STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JAFFIE CONTRACTING COMPANY )

OF FLORIDA, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 78-1800

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Delphene C. Strickland, Hearing Officer of the Division of Administrative Hearings, at 10:00

a.m. on January 22, 1979, in Room 105 of the Collins Building, Tallahassee, Florida.

APPEARANCES

For Petitioner: Gerald T. Hart

William P. Battaglia Post Office Box 1876

Suite 701, Lewis State Bank Building Tallahassee, Florida 32302

For Respondent: Cecil L. Davis, Jr.

Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304

ISSUE

The primary issue in this proceeding is whether the taxable income of Jaffie Contracting Company of Florida, Inc. can be consolidated with the taxable income of Arlen Realty and Development Corp. in consolidated Florida Corporation Income Tax Returns for the taxable years ending February 28, 1973, and February 28, 1974.

A second issue is whether Jaffie Contracting Company of Florida, Inc. should be liable for penalties for the underpayment of estimated taxes if it is determined that Jaffie Contracting Company of Florida, Inc. is not entitled to be included in Arlen Realty and Development Corp`s consolidated Florida Corporation Income Tax Returns for the fiscal years ending February 28, 1973, and February 28, 1974.

FINDINGS OF FACT

1. In a joint stipulation dated December 8, 1978, filed with the Hearing Officer, the parties stipulated to the relevant facts of this proceeding.

   Stipulation of Facts for Case No. 78-1800, together with the appendices thereto, are adopted by reference and made a part of the Findings of Fact of this Recommended Order.

   
   

2. The consolidated Florida Corporation Income Tax Returns filed by Arlen Realty and Development Corp. pursuant to the first sentence of Section 220.131(1), Florida Statutes, for the fiscal years ending February 28, 1973, and February 28, 1974, indicated that there was no tax liability for the affiliated group of corporations which included Petitioner, Jaffie Contracting Company of Florida, Inc., a subsidiary of Jaffie Contracting Company, Inc.

   
   

3. The Respondent, Department of Revenue, asserted deficiencies against Petitioner's taxable income separating it from that of Arlen Realty and Development Corp`s affiliated group for the fiscal years ending February 28, 1973, and February 28, 1974, in the amounts of $10,491.30 and $17,548.75, respectively. The Department had determined that Petitioner was not properly includable as a member of Arlen's affiliated group of corporations for Florida Tax purposes. Respondent additionally proposed penalties for the failure to make declarations of estimated tax for the same fiscal years in the amount of

   $751.30 and $1,356.98, respectively. The basis for the proposed deficiencies was that Petitioner did not qualify for inclusion in Arlen Realty and Development Corp`s consolidated Florida corporation income tax return because Petitioner's parent, Jaffie Contracting Company, was not subject to the Florida tax imposed by the Florida Income Tax Code and was not included in the consolidated Florida return, thereby breaking the chain of ownership of the affiliated group of corporations.

   
   

4. Petitioner filed a protest against the proposed deficiencies. Following the initial consideration and reconsideration by the Department of Revenue, the proposed deficiencies were sustained.

   
   

5. On November 27, 1978, a pre-hearing conference was held for the purposes of defining the issues in the case. Petitioner and Respondent filed Briefs, and Petitioner filed a Reply Brief prior to the hearing at which oral argument on the legal issues was heard. Both parties submitted excellent memoranda and Proposed Recommended Orders.

   
   

6. Petitioner contends:

   
   

   That it elected to file its return under the first sentence of Section 220.131(1), and contends it has satisfied all the statutory requirements and that the deficiencies for the fiscal years ending February 28, 1973, and February 28, 1974, are invalid; that it is not liable for penalties for failure to file declaration of estimated taxes.

   
   

7. Respondent contends:

   
   

   That one of the members of the affiliated group of corporations is not eligible to be included in the affiliated group of corporations inasmuch as it was not subject to tax under the Florida Income Tax Code, Chapter 220, Florida Statutes, as required by the first sentence of Chapter 220.131(1); that an affiliated group of corporations for federal purposes is not an affiliated group for Florida tax purposes; that the failure of the Petitioner to pay estimated taxes pursuant to provisions of Section 220.34(2)(a) subject Petitioner to the imposition of penalties.

   CONCLUSIONS OF LAW

   
   

8. Section 220.131(1) Adjusted federal income; affiliated groups.--

   
   

   1. Subject to subsection (5), any corporation subject to tax under this code which is the parent company of an affiliated group of corporations may elect, not later than the due date for filing its return for the taxable year, including any extensions thereof, to consolidate its taxable income with that of all other members of the group subject to tax under this code and to return such consolidated taxable income hereunder, in which case all such

      other members must consent thereto in such manner as the department may by regulation prescribe. Any Florida parent company of an affiliated group of corporations may elect to consolidate its taxable income with all other members of the affiliated group, even though some of its members are not subject to tax under this code, provided:

      
      

      1. Each member of the group consents to such filing by specific written authorization at the time the consolidated return is filed;

         
         

      2. The affiliated group so filing under this code has filed a consolidated return for federal income tax purposes for the same taxable year; and

         
         

      3. The affiliated group so filing under this code is composed of the identical component members as have consolidated their taxable incomes in said federal return.

