Judges: G. STEVEN PFEIFFER
Agency: Department of Revenue
Latest Update: Apr. 10, 1979
Summary: Tax dispute concerning the applicability of the statutes/rules to freight costs and interest/penalties. Recommended Order: oulines the construction of the tax bill.
78-1947.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SILVER SAND COMPANY OF )
LEESBURG, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 78-1947
) FLORIDA DEPARTMENT OF REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
The final hearing was conducted in this case by the undersigned Hearing Officer on January 23, 1979, in Tavares, Florida. The following appearances were entered: Charles E. Davis, of the firm Fishback, Davis, Dominick & Bennett, Orlando, Florida, for the Petitioner, Silver Sand Company of Leesburg, Inc.; and Maxie Broome, Jr., Assistant Attorney General, Tallahassee, Florida, for the Respondent, Florida Department of Revenue.
On or about August 17, 1975, the Department of Revenue ("Department" hereafter) issued a Notice of Proposed Assessment of Tax, Penalties and Interest, against the Silver Sand Company of Leesburg, Inc. ("Petitioner" hereafter). It was therein asserted that the Petitioner was liable in the amount of $16,022.96 for delinquent sales taxes, together with interest and penalties. The Department and the Petitioner participated in an informal conference, which resulted in the Department dropping several items from the proposed assessment, adjusting the interest, and reducing the penalty. On October 5, 1978, the Department issued a Revised Notice of Proposed Assessment for $12,933.98 in delinquent sales taxes, interest and penalties. The revised notice of proposed assessment relates to an audit period from June 1, 1975 through May 31, 1978. The Petitioner responded to the revised notice by filing a Petition for Administrative Hearing. The Department forwarded the matter to the office of the Division of Administrative Hearings for the assignment of a Hearing Officer and the scheduling of a hearing. The final hearing was scheduled by notice dated November 16, 1978.
At the final hearing the Department called Ed Riker, a tax examiner employed by the Department as its only witness. The Petitioner called the following witnesses: Robert Luxon, the Petitioner's Comptroller during the audit period; and Rodney Griffin, the Petitioner's sales manager and general manager during the audit period. Petitioner's Exhibits 1 and 2, and Respondent's Exhibits 1 through 14 were received in evidence. The parties have submitted post-hearing legal memoranda. The Petitioner's memoranda includes Proposed Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
The Petitioner is a Florida corporation, which is a wholly owned subsidiary of United States Industries, Inc. Center Sand Company and Eustis
Sand Sales are divisions of the Petitioner. They are not separately incorporated. Petitioner is in the business of mining and hauling sand. It leases and operates the Center Sand Mine. It makes profits from the sales of sand, and by serving as a broker for individuals who contract with the Petitioner to transport the sand. The Petitioner has one sales tax number.
The Petitioner maintains a single price list for its sand. The price list does not include the cost of hauling the sand. Some purchasers send their own trucks to the Petitioner's mine to pick up the sand. Other purchasers transport the sand by common carrier. Approximately seventy-five to eighty percent of the sand is hauled by "lease operators" or "contract carriers". These operators own their own trucks, and contract with the Petitioner to exclusively haul Petitioner's sand. The Petitioner handles payroll, insurance and taxes far the lease operators, and maintains a lease payroll which is based on the tonnage of sand hauled by the lease operator. The Petitioner collects a brokerage commission from the lease operators which ranges from twelve and a half to twenty-seven percent, depending upon whether the operator owns his or her own trailer, or uses one of the Petitioner's trailers.
In transactions in which a purchaser utilizes its own carriers, or common carriers, the Petitioner submits a single invoice to the purchaser which reflects the price of the sand. In cases in which the Petitioner's lease operators do the hauling, the Petitioner submits two invoices to the purchaser. One invoice reflects the price of the sand. The other reflects the freight charges of the contract operator. Some purchasers satisfy the two invoices with a single check, others issue two checks. Whether one or two checks are submitted, the Petitioner maintains separate receipt books for sand and for freight. Invoices, whether for sand or freight, are generally issued in the name of Center Sand Company or Eustis Sand Sales.
The Petitioner collects sales taxes from its customers for sales of sand. The Petitioner does not collect sales tax on freight charges.
