vs.
Respondent.
) Case No. 10-5094
On November 10, 2010, a formal administrative hearing in this case was held by video teleconference at sites in Tallahassee and Melbourne, Florida, before J. D. Parrish, a duly-designated Administrative Law Judge (ALJ) of the Division of Administrative Hearings (DOAH).
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399
The issue in this case is whether Callagy Tires, Inc. (Petitioner), collected and remitted the correct amount of sales and use tax on its operations for the audit period.
The Florida Department of Revenue (Department or DOR) conducted an audit of Petitioner’s business operations to verify that the amounts and types of sales and use taxes, were properly remitted for the audit period. In conjunction with the audit, DOR issued a Notice of Reconsideration that made specific findings and conclusions regarding the amounts owed by Petitioner. More specifically, DOR alleged that for the audit period, June 1, 2004, through May 31, 2007, Petitioner failed to remit and owed $157,378.87. Additionally, DOR claimed it is owed $23.34 daily for interest on the unpaid taxes. The audit, audit # 20031485, was timely contested by Petitioner. DOR forwarded the matter to the DOAH for formal proceedings on
July 12, 2010.
At the hearing, DOR presented the testimony of Deborah Huber, Horace Royals, Eugene Michael Callagy, and Patrick Hanley. DOR’s Exhibits numbered 1 through 17 were admitted into evidence. Petitioner presented the testimony of Eugene Michael Callagy, Mariann Hanley, Patrick Hanley, and Deborah Huba.
Petitioner's Exhibits numbered 1 through 6 were also admitted into evidence. The Transcript of the proceedings was filed with DOAH on November 23, 2010. Thereafter, the parties filed Proposed Recommended Orders that have been considered in the preparation of this Recommended Order.
DOR is the state agency charged with the responsibility of administering and enforcing the tax laws of the state of Florida. In conjunction with that duty, DOR performs audits of business entities conducting sales and use transactions.
At all times material to the issues of this case, Petitioner conducted business in Palm Bay, Florida, and was obligated to collect and remit sales and use tax in connection with the activities of its business enterprise. Petitioner’s Federal Identification Number is 59-2221722.
Petitioner sells tires (wholesale and retail), provides tire services such as installation, and performs other repair and towing services subject to sales or use taxes.
In order to properly perform its audit responsibilities, DOR requires that businesses maintain and present business records to support the collection of sales and use taxes.
In this case, DOR notified Petitioner that it intended to audit the business operations for the audit period, June 1, 2004, through May 31, 2007.
After the appropriate notice to Petitioner, the audit was initiated on or about July 18, 2007. Employees of DOR went to Petitioner’s place of business, requested business records, and attempted to audit and reconcile Petitioner’s reported tax
payments with the amounts and types of taxes that should have been remitted, based upon the records kept by Petitioner.
Theoretically, the sums remitted to the Department should match the records of the business entity. In this case, the amount remitted by Petitioner could not be reconciled with the business records maintained by the business entity.
As a result of the audit, DOR sent Petitioner a Notice of Intent to Make Audit Changes that claimed Callagy Tires, Inc., owed sales and use tax in the amount of $121,707.41.
By letter dated August 13, 2009, Petitioner filed a protest of the audit findings. Thereafter, the parties exchanged information that Petitioner claimed should require reconsideration of the audit results. Nevertheless, the Department could not reconcile the bank and audit information based upon the documentation submitted by Petitioner. The amounts of the Notice of Reconsideration remain at issue.
As of the time of the hearing in this cause, Petitioner had not provided documentation to refute the findings of the Department’s audit. At hearing, DOR maintained that Petitioner owes $173,718.66, together with accruing interest.
Specifically, the audit found that there was a difference between the gross sales reported by Petitioner on its federal return and the amounts reported on its state forms. The
difference between the two returns constituted unreported sales for state tax purposes.
Secondly, the Department determined that certain sales were not “exempt” as maintained by Petitioner. Based upon a sample of invoices provided by Petitioner, DOR found that Petitioner did not remit the full sales tax due on certain types of services. For example, the correct sales tax was not remitted on machining brake rotors, truing brake rotors, or making repairs that included the use of tangible personal property. The taxable event required a calculation of sales tax on the entire amount, not a percentage of the cost.
