Supplemental Notice to WSR 02-22-009.
Preproposal statement of inquiry was filed as WSR 02-13-181.
Title of Rule: WAC 458-20-185 Tax on tobacco products.
Purpose: To provide guidance to taxpayers necessary to meet the requirements set forth in chapter 82.26 RCW, Tax on tobacco products.
Statutory Authority for Adoption: RCW 82.32.300 and 82.01.060(2).
Statute Being Implemented: Chapter 82.26 RCW.
Summary: This rule explains the provisions of chapter 82.26 RCW, Tax on tobacco products. The rule identifies distributors who must pay the tax, the imposition of the tax, applicable penalties, the books and records that must be kept, and when a credit for previously paid tax may be taken.
Reasons Supporting Proposal: To amend the current rule to reflect changes to the law pursuant to Initiative 773, chapter 325, Laws of 2002, and chapter 420, Laws of 1997.
Name of Agency Personnel Responsible for Drafting: Anne Solwick, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6129; Implementation: Alan R. Lynn, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6125; and Enforcement: Ron Yamamoto, 2735 Harrison N.W., Building 4, Olympia, WA, (360) 753-2871.
Name of Proponent: Department of Revenue, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: Chapter 82.26 RCW imposes the tobacco products tax upon distributors of tobacco products. The rule provides pertinent definitions; explains the measure and imposition of the tax; advises taxpayers of their record-keeping obligations; explains penalties applicable to persons who make retail sales of tobacco products and who are also distributors who must pay the tax; and explains available tax credits. The purpose of the rule is to provide guidance to those required to pay the tobacco products tax. The effect of the rule is that those required to pay the tobacco products tax will have a reference to assist them in complying with the law.
The department is proposing amendments to this rule to incorporate provisions of chapter 325, Laws of 2002. This legislation amended chapter 82.26 RCW by adding definitions and adding a new category of person who as a distributor must under certain circumstances pay the tax. Legislative changes are further reflected in the proposed rule's explanation of the imposition of the tax and the penalties that may be applicable for failure to pay the tax.
Additional proposed changes include the following:
• The definition of the tax base, "wholesale sales price," in the proposed rule includes language from United States Tobacco Sales and Marketing Company v. Department of Revenue, 96 Wn.App.932, 982 P.2d 652 (1999).
• The proposed changes clarify when a tax credit for previously taxed product may or may not be taken.
• The proposed changes explain the record-keeping requirements imposed on persons who handle tobacco.
• The proposal also includes a section on enforcement consistent with 1997 legislative changes and the striking of outdated and/or unnecessary information.
Proposal Changes the Following Existing Rules: This proposal is to amend an existing rule (WAC 458-20-185) as explained above.
The hearing scheduled for May 12, 2003, is the second CR-102 hearing for proposing the amendment of WAC 458-20-185. The significant changes from the prior proposal include the following:
• An example for "wholesale sales price" in subsection (2)(g).
• Clarification regarding when an out-of-state person may pay the tax and a retailer's certificate of remittance of tax in subsection (4)(c).
• Clarification regarding when a credit may be taken for interstate sales and a retailer's certification of purchase of tobacco products for resale outside Washington in subsection (8).
No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement is not required because the rule and the amendments do not impose any requirements or burdens upon small business that are not already required by statute.
RCW 34.05.328 does not apply to this rule adoption. This is an interpretive rule as defined in RCW 34.05.328.
Hearing Location: Capital Plaza Building, 4th Floor, Large Conference Room, 1025 Union Avenue S.E., Olympia, WA, on May 12, 2003, at 9:30 a.m.
Assistance for Persons with Disabilities: Contact Sandy Davis no later than ten days before the hearing date, TTY 1-800-451-7985 or (360) 570-6175.
Submit Written Comments to: Anne Solwick, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail firstname.lastname@example.org, by May 12, 2003.
Date of Intended Adoption: May 22, 2003.
