BILL REQ. #:  H-3746.2 

Prefiled 12/28/09. Read first time 01/11/10.   Referred to Committee on Finance.

     AN ACT Relating to the taxation of cigarettes and other tobacco products; amending RCW 82.24.020, 82.24.026, 82.26.010, and 82.26.020; adding a new section to chapter 82.26 RCW; creating a new section; and repealing RCW 82.24.027 and 82.24.028.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 82.24.020 and 2009 c 479 s 66 are each amended to read as follows:
     (1) There is levied and ((there shall be)) collected as provided in this chapter, a tax upon the sale, use, consumption, handling, possession, or distribution of all cigarettes, in an amount equal to ((one and fifteen one-hundredths)) 12.125 cents per cigarette.
     (2) ((An additional tax is imposed upon the sale, use, consumption, handling, possession, or distribution of all cigarettes, in an amount equal to five hundred twenty-five one-thousandths of a cent per cigarette. All revenues collected during any month from this additional tax shall be deposited in the state general fund by the twenty-fifth day of the following month.
     (3) An additional tax is imposed upon the sale, use, consumption, handling, possession, or distribution of all cigarettes, in an amount equal to two and five one-hundredths cents per cigarette. All revenues collected during any month from this additional tax shall be deposited in the state general fund by the twenty-fifth day of the following month.
     (4))) Wholesalers subject to the payment of this tax may, if they wish, absorb five one-hundredths cents per cigarette of the tax and not pass it on to purchasers without being in violation of this section or any other act relating to the sale or taxation of cigarettes.
     (((5))) (3) For purposes of this chapter, "possession" ((shall)) means both (a) physical possession by the purchaser and, (b) when cigarettes are being transported to or held for the purchaser or his or her designee by a person other than the purchaser, constructive possession by the purchaser or his or her designee, which constructive possession ((shall be)) is deemed to occur at the location of the cigarettes being so transported or held.
     (((6))) (4) In accordance with federal law and rules prescribed by the department, an enrolled member of a federally recognized Indian tribe may purchase cigarettes from an Indian tribal organization under the jurisdiction of the member's tribe for the member's own use exempt from the applicable taxes imposed by this chapter. Except as provided in subsection (((7))) (5) of this section, any person, who purchases cigarettes from an Indian tribal organization and who is not an enrolled member of the federally recognized Indian tribe within whose jurisdiction the sale takes place, is not exempt from the applicable taxes imposed by this chapter.
     (((7))) (5) If the state enters into a cigarette tax contract or agreement with a federally recognized Indian tribe under chapter 43.06 RCW, the terms of the contract or agreement ((shall)) take precedence over any conflicting provisions of this chapter while the contract or agreement is in effect.
     (6) By July 1, 2011, and by July 1st of each year thereafter, the state treasurer must transfer eighteen million dollars from the general fund into the tobacco prevention and control account under RCW 43.79.480.

Sec. 2   RCW 82.24.026 and 2009 c 479 s 67 are each amended to read as follows:
     (1) In addition to the tax imposed upon the sale, use, consumption, handling, possession, or distribution of cigarettes set forth in RCW 82.24.020, there is imposed a tax in an amount equal to three cents per cigarette.
     (2) The revenue collected under this section ((shall)) must be deposited as follows:
     (a) ((28.5)) 16 percent ((shall)) must be deposited into the general fund.
     (b) The remainder ((shall)) must be deposited into the education legacy trust account.

