By Rep. Paul Anderson
With this week’s special legislative session in St. Paul there is much discussion about taxes and the impact they have on the state. That impact is usually measured in dollars as tax revenue is what provides Minnesota with the money needed to provide services and, in general, operate state government. But, the impact of tax policy also filters down to people because it affects all of us in different ways.
A good example of this is the recently increased tax on cigarettes and other tobacco products in Minnesota. In effect since July 1, the state tax on a pack of cigarettes was raised $1.60 to bring the total tax bill on a carton to $33.23. Granted, one can argue about the virtues of smoking, and the health care costs to society caused by the addiction. That’s not the issue here, because smoking is still legal, and it’s a practice still done by about 20 percent of our population. The state is more than willing to take the money raised by taxing cigarettes, but raising the tax so high will probably cause some to quit the habit. Paying nearly $73 dollars for a carton of smokes is beyond the budget of many who currently light up.
I have long said that one of the principles of sound tax policy is keeping our state competitive with its neighbors. This new tax on tobacco takes us in a different direction and makes Minnesota totally uncompetitive in regard to the price of cigarettes. Again, one may think that’s a good thing, but I’m looking at the situation from a tax revenue and comparison standpoint. With our new tax, the price of a carton of smokes in our state is around $73. Just across the border in North Dakota, the price for that same carton is around $43, which is a huge difference. Do you think someone who usually stops at a convenience store in Moorhead, for example, to pick up his morning cup of coffee, a fill of gas, and his daily pack of cigarettes will continue doing so? He or she will probably drive across the bridge and buy all three of those items in Fargo. The C-store in Minnesota lost, not only the sale of the cigarettes, but also the fill of gas and the cup of coffee.
That’s what is happening in border towns all across Minnesota. And it’s not just North Dakota, although northwestern Minnesota represents the largest price discrepancy. On average, the price of a carton of cigarettes in South Dakota is about $17 less than in Minnesota, about $20 less in Iowa, and $7 less in Wisconsin. I think it’s safe to say that our state will not take in the amount of revenue forecast when this tax increase went into effect. To be sure, part of the reason will be that some smokers either quit the habit or cut back. But the biggest reason will be that folks along our borders will drive to neighboring states to pick up their smokes, and just may bring back an extra carton or two for their friends.
I talked with officials of an area tobacco wholesaler who does business in Minnesota and North Dakota. In the seven weeks since July 1 when the tax increase went into effect, their sales to retail establishments in Minnesota have declined by roughly 20 percent. On the other hand, sales to retail stores in eastern North Dakota have gone up by a whopping 50 percent! We are not only losing revenue to neighboring states but, because of this dramatic tax disparity, we may be seeing stores along our borders closing their doors because of an over-all loss of business.
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