STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WARE OIL AND SUPPLY COMPANY, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 80-1451

) STATE OF FLORIDA, DEPARTMENT OF ) REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Sharyn L. Smith, held a hearing in this case on December 30, 1980, in Tallahassee, Florida. The following appearances were entered.

APPEARANCES

For Petitioner: Nicholas Yonclas, Esquire

Akerman, Senterfitt & Eidsen Post Office Box 1794 Tallahassee, Florida 32302

For Respondent: Jeff Kielbasa, Esquire

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

At the hearing, Donald Ray Everitt, President of Ware Oil and Supply Company, Inc., and Tommy Lynn, Sr., Goodyear tire dealer and formerly an independent logger, testified on behalf of the Petitioner, Ware Oil and Supply Company, Inc. Stephen James Larger, Jr., Bureau Chief, Bureau of Audit Selection, Department of Revenue and Mark Anthony Zych, Tax Auditor, Department of Revenue, testified on behalf of the Respondent, Department of Revenue.

Petitioner's Exhibits 1-11 were admitted into evidence by the Hearing Officer.

The issue in this case is whether a taxpayer can demonstrate at an administrative hearing that a tax is not due on a transaction in spite of any deficiency in documentation relative to the transaction and, if so, whether the Petitioner's have met their burden of establishing by a preponderance of competent and substantial evidence that the special fuel sold was used for exempt purposes or was sold in good faith reliance on exemption certificates provided by vendors.

Proposed Recommended Orders have been submitted the parties and considered by the Hearing Officer. Those proposed findings not included in this Recommended Order were considered not relevant to the issue, were not supported

by competent and substantial evidence, or were considered immaterial to the results reached.

FINDINGS OF FACT

1. Ware Oil and Supply Company, Inc. (hereafter "Petitioner" or "Ware Oil"), is a wholesale and retail dealer of petroleum products. Ware Oil is a licensed dealer of special and motor fuels.

   
   

2. Special fuels are primarily diesel and are used to operate off-highway equipment such as boats, farm tractors and industrial machinery.

   
   

3. Beginning March 1980, the Department conducted a special fuels tax audit of the records of the Petitioner for the period January 1, 1977, through January 31, 1980.

   
   

4. The special fuels tax audit resulted in a levy of a tax deficiency pursuant to Part II, Chapter 206, Florida Statutes. The taxes assessed together with penalty and interest are $6.868.06, with interest accruing at $1.70 per day from April 14, 1980.

   
   

5. The assessment was based in sales of special fuels made by the Petitioner to four customers; Hoxie Brothers Circus, Jackson United Shows, Tommy Lynn and Pace's 66 Marina.

   
   

6. The assessment relative to the sales of special fuel to Hoxie Brothers Circus and Jackson United Shows was due to the absence of a purchaser's affidavit of exemption from these customers and the Department's belief that they were dual users of special fuel due to the nature of their businesses.

   
   

7. The assessment relative to Tommy Lynn was based on the Department's conclusion that Mr. Lynn was a dual user of special fuel and was an unlicensed dealer at the time the sales were made.

   
   

8. The assessment relative to Pace's 66 Marina was based on Pace's resale of special fuels for which a dealer's license is required at the time of purchase.

   
   

9. The taxes assessed by the Department are derived from the number of gallons of special fuel which was sold by the Petitioner to Hoxie Brothers Circus, Jackson United Shows, Tommy Lynn and Pace's 66 Marina, on which the $.08 per gallon tax was not collected.

   
   

10. During 1977 Petitioner sold 550 gallons of special fuel to Hoxie Brothers Circus for purposes of generating electricity in order to operate circus rides and lights. The Petitioner did not have an exemption certificate from Hoxie relative to this sale although the sale invoice indicated that the fuel was for "off-road use". Sales tax of $.04 per gallon was collected by the Petitioner from Hoxie. No testimony or documentary evidence was produced to demonstrate that Hoxie in fact used the special fuel for an exempt purpose, that the special fuel was not placed into a receptacle connected to the fuel supply system of a motor vehicle and that the special fuel was not purchased for resale or far a dual use.

