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Tobacco tax cuts burn Gov. Dayton

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Manager Chuck Peterson shows some of the premium cigars he sells.
Manager Chuck Peterson shows some of the premium cigars he sells at Maplewood Tobacco and E-Cig Center. Lawmakers passed a big tax cut for such cigars.
Tim Pugmire | MPR News

Updated 9:40 a.m. | Posted 4 a.m.

When Gov. Mark Dayton used his line-item veto authority to cut funding for the House and Senate for the next two years, he cited a number of issues he wanted the Legislature to revisit.

One that he called "galling and indefensible" is a provision in the tax bill to reduce the maximum tax of $3.50 on premium cigars to just 50 cents. The tax on prices at the wholesale level has been in effect since 2013.

Dayton say the cut will cost the state $7 million over the next four years, and he castigated the Republican-controlled Legislature for it.

"I'm appalled that there was not enough money left after you satisfied your priorities to expand the working family credit in fiscal years '18 and '19 or to further increase the child care tax credit for working parents, yet you could find room to sneak in a special tax break for premium cigars for some special moneyed friends," Dayton said. 

Premium cigars are on display at Maplewood Tobacco and E-Cig Center.
Numerous brands of premium cigars are on display inside the walk-in humidor at Maplewood Tobacco and E-Cig Center.
Tim Pugmire | MPR News

In the walk-in humidor at Maplewood Tobacco and E-Cig Center, shift manager Chuck Peterson sees the issue differently.

With cheaper cigar prices online and in neighboring states, tobacco retailers in Minnesota are excited about the tax cut.

Peterson says cigar sales traditionally pick up this time of year. He thinks it will get even better with the lower taxes.      

"People wouldn't be more inclined to go to, say, Wisconsin or North Dakota or another state to buy their cigars," Peterson said. "They can just come up the street here, a five or 10-minute drive, and get a nice stick for a fair price."

Dayton also wants to eliminate a provision in the same bill that ends automatic inflationary tax increases for cigarettes and other tobacco products. It will cost the state treasury nearly $14 million in the next two years and nearly three times that much in the following budget period.

Dayton argues the tax has been an effective tool in discouraging smoking, especially among young people.

Anti-smoking activists agree.

Anne Mason Yoder, senior public affairs manager for ClearWay Minnesota, said the higher tobacco taxes passed in 2013 have helped people.

Premium cigars are on display at Maplewood Tobacco and E-Cig Center.
Numerous brands of premium cigars are on display inside the walk-in humidor at Maplewood Tobacco and E-Cig Center.
Tim Pugmire | MPR News

"We've seen historic drops in youth smoking and adult smoking since 2013, and any attempt to weaken tobacco prices as these will is a step in the wrong direction," Yoder said.

Critics of the tax argue it's harmed border-city retailers and increased cigarette smuggling.

Rep. Greg Davids, R-Preston, the chair of the House tax committee, worked to repeal the annual adjustment. Davids said an auto-pilot tax increase is bad policy.

"We have one of the highest cigarette taxes in the country, and I just think that the groups should have to come back and justify if they want to raise it. We're not lowering the cigarette one penny," Davids said.

Davids contends that Dayton agreed to every provision in the tax bill before the Legislature passed it. He says it's unfortunate that the governor now wants to backtrack on the tobacco items, as well as adjustments related to estate taxes and business property taxes.

"He's having some real problems, it seems like," Davids said. "He signed the tax bill. There are some things you like, there are some thing you don't like. That's how a tax bill works."

Sen. Roger Chamberlain, R-Lino Lakes, who chairs the Senate tax committee, says the tobacco tax breaks were never a priority for the Senate. But said that later changed when leaders got involved in negotiations.

"Occasionally, as it is with any piece of legislation, any bill, sometimes you have to take something that somebody tells you to take," Chamberlain said. "So, we were instructed to include the tobacco provisions, and that's what we did."

Correction (June 9, 2017): Premium cigars in Minnesota had been subject to a maximum tax of $3.50. An earlier version of this story described it as a minimum tax.