STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
W. MARINE, INC., )
)
Petitioner, )
)
vs. ) Case No. 00-0012
)
DEPARTMENT OF REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, a hearing was held in this case in accordance with Section 120.57(1), Florida Statutes, on May 14 through 18, 2001, in Fort Lauderdale, Florida, before Stuart M. Lerner, a duly-designated Administrative Law Judge of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Glen A. Stankee, Esquire
Ruden, McCloskey, Smith, Schuster and Russell, P.A.
Post Office Box 1900
Fort Lauderdale, Florida 33302
For Respondent: J. Clifton Cox, Esquire
Office of the Attorney General The Capitol-Tax Section Tallahassee, Florida 32399-1050
STATEMENT OF THE ISSUE
Whether Petitioner owes sales and use tax (plus penalties and interest) to the Department of Revenue (Department), as
alleged in the Department's November 1, 1999, Notice of Decision.
PRELIMINARY STATEMENT
On November 1, 1999, the Department issued a Notice of Decision announcing that Petitioner owed taxes (plus penalties and interest) on the use (in Florida) of the "motoryacht" Fifty- One during the period from September 1, 1991 to August 31, 1996 (Audit Period), and on the purchase (in Florida) of "related items purchased tax free" during the Audit Period.
On December 27, 1999, Petitioner filed a Petition for Administrative Hearing (Petition) challenging the Department's proposed assessment in its entirety.
In its Petition, Petitioner asserted that the following were the "issues of material fact in dispute":
Whether Petitioner used its vessel, the "Fiftyone" (the "Vessel"), exclusively for bare boat chartering purposes.
Whether Petitioner's purchases of tangible personal property in Florida pursuant to its Florida sales tax exemption certificate were exempt from Florida sales tax.
The following were the "ultimate facts alleged by Petitioner" in its Petition:
Petitioner has never engaged in any activity other than chartering the Vessel.
All of Petitioner's chartering activities occurred outside Florida.
Petitioner was duly registered with the Respondent as a charter dealer at all times that the Vessel was in Florida.
Petitioner purchased the Vessel outside Florida and has used it exclusively for bare boat chartering purposes at all times thereafter.
The Vessel was never used by Petitioner's shareholder/officer in Florida except in his capacity as an officer of Petitioner and in furtherance of Petitioner's chartering operations.
All items purchased by Petitioner on a tax exempt basis, including vessel repairs, linens, china, furniture, TVs, VCRs, fishing equipment, food, refreshments and cleaning supplies, were purchased pursuant to Petitioner's Florida sales tax exemption certificate to provision, promote and/or prepare the Vessel for charter.
In its Petition, Petitioner alleged that the Department's "proposed sales and use tax assessments [were] based on the following errors of law":
Respondent erroneously contends that "training the crew for charter and preparing the vessel for charter . . . is [a] taxable [use]."
Respondent erroneously contends that imposition of Florida use tax depends on whether the Vessel is used exclusively for bare boat chartering while it is located outside Florida.
Respondent erroneously contends that any use of the Vessel other than bare boat charter results in the retroactive imposition of use tax to the date the Vessel was purchased even where, as here, the
Vessel was purchased outside Florida and not subject to Florida sales tax.
Respondent erroneously disregards Petitioner's separate corporate existence by contending that personal use of the Vessel by the Petitioner's shareholder/officer constitutes personal use by the Petitioner rather than a lease of the Vessel by the Petitioner to its shareholder/officer.
Respondent erroneously contends that the agreements under which Petitioner chartered the Vessel did not constitute bare boat charter agreements under Rule 12A-1.071(17) and (19), F.A.C.
Petitioner erroneously contends that use of the Vessel for purposes other than bare boat chartering results in the retroactive loss of Petitioner's dealer status such that all Petitioner's purchases of tangible personal property in Florida pursuant to its Florida sales tax exemption certificate becomes taxable.
The Petition was referred to the Division of Administrative Hearings on January 5, 2000.
At the parties request, the case was placed in abeyance on January 20, 2000, and kept in abeyance until September 15, 2000, at which time a final hearing was scheduled for February 7 through 9, 2001. The hearing was subsequently continued and rescheduled for May 14 through 18, 2001.
On May 9, 2001, in accordance with the undersigned's Order of Prehearing Instructions, the parties filed a Joint Pre- Hearing Stipulation, which contained the following Stipulation of Facts:
Petitioner is a Florida corporation, all of the outstanding stock of which is owned by Robert W. Wiviott ("Mr. Wiviott") a resident of California.
Mr. Wiviott was the sole record officer and director of B. W. Marine at all times during the audit period. At all material times he has been married to Sharon Wiviott, and the principal residence of Mr. Wiviott and Sharon Wiviott, his wife, has been in California.
Mr. Wiviott did not own any real property in Florida at any time during the audit period.
Mr. Wiviott was involved in all aspects of Petitioner's chartering operations.
Petitioner purchased a 125' Cayman flagged Christensen motor yacht named the "Fifty-One" (hereinafter the "Fifty-One" or the "Yacht") from Nature Traveler, Ltd., a Cayman Islands corporation. Closing on the purchase occurred in Freeport, Grand Bahama Island, the Bahamas, on January 28, 1994. Petitioner purchased the Fifty-One for a price of $5,100,000.
On February 3, 1994, Petitioner took the Yacht to Bradford Marine, a registered repair facility, 13/ for repairs, refitting and upgrades.
Before bringing the vessel into Florida, Petitioner registered as a dealer with the Department of Revenue and maintained its dealer registration throughout the audit period.
During the audit period, Petitioner purchased various items of tangible personal property to outfit and provision the vessel. On various occasions, Petitioner purchased tangible property in Florida and provided
the seller its sales tax exemption certificate in lieu of paying sales tax.
The vessel was first chartered from
May 18, 1994, to May 21, 1994, to Gera[r]do Cabrera in Ft. Lauderdale. This was one of only two times that the vessel was chartered in Florida waters. The other time was from December 27, 1995, to January 3, 1996, to Ms. Jean Foss.
Petitioner employed the captain and crew until June of 1994, when each captain and crew member became employed by Papa's Yacht Services, Inc., a Florida corporation all of the outstanding stock of which is also owned by Mr. Wiviott. The captain and crew received their last paycheck from Petitioner on June 15, 1994, and received their first paycheck from Papa's Yacht Services, Inc. on June 30, 1994. The captain and crew were paid semi-monthly in arrears.
The Cabrera charter agreement was prepared by Rikki Davis, Inc., an established yacht charter broker in the Ft. Lauderdale charter market.
During the audit period the vessel was in Florida on the following dates:
Dates Location
2/3/94-2/12/94 Bradford Marine
2/13/94-3/14/94 Bahia Mar Marina
3/15/94-3/17/94 Jockey Club
3/17/94-4/5/94 Bahia Mar Marina
4/6/94-4/9/94 Port Everglades
4/10/94-4/13/94 Bahia Mar Marina
4/14/94-4/20/94 Pier 66 Marina
4/20/94-4/23/94 Ocean Reef Club
4/24/94-4/26/94 Key West
4/27/94 Fisher Island
4/28/94-5/17/94 Bahia Mar Marina
5/18/94-5/21/94 Cabrera Charter
5/22/94-6/9/94 Bahia Mar Marina
6/10/94-6/13/94 Bradford Marine
6/14/94 Bahia Mar Marina
9/8/94-11/4/94 Bradford Marine
11/5/94 Pier 66 Marina
4/1/95-4/19/95 Pier 66 Marina
5/2/95-5/22/95 Pier 66 Marina
9/26/95-10/21/95 Bradford Marine 10/22/95-10/31/95 Bahia Mar Marina 11/1/95-12/8/95 Bradford Marine
12/9/95-12/20/95 Florida Keys 12/21/95-12/26/95 Broward East Marina 12/27/95-1/3/96 Foss Charter
1/3/96-1/19/96 Broward East Marina
1/19/96-1/20/96 Miami Beach Marina
1/21/96 Turnberry Isle
1/22/96-1/23/96 Palm Beach Marina
1/24/96-1/26/96 Frenchman's Creek Marina
1/27/96-1/30/96 Broward East Marina
1/31/96-2/18/96 Bradford Marine
2/19/96-2/21/96 Turnberry Isle Marina
The captains serving on the vessel during the audit period were: Mark Newcomer, from January 28, 1994, to May 7, 1994; Jon Cheney, from May 7, 1994, to January 26, 1995; Steven Elario, from February, 1995, to October 14, 1995; and Arthur "Butch" Vogelsang, from October, 1995, through the end of the audit period.
Bradford Marine is a facility registered with the Department for the purpose of repairs, alterations, refitting, or modifications of vessels.
During the audit period, Robert Wiviott was onboard the vessel the following dates and at the following locations. The Department does not stipulate that these are the only days that Mr. Wiviott or his family or guests were on board the Yacht. Petitioner does not stipulate that
Mr. Wiviott or his family or guests stayed overnight on the vessel on these dates.
Date(s) Location
4/15/94-4/20/94 Pier 66 Marina
4/20/94-4/26/94 Florida Keys
6/24/94-7/17/94 New England 11/10/94-11/30/94 San Juan/St. Thomas 1/4/95-1/12/95 St. Maarten
1/23/95-2/1/95 St. Lucia
4/21/95-5/2/95 Nassau
5/2/95-5/5/95 Pier 66 Marina
8/23/95-8/27/95 Boston
8/28/95-9/21/95 Boston
5/13/96-5/29/96 San Juan/St. Thomas According to the parties' Joint Pre-Hearing Stipulation the only "[i]ssue[] of [f]act which [r]emain[ed] to be [l]itigated" was the following:
Whether the vessel "Fifty-One" was used exclusively for bare boat chartering operations throughout the audit period as required by Fl. Admin. Code R. 12A-1.071.
As noted above, the hearing was held on May 14 through 18, 2001, as scheduled. The following witnesses testified at hearing: Donald Bittner, Steven Brown, Captain Mark Newcomer, Captain Steven Elario, Robert Wiviott, William Becker, and Vicki Allen. In addition to the testimony of these witnesses, numerous exhibits were offered and received into evidence, including the transcripts of the depositions of Captain Arthur "Butch" Vogelsang, Rikki Davis, Debra Moye, Captain Jon Cheney, Stacey Torchon, and Robert Wiviott.
At the conclusion of the evidentiary portion of the hearing, the undersigned, on the record, advised the parties of their right to file proposed recommended orders and established a deadline (90 days from the date of the filing of the transcript of the hearing) for the filing of such post-hearing submittals.
The hearing Transcript (consisting of nine volumes) was filed on July 6, 2001. Petitioner and Respondent filed their Proposed Recommended Orders on October 3, 2001. These post- hearing submittals have been carefully considered by the
undersigned.
FINDINGS OF FACT
Based upon the evidence adduced at hearing, and the record as a whole, the following findings of fact are made to supplement and clarify the Stipulations of Fact set forth in the parties' Joint Pre-Hearing Stipulation: 1/
Mr. Wiviott is a very successful, "hands-on" entrepreneur who presently owns approximately five or six businesses.
Since 1958, when he and his brother opened a carpet store in Milwaukee, Mr. Wiviott has owned approximately 30 different businesses (including nine restaurants and a yacht service business), many of which he has sold "for literally millions of dollars of profit."
Approximately two-thirds of the businesses that he has owned he has "started from scratch."
