Last week, Philip Morris filed a federal lawsuit challenging the United States Department of Agriculture’s (“USDA”) calculation of tobacco buyout assessments under the Fair and Equitable Tobacco Reform Act of 2004 (“FETRA”) for fiscal years 2011-2014. See Philip Morris USA Inc. v. Vilsack, Civil Action No. 3:11cv087 (E.D. Va. 2011). On December 10, 2010, USDA issued a regulatory amendment which revised the FERTA regulations to provide that buyout assessments for large cigars for fiscal years 2011-2014 will be calculated using the federal excise tax rate (“FET”) in effect in fiscal year 2005, rather than the new FET rates that took effect under the Children’s Heath Insurance Program Reauthorization Act (“CHIPRA”) in April 2009.
According to the lawsuit, the result of using pre-CHIPRA FET rates to calculate assessments is that cigarette manufacturers and importers must pay a higher assessment than they would pay if the assessment was calculated using the post-CHIPRA FET rates in effect now. The use of pre-CHIPRA FET rates also results in higher annual user fees imposed under the Family Smoking Prevention and Tobacco Control Act of 2009.
The outcome of the lawsuit will affect all tobacco manufacturers. The outcome could benefit cigarette manufacturers by decreasing their buyout obligations, or it could have an even greater impact on manufacturers of large cigars by significantly decreasing their buyout obligations.
For more detailed information regarding Philip Morris’s lawsuit, click here for a copy of the Complaint. Contact the Troutman Sanders Tobacco practice if you are interested in hearing more information about how this lawsuit may affect your USDA payment obligations.