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Tobacco Transition Assessments

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 [Federal Register: February 10, 2005 (Volume 70, Number 27)]
[Rules and Regulations]
[Page 7007-7014]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe05-5]

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DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
7 CFR Part 1463
RIN 0560-AH31
 
Tobacco Transition Assessments

AGENCY: Commodity Credit Corporation, USDA.
ACTION: Final rule.

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SUMMARY: This rule provides regulations for the manner in which 
assessments are to be made on various domestic manufacturers or 
importers of tobacco products to fund the tobacco transition payment 
program as required by Title VI of the America Jobs Creation Act of 
2004 (the 2004 Act).

EFFECTIVE DATE: February 9, 2005.

FOR FURTHER INFORMATION CONTACT: Misty Jones, Tobacco Division (TD), 
Farm Service Agency, United States Department of Agriculture (USDA), 
STOP 0514, Room 4080-S, 1400 Independence Avenue, SW., Washington, DC 
20250-0514. Phone: (202) 720-7413; e-mail: Misty.Jones@usda.gov. 
Persons with disabilities who require alternative means for 
communication (Braille, large print, audio tape, etc.) should contact 
the USDA Target Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION: 

Notice and Comment

    Section 642(b) of the 2004 Act (Pub. L. 108-357) requires that the 
regulations to implement Title VI of the 2004 Act are to be promulgated 
without regard to the notice and comment provisions of 5 U.S.C. 553 or 
the Statement of Policy of the Secretary of Agriculture effective July 
24, 1971, (36 FR 13804) relating to notice and comment rulemaking and 
public participation in rulemaking. These regulations are thus issued 
as final.

Background

General Overview

    Sections 611 through 613 of the 2004 Act repeal the marketing quota 
and acreage allotment (marketing quota) and price support loan programs 
for tobacco that are authorized by Title III of the Agricultural 
Adjustment Act of 1938 (the 1938 Act), and the Agricultural Act of 1949 
(the 1949 Act), effective at the end of the 2004 marketing year 
established for the respective kinds of tobacco that are subject to 
such quotas. The regulations used to administer the marketing quota 
program are codified at 7 CFR part 723 and the price support loan 
program regulations are codified at 7 CFR part 1464.
    Sections 622 and 623 of the 2004 Act provide that eligible quota 
holders and tobacco producers will receive payments under the Tobacco 
Transition Payment Program (TTPP) in 10 equal installments in each of 
the 2005 through 2014 fiscal years. The regulations used to administer 
payments made under this program will be set forth in a separate rule.

Assessment and Trust Fund

    Sections 625 through 627 of the 2004 Act provide for the 
establishment of assessments on certain domestic manufacturers and 
importers of tobacco products in order to fund the 10-year TTPP. The 
funds to be expended under this program are to be derived from a trust 
fund established by the 2004 Act. The trust fund is also to be used to 
pay for losses the Commodity Credit Corporation (CCC) incurs in 
disposing of tobacco it had acquired under the price support loan 
program and for costs that CCC may incur by using private financial 
institutions in carrying out portions of the program. To fund the 
trust, section 625(b)(1) of the 2004 Act requires that ``each tobacco 
product manufacturer and tobacco product importer that sells tobacco 
products in domestic commerce in the United States'' be subject to this 
assessment. The manner in which the assessments are to be levied is 
specified by the 2004 Act. Notably, assessments are levied on ``each 
tobacco product manufacturer and tobacco product importer;'' 
accordingly, no assessment is levied on an entity that imports, or 
sells domestically only un-manufactured tobacco.
    Assessments are imposed during each of the fiscal years (FY) 2005 
through 2014. The amount of such annual assessment is to be sufficient 
to cover the payments made to tobacco quota holders and tobacco 
producers and to cover other approved expenses made in that calendar 
year. For 2005, the percentage of these assessments to be collected 
from each such sector is as follows:
    1. Cigarette manufacturers and importers--96.331 percent.
    2. Cigar manufacturers and importers--2.783 percent.
    3. Snuff manufacturers and importers--0.539 percent.
    4. Roll-your-own tobacco manufacturers and importers--0.171 percent.
    5. Chewing tobacco manufacturers and importers--0.111 percent.
    6. Pipe tobacco manufacturers and importers--0.066 percent.
    These percentages were established under section 625 of the 2004 
Act by using calendar year 2003 data. The allocations by class for 
fiscal year 2005 were calculated by multiplying net tobacco products 
removed (both domestic and imported) by the maximum excise tax rate for 
each class of tobacco (see table 1 below).

[[Page 7008]]

