STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CITY ICE AND COLD STORAGE CO., ) INC., JAMES HOWARD COCHRAN and ) MARY ANN COCHRAN, )

)

Petitioner, )

)

vs. ) CASE NO. 76-676

) STATE OF FLORIDA, DEPARTMENT OF ) REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, G. Steven Pfeiffer, held a public hearing in this case on September 20, 1976, in Tallahassee, Florida.

For Petitioner: Bryan W. Henry

Tallahassee, Florida

For Respondent: James Howard Cochran

Mary Ann Cochran Edwin J. Stacker Tallahassee, Florida

On April 14, 1976, City Ice & Cold Storage Co., Inc., James Howard Cochran, and Mary Ann Cochran filed a petition requesting an administrative hearing for the purpose of contesting the validity of a sales tax assessment, including penalties and interest, issued by the State of Florida, Department of Revenue ("Respondent" hereafter). In accordance with Florida Statutes, s.

120.57(1)(b)(3) the Respondent requested that a hearing officer be assigned from the Division of Administrative Hearings, and the petition was filed with the Division of Administrative Hearings on April 16, 1976. A copy of the petition was received in evidence as Hearing Officer's Exhibit 1. A copy of the Revised Assessment dated February 2, 1976, was received in evidence as Hearing Officer's Exhibit 5. The Respondent filed an Answer on May 5, 1976 (Hearing Officer's Exhibit 2). The final hearing was originally scheduled to be conducted on August 2, 1976, by notice dated June 1, 1976 (Hearing Officer's Exhibit 3). The Respondent requested a continuance, which was granted by order entered July 30, 1976. The final hearing was rescheduled to be conducted on September 20, 1976 (Hearing Officer's Exhibit 4).

The Respondent called the following witnesses: John R. Everton, an auditor employed by the Respondent; Ferguson W. Brister, a Certified Public Accountant; Leroy Eugene Jodarski, an employee of the City of Tallahassee; James A. Ricks, an employee of the City of Tallahassee; and Earnest Neal, an employee of the Petitioner, City Ice & Cold Storage Co., Inc. The Petitioner, James Howard Cochran appeared as the only witness on the Petitioners' behalf. Hearing

Officer's Exhibits 1 through 5, Respondent's Exhibits 1 through 9, and Petitioner's Exhibits 1 and 2 were received into evidence at the hearing. The Respondent and the Petitioner have submitted Proposed Findings of Fact, Conclusions of Law, and Recommended Orders.

The Respondent contends that the Petitioners purchased a business known as Middle Florida Ice & Cold Storage Co., Inc. ("Middle Florida Ice" hereafter) and are liable for the taxes owed by Middle Florida Ice on the date that the sale was consummated. Petitioners contend that they did not purchase the business of Middle Florida Ice, but rather that the Petitioners, James Howard Cochran and Mary Ann Cochran purchased real and personal property owned by Middle Florida Ice, and leased the real and personal property to the Petitioner City Ice & Cold Storage Co., Inc., which commenced a new business after Middle Florida Ice ceased its operations.

FINDINGS OF FACT

1. Prior to October 8, 1975, Middle Florida Ice operated an ice, cold storage, and beverage distribution business on property located in Leon County, Florida. The property was owned by Middle Florida Ice. A portion of the premises was leased by Middle Florida Ice to James Howard Cochran and Mary Ann Cochran. The Cochrans operated a food catering business on the premises. Middle Florida Ice had been in operation for some years prior to October 8, 1975. During all of its existence, Middle Florida Ice was in a precarious economic position. During 1975 the financial condition of Middle Florida Ice deteriorated. The company's equipment was old, and it became impossible for Middle Florida Ice to manufacture its own ice. Earnest Neal was the Manager of the Middle Florida Ice business. During late 1975 he began buying ice at wholesale in Cairo, Georgia and selling it retail at his Tallahassee location.

   Neal, and Middle Florida Ice were in grave danger of going out of business prior to October 8, 1975.

