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Tax Assessment Unenforceable Under Florida Law?





Florida law has a specific definition for the term “rule”. In the context of administrative law and state tax rulings, the term is defined as follows:

"Rule means each agency statement of general applicability that implements, interprets, or prescribes law or policy or describes the procedure or practice requirements of an agency and includes any form which imposes any requirement or solicits any information not specifically required by statute or by an existing rule.” See: s. 120.52( 16) F.S.

To be a rule, the statement must be an “agency statement,” that is, a statement which reflects the agency's position with regard to law or policy. Florida Bee Distribution Inc.,d/b/a Tobacco Express Distributors v. Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco, DOAH, Case No. 15-6108RU. A “generally applicable statement” purports to affect not just a single person or singular situations, but a category or class of persons and activities. See McCarthy v. Dep't of Ins., 479 So. 2d 135 (Fla. 2d DCA 1985). Why are such “agency statements” important to Florida taxpayers? Florida taxpayers may be unknowingly subject to audit or enforcement action which rely upon agency policies that are not plainly spelled out in the rules (regulations) promulgated to implement Florida statutes. Obviously, since the policy is not in the form of an existing rule, the taxpayer may be subject to surprise by the results of an audit and the consequent tax bill along with it. When this occurs, any assessment made pursuant to such policy is void and unenforceable. The reasons why this is so will be discussed in this article. In the context of state tax decisions, there are two appellate cases which provide clear examples of taxing policies carrying out improper, “unadopted rule” policy. See: § 120.52(20) Fla. Stat. The more recent of the two is the decision in Florida Dep't of Bus. & Prof'l Regulation v. Florida Bee Distribution, Inc., 205 So. 3d 593 (Fla. 1st DCA 2016), reh'g denied (Nov. 23, 2016). This decision affirmed the Administrative Law Judge (ALJ) ruling in the Division of Administrative Hearings (DOAH) determining an “unadopted rule” existed which wrongfully imposed tax on Other Tobacco Products (OTP). The OTP tax imposed in § 210.276(1) Fla. Stat. is one imposed on “tobacco products”. The legislature defined “tobacco products” to be :

[L]oose tobacco suitable for smoking; snuff; snuff flour; cavendish; plug and twist tobacco; fine cuts and other chewing tobaccos; shorts; refuse scraps; clippings, cuttings, and sweepings of tobacco, and other kinds and forms of tobacco prepared in such manner as to be suitable for chewing, but ‘ ‘tobacco products' does not include cigarettes ... or cigars.

In this case, the Department of Business and Professional Regulation ( DBPR) was imposing tax on the entire “wholesale sales price”. The phrase “wholesale sales price” is defined as “the established price for which a manufacturer sells a tobacco product to a distributor…..” Thus, the statute directed that tax be imposed on the price of tobacco alone. Notwithstanding these statutory definitions, audits by the agency imposed tax beyond the price of the tobacco to include shipping and federal taxes. The decision by the ALJ found a “unadopted rule” existed regarding this audit procedure. See: Florida Bee Distributors, Inc. supra,. The ALJ’s opinion stated in part:

In early October 2013, when the Department decided to rescind its policy in favor of a new statement of general applicability, it again failed to promulgate the policy as a rule. Instead, it unilaterally began to impose the new policy on all distributors of OTP in the state………..Petitioners have demonstrated, in this case, that the Department's policy regarding which distributors can be taxed on non-OTP items (e.g., FET, shipping charges) is a statement of general applicability that should be promulgated as a rule. DOAH Case No. 15-6108RU , 2016 WL 886009

As noted in the introduction, recently, the First District upheld this DOAH decision. Florida Bee Distributors, Inc. supra. However, what is amazing is that the First District was not the first court to address or consider the issue of how the tax statute should be read. Why amazing ? The case law is very clear, state circuit courts and state agencies are required to comply with District court ( appellate) decisions. The decisions of the district courts of appeal represent the law of Florida unless and until they are overruled by the Florida Supreme Court. Pardo v. State, 596 So. 2d 665, 666 (Fla. 1992) Thus, in the absence of inter-district conflict, district court decisions bind all Florida trial courts and must be followed by state agencies as well. (“An agency of this state, such as the Commission, must follow the interpretations of statutes as interpreted by the courts of this state”.) Mikolsky v. Unemployment Appeals Comm'n, 721 So. 2d 738, 740 (Fla. 5th DCA 1998)

Prior District Court Ruling ignored when carrying out agency audits ?

