"Mutli-state Sales and Use Tax"

Published on: June 27, 2013

Florida Tobacco Tax Audit – Is DBPR Playing Fair?

Part 2 – Is the Tax on The Correct Taxable Base?

This article is a follow up to a previous article I wrote in dealing with tobacco tax audits. In addition to looking at the applicable statute of limitations, any experienced Florida tobacco tax attorney should closely examine the taxable base to which the tax is being applied. Chapter 210 Florida Statutes applies a surcharge and an excise tax on tobacco products. Part I of Chapter 210, F.S. works the same way for the tax on cigarettes. It is simple math; the tax rate times the tax base equals the tax due. Being that the tax rate cannot be changed, a careful examination of the tax base must be undertaken to ensure the smallest amount of tax liability for the Florida taxpayer.

Section 210.01, F.S., defines a cigarette to mean:

any roll for smoking, except one of which the tobacco is fully naturally fermented, without regard to the kind of tobacco or other substances used in the inner roll or the nature or composition of the material in which the roll is wrapped, which is made wholly or in part of tobacco irrespective of size or shape and whether such tobacco is flavored, adulterated or mixed with any other ingredient.

Similarly, section 201.25, F.S., defines a tobacco product as

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 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.

Should this tax base include shipping or federal excise tax charges because those amounts are included on the invoice?
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Published on: June 19, 2013

Florida Tobacco Tax Audit – Is DBPR Playing Fair?

By Jerry Donnini, Esq.

Over the past year, we have been involved in more and more Florida Tobacco Tax Audits. With the volume of audits we deal with on a regular basis, we see trends within the state. We also have seen audit after audit in Florida in which the Department of Business and Professional Regulation does not play by the rules. Unlike the Department of Revenue, which has detailed rules and procedures, the Department of Business and Professional Regulation (“DBPR”) does not. As a Florida state and local tax attorney who also focuses on Florida alcoholic beverage, cigarette, and tobacco tax, this conundrum can be attributed to the insufficient rules that exist at DBPR and the lack of taxpayer challenges to the audits.
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On its website, DBPR, Division of Alcoholic Beverages and Tobacco (“FL ABT”) proudly proclaims that there are about 75,000 ABT license holders, and the audit division generates over $1.9 billion in license fees, taxes, and fines in Florida. Despite the huge number of license holders in Florida, there are very few audit challenges with the Department of Professional Regulation and even less litigation. But, are the audits done correctly? Is FL DBPR just that good that it never makes a mistake?
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Published on: June 14, 2013

Governor Scott Accepts Amazon Deal

By Jerry Donnini, Esq.

In many states Amazon does not have any physical locations or employees, therefore, Amazon is not required to charge and collect sales tax in many states. States have taken aggressive tactics by arguing that Amazon has affiliates in their state or servers in their state which constitute nexus and require the online retailer to charge and collect tax. Unfortunately, for the states that get pushy with Amazon, Amazon in turn threatens to cancel its affiliate programs which would leave many state residents jobless. What ends up happening is the state gives Amazon immunity from tax collection for a few years and Amazon concedes to nexus after the period. In addition, Amazon also agrees to build a facility that will bring jobs to a state.

On May 16, 2013, the Daily Business Review reported that Governor Rick Scott of Florida rejected a deal to bring Amazon to Florida. The moved shocked many Florida state and local tax professionals as many other states have accepted similar deals to bring Amazon to their state. Further, Amazon did not charge sales tax to Florida residents. While Florida residents are required to pay use tax on online purchases, close to no one remits use tax.

On June 14, 2013, my hometown newspaper, the Palm Beach Post reported the Governor changed his mind. Specifically, between now and 2016, Amazon will move to Florida which will bring thousands of jobs to the state. The project will cost an estimated $300 million. From a state and local tax attorney’s perspective this also means that Amazon will have to start charging tax on its online sales to Floridians. While it was undisclosed one can assume that Amazon will be getting incentives for the construction project. It will be interesting to see where the locations of the new Amazon facilities will be.

Published on: June 10, 2013

The Future of State and Local Tax: Look to the Stars … I Mean the Clouds

By Jerry Donnini, Esq.

Aside from the Marketplace Fairness Act, cloud computing has dominated the sales tax world in 2013. With more and more companies using software as a service (SaaS), platform as a service (“PaaS“), and infrastructure as a service (“IaaS“), more and more uncertainty has arisen in the sales tax world.

Cloud computing is a service that allows users or members of a business to access software from a remote server. It allows businesses to access the same integrated software without the expensive hardware costs because the software is internet based rather than physically based in an office.

