I

103D CONGRESS

2D SESSION H. R. 4089

To amend the Internal Revenue Code of 1986 to increase the tax on tobacco

products, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 17, 1994

Mr. STARK (for himself, Mr. DURBIN, Mr. HANSEN, Mr. WAXMAN, Mr.

SYNAR, Mr. EVANS, Mr. OBERSTAR, Mr. ANDREWS of Texas, Mr.

MEEHAN, Mr. VISCLOSKY, Ms. HARMAN, Ms. ROYBAL-ALLARD, and Mr.

MARKEY) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to increase

the tax on tobacco products, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Tobacco Health Tax and Agricultural Assistance Act of

6 1994’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment
2

•HR 4089 IH

1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 SEC. 2. INCREASE IN EXCISE TAXES ON TOBACCO

5 PRODUCTS.

6 (a) CIGARETTES.—Subsection (b) of section 5701 is

7 amended—

8 (1) by striking ‘‘$12 per thousand ($10 per

9 thousand on cigarettes removed during 1991 or

10 1992)’’ in paragraph (1) and inserting ‘‘$100.00 per

11 thousand’’,

12 (2) by striking ‘‘$25.20 per thousand ($21 per

13 thousand on cigarettes removed during 1991 or

14 1992)’’ in paragraph (2) and inserting ‘‘$210.00 per

15 thousand’’, and

16 (3) by adding at the end thereof the following

17 new paragraph:

18 ‘‘(3) ADDITIONAL TAX ON PACKS CONTAINING

19 FEWER THAN 20 CIGARETTES.—On any pack of

20 cigarettes containing fewer than 20 cigarettes, the

21 excess of $2 over the tax imposed by paragraphs (1)

22 and (2) on the cigarettes in such pack.’’

23 (b) CIGARS.—Subsection (a) of section 5701 is

24 amended—
3

•HR 4089 IH

1 (1) by striking ‘‘$1.125 cents per thousand

2 (93.75 cents per thousand on cigars removed during

3 1991 or 1992)’’ in paragraph (1) and inserting

4 ‘‘$89.14 per thousand’’, and

5 (2) by striking ‘‘equal to’’ and all that follows

6 in paragraph (2) and inserting ‘‘equal to 105.8 per7 cent of the price for which sold but not more than

8 $250.03 per thousand.’’

9 (c) CIGARETTE PAPERS.—Subsection (c) of section

10 5701 is amended by striking ‘‘0.75 cent (0.625 cent on

11 cigarette papers removed during 1991 or 1992)’’ and in12 serting ‘‘6.24 cents’’.

13 (d) CIGARETTE TUBES.—Subsection (d) of section

14 5701 is amended by striking ‘‘1.5 cents (1.25 cents on

15 cigarette tubes removed during 1991 or 1992)’’ and in16 serting ‘‘12.5 cents’’.

17 (e) SMOKELESS TOBACCO.—Subsection (e) of section

18 5701 is amended—

19 (1) by striking ‘‘36 cents (30 cents on snuff re20 moved during 1991 or 1992)’’ in paragraph (1) and

21 inserting ‘‘$29.70’’, and

22 (2) by striking ‘‘12 cents (10 cents on chewing

23 tobacco removed during 1991 or 1992)’’ in para24 graph (2) and inserting ‘‘$29.46’’.
4

•HR 4089 IH

1 (f) PIPE TOBACCO.—Subsection (f) of section 5701

2 is amended by striking ‘‘67.5 cents (56.25 cents on pipe

3 tobacco removed during 1991 or 1992)’’ and inserting

4 ‘‘$30.01’’.

