STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MERRITT-CHAPMAN AND SCOTT, )

CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 77-1423

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Michael R.N. McDonnell, Hearing Officer for the Division of Administrative Hearings at 9:00 a.m., on January 27, 1978, in Room 104, Collins Building, Corner of Gaines and Adams Streets, Tallahassee, Florida.

APPEARANCES

For Petitioner: Richard M. Gray,

For Respondent: E. Wilson Crump, Esquire

Merritt-Chapman & Scott, Corporation, the Petitioner (hereafter Corporation), challenges Respondent's (hereafter DOR) determination of corporate income taxes due under Chapter 220, Florida Statutes. The Corporation contends that it is entitled to separate accounting of its Florida tax base for the tax year in question whereas DOR contends that its use of the apportionment method was appropriate in this case.

FINDINGS OF FACT

1. In 1962, the Corporation decided to relocate its corporate offices from Newark, New Jersey, to the State of Florida. Implementing this decision, the Corporation secured a twenty year leasehold interest of an entire floor in the Universal Marion Building in Jacksonville, Florida, under which it was obligated to pay an annual rental of $52,000.00. Within a few months during the year 1962, the decision to relocate was rescinded.

   
   

2. During the tax year in question, the Corporation retained a part-time employee in Florida for the sole purpose of attempting to either locate a purchaser of the leasehold interest or to avoid further obligations under the lease by negotiations and settlement with the landlord. This part-time employee received his directions from the corporate offices in Newark, New Jersey. Other than these efforts to relieve the burden of the unused leased premises, the Corporation conducted no commercial activities in the State of Florida during the tax year 1973.

3. Although the Corporation's headquarters were ultimately moved to Jacksonville, in January 1976, the Corporation has never occupied the leased premises in question. In fact, in 1974, the Corporation entered into a sublease with the State of Florida for the duration of the lease. Pursuant to audit, DOR assessed the Corporation an additional $12,616.89 in income tax for the year ended December 31, 1973, using the three-factor formula method of apportionment.

   
   

   CONCLUSIONS OF LAW

   
   

4. The Corporation contends that the provisions of Section 214.73, Florida Statutes, should be invoked to relieve it of the additional assessment brought about by the application of the apportionment method. This section states:

   
   

   If the apportionment methods do not fairly represent the extent of a taxpayer's base attributable to this State, the taxpayer may petition for [s]eparate accounting.

   
   

5. Implementation of the foregoing statutory exception is found in Rule 12C-1.15, F.A.C., which reads in pertinent part:

   
   

   (4) General Method

   (a) * * *

   Where the Florida activities are a part of a unitary business carried on within and without Florida, the portion of the taxpayer's income subject to tax in Florida will generally be determined by a three-factor formula of property, payroll and sales.

   Where the activities carried on within the state are separate from the activities carried on outside this state, the income subject to tax may be determined upon a separate accounting of the Florida activities.

   Section 214.73 permits a departure from the apportionment methods of Sections

   214.71 and 214.72, only in limited and specific cases where unusual fact situations (which ordinarily will be unique and non- recurring) produce incongruous results

   under the apportionment provisions contained in Sections 214.71 and 214.72.

   
   

6. The rule delineates three criteria, the presence of any giving rise to a strong presumption of a unitary business qualifying for apportionment. They are (1) "Same type of business, (2) "Steps in a vertical process," and (3) "Strong centralized management." None of these three factors are present in the existing case as those factors are defined in the rule.

   
   

   The rule states further that:

   The activities of the taxpayer will generally be considered a unitary business if the segments under consideration are integrated with, dependent upon, or con- tribute to each other and the operations

   of the taxpayer as a whole, although the facts of each case will be the major determinant.

   
   

7. The "segment under consideration" here is the Corporation's status as lessee under an unused lease. There is no corporate activity designed to generate revenue. There is no integration with, dependence upon, nor contribution to those segments of the Corporation which are designed to produce revenue.

   
   

8. It is concluded that the factual situation presented is a limited and specific case being unusual, unique and non- recurring in nature. Application of the apportionment provisions of Sections 214.71 and 214.72 produces incongruous results and, therefore, the separate accounting method should be employed. It is, therefore

RECOMMENDED that the challenge to the corporate income tax assessment be sustained.

DONE and ENTERED this 28th day of February, 1978, in Tallahassee, Florida.

MICHAEL R. N. MCDONNELL

Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

COPIES FURNISHED:

E. Wilson Crump, Esquire Department of Revenue The Carlton Building

Tallahassee, Florida 32304

Mr. Richard M. Gray

Vice President - Treasurer Merritt-Chapman & Scott Universal Marion Building Post Office Box 4254 Jacksonville, Florida 32201

Docket for Case No: 77-001423

Orders for Case No: 77-001423