BILL REQ. #:  H-0387.2 

Read first time 03/04/2003.   Referred to Committee on Finance.

     AN ACT Relating to establishing the tax rate on other tobacco products at a level that will provide for collection of the most overall tax revenue; amending RCW 82.26.010, 82.26.020, 82.26.025, 43.72.900, and 82.26.130; adding new sections to chapter 82.26 RCW; repealing RCW 82.26.028; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 82.26.010 and 2002 c 325 s 1 are each amended to read as follows:
     As used in this chapter:
     (1) "Tobacco products" means cigars, cheroots, stogies, periques, granulated, plug cut, crimp cut, ready rubbed, and other smoking tobacco, snuff, snuff flour, cavendish, plug and twist tobacco, fine-cut and other chewing tobaccos, shorts, refuse scraps, clippings, cuttings and sweepings of tobacco, and other kinds and forms of tobacco, prepared in such manner as to be suitable for chewing or smoking in a pipe or otherwise, or both for chewing and smoking, but shall not include cigarettes as defined in RCW 82.24.010;
     (2) "Large cigar" means a roll for smoking that is of any size or shape and that is made wholly or in part of tobacco, irrespective of whether the tobacco is pure or flavored, adulterated or mixed with any other ingredient, if the roll has a wrapper made wholly or in greater part of tobacco and if one thousand of these rolls collectively weigh more than three pounds. "Large cigar" does not include a cigarette, as defined under RCW 82.24.010;
     (3) "Manufacturer" means a person who manufactures and sells tobacco products;
     (((3))) (4) "Distributor" means (a) any person engaged in the business of selling tobacco products in this state who brings, or causes to be brought, into this state from without the state any tobacco products for sale, (b) any person who makes, manufactures, or fabricates tobacco products in this state for sale in this state, (c) any person engaged in the business of selling tobacco products without this state who ships or transports tobacco products to retailers in this state, to be sold by those retailers, (d) any person engaged in the business of selling tobacco products in this state who handles for sale any tobacco products that are within this state but upon which tax has not been imposed;
     (((4))) (5) "Subjobber" means any person, other than a manufacturer or distributor, who buys tobacco products from a distributor and sells them to persons other than the ultimate consumers;
     (((5))) (6) "Retailer" means any person engaged in the business of selling tobacco products to ultimate consumers;
     (((6))) (7) "Sale" means any transfer, exchange, or barter, in any manner or by any means whatsoever, for a consideration, and includes and means all sales made by any person. It includes a gift by a person engaged in the business of selling tobacco products, for advertising, as a means of evading the provisions of this chapter, or for any other purposes whatsoever;
     (((7))) (8) "Wholesale sales price" means the established price for which a manufacturer sells a tobacco product to a distributor, exclusive of any discount or other reduction;
     (((8))) (9) "Business" means any trade, occupation, activity, or enterprise engaged in for the purpose of selling or distributing tobacco products in this state;
     (((9))) (10) "Place of business" means any place where tobacco products are sold or where tobacco products are manufactured, stored, or kept for the purpose of sale or consumption, including any vessel, vehicle, airplane, train, or vending machine;
     (((10))) (11) "Retail outlet" means each place of business from which tobacco products are sold to consumers;
     (((11))) (12) "Department" means the state department of revenue;
     (((12))) (13) "Person" means any individual, receiver, administrator, executor, assignee, trustee in bankruptcy, trust, estate, firm, copartnership, joint venture, club, company, joint stock company, business trust, municipal corporation, the state and its departments and institutions, political subdivision of the state of Washington, corporation, limited liability company, association, society, or any group of individuals acting as a unit, whether mutual, cooperative, fraternal, nonprofit, or otherwise. The term excludes any person immune from state taxation, including the United States or its instrumentalities, and federally recognized Indian tribes and enrolled tribal members, conducting business within Indian country;
     (((13))) (14) "Indian country" means the same as defined in chapter 82.24 RCW.