                               Table 1.--Calculation of Initial Assessments for Each Class of Tobacco Under Section 625(c)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Domestic  (< #     Imports        Total quantity                                Estimated taxes    Allocation
          2003 Calendar year               or lbs) 1     (# or     (# or        Maximum tax rate 2       (total quantity     by class
                                                               lbs) 1            lbs) 1                                    times tax rate)    (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cigarettes: small (#)........    377,241,580,953   23,085,086,000    400,326,666,953  $19.50/thou...............     $7,806,370,006       96.331
Cigarettes: large (#)........                  0                0                  0  $40.95/thou...............                  0        0.000
Cigars: small (#)............      2,301,972,488      172,369,000      2,474,341,488  $1.828/thou...............          4,523,096        0.056
Cigars: large (#)............      4,018,523,214      514,566,000      4,533,089,214  $48.75/thou...............        220,988,099        2.727
Snuff (lbs)..........................         74,700,715            8,369         74,709,084  $0.585/lb.................         43,704,814        0.539
Chewing tobacco (lbs)................         45,906,067          174,399         46,080,466  $.195/lb..................          8,985,691        0.111
Pipe tobacco (lbs)...................          4,155,205          698,086          4,853,291  $1.0969/lb................          5,323,575        0.066
Roll your own (lbs)..................         11,353,137        1,254,008         12,607,145  $1.0969/lb................         13,828,777        0.171
                                                                                                                         --------------------
    Total............................  .................  ...............  .................  ..........................      8,103,724,058     100.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Source: Alcohol and Tobacco Tax and Trade Bureau; National Revenue Center; December 2003 Monthly Statistical Release Re-issued August 19, 2004;
  Report Symbol TTB S 5200-12-2003 http://www.ttb.gov/tobacco/stats/index.htm.
Exit Disclaimer
\2\ Source: Alcohol and Tobacco Tax and Trade Bureau; Tax and Fee Rate 
http://www.ttb.gov/alcohol/info/atftaxes.htm. Exit Disclaimer

    Section 625(c)(2) of the 2004 Act requires the Secretary to 
periodically adjust these percentages as changes occur in the 
marketplace. Beginning in FY 2006, it is CCC's intention to adjust the 
class percentages annually by using this same methodology to ascertain 
changes in the volume of sales of each class.

Market Shares and Base Period

    Section 625(b)(1) of the 2004 Act provides that in each of the FY's 
2005 through 2014, CCC will impose assessments ``on each tobacco 
product manufacturer and tobacco product importer that sells tobacco 
products in domestic commerce in the United States during that fiscal 
year.'' The 2004 Act provides that for each such entity, within each of 
the six specified sectors, the Secretary must establish individual 
assessments by determining a statutorily prescribed ``market share'' 
for each manufacturer and importer. This market share is defined by 
section 625(a)(3) of the 2004 Act as the entity's share of the ``class 
of tobacco product (expressed as a decimal to the fourth place) of the 
total volume of domestic sales of the class of tobacco product during 
the base period for a fiscal year* * *.'' The ``base period'' is 
defined in section 625(a)(1) as the ``one-year period ending the June 
30 before the beginning of a fiscal year.'' For FY 2005 that would be 
July 1, 2003 through June 30, 2004 and an entity's FY 2005 market share 
would be its share of the sale of a class of tobacco products from July 
1, 2003 through June 30, 2004.
    Section 625(f) provides that the determination of the amount of a 
quarterly assessment owed by an entity will be based upon its prior 
quarterly period sales. Thus, as payments made by an entity cover a 
calendar year period, the first quarterly payment that is due on March 
31, 2005 will be determined by using the October 1, 2004 through 
December 31, 2004 market share of the entity within each of the six 
product sectors. Accordingly, the use of the 2004 Act's ``market 
share'' and ``base period,'' are effectively limited to being used to 
determine the division of the national assessment among the six 
previously listed sectors.
    In order to establish these market shares, section 625(h)(1) 
provides that each manufacturer and importer of tobacco products must 
submit ``a certified copy of each of the returns or forms described by 
paragraph (2) that are required to be filed with a Federal agency on 
the same date that those returns or forms are filed, or required to be 
filed, with the agency.'' Section 625(h)(2) provides that these returns 
and forms ``are those that relate to, ``(A) the removal of tobacco 
products into domestic commerce (as defined by section 5702 of the 
Internal Revenue Code of 1986); and (B) the payment of the taxes 
imposed under charter [sic] 52 of the Internal Revenue Code of 1986, 
including AFT [sic] Form 5000.24 and United States Customs Form 7501 
under currently applicable regulations.'' With respect to the 
information provided to the Department of the Treasury, data to develop 
a market share would be obtained from sources such as TTB Form 5000.24, 
which is required to be filed monthly. To the extent amended forms are 
filed, CCC would incorporate those changes to the extent it deemed 
practicable, taking into consideration when the amended form was 
submitted. With respect to imports of tobacco products, CCC intends to 
use information provided to the Department of the Treasury and the 
Department of Homeland Security when the product enters the United States.
    At the current time, this information would be of the type 
submitted monthly on TTB Form 5220.6, ATF Form 5210.5, TTB Form 
5000.24, TTB Form 5620.8 and Customs and Border Protection Form 7501. 
Because the name and identification of these and other forms may change 
over time, CCC will provide actual notice to domestic manufacturers and 
importers of tobacco products of those forms from which information 
could be obtained for purposes of compliance with this subpart. Due to 
the need to obtain this information as soon as possible for use in FY 
2005, CCC will provide actual notice to those entities who have 
received a permit, as identified below, from the Department of the 
Treasury since October 1, 2004 in order to obtain information regarding 
their October 1 through December 31, 2004 marketings. To the extent 
that future submissions to the Department of the Treasury and the 
Department of Homeland Security may be combined with that needed for 
the administration of the 2004 Act, CCC will attempt to obtain the 
information from the two agencies without the need to obtain the same 
information from tobacco manufacturers and tobacco product importers.