    
    

11. In 1978, the Petitioner sold 300 gallons of special fuel to Jackson United a circus which generates its own electricity for circus rides and lights. The Petitioner has no exemption certificates for this sale; however, like Hoxie,

    the sales invoice has the term "off-road use" noted on its face. No testimony or documentary evidence was introduced to demonstrate that Jackson in fact used the special fuel for an exempt purpose, that the special fuel was not placed into a receptacle to the fuel supply system of a motor vehicle and that the special fuel was not purchased for resale or for a dual use.

    
    

12. In 1977 the Petitioner sold 11,200 gallons of special fuel to Tommy Lynn. At that time Mr. Lynn was an independent logger who used all the special fuel purchased from the Petitioner for his logging equipment in the field and for off-road use.

    
    

13. At the time of his purchases from the Petitioner, Mr. Lynn was a dual user of special fuels in that he used special fuel for both on and off road equipment. Mr. Lynn bought his off-road special fuels exclusively from the Petitioner and his on-road special fuel from another dealer.

    
    

14. When audited by the Department, Petitioner did not have an exemption certificate for Mr. Lynn on file in its records. The Department in the past accepted exemption certificates obtained after sales were made. Mr. Lynn executed two after the fact exemption certificates. The first certificate was erroneously executed and a second drafted and signed in which Mr. Lynn stated that his purchases were for off-road use. The second certificate corroborates Mr. Lynn's direct testimony that the special fuel purchased from the Petitioner was used solely for off-road use. Neither of these certificates demonstrates that Mr. Lynn was a licensed dealer in special fuels.

    
    

15. During 1977, 1978 and 1979 the Petitioner sold 52,484 gallons of special fuel to Pace's 66 Marina. Pace's used this special fuel for resale to users of commercial and pleasure boats and therefore, no sales tax was collected. The location of the special fuel pumps at Pace's make it virtually impossible to use the fuel for purposes other than boating. At the time of the fuel's purchase, Pace's presented an exemption certificate to the Petitioner.

    At that time, Pace's was not a licensed dealer of special fuels and its dealer's license number did not appear on the exemption certificate furnished to the Petitioner.

    
    

16. Petitioner was unaware that Tommy Lynn and Pace's 66 Marina were required to be licensed as dealers and the exemption certificates provided by them should have that contained their dealer's license numbers and therefore, had no knowledge that the exemption certificates of Mr. Lynn and Pace's were incomplete. The sales were made by Petitioner in reliance on the certificates supplied by these two customer.

    
    

17. The Department imposed the assessment against Hoxie and Jackson due to the lack of appropriate exemption certificates. The assessment was levied against Tommy Lynn and Pace's due to improperly completed exemption certificates which failed to reflect the dealer's license number. The Department did not consider whether the involved special fuels were in fact used for exempt purposes.

    
    

18. The unrebutted testimony and documentary evidence regarding the sales to Tommy Lynn and Pace's 66 Marina supports Petitioner's position that the fuels sold to these two customers were in fact used for exempt purposes.

    CONCLUSIONS OF LAW

    
    

19. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this dispute.

    
    

20. At the time of the hearing, the issue of whether a taxpayer may avoid the assessment of a tax by demonstrating in an administrative hearing that the use was for an exempt purpose where the taxpayer failed to require or maintain proper documentation prior to a sale, had been considered by a number of Florida courts and the results were inconsistent and conflicting. Compare Silver and Company v. Department of Revenue, 365 So.2d 1090 (Fla. 1st DCA 1980); Pioneer Oil v. Department of Revenue, 381 So.2d 263 (Fla. 1st DCA 1980) and Belcher Oil

    v. Department of Revenue, 380 So.2d 1083 (Fla. 3rd DCA 1980); with Anderson v. Department of Revenue, 380 So.2d 1083 (Fla. 3rd DCA 1980) and Fischer v. Department of Revenue, 385 So.2d 702 (Fla. 1st DCA 1980). The Florida Supreme Court recently resolved the conflict by affirming Pioneer Oil, supra, in which the lower court had applied Rule 12B-5.03, Florida Administrative Code,, which requires that certain procedures be followed in order to transfer tax liability for sales of special fuels from an initial seller to a purchaser. See Pioneer Oil Co., Inc. v. Department of Revenue, No. 59, 147 (Fla. July 23, 1981). The Third District's decision in Anderson, supra, which was consolidated by the court with Pioneer Oil and had held that fairness requires that a taxpayer be allowed to demonstrate the actual situation regardless of any rules of the Department to the contrary, was reversed. See Anderson v. Department of Revenue, No. 58. 994 (Plan. July 23, 1981), disapproved.

