STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOE "LITTLE JOE" HATCH, )

)

Petitioner, )

)

vs. ) CASE NO. 89-6709

) DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on February 22, 1990, at Tampa, Florida.

APPEARANCES

For Petitioner: Raymond E. LaPorte, Esquire

410 Ware Boulevard, Suite 601 Tampa, FL 33619

and

Steve Kackley, Esquire

357 S. Orange Avenue Sebring, FL 33870

For Respondent: Lee R. Rohe, Esquire

Assistant Attorney General Tax Section, Capitol Building Tallahassee, FL 32399-1050

STATEMENT OF THE ISSUES

Whether Petitioner is subject to the sales tax imposed on controlled substances by s. 212.0505, Florida Statutes, and if so, what is the appropriate tax.

PRELIMINARY STATEMENT

By letter dated November 29, 1989, the Department of Revenue, Respondent, forwarded a petition for hearing filed by Joe "Little Joe" Hatch, Petitioner, to challenge the assessment and tax levied against him resulting from marijuana plants being confiscated from Petitioner's property and control.

At the beginning of the hearing, the parties submitted a joint pretrial stipulation to the admissibility of depositions into evidence, that the product seized on Petitioner's property was marijuana and that the lab report confirming this fact be admitted into evidence. Thereafter, Respondent moved to amend the assessment to show the date of September 12, 1989, rather than September 29, 1989, as the assessment date and the date on which the marijuana was seized.

Petitioner's objection was overruled, and Respondent was allowed to amend the date to conform with the factual situation. Respondent called three witnesses, Petitioner testified in his own behalf and 11 exhibits were admitted into evidence. Four exhibits consisted of depositions of other witnesses to the transaction.

There is no dispute regarding the operative facts here involved thereby leaving only the amount of the assessment in dispute and the legality of the search. Accordingly, proposed findings are generally accepted. Those proposed findings not accepted are treated in the Appendix attached hereto and made a part hereof.

FINDINGS OF FACT

1. On September 12, 1989, a search and destroy team assembled in Sebring, Florida, to survey Highlands County for evidence of the growing or possession of illegal drugs.

   
   

2. The survey team consisted of a helicopter, pilot and crew chief from the Florida National Guard; and the ground crew of representatives from the Highlands County Sheriff's Office, State Highway Patrol, Fish and Game Commission, Florida Law Enforcement Officers and federal agents.

   
   

3. The search commenced in the southwest quadrant of Highlands County with the helicopter and trained spotters flying a search pattern so as to view from the air any illegal substances being grown.

   
   

4. On one, if not the first, leg of the search pattern, the helicopter, flying at an altitude of 500 feet, passed over the property on which Petitioner lives; and one of the observers spotted what he identified as marijuana growing near one of the outbuildings on this property. The marijuana patch was circled for both spotters as well as the pilot and crew to better see the growing marijuana.

   
   

5. The ground party was alerted by radio of the find. They proceeded to the location and entered onto the property. There they met Petitioner, proceeded to the area where the marijuana was growing, and cut down the marijuana plants. Some 171 cut plants were counted, wrapped in bundles of approximately 10 plants each, and loaded into the back of a pickup truck.

   
   

6. The deputies asked Petitioner if he would unlock the building next to where the marijuana plants were growing and he, knowing they could get a search warrant if necessary, unlocked the door. Inside they found some lights obtained for the purpose of growing marijuana indoors and other material listed on Exhibit 3A, all of which were confiscated.

   
   

7. Petitioner was placed under arrest and the marijuana and other property seized was taken to the sheriff's office. The vehicle carrying the marijuana was weighed before the marijuana was unloaded and again immediately following the unloading. The difference in the weight of the vehicle with and without the marijuana was 450 pounds.

   
   

8. Subsequent thereto, someone from either the sheriff's office or the Florida Department of Law Enforcement advised the Department of Revenue Collections and Enforcement agent in Lakeland, Florida, and the Notice of Assessment was prepared and served on Petitioner.

