H.F. 2664 DIVISION I 1 TAXATION OF CIGARETTES AND VAPOR PRODUCTS 2 Section 1. Section 453A.6, subsection 1, Code 2026, is 3 amended to read as follows: 4 1. There is imposed, and shall be collected and paid to the 5 department, a tax on all cigarettes used or otherwise disposed 6 of in this state for any purpose equal to six fourteen and 7 eight-tenths three-tenths cents on each cigarette. 8 Sec. 2. Section 453A.6, subsection 8, paragraph a, Code 9 2026, is amended to read as follows: 10 a. Pay directly to the department, in lieu of the tax under 11 subsection 1 , a tax equal to three and six six and forty-three 12 hundredths cents on each cigarette dispensed from such machine. 13 Payments made under this paragraph shall be remitted to the 14 department electronically. 15 Sec. 3. Section 453A.40, subsection 1, Code 2026, is amended 16 to read as follows: 17 1. All persons required to obtain a permit or to be licensed 18 under section 453A.13 or section 453A.44 having in their 19 possession and held for resale on the effective date of an 20 increase in the tax rate cigarettes, little cigars, or tobacco 21 products , or vapor products upon which the tax under section 22 453A.6 or 453A.43 has been paid, unused cigarette tax stamps 23 which have been paid for under section 453A.8 , unused metered 24 imprints which have been paid for under section 453A.12 , or 25 tobacco products for which the tax has not been paid under 26 section 453A.46 shall be subject to an inventory tax on the 27 items as provided in this section . 28 Sec. 4. Section 453A.43, subsection 1, paragraphs a and b, 29 Code 2026, are amended to read as follows: 30 a. A tax is imposed upon all tobacco products and vapor 31 products in this state and upon any person engaged in business 32 as a distributor of tobacco products or vapor products , at the 33 rate of twenty-two percent of the wholesale sales price of the 34 tobacco products or vapor products , except little cigars and 35 -1- LSB 5737YH (8) 91 jm/jh 1/ 9

H.F. 2664 snuff as defined in section 453A.42 . 1 b. In addition to the tax imposed under paragraph “a” , a 2 tax is imposed upon all tobacco products and vapor products 3 in this state and upon any person engaged in business as a 4 distributor of tobacco products or vapor products , at the rate 5 of twenty-eight percent of the wholesale sales price of the 6 tobacco products or vapor products , except little cigars and 7 snuff as defined in section 453A.42 . 8 Sec. 5. Section 453A.43, subsection 2, paragraphs a and b, 9 Code 2026, are amended to read as follows: 10 a. A tax is imposed upon the use or storage by consumers of 11 tobacco products and vapor products in this state, and upon the 12 consumers, at the rate of twenty-two percent of the cost of the 13 tobacco products or vapor products . 14 b. In addition to the tax imposed in paragraph “a” , a tax 15 is imposed upon the use or storage by consumers of tobacco 16 products and vapor products in this state, and upon the 17 consumers, at a rate of twenty-eight percent of the cost of the 18 tobacco products. 19 DIVISION II 20 CONFORMING CHANGES 21 Sec. 6. Section 331.303, subsection 3, Code 2026, is amended 22 to read as follows: 23 3. Act upon applications for cigarette , tobacco product, 24 and vapor product tax permits in accordance with chapter 453A . 25 Sec. 7. Section 331.653, subsection 11, Code 2026, is 26 amended to read as follows: 27 11. Carry out duties relating to the seizure and forfeiture 28 of cigarettes, tobacco products, and vapor products, vehicles, 29 and other property used in violation of cigarette , tobacco 30 product, alternative nicotine product, and vapor product tax 31 laws as provided in section 453A.32 . 32 Sec. 8. Section 331.756, subsection 19, Code 2026, is 33 amended to read as follows: 34 19. Assist, at the request of the director of revenue, in 35 -2- LSB 5737YH (8) 91 jm/jh 2/ 9

