Judges: K. N. AYERS
Agency: Department of Revenue
Latest Update: Mar. 24, 1987
Summary: Petitioner fails to prove that not paying certain intangible taxes was reasonable and that it was not due to willful neglect or fraud. Estoppel is inapplicable.
85-1303.PDFSTATE OF FLORIDA
DIVISION OF ADMINSTRATIVE HEARINGS
FORD MOTOR CREDIT CORPORATION, )
)
Petitioner, )
)
vs. ) Case No. 85-1303
)
DEPARTMENT OF REVENUE STATE )
OF FLORIDA, )
)
Respondent. )
)
RECOMMENDED ORDER
Ford Motor Credit Company (FMCC), Petitioner, instituted this administrative procedure to challenge the Department of Revenue (DOR) imposition of intangible property taxes, interest, and penalties for the tax years 1980 through 1982. This case was initially scheduled for hearing commencing October 1, 1985, but was continued at the request of the parties who were attempting to resolve the dispute, and was rescheduled to be heard August 5, 1986. Prior to that date, the parties agreed to waive hearing, stipulate to all relevant facts, and submit briefs and legal memoranda supporting their respective positions, with initial briefs by February 20, 1987 and simultaneous submission of reply briefs by March 4, 1987.
Petitioner is represented by Martin J. Kurzer, Esquire, Blackwell, Walker, Fascell & Hoehl, One Southeast Third Avenue, Miami, Florida 33131.
Respondent is represented by Linda Lettera, Esquire, and J.
O'Steen, Esquire, Department of Legal Affairs, Office of the Attorney General, The Capitol, Tallahassee, Florida 32301.
Findings of fact are those stipulated to by the parties in the prehearing stipulation. Exhibits referred to are those attached to the prehearing stipulation.
FINDINGS OF FACT
FMCC is a corporation organized and existing under Delaware law. FMCC maintains its principal place of business in Dearborn, Michigan. FMCC is a wholly owned subsidiary of Ford Motor Company.
FMCC qualified and is authorized to do business in the State of Florida pursuant to the foreign corporation provisions of Chapter 607, Florida Statutes, and has continuously maintained a registered office and agent in this state during the audit years at issue.
During the tax years 1980-1982, inclusive, FMCC and Ford filed corporate tax returns in Florida and paid the taxes due thereon under the Florida Income Tax Code; FMCC maintained 7 to 8 branch offices and employed approximately 200 people in Florida; and Ford had contractual relationships with approximately 130 to
150 authorized Ford dealers in Florida. A copy of a representative agreement between Ford and the dealers is Exhibit
3 to this Stipulation.
FMCC's principal business is financing the wholesale and retail sales of vehicles manufactured by Ford Motor Company. During the audit period FMCC provided financing for the purchase of vehicles as authorized by Ford dealers from Ford Motor Company. FMCC also: provided financing for the purchase of automobiles by the public from the dealers; and engaged in commercial, industrial and real estate financing, consumer loan financing, and leasing company financing in the State of Florida as well as other states. Attached as Composite Exhibit 4 are sample documents utilized by FMCC in the above financing.
The majority of the intangibles in question are accounts receivables held by FMCC and owned by Florida debtors in connection with the purchase of tangible personal property shipped to or located in the State of Florida.
FMCC is the holder of security agreements executed by thousands of Florida debtors. These security agreements gave FMCC a lien on tangible personal property located in the State of Florida. The Florida Secretary of State's Office was utilized by FMCC during the assessment period to perfect and protect its liens created under these security agreements with Florida debtors by the filing of U.C.C. financing statements. None of the original notes are stored in Florida.
During the assessment period, FMCC utilized or could have utilized the Florida Courts to recover sums due by Florida debtors on delinquent accounts receivable. In addition, FMCC utilizes the Florida Department of Highway Safety and Motor Vehicles to perfect its liens on motor vehicles pursuant to Chapter 319, Florida Statutes.
In 1983, the Department conducted an audit of the FMCC intangible tax returns for tax years 1980 through 1982,
inclusive. On June 3, 1983, the Department proposed an assessment of tax, penalty and interest in the total amount of
$2,560,379.00. See Exhibit 5. FMCC filed a timely protest.
On October 8, 1984, the Department issued a Notice of Decision. See Exhibit 2. On December 12, 1984, the Department acknowledged receipt of FMCC's timely November 8, 1984 Petition for Reconsideration. On February 18, 1985, the Department issued a Notice of Reconsideration. See Exhibit 6.
FMCC elected to file a Petition for Formal Proceedings, which was received on April 8, 1985.
