STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LLOYD ENTERPRISES, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 92-2348

)

DEPARTMENT OF REVENUE, )

STATE OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

Upon due notice, this cause came on for formal hearing on October 12, 1992, in Daytona Beach, Florida, before Ella Jane P. Davis, a duly assigned Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Michael L. Brewer, Esquire

500 Canal Street

New Smyrna Beach, Florida 32168

For Respondent: Leland L. McCharen, Esquire

Assistant Attorney General Department of Legal Affairs Tax Section The Capitol

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUES

1. Whether or not Petitioner's failure to comply with the provisions of Section 212.10(1) F.S. makes Petitioner liable for all sales tax due from prior owners of concessionaire "spots" purchased or acquired by Petitioner during the audit period.

   
   

2. Whether or not the charges made by Volusia County for the right to operate a concession at a specific location and to transfer those rights constitute taxable licenses to use real property.

   
   

3. Whether or not the Respondent Department of Revenue projected Petitioner's tax owed based on the best information available as the agency is required to do by statute when a taxpayer's records are inadequate.

PRELIMINARY STATEMENT

The Department of Revenue audited the business records of the Petitioner and determined that additional sales tax, plus penalties and interest, was due with respect to the Petitioner's business activities. The Petitioner paid the amount of tax it agreed was owing to the Department of Revenue and contested the

amount of additional liability asserted by the Department. There are three basic elements to the contested portion of the asserted liability. The Department of Revenue asserted that the Petitioner is liable for all unpaid sales tax due from the prior owners of the businesses during the audit period pursuant to Section 212.10(1) F.S. and that its "projection" method of audit and assessment was correct. The Department of Revenue asserted that the license fee and transfer fees paid by Petitioner to the County of Volusia are subject to state sales tax as a rent for the use of real property.

The assessment is deemed prima facie correct. The burden of proof herein was upon Petitioner.

Petitioner Lloyd Enterprises, Inc. presented the oral testimony of Jaime Seaman, John Bowes, Richard Ruich, Sheila Lloyd, and Harold S. Lloyd, and had four exhibits admitted in evidence.

Respondent Department of Revenue presented the oral testimony of Albert E. Seyforth and Samuel B. Eckhardt, Jr. and had twenty exhibits admitted in evidence.

Official recognition was taken of Volusia County Ordinance 87-36, as amended, and of Unified Beach Code Section 8, governing beach concessions.

Petitioner raised constitutional issues which cannot be resolved in this forum. See the Conclusions of Law, infra.

A transcript was filed in due course, and all timely proposed findings of fact have been ruled upon in the appendix to this recommended order pursuant to Section 120.59(2) F.S.

FINDINGS OF FACT

1. Petitioner corporation came into existence in April 1989. From that time until the present, Petitioner corporation has had possession or control of several beach concessionaire spots in Volusia County.

   
   

2. Respondent Department of Revenue audited Petitioner for the five year period of November 1, 1985 through December 31, 1990.

   
   

3. Petitioner had never obtained the certificate or receipt contemplated by Section 212.10(1) F.S., so Respondent's audit and assessment held Petitioner liable for all sales tax due from all predecessor owners.

   
   

4. In response to the Notice of Intent to Audit, Petitioner made available for inspection all of its business records. Petitioner's records were found by the auditor to be both adequate and accurate for the period of time that Petitioner corporation had been in existence, with certain exceptions which included assigning the wrong tax rate on certain items. Respondent's auditor pointed out errors in collection and remittance of the tax by Petitioner during the period of April 1989 to the end of the audit period and Petitioner remitted the tax due with respect to each subject of the error. Respondent reviewed Petitioner's records and used such records to arrive at its estimate of Petitioner's tax liability.

   
   

5. In assessing Petitioner's tax liability, Respondent's auditor, Albert

   E. Seyforth, projected backwards using all records provided by Petitioner to reach an estimate or projection of what the predecessor owners/sellers should

   have been paying in tax. To make this backwards projection, he worked from the Petitioner's current figures substantiated by their records which he deemed adequate and accurate for the period of April 1989 to the end of the audit period. Petitioner's records already indicated that two of the spots acquired by Petitioner were no longer actively utilized. He treated the Volusia County transfer fee and license fee as taxable rights in real estate pursuant to Rule 12A-1.070 F.A.C. He made allowance for Petitioner's misapplication of a sales tax rate. He calculated a 24-month projection rather than an 18-month projection to give Petitioner taxpayer the benefit of the doubt. He then applied an adjustment by allowing an arbitrary percentage reduction on compensable versus noncompensable units and allowing for market conditions, differences in inventory, or pricing. In applying this percentage reduction factor, he accepted Petitioner's oral unquantified anecdotal representations that (1) beach business overall had gotten progressively worse over the five- year audit period (which would lower sales figures) and (2) that Petitioner's current corporate operation which had eliminated business at certain spots and which was otherwise more efficient, was more profitable than prior businesses. (This latter assumption would raise sale figures). The percentage reduction factor the auditor devised was an arbitrary 25 percent because Petitioner did not provide any quantifiable way to measure its anecdotal oral representations on the foregoing business trends. The auditor did not accept or consider Petitioner's oral representations as to how many units Petitioner acquired from each seller because Petitioner produced no adequate "paper trail" to back up their oral representations as to what was acquired and because all concerned considered the concession business one in which physical inventory at each "spot" changed from day to day.

   
   

6. Upon presentation of prior taxpayer identification numbers, Respondent gave Petitioner credit against the figure obtained by the foregoing methodology for prior taxes paid under those prior taxpayer identification numbers during the audit period.

   
   

7. The foregoing assessment methodology, including credits, which was devised by Mr. Seyforth, was accepted as "reasonable" by Mr. Seyforth's superior auditor, Mr. Samuel B. Eckhardt, Jr.

