Judges: G. STEVEN PFEIFFER
Agency: Department of Revenue
Latest Update: Oct. 03, 1978
Summary: Sale price minus purchase and development costs form basis for determination of corporate income tax due.
77-0454.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
BUCHWALD ENTERPRISES, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 77-454
) FLORIDA DEPARTMENT OF REVENUE, )
)
Respondent. )
)
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, G. Steven Pfeiffer, held a final hearing in this case on October 26, 1977, in Miami, Florida.
APPEARANCES
The following appearances were entered:
For Petitioner: Herbert Buchwald
Miami Beach, Florida
For Respondent: Edwin J. Stacker
Tallahassee, Florida
On or about February 16, 1977, Buchwald Enterprises, Inc. ("Petitioner" hereafter) filed a petition for hearing pursuant to Florida Statutes Section
with the Florida Department of Revenue. Petitioner is contesting a deficiency tax assessment which the Department has made respecting the Petitioner's 1972 Florida Corporate Income Tax Return. In accordance with the provisions of Section 120.57(1)(b)(3), Florida Statutes (1976 Supp.) the Department forwarded the petition to the office of the Division of Administrative Hearings for the assignment of a hearing officer and the scheduling of a hearing. The final hearing was originally scheduled to be conducted on September 15, 1977, by notice dated June 27, 1977. Upon request of the Petitioner the hearing was continued and rescheduled as noted above by Order entered August 4, 1977.
The facts in this case are not in dispute. At the final hearing neither party called any witnesses. Hearing Officer's Exhibits 1-7, and Petitioner's Exhibits 1 and 2 were received into evidence. The Petitioner requested a lengthy post-hearing briefing schedule, to which the Respondent did not object. Both parties have submitted Post-Hearing Legal Memoranda, and the Petitioner has submitted a Proposed Recommended Order.
FINDINGS OF FACT
The parties have agreed that there are no issues of fact to be determined in this matter, and that the relevant facts are set out in Paragraphs
3 and 4 of the Petition which was received in evidence at the hearing as Hearing Officer's Exhibit 1. This matter involves a determination for Florida corporate income tax purposes of the net income derived by the Petitioner in connection with the purchase, development, and sale of certain property in Dade County, Florida. Petitioner purchased the property prior to January 1, 1972, the date upon which the Florida Income Tax Code became effective. Petitioner expended, through a subsidiary corporation, $369,058 in developing the property. These expenditures also occurred prior to January 1, 1972. For Federal income tax purposes the Petitioner had deducted these expenditures as business expenses during the years that they were incurred. Petitioner sold the property during 1972. Because the Petitioner had deducted the expenditures as business expenses, the expenditures could not properly have been included in the base price of the property for Federal income tax purposes, and the net income for Federal tax purposes was computed by subtracting the original purchase price from the sale price.
Since the Florida Income Tax Code was not in effect at the time the expenditures were made, the Petitioner received no Florida tax benefit for the expenditures. In computing the net income for Florida tax purposes derived from the sale, the Petitioner included the expenditures in the base price of the property, and calculated its net income by subtracting the sum of the purchase price of the property and the expenditures from the sale price.
The Department, contending that the $369,058 should not have been included in the base price of the property, issued a deficiency assessment which reflected the net income from the sale of property as the difference between the sale price and the purchase price.
Petitioner originally contended that it was entitled to add the amount that the property appreciated prior to January 1, 1972 to the base price of the property. Petitioner is no longer contesting the deficiency assessment based upon a disallowance of that addition to the base price of the property. The Department was originally contending that it was entitled to interest at 12 percent per annum calculated retrospectively from the due date of the alleged deficiency. The Department has agreed to abandon its effort to impose that rate of interest.
The issue raised in this case is whether the development expenses incurred by the Petitioner and deducted for Federal income tax purposes as business expenses prior to 1972 can be subtracted from Federal taxable income for the purpose of determining taxable income derived from the sale for Florida tax purposes.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to this case and over the subject matter. Section 120.57, Florida Statutes (1976 Supp.).
The Department contends that the Petitioner is not entitled to add the development expenditures to the base price of the property for determining net income for Florida income tax purposes because he did not do so for Federal income tax purposes. Section 220.13(2), Florida Statutes, provides:
"For purposes of this section, a taxpayer's taxable income for the taxable year shall 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 . . ."