Quarterly Assessments

    Section 625(b)(1) of the 2004 Act requires that CCC ``* * * impose 
quarterly assessments during each of fiscal years 2005 through 2014, * 
* * on each tobacco product manufacturer and tobacco product importer 
that sells tobacco products in domestic commerce in the United States 
during that fiscal year.''
    Section 625(b)(2) further provides that: ``Beginning with the 
calendar quarter ending on December 31 of each of fiscal years 2005 
through 2014, the assessment payments over each four-calendar quarter 
period shall be sufficient to cover--

[[Page 7009]]

    (A) The contract payments made under sections 622 and 623 during 
that period; and
    (B) Other expenditures from the Tobacco Trust Fund made during the 
base quarter periods corresponding to the four calendar quarters of 
that period.''
    Section 625(d)(1) of the 2004 Act further provides that ``The 
notice for a quarterly period shall be provided not later than 30 days 
before the date payment is due under paragraph (3).''
    Section 625(d)(3) provides:
    ``(A) Collection Date.--Assessments shall be collected at the end 
of each calendar year quarter, except that the Secretary shall ensure 
that the final assessment due under this section is collected not later 
than September 30, 2014.
    (B) Base Period Quarter.--The assessment for a calendar year 
quarter shall correspond to the base period quarter that ended at the 
end of the preceding calendar year quarter.''
    The 2004 Act contains several provisions that give contradictory 
direction to CCC. For example, while section 625(b)(1) provides that 
CCC ``* * * shall impose quarterly assessments during each of the 
fiscal years 2005 through 2014,'' section 625(b)(2) directs that 
assessments be collected ``* * * over each four calendar quarter 
period,'' which CCC interprets as being each quarter beginning on 
January 1, 2005 through December 31, 2014, except that the final 
payment is accelerated to September 30, 2014 by section 625(d)(3)(B). 
Similarly, section 625(d)(1) states that notification of payments owed 
by an entity is to be made ``not later than 30 days before the date 
payment is due under paragraph (3).'' Section 625(d)(3)(A) contains the 
special rule for moving December 31, 2014 assessments to September 30, 
2014, but subparagraph (B) provides ``The assessment for a calendar 
year quarter shall correspond to the base period quarter that ended at 
the end of the preceding calendar year quarter.'' Thus, this provision 
of 625(d)(3)(B) to use a method of collection where a quarterly payment 
is to ``correspond'' to the prior quarter runs counter to the use of 
the ``market share'' and ``base period'' provisions of the 2004 Act. 
Accordingly, with respect to section 625(d)(3)(B), CCC interprets this 
provision to mean that an entity's required payment is to be adjusted 
quarterly by determining an entity's share of a tobacco product sector 
based upon the prior 3 month marketings of the entity. Such an 
interpretation also means that an entity entering the tobacco market 
for the first time at any time during a quarterly payment period will 
be treated in the same manner as all other entities.
    After reviewing this provision of the 2004 Act in the context of 
all of Title VI of the 2004 Act, CCC has determined the intent of the 
statutory scheme established by section 625 of the 2004 Act is that CCC 
is to levy assessments in amounts needed to fund the Tobacco Trust Fund 
(TTF) with sufficient amounts to cover expenses incurred in each of the 
2005 through 2014 calendar years, with payment due to CCC at the end of 
each calendar year quarter.
    Thus, the first quarterly payment is due to CCC on March 31, 2005 
and the 40th, and final payment otherwise due to CCC on December 31, 
2014, is accelerated to September 30, 2014. While section 625(b)(2) 
refers to the collection of assessments at the end of a calendar year 
quarter for expenditures occurred in that quarter, section 625(c)(3) 
allows CCC to adjust any assessment to be collected in a fiscal year to 
cover expenditures ``* * * as the Secretary determines to be necessary 
to carry out this subtitle during that fiscal year.''
    Accordingly, in order to allow for a more uniform and predictable 
assessment rate so that entities paying the assessment can make timely 
business decisions, CCC will levy four quarterly assessments in each of 
the 2005 through 2014 calendar years with payment due on March 31, June 
30, September 30, and December 31 of each calendar year. But, as 
required by the 2004 Act, the December 31, 2014 payment will be due on 
September 30, 2014. Accordingly, this 40th quarter payment will be 
determined by using the same adjusted market share data of an entity 
that was used to determine the 39th quarter payment. To the extent 
practicable, each of the four quarterly assessments for a calendar year 
will be one-fourth of the estimated costs of the total expenditures for 
that calendar year, but CCC may adjust each of the amounts due each 
quarter to account for unanticipated savings or increased outlays.

Entities Subject to Payment of the Assessment

    In order to collect these assessments, this rule provides that 
those domestic manufacturers and importers of tobacco products who must 
pay an assessment are those that, during the fiscal year, are required 
to have a permit from the Department of the Treasury as provided in 27 
CFR parts 40.61 and 40.62 for manufacturers and 27 CFR parts 275.190 
and 275.191 for importers. Since all domestic manufacturers and 
importers of tobacco products must have such a permit, use of this 
requirement will provide a readily identifiable process that imposes no 
additional burden on these entities.
    Generally, for FY 2005, the assessment for an individual company 
would be determined by:
    1. Taking the total calendar year 2005 expenditures CCC estimates 
it will incur and dividing that amount among the various classes of 
tobacco pursuant to the percentages specified above.
    2. Taking that dollar amount for each class and dividing it among 
each entity in that class based on the entity's adjusted market share 
each quarter. With respect to the first calendar year quarterly payment 
that is due March 31, 2005, CCC would calculate an individual entity's 
required payment based upon the entity's adjusted market share as 
determined as of the ``* * * quarter that ended at the end of the 
preceding calendar year quarter,'' which would be the October 1 through 
December 31, 2004 time frame. With respect to the payment due on June 
30, 2005, the market share would be adjusted to reflect marketings 
between January 1, 2005 and March 31, 2005.

