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June 28, 2017

MSC to consider whether mixing and repackaging tobacco renders an individual a “manufacturer” of tobacco subject to the TPTA

The Michigan Supreme Court has granted mini-oral argument in People v Shami, No. 155273, regarding whether mixing and repackaging tobacco to create different flavor combinations under the defendant’s own label rendered him a “manufacturer” of tobacco under the Tobacco Products Tax Act (TPTA).
 
In Shami, the Department of Treasury and the Michigan State Police conducted an administrative tobacco inspection of a tobacco retail store in Dearborn, Michigan. The investigation revealed that although the defendant’s wife was the named party on the store’s LLC license, the defendant managed the store's day-to-day operations. The inspection further revealed that several of the tobacco flavors noted on store invoices from a tobacco distributor did not match tobacco labels in the store’s inventory. Defendant admitted to mixing two or three tobacco flavors to create a special blend and repackaging and relabeling the tobacco for resale. Following the inspection and subsequent investigation, defendant was charged with violating the TPTA by manufacturing tobacco products without a license and violating certain recordkeeping requirements under the TPTA.
 
The defendant moved in the circuit court to dismiss the manufacturing charge, arguing that mixing or blending different kinds of tobacco did not constitute manufacturing because “manufacturing required the transformation of raw material into a new and different article.” The circuit court granted the defendant’s motion, determining that blending two types of tobacco does not constitute manufacturing. The prosecution appealed.
 
The Court of Appeals reversed and remanded for reinstatement of the charges against the defendant. It held that the circuit court erred by dismissing the charge that the defendant improperly possessed tobacco as a manufacturer without a license. The Court interpreted the statutory language in MCL 205.422(m)(i) by turning to dictionary definitions to define “manufactures or produces.” In light of those definitions, the Court held that “manufacturing” for the purposes of TPTA simply requires “a change from the original state of an object or material to a state that makes it more suitable for its intended use.” This definition would include someone who simply rolls cigarettes from loose tobacco because the statutory context suggests that any change in the form or delivery method of tobacco, rather than a specific type or method of change, constitutes manufacturing under the TPTA. Therefore, the Court determined that the defendant’s activities—mixing different tobacco to repackage for sale with his own label—fell within the statutory definition of manufacturing.  Consequently, defendant improperly possessed tobacco as a manufacturer without license under the TPTA. 
 
The Michigan Supreme Court will hear arguments addressing the legal issues decided by the Court of Appeals, and it has ordered the parties to submit briefs by August 2, 2017 on the following two issues:
 
(1) whether the defendant’s activities of mixing and repackaging tobacco to create different flavor combinations under his own label rendered him a “manufacturer” of tobacco under the TPTA, and if so,

(2) whether the TPTA’s definition of “manufacturer” satisfied due process by putting the defendant on fair notice of the conduct that would subject him to punishment.

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