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Global Distributor Expands Micjo Decision

In 2012, an important case in favor of tobacco distributors was decided by a Florida appellate court. Technical tax issues aside, Micjo taught us that if a taxpayer does not agree with a department’s tax decision, then it should fight for its money that is not due. Since the Micjo ruling, many other tobacco distributors have been filing refunds and fighting tax assessments based on the appellate case. After filing several Micjo refund cases, we discovered another pro-tobacco distributor case was decided in Oregon that could take Micjo a step further. Logically, the case should apply to Florida and other states’ tobacco taxing laws. If correct, then tobacco distributors may be entitled to large refund claims.

Taking a step back, Micjo was decided in 2012 and it discussed the correct taxable base for other tobacco products (“OTP”) tax in Florida. The case ruled that the OTP tax should only apply to the charges for the tobacco itself and does not apply to federal excise tax charges or shipping for a distributor to obtain the tobacco. Put another way if an invoice has charges for $100 for tobacco, $50 for federal excise tax, and $25 for shipping, then the tax should only apply to the $100, rather than the $150, or $175. Being that the tax rate is 85%, this distinction resulted in large tax refunds if the distributor was paying tax on the full invoice amount.

In Oregon, Global Distributor & Wholesales, Inc. v. Oregon Dep’t of Revenue was brought to my attention. In this case, Global, a distributor, purchased hookah tobacco to which Oregon tobacco tax applied. Global received the tobacco in foil bags and then inserted it into tin canisters, applied a label to it, and sold the product to smoke shops and hookah lounges throughout Oregon. Apparently Global claimed that it bought the tobacco itself for about $3.00 and the packaging and labeling supplies ran the taxpayer about $5.50 in cost. It would then sell the final product to customers for $14-$15, who would then sell it to customers for about $20.

In addition, Global also entered into an exclusivity agreement with its suppliers. Under the exclusivity agreement, in exchange for a fee, Global was the only distributor that sold a particular product in Oregon. Although the agreement was oral, Global testified that it purchased the exclusivity agreement for a flat fee of $3,000. In addition, it was also charged a fee based on the number of units that totaled about $3,800 for the period at issue.

With those facts in mind, Global took the position that Oregon’s tobacco tax applied only to the cost of the tobacco itself and not to the exclusivity or packaging charges. Of course, as state agencies tend to do, Oregon’s taxing agency believed that its tax applied to the total invoice which included the charges for packaging as well as the exclusivity fees.

As it turns out, Oregon’s tax is similar to most states’ OTP tax in that it imposes a tax on the wholesale sales price of a tobacco product. Interestingly, and from my view, correctly, the court ruled that the OTP should apply to the tobacco itself and not for other charges like exclusivity fees or packaging. To make its point, the court stated:

[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 on the wholesale sales price.

Unfortunately for the taxpayer, the court concluded that it was not able to prove the cost of packaging. Therefore, despite ruling that the legality was sound, the plaintiff could not prove the cost factually. Conversely, however, it had invoices that proved the cost of the exclusivity agreement. Therefore, the court ruled in its favor on the exclusivity agreement side.

This case provides a great opportunity and creative idea to save even more tax dollars on OTP tax. In addition to excise tax and shipping, taxpayers should explore the idea of saving the tax on other costs that are not tobacco, such as exclusivity agreements and packaging costs. Especially, if explored as a refund claim, the Taxpayer likely has very little risk and a huge upside. There are firms, like ours, that are willing to take creative refund cases like these on partial or full contingency fees.

If you have any questions about taxes imposed by the Division of Alcohol, Beverages, and Tobacco or the state revenue agency in your state, then please contact our office for a free initial consultation either at 954-642-9390 or via email to

About the Author: Mr. Donnini is a Florida Attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is Florida tax controversy with a heavy emphasis on the convenience store and petroleum industry. Mr. Donnini also does extensive work in the area of Florida wholesaler beverage and tobacco tax. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for Mr. Donnini earned his LL.M. in Taxation at New York University.



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