Opinion ID: 1940006
Heading Depth: 1
Heading Rank: 4

Heading: Application of the Section 212.08(8) Partial Exemption

Text: In the instant matter, we must again balance the requirement to narrowly construe the tax exemption provided under section 212.08(8) of the Florida Statutes against the need to ensure that the State does not exceed its taxing authority. We start the analysis with the text of the sales and use tax statute. As this Court has often repeated, [w]hen the language of the statute is clear and unambiguous and conveys a clear and definite meaning ... the statute must be given its plain and obvious meaning. A.R. Douglass, Inc. v. McRainey, 102 Fla. 1141, 137 So. 157, 159 (1931). Section 212.08(8) of the Florida Statutes provides, The sale or use of vessels and parts thereof used to transport persons or property in interstate or foreign commerce is subject to the taxes imposed in this chapter only to the extent provided herein. § 212.08(8)(a), Fla. Stat. (1997). Pursuant to the final sentence of that subsection, Vessels and parts thereof used exclusively in intrastate commerce do not qualify for the proration of tax. Id. The DOR has interpreted this statement to mean, Vessels used in intrastate commerce exclusively within the territorial waters of Florida do not qualify for the partial exemption. Fla. Admin. Code. R. 12A-1.0641(2)(d) (emphasis supplied). Vessels eligible for the partial tax exemption are taxed based upon the ratio of  intrastate mileage to interstate or foreign mileage traveled by carrier's vessels which were used in interstate or foreign commerce and which had at least some Florida mileage during the previous fiscal year. § 212.08(8)(a), Fla. Stat. (1997) (emphasis supplied). This ratio is then applied each month to the total Florida purchases of such vessels and parts thereof which are used in Florida to establish that portion of the total used and consumed in intrastate movement and subject to the tax at the applicable rate. Id. (emphasis supplied). In interpreting those provisions, the district court below concluded that the taxes assessed against New Sea Escape under section 212.05 must be prorated under section 212.08(8). See New Sea Escape, 823 So.2d at 163. In so doing, the district court rejected the DOR's contention that foreign commerce requires stopping in a foreign port, [5] and determined that [w]hen the vessel is cruising outside Florida's waters, those miles cannot constitute `Florida mileage' under the proration statute, section 212.08(8). Id. The DOR urges this Court to find error in that reasoning and result, positing instead that New Sea Escape's cruise-to-nowhere operations are intrastate in nature. The DOR commends to this Court the analysis employed in Dream Boat, where the district court determined that cruise-to-nowhere vessels are engaged solely in intrastate commerce and thus ineligible for the partial tax exemption. See Dream Boat, 28 Fla. L. Weekly at D838, ___ So.2d at ___. We cannot, however, approve the reasoning and result reached in Dream Boat and advocated by the DOR in the instant matter, because it rests on the flawed premise that cruise-to-nowhere operations are intrastate in nature. As explained in greater detail below, this conclusion contravenes the plain meaning of the term intrastate commerce as that phrase qualifies eligibility for the partial exemption, and the phrases intrastate mileage and intrastate movement as those terms are used in devising the apportionment formula under section 212.08(8). Consequently, the position advanced by the DOR fails to give effect to all statutory provisions, and construe related provisions in harmony with one another as this Court is required to do in interpreting Florida law. Hechtman, 840 So.2d at 996. Complicating the analysis in the instant matter is the fact that the sales and use tax statute does not define the term intrastate. However, as we have determined, When a term is undefined by statute, [o]ne of the most fundamental tenets of statutory construction requires that we give a statutory term its plain and ordinary meaning. Green v. State, 604 So.2d 471, 473 (Fla.1992). When necessary, the plain and ordinary meaning can be ascertained by reference to a dictionary. Id. Further, it is a well-settled rule of statutory construction that in the absence of a statutory definition, courts can resort to definitions of the same term found in case law. See State v. Mitro, 700 So.2d 643, 645 (Fla.1997). Rollins v. Pizzarelli, 761 So.2d 294, 298 (Fla.2000). The term intrastate is commonly construed as meaning existing or occurring within a state. See Merriam-Webster's Collegiate Dictionary 614 (10th ed.1999). Black's Law Dictionary