18-003853 Jemco Enterprises, Inc., D/B/A Payless Tobacco Source vs. Department Of Business And Professional Regulation, Division Of Alcoholic Beverages And Tobacco Status: Closed Recommended Order on Thursday, February 14, 2019.

Summary: The agency proved the factual and legal grounds for the excise assessment and surcharge on tobacco products. The licensee did not prove, by a preponderance of the evidence, that the assessment was incorrect.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JEMCO ENTERPRISES, INC. d/b/a ,

PAYLESS TOBACCO SOURCE,

Petitioner,

Case No. 18 - 3853

vs.

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF ALCOHOLIC BEVERAGES

AND TOBACCO ,

Respondent.

_______________________________/

RECOMMENDED ORDER

A hearing was conducted in this case pursuant to

sections 120.569 and 120.57(1), Florida Statutes (201 8 ), 1/ before

Cathy M. Sellers, an Administrative Law Judge ( Ð ALJ Ñ ) of the

Division of Administrative Hear ings ( Ð DOAH Ñ ), on September 2 6 ,

2018 , by video teleconference at sites in Lauderdale Lakes and

Tallahassee, Florida.

APPEARANCES

For Petitioner: Bernard Hershewsky

Mario Solis

Jemco Enterprises, Inc.

11521 Southwest 98th Street

Miami , Florida 33 176

For Respondent: Alicia Bhambhani, Esquire

Courtney Rae Conner , Esquire

De partment of Business and

Professional Regulation

2601 Blair Stone Road

Tallahassee, Florida 32399 - 2202

STATEMENT OF THE ISSUE

Whether, pursuant to section 210.30, Florida Statutes

(2016), 2 / Petitioner , Jemco Enterprises, Inc. , d/b/a Payless

Tobacco Source ( Ð Jemco Ñ ) , owes a tax deficien c y in the amount of

$5,582.73 for the audit period from July 1, 2016, to October 31,

2016, plus $558.27 in penalties and $144.43 in interest , for a

total amount due of $6,285.43 .

PRELIMINARY STATEMENT

On April 27, 2017, Respondent, Department of Business and

Professional Regulation, Division of Alcoholic Beverages and

Tobacco ( Ð Division Ñ ) , notified J emco that it had completed a

periodic audit for the period between July 1, 2016, and

October 3 1, 2016, which revealed that Jemco was deficient in

paying taxes in the amount of $5,582.73 , and that it also owed

penalties and interest, for a total of amount due of $6,285.43.

J emco timely requested a hearing pursuant to

section 120.57(1), and the matter was referred to DOAH to

conduct an evidentiary hearing on the amount of taxes,

penalties, and interest, if any, that Jemco owes to the

Division. The hearing originally was scheduled for August 20,

2018, but pursuant to J emco's request, was continued until

September 26, 2018.

The hearing was conducted on September 26, 2018. The

Division presented the testimony of Alma Cortez and

Julio Cesar Torres, both employed with the Division.

RespondentÓs Exhibits 1 through 7 and 9 were admitted into

evidence without objection, and RespondentÓs Exhibits 8, 10,

and 11 were admitted into evidence over objection. Jemco's co -

owners, Bernard Hershewsky and Mario Solis, testified on behalf

of Jemco. Jemco did not tender any exhibits for admission into

evidence.

The one - volume Transcript was filed on October 19, 2018 .

Pursuant to Jemco's request, the time for filing proposed

recommended orders was extended to December 3, 2018. The

Division filed its Pro posed Recommended Order on October 29,

2018, and Jemco filed its Proposed Recommended Order on

December 3, 2018. Both proposed recommended orders were duly

considered in preparing this Recommended Order.

FINDINGS OF FACT

1. Jemco is a Florida cor poration that is a distributor of

tobacco products in Florida , pursuant to Wholesale License

No. WDE1614464.

2 . The Division is the state agency charged with

administering and enforcing chapter 210 , related to the taxation

of tobacco products.

3. It is undisputed that Jemco is a distributor of tobacco

products in Florida, and that it engaged in the distribution of

tobacco products during the period of July 1, 2016, through

October 31, 2016.

