STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SPEROS INTERNATIONAL SHIP )

SUPPLY COMPANY, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 81-516

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, R. L. Caleen, Jr., held a formal hearing in this case on November 13, 1981, in Tampa, Florida.

APPEARANCES

For Petitioner: Douglas L. Grose, Esquire

602 South Boulevard

Tampa, Florida 33606

For Respondent: Gregory P. Waldbart, Esquire

The Capitol, Room LL04 Tallahassee, Florida 32301

ISSUE

Whether petitioner taxpayer is liable for delinquent sales tax, penalties, and interest under Chapter 212, Florida Stat utes, as alleged by respondent Department in its notice of proposed assessment.

BACKGROUND

By notice of proposed assessment, dated September 23, 1980, the respondent Department of Revenue ("Department") alleged that petitioner Speros International Ship Supply Company, Inc.

("Taxpayer") was liable for specified sales tax, penalties, and interest under Chapter 212, Florida Statutes.

After an informal conference with the Department, the Taxpayer petitioned for a Section 120.57(1), Florida Statutes, proceeding. On March 12, 1981, the Department referred this case to the Division of Administrative Hearings.

Hearing was initially set for July 31, 1981. On Taxpayer's motion -- unopposed by the Department -- hearing was reset for October 23, 1981; then, on the Department's motion -- without objection by Taxpayer -- hearing was reset for November 13, 1981.

At hearing, the Department called Rob Roberts and Brun W. Davis as its witnesses; Taxpayer called Thomas Marylis and Manuel Alvarez, Jr., as its witnesses. Joint Exhibit Nos. 1 through 28 were received into evidence.

After hearing, the parties were allowed to file proposed findings of fact and conclusions of law within 30 days from the filing of the transcript of hearing. Taxpayer -- without objection by the Department -- was subsequently granted an additional ten days. The Department filed its proposed findings on December 23, 1981; Taxpayer did not file proposed findings.

Based on the evidence presented at hearing, the following facts are determined:

FINDINGS OF FACT

1. The Taxpayer

   
   

   1. Taxpayer is a family-operated Florida corporation which has engaged in retail sales at the Tampa Port Authority since 1975 or 1976; it is a licensed dealer registered with the Department. (Testimony of Roberts, Marylis.)

      
      

2. Taxpayer's Sales During Audit Period

   
   

   1. From June 1, 1977, through July 31, 1980 (the audit period covered by the Department's proposed assessment), Taxpayer had gross sales in the approximate amount of $691,013.46. (Testimony of Roberts; Exhibit 2.)

      
      

   2. During that period, Taxpayer filed the required DR-15 monthly sales tax reports and paid taxes on all retail sales transactions which took place on the premises of its store located at 804 Robinson Street, (Tampa Port Authority) Tampa, Florida. (Testimony of Roberts.)

      
      

   3. During the same audit period -- in addition to sales on its store premises -- Taxpayer sold goods to merchant seamen on board foreign vessels temporarily docked at the Port of Tampa. These vessels operated in foreign commerce, entering the port from and returning to international waters outside the territorial limits of the United States. Taxpayer did not report these sales on its monthly sales tax reports; neither did it charge or collect sales tax from the on-board purchasers. (Testimony of Marylis.)

      
      

   4. Taxpayer failed to charge or collect sales tax in connection with its on-board sales because it relied on what it had been told by Department representatives. Prior to forming Taxpayer's corporation Thomas Marylis went to the local Department office to obtain a dealer's certificate. While there, he asked Manuel Alvarez, Jr., then the Department's regional audit supervisor, whether he was required to collect sales tax on ship-board sales. Alvarez replied that he didn't have to collect sales taxes on sales made to seamen when he delivered the goods to the ship. 1/ (Testimony of Marylis.)

      
      

   5. The on-board sales transactions took place in the following manner: Taxpayer (through its owner, Thomas Marylis) would board the foreign vessel and accept orders from the captain, chief mate, or chief steward. (Earlier, one of these persons would have taken orders from the rest of the crew.) If individual crewmen tried to place orders, Marylis would refer them to the captain, chief mate, or chief steward. After receiving orders from one of these three persons, Marylis would return to Taxpayer's store, fill the order, and transport the goods back to the vessel. Whoever placed the order would then examine the goods

      and give Marylis the money /2 collected from the crew. (Testimony of Roberts, Marylis.)

