STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JAMES W. HICKMAN, )

)

Petitioner, )

)

vs. ) CASE NO. 79-087

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, in the Orange County Courthouse, Orlando, Florida, on November 13, 1979. The issue for determination at the hearing was whether petitioner is liable for the assessment dated October 2, 1978, for rent taxes, penalty and interest in the total amount of $5,316.35.

APPEARANCES

For Petitioner: James W. Hickman

203 River Bend Longwood, Florida

For Respondent: Linda C. Procta

Assistant Attorney General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. The petitioner is a dentist and is also engaged in the business of leasing real property in Florida for commercial purposes.

   
   

2. A tax auditor for the respondent, Mr. Eugene A. Soinski, notified petitioner that an audit of his books and records would be conducted to determine whether petitioner was remitting the appropriate amount of rental taxes to the respondent. At the time of the initial audit, Mr. Soinski was supplied with only bank deposit receipts and certain leases. The auditor had difficulty in determining which were mortgage payments and which were rental payments. Based upon the auditor's review of petitioner's deposit slips, lease agreements, a three-year audit prepared by petitioner and discussions with some of petitioner's tenants, as assessment for delinquent taxes was made. The initial assessment was reduced and the present dispute lies with the revised assessment dated October 2, 1978, in the amount of $5,316.35.

3. In his amended petition for a hearing and at the hearing, petitioner alleged that no rent tax was due on three specific leases. Petitioner offered no evidence to refute the respondent's assessment on any other lease. All testimony and evidence adduced at the hearing was confined to the lease agreements between petitioner and three other businesses -- Suncoast Amusement, Product Movement Systems, Inc., and Staid, Inc.

   
   

4. One of the three disputed items in the assessment concerned an agreement between petitioner and Suncoast Amusement, also referred to as Hot Foots. The lease agreement between Suncoast and petitioner was not made available at the hearing. According to the testimony of the petitioner, the tenant removed carpeting from the premises and installed new red carpeting in its stead. Certain other improvements were also made to the property. The petitioner testified that he received no actual benefit to the property from these improvements, and that the red carpet actually decreased the value of the property. The auditor, Mr. Soinski, remembered seeing the lease agreement and matching the rental payment amounts with the deposit receipts to arrive at the assessment.

   
   

5. A copy of the first two pages of the "business lease" between petitioner and Product Movement Systems, Inc., was received into evidence as respondent's Exhibit 3. This agreement contains the stipulation that

   
   

   TWENTY-SECOND: Minimum of two room office, with air, will be built at tenant's expense and remain as part of the first years rent.

   
   

   According to petitioner, the tenant actually built eight to ten offices and this did not improve the real estate. It was, instead, a deterrent to future tenants, according to petitioner.

   
   

6. A copy of the "business lease" between petitioner and Staid, Inc., was received into evidence as the respondent's Exhibit 2. The consideration for the agreement was a total rental of sixty thousand dollars, payable as follows:

   
   

   One thousand dollars per month in advance, plus 4 percent State tax. Two thousand dollars security deposit, receipt acknowledged. Also on the first of each month an amount equal to 1/60th of the total cost of all improvements of any kind, as approved by both parties, will be paid plus the above basic rent of $1,040. - per month.

   
   

   Also, the twenty-fourth stipulation and condition in said lease provides as follows . . .

   
   

   TWENTY-FOURTH: If during the life of this lease tenant has need of more space every effort will be made to provide some adjacent. If it is desirable to both parties a new building is necessary then such buildings will be to tenants specifications, the rent will be the total cost of such land and improvements including architect fee, cost of

   mortgage, paving, landscaping or any expense of any nature x 15 percent net, net.

   
   

7. According to the petitioner, he made a loan to Staid, Inc., in the amount of $48,000.00 to enable Staid to pay for certain improvements to the property. This loan was to be repaid in installments of $800.00 per month for sixty months. It was petitioner's testimony that regardless of the wording contained in the lease agreement, the improvements were not considered a part of the rent, he derived no benefits from the improvements to the property, and part of the payment made by the tenant each month was for repayments of a loan, rather than rental on the property.

