vs. ) CASE NO. 83-2647
Respondent. )
For Petitioner: Terence M. Brown, Esquire
A final hearing was held in this case in Starke, Florida, on January 27, 1984. The testimony of one additional witness, John King, was submitted as a late-filed exhibit in the form of the transcript of his February 22, 1984, deposition.
The issue in this case is whether respondent State Department of Revenue (Department) should assess against petitioner A & K Feed Store (A & K) sales and use tax, penalty and interest in the total amount of $31,899.62, with interest on tax at the rate of 12 percent per annum from October 23, 1981. Specifically, A & K claims either (1) an exemption from taxation under Section 212.08(5)(a), Florida Statutes (1981); or, in the alternative, (2) that the Department is estopped from assessing the tax against A & K.
A & K registered with the Department for sales and use tax purposes and opened for business in 1972. Its business was, and has continued to be, approximately 50 percent selling feed, 30-40 percent selling fertilizer, and 10-
20 percent selling seed and hardware. Although not made explicit, it can be inferred from the nature of the case that these percentages are based on gross receipts on sales. Until after the time in question in this case, A & K did not retain records from which the precise distribution of sales could be determined. Therefore, these percentages are estimated from A & K's knowledge of the identity of its customers, who are primarily farmers from around Starke.
When A & K registered with the Department in 1972, its principal, Mark Adkins, contacted the Department's Lake City office for advice on A & K's duty to collect sales and use tax. In response to his question, someone in the Lake City office (whom A & K cannot identify, but who was authorized to speak for the Department) told Adkins that A & K should collect tax on dog feed, hardware, and pleasure horse feed, but did not have to "worry about" other feed or fertilizer
because they were not taxable. A & K began collecting tax in accordance with this advice.
Whomever Adkins talked to at the Department's Lake City office did not mention anything about the necessity for exemption certificates under the Department's rules or about a necessity to maintain sales records from which the Department could verify the basis for claimed exemptions from taxation.
However, the evidence was that the Department generally is not lax in requiring exemption certificates, and no Department personnel are authorized to represent that such certificates are not required.
Until after October 23, 1981, A & K did not ask its customers for exemption certificates and did not receive any. Nor did A & K maintain sales records showing the basis for claimed exemptions. Specifically, no records were maintained during 1978 or 1979; only cash register tapes, sales sheets, and purchase invoices were maintained between January 1, 1980, and July 31, 1981. Sales invoices which would have shown the product sold, amount sold, and identity of the purchaser were not maintained.
Adkins also testified that he consulted with owners and managers of stores in Tallahassee and Ocala, as well as the sales representative of a major feed manufacturer, for advice on operating A & K's business and that none of those individuals mentioned the necessity that A & K get exemption certificates from its customers in order to be able to claim an exemption from the sales and use tax. However, the evidence does not establish that Adkins asked any of those individuals questions which would fairly elicit such a response.
While operating A & K, Adkins also occasionally bought products similar to those sold at A & K. On no occasion was he ever asked to sign an exemption certificate. However, the evidence does not show what Adkins purchased, whether he paid tax, or on whose account (his personal account or A & K's account) the purchases were made.
A & K personnel had occasion to telephone the Department's Lake City office on other occasions, but specific questions regarding sales and use taxation were asked only when A & K's manager, Roy Adkins (Mark's brother), telephoned in 1977 to ask whether tax should be collected on fertilizer. A person whom A & K is unable to identify answered the telephone and told Roy Adkins that fertilizer was not taxable. Again, there was no mention of exemption certificates or any other necessary records.
Between 1973 and 1976, a Department field agent who was also a friend of A & K's manager, John King, visited A & K's store occasionally during business hours. From the Department agent's vantage point, he could tell what products A & K was selling and that A & K did not ask for exemption certificates from its customers. But there is no evidence whether the field agent could tell that A & K was not collecting tax from the customers. Nor was there any evidence that the field agent knew the identity of A & K's customers or the use to which they would put their purchases.