Most states with a sales tax, tax software to some extent. Many states tax the purchase of canned software. Canned software is software produced by a manufacturer and not changed or altered for a specific company. If the software is altered, it is not canned software and not subject to sales tax in many states. Still, other states look to whether the customer receives something tangible like a disk with their purchase to determine whether software is taxable or not. But, how does this work if the canned software is accessed in the “cloud”? Is it a sale of tangible personal property? Is it the sale of canned software? A number of problems have been created by this fairly recent innovation, and states are struggling to keep pace.
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Published on: May 30, 2013

TAXES SHAPE PUBLIC POLICY: UTAH TAXES E-CIGARETTES?

By Jerry Donnini, Esq.

In an attempt to quit smoking, many Americans purchase a piece of equipment for about $50 and e-juice for about $15. When heated by the equipment, the e-juice, nicotine laced liquid, becomes an inhalable vapor that can be used as a cigarette replacement for many nicotine addicts. The electronic cigarette, or e-cigarette, first became widely available in Europe in the early 2000’s. From there, the industry grew to several thousand users in 2006, and now some analysts estimate that this has become roughly a two billion dollar industry in 2013. Are these battery-powered devices safe? What are the long term effects of inhaling nicotine through an e-cigarette?

The Food and Drug Administration’s (“FDA”) current stance appears to be that it does not know the answer to either of these questions. However, unlike medications and patches, the e-cigarettes have not been approved by the FDA. Many officials, such as tobacco policy analyst with the National Conference of State Legislatures, Karmen Hanson, seem to think so. Hanson went so far as to believe that the e-cigarettes are a “prominent public issue,” and “it’s up to the states” to deal with. Others, such as Rep. Paul Ray (Utah), strongly believe the e-cigarettes to be “terrible stuff,” and that “the industry . . . kills their clientele” by “peddling stuff that they know will absolutely kill people.”

On the other side of the coin are proponents of the product, like Stauffer of West Point, Utah. He has claimed that the e-cigarette eliminated smoking from his life. He does not believe vilifying the product is warranted because “[q]uitting smoking has never been easier.” He truly believes the e-cigarette is less harmful for his body and if Utah “is serious about helping [the people] make healthy choices, then [e-cigarettes] should be encouraged.”

So what do states do when they believe that a particular practice is against public policy, they are unsure about a product, or they want to influence certain behavior?
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Published on: May 8, 2013

Senate Passes Marketplace Fairness Act By Overwhelming Majority

By Jerry Donnini, Esq.

On May 6, 2013, Senate passed the Marketplace Fairness Act . It was announced that the bill passed with a vote of 69 to 27. The bill provides for an exception for businesses with sales of less than $1 million annually. States which are members to the Streamlined Sales and Use Tax Agreement are automatically granted the authority and the remaining states are required to grant the authority. The legislation will now make its way to the House of Representatives, where anything can happen.

The Act is an attempt to provide clarity and certainty in a grey area of the law. While many proponents of the bill seem to think it puts all Internet retailers on a equal playing field, it is really just an enforcement tactic of existing tax law. Those not in favor of the law point to the administrative burdens placed on small taxpayers. It is true that software exists to calculate the tax rates in the countries 45 states with sales tax and some 9,600 jurisdictions, it may becomes extremely burdensome and expensive to determine what is and is not taxable.

I look forward to informing everyone about more developments in this evolving area of the law. I also welcome any comments on the issue.

Published on: April 21, 2013

IRS & Massachusetts Department of Revenue Show Compassion Following Boston Marathon Explosions

By Jerry Donnini, Esq.

It is difficult to change the channel without hearing some development this week in the Boston Marathon explosion. This week in April, 2013 has been mostly a dark one. However, as we tend to in the face of crisis, our nation has shown its resolve and unity. While it can never replace the loss of life and the feeling of fear that stemmed from the incident, there have been some rays of sunshine. Among the acts of good faith to those struck by this horrible event are the IRS and the Massachusetts Department of Revenue. Each has shown some leniency for its respective filing deadlines.

With tax day marked as April 15, 2013, the IRS allowed for an extension as a result of the tragedy. Specifically, the IRS has allowed for a three-month filing and payment extension to Bostonians and others affected by the explosions. Consequently, no filings or payments will be due if completed by July 15, 2013. The three-month leniency applies to all individuals who are residents of Suffolk County, Massachusetts, including the City of Boston. The IRS also allowed an extension for victims and their families, first responders, and those who had preparers that were adversely affected.

Piggybacking on this idea was the Massachusetts Department of Revenue for state and local tax filings. Massachusetts announced that state and local tax payers have another week to file their returns. That means any person or business that has personal, business, or corporate income tax returns has at least until April 23, 2013 to file their returns.

Published on: April 10, 2013

ANOTHER STATE TOBACCO TAX CASE SHOWS THE ‘CLARITY’ OF TOBACCO TAX LAWS

By Jerry Donnini, Esq.

