Since early 2013, the Florida Department of Business and Professional Regulation decided to re-try prior litigation under a different theory. In short, Florida attempted to tax federal excise tax, shipping and other charges under its wholesale tobacco tax regime. However, Florida court’s delivered 3 punishing blows to the Department in October 2016. The cases called Florida Bee, Good Times Pinellas LLC, and Global Hookah all but put an end to Florida’s insistence on taxing federal tax and shipping.
By way of brief background, Florida taxes tobacco based on 85% of the “wholesale sales price” or a tobacco product. Wholesale sales price is defined as the established price for which a manufacturer sells tobacco to a distributor. In 2012, Florida’s Second District Court of Appeals (“DCA”) stated that the term “wholesale sales price” is based only on the manufacturer’s price of the tobacco product and not on the FET and shipping. 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.
Since Micjo, the Department took the position that the FET and shipping were taxable if they were charged by the manufacturer on the initial sale. In practicality, this meant if the tobacco was domestically made, the FET and shipping were taxable but if the tobacco was foreign in origin, the FET and shipping escaped tax. Several refund cases ensued.
On October 14th, 2016, Florida Second DCA spoke on the issue again and disagreed with the Department’s analysis and ruled in favor of the taxpayer. Therefore, it appears that FET and shipping are not taxable in Florida.
Based on the Department’s analysis, several distributors banded together and fought the case on the administrative law front. If the Department makes a pocliy that is not clear from the statute, then the Department must go through rulemaking under Florida law. The taxpayers in Florida Bee argued that their policy to tax FET and shipping based on manufacturer locale was an unadopted rule and, thus, invalid. On October 20, 2016, the First District Court of Appeal ruled in the taxpayer’s favor, which put an end to the Department’s non-rule policy. In addition, the court awarded appellate attorney’s fees.
Finally, in the Global Hookah case, the Department did not believe the taxpayer’s records as to the amount of the tobacco purchases. With no statutory authority, the Department assessed the taxpayer on a hypothetical 450% mark-up. Following an administrative hearing, the judge ruled in favor of the taxpayer and said the assessment was invalid.
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 these landmark decisions 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 invoice price, the same approach may be taken nationwide in state’s with similar statutes.
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.
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!
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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 partner in the law firm Moffa, Sutton, & Donnini, 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.