STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS )

REGULATION, DIVISION OF )

ALCOHOLIC BEVERAGES AND )

TOBACCO, )

)

Petitioner, )

)

vs. ) CASE NO. 91-2441

) TRANS WORLD AIRLINES, INC., ) d/b/a TRANS WORLD AIRLINES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to written notice a formal hearing was held in this case before Larry J. Sartin, a duly designated Hearing Officer of the Division of Administrative Hearings, on August 21, 1991.

APPEARANCES

For Petitioner: Robin L. Suarez

Assistant General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007

For Respondent: Thomas F. Lombardi

Director, Tax Administration Trans World Airlines, Inc.

100 South Bedford Road Mt. Kisco, New York 10549

STATEMENT OF THE ISSUES

1. Whether surcharge taxes and excise taxes, plus penalties and interest, attributable to the sale of alcoholic beverages should be assessed against the Respondent, Trans World Airlines, Inc., d/b/a Trans World Airlines?

   
   

2. Whether the Respondent's Division of Alcoholic Beverages and Tobacco license/permit number 78-14 should be subjected to a civil penalty or should be suspended or revoked for failure to timely file surcharge and excise tax reports and surcharge and excise taxes to the Petitioner?

PRELIMINARY STATEMENT

On March 8, 1991, the Petitioner, the Department of Business Regulation, Division of Alcoholic Beverages and Tobacco, issued a Notice to Show Cause - Notice of Informal Conference, to the Respondent, Trans World Airlines, Inc.,

d/b/a Trans World Airlines. In this Notice the Petitioner informed the Respondent that the Petitioner intended to assess a civil penalty against, or to suspend or revoke, the Respondent's Division of Alcoholic Beverages and Tobacco license/permit number 78-14 for failure to timely file surcharge reports and surcharge taxes to the Petitioner.

On May 1, 1991, the Respondent requested a formal hearing. The matter was referred to the Division of Administrative Hearing by letter dated May 18, 1991.

On June 13, 1991, the Petitioner filed a Motion to Amend Notice to Show Cause. The Amended Notice added the issue of whether a penalty should be imposed for failure to remit excise tax reports and taxes and also added counts seeking payment from the Respondent of the surcharge and excise taxes and penalties and interest thereon for the period at issue. The Motion to Amend was granted by order entered June 24, 1991.

The formal hearing was scheduled for July 19, 1991. A Motion for Continuance filed by the Petitioner was granted without objection from the Respondent and the formal hearing was rescheduled for August 21, 1991, by order entered July 12, 1991.

On August 21, 1991, just prior to the commencement of the formal hearing, the Respondent's representative notified the undersigned that he had not been able to travel to Tallahassee because of inclement weather. Therefore, at the commencement of the formal hearing, the Petitioner was given three options concerning the formal hearing: (1) continue the formal hearing for a day or two in give the Respondent's representative an opportunity to immediately travel to Tallahassee; (2) continue the hearing for a longer period of time; or (3) proceed with the scheduled hearing with the Respondent participating by telephone. The Petitioner opted for conducting the hearing by telephone. No objection to participating by telephone was raised by the Respondent.

During the formal hearing, the Petitioner's representative and witness was located in a hearing room of the Division of Administrative Hearings, in Tallahassee, Florida. The Petitioner presented the testimony of William Orozco. Mr. Orozco was accepted as an expert in Florida alcoholic beverage taxation.

The Petitioner offered three exhibits which were accepted into evidence. A fourth exhibit was withdrawn.

The Respondent's representative and witnesses were located in Mt. Kisco, New York, and participated in the formal hearing by telephone. The Respondent presented the testimony of Monique Sears and Thomas F. Lombardi. The Respondent offered three exhibits which were accepted into evidence.

The parties were ordered to exchange their exhibits at the conclusion of the formal hearing and were given until August 30, 1991, to file any objections which they had not raised during the hearing because they had not seen the exhibits. No objections were filed.

At the conclusion of the formal hearing the parties indicated that no transcript of the formal hearing would be filed. The parties were therefore informed that proposed recommended orders were to be filed on or before September, 10, 1991. On September 17, 1991, the Respondent requested in writing that it be given an opportunity to file a transcript. Petitioner indicated it had no objection to this request. The issuance of this Recommended Order was, therefore, delayed to allow the filing of a transcript.

The parties have filed proposed recommended orders containing proposed findings of fact. A ruling on each proposed finding of fact has been made either directly or indirectly in this Recommended Order or the proposed finding of fact has been accepted or rejected in the Appendix which is attached hereto.

FINDINGS OF FACT

1. The Petitioner is the State of Florida, Department of Business Regulation, Division of Alcoholic Beverages and Tobacco.

