CHAPTER........
AN ACT relating to tobacco; requiring all manufacturers of tobacco products sold in this
state to participate in the settlement made between certain manufacturers and this
and other states or to place money in escrow; and providing other matters properly
relating thereto.
THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN
SENATE AND ASSEMBLY, DO ENACT AS FOLLOWS:
Section 1.
1. Cigarette smoking presents serious public healthconcerns to the state and to the citizens of the state. The Surgeon General
has determined that smoking causes lung cancer, heart disease and other
serious diseases, and that there are hundreds of thousands of tobacco-
related deaths in the United States each year. These diseases most often do
not appear until many years after the person in question begins smoking.
2. Cigarette smoking also presents serious financial concerns for the
state. Under certain health-care programs, the state may have a legal
obligation to provide medical assistance to eligible persons for health
conditions associated with cigarette smoking, and those persons may have a
legal entitlement to receive such medical assistance.
3. Under these programs, the state pays millions of dollars each year to
provide medical assistance for these persons for health conditions
associated with cigarette smoking.
4. It is the policy of the state that financial burdens imposed on the
state by cigarette smoking be borne by tobacco product manufacturers
rather than by the state to the extent that such manufacturers either
determine to enter into a settlement with the state or are found culpable by
the courts.
5. On November 23, 1998, leading United States tobacco product
manufacturers entered into a settlement agreement, entitled the "Master
Settlement Agreement," with the state. The Master Settlement Agreement
obligates these manufacturers, in return for a release of past, present and
certain future claims against them as described therein, to pay substantial
sums to the state (tied in part to their volume of sales); to fund a national
foundation devoted to the interests of public health; and to make substantial
changes in their advertising and marketing practices and corporate culture,
with the intention of reducing underage smoking.
6. It would be contrary to the policy of the state if tobacco product
manufacturers who determine not to enter into such a settlement 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 if they are proven to have acted
culpably. It is thus in the interest of the state to require that such
manufacturers establish a reserve fund to guarantee a source of
compensation and to prevent such manufacturers from deriving large, short-
term profits and then becoming judgment-proof before liability may arise.
Sec. 2. Title 32 of NRS is hereby amended by adding thereto a new
chapter to consist of the provisions set forth as sections 3 to 18, inclusive,
of this act.
Sec. 3. As used in sections 3 to 18, inclusive, of this act, the words
and terms defined in sections 4 to 14, inclusive, of this act have the
meanings ascribed to them in those sections.
Sec. 4.
"Adjusted for inflation" means increased in accordance withthe formula for inflation adjustment set forth in Exhibit C to the Master
Settlement Agreement.
Sec. 5.
"Affiliate" means a person who directly or indirectly owns orcontrols, is owned or controlled by, or is under common ownership or
control with, another person. Solely for the purposes of this definition,
the terms "owns," "is owned" and "ownership" mean ownership of an
equity interest, or the equivalent thereof, of ten percent or more, and the
term "person" means an individual, partnership, committee, association,
corporation or any other organization or group of persons.
Sec. 6.
"Allocable share" has the meaning ascribed to it in sectionII(f) of the Master Settlement Agreement.
Sec. 7.
"Cigarette" means any product that contains nicotine, isintended to be burned or heated under ordinary conditions of use, and
consists of or contains:
1. Any roll of tobacco wrapped in paper or in any other substance
not containing tobacco;
2. Tobacco, in any form, that is functional in the product, which
because of its appearance, the type of tobacco used in the filler, or its
packaging and labeling, is likely to be offered to or purchased by
consumers as a cigarette; or
3. Any roll of tobacco wrapped in any substance containing tobacco
which, because of its appearance, the type of tobacco used in the filler, or
its packaging and labeling, is likely to be offered to or purchased by
consumers as a cigarette described in subsection 1.
The term includes "roll-your-own" tobacco, that is, any tobacco which
because of its appearance, type, packaging or labeling is suitable for use
and likely to be offered to or purchased by consumers as tobacco for
making cigarettes. For the purposes of this section, 0.09 ounces of "roll-
your-own" tobacco constitutes one individual cigarette.
Sec. 8.
"Manufacturer of tobacco products" means an entity that,after the effective date of this act, directly, and not exclusively through an
affiliate:
1. Manufactures cigarettes anywhere that such manufacturer intends
to be sold in the United States, including cigarettes intended to be sold in
the United States through an importer (except where such importer is an
original participating manufacturer, as that term is defined in the Master
Settlement Agreement, that will be responsible for the payments under
the Master Settlement Agreement with respect to such cigarettes as a
result of the provisions of subsection II(mm) of the Master Settlement
Agreement and that pays the taxes specified in subsection II(z) of the
Master Settlement Agreement, and provided that the manufacturer of
such cigarettes does not market or advertise such cigarettes in the United
States);
2. Is the first purchaser anywhere for resale in the United States of
cigarettes manufactured anywhere that the manufacturer does not intend
to be sold in the United States; or
3. Becomes a successor of an entity described in subsection 1 or 2.
The term does not include an affiliate of a manufacturer of tobacco
products unless the affiliate itself is an entity described in subsection 1, 2
or 3.
Sec. 9.
