The Master Settlement Agreement (MSA) became effective on November 23, 1998. The settlement arose from state lawsuits against the major tobacco companies for Medicaid costs related to smoking. Kentucky's share of annual payments from the settlement are expected to reach as much as $3 billion over the first 25 years and payments will continue as long as cigarettes are sold by the participating manufacturers. In addition to annual payments to the states, the MSA contains three main categories of restrictions: advertising restrictions, brand name restrictions, and give-away restrictions.
The advertising restrictions in the MSA ban outdoor and transit advertising of tobacco products, any advertising targeted at youth (under 18 years of age), and any use of cartoons in advertising, promoting, packaging, or labeling tobacco products. There are two main exceptions to the outdoor and transit advertising prohibitions. First, manufacturers may advertise tobacco products on the property of retail establishments, subject to certain size restrictions (generally, no larger than fourteen square feet). Additionally, the manufacturers may advertise tobacco products at adult-only facilities or adult-only events.
The brand name restrictions relate to the use of tobacco brand names in sponsorships, merchandise, and third party use. The manufacturers are prohibited from sponsoring by brand name the following types of events: concerts, events intended for a significant youth audience, events with paid youth participants or contestants, football, basketball, baseball, soccer, or hockey leagues, teams, or games. The manufacturers are permitted to engage in one brand name sponsored event in a twelve-month period, as long as the sponsorship does not constitute a prohibited sponsorship as outlined above. Additionally, the manufacturers may sponsor brand name events in adult-only facilities. With regard to merchandise, manufacturers are prohibited from distributing or selling apparel or merchandise with brand name logos.
Notwithstanding these restrictions, the tobacco manufacturers may sponsor any athletic, musical, artistic, or other social or cultural event, entrant, participant, or team by its corporate name. The corporate name sponsored event cannot include any reference to a brand name tobacco product.
The give-away restrictions deal with free samples and proof of purchase gifts. The manufacturers cannot distribute free samples, except in adult-only facilities and can no longer provide proof of purchase gifts to underage persons (those persons younger than the legal age to purchase cigarettes). To comply with this provision, the manufacturers must require sufficient proof that a recipient of a proof of purchase gift is an adult.
Certification of Tobacco Manufacturers Statutes
Because of the MSA, the legislature amended and created new sections in Kentucky Revised Statutes, Chapter 131intended to ensure that only legally compliant cigarettes are sold in Kentucky. Provisions of the law include:
- Annual certification to the Office of Attorney General by all tobacco product manufacturers, including a listing of cigarette brands.
- Creation of a directory, including the names and brands of certified manufacturers in compliance with state law, published each July on the Revenue Cabinet website.
- Prohibition against a stamping agent or distributor from affixing a tax stamp to a cigarette package that is not included in the directory.
- Penalties for violations, including injunctions against the stamping agent or distributor, seizure of cigarettes, loss of wholesaler license and payment of costs for legal actions.
- Manufacturers may be required to submit packaging and labeling samples to the Commonwealth.
- Appointment of registered agents for service of process.
A Kentucky certification form for tobacco product manufacturers must be completed and delivered to our office on or before April 30th each year. The directory of compliant manufacturers is available on the Revenue Cabinet website and is updated as necessary. If a manufacturer or brand is not found on the directory, tax stamps may not be placed on packages of those cigarettes. Please contact our office should you have any questions regarding the certification or directory.