State to appeal tobacco fee ruling

12/22/2005

Patricia Lopez,
Star Tribune
Last update: December 21, 2005 at 11:12 PM

Saying that a district judge’s decision to strike down Minnesota’s tobacco Health Impact Fee “defies common sense,” Gov. Tim Pawlenty on Wednesday ordered the attorney general’s office to file immediate appeals with the state Court of Appeals and Supreme Court.

By late Wednesday afternoon, the Attorney General’s office had filed for a stay of Ramsey County Judge Michael Fetsch’s Tuesday ruling that the fee is illegal and unconstitutional.

If granted, the stay would allow the state to continue collecting the 75-cents-per-pack fee until an appeal is decided. A hearing has been scheduled for Jan. 18, but requests for a stay also will be filed with the appeals court, and it may take up the case before then, said Leslie Sandberg, spokeswoman for Attorney General Mike Hatch. For now, smokers appear to still be on the hook for the extra charge despite the ruling.

Chief Deputy Attorney General Kris Eiden said Wednesday that the fee collections should stop immediately. “All the attorneys here are on the same page,” Eiden said. “The statute has been declared unconstitutional. It cannot be enforced unless we get a stay.”

But Revenue Department officials say they are advising distributors to continue charging the fee on tobacco products.

That means smokers will continue to pay money they may never get back, no matter the outcome of the case. Although the judge has ordered the state to rebate collected funds to distributors, that money may never get back to individuals.

And the amounts are hefty.

The state has raked in more than $101 million since it started collecting the fee in August.

Pawlenty has said that if the state has to repay that money, he would prefer it get returned to the consumers who paid it. But that may be problematic: The state prohibits distributors from offering any rebates or refunds.

The ruling appeared to create some chaos in the administration Wednesday, as officials tried to sort out its meaning and whether the state should seek a way to keep the higher price on cigarettes.

Opposing sides weigh in

Meanwhile, anti-tobacco forces quickly marshalled at the Capitol, urging leaders to maintain the higher price, whether by fee or a general increase in the excise tax on tobacco products.

Legislative leaders are already facing counter-pressures from smokers, some of whom are incensed at having had to pay since August a fee that now is declared illegal.

“I went to Freda’s Cafe in Willmar this morning and, first thing, a smoker puffs in my face and says to me, ‘It’s illegal. I want my money back,’ “ said Senate Majority Leader Dean Johnson, DFL-Willmar.

Tobacco companies filed suit against the state earlier this year, charging that the fee was a violation of the $6.1 billion 1998 settlement that was to have absolved the industry of liability for future smoking-related health costs.

Last summer, to break a legislative logjam on the budget, Pawlenty proposed a health impact fee that imposed the per-pack charge on cigarettes and a price-based increase on cigars and other tobacco products.

The state expects to collect more than $400 million over the next two years from the fee. Pawlenty said that even if the state loses the case, the amount “is less than 1 percent of our budget. It’s manageable.”

What concerns him more, he said, is the court’s apparent disregard for separation of powers.

Allowing a settlement that was to have protected the tobacco industry against future legal claims to instead bind the Legislature’s ability to act, he said, would not be wise.

“Think of the mischief ... if this ruling were to stand,” he said. “It would put the attorney general in the position of running the democracy.”

Mike Ciresi, the lead attorney opposing the tobacco firms in the 1998 settlement, said he also thinks the judge may have interpreted the settlement agreement a bit generously.

“I do not believe the [fee] constitutes a claim as was intended by the settlement agreement,” Ciresi said. “The problem was in the folly of the governor and Legislature, to try to make a duck look like a pig, meaning a tax look like a fee.” Had the Legislature stuck with straightforward language—a tax—he said, its authority would have remained unquestioned.

The state’s motion for an appeal is expected later this week.