II 116TH CONGRESS 1ST SESSION S. 2517 To amend the Internal Revenue Code of 1986 to provide tax rate parity among all tobacco products, and for other purposes. IN THE SENATE OF THE UNITED STATES SEPTEMBER 19, 2019 Mr. DURBIN (for himself, Mr. BROWN, Mr. MARKEY, Mr. BLUMENTHAL, Mr. REED, Ms. HIRONO, Mr. WYDEN, Mrs. MURRAY, and Mr. MERKLEY) in- troduced the following bill; which was read twice and referred to the Com- mittee on Finance A BILL To amend the Internal Revenue Code of 1986 to provide tax rate parity among all tobacco products, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Tobacco Tax Equity 4 Act of 2019’’. 5 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 2517 IS SEC. 2. INCREASING EXCISE TAXES ON CIGARETTES AND 1 ESTABLISHING EXCISE TAX EQUITY AMONG 2 ALL TOBACCO PRODUCT TAX RATES. 3 (a) TAX PARITY FOR ROLL-YOUR-OWN TOBACCO.— 4 Section 5701(g) of the Internal Revenue Code of 1986 is 5 amended by striking ‘‘$24.78’’ and inserting ‘‘$49.56’’. 6 (b) TAX PARITY FOR PIPE TOBACCO.—Section 7 5701(f) of the Internal Revenue Code of 1986 is amended 8 by striking ‘‘$2.8311 cents’’ and inserting ‘‘$49.56’’. 9 (c) TAX PARITY FOR SMOKELESS TOBACCO.— 10 (1) Section 5701(e) of the Internal Revenue 11 Code of 1986 is amended— 12 (A) in paragraph (1), by striking ‘‘$1.51’’ 13 and inserting ‘‘$26.84’’; 14 (B) in paragraph (2), by striking ‘‘50.33 15 cents’’ and inserting ‘‘$10.74’’; and 16 (C) by adding at the end the following: 17 ‘‘(3) SMOKELESS TOBACCO SOLD IN DISCRETE 18 SINGLE-USE UNITS.—On discrete single-use units, 19 $100.66 per thousand.’’. 20 (2) Section 5702(m) of such Code is amend- 21 ed— 22 (A) in paragraph (1), by striking ‘‘or chew- 23 ing tobacco’’ and inserting ‘‘, chewing tobacco, 24 or discrete single-use unit’’; 25 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 2517 IS (B) in paragraphs (2) and (3), by inserting 1 ‘‘that is not a discrete single-use unit’’ before 2 the period in each such paragraph; and 3 (C) by adding at the end the following: 4 ‘‘(4) DISCRETE SINGLE-USE UNIT.—The term 5 ‘discrete single-use unit’ means any product con- 6 taining tobacco that— 7 ‘‘(A) is not intended to be smoked; and 8 ‘‘(B) is in the form of a lozenge, tablet, 9 pill, pouch, dissolvable strip, or other discrete 10 single-use or single-dose unit.’’. 11 (d) TAX PARITY FOR SMALL CIGARS.—Paragraph 12 (1) of section 5701(a) of the Internal Revenue Code of 13 1986 is amended by striking ‘‘$50.33’’ and inserting 14 ‘‘$100.66’’. 15 (e) TAX PARITY FOR LARGE CIGARS.— 16 (1) IN GENERAL.—Paragraph (2) of section 17 5701(a) of the Internal Revenue Code of 1986 is 18 amended by striking ‘‘52.75 percent’’ and all that 19 follows through the period and inserting the fol- 20 lowing: ‘‘$49.56 per pound and a proportionate tax 21 at the like rate on all fractional parts of a pound but 22 not less than 10.066 cents per cigar.’’. 23 (2) GUIDANCE.—The Secretary of the Treas- 24 ury, or the Secretary’s delegate, may issue guidance 25 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 2517 IS regarding the appropriate method for determining 1 the weight of large cigars for purposes of calculating 2 the applicable tax under section 5701(a)(2) of the 3 Internal Revenue Code of 1986. 4 (f) TAX PARITY FOR ROLL-YOUR-OWN TOBACCO 5 AND CERTAIN PROCESSED TOBACCO.—Subsection (o) of 6 section 5702 of the Internal Revenue Code of 1986 is 7 amended by inserting ‘‘, and includes processed tobacco 8 that is removed for delivery or delivered to a person other 9 than a person with a permit provided under section 5713, 10 but does not include removals of processed tobacco for ex- 11 portation’’ after ‘‘wrappers thereof’’. 12 (g) CLARIFYING TAX RATE FOR OTHER TOBACCO 13 PRODUCTS.— 14 (1) IN GENERAL.—Section 5701 of the Internal 15 Revenue Code of 1986 is amended by adding at the 16 end the following new subsection: 17 ‘‘(i) OTHER TOBACCO PRODUCTS.