The great Minnesota tobacco exodus

posted at 8:01 am on August 27, 2013 by Jazz Shaw

It’s been almost two months since Ed’s home state of Minnesota decided to fatten their coffers by adding an additional $1.50 per pack sin tax on cigarettes. This may not have had a big impact on Ed, as a non-smoker, but there are still plenty of folks in his state who indulge. Did it cut down on smoking? Maybe, at least for some people. And good for them! But for others – particularly those who live near the border with North Dakota – a different type of temptation lurked, and in many cases it was too much to resist.

If you’re a smoker living in Minnesota near the North Dakota border, you’ve undoubtedly discovered that you can save a lot by driving a little. Since Minnesota’s cigarette tax jumped by around $1.50 a pack on July 1st, tobacco wholesalers have noticed a dramatic drop in sales.

Wholesalers like Henry Knoll have noticed a dramatic drop in sales. Knoll is president of Frank McKone Cigar Co. in Fargo. He distributes to retailers within about 200 miles of Fargo-Moorhead.”Petro Serve USA” CEO Kent Satrang says the shift to North Dakota was almost immediate. Satrang says the convenience store industry lobbied the legislature for a smaller tax increase.

The tax did bring in a brief, short-term bump in tax revenue, much of which will apparently pay for a new stadium for the Vikings, but that was only until shoppers figured out the tax game that was afoot. After that they were heading for their more tax friendly neighbors in the Roughrider State.

One of the most startling things about this now all-too-common phenomenon is the way that it distorts the normal ebb and flow of competitive markets. There was a time, back in the day, when businesses selling a given product would engage in competitive pricing competitions to attract customers, much to the benefit and delight of shoppers. The “gas wars‘ of the 1960s were one of the best examples. But in the modern era of sin taxes – including both tobacco and gas – such competition is pretty much a thing of the past. If you are a convenience store owner in Minnesota near the border of North Dakota, you can’t lower your prices, even temporarily, to bring your customers back. When the profit margin on a pack of smokes has already plummeted, you simply can’t slash your price at the register further to make up for an unfair advantage provided by your own state government.

The result, as always, is that your customers cross the state lines, your business profits sag, government revenues fail miserably to meet expectations and the neighboring, more tax friendly state reaps the benefits. Congratulations, Minnesota. You’re still solving problems the old fashioned way, aren’t you?


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Al Franken couldn’t be reached for comment.

TimBuk3 on August 27, 2013 at 8:12 AM

If you’re a smoker living in Minnesota near the North Dakota border, you’ve undoubtedly discovered that you can save a lot by driving a little.

Same thing happened in MI when they decided to stick it to smokers for “public health” reasons.

Happy Nomad on August 27, 2013 at 8:15 AM

Al Franken couldn’t be reached for comment.

TimBuk3 on August 27, 2013 at 8:12 AM

Al Franken doesn’t talk to the media. I guess he’s figured out that when you are a fat and stupid entertainer who stole an election, the best thing to do is keep your mouth shut and let the lizard people do all your talking.

Happy Nomad on August 27, 2013 at 8:17 AM

When I used to live in Connecticut and smoked, frequent runs to New Hampshire occurred. Anytime someone said they were going there, people would give them money for cigarette to bring back.

Johnnyreb on August 27, 2013 at 8:24 AM

One of the most startling things about this now all-too-common phenomenon is the way that it distorts the normal ebb and flow of competitive markets

In north Carolina we have state min laws where you can’t sell say gasoline for less then what the state says.

So goodbye gasoline wars. nowadays pretty much every gasoline station sells for the same amount. It’s insane that the government tells you how much you can sell something for.

unseen on August 27, 2013 at 8:29 AM

From the beginning, the only word I’ve had for this case was “sad.”

factsonlypls on August 27, 2013 at 8:30 AM

When I used to live in Connecticut and smoked, frequent runs to New Hampshire occurred. Anytime someone said they were going there, people would give them money for cigarette to bring back.

Johnnyreb on August 27, 2013 at 8:24 AM

NH must really like the states that surround it. I know that folks from MA go on liquor runs because booze are cheaper. The Boston Marathon bombers got fireworks there. And you’re saying cigs are cheaper there as well. Second look at legalized prostitution and the new tourism motto could be What happens in the Granite State stays in the Granite State.

