STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CAUSEWAY LUMBER COMPANY, INC. )

)

Petitioner, )

)

vs. ) CASE NO. 78-546

) GERALD LEWIS, as COMPTROLLER, ) and DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard pursuant to notice on July 19, 1978, in Room 358, E. R. Graham Building, 1350 North West 12th Avenue, Miami, Florida, by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative Hearings.

This case arose from the denial of a request for refund for sales taxes paid in 1974, 1975 and 1976 by the Comptroller.

APPEARANCES

For Petitioner: Richard W. Roe

1900 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

For Respondents: Harold F. X. Purnell

Assistant Attorney General

Department of Legal Affairs, The Capitol Tallahassee, Florida 32304

ISSUES

The parties stipulated that the following legal issues were presented on the facts:

1. When the taxpayer fails to claim the tax credit for sales tax on bad debts charged off during the month for which the return is filed as permitted by Section 212.17(8) Florida Statutes, may the taxpayer claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes?

   
   

2. Does claiming a bad debt credit on a return for a month later than the month in which the charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes?

STIPULATIONS

The parties entered into a written stipulation of the issues, of the facts, and stipulated to the introduction into evidence of the attachments to the written stipulation of facts and the Exhibits 1 through 6.

The following are the pertinent findings of fact in this case.

FINDINGS OF FACT

1. Causeway Lumber Company, Inc., (Causeway) is a Florida corporation engaged in the sale of lumber and building materials. During the years 1973- 1977 it operated two yards; one at 2701 South Andrews Avenue, Fort Lauderdale, Broward County, and one and 400 Northwest 2nd Avenue, Boca Raton, Palm Beach County. Because it operated in two counties, separate tax returns were filed for the Fort Lauderdale yard and the Boca Raton yard.

   
   

2. Causeway uses the accrual method of accounting, the specific charge-off method of writing off bad debts, and its fiscal year ends March 31. Causeway did not collect the sales tax on credit sales at the time such sales were made, but billed sales tax to its customers as part of the credit sales. Although the sales taxes were not received by Causeway at the time the credit sales were made, Causeway reported and paid the sales tax on credit sales on the return for the month in which the sale was made as required in Section 212.06, Florida Statutes. In March of 1974, 1975, and 1976 the accounts receivable were reviewed and the account deemed worthless were written off as uncollectable and so reported on the corporation's income tax returns for those years.

   
   

3. Causeway attempted to take as a credit in September of 1976 all of the bad debts written off in March of 1974, 1975 and 1976. The taking of this credit was questioned by the Comptroller, and Causeway paid the taxes due on the September 1976 sales tax remittance and then filed an application for refund on January 20, 1978, pursuant to provisions of Section 215.26, Florida Statutes.

   
   

4. The Comptroller denied the application for refund stating as the grounds that there was no authority in Section 212.17, Florida Statutes, for a refund.

   
   

5. Causeway's two outlets overpaid sales taxes in the following amounts in the years indicated:

   
   

   1974 1975 1976

   Boca Raton $ 1,072.51 $ 9,208.17 $ 30,477.11

   Ft. Lauderdale 3,323.15 10,237.33 10,004.22

   $ 4,395.66 $ 19,445.50 $ 40,481.33

   
   

   CONCLUSIONS OF LAW

   
   

   ISSUE I:

   
   

6. When the taxpayer fails to claim credit for sales tax on bad debts charged off during the month for which the return is filed, as permitted by Section 212.17(3), Florida Statutes, may the taxpayer later claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes?

   
   

   ISSUE II:

   
   

7. Does claiming a bad debt credit on a return for a month later than the month in which charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes?

8. The taxpayer in this instance attempted to do two things. First, the taxpayer attempted to take a sales tax credit of bad debt charge-offs in September of 1976 for bad debts written off in March 1974, March 1975 and March 1976. The bad debts were charged off in these months because that was the end of Causeway's fiscal year. This was properly disallowed by the Comptroller because Section 212.17(3), Florida Statutes, provides that the tax credit will be taken on the return for the period in which the bad debts are charged off. Thereafter, Causeway paid the sales taxes due and on January 20, 1977, filed for a refund of sales taxes overpaid, pursuant to Section 215.26, Florida Statutes. This application for a refund was denied by the Comptroller on the grounds that Section 212.17(3), Florida Statutes, does not provide for a refund.

