STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
ORMOND HOTEL CORPORATION, a )
Florida Corporation, )
)
Petitioner, )
)
vs. ) CASE NO. 80-178RX
)
DEPARTMENT OF REVENUE, )
STATE OF FLORIDA, )
)
Respondent. )
)
FINAL ORDER
A hearing was held in the above captioned matter, after due notice, at Tallahassee, Florida, on May 14, 1980, before Thomas C. Oldham, Hearing Officer.
APPEARANCES
For Petitioner: J. Lester Kaney, Esquire
Post Office Box 191
Daytona Beach, Florida 32015
For Respondent: Linda C. Procta, Esquire
Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32301 ISSUE PRESENTED
Administrative determination of the validity of Rule 12A-1.61, Florida Administrative Code, pursuant to Section 120.56, Florida Statutes.
On January 30, 1980, Petitioner filed its Petition for Formal Administrative Hearing with this Division. It had also forwarded a copy of the petition to the Department of Revenue on January 29, 1980. The petition sought an administrative determination of the invalidity of Respondent's Rule 12A-1.61 under Section 120.56, Florida Statutes, and also requested relief from two proposed tax assessments imposed by Respondent under Chapter 212, Florida Statutes. By letter of February 5, 1980, the Hearing Officer advised Petitioner that any petition for hearing on the validity of the proposed assessments could not be considered until or unless the matter was referred to this Division by Respondent. Notice of Hearing in Case No. 80-178RX was issued on the same date with hearing scheduled for February 22, 1980. The parties thereafter, by Stipulation filed February 15, agreed that the petition be considered both for the purposes of an administrative rule challenge and consideration of the proposed tax assessments, and that they be consolidated for hearing. The parties further stipulated that the hearing should be continued for a period of not less than 60 days. Thereafter, on February 18, Respondent formally referred
the petition to this Division concerning the determination of any sales taxes due under Chapter 212. An order was issued on February 19 wherein the Stipulation was accepted, and Cases Nos. 80-178RX and 80-268 were consolidated for hearing. A Supplemental Notice of Hearing was issued on April 24, 1980, for hearing scheduled May 14, 1980.
The tax assessments in question were issued by Respondent pursuant to Section 212.03, Florida Statutes. Respondent seeks to impose a 4 percent tax on rentals of rooms in a facility operated by Petitioner in Ormond Beach, Florida. Petitioner claims exemption from the tax under Section 212.03(7), F.S., and asserts that the manner in which Rule 12A-1.61 purports to implement that statutory provision is invalid as being contrary to the purpose, intent and specific language of the statute.
At the hearing, the parties stipulated that Rule 12A-1.61, Florida Administrative Code, as shown in Supplement No. 86, was the version of the rule in force during the pertinent tax period. (Exhibit 1) Petitioner restricts its challenge to subparagraph (1) of Rule 12A-1.61.
Official recognition was taken of the challenged rule. The parties stipulated that Respondent's Prehearing Interrogatories to Petitioner and the exhibits thereto will be considered as evidence in both cases.
Petitioner concedes that if the tax assessments are valid, the computations and amounts of tax, penalties, and interest due, as set forth in the proposed assessments, are correct and payable.
FINDINGS OF FACT
During the audit period in question, i.e., December 1, 1975, through March 31, 1979, Petitioner Ormond Hotel Corporation operated the Ormond Hotel, Ormond Beach, Florida. It was licensed during the audit period by the Division of Hotels and Restaurants, Department of Business Regulation, and classified as a retirement establishment. (Interrogatories)
The Ormond Hotel is an old wooden structure containing 350 rooms with
258 rooms available for rental. The remaining rooms are not in proper condition for rental. Most of the hotel guests are over 65 years of age and reside there either permanently or on a seasonal basis, usually from December through March of each year. A few married couples have accommodations at the hotel, but most of the residents are single individuals occupying one room. Prior to 1978, Petitioner advertised the hotel in a national magazine called "Retirement Living" and conducted advertising on billboards, brochures, and in the classified section of the local telephone book under the heading "Retirement Homes". The latter advertisement states that the facility is "a residential hotel," but also includes the works "DAY-WK-MO-YR." Similarly, the hotel's brochure recites that accommodations are available by day, month, or year. All units are available for rental to permanent tenants, but short-term occupancy is accepted if there are available rooms. The hotel does not have a swimming pool, but does have restaurant facilities and recreation areas. The hotel does not primarily cater to transient guests. (Testimony of Salveson, interrogatories)
Respondent's auditor conducted an audit of Petitioner's business operations for the period December 1, 1975, through March 31, 1979. In arriving at whether or not the Ormond Hotel was subject to tax imposed by Section 212.03, Florida Statutes, on its rentals, he examined the Petitioner's books to ascertain the number of total available rental units and the status of tenants
at the hotel during the months of April, May, and June of each year. If he found that 50 percent or more of the total units had been rented to persons residing there continuously for the specific three-months period, those tenants were considered to be permanent rather than transient tenants and the hotel was deemed exempt from tax pursuant to Rule 12A-1.61(1), F.A.A. In arriving at this determination of exempt status, the auditor did not deduct unoccupied rooms from the total number of units in arriving at his "fifty percent" determination.