H.F. 2664 the enforcement of cigar and cigarette, tobacco product, and 1 vapor product tax laws as provided in sections 453A.32 and 2 453A.49 . 3 Sec. 9. Section 453A.1, subsection 21, Code 2026, is amended 4 to read as follows: 5 21. “Place of business” is construed to mean and include any 6 place where cigarettes , tobacco products, alternative nicotine 7 products, or vapor products are sold or where cigarettes , 8 tobacco products, alternative nicotine products, or vapor 9 products are stored within or without the state of Iowa by the 10 holder of an Iowa permit or kept for the purpose of sale or 11 consumption; or if sold from any vehicle or train, the vehicle 12 or train on which or from which such cigarettes , tobacco 13 products, alternative nicotine products, or vapor products are 14 sold shall constitute a place of business; or for a business 15 within or without the state that conducts delivery sales, any 16 place where alternative nicotine products or vapor products are 17 sold or where alternative nicotine products or vapor products 18 are kept for the purpose of sale. 19 Sec. 10. Section 453A.15, subsections 1, 2, and 4, Code 20 2026, are amended to read as follows: 21 1. The director may prescribe the forms necessary for the 22 efficient administration of this subchapter and may require 23 uniform books and records to be used and kept by each permit 24 holder or other person as deemed necessary. The director may 25 also require each permit holder or other person to keep and 26 retain in the director’s possession evidence on prescribed 27 forms of all transactions involving the purchase and sale of 28 cigarettes , tobacco products, alternative nicotine products, 29 or vapor products, or the purchase and use of stamps. The 30 evidence shall be kept for a period of three years from the 31 date of each transaction, for the inspection at all times by 32 the department. 33 2. Where a state permit holder sells cigarettes , tobacco 34 products, alternative nicotine products, or vapor products 35 -3- LSB 5737YH (8) 91 jm/jh 3/ 9

H.F. 2664 at retail, the holder shall be required to maintain detailed 1 records for sales of cigarettes , tobacco products, alternative 2 nicotine products, or vapor products to be sold at retail and 3 the cigarette such sales records shall be kept separate and 4 apart. 5 4. Every permit holder or other person shall, when requested 6 by the department, make additional reports as the department 7 deems necessary and proper and shall at the request of the 8 department furnish full and complete information pertaining to 9 any transaction of the permit holder or other person involving 10 the purchase or sale or use of cigarettes , tobacco products, 11 alternative nicotine products, or vapor products, or purchase 12 of cigarette stamps. 13 Sec. 11. Section 453A.24, Code 2026, is amended to read as 14 follows: 15 453A.24 Carrier to permit access to records. 16 1. Every common carrier or person in this state having 17 custody of books or records showing the transportation of 18 cigarettes , tobacco products, alternative nicotine products, or 19 vapor products, both interstate and intrastate , shall give and 20 allow the department free access to those books and records. 21 2. The director may require by rule that common carriers 22 or the appropriate persons provide monthly reports to the 23 department detailing all information the department deems 24 necessary on shipments into and out of Iowa of cigarettes , 25 and tobacco products , alternative nicotine products, or vapor 26 products as set forth in this subchapter I and subchapter 27 II of this chapter . A report required to be submitted 28 by the director pursuant to this section shall be filed 29 electronically. 30 Sec. 12. Section 453A.32, subsection 6, Code 2026, is 31 amended to read as follows: 32 6. The provisions of this section applying to cigarettes 33 shall also apply to tobacco products and vapor products taxed 34 under subchapter II of this chapter . 35 -4- LSB 5737YH (8) 91 jm/jh 4/ 9