Notification of Information

    Section 625(d) of the 2004 Act provides that each domestic 
manufacturer and importer of tobacco products will be given actual 
notice, not later than 30 calendar days prior to the date payment of 
each quarterly assessment is due to CCC, of certain determinations made 
under the 2004 Act. These determinations relate to:
    1. The total combined assessment for all domestic manufacturers and 
importers of tobacco products, which is referred to as the ``national 
assessment'' in the rule;
    2. The total assessment for each class of tobacco product;
    3. Any adjustments that have been made to the percentage allocation 
of the gross volume of tobacco products among classes of tobacco products;
    4. Any adjustment to the national assessment due to changes of CCC 
expenditures during the fiscal year;
    5. The volume of gross sales for each class of tobacco made by the 
domestic manufacturer or importer of tobacco products that was used in 
determining the market share of such entity;
    6. The total volume of gross sales of the applicable class of 
tobacco products that was used in determining the market share of 
domestic manufacturer and importers of tobacco products;
    7. The domestic manufacturers' and importers' of tobacco products 
market share of the applicable class of tobacco product; and

[[Page 7010]]

    8. The market share of each domestic manufacturer and importers of 
tobacco products.
    In reviewing the notification of information provision with 
officials of the Department of the Treasury, it has been determined 
that the disclosure of market share information on an entity to another 
party, item 8, would be in violation of 26 U.S.C. 6103. That provision 
of the Internal Revenue Code precludes the disclosure by the United 
States Government of information obtained from a tax return or other 
form to a third party. Accordingly, the notifications provided by this 
rule will not include disclosure of an entity's market share to any 
third party.
    In addition to the first seven items noted above, the notification 
that CCC will provide to domestic manufacturers and importers of 
tobacco products will also include:
    1. The manner in which assessments are to be remitted to CCC; and
    2. Identification of those Department of the Treasury and 
Department of Homeland Security forms filed by the domestic 
manufacturer and importer of tobacco products that must also be filed 
with CCC.

Appeals

    Notice of appeal rights will be provided when applicable. Section 
625(i) of the 2004 Act sets forth specific times by which CCC must 
resolve certain administrative appeals that arise with respect to the 
levy of assessments. Accordingly, the administrative review procedure 
set forth in this rule provides that for those appeals in which the 
appellant disputes the amount of the assessments CCC will, within 30 
business days of receipt of the notice of the appeal, determine if a 
revision should be made. If a decision has not been made within 30 
business days, for purposes of seeking judicial review, the appellant 
will have been deemed to have exhausted all administrative remedies. 
The administrative procedure established by this rule provides for the 
opportunity for a hearing, if requested by the appellant, and also 
provides for the appeal of other determinations arising under the act 
that are not subject to the 30-day appeal process.

Analysis of Benefits and Costs

    This rule was determined to be economically significant by the 
Office of Management and Budget under Executive Order 12866. Thus, an 
analysis of the benefits and costs of this rule has been performed by 
the Agency. This analysis is available from Misty Jones at (202) 720-
7413 or at http://www.fsa.usda.gov/tobacco/. Exit Disclaimer A summary of the 
estimated impacts of this rule are as follows:
Tobacco Market Prices
    The price tobacco manufacturers pay for domestic tobacco is higher 
than that for imported tobacco. This is largely due to the price 
support program for domestic tobacco which established a higher minimum 
price for U.S. product. The elimination of the tobacco price support is 
expected to move domestic tobacco market prices toward the lower market 
price of imported tobacco. Academic research suggests that tobacco 
market prices may decline 25 percent or more from their levels under 
the previous program. However, over the longer term, tobacco producers 
are expected to benefit from reduced production costs from elimination 
of quota rent, increased production as domestic leaf will compete more 
effectively with imports, more competitiveness in the export market, 
and economy of scale as farms consolidate into larger and more 
efficient units. Also, elimination of tobacco marketing quotas will 
result in a loss of income to quota owners because owning a tobacco 
quota allows a person to market tobacco in the higher-price domestic 
market and, therefore, it has an intrinsic value.
CCC Stocks
    Lower domestic market tobacco prices may cause a reduction in the 
value of CCC tobacco stocks which are collateral for CCC nonrecourse 
marketing loans. If tobacco prices fall below the loan value of tobacco 
pledged as collateral, CCC could lose a significant amount of money. 
Compensating tobacco producers, quota holders, and CCC is viewed as an 
equitable remedy for the loss of future tobacco income and the 
potentially diminished value of loan collateral. The assessments 
collected from tobacco importers and manufacturers will fund the 
payments for quota holders and tobacco producers and will also 
compensate CCC for any losses associated with tobacco loan stocks.
Payments to Holders and Producers
    CCC will enter into a contract with each tobacco quota holder or 
producer to compensate them for terminating quotas and price support. 
Assessments on manufacturers and importers of tobacco products will 
finance the payments. As provided in this rule the total payments due 
an eligible tobacco quota holder is $7 per pound multiplied by the 
pounds of basic quota at the 2002 quota level. Total payments due a 
tobacco producer is, in the case of flue-cured and burley tobacco, $3 
per pound of effective quota for the 2002 marketing year and, for other 
kinds of tobacco, $3 per pound of the allotment for 2002, times the 
average annual yield per acre produced in the 2001, 2002, and 2003 crop 
years. Total transition payments are estimated at $9.6 billion based on 
known payment rates per pound and 2002 acreage/poundage quotas. 
Reimbursable expenses incurred by CCC and financial institutions 
related to assessments and payments are expected to be about $540 million.
Costs to Manufacturers and Importers
    On August 18, 2004, there were 158 product manufacturers and 666 
product importers providing data on tobacco product sales. Tobacco 
manufacturer and importer assessments are based on their shares of 
sales volume for 6 major tobacco product classes: cigarettes, cigars, 
pipe tobacco, snuff, chewing tobacco, and roll-your-own tobacco. 
Product classes are measured in number of units of product or pounds of 
product, and each category is assigned a percentage of the market for 
that product class based on its pro rata share of the total sales of 
that product. Total assessments on cigarette manufacturers and 
importers during fiscal year 2005 are estimated at about $975 million 
based on 2003 taxable removal of cigarettes of about 400 billion, or 
about 20 billion packs of 20 each. Thus, the assessment per pack of 
cigarettes will be around 4.8 cents. In order to cover their share of 
the product class's assessment, cigarette manufacturers and importers 
would likely raise the price of cigarettes by a similar amount.
    Cigars' proportion of the fiscal year 2005 assessment is 2.783 
percent, about $28.2 million. This implies a price increase of about 
0.4 cents per cigar based on 2003 removals of 7.0 billion units. Other 
products' share of the assessment in million dollars, and the implied 
increase in product price in cents per pound, in parenthesis, are: 
snuff--$5.5 (7.3), chewing tobacco--$1.1 (2.4), pipe tobacco--$.7 
(13.8), and roll-your-own--$1.7 (13.8).
    Manufacturers and importers are expected to pass most of these 
costs to consumers of tobacco products through small increases in sales 
prices, since demand tends to be much more inelastic than supply. 
Specific estimates of the supply elasticity are not available, however, 
most studies assume supply to be perfectly elastic. The additional 
burden of providing information on sales volume to CCC is deemed 
negligible inasmuch as these data are already provided to other 
government agencies.