Happy Nomad on August 27, 2013 at 8:31 AM

those that believe in sin taxes should think long and hard. Once the sin that is taxed is driven out of business where do you think the gov is going to go for additional tax?

unseen on August 27, 2013 at 8:31 AM

Same thing with liquor. There’s a store just north of the Massachusetts-New Hampshire border that has an awful lot of Mass. license plates in the parking lot.

And really, do you want to fund government on a product that is harmful to citizens?

rbj on August 27, 2013 at 8:33 AM

New York has the highest tobacco taxes in the country, and in NYC they’re even higher. As a result, tax collections have plummeted as smokers buy out of state, on the internet, and at Indian reservations.

The high taxes have been a boon for smugglers and a profit center for organized crime, as it’s pretty easy to drive a truck to a Virginia wholesaler and load it up with cigarettes. 30 cents a pack vs. $4.35 ($5.85 in NYC). Do the math. The NYPD and State police now have cigarette smuggling units, and it’s conservatively estimated that 60% of cigarettes sold in NY are untaxed. That doesn’t count the amount purchased elsewhere and consumed in NY.

Minnesota can expect similar results from their economic illiteracy.

RadClown on August 27, 2013 at 8:37 AM

Ask the Indian Reservations in NY just how much of a boon the Draconian tax rates in NY have been to them…ya can`t fix stupid

NY Conservative on August 27, 2013 at 8:37 AM

The Minnesota pols will fix it.They will just tax something else.

docflash on August 27, 2013 at 8:38 AM

“When more of the people’s sustenance is exacted through the form of taxation than is necessary to meet the just obligations of government and expenses of its economical administration, such exaction becomes ruthless extortion and a violation of the fundamental principles of a free government.”
—USA President Grover Cleveland, Second Annual Message (December, 1886)

unseen on August 27, 2013 at 8:39 AM

There was a time, back in the day, when businesses selling a given product would engage in competitive pricing competitions to attract customers, much to the benefit and delight of shoppers.

.
WTH? Do you have an aversion to the term “price war?”

ExpressoBold on August 27, 2013 at 8:40 AM

“An economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or enough profits.”
—USA President John F. Kennedy, New York, (December 14, 1962)

unseen on August 27, 2013 at 8:40 AM

WTH? Do you have an aversion to the term “price war?”

ExpressoBold on August 27, 2013 at 8:40 AM

lol good catch but then again Jazz wrote it.

unseen on August 27, 2013 at 8:42 AM

“government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
—USA President Ronald Wilson Reagan

look for NY and MN to start subsidizing their tobacco industries soon. I can see the Convenience Store Relief act being passed in the near future.

unseen on August 27, 2013 at 8:44 AM

Ask the Indian Reservations in NY just how much of a boon the Draconian tax rates in NY have been to them…ya can`t fix stupid

NY Conservative on August 27, 2013 at 8:37 AM

true but you can vote the stupid out of office.

unseen on August 27, 2013 at 8:45 AM

It’s insane that the government tells you how much you can sell something for.

unseen on August 27, 2013 at 8:29 AM

“Price floors and ceilings”. Price controls don’t work.

ddrintn on August 27, 2013 at 8:45 AM

In MA they raised the taxes as a way of recovering some of the costs from the people with the EBT cards. They don’t notice when prices go up.

Fleuries on August 27, 2013 at 8:46 AM

With some politicians, ya can’t fix STUPID!

GarandFan on August 27, 2013 at 8:47 AM

in the same vain:

L.A. Mayor Declares State of ‘Emergency’ As Movie, TV Production Flees Hollywood

Hollywood’s homegrown industry is being ceded to other states and countries whose favorable tax credits are increasingly luring away movie and television production at an alarming rate. As competition both in the U.S. and abroad continues to grow, the state’s market share and longtime stronghold on production jobs and spending are fast evaporating.

unseen on August 27, 2013 at 8:48 AM

Price floors and ceilings”. Price controls don’t work.

ddrintn on August 27, 2013 at 8:45 AM

What I find really funny is that after a major storm the anti-price gouging laws kick in then people wonder why there is no goods then they all blame the free market and capitalism instead of the price control laws.

unseen on August 27, 2013 at 8:50 AM

—USA President Grover Cleveland, Second Annual Message (December, 1886)

unseen on August 27, 2013 at 8:39 AM

.
What I noticed most about this quote is that it was said more than 25 years before the ratification of the 16th amendment. Even then taxes, indirect taxes, were an onerous burden imposed by a voracious legislature.