9. To establish the value of the marijuana seized, the agent preparing the assessment used information received from the FDLE that the average street price in the district in which the marijuana was seized was $600 per pound in 1989. The document containing this information was admitted into evidence as Exhibit 6 after testimony was presented that each year the FDLE directs its five regional offices to submit street prices for various illegal drugs sold on the streets during that year. Exhibit 6 shows the marijuana street price at $600 per pound in the Tampa district (which includes Highlands County) as of June 7, 1989. To obtain the estimated retail price of the marijuana seized, the agent multiplied

   $600 per pound by 450 pounds.

   
   

10. This price is for marijuana which has been processed and is ready for use. No evidence was submitted showing what parts of the marijuana plant are used in preparing the marijuana rolled into "joints" or smoked in a pipe. Nor was evidence presented showing how many pounds of processed and ready-to-use marijuana can be obtained from a given number of pounds of growing marijuana plants.

    
    

11. In his testimony, Petitioner readily admitted that he had planted and cultivated the marijuana seized on September 12, 1989. He also testified that this is the first and only time he has ever attempted to grow marijuana; that he obtained the marijuana seeds and a book on how to grow marijuana from an advertisement in a magazine; that he had never sold marijuana in the past; that he had made no effort to locate a purchaser; or that he had any inkling of how to find a buyer for the plants after they were harvested or how much such plants were worth for use by marijuana users.

    
    

12. Petitioner also testified the marijuana was planted a long distance from the nearest traveled road and from the nearest boundary of Petitioner's property; and that there was a canopy provided by trees among which he had planted the marijuana plants, and he didn't think the plants would be readily visible from the air. Petitioner's testimony that the helicopter passed over his property at tree top level, which he estimated at less than 75 feet, is rejected as being in conflict with the altimeter height provided by the helicopter pilot.

    
    

13. In the U. S. District Court, Southern District of Florida, Petitioner pleaded guilty to possession of more than 100 marijuana plants.

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

15. Petitioner's argument that the seizure of the marijuana plants was the result of an illegal search under the Fifth Amendment of the U. S. Constitution is without merit.

    
    

16. The assessment here involved was authorized by s. 212.0505, Florida Statutes, which provides in pertinent part:

    
    

    1. (a) Every person is exercising a taxable privilege who engages in this state in the unlawful sale, use, consumption, distribution, manufacture, derivation, production, transportation, or storage of any medicinal drug as

       defined in chapter 465, cannabis as defined in s. 893.02, or controlled substance enumerated in s. 893.03.

       For the exercise of such a privilege a tax is levied on each taxable trans- action or incident, including each occasional or isolated unlawful use,

       consumption, distribution, manufacture, derivation, production, transportation, or storage, at the rate of 50 percent of the estimated retail price of the medicinal drug, cannabis, or controlled

       substance involved in the transaction or incident.

       
       

17. By growing the marijuana seized, Petitioner was exercising a taxable privilege in accordance with this statutory provision.

18. Section 214.06(2), Florida Statutes, provides: If a taxpayer fails to file a tax return,

    the department shall determine the amount of tax due according to its best judgment and information, and it shall issue a notice of deficiency to the taxpayer, setting forth the amount of tax and any penalties proposed to be assessed. The amount so determined by the department shall be prima facie correct and shall be prima facie evidence of the correctness of the amount of tax due.

    
    

19. The assessed value of marijuana of $600 per pound is accepted as prima facie evidence of the value of marijuana sold on the street. However, this price or value of $600 per pound is for marijuana which has been processed and is ready for use by the user. Not a scintilla of evidence was presented from which the value of a five pound marijuana plant can be determined.

    
    

20. The Department's witnesses all testified that the value of the marijuana used in the assessment was determined by multiplying the 450 pounds of stalks by $600 to determine the assessed amount. When all facts are considered, the prima facie evidence of $600 per pound of marijuana vanishes, and nothing has been submitted to replace this value. The prima facie validity of the assessment has been rebutted by the fact that the marijuana plants seized had not been processed and accordingly could not be valued at $600 per pound.

