Kentucky Announces New Rules for Tobacco Manufacturers

Kentucky Legislative Update – 2015

The Tobacco Master Settlement Agreement (Settlement) was the largest civil litigation settlement in United States history. Several states sued Philip Morris USA, R.J. Reynolds, Brown & Williamson, and Lorillard seeking damages to recover Medicaid and other costs that the states suffered in the treatment of sick cigarette smokers. The suit was settled in 1998 when the states relinquished future claims against the cigarette companies for this issue. In return, the companies agreed to make annual payments in perpetuity to the states as compensation for taxpayer revenue spent on the health-care costs to treat tobacco illness. To stay current with the Settlement, effective July 1, 2015, the Kentucky Department of Revenue (KY DOR) implemented some changes of note.

Kentucky, a member of the settling states, receives a share of the payments from the settlement at an estimated $3.45 billion paid out over the first 25 years must provide “a directory of all participating manufacturers and non-participating manufacturers that have been certified by the Attorney General as being in compliance with the Master Settlement Agreement and Model Act.” To maintain compliance with the Settlement, the KY DOR created a directory that includes the names and brands of certified manufacturers which are in compliance with state law. Each July 1, the directory is updated on the Revenue Cabinet website to represent the various manufacturers in compliance.

While no substantial changes to current sales and use tax statutes resulted from the 2015 legislative session of the Kentucky General Assembly, the KY DOR must update the directory per the Settlement. The purpose of the update is to add or remove tobacco manufacturers or brand families that do not meet the certification requirements set by the Attorney General. To facilitate this update, Retailers must provide to their wholesalers/distributors an update e-mail address to ensure “prompt notification of removal of product from the directory.”

Also effective July 1, 2015, once cigarettes and “roll your own” tobacco have been removed from the directory, it will immediately be considered contraband. As such, the contraband will immediately be subject to seizure and destruction. The DOR will send out e-mail notifications to the available retailer addresses upon the 30-day notification of intent to remove from the directory and once again upon the actual removal from the directory.

Don’t let a simple failure to update an e-mail address result in potential seizure and destruction of cigarettes and “roll your own” tobacco.

About the author: Mr. Donnini is the president and founder of Tobacco Tax Refunds, Inc. He is also multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini has extensive knowledge handling wholesale tax controversy and refunds.

In his law practice Mr. Donnini's primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini is licensed to practice law in Florida. If you have any questions please do not hesitate to contact him via email [email protected] or phone at 954-639-4496.