      
      

   6. The goods sold in this manner were ordinarily for the personal use of individual crew members; typical items were: shoes, underwear, working clothes, small radios, watches, suitcases, soap, paper towels, and other personal care products. (Testimony of Marylis.)

      
      

3. Department Audit of Taxpayer

   
   

   1. In 1980, the Department audited Taxpayer's corporate books to determine if sales tax had been properly collected and paid. Taxpayer could produce no dock or warehouse receipts, bills of lading, resale certificates from other licensed dealers, or affidavits verifying that its on-board sales were made to out-of-state purchasers for transportation outside of Florida. (Testimony of Roberts, Marylis.)

      
      

   2. Due to Taxpayer's failure to supply documentation demonstrating that its ship-board sales from June 1, 1977, to July 31, 1980, were exempt from sales tax imposed by Chapter 212, Florida Statutes, the Department issued a proposed assessment on September 23, 1980. Through that assessment, the Department seeks to collect $21,201.01 in delinquent sales tax, $5,131.39 in penalties, and

      $3,892.18 in interest (in addition to interest at 12 percent per annum, or $6.97 per day, accruing until date of payment). (Exhibit 5.)

      
      

4. Informal Conference with Department; Alvarez's Representations to Taxpayer

   
   

   1. In October 1980 -- after the audit -- Taxpayer (through Marylis) informally met with Manuel Alvarez, the Department's regional audit supervisor, to discuss the tax status of the shipboard sales. Specifically, they discussed the Department auditor's inability to confirm that Taxpayer delivered the items to the ships, as opposed to the buyers picking up the goods at the store. Alvarez told him:

      
      

      [I]f the buyers would come and just pick them up and take them. And I [Alvarez] think I told him that, if that was the case, it was taxable. But, if they just placed their orders there -- like we have had other ship supplies -- and they them- selves, or one of their employees, would take the items aboard ships, that would be an exempt sale. I did make that state ment. If we had any type of confirmation to that effect, when it comes to that. (Tr. 61.) 3/ (Testimony of Alvarez.)

      
      

   2. Alvarez then told Marylis to obtain documentation or verification that the sales were made on foreign vessels, i.e., proof that Taxpayer delivered the goods to the vessels. He assured Marylis that if he could bring such verification back, such sales "would come off the audit." (Tr. 62.)(Testimony of Alvarez.)

   3. Alvarez was an experienced Department employee: he retired in 1980, after 30 years of service. It was Alvarez's standard practice -- when dealing with sales tax exemption questions -- to reiterate the importance of documentation. He would always give the taxpayer an opportunity -- 30 days or more -- to obtain documentation that a sale was exempt from taxation. (Testimony of Alvarez.)

      
      

5. Taxpayer's Verification

1. In response to the opportunity provided by Alvarez, Taxpayer (through Marylis) obtained affidavits from numerous captains of foreign vessels and shipping agents. Those affidavits read, in pertinent part:

   
   

   I, [name inserted] , am the Captain aboard the vessel [name inserted] from [place of origin]. I am personally aware

   that Speros International Ship Supply Co., Inc. sells various commodities, supplies, clothing, and various sundry items to for eign ship personnel by delivering the said items to the ships docked at various termi- nals inside the Tampa Port Authority and other locations in Tampa, Florida from [date] to the present. (Testimony of Marylis; Exhibit 8.)

   
   

2. Moreover, in an attempt to comply with the tax law and avoid similar problems in the future, Taxpayer printed receipt books to be used in all future on-board sales. The receipts reflect the type of goods sold, the date of delivery to the vessel, the foreign vessel's destination, and the total purchase price. Also included is a signature line for the individual who delivers and receives the goods. (Testimony of Marylis; Exhibit 7.)

   
   

   CONCLUSIONS OF LAW

   
   

3. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. s120.57(1), Fla. Stat. (1981).

