15-006108RU Florida Bee Distribution, Inc., D/B/A Tobacco Express Distributors vs. Department Of Business And Professional Regulation, Division Of Alcoholic Beverages And Tobacco Status: Closed Settled and/or Dismissed prior to entry of RO/FO on Wednesday, March 1, 2017.

Summary: The Department's statement of general applicability must be adopted as a rule. Petitioners are entitled to fees.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA BEE DISTRIBUTION, INC.,

d/b/a TOBACCO EXPRESS

DISTRIBUTORS,

Petitioner,

vs. Case N o. 15 - 6108RU

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF ALCOHOLIC BEVERAGES

AND TOBACCO,

Respon dent.

_______________________________/

PLANET TRADING, INC., AND

MELBOURNE, LLC,

Petitioner s ,

vs. Case No. 15 - 6148RU

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF ALCOHOLIC BEVERAGES

AND TOBACCO,

Respondent.

_______________________________ /

FINAL ORDER

Pursuant to notice to all parties, a final hearing was

conducted in this case on January 28, 2016 , via video

teleconference with sites in Tallahassee and F ort Lauderdale ,

Florida, before Admini strative Law Judge R. Bruce McKibben of

the Division of Administrative Hearings (ÐDOAHÑ) . The parties

were represented as set forth below.

APPEARANCES

For Petitioner: Gerald J. Donnini, II, Esquire

Joseph Moffa, Esquire

James McAuley, Esq uire

Moffa, Sutton and Donnini, P.A.

100 Southeast Third Avenue, Suite 2202

Fort Lauderdale, Florida 33394

For Respondent: William H. Stafford, III, Esquire

Blaine H. Winship, Esquire

Office of the Attorney General

The Capitol , Plaza Level 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent, Department of

Business and Professional Regulation, Division of Alcoholic

Beverages & Tobacco (the ÐDepartmentÑ) , is operating under an

unadopted rule in its application of sections 210.276 and

210.30, Florida Statutes, which impose a surcharge and an excise

tax, respectively, on tobacco products other than cigarettes or

cigars, commonly known as other tobacco produ cts (ÐOTPÑ), by

calculating Ðwholesale sales priceÑ as the full invoice price

charged by OTP manufacturers to distributors, including any

federal excise taxes ( Ð FET Ñ ) and shipping charges reflected in

the invoice price .

PRELIMINARY STATEMENT

On October 28, 2015, Petitioner, Florida Bee Distributors,

Inc. , d/b/a Tobacco Express Distributors (ÐFlorida BeeÑ), filed

a Petition to Determine Invalidity of Agency Statements.

Similarly, Petitioners, Planet Trading, Inc. , and Melbourne ,

LLC, jointly filed a Peti tion to Determine Invalidity of Agency

Statements on October 30, 2015. On November 13, 2015, an Order

of Consolidation was entered to combine the two cases into the

instant case. Pursuant to a Pre - h earing Stipulation filed on

January 26, 2016, the Petiti oners timely filed their Petitions,

the Petitioners have standing to initiate this proceeding, and

DOAH has jurisdiction over the parties and subject matter in

this consolidated proceeding.

The Petitioners alleged that in 2012, Micjo, Inc. v.

Department of Bus iness & Professiona l Reg ulation , 78 So. 3d 124

(Fla. 2d DCA 2012), interpreted the phrase Ðwholesale sales

priceÑ to exclude non - tobacco items such as FET and shipping

charges from the taxable base of the wholesale tax imposed on

other tobacco produ cts. Following the issuance of the Micjo

opinion, the Department stopped assessing tax on FET and

shipping costs. It also began paying refunds to those who

mistakenly paid tax on those non - tobacco charges. In early

2013, without adopting a formal rule, the Department changed its

policy and unilaterally determined that FET and shipping charges

were not taxable when sep arately stated on the invoice. Around

August 2013, the Department changed its policy yet again by re -

interpreting Ðwholesale sales priceÑ to exclude FET and shipping

charges only when the tobacco was manufactured outside of the

United States. The Petitioners alleged in their Petitions that

the DepartmentÓs actions were a policy of general application

that substantially affected many wholesa le tobacco distributors,

including the Petitioners. Being that the Department never

adopted a formal rule, the policy of general applicability w ould

be an invali d, unpromulgated rule.

On November 23, 2015, upon agreement of counsel, the

undersigned admini strative law judge conducted a scheduling

conference by telephone conference call. Counsel for the

parties requested that the final h earing be set on a date beyond

the 30 - day period established by section 120.56( 4 ), Florida

Statutes. The final hearing wa s held on January 28, 2016, with

all parties present and represented by counsel.