   
   

2. The Respondent is Trans World Airlines, Inc., d/b/a Trans World Airlines.

   
   

3. The Respondent has be granted an alcoholic beverage license by the Petitioner. That license is identified as license number 78-14, series X (hereinafter referred to as the "License").

   
   

4. At all times relevant to this proceeding the Respondent held the License.

   
   

5. From January 1, 1988, through January 15, 1991 (hereinafter referred to as the "Tax Period"), the Respondent operated as an air carrier in the State of Florida.

   
   

6. During the Tax Period the Respondent sold alcoholic beverages to passengers on aircraft flights over the State of Florida.

   
   

7. As a result of the sales of alcoholic beverages over Florida airspace, the Respondent has incurred surcharge and excise tax liability to the Petitioner for the Tax Period.

   
   

8. The Respondent has not remitted any amount of its surcharge or excise tax liability to the Petitioner for the Tax Period.

   
   

9. The Respondent has failed to file monthly surcharge or excise tax reports during the Tax Period.

   
   

10. In February, 1991, the Petitioner performed an audit of the Respondent for the Tax Period.

    
    

11. During the Petitioner's audit of the Respondent, the employee of the Respondent responsible for remitting alcoholic beverage reports and taxes to various states, including Florida, admitted to the Petitioner that the Respondent remitted its alcoholic beverage taxes to other states and did not understand why the Respondent did not remit its alcoholic beverage surcharge and excise taxes to Florida.

    
    

12. The Petitioner, as a result of its audit of the Respondent, computed the Respondent's liability for surcharge and excise taxes for the Tax Period. The Petitioner used a standard airline industry apportionment formula to compute the Respondent's tax liability.

    
    

13. The apportionment formula utilized by the Petitioner to compute the Respondent's tax liability to Florida for the Tax Period consisted of the following computation (hereinafter referred to as the "Apportionment Formula"):

    (a) a ratio is computed by dividing total revenue air miles (based upon revenue plane miles) flown by the Respondent by the total revenue miles flown by the

    Respondent in Florida; (b) the ratio is multiplied by the total gallons of alcohol sold by the Respondent to determine the estimated amount of alcohol sold in Florida; and (c) the estimated amount of alcohol sold in Florida is multiplied by the Florida tax rate(s) to determine the total alcohol tax payable.

    
    

14. In applying the Apportionment Formula, the Petitioner used revenue plane miles in calculating the first ratio of the Apportionment Formula. Line 22, page 18, line 9, page 28, lines 13-20, page 37, Transcript of August 21, 1991. The Petitioner did not use revenue passenger miles as argued by the Respondent.

    
    

15. Revenue plane miles looks at the total miles flown by an aircraft without regard to the number of passengers on a flight. Revenue passenger miles takes into account the number of passengers on each flight by including the number of miles a plane flies times the number of passengers on board that flight. Revenue passenger miles takes into account the difference in the size of each plane involved in a flight. Revenue passenger miles more accurately reflects the amount of alcohol which may be consumed.

    
    

16. The information utilized by the Petitioner in applying the Apportionment Formula to the Respondent for the Tax Period was information provided by the Respondent.

    
    

17. The Respondent provided the Petitioner with revenue plane miles and not revenue passenger miles. Therefore, the Petitioner reasonably relied upon and used the best information available to it to compute the Respondent's liability for surcharge and excise taxes. It is reasonable for the Petitioner to use revenue plane miles to compute surcharge and excise taxes attributable to the sale of alcohol in Florida absent a taxpayer providing revenue passenger miles.

    
    

18. The Apportionment Formula utilized by the Petitioner is a fair method of computing the tax liability of the Respondent to the State of Florida for the Tax Period. Using the data provided by the Respondent was reasonable. If the Respondent had provided revenue passenger miles, the Petitioner should have used that information in applying the Apportionment Formula.

    
    

19. Based upon an application of the Apportionment Formula and using the data provided by the Respondent to the Petitioner, the Respondent owes the following amounts for the Tax Period:

    
    

    Surcharge:

    
    

    Surcharge	$ 9,580.38
    Penalty	1,699.87
    Interest	356.01
    Total	$11,636.26

    
    

    Excise:

    
    

    Excise	$40,285.49
    Interest	7,279.60
    Total	$47,565.09

    
    

20. The total liability of the Respondent for the Tax Period is

    $59,201.34.

21. After the Petitioner's audit of the Respondent, the Respondent provided the Petitioner with revenue passenger miles and revenue ton miles. Revenue ton miles have no substantive affect on the taxable event at issue in this proceeding; the sale of alcohol in Florida. It is not clear whether the revenue passenger miles provided by the Respondent can be used by the Petitioner in applying the Apportionment Formula. If so, that information should be used to calculate the Respondent's liability for taxes, penalties and interest in this case. If the information is not sufficient, the parties agreed that the record would remain open to give the Respondent an opportunity to provide any information needed to calculate the Respondent's liability.