   
   

9. The first issue presented here relates to the interpretation of Section 215.26, Florida Statutes, and not Section 212.17, Florida Statutes. Section 215.26, Florida Statutes, exists independently of Section 212.17, Florida Statutes, and permits the taxpayer to apply for a refund and authorizes the Comptroller to refund any money paid to the State Treasury which constitutes an overpayment of any tax, a payment where no tax is due, or a payment made the State Treasury in error.

   
   

10. The key to applying Section 215.26 in this case is whether Causeway falls within any of the three categories entitling it to a refund. The Comptroller does not controvert that the bad debts were written off or that Causeway would have been permitted to take the credit at the time the bad debts were written off pursuant to Section 212.17(3), Florida Statutes. However, the Comptroller interprets Section 212.17(3), Florida Statutes, as the only means for Causeway to obtain tax relief for bad debts written off, and that this section makes no provision for a refund. The Comptroller argues that there was never an overpayment of sales tax by Causeway because the total tax was due each time it was remitted. The Comptroller asserts this because Section 212.02(4), Florida Statutes, defines sale price, upon which the sales tax is computed, as the total amount paid for tangible personal property without any deduction for loss.

    
    

11. The Comptroller bases his argument on the decision in Estate of W. T. Grant Co. v. Lewis, 358 So.2d 76, wherein Grant Company, in bankruptcy, sought a refund of sales taxes paid on credit sales on which Grant could not collect the balances due. The holding in Grant, supra, is taken by the Comptroller to mean that the occurrence of bad debts after a sale cannot constitute an overpayment of sales taxes. This premise is true because bad debts have nothing to do with the payment of sales taxes; however, it does not take into consideration the provisions of Section 212.17, Florida Statutes, and it is not the holding or even the thrust of Grant, supra.

    
    

12. The Grant opinion discusses the fact that tax credit and refunds are different, and finds that one must be within the categories created by the Legislature and meet all statutory requirements to obtain either a credit or a refund. Specifically, the Court found that Grant Company could not qualify for a credit under Section 212.17(3), Florida Statutes, because it had not filed any subsequent sales tax returns as a bankrupt company. See, Grant, supra, page 79. However, more important to consideration of the instant case, the Court specifically held as follows regarding the effects of Section 212.17(3), Florida Statutes:

    
    

    We hold the provisions of Section 212.17(3) authorize only the extension of a credit or set off against future tax liability and do

    not authorize a refund of sales taxes collected on personal property sold on credit under the facts of this case.

    (Emphasis supplied)

    
    

13. Having previously found that Grant Company was not eligible for a tax credit because it had ceased filing sales tax returns, the Court found under the facts of the case that Grant Company did not qualify for a refund under Section 212.26, Florida Statutes. Under the facts of the instant case, Causeway filed sales tax returns in each of the periods in which it wrote off bad debts. Causeway was entitled to and met all of the conditions to obtain the "extension of a credit or set off against future tax liability" pursuant to Section 212.17(3), Florida Statutes, on those returns. Causeway through its own error failed to take that credit and paid the total tax on its sales in the period the bad debts were written off.

    
    

14. The purpose of section 212.17(3), Florida Statutes, is to permit a merchant to recoup sales taxes already remitted to the State on credit sales to which sales tax was added to the credit balance when the credit balance becomes uncollectable. The merchant is permitted to take a credit for bad debt writeoff against future tax liability.

    
    

15. The right to the tax credit is created from Section 212.17(3), Florida Statutes, and no question has been raised that Causeway was not entitled to the credit against the returns it filed at the time the bad debts were written off. Causeway failed to take the credit. To the extent that Causeway failed to apply the credit to its future tax liability, Causeway overpaid the tax, or paid taxes not due, or paid money to the State treasury in error. Under any of the three criteria established, Causeway clearly is within the scope of Section 215.26, Florida Statutes. Causeway is entitled to the refund because it was clearly entitled to the tax credit and did not take it. Causeway's right to a refund has nothing to do with the occurrence of bad debts after the sale, except as this activates the provisions of Section 212.17(3), Florida statutes.

    
    

16. The conclusion as to the first issue in this case is that where a taxpayer is entitled to, but fails to take advantage of a tax credit, the tax is overpaid to the extent of the tax credit which could have been taken; and this overpayment may be refunded pursuant to and subject to the limitations of Section 215.26, Florida Statutes.

