# Title 51 — Sales and Exchanges

## Chapter 51-25 — Tobacco Product Manufacturer Sales

### § 51-25-01. Definitions.

1. "Adjusted for inflation" means increased in accordance with the formula for inflation
adjustment set forth in exhibit C to the master settlement agreement.
2. "Affiliate" means a person who directly or indirectly owns or controls, is owned or
controlled by, or is under common ownership or control with, another person. Solely for
purposes of this definition, the terms "owns", "is owned", and "ownership" mean
ownership of an equity interest, or the equivalent thereof, of ten percent or more, and
the term "person" means an individual, partnership, committee, association,
corporation, or any other organization or group of persons.
3. "Allocable share" means allocable share as that term is defined in the master
settlement agreement.
4. "Cigarette" means any product that contains nicotine, is intended to be burned or
heated under ordinary conditions of use, and consists of or contains:
a. Any roll of tobacco wrapped in paper or in any substance not containing tobacco;
b. Tobacco, in any form, that is functional in the product, which, because of its
appearance, the type of tobacco used in the filler, or its packaging and labeling, is
likely to be offered to, or purchased by, consumers as a cigarette; or
c. Any roll of tobacco wrapped in any substance containing tobacco which, because
of its appearance, the type of tobacco used in the filler, or its packaging and
labeling, is likely to be offered to, or purchased by, consumers as a cigarette
described in subdivision a.
The term "cigarette" includes "roll-your-own", which means any tobacco that, 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. For
purposes of this definition of "cigarette", 0.09 ounces [2.556 grams] of "roll-your-own"
tobacco constitutes one individual "cigarette".
5. "Master settlement agreement" means the settlement agreement and related
documents entered on November 23, 1998, by the state and leading United States
tobacco product manufacturers.
6. "Qualified escrow fund" means an escrow arrangement with a federally or state
chartered financial institution having no affiliation with any tobacco product
manufacturer and having assets of at least one billion dollars if the arrangement
requires that the financial institution hold the escrowed funds' principal for the benefit
of releasing parties and prohibits the tobacco product manufacturer placing the funds
into escrow from using, accessing, or directing the use of the funds' principal except as
consistent with subdivision b of subsection 2 of section 51-25-02.
7. "Released claims" means released claims as that term is defined in the master
settlement agreement.
8. "Releasing parties" means releasing parties as that term is defined in the master
settlement agreement.
9. "Tobacco product manufacturer" means an entity that after April 8, 1999, directly, and
not exclusively through any affiliate:
a. Manufactures cigarettes anywhere that the manufacturer intends to be sold in the
United States, including cigarettes intended to be sold in the United States
through an importer (except when the importer is an original participating
manufacturer, as that term is defined in the master settlement agreement, which
will be responsible for the payments under the master settlement agreement with
respect to such cigarettes as a result of the provisions of subsection II(mm) of the
master settlement agreement and which pays the taxes specified in
subsection II(z) of the master settlement agreement, and provided that the
manufacturer of such cigarettes does not market or advertise the cigarettes in the
United States);

b. Is the first purchaser anywhere for resale in the United States of cigarettes
manufactured anywhere which the manufacturer does not intend to be sold in the
United States; or
c. Becomes a successor of an entity described in subdivision a or b.
The term "tobacco product manufacturer" does not include an affiliate of a tobacco
product manufacturer unless the affiliate itself falls within subdivision a, b, or c.
10. "Units sold" means the number of individual cigarettes sold in the state by the
applicable tobacco product manufacturer, whether directly or through a distributor,
retailer, or similar intermediary or intermediaries, during the year in question, on which
the state has authority under federal and state law to collect excise tax under chapter
57-36, notwithstanding whether the state excise tax was imposed or collected.
Cigarettes exempt from state excise tax under federal law are specifically excluded
from this definition. The state tax commissioner shall adopt rules as are necessary to
ascertain the amount of state excise tax paid on the cigarettes of the tobacco product
manufacturer for each year.
### § 51-25-02. Requirements.

