BILL REQ. #:  S-5618.1 

Read first time 02/21/08.   Referred to Committee on Ways & Means.

     AN ACT Relating to providing for and enforcing the taxation of moist snuff; amending RCW 82.26.010, 82.26.190, 82.26.030, 82.26.230, and 82.04.601; adding new sections to chapter 82.26 RCW; and providing an effective date.

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

Sec. 1   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.
     (23) "Unstamped moist snuff" means any container of moist snuff in respect to which the tax imposed under section 2 of this act applies but that does not contain a stamp or other department-approved indicia of payment of the tax.
     (24) "Container" means a single unit of moist snuff, including a can or package.

NEW SECTION.  Sec. 2   A new section is added to chapter 82.26 RCW to read as follows:
     (1) In addition to the tax imposed in RCW 82.26.020, a tax is imposed on the sale, handling, or distribution of moist snuff in an amount equal to fifty cents per container.
     (2) Taxes under this section are imposed at the time the distributor:
     (a) Brings, or causes to be brought, into this state from without the state moist snuff for sale;
     (b) Makes, manufactures, fabricates, or stores moist snuff in this state for sale in this state;
     (c) Ships or transports moist snuff to retailers in this state, to be sold by those retailers; or
     (d) Handles for sale any moist snuff that is within this state but upon which tax has not been imposed.
     (3) Nothing in this section must be construed to exclude from the tax imposed in subsection (1) of this section the handling or distribution of moist snuff in this state that is given away free of charge by the manufacturer or distributor for promotional or any other purposes.
     (4) The revenue collected under this section must be deposited into the general fund.

NEW SECTION.  Sec. 3   A new section is added to chapter 82.26 RCW to read as follows:
     (1)(a) Except as provided in (b) of this subsection, any additional tax liability arising from a tax increase under this chapter, along with reports and returns prescribed by the department, are due on or before the last day of the month in which the increase becomes effective.
     (b) The department may require a different due date to coincide with the due date of the first return that the taxpayer files to report its business and occupation tax liability after a tax increase under this chapter becomes effective.
     (2) If not paid by the due date, interest applies to any unpaid tax. Interest is calculated at the rate as computed under RCW 82.32.050(2) from the date the tax became due until the date of payment.

NEW SECTION.  Sec. 4   A new section is added to chapter 82.26 RCW to read as follows:
     (1) Except as provided in subsections (4) and (5) of this section, payment of the tax imposed in section 2 of this act, or exemption from such tax, must be evidenced by: (a) Stamps affixed to each container of moist snuff; or (b) some other indicia of tax payment or exemption applied to each container of moist snuff, as authorized by the department.
     (2)(a) Stamps or other indicia of tax payment or exemption must be of the designs and specifications as provided or approved by the department.
     (b) The department may require that stamps or other indicia of tax payment or exemption be capable of being read by a scanning or similar device. The department may also require that other indicia of tax payment or exemption contain the name and address of the distributor, the date the indicia of tax payment or exemption was affixed to the container of moist snuff, a serial number or other unique number for the indicia of tax payment or exemption, and other such information as the department may by rule require.
     (c) Stamps or other indicia of tax payment or exemption must allow the department or the liquor control board to readily ascertain by inspection whether or not the tax imposed in section 2 of this act has been paid or whether an exemption from the tax applies.
     (3) The department must provide by rule the method and manner in which stamps or other indicia of tax payment or exemption are to be affixed to containers of moist snuff and may provide for the cancellation of stamps or other indicia of tax payment or exemption.
     (4) Where it is established to the department's satisfaction that it is impractical to affix stamps or other indicia of tax payment or exemption to individual containers of moist snuff, the department may authorize the affixing of stamps or other indicia of tax payment or exemption to containers consisting of multiple units of product.
     (5) The department may, by rule, provide that the tax imposed in section 2 of this act may be paid without the use of stamps or other indicia of tax payment in connection with a particular type of transaction.