Sec. 2   RCW 82.26.020 and 2002 c 325 s 2 are each amended to read as follows:
     (1) There is levied and there shall be collected a tax upon the sale, use, consumption, handling, or distribution of all tobacco products in this state at the rate of ((forty-five percent of the wholesale sales price of such tobacco products)):
     (a) Thirty percent of the wholesale sales price of large cigars, but not to exceed twenty cents per cigar; or
     (b) Thirty percent of the wholesale sales price of all tobacco products that are not large cigars.
     (2) Taxes under this section shall be imposed at the time the distributor (a) brings, or causes to be brought, into this state from without the state tobacco products for sale, (b) makes, manufactures, or fabricates tobacco products in this state for sale in this state, (c) ships or transports tobacco products to retailers in this state, to be sold by those retailers, or (d) handles for sale any tobacco products that are within this state but upon which tax has not been imposed.
     (3) ((An additional tax is imposed equal to seven percent multiplied by the tax payable under subsection (1) of this section.
     (4))) An additional tax is imposed equal to ((ten percent of the wholesale sales price of tobacco products)):
     (a) Thirty-five percent of the wholesale sales price of large cigars, but not to exceed twenty-five cents per cigar; or
     (b) Thirty-five percent of the wholesale sales price of all tobacco products that are not large cigars.
     The moneys collected under this subsection shall be deposited in the health services account created under RCW 43.72.900.

Sec. 3   RCW 82.26.025 and 2002 c 325 s 3 are each amended to read as follows:
     (1)(a) In addition to the taxes imposed under RCW 82.26.020, there is levied and there shall be collected a tax upon the sale, use, consumption, handling, or distribution of all tobacco products in this state at the rate of ((sixteen and three-fourths percent of the wholesale sales price of such tobacco products)):
     (i) Ten percent of the wholesale sales price of large cigars, but not to exceed five cents per cigar; or
     (ii) Ten percent of the wholesale sales price of all tobacco products that are not large cigars.
     (b) Such tax shall be imposed at the time the distributor (((a))) (i) brings, or causes to be brought, into this state from without the state tobacco products for sale, (((b))) (ii) makes, manufactures, or fabricates tobacco products in this state for sale in this state, (((c))) (iii) ships or transports tobacco products to retailers in this state, to be sold by those retailers, or (((d))) (iv) handles for sale any tobacco products that are within this state but upon which tax has not been imposed.
     (2) The moneys collected under this section shall be deposited as follows:
     (a) For the period ending July 1, 1999, in the water quality account under RCW 70.146.030;
     (b) For the period beginning July 1, 1999, through June 30, 2001, fifty percent into the violence reduction and drug enforcement account under RCW 69.50.520 and fifty percent into the salmon recovery account;
     (c) For the period beginning July 1, 2001, through June 30, 2021, into the water quality account under RCW 70.146.030; and
     (d) For the period beginning July 1, 2021, in the general fund.

