STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
CHESTNUT FLEET RENTALS, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 81-1227
) STATE OF FLORIDA, DEPARTMENT OF ) REVENUE, )
)
Respondent. )
) AMERICAN INTERNATIONAL ) RENT-A-CAR OF FLORIDA, INC., a )
Florida corporation, )
)
Petitioner, )
)
vs. ) CASE NO. 81-1228
) STATE OF FLORIDA, DEPARTMENT OF ) REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
Notice was given and a final hearing was conducted in these cases on August 27, 1984. Charles C. Adams was the Hearing Officer. The hearing location was The Oakland Building, 2009 Apalachee Parkway, Tallahassee, Florida. This Recommended Order is being entered following the receipt and review of memoranda filed by counsel for the parties. To the extent the memoranda comport with the factual findings and legal conclusions of the undersigned, they have been utilized. Otherwise, they are rejected as contrary to facts found or the legal opinion expressed.
APPEARANCES
For Petitioners: Benjamin K. Phipps, Esquire
Post Office Box 1351 Tallahassee, Florida 32302
For Respondent: Barbara Staros Harmon
Assistant Attorney General Room LL04, The Capitol Tallahassee, Florida 32301
ISSUES
There are several issues that were under consideration in these cases. The first issue concerns the taxability of sales of used rental cars by Chestnut Fleet Rentals, Inc., referred to subsequently as Chestnut (DOAH Case No. 81- 1227); second, the taxability of short-term sub-leasing of rental cars by American International Rent-A-Car of Florida, Inc., subsequently referred to as American, to individual sub-leases (DOAH Case No. 81-1228); and finally, the taxability of car rentals (sub-leasing) from American to employees of the federal government when those employees used their personal credit cards or paid cash for the car rental. (DOAH Case No. 81-1228).
FINDINGS OF FACT
Petitioner Chestnut is a foreign corporation with authorization to do business in the state of Florida. Petitioner American is a Florida corporation doing business at various places in Florida. The corporate address of both Petitioners is 3000 Admiral Wilson Boulevard, Pennsauken, New Jersey.
On October 25, 1976, Patrick Treacy, an auditor with the State of Florida, Department of Revenue, made a tax audit of the books and records of the two petitioning corporations. This audit was made in the offices of the two corporations. The audit was concluded on December 24, 1976, and was followed by an initial Notice of Proposed Assessment of Tax, Penalties and Interest pursuant to Chapter 212, Florida Statutes. Each company was notified of an intention to assess tax. A copy of the initial Notices of Proposed Assessment may be found as Respondent's Exhibits A and B which date from February 17, 1977. Exhibit A is American and Exhibit B is Chestnut.
In arriving at these statements of proposed assessments, against American, Treacy had examined, among other things, the sales tax returns, general ledgers, rental agreements, daily branch reports, purchase invoices, and source journals. Reference American, it had been discovered that automobiles which had been rented in accordance with a contract between American and the United States General Services Administration, rentals pertaining to government employees, in Florida, under special rates, were transactions in which no tax was being collected for the benefit of the State of Florida. On occasions where the federal government was billed directly, for the rental, no tax was sought; however, the Notice of Proposed Assessment called for the remittance of tax on those rentals in which the employee paid cash or used a personal credit card in the transaction. Moreover, the initial assessment related to American called for collection of tax on transactions not involving federal employees or the General Services Administration contract in which tax was not collected on certain rentals in Florida. The cars which were the subject of both the General Services Administration rentals and non-government rentals, and for which Florida sought the collection of tax, had initially been leased to American International of Florida, Inc., from Chestnut Fleet Rentals and American International of Atlanta, Georgia, through a primary lease agreement, with the cars to be sublet to the general public. That lease agreement was one in which tax was paid to the State of Florida and credit afforded for that agreement. It is the further sub-lease from American International of Florida to the ultimate consumer that is the subject of the two categories of tax collection for the rental. The period involved is from February 1, 1973 through October 31, 1976.
In the Chestnut Fleet Rentals circumstance of the February 17, 1977 assessment, tax collection was sought on the sale of long-term fleet rental cars, in Florida, to the lessees or other consumers, in which the State of Florida believed that sales tax was not collected. On this occasion, a pro-rata assessment was made in view of the fact that Chestnut did not have source documents representing the sales prior to November, 1974. Consequently, the
pro-rata estimate was made of the pre- November 1974 sales based upon subsequent sales where records had been kept. At the final hearing Chestnut did not refute the prorata adjustment by contrary proof. The overall circumstance with Chestnut Fleet related to the audit period of February 1, 1973 through October 31, 1976.
In all instances related to American and Chestnut, the State of Florida sought and continues to seek a delinquent penalty and interest. In those several categories American and Chestnut were responsible for the collection and remission of any tax which the State of Florida was certified to collect and to keen any needed records to aid in that endeavor. In the American circumstances at issue the incidence of tax fell upon the lessees. In the Chestnut sales the incidence of tax fell upon the purchasers.
