STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

INTERNATIONAL SURFACE PREPARATION GROUP, INC.,

Petitioner,

vs.

DEPARTMENT OF REVENUE,

Respondent.

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) Case No. 07-2845

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RECOMMENDED ORDER

Upon due notice, a disputed-fact hearing was convened in this cause on October 17, 2007, in Tallahassee, Florida, before Ella Jane P. Davis, a duly-assigned Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: No Appearance

For Respondent: John Mika, Esquire

Office of the Attorney General

The Capital - Revenue Litigation Bureau Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUES

1. Whether Petitioner collected and remitted to the Florida Department of Revenue the correct amount of sales tax on Petitioner's retail sales; and

2. Whether Petitioner remitted to the Florida Department of Revenue the proper amount of sales tax on Petitioner's general and fixed assets purchases and on its commercial lease.

PRELIMINARY STATEMENT

In January 2005, Respondent initiated an audit of Petitioner to determine Petitioner's compliance with Chapter 212, Florida Statutes. Upon the completion of the audit, Respondent determined that Petitioner had a liability for taxes owed.

Petitioner timely disputed the assessment and filed a Petition for Formal Review. On June 5, 2007, Respondent Department entered an Order dismissing the Petition for failure to meet the requirements contained in Chapter 120, Florida Statutes, and Florida Administrative Code Rule 28-106.201, and allowing Petitioner leave to amend. On June 20, 2007, an Amended Petition for Administrative Hearing was filed. The Amended Petition was then forwarded to the Division of Administrative Hearings on or about June 27, 2007.

On July 9, 2007, a Notice for Final Hearing on September 17, 2007, was mailed. On August 22, 2007,

Respondent's Motion to Continue, Motion to Require Appearance of Counsel or Qualified Representative, and Motion to Compel were filed. On August 24, 2007, Respondent's Addendum to the Motion to Compel was filed. On September 4, 2007, an Order Granting

Continuance and Re-Scheduling Hearing for October 17, 2007, was entered. On September 17, 2007, an Order on all Pending Motions was entered.

On October 15, 2007, the case was transferred to the undersigned Administrative Law Judge.

Petitioner did not appear for the final hearing on October 17, 2007. After waiting a half-hour, the hearing was commenced without any representative of Petitioner appearing.

Respondent Department presented the oral testimony of Joe Reach, a tax audit supervisor for Respondent's Atlanta, Georgia Office, and had a composite exhibit, tabbed Numbers one through six, for audit number 200010991, admitted in evidence.

At the close of the Department’s case-in-chief, Petitioner still had not appeared. The undersigned determined that Petitioner had not contacted the Division, and was not on the premises. The hearing was then adjourned.

The Agency was permitted to supplement the record by filing, on November 8, 2007, a copy of the June 20, 2007, Amended Petition for Administrative Hearing, dated June 20, 2007, and a copy of the May 29, 2007, Petition. These items have been considered only to the extent they supplement the items previously referred by the Department to the Division file so as to confirm that, in all instances, Mr. Spomer, the individual representing himself as Petitioner's "Controller" on

the Petition and on the Amended Petition has been properly served will all pleadings and orders in this case before the Division.

Only Respondent Department filed a Proposed Recommended Order, which proposed Recommended Order has been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Petitioning Taxpayer, Surface Preparation Group, Inc., is a "C" corporation, incorporated in the State of Texas.

2. The Taxpayer's product or service is the sale, service, and rental of surface preparation equipment.

3. The Taxpayer has been registered with the Department since October 7, 1999.

4. By letter dated January 12, 2005, the Department notified the Taxpayer of its intent to audit the Taxpayer's books and records to verify the Taxpayer's compliance with Florida's sales and use tax statutes. The audit period in this case is from December 1, 2001, through November 30, 2004.

5. When the audit started, the Taxpayer had a presence in LeGrange, Georgia. During the course of the audit and negotiations, the Taxpayer removed itself back to its Texas headquarters.

6. Specific records were requested to be made available for the Department's auditor to review.

7. Four subject areas were developed in the audit plan:

   
   

   (1) sales; (2) fixed expense; (3) general expense; and (4) commercial rent.

8. Although the Taxpayer provided some sales data, the information contained therein did not correlate with other information the Department had concerning the Taxpayer's Florida sales. For instance, auditors had traced through general ledgers to Petitioner’s federal tax return and compared the return with the company’s Florida sales and use tax return, and the figures did not correlate.

9. Despite repeated requests by the Department's auditor, the Taxpayer provided no information explaining the reasons for this discrepancy, nor was any information provided regarding the Taxpayer’s general purchases, fixed asset purchases, or its commercial lease expenses.

10. Therefore, in order to complete the audit process, the Department had to use the best information available to estimate the additional tax due on fixed assets, general purchases, and commercial rent. That information in this case consisted of materials provided by the Taxpayer and industry averages and past audit assessments of businesses in similar industries. Because total sales reported by the Taxpayer on its DR-15 monthly sales returns were different than the amounts the Taxpayer reported in response to the audit request, there was no

    assurance that the reported taxable sales and exempt sales were correct. Accordingly, the Department's auditor disallowed all exempt sales as reported by the Taxpayer.

11. Because the Taxpayer had a location in Polk County, Florida, during part of the audit period, it must have had fixed assets there. This meant that a use tax was due for all the Taxpayer’s purchases in Florida, without credit for sales tax paid to vendors who in many cases were located in Georgia. No information was provided by the Taxpayer for general expenses or rental expenses. Without any information from the Taxpayer for general expenses or rental location, the Department had to proceed differently than it would have normally proceeded.

