SB2654 HD2

PART I

SECTION 1. The legislature finds that tobacco use is the single most preventable cause of disease, disability, and death in the United States. Tobacco use continues to be a problem in Hawaii, causing approximately one thousand four hundred deaths per year among adults. An estimated twenty-one thousand children in Hawaii currently under the age of eighteen will ultimately die prematurely from smoking. Tobacco use poses a heavy burden on Hawaii's health care system and economy. Each year, smoking costs approximately $526,000,000 in direct health care expenditures and $387,300,000 in lost productivity in the State.

The legislature further finds that tobacco products are addictive and inherently dangerous, causing many different types of cancer, heart disease, and other serious illnesses. Hawaii has a substantial interest in reducing the number of individuals of all ages who use tobacco products, and a particular interest in protecting adolescents from tobacco dependence and the illnesses and premature death associated with tobacco use.

The legislature additionally finds that electronic smoking devices, also known as e-cigarettes, are battery-operated products designed to turn highly addictive nicotine, flavor, and other chemicals into an aerosol that is inhaled by the user. Consumers may choose from varying strengths of e-liquid nicotine as well as liquids consisting of different flavors. A 2015 study of more than fifty-eight million e-cigarettes found that ninety-nine per cent contained nicotine, whether or not they were labeled as "zero nicotine" or "nicotine-free". The legislature is concerned that labeling alone is not an effective measure of nicotine content.

The electronic smoking device industry, including the production of e‑liquids, is growing rapidly. According to a 2016 report from the United States Surgeon General, e-cigarette use amongst the nation's youth and young adults has become a major public health concern. The Surgeon General's report noted that e-cigarette use has increased considerably in recent years, growing an astounding nine hundred per cent among high school students from 2011 to 2015. More than three million middle school and high school students were users of e-cigarettes in 2015. Furthermore, e‑cigarettes are now the most commonly used tobacco product among youth, surpassing conventional cigarettes in 2014. E‑cigarette use among youth and young adults is also strongly associated with the use of other tobacco products, including combustible tobacco products. Toxicologists have also warned that e-liquids pose significant risks to public health, particularly to children. According to the Surgeon General's report, if the contents of refill cartridges or bottles are consumed, ingestion of e-liquids containing nicotine can cause acute toxicity and possibly death. The Surgeon General's report also found that there are numerous policies and practices that can be implemented at the state and local levels to address electronic smoking device use among youth and young adults, including preventing access to e‑cigarettes by youth, significant increases in tax and price of e-cigarettes, retail licensure, and regulation of e-cigarette marketing.

The legislature finds that the rapid growth of the electronic smoking device industry, including retail businesses selling electronic smoking devices or e-liquids, necessitates further regulations to protect consumers, such as requiring retailers of e-liquids to obtain a retail tobacco permit.

The legislature notes that the federal Food and Drug Administration recently finalized a rule that expands its regulatory authority to all tobacco products, including electronic smoking devices, cigars, and hookah and pipe tobacco. However, the legislature also notes that there is currently no state tobacco tax attached to e-liquid, even though electronic smoking devices are now regulated as tobacco products. The legislature finds that states such as Indiana, Pennsylvania, and West Virginia tax e-liquids that may or may not contain nicotine. Furthermore, tobacco products other than cigarettes are currently taxed at a lower rate than cigarettes, even though their use carries similar health risks. Research has shown that increasing cigarette prices, such as through cigarette taxes, tends to reduce the rate of smoking by adult and youth smokers. However, the legislature is concerned that as the price of cigarettes increases, smokers may purchase less expensive tobacco products, such as electronic smoking devices or e‑liquids.

Finally, the legislature concludes that there needs to be a tax on e-liquids and taxing these products as other tobacco products is the most equitable way to do so. Imposing a tax on e-liquids will also encourage users of e-liquids to quit, sustain cessation, prevent youth initiation, and reduce consumption among those who continue to use them.

