HOUSE BILL REPORT

SB 6652

BYSenators McDonald, Gaspard and Hayner

Revising penalties on cigarette taxes.

House Committe on Revenue

Majority Report:  Do pass as amended.  (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 2, 1990

BACKGROUND:

The state of Washington imposes a tax on the sale, use, consumption, handling, possession, or distribution of cigarettes equal to $.34 per pack.  In addition, state and local sales and use taxes and business and occupation taxes apply to the sale of cigarettes equal to approximately $.125 per pack, depending on price.  Because price differentials of between $.16 and $.26 per pack exist between Washington and its neighboring states, there is an incentive for tax evasion. 

According to estimates from the Department of Revenue, the state is losing $17.9 million per year from illegal sales of untaxed cigarettes.  These losses occur from casual smuggling from other lower-tax states and the purchase of cigarettes from tax-free outlets such as military post exchanges and Indian smoke shops.

Failure to affix tax stamps or to pay any cigarette tax, or other violation of the cigarette tax laws, is subject to a penalty equal to the amount of any tax due. 

Untaxed cigarettes that are possessed by any unauthorized person and any conveyances used or intended to be used for their transport for the purpose of sale or receipt, are subject to seizure.  If there is no intent to violate the cigarette tax laws, the property may be returned upon payment of a penalty equal to 25 percent of the amount of tax due.

SUMMARY:

The penalty for failure to affix tax stamps or to pay any cigarette tax, or other violation of the cigarette tax laws, is increased to $10 per package of unstamped cigarettes or $250, whichever is greater.  The penalty that must be paid before the return of seized property if there is no intent to violate the cigarette tax laws is increased to $10 per package of unstamped cigarettes or $250, whichever is greater.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Available.

Effective Date:The bill takes effect on January 1, 1991.

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.