PRIOR PRINTER'S NOS. 1018, 1702 PRINTER'S NO. 2048
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
SENATOR TILGHMAN, APPROPRIATIONS, RE-REPORTED AS AMENDED,
MARCH 26, 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 conferring powers upon the Attorney General; and providing <--
10 penalties; AND MAKING AN APPROPRIATION. <--
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 are retail outlets having one hundred per centum
2 (100%) 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 the act of March 4, 1971 (P.L.6, No.2), known
16 as the "Tax Reform Code of 1971."
17 (3) ANY PERSON WHO IS ENGAGED IN OPERATING A CHAIN STORE. <--
18 (D.1) "CHAIN STORE" SHALL MEAN ANY PERSON WHO OWNS AND
19 OPERATES NO LESS THAN FIVE RETAIL OUTLETS IN THIS COMMONWEALTH,
20 HAVING ONE HUNDRED PER CENTUM (100%) COMMON OWNERSHIP, WHO
21 PURCHASES CIGARETTES FROM A CIGARETTE STAMPING AGENCY OR ANOTHER
22 WHOLESALER FOR RESALE TO THE ULTIMATE CONSUMER: PROVIDED, THAT
23 SUCH PERSON MAINTAINS COMPLETE AND ACCURATE RECORDS OF ALL
24 PURCHASES AND SALES IN HIS OR HER MAIN OFFICE AND ALSO IN THE
25 RETAIL OUTLET. FOR PURPOSES OF THIS ACT, THE TERM "CHAIN STORE"
26 SHALL ALSO INCLUDE FRANCHISEES.
27 (D.2) "FRANCHISEE" SHALL MEAN ANY PERSON ENGAGED IN THE SALE
28 OF CIGARETTES, WHO IS GRANTED THE RIGHT TO ENGAGE IN THE
29 BUSINESS OF OFFERING, SELLING OR DISTRIBUTING GOODS OR SERVICE
30 UNDER A MARKETING PLAN OR SYSTEM PRESCRIBED IN SUBSTANTIAL PART
19890S0889B2048 - 3 -
1 BY THE GRANTOR OF THAT RIGHT, FOR WHICH A DIRECT OR INDIRECT FEE
2 IS PAID, AND WHOSE FRANCHISOR FRANCHISES FIVE OR MORE RETAIL
3 OUTLETS IN THIS COMMONWEALTH THROUGH WHICH CIGARETTES ARE SOLD.
4 (e) "Retailer" shall mean and include any person who sells
5 cigarettes at retail, including a wholesaler or a cigarette
6 stamping agent for the purposes of its sale to consumers.
7 * * *
8 (h) "Basic cost of cigarettes" shall mean the invoice cost
9 of cigarettes to the retailer, cigarette stamping agent or
10 wholesaler, as the case may be, or the replacement cost of
11 cigarettes to the retailer, cigarette stamping agent or
12 wholesaler, as the case may be, within thirty days prior to the
13 date of sale in the quantity last purchased, whichever is lower,
14 [less all trade discounts and customary discounts for cash,] but
15 not less any discounts such as stamping commission or discount,
16 prompt payment discount or anticipatory or promotional discounts
17 which may be withdrawn at any time, to which shall be added the
18 full face value of any tax which may be required by any
19 cigarette tax act of this Commonwealth now in effect or
20 hereafter enacted, if not already included by the manufacturer
21 in his list price.
22 (i) "Cost [to] of the wholesaler" shall mean the "basic cost
23 of cigarettes" to the wholesaler plus the cost of doing business
24 by the wholesaler [and must include, without limitation, labor
25 costs (including salaries of executives and officers), rent,
26 depreciation, selling costs, maintenance of equipment, delivery
27 costs, all types of licenses, taxes, insurance, and advertising]
28 as evidenced by the accounting standards and methods regularly
29 employed by the wholesaler in his determination of costs for the
30 purpose of Federal income tax reporting for the total operation
19890S0889B2048 - 4 -
1 of his establishment, including direct and indirect costs,
2 expressed as a percentage and applied to the basic cost of
3 cigarettes, which includes the cost of doing business by the
4 cigarette stamping agent with respect to sales of cigarettes to
5 wholesalers. There shall be determined a separate cost of the
6 wholesaler for sales to retail dealers. In the absence of filing
7 satisfactory proof of a lesser or higher cost of doing business
8 by the [wholesaler making the sale, the cost of doing business
9 by the wholesaler shall be presumed to be four per centum (4%)
10 of the "basic cost of cigarettes" to the wholesaler.] wholesaler
11 with respect to sales to retail dealers the cost of doing
12 business shall be presumed to be two per centum (2%) of the
13 basic cost of cigarettes. When a wholesaler establishes a lesser
14 or higher cost of doing business than the presumptive two per
15 centum (2%) cost of doing business, such lesser or higher cost
16 of doing business may be used to compute the "cost of the
17 wholesaler" for a period of time no greater than six (6) months,
18 at the end of which time the "cost of the wholesaler" shall be
19 computed using the presumptive two per centum (2%) cost of doing
20 business, unless the wholesaler again establishes a lesser or
21 higher cost of doing business.
