Cal. Code Regs. tit. 11 § 999.10

Current through Register 2024 Notice Reg. No. 49, December 6, 2024

Section 999.10 - Compliance with Reserve Fund Requirements by Non-Participating Tobacco Product Manufacturers

(a) Scope and Purpose

The purpose of these regulations is to implement California's Reserve Fund Statute (codified at Health and Safety Code sections 104555, 104556 and 104557) by providing Tobacco Product Manufacturers clear definitions, instructions, guidance and forms to comply with the requirement to establish a reserve fund for tobacco-related illness and other potential liabilities. The Legislature imposed the reserve fund requirements to ensure a source of compensation for the financial burdens imposed upon the State by cigarette-smoking related illness and other health conditions. Health and Safety Code sections 104555-104557 essentially require Tobacco Product Manufacturers to provide a surety bond against future liability for cigarette-smoking related healthcare costs. This surety bond is imposed upon manufacturers that choose to avoid the conduct restrictions that apply if they sign the Master Settlement Agreement ("MSA"). Government Code sections 11110-11113 require the Attorney General to adopt regulations to provide forms for surety bonds which are approved by the Attorney General as conforming with applicable law. Revenue and Taxation Code section 30165.1(o) also authorizes the Attorney General to adopt emergency rules and regulations regarding the reserve fund requirements of Tobacco Product Manufacturers.

The Legislature also intended to prevent the unfair competition that would occur if Tobacco Product Manufacturers who did not sign the MSA and did not incur the financial obligation under the MSA were allowed to derive large short-term profits to the disadvantage of those manufacturers participating in the MSA. These regulations are also intended to protect tobacco Distributors and Wholesalers from the financial risk of accepting orders for tobacco products or purchasing tobacco products that may be banned from sale by a court or are not listed on California's Directory of Tobacco Product Manufacturers and Brand Families because the Tobacco Product Manufacturer failed to make the required deposits or otherwise comply with the Reserve Fund Statute and Revenue and Taxation Code section 30165.1.

Through the definitions, instructions, guidance and forms provided, these regulations also make available to the public and local and state government officials the Attorney General's enforcement policy and interpretation of how Tobacco Product Manufacturers should comply with the reserve fund requirements to avoid unfair and unlawful business conduct and activity. Toward that end, these regulations are intended to describe the meaning of compliance with the reserve fund requirements, the proper interpretation of the statutory requirements and the enforcement policy designed to protect those manufacturers which do comply from unfair competition by those manufacturers which might otherwise fail to comply with the reserve fund requirements without the definitions, instructions, guidance and forms provided.

The purpose of regulations 999.16 through 999.29 is also to implement Revenue and Taxation Code section 30165.1 by prescribing procedures to be followed by all Tobacco Product Manufacturers who wish to sell Cigarettes in California. Section 30165.1 requires the Attorney General to develop, publish and maintain on its internet website a Directory of Tobacco Product Manufacturers and Brand Families that are in compliance with the statute. Any person who sells, distributes, acquires, holds, owns, possesses, transports, imports, or causes to be imported Cigarettes, which includes Roll-Your-Own tobacco, that the person knows or should know are not included on the Directory commits a misdemeanor, as well as a violation of California's Unfair Competition Law, and is subject to civil penalties, license suspension and revocation, and criminal prosecution.

Regulations 999.16 through 999.29 set forth the certification process for inclusion on California's Directory of Tobacco Product Manufacturers and Brand Families, as well as the conditions under which a Tobacco Product Manufacturer must provide supplemental certifications. The regulations state the requirements for records retention and production of documents by Tobacco Product Manufacturers, Distributors and Wholesalers. The regulations set forth additional requirements on Non-Participating Manufacturers who are non-resident or foreign and who are not registered to do business in California. The regulations clarify the requirements and protections of California Distributors under Section 30165.1. Finally, the regulations delineate the conditions a Tobacco Product Manufacturer, which has been removed from the Directory, must satisfy if it seeks to be relisted with its Brand Families.

(b) Definitions

All terms used in these regulations, which are defined in Revenue and Taxation Code section 30165.1 and/or Health and Safety Code sections 104555-104557, shall have the same meaning in these regulations.

The definitions contained in this subdivision shall govern the construction of this chapter.

(1) "Brand Family" shall have the same meaning as in Revenue and Taxation Code section 30165.1(a)(2).

(2) "Brand Style" means the different Cigarettes within a Brand Family of Cigarettes, including but not limited to, menthol flavor or Cigarette length.

(3) "California Tobacco Directory," "Directory," and "Tobacco Directory" shall have the same meaning as Revenue and Taxation Code section 30165.1(c).

(4) "CDTFA" means the California Department of Tax and Fee Administration.

(5) "Certification" means PM Certification and NPM Certification and includes a supplemental certification.

(6) "Cigarette" shall have the same meaning as in Health and Safety Code section 104556(d), which section includes Roll-Your-Own tobacco ("RYO").

(7) "Deposit Date" means the date that Qualified Escrow Fund Principal was deposited into a Qualified Escrow Fund.

(8) "Distributor" shall have the same meaning as in Revenue and Taxation Code section 30011.