[[Page 7011]]

Impact on Consumers
    Consumers are expected to pay marginally higher prices for tobacco 
products than they would in the absence of the assessments, as 
manufacturers pass on most of the cost of assessments through higher 
product sales prices. The recent national average retail price of 
cigarettes is calculated to be $3.8066 per pack. A 4.8-cent-per-pack 
increase in the price would equate to a 1.3-percent rise in the retail 
price. Numerous studies have calculated the price elasticity of demand 
for cigarettes to be quite inelastic, ranging from a low of -0.4 to a 
high of -0.75. The range of estimates for youth smoking is wider, 
ranging from 0 to -1.44. Based on these estimates, a 1-percent rise in 
the price of cigarettes would be expected to reduce overall consumption 
by 0.4 percent to 0.75 percent. However, among youth, the expected 
impact may range from no decline to as much as a 1.44-percent decline. 
Nonetheless, consumers, in aggregate, are not expected to significantly 
reduce consumption of tobacco products due to the expected increases in 
tobacco prices attributable to the assessments alone.
Administrative Burden
    CCC will likely incur modest additional staffing requirements 
associated with the ongoing administration of this assessment, however, 
automated processes will limit staff requirements somewhat. CCC loan 
operation net expenses will be paid by the assessments collected under 
these regulations. However, since the tobacco program has been 
administered at no-net-cost for years, these assessments are expected 
to have no significant impact on CCC loan operation expenses.

Executive Order 12866

    This final rule has been determined to be economically significant 
under Executive Order 12866 and has been reviewed by the Office of 
Management and Budget (OMB). A cost-benefit assessment was completed 
and is summarized after the background section explaining the rule.

Federal Assistance Programs

    The title and number of the Federal assistance program, as found in 
the Catalog of Federal Domestic Assistance, to which this final rule 
applies are: 10.051--Commodity Loans and Loan Deficiency Programs.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this rule 
because neither the Secretary of Agriculture nor CCC is required by 5 
U.S.C. 553 or any other law to publish a notice of proposed rulemaking 
for the subject matter of this rule.

Environmental Review

    Due to the brief time-frame FSA had to promulgate these 
regulations, sufficient time was not available to complete an 
environmental review prior to implementing this program. Therefore, an 
environmental assessment is being completed to consider the potential 
impacts of this proposed action on the human environment in accordance 
with the provisions of the National Environmental Policy Act of 1969 
(NEPA), 42 U.S.C. 4321, et seq., the regulations of the Council on 
Environmental Quality (40 CFR parts 1500-1508), and FSA's regulations 
for compliance with NEPA at 7 CFR part 799. A copy of the draft 
environmental assessment will be available after completion for review 
upon request.

Executive Order 12778

    This final rule has been reviewed in accordance with Executive 
Order 12778. This rule preempts State laws that are inconsistent with 
its provisions, but the rule is not retroactive. Before any judicial 
action may be brought concerning this rule, all administrative remedies 
must be exhausted.

Executive Order 12372

    This program is not subject to Executive Order 12372, which 
requires intergovernmental consultation with State and local officials. 
See the notice related to 7 CFR part 3015, subpart V, published at 48 
FR 29115 (June 24, 1983).

