Bill Seeking to Raise Minnesota’s Tobacco Taxes Moving Forward

A bill in the Minnesota Legislature that seeks to raise tobacco taxes in the state—including a drastic increase in the state’s cigar tax—took its first step forward on Wednesday, as HF 1721 passed the House’s Preventive Health Policy Division committee by a 7-4 vote.

The bill contains a number of changes to the state’s tobacco taxes; in the case of premium cigars it increases the tax rate from 95 percent of the wholesale price to 97 percent, while increasing the cap on the tax from 50 cents to $5 per cigar. So a cigar would be taxes at the lesser of the wholesale rate or $5, though given how most taxes are applied, the increase would be much more significant at the register. Currently, a cigar with an MSRP of $9.50 would cost $10.50 at the register before any sales taxes were applied. If HB 1721 were to pass, that number would go up to $18.72 by halfwheel estimates.

Also in the bill is a section that defines electronic smoking devices and subjects them to the proposed rate of 97 percent of the wholesale price on what are collectively referred to as other tobacco products, or OTP. The definition of the wholesale price is also being updated to include federal excise taxes, freight charges and packaging costs, as opposed to being based solely on the manufacturer’s list price.

Cigarettes would also face an increase in the excise tax of $1.50 per pack, and cigarette retailers would face a floor stock tax to account for the increased rate.

The bill also earmarks $15 million per year for tobacco use prevention and cessation efforts.

HF 1721 was authored by Rep. Jennifer Schultz, DFA-Duluth. Should it become law, the increases would go into effect on July 1, 2021.