PRINTER'S NO. 1018
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
REFERRED TO FINANCE, MAY 8, 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 retail outlets having one hundred per centum (100%)
2 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.
16 (e) "Retailer" shall mean and include any person who sells
17 cigarettes at retail, including a wholesaler or a cigarette
18 stamping agent for the purposes of its sale to consumers.
19 * * *
20 (h) "Basic cost of cigarettes" shall mean the invoice cost
21 of cigarettes to the retailer, cigarette stamping agent or
22 wholesaler, as the case may be, or the replacement cost of
23 cigarettes to the retailer, cigarette stamping agent or
24 wholesaler, as the case may be, within thirty days prior to the
25 date of sale in the quantity last purchased, whichever is lower,
26 [less all trade discounts and customary discounts for cash,] but
27 not less any discounts such as stamping commission or discount,
28 prompt payment discount or anticipatory or promotional discounts
29 which may be withdrawn at any time, to which shall be added the
30 full face value of any tax which may be required by any
19890S0889B1018 - 3 -
1 cigarette tax act of this Commonwealth now in effect or
2 hereafter enacted, if not already included by the manufacturer
3 in his list price.
4 (i) "Cost [to] of the wholesaler" shall mean the "basic cost
5 of cigarettes" to the wholesaler plus the cost of doing business
6 by the wholesaler [and must include, without limitation, labor
7 costs (including salaries of executives and officers), rent,
8 depreciation, selling costs, maintenance of equipment, delivery
9 costs, all types of licenses, taxes, insurance, and advertising]
10 as evidenced by the accounting standards and methods regularly
11 employed by the wholesaler in his determination of costs for the
12 purpose of Federal income tax reporting for the total operation
13 of his establishment, including direct and indirect costs,
14 expressed as a percentage and applied to the basic cost of
15 cigarettes, plus the cost of doing business by the cigarette
16 stamping agent with respect to sales of cigarettes to
17 wholesalers. There shall be determined a separate cost of the
18 wholesaler for sales to retail dealers. In the absence of filing
19 satisfactory proof of a lesser or higher cost of doing business
20 by the [wholesaler making the sale, the cost of doing business
21 by the wholesaler shall be presumed to be four per centum (4%)
22 of the "basic cost of cigarettes" to the wholesaler.] wholesaler
23 with respect to sales to retail dealers the cost of doing
24 business shall be presumed to be two per centum (2%) of the
25 basic cost of cigarettes. When a wholesaler establishes a lesser
26 or higher cost of doing business than the presumptive two per
27 centum (2%) cost of doing business, such lesser or higher cost
28 of doing business may be used to compute the "cost of the
29 wholesaler" for a period of time no greater than six (6) months,
30 at the end of which time the "cost of the wholesaler" shall be
19890S0889B1018 - 4 -
1 computed using the presumptive two per centum (2%) cost of doing
2 business, unless the wholesaler again establishes a lesser or
3 higher cost of doing business.
4 (j) "Cost [to] of the retailer" shall mean the "basic cost
5 of cigarettes" to the retailer plus the cost of doing business
6 by the retailer [and must include, without limitation, labor
7 costs (including salaries of executives and officers), rent,
8 depreciation, selling costs, maintenance of equipment, delivery
9 costs, all types of licenses, taxes, insurance, and advertising]
10 as evidenced by the accounting standards and methods regularly
11 employed by the retailer in his determination of costs for the
12 purpose of Federal income tax reporting for the total operation
13 of his establishment, including direct and indirect costs
14 expressed or a percentage and applied to the basic cost of
15 cigarettes, plus the cost of doing business by the cigarette
16 stamping agent with respect to sales of cigarettes to retailers.
17 In the absence of filing of satisfactory proof of a lesser or
18 higher cost of doing business by the retailer making the sale,
19 the cost of doing business by the retailer shall be presumed to
20 be six per centum (6%) of the sum of the "basic cost of
21 cigarettes" to the retailer plus the cost of doing business by
22 the wholesaler with respect to cigarettes sold to retail
23 dealers. When a retailer establishes a lesser or higher cost of
24 doing business than the presumptive six per centum (6%) cost of
25 doing business, such lesser or higher cost of doing business may
26 be used to compute the "cost of the retailer" for a period of
27 time no greater than six (6) months, at the end of which time
28 the "cost to the retailer" shall be computed using the
29 presumptive six per centum (6%) cost of doing business, unless
30 the retailer again establishes a lesser or higher cost of doing
19890S0889B1018 - 5 -
1 business.
2 In the case of any person who purchases cigarettes for sale
3 at retail from any manufacturer of cigarettes without resort to
4 a wholesaler as such, such person shall be deemed, for the
5 purposes of this act, to be engaged in the sale of cigarettes
6 both as a wholesaler and retailer and as such, shall be subject
7 both to the wholesale and retail mark-up provisions of this act,
8 in the order named.
