vs. ) CASE NO. 78-001
GERALD A. LEWIS, Comptroller ) of the State of Florida , and ) FLORIDA DEPARTMENT OF REVENUE, )
Respondents. )
A hearing was held in the above captioned matter, after due notice, at Tallahassee, Florida, on June 26, 1979, before the undersigned Hearing Officer.
For Petitioner: Robert S. Goldman, Esquire
For Respondents: E. Wilson Crump, II, Esquire
Assistant Attorney General Department of Legal Affairs Post Office Box 5557 Tallahassee, Florida 32301
Whether Petitioner should be granted a refund of sales tax, penalty and interest paid under Chanter 212, Florida Statutes, pursuant to Section 215.26, Florida Statutes.
This proceeding was conducted without the appearance of witnesses. The parties stipulated to the facts and issues in the case and said stipulation agreed that the record would further consist of the pleadings, interrogatories, requests for admission, and affidavits. Five exhibits were received in evidence as follows: stipulation (Exhibit 1), affidavit of Neal J. Burmeister (Exhihit 2), affidavit of Lewis O. Ward (Exhibit 3), service contract and invoice (Exhibit 4), affidavit for attorney's fees (Exhibit 5).
The stipulation of the parties (Exhibit 1) reads as follows:
STIPULATION
The parties to this proceeding, through undersigned counsel, respectfully submit this stipulation to be made a part of the record herein. The parties hereby stipulate and agree to the truth and accuracy of the following:
Petitioner instituted this proceeding to secure refund of taxes, penalties, and interest assessed by the Florida Department of Revenue (hereafter "Demartment") in reliance upon Chapter 212, Florida Statutes, which petitioner paid under protest with respect to certain of its purchases of tangible personal property.
The Hearing Officer has jurisdiction and lawful authorization to enter a Recommended Order in this proceeding pursuant to Section 120.57(1), Florida Statutes. The Respondent Comptroller has jurisdiction and lawful authority to issue a Final Order in this proceeding pursuant to Chapter 120, Florida Statutes, and Section 215.26, Florida Statutes.
Petitioner is a Florida corporation with its principal place of business located at 141 N.W. 16 Street, Post Office Box 1689, Pompano Beach, Florida 33060.
The-principal offices of Respondents Comptroller and Department of Revenue are at Tallahassee, Florida 32304. The Department also maintains an Area Office at 255
N.W. 40th Avenue, Suite 101, Ft. Lauderdale, Florida 33317, which office imposed the assessment in issue in this proceeding.
The Department has identified the assessment of the aforesaid taxes as ST #16-08-60086-66 (Petitioner's Dealer Registration Number) File #108 FLM60427-A. The Office of Respondent Comptroller has identified Petitioner's application for refund as ST #16-08-60086-66.
At all times material hereto, Petitioner has
been engaged in the business of operating a cable television system in Broward County, Florida. Customers of petitioner pay a fee at initial hook-up and recurring periodic charges, and at all times material hereto Petitioner collected sales tax from its customers upon such fees and charges and remitted same to the Department as required by law.
Beginning on April 5, 1976 and continuing through April 26, 1976, the Department conducted an audit of Petitioner's books and records. By letter to Petitioner dated April 27, 1976, and an accompanying "Notice of Assessment of Tax, Penalties and Interest Under Chapter 212, Florida Statutes," the Respondent Department advised
Petitioner that the Department deemed taxable certain purchases by Petitioner of tangible personal property during the period covered by the audit, to wit, from April 1, 1973 through March 31, 1976. As subsequently revised, said assessment demanded payment of $20,772.99, including
$17,601.74 in taxes, $880.90 in penalties, and $2,291.16 in interest.
Petitioner duly objected to the aforesaid assessment and appealed same in accordance with Section 212.15(4) Florida Statutes, but was unable to secure relief. On October 14, 1976 Petitioner paid the entire amount of taxes, penalties and interest set forth in the Department's assessment and subsequently instituted these proceedings to secure a refund. The amount which remains in controversy in this refund proceeding is $3,293.56, including $2,790.76 in taxes, $139.54 in penalties and $363.26 in interest assessed by the Department, plus interest accruing since the date
of Petitioners payment.
