Other Department of Revenue Responsibilities or Tax Compliance Laws Concerning Cigarettes and Tobacco Products
The Department’s primary responsibilities with respect to cigarettes concern the administration and collection of the cigarette tax. However, the General Assembly has entrusted the Department with certain other responsibilities involving cigarettes. The following will briefly outline these other responsibilities:
A. Reduced Cigarette Ignition Propensity Standards
In 2008, the General Assembly enacted the “Reduced Cigarette Ignition Propensity Standards and Firefighter Protection Act” (“Act”). The purpose of this Act is to provide that cigarettes may not be sold or offered for sale in South Carolina unless the cigarettes have been tested in accordance with certain test methods, met certain performance standards, and received certain certifications. In addition, the cigarettes must be properly marked to indicate compliance with this Act.
While the State Fire Marshal administers this law, and is responsible for promulgating regulations necessary to administer it, the following provisions apply to the Department:
1. The Department, in the regular course of conducting cigarette tax inspections of wholesalers, retailers and anyone liable for the tax, may inspect the cigarettes to determine if they are marked as required under the Act. If the cigarettes are not marked as required, the Department shall notify the State Fire Marshal.
2. The Department, as well as the Attorney General, the State Fire Marshal and other law enforcement personnel, may examine the books, papers, invoices, and other records of any person in possession, control, or occupancy of any premises where cigarettes are placed, stored, sold, or offered for sale, as well as the stock of cigarettes on the premises. A person in the possession, control, or occupancy of any premises where cigarettes are placed, sold, or offered for sale, is directed and required to give the Department, as well as the Attorney General, State Fire Marshal, and other law enforcement personnel, the means, facilities, and opportunity for these examinations.
3. Cigarettes seized by the State Fire Marshal or any law enforcement personnel
for not being marked as required under the Act must be turned over to
the Department. These cigarettes are forfeited to the State. Cigarettes
seized must be destroyed; however, prior to their destruction the true
holder of the trademark rights in the cigarette brand must be permitted
to inspect the cigarettes.4
4. Each manufacturer must certify to the State Fire Marshal that each cigarette has been tested and met the requirements of the Act. This certification must contain certain information about each cigarette, such as brand or trade name, style, length, and the marking required under the Act. Each cigarette must be recertified every three years. The certifications must be made available to the Department, as well as the Attorney General.5
Note: The Act also contains an uncodified provision that became effective June 5, 2008, that prohibits local governments from enacting any ordinance in conflict with, or preempting, the provisions of the Act.
This law becomes effective on January 1, 2010.
B. Distribution of Tobacco Products to Persons Under 18 Years of Age
It is unlawful for a person to sell, furnish, give, or provide tobacco products, including tobacco product samples, cigarette paper, or a substitute for them, to a person under the age of eighteen years.6 In addition, a person engaged in sampling must demand proof of age from a prospective recipient if an ordinary person would conclude on the basis of appearance that the prospective recipient may be under the age of 18 years.7 For violating these laws, the following penalties may be imposed:8
(1) a penalty of not more than $25.00 may be imposed for a first violation,
(2) a penalty of not more than $50.00 may be imposed for a second violation, and
(3) a penalty of not less than $100.00 may be imposed for a third or subsequent violation.
Proof that the defendant demanded, was shown, and reasonably relied upon proof of age is a defense to an action brought under this statute.
The Department must enforce this law in a manner that reasonably may be expected to reduce the extent to which tobacco products are sold or distributed to persons under the age of 18 years. The Department must annually conduct random, unannounced inspections at locations where tobacco products are sold or distributed to ensure compliance and the Department must designate an enforcement officer to conduct the annual inspections.
In addition, the Department must prepare and submit annually to the Secretary of the United States Department of Health and Human Services the report required by Section 1926 of the Federal Public Health Service Act (42 U.S.C. 300x-26). The Department is also responsible for ensuring the State’s compliance with this federal law and applicable regulations promulgated by the United States Department of Health and Human Services.
Note: Currently, the South Carolina Department of Alcohol and Other Drug Abuse Services (“DAODAS”) conducts routine inspections, gathers information and annually submits to the Secretary of the United States Department of Health and Human Services the report required by this section and by 42 U.S.C. 300X-26. This report is known as the “Synar Report.” To review a copy of the most recent Synar Report, visit the DAODAS website at http://www.daodas.state.sc.us/.
C. Tobacco Escrow Fund and Fund Enforcement
On November 23, 1998, leading United States tobacco product manufacturers entered into the “Master Settlement Agreement” (“Agreement”) with South Carolina. This Agreement obligates these manufacturers, in return for a release of past, present, and certain future claims against them, to pay substantial sums to the State based in part on the volume of sales of their products in South Carolina. In 1999, the General Assembly enacted the “Tobacco Escrow Fund Act” and found that it is the policy of this State that financial burdens imposed on the State by cigarette smoking be borne by tobacco product manufacturers rather than by the State.
The “Tobacco Escrow Fund Act” provides that any tobacco product manufacturer selling cigarettes to consumers within the State (whether directly or through a distributor, retailer, or similar intermediary or intermediaries) shall either become a participating manufacturer, as defined in section II(jj) of the Agreement, and generally perform its financial obligations under the Agreement or place certain amounts into a qualified escrow fund based on the number of cigarettes sold. Under this law, the Department determines the number of cigarettes sold in the State by the applicable tobacco product manufacturer during the year in question, as measured by excise taxes collected by the State on packs or “roll-your-own” tobacco containers.This is the Department’s only duty with respect to this law.
