L.L. 2013/097

Enactment date: 11/19/2013

Int. No. 1021-A

By Council Members Arroyo, Cabrera, Chin, Comrie, Jr., Dromm, Fidler, King, Lander, Lappin, Rodriguez, Levin, Vann, Vacca, Palma, Gennaro, Koslowitz, Van Bramer, Koo, Crowley, Eugene and Recchia, Jr. (by request of the Mayor)

A Local Law to amend the administrative code of the city of New York, in relation to the sale of cigarettes and tobacco products, and the regulation of retail dealers and wholesale dealers of cigarettes, and repealing section 17-707 of the administrative code of the city of New York, relating to requiring public health messages where tobacco advertisements appear.

Be it enacted by the Council as follows:

Section 1. Legislative findings. The Council hereby finds that tobacco use is a leading cause of preventable premature death in the United States and the City of New York, and cigarette trafficking costs New York City and State hundreds of millions of dollars annually in foregone tax revenue. Cigarettes are the only consumer products that, when used exactly as intended, kill up to one-third of regular users. Currently, 981,000 adults smoke in New York City. In 2011, 28,000 New York City public high school students under the age of eighteen experimented with smoking for the first time; of those, more than one-third (35%) currently smoke. In total, approximately 19,000 New York City public high school students under the age of eighteen smoke. Smoking-related illnesses cost New Yorkers billions of dollars annually in health care costs and lost productivity.

Given the substantial human and economic costs associated with tobacco use, New York City has taken numerous steps to reduce tobacco use among adults and to stop youth (persons under the age of eighteen) from starting to use cigarettes and tobacco products. In 2002, New York City employed a comprehensive, multifaceted tobacco control program incorporating the following components: (1) high cigarette excise taxes; (2) educational media campaigns on the risks of tobacco use; (3) a cessation program that helps people to quit; and (4) laws imposing restrictions and regulations on the sale and use of cigarettes and tobacco products. The City has succeeded in reducing the prevalence of adult tobacco use from 21.5% in 2002 to 15.5% in 2012, a 28% reduction. Prevalence among youth also declined substantially from 17.6% in 2001 to 8.5% in 2007. Youth smoking rates, however, have plateaued since, and remain at 8.5% as of 2011.

Because tobacco use persists among youth and adults, the City must take further action. Preventing youth and young adults from taking up smoking is critical because, in New York City, 80% of adults who become daily smokers start smoking before reaching the age of twenty-one, and nationwide, 99% of smokers start by age twenty-six. The City employs a strong retail inspection program to prevent illegal sales to youth, conducting more than 9,000 retail inspections annually, only 10% of which result in violations. Nevertheless, more than a quarter of underage New York City public high school students who smoke buy their cigarettes from retail stores.

The Council further finds, based on numerous studies, that high tobacco prices reduce tobacco consumption among both youth, who are especially price-sensitive, and adults. A 10% increase in cigarette prices reduces demand among adult smokers by 3-5% and among youth by 7%. High prices reduce the prevalence of tobacco use, the probability of trying tobacco for the first time, the average number of cigarettes consumed per smoker, initiation of daily smoking, and initiation of daily heavy smoking. In addition, reductions in smoking prevalence indirectly lead to even greater reductions by minimizing peer and parental influences and by helping addicted smokers to succeed in quitting.

Just as high tobacco prices decrease demand, the availability of low-priced cigarettes and tobacco products increases demand and contributes to continued tobacco use. Low-priced cigarettes and tobacco products are widely available in New York City through a number of sources.

First, contraband cigarettes are widely available at low effective prices that are only possible through tax evasion, thereby undermining the public health purpose of New York City's high cigarette taxes. Criminal actors take advantage of the disparities in state cigarette excise taxes along the East Coast by trafficking cigarettes from low-tax jurisdictions to high-tax jurisdictions, violating numerous laws in the process. For example, Virginia's excise tax on cigarettes is $0.30 per pack; in New York City, the combined excise tax is $5.85 per pack, including the $4.35 State tax and the $1.50 City tax. A trafficker purchasing 10,000 packs of cigarettes in Virginia could profit tens of thousands of dollars reselling them in New York City.

Several studies show the widespread availability of trafficked cigarettes. In a 2011 study of littered cigarette packs in New York City, only 39% of littered packs bore the proper New York City tax stamp; and among packs with out-of-state stamps, 71.4% were from Virginia. Out of 1,071 targeted investigations of licensed retailers in 2012 by the New York City Department of Finance's Sheriff's Office, 55% of the retailers possessed cigarettes without the required New York City tax stamp.

Cigarette tax evasion puts law-abiding retailers at a competitive disadvantage relative to retailers and street sellers selling untaxed cigarettes. Cigarette tax evasion also hurts the government and taxpayers. New York State's Department of Health estimated that cigarette excise tax evasion deprived the State of $500 million in 2009. New York City's cigarette tax revenue losses amount to a substantial fraction of New York State's losses. Available evidence suggests the extent of cigarette tax revenue losses has likely increased since 2009.

Second, the use of coupons, multipackage discounts and other price reduction instruments, all of which are widely available in New York City, reduce retail prices for tobacco products. In a 2011 study of New York City smokers attempting to quit, 25% reported using a coupon or other discount on their last purchase, saving an average $1.25 per package of cigarettes. Discounts entice consumers, including price-sensitive youth, to purchase deadly and highly addictive products.

Third, as cigarette prices have increased, smokers, particularly youth and young adults, have migrated to cheaper tobacco products. Little cigars, for example, appear virtually identical to cigarettes and cost substantially less. Manufactured cigarillos, cigars and smokeless tobacco are also less expensive alternatives. These products are not subject to New York City excise taxes or other fees specific to cigarettes and are often sold individually for one to two dollars. Despite well-documented risks, smokers of all ages - especially youth and young adults in low-income urban areas - erroneously perceive cigars as less harmful than cigarettes.

The Council hereby declares that enactment of this law is necessary to address the persistent availability of low-priced cigarettes and tobacco products in New York City. This law will (1) reduce the illegal evasion of cigarette excise taxes; (2) ban the redemption of coupons and other price reduction instruments in the sale of cigarettes and tobacco products to consumers; (3) create a price floor for a package of cigarettes and little cigars; and (4) require inexpensive cigars to be sold in packages of no fewer than four. Such actions are necessary to maximize the public health impact of high tobacco prices, prevent traffickers from profiting from illegal cigarette sales and New York City and State from losing billions of dollars in tax revenue, and protect law-abiding retailers who are at a competitive disadvantage relative to retailers who illegally evade excise taxes.

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[Consolidated provisions are not included in this Appendix A]

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§ 27. This local law shall take effect immediately, provided that:

   (i)   sections two, seven, eight, nine, eleven, seventeen, eighteen, nineteen, twenty, twenty-one, twenty-four and twenty-six shall take effect sixty days after its enactment;

   (ii)   sections five, six, ten, twelve and thirteen shall take effect one hundred twenty days after its enactment;

   (iii)   section twenty-five shall take effect one hundred eighty days after its enactment; and

   (iv)   the commissioners of finance, consumer affairs and health and mental hygiene may take such actions as are necessary for its implementation, including the promulgation of rules, prior to such effective dates.