Petitioner has complied with all procedural requirements necessary to pursue this claim for refund, and if the purchases of tangible personal property here in issue are not taxable under Chapter 212, Petitioner is entitled to refund of $3,293.56 in taxes, penalties, and interest which it paid to the Department with respect to
such purchases. Respondents dispute Petitioner's claim that interest from the date of its payment to the Department is also recoverable.
The taxes here in issue were imposed with respect to articles of tangible personal property by Petitioner for the sole purpose of furnishing such property to its indivi- dual customers for their exclusive use. Commonly known as "drop-in" items in the cable television industry, these items allow a customer to tune his television set so that he may view television programming which Petitioner distributes throughout its market area. A list of the purchases of
drop-in items which were subjected to the tax assessment here in issue is attached as Appendix I hereto, which sets forth a description of each item, the name of the vendor, the applicable invoice number, and the purchase price paid by Petitioner.
Petitioner installs "drop-in" items described in paragraph 10 above in or about the home of a customers. Title to such items remains in Petitioner at all times, and the customer agrees to return such property to Petitioner and to pay the cost of repair or replacement of items which may be stolen, lost, damaged or destroyed while in the customer's possession. The customer also pays to Petitioner a deposit, to be refunded upon return of said items to Petitioner. A portion of the charges paid to Petitioner by each customer is consideration for the use and possession of such items. This portion is not separately itemized on Petitioner's statements to its customers. (Note: Affidavit of Burmeister, Exhibit 2)
Petitioners position is that it purchases drop-in items for lease or rental to its customers, and that such purchases are not subject to tax under Chapter 212. Respondents' position is that Petitioner uses such items in furnishing services to its customers, and that Petitioner's purchases of such items are taxable under Chapter 212.
"Convertors" and "descramblers" are drop-in items as described in paragraph 10 above. Although Petitioner purchased converters and descramblers during the period covered by the audit which resulted in the assessment here in issue, none of such purchases was included in said assessment.
Since January 1, 1975, the Department has conducted Chapter 212 audits of the books and records of five cable television companions in addition to petitioner, and in each instance the Department issued an assessment of Chapter 212 taxes which had not been paid upon prior purchases of tangible personal property. One of the aforesaid assessments included taxes imposed upon purchases of "converters" and "scramblers." The Department is unable to ascertain whether any of the other four such assessments included taxes imposed upon purchases of converters or descramblers.
During the audit of Petitioner's books and records which produced the assessment here in issue, a representative of Petitioner inquired of the Department's auditor, Mr. Richard Francese, whether Petitioner's purchases of converters were subject to Chapter 212 tax. Petitioner had previously paid taxes on its purchases of such items. After discussing the matter with Mr. John V. Harris, Audit Supervisor of the Department, Mr. Francese advised petitioner that he did not regard such purchases as taxable, since Petitioner indicated that it was treating those items as rentals to its customers.
Because of the large volume of inquiries made to the Department's 29 area offices on a daily basis with respect to the applicability of Chapter 212, and the additional circumstance that the Department does not maintain records with respect to these inquiries, the Department is unaware whether any cable television company other than Petitioner has ever inquired of the Department as to the taxability of purchases of drop-in items or other tangible personal property. The issue presented in this proceeding has not previously been presented in an administrative or judicial proceeding in Florida.
On May 4, 1976, Jerrold Electronics Corporation (hereafter "Jerrold") of Horsham, Pennsylvania issued a credit in the amount of $40,482.00 to Petitioner for Chapter
212 taxes paid with respect to Petitioner's purchases of convertors and descramblers from Jerrold. Jerrold
subsequently received full credit for such amount from the Department.
Beginning on November 1, 1976 and continuing until December 3, 1976, the Department conducted an audit of the books and records of Jerrold relating to purchases by Petitioner of tangible personal property from May 1, 1973 through September 30, 1976. On December 16, 1976 the Department issued an assessment to Jerrold for Chapter 212 taxes. Said assessment did not include any taxes relative to purchases by Petitioner of convertors or descramblers.
By letter dated April 18, 1977 Mr. Louis A.
Crocco, Foreign Tax Examiner Supervisor of the Department
of Revenue, who performed the audit of Jerrold, wrote to Mr. John Harris, Audit Supervisor of the Department of
Revenue, advising him of the credit issued to Petitioner described in paragraph 17 above.
