16-003160RU Grabba-Leaf, Llc vs. Department Of Business And Professional Regulation, Division Of Alcoholic Beverages And Tobacco Status: Closed DOAH Final Order on Friday, August 26, 2016.

Summary: DBPR statement that "non-homogenized whole leaf tobacco wraps" meets statutory definition of "loose tobacco suitable for smoking" is not a rule.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GRABBA - LEAF, LLC,

Petitioner,

vs. Case N o. 16 - 3160RU

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF ALCOHOLIC BEVERAGES

AND TOBACCO,

Respondent.

_______________________________/

FINAL ORDER

On July 11, 2016, Administrative Law Judge J. Lawrence

Johnston held the final hearing in this case by video

teleconference between sites in Tallahassee and Lauderdale Lakes.

APPEARANCES

For Petitioner: Gerald J. Donnini, II, Esquire

Moffa, Sutton, and Donnini, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

For Respondent: Elizabeth A. Teeg en, Esquire

Office of the Attorney General

The Capitol , Plaza Level 01

Tallahassee, Florida 323 99 - 2202

Andrew Rubin Fier, Esquire

Department of Business and

Professional Regulation

C apital Commerce Center

2601 Blair Stone Road

Tallahassee, Florida 32399 - 2202

STATEMENT OF THE ISSUE

The issue is whether the R espondent has made a statement

regarding the taxability of Ðwhole leaf, non - homogenizedÑ cigar

wraps that meets the definition of a rule , without adopting the

statement as a rule, as required by sections 120.54 and

120.56(4), Florida Statutes (2016) . 1/

PRE LIMINARY STATEMENT

The Petitioner filed a petition challenging the validity of

the statement. The Petitioner contends that the statement meets

the definition of a rule and was not adopted as a rule as

required by statute. The Respondent contends that the statement

merely gives cigar wrap distributors notice of the holding in

BrandyÓs Products, Inc. v. Department of Business and

Professional Regulation , 188 So. 3d 130 (Fla. 1st DCA 2016), and

does not meet the definition of a rule.

At the final hearing, th e Petitioner called as witnesses its

owner and president, Michael Robinson, and the c hief of the

RespondentÓs Bureau of Auditing, Benjamin Pridgeon, who also

testified for the Respondent via cross - examination beyond the

scope of direct testimony. The Peti tionerÓs Exhibits 1, 2, 3, 5,

and 8 through 11 were received in evidence, as were the

RespondentÓs Exhibits 1, 3A, 3B, 3C, 5 and 6. 2/

The Transcript of the final hearing was filed on August 2,

and the parties filed proposed final orders, which have been

considered.

FINDING S OF FACT

1. The Respondent administers the Florida tax and surcharge

on the tobacco products defined in section 210.25(12) , Florida

Statutes . See §§ 210.30(1) and 210.276, Fla. Stat. The

definition excludes cigarettes and cigars, an d is referred to as

the Ðother tobacco productsÑ or OTP tax.

2. The Petitioner sells Ðwhole leaf, non - homogenizedÑ cigar

wraps and is substantially affected by the imposition of the OTP

tax on the products it sells.

3. The OTP tax was first imposed in 1985 at a rate of 25%

of the wholesale price. It was not collected on cigar wraps

until 2009, which is when the federal government began taxing

them, their widespread distribution in Florida came to the

attention of the Respondent, and Florida added a 60 % surcharge to

the OTP tax (making the total tax rate 85% of the wholesale

price) .

4. In 2013, BrandyÓs Products disputed the imposition of

the tax on the cigar wraps it sold. BrandyÓs Products, Inc. v.

DepÓt of Bus. & ProfÓl Reg. , C ase No. 14 - 3496 ( F la. DOAH Feb. 24,

2015; Fla. DBPR June 11, 2015) .

5. The BrandyÓs cigar wraps are different from cigar wraps

sold by the Petitioner in this case. 3 / They are made in a uniform

size from a composite product that was manufactured in a process

that combine d tobacco, wood pulp, and certain chemicals. The

cigar wraps distributed by the Petitioner are whole or partial

leaf cigar wraps.

