STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FIRST ALACHUA BANKING CORPORATION,

Petitioner,

vs.

DEPARTMENT OF REVENUE,

Respondent.

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) Case No. 04-0798

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RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case on May 20, 2004, in Gainesville, Florida, before the Division of Administrative Hearings by its designated Administrative Law Judge, Barbara J. Staros.

APPEARANCES

For Petitioner: John P. Stevens, C.P.A.

Stevens, Powell, & Company, P.A. 8382 Baymeadows Road, Suite 1

Jacksonville, Florida 32256

For Respondent: Carrol Y. Cherry, Esquire

Office of the Attorney General Department of Legal Affairs The Capitol Plaza Level 01

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUE

The issue in this proceeding is whether the Department of Revenue's denial of a refund of intangible tax should be upheld.

PRELIMINARY STATEMENT

On January 5, 2004, Respondent, Department of Revenue (the Department), issued a Notice of Decision of Refund Denial (NOD) to Petitioner, First Alachua Banking Corporation. The NOD advised Petitioner that its application for an intangible tax refund was denied. The NOD relied upon Subsections 215.26(2), and (5), Florida Statutes (2000).1/

Petitioner challenged the Department's intended action and filed a petition for an administrative hearing. The Department forwarded the case to the Division of Administrative Hearings on or about March 10, 2004. A formal hearing was scheduled for May 20, 2004.

On May 3, 2004, Respondent filed a Motion for Summary Recommended Order. Petitioner filed a response in opposition to the motion. Oral argument was heard on the motion via telephone conference call on May 18, 2004. The motion was denied and the case proceeded to final hearing, as scheduled.

At the commencement of the hearing, Mr. John Stevens, Certified Public Accountant for Petitioner, was authorized to appear as qualified representative for Petitioner pursuant to Florida Administrative Code Rule 28-106.106.

At hearing, Petitioner presented the testimony of

Frank Bevis, senior vice president for Petitioner. Petitioner's Exhibits numbered 1 and 2 were admitted into evidence.

Respondent presented the testimony of Linda Lyles, Celestine Grantham, and Gerald Becker. Respondent's Exhibits 1 through 6 were admitted into evidence.

A Transcript of the hearing was filed on June 2, 2004. The parties requested more than ten days in which to file proposed recommended orders, and that request was granted. Petitioner and Respondent timely filed a post-hearing memorandum and a Proposed Recommended Order, respectively, which have been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Petitioner, First Alachua Banking Corporation, is a Florida corporation engaged in the business of banking.

2. On February 25, 2000, Petitioner filed a Florida intangible personal property tax return in which it reported intangible assets in Florida worth $42,829,500.64. Petitioner paid intangible tax in the amount of $61,617.47.

3. Due to a change in the law, banks became exempt from intangible tax effective for taxes due on or after July 1, 1999.2/

4. On June 23, 2003, Petitioner filed an application for refund with the Department requesting a refund of intangible tax in the amount of $46,576.98. The reason given on the application for refund is "taxpayer exempt under Fla statute,"

   citing Subsection 199.185(5), Florida Statutes. The application for refund was prepared by Mr. Bevis.

5. Petitioner filed four applications for refund for the years 2000 through 2003. The Department issued refunds to Petitioner for 2001, 2002, and 2003.

6. However, on July 7, 2003, the Department issued a Notice of Intent to Make Tax Refund Claim Changes showing a proposed refund due of $0 for 2000. The explanation given by Linda Lyles, Refund Auditor, is as follows:

   EXPLANATION:

   
   

   I am denying your refund request for the following reason:

   
   

   Your refund has exceeded the 3 year statute of limitations per s. 215.26(2) Florida Statutes. Tax paid on or after October 1, 1994, but before July 1, 1999 has a five year limit, for tax paid after July 1999, the limit is 3 years from the date paid.

   Additionally r 12C-2.012(b) F.A.C. states, 'Form DR-26, Application for Refund, must be filed with the Department for tax paid on or after July 1, 1999 within 3 years after the date the tax was paid.'