Sec. 4   RCW 43.72.900 and 2002 c 371 s 909 are each amended to read as follows:
     (1) The health services account is created in the state treasury. Moneys in the account may be spent only after appropriation. Subject to the transfers described in subsection (3) of this section, moneys in the account may be expended only for maintaining and expanding health services access for low-income residents, maintaining and expanding the public health system, maintaining and improving the capacity of the health care system, containing health care costs, and the regulation, planning, and administering of the health care system.
     (2) Funds deposited into the health services account under RCW 82.24.028 ((and 82.26.028)) shall be used solely as follows:
     (a) Five million dollars for the state fiscal year beginning July 1, 2002, and five million dollars for the state fiscal year beginning July 1, 2003, shall be appropriated by the legislature for programs that effectively improve the health of low-income persons, including efforts to reduce diseases and illnesses that harm low-income persons. The department of health shall submit a report to the legislature on March 1, 2002, evaluating the cost-effectiveness of programs that improve the health of low-income persons and address diseases and illnesses that disproportionately affect low-income persons, and making recommendations to the legislature on which of these programs could most effectively utilize the funds appropriated under this subsection.
     (b) Ten percent of the funds deposited into the health services account under RCW 82.24.028 ((and 82.26.028)) remaining after the appropriation under (a) of this subsection shall be transferred no less frequently than annually by the treasurer to the tobacco prevention and control account established by RCW 43.79.480. The funds transferred shall be used exclusively for implementation of the Washington state tobacco prevention and control plan and shall be used only to supplement, and not supplant, funds in the tobacco prevention and control account as of January 1, 2001, however, these funds may be used to replace funds appropriated by the legislature for further implementation of the Washington state tobacco prevention and control plan for the biennium beginning July 1, 2001. For each state fiscal year beginning on and after July 1, 2002, the legislature shall appropriate no less than twenty-six million two hundred forty thousand dollars from the tobacco prevention and control account for implementation of the Washington state tobacco prevention and control plan.
     (c) Because of its demonstrated effectiveness in improving the health of low-income persons and addressing illnesses and diseases that harm low-income persons, the remainder of the funds deposited into the health services account under RCW 82.24.028 ((and 82.26.028)) shall be appropriated solely for Washington basic health plan enrollment as provided in chapter 70.47 RCW. Funds appropriated pursuant to this subsection (2)(c) must supplement, and not supplant, the level of state funding needed to support enrollment of a minimum of one hundred twenty-five thousand persons for the fiscal year beginning July 1, 2002, and every fiscal year thereafter. The health care authority may enroll up to twenty thousand additional persons in the basic health plan during the biennium beginning July 1, 2001, above the base level of one hundred twenty-five thousand enrollees. The health care authority may enroll up to fifty thousand additional persons in the basic health plan during the biennium beginning July 1, 2003, above the base level of one hundred twenty-five thousand enrollees. For each biennium beginning on and after July 1, 2005, the health care authority may enroll up to at least one hundred seventy-five thousand enrollees. Funds appropriated under this subsection may be used to support outreach and enrollment activities only to the extent necessary to achieve the enrollment goals described in this section.
     (3) Prior to expenditure for the purposes described in subsection (2) of this section, funds deposited into the health services account under RCW 82.24.028 ((and 82.26.028)) shall first be transferred to the following accounts to ensure the continued availability of previously dedicated revenues for certain existing programs:
     (a) To the violence reduction and drug enforcement account under RCW 69.50.520, two million two hundred forty-nine thousand five hundred dollars for the state fiscal year beginning July 1, 2001, four million two hundred forty-eight thousand dollars for the state fiscal year beginning July 1, 2002, seven million seven hundred eighty-nine thousand dollars for the biennium beginning July 1, 2003, six million nine hundred thirty-two thousand dollars for the biennium beginning July 1, 2005, and six million nine hundred thirty-two thousand dollars for each biennium thereafter, as required by RCW 82.24.020(2);
     (b) To the health services account under this section, nine million seventy-seven thousand dollars for the state fiscal year beginning July 1, 2001, seventeen million one hundred eighty-eight thousand dollars for the state fiscal year beginning July 1, 2002, thirty-one million seven hundred fifty-five thousand dollars for the biennium beginning July 1, 2003, twenty-eight million six hundred twenty-two thousand dollars for the biennium beginning July 1, 2005, and twenty-eight million six hundred twenty-two thousand dollars for each biennium thereafter, as required by RCW 82.24.020(3); and
     (c) To the water quality account under RCW 70.146.030, two million two hundred three thousand five hundred dollars for the state fiscal year beginning July 1, 2001, four million two hundred forty-four thousand dollars for the state fiscal year beginning July 1, 2002, eight million one hundred eighty-two thousand dollars for the biennium beginning July 1, 2003, seven million eight hundred eighty-five thousand dollars for the biennium beginning July 1, 2005, and seven million eight hundred eighty-five thousand dollars for each biennium thereafter, as required by RCW 82.24.027(2)(a).
     During the 2001-2003 fiscal biennium, the legislature may transfer from the health services account such amounts as reflect the excess fund balance of the account.

Sec. 5   RCW 82.26.130 and 2002 c 325 s 5 are each amended to read as follows:
     (1) The department shall by rule establish the invoice detail required under RCW 82.26.060 for a distributor under RCW 82.26.010(((3)(d))) (4)(d) and for those invoices required to be provided to retailers under RCW 82.26.070.
     (2) If a retailer fails to keep invoices as required under chapter 82.32 RCW, the retailer is liable for the tax owed on any uninvoiced tobacco products but not penalties and interest, except as provided in subsection (3) of this section.
     (3) If the department finds that the nonpayment of tax by the retailer was willful or if in the case of a second or plural nonpayment of tax by the retailer, penalties and interest shall be assessed in accordance with chapter 82.32 RCW.

