STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BLACKSHEARS II ALUMINUM, ) INC., )

)

Petitioner, )

)

vs. ) CASE NO. 92-1766

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

The above matter came before the undersigned on June 4, 1992, on the parties' motions for partial summary adjudication. The parties were represented at hearing as follows:

APPEARANCES

For Petitioner: Harold F. X. Purnell, Esquire

315 South Calhoun Street Suite 500

Tallahassee, FL 32301

For Respondent: Joseph P. Mellichamp, III, Esquire

Department of Legal Affairs The Capitol, Tax Section Tallahassee, FL 32399-1050

STATEMENT OF THE ISSUES

The issue is whether petitioner, a sales tax dealer, must pay taxes, interest and penalties for collecting sales taxes on certain nontaxable transactions and then failing to remit those funds to respondent.

PRELIMINARY STATEMENT

This matter began on January 7, 1992, when respondent, Department of Revenue (DOR), issued its notice of reconsideration advising petitioner, Blackshears II Aluminum, Inc., that a revised tax assessment was being issued against petitioner in the amount of $623,131.69. Although the notice addressed five issues, the only relevant issue here is respondent's determination that petitioner had collected sales taxes on certain nontaxable transactions and, absent evidence of refund assignments, petitioner was obligated to remit those funds to the state. On March 6, 1992, petitioner filed a petition for formal administrative hearing to contest the agency decision. In brief, petitioner contended that respondent had assessed taxes, interest and penalties in excess of its statutory authority. The matter was referred by respondent to the Division of Administrative Hearings on March 19, 1992, with a request that a Hearing Officer be assigned to conduct a hearing. By notice of hearing dated

June 2, 1992, a final hearing was scheduled on June 25 and 26, 1992, in Crystal River, Florida. Prior to the hearing, each party filed a motion for partial summary adjudication on the issue described above. Argument on the motions was heard on June 4, 1992, in Tallahassee, Florida. During the motion hearing, the parties agreed to continue the final hearing and have the matter abated while they attempted to settle the other four issues. On April 6, 1993, the parties filed a joint stipulation acknowledging that all factual issues had been resolved and that only one legal issue remained for determination. They agreed further that the undersigned could retain jurisdiction in this matter for the purpose of entering a Recommended Order on that issue. Accordingly, this Recommended Order deals with that issue and is the subject of the two pending motions.

FINDINGS OF FACT

Based upon all of the evidence, including the pleadings, filings, and stipulation of counsel, the following findings of fact are determined:

1. On an undisclosed date, respondent, Department of Revenue (DOR), conducted an audit of petitioner, Blackshears II Aluminum, Inc. (Blackshears), a registered sales tax dealer located in Crystal River, Florida. The audit covered the period from June 1, 1985, through March 31, 1989. As a result of that audit, on December 27, 1989, DOR issued a notice of intent to make sales and use tax audit charges. After petitioner availed itself of various informal procedures, a notice of reconsideration (notice) was issued on January 7, 1992, imposing a final assessment of $623,131.69. This action prompted Blackshears to initiate this proceeding.

   
   

2. Although the notice addressed five issues, only issue three is relevant to this proceeding. That issue is broadly defined in the notice as "whether taxes collected on nontaxable transactions are state funds." According to the notice, the issue should be answered in the affirmative because

   
   

   (e)very dealer in the State of Florida is an agent for the state in that it is their responsibility to collect and remit sales tax. Blackshears collected the funds in the name of the State of Florida and has presented no refund assignments from the purchasers to permit them to apply for refunds, therefore, the State of Florida is due the funds. If the Department were to permit the use of its name to unjustly enrich Blackshears, a continuing deception would occur.

   
   

3. The parties agree that petitioner collected sales taxes on various transactions (real property contracts) during the audit period. Whether such transactions were subject to the sales tax is in dispute, but for purposes of resolving the issue presented here, the parties have agreed that the undersigned can assume that the transactions were nontaxable. It is further agreed that even though petitioner collected the taxes from its customers, it failed to remit them to the state, and it has likewise failed to furnish proof that it refunded those moneys to its customers. Accordingly, DOR's assessment seeks to collect those taxes together with interest and substantial penalties.

   
   

4. The parties have also agreed that the portion of the total tax assessment attributable to real property contracts is $277,406.53. As of March

   29, 1993, the assessment totaled $636,570.37, after the accrual of interest and penalties. However, petitioner has paid to the state $16,180.19, for which it should receive credit.

   
   

5. During the audit period, Rule 12A-1.014(6), Florida Administrative Code, was in effect and provided as follows:

   
   

   (6) Whenever a dealer credits a customer with tax on returned merchandise or for tax erroneously collected, he must refund such tax to his customer before his claim to the State for credit or refund will be approved.

   
   

   Under the terms of this rule, which interpreted the provisions of Chapter 212, Florida Statutes, any moneys erroneously collected by a dealer as taxes were to be remitted to the state. However, if the moneys were refunded to the customer, the dealer could then receive a refund of the moneys previously paid or a credit towards other taxes due.

   
   

   CONCLUSIONS OF LAW

   
   

6. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties hereto pursuant to Subsections 120.57(1) and 120.575(1)(b), Florida Statutes.

   
   

7. Ordinarily, DOR's burden of proof is limited "to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the applicable department made the assessment." Subsection 120.575(2), Florida Statutes. Assuming such a showing was made, petitioner would then bear the burden of countering that showing and proving that the assessment is incorrect. However, the burden of proof has only secondary importance here since the parties have agreed that there are no factual matters in dispute and that only a question of law must be decided. In addition, it is noted that in resolving this legal issue, to the extent a construction of the statutory law is required, those laws are to be construed strongly in favor of the taxpayer and against the state, and that all ambiguities and doubts are to be resolved in favor of the taxpayer. Maas Brothers, Inc. v. Dickinson, 195 So.2d 193, 198 (Fla. 1967).

