vs. ) CASE NO. 76-0221
Respondent. )
A hearing was held in the above captioned matter, after due notice, at Miami, Florida, on August 6, 1979, before Thomas C. Oldham, Hearing Officer.
For Petitioner: Milton J. Wallace, Esquire
Petitioner's liability for proposed assessment of fuel tax and penalty pursuant to Chapter 206, Florida Statutes.
Petitioner Barkett Oil Company, Miami, Florida, is a distributor of motor fuel and a dealer in special fuel licensed by Respondent. During the period 1971 through 1974, it held three licenses for motor fuel and three for special fuel. It owned over 100 fuel service stations during that period. At the time petitioner obtained its licenses, it provided Respondent with a list of its stations' fuel storage tank capacities. However, over the years and prior to 1971, the fuel capacity of 12 stations was increased by the addition of tanks in the total amount of some 57,000 gallons, but Petitioner did not advise Respondent of such changed capacity. (Testimony of Barkett, Respondent's Exhibit 3).
In May 1974, D. L. Hunt, Respondent's auditor, conducted an audit of Petitioner's business for the period April 1971 through March 1974. Petitioner made most of its existing records available to the auditor, including purchase and sale invoices, and monthly tax reports which had been timely filed with Respondent during the audit period. Petitioner used Respondent's standard forms
for the monthly tax returns which reflected an inventory of fuel at the beginning of the month plus gallons acquired during the month, less nontaxable sales. These computations resulted in net gallonage subject to fuel tax on which the tax was remitted, less a collection fee. Petitioner's standard business practice had been to conduct its monthly inventory in the morning of the last day of the monthly period. However, by this method, sales and deliveries which were made during the remaining portion of the day, and fuel contained in its trucks were reflected in the next month's report. Once the inventory was made, Petitioner recorded the "stick" measurements of fuel on hand at the various stations in its computer and discarded the individual station inventory records. State tax returns were then prepared using the figures derived from the computer "print-out." (Testimony of Hunt, Barkett, Petitioner's Exhibit 1,3).
During the course of his audit, Mr. Hunt ascertained that the recorded purchases and sales as reflected on the monthly tax returns were correct. However, he noted that fuel on hand at the end of each month apparently exceeded Petitioner's storage capacity. He therefore asked for inventory records in the form of tank readings, but was informed that they had been destroyed and he was not informed that the readings from the "stick" measurements had been processed by computer and that this stored information was available. Hunt therefore made audit findings that the amount of gallonage on hand at the end of each month over and above Petitioner's storage capacity was taxable, even though there was no showing that the fuel had actually been sold. He also predicated penalties against Petitioner for late payment of tax because sales made during the latter half of the last day of the reporting month were carried over to next month's report. Additionally, he found that certain untaxed sales should have been taxed. In February 1975, a proposed assessment of tax and penalties was issued in the total amount of $375,543.27. A number of informal conferences were held by the parties which resulted in certain adjustments to the proposed assessment, primarily consisting of tax exempt sales. As a result of these conferences, the asserted tax was reduced to $245,652.96, with penalties of $39,405.04, for a total amount of $285,058.00. Thereafter, further reductions were made in the assessment, as reflected in a letter from Respondent's counsel to Petitioner's counsel, dated July 22, 1977. This letter stated that the remaining assessment consisted of tax due in the amount of $27,216.05, with penalties of $63,269.22, for total amount due of $90,485.27. The letter explained that the differences in the penalties consisted of instances where the tax had not been timely paid on fuel which had been sold. For instance, as to license No. 391, the letter showed that although only $2,378.46 in additional tax was due, penalties over the audit period amount to $38,769.19. (Testimony of Hunt, Barkett, Petitioner's Exhibit 2, Respondent's Exhibits 1-2, 5, Hearing Officer's Exhibit 1).
During the course of informal negotiations, Petitioner's counsel, by letter of April 17, 1978, to Respondent's counsel, provided a corrected list of the capacity of twelve of its stations. Respondent's auditor Hunt had checked four of these stations, but was unable to determine the existence of additional tanks at those locations. He also declined to accept the computer printout sheets as a basis for determining inventory because the actual tank reading reports were not available. At the hearing, Petitioner's president, Harry Barkett, established that additional tanks had existed at the four locations during the audit period. (Testimony of Hunt, Barkett, Petitioner's Exhibit 4-8, Respondent's Exhibit 3, 4).
A certified public accountant retained by Petitioner testified that he had audited Petitioner's books and had personally reconciled inventory amounts
for the fiscal year 1972-73. He further testified that Petitioner's accounting procedures were proper and that even if inventory had been overstated, it had no effect on sales, and that any unreported sales during one monthly period would be overstated in the following month, which would balance out any prior underpayments. He had never found any discrepancy in Petitioner's fuel reports and found no accounting reason for retaining "stick" readings after the information had been placed in the computer. (Testimony of Pfeiffer).
