14-003496 Brandy&Apos;S Products, Inc. vs. Department Of Business And Professional Regulation, Division Of Alcoholic Beverages And Tobacco Status: Closed Recommended Order on Tuesday, February 24, 2015.

Summary: Petitioner was not required to pay the state excise tax and surcharge on specified tobacco products when it regularly purchased cases of a tobacco-containing cigar wrapper known as a "blunt wrap."

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BRANDY'S PRODUCTS, INC.,

Petitioner,

vs. Case No. 14 - 3496

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF ALCOHOLIC BEVERAGES

AND TOBACCO,

Respondent.

_______________________________/

RECOMMENDED ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing by video teleconference on

January 9, 2015 , at sites in Tallahassee and Lauderdale Lakes ,

Florida.

APPEARANCES

For Petitioner: Gerald J. Donnini , Esquire

Joseph C. Moffa, Esquire

Moffa, Gainor, and Sutton, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale , Florida 33 394

For Respondent: Elizabeth A. Teeg an , Esquire

David Samuel Grossman, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner , a licensed

distributor of tobacco products, was required to pay an excise

tax and surcharge, which the state levies on specified tobacco

products, when it regularly brought into Florida shipments of a

tobacco - containing product marketed as a cigar wrapper and known

as a "blunt wrap."

PRELIMINARY STATEMENT

At all relevant times, Petitioner Brandy's Products, Inc.,

was a licensed distributor of tobacco products in the state of

Florida, subject to the regulatory authority of Respondent

Department of Business and Professional Regulat ion. Among other

responsibilities, Respondent collects the state taxes imposed on

cigarettes and other tobacco products.

In 2009, Respondent decided that a type of rolling paper

marketed as a cigar wrapper and known popularly as a "blunt

wrap" cons titutes a taxable "tobacco product" because tobacco is

a raw material used in manufacturing the finished good , which

consequently contains tobacco. Respondent resolved to start

collecting tobacco taxes on blunt wraps brought into the state

of Florida from July 1, 2009, forward. Both before and after

this effective date, Petitioner purchased blunt wraps for resale

and brought them in to the state. Unaware of Respondent's stand,

which was never officially communicated to distributors,

Petitioner did not rem it tobacco taxes on any of these

purchases.

In the course of conducting an audit of one of Petitioner's

suppliers, Respondent came into possession of records reflecting

Petitioner's purchases of blunt wraps, from which it determined

that Petitioner ow ed the state $15,911.60 in excise taxes and

$38,187.72 in surcharges for bringing in this purported "tobacco

product , " together with interest and a penalty. On March 1,

2013, Respondent issued an assessment letter requesting that

Petitioner immediately pa y $71,868.23.

Petitioner disputed the assessment and tried, but failed,

to persuade Respondent to change its mind. On May 19, 2014,

Respondent issued a Notice of Decision and Final Audit

Assessment, which upheld the original assessment in its

entire ty. Petitioner timely requested an administrative

hearing. On July 24, 2014, Respondent referred Petitioner's

Petition for Chapter 120 Hearing to the Division of

Administrative Hearings, where an administrative law judge was

assigned to conduct the heari ng.

The final hearing was held on January 9, 2015 , as

scheduled, with both parties present and represented by counsel.

Respondent presented its prima facie case through two employees:

Gerald Russo, Senior Tax Audit Administrator; and Nancy Cisek,

Se nior Tax Specialist, each of whom testified in person.

Additionally, Respondent Exhibits 1 and 2 were admitted into

evidence. Petitioner's sole witness was Maryanne Palino,

president of the corporation. Petitioner Exhibits 2 through 9

were received as w ell.

The parties stipulated at hearing that the mathematical

calculations Respondent performed as part of the subject audit

are correct , meaning that if all of the disputed factual and

legal grounds upon which Respondent has relied were decided in

Respondent's favor, then the sums Respondent seeks to collect

from Petitioner are accurate.

The two - volume final hearing transcript was filed on

January 23, 2015 . Each party timely filed a P roposed

R ecommended O rder on February 12, 2015 , in accordance with the

deadline established at the conclusion of the hearing.

Unless otherwise indicated, citations to the Florida

Statutes refer to the 2014 Florida Statutes.

FINDINGS OF FACT

1. At all relevant times, Petitioner Brandy's Prod ucts,

Inc. (" Brandy's ") , was a wholesale distributor that supplied

more than 2,000 different products to retailers such as gas

stations and convenience stores. Among these products were

cigarettes, which Brandy's was authorized to sell pursuant to a

valid , current permit, and other "tobacco products" besides

cigarettes, in accordance with a separate distributor 's license,

numbered 66 - 00115.