NEW SECTION.  Sec. 6   (1) The following are subject to seizure and forfeiture:
     (a) Any articles taxed in this chapter that are found at any point within this state, which articles are held, owned, or possessed by any person, and which are untaxed products; and any container or package of other tobacco products possessed or held for sale that does not comply with this chapter.
     (b) All conveyances, including aircraft, vehicles, or vessels, which are used, or intended for use, to transport, or in any manner to facilitate the transportation, for the purpose of sale or receipt of property described in (a) of this subsection, except:
     (i) A conveyance used by any person as a common or contract carrier having in actual possession invoices or delivery tickets showing the true name and address of the consignor or seller, the true name of the consignee or purchaser, and the quantity and brands of the other tobacco products transported, unless it appears that the owner or other person in charge of the conveyance is a consenting party or privy to a violation of this chapter;
     (ii) A conveyance subject to forfeiture under this section by reason of any act or omission of which the owner thereof establishes to have been committed or omitted without his or her knowledge or consent;
     (iii) A conveyance encumbered by a bona fide security interest if the secured party neither had knowledge of nor consented to the act or omission.
     (c) Any vending machine used for the purpose of violating the provisions of this chapter.
     (2) Property subject to forfeiture under this chapter may be seized by any agent of the department authorized to collect taxes, any enforcement officer of the board, or law enforcement officer of this state upon process issued by any superior court or district court having jurisdiction over the property. Seizure without process may be made if:
     (a) The seizure is incident to an arrest or a search under a search warrant or an inspection under an administrative inspection warrant; or
     (b) The department, the board, or the law enforcement officer has probable cause to believe that the property was used or is intended to be used in violation of this chapter and exigent circumstances exist making procurement of a search warrant impracticable.

NEW SECTION.  Sec. 7   In all cases of seizure of any property made subject to forfeiture under this chapter, the department or the board shall proceed as follows:
     (1) Forfeiture shall be deemed to have commenced by the seizure. Notice of seizure shall be given to the department or the board immediately if the seizure is made by someone other than an agent of the department or the board authorized to collect taxes.
     (2) Upon notification or seizure by the department or the board or upon receipt of property subject to forfeiture under this chapter from any other person, the department or the board shall list and particularly describe the property seized in duplicate and have the property appraised by a qualified person not employed by the department or the board or acting as its agent. Listing and appraisement of the property shall be properly attested by the department or the board and the appraiser, who shall be allowed a reasonable appraisal fee. No appraisal is required if the property seized is judged by the department or the board to be less than one hundred dollars in value.
     (3) The department or the board shall cause notice to be served within five days following the seizure or notification to the department or the board of the seizure on the owner of the property seized, if known, on the person in charge thereof, and on any other person having any known right or interest therein, of the seizure and intended forfeiture of the seized property. The notice may be served by any method authorized by law or court rule including but not limited to service by mail. If service is by mail it shall be by both certified mail with return receipt requested and regular mail. Service by mail shall be deemed complete upon mailing within the five-day period following the seizure or notification of the seizure to the department or the board.
     (4) If no person notifies the department or the board in writing of the person's claim of ownership or right to possession of the items seized within fifteen days of the date of the notice of seizure, the item seized shall be considered forfeited.
     (5) If any person notifies the department or the board, in writing, of the person's claim of ownership or right to possession of the items seized within fifteen days of the date of the notice of seizure, the person or persons shall be afforded a reasonable opportunity to be heard as to the claim or right. The hearing shall be before the director or the director's designee or the board or the board's designee, except that any person asserting a claim or right may bring an action for return of the seized items in the superior court of the county in which such property was seized, if the aggregate value of the article or articles involved is more than five hundred dollars. A hearing and any appeal therefrom shall be in accordance with chapter 34.05 RCW. The burden of proof by a preponderance of the evidence shall be upon the person claiming to be the lawful owner or the person claiming to have the lawful right to possession of the items seized. The department or the board shall promptly return the article or articles to the claimant upon a determination that the claimant is the present lawful owner or is lawfully entitled to possession thereof of the items seized.

NEW SECTION.  Sec. 8   When property is forfeited under this chapter, the department may:
     (1) Retain the property or any part thereof for official use or upon application by any law enforcement agency of this state, another state, or the District of Columbia, or of the United States for the exclusive use of enforcing the provisions of this chapter or the laws of any other state or the District of Columbia or of the United States.
     (2) Sell the property at public auction to the highest bidder after due advertisement. The proceeds of the sale and all moneys forfeited under this chapter shall be first applied to the payment of all proper expenses of any investigation leading to the seizure and of the proceedings for forfeiture and sale, including expenses of seizure, maintenance of custody, advertising, and court costs. The balance of the proceeds and all moneys shall be deposited in the general fund of the state. Proper expenses of investigation includes costs incurred by any law enforcement agency or any federal, state, or local agency.