There have been instances where Mr. Wiviott has invested in businesses that were in industries in which, at the time of his investment, he had no prior experience. In these instances, he overcame his lack of experience by being "extremely industrious" and doing "research."
When Mr. Wiviott has needed to consider a "feminine viewpoint" in making a business decision, he has used
Mrs. Wiviott, his wife of 43 years, as a "sounding board."
For the past 35 years, William Becker has been Mr. Wiviott's accountant.
In 1991 or 1992, Mr. Wiviott purchased two "brand new" boats as business investments. The boats were sold to
Mr. Wiviott together as a package. Mr. Wiviott paid a total of
$1.1 million for the two boats.
The larger of the boats was a 63-foot sport fisherman.
Although unfinished, it was seaworthy. Mr. Wiviott named this boat the "Choice One."
Mr. Wiviott named the other boat, a 56-foot sport fisherman, the "Choice Too."
Mr. Wiviott accepted delivery of the Choice One and Choice Too in the Bahamas. He did not pay any sales tax on his purchase of the boats.
After accepting delivery, Mr. Wiviott brought the boats to Fort Lauderdale.
In 1993, Mr. Wiviott explored the possibility of entering (for the first time) the yacht charter business. He spoke to various people involved in the industry, including two charter brokers (Bob Offer and Bob Saxon) and a charter yacht owner (Bernie Little). He also had discussions with Mr. Becker. Together, he and Mr. Becker made cost and revenue projections. He ultimately made a "value judgment" to go into the business.
Mr. Wiviott retained the services of Mr. Offer to help him find a suitable yacht for the business.
One of the yachts that Mr. Offer showed Mr. Wiviott was the Fifty-One, a Washington State-built, Fort Lauderdale- based "mega" yacht owned by an Italian national, Dr. Moretti.
The Fifty-One's interior design made it particularly well suited for chartering. It had four levels, including a sky deck/lounge equipped with a complete kitchen (to complement the galley located on the bottom level). There were five staterooms that could comfortably accommodate ten charter guests. Each of the regular staterooms had its own head. The master stateroom had "his and her" heads. There was also a stateroom for the captain, as well as quarters for six other crew members (the number needed to properly service a charter party).
The Fifty-One had not been well maintained during the time it had been owned by Dr. Moretti.
Although Dr. Moretti had made the Fifty-One available for charter, the yacht had a poor reputation among charter brokers and, as a result, it just "sat at the dock," unchartered, while under Dr. Moretti's ownership.
In October of 1993, Mr. Wiviott offered to purchase the Fifty-One from Dr. Moretti for $5.1 million, subject to a satisfactory marine survey and sea trial. Dr. Moretti initially rejected the offer, but subsequently agreed to sell the Fifty- One at Mr. Wiviott's offering price (which was considerably less than the $9 million that Dr. Moretti had paid for the Fifty-One a year and a half earlier).
Before the deal was consummated, Mr. Wiviott contracted with a marine survey company, Patton Marine, Inc. (Patton), to perform a thorough inspection of the Fifty-One.
Patton performed an extensive pre-purchase survey of the Fifty-One, which included various sea trials and other tests (conducted in Fort Lauderdale and off the Fort Lauderdale coast). The survey revealed that the Fifty-One had various "deficiencies." Most of these "deficiencies" were "small items" and were remedied before the sale was finalized. The most serious of the remaining "deficiencies" was the excessive amount of interior vibration.
Notwithstanding the known "deficiencies" that remained, Mr. Wiviott thought that, at $5.1 million, the Fifty- One was a good buy. At worst, he believed, he "could make a pretty good profit" by reselling the Fifty-One.
Mr. Wiviott retained Robb Maass, whom Mr. Wiviott was told was the "top marine attorney in the [Fort Lauderdale] area," to assist him in forming a Florida corporation which would purchase the Fifty-One and operate a yacht charter business.
With Mr. Maass' assistance, B. W. Marine, Inc. (Petitioner) was organized under the laws of the State of Florida, effective January 20, 1994, with Mr. Wiviott as its sole officer, director, and shareholder. Petitioner's principal corporate address was, at the time of incorporation, and has remained, 757 Southeast 17th Street, #389, Fort Lauderdale, Florida 33316.
On January 28, 1994, shortly after Petitioner's incorporation, Petitioner closed on the purchase of the Fifty- One. No Florida or other state sales tax was paid on the purchase.
The newly purchased yacht (which had been registered in the Cayman Islands by the previous owner, Dr. Moretti) was immediately registered with the United States Coast Guard, and it thereafter began to fly an American flag.
Based upon on Mr. Maass’ advice, Petitioner also took steps to obtain a "certificate of documentation with appropriate endorsement for employment in the coastwise trade" for the Fifty-One. It was not until the following year, however, that the United States Congress (passing a bill introduced by Florida Congressman E. Clay Shaw, Jr.) authorized the Secretary of Transportation to issue such a "certificate of documentation." 2/
After taking delivery of the yacht in the Bahamas, Petitioner imported the Fifty-One into Florida. It did so because Mr. Wiviott wanted the Fifty-One to be marketed in the south Florida area and to have access to the exceptional yacht repair and maintenance facilities that were available there.
The South Florida area is where the "mega" yacht charter brokers (who, in most instances, effectively "make[] the decision [as to] which boat a charter client is going to use") are concentrated and where the reputation (or, as Mr. Wiviott put it in his hearing testimony, the "aura" or illusion") of a "mega" yacht is established (in part, by the owner, captain, and crew "pander[ing]" to the broker community during showings of the yacht). It is therefore important for a "mega" yacht available for charter to have a presence in the south Florida area so that it can seen by, and shown to, the "mega" charter brokers who are concentrated there.
Although most "mega" yachts are marketed in Florida, "the chartering experience [generally occurs] elsewhere," in such places as New England (in the summer) and the Caribbean and Mediterranean (in the winter). Aware of this, Mr. Wiviott, at the time that the Fifty-One was imported into Florida, had no expectation that that the Fifty-One would be used exclusively for charters in Florida waters.
Mr. Wiviott wanted the Fifty-One to be imported into Florida without Petitioner having to pay any use tax. Mr. Maass advised Mr. Wiviott that Petitioner would not have to pay Florida use tax if it registered with the Department as a "dealer" and used the Fifty-One "only . . . for bare boat charter[s]." Mr. Maass cautioned Mr. Wiviott that "[t]here could be no personal recreational use, no personal use aboard the boat whatsoever."
Before importing the Fifty-One into Florida, Petitioner registered with the Department as a "dealer" that would be engaging in "bare boat" charter operations in Florida.
Mark Newcomer was the first captain of the Fifty-One under Petitioner's ownership.
Mr. Wiviott considered Captain Newcomer to be, not a "charter captain," but a "yard captain," that is, a captain "who specializes in repairs, maintenance and upgrades of yachts."
Captain Newcomer was hired by Petitioner "to take delivery [of the Fifty-One] and to oversee the renovation and retrofit[ting] of the yacht." He was responsible for ensuring that the Fifty-One was brought up to American Bureau of Shipping (ABS) standards. Obtaining certification that the Fifty-One met ABS standards was an "essential part" of any campaign to effectively "market[] the boat" for charter.
Mr. Wiviott did not have any intention of continuing Captain Newcomer's employment with Petitioner following completion of "the renovation and retrofit[ting] of the yacht."
Captain Newcomer brought the Fifty-One into Florida on or about February 1 or 2, 1994, and docked it at a Fort Lauderdale marina (either Pier 66 Marina or the Bahia Mar Marina).
On February 3, 1994, Captain Newcomer moved the Fifty- One to the Bradford Marine Shipyard (Bradford Marine), a Department-registered Fort Lauderdale repair facility able to service boats up to 150 feet in length.
The Fifty-One underwent repairs and improvements at Bradford Marine until February 12, 1994, by which time the work that had to be done with it out of the water had been completed.
At Bradford Marine, Petitioner had to pay a 20 to 30 percent "surcharge on all outside vendors that c[a]me in."
On February 13, 1994, Captain Newcomer moved the Fifty-One to the Bahia Mar Marina (Bahia Mar), a more cost- effective location, to do (with the help of others) the remaining repair and improvement work on the yacht (which could be done with the yacht in the water).
Because Captain Newcomer was "very good friends" with the dockmaster at the Bahia Mar, he and those he supervised were allowed to perform work on the Fifty-One (involving the use of noise-generating power tools) that would have otherwise been prohibited.
The Fifty-One remained at the Bahia Mar until March 14, 1994, undergoing repairs and improvements.
On March 15, 1994, Captain Newcomer, accompanied by Mr. and Mrs. Wiviott (and with less than a full crew), took the Fifty-One on a cruise to the Jockey Club, a "private club" that was part of a "condominium complex resort" located in Miami. He did so pursuant to the instructions of Mr. Wiviott, with whom he spoke to on a daily basis regarding the repair and improvement work that was being done on the Fifty-One under his (Captain Newcomer's) supervision. Mr. Wiviott wanted "to take the boat out to stretch it out [and to] see the progress that Captain Newcomer was making." Furthermore, Mr. Wiviott thought that it was important for Petitioner's charter business for the Fifty- One "to be seen."
Near the Jockey Club, the Fifty-One ran aground "in the mud," where it "sat . . . for about eight hours until the tide came back in."
After the Fifty-One arrived at the Jockey Club, divers "g[o]t under the boat and clean[ed] the prop[eller]s [and] clean[ed] the drivetrain."
The Fifty-One remained docked at the Jockey Club for three days.
On March 17, 1994, the Fifty-One returned to the Bahia Mar to undergo further repairs and improvements.
By mid-April of 1994, the work necessary to bring the Fifty-One up to ABS standards had been completed. Petitioner therefore applied for, and on April 19, 1994, was issued, an ABS "Class Certificate."
The Fort Lauderdale Charter Broker's Boat Show (1994 Boat Show) was held at Pier 66 Marina (Pier 66) from April 14, 1994 to April 20, 1994.
The Fifty-One was one of the boats entered in the 1994 Boat Show, and it remained at Pier 66 for the entire show.
Mr. Wiviott was aboard throughout the event to show the boat to charter brokers and others. Captain Newcomer helped Mr. Wiviott show the boat. Food and drinks were served. Fresh flowers adorned the boat. The crew wore their dress uniforms.
After the end of each day's session, Mr. Wiviott stayed aboard the Fifty-One overnight in lieu of spending company money to rent a hotel room.
Following the 1994 Boat Show, from April 20, 1994 until April 28, 1994, the Fifty-one was taken on a "shakedown" cruise to Key West and back to Fort Lauderdale, during which it was run at various speeds and systems were "overloaded" to determine whether they worked properly. At the time of the cruise, the Fifty-One was not equipped with all of the staff and other accoutrements necessary to provide the "five star service" that those who charter "mega" yachts pay to receive.
During the cruise, the boat docked at the Ocean Reef Club, an exclusive private resort community in Key Largo; the Galleon Marina, a public facility in Key West; Fisher Island; and the Jockey Club.
There were a "few breakdowns" during the cruise, including a "crane breakdown" at the Ocean Reef Club. With the help of vendors, the necessary repairs were made.
