Tobacco users get tax break from Legislature

Minnesota's cigarette smokers would get a rare break from the government if Gov. Mark Dayton signs a tax measure that is currently sitting on his desk.

Through both tax hikes and smoking bans, legislators in recent years frequently have cracked down on tobacco use.

That changed last weekend, when the Legislature in its final hours approved a larger tax bill that repealed an automatic yearly increase in Minnesota's per-pack tobacco tax.

"What we did was said: This thing is on autopilot. It's out of control," said Rep. Greg Davids, R-Preston, chairman of the House Taxes Committee. "Let's put a pause on it."

Dayton criticized the provision this week, saying it was tucked into the tax bill without his knowledge. The change Dayton is weighing would be a significant departure for a state that has been a leader in the fight to curtail cigarette use through higher taxes, with hopes that this would eventually lower health care costs.

"I can't comprehend why that would be considered good public policy," Dayton said, calling it "very, very distressing." The yearly increases were part of a $1.60-a-pack cigarette tax hike that the Legislature approved just three years ago, and which Dayton signed.

Under state law, Dayton could strike down the new provision only by vetoing the entire tax bill. That would mean killing several other new tax cuts that he supports to benefit student loan debtors; relief for businesses in the Lake Mille Lacs area suffering from recent walleye shortages; veterans, and child care customers.

Dayton was still reviewing the tax bill on Thursday and was expected to either sign or veto it by the end of the week or early next week.

Some smoking foes said the tobacco provisions alone, which also include a tax break on e-cigarettes, should motivate him to strike it down.

"It is inconceivable to me that we would reward cigarette producers given what we know about their proclivity to entice young people to use their products," Rep. Erin Murphy, DFL-St. Paul, wrote in a letter to Dayton. "There are countless better purposes in Minnesota for tax dollars, purposes that will build our future."

When the DFL-controlled Legislature raised the cigarette tax in 2013, the measure included an inflationary formula for determining subsequent yearly increases. Before that measure, Minnesota's taxes and fees on a pack of cigarettes totaled about $1.25 a pack. On Jan. 1 of this year, increases in the state's excise and wholesale taxes on cigarettes brought the total tax levied per pack to $3.50. Without the repeal, the tax would rise again come Jan. 1, 2017.

The increases leave Minnesota with one of the highest cigarette taxes in the nation, particularly in comparison to its four neighboring states and Ontario, and it is the only U.S. state to include an automatic annual hike.

Supporters of scrapping the yearly increases point out that the larger tax bill passed with strong bipartisan support in both the Republican-controlled House and the DFL-controlled Senate.

GOP House Speaker Kurt Daudt argued that tobacco taxes fall hardest on people with lower incomes. "This is the most regressive tax you could put on Minnesotans. It affects the poorest Minnesotans the most," he said.

Daudt also argued that automatic inflationary increases are poor public policy: "It's giving away our legislative prerogative."

Lance Klatt, executive director of the Minnesota Service Station and Convenience Store Association, said the yearly tax increase has been a burden on store owners, particularly along the state's borders. They don't just lose out on tobacco sales, Klatt said — customers who normally stopped in to pick up cigarettes would often also buy gas, food or other products.

"This is not about tobacco; this is about Minnesota retailers," Klatt said. The high cost of cigarettes in Minnesota has been a boon for smugglers, he added.

Since Republicans reclaimed the House majority last year, Davids has pushed to repeal the yearly increase. His southeastern Minnesota legislative district borders both Wisconsin and Iowa.

"My convenience stores are getting killed," Davids said.

Anne Mason, a spokeswoman for ClearWay Minnesota, a nonprofit group that lobbies for reducing tobacco use, said the issue is about tobacco. The group has produced surveys showing that Minnesota's rising tobacco costs have motivated people to quit or to not start smoking, particularly the young.

"The benefit we've seen in the yearly increases is in keeping tobacco prices high relative to inflation," Mason said. "We would expect that to dull over time if we don't have the periodic increases."

Patrick Condon • 651-925-5049