(dissenting).
Because I would conclude that even under a rational basis standard of review the statute fails a Uniformity Clause challenge, I respectfully dissent.
I.
In my view, the Act must be viewed in light of the litigation that gave rise to it. The state’s 1994 lawsuit against the major cigarette manufacturers and their trade associations traces its origins to the formation of the Tobacco Institute and the Tobacco Industry Research Committee, later renamed the Council for Tobacco Research. In its 1994 lawsuit, the state alleged that, by forming these trade associations, the tobacco industry “undertook a special and continuing duty to protect the public health by representing that it would conduct and disclose unbiased and authenticated research on the health risks of cigarette smoking.” The state alleged that, instead of fulfilling that obligátion, the trade associations facilitated the deception of the American public about the health effects of smoking. According to the state’s complaint, there was a conspiracy among tobacco manufacturers to suppress independent research on the adverse health effects of smoking. The state also alleged that the industry knowingly and actively induced children and adolescents *314to smoke, in order to replace the approximately 400,000 individuals who die each year from smoking-related illnesses.
Thus, when the state sued the Majors in 1994, the state alleged that the defendants were responsible for health care costs incurred by the state as a result of the defendants’ wrongful conduct in deceptively advertising their cigarettes and misleading the public about known health risks of smoking. And, when the state settled with the Majors in 1998, the state released the Majors from all past and future tobacco-related claims the state had, or might have, against them, including “without limitation any future claims for reimbursement for health care costs allegedly associated with use of or exposure to [tjobacco [pjroducts.”
II.
Against this historical backdrop, I begin my analysis of the statute with appellants’ challenge under the Uniformity Clause. Like the majority, I apply the rational basis standard of review. See Scott v. Minneapolis Police Relief Ass’n, Inc., 615 N.W.2d 66, 74 (Minn.2000). Under that standard, the statute must satisfy three tests:
(1) the distinctions which separate those included within the classification from those excluded must not be manifestly arbitrary or fanciful but must be genuine and substantial, thereby providing a natural and reasonable basis to justify legislation adapted to peculiar conditions and needs; (2) the classification must be genuine or relevant to the purpose of the law, that is, there must be an evident connection between the distinctive needs peculiar to the class and the prescribed remedy; (3) the purpose of the statute must be one that the state can legitimately attempt to achieve.
Miller Brewing Co. v. State, 284 N.W.2d 353, 356 (Minn.1979). And, like the majority, I address the last test first, because the purpose of the statute is relevant to analysis of the first two tests.
I generally agree that the state has a legitimate interest in curbing the health care costs associated with cigarette smoking. The Minnesota Department of Health estimates that “[sjmoking costs Minnesota approximately $1.3 billion annually, the equivalent of approximately $3.36 for every pack of cigarettes sold, or $277 per Minnesota resident per year.” Minnesota Department of Health, Preventing and Reducing Tobacco Use at 1 (updated Dec. 9, 2003), http:// www.health.state.mn. us/divs/hpcd/tpc/background.html. Because smoking imposes substantial health care costs on the state, it is legitimate for the state to impose a fee on the products that generate those costs to recover some or all of those costs.1 Indeed, appellants do not appear to challenge the authority of the state to tax cigarettes — all cigarettes, that is — to recoup costs that result from then-use. I further agree that discouraging underage smoking is a legitimate state goal and that the state may pursue that goal by reducing the availability of low-cost cigarettes through the imposition of a fee on cigarettes. The problem is that, in the Act, the legislature stated that it was addressing these general purposes only with respect to nonsettlement cigarettes.
That brings into issue the other two rational basis factors. The first element of the rational basis test asks whether the distinctions between those required to pay the fee and those exempt from paying the *315fee are genuine and substantial, rather than arbitrary and fanciful. The court of appeals described the two classes created by the Act simply as settling manufacturers, on the one hand, “[who] are making annual payments,” and nonsettling manufacturers, on the other hand, “[who] are not.” Council of Indep. Tobacco Mfrs. of America v. State, 685 N.W.2d 467, 474 (Minn.App.2004). Similarly, the state argues that, absent the fees imposed by the Act, nonsettlement manufacturers are not required to pay for the health care costs created by their products, whereas the Majors have internalized those costs in the form of their required settlement payments. While true, these descriptions do not fully describe the distinctions between the two classes. It is more complete to say that the class exempt from the fee is cigarette manufacturers who were sued by the state for fraud and deceptive trade practices, whose unlawful actions were alleged to be the cause of increased health care expenditures incurred by the state, and whose payments to the state are based on their settlement of those allegations of unlawful conduct.2 In contrast, the class subject to the cigarette fee is manufacturers who were not sued by the state and as to whom no allegations of unlawful conduct have been either made or settled by the state.
Thus, because nonsettling manufacturers such as appellants were not sued for increasing health care costs by engaging in illegal conduct, they can charge less for cigarettes but must pay the fee, whereas settling manufacturers like the Majors are exempted from the fee because they are making payments under a settlement by which they avoided potential liability for increased health care costs caused by their alleged wrongful conduct. In essence, the legislature has attempted to treat those disparate situations similarly under the Act by imposing a fee on nonsettling manufacturers’ products that is intended to put their cigarettes in a financial posture comparable to those of settling manufacturers. In this sense, the question is whether the similarities between the two classes, rather than the distinctions, are genuine and substantial. Cf Jenness v. Fortson, 403 U.S. 431, 442, 91 S.Ct. 1970, 29 L.Ed.2d 554 (1971) (“Sometimes the grossest discrimination can lie in treating things that are different as though they were exactly alike ⅝ * *.”). I conclude they are not.