(9) "Escrow Agent" shall mean the financial institution described in Health and Safety Code section 104556(f) and holding a Qualified Escrow Fund Principal account for the benefit of the State.

(10) "Escrow Rate" shall have the same meaning as Health and Safety Code section 104557(a)(2).

(11) "Fire Standard Compliant" and "FSC" means the requirements of the California Cigarette Fire Safety and Firefighter Protection Act at Health and Safety Code sections 14950 through 14960.

(12) "JUS-TOB1" means the Participating Tobacco Product Manufacturer ("PM") Certification Seeking Listing on the California Directory form (JUS-TOB1, Rev. 11/2021), which is hereby incorporated by reference.

(13) "JUS-TOB2" means the Notice of Appointment of Registered Agent and Registered Agent's Statement for Non-Participating Manufacturer form (JUS-TOB2, Rev. 02/2011), which is hereby incorporated by reference.

(14) "JUS-TOB3" means the Certification of Compliance and Affidavit by Non-Participating Tobacco Product Manufacturer form (JUS-TOB3, Rev. 11/2021), which is hereby incorporated by reference.

(15) "JUS-TOB4" means the CIG-Sales form (JUS-TOB4, Rev. 11/2021), which is hereby incorporated by reference.

(16) "JUS-TOB5" means the Non-Participating Manufacturer Certification ("NPM") Seeking Listing on the California Directory form (JUS-TOB5, Rev. 11/2021), which is hereby incorporated by reference.

(17) "JUS-TOB6" means the Approved Tobacco Escrow Agreement (JUS-TOB6, Rev. 02/2023), which is hereby incorporated by reference.

(18) "JUS-TOB7" means the CIG-Map form (JUS-TOB7, Rev. 09/2020), which is hereby incorporated by reference.

(19) "JUS-TOB8" means the Brand List form (JUS-TOB8, Rev. 02/2023), which is hereby incorporated by reference.

(20) "JUS-TOB9" means the Waiver of Tribal Sovereign Immunity by Native American Tribe form (JUS-TOB9, Rev. 10/2011), which is hereby incorporated by reference.

(21) "JUS-TOB10" means the Waiver of Sovereign Immunity by Government-Owned Tobacco Company form (JUS-TOB10, Rev. 10/2011), which is hereby incorporated by reference.

(22) "JUS-TOB11" means the Standard Waiver of Sovereign Immunity by Tobacco Manufacturer or Importer form (JUS-TOB11, Rev. 08/2011), which is hereby incorporated by reference.

(23) "JUS-TOB12" means United States Importer Declaration Accepting Joint and Several Liability (JUS-TOB12, Rev. 02/2011), which is hereby incorporated by reference.

(24) "JUS-TOB13" means the Notice of Appointment of Registered Agent and Registered Agent's Statement Form for Importer (JUS-TOB13, Rev. 02/2011), which is hereby incorporated by reference.

(25) "JUS-TOB14" means the California Tobacco Manufacturer and Importer Surety Bond form (JUS-TOB14, Rev. 10/2011), which is hereby incorporated by reference.

(26) "Ledger" has the same meaning as in section 2.I of JUS-TOB6.

(27) "MSA" means the Master Settlement Agreement and has the same meaning as in Health and Safety Code section 104556(e).

(28) "Non-Participating Tobacco Product Manufacturer" or "NPM" means any Tobacco Product Manufacturer selling Cigarettes to consumers within the state, whether directly or through a Distributor, retailer or similar intermediary or intermediaries, which has not become a Participating Manufacturer as that term is defined in section II(jj) of the Master Settlement Agreement (MSA) or has become a Participating Manufacturer but does not generally perform its financial obligations under the MSA.

(29) "NPM Certification" means a California Tobacco Directory certification submitted by an NPM using a JUS-TOB5.

(30) "PACT Act" means the Prevent All Cigarette Trafficking Act at 15 U.S.C. §§ 375-378.

(31) "Participating Manufacturer" or "PM" has the same meaning as in Revenue and Taxation Code section 30165.1(a)(7) and section II(ii) of the MSA.

(32) "PM Certification" means a California Tobacco Directory certification submitted by a PM using a JUS-TOB1.

(33) "Qualified Escrow Fund" shall have the same meaning as in Health and Safety Code section 104556(f)

(34) "Qualified Escrow Fund Principal" and "Qualified Escrow Principal" has the same meaning as in section 2.R of JUS-TOB6.

(35) "Quarter(s)" and "Quarterly" means the following periods of the year: January 1 through March 31 (first quarter); April 1 through June 30 (second quarter); July 1 through September 30 (third quarter); and October 1 through December 31 (fourth quarter).

(36) "Reserve Fund Statute" means Chapter 1 of Part 3 of Division 103 of the Health and Safety Code (sections 104555-104557).

(37) "Roll-Your-Own" or "RYO" tobacco means any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making Cigarettes. Each 0.09 ounces of RYO equals one Cigarette.

(38) "Tobacco Product Manufacturer" shall have the same meaning as in Health & Safety Code section 104556(i).

