II

105TH CONGRESS

1ST SESSION S. 1491

To increase the excise tax rate on tobacco products.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 8, 1997

Mr. KENNEDY (for himself, Mr. LAUTENBERG, Mr. DURBIN, Mr. REED, and

Mr. KERRY) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To increase the excise tax rate on tobacco products.

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

3 SECTION 1. INCREASE IN EXCISE TAX RATE ON TOBACCO

4 PRODUCTS IN ADDITION TO SUCH INCREASE

5 CONTAINED IN THE BALANCED BUDGET ACT

6 OF 1997.

7 (a) CIGARETTES.—Subsection (b) of section 5701 of

8 the Internal Revenue Code of 1986 is amended—

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

10 thousand on cigarettes removed during 1991 or

11 1992);’’ in paragraph (1) and inserting ‘‘the applica-
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1 ble rate per thousand determined in accordance with

2 the following table:

The applicable

‘‘In the case of cigarettes removed

during:

rate is:

1998 ......................................................................................... $12.00

1999 ......................................................................................... $37.00

2000 ......................................................................................... $67.00

2001 ......................................................................................... $92.00

2002 ......................................................................................... $94.50.’’;

3 and

4 (2) by striking paragraph (2) and inserting the

5 following:

6 ‘‘(2) LARGE CIGARETTES.—

7 ‘‘(A) IN GENERAL.—Except as provided in

8 subparagraph (B), on cigarettes, weighing more

9 than 3 pounds per thousand, the applicable rate

10 per thousand determined in accordance with the

11 following table:

The applicable

‘‘In the case of cigarettes removed

during:

rate is:

1998 ......................................................................................... $25.20

1999 ......................................................................................... $77.70

2000 ......................................................................................... $140.70

2001 ......................................................................................... $193.20

2002 ......................................................................................... $198.45.

12 ‘‘(B) EXCEPTION.—On cigarettes more

than 61 13 ⁄2 inches in length, at the rate pre14 scribed for cigarettes weighing not more than 3

pounds per thousand, counting each 23 15 ⁄4 inches,

16 or fraction thereof, of the length of each as one

17 cigarette.’’
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1 (b) CIGARS.—Subsection (a) of section 5701 of such

2 Code is amended—

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

4 (93.75 cents per thousand on cigars removed during

5 1991 or 1992),’’ in paragraph (1) and inserting ‘‘the

6 applicable rate per thousand determined in accord7 ance with the following table:

‘‘In the case of cigars removed during:The applicable

rate is:

1998 ........................................................... $1.125 cents

1999 ........................................................... $3.4687 cents

2000 ........................................................... $6.2822 cents

2001 ........................................................... $8.6264 cents

2002 ........................................................... $8.8588 cents.’’;

8 and

9 (2) by striking paragraph (2) and inserting the

10 following:

11 ‘‘(2) LARGE CIGARS.—On cigars, weighing more

12 than 3 pounds per thousand, the applicable percent13 age of the price for which sold but not more that the

14 applicable rate per thousand determined in accord15 ance with the following table:

In the case of

cigars removed during:

The applicable

percentage is:

The applicable rate

is:

1998 12.750% $30.00

1999 39.312% $92.50

2000 71.189% $167.50

2001 97.753% $230.00

2002 100.407% $236.25.’’
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1 (c) CIGARETTE PAPERS.—Subsection (c) of section

2 5701 of such Code is amended to read as follows:

3 ‘‘(c) CIGARETTE PAPERS.—

4 ‘‘(1) IN GENERAL.—Except as provided in para5 graph (2), on each book or set of cigarette papers

6 containing more than 25 papers, manufactured in or

7 imported into the United States, there shall be im8 posed a tax of the applicable rate for each 50 papers

9 or fractional part thereof as determined in accord10 ance with the following table:

The applicable

‘‘In the case of cigarette papers

removed during:

rate is:

1998 ......................................................................................... .75 cent

1999 ......................................................................................... 2.31 cents

2000 ......................................................................................... 4.18 cents

2001 ......................................................................................... 5.74 cents

2002 ......................................................................................... 5.91 cents.

