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When is a Florida Tobacco Tax Rule Invalid?

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For years, Florida’s Department of Business and Professional Regulation, Division of Alcoholic Beverages, and Tobacco (“ABT”) has engaged in questionable tactics in imposing arbitrary bond amounts to its tobacco distributors. Under Florida law, each Florida tobacco distributor is required to have a bond to ensure the State of Florida gets its monthly taxes, which can be increased purely in ABT’s discretion. In practice, ABT requires a bond higher than the distributor’s highest monthly tax payment over the last twelve-month period. Recently, Basik Trading, a Florida tobacco distributor challenged this open ended provision as an invalid rule under Florida law.

Under Florida law, the Legislature has the ability to enact laws, or statutes. In many situations, the law broadly imposes rights and duties on certain people. Further, in certain specific situations, Florida’s administrative agencies can enact rules within their area of expertise. But, what happens if the Legislature and the agency imposes rules that are so open ended and without standards, so that they are predictable and fairly applied?

Florida law allows for a somewhat unique check and balance to prevent agencies from exceeding the law enacted by the Legislature. Specifically, section 120.56, allows a substantially affected person to challenge an agency’s rule if the rule goes beyond or interprets a law without standards.

At issue, in Basik Trading is section 210.40, F.S., in which the Legislature states that the Division can increase a bond when, in their opinion, the current bond is insufficient to protect the state. ABT filled in the gaps, by adopting rule 61a-10.082. Instead of filling in the gaps and detailing standards which would make a bond insufficient, ABT simply reiterated the standardless statute.

Pursuant to the Petition, Basik argues that the standardless statute and rule cannot be allowed because cases like Peter R Brown Construction, say that an administrative rule is invalid if does not provide adequate standards or vests unbridled discretion to the agency. Such an open-ended rule can allow the agency to treat each licensee differently. Further without standards, there is no predictability as to how the law will be applied.

On the other hand, the Department is arguing that the rule simply reiterates the statute, which makes it valid. The Department also believes that because the company has another case going to circuit court to challenge the assessment, it cannot bring this separate case in administrative court.

In addition, Basik Trading advanced a more technical argument to invalidate the rule. In Florida, agencies must have a specific grant of rulemaking authority to enact a rule on a particular subject matter. For years, agencies have latched onto more general grants of rulemaking authority, which, pursuant to cases like MB Doral LLC, are invalid. With respect to bonds, section 210.40, gives the agency the right to require a bond, but the statute does not specifically authorize the agency to enact a rule with respect to bonds. Without a specific grant of authority, the company argues the rule dealing with bonds is per se invalid.

Countering this contention, the agency believes it has authority by way of section 210.75. While 210.75 gives ABT the ability to enact rules, in general, to enforce its authority under chapter 210, it does not specifically discuss bond issues. Therefore, pursuant to cases like MB Doral, it seems to lack specific rulemaking authority and the bond is invalid.

If successful, the case can serve as a basis to invalidate the way in which DBPR has been imposing unfair and large bond amounts across the state for decades. While it seems prudent to protect the state by requiring some security for payment of taxes, the agency has unfairly used its perceived bond authority as leverage to extract large amounts of taxes from Florida tobacco distributors. If the taxpayer prevails, the state will have to come up with alternative methods for requiring a bond at all.

If you have any questions about taxes imposed by Florida's Division of Alcohol, Beverages, and Tobacco or the Florida Department of Revenue, then please contact our office for a free initial consultation. If any agency in Florida threatens you or your business's Florida professional license or Florida business license, then please contact a competent Florida attorney to fight back. If you don't already have an attorney, then contact our offices today to help keep your business doors open.

Florida tobacco tax attorney; Florida sales tax attorney; Florida sales tax auditAbout the Author: Jerry Donnini is a Florida licenses attorney and named shareholder of the firm.  Jerry focuses on my state and local tax issues, with a heavy emphasis on tobacco tax and licensing issue on the multistate level.  You can read more about Mr. Donnini in his firm bio HERE.  You can  contact Mr. Donnini directly at 954-642-9390 or JerryDonnini@FloridaSalesTax.com.