Released February 7, 2010

On February 4, 2010, The House of Delegates passed HB 820, on a 94-4 vote.  This marks Delegate Scott A. Surovell’s first legislation to pass the House. 

The legislation was requested by the Department of Tax Administration after experiencing problems enforcing civil remedies against retailers and wholesalers whose cigarette packages did not bear Virginia tax stamps as a result of machinery or shipping errors.

HB 820 rationalizes penalty structure.  “Right now the penalty can be over 1,000 times greater than the amount of revenue involved,” Surovell said.  “It’s completely out of proportion and results in unnecessary appeals and conflict over violations.”

The bill was also supported by Virginia’s retail, wholesale and manufacturing communities.  “The old rules place an excessive and irrational burden on retailers and wholesalers,” Surovell noted.  “The business community on U.S. 1 primarily consists of large and small retail establishments.  There are dozens of small business owners could potentially be subject to enforcement due to errors which are beyond their control.” 

When cigarettes are manufactured the stamps are applied to packs and placed into sealed cartons where they are not subject to visual inspection.  Periodically, a machine fails to affix the stamps to the packs.  The packs are not removed until they are stocked by clerks or cashiers at retail locations who are not particularly attentive to missing stamps.  Errors also result when shipments of cigarettes for other states are accidentally sent to Virginia for retail on occasion. 

The current tax penalty structure results in a $25,000 civil penalty for sale of 100 unstamped packs of cigarettes involving $30.00 of stamps.  The new rules create a penalty structure scaled upon recurring offenses to incentivize manufacturers to perfect their manufacturing and shipping systems.  It also reflects amounts retailers will be less incentivized to appeal.  Criminal violations are still subject to criminal prosecution.  “If you are hit with a $25,000 fine involving 100 cigarette packs and $30 of tobacco taxes, you are going to get a lawyer and appeal every time,” said Surovell. 

A companion bill, SB 476 has been introduced in the Senate, sponsored by Senator John C. Watkins(R-10).  SB 476 has been assigned to the Senate Committee on Finance.