FCC Issues - Equalization Tax
Equalization tax was assessed on citrus products, mainly frozen concentrated orange juice, imported into Florida to be blended with Florida juice. Then, in 1999 five companies sued the State of Florida and the Florida Department of Citrus challenging the legality of the equalization tax.
After several years and Court decisions the Citrus Commission was given the option of settling by returning the taxes paid by the litigants over the past few years, or charging those who had brought in California and Texas juice with the amount that they would have been assessed during that same period of time, or some combination of the two. (see Griffiths June 2, 2002).
Then, in January 2007, the DOC staff proposed a Federal Marketing Order for processed Orange Juice as a remedy.
A Lakeland Ledger report, Feb 4, 2007:, described the situation as follows:
The Free Rider
The Citrus Department had been working on getting a share of the Brazilian tariff money for 18 months before the election, said Ken Keck, the department's executive director. The measure was an attempt to solve the "free rider issue."
"Obviously the prospects are diminished, but we're going to continue with the legislative effort," he said.
But with the prospects diminished, Keck and Steve Ryan, chairman of the Florida Citrus Commission, the department's governing body, have proposed the industry explore another, more radical solution.
The commission, on Jan. 17, unanimously approved their proposal to have a committee of seven industry leaders explore turning over the department's marketing and research activities for orange and grapefruit juice to a new federal agency.
Since those activities account for more than 80 percent of its current $52 million budget, Keck and Ryan have proposed essentially putting the Citrus Department out of business.
The Citrus Department is a state agency charged with marketing Florida citrus products. It also finances scientific research for the benefit of the industry.
The citrus agency and similar domestic commodity groups consider imports "free riders" if they do not support the organization's programs financially. The Citrus Department raises most of its money through a tax on every box of commercial citrus harvested in the state.
Although the U.S. companies import some small amounts of orange juice from Central America, the lion's share of OJ imports come from Brazil, the world's largest orange grower and citrus processor.
No taxes have been paid to support the Citrus Department's marketing on Brazilian juice since 2003. That's when the department settled a lawsuit with five Florida processors that challenged an existing state tax on imports as an illegal state tariff. The U.S. Constitution gives Congress the exclusive authority to levy tariffs.
The department had collected from $4 million to $5 million annually from the imports tax, Keck said. It had sought at least that much, if not more, from the $40 million to $70 million collected annually from the OJ tariff.
The 2003 settlement "aggravated an existing free rider issue" among Florida growers, said Kristin Gunter, the lawyer for the five processors and a member of the committee looking into replacing the department with a federal program.
Gunter and Keck agreed the free rider controversy has become a leading issue in the decades-old competition between Florida and Brazil, which together account for about 90 percent of global OJ products.
"When a Florida grower hears Brazilian labor is much less, the cost of land is much less and water and other cultivation practices are much less, the Florida grower doesn't want to add to that list," Keck said.
The free rider debate goes beyond avoiding Florida taxes. Florida citrus officials also complain Brazilian processors get a free ride when they ship OJ directly to U.S. processors and bottling plants outside Florida, thus completely avoiding the state's taxing authority.
Eliminating that loophole is one advantage of a federal marketing system, Keck and Gunter said.
Brazilians see things differently
"The biggest part of Brazil's business is in the rest of the world. I'm not sure Brazil gets any benefit from the Department of Citrus programs," said Hugh Thompson, the president of Cutrale Citrus Juices USA Inc. in Auburndale, the subsidiary of Brazil's largest orange grower and OJ processor.
In fact, Brazilian processors export most of their orange juice to Europe. But even in the best of years, Florida cannot grow enough oranges to meet U.S. orange juice demand, so it depends on hundreds of millions of gallons of Brazilian juice to meet that demand.
And U.S. juice companies will increasingly rely on Brazilian imports for at least the next decade because Florida orange production has declined by about a third from the average levels before the 2004 and 2005 hurricanes.
Thompson called for a truce in the economic warfare between the world's citrus titans. He envisioned avenues of cooperation in scientific research on canker and greening and even in marketing.
"I really think the Department of Citrus and Florida Citrus Mutual (the state's largest growers' trade group) should be trying to work closely with Brazilian processors," he said, "rather than going to the federal government to try to tax Brazilian processors."
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