22 (j) "Cost [to] of the retailer" shall mean the "basic cost
23 of cigarettes" to the retailer plus the cost of doing business
24 by the retailer [and must include, without limitation, labor
25 costs (including salaries of executives and officers), rent,
26 depreciation, selling costs, maintenance of equipment, delivery
27 costs, all types of licenses, taxes, insurance, and advertising]
28 as evidenced by the accounting standards and methods regularly
29 employed by the retailer in his determination of costs for the
30 purpose of Federal income tax reporting for the total operation
19890S0889B2048 - 5 -
1 of his establishment, including direct and indirect costs
2 expressed as a percentage and applied to the basic cost of
3 cigarettes, which includes the cost of doing business by the
4 wholesaler with respect to sales of cigarettes to retailers. In
5 the absence of filing of satisfactory proof of a lesser or
6 higher cost of doing business by the retailer making the sale,
7 the cost of doing business by the retailer shall be presumed to
8 be six per centum (6%) of the sum of the "basic cost of
9 cigarettes" to the retailer plus the cost of doing business by
10 the wholesaler with respect to cigarettes sold to retail
11 dealers. When a retailer establishes a lesser or higher cost of
12 doing business than the presumptive six per centum (6%) cost of
13 doing business, such lesser or higher cost of doing business may
14 be used to compute the "cost of the retailer" for a period of
15 time no greater than six (6) months, at the end of which time
16 the "cost to the retailer" shall be computed using the
17 presumptive six per centum (6%) cost of doing business, unless
18 the retailer again establishes a lesser or higher cost of doing
19 business.
20 In the case of any person who purchases cigarettes for sale
21 at retail from any manufacturer of cigarettes without resort to
22 a wholesaler as such, such person shall be deemed, for the
23 purposes of this act, to be engaged in the sale of cigarettes
24 both as a wholesaler and retailer and as such, shall be subject
25 both to the wholesale and retail mark-up provisions of this act,
26 in the order named.
27 (k) "Cost of doing business" shall mean that amount, as
28 evidenced by the standards and methods of accounting regularly
29 employed in the determination of costs for the purpose of
30 Federal income tax reporting, for the total operation of the
19890S0889B2048 - 6 -
1 establishment for the previous twelve (12) month-period, and
2 must include, but shall not be limited to, all direct costs,
3 including, where applicable, inbound freight charges, labor
4 costs to affix tax indicia, cost of equipment to affix hand
5 stamps, ink, glue, rental and maintenance expenses for the
6 cigarette tax machine, State and local cigarette licenses, and
7 indirect overhead costs and expenses paid or incurred such as,
8 preopening expenses, management fees, labor costs (including
9 salaries of executives and officers), rents, depreciation,
10 selling costs, maintenance expenses, interest expenses, delivery
11 costs, all types of licenses, all types of taxes, insurance,
12 advertising and any central and regional administrative
13 expenses.
14 (l) "Cost of the cigarette stamping agent" shall mean the
15 basic cost of doing business by the cigarette stamping agent as
16 evidenced by the accounting standards and methods regularly
17 employed by said agent in his determination of costs for the
18 purpose of Federal income tax reporting for the total operation
19 of his establishment, and must include, without limitation,
20 labor, (including salaries of executives and officers), rent,
21 depreciation, selling costs, maintenance of equipment, delivery
22 costs, interest payable, all types of licenses, taxes, insurance
23 and advertising expressed as a percentage and applied to the
24 basic cost of cigarettes. In the case of sales at retail by
25 cigarette stamping agents, the "cost of the cigarette stamping
26 agent" shall be the same as the "cost of the retailer." There
27 shall be determined a separate cost of the cigarette stamping
28 agent for sales to wholesale dealers, and for sales to retail
29 dealers. In the absence of filing of satisfactory proof of a
30 lesser or higher cost of doing business of the cigarette
19890S0889B2048 - 7 -
1 stamping agent making the sale, the cost of doing business shall
2 be presumed to be two per centum (2%) of the basic cost of
3 cigarettes for sales to wholesale dealers.