9 (k) "Cost of doing business" shall mean that amount, as
10 evidenced by the standards and methods of accounting regularly
11 employed in the determination of costs for the purpose of
12 Federal income tax reporting, for the total operation of the
13 establishment for the previous twelve (12) month-period, and
14 must include, but shall not be limited to, all direct costs,
15 including, where applicable, inbound freight charges, labor
16 costs to affix tax indicia, cost of equipment to affix hand
17 stamps, ink, glue, rental and maintenance expenses for the
18 cigarette tax machine, State and local cigarette licenses, and
19 indirect overhead costs and expenses paid or incurred such as,
20 preopening expenses, management fees, labor costs (including
21 salaries of executives and officers), rents, depreciation,
22 selling costs, maintenance expenses, interest expenses, delivery
23 costs, all types of licenses, all types of taxes, insurance,
24 advertising and any central and regional administrative
25 expenses.
26 (l) "Cost of the cigarette stamping agent" shall mean the
27 basic cost of doing business by the cigarette stamping agent as
28 evidenced by the accounting standards and methods regularly
29 employed by said agent in his determination of costs for the
30 purpose of Federal income tax reporting for the total operation
19890S0889B1018 - 6 -
1 of his establishment, and must include, without limitation,
2 labor, (including salaries of executives and officers), rent,
3 depreciation, selling costs, maintenance of equipment, delivery
4 costs, interest payable, all types of licenses, taxes, insurance
5 and advertising expressed as a percentage and applied to the
6 basic cost of cigarettes. In the case of sales at retail by
7 cigarette stamping agents, the "cost of the cigarette stamping
8 agent" shall be the same as the "cost of the retailer." There
9 shall be determined a separate cost of the cigarette stamping
10 agent for sales to wholesale dealers, and for sales to retail
11 dealers. In the absence of filing of satisfactory proof of a
12 lesser or higher cost of doing business of the cigarette
13 stamping agent making the sale, the cost of doing business shall
14 be presumed to be two per centum (2%) of the basic cost of
15 cigarettes for sales to wholesale dealers, and five per centum
16 (5%) of the basic cost of cigarettes with respect to sales to
17 retail.
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 going 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
19890S0889B1018 - 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.
7 Section 2. Sections 3, 12, 13 and 14 of the act are amended
8 to read:
9 Section 3. Sales at Less Than Cost.--
10 (a) It shall be unlawful [for any retailer or wholesaler,
11 with intent to injure competitors or destroy or substantially
12 lessen competition, to advertise, offer to sell or sell, at
13 retail or wholesale, cigarettes at less than cost to such
14 retailer or wholesaler, as the case may be.]:
15 [(b) Evidence of advertisement, offering to sell or sale of
16 cigarettes by any retailer or wholesaler at less than cost to
17 him shall be prima facie evidence of intent to injure
18 competitors and to destroy or substantially lessen competition.]
19 (1) For any cigarette stamping agent, wholesale dealer or
20 retail dealer, with intent to injure competitors or destroy or
21 substantially lessen competition, or with intent to avoid the
22 collection or paying over of such taxes as may be required by
23 law, to advertise, offer to sell or sell cigarettes at less than
24 cost of such cigarette stamping agent, wholesale dealer or
25 retail dealer, as the case may be.
26 (2) For any wholesaler:
27 (i) to induce or attempt to induce or to procure or attempt
28 to procure the purchase of cigarettes at a price less than the
29 cost of the cigarette stamping agent with respect to sales to
30 wholesaler; or
19890S0889B1018 - 8 -
1 (ii) to induce or attempt to induce or to procure or attempt
2 to procure any rebate or concession of any kind or nature
3 whatsoever in connection with the purchase of cigarettes.
4 (3) For any retail dealer:
5 (i) to induce or attempt to induce or to procure or attempt
6 to procure the purchase of cigarettes at a price less than the
7 cost to the cigarette stamping agent for sales to retail
8 dealers, if purchased from an agent, or at a price less than the
9 cost of the wholesaler; or
10 (ii) to induce or attempt to induce or to procure or attempt
11 to procure any rebate or concession of any kind or nature
12 whatsoever in connection with the purchase of cigarettes.
13 (b) Evidence of advertisement, offering to sell or sale of
14 cigarettes by any cigarette stamping agent, wholesaler or retail
15 dealer at less than cost, or evidence of any offer of a rebate
16 in price, or giving of a rebate in price, or an offer of a
17 concession, or the giving of a concession of any kind or nature
18 whatsoever in connection with the sale of cigarettes, or the
19 inducing or attempt to induce or to the procuring or the attempt
20 to procure the purchase of cigarettes at a price less than cost
21 of the cigarette stamping agent, wholesaler, or the retail
22 dealer shall be prima facie evidence of intent to injure
23 competitors and to destroy or substantially lessen competition
24 or of intent to avoid the collection or paying over of such
25 taxes as may be required by law. Evidence of a final selling
26 cost which is not the invoice cost, or an invoice which does not
27 include allowable discounts, rebates, allowances or free or
28 discounted merchandise relating to the sale of cigarettes, when
29 used by the cigarette stamping agent, wholesaler or retailer
30 shall be prima facie evidence of violation of this act.
