Cigarette tax could change Minnesota smokers' behavior -- but how?

  • Article by: DAN BROWNING , Star Tribune
  • Updated: May 26, 2013 - 6:54 AM

Advocates tout health benefits. Smokers say the tax is unfair. And law enforcement expects more smuggling.

The new tobacco tax signed into law last week will raise the price of cigarettes in Minnesota by $1.60 a pack, add more than $430 million to state coffers over the next two years and, public health advocates hope, prevent nearly 48,000 young people from taking up the habit.

Then there will be the unintended consequences.

Committed smokers might beat a path to North Dakota, where a pack of cigarettes will cost nearly $3 less. Or they might try to offset the increase by rolling their own cigarettes, or by switching to electronic cigarettes. Worse yet, they might turn to the black market, which is already a concern in Minnesota for some tobacco products.

“This increase will definitely provide an opportunity for criminal organizations,” said Mike Feinberg, special agent in charge of the Homeland Security Investigations office that covers Minnesota, Nebraska, Iowa, North Dakota and South Dakota.

The 130 percent cigarette tax increase, which takes effect July 1, will drive Minnesota from 29th place nationally to sixth. Legislators who supported it said they had their eyes on both the potential health benefits and the amount of revenue it would spin off to help pay for the new Vikings stadium in downtown Minneapolis.

State and national anti-smoking groups cite research indicating that tobacco price increases could prompt more than 36,000 adult smokers to quit, save 25,700 Minnesotans from smoking-related deaths and more than $1.65 billion in future health costs.

“We are thrilled about the legislation,” said Molly Moilanen, public affairs director for Clearway Minnesota and co-chair of the Raise It for Health Coalition, a large group of public health advocates who lobbied for the tax hike.

Smokers who say they’ve tried and failed to quit take a different view.

“It sucks,” said John Leonard, 53, of St. Paul, a pack-a-day smoker.

His wife Angela, 49, says she’d understand if the money went to health care, but denounced the idea of spending it on stadiums or general state expenses. She says she smokes two packs a day, so she and her husband already try to cut costs by buying cheaper pipe tobacco and rolling it into cigarettes. Habitual smokers will find ways to offset the higher taxes, she said.

That’s what worries law enforcement agencies. The money that can be made smuggling cigarettes from low-tax states to high-tax states has led some gangs to switch from illegal drug sales to bootlegging tobacco.

More smuggling?

Minnesota has prosecuted some tobacco “diversion” cases already. Hamza Ahmad Abualzain, 33, of Shoreview, pleaded guilty in January to evading taxes after he was caught with a vanload of untaxed, unstamped tobacco products worth more than $30,000 at wholesale. He was sentenced in March to four days in jail and three years of probation. Adel Yacoub Atshan, 59, of Milwaukee, was convicted two years earlier of evading sales taxes after he was caught selling untaxed tobacco products to the owner of an Eagan gas station.

Federal authorities in Minnesota are working on three large tobacco diversion cases now, according to law enforcement sources. Those cases, like others in recent years, involve what’s known as “other tobacco products,” such as small cigars, snuff and chew, a relatively small part of the tobacco market.

Minnesota hasn’t had much of a cigarette smuggling problem in recent years because its taxes are lower than those in all the surrounding states except North Dakota. But when the new tax rate takes effect, Minnesota tobacco excise taxes will lead the region, and law enforcement agencies say they expect cigarette smuggling to pick up.

Terrorists and tobacco

Along the coasts, organized crime groups, including some with ties to terrorist organizations, have begun selling counterfeit cigarettes from foreign countries and smuggling legally purchased cigarettes from low-tax to high-tax states. In New York City, 16 Palestinian men were indicted this month in what authorities describe as a smuggling operation that cost the state more than $80 million in sales tax revenue. Some of the men allegedly had ties to convicted terrorists. Earlier smuggling operations along the East Coast were found to have funded Hamas or Hezbollah.

Last July, state and federal investigators in Los Angeles uncovered $1.8 million in counterfeit cigarettes imported from China along with large quantities of counterfeit cigarette tax stamps for five states — including Minnesota.

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