February 1, 2012 was a day in tobacco tax litigation that should go down
as one of the greatest victories in tobacco tax history. On appeal from
the Florida Department of Business and Professional Regulation (“DBPR”),
Judge Black for the District Court of Appeal of Florida – Second
District (“DCA”) stated that the term “wholesale sales
price” is based only on the manufacturer’s price of the tobacco
product and not the domestic distributor’s invoice price. This seemingly
simple statement has now become the source of very successful tobacco
tax distributor litigation in Florida and throughout the country.
Micjo, Inc. v. DBPR has set the tone for all future tobacco tax litigation.
In a case of first impression, the DCA was called upon to interpret the
phrase “wholesale sales price” within the Florida statutes
on Other Tobacco Products (“OTP”).
See section 210.25(13), Florida Statutes (2009). The facts of the case were
far from complicated as Micjo was a tobacco tax distributor that imported
and distributed hookah tobacco. Since Micjo was a Florida distributor,
it was subject to Florida’s OTP tax. Micjo received its tobacco
from domestic distributors and only paid taxes on the actual unit price
of the tobacco and not the total invoice price. This is particularly relevant
and ultimately the crux of the entire case, because the total invoice
price would have included, among other things, federal excise tax and
shipping costs. As such, an audit conducted by DBPR concluded that Micjo
underpaid Florida OTP by roughly $48,000. Micjo then requested a formal
administrative hearing on the calculation of tax.
Not so shockingly, DBPR concluded in its own hearing that it was correct
in its audit result. The recommended order stated that “the [wholesale
sales price] includes delivery charges and the federal excise taxes. It
is all components on the invoice that make up the cost to get the product
to the purchaser[;] therefore, all components are subject to be taxed.”
Clearly, a different result would have cost DBPR potentially millions
of dollars in future tax revenue, so why would it have concluded any other
result. After having its exceptions to the recommended order be denied,
Micjo filed an appeal for the record books.
The true fundamental disagreement came down to the “taxable components
of the wholesale sales price.” The question was whether the term
wholesale sales price refers to only the unit price of tobacco without
additional federal excise tax and shipping costs or whether the term included
any additional costs passed on to the distributor. Essentially, with an
85% OTP tax in Florida, the decision would have a large effect on tobacco
tax distributor’s tax liability.
Looking at the statute itself, wholesale sales price is defined as “the
established price for which a manufacturer sells a tobacco product to
a distributor, exclusive of any diminution by volume or other discounts.”
Section 210.25(13), Florida Statutes. As quickly as DBPR raised their
argument that the term includes all costs, the DCA denied the argument
since the meaning of the statute and legislative language of the term
was so clear.
Unquestionably, wholesale sales price is based only on the manufacturer’s
price of the tobacco product. When given its plain meaning, as the court
will always defer to first, the term “manufacturer” is of
great significance to the wholesale sales price definition. “Manufacturer”
is defined “as someone who “manufactures and sells tobacco
products.” Section 210.25(5), Florida Statutes. What is missing
from the definition? Domestic distributors. The DCA accurately pointed
out that “distributers” have been awarded its own definition
in the Florida Statutes. Taking all factors into consideration, plain
language indicates that the critical point where the established price
is determined is at the point where the manufacturer sells to the tobacco
to the distributor.
Tobacco tax distributors may once again give praise to the courts for accurately
curtailing a state agency’s attempt to generate more tobacco tax
revenue. With this landmark decision setting precedent in Florida so that
the term “wholesale sales price” is based only on the manufacturer’s
price of the tobacco product and not the domestic distributor’s
invoice price, the same approach may be taken nationwide.
Even most good tax professionals do not deal with oddball taxes like tobacco
taxes. Tobacco tax law is a complex area of law that requires a unique
knowledge of and experience in these matters. But dealing with these unique
issues is 100% of what our firm handles. We challenge the state tobacco
taxing agency at every level from audit to protest, to controversy. Day
in and day out, this is simply what we do.
Here is what we can do to help:
- We will review your audit results or refund denial and discuss ways to
challenge your specific results.
- In most cases, we can at least get the penalties reduced or eliminated.
- In many cases, we can reduce the tobacco taxes and related interest.
- We can also often quickly secure refunds.
- In all cases, we can provide the taxpayer with a quick, honest evaluation
of your situation and how to proceed.
You are already looking at a large liability for taxes, penalties, and
interest - why would you not at least have a free consultation with a
consultant to challenge the agency's wrongdoing?
In addition, if you are located in Alaska, California, Colorado, Connecticut,
Delaware, Illinois, Indiana, Iowa, Maine, Montana, New Jersey, New Hampshire,
Oregon, North Dakota, Utah, or Wisconsin then you might have a refund
based on Micjo. Give us a call to get started today!
Talking to us is FREE, so give us a call today at (888) 918-4690.
MIcjo v. Florida DBPR
See also -
Brandys Products v DBPR - Florida Blunt Wraps Case.
About the author: Mr. Donnini is the president and founder of Tobacco Tax
Refunds, Inc. He is also multi-state sales and use tax attorney and an
associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort
Lauderdale, Florida. Mr. Donnini has extensive knowledge handling wholesale
tax controversy and refunds.
In his law practice Mr. Donnini's primary practice is multi-state sales
and use tax as well as state corporate income tax controversy. Mr. Donnini
also practices in the areas of federal tax controversy, federal estate
planning, Florida probate, and all other state taxes including communication
service tax, cigarette & tobacco tax, motor fuel tax, and Native American
taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini
is licensed to practice law in Florida. If you have any questions please
do not hesitate to contact him via email [email protected]
or phone at 954-639-4496.