5 (g) INFLATION ADJUSTMENT OF TOBACCO TAX

6 RATES.—Section 5701 is amended by adding at the end

7 thereof the following new subsection:

8 ‘‘(i) INFLATION ADJUSTMENT.—

9 ‘‘(1) IN GENERAL.—In the case of articles re10 moved in any calendar year after 1994, each rate of

11 tax contained in this section shall be increased by an

12 amount equal to—

13 ‘‘(A) such rate, multiplied by

14 ‘‘(B) the greater of—

15 ‘‘(i) the cost-of-living adjustment de16 termined under section 1(f)(3) for the cal17 endar year in which the removal occurs by

18 substituting ‘calendar year 1993’ for ‘cal19 endar year 1992’ in subparagraph (B)

20 thereof, or

21 ‘‘(ii) the cost-of-living adjustment

22 which would be determined under clause

23 (i) if only changes in the tobacco and

24 smoking products component of the
5

•HR 4089 IH

1 Consumer Price Index (as defined in sec2 tion 1(f)(5)) were taken into account.

3 If any increase determined under this subsection is

not a multiple of 1 4 ⁄4 cent, such increase shall be

rounded to the nearest 1 5 ⁄4 cent.

6 ‘‘(2) SPECIAL RULE.—No adjustment shall be

7 made under paragraph (1) in the percentage rate set

8 forth in subsection (a)(2) but such adjustment shall

9 apply to the dollar amount contained therein.’’

10 (h) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to articles removed (as defined in

12 section 5702(k) of the Internal Revenue Code of 1986,

13 as amended by this Act) after September 30, 1994.

14 (i) FLOOR STOCKS TAXES.—

15 (1) IMPOSITION OF TAX.—On tobacco products

16 and cigarette papers and tubes manufactured in or

17 imported into the United States which are removed

18 before October 1, 1994, and held on such date for

19 sale by any person, there is hereby imposed a tax in

20 an amount equal to the excess of—

21 (A) the tax which would be imposed under

22 section 5701 of the Internal Revenue Code of

23 1986 on the article if the article had been re24 moved on such date, over
6

•HR 4089 IH

1 (B) the prior tax (if any) imposed under

2 section 5701 or 7652 of such Code on such

3 article.

4 (2) AUTHORITY TO EXEMPT CIGARETTES HELD

5 IN VENDING MACHINES.—To the extent provided in

6 regulations prescribed by the Secretary, no tax shall

7 be imposed by paragraph (1) on cigarettes held for

8 retail sale on October 1, 1994, by any person in any

9 vending machine. If the Secretary provides such a

10 benefit with respect to any person, the Secretary

11 may reduce the $500 amount in paragraph (3) with

12 respect to such person.

13 (3) CREDIT AGAINST TAX.—Each person shall

14 be allowed as a credit against the taxes imposed by

15 paragraph (1) an amount equal to $500. Such credit

16 shall not exceed the amount of taxes imposed by

17 paragraph (1) for which such person is liable.

18 (4) LIABILITY FOR TAX AND METHOD OF PAY19 MENT.—

20 (A) LIABILITY FOR TAX.—A person hold21 ing on October 1, 1994, articles to which any

22 tax imposed by paragraph (1) applies shall be

23 liable for such tax.

24 (B) METHOD OF PAYMENT.—The tax im25 posed by paragraph (1) shall be paid in such
7

•HR 4089 IH

1 manner as the Secretary shall prescribe by reg2 ulations.

3 (C) TIME FOR PAYMENT.—The tax im4 posed by paragraph (1) shall be paid on or be5 fore December 31, 1994.

6 (5) ARTICLES IN FOREIGN TRADE ZONES.—

7 Notwithstanding the Act of June 18, 1934 (48 Stat.

8 998, 19 U.S.C. 81a) and any other provision of law,

9 any article which is located in a foreign trade zone

10 on October 1, 1994, shall be subject to the tax im11 posed by paragraph (1) if—

12 (A) internal revenue taxes have been deter13 mined, or customs duties liquidated, with re14 spect to such article before such date pursuant

15 to a request made under the 1st proviso of sec16 tion 3(a) of such Act, or

17 (B) such article is held on such date under

18 the supervision of a customs officer pursuant to

19 the 2d proviso of such section 3(a).

