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TOBACCO BUSINESS INTERNATIONAL
SEPTEMBER/OCTOBER 2016
NEWS & TRENDS
SEPTEMBER/OCTOBER 2016
City of Chicago
Files Formal Answer
to Lawsuit on OTP Tax
The City of Chicago has filed a formal answer, or legal response, to
the lawsuit filed by NATO, Iwan Ries & Co. (a Chicago retail store),
the Cigar Association of America, the Illinois Association of Whole-
sale Distributors, the Illinois Retail Merchants Association, the
International Premium Cigar and Pipe Retailers Association, and
Arangold Corporation d/b/a Arango Cigar Co., reports Tom Briant,
NATO’s executive director.
The lawsuit seeks a preliminary and permanent injunction
against the enforcement and imposition of the tax on other to-
bacco products passed by the Chicago City Council earlier this
year. “Its primary claim is that the new Chicago tax on other to-
bacco products is pre-empted by Illinois state law,” Briant ex-
plains. “Illinois statutes provide that a home rule charter city can
adopt a tax on cigarettes or tobacco products provided that the
city adopted such a tax on cigarettes or tobacco products prior
to July 1, 1993.”
The City of Chicago, however, enacted a cigarette tax before
July 1, 1993, but not an OTP tax. The City of Chicago admits that
the Illinois legislature adopted this law prohibiting a home rule
charter city from enacting a local cigarette or OTP tax and admits
that it did not enact an OTP tax by the legislated deadline of July
1, 1993.
In its answer to the lawsuit, Chicago denies that it is now pro-
hibited from enacting an OTP tax and also denies most of the
other principle claims in the complaint regarding the state legisla-
ture’s intent to limit cities from adopting an OTP tax and that the
imposition of minimum package size and minimum pricing would
penalize retailers for pursuing their rights in court.
“These kinds of denials were to be expected since the Chicago
City Council approved the new OTP tax after NATO, other orga-
nizations and industry members informed the council members
that Illinois state law pre-empted the adoption of a local OTP tax,”
says Briant. The City of Chicago and the attorney for all of the
plaintiffs filed an Agreed Order with the court to delay the imple-
mentation of the OTP tax for a period of 60 days after the date that
the court issues a ruling on the lawsuit. A hearing on the lawsuit
is scheduled for September 14, 2016.
Alaska
Proposes Tax Increase
In Alaska, two bills (House Bill 5002e and Senate Bill 5002e) pro-
pose to increase the tax on cigarettes by $ per pack, increase the
tax on tobacco products from 75 percent to 100 percent of the
wholesale price, and impose a tax on electronic cigarettes at 75
percent of the wholesale price. Senate Bill 4001d, which increas-
es the tax on cigarettes by $1 per pack, raises the tax on tobacco
products from 75 percent to 100 percent of the wholesale price
and imposes a tax on electronic cigarettes at 75 percent of the
wholesale price, was reintroduced on July 13, 2016 at the start of
the state legislature’s current special session. SB4001d remains in
the Senate Finance and Labor and Commerce Committees.
Judge
Rules
on
Label
Changes
A redesigned label does not a
new product make, according to
a federal judge’s ruling.
In August, Federal Court Judge Amit
Mehta ruled that the U.S. Food and Drug
Administration (FDA) cannot consider a la-
bel revision for a tobacco product as con-
stituting that product as “new.” The judge
ordered FDA to eliminate its proposed la-
bel changes guidance, which called for any
label changes to mean that the product in
question would need to go through the
agency’s costly and time-consuming appli-
cation for approval process.
The decision came as a result of a lawsuit
filed jointly by Altria Group, Lorillard and
Reynolds American against the FDA and
the U.S. Department of Health and Human
Services just over two years ago. Their suit
claimed that the agency’s new rules re-
stricted their First Amendment rights. Meh-
ta’s ruling stated that under the Tobacco
Control Act of 2009, “a modification to an
existing product’s label does not result in a
new tobacco product, and therefore such a
label change does not give rise to the act’s
substantial equivalence review process.”
However, the judge also said that a change
in the quantity of product contained in a giv-
en package would make that product a new
tobacco product subject to FDA approval.
This would include changing the number of
cigarettes in a pack, for example.
“[Altria] is pleased the court struck down
FDA’s requirement that manufacturers ob-
tain pre-approval from the agency before
modifying product labels, which was the
principal focus of our lawsuit,” noted Al-
tria Spokesperson Brian May in response
to the news. “Specifically, the court ruled
that changing labels does not change the
tobacco product itself, and therefore can-
not be part of FDA’s process for approving
new tobacco products.”