1. (a) Introduction; grounds

   The Reserve Fund Statute authorizes the release of funds from Qualified Escrow Fund Principal only under certain circumstances. Section 104557(b) authorizes the release of funds from escrow to the extent that an NPM “establishes that the amount it was required to place into escrow in a particular year was greater than the Master Settlement Agreement payments, as determined pursuant to section IX(i) of the agreement including after the final determination of all adjustments, that the manufacturer would have been required to make in that year under the Master Settlement Agreement had it been a participating manufacturer.” (Health & Saf. Code, § 104557(b)(2).)

2. (b) Time for filing request

   Requests for adjustments must be filed no later than three years after the deposit was due for the relevant Sales Year. (See Code Civ. Proc., § 338(a)(c).)

3. (c) Escrow Rate Adjustment requests

   1. (1) Under Health and Safety Code section 104557(b)(2), NPMs may request a release of Qualified Escrow Fund Principal that is on deposit for the benefit of California based upon the escrow rate used by California for a particular Sales Year. (“Escrow Rate Adjustment”). NPMs must establish that the amount it was required to place into escrow for a particular Sales Year was greater than the Master Settlement Agreement (“MSA”) payments, as determined pursuant to section IX(i) of the MSA, including after the final determination of all adjustments, that the NPM would have been required to make on account of the Units Sold had it been a PM.
   2. (2) An NPM seeking an Escrow Rate Adjustment shall submit an affidavit, signed by an executive officer of the NPM, setting forth the officer's authority to bind and act on behalf of the NPM, the Escrow Rate that the NPM contends that California should have used under Health and Safety Code section 104557(b)(2), and all the facts and contentions in support of the NPM's request.

4. (d) Units Sold Adjustment requests

   1. (1) The total of the NPM's Cigarettes sold in California during the Sales Year at issue, including but not limited to, all Units Sold, itemized by Distributor and by Brand Family on JUS-TOB4. The NPM shall also submit all invoices, shipping records, and all other evidence in their possession, custody, or control regarding the number of the NPM's Cigarettes sold in California, as well as any shipments of the NPM's Cigarettes into or out of California, during the Sales Year at issue.
   2. (2) An affidavit, signed by the executive officer of the NPM responsible for escrow compliance, setting forth the officer's authority to bind and act on behalf of the NPM and demonstrating the facts which support the adjustment requested;

   3. (3) All records and/or other documentation demonstrating the facts offered in support of the requested adjustment, as well as documentation evidencing timely and full deposit into escrow prior to a request for adjustment; and any legal argument or analysis in support of the requested adjustment. The NPM shall submit a proposed calculation of the annual deposit due, a proposed calculation of the refund amount and a draft letter of instructions to the Escrow Agent concerning the proposed refund. To document its national unit sales, the NPM shall include copies of the NPM's bi-monthly Excise Tax Returns filed with the U.S. Treasury, Tobacco Tax Bureau (TTB), formerly the Bureau of Alcohol, Tobacco & Firearms (BATF). To document its unit sales in California (as measured by excises taxes paid), the NPM shall include copies of filed California excise tax returns for its tobacco products or arrange for equivalent excise tax payment documentation from the State of California.

      The State may request such further information as is required in light of the specific facts, including, but not limited to, information on compliance with the Reserve Fund Statute and the basis for any adjustment requested.

      All correspondence regarding this section shall be sent to Office of the Attorney General, Tobacco Unit, 1300 I Street, Suite 125, Sacramento, CA 95814.

   To be eligible for consideration, an NPM's request for release of Qualified Escrow Fund Principal under Health and Safety Code section 104557(b)(2) based upon the NPM's volume of Units Sold in California during a particular Sales Year, shall accurately apportion by Distributor and by Brand Family all of the NPM's Cigarettes sold in California for the Sales Year at issue to establish compliance with the Reserve Fund (“Units Sold Adjustment”).

Note: Authority cited: Section 30165.1(o), Revenue and Taxation Code; Sections 11110-11113, Government Code; Section 104557(c), Health and Safety Code; and Article 5, Section 13 of the California Constitution. Reference: Section 30165.1(a), Revenue and Taxation Code; and Sections 104556 and 104557, Health and Safety Code.

History

1. New section and Appendix A filed 4-15-2002 as an emergency; operative 4-15-2002 (Register 2002, No. 15). 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 and appendix A, transmitted to OAL 5-10-2002 and filed 6-19-2002 (Register 2002, No. 25).

3. Amendment of section and Note 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 subsection (c)(1) 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 subsection (c)(1) 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 subsection (c)(1) refiled 1-3-2012 as an emergency, including further amendments; 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. Amendment 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.