20 (6) DEFINITIONS.—For purposes of this sub21 section:

22 (A) IN GENERAL.—Terms used in this sub23 section which are also used in section 5702 of

24 the Internal Revenue Code of 1986 shall have

25 the respective meanings such terms have in
8

•HR 4089 IH

1 such section, and the term ‘‘tobacco products’’

2 shall include articles first subject to the tax im3 posed by section 5701 of such Code by reason

4 of the amendments made by this Act.

5 (B) SECRETARY.—The term ‘‘Secretary’’

6 means the Secretary of the Treasury or his

7 delegate.

8 (7) CONTROLLED GROUPS.—Rules similar to

9 the rules of section 5061(e)(3) of such Code shall

10 apply for purposes of this subsection.

11 (8) OTHER LAWS APPLICABLE.—All provisions

12 of law, including penalties, applicable with respect to

13 the taxes imposed by section 5701 of such Code

14 shall, insofar as applicable and not inconsistent with

15 the provisions of this subsection, apply to the floor

16 stocks taxes imposed by paragraph (1), to the same

17 extent as if such taxes were imposed by such section

18 5701. The Secretary may treat any person who bore

19 the ultimate burden of the tax imposed by para20 graph (1) as the person to whom a credit or refund

21 under such provisions may be allowed or made.
9

•HR 4089 IH

1 SEC. 3. MODIFICATIONS OF CERTAIN TOBACCO TAX PROVI2 SIONS.

3 (a) EXEMPTION FOR EXPORTED TOBACCO PROD4 UCTS AND CIGARETTE PAPERS AND TUBES TO APPLY

5 ONLY TO ARTICLES MARKED FOR EXPORT.—

6 (1) Subsection (b) of section 5704 is amended

7 by adding at the end thereof the following new sen8 tence: ‘‘Tobacco products and cigarette papers and

9 tubes may not be transferred or removed under this

10 subsection unless such products or papers and tubes

11 bear such marks, labels, or notices as the Secretary

12 shall by regulations prescribe.’’

13 (2) Section 5761 is amended by redesignating

14 subsections (c) and (d) as subsections (d) and (e),

15 respectively, and by inserting after subsection (b)

16 the following new subsection:

17 ‘‘(c) SALE OF TOBACCO PRODUCTS AND CIGARETTE

18 PAPERS AND TUBES FOR EXPORT.—Except as provided

19 in subsections (b) and (d) of section 5704—

20 ‘‘(1) every person who sells, relands, or receives

21 within the jurisdiction of the United States any to22 bacco products or cigarette papers or tubes which

23 have been labeled or shipped for exportation under

24 this chapter,

25 ‘‘(2) every person who sells or receives such to26 bacco products or cigarette papers or tubes, and
10

•HR 4089 IH

1 ‘‘(3) every person who aids or abets in such

2 selling, relanding, or receiving,

3 shall, in addition to the tax and any other penalty provided

4 in this title, be liable for a penalty equal to the greater

5 of $1,000 or 5 times the amount of the tax imposed by

6 this chapter. All tobacco products and cigarette papers

7 and tubes relanded within the jurisdiction of the United

8 States shall be forfeited to the United States.’’

9 (3) Subsection (a) of section 5761 is amended

10 by striking ‘‘subsection (b)’’ and inserting ‘‘sub11 section (b) or (c)’’.

12 (4) Subsection (d) of section 5761, as redesig13 nated by paragraph (2), is amended by striking

14 ‘‘The penalty imposed by subsection (b)’’ and insert15 ing ‘‘The penalties imposed by subsections (b) and

16 (c)’’.

17 (5)(A) Subpart F of chapter 52 is amended by

18 adding at the end thereof the following new section:

19 ‘‘SEC. 5754. RESTRICTION ON IMPORTATION OF PRE20 VIOUSLY EXPORTED TOBACCO PRODUCTS.

21 ‘‘(a) IN GENERAL.—Tobacco products and cigarette

22 papers and tubes previously exported from the United

23 States may be imported or brought into the United States

24 only as provided in section 5704(d).
11

•HR 4089 IH

1 ‘‘(b) CROSS REFERENCE.—

‘‘For penalty for the sale of cigarettes in the United States which are labeled for export, see section

5761(d).’’