      
      

9. Petitioner, Jaffie Contracting Company of Florida, Inc., elected to file consolidated returns pursuant to the first sentence of the foregoing statute. The affiliated group of corporations under the federal rule are Arlen Realty and Development Corp., Tech Aerofoam Products, Inc., Arbeach Contracting Company, Jaffie Contracting Company, and Jaffie Contracting Company of Florida, Inc. (Appendix I of the Stipulation of Facts). Each of the foregoing corporations are subject to Florida Income Tax Code except Jaffie Contracting Company, which was incorporated in New York on January 1, 1949.

10. Section 220.03(1)(a) provides: Definitions --

    1. Specific Terms -- When used in this code,

       and when not otherwise distinctly expressed or manifestly incompatible with the intent there of, the following terms shall have the following meanings:

       1. "Affiliated group of corporations" means two or more corporations which constitute an affiliated group of corporations as defined

          in Section 1504(a) of the Internal Revenue Code.

          
          

11. Section 1504(a) of the Internal Revenue Code provides:

    
    

    1. As used in this chapter, the term "affil iated group means one or more chains of includable corporations connected through stock ownership with a common parent corporation which is an includable corporation if--

       1. Stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the non voting stock of each of the includable cor porations (except the common parent corpor ation) is owned directly by one or more of the other includable corporations; and

       2. The common parent corporation owns directly stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of

          at least one of the other includable corpor ations.

          
          

12. The foregoing definitions must be read together with Section 220.131(1)(a), supra, and with the rules and regulations of the Department. Section 220.03(1)(a) is modified by the preliminary statement in Section 220.03(1) to express the intent of the Legislature.

    
    

13. Section 220.02 Legislative Intent provides:

    
    

    1. It is the intent of the Legislature that the income tax imposed by this code shall utilize, to the greatest extent possible, concepts of law which have been developed

    in connection with the income tax laws of the United States...

    
    

14. It is concluded that Jaffie Contracting Company of Florida, Inc. is not properly includable in Arlen's affiliated group of corporations for purposes of Chapter 220, Florida Statutes, inasmuch as Jaffie Contracting Company is the parent company of the Petitioner and was not a corporation subject to tax imposed by the Florida Income Tax Code for the fiscal years ending February 28, 1973, and February 28, 1974. Jaffie Contracting Company was not included in the consolidated returns of Arlen for the foregoing fiscal years, and Jaffie Contracting Company of Florida, Inc., was not directly connected through stock ownership with a member of Arlen's Florida affiliated group.

    
    

15. Provision was made in Section 220.131 in the second sentence that might have accommodated the Petitioner inasmuch as this part of the statute provides for consolidation, even though some of its members are not subject to tax under this code. It appears that the definition of Section 220.03(1)(a) was modified with the "distinct expressions" in Section 220.131, providing for alternate methods of affiliated groups of corporations electing to consolidate taxable income. It appears and the Hearing Officer finds that the statutes make

    a distinction between an affiliated group of corporations for federal purposes and for Florida purposes. The rules in the Florida Administrative Code cited by the Department of Revenue, to wit: Rule 12C-1.03(a)(a); 12C-1.131(4)(b); and also Section 1504(a) of the Internal Revenue Code, are consistent with this view.

    
    

16. Section 220.34(2)(a) provides:

    
    

    (a) Except as provided in paragraph (d), the taxpayer shall be liable for

    interest at the rate of 6 percent per year and for a penalty in an amount determined at the rate of 10 percent per year upon the amount of any underpayment of estimated tax determined under this subsection.

    1. No penalty or interest for underpayment of any installment of estimated tax shall be imposed if the total amount of all such

       payments made on or before the last date prescribed for the payment of such installment equals or exceeds the amount which would have been required to be paid on or before such date if the estimated tax were the lesser of:

       1. An amount equal to the tax computed at the rates applicable to the taxable year, but otherwise on the basis of the facts shown on the return for, and the law applicable to, the preceding taxable

          year; or

       2. An amount equal to 80 percent of the tax finally due for the taxable year; or

       3. An amount equal to the tax shown on the taxpayer's return for the preceding taxable year, if a return showing a liability for tax was filed by the tax payer for the preceding taxable year and such preceding year was a taxable year of

    12 months.

    
    

17. The foregoing statute requires the imposition of penalties.

RECOMMENDATION

It is recommended that the Florida Corporation Income Tax Division deficiencies assessed against Jaffie Contracting Company of Florida, Inc. by the Department for the fiscal years ending February 28, 1973, and February 28, 1974, including the applicable penalties be upheld.

DONE and ORDERED this 27th day of February, 1979, in Tallahassee, Leon County, Florida.

COPIES FURNISHED:

Gerald T. Hart, Esquire William P. Battaglia, Esquire Post Office Box 1876

Suite 701, Lewis State Bank Building

Tallahassee, Florida 32302

Cecil L. Davis, Jr. Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304

DELPHENE C. STRICKLAND

Hearing Officer

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

(904) 488-9675

Docket for Case No: 78-001800

Orders for Case No: 78-001800