Aboard during the cruise, in addition to Captain Newcomer and a partial crew, was Mr. and Mrs. Wiviott;
Mr. Wiviott's brother, Howard Wiviott; Howard's wife;
Mr. Becker, whose firm provided Petitioner with accounting services (primarily through the efforts of Stacey Torchon, one of its accountants); and Mr. Becker's wife. There was no marine
surveyor, no representative of a registered repair facility, and no "mega" yacht charter broker aboard during the cruise. 3/
Mr. Becker and his wife did not remain aboard for the entire cruise. They disembarked in Key Largo on April 23, 1994.
During the time that he was aboard, Mr. Becker spoke to Captain Newcomer and the crew about the financial and accounting procedures that needed to be followed in conducting Petitioner's charter operations, information that Mr. Becker could have provided by telephone from his California office. (Stacey Torchon, who was "more involved [than Mr. Becker] in the day-to-day operations" of Petitioner, never met personally with any Fifty-One crew member; rather, she communicated with the crew by telephone.)
While they were aboard, Mr. Becker and the other guests Mr. Wiviott had invited to take part in the cruise (referred to, collectively, hereinafter as the "Invited Guests") ate, relaxed, and enjoyed the hospitality and ambiance.
The Invited Guests' presence on the Fifty-One during the "shakedown" cruise was not solely for the purpose of furthering Petitioner's charter business. Mr. Wiviott was motivated by personal reasons in inviting them aboard.
The assertion (made by Petitioner in its Proposed Recommended Order) that one of the purposes of the "shakedown" cruise was to determine, through the feedback given by the
Invited Guests, "whether the Petitioner was delivering the chartering experience in terms of comfort, ambiance and service that people willing to spen[d] $50,000 per week would expect" simply does not ring true. Mr. Wiviott knew full well that the Fifty-One, with a "yard captain" at the helm and less than a full crew, was not equipped to provide such service. He did not need to take the "Fifty-One" on a lengthy cruise with family and friends to find this out. Had Mr. Wiviott really wanted to learn if the Fifty-One offered a "chartering experience" for which someone would be willing to pay $50,000.00, he would have asked "mega" yacht charter brokers, not family and friends, to come aboard the Fifty-One for a cruise and give him their feedback.
On April 28, 1994, following the "shakedown" cruise, the Fifty-One returned to the Bahia Mar, where, in the ensuing days, defects discovered during the "shakedown" cruise were remedied.
By May 7, 1994, the Fifty-One was ready for charter.
The Fifty-One, at that time, was not the only vessel in Petitioner's fleet.
Shortly after acquiring the Fifty-One, Petitioner had purchased (in Florida) the Choice One and Choice Too 4/ from Mr. Wiviott.
Petitioner paid Mr. Wiviott $1,138,804.28 for the Choice One.
Inasmuch as the purchase was made under Petitioner's sales tax exemption certificate (that Petitioner had obtained from the Department based upon its representation that it intended to use the Fifty-One exclusively for "bare boat" charter operations in Florida), no Florida sales tax was paid.
At the time of the purchase, Mr. Wiviott envisioned that Petitioner would use the Choice One as a "chase boat" for the Fifty-One (from which charterers and guests could fish). The Choice One, however, was never used by Petitioner for this purpose because it turned out that it was not feasible to do so.
The Choice One wound up sitting at the dock in Fort Lauderdale, leaving only "to be stretched" or moved to another docking facility by its captain (initially Steven Ernst and then later Carl Roberts).
Before its sale by Petitioner in 1995, the Choice One was chartered on only one occasion, during which time it remained at the dock in Fort Lauderdale (positioned so that those aboard could view a passing "boat parade").
The Fifty-One was chartered on a more frequent basis.
Of the 15 charters of the Fifty-One during the Audit Period, however, only two (the Gerardo Cabrera and Jean Foss charters) were in Florida waters.
The Gerardo Cabrera charter was the first charter of the Fifty-One following the completion of the "renovation and retrofit[ting] of the yacht." It started in Fort Lauderdale on May 18, 1994, and ended in Fort Lauderdale on May 21, 1994.
The captain of the Fifty-One for the Gerardo Cabrera charter was Jon Cheney, who had replaced Captain Newcomer on May 7, 1994.
The charter agreement between Petitioner (as the "Owner") and Mr. Cabrera (as the "Charterer") was dated May 13, 1994, and read, in pertinent part, as follows:
In consideration of the covenants hereinafter contained, the Owner agrees to let and the Charter[er] agrees to hire the Yacht from noon on the 18th of May 1994 to noon on the 21st of May 1994 for the total sum of $18,000.00 + expenses + 6% FSST ($1,080 Dollars) of which amount $18,000 +
$1,080 + $5,000 (ADVANCE toward expenses) for a total of $24,080 shall be paid on the signing of this Agreement . . . .
The Owner agrees to deliver the Yacht at Bahia Mar Yachting Centre, Ft. Laud. on the 18th day of May 1994 in full commission and working order, outfitted as a yacht of her size, type and accommodations, with full equipment, inclusive of that required by law, and fully furnished, including galley and dining utensils and blankets; staunch, clean and in good condition throughout and ready for service; and agrees to allow demurrage pro rata to the Charterer for any delay in delivery. . . .
The owner's insurance policy does not cover Charterer's protection and indemnity during the term of the Charter. . . .
* * *
The Charterer agrees to accept the yacht delivered as hereinbefore provided and to pay all running expenses during the term of the charter.
The Charterer, his agents and employees have no right or power to permit or suffer the creation of any maritime liens against the yacht, except the crew's wages and salvage. The Charterer agrees to indemnify the Owner for any charges or losses in connection therewith, including reasonable attorney's fees.
* * *
The Charter[er] agrees to redeliver the yacht . . . to the Owner at Bahia Mar Yachting Centre, Ft. Lauderdale, FL . . . .
The Charter[er] agrees that the yacht shall be employed exclusively as a pleasure vessel for the sole and proper use of himself, his family, guests and servants during the term of this charter and shall not transport merchandise or carry passengers for pay, or engage in any trade nor in any way violate the Revenue Laws of the United States, or any other Government within the jurisdiction of which the yacht may be at any time, and shall comply with law in all other respects.
* * *
11. It is mutually agreed that full authority regarding the operation and management of the yacht is hereby transferred to the Charter[er] for the term thereof.
In the event, however, that the Charterer wishes to utilize the services of a Captain and/or crew members in connection with the operation and management of the yacht, whether said Captain and/or crew members are furnished by the Owner or by the Charterer, it is agreed that said Captain and/or Crew members are agents and employees of the Charterer and not of the Owner.
In the further event that local United States Coast Guard or other regulations require the Owner exclusively to provide a Captain and/or crew, or the Owner wishes to provide his own Captain and/or crew, the Owner agrees to provide a Captain who is competent not only in coastwise piloting but in deep sea navigation, and to provide a proper crew. The Captain shall in no way be the agent of the Owner, except that he shall handle clearance and the normal running of the yacht subject to the limitations of this charter party. The Captain shall receive orders from the Charterer as to ports to be called at and the general course of the voyage, but the Captain shall be responsible for the safe navigation of the yacht, and the Charterer shall abide by his judgment as to sailing, weather, anchorages, and pertinent matters. The Charterer assumes total control and liability as if the Charterer were the owner of the yacht during the term of the charter. . . .
This agreement, by "industry standard," is "considered a 'bare boat' charter agreement."
On May 13, 1994, Mr. Cabrera (as "Employer") also entered into a separate "Yacht Employment Agreement" with Captain Cheney (as "Yacht Captain"). It provided as follows:
WHEREAS, Charterer has under charter the yacht FIFTY ONE pursuant to his bare boat charter party agreement wherein it is
Employer's obligation to furnish the said yacht with a competent master and crew; and
WHEREAS, Yacht Captain is a competent master, having over two years' experience in the coastal and inland waters of FLORIDA and THE BAHAMAS and is able to furnish a crew for the management and navigation of the said yacht; and
WHEREAS, the parties desire to reduce their agreement to written term;
NOW THEREFORE in consideration of the premises and of the agreements hereinafter contained, it is agreed as follows:
Employer hereby hires yacht Captain as the Master of the said yacht to act as such Master as long as the yacht is under charter to Employer.
Yacht Captain agrees to furnish 6 crew men to assist in operating and navigating the said yacht. The Captain and crew, if any, shall be properly uniformed. The crew to comprise the following: [left blank]
Yacht Captain shall be paid for his services and the services of his crew a total sum of TEN DOLLARS AND OTHER GOOD AND VALUABLE CONSIDERATION and Employer shall furnish the Yacht Captain and his crew, quarters and food, during the term of this Agreement.
The term of this Agreement shall commence on the 18th day of MAY 1994, or at such time that the yacht shall be ready to sail pursuant to the bare boat charter party agreement with the Owner and shall terminate on the 21st day of MAY, 1994, unless sooner terminated by the termination of the yacht party agreement for any reason whatsoever. In the event that the yacht charter party agreement is sooner terminated, the Master
and crew will receive a pro-rated share of the agreed compensation for their services.
After collecting from Mr. Cabrera all the monies
Mr. Cabrera owed under both the charter agreement and the "Yacht Employment Agreement," Rikki Davis (the broker representing
Mr. Cabrera) handed these monies over to Mr. Offer (the broker representing Petitioner). (It is commonplace in the "mega" yacht chartering industry "to have the amount paid for the use of the vessel under [a] bare boat charter agreement and amount for the captain and crew paid together by the charterer as a lump sum."). Mr. Offer, in turn, forwarded the monies he was given by Ms. Davis to Petitioner.
The Gerardo Cabrera charter was the only charter that took place before the captain and crew of the Fifty-One became employees of Papa's Yacht Services, Inc. (Papa's), Petitioner's sister corporation, which, like Petitioner, was incorporated in Florida and has maintained a Florida corporate address from its inception.
Papa's was formed solely for the purpose of enabling Petitioner to be in "compliance [with] the bare boat charter concept." Papa's dealings with Petitioner was Papa's sole source of revenue.
Petitioner paid Papa's a "management fee" for providing a captain and crew for the Fifty-One.
Although the Fifty-One's captain and crew had become Papa's employees, Petitioner continued to pay for their health insurance and provide them with free room and board on the Fifty-One at all times during the Audit Period, except when the Fifty-One was under charter and the charterers provided the captain and crew with room and board.
Having a full-time captain and crew aboard a "mega" yacht available for charter, even when the yacht is not under charter, is essential to conduct successful charter operations.
The captain and crew must be available, on the vessel, to host the "mega" yacht charter brokers who come aboard between charters (sometimes with little or no advance notice) and to perform those everyday tasks necessary to maintain the vessel.
To attract and keep qualified onboard personnel, it is necessary to provide them with, as part of their compensation package, free room and board on the "mega" yacht. Doing so is the "standard in the industry."
The Fifty-One was chartered by Jean Foss from December 27, 1995 to January 3, 1996, approximately a year and a half after Papa's had become the employer of the Fifty-One's captain and crew.
Ms. Foss cruised to the Bahamas during the charter.
The charter originated and concluded in Fort Lauderdale.
"[T]he only reason [the Fifty-One] was in Florida [for the charter was] because [Ms. Foss] wouldn't fly to the Bahamas."
The charter agreement between Petitioner (as the "Owner") and Mr. Foss (as the "Charterer") was similar to the charter agreement into which Mr. Cabrera and Petitioner had entered. It was dated August 15, 1995, and read, in pertinent part, as follows:
TERM, HIRE & PAYMENTS: In consideration of the covenants hereinafter contained, the OWNER agrees to let and the CHARTERER agrees to hire the Yacht for the term from 12
noon . . . on the 27th day of December, 1995 to 12 noon . . . on the 3rd day January, 1996 for the total sum of $44,800 + All Expenses of which amount $22,400.00 shall be paid on the signing of this AGREEMENT and the balance thereof as follows: remaining 50% deposit (US$22,400.00) and Florida State Sales Tax of 6% US$2,668 for a total sum of
$25,088.00 due by 24 November, 1995.