The Petitioner and the Department submitted copies of numerous purchase orders, and invoices into evidence. Invoices reflecting all of the transactions involved in the audit were not submitted. Some of the purchase orders and/or invoices reflect that the sales are "f.o.b. origin". F.o.b. literally means "free on board" and refers to the location at which title to goods being bold transfers from the seller to the purchaser. Other purchase orders and/or invoices reflect that the sales are f.o.b the purchaser's place of business. Most of the Petitioner's sales are arranged by telephone conversations with no written purchase order. In these transactions, and even in most transactions in which there are purchase orders, neither the purchase order nor the Petitioner's invoices reflect whether the terms of the transaction are f.o.b. origin or
f.o.b. purchaser's place of business. The evidence is undisputed that in these transactions in which the documents do not reflect the precise terms of the transaction, the Petitioner and its customers have treated the sales as if they were f.o.b. origin. In other words, they treated the transactions as if ownership of the sand transferred at the Petitioner's mine. This is generally the practice in the Petitioner's industry, and is consistent with the Petitioner's price quotation and billing practices.
The Petitioner has conducted its business in this manner, and collected sales taxes only on the price of the sand for many years. The Petitioner was audited by the Department in 1973, and was assessed for numerous items. It was not assessed for sales taxes on freight.
Loads of sand are occasionally lost between the Petitioner's mine and the purchaser's place of business due to an accident or other cause. Generally when this occurs the Petitioner replaces the load of sand. This policy does not reflect that title to the sand has not yet transferred to the purchaser. The cost of a load of sand is somewhat negligible, generally less than twenty dollars, and the Petitioner is willing to replace a load in order to maintain good will with its customers.
The Department's audit and proposed assessment covers the period from June 1, 1975 through May 31, 1978. The total amount of the proposed assessment is $12,933.98. Of this amount, $2,213.12 is listed in "Schedule B" of the proposed assessment. The Petitioner does not contest this portion of the assessment. The amount of allegedly due taxes set out in Schedule A of the proposed assessment is $8,853.02. The Department contends that the Petitioner should have collected sales taxes on its freight charges, and $7,133.00 of the Schedule A taxes relate to the disputed freight items. The Petitioner does not dispute the remainder of the taxes set out in Schedule A, $1,720.02, or penalties and interest on that amount. The Petitioner does contend that it is not liable for taxes on the freight charges.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and over the parties. Section 120.57(1), Florida Statutes (1978 Supp.).
Section 212.05, Florida Statutes (1977) provides in pertinent part:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state. . .For the exercise of such a privilege a tax is levied on each taxable transaction or incident and shall be due and payable. . .as follows:
(1)(a) At the rate of 4 percent of the sales price of each item or article of tangible personal property when sold at retail in this state, the tax to be computed on each taxable sale for the purpose of remitting the amount of tax due the state, and to include each and every retail sale.
The issue in this matter is whether the freight or transportation charges paid by the Petitioner's customers should be included in the sales price of the sand for sales tax purposes.
The Department's rules 12A-1.45(1) and (2) control the issue. The rules provide:
In those instances where the seller contracts to deliver tangible personal property to some designated place or is obligated under the contract to pay transportation charges to some designated place, the transportation services are
rendered to the seller and the taxable selling price of the tangible personal property so transported must include the amount of the transportation charges.
If the seller contracts to sell tangible personal property f.o.b. origin, the title to the property passes at such point to the buyer and the buyer pays the transportation charges, the transportation services are rendered to the buyer and are not part of the taxable selling price of the seller.
Some of the transactions involved in the instant audit fall within Paragraph (1) of the rule, while others fall within Paragraph (2). Those transactions in which the purchase order or invoice specifically provides that the terms of the sale are "f.o.b. the purchaser's place of business" fall within Paragraph (1). Respondent's Exhibits 3 and 4 reflect such transactions. Those transactions in which the invoice or purchase orders specifically provide that the terms of the sale are "f.o.b. origin" clearly fall within Paragraph (2) Petitioner's Exhibit 2 reflects such a transaction. Those transactions in which the purchase orders or invoices do not reflect the terms also fall within Paragraph (2). The evidence is undisputed that the Petitioner and its customers treated the transactions as if title to the goods transferred at the Petitioner's place of business, and this is consistent with the Petitioner's price quotation and billing practices. No evidence was offered to establish that title to the goods transferred at a later time. Sales taxes cannot be imposed upon freight charges that are incurred after title to the goods has transferred. United States Gypsum Company V. Green, 110 So.2d 409 (Fla. 1959); State v. Natco Corp. 90 So.2d 385 (Ala. 1956).
