STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GORE NEWSPAPER COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 77-0259

)

DEPARTMENT OF REVENUE, )

STATE OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in the above-captioned matter, after due notice, at Fort Lauderdale, Florida, on October 5 and December 14, 1977, before the undersigned Hearing Officer. This case was consolidated for purposes of hearing involving the same parties, Case No. 77-1792R.

APPEARANCES

For Petitioner: Thomas A. Groendyke, Esquire

Post Office Drawer 7028 1415 East Sunrise Boulevard

Fort Lauderdale, Florida 33338

For Respondent: E. Wilson Crump, II, Esquire

Assistant Attorney General

Department of Legal Affairs, Tax Division Post Office Box 5377

Tallahassee, Florida 32301 ISSUE PRESENTED

Petitioner's alleged liability for sales tax under Section 212.06, Florida Statutes, as set forth in Respondent's notice of proposed assessment.

The parties stipulated that the hearing would be concluded on the date of receipt of the transcript of hearing by the Hearing Officer. Although the transcript of hearing held on December 14, 1977, was received on May 1, 1978, the Hearing Officer was not advised until August 15, 1978, that the court reporter had lost her notes of the hearing session conducted on October 5, 1977, in Case No. 77-259, which was continued upon Petitioner's announced desire to file a rule challenge. No evidence was received at that hearing session and only rulings on procedural matters were entered at that time.

FINDINGS OF FACT

1. Petitioner publishes the Fort Lauderdale News and Sun Sentinel. The firm has forty departments, of which one is a letter shop on the premises that prints forms, stationery, and other such needs of the company. About ten

   percent of the work done in the letter shop is for outside customers. Materials used in processing the in-house work include stock paper, binders, glue, and cardboard. The shop makes letterhead stationery for each department of the company and prints "run" sheets which are forms for reporting news stories and advertisements. It pays State sales tax on the supplies that it purchases from outside firms and collects such tax on the sales made to outside customers. The purpose of the print shop operation is to ensure that the newspaper has an ample supply of forms and printed stationery and it is also cheaper than contracting the work to an outside firm, Many of the forms are used once and then destroyed and stationery is consumed in due course of time. Some of the printed items become permanent files of the petitioner. (Testimony of Hatfield)

   
   

2. In January, 1976, respondent's tax examiner conducted an audit of respondent's accounts and thereafter respondent, by notice of assessment dated April 8, 1976, demanded, inter alia, payment of tax, penalty and interest under Chapter 212, Florida Statutes, in the total amount of $11,222.48 based on the fabricated cost of the items produced in petitioner's letter shop for its own use. The total cost of the aforesaid items was placed at $208,596.37. This cost was arrived at by the amounts petitioner internally "charged" its various departments for the printed material. Respondent's audit supervisor testified at the hearing that the assessment was laid under Section 212.06(1)(b), Florida Statutes, and Rule 12A-1.34, Florida Administrative Code. After receipt of the assessment, representatives of both parties discussed the matter in May and certain erroneous charges were deleted from the assessment. However, these deletions had reference to taxable transactions other than those involving petitioner's print shop which appeared in Schedule C of the assessment. Additionally, the original assessed penalty was abated to a flat 5 percent of the tax. A second revised notice of proposed assessment dated December 14, 1977, placed the petitioner's tax liability with regard to its print shop operations at $7,338.02. This was corrected after the hearing to show a total of $7,701.00 based on additional interest assessed as to Schedule C items. The assessment period is February 1, 1973 to January 31, 1976. (Testimony of Harris, George, Petitioner's Exhibits 1-3)

   
   

3. Dealers such as the petitioner are required to submit a monthly sales and use tax report on Form DR-15 to remit any required tax. This is the only form sent on a monthly basis to dealers such as petitioner. Column B thereof is described in the form as "Purchases not for resale but for use or consumption which are subject to the 4 percent tax rate and not taxed by suppliers." (Stipulation, Petitioner's Exhibit 2)

   
   

4. Respondent does not collect the particular tax in question from non- business entities and is unable to determine how much tax has been paid in this regard in cases of voluntary payment by taxpayers. Respondent has records as to only ten (10) cases during the period 1968-1977 in which audits were performed and taxes imposed pursuant thereto under Rule 12A-1.34(3), F.A.C. Only one of these cases involved a print shop in the Fort Lauderdale area. However, there are approximately 150 such commercial enterprises in that area. (Stipulation, Petitioner's Exhibits 1-2)

   CONCLUSIONS OF LAW

   
   

5. Respondent Department of Revenue asserts tax, penalty, and interest against the petitioner under subsection 212.06(1)(b), Florida Statutes, which reads pertinently as follows:

   
   

   212.06 Sales, storage, use tax; collectable from dealers; dealers defined; dealers to collect from purchasers; legislative intent as to scope of tax.-

   (1) * * *

   (b) Any person who manufactures, produces, compounds, processes or fabricates in any manner tangible personal property for his own use shall pay a tax upon the cost of the product manufactured, produced, compounded, processed or fabricated without any deduction therefrom on account of the cost of material used, labor or service costs or transportation charges, notwithstanding the provisions of s. 212.02(5) defining "cost price." . . .

