HOUSE BILL REPORT

SB 6451

BYSenators McDonald and Hayner

Modifying the cigarette tax.

House Committe on Revenue

Majority Report:  Do pass.  (13)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member; Brumsickle, Fraser, Fuhrman, Grant, Morris, Phillips, Rust, H. Sommers and Van Luven.

House Staff:Rick Wickman (786-7150)

AS PASSED HOUSE MARCH 1, 1990

BACKGROUND:

All cigarette wholesalers and retailers are required to affix tax stamps to cigarettes within their possession unless stamps are already attached.  However, licensed wholesalers and retailers may possess unstamped cigarettes for sale to persons outside the state, to instrumentalities of the federal government, and to the established governing bodies of Indian tribes.  These later persons are exempt from the state cigarette tax.

Recent decisions by state and federal courts have cast doubt on the ability of the state to interdict shipments of contraband cigarettes.  In Gord v. State, 50 Wn. App. 647, 749 (1987), the Washington Court of Appeals ruled that unstamped cigarettes transported by any person would be immune from seizure and the contraband provisions of current law if the cigarettes were being delivered to an Indian tribe.  The fact that the cigarettes might be resold to non-Indians without the payment of tax would be of no consequence.

In United States v. Lopeman, No. CR-88-117S, the federal district court enjoined the federal prosecution of an individual arrested for transporting unstamped cigarettes across state lines into Washington based on the Gord decision.

Illegal sales of unstamped cigarettes produce no revenues for the state and lower the sales of wholesalers and retailers who comply with the law.  In September of 1989, the Department of Revenue estimated that $17.9 million of state tax revenue is lost annually due to the illegal sale of unstamped cigarettes.

SUMMARY:

The requirement that only licensed wholesalers and retailers are authorized to possess unstamped cigarettes is clarified.  Advance notice to the Department of Revenue is required from persons other than licensed wholesalers before the transportation of unstamped cigarettes.  In addition, the Department of Revenue is authorized to adopt rules regulating the transportation of unstamped cigarettes to Indian tribal organizations.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Available.

Effective Date:The bill contains an emergency clause and takes effect immediately.

House Committee ‑ Testified For:    Senator McDonald, prime sponsor; Russ Brubaker, Department of Revenue and Gary O'Neal, Miscellaneous Tax Division, Department of Revenue.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    The Department of Revenue needs this additional authority to regulate the possession and use of unstamped cigarettes, including the transportation of unstamped cigarettes.

House Committee - Testimony Against:      None.