July 1 delivered more than a new month to residents of Minnesota. Monday was the first day of the state’s new tobacco tax increase, raising the tax an additional $1.60 per pack of cigarettes to a total of $2.83. Minnesota health activists are heralding the new increase as a major victory, but the tax hike leaves many smokers feeling burned.
The new tax increase rockets Minnesota to the sixth-highest cigarette tax in the country. New York is currently at the top of the charts at $4.35. Minnesota smokers are feeling frustrated at the climbing cigarette prices.
Dustin Luedtke, 43, told reporters on Monday, “I think it’s a little ridiculous.” As a smoker for 15 years, he expects the tax increase to hit smokers hard and cause many to reconsider their habit, including himself. “It’s going to force a lot of people to quit. I’m going to end up quitting.”
Many smokers stocked up on cigarettes this past weekend, in anticipation of the higher prices. Shayna Moore from Freedom Station reported that the store was low on several brands by Monday morning. “We’re out of a lot of cigarettes… we went through a lot of cartons (Sunday).” Moore said that many customers told her they would fight rising costs by switching over to less expensive brands.
Retailers in bordering states hope the tax increase causes more customers to cross state lines to buy cigarettes. Bernice Burroughs of Centerville, Wisconsin said her store in Toad’s Cove had already stocked up on extra inventory. Like other Wisconsin stores, they hope that smokers who cross the bridge for work will stop by and purchase cigarettes before crossing back into Minnesota.
Smokers will definitely notice the price increase if they continue buying cigarettes in Minnesota. On Monday, the cheapest pack of Pall Malls cost $6.50 at Brady’s Service Center off Interstate 94. However, if smokers traveled just a few miles to Fargo’s Gateway Service Center in North Dakota, that same pack was only $3.79. Brady’s price for a pack of Marlboros was a hefty $8.30, while it cost only $5.15 across the state line at Fargo’s.
Brady Olson, owner of Brady’s Service Center vented his frustration, saying that the tax increase gives Minnesota stores a major disadvantage. With the rising taxes, there is just no way to compete with prices on the other side of the state line. “It puts a very unfair advantage for North Dakota because we’re also at a disadvantage on the gas tax, sales tax, and whatever other taxes. It’s just getting worse and worse.”
Olson disagrees with public health officials that claim that the new tax hikes will prevent kids from picking up cigarettes and cause current smokers to kick the habit. “It’s $15 in Las Vegas and $10 in New York, and they’re still smoking. If you want something, you’re going to do it whether you like to pay for it or not.”
Apparently, some Minnesota smokers have been crossing state lines to buy cigarettes for years. Smoker Jeremy Myers of Moorhead was surprised to hear of the new tax hike. He has been buying his cigarettes in North Dakota for years because “They’re just cheaper.” Before the latest tax increase, cigarettes were still around $1 cheaper in North Dakota, according to Myers.
The Cenex station in Fargo, North Dakota confirmed Myers’ claims. Manager Shari Bettenhausen told reporters that Minnesota residents had been stopping in her store for a long time. She noted “A few more cartons are going out the door today,” although the increased sales were not really significant yet.
At this point, it’s too early to know whether the increased taxes will have a major impact on the number of Minnesota smokers. According to Minnesota’s Quit Plan, around 16 percent of Minnesota residents are smokers. The new tax is expected to push 36,000 smokers over the edge and cause them to quit.
Of course, it’s also possible that these smokers will just seek out an alternative to their former cigarette habit. Mark Roussin, co-owner of Vapor Vibes welcomed the tax hike, believing it would bring more business to his e-cigarette shop.
Roussin and his friend Dave Delsing opened their e-cigarette store just one month ago. According to Delsing, e-cigarettes cost only one-third of the price of tobacco cigarettes. He said his store had already noticed a change just in the first day of the new tax. “We’ve seen it already today,” he said, noting an increase in business on Monday.
Other e-cig retailers noted a similar increase in business over the past few weeks. In the Twin Cities, there has been a notable surge in demand for electronic cigarettes. Sina Wars of Uptown Vapor Shoppe in South Minneapolis has even expanded her business, opening a second location in Maplewood in June.
At this point, electronic cigarettes are not taxed under the same laws as analog cigarettes. Minnesota does require tobacco taxation on electronic cigarettes, but it is broken down differently than the tax on regular cigarettes.
The law was changed on August 1, 2010 to include e-cigarettes in taxable tobacco products, despite the fact that e-cigs are tobacco-free. Today, e-cigarettes are taxed based only on the price of the nicotine cartridges. So if someone purchases an e-cig starter kit in Minnesota, they only pay the tobacco tax on the value of the nicotine cartridges that are included, rather than on the electronic cigarette kit as a whole.
For Minnesota smokers, the tax hike is definitely a game changer. Whether they pay higher prices for their current cigarettes, give up smoking for good, or switch to electronic cigarettes for their nicotine cravings, there is certain to be a shift among the state’s smokers.
How do you expect Minnesota smokers to react to the new tax? Do you expect many smokers to quit or will there be continued surge in the sale of e-cigarettes?
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