defines intrastate commerce as Commerce that begins and ends entirely within the borders of a single state. Blacks Law Dictionary 263 (7th ed.1999). We endorsed that definition in a recent case involving the imposition of regulatory assessment fees in the telecommunications industry, determining that the term intrastate business means business occurring within the state of Florida. Level 3 Communications, LLC v. Jacobs, 841 So.2d 447, 451 n. 4 (Fla.2003). Concluding that intrastate commerce means commerce occurring within the state of Florida comports with the language and purpose of the sales and use tax statute. Section 212.05 provides that sales or use taxes can be assessed against every person... who engages in the business of selling tangible personal property at retail in this state, ... or who stores for use or consumption in this state any item or article of tangible personal property. § 212.05, Fla. Stat. (1997) (emphasis added). The statute defines in this state or in the state as meaning within the state boundaries of Florida as defined in s. 1, Art. II of the State Constitution, § 212.02(8), Fla. Stat. (1997). Florida's Constitution provides, for purposes of the instant action, that the state's eastern seaward boundary extends three miles offshore. See art. II, § 1, Fla. Const. (2002); see also State v. Kirvin, 718 So.2d 893, 900 & n. 3. (Fla. 1st DCA 1998); State v. Efthimiadis, 690 So.2d 1320, 1321 (Fla. 4th DCA 1997). [6] The DOR's attempt to characterize cruise-to-nowhere operations as intrastate in nature and label miles traveled outside of Florida's territorial waters during cruises-to-nowhere as Florida mileage for the purpose of establishing the portion of taxable consumption occurring within the state ignores the fact that cruises-to-nowhere venture beyond this state's territorial bounds. Under the DOR's interpretation, which aligns with the analysis conducted in Dream Boat, the use of property that occurs once a ship is beyond the state's three-mile seaward boundary can be taxed to the same extent as if the use occurred on land in this state, in one of our ports, or within our three-mile territorial sea. This interpretation contravenes the plain meaning of the term intrastate and fails to give effect to the proration provision, which creates an allocation factor to  establish that portion of the total used and consumed in intrastate movement and subject to the tax at the applicable rate. § 212.08(8)(a), Fla. Stat. (1997) (emphasis supplied); see also Tropical Shipping, 364 So.2d at 435 (stating that a ratio in which the numerator is the miles traveled in Florida and the denominator is the total miles traveled by the vehicle ... allows Florida to tax the percentage of interstate and foreign commerce activity which occurs within Florida's boundaries). Interpreting the statute in this manner would also render the provision exempting vessels and parts thereof used exclusively in intrastate commerce meaningless against well-established rules of statutory interpretation. See Hawkins v. Ford Motor Co., 748 So.2d 993, 1000 (Fla.1999). Our charge to narrowly construe tax exemptions against the taxpayer does not require us to turn a blind eye to the fact that consumption occurring outside of the state's borders cannot be intrastate in nature. Furthermore, the interpretation subscribed to by the DOR and the district court in Dream Boat contravenes the general principle of law that a state may not tax interests which are not within its territorial jurisdiction. See Straughn v. Kelly Boat Serv., Inc., 210 So.2d 266, 267 (Fla. 1st DCA 1968) (invalidating taxes imposed on the rental of fishing equipment and sale of food and beverages that occurred when the fishing boat was beyond Florida's territorial limit). This Court has recognized that the purpose of the proration provision of the taxing statute, in particular, is to prevent the state from exceeding its powers to tax interstate and foreign commerce while permitting the state to tax that portion of commerce activity that occurred within the state. Tropical Shipping, 364 So.2d at 435; see also Klosters Rederi, 348 So.2d at 660 ([W]e believe that the intent of Section 212.08(8), as interpreted through the rules of respondent, was to tax an interstate and/or foreign commerce carrier only upon the basis of presence within the territorial limits of the State of Florida.). Adopting the DOR's scheme would invalidate the purpose underlying the proration provision and might subject this Court's sales and use tax statute to constitutional challenge. The Dream Boat court reached its determination that cruises-to-nowhere constitute exclusively intrastate commerce after eliminating the possibility that such ventures could be deemed foreign or interstate commerce. See 28 Fla. L. Weekly at D838, ___ So.2d at ___. In support of this proposition, the Dream Boat court relied on the following definitions of interstate and foreign commerce: Commerce with foreign nations means every species of commercial intercourse between the United States and foreign nations. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 193, 6 L.Ed. 23 (1824). Commerce among the several states, i.e., interstate commerce, is commerce which concerns more States than one. Id. at 194. Thus, foreign commerce would be commerce which concerns more than one nation. See, e.g., Lord v. Steamship Co., 102 U.S. (12 Otto) 541, 26 L.Ed. 224 (1880). Dream Boat, 28 Fla. L. Weekly at D838, ___ So.2d at ___. Based upon these definitions, coupled with the determination that the territorial sea of the United States extends twelve miles offshore, [7] the district court determined, Cruises to nowhere that do not leave U.S. territorial waters cannot be engaged in foreign commerce. Id. In so doing, the Dream Boat court drew a distinction between vessels that leave Florida's borders but return to the same port without having entered foreign or international waters, and those vessels that have entered foreign territory or international waters. Id.; accord United States v. Montford, 27 F.3d 137, 139 (5th Cir.1994) (holding that a `cruise to nowhere,' where the vessel has no contact whatsoever with a foreign country or waters within the jurisdiction of a foreign country, and where indeed, no such contact is intended, does not involve foreign commerce under federal statute proscribing ship-to-shore bet making). We agree with the definitions of interstate commerce and foreign commerce employed by the district court in Dream Boat. We also agree with the Dream Boat court's implicit application of that definition to conclude that cruise-to-nowhere operations that do not enter the territorial waters of another state or otherwise deal in commerce concerning another state are not engaged in interstate commerce. We cannot agree, however, with the First District's conclusion that cruises-to-nowhere do not leave the country's territorial waters and thus cannot engage in foreign commerce. In rendering that determination, the Dream Boat court cited the 1996 Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), see Pub.L. No. 104-132, 110 Stat. 1214, noted in 18 U.S.C § 7 (2000), for the proposition that the country's seaward boundary extends twelve miles offshore. The AEDPA indeed recognizes a twelve-mile territorial sea by reference to Presidential Proclamation 5928, which President Reagan issued in 1988 to extend the nation's territorial sea from three to twelve miles. However, as the following passage makes clear, the AEDPA extends the boundary for purposes of federal criminal jurisdiction only: The Congress declares that all the territorial sea of the United States, as defined by Presidential Proclamation 5928 of December 27, 1988, for purposes of Federal criminal jurisdiction is part of the United States, subject to its sovereignty, and is within the special maritime and territorial jurisdiction of the United States for the purposes of title 18, United States Code. Pub.L. No. 104-132, § 901(a), 110 Stat. 1214, 1317 (1996). Presidential Proclamation 5928, which itself extended the country's territorial waters with the caveat that it did not extend or otherwise alter then-existing federal or state law, see Proclamation No. 5928, 3 C.F.R. 547 (Dec. 27, 1988), reprinted in 43 U.S.C. § 1331 (2000), is based on the United Nations Convention on the Law of the Sea, concluded on December 10, 1982 (UNCLOS). See 1833 U.N.T.S. 3 (entered into force Nov. 16, 1994). UNCLOS divides the waters of a coastal country into four zones, including internal waters, the territorial sea, the contiguous zone, and the exclusive economic zone. UNCLOS provides that from a nation's coastal baseline, the territorial sea extends 12 nautical miles, the contiguous zone extends 24 nautical miles, and the exclusive economic zone extends as far as 200 nautical miles. See 1833 U.N.T.S. at 401-02, 409, 418-19. The United States is not a signatory to UNCLOS, but has relied upon the boundaries established in that convention to define the extent of the nation's navigable waters. See 33 C.F.R. §§ 2.20, 2.22, 2.30, 2.32 (2004). Federal regulation enumerates the purposes for which the nation's territorial sea extends for twelve miles: (a) With respect to the United States, the following apply  (1) Territorial sea means the waters, 12 nautical miles wide, adjacent to the coast of the United States and seaward of the