The Department has not attempted to collect Chapter 212 taxes from Petitioner with respect to the purchases of converters and descramblers which were the subject of the Jerrold credit described in paragraph 17 above.
The issues for determination in this proceeding
are:
Whether Petitioner's purchases of drop-in items
are for lease or rental to its customers and not subject to taxation under Chapter 212, or whether such purchases are taxable as purchases of property used by Petitioner in furnishing services to its customers.
If Petitioner's purchases of drop-in items are not subject to taxation under Chapter 212, whether Petitioner is entitled to recover interest from- the date of its payment of taxes thereon.
The parties have no reservations in stipulating to any of the matters set forth herein. The parties further agree that the issues presented in this proceeding are to be determined on the basis of the record consisting of the pleadings, interrogatories, requests for admission, affidavits, and this Stipulation.
The terms and conditions of Petitioner's service agreement with its customers provides in Paragraph 3 as follows:
AVC's equipment (cable, channel selector, descrambler, splitters, etc) is and shall remain the property of AVC. Upon termination of cable television service to a subscriber, for whatever reason, subscriber agrees to return the equipment to AVC in the same condition as when received, reasonable wear and tear excepted, and AVC agrees to return to subscriber his deposit within thirty (30) days thereafter.
In the event the equipment is (i) destroyed, damaged, lost or stolen while in subscriber's possession or (ii) in the event subscriber fails to return the same to AVC upon termination of service, subscriber shall be responsible for the reasonable cost of repair or replacement of the equipment. (Exhibit 4)
In a letter to Petitioner's counsel, dated December 1, 1977, wherein the application for a refund was denied, Respondent Comptroller's Chief of the Bureau of Auditing stated that the agency was in agreement with the Department of Revenue's recommendation that the refund be denied because the tangible personal property in question constituted equipment purchased for use or consumption by Petitioner in providing its services to its customers, and that no exemption applied to the acquisition of the property.
(Petition, Exhibit II)
The policy of the Department of Revenue in administering the sales and use tax has always been that items such as and including converters and descramblers which the cable television industry furnishes to its customers are thereby used by the particular cable company in furnishing a service to its customer, and are not separately rented to the customer. (Exhibit 3)
CONCLUSIONS OF LAW
Respondent Department of Revenue assessed the disputed tax against Petitioner pursuant to Section 212.05, Florida Statutes, which provides pertinently as follows:
212.05 Sales, storage, use tax.--
It is hereby declared to be the legislative intent that every person 15 exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state. For the exercise of said privilege a tax is levied on each taxable transaction or incident and shall be due and payable, according to the brackets set forth in s. 212.12910), as follows:
(1)(a) At the rate of 4 percent of the sales price of each item or article of tangible personal property when sold at retail in this state, the tax to be computed on each taxable sale for the purpose of remitting the amount of tax due the state, and to include each and every retail sale.
* * * * *
(2) At the rate of 4 percent of the cost price of each item or article of tangible personal property when the same is not sold but is used,
consumed, distributed or stored for use or consumption in this state.
Subsection 212.07(9) provides in part:
(9) Any person who has purchased at retail, used, consumed, distributed, or stored for use or consumption in this state tangible personal property, . . . and cannot prove that the tax levied by this chapter has been paid to his vendor . . . shall be directly liable to the state for any tax, interest,
or penalty due on any such taxable transactions.
Here, Petitioner purchased certain tangible personal property in the form of rods, hooks, clamps, cable, transformers, splitters, and the like from vendors for use in providing communication services to its customers, without payment of tax under Chapter 212. Petitioner maintains that such purchases were not taxable as "sales at retail," as defined in subsection 212.02(3)(a), because the acquired property was purchased for "resale," i.e., for the purpose of "rental" to its customers in connection with the supply of communication services. The pertinent statutory definitions read as follows:
212.02 Definitions.--
(3)(a) "Retail sale" or a "sale at retail" means any sale to a consumer or to any person for any purpose other than for resale in the form of tangible personal property, and shall mean and include all such transactions that may be made in lieu of retail sales or sales at retail. A resale must be in strict compliance with rules and regulations and any dealer making a sale for resale which is not in strict compliance "with rules and regulations shall himself be liable for and pay the tax.