—Any product not 18 otherwise described under this section that has been deter- 19 mined to be a tobacco product by the Food and Drug Ad- 20 ministration through its authorities under the Family 21 Smoking Prevention and Tobacco Control Act shall be 22 taxed at a level of tax equivalent to the tax rate for ciga- 23 rettes on an estimated per use basis as determined by the 24 Secretary.’’. 25 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 2517 IS (2) ESTABLISHING PER USE BASIS.—For pur- 1 poses of section 5701(i) of the Internal Revenue 2 Code of 1986, not later than 12 months after the 3 later of the date of the enactment of this Act or the 4 date that a product has been determined to be a to- 5 bacco product by the Food and Drug Administra- 6 tion, the Secretary of the Treasury (or the Secretary 7 of the Treasury’s delegate) shall issue final regula- 8 tions establishing the level of tax for such product 9 that is equivalent to the tax rate for cigarettes on 10 an estimated per use basis. 11 (h) CLARIFYING DEFINITION OF TOBACCO PROD- 12 UCTS.— 13 (1) IN GENERAL.—Subsection (c) of section 14 5702 of the Internal Revenue Code of 1986 is 15 amended to read as follows: 16 ‘‘(c) TOBACCO PRODUCTS.—The term ‘tobacco prod- 17 ucts’ means— 18 ‘‘(1) cigars, cigarettes, smokeless tobacco, pipe 19 tobacco, and roll-your-own tobacco, and 20 ‘‘(2) any other product subject to tax pursuant 21 to section 5701(i).’’. 22 (2) CONFORMING AMENDMENTS.—Subsection 23 (d) of section 5702 of such Code is amended by 24 striking ‘‘cigars, cigarettes, smokeless tobacco, pipe 25 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 2517 IS tobacco, or roll-your-own tobacco’’ each place it ap- 1 pears and inserting ‘‘tobacco products’’. 2 (i) INCREASING TAX ON CIGARETTES.— 3 (1) SMALL CIGARETTES.—Section 5701(b)(1) 4 of such Code is amended by striking ‘‘$50.33’’ and 5 inserting ‘‘$100.66’’. 6 (2) LARGE CIGARETTES.—Section 5701(b)(2) 7 of such Code is amended by striking ‘‘$105.69’’ and 8 inserting ‘‘$211.38’’. 9 (j) TAX RATES ADJUSTED FOR INFLATION.—Section 10 5701 of such Code, as amended by subsection (g), is 11 amended by adding at the end the following new sub- 12 section: 13 ‘‘(j) INFLATION ADJUSTMENT.— 14 ‘‘(1) IN GENERAL.—In the case of any calendar 15 year beginning after 2019, the dollar amounts pro- 16 vided under this chapter shall each be increased by 17 an amount equal to— 18 ‘‘(A) such dollar amount, multiplied by 19 ‘‘(B) the cost-of-living adjustment deter- 20 mined under section 1(f)(3) for the calendar 21 year, determined by substituting ‘calendar year 22 2018’ for ‘calendar year 2016’ in subparagraph 23 (A)(ii) thereof. 24 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 2517 IS ‘‘(2) ROUNDING.—If any amount as adjusted 1 under paragraph (1) is not a multiple of $0.01, such 2 amount shall be rounded to the next highest multiple 3 of $0.01.’’. 4 (k) FLOOR STOCKS TAXES.— 5 (1) IMPOSITION OF TAX.—On tobacco products 6 manufactured in or imported into the United States 7 which are removed before any tax increase date and 8 held on such date for sale by any person, there is 9 hereby imposed a tax in an amount equal to the ex- 10 cess of— 11 (A) the tax which would be imposed under 12 section 5701 of the Internal Revenue Code of 13 1986 on the article if the article had been re- 14 moved on such date, over 15 (B) the prior tax (if any) imposed under 16 section 5701 of such Code on such article. 17 (2) CREDIT AGAINST TAX.—Each person shall 18 be allowed as a credit against the taxes imposed by 19 paragraph (1) an amount equal to $500. Such credit 20 shall not exceed the amount of taxes imposed by 21 paragraph (1) on such date for which such person 22 is liable. 23 (3) LIABILITY FOR TAX AND METHOD OF PAY- 24 MENT.— 25 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 2517 IS (A) LIABILITY FOR TAX.—A person hold- 1 ing tobacco products on any tax increase date 2 to which any tax imposed by paragraph (1) ap- 3 plies shall be liable for such tax. 4 (B) METHOD OF PAYMENT.