Opinion ID: 626865
Heading Depth: 3
Heading Rank: 1

Heading: Washington Cigarette Tax Scheme

Text: Washington imposes a sales tax, a use tax, and a separate cigarette tax on cigarettes. Rev.Code of Wash. (RCW) §§ 82.08.020 (retail sales tax), 82.12.020 (use tax), 82.24.020(1) (cigarette tax). To enforce its cigarette tax, Washington requires that cigarette packages bear a stamp demonstrating compliance with Washington law. According to RCW § 82.24.030(1): The stamps must be affixed on the smallest container or package that will be handled, sold, used, consumed, or distributed, to permit the department to readily ascertain by inspection, whether or not such tax has been paid or whether an exemption from the tax applies. See also Wash. Admin. Code (WAC) § 458-20-186(201)(a). The stamps must either represent that the tax has been paid or indicate that the cigarettes are exempt from the tax. [1] RCW § 82.24.030(2). Cigarette wholesalers are responsible for affixing stamps. Id. Wholesalers must be licensed by the state. Id. § 82.24.040(1). Various rules govern wholesalers' obligations concerning when and how to affix the stamps. See id. § 82.24.040. Cigarette retailers are generally prohibited from possessing unstamped cigarettes within the state of Washington. Id. § 82.24.050(1). Retailers must obtain cigarettes from licensed wholesalers. Id. § 82.24.050(2). Unauthorized receipt, shipment, and sale of unstamped cigarettes by non-wholesalers is a crime under Washington law. Id. § 82.24.110. In general, only licensed wholesalers can transport unstamped cigarettes within the state. WAC § 458-20-186(401). Licensed wholesalers can transport unstamped cigarettes only in their own vehicles, unless they give prior notice to the liquor control board. Id. Anyone other than a licensed wholesaler who intends to transport unstamped cigarettes in the state must first give notice to the liquor control board. RCW § 82.24.250(1); WAC § 458-20-186(402). Anyone other than a licensed wholesaler transporting unstamped cigarettes must be transporting them to a licensed wholesaler or to a person or organization that has given notice to the liquor control board of their intended possession of unstamped cigarettes. RCW § 82.24.250(2)-(3), (7). There has been a long-standing dispute about the state's power to tax cigarette sales by tribal retailers on Indian reservations to non-Indians. In Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 159-60, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980), the Supreme Court held that the state could impose a cigarette tax on cigarette sales by Indian retailers on reservations to non-Indians. The Court reasoned that the incidence of a tax on sales to non-Indians falls on the non-Indian customer, not on the Indian retailer. It held that the state can impose the minimal burden[ ] on the Indian retailer of only selling stamped cigarettes to non-Indians. Id. at 159, 100 S.Ct. 2069. As the Court recognized in Colville, one of the underlying issues in the cigarette taxing dispute between the state and the tribes is the ability of the tribes to impose their own cigarette tax. Id. at 154-55, 100 S.Ct. 2069. The tribes had argued that if the state could enforce its cigarette tax, the tribes would be forced to drop their own tax or else their tribal retailers would be forced to sell at higher prices than off-reservation sellers. The state argued that because the tribal taxes were often significantly lower than the state taxes, what the tribes really wanted was to allow tribal retailers to undercut off-reservation retailers. This would seriously undermine the state's cigarette tax regime because non-Indian cigarette purchasers could travel to the reservations in order to avoid the state tax. Id. After Colville, in an attempt to resolve this underlying issue, Washington passed legislation authorizing the Governor to enter into cigarette tax contracts (CTC) with various tribes. RCW §§ 43.06.450, 43.06.460. A CTC is typically an agreement by the state to retrocede its cigarette taxes to the tribe for transactions covered by a CTC in exchange for the tribe's agreement to impose a cigarette tax equal to the state's and to use the proceeds to fund essential tribal government services. This case concerns the state's tax retrocession under the CTC it signed with the Swinomish Tribe. The CTC legislation provides that [a]ll cigarette tax contracts shall meet the requirements for cigarette tax contracts under