In 2005, the General Assembly enacted provisions to enforce the Tobacco
Escrow Fund Act, and safeguard the Agreement, the financial interests
of the State, and the public health. Administration and enforcement of
these provisions rests with the South Carolina Attorney General; however,
the Department is involved with two aspects of this law:
1. A cigarette distributor is required to submit information to the Attorney General to facilitate compliance with these enforcement provisions including, but not limited to, a list by brand family of the total number of cigarettes or in the case of roll-your-own, the equivalent stick count for which the cigarette distributor affixed stamps during the previous calendar quarter, or otherwise paid the tax due for the cigarettes. The cigarette distributor shall maintain, and make available to the Attorney General, all invoices and documentation of sales of all nonparticipating manufacturer cigarettes and other information relied upon in reporting to the Attorney General for a period of five years.
The distributors must also provide this information and documentation to the Department and any other documentation requested by the Department. The Department must process this information as needed by it, and as needed by the Attorney General for the purposes of enforcement and for purposes of the Tobacco Escrow Fund Act.
2. It is unlawful for a cigarette manufacturer, cigarette importer, cigarette distributor, or cigarette retailer to sell or possess counterfeit cigarettes. A person who violates this subsection is guilty of a felony and, upon conviction, is subject to a fine, imprisonment or both. In addition, certain violations require the revocation by the Department of any cigarette and tobacco products license issued by the Department and held by the cigarette manufacturer, cigarette importer, cigarette distributor, or cigarette retailer.
Note: All cigarette brands in compliance with the Tobacco Escrow Fund Act, and therefore legal for sale within South Carolina, are listed on the current Tobacco Directory published by the Office of the South Carolina Attorney General. In addition, employees of the Department of Revenue assist the Office of the South Carolina Attorney General by conducting inspections of cigarette inventories to ensure compliance with the Tobacco Escrow Fund Act.
D. Prevent All Cigarette Trafficking Act (PACT Act)
The Prevent All Cigarette Trafficking Act (PACT Act) was signed into federal law in 2010, amending the Jenkins Act of 1949.
Effective June 29, 2010, federal law requires Internet and mail order sellers of cigarettes and smokeless tobacco, referred to as “delivery sellers”19 under the law, to comply with the following:
(1) Shipping requirements. The delivery seller must include a statement on the bill of lading (if any) and on the same surface as the delivery address. The statement must state: CIGARETTES/SMOKELESS TOBACCO: FEDERAL LAW REQUIRES THE PAYMENT OF ALL APPLICABLE EXCISE TAXES, AND COMPLIANCE WITH APPLICABLE LICENSING AND TAX-STAMPING OBLIGATIONS.20
(2) Weight Requirements. The delivery seller may not sell, offer for sale, deliver or cause to be delivered in any single sale or single delivery any cigarettes or smokeless tobacco weighing more than 10 pounds.
(3) Age Verification Requirements. The delivery seller must not sell to a person under the legal age for sale or purchase and must comply with certain age verification requirements established in the law.
(4) Recordkeeping Requirements. The delivery seller must keep a record of any delivery sale, including a memorandum or a copy of each and every invoice covering every shipment into the state of cigarettes and smokeless tobacco; the name and address of the person receiving the shipment; the brand and quantity thereof; and the name, address, and phone number of the person delivering the shipment to the recipient on behalf of the delivery seller. All memo and invoice information relating to specific customers must be organized by city, town or zip code. The delivery seller must retain records until the end of the 4th full calendar year that begins after the date of the delivery sale and must make records available to the tax agency of the state.
(5) State and Local Laws Applicable to Sales of Cigarettes and Smokeless Tobacco. The delivery seller must comply with state and local laws applicable to sales of cigarettes and smokeless tobacco as if the delivery sale occurred entirely within the state (or local jurisdiction), including excise taxes, licensing and taxstamping requirements, restrictions on sales to minors, and other payment and legal obligations.
(6) Tax Collection Requirements. The delivery seller must not sell or deliver
to any consumer or common carrier or other delivery service any cigarettes
or smokeless tobacco unless in advance of the sale, delivery or tender
to the common carrier or delivery service (i) the excise tax imposed by
the state has been paid; (ii) the excise tax imposed by a local government
has been paid; and (iii) any tax stamps or other indicia that the excise
tax has been paid are properly affixed or applied to the cigarettes or
This requirement does not apply to delivery sales of smokeless tobacco if the state law (or local law for a local excise tax) requires the delivery seller to collect the excise tax from the consumer and remit the excise tax to the state (or local law for a local excise tax) and the delivery seller complies with this requirement.
A delivery seller must also file a statement with the state tax agency setting forth specific information as outlined in the federal law.
In addition, a delivery seller must file with the state tax agency by the 10th of each calendar month a memorandum or a copy of each and every invoice covering every shipment of cigarettes and smokeless tobacco made in the prior month into the state. The memo or invoice must include specific information as outlined in the federal law.
The law also imposes certain requirements and restrictions on common carriers and other persons who sell, transfer, or ship for profit cigarettes and smokeless tobacco in interstate commerce.
For more detailed information on this federal law and its requirements and restrictions, see 15 U.S.C. Section 375 et. seq.