The purpose of this part is to:

(1) Make unlawful the shipment of tobacco products to anyone other than a licensee;

(2) Make unlawful the transport of tobacco products ordered through remote sale to anyone other than a licensee;

(3) Include e-liquid within the definition of "tobacco products", as used in the cigarette tax and tobacco tax law, thereby:

(A) Subjecting e-liquid to the excise tax on tobacco products;

(B) Requiring retailers of e-liquid to obtain a retail tobacco permit to sell, possess, keep, acquire, distribute, or transport e-liquid;

(C) Prohibiting persons from engaging in the business of wholesaling or dealing e-liquid without first obtaining a license from the department of taxation; and

(D) Applying other requirements of chapter 245, Hawaii Revised Statutes;

(4) Increase the license fee for persons engaged as a wholesaler or dealer of cigarettes and tobacco products; and

(5) Increase the retail tobacco permit fee for retailers engaged in the retail sale of cigarettes and tobacco products.

SECTION 2. Chapter 245, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§245- Unlawful shipment of tobacco products; penalty; reports; liability for unpaid taxes. (a) A person or entity commits the offense of unlawful shipment of tobacco products if the person or entity is engaged in the business of selling tobacco products and ships or causes to be shipped, any tobacco products ordered or purchased through a remote sale, to a person or entity in the State that is not:

(1) A licensee under this chapter; or

(2) A person or entity transporting tobacco products, as defined in section 245-1, under federal internal revenue bond or customs control that are non-tax-paid under title 26 of the United States Code, or an operator of a customs bonded warehouse pursuant to title 19 United States Code section 1311 or 1555.

(b) This section shall not apply to the shipment of tobacco products if any of the following conditions are met:

(1) The tobacco products are exempt from taxes as provided by section 245-3(b);

(2) The person or entity engaged in the business of selling, advertising, or offering tobacco products for sale and transfer or shipment includes on the outside of the shipping container an externally visible and easily legible notice located on the same side of the shipping container as the address to which the shipping container is delivered stating as follows:

"HAWAII LAW PROHIBITS THE SALE OF CIGARETTES OR TOBACCO PRODUCTS TO INDIVIDUALS UNDER TWENTY-ONE YEARS OF AGE AND REQUIRES THE PAYMENT OF ALL APPLICABLE TAXES. YOU ARE LEGALLY RESPONSIBLE FOR ALL APPLICABLE UNPAID TAXES ON THESE CIGARETTES AND TOBACCO PRODUCTS."; or

(3) All applicable Hawaii taxes on the tobacco products are paid in accordance with the requirements of this section.

(c) Any person or entity who knowingly violates this section shall be guilty of a misdemeanor. Each shipment that violates or fails to comply with this section shall be a separate and distinct violation.

(d) Notwithstanding the existence of other remedies at law, any person or entity that purchases, uses, controls, or possesses any tobacco products for which the applicable taxes imposed under title 14, Hawaii Revised Statutes, have not been paid, shall be liable for the applicable taxes, plus any penalty and interest as provided for by law.

(e) In addition to, or in lieu of, any other civil or criminal remedy provided by law, a person or entity who has violated this section is subject to a civil penalty of up to $5,000 for each violation. The attorney general may initiate a civil action seeking recovery of the penalties.

(f) For the purposes of this section:

"Internet sale" means any internet website or electronically networked means that solicits or sells cigarettes or tobacco products, including electronic smoking devices, regardless of whether cash is actually paid for the product.

"Licensee" means a person or entity that is on a list of authorized licensees published by the department.

"Mail order" means any means of soliciting cigarettes or tobacco products, including electronic smoking devices, that are set forth in a catalog or other printed solicitation of a business that is generally available to the public.

"Remote sale" means a sale that is conducted by mail order, telephone, computer, internet sale, or any means other than a physical storefront.

§245- Delivery sales. (a) No person may conduct a delivery sale or otherwise ship or transport, or cause to be shipped or transported, any electronic smoking device in connection with a delivery sale to any person under the age of twenty-one.

(b) A person who makes delivery sales must not accept a purchase or order from any person without first obtaining the full name, birth date, and address of that person and verifying the purchaser's age by:

(1) An independently operated third-party database or aggregate of databases that are regularly used by government and businesses for the purpose of age and identity verification and authentication;

(2) Receiving a copy of a government issued identification card from the purchaser; or

(3) Requiring age and signature verification in the shipment process and upon and before actual delivery.