By correspondence of February 11, 1980 from counsel for the Petitioners, the proposed assessments were challenged. A copy of that correspondence may be found as Respondent's Exhibit C. In referring to the sale of used cars by Chestnut, its counsel did not state opposition as such, it was merely indicated that counsel wished to check with its client to be sure that the client agreed with the figures set forth in the proposed assessment. This was also the circumstance in the situation related to leases to customers other than federal government employees. In effect, counsel for the Petitioner American was asking for the opportunity to verify the tax owed based upon the circumstance that existed after credit was given for taxes that had already been paid. The General Services Administration rentals from American to federal employees were protested in their totality.
On June 11, 1980, the protest was responded to by the State of Florida in its Notice of Decision. On that occasion, it was indicated that the position of the State related to the lease of American cars to non-federal employees would remain the same. The lease of American cars to federal employees was upheld in the area of rentals where federal employees paid in cash or through the use of their own credit cards. On that occasion of the notice, reference was made to Rule 12A-1.01(4)(e), Florida Administrative Code, as a basis for sustaining the State's position. That provision states, "When hotel accommodations are paid for directly by church officials from church funds, an exemption certificate may be used to exempt such transactions from tax. If hotel bills are paid by guests and reimbursement is made from church funds as expense accounts of individuals, the tax shall be paid by such individuals.
This provision was offered by way of analogy, in the mind of the State of Florida. In the decision, no mention was made of the sale of rental cars by Chestnut. There followed an informal conference between the taxpayers' former attorney who had authored Respondent's Exhibit C, and officials within the Department. At that time, American, through its former counsel, sought to have the State of Florida abandon its request for penalty in the rental circumstance involving non-federal renters, and to have the State possibly consider a stipulated payment schedule for the tax due. It continued to oppose the idea of the assessment of tax on the American rentals through the General Services Administration contract. In the Chestnut Fleet sales of lease cars to consumers, counsel sought the State's acquiescence in the removal of penalties on that tax claim. This informal conference was memorialized in correspondence
of former counsel for the Petitioners, a copy of which may be found as Respondent's Exhibit
On February 26, 1981, the State of Florida issued its Notice of Reconsideration. A copy of this is found as Respondent's Exhibit F. In this notice, the State continues to assert its right to collect the tax in the several categories that are at issue, denies the opportunity for stipulated payments pending proof of qualification for that payment plan and refuses to consider the question of penalty reduction until the matters have been settled. At that point in time, the agency was proceeding under what, in effect, was a fourth revised notice of assessment as to American and a third revision as to Chestnut. These notices of assessment date from June 25, 1980. The assessment pertaining to the American International rentals per agreement with the General Services Administration are found as Exhibit G by the Respondent, a copy. The assessments pertaining to American International's rentals to persons other than through the General Services Administration contract are found as Respondent's Exhibit H, a copy. Finally, the assessments pertaining to the Chestnut Fleet rental sales to consumers of their off-lease automobiles may be found as Respondent's Exhibit I, a copy. In each circumstance, the state of Florida continues to request the imposition of a delinquent penalty and accrued interest.
Following the receipt of the February 26, 1981 Notice of Reconsideration, the Petitioners filed a Request for Relief pursuant to Section 120.57(1), Florida Statutes, related to the issues as set forth in the Recommended Order. Those petitions as amended have been considered through the hearing process.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action pursuant to Section 120.57(1), Florida Statutes.
The burden of proof in this dispute resides with the State of Florida, Department of Revenue. In accordance with Section 120.575(2), Florida Statutes, the requirement of burden of proof is limited to ". . . a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the Department made the assessment." In that connection, the assessments here have been made following an audit of materials maintained by the Petitioners, as described in the Findings of Fact. The alleged legal basis for the collection of the tax in the three categories is Section 212.05, Florida Statutes (1976 Supp.). That provision calls for a four percent tax to be imposed on the sale of tangible personal property at retail and upon the rental of such personal property. Chestnut's sale of the off-lease automobiles was the sale of tangible personal property within the meaning of this Chapter.
Likewise, the rental of automobiles by American to federal employees and others was the rental of tangible personal property within the meaning of the Chapter. In accordance with Section 212.05, Florida Statutes (1976 Supp.), Respondent has established a prima facie showing of the validity of its proposed assessments in the several questioned categories. To that end, Petitioners would be responsible for the collection of those taxes and the payment of taxes upon the failure to collect, as envisioned by Section 212.05(7), Florida Statutes (1976 Supp.). A penalty and interest would be due on the uncollected taxes in the amount of five percent penalty and one percent interest per month on the amount due from the date due until paid, per Sections 212.12(3) and (3), Florida Statutes (1976 Supp.) Petitioners' efforts at rebutting this prima facie
showing have failed as it relates to American's rental of automobiles to non- federal government customers and the sale by Chestnut of off-lease automobiles in a retail arrangement. American International has successfully rebutted the prima facie showing as it relates to American's rental of its automobiles to federal government employees.