H.F. 2664 Sec. 13. Section 453A.33, Code 2026, is amended to read as 1 follows: 2 453A.33 Seizure not to affect criminal prosecution. 3 The seizure, forfeiture, and sale of cigarettes, tobacco 4 products, vapor products, and other property under the 5 terms and conditions set out in section 453A.32 , shall not 6 constitute any defense to the person owning or having control 7 or possession of the property from criminal prosecution for any 8 act or omission made or offense committed under this chapter or 9 from liability to pay penalties provided by this chapter . 10 Sec. 14. Section 453A.35, subsection 1, paragraph b, Code 11 2026, is amended to read as follows: 12 b. The revenues generated from the tax on cigarettes 13 pursuant to section 453A.6, subsection 1 subsections 1 and 14 8 , from the tax on tobacco products as specified in section 15 453A.43, subsections 1, 2, 3, and 4 , and from the fees and 16 penalties specified in subchapter III shall be credited to the 17 health care trust fund created in section 453A.35A . 18 Sec. 15. Section 453A.35A, subsection 1, Code 2026, is 19 amended to read as follows: 20 1. A health care trust fund is created in the office of 21 the treasurer of state. The fund consists of the revenues 22 generated from the tax on cigarettes pursuant to section 23 453A.6, subsection 1 subsections 1 and 8 , from the tax on 24 tobacco products and vapor products as specified in section 25 453A.43, subsections 1, 2, 3, and 4 , and from the fees and 26 penalties specified in subchapter III , that are credited to the 27 health care trust fund, annually, pursuant to section 453A.35 . 28 Moneys in the fund shall be separate from the general fund 29 of the state and shall not be considered part of the general 30 fund of the state. Moneys in the fund shall be used only as 31 specified in this section and shall be appropriated only for 32 the uses specified. Moneys in the fund are not subject to 33 section 8.33 and shall not be transferred, used, obligated, 34 appropriated, or otherwise encumbered, except as provided in 35 -5- LSB 5737YH (8) 91 jm/jh 5/ 9

H.F. 2664 this section . Notwithstanding section 12C.7, subsection 2 , 1 interest or earnings on moneys deposited in the fund shall be 2 credited to the fund. 3 Sec. 16. Section 453A.39, subsection 1, Code 2026, is 4 amended to read as follows: 5 1. A manufacturer, distributor, wholesaler, retailer, or 6 distributing agent, or an agent thereof of a manufacturer, 7 distributor, wholesaler, retailer, or distributing agent , shall 8 not give away cigarettes , or tobacco products , alternative 9 nicotine products, or vapor products at any time in connection 10 with the manufacturer’s, distributor’s, wholesaler’s, 11 retailer’s, or distributing agent’s business or for promotion 12 of the business or product, except as provided in subsection 2 . 13 Sec. 17. Section 453A.42, subsections 1, 2, 8, 9, 10, 12, 14 14, and 17, Code 2026, are amended to read as follows: 15 1. “Business” means any trade, occupation, activity, 16 or enterprise engaged in for the purpose of selling or 17 distributing tobacco products , alternative nicotine products, 18 or vapor products in this state. 19 2. “Consumer” means any person who has title to or 20 possession of tobacco products , alternative nicotine products, 21 or vapor products in storage, for use or other consumption in 22 this state. 23 8. “Person” means any individual, firm, association, 24 partnership, joint stock company, joint adventure venture , 25 corporation, trustee, agency, or receiver, or any legal 26 representative of any of the foregoing individual, firm, 27 association, partnership, joint stock company, joint venture, 28 corporation, trustee, agency, or receiver . 29 9. “Place of business” means any place where tobacco 30 products are sold or where tobacco products , alternative 31 nicotine products, or vapor products are manufactured, stored, 32 or kept for the purpose of sale or consumption, including any 33 vessel, vehicle, airplane, train, or vending machine; or for 34 a business within or without the state that conducts delivery 35 -6- LSB 5737YH (8) 91 jm/jh 6/ 9