The third area of discrepancy identified by the audit, related to unpaid sales tax on machinery, equipment, supplies, and services purchased by Petitioner for use in the operation of its business.
Throughout the audit process, and, subsequently, Petitioner never presented documentation to dispute the Department’s audit findings. DOR gave Petitioner every opportunity to present records that would establish that the correct amounts of sale and use taxes were collected and remitted.
Petitioner timely challenged the audit findings, but, has not, through its principal owner or its agents, provided
documentation that show the taxes were appropriately calculated and paid.
Petitioner maintains that an amended federal tax return verifies the state return previously filed is accurate. Notwithstanding that assertion, Petitioner has not presented the underlying documentation to support the state or federal return. Further, Petitioner refused to allow DOR to review all of its electronically stored records, and did not make the records available to DOR.
CONCLUSIONS OF LAW
DOAH has jurisdiction over the subject matter and parties in this cause. §§ 120.569, 120.57, and 213.67, Fla. Stat. (2007). Based upon the audit period, all references are to Florida Statutes (2007) unless otherwise noted.
Section 120.80, provides, in pertinent part:
(7) A taxpayer may contest the notice of intent to levy provided for under subsection
(6) by filing an action in circuit court. Alternatively, the taxpayer may file a petition under the applicable provisions of chapter 120. After an action has been initiated under chapter 120 to contest the notice of intent to levy, an action relating to the same levy may not be filed by the taxpayer in circuit court, and judicial review is exclusively limited to appellate review pursuant to s. 120.68. Also, after an action has been initiated in circuit court, an action may not be brought under chapter 120.
Section 212.12, Florida Statutes, provides in part: (2)(a) When any person required hereunder
to make any return or to pay any tax or fee
imposed by this chapter either fails to timely file such return or fails to pay the tax or fee shown due on the return within the time required hereunder, in addition to all other penalties provided herein and by the laws of this state in respect to such taxes or fees, a specific penalty shall be added to the tax or fee in the amount of 10 percent of either the tax or fee shown on the return that is not timely filed or any tax or fee not paid timely. The penalty may not be less than $50 for failure to timely file a tax return required by s. 212.11(1) or timely pay the tax or fee shown due on the return except as provided in
s. 213.21(10). If a person fails to timely file a return required by s. 212.11(1) and to timely pay the tax or fee shown due on the return, only one penalty of 10 percent, which may not be less than $50, shall be imposed.
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When any dealer, or other person charged herein, fails to remit the tax, or any portion thereof, on or before the day when such tax is required by law to be paid, there shall be added to the amount due interest at the rate of 1 percent per month of the amount due from the date due until paid. Interest on the delinquent tax shall be calculated beginning on the 21st day of the month following the month for which the tax is due, except as otherwise provided in this chapter.
All penalties and interest imposed by this chapter shall be payable to and collectible by the department in the same manner as if they were a part of the tax imposed. The department may settle or compromise any such interest or penalties pursuant to s. 213.21.
(5)(a) The department is authorized to audit or inspect the records and accounts of dealers defined herein, including audits or inspections of dealers who make mail order sales to the extent permitted by another state, and to correct by credit any overpayment of tax, and, in the event of a deficiency, an assessment shall be made and collected. No administrative finding of fact is necessary prior to the assessment of any tax deficiency.
(b) In the event any dealer or other person charged herein fails or refuses to make his or her records available for inspection so that no audit or examination has been made of the books and records of such dealer or person, fails or refuses to register as a dealer, fails to make a report and pay the tax as provided by this chapter, makes a grossly incorrect report or makes a report that is false or fraudulent, then, in such event, it shall be the duty of the department to make an assessment from an estimate based upon the best information then available to it for the taxable period of retail sales of such dealer, the gross proceeds from rentals, the total admissions received, amounts received from leases of tangible personal property by such dealer, or of the cost price of all articles of tangible personal property imported by the dealer for use or consumption or distribution or storage to be used or consumed in this state, or of the sales or cost price of all services the sale or use of which is taxable under this chapter, together with interest, plus penalty, if such have accrued, as the case may be. Then the department shall proceed to collect such taxes, interest, and penalty on the basis of such assessment which shall be considered prima facie correct, and the burden to show the contrary shall rest upon the dealer, seller, owner, or lessor, as the case may be.