NEW SECTION.  Sec. 5   A new section is added to chapter 82.26 RCW to read as follows:
     (1)(a) Sections 4(1), 6(3)(a), 7, 8, 9, 11, and 12 of this act apply when the department determines that it is feasible, based on existing technology, for distributors and manufacturers to meet the requirements of section 4(1) of this act. The department must make reasonable efforts to provide all known affected distributors and manufacturers notice of its determination that it is technologically feasible for distributors and manufacturers to meet the requirements of section 4(1) of this act. Such notice must be made at least ninety days before the department or liquor control board, as applicable, may enforce the provisions of sections 4(1), 6(3)(a), 7, 8, 9, 11, and 12 of this act.
     (b) The department must solicit input from affected distributors and manufacturers before making a determination that it is technologically feasible for distributors and manufacturers to meet the requirements of section 4(1) of this act.
     (2) The department must provide a report to the legislature by December 31, 2009, if the department determines by that date that it is not feasible, based on existing technology, for distributors and manufacturers to meet the requirements of section 4(1) of this act. The report must provide information about the barriers to implementing the provisions of section 4(1) of this act, whether any other states have implemented requirements similar to those imposed in section 4(1) of this act, whether extending the requirements of section 4(1) of this act to the tax imposed in RCW 82.26.020 would improve tax administration, and any other information that the department believes will be useful to the legislature in evaluating legislative options regarding the requirements in section 4(1) of this act.

NEW SECTION.  Sec. 6   A new section is added to chapter 82.26 RCW to read as follows:
     (1) The department must have as many stamps printed as necessary for distributors to meet the requirements in section 4(1) of this act.
     (2) Except as otherwise provided in this chapter, only a distributor or manufacturer may cause stamps or other department-approved indicia of tax payment or exemption to be applied to containers of moist snuff. A manufacturer that is not subject to the tax imposed in section 2 of this act with respect to any containers of moist snuff shipped to distributors in this state may voluntarily apply department-approved indicia of tax payment on such containers, if the manufacturer agrees to collect the tax imposed in section 2 of this act from the distributors and remit the tax to the department.
     (3) Except as otherwise provided in this chapter, stamps or other indicia of tax payment or exemption must be affixed:
     (a) To containers before a distributor may sell, handle, or distribute moist snuff in this state; and
     (b) In such a manner that the stamps or other indicia of tax payment or exemption cannot be removed from the container without being mutilated or destroyed.
     (4) Only distributors licensed under this chapter may purchase or obtain stamps, and licensed distributors may not sell or provide stamps to any other licensed distributor or person.
     (5) Each roll of stamps, or group of sheets, must have a separate serial number, which must be legible at the point of sale. The department must keep records of which distributor purchases each roll or group of sheets. If the department permits distributors to purchase partial rolls or sheets, in no case may stamps bearing the same serial number be sold to more than one distributor. The remainder of the roll or sheet, if any, must either be retained for later purchases by the same distributor or destroyed.

NEW SECTION.  Sec. 7   A new section is added to chapter 82.26 RCW to read as follows:
     (1) Except as authorized by this chapter, no person other than a licensed distributor may possess unstamped moist snuff within this state for sale, handling, or distribution.
     (2)(a) Every distributor licensed under this chapter may possess within this state unstamped moist snuff for such period of time after receipt as is reasonably necessary to affix the stamps or other indicia of tax payment or exemption as required by this chapter.
     (b) Any distributor licensed under this chapter, that has furnished a surety bond in a sum satisfactory to the department, is permitted to set aside, without affixing the stamps or other indicia of tax payment or exemption required by this chapter, such part of the distributor's stock of moist snuff as may be necessary for the conduct of the distributor's business in making sales of the type described in RCW 82.26.110(1)(a). Such stock must be kept separate and apart from stock that is stamped or otherwise contains department-approved indicia of tax payment or exemption.
     (3) Every distributor licensed under this chapter must, at the time of shipping or delivering moist snuff to a point outside of this state or to the United States or any of its agencies or instrumentalities or to any Indian tribal organization as defined in RCW 82.26.110, make a copy of the invoice or delivery documentation, which must show full and complete details of the sale or delivery, whether or not stamps or other indicia of tax payment or exemption were affixed to the moist snuff, and must transmit the duplicate invoice to the department, not later than the fifteenth day of the following calendar month. If a distributor fails to comply with the requirements of this subsection, the department may revoke the permission granted under subsection (2)(b) of this section to maintain a stock of unstamped moist snuff.
     (4) Unstamped moist snuff possessed by a distributor under subsection (2) of this section that is transferred by the distributor to another facility of the distributor within the borders of Washington must be transferred in compliance with RCW 82.26.140.