   
   

8. In approving Mr. Seyforth's methodology, Mr. Eckhardt considered two other standard methods of assessing business trends which could have been used instead of using an arbitrary 25 percent reduction factor. One alternative method would have been to assemble and apply information concerning the ramp toll census to the beach in each of the audit years. The other alternative method would have been to somehow devise a hotel/motel occupancy census and apply that information. Nonetheless, Mr. Eckhardt determined that the methodology applied by Mr. Seyforth and described in Finding of Fact 5 and the deduction of taxes actually paid as described in Finding of Fact 6 was appropriate and reasonable.

   
   

9. At formal hearing, Petitioner did not affirmatively demonstrate how a formula for business trends on the beach could be more accurately derived from either the toll ramp census or the hotel/motel occupancy rate method. Specifically, it was not shown how the toll ramp census would relate number of cars to number of people to number of purchasers of concession products or how the hotel/motel occupancy rate would accurately reflect number of purchasers of concession products. While the 25 percent reduction figure utilized by the auditor might be "arbitrary," Petitioner did not affirmatively demonstrate how either of the alternative methods would be either more accurate or would lower the assessment figure.

10. Petitioner presented evidence that Volusia County has always regarded the County's charge of seven percent of the purchase price on the transfer of a concession as an administrative fee. This fee was a negotiated charge agreed upon by the concessionaires, as a group. It was based on earlier such fees. However, Messrs. Seyforth and Eckhardt, on behalf of the Respondent state agency regarded this fee as a "lease or license of real property," pursuant to agency interpretation of Rule 12A-1.070 F.A.C. and treated it as such.

    
    

11. Petitioner presented evidence that the license fee paid annually to Volusia County by each concessionaire in the amount of ten percent of gross sales or $1,000.00, whichever is greater, has always been regarded by Volusia County as a regulatory fee for use of a certain beach location and is utilized by Volusia County in lieu of occupational license fees, garbage disposal charges, and charges for other goods and services provided to the concessionaire. These services included licensed concessionaires having the right to ask Beach Rangers to move trespassing concessionaires out of the respective license-holders' assigned territories. Messrs. Seyforth and Eckhardt, on behalf of Respondent state agency regarded this fee as a "lease or license of real property" pursuant to agency interpretation of Rule 12A-1.070

    F.A.C. and treated it as such.

    
    

12. Petitioner presented evidence that it had acquired beach spots 128 and

    130 and paid the Volusia County annual license fee on each but did not operate them in order to render Petitioner's entire "multi-spot operation" more efficient and profitable. Any physical business assets acquired at these locations were transferred to other spots. The license fee continued to be paid for these spots' respective locations, so as to eliminate competition. This factor was built into the agency's calculations, but Petitioner contended that the auditor's using a backward projection on these spots was unreasonable because it assigned a 75 percent profit to them which had never existed. Contrary to Petitioner's assertion, it is found that the auditor's 25 percent reduction figure lumped the unquantified increased efficiency of the whole of Petitioner's operation in with the unquantified decrease in beach traffic and thus made a reasonable adjustment for these unoperated "spots."

    
    

13. Petitioner also contended that when it acquired beach concession spots

    128 and 130 no "stock of goods" was also acquired, but Petitioner produced no "paper trail" to prove no goods were acquired. Petitioner also admitted to paying to acquire the "business" at each location and that in so doing Petitioner either directly or indirectly acquired the license to operate (or not operate) each of these spots. Section 212.10 F.S. is phrased in the disjunctive, "business or stock of goods."

    
    

14. Petitioner produced certain books and records at deposition which were derived from the preincorporation proprietorship of Petitioner corporation's principals, and, presumably, the proprietorship/spot acquired from Mr. Harold S. Lloyd's parents, and the auditors dismissed these as inadequate. These particular records were not introduced at formal hearing. The only records of any prior owners of beach spots acquired by Petitioner which were introduced at formal hearing were certain documents from John Bowes and Richard Ruich.

    
    

15. Mr. Bowes' records (Petitioner's Exhibit 2) are merely totals for various types of rentals and sales and are not adequate for the agency's detailed accounting procedures. They do not comply with the Unified Beach Code, and Mr. Bowes own accountant found them inadequate for federal income tax purposes. No expert witness credibly stated that they were adequate for

    assessment purposes. Mr. Bowes' records do not contain any prior taxpayer identification number which potentially could be linked to prior taxes paid so as to offset the assessment against Petitioner.

    
    

16. Mr. Ruich's records (Petitioner's Exhibits 3 and 4) consisted only of monthly sales tax reports, called "DR-15's." No expert witness credibly stated that they were adequate for assessment purposes. The agency does not accept DR- 15's as proof of tax liability, but Mr. Ruich's DR-15's do contain Mr. Ruich's taxpayer identification numbers, 74-16-044761-07 and 74-16-038917-07. The record is not clear whether Petitioner was given credit for the taxes actually paid by Mr. Ruich under these taxpayer identification numbers. Since Respondent has established the precedent in this case for giving credit to Petitioner for taxes actually paid under predecessor taxpayer numbers during the audit period, Mr. Ruich's taxes actually paid during the audit period should be calculated and deducted from the assessment against Petitioner, if that has not already been done.

    
    

17. Richard Ruich executed a sales agreement and an indemnification agreement in the sale of his business to Petitioner.

    
    

    CONCLUSIONS OF LAW

    
    

18. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this cause pursuant to Section 120.57 (1), F.S,

    
    

19. The operative statutes involved in this cause are Sections 212.10, 212.12(5) and 212.12 (6)(b) and (c), F.S.

    
    

20. These statutes underwent numerous minor amendments during the audit period. Except as discussed infra., these amendments are not material.

    
    

21. Petitioner challenged the constitutionality of Sections 212.10 and 212.12, F.S. The undersigned has neither the power, authority, nor jurisdiction to determine the constitutionality of statutes and will not do so. Also, liability, if any, of Mr. Ruich to Petitioner under their sale and indemnity agreements is not within the jurisdiction of this forum.

