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As many of my readers know, I have been a regular author for the FPMA over the past year. I have spent the better part of that period discussing the onslaught of convenience stores by the Florida Department of Revenue. While our firm has been successful in reducing many assessments against dozens of C-stores throughout the state, I found it appropriate to discuss something in a positive light.

Last year in 2012, I discussed a case known as Micjo. In Micjo, the crux of the case was whether the Department could charge tobacco tax on shipping charges and excise taxes. Specifically, Florida Law imposes taxes of about 85% on other tobacco products (“OTP Tax”), based on the so-called “wholesale sales price” as defined in section 210.25, Florida Statutes (“F.S.”). Under Florida Law, the “wholesale sales price” means “the established price for which a manufacturer sells a tobacco product to the distributor.”

While this seems like a fairly straightforward analysis, the Division of Alcohol and Tobacco (“ABT”), believed the “wholesale sales price” was the total amount on the invoice, which included the amount the wholesaler paid for the tobacco, shipping, and federal excise taxes. Like many agencies tend to do, ABT “reminded” the court that the court owed it deference in statutory interpretation. Taking the contrary position, the court agreed with Micjo in that the “wholesale sales price” was clear in that it meant the price of the tobacco only.

While it appeared to be a fairly straightforward opinion, our state and local tax firm has seen in practice over the past year that in many counties (outside of the second district), ABT has “shockingly” ignored the opinion. Can it do this? Of course! It is the all-mighty agency.

For those of you that are not state and local tax professionals, Florida’s court system, like most states, has three basis levels. The levels are the lowest, known as the trial courts (there are 20 circuit court systems in Florida), the 5 appellate courts, and the Florida Supreme Court, the highest court. From a legal perspective an agency is entitled to deference on its statutory interpretation, but this does not apply if a statute is clear. Further, it is only bound by an appellate court in the district in which it performs its audit.

Here, the 2nd District Court of Appeal (“DCA”) rendered the Micjo opinion, so the agency is only bound by that decision in the 6th, 10th, 12th, 13th and 20th Circuits. In regular English, if an OTP tax audit is performed anywhere except the 6th (Pasco & Pinellas Counties), 10th (Hardee, Highland, Polk Counties), 12th (DeSoto, Manatee, & Sarasota Counties), 13th (Hillsborough County), or the 20th (Charlotte, Collier, Glads, Hendry, and Lee Counties) Circuits, then the agency is not technically bound by the Micjo opinion. However, agencies and courts alike tend to highly respect other DCA’s opinions and adhere to such a ruling.

As hinted to above, the respect throughout the state for the 2nd DCA’s opinion has been largely disregarded by ABT when performing an OTP audit. For tobacco distributors throughout the state, this has meant that the Department still believes that the tobacco surcharge and the state excise tax applies to the tobacco, the shipping costs, and the federal excise tax. In sum, this means that the tobacco distributors are paying about 85% tax on shipping costs and excise tax that are not taxable in the 2nd District’s view. Going back to the Micjo example, this means that if Micjo did not fight the OTP tax assessment it would have paid $47,649 in OTP Tax on amounts that are not taxable.

It appears what the ABT offices are doing throughout the state is wrong. Moreover, not only should tobacco distributors not have to pay tax on shipping, excise tax, and other charges, on a go forward basis, but also the tobacco distributors could be entitled to a refund of these amounts paid for the prior three years. While ABT will likely not concede a refund claim, the burden is on the Taxpayers and state and local tax professionals to take s stand.

It is also shocking to learn that ABT does not have a clear refunds procedure in place. From a practical perspective, this means if a company is interested in filing for a refund, it would have to file the refund claim with the agency, have the refund denied, then either obtain the refund through an appeal process within the agency or in court. The positive aspect of a refund case is that there is nothing to lose by filing the refund and there could be tens or even hundreds of thousands of dollars of tax refunds at issue.

If you or your client has been assessed OTP Tax on any amounts other than purely the price paid for the tobacco, please call or email me as I am anxious to hear about it.

About the author: 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, and Florida probate. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.

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