4 . It also is undisputed that Jemco was engaged in the

distribution of tobacco products, on which it paid an applicable

excise tax and surcharge, before July 1, 2016.

5 . As discussed in greater detail below, pursuant to

section 210.30, an excise tax is imposed on all tobacco products

and on any person en gaged in business as a distributor in

Florida at the rate of 25 percent of the wholesale sales price

of such tobacco products. This excise tax is due to be paid

during the month in which the licensed distributor purchases the

tobacco products and brings t hem in state for sale in Florida.

6 . Additionally, pursuant to section 210.276, a surcharge

is imposed on all tobacco products and on any person engaged in

business as a distributor in Florida at the rate of 60 percent

of the wholesale sales price of such tobacco products . This

surcharge is due to be paid during the month in which the

licensed distributor purchases the tobacco products and brings

them in state for sale in Florida.

7. In 2016 , the Florida Legislature amended the definition

of Ð wholesale sales price Ñ in chapter 210. This amendment ,

which went into effect on July 1, 2016, chang ed the assessment

of the excise tax and surcharge on the distribution of tobacco

products.

8. At some point ÏÏ and the evidenc e does not establish

when ÏÏ t he Division posted notice of this statutory amendment to

the definition of Ð wholesale sales price Ñ on its website.

However, it did not notify distributors , including Jemco, by

regular or electronic mail. Consequently, Jemco w as unaware of

this change in the law.

9 . O n or about February 16, 2017, Alicia Cortez, an

auditor employed by the Division , conducted a tax audit on Jemco

for the audit period between July 1, 2 016, and October 3 1, 2016.

10 . I n conducting the audit, Cortez reviewed copies of

out - of - state supplier invoices for tobacco products sold by the

out - of - state suppliers to Jemco. These documents show ed the

total amount of the sales of tobacco products by out - of - state

suppliers to Jemco. She verified these purchases by reviewing

Jemco's bank statements.

11 . Cortez also reviewed the In - State Tobacco Products

Wholesale Dealer's Reports ( Ð Monthly Report Ñ ) submitted by Jemco

to the Division on a monthly basis . These Monthly Reports ,

which a re submitted in electronic format, show the net taxable

purchases, excise tax amount, surcharge amount, and total

amount ÏÏ which consists of the excise tax and surcharge ÏÏ due for

that particular month, as calculated by Jemco. The Monthly

Reports also show the amount of excise tax and surcharge paid by

Jemco for purchases of tobacco products from out - of - state

suppliers for that month.

12 . Cortez compared the total amount of taxable purchases

of tobacco products, as determined by a review of the out - of -

state supplier invoices , with the taxable purchases and excise

tax and surcharge paid by Jemco for the particular month, as

reported in its Monthly Reports.

1 3 . Here, the audit showed that Jemco did pay some excise

tax and surcharge for the period between July 1, 2016, and

October 31, 2016 , but that it also had a tax deficiency of

$5,583.73 for failure to pay the full amount of the e xcise tax

and surcharge due during th e audit period. With the imposition

of $144.43 in interest and a penalty of $558. 27, Jemco was

determined to owe a total of $6,285.43.

14 . At Jemco's request, an audit conference between the

Division and Jemco was conducted on June 19, 2017. Th e

conference did not result in any change to the total amount of

excise tax, surcharge, penalty, and interest that Jemco was

determined to owe .

15. As more fully discussed below, pursuant to

section 120.80(14), which governs taxpayer contest proceedings

under chapter 210, the Division has the initial burden in this

proceeding to demonstrate the factual and legal grounds for the

tax assessment. Once the Division makes that showing, the

entity contesting the assessment ÏÏ here, Jemco ÏÏ has the bur den to

show the assessment was incorrect.

16. Jemco contends that it did not intentionally try to

evade paying its taxes due for the audit period , and asserts two

grounds for disputing the assessed amount of $6,285.43 .

17. First, Jemco contends that , in addition to the period

between July 1, 2016, and October 31, 2016, the audit also

covered th e months of May and June 2016.

