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14 measure enacted for broad policy reasons. Under the con- stitutional stricture established by the New York State Constitution, such a broad extension of the municipal tax- ing power must be authorized by the Legislature. Price regulation is by its nature an extreme remedy, to be resorted to only in extreme circumstances. Price regiila- tion is the kind of power that not only the State Legis- lature but those to be affected by it should be made fully aware of before it is delegated to the City. It is far too important a restriction on our freedom to be delegated silently or by implication. There is no evidence that the Legislature ever contem- plated that the City could impose a price differential requirement. Even if the Legislature had in fact intended the additional tax to reduce the sale of "high tar" cig- arettes, it does not follow that it must have intended this to be brought about by increasing the selling prices of "high tar" cigarettes. It is just as likely that the Legislature intended the additional tax to reduce the profitability to sellers of selling "high tar" brands, and thereby to give them an incentive to sell "low tar" rather than "high tar" brands. This is precisely what the Mc- Binsey researchers who designed the additional tax antici- pated would occur. See Drayton, The mor and _1ricotine Tax: Pursuing Public Health Through Tax Tncenatives; 81 Yale L.J. 1487, 1498-99 (1972). Any suggestion that the Legislature must have assumed that the City would impose a price differential requirement is simply contrary to fact. In the Court's memorandum below. Justice Silverman suggested that the City price differential requirement is simply one of the provisions, which are common in sales tax statutes, prohibiting a seller from advertising that

11 country has continuously increased and per capita con- sumption of cigarettes, since 1961, has declined by only a de minimis fraction of one percent. Actually, despite all of the recent data on the harmful effects of cigarette smoking, the notice that smoking is hazardous on each pack and the ban on television and radio advertising, the total number of cigarettes sold in the United States has increased from o16.5 billion in 1963 to 561.7 billion in 1972, and the per capita consumption has decreased in the same period from 4,286 to 4,018. However, such per capita consumption has increased from 3,986 in 1969 to 4,018 in 1972, that increase occurring dur- ing the period when the knowledge of its harmful effect and the restraints on advertising have progressivelyy be- come come more widespread. (See Statistical Supplementt of Federal Trade Commission Tables 1 and 2 set forth in App endia. ) Whatever the Court's view may be in respect of the sagacity of the American people, it is obvious that their consumption of cigarettes is not diminished by widespread knowledge of attendant health impairment risks, and cer- tainly not by the steady increase in the prices and taxes on cigarettes over past years. Respondents cannot demonstrate any reasonable relation between the deterrent effect of thq graduated tar and nico- tine tax and the cigarette brand selection of smokers in the City of New York. Respondents can find no support for their price differen- tial contentions in the fact that the State enabling act places ultimate liability for payment of the cigarette tax on the consumer (Tax Law §471). This has been a feature of the cigarette tax enabling actt since the time of its adoption (L.1952 ch. 235). It is not a requirement intro- r' l ) 0 . .. . rM J7 Q tQ •i7 w h) ~

4 ditional tax. N.Y. City Aduin. Code Sec. D46-2.0(a). In contrast to the State enabling statute, enacted less than two weeks before, the Local Law expressly purported to authorize the Finance Administrator to promulgate a regu- lation requiring the maintenance of retail price differentials for cigarettes "to reflect the amounts of tax [additional] attributable to the tar and nicotine content of cigarettes sold". In the absence of any corresponding authorizations in the contemporaneous State enabling statute, a major issue of this case is whether these locally authorized retail price differentials are valid. Basic Price Differential Regulation Article 2-A of the Cigarette Tax Law Regulations of the Finance Administrator, was promulgated on August 18, 1971, and became effective on September 1S, 1971 49 City Record 3737 (Aug. 18, 1971). The price differential require- ment contained in Article 2-A(c) is as follows: In furtherance of the purpose of the additional tax to direct attention to the cigarette containing excessive tar and nicotine and thereby to promote the health and welfare of the people of the City, the prices of all cigarettes subject to the additional tax sold in the City by vendors other than manufacturers, shall reflect a difference in price eruivalent to the amount of the additional tax imposed, and such difference in price must be clearly marked in all price lists, bills, adver- tisements, catalogs or publications pertaining to the sale of such cigarettes. The City, since the adoption of this price differential regulation until the spring of this year, took no steps to enforce the price differential reryuirement, with respect to sales of cigarettes through vending machines, admittedly recognizing the hardship, if not the impossibility, of re-  r n