   
   

8. Section 212.15, Florida Statutes, provides in relevant part as follows:

   
   

   212.15 Taxes declared state funds; penalties for failure to remit taxes; due and delinquent dates; judicial review.-

   (1) The taxes imposed by this chapter shall become state funds at the moment of collection and shall for each month be due to the department on the first day of the succeeding month and delinquent on the 21st day of such month. All returns postmarked after the 20th day of such month are delinquent.

   * * *

   (4) All taxes collected under this chapter shall be remitted to the department. . . .

   
   

   DOR asserts that under the foregoing statute, once a dealer intentionally or inadvertently collects taxes from its customers on nontaxable transactions,

   those moneys immediately have the status of taxes, and unless evidence is shown by the dealer that the moneys were refunded to the customers, they should be timely remitted to the state. In response, petitioner generally contends that since there was no tax imposed by law on the various transactions, there can be no tax which is subject to assessment nor any obligation to remit moneys to the state. It further contends that since penalties and interest under Chapter 212, Florida Statutes, can only be assessed on a tax imposed by that chapter, there can likewise be no proper assessment here for interest and penalties. It is noted that the parties were unable to cite any final agency order or appellate decision which deals squarely with this issue.

   
   

9. The case of Department of Revenue v. Rudd, 545 So.2d 369 (Fla. 1st DCA 1989) is helpful in resolving this issue. In Rudd, a DOR employee (Rudd) had illegally authorized refunds of sales taxes which had not in fact been paid.

   The refunds were made from general revenue funds in response to applications for refunds filed by Rudd's co-conspirators. When DOR attempted to recover some of those funds from Rudd pursuant to a jeopardy tax warrant, Rudd argued that funds which were improperly refunded by DOR were not "taxes" within the meaning of subsection 212.15(4) and thus DOR could not use jeopardy tax warrants as a vehicle to retrieve general revenue funds. Rejecting that argument as having "patent incongruities", and noting that it was "hardly surprising that the issue has not been litigated", the court held that a more reasonable interpretation of subsection 212.15(4) is that general revenue funds improperly refunded as taxes should be accorded the status of a tax. Id. at 371, n.3. Applying that rationale to the issue presented here, it is concluded that moneys collected as a sales tax by a dealer on nontaxable transactions should likewise be accorded the status of a tax under section 212.15. Therefore, when Blackshears represented to its customers that taxes were due on certain transactions, and collected those moneys, they became "state funds at the moment of collection" and Blackshears had a duty to timely remit those funds to the state. To conclude otherwise would place an unreasonable and illogical interpretation on the law, reach a result that is contrary to the holding in Rudd, and allow a dealer to collect taxes from his customers on nontaxable transactions, yet avoid any responsibility of remitting those moneys to the state. The assessment should accordingly be sustained.

   
   

10. In reaching the above conclusion, the undersigned has given thoughtful consideration to the arguments of petitioner, one of which merits further discussion. Petitioner points out that effective July 1, 1991, the legislature enacted Section 213.756, Florida Statutes, which provides as follows:

Funds collected are state tax funds. - Funds collected from a purchaser under the representation that they are taxes provided for under the state revenue laws are state funds from the moment of collection and are not subject to refund absent proof that such funds have been refunded previously to the purchaser.

Petitioner argues that by adopting this law, the legislature expressly acknowledged the lack of any authority prior to the law's effective date for DOR to make the challenged assessment. It is true, of course, that ordinarily a law is intended to have prospective operation and the legislative inclusion of a July 1, 1991, effective date would manifest that intention. However, a subsequent statutory enactment such as this "does not necessarily indicate an intent to change the law for the intent may be to clarify what was doubtful, and

to safeguard against misapprehension as to existing law." State ex rel. Szabo Food Services, Inc. of North Carolina v. Dickinson, 286 So.2d 529, 531 (Fla.

1973). Prior to the enactment of section 213.756, DOR construed the revenue laws, including section 212.15, as imposing a responsiblity on dealers to promptly remit all moneys collected as taxes. This statutory interpretation was embodied in rule 12A-1.046(6) during the audit period, and DOR's broad construction of the word "taxes" found in section 212.15 has been approved by the courts. Rudd, supra. It is also clear that the legislature agreed with DOR's construction of the law since section 213.756 essentially codifies the intent and requirement of rule 12A-1.014(6) and assumes that all moneys collected as taxes have been previously remitted to the state. Therefore, it is concluded that section 213.756 was intended to make the revenue laws "correspond to what had been previously been supposed or assumed to be the law." Szabo at

531. Put another way, the intent of section 213.756 was not to change the law, but rather to clarify "what was doubtful, and to safeguard misapprehension as to existing law." Id.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent enter a final order granting its motion for

partial summary adjudication and sustaining the assessment on issue three of its notice of reconsideration, plus interest and penalties, less those taxes already paid and identified in paragraph 2 of the parties' joint stipulation.

DONE and ENTERED this 3rd day of May, 1993, in Tallahassee, Florida.

DONALD R. ALEXANDER

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 3rd day of May, 1993.

COPIES FURNISHED:

Larry Fuchs, Executive Director Department of Revenue

104 Carlton Building Tallahassee, FL 32399-0100

Linda Lettera, Esquire

204 Carlton Building Tallahassee, FL 32399-0100

C. Lynne Chapman, Esquire Department of Legal Affairs The Capitol-Tax Section Tallahassee, FL 32399-1050

Harold F. X. Purnell, Esquire

315 South Calhoun Street Suite 500

Tallahassee, FL 32301

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. 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: 92-001766

Orders for Case No: 92-001766