Multi-State Tax Law Blog

Published on: November 19, 2015

Micjo – Florida’s Defining Moment in Florida OTP Tax History

February 1, 2012 was a day in tobacco tax litigation that should go down as one of the greatest victories in tobacco tax history. On appeal from the Florida Department of Business and Professional Regulation (“DBPR”), Judge Black for the District Court of Appeal of Florida – Second District (“DCA”) stated that the term “wholesale sales price” is based only on the manufacturer’s price of the tobacco product and not the domestic distributor’s invoice price. 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.

In a case of first impression, the DCA was called upon to interpret the phrase “wholesale sales price” within the Florida statutes on Other Tobacco Products (“OTP”). See section 210.25(13), Florida Statutes (2009). The facts of the case were far from complicated as Micjo was a tobacco tax distributor that imported and distributed hookah tobacco. Since Micjo was a Florida distributor, it was subject to Florida’s OTP tax. Micjo received its tobacco from domestic distributors and only paid taxes on the actual unit price of the tobacco and not the total invoice price. This is particularly relevant and ultimately the crux of the entire case, because the total invoice price would have included, among other things, federal excise tax and shipping costs. As such, an audit conducted by DBPR concluded that Micjo underpaid Florida OTP by roughly $48,000. Micjo then requested a formal administrative hearing on the calculation of tax.

Not so shockingly, DBPR concluded in its own hearing that it was correct in its audit result. The recommended order stated that “the [wholesale sales price] includes delivery charges and the federal excise taxes. It is all components on the invoice that make up the cost to get the product to the purchaser[;] therefore, all components are subject to be taxed.” Clearly, a different result would have cost DBPR potentially millions of dollars in future tax revenue, so why would it have concluded any other result. After having its exceptions to the recommended order be denied, Micjo filed an appeal for the record books.

Published on: August 26, 2015

Colorado – Blunt Wraps are Not Tobacco Products

By Jerry Donnini, Esq.

In December 2006, the Colorado Department of Revenue (“DOR”), on its own volition, unilaterally decided to increase their revenue stream by taxing more tobacco products. Taxpayers were given an FYI Notice stating that all products containing any amount of tobacco would be considered “tobacco products” within the meaning of the statute. When that was challenged in Creager Mercantile Company, Inc. v. Colorado Department of Revenue, the DOR issued a final determination that blunt wraps sold by Creager were “tobacco products” within the meaning of the statute despite not having any authority from the legislature to make such a determination. The taxpayer decided to fight back.
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Published on: August 6, 2015

Holiday in August! – FL DOR Sales Tax Holiday Has Arrived!

By Jerry Donnini, Esq.

With the every-so-exciting Florida Sales Tax Holiday (“Holiday”) running August 7th through August 16th, all Floridians must become knowledgeable so that we can maximize our savings as buyers. The Holiday does not solely apply to Parents and Students looking for their essential pencil sharpeners, the Holiday applies to all sales throughout Florida–so thrilling! Just think about all the wonderful school supplies you could stock up your office drawers this upcoming week. Like everything that seems too good to be true, this 10 day Holiday has a few rules that must be discussed. The following are the limitations for the Holiday:

• Clothing selling for $100 or less per item;
• Footwear selling for $100 or less per item;
• Certain Clothing Accessories selling for $100 or less per item;
• Certain School Supplies selling for $15 or less per item (Note – This does not include books); and
• Personal Computers and Certain Computer-Related Accessories on the first $750 of the sales price, when purchased for noncommercial home or personal use.
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Published on: July 29, 2015

E-Cigs: How Should They Be Taxed?

By Jerry Donnini, Esq.

As an avid sports fan and season ticket holder, I have now become more accustomed to seeing fellow fans smoking vapor products–a battery powered pen-like device that heats liquid nicotine into vapor-in the stadium seats. While some may wonder how people can possibly get away with smoking vapor products at stadium seats, or even at restaurant tables, I often ponder about how the vapor products are taxed at the state level. Are vapor products really tobacco products, are they cigarettes, or are they something completely different, and if so, are vapor products taxed at the wholesale level, as a sales tax, or some combination thereof?
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Published on: July 27, 2015

TAXPAYER TAKES UP MICJO CHALLENGE IN OREGON

By Jerry Donnini, Esq.

