In 2012, the well-known Micjo decision came down from one of Florida’s appellate courts. In Micjo, the court ruled that Florida's other tobacco products tax ("OTP") should only apply to the tobacco product itself and not on other charges such as shipping and federal excise tax. Squarely against that ruling Florida’s Department of Business and Profession Regulation, Division of Alcoholic Beverages and Tobacco ("ABT") continued to fight the issue.
In a simple example, assume a tobacco distributor is invoiced $75 for tobacco and $25 for Federal Excise Tax (“FET”), for a total invoiced price of $100. The Micjo case held that Florida’s 85% wholesale tobacco tax is on the $75 for the tobacco, not the full $100. In other words, non-tobacco charges such as FET and shipping costs are not taxable.
Despite Micjo and several other losses by the Department, they continued to assess tax on the full invoice price. In addition to paying millions in refunds overturned, the courts held that the Department’s policy was also an invalid unadopted rule in Florida Bee v. DPBR, Case Nos. 15-6108RU, 15-6148RU (Fla. DOAH Mar. 3, 2016). As a result of the unadopted rule policy in Fla. Bee, the Department was forced to pay $160,000 in attorney’s fees.
Despite numerous assessment reversals, refunds, and paying attorney’s fees, the Department assessed Global Hookah Distributors over $500,000. The Taxpayer took them to court in 2016 to challenge the assessment and the Department’s unadopted rule. While the court initially decided to not rule on the issue, the appellate court eventually determined the policy to be an unadopted rule. As required by statute, Global Hookah was awarded approximately $170,000 in attorneys fees on September 25, 2018,
This case provides another great example as to why it is important for taxpayers to challenge the agencies actions and tax assessments. In addition to challenging the assessment itself, a rule or unadopted rule challenge case serve as a powerful alternative to combat unreasonable state agencies. Moreover, in Florida, like many states, a successful rule challenge can also result in significant and mandatory attorney’s fees.
If you have any questions about taxes imposed by state agencies including the Division of Alcohol, Beverages, and Tobacco or a state’s Department of Revenue, then please contact our office for a free initial consultation. If any agency threatens you or your business's professional license or your business license, then please contact a competent tax or administrative law attorney to fight back.
About the Author: Gerald “Jerry” Donnini II is a shareholder of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of state and Federal tax matters, with a heavy emphasis on the tobacco, alcohol, motor fuel and related industries. He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Use Tax and writes extensively on multi-state tax issues for SalesTaxSupport.com.