   
   

2. Middle Florida Ice's economic unhappiness was a matter of concern to the Cochrans. The Cochrans utilized Middle Florida Ice's cold storage facilities in their food catering business, and they wished to continue operating their business from the premises owned by Middle Florida Ice. On October 8, 1975, the Cochrans purchased certain real estate and personal property from the Directors of Middle Florida Ice. Middle Florida Ice's corporate existence had been dissolved by operation of law. The purchase was therefore made from the Directors of the dissolved corporation. A copy of the warranty deed through which the real property was transferred was received in evidence as Petitioners Exhibit 1. A copy of the bill of sale through which the personal property was transferred was received in evidence as Petitioners Exhibit 2. Middle Florida Ice owned no other real property other than that transferred to the Cochrans. The personal property transferred constituted most of the personal property owned by Middle Florida Ice. Only those items crossed off of the list attached to Petitioners' Exhibit 2 were not transferred. The Cochrans did not purchase Middle Florida Ice's inventory, accounts receivable, or goodwill. Neither did the Cochrans agree to assume any of the liabilities of Middle Florida Ice. The consideration paid by the Cochrans was the payment of certain promissory notes owed by Middle Florida Ice to third persons, which notes were secured by the real property; the payment of one unsecured promissory note which Middle Florida Ice owed to the Flagship People's Bank; and a promise to employ Earnest Neal to operate an ice business on the premises. It was the Cochrans' intention to pay only those obligations which would constitute liens upon the real and personal property. It was necessary to pay the unsecured

   promissory note owing to Flagship People's Bank because the bank would not release notes secured by the real property unless the unsecured note was paid.

   
   

3. The total amount of the obligations paid by the Cochrans so that they could take free and clear title to Middle Florida Ice's property was not placed in evidence. The Cochrans borrowed approximately $93,000 in order to make the purchase, and in order to replace certain equipment so that a viable ice business could be operated on the premises. The purchase price of the property was the amount of obligations paid by the Cochrans so that they could take free and clear title to the property, and the promise to employ Neal.

   
   

4. Earnest Neal continued to operate an ice business on the premises until October 31, 1975. At that time Middle Florida Ice ceased doing business. At the time that it ceased doing business, Middle Florida Ice owed $4,059.67 in back taxes, penalties, and interest under Florida Statutes, Chapter 212.

   
   

5. On October 31, 1975, the Cochrans incorporated City Ice & Cold Storage Co., Inc. ("City Ice" hereafter). On that same day the Cochrans executed a lease agreement through which all of the property that they had purchased from Middle Florida Ice was leased to City Ice. On November 1, 1975 City Ice commenced operation of an ice, cold storage, and beverage distribution business on the former Middle Florida Ice premises. Earnest Neal managed the business

   
   

6. The business conducted by City Ice was essentially the same as the business that had been formerly conducted by Middle Florida Ice. The equipment was gradually modernized, and City Ice now manufactures its own ice. Prices have been raised, and it appears that the business is being conducted somewhat more effectively. The transition from operation by Middle Florida Ice to operation by City Ice was effectuated without any interruption in the day-to-day operations of the business. On November 1, 1975, the business was conducted at the same location, using the same phone number, with most of the same employees as on October 31. The same customers were given the same services. One major customer, the City of Tallahassee, did not become aware that the business had changed hands until approximately ten months after City Ice commenced operation. During the course of the business operations of Middle Florida Ice, certain larger customers had purchased coupon books which were redeemed for ice. City Ice honored the Middle Florida coupons. As late as July, 1976, City Ice utilized a Middle Florida Ice invoice form in connection with its business with the City of Tallahassee. Neither the Cochrans nor City Ice have paid any obligations owed by Earnest Neal or Middle Florida Ice other than those paid in connection with the purchase of the property. Money owed to Middle Florida Ice in connection with transactions prior to October 31, 1975, were received by Earnest Neal, and not by the Cochrans or City Ice.

   
   

7. No payments were made by the Cochrans for any part of the business of Middle Florida Ice other than the real property, and certain of the personal property that had been owned by Middle Florida Ice. In making the purchase the Cochrans were primarily concerned with being able to continue to operate their food catering business at the same location. The Cochrans did, however, undertake to operate an ice, cold storage, and beverage distribution business. The business which they undertook to operate was the same business that had been operated in the name of Middle Florida Ice. Although the Cochrans did not purchase certain of the assets of Middle Florida Ice, including accounts receivable and goodwill and although they did not assume the obligations of Middle Florida Ice, they did, in fact, purchase the means by which the identical business, that had been conducted by Middle Florida Ice could continue to be conducted by the Cochrans; leasees.