6. The PetitionerÓs cigar wraps are made of a variety of

tobacco specifically grown for use as a cigar wrap. The leaves

ar e picked and ÐcuredÑ (air - dried) on - site. (Some people call

this ÐfermentingÑ the leaves. Uncured (also called ÐrawÑ or

ÐgreenÑ) tobacco is not suitable for smoking and cannot be used

as cigar wraps. ) The cured whole leaf is either packaged by

itself wi th stem intact, or is destemmed and cut in two pieces,

and each piece is wrapped around a plastic straw for packaging

together as two partial leaf cigar wraps. After purchase, the

end user removes the contents from the package, unrolls the

partial leaf wr aps from the straws, fills them with smoking

tobacco (e.g., pipe tobacco), and roll s them into cigars for

smoking ( the same way the BrandyÓs - style cigar wraps are filled,

rolled, and smoked ) . The end user of the whole leaf product

removes the leaf from th e package, destems the leaf, cuts or

tears it to the desired sizes, and fills, rolls, and smokes the

smaller pieces the same way the partial leaf wraps and the

BrandyÓs product s are filled, rolled, and smoked .

7. In DOAH case 14 - 3496, Judge Van Laningham recommended

that the assessment against BrandyÓs Products be set aside

because the definition of Ðloose tobacco suitable for smokingÑ in

section 201.25(11), Florida Statutes (2014) , 4 / could not be

interpreted to include the cigar wraps at issue in that ca s e . 5 /

The Respondent rejected the Recommended Order, but on April 6,

2016, the First District Court of Appeal reversed the

RespondentÓs F inal O rder, and the OTP tax was set aside.

Bran dyÓs Products, Inc. v. DepÓt of Bus. and ProfÓ l Reg . , 188

So. 3d 130 ( Fla. 1st DCA 2016).

8. In response to the courtÓs decision in BrandyÓs , the

Respondent issued a memorandum to distributors of cigar wraps in

Florida that described the kind of cigar wraps before the court

in BrandyÓs , called them Ðhomogenized tobacco w raps,Ñ and

announced how the Respondent would be treating them:

Effective April 6, 2016, the Division will no

longer assess excise taxes or surcharge on

homogenized tobacco wrap products.

Distributors shall not include homogenized

tobacco wrap products brought or caused to be

brought into Florida for sale, or made[,]

manufactured, or fabricated in Florida for

sale in the state, on the monthly return

required pursuant to section 210.55, Florida

Statutes.

Whole leaf, non - homogenized tobacco products

wer e not analyzed by the court. Accordingly,

licensed distributors must continue to report

whole leaf non - homogenized tobacco wrap

products for purposes of taxation through the

required monthly return.

This is the statement challenged by the Petitioner as a rule that

was not adopted as required by statute.

CONCLUSIONS OF LAW

9. Under sections 120.54 and 120.56(4), agency statements

meeting the definition of a rule must be adopted (unless the

agency proves that rulemaking is not feasible or practicable,

whic h the Respondent has not attempted to do in this case) .

10. Ð Ò RuleÓ 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 include s any form which imposes any requirement or

solicits any information not specifically required by statute or

by an existing rule.Ñ £ 120.52(16), Fla. Stat.

11. An agency statement that applies a clear and

unambiguous statute in accordance with its plain meaning is not a

rule. See BrandyÓs Products, Inc. v. DepÓt of Bus. & ProfÓl

Reg. , C ase 14 - 3496 , at ¶28 (DOAH Feb. 24, 2015) (and cases

cited) . An agency statement of general applicability also would

be a rule if it applies a clear and unambiguous statu te in an

unexpected way that is contrary to the plain meaning of the

statute. Id. at ¶ 35 . If the statute is not clear and

unambiguous, an agency statement of general applicability is a

rule because it would resolve the ambiguity by the way it

interpret s or implement s the statute . Id. at ¶ 24 (and cases

cited) .

12. The section 210.30(1) tax and section 210.276 surcharge

are levied on Ðtobacco productsÑ brought into the state, made in

the state, or shipped or transported to retailers in the state.

Ð Ò To bacco productsÓ means loose 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

tobacc o prepared in such manner as to be suitable for chewing;

but Òtobacco productsÓ does not include cigarettes, as defined by

s. 210.01(1), or cigars.Ñ £ 210.25(12) , Fla. Stat . (Cigarettes

are taxed under sections 210.001 and 210.02. There is no Florida

ci gar tax.)

13. In the BrandyÓs case, the Respondent assessed the OTP

tax and surcharge on Ðloose tobacco suitable for smoking.Ñ When

BrandyÓs challenged the assessment in DOAH case 14 - 3496, the

Respondent took the position that the statutory language was

clear and unambiguous, and included the BrandyÓs product. Judge

Van Laningham disagreed. To the contrary, he held the statutory

definition to be clear and unambiguous, and that it did not cover

the BrandyÓs product because the tobacco in the BrandyÓs pr oduct

was not loose but was a composite of tobacco, wood pulp and other

materials. The BrandyÓs court agreed.