    
    

22. Petitioner contended that Section 212.10(1), F.S. [1985], imposed liability upon a transferee for the tax due with respect to the predecessor's Final Return, together with interest and penalties accruing thereon, but not for an entire audit period of five years, but the Department's interpretation of Section 212.10(1) F.S. has, of long standing, been that the purchaser of a business is liable for all taxes owed by the seller unless the requirements of Section 212.10(1) F.S. have been satisfied (receipt and escrow). The responsibility for compliance lies with the purchaser. See, City Ice & Cold Storage Co., Inc., James Howard Cochran and Mary Ann Cochran v. State of Florida, Department of Revenue, DOAH Case No. 76-0676 (Recommended Order of G. Steven Pfeiffer entered November 5, 1976; Final Order, labelled "Notice," entered January 12, 1977).

    
    

23. This section imposes upon the purchaser of a business the responsibility of obtaining assurance from the seller that all taxes due under Chapter 212 F.S. are paid or the purchaser is obliged to withhold sufficient funds to pay all taxes until such assurance (receipt or payments) is given. If the purchaser fails in that obligation the purchaser becomes liable for the taxes.

24. The operative language of Section 212.10(1), F.S., was in effect during the entire audit period. Although Petitioner plead good faith ignorance of the existence of Section 212.10(1), F.S., that is no excuse at law. To paraphrase the late Senator Sam Ervin, "It is one of the great myths that the courts presume that every layman knows all the law all the time when, as a practical matter, everybody knows that trained lawyers only know some of the law, some of the time, after careful study." The presumption exists, however, and Petitioner is bound thereby.

    
    

25. That being the case, since neither Petitioner nor any entity from whom Petitioner obtained these businesses obtained the necessary tax receipt/certificate and since funds were not escrowed for tax purposes, Petitioner is liable for all taxes owed by the sellers, not just those taxes owed upon a "Final Return". See, City Ice & Cold Storage Co., Inc. v. Revenue, supra. Peripherally, see, Section 212.12(6)(a) F.S. on the record-keeping period required.

    
    

26. Petitioner contended that because Section 212.13, F.S., does not specifically require that the purchaser of a business procure and maintain the business records of the prior owner and because Petitioner made available for inspection "his records" within the meaning of Section 212.12(5)(b), F.S., Respondent was not authorized to make an assessment from an estimate based upon the best information available to it. Petitioner also contended that the items upon which Respondent made its backward projection were not the "best evidence," that Respondent should be required to search out all records of prior owners based only upon matching names provided by Petitioner against names in a telephone book instead of based upon tax identification numbers, and that Respondent should have used census calculations based on bridge tolls and/or motel occupancy to come up with more accurate business trend figures than it did using an arbitrary 25 percent reduction figure.

    
    

27. These arguments are ill-founded for all the reasons set out in the Findings of Fact. Also, when the agency set out to make its audit in 1990, it was charged, pursuant to Section 212.12(5)(b), F.S. [1989], to make an estimate of Petitioner's tax liability based on the best information available to it. Faced with Petitioner's clear liability for any taxes owed by prior owners of businesses acquired by Petitioner, Respondent sought to locate and utilize any and all records made available to it by Petitioner. In this case, these records were only those of the Petitioner since the date of its incorporation, 1989. While Petitioner has argued that the records of other businesses were unavailable to Petitioner, it is equally clear that the records of businesses operated by the Lloyds or family members which were acquired by Petitioner could have been submitted to Respondent during the audit. They were not. Such records were only offered in discovery at deposition. Respondent examined and found them inadequate at that point. These records were not offered again at the formal hearing. The records of John Bowes and Richard Ruich, which were offered at formal hearing, were clearly inadequate for audit purposes.

    Moreover, in consideration of the presumption of prima facie correctness of the assessment, a finding that these records were adequate would only be possible upon credible qualified expert testimony to that effect, which expert testimony was not presented here. See, St. Petersburg Steel Corp. v. State of Florida, Department of Revenue, 4 FALR. 2018A (1982). Thus, the only adequate records were those of Petitioner.

    
    

28. Respondent made its estimate based on Petitioner's records. Those records had already taken into consideration that two spots were no longer being operated. A projection of tax liability for each "beach spot" was prepared

    using rational methods. Further, the substantial revisions made by Respondent in the course of the audit in response to further information and discussions with Petitioner show that Respondent made every effort to utilize all information made available by Petitioner. The final reduction in the percentage of the full estimate which was projected by Respondent was a rational effort to take into account Respondent's judgment with regard to anecdotal business trend variables which Petitioner's records were unable to quantify. If such reduction was an error, it was an error in favor of the taxpayer.

    
    

29. Petitioner contended that Volusia County's seven percent transfer fee and the annual license fees are not sales taxable rents for the use of real property as contended by the agency. However, in making its assessment, the agency has relied on its interpretation of agency Rule 12A-1.070, F.A.C. An agency's interpretation of its own rules and the statutes which it is charged to administer is to be given great deference. See, Griffith v. Department of Business Regulation, Pari-Mutual Wagering 18 FLW D445 (3d DCA January 26, 1993); Maclen Rehabilitation Center v. Department of Health and Rehabilitative Services, 588 So.2d 12 (Fla. 1st DCA 1991); Department of Business Regulation v. Martin County Liquors, Inc., 574 So.2d 170 (Fla. 1st DCA 1991); Island Harbor Beach Club v. Department of Natural Resources, 495 So.2d 209 (Fla. 1st DCA 1986); Goldring v. Department of Environmental Regulation, 477 So.2d 532 (Fla. 1985); Public Employees Relations Commission v. Dade County Police Benevolent Association, 467 So.2d 987 (Fla. 1985). Petitioner also contended that state tax on the transfer fee and annual license fees also constitutes "pyramiding" of a tax but Petitioner has not submitted statute, rule, or case law precluding such a result. Accordingly, there is no authority for invalidating the audit and assessment on that ground. In so ruling, the undersigned has considered suggestions made by both counsel and several witnesses that these questions are either "in litigation" or "soon to be in litigation" in Article V courts. That being the case, it would seem probable that to date no case law has determined these issues contrary to the agency's interpretation and application.