   
   

4. The Department is empowered to administer and enforce the assessment and collection of sales taxes, interest, and penalties imposed by Chapter 212, Florida Statutes (1981). s212.18(2), Fla. Stat. (1981)

   
   

5. Section 212.05, supra, declares that "every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail 4/ in this state for the exercise of such privilege, a tax is levied on taxable transactions at the rate of 4 percent of the sales price of each item. Id. The tax is due and owing as of the moment of sale. ss212.06(1)(a), (3), Fla. Stat. (1981). The person who sells, at retail, tangible personal property is defined as a "dealer"; it is the dealer who is charged with collecting the tax and remitting it to the Department.

   ss212.06(2), 212.05(2), Fla. Stat. (1981). If the dealer neglects, fails, or refuses to collect the sales tax from the purchaser, he "shall be liable for and pay the tax himself." s212.07(2), Fla. Stat. (1981)

   
   

6. In addition to collecting the tax and remitting it to the Department, dealers have a statutory duty to keep complete records of their retail sales:

   Section 212.12(7)(a)

   [I]t shall be the duty of every person required to make a report and pay any tax under this chapter, every person receiving rentals, and owners of places of admission, to keep and preserve suitable records of the sales, leases, rentals, admissions, or

   purchases, as the case may be, taxable under this chapter; such other books of account

   as may be necessary to determine the amount of the tax due hereunder; and other informa- tion as may be required by the department.

   It shall be the duty of every such person

   so charged with such duty, moreover, to keep and preserve, for a period of 3 years, all invoices and other records of goods, wares and merchandise, records of admissions, leases and rentals and all other subjects

   of taxation under this chapter; . . .

   
   

   Section 212.13(2)

   Each dealer, as defined in this chapter, shall secure, maintain, and keep for a period of 3 years a complete record of tangible per-

   sonal property received, used, sold at retail, distributed or stored, leased or rented by said dealer, together with invoices, bills of lading, gross receipts from such sales and other pertinent records and papers as may be required by the department for the reasonable administration of this chapter; . . .

   
   

   The Department may, by rule, prescribe the records dealers must keep for proper verification of taxable and non-taxable sales. ss212.12(7)(a), 212.18(2), Fla. Stat. (1981).

   
   

7. In the instant case, Taxpayer contends that the on-board sales are exempt from sales tax imposed by Chapter 212, supra. Although taxing statutes are strictly construed against the taxing authority, exemptions are strictly construed against the taxpayer. State ex rel. Szabo Food Services, Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973); United States Gypsum Company v. Green, 110 So.2d 409 (Fla. 1959). Exemptions are considered special favors granted by the legislature. Szabo, supra at 531. Thus, if Taxpayer is to prevail, it must clearly show that the on-board sales fall within a specific statutory exemption; any doubt must be resolved in favor of the Department. Id.

   
   

8. Taxpayer makes several arguments. First, that its on-board sales are exempt from sales tax by virtue of Department Rule 12A-1.64, Florida Administrative Code:

   
   

   12A-1.64 Sales in Interstate and Foreign Commerce.

   1. The retail sales tax is imposed on the sales price of each item or article of tangible personal property when sold at

      retail in this state. However, the tax does not apply to sales which are not within the

      taxing powers of this state. This involves interstate and foreign commerce.

   2. If goods are sold within the state of Florida, but possession is taken by the purchaser without the state, the sales tax does not apply. Possession will be consid- ered to be taken by the purchaser without the state if:

      1. The dealer is required by the terms of the sale contract to deliver the goods out side this state, or

      2. The dealer is required by the terms of the sale contract to deliver the goods to a common carrier or to the mails for trans- portation outside this state. Sales by a Florida dealer are exempt when the dealer delivers the merchandise to the transporta- tion terminal for shipment outside this

         state and secures a dock or warehouse receipt and a copy of the bill of lading. On ship ments to points outside the United States, a shipper's export declaration shall also be obtained.

         
         

9. Taxpayer has failed to establish that its on-board sales fall within this exemption. It has not been shown that, by the terms of its sales contracts, it was required to deliver the goods outside the state /5 or to a common carrier or to the mails for transportation outside this state. No documentation required by Rule 12A-1.64(2) was submitted; when the method for establishing an exemption has been prescribed by Department rule, failure to follow that method is grounds for denial of the exemption. See, State Department of Revenue v. Robert N. Anderson, 403 So.2d 397 (Fla. 1981). More importantly, here the goods were delivered to individual purchasers (the seamen or their agent) who were free to use, consume, or dispose of the goods within the State of Florida. Under such circumstances, Department Rule 12A-1.64(3), governs:

   
   

   (3) If goods are sold within this state and possession is taken by the pur- chaser within this state, the sales tax applies, irrespective of the fact that the goods are to be transported outside of Florida by the purchaser immediately upon delivery, . . . .