12. In anticipation of submitting more documents to be analyzed by the Department as part of the audit, Mr. Hillebrand, tax manager for Petitioner, signed, on October 24, 2005, a consent to extend the statute of limitations and time for completing the audit to July 31, 2006. (Exhibit R-2, page 000030). On March 15, 2006, Mr. Schnaible, one of the Taxpayer’s Controllers, signed a consent to extend until December 31, 2006. (Exhibit R-2, page 000029).

13. On September 26, 2006, after analyzing all that had been received from the Taxpayer up to that date, the Department mailed a Notice of Intent to Make Audit Changes (NOI) to

    Petitioner, along with the work papers supporting the changes, and a letter from the auditor explaining the findings.

14. The amount of tax assessed totaled $197,714.38, and comprised: Schedule A01: Disallowed Exempt Sales $169,994.38; Schedule B01: Estimated Fixed Asset Purchases $10,080.00; Estimated General Expenses: $5,040.00; and Estimated Commercial Rental $12,600.00. Interest accrued through September 26, 2006, totaled $57,353.50. The penalty at that date totaled

    $49,428.09, bringing the total assessment amount to $304,496.47.

    
    

15. The Department’s September 26, 2006, letter offered the Taxpayer another opportunity to provide records if it disputed the auditor's findings, and another option to continue the audit process. (Exhibit R-2, pages 000044 through 000045).

16. On October 25, 2006, Mr. Spomer, Taxpayer’s Controller who eventually signed the Petition and Amended Petition herein, wrote a letter (Exhibit R-2, page 000042) to the auditor stating that he requested to extend the audit and that he would mail back the signed, correct form.

17. Normally, a DR-872e form to extend the statute and audit period must be signed within 30 days of the NOI. In this case, it was signed two months later. Apparently, one such form signed by Mr. Spomer was inadvertently filled-in by the Department with the extension date of "June 30, 2006," (copy attached to Amended Petition). Therefore, a second form was

    executed by Mr. Spomer on November 1, 2006. This form bears the correct extension date of June 30, 2007. (Exhibit R-2, page 000028).

18. No additional information was provided by the Taxpayer which would change any of the tax amounts identified in the NOI.

19. Therefore, on January 31, 2007, the Department issued it Notice of Proposed Assessment (NOPA). Therein, the amount of tax due remained unchanged. The amount of accrued interest through January 31, 2007, increased to $65,023.73, and the penalty was reduced to zero. The Department currently seeks

    $262,738.11, with interest accruing on the unpaid tax liability at the statutory rate.

    CONCLUSIONS OF LAW

    
    

20. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding, pursuant to Section 120.569 and Subsection 120.57(1), Florida Statutes.

21. Respondent Department is the agency of government authorized to administer the tax laws of the State of Florida, pursuant to Section 213.05, Florida Statutes. When the dispute involves a tax assessment, the Department’s burden of proof is limited to a showing that an assessment has been made against the Taxpayer and the factual and legal grounds upon which the Agency has made the assessment, as provided for in Subsection

    120.80(14)(b)2., Florida Statutes. See also IPC Sports v. Department of Revenue, 829 So. 2d 330, 332 (Fla. 3rd DCA 2002).

22. The Department is authorized to prescribe the records to be kept by all persons subject to taxes under Chapter 212, Florida Statutes. Such persons have a duty to keep and preserve their records and the records shall be open to examination by the Department or its authorized agents at all reasonable hours, pursuant to Section 212.12(6), Florida Statutes.

23. The Department is authorized to conduct audits of taxpayers and to request information to ascertain their tax liability, if any, pursuant to Section 213.34, Florida Statutes.

24. In the event that any dealer fails or refuses to make its records available for inspection so that no audit or examination may be made of the actual books and records of the taxpayer, the Department is authorized to issue an assessment from an estimate based upon the best information available. See 212.12(5)(b), Florida Statutes. The assessment made pursuant to Section 212.12(5)(b), Florida Statutes, shall be considered prima facie correct, and the burden to show the contrary rests upon the dealer/taxpayer.

25. Petitioner's failure to keep, and therefore its failure to make available, its records for departmental inspection permitted the Department to issue an assessment from its estimate, based upon the best information available. See

    § 212.12(5)(b), Florida Statutes. This has been done.

    
    

26. Petitioner produced no competent evidence to overcome the prima facie correctness of the assessment as delineated by the Agency's supervising auditor who testified herein and by the exhibits that he explained in his testimony.

27. One of Petitioner Taxpayer’s allegations in its Amended Petition was that the statute of limitations had run on the audit. However, it was clearly shown to be the Taxpayer’s intent to waive the statute until June 30, 2007, as shown by Findings of Fact 15-17, and the January 31, 2007, NOPA was issued well within the final extension. Petitioner also has not presented any evidence, oral argument, or proposed recommended order to refute the evidence relied on by the Department and upon which findings of fact have been made. Therefore, the Department should prevail.

RECOMMENDATION

Based on the foregoing Findings of Facts and Conclusions of Law, it is

RECOMMENDED that the Department of Revenue enter a final order sustaining the Notice of Proposed Assessment dated January 31, 2007.

DONE AND ENTERED this 6th day of December, 2007, in Tallahassee, Leon County, Florida.

S

ELLA JANE P. DAVIS

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 6th day of December, 2007.

COPIES FURNISHED:

Bruce Hoffmann, General Counsel Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street Tallahassee, Florida 32399-0100

Lisa Echeverri, Executive Director Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street Tallahassee, Florida 32399-0100

John Mika, Esquire

Office of the Attorney General

The Capital - Revenue Litigation Bureau Tallahassee, Florida 32399-1050

Dale Spomer

International Surface Preparation Group (Texas), Inc.

6330 West Loop South, Suite 900

Houston, Texas 77401

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: 07-002845

Orders for Case No: 07-002845