MN Tobacco Tax Crippling Retailers: Association

Sales decline 50% at stores along the border since 2013 fee increase

MINNEAPOLIS -- Today a coalition of Minnesota’s retailers, service stations, wholesales, grocers and convenience stores released a new study showing the devastating effects the state's 2013 tobacco tax has had on Minnesota retailers and their employees.

In 2013 the Minnesota Legislature passed a 130% increase in the cigarette excise tax and also increased the tax on other tobacco products from 70% of the wholesale price to 95% of the wholesale price. Retailers had braced for some hardship, but they did not predict just how dramatic the impacts would be.

“We knew, once the legislature made our tax the highest in the region, there would be some job losses and maybe a few stores closing,” said Bruce Nustad, president of the Minnesota Retailers Association. “But this study shows just how devastating the massive tobacco tax has been across Minnesota, for adult consumers, retail businesses and their employees.”

Some of the study highlights include:

  • 1,100 jobs are estimated to have been lost or eliminated.
  • 50% tobacco sales decline in Minnesota stores along the border.
  • Dramatic sales increases of tobacco products in all four bordering states.
  • $38 million of lost sales of nontobacco products.
  • Nearly a quarter of all cigarettes consumed in Minnesota are now estimated to be purchased in other states.
  • Automatic tax increases on tobacco products will continue starting in 2015. 

Retailers on the borders of Minnesota are seeing the worst impacts. "Cigarette sales dropped 75%. We used to do 300 cartons a week, now we buy 70 to 80 a week,“ said Rodney Helming, owner, Oasis Convenience Stores in Moorehead, Minn. The study shows a corresponding increase in tobacco sales in communities just across the Minnesota.

“As tobacco retailers in Minnesota, we have achieved the highest compliance rates in preventing youth access,” said Jamie Pfuhl, president of the Minnesota Grocers Association. “Policies that drive sales to other states or other sources are a major concern.”

An even bigger problem is looming. Retailers point to law-makers putting the tobacco tax on “auto-pilot,” creating an even larger disparity between the costs of tobacco in Minnesota and neighboring states.  Currently Minnesota is the only state to automatically adjust the tobacco tax.

Numbers released this week by the Minnesota Department of Revenue show that the state sales tax and new annual automatic inflation adjustment tax on cigarettes in 2015 will be a total of 8.4 cents per pack or 84 cents per carton. This includes the state cigarette sales tax increase of 1.4 cents or 14 cents per carton and a new automatic inflation adjustment tax increase of 7 cents or 70 cents per carton. 

That number could be as high as 10 cent per pack or $1 per carton in 2017, which could raise the total state tax on cigarettes to $3.12 per pack or over $30 per carton. That would be over $26 dollars higher per carton tax than just across the border in North Dakota and over $15 dollars per carton more than South Dakota and over $17 more per carton in Iowa, according to the association.

“The automatic escalator takes a problem and makes it even worse,” said Lance Klatt, director of the Minnesota Service Station and Convenience Store Association. “Retail locations near neighboring borders such as Mike’s General Store in Taylors Falls, Minn., are victims of the increased tobacco tax and the problem is getting worse.”

Klatt pointed to second-generation owner/operator Nichole Deconcini of Mike’s General, who was forced to sell her location when cigarette and tobacco sales diminished by 800%, robbing her and her family of sales of gasoline and other in-store sales, Klatt said. “This tax is hurting real people and unfortunately causing businesses to fail even when they have done everything right,” he said.

The study was completed by the firm Orzechowski & Walker and funded by the Minnesota Wholesale Marketers Association, Holiday Stationstores Inc., Kwik Trip Inc., Farner-Bocken Co., Core-Mark International, Altria Client Services Inc. (on behalf of Philip Morris USA, U.S. Smokeless Tobacco Company and John Middleton), RAI Services Co. and Lorillard Tobacco Co., and supported by the Minnesota Retailers Association, the Minnesota Petroleum Marketers Association and the Minnesota Grocers Association.