STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA TRUCK DOCK COMPANY, )

)

Petitioner, )

)

vs. ) Case No. 97-2799

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this matter was heard before the Division of Administrative Hearings by its assigned Administrative Law Judge, Donald R. Alexander, on September 10, 1998, in Daytona Beach, Florida.

APPEARANCES

For Petitioner: No appearance

For Respondent: Jeffrey M. Dikman, Esquire

Department of Legal Affairs The Capitol, Tax Section

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUE

The issue is whether Petitioner is liable for the sales and use tax assessment issued by Respondent on February 21, 1995.

PRELIMINARY STATEMENT

This matter began on February 21, 1995, when Respondent, Department of Revenue, issued a Notice of Proposed Assessment of tax, penalty, and interest on a deficiency revealed by an audit on the records of Petitioner, Florida Truck Dock Company. After

informal efforts to resolve the matter were unsuccessful, Petitioner requested a formal hearing under Section 120.569, Florida Statutes, to contest the assessment. The matter was referred by Respondent to the Division of Administrative Hearings on June 13, 1997, with a request that an Administrative Law Judge be assigned to conduct a formal hearing.

After the matter was temporarily abated so that the parties could pursue settlement negotiations, by Notice of Hearing dated January 6, 1998, a final hearing was scheduled on June 9, 1998, in Daytona Beach, Florida. At the parties' request, the matter was rescheduled to September 10, 1998, at the same location.

Petitioner did not appear at the final hearing. However, its counsel later filed a letter with the undersigned's office which stated that due to the continuing health problems of the owners of the business, they did not wish to pursue this litigation. At final hearing, Respondent presented the testimony of Wilbert D. Werden, a tax auditor IV, and it offered Respondent's Exhibits 1-10. All exhibits were received in evidence.

The transcript of hearing was filed on September 28, 1998. Proposed findings of fact and conclusions of law were filed by Respondent on October 23, 1998, and they have been considered by the undersigned in the preparation of this Recommended Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of

fact are determined:

1. In this proceeding, Respondent, Department of Revenue (DOR), has issued a proposed sales and use tax assessment in the amount of $24,546.54, plus $6,640.12 in penalties, plus interest from the date of the assessment, against Petitioner, Florida Truck Dock Company (Petitioner or taxpayer). As of March 20, 1997, the assessment totaled $55,195.27, and it continues to increase by $8.07 each day. The assessment constitutes taxes, penalties, and interest allegedly due from Petitioner for various materials and supplies purchased by Petitioner for use in the performance of real property contracts for Petitioner's customers. In its response to the assessment, Petitioner denied that it owed the money.

2. Petitioner's business activities consisted primarily of purchasing truck loading dock equipment from suppliers, principally Kelly Company, Inc. (Kelly), and then installing such equipment as an improvement to real estate. Its records indicate that purchased equipment was generally brought into Florida and installed in real property in the state under a contract whereby parts and labor were furnished for one lump sum contract price.

3. The foregoing contracts were Class A or lump sum contracts within the meaning of Rule 12A-1.051(2)(a), Florida Administrative Code. Class A contracts are considered contracts for the improvement of real estate, not contracts for the resale of tangible personal property. In addition, when the equipment

   was purchased, Petitioner had not issued resale certificates to its vendors. Under these circumstances, Petitioner was properly treated as an end-user of the equipment in question and owed use taxes on all such purchases of tangible personal property.

4. This controversy began on March 30, 1992, when DOR issued a Notification of Intent to Audit Books and Records of the taxpayer in conjunction with a routine audit. The notice requested that Petitioner make available various corporate records pertaining to its sales and use tax and intangible tax liability. However, only the sales and use tax is in issue here. DOR later advised the taxpayer that the audit period would run from March 1, 1987, through February 29, 1992, and that instead of a detailed audit, only a three-month sampling of the full audit period would be necessary.

5. An initial audit revealed that Petitioner was entitled to a refund. None was given, however, because of information supplied by an employee of the taxpayer regarding the possible destruction and alteration of certain records by the taxpayer, and the auditor's conclusion that a three-month sampling of the records was not representative for the full five-year audit period. In addition, the auditor concluded that the results of the sample period were not reasonable. For these reasons, the scope of the audit was expanded.

