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State Agency Requests Records – Just Say No!

In just another case where the Department of Business and Profession Regulation (“DBPR”) attempts to be larger than the law, a Recommended Order was issued on May 29th, 2015, stopping DBPR in its tracks. In Thompson Cigars, Case No: 14-3471, Judge Alexander agreed with the taxpayer, that DBPR’s inspection authority is not as broad as it thought it was. However shocking it may be to DBPR, Judge Alexander agreed with the taxpayer on both counts raised in this case. The Administrative Complaint, filed by DBPR, alleges that Thompson Cigars, Respondent: (a) failed to produce records of tobacco products sold to persons or business entities in the State of Idaho, and (b) failed to submit a sworn application reflecting that two individuals, not previously disclosed, had a direct or indirect financial interest in the business.

Background: Thompson Cigars holds a retail tobacco permit which authorizes the sale, at a retail level, of tobacco products, including cigarettes, cigars, and other tobacco products, and no disciplinary history with DBPR. See ยง 569.003(1)(a), Fla. Stat. Thompson Cigars is in the business of selling only cigars and other tobacco products. In fact, with mostly cigar sales, ninety-nine percent of sales are made through the internet, mail order catalogs, and telephone to customers in all 50 states.

Back in September 2013, Idaho State Tax Commission contacted DBPR requesting all sales by Thompson Cigars of tobacco products to Idaho residents from July 2008 through September 2013. Idaho was asking for the names, address, and permit numbers of all Idaho entity involved in transactions with Thompson Cigars. When asked if the division had ever had a request like this before, DBPR specifically stated that this was a unique request in that it had never been asked to obtain records on behalf of another state.

Failure to Produce Records:
Despite not being a compliance audit, DBPR relied on section 210.161, Florida Statutes, to examine the “books, records, and accounts of any permittee.” In an attempt to audit Thompson Cigars on behalf of Idaho, DBPR provided Thompson Cigars a “Record of Inspection” to provide records of all sales of tobacco products made to persons or business entities in Idaho for the given period. Unsurprisingly, even though the “Record of Inspection” form is not on the Florida list of Approved Forms, DBPR unsuccessfully argued that the form was an agency statement of general applicability. Even if DBPR did have authority, the form was completely unnecessary.

A true privacy concern was raised that even if DBPR could get the records, not only could Thompson Cigars be unduly burdened by having to go through millions of sales documents, but the documents contained customer’s personal information, such as their name, address, birthday, telephone number, and credit card number. Thompson Cigars took the position that the records do not exist, and even if they did, the Division lacks authority to request them.

To round out DBPR’s thought that they are above the law, a DBPR witness even admitted that the statute “is kind of vague” as to whether DBPR even has the legal authority to demand records. Yet, DBPR unsuccessfully brought this proceeding anyway in an attempt to have DOAH broaden its auditing power.

Undisclosed Interest in the Corporation: DBPR also likes to raise the issue of an undisclosed interest in the business, whether or not such assertion is supported. In this case, some corporate officers were listed on the 1998 original permit, which differed the 2013 Annual Report. This caused DBPR to grow suspicious. However, a simple question–which was never asked–could have solved the entire inquiry as to why there was a change. Simply put, one officer changed their last name due to marriage and the other used his initials rather than his first name on the permit. It was that simple. In the end, it was well-noted that Thompson Cigars is and always has been a family-owned corporation that disclosed all persons with a financial interest in the business, so this was just an attempt to delay the proceedings in an attempt to broaden the DBPR’s power.

Why was all of this even an issue? Section 569.003(1)(b) requires that a corporation applying for a new permit file a sworn application “set[ting] forth the names and addresses of the principal officers of the corporation.” However, the statute requires disclosure of principal officers, not owners. Even if there was a statute that allowed DBPR to support their charge that the ownership changed, DBPR even admitted themselves that no rule or statute requires a corporate license to file updated information.

In the end, DBPR failed to show any sign of wrongdoing by Thompson Cigars. Instead, it was the exact opposite. DBPR overreached in its attempt to utilize another state’s efforts to seek information from a Florida corporation. Unsurprisingly, DBPR’s request turned into an extreme burden on Thompson Cigars.

Unfortunately, this is not an unusual situation in dealings with DBPR. As a tax practitioner, you should always verify the statutes that a division is citing to in an attempt to unduly burden a corporation. Without proper justification, a division could be overreaching in its seeking of information, as was proven here. It is best to consult with a tax professional who may guide a corporation through a division’s attempt to seek information.

DBPR v. Thompson Cigars – Recommended Order.pdf

About the authors: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. 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. If you have any questions please do not hesitate to contact him via email JerryDonnini@Floridasalestax.com or phone at 954-642-9390.

Mr. Appel is a law clerk with a Moffa, Gainor, & Sutton, PA based in Fort Lauderdale, Florida. Mr. Appel’s primary practice areas are Florida sales and use tax and multi-state sales and use tax. Mr. Appel earned a B.S. in Accounting and a Minor in Legal Environment of Business from The Pennsylvania State University. Mr. Appel is currently a Juris Doctorate Candidate at Nova Southeastern University Law School with an expected graduation in May 2016. Presently, Mr. Appel is the Executive Editor of ILSA Journal of International and Comparative Law, a Student-Coach and Advocate for Phillip C. Jessup International Law Moot Court, and a member of Nova Trial Association.