8. When the Cochrans purchased Middle Florida Ice's real property, and certain of Middle Florida Ice's personal property, and undertook to engage in the same business that had been operated by Middle Florida Ice, the Cochrans bought out the business of Middle Florida Ice. No money passed hands directly from the Cochrans to Middle Florida Ice. All payments were made to creditors of Middle Florida Ice. Middle Florida Ice did not make a final return or payment of due and unpaid taxes subsequent to October 31, 1975. The Cochrans did not withhold any portion of the purchase money to cover such taxes.

   
   

   CONCLUSIONS OF LAW

   
   

9. The Division of Administrative Hearings has jurisdiction over the parties to this case, and over the subject matter. Florida Statutes, s. 120.57(1).

10. Florida Statute s. 212.10(1) provides as follows: "If any dealer liable for any tax, interest

    or penalty levied hereunder shall sell out

    his business or stock of goods, he shall make a final return and payment within fifteen days after the date of selling the business; his successor, successors, or assigns, shall withhold a sufficient portion of the purchase money to safely cover the account of such taxes, interest or penalties due and unpaid until such former owner shall

    produce a receipt from the department showing that they have been paid or a certificate stating that no taxes, interest, or penalty are due. If the purchasers of a business or stock of goods shall fail to withhold suf-

    ficient amount of the purchase money as provided above, he shall be personally liable for the payment of the taxes, interest and penalties accruing and unpaid on account of the operation of the business by any former owner, owners or assigns."

    
    

    This section imposes upon the purchaser of a business the responsibility of obtaining assurance from the seller that all taxes due under Florida Statutes, Chapter 212 are paid. The purchaser is obliged to withhold sufficient funds to pay the taxes until such assurance is given. If the purchaser fails in that obligation, the purchaser becomes personally liable for the taxes.

    
    

11. City Ice was not a purchaser within the meaning of Florida Statutes, Chapter 212.10(1), and is therefore not liable for any of the taxes owed by Middle Florida Ice. The Cochrans were purchasers of a business within the meaning of s. 212.10(1). The fact that the purchase money paid by the Cochrans was paid directly to creditors of Middle Florida Ice, does not absolve them of the obligation to withhold sufficient funds to pay the taxes. Although the precise amount of money paid by the Cochrans was not in evidence, it is apparent that the total amount paid far exceeded the amount of taxes due. In fact, the unsecured note which Middle Florida Ice owed to the Flagship Bank exceeded the amount of the taxes. The fact that the Cochrans opted to pay off the obligations of Middle Florida Ice in order that they could receive the property

    free and clear of any debts of Middle Florida Ice does not absolve them of the responsibilities imposed under Florida Statutes, s. 212.10(1).

    
    

12. James Howard Cochran and Mary Ann Cochran are liable for taxes, penalties, and interest which were owed by Middle Florida Ice on October 31, 1975 in accordance with the revised assessment issued by the Department of Revenue on February 2, 1976.

RECOMMENDED ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED:

1. That the proposed assessment issued by the Florida Department of Revenue on February 2, 1976 be voided insofar as it pertains to City Ice and Cold Storage Co., Inc.

   
   

2. That the revised assessment issued by the Department of Revenue on February 2, 1976 be affirmed and assessed insofar as it pertains to James Howard Cochran and Mary Ann Cochran.

RECOMMENDED this 5th day of November, 1976, in Tallahassee, Florida.

G. STEVEN PFEIFFER, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

COPIES FURNISHED:

Mr. J. Ed Straughn Executive Director Department of Revenue

Room 102, Carlton Building Tallahassee, Florida 32304

Bryan W. Henry, Esquire Henry & Buchanan, P. A.

P.O. Drawer 1049 Tallahassee, Florida 32302

Edwin J. Stacker, Esquire Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Docket for Case No: 76-000676

Orders for Case No: 76-000676