Rule 12A-1.07(13)(c), Florida Administrative Code, calls for the payment of tax on the sub-lease of leased motor vehicles. This is in furtherance of the tax theory expressed in Section 212.05, Florida Statutes (1976 Supp.). This is a tax unrelated to the tax paid on the original lease between American International of Florida as lessee and Chestnut and American International of Atlanta. Credit for the original lease arrangement between American International of Florida and its lessors was given. There is no prohibition against a second tax collection related to the further or sub-lease from American International of Florida to the consuming public. This in effect was not a duplication of taxes but a separate taxation on taxable transactions or privileges, the first being the lease arrangement between American International of Florida and its two lessors, American International of Atlanta and Chestnut and the second being the matter at issue here, the rental of automobiles from American International of Florida to the consuming public. See Ryder Truck Rental, Inc. v. Bryant, 170 So. 2d 822 (Fla. 1944). This arrangement was not as contemplated by Section 212.05(3), Florida Statutes (1976 Supp.), in that no showing was made that the two entities from which American International of Florida has leased the automobiles, had paid tax on the purchase of the automobiles in question and, in turns leased those automobiles to American International of Florida for a period of twelve months or longer. The lease arrangement between those two entities and American International of Florida was one contemplating a sub- lease of those automobiles to customers of American International of Florida, not for the purpose of having American International of Florida serve as the ultimate consumer using the automobiles on a long-term basis without further subletting the automobiles, thereby promoting another taxable event.
In the Chestnut Fleet Rentals retail sales to individual customers in the state of Florida, a taxable event occurred in accordance with Section 212.05, Florida Statutes (1976 Supp.). As Chestnut had failed to have adequate records to demonstrate its collection of sales taxes, it was acceptable for the auditor of the State of Florida, Department of Revenue, to pro-rate the tax assessment based upon estimates arrived at from November, 1974 forward when trying to assess taxes on sales events prior to November, 1974. This method of determination is acceptable given Chestnut's failure to maintain records as called for by Section 212.13, Florida Statutes (1975).
Under the circumstances, Respondent is entitled to the collection of
$08,146.98 as tax, with a $22,036.79 delinquent penalty and interest of one percent per month from the due date until paid related to the American International rental of leased cars to persons other than federal employees. In addition, Respondent is entitled to collect $1,540.75 in tax and $385.18 in penalty and a one percent interest charge per month against the amount of tax due from the due date until paid, related to the Chestnut sale of automobiles to retail customers, as described herein.
In the matter of the rentals of automobiles by American International of Florida to federal employees in accordance with the contract between American and the General Services Administration, Respondent claims that that tax should not be allowed in view of the fact that a transaction had occurred between the Petitioner, American, and the United States government, and in
keeping with the Supremacy Clause, U.S. Constitution, Article VI, Clause 2, no tax may be levied directly upon the United States. That argument is well- founded. The incidence of tax on this occasion falls upon the lessee, the federal employee. It is the question of where the incidence of tax falls and not the method of payment for the service rendered which establishes the immunity of the federal government to taxation on this occasion and relieves American International of Florida of the necessity to collect the tax for the rental. The immunity is created in view of the fact that the incidence of tax has fallen upon an individual who is employed directly by the government and this is tantamount to being the government. These federal employees are the instrumentalities of the United States. These employees are unlike the contractors envisioned in the case of United States v. New Mexico, 455 U.S. 720,
120 S. Ct. 1373, 71 L. Ed. 2d 580 (1982), in which the United States Supreme Court found that those contractors were not sufficiently related to the United States government in their activities to be entitled to immunity from taxation. In effect, they were not instrumentalities of the United States. In U.S. v. New Mexico, supra, the courts pointed out the distinction which gains immunity for the federal employees and denies that immunity to the contractors when it said at page 1382, "What the Court's cases leave room for, then, is the conclusion that tax immunity is appropriate in only one circumstance: When the levy falls on the United States itself, or when an agency or instrumentality is so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned." The federal employees are such an agency instrumentality so closely connected to the government that they cannot realistically be viewed as separate entities, in a transaction in which they are acting under auspices of a contract between the federal government and the Petitioner and are doing so as persons employed directly by the federal government. In summary, American International of Florida is not obligated to pay the tax which it failed to collect on rentals of automobile to federal employees. It is cloaked with the immunity from taxation due the United States government in these transactions with the Petitioner.