23 The legislative history of Section 5(b) makes clear that it bars "not only action taken by State statute but by all other administrative actions or local ordinances or regula- tions by any political subdivision of any State." S.Rep.No. 91-566, 91st Cong., 2d Sess. (1970), in 1970 (2) U.S. Code Cong. & Admin. News 2652, 2663. The Supreme Court, New York County concluded in 1971 that the Federal Act appeared to prohibit regulation by the New York City Department of Health of cigarette advertising on Long Island Railroad trains, which is intrastate rather than in- terstate advertising. In re Nicklin (Dep't of Health of N.P.), N.Y.L.J., March 3, 1971, p. 2, col. 4. Section 4 of the Federal Public Health Cigarette Smoldng Act, 15 U.S.C. Section 1333, requires a standard warning on the packages of all cigarettes manufactured, imported, or pack- aged for sale in the United States, whether or not they enter interstate commerce, and Section 5(b) makes this warning exclusive of any other federal. State, or local requirement based on smoking and health, agoin without any limitation to interstate commerce. There can be no argument that the regulation is not "based on smoking and health, since the whole purpose of the requirement is to force sellers of cigarettes to convey to the consumer, through the price differential, a message based on smoking and health. The regulation itself states that its purpose is "to promote the health and welfare of the people of the City". Article 2-A(c) (3a). It has been argued that the entire Federal Act is limited by Section 2 of the Act, 15 U.S.C. Section 1331, which declares a Con- gressional purpose to inform the public and to protec{. "commerce and the national economy". Section 2, however, is plainly intended as a declaration of purpose, not as a limitation on the scope of the Act. See, e.g., H.R. Rep. No. 449, 89th Cong., 1st Sess. (1965), in 1965 (2) U.S. Code I A

21 "As is the ease in regard to labeling of cigarette packages, the committee bill preempts all Federal, State, and local authorities from requiring any state- ment relating to smoking and health in the advertising of cigarettes properly labeled under the terms of the committee bill." Id. at 2353. In the 1969 Act, Section 5(b) was broadened to foreclose State or local regulation of "advertising or promotion" of cigarettes bearing the warning required by the Act, and Congress once again stressed its desire to avoid "the chaos created by a multiplicity of conflicting regulations". S. Rep. No. 91-566, 91st. Cong., 2d Ses,- (1970), in 1970 (2) U.S. Code Cong. & Admin. News 2652, 2663. The plain Congressional purpose in enacting Section 5(b) is to bar conflicting State and local regulations "based on smoking and health", on the ground that the Congres- sionally prescribed warning on cigarette packages is fully adequate to alert consumers to the health controversy concerning cigarettes, and on the ground that any addi- tional requirements "based on smoking and health" place an unwarranted burden on the sale of cigarettes. More- over, the strong emphasis whicn Congress placed upon the need for uniformity of regulation indicates that it intended to preclude not only conflicting State and local regulations but also State and lcctl regulations which arguably do no more than supplement federal re,mitation. Cf., e.g., Campbell v. Hussey, 368 II.S. 297, 300-302 (1961) ; Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 232-36 (1947). The New York City price differential requirements is inconsistent with these Congressional aims. The premise of the price differential requirement is that the Con- gressionally prescribed warning must be supplemented with

15 he will absorb the sales tax ("anti-advertising provisions"), and from failing to state the sales tax as a separate ele- ment of the charge to the customer ("anti-absorption pro- visions"). This view is mistaken. Both the New York State and New York City cigarette taxes already have anti- absorption provisions, see \.Y. Tax Law §471(3), N.Y. City Admin. Code §D46.2.0(a)(3) (9a), but neither these taxes nor any other tax of which we are aware has ever contained a price differential requirement. The price dif- ferential requirement, unlike anti-advertising and anti- absorption provisions, mandates fixed differentials in after- tax prices. Anti-advertising and anti-absorption provisions never mandate any given relationship between the prices or different items. The price differential requirement is a price-fixing provision, mandating a certain minimum differential between after-tax selling prices, while anti- advertising and auti-absorption provisions in no way limit a seller's pricing flexibility. The City points to no precedent whatever for the imposition of a price-fixing requirement as part of a taxing statute. Price-fixing is much too drastic and important a governmental power to be delegated by incidental implication as part of a taxing statute. Indeed, the New York State Department of Taxation and Finance has expressly ruled that the anti-advertising and anti-absorption provisions leave a seller free to reduce his price to offset the sales tax, o long as he does not advertise that he is doing so. New York State De't. of Taxation and Finance, Rel. No. 40-ST ( 3ug. 9, 1965), 2 CCH New York State Tax Rep. W-028.70. This is the universal rule. See, e.g., J.F. Due, State and Local Sales Taxation: Structure and Administration 27-28 (1971) ; Tax Foundation, Inc., State and Local Sales Taxes 15 (1970). In short, anti-absorption and anti-advertising provisions in no way limit the seller's pricing flexibility. The price IN m 0 w L5 ca