On the basis of the revised audit report, the Department of Revenue imposed the intangible tax on FMCC for the tax years 1980 through 1982, inclusive, in the following categories, and in the taxable amounts listed as follows:
1/1/80 1/1/81 1/1/82
Commercial
Finance Receivables-- $342,892,615 $403,061,571 $486,412,164 Retail
Commercial
Finance Receivables-- 218,591,180 241,993,462 228,303,569 Wholesale
Simple Interest
Lease Receivables-- 66,345,902 75,978,095 71,315,777
Retail
Lease Finance
Receivables N/A N/A N/A
Capital Loan
Receivables 3,112,877 2,064,698 2,419,770
Consumer Loan
Receivables 10,144,531 14,122,666 18,578,699
Service Equipment
Financing--Dealer I.D. 481,869 368,186 422,108 Receivables
Ford Rent-A-Car
Receivables 27,825,283 26,179,377 20,362,896
Ford Parts &
Service Receivables -0- 10,499,401 10,800,313
(10) | Accounts |
|
Receivables--Customers & Others | 3,452,194 | 4,581,629 | 4,952,234 |
(11) Accounts |
|
|
|
Receivables--Affiliate | 1,617,880 | 2,914,094 | 4,438,849 |
(12) |
C.I.R. |
Receivables 23,243,257 | 27,387,938 | 24,222,621 |
TOTAL FLORIDA RECEIVABLES------ 697,707,588 |
809,151,117 |
872,229,000 |
TAX AT 1 MILL---- 697,708 | 809,151 | 872,229 |
LESS ORIGINAL TAX PAYMENT------ 312,703 |
351,976 |
339,142 |
LESS PETITION PAYMENT ON AGREED CATEGORIES------ 51,069 |
53,567 |
44,586 |
TOTAL REMAINING TAX ASSESSED------ $333,936 |
$403,608 |
$488,501 |
TOTAL TAX FOR ALL YEARS----- $1,226,045 |
|
|
REVISED ASSESSMENT FIGURES |
|
|
DOES NOT INCLUDE $1,386.18 OF THE PETITION PAYMENT
At the time it filed its petition for a formal hearing, FMCC agreed to and paid the 1 mill tax, but no interest or penalty, on the following amounts. The taxability of these items is no longer in dispute, only penalty and interest.
| 1980 | 1981 | 1982 |
(8) |
Ford Rent-A-Car |
27,825,283 |
26,179,377 |
20,362,896 |
Receivables (12) CIR |
23,243,257 |
27,387,938 |
24,222,621 |
Receivables |
|
|
|
Capital Loan Receivables (item 5 of paragraph 11) reflect amounts of money owed by Ford dealers to FMCC. The obligation arises from loans made to Ford dealers located in Florida to expand showroom or other facilities and for working capital.
The items located as (10) Accounts Receivable - Customers and Others and (11) Accounts Receivables - Affiliates in paragraph 11 reflect only the amount of accrued interest to which FMCC is entitled on notes from non-affiliates and affiliates, respectively, from the last settlement date prior to year end until the end of each respective year. The principal amounts owed on these notes, which are not secured by realty, are included in other categories. The Department does not assess a tax for similar interest when the amount owed is secured by realty.
Wholesale and retail intangibles were created and handled in 1980, 1981 and 1982 by FMCC in the manner set forth in Exhibit 7.
The Department of Revenue has imposed penalties in the amount of $543,968 composed of $330,051 as the 25% delinquent penalty imposed pursuant to Fla. Stat. Section 199.052(9)(a) (1983), and $15,886 as the 15% undervalued Property penalty imposed pursuant to Section 199.052(9)(d)(1983), Florida Statutes. The Department offered abatement of the 15% omission penalty ($198,031) imposed pursuant to Fla. Stat. Section 199.052(9)(c) (1983). The closing agreement required pursuant to Fla. Stat. Section 213.21 reflecting this reduction of penalty was not signed by petitioner.
FMCC's intangible tax returns have been audited on prior occasions. The manner of reporting was identical to the manner in which FMCC reported its intangibles for tax years 1980 through 1982. The 1973-1975 and the 1976-1978 audits were "no change" audits. FMCC's method of reporting receivables generated from Florida sales was challenged by the Department of Revenue. The challenge was dropped because the Department of Revenue did not have the statutory authority to assess sales of tangible personal property with an f.o.b. point other than Florida. Chapter 77-43, Laws of Florida amended Section 199.112, Fla. Stat. to allow tangible personal property (sic) [to be taxed] regardless of the f.o.b. point of sale. This amendment applied to the January 1, 1978 taxable year. There was a 1978-1980 "no change" audit.
Ford Motor Company has filed refund claims for certain categories for the tax year 1981 and 1982. Ford Motor Company claims that it inadvertently paid intangible tax on accounts receivable owned by FMCC. As presented in the Notice of Decision, no refund will be made as it will be handled as a credit against taxes due by Ford Motor Company.
While not an announced policy, the Department of Revenue drafted and utilized proposed rules relating to
compromising penalties. These rules are not final. Attached as Exhibit 8 are the proposed rules. A copy of these rules was provided to Petitioner by letter dated July 28, 1986. In addition, while not an announced policy the Department of Revenue utilized guidelines established by the Internal Revenue Service and federal court for compromising penalties.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of these proceedings.
Petitioner presents six basic premises for relief which will be discussed seriatim.
