A bill is currently pending before the Nebraska legislature that would impose significant new requirements for nonparticipating manufacturers to the MSA and relating to tribal sales.  Legislative Bill 590, which was introduced on January 19, 2011 and reported from the legislature’s revenue committee (as amended) on April 7, 2011, also would impose stringent new requirements regarding the taxation and sale of tobacco products.  The bill appears to be spearheaded by the Nebraska Attorney General, who is co-chair of the National Association of Attorneys General Tobacco Committee.

With respect to nonparticipating manufacturers, the Nebraska bill:

  • Requires quarterly escrow payments for all nonparticipating manufacturers.
  • Renders importers of tobacco products jointly and severally liable for nonparticipating manufacturers’ escrow obligations.
  • Requires nonparticipating manufacturers to post a bond (equal to the greater of $25,000 or the manufacturer’s largest escrow obligation over the last three years) in certain circumstances, including (1) a lack of sales in the previous year, (2) a failure to make previous escrow deposits or (3) a removal from any state’s directory of approved tobacco product manufacturers.
  • Renders state stamping agents responsible for any shortfall in a nonparticipating manufacturer’s escrow obligations, but permits stamping agents to require nonparticipating manufacturers to pre-pay their escrow obligations.
  • Allows a nonparticipating manufacturer to be removed from the state’s directory if their total U.S. sales, as reported to the Treasury Department, exceed the total reported sales on the nonparticipating manufacturer’s Jenkins Act reports by five percent or one million cigarettes.
  • Allows a nonparticipating manufacturer to be removed from the state’s directory if the manufacturer has been removed from another state’s directory.
  • Requires nonparticipating manufacturers to submit their federal excise tax returns to the state.

With respect to tribal sales, the Nebraska bill:

  • Requires payment of state excise taxes for all cigarette sales, including exempt sales, but permits a refund of taxes paid on exempt sales.  Tribal sales are exempt from taxation only if the cigarettes are sold on tribal land to a tribe member.
  • Permits the governor to negotiate tribal tax compacts, with the tribal tax rate equaling the state tax rate and a negotiated division of proceeds between the state and the tribe.  The tribal tax requires a tribal stamp.
  • Requires escrow payments for tribally-taxed sales but permits a tribe to obtain releases of these escrow payments.
  • Requires the state tax commissioner create a list of entities that claim to be immune from state tax and/or escrow obligations, either through lack of jurisdiction or sovereign immunity.
  • Prohibits anyone from selling products to (including raw materials), or buying products from, anyone on the aforementioned list.  Violations of this requirement render the seller or purchaser jointly and severally liable for any taxes or escrow that has not been paid in connection with the transaction.

The bill also would impose substantial new reporting requirements for the sale and distribution of tobacco products, including reports regarding interstate sales originating from Nebraska.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.