Efforts to postpone state cigarette taxes for roll-your-own cigarettes have failed.
Smokers cannot legally buy roll-your-own cigarettes unless the carton has a state tax stamp, starting Sunday.
The Washington State Supreme Court issued a stay on the Franklin County Superior Court preliminary injunction Friday.
And Dana Henne of Pasco, a roll-your-own cigarette consumer; Gary Alexander of Sammamish, owner of 1/2 Price Smokes stores in Tacoma and Kennewick; and RYO Machine LLC, an Ohio-based manufacturer with about 2,000 of the machines nationwide, did not post the $200,000 bond or security required for the preliminary injunction to go into effect.
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If tax collection didn't start Sunday, the state could lose between $32,000 and $150,000 per day in cigarette taxes that the Washington Department of Revenue and the state Liquor Control Board say "is already owed by consumers who are currently simply evading the tax," according to court documents.
Right now, smokers don't have to pay state taxes when they use a machine that fills empty cigarette tubes with loose-leaf tobacco. The "RYO Filling Station" is in 65 stores across the state and is operated by consumers, similar to an automatic teller machine.
A carton of cigarettes from a cigarette-making machine currently averages about $34.50 per carton, while a prepackaged carton of stamped cigarettes costs an average of $70. The $30.25 per carton, or $3.025 per pack cigarette tax, is not included for roll-your-own cigarettes, giving those stores a price advantage.
But a new law signed by Gov. Chris Gregoire that goes into effect Sunday will require taxes be paid by the retailer and the purchaser for each cigarette filled.
Taxes already are paid on the loose tobacco and the tubes, and the lawsuit filed by Henne, 1/2 Price Smokes and RYO Machine claims paying additional taxes on the finished cigarettes is unwarranted and excessive. They also say the Washington Constitution and state law were violated when Gregoire approved the bill because it did not receive the two-thirds vote of the Legislature that Initiative 1053 requires for new taxes.
Henne, 1/2 Price Smokes and RYO Machine filed court documents Friday, explaining that they weren't paying the bond because Congress was considering a law related to taxing and regulating roll-your-own machines that could make the state law issues moot.
Later Friday, Congress passed a transportation package that defined roll-your-own shops as cigarette manufacturers.
Classifying these stores as cigarette manufacturers will take effect with the president's signature, the Tacoma News Tribune reported.
"To comply with that definition you have to seal, you have to package, you have to have environmental permits, you have to list ingredients," Bea Gonzalez, spokeswoman for RYO Machine, told the News Tribune. "It would effectively shut down all the machines."
But the Washington Supreme Court decided to approve a temporary stay anyway because Henne, Alexander and RYO Machine said they were reserving the right to post the bond at any time.
The state argues that the new law is a way to effectively enforce the existing tax on cigarettes.
"Consumers like Ms. Henne have always been personally liable for the cigarette tax on the unstamped cigarettes they possess, handle or consume in Washington," the state said in court documents. "To the extent Ms. Henne is not voluntarily reporting and paying the cigarette tax, she is evading the existing tax."
Alexander said in court documents that the new law will force him to charge his customers more, which could cause him to lose most of his customers and put him out of business.
The state countered, saying, "1/2 Price Smokes has no entitlement to a business model that relies on evasion of the cigarette tax by its customers and undercuts the prices of law-abiding small businesses like groceries and convenience stores," according to court documents.
The new law means roll-your-own retailers need a new license from the state to buy tax stamps, said Mike Gowrylow, spokesman for the state Department of Revenue. The businesses already should have a cigarette retailer license.
So far, 26 applications have been received for the stamps and are in various stages of approval, Gowrylow said. Only one operator had purchased any cigarette tax stamps as of Friday.
"We will work to get it to them as soon as possible," he said.
Roll-your-own cigarettes can not be legally made or sold without the stamps starting Sunday, he said.
The temporary stay lasts until July 10, when the Supreme Court will consider a more permanent stay.
* Kristi Pihl: 509-582-1512; email@example.com