vs. ) CASE NO. 77-807
Respondent. )
A hearing was held in the above captioned matter, after due notice, at Pensacola, Florida, on January 31, 1979, before the undersigned Hearing Officer.
For Petitioner: James R. Green, Esquire
Petitioner's alleged liability for motor fuel and special fuel tax, interest, and penalties, pursuant to Chapter 206, F.S., as set forth in Notice of Proposed Assessments, dated April 1, 1977.
Petitioner Walker Oil Company is located in Pensacola, Florida and is licensed by the State of Florida under Chapter 206, Florida Statutes, as a dealer in special fuels. The firm is also licensed in the State of Alabama with respect to the sale of both special fuels and motor fuel. The company was formed in 1955 and during ensuing years operated service stations and sold motor fuel and special fuels in the Pensacola and south Alabama area. Its operations were audited yearly during the period 1955 to 1961 by Respondent. In 1972 an audit for the period October 1970 to March 1972 revealed underpayments of special fuel tax in the approximate amount of $600 during the audit period. (Testimony of Walker, Exhibit 5)
In July 1975, Respondent's auditor, Clyde Whitehead, commenced an audit of Petitioner's records to determine whether any motor fuel or special fuel taxes were delinquent for the period July 1, 1972 through June 30, 1975.
Although Petitioner's records were available to the auditor for the period January 1, 1974 through June 30, 1975, no records were available for the initial
18 month period of the audit from July 1, 1972 through December 31, 1973. Petitioner had filed monthly tax reports with Respondent as to special fuels, but had not submitted any such reports during the audit period for motor fuel. (Testimony of Whitehead, Walker)
As a result of the audit, an assessment of $43,356.11, including interest and penalty, for motor fuel taxes incurred during the period January 1, 1974 through June 30, 1975, was asserted against Petitioner. The assessment was based on audit findings that Petitioner had sold 430,866 taxable gallons, but had not remitted the tax to Respondent. Petitioner paid the assessment. C. C. Walker, Petitioner's former president, testified at the hearing that such payment was made in order to secure the dismissal of then pending state criminal charges alleging that Petitioner had "bootlegged" gasoline during the period in question. (Testimony of Walker, Exhibit 2)
Pursuant to the audit findings, a Notice of Proposed Assessment for delinquent motor fuel taxes during the period July 1, 1972 through December 1, 1973, in the amount of $20,076.43, including penalty and interest through March 31, 1977, was issued by Respondent on April 6, 1977. On the same date, a Notice of Proposed Assessment for special fuel tax in the amount of $51,022.96, including penalty and interest through March 31, 1977, was also issued to Petitioner. A revised assessment, dated September 19, 1978, deleted certain portions of interest charged on the original proposed assessments. These deletions resulted in the reduction of motor fuel assessment to $12,396.52, and the special fuel assessment to $38,052.90. After the hearing, under date of February 27, 1979, Respondent further reduced the motor fuel assessment to
$6,732.22. (Exhibit 1, Hearing Officer Exhibit 1)
Due to the absence of Petitioner's records for the first 18 month period of the audit, Respondent based liability for motor fuel and special fuel taxes for that period on an estimate, using audit findings of the second 18 month period of the audit for which Petitioner's records were available. This was the first instance in at least 13 years in which an estimated assessment of fuel tax had been made by Respondent. Respondent had no regulations or established policy for arriving at such an estimate, but its officials testified that they simply tried to be "fair and equitable" in making the determination. (Testimony of Williamson, Thomas, Deposition of Whitehead, Exhibit 3)
Respondent's method of estimating Petitioner's motor fuel tax liability was predicated upon relating the known 1974-75 figures on purchases and sales of gasoline and the amount of tax found delinquent during that period, to known purchases of gasoline by Petitioner during the period of the estimated assessment. The audit for the period 1974-75 showed that 60 1/2 percent of Petitioner's gasoline purchases from known suppliers in Florida and Alabama had been sold in Florida. Respondent therefore determined from the sales records of Petitioner's known gasoline suppliers and from tax reports it had submitted to Alabama, that the firm had purchased 4,221,454 gallons of motor fuel during the 1972-73 period. Applying the 60 1/2 percent factor, Respondent's auditor determined that 2,554,259 gallons had been sold in Florida during that period. Since it had been found that Petitioner had sold 430,866 taxable gallons during the 1974-75 period for which tax had not been remitted to the state, which was 7 1/2 percent of its total Florida sales for that period, Respondent applied the same factor to the estimated amount of Florida sales during the 1972-73 period. This resulted in an estimated 191,569 gallons on which Respondent assumed Petitioner had collected but not remitted the motor fuel tax. By multiplying