First, Petitioner contends the intangible tax law is unconstitutional with its attack focused on Section 199.112, Florida Statutes. This tribunal is without jurisdiction to rule on this issue; however, all facts relevant thereto have been stipulated by the parties and, if appeal is taken, the appellate court can rule on this constitutional issue. Rice vs. Dept. of HRS, 386 So. 2d 844 (Fla. 1st DCA 1980). Petitioner's position that these intangibles may not be taxed by Florida because FMCC does not have a business situs in this state is contrary to the decision rendered in Allis Chalmers Credit Corp. vs. Dept. of, Revenue, 456 So. 2d 899 (Fla. 1st DCA 1984). Under the principles announced in Allis Chalmers, FMCC clearly has a business situs in this State and those intangibles held outside Florida on property located or sold in Florida are taxable.
Next, Petitioner contends that the business situs test of Section 199.112 would, under many conditions, allow for the same intangible to be taxed by two states if both have intangible tax laws like those of Florida. This is alleged to unfairly tax interstate transactions, but Petitioner does not contend in this argument that this is unconstitutional--only that. it is unfair. This position is without merit. Curly vs. McCanless, 307 U.S. 357, 359 S.Ct. 900 (1939); State Tax Commission vs. Aldrich, 316 U.S. 174, 625 S.Ct. 1008, 86 L.Ed. 1358 (1942)
Petitioner next contends that Department of Revenue cannot properly tax accrued interest on accounts receivable for:
(a) customers and others and (b) affiliates, because these receivables do not reflect a principal amount owed FMCC. Petitioner relies upon Rule 12C-2.10(3), Florida Administrative Code, which provides:
The fair market value of a note is presumed to be the amount of the unpaid principal as of January 1 of each year.
This, FMCC contends, allows only the principal represented by the notes and not accrued interest to be taxed. Since the notes are elsewhere subjected to the intangible property tax, FMCC contests only the tax on the accrued interest. Section 199.023(1), Florida Statutes, defines "intangible personal property" to mean:
All personal property which is not in itself intrinsically valuable but derives its chief value from that which it represents, . . .
The account labeled "accrued interest" is an asset of FMCC, is intangible property, and, as such, is taxable under the definition of intangible personal property above quoted. FMCC's reliance on the rule is misplaced. The rule creates only a presumption that the fair market value of the note is the unpaid principal as of January 1. If interest is also payable on this note, and this interest has accrued, this obviously increases the fair market value of the note by the value of the accrued interest or in direct proportion to the value of this accrued interest.
Next, FMCC contends Department of Revenue cannot tax capital loan receivables. With respect to these receivables secured by mortgage on real property both parties concur that those are not subject to an intangible tax. These capital loan receivables are loans made to Ford dealers to expand their showrooms or other facilities and for working capital. FMCC's interpretation of Section 199.112 that this section subjects to taxation only intangibles "arising out of, or issued in connection with, the sale, leasing or servicing of real or personal property" in Florida and since those are capital loans to improve showrooms, etc., there is no sale, lease or servicing of property and hence no authority to tax, is much too strict. Notes representing these loans are intangible personal property and it can hardly be said they were unrelated to the sale of Ford--products. Thus, they did arise out of "the sale . . . or servicing of. . . personal property" in Florida.
FMCC next contends that DOR is barred from assessing interest and penalties because it failed to comply with the legislative mandate in Section 213.21(5) to promulgate rules establishing guidelines for informal conferences and for settling the taxpayer's liability for any tax, penalty or interest assessed as provided by Chapter 199, Florida Statutes. Section
213.21 authorizes DOR to establish informal procedures to resolve
disputes relating to the assessment of taxes, interest and penalties and subsection (5) thereof provides:
The department shall establish by rule guidelines and procedures for implementation of this section.
FMCC's contention that the failure of DOR to comply with this mandate requires dismissal of taxes, penalties and interest is without merit. Also without merit is the position that penalties and interest should be disallowed by reason of DOR failing to adopt rules for dealing with settlements. Although Section 213.21(5) has been in effect since October 1981 and DOR has only developed a proposed rule respecting settlements, it is appropriate to consider the language in McDonald vs. Dept. of Banking and Finance 346 So. 2d 569 581 (Fla. 1st DCA 1977) that:
While the Florida APA thus requires rule- making for policy statements of general applicability, it also recognizes the inevitability and desirability of refining incipient agency policy through adjudication of individual cases. There are quantitative limits to the detail of policy that can effectively be promulgated as rules or assimilated; and even the agency that knows its policy may wisely sharpen its purposes through adjudication before casting rules.
Furthermore, in Barker vs. Board of Medical Examiners, Dept. of Prof. Reg., 428 So. 2d 720 (Fla. 1st DCA 1982), the Court stated:
The fact, however, that no rule was extant at the time Barker applied for licensure does not necessarily mean the Board's action was void. The time has long since passed (if it ever existed) that agency action was mechanically invalidated simply because no rule was in effect. . . . Our academic endeavors in attempting to label the action either rule or nonrule to determine whether or not it fell within section 120.52(14) 's definition of a rule have now been largely discarded. There are, however, costs exacted upon an agency which avoids the rulemaking procedure provided by section 120.54, chief among those being that the agency may be required repeatedly to defend its nonrule policy decisions in each case. State, Dept.
of Administration vs. Harvey 356 So. 2d 323,
326 (Fla. 1st DCA 1977).
