Fla. Cannot Tax Cigar Wraps As Loose Tobacco, Court Says

Law360, Miami (April 6, 2016, 7:30 PM ET) -- A Florida appeals court on Wednesday reversed a final ruling by the state's Department of Business and Professional Regulation that held that wraps used to make homemade cigars are taxable under the definition of tobacco products in state law.
The First District's ruling came on an appeal from Brandy's Products Inc. disputing a final order by the department's Division of Alcoholic Beverages and Tobacco that said the company must pay $72,000 in tax penalties on the cigar wraps, also known as “blunt wraps,” that it distributed to Florida retailers from July 1, 2009, through August 2011.

With its findings, the appeals court came to the same conclusion as an administrative law judge, who stated in a recommended order that “a blunt wrap is no more loose tobacco than a piece of writing paper is loose wood.”

The department rejected that recommended order, but the First District determined that although the wraps are a tobacco product mixed with wood pulp and other products, the fact that the products are “densely bound together to make a solid, uniform, cohesive product” means they cannot be considered “loose” under the plain meaning of the word.

“The statutory phrase 'loose tobacco suitable for smoking' is clear and unambiguous, and we agree with the [administrative law judge] that 'giving the words used in section 210.25(11) [of the Florida Statutes] their plain and ordinary signification, the definition ... does not include blunt wraps within its reach.”

The parties agreed that among the various products, such as snuff and cuttings, included in the definition of tobacco products in the tax law, the phrase “loose tobacco suitable for smoking” was the only one that could cover blunt wraps, according to the opinion. The law excludes cigarettes and cigars.

The appeals panel also rejected the state's argument that the term “loose tobacco suitable for smoking” should be broadly construed to include any product made from the cured and destemmed parts of tobacco leaves and intended to be inhaled by smoking.

The court said that it is well-settled that tax laws are to be narrowly construed, and it found the agency's suggested reading is closed to replacing the word “loose” with the word “all.”

“[O]nly the Legislature has the authority to amend the definition of 'tobacco products' in section 210.25(11) to accomplish that end,” the court said, noting that state lawmakers considered legislation in 2015 and 2016 that would have amended the definition to include wraps made in part or entirely from tobacco leaves.

Florida's definition of tobacco products has not changed since the pertinent law was enacted in 1985, but the agency started taxing cigar wraps in 2009 based on its becoming aware of their widespread distribution in the state and a change by Congress that expanded the definition of "roll your own tobacco" in federal tax code and made the wraps taxable at the federal level, according to the opinion.

The Department of Business and Professional Regulation collects approximately $3 million annually from the sale of blunt wraps, otherwise known as cigar wraps, according to a spokeswoman. She added that the majority of those funds are distributed to the Health Care Trust Fund within the Agency for Health Care Administration, for use in programs such as hospice care, hospital in-patient care and nursing home care.

"The Department is reviewing the court’s opinion and assessing its options going forward," she said.

Counsel for Brandy's Products declined to comment on Wednesday but said he is aware that there are similar challenges pending.

Representatives for the Department of Business and Professional Regulation and the attorney general's office did not immediately respond to requests for comment on Wednesday.

Judges T. Kent Wetherell II, Lori S. Rowe and Timothy D. Osterhaus sat on the panel for the First District.

Gerald J. Donnini II, Joseph C. Moffa and James McAuley of Moffa Gainor & Sutton PA, Fort Lauderdale, represent the appellant.

Attorney General Pamela Jo Bondi and Assistant Attorney General Elizabeth Teegen, Tallahassee, represent the appellee.

The case is Brandy's Products Inc. v. Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco, case number 1D15-3101, in the First District Court of Appeal of Florida.

--Editing by Stephen Berg.
Resource: http://www.law360.com/articles/781322/fla-cannot-tax-cigar-wraps-as-loose-tobacco-court-says