this figure by the 8 cents tax per gallon, it was estimated that Petitioner owed
$15,325.52 to the state. This figure was later revised by the February 27th Notice of Adjusted Final Assessment to $10,176.15 plus a 10 percent penalty of
$1,017.62. This reduction was based on the fact that approximately 1/3 of Petitioner's total sales of motor fuel during the 1974-75 period was made to one company named Pac-a-Sak, which did not do business with the firm during the first 18 month period of the audit. After deducting the sum of $4,461.55 representing overpayment of interest in the 1974-75 assessment payment, Respondent determined that $6,732.22 was due for motor fuel tax during the 1972-
73 audit period. The original estimated assessment reflects Respondent's acknowledgment that only the lesser amount reflected therein is due. (Testimony of Whitehead, Thomas, Deposition of Whitehead, (Exhibit 3), Exhibits 2, 4B, Hearing Officer's Exhibit 1)
Respondent's proposed assessment against Petitioner for special fuel tax and penalty in the total amount of $38,052.90 is derived from audit findings based on availability of Petitioner's records for the 1974-75 portion of the audit period, and on an estimated assessment for the 1972-73 period. Additionally, Petitioner's Florida tax reports for the entire period were used in making the audit. It was determined that Petitioner had purchased 1,510,073 gallons of special fuel in Florida during the 1974-75 period and had sold 1,590,587 gallons in Florida during the same period. The auditor found that Petitioner had sold 156,150 gallons of special fuel for which Petitioner should have collected tax, but did not. The bulk of the untaxed gallonage was sold to Hinesway Trucking Company and Polar Ice Cream Company, neither of which were licensed as special fuel dealers in Florida. Therefore, all of the sales to these two companies were treated as taxable sales, because no resale certificates were obtained by Petitioner when it sold special fuel tax free to those companies. The principal of Hinesway Trucking Company had mistakenly informed Petitioner's office employee that it was licensed as a special fuel dealer when in fact it was not. The audit findings showed that Petitioner had sold a total of 841,855 taxable gallons during the 1974-75 period, for which tax was due in the amount of $67,348.40, but that tax had only been remitted by Petitioner in the amount of $46,809.60, leaving a total tax due of $20,538.80. The total due and payable by Petitioner to Respondent for this period was therefore computed to be $24,443.05, including penalty and interest through June 30, 1975. It is found that the audit correctly reflects Petitioner's special fuel tax liability for the 1974-75 period. (Deposition of Whitehead (Exhibit 3), Exhibit 2, 4A)
The estimated special fuel tax for the 1972-73 period was calculated in a manner similar to that of the estimated motor fuel tax assessment. Respondent's auditor determined that Petitioner's taxable sales during the 1974-
75 period were approximately 53 percent of its total sales. He also determined that Petitioner had experienced a 15 percent increase in business in the latter period. It was therefore determined to estimate the sales for the 1972-73 period as being 85 percent of the total sales of 1,590,587 gallons during the later period which resulted in an estimated 1,351,999 gallons sold in Florida during 1972-73. Applying the taxable percentage of approximately 53 percent to this figure led to a finding that 715,577 taxable gallons had been sold by Petitioner. Petitioner had reported the sale of 539,893 taxable gallons; and accordingly, the audit found that additional tax was due on the difference of 175,684 gallons at 8 cents per gallon, resulting in estimated tax due of
$14,054.72. Thus, this figure added to the 1974-75 deficiency of $20,538.80 resulted in an alleged special fuel tax deficiency for the audit period in the amount of $34,593.52, plus a 10 percent penalty in the amount of $3,459.38 for a total amount due of $38,052.90. Respondent, in formulating the above estimated
assessment for the 1972-73 period, assumed that Petitioner had the same percentage of taxable sales as that for the 1974-75 period. However, approximately 150,000 taxable gallons on which tax had not been collected during the 1974-75 period were sold by Petitioner to Hinesway Trucking Company from about June 1974 through June 1975, under a misapprehension as to its nonlicensed status. Hinesway had not been a customer of Petitioner prior to 1974.
