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Utah resolves dispute with Big Tobacco to keep settlement money flowing

SALT LAKE CITY — Utah has resolved a dispute with Big Tobacco over a 20-year-old settlement agreement to ensure millions of dollars that were at risk continue to flow into the state.

Philip Morris USA, R.J. Reynolds and other major tobacco companies challenged Utah’s enforcement of the 1998 Master Settlement Agreement, threatening the annual payments that have totaled more than $634 million since 2000.

Under the revised agreement, the state will receive an immediate payout of $60 million and $240 million over the next 10 years. The resolution ends two years of litigation.

The new agreement gives Utah until 2022 to restructure its compliance and enforcement procedures to meet the settlement obligations without further arbitration challenges, according to Utah Attorney General Sean Reyes.

Big Tobacco alleged deficiencies in how the state enforced tax laws on cigarette manufacturers that did not sign the Master Settlement Agreement.

“In accordance with the commitments made there, we will enhance tobacco tax enforcement of internet sales, contraband sales of tobacco products, and tobacco products sold on reservations to non-Native American customers," said John Valentine, state tax commissioner.

Utah is among 46 states that sued Philip Morris USA, R.J. Reynolds, Brown & Williamson, and Lorillard to recover Medicaid and other costs for treating sick and dying smokers in the 1990s.

In a settlement reached in 1998, the states agreed to give up future legal claims based on cigarette companies' actions in exchange for annual payments to compensate for taxpayer dollars spent on health care costs associated with smoking.

Utah has received about $33 million a year on average, including a high of $45.2 million in 2009.

State law requires some of the money to go to tobacco, alcohol and drug prevention programs, drug courts, the federal Children's Health Insurance Program and until last year the Huntsman Cancer Institute. Some also goes to the State Tax Commission and the attorney general's office to enforce the Master Settlement Agreement.

Lawmakers have also diverted money to other state agencies, the general fund and the state endowment fund.