this section. Id. § 43.06.455(1). The tax contracts shall be in regard to retail sales in which Indian retailers make delivery and physical transfer of possession of the cigarettes . . . within Indian country. Id. § 43.06.455(2). For this and all other statutory provisions, there are three definitions of Indian retailer. These are: (i) a retailer wholly owned and operated by an Indian tribe, (ii) a business wholly owned and operated by a tribal member and licensed by the tribe, or (iii) a business owned and operated by the Indian person or persons in whose name the land is held in trust[.] Id. § 43.06.455(14)(b). The legislation describes conditions a tribe must accept to enter into a CTC. The CTC shall provide that the tribal cigarette tax rate be one hundred percent of the state cigarette and state and local sales and use taxes. Id. § 43.06.460. The Governor is authorized to allow a three-year phase-in period during which the tribal tax rate can be eighty percent of the state tax rate. Id. The contract shall provide that retailers cannot sell cigarettes to people under eighteen years old. Id. § 43.06.455(2). The contract shall provide that all cigarettes possessed or sold by a retailer shall bear a cigarette stamp. Id. § 43.06.455(4). These stamps can be tribal stamps, but the tribes must establish procedures to ensure that the stamps represent tax-paid or tax-exempt status. Id. The contract shall provide that Indian retailers can purchase cigarettes only from licensed Washington wholesalers, tribal manufacturers, or out-of-state wholesalers or manufacturers who have agreed to comply with the terms of the CTC. Id. § 43.06.455(5). Finally, [t]ax revenue retained by a tribe must be used for essential government services. Id. § 43.06.455(8). The legislation also establishes the extent of the state's retrocession during the life of a CTC. The tribal cigarette tax shall be in lieu of all state cigarette taxes and state and local sales and use taxes on sales of cigarettes in Indian country by Indian retailers. Id. § 43.06.455(3). The retail sales tax does not apply to sales of cigarettes by an Indian retailer during the effective period of a cigarette tax contract. Id. § 82.08.0316. Similarly the use tax shall not apply in respect to the use of cigarettes sold by an Indian retailer during the effective period of a cigarette tax contract. Id. § 82.12.0316. Finally, the separate cigarette taxes do not apply to the sale, use, consumption, handling, possession, or distribution of cigarettes by an Indian retailer during the effective period of a cigarette tax contract. [2] Id. § 82.24.295. The same three definitions of Indian retailer described above apply to these sections. RCW § 43.06.455(14)(b). On October 3, 2003, Washington and the Swinomish Tribe (the Tribe) entered into a CTC pursuant to RCW §§ 43.06.455 and 43.06.460 (the Swinomish CTC or the Contract). The Swinomish CTC applies to the retail sale of cigarettes by Tribal retailers. A Tribal retailer is defined in the Contract as a cigarette retailer wholly owned by the Swinomish Tribe and located in Indian country or a member-owned smokeshop located in Indian country and licensed by the Tribe. Thus, in defining Tribal retailer the Contract adopted the first two definitions of Indian retailer from RCW § 43.06.455(14)(b), but not the third. The Tribe agreed to impose cigarette taxes on all sales by Tribal retailers equal in amount to the state taxes. The Tribe also agreed that all cigarettes sold by Tribal retailers shall bear a Tribal tax stamp, and agreed on various procedures concerning the stamps. Finally, the Tribe agreed that it, as well as all member Tribal retailers, will purchase cigarettes for resale only from wholesalers licensed by the state of Washington. [3] The state in turn agreed to retrocede[ ] from its tax during the time this Contract is in effect. It also agreed in the CTC: As to all transactions that conform with the requirements of this Contract, such transactions do not violate state law, and the State agrees that it will not assert that any such transactions violate state law for the purpose of 18 U.S.C. § 2342 [the CCTA] or other federal law specifically based on violation of state cigarette laws. After the Contract went into effect, the Swinomish Tribe amended its tobacco tax and regulations of tobacco retailers to comply with its obligations under the Contract. See Swinomish Tribal Code §§ 15-03.010 et seq., 17-04.010 et seq. (2003).