2023 Texas Statutes › Tax Code › Title 2 - State Taxation › Subtitle E - Sales, Excise, and Use Taxes › Chapter 154 - Cigarette Tax › Subchapter C. Tax Stamps › Section 154.051. Cigarette Tax Recovery Trust Fund

Sec. 154.051.  CIGARETTE TAX RECOVERY TRUST FUND.  (a)  The cigarette tax recovery trust fund is a private trust fund established outside the state treasury and as provided by this section secures the payment of cigarette taxes by distributors who contribute to the fund.  The fund is composed of the total amount in the separate accounts maintained in trust for all contributing distributors as provided by this section.  The assets of the fund, including interest earned by those assets, are to be held in trust for the benefit and protection of the state treasury, and may not be diverted, distributed, or appropriated for any purpose other than as provided by this section.  Interest earned by a distributor's account but not yet refunded to the distributor pursuant to Subsection (d) shall, on a monthly basis, be paid to the comptroller as provided by Subsection (b) or credited to the distributor's account.
(b)  The comptroller is the trustee of the fund as provided by Section 404.073, Government Code, and shall manage the fund as provided by this section.  In investing the assets of the fund, the comptroller has the obligations, duties, and powers provided for the investment of state funds by Sections 404.021 through 404.0245, Government Code.  The comptroller shall receive five percent of the interest earned on all assets of the fund as compensation for serving as trustee of the fund.
(c)  A distributor who orders stamps from the comptroller under this chapter without advance payment shall contribute to an account maintained in the distributor's name in the fund money in the amount of each allowance to which the distributor is entitled under Section 154.052. When the money in the distributor's account equals 20 percent of the designated amount of stamps requested by the distributor and approved by the comptroller to be purchased in any one month, the distributor's interest in the fund becomes vested.
(d)  Except as provided by Subsection (g) of this section, on the last day of each quarter after the quarter in which a distributor's interest in the fund becomes vested, the comptroller shall refund to the distributor all money contributed to the fund by the distributor under Subsection (c) of this section in the earliest preceding quarter for which a refund has not been paid, plus interest earned on that amount, as long as the distributor's interest in the fund remains vested.
(e)  Until a distributor who orders stamps without advance payment acquires a vested interest in the fund, the comptroller may require the distributor to post with the comptroller an irrevocable letter of credit drawn in the form and amount specified by the comptroller to secure the payment of cigarette taxes by that distributor.  The comptroller may not ship stamps to a distributor not having a vested interest in the fund without advance payment until the distributor posts the required letter of credit.
(f)  In addition to any other requirement under this section, the comptroller as a condition for shipping stamps without advance payment may:
(1)  require a fiscal-year-end financial statement, including a balance sheet and income statement verifiable as to its accuracy or other financial information acceptable to the comptroller and verifiable as to its accuracy;
(2)  require indemnification from each officer, director, and stockholder owning 10 percent or more of outstanding stock, if the distributor is a corporation, from each partner, if the distributor is a partnership, from each member or owner of a joint venture or syndication, and from the owner of a sole proprietorship;
(3)  require the distributor to obtain and provide the comptroller with a credit report from a credit reporting agency acceptable to the comptroller;
(4)  require a distributor to increase the balance in its account in the fund;
(5)  require a distributor to post a letter of credit;
(6)  reduce a distributor's credit time or amount;  or
(7)  take any other reasonable and necessary action to protect the state treasury from loss due to the nonpayment of cigarette taxes.
(g)  If a distributor who has an account in the fund fails to pay in full a tax imposed by this chapter by the due date, the comptroller, without prior notice to the distributor or any other preliminary procedure, may seize any unaffixed stamps and any stamped cigarette packages, up to and including the full amount of unpaid tax.  If the proceeds from the seizure do not satisfy the total tax deficiency or the comptroller does not seize any unaffixed stamps or stamped cigarette packages, the comptroller may withdraw immediately from the fund an amount equal to the amount of unpaid taxes due.  The comptroller shall first withdraw the amount from the account of the defaulting distributor.  The comptroller shall use the comptroller's best efforts to collect the tax due from the defaulting distributor before withdrawing money from the other accounts in the fund to satisfy the tax liability.  If that distributor's account does not contain sufficient money to satisfy the tax liability in full, the comptroller shall withdraw the additional amount necessary to satisfy that liability from the other accounts in the fund in proportion to the balance of each account, except that the withdrawal from any other distributor's account in the fund is limited to an amount not greater than 50 percent of the designated amount of stamps requested by the distributor under Subsection (c) or of the amount required by the comptroller under Subsection (f)(4).  Not later than the fifth day after the date of a withdrawal, the comptroller shall notify each distributor of the withdrawal from its account and the amount withdrawn.  If as a result of a withdrawal made under this subsection a distributor's balance in its account is reduced to an amount less than the minimum required under this section, the distributor's interest in the fund is no longer vested, and the comptroller may discontinue refunds to the distributor under Subsection (d) until the distributor again acquires a vested interest in the fund.  The comptroller may require a distributor whose interest in the fund is no longer vested to post an irrevocable letter of credit with the comptroller to secure the payment of cigarette taxes by the distributor.  To protect the fund, each distributor having an account in the fund must indemnify the fund against any amount withdrawn from the fund under this subsection because of the failure of the distributor to pay in full a tax imposed by this chapter by the due date.
