A bipartisan group of state lawmakers want to cut state taxes on premium cigars, as small retailers that sell the high-end products complain that the 2013 hike in tobacco taxes has cut deeply into their profits.
"This would not be rolling back taxes on all smoking by any stretch," said Rich Lewis, who has owned and operated Lewis Pipe & Tobacco in downtown Minneapolis for 40 years. "It would give us a chance to get our business going again."
Anti-smoking advocates have started mobilizing against the measure, as they draw links between evidence that smoking rates have fallen in Minnesota since the 2013 tobacco tax increase, which amounted to about $1.60 additional on a pack of cigarettes.
"Minnesota has a history of being hard on tobacco," said Michelle Morris, manager of tobacco prevention programs at the state chapter of the American Lung Association. "We should be celebrating these policies, not undoing them."
Still, the cigar tax cut proposal has high-powered support at the Capitol. Senate Majority Leader Tom Bakk, DFL-Cook, is a co-sponsor of the Senate bill. The Senate Taxes Committee reviewed the proposal Wednesday, and flagged it for possible inclusion in a broader omnibus tax bill.
Molly Moilanen, chief lobbyist for the anti-smoking coalition ClearWay Minnesota, said she thinks the cigar tax cut is likely to be included in the House's omnibus tax bill, making it a possible candidate for inclusion in the final tax bill that's sent to Gov. Mark Dayton. The House version of the bill is sponsored by nearly a dozen members of the Republican majority.
"They're going to decide if they want a tax break for tobacco companies and merchants at a time when they're proposing cuts to health care programs," Moilanen said of House Republicans. Preliminary estimates say it would cost the state about $1 million a year in lost tax proceeds if the cigar tax is reduced.
Sen. Dave Senjem, the chief Senate sponsor, said it's not a debate about the health implications of smoking. "That's a foregone conclusion," Senjem said. But as a matter of tax policy, Senjem said high-end cigars are taxed unfairly.
Every premium cigar, which is defined in state law as one that has been hand-rolled rather than machine-cut, is subject to a state tax that's 95 percent of its wholesale cost. That's capped at $3.50 per cigar, meaning every cigar that costs more than about $10 costs an additional $3.50 in taxes.
"So if you're trying to sell a box of 20 ten-dollar cigars, your customer is going to be paying $200 plus an additional $70 in taxes," Lewis said. Under the House and Senate bills, the cap would drop from $3.50 per cigar to 50 cents.
Increasingly, he said, customers have other options: they can go to cigar shops in Hudson, Wis., which already caps its per-cigar tax at 50 cents; or they can buy boxes of cigars online, where similarly low tax rates can be found.
"As it is now people just don't buy boxes of cigars anymore," Lewis said. He estimated his profits fell by about a quarter after the 2013 tobacco tax increase.