18. However, all of the documentary evidence admitted into

the record of this proceeding, including the supplier invoices,

Mo nthly Records, audit report, and auditor's summary sheet

clearly show s that the Division audited only the period

consisting of July 1, 2016, through October 31, 2016 . The

evidence shows that the Division purposely chose to audit only

this four - month perio d , rather than a typical six - month audit

period , specifically because t he amended definition of

Ð wholesale sales price Ñ went in to effect on July 1, 2016 , and

the Division decided to Ð have a clean cut off Ñ in conducting

audits. The evidence clearly and uniformly refutes Jemco's

argument that the audit actually covered a six - month period ,

from May 1, 2016, to October 31, 2016 . 3/

1 9 . Jemc o also asserts that it should not be held liable

for the tax deficiency for the audit period because it was

unaware of the amended definition of Ð wholesale sales price Ñ

that went into effect on July 1, 2016 . It characterizes the

Division's assessment of tax deficiency, penalties, and interest

based on the 2016 amendment to that definition as a Ð got - you

attack. Ñ

20 . T he undersigned finds the testimony of Solis and

Hershewsky credible and sympathetic that Jemco never intended to

avoid pay ing the excise tax es and surcharge s that it owed under

the law, and that Jemco only found out that it was not paying

the correct amount of taxes and surcharge for the audit period

when the audit commenced in early 2017. It is understandable

that a small business like Jemco could be caught unaware of a

change in the law ÏÏ particularly whe n it was not directly

notified by regular or electronic mail of the changed law .

21 . However, as a wholesale distributor licensee subject

to chapter 210, Jemco is nonetheless presumed to be aware of,

and required to follow , this statute in accurately p aying its

excise taxes and surcharge s . To that point, Florida case law

states that Ð [a] s to notice, publication in the Laws of Florida

or the Florida Statutes gives all citizens constructive notice

of the consequences of their actions . Ñ L & L Docs, LLC v. Div .

of Alcoholic Bevs. & Tobacco , 882 So. 2d 512, 515

(Fla. 4th DCA 2004)(quoting State v. Beasley , 580 So. 2d 139,

142 (Fla. 1991) ) . Thus, Ð ignorance of the law is no excuse. Ñ

D avis v. Strople , 158 Fla. 614, 29 So. 2d 364 (Fla. 1947) .

Here, after the Legislature amended the definition of Ð wholesale

sales price Ñ in 2016, this amended definition was published as

part of chapter 2016 - 220, Laws of Florida, and also as

subsection 210.25(14), in the 2016 version of Florida Statutes,

which remains in effect to date. 4/ Under Florida law, Jemco, as

a regulated licensed wholesale distributor of tobacco products,

is responsible for being aware of, and complying with, the

applicable law ÏÏ here, the amended definition of Ð wholesale sales

price Ñ that went int o effect on July 1, 2016 .

22. Nevertheless, it is noted that had the Division

directly ÏÏ by electronic mail or regular mail ÏÏ informed wholesale

distributors of tobacco products of the changed definition of

Ð wholesale sales price Ñ after it was enacted by the Legislature

during the 2016 Legislative Session and before it went into

effect on July 1, 2016 , Jemco ÏÏ and, presumably other

distributors of wholesale tobacco products , some of which are

small businesses ÏÏ would have been informed of the change, so may

not have incurred a tax deficiency, with accompanying penalty

and interest. This is mentioned for the Division's

consideration in informing licensees of significant future

changes in the law that could affect their liability for tax

deficiencies, penalties, and interest.

23 . Based on the foregoing findings , it is determined that

the Division met its burden , pursuant to section 120.80(14)(b),

to establish the factual and legal grounds on which the

assessment of $ 6,285.43 was made . It is further determined that

Jemco did not meet its burden under section 120.80(14)(b) to

show that the assessment was incorrect.

24. The clear and convincing evidence supports the

Division's imposition of the prop osed penalty and interest.

CONCLUSIONS OF LAW

2 5 . DOAH has jurisdiction over the parties to, and subject

matter of, this proceeding pursuant to sections 120.569 and

120.57(1).