   
   

   Your 2000 tax was paid on February 25, 2000, therefore your refund application should have been submitted by February 25, 2003.

   It was postmarked June 19, 2003.

   
   

7. On July 21, 2003, Mr. Stevens wrote to Ms. Lyles requesting an informal conference, citing Subsection 215.26(5), Florida Statutes, and giving the following reasons why the return was not prepared correctly:

   Our client intends to demonstrate reasonable cause for failure to prepare the return correctly, detect such error, and timely file the refund request within the three-year statutory period. The principal reasons for failure to comply with the time limitations and conditions for a timely refund request were that:

   
   

   • The Company's assistant secretary has prepared the intangible return for a number of years using the instructions provided in the intangible return package. He was unaware of the changes in statutes eliminating a Florida intangible return on bank assets. Furthermore, the intangible return instructions for the year 2000 were silent with respect to this change in tax law.

     
     

   • The Company has engaged a certified public accounting firm to prepare their income tax returns and relies on this firm to provide relevant and timely information on bank income and other tax issues. This firm failed to notify the Company of the change in intangible personal property tax laws.

     
     

   • In 2002, a Florida Department of Revenue audit was conducted in which the auditor obtained and reviewed copies of the intangible personal property tax return for January 1, 2000. The auditor should have known that banking assets were not subject to intangible tax and failed to advise the Company. We have enclosed a copy of the DR-840 for your convenience.

     
     

8. The intervening audit referenced in Petitioner's letter of June 21, 2003, was a corporate income tax audit. In the Notification of Intent to Audit Book and Records, the auditor requested that Petitioner make its intangible tax return and

   intangible personal property records available for audit to determine whether Petitioner properly took a credit on its corporate income tax return for intangible tax paid in 1999. However, in accordance with the general practice of the Department, the auditor who conducted the corporate income tax audit did not audit Petitioner's intangible tax return.

9. The Notification of Intent to Audit Book and Records identified the tax to be audited as Corporate Income Tax pursuant to Chapter 220, Florida Statutes. If an auditor determines during an audit that an examination of another tax is necessary, it is the policy of the Department that the auditor inform the taxpayer, add that tax to the Notification of Intent to Audit Book and Records, initial that change, and request the taxpayer to initial the addition. There is no indication in the audit file that any other tax was audited other than corporate income tax.

10. On July 25, 2003, the Department issued a Notice of Proposed Refund Denial regarding Petitioner's request for the 2000 intangible tax refund.

11. On January 5, 2004, the Department issued a Notice of Decision of Refund Denial sustaining its earlier proposed decision to deny the refund request because the request was filed outside the three-year statute of limitations referenced in Subsection 215.26(2), Florida Statutes.

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the parties to and subject matter of this proceeding. §§ 72.011, 120.569 and 120.57(1), Fla. Stat.

13. The Department of Revenue is the state agency responsible for the administration of the state's tax laws.

    §§ 20.21 and 213.05, Fla. Stat.

    
    

14. Petitioner seeks a refund of intangible taxes paid in error. As Petitioner is the party asserting the affirmative of an issue, Petitioner has the burden of proof. Department of

    Transportation v. J.W.C. Company, 396 So. 2d 778 (Fla. 1st DCA 1981); Balino v. Department of Health and Rehabilitative Services, 348 So. 2d 349 (Fla. 1st DCA 1977).

15. Florida law imposes a tax on intangible assets that have a situs in this state. Intangible assets have a taxable situs when they are owned, managed, or controlled by a person, as defined by statute domiciled in Florida. See generally Chapter 199, Fla. Stat.

16. As a result of an amendment to the law, certain organizations as defined in Section 220.62, Florida Statutes, became exempt from intangible taxes due on or after July 1, 1999. See Chapter 98-132, § 6, Laws of Florida 1998.

17. Petitioner meets the definition of "bank" as defined in Subsection 220.62(1), Florida Statutes. Thus, Petitioner

    became exempt from the intangible tax imposed by Chapter 199, Florida Statute.