(d) Any person who violates this section shall be fined $500 for the first offense. Any subsequent offenses shall be a fine of no less than $500 but no more than $2,000. Any person under twenty-one years of age who violates this section shall be fined $10 for the first offense. Any subsequent offense shall be a fine of $50, no part of which shall be suspended, or the person shall be required to perform no less than forty-eight hours but no more than seventy-two hours of community service during hours when the person is not employed and is not attending school.

(e) The department shall not adopt rules prohibiting delivery sales.

(f) For the purposes of this section:

"Delivery sale" means any sale of a an electronic smoking device to a purchaser in this State where either:

(1) The purchaser submits the order for sale by means of a telephonic or other method of voice transmission, mails or any other delivery service, or the internet or other online service; or

(2) The electronic smoking device is delivered by use of the mail or of a delivery service. The foregoing sales of electronic smoking devices constitute a delivery sale regardless of whether the seller is located within or without this state.

"Electronic smoking device" means any electronic product that can be used to aerosolize and deliver nicotine or other substances to the person inhaling from the device, including but not limited to an electronic cigarette, electronic cigar, electronic cigarillo, or electronic pipe, and any cartridge or other component of the device or related product."

SECTION 3. Section 245-1, Hawaii Revised Statutes, is amended as follows:

1. By adding a new definition to be appropriately inserted and to read:

""E-liquid" means any liquid or like substance which may or may not contain nicotine that is designed or intended to be used in an electronic smoking device, as defined in section 328J-1, whether or not packaged in a cartridge or other container. E-liquid shall not include prescription drugs; medical cannabis or manufactured cannabis products; or medical devices used to inhale or ingest prescription drugs, including devices sold at a licensed medical cannabis dispensary."

2. By amending the definition of "tobacco products" to read:

""Tobacco products" means tobacco in any form, other than cigarettes or little cigars, that is prepared or intended for consumption or for personal use by humans, including large cigars and any substitutes thereof other than cigarettes that bear the semblance thereof, snuff, chewing or smokeless tobacco, [~~and~~] smoking or pipe tobacco[.], and e-liquid."

SECTION 4. Section 245-2, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The license shall be issued by the department upon application therefor, in [~~such~~] a form and manner as shall be required by rule of the department, and the payment of a fee of [~~$2.50,~~] $250, and shall be renewable annually on July 1 for the twelve months ending the succeeding June 30."

SECTION 5. Section 245-2.5, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) The retail tobacco permit shall be issued by the department upon application by the retailer in the form and manner prescribed by the department, and the payment of a fee of [~~$20.~~] $50. Permits shall be valid for one year, from December 1 to November 30, and renewable annually. Whenever a retail tobacco permit is defaced, destroyed, or lost, or the permittee relocates the permittee's business, the department may issue a duplicate retail tobacco permit to the permittee for a fee of $5 per copy."

PART II

SECTION 6. The purpose of this part is to reduce tobacco and cigarette consumption in Hawaii by increasing the costs to sell and purchase tobacco and cigarette products.

SECTION 7. Section 245-3, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Every wholesaler or dealer, in addition to any other taxes provided by law, shall pay for the privilege of conducting business and other activities in the State:

(1) An excise tax equal to 5.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 1998, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(2) An excise tax equal to 6.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after September 30, 2002, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(3) An excise tax equal to 6.50 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 2003, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(4) An excise tax equal to 7.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 2004, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(5) An excise tax equal to 8.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2006, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(6) An excise tax equal to 9.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2007, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(7) An excise tax equal to 10.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2008, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(8) An excise tax equal to 13.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after July 1, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(9) An excise tax equal to 11.00 cents for each little cigar sold, used, or possessed by a wholesaler or dealer on and after October 1, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(10) An excise tax equal to 15.00 cents for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer on and after July 1, 2010, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(11) An excise tax equal to 16.00 cents for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer on and after July 1, 2011, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(12) An excise tax equal to cents for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer on and after November 1, 2018, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(13) An excise tax equal to seventy per cent of the wholesale price of each article or item of tobacco products, other than large cigars, sold by the wholesaler or dealer on and after September 30, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer; [~~and~~

~~(13)~~] (14) An excise tax equal to per cent of the wholesale price of each article or item of tobacco products, other than large cigars, sold by the wholesaler or dealer on and after July 1, 2018, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer; and

(15) An excise tax equal to fifty per cent of the wholesale price of each large cigar of any length, sold, used, or possessed by a wholesaler or dealer on and after September 30, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer.

