In 1999, the Tennessee General Assembly passed the Tennessee Tobacco Manufacturers’ Escrow Fund Act, Tenn. Code Ann. §§ 47-31-101, et seq.
In general, the Escrow Fund Act requires tobacco manufacturers who did not join the MSA (Non-Participating Manufacturers or NPMs) and whose cigarettes (including “roll-your-own” tobacco) are sold to consumers in Tennessee to make yearly escrow deposits based on the number of cigarettes that the NPM sold to consumers within the State of Tennessee.
The Tennessee Department of Revenue recently enacted regulations requiring all NPMs to make quarterly escrow deposits. See Tenn. Comp. R. & Regs. Chapters 1320-9-1 and 1320-9-2. After two years, an NPM can petition to make annual escrow deposits. The escrow account must be at a financial institution that satisfies the criteria set forth in the Escrow Fund Act, and the escrow agreement must also comply with the statutory requirements. Funds placed into an escrow account may only be removed under certain conditions set out in the statute.
Each NPM must also certify to the Attorney General that the proper payment has been made. Failure to comply with the regulations may result in the NPM being removed from the State’s directory and other actions being taken against the company.