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The purpose of this information is informative, and does not represent an exhaustive list of tobacco-related state or federal laws and regulations.

House Bill 2674:

On April 22, , Governor Jan Brewer signed House Bill 2674 (“HB2674”), which will take effect on July 24, . HB2674 makes several changes to A.R.S. §§ 44-7101 (the “Escrow Statute”) and 44-7111 (the “Directory Statute”).

HB2674 Changes to the Escrow Statute:

HB2674 modified the definition of what constitutes “units sold” in Arizona. The new definition will classify as a unit sold “any cigarette that is sold to a consumer in [Arizona], regardless of whether state excise or tribal excise tax was owed or collected.” Pursuant to HB2674, the definition of “units sold” will still be found at subsection (2)(k) of the Escrow Statute, and will be redefined as follows:

Units sold means the number of individual cigarettes sold to a consumer in the state by the applicable tobacco product manufacturer (whether directly or through a distributor, retailer or similar intermediary or intermediaries) during the year in question, regardless of whether State excise taxes were due or collected. For cigarettes for which a state or tribal excise, luxury, or similar tax is collected or precollected or that have a Department of Revenue cigarette tax stamp affixed to the package, the sale occurs at the earlier of the time that any tax is collected or precollected or that the tax stamp is affixed. The department of revenue shall adopt such rules as are necessary to ascertain the units sold of such tobacco product manufacturer for each year. (emphasis added)

In short, while the payment of state or tribal excise remains a means for calculating “units sold”, the new definition also captures sales on which state or tribal excise tax was not paid.

HB2674 Changes to the Directory Statute:

HB2674 clarifies, codifies, and modifies various parts of the Directory Statute. First, HB2674 amends the Directory Statute to require that all certifications submitted pursuant to the Directory Statute are to be submitted only to AGO.

Second, HB2674 amends Section 3(a) of the Directory Statute to clarify that, if a certification is rejected by AGO because of incompleteness or inaccuracy, the tobacco product manufacturer (“TPM”) cannot cure the defect by providing supplemental documentation. Instead, the defect can only be cured by the TPM submitting a new certification to AGO.

Third, HB2674 amends section 3(a)(2) of the Directory Statute to codify that each NPM shall include in its certification a list of all of Arizona’s residential and nonresidential distributors that the NPM sold its cigarettes to or that the NPM has reason to believe purchased or received any of its cigarettes. This requirement applies to the current calendar year and the preceding calendar year. Section 3(a)(2) is further amended to make expressly clear that an NPM must submit a supplemental certification to AGO if it wishes to request any additions or modifications to its brand families. Lastly, section 3(a)(2) is amended to clarify that NPMs must conform to sections 3(c) and 6(d) of the Directory Statute until after the Directory modification request is approved by AGO and the alteration is reflected on the Directory that is published on AGO’s website.

Fourth, HB2674 adds section 3(a)(3)(e) of the Directory Statute to codify that, unless the NPM or its affiliate is a licensed Arizona tobacco distributor, NPMs must certify that all sales or shipments made by the NPM or its affiliates within or into Arizona are made to a tobacco distributor that is licensed in Arizona.

Fifth, HB2674 adds section 3(a)(3)(f) to the Directory Statute. The new provision requires NPMs to submit all other information or materials that are specifically authorized by the Directory Statute or by AGO in the course of enforcing the Directory Statute.

Sixth, HB2674 adds section 3(a)(6) to the Directory Statute. The new provision clarifies that all TPMs that are not listed on the Directory must submit an initial certification that is governed by the same requirements and review process as its annual certification counterpart. Importantly, a TPM’s cigarettes cannot be legally stamped, sold or even possessed for sale in Arizona until after the request to be added to the Directory has been approved by AGO and the addition is reflected on the Directory itself.

Seventh, HB2674 amends section 3(b)(1) of the Directory Statute to reinforce that AGO shall not include or retain in the Directory the name or brand family of any NPM that fails to comply with any provision of the Directory Statute, unless AGO determines that the noncompliance has been cured to the satisfaction of AGO.

Eighth, HB2674 amends section 3(c) of the Directory Statute to clarify that it is unlawful to possess for sale any cigarette not listed on the Directory, including cigarettes for sale within or outside of Arizona. In other words, irrespective of where the cigarettes will be sold, it is illegal to possess for sale in Arizona cigarettes not listed on the Directory.

Ninth, HB2674 amends section 3(d) of the Directory Statute to require that every NPM on the Directory post a bond for the benefit of Arizona. Section 3(e) also requires that NPMs post the bond ten days in advance of each quarter as a condition of being listed on the Directory. Furthermore, section 3(e) specifies that the amount of the bond will be the greater of (i) the greatest required escrow amount due from the NPM or its predecessor for any of the twelve preceding calendar quarters or (ii) fifty thousand dollars. Finally, section 3(e) is amended to require that NPMs submit its bond certifications as an attachment to an initial, annual, or supplemental certification as required by the Directory Statute.

Tenth, HB2674 amends section 3(h) of the Directory Statute to require that all NPMs submit the importer declaration required by section 3(h) as an attachment to an initial, annual, or supplemental certification as required by the Directory Statute.

Eleventh, HB2674 Section 5(a) of the Directory Statute to require that DOR review the monthly distributor tobacco reports for completeness and accuracy.

Twelfth, HB2674 amends section 5(g)(1-4) to codify that NPMs shall make quarterly escrow deposits according to the following schedule: