SENATE NO 1545 STATE OF NEW JERSEY 213TH LEGISLATURE

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S1545

SENATE, No. 1545

STATE OF NEW JERSEY

213th LEGISLATURE

INTRODUCED MARCH 17, 2008

Sponsored by:

Senator JOSEPH F. VITALE

District 19 (Middlesex)

SYNOPSIS

Requires encrypted counterfeit-resistant revenue stamps for cigarettes sold in the State.

CURRENT VERSION OF TEXT

As introduced.

SENATE NO 1545 STATE OF NEW JERSEY 213TH LEGISLATURE

An Act requiring encrypted counterfeit-resistant revenue stamps for cigarettes sold in the State, amending P.L.1948, c.65 and repealing section 407 of P.L.1948, c.65.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 401 of P.L.1948, c.65 (C.54:40A-11) is amended to read as follows:

401. a. Director to provide revenue stamps. The taxes imposed and levied by this act shall be paid through the use of stamps, except as provided in section 205 (Consumers) of this act.

b. The director shall secure stamps of such designs and denominations as he shall prescribe, suitable to be affixed to packages, and provide for the sale thereof to licensed distributors. Stamps shall be counterfeit-resistant and encrypted to identify, at a minimum (1) the name and address of the distributor affixing the stamp; (2) the date the stamp was affixed to the cigarette package; and (3) the denominated value of the stamp. The stamp shall be readable and traceable from the point of stamp production to the point of sale and shall be readable by a scanner or similar device that may be utilized by the director or licensed cigarette distributor, wholesalers and retailers.

c. The stamp shall be produced in a secure facility certified in accordance with the security assistance standards established in 2005 by the American National Standards Institute and the North American Security Products Organization, shall incorporate a minimum of four layers of overt, semi-covert and covert data and shall instantaneously capture encrypted data.

d. Distributors or other parties approved by the director shall acquire either by lease, lease-to-own or purchase, equipment or machinery, including equipment to affix stamps and equipment to read or scan information from stamps, that is approved by the director and necessary to carry out the requirements set forth in this section.

e. The encrypted data collected from stamps shall be provided by distributors and retained by the State in a secure data collection, management and decision support system.

f. Only licensed distributors shall affix and cancel stamps and no distributor shall affix or cancel any stamp except at the tax rate in effect on the date of such affixing or cancellation; except that on the effective date of a tax rate increase imposed under this act, licensed distributors and wholesale dealers must take a physical inventory of cigarettes on hand at the close of business prior to the date of the tax increase imposed under this act and must pay any

additional tax for all cigarettes bearing stamps at the rate in effect prior to the tax increase. The director shall prescribe the method of collecting the additional tax. The director shall not authorize any person to sell revenue stamps except his duly constituted agents and assistants.

g. On sales of revenue stamps the director shall allow, as compensation for the services and expenses of the distributor in affixing and handling of such stamps, a discount of 1.80% of the face amount of any sale of 1,000 stamps or more; provided, that the distributor has complied with all the provisions of this act; and, provided, further, however, that the director shall be empowered to adjust such discount to provide equivalent compensation with respect to the face value of each 1,000 stamps or more. No discount shall be allowed on any sale of less than 1,000 stamps and stamps shall not be sold in blocks of less than 100 stamps.

(cf: P.L.1990, c.39, s.16)

2. Section 407 of P.L.1948, c.65 (C.54:40A-17) is repealed.

3. This act shall take effect immediately and apply to stamps affixed on or after the first day of the sixth month following the date of enactment.

STATEMENT

This bill requires the Director of the Division of Taxation to provide counterfeit-resistant stamps to cigarette distributors to encrypt and affix on cigarette packs before distribution for retail sale.

The stamps must contain the following information: the name and address of the distributor affixing the stamp, the date the stamp was affixed to the cigarette product, and the denominated value of the stamp. Stamps must be obtained from providers that meet certain safety standards and must incorporate a minimum of four layers of overt, semi-covert and covert data. The stamps must be readable by equipment used by the division in counterfeit enforcement. The bill requires that cigarette distributors acquire equipment so they can encrypt, record, affix and read information from the stamps.

According to one counterfeit-resistant stamp manufacturer, 35% of the cigarette packs entering New Jersey for sale are counterfeit, in that they are either unstamped products or products bearing counterfeit stamps. In April, 2007, federal charges were brought upon retailers in New Jersey selling cigarettes without paying the sales tax. The legal complaint charged that at least 30 million cigarettes, worth at least $3 million in lost sales tax revenue, were sold. Unfortunately, this is not the only case of counterfeit cigarette sales in the State. Improving the stamping process should prevent future counterfeiting and prevent future revenue losses.

The bill repeals a provision that provides the Director of the Division of Taxation discretion to allow distributors to use metering machines rather than stamping machines. This change encourages the uniform use of stamps in order to curb counterfeiting.

Current law requires the director to conduct a study of the cost of stamping cigarettes in New Jersey every two years. Studies conducted after the new stamp required under this bill is used should show that the cost of providing the new stamp is greatly outweighed by the increased revenue.

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