   
   

8. It was the testimony of Mr. Soinski, the auditor, that the assessment of the three disputed leases was based on the total amount of rent paid by the tenants to the petitioner, which rent included any improvements to the property. Where lease documents were available, he utilized the amount of rent due from the face of the lease document. Where possible, he compared the lease documents with the petitioner's bank deposit slips.

   
   

9. The revised notice of proposed assessment dated October 2, 1978, was received into evidence as the respondent's Exhibit 1. This document assesses a tax on rentals of real property in the amount of $4,215.40, a delinquent penalty in the amount of $210.79 and interest through October 2, 1978, in the amount of

   $890.16, for a total amount of $5,316.35.

   
   

   CONCLUSIONS OF LAW

   
   

10. Persons engaged in the business of renting, leasing or letting real property exercise a taxable privilege for which a tax is levied in an amount equal to four percent of and on the total rent charged. Where the rental is paid by way of property, goods, wares, merchandise, services or other things of value, the tax is four percent of the value of the property, services or other things of value. Florida Statutes, Section 212.031(1)(a), (c) and (d). The tax is to be paid on "all considerations due and payable for the privilege of occupancy." Florida Administrative Code, Rule 12A-1.70(3).

    
    

11. It is the respondent's position that "all considerations due and payable" includes all rent monies paid as well as improvements to the property which are considered by both parties to be additional rent. The petitioner contends that not all of the consideration he received from the three tenants in dispute herein constituted rent and therefore was not subject to the four percent tax.

    
    

12. The oral and documentary evidence presented at the hearing support the respondent's assessment concerning the tax due on the three disputed lease agreements. With regard to the lease agreement between petitioner and Suncoast Amusement (Hot Foots), petitioner admitted at the hearing that certain improvements were made to the property by the tenant. The auditor testified that he based his assessment on the lease agreement, as well as the petitioner's bank deposit receipts. This is true also of the agreements between petitioner and Product Movement Systems, Inc., and petitioner Staid, Inc. While petitioner attempted to rebut the express language in these latter two leases as to the terms and conditions of the payments, the parole evidence rule prohibits extrinsic evidence which contradicts or varies the written contract between the parties.

13. It is a taxpayer's responsibility to maintain accurate and sufficient records, books and documentation of taxable transactions. If it was the petitioner's intention that various monthly payments made to him by his tenants were not to be considered as "rent," it was his duty and responsibility to properly document such intention. Having failed to do so, it cannot now be claimed that the express wordings in the leases were "faulty" or that the considerations paid under agreement were not "due and payable for the privilege of occupancy." In conclusion, the petitioner simply failed to produce sufficient evidence to illustrate that the payments he received from his tenants were not rent charged as contemplated under Chapter 212, Florida Statutes. The amounts assessed as "delinquent penalty" and "interest" are authorized by Florida Statutes, Section 212.12.

    
    

14. The undersigned has carefully considered the proposed recommended orders submitted by the parties. To the extent that the proposed findings of fact are not contained herein, they are rejected as being either not supported by competent evidence adduced at the hearing or as irrelevant and immaterial to the issues for determination.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited above, it is RECOMMENDED that the proposed assessment dated October 2, 1978, in the amount of

$5,316.35 be upheld and that the relief requested by petitioner be denied. DONE AND ENTERED this 3rd day of January 1980 in Tallahassee, Florida.

DIANE D. TREMOR

Hearing Officer

Division of Administrative Hearings

101 Collins Building Tallahassee, Florida 32301 (904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of January 1980.

COPIES FURNISHED:

James W. Hickman

203 River Bend Longwood, Florida

Linda Procta

Assistant Attorney General Department of Legal Affairs The Capitol LL04 Tallahassee, Florida 32301

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF REVENUE

JAMES W. HICKMAN,

Petitioner,

vs. CASE NO. 79-087

DEPARTMENT OF REVENUE,

Respondent.

