STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )

)

Petitioner, )

)

vs. ) CASE NO. 79-1434

)

RED AIRCRAFT SERVICE, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings by its duly designated Hearing Officer K. N. Ayers held a public hearing in the above styled case on 3 October 1979 at Fort Lauderdale, Florida.

APPEARANCES

For Petitioner: Linda Procta, Esquire

Assistant Attorney General The Capitol, LL04 Tallahassee, Florida 32301

For Respondent: Robert Palmer, Esquire

700 Brickell Avenue

Miami, Florida 33101

By letter dated July 2, 1979, Red Aircraft Service, Inc. (Red or Respondent), requested a hearing on the assessment for sales tax, interest and penalties levied against it involving the sale of an airplane to Southern Air Charter, Inc. At the hearing two witnesses were called by Petitioner, one witness was called by Respondent and six exhibits were admitted into evidence.

FINDINGS OF FACT

1. The facts in this case are not in dispute. In October 1978 Herbert Grossman, a CPA, one of whose clients was Red Aircraft, Inc., and Spencer Gordon formed the corporation Southern Air Charter, Inc., for the purpose of taking title to an aircraft to be operated by Red. The bill of sale for $140,000 in September 1978 was from Red to Southern Air Charter, Inc., who financed the plane with a loan from Barnett Bank.

   
   

2. Red, at all times here relevant, was registered with the Department of Revenue (DOR or Petitioner) as a dealer engaged in the business of selling tangible personal property.

   
   

3. Southern Air Charter submitted application to DOR for a certificate of registration (Exhibit 1) bearing the typed date October 1978 scratched out, and

   inserted in handwriting 6-1-79. This application (Exhibit 1) was stamped received in DOR office February 1, 1979.

   
   

4. Grossman's testimony, which was undisputed, was that Southern was formed as an accommodation to Red for the purpose of taking legal title to the aircraft to improve Red's balance sheet. Red continued to provide insurance coverage on the aircraft, charter the aircraft and perform all of their activities respecting the aircraft that would be done by an owner.

   
   

5. Southern, having legal title to the aircraft, took depreciation and investment tax credit while Red used the aircraft.

   
   

6. At the time of the sale of the aircraft to Southern, the latter was not a registered dealer, and Red did not collect sales tax on this transaction.

   
   

7. On July 7, 1979, the tax, penalty and interest assessed on this transaction was $6,331.68 (Exhibit 2). The accuracy of this figure was not contested, nor was the assessment for rentals of aircraft in the amount of

   $1,704.34 (Exhibit 2). Red contended that no tax was due on the leasing of the aircraft but no evidence to support this exemption was presented.

   
   

   CONCLUSIONS OF LAW

   
   

8. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of these proceedings.

   
   

9. Section 212.02, Florida Statutes, defines sale to include the transaction here occurring between Red and Southern and further provides that any sale for 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.

   
   

10. Here the title to the aircraft was transferred to Southern and Southern was not a registered dealer. This was a sale and as such was subject to the sales tax of 4% as alleged in the Notice of Assessment. The fact that Red acted as beneficial owner of the aircraft after executing a Bill of Sale to Southern does not change the legal situation that title to the aircraft was transferred to Southern by the Bill of Sale.

    
    

11. Section 212.06(1)(a), Florida Statutes, provides:

    
    

    The aforesaid tax at the rate of 4 percent of the retail sales price as of the moment of sale, 4 percent of the cost price as of the moment of purchase, or 4 percent of the cost price as of the moment of commingling with the general mass of property in this state, as the case may be, shall be collectable from all dealers as herein defined on the sale at retail, the use, the consumption, the distribution and the storage fro use or consumption in this state, of tangible personal property. . . .

12. With respect to the contention of Respondent that sales tax was not due on the lease of the aircraft, Respondent presented no evidence in this regard. Rule 12A-1.71, Florida Administrative Code, provides in pertinent part:

    
    

    1. Sales tax applies to the gross proceeds derived from the lease or rental of tangible personal property where the lease or rental of such property is an established business, part of an established business, or is incidental or germane to such business:

* * *

(11) The charges under contracts between separate legal entities, such as two corporations or between a corporation and an individual or between a corporation and a partnership covering the rental of tangible personal property are taxable, even though the stock of the corporation is owned by the same stockholders or by the other contracting parties. Charges under such a lease between a partnership and one or more of the individual partners are taxable.

From the foregoing it is concluded that in October 1978 Red Aircraft Service, Inc., sold an aircraft to Southern Air Charter, Inc., and at the time of the sale Southern Air Charter, Inc., was not a registered dealer.

Accordingly, sales tax on this transaction was due as alleged. It is further concluded that the sales tax on rentals of the aircraft to corporations related to the lessor of the aircraft are due and payable as alleged. It is therefore

RECOMMENDED that the assessments be collected.

Entered this 2nd day of November 1979 in Tallahassee, Florida.

K. N. AYERS Hearing Officer

Division of Administrative Hearings

101 Collins Building Tallahassee, Florida 32399-1550 (904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of November 1979.

COPIES FURNISHED:

Linda Procta, Esquire Assistant Attorney General The Capitol, LL04 Tallahassee, Florida 32301

Robert Palmer, Esquire 700 Brickell Avenue

Miami, Florida 33101

Docket for Case No: 79-001434

Orders for Case No: 79-001434