The Department contends that since sand was shipped by the Petitioner's own lease operators in many of the transactions, the transportation costs were a part of the purchase price of the sand. This contention is without merit. Nothing in the Department's rules nor in Chapter 212 requires such a result. When title to the sand passed to the purchaser the cost of the goods was established for Florida sales tax purposes. Any effort to impose taxes upon freight charges that occurred after the transfer would be contrary to the provisions of Chapter 212. U.S. Gypsum Company v. Green, supra.
Since all of the invoices involved in the audit were not placed in evidence in this case, it cannot be determined how many of the transactions were consummated under terms that were f.o.b. the purchaser's place of business. Since both parties had access to the invoices and could have submitted them into evidence, it is not appropriate that the failure to do so should adversely impact either party.
The Department should issue a revised assessment which would impose taxes, penalties, and interest upon the Petitioner as follows: (a) The assessment should include the full amount set out in Schedule B of the present revised notice of proposed assessment, which amount is not in dispute; (b) The assessment should include $1,720.02 in taxes under Schedule A of the present revised notice of proposed assessment, plus appropriate penalties and interest on that amount, which matters are not in dispute; (c) The assessment should include sales taxes on all freight charges in transactions in which the terms of the sales are specifically set out on the purchase order and invoices as "f.o.b. the purchaser's place of business", plus appropriate penalties and interest on that amount.
RECOMMENDED ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law, it is, hereby
RECOMMENDED:
That the Department of Revenue issue a Second Revised Notice of Assessment against Silver Sand Company of Leesburg, Inc. as set out in Paragraph 6 of the Conclusions of Law above.
RECOMMENDED this 13th day of February, 1979, in Tallahassee, Florida.
G. STEVEN PFEIFFER, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
(904) 488-9675
COPIES FURNISHED:
Maxie Broome, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32304
Julian K. Dominick, Jr., Esquire Fishback, Davis, Dominick
& Bennett
170 East Washington Street Orlando, Florida 32801
STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SILVER SAND COMPANY OF )
LEESBURG, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 78-1947
) FLORIDA DEPARTMENT OF REVENUE, )
)
Respondent. )
)
APPENDIX TO RECOMMENDED ORDER, RULINGS IN ACCORDANCE WITH FLORIDA STATUES 120.59(2)
The Petitioner, Silver Sand Company of Leesburg, Inc., has submitted Proposed Findings of Fact and Conclusions of Law. Rulings upon the proposed findings and conclusions are set out herein in accordance with 120.59(2), Florida Statutes (1977)
Petitioner's proposed findings of fact numbered 1 through 5 have been substantially adopted in the Findings of Fact set out in the Recommended Order. The findings are hereby adopted to the extent that they are not directly in conflict with the findings set out in the Recommended Order.
Petitioner's proposed finding of fact number 6 is rejected. The testimony supports a finding, which is set out in the Recommended Order, that the practice in the Petitioners industry is that the terms of sales are f.o.b. origin. This finding supports the Petitioner's contention that its sales are f.o.b. origin.
The finding does not support a further finding that any other practice would be impractical for the Petitioner.
The Petitioner's proposed conclusion of law has been substantially adopted in the Conclusions of Law set out in the Recommended Order, except that certain of the transactions involved in the audit were specifically made under terms that were f.o.b. the purchaser's place of business.
ENTERED this 13th day of February, 1979, in Tallahassee, Florida.
G. STEVEN PFEIFFER, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
(904) 488-9675
COPIES FURNISHED:
Maxie Broome, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32304
Julian K. Dominick, Jr., Esquire Fishback, Davis, Dominick
& Bennett
170 East Washington Street Orlando, Florida 32801
Docket for Case No: 78-001947
Orders for Case No: 78-001947
| Issue Date |
Document |
Summary |
|
Apr. 06, 1979 |
Agency Final Order
|
|
|
Feb. 13, 1979 |
Recommended Order
|
Tax dispute concerning the applicability of the statutes/rules to freight costs and interest/penalties. Recommended Order: oulines the construction of the tax bill.
|