/

FINAL ORDER OF DEPARTMENT OF REVENUE

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, in the Orange County Courthouse, Orlando, Florida, on November 13, 1979. The issue for determination at the hearing was whether petitioner is liable for the assessment dated October 2, 1978, for rent taxes, penalty and interest in the total amount of $5,316.35.

APPEARANCES

For Petitioner: James W. Hickman

203 River Bend Longwood, Florida

For Respondent: Linda C. Procta

Assistant Attorney General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. The petitioner is a dentist and is also engaged in the business of leasing real property in Florida for commercial purposes.

   
   

2. A tax auditor for the respondent, Mr. Eugene A. Soinski, notified petitioner that an audit of his books and records would be conducted to determine whether petitioner was remitting the appropriate amount of rental taxes to the respondent. At the time of the initial audit, Mr. Soinski was supplied with only bank deposit receipts and certain leases. The auditor had difficulty in determining which were mortgage payments and which were rental payments. Based upon the auditor's review of petitioner's deposit slips, lease

   agreements, a three-year audit prepared by petitioner and discussions with some of petitioner's tenants, as assessment for delinquent taxes was made. The initial assessment was reduced and the present dispute lies with the revised assessment dated October 2, 1978, in the amount of $5,316.35.

   
   

3. In his amended petition for a hearing and at the hearing, petitioner alleged that no rent tax was due on three specific leases. Petitioner offered no evidence to refute the respondent's assessment on any other lease. All testimony and evidence adduced at the hearing was confined to the lease agreements between petitioner and three other businesses -- Suncoast Amusement, Product Movement Systems, Inc., and Staid, Inc.

   
   

4. One of the three disputed items in the assessment concerned an agreement between petitioner and Suncoast Amusement, also referred to as Hot Foots. The lease agreement between Suncoast and petitioner was not made available at the hearing. According to the testimony of the petitioner, the tenant removed carpeting from the premises and installed new red carpeting in its stead. Certain other improvements were also made to the property. The petitioner testified that he received no actual benefit to the property from these improvements, and that the red carpet actually decreased the value of the property. The auditor, Mr. Soinski, remembered seeing the lease agreement and matching the rental payment amounts with the deposit receipts to arrive at the assessment.

   
   

5. A copy of the first two pages of the "business lease" between petitioner and Product Movement Systems, Inc., was received into evidence as respondent's Exhibit 3. This agreement contains the stipulation that

   
   

   TWENTY-SECOND: Minimum of two room office, with air, will be built at tenant's expense and remain as part of the first years rent.

   
   

   According to petitioner, the tenant actually built eight to ten offices and this did not improve the real estate. It was, instead, a deterrent to future tenants, according to petitioner.

   
   

6. A copy of the "business lease" between petitioner and Staid, Inc., was received into evidence as the respondent's Exhibit 2. The consideration for the agreement was a total rental of sixty thousand dollars, payable as follows:

   
   

   One thousand dollars per month in advance, plus 4 percent State tax. Two thousand dollars security deposit, receipt acknowledged. Also on the first of each month an amount equal to 1/60th of the total cost of all improvements of any kind, as approved by both parties, will be paid plus the above basic rent of $1,040. - per month.

   
   

   Also, the twenty-fourth stipulation and condition in said lease provides as follows . . .

   
   

   TWENTY-FOURTH: If during the life of this lease tenant has need of more space every effort will be made to provide some adjacent. If it is desirable to both parties a new building is necessary then such buildings

   will be to tenants specifications, the rent will be the total cost of such land and improvements including architect fee, cost of mortgage, paving, landscaping or any expense of any nature x 15 percent net, net.

