Fee or Tax?

Price of smokes in Minn. could go up whatever you call it

Published in CSP Daily News

MINNEAPOLIS -- Minnesota smokers could soon be paying more for cigarettes. If Governor Tim Pawlenty's 75-cent a pack fee is approved, the cigarette tax would remain the same, but Minnesota smokers would pay a lot more for cigarettes than in surrounding states, reported WCCO-TV.

The Health Impact Fee would raise about $380 million over the next two years to help balance the state's budget, said the Associated Press. Pawlenty said it would help cover the state's costs for smoking-related illnesses, which top $800 million, and free up other state money [image-nocss] for education.

Democrats were lukewarm to the proposal. I believe this is a user fee. Some people are going to say it's a tax, Pawlenty said. I'm going to say it's a compromise and a solution. Critics said the proposal breaks a famous no tax hike pledge Pawlenty signed when he was a candidate for governor.

We see people [go elsewhere] for a couple cents on a gallon of gasoline, David Blatnik, with a local SuperAmerica station, told WCCO. We're really going to see them move for $7, $8, $9, $10 for a carton of cigarettes. People would likely drive to buy cigarettes in Wisconsin, North Dakota, South Dakota and Iowa where a pack of cigarettes costs $3.50 and $4.

In Minnesota the cost of cigarettes would rise from $3.65 to $4.40 a pack, said the report.

When you think of a fee [you think of a ] fee for service, David Strom with the Minnesota Taxpayers League, told the news outlet. Where's the service that's being provided for the person paying the fee? What they're saying is, We're going to charge you and give the money to someone else.' That sure looks like a tax'.

Strom told AP he cannot see what benefit smokers get from the higher fee, which would be assessed at the wholesale level, but likely be passed on at the retail counter. Distributors now pay $2,500 a year if their annual cigarette sales top $2 million, or $1,200 if sales do not make that mark.

Fees typically have a tangible return for a payer. Is there going to be a red meat fee? Is there going to be a soda pop fee? It sounds to me like this is a stretch. It sure sounds mighty cute to me, Strom said. It sounds a heck of a lot more like a cigarette tax increase than a health impact fee.

House Minority Leader Matt Entenza (DFL) agreed. Let there be no question, labeling something a fee doesn't make it less of a tax, he said. The governor decisively repudiates his pledge to the Taxpayers League.

The cigarette tax in Minnesota is 48-cents a pack, which ranks among the lowest in the nation at 37th, the report said.

State Representative Ray Cox (R) has been pushing for the higher fee. He said Minnesota's cigarette taxes are low compared to many states, and raising the cost would prompt more smokers to quit and deter others from ever starting. It's perfectly fine to call it what you want, Cox said.

Over time, the state would presumably get less and less revenue from cigarette taxes and fees if higher prices lead smokers to quit, said the report.