   
   

6. The department also predicates its proposed assessment on Rule 12A- 1.34(3), Florida Administrative Code, which provides:

   
   

   12A-1.34 Direct mail advertising matter, handouts, throwaways and circulars.

   * * *

   (3) A printer (dealer) who operates a printing plant in which printed matter is manufactured for his own consumption, or for use in connection with fulfilling contracts, is taxable upon all materials going into the manufactured product. Costs of labor, power and other plant expenses incurred with respect to such items of tangible personal property are taxable.

   * * *

   Cross Reference - Rules 12A-1.08(2), (3), 12A-1.27(4), 12A-1.29(4).

   Specific Authority 212.17(6), 212.18(2) F.S. Law Implemented 212.02(2)(3)(b) F.S.

   History - Revised 10-7-65, 6-16-72.

   
   

   However, in view of the fact that the rule states specifically that it is in implementation of subsections 212.02(2) and (3) (b) it cannot be extended and made applicable to an additional statutory provision, as attempted here. In this connection, it is noted that Section 120.54(7) concerning rule making requires an agency to accompany each adopted rule by a reference to the section or subsection of law being implemented, interpreted, or made specific. The obvious purpose of this provision is to enable the public to be apprised of those provisions of law to which the rule applies so that one reasonably can be aware of the extent of its force. This being so, it is considered that an agency is limited by its citation of statutory implementation in application of the rule. It further should be noted that neither of the statutory subsections of 212.02, which deal with definitions, are applicable to the instant situation.

7. In view of the foregoing, it is necessary to test the validity of the department's proposed assessment by the statute relied upon by that agency. Petitioner contests the proposition that its print shop activities involved operations encompassed within the terms "manufactures, produces, compounds, processes or fabricates" as used in the statute. It further maintains that the term "for his own use" as used in the statute contemplates a continuing utilization of the personal property in question as opposed to its own items which are "consumed" because they mostly are used on a one-time basis. Petitioner further points to the fact that 212.06(1)(b) makes no reference to "printing" but that since such term is specifically included, in addition to the words "producing," "fabricating," and "processing," in 212.02(2)(c) in the definition of "sale," it is a separate concept not embraced within the terms used in 212.06(1)(b)

   
   

8. It is considered that petitioner's contentions as above-stated must fail even though the word "printing" is not specifically set forth in 212.06(1)(b). It must be noted that that provision imposes tax against anyone who "manufactures, produces, compounds, processes, or fabricates in any manner tangible personal property for his own use." (Emphasis added) Petitioner's activities do not involve the mere printing or imprinting of paper stock, but also extend to the construction of various kinds of pads which necessarily require additional work to glue individual sheets together and secure them with a backing. These items certainly would fit within the common definitions of "manufactures" or "fabricates." Further, the mere printing of words upon paper necessarily involves a "process" which falls within the broad term "in any manner" , as emphasized above.

   
   

9. It is further determined that the manner in which petitioner employs the print shop items falls within the intended meaning of the term "for his own use." "Use" is defined in subsection 212.02(8) as meaning "the exercise of any right or power over tangible personal property incident to the ownership thereof, or interest therein, except that it shall not include the sale at retail of that property in the regular course of business." Such a broad definition includes petitioner's utilization of the items in question, whether immediately consumed, consumed over a period of time, or retained as files. The mere fact that the words "use" and "consumption" are used separately in other provisions of Chapter 212 is not determinative here. It is therefore concluded that the proposed assessment against the petitioner is valid and should be upheld.

   
   

10. Prior to the hearing, Petitioner sought to obtain information concerning prior tax assessments of the type under consideration in this case. Respondent provided such information except that it refused to disclose the names of the taxpayers, claiming that such a matter fell under the "confidentiality" statute (Section 213.07(2)) which prohibits the release of individual accounts and reports required under Chapter 212 "except in accordance with proper judicial process or as otherwise provided by law." The Hearing Officer ruled that he had no jurisdiction to compel the respondent to divulge the requested information in view of the statutory proscription. Additionally, this request dealt with petitioner's contention that the tax law was being arbitrarily enforced against it and not against others. This involves a constitutional question that is not within the jurisdiction of a Hearing Officer.

    
    

11. Petitioner's demand in its petition that the assessment be reduced to eliminate the taxation of an artificial profit element originally considered by

respondent in determining the cost price of the print shop items was agreed to at the hearing and the latest assessment reflects the deletion of that factor in the various elements of the assessment

RECOMMENDATION

That the proposed tax assessment against petitioner under Chapter 212, Florida Statutes, be upheld and enforced by appropriate action.

DONE and ENTERED this 18th day of August, 1978, in Tallahassee, Florida.

THOMAS C. OLDHAM

Hearing Officer

Division of Administrative Hearings 2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 18th day of August, 1978.

COPIES FURNISHED:

E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division

Post Office Box 5377 Tallahassee, Florida 32301

Thomas A. Groendyke, Esquire Post Office Drawer 7028 1415 East Sunrise Boulevard

Fort Lauderdale, Florida 33338

Docket for Case No: 77-000259

Orders for Case No: 77-000259