For several years, I have been heavily involved with wholesale tobacco
tax throughout the country. On April 6, 2016, the 1stDCA spoke loud and clear by determining that a blunt wrap or cigar wrap
(a "Wrap") product is not subject to Florida tax. This is a
giant step towards putting an end towards at least 1 important issue that
has plagued the industry for years.
Under Florida law, in order for Florida wholesale tax to apply to the wrap
product, the wrap must be a “tobacco product” under Florida
law. A tobacco product for tax purposes is defined as:
[L]oose tobacco suitable for smoking; snuff; snuff flour; cavendish; plug and twist tobacco; fine cuts and
other chewing tobaccos; shorts; refuse scraps; clippings, cuttings, and
sweepings of tobacco, and other kinds and forms of tobacco prepared in
such manner as to be suitable for chewing; but "tobacco products"
does not include cigarettes, as defined by s. 210.01(1), or cigars.
I believed that a rolling paper is not "loose tobacco," but rather
is a bound cohesive sheet of tobacco. Shocking Florida's taxing agency,
the Division of Alcoholic Beverages and Tobacco (DABT), disagreed and
took the position that any item made from tobacco was subject to Florida’s
steep 85% tax.
In 2014, i litigated a case called Brandy’s Products in Florida.
In the Brandy's case, a Florida distributor was assessed about $70,000
based on its blunt wraps purchases that were sold in Florida. Ultimately,
The “trial” or final hearing took place in administrative
court (Division of Administrative Hearings or DOAH) in January 2015.
The administrative law judge, Judge Van Laningham, had to decide whether
the Wraps was "loose tobacco." The judge said it was not loose
tobacco. Instead, the judge viewed the blunt wraps as "a distinct,
cohesive, uniform product . . . cut to a predetermined shape." Being
that the Wraps were not loose tobacco , the blunt wraps would not be considered
taxable. Following the judge’s order, the Department, DABT, ignored the
judge’s recommendation and issued a Final Order against the taxpayer.
Brandys was forced to appeal and an
oral argument was heard by Florida’s First District Court of Appeal on March 8, 2016.
On April 6, 2016, the sound and straightforward
opinion delivered by judge Kent Wetherall, the First DCA spoke loud and clear.
It is also somewhat surprising the issue was decided within 30 days of
the appellate argument. The DCA agreed with the administrative law judge
(ALJ) in that the wrap was examined at hearing and is a “distinct
cohesive uniform product . . . cut to a predetermined shape” and
This case is in line with the Creager case out of Colorado, which marks
the second taxpayer victory on this issue. With an 85% tax rate in Florida,
many companies had large assessments or large refunds at stake. It will
be interesting to see how other states follow Florida and Colorado’s
lead on this issue. In particular, there may be significant refund opportunities
for distributors in other states such as Alaska, California, Connecticut,
Delaware, Georgia, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland,
Michigan, Mississippi, North Dakota, Nebraska, New Hampshire, Virginia,
and Wisconsin. Ohio, Oregon. If you sell significant wraps in those states,
please call us for a free consultation.
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.