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does 
not apply to this rule because neither the Secretary of Agriculture nor 
CCC is required by 5 U.S.C. 553 or any other law to publish a notice of 
proposed rulemaking for the subject matter of this rule. Also, the rule 
imposes no mandates as defined in UMRA.

Small Business Regulatory Enforcement Fairness Act of 1996

    Section 642(c) of the 2004 Act requires that the Secretary use the 
authority in section 808 of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Pub. L. 104-121 (SBREFA), which allows an agency 
to forgo SBREFA's usual 60-day Congressional Review delay of the 
effective date of a major regulation if the agency finds that there is 
a good cause to do so. Accordingly, this rule is effective upon the 
date of filing for public inspection by the Office of the Federal Register.

Paperwork Reduction Act

    Section 642(b) of the 2004 Act requires that these regulations be 
promulgated and administered without regard to the Paperwork Reduction 
Act. This means that the information to be collected from the public to 
implement these provisions and the burden, in time and money, the 
collection of the information would have on the public does not have to 
be approved by the Office of Management and Budget or be subject to the 
normal requirement for a 60-day public comment period.

Government Paperwork Elimination Act

    CCC is committed to compliance with the Government Paperwork 
Elimination Act and the Freedom to E-File Act, which require Government 
agencies in general, and FSA in particular, to provide the public the 
option of submitting information or transacting business electronically 
to the maximum extent possible. Because of the date that the 
regulations for this program are required to be published, the forms 
and other information collection activities required to be utilized by 
a person subject to this rule are not yet fully implemented in a way 
that would allow the public to conduct business with CCC 
electronically. Accordingly, at this time, all forms required to be 
submitted under this rule may be submitted to CCC by mail or FAX.

List of Subjects in 7 CFR Part 1463

    Agriculture, Acreage allotments, Marketing quotas, Price support 
programs, Tobacco.

? Accordingly, title 7 is amended by adding part 1463, as set forth below:

PART 1463--2005-2014 TOBACCO TRANSITION PROGRAM

Subpart A--Tobacco Transition Assessments
Sec.
1463.1 General.
1463.2 Administration.
1463.3 Definitions.
1463.4 National assessment.
1463.5 Division of national assessment among classes of tobacco.
1463.6 Determination of persons liable for payment of assessments.
1463.7 Division of class assessment to individual entities.
1463.8 Notification of assessments.
1463.9 Payment of assessments.
1463.10 Civil penalties and criminal penalties.
1463.11 Appeals and judicial review.

[[Page 7012]]

Subpart B--[Reserved]

    Authority: 7 U.S.C. 714b and 714c; and Title VI of Pub. L. 108-357.

Subpart A--Tobacco Transition Assessments

Sec.  1463.1  General.

    The Commodity Credit Corporation (CCC) will levy assessments from 
January 1, 2005 through September 30, 2014 on certain domestic 
manufacturers and importers of tobacco products as provided for in this 
subpart in order to fund the issuance of payments made under subpart B 
of this part and to fund other activities authorized by Title VI of the 
American Jobs Creation Act of 2004. The total amount of assessments 
that may be collected under this part shall not exceed $10.140 billion.

Sec.  1463.2  Administration.

    The provisions of this subpart will be administered under the 
general supervision of the Executive Vice President, CCC.

Sec.  1463.3  Definitions.

    The definitions in this section shall apply for all purposes of 
administering the provisions of this subpart:
    Act means Title VI of the America Jobs Creation Act of 2004 (Public 
Law 108-357).
    Adjusted market share means the market share of a manufacturer of 
tobacco products or an importer of tobacco products adjusted to reflect 
such entity's share of a class of tobacco during the immediately 
preceding calendar year quarter. With respect to the 39th and 40th 
quarterly payments due on September 30, 2014, the adjusted market share 
will be the entity's share of a class of tobacco during the April 1-
June 30, 2014 quarter.
    Base period means the period July 1 through June 30 immediately 
preceding the beginning of a fiscal year.
    CCC's point of contact means, for items physically sent to CCC, 
``Tobacco Division (TD), Farm Service Agency, United States Department 
of Agriculture (USDA), STOP 0514, Room 4080-S, 1400 Independence 
Avenue, SW., Washington, DC 20250-0514'' unless otherwise specified by 
CCC through actual notice and, for all correspondence by email, 
tob_comments@wdc.usda.gov.
    Calendar year means the period January 1 through December 31.
    Class of tobacco means each of the following types of tobacco and 
tobacco products: cigarettes; cigars; snuff; roll-your-own tobacco; 
chewing tobacco; and pipe tobacco.
    Domestic manufacturer of tobacco products means an entity that is 
required to obtain a permit from the Alcohol and Tobacco Tax and Trade 
Bureau of the Department of the Treasury with respect to the production 
of tobacco products under title 27 of the Code of Federal Regulations.
    Fiscal year means the period October 1 through September 30.
    Gross domestic volume means the volume of tobacco products removed, 
as defined by section 5702 of the Revenue Code, and not exempt from tax 
under chapter 52 of such code at the time of their removal under that 
chapter or the Harmonized Tariff Schedule of the United States.
    Importer of tobacco products means an entity that is required to 
obtain a permit from the Alcohol and Tobacco Tax and Trade Bureau of 
the Department of the Treasury with respect to the importation of 
tobacco products under title 27 of the Code of Federal Regulations.
    Market share means the share of each domestic manufacturer and 
importer of a class of tobacco product, to the fourth decimal place, of 
the total volume of domestic sales of the class of tobacco product in a 
base period.
    National assessment means the total amount of funding that CCC has 
determined to be necessary to collect in a year from domestic 
manufacturer and importer of tobacco products in order to reimburse CCC 
for expenditures that it will incur in the year for expenses incurred 
under sections 622 and 623 of the Act in making payments under subpart 
B of this part; losses sustained by CCC in the disposition of tobacco 
acquired under price support loan agreements as provided in section 
641(c) of the Act; and costs incurred by CCC in the utilization of 
financial institutions in administering sections 622 and 623 of the Act.
    Revenue Code means the Internal Revenue Code of 1986.
    Tobacco Trust Fund means an account established for deposit of 
assessments collected under this subpart, plus interest that accrues on 
such assessments, to be used to implement this subpart.

