HOUSE BILL REPORT

SSB 6667

BYSenate Committee on Ways & Means (originally sponsored by Senators McDonald, Bailey and Hayner)

Transferring power and duty to enforce cigarette and tobacco laws to the liquor control board.

House Committe on Commerce & Labor

Majority Report:  Do pass as amended.  (9)

      Signed by Representatives Vekich, Chair; Smith, Ranking Republican Member; Forner, R. King, Leonard, O'Brien, Prentice, Walker and Wolfe.

Minority Report:  Do not pass.  (2)

      Signed by Representatives Cole, Vice Chair and Jones.

House Staff:Jim Kelley (786-7166)

Rereferred House Committee on Revenue

Majority Report:  Do pass as amended by Committee on Revenue and without amendment by Committee on Commerce & Labor.  (11)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Appelwick, Basich, Fraser, Grant, Morris, Phillips, Rust, Silver and H. Sommers.

House Staff:      Rick Wickman (786-7150)

AS REPORTED BY COMMITTEE ON REVENUE FEBRUARY 24, 1990

BACKGROUND:

The Department of Revenue collects a tax on the sale, use, consumption, handling, possession, or distribution of cigarettes. In addition, state and local sales and use taxes and business and occupation taxes apply to the sale of cigarettes.  Because of lower taxes, cigarettes are less expensive in neighboring states.

The Department of Revenue estimates that the state is losing $17.9 million per year from illegal sales of untaxed cigarettes. According to a preliminary report of the Legislative Budget Committee, approximately 25 percent of this loss results from military base "leakage," 25 percent from purchases made out of state (casual smuggling), and 50 percent from the sale of untaxed cigarettes to non- Indians on Indian land.

In its preliminary report, the Legislative Budget Committee concluded that the Department of Revenue's efforts to enforce this statute have been frustrated by: 1) legal uncertainties; 2) executive branch policy considerations and events related to state/tribal relations; and 3) the department's emphasis on other priorities, such as major tax reform issues.

SUMMARY:

BILL AS AMENDED:  The Cigarette and Tobacco Tax Task Force is created.  The task force is to be comprised of:  two senators and two representatives, representing both caucuses; one representative of the Department of Revenue; one representative of the Liquor Control Board; and one representative of the governor's office.

The task force is to study the issue of which agency is best suited to collect and enforce the cigarette and tobacco tax.  Additionally, the task force will create an advisory committee, including at least two representatives from Indian Tribes and two representatives from the tobacco industry.  The task force must report its findings to the House Commerce & Labor Committee and the Senate Economic Development & Labor Committee no later than January 10, 1991.

AMENDED BILL COMPARED TO SUBSTITUTE:  The amended bill strikes the provisions of the substitute senate bill that would have transferred the duty of enforcing the cigarette and tobacco tax laws from the Department of Revenue to the Liquor Control Board.  The amended bill establishes a task force and advisory committee to study the issue of which agency is best suited to enforce the cigarette and tobacco tax.  The task force is to report to the Legislature no later than January 10, 1991.

CHANGES PROPOSED BY COMMITTEE ON REVENUE (AMENDMENT):  The House Revenue and Senate Ways & Means Committees are added as recipients of the findings and recommendations resulting from the study on enforcement of cigarette and tobacco taxation.

Fiscal Note:      Requested February 23, 1990.

House Committee ‑ Testified For:    (Commerce & Labor) (Substitute Senate Bill):  Senator Dan McDonald, prime sponsor; Carl R. Erickson, Washington State Candy and Tobacco Distributors; Charles Hord, Washington State Association of Tobacco and Candy Distributors; and Bob Seeber, Restaurant Association.

(Neutral) Paula O'Conner, Liquor Control Board.

(Revenue)  Russ Brubaker, Department of Revenue.

House Committee - Testified Against:      (Commerce & Labor) (Substitute Senate Bill):  Russ Brubaker, Gary O'Neil, and Rick Peterson, Department of Revenue.

(Revenue)  No one.

House Committee - Testimony For:    (Commerce & Labor) (Substitute Senate Bill):  The state is losing too much revenue.  The federal model of a Bureau of Alcohol, Tobacco and Firearms is preferable to the state model.  The Liquor Control Board has greater enforcement powers than does the Department of Revenue, and the board will devote more resources to enforcement.  The sale of untaxed cigarettes puts those retailers who charge the tax at an unfair disadvantage.

(Neutral)  The Liquor Control Board has no position on this issue and is willing to do whatever the Legislature desires.

(Revenue)  A study is needed to determine which appropriate state agency should be responsible for enforcement of cigarette and tobacco taxation.  It would be inappropriate to transfer agency responsibilities without further review.

House Committee - Testimony Against:      (Commerce & Labor) (Substitute Senate Bill):  This is a complex area.  Court decisions leave much doubt about the ability to collect taxes from Indian retailers.  This bill is based on a preliminary staff report on which the Department of Revenue has not had an opportunity to comment.  A long term solution to this problem must be based on negotiations with the tribes.  This is a bad time for any major reorganization of executive functions.

(Revenue)  None.