11 ‘‘(2) EXCEPTION.—If cigarette papers measure

more than 61 12 ⁄2 inches in length, such cigarette pa13 pers shall be taxable at the rate prescribed, counting

each 23 14 ⁄4 inches, or fraction thereof, of the length of

15 each as one cigarette paper.’’

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

17 5701 of such Code is amended to read as follows:

18 ‘‘(d) CIGARETTE TUBES.—

19 ‘‘(1) IN GENERAL.—Except as provided in para20 graph (2), on cigarette tubes, manufactured in or

21 imported into the United States, there shall be
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1 imposed a tax of the applicable rate for each 50

2 tubes or fractional part thereof as determined in ac3 cordance with the following table:

The applicable

‘‘In the case of cigarette tubes removed during:rate is:

1998 ......................................................................................... 1.50 cents

1999 ......................................................................................... 4.62 cents

2000 ......................................................................................... 8.39 cents

2001 ......................................................................................... 11.53 cents

2002 ......................................................................................... 11.82 cents.

4 ‘‘(2) EXCEPTION.—If cigarette tubes measure

more than 61 5 ⁄2 inches in length, such cigarette tubes

6 shall be taxable at the rate prescribed, counting each

23 7 ⁄4 inches, or fraction thereof, of the length of each

8 as one cigarette tube.’’

9 (e) SMOKELESS TOBACCO.—Paragraphs (1) and (2)

10 of subsection (e) of section 5701 of such Code are amend11 ed to read as follows:

12 ‘‘(1) SNUFF.—On snuff, the applicable rate per

13 pound determined in accordance with the following

14 table (and a proportionate tax at the like rate on all

15 fractional parts of a pound):

The applicable

‘‘In the case of snuff removed during:rate is:

1998 ......................................................................................... 36 cents

1999 ......................................................................................... $7.03

2000 ......................................................................................... $13.84

2001 ......................................................................................... $20.51

2002 ......................................................................................... $20.58.

16 ‘‘(2) CHEWING TOBACCO.—On chewing tobacco,

17 the applicable rate per pound determined in accord-
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1 ance with the following table (and a proportionate

2 tax at the like rate on all fractional parts of a

3 pound):

The applicable

‘‘In the case of chewing tobacco

removed during:

rate is:

1998 ......................................................................................... 12 cents

1999 ......................................................................................... $2.79

2000 ......................................................................................... $5.50

2001 ......................................................................................... $8.17

2002 ......................................................................................... $8.19.’’

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

5 of such Code is amended to read as follows:

6 ‘‘(f) PIPE TOBACCO.—On pipe tobacco, manufac7 tured in or imported into the United States, there shall

8 be imposed a tax of the applicable rate per pound deter9 mined in accordance with the following table (and a pro10 portionate tax at the like rate on all fractional parts of

11 a pound):

‘‘In the case of pipe tobacco removed during:The applicable

rate is:

1998 ........................................................... 67.5 cents

1999 ........................................................... $2.0812 cents

2000 ........................................................... $3.7705 cents

2001 ........................................................... $5.1774 cents

2002 ........................................................... $5.3157 cents.’’

12 (g) IMPOSITION OF EXCISE TAX ON MANUFACTURE

13 OR IMPORTATION OF ROLL-YOUR-OWN TOBACCO.—

14 (1) IN GENERAL.—Section 5701 of such Code

15 (relating to rate of tax) is amended by redesignating

16 subsection (g) as subsection (h) and by inserting

17 after subsection (f) the following new subsection:
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1 ‘‘(g) ROLL-YOUR-OWN TOBACCO.—On roll-your-own

2 tobacco, manufactured in or imported into the United

3 States, there shall be imposed a tax of the applicable rate

4 per pound determined in accordance with the following

5 table (and a proportionate tax at the like rate on all frac6 tional parts of a pound):

‘‘In the case of roll-your-own tobacco removed during:The applicable

rate is:

1998 ........................................................... 67.5 cents

1999 ........................................................... $2.0812 cents

2000 ........................................................... $3.7705 cents

2001 ........................................................... $5.1774 cents

2002 ........................................................... $5.3157 cents.’’

