ST PAUL, Minn. — Minnesota Attorney General Keith Ellison has filed a motion seeking to recover $58 million in alleged underpayments from America's tobacco manufacturers, accusing them of violating terms of the historic 1998 settlement with the state.
The motion, filed in Ramsey County District Court, seeks not only repayment of the $58 million but also interest, civil penalties and the assurance that Big Tobacco will not underpay Minnesota in the future.
After a months-long trial in 1998, Minnesota settled with the tobacco industry's largest companies restricting marketing of tobacco products and requiring annual payments to the state based, in part, on the size of their after-tax profits in a given year.
Ellison's office said the dispute over payment amounts arises from a provision included in the settlement that increases the size of tobacco manufacturers' annual payments if "current" after-tax profits are greater than they were in 1997. The tobacco companies involved in the settlement argued they should be able to re-calculate their 1997 profits by applying modern corporate tax rates.
Ellison's office maintained that the settlement explicitly calls for the use of 1997 tax rates when calculating after-tax profits.
The motion the AG filed alleges that after the Trump administration lowered federal corporate tax rates in 2018, Philip Morris misrepresented the content of the Minnesota settlement to the third-party payment administrator, PricewaterhouseCoopers, in a way that incorrectly reduced the manufacturers’ payments to Minnesota by nearly $10 million per year.
“After lying to the American people about the dangers of their products, it is unfortunately not surprising that the largest tobacco manufacturers have also tried to avoid the commitments they made when settling with Minnesota,” said Ellison in a released statement. “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."
The AG's office said tobacco manufacturers have faced similar challenges over underpayments in both Mississippi and Texas, where courts have ruled the underpayments were improper and ordered Big Tobacco to reimburse the states.
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