Applying these principles to the facts stipulated in the instant proceeding we have no rule in effect and the agency is required to defend its policy decisions regarding mitigating or compromising penalties and interest. Absent rules providing the agency's interpretation of the statute in question, we must turn to the statute itself for guidance.
Section 199.282, Florida Statutes, provides in pertinent part:
If any annual or non-recurring tax is not paid by the statutory due date, then despite any extension granted under S. 199.232(6), interest shall run on the unpaid balance from such due date until paid at the rate of 12 percent per year.
If any annual or non-recurring tax is not paid or if an annual tax return is not filed by the due date, a delinquency penalty shall be charged. The delinquency penalty shall be 5 percent of the delinquent tax for each calendar month or portion thereof from the due date until paid, up to a limit of 25 percent of the total tax not timely paid.
If an annual tax return is filed and property is either omitted from it or under- valued, then a specific penalty shall be charged. The specific penalty shall be 15 percent of the tax attributable to each omitted item or to each underevaluation. No delinguency or late filing penalty shall be charged with respect to any underevaluation.
In each of the sections above quoted the mandatory "shall" is used with respect to assessing the penalties. However, Section 213.21(3) authorizes DOR to mitigate a taxpayer's liability for penalties which may be settled or compromised if it is determined that the noncompliance is due to reasonable cause and not to willful negligence, willful neglect, or fraud. Here the word "may" is used which allows DOR discretion in compromising penalties. Since DOR has such
discretion its decision to not compromise may be overturned only upon clear evidence that DOR abused its discretion. If FMCC's failure to pay tax on these
intangibles above discussed was reasonable, then the DOR is authorized, but not directed, to mitigate the penalty.
The fundamental rule of construction is that tax laws are to be construed strongly in favor of the taxpayer and against the government and that all ambiguities are to be resolved in. favor of the taxpayer, Maas Brothers, Inc. vs. Dickinson, 195 So. 2d 193 (Fla. 1973); but exemptions to taxing statutes are special favors granted by the Legislature and are to be strictly construed against the taxpayer. State ex ref. Szabo Food Services vs. Dickenson, 286 So. 2d 529 (Fla. 1973). Mitigation of penalties is a favor authorized by the Legislature. Applying this principle to the instant case leads to the conclusion that FMCC has the burden of proving that its action in not paying the taxes here in issue was reasonable and not due to willful negligence, willful neglect or fraud. This it has failed to do
Finally, FMCC contends that DOR is estopped from collecting interest and penalties. This is based upon FMCC reporting its intangibles in the same manner during the period 1973 through 1982, and the fact that DOR not only audited those of returns, but challenged and abandoned the challenge to FMCC's method, and that because this method was accepted in the initial 1980 audit, DOR is estopped from collecting the interest and penalties here demanded. In State, Dept. of Revenue vs. Anderson, 403 So. 2d 397 (Fla. 1981), the Court stated:
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). Another general rule is that the state cannot be estopped through mistaken statements of the law. Department of Revenue vs. Hobbs, 368 So. 2d
345 (Fra. 1st DCA), appeal dismissed, 378 So. 2d 345 (Fla. 1979); Austin vs. Austin,
350 So. 2d 102 (Fla. 1st DCA 1977); cert. denied, 357 So. 2d 184 (Fla. 1978). In order to demonstrate estoppel, the following elements must be shown:
a representation as to a material fact that is contrary to a later asserted position;
reliance on that representation; and
a change in position detrimental to the party claiming estoppel, caused by the representation and reliance thereon.
Greenhut Constr. Co. v. Henry A. Knott, Inc., 247 So. 2d 517 (Fla. 1st DCA 1971).
FMCC failed to show the existence of these elements. Even though the initial audit of FMCC's 1980 intangible tax return did not challenge this return, this hardly constitutes a representation that the return is factually correct and similar later returns cannot be challenged. But even if Petitioner had satisfied the first two elements, there has been no showing that FMCC changed its position to its detriment which is necessary before a claim of estoppel can be made.
From the foregoing, it is concluded that FMCC owes
$1,226,045, plus $486,369 interest as of 7/20/84, and $543,968 in penalties for underpayment of intangible taxes for the tax years 1980 - 1982. It is
RECOMMENDED that a Final Order be entered finding FMCC owes
$1,226,045 for underpaid intangible taxes for the tax years 1980
- 1982, plus interest to date of payment plus penalties in the amount of $543,968.
DONE and ORDERED this 24th day of March, 1987, in Tallahassee, Florida.
K. N. AYERS, Hearing Officer Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32399
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 24th day of March, 1987.
COPIES FURNISHED:
Martin J. Kurzer, Esq. 2400 AmeriFirst Building One Southeast Third Avenue Miami, FL 33131
J. C. O'Steen, Esq. Linda Lettera, Esq.
Office of the Attorney General Department of Legal Affairs The Capitol
Tallahassee, FL 32301
William D. Townsend, Esq. General Counsel Department of Revenue
104 Carlton Building Tallahassee, FL 32301
Randy Miller Executive Director Department of Revenue
102 Carlton Building Tallahassee, FL 32399-0100
================================================================= AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA, DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA
FORD MOTOR CREDIT CORPORATION,
Petitioner,
v. CASE NO. 85-1303
DEPARTMENT OF REVENUE, STATE OF FLORIDA,
Respondent.