    
    

30. Petitioner further contended that when it acquired beach concession spot numbers 128 and 130 without subsequently operating the licensed locations and without acquiring the equipment of the previous operation, Petitioner did not acquire a "business or stock of goods," within the meaning of Section 212.10

    F.S. Petitioner provided no "paper trail" to show that no goods were acquired. Petitioner has always conceded that the "business" was purchased at each spot and has never contended that a "sale" did not occur. Since the statute states "business" or "stock of goods" in the disjunctive, acquisition of the business was sufficient to activate the statute. Also, at the very least, a license was acquired by Petitioner or relinquished for transfer to Petitioner at each of these two spots. A license to operate is a business asset. The license had extrinsic and intrinsic business value as demonstrated by Petitioner's current more efficient operation. The sale of a "business" or a license falls within the contemplation of Section 212.10 F.S. See, Nicholas Cozzo d/b/a Nick's Deli

    v. Department of Revenue, (Recommended Order entered by K. N. Ayers July 14, 1988), and Jacobs v. Kirk 223 So.2d 795 (Fla. 4th DCA 1969).

    
    

31. Petitioner has the burden to show that the assessment at issue was incorrect. In view of the inadequacy of Petitioner's records, Respondent's methodology to assess the taxes owed was reasonable. See, Section 212.12(5)(b)

    F.S. Petitioner failed to sustain its burden. See, St. Petersburg Steel Corp.

    v. State of Florida, Department of Revenue. 4FALR 2081A (1982).

    
    

32. The Petitioner has failed to demonstrate any error in the assessment, with one possible exception. Since the agency has, in this single audit, given

Petitioner a credit for any tax actually paid, it should credit Petitioner with any tax actually paid by Mr. Ruich, if it has not already done so.

RECOMMENDATION

Upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a final order sustaining the subject audit and assessment against Petitioner, less credit to Petitioner for prior tax paid, if any, during the audit period by predecessor in interest Ruich, Taxpayer I.D. Nos. 74-16-044761-07 and 74-16-038917-07, if credit therefore has not previously been afforded to Petitioner.

RECOMMENDED this 1st day of April, 1993, at Tallahassee, Florida.

ELLA JANE P. DAVIS

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 1st day of April, 1993.

APPENDIX TO RECOMMENDED ORDER 92-2348

The following constitute specific rulings, pursuant to S120.59 (2), F.S., upon the parties' respective proposed findings of fact (PFOF)

Petitioner's PFOF:

1 Accepted so far as it goes. Covered in Findings of Facts 4, 14.

2-4 Accepted but not dispositive, ultimate, or material, Covered in Findings of Facts 4-6, 14-17.

18,25,27-28 Accepted. Covered in Findings of Facts 5-12, 14.

5 Accepted but subordinate. Covered in Findings of Fact 14-17.

6-7,11-13 Rejected as stated because as stated it does not reflect the greater weight of the credible record evidence as a whole. Covered in Findings of Facts 5-9.

8,14,21-23 Rejected as out of context and misleading. Not supported by the greater weight of the credible record evidence as a whole.

9,10,24,26 Rejected as stated because as stated it does not reflect the greater weight of the credible record evidence as a whole, and because it attempts to state a Conclusion of Law.

Covered in Findings of Fact 5-11, 14-17, and Conclusions of Law.

15-17,19-20,29-30 Accepted but subordinate and unnecessary.

Respondent's PFOF:

1-11 Accepted except where subordinate unnecessary, or cumulative.

COPIES FURNISHED:

Larry Fuchs Executive Director

Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

Linda Lettera, Esquire General Counsel Department of Revenue

204 Carlton Building Tallahassee, Florida 32399-0100

Michael L. Brewer, Esquire

500 Canal Street

New Smyrna Beach, Florida 32168

Leland L. McCharen, Esquire Assistant Attorney General Tax Section

Department of Legal Affairs The Capitol

Tallahassee, Florida 32399-1050

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.

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DISTRICT COURT OPINION

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

IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA FIFTH DISTRICT JANUARY TERM 1996

LLYOD ENTERPRISES, INC., NOT FINAL UNTIL TIME EXPIRES

TO FILE MOTION FOR REHEARING,

Appellant, AND, IF FILED, DISPOSED OF.

v. DCA NO. 93-1304

DOAH CASE NO. 92-2348

DEPARTMENT OF REVENUE,

Appellee.

/ Decision issued March 3, 1995.

Beach concessionaire sought review of final order issued by Department of Revenue which determined that concessionaire owed sales taxes, penalties, and interest. The District Court of Appeal held that: (1) beach consession was not lease or license of real property, within meaning of sales tax statute, and (2) provisions of statute allowing assessment by guesstimate did not apply to taxpayer who had not done anything wrong or obstructive to prevent Department from making fair or ordinary audit.

Reversed.

W. Sharp, J., concurred specially and filed opinion.

1. Taxation 1921

   
   

   Beach concessionaire licenses entered into pursuant to Unified Beach Code were not "leases or rentals of, or licenses of property," within meaning of sales tax statute governing such leases and licenses; county ordinance governing concessions was concerned with image that activities on the beach project to visitors, with enhancing public's enjoyment of the beach, and with strictly regulating vendors to ensure that adequate and quality services were provided to the public without disruptive competition. West's F.S.A 212.031.

   
   

   See publication Words and Phrases for other judicial constuctions and definitions.

   
   

2. Constitutional Law 48(1)

   
   

   If issue can be determined without declaring statute unconstitutional, court should endeavor to do so.

