STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NOS CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 77-1758

) STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings by its duly designated Hearing Officer K. N. Ayers held a public hearing in the above styled case on November 22nd, 1977, in Ocala, Florida.

APPEARANCES

For Petitioner: Richard P. Arnold, C.P.A.

Post Office Box 1504 Ocala, Florida

For Respondent: Cecil L. Davis, Jr., Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

By letter dated August 14th, 1977, NOS Corporation, Petitioner, requested a hearing to contest Respondent's revised Notice of Assessment dated August 5th, 1977, in which Respondent has claimed sales tax plus penalty and interest on the transfer of Closet Maid Corporation's (CMC) interest in Beechcraft model BCO to NOS Corporation, Petitioner.

One witness testified on behalf of Respondent, one witness testified on behalf of Petitioner, and five exhibits were admitted into evidence.

FINDINGS OF FACT

1. On July 2nd, 1974, Closet Maid Corporation (CMC) acquired Beechcraft model BCO from Elliott Flying Service under an agreement which was not introduced into evidence at this hearing.

   
   

2. Respondent contends that this is a lease agreement with option to purchase at the expiration of sixty (60) months.

   
   

3. Exhibit 3 is a transfer of CMC's interest in this aircraft to NOS Corporation.

4. The Notice of Proposed Assessment (Exhibit 1) claims a tax due of

   $9,633.70, penalties of $481.69, and interest of $1,011.54 or a total tax due of

   $11,126.93. The accuracy of this sum was not contested.

   
   

5. CMC is a corporation the majority of whose stock is owned by Norman Sauer. NOS Corporation was formed to be the transferee of CMC's interest in the airplane and the stock of NOS is wholly owned by Sauer.

   
   

6. CMC and Nodorana Farms, another corporation wholly owned by Sauer, entered into agreements with NOS to lease back the aircraft at a guaranteed minimum monthly rental in excess of $8,000.00, which will provide NOS with sufficient revenues to make the monthly payments on the aircraft of $4,214.89 plus operating expenses.

   
   

7. Elliott Flying Service is the registered owner of the aircraft.

   
   

8. The only documentary evidence presented regarding the agreement between CMC and Elliott Flying Service is Exhibit 3.

   
   

9. Exhibit 3 is a Beech Acceptance Corporation, Inc. (BAC) Transfer of Interest Agreement form which states that the "note, conditional sale contract, lease, chattel mortgage, or other security agreement, herein called 'Instrument'", representing the agreement between CMC and Elliott, requires the consent of BAC for its transfer to NOS.

   
   

10. At the date shown on Exhibit 3 of August 1st, 1976, Exhibit 3 recites the balance due on the aircraft of $240,842.39 "is payable in forty-seven (47) consecutive monthly installments of $4,214.89 each, first installment payable August 2nd, 1976, and one final installment of $42,742.56."

    
    

11. Exhibit 3 further shows BAC to be the assignee of the "instrument" executed between CMC and Elliott.

    
    

12. Exhibit 2C is headed NOS CORPORATION and shows monthly aircraft expenses. Included therein is depreciation of $2480.00 and interest expense of

    $2192.00.

    
    

13. Accounting procedures prescribed by AICPA provide that equipment held on long term lease be capitalized. Accordingly, essentially the same accounting procedures would be used whether the aircraft was obtained on lease or conditional sales contract.

    
    

    CONCLUSIONS OF LAW

    
    

14. The sole issue for determination is whether the aircraft transferred to NOS Corporation was held by CMC on lease or conditional sale. If the aircraft was leased the assignment of the lease to NOS would be a transfer of intangible property, viz, the lease. If the aircraft was obtained by CMC on conditional sales contract, then Rule 12A - 1.17 FAC is applicable. This rule provides:

    
    

    "The amount paid by any purchaser as interest or as a finance charge is tax- able unless such interest or finance charge is separately stated from the consideration received for the tangible personal property transferred in a re-

    tail sale. For example, when articles are sold in a taxable transaction under an installment payment arrangement, retail title contract or purchase money mortgage for a stated amount payable in installments at intervals over a period of time, the entire amount is taxable. If, on the other hand, a cash selling price is stated and interest and car- rying charges are added there to as separate and distinct items, only the cash selling price is taxable."

    
    

15. In the absence of the "Instrument between CMC and Elliott Flying Service the primary evidence of the mature of the transaction here involved is Exhibit 3. Liability of the transaction to sales tax is determined by the form and fate of the instrument representing the transaction and cannot be affected by proof of extrinsic facts. Lee v. Kenan 78F2d 425 (1935) cert. den. 56S. Ct 170.

    
    

16. Exhibit 3 shows the transfer of an installment sales contract in the amount of $240,842.39 payable in forty-seven (47) consecutive monthly installments of $4214.89, and a final balloon payment of $42,742.56. The original instrument was executed July 2nd, 1974, and obviously provided for the financing of the aircraft over a six (6) year period because on August 1st, 1976, when Exhibit 3 was executed, 47 months payments remained to be paid.

    
    

17. Other exhibits admitted into evidence characterize the original transaction between CMC and Elliott as a lease (Exhibit 5), and the transfer of the aircraft from CMC to NOS as a sale (Exhibit 2b and 3). Regardless of the title of the "Instrument" or the accounting procedures used to show this asset on the company's records, it is obvious that CMC was making payments on a six

    (6) year note which were adequate to amortize the loan in less than seven years.

    
    

18. From the foregoing it is concluded that the transaction between CMC and NOS Corporation was the transfer of an aircraft subject to a conditional sales contract in the amount of $240,842.39 which NOS assumed and agreed to pay. This was a transaction subject to sales tax in the amount claimed in Exhibit 1. It is therefore

RECOMMENDED:

That NOS Corporation be required to pay sales tax, penalty and interest which amounted to $11,126.93 on August 5, 1977.

DONE and ENTERED this 19th day of December, 1977, in Tallahassee, Florida.

K.N. AYERS Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

COPIES FURNISHED:

Richard P. Arnold, C.P.A. Cecil L. Davis, Jr., Esquire

P. O. Box 1504 Assistant Attorney General

Ocala, Florida Department of Legal Affairs Representing Petitioner The Capitol

Tallahassee, Florida 32304 Representing Respondent

Docket for Case No: 77-001758

Orders for Case No: 77-001758