The intention to 'piggyback' the determination of Florida taxable income onto the definition of Federal taxable income is reflected in several sections of the Florida Income Tax Code. Sections 220.02(3), 220.42(1), 220.43, Florida Statutes. The Department contends that since the Petitioner utilized an accounting method for Federal tax purposes which prevented him from including the development expenditures as a part of the base price of the property for determining net income derived from sale of the property, it cannot do so for state income tax purposes.
If this matter had not arisen during the early years of the effectiveness of the Florida Income Tax Code, and if the Petitioner had deducted the development expenditures from its gross income in order to determine taxable income in years prior to the sale, then the Department's contention would be correct. In this matter, however, the deductions for Federal tax purposes were taken during years when there was no Florida income tax. The Petitioner thus never derived any tax benefit from the expenditures. Under the stipulated facts the expenditures were legitimately made in the course of developing the subject property for resale. The effect of disallowing use of the expenditures in computing net income from the sale would be to tax the Petitioner on his gross income derived from the sale, rather than on his net income. The tax levied under the Florida Income Tax Code is a tax on net income. Section 220.02(2), Florida Statutes.
The Department's contention that taxable income reflected for Federal tax purposes is taxable income for Florida income tax purposes, without regard to actual income derived by the taxpayer, or to when the income was derived, has been rejected. Clearwater Federal Savings and Loan Association v. Department of Revenue, 350 So.2d 1134 (2 DCA Fla. 1977). In the instant case, the deficiency assessment issued by the Respondent would result in the Petitioner's being taxed for income that he did not realize.
The Petitioner has abandoned its efforts to defeat other disallowances made by the Department in connection with the transaction. To the extent that the Petitioner is still contending that it should be entitled to deduct the amount that the property appreciated in value prior to the effective date of the Florida Income Tax Code from its taxable income, the contention is without merit and should be rejected. Department of Revenue v. Leadership Housing, Inc., 343 So.2d 611 (Fla. 1977)
An amended deficiency assessment should be entered by the Department to reflect a determination of net income derived from the transaction made by subtracting the sum of the purchase price of the property and the $369,058 expended by the Petitioner in developing the property from the sale price of the property.
RECOMMENDED ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law, it is, hereby
RECOMMENDED:
That the Department of Revenue enter an amended deficiency assessment against the Petitioner Buchwald Enterprises, Inc. to reflect a determination of the net income derived by the Petitioner in the transaction involved in this matter as being made by subtracting the sum of the purchase price of the property and the $369,058 expended by the Petitioner in developing the property from the sale price of the property.
RECOMMENDED this 27th day of January, 1978, in Tallahassee, Florida.
COPIES FURNISHED:
Edwin J. Stacker, Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32304
Herbert Buchwald, Esquire 7137 Collins Ave.
Miami Beach, Florida 33141
G. STEVEN PFEIFFER Hearing Officer
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
================================================================= AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
BUCHWALD ENTERPRISES, INC.,
Petitioner,
vs. CASE NO. 77-454
FLORIDA DEPARTMENT OF REVENUE,
Respondent.
/
FINAL ORDER OF DEPARTMENT OF REVENUE
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, G. Steven Pfeiffer, held a final hearing in this case on October 26, 1977, in Miami, Florida.
The following appearances were entered: Herbert Buchwald, Miami Beach, Florida, representing the Petitioner, Buchwald Enterprises, Inc.; and Edwin J. Stacker, Tallahassee, Florida, representing the Respondent, Florida Department of Revenue.
On or about February 16, 1977, Buchwald Enterprises, Inc. ("Petitioner" hereafter) filed a petition for hearing pursuant to Florida Statutes Section
with the Florida Department of Revenue. Petitioner is contesting a deficiency tax assessment which the Department has made respecting the Petitioner's 1972 Florida Corporate Income Tax Return. In accordance with the provisions of Section 120.57(1)(b)(3), Florida Statutes (1976 Supp.), the Department forwarded the petition to the office of the Division of Administrative Hearings for the assignment of a hearing officer and the scheduling of a hearing. The final hearing was originally scheduled to be conducted on September 15, 1977, by notice dated June 27, 1977. Upon request of the Petitioner the hearing was continued and rescheduled as noted above by Order entered August 4, 1977.
The facts in this case are not in dispute. At the final hearing neither party called any witnesses. Hearing Officer's Exhibits 1-7, and Petitioner's Exhibits 1 and 2 were received into evidence. The Petitioner requested a lengthy post-hearing briefing schedule, to which the Respondent did not object. Both parties have submitted Post-Hearing Legal Memoranda, and the Petitioner has submitted a Proposed Recommended Order.
