Cigar tax cut considered at Capitol, but anti-smoking activists push back

Minnesota's budget is well in the black, and a bipartisan group of lawmakers think that makes this a fine time to cut taxes on fancy cigars.

A loose group of specialty tobacco store owners, backed by a national trade organization of cigar manufacturers and importers, want lawmakers to roll back a portion of the tobacco tax increases that the Legislature approved and Gov. Mark Dayton signed in 2013. Anti-smoking activists, accustomed to political victories in recent decades, are fighting back with evidence that higher tobacco taxes reduce smoking rates.

Cigar shop owners say the hefty spike in the state tax on a single premium cigar has all but wiped out what's admittedly a niche market: people willing to pay $100 or more for a box of 10 cigars.

"As it is now, people just don't buy boxes of cigars anymore," said Rich Lewis, who for 40 years has owned and run Lewis Pipe & Cigar in downtown Minneapolis. Lewis estimated that his take-home profits dropped by a fourth after the 2013 tax changes, and he's worried about the future of a business he wants to pass along to his 23-year-old son.

Premium cigars, defined in state law as those rolled by hand rather than machine, are subject to a state tax of 95 percent of wholesale cost. That's capped at $3.50 per cigar, meaning a $10 cigar winds up costing $13.50. That's $35 of tax on a box of 10 such cigars. Lewis said $10 or so is the cost entry point for well-known premium cigars like Montecristo, Arturo Fuente or Romeo y Julieta.

Wisconsin and Iowa cap per-cigar taxes at 50 cents each. Minnesota merchants say it's also easy to find boxes of cigars online with similarly low tax rates. The bill under consideration would drop Minnesota's cap to 50 cents per cigar as well.

"What we're trying to get across is we're a small business that employs Minnesotans, and we're just getting killed by the $3.50 cap when Wisconsin and Iowa are 50 cents," said Mark Wolk, owner of Stogies on Grand in St. Paul, a third-generation family business. Wolk testified for the proposal Wednesday at a state Senate committee hearing.

"They're going to have 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," Molly Moilanen, a lobbyist for ClearWay Minnesota, said of House Republicans. ClearWay Minnesota is an independent nonprofit group that lobbies for reducing tobacco use.

Preliminary estimates put the revenue loss to the state from a cut in the cigar tax at about $1 million a year.

Anti-smoking activists cite evidence suggesting smoking has fallen here since the 2013 tobacco tax increase. A survey in January by ClearWay survey of smokers and recent former smokers found majorities of those who quit in the past year said price was a factor. The 2013 tax hike increased the cost of a pack of cigarettes by about $1.60.

Activists say that any step backward, even aimed at a premium market, would carry a long-term body count.

"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."

"A cigar can make a man feel powerful and important, it's true, and you don't have to be wealthy to afford some of these cigars," Hokes said. "If this bill passes you will be able to buy them for less, and there's no question that's going to get more people smoking them."

Sen. Dave Senjem, the Rochester Republican sponsoring the Senate bill, said he wants to avoid debates about the health consequences of smoking.

"I quit smoking 49 years ago. It's not good for you, etc., etc.," Senjem said. But he said the current cigar tax is a case where state government overextended its reach.

"I think in this case perhaps we've drifted a little bit and are using tax policy to try to control behavior," Senjem said.

More than one politician throughout history has been known to enjoy a fine cigar. Does Senjem ever indulge?