territorial sea baseline for  (i) Statutes included within subtitle II and subtitle VI, title 46, U.S.C. [Shipping]; the Ports and Waterways Safety Act, as amended (33 U.S.C. [§§]1221-1232); the Act of June 15, 1917, as amended (50 U.S.C. [§§]191-195) [War and National Defense]; and the Vessel Bridge-to-Bridge Radiotelephone Act (33 U.S.C. [§§]1201-1208), and any regulations issued under the authority of these statutes. (ii) Purposes of criminal jurisdiction pursuant to Title 18, United States Code. (iii) The special maritime and territorial jurisdiction as defined in 18 U.S.C. [§]7. (iv) Interpreting international law. (v) Any other treaty, statute, or regulation, or amendment thereto, interpreted by the Coast Guard as incorporating the definition of territorial sea as being 12 nautical miles wide, adjacent to the coast of the United States and seaward of the territorial sea baseline. 33 C.F.R. § 2.22(a)(1) (2004). For all other purposes these regulations provide: (2) Unless otherwise specified in paragraph (a)(1) of this section, territorial sea means the waters, 3 nautical miles wide, adjacent to the coast of the United States and seaward of the territorial sea baseline. 33 C.F.R. § 2.22(a)(2) (2004) (emphasis supplied). As the excerpted regulation makes clear, whether the nation's seaward boundary falls three or twelve miles offshore is context-specific. Importantly, federal law governing shipboard gambling applies a three-mile territorial sea. The Gambling Ships Act, see 18 U.S.C. §§ 1081-84 (2000), which makes it illegal for a United States citizen, resident, or anyone aboard an American-flagged vessel or otherwise subject to the jurisdiction of the United States, to operate a gambling ship, see id. § 1082, specifically exempts vessels on which gambling occurs outside of the territorial waters of the United States. [8] The Act cross references an Internal Revenue Code provision, the implementing regulation for which defines territorial waters as those extending three miles offshore. See 18 U.S.C. § 1081 (2000); 26 C.F.R. § 43.4472-1 (2004) (defining territorial waters as those waters within the international boundary line between the United States and any contiguous foreign country or within 3 nautical miles (3.45 statute miles) from low tide on the coastline). In sum, there is no overarching, binding authority for the proposition that the United States's seaward boundary is twelve miles for the purpose of determining that a vessel sailing greater than three but not more than twelve miles offshore is not engaged in foreign commerce, and thus ineligible for the partial tax exemption. While the extent of the United States's territorial sea is generally variable, and indeterminate for purposes of the instant action, the extent of this state's seaward boundary is clear. Cruise-to-nowhere operations leave the state of Florida during the course of their voyages. For this reason, Dream Boat erred in determining that cruise-to-nowhere operations cannot be categorized as foreign commerce and thus must be intrastate in nature. Prior to disposing of the instant matter, it bears mentioning that there is a completely separate ground upon which this Court can decide this case. With regard to the narrow factual scenario presented here, we determine that the DOR inappropriately bifurcated New Sea Escape's operations for the purpose of assessing tax liability. It is beyond dispute that the company engages in foreign commerce when it makes one-day trips from Fort Lauderdale to Freeport, Bahamas. Assuming, for the moment, that cruise-to-nowhere operations are intrastate in nature, there is no basis in either the statute or the DOR's implementing regulations to parse a carrier's operations or a vessel's voyages, and deny a carrier who engages in foreign commerce, as well as intrastate commerce, the partial exemption for its intrastate commerce operations. Indeed, reviewing courts have dispensed with similar artificial distinctions in the past. See Tropical Shipping, 364 So.2d at 436 (rejecting distinction between trailers with wheels and containers without wheels for assessing sales tax under section 212.08(8)); United Parcel Serv., Inc. v. State Office of the Comptroller, 443 So.2d 263 (Fla. 1st DCA 1983) (rejecting the Comptroller's attempt to limit the partial exemption for vehicles engaged in interstate commerce to those UPS vehicles that had only traveled within the state). However, as previously discussed, we need not decide this matter based on the DOR's inappropriate bifurcation of New Sea Escape's tax liability because the DOR's construction of the partial tax exemption contravenes the plain meaning and recognized purpose of that provision.