19 versy concerning cigarettes. Since the declared purpose of the price differential requirement is "to direct attention to the cigarettes containing excessive tar and nicotine and thereby to promote the health and welfare of the people of the City", Article 2-A(c) (3a), the Congressional finding that the package warning required by the Federal Act is adequate to alert consumers to the health controversy con- cerning cigarettes establishes that the package warning is a less restrictive alternative to the City's price differential requirement. In the Court below: "The City tax authorities iaere within their powers in rejecting a suggestion of signs, etc., to notify the consumer of the tax differential because (a) a sign is not nearly as forceful or effective a reminder as a price differential; (b) without the price differential the sign will only mean that the dealer pays a differential in tax, but the consumer pays the same whichever type of cigarette he buys." Justice Silverman's holding is in error for several reasons. In the first place, Justice Silverman dealt only with the sign-posting alternative, and did not consider the warning required by the Federal Act. In the second place, even as applied to the sign-posting alternative, Justice Silverman's reasons are inadequate. The first of Justice Silverman's reasons-that. a sign is supposedly ineffective-is squarely contrary to the Court of Appeals holding in Defcance Milk Products that, as a matter of law, a sufficiently prominent label or sign will convey the necessary information to the consumer. Justice Silverman's second reason is based on the assumption that the \ ew York City Finance Adminis- trator required the price differential for its own sake, rather than to inform consumers of the additional tax. CY ^

iv N.Y. City Admin. Code § D46-8.0(1) -------------- ------------- ----- N.Y. City Admin. Code § D46-8.0(11) ------------------------------ PAGE 16 16 New York City Local Law No. 34 of 1971, 49 City Record 3'..60 (July 15, 1971) -------------------------------------------- 3 Cigarette Tax Law Regulations of the Finance Ad- ministrator, Article 2-A ................................................1, 2, 4 N.Y. Tax Law §§ 420-138 .... ............ --.............. -.............. .-... 9 Other Authorities: H.R. Rep. No. 449, 89th Cong., 1st Sess. (1965), in 1965(2) U.S. Code Cong. & Admin. News 2350 ....--20,23 S. Rep. No. 91-566, 91st Cong., 2d Sess. (1970), in 1970(2) U.S. Code Cong. & Admin. News 2652 ........ 21, 23 New York State Dep't of Taxation and Finance, Rel. No. 40-ST (Aug. 9, 1965), 2 CCH New York State Tax Rep. 7 63-028.70 ...... .................... -------------- -...... -...... 15 Drayton, The Tar and Nicotine Tax: Persuing Public Health Through 2ax Incentives, 81 Yale L.J. 1487 (1972) .............. -------- ........... ---.............. .------------------- --....... 14 J. F. Due, State and Local Sales Taxation: Structure and Administration (1971) .............................. ------------ -- 15 Struve, The Less-Restrictive-Alternative Principle and Economic Due Process, 80 Harv. L. Rev. 1463 (1967) 17 Tax Foundation, Inc., State and Local Sales Taxes 15 (1970) ....... ----------------- - °................................. _............ -.... 15 Statistical Supplement to Federal Trade Commission Report to Congress dated December 31, 1972 .......... Al

27 CONCLUSION The order of the Appellate Division of the State of New York, First Department, entered October 4, 1973, should be reversed as well as the order and judgment of the Supreme Court of the State of New York entered on or about June 5, 1973. Respectfully submitted, POLILdE:, SwARTZ, STARIL & AMROX Attorneys for Plwinttifs-Respondents jV1ER4IN C. POLLAB HOwARD C. 11MRON ti6'ILLxant R. Por,r.Aa of Cownsel

22 further consumer education measures, including price dif- ferentials. But Congress definitely found that a less re- strictive alternativ^ was adequate. It prescribed a stan- dard warning for ciyarette packages, and enacted Section 5(b) for the precise purpose of foreclosing independent and possibly inconsistent consumer education measures by States and localities. There can be no serious question that the New York City price differential requirement is "based on smoking and health" within the meaning of Section 5(b). The price differential requirement states that it was promulgated: "In furtherance of `.he purpose of the additional tax to direct attention to the cigarettes containing exces- sive tar and nicotine and thereby to promote the health and welfare of the people of the Citv. ..." Article 2-A(c) (3a). It is also clear that the price differential requirement is "imposed ... with respect to the advertising or promotion of .., cigarettes". The stated purpose of the price differ- ential requirement, as quoted above, is "to direct attention to the cigarettes containing escessive tar and nicotine" (emphasis supplied). Its purpose, in other words, is to pro- mote "low tar" cigarettes. This is underscored by the fact that the price differential regulation also requires that the price differentials be "clearly marked" in all price lists, bills, advertisements, catalogs, and other publications. Arti- cle 2-A(c) (3a). Thus the price differential requirement is undeniably a promotional requirement. It is therefore barred by the Federal Act. Section 5(b) bars any State or local requirement with respect to advertising or promotion, not merely require- ments with respect to interstate advertising or promotion.