At the final hearing, the Petitioners called three

wi t nes s es: Robert Fuller, president of Florida Bee; Vihang

Patel, president of Planet Trading, Inc. , and vice - president of

Melbourne, LLC.; and Ben Pridgeon, bureau chief of the Division

of Alcoholic Beverages & TobaccoÓs bureau of auditing. Pridgeon

was also called as the DepartmentÓs only witness. Petitioners Ó

E xhibits 1, 2, 4 - 9, and 11 - 21 were admitted into evidence . The

DepartmentÓs E xhibits 1, 2 , and 5 were also admitted.

A motion to compel discovery responses was renewed by the

Petitioners at final hearing. They argued that documents

requested from the Department had been withheld under a claim of

privilege, but that the privilege log was insufficient to make a

determination of what privilege may apply. The Petitioners were

directed by the undersigned to identify a number of documents

from the log which they felt were not subject to privilege. The

Department was dire cted to submit the identified documents to

the undersigned for in camera review. The documents were

identified by the Petitioners and submitted for review on

February 3, 2016 . After review, an Order was entered on

February 4 , 2016 , requiring the Departme nt to produce a number

of the exhibits to the Petitioners. The Department filed a

motion seeking reconsideration of the Order; that motion was

denied.

The parties advised that a transcript of the final hearing

would be ordered. The parties were , by ru le, allowed 10 days

from the final hearing to submit proposed final orders. The

T ranscript was filed at DOAH on February 16, 2016, and each

party timely submitted a proposed final order.

Unless otherwise stated herein, all references to Florida

Statutes shall be to the 2015 codification.

FINDINGS OF FACT

1. Each of the Petitioners is a licensed business in the

State of Florida engaged in the business of distributing tobacco

products.

2. The Department is the government agency responsible

for, inte r ali a, administering and enforcing chapter 210,

Florida Statutes, related to the taxation of tobacco products

other than cigarettes and cigars.

3. By way of general background, tobacco products are

taxed at both the federal and state levels. The first compa ny

to produce or import the tobacco products into the United States

must pay the federal government a federal excise tax which is

based on weight. 26 U.S.C. § 5702.

4. Similarly, when the tobacco is produced or brought into

Florida, Florida OTP t ax app lies at the rate of 85 percent of

the Ðwholesale sales price.Ñ Technically, Florida OTP t ax has

two components: an excise tax and surcharge as defined by

section s 210. 30 and 21 0 . 276 . Section 210.30 was first e nacted

in 1985; it imposes a 25 - percent tax on OTP. Section 210.276

was enacted in 2009; it levies a 60 - percent surcharge on OTP.

For convenience, the excise tax and surcharge will be referred

to collectively as the OTP t ax.

5. The phrase Ðwholesale sales priceÑ is defined as Ðthe

established pri ce for which a manufacturer sells a tobacco

product to a distributor, exclusive of any diminution by volume

or other discounts.Ñ £ 210.25, F la . S tat .

6. Section 210.25(11) defines "tobacco products" as

follows:

[L] oose tobacco suitable for smoking; s nuff;

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 ,

bu t Òtobacco productsÓ does not include

cigarettes . . . or cigars.

7. In 2012, the Second DCA interpreted Ðwholesale sales

priceÑ to apply to the price at which the manufacturer sells

tobacco products to the distributor. Micjo , 78 So. 3d at 127.

In that case , in which the Second DCA described the dispute as

Ðnot complicated,Ñ the C ourt determined that OTP t ax applies

only to the charge for tobacco and not to other charges to bring

the tobacco to market, such as FET and shipping charges . Id. at

126 - 127.

8. There are no relevant adopted rules in which the

Department has interpreted Ðwholesale sales price.Ñ

9. State agencies are required to follow the CourtsÓ

interpretations of statutes. See Costarell v. Fla. Unemplmt.

App. CommÓn , 916 So. 2d 778, 78 2 (Fla. 2005). Subsequent to the

ruling in Micjo , the Department followed the ruling set forth by

the Second DCA and stopped imposing a tax on distributors based

upon on FET or shipping charges.

10. Beginning in 2013, the Department commenced enfor cing

a new Ð policy Ñ interpreting Micjo to exclude FET and shipping

charges only when such charges were separately stated. As a

result of this policy, the Department paid some refunds and did

not assess OTP t ax if the FET and shipping charges were

separate ly stated.

