SENATE BILL REPORT

SB 6667

BYSenators McDonald, Bailey and Hayner

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

Senate Committee on Ways & Means

Senate Hearing Date(s):January 22, 1990; January 29, 1990

Majority Report:     That Substitute Senate Bill No. 6667 be substituted therefor, and the substitute bill do pass.

     Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bluechel, Cantu, Hayner, Johnson, Lee, Matson, Newhouse, Owen, Saling, Smith.

Senate Staff:Terry Wilson (786-7715)

                February 9, 1990

AS REPORTED BY COMMITTEE ON WAYS & MEANS, JANUARY 29, 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.  Studies indicate that the integrity of state cigarette tax revenues depends on state enforcement actions. 

According to a preliminary report of the Legislative Budget Committee, enforcement of the cigarette tax has not been a high priority of the Department of Revenue.  The department is administrative and regulatory in nature with procedures and processes directed toward compliance rather than enforcement.

The Liquor Control Board enforces the laws relating to the manufacture, importation, transportation, possession, distribution, and sale of liquor, including applicable taxes and licenses.  In carrying out its duties, the board employs liquor enforcement officers who have the authority to enforce the penal laws of the state that are under the board's jurisdiction.

SUMMARY:

The duty to enforce the cigarette and tobacco laws is transferred to the Liquor Control Board.  Appropriations, personal property, and personnel used by the Department of Revenue in enforcing the cigarette and tobacco laws are transferred to the Liquor Control Board.

EFFECT OF PROPOSED SUBSTITUTE:

The proposed substitute does the following:

     (1)The Liquor Control Board is authorized to compensate informants;

     (2)Retailers are prohibited from possessing unstamped cigarettes;

     (3)The wholesaler's surety bond is increased to $5,000 beginning July 1, 1991; and

     (4)A July 1, 1990 effective date is added.

Appropriation:  none

Revenue:   none

Fiscal Note:    requested

Effective Date:July 1, 1990

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); Robert E. Kovacevich, Alliance for Indian Business (con); Steve Frisch, Department of Revenue (con)