2. The state of Florida levies a n excise tax and a

surcharge upon tobacco products. A distributor becomes

liabl e to pay these impositions , e.g., when it brings such goods

into the state, or when it ships or transports tobacco products

to retailers in the state. Respondent Department of Business

and Professional Regulation ("Department" or "DBPR" ) is the

state agency authorized to administer and enforce the laws

relating to the taxation of cigarettes and other tobacco

products .

3. The following "tobacco products" are taxable under

Florida law :

loose tobacco suitable for smoking ; snuff;

snuff flour; c avendish; 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, as defined by s. 210.01(1), or

cigars.

§ 210.25(11), Fla. Stat. (defining "tobacco products")(emphasis

added).

4. At all relevant times, Brandy's sold a product that is

marketed as a cigar wrapper (or rolling paper) and known

colloquially as a "blunt wrap." A blunt wrap looks like this 1 /

(except for the color, which in reality is a shade of brown) :

Tobacco is one of the raw materials used to manufacture the

blunt wraps at issue , which consequently contain tobacco as an

ingredient. The dispute at the heart of this case is whether

blunt wraps fall within the definition of "tobacco products" set

forth above, a s the Department argues, which would make them

taxable, or outside of that definition, as Brandy's maintains,

which would place blunt wraps beyond the reach of the taxing

statutes.

5. The Department's position hardened in the first half of

2009 after a period of internal discussion triggered by

Congress's enactment of legislation which expanded the Internal

Revenue Code's definition of "roll - your - own tobacco" to include

tobacco - based wrappers for cigarettes or cigars , thereby

s ubject ing blunt wraps purch ased after March 31, 2009, to

taxation at the federal level . 2 / Although the Florida

L egislature had not similarly amended the relevant statutory

definition of "tobacco products" (and has not done so as of this

writing), the Department decided that blunt w raps are a form of

"loose tobacco suitable for smoking" and thus taxable. The

Department declared that July 1, 2009, would be the effective

date of its new policy, a nd it began assessing the excise tax

and surcharge on purchases of blunt wraps occurring f rom that

day forward. 3 /

6. The Department did not adopt a rule reflecting its

decision to treat blunt wraps as a taxable tobacco product, nor

did the agency give any official notice to licensed distributors

such as Brandy's that the state would start taxing blunt wraps

on July 1, 2009.

7. Brandy's had purchased blunt wraps for sale to

customers in Florida for some years before July 1, 2009 , but

during that time had not, in connection with such transactions,

remitted to the state any amounts for the excise tax and

surcharge on tobacco products . This was because , until

July 1, 2009, the Department had never applied the term "tobacco

products" as defined in section 210.25(11) , Florida Statutes,

pursuant to an understanding that it include s blunt wraps.

Brandy's, which was unaware of the Department's expansive

reinterpretation of section 210.25(11) in 2009, continued doing

business after July 1 of that year just as it had before that

date. Consequently, Brandy's did not remit to the Department

an y amounts for the Florida excise tax and surcharge on tobacco

products based on purchases of blunt wraps during the two - year

assessment period at issue, from July 7, 2009, until August 2,

2011.

8. DBPR routinely audits licensed distributors of tobacco

pr oducts such as Brandy's. At regular, six - month intervals, an

auditor conducts an on - site review of the licensee's books and

records pertaining to taxable purchases, comparing the documents

to the licensee's tax returns. During the assessment period,

Bran dy's never produced records showing purchases of blunt wraps

because Brandy's reasonably believed such purchases remained

non taxable. The auditors never asked to see records relating to

blunt wraps, which would have provided Brandy's some notice, at

least, of the Department's new policy. The evidence does not

support a finding that Brandy's knowingly withheld or concealed

relevant infor mation from the auditors.

9 . Unbeknownst to Brandy's, sometime in 2011 or 2012 the

Department obtained records from an out - of - state company called

National Honey Almond ("NHA"), a supplier of Brandy's. The NHA

records included invoices showing the quant ities and purchase

prices of blunt wraps that NHA had delivered to Brandy's from

July 200 9 through September 2011. The state excise tax and

surcharge had not been paid on these purchases.

10 . Using the NHA invoices, the Department calculated that

su ms totaling $15,911.60 in excise taxes and $38,187.72 in

surcharges were due from Brandy's on its so - called "untaxed

purchases" of blunt wraps from NHA. Together with interest

($12,358.98) and a penalty of $5,409.93, the Department figured

that the total liability was $71,868.23. By letter dated

March 1, 2013, the Department asked Brandy's to remit payment of

this amount within 10 days after receiving the letter. This

letter gave Brandy's its first notice that the Department

considered blunt wraps to be a taxable tobacco product , but it

failed to inform Brandy's that the assessment could be

contested .