2 6 . Pursuant to section 120.80(14) (b) 2. , the Division has

the burden in this taxpayer contest proceeding to show that a

tax assessment against Jemco h as been made, and to establish the

factual and legal grounds upon which th at assessment was made.

Jemco then has the burden, by a preponderance of the evidence,

to demonstrate t hat the assessment is inc orrect. Global Hookah

Distrib ., Inc. v. Dep't of Bus. & Prof'l Reg . , Case No. 15 - 6901

(Fla. DOAH Oct. 20, 2016; Fla. DBPR Apr. 18, 2017).

2 7 . Additionally, because the Division is seeking to

impose a penalty, it bears the burden, by clear and convincing

evidence, to show that the penalty is factually and legally

justified. See Dep't of Bus. & Prof'l Reg. v. Discount Zone,

Inc. , Case No. 10 - 9281 (Fla. DOAH May 12, 2011).

2 8 . The tax on tobacco products is levied pursuant to

section 210.30, which states , in pertinent part:

Tax on tobacco products; exemptions. Ï

(1) A tax is hereby imposed upon all

tobacco products 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 s ale;

(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.

2 9 . In addition to the excise tax, the state im poses a

surcharge on tobacco products pursuant to section 210.276, which

state s, in pertinent part:

Surcharge on tobacco products. Ï

(1) 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. The surcharge

shall be levied 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. A surcharge may not be levied on

tobacco products shipped or transported

outside this state for sale or use outside

this state.

30 . Section 210.25(12) defines t he term Ð tobacco

products , Ñ for purposes of t he tax and surcharge, as:

[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 Ð tobacco products Ñ does not include

cigarettes, as defined by s. 210.01(1), or

cigars.

3 1 . The term Ð wholesale sales price Ñ is defined in section

210.25(14) as:

(a) The full price paid by the distributor

to acquire the tobacco products, including

charges by the seller for the cost of

materials, the cost of labor and service,

charges for transportation and delivery, the

federal excise tax, and any other charge,

even if the charge is listed as a separate

item on the invoice paid by the distributor,

exclusive of any diminution by volume or

other discounts, including a discount

provided to a distributor by an affiliate;

and

(b) The federal excise tax paid by the

distributor on the tobacco products if the

tax is not included in the full price under

paragraph (a).

3 2 . As discussed above, the evidence shows that the

Division correctly conducted the audit in this case according to

the foregoing statutes , and accurately determined tha t Jemco

owe s a tax deficiency of $5,5 82.73 , interest in the amount of

$144.43 , and a penalty in the amount of $558.27 , for a total

amount due of $6, 285.43. 5/

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Business and

Professional Regulation , Division of Alcoholic Beverages and

Tobacco, issue a f inal o rder imposing an excise tax and

surcharge assessment of $6,285.43 on Jemco .

DONE AND ENTERED this 14 th day of February, 201 9 , in

Tal lahassee, Leon County, Florida .

S

CATHY M. SELLERS

Administrative Law Judge

Division of Administrative H earings

The DeSoto 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

Division of Administrative Hearings

this 14th day of February , 2019 .

ENDNOTES

1/ All references to chapter 120, Florida Statutes, and all

provisions therein, are to the 2018 codification.

2/ All references to chapter 210, Florida Statutes, and all

provisions therein, are to the 2016 codification, which was in

effect at the time the audit in this case was conducted.