Beginning September 18, 1981, and ending October 26, 1981, the Department conducted an audit of A & K's sales from August 1, 1978, through July 31, 1981. A & K had not remitted $21,725.96 of sales tax on sales and $742.77 of use tax on purchases made during that time. The Department proposes to assess those taxes because A & K did not present the exemption certificates prescribed by Department rule to support its claimed exemptions from taxation.
The penalties on those taxes through October 23, 1981, would be $3,835.04 and
$144.42, respectively.
Had A & K personnel had actual knowledge of the requirement of obtaining exemption certificates, they would have collected them. After receiving notice of the assessment, A & K began asking its customers for exemption certificates and apparently had to explain to its customers what they were. This is not surprising, since A & K had not asked for them for nine years. There is no evidence that those customers had purchased similar products, tax exempt, from other dealers and therefore no proof that other dealers also routinely disregarded the Department's rule on the necessity for exemption certificates.
A & K apparently closed its business in 1981. In 1982 Roy Adkins reopened A & K. At that time, his brother, Mark, told him of the necessity to get exemption certificates from customers in tax exempt sales. In addition, when Roy purchased similar products for A & K, he noticed that he was asked to sign exemption certificates.
The items sold by A & K, for which exemptions were disallowed, would have been exempt from sales and use tax if the exemption certificates had been timely obtained. A & K unreasonably relied on the representations of the Department that the items were exempt and the vague representation that A & K need not "worry about them." A & K's reliance on the representations of the Department caused A & K to fail to inquire further into legal requirements and thereby determine that exemption certificates were required and had to be obtained.
CONCLUSIONS OF LAW
Florida sales and use taxation of sales and purchases between August 1, 1978, and July 31, 1981, is governed by Chapter 212 and, more particularly, Section 212.05, Florida Statutes (1981). The sales and purchases in question in this case are taxable unless specifically exempted from taxation by statute.
The pertinent exemption is set forth in Section 212.08 (5)(a), Florida Statutes (1981):
Items in agricultural use and certain nets--There shall be exempt from the tax imposed by this chapter . . . feeds for raising poultry and livestock on farms, including race horses and all other horses not used for agricultural purposes, and for feeding dairy cows; fertilizers, insecticides, herbicides, and fungicides used for applica- tion on crops or groves; [and] . . . field and garden seeds; . . . however, such exemption shall not be allowed unless the purchaser or lessee signs a certificate stating that the item to be exempted is for the exclusive use designated herein.
In addition, Section 212.21(2), Florida Statutes (1981), expressly provides, in pertinent part, as follows:
It is hereby declared to be the specific legislative intent to tax each and every sale
. . . levied and set forth in this chapter, except as to such sale . . . as shall be specifically exempted therefrom by this chapter, subject to the conditions apper- taining to such exemptions.
It is a fundamental rule of statutory construction that although taxing statutes are strictly construed against a taxing authority, exemptions are strictly construed against the taxpayer. State Dept. of Revenue v. Anderson, 403 So. 2d
397 (Fla. 1981); United States Gypsum Co. v. Green, 110 So. 2d 409 (Fla. 1959); Housing By Vogue, Inc. v. State, Dept. of Revenue, 403 So. 2d 478 (Fla. 1st DCA 1981). Pursuant to its rule-making authority, the Department of Revenue, during the audit period in question, had two properly promulgated rules regarding the requirement of exemption certificates. See Rule 12A-1.38, Florida Administrative Code, and more specifically Rule 12A-1.87, Florida Administrative Code, relating to sales to farmers, which states, in pertinent part, in Subsection (4), as follows:
The sale of feeds for raising poultry and livestock on farms and for feeding dairy cows; fertilizers, insecticides, pesticides, fungicides and weed killers used for applica- tion on or in the cultivation of crops or groves; . . . field and garden seeds, . . . are exempt, provided that such exemption shall not be allowed unless the purchaser or
lessee signs a certificate as provided in Rule 12A-1.39, stating that the item to be exempted is for the exclusive use designated therein. (e.s.)