4 When a cigarette stamping agent establishes a lesser or
5 higher cost of doing business than the presumptive costs
6 contained herein, such lesser or higher cost of doing business
7 may be used to compute the "cost of the cigarette stamping
8 agent" for a period of time no greater than six (6) months, at
9 the end of which time the "cost of the cigarette stamping agent"
10 shall be computed using the presumptive costs contained herein,
11 unless the cigarette stamping agent again establishes a lesser
12 or higher cost of doing business.
13 (m) "Cigarette stamping agent" shall mean any person who is
14 licensed as such by the Department of Revenue for the purpose of
15 affixing cigarette tax stamps to packages of cigarettes and
16 transmitting the proper tax to the Commonwealth, who maintains
17 separate warehousing facilities for the purpose of receiving and
18 distributing cigarettes and conducting his business, and who has
19 received commitments from at least two (2) cigarette
20 manufacturers whose aggregate market share is at least forty per
21 centum (40%) of the Commonwealth cigarette market and who
22 purchases cigarettes directly from cigarette manufacturers or is
23 a manufacturer of cigarettes.
24 Section 2. Sections 3, 12, 13 and 14 of the act are amended <--
25 to read:
26 Section 3. Sales at Less Than Cost.--
27 (a) It shall be unlawful [for any retailer or wholesaler,
28 with intent to injure competitors or destroy or substantially
29 lessen competition, to advertise, offer to sell or sell, at
30 retail or wholesale, cigarettes at less than cost to such
19890S0889B2048 - 8 -
1 retailer or wholesaler, as the case may be.]:
2 [(b) Evidence of advertisement, offering to sell or sale of
3 cigarettes by any retailer or wholesaler at less than cost to
4 him shall be prima facie evidence of intent to injure
5 competitors and to destroy or substantially lessen competition.]
6 (1) For any cigarette stamping agent, wholesale dealer or
7 retail dealer, with intent to injure competitors or destroy or
8 substantially lessen competition, or with intent to avoid the
9 collection or paying over of such taxes as may be required by
10 law, to advertise, offer to sell or sell cigarettes at less than
11 cost of such cigarette stamping agent, wholesale dealer or
12 retail dealer, as the case may be.
13 (2) For any wholesaler:
14 (i) to induce or attempt to induce or to procure or attempt
15 to procure the purchase of cigarettes at a price less than the
16 cost of the cigarette stamping agent with respect to sales to
17 wholesaler; or
18 (ii) to induce or attempt to induce or to procure or attempt
19 to procure any rebate or concession of any kind or nature
20 whatsoever in connection with the purchase of cigarettes.
21 (3) For any retail dealer:
22 (i) to induce or attempt to induce or to procure or attempt
23 to procure the purchase of cigarettes at a price less than the
24 cost to the cigarette stamping agent for sales to retail
25 dealers, if purchased from an agent, or at a price less than the
26 cost of the wholesaler; or
27 (ii) to induce or attempt to induce or to procure or attempt
28 to procure any rebate or concession of any kind or nature
29 whatsoever in connection with the purchase of cigarettes.
30 (b) Evidence of advertisement, offering to sell or sale of
19890S0889B2048 - 9 -
1 cigarettes by any cigarette stamping agent, wholesaler or retail
2 dealer at less than cost, or evidence of any offer of a rebate
3 in price, or giving of a rebate in price, or an offer of a
4 concession, or the giving of a concession of any kind or nature
5 whatsoever in connection with the sale of cigarettes, or the
6 inducing or attempt to induce or to the procuring or the attempt
7 to procure the purchase of cigarettes at a price less than cost
8 of the cigarette stamping agent, wholesaler, or the retail
9 dealer shall be prima facie evidence of intent to injure
10 competitors and to destroy or substantially lessen competition
11 or of intent to avoid the collection or paying over of such
12 taxes as may be required by law. Evidence of a final selling
13 cost which is not the invoice cost, or an invoice which does not
14 include allowable discounts, rebates, allowances or free or
15 discounted merchandise relating to the sale of cigarettes, when
16 used by the cigarette stamping agent, wholesaler or retailer
17 shall be prima facie evidence of violation of this act.
18 Section 12. Remedies.--(a) The [Department of Revenue] <--
19 Attorney General of this Commonwealth, in the case of any
20 violation or threatened violation of this act, or any person
21 injured by any violation or who shall suffer injury from any
22 threatened violation of this act, may maintain an action in any
23 court of competent jurisdiction to prevent, restrain or enjoin
24 such violation or threatened violation. If in such action a
25 violation or threatened violation of this act shall be
26 established, the court shall enjoin and restrain or otherwise
27 prohibit such violation or threatened violation and in addition
28 thereto the court shall assess in favor of the plaintiff and
29 against the defendant the costs of suit, including reasonable
30 attorneys' fees. In any such action it shall not be necessary
19890S0889B2048 - 10 -
1 that actual damages to the plaintiff be alleged or proved, but
2 where alleged and proved by a plaintiff, other than the
3 [Department of Revenue] Attorney General, the plaintiff in said
4 action, in addition to such injunctive relief and costs of suit,
5 including reasonable attorneys' fees, shall be entitled to
6 recover from the defendant the actual damages sustained by him.