/
FINAL ORDER OF THE DEPARTMENT OF REVENUE
This Cause came on before the Governor and Cabinet, sitting as the Head of the Department of Revenue, at their regular meeting on November 17, 1987.
Ford Motor Credit Company (FMCC), Petitioner, instituted
this administrative procedure to challenge the Department of Revenue (DOR) imposition of intangible property taxes, interest, and penalties for the tax years 1980 through 1982. This case was initially scheduled for hearing commencing October 1, 1985, but was continued at the request of the parties who were attempting to resolve the dispute, and was rescheduled to be heard August 5, 1986. Prior to that date, the parties agreed to waive hearing, stipulate to all relevant facts, and submit briefs and legal memoranda supporting their respective positions, with initial briefs by February 20, 1987 and simultaneous submission of reply briefs by March 4, 1987.
Petitioner is represented by Martin J. Kurzer, Esquire, Blackwell, Walker, Fascell & Hoehl, One Southeast Third Avenue, Miami, Florida 33131.
Respondent is represented by Linda Lettera, Esquire, and J.
O'Steen, Esquire, Department of Legal Affairs, Office of the Attorney General, The Capitol, Tallahassee, Florida 32301.
Findings of fact are those stipulated to by the parties in the pre-hearing stipulation. Exhibits referred to are those attached to the prehearing stipulation.
FINDINGS OF FACT
FMCC is a corporation organized and existing under Delaware law. FMCC maintains its principal place of business in Dearborn, Michigan. FMCC is a wholly owned subsidiary of Ford Motor Company.
FMCC qualified and is authorized to do business in the State of Florida pursuant to the foreign corporation provisions of Chapter 607, Florida Statutes, and has continuously maintained a registered office and agent in this state during the audit years at issue.
During the tax years 1980-1982, inclusive, FMCC and Ford filed corporate tax returns in Florida and paid the taxes due thereon under the Florida Income Tax Code; FMCC maintained 7 to 8 branch offices and employed approximately 200 people in Florida; and Ford had contractual relationships with approximately 130 to
150 authorized Ford dealers in Florida. A copy of a representative agreement between Ford and the dealers was Exhibit
3 to the Stipulation.
FMC 's principal business is financing the wholesale and retail sales of vehicles manufactured by Ford Motor Company. During the audit period FMCC provided financing for the purchase of vehicles as authorized by Ford dealers from Ford Motor Company. FMCC also: provided financing for the purchase of
automobiles by the public from the dealers; and engaged in commercial, industrial and real estate financing, consumer loan financing, and leasing company financing in the State of Florida as well as other states. Attached as Composite Exhibit 4 were sample documents utilized by FMCC in the above financing.
The majority of the intangibles in question are accounts receivables held by FMCC and owned by Florida debtors in connection with the purchase of tangible personal property shipped to or located in the State of Florida.
FMCC is the holder of security agreements executed by thousands of Florida debtors. These security agreements gave FMCC a lien on tangible personal property located in the State of Florida. The Florida Secretary of State's office was utilized by FMCC during the assessment period to perfect and protect its liens created under these security agreements with Florida debtors by the filing of U.C.C. financing statements. None of the original notes are stored in Florida.
During the assessment period, FMCC utilized or could have utilized the Florida Courts to recover sums due by Florida debtors on delinquent accounts receivable. In addition, FMCC utilizes the Florida Department of Highway Safety and Motor Vehicles to perfect its liens on motor vehicles pursuant to Chapter 319, Florida Statutes.
In 1983, the Department conducted an audit of the FMCC intangible tax returns for tax years 1980 through 1982, inclusive. On June 3, 1983, the Department proposed an assessment of tax, penalty and interest in the total amount of
$2,560,379.00. See Exhibit 5. FMCC filed a timely protest.
On October 8, 1984, the Department issued a Notice of Decisior,. See Exhibit 2. On December 12, 1984, the Department acknowledged receipt of FMCC's timely November 8, 1984 Petition for Reconsideration. On February 18, 1985, the Department issued a Notice of Reconsideration. See Exhibit 6.
FMCC elected to file a Petition for Formal Proceedings, which was received on April 8, 1985.