7 (2) ROLL-YOUR-OWN TOBACCO.—Section 5702

8 of such Code (relating to definitions) is amended by

9 adding at the end the following new subsection:

10 ‘‘(p) ROLL-YOUR-OWN TOBACCO.—The term ‘roll11 your-own tobacco’ means any tobacco which, because of

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

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

14 as tobacco for making cigarettes.’’

15 (3) TECHNICAL AMENDMENTS.—

16 (A) Subsection (c) of section 5702 of such

17 Code is amended by striking ‘‘and pipe to18 bacco’’ and inserting ‘‘pipe tobacco, and roll19 your-own tobacco’’.

20 (B) Subsection (d) of section 5702 of such

21 Code is amended—
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1 (i) in the material preceding para2 graph (1), by striking ‘‘or pipe tobacco’’

3 and inserting ‘‘pipe tobacco, or roll-your4 own tobacco’’, and

5 (ii) by striking paragraph (1) and in6 serting the following new paragraph:

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

8 smokeless tobacco, pipe tobacco, or roll-your-own to9 bacco solely for the person’s own personal consump10 tion or use, and’’.

11 (C) The chapter heading for chapter 52 of

12 such Code is amended to read as follows:

13 ‘‘CHAPTER 52—TOBACCO PRODUCTS AND

14 CIGARETTE PAPERS AND TUBES’’.

15 (D) The table of chapters for subtitle E of

16 such Code is amended by striking the item re17 lating to chapter 52 and inserting the following

18 new item:

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

19 (h) INFLATION ADJUSTMENT OF RATES AND FLOOR

20 STOCKS TAXES.—Section 5701 of such Code, as amended

21 by subsection (g), is amended by redesignating subsection

22 (h) as subsection (j) and by inserting after subsection (g)

23 the following:

24 ‘‘(h) INFLATION ADJUSTMENT.—In the case of a cal25 endar year after 2002, the dollar amount contained in the
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1 table in each of the preceding subsections (and the per2 centage contained in the table contained in subsection

3 (b)(2)) applicable to the preceding calendar year (after the

4 application of this subsection) shall be increased by an

5 amount equal to—

6 ‘‘(1) such dollar amount (or percentage), multi7 plied by

8 ‘‘(2) the greatest of—

9 ‘‘(A) the cost-of-living adjustment deter10 mined under section 1(f)(3) for such calendar

11 year by substituting ‘the second preceding cal12 endar year’ for ‘calendar year 1992’ in subpara13 graph (B) thereof,

14 ‘‘(B) the medical consumer price index for

15 such calendar year determined in the same

16 manner as the adjustment described in sub17 paragraph (A), or

18 ‘‘(C) 3 percent.

19 ‘‘(j) FLOOR STOCKS TAXES.—

20 ‘‘(1) IMPOSITION OF TAX.—On tobacco prod21 ucts and cigarette papers and tubes manufactured in

22 or imported into the United States which are re23 moved before any tax increase date, and held on

24 such date for sale by any person, there is hereby im25 posed a tax in an amount equal to the excess of—
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1 ‘‘(A) the tax which would be imposed

2 under any preceding subsection of this section

3 on the article if the article had been removed on

4 such date, over

5 ‘‘(B) the prior tax (if any) imposed under

6 such subsection on such article.

7 ‘‘(2) LIABILITY FOR TAX AND METHOD OF PAY8 MENT.—

9 ‘‘(A) LIABILITY FOR TAX.—A person hold10 ing cigarettes on any tax increase date, to

11 which any tax imposed by paragraph (1) applies

12 shall be liable for such tax.