    
    

17. Regarding the second issue, the provisions of Section 215.26, Florida Statutes, provide that refunds must be requested on forms prescribed by the Comptroller. The filing of a tax return asserting credits does not constitute an application for refund pursuant to Section 215.26, Florida Statutes, because the appropriate form is not used. This section further provides that refunds must be made within three years from the date the right to a refund accrues to the taxpayer. The right to the refund of taxes which are overpaid accrues from the date the taxes are paid. The taxes in this instance were paid and the credit should have been taken in March, 1974, March, 1975, and March, 1976. The application for a refund was filed on January 20, 1978. The three year limitation stated in subsection 2 of Section 215.26, Florida Statutes, cuts off the claim of refund for taxes overpaid in March, 1974. Therefore, only the amount of the taxes overpaid (the amount of the tax credit which could have been taken) in 1975, and 1976, may be refunded.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends to the Comptroller that the taxpayer be refunded the taxes overpaid in 1975, and 1976, in the total amount of $59,926.83.

DONE and ORDERED this 9th day of October, 1978, in Tallahassee, Florida.

STEPHEN F. DEAN

Hearing Officer

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

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 9th day of October, 1978.

COPIES FURNISHED:

Richard W. Roe

2900 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

Harold F. X. Purnell Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304

Eugene J. Cella General Counsel

Office of the Comptroller The Capitol

Tallahassee, Florida 32304

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA OFFICE OF THE COMPTROLLER

CAUSEWAY LUMBER COMPANY, INC.,

Petitioner,

vs. CASE NO. 78-546

GERALD LEWIS, as COMPTROLLER, and DEPARTMENT OF REVENUE,

Respondent.

/

FINAL ORDER

This case was heard pursuant to notice of July 19, 1978, in Room 358, E. R. Graham Building, 1350 North West 12th Avenue, Miami, Florida, by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative Hearing

This case arose from the denial of a request for refund for sales taxes paid in 1974, 1975 and 1976 by the Comptroller.

APPEARANCES

For the Petitioner: Richard W. Roe

1900 East Oakland Park Blvd. Fort Lauderdale, Florida 33306

For the Respondents: Harold F. X. Purnell

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 ISSUES

The parties stipulated that the following legal issues were presented on the facts:

1. When the taxpayer fails to claim the tax credit for sales tax on bad debts charged off during the month for which the return is filed as permitted by Section 212.17(3), Florida Statutes, may the taxpayer claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes?

   
   

2. Does claiming a bad debt credit on a return for a month later than the month in which the charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes?

STIPULATI0NS

The parties entered into a written stipulation of the issues, of the facts, and stipulated to the introduction into evidence of the attachments to the written stipulation of facts and the Exhibits 1 through 6.

The following are the pertinent findings of fact in this case.

FINDINGS OF FACT

1. Causeway Lumber Company, Inc., (Causeway) is a Florida corporation engaged in the sale of lumber and building materials. During the years 1973- 1977 it operated two yards; one at 2701 South Andrews Avenue, Fort Lauderdale, Broward County, and one at 400 Northwest 2nd Avenue, Boca Raton, Palm Beach County. Because it operated in two counties, separate tax returns were filed for the Fort Lauderdale yard and the Boca Raton yard.

   
   

2. Causeway uses the accrual method of accounting, the specific charge-off method of writing off bad debts, and its fiscal year ends March 31. Causeway did not collect the sales tax credit on credit sales at the time such sales were made, but billed sales tax to its customers as part of the credit sales. Although the sales taxes were not received by Causeway at the time the credit sales were made, Causeway reported and paid the sales tax on credit sales on the return for the month in which the sale was made as required in Section 212.06, Florida Statutes. In March of 1974, 1975, and 1976 the accounts receivable were reviewed and the accounts deemed worthless were written off as uncollectable and so reported on the corporation's income tax returns for those years.

   
   

3. Causeway attempted to take as a credit in September of 1976 all of the bad debts written off in March of 1974, 1975 and 1976. The taking of this credit was questioned by the Comptroller, and Causeway paid the taxes due on the September 1976 sales tax remittance and then filed an application for refund on January 20, 1978, pursuant to provisions of Section 215.26, Florida Statutes.

   
   

4. The Comptroller denied the application for refund stating as the grounds that there was no authority in Section 212.17, Florida Statutes, for a refund.

   
   

5. Causeway's two outlets allegedly overpaid sales tax in the following amounts in the years indicated:

   
   

   Boca Raton	$ 1,072.51	$ 9,208.17	$ 30,477.11
   Ft. Lauderdale	$ 3,323.15	$ 10,237.33	$ 10,004.22
   	$ 4,395.66	$ 19,445.30	$ 40,481.33

   
   

   CONCLUSIONS OF LAW

   
   

   ISSUE I.:

   
   

6. When the taxpayer fails to claim credit for sales on bad debts charged off during the month for which the return is filed, as permitted by Section 212.17(3), Florida Statutes, may the taxpayer later claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes?

