The 2012 Florida Appellate Court decision of Micjo v. DBPR is one that is quickly gaining the attention of the entire United States. Ruling in favor of tobacco distributors, Micjo stated that Other Tobacco Products tax is only applicable to the tobacco itself, not the federal excise tax nor shipping costs. Let’s use an example, if an invoice charges $500 for tobacco, $100 for FET, and $100 for shipping costs, then only the $500 charge for the tobacco is taxable, not the entire $700 invoice.
This concept was taken a bit further in an intriguing development out of Oregon in Global Distributor & Wholesaler, Inc. v. Department of Revenue. This cases involved Global, a tobacco distributor that purchased tobacco in foil bags that was subject to Oregon’s Other Tobacco Products Tax. Global then would place bags into a tin canister, attach a label, and would sell the products to tobacco retailers throughout Oregon. To add to this, Global entered exclusivity deals with suppliers for a flat fee monetary exchange.
As one would suspect, Oregon’s Department of Revenue wanted greater tax revenue by arguing the tax applied to the entire total invoice. However, the court did not budge on this argument. The Oregon court ruled that the Other Tobacco Products tax should only apply to the tobacco and not the other charges, FET, shipping, packaging, and exclusivity fees. The court made their point exceptionally clear in the following example:
[S]uppose a distributor orders loose tobacco from a wholesaler of fine tobacco products, and also orders lockboxes made of solid gold from another wholesaler. If the distributor then inserted the tobacco into the golden lockboxes, it would be unreasonable and onerous, and against any principle of equity, to impose a tax on the containers based upon the wholesale sales price.
Tobacco Tax Refunds has taken the viewpoint that both Micjo and Global provide an exciting opportunity for tobacco distributors to a significant refund claim. How is this so? Let’s look at the following example and apply Maryland’s other Tobacco Products tax at a rate of 30% of the manufacturer’s list price pursuant to section 12-105, Maryland Statutes:
Tobacco - $200,000
FET – $100,000
Shipping - $50,000
Packaging - $25,000
Exclusivity Fee - $25,000
Total Amount - $400,000
If the Oregon Department of Revenue’s approach in both Micjo and Global was used, then the taxpayer would be subjected to a $120,000, or 30% of the entire $400,000 purchase.However, if the court's ruling in Oregon applies to a similar statute in Maryland, then only the tobacco charge would be subject to tax. Under the Micjo and Global approach, only the $200,000 tobacco charge would be subject to tax, which would be a substatnial savings, or a substantial refund.
While many experienced tax professionals have not dealt with Other Tobacco Products Taxes, we have. Tobacco Tax Refunds recognizes that manufacturer and wholesale tobacco tax is a complex area requiring a great deal of skill and understanding of the complex laws. Tobacco Tax Refunds has dedicated ourselves to tobacco tax. We are not afraid to challenge any state tobacco taxing agency.
After all, with a refund claim, there everything to gain and not much to lose.
In addition, if you are located in Alaska, California, Connecticut, Delaware, Illinois, Indiana, Iowa, Maine, Montana, New Hampshire, New Jersey, Oregon, North Dakota, Utah, Wisconsin, or other states with similar laws then you might have a refund based on Micjo. Give us a call to get started today!
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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.