On April 6, 2000, Governor Paul Patton signed into law House Bill 385, 2000 Kentucky Acts, Chapter 342. (Revised in 2015. See KRS 131.600-131.602.)
This law requires all tobacco product manufacturers and importers of their products who are not participating in the Master Settlement Agreement entered into on November 23, 1998 by Kentucky (hereafter referred to collectively as "non-participating manufacturers" or NPM), to place into a qualified escrow account by April 15th of each year an amount which is based upon the number of individual cigarettes sold (i.e. units sold) in Kentucky the previous year. This law directs that "units sold" be measured by excise taxes collected by Kentucky on packs bearing Kentucky’s excise tax stamp.
Each year, each non-participating manufacturer is required to certify to the Attorney General that it has complied with this law. In order to regulate compliance with this law, the Attorney General has created a
form (PDF) to be used by each non-participating manufacturer for it to certify compliance. The form should be executed and returned on or before April 15 each year subsequent to a year in which sales occur. Further instructions are provided with the form.
Why do we need the NPM Statute?
The MSA requires that Settling States enact and enforce the NPM Model Statute. The NPM Model Statute protects Kentucky’s MSA payments from the NPM Adjustment. Under the MSA, if a Participating Manufacturer’s (PM) market share decreases by more than 2% and the MSA is a significant contributing factor to the market share loss, payments are reduced. States that have enacted and enforced the NPM Model Statute will not be subject to the NPM Adjustment.
What does the statute do?
The NPM Model Statute is designed to insure that companies selling cigarettes in Kentucky fulfill their financial obligations to the state by setting up an escrow fund or joining the MSA and making payments to the states in return for a release of liability for cigarette sales. In other words, manufacturers of tobacco products should bear financial burdens related to and arising from cigarettes smoking, not the state.
What are the requirements of the Statute?
NPMs have a choice of either becoming signatories to the MSA or paying approximately
$.026 per unit sold into an escrow account. The NPM receives all interest or other appreciation earned on the funds as they are earned.
Funds in the escrow account may be released to the NPM in the following situations:
- To pay a judgment or settlement on any released claim brought by Kentucky;
- If NPM establishes that the amount it was required to pay was greater than Kentucky’s allocable share of payments the NPM would have been required to pay under the MSA; or
- 25 years after the date on which they were placed into escrow.