   
   

3. Taxation 1261

   
   

   Innocent buyer of beach concession could not be held liable as successor for sales taxes assessed under statute allowing Department of Revenue to estimate prior owner's sales tax liability based on prior owner's alleged failure to keep adequate records; best estimate provisions could not come into operation unless person to be charged had done something wrong or obstructive to prevent Department from making fair or ordinary audit. West's F.S.A.

   212.12(5)(b).

   
   

4. Statutes 245

   Tax laws should be construed strongly in favor of taxpayer and against the government with all ambiguities or doubts resolved in taxpayer's favor.

   
   

   5. Taxation 1311,1316

   
   

   Statute allowing Department of Revenue to assess sales tax liability by "guesstimates" and then to be afforded the presumption of correctness does not apply unless dealer or person to be charged has done something wrong or obstructive to prevent Department from making fair or ordinary audit. West's F.S.A. 212.12(5)(b).

   
   

   Edgar M. Dunn, Jr. of Dunn, Abraham, Swain & Dees, Daytona Beach, for appellee.

   
   

   PER CURIAM.

   
   

   1. Lloyd Enterprises, Inc., ("Lloyd") appeals from a final order issued by the Department of Revenue, ("Department") which determined Lloyd owes the state

$106,129.47 for sales taxes,penalties and interest. Approximately $6,004.38 of the assessed tax liability is based on the Department's view that beach concessionaire license and tranfer fees paid by Lloyd to Volusia County ("County") during the five-year audit period (November1, 1985 to December 31, 1990) were taxable pursuant to section 212.031, Florida Statutes (1989), as "leases or rentals of, or license of real property." The concession license and transfer fees were imposed pursuant to concession agreements with the County and pursuant to the County's Unified Beach Code, which creates the fees. The concession fee was based upon a conncessionaire's gross sales and the tranfer fee was imposed when a person sold or transferred the right to operate under a license issued by the county. The balance of tax assessment ($57,471.43) was levied against Lloyd for the alleged failure to pay sales taxes on goods and services sold to customers pursuant to section 212.10, Florida Statutes (1989), for the audit period November 1, 1985 to may 9, 1989, before Lloyd owned and operated the consession stands.

Lloyd argues section 212.031 was erroneously applied to the beach concession fees charged by Volusia County. It also argues section 212.10 is unconstitional as applied to Lloyd in this cased,and that the "projection" method used byn the Department's auditors to determine the amount of taxes due was unauthorized, unreasonable and arbitrary. We partially agree and reverse.

Lloyd is a family-owned and operated business, which became incorparated in 1989. In 1985, Harold Lloyd and his wife, Sheila, owned and operated concession spot 119, renting out motorcycles, as a sole proprietorship on New Smyrna Beach. During the "off season" they also helped Harold Lloyd's parents operate their concession at another location on New Smyrna Beach spot 127. Later, the Lloyds purchased this full service concession from his parents. The other spots (130 and 128) were purchased by the Lloyds from prior owners whose businesses were failing. Number 130 had been out of business one year when the Lloyds bought it from the prior owner's creditors. The Lloyds also acquired spots 129 and 131 in 1989. Both were full-service consessions.

1. Beach Concesion Transfer and License Fees Section 212.031 provides:

   (1)(a) It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the bussiness of renting, leasing, letting, or granting a license for the use of any real property is. . . [specific list of situations and circumstances not applicable to this case].

   
   

   The Department argued that the transfer and annual fees charged by the County to beach concessionaires pursuant to its Unified Beach Code and Ordinance1 constitute rent payments for the various beach locations. Lloyd was assessed sales taxes for all beach concession fees it had paid to the County during the audit period.

   
   

   The record establishes thet the fixed location concessionaires (like Lloyd) had the right to park their vehicles within onre hundred feet north or south of an assigned spot during the hours they were permitted to operate on the beach.

   Other concessionaires were allowed to roam the beach. If any other concessionaire attempted to park or sell goods within an assigned spot, the beach rangers would enforce Lloyd's exclusive right to sell within its assigned two-hundred-foot spot on the beach.

   
   

   We conclude that the hearing officer erred in deciding that it was proper to impose a sales tax on the fees Volusia County charged Lloyd for the privilege of selling and renting goods and services to the public on public beaches, and that these privileges constituted taxable events under Rule 12A-10.070, Florida Administrative Code2, and section 212.031, Florida Statutes. The hearing officer arrived at this ruling simply by defering to the Department's interpretaion of the rule and by noting there was no contrary case law. The hearing officer correctly pointed out that deference should be given to an agency's interpretation is subject to review and is not conclusive.

   
   

   None of the numerous subparts of Rule 12A-1.070 applies specifically in the instant case. Nor does the statute under which the Department promulgated its rules. The statute reads rather simply that "[i]t is declared a legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing letting, or granting a license for the use of any real property . . . ." 2312.031, Fla.Stat. We cannot conclude that the County has been engaging in any such business.

   
   

   In November 1986, the electors of the County approved the Beach Trust Amendment to the Home Rule Charter. It recognized the public's superior right to use the beach and required the County to "define, protect, and enforce" that right.3 The County was further given the "exclusive authority to regulate the beaches and public beach access and use." Finally, the county was required to adopt a Unified Beach Code to regulate public health, safety, and welfare, and "vendors, concessionaires, and special events."

   
   

   In fulfillment of its obligation, the county adopted a Unified Beach Code. One of its sections deals exclusively with the regulation of concessionaires on the public's beach. This section, which applies to concessionaires having fixed locations and to others that operate from moving vehicles within a zone of operation on the beach, was amended in 1988 by Ordinance No. 88-32. The ordinance uses various terms to describe its purposes, for example: the County is "trustee of the public interest" in exercising its power to regulate private vendors making use of the public beach; vendors are to pay a "franchise fee"; and a "concession liceanse" is required. The term most frequently used to define a business priviledge to operate on the beach is "consession." The ordinance is quite detailed as to days and hours a concession is required to operate, the condition of the equipment, transfers, relocation requirements, terminations,

   and payment of fees (the fee is the same for fixed or roving concessions). While the County and Lloyd executed a contract, there is nothing in the contract, beyond a description of where Lloyd's concession would be located, which is not contained in the ordinance. Therefore, it is the ordinance the must be construed to determine whether the priviledge granted to Lloyd constituted a lease or license of real property.