Upon the consideration of facts found and the conclusions of law reached, it is RECOMMENDED:
That a Final Order be entered upholding the assessment of tax, delinquent penalty, and applying interest due from the due date until payment on those transactions in which Chestnut sold automobiles to consumers and American International leased automobiles to persons other than federal employees, as reported in this Recommended Order and which dismisses the assessment claims against American International of Florida in its rental of automobiles to federal employees.
DONE and ENTERED this 9th day of October, 1984, in Tallahassee, Florida.
CHARLES C. ADAMS
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 9th day of October, 1984.
COPIES FURNISHED:
Benjamin K. Phillps, Esquire Post Office Box 1351 Tallahassee, Florida 32302
Barbara Staros Harmon, Esquire Room LL04, The Capitol Tallahassee, Florida 32301
Randy Miller Executive Director Department of Revenue Carlton Building
Tallahassee, Florida 32301
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA, DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA
CHESTNUT FLEET RENTALS, INC.,
Petitioner,
vs. CASE NO. 81-1227
STATE OF FLORIDA, DEPARTMENT OF REVENUE,
Respondent.
/ AMERICAN INTERNATIONAL RENT-A-CAR
OF FLORIDA, INC., a Florida Corporation,
Petitioner,
vs. CASE NO. 81-1228
STATE OF FLORIDA, DEPARTMENT OF REVENUE,
Respondent.
/
FINAL ORDER OF THE DEPARTMENT OF REVENUE
This Cause came on to be heard before the Governor and Cabinet, sitting as the head of the Department of Revenue, at their regular meeting on March 19, 1985.
Notice was given and a final hearing was conducted in these cases on August 27, 1984. Charles C. Adams was the Hearing Officer. The hearing location was The Oakland Building, 2009 Apalachee Parkway, Tallahassee, Florida. This Final Order is being entered following the receipt and review of memoranda filed by counsel for the parties. To the extent the memoranda comport with the factual findings and legal conclusions of the undersigned, they have been utilized.
Otherwise, they are rejected as contrary to facts found or the legal opinion expressed.
APPEARANCES
For Petitioners: Benjamin K. Phipps, Esquire
Post Office Box 1351 Tallahassee, Florida 32302
For Respondent: Barbara Staros Harmon
Assistant Attorney General The Capitol
Tallahassee, Florida 32301 ISSUES
There are several issues that were under consideration in these cases. The first issue concerns the taxability of sales of used rental cars by Chestnut Fleet Rentals, Inc., referred to subsequently as Chestnut (DOAH Case No. 81- 1227); second, the taxability of short-term subleasing of rental cars by American International Rent-A-Car of Florida, Inc., subsequently referred to as American, to individual subleases (DOAH Case NO. 81-1228); and finally, the taxability of car rentals (subleasing), from American to employees of the federal government, when those employees used their personal credit cards or paid cash for the car rental. (DOAH Case No. 81-1228).
FINDINGS OF FACT
Petitioner Chestnut is a foreign corporation with authorization to do business in the state of Florida. Petitioner American is a Florida corporation doing business at various places in Florida. The corporate address of both Petitioners is 3000 Admiral Wilson Boulevard, Pennsauken, New Jersey.
On October 25, 1976, Patrick Treacy, an auditor with the State of Florida, Department of Revenue, made a tax audit of the books and records of the two petitioning corporations. This audit was made in the offices of the two corporations. The audit was concluded on December 24, 1976, and was followed by an initial Notice of Proposed Assessment of Tax, Penalties and Interest pursuant to Chapter 212, Florida Statutes. Each company was notified of an intention to assess tax. A copy of the initial Notices of Proposed Assessment may be found as Respondent's Exhibits A and B which date from February 17, 1977. Exhibit A is American and Exhibit B is Chestnut.
In arriving at these statements of proposed assessments, against American, Treacy had examined, among other things, the sales tax returns, general ledgers, rental agreements, daily branch reports, purchase invoices, and source journals. Reference American, it had been discovered that automobiles which had been rented in accordance with a contract between American and the United States General Services Administration, rentals pertaining to government employees, in Florida, under special rates, were transactions in which no tax was being collected for the benefit of the State of Florida. On occasions where the federal government was billed directly, for the rental, no tax was sought; however, the Notice of Proposed Assessment called for the remittance of tax on those rentals in which the employee paid cash or used a personal credit card in the transaction. Moreover, the initial assessment related to American called for collection of tax on transactions not involving federal employees or the General Services Administration contract in which tax was not collected on certain rentals in Florida. The cars which were the subject of both the General Services Administration rentals and non-government rentals, and for which Florida sought the collection of tax, had initially been leased to American International of Florida, Inc., from Chestnut Fleet Rentals and American International of Atlanta, Georgia, through a primary lease agreement, with the cars to be sublet to the general public. That lease agreement was one in which tax was paid to the State of Florida and credit afforded for that agreement. It is the further sublease from American International of Florida to the ultimate
consumer that is the subject of the two categories of tax collection for the rental. The period involved is from February 1, 1973 through October 31, 1976.
