Ellison Continues Pursuing Owed Tobacco Settlement Money

December 12, 2024

Minnesota Attorney General Keith Ellison announced on December 10 that two major tobacco manufacturers owe the state of Minnesota more than $58 million (plus interest) according to the historic 1998 tobacco industry settlement.  

Ellison’s office filed a motion to enforce the settlement against the manufacturers Philip Morris and RJ Reynolds in July 2024, asserting that they were wrongly using a 2018 change in the federal corporate tax rate to reduce their settlement payments to Minnesota.  

A court recently confirmed that Ellison’s office’s reading of the settlement was correct, and the tobacco manufacturers were underpaying Minnesota. The court ordered them to make full payments in the future and held that the parties must meet and confer on the appropriate amount of damages, interest, civil penalties, and attorney fees owed to Minnesota based on the manufacturers’ underpayment.  

After a months-long trial in 1998, Minnesota reached a $6.5 billion settlement with the largest tobacco manufacturers that restricted the manufacturers’ marketing of tobacco products and required annual payments to Minnesota. The payments to Minnesota are based, in part, on the size of the manufacturers’ after-tax profits in a given year. 

Ellison’s motion alleges that after the federal corporate tax rate changed 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. 

The dispute over payment amounts arose from a settlement provision that increases the size of the manufacturers’ annual payments if their current after-tax profits are greater than they were in 1997. The manufacturers re-calculated their 1997 profits by applying modern corporate tax rates for this comparison, even though the Minnesota settlement explicitly calls for the use of 1997 tax rates when calculating 1997 after-tax profits. Because President Trump and Congress lowered corporate tax rates from 35% to 21% in 2018, using the new, lower tax rate to calculate 1997 profits resulted in the manufacturers underpaying Minnesota by close to $10 million per year. 

The state settlements with the tobacco industry are widely recognized as landmark public health achievements. Since 1998, overall cigarette use has declined by more than 50% and cigarette use among high school students dropped from over 35% in 1997 to 1.7% in 2024.