On the basis of the revised audit report, the Department of Revenue imposed the intangible tax on FMCC for the tax years 1980 through 1982, inclusive, in the following categories, and in the taxable amounts listed as follows:
1/1/80 1/1/81 1/1/82
(1) Commercial
Finance Receivables-- | $342,892,615 | $403,061,571 | $486,412,164 |
Retail |
|
|
|
(2) Commercial |
|
|
|
Finance Receivables-- Wholesale | 218,591,180 | 241,993,462 | 228,303,569 |
(3) Simple Interest |
|
|
|
Lease Receivables-- Retail | 66,345,902 | 75,978,095 | 71,315,777 |
(4) Lease Finance |
|
|
|
Receivables | N/A | N/A | N/A |
(5) Capital Loan |
|
|
|
Receivables | 3,112,877 | 2,064,698 | 2,419,770 |
(6) Consumer Loan |
|
|
|
Receivables | 10,144,531 | 14,122,666 | 18,578,699 |
(7) Service Equipment |
|
|
|
Financing--Dealer I.D. Receivables | 481,869 | 368,186 | 422,108 |
(8) Ford Rent-A-Car |
|
|
|
Receivables | 27,825,283 | 26,179,377 | 20,362,896 |
Ford Parts &
Service Receivables -0- 10,499,401 10,800,313
Accounts
Receivables--Customers & Others | 3,452,194 | 4,581,629 | 4,952,234 |
(11) Accounts |
|
|
|
Receivables--Affiliate | 1,617,880 | 2,914,094 | 4,438,849 |
(12) C.I.R. |
|
|
|
Receivables | 23,243,257 | 27,387,938 | 24,222,621 |
TOTAL FLORIDA RECEIVABLES------ |
697,707,588 |
809,151,117 |
872,229,000 |
TAX AT 1 MILL---- | 697,708 | 809,151 | 872,229 |
LESS ORIGINAL TAX PAYMENT------ |
312,703 |
351,976 |
339,142 |
LESS PETITION PAYMENT ON AGREED CATEGORIES------ 51,069 |
53,567 |
44,586 |
TOTAL REMAINING TAX ASSESSED------ $333,936 |
$403,608 |
$488,501 |
TOTAL TAX FOR ALL YEARS----- $1,226,045 |
|
|
REVISED ASSESSMENT FIGURES |
|
|
DOES NOT INCLUDE $1,386.18 OF THE PETITION PAYMENT
At the time it filed its petition for a formal hearing, FMCC agreed to and paid the 1 mill tax, but no interest or penalty, on the following amounts. The taxability of these items is no longer in dispute, only penalty and interest.
| 1980 | 1981 | 1982 |
(8) |
Ford Rent-A-Car |
27,825,283 |
26,179,377 |
20,362,896 |
Receivables
(12) CIR Receivables 23,243,257 27,387,938 24,222,621
Capital Loan Receivables (item 5 of paragraph 11) reflect amounts of money owed by Ford dealers to FMCC. The obligation arises from loans made to Ford dealers located in Florida to expand showroom or other facilities and for working capital.
The items located as (10) Accounts Receivable - Customers and Others and (11) Accounts Receivables - Affiliates in paragraph 11 reflect only the amount of accrued interest to which FMCC is entitled on notes from non-affiliates and affiliates, respectively, from the last settlement date prior to year end until the end of each respective year. The principal amounts owed on these notes, which are not secured by realty, are included in other categories. The Department does not assess a tax for similar interest when the amount owed is secured by realty.
Wholesale and retail intangibles were created and handled in 1980, 1981 and 1982 by FMCC in the manner set forth in Exhibit 7.
The Department of Revenue has imposed penalties in the amount of $543,968 composed of $330,051 as the 25% delinquent penalty imposed pursuant to Fla. Stat. Section 199.052(9)(a) (1983), and $15,886 as the 15% undervalued Property penalty
imposed pursuant to Section 199.052(9)(d)(1983), Florida Statutes. The Department offered abatement of the 15% omission penalty ($198,031) imposed pursuant to Fla. Stat. Section 199.052(9)(c)(1983). The closing agreement required pursuant to Fla. Sta. Section 213.21 reflecting this reduction Or penalty was not signed by petitioner.
FMCC's intangible tax returns have been audited on prior occasions. The manner of reporting was identical to the manner in which FMCC reported its intangibles for tax years 1980 through 1982. The 1973-1975 and the 1976-1978 audits were "no change" audits. FMCC's method of reporting receivables generated from Florida sales was challenged by the Department of Revenue. The challenge was dropped because the Department of Revenue did not have the statutory authority to assess sales of tangible personal property with an f.o.b. point other than Florida. Chapter 77-43, Laws of Florida amended Section 199.112, Fla. Stat. to allow tangible personal property (sic) [to be taxed] regardless of the f.o.b. point of sale. This amendment applied to the January 1, 1978 taxable year. There was a 1978-1980 "no change" audit.
Ford Motor Company has filed refund claims for certain categories for the tax year 1981 and 1982. Ford Motor Company claims that it inadvertently paid intangible tax on accounts receivable owned by FMCC. As presented in the Notice of Decision, no refund will be made as it will be handled as a credit against taxes due by Ford Motor Company.
While not an announced policy, the Department of Revenue drafted and utilized proposed rules relating to compromising penalties. These rules are not final. Attached as Exhibit 8 were the proposed rules. A copy of these rules was provided to Petitioner by letter dated July 28, 1986. In addition, while not an announced policy the Department of Revenue utilized guidelines established by the Internal Revenue Service and federal court for compromising penalties.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.
Petitioner presents six basic premises for relief which will be discussed seriatim.