March 27, 2003
Alan R. Lynn
Legislation and Policy Division
AMENDATORY SECTION(Amending WSR 94-10-061, filed 5/3/94, effective 6/3/94)
WAC 458-20-185 Tax on tobacco products. (1) Introduction. This ((
section)) rule explains the tax
liabilities of persons engaged in business as a retailer,
distributor or subjobber of tobacco products. (( It addresses
only those taxes which apply exclusively to tobacco
products.)) The tax on tobacco products is in addition to all
other taxes owed. For example, retailers, distributors, and
subjobbers are liable for business and occupation tax on their
retailing or wholesaling activities, use tax on tobacco
products distributed as samples, and litter tax on the value
of the tobacco products. See WAC 458-20-186 for tax
liabilities associated with taxes which apply exclusively to
(2) Definitions. The following definitions apply to this rule.
(a) "Tobacco products" means all tobacco products except cigarettes as defined in RCW 82.24.010. The term includes:
(i) Cigars, cheroots, stogies, and periques;
(ii) Granulated, plug cut, crimp cut, ready rubbed
or)), and other smoking tobacco;
(iii) Snuff, snuff flour, cavendish, plug((
,)) and twist
tobacco, fine-cut, (( or)) and other chewing tobaccos; and
(iv) Shorts, refuse scraps, clippings, cuttings((
sweepings of tobacco, (( or)) and other kinds (( or)) and forms
of tobacco, prepared in such manner as to be suitable for
chewing or smoking in a pipe or otherwise, or both for chewing
(b) "Manufacturer" means a person who manufactures and sells tobacco products.
(c) "Distributor" means:
(i) Any person engaged in the business of selling tobacco
products in this state who brings, or causes to be brought,
into this state from without the state any tobacco products
(ii) Any person who makes, manufactures, or fabricates
tobacco products in this state for sale in this state((
(iii) Any person engaged in the business of selling tobacco products without this state who ships or transports tobacco products to retailers in this state, to be sold by those retailers; or
(iv) Any person engaged in the business of selling tobacco products in this state who handles for sale any tobacco products that are within this state but upon which tax has not been imposed.
(c))) (d) "Subjobber" means any person, other than a
tobacco manufacturer or distributor, who buys tobacco products
from a distributor and sells them to persons other than the
(d))) (e) "Retailer" means any person engaged in the
business of selling tobacco products to ultimate consumers.
(f) "Sale" means any transfer, exchange, or barter, in
any manner or by any means whatsoever, for a consideration,
and includes and means all sales made by any person ((
consideration)). It includes all gifts by persons engaged in
the business of selling tobacco products, for advertising, as
a means of evading the provisions of chapter 82.26 RCW, or for
any other purposes whatsoever.
(e))) (g) "Wholesale sales price" means the established
(( manufacturer's)) price for which a manufacturer sells
tobacco product to the distributor, exclusive of any discount
or other reduction.
(f))) (i) A wholesale sales price that is an
established price must reflect the fair market value of the
tobacco products. In the case of affiliated companies which
buy and sell from each other, the wholesale sales price must
be the fair market value rather than the manufacturer's price
to its affiliate.
(ii) The phrase "discount or other reduction" includes any reduction from the established wholesale sales price made to a specific customer or class of customers.
Example. Pursuant to a half-price promotion, a manufacturer sells tobacco products to a distributor. The invoice lists $100 as the price of the product less a $50 discount resulting in a net invoice of $50. The tax is due on $100 which is the wholesale sales price exclusive of any discount or other reduction.
(h) "Business" means any trade, occupation, activity, or enterprise engaged in for the purpose of selling or distributing tobacco products in this state.
(i) "Place of business" means any place where tobacco products are sold or where tobacco products are manufactured, stored, or kept for the purpose of sale or consumption, including any vessel, vehicle, airplane, train, or vending machine.
(j) "Retail outlet" means each place of business from which tobacco products are sold to consumers.
(k) "Department" means the department of revenue.
(l) "Person" means any individual, receiver, administrator, executor, assignee, trustee in bankruptcy, trust, estate, firm, copartnership, joint venture, club, company, joint stock company, business trust, municipal corporation, the state and its departments and institutions, political subdivision of the state of Washington, corporation, limited liability company, association, society, or any group of individuals acting as a unit, whether mutual, cooperative, fraternal, nonprofit, or otherwise. The term excludes any person immune from state taxation, including the United States or its instrumentalities, and federally recognized Indian tribes and enrolled tribal members, conducting business within Indian country.