ExpressoBold on August 27, 2013 at 8:57 AM

What I noticed most about this quote is that it was said more than 25 years before the ratification of the 16th amendment. Even then taxes, indirect taxes, were an onerous burden imposed by a voracious legislature.

ExpressoBold on August 27, 2013 at 8:57 AM

“Government is not reason. It is not eloquence. Government is force; like fire it is a dangerous servant — and a fearful master.”
—George Washington, 1797

those extremists founding fathers understood that taxes were simply the means the government used to direct the force of government onto its citizens.

unseen on August 27, 2013 at 9:00 AM

those that believe in sin taxes should think

unseen on August 27, 2013 at 8:31 AM

HAhahahahahhahaaha…Thanks, you made my day :-)

Oldnuke on August 27, 2013 at 9:02 AM

another of those extremists founding fathers :

“A wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”
—Thomas Jefferson, First Inaugural Address, 1801

I’m with Washington, I’m with Jefferson. screw these New Deal socialist politicians like FDr and Obama

unseen on August 27, 2013 at 9:03 AM

We also bought our fireworks in South Dakota. This is not new for Minnesotans.

Hat Trick on August 27, 2013 at 9:10 AM

When Oklahoma became a state, because of the high indian and baptist populations, it was in the constitution that it would be a dry state. This was really a good deal. Not only was the liquor far cheaper when brought in by bootleggers, they delivered to your door. You know those trench coats depicted in cartoons with a street shill shill opening his coat to show a hundred cheap watches/ Out bootleggers had them with booze. They never handed you booze; you just reached over and took what you wanted at your own front door. Ya know something? The indians still got drunk and the baptists could buy booze without their neighbors knowing it. The state didn’t need the money because we had oil.

Old Country Boy on August 27, 2013 at 9:10 AM

true but you can vote the stupid out of office.

unseen on August 27, 2013 at 8:45 AM

not in NY, the democrats own the ballot box

RonK on August 27, 2013 at 9:11 AM

You’d think they would have learned their lesson from prohibition, heck, go back to the .03 tax on tea. We’ll always try to find the path of least resistance.

Kissmygrits on August 27, 2013 at 9:13 AM

Still these legislators remain myopic in their thinking and actions. There appears to be no hope for them. They are stupid and do not want to solve the problem. Any problem. They always come up with the same dumb solution. Over tax and over burden. Of course this sets the path to least resistance. We keep voting for idiots.

BetseyRoss on August 27, 2013 at 9:22 AM

I would imagine that MN residents can also buy their tobacco at their nearest Indian casino or reservation without the high taxes.

Dasher on August 27, 2013 at 9:25 AM

It’s not just the cigarette revenue being lost either.

If a person is going to cross the state border to buy cigs, they’ll likely fill up the tank and grab a soda there too.

In Minnesota the Democrat Party calls itself the DFL – Democrat Farmer-Labor.

Play with those three letters any way you like. I’ll start: Dumb F***ing Leftists.

IronDioPriest on August 27, 2013 at 9:29 AM

The tax did bring in a brief, short-term bump in tax revenue, much of which will apparently pay for a new stadium for the Vikings, but that was only until shoppers figured out the tax game that was afoot.

So glad we’re milking the taxpayers so billionaires can have a shiny new toy.

changer1701 on August 27, 2013 at 9:29 AM

But in the modern era of sin taxes – including both tobacco and gas – such competition is pretty much a thing of the past.

For the further “protection” of its consumers, Minnesota has legal minimum prices for gas and cigarettes. Retailers have to sell gas at a minimum of 8 cents over wholesale. And there are minimum mark-ups on cigarettes for both wholesalers and retailers. I believe they are 4.5% and 8% respectively. Can’t let that nasty free market be putting something over on Minnesotans with those evil low prices.

Brutus on August 27, 2013 at 9:46 AM

The big bump in collection was actually the retroactive collection of the tax on existing inventories held by retailers and wholesalers on June 30. The state actually made retailers “pre-pay” the tax on any inventories they held at the time of imposition. Some of those retailers and wholesalers may not have sold all that inventory yet.

A large percentage of Minnesota’s population lives within a half hour of a state border. The Twin Cities metro area is very near Wisconsin (most within 30 minutes). Duluth, Moorhead and East Grand Forks are actually on the state border.

