Cigarette packs get new stamp

12/24/2005

State made move to avoid costly claims

BY PATRICK SWEENEY
Pioneer Press

Facing a judge’s decision that could force the state of Minnesota to refund $80 million or more in “health-impact fees” paid on cigarettes since August, the Revenue Department is changing the way it keeps track of taxes and fees paid by tobacco wholesalers.

The change, which involves putting a different color tax stamp on the bottom of cigarette packages, is intended to stem the state’s exposure to possibly fraudulent claims for refunds during what might be a lengthy appeal of the court ruling.

The new stamps also are intended to make it possible — if officials decide it is legal — to begin charging the 75-cents-a-pack fee at the retail, rather than the wholesale, level. Gov. Tim Pawlenty said this week he wants to do that.
On Friday, George Hoyum, the Revenue Department’s director of special taxes, said a still-evolving plan calls for the department to offer new and old stamps to cigarette wholesalers.

At present, the state sells wholesalers small green stamps, which the wholesalers affix to the bottom of each cigarette pack as proof that the wholesalers have paid two taxes — a 48-cents-a-pack excise tax and a 25½-cent sales tax — plus the 75-cents-a-pack health-impact fee.

Hoyum said he didn’t know what color the new stamps would be, but they would signify that excise and sales taxes have been paid, and that the health-impact fee has not been paid.

On Tuesday, Ramsey District Judge Michael Fetsch ruled that the health-impact fee was illegal because it conflicted with a 1998 court settlement in which cigarette manufacturers promised to pay the state, in perpetuity, for health care costs the state incurred because of smoking. Fetsch ordered the state to refund fees that wholesalers have paid since Aug. 1. A hearing is scheduled for Jan. 18, when state officials will seek permission to continue charging the fee and suspend the wholesaler refund during an appeal of Fetsch’s decision.

Part of the purpose of the new stamps, which have been ordered but not delivered, is to prevent wholesalers who might not pay the fee during a long court appeal to later demand improper refunds, according to Hoyum.

The other purpose is to allow consumers to know whether the health-impact fee has been paid on cigarettes they buy, and perhaps to allow the state to start collecting the fee from smokers, rather than wholesalers.