Haze hangs over tobacco charge ruling

ST. PAUL (AP) - State officials, tobacco shop owners and smokers assessed the fallout Wednesday from a judge's decision invalidating a 75-cent-per-pack cigarette fee.

ST. PAUL (AP) - State officials, tobacco shop owners and smokers assessed the fallout Wednesday from a judge's decision invalidating a 75-cent-per-pack cigarette fee.

A day earlier, Ramsey County Judge Michael Fetsch threw out the 4 1/2-month-old surcharge on tobacco products, saying it violated a 1998 state settlement with the tobacco industry. But a haze hangs over the ruling.

Among the unanswered questions are:

*Will smokers get an immediate price break on their cigarettes?

*Will the so-called health impact fee be imposed while a planned appeal moves forward?


*How will the ruling fare on appeal, if a higher court takes the case?

Attorney General Mike Hatch was still combing through the ruling and planned to meet Wednesday with the attorneys who argued for the fee. Hatch said he believes the state will seek a court order to continue the fee while an appeal is under way.

At Butts Smoke Shop in Duluth, owner Steve Belcher was taking a wait-and-see approach.

"It's going to be appealed. It's going to be drawn out," Belcher predicted. "I think it'll come back in another form."

For that reason, Belcher wasn't dropping his prices just yet to reflect the ruling.

Neither was Dwayne Dugan, who owns Hill Top Smoke Shop in Mankato. Because the state law enacted the fee at the wholesale level, the higher cost already hit the cigarette and cigar stock in his store.

Dugan wasn't quite rejoicing in the ruling.

"It's too late for me," he said. "I'm closing the door in January."


Dugan said business dropped 25 to 30 percent after the fee took effect Aug. 1. In a business with a tiny profit margin, he said the numbers no longer worked out. After seven years, he's trading his tobacco trade for work in the real estate field.

If the ruling stands, the state faces the loss of $400 million over two years. Since August, the fee generated $65 million, according to the Department of Revenue. On average, officials were expecting it to bring in $16 million to $18 million a month.

The judge ordered the state to give refunds or credits to the suing tobacco companies and distributors for fee money it has already collected. The process for sending the money back is up in the air, and it's unclear whether smokers who saw higher costs at the retail counter would share in the rebate.

Hatch said any refunds would to go the companies, not individual smokers.

"You'll never see the consumer win in one of these cases," he said.

Lawmakers resorted to the fee last summer to end a budget stalemate. Gov. Tim Pawlenty, who signed a no-new-taxes pledge in his 2002 campaign, labeled a fee. Others regarded it as a tax.

The wording appeared to be crucial to the outcome in court.

Fetsch agreed with tobacco company arguments that the state was barred from seeking to recover health care costs attributed to smoking under a multibillion dollar settlement in 1998.


To date, the companies have paid $2.25 billion, and another $1 billion is due to come in over the next six years.

"The state is bound, like any other party, to the contracts to which it freely and knowingly enters, and from which it benefits," Fetsch wrote.

Pawlenty maintains that the Legislature isn't bound by a prior agreement reached by the state attorney general years ago. He faulted Fetsch for "ignoring the principle of separation of powers," the governor said in reacting to the ruling.

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