Florida: Appeals Court Addresses Physical Presence Nexus Requirement

A Florida appellate court recently addressed whether the imposition of tobacco tax on a taxpayer selling tobacco products into the state violated the Commerce Clause. The taxpayer, a North Carolina corporation, had no physical presence in Florida other than having its tobacco products delivered into Florida by common carrier. The taxpayer paid the Tax on Tobacco Products Other than Cigarettes or Cigars (OTP), but subsequently sought a refund on the basis that imposition of the OTP violated the Commerce Clause because it lacked a physical presence in Florida.   The trial court concluded the taxpayer was not entitled to a refund because the OTP was not a sales and use tax, but was akin to an excise tax or a surcharge. Therefore, the pre-Wayfair physical presence requirement for substantial nexus did not apply.

On appeal, the taxpayer argued that all taxes should be treated the same regardless of how the tax is categorized and that it should be entitled to a refund under an earlier Florida case (Share International) providing that more than the slightest in state presence was required to create sales and use tax nexus. That case addressed tax years prior to Wayfair. The court disagreed, holding that different categories of taxes are treated differently.  The court explained there are significant differences between regulatory measures enacted pursuant to the state’s police power, and general revenue taxes such as sales and use taxes. A general revenue tax is levied against interstate commerce to raise revenue for general government purposes, whereas a regulatory measure is designed to protect local interests and is not essentially economic in its purpose and effect. In the instant case, there was evidence that the OTP was a regulatory measure. Revenue from the OTP was deposited in a Health Care Trust Fund, rather than the general fund. Further, the language of the statute made clear the OTP was intended to assist the Agency for Health Care Administration protect Florida residents’ health and ensure that wholesalers introducing tobacco products into Florida bore the economic burden of tobacco use. The court concluded that the OTP was a regulatory measure and therefore the sales and use tax physical standard that was upheld in Share International did not apply. Because the taxpayer did not argue that the imposition of the OTP was unconstitutional if it was a regulatory measure, any such argument was waived. For more information on Global Hookah Distributors, Inc. v. State of Florida, please contact Adam Raschke.