    
    

21. While it is obvious that the seized marijuana plants had some value, no credible evidence was submitted from which such value can be ascertained.

    
    

22. Respondent's argument that since all cannabis is illegal, all parts of the plant are illegal and, therefore, subject to taxation, is accepted.

    However, the valuation to be

    taxed is the "estimated retail price" of the marijuana possessed by the Petitioner. No "estimated retail price" of unprocessed marijuana plants was presented.

23. The fundamental rule of construction in tax matters 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 Bros. v. Dickinson, 195 So.2d 193 (Fla. 1967).

    
    

24. The statute in issue authorizes a jeopardy tax on the "estimated retail price" of marijuana in the possession of the taxpayer. The only estimate of the retail price of marijuana was the street price of processed marijuana-- not the marijuana plants before processing.

    
    

25. Although the taxpayer is designated Petitioner in these proceedings, the Department has the ultimate burden of proving the taxes are due and the amount of the tax owed. The assessment establishes a prima facie case that the assessment is correct. However, here the evidence clearly shows that the assessment was based upon the erroneous premise that marijuana stalks have an estimated retail price of $600 per pound, and the evidence presented showed that this valuation was for processed marijuana ready to use.

    
    

26. From the foregoing, it is concluded that Respondent has failed to prove, by a preponderance of the evidence, ythat the marijuana plants seized from Petitioner's property on September 12, 1989, had an estimated retail price of $600 per pound as assessed, or any retail price.

RECOMMENDATION

It is recommended that the assessment against Joe "Little Joe" Hatch of

$270,999.02 plus interest from September 12, 1989, be dismissed.

ENTERED this 26th day of March, 1990, in Tallahassee, Florida.

K. N. AYERS Hearing Officer

Division of Administrative Hearings The Desoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 26th day of March, 1990.

APPENDIX

Respondent's proposed findings are generally accepted and included in the Hearing Officer's findings of fact, except the following which are rejected.

12-18. Accepted as street value of processed marijuana.

26. Last sentence rejected as contrary to the record that the charge was possession of over 100 marijuana plants.

Petitioner failed to timely submit a proposed recommended order.

COPIES FURNISHED:

Raymond E. LaPorte, Esquire

410 Ware Boulevard, Suite 601 Tampa, FL 33619

Steve Kackley, Esquire

357 S. Orange Avenue Sebring, FL 33870

Lee R. Rohe, Esquire Assistant Attorney General Tax Section, Capitol Building Tallahassee, FL 32399-1050

William D. Moore General Counsel Department of Revenue

203 Carlton Building Tallahassee, FL 32399-0100

Executive Director Department of Revenue

104 Carlton Building Tallahassee, FL 32399-0100

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF REVENUE

JOE "LITTLE JOE" HATCH,

Petitioner,

vs. DOAH Case NO. 89-6709

DEPARTMENT OF REVENUE,

Respondent.

/

FINAL ORDER

This case came before the Department of Revenue for the purpose of considering a recommended order. The hearing officer assigned by the Division of Administrative Hearings submitted a recommended order to the Department of Revenue dated April 16, 1990. A copy of that recommended order is attached hereto.

The hearing officer recommends that the assessment should be dismissed.

Essentially, to summarize the legal theory underlying the ruling, the taxpayers had the opportunity to rebut the estimated retail price of the drugs. The hearing officer found that the presumption of correctness underlying the tax assessment by operation of law became rebutted by evidence. This evidence consisted of testimony that the Department's assessment was based upon Florida Department of Law Enforcement estimates of the processed value per pound of marijuana and not the value of unprocessed marijuana. The hearing officer held that the marijuana seized obviously had some value but that no credible evidence was submitted from which such value can be ascertained and therefore the Department failed to meet its burden to prove the estimated retail value of the marijuana by a preponderance of' the evidence.

The recommended order is based upon an interpretation of law. It is also founded on the hearing officer's perception that an assessment under Section 212.0505 F.S. must be based upon the exact value of the marijuana.