In 2012, a case shook the tax world for Florida’s wholesale tobacco distributors. Specifically, a case called Micjo was decided in favor of tobacco distributors at Florida’s appellate court level. Micjo taught us that if a taxpayer disagrees with a department’s tax decision, then it should fight for its money that is not due. Since the Micjo ruling, we have been filing refunds for many other tobacco distributors and fighting tax assessments based on the appellate case. After filing several Micjo refund cases, we discovered another Micjo case in Oregon. If the taxpayer is successful then it would put another chink in the armor of the state tobacco taxing agencies.
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Published on: July 15, 2015

An Overview of Cloud Computing Trends

By Jerry Donnini, Esq.

As the internet becomes essential to our everyday lives, states are consistently inconsistent in their attempt to tax cloud computing systems. Cloud computing is “the practice of using a network of remote servers hosted on the Internet to store, manage, and process data, rather than a local server or a personal computer.” Essentially, the term “Cloud” is a metaphor for the internet. Cloud computing allows the user to access data over the internet without storing data on a hard drive. In fact, most internet users rely on these cloud computing systems as an essential tool in their everyday lives.

How should a cloud computing provider determine whether their object is subject to sales tax? A simple two-part test may allow a cloud computing provider a proper vantage point on whether they are subject to sales tax. First, apply a test. Second, ask whether the product is a software or a service? Think of this test as a simple flow chart.
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Published on: June 22, 2015

State Agency Requests Records – Just Say No!

By Jerry Donnini, Esq.

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.
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Published on: May 5, 2015

FL Tax Litigation Alert – McLane Takes on Division To Take Down Tobacco Taxes

By Jerry Donnini, Esq.

Over the past few years, we have been intricately involved in ongoing litigation with the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (“ABT”). There still remains ongoing litigation in connection with the Micjo issue. Micjo dealt with whether non-tobacco charges, such as federal excise tax and shipping charges, are subject to Florida Other Tobacco Products Tax and the Surcharge on Other Tobacco Products (“OTP Tax”). Down another path there is current litigation in Brandy’s, which deals with cigar wraps, or blunt wraps, which are subject to Florida’s OTP Tax. Recently, however, another case was filed in late 2014 that has a far broader reach than any other case filed to date.
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Published on: April 27, 2015

Florida Seeks to Amend Wholesale Tobacco Tax Law

By Jerry Donnini, Esq.

Over the past few years, taxpayers throughout Florida have been in a never ending battle with the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (“ABT”). At the forefront is the Micjo issue. Micjo was a case that determined that Florida wholesale tobacco tax should not apply to the full invoice. Rather, the 85% should only apply to the tobacco while charges and items such as federal excise tax and shipping should not be included in the taxable base. There are 8 pending cases throughout Florida being litigated on this issue. In addition, there are two cases in which the taxpayer has argued that blunt wraps, or cigar wraps, are not included in the tobacco products definition and, are therefore, not taxable. In Brandy’s, a taxpayer received a favorable ALJ opinion spelling out the same.

In response, ABT has attempted to change Florida law. Specifically in Senate Bill 7074, ABT is attempting to fix the Micjo opinion and change the taxable base to include the full price paid by the distributor, including the federal excise tax. The amended law will read as follows:

“Wholesale sales price” means the sum of paragraphs (a) and (b): (a) The full price paid by the distributor to acquire the tobacco products, including charges by the seller for the cost of materials, cost of labor and service, charge for transportation and delivery, the federal excise tax, and any other charges, even if the charge is listed as a separate item on the invoice paid by the established price for which a manufacturer sells a tobacco product to a distributor, exclusive of any diminution by volume or other discounts, including discount provided to a distributor by an affiliate. (b) The federal excise tax paid by the distributor on the tobacco products, if the tax is not included in the full price under paragraph (a).

Published on: March 31, 2015

What’s the True Object of the Transaction? Portable Toilets Case Finds Its Way to LA Supreme Court

By Jerry Donnini, Esq.

It never ceases to amaze me, the wide variety of companies that state agencies attempt to extort money from. I mean, how could a portable toilet company possibly have a sales tax problem? Most states impose a sales tax on the sale or rental of tangible personal property, but do not tax services. From the perspective of a toilet industry, if a venue rents a toilet, it is clearly a rental of tangible personal property subject to tax. If the same venue pays a fee to clean the toilets, then it sounds like a nontaxable service. But what happens when the venue rents the toilet and purchases the cleaning service along with it? In this part tangible personal property rental, part service transaction (known to the sales and use tax attorney as a “mixed transaction”), is only part of the transaction taxable or is the entire charge subject to sales tax? Many states take the incredibly helpful “it depends” approach, and look to an even more helpful “object of the transaction” test. In reality, it truly seems like state agencies and courts reach a conclusion first and fill in the reasons later.
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