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ST. PAUL, Minn.--Minnesota's new 75-cent-per-pack charge on cigarettes was struck down by a Ramsey County judge, after cigarette makers argued that the fee violated a 1998 tobacco settlement that funneled billions of dollars to the state to cover health costs caused by smoking, reported the Associated Press.
In addition to banning future claims on tobacco companies, the settlement will rid the state of the more than $400 million they expected to collect over two years in health-impact fees.
In proposing the health-impact fee, Gov. Tim Pawlenty insisted on calling the charge levied at the wholesale level a "fee" so he could continue to claim he hadn't broken a pledge to raise taxes.
He called for an immediate appeal to the state Supreme Court. "We will also consider using existing administrative authority to apply the fee at the retail level of sale, which is clearly allowed," Pawlenty said in a written reaction to the ruling, according to AP.
If those steps fail, state leaders could fall back on more than $1 billion in surplus and reserve funds announced in November, according to the report.
In declaring the fee unconstitutional, Ramsey County District Judge Michael Fetsch ordered the state to pay refunds or give credits to the suing tobacco companies for fees paid since the law took effect in August, AP reported.
Fetsch told AP the way the fee was crafted violated the 1998 settlement. He also said the fee would be selectively enforced if it only applied to cigarettes not part of the earlier settlement.
"The purpose of the legislation was to recover health-related costs and to prevent tobacco use by youths," the judge wrote. "They will cease smoking the more expensive cigarettes and buy the less expensive cigarettes from the settling defendants' distributors."
David Howard, a spokesman for R.J. Reynolds Tobacco Co. and other parties involved, told AP he hadn't seen the ruling and couldn't comment in detail.
"Clearly we're pleased with the judge's decision, and it certainly supports the position and the case that we made, that this health impact fee violated the terms of the settlement with the state," he said in the report.
Howard declined to speculate on whether the fee would have been upheld if it had been called a tax, or on whether the state has the authority to apply the fee on the retail level as Pawlenty claimed.
Rep. Matt Entenza was quick to criticize Pawlenty for calling the charge a fee instead of a tax, which might have solved the problem. "This is what happens when you get cute with the truth," he said in the AP report.
Major tobacco companies sued soon after the law took hold.
The companies, including the makers of Marlboro and Camel brand cigarettes, say the state promised not to pursue future health-cost claims in return for the 1998 settlement money. To date, the companies have paid $2.25 billion, and another $1 billion is due to come in over the next six years, AP reported.
Attorney General Mike Hatch, who defended the cigarette charge, maintained that the 1998 settlement only prohibited future court claims, not legislative action.
Fetsch strongly disagreed.
"The state is bound, like any other party, to the contracts to which it freely and knowingly enters, and from which it benefits," Fetsch wrote, adding later, "The argument that any interference with the collection of the (fee) is an impairment of the legislative power is flawed. The impairment is self imposed by the settlement agreement."