   
   

   ISSUE II:

   
   

7. Does claiming a bad debt credit on a return for a month later than the month in which charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes?

   
   

8. The taxpayer in this instance attempted to do two things. First, the taxpayer attempted to take a sales tax credit of bad debt charge-offs in

   September of 1976 for bad debts written off in March 1974, March 1975 and March 1976. The bad debts were charged off in these months because that was the end of Causeway's fiscal year. This was properly disallowed by the Comptroller because Section 212.17(3), Florida Statutes, provides that the tax credit will be taken on the return for the period in which the bad debts are charged off.

   Thereafter, Causeway paid the sales taxes due and on January 20, 1977, filed for a refund of sales taxes overpaid, pursuant to Section 215.26, Florida Statutes. This application for a refund was denied by the Comptroller on the grounds that Section 212.17(3), Florida Statutes, does not provide for a refund.

   
   

9. The first issue presented here relates to the interpretation of Section 215.26, Florida Statutes, and not Section 212.17, Florida Statutes. Section 215.26, Florida Statutes, exists independently of Section 212.17, Florida Statutes and permits the taxpayer to apply for a refund and authorizes the Comptroller to refund any money paid to the state Treasury which constitutes an overpayment of any tax, a payment where no tax is due, or a payment made the State Treasury in error.

   
   

10. The key to applying Section 215.26 in this case is whether Causeway falls within any of the three categories entitling it to a refund. The Comptroller does not controvert that the bad debts were written off or that Causeway would have been permitted to take the credit at the time the bad debts were written off pursuant to Section 212.17(3), Florida Statutes. However, the Comptroller interprets Section 212.17(3), Florida Statutes, as the only means for Causeway to obtain tax relief for bad debts written off, and that this section makes no provision for a refund. The Comptroller argues that there was never an overpayment of sales tax by Causeway because the total tax was due each time it was remitted. The Comptroller asserts this because F.S. 212.06(1)(a) provides that the full amount of the tax on credit sales, installment sales and sales made on any kind of deferred payment plan "shall be due at the moment of the transaction in the same manner as a cash sale." The Comptroller also asserts as additional authority F.S. 212.02(4) which defines the term sales price for the purpose of the imposition of sales tax to include the total amount paid for tangible personal property including any amount for which credit is given to the purchaser by the seller without any deduction therefrom "on account of . . . losses."

    
    

11. The Comptroller bases his argument on the decision in the case of Estate of W.T. Grant Company v. Lewis, 358 So.2d 76 (1 DCA Fla. 1978), wherein the First District Court of Appeal upheld the Comptroller's denial of Grant's refund request based upon the existence of bad debts for which a credit could not be taken under F.S. 212.17(3). Therein the First District Court of Appeal held that sales taxes upon credit sales were due in full at the moment of transaction in the same manner as a cash sale. Based upon such statutory authority, the Court found that no overpayment of taxes had occurred. Further, the Court held that F.S. 212.17(3) authorizes only the extension of a credit or setoff against future tax liability and does not authorize a refund of sales taxes collected on personal property sold on credit. Indeed, the First District Court of Appeal expressly held that F.S. 212.17(3) "allowance of a credit only as against future tax liability where the dealer has not reacquired title to and possession of the tangible personal property sold, and not a refund of taxes already paid" is a reasonable and proper distinction which the legislature was fully empowered to enact.

    
    

12. In the instant matter though the Petitioner did file later tax returns including certain returns upon which the Petitioner had the privilege of taking the credit allowed by F.S. 212.17(3) but negligently failed to do so, while W.T.

    Grant was unable to file any later tax returns by virtue of its bankruptcy, such is a distinction without a difference. In the instant matter the Petitioner has alleged that it overpaid sales taxes and therefore a refund is appropriate pursuant to F.S. 215.26. The First District Court of Appeal in the Estate of

    W.T. Grant Company case held that pursuant to F.S. 212.06(1) (a) and F.S. 212.02(4) the payment in full of sales tax on credit sales at the moment of the transaction as if paid in cash was required and that the later occurrence of a bad debt did not render such prior payment a payment where no tax was due or an overpayment. Further, Petitioner has not presented any evidence that its returns for the periods in which it would otherwise have been entitled to take the bad debt deduction credit included the payment of any sales taxes other than those properly charged and collected by it for sales transactions made during the period covered by the return. Consequently, such returns for the period in which the bad debt deductions could have been written off did not in and of themselves include any overpayment of tax, payment where no tax was due, or a payment in error. Consequently, Petitioner has not shown the occurrence of any of the three categories of F.S. 215.26 which would justify the grant of a refund.