The Department, through counsel, filed exceptions to the recommended order. These exceptions consist of conclusions of law and not findings of fact and are therefore considered as legal argument. For the reasons expressed below, the Department believes that the assessment should be sustained.

FINDINGS OF FACT

1. through 13. The Department hereby adopts and incorporates by reference the findings of fact set forth in paragraphs 1 through 13 of the recommended order.

CONCLUSIONS OF LAW

The Department sets forth the following conclusions of law. To the extent the conclusions of law in the hearing officer's recommended order are not set forth in this final order, they are rejected or modified.

1. This matter came before Division of Administrative Hearings which has jurisdiction over the parties to, and the subject matter of, the proceedings.

   
   

2. Petitioner's argument that the seizure of the marijuana plants was the result of an illegal search under the Fifth Amendment of the U. S. Constitution is without merit.

   
   

3. The assessment here involved was authorized by s. 212.0505, Florida Statutes, which provides in pertinent part:

   
   

   (1)(a) Every person is exercising a taxable privilege who engages in this state in the unlawful sale, use, consumption, distribution, manufacture, derivation, production, transportation, or storage of any medicinal drug as defined in chapter 465, cannabis as defined in S. 893.02, or controlled substance enumerated in S. 893.03. For the exercise of such a privilege a tax is levied on each taxable transaction or incident, including each occasional or isolated unlawful use, sale, consumption, distribution, manufacture, derivation, production, transportation, or storage, at the rate

   of 50 percent of the estimated retail price of the medicinal drug, cannabis, or controlled substance involved in the transaction or incident.

   
   

4. By growing the marijuana seized, Petitioner was exercising a taxable privilege in accordance with this statutory provision.

5 The hearing officer's recommended order cited Chapter 214 F.S as applicable in the case at bar. Section 214.06(2), F.S., however, does not apply to Chapter 212 F.S. Section 214.01 F.S. provides:

"This chapter shall become applicable only to such non property taxes as are expressly made subject to the provisions hereof."

1. Chapter 212, F.S. has never been made expressly subject to Chapter 2,14.06(2), F.S.

   
   

2. The assessed value of marijuana of $600 per pound is accepted as prima facie evidence of the value of marijuana sold on the street.

   
   

3. Section 212.0505 F.S. specifically incorporates by reference the definition of "cannabis" as indicated in section 893.02(3) F.S. That section provides:

   
   

   "Cannabis" means all parts of any plant of the genus Cannabis, whether growing or not; the seeds thereof; the resin extract from any part of the plant; and every compound, manufacture, salt, derivative, mixture, preparation of the plant or its seeds or resin.

   
   

4. Under the above definition, the entire marijuana plant or derivative of the plant is subject to taxation.

   
   

5. Section 212.0505, F.S. places the sales tax on the estimated retail price.

   
   

6. The estimated price of the marijuana was derived from evidence and testimony in the record of the hearing. See Hearing Transcript, page 105, sentences 9-24; page 106, sentences 1-17, and Exhibits numbers 6 and 7.

   
   

7. The Department's witnesses all testified that the value of the marijuana used in the assessment was determined by multiplying the 450 pounds of both stalks and leaf material by $600 to determine the assessed amount. Therefore the price list for processed cannabis is proper as an estimated price of the' marijuana.

   
   

8. Petitioner failed to rebut the prima face correctness of the above assessment.

   
   

9. The Department's argument that since all cannabis is illegal, all parts of the plant are illegal and, therefore, subject to taxation, is accepted.

10. The fundamental rule of construction in tax matters 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 Bros. v. Dickinson, 195 So.2d 193 (F1a. 1967).

    
    

11. Although the taxpayer is designated Petitioner in these proceedings, the Department has the ultimate burden of proving the taxes are due and the amount of the tax owed. The assessment establishes a prima facie case that the assessment is correct.

    
    

12. Chapter 212.0505 F.S. authorizes a tax on the "estimated retail price" of marijuana in the possession of the taxpayer.