Where the tax imposed has been paid on cigarettes, little cigars, or tobacco products that thereafter become the subject of a casualty loss deduction allowable under chapter 235, the tax paid shall be refunded or credited to the account of the wholesaler or dealer. The tax shall be applied to cigarettes through the use of stamps."

PART III

SECTION 8. Chapter 28, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part XII. Electronic smoking device retailer registration unit.

§28-A Policy. The registration of electronic smoking device retailers, as defined in section 28-B, is reasonably necessary to protect the health, safety, or welfare of consumers of electronic smoking devices and for the enforcement of the laws that regulate the sale of electronic smoking devices.

§28-B Definitions. As used in this part:

"Business location" or "place of business" means the entire premises occupied by a retailer of electronic smoking devices and shall include but is not limited to any store, stand, outlet, vehicle, cart, location, vending machine, or structure from which electronic smoking devices are sold or distributed to a consumer.

"Entity" means one or more individuals, a company, corporation, a partnership, an association, or any other type of legal entity.

"Retail sale" or "electronic smoking device retailing" means the practice of selling electronic smoking devices to consumers.

§28-C Electronic smoking device retailer registration unit. There is established in the department of the attorney general the electronic smoking device retailer registration unit.

§28-D Registration. (a) Every entity with a place of business in the State that engages in the retail sale of electronic smoking devices shall register with the unit by providing all of the information required by this section. Registration shall not be approved unless all of the applicable provisions of this section have been met to the satisfaction of the unit.

(b) Registration information required by this section shall include:

(1) The name or names under which the entity conducts or will conduct business;

(2) The address of the principal place of business of the entity and the address of each place of business the entity maintains in this State;

(3) The entity's general excise tax number;

(4) A statement of ownership, which shall include the name of each person who, individually or acting in concert with any other person or persons, owns or controls, directly or indirectly, twenty-five per cent or more of the equity interests of the entity;

(5) An attestation that the entity is not in violation of the Federal Food, Drug, and Cosmetic Act, as amended by the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) and its regulations, or has not received a warning letter from the U.S. Food & Drug Administration based on a compliance check inspection within thirty days of applying for registration.

§28-E Certificate. (a) Upon receipt of the registration information, the unit shall issue a certificate to the entity for each place of business where the entity will engage in electronic smoking device retailing.

(b) The unit may charge a registration fee not to exceed $100 for each entity that registers.

(c) Registration under this section shall expire on June 30 of each even-numbered year. Before June 30 of each even-numbered year, the unit shall mail a renewal application for registration to the address on record of the registrant. In connection with renewal of registration, a holder of a certificate shall provide all of the information required by section 28-D. Failure to renew a registration shall result in a civil penalty under section 28-H.

(d) The entity shall display the registration certificate in a conspicuous location in each place of business.

(e) The entity shall notify the unit within five days of receiving notice from the U.S. Food & Drug Administration that it is in violation of the Federal Food, Drug, and Cosmetic Act, as amended by the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) and its regulations, and provide the unit with all material details related to the violation.

(f) The unit shall publish on the department's website a list of all entities that hold a certificate.

§28-F Inspection. (a) The unit may examine all records of any entity engaged in the business of electronic smoking device retailing to verify the accuracy of the information provided for registration or to verify that an entity is selling electronic smoking devices without being registered. Every person in possession of any books, papers, and records, and the person's agents and employees, are directed and required to give the unit opportunities for examination of applicable records.

(b) The unit may inspect the operations, premises, and storage areas of any entity engaged in the retail sale of electronic smoking devices as necessary.

§28-G Personnel. The unit shall employ such attorneys, auditors, investigators, and other personnel as necessary to promote the effective and efficient conduct of the unit's activities.

§28-H Civil penalty for failure to register. An entity that fails to register with the unit within thirty days of engaging in the retail sale of electronic smoking devices shall be subject to a civil penalty of $100 each day plus the costs of any investigation by the unit."

SECTION 9. Chapter 328J, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§328J- Statewide concern. (a) Sales of cigarettes, tobacco products, and electronic smoking devices are a statewide concern. It is the intent of the legislature to regulate the sale of cigarettes, tobacco products, and electronic smoking devices in a uniform and exclusive manner.