In the Chestnut Fleet Rentals circumstance of the February 17, 1977 assessment, tax collection was sought on the sale of long-term fleet rental cars, in Florida, to the lessees or other consumers, in which the State of Florida believed that sales tax was not collected. On this occasion, a pro-rata assessment was made in view, of the fact that Chestnut did not have source documents representing the sales prior to November, 1974. Consequently, the
pro-rata estimate was made of the pre-November 1974 sales based upon subsequent sales where records had been kept. At the final hearing Chestnut did not refute the pro-rata adjustment by contrary proof. The overall circumstance with Chestnut Fleet related to the audit period of February 1, 1973 through October 31, 1976.
In all instances related to American and Chestnut, the State of Florida sought and continues to seek a delinquent penalty and interest. In those several categories American and Chestnut were responsible for the collection and remission of any tax which the State of Florida was certified to collect and to keep any needed records to aid in that endeavor. (In the Recommended Order, the Hearing Officer stated: "In the American circumstances at issue, the incidence of tax fell upon the lessees. In the Chestnut sales the incidence of tax fell upon the purchasers." These sentences are conclusions of law which are not appropriate as a finding of fact. Additionally, as will be explained in the conclusions of law, the statute, Section 212.05, F.S., and case law, see Ryder Truck Rental v. Bryant, infra, establish where the incidence of tax falls as a matter of law.)
By correspondence of February 11, 1980 from counsel for the Petitioners, the proposed assessments were challenged. A copy of that correspondence may be found as Respondent's Exhibit C. In referring to the sale of used cars by Chestnut, its counsel did not state opposition as such, it was merely indicated that counsel wished to check with its client to be sure that the client agreed with the figures set forth in the proposed assessment. This was also the circumstance in the situation related to leases to customers other than federal government employees. In effect, counsel for the Petitioner American was asking for the opportunity to verify the tax owed based upon the circumstance that existed after credit was given for taxes that had already been paid. The General Services Administration rentals from American to federal employees were protested in their totality.
On June 11, 1980, the protest was responded to by the State of Notice of Decision. On that occasion, it was indicated that the position of the State related to the lease of American cars to non-federal employees would remain the same. The lease of American cars to federal employees was upheld in the area of rentals where federal employees paid in cash or through the use of their own credit cards. On that occasion of the notice, reference was made to Rule-12A- 1.01(4)(e), Florida Administrative Code, as a basis for sustaining the State's position. That provision states, "When hotel accommodations are paid for directly by church officials from church funds, an exemption certificate may be used to exempt such transactions from tax. If hotel bills are maid by guests and reimbursement is made from church funds as expense accounts of individuals, the tax shall be paid by such individuals." This provision was offered by way of analogy, in the mind of the State of Florida. In the decision, no mention was made of the sale of rental cars by Chestnut. There followed an informal conference between the taxpayers' former attorney who had authored Respondent's Exhibit C and officials within the Department. At that time, American, through
its former counsel, sought to have the State of Florida abandon its request for penalty in the rental circumstance involving non federal renters, and to have the State possibly consider a stipulated payment schedule for the tax due. It continued to oppose the idea of the assessment of tax on the American rentals through the General Services Administration contract. In the Chestnut Fleet sales of lease cars to consumers, counsel sought the State's acquiescence in the removal of penalties on that tax claim. This informal conference was memorialized in correspondence of former counsel for the Petitioners, a copy of which may be found as Respondent's Exhibit E.
On February 26, 1981, the State of Florida issued its Notice of Reconsideration. A copy of this is found as Respondent's Exhibit F. In this notice, the State continues to assert its right to collect the tax in the several categories that are at issue, denies the opportunity for stipulated payments pending proof of qualification for that payment plan and refuses to consider the question of penalty reduction until the matters have been settled. At that point in time, the agency was proceeding under what, in effect, was a fourth revised notice of assessment as to American and a third revision as to Chestnut. These notices of assessment date from June 25, 1980. The assessments pertaining to American International's rentals to persons other than through the General Services Administration contract are found as Respondent's Exhibit H, a copy. Finally, the assessments pertaining to the Chestnut Fleet rental sales to consumers of their off-lease automobiles may be found as Respondent's Exhibit I, a copy. In each circumstance, the State of Florida continues to request the imposition of a delinquent penalty and accrued interest.
Following the receipt of the February 26, 1981 Notice of Reconsideration, the Petitioners filed a Request for Relief pursuant to Section 120.57(1), Florida Statutes, related to the issues as set forth in the Recommended Order. Those petitions as amended have been considered through the hearing process.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action pursuant to Section 120.57(1), Florida Statutes.
