BILL REQ. #:  S-2899.1 

Read first time 04/06/09.   Referred to Committee on Ways & Means.

     AN ACT Relating to taxation of moist snuff; amending RCW 82.26.010, 82.26.020, and 82.26.030; adding new sections to chapter 82.26 RCW; and creating a new section.

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

NEW SECTION.  Sec. 1   A new section is added to chapter 82.26 RCW to read as follows:
     The legislature finds that use of wholesale price as the measure of tobacco products tax on moist snuff makes fair and consistent administration more difficult, because of the numerous and complex ways moist snuff can be valued before it is sold to consumers. The legislature further finds that wholesale price as the measure of tax does not provide a stable revenue stream, because proliferation of low-cost product reduces the tax base. The legislature further finds that such proliferation of low-cost product makes moist snuff more accessible, especially to the young, contrary to state policy regarding tobacco products.
     It is the intent of the legislature to establish weight, rather than wholesale price, as the measure of tobacco products tax on moist snuff, and impose the tax at a rate that is equivalent to cigarette tax, with a specified minimum of tax on each consumer-sized package. It is further the intent of the legislature to dedicate any new revenue attributable to this act to the health services account, to the extent possible, while keeping other accounts whole.

Sec. 2   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 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.

Sec. 3   RCW 82.26.020 and 2005 c 180 s 3 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) Until October 1, 2009:
     (i) Seventy-five percent of the taxable sales price of cigars, not to exceed fifty cents per cigar; or
     (((b))) (ii) Seventy-five percent of the taxable sales price of all tobacco products that are not cigars.
     (b) As of October 1, 2009:
     (i) For cigars, seventy-five percent of the taxable sales price of cigars, not to exceed fifty cents per cigar;
     (ii) For all tobacco products that are not cigars or moist snuff, seventy-five percent of the taxable sales price; or
     (iii) For moist snuff, as established in this subsection (1)(b)(iii) and computed on the net weight listed by the manufacturer:
     (A) On each single unit consumer-sized can or package whose net weight is one and two-tenths ounces or less, a rate that is equal to 2.025 dollars per single unit; or
     (B) On each single unit consumer-sized can whose net weight is more than one and two-tenths ounces, a proportionate tax at the rate established in (b)(iii)(A) of this subsection (1) on each ounce or fractional part of an ounce.
     (2) Taxes under this section shall 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 be deposited as follows:
     (a) Until January 1, 2010:
     (i) Thirty-seven percent in the general fund; and
     (((b))) (ii) Fifty percent in the health services account created under RCW 43.72.900;
     (b) As of January 1, 2010:
     (i) Twenty-nine percent in the general fund; and
     (ii) Fifty-eight percent in the health services account created under RCW 43.72.900; and
     (c) Thirteen percent in the water quality account under RCW 70.146.030 for the period beginning July 1, 2005, through June 30, 2021, and in the general fund for the period beginning July 1, 2021.

Sec. 4   RCW 82.26.030 and 2005 c 180 s 1 are each amended to read as follows:
     It is the intent and purpose of this chapter to levy a tax on all tobacco products sold, used, consumed, handled, or distributed within this state and to collect the tax from the distributor as defined in RCW 82.26.010. It is the further intent and purpose of this chapter to impose the tax once, and only once, on all tobacco products for sale in this state, but nothing in this chapter shall be construed to exempt any person taxable under any other law or under any other tax imposed under Title 82 RCW. It is the further intent and purpose of this chapter that the distributor who first possesses the tobacco product in this state shall be the distributor liable for the tax and that (1) for moist snuff the tax will be based on the net weight listed by the manufacturer and (2) in most other instances the tax will be based on the actual price that the distributor paid for the tobacco product, unless the distributor is affiliated with the seller.

NEW SECTION.  Sec. 5   A new section is added to chapter 82.26 RCW to read as follows:
     (1) 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 adopted by the secretary of the United States department of health and human services.
     (2)(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 RCW 82.26.020 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 rule making to require a tobacco product code is published in the federal register, the department shall commence to develop a method for using a tobacco product code to verify payment of, or exemption from, the tax imposed in RCW 82.26.020; 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.
     (3) If notice of proposed rule making 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 RCW 82.26.020, by means of stamping, use of manufacturers' digitally readable product identifiers, or any other method, and shall complete and present to the legislature a study of compliance with the tax imposed in RCW 82.26.020, the effect of noncompliance on state revenue, and the effect of adopting a method to verify payment of, or exemption from, the tax.

NEW SECTION.  Sec. 6   The legislature recognizes the role that tax policy plays in the levels of consumption of moist snuff by youth due to impacts on price. Discouraging youth access to moist snuff and youth consumption is an important state policy. The legislature directs the department of health, with the assistance of the department of revenue and the office of financial management, to study this issue. The study must examine the historic, current, and future trends and data, including but not limited to which products are consumed, by which age group, and how the products were acquired. The study should cover the period beginning with the year 2000, if possible. The department of health must report to the appropriate fiscal and health care committees of the legislature by December 1, 2010. The department of health may consult with academics, other experts, and industry representatives in studying this issue and preparing any reports required under this section.