NEW SECTION.  Sec. 9   (1) The department may return any property seized under the provisions of this chapter when it is shown that there was no intention to violate the provisions thereof.
     (2) When any property is returned under this section, the department may return such goods to the parties from whom they were seized if and when such parties pay to the department as penalty an amount equal to the greater of ten dollars per other tobacco product or two hundred fifty dollars, and interest on the amount of the tax at the rate as computed under RCW 82.32.050(2) from the date the tax became due until the date of payment, and in such cases, no advertisement shall be made or notices posted in connection with said seizure.

NEW SECTION.  Sec. 10   When the department or the board has good reason to believe that any of the articles taxed herein are being kept, sold, offered for sale, or given away in violation of the provisions of this chapter or regulations issued under authority hereof, it may make affidavit of such fact, describing the place or thing to be searched, before any judge of any court in this state, and such judge shall issue a search warrant directed to the sheriff, any deputy, police officer, or duly authorized agent of the department commanding him or her diligently to search any building, room in a building, place or vehicle as may be designated in the affidavit and search warrant, and to seize such product so possessed and to hold the same until disposed of by law, and to arrest the person in possession or control thereof. If upon the return of such warrant, it shall appear that any of the articles taxed herein, unlawfully possessed, were seized, the same shall be sold as provided in this chapter.

NEW SECTION.  Sec. 11   No retailer may engage in or conduct the business of purchasing, selling, consigning, or distributing other tobacco products in this state without a license under chapter 82.24 RCW or this chapter. A violation of this section is a misdemeanor.

NEW SECTION.  Sec. 12   (1) A retailer's license for other tobacco products is issuable under this chapter.
     (2) Application for the license shall be made through the master license system under chapter 19.02 RCW. The department shall adopt rules regarding the regulation of the license. The department may refrain from the issuance of any license under this chapter if the department has reasonable cause to believe that the applicant has willfully withheld information requested for the purpose of determining the eligibility of the applicant to receive a license, or if the department has reasonable cause to believe that information submitted in the application is false or misleading or is not made in good faith.
     (3) Each license expires on the master license expiration date, and each such license is continued annually if the licensee has paid the required fee and complied with all the provisions of this chapter and the rules of the department made pursuant to this chapter.

NEW SECTION.  Sec. 13   Any person licensed only as a retail dealer of other tobacco products shall not operate in any other capacity unless the additional appropriate license or licenses are first secured. A violation of this section is a misdemeanor.

NEW SECTION.  Sec. 14   (1) The board shall enforce the provisions of this chapter. The board may adopt, amend, and repeal rules necessary to enforce the provisions of this chapter.
     (2) The department may adopt, amend, and repeal rules necessary to administer the provisions of this chapter. The department has full power and authority to revoke or suspend the license or permit of any retail dealer of other tobacco products in the state upon sufficient cause appearing of the violation of this chapter or upon the failure of such licensee to comply with any of the provisions of this chapter.
     (3) A license shall not be suspended or revoked except upon notice to the licensee and after a hearing as prescribed by the department. The department, upon a finding by same, that the licensee has failed to comply with any provision of this chapter or any rule promulgated thereunder, shall, in the case of the first offender, suspend the license or licenses of the licensee for a period of not less than thirty consecutive business days, and, in the case of a second or plural offender, shall suspend the license or licenses for a period of not less than ninety consecutive business days nor more than twelve months, and, in the event the department finds the offender has been guilty of willful and persistent violations, it may revoke the license or licenses.
     (4) Any person whose license or licenses have been so revoked may apply to the department at the expiration of one year for a reinstatement of the license or licenses. The license or licenses may be reinstated by the department if it appears to the satisfaction of the department that the licensee will comply with the provisions of this chapter and the rules promulgated thereunder.
     (5) A person whose license has been suspended or revoked shall not sell other tobacco products or permit other tobacco products to be sold during the period of such suspension or revocation on the premises occupied by the person or upon other premises controlled by the person or others or in any other manner or form whatever.
     (6) Any determination and order by the department, and any order of suspension or revocation by the department of the license or licenses, or refusal to reinstate a license or licenses after revocation shall be reviewable by an appeal to the superior court of Thurston county. The superior court shall review the order or ruling of the department and may hear the matter de novo, having due regard to the provisions of this chapter and the duties imposed upon the department and the board.

NEW SECTION.  Sec. 15   RCW 82.26.028 (Surtax imposed -- Rate -- Health services account) and 2002 c 2 s 4 (Initiative Measure No. 773) are each repealed.

NEW SECTION.  Sec. 16   Sections 6 through 14 of this act are each added to chapter 82.26 RCW.