2 (B) The table of sections for subpart F of chap3 ter 52 is amended by adding at the end thereof the

4 following new item:

‘‘Sec. 5754. Restriction on importation of previously exported tobacco products.’’

5 (b) IMPORTERS REQUIRED TO BE QUALIFIED.—

6 (1) Sections 5712, 5713(a), 5721, 5722,

7 5762(a)(1), and 5763 (b) and (c) are each amended

8 by inserting ‘‘or importer’’ after ‘‘manufacturer’’.

9 (2) The heading of subsection (b) of section

10 5763 is amended by inserting ‘‘QUALIFIED IMPORT11 ERS,’’ after ‘‘MANUFACTURERS,’’.

12 (3) The heading for subchapter B of chapter 52

13 is amended by inserting ‘‘and Importers’’ after

14 ‘‘Manufacturers’’.

15 (4) The item relating to subchapter B in the

16 table of subchapters for chapter 52 is amended by

17 inserting ‘‘and importers’’ after ‘‘manufacturers’’.

18 (c) REPEAL OF TAX-EXEMPT SALES TO EMPLOYEES

19 OF CIGARETTE MANUFACTURERS.—

20 (1) Subsection (a) of section 5704 is amend21 ed—
12

•HR 4089 IH

1 (A) by striking ‘‘EMPLOYEE USE OR’’ in

2 the heading, and

3 (B) by striking ‘‘for use or consumption by

4 employees or’’ in the text.

5 (2) Subsection (e) of section 5723 is amended

6 by striking ‘‘for use or consumption by their employ7 ees, or for experimental purposes’’ and inserting

8 ‘‘for experimental purposes’’.

9 (d) REPEAL OF TAX-EXEMPT SALES TO UNITED

10 STATES.—Subsection (b) of section 5704 is amended by

11 striking ‘‘and manufacturers may similarly remove such

12 articles for use of the United States;’’.

13 (e) BOOKS OF 25 OR FEWER CIGARETTE PAPERS

14 SUBJECT TO TAX.—Subsection (c) of section 5701 is

15 amended by striking ‘‘On each book or set of cigarette

16 papers containing more than 25 papers,’’ and inserting

17 ‘‘On cigarette papers,’’.

18 (f) STORAGE OF TOBACCO PRODUCTS.—Subsection

19 (k) of section 5702 is amended by inserting ‘‘under section

20 5704’’ after ‘‘internal revenue bond’’.

21 (g) AUTHORITY TO PRESCRIBE MINIMUM MANUFAC22 TURING ACTIVITY REQUIREMENTS.—Section 5712 is

23 amended by striking ‘‘or’’ at the end of paragraph (1),

24 by redesignating paragraph (2) as paragraph (3), and by

25 inserting after paragraph (1) the following new paragraph:
13

•HR 4089 IH

1 ‘‘(2) the activity proposed to be carried out at

2 such premises does not meet such minimum capacity

3 or activity requirements as the Secretary may pre4 scribe, or’’.

5 (h) LIMITATION ON COVER OVER OF TAX ON TO6 BACCO PRODUCTS.—Section 7652 is amended by adding

7 at the end thereof the following new subsection:

8 ‘‘(h) LIMITATION ON COVER OVER OF TAX ON TO9 BACCO PRODUCTS.—For purposes of this section, with re10 spect to taxes imposed under section 5701 or this section

11 on any tobacco product or cigarette paper or tube, the

12 amount covered into the treasuries of Puerto Rico and the

13 Virgin Islands shall not exceed the rate of tax under sec14 tion 5701 in effect on the article on the day before the

15 date of the enactment of the Tobacco Tax Act of 1994.’’

16 (i) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to articles removed (as defined in

18 section 5702(k) of the Internal Revenue Code of 1986,

19 as amended by this Act) after September 30, 1994.

