E. TESCHNER d/b/a OCEAN )
vs. ) CASE NO. 78-1017
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, G. Steven Pfeiffer, held a public hearing in this case on September 8, 1978, in Ft. Pierce, Florida.
The following appearances were entered: Osborne Walker O'Quinn, Ft.
Pierce, Florida, for the taxpayer, W. E. Teschner d/b/a Ocean View Apartments; and Edwin J. Stacker, Tallahassee, Florida, for the Florida Department of Revenue.
On or about April 27, 1978, the Florida Department of Revenue issued an assessment for sales taxes against W. E. Teschner. The Department therein asserted that Teschner was delinquent in past due taxes, penalties and interest, in a total amount of $2,940.35. On or about May 26, 1978, the taxpayer filed a petition for administrative hearing. The Department of Revenue forwarded the petition to the Division of Administrative Hearings for the assignment of a hearing officer and the scheduling of a hearing in accordance with Section 120.57(1)(b) 3 Florida Statutes (1977). The final hearing was originally scheduled to be conducted on August 4, 1978, by notice dated June 21. Upon request of the parties, the hearing was continued and rescheduled to be conducted on September 8, 1978.
At the hearing the taxpayer moved to amend his petition so as to allege res judicata as a defense to the deficiency assessment. The Department did not object, and the motion was granted. The Department called the following witnesses at the hearing: the taxpayer, and Robert M. Schaefer, a tax examiner employed by the Department. The taxpayer appeared as a witness on his own behalf. The Department, which was designated "Respondent" at the hearing, offered Respondent's Exhibits 1-3 into evidence and they were received. The taxpayer, who was designated "Petitioner" offered Petitioner's Exhibit 1, and it was received. The parties have submitted post-hearing legal memoranda.
In May, 1972, the taxpayer, together with two other individuals, purchased the Ocean View Apartments in Fort Pierce, Florida. From then until June 16, 1975, Petitioner was a one-third owner of the apartments. During this time the apartments were managed by the taxpayer's partners. He did not collect
the rents or maintain the books. He was, nonetheless, fully entitled to participate in all profits, and obliged to share in all losses. The partnership registered as a dealer with the Department of Revenue under the provisions of Chapter 212, Florida Statutes, in May, 1972. On June 16, 1975, the taxpayer purchased the Ocean View Apartments from the partnership and became full owner. Beginning on that date he became responsible for the day-to-day operation of the apartments. From May, 1972, until the date of the hearing, the taxpayer was in the business of renting living accommodations at the Ocean View Apartments to the public. From May, 1972 until June 16, 1975, he participated in the business as a one-third partner. From June 16, 1975 until the date of the hearing, he conducted the business as a sole proprietor.
In January, 1976, the Department of Revenue initiated a routine audit of the taxpayer's books and records. The taxpayer apparently refused to turn his books and records over to the Department, and the Department initiated litigation in the Circuit Court of the Nineteenth Judicial Circuit, in and for St. Lucie County, Florida. In its complaint, the Department sought a judgment declaring that it was entitled to audit and inspect the taxpayer's books and records, a mandatory injunction requiring the taxpayer to produce his books and records for audit and inspection, and incidental relief. On November 3, 1977 the Court entered a Final Summary Judgment granting the Department the requested relief. On April 17, 1978, the record were finally made available, and the Department issued the Notice of Assessment, which is the subject of this proceeding, on April 27.
The Ocean View Apartments is located on a single parcel of land which constitutes all, except one lot, of a city block. There are eight separate structures. Five of the structures are duplexes, each containing two apartments, and three of the structures house one apartment each. The units are operated as a single business. They are rented from a single office, and are managed by an individual who is employed by the taxpayer. The apartments are offered to members of the public on a daily, weekly, or monthly rental basis. Some of the apartments are apparently leased on an annual basis.
A portion of the Department's deficiency assessment relates to purchases that were made by the taxpayer without sales taxes being paid. With respect to each of these items which were reported in the taxpayer's books, the receipts did not show that sales taxes were paid. From January, 1973 through October, 1974, no purchases are listed in the taxpayer's books. In making an assessment for these months, the Department computed the total of such purchases during the entire audit period, and then determined a monthly average for the months in which no purchase are shown in the books. This is a reasonable and logical means of determining the amount of such purchases.
