Minnesota Governor Threatens to Defund House & Senate Over Premium Cigar Tax Cut, Others

Galling. Especially galling and indefensible.

That’s how Gov. Mark Dayton, a Democrat, described a tax cap for premium cigars that was included into a budget passed by the state’s legislature. Earlier today, Dayton announced his plans for the hotly-contested budget, he would sign nine of the state’s budget bills, but not the one regarding taxes.

Update: Dayton eventually signed the bill because if he did not he risked it not becoming law.

His signature wasn’t believed to be required for the bill to become law, but the governor went the extra step of line-item vetoing funding for the Minnesota House of Representatives and Senate.

Yes, if the bill comes law, there will be no funding for the legislature itself.

“I am line-item vetoing the appropriations for the House and Senate in FY 18/19 and FY 20/21,” wrote Dayton in a letter to the legislature’s leaders. “Your job has not been satisfactorily completed, so I am calling on you to finish your work.”

They will be able to finish their work through a special session, which only Dayton can call and he’s only willing to call it unless the Republican-controlled legislature agrees to five provisions:

• Eliminate the Tobacco Tax Decreases
• Eliminate the Estate Tax Exemption Increase
• Eliminate the C-I Property Tax Freeze
• Eliminate language that prohibits undocumented immigrants from obtaining drivers licenses
• Renegotiate Teacher Licensing Requirements

As for the tobacco tax portion, premium cigars are right at the heart of Dayton’s objections.

“Especially galling, and indefensible, is the tax break for premium cigars, at a cost of $6.9 million over the next two bienniums. I am appalled that there was not enough money left after you satisfied your priorities to expand the Working Family Credit in FY 18/19 or to further increase the Child Care Tax Credit for working parents; yet, you could find room to sneak in a special tax break for premium cigars for some special, moneyed friends.”

Earlier this month, Rep. Greg Davids, R-Preston, introduced language that would cap taxes on premium cigars to 50 cents. Currently cigars sold in Minnesota are subject to a 95 percent tax on the wholesale price, with a cap of no more than $3.50 in taxes per cigar—one of the highest in the nation.

After it was introduced, Dayton specifically called out the tax cap, which is estimated to reduce tax revenues from premium cigars by $3.6 million in the next two years.

It was just one of a host of contentious moments over this year’s budget. The most notable was a so-called poison pill placed by legislatures indicating funding for the Department of Revenue would not go into effect until one day after the enactment of Special Session House File 1, a bill which continued many tax breaks Dayton objected to.

In short, the legislature said allow our tax bill to pass, or shut the government down. The governor has now responded with change the tax bill, or don’t get paid.

There are already questions about whether a lawsuit will be filed against Dayton’s approach, though a Minnesota Republican spokesperson indicated that there would now need to be another special session.

Dayton did veto a bill that would prevent local governments from paying employees more or giving additional benefits beyond what state law required.

Update: A few hours after his original announcement, Dayton—on advice from the state’s Attorney General—signed the tax bill in order to avoid a pocket veto to occur, a process where a piece of legislation does not become law because it is not signed into law before a specific deadline.