20 SEC. 4. IMPOSITION OF EXCISE TAX ON MANUFACTURE

21 OR IMPORTATION OF ROLL-YOUR-OWN TO22 BACCO.

23 (a) IN GENERAL.—Section 5701 (relating to rate of

24 tax) is amended by redesignating subsection (g) as sub-
14

•HR 4089 IH

1 section (h) and by inserting after subsection (f) the follow2 ing new subsection:

3 ‘‘(g) ROLL-YOUR-OWN TOBACCO.—On roll-your-own

4 tobacco, manufactured in or imported into the United

5 States, there shall be imposed a tax of $29.34 per pound

6 (and a proportionate tax at the like rate on all fractional

7 parts of a pound).’’

8 (b) ROLL-YOUR-OWN TOBACCO.—Section 5702 (re9 lating to definitions) is amended by adding at the end

10 thereof the following new subsection:

11 ‘‘(p) ROLL-YOUR-OWN TOBACCO.—The term ‘roll12 your-own tobacco’ means any tobacco which, because of

13 its appearance, type, packaging, or labeling, is suitable for

14 use and likely to be offered to, or purchased by, consumers

15 as tobacco for making cigarettes.’’

16 (c) TECHNICAL AMENDMENTS.—

17 (1) Subsection (c) of section 5702 is amended

18 by striking ‘‘and pipe tobacco’’ and inserting ‘‘pipe

19 tobacco, and roll-your-own tobacco’’.

20 (2) Subsection (d) of section 5702 is amend21 ed—

22 (A) in the material preceding paragraph

23 (1), by striking ‘‘or pipe tobacco’’ and inserting

24 ‘‘pipe tobacco, or roll-your-own tobacco’’, and
15

•HR 4089 IH

1 (B) by striking paragraph (1) and insert2 ing the following new paragraph:

3 ‘‘(1) a person who produces cigars, cigarettes,

4 smokeless tobacco, pipe tobacco, or roll-your-own to5 bacco solely for his own personal consumption or

6 use, and’’.

7 (3) The chapter heading for chapter 52 is

8 amended to read as follows:

9 ‘‘CHAPTER 52—TOBACCO PRODUCTS AND

10 CIGARETTE PAPERS AND TUBES’’.

11 (4) The table of chapters for subtitle E is

12 amended by striking the item relating to chapter 52

13 and inserting the following new item:

‘‘Chapter 52. Tobacco products and cigarette papers and tubes.’’

14 (d) EFFECTIVE DATE.—

15 (1) IN GENERAL.—The amendments made by

16 this section shall apply to roll-your-own tobacco re17 moved (as defined in section 5702(k) of the Internal

18 Revenue Code of 1986, as amended by this Act)

19 after September 30, 1994.

20 (2) TRANSITIONAL RULE.—Any person who—

21 (A) on the date of the enactment of this

22 Act is engaged in business as a manufacturer of

23 roll-your-own tobacco or as an importer of to24 bacco products or cigarette papers and tubes,

25 and
16

•HR 4089 IH

1 (B) before October 1, 1994, submits an

2 application under subchapter B of chapter 52

3 of such Code to engage in such business,

4 may, notwithstanding such subchapter B, continue

5 to engage in such business pending final action on

6 such application. Pending such final action, all pro7 visions of such chapter 52 shall apply to such appli8 cant in the same manner and to the same extent as

9 if such applicant were a holder of a permit under

10 such chapter 52 to engage in such business.

11 SEC. 5. ESTABLISHMENT OF TOBACCO CONVERSION AND

12 HEALTH EDUCATION TRUST FUND.

13 (a) IN GENERAL.—Subchapter A of chapter 98 (re14 lating to trust fund code) is amended by adding at the

15 end thereof the following new section:

16 ‘‘SEC. 9512. TOBACCO CONVERSION AND HEALTH EDU17 CATION TRUST FUND.