First, Petitioner contends the intangible tax law is unconstitutional with its attack focused on Section 199.112, Florida Statutes. This tribunal is without jurisdiction to rule
on this issue; however, all facts relevant thereto have been stipulated by the parties and, if appeal is taken, the appellate court can rule on this constitutional issue. Rice vs. Dept. of HRS, 386 So. 2d 844 (Fla. 1st DCA 1980). Petitioner's position that these intangibles may not be taxed by Florida because FMCC does not have a business situs in this state is contrary to the decision rendered in Allis Chalmers Credit Corp. vs. Dept. of Revenue, 456 So. 2d 899 (Fla. 1st DCA 1984). Under the principles announced in Allis Chalmers, FMCC clearly has a business situs in this State and those intangibles held outside Florida on property located or sold in Florida are taxable.
Next, Petitioner contends that the business situs test of Section 199.112 would, under many conditions, allow for the same intangible to be taxed by two states if both have intangible tax laws like those of Florida. This is alleged to unfairly tax interstate transactions, but Petitioner does not contend in this argument that this is unconstitutional--only that it is unfair. This position is without merit. Curry vs. McCanless, 307 U.S.
357, 359 S.Ct. 900 (1939); State Tax Commission vs. Aldrick, 316
U.S. 174, 625 S.Ct. 1008, 86 L.Ed. 1358 (1942).
Petitioner next contends that Department of Revenue cannot properly tax accrued interest on accounts receivable for: (a) customers and others and (b) affiliates, because these receivables do not reflect a principal amount owed FMCC. Petitioner relies upon Rule 12C-2.10 (3), Florida Administrative Code, which provides:
The fair market value of a note is presumed to be the amount of the unpaid principal as of January 1 of each year.
This, FMCC contends, allows only the principal represented by the notes and not accrued interest to be taxed. Since the notes are elsewhere subjected to the intangible property tax, FMCC contests only the tax on the accrued interest. Section 199.023(1), Florida Statutes, defines "intangible personal property" to mean:
All personal property which is not in itself intrinsically valuable but derives its chief value from that which it represents, . . .
The account labeled "accrued interest" is an asset of FMCC, is intangible property, and, as such, is taxable under the definition of intangible personal property above quoted. FMCC's reliance on the rule is misplaced. The rule creates only a presumption that the fair market value of the note is the unpaid principal as of January 1. If interest is also payable on this
note, and this interest has accrued, this obviously increases the fair market value of the note by the value of the accrued interest or in direct proportion to the value of this accrued interest.
Next, FMCC contends Department of Revenue cannot tax capital loan receivables. With respect to these receivables secured by mortgage on real property both parties concur that those are not subject to an intangible tax. These capital loan receivables are loans made to Ford dealers to expand their showrooms or other facilities and for working capital. FMCC's interpretation of Section 199.112 that this section subjects to taxation only intangibles "arising out of, or issued in connection with, the sale, leasing or servicing of real or personal property" in Florida and since those are capital loans to improve showrooms, etc., there is no sale, lease or servicing of property and hence no authority o tax, is much too strict. Notes representing these loans are intangible personal property and it can hardly be said they were unrelated to the sale of Ford products. Thus, they did arise out of "the sale. . . or servicing of. . . personal property" in Florida.
FMCC next contends that DOR is barred from assessing interest and penalties because it failed to comply with the legislative mandate in Section 213.21(5) to promulgate rules establishing guidelines for informal conferences and for settling the taxpayer's liability for any tax, penalty or interest assessed as provided by Chapter 199, Florida Statutes. Section
213.21 authorizes DOR to establish informal procedures to resolve disputes relating to the assessment of taxes, interest and penalties and subsection (5) thereof provides:
The department shall establish by rule guidelines and procedures for implementation of this section.
FMCC's contention that the failure of DOR to comply with this mandate requires dismissal of taxes, penalties and interest is without merit. Also without merit is the position that penalties and interest should be disallowed by reason of DOR failing to adopt rules for dealing with settlements. Although Section 213.21(5) has been in effect since October 1981 and DOR has only developed a proposed rule respecting settlements, it is appropriate to consider the language in McDonald vs. Dept. of Banking and Finance, 346 So. 2d 569, 581 (Fla. 1st DCA 1977) that:
While the Florida APA thus requires rule- making for policy statements of general applicability, it also recognizes the
inevitability and desirability of refining incipient agency policy through adjudication of individual cases. There are quantitative limits to the detail of policy that can effectively be promulgated as rules or assimilated; and even the agency that knows its policy, may wisely sharpen its purposes through adjudication before casting rules.
Furthermore, in Barker vs. Board of Medical Examiners, Dept. of Prof. Real, 428 So.2d 720 (Fla. 1st DCA 1982), the Court stated:
The fact, however, that no rule was extant at the time Barker applied for a licensure does not necessarily mean the Board's action was void. The time has long since passed (if it ever existed) that agency action was mechanically invalidated simply because no rule was in effect. . . . Our academic endeavors in attempting to label the action either rule or nonrule to determine whether or not it fell within section 120.52(14)'s definition of a rule have now been largely discarded. There are, however, costs exacted upon an agency which avoids the rulemarking procedure provided by section 120.54, chief among those being that the agency may be required repeatedly to defend its nonrule policy decisions in each case. State, Dept. of Administration vs. Harvey, 356 So. 2d 323,
326 (Fla. 1st DCA 1977).
