830 CMR: DEPARTMENT OF REVENUE
830 CMR 64C.00: CIGARETTE EXCISE
830 CMR 64C.00 is amended by adding the following section:
830 CMR 64C.14.1: Fair Pricing of Cigarettes

(1) Purpose. The purpose of this regulation, 830 CMR 64C.14.1, is to promote the effective administration of the fair pricing provisions of M.G.L. c. 64C, §§ 13‑21, by requiring licensees who wish to advertise, offer to sell, or sell cigarettes at a price that is less than the applicable statutory presumptive cost to show first a lesser actual cost of selling cigarettes.

(2) Definitions.

Base cost of cigarettes, the invoice cost of the cigarettes to the licensee or the replacement cost of the cigarettes to the licensee within thirty days prior to the date of sale in the quantity last purchased, whichever is lower, less all trade discounts except customary discount for cash. The cigarette excise imposed by M.G.L. c. 64C is not part of the invoice cost of the cigarettes to the licensee.

Cartage cost, three‑fourths of one percent of the base cost of the cigarettes to the wholesaler or a lower cost as claimed and proved by the wholesaler.

Chain store, as defined in M.G.L. c. 64C, § 13(c).

Commissioner, the Commissioner of Revenue or the Commissioner's duly authorized representative.

Licensee, as defined in M.G.L. c. 64C.

Manufacturer, as defined in M.G.L. c. 64C.

Retailer, as defined in M.G.L. c. 64C.

Retailer's actual cost of selling cigarettes, the base cost of the cigarettes to the retailer plus the retailer's overhead costs and expenses.

Retailer's overhead costs and expenses, the amounts attributable to the sale of cigarettes, as evidenced by the standards and methods of accounting regularly employed by the retailer in the allocation of overhead costs and expenses, paid or incurred, including, without limitation, labor, salaries of executives and officers, rent, depreciation, selling costs, maintenance of equipment, delivery costs, all types of license fees, taxes, insurance, and advertising.

Retailer's presumptive cost of selling cigarettes, 112.4 percent of the base cost of the cigarettes to the retailer.

Wholesaler, as defined in M.G.L. c. 64C.

Wholesaler's actual cost of selling cigarettes, the base cost of the cigarettes to the wholesaler plus the wholesaler's overhead costs and expenses.

Wholesaler's overhead costs and expenses, the amounts attributable to the sale of cigarettes as evidenced by the standards and methods of accounting regularly employed by the wholesaler in the allocation of overhead costs and expenses paid or incurred, including, without limitation, labor, salaries of executives and officers, rent, depreciation, selling costs, maintenance of equipment, delivery costs, all types of license fees, taxes, insurance, and advertising.

Wholesaler's presumptive cost of selling cigarettes, 102 percent of the base cost of the cigarettes to the wholesaler plus the cartage cost to the retail outlet if performed or paid for by the wholesaler.

Wholesaler's presumptive cost of selling cigarettes to chain stores, 100.5 percent of the base cost of the cigarettes to the wholesaler plus the cartage cost to the retail outlet if performed or paid for by the wholesaler. The effective date of the lower presumptive cost for sales to chain stores is August 2, 1989. St. 1989, c. 60.

(3) General Rule. No licensee shall advertise, offer to sell, or sell cigarettes at a price that is less than the applicable presumptive cost without obtaining the Commissioner's prior written approval. The Commissioner may periodically announce the retailers' and wholesalers' presumptive cost. The Commissioner may suspend any license for a period of five days if the licensee advertises, offers to sell, or sells cigarettes at less than the applicable presumptive cost without the Commissioner's prior written approval. The Commissioner may revoke any license for multiple violations of this regulation, 830 CMR 64C.14.1.

(4) Prior Approval Required to Advertise, Offer to Sell, or Sell Cigarettes at Prices Below Presumptive Cost.

(a) General. Any licensee who wishes to advertise, offer to sell, or sell cigarettes at a price that is less than the applicable presumptive cost must receive the Commissioner's prior written approval.

(b) Request for prior approval hearing. A licensee who wishes to request a prior approval hearing with the Commissioner should write to the following address:

Determination Bureau
Department of Revenue
100 Cambridge Street Room 303
Boston, Massachusetts 02204

The request should include the licensee's name, address, telephone number if available, and a Power of Attorney for the licensee's representative, if any.