(m) "Indian country" means the same as defined in WAC 458-20-192.
Nature)) Rate and measure of tax. The Washington
state tobacco products tax is an excise tax levied on (( the
value of)) the wholesale sales price on all tobacco products
sold, used, consumed, handled, or distributed within the
state(( [)).(( ]))
The rate of tax is a
combination of statutory percentage rates found in RCW 82.26.020 ((
and)), 82.26.025, and 82.26.028. (( Charts with
current rates are available from the special programs division
at the department of revenue. The tax is to be paid by the
distributor at the time the distributor brings or causes to be
brought into this state from without the state tobacco
products for sale. (4))) The total current rate of tax is
shown on the current combined excise tax return.
(4) Imposition of tax. The tax is imposed once on all tobacco products sold, used, consumed, handled, or distributed within this state.
(a) When tax is imposed. The tax is imposed at the time the distributor:
(i) Brings, or causes to be brought, into this state from without the state tobacco products for sale; or
(ii) Makes, manufacturers, or fabricates tobacco products in this state for sale in this state; or
(iii) Ships or transports tobacco products to retailers in this state, to be sold by those retailers; or
(iv) Handles for sale any tobacco products that are within this state but upon which tax has not been imposed. For example, a retailer with a place of business in this state purchases for sale tobacco products from an enrolled tribal member of a federally recognized tribe located within Indian country. Because the tax was not imposed on the enrolled tribal member, the retailer must pay the tax.
(b) Additional occasion when tax may be imposed. Any retailer who fails to keep invoices as required under chapter 82.32 RCW and which invoices do not conform to the requirements set forth in subsection (5)(b) of this rule is liable for the tax on any uninvoiced tobacco product which that retailer handles for sale.
(c) When an out-of-state person is a distributor who must pay the tax. A person located out-of-state who is selling tobacco products to Washington wholesalers from a stock of goods located outside this state is not a distributor and therefore is not liable for the tax.
(i) On the other hand, a person located out-of-state who is selling and shipping tobacco products to Washington retailers from an out-of-state stock of goods is a distributor and is subject to the tax. If the out-of-state person is not required to register and pay taxes in Washington, the retailers to whom it sells must pay the tax. However, such out-of-state persons may elect to register with the state and pay the tax.
(ii) A Washington retailer who purchases tobacco from an out-of-state stock of goods from a person located out-of-state who is not required to register and pay taxes in Washington may provide to that person a certificate affirming that the Washington retailer will remit to the state the tax due. Both the out-of-state person and the Washington retailer should retain a copy of such certificate. The certificate should substantially conform to the example shown below:
(iv) A person located outside Washington must pay the tax when distributing samples into this state.
(5) Books and records. Since the tobacco products tax is
paid on returns as computed by the taxpayer rather than by
affixing of stamps or decals, the law contains stringent
provisions requiring that accurate and complete records be
and preserved for five years for examination by
the department of revenue)). The records must include all
pertinent papers and documents relating to the purchase, sale,
or disposition of tobacco products and must be kept for a
period of at least five years after the date of the document
or the date of the entry appearing in the records.
(a) Distributors. Distributors must keep at each
registered place of business complete and accurate records for
that place of business. The records to be kept by
distributors include itemized invoices of tobacco products
held, purchased, manufactured, brought in or caused to be
brought in from without the state or shipped or transported to
retailers in this state, and of all sales ((
customers' names and addresses))) of tobacco products except
retail sales. (( All other pertinent papers and documents
relating to purchase, sale, or disposition of tobacco products
must be retained.)) The itemized invoice for each purchase or
sale must be legible and must show the seller's name and
address, the purchaser's name and address, the date of sale,
and all prices and discounts. Itemized invoices must be
preserved for five years from the date of sale.