Respondent's auditors made no allowances for this unusual situation, nor did it consider the low deficiencies accrued by Petitioner as a result of its 1970-72 audit. (Testimony of Walker, Deposition of Whitehead (Exhibit 3) Exhibit 1-2, 4A)
Petitioner's president, C. C. Walker, testified at the hearing that as a result of the "personal vendetta" of an employee of Respondent in harassing Petitioner's customers and releasing unfounded information to the press, plus the instigation of criminal charges against the firm, a great loss of business was caused and severe damage to its reputation in the community. He denied any intentional wrongful acts on the part of the company or any of its personnel and claimed that any Florida sales of fuel for which tax was not paid was due to "human error." (Testimony of Walker)
CONCLUSIONS OF LAW
Petitioner's Proposed Assessments for delinquent motor fuel and special fuel taxes are asserted under Chapter 206, Florida Statutes. Inasmuch as assessments for two different types of fuel are involved, they will be discussed separately below.
Motor Fuel. Section 206.41, Florida Statutes, provides that the motor fuel or gas tax is upon the consumer but shall be paid upon the first sale or transfer of title, or use, within the state whether by distributor or dealer who shall act as agent for the state in the collection of the tax. A "distributor," as the term is used in Chapter 206, must be a person who holds a valid distributor of motor fuel license issued by the Respondent. (Section 206.01(4)) A "dealer" is defined in Section 206.01(9) as "a person other than a distributor who sells motor fuel in this state." Petitioner, therefore, necessarily falls within the category of "dealer" since he was not licensed as a distributor in Florida. There is a statutory requirement in Section 206.43 for distributors to file monthly tax reports with Respondent, but no such requirement is imposed upon dealers or others. Consequently, there is no statutory authority for Respondent to apply to Petitioner the provisions of Section 206.06(1) authorizing Respondent to estimate tax liability of a distributor if he fails to file reports or files incorrect or fraudulent reports. This statutory provision also authorizes the imposition of a 10 percent penalty for any such failure of the distributor.
Section 206.59(2) gives the Respondent power to investigate "all cases involving dealing in motor fuel by persons receiving, handling, or storing the same" and to determine thereby if any law is being evaded or illegally avoided. That subsection provides in part:
. . .the determination of the department in any case shall be prima facie valid and authentic in all courts in this state and all actions involving the validating of taxes on persons subject to the provisions of this chapter.
Section 206.12(1) requires that a distributor maintain and keep records of motor fuel transactions for a period of three years, but subsection (2) requires others purchasing taxable motor fuel for the purpose of resale to maintain records of transactions for only a one-year period. It appears that this provision may have been designed to provide a check on sales by distributors who ordinarily act as the state's agent in the collection and payment of motor fuel tax. However, under the broad authority of Section 206.59(2) cited above, it would provide a basis for ascertaining any taxes that might be due by persons other than distributors who in some manner had avoided original payment of the tax. It is not reasonable to assume however, nor does there appear to be any statutory authority for Respondent to go beyond the one-year record-keeping period in order to ascertain tax due by such persons as contended by Petitioner. If the statute does not require records to be kept for more than a year, the state could not expect a person to prove the validity of transactions for which it did not require him to keep records. Petitioner provided its records for a period of a year and one-half from January 1, 1974, through June 30, 1975, and tax was assessed and paid to the state by Petitioner for delinquencies revealed in the audit for that period. It is therefore concluded that the estimated tax assessment on motor fuel for the period July 1, 1972 through December 31, 1973, is without statutory authorization and is therefore invalid.
Special Fuel Tax This assessment consisted of two parts. The first dealt with tax due which was derived from an audit of Petitioner's records and reports for the period January 1, 1974 through June 30, 1975. The Respondent's audit findings for that period were not controverted by Petitioner and the foregoing Findings of Fact clearly establish Petitioner's liability for tax and penalty in the amount of $22,592.38.