Thus, pursuant to the above relevant statutory provisions and rules of the Florida Department of Revenue, the items at issue are exempt from sales tax only if the purchaser of the items signs a certificate stating that the item to be exempted is for the exclusive use designated in the statute. In the transactions in the instant case, the method of demonstrating an exemption, as provided by relevant statute and rule, was not followed, and, thus, the items are subject to sales tax. See State Dept. of Revenue v. Anderson, supra. In fact, in this case, no documentary evidence (such as sales invoices) or testimony of purchasers was presented to establish the exempt status of the sales in question.
In order to demonstrate estoppel, the following elements must be shown: (1) a positive representation as to a material fact that is contrary to a later-asserted position; (2) reasonable reliance on that representation; and
(3) a change in position detrimental to the party claiming estoppel, caused by the representation and reliance thereon. See State Dept. of Revenue v. Anderson, supra; Greenhut Construction Co. v. Henry A. Knott, Inc., 247 So. 2d
517 (Fla. 1st DCA 1971). As a general rule, equitable estoppel will be applied against the state only in rare instances and under exceptional circumstances. North American Co. v. Green, 120 So. 2d 603 (Fla. 1959).
The state cannot be estopped through mistaken statements of the law. State Dept. of Revenue v. Anderson, supra, at 400; Department of Revenue v. Hobbs, 368 So. 2d 367 (Fla. 1st DCA 1979), appeal dismissed, 378 So. 2d 345 (Fla. 1979); Austin v. Austin, 350 So. 2d 102 (Fla. 1st DCA 1977), cert. denied,
356 So. 2d, 184 (Fla. 1978). Thus, if made, a representation by an unidentified employee of a branch office of the Florida Department of Revenue that no exemption certificates are required would be insufficient to estop the state.
The courts have consistently held that estoppel of the state requires a positive act or statement by a government official. Gay v. Inter-County Tel. & Tel. Co., 60 So. 2d 22 (Fla. 1952); Department of Administration v. Flowers,
356 So. 2d 14 (Fla. 1st DCA 1978); Greenhut Construction Co. v. Henry A. Knott, Inc., supra. Estoppel cannot rest on mere inadvertence, ignorance, or silence. See also Special Disability Trust Fund, etc. v. Master Distributors, 418 So. 2d 1124 (Fla. 1st DCA 1982). The evidence in this case is that between April 1973 until June 1, 1976, an unidentified employee of the Department of Revenue visited A & K's store and failed to advise A & K's manager that certificates are required. Earlier, another unidentified Department representative had advised A & K's owner that he did not have to "worry about" certain sales because they were exempt. But that vague and ambiguous statement is not the same as a positive statement that no exemption certificates are required, and A & K's reliance on those representations was unreasonable. Therefore, the elements of an estoppel against the state were not proved.
Finally, it should be noted that nothing like the exceptional circumstances found in Department of Revenue v. Anderson, 389 So. 2d 1034 (Fla. 1st DCA 1980), George W. Davis & Sons, Inc. v. Askew, 343 So. 2d 1329 (Fla. 1st DCA 1977), and the related cases cited in them are present in this case. Therefore, the Department is not estopped from assessing the tax, penalty, and interest which are the subject of this proceeding.
Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department enter a final order assessing petitioner A & K Feed Store $31,899.62, with interest on the $22,468.73 of tax at the rate of 12 percent per annum from October 23, 1981.
RECOMMENDED this 14th day of June, 1984, in Tallahassee, Leon County, Florida.
J. LAWRENCE JOHNTSON Hearing Officer
Filed with the Clerk of the Division of Administrative Hearings this 14th day of June, 1984.
1/ The proposed findings of fact submitted by the parties have been reviewed and, except to the extent incorporated in these Findings of Fact, are rejected as either not having been proved, being contrary to facts proven by the opposing party, or being irrelevant.
Terence M. Brown, Esquire TOMLINSON and BROWN, P.A.
Linda Lettera, Esquire Department of Legal Affairs The Capitol, Room LL04 Tallahassee, Florida 32301
Larry E. Levy, Esquire General Counsel Department of Revenue