(b) Retailers and subjobbers. Retailers and subjobbers
must secure ((
and retain legible and)) itemized invoices of
all tobacco products purchased(( , showing name and address of
the seller and the date of purchase)). The itemized invoice
for each purchase must be legible and must show the seller's
name and address, the purchaser's name and address, the date
of sale, and all prices and discounts. Itemized invoices must
be preserved for five years from the date of sale.
(c) Warehouses. Records of all deliveries or shipments (including ownership, quantities) of tobacco products from any public warehouse of first destination in this state must be kept by the warehouse.
(5))) (6) Nonpayment of tax by retailers. If the
department finds that any nonpayment of tax by the retailer
was willful, penalties and interest shall be assessed in
accordance with chapter 82.32 RCW. In the case of a second or
plural nonpayment of tax by the retailer, penalties and
interest will be assessed in accordance with chapter 82.32 RCW
without regard to willfulness.
(a) Example. In the course of an audit of Retailer, the department determines that on several occasions Retailer failed to pay the tax. The department does not find the nonpayment to be willful. Retailer owes the tax due on all occasions of nonpayment and the penalties and interest is assessed on all but the first occasion of nonpayment. A few years later Retailer is audited again. The department finds one occasion of nonpayment of tax. In addition to the tax due, penalties and interest will be assessed in accordance with chapter 82.32 RCW.
(b) Example. In the course of an audit of Retailer #2, the department determines that on several occasions Retailer #2 failed to pay the tax. The department determines that the nonpayment of tax was willful. In addition to the tax due on all occasions of nonpayment, Retailer #2 owes penalties and interest on all occasions.
(7) Reports and returns. The tax is reported on the
combined excise tax return((
, Form REV 40 2406,)) to be filed
according to the reporting frequency assigned by the
department. Detailed instructions for preparation of these
returns may be secured from the department.
Out-of-state wholesalers or distributors selling directly to retailers in Washington should apply for a certificate of registration, and the department will furnish returns for reporting the tax.
(6))) Retailers, distributors, and subjobbers may be
required to file a report with the department in compliance
with the provisions of the National Uniform Tobacco Settlement
when purchasing tobacco products from certain manufacturers.
Please see WAC 458-20-264 and chapter 70.157 RCW.
(8) Interstate sales and sales to U.S.
(a) The tax does not apply to tobacco products sold to
federal government agencies, nor to deliveries to retailers
or wholesalers)) outside the state for resale by such
retailers (( or wholesalers)), and a credit may be taken for
the amount of tobacco products tax previously paid on such
products. RCW 82.26.110. The credit is not available for
sales made for delivery outside this state other than sales
for resale to retailers. For example, no credit may be taken
for a sale of tobacco products delivered to a consumer outside
(b) To document that the tobacco products were sold to a retailer outside the state for resale by such retailer, the person may obtain from the retailer a certificate which substantially conforms to the following:
(7))) (9) Returned or destroyed goods. A credit may
also be taken for tobacco products destroyed or returned to
the manufacturer on which tax was previously paid(( , but
returns on which such credits are claimed must be accompanied
by)). If the credit is claimed against tax owed by the
taxpayer or as a refund of tax paid, taxpayers must retain in
their records appropriate documentation, affidavits or
certificates conforming to those illustrated below:
(a) Certificate of taxpayer.
(10) Enforcement. Pursuant to RCW 82.26.121 and 66.44.010, enforcement officers of the liquor control board may enforce all provisions of the law with respect to the tax on tobacco products. Retailers, distributors, and subjobbers must allow department personnel and enforcement officers of the liquor control board free access to their premises to inspect the tobacco products contained in the premises and to examine the books and records of the business. Failure to allow free access or to hinder or interfere with department personnel and/or enforcement officers of the liquor control board may result in the revocation of the business license.
[Statutory Authority: RCW 82.32.300. 94-10-061, § 458-20-185, filed 5/3/94, effective 6/3/94; 90-04-038, § 458-20-185, filed 1/31/90, effective 3/3/90; 83-07-032 (Order ET 83-15), § 458-20-185, filed 3/15/83; Order ET 71-1, § 458-20-185, filed 7/22/71; Order ET 70-3, § 458-20-185 (Rule 185), filed 5/29/70, effective 7/1/70.]