Florida Limits Tobacco Division’s Discretion on Tobacco Tax Bond Increases

Tobacco tax bond updates

A routine part of your tobacco licensing compliance is obtaining a tobacco tax surety bond or another form of deposit with your application. States often require this bond as an assurance in case of non-payment of your tobacco product tax liability. In Florida, that bond amount is $1,000 unless the Division of Alcoholic Beverages and Tobacco (the “Division”) determines a greater amount is necessary to fully protect the state. You may believe the state has unchecked authority to raise your bond amount, but the truth is their discretion is not without limits.

Our recent case, Basik Trading, Inc. v. Division, clarifies this reality and provides a potential opportunity for wholesale dealers in Florida and other states looking to challenge their current tobacco tax bond requirements. We were able to negate the Division’s proposed increase of a wholesale dealer’s bond that would have taken their amount from $39,000 to $1.88 million and would have significantly increased their premiums.

How Florida’s Tobacco License and Tax Bond Rule 61A-10.082 Works

Florida statute 210.40 is where you can find the state’s requirement for a corporate surety bond in the amount of $1,000. The statute then delegates additional authority to the Division to require an additional bond amount when their opinion is that the licensee’s bond is insufficient to protect the state. The Division implements this authority through Rule 61A-10.082(2)(d), which merely restates its discretion to increase the bond amount without any additional standards as to how, when, or the circumstances that would justify the decision.

Why the Division of Administrative Hearings Found the Florida Bond Rule Invalid in Basik Trading, Inc.

The Division’s decision to increase the taxpayer’s bond amount from $39,000 to $1.88 million came after a recent audit and assessment. The Division raised the bond level even though the assessment was still under appeal. In light of this fact and for two other key reasons, the Administrative Hearing Judge determined Rule 61A-10.082(2)(d) was an invalid exercise of the Division’s delegated authority.

First, the rule was vague and lacked any standards for guiding the Division in situations when it’s necessary for the bond amount to be the maximum tax liability. The problem with this unchecked discretion is that it creates opportunities for inconsistent application among wholesale dealer licensees, which Florida prohibits under section 120.52(8)(d) of the Administrative Procedure Act (APA). The Judge’s decision further noted the fact that the Division had not provided any reason for why it could not establish standards around its bond-setting authority.

Second, the Division’s bond rule was arbitrary and capricious, which simply means it was made without the support of fact and lacked rational thought. Florida’s APA also prohibits rules that meet this standard under section 120.52(8)(e). Again, the Division’s failure to provide any standards for its discretion or to provide any sufficient reason why it needed this power gave the Administrative Hearings Judge all the information necessary to invalidate the current rule.

Get Help with Your Tobacco Tax Bond Requirements and Other Licensing Rules

The above decision is a favorable precedent for tobacco license holders who want transparency and fairness in the Division’s actions affecting their business operations. While the Division could seek further judicial review of the discretion in setting bond amounts, it would face an uphill climb in overturning this recent ruling. More likely, the Division will begin the process of adopting new rules to implement its authority over adjusting your bond requirements.

Current licensees in Florida may still have an opportunity to address their bond requirements if they believe their current amounts do not accurately reflect their tobacco tax liability. Additionally, this case is a reminder for tobacco distributors and wholesalers that agency actions and rules are not without fault. If you have questions or concerns about a recent rule or decision that will affect your company’s finances or operations, now is the time to act. Our tobacco tax professionals have years of experience navigating the licensing and tax systems that apply to distributors and retailers. We work to get your compliance right and fight for the tax and licensing treatment that comes with that compliance.

Schedule a free consultation with Tobacco Tax Refund, Inc. today.