13 ‘‘(B) METHOD OF PAYMENT.—The tax im14 posed by paragraph (1) shall be paid in such

15 manner as the Secretary shall prescribe by reg16 ulations.

17 ‘‘(C) TIME FOR PAYMENT.—The tax im18 posed by paragraph (1) shall be paid on or be19 fore April 1 following any tax increase date.

20 ‘‘(3) ARTICLES IN FOREIGN TRADE ZONES.—

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

22 998, 19 U.S.C. 81a) and any other provision of law,

23 any article which is located in a foreign trade zone

24 on any tax increase date, shall be subject to the tax

25 imposed by paragraph (1) if—
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1 ‘‘(A) internal revenue taxes have been de2 termined, or customs duties liquidated, with re3 spect to such article before such date pursuant

4 to a request made under the 1st proviso of sec5 tion 3(a) of such Act, or

6 ‘‘(B) such article is held on such date

7 under the supervision of a customs officer pur8 suant to the 2d proviso of such section 3(a).

9 ‘‘(4) TAX INCREASE DATE.—The term ‘‘tax in10 crease date’’ means January 1.

11 ‘‘(5) CONTROLLED GROUPS.—Rules similar to

12 the rules of section 5061(e)(3) shall apply for pur13 poses of this subsection.

14 ‘‘(6) OTHER LAWS APPLICABLE.—All provisions

15 of law, including penalties, applicable with respect to

16 the taxes imposed by the preceding subsections of

17 this section shall, insofar as applicable and not in18 consistent with the provisions of this subsection,

19 apply to the floor stocks taxes imposed by paragraph

20 (1), to the same extent as if such taxes were im21 posed by such subsections. The Secretary may treat

22 any person who bore the ultimate burden of the tax

23 imposed by paragraph (1) as the person to whom a

24 credit or refund under such provisions may be al25 lowed or made.’’
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1 (i) MODIFICATIONS OF CERTAIN TOBACCO TAX PRO2 VISIONS.—

3 (1) EXEMPTION FOR EXPORTED TOBACCO

4 PRODUCTS AND CIGARETTE PAPERS AND TUBES TO

5 APPLY ONLY TO ARTICLES MARKED FOR EXPORT.—

6 (A) Subsection (b) of section 5704 of such

7 Code is amended by adding at the end the fol8 lowing new sentence: ‘‘Tobacco products and

9 cigarette papers and tubes may not be trans10 ferred or removed under this subsection unless

11 such products or papers and tubes bear such

12 marks, labels, or notices as the Secretary shall

13 by regulations prescribe.’’

14 (B) Section 5761 of such Code is amended

15 by redesignating subsections (c) and (d) as sub16 sections (d) and (e), respectively, and by insert17 ing after subsection (b) the following new sub18 section:

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

20 PAPERS AND TUBES FOR EXPORT.—Except as provided

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

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

23 within the jurisdiction of the United States any to24 bacco products or cigarette papers or tubes which
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1 have been labeled or shipped for exportation under

2 this chapter,

3 ‘‘(2) every person who sells or receives such re4 landed tobacco products or cigarette papers or tubes,

5 and

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

7 selling, relanding, or receiving,

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

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

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

11 this chapter. All tobacco products and cigarette papers

12 and tubes relanded within the jurisdiction of the United

13 States, and all vessels, vehicles, and aircraft used in such

14 relanding or in removing such products, papers, and tubes

15 from the place where relanded, shall be forfeited to the

16 United States.’’

17 (C) Subsection (a) of section 5761 of such

18 Code is amended by striking ‘‘subsection (b)’’

19 and inserting ‘‘subsection (b) or (c)’’.

