STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE SURF CLUB, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 76-1389

)

STATE OF FLORIDA, )

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard in Room 360, State Office Building, 1350 NW 12th Avenue, Miami, Florida on September 7, 1978, by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative Hearings.

This case arose upon the petition for an administrative hearing filed by The Surf Club, Inc. controverting the assessment of a corporate income tax in the amount of $10,203.00 on the income derived from the sale of certain real property owned by the corporation in the amount of $754,601.00. In support of its petition, The Surf Club assumed two positions. The first position was that the tax should only be assessed on the appreciation of the property subsequent to the date the corporate income tax code took effect. Secondly, The Surf Club argues that it is exempt from the provisions of the Florida tax as a social club.

Prior to the commencement of the hearing, the parties stipulated to the introduction of Exhibits 1 through 8. The case was presented upon these exhibits and the answers of the Petitioner to the Department of Revenue's First Interrogatories to Petitioner.

From the Amended Administrative Complaint, it is clear that The Surf Club, Inc. has abandoned its claim that the income derived from the sale of the real property should be limited to the appreciation of the property realized after the passage and effective date of the Florida Corporate Income Tax Code, this on the basis of the Florida Supreme Court's determination in Leadership Housing, Inc. vs. Department of Revenue.

The remaining issue is whether the taxpayer may assume the status of an exempt corporation for the purposes of the Florida Income Tax Code after having waived its status as an exempt corporation under the Federal Income Tax Code?

FINDINGS OF FACT

1. The Surf Club, Inc. is a corporation which in the taxable year commencing on or after January 1, 1972, earned a received income in the State of Florida and was a resident or citizen of this state.

2. In December, 1972, The Surf Club filed an exempt organization business income tax return with the Department of Treasury, Internal Revenue Service, using Form 990-T. The taxpayer also filed a Florida Corporate Tax Return showing a tax due of $447.00. See Exhibit 1. Subsequently, the taxpayer filed an amended tax return for the year ending September 30, 1972, with the Department of Treasury, Internal Revenue Service, using Form 1120. Schedule D of Form 1120 reports a long-term capital gain in the amount of $54,601.00. Form 4797, page two, indicates that this capital gain was realized from the sale of an apartment building and land for a gross sales price of $1,496,184.00. The adjusted basis was $741,583.00 and the total gain was $754,601.00. The taxpayer filed an Amended Florida Corporation Income Tax Return, Form 1120X. Part II of this amended return reported the $754,601.00 sale of the real property.

   Attached to the federal tax return was an addendum showing the change of status of Surf Club from a social club exempt under the provisions of Section 501(c)(7) to a nonexempt organization. See Exhibit 2.

   
   

3. The Department of Revenue controverted the amended return on the basis that the $754,601.00 in capital gains was deducted from taxable income by the taxpayer because the taxpayer had eliminated the value of the property accruing prior to the imposition of the Florida corporate income tax. Because the date of the sale closely approximated the date or the imposition of the tax, the taxpayer had deducted the total amount of the income derived from the sale. The tax due is $10,203.00. Exhibit 3.

   
   

4. Introduced as Exhibit 4 was a revocation agreement whereby the exempt status of The Surf Club was revoked for all years beginning on or after October 1, 1970. The Surf Club did not have exempt status or assert exempt status as of the date that it filed its amended federal tax return for the year ending September 30, 1972.

   
   

   CONCLUSIONS OF LAW

   
   

5. The tax controverted in this cause is the corporate income tax. This tax is levied in accordance with the provisions of Chapter 220, Florida Statutes. Section 220.02(1) states that it is the intent of the legislature to impose a tax upon all corporations, organizations, associations, and other artificial entities which derive from this state or from any other jurisdiction permanent and inherent attributes not inherent in or available to natural persons, and the taxes levied on the privilege of conducting, deriving income, or existing within the state. Subsection (4)(c) further provides that all income realized for federal income tax purposes after November 2, 1971, shall be subject to taxation in full by the state and shall be taxed in that manner and to the extent provided in this code.

   
   

6. Section 220.03(1)(d) defines corporation in pertinent part to include corporations not for profit, under Chapter 617, and foreign corporations not for profit which are carrying on their activities in this state. Subparagraph (n) of subsection 1 of Section 220.03 defines taxpayer as any corporation subject to the tax imposed by this code which includes all corporations for which a consolidated return is filed under Section 220.131, Florida Statutes.

   
   

7. Section 220.11, Florida Statutes, imposes a tax measured by the net income on every taxpayer for each taxable year commencing on or after January 1, 1972 and for each taxable year which begins before or after January 1, 1972, for the privilege of conducting business, earning or receiving income in the state, or being a resident or citizen of this state. The tax imposed is equal to five percent of the taxpayer's net income for the taxable year. Section 220.12

   provides that a taxpayer's net income for the taxable year shall be that share of its adjusted federal income for the said year which is apportioned to this state under Section 220.15, less the $5,000 exemption allowed by Section 220-14.

   
   

8. Subsection (2) of 22.13 defines taxable income for the purposes of this section to mean taxable income as defined in Section 63 of the Internal Revenue Code and properly reportable for federal income tax purposes for the taxable year subject to certain limitations with respect to deductions not applicable or at issue in this case and subject to the limitation contained in subparagraph

   (h) which limits ". . .taxable income," in the case of an organization which is exempt from federal income tax for reason of Section 501 (a) [which includes by reference Section 501 (c)] of the Internal Revenue Code, to mean its unrelated business taxable income as determined under Section 512 of the Internal Revenue Code.

   
   

9. In summary, Florida would tax all corporate taxpayers receiving income in each taxable year commencing on or after January 1, 1972 equal to five percent of the taxpayer's net Income for the taxable year. The taxable year for The Surf Club ended on September 30, 1972. In said year, Surf Club realized

   $754,601.00 In income from the sale of "real property which it reported on Schedule D of Form 1120 as a long-term capital gain. Section 220.02(4) would include as income gains from the sale, exchange, or other disposition of property at the time such income is realized for federal income tax purposes, and all income realized for federal income tax purposes after November 2, 1971 shall be subject to taxation in full by the state and taxed in the manner and to the extent provided in the Florida Tax Code.

   
   

10. Surf Club, having elected to be taxed other than as an exempt organization under Section 501, Internal Revenue Code, did file a corporate tax return in which it reported as a capital gain the sale of certain real property. The income from this sale, pursuant to the Florida Statutes enumerated above, is taxable. The record shows that the tax due on the capital gain from the sale of the real property is $10,203.00.

    
    

11. The Surf Club has argued that it could maintain its tax exempt status for the purposes of corporate taxation by the State of Florida and file as a non-exempt corporation its return with the Internal Revenue Service. Section 220.13(2)(h) makes exemption from the Florida tax dependent upon federal exemption. Having surrendered its exemption, Surf Club is subject to the Florida tax.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, the Hearing Officer recommends that the corporate income tax in the amount of

$10,203.00 be assessed against Surf Club.

DONE and ORDERED this 25th day of October, 1978, in Tallahassee, Florida.

STEPHEN F. DEAN

Hearing Officer

Division of Administrative Hearings

530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675

COPIES FURNISHED:

Patricia Turner, Esquire Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Dan Paul, Esquire 1300 Southeast First

National Bank Building Miami, Florida 33131

Docket for Case No: 76-001389

Orders for Case No: 76-001389