DELIVERY. The OWNER agrees to deliver the yacht to CHARTERER at Fort Lauderdale, Florida at 12 noon . . . on the 27th day of December, 1995, in full commission and in proper working order, outfitted as a yacht of her size, type, and accommodations, with safety equipment required by law, and fully furnished, including gallery and dining utensils and blankets; staunch, clean and in good condition throughout and ready for service, and agrees to allow demurrage pro rata to the CHARTERER for any delay in delivery. . . .
* * *
5. RUNNING EXPENSES. The Charterer agrees to accept the yacht as delivered as hereinbefore provided and to pay all shipboard expenses during the term of the charter period.
* * *
8. RE-DELIVERY and INDEMNIFICATION. The CHARTERER agrees to redeliver the yacht, her equipment, and furnishings, free and clear and of any indebtedness for CHARTERER's account at the expiration of this charter, to the OWNER at Fort Lauderdale, Florida at 12:00 noon on the 3rd day of January, 1996 in as good condition as when delivery was taken, ordinary wear and tear and any loss or damage for which the OWNER is covered by his own insurance, and CHARTERER's insurance (if any) set forth in Paragraph 3 of this AGREEMENT, excepted. . . .
* * *
10. RESTRICTED USE. The CHARTERER agrees that the yacht shall be employed exclusively as a pleasure vessel for the sole and proper use of himself, his family, passengers and servants, during the term of this charter, and shall not transport merchandise, or carry passengers for hire, or engage in any trade, nor any way violate the Revenue Laws of the United States, or any other Government within the jurisdiction of which the yacht may be at any time, and shall comply with the laws in all other
respects.
* * *
12. CHARTERER'S AUTHORITY OVER CREW. It is mutually agreed that full authority regarding the operation and management of the yacht is hereby transferred to the CHARTERER for the term thereof. In the event, however, that the CHARTERER wished to utilize the services of a captain and/or
crew members in connection with the operation and management of the yacht, whether said captain and/or crew members are furnished by the OWNER or by the CHARTERER, it is agreed that said captain and/or crew members are agents and employees of the CHARTERER and not of the OWNER. In the further event that local United States Coast Guard or other regulations require the OWNER exclusively to provide a captain and/or crew, or the OWNER agrees to provide a proper captain who is competent not only to coastwise piloting, but in deep sea navigation, and to provide crew, the captain shall in no way be the agent of the OWNER, except that he shall handle clearance and the normal running of the yacht subject to ports to be called at, and the general course of the voyage. The captain shall be responsible for the safe navigation of the yacht, and the CHARTERER shall abide by his judgment as to sailing, weather, anchorages, and pertinent matters. The captain and crew shall be selected by the CHARTERER with the approval of the OWNER or the OWNER's Agent. CHARTERER is aware that he has a choice of captains. CHARTERER has full right to terminate the captain and/or crew; however, replacements shall be hired as under Paragraph 12 of this AGREEMENT. . . .
Ms. Foss also entered into a "Yacht Services Agreement." The agreement, dated August 16, 1995, was with Papa's, which agreed to provide a seven person crew for the Fifty-One for the charter period (December 27, 1995, through January 3, 1996). Ms. Foss, in turn, agreed to pay Papa's
$11,200.00 for such crew services and, in addition, to provide the captain (Arthur "Butch" Vogelsang) and crew with food and quarters aboard the Fifty-One during the charter period.
Petitioner collected and remitted to the Department the sales tax owed by Mr. Cabrera and Ms. Foss on their rentals of the Fifty-One.
No Florida sales tax was due on any of the other 13 charters of the Fifty-One during the Audit Period because they all took place outside Florida.
In the case of 11 of these 13 other charters, like in the Jean Foss charter, the charterer entered into a charter agreement with Petitioner for the rental of the Fifty-One, as well as a separate agreement with Papa's for employment of a captain and crew for a fee (that "represent[ed] the actual cost [to Papa's] of the crew"). Typically, the total amount due under both agreements was sent to Petitioner, and Mr. Becker's firm (which also provided accounting services to Papa's) "moved the [portion of the] funds" due Papa's to Papa's bank account.
Two charterers during the Audit Period (Mutual of Omaha Marketing Company and Prince Faisal Aziz of Saudi Arabia) refused Mr. Wiviott's request that they enter into two separate agreements, one (with Petitioner) for the rental of the Fifty- One and another (with Papa's) for employment of a captain and crew. Instead, they insisted on signing a single document, a Mediterranean Yacht Brokers Agreement (or MYBA Agreement), wherein Petitioner agreed to provide both the Fifty-One and a captain and crew. Not wanting to lose the business,
Mr. Wiviott, on behalf of Petitioner, entered into these MYBA Agreements, notwithstanding that he had been instructed by Mr. Maass "not [to] take MYBA contracts."
The MYBA Agreement between Petitioner (as "Owner") and Mutual of Omaha Marketing Company (as "Charterer") was dated December 16, 1995, and provided that: the "charter period" would begin 12:00 noon on March 3, 1996, and end 12:00 noon on March 17, 1996; the "cruising area" would be the Caribbean; the "port of delivery" would be Guadeloupe; the "port of re- delivery" would be Grenada; the crew would consist of a captain and six other crew members; the charter fee would be $48,000.00 per week for a total (for 2 weeks) of $96,000.00; the "Advance Provisioning Allowance" would be $48,000.00; and the "delivery/re-delivery fee" would be $6,857.00. In addition, it contained the following "clauses," among others:
CLAUSE 1 AGREEMENT TO LET AND HIRE
The OWNER agrees to let the Yacht to the Charterer and not to enter into any other Agreement . . . for the Charter of the Yacht for the [s]ame period.
The CHARTERER agrees to hire the Yacht and shall pay the Charter Fee, the Security Deposit, the Advance Provisioning Allowance and any other agreed charges in cleared funds, on or before the dates and to the Account specified in this Agreement.
* * *
CLAUSE 6 CREW
The OWNER shall provide a suitably qualified Captain acceptable to the insurers of the Yacht and a suitably experienced Crew, properly uniformed, fed and insured. The OWNER shall ensure that no member of the Crew shall carry or use any illegal drugs on board the Yacht or keep any firearms on board (other than those declared on the manifest) and shall ensure that the Captain and Crew comply with the laws and regulations of any country into whose waters the yacht shall enter during the course of this Agreement.
The MYBA Agreement between Petitioner (as "Owner") and Prince Aziz (as "Charterer") was dated March 19, 1996, and provided that: the "charter period" would begin 12:00 noon on April 2, 1996, and end 12:00 noon on April 9, 1996; the "cruising area" would be the Caribbean; St. Maarten would be the "port of delivery" and "the port of re-delivery"; the crew would consist of a captain and six other crew members; the charter fee would be $50,000.00; and the "Advance Provisioning Allowance" would be $10,000.00. It contained the following additional provisions, among others:
30. AGREEMENT TO LET
The OWNER shall let the yacht for the charter period and agrees not to enter into any other agreement for the charter of the yacht for the same period, and agrees not to sell the yacht before completion of the charter period, unless otherwise agreed by the Charterer.
* * *
32. CREW
The Owner shall provide a properly qualified Captain approved by the insurers of the yacht and a properly qualified crew, uniformed and insured. . . .
Upon the advice of Mr. Maass, Petitioner assigned to Papa's its MYBA Agreements with Mutual of Omaha Marketing Company and Prince Aziz. It also entered into "Bareboat Charter Agreements" with Papa's for the rental of the Fifty-One for the same periods covered by the MYBA Agreements (notwithstanding that the MYBA Agreements expressly prohibited Petitioner from doing so). According to what Mr. Maass told Mr. Wiviott, by Petitioner taking such action, "the MYBA contract[s] could be accepted without violating the requirement that [Petitioner] engage only in bare boat chartering."
The written assignment of the MYBA Agreement with Mutual of Omaha Marketing Company was dated December 16, 1995, the same date as the MYBA Agreement, and read, in pertinent part, as follows:
BW Marine owns the vessel "Fifty-One," a
125 foot motoryacht, bearing official number 1020419 (the "Vessel");
BW Marine entered into a Yacht Charter Party Agreement dated December 16, 199[5] (the "Charter") between BW Marine and Mutual of Omaha Marketing Company (Charterer");
BW Marine desires to assign to Papa's Yacht Services, and Papa's Yacht Services
agrees to accept, all BW Marine's right, title, and interest in and to the Charter;
NOW THEREFORE, in consideration of the premises, the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
Assignment BW Marine assigns to Papa's Yacht Services all its right, title, and interest in and to the Charter. Papa's Yacht Services accepts the assignment and assumes all obligations of BW Marine under the Charter.
Payment For administrative convenience, Charterer shall pay BW Marine the charter hire under the Charter. BW Marine, in turn, shall remit the surplus of these funds over the lease amount due from Papa's Yacht Services to BW Marine under that certain Bare Boat Charter Agreement between the parties of even date herewith. . . .
Mutual of Omaha Marketing Company was not a signatory to this written assignment (and no other document offered into evidence reflects that Mutual of Omaha Marketing Company consented to the assignment). 5/
The written assignment of the MYBA Agreement with Prince Aziz was dated March 19, 1996, the same date as the MYBA Agreement. It was identical to the December 16, 1995, written assignment of the MYBA Agreement with Mutual of Omaha Marketing Company (with the exception of the dates contained therein). Prince Aziz was not a signatory to this written assignment (and
no other document offered into evidence reflects that Prince Aziz consented to the assignment).
The first "Bareboat Charter Agreement" between Petitioner (as "Owner") and Papa's (as "Charterer") was dated December 16, 1995, and provided, in pertinent part, as follows:
Owner owns the vessel "Fifty-One," a 125 foot motorcoach bearing official number 1020419 (the "Vessel"); and
Charterer desires to charter the Vessel from Owner and Owner is willing to make the Vessel available to Charterer for such purpose, subject to the terms and conditions contained herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
Term Owner agrees to let and Charterer to hire, the Vessel for a term commencing March 3, 1996, and ending March 17, 1996.
Payment Charterer shall pay Owner charter hire of One Hundred Two Thousand Eight Hundred Fifty Seven Dollars ($102,857.00), plus state sales tax, if applicable.
Control The Vessel is chartered on a bare boat or demise basis. Owner hereby transfers to Charterer full authority regarding the operation and management of the Vessel for the charter term. Charterer is solely responsible for retaining a master and crew.
Guest Limitation When the Vessel is underway, the number of persons on board the
Vessel, other than the master and crew, shall be limited to the Charterer (or the Charterer's representative, if Charterer is a corporation) and twelve (12) guests.
* * *
Delivery Owner agrees to deliver the Vessel at Guadeloupe.
Redelivery Charterer shall redeliver the Vessel to Owner at Granada at the end of the charter term, in as good condition as when delivery was taken, ordinary wear and tear excepted. . . .
* * *
9. Expenses Charterer shall pay all running expenses during the term of the charter. Charterer shall pay for routine maintenance and repair of the Vessel during the charter term.
