BILL REQ. #:  S-0554.3 

Read first time 02/20/2007.   Referred to Committee on Ways & Means.

     AN ACT Relating to improving the administration of taxes by implementing weight-based taxation for moist snuff; amending RCW 82.26.010, 82.26.020, and 82.26.030; adding a new section to chapter 82.26 RCW; and creating a new section.

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

NEW SECTION.  Sec. 1   It is the intent of the legislature to address the ongoing challenges posed by the current ad valorem method of taxing moist snuff. Since 1996, the department of revenue, as administrator of the tax, has been in disputes with taxpayers on the measure of the tax on moist snuff. In 2005, the legislature sought to solve the problem through tightening language regarding transfers to affiliates. Current activity in the marketplace indicates that the 2005 legislation, while advancing the issue, did not altogether solve the problem. Furthermore, the recent settlement between the department of revenue and a major manufacturer of moist snuff points to the need for a lasting resolution. The legislature finds that reforming how this product is taxed will provide more certainty to taxpayers, provide stability to the revenue stream, maintain pricing levels to address access to youth, and simplify administration by the department of revenue. It is the intent of the legislature that any new money attributable to this act shall be dedicated to the health services account, while keeping other accounts whole.

Sec. 2   RCW 82.26.010 and 2005 c 180 s 2 are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (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) "Manufacturer" means a person who manufactures and sells tobacco products.
     (3) "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, fabricates, or stores 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) "Retailer" means any person engaged in the business of selling tobacco products to ultimate consumers.
     (5)(a) "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.
     (b) The term "sale" includes a gift by a person engaged in the business of selling tobacco products, for advertising, promoting, or as a means of evading the provisions of this chapter.
     (6) "Business" means any trade, occupation, activity, or enterprise engaged in for the purpose of selling or distributing tobacco products in this state.
     (7) "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, including any vessel, vehicle, airplane, train, or vending machine.
     (8) "Retail outlet" means each place of business from which tobacco products are sold to consumers.
     (9) "Department" means the department of revenue.
     (10) "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, 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.
     (11) "Indian country" means the same as defined in chapter 82.24 RCW.
     (12) "Actual price" means the total amount of consideration for which tobacco products are sold, valued in money, whether received in money or otherwise, including any charges by the seller necessary to complete the sale such as charges for delivery, freight, transportation, or handling.
     (13) "Affiliated" means related in any way by virtue of any form or amount of common ownership, control, operation, or management.
     (14) "Board" means the liquor control board.
     (15) "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. "Cigar" does not include a cigarette.
     (16) "Cigarette" has the same meaning as in RCW 82.24.010.
     (17) "Manufacturer's representative" means a person hired by a manufacturer to sell or distribute the manufacturer's tobacco products, and includes employees and independent contractors.
     (18)(a) "Taxable sales price" means:
     (i) In the case of a taxpayer that is not affiliated with the manufacturer, distributor, or other person from whom the taxpayer purchased tobacco products, the actual price for which the taxpayer purchased the tobacco products;
     (ii) In the case of a taxpayer that purchases tobacco products from an affiliated manufacturer, affiliated distributor, or other affiliated person, and that sells those tobacco products to unaffiliated distributors, unaffiliated retailers, or ultimate consumers, the actual price for which that taxpayer sells those tobacco products to unaffiliated distributors, unaffiliated retailers, or ultimate consumers;
     (iii) In the case of a taxpayer that sells tobacco products only to affiliated distributors or affiliated retailers, the price, determined as nearly as possible according to the actual price, that other distributors sell similar tobacco products of like quality and character to unaffiliated distributors, unaffiliated retailers, or ultimate consumers;
     (iv) In the case of a taxpayer that is a manufacturer selling tobacco products directly to ultimate consumers, the actual price for which the taxpayer sells those tobacco products to ultimate consumers;
     (v) In the case of a taxpayer that has acquired tobacco products under a sale as defined in subsection (5)(b) of this section, the price, determined as nearly as possible according to the actual price, that the taxpayer or other distributors sell the same tobacco products or similar tobacco products of like quality and character to unaffiliated distributors, unaffiliated retailers, or ultimate consumers; or
     (vi) In any case where (a)(i) through (v) of this subsection do not apply, the price, determined as nearly as possible according to the actual price, that the taxpayer or other distributors sell the same tobacco products or similar tobacco products of like quality and character to unaffiliated distributors, unaffiliated retailers, or ultimate consumers.
     (b) For purposes of (a)(i) and (ii) of this subsection only, "person" includes both persons as defined in subsection (10) of this section and 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.
     (c) The department may adopt rules regarding the determination of taxable sales price under this subsection.
     (19) "Taxpayer" means a person liable for the tax imposed by this chapter.
     (20) "Unaffiliated distributor" means a distributor that is not affiliated with the manufacturer, distributor, or other person from whom the distributor has purchased tobacco products.
     (21) "Unaffiliated retailer" means a retailer that is not affiliated with the manufacturer, distributor, or other person from whom the retailer has purchased tobacco products.
     (22) "Moist snuff" means any finely cut, ground, or powdered tobacco that is not intended to be smoked but does not include any finely cut, ground, or powdered tobacco that is intended to be placed in the nasal cavity.