A tobacco product manufacturer selling cigarettes to consumers within the state, whether
directly or through a distributor, retailer, or similar intermediary or intermediaries, after April 8,
1999, must do one of the following:
1. Become a participating manufacturer, as that term is defined in section II(jj) of the
master settlement agreement, and generally perform its financial obligations under the
master settlement agreement; or
2. a. Place into a qualified escrow fund by April fifteenth of the year following the year
in question, the following amounts, as such amounts are adjusted for inflation:
(1) 1999: $.0094241 per unit sold after April 8, 1999;
(2) 2000: $.0104712 per unit sold;
(3) For each of 2001 and 2002: $.0136125 per unit sold;
(4) For each of 2003 through 2006: $.0167539 per unit sold; and
(5) For each of 2007 and each year thereafter: $.0188482 per unit sold.
b. A tobacco product manufacturer that places funds into escrow pursuant to
subdivision a shall receive the interest or other appreciation on the funds as
earned. The funds may be released from escrow only under the following
circumstances:
(1) To pay a judgment or settlement on any released claim brought against the
tobacco product manufacturer by the state or any releasing party located or
residing in the state. Funds must be released from escrow under this
paragraph in the order in which they were placed into escrow and only to the
extent and at the time necessary to make payments required under the
judgment or settlement;
(2) To the extent that a tobacco product manufacturer establishes that the
amount it was required to place into escrow on account of units sold in the
state in a particular year was greater than the master settlement agreement
payments, as determined pursuant to section IX(i) of that agreement,
including after final determination of all adjustments, that the manufacturer
would have been required to make on account of such units sold had it been
a participating manufacturer, the excess must be released from escrow and
revert back to such tobacco product manufacturer; or
(3) To the extent not released from escrow under paragraph 1 or 2, funds must
be released from escrow and revert back to the tobacco product
manufacturer twenty-five years after the date on which they were placed into
escrow.
c. Each tobacco product manufacturer that elects to place funds into escrow
pursuant to this subsection shall annually certify to the state tax commissioner
that it is in compliance with this subsection. The state tax commissioner shall
refer every instance of noncompliance to the attorney general. The attorney

general may bring a civil action on behalf of the state against any tobacco product
manufacturer that fails to place into escrow the funds required under this section.
Any tobacco product manufacturer that fails in any year to place into escrow the
funds required under this section must:
(1) Be required within fifteen days to place the funds into escrow as will bring it
into compliance with this section. The court, upon a finding of a violation of
this subdivision, may impose a civil penalty to be paid to the general fund of
the state in an amount not to exceed five percent of the amount improperly
withheld from escrow per day of the violation and in a total amount not to
exceed one hundred percent of the original amount improperly withheld from
escrow;
(2) In the case of a knowing violation, be required within fifteen days to place
the funds into escrow as will bring it into compliance with this section. The
court, upon a finding of a knowing violation of this subdivision, may impose
a civil penalty to be paid to the general fund of the state in an amount not to
exceed fifteen percent of the amount improperly withheld from escrow per
day of the violation and in a total amount not to exceed three hundred
percent of the original amount improperly withheld from escrow; and
(3) In the case of a second knowing violation, be prohibited from selling
cigarettes to consumers within the state, whether directly or through a
distributor, retailer, or similar intermediary, for a period not to exceed two
years.
d. Each failure to make an annual deposit required under this section constitutes a
separate violation.
e. Notwithstanding subdivision b, a tobacco product manufacturer that deposits
funds into escrow under subdivision a, or a transferee of rights therein, may make
an irrevocable assignment of the tobacco manufacturer's interest in the funds to
the benefit of the state. The assignment executed in accordance with this section
is permanent and applies to all funds in the escrow account and which
subsequently may come into the account, including funds deposited into the
account before the assignment is executed, funds deposited into the account
after the assignment is executed, and interest and other appreciation on the
funds. The tobacco product manufacturer, the attorney general, and the financial
institution that maintains the escrow account may make an amendment to the
qualified escrow account agreement as necessary to effectuate an assignment of
the rights executed under this subdivision or the withdrawal of funds from the
escrow account under subdivision b. An assignment executed under this
subdivision must be in writing, and be signed by a duly authorized representative
of the assignor and assignee and becomes effective upon delivery of the
assignment to the attorney general and the financial institution at which the
escrow account is maintained.
f. Notwithstanding subdivision b, escrow funds assigned to the state under
subdivision e must be withdrawn by the state on the approval of the attorney
general. Funds withdrawn under this subdivision must be deposited into the
general fund and must be calculated on a dollar-for-dollar basis as a credit
against any judgment or settlement described in subdivision b which may be
obtained against the tobacco product manufacturer or transferee that has
assigned the funds in the escrow account to the state. This section may not be
construed to relieve a tobacco product manufacturer from any past, current, or
future obligation the manufacturer may have under this chapter or chapter
51-25.1.