H.F. 2664 sales, any place where alternative nicotine products or vapor 1 products are sold or where alternative nicotine products or 2 vapor products are kept for the purpose of sale, including 3 delivery sales. 4 10. “Retail outlet” means each place of business from which 5 tobacco products , alternative nicotine products, or vapor 6 products are sold to consumers. 7 12. “Sale” means any transfer, exchange, or barter, in any 8 manner or by any means whatsoever, for a consideration, and 9 includes and means all sales made by any person. It includes 10 a gift by a person engaged in the business of selling tobacco 11 products, alternative nicotine products, or vapor products 12 for advertising, as a means of evading the provisions of this 13 subchapter , or for any other purposes whatsoever. 14 14. “Storage” means any keeping or retention of tobacco 15 products , alternative nicotine products, or vapor products for 16 use or consumption in this state. 17 17. “Use” means the exercise of any right or power 18 incidental to the ownership of tobacco products or vapor 19 products . 20 Sec. 18. Section 453A.45, subsection 3, Code 2026, is 21 amended to read as follows: 22 3. Every retailer and subjobber shall procure itemized 23 invoices of all tobacco products , alternative nicotine 24 products, and vapor products purchased. The invoices shall 25 show the name and address of the seller and the date of 26 purchase. The retailer and subjobber shall preserve a legible 27 copy of each invoice for three years from the date of purchase. 28 Invoices shall be available for inspection by the director or 29 the director’s authorized agents or employees at the retailer’s 30 or subjobber’s place of business. 31 Sec. 19. Section 453A.48, subsection 3, Code 2026, is 32 amended to read as follows: 33 3. The director may exchange information with the officers 34 and agencies of other states administering laws relating to the 35 -7- LSB 5737YH (8) 91 jm/jh 7/ 9

H.F. 2664 taxation of tobacco products or vapor products . 1 Sec. 20. Section 453A.51, Code 2026, is amended to read as 2 follows: 3 453A.51 Assessment of cost of audit. 4 The department may employ auditors or other persons to 5 audit and examine the books and records of a permit holder or 6 other person dealing in tobacco products and vapor products 7 to ascertain whether the permit holder or other person has 8 paid the amount of the taxes required to be paid by the permit 9 holder or other person under the provisions of this chapter . 10 If the taxes have not been paid, as required, the department 11 shall assess against the permit holder or other person, as 12 additional penalty, the reasonable expenses and costs of the 13 investigation and audit. 14 EXPLANATION 15 The inclusion of this explanation does not constitute agreement with 16 the explanation’s substance by the members of the general assembly. 17 This bill increases the tax on cigarettes and vapor 18 products. 19 DIVISION I —— CIGARETTE AND VAPOR PRODUCT TAXATION. The 20 bill increases the cigarette tax from 6.8 cents per cigarette 21 to 14.3 cents per cigarette. The overall tax on a pack of 22 cigarettes (20 cigarettes) goes from $1.36 to $2.86. The bill 23 also raises the tax on loose tobacco products inserted into a 24 vending machine from which assembled cigarettes are dispensed. 25 The tax is increased from 3.06 cents on each cigarette 26 dispensed from the vending machine to 6.43 cents. 27 Currently, a tax is imposed on the distributor of all tobacco 28 products (excluding cigarettes, little cigars, and snuff) at 29 a rate of 22 percent of the wholesale sales price under Code 30 section 453A.43(1)(a) and at a rate of 28 percent under Code 31 section 453A.43(1)(b) for a combined rate of 50 percent. The 32 bill applies this combined 50 percent wholesale tax rate to the 33 wholesale sales price on vapor products. Vapor products remain 34 subject to sales and use taxes. 35 -8- LSB 5737YH (8) 91 jm/jh 8/ 9

H.F. 2664 By increasing the cigarette tax in the bill, the inventory 1 tax is also assessed on cigarettes remaining in inventories 2 taxed under the previous tax rate that is equal to the 3 difference between the previous tax rate and the new tax rate. 4 The bill also imposes the inventory tax on vapor products 5 remaining in inventories that have not been taxed under the new 6 tax that is equal to the difference between the previous tax 7 rate and the new tax rate. 8 DIVISION II —— CONFORMING CHANGES. The bill makes 9 numerous conforming changes including inserting references to 10 alternative nicotine products in some instances where vapor 11 product references are inserted. Alternative nicotine products 12 are not subject to additional taxation in the bill. 13 -9- LSB 5737YH (8) 91 jm/jh 9/ 9