SENATE BILL REPORT

SB 6451

BYSenators McDonald and Hayner

Modifying the cigarette tax.

Senate Committee on Ways & Means

Senate Hearing Date(s):January 22, 1990; January 25, 1990

Majority Report:  Do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bauer, Cantu, Fleming, Gaspard, Hayner, Johnson, Lee, Newhouse, Niemi, Saling, Smith, Talmadge, Williams, Wojahn.

Senate Staff:Terry Wilson (786-7715)

                  February 12, 1990

AS PASSED SENATE, FEBRUARY 10, 1990

BACKGROUND:

All cigarette wholesalers and retailers are required to affix tax stamps to cigarettes within their possession unless stamps already are 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.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

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

Senate Committee - Testified: Charles G. Hord, Washington State Association of Tobacco and Candy Distributors (pro); Robert Comenout, Sr., Indian interests (con); Norman Nault, Squaxin Island Tribe (con); Jan Gee, Washington Retail Assn., Washington State Food Dealers Assn. (pro)