The Recommended Order of the Hearing Officer of the Division of Administrative hearings was issued on January 27, 1978.
Pursuant to Section 120.57(1)(b)9, Florida Statutes, the Department of Revenue, after careful analysis of the Recommended Order elects to modify the conclusions of law contained in said Recommended Order.
The Department of Revenue adopts the following as the Final Order of the Department of Revenue:
FINDINGS OF FACT
The parties have agreed that there are no issues of fact to be determined in this matter, and that the relevant facts are set out in Paragraphs
3 and 4 of the Petition which was received in evidence at the hearing as Hearing Officer's Exhibit 1. This matter involves a determination for Florida corporate income tax purposes of the net income derived by the Petitioner in connection with the purchase, development, and sale of certain property in Dade County, Florida. Petitioner purchased the property prior to January 1, 1972, the date upon which the Florida Income Tax Code became effective. Petitioner expended, through a subsidiary corporation, $369,058 in developing the property. These expenditures also occurred prior to January 1, 1972. For Federal income tax purposes the Petitioner had deducted these expenditures as business expenses during the years that they were incurred. Petitioner sold the property during 1972. Because the Petitioner had deducted the expenditures as business expenses, the expenditures could not properly have been included in the base price of the property for Federal income tax purposes, and the net income for Federal tax purposes was computed by subtracting the original purchase price from the sale price.
Since the Florida Income Tax Code was not in effect at the time the expenditures were made, the Petitioner received no Florida tax benefit for the expenditures. In computing the net income for Florida tax purposes derived from the sale, the Petitioner included the expenditures in the base price of the property, and calculated its net income by subtracting the sum of the purchase price of the property and the expenditures from the sale price.
The Department, contending that the $369,058 should not have been included in the base price of the property, issued a deficiency assessment which reflected the net income from the sale of property as the difference between the sale price and the purchase price.
Petitioner originally contended that it was entitled to add the amount that the property appreciated prior to January 1, 1972, to the base price of the property. Petitioner is no longer contesting the deficiency assessment based upon a disallowance of that addition to the base price of the property. The Department was originally contending that it was entitled to interest at 12 percent per annum calculated retrospectively from the due date of the alleged deficiency. The Department has agreed to abandon its effort to impose that rate of interest.
The issue raised in this case is whether the development expenses incurred by the Petitioner and deducted for Federal income tax purposes as business expenses prior to 1972 can be subtracted from Federal taxable income for the purpose of determining taxable income derived from the sale for Florida tax purposes.
CONCLUSIONS OF LAW
An analysis of the Florida Income Tax Code, Chapter 220, Florida Statutes, shows a clear legislative intent to "piggyback" the Federal Internal Revenue Code. This intent can be seen starting with an examination of the definition of "taxable income." Section 220.13(2), Florida Statutes, states:
For purposes of this section, a taxpayer's taxable income for the taxable year shall 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. . . (emphasis supplied).
This definition unequivocally adopts the definition of taxable income found in the Internal Revenue Code and requires the Florida taxpayer to report and pay taxes on the same income under both jurisdictions, subject to certain specifically enumerated adjustments.
This same intent can be found in other sections of this Code. Section 220.42(1), Florida Statutes, states in part:
For purposes of this code, a taxpayer's method of accounting shall be the same as such taxpayer's method of accounting for federal income tax purposes. . . .
Section 220.43, Florida Statutes, states in part:
To the extent not inconsistent with the provisions of this code or forms or regulations prescribed by the department, each taxpayer making a return under this code shall take into account the items
of income, deduction, and exclusion on such return in the same manner and amounts as reflected in such taxpayer's federal income tax return for the same taxable year. (emphasis supplied).
These provisions leave no room for interpretive or imaginative application.
This clear language is supported by the general statement of legislative intent found in Section 220.02(3), Florida Statutes. That section sets forth the specific reasons for adopting the "piggyback" approach and states:
It is the intent of the Legislature that the income tax imposed by this code shall utilize, to the greatest extent possible, concepts of law which have been developed in connection with the income tax laws of the United States,
in order to:
Minimize the expenses of the Department of Revenue and difficulties in administering this code;
Minimize the costs and difficulties of taxpayer compliance; and
Maximize, for both revenue and statistical purposes, the sharing of infor- mation between the state and the Federal Government.
The interpretation advanced by the Petitioner in this cause constitutes an unauthorized departure from this "piggyback" principle, as further described below. The validity of Petitioner's objections must be weighed against the clear legislative intent as expressed in Sections 220.02(3), 220.13(2), 220.42(1) and 220.43(1), Florida Statutes.