(b) All local ordinances or regulations that regulate the sale of cigarettes, tobacco products, and electronic smoking devices are preempted, and existing local laws and regulations conflicting with this chapter are null and void.

SECTION 10. Section 328J-18, Hawaii Revised Statutes, is amended to read as follows:

"[[]§328J-18[]] Placement of cigarettes and tobacco products. (a) Except as otherwise provided under this section, a retailer may sell cigarettes, smokeless tobacco, and all other tobacco products only in a direct, face-to-face exchange between the retailer and the consumer. Examples of methods of sale that are not permitted include vending machines and self-service displays.

(b) A retailer may only display or store cigarettes and tobacco products:

(1) Behind a sales counter or in any other area of the establishment that is inaccessible to the public; or

(2) In a locked container.

[~~(b)~~] (c) This section shall not apply to:

(1) A duty-free sales enterprise selling duty-free merchandise in accordance with the provisions of title 19 United States Code section 1555(b), and any implementing regulations; and

(2) Retail tobacco stores, bars, or any other establishment for which the minimum age for admission is eighteen."

SECTION 11. Section 712-1258, Hawaii Revised Statutes, is amended to read as follows:

"[[]§712-1258[]] Tobacco products and electronic smoking devices; persons under twenty-one years of age. (1) It shall be unlawful to sell or furnish a tobacco product in any shape or form or an electronic smoking device to a person under twenty-one years of age.

(2) All persons engaged in the retail sale of tobacco products or electronic smoking devices shall check the identification of tobacco or electronic smoking device purchasers, to establish the age of the purchaser, if the purchaser reasonably appears to be under twenty-seven years of age.

(3) It shall be an affirmative defense that the seller of a tobacco product or an electronic smoking device to a person under the age of twenty-one years of age in violation of this section had requested, examined, and reasonably relied upon a photographic identification from such person establishing that person's age as at least twenty-one years of age prior to selling such person a tobacco product or an electronic smoking device. The failure of a seller to request and examine photographic identification from a person under twenty-one years of age prior to the sale of a tobacco product or an electronic smoking device to such person shall be construed against the seller and form a conclusive basis for the seller's violation of this section.

[~~(2)~~] (4) Signs using the statement, "The sale of tobacco products or electronic smoking devices to persons under twenty-one is prohibited", shall be posted on or near any vending machine in letters at least one-half inch high and at or near the point of sale of any other location where tobacco products or electronic smoking devices are sold in letters at least one-half inch high.

[~~(3)~~] (5) It shall be unlawful for a person under twenty-one years of age to purchase any tobacco product or electronic smoking device, as those terms are defined in subsection [~~(5).~~] (7). This provision does not apply if a person under the age of twenty-one, with parental authorization, is participating in a controlled purchase as part of a law enforcement activity or a study authorized by the department of health under the supervision of law enforcement to determine the level of incidence of tobacco or electronic smoking devices sales to persons under twenty-one years of age.

[~~(4)~~] (6) Any person who violates subsection (1) or [~~(2),~~] (4), or both, shall be fined $500 for the first offense. Any subsequent offenses shall subject the person to a fine not less than $500 nor more than $2,000. Any person under twenty-one years of age who violates subsection [~~(3)~~] (5) shall be fined $10 for the first offense. Any subsequent offense shall subject the violator to a fine of $50, no part of which shall be suspended, or the person shall be required to perform not less than forty-eight hours nor more than seventy-two hours of community service during hours when the person is not employed and is not attending school.

[~~(5)~~] (7) For the purposes of this section:

"Tobacco product" means any product made or derived from tobacco that contains nicotine or other substances and is intended for human consumption or is likely to be consumed, whether smoked, heated, chewed, absorbed, dissolved, inhaled, or ingested by other means. "Tobacco product" includes but is not limited to a cigarette, cigar, pipe tobacco, chewing tobacco, snuff, snus, or an electronic smoking device. "Tobacco product" does not include drugs, devices, or combination products approved for sale by the United States Food and Drug Administration, as those terms are defined in the Federal Food, Drug, and Cosmetic Act."

PART IV

SECTION 12. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 13. This Act shall take effect on July 1, 3000.

THE SENATE	S.B. NO.	2654
TWENTY-NINTH LEGISLATURE, 2018		S.D. 2
STATE OF HAWAII		H.D. 2