Applying these principles to the facts stipulated in the instant proceeding we have no rule in effect and the agency is required to defend its policy decisions regarding mitigating or compromising penalties and interest. Absent rules providing the agency's interpretation of the statute in question, we must turn to the statute itself for guidance.
Section 199.282, Florida Statutes, provides in pertinent part:
If any annual or non-recurring tax is not paid by the statutory due date, then despite any extension granted under S. 199.232(6), interest shall run on the unpaid balance from such due date until paid at the rate of 12 percent per year.
If any annual or non-recurring tax is not paid or if an annual tax return is not filed by the due date, a delinquency penalty shall be charged. The delinquency penalty shall be 5 percent of the delinquent tax for each calendar month or portion therefore from the due date until paid, up to a limit of 25 percent of the total tax not timely paid.
If an annual tax return is filed and property is either omitted from it or under- valued, then a specific penalty shall be charged. The specific penalty shall be 15 percent of the tax attributable to each omitted item or to each underevaluation. No delinquency or late filing penalty shall be charged with respect to any underevaluation.
In each of the sections above quoted the mandatory "shall" is used with respect to assessing the penalties. However, Section 213.21(3) authorizes DOR to mitigate a taxpayer's liability for penalties which may be settled or compromised if it is determined that the noncompliance is due to reasonable cause and not to willful negligence, willful neglect, or-fraud. Here the word "may" is used which allows DOR discretion in compromising penalties. Since DOR has such discretion its decision to not compromise may be overturned only upon clear evidence that DOR abused its discretion. If FMCC's failure to pay tax on these intangibles above discussed was reasonable, then the DOR is authorized, but not directed, to mitigate the penalty.
The fundamental rule of construction is that tax laws are to be construed strongly in favor of the taxpayer and against the government and that all ambiguities are to be resolved in favor of the taxpayer, Maas Brothers, Inc. vs. Dickinson, 195 So. 2d
193 (Fla. 1973); but exemptions to taxing statutes are special favors granted by the Legislature and are to be strictly construed against the taxpayer. State ex rel Szabo Food Services vs. Dickinson, 286 So. 2d 529 (Fla. 1973). Mitigation of penalties is a favor authorized by the Legislature. Applying this principle to the instant case leads to the conclusion that FMCC has the burden of proving that its action in not paying the taxes here in issue was reasonable and not due to willful negligence, willful neglect or fraud. This it has failed to do.
Finally, FMCC contends that DOR is estopped from collecting interest and penalties. This is based upon FMCC reporting its intangibles in the same manner during the period 1973 through 1982, and the fact that DOR not only audited those returns, but challenged and abandoned the challenge to FMCC's method, and that because this method was accepted in the initial 1980 audit, DOR
is estopped from collecting the interest and penalties here demanded. In State, Dept. of Revenue vs. Anderson, 403 So.2d 397 (Fla. 1981), the Court stated:
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). Another general rule is that the state cannot be estopped through mistaken statements of the law. Department of Revenue vs.
Hobbs, 368 So. 2d 345 (Fla. 1st DCA), appeal dismissed, 378 So. 2d 345 (Fla. 1979); Austin vs. Austin, 350 So. 2d 102 (Fla. 1st
DCA 1977); cert. denied, 357 So. 2d 184 (Fla. 1978). In order to demonstrate estoppel, the following elements must be shown: (1) a representation as to a material fact that is contrary to a later asserted position; (2) reliance on that representation; and (3) a change in position detrimental to the party claiming estoppel, caused by the representation and reliance thereon. Greenhut Constr. Co. v. Henry A. Knott, Inc., 247 So. 2d 517 (Fla. 1st DCA 1971).
FMCC failed to show the existence of these elements. Even though the initial audit of FMCC's 1980 intangible tax return did not challenge this return, this hardly constitutes a representation that the return is factually correct and similar later returns cannot be challenged. But even if Petitioner had satisfied the first two elements, there has been no showing that FMCC changed its position to its detriment which is necessary before a claim of estoppel can be made.
From the foregoing, it is concluded that FMCC owes S1,226,045, plus $486,369 interest as of 7/20/84, and $543,968 in penalties for under-payment of intangible taxes for the tax years 1980 - 1982. It is
ORDERED that the Department of Revenue enter this Final Order finding FMCC owes $1,226,045 for underpaid intangible taxes for the tax years 1980 - 1982, plus interest to date of payment plus penalties in the amount of $543,968.
DONE AND ENTERED this 19th day of November, 1987, at 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 was entered in the records of the Department of Revenue this 19th day of November, 1987.
MARY L. FORD
Agency Clerk
Docket for Case No: 85-001303
Orders for Case No: 85-001303
| Issue Date |
Document |
Summary |
|
Nov. 19, 1987 |
Agency Final Order
|
|
|
Mar. 24, 1987 |
Recommended Order
|
Petitioner fails to prove that not paying certain intangible taxes was reasonable and that it was not due to willful neglect or fraud. Estoppel is inapplicable.
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