* * *
12. Non-Assignment Charterer agrees not to assign this Agreement or subcharter the Vessel without the consent of the Owner in writing, which Owner may withhold in Owner's sole discretion. . . .
The second "Bareboat Charter Agreement" between Petitioner and Papa's was dated March 19, 1996, and was identical to the first "Bareboat Charter Agreement" between them (with the exception of the charter period, charter cost, and delivery/redelivery locations).
The evidence is insufficient to support a finding that Papa's ever entered into a sub-charter agreement with either Mutual of Omaha Marketing Company or Prince Aziz.
Both Mutual of Omaha Marketing Company and Prince Aziz paid Petitioner the entire charter fee prescribed under their respective MYBA Agreements. They did not make any payments to Papa's. Petitioner paid Papa’s a “management fee” for providing the captain and crew during these charters.
On one of the 15 charters during the Audit Period, Mr. Wiviott was aboard the Fifty-One as a guest of the charterer, the Choice Meat Co., Inc., a company that he and his son, Greg Wiviott, owned. Choice Meat Co., Inc., paid the "going charter rate" for the rental, but no broker's commission because "there was no broker to pay."
There were occasions during the Audit Period, when the Fifty-One was not under charter, that Mr. Wiviott, members of his family (including his wife; children; grandchildren; his bother, Howard; and Howard's wife), and his friends used the Fifty-One outside Florida for non-business-related, personal purposes, sometimes for "one or two weeks at a time."
For instance, in June of 1994 (after the Gerardo Cabrera charter and before the next charter, which began on July 21, 1994), when the Fifty-One was in New England, the
Wiviott family was aboard for approximately "a couple of weeks."
At the end of that summer, just before the Fifty-One returned from New England to Fort Lauderdale, the family again used the Fifty-One, this time "for a week or so."
In November of 1994, around the Thanksgiving holiday, the Fifty-One traveled to the Caribbean so that the family could use it there for recreational purposes. The Fifty-One remained in the Caribbean for ten to 14 days with the family aboard. After the Wiviott children and grandchildren got off, the Fifty- One went on to the Virgin Islands, where Mr. and Mrs. Wiviott's friends came aboard and were entertained by the Wiviotts.
In January of 1995, some time "shortly after the 1st," when the Fifty-One was in St. Maarten (where it was based for the winter), the Wiviott family once again spent time aboard the Fifty-One.
The foregoing instances of out-of-state, non-charter, non-business-related use of the Fifty-One by the Wiviott family occurred when Captain Cheney was in command of the vessel.
The Wiviott family continued to make such use of the Fifty-One during the time Captain Elario was captain.
When Captain Elario took over the Fifty-One in St.
Lucia (from Paul Canvaghn, who had been captain for only a day or two), Mr. and Mrs. Wiviott were aboard the vessel. They remained on board for approximately a week as the Fifty-One cruised the Caribbean. During that week, Mrs. Wiviott swam, laid in the sun, relaxed, and ate meals prepared by the Fifty- One's chef. She did not perform any tasks designed to further Petitioner's charter business.
Subsequently, while Captain Elario was still captain, Mr. and Mrs. Wiviott took a non-charter, non-business-related trip on the Fifty-One to the Bahamas.
Also during the time Captain Elario was captain, when the Fifty-One was in Hilton Head, South Carolina, Mr. Wiviott's brother, Howard, and Howard's wife, came aboard, and they remained on the yacht as it traveled to Norfolk, Virginia. Howard and his wife did not perform any tasks designed to further Petitioner's charter business while aboard the Fifty- One.
Mr. and Mrs. Wiviott's daughter, along with her two young children, stayed overnight on the Fifty-One when, while under Captain Elario's supervision, it was docked at the Capital Marina in Washington, D.C. During the daughter's and children's stay, there was a party celebrating the youngest child's birthday.
Indicative of the amount of time that Mr. and Mrs.
Wiviott spent aboard the Fifty-One were the clothing and other personal items that (as a convenience) they stored (in a locker) on the Fifty-One (so that they would not have to bring these items with them each time they boarded the vessel). (These items were moved from the locker to another area on the Fifty- One, when necessary, to accommodate charterers using the stateroom in which the locker was located).
Whenever the Fifty-One returned to Florida, it underwent needed repairs and maintenance. It also cruised the waters of the south Florida area, docking at various facilities. It did so not only "to be stretched," but to gain additional exposure among "mega" yacht charter brokers.
In addition, while in Florida, the Fifty-One was stocked with supplies and provisions (including rack of lamb, veal, lobster tails, baked goods, gourmet foods, specialty items, wines, bath and beauty products, and party supplies) to be available for use by those on board when the Fifty-One was outside Florida, including not only charterers (such as Mutual of Omaha Marketing Company and Prince Aziz) and their guests, but also Mr. Wiviott, his family, and friends (when they were on board the Fifty-One for non-business-related, personal purposes).
The Fifty-One, while in Florida, was also provided with fuel for charter, as well as non-charter, non-business related, trips outside Florida.
Petitioner's charter business proved to be unprofitable. Expenses far exceeded revenues. (Petitioner, however, was able to sell the Fifty-One for more than the purchase price it had paid, receiving approximately $5.7 million, excluding commissions, for the Fifty-One in February of 2000.)
By letter dated October 11, 1996, the Department informed Petitioner that it was going to audit Petitioner's "books and records" for the Audit Period. Petitioner was selected for audit because it had reported only a relatively small amount of taxable charter revenue on the Florida sales and use tax returns it filed during the Audit Period.
The Department's "audit findings" were that the Fifty-One "was purchased for [a] dual purpose, for leasing and to be used by the shareholder" and therefore "the vessel and other purchases [made by Petitioner during the Audit Period under its sales tax exemption certificate, including its purchase of the Choice One] are taxable at the cost price." Based upon these audit findings, the Department issued a Notice of Intent to Make Audit Changes, in which it advised Petitioner that Petitioner owed $430,047.95 in sales and use taxes,
$215,023.97 in penalties, and $169,672.70 in interest through July 18, 1997, for a total of $814,744.62, "plus additional interest of $141.39 per day . . . from 07/18/97 through the date [of] payment."
By letter dated April 22, 1998, Petitioner protested the Department's proposed assessment.
On November 1, 1999, the Department issued its Notice of Decision sustaining the proposed assessment and announcing that, as of October 6, 1999, Petitioner owed the Department
$929,270.52, with "interest continu[ing] to accrue at $141.39 per day until the postmarked date of payment."
Petitioner subsequently filed a Petition for Chapter
120 Administrative Hearing on the Department's proposed action.
CONCLUSIONS OF LAW
The parties' Joint Pre-Hearing Stipulation contains the following stipulation regarding the law applicable to this proceeding, which the undersigned has accepted:
1. Section 120.80(14)(b), Fla. Stat., provides in pertinent part as follows:
"1. In any administrative proceeding brought pursuant to this chapter as authorized by s. 72.011(1), the taxpayer shall be designated the 'petitioner' and the Department of Revenue shall be designated the 'respondent' . . . .
2. In any such administrative proceeding, the applicable department's burden of proof, except as otherwise specifically provided by general law, shall be 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.
3.a. Prior to filing a petition under this chapter, the taxpayer shall pay to the applicable department the amount of taxes, penalties, and accrued interest assessed by that department which are not being contested by the taxpayer. Failure to pay the uncontested amount shall result in the dismissal of the action and imposition of an additional penalty of 25 percent of the amount taxed.
b. The requirements of s. 72.011(2) and (3)(a) are jurisdictional for any action under this chapter to contest an assessment or denial of refund by the Department of Revenue "
Exemptions from tax are strictly construed against the taxpayer. See, e.g., United States Gypsum Co. v. Green, 110 So. 2d 409 (Fla. 1993); State ex rel. Szabo Food Services, Inc. v. Dickinson, 286 So. 2d 529 (Fla. 1973). Statutes which define what property is taxable in the first place must be construed strictly against the taxing authority. See e.g., Drum Service Company of Florida v. Jirk, 234 So. 2d 350 (Fla. 1970); State v. Green, 132 So. 2d 761 (Fla. 1961).
Section 212.05, Fla. Stat., at all material times has provided in pertinent part as follows:
"Sales, storage, use tax.- It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, including the business of making mail order sales, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state."
Section 212.05(1)(b), Fla. Stat., at all material times has provided in pertinent part that use tax is imposed:
"At the rate of 6 percent of the cost price of each item or article of tangible personal property when the same is . . .
used, consumed, distributed, or stored for use or consumption in this state. "
Section 212.06(1)(a), Fla. Stat., at all material times has provided in pertinent part:
"The aforesaid tax at the rate of . . .
6 percent of the cost price as of the moment of commingling with the general mass of property in this state . . . shall be collectible from all dealers as herein defined on the sale at retail, the use, the consumption, the distribution, and the storage for use or consumption in this state of tangible personal property "
Section 212.06(4), Fla. Stat., at all material times has provided that:
"[T]he use, or consumption, or distribution, or storage to be used or consumed in this state of tangible personal property shall each be equivalent to a sale at retail, and the tax shall thereupon immediately levy and be collected in the manner provided herein, provided there shall be no duplication of the tax in any event."
Section 212.06(7), Fla. Stat., at all material times has provided that the Florida use tax does not apply:
"in respect to the use or consumption of tangible personal property . . . or storage of tangible personal property for use or consumption in this state, upon which a like tax equal to or greater than the amount imposed by this chapter has been lawfully imposed and paid in another state "
Fla. Admin. Code Rule 12A-1.007(3)(a) at all material times has allowed a credit to a purchaser who provides documentary evidence that a lawfully imposed sales or use tax has been paid to another state, territory of the United States, or the District of Columbia on any boat which later becomes subject to Florida tax. The credit shall be the amount of legally imposed sales and use tax paid to
another state, territory of the United States, or the District of Columbia.
Fla. Admin Code Rule 12A-1.007 at all material times has provided in pertinent part that:
"(2) Purchases Outside Florida.
(b) Tax shall apply and be due on any aircraft, boat, mobile home, motor vehicle, or other vehicle imported or caused to be imported from a foreign country into this state for use, consumption, distribution, or storage to be used or consumed in this state. It is immaterial whether such . . . boat, . . . or other vehicle was used in another country for a period of six months or more prior to the time it is brought into Florida. Furthermore, tax paid in another country will not be recognized by the State of Florida in arriving at the tax due.
(9)(b)2. [A]ny boat which remains in this state for more than an aggregate of 183 days in any 1-year period shall be presumed to be commingled with the general mass of property of this state, and tax shall be due on the sales price of the boat, except under the following circumstances: . . . .
(9)(b)2.b. A boat which is physically in the care, custody, and control of a facility registered with the Department for the purpose of repairs, alterations, refitting, or modifications, and such activities have been properly documented in accordance with Rule 12A-1.0071,
F.A.C. "
Fla. Admin. Code Rule 12A-1.007(14)(a) at all material times has provided in pertinent part that:
"The rental or lease of an aircraft, boat, mobile home, or motor vehicle, which is used or stored in this state, shall be
taxable without regard to its prior use or tax paid on the purchase outside this state."
Fla. Admin Code Rule 12A-1.007(14)(b)1. At all material times has provided in pertinent part that:
"The purchase of an aircraft, boat, mobile home, or motor vehicle exclusively for rental purposes may be made tax
exempt . . . . The lessor shall collect tax from his customers on the total rental charge."