Sec. 3   RCW 82.26.010 and 2005 c 180 s 2 are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Tobacco products" means cigars, cheroots, stogies, periques, granulated, plug cut, crimp cut, ready rubbed, and other smoking tobacco, snuff, snuff flour, cavendish, plug and twist tobacco, fine-cut and other chewing tobaccos, shorts, refuse scraps, clippings, cuttings and sweepings of tobacco, and other kinds 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 and smoking, and any other product, regardless of form, that contains tobacco and is intended for human consumption or placement in the oral or nasal cavity or absorption into the human body by any other means, but ((shall)) does not include cigarettes as defined in RCW 82.24.010.
     (2) "Manufacturer" means a person who manufactures and sells tobacco products.
     (3) "Distributor" means (a) 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 for sale, (b) any person who makes, manufactures, fabricates, or stores tobacco products in this state for sale in this state, (c) 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, (d) 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.
     (4) "Retailer" means any person engaged in the business of selling tobacco products to ultimate consumers.
     (5)(a) "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.
     (b) The term "sale" includes a gift by a person engaged in the business of selling tobacco products, for advertising, promoting, or as a means of evading the provisions of this chapter.
     (6) "Business" means any trade, occupation, activity, or enterprise engaged in for the purpose of selling or distributing tobacco products in this state.
     (7) "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, including any vessel, vehicle, airplane, train, or vending machine.
     (8) "Retail outlet" means each place of business from which tobacco products are sold to consumers.
     (9) "Department" means the department of revenue.
     (10) "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, 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.
     (11) "Indian country" means the same as defined in chapter 82.24 RCW.
     (12) "Actual price" means the total amount of consideration for which tobacco products are sold, valued in money, whether received in money or otherwise, including any charges by the seller necessary to complete the sale such as charges for delivery, freight, transportation, or handling.
     (13) "Affiliated" means related in any way by virtue of any form or amount of common ownership, control, operation, or management.
     (14) "Board" means the liquor control board.
     (15) "Cigar" means a roll for smoking that is of any size or shape and that is made wholly or in part of tobacco, irrespective of whether the tobacco is pure or flavored, adulterated or mixed with any other ingredient, if the roll has a wrapper made wholly or in greater part of tobacco. "Cigar" does not include a cigarette.
     (16) "Cigarette" has the same meaning as in RCW 82.24.010.
     (17) "Manufacturer's representative" means a person hired by a manufacturer to sell or distribute the manufacturer's tobacco products, and includes employees and independent contractors.
     (18)(a) "Taxable sales price" means:
     (i) In the case of a taxpayer that is not affiliated with the manufacturer, distributor, or other person from whom the taxpayer purchased tobacco products, the actual price for which the taxpayer purchased the tobacco products;
     (ii) In the case of a taxpayer that purchases tobacco products from an affiliated manufacturer, affiliated distributor, or other affiliated person, and that sells those tobacco products to unaffiliated distributors, unaffiliated retailers, or ultimate consumers, the actual price for which that taxpayer sells those tobacco products to unaffiliated distributors, unaffiliated retailers, or ultimate consumers;
     (iii) In the case of a taxpayer that sells tobacco products only to affiliated distributors or affiliated retailers, the price, determined as nearly as possible according to the actual price, that other distributors sell similar tobacco products of like quality and character to unaffiliated distributors, unaffiliated retailers, or ultimate consumers;
     (iv) In the case of a taxpayer that is a manufacturer selling tobacco products directly to ultimate consumers, the actual price for which the taxpayer sells those tobacco products to ultimate consumers;
     (v) In the case of a taxpayer that has acquired tobacco products under a sale as defined in subsection (5)(b) of this section, the price, determined as nearly as possible according to the actual price, that the taxpayer or other distributors sell the same tobacco products or similar tobacco products of like quality and character to unaffiliated distributors, unaffiliated retailers, or ultimate consumers; or
     (vi) In any case where (a)(i) through (v) of this subsection do not apply, the price, determined as nearly as possible according to the actual price, that the taxpayer or other distributors sell the same tobacco products or similar tobacco products of like quality and character to unaffiliated distributors, unaffiliated retailers, or ultimate consumers.
     (b) For purposes of (a)(i) and (ii) of this subsection only, "person" includes both persons as defined in subsection (10) of this section and 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.
     (c) The department may adopt rules regarding the determination of taxable sales price under this subsection.
     (19) "Taxpayer" means a person liable for the tax imposed by this chapter.
     (20) "Unaffiliated distributor" means a distributor that is not affiliated with the manufacturer, distributor, or other person from whom the distributor has purchased tobacco products.
     (21) "Unaffiliated retailer" means a retailer that is not affiliated with the manufacturer, distributor, or other person from whom the retailer has purchased tobacco products.
     (22) "Moist snuff" means tobacco that is finely cut, ground, or powdered; is not for smoking; and is intended to be placed in the oral, but not the nasal, cavity. "Moist snuff" does not include capsular smokeless tobacco.
     (23) "Small cigar" means a cigar that weighs less than four one-thousandths of a pound.
     (24) "Roll-your-own tobacco" has the meaning provided in 26 U.S.C. Sec. 5702 of the federal internal revenue code of 1986, as existing on January 1, 2010.
     (25) "Capsular smokeless tobacco" means any product containing tobacco that is intended or expected for oral consumption that does not consist of loose tobacco and is offered in discrete single-dose or single-use lozenges, pouches, pills, capsules, or other single-dose or single-use units or in packages of such single-dose or single-use units.

