ST. PAUL, Minnesota. — A motion filed Wednesday by Minnesota Attorney General Keith Ellison alleges that tobacco companies owe the state tens of millions of dollars.
A 1998 settlement restricted the marketing of tobacco products by the largest tobacco companies and required them to make annual payments to Minnesota.
Ellison alleges that Philip Morris misrepresented the contents of the settlement to its third-party payment administrator following a 2018 change in the federal corporate tax rate.
The settlement states that manufacturers’ annual payments will increase if their current after-tax profits are higher than they were in 1997. However, manufacturers argue that they should be able to recalculate their 1997 profits by applying modern corporate taxes. In 2018, corporate tax rates were reduced from 35% to 21%.
According to the Minnesota Attorney General’s Office, the settlement involves using 1997 tax rates in calculating 1997 net income.
Ellison alleges that using the new rate instead of the 1997 rate has resulted in an underpayment of $10 million per year since 2019.
“It is particularly painful that after these tobacco companies received a huge tax cut from President Trump, they turned around and used that windfall to justify underpaying the people of Minnesota,” Ellison said. “Tobacco companies have shown how little their promises are worth, but as an advocate for the people of Minnesota, I will do everything I can 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 ruled that similar underpayments were wrong and ordered repayment to the states.