3/ Although the Division requested that the undersigned take

official recognition of Emergency Rule 61AER16 - 1 Î Definition of

Established Price ( Ð Emergency Rule Ñ ), the evidence clearly

establishes that the Division did not apply or rely on this rule

in conducting the audit of Jemco at issue in this case. The

Emergency Rule went into effect on March 9, 2016, an d it expired

on June 7, 2016 ÏÏ before the audit period for the Jemco audit

commenced on July 1, 2016. The Emergency Rule was not renewed,

so was not in effect ÏÏ and, therefore, not applied ÏÏ in conducting

the audit of Jemco. It is further noted that the Div ision filed

a Motion to Take Judicial Notice requesting the undersigned to

take judicial notice ÏÏ the administrative version of which is

official recognition ÏÏ of the Emergency Rule and pertinent

statutes on August 14, 2018. Specifically to afford Jemco, wh o

was being represented by its co - owners, sufficient time to

respond to the motion, the undersigned delayed ruling on the

motion until September 25, 2018, even though Florida

Administrative Code Rule 28 - 106.204(1) establishes a seven - day

response period in which to file a written response in

opposition to a motion, and further states: Ð [w]ritten motions

normally will be disposed of after the response period has

expired. Ñ Here, Jemco was given over a month in which to file a

written response in opposition to the motion, and it did not do

so.

4/ Jemco also argues that Ð [t]he state itself had not yet

determined the final interpretation of the emergency rule that

went into effect in March 2016, as there was a case on appeal

regarding the tobacco tax. Ñ In the case to which Jemco

apparently refers , Florida Bee Distribution, Inc. v. Department

of Business and Professional Regulation , Case No. 15 - 6108RU

(Fla. DOAH Mar. 3, 2016), the ALJ determined that the Division's

interpretation of the Ð wholesale sales pric e Ñ definition then -

codified in section 210.25(13) ÏÏ and specifically, the term

Ð established price Ñ within that definition ÏÏ was an unadopted

rule, so that the Division could not rely on or apply that

interpretation in tax assessments . The Division appealed the

ALJ's decision, and the court affirmed the ALJ's decision in

October 2016 . Dep't of Bus. & Prof'l Reg. v. Fla. Bee Distrib.,

Inc. , 2016 Fla. App. LEXIS 15685 (Fla. 1st DCA 2016). However,

i n the meantime, the Legislature amended the definition of

Ð wh olesale sales price Ñ during the 2016 Session of the Florida

Legislature to, among other things, eliminate the term

Ð established price. Ñ Ch. 2016 - 220, § 9, Laws of Fla. (2016).

This amended definition of Ð wholesale sales price Ñ went into

effect on July 1, 2016. Therefore, regardless of the court's

subsequently - issued decision affirming the ALJ's final order in

Florida Bee Distribution , the amended statutory definition of

Ð wholesale sales price Ñ that went into effect on July 1, 2016,

applied to all audit p eriods commencing on or after July 1,

2016.

5/ Jemco pres ented compelling testimony that being required to

pay an assessed deficiency of $6,285.43 would cause it to suffer

significant financial hardship and could result in it being

forced to go out of business. The undersigned is sympathetic to

this argument, and strongly urges the Division, to the extent

allowed by its applicable statutes, rules, and operating

policies , to work with Jemco to develop a feasible payment plan

for paying the tax deficienc y over a period of time.

COPIES FURNISHED :

Bernard Hershewsky

Mario Solis

Jemco Enterprises, Inc.

11521 Southwest 98th Street

Miami, Florida 33176

Bernard Hershewsky

6971 Stirling Road

Davie, Florida 33314

Daniel Johnathon McGinn, Esquire

Departme nt of Business and

Professional Regulation

Suite C452

2601 Blair Stone Road

Tallahassee, Florida 32399

(eServed)

Courtney Rae Conner , Esquire

Department of Business and

Professional Regulation

2601 Blair Stone Road

Tallahassee, Florida 32399

( eServed)

Alicia Bhambhani, Esquire

Department of Business and

Professional Regulation

2601 Blair Stone Road

Tallahassee, Florida 32399

(eServed)

Alison Pa rker , Deputy General Counsel

Department of Business and

Professional Regulation

2601 Blair Ston e Road

Tallahassee, Florida 32399

(eServed)

Robin Smith , Deputy General Counsel

Department of Business and

Professional Regulation

2601 Blair Stone Road

Tallahassee, Florida 32399

(eServed)

Tom Thomas , Deputy General Counsel

Department of Business and

Professional Regulation

2601 Blair Stone Road

Tallahassee, Florida 32399

(eServed)

Sterling Whisenhunt, Acting Director

Division of Alcoholic Beverages and Tobacco

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

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.