(c) Notification of prior approval hearing date. The Commissioner will notify a licensee who has made a request for a prior approval hearing of the time and the place of the hearing by certified mail.

(d) Scope of prior approval hearing. The scope of the prior approval hearing is limited to a presentation of evidence by the licensee that the actual cost of selling cigarettes is lower than the applicable presumptive cost of selling cigarettes. The licensee has the burden of proof. If the licensee shows by a preponderance of the evidence that the actual cost is less than the applicable presumptive cost, the Commissioner will approve the licensee's request to advertise, offer to sell, or sell cigarettes below the presumptive cost.

(e) Factors in determining approval to sell below presumptive cost. Generally, the Commissioner will look at the following information to decide whether the licensee's actual cost is less than the applicable presumptive cost:

1. An accounting of the licensee's cost of doing business using the standards and methods of accounting regularly employed in the licensee's business in the allocation of overhead costs and expenses which are attributable to the sale of cigarettes. The factors that must be taken into account in arriving at a licensee's overhead costs and expenses, which are paid or incurred, include but are not limited to: labor, salaries of executives and officers, rent, depreciation, selling costs, maintenance of equipment, delivery costs, all types of license fees, taxes, insurance, and advertising costs;

2. The licensee's previous taxable year's corporate excise or individual income return;

3. All written statements required to be retained under M.G.L. c. 62C, § 25, M.G.L. c. 64C, § 5, and 830 CMR 64C.14.1(8); and

4. Any other documents or evidence that would support a finding that the licensee's actual cost is lower than the applicable presumptive cost.

(f) Conduct of prior approval hearing. The prior approval hearing is not an adjudicatory hearing within the meaning of M.G.L. c. 30A. Formal rules of evidence will not apply at the hearing.

(g) Notification of prior approval determination. After the prior approval hearing the Commissioner will notify the licensee by certified mail, return receipt requested, whether the request to sell cigarettes at a price lower than the applicable presumptive cost has been approved.

(h) Effective date of approval. The Commissioner's approval of the licensee's request to advertise, offer to sell, or sell cigarettes below presumptive cost will take effect on the date shown on the notice provided for in 830 CMR 64C.14.1(4)(g).

(i) Term of Commissioner's approval. The Commissioner's approval of the licensee's request to advertise, offer to sell, or sell cigarettes below the presumptive cost is valid for a period of one year from the effective date of the approval provided that the licensee's costs do not increase during this period, or until the licensee is notified otherwise, whichever is earlier.

(j) Effect of failure to obtain prior approval. If any licensee advertises, offers to sell, or sells cigarettes at a price that is less than the applicable presumptive cost without the Commissioner's prior written approval, the Commissioner will, after notice and an opportunity for a hearing as provided for in 830 CMR 64C.14.1(5), suspend the licensee's license for a period of five business days.

(k) Exceptions to prior approval requirement. In any of the following circumstances the Commissioner's prior written approval is not required for a licensee to advertise, offer to sell, or sell cigarettes at a price that is less than the applicable presumptive cost:

1. The cigarettes are advertised, offered for sale, or sold in an isolated transaction and not in the usual course of business;

2. The cigarettes are advertised, offered for sale, or sold in a bona fide clearance sale for the purpose of discontinuing trade in cigarettes, and the advertising, offer to sell, or sale states the reason therefor and the quantity of such cigarettes advertised, offered for sale, or sold;

3. The cigarettes are advertised, offered for sale, or sold as imperfect or damaged, and the advertising, offer to sell, or sale states the reason therefor and the quantity of such cigarettes advertised, offered for sale, or sold;

4. The cigarettes are sold upon the complete final liquidation of a business;

5. The cigarettes are advertised, offered for sale, or sold by any fiduciary or other officer acting under the order or direction of any court;

6. The cigarettes are advertised, offered for sale, or sold for charitable purposes or to relief agencies; or

7. The cigarettes are sold on contract to any Department, Board, or Commission of the Commonwealth, any political subdivision thereof, or any institution maintained thereby.

(5) Suspension of License for Advertising, Offering to Sell, or Selling Cigarettes at Prices Below Presumptive Cost Without the Commissioner's Prior Approval.