20 (D) Subsection (d) of section 5761 of such

21 Code, as redesignated by subparagraph (B), is

22 amended by striking ‘‘The penalty imposed by

23 subsection (b)’’ and inserting ‘‘The penalties

24 imposed by subsections (b) and (c)’’.
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1 (E)(i) Subpart F of chapter 52 of such

2 Code is amended by adding at the end the fol3 lowing new section:

4 ‘‘SEC. 5754. RESTRICTION ON IMPORTATION OF PRE5 VIOUSLY EXPORTED TOBACCO PRODUCTS.

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

7 papers and tubes previously exported from the United

8 States may be imported or brought into the United States

9 only as provided in section 5704(d). For purposes of this

10 section, section 5704(d), section 5761, and such other pro11 visions as the Secretary may specify by regulations, ref12 erences to exportation shall be treated as including a ref13 erence to shipment to the Commonwealth of Puerto Rico.

14 ‘‘(b) CROSS REFERENCE.—

‘‘For penalty for the sale of tobacco products and

cigarette papers and tubes in the United States

which are labeled for export, see section 5761(c).’’

15 (ii) The table of sections for subpart F of

16 chapter 52 of such Code is amended by adding

17 at the end the following new item:

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

18 (2) IMPORTERS REQUIRED TO BE QUALIFIED.—

19 (A) Sections 5712, 5713(a), 5721, 5722,

20 5762(a)(1), and 5763 (b) and (c) of such Code

21 are each amended by inserting ‘‘or importer’’

22 after ‘‘manufacturer’’.
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1 (B) The heading of subsection (b) of sec2 tion 5763 of such Code is amended by inserting

3 ‘‘QUALIFIED IMPORTERS,’’ after ‘‘MANUFAC4 TURERS,’’.

5 (C) The heading for subchapter B of chap6 ter 52 of such Code is amended by inserting

7 ‘‘and Importers’’ after ‘‘Manufactur8 ers’’.

9 (D) The item relating to subchapter B in

10 the table of subchapters for chapter 52 of such

11 Code is amended by inserting ‘‘and importers’’

12 after ‘‘manufacturers’’.

13 (3) BOOKS OF 25 OR FEWER CIGARETTE PA14 PERS SUBJECT TO TAX.—Subsection (c) of section

15 5701 of such Code is amended by striking ‘‘On each

16 book or set of cigarette papers containing more than

17 25 papers,’’ and inserting ‘‘On cigarette papers,’’.

18 (4) STORAGE OF TOBACCO PRODUCTS.—Sub19 section (k) of section 5702 of such Code is amended

20 by inserting ‘‘under section 5704’’ after ‘‘internal

21 revenue bond’’.

22 (5) AUTHORITY TO PRESCRIBE MINIMUM MANU23 FACTURING ACTIVITY REQUIREMENTS.—Section

24 5712 of such Code is amended by striking ‘‘or’’ at

25 the end of paragraph (1), by redesignating para-
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1 graph (2) as paragraph (3), and by inserting after

2 paragraph (1) the following new paragraph:

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

4 such premises does not meet such minimum capacity

5 or activity requirements as the Secretary may pre6 scribe, or’’.

7 (j) REPEAL OF DUPLICATIVE PROVISIONS.—Section

8 9302 (other than subsection (i)(2)) of the Balanced Budg9 et Act of 1997 is repealed.

10 (k) EFFECTIVE DATE.—The amendments and repeal

11 made by this section shall apply to articles removed (as

12 defined in section 5702(k) of the Internal Revenue Code

13 of 1986, as amended by this section) after December 31,

14 1997.

15 SEC. 102. TAX TREATMENT FOR CERTAIN TOBACCO-RELAT16 ED EXPENSES.

17 (a) IN GENERAL.—Section 275(a) of the Internal

18 Revenue Code of 1986 (relating to certain taxes) is

19 amended by inserting after paragraph (6) the following:

20 ‘‘(7) Taxes imposed by chapter 52, but only in

21 an amount determined at rates in excess of the rates

22 of such taxes effective in 1998.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 1998.

Æ