Premium cigar distributors seek reduction from 2013 tobacco taxes

The price of tobacco products went up significantly in 2013 after several new taxes and fees were levied on the products. Debate over the increase ignited in the House Taxes Committee Wednesday and Thursday during hearings on HF1544, sponsored by Rep. Jim Nash (R-Waconia).

Held over for possible inclusion in a committee omnibus bill, the bill proposes to lower the tax on premium cigars from approximately $3.50 on the wholesale price to 50 cents a cigar. It would also change the definition by removing the requirement that a premium cigar is hand-rolled.

Rep. Jim Nash

Nash said that many stores selling premium cigars are family owned, and the new taxes are making it hard for them to compete because the products are readily available at a lower cost over the Internet and in neighboring states. “I think that most Minnesotans would agree with a bill like this that will make it easier for family-owned businesses to succeed and thrive by selling to adults who are willing consumers,” he said.

Mark Wolk, owner of Stogies on Grand in St. Paul, said: “We are currently being burdened with the highest tax rate in the country at 95 percent or $3.50 per cigar.”

DFLers, who were in control at the time of the tax hikes, cite reports that show the higher cost has translated to fewer people smoking in the state. And committee debate showcased the philosophical differences between the members over use of tax policy to control behavior.

Rep. Ann Lenczewski (DFL-Bloomington), who sponsored the legislation raising the tobacco taxes, said the intention behind that law was never to raise revenue, but to curb smoking. “The goal for me was to never receive any revenue from tobacco — that ultimately we get to zero because no one is participating in tobacco.”

She said that the tobacco taxes don’t come close to covering health care costs the state incurs because of the products. “You should make the users pay for it – the true health care costs that we are all paying for.”

But using tax policy to control behavior is a “slippery slope,” said Rep. John Petersburg (R-Waseca).

“We need to understand, first and foremost, that tobacco is legal. It is up to an individual’s choice as to whether they smoke. Vegetarians and medical people say we should cut down on the red meat we are eating. Are we going to be taxing red meat at a level that we can reduce that? … I’m asking for us to have some common sense in what we do and why we do it and figure out if there are better approaches.”

A Revenue Department analysis of the bill notes there are 50 distributors of premium cigars in Minnesota. Enactment of the bill would mean $2.1 million less to the General Fund in the 2016-17 biennium.

The companion, SF1894, sponsored by Sen. David Senjem (R-Rochester), awaits action by the Senate Taxes Committee.