(a) General. If the Commissioner determines that a licensee has advertised, offered to sell, or sold cigarettes at prices below the applicable presumptive cost without the Commissioner's prior approval, after affording the licensee an opportunity for a hearing, the Commissioner may suspend any license for five days.

(b) Written notification of violation and intent to suspend. If the Commissioner receives information that a licensee is advertising, offering to sell, or selling cigarettes at prices below the applicable presumptive cost, the Commissioner will notify the licensee by certified mail, return receipt requested, that the advertising, offering for sale, or sale of cigarettes below the applicable presumptive cost without prior approval is a violation of the provisions of 830 CMR 64C.14.1 and that the Commissioner intends to suspend the licensee's license or licenses as provided in M.G.L. c. 62C, § 68(5).

(c) Testimony and Summonses. If the Commissioner receives information that a licensee is advertising, offering to sell, or selling cigarettes below the applicable presumptive cost without the Commissioner's prior written approval, the Commissioner may take testimony and proofs under oath and issue summonses and require the attendance and testimony of witnesses and the production of books, papers, records, and other data, as provided under M.G.L. c. 62C, § 70.

(d) Contents of notification of violation and intent to suspend. The notification of violation and intent to suspend a license will include the following information:

1. That the Commissioner has received information that the licensee has advertised, offered to sell, or sold cigarettes at below the applicable presumptive cost without the Commissioner's prior approval, in violation of the provisions of 830 CMR 64C.14.1;

2. That the Commissioner intends to suspend the licensee's license or licenses for a period of five days;

3. That the Commissioner will provide the licensee an opportunity for a hearing, if the licensee requests the hearing in writing within fifteen days after the notification of violation and intent to suspend is mailed to the licensee;

4. That if the licensee fails to respond to the notification of violation and intent to suspend within the fifteen‑day period the Commissioner will automatically suspend the licensee's license;

5. The person and address within the Department whom the licensee may contact for additional information;

6. A citation to the applicable statutes and this regulation, 830 CMR 64C.14.1; and

7. Any additional information the Commissioner considers appropriate.

(e) Request for hearing on notification of violation and intent to suspend. If the licensee wishes a hearing on the violation and Commissioner's intent to suspend, the licensee must request a hearing with the Commissioner within fifteen days after the written notification of violation and intent to suspend is mailed to the licensee. The request must be made in writing and sent to the Determination Bureau at the address listed in 830 CMR 64C.14.1(4)(b). The request must be postmarked on or before the fifteenth day following the date the notification is mailed to the licensee.

(f) Effect of licensee's failure to request a hearing within the fifteen‑day time limit. Any licensee who fails to request a hearing within the fifteen‑day time limit set forth in 830 CMR 64C.14.1(5)(e) waives the right to a hearing on the notification of violation and intent to suspend. If a licensee waives the right to a hearing on the notification of violation and intent to suspend, the Commissioner will suspend the licensee's license without a hearing in accordance with 830 CMR 64C.14.1(5)(k) and (l).

(g) Notification of suspension hearing date. The Commissioner will notify a licensee who has made a timely request for a hearing as provided for in 830 CMR 64C.14.1(5)(b) by certified mail of the time and the place of the hearing.

(h) Scope of suspension hearing. The scope of the suspension hearing is limited to a determination of whether:

1. The licensee has requested and obtained the prior written approval of the Commissioner as set forth in 830 CMR 64C.14.1(4) to sell below the applicable presumptive cost; and

2. The licensee has demonstrated that no advertisements, offers to sell, or sales were made at prices below the applicable presumptive cost.

(i) Licensee's records to be submitted at suspension hearing. For purposes of 830 CMR 64C.14.1(5)(h), a licensee must submit each record required to be kept by M.G.L. c. 64C, § 5 and 830 CMR 64C.14.1(8) for each transaction in question, including, without limitation, written statements containing the name and address of both the seller and the purchaser, dates of delivery, quantities of cigarettes, trade names or brands thereof, and the prices paid for each brand of cigarettes purchased.

(j) Conduct of suspension hearing. The suspension hearing is not an adjudicatory hearing within the meaning of M.G.L. c. 30A. Formal rules of evidence will not apply at the hearing.