The other part of the assessment is an estimate of tax due for the period July 1, 1972 through December 31, 1973, for which no records except state tax reports were available. Petitioner attacks this assessment on the ground that the audit findings were unreasonable based on the available facts and further claims that the estimated assessment is void for failure of Respondent to promulgate rules to specifically show how estimated assessments should be determined. As to the latter contention, Section 206.94 provides that when a special fuels dealer neglects or refuses to file monthly reports or files an incorrect or fraudulent report, Respondent must investigate and determine the amount of taxes due and payable thereon and add a ten percent penalty to any such sum. Although this statutory provision does not specifically authorize Respondent to estimate the tax due, its Rule 12B-5.07(2) (formerly 12A-2.07(2)) provides for estimates in such situations. Part II of Chapter 206 dealing with special fuel does not specifically provide for promulgation of rules in that regard by Respondent, but Section 206.97 makes applicable for special fuel its rule-making power for motor fuel set forth in Section 206.14(1). That subsection simply states that Respondent "shall prescribe and publish all rules and regulations for the enforcement of this part, which rules and regulations shall have the force and effect of law." Respondent, indeed, has not published regulations as to the manner in which estimated assessments should be formulated. The evidence showed that estimated assessments are indeed rare in this area of taxation and Respondent's agents simply used the most "fair and equitable" method they could devise under the circumstances. In view of the rarity of such type of assessment, it may well be desirable that Respondent proceed to rule making on a gradual basis by ad hoc agency action in which its policies, as here, may be controverted in an adversary setting. (See McDonald v Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977) In any event, in the absence of such rules, a determination must be made in accordance
with applicable statutes and under any policy that is in consonance with such statutes.
Section 206.06(1) provides that Respondent shall "from any information it may be able to obtain, from its office or elsewhere" estimate the number of gallons of fuel for which liability may be asserted. The evidence shows that Respondent's method of estimating Petitioner's tax liability for the period in question was to utilize information derived from later existing records and apply a formula to arrive at the number of taxable gallons sold by Petitioner on which tax had not been paid. Respondent also had the benefit of Petitioner's tax reports for the period of the estimated assessment. It is considered that the basic method used by Respondent was reasonable under the circumstances and ordinarily would have provided as accurate a picture as possible of Petitioner's operations and probable tax liability for that period. However, as heretofore found, Respondent utilized in its computations sales of approximately 150,000 gallons of special fuel to the Hinesway Company, a firm that Respondent had not done business with during the period of the estimated assessment, and whose non- taxed purchases comprised most of the non-taxed sales made by Petitioner during the later period. It is considered that inclusion of the Hinesway figures by Respondent's auditors in determining the probable percentage of taxable sales for the period covered by the estimated assessment was unwarranted and should be deleted from consideration in arriving at the taxable percentage and ultimate tax due.
Petitioner's claims of violation of the confidentiality provision of Section 206.95 and other matters alleging unwarranted and unfair acts on the part of Respondent's agents and employees, provide no basis for consideration in a determination of tax liability in a proceeding of the nature.
DONE and ENTERED this 16 day of March, 1979, in Tallahassee, Florida.
THOMAS C. OLDHAM
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
Cecil Davis, Esquire Department of Legal Affairs The Capitol LL05 Tallahassee, Florida 32304
James R. Green, Esquire Seville Tower
================================================================= AGENCY FINAL ACTION NOTICE
vs. ) CASE NO. 77-807
Respondent. )
TO: James R. Green, Esq.
226 S. Palafox Street Pensacola, FL 32501
Cecil L. Davis, Jr. Attorney for Respondent Assistant Attorney General The Capitol, LL04 Tallahassee, FL 32301
You will please take notice that the Governor and Cabinet of the State of Florida, acting as head of the Department of Revenue at its meeting on the 18th day of September, 1979, approved the Respondent's Proposed Substituted Order, in lieu of the Division of Administrative Hearing's Recommended Order dated May 16, 1979. A copy of the Respondent's Proposed Substituted Order is attached.* This constitutes final agency action by the Department of Revenue.
RONALD W. THOMAS
Room 104, Carlton Bldg. Tallahassee, FL 32301
I HEREBY CERTIFY that a true and ocrrect copy of the foregoing Notice was furnished by mail to James R. Green, Esq., Seville Towner, 226 S. Palafox Street, Pensacola, FL 32501, Attorney for Petitioner; by hand delivery to Cecil
L. Davis, Jr., Esq., Assistant Attorney General, The Capitol LL04, Tallahassee, FL 32301, Attorney for Respondent; Thomas C. Oldham, Hearing Officer, Division of Administrative Hearings, Room 530 Carlton Building, Tallahassee, FL 32301, this 20th day of September, 1979.
* NOTE: Respondent's Proposed Substituted Order is unavailable at the Division and therefore not a part of this ACCESS document.