18 ‘‘(a) CREATION OF TRUST FUND.—There is estab19 lished in the Treasury of the United States a trust fund

20 to be known as the ‘Tobacco Conversion and Health Edu21 cation Trust Fund’, consisting of such amounts as may

22 be appropriated or credited to such Trust Fund as pro23 vided in this section or section 9602(b).

24 ‘‘(b) TRANSFERS TO TRUST FUND.—
17

•HR 4089 IH

1 ‘‘(1) IN GENERAL.—There is hereby appro2 priated to the Tobacco Conversion and Health Edu3 cation Trust Fund amounts equivalent to 3 percent

4 (2 percent on and after October 1, 1999) of the net

5 revenue received in the Treasury from the 1994 to6 bacco tax increases.

7 ‘‘(2) NET REVENUES.—For purposes of para8 graph (1), the net revenue received in the Treasury

9 from the 1994 tobacco tax increases is the amount

10 estimated by the Secretary based on the excess of—

11 ‘‘(A) the additional taxes received in the

12 Treasury under section 5701 by reason of the

13 amendments made by the Tobacco Health Tax

14 and Agricultural Assistance Act of 1994 or

15 under section 2(i) of such Act, over

16 ‘‘(B) the decrease in the tax imposed by

17 chapter 1 resulting from such taxes.

18 ‘‘(c) TOBACCO CONVERSION ACCOUNT.—

19 ‘‘(1) IN GENERAL.—There is established in the

20 Tobacco Conversion and Health Education Trust

21 Fund a separate account to be known as the ‘To22 bacco Conversion Account’ consisting of such

23 amounts as may be transferred or credited to such

24 account as provided in this section or section

25 9602(b).
18

•HR 4089 IH

1 ‘‘(2) TRANSFERS TO ACCOUNT.—The Secretary

2 of the Treasury shall transfer to the Tobacco Con3 version Account two-thirds of the amounts appro4 priated to the Tobacco Conversion and Health Edu5 cation Trust Fund under subsection (b)(1) for peri6 ods before October 1, 1999.

7 ‘‘(3) EXPENDITURES FROM ACCOUNT.—

8 Amounts in the Tobacco Conversion Account shall

9 be available, as provided in appropriation Acts, for

10 making expenditures for purposes of—

11 ‘‘(A) assisting farmers in converting from

12 tobacco to other crops, and

13 ‘‘(B) providing grants to communities, and

14 persons involved in the production or manufac15 ture of tobacco or tobacco products, that are

16 adversely affected by the tax increases con17 tained in the Tobacco Health Tax and Agricul18 tural Assistance Act of 1994.

19 The grants referred to in subparagraph (B) shall in20 clude grants to assist in attracting nontobacco

21 sources of income and grants to farmers who retire

22 tobacco allotments.

23 ‘‘(d) HEALTH EDUCATION ACCOUNT.—

24 ‘‘(1) IN GENERAL.—There is established in the

25 Tobacco Conversion and Health Education Trust
19

•HR 4089 IH

1 Fund a separate account to be known as the ‘Health

2 Education Account’, consisting of such amounts as

3 may be transferred or credited to such account as

4 provided in this section or section 9602(b).

5 ‘‘(2) TRANSFERS TO ACCOUNT.—The Secretary

6 of the Treasury shall transfer to the Health Edu7 cation Account one-third (100 percent on and after

8 October 1, 1999) of the amounts appropriated to the

9 Tobacco Conversion and Health Education Trust

10 Fund under subsection (b)(1).

11 ‘‘(3) EXPENDITURES FROM ACCOUNT.—

12 Amounts in the Health Education Account shall be

13 available, as provided in appropriation Acts, to the

14 Secretary of Health and Human Services for making

15 expenditures to increase public awareness of health

16 risks, including tobacco use.’’

17 (b) CLERICAL AMENDMENT.—The table of sections

18 for such subchapter A is amended by adding at the end

19 thereof the following new item:

‘‘Sec. 9512. Tobacco Conversion and Health Education Trust

Fund.’’

Æ

HR 4089 IH——2