The contrast between this Act and the model qualifying statute created in the Master Settlement Agreement is illuminating. Six months after the Minnesota settlement agreement, 46 states and 6 U.S. territories also settled their lawsuits against the major tobacco manufacturers by entering into the “Master Settlement Agreement.” Like the Minnesota settlement, the Master Settlement Agreement requires the major tobacco manufacturers to make large settlement payments over time, to make additional annual payments in perpetuity, and to agree to certain restrictions on lobbying and advertising activities. In exchange, each participating state agreed to release the participating tobacco manufacturers from present and future claims.
The Master Settlement Agreement anticipates that, as the major tobacco manufacturers raise their prices to cover the costs of the national settlement, other tobacco manufacturers will gain market *316share. Therefore, the Master Settlement Agreement encourages all participating states to enact a “qualifying statute,” the purpose of which is to neutralize the competitive advantages that a nonparticipating tobacco manufacturer would otherwise enjoy as a result of the increased costs incurred by the participating tobacco manufacturers in the form of settlement ■ payments. A model qualifying statute was included as an exhibit to the Master Settlement Agreement. Subsection (f) of the Findings and Purposes section of the model qualifying statute provides that:
It would be contrary to the policy of the State if tobacco product manufacturers who determine not to enter into such a settlement could use a resulting cost advantage to derive large, short-term profits in the years before liability may arise without ensuring that the State will have an eventual source of recovery from them if they are proven to have acted culpably. It is thus in the interest of the State to require that such manufacturers establish a reserve fund to guarantee a source of compensation and to prevent such manufacturers from deriving large, short-term profits and then becoming judgment-proof before liability may arise.
All manufacturers of tobacco products are required under the model qualifying statute either to become a participating manufacturer (by agreeing to perform the obligations of the Master Settlement Agreement) or to place a specified amount of funds into a qualified escrow account each year. Those manufacturers that choose to deposit funds into an escrow account are entitled to receive the interest or other appreciation of those funds while they remain in the escrow account. The model qualifying statute provides three circumstances under which the funds in the escrow account may be released: (1) to pay a judgment or settlement won by the state against the manufacturer; (2) to reimburse the manufacturer for deposits in excess of what it would have paid had it been party to the Master Settlement Agreement; or (3) if there has been no judgment or settlement based on the manufacturer’s liability, the funds are returned to the manufacturer after 25 years. As noted, the Master Settlement Agreement encourages participating states to pass the model qualifying statute; if a state does not pass such a statute, its continuing settlement payments are reduced.
The goal of the model qualifying statute is similar to that of Minnesota’s Act: to put settling and nonsettling manufacturers in a comparable competitive position in pricing their cigarettes. But the payments required of nonsettling manufacturers under the model qualifying statute are premised on potential liability of those manufacturers for wrongdoing, and the escrowed funds are returned to the manufacturer if it is not found liable or does not settle a suit against it within 25 years. Indeed, because of this significant distinction between the Act and the model qualifying statute, the cases cited by the majority that uphold state-enacted model qualifying statutes provide no guidance on this issue.
Here, the classification seeks to use the cigarette fee as a means of compelling cigarette manufacturers that were not sued by the state to bear, one way or another, financial burdens comparable to those borne by manufacturers that were sued by the state. Put another way, the state is imposing a new fee on certain cigarette manufacturers’ products in order to reduce the differential between the sale price of cigarettes manufactured by settling manufacturers and the sale price of cigarettes manufactured by companies that have not settled with the state.
*317Allegations of wrongdoing underlie the entire tobacco lawsuit and its settlement. In contrast, the statute at hand alleges no wrongdoing against appellants but, nevertheless, seeks to compel them to make payments comparable to those made by the settling manufacturers. This statute exempts from taxation one segment of the industry that settled a lawsuit alleging illegal activity, while imposing a tax that is comparable to settlement payments upon a separate segment of the industry that was not sued by the state. Such a classification creates a distinction that is not a genuine and substantial basis for disparate treatment of settling and nonsettling manufacturers within the tobacco industry.
Despite the strong presumption in favor of the constitutionality of statutes and the low hurdle imposed by the rational basis standard, where that standard has not been met both the Supreme Court and this court have struck down taxes as violative of the Equal Protection and Uniformity Clauses. See Allegheny Pittsburgh Coal Co. v. County Commission, 488 U.S. 336, 109 S.Ct. 633, 102 L.Ed.2d 688 (1989) (recognizing that the imposition of differing tax burdens upon similarly situated parties must be reasonable); Nat’l Tea Co. v. State, 205 Minn. 443, 286 N.W. 360 (1939) (taxing “different persons” at “different rates” for the “privilege of doing the same act,” id. at 446, 286 N.W. at 361, violates the Uniformity Clause). The Act’s attempt to equate payments that emanate from settlement of litigation alleging illegal conduct with a fee that has no connection with wrongful conduct fails the rational basis test, and therefore I would hold that the Act violates the Uniformity Clause.
I therefore respectfully dissent.
. Like the majority, I use the terminology adopted by the statute, and take no position on whether the payments required by either the Act or the tobacco settlement are "fees” or “taxes.”
. The state agreed at oral argument that the state does not have the authority to compel tobacco manufacturers, through litigation, to make payments for health care costs. Indeed, each count of the complaint linked the liability of the Majors not to the health care costs incurred by the state as a result of tobacco use generally, but to increased health care costs caused by their illegal conduct.