Fla. Dep't of Revenue v. Am. Bus. USA Corp.

• Decision Date: 26 May 2016
• Docket Number: No. SC14–2404.,SC14–2404.
• Citation: 191 So.3d 906
• Parties: FLORIDA DEPARTMENT OF REVENUE, Appellant, v. AMERICAN BUSINESS USA CORP., Appellee.
• Court: Florida Supreme Court

191 So.3d 906

FLORIDA DEPARTMENT OF REVENUE, Appellant,
v.
AMERICAN BUSINESS USA CORP., Appellee.

No. SC14–2404.

Supreme Court of Florida.

May 26, 2016.

191 So.3d 908

Pamela Jo Bondi, Attorney General, Jeffrey M. Dikman, Senior Assistant Attorney General, and Rachel Erin Nordby, Deputy Solicitor General, Tallahassee, FL, for Appellant.

Michael David Sloan, David Bedford Esau, and Dean Angelo Morande of Carlton Fields Jorden Burt, P.A., West Palm Beach, FL, for Appellee.

James H. Sutton, Jr. of Moffa, Gainor, & Sutton, PA, Tampa, FL, and Sydney S. Traum of the Law Offices of Sydney S. Traum, P.A., Miami Beach, FL, for Amici Curiae American Association of Attorney—Certified Public Accountants, Inc. and Florida Association of Attorney—Certified Public Accountants, Inc.

LABARGA, C.J.

This case is before the Court for review of the decision of the Fourth District Court of Appeal in American Business USA Corp. v. Department of Revenue, 151 So.3d 67 (Fla. 4th DCA 2014). Because the district court expressly declared invalid a state statute, section 212.05(1)(l ), Florida Statutes (2012), this Court has jurisdiction to review the decision. See art. V, § 3(b)(1), Fla. Const. For the reasons we explain, we quash the decision of the Fourth District and hold section 212.05(1)(l ) constitutional.

FACTS AND PROCEDURAL HISTORY

This case commenced when the Florida Department of Revenue (“the Department”) issued a proposed tax assessment on American Business USA Corp. (“American Business”), doing business as 1Vende.com in Wellington, Florida, for taxes and interest on the company's internet sales transactions between April 1, 2008, and March 31, 2011. American Business is a for-profit business incorporated in Florida and having its physical location and principal address in Florida. All the company's sales of flowers, gift baskets, and other items of tangible personal property were initiated online. The company did not maintain any inventory of these items but would use florists that were local to the location of the delivery to fill the order. The company charged its customers tax on flowers and other items delivered in Florida by local florists, but did not charge its customers sales tax on flowers and other items delivered outside of Florida.

The tax assessment was issued by the Department to American Business pursuant to section 212.05(1)(l ), Florida Statutes (2012), which provides in pertinent part:

Florists located in this state are liable for sales tax on sales to retail customers regardless of where or by whom the items are to be delivered. Florists located

191 So.3d 909

in this state are not liable for sales tax on payments received from other florists for items delivered to customers in this state.

Under Florida Administrative Code Rule 12A–1.047(1), “[f]lorists are engaged in the business of selling tangible personal property at retail and their sales of flowers, wreaths, bouquets, potted plants and other such items of tangible personal property are taxable.” The statute and rule were relied on by the Department in this case.

After American Business filed a timely protest, a hearing was set before the Division of Administrative Hearings. The administrative law judge issued a pre-hearing order requiring the parties to stipulate to as many facts as possible. Accordingly, the parties filed a joint pre-hearing stipulation setting forth pertinent stipulated facts.¹ After the administrative hearing, at which the co-owners of the business testified and the Department offered exhibits, the administrative law judge issued an order recommending that the Department uphold the tax assessment. The Department subsequently entered a final order adopting the administrative law judge's recommended order in full. The order concluded that the tax required by section 212.05 is a tax on the privilege of engaging in business in Florida and is not a tax on the property sold. The order also noted that American Business “stipulated that it specializes in selling flowers and markets itself to the public as a company that sells flowers,” rejecting the claim of American Business that, because of the manner in which it fills the orders, it is not a “florist” within the meaning of and subject to section 212.05(1)(l ) or rule 12A–1.047.