18. Section 215.26, Florida Statutes, reads in pertinent part as follows:

    (2) Application for refunds as provided by this section must be filed with the Comptroller, except as otherwise provided, in this subsection, within 3 years after the right to the refund has accrued or else the right is barred. Except as provided in chapter 198 and s. 220.23, an application for a refund of a tax enumerated in

    s. 72.011, which tax was paid after September 30, 1994, and before July 1, 1999, must be filed with the Comptroller within

    5 years after the date the tax is paid, and within 3 years after the date the tax was paid for taxes paid on or after July 1, 1999. . . .

    
    

    * * *

    
    

    1. This section is the exclusive procedure and remedy for refund claims between individual funds and accounts in the State Treasury.

       
       

    2. When a taxpayer has pursued administrative remedies before the Department of Revenue pursuant to s. 213.21 and has failed to comply with the time limitations and conditions provided in

    ss. 72.011 and 120.80(14)(b), a claim for refund shall be denied by the Comptroller. However, the Comptroller may entertain a claim for refund under this subsection when the taxpayer demonstrates that his or her failure to pursue remedies under chapter 72 was not due to neglect or for the purpose of delaying payment of lawfully imposed taxes and can demonstrate reasonable cause for such failure. (Emphasis supplied.)

19. Petitioner also relies on Florida Administrative Code Rule 12-26.002(3)(b), which reads in pertinent part, as follows:

    (3)(b) . . . The Department will accept, pursuant to Section 215.26(5), Florida Statutes, . . . claims for refund when a taxpayer demonstrates that his failure to pursue remedies under chapter 72, F.S., was not due to neglect or for the purpose of delaying payment of lawfully imposed taxes and can demonstrate reasonable cause for such failure. For the purposes of this rule, reasonable cause means that the facts and circumstances of the specific case reflect that the taxpayer exercised ordinary care and prudence, despite the lack of compliance with the time limitations prescribed in Section 72.011, F.S. (Emphasis supplied.)

    
    

20. Section 72.011, Florida Statutes, pertains to time limitations for contesting the legality or denial of a tax refund. It gives the Department the discretion to entertain untimely requests for administrative remedies pertaining to refund claims. However, the initial refund claim or application must be timely filed pursuant to Subsection 215.26(2), Florida Statutes.

21. The timeliness of Petitioner's challenge to the refund denial is not at issue herein. Petitioner's pursuit of remedies was timely. Thus, Petitioner's reliance on Subsection 215.26(5), Florida Statutes, and Florida Administrative Code Rule 12-26.002(3) is misplaced. Subsection 215.26(5), Florida Statutes, does not authorize the Department to entertain refund

    claims that are not in compliance with the time limitations imposed under Subsection 215.26(5), Florida Statutes.

22. Section 215.26, Florida Statutes, is a statute of non-claim. Any right to a tax refund accrues from the time of

    payment of the tax. Victor Chemical Works v. Gay, 74 So. 2d 560 (Fla. 1954).

23. Petitioner paid the tax which is the subject of this dispute on February 25, 2000. As a matter of law, Petitioner's refund claim was automatically barred after February 25, 2003.

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law, it is

RECOMMENDED:

That the Department of Revenue enter a final order denying Petitioner's request for a refund of intangible taxes.

DONE AND ENTERED this 9th day of July, 2004, in Tallahassee, Leon County, Florida.

S

BARBARA J. STAROS

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 9th day of July, 2004.

ENDNOTES

1/ All citations are to the Florida Statutes (2000), unless otherwise indicated.

2/ This amendment to the law is more fully explained in the Conclusions of Law.

COPIES FURNISHED:

John P. Stevens, C.P.A. Stevens, Powell & Company, P.A. 8382 Baymeadows Road, Suite 1

Jacksonville, Florida 32256

Carrol Y. Cherry, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

James Zingale, Executive Director Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

Bruce Hoffman, General Counsel Department of Revenue

204 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.

Docket for Case No: 04-000798

Orders for Case No: 04-000798