The tax imposed by Chapter 220, Florida Statutes, is measured by net income. Section 220.11, Florida Statutes. "Net Income" is defined generally in the Florida Code as "that share of its adjusted federal income for such year which is apportioned to this state under s. 220.15, less the exemption allowed by s. 220.14. Section 220.12, Florida Statutes. "Adjusted federal income" is defined as "an amount equal to the taxpayer's . . . taxable income for federal purposes for the taxable year, adjusted as provided by law." (emphasis supplied) 21A Fla. Jur. Taxation Section 654 (1974). Cf. Section 220.13(1), Florida Statutes. Specific additions to and subtractions from federal taxable income are authorized by Section 220.13(1)(a) and (b). Without listing all the subtractions allowed, it is obvious that there is no express or implied authorization for the deduction or subtraction from federal taxable income that the Petitioner wishes to make.
It is a fundamental principle of income taxation that deductions from income are a matter of legislative grace and are allowable only when there is specific statutory authority. The burden rests on the taxpayer to show that he is entitled to a deduction when challenged. New Colonial Ice Co. v. Helvering,
292 U.S. 435, 440 (1934). Commissioner v. Nat. Alfalfa Dehydrating, 417 U.S. 134, 149 (1974). Northern Nat. Gas v. Commissioner of Revenue, 251 N.W.2d 125,
128 (Minn. 1977). Robinson v. State, 392 P.2d 606, 608 (Colo. 1964). State v.
L. & A. Contracting Company, 133 So.2d 546, 549 (Miss. 1961). 71 Am. Jur.2d State & Local Taxation Section 518 (1973). 85 C.J.S. Taxation Sections 1099(a) and 1103(c)(1) (1954). Where the language of a statute is plain and unambiguous and conveys a clear and definite meaning, it is inappropriate for a court to render a different construction. A court's duty in these circumstances is to give effect to the plain and obvious meaning of the statutory language. Biddle
v. State Beverage Department, 187 So.2d 65, 67 (Fla. 4th DCA 1966). Vocelle v. Knight Brothers Paper Company, 118 So.2d 664 (Fla. 1st DCA 1960).
Where a statute clearly uses an express term(s), it is understood that other conflicting or additional terms were not intended to be read into the legislative provisions. In Dobbs v. Sea Isle Hotel, 56 So.2d 341 (Fla. 1952), the Supreme Court of Florida observed "[w]e have oft-times held that the rule of 'expressio unius est exclusio alterius' is applicable in connection with statutory construction." Moreover, this maxim has been recently applied in conjunction with the interpretation of a use tax imposed by the Department of Revenue. Wanda Marine Corp. v. State Department of Revenue, 305 So.2d 65, 70 (Fla. 1st DCA 1974). Hence, it must be concluded that Section 220.13(1)(b), Florida Statutes, means what it says. There are only certain statutorily authorized subtractions from adjusted federal income.
It is therefore obvious that the specific subtractions or deductions from federal taxable income provided for in Section 220.13(b), Florida Statutes,
do not include the deduction sought to be made by the Petitioner in this case. Well-established principles of tax statute interpretation mandate that the statutory adjustments provided in Chapter 220, Florida Statutes, be strictly construed against the Petitioner.
The Petitioner has abandoned its efforts to defeat other disallowances made by the Department in connection with the transaction. To the extent that the Petitioner is still contending that it should be entitled to deduct the amount that the property appreciated in value prior to the effective date of the Florida Income Tax Code from its taxable income, the contention is also without merit and should be rejected. Department of Revenue vs. Leadership Housing, Inc., 343 So.2d 611 (Fla. 1977).
CONCLUSION
The deficiency assessment against the Petitioner is sustained in the amount of $15,370.00, together with interest at the reduced rate of 6 percent per annum.
CERTIFICATION
I certify that the foregoing is the Final Order of the Department of Revenue adopted by the Governor and Cabinet on the 26th day of September, 1978.
Harry L. Coe, Jr. Executive Director State of Florida, Department of Revenue
Room 102 Carlton Building Tallahassee, Florida 32304
Dated this 29th Day of Sept. 1978.
Docket for Case No: 77-000454
Orders for Case No: 77-000454
| Issue Date |
Document |
Summary |
|
Sep. 29, 1978 |
Agency Final Order
|
|
|
Jan. 27, 1978 |
Recommended Order
|
Sale price minus purchase and development costs form basis for determination of corporate income tax due.
|