The burden of proof in this dispute resides with the State of Florida, Department of Revenue. In accordance with Section 120.575(2), Florida Statutes, the requirement of burden of proof is limited to " . . a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the Department made the assessment." In that connection, the assessments here have been made following an audit of materials maintained by the Petitioners, as described in the Findings of Fact. The legal basis for the collection of the tax in the three categories is Section 212.05, Florida Statutes. (1976 supp.) That provision calls for a four percent tax to be imposed on the sale of tangible personal property at retail and upon the rental of such personal property. Chestnut's sale of the off-lease automobiles was the sale of tangible personal property within the meaning of this Chapter.
Likewise, the rental of automobiles by American to federal employees and others was the rental of tangible personal property within the meaning of the Chapter. In accordance with Section 212.05, Florida Statutes (1976 supp.), Respondent has established a prima facie showing of the validity of its proposed assessments in the several questioned categories. To that end, Petitioners would be responsible for the collection of those taxes and the payment of taxes upon the failure to collect, as envisioned by Section 212.05(7), Florida Statutes (1976 supp.). A penalty and interest would be due on the uncollected taxes in the
amount of five percent penalty and one percent interest per month on the amount due from the date until paid, per Sections 212.12(2) and (3), Florida Statutes (1976 supp.) Petitioner's efforts at rebutting this prima facie showing have failed as it relates to America's rental of automobiles to non-federal government customers and the sale by Chestntut of off-lease automobiles in a retail arrangement. Similarly, American International has failed to rebut the prima facie showing as it relates to American's rental of its automobiles to federal government employees.
Rule 12A-1.07(13)(c), Florida Administrative Code, calls for the payment of tax on the sublease of leased motor vehicles. This is in furtherance of the tax theory expressed in Section 212.05, Florida Statutes (1976 supp.). This is a tax unrelated to the tax paid on the original lease between American International of Florida as lessee and Chestnut and American International of Atlanta. Credit for the original lease arrangement between American International of Florida and its lessors was given. There is no prohibition against a second tax collection related to the further or sublease from American International of Florida to the consuming public. This in effect was not a duplication of taxes but a separate taxation on taxable transactions or privileges, the first being the lease arrangement between American International of Florida and its two lessors, American International of Atlanta and Chestnut and the second being the matter at issue here, the rental of automobiles from American International of Florida to the consuming public. See Ryder Truck Rental, Inc. v. Bryant. 170 So.2nd 822 (Fla. 1944). This arrangement was not as contemplated by Section 212.05(3), Florida Statutes (1976 supp.), in that no showing was made that the two entities from which American International of Florida has leased the automobiles, had paid tax on the purchase of the automobiles in question and, in turn, leased those automobiles to American International of Florida for a period of twelve months or longer. The lease arrangement between those two entities and American International of Florida was one contemplating a sublease of those automobiles to customers of American International of Florida, not for the purpose of having American International of Florida serve as the ultimate consumer using the automobiles on a long-term basis without further subletting the automobiles, thereby promoting another taxable event.
In the Chestnut Fleet Rentals retail sales to individual customers in the state of Florida, a taxable event occurred in accordance with Section 212.05, Florida Statutes (1976 supp.). As Chestnut had failed to have adequate records to demonstrate its collection of sales taxes, it was acceptable for the auditor of the State of Florida, Department of Revenue, to prorate the tax assessment based upon estimates arrived at from November, 1974 forward when trying to assess taxes on sales events prior to November, 1974. This method of determination is acceptable given Chestnut's failure to maintain records as called for by Section 212.13, Florida Statutes (1975).
Under the circumstances, Respondent is entitled to the collection of
$88,146.98 as tax, with a $22,036.79 delinquent penalty and interest of one percent per month from the due date until paid related to the American International rental of leased cars to persons other than federal employees. In addition, Respondent is entitled to collect $1,540.75 in tax and $385.18 in penalty and a one percent interest charge per month against the amount of tax due from the due date until paid, related to the Chestnut sale of automobiles to retail customers, as described herein.
In the matter of the rentals of automobiles by American International of Florida to federal employees in accordance with the contract between American
and the General Services Administration, Petitioner claims that that tax should not be allowed in view of the fact that a transaction had occurred between the Petitioner, American, and the United States government, and in keeping with the Supremacy Clause, U.S. Constitution, Article VI, Clause 2, no tax may be levied directly upon the United States. However, when merely economic incidence of tax rather than the legal incidence of tax falls upon the United States, immunity does not attach to the transaction. Memphis Bank and Trust Co. v. Garner, 459 U.S. 397, 103 S. Ct. 692 (1983).