MTinMN on August 27, 2013 at 10:12 AM

those that believe in sin taxes should think long and hard. Once the sin that is taxed is driven out of business where do you think the gov is going to go for additional tax?

unseen on August 27, 2013 at 8:31 AM

What, like they would start taxing us for not doing something….or make us buy something that we don’t need – crazy talk!

rgranger on August 27, 2013 at 10:16 AM

Jazz, I wrote about the same story in this post. I wrote this post to highlight how states that raised their cigarette tax rates lost money. In each instance that cigarette tax rates were increased, that state actually collected less in revenue after the increase than the year before.

INTERESTING SIDENOTE: Estimates are that 19% of all cigarettes in Minnesota were smuggled in prior to the tax increase. With the $1.60 per pack increase in place, the newest estimates are that smuggled cigarettes will jump to 30% of all cigarettes smoked in Minnesota.

LFRGary on August 27, 2013 at 11:14 AM

Dayton and the dems in Minnesota suck…and by the way you morons that voted for this, who refuse to vote smart because gramma and grandpa voted for the dems and so will you, wake up because you have caused this. Get off of your lazy butts and do the research. Do you honestly think Tom Emmer could have ever been as bad as marky moneybags Dayton and his soros like ex wife and democrat majorities in the legislature. Bunch of bozos.

crosshugger on August 27, 2013 at 11:25 AM

INTERESTING SIDENOTE: Estimates are that 19% of all cigarettes in Minnesota were smuggled in prior to the tax increase. With the $1.60 per pack increase in place, the newest estimates are that smuggled cigarettes will jump to 30% of all cigarettes smoked in Minnesota.

LFRGary on August 27, 2013 at 11:14 AM

If I were writing a Conspiracy-Theory-Novel, the legislators pushing the tax would be in league with the smugglers, since the decrease in tax revenue and the destruction of local businesses would not affect them in the slightest.

AesopFan on August 27, 2013 at 11:28 AM

If I were writing a Conspiracy-Theory-Novel, the legislators pushing the tax would be in league with the smugglers, since the decrease in tax revenue and the destruction of local businesses would not affect them in the slightest.

AesopFan on August 27, 2013 at 11:28 AM

You bet your sweet a$$ the lawmakers who advocated and voted for the tax are in on the smuggling. They are nothing but two-bit hustlers, and it is time they get treated like it.

Murphy9 on August 27, 2013 at 11:56 AM

You might be interested in the story on the other side of the State.

For years Wisconsin folks came over the river to buy tobacco products to save $0.50 a pack. The shops on the Minnesota side of the river are packing up and moving ever so slightly east where, suddenly, the Wisconsin taxes seem more reasonable.

Sinner on August 27, 2013 at 12:36 PM

Dayam! I need to set up some 7-11s near the border and sell cigs. Great business opportunity. I love the law of unintended consequences.

neyney on August 27, 2013 at 12:40 PM

I actually live in a ‘more-or-less dry county (individual cities can vote to opt out). The net result is that the county roads are not as nice and there are very few good restaurants. I, and anybody else that wants to, buy our liquor the next county over. There, they have better local roads and some pretty good restaurants. This all keeps the preachers happy, I guess.

trigon on August 27, 2013 at 12:47 PM

You’re still solving problems the old fashioned way, aren’t you?

NAH!!!

They are solving “problems” the DEMOCRAT way.

Gunlock Bill on August 27, 2013 at 1:03 PM

Screw them all. Buy a cigarette machine and roll your own.

timberline on August 27, 2013 at 2:43 PM

Why couldn’t smokers class action some type of “Bill of attainder” argument against these states gouging them- and only them- with extraordinar,unwarranted Taxes. Do these states gouge the Cigar smokers and Medical “wink, wink” pot smokers on a similar level as well?
.
What stops the commies from passing a “Big Mac” tax if they so choose? (Chick-a-filay would be Luvin that) A few years back, when congress wanted to pass a “Bonus Tax” against the AIG people who were being rewarded for being bailed out- and were more or less shot down under the “Attainder” precept. A tax that would discriminate against a select group of people is not constitutional.
Doesn’t a “smokers” Tax target a certain group of people as well- vs. say the general public with a Gasoline Tax—??
.
What if Mississippi wanted to put a consumption Tax on say…Fried Chicken? Thats not healthy food – is it ? Do you think anyone would have a problem with a 20% Tax on that ? Oh the humanity……
Any class action peeps out there?

FlaMurph on August 27, 2013 at 8:23 PM