Fla. Admin Code Rule 12A-1.070(19)(a) at all material times has provided in pertinent part that:
"The lease or rental of . . . property . . . between related 'persons,' . . . is subject to tax."
Fla. Admin Code Rule 12A-1.071(2)(a) at all material times has provided in pertinent part that:
"Tangible personal property purchased exclusively for leasing purposes may be purchased tax exempt, providing the lessor is registered with the Department as a dealer at the time of purchase and issues the vendor a valid resale certificate in lieu of tax. "
Fla. Admin. Code Rule 12A-1.071(2)(b)1. at all material times has provided in pertinent part that:
"Any person who purchases tangible personal property for the dual purpose of leasing it to others and also for his own use, or who purchases tangible personal property with the intention only of leasing it but in fact also uses the property itself, shall pay the tax on the cost price of such property and shall also collect and
remit the tax on all leases of such property."
Fla. Admin. Code Rule 12A-071(2)(b)2. at all material times has provided in pertinent part that:
"The subsequent conversion to one's own use, of tangible personal property which has been purchased tax exempt for exclusive lease, will be subject to use tax at the time of conversion. The basis of the use tax will be 'fair market value' at the time of conversion. If the fair market value of the tangible personal property cannot be determined, then the use tax due at the time of conversion should be based on the acquisition cost of the tangible personal property. "
Fla. Admin. Code Rule 12A-1.071(4)(a) at all material times has provided in pertinent part that:
"If the lessee of tangible personal property removes the property from the State of Florida, the consideration contracted to be paid subsequent to such removal is not taxable "
Fla. Admin. Code Rule 12A-1.071(19) at all material times has provided in pertinent part that:
"Unless a boat or vessel is purchased exclusively for rental on a bare boat basis as described in paragraph (17), the purchase of the boat or vessel and parts thereof is taxable." 6/
Fla. Admin. Code Rule 12A-1.071(17) at all material times has provided in pertinent part that:
"The lease or rental is considered to be on a 'bare boat' basis when: (a) The lessor does not provide a crew; or (b) The
lessor does provide a crew but it is hired by the lessee under a separate employment contract. (Under such circumstances the employment contract cost is not a part of the gross proceeds derived from the lease or rental and is not taxable.)"
Fla. Admin. Code Rule 12A-1.071(17) at all material times has further provided in pertinent part that:
"When a boat or vessel is leased or rented on a 'bare boat' basis, the sales tax applies to the gross proceeds derived from the lease or rental. "
Fla. Admin Code Rule 12A-1.091(3) at all material times has provided in pertinent part that:
"The provisions of the Florida Sales and Use Tax shall not apply to the use or consumption, or distribution or storage of tangible personal property for use or consumption in this state upon which a like tax equal to or greater than the amount due this state has been lawfully imposed and paid in another state, territory of the United States, or the District of Columbia before use tax payable to this state would otherwise have become due. If the amount of tax so lawfully imposed and paid in another state, territory of the United States, or the District of Columbia is not equal to or greater than the amount of tax imposed by Chapter 212, F.S., then the person from whom the use tax is due shall pay to the Department of Revenue an amount sufficient to make the tax paid in the other state, territory of the United States, or the District of Columbia and in this state equal to the amount imposed by that Chapter."
Fla. Admin Code Rule 12A-1.091(4) at all material times has provided in pertinent part that:
"The use tax does not apply to any property of which the retail sale is specifically exempt from payment of the Florida sales tax. The two taxes, sales and use, stand as complements to each other, and taken together provide a uniform tax upon either the sale at retail or the use of all tangible personal property irrespective of where it may have been purchased."
The parties agree that Petitioner's initial purchase of the vessel [the Fifty- One] is not subject to Florida sales tax because it was purchased outside the State.
The parties agree that Petitioner, as a Florida registered dealer, would not be subject to Florida use tax on the value or cost of the vessel [the Fifty-One] if Petitioner establishes that the vessel was used exclusively for bare boat chartering purposes.
2[4]. The parties further agree that use of the vessel by the Petitioner in Florida for any purpose other than bare boat chartering would result in a loss of the use tax exemption at the time of such use. The parties agree that any charter of the vessel constitutes a bare boat charter if the Petitioner did not provide both the captain or crew, or Petitioner did provide the captain and crew, but did so under a separate agreement with the charterer. 7/
Other noteworthy statutory and rule provisions (in addition to those set forth in the parties Joint Pre-Hearing Stipulation) are: the following definitional provisions found in Section 212.02, Florida Statutes:
212.02 Definitions.--The following terms and phrases when used in this chapter have the meanings ascribed to them in this section,
except where the context clearly indicates a different meaning: . . . .
* * *
(8) "In this state" or "in the state" means within the state boundaries of Florida as defined in s. 1, Art. II of the State Constitution and includes all territory within these limits owned by or ceded to the United States. . . .
* * *
(14)(a) "Retail sale" or a "sale at retail" means a sale to a consumer or to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter, and includes all such transactions that may be made in lieu of retail sales or sales at retail. . . .
"Sale" means and includes:
Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration.
* * *
"Sales price" means the total amount paid for tangible personal property . . . .
* * *
"Storage" means and includes any keeping or retention in this state of tangible personal property for use or consumption in this state or for any purpose other than sale at retail in the regular course of business.
"Tangible personal property" means and includes personal property which may be seen, weighed, measured, or touched or is in any manner perceptible to the senses, including . . . boats . . . .
"Use" means and includes the exercise of any right or power over tangible personal property incident to the ownership thereof, or interest therein, except that it does not include the sale at retail of that property in the regular course of business. ;
the remainder of Section 212.05(1)(b), Florida Statutes, which provides as follows:
however, for tangible property originally purchased exempt from tax for use exclusively for lease and which is converted to the owner's own use, tax may be paid on the fair market value of the property at the time of conversion. If the fair market value of the property cannot be determined, use tax at the time of conversion shall be based on the owner's acquisition cost. Under no circumstances may the aggregate amount of sales tax from leasing the property and use tax due at the time of conversion be less than the total sales tax that would have been due on the original acquisition cost paid by the owner;
the following definitions in Section 212.06(2), Florida Statutes, of the term "dealer," as used in Chapter 212, Florida
Statutes:
The term "dealer" is further defined to mean every person, as used in this chapter, who imports, or causes to be imported, tangible personal property from any state or foreign country for sale at retail; for use, consumption, or distribution; or for storage to be used or consumed in this state.
The term "dealer" is further defined to mean every person, as used in this chapter, who sells at retail or who offers for sale at retail, or who has in his or her possession for sale at retail; or for use, consumption, or distribution; or for storage to be used or consumed in this state, tangible personal property as defined herein . . . .
The term "dealer" is further defined to mean any person who has sold at retail; or used, or consumed, or distributed; or stored for use or consumption in this state, tangible personal property and who cannot prove that the tax levied by this chapter has been paid on the sale at retail, the use, the consumption, the distribution, or the storage of such tangible personal property. . . .
The term "dealer" is further defined to mean any person, as used in this chapter, who leases or rents tangible personal property, as defined in this chapter, for a consideration, permitting the use or possession of such property without transferring title thereto, except as expressly provided for to the contrary herein.
the first sentence of Section 212.06(4), Florida Statutes, which reads as follows:
On all tangible personal property imported or caused to be imported from other states, territories, the District of Columbia, or any foreign country, and used by him or her, the dealer, as herein defined, shall pay the tax imposed by this chapter on all articles of tangible personal property so imported and used, the same as if such articles had been sold at retail for use or consumption in this state;
the "[d]eclaration of legislative intent" in Section 212.21(2), Florida Statutes, "to tax each and every sale, admission, use, storage, consumption, or rental levied and set forth in this chapter, except as to such sale, admission, use, storage, consumption, or rental as shall be specifically exempted therefrom by this chapter subject to the conditions appertaining to such exemption"; the last sentence of Rule 12A-1.071(2)(b)2, Florida Administrative Code, which reads as follows:
Under no circumstances will the aggregate amount of sales tax, from leasing and the use tax at the time of conversion, be less than the total sales tax that would have been due on the original acquisition cost paid by the lessor;
Rule 12A-1.071(16), Florida Statutes, which provides as follows:
When a boat or vessel is chartered with crew furnished, for the carriage or transportation of persons or property from one point to another and the charterer does not have any direction or control over its operation, the contract constitutes a service transaction and not the rental of tangible personal property and is exempt [from taxation].
The "[n]ature of the [instant] controversy" was described by the parties in their Joint Pre-hearing Stipulation as follows:
Petitioner . . . was, at all times during the audit period a Florida registered dealer [of] which Robert N. Wiviott ("Mr. Wiviott") was the sole record shareholder. Petitioner owned a 125' Christensen motoryacht named the "Fifty-One for which it claimed
exemption from Florida use tax as having been purchased and used exclusively for bare boat chartering purposes. [The Department] contends the vessel is subject to Florida use tax on the grounds that Petitioner has not established that it used the vessel exclusively for bare boat chartering purposes during the audit period.
To resolve this "controversy" between the parties, it is necessary to ascertain the meaning of the language creating the exemption claimed by Petitioner. In its Proposed Recommended Order, Petitioner contends that, in undertaking such task, one should be guided by the following:
Because the Florida Legislature granted the dealers’ sales and use tax exemption with the obvious purpose and intent of encouraging leasing activity in the state, any questions of interpretation and construction of the statute and the administrative rules promulgated to implement it, should be resolved consistently with that intent and, to the extent possible, in the manner which furthers the purposes and goals of the statute. Florida Department of Business and Professional Regulation, Division of Pari- mutuel Wagering v. Investment Corp. of Palm Beach, 747 So. 2d 374 (Fla. 1999). All parts of a statute must be read together in order to achieve a consistent whole. Where possible, effect must be given to all statutory provisions and related statutory provisions must be construed in harmony with one another. Young v. Progressive Southeastern Insurance Co., 753 So. 2d 80 (Fla. 2000), citing Forsythe v. Longboat Key Beach Erosion Control District, 604 So. 2d
452 (Fla. 1992). Statutes must be interpreted in the most logical and sensible way. If possible, the court must avoid an interpretation that produces an unreasonable
consequence. Wakulla County v. Davis, 395 So. 2d 540 (Fla. 1981). Statutes are not construed in isolation. They must be interpreted in the context of other statutes on the same general subject. Florida Jai Alai, Inc. v. Lake Howell Water & Reclamation District, 274 So. 2d 522 (Fla.
1973).
The undersigned agrees with Petitioner. See, e.g., State v. Rife, 789 So. 2d 288, 292 (Fla. 2001)("'[W]hen construing a statutory provision, legislative intent is the polestar that guides' the Court's inquiry. . . . Legislative intent is determined primarily from the language of a statute."); Florida Birth-Related Neurological Injury Compensation Association v.