(39) "Sales Year" means the calendar year during which the Tobacco Product Manufacturer sold Cigarettes in California requiring a deposit of Qualified Escrow Fund Principal or an MSA payment.

(40) "Units Sold" shall have the same meaning as in Health and Safety Code section 104556(j).

(41) "Wholesaler" shall have the same meaning as in Revenue and Taxation Code section 30016.

(c) Escrow Deposits by NPMs Pursuant to the Reserve Fund Statute and Tobacco Directory

(1) All NPMs shall deposit escrow Quarterly on all Units Sold in California as required by the Reserve Fund Statute. Qualified Escrow Fund Principal for the first quarter, January 1 through March 31, is due on or before April 21. Qualified Escrow Fund Principal for the second quarter, April 1 through June 30, is due on or before July 21. Qualified Escrow Fund Principal for the third quarter, July 1 through September 30, is due on or before October 21. Qualified Escrow Fund Principal for the fourth quarter, October 1 through December 31, is due on or before January 21.

(2) The NPM shall within nine (9) days of depositing Qualified Escrow Fund Principal for the benefit of California execute and submit to the Attorney General's Office both:

(A) a JUS-TOB3: and

(B) a JUS-TOB4.

Cal. Code Regs. Tit. 11, § 999.10

Note: Authority cited: Section 30165.1, Revenue and Taxation Code; Sections 11110, 11111, 11112 and 11113, Government Code; Section 104557, Health and Safety Code; and Article V, Section 13 of the California Constitution. Reference: Section 30165.1, Revenue and Taxation Code; and Sections 104555, 104556 and 104557, Health and Safety Code.

Note: Authority cited: Section 30165.1, Revenue and Taxation Code; Sections 11110- 11113, Government Code; Section 104557, Health and Safety Code; and Article V, Section 13 of the California Constitution. Reference: Section 30165.1, Revenue and Taxation Code; and Sections 104555, 104556 and 104557, Health and Safety Code.

1. New chapter 16 (sections 999.10-999.14 and Appendix A) and section filed 4-15-2002 as an emergency; operative 4-15-2002 (Register 2002, No. 16). A Certificate of Compliance must be transmitted to OAL by 8-13-2002 or emergency language will be repealed by operation of law on the following day.
2. Certificate of Compliance as to 4-15-2002 order, including further amendment of section, transmitted to OAL 5-10-2002 and filed 6-19-2002 (Register 2002, No. 25).
3. Amendment of section and Note and repealer of Appendix A filed 4-26-2004 as an emergency; operative 4-26-2004 (Register 2004, No. 18). A Certificate of Compliance must be transmitted to OAL by 10-25-2004 pursuant to Revenue and Taxation Code section 30165.1 or emergency language will be repealed by operation of law on the following day.
4. Editorial correction of History 3 (Register 2004, No. 49).
5. Certificate of Compliance as to 4-26-2004 order transmitted to OAL 10-22-2004 and filed 12-6-2004 (Register 2004, No. 49).
6. Amendment of subsections (c)(1)-(2) filed 4-11-2011 as an emergency; operative 4-11-2011 (Register 2011, No. 15). A Certificate of Compliance must be transmitted to OAL by 10-10-2011 or emergency language will be repealed by operation of law on the following day.
7. Amendment of subsections (c)(1)-(2) refiled 10-7-2011 as an emergency; operative 10-7-2011 (Register 2011, No. 40). A Certificate of Compliance must be transmitted to OAL by 1-5-2012 or emergency language will be repealed by operation of law on the following day.
8. Amendment of subsections (c)(1)-(2) refiled 1-3-2012 as an emergency, including further amendment of subsection (c)(2); operative 1-5-2012 pursuant to Government Code section 11343.4(b) (Register 2012, No. 1). A Certificate of Compliance must be transmitted to OAL by 4-5-2012 or emergency language will be repealed by operation of law on the following day.
9. Certificate of Compliance as to 1-3-2012 order transmitted to OAL 3-26-2012 and filed 5-7-2012 (Register 2012, No. 19).
10. Change without regulatory effect amending subsections (a) and (b)(11) filed 2-19-2014 pursuant to section 100, title 1, California Code of Regulations (Register 2014, No. 8).
11. Amendment of section heading and section filed 5-19-2022; operative 7/1/2022 pursuant to Government Code section 11343.4(a) (Register 2022, No. 20). Transmission deadline specified in Government Code section 11346.4(b) extended 60 calendar days pursuant to Executive Order N-40-20 and an additional 60 calendar days pursuant to Executive Order N-71-20. Filing deadline specified in Government Code section 11349.3(a) extended 60 calendar days pursuant to Executive Order N-40-20.
12. Amendment of subsections (b)(17) and (b)(19) and amendment of NOTE filed 6-19-2023 as an emergency; operative 6/19/2023 (Register 2023, No. 25). A Certificate of Compliance must be transmitted to OAL by 12-18-2023 or emergency language will be repealed by operation of law on the following day.
13. Certificate of Compliance as to 6-19-2023 order, including amendment of NOTE, transmitted to OAL 11-17-2023 and filed 12-28-2023; amendments effective 12/28/2023 pursuant to Government Code section 11343.4(b)(3) (Register 2023, No. 52).