WSR 00-20-023A

PROPOSED RULES

DEPARTMENT OF REVENUE


[ Filed September 26, 2000, 1:50 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 00-13-027.

Title of Rule: WAC 458-20-264 National Uniform Tobacco Settlement.

Purpose: To identify the data to be reported to the Department of Revenue by certain sellers of tobacco products (as identified in this rule).

Statutory Authority for Adoption: RCW 70.157.010 and 82.32.300.

Statute Being Implemented: RCW 70.157.010.

Summary: The proposed rule explains the data that certain identified persons must submit with respect to sales of cigarettes, as that term is defined in the rule, purchased from manufacturers who are not signatories to the Tobacco Settlement.

Reasons Supporting Proposal: RCW 70.157.010 requires that the Department of Revenue promulgate regulations as necessary to ascertain the amount of state excise tax paid on the cigarettes of certain tobacco product manufacturers. The department is proposing this new rule to satisfy this statutory requirement.

Name of Agency Personnel Responsible for Drafting: Anne Solwick, 1025 East Union Avenue, Suite #400, Olympia, WA, (360) 570-6129; Implementation and Enforcement: Gary O'Neil, 2735 Harrison N.W., Building 4, Olympia, WA, (360) 753-2871.

Name of Proponent: Department of Revenue, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The rule provides pertinent definitions, describes who needs to provide data regarding sales of cigarettes purchased from manufacturers who are not signatories to the tobacco master settlement agreement, and describes the data that needs to be submitted. The purpose of the rule is to comply with RCW 70.157.010 and to provide guidance to those required to submit data. The anticipated effects of the rule are that those required to submit information will have a reference to assist them in complying with the law.

Proposal does not change existing rules.

No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement is not required when a legislative rule is being adopted under RCW 34.05.328.

RCW 34.05.328 applies to this rule adoption. This is a significant legislative rule pursuant to RCW 34.05.328 (5)(a)(i).

Hearing Location: Capital Plaza Building, 2nd Floor, Large Conference Room, 1025 East Union Avenue, Olympia, WA, on November 8, 2000, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Ginny Dale no later than ten days before the hearing date TDD 1-800-451-7985, or (360) 570-6176.

Submit Written Comments to: Anne Solwick, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail annes@dor.wa.gov., by November 8, 2000.

Date of Intended Adoption: November 22, 2000.

September 26, 2000

Claire Hesselholt, Rules Manager

Legislative and Policy Division

OTS-4313.3


NEW SECTION
WAC 458-20-264
National Uniform Tobacco Settlement.

(1) Introduction. In 1998 the state of Washington entered into an agreement with cigarette manufacturers called the Master Settlement Agreement. Subsequent to entering into that agreement, the Legislature enacted chapter 393, Laws of 1999, codified as chapter 70.157 RCW. The statute requires the department of revenue (department) to promulgate regulations to ascertain the amount of excise tax paid by certain tobacco product manufacturers on "cigarettes" as that term is defined in RCW 70.157.010 and as set forth below. The department will do that by determining the number of cigarettes sold in Washington that were manufactured by nonparticipating tobacco product manufacturers. This rule explains the information to be reported to the department by retailers of tobacco products purchased from a person who is not required to file in Washington the report required by this rule, tobacco products distributors, and cigarette wholesalers. These reporting requirements are in addition to any other tax-reporting requirements.

     (2) Definitions. For the purposes of WAC 458-20-264 the following definitions apply unless the context requires otherwise.

     (a) "Affiliate" means a person who directly or indirectly owns or controls, is owned or controlled by, or is under common ownership or control with, another person. Solely for purposes of this definition, the terms "owns," "is owned" and "ownership" mean ownership of an equity interest, or the equivalent thereof, of ten percent or more, and the term "person" means an individual, partnership, committee, association, corporation or any other organization or group of persons.

     (b) "Cigarette" means any product that contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains:

     (i) Any roll of tobacco wrapped in paper or in any substance not containing tobacco; or

     (ii) Tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette; or

     (iii) Any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in clause (i) of this definition.

     The term "cigarette" includes "roll-your-own" tobacco (i.e., any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes). For purposes of this definition of "cigarette," 0.09 ounces of "roll-your-own" tobacco shall constitute one individual "cigarette."

     (c) "Cigarette wholesaler" means any person who is licensed pursuant to chapter 82.24 RCW.

     (d) "Master Settlement Agreement" means the settlement agreement (and related documents) entered into on November 23, 1998, by the state and leading United States tobacco product manufacturers.

     (e) "Nonparticipating manufacturer" means any manufacturer of cigarettes or "roll-your-own" tobacco who is not a signatory to the Master Settlement Agreement. A manufacturer ceases to be a nonparticipating manufacturer upon entering into the Master Settlement Agreement.

     (f) "Tobacco products distributor" means any person who meets the definitions found in RCW 82.26.010(3).

     (g) "Tobacco product manufacturer" means an entity that after May 18, 1999, directly (and not exclusively through any affiliate):

     (i) Manufactures cigarettes anywhere that such manufacturer intends to be sold in the United States, including cigarettes intended to be sold in the United States through an importer (except where such importer is an original participating manufacturer (as that term is defined in the Master Settlement Agreement) that will be responsible for the payments under the Master Settlement Agreement with respect to such cigarettes as a result of the provisions of subsections II(mm) of the Master Settlement Agreement and that pays the taxes specified in subsection II(z) of the Master Settlement Agreement, and provided that the manufacturer of such cigarettes does not market or advertise such cigarettes in the United States);

     (ii) Is the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer does not intend to be sold in the United States; or

     (iii) Becomes a successor of an entity described in paragraph (i) or (ii) of this definition.

     The term "tobacco product manufacturer" does not include an affiliate of a tobacco product manufacturer unless such affiliate itself falls within any of (i) through (iii) above.

     (h) "Units sold" means the number of individual cigarettes sold and each 0.09 ounces of "roll-your-own" tobacco sold in the state by the applicable tobacco product manufacturer (whether directly or through a distributor, retailer or similar intermediary or intermediaries) during the year in question, as measured by excise taxes collected by the state on packs bearing the excise tax stamp of the state or "roll-your-own" tobacco containers.

     (3) Report required. Every person who sells at retail tobacco products purchased from a person who is not required to file in Washington the report required by this subsection, every tobacco products distributor, and every cigarette wholesaler must file a report in a form and manner requested by the department. The report must be filed within the twenty-five days after the end of the month in which the sales were made. Mail the report to Department of Revenue, Special Programs Division, P.O. Box 47477, Olympia, WA 98504-7477.

     The report must include the information listed below with respect to units sold that were obtained from a nonparticipating tobacco product manufacturer.

     (a) The number of units sold;

     (b) The brand of the unit;

     (c) The name and address of the person from whom each unit was purchased;

     (d) The name and address of the manufacturer of the unit, if known; and

     (e) The name and address of the importer of the unit, if known, and whether that importer is the exclusive importer of the unit, if known.

     Example: A retailer may need to file the report required in subsection (3) when purchasing roll-your-own tobacco over the Internet or through a catalog from a vendor located outside of Washington, from an enrolled member of an Indian tribe located on a reservation in Washington, or in person from a vendor located in another state.

     (4) Recordkeeping requirement. Every person who sells at retail tobacco products purchased from a person who is not required to file in Washington the report required by the rule, every tobacco products distributor, and every cigarette wholesaler, must maintain complete and accurate records to support the data supplied pursuant to paragraph (3) of this section.

     (5) Confidentiality. The data filed pursuant to this rule is confidential taxpayer information and subject to the protection provided in RCW 82.32.330.

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