NEW SECTION.  Sec. 8   A new section is added to chapter 82.26 RCW to read as follows:
     No retailer in this state may possess unstamped moist snuff within this state unless the person is also a distributor licensed under this chapter and is in possession of the moist snuff in accordance with section 7 of this act.

Sec. 9   RCW 82.26.190 and 2005 c 180 s 16 are each amended to read as follows:
     (1)(a) No person may engage in or conduct business as a distributor or retailer in this state after September 30, 2005, without a valid license issued by the department under this chapter. Any person who sells tobacco products to persons other than ultimate consumers or who meets the definition of distributor under RCW 82.26.010(3)(d) must obtain a distributor's license under this chapter. Any person who sells tobacco products to ultimate consumers must obtain a retailer's license under this chapter.
     (b) It is unlawful to forge or counterfeit any stamp or other indicia of payment of, or exemption from, the tax imposed in section 2 of this act.
     (c) A violation of this subsection (1) is punishable as a class C felony according to chapter 9A.20 RCW.
     (2)(a) No person engaged in or conducting business as a distributor or retailer in this state may:
     (i) Refuse to allow the department or the board, on demand, to make a full inspection of any place of business where any of the tobacco products taxed under this chapter are sold, stored, or handled, or otherwise hinder or prevent such inspection;
     (ii) Make, use, or present or exhibit to the department or the board any invoice for any of the tobacco products taxed under this chapter that bears an untrue date or falsely states the nature or quantity of the goods invoiced; or
     (iii) Fail to produce on demand of the department or the board all invoices of all the tobacco products taxed under this chapter within five years prior to such demand unless the person can show by satisfactory proof that the nonproduction of the invoices was due to causes beyond the person's control.
     (b) No person, other than a licensed distributor or retailer, may transport tobacco products for sale in this state for which the taxes imposed under this chapter have not been paid unless:
     (i) Notice of the transportation has been given as required under RCW 82.26.140;
     (ii) The person transporting the tobacco products actually possesses invoices or delivery tickets showing the true name and address of the consignor or seller, the true name and address of the consignee or purchaser, and the quantity and brands of tobacco products being transported; and
     (iii) The tobacco products are consigned to or purchased by a person in this state who is licensed under this chapter.
     (c) No person, as defined in RCW 82.26.010(18)(b) may:
     (i) Possess in this state stamps not affixed to any container of moist snuff, whether such stamps are genuine or counterfeit, other than the department, its duly authorized agent, or licensed distributors who have lawfully purchased or obtained the stamps; or
     (ii) Affix any stamp or other indicia of tax payment or exemption to any container of moist snuff, if the stamp or other indicia of tax payment or exemption is not genuine.
     (d) A violation of this subsection (2) is a gross misdemeanor.
     (3) Any person licensed under this chapter as a distributor, and any person licensed under this chapter as a retailer, shall not operate in any other capacity unless the additional appropriate license is first secured. A violation of this subsection (3) is a misdemeanor.
     (4) The penalties provided in this section are in addition to any other penalties provided by law for violating the provisions of this chapter or the rules adopted under this chapter.

Sec. 10   RCW 82.26.030 and 2005 c 180 s 1 are each amended to read as follows:
     (1) 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)) sold, handled, or distributed 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 in most instances the tax imposed in RCW 82.26.020 will be based on the actual price that the distributor paid for the tobacco product, unless the distributor is affiliated with the seller.
     (2) In the event of a rate or other increase in the tax imposed under this chapter, it is the intent of the legislature that the first person who sells, handles, or distributes previously taxed articles after the effective date of the rate or other tax increase is liable for the additional tax. The failure to pay the additional tax with respect to the first taxable event after the effective date of a rate increase does not prevent tax liability for the additional tax from arising from a subsequent taxable event.