11. The Department began relying upon a new policy in mid -

2013 to the effect that if the domestic manufacturer of the

tobacco paid FET when it produced the product, Micjo did not

apply and the phrase Ðwholesale sales priceÑ included non -

tobac co charges, such as FET and shipping charges . This was due

to the fact that the manufacturer would pass down the cost of

the FET and shipping charges to the distributor as part of the

Ðwholesale sales price .Ñ

12. As for foreign manufacturers who did no t pay FET,

Micjo operated to exclude FET and shipping charges from the

taxable base. That is because the distributor who purchased the

tobacco products would be responsible for paying the FET

separately; it would not be part of the Ðwholesale sales price. Ñ

13. In other words, the DepartmentÓs policy was that

Ðwholesale sales price,Ñ as interpreted by Micjo , applies

differently depending on whether the tobacco is manufactured

foreign or domestically. The Petitioners seek to invalidate

this non - rule poli cy.

14. T he Department confuses wholesale sales price (i.e.,

Ð the established price for which a manufacturer sells a tobacco

product to a distributor Ñ ) with the invoice amount, which may or

may not include something other than the price for the tobacc o

product. The Mi cjo decision clearly delineates the cost of the

tobacco from Ðthe various other distributor invoice costs for

reimbursement of FET, shipping costs, and other charges [which

are] not part of tobacco. Ñ Micjo , 78 So. 3d at 127.

15. After t he Micjo ruling, the Department determined that

it would not include FET and shipping charges in its

determination of Ð wholesale sales price Ñ for purposes of

calculating OTP taxes. It did not promulgate a rule to that

effect, but began nonetheless using t he policy uniformly.

16. I n 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 s tate.

17. It is clear from the record that the current policy is

applicable to all distributors and that the policy delineates

which distributors must pay taxes based on total invoice

amounts, including FET and shipping charges, and which

distributors do not have to pay taxes based on those items.

18. It is not clear from the record how the domestic

versus foreign manufacturer dynamic was argued to the Micjo

C ourt or in the case from which the appeal arose. Micjo

specifically addressed the domestic distributors, but did not

make a distinction between domestic and foreign manufacturers.

19. To the extent the DepartmentÓs position in the instant

case seeks to revise the facts of Micjo , that argument is

rejecte d.

CONCLUSIONS OF LAW

20. The Department of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding pursuant to s ections 120. 56 (1)(c) and (4) , 120.569,

and 120.57(1) , Florida Statutes.

21. The Petitioners allege the Department is relying upon

a statement of general applicability that should have been

promulgated as a rule. Se ction 120.56(4) states in p art:

(a) Any person substantially affect ed by an

agency statement may seek an administrative

determinatio n that the statement violates

s. 120.54(1)(a). The petition shall include

the te x t of the statement or a description

of the statement and shall state with

particularity facts sufficient to show that

the statem ent constitutes a rule under

s. 120.52 and tha t the agency has not

adopted the statement by the rulemaking

procedure provided by s. 120.54.

(b) The administrative law judge may

determine whether all or part of a stat ement

violates s. 120.54(1)(a) . . . .

* * *

(d) If an administrative law judge en ters a

final order that all or part of a statement

violates s. 120.54(1)(a) , the agency must

immediately discontinue all reliance upon

the statement or any substantially similar

statement as a basis for agency action.

22. Each of the Petitioners has stan ding to bring this

proceeding pursuant to section 120.56(4 )(a) .

23. The term Ðrul eÑ is defined in section 120.52 (16) which

states:

ÐRuleÑ means each agency statement of

general applicability that implements,

interprets, or prescribes law or policy or

desc ribes the procedure or practice

requirements of any agency and includes any

form wh ich imposes any requirement or

solicits any information not specifically

required by statute or an existing rule.

The term also includes amendment or repeal

of a rule.

24 . An Ðunadopted ruleÑ is defined as an agency statement

that meets the definition of the term Ðrule,Ñ but that has not

been adopted pursuant to the requirements of section 120.54.

§ 120.52(20), Fla. Stat.

25. Florida case law has expanded on the definit ion of

rule to include Ð [T]hose statements which are intended by their

effect to create rights, or to require compliance, or otherwise

have the direct and consistent effect of law.Ñ A g. for Health

Care Admin . v. Harvey , 356 So. 2d 323, 325 (Fla. 1 st DCA 1 977).

26. An agency statement is any declaration, expression, or

communication. It does not need to be in writing. See DepÓt of

High. Saf. & Motor Veh. v. Schluter , 705 So. 2d 81, 84 (Fla. 1st

DCA 1997). To be a rule, the statement must be an Ðagency

statement,Ñ that is, a statement which reflects the agencyÓs

position with regard to law or policy. A generally applicable

statement purports to affect not just a single person or

singular situations, but a category or class of persons and

activities. Se e McCarthy v. DepÓt of Ins. , 479 So. 2d 135 (Fla.

