Minnesota Tax Fueling North Dakota Tobacco Sales

Retailers fear cost discrepancy is tempting customers across the border

Melissa Vonder Haar, Freelance Writer

GRAND FORKS, N.D. -- In the two months since Minnesota raised its cigarette tax, neighboring North Dakota has seen its cigarette sales increase by 12% (in August) and 5.5% (in September) compared to the year before. Meanwhile, the Grand Forks Herald reports that the number of cigarette tax stamps sold in Minnesota during July and August was “significantly lower” than last year.

The data has retailers and lawmakers alike suspecting that many Minnesota smokers--especially those in the northwest region of the state--are making the drive to North Dakota for a cheaper pack. In July, Minnesota raised its cigarette excise tax by $1.60-per-pack (to $2.83) and also increased the tax on other tobacco products from 70% of the wholesale price to 95%. By comparison, North Dakota--which has not raised its cigarette tax rate since 1993--only applies a $0.44-per-pack state excise tax.

“It likely has to do with Minnesota’s tax increase,” John Quinlan, a compliance officer in the North Dakota Tax Commissioner’s Office, said of the state’s recent increase in cigarette sales.

“They’re going across the river,” agreed John Yuric, manager of the Valley Oil gas station in Warren, Minn., adding that his smokeless sales have also decreased since the tax increase.

And, as any retailer knows, fewer people buying tobacco typically means fewer people stopping in to purchase higher-margin items with their tobacco.

As for the ultimate goal of Minnesota’s tobacco tax--lowering the state’s smoking rate--it’s still being studied. Mike Sheldon, senior communications manager for ClearWay Minnesota, said inquiries regarding its QuitPlan services have increased by approximately 200%-250% since the tax increase, but it’s still unclear how many people are following through.

Additionally, according to Sheldon, ClearWay defines a successful quitter as someone who has gone six months without smoking. Because the tax increase is only two months old, it’s simply too early to tell what kind of effect it has had on urging smokers to quit.

“It’ll be a little while until we can quantify successful quits since the tax increase,” Sheldon said.