(h)  If distributor accounts, other than a defaulting distributor account, are drawn pursuant to Subsection (g), each affected, nondefaulting distributor shall have a claim against the defaulting distributor for the amount so drawn.  The comptroller is hereby appointed trustee, agent, and assignee of each affected, nondefaulting distributor for purposes of seeking recovery of the amount so drawn.  The comptroller shall have the sole judgment and discretion in deciding whether or not to pursue such a claim and shall have discretion to handle any such claim on any basis that in the opinion of the comptroller is in the best interest of the fund.  The comptroller is released from any liability related to the handling of the claims described in this section except for intentional or wilful misconduct.
(i)  A distributor or person authorized to act on behalf of a distributor may notify the comptroller in writing that the distributor no longer desires to have stamps shipped or a meter set without advance payment, and may request that the money in the distributor's account in the fund be paid to the distributor or the distributor's heirs or assigns.  The comptroller shall pay the money in the distributor's account as requested at the end of the next quarter after all outstanding taxes owed to the state by the distributor have been paid.
(j)  Under no circumstances shall the comptroller return to any distributor an amount greater than the balance in the distributor's account within the cigarette tax recovery trust fund less any sums drawn pursuant to Subsection (g). The State of Texas' liability to any distributor pursuant to this section is expressly limited to the sums on deposit in the distributor's account at the time the request for return of funds is made.
(k)  The comptroller may adopt and enforce rules necessary to carry out this section.
(l)  For purposes of this section, "quarter" refers to a quarter of the state's fiscal year.
(m)  Information provided under Subsection (f) is confidential and not subject to Chapter 552, Government Code.
(n)  The comptroller shall regularly distribute financial information regarding the performance of the fund to participating distributors on a regular basis.  On the written request of a participating distributor, the comptroller shall provide the distributor with the name and address of each distributor participating in the fund, the percentage of the total fund represented by each distributor's account, and the total amount of money in the fund.
(o)  In lieu of participation in the cigarette tax recovery trust fund to secure payment for stamps and in lieu of advance payment for stamps, a distributor may pledge to the comptroller sufficient collateral to secure payment for stamps. Such pledge shall be evidenced by a pledge agreement in a form promulgated by the comptroller, and such collateral shall consist of certificates of deposit, treasury notes, treasury bills, or other similar types of collateral acceptable to the comptroller and held in a separate trust fund established in the Texas Treasury Safekeeping Trust Company.  All interest earned on such collateral shall belong to the distributor.  The comptroller may require the pledge of additional collateral in the event the comptroller determines that the fair market value of the pledged collateral is less than the amount due the comptroller for stamps. On the written request of the distributor, the comptroller shall release collateral from the pledge agreement or allow the substitution of collateral subject to the pledge agreement if after such release or substitution the fair market value of the collateral subject to the pledge will be equal to or greater than the amount due the comptroller for stamps. If a distributor fails to pay tax in full when due, the comptroller may, if the distributor does not pay such past due tax and any penalty related thereto within three days after receipt of written notice of such failure from the comptroller, sell or dispose of the collateral and apply the proceeds to the payment of taxes, interest, penalties, and costs due to the comptroller by the distributor, with any remaining proceeds being refunded to the distributor.
Acts 1981, 67th Leg., p. 1643, ch. 389, Sec. 1, eff. Jan. 1, 1982.  Amended by Acts 1985, 69th Leg., ch. 89, Sec. 3, eff. Aug. 26, 1985;  Acts 1987, 70th Leg., ch. 580, Sec. 2, eff. Sept. 1, 1987;  Acts 1991, 72nd Leg., ch. 409, Sec. 11, eff. June 7, 1991;  Acts 1995, 74th Leg., ch. 76, Sec. 5.95(88), eff. Sept. 1, 1995;  Acts 1995, 74th Leg., ch. 1000, Sec. 38, eff. Oct. 1, 1995;  Acts 1997, 75th Leg., ch. 891, Sec. 3.20, eff. Sept. 1, 1997;  Acts 1997, 75th Leg., ch. 1040, Sec. 43, eff. Sept. 1, 1997;  Acts 1997, 75th Leg., ch. 1423, Sec. 19.27, eff. Sept. 1, 1997.