    
    

13. The only estimate of the retail price of marijuana was the street price of processed marijuana not the marijuana plants before processing.

    
    

14. Section 212.0505, F.S. does not draw a distinction between the value of processed or unprocessed marijuana and therefore there is no burden of proof upon the respondent to establish the specific value of the marijuana plant or plants.

CONCLUSION

The Department is of the opinion that there has been proven, by a preponderance of the evidence, the "estimated retail value" of the marijuana and based upon the foregoing, it is ORDERED:

That the subject assessments against Petitioner be sustained.

Any Party to this Order has the right to seek judicial review of the Order as provided in Section 120.68, Florida Statutes, by the filing of a Notice of Appeal as provided in Rule 9.110, Florida Rules of Appellate Procedure, with the clerk of the Department in the Office of General Counsel, Post Office Box 6668, Tallahassee, Florida 32314-6668 and by filing a copy of the Notice of Appeal accompanied by the applicable filing fees with the appropriate District court of Appeal. The Notice of Appeal must be filed within 30 days from the date this Order is filed with the clerk of the Department.

DONE AND ORDERED this 22nd day of June, 1990.

STATE OF FLORIDA DEPARTMENT OF REVENUE

by:

J. THOMAS HERNDON Executive Director

Filed with the Agency Clerk and served on the parties this 22nd day of June, 1990.

Agency Clerk

Copies furnished to:

Raymond D. Laporte, Esquire

410 Ware Boulevard, Suite 601, Tampa, Florida 33619

Steve Kackley, Esquire

357 S. Orange Avenue Sebring, Florida 33870

Lee R. Rohe

Assistant Attorney General

William D. Moore

General Counsel Department of Revenue

Attachments

Hearing officer's recommended order Respondent's Exceptions

================================================================= DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL FIRST DISTRICT, STATE OF FLORIDA

LITTLE JOE HATCH, SR., a/k/a NOT FINAL UNTIL TIME EXPIRES JOE HATCH, TO FILE REHEARING MOTION AND

DISPOSITION THEREOF IF FILED.

Appellant, CASE NO. 90-2053

DOAH CASE NO. 89-6709

STATE, DEPARTMENT OF REVENUE,

Appellee.

/

Opinion filed September 6, 1991.

An Appeal from an Order of the Department of Revenue. Little Joe Hatch, Pro Se.

Robert A. Butterworth, Attorney General and Lee R. Rohe, Assistant Attorney General, Tallahassee, for Appellee.

JOANOS, Chief Judge.

This is an appeal from assessment of a tax deficiency in the amount of

$270,799.02 based on the confiscation of 171 marijuana plants from the property of appellant Joe Hatch. Appellant contends the Department of Revenue failed to establish a fair "estimated retail value" of the marijuana plants, and failed to prove that unprocessed marijuana has any value. We reverse.

The record reflects that after the marijuana at issue was discovered growing on appellant's property, it was cut off at the root, wrapped in bed sheets in bundles of approximately ten plants per bundle, and loaded in a truck which had been weighed prior to loading. The vehicle weighed 450 pounds more after the bundles of marijuana were loaded. The amount of the tax deficiency was determined by multiplying the 450 pounds deemed to represent the weight of the marijuana by a price which appeared on a Florida Department of Law Enforcement (FDLE) list of prices of processed marijuana. The price list is compiled from data assembled by FDLE, reflecting street prices of different grades of marijuana which has been processed to the point that it is ready for use.