The Second District court ruled in 2012 that Florida's OTP tax statute imposed a tax upon the wholesale sales price of tobacco. See: Micjo, Inc. v. Dep't of Bus. & Prof'l Regulation, Div. of Alcoholic Beverages & Tobacco, 78 So. 3d 124, 126 (Fla. 2d DCA 2012). (“A surcharge is levied upon all tobacco products in this state and upon any person engaged in business as a distributor of tobacco products at the rate of 60 percent of the wholesale sales price.” ) Thus, in 2012, the Second DCA interpreted “wholesale sales price” to apply to the price at which the manufacturer sells tobacco products to the distributor. Micjo, 78 So. 3d at 127. In that case, the Second DCA described the dispute as “not complicated,” the Court determined that OTP tax applies only to the charge for tobacco products. Plainly, notwithstanding this ruling by a District Court of Appeal, the agency proceeded to continue imposing tax on other charges appearing on invoices to distributors, thus overcollecting tax in each such assessment. This procedure was successfully challenged in the Florida Bee case described above. [i]

While the First District ruling (Florida Dep't of Bus. & Prof'l Regulation v. Florida Bee Distribution, Inc., supra) upheld the DOAH decision, it did so without elaboration on its reasons why it agreed with the ALJ that a “unadopted rule” existed. However, elaboration of the Administrative law standards for this decision can be found in other District court opinions, including the decision of the Fifth DCA in Department of Revenue of State of Fla. v. Vanjaria Enterprises, Inc, 675 So.2d 252 ( Fla. 5th DCA 1996). This is the second tax case which focused on the improper implementation by an agency of an “unadopted policy”. Here again the decision rejected imposition of taxes in the underlying tax assessment case. The Vanjaria decision introduces the view that agency statements which qualify as rules, but are not promulgated as such, are unenforceable. (“ An agency statement that meets the Chapter 120 definition of a rule, but which has not been promulgated …..constitutes an invalid exercise of delegated legislative authority and, therefore, is unenforceable.”) Id. In Vanjaria Enterprises, supra, the 5th DCA determined that the Department of Revenue's training manual used in the Department’s tax assessment procedure was a statement of general applicability and an “unpromulgated” rule. The court’s reasoning focused on the fact that the audit manual was the singular guide for training the auditors and the auditors had no discretion to act outside of the procedure. Id. Clearly, the lack of discretion and the uniform application of procedure produced a de facto “rule” as defined in Section 120.52 (16), Florida Statutes.

Distinguishing Simple Statutory Interpretation and Agency Actions which are non-binding or preliminary

An agency interpretation of a statute which simply reiterates the legislature's statutory mandate and does not place upon the statute an interpretation that is not readily apparent from its literal reading, nor in and of itself purport to create rights, or require compliance……., is not an unpromulgated rule….” . St. Francis Hosp., Inc. v. Dep't of Health & Rehab. Services, 553 So. 2d 1351, 1354 (Fla. 1st DCA 1989). Also, not infrequently, district court opinions remind petitioners and other parties of the basic tenant of administrative law which holds that an agency's interpretation of a statute is entitled to considerable deference, and “[a] reviewing court properly defers on questions of statutory interpretation to the agency to which the Legislature has given the responsibility and authority to administer the statute, unless the interpretation is clearly erroneous.” State Bd. of Admin. v. Huberty, 46 So.3d 1144 (Fla. 1st DCA 2010) (Quoting: Okeechobee Health Care v. Collins, 726 So.2d 775, 778 (Fla. 1st DCA 1998). In the Huberty decision, the agency interpreted an undefined term, “electronic”, as stated in the statutory phrase, “be made in writing or by electronic means”, to include telephonic communication ( rather than solely computer based communication ) of an employee’s decision to switch between retirement plans administered by the State Board of Administration. The court did so in reversing the DOAH decision below, which determined a non-rule policy existed. In reversing, the District court reiterated the definition of a rule as follows:

[A]n agency interpretation of a statute which simply reiterates the legislature's statutory mandate and does not place upon the statute an interpretation that is not readily apparent from its literal reading….. are permissible without requiring an agency to go through rulemaking.” (quoting; St. Francis Hosp., Inc. v. Dep't of Health & Rehabilitative Servs., 553 So.2d 1351, 1354 (Fla. 1st DCA 1989)).

In this reversal, the 1st DCA sought to distinguish its own precedent in Fla. Dep't of Fin. Servs. v. Capital Collateral Reg'l Counsel-Middle Region, 969 So.2d 527, 530 (Fla. 1st DCA 2007) pointing out the interpretation of the word “ electronic” did not adversely affect rights saying:

We have held that “ ‘[a]n agency statement that either requires compliance, creates certain rights while adversely affecting others, or otherwise has the direct and consistent effect of law is a rule.’ ” (quoting Fla. Dep't of Fin. Servs. v. Capital Collateral Reg'l Counsel–Middle Region, 969 So.2d 527, 530 (Fla. 1st DCA 2007))).

Hence, a “recommendation” which did not purport to adversely affect any substantive rights or withdraw a substantive right, did not rise to the level of a rule. See: Volusia County Sch. Bd. v. Volusia Homes Builders Ass'n, Inc., 946 So.2d 1084, 1089 (Fla. 5th DCA 2006). When deciding whether a challenged action constitutes a rule, a court analyzes the action's general applicability, requirement of compliance, or direct and consistent effect of law. Florida Dep't of Fin. Servs. v. Capital Collateral Reg'l Counsel-Middle Region, 969 So. 2d 527, 530 (Fla. Dist. Ct. App. 2007) ( Quoting: Volusia County Sch. Bd., supra. In Capital Collateral, the Court supplied the following explantion of why the statement was not a rule saying:

As noted, no action was taken against either CCRC–M or Mr. Jennings based on the Department's alleged “rule” that CCRC–M constituted an executive agency. The Department has not issued an Administrative Complaint or a Notice of Intended Agency Action…….” Id.