"Master Settlement Agreement" means the settlementagreement, and related documents, entered into on November 23, 1998,
by this state and leading United States manufacturers of tobacco
products.
Sec. 10.
"Participating manufacturer" has the meaning ascribed toit in section II(jj) of the Master Settlement Agreement.
Sec. 11.
"Qualified escrow fund" means an escrow arrangementwith a federally or state-chartered financial institution, that has no
affiliation with any manufacturer of tobacco products and has assets of
at least $1 billion where the arrangement requires the financial
institution to hold the principal of the amount deposited in escrow for the
benefit of releasing parties and prohibits the manufacturer of tobacco
products which deposits the money from using, having access to or
directing the use of the principal of the amount deposited except as
permitted under section 17 of this act.
Sec. 12.
"Released claims" has the meaning ascribed to it in sectionII(nn) of the Master Settlement Agreement.
Sec. 13.
"Releasing parties" has the meaning ascribed to it insection II(pp) of the Master Settlement Agreement.
Sec. 14.
"Units sold" means, with respect to a particularmanufacturer of tobacco products for a particular year, the number of
individual cigarettes sold in this state by the manufacturer directly or
through a distributor, retailer or similar intermediary or intermediaries
during that year, as measured by excise taxes collected by the state on
packs, or containers of "roll-your-own" tobacco, bearing the excise
stamp of this state.
Sec. 15.
The department of taxation shall adopt such regulations asare necessary to ascertain the amount of excise tax collected by the state
on the cigarettes of each manufacturer of tobacco products for each
Sec. 16.
A manufacturer of tobacco products that sells cigarettes toconsumers in this state, directly or through a distributor, retailer or
similar intermediary or intermediaries, after the effective date of this act
shall do one of the following:
1. Become a participating manufacturer and generally perform its
financial obligations under the Master Settlement Agreement; or
2. Deposit into a qualified escrow fund, on or before April 15 of the
year following the year in question, the following amounts as such
amounts are adjusted for inflation:
(a) For the year 1999, $0.0094241 for each unit sold after the effective
date of this act;
(b) For the year 2000, $0.0104712 for each unit sold;
(c) For each of the years 2001 and 2002, $0.0136125 for each unit
sold;
(d) For each of the years 2003 through 2006, $0.0167539 for each
unit sold; and
(e) For each of the year 2007 and each year thereafter, $0.0188482
for each unit sold.
Sec. 17.
A manufacturer of tobacco products that deposits moneyinto escrow pursuant to subsection 2 of section 16 of this act shall receive
the interest or other appreciation on the deposit as earned. The principal
of the deposit may be released from escrow only under the following
circumstances:
1. To pay a judgment or settlement on a released claim brought
against that manufacturer by this state or by a releasing party located or
residing in this state. Money may be released from escrow under this
subsection only in the order in which it was deposited into escrow and
only to the extent and at the time necessary to make payments required
under the judgment or settlement.
2. To the extent that the manufacturer establishes that the amount it
was required to deposit into escrow in a particular year was greater than
this state’s allocable share of the total payments that the manufacturer
would have been required to make in that year under the Master
Settlement Agreement if the manufacturer had been a participating
manufacturer, as such payments are determined pursuant to section
IX(i)(2) of that agreement and before any of the adjustments or offsets
described in section IX(i)(3) of that agreement other than the inflation
adjustment, the excess must be released from escrow and revert to the
manufacturer.
3. To the extent not released from escrow under subsection 1 or 2,
deposits must be released from escrow and revert to the manufacturer 25
years after the date on which they were deposited.
Sec. 18.
1. A manufacturer of tobacco products that elects todeposit money into escrow pursuant to subsection 2 of section 16 of this
act shall annually certify to the attorney general that it is in compliance
with that subsection and with section 17 of this act. If the attorney
general does not receive the annual certification, he shall mail a notice to
the manufacturer. The attorney general may maintain a civil action on
behalf of this state against any manufacturer of tobacco products which
fails to deposit into escrow the amount required by section 16 of this act.
2. A manufacturer of tobacco products that fails in any year to place
into escrow the money required under section 16 of this act shall:
(a) Be required within 15 days to place such money into escrow as
shall bring it into compliance with section 16 of this act. The court, upon
a finding of a violation of subsection 2 of section 16 or section 17 of this
act, may impose a civil penalty to be paid to the state general fund in an
amount not to exceed 5 percent of the amount improperly withheld from
escrow per day of the violation and in a total amount not to exceed 100
percent of the original amount improperly withheld from escrow.
(b) In the case of a knowing violation, be required within 15 days to
place such money into escrow as shall bring it into compliance with this
section. The court, upon a finding of a knowing violation of subsection 2
of section 16 or section 17 of this act, may impose a civil penalty to be
paid to the state general fund in an amount not to exceed 15 percent of
the amount improperly withheld from escrow per day of the violation and
in a total amount not to exceed 300 percent of the original amount
improperly withheld from escrow.
(c) In the case of a second knowing violation, shall be prohibited from
selling cigarettes to consumers in this state, directly or through a
distributor, retailer or similar intermediary, for a period to be fixed by the
court not to exceed 2 years.
3. Each failure to make an annual deposit required by section 16 of
this act constitutes a separate violation.
This act becomes effective upon passage and approval.~