    
    

13. Petitioner contends that its negligent failure to timely claim credit pursuant to F.S. 212.17(3) has resulted in an overpayment of sales tax upon its return for those periods in which bad debts were found to be worthless and were actually charged off for federal income tax purposes. Such contention is incorrect for it fails to recognize that the bad debt credit provision found in

    F.S. 212.17(3) is a mere privilege granted by the legislature which if not timely and properly invoked is forever lost. Such privilege, as was recognized by the First District Court of Appeal in the Estate of W.T. Grant Company case, is not based upon the existence, of an overpayment of tax, a payment where no tax was due, nor a payment in, error but rather is a credit or setoff against future tax liability based upon the occurrence of bad debts in connection with the sale of property to which the dealer has neither reacquired title or possession and to which sales taxes have been previously fully and properly been collected. Since F.S. 212.06(1)(a) and 212.02(4) preclude the determination that any overpayment of sales tax had occurred in connection with the bad debts, absent an express grant of legislative authority the mere occurrence of bad debts cannot form the basis for a refund action pursuant to F.S. 215.26. (See Ch. 78-23, Laws of Florida, for the express grant of such authority effective May 8, 1978.)

    
    

14. Further, Petitioner's negligent failure to properly claim the credit on the sales tax return does not thereby automatically convert such proper payment of sales taxes in said return for the transactions which were engaged in by Petitioner during the period covered by the return into overpayments.

    Indeed, if Petitioner had failed to timely claim a $4 00 bad debt credit allowance on a sales tax return for the period in which the bad debts were written off and such return disclosed that Petitioner had sold during the period covered by the return $100 worth of tangible personal property at retail for which a $4.00 sales tax was properly due and in fact had been collected and reported. The end result of Petitioner's contention would be that such properly imposed and collected $4.00 tax on the sale of tangible personal property during such period is automatically converted into an "overpayment" of tax by Petitioner's negligent failure to exercise a privilege in the manner and within the time authorized by the legislature. Such is clearly not the case and any such conclusion is clearly prohibitive by the decision of the First District Court in the Estate of W.T. Grant case.

15. In summary, F.S. 212.17(3) grants only the privilege of taking a credit or setoff against "future tax liability," i.e. taxes otherwise properly due and owing. In the case of Estate of W.T. Grant, supra, it was held that the occurrence of bad debts on credit sales did not render the prior payment of sales taxes pursuant to F.S. 212.06(1) (a) an "overpayment." Florida Statute 212.17(3) involves only the limited privilege of reducing a sales tax liability which is by statute otherwise fully due and owing. Such privilege is limited to being timely claimed on the particular sales tax return for the period in which bad debts are found to be worthless and actually charged off for Federal tax purposes not so claimed, the privilege is lost. Florida Statute 21.26 on the other hand authorizes the return of taxes that ought not to have been paid because of the absence of statutory authority to impose the same, i. e. where an overpayment, payment in error or payment where no tax was due has occurred. Petitioner's sales tax payments for March of 1974, 1975 and 1976, but for the credit privilege, were both authorized, and required by law and Petitioner's failure to offset such tax liability pursuant to F.S. 212.17(3) did not have the effect of converting tax payments otherwise required by law into am overpayment of tax, payment where no tax was due or a payment in error.

    
    

16. Regarding the second issue, the provisions of Sec. 215.26, F.S., provide that refunds must be requested on forms prescribed by the Comptroller. The filing of a tax return asserting a credit does not constitute an application for refund pursuant to Sec. 215.26, F.S., because the appropriate form is not used.

ORDER

Based upon the foregoing findings of fact and conclusions of law, the Comptroller hereby denies Petitioner's request for refund in the amount of

$59,926.83.

DONE AND ORDERED this 17th day of February, 1978, in Tallahassee, Florida.

GERALD LEWIS, COMPTROLLER

COPIES FURNISHED:

Richard W. Roe

2900 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

Harold F.X. Purnell Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida

Eugene Cella General Counsel

Office of the Comptroller Tallahassee, Florida

Docket for Case No: 78-000546

Orders for Case No: 78-000546