    
    

22. The Respondent presented evidence concerning the percentage of flights by the Respondent during which alcoholic beverages were served over Florida and the percentage of flights by the Respondent during which alcoholic beverages were not served over Florida. This evidence is rejected because it did not specifically apply to the Tax Period and is not otherwise credible to prove the facts the Respondent was attempting to prove.

    
    

23. So called "complimentary" alcoholic beverages are provided by the Respondent to some passengers. These beverages, however, are received as part of the consideration a passenger receives for purchasing a ticket from the Respondent. Such beverages are, therefore, sold by the Respondent.

    
    

    CONCLUSIONS OF LAW

    
    

24. The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of this proceeding. Section 120.57(1), Florida Statutes (1989).

    
    

25. Section 561.501(1), Florida Statutes, imposes a beverage surcharge tax of ten cents upon each ounce of liquor and each four ounces of wine and a surcharge of four cents of each twelve ounces of beer. The surcharge is imposed on all liquor, wine and been "sold at retail for consumption of premises licensed by . . . " the Petitioner.

    
    

26. Section 561.501(2), Florida Statutes, requires that all licensed vendors submit surcharge reports and pay their surcharge tax each month by the fifteenth of the month following the month in which the surcharge tax liability is incurred.

    
    

27. Section 565.02(3)(b), Florida Statutes, requires that air carriers operating in Florida pay excise taxes on alcoholic beverages sold in Florida equal to the tax which manufacturers and dealers would pay. Air carriers are also required by Section 565.02(3)(b), Florida Statutes, to file tax reports and pay such excise taxes monthly, on or before the fifteenth of the month following the month in which the excise tax liability is incurred. The specific excise taxes air carriers are subject to are provided in Sections 563.05, 564.06, and 565.12, Florida Statutes.

    
    

28. The Respondent has not disputed that it is liable for surcharge taxes and excise taxes for the Tax Period. The Respondent has admitted in its proposed recommended order that it "sells alcoholic beverages within Florida and that, therefore, Respondent is liable for excise tax and the surcharge at the applicable rates of tax." It is the manner in which the Petitioner has determined the Respondent's liability that the Respondent disputes.

29. In support of its use of the Apportionment Formula as the method of determining the Respondent's tax liability for the Tax Period the Petitioner has argued that it is authorized by Section 562.17, Florida Statutes, to use any apportionment method provided for in determining liability for other Florida excise taxes. Based upon this perceived authority, the Petitioner has argued that the Apportionment Formula is consistent with the apportionment method provided for in Section 214.72(2), Florida Statutes. Although the Apportionment Formula is consistent with the apportionment method provided for in Section 214.72(2), Florida Statutes, the Petitioner's reliance upon Section 562.17, Florida Statutes, is misplaced. Section 562.17, Florida Statutes, provides the following:

    
    

    Any excise tax imposed by the Beverage Law may be collected as any other excise tax imposed by the state, and all rights and remedies available in the collection of any excise tax imposed by the state are made available for the collection of taxes imposed under the Beverage Law. Any and all taxes due the state on alcoholic beverages may be collected as provided in s. 210.14.

    
    

    Section 562.17, Florida Statutes, does not authorize the Petitioner to rely upon the methods for determining the amount of other Florida excise taxes. It only allows the Petitioner to rely upon the method for collecting other excise taxes and to use "all rights and remedies available in the collection of any excise tax . . . ." The Apportionment Formula is the manner in which excise tax is calculated; it has nothing to do with the manner in which the tax, once calculated, is collected. The Petitioner's reliance upon Sections 562.17 and 214.72(2), Florida Statutes, is therefore rejected.

    
    

30. Despite the foregoing conclusion, the weight of the evidence supports the Petitioner's use of the Apportionment Formula as an appropriate method of determining the Respondent's surcharge and excise tax liability for the Tax Period. The evidence proved that the method of calculating the taxes was reasonable. The surcharge and excise taxes at issue in this proceeding are to paid on all sales of alcohol in Florida. Based upon the nature of the Respondent's business, the Petitioner's method of determining such sales is a reasonable method The evidence also proved that using revenue plane miles, the only information provided by the Respondent, was reasonable.

    
    

31. The evidence proved, however, that the use of revenue passenger miles would result in a more accurate surcharge and excise tax liability for the Tax Period than the use of revenue plane miles. To the extent that the Respondent has already provided revenue passenger miles to the Petitioner, or, as agreed to by the parties during the formal hearing, the Respondent now provides such information, the Respondent's surcharge and excise tax liability for the Tax Period should be calculated using revenue passenger miles. Penalties and interest should be calculated on the resulting tax liability. If the Respondent only provides revenue plane miles, the Petitioner's calculation of the total tax liability plus penalties and interest totalling $59,201.34, is correct.