   
   

   Our view of the ordinance is that it serves multiple purposes, none of which creates a lease or license for the use of real property. As the ordinance relates to concessions, it is concerned with the image that activities on the beach project to visitors (an extreme example is that the ordinance prohibits rental of umbrellas that contain unmended tears), and it concerned with enhancing the public's enjoyment of the beach through the provision of goods and services. It is concerned with providing those goods and services so long as "individual peace and quiet is not unreasonably disturbed" and with strictly regulating the vendors to insure that adequate and quality services are provided to the public without disruptive competition. It is also concerned with raising the revenue for the County. The great importance of revenue from the concessionares was conveyed by an assistant county attorney who placed the costof beach cleanup at $1.5 million annualoly. She emphasized that the most of thye cleanup was attributable to products sold by vendors and that the fees paid by the vendors helped defray the huge cost.

   
   

   We hold that, in exercising the duties imposed on it by the Unified Beach Code, the County did not enter into the business of renting, leasing or licensing real property. Accordingly, the tax liability assessed on the basis of concesionaire fees being a license or a lease of land is reversed.

   
   

   The County's business was to regulate the use of the beach in an orderly manner to preserve "individual peace and quiet" and to enhance the public's enjoyment of the beach.This was a requirement imposed apon it by the electors of Volusia County. The County's method of reglatoin was creative and admirable. The County has preserved and enhanced for the public the peace and enjoyment of the beach while defraying to cost of that regulation through purchases of concessionaire goods and services by the public exercising their historic beach recreational rights. Unfortunately, Lloyd became sandwiched between the creativity and the equally creative assessments by the Department.

   
   

2. Unpaid Sales Taxes on Sales to Customers

The largest portion of the assessments at issue in this case relates to sales taxes, penalties, and interest which the Department determined were owed but not paid by the prior owners of the concessions, during the audit period before Lloyd owned and operated those businesses. Only minor assessments were made for sums owed by Lloyd as a corparation and as a sole proprietorship. Those amounts were paid and are not in dispute on appeal. The Department also found that Lloyd's record-keeping practices and documentation of taxable transactions were generally adequate and sufficient.

The 1989 version of section 212.10 imposed on a purchasing or successor- dealer the sales tax liabilities of a selling dealer under certain circumstances. Section 212.10 provided:

(1) If any dealer liable for any tax, interest, or penalty levied hereunder shall sell out his business or stock of goods, he shall make a final return and payment within 15 days after the date of selling the bussiness; his successor, successors, or assigns shall withhold a sufficient portion of the purchase money

to safely cover the account of such taxes, interest, or penalties due and unpaid until such former owner shall produce a receipt from the department showing that they have been paid or a certificate stating that no taxes interest, or penalty are due. If the purchasers of a business or stock of goods shall fail to withhold a sufficient amount of the purchase money as above provided, he shall be personally liabl for the payment of the taxes, interest, and penalties accruing and unpaid on account of the operation of the owners, or assigns.

Niether Lloyd nor the sellers was aware of this statute at the time Lloyd conedes it did not comply with the statute.

[2,3] We do not reach, however, Lloyd's argument that section 212.10 is arbitrary and capricious and therefore unconstitutional. If an issue can be determined without declaring a statute unconstitutional, courts should endevor to do so. State ex rel. City of Casselberry v. Mager, 356 So.2d 267 (Fla.1978). We agree, however, with Lloyd that under facts of this case and statutory framework, the best estimate provisions of section 212.12(5)(b), Florida Statutes (1989), cannot be invoked to impose liability upon Lloyd as a "successor" dealer. Section 212.12(5)(b) provides:

(b) In the event ant dealer or other person charged herein fails or refuses to make his records available for inspection so that no audit or examination has been made of books and records of such dealer or person, fails or refuses to register as a dealer, fails to make a report and pay the tax as provided by this chapter, makes a grossly incorrect report or makes a report that is false or fraudulent, then in such event, it shall be the duty of the Department to make an assessment from an estimate based upon the best information then available to it for the taxable period of retail sales of such dealer, the gross proceeds from rentals, the total admissions received, amounts recieved from leases of tangible personal property by such dealer, or of the cost of price of all articles of tangible personal property imported by the dealer for use or consumptionor distribution or storage to be used or consumed in this state, or of the sales or the cost of price of all services the sale or use of which is taxable under this part, together with interest plus penalty,if such have accrued, as the case may be. Then the department shall proceed to collect such taxes, interest, and penalty on the basis of such assessment which shall be considered prima facie correct, and the burden to show the contrary shall rest upon the dealer seller, owner, or lessor, as the case may be.

The Department invoked this section against Lloyd, not because Lloyd's records were inadequate or had not been tendered to the Department, but because the Department did not have prior concessionaire's sales tax records. The prior owners of spots 329 and 131 had partial sales tax records which were offered to the auditor,but they were offered to the auditor, but they were rejected as inadiquate. Lloyd tried to supoena some of the other prior owners' records and tender them to the department. However, Lloyd was not successful in obtaining enough of the prior dealers' records to satisfy the Department's auditors. The Department maintains that the responsibility to obtain adequate records of the predecessor is apon Lloyd. But there is no statuatory authority for such a procedure during the audit stage of tax proceedings and it is unlikely that a predecessor would voluntarily turn over those records to one without authority- especially if the predecessor understated sales as the Department has alleged.

Although the Department rejected the Proffered prior concessionaires' records as "inadequate", it made no attempt to obtain the adequate records from prior ownersor any other source. In calculating the sums the prior owners (including Harold and Sheila Lloyd while operating as a sole proprietorship

should have paid to the the state, the Department relied solely on the business records of Lloyd, after it was incorporated in 1989. The Department's assessment was premised solely on a projection method using Lloyd's own records, projected backward in time,and prorated to provide an estimated income and sales tax liability for the concession spots later operated by Lloyd.