11. Nevertheless, Brandy's promptly requested an "informal

hearing " and tendered a token payment of $1,500 to show good

faith . Following that, the Department ÏÏ without first conducting

a hearing ÏÏ sent Brandy's a letter dated April 4, 2014, in which

the Department's "final req uest" for payment of $70,368.23 was

made . Once again , the Department neglect ed to advise Brandy's

of its right to challenge the demand.

12. Brandy's then filed a written protest of the

assessment, by letter dated April 11, 2014. This led to an

audit assessment conference on May 13, 2014, at which the

Department stuck to its guns. On May 19, 2014, th e Department

issued its "Notice of Decision and Final Audit Assessment,"

which demanded that Brandy's pay $70, 3 68.23 within 10 days. The

Notice informed Brandy's of its right to request a judicial

proceeding or administrative hearing to contest the assess ment.

Brandy's timely initiated this administrative proceeding.

CONCLUSIONS OF LAW

13 . The Division of Administrative Hearings has personal

and subject matter jurisdiction in this proceeding pursuant to

s ections 72.011(1)(a), 120.569, 120.57(1), and 120. 80(14)(b),

Florida Statutes.

14 . Although designated the " r espondent," the Department

has the initial burden to prove, by a preponderance of the

evidence, " that an assessment has been made against the taxpayer

and the factual and legal grounds upon which the . . .

department made the assessment." § 120.80(14)(b)2., Fla. Stat.

If the Department meets its burden, then the taxpayer must

establish, also by the greater weight of the evidence, that the

assessment is incorre ct. See IPC Sports, Inc. v. Dep ' t of Rev . ,

829 So. 2d 330, 332 (Fla. 3d DCA 2002).

15 . The tax on tobacco products is levied pursuant to

s ection 21 0 . 3 0, Florida Statutes, which provides in relevant

part:

(1) A tax is hereby imposed upon all

tobacco prod ucts in this state and upon any

person engaged in business as a distributor

thereof at the rate of 25 percent of the

wholesale sales price of such tobacco

products. Such tax shall be imposed at the

time the distributor:

(a) Brings or causes to be brought into

this state from without the state tobacco

products for sale;

(b) Makes, manufactures, or fabricates

tobacco products in this state for sale in

this state; or

(c) Ships or transports tobacco products to

retailers in this state, to be sold by those

retailers.

16 . In addition to the excise tax, the state imposes a

surcharge on tobacco products, as follows:

(1) A surcharge is levied upon all tobacco

products in thi s 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. The surcharge

shall be levied at the time the distributor:

(a) Brings or causes to be brought into

this state fro m without the state tobacco

products for sale;

(b) Makes, manufactures, or fabricates

tobacco products in this state for sale in

this state; or

(c) Ships or transports tobacco products to

retailers in this state, to be sold by those

retailers.

§ 210.276, Fla. Stat.

17 . The term "tobacco products" is defined, for the

purposes of the tax and surcharge, in section 210.25(11), which

is quoted in paragraph 3 of this Recommended Order. Among the

items mentioned in the definition is "loose tobacco suitable for

smoking." The Department contends that blunt wraps are a form

of loose tobacco suitable for smoking.

18. The legislature did not tax all products containing

tobacco. Rather, it "taxed only those specifically enumerated

in the statute." Se e Fla. S & L Servs., Inc. v. Dep't of Rev. ,

443 So. 2d 120, 122 (Fla. 1st DCA 1983)(discussing sales tax on

telephone services). Statutory definitions such as the one

found in section 210.25(11), which determine "what comes within

the tax imposition langu age," circumscribe the extent of the

taxing authority. See Dep't of Rev. v. GTE Mobilnet, Inc. , 727

So. 2d 1125, 1128 (Fla. 2d DCA 1999). Thus, everything outside

the definition of a taxable transaction is nontaxable, not

because such things are exempt f rom the tax, but because the tax

does not extend to them.

19. In applying taxing statutes, courts must be careful

not to subject to tax anything which has not been clearly so

burdened. "Taxes cannot be imposed except in clear and

unequivocal language. Taxation by implication is not

p ermitted." Fla. S & L Servs. , 443 So. 2d at 122 . The

"authority to tax must be strictly construed." GTE Mobilnet ,

727 So. 2d at 1128 . As the Florida Supreme Court explained,

It is a fundamental rule of construction

that tax laws are to be construed strongly

in favor of the taxpayer and against the

government, and that all ambiguities or

doubts are to be resolved in favor of the

taxpayer. This salutary principle is found

in th e reason that the duty to pay taxes,

which necessary to the business of the

sovereign, is still a duty of pure statutory

creation and taxes may be collected only

within the clear definite boundaries recited

by statute.

