UPDATE, June 29

Dept. of Rev. press release:

OLYMPIA – June 29, 2012 – Retailers operating machines that allow their customers to roll their own cigarettes must begin affixing cigarette tax stamps to those products beginning July 1.

Although a Franklin County Superior Court judge issued a preliminary injunction earlier this week barring the state from collecting the tax, it was contingent on the plaintiffs filing a $200,000 bond to protect the state’s interest should the state ultimately prevail.

The plaintiffs stated in a brief to the Supreme Court today that they do not intend to post the bond at this time due to pending federal legislation that would define the operators of roll-your-own cigarette machines as manufacturers requiring federal permits.

The plaintiffs reserved the right to post bond at a later date, which would trigger the injunction unless the Supreme Court issues a stay to the injunction that the state requested on Thursday.

At issue is legislation that the state contends simply provides a more effective enforcement mechanism to prevent evasion of taxes that are already due on all cigarettes. The plaintiffs in the case contend it is a new tax subject to a two-thirds vote of the Legislature under Initiative 1053.
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On April 27 we reported on a legal wrangling involving bargain do-it-yourself devises in certain smoke shops that save smokers big bucks by avoiding certain taxes by using automated, "roll-your-own" cigarette machines.

State tobacco taxes, 15 cents per cigarette, have not applied to those produced by these machines. A six-store chain in the Seattle area with these machines called Natural Smokes LLC has a location at 9822 15th Ave SW in White Center, and 15500 1st Ave South, Suite 100, in Burin. There are nearly 70 roll-your-own machines in the state.

Governor Gregoire signed HB 2565 into law May 2 to force Natural Smokes and other small businesses using these machines to pay taxes at the same rate as cigarettes sold elsewhere, in packs, to go into effect July 1. This would close what she and others in Olympia believed was a tax loop-hole, and not a new tax. This bill passed with a simple majority, not a supermajority, which is required for any tax increase with I-1053.

Rep. Eileen Cody

"It's not really a new tax," Rep. Eileen Cody told the West Seattle Herald in our April 27 report. She represents West Seattle, Vashon Island, and parts of Burien in the 34th District. "We changed the definition of who a manufacturer is because these machines are something new and so what we did was clarify that these (machines) manufacture cigarettes and should have the same tax as on any other manufactured cigarette," she said. "They're argument his that their customers roll their own, but they are manufacturing their own, pumping out 200 cigarettes in eight minutes."

Tim Eyman & Initiative 1053

On May 4 we followed up with a story about Initiative activist Tim Eyman, who told the West Seattle Herald that increasing fees on roll-your-own tobacco on these new do-it-yourself machines is indeed a tax increase on tobacco, and is therefore in violation of Initiative 1053, a bill he co-sponsored that passed statewide in 2010 by 64-percent.

June 23 ruling

On June 23 Franklin County Superior Court Judge Bruce Spanner signed a preliminary injunction order based on his view that the legislation creates a new tax subject to a two-thirds vote of the Legislature under Initiative 1053. This action trumps HB2565 and means the roll-your-owners can continue without paying cigarette taxes. He ruled in favor of a Franklin County individual consumer, Dana Henne, a Washington corporation, 1/2 PRICE SMOKES, INC., and the manufacturer the roll-your-own machines, RYO Machines, LLC., in Ohio.

June 28 ruling

On June 28, the State of Washington asked the Washington State Supreme Court for an immediate stay of a lower court’s preliminary injunction barring implementation of HB2565. Attorneys for the Washington State Department of Revenue and Liquor Control Board argued that the order signed by Judge Spanner would cause irreparable harm to the state by allowing customers to avoid paying cigarette taxes on the cigarettes made with these machines.

Rep. Joe Fitzgibbon

Rep. Joe Fitzgibbon, Democrat, 34th District, told the West Seattle Herald, "It's a well-established legal principle that judges can overturn laws, though I think the judge got it wrong on this one because the law we passed on roll-your-own cigarettes was a law to enforce our existing tobacco tax, not a tax increase. However it is not all bad news, because this ruling makes it more likely that the State Supreme Court will rule on the constitutionality of the two-thirds supermajority for tax increases requirement. I believe the supermajority requirement is unconstitutional, and now we have two legal vehicles for putting that question before the Supreme Court."

Plaintiffs' lawyer Christopher N. Weiss

The lawyer for the plaintiffs, Christopher N. Weiss, told us, "Citizens who believe that they have been aggrieved by an action by the state can turn to the courts and ask for a review of the state action. Dana (Henne) lives in Franklin County so that's why we went to the court in Pasco to file the lawsuit. The judge reviewed the arguments and concluded that, yes, this was a new tax, and had not been authorized.

"Our position was that because Intiative 1053 is in effect, the people in the State of Washington voted that no taxes can be imposed on people in the state without people having two-thirds majority in the state both in the House and Senate," he said. "The new tax was not properly created under Washington law. It was in violation of our Washington constitution."

We will update with the Washington State Supreme Court ruling.