1. Tax laws should be construed strongly in favor of the taxpayer and against the government with all ambiguities or doubts resolved in the taxpayer's favor. Maas Bros., Inc. v. Dickinson, 195 So. 2d 193 (fla. 1967); Florida S & L Services, Inc v. Department of Revenue, 443 So.2d 120 (Fla. 1st DCA 1983); Rainey v. State, Department of Revenue, 353 So.2d 207 (Fla. 1st DCA 1977), cert denied, 365 So.2d 715 (Fla.1978), citing, State ex rel. Seaboard Air Line R. Co.

   v. Gay, 160 Fla. 445, 35 So.2d 403 (1948). These courts explain:

   
   

   This salutary principle is found in the reason that the duty to pay taxes, while necessary to the bussiness of the sovereign, is still a duty of pure statutory creation and taxes may be collected only within the clear definite boundaries recited by statute . . . Maas Brothers, Inc, 195 So.2DEat 198.

   
   

2. Section 212.12(5)(b) allows the Department to assess by guesstimates based upon selected available data, and then be afforded the presumption of correctness. These are rather Draconian provisions, to say the least. It seems clear from the language of the seection 212.12(5)(b) that its best estimate provisions should not come into operation unless the dealer or person to be charged has done something wrong or obstructive to prevent the Department from making a fair or ordinary audit. The statute provides for a best estimate when the dealer or other person charged fails to make "his records" available, fails to make a required report, or makes false or grossly incorrect report. None of those circumstances occurred in this case and therefore the statuatory provisions could not be invoked.

The Department's relied solely on Lloyd's own, adequate, records for the more current years after Lloyd purchased the concessions. Records like these are not even listed in section 212.12(5)(b) as useable, even if that section were applicable. Section 212.12(5)(b) provides that the information used for the assessment must be based on "information then available to [the Department] for the taxable period of retail sales of such dealer . . . " (Emphasis supplied).4 The Department made no effort to obtain or project - or estimate - sales tax liabilities of the prior concessionaires on the basis of their own records which would have been for the relevant taxable period.

Accordingly, we reject the Department's sales tax assessment bacause, Lloyd not having been guilty of any default listed by the statute, the Department was not entitled to invoke section 212.12(5)(b). The Department's audit was based on improper data and improper reliance on section 212.12(5)(b) and therefore the assessment of the predecessor's allegedly unpaid sales taxes against Lloyd is also reversed. See Southpointe Pharmacy v. Department of Health and Rehabilitative Services, 596 So.2d 106 (Fla. 1st DCA 1992); Department of Revenue v. Potamkin Dodge, Inc., 442 So.2d 287 (Fla. 3d DCA 1983), rev. denied, 451 So.2d 847 (Fla. 1984).

REVERSED.

PETERSON and DIAMANTIS, JJ., concur.

W. SHARP, J., concurs, and concurs specially with opinion.

W. SHARP, Judge, concurring and concurring specially.

I agree with the per curiam opinion in full, having researched and written a good bit of it, but I would ggo further than my colleagues in two regards.

First, I do not think that under the current statutory and constitutional framework, that Volusia County could get into the taxable business of renting or licensing any portions of the public trust property on the beach. And second, I would hold that section 212.10, Florida Statutes (1989), as written and applied to Lloyd, is unconstitutional.

The first point deals with the issue of whether the bundle of rights granted to Lloyd by Volusia County under their Concessionaire Agreement can be viewed as a lease or license of real property by a person "who engages in the business of renting, leasing letting or granting a license for the use of any real property ."1The intent of the parties is key in determining whether a contrctentered into by them should be construed as a lease or license of real property. 49 Am. Jur.2d, Landlord-Tennant . . 1 and 11. In this case, the documents suggest no such intent, and the testimony of the parties at trail [the Lloyds as well as the attorney for the county] was that they did not intend to enter into a landlord/tenant relationship. Further, in order for a landlord/tenant relationship to arise, the landlord must have some right, title, or interest in the land which enables him to lease the property to another person.2 Otherwise, any attempted lease is viod.3

Much (perhaps too much), has been written about Florida's Public Trust Doctrine, which encompasses the beach and shore along the edge of the Atlantic Ocean and the Gulf of Mexico between the high water mark and low tide.4 This is the area involved in Volusia's Unified Beach Code and Lloyd's Concession Agreements.5 As lengthy and eloquent authorities make clear, these lands belong to the State of Florida impressed with the duty and responsibilty to regulate them for the publics benifit. 42 Fla.Jur.2d Public Lands . . 62,64. In one of the Florida Supreme Court's seminal cases, White v. Hughs, 139 Fla. 54 190 So.

446 (1939), the court said:

The state holds the foreshore in trust for its people for the purpose of navigation, fishing and bathing. It is difficult indeed to imagine a general and public right of fishing in the sea and from the shore accompanied by a general right to bathe there,and of access thereto from the foreshore for that purpose. Universal and habitual practice in England and America for many years has established this right, and it also is recognized by a statute, which we, will presently quote. small inland streams and lakes, which are not navigable and not subject to the tides may under certain circumstances become private property to all intents and purposes, but not so the sea or its shore.

White, 190 So. at 449.

The Public Trust Doctrine prohibits the state from conveying the beach area and shore to individuals, although it can grant individuals limited uses, so long as it is consistent with the public's use and enjoyment. See State ex rel. Ellis v. Gerbing, 56 Fla. 342, 20 So.2d 388 (1944), cert. denied, 325 U.S. 839,

63 S.Ct. 1408, 89 L.Ed. 1965 (1945). An unauthorized lease of such property is void and illegal. See Escambia Land & Manufacturing Co. v. Ferry Pass Inspectors' & Shippers' Ass'n 59 Fla. 239, 52 So. 715 (1910).