Maas Bros., Inc. v. Dickinson , 195 So. 2d 193, 198 (Fla. 1967);

see also Mikos v. Ringling Bros. - Barnum & Bailey Combined Shows ,

497 So. 2d 630, 632 (Fla. 1986)( "The courts are not taxing

authorities and cannot rewrite the statute . ").

20. T he evidence in this case establishes without dis pute

that t obacco is a raw material used to manufacture blunt wraps.

Because blunt wraps are composed in part of tobacco , it would be

neither surprising nor confusing, in casual conversation, to

refer to them as a to bacco product. Here, however, the term

"tobacco products" is specifically and precisely defined for a

particular purpose, namely to delimit t he scope of a taxing

statute. Contrary to the Department's contention, section

210.25(11) clearly does not extend to blunt wraps, despite their

tobacco content.

21. First, though, the undersigned cannot help but notice

that the Department's policy of treating blunt wraps as taxable

"tobacco products" appears to be a statement of general

applicability that , instead of m erely echo ing the statute it

ostensibly implement s , prescribes law by inflating an existing

statute with the breath of new meaning . Section 120.57(1)( e )1.,

Florida Statutes, instructs that "[a]n agency or an

administrative law judge may not base agency action that

determines the subs tantial interests of a party on an unadopted

rule." The statute further mandates that the "administrative

law judge shall determine whether an agency statement

constitutes an unadopted rule." Neither directive is dependent

upon the request of a party. 4 / Thus, the undersigned must decide

whether the Department's statement regarding the taxability of

blunt wraps ( see endnote 3 ) is an unadopted rule.

22. An "unadopted rule" is "an agency statement that meets

the definition of the term 'rule,' but that has not been adopted

pursuant to the requirements of s. 120.54." § 120.5 2 (20), Fla.

Stat. The term "rule" means

each agency statement of general

applicability that implements, interprets,

or prescribes law or policy or describes the

procedure or practice re quirements 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. The term also includes

the amendment or repeal of a rule.

§ 120.52(16), Fla. Stat.

23 . To be a rule,

a statement of general applicability must

operate in the manner of a law. Thus, if

the statement's effect is to create

stability and predictability within its

field of operation; if it treats all those

with like cases equally; if it requ ires

affected persons to conform their behavior

to a common standard; or if it creates or

extinguishes rights, privileges, or

entitlements, then the statement is a rule."

Fl a . Quarter Horse Racing Ass ' n, Inc. v. Dep't of Bus. & Prof'l

Reg. , Case No. 11 - 5796RU, 2013 Fla. Div. Adm. Hear. LEXIS 558,

37 - 38 (Fla. DOAH May 6, 2013), aff'd , Fla. Quarter Horse Track

Ass'n v. Dep't of Bus. & Prof'l Reg. , 133 So. 3d 1118 (Fla. 1st

DCA 2014).

24. Moreover, because the definition of the term "rule"

expressly inc ludes statements of general applicability that

implement or interpret law, an agency's interpretation of a

statute that gives the statute a meaning not readily apparent

from its literal reading and purports to create rights, require

compliance, or otherwis e have the direct and consistent effect

of law, is a rule, but one which simply reiterates a statutory

mandate is not. Id. at 39 - 40 ; see also State Bd. of Admin. v.

Huberty , 46 So. 3d 1144, 1147 (Fla. 1st DCA 2010); Beverly

Enterprises - Florida, Inc. v. De p't of HRS , 573 So. 2d 19, 22

(Fla. 1st DCA 1990); St. Francis Hosp., Inc. v. Dep't of HRS ,

553 So. 2d 1351, 1354 (Fla. 1st DCA 1989).

25. The Department's policy regarding the taxability of

blunt wraps is presented as an interpretation of section

21 0.25(11), Flo rida Statutes; specifically, the agency statement

construes the phrase: "loose tobacco suitable for smoking."

Because of t his , a distinction must be made between the

questions of (a) whether the agency's interpretive stat ement

meets the definition of the term " rule " and (b) whether the

agency statement is the correct interpretation of the statute.

While it might be tempting to conflate these issues, the merit

of the agency's statutory interpretation is irrelevant to the

question of wheth er the statement is a rule by definition.

