STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WILLIAM G. BRUNET )

d/b/a MUSIC BOX LOUNGE, )

)

Petitioner, )

)

vs. ) CASE NO. 78-383

)

DEPARTMENT OF REVENUE and )

GERALD A. LEWIS, Comptroller ) of the State of Florida, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter came on for hearing in West Palm Beach, Florida, before the Division of Administrative Hearings, by its duly designated Hearing Officer, Robert T. Benton, II, on June 20, 1978. The parties were represented by counsel:

APPEARANCES

For Petitioner: David Meisel, Esquire

400 Building

400 Royal Palm Way Palm Beach, Florida

For Respondents: E. Wilson Crump, II, Esquire

Assistant Attorney General Tax Division, Northwood Mall Tallahassee, Florida 32303

By revised notice of proposed assessment, dated February 16, 1978, respondent Department of Revenue asserted, for the period September 1, 1974, through August 31, 1977, a sales tax deficiency in the amount of four thousand fourteen dollars and twenty-three cents ($4,014.23) on account of sales allegedly made by petitioner and a deficiency in the amount of one hundred thirty-five dollars and eighty-nine cents ($135.89) on account of purchases allegedly made by petitioner, together with interest and delinquent penalties. Through counsel, petitioner conceded that the tax claimed on account of petitioner's alleged purchases was owing. Petitioner contests all other items assessed and seeks a refund of all moneys paid toward their satisfaction.

FINDINGS OF FACT

1. Petitioner William G. Brunet owns and operates the Music Box Lounge, a bar in Lake Worth, Florida. Mr. Brunet is homosexual as are his employees and many of the patrons of the Music Box Lounge. At no time pertinent to these proceedings did any agent or employee of either respondent take any action

   affecting petitioner with any motive or intent to discriminate against petitioner on account of his homosexuality.

   
   

2. On October 25, 1977, Margaret Sager called the Music Box Lounge to arrange to see the books for the period September 1, 1974, to August 31, 1977. Two days later she visited the Music Box Lounge where she spoke to the bartender, John J. Dolan, and to petitioner. On the basis of these discussions, Ms. Sager filled out a form. This form, which petitioner signed, was received in evidence as respondents' exhibit No. 1. For the most part, the form is an abbreviated price list for beer, champagne, other wine, and liquor, covering the period 1974 through 1977. The form indicates that one ounce drinks are poured at petitioner's establishment, and the notation "1 case of beer a week personal-

   5 bottles of liq. per week personal" appears at the bottom of the form.

   
   

3. Ms. Sager compared invoices reflecting petitioner's purchases of alcoholic beverages with the entries in petitioner's general ledger purporting to represent such purchases and found no discrepancies. She inquired of petitioner's suppliers as to how much the kegs of beer they had sold petitioner contained. She made allowance for petitioner's personal weekly use of one case of beer and four or five bottles of liquor, assumed that petitioner sold 30 drinks for each quart bottle of liquor he purchased from suppliers, and projected petitioner's gross sales on these assumptions. After a conference with petitioner and his accountant, and on the advice of her supervisor, Ms. Sager substituted the figure 25 drinks per quart to arrive at a second projection. By multiplying .045 times this second estimate, and subtracting from the product the amount of sales tax petitioner had remitted for the period September 1, 1974, to August 31, 1977, Ms. Sager arrived at the figure four thousand fourteen dollars and twenty-three cents ($4,014.23), representing the alleged deficiency on account of petitioner's sales.

   
   

4. After the audit, Ms. Sager concluded that petitioner had remitted what he probably felt was a true figure for the period in question. In estimating petitioner's gross sales, Ms. Sager made no allowance for "happy hours" or other promotions; made no allowance for theft or bartenders' drinking; and made no allowance for the sale of liquor by the bottle rather than by the drink.

   
   

5. During the period in question, petitioner operated his bar on two shifts, from ten in the morning till six in the evening and from six till closing, at two the following morning. Prices of drinks were not stated separately from sales tax due on account of their sale. The bartender started each shift with a certain amount of money in the cash register, and was instructed to ring up each sale as it occurred. At the end of the day, the bartender put the cash register tape and the money in the cash register into a box. The following day receipts were tabulated. Petitioner's accountant used the resulting daily reports in compiling sales tax reports, which petitioner filed regularly during the audit period in question. All but the first four monthly reports petitioner made during the audit period were received as a joint composite exhibit on August 15, 1978.

   
   

6. During the period in question, petitioner sold package goods to his employees and friends at cost; sales tax was collected on these transactions. From April of 1975, to February of 1976, ten to fifteen quarts of liquor were sold at cost each week. Bruce MacFallon, who worked for petitioner as a bartender during and about the year 1974, purchased five cases of liquor from petitioner in a year's time. Gerald P. Mooney, who worked for petitioner as a bartender during the entire audit period, bought about fifteen bottles of liquor at wholesale from petitioner in a year's time. In addition, petitioner gave Mr.

   Mooney two or three bottles of liquor a year as presents. There was no evidence that petitioners' employees stole from him.