Sec. 3   RCW 82.26.020 and 2005 c 180 s 3 are each amended to read as follows:
     (1) There is levied and there shall be collected a tax upon the sale, handling, or distribution of all tobacco products in this state at the following rate:
     (a) Seventy-five percent of the taxable sales price of cigars, not to exceed fifty cents per cigar; ((or))
     (b) One dollar and eighty-eight cents per ounce of moist snuff with a proportionate tax at the like rate on all fractional parts of an ounce thereof, provided that cans or packages of moist snuff with a net weight of less than one and two-tenths ounces shall be taxed at the equivalent rate of packages or cans weighing one and two-tenths ounces. Such tax on moist snuff shall be computed based on the net weight as listed by the manufacturer; or
     (c) Seventy-five percent of the taxable sales price of all tobacco products that are not cigars or moist snuff.
     (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, fabricates, or stores 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) The moneys collected under this section shall be deposited as follows:
     (a) ((Thirty-seven)) Twenty-eight percent in the general fund;
     (b) ((Fifty)) Sixty-two percent in the health services account created under RCW 43.72.900; and
     (c) ((Thirteen)) Ten percent in the water quality account under RCW 70.146.030 for the period beginning July 1, 2005, through June 30, 2021, and in the general fund for the period beginning July 1, 2021.

Sec. 4   RCW 82.26.030 and 2005 c 180 s 1 are each amended to read as follows:
     It is the intent and purpose of this chapter to levy a tax on all tobacco products sold, used, consumed, handled, or distributed within this state and to collect the tax from the distributor as defined in RCW 82.26.010. It is the further intent and purpose of this chapter to impose the tax once, and only once, on all tobacco products for sale in this state, but nothing in this chapter shall be construed to exempt any person taxable under any other law or under any other tax imposed under Title 82 RCW. It is the further intent and purpose of this chapter that the distributor who first possesses the tobacco product in this state shall be the distributor liable for the tax and that (1) for moist snuff the tax will be based on the net weight as listed by the manufacturer and (2) in most other instances the tax will be based on the actual price that the distributor paid for the tobacco product, unless the distributor is affiliated with the seller.

NEW SECTION.  Sec. 5   A new section is added to chapter 82.26 RCW to read as follows:
     The legislature recognizes that the trade and commerce in tobacco products continues to evolve, and thus the tax administration issues likewise will by necessity evolve. The legislature directs the department of revenue to work with manufacturers and wholesalers to continue to improve the tax assessment and collection methods in regard to other tobacco products, including consideration of product identification. The department shall periodically advise the legislature on the state of tax administration under this chapter.