In the recommended order, the hearing officer assigned to hear appellant's challenge to the amount of the tax assessment, found that the value of the marijuana seized was established by reference to an FDLE document reflecting a marijuana street price of $600.00 per pound as of June 7, 1989, the relevant time period. The hearing officer further found that no evidence was submitted showing what parts of the marijuana plant are used in preparing marijuana to be rolled into "joints" or smoked in a pipe, and no evidence was submitted concerning the number of pounds of processed ready-to-use marijuana that can be obtained from a given number of pounds of growing marijuana plants. As a conclusion of law, the hearing officer found the validity of the assessment was rebutted by the fact that the seized marijuana plants had not been processed, and thus could not be valued at $600.00 per pound. While accepting the Department's argument that all parts of the cannabis plant are illegal and therefore subject to taxation, the hearing officer determined that the valuation for tax purposes is the "estimated retail price." In the hearing officer1s view, the Department failed to prove by a preponderance of the evidence that the marijuana plants seized from appellant's property had an estimated price of

$600.00 per pound, or any retail price. Consequently, the hearing officer recommended that the assessment against appellant be dismissed.

In its final order, the Department accepted and incorporated by reference the hearing officer's findings of fact, but rejected his interpretation of the law. The final order states in part that "the entire marijuana plant or derivative of the plant is subject to taxation," and that the price list for processed marijuana was a proper basis upon which to determine the estimated retail value of the subject marijuana. The Department sustained the assessment

against appellant, based on its conclusion that since section 212.0505, Florida Statutes, does not draw a distinction between processed and unprocessed marijuana, the Department was not required to prove the specific value of the marijuana plants.

The contested tax deficiency assessment in this case was predicated upon section 2i2.0505(1)(a), Florida Statutes (1989), which provides:

Every person is exercising a taxable privilege who engages in this state in the unlawful sale, use, consumption, distribution, manufacture, derivation, production, transportation, or storage of any medicinal drug as defined in chapter 465, cannabis as defined in s.893.02, or controlled substance enumerated in S. 893.03. For the exercise of such privilege, a tax is levied on each taxable transaction or incident, including each occasional or isolated unlawful sale, use, consumption, distribution, manufacture, derivation, production, transportation, or storage, at the rate of 50 percent of the estimated retail price of the medicinal drug, cannabis, or controlled substance involved in the transaction or incident. (Emphasis supplied.)

Section 893.02, Florida Statutes (1989), defines cannabis as `all parts of any plant of the genus Cannabis, whether growing or not; the seeds thereof; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant or its seeds or resin." Cases dealing with the weight of cannabis are directed to proof of an element of the offenses of trafficking or possession, rather than to proof of weight for tax purposes. In this context, the section 893.02 definition of cannabis does not encompass the wrappings around a bale of marijuana, or excess water that is not inherent in the vegetable matter of a marijuana plant. Jordan v. State, 419 So.2d 363, 364 (Fla. 1st DCA 1982); Cronin v. State, 470 So.2d 802, 804 (Fla.

4th DCA 1985).

Although the definition of cannabis set forth in section 893.02(3), and incorporated by reference into section 212.0505, suggests legislative intent to tax all parts of a marijuana plant, the specific language of the taxing provision directs that such tax assessment is "50 percent of the estimated retail price of the ... cannabis." The statute provides no guidelines for determining the estimated retail price of marijuana. The term "retail" has been defined as --

A sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). A sale to the ultimate consumer.

Black's Law Dictionary 1182 (5th ed. 1979).

The confiscated marijuana at issue in this case consisted of fresh plants, cut off at the root, which were bundled in groups of ten and wrapped, using bed sheets as packing material. The 450 pounds assessed against included all parts of the plant from the root up, together with the weight of approximately seventeen bed sheets. Under the rule enunciated in Jordan v. State and Cronin

v. State, the weight of the wrappings and any weight attributable to the moisture content of the freshly cut plants could not be included in the determination of the amount of marijuana to be taxed. Further, and more importantly, the expression of legislative intent to tax marijuana activities on the basis of "estimated retail price," precludes application of the retail street price of processed marijuana to unprocessed, freshly cut marijuana plants, for tax assessment purposes.

Accordingly, the order of the Department of Revenue sustaining a tax assessment against appellant in the amount of $270,799.02 is reversed, and the cause is remanded for further proceedings to determine the "estimated retail value" of the subject unprocessed marijuana.

SMITH and MINER, JJ., CONCUR.

Docket for Case No: 89-006709

Orders for Case No: 89-006709