Florida Division of Administrative Hearings, 686 So. 2d 1349 (Fla. 1997)("[C]onsideration must be accorded not only to the literal and usual meaning of the words, but also to their meaning and effect on the objectives and purposes of the statute's enactment."); and Heredia v. Allstate Insurance Company, 358 So. 2d 1353, 1354-55 (Fla. 1978)("In matters requiring statutory construction, courts always seek to effectuate legislative intent.). Furthermore, to the extent that there is any uncertainty concerning the intended scope of the claimed exemption, which cannot be resolved by application of the guidelines described by Petitioner in its Proposed Recommended Order, the uncertainty must be resolved in favor of an interpretation that limits, rather than extends, the
operation of the exemption. See Asphalt Pavers, Inc. v. Department of Revenue, 584 So. 2d 55, 57 (Fla. 1st DCA 1991)("[A]n exemption clause in a tax statute is to be strictly construed against the person claiming the exemption."); Department of Revenue v. Skop, 383 So. 2d 678, 680 (Fla. 5th DCA 1980)("While doubtful language in taxing statutes should be resolved in favor of the taxpayer, the reverse is true in the construction of exceptions and exemptions from taxation."); and Wanda Marine Corporation v. Department of Revenue, 305 So. 2d 65, 69 (Fla. 1st DCA 1974)("[T]ax exemptions must be strictly construed against the claimant.").
The language describing the "bare boat chartering" exemption that is the subject of the instant controversy is found in Rule 12A-1.071(19), Florida Administrative Code, which provides that, "[u]nless a boat or vessel is purchased exclusively for rental on a bare boat basis as described in paragraph (17), the purchase of the boat or vessel and parts thereof is taxable." Subsection (19) of Rule 12A-1.071, Florida Administrative Code, clarifies Subsection (2)(a)1 of the Rule (which provides that "[t]angible personal property purchased exclusively for leasing purposes may be purchased tax exempt, providing the lessor is registered with the Department as a dealer at the time of purchase and issues the vendor a valid resale certificate in lieu of tax"), as well as Rule 12A-
1.007(14)(b)1, Florida Administrative Code (which provides that "[t]he purchase of an aircraft, boat, mobile home, or motor vehicle exclusively for rental purposes may be made tax exempt"). These rule provisions implement the legislative pronouncement, made in Section 212.05(1)(b), Florida Statutes, that "tangible property [may be] purchased exempt from tax [if purchased] for use exclusively for lease."
Because "[t]he use tax does not apply to any property of which the retail sale is specifically exempt from payment of the Florida sales tax," (Rule 12A-1.091(4), Florida Administrative Code), Rule 12A-1.071(19), Florida Administrative Code, effectively exempts from Florida use tax any boat that is imported into Florida and used in the state "exclusively for rental on a bare boat basis as described in paragraph (17)" of Rule 12A-1.071, Florida Administrative Code.
The term "exclusively," as used in Rule 12A- 1.071(19), Florida Administrative Code, is defined in neither Rule Chapter 12A-1, Florida Administrative Code, nor Chapter 212, Florida Statutes. Absent such a definition, the term should be given its plain and ordinary meaning: solely, entirely, wholly, or only, there being no indication that a contrary meaning was intended. See Seagrave v. State, 2001 WL 776269 (Fla. 2001)("'One of the most fundamental tenets of statutory construction requires that we give statutory language
its plain and ordinary meaning, unless words are defined in the statute or by the clear intent of the legislature.' When necessary, the plain and ordinary meaning of words can be ascertained by reference to a dictionary."); Dade County v. Pan American World Airways, Inc., 275 So. 2d 505, 512 (Fla. 1973)("By this analysis we have not changed the ordinary meaning of 'exclusive' from its dictionary definition of 'single,' 'sole' and 'entirely.'"); Rast v. Hulvey, 80 So. 750 (Fla. 1919)("It will be observed that under this section of the statute, which is the only one applicable, the property of 'educational institutions' within this state actually occupied and used solely for educational purposes is exempt from taxation. It was not the intention of the Legislature to exempt from taxation property used for educational purposes and other purposes jointly. The word 'solely,' according to Webster's New International Dictionary, means 'without another; singly; alone; entirely; wholly.' The word 'solely' was not used idly in the statute, but was written therein to express the legislative will, as to what class of property shall be exempted, and under a proper construction of this act, no property used for educational purposes is exempt from taxation, unless there is a total absence of usage for other purposes unconnected with educational purposes."); and Speers v. C.I.R., 1994 WL 126680 (U.S. Tax Ct. 1994)("The exclusive use requirement of section
280A(c)(1) is an 'all-or-nothing standard.' . . . Combined personal and business use precludes deductibility of the cost of the residence."); Cf. Section 196.012(2), Florida Statutes ("'Exclusive use of property' means use of property solely for exempt purposes. Such purposes may include more than one class of exempt use.").
To understand what constitutes "rental on a bare boat basis," within the meaning of Rule 12A-1.071(19), Florida Administrative, reference must be made to Subsection (17) of the Rule, which provides as follows:
When a boat or vessel is leased or rented on a "bare boat" basis, the sales tax applies to the gross proceeds derived from the lease or rental. The lease or rental is considered to be on a "bare boat" basis when: (a) The lessor does not provide a crew; or (b) The lessor does provide a crew but it is hired by the lessee under a separate employment contract. (Under such circumstances the employment contract cost is not a part of the gross proceeds derived from the lease or rental and is not taxable.)"
It is apparent from a reading of this rule provision (particularly its first sentence) that, to be considered a "rental," as that term is used therein and in Subsection (19), a charter must be a Florida charter (which is subject to Florida sales tax unless the charterer enjoys a sales tax exemption), a view that is in keeping with the "obvious purpose and intent [of [Subsection (19)] of encouraging leasing activity in the state."
"Rental on a bare boat basis," within the meaning of Rule 12A-1.071(19), Florida Administrative, includes not only the actual "rental" of the boat "on a bare boat basis," but also those reasonably necessary, directly related activities undertaken in connection with and in furtherance of such "rental." See Ocean Beach Realty Co. v. City of Miami Beach,
143 So. 301, 302 (Fla. 1932)("It has been held that the laying out of walks and even streets around or through a park is not at all inconsistent with the dedication for park purposes where the same are necessary or contribute to the full enjoyment of the property for park purposes."); Rast v. Hulvey, 80 So. 750 (Fla. 1919)("If the building used as a school is also used by the owner as a residence or home, and not incidentally in connection with the use of the building as a school, or if the owner of the building lives in it as a matter of personal convenience or advantage, and not because it is necessary in the discharge of their duties as educators, then it cannot be said it is being used solely for school purposes."); Cedars of Lebanon Hospital
v. Los Angeles County, 221 P.2d 31, 35 (Cal. 1950)("It thus appears that under the rule of strict but reasonable construction, the phrase 'property used exclusively for * * * hospital * * * purposes' [in the tax exemption provision under scrutiny] should be held to include any property which is used exclusively for any facility which is incidental to and
reasonably necessary for the accomplishment of hospital purposes; or, in other words, for any facility which is reasonably necessary for the fulfillment of a generally recognized function of a complete modern hospital."); and Board of Appraisal Review for Travis County Appraisal District v.
Protestant Episcopal Church Council of Diocese of Texas, 676 S.W.2d 616, 622 (Tex. App. 1984)("We believe, however, that the concept of reasonable necessity will allow the trial court's conclusion that the uses made of the 185 acres, as shown by the evidence, are reasonably necessary for operation of the school and that such uses are exclusively for school purposes. The uses are not merely convenient under the evidence; rather, they form an integral part of the students' 'education' considered both in a narrow and in an enlarged sense."). A more narrow and literal interpretation would defeat the "obvious purpose and intent" of the "bare boat chartering" exemption. See Board of Trustees of Kansas East Conference of United Methodist Church v. Cogswell, 473 P.2d 1, 11 (Kan. 1970)("A strict construction of tax exemption provisions in the constitution and statutes does not warrant an unreasonable construction of such laws."); Eckberg v. Belfer, 24 N.W.2d 851 (Minn. 1946)("A too narrow and literal interpretation must not be permitted to overshadow the spirit and defeat the purpose for which the regulations were promulgated."); and City of Long Branch v. Monmouth Medical
Center, 351 A.2d 756, 760 (N.J. App. 1976)("While a statute granting a tax exemption . . . must be construed strictly against the one claiming the exemption, the statute must also be construed reasonably so that the apparent legislative purpose is not destroyed.").
Accordingly, for a boat owner to qualify for an exemption from Florida use tax pursuant to the "exclusively for rental on a bare boat basis" language in Subsection (19) of Rule 12A-1.071, Florida Administrative Code, the boat, while in Florida, must either be rented on a "bare boat basis" (that is, without captain and crew or with captain and crew furnished under a separate employment agreement) or used in a manner reasonably designed to further the boat's use for "bare boat" chartering in Florida and for no other purpose. Any other use of the boat in Florida will make the owner ineligible for the exemption. (How the boat is used outside Florida does not have any bearing on the owner's eligibility for the exemption. 8/ Eligibility for the exemption (like use tax liability) is based upon what is done with the boat while it is in Florida.)
In the instant case, Petitioner did not intend to at the time it imported the Fifty-One into Florida, nor did it during the Audit Period, use the Fifty-One in Florida 9/ "exclusively for rental on a bare boat basis," within the meaning Subsection (19) of Rule 12A-1.071, Florida
Administrative Code. The Fifty-One was in Florida for nearly
400 days during the Audit Period, but under "bare boat" charter (and thereby generating Florida sales tax revenue) only a small fraction of that time. 10/ As Mr. Wiviott testified at hearing, "[t]he only reason [the Fifty-one] was ever [brought] in[to] Florida [by Petitioner] was for marketing and repairs." 11/ Producing Florida charter business for Petitioner, however, was not the sole (nor even the primary) purpose of the "marketing and repairs" done during the time the Fifty-One was in Florida. While Mr. Wiviott expected that the "marketing and repairs" would enhance the reputation of the Fifty-One as a charter vessel and result in charter business, he anticipated, correctly as it turned out, that most, if not all, of the charter business generated would be in the form of charters outside Florida (and therefore not subject to Florida sales tax). Furthermore, the "repairs" (done in Florida) had the additional purpose of furthering the Fifty-One's use as a pleasure vessel by Mr. Wiviott, his family, and friends. See
State v. Breland, 421 So. 2d 761, 766 (Fla. 4th DCA 1982)("Actions manifest intent.").
In addition to the "marketing and repairs that were done in Florida, there were other activities in Florida during the Audit Period involving the use of the Fifty-One while not under charter that did not have as their sole purpose (and, in
some instances, did not have as a purpose at all) the furthering of Petitioner's Florida "bare boat" charter operations. These Florida activities included: the April 1994 "shakedown" cruise from Fort Lauderdale to Key West and back taken by Mr. Wiviott and his Invited Guests; stocking the Fifty-One with supplies and provisions for use during non-Florida charters and when
Mr. Wiviott, his family, and other guests were using the Fifty- One as a pleasure vessel; fueling the Fifty-One for non-Florida charters and pleasure cruises taken by Mr. Wiviott and his guests; and storing Mr. and Mrs. Wiviott's clothes in a locker on board the Fifty-One so that they would be available whenever the Wiviotts were on board the vessel, including for non- business-related, personal purposes. 12/
Because Petitioner did not bring the Fifty-One into Florida, nor use it in Florida during the Audit Period, "exclusively for rental on a bare boat basis," within the meaning Subsection (19) of Rule 12A-1.071, Florida Administrative Code, Petitioner was not entitled to the "bare boat chartering" exemption that it relied upon to avoid paying Florida use tax on the Fifty-One and Florida sales tax on those items of tangible personal property (including the Choice One) purchased pursuant to its Florida sales tax exemption certificate.
Accordingly, it is within the Department's authority to take action to recover from Petitioner these unpaid taxes, along with penalties and interest.