14. As Judge Van Laningham wrote , it was practically self -

evident that the RespondentÓs interpretation of the statutory

language to include th e BrandyÓs product was a rule that had to

be adopted under sections 120.54(1) and 120.56(4). BrandyÓs

Products, Inc. v. DepÓt of Bus. & ProfÓl Reg. , supra at ¶35. The

BrandyÓs court did not address that part of the Recommended Order

directly, but its hol ding would support this conclusion .

15 . Turning to the agency statement at issue in this case,

the first part merely acknowledges what Judge Van Laningham and

the BrandyÓs court held, using the shorthand ÐhomogenizedÑ to

describe the BrandyÓs product. This part of the statement is not

a rule.

16 . The Respondent seems to take the position that the

second part of the agency statement at issue in this case also is

not actually a statement because it merely observes that the

BrandyÓs holdings only analy ze d the BrandyÓs kind of cigar wrap ,

and do es not prevent a taxpayer from claim ing a refund and having

its refund claim adjudicated . Actually, it states that the OTP

tax is due on whole leaf, non - homogenized cigar wraps (and that

sales must be reported on monthly tax returns ) . The refund claim

process does not affect the question in this case, which is

whether the statement is a rule that must be adopted.

17 . As stated by the BrandyÓs court: ÐThe dictionary

defines ÒlooseÓ to mean Ò not rigidly faste ned or securely

attached,Ó Ò not brought together in a bundle, container, or

binding,Ó Ò not dense, close, or compa ct in structure or

arrangement,Ó and Ònot solid. Ó See Loose, Merriam - Webster Online

Dictionary , www.merriam - webster.com/dictionary/loose (last

visited Mar. 14, 2016). Ñ Whole leaf, non - homogenized cigar wraps

consist entirely of tobacco leaves. Unlike the BrandyÓs product,

the tobacco leaves are not combined with anything else and are

not pressed or densely packed together with other leaves. It is

readi ly apparent that they are loose in the usual sense of the

word.

18 . The Petitioner argues that only shredded or chopped

tobacco (i.e., filler tobacco) can be called loose tobacco.

While filler tobacco is loose tobacco, it is not readily apparen t

from the plain meaning of the words that only filler tobacco can

be loose tobacco .

19 . W hole leaf, non - homogenized cigar wraps are no t smoked

without filler tobacco, the same as the BrandyÓs product . This

gave rise to the questions discussed by Judge Van Laningham i n

endnote 7 at paragraph 33 of his Recommended Order , and by the

BrandyÓs court in footnote 2 of its opinion , as to whether the

BrandyÓs wraps were suitable for smoking Ðon their own . Ñ

20 . In his discussion, Judge Van Laningham stated the re was

Ðinsufficient persuasive evidence to support a finding one way or

the other . . . , which means that the Department failed, in this

separate instance, to carry its burden of establishing all of the

factual grounds supporting the assessment.Ñ He sai d this failure

of proof, Ðwhile 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.Ñ

21 . The BrandyÓs court did not overlook the taxpayerÓs

arg ument that its product also was not suitable for smoking by

itself but agreed with Judge Van Laningham that the issue was

superfluous to the outcome. The court cited Creager Mercantile

Company, Inc. v. Colorado Department of Revenue , __ P.3d __, 2015

Colo . App. LEXIS 190 (Colo. Ct. App. 2015), which is now being

reviewed by the Colorado Supreme Court , en banc , on a petition

for certiorari.

22. The discussions by both Judge Van Laningham and the

BrandyÓs court added words to the statutory language. Fille r

tobacco also is not suitable for smoking on its own. It requires

a pipe or similar device or a wrapper of some kind.

23 . ÐSuitableÑ means Ð having the qualities that are right,

needed, or appropriate for something .Ñ Merriam - Webster on - line

dictionar y, www.merriam - webster.com/dictionary/suitable (last

visited Aug. 22 , 2016 ). While neither fi ller tobacco nor tobacco

wraps are suitable for smoking Ðon their own,Ñ it is readily

apparent that both are suitable for smoking in the usual sense of

the word s uitable.

