§ 51-25-02 — Requirements

A tobacco product manufacturer selling cigarettes to consumers within the state, whether
directly or through a distributor, retailer, or similar intermediary or intermediaries, after April 8,
1999, must do one of the following:
1. Become a participating manufacturer, as that term is defined in section II(jj) of the
master settlement agreement, and generally perform its financial obligations under the
master settlement agreement; or
2. a. Place into a qualified escrow fund by April fifteenth of the year following the year
in question, the following amounts, as such amounts are adjusted for inflation:
(1) 1999: $.0094241 per unit sold after April 8, 1999;
(2) 2000: $.0104712 per unit sold;
(3) For each of 2001 and 2002: $.0136125 per unit sold;
(4) For each of 2003 through 2006: $.0167539 per unit sold; and
(5) For each of 2007 and each year thereafter: $.0188482 per unit sold.
b. A tobacco product manufacturer that places funds into escrow pursuant to
subdivision a shall receive the interest or other appreciation on the funds as
earned. The funds may be released from escrow only under the following
circumstances:
(1) To pay a judgment or settlement on any released claim brought against the
tobacco product manufacturer by the state or any releasing party located or
residing in the state. Funds must be released from escrow under this
paragraph in the order in which they were placed into escrow and only to the
extent and at the time necessary to make payments required under the
judgment or settlement;
(2) To the extent that a tobacco product manufacturer establishes that the
amount it was required to place into escrow on account of units sold in the
state in a particular year was greater than the master settlement agreement
payments, as determined pursuant to section IX(i) of that agreement,
including after final determination of all adjustments, that the manufacturer
would have been required to make on account of such units sold had it been
a participating manufacturer, the excess must be released from escrow and
revert back to such tobacco product manufacturer; or
(3) To the extent not released from escrow under paragraph 1 or 2, funds must
be released from escrow and revert back to the tobacco product
manufacturer twenty-five years after the date on which they were placed into
escrow.
c. Each tobacco product manufacturer that elects to place funds into escrow
pursuant to this subsection shall annually certify to the state tax commissioner
that it is in compliance with this subsection. The state tax commissioner shall
refer every instance of noncompliance to the attorney general. The attorney

general may bring a civil action on behalf of the state against any tobacco product
manufacturer that fails to place into escrow the funds required under this section.
Any tobacco product manufacturer that fails in any year to place into escrow the
funds required under this section must:
(1) Be required within fifteen days to place the funds into escrow as will bring it
into compliance with this section. The court, upon a finding of a violation of
this subdivision, may impose a civil penalty to be paid to the general fund of
the state in an amount not to exceed five percent of the amount improperly
withheld from escrow per day of the violation and in a total amount not to
exceed one hundred percent of the original amount improperly withheld from
escrow;
(2) In the case of a knowing violation, be required within fifteen days to place
the funds into escrow as will bring it into compliance with this section. The
court, upon a finding of a knowing violation of this subdivision, may impose
a civil penalty to be paid to the general fund of the state in an amount not to
exceed fifteen percent of the amount improperly withheld from escrow per
day of the violation and in a total amount not to exceed three hundred
percent of the original amount improperly withheld from escrow; and
(3) In the case of a second knowing violation, be prohibited from selling
cigarettes to consumers within the state, whether directly or through a
distributor, retailer, or similar intermediary, for a period not to exceed two
years.
d. Each failure to make an annual deposit required under this section constitutes a
separate violation.
e. Notwithstanding subdivision b, a tobacco product manufacturer that deposits
funds into escrow under subdivision a, or a transferee of rights therein, may make
an irrevocable assignment of the tobacco manufacturer's interest in the funds to
the benefit of the state. The assignment executed in accordance with this section
is permanent and applies to all funds in the escrow account and which
subsequently may come into the account, including funds deposited into the
account before the assignment is executed, funds deposited into the account
after the assignment is executed, and interest and other appreciation on the
funds. The tobacco product manufacturer, the attorney general, and the financial
institution that maintains the escrow account may make an amendment to the
qualified escrow account agreement as necessary to effectuate an assignment of
the rights executed under this subdivision or the withdrawal of funds from the
escrow account under subdivision b. An assignment executed under this
subdivision must be in writing, and be signed by a duly authorized representative
of the assignor and assignee and becomes effective upon delivery of the
assignment to the attorney general and the financial institution at which the
escrow account is maintained.
f. Notwithstanding subdivision b, escrow funds assigned to the state under
subdivision e must be withdrawn by the state on the approval of the attorney
general. Funds withdrawn under this subdivision must be deposited into the
general fund and must be calculated on a dollar-for-dollar basis as a credit
against any judgment or settlement described in subdivision b which may be
obtained against the tobacco product manufacturer or transferee that has
assigned the funds in the escrow account to the state. This section may not be
construed to relieve a tobacco product manufacturer from any past, current, or
future obligation the manufacturer may have under this chapter or chapter
51-25.1.