26. Thus, although t he ALJ might determine that the

agency's interpretation is correct , such a conclu sion would not

remove the statement from the definition of the term "rule." A n

agency's correct interpretation of an ambiguous statute , in

other words , is no less an una dopted rule than a

misinterpretation of the statute , if the agency statement meets

the definition of the term "rule."

27. And yet, if the agency's interpretation of a

controlling statute consti tutes an unadopted rule and for that

reason cannot be applied to determine the substantial interests

of a party, the statute remains in control and must be followed.

Section 120.57(1)(e) does not prohibit either the ALJ or the

agency from determining a party's substantial interests based

upon the ALJ's best understanding or interpretation of the

governing statute. As a result, the merit of an agency's

interpretative statement of general applicability is not

irrelevant to the question of how the case should be decided ,

even if the statement is an unadopted rule which cannot be used

to decide a party's substantial interests . An agency stat ement

might still be persuasive, after all, notwithstanding that its

use as an authoritative rule of decision is forbidden.

28. When considering whether an agency's interpretive

statement constitutes an unadopted rule, the analysis should

start with a de termination regarding the existence of ambiguity,

if any, in the s tatutory language , which is a question of law .

It is well settled that when a statute is clear and unambiguous,

the function of the court (or ALJ) is to apply the law, for an

unambiguous pr ovision requires no interpretation or

construction. See, e.g. , Osborne v. Dumoulin , 55 So. 3d 577,

581 (Fla. 2011)("Only when the statutory language is unclear or

ambiguous is it necessary to apply principles of statutory

construction to discern its meani ng."); Verizon Fla. v. Jacobs ,

810 So. 2d 906, 908 (Fla. 2002); Shelby Mut. Ins. Co. v. Smith ,

556 So. 2d 393, 395 (Fla. 1990). Thus, if the statute is clear

and unambiguous as a matter of law and the agency statement

merely reiterates the plain statutory mandate, then the

statement is not a rule by definition, and the statute should be

applied according to its plain meaning, consistent with the

agency statement.

29. On the other hand, if the statute is clear and

unambiguous and the agency statement modif ies, contravenes,

enlarges, restricts, or otherwise changes the plain meaning of

the statute, then the statement is an unadopted rule, which the

ALJ and agency must disregard pursuant to section 120.57(1)(e),

and the party's substantial interests must be d etermined based

upon the plain language of the unambiguous statute . See Campus

Commc'ns, Inc. v. Dep't of Rev. , 473 So. 2d 1290, 1295 (Fla.

1985)(words of common usage in a statute must be understood and

applied not in a technical sense , or as defined in an invalid

rule, but according to "their pl ain and ordinary

signification") . 5 /

30. The situation is a bit more complicated if the

statutory language is ambiguous. "A statute is normally

regarded as 'ambiguous' when its language may permit two or more

ou tcomes." Hess v. Walton , 898 So. 2d 1046, 1049 (Fla. 2d DCA

2005). When the statute is ambiguous, "a court may turn to the

rules of statutory interpretation and construction." Anderson

v. State , 87 So. 3d 774, 777 (Fla. 2012). I f the statute is

ambiguo us and the agency statement interpreting the statute is

an unadopted rule, the n the ALJ must disregard the unadopted

rule qua rule and follow the statute, notwithstanding its

ambiguity.

31. T his is because, t o repeat for emphasis, section

120.57(1)(e) prohibits application of an unadopted rule as a

rule but does not compel the ALJ and the agency to ignore a

controlling statute , even an ambiguous one. To follow an

ambiguous statute , however, the ALJ must construe the ambiguous

statute, and in doing so should treat the agency's

interpretation, not as authoritative or binding , i.e., as a

rule , but as an advocate's argument that might be persuasive

depending on its cogency . To be sure , a determination that an

agency's interpretive statement constitutes a rule by definition

has adverse consequences for the agency , but among them is not

the foregone conclusion that the agency's statutory

interpretation is wrong .

