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S.F. No. 209 - Cigarette and Tobacco Tax Provisions (As Amended by the A-3)
 
Author: Senator D. Scott Dibble
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: February 28, 2013



 

Section 1.  [Liability imposed; health impact fee] Removes the reference to the health impact fee for those with tax liabilities associated with the health impact fee.  The health impact fee is repealed in a later section.  Effective July 1, 2013.

Section 2.  [Definition of “cigarette”] Modifies the definition of “cigarette.”  Under current law, a cigarette is defined as any roll for smoking that is made of tobacco and wrapped in paper or something other than tobacco.  This bill provides a new definition for “cigarette” to include a roll weighing 4.5 pounds or less per thousand and wrapped in a substance containing tobacco, but because of its appearance, size, the type of tobacco used in the filter, or its packaging, pricing, marketing, or labeling is likely to be offered to consumers as a cigarette.  Effective July 1, 2013.

Section 3.  [Definition of “moist snuff”]  Defines “moist snuff” as any finely cut, ground, or powdered smokeless tobacco that is intended to be placed or dipped in the mouth.  Effective July 1, 2013.

Section 4.  [Definition of "tobacco products"]  Removes “little cigars” from the definition of “tobacco products.”  Little cigars would now be taxed as cigarettes under section 2.  Effective July 1, 2013.

Section 5.  [Rates; cigarettes]  Increases the cigarette tax rate from 24 mills to 141.5 mills on cigarettes weighing less than three pounds per thousand (i.e., a standard pack of 20 cigarettes).  This increases the per-pack tax from the current 48 cents to $2.83.  For cigarettes weighing more than three pounds per thousand, the rate is increased from 48 mills to 283 mills on each cigarette.  This increases the per-pack tax on higher-weight packs from 96 cents to $5.66.  Effective July 1, 2013.

Section 6.  [Rates; tobacco products]  Increases the distributor tobacco products tax from 35 percent of the wholesale sales price to 95 percent of the wholesale sales price.  Imposes a minimum tax of $2.83 on each container of moist snuff.  Defines “container” as the smallest consumer-size can, package, or other container that is marketed or packaged by the manufacturer, distributor, or retailer for separate sale to the consumer.  Effective July 1, 2013.

Section 7.  [Use tax; tobacco products]  Increases the tobacco products consumer use tax to the greater of  95 percent of the wholesale sales price, or the minimum tax on a container of moist snuff ($2.83).  Effective July 1, 2013.

Section 8.  [Nonsettlement fee imposed]  Increases the fee rate from 1.75 cents per cigarette to 2.5 cents per cigarette on cigarettes sold by manufacturers not subject to the legal settlement resulting from tobacco litigation.  Effective July 1, 2013.     

Section 9.  [Cigarette in lieu sales tax] Removes the reference to the 6.5 percent in lieu tax rate and changes the in lieu tax rate calculation to reflect the combined general sales tax rate and Constitutional sales tax rate of 6.875 percent.  Effective July 1, 2013.  

Section 10.  [Definition of “cigarette”]  Amends the definition of “cigarette” in the unfair trade practices chapter (325D) to cross reference the changes to the definition of cigarette made in section 2.  Effective July 1, 2013.

Section 11.  [Floor stocks tax]

Subdivision 1.  Cigarettes.  Imposes a floor stocks tax of $1.60 per pack of cigarettes.  The tax is imposed on distributors, retailers, subjobbers, vendors, manufacturers, or manufacturer’s representatives on stamped cigarettes or unaffixed stamps in their possession as of July 1, 2013. Requires distributors to file a return with the Commissioner of Revenue by July 11, 2013 indicating the stamped cigarettes and unaffixed stamps on hand as of July 1, 2013.  Retailers, subjobbers, vendors, manufacturers, and manufacturer’s representatives must file a return with the Commissioner indicating the cigarettes on hand as of July 1, 2013.  The tax owed by all entities is due and payable by August 8, 2013 and bears interest at a one percent per month interest rate. 

Subdivision 2.  Audit and enforcement.  Provides that the floor stocks taxes are subject to the audit, assessment, interest, appeal, refund, penalty, enforcement administrative, and collection provisions applicable to taxes imposed under chapters 270C and 297F.  The commissioner may require a distributor to receive and maintain copies of floor stocks tax returns filed by those requesting a credit for returned cigarettes.

Subdivision 3.  Deposit of proceeds.  Requires proceeds from the floor stocks taxes to be deposited in the state treasury and credited to the general fund. 

Effective July 1, 2013.

Section 12.  [Interim sales tax rate]  Requires the Commissioner of Revenue to adjust the weighted average retail price on July 1, 2013 to reflect cigarette price changes in this bill and recalculate the in lieu tax.  The in lieu tax is calculated by multiplying the statutory rate by the yearly average weighted retail price of cigarettes statewide.  For the recalculation in January following enactment of the bill, requires the Commissioner to use only the six months following the rate change to calculate the weighted average retail price, not the entire year. Effective July 1, 2013.  
 

Section 13.  [Tobacco tax collection report]  Directs the Commissioner of Revenue to report to the legislature by January 15, 2014, on recommendations for improving the tobacco tax collection system and appropriates $100,000 to the Department of Revenue for the cost of preparing the report.  The report must provide guidance and information to the legislature on improvements to the tobacco tax collection system, including:

  • A detailed review of the present excise tax collection and compliance system for cigarettes and other tobacco products;
  • A survey of other states’ or nations’ methods of collection and enforcement for cigarettes and other tobacco products, with recommendations for best practices high-technology alternatives to increase compliance;  
  • An evaluation of the adequacy and effectiveness of existing penalties and other sanctions for noncompliance;
  • An evaluation of the adequacy of state resources to enforce tobacco taxes
    and prevention laws and recommendations on implementation of a comprehensive tobacco tax collection system that can be implemented by January 1, 2014.

Effective the day following final enactment.

Section 14.  [Repealer]  Repeals the health impact fund and the health impact fee.  Effective July 1, 2013.

NBP:dv

 
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