to reflect additions to or deletions of manufacturers and brand families.
(1)	A list of the participating manufacturers and all brand families of each participating manufacturer that the participating manufacturer has identified to the Attorney General. 
(2)	A list of the nonparticipating manufacturers who are in full compliance with G.S. 66-291(a)(2). The list shall include all brand families of those manufacturers that the manufacturers have identified to the Attorney General.
(c)	A person shall not be liable for a violation of subsection (a) of this section if the brand family and the manufacturer of the brand family were included on the supplemental list of nonparticipating manufacturers at the time the tax was paid regardless of whether the manufacturer or the brand family is included on a subsequent edition of the supplemental list.
(d)	Unless the Office of the Attorney General provides a waiver, a nonparticipating manufacturer shall submit to the Office of the Attorney General on or before April 30th of each year all of the following:
(1)	A list of all brand families of the manufacturer sold for consumption in the State during the current and previous calendar year.
(2)	A copy of the instrument appointing a process service agent, as required under this section.
(3)	A statement certifying all of the following:
a.	The manufacturer is in full compliance with G.S. 66-291(a)(2).
b.	All escrow payments required under G.S. 66-291(a)(2) have been made for all cigarettes belonging to the brand families included in the list submitted pursuant to subdivision (1) of this subsection.
c.	The manufacturer will not deliver any brand family to a distributor before the manufacturer has updated the list of brand families submitted pursuant to subdivision (1) of this subsection to include the brand family.
d.	The instrument required under subdivision (2) of this subsection is currently in effect.
(e)	A nonparticipating tobacco product manufacturer not previously subject to this section and the brand families of that manufacturer will be included in the next updated supplemental list only after the submissions required by subsection (d) of this section have been approved by the Office of the Attorney General and the Office of the Attorney General has approved the manufacturer's escrow agreement. A nonparticipating tobacco product manufacturer previously subject to this section and its brand families will be included in the next updated supplemental list only after the submissions required by subsection (d) of this section have been approved by the Office of the Attorney General and the manufacturer has obtained the approval of the Office of the Attorney General for its escrow agreement, made payment into the approved escrow account of all past due payments, and resolved all outstanding penalty demands or adjudicated penalties.
(f)	Each nonparticipating tobacco product manufacturer shall appoint and continuously maintain a process service agent within the State of North Carolina to accept service of any notification or enforcement action pursuant to this Article. The manufacturer shall file with the Secretary of State and the Office of the Attorney General a certified copy of each instrument appointing a process service agent."
SECTION 4.	G.S. 14‑401.18(b) reads as rewritten:
"(b)	Offenses. – A person who sells or holds for sale (other than for export to a foreign country) a package of cigarettes that meets one or more of the following descriptions commits a Class A1 misdemeanor and engages in an unfair trade practice prohibited by G.S. 75‑1.1:
(1)	The package differs in any respect with the requirements of the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331, for the placement of labels, warnings, or any other information upon a package of cigarettes that is to be sold within the United States.
(2)	The package is labeled "For Export Only," "U.S. Tax Exempt," "For Use Outside U.S.," or has similar wording indicating that the manufacturer did not intend that the product be sold in the United States.
(3)	The package was altered by adding or deleting the wording, labels, or warnings described in subdivision (1) or (2) of this subsection.
(4)	The package was imported into the United States after January 1, 2000, in violation of 26 U.S.C. § 5754.
(5)	The package violates federal trademark or copyright  laws, federal laws governing the submission of ingredient information to federal authorities pursuant to 15 U.S.C. § 1335a, federal laws governing the import of certain cigarettes pursuant to 19 U.S.C. § 1681 and 19 U.S.C. § 1691b, or any other provision of federal law or regulation. 
(6)	The package contains cigarettes, as defined in G.S. 66-290(4), that are non-tax-paid cigarettes under G.S. 66-292."
SECTION 5.  G.S. 105‑113.4C(1) reads as rewritten:
"(1)	The Office of the Attorney General must give to the Secretary of Revenue a list of the nonparticipating manufacturers under the Master Settlement Agreement and the brand names of the products of the nonparticipating manufacturers. The Office of the Attorney General must also give to the Secretary of Revenue the supplemental list prepared under G.S. 66-292 that shows which nonparticipating manufacturers are in full compliance with G.S. 66-291(a)(2)."
SECTION 6.  G.S. 105‑133.5 reads as rewritten:
"§ 105‑113.5.  Tax on cigarettes.
(a)	Tax. – A tax is levied on the sale or possession for sale in this State, by a distributor, of all cigarettes at the rate of two and one‑half mills per individual cigarette.
This tax does not apply to any of the following:
(1)	Sample cigarettes distributed without charge in packages containing five or fewer cigarettes.
(2)	Cigarettes in a package of cigarettes given without charge by the manufacturer of the cigarettes to an employee of the manufacturer who works in a factory where cigarettes are made, if the cigarettes are not taxed by the federal government.
(b)	Tobacco Escrow Compliance. – Notwithstanding subsection (a) of this section, a tax may not be levied on the sale or possession for sale of a cigarette belonging to a brand family of a nonparticipating manufacturer if the brand family is not included on the nonparticipating manufacturers' list issued under G.S. 66-292. Cigarettes that are not subject to tax under this subsection are non-tax-paid cigarettes."
SECTION 7.	This act becomes effective October 1, 2002.