It is no secret that states generate high amounts of tax revenue from excise tax. For public policy and political reason, alcohol and tobacco seem ripe for state governments to extort money from its citizens. As a result of high tax rates, businesses that buy and sell large quantities of alcohol and tobacco products find it worthwhile to fight rogue state agencies, such as the various Departments that regulate alcohol and tobacco tax. In a recent Louisiana case, McLane lost against the Department of Revenue in its challenge of the state’s tobacco tax.

Like many states, Louisiana levies a 20% excise tax on the distribution of smokeless tobacco in its state. Louisiana takes the position that the first person to distribute tobacco in Louisiana is liable for the tobacco tax. Specifically, the Louisiana law says that tax is due on 20% of the “invoice price” — an “invoice price” being the “manufacturer’s net invoiced price as invoiced to the tobacco dealer by the manufacturer.” Clear enough? In this particular case, McLane purchased its smokeless tobacco from US Smokeless Tobacco Brands, which is a subsidiary of UST Manufacturing. McLane then sells its tobacco to customers in Louisiana.

At its core, McLane had a simple and straightforward argument that it should not be liable for the tax. McLane argued that it was not a manufacturer so how could Louisiana tax them at the “manufacturers net invoice” price because it buy tobacco from UST Brands, which is not a manufacturer. Even if it was liable for the tax shouldn’t the tax be at the invoice price charged from the Manufacturer to its sales arm?
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Published on: March 28, 2013

Gas Station Owners and Petroleum Distributors: Virginia Recognizes Pollution Control Exemption for Pit Liners and Storage Tanks

By Jerry Donnini, Esq.

As many of you are aware, I have been closely following the Gate Fuel Services & Gate Petroleum in Florida. Those cases involved settled refund claims for gas stations that had purchased equipment for pollution control and were used in the manufacturing process. In January of 2013, a Virginia company took advantage of a creative similar sales tax planning strategy.

Specifically, the Virginia taxpayer operated an oil and natural gas well drilling operation. As the result of a sales tax audit, the Department of Taxation issued an assessment for use of equipment and supplies in the taxpayer’s business. The equipment and supplies at issue were pit liners and storage tanks.

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The taxpayer believed that the pit liners and storage tanks qualified for the “pollution control” exemption because the equipment was used “primarily for the purpose of abating or preventing pollution of the atmosphere or waters” of Virginia. Conversely, the Department asserted that the equipment was not exempt because the Department only recognized pollution control equipment certified by the Virginia Department of Mines, Minerals, and Energy (DMME) for periods through 2006.

Published on: March 8, 2013

Gas Station Owners and Petroleum Distributors: Go Get Your Sales and Use Tax Refunds

By Jerry Donnini, Esq.

In my daily routine of reading state and local tax cases across the country, I recently inquired to the State of Florida for the status of an innovative sales tax case unique to the gasoline and petroleum industry this week. As many of you know, I have had the pleasure of growing up and assisting in my family’s petroleum business that has owned, operated, and distributed petroleum and gasoline in South Florida for over 30 years. Therefore, cases like Gate Fuel Services & Gate Petroleum, catch my attention and I really root for innovative and aggressive taxpayers like the one in these cases.

I brought this concept up to several gas station owners at the 2012 Florida Petroleum Marketers Association (“FPMA”) Fuel Expo and many met my suggestion with criticism or disbelief. It is still difficult for me to understand how a room full of dozens of Florida’s gas station owners, operators, and distributors, would rather discuss the latest developments with their beer vendors over a tall cold one, rather than sit and listen to me rant about Florida sales tax. For all of the naysayers out there, I have recently received word from the State of Florida, that the Gate cases were recently settled.

Many of you may recall, I wrote an article for my law firm’s blog in May 2012, about two companion sales and use tax cases. Both cases Gate Petroleum Co. v. Florida Department of Revenue, Case No. 12-CA-381 (2d Cir. Ct. 2012), andGate Fuel Service v. Florida Department of Revenue, 12-CA-379 (2d Cir. Ct. 2012),were filed in Leon County, home of the Florida Department of Revenue. The Gate cases centered around a refund denial for sales and use tax in the amounts of $160,935 and $ $45,071, respectively. In both cases, the Florida Department of Revenue (“DOR”) admittedly opposed the refund claims based essentially the same innovative theory of recovery.

For the uninformed, the retail gas station taxpayers in the cases alleged that they made certain equipment purchases that were exempt from Florida sales and use tax. Specifically, the Taxpayers argued that fuel storage equipment which holds regular and premium-grade fuel in underground tanks, mixes the two at the dispenser, and creates a mid-grade gasoline for sale at its retail locations. Being that this is the pump system at most modern gas stations, how come every gas station that has purchased taxable equipment in the last three years are not going for the refund? in short, they all should.
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