There’s a persistent myth growing this summer: that the new $1.60 per pack cigarette tax that went into effect July 1 is going — at least in part — to pay for the new Vikings stadium.
Here’s a small sample of the Twitterati perspective:
This new cigarette tax to fund a Vikings stadium is complete bullshit! If the money went towards healthcare I would understand.
— Dan Tilson (@Dantology65) July 6, 2013
— Zac Spohn (@zjwrestlin02) July 5, 2013
Vikings stadium is taxing cigarettes to the point where several people I know are angry & quitting. Which is kind of awesome.
— JenE4rmTheBlock (@HeyWhiteGirl_) July 5, 2013
VIKINGS DON’T NEED A NEW STADIUM. LOWER THE F—–G CIGARETTE PRICES
— Ace (@toucheAndrew) July 14, 2013
Cigarette taxes did go up. And there is a tenuous connection to the new home for the Vikings. But smokers paying the mortgage on the Vikings stadium?
“That’s not true,” says state revenue commissioner Myron Frans.
In fact, there might never be any cigarette tax money going into the Vikings stadium if the financing works as planned.
So what gives?
Here’s how it works. Last year, the state approved an expansion of gambling to pay its $348 million share of the new Vikings stadium. Gambling taxes were going to pay back stadium bonds. Trouble is, electronic pulltabs are coming in WAY below projections.
So the state had to come up with a fix, before it sold those bonds this year. The Dayton administration opted for a two-part solution.
The biggest part of that was a “unitary tax” that would apply regular Minnesota corporate taxes to more out-of-state companies than pay corporate taxes now. The Dayton administration said closing what it called a loophole would raise about $20 million a year. That and about $10 million in taxes on the electronic pulltabs that DID get sold, should be enough to cover the debt payments on the state’s stadium bonds, if the number crunchers are right.
That’s the first part.
The second part is where the cigarettes come in. The new tobacco taxes took effect on July 1,but sellers and suppliers already had lots of unsold inventory in stock, and those cigaretts had been charged the old, smaller tax. That left sellers the opportunity to either offer smokes at the new price and pocket the tax difference, or start a “smoke rush” and sell cigarettes at a discount even after the new, additional $1.60 tax took effect. So state tax authorities instituted a one-time “floor tax” that made the cigarette taxes retroactive to what suppliers literally had on their warehouse or store floors.
Frans, the revenue commissioner, says the state expects to collect about $30.5 million for that floor tax and will earmark $26.5 million, just one time to the Vikings stadium project. After that one-time “catch up” tax, cigarette taxes will be going where they usually do — to the state and not the stadium.
And there’s more. That one-time cigarette tax is only going to a “reserve fund.” It’s a rainy-day account, of sorts, that’s intended to assure bond buyers that their money isn’t at risk. If the state’s calculations are correct, that money will never need to be spent on the stadium, because the other taxes will pay the debt service.
“We don’t think we’ll need them,” Frans says of those floor tax dollars that went into the reserve fund.
They’re in the state’s bank account just in case there are any funding problems over the 30-year life of the bonds. That $26.5 million is also a pittance compared to the $348 million in principal and tens of millions more in interest and financing costs the rest of the state will be paying for the stadium.
So smokers AREN’T paying the mortgage on the Vikings stadium — their cigarette taxes are just easier to understand than the unitary tax.