Sec.  1463.4  National assessment.

    Annually, CCC will make a determination of a national assessment in 
as far in advance of when the first assessment is due as CCC determines 
to be practicable. Based upon the amount of assessments received and 
expenditures incurred in a calendar year quarter, CCC may adjust the 
national assessment for one or more classes of tobacco established for 
a particular year with respect to succeeding calendar year quarters.

Sec.  1463.5  Division of national assessment among classes of tobacco.

    (a) Except as provided in paragraph (b) of this section, the 
national assessment will be divided by CCC among each class of tobacco 
based upon CCC's determination of each class's share of the excise 
taxes paid. The value of the excise taxes paid for each class of 
tobacco will be based upon the reports filed by domestic manufacturers 
and importers of tobacco products with the Department of the Treasury 
and the Department of Homeland Security:
    (b) For fiscal year 2005, the national assessment will be divided 
as follows:
    (1) Cigarettes, 96.331 percent;
    (2) Cigars, 2.783 percent;
    (3) Snuff, 0.539 percent;
    (4) Roll-your-own tobacco products, 0.171 percent;
    (5) Chewing tobacco, 0.111 percent; and
    (6) Pipe tobacco, 0.066 percent.
    (c) For fiscal years 2006 through 2014, the division of the 
national assessment for each class of tobacco will be adjusted annually.

Sec.  1463.6  Determination of persons liable for payment of assessments.

    (a) All domestic manufacturers and importers of tobacco products 
are required to pay to CCC their proportionate share of a calendar 
year's national assessment. Such entities are those that import or 
manufacture tobacco products in a calendar year and are required to 
report to the United States Department of the Treasury or to the 
Department of Homeland Security the removal of tobacco products into 
domestic commerce under the Revenue Code or are required to pay taxes 
under chapter 52 of such code.
    (b)(1) Such entities must provide to CCC's point of contact:
    (i) Entity name; mailing address of the entity's principal place of 
business; an office or individual that CCC may contact for further 
information; an e-mail address and postal address at which they wish to 
receive notifications required by the Act to be made to them by CCC; and
    (ii) On a monthly basis for each class of tobacco, the total amount 
of tobacco products, summarized by employer identification number or 
such other method as may be prescribed by CCC, that are required to be 
reported to the United States Department of the Treasury or to the 
Department of Homeland Security in each month beginning October 1, 
2004, and ending September 30, 2014.
    (2) The information required to be submitted to CCC under paragraph 
(b)(1) of this section must be submitted by:

[[Page 7013]]

    (i) With respect to fiscal year 2005 activities occurring prior to 
February 10, 2005, by February 25, 2005; and
    (ii) With respect to all other activities, on the same date the 
information was required to be submitted to the United States 
Department of the Treasury or to the Department of Homeland Security.

Sec.  1463.7  Division of class assessment to individual entities.

    (a) In order to determine the assessment owed by an entity, that 
portion of the national assessment assigned to each class of tobacco 
will be further divided at the entity level. The amount of the 
assessment for each class of tobacco to be paid by each domestic 
manufacturer and importer of tobacco products will be determined by 
multiplying:
    (1) With respect to each class of tobacco, the adjusted market 
share of such manufacturer or importer; by
    (2) The total amount of the assessment for that class of tobacco 
for the calendar year quarter.
    (b) For purposes of determining the volume of domestic sales of 
each class of tobacco and for each entity, such sales shall be based 
upon the reports filed by domestic manufacturers and importers of 
tobacco products with the Department of the Treasury and the Department 
of Homeland Security:
    (1) For cigarettes and cigars, on the number of cigarettes and 
cigars reported on such reports;
    (2) For all other classes of tobacco, on the number of pounds of 
those products.
    (c) In determining the adjusted market share of each manufacturer 
or importer of a class of tobacco products, CCC will determine to the 
fourth decimal place an entity's share of excise taxes paid of that 
class of tobacco product during the immediately prior calendar year 
quarter.

Sec.  1463.8  Notification of assessments.