   
   

10. In the alternative, Taxpayer contends that if the on-board sales are not exempt under Rule 12A-1.64(2), then they must be exempt under Section 212.08(5)(a) supra, and Rule 12A-1.64(5). These provisions grant a partial sales tax exemption to:

    
    

    Items, appropriate to carry out the purposes for which a vessel is designed or equipped and used, . . . .

    s212.08(a), Fla. Stat. (1981). The evidence does not establish that the goods sold by Taxpayer, including watches, radios, luggage, and personal effects, are items appropriate to carrying out the purposes for which the vessels were designed or equipped and used. Moreover, this exemption does not apply unless the purchaser signs an affidavit stating that the items are solely to carry out the purposes for which the vessel is designed or equipped and used. s212.08(8)(b), Fla. Stat. (1981). The affidavits offered by Taxpayer do not satisfy this requirement. Taxpayer also relies on Section 212.08(9), supra, but this partial exemption extends only to purchases of vehicles engaged in interstate or foreign commerce. Since the seamen purchased the goods in question for their own use, this section is inapplicable.

    
    

11. Finally, Taxpayer contends that the Department is attempting to change its position on the taxation of the on-board sales, and that it should be estopped from doing so.

    
    

12. The general rule is that equitable estoppel will be applied against the state "only in rare instances and under exceptional circumstances." Anderson, supra at 400. The elements are:

    
    

    1) [A] representation as to a material fact that is contrary to a later asserted posi- tion; 2) reliance on that representation; and 3) a change in position detrimental to the party claiming estoppel, caused by the representation and reliance thereon.

    
    

    Id. The state cannot be estopped through mistaken statements of law. Austin v. Austin, 350 So.2d 102 (Fla. 1st DCA 1977), cert. denied, 357 So.2d 184 (Fla.

    1978).

    
    

13. In the instant case, the Department mistakenly advised Taxpayer, prior to its engaging in business, that on-board sales would be exempt from state sales tax. However, that was a mistaken statement of law, not of fact. Thus, although the consequences are harsh -- and may seem unfair -- estoppel has not been established.

    
    

14. To the extent the Department's proposed findings of fact are incorporated in the order, they are adopted; otherwise, they are rejected as unsupported by the evidence or unnecessary to resolution of the issues.

RECOMMENDATION

Based on the foregoing, it is RECOMMENDED:

That Department's proposed assessment of Taxpayer for delinquent sales tax, penalties, and interest, be issued as final agency action.

DONE AND RECOMMENDED this 17th day of February, 1982, in Tallahassee, Florida.

R. L. CALEEN, JR. Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 17th day of February, 1982.

ENDNOTES

1/ Alvarez does not recall this conversation. However, such a representation by Alvarez is fully consistent with Marylis's subsequent actions, and it is compatible with assurances Alvarez subsequently gave him in 1980. After assessing Marylis's demeanor and candor, his testimony is persuasive.

2/ Most purchases were made with cash or foreign currency.

3/ Pages of the transcript of hearing will be referred to as "Tr. "

4/ A "retail sale" is defined as "a sale to a consumer or to any person for any purpose other than for resale." s212.02(3) (a), Fla. Stat. (1981).

5/ "In the state" means within the exterior limits of Florida. s212.02(17), Fla. Stat. (1981). Florida's west coast boundaries extend three leagues seaward into the Gulf of Mexico. Article II, s1(a), Fla. Const.

COPIES FURNISHED:

Douglas L. Grose, Esquire 602 South Boulevard

Tampa, Florida 33606

Gregory P. Waldbart, Esquire Department of Legal Affairs The Capitol, Room LL04 Tallahassee, Florida 32301

Randy Miller Executive Director Department of Revenue

102 Carlton Building Tallahassee, Florida 32301

Docket for Case No: 81-000516

Orders for Case No: 81-000516