The leading Supreme Court case in the area of taxation and governmental immunity is the case of United States v. New Mexico, 455 U.S. 720, 120 S.Ct. 1373 71 L.Ed.2d 580 (1982). This case involved New Mexico's gross receipts tax and complimenting use tax. New Mexico imposed a gross receipts tax upon the privilege of engaging in business for which an excise tax equal to 4 percent of gross receipts applied to any person engaging in business in New Mexico. This is similar to the sales tax imposed by the State of Florida under Chapter 212 in that it is also a privilege tax. See Section 212.05, supra. In U.S. v. New Mexico, the United States sought a declaratory judgment regarding the applicability of New Mexico's gross receipts tax and use tax on contractors working for the federal government. The U.S. Supreme Court outlined previous cases in this area and reached a very strict view of when immunity from taxation applies.
In U.S. v. New Mexico, the government was concerned with three private contractors. The first contractor engaged exclusively in federally sponsored research and received complete reimbursement for salary outlays and other expenditures from the government. The second and third companies received their costs as well as annual fixed fees from the government. In the contracts between the government and the three contractors, the contracts provided that title to all tangible personal property purchased by the contractors pass directly from the vendor to the government and that the government bore the risk of loss for property procured by the contractors. However, the contractors placed orders with third party suppliers in their own names identifying themselves as the buyers. The contracts used an "advanced funding" procedure to meet contractors' cost. This procedure allows contractors to pay creditors and employees with drafts drawn on a special bank account in which U.S. Treasury Funds are deposited. Two of the contractors each year paid New Mexico gross receipts tax on the fixed fees but it was argued that the contractors' other expenditures and operations were constitutionally immune from taxation.
In reaching the conclusion that the contractors were not entitled to immunity from taxation, the Court held that immunity may not be conferred simply because the tax has an effect on the United States, or even because the federal government shoulders the entire economic burden of the levy. The Court cited with approval the case of Alabama vs. King and Boozer, 314 U.S. 1, (1941) for this proposition. Referring to King and Boozer, the Court found it constitutionally irrelevant that the United States reimbursed all the contractors' expenditures including those going to meet the tax. That the contractors purchased property for the government was also found to be irrelevant. The Court went on to say that immunity cannot be conferred simply because the State tax falls on the earnings of a contract providing services to the government.
Taking a very strict view, the Court concluded that tax immunity is appropriate in only one circumstance: When the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the government that the two cannot realistically be viewed as separate entities, at
least insofar as the activity being taxed is concerned. U.S. v. New Mexico, 120 S.Ct. at 1382. The issue, then, was whether the contractors could realistically be considered entities independent of the United States. If they could, then a tax on them could not be viewed as a tax on the United States itself. The Court found that New Mexico's gross receipts tax was upheld as applied to funds received by the contractors to meet salaries and internal costs and that the use of advanced funding did not change the analysis. The Court also found that even though the government is directly liable to the vendors for the purchase price, the contractors who made purchases in their own names were liable to the vendors regardless of the fact that title passed directly from the vendor to the federal government.
Clearly, under the rationale of U.S. v. New Mexico, the transactions involved in the instant case are taxable under Chapter 212, Florida Statutes. The evidence presented by the taxpayers consisted of a contract entitled "Transmittal of Award of Contract from the General Services Administration." This was not even a contract for the rental of motor vehicles, which is the transaction that was assessed by the Department. The taxpayer pointed out at the hearing that the billing portion of the contract provides that personal credit cards may be used or cash payments may be used and that upon proof of payment the traveler will be reimbursed. However under U.S. v. New Mexico, the simple reimbursement by the government does not take away the fact that the transaction was made between the individual and the Petitioner. Under the rationale of U.S. v. New Mexico, immunity may not be conferred simply because the tax has an effect on the United States or even because the government shoulders the entire economic burden of the levy. To resist the state's taxing power, the private taxpayer must actually stand in the government's shoes.
In the case of United States v. California State Board of Equalization, 683 F.2d 316 (9th Cir. 1982), the United States brought an action to recover sales and use taxes on leases of personal property executed by Defense Department contractors. The taxes were collected by California from lessors who leased personal property to contractors of the federal government. The lessors passed on the taxability to the contractor-lessees who were then reimbursed by the Department of Defense for the tax payments under a contractual cost plus fixed fee arrangement.
The Ninth Circuit rejected the United States' argument that the sales and use taxes could not be constitutionally imposed because the contractors were acting as agents of the federal government and as a result the legal incidence of the tax fell upon the U.S. and their principal.
Relying on U.S. v. New Mexico, the Court held that even if the contractors were agents of the government, the legal incidence of the tax fell on the contractor. The Court opined:
The legal incidence in this case, as in United States v. New Mexico, fell on the contractor, since the California legis- lature indisputably intended that the contractor would pay the tax.
* * *
In sum, the United States has established only that the contractors act as procurement agents of the United States in order to enjoy the favorable rates available to the government from GSA supply schedule sources.