    (a) Once CCC has determined a national assessment, CCC will collect 
that amount on a quarterly basis from all domestic manufacturers and 
importers of tobacco products subject to Sec.  1463.5.
    (b) 30 calendar days prior to the end of each calendar year quarter 
domestic manufacturers and importers of tobacco products will receive 
notification of:
    (1) The national assessment;
    (2) The percentage of the national assessment that has been 
allocated to each class of tobacco product and the total amount of 
assessments due from each such class;
    (3) Any adjustments that have been from the prior fiscal year with 
respect to the allocation of the gross domestic volume determined for 
use in a fiscal year among the classes of tobacco products;
    (4) An adjustment in the national assessment if CCC determines that 
the assessments imposed will result in insufficient funds due to 
changes in the amount of expenditures that CCC has determined will be 
made in a calendar year;
    (5) The national volume of gross sales of each class of tobacco 
product that CCC has allocated to the domestic manufacturer or importer 
of tobacco products for the purpose of determining such entity's 
adjusted market share;
    (6) The total volume of gross sales of each class of tobacco 
product that CCC has allocated to a class of tobacco product, within 
the gross domestic volume determined for use in a fiscal year, that was 
used for the purpose of determining a tobacco product manufacturer's or 
tobacco importer's adjusted market share;
    (7) For that quarter, the adjusted market share of the domestic 
manufacturer or importer of tobacco products;
    (8) The manner in which assessments are to be remitted to CCC; and
    (9) Identification of those Department of the Treasury and 
Department of Homeland Security forms filed by the domestic 
manufacturer or importer of tobacco products that are used to calculate 
assessments.

Sec.  1463.9  Payment of assessments.

    (a) Assessments under this subpart are imposed for the expenditures 
CCC has determined it will incur in the 2005 through 2014 calendar 
years. Except as provided in paragraph (c) of this section, payment of 
such assessments are due to CCC no later than the end of each calendar 
year quarter. If prior to 30 calendar days before the end of a calendar 
year quarter CCC has not notified an entity of the amount that is 
required to be remitted in that quarter, no interest will be assessed 
by CCC under paragraph (d) of this section until 30 calendar days have 
elapsed from the date CCC provided notification of the amount owed.
    (b) Payments due under this subpart must be submitted to CCC by 
electronic fund transfer unless prior written approval has been 
obtained from CCC.
    (c) The final two calendar year quarterly payments due to CCC under 
this part shall be due to CCC on September 30, 2014.
    (d) Notwithstanding any other provision of this chapter, if CCC has 
not received payment of assessments determined to be owed at the end of 
a calendar year quarter, CCC will assess interest on such unpaid amount 
beginning on the first day of the calendar year quarter immediately 
following the end of such prior quarter. Such interest will be at the 
rate CCC assesses on delinquent debts in accordance with part 1403 of 
this title.
    (e) With respect to funds placed in escrow that are refunded to the 
domestic manufacturer or importer of tobacco products due to the 
resolution of an appeal, interest will be paid on such amount from the 
date of receipt by CCC until the date of the refund. Such interest rate 
will be at the rate charged by the U.S. Treasury for CCC's borrowing 
that is in effect on the date of receipt by CCC of such funds.

Sec.  1463.10  Civil penalties and criminal penalties.

    (a) Any person who knowingly fails to provide information required 
to be filed under this subpart, or provides false information under 
this subpart, may be subject to the penalties prescribed in 15 U.S.C. 
714m, 18 U.S.C. 1003, and such other civil and criminal statutes as the 
United States determines to be appropriate.
    (b) In addition to an action that may be taken under paragraph (a) 
of this section, with respect to any person who knowingly fails to 
provide information required to be filed under this subpart, or that 
provides false information under this subpart, a person may be subject 
to assessment of a civil penalty by CCC. Such civil penalty will be 
imposed by CCC taking into account the severity of the action; whether 
the action is of a repetitive nature; and the disruption the action has 
caused with respect to other parties subject to this subpart. Any such 
civil penalty will not exceed two percent of the value of the kind of 
tobacco products manufactured or imported by such entity in the fiscal 
year in which the violation occurred.

Sec.  1463.11  Appeals and judicial review.

    (a) An entity may appeal any adverse determination made under this 
subpart, including with respect to the amount of the assessment, by 
submitting a written statement that sets forth the basis of the dispute 
by submitting such a request to the Executive Vice President, CCC, at 
1400 Independence Avenue, SW., Room 4080-S, Washington DC 20250-0514, 
within 30 business days of the date of receipt of the notification by 
CCC of its determination.
    (b) The Executive Vice President shall assign a person to act as 
the hearing officer on behalf of CCC. The duty of the hearing officer 
will be to develop an administrative record that will provide the 
Executive Vice President, or a designee, with sufficient information to 
render a final determination on the matter in dispute. The hearing to be

[[Page 7014]]

conducted by the hearing officer will be an informal hearing at which 
the appellant may present oral and written evidence in support of the 
appellant's position. A copy of the rules of conduct that will be 
applicable to the proceeding will be provided to the appellant upon 
receipt of the appeal by CCC.
    (c) With respect to any appeal filed under this section regarding 
an assessment imposed on a domestic manufacturer or importer of tobacco 
products, the rules of conduct will provide that within 30 calendar 
days of receiving the final submission of material by the appellant, 
CCC will render a final administrative decision. In the event CCC has 
not rendered a decision by such date, all administrative remedies 
available to the appellant shall be deemed to be exhausted.
    (d) Any domestic manufacturer or importer of tobacco products 
aggrieved by a determination made by CCC under this subpart may seek 
review of the determination upon the exhaustion of the administrative 
remedies provided by this part in the United States District Court for 
the District of Columbia, or for the district in which such importer or 
manufacturer has its principal place of business.

Subpart B--[Reserved]

    Signed in Washington, DC on February 3, 2005.
James R. Little,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. 05-2552 Filed 2-9-05; 8:45 am]
BILLING CODE 3410-05-P

 
 

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