2d DCA 1985). The statement need not apply universally to every

person or activity within the agencyÓs jurisdiction. It is

sufficient that the statement apply uniformly to a class of

persons or activities over which an agency may properly exercise

authority. See Schluter , 705 So. 2d at 83.

27. The Petitioners have the burden of demonstrating that

the agency statement regarding OTP taxes meets the definitio n of

a rule, and that the Department has not adopted the statement by

rulemaking procedures. S.W. Fla. Water Mgt. Dist. v . Charlotte

Cnty. , 774 So. 2d 903, 908 (Fla. 2 d DCA 2001); see also Ag. for

Pers. with Disab. v . C.B. , 130 So. 3d 713, 717 (Fla. 1 st DCA

2013).

28. The standard of proof is by a preponderance of the

evidence. § 120.56(1) ( e ) , Fla. Stat.

29. Petitioners have demonstrated, in this case, that the

DepartmentÓs policy regarding which distributors can be taxed on

non - OTP items (e.g., FET, shipping charges) is a statement of

gene ral applicability that should be promulgated as a rule.

30. If the p etitioner challenging an allegedly unadopted

rule proves at final hearing that the agency statement is indeed

a rule, the agency then has the burden of overcoming the

presumptions that r ulemaking was both feasible and practicable.

As stated in section 120.54(1)(a)1. :

Rulemaking shall be presumed feasible unless

t he agency proves that:

a. The agency has not had sufficient time

to require the knowledge and experience

reasonably necessary to address a statement

by rulemaking; or

b. Related matter are not sufficiently

resolved to enable the agency to address a

statement by rulemaking.

31. No such proof of feasibility or practicality was

offered by the Department at the final hearing in this matter.

The presumption was not overcome.

32. The Department pointed out that in Micjo , the

(Appellant) distributor was purchasing OTP from other

distributors who, in turn, had purchased from a foreign

manufacturer. Nonetheless, the Court still c hose to delete the

non - OTP costs (FET, shipping charges) from the amount to be

taxed. The suggestion by the Micjo Court that Ðthe meaning of

this statute and the legislatureÓs language is clear,Ñ and the

DepartmentÓs statement that the term Ðestablished p riceÑ is

Ð clear and unambiguous,Ñ is amusing. This case is obviously

fraught with difficulty.

ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

ORDER ED that the policy statement by the Department of

Business and Professional Re gulation, Division of Alcoholic

Beverages and Tobacco, concerning the inclusion of federal

excise tax and shipping charges for purposes of calculating the

other tobacco products tax is an unadopted rule whose existence

violates section 120.54(1)(a), Florid a Statutes .

It is FURTHER ORDERED that Respondent shall pay to the

Petitioners a reasonable attorney Ó s fee and costs as authorized

by section 120. 595( 4), Florida Statutes . Any request for fees

(if an amount cannot be agreed upon) shall be filed within 60

days of the date of this Final Order.

DONE AND ORD ERED this 3rd day of March , 2016 , in

Tallahassee, Leon County, Florida.

S

R. BRUCE MCKIBBEN

Administrative Law Judge

Department of Administrative Hearings

The D eSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Department of Administrative Hearings

this 3rd day of March , 2016 .

COPIES FURNISHED :

Willia m N. Spicola, General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Avenue

Tallahassee, Florida 32399

(eServed)

Gerald J. Donnini, II, Esquire

Joseph Moffa, Esquire

James McAuley, Esquire

Moffa, Sutton, a nd Donnini, P.A.

100 Southeast Third Avenue , Suite 2202

Fort Lauderdale, Florida 33394

(eServed)

William Henry Stafford, Esquire

Blaine H. Winship, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

(eServ ed)

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)

Ken Lawson, Secretary

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399

(eServed)

Ernest Reddick, Chief

Alexandra Nam

Department of State

R. A. Gray Building

500 South Bronough Street

Tallahassee, Florida 32399 - 0250

(eServed )

Ken Plante, Coordinator

Joint Admin istrative Proced ures Committee

Room 680, Pepper Building

111 West Madison Street

Tallahassee, Florida 32399 - 1400

(eServed)

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original notice of administrative appeal with the

agenc y clerk of the Division of Administrative Hearings within

30 days of rendition of the order to be reviewed, and a copy of

the notice, accompanied by any filing fees prescribed by law,

with the clerk of the District Court of Appeal in the appellate

district where the agency maintains its headquarters or where a

party resides or as otherwise provided by law.