Those contractors are nevertheless private entities which have contracted with the United States government for their own commercial advantage. The legal incidence of
these taxes does not fall on the United States. (emphasis added)
683 F.2d 316 at 318.
Although the facts of the above case are not identical to those in the instant case, the same legal principles control. American International Rent-A- Car contracted with the U.S. government for their own commercial advantage.
When a car was leased to an individual federal employee and that employee paid for the rental with cash or his personal credit card, only the economic incidence (reimbursement) not the legal incidence of tax falls on the government. Memphis Bank & Trust v. Garner, supra.
American International does not come under the one instance in which tax immunity is appropriate. This taxpayer is not so closely connected to the government that the two could not realistically be viewed as separate entities insofar as the activities being taxed is concerned. The rental of the cars involved in the instant case, although rented by federal employees, was not rented directly to the General Services Administration. As Mr. Treacy testified, the only transactions which he picked up in his audit of the taxpayers were those in which it was clear that the individual employee used his personal credit card or personally paid cash for the transaction of renting the motor vehicle.
Next, we must turn to the provisions of the Florida Statutes which are applicable here.
There are several Florida statutory provisions revealing the legislative intent regarding the sales tax and exemptions contained in Chapter 212, F.S. Section 212.21, F.S., provides, in pertinent part, as follows:
It is hereby declared to be the specific legislative intent to tax each
and every . . . . rental . . . levied and set forth in this Chapter, except as to such . . . rental . . . as shall be specifically
exempted therefrom by this Chapter, subject to the conditions appertaining to such exemptions. . . .
. . . It is further declared to be the specific legislative intent to tax each and every taxable privilege made subject to the tax or taxes, except such rentals.
. . .as are specifically exempted there from by this Chapter. (e.s.)
And, see Section 212.05, F.S., which also states that "[i]t 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, "
It thus follows that every sale of tangible personal property at retail in this state is subject to sales tax unless the Legislature has granted the sale a
specific exemption from the tax. Section 212.08, F.S., sets forth the specified exemptions. The Petitioner relies on the exemption contained in Section 212.08(6), F.S. (1975) which provides, in pertinent part, as follows:
There shall also be exempt from the tax imposed by this Chapter sales made
to the United States Government, . . . .
(e.s.)
It is a fundamental rule of statutory construction that exemptions to taxing statutes are express favors granted by the Legislature and are to be strictly construed against the taxpayer and in favor of the taxing authority. Housing by Vogue, Inc., v. State, Department of Revenue, 403 So.2d 478 (Fla. 1st DCA 1981); U.S. Gypsum Co. v. Green, 110 So.2d 409 (Fla. 1959); State Department of Revenue v. Anderson, 403 So.2d 397 (Fla. 1981); Department of Revenue v. Skop, 383 So.2d 678 (Fla. 5th DCA 1980); and Wanda Marine Corp. v. State of Florida, Department of Revenue, 305 So.2d 65 (Fla. 1st DCA 1974).
Under the rule of statutory construction, American International's rentals of automobiles to federal employees using cash or a personal credit card, which is reimbursed by the federal government are not sales made directly to the federal government and are, therefore, subject to state sales tax.
Finally, the tax imposed by Chapter 212, F.S., is a tax imposed on the privilege of engaging in a particular business or occupation. The tax is not levied against the consumer (or lessee) but upon the businessman who is engaged in the business or occupation. Gaulden v. Kirk, 47 So.2d 567 (Fla. 1950); Ryder Truck Rental, Inc. v. Bryant, supra. Thus, the legal incidence of the tax falls upon American.
In sum, American International of Florida is obligated to pay the tax which it failed to collect on rentals of automobiles to federal employees. In addition to the amounts previously specified, Respondent is entitled to the collection of $43,849.17 as tax, with a $10,962.34 delinquent penalty and interest of one percent per month from the due date until paid related to the American International rental of leased automobiles to federal employees.
Upon the consideration of facts found, and the conclusions of law reached, it is
ORDERED:
That the Department of Revenue's assessments of tax, penalty and interest due from the due date until payment are upheld.
DONE AND ENTERED this 25th day of March , 1985, in Tallahassee, Leon County, Florida.
RANDY MILLER EXECUTIVE DIRECTOR DEPARTMENT OF REVENUE STATE OF FLORIDA
I HEREBY CERTIFY that a true and correct copy of the above Final Order has been entered
in the official records of thee Department of Revenue this 25th day of March, 1985.
Agency Clerk
| Issue Date | Proceedings |
|---|---|
| May 16, 1991 | Final Order filed. |
| Oct. 09, 1984 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 25, 1985 | Agency Final Order | |
| Oct. 09, 1984 | Recommended Order | Final Order should be entered upholding tax assessment, imposing delinquent penalty, and applying interest on transactions in which Petitioner sold or leased cars to consumers other than federal employees. Dismiss claims regarding federal employees. |