6. The auditor then requested, among other things, that copies of all sales (summary) journals for the entire five-year period be produced. Although Petitioner has always contended that these journals were merely "commission" journals for transactions between its vendors and customers, the auditor's finding that they are records of cash transactions is consistent

   with the language on the face of the journals, referring to "deposits" and "total deposits." Further, a comparison of the journals with Petitioner's own bank statements confirms this finding.

7. At least twelve months of the records were missing, and the taxpayer agreed to recreate the missing records. Once a copy of all journals (both original and recreated) was produced, the auditor tested their validity and then made various audit adjustments, which are reflected on Schedule A-2 of Exhibit 5.

   In those instances where inadequate cost price information concerning equipment purchases was provided by the taxpayer, the auditor properly used estimates in making his adjustments.

8. The tax liability for each taxable transaction was recorded by the taxpayer under Account 367 on the sales journals. The auditor then examined the source documents (original invoices) to verify the accuracy of the recorded amounts. These numbers were then compared with the taxes paid by the taxpayer on its monthly tax returns filed with DOR. This comparison produced a deficiency which represents approximately 75 percent of the total assessment. However, in those instances where Petitioner collected sales tax from its customers, and remitted the same to DOR, Petitioner was not assessed with a tax for those same items.

9. A sampling of the audit period established that Petitioner also had a number of lump-sum contracts with various governmental customers on which it neither paid taxes to the

   vendor when the equipment was purchased, nor did it collect taxes from the end-user when the equipment was resold. Thus, it was responsible for the use taxes on these transactions. The deficiency is detailed on Schedule B-3 of the final audit report (Exhibit 6), and it accounts for approximately 14 percent of the total assessment.

10. The remaining part of the assessment is related to four miscellaneous transactions which are unrelated to the sales journals. Two of the transactions occurred during the short period of time when the service tax was in effect in 1987, while the remaining two relate to small purchases of equipment and supplies by the taxpayer for its own consumption. There was no evidence that the taxpayer paid the taxes due on these transactions.

11. DOR met with the taxpayer, its accountant, and its original counsel on various occasions in an effort to obtain more documentation favorable to the taxpayer's position. In most cases, the taxpayer refused to provide more records. At one meeting, however, the taxpayer produced additional source documents (invoices) that appeared to be altered from the original invoices previously given to the auditor. These are shown in Exhibit 7 received in evidence. When asked by the auditor for copies of the same invoices sent to customers so that the discrepancy could be resolved, the taxpayer refused to comply with this request.

12. During the audit process, the taxpayer contended that its primary supplier, Kelly, had already paid taxes on a number of the transactions. No documentation was produced, however, to support this contention. It also complained that there was bias on the part of DOR's auditor. As to this contention, the record shows that the auditor had no relationship with the taxpayer prior to this audit, and for the intangible personal property tax, the auditor's field work actually resulted in a refund for Petitioner. Finally, the taxpayer contended that rather than using the originally supplied records, the auditor should have used Petitioner's recreated or altered records in making the audit adjustments. This latter contention has been rejected.

    CONCLUSIONS OF LAW

    
    

13. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to Sections 120.569 and 120.57(1), Florida Statutes.

14. Section 120.80(14)(b)2., Florida Statutes (Supp. 1998), provides that in a tax assessment proceeding such as this, the "department's burden of proof . . . shall be limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the . . . department made the assessment." The ultimate burden of persuasion, however, rests upon the taxpayer to show that it is not liable for the proposed assessment.

15. In this case, DOR has satisfied the requirement that it

provide the "factual and legal grounds" upon which the assessment has been made. Conversely, the taxpayer failed to adduce any proof that the assessment is without merit. This being so, the assessment should be sustained.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that the Department of Revenue enter a final order sustaining its original assessment against Petitioner.

DONE AND ENTERED this 13th day of November, 1998, in Tallahassee, Leon County, Florida.

DONALD R. ALEXANDER

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 13th day of November, 1998.

COPIES FURNISHED:

Linda Lettera, Esquire Department of Revenue

204 Carlton Building Tallahassee, Florida 32399-0100

Jeffrey M. Dikman, Esquire Department of Legal Affairs The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Benjamin K. Phipps, Esquire Post Office Box 1351 Tallahassee, Florida 32302

L. H. Fuchs, Executive Director Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order within fifteen days of this order. Any exceptions to this Recommended Order should be filed with the Department of Revenue.

Docket for Case No: 97-002799

Orders for Case No: 97-002799