The Public Trust Doctrine was included as part of the 1968 Florida Constitution, Article 10 11. The 1970 Amendment provides privat uses of such

lands may be authorized by law, when not contrary to public interest. No such statute or constitutional provision has been called to our attention which purports to give Volusia County the right to lease or convey a private interest in the beach areas covered by the County charter and ordinance.

By its charter and implementing ordinance, Volusia County has only been delagated the state's general power to exercise, regulate and manage the beach areas in the County for the benefit of the general public. Amara v. Town of Daytona Beach Shores, 181 So.2d 722 (Fla 1st. DCA 1966); 78 Am. Jur 2d. Waters

.3; Thompson on Real Property, Vol. 6 2987. That appears to be all that the charter and the beach ordinance purports permit to do. If the county sought to do more, without express statutory authority, the amended charter and beach ordinance would present constitutional problems.6 This court said in City of New Smyrna Beach that the Charter authorized passing of the Beach Code for the purpose of "comprehensively regulating public health, safety and welfare on and pretaining to the [Atlantic Ocean] beach within the County," including vendors, concessionaires, and special events. It embraced the Public Trust Doctrine, and pertains solely to regulatory matters.

The exclusive right of the concessionaire to sell goods and services in a specified public location is more analogous to a franchise than a lease or a license for the use of real property. Franchises are not interests in land, but give the holder of the franchise the exclusive right to conduct a specific business in a particular location. The exclusive nature of the right is the mechanism by which the governing body is able to limit the number of vendors operating on the beach. This is consistent with the county's duty to regulate the beach by maintaining order, and peace and quiet in the public's best interest. See City of Key West v. Marrone,555 So.2d 439 (Fla. 3d DCA 1990).

It is not unusual or uncommon for fanchises to last for specific time periods and pertain to a specific area or locality. Nor is it unusual in the franchise business for the holder of a franchise to be charged a precentage of gross profits as compensation for the franchise. But the grantor of a franchise, for example, need not own the real estate to which the franchise pertains. The two are not the same.

I agree that Volusia County is most clearly not in the business of renting, leasing, letting, or granting a license for the use of any part of public trust lands which comprise the public areas of the beaches within the County. See Lord Chumley's of Stuart, Inc. v. Department of Revenue, 401 So.2d 817 (Fla. 4th DCA 1981). If it were, then its business would be ultra vires and constitutionally prohibited. Thus, it follows that the concessionaire fees charged by Volusia County are not rent payments or license charges for the use of real property, and no sales tax is due pursuant to section 212.031. See Department of Revenue

1. Ryder System, Inc., 406 So.2d 1299 (Fla. 1st. DCA 1981).

   
   

   The second point deals with the constitutionality of section 212.10, Florida Statutes (1989). As it stood in 1989, section 212.10 imposed on purchasing or successor-dealer sales tax liabilities for a selling dealer, without any mechanism available to the purchaser to ascertain what that liability may be, or any method to obtain a release from such unresolved and potentially unlimited liabilty.

   
   

   Section 212.10 provided:

   
   

   1. if any dealer liable for any tax, interest, or penalty levied hereunder shall sell out his business or stock of goods, he shall make a final return

payment within 15 days after the date of selling the business; his sucessor, sucessors, or assigns shall withhold a sufficient sufficient portion of purchase money to safely cover the account of such taxes,interest or penalties due and unpaid until such former owner shall produce a receipt from the department showing that they have been paid or a certificate stating that no taxes, interest or penalty are due. If the purchasers of a business or stock of goods shall fail to withhold a sufficient amount of purchase money as above provided, he shall be personally liable for the payment of taxes, interest, and penalties accruing and unpaid on account of the operation of the business by any former owner, owners, or assigns.

At the time Lloyd prchased the other concessions involved in this case, neither seller nor buyer were aware of section 212.10 and Lloyd concedes it made no effort to comply with the statute. But had Lloyd sought to do so at the time of the transactions, the Department admits there was no statutory or regulatory mechanism in place by which it could have ascertained the prior owner's tax liability.

Nor was there any way Lloyd could have required the Department to give Lloyd a receipt mentioned by section 212.10. The Department admitted it probably would not have done so without auditing the prior owners, which Lloyd had no right or ability to require the Department to do. And, even if a receipt is given, an admendment to this section "clarified" that the reciept does not garantee there is no assurance in this statute that the deposit put up by purchasing dealer, even if totalled the full purchase price for concession, would protect it from greater personal liability. Such an arbitrary statute places an over broad burden on commerce, to the point of making sales of beach concessions totally impossible. As such, section 212.10 was constitutionally flawed when these transactions took place in 1989. See Amara v. Town of Daytona Beach Shores.

The Department argues that Lloyd should not be allowed to challenge the constitutionality of section 212.10 as written in 1989 because, although raised below, the hearing officer correctly declined to rule on that issue. See Metropolitan Dade County v. Department of Commerce, 365 So.2d 432 (Fla. 3d DCA 1978). However, district courts of appeal may pass on the constitutionality of a statute or rule when such action is necessary in reviewing agency action. See Key Haven Associated Enterprises, Inc. v. Board of Trust Fund, 427 So.2d 153 (Fla 1982); Rice v. Department of Health and Rehabilitative Services, 386 So.2d 844 (Fla. 1st DCA 1980). The tax assesment by the Department in this case necessarily stands or falls with section 212.10.

In my view the statuatory scheme of section 212.10 was so fatally flawed, that even if the tax projections had been properly made by the Department, the taxc assessment could not have withstood constitutional challenge. Since it is likely the Department has and will continue to make tax assessments under this statute and the same issue will recur in other cases, I think it is appropriate to reach and resolve the constitional issue, as a matter of judicial economy and aid in disposing of future proceedings. I would have held section 212.10 unconstitutional on its face, as well as the manner in which it was applied to Lloyd.

Docket for Case No: 92-002348

Orders for Case No: 92-002348