Sec. 11   RCW 82.26.230 and 2005 c 180 s 20 are each amended to read as follows:
     (1) Any tobacco products in the possession of a person selling tobacco products in this state acting as a distributor or retailer and who is not licensed as required under RCW 82.26.190, or a person who is selling tobacco products in violation of RCW 82.26.220(6), may be seized without a warrant by any agent of the department, agent of the board, or law enforcement officer of this state. Any tobacco products seized under this subsection shall be deemed forfeited.
     (2) Any tobacco products in the possession of a person who is not a licensed distributor or retailer and who transports tobacco products for sale without having provided notice to the board required under RCW 82.26.140, or without invoices or delivery tickets showing the true name and address of the consignor or seller, the true name and address of the consignee or purchaser, and the quantity and brands of tobacco products being transported may be seized and are subject to forfeiture.
     (3) Any moist snuff found at any point within this state that does not have the stamps or other indicia of tax payment or exemption affixed to the containers in violation of the requirements of this chapter may be seized and is subject to forfeiture.
     (4) All conveyances, including aircraft, vehicles, or vessels that are used, or intended for use to transport, or in any manner to facilitate the transportation, for the purpose of sale or receipt of tobacco products under subsection (2) of this section, may be seized and are subject to forfeiture except:
     (a) 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 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;
     (b) A conveyance subject to forfeiture under this section by reason of any act or omission of which the owner establishes to have been committed or omitted without his or her knowledge or consent; or
     (c) A conveyance encumbered by a bona fide security interest if the secured party neither had knowledge of nor consented to the act or omission.
     (((4))) (5) Property subject to forfeiture under subsections (2) and (((3))) (4) of this section may be seized by any agent of the department, 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 warrant or an inspection under an administrative inspection warrant; or
     (b) The department, board, or 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.
     (((5))) (6) This section shall not be construed to require the seizure of tobacco products if the department's agent, board's agent, or law enforcement officer reasonably believes that the tobacco products are possessed for personal consumption by the person in possession of the tobacco products.
     (((6))) (7) Any tobacco products seized by a law enforcement officer shall be turned over to the board as soon as practicable.

NEW SECTION.  Sec. 12   A new section is added to chapter 82.26 RCW to read as follows:
     (1) The department may adopt rules providing for the refund to distributors for tax paid in respect to containers of moist snuff to which stamps or other indicia of tax payment have been affixed, when any of the circumstances described in RCW 82.26.110(1)(a) apply to the moist snuff.
     (2) Compensation received under section 13 of this act must be deducted from any refund provided under subsection (1) of this section.
     (3) The department may redeem any unused stamps purchased from it or its authorized agent at the face value of the stamps, less the affixing compensation authorized under section 13 of this act.

NEW SECTION.  Sec. 13   A new section is added to chapter 82.26 RCW to read as follows:
     Distributors that are subject to the tax imposed in section 2 of this act and are required to affix stamps or some other indicia of tax payment on containers of moist snuff are allowed as compensation for their services in affixing the stamps or other indicia of tax payment a sum computed at the rate of six dollars per one thousand stamps or other indicia affixed by them.

Sec. 14   RCW 82.04.601 and 2007 c 221 s 5 are each amended to read as follows:
     (1) This chapter does not apply to compensation allowed under:
     (a) RCW 82.24.295 for wholesalers and retailers for their services in affixing the stamps required under chapter 82.24 RCW; and
     (b) Section 13 of this act for distributors, as defined in RCW 82.26.010, for their services in affixing the stamps or other indicia of tax payment required under chapter 82.26 RCW.
     (2) For purposes of subsection (1)(a) of this section, "wholesaler," "retailer," and "stamp" have the same meaning as in chapter 82.24 RCW.

NEW SECTION.  Sec. 15   This act takes effect July 1, 2008.