   
   

7. According to the petitioner, he made a loan to Staid, Inc., in the amount of $48,000.00 to enable Staid to pay for certain improvements to the property. This loan was to be repaid in installments of $800.00 per month for sixty months. It was petitioner's testimony that regardless of the wording contained in the lease agreement, the improvements were not considered a part of the rent, he derived no benefits from the improvements to the property, and part of the payment made by the tenant each month was for repayments of a loan, rather than rental on the property.

   
   

8. It was the testimony of Mr. Soinski, the auditor, that the assessment of the three disputed leases was based on the total amount of rent paid by the tenants to the petitioner, which rent included any improvements to the property. Where lease documents were available, he utilized the amount of rent due from the face of the lease document. Where possible, he compared the lease documents with the petitioner's bank deposit slips.

   
   

9. The revised notice of proposed assessment dated October 2, 1978, was received into evidence as the respondent's Exhibit 1. This document assesses a tax on rentals of real property in the amount of $4,215.40, a delinquent penalty in the amount of $210.79 and interest through October 2, 1978, in the amount of

$890.16, for a total amount of $5,316.35.

CONCLUSIONS OF LAW

Persons engaged in the business of renting, leasing or letting real property exercise a taxable privilege for which a tax is levied in an amount equal to four percent of and on the total rent charged. Where the rental is paid by way of property, goods, wares, merchandise, services or other things of value, the tax is four percent of the value of the property, services or other things of value. Florida Statutes, Section 212.031(1)(a), (c) and (d). The tax is to be paid on "all considerations due and payable for the privilege of occupancy." Florida Administrative Code, Rule 12A-1.70(3).

It is the respondent's position that "all considerations due and payable" includes all rent monies paid as well as improvements to the property which are considered by both parties to be additional rent. The petitioner contends that not all of the consideration he received from the three tenants in dispute herein constituted rent and therefore was not subject to the four percent tax.

The oral and documentary evidence presented at the hearing support the respondent's assessment concerning the tax due on the three disputed lease agreements. With regard to the lease agreement between petitioner and Suncoast Amusement (Hot Foots), petitioner admitted at the hearing that certain improvements were made to the property by the tenant. The auditor testified that he based his assessment on the lease agreement, as well as the petitioner's bank deposit receipts. This is true also of the agreements between petitioner and Product Movement Systems, Inc., and petitioner Staid, Inc. While petitioner attempted to rebut the express language in these latter two leases as to the terms and conditions of the payments, the parole evidence rule prohibits extrinsic evidence which contradicts or varies the written contract between the parties.

It is a taxpayer's responsibility to maintain accurate and sufficient records, books and documentation of taxable transactions. If it was the petitioner's intention that various monthly payments made to him by his tenants were not to be considered as "rent," it was his duty and responsibility to properly document such intention. Having failed to do so, it cannot now be claimed that the express wordings in the leases were "faulty" or that the considerations paid under agreement were not "due and payable for the privilege of occupancy." In conclusion, the petitioner simply failed to produce sufficient evidence to illustrate that the payments he received from his tenants were not rent charged as contemplated under Chapter 212, Florida Statutes. The amounts assessed as "delinquent penalty" and "interest" are authorized by Florida Statutes, Section 212.12.

The undersigned has carefully considered the proposed recommended orders submitted by the parties. To the extent that the proposed findings of fact are not contained herein, they are rejected as being either not supported by competent evidence adduced at the hearing or as irrelevant and immaterial to the issues for determination.

Based upon the findings of fact and conclusions of law recited above, it is ORDERED that the proposed assessment dated October 2, 1978, in the amount of

$5,316.35 be upheld, plus interest which shall accrue from October 2, 1978, on

$4,215.40, and that the relief requested by petitioner be denied.

DONE AND ENTERED this 3rd day of March, 1980.

RANDY MILLER EXECUTIVE DIRECTOR DEPARTMENT OF REVENUE STATE OF FLORIDA

Docket for Case No: 79-000087

Orders for Case No: 79-000087