In 2012, a landmark tobacco tax case was decided. Specifically, a Florida
court ruled in
Micjo Inc v Florida DBPR, that the wholesale sales price upon which tax is calculated does not
include federal excise tax or shipping charges. Being that most states
calculate their state tobacco taxes on the “wholesale sales price,” the
Micjo case had far reaching effects.
One such state is Minnesota. Like Florida, Minnesota imposes a 95% tax
on the “wholesale sales price” of a “tobacco product.”
Further, nearly identical to most states, Minnesota has prescribed that
the “wholesale sales price is “the price stated on the price
list in effect at the time of sale for which a manufacturer or person
sells a tobacco product to a distributor, exclusive of any discount promotional
To more clearly illustrate the issue, suppose a tobacco distributor purchases
the tobacco products for $100. Included in that $100, is $60 for the tobacco,
$30 of Federal Excise Tax (FET), and $10 for shipping. What is the price
at which the manufacturer sells the distributor the tobacco? $100? $60?
Some other amount?
Just as Florida tackled that issue in
Micjo, I handled a case last year in Minnesota involving the same dilemma. In
Winner Tobacco v COR, the wholesaler argued the tax should only be on the $60 in my example,
not the full invoice inclusive of FET ($100 in my example). On August
6, 2018, the Minnesota Tax Court ruled that state tobacco tax is not due
on separately stated FET. Specifically, the Court held that for the invoices
in which the FET was separately stated, Winner paid Minnesota tax on “more
than the price for which a manufacturer sells a tobacco product.”
Because of the similar tobacco laws across the country, if you or your
client is paying tobacco taxes on the full invoice, there may be an overpayment
of tobacco tax. At a minimum it is worth exploring the possibility through
a potential refund action. The wholesale could be entitled to thousands
of dollars in overpaid tax and not even know it.
Not only do we handle tobacco tax refund, but we are also happy to assist
in tobacco tax audits and assessments. While most tax professionals are
well versed in federal tax, few have the experience necessary to evaluate
tobacco tax related issues. Further, even fewer have every gone to court
on a state tobacco tax case.
If you are a tobacco wholesaler located in Alaska, California, Colorado,
Connecticut, Delaware, Illinois, Indiana, Iowa, Maine, Montana, New Hampshire,
Oregon, North Dakota, Utah, Wisconsin, or other states with similar laws,
then you may have an opportunity for a refund based on the technicality
of the law discussed above.
About the Author: 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 .