(k) Notification of suspension hearing determination. The Commissioner will ordinarily send the licensee written notification of the Commissioner's determination within five days after the suspension hearing or, if a request for hearing was not made within the time prescribed by 830 CMR 64C.14.1(5)(e), within five days after the date the request for the suspension hearing was due.

(l) Effective date of suspension. The Commissioner's determination to suspend a licensee's license will take effect on the date written on the notice provided for in 830 CMR 64C.14.1(5)(k) under the heading "Effective Date of Suspension."

(6) Revocation of License for Multiple Violations. The Commissioner may summarily revoke any license if the licensee is found to be in violation of the provisions of 830 CMR 64C.14.1(4) and subject to suspension under 830 CMR 64C.14.1(5) more than twice in any twelve consecutive month period. In such cases, the Commissioner will notify the licensee of the revocation by certified mail, return receipt requested. The effective date of the revocation will be written on the notification.

(7) Appeal of Suspension or Revocation Determination.

(a) Appeal to the Appellate Tax Board. Any licensee aggrieved by a suspension or revocation under 830 CMR 64C.14.1 may appeal to the Appellate Tax Board within ten days after written notice of the Commissioner's determination is mailed to the licensee.

(b) Effect of pendency of appeal. During the pendency of the appeal of the Commissioner's determination to suspend or revoke the licensee's license will, unless otherwise ordered by the Board, be inoperative.

(c) Effect of appeal without probable cause. If the licensee appeals without probable cause, the Board may tax double or triple costs, as the case demands. Upon all denied appeals, the Board in its discretion may tax any costs against the licensee, provided that the Board will tax no costs against the Commonwealth.

(8) Records and Statements Required to Be Maintained by Licensees.

(a) Maintenance of complete records. Under M.G.L. c. 64C, § 5, licensees must maintain complete and accurate records of all cigarettes manufactured, purchased, or otherwise acquired.

(b) Records required with each sale or consignment. Under M.G.L. c. 64C, § 5 manufacturers and wholesalers must deliver with each sale or consignment of cigarettes a written statement with all relevant information. The statements should contain the following information:

1. Name, or trade name, and address of the seller and the purchaser;

2. The date of delivery;

3. The quantity of cigarettes sold or consigned;

4. The trade name or brand of the cigarettes sold or consigned, correctly itemizing the prices paid for each brand; and

5. All charges made for the cigarettes, including base cost and cartage cost.

(c) Written statements to include all information to reflect properly the involved transactions. Under M.G.L. c. 64C, § 5, no licensee may withhold from the written statements required by M.G.L. c. 64C, § 5 and 830 CMR 64C.14.1(8)(b) any information that should properly be included, so that in the absence of such information the statement does not truly reflect the transactions involved.

(d) Form of and length of time records to be maintained. All written statements required under G.L. c. 64C, § 5 and 830 CMR 64C.14.1(8) must be in such form as prescribed by the Commissioner and must be preserved for a period of three years after the date any return for the applicable period required to be filed under M.G.L. c. 62C, § 16(d) was filed or the date the return was due, whichever is later, unless the Commissioner requires or consents to some other retention period under M.G.L. c. 62C, § 25. Also refer to M.G.L. c. 62C, § 26(i).

(9) Reinstatement of License. The Commissioner will not issue a new license to a licensee after a suspension or revocation of a license unless the Commissioner is satisfied that the licensee will comply with the provisions of M.G.L. c. 64C and with all pertinent rules and regulations thereunder. Any licensee whose license has been suspended or revoked under 830 CMR 64C.14.1 must pay to the Commissioner a fee of twenty dollars for the reissuance of a license.

(10) Penalties. In addition to any other penalties established by law any retailer who advertises, offers to sell, or sells at retail cigarettes at less than cost or any wholesaler who advertises, offers to sell, or sells cigarettes at wholesale cigarettes at less than cost, with intent to injure competitors, destroy substantially or lessen competition is subject to a fine of not more than five hundred dollars. M.G.L. c. 64C, § 14.

(11) Persons Wishing to Report Violations. Any person who wishes to report a violation of this regulation should write to the Determination Bureau at the address listed in 830 CMR 64C.14.1(4).

REGULATORY HISTORY
Date of Promulgation: 7/7/89