    
    

32. The Respondent has argued that the Petitioner should take into account miles attributable to carrying freight if the formula of Section 214(2), Florida Statutes, applies in this case. This argument is rejected, first because it has been concluded that Section 214.72(2), Florida Statutes, does not apply in determining the amount of the Respondent's tax liability. Additionally, even if

    the formula of Section 214.72(2), Florida Statutes, could be relied upon by the Petitioner, the formula set out in that Section would have to be applied in conjunction with the purpose of the surcharge and excise taxes at issue in this case. The purpose of those taxes is to tax the sale of alcohol in Florida.

    Freight miles are not relevant in determining the amount of alcohol sales attributable to Florida and should, therefore, play no part in the determination of the amount of the surcharge and excise taxes.

    
    

33. The Respondent has also argued that, since there is no specific apportionment formula provided for in Florida law for determining the amount of taxes the Respondent owes for the Tax Period, taxes may only be imposed on "beverages sold within this state". The Respondent then suggests that in making this determination the Petitioner's use of the Apportionment Formula is not appropriate because it should have used revenue passenger miles and because the Respondent has proved that the use of the Apportionment Formula results in the inclusion of a "significant number of flights on which no alcoholic beverages would be sold in Florida . . . ." These arguments are rejected.

    
    

34. As previously stated, the weight of the evidence proved that the Petitioner's use of revenue plane miles in the Apportionment Formula is reasonable if that is the only information the Respondent provided. If the Respondent provides the Petitioner with revenue passenger miles, then the evidence proved that the Petitioner may apply the Apportionment Formula using revenue passenger miles.

    
    

35. The Respondent's argument concerning the number of flights on which no alcoholic beverages are sold is rejected because the evidence presented by the Respondent was not sufficient to accept this proposed finding of fact.

    
    

36. The Petitioner has the authority to impose a civil penalty or suspend or revoke the Respondent's license in Florida for any failure to timely remit surcharge or excise taxes. See Sections 210.16 and 561.501(2), Florida Statutes. The Amended Notice to Show Cause issued to the Respondent raised this issue. Although this issue was not addressed by either party, it is concluded that a civil penalty of $1,000.00 should be imposed upon the Respondent for its failure to remit surcharges and a civil penalty of $1,000.00 should be imposed upon the Respondent for its failure to remit excise taxes. The Respondent admits that its owes surcharge and excise taxes for the tax period. Rather than make some payment of those admittedly owed taxes, the Respondent has made no effort to remit any amount of its liability to the Petitioner. Under such circumstances, a civil penalty is both justified and called for.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a final order be issued requiring the Respondent, Trans World Airlines, Inc., d/b/a Trans World Airlines, to pay surcharge and excise taxes, plus penalties and interest thereon, based upon application of the Apportionment Formula in the amounts set out in finding of fact 19. The amount of surcharge and excise taxes, plus penalties and interest thereon, may be recalculated by the Petitioner based upon an application of the Apportionment Formula utilizing revenue passenger miles for the Tax Period if revenue passenger miles have been, or are subsequently, provided to the Petitioner by the Respondent. It is further recommended that the Respondent be assessed a civil penalty of $1,000.00 for its failure to remit surcharge taxes and a civil penalty of $1,000.00 for its failure to remit excise taxes.

RECOMMENDED this 13th day of November, 1991, in Tallahassee, Florida.

LARRY J. SARTIN

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 13th day of November, 1991.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-2441

The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.

The Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

1 2.

2 3.

3 5.

4 6.

5-6 Hereby accepted.

7 10/

8 7.

9-11 11.

12 12.

13 13.

14 16.

15 18. But see 15-17.

16 17.

1. See 12 and 18.

2. Conclusion of law.

3. Not relevant.

4. See 12.

21-22 Although true, the burden of proof in this case was on the Petitioner.

23 8-9.

24 Not relevant.

25-26 19.

27 20.

The Respondent's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

1 1.

2 2-3.

3 5.

4 6.

5 12-13.

6 See 14-15.

7 See 21.

8-10 Not supported by the weight of the evidence.

COPIES FURNISHED:

Robin L. Suarez

Assistant General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007

Thomas P. Lombardi

Director - Tax Administration

100 S. Bedford Road

Mt. Kisco, New York 10549

Donald D. Conn, Esquire General Counsel

Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000

Richard W. Scully, Director Division of Alcoholic Beverages

and Tobacco

Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 91-002441

Orders for Case No: 91-002441