32. In the end, the ALJ must recommend that the party's

substantial interests be determined ac cording to the ALJ's best

interpretation of the ambiguous statute, which might or might

not accord with the agency's interpretation. Applying t he ALJ's

interpretation of the law to determine a party's substantial

interests in a particular case would not run afoul of section

120.57(1)(e), even i f the ALJ's best interpretation happen ed to

agree with the agency's interpretation, but the agency w ould be

vulnerable to a challenge under section 120.56(4) unless and

until its statement were either abandoned or adopted as a rule . 6 /

33. Turning to the statement under consideration, the

undersigned need not resort to a rule of strict or literal

construction to conclude that section 210.25(11) does not

describe blunt wraps. The statutory language is unambiguous a nd

requires no interpretation, but even if it were amenable to

construction, the most expansive , reasonable reading of "loose

tobacco suitable for smoking" still would not encompass these

items. This is because a blunt wrap is a distinct, cohesive,

unifor m product, which upon inspection is readily seen to have

been cut to a specific, predetermined shape. No tobacco, as

such, is visible when examining a blunt wrap, much less "loose"

tobacco or any other "loose" ingredients for that matter. In

short, a blu nt wrap is no more loose tobacco than a piece of

writing paper is loose w ood. 7 /

34. DBPR's interpretation of section 210.25(11) as

including blunt wraps within the specialized definition of

"tobacco products" is erroneous and unreasonably enlarges the

taxing authority in contravention of the plain language of the

statute. See Campus Commc'ns, Inc. v. Dep't of Rev. , 473 So. 2d

1290, 129 1 n.1 (Fla. 1985) ("The power t o tax lies with the

legislative branch. . . . An agency may not impose a tax, by

rule or in any other manner."). Correctly understood, giving

the words used in section 210.25(11) their plain an d ordinary

signification, the definition in dispute does not include blunt

wraps within its reach. 8 / Blunt wraps are not taxable as

"tobacco products." 9 /

35. The Department's st atement concerning blunt wraps ,

apart from being incorrect, also gives the statute a meaning not

readily apparent from a literal reading, imposing legally

binding tax obligations upon all licensed distributors who

p urchase blunt wraps and subjecting those who do not remit such

taxes to enforcement action. The conclusio n that this statement

meets the definition of the term "rule" is practically self -

evident. That the policy has its own effective date separate

from that of the enabling statute 1 0 / is a dead giveaway that the

Department's authority for imposing the taxes is actually the

agency statement, not the statute, which means that the

Department is imposing the taxes on its own authority without an

adequate legislative basis. Neither the administrative law

judge nor the Department may determine the substantial inte rests

of Brandy's based upon this unadopted rule. § 120.57(1)(e)1.,

Fla. Stat.

36 . Brandy's asserts that the disputed assessment is

largely time barred pursuant to section 95.091(3)(a)1.b., which

provides that DBPR "may determine and assess the amount o f any

tax, penalty, or interest due" under the taxing statutes it has

the authority to administer " within 3 years after the date the

tax is due, any return with respect to the tax is due, or such

return is filed, whichever occurs later ." Contending that

D BPR's issuance of the Notice of Decision and Final Audit

Assessment on May 19, 2014, constituted the clock - stopping

event, Brandy's reasons that the assessable period started , at

the earliest, on May 19, 2011 , with the result that transactions

occurring be fore that date must be reckoned too old to be taxed.

If Brandy's is correct, the two - year assessment period at issue

should be truncated to the few months between May 1 9 , 2011, and

August 2, 2011.

37. The Department responds that, pursuant to section

95 .091(3)(a)5., it was authorized to make an assessment against

Brandy's "[a]t any time" because "the taxpayer failed to make

any required payment of the tax" and failed to "disclose[] in

writing the tax liability to the department before the

department cont act[ed] the taxpayer." I nasmuch as the central

dispute in this case is whether Brandy's is "required" to pay

the subject tobacco taxes on transactions involving blunt wraps ,

however, the Department's argument begs the question (by

assuming that Brandy's failed to make a required tax payment),

significantly undermining its persuasive force. Beyond that ,

DBPR's position suggests, problematically, that practically any

dispute over a tax assessment would fall under subparagraph 5's

potentially limitless limi tation period, since most assessments

presumably arise from the Department's allegation that a

taxpayer has failed to make a required payment of the tax it

seeks to collect.

38. Even if the statute of limitations were applied

exactly as Brandy's believe s it should be, though, the question

of whether blunt wraps are taxable as "tobacco products" would

persist because a small portion of the assessment period is

within the three years preceding the Notice of Decision and

Final Audit Assessment. Having deci ded the unavoidable issue,

and concluded that the transaction s at issue are nontaxable, the

undersigned will sidestep the issues presented by the parties'

statute - of - limitations arguments, for there is no need to

determine whether the limitation period had run on some of these

transactions , given that no taxes are due on any of them . 1 1 /

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Business and

Professional Regulation enter a final o rder setting aside the

assessment against Brandy's for the excise taxes and surcharges

on tobacco products that the Department alleged were due,

together with interest and a penalty, on purchases of blunt

wraps that Brandy's had made between July 7, 2009, and August 2,

2011.

