What was the AB&T Smoking? - FL 2nd DCA Rules on AB&T's Wholesale Sales Price Definition
When a taxpayer disagrees with an assessment by the Florida Department of Revenue ("FL DOR") or the Division of Alcohol, Beverages, and Tobacco ("AB&T"), one of the weapons available to either agency to strong arm a taxpayer into complying with the assessment is to file a request with the Florida Department of Business and Professional Regulation to have your professional or business license suspended or revoked. Without a license, a business is faced with the decision of either closing the business or paying the tax, regardless of whether the tax is just or fair. MICJO, INC. ("MICJO") is a Florida taxpayer that found themselves at the wrong end of this tax weapon and decided to fight back.
MICJO is a Florida based business that distributes and sells various Middle-Eastern themed products, such as hookah tobacco. As required by Florida law, MICJO is licensed by the AB&T and the tobacco products are subject to Florida's "Tax on Tobacco Products Other Than Cigarettes or Cigars," otherwise known as the "Other Tobacco Products" tax or "OTP." On its purchases, Micjo paid tax on the line-item unit price of the tobacco included on each invoice, but not on the total amount of the invoice. Other line-items included in the typical invoice included various other charges such as federal excise tax, shipping costs, and other charges. The AB&T audited the taxpayer and determined MICJO should have paid tax on the total amount due on the bottom of the invoice. The AB&T asserted that MICJO owed additional tax totaling almost $48,000, based on the various other charges. When MICJO disagreed with the assessment, the AB&T informed MICJO that it would pursue an action against its license to sell tobacco products. MICJO decided to fight back.
At the administrative hearing, conducted by the AB&T, it was not surprising that the AB&T supported its own finding and held that all invoice components (the bottom line total of the invoice) were subject to the OTP tax. However, MICJO was not done fighting and timely appealed the administrative decision to the 2nd District Court of Appeal ("2nd DCA"). Although MICJO asserted several arguments to the appellate court, the crux of the case was the definition of the phrase "wholesale sales price." Does it mean amount of all line times totaled on the bottom of the invoice or just the line-item unit price for the tobacco itself?
As the often abusive agencies tend to do, the AB&T argued that the invoice price was to be used because the total invoice price constituted the entire consideration for the tobacco and was the necessary price for MICJO to bring the tobacco to market.
Relying on the statutory language of chapter 210, Florida Statutes (F.S.), MICJO argued that the price was based on the amount charged by the manufacturer that sells the product to a distributor. It also ruled that a manufacturer is someone who manufactures and sells tobacco products. On February 1, 2012, the 2nd DCA overturned the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco's ("AB&T") final agency order holding (with the full case downloadable below) and stating:
Although AB&T focuses on the term established price, it fails to give that term its plain meaning within the context of the sentence. The established price is for the sale of the tobacco product. The various other distributor invoice costs for reimbursement of federal excise tax, shipping costs, and other charges, are not part of the tobacco. See § 210.25(11) (defining "tobacco products"). Although the domestic distributor adds those charges to the total invoice price, they are not part of the price that the domestic distributor paid the manufacturer for the tobacco, and thus, they are not part of the manufacturer's sales price for the tobacco. Further, items such as shipping costs could vary depending on where the domestic distributor ships the tobacco in Florida, and the total invoice price for the same tobacco would not be an established price. See Black's Law Dictionary 586 (8th ed. 2004) (defining "establish" as "to settle, make, or fix firmly").
As such, the court ruled in favor of MICJO because the tax is based on the tobacco price and not on other extraneous costs. Being that the court found this argument by MICJO dispositive, it did not rule on its other arguments.
This case provides another great example as to why it is important for taxpayers to challenge the agencies and tax assessments. In times like these, the agencies often get overly aggressive with their interpretation of the tax laws. It is important to hire a competent state and local tax attorney in a case like this one to fight and challenge the questionable views and practices of the various agencies. This also marks a great victory for the taxpayer.
If you have any questions about taxes imposed by Florida's Division of Alcohol, Beverages, and Tobacco or the Florida Department of Revenue, then please contact our office for a free initial consultation. If any agency in Florida threatens you or your business's Florida professional license or Florida business license, then please contact a competent Florida attorney to fight back. If you don't already have an attorney, then contact our offices today to help keep your business doors open.
MICJO, INC. v. DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, DIVISION OF ALCOHOLIC BEVERAGES AND TABACCO, Case No. 2D11-254 (2d DCA, Feb. 1, 2012)
About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. You can read more about Mr. Donnini in his firm bio.