Sec. 4   RCW 82.26.020 and 2009 c 479 s 70 are each amended to read as follows:
     (1) There is levied and ((there shall be)) collected a tax upon the sale, handling, or distribution of all tobacco products in this state at the following rate:
     (a) ((Seventy-five)) For cigars other than small cigars, the greater of: Ninety-five percent of the taxable sales price of cigars or the cigarette tax under chapter 82.24 RCW multiplied by five, but not to exceed ((fifty cents)) an amount per cigar equal to the cigarette tax under chapter 82.24 RCW multiplied by twenty; ((or))
     (b) ((Seventy-five)) For all tobacco products except those covered under separate provisions of this subsection, ninety-five percent of the taxable sales price ((of all tobacco products that are not cigars));
     (c) For moist snuff: On each single unit consumer-sized can or package, the greater of:
     (i) Ninety-five percent of the taxable sales price; or
     (ii) The cigarette tax under chapter 82.24 RCW multiplied by twenty, increased proportionately for each ounce or fractional part of an ounce where the single unit consumer-sized can or package is in excess of one and two-tenths ounces;
     (d) For small cigars, an amount per cigar equal to the cigarette tax under chapter 82.24 RCW;
     (e) For roll-your-own tobacco: On each single unit consumer-sized can or package, the greater of:
     (i) Ninety-five percent of the taxable sales price; or
     (ii) The cigarette tax under chapter 82.24 RCW multiplied by twenty, increased proportionately for each ounce or fractional part of an ounce where the single unit consumer-sized can or package is in excess of sixty-five one-hundredths ounces; or
     (f) For capsular smokeless tobacco, an amount per single-use unit or single-dose unit equal to the greater of: Ninety-five percent of the taxable sales price per single-use unit or single-dose unit or the cigarette tax under chapter 82.24 RCW.
     (2) Taxes under this section ((shall)) must be imposed at the time the distributor (a) brings, or causes to be brought, into this state from without the state tobacco products for sale, (b) makes, manufactures, fabricates, or stores tobacco products in this state for sale in this state, (c) ships or transports tobacco products to retailers in this state, to be sold by those retailers, or (d) handles for sale any tobacco products that are within this state but upon which tax has not been imposed.
     (3) The moneys collected under this section ((shall)) must be deposited into the state general fund.

NEW SECTION.  Sec. 5   A new section is added to chapter 82.26 RCW to read as follows:
     (1)(a) Within one year following the date on which the requirement for a tobacco product code is effective, payment of, or exemption from, the tax imposed in section 4 of this act must be verifiable on each single-unit consumer-sized can or package of moist snuff, as provided in (b) of this subsection.
     (b) Within thirty days following the date on which notice of proposed rulemaking to require a tobacco product code is published in the federal register, the department must commence to develop a method for using a tobacco product code to verify payment of, or exemption from, the tax imposed in section 4 of this act; to develop and implement a pilot project to test the method; and to develop a plan for adoption of rules to implement the method. The department must report to the legislature on its progress annually by December 1st through the year following the year in which the method is implemented.
     (2) If notice of proposed rulemaking to require a tobacco product code is not published in the federal register by July 1, 2011, the department must determine and recommend to the legislature by November 1, 2014, a method to verify payment of, or exemption from, the tax imposed in section 4 of this act, by means of stamping, use of manufacturers' digitally readable product identifiers, or any other method, and must complete and present to the legislature a study of compliance with the tax imposed in section 4 of this act, the effect of noncompliance on state revenue, and the effect of adopting a method to verify payment of, or exemption from, the tax.
     (3) For purposes of this section, "tobacco product code" means a code that is required on the label of a tobacco product for purposes of tracking or tracing the product through the distribution system under final regulations promulgated by the secretary of the United States department of health and human services.

NEW SECTION.  Sec. 6   The following acts or parts of acts are each repealed:
     (1) RCW 82.24.027 (Additional tax imposed -- Rate -- Deposited into the general fund) and 2009 c 479 s 68, 2008 c 86 s 303, 1999 c 309 s 925, & 1986 c 3 s 12; and
     (2) RCW 82.24.028 (Additional tax imposed -- Rate -- Deposited into the general fund) and 2009 c 479 s 69, 2008 c 86 s 304, & 2002 c 2 s 3.

NEW SECTION.  Sec. 7   (1) Section 1, chapter . . ., Laws of 2010 (this act) applies only with respect to tax liability incurred under this chapter on or after July 1, 2010, for the sale, use, consumption, handling, possession, or distribution of cigarettes.
     (2) Section 5(1), chapter . . ., Laws of 2010 (this act) applies only with respect to tax liability incurred under this chapter on or after July 1, 2010, for the sale, handling, or distribution of moist snuff, cigars, small cigars, roll-your-own tobacco, and other tobacco products.