7 (b) In the event that no injunctive relief is sought or
8 required, any person injured by a violation of this act may
9 maintain an action for damages and costs of suit in any court of
10 competent jurisdiction.
11 Section 13. Department of Revenue; Powers and Duties.--The
12 administration of this act is hereby vested in the Department of
13 Revenue of this Commonwealth. Such department [may] shall adopt
14 rules and regulations for the enforcement of this act and [may]
15 shall from time to time make or cause to be made one or more
16 cost surveys to establish the lowest "cost of the cigarette
17 stamping agent," the lowest "cost [to] of the retailer" and the
18 lowest "cost [to] of the wholesaler," as defined in this act,
19 for the State or such trading area or areas therein as it shall
20 define. Any such survey made or caused to be made by the
21 department may be used for the purposes specified in section
22 eleven of this act. Regulations shall provide a procedure for
23 licensees to prove a cost different from the State presumptive
24 costs, including proof of lower costs, filing of petition, cost
25 allocation, data to be submitted and guidelines necessary to
26 implement this act. Authorization to sell below the State's
27 presumptive minimum shall be in writing and otherwise in
28 conformance with the requirements of this act, and shall contain
29 a statement that the authorization is effective forty-five (45)
30 days after the issuance of the writing and is valid for six (6)
19890S0889B2048 - 11 -
1 months. The Department of Revenue may, upon notice and after
2 hearing, suspend or revoke any permit issued under the
3 provisions of the Cigarette Tax Act (Act of March 24, 1949,
4 Pamphlet Laws 336), for failure of the permittee to comply with
5 any of the provisions of this Unfair Cigarette Sales Act. Any
6 person aggrieved by any decision or order of the department
7 suspending or revoking any such permit may appeal from such
8 decision or order, as provided in the Administrative Agency Law
9 (Act of June 4, 1945, Pamphlet Laws 1388), as amended.
10 Section 14. Penalty.--[Any retailer or wholesaler who shall
11 advertise, offer to sell or sell cigarettes at retail or
12 wholesale in violation of the provisions of this act shall, for
13 a first offense, upon summary conviction thereof, be sentenced
14 to pay a fine not exceeding two hundred dollars ($200), and, in
15 default thereof, shall be sentenced to undergo imprisonment for
16 not more than sixty (60) days; and for a second or subsequent
17 offense, be guilty of a misdemeanor, and, upon conviction
18 thereof, be sentenced to pay a fine not exceeding five hundred
19 dollars ($500), or to undergo imprisonment not exceeding six
20 months, or both. Each advertisement, offer for sale or sale of
21 cigarettes in violation of the provisions of this act shall
22 constitute a separate violation of the provisions of this act
23 and shall subject the offender to the penalties hereby
24 prescribed. Proof of any such advertisement, offer to sell or
25 sale by any retailer or wholesaler in contravention of the
26 policy of this act shall be prima facie evidence of a violation
27 of this act.] (a) The license of any cigarette stamping agent
28 or wholesaler or retailer who violates any of the provisions of
29 this article may be suspended, after due notice and opportunity
30 of hearing, for a period of not less than five (5) days nor more
19890S0889B2048 - 12 -
1 than thirty (30) days for a first offense, and shall be revoked
2 or suspended for any subsequent offense.
3 (b) In addition to the penalty provided in subsection (a) of
4 this section, upon conviction of a first offense, the cigarette
5 stamping agent or wholesaler or retailer shall be sentenced to
6 pay a fine of not less than two thousand five hundred dollars
7 ($2,500) nor more than five thousand dollars ($5,000). For
8 subsequent offenses, the agent, wholesaler or retailer shall,
9 upon conviction thereof, be sentenced to pay a fine of not less
10 than five thousand dollars ($5,000) nor more than fifteen
11 thousand dollars ($15,000).
12 SECTION 3. THE SUM OF $300,000, OR AS MUCH THEREOF AS MAY BE <--
13 NECESSARY, IS HEREBY APPROPRIATED TO THE DEPARTMENT OF REVENUE
14 FOR THE FISCAL YEAR JULY 1, 1990, TO JUNE 30, 1991, TO CARRY OUT
15 THE PROVISIONS OF THIS ACT.
16 Section 3 4. This act shall take effect in 60 days. <--
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