American Business appealed the Department's final order to the Fourth District Court of Appeal where the company contended that the imposition of taxes on American Business for sales of flowers and other items of tangible personal property to be delivered out of state violated the due process clause of the Fourteenth Amendment and the “dormant Commerce Clause” emanating from article 1, section 8, of the United States Constitution.²

As to the challenge to section 212.05(1)(l ) imposing a tax on florists, the Fourth District held that the imposition of taxes on sales to out-of-state customers for out-of-state flower and gift deliveries violates the dormant Commerce Clause; and that the tax is thus “unconstitutional as applied to [American Business's] sales to

191 So.3d 910

out-of-state customers for out-of-state delivery.” Am. Bus. USA, 151 So.3d at 70. In so holding, the Fourth District recognized the factors necessary to evaluate whether a tax complies with the commerce clause:

“The Commerce Clause and the Due Process Clause impose distinct but parallel limitations on a State's power to tax out-of-state activities.” MeadWestvaco Corp. ex rel. Mead Corp. v. Ill. Dep't of Revenue, 553 U.S. 16, 24, 128 S.Ct. 1498, 170 L.Ed.2d 404 (2008). When it comes to evaluating a tax regarding its compliance with the commerce clause, the decisions of the United States Supreme Court

have considered not the formal language of the tax statute but rather its practical effect, and have sustained a tax against Commerce Clause challenge when the tax is applied to an [1] activity with a substantial nexus with the taxing State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State.

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). This has come to be known as the Complete Auto test. If the state tax fails any prong of the four-part test, then the tax violates the dormant commerce clause. Thus, if the taxing state is able to show only three of the four prongs under Complete Auto, the tax will not be sustained under a commerce clause challenge.

Am. Bus. USA, 151 So.3d at 71. After applying the Complete Auto test to the facts of the case, and concluding the tax at issue here was an undue burden on interstate commerce, the district court stated, “Merely registering in a state does not give the taxing state the right to assess sales taxes on transactions without any other facts to constitute ‘substantial nexus.’ ” Am. Bus. USA, 151 So.3d at 73.

As to the Due Process Clause claim, the Fourth District, relying on the United States Supreme Court decision in Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992), noted that a tax on a vendor may violate the Commerce Clause but not the Due Process Clause

because “the two, the Due Process clause and the Commerce Clause are analytically distinct.” [ Quill Corp., 504 U.S. at 305, 112 S.Ct. 1904 ]. “[A] corporation may have the ‘minimum contacts' with a taxing State as required by the Due Process Clause, and yet lack the ‘substantial nexus' with that State as required by the Commerce Clause.”

Am. Bus. USA, 151 So.3d at 74 (quoting Quill Corp., 504 U.S. at 313, 112 S.Ct. 1904 ). In finding that due process was not violated in this case because minimum contacts were present, the Fourth District explained that “traditional notions of fair play and substantial justice were not offended because the taxpayer's company was registered in Florida and had a mailing address in Florida.” Id. at 73. In distinguishing claims under the Commerce Clause from Due Process claims, the Fourth District noted that “the Commerce Clause and its nexus requirement are informed not so much by concerns about fairness for the individual defendant as by structural concerns about the effects of state regulation on the national economy.” Id. at 74 (quoting Quill Corp., 504 U.S. at 312, 112 S.Ct. 1904 ).

In sum, the Fourth District concluded that American Business had minimum contacts with the State of Florida such that no due process violation occurred, but that the business activities lacked a “substantial nexus” to Florida to allow tax on sales involving out-of-state customers and out-

191 So.3d 911

of-state delivery of flowers, gift baskets, and tangible property that were never located in Florida. For the reasons discussed below, we disagree that the tax on American Business violates the dormant Commerce Clause.

ANALYSIS

The issue before this Court is whether section 212.05(1)(l ), Florida Statutes, is unconstitutional as applied to certain activities of American Business. The constitutionality of a state statute is a pure question of law subject to de novo review. City of Miami v. McGrath, 824 So.2d 143, 146 (Fla.2002). This applies to a...