DONE AND ENTERED this 24th day of February, 20 15 , in

Tallahassee, Leon County, Florida.

S

___________________________________

JOHN G. VAN LANINGHAM

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 24th day of February, 20 15 .

ENDNOTES

1 / The photograph reproduced in the text has been sized to

scale. Cutting out this picture therefore would yield a rough

approximation of the product under discussion, though the

genuine article actually has a somewhat soft and damp texture

when fresh, bec oming brittle over time as it dries out.

2 / See Children's Health Insurance Program Reauthorization Act

of 2009, Pub. L. No. 111 - 3, 123 Stat. 110 (2009).

3 / The Department's statement of policy is that all rolling

papers made from, or containing any trace of, tobacco are

"tobacco products" subject to the state excise tax and surcharge

as of July 1, 2009.

4 / Agency action may be based upon an unadopted rule under

an extremely narrow exception to the otherwise blanket

proscription set forth in subpar agraph 1 of the statute. See

§ 120.57(1)(e)2., Fla. Stat. Reliance upon this exception

requires the agency to establish, among other things, that

recent legislation has directed the agency to adopt a rule, and

that the agency, despite moving quickly and in good faith to do

so, has not had enough time to complete the process. The

Department clearly could not make such a showing with regard to

the statement under review, for the policy has been in effect

for nearly six years and is not the subject of ongo ing

rulemaking.

5 / Unadopted rules, as a class, are a subset of the category

comprising all invalid exercises of delegated legislative

authority. That is, all unadopted rule are necessarily invalid

rules, see § 120.52(8)(a), Fla. Stat., but not all inva lid rules

are unadopted rules, see § 120.52(8)(b) - (f), Fla. Stat.

6 / The ALJ's interpretation of an ambiguous statute is not,

strictly speaking, a statement of general applicability because

it affects at most only the parties to the proceeding before the

ALJ; therefore, the ALJ's statement regarding the meaning of the

statute is not an unadopted rule. The agency's settled

interpretation of an ambiguous statute which it administers, in

contrast, is generally applicable, at least where the ambiguity

is pat ent and does not arise from the uncertain application of a

facially unambiguous statute to a peculiar or unforeseen factual

situation. Such an agency statement is required to be adopted

as a rule pursuant to section 120.54(1)(a).

7 / It is doubtful, more over, that a blunt wrap, on its own, is

"suitable for smoking." There is insufficient persuasive

evidence to support a finding one way or the other, however,

which means that the Department failed, in this separate

instance, to carry its burden of establi shing all of the factual

grounds supporting the assessment. Yet this failure of proof,

while independently fatal to the assessment, is so completely

overshadowed by the conclusion that blunt wraps are not loose

tobacco as to be superfluous to the outcome.

8 / DBPR cites Cadwalader v. Zeh , 151 U.S. 171 (U.S. 1894), in

support of an argument that the term "loose tobacco" is a

"widely understood" term of art in the "industry," which

accordingly must be given its commercial meaning, rather than

its plain mean ing. In Zeh , the Court observed:

It has long been a settled rule of

interpretation of the statutes imposing

duties on imports, that if words used

therein to designate particular kinds or

classes of goods have a well known

signification in our trade and c ommerce,

different from their ordinary meaning among

the people, the commercial meaning is to

prevail, unless Congress has clearly

manifested a contrary intention; and that it

is only when no commercial meaning is called

for or proved, that the common mean ing of

the words is to be adopted.

Id. at 176. The venerable rule of commercial designation

retains its vitality as a guide for interpreting tariff laws.

See, e.g. , Cent. Prods. Co. v. U.S. , 20 Ct. Int'l Trade 862 (Ct.

Int'l Trade 1996). The taxes in q uestion here are not imposts

or duties, however, which under the Import - Export Clause are

revenue sources to which the federal government has exclusive

rights. See Art. I, § 10, cl. 2, U.S. Const. Thus, the

commercial - designation doctrine is inapplicable . But even if

the tariff - term rule were apposite, which it is not, the

existence of a commercial designation is a question of fact,

with the burden falling on the proponent of the specialized

usage to "demonstrate that such tariff term has a meaning which

is general (extending over the entire country), definite

(certain of understanding), and uniform (the same everywhere in

the country ) ." Id. at 864. The Department did not make such a

showing with regard to the term "loose tobacco," and thus it

failed to establish a factual basis for abandoning the common

meaning of the statutory language.