In auditing the taxpayer's books, the Department sought to exclude from the audit security deposits that were paid by renters. All amounts that were listed as security deposits in the taxpayer's books were excluded. Three security deposits were not properly designated in the taxpayer's books, but were in fact security deposits. The Department's assessment includes these amounts, but should have excluded them.
Except with respect to the three security deposits, no competent evidence was offered to establish that the Department's deficiency notice was incorrect.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding, and over the parties. Section 120.57(1), Florida Statutes (197;).
The Department of Revenue has the burden of establishing the correctness of its deficiency assessment. Parrish vs. Florida Department of Revenue, DOAH Case No. 77-429 (Order entered May 31, 1977). With respect to non-property taxes, however, the Department's deficiency determinations and assessments are prima facie correct, and constitute prima facie evidence of the correctness of the amount of tax and penalties due. Section 214.06, Florida Statutes (1977). Except with respect to three items of one hundred dollars
each, which were security deposits paid by renters to the taxpayer, no competent evidence was offered that would overcome the prima facie correctness of the Department's assessment. To the extent that the Department's assessment does not constitute prima facie evidence of the correctness of the amount of tax due, the Department has, in this case, established that its assessment is correct.
The taxpayer contends that since he was not the full owner of the Ocean View Apartments prior to June 16, 1975, and was not responsible for the day-to- day operation of the apartments prior to that date, he cannot be held accountable for sales taxes due prior to that date. This contention is without merit. The taxpayer was a one-third partner prior to June 16, 1975, and as such was fully liable for obligations, including tax obligations, of the partnership. Furthermore, even if the taxpayer had had no interest in the Ocean View Apartments prior to June, 1975, he would be statutorily liable for the amount of any outstanding sales taxes due and owing by the previous owner, unless he had received from the sellers a receipt from the Department of Revenue showing that all taxes had been paid, or a certificate stating that no taxes, interest, or penalties were due. Section 212.10(1), Florida Statutes (1977). The Petitioner did not produce any such receipt or certificate at the hearing.
The taxpayer has contended that the Ocean View Apartments are not subject to the Florida sales tax, and that certain of the apartments are single family residences, not subject to the tax. These contentions are without merit. The Ocean View Apartments are adjoining buildings which are advertised and held out to the public to be places where living quarters are supplied for pay to guests or tenants. They are therefore subject to the tax. Section 212.02(b), Florida Statutes (1977). The Ocean View Apartments constitute a single business. They are operated as a single business, with a single set of books being maintained, and are managed by the same person, with rent being paid to the same person. The fact that certain buildings of the apartment contain only one unit does not render them single family dwellings exempt from the provisions of Chapter 212.
The taxpayer contends that some of the purchases which the taxpayer made from third parties actually did have sales tax paid, contrary to the Department's contentions. The taxpayer has also contended that the Department has unfairly estimated the amount of purchases for certain months for which the taxpayer did not keep any records. These contentions are without merit. The taxpayer has offered no competent evidence to rebut the prima facie validity of the Department's assessments with respect to these amounts. Furthermore, the Department offered evidence to establish that the amounts, insofar as they are reflected in the Petitioner's books are accurate, and insofar as they are not, are a reasonable estimate. To the extent that the estimate is inaccurate, the
taxpayer was in a position to obviate the problem by maintaining accurate books, which he apparently did not.
The taxpayer has contended that an action maintained by the Department in Circuit Court in St. Lucie County constitutes res judicata as to the matters raised in this proceeding. This contention is utterly without merit. The action maintained by the Department against the taxpayer in Circuit Court was for declaratory and injunctive relief to require the taxpayer to provide the Department with his books and records as required by the Florida Statutes. The Department could, not statutorily have made a deficiency assessment against the taxpayer without his books and records. Furthermore, the Department has no authority to maintain an action in the Circuit Court to establish a deficiency, but rather must follow the administrative framework of Florida Statutes Chapters 120, 212 and 214.
The taxpayer has offered competent evidence to establish that three security deposits in the amount of one hundred dollars each should have been excluded from the Department's deficiency assessment.
The Department's deficiency assessment issued on April 27, 1978 is correct, and should be made final, except that it should be modified to exclude from the taxable items three hundred dollars that should have been labeled security deposits.
