Tobacco manufacturers underpaid Minnesota $10 million per year since 2019, motion claims

ST. PAUL, Minn. — A motion filed Wednesday by Minnesota Attorney General Keith Ellison claims tobacco manufacturers owe the state tens of millions of dollars.

A 1998 settlement restricted the largest tobacco manufacturers' marketing of tobacco products and required they make annual payments to Minnesota.

Ellison alleges that after a federal corporate tax rate change in 2018, Philip Morris misrepresented the content of the settlement to the third-party payment administrator.

The settlement says manufacturers' annual payment increases if their current after-tax profits are greater than in 1997. However, manufacturers argue they should get to recalculate their 1997 profits by applying modern corporate tax. In 2018, corporate tax rates were lowered from 35% to 21%.

The Minnesota Attorney General's Office says the settlement calls for using 1997 tax rates when calculating after-tax profits from 1997.

Ellison alleges that using the new rate instead of the 1997 rate resulted in underpayment of $10 million per year since 2019.

"It is particularly galling that, after these tobacco companies received a massive tax cut from President Trump, they turned around and used that windfall to justify underpaying the people of Minnesota," Ellison said. "Tobacco companies have demonstrated how little their commitments are worth, but as the lawyer for the people of Minnesota, I will do everything in my power to hold them to their word."

The motion asks the court to order manufacturers to pay more than $58 million. That price tag includes underpayments, interest on the underpayments, civil penalties and to prevent them from underpaying in the future.

In Mississippi and Texas, courts determined similar underpayments were improper and ordered reimbursement to the states.