OLYMPIA, June 28.—The state of Washington is going directly to the Supreme Court in a high-profile cigarette-tax case that could decide the fate of the Legislature’s two-thirds-for-taxes rule. So a lawsuit with a big potential impact is escalating faster than anyone might have imagined, and you might say a case with a kick is going straight to the head.
The Department of Revenue said Thursday that it has asked the state’s highest court to block an injunction that was announced Monday by a Franklin County judge, preventing a new tax on machine-made cigarettes from taking effect July 1. There isn’t much time left. The motion gives the Supreme Court one day to decide.
The short notice has to do with the fact that Franklin County Superior Court Judge Bruce Spanner didn’t get around to signing the order until Thursday morning. There still is supposed to be a trial in Franklin County, though Spanner’s oral ruling left little doubt where he stands. But now the state’s motion to stay the injunction sends the issue to the top.
The Department of Revenue, which is represented by the state attorney general’s office, is arguing that it faces an emergency, because the state might lose between $12 million and $55 million a year. Those figures are a bit suspect. They assume current sales will either stay steady or boom. It is hard to imagine that happening if taxes go through the roof. More likely they’ll go out of business, the company says. And a transcript of Spanner’s ruling, now available, shows that the judge agreed.
Lawmakers Said Harrumph
The lawsuit from RYO Machine LLC, an Ohio company, has to do with a new type of cigarette-stuffing machine. The so-called RYO Filling Station, installed in 65 stores statewide, allows customers to beat high state and federal cigarette taxes by letting them make their own smokes. The machines stuff cigarette-paper “tubes” with lightly taxed loose pipe tobacco, not heavier-taxed cigarette tobacco. Customers push a button, and presto, out come finished cigarettes. State and federal taxes on cigarette manufacturers and finished tobacco products are never incurred. The cost is anywhere from $19.99 to a little over $30, versus the $70 or more for standard storebought smokes.
Lawmakers said harrumph to that idea this year and passed a bill declaring the smokeshops to be cigarette manufacturers. The thing is, they didn’t do it with a two-thirds vote. Meaning that their lawsuit is the first in 19 years to put Washington’s off-and-on supermajority rule to the test. At present, under Initiative 1053, the House and Senate must each take a two-thirds vote to pass any bill that raises taxes. Suddenly a high-profile legal question that Democratic lawmakers and special interest groups have been urging the Supreme Court to decide for years seems to have been delivered to high court in direct fashion, with a bow wrapped around it.
Transcript Explains Ruling
A transcript of the judge’s ruling, obtained by Jason Mercier of the Washington Policy Center, shows that Spanner rejected the state’s arguments decisively.
The state sought a $12 million bond from the company, to compensate it for lost taxes if the lawsuit was unsuccessful. But Spanner said the Department’s estimates of revenue losses were overstated. Spanner agreed with the company that most of the stores would shut their doors — the high taxes would drive them out of business. Spanner ordered a $200,000 bond instead. The order takes effect when the company posts bond, and inasmuch as the new tax goes into effect Sunday, one might expect that to happen very, very soon.
Spanner said he issued the injunction because he believed the company had a good chance of winning the suit. He said he believed the new tax was a new tax – and therefore was subject to the two-thirds-vote requirement of I-1053. Spanner said, “I do find that this is a new tax. The principal reason is if you look at the statute prior to the amendment, it not only defined the tax but also included a methodology for its collection, and here that the brand new methodology is taxing the components of the roll-your-own cigarettes. So, if you look at the overall scheme here, coupled with the evidence of how the Executive Branch and the Legislative Branch viewed it, coupled with the absence of or a lack of taxing of the roll-your-own cigarettes, I find it’s a new tax.”
Disagrees With Technical Argument
The transcript also shows that Spanner rejected another more technical and legalistic argument advanced by the state. The state Supreme Court in the past has been reluctant to intervene in the affairs of the Legislature under what it has called the “enrolled bill doctrine.” The principle is that the legislative branch has the right to make its own procedural decisions when conducting its business. In this case, Lt. Gov. Brad Owen ruled that the cigarette tax was not a new tax, and that only a simple majority vote was needed. The state argued that the courts have no right to second-guess the Legislature.
Spanner said he didn’t think much of that argument. He said courts have a right to provide a check and balance on the other branches of government, and the doctrine merely prevents courts from interfering in the operations of the legislature. “I disagree with the state on the application of the enrolled bill doctrine,” he said. “Once the Legislature purports to sign off on a bill, then it is subject to court scrutiny, which is what we’re doing here today. As citizens we have a right to insist that our Legislature acts in a constitutionally consistent manner. Whenever they don’t, a citizen’s right is thereby invaded.”
The state advanced several other arguments, none of which Spanner addressed directly. Among the more curious arguments advanced by the state in the case is one that contends that the Legislature may pass a bill that overrides an initiative at any time with a simple majority vote. It is a novel legal theory. For one thing, the state constitution says otherwise — it takes a two-thirds vote to amend or repeal an initiative during the first two years of passage. It also contradicts the argument the state has made when defending supermajority initiatives from legal attacks from Democratic lawmakers and interest groups. In those lawsuits, the attorney general’s office has argued that the Legislature is required to follow the law. One such case is working its way up to the Supreme Court level right now, meaning that the attorney general’s office is apparently arguing both sides of the case.