9 / The Department argues that its interpretation of section

210.25(11) is entitled to deference since the Department is

charged with administering this statuteue enough:

"Judicial deference is, of course, owed an agency's

interpretation of a statute t he agency is charged with

administering." Fla. Elec. Comm'n v. Davis , 44 So. 3d 1211,

1215 (Fla. 1st DCA 2010); Fla. Hosp. (Adventist Health) v. Ag.

for Health Care Admin. , 823 So. 2d 844, 847 (Fla. 1st DCA

2002)(The court is "required to be highly defere ntial to the

agency's interpretation of" a statute the agency is empowered to

enforce.). But the Department's argument assumes that the

prudential doctrine of judicial deference constrains ALJs ÏÏ a

common misunderstanding which confuses the role of the ALJ with

that of the court.

Unlike the judiciary, ALJs are participants in the

decision - making processes that lead to administrative

interpretations of statutes and rules ÏÏ the very administrative

interpretations to which courts defer. (Indeed, deference is

sometimes owed to the ALJ 's interpretation. Davis , 44 So. 3d at

1215.) The ALJ's duty is to provide the parties an independent

and impartial analysis of the law with a view towards helping

the agency make the correct decision. In fulfilling this duty ,

the ALJ should not defer to the agency's interpretation of a

statute or rule, as a court would; rather, the ALJ should make

independent legal conclusions based upon his or her best

interpretation of the controlling law, with the agency's legal

interpreta tions being considered as the positions of a party

litigant, entitled to no more or less weight than those of the

private party.

The ALJ's independence in this regard in no way diminishes

the primary authority of the agency to formulate the

administrat ive interpretation of a statute it is charged with

enforcing because the "agency is not required to defer to the

administrative law judge on issues of law" over which it has

substantive jurisdiction. State Contr'g & Eng'g Corp. v. Dep't

of Transp. , 709 So . 2d 607, 609 (Fla. 1st DCA 1998). Instead,

the agency may reject such legal conclusions if it "state[s]

with particularity [the] reasons for rejecting or modifying such

conclusion[s]" and finds, in each instance, "that its

substituted conclusion of law . . . is as or more reasonable

than that which was rejected or modified." § 120.57(1)(l), Fla.

Stat. So, while a court, which has the last word in disputes

over the meaning of a statute, can bind the agency to an

unwelcome interpretation of a statute with in the agency's

substantive jurisdiction, an ALJ cannot; the agency, not the

ALJ, is ultimately in control of the administrative

interpretation of a statute it enforces, allowing the ALJ to

speak freely while examining the dispute from a disinterested

pers pective. The undersigned therefore rejects the Department's

contention that its interpretation of section 210.25(11) is

entitled to deference by the ALJ; it is not.

That said, the agency is required to defer to the ALJ's

"determination regarding an unad opted rule under" section

120.57(1)(e)1., which "shall not be rejected . . . unless the

agency first determines from a review of the complete record,

and states with particularity in the order, that such

determination is clearly erroneous or does not compl y with

essential requirements of law . " § 120.57(1)(e)3., Fla. Stat.

Thus, if the ALJ finds that the agency's interpretation of a

statute is a rule by definition and, further, reaches a

different conclusion about the meaning of the statute, then, in

that situation, the agency cannot reject the ALJ's

interpretation of the statute under section 120.57(1)(l) without

first rejecting the ALJ's determination regarding the unadopted

rule, pursuant to section 120.57(1)(e)3. Even so, the agency's

inability to base agency action on an unadopted rule in a given

proceeding due to an ALJ's determination under section

120.57(1)(e) would not necessarily preclude the agency from

applying its preferred interpretation in other cases (as a final

order under section 120.56(4) would), or from adopting its

interpretation as a rule, which would be the prudent response.

See § 120.54(1)(a), Fla. Stat.

1 0/ The statutory definition of "tobacco products" was enacted

nearly 30 years ago, taking effect on July 1, 1985 (exactly 24

yea rs before the unadopted rule became effective). Ch. 85 - 141,

§§ 1, 5, at 1023 - 29, Laws of Fla.

1 1/ Should resolution of statute - of - limitations dispute become

necessary at some future point in this proceeding, it will be

seen that the parties' respective positions regarding the

statute of limitations are based upon undisputed historical

facts and hence can be decided as a matter of law.

COPIES FURNISHED :

Gerald J. Donnini, Esquire

Moffa, Gainor, and Sutton, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

(eServed)

Joseph C. Moffa, Esquire

Moffa, Gainor, and Sutton, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

(eServed)

Elizabeth A. Teegan, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

(eServed)

David Samuel Grossman, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

(eServed)

William N. Spicola, General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399

(eServed)

Thomas Philpot, Director

Division of Alcoholic Beverages

and Tobacco

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399

(eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.