—The tax im- 5 posed by paragraph (1) shall be paid in such 6 manner as the Secretary shall prescribe by reg- 7 ulations. 8 (C) TIME FOR PAYMENT.—The tax im- 9 posed by paragraph (1) shall be paid on or be- 10 fore the date that is 120 days after the effective 11 date of the tax rate increase. 12 (4) ARTICLES IN FOREIGN TRADE ZONES.— 13 Notwithstanding the Act of June 18, 1934 (com- 14 monly known as the Foreign Trade Zone Act, 48 15 Stat. 998, 19 U.S.C. 81a et seq.), or any other pro- 16 vision of law, any article which is located in a for- 17 eign trade zone on any tax increase date shall be 18 subject to the tax imposed by paragraph (1) if— 19 (A) internal revenue taxes have been deter- 20 mined, or customs duties liquidated, with re- 21 spect to such article before such date pursuant 22 to a request made under the 1st proviso of sec- 23 tion 3(a) of such Act, or 24 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 2517 IS (B) such article is held on such date under 1 the supervision of an officer of the United 2 States Customs and Border Protection of the 3 Department of Homeland Security pursuant to 4 the 2d proviso of such section 3(a). 5 (5) DEFINITIONS.—For purposes of this sub- 6 section— 7 (A) IN GENERAL.—Any term used in this 8 subsection which is also used in section 5702 of 9 such Code shall have the same meaning as such 10 term has in such section. 11 (B) TAX INCREASE DATE.—The term ‘‘tax 12 increase date’’ means the effective date of any 13 increase in any tobacco product excise tax rate 14 pursuant to the amendments made by this sec- 15 tion (other than subsection (j) thereof). 16 (C) SECRETARY.—The term ‘‘Secretary’’ 17 means the Secretary of the Treasury or the 18 Secretary’s delegate. 19 (6) CONTROLLED GROUPS.—Rules similar to 20 the rules of section 5061(e)(3) of such Code shall 21 apply for purposes of this subsection. 22 (7) OTHER LAWS APPLICABLE.—All provisions 23 of law, including penalties, applicable with respect to 24 the taxes imposed by section 5701 of such Code 25 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 2517 IS shall, insofar as applicable and not inconsistent with 1 the provisions of this subsection, apply to the floor 2 stocks taxes imposed by paragraph (1), to the same 3 extent as if such taxes were imposed by such section 4 5701. The Secretary may treat any person who bore 5 the ultimate burden of the tax imposed by para- 6 graph (1) as the person to whom a credit or refund 7 under such provisions may be allowed or made. 8 (l) EFFECTIVE DATES.— 9 (1) IN GENERAL.—Except as provided in para- 10 graphs (2) through (4), the amendments made by 11 this section shall apply to articles removed (as de- 12 fined in section 5702(j) of the Internal Revenue 13 Code of 1986) after the last day of the month which 14 includes the date of the enactment of this Act. 15 (2) DISCRETE SINGLE-USE UNITS AND PROC- 16 ESSED TOBACCO.—The amendments made by sub- 17 sections (c)(1)(C), (c)(2), and (f) shall apply to arti- 18 cles removed (as defined in section 5702(j) of the 19 Internal Revenue Code of 1986) after the date that 20 is 6 months after the date of the enactment of this 21 Act. 22 (3) LARGE CIGARS.—The amendments made by 23 subsection (e) shall apply to articles removed after 24 December 31, 2019. 25 VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 2517 IS (4) OTHER TOBACCO PRODUCTS.—The amend- 1 ments made by subsection (g)(1) shall apply to prod- 2 ucts removed after the last day of the month which 3 includes the date that the Secretary of the Treasury 4 (or the Secretary of the Treasury’s delegate) issues 5 final regulations establishing the level of tax for 6 such product. 7 Æ VerDate Sep 11 2014 21:01 Sep 23, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6301 E:\BILLS\S2517.IS S2517 pamtmann on DSKBC07HB2PROD with BILLS