CONCLUSIONS OF LAW
The proposed tax assessment herein is composed of amounts allegedly due for underpayment of gasoline and special fuel tax, plus penalties on the same and penalties for late filing of tax returns for the audit period 1971-74, pursuant to Chapter 206, Florida Statutes.
Sections 206.41, 206.60 and 206.605 impose motor fuel tax upon distributors based on the number of gallons of fuel sold or used in this state, and Section 206.87 imposes a similar tax upon every gallon of special fuel used or sold in the state by a dealer. Sections 206.43 and 206.91 require distributors of motor fuel and dealers in special fuel to make monthly reports to Respondent reflecting the number of gallons of such products sold during the preceding month and pay the tax due, on forms prescribed by the Department.
Although the statutory tax is thus based on the number of gallons sold each month, Respondent's forms require information concerning beginning and ending monthly inventory, less nontaxable sales, disposals and allowances, arriving at "net gallonage subject to tax." Such figure ordinarily would reflect the total taxable gallonage sold during the course of the month for which the taxpayer properly should remit the amount of tax collected, less collection fees.
In this case, Respondent does not contend that Petitioner improperly or fraudulently sold, or otherwise disposed of fuel without remitting tax therefor, except in isolated inadvertent situations. Indeed, Petitioner concedes in its petition that it owes $5,707.50 arising out of mechanical errors and oversights in calculations. Respondent's basis for most of the assessment is that Petitioner's monthly closing inventories as reflected in its reports almost invariably showed an excess storage capacity at its various locations. Respondent seeks to tax such overages and impose regular penalties and late fees each month on these amounts. Petitioner concedes that it cut off its sales reports and based its monthly report prior to the close of business on the last day of the months reported, but it contends and has established that its storage capacity was higher during the audit period than the amounts which it had filed with Respondent in earlier years. Petitioner claims that, in any event, Respondent's method of calculating tax on inventory is not in consonance with the statutes which require tax to be paid on gallons sold, not on hand.
The primary area of controversy in this case is whether Petitioner should have retained its records dealing with "stick" readings of its various fuel tanks in order to justify the claim that its inventory capacity was greater than that on record in the offices of Respondent. Section 206.12 concerning motor fuel records is also applicable to special fuel, pursuant to Section 206.97, and provides pertinently as follows:
206.12 Retention of records by distributors and other persons.
(1) Each distributor shall maintain and keep, for a period of 3 years, such record of motor fuel received, used, transferred, sold,
and delivered within this state by such distributor, together with invoices, bills of lading, and other pertinent records and papers, as may be required by the department for the reasonable administration of the motor fuel tax laws of this state.
Respondent's Rule 12A-2.08(2) tracks the statutory language, but does not provide any further specificity as to the "pertinent records and papers" that are required to be maintained. Petitioner contends that its computer runs, which incorporated the voluminous inventory information from its various storage locations, are business records which are sufficient to show its end-of-month inventories for each month of the audit period and which are reflected in the monthly reports. It is considered that this contention is correct and that Respondent should have taken such records into consideration during the course of its informal negotiations regarding the assessment. Respondent does not contest the accuracy of Petitioner's sales and purchases as shown in its monthly reports, nor does it claim that such reports were not filed in a timely manner each month. It is therefore concluded that, except for the sum which Petitioner admits is due and payable in the amount of $5,707.50, no basis has been shown for further assessment of tax or penalty. As to sales which were not reflected in Petitioner's reports until the following month, any underpayment of tax for the first month would show up as an overpayment for the following month. To "pyramid" ten percent penalties pursuant to Section 206.44 for late reporting under such circumstances in the manner attempted by Respondent would be unwarranted, because the statute contemplates only late filing of reports as a basis for the penalty and not timely filing of incorrect reports. It is noted further that there is not a provision similar to Section 206.44 as to special fuel, nor is that section adopted for application to such fuel under Section 206.97.
Although Section 206.14(5) as to motor fuels, and as made applicable to special fuels by Section 206.97, provides that an assessment by Respondent is prima facie evidence of the claim of the state and places the burden of proof upon the taxpayer to show the assessment was incorrect, the evidence shows as noted above that Petitioner has met its burden of showing the assessment to be incorrect.
That Respondent proceed to collect the amount of $5,707.50 from Petitioner for unpaid fuel tax under Chapter 206, Florida Statutes, but that the remainder of the proposed assessment be withdrawn.
DONE AND ENTERED this 4th day of October 1979 in Tallahassee, Florida.
THOMAS C. OLDHAM
Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32399-1550
Filed with the Clerk of the Division of Administrative Hearings this 4th day of October 1979.
Maxie Broome, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Milton J. Wallace, Esquire 2138 Biscayne Boulevard