* * * * *
(6)(g) "Lease," "let" or "rental" also means the leasing or rental of tangible personal property and the possession or use thereof by the lessee or rentee for a consideration, without transfer of the title of such property....
The parties stipulated that a portion of the service charges paid by Petitioner's customers represents consideration for the use and possession of the personal property in question. However, there has been no showing that rental of the items was contemplated by the parties to the service agreement, or that any such rental was made the basis of a separate charge apart from the regular monthly service charges shown on the billing documents. In short, there is no indication whatsoever that a rental was intended except Petitioner's assertions to that effect in this proceeding.
Department of Revenue Rule 12A-1.71(2), Florida Administrative Code, provides that "Equipment purchased solely for rental purposes is exempt at the time of its acquisition." It is determined, however, that the personal property in question was not rented to customers, hut merely represented parts and
materials used by Petitioner in providing communications services. Department of Revenue Rule 12A-1.46(6) specifically makes taxable the sale of "machines, equipment, parts and accessories there for used directly in furnishing communications services." Even if it could be found that Petitioner had purchased the property solely for rental purposes, it would be precluded from avoiding tax in the instant situation because there is no evidence that it provided the vendor or vendors of the items with an appropriate resale certificate as required under Rules 12A-1.38 and 1.39 to establish the exempt status of the transactions. (See Rule 12A-1.46(8)(e) in this regard concerning resale or rentals by radio common carriers.) Subsection 212.02(3)(a) requires that a resale must be in strict compliance with the departmental rules and regulation.
Petitioner's attack on the Department of Revenue's stated policy to tax the items in question cannot prevail in the absence of sufficient countervailing evidence, such as a showing that the agency's policy is not properly within the agency's exercise of delegated discretion or that it deviates from an existing rule or practice. As to the contention that the policy should have been the subject of rulemaking, it was stated in McDonald vs. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977)
While the Florida APA thus requires rulemaking for policy statements of general applicability, it also recognized the inevitability and desirability of refining incipient agency
policy through adjudication of individual cases.
Petitioner has not successfully challenged the stated policy herein and, contrary to its claims, imposition of the tax was in accordance with existing rules as heretofore indicated. The rules cited by Petitioner which purport to favor its position as to "analogous stiuations" are not considered analogous to the facts in this case.
It is unnecessary to discuss Petitioner's claim that interest is payable to it from the date of payment of the disputed taxes because of its failure to establish a right to tax refund.
The matters submitted by the parties in post-hearing briefs have been fully considered and, where not incorporated or discussed herein, are considered to be either inapplicable or unwarranted in fact or law.
Petitioner seeks attorney's fees predicated upon the failure of Respondent Comptroller to properly respond to interrogatories and requests for admissions in this proceeding. Respondent's alleged failure in this regard was the subject of a motion to compel compliance with discovery requests at a preliminary hearing held on October 19, 1978. It was then ascertained that the information sought by Petitioner was primarily within the knowledge of Department of Revenue officials who had issued the original tax assessment. A ruling on the motion to compel was therefore held in abeyance pending any joinder of the Department of Revenue as a party. Subsequently, the said Department's motion for joinder as a party Respondent was granted and Petitioner thereafter directed interrogatories and requests for admissions to that agency which complied therewith. Accordingly, it is concluded that the motion to compel became moot and that an award of expenses of the motion, pursuant to Rule 1.380(a)(4), Florida Rules of Civil Procedure, is unwarranted.
That Petitioner's claim for refund of taxes, penalty and interest paid pursuant to Chapter 212, Florida Statutes, be denied by Respondent Comptroller of the State of Florida.
DONE and ENTERED this 19th day of July, 1979, in Tallahassee, Florida.
E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Post Office Box 5557 Tallahassee, Florida 32301
Robert S. Goldman, Esquire Thompson, Wadsworth, Messer,
Office of Comptroller State of Florida Attn: Eugene J. Cella General Counsel
Department of Revenue Attn: John D. Moriarty Room 104 Carlton Building Tallahassee, Florida 32301
THOMAS C. OLDHAM
