Source: PRESS RELEASE, 11/18/11

The U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) Administrator Bruce Nelson announced today that FSA is making available a determination document, also referred to as a statement of position, regarding tobacco payment funding. The document states the current methods used to calculate manufacturer and importer assessments that fund the Tobacco Transition Payment Program (TTPP).

The determination document is in response to challenges raised in two lawsuits—Prime Time International v. Vilsack and Philip Morris v. Vilsack—involving the terms and construction of the Fair and Equitable Tobacco Reform Act of 2004 (FETRA). Both lawsuits involve the definition of a “share of gross domestic volume” within the meaning of FETRA and the question of what is to be done with those “shares” in calculating program liabilities. Because the outcomes of these two lawsuits have the potential to affect not only the plaintiffs, but also all other importers and manufacturers, publication of a USDA determination is warranted.

FETRA established the TTPP in the wake of the termination of the longstanding tobacco price support program. The 10-year TTPP (operating from fiscal years 2005-2014) makes annual payments of about $1 billion to those who held tobacco quota and produced tobacco at the time of FETRA passage. These payments are funded via assessments that are collected from domestic tobacco manufacturers and importers.

USDA uses a two-step process for calculating these assessments for each manufacturer and importer. First, the total amount of assessment liability is divided among six classes of tobacco products (cigarettes, cigars, snuff, roll-your-own, chewing and pipe). Second, liability is further divided among the individual manufacturers and importers based on each company’s market share within each class. For both steps, gross domestic volume, defined as the amount of product removed into domestic commerce and not exempt from federal excise tax, is a key element. How this term is interpreted and what a party’s or class’s share is of that volume, are key elements in both disputes.

After considering the matter, USDA determined that the continued use of current procedure to calculate manufacturer and importer assessments is warranted. A detailed explanation of the issues and USDA’s rationale is available in the USDA determination at http://www.fsa.usda.gov/FSA/webapp?area=home&subject=ecpa&topic=fta-ta. A notice regarding the availability of this determination is on display in today’s Federal Register.