   
   

7. At least during the period from April 1975 to February 1976, there were two sets of prices for drinks at petitioner's bar, one set for each shift. From four to six in the afternoon, moreover, prices were further reduced. Respondent's exhibit No. 1 does not reflect these diurnal price fluctuations. John J. Dolan, who worked the day shift as a bartender from April 1975 to February 1976, poured an ounce and a half of liquor for most drinks, but used two ounces in each martini. Bruce MacFallon poured up to two ounces of liquor in each regular drink and more in each manhattan or martini he prepared. He never poured as little as one ounce of liquor in a drink. Gerald P. Mooney poured one and one quarter to one and one half ounces of liquor in each normal drink he mixed and two to three ounces of liquor in each martini or manhattan he prepared. Martinis were especially popular during "happy hours."

   
   

8. Petitioner authorized his bartenders to give complimentary drinks to good customers. As a rule of thumb, Mr. Mooney gave two or three free drinks a night to any customer who regularly spent twenty-five dollars or upwards on visits to the bar. On an average day, Mr. Dolan gave away fifteen to twenty or more highballs and ten or more beers. Mr. MacFallon gave away free drinks for every so many sold to a customer and has given away as many as twenty drinks a day in this fashion. Respondent's exhibit No. 1 overstates the prices petitioner charged for beer during the audit period in question.

   
   

9. There was testimony to the effect that bars catering to homosexuals face stiffer competition than other bars and resort to promotions involving sales of liquor at reduced prices more often. Whether or not it is true, this general proposition has no bearing on the specific matters developed in the evidence in the present case. Except insofar as they recite that Ms. Sager was inexperienced and unfamiliar with the operation of bars and that she failed to consider spillage, petitioner's proposed findings of fact have been adopted in substance, insofar as relevant and consistent with the foregoing findings of fact.

   
   

   CONCLUSIONS OF LAW

   
   

10. The evidence established and petitioner conceded that he failed to report his personal use of liquor and pay use tax on that account, aggregating one hundred thirty-five dollars and eighty-nine cents ($135.89) over a three year period. While the evidence established that petitioner gave away two or three bottles of liquor to Mr. Mooney in a year's time, it was not established that these presents were in addition to, rather than part of, the liquor petitioner concededly used.

    
    

11. Respondents contend that petitioner also owes use tax on the complimentary drinks he authorized his bartenders to give good customers, citing United States Gypsum Company v. Green, 110 So. 2d 409 (Fla. 1959). In that case, a taxpayer was held liable for use tax on "miniature samples of the[taxpayer's] products and printed materials which were distributed free to wholesale and retail dealers." 110 So. 2d at 411. Similarly, Rule 12A- 1.77(1), Florida Administrative Code, provides:

    
    

    Donations of tangible personal property made by any dealer in the course of his business to any person or organization shall be taxed at its cost.

    The present case falls outside the ambit of Rule 12A-1.77(1), Florida Administrative Code, however, because the drinks given to petitioner's patrons were not donations within the meaning of the rule. The evidence showed that nobody received a "free" drink from petitioner, without paying for several others. The complimentary drinks were not "distributed free" in the same sense as the samples in United States Gypsum Company v. Green, supra. In the latter case, there was no requirement that the recipient of a sample purchase anything. In the present case, the complimentary drinks were the means of giving regular customers a better price for purchasing in volume.

    
    

12. Respondents cite Section 212.12(6)(b), Florida Statutes (1977), as authority for substituting its estimate of petitioner's gross sales for the figures petitioner's records yield. The statute provides, in part:

    
    

    In the event any dealer . . . makes a grossly incorrect report, or makes a report that is false or fraudulent . . . it shall be the duty of the department to make an assessment from an estimate based upon the best information then available to it . . . [and] such assessment . . . shall be

    considered prima facie correct; and the burden to show the contrary shall rest upon the dealer . . . Section 212.12(6)(b), Florida Statutes (1977).

    
    

    The evidence showed that petitioner understated his use tax liability an average of three dollars and seventy-seven cents ($3.77) per monthly report filed during the audit period, an aggregate understatement of less than one and one half percent of the taxes he paid. This understatement renders petitioner's monthly reports or some of them incorrect but does not render them "grossly incorrect .

    . . false or fraudulent" within the meaning of Section 212.12(6)(b), Florida Statutes (1977). The estimate of respondent Department of Revenue is, therefore, an inappropriate basis for collection of tax from petitioner.

    
    

13. In any event, petitioner demonstrated that the estimate of the Department of Revenue was entitled to no presumption of correctness.

Respondents would have been entitled to recover tax on any unreported sales that they could have demonstrated by a preponderance of the evidence, but they did not meet this burden with respect to any of the unreported sales they alleged.

RECOMMENDATION

Upon consideration of the foregoing, it is RECOMMENDED:

That respondents abandon the revised notice of proposed assessment and refund all monies collected pursuant to the revised notice of proposed assessment, except for one hundred thirty-five dollars and eighty-nine cents ($135.89), together with penalty and interest thereon.

DONE and ENTERED this 7th day of September, 1978, in Tallahassee, Florida.

ROBERT T. BENTON, II

Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 7th day of September, 1978.

COPIES FURNISHED:

David S. Meisel, Esquire Rogers & Meisel

400 Royal Palm Way

Palm Beach, Florida 33480

E. Wilson Crump, II, Esquire Assistant Attorney General Tax Division, Northwood Mall Tallahassee, Florida 32303

Docket for Case No: 78-000383

Orders for Case No: 78-000383