(6)(a) The department is given the power to prescribe the records to be kept by all persons subject to taxes imposed by this chapter. It shall be the duty of every person required to make a report and pay any tax under this chapter, every person receiving rentals or license fees, and owners of places of admission, to keep and preserve suitable records of the sales, leases, rentals, license fees, admissions, or purchases, as the case may be, taxable under this chapter; such other books of account as may be necessary to determine the amount of the tax due hereunder; and other information as may be required by the department. It shall be the duty of every such person so charged with such duty, moreover, to keep and preserve as long as required by s. 213.35 all invoices and other records of goods, wares, and merchandise; records of admissions, leases, license fees and rentals; and records of all other subjects of taxation under this chapter.
All such books, invoices, and other records shall be open to examination at all reasonable hours to the department or any of its duly authorized agents.
For the purpose of this subsection, if a dealer does not have adequate records of his or her retail sales or purchases, the department may, upon the basis of a test or sampling of the dealer's available records or other information relating to the sales or purchases made by such dealer for a representative period, determine the proportion that taxable retail sales bear to total retail sales or the proportion that taxable purchases bear to total purchases. This subsection does not affect the duty of the dealer to collect, or the liability of any consumer to pay, any tax imposed by or pursuant to this chapter.
1. If the records of a dealer are adequate but voluminous in nature and substance, the department may sample such records and project the audit findings
derived therefrom over the entire audit period to determine the proportion that taxable retail sales bear to total retail sales or the proportion that taxable purchases bear to total purchases . . .
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(9) Taxes imposed by this chapter upon the privilege of the use, consumption, storage for consumption, or sale of tangible personal property, admissions, license fees, rentals, communication services, and upon the sale or use of services as herein taxed shall be collected upon the basis of an addition of the tax imposed by this chapter to the total price of such admissions, license fees, rentals, communication or other services, or sale price of such article or articles that are purchased, sold, or leased at any one time by or to a customer or buyer; the dealer, or person charged herein, is required to pay a privilege tax in the amount of the tax imposed by this chapter on the total of his or her gross sales of tangible personal property, admissions, license fees, rentals, and communication services or to collect a tax upon the sale or use of services, and such person or dealer shall add the tax imposed by this chapter to the price, license fee, rental, or admissions, and communication or other services and collect the total sum from the purchaser, admittee, licensee, lessee, or consumer . . .
Section 212.13, provides, in part:
For the purpose of enforcing the collection of the tax levied by this chapter, the department is hereby specifically authorized and empowered to examine at all reasonable hours the books, records, and other documents of all transportation companies, agencies, or firms that conduct their business by truck, rail, water, aircraft, or otherwise, in order to determine what dealers, or other persons
charged with the duty to report or pay a tax under this chapter, are importing or are otherwise shipping in articles or tangible personal property which are liable for said tax. In the event said transportation company, agency, or firm refuses to permit such examination of its books, records, or other documents by the department as aforesaid, it is guilty of a misdemeanor of the first degree, punishable as provided in s. 775.082 or s. 775.083. If, however, any subsequent offense involves intentional destruction of such records with an intent to evade payment of or deprive the state of any tax revenues, such subsequent offense shall be a felony of the third degree, punishable as provided in s. 775.082 or s.
775.083. The department shall have the right to proceed in any chancery court to seek a mandatory injunction or other appropriate remedy to enforce its right against the offender, as granted by this section, to require an examination of the books and records of such transportation company or carrier.
Each dealer, as defined in this chapter, shall secure, maintain, and keep as long as required by s. 213.35 a complete record of tangible personal property or services received, used, sold at retail, distributed or stored, leased or rented by said dealer, together with invoices, bills of lading, gross receipts from such sales, and other pertinent records and papers as may be required by the department for the reasonable administration of this chapter; all such records which are located or maintained in this state shall be open for inspection by the department at all reasonable hours at such dealer's store, sales office, general office, warehouse, or place of business located in this state. Any dealer who maintains such books and records at a point outside this state must make such books and records available for inspection by the department where the general records are kept. Any dealer
subject to the provisions of this chapter who violates these provisions is guilty of a misdemeanor of the first degree, punishable as provided in s. 775.082 or s. 775.083.