In contrast to the circumstances described in Capital Collateral , the Vanjaria facts demonstrated the “unadopted rule” did directly and adversely affect rights because it involved a Notice of Intended Agency Action (aka, Notice of Intent to Assess Tax), adverse action from the point of view of the taxpayer. This fact pattern drew the Department audit manual procedure in the realm of an agency statement defined as a rule. In Vanjaria, the operative tax statute directed the Department of Revenue to determine the portion of a property's rental revenue that was exempt from taxation. The Fifth DCA explained….” the department's decision to use a square-footage formula, rather than another method, such as a revenue-percentage formula, was not a direct application of the statute. “ Department of Revenue of State of Fla. v. Vanjaria Enterprises, supra. Because the adoption of a square footage formula was not found in the taxing statute nor in an adopted rule, it was determined to be an” agency statement of general applicability” which had to be adopted as a rule by virtue of Section 120.54 (1) Fla. Stat. Section 120.54(1)(a), Florida Statutes (2009), provides that “each agency statement of general applicability”, defined as a rule by s. 120.52, shall be adopted by the rulemaking procedure provided by this section as soon as feasible and practicable……”.

The contrast between the two cases (Capital Collateral Reg’l and Vanjaria) and the reasoning supplied by the Fifth DCA in Vanjaria, by way of explanation, are useful beyond the decision. The Fifth DCA description and explanation and the upholding of the ALJ decision in Florida Bee, supra., are particularly helpful in tax cases involving audit procedures. In such cases, attention should be focused on whether the audit decisions underlying the assessment are based, in whole or in part, upon the subjective judgment of the auditor and whether there is a reasonable explanation available from the agency which can be readily attributable to the plain words of a statute or an existing promulgated rule by the agency. If neither of these circumstances exist, it would be strongly advisable to ask for clarification from the agency. Absent an explanation which satisfies the description above, it would be wise to consult your tax professional for possible challenges to the assessment.


  1. An agency statement, not proscribed in a rule, which requires compliance, creates certain rights while adversely affecting others, or otherwise has a direct and consistent effect will likely be considered an unadopted rule and therefore unenforceable. Amerisure Mut. Ins. Co. v. Florida Dept. of Financial Services, Div. of Workers' Compensation, 156 So.3d 520 (Fla. 1st DCA 2015)
  1. An agency interpretation of an undefined term in a statute, which the agency administers, will not be considered an unadopted rule when the agency interpretation does not place upon the statute an interpretation which is not readily apparent from a literal reading of the statute. State Bd. of Admin. v. Huberty, 46 So.3d 1144 (1st DCA 2010)
  1. A tax audit results which cannot be explained by the statute itself and for which no directly on point rule exists may likely be considered an unadopted rule and subject to legal action to challenge the audit results by the agency.
  1. If a challenge to an unadopted rule is determined by an ALJ, then the Petitioner will be entitled to recover her attorney fees.

About the Firm: Formed in 1991, the Law Offices of Moffa, Sutton, & Donnini, P.A. is a law firm with a primary practice area of Florida tax controversy and a heavy emphasis on Florida sales and use tax. With offices in Fort Lauderdale, Tampa, and Tallahassee, the firm defends business owners against the Florida Department of Revenue from the initial audit notice through administrative protest and litigation as well as collections, revocations, and criminal investigations.

Florida Sales Tax Litigation; Florida Sales Tax Audit; Florida Sales Tax Attorney; Tallahassee Sales Tax Attorney; Tallahassee Sales Tax Audit; Tallahassee Sales Tax DefenseAbout the Author: James (Jim) F. McAuley is an experienced attorney, joining the firm in 2015 after an exemplary career with the state of Florida. Holding the Florida Bar board certification as a specialist in State and Federal Administrative Law, Mr. McAuley represented the State of Florida for more than 20 years in the area of state and local taxation and administrative law with an emphasis on litigation. Mr. McAuley is Board Certified by the Florida Bar in the area of State and Federal Government Administrative Practice. Mr. McAuley holds the highest rating given to lawyers by Martindale Hubbell (Av) and has maintained that rating for more than 15 years. He is also a published legal author in both State taxation and Administrative law. He is an alumni & author of the Nova Law Review (Fall 2007). You can read more about Mr. McAuley in his firm bio.

[1] Mr. McAuley is Board Certified in State & Federal Government Administrative Law, a Senior Attorney with the firm and represented the Florida Bee ( noted above) along with Mr. Moffa and Mr.Donnini.

[i] Upon a determination by an ALJ of the existence of the use of an “unadopted rule”, the legislature mandated the award of attorney’s fees. An award was made in the instant case and upheld by the District Court.