24 . Taking the plain meaning of the w ords in the statutory

definition, it is readily apparent that w hole leaf, non -

homogenized cigar wraps meet the statutory definition of loose

tobacco suitable for smoking . They have been taxed since 2009

with out a rule and c an continue to be taxed without a rule. 6 /

25 . The Petitioner attempts to support its argument with a

2012 declaratory statement issued by the Respondent to another

taxpayer that the product distributed by that taxpayer was not

taxable. However, that taxpayer asked for a declaration

regarding the taxability of Ðwhole leaf tobacco with the stem

intact in the same condition as when it is harvested.Ñ Raw

(green) tobacco leaves would not be taxable under sections

210.30(1) and 210.276 becau se they are not suitable for smoking.

26. Finally, it is recognized that bills were introduced in

the 2015 and 2016 sessions of the Florid a Legislature that would

have amended the statutory definition of Ðtobacco productsÑ in

section 201.25 to specific ally include wraps made in whole or in

part from tobacco leaves . See Bran dyÓs Products, Inc. v. DepÓt

of Bus. and ProfÓ l Reg . , 188 So. 3d at 133 n.4 . However, no

legislative intent helpful to deciding the issues in this case

can be discerned from the dea th of the 2015 bill in committee , or

the removal of the language from the 2016 bill on the floor of

the Senat e .

DISPOSITION

Based on the foregoing Findings of Fact and Conclusions of

Law, the petition challenging the validity of the RespondentÓs

statemen t regarding the taxability of whole leaf, non - homogenized

cigar wraps as Ðtobacco productsÑ defined in section 210.25(12)

is dismissed because the statement does not meet the definition

of a rule.

DONE AND ORDERED this 26th day of August , 2016 , in

Tallahas see, Leon County, Florida.

S

J. LAWRENCE JOHNSTON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 92 1 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 26th day of August , 2016 .

ENDNOTE S

1/ Statutory references are to the 2016 Florida Statutes, unless

otherwise indicated.

2/ The numbers given to the exh ibits in the Transcript are

incorrect.

3 / In case 14 - 3496, the term Ðblunt wrapsÑ was used to describe

the BrandyÓs product. The evidence in this case was that the

term Ðblunt wrapÑ is a colloquial expression that refers to any

kind of cigar wrap.

4 / Subsection (11) was renumbered as (12) in 2016.

5 / Judge Van LaninghamÓs decision primarily was based on his

conclusion that the BrandyÓs product was not Ðloose tobacco.Ñ He

also questioned whether the BrandyÓs product, on its own, was

Ðsuitable for smo king.Ñ See Conclusion of Law 19 - 20 , infra .

6 / In paragraph 35 of his Recommended Order, Judge Van Laningham

called the delay between the original enactment of the statutory

definition of Ðtobacco productsÑ in 1985 and the start of

taxation of cigar wr aps in 2009 a Ðdead giveaway that the

DepartmentÓs 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.Ñ That sweeping conclusion would mean

any and all agency statements on cigar wraps would, of necessity,

be rules h a ving no legislative authority, and would gloss over

the evidence that the Respondent was not aware of the widespread

distribution of cigar wraps in Florida until 2009. See Finding

of Fact 3, supra .

COPIES FURNISHED:

Gerald J. Donnini, II, Esquire

Moffa, Sutton, and Donnini, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

(eServed)

Elizabeth A. Tee gen, Esquire

Office of the Attorney General

The Capitol , Plaza Level 01

Tallahassee, Florida 32308

(eServed)

Andrew Rubin Fier, Esquire

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

Tallahassee, Florid a 32399 - 2202

(eServed)

Ken Lawson, Secretary

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

Tallahassee, Florida 32399 - 2202

(eServed)

Thomas Philpot, Director

Division of Alcoholic Beverages

and Toba cco

Department of Business

and Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399

(eServed)

Jason L. Maine, General Counsel

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Bl air Stone Road

Tallahassee, Florida 32399 - 2202

(eServed)

Ken Plante, Coordinator

Joint Administrative Procedures Committee

Room 680, Pepper Building

111 West Madison Street

Tallahassee, Florida 32399 - 1400

(eServed)

Ernest Reddick, Chief

Alexandra Nam

Department of State

R. A. Gray Buil ding

500 South Bronough Street

Tallahassee , Florida 32399 - 0250

(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 gover ned by the Florida Rules of Appellate

Procedure. Such proceedings are commenced by filing the original

notice of administrative appeal with the agency 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.