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Mark Zdechlik, MPR News 90.3 FM, Published September 26 2013

Minnesota cigarette sales down, but tobacco revenue up

Cigarette sales in Minnesota have dropped since a $1.60 per pack tax increase took effect July 1, as tobacco sellers have feared.

Early Minnesota Department of Revenue numbers show cigarette stamp sales dropped more than 35 percent this July compared to July a year ago. Tobacco stamp sales for August were down 12 percent compared to the same month a year ago.

Although sales are down, because of the higher tax, the money the state collects from cigarette taxes has grown, according to the department.

“It’s very bad,” said 28-year-old Abdul Habit, who works at New Smokes in Maplewood. “It went down, like people [are] cutting back. People who used to buy a carton, now they buy five packs. People who used to buy a pack, now they just ask for single cigarette.”

Habit said his customers complain a lot about the tobacco tax increase.

“They cry a lot,” he said. “Nobody’s happy about it.”

Before cigarettes can be legally sold at shops like New Smokes, wholesalers apply tobacco stamps they buy from the state to each pack.

The stamps prove the state taxes have been paid.

The stamp machine at M. Amundson Cigar and Candy Co. in Minneapolis has not been as busy as it was before the tobacco tax increase, even though the company still sells more than $1 million in cigarettes each month.

“We’ve lost one-third of our sales,” company co-owner Ross Amundson said. “Stores that we sold to along the Wisconsin border have basically lost most of their volume and the larger cigarette stores around the cities here that we sell to, their volume in cigarettes is probably in half.”

Amundson said while cigarette sales are down sharply he’s selling more “roll-your-own” tobacco and more electronic cigarettes.

“I’m not going to just be laying people off,” he said. “We’ll figure it out somehow. We’ll bring on other products, we’ll bring on new stores — whatever we have to do to survive.”

Amundson said he’s heard cigarette sales are up dramatically in North Dakota where the state tax on a pack is just $.44 compared to Minnesota’s $2.83.

North Dakota Department of Revenue statistics show cigarette sales there were up a little more than 9 percent in August over the same month last year.

Minnesota officials predicted that increasing the cigarette tax by roughly 30 percent would lead to a roughly 30 percent reduction in cigarette consumption.

There’s no way to quantify whether that’s happening. But officials at ClearWay Minnesota, a group that offers free services to help people stop smoking, said interest in its programs is up sharply over last year.

“It’s pretty striking in terms of the number of web visits of people who are checking out Quitplan.com,” ClearWay spokesman Mike Sheldon said. “We’re talking about a 240 percent increase year-over-year. That’s a huge increase and certainly the tax is a big effect of that in making people think about quitting.”

Sheldon said he expects cold weather and New Year’s quit smoking resolutions will sustain that increased demand into the winter for ClearWay’s smoking cessation programs.

Although cigarette stamp sales to Minnesota wholesalers dropped significantly, tax revenue the state collects from cigarettes is up more than 56 percent for July and August compared to the same two months last year.

Tax collections on other-than-cigarette tobacco products such as ‘roll-your-own’ tobacco also are up.

Still, while tobacco tax receipts are up sharply, the initial numbers show tax revenue is $7 million below projections for July and August.