Officials: MN Cigarette Tax Increase Could Fuel Black Market

Updated: 05/29/2013 8:04 AM By: Naomi Pescovitz

This legislative session, Minnesota lawmakers voted to raise taxes on cigarettes.

Starting July 1, the total tax in Minnesota will be $2.83 per pack, which is $1.60 higher than it is right now and higher than bordering states.

The tax will be 30 cents higher than in Wisconsin, $1.47 higher than in Iowa, and $2.39 higher than in South Dakota.

The goal of Minnesota's tax increase is to raise money for the general fund as backup for the state's share of the new Vikings stadium. But some law enforcement groups worry the higher tax could also fuel a black market for cigarettes.

"When a state raises its taxes, historically, it invites the black market into the economy because there is a profit to be made for folks to smuggle tobacco in to beat the higher tax rate," said Michael Feinberg, Special Agent in Charge for Homeland Security Investigations.

Smuggling organizations may then sell the cigarettes locally at a lower cost. While those groups might look to bordering states to make a buck, Feinberg says they could go even farther away.

"It's such a profit margin that folks could come all the way from Virginia or North Carolina where the tax rate is extremely low, and bring them here and make even a higher profit," Feinberg said.

The tax in North Carolina is 45 cents. In Virginia, tax is 30 cents per pack.

"Historically, a lot of times, organized criminal activity can take advantage of this, whether it's a drug trafficking organization, or an organization that is in the black market," Feinberg said.

The organizations may then use the money to fund their criminal groups, or to advance other crimes. In some cases, Feinberg says, the money has been used to fund terrorism. He urges consumers to be cautious of what they buy.

"If it's too good to be true, it probably, from a price perspective, it probably is, and there's probably a story behind that," Feinberg said.

Since 2010, the Minnesota Department of Revenue has criminally prosecuted six of these cases, 12 other cases are still active.

Those who advocated for the price increase say it will save lives.

According to "Raise it for Health," a Minnesota coalition aimed at reducing tobacco use, raising the price of cigarettes by $1.50 per pack will prevent 47,700 kids from becoming smokers, help 36,600 current smokers quit and save 27,700 Minnesotans from premature death.