    
    

21. The rule upheld in Pioneer Oil, Rule 12B-5.03, Florida Administrative Code, provides at subsection (1)(b) that every sale of special fuel is taxable unless specifically exempt and thee exempt status of a transaction must be established by the dealer.

    
    

22. The Petitioner sold special fuel to purchasers without resale or exemption certificates, (Hoxie and Jackson) and unlicensed dealers of special fuel (Lynn and Pace). In such situations, Rules 12B-5.03(1)(b), (3) and (4), Florida Administrative Code, require in pertinent part that:

    
    

    (1)(b) . . . Unless the distributor or dealer has obtained from the purchaser a resale or exemption certificate, the sales invoice, with respect to any sale for which exemption is claimed, must show the exempt purpose for which the special fuel was purchased, that the special fuel was not placed into the receptacle connected to the fuel supply system for a motor vehicle and that the special fuel was not purchased for resale or for a dual use.

    * * *

    (3) In cases where the purchaser has both taxable use and non-taxable consumption of special fuel, and such purchaser is licensed as a dealer of special fuel, he shall furnish the dealer who makes the sale to him with a resale or exemption certificate covering all

    of his purchases of special fuel. The purchaser will then accrue the tax and remit it directly to the state on all special fuel use to propel

    a motor vehicle on the public highways of this state even though the motor is also used for a purpose other than the propulsion of the vehicle, except as provided in Rule 12B-5.01(8). Unless such purchaser is licensed as a dealer of

    special fuel and shall furnish the dealer making the sale to him with resale certificate, the dealer making the sale is required to

    collect and remit the tax to the department.

    (4) A distributor or dealer shall refuse to accept a resale certificate, and shall collect the tax unless the purchaser has obtained a distributor's or dealer's license from the Florida Department of Revenue and his license number is stated on the resale certificate.

    
    

23. Since the Petitioner did not comply with the requirements of the above rule, pursuant to Pioneer Oil and Anderson, supra, liability for the sales remained with the Petitioner.

    
    

24. In the alternative, the Petitioner urges that Rule 12B-5.03(1)(b), Florida Administrative Code, creates a "good faith exception" to a dealer's tax liability under Chapter 206, Florida Statutes. The rule which is applicable to sales to Tommy Lynn and Pace's Marina, provides in pertinent part as follows:

[a]ny dealer of special fuel as defined in Rule 12B-5.05(2), who obtains from his purchaser a resale or exemption certificate and, in good faith, sells special fuel to such purchaser tax free shall not be required to collect from the purchaser any tax levied by Chapter 206, F.S. Any person who fraudu- lently obtains special fuel from a dealer without payment of the tax required by law shall be responsible for the payment for all taxes due and be subject to all penalties authorized by law. Rule 12B-5.03(1)(b), Florida Administrative Code.

Petitioner contends that since it did not knowingly accept legally insufficient exemption or resale certificates from Tommy Lynn and Pace's Marina, the "good faith exception" in Rule 12B-5.03(1)(b), Florida Administrative Code, should be applied in this case. However, Rule 12B-5.03(4), Florida Administrative Code, when read in para materia with Rule 12B-5.03(1)(b), Florida Administrative Code, limits the applicability of the "good faith exception" to exclude situations such as the sales to Tommy Lynn and Pace's Marina in which a purchaser has failed to obtain a distributor's or dealer's license from the Department and failed to place the license number on the resale certificate.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED:

That the Department enter a final order upholding the tax assessment against the Petitioner, Ware Oil and Supply Company.

DONE and ENTERED this 31st day of August 1981, in Tallahassee, Florida.

SHARYN L. SMITH

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

FILED with the Clerk of the Division of Administrative Hearings this 31st day of August 1981.

COPIES FURNISHED:

Nicholas Yonclas, Esquire Akerman, Senterfitt & Eidson Post Office Box 1794 Tallahassee, Florida 32302

Jeff Kielbasa, Esquire Assistant Attorney General Department of Legal Affairs The Capitol, LLO4 Tallahassee, Florida 32301

Docket for Case No: 80-001451

Orders for Case No: 80-001451