The Department having demonstrated the factual and legal basis of its proposed assessment against Petitioner, and Petitioner having failed to demonstrate that the proposed assessment is incorrect in any respect, including the calculation of the amount of tax, penalties, and interest owed, the proposed assessment should be sustained in full. See American Aircraft Sales International, Inc. v. Department of
Revenue, 1997 WL 1052968 (Fla. DOAH 1997)(Recommended Order)("Under 120.80(14)(b), Florida Statutes (Supp. 1996), the Department's burden of proof is limited to proof of the assessment and the factual and legal basis for it. Since, in this case, the Department met its burden of proof, the burden shifted to the Petitioner to demonstrate by a preponderance of the evidence that the assessment is incorrect.").
Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby
RECOMMENDED that the Department enter a final order sustaining its assessment against Petitioner in its entirety.
DONE AND ENTERED this 26th day of October, 2001, in Tallahassee, Leon County, Florida.
STUART M. LERNER
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 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 26th day of October, 2001.
ENDNOTES
1/ The term "registered repair facility" is defined in Section 212.08(7)(t)4, Florida Statutes, as follows:
"[R]egistered repair facility" means:
A full-service facility that:
Is located on a navigable body of water;
Has haulout capability such as a dry dock, travel lift, railway, or similar equipment to service craft under the care, custody, and control of the facility;
Has adequate piers and storage facilities to provide safe berthing of vessels in its care, custody, and control; and
Has necessary shops and equipment to provide repair or warranty work on vessels under the care, custody, and control of the facility;
A marina that:
Is located on a navigable body of water;
Has adequate piers and storage facilities to provide safe berthing of vessels in its care, custody, and control; and
Has necessary shops and equipment to provide repairs or warranty work on vessels; or
A shoreside facility that:
Is located on a navigable body of water;
Has adequate piers and storage facilities to provide safe berthing of vessels in its care, custody, and control; and
Has necessary shops and equipment to provide repairs or warranty work.
The term is used in Section 212.08(7)(t)1, Florida Statutes, which provides as follows:
1. Notwithstanding the provisions of chapter 328, pertaining to the registration of vessels, a boat upon which the state sales or use tax has not been paid is exempt from the use tax under this chapter if it enters and remains in this state for a period not to exceed a total of 20 days in any calendar year calculated from the date of first dockage or slippage at a facility, registered with the department, that rents dockage or slippage space in this state. If a boat brought into this state for use under this paragraph is placed in a facility, registered with the department, for repairs, alterations, refitting, or modifications and such repairs, alterations, refitting, or modifications are supported by written documentation, the 20-day
period shall be tolled during the time the boat is physically in the care, custody, and control of the repair facility, including the time spent on sea trials conducted by the facility. The 20- day time period may be tolled only once within a calendar year when a boat is placed for the first time that year in the physical care, custody, and control of a registered repair facility; however, the owner may request and the department may grant an additional tolling of the 20-day period for purposes of repairs that arise from a written guarantee given by the registered repair facility, which guarantee covers only those repairs or modifications made during the first tolled period. Within 72 hours after the date upon which the registered repair facility took possession of the boat, the facility must have in its possession, on forms prescribed by the department, an affidavit which states that the boat is under its care, custody, and control and that the owner does not use the boat while in the facility. Upon completion of the repairs, alterations, refitting, or modifications, the registered repair facility must, within 72 hours after the date of release, have in its possession a copy of the release form which shows the date of release and any other information the department requires. The repair facility shall maintain a log that documents all alterations, additions, repairs, and sea trials during the time the boat is under the care, custody, and control of the facility. The affidavit shall be maintained by the registered repair facility as part of its records for as long as required by s.
213.35. When, within 6 months after the date of its purchase, a boat is brought into this state under this paragraph, the 6-month period provided in s. 212.05(1)(a)2. or s. 212.06(8) shall be tolled.
"Sea trial," as that term is used in Section 212.08(7)(t)1, Florida Statutes, is defined in Section 212.02(25), Florida Statutes, as follows:
"Sea trial" means a voyage for the purpose of testing repair or modification work, which is in length and scope reasonably
necessary to test repairs or modifications, or a voyage for the purpose of ascertaining the seaworthiness of a vessel. If the sea trial is to test repair or modification work, the owner or repair facility shall certify, in a form required by the department, what repairs have been tested. The owner and the repair facility may also be required to certify that the length and scope of the voyage were reasonably necessary to test the repairs or modifications.
2/ The undersigned has accepted the Stipulations of Fact contained in the parties' Joint Pre-Hearing Stipulation, except to the extent that Stipulation of Fact 12 represents that the Fifty-One was in Florida waters at all times during the Jean Foss charter on December 27, 1995, through January 3, 1996. See Gunn Plumbing, Inc. v. The Dania Bank, 252 So. 2d 1, 4 (Fla.
1971)("A stipulation properly entered into and relating to a matter upon which is appropriate to stipulate is binding upon the parties and the Court."); Johnson v. Johnson, 663 So. 2d 663, 665 (Fla. 2d DCA 1995)("[T]o foster the legal policy of encouraging stipulations to minimize litigation and expedite resolution of disputes, the law provides that '(s)uch stipulations should be enforced if entered into with good faith and not obtained by fraud, misrepresentation, or mistake, and not against public policy.'"); and EGYB, Inc. v. First Union National Bank of Florida, 630 So. 2d 1216, 1217 (Fla. 5th DCA 1994)("Unless grounds for recission or withdrawal are shown, the trial court is bound to strictly enforce the agreement between the parties.").
3/ As Petitioner observed in its Proposed Recommended Order, "[t]he Congressional action restored the vessel's eligibility to engage in fully crewed charters (in addition to bare boat charters) in the United States." That Petitioner sought such "Congressional action" suggests that Petitioner intended to use the Fifty-One for rental other than on a bare boat basis.
4/ This "shakedown" cruise was not a "sea trial," as that term is defined in Section 212.02(25), Florida Statutes.
5/ The Department does not take the position that Petitioner owes any taxes in connection with its purchase or use of the Choice Too.
6/ "The general rule in Florida is that a contract for personal services is not assignable by either party unless the parties consent to such an assignment." Johnston v. Dockside Fueling of North America, Inc., 658 So. 2d 618, 619 (Fla. 3d DCA 1995). "A personal service is a non-delegable performance involving a relationship of trust and confidence between the parties and generally applies to employment contracts 'that create the intimate relation traditionally known as master and servant.'" Moneyhun v. Vital Industries, Inc., 611 So. 2d 1316, 1320 (Fla. 1st DCA 1993); see also Miller Construction Company v. First Industrial Technology Corporation, 576 So. 2d 748, 751 (Fla. 3d DCA 1991)("Miller asserts that the oral agreement sued upon-- architectural design services beyond the Part 1 Agreement--is not a personal service contract. We, however, find that architectural design services are personal in nature since they involve artistic and unique abilities.").
7/ The remaining portion of this rule provision reads, "See Rule 12A-1.064, F.A.C., for vessels engaged in interstate and foreign commerce." At the final hearing, both parties, through counsel, expressed their agreement that this portion of the rule provision "does not apply" to the facts of the instant case.
8/ In its Proposed Recommended Order, however, the Department contends that "[g]eneral maritime law determines whether a vessel's activity constitutes bare boat chartering" for Florida sales and use tax purposes, and it cites an admiralty case, Walker v. Braus, 995 F.2d 77, 81 (5th Cir. 1993), holding that, "'[u]nder a bare boat or demise charter the vessel is transferred without crew, provisions, fuel or supplies." The undersigned disagrees that any definition, other than that found in Rule 12A-1.071(17), Florida Administrative Code, should be used in determining whether "any charter of the [Fifty-One during the Audit Period] constitute[d] a bare boat charter." Cf. Perkins v. State, 682 So. 2d 1083, 1084-85 (Fla. 1996)(1982 amendment to burglary statute adding definition of "dwelling," superseded common law definition courts had used in interpreting statute prior to amendment); and Kilpatrick v. Sklar, 548 So. 2d 215, 218 (Fla. 1989)("We agree with the Third District Court of Appeal in the instant case that there are no common law defenses to the statutory cause of action based on section 767.01 and 767.04, Florida Statutes (1981). In Belcher Yacht, Inc. v.
Stickney, 450 So. 2d 1111 (Fla. 1984), we rejected the plaintiff's assertion that he could bring a common law negligence action because his statutory claim was supplemental to the rights he already enjoyed to bring the common law action. The majority of this Court determined that the statutory claim
superseded any common law causes of action. We find the same principle and reasoning applies to common law defenses. We also agree with the Third District that only those defenses provided by statute under section 767.04 apply.").
9/ Accordingly, it is not necessary to determine whether the 1996 Mutual of Omaha Marketing Company charter and the Prince Aziz charter were "rentals on a bare boat basis," within the meaning of Rule 12A-1.071(19), Florida Administrative.
10/ It is undisputed that the Fifty-One constituted "tangible personal property" (as defined in Section 212.02(19), Florida Statutes) and that Petitioner engaged in the "use" (as defined in Section 212.20(20), Florida Statutes) of the Fifty-One in Florida during the Audit Period.
11/ Both the Gerardo Cabrera and Jean Foss charters (the only two Florida charters during the Audit Period) were "on a bare boat basis," as defined in Subsection (17) of Rule 12A-1.071, Florida Administrative Code.
12/ "Repairs," as used in this context, includes improvements and maintenance work.
13/ When viewed collectively and considered in light of the extent to which the Fifty-One was used for "rental on a bare boat basis" in Florida during the Audit Period, these non- qualifying uses can hardly be deemed de minimis; however, even if they could be, given the requirement of Subsection (19) of Rule 12A-1.071, Florida Administrative Code, that a vessel be used "exclusively for rental on a bare boat basis" in order for its owner to be eligible for a "bare boat chartering" exemption, the outcome of the instant case would be the same. See Autumn House v. State ex rel. Oklahoma Tax Commission, 814 P.2d 1036, 1039-40 (Okl. 1991)("Our decisions have consistently held that tax exemption statutes must be strictly construed against granting exemptions. Where, as here, the legislative language is specifically limited in its application, this court's statutory construction is necessarily constrained by the enactment's purview. Section 1357(G) is specifically limited to tax exemptions upon the use of natural gas and electricity that is sold exclusively for residential use. Even if the dual use of the taxpayers' common areas and the remuneration from the coin-operated laundry facilities could be characterized as de minimis, our result would be the same. The legislature's use of the term "exclusively " is both plain and unambiguous. It must be given a mandatory meaning. In the face of such stark
language, we cannot find the taxpayers' use of natural gas and electricity to have been exclusively for residential use. The taxpayers' claims for sales tax refund must be denied.").
COPIES FURNISHED:
Glen A. Stankee, Esquire
Ruden, McCloskey, Smith, Schuster and Russell, P.A.
Post Office Box 1900
Fort Lauderdale, Florida 33302
J. Clifton Cox, Esquire Office of the Attorney General The Capitol-Tax Section
Tallahassee, Florida 32399-1050
Linda Lettera, General Counsel Department of Revenue
204 Carlton Building Tallahassee, Florida 32399-0100
James Zingale, 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 within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Apr. 10, 2002 | Agency Final Order | |
| Oct. 26, 2001 | Recommended Order | Yacht owner not eligible for "bare boat" charter exemption from use tax where yacht not used exclusively for purposes of furthering owner`s "bare boat" charter operation in Florida. |