If, however, any subsequent offense involves intentional destruction of such records with an intent to evade payment of or deprive the state of any tax revenues, such subsequent offense shall be a felony of the third degree, punishable as provided in s. 775.082 or s. 775.083.
For the purpose of enforcement of this chapter, every manufacturer and seller of tangible personal property or services licensed within this state is required to permit the department to examine his or her books and records at all reasonable hours, and, upon his or her refusal, the department may require him or her to permit such examination by resort to the circuit courts of this state, subject however to the right of removal of the cause to the judicial circuit wherein such person's business is located or wherein such person's books and records are kept, provided further that such person's books and records are kept within the state. When the dealer has made an allocation or attribution pursuant to the definition of sales price in s. 212.02(16), the department may prescribe by rule the books and records that must be made available during an audit of the dealer's books and records and examples of methods for determining the reasonableness thereof. Books and records kept in the regular course of business include, but are not limited to, general ledgers, price lists, cost records, customer billings, billing system reports, tariffs, and other regulatory filings and rules of regulatory authorities. Such record may be required to be made available to the department in an electronic format when so kept by the dealer. The dealer may support the allocation of charges with books and records kept in the regular course of business covering the dealer's entire service area, including territories outside
this state. During an audit, the department may reasonably require production of any additional books and records found necessary to assist in its determination.
For the further purpose of enforcement of this chapter, every wholesaler of tangible personal property or services licensed within this state is required to permit the department to examine his or her books and records at all reasonable hours. He or she must also maintain such books and records as long as required by s. 213.35 in order to disclose the sales of all goods or services sold, to whom sold, and also the amount of items sold, in such form and in such manner as the department may reasonably require, so as to permit the department to determine the volume of goods or services sold by wholesalers to dealers, as defined under this chapter, and the dates and amounts of sales made. The department may require any manufacturer or wholesaler who refuses to keep such records or to permit such inspection, through the circuit courts of Florida, to submit to such inspection, subject however to the right of removal of the cause as hereinbefore provided in this section.
Section 213.34, provides, in part:
The Department of Revenue shall have the authority to audit and examine the accounts, books, or records of all persons who are subject to a revenue law made applicable to this chapter, or otherwise placed under the control and administration of the department, for the purpose of ascertaining the correctness of any return which has been filed or payment which has been made, or for the purpose of making a return where none has been made.
The department, or its duly authorized agents, may inspect such books and records necessary to ascertain a taxpayer's compliance with the revenue laws of this
state, provided that the department's power to make an assessment or grant a refund has not terminated under s. 95.091(3).
The department may correct by credit or refund any overpayment of tax, penalty, or interest revealed by an audit and shall make assessment of any deficiency in tax, penalty, or interest determined to be due.
In this case, DOR must show by a preponderance of evidence that the audit results and the assessment of the unpaid sales and use tax should be upheld. It has met that burden. The audit notes the amounts and basis for all use and sale tax not remitted by Petitioner.
Petitioner has not presented any documentation to refute the audit results. Moreover, to reconcile the discrepancies of the audit, Petitioner should have provided the complete business records; it failed or refused to do so. An amended federal return without the underlying documentation does not support Petitioner’s claim of auditing error. Additionally, the amended federal return does not address the other discrepancies disclosed by the audit.
In order to set aside the findings of the audit, Petitioner should have made its records fully available to the Department. The conclusions reached by DOR regarding the taxable events (such as truing brake rotors) are deemed taxable events. Petitioner did not present any rule or statute that could hold otherwise. Further, without information to show that
Petitioner paid sales tax on all its taxable expenditures or acquisitions, the Department must include such transactions within the audit results. Petitioner had the duty to maintain records and make them available. Petitioner may not argue that the inadequacy of its records contradicts the audit results.
Based upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a final order sustaining the audit findings, and require the Petitioner to remit the unpaid sales and use taxes in the amount of $173,718.66, together with accrued interest, as provided by law.
DONE AND ENTERED this 22nd day of March, 2011, in Tallahassee, Leon County, Florida.
J. D. PARRISH
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 2011.
Eugene M. Callagy, Jr. Callagy Tires, Inc.
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050
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.