19890S0889B1018 - 9 -
1 Section 12. Remedies.--(a) The [Department of Revenue]
2 Attorney General of this Commonwealth, in the case of any
3 violation or threatened violation of this act, or any person
4 injured by any violation or who shall suffer injury from any
5 threatened violation of this act, may maintain an action in any
6 court of competent jurisdiction to prevent, restrain or enjoin
7 such violation or threatened violation. If in such action a
8 violation or threatened violation of this act shall be
9 established, the court shall enjoin and restrain or otherwise
10 prohibit such violation or threatened violation and in addition
11 thereto the court shall assess in favor of the plaintiff and
12 against the defendant the costs of suit, including reasonable
13 attorneys' fees. In any such action it shall not be necessary
14 that actual damages to the plaintiff be alleged or proved, but
15 where alleged and proved by a plaintiff, other than the
16 [Department of Revenue] Attorney General, the plaintiff in said
17 action, in addition to such injunctive relief and costs of suit,
18 including reasonable attorneys' fees, shall be entitled to
19 recover from the defendant the actual damages sustained by him.
20 (b) In the event that no injunctive relief is sought or
21 required, any person injured by a violation of this act may
22 maintain an action for damages and costs of suit in any court of
23 competent jurisdiction.
24 Section 13. Department of Revenue; Powers and Duties.--The
25 administration of this act is hereby vested in the Department of
26 Revenue of this Commonwealth. Such department [may] shall adopt
27 rules and regulations for the enforcement of this act and [may]
28 shall from time to time make or cause to be made one or more
29 cost surveys to establish the lowest "cost of the cigarette
30 stamping agent, the lowest" "cost [to] of the retailer" and the
19890S0889B1018 - 10 -
1 lowest "cost [to] of the wholesaler," as defined in this act,
2 for the State or such trading area or areas therein as it shall
3 define. Any such survey made or caused to be made by the
4 department may be used for the purposes specified in section
5 eleven of this act. Regulations shall provide a procedure for
6 licensees to prove a cost different from the State presumptive
7 costs, including proof of lower costs, filing of petition, cost
8 allocation, data to be submitted and guidelines necessary to
9 implement this act. Authorization to sell below the State's
10 presumptive minimum shall be in writing and otherwise in
11 conformance with the requirements of this act, and shall contain
12 a statement that the authorization is effective forty-five (45)
13 days after the issuance of the writing and is valid for six (6)
14 months. The Department of Revenue may, upon notice and after
15 hearing, suspend or revoke any permit issued under the
16 provisions of the Cigarette Tax Act (Act of March 24, 1949,
17 Pamphlet Laws 336), for failure of the permittee to comply with
18 any of the provisions of this Unfair Cigarette Sales Act. Any
19 person aggrieved by any decision or order of the department
20 suspending or revoking any such permit may appeal from such
21 decision or order, as provided in the Administrative Agency Law
22 (Act of June 4, 1945, Pamphlet Laws 1388), as amended.
23 Section 14. Penalty.--[Any retailer or wholesaler who shall
24 advertise, offer to sell or sell cigarettes at retail or
25 wholesale in violation of the provisions of this act shall, for
26 a first offense, upon summary conviction thereof, be sentenced
27 to pay a fine not exceeding two hundred dollars ($200), and, in
28 default thereof, shall be sentenced to undergo imprisonment for
29 not more than sixty (60) days; and for a second or subsequent
30 offense, be guilty of a misdemeanor, and, upon conviction
19890S0889B1018 - 11 -
1 thereof, be sentenced to pay a fine not exceeding five hundred
2 dollars ($500), or to undergo imprisonment not exceeding six
3 months, or both. Each advertisement, offer for sale or sale of
4 cigarettes in violation of the provisions of this act shall
5 constitute a separate violation of the provisions of this act
6 and shall subject the offender to the penalties hereby
7 prescribed. Proof of any such advertisement, offer to sell or
8 sale by any retailer or wholesaler in contravention of the
9 policy of this act shall be prima facie evidence of a violation
10 of this act.] (a) The license of any cigarette stamping agent
11 or wholesaler or retailer who violates any of the provisions of
12 this article may be suspended, after due notice and opportunity
13 of hearing, for a period of not less than five (5) days nor more
14 than thirty (30) days for a first offense, and shall be revoked
15 or suspended for any subsequent offense.
16 (b) In addition to the penalty provided in subsection (a) of
17 this section, upon conviction of a first offense, the cigarette
18 stamping agent or wholesaler or retailer shall be sentenced to
19 pay a fine of not less than two thousand five hundred dollars
20 ($2,500) nor more than five thousand dollars ($5,000). For
21 subsequent offenses, the agent, wholesaler or retailer shall,
22 upon conviction thereof, be sentenced to pay a fine of not less
23 than five thousand dollars ($5,000) nor more than fifteen
24 thousand dollars ($15,000).
25 Section 3. This act shall take effect in 60 days.
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