Although the auditor analyzed the advertising brochures of Petitioner, and was aware that the hotel was listed in the telephone directory under retirement homes, and concluded that such advertising was directed primarily to the acquisition of permanent guests, he predicated his audit findings solely on the "fifty percent" test concerning occupancy of total units. In this manner, he determined that Petitioner was exempt from taxation in 1975 based on the fact that for the April through June period for that year, 135 of the 264 total units had been occupied continuously by "permanent" tenants. In a similar manner he found that the hotel did not qualify for exemption during the succeeding years of the audit period. In this respect, he found that for 1976, there were only
119 such guests during the three-months period out of the 263 total units, which was less than 50 percent. In 1977, there were 102 such tenants out of 261 total units which was less than 50 percent. In 1978 there were 98 such tenants and
259 total units, which was less than 50 percent. The auditor's worksheet reflects that there were 124 vacant rooms during the three-months period in 1975, 140 in 1976, 153 in 1977, and 153 in 1978. He concedes that if he had applied the "fifty percent" rule by comparing the number of three-month or "permanent" tenants with the number of occupied by "permanent" guests would have been over fifty percent for each year of the audit period. (Testimony of Boerner, Exhibits 1-2, 4)
Based on the audit, Respondent issued two separate "Second Revised Notices of Proposed Assessment" on January 15, 1980. The first assessment covered the period December 1, 1975, through November 30, 1978. It asserted tax due on room rentals in the amount of $21,362.91 plus a delinquent penalty, and interest through January 15, 1980, for a total sum of $28,062.45. The assessment also asserted tax, penalty and interest for purchases unrelated to room rentals in the amount of $984.92, for a total assessment of $29,047.37.
The assessment reflected that a partial payment had been made on October 2, 1979, in the amount of $2,590.62, leaving a balance due of $26,456.75. The other assessment showed tax on room rentals in the amount of $6,001.75, plus delinquent penalty of $300.10, and interest through January 15, 1980, in the amount of $611.76 for a total of $6,913.61. It also asserted tax, penalty, and interest on purchases in the amount of $23.39 for a total assessment of
$6,937.00. This assessment also showed partial payment on October 2, 1979, in the amount of $132.08, leaving a balance due of $6,804.92. In a letter transmitting the assessments, dated January 16, 1980, Respondent advised Petitioner that the hotel did not qualify as an exempt facility under Rule 12A- 1.61(1)(a), F.A.C., during the audit period, because less than fifty percent of the facility's units were occupied by guests who had resided there three or more months as of July 1 each year. The letter further stated that "an analysis" of the rental of units submitted by Petitioner as to its exempt status did not conform to the requirements of the rule because the facility advertised to guests on a daily, weekly and monthly basis in addition to long-term leasing, the analysis used an annual rather than a three-month period prior to July as a basis, and the number of tenants at the facility rather than total units. (Exhibit 2)
Petitioner's accountant prepared an analysis of the room status at the Ormond Hotel during the period July 1, 1977, to June 30, 1978. It reflects that
165 rooms, or 64.5 percent of the total of 256 units rented during the year, were occupied by tenants for a continuous period of over three months. On March
31 of that year, 157 rooms, or 61 percent of the total of 258 rooms available for occupancy, were occupied by guests for more than three months. Sixty-nine of the rooms were occupied by transient tenants or those with less than three- months occupancy (27 percent), and 32 rooms were unoccupied (12 percent). As of June 30, 1978, the hotel had 110 guests who had resided there for more than three months, and 18 guests with residency of less than three months.
(Testimony of Salveson, Exhibit 3)
CONCLUSIONS OF LAW
Petitioner challenges Rule 12A-1.61(1), F.A.C., pursuant to Section 120.56, F.S., as being an invalid exercise of delegated legislative authority.
No Issue had been presented in this proceeding as to the standing of Petitioner or as to the manner in which the rule was promulgated. The sole matter in dispute is whether or not the stated portion of the rule comports with the statutory provision which it purported to implement. The statute in question is Section 212.03, Florida Statutes, which provides pertinently as follows:
Transient rentals tax; rate, procedure, enforcement, etc.--
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing or letting any living quarters, sleeping or housekeeping accommodations in, from, or a part of, or in connection with any hotel . . . as hereinbefore defined in this chapter. For the exercise of said privilege a tax is hereby levied as follows: in the amount equal to 4 percent of and on the total rental charged for such living quarters, sleeping or housekeeping accommodations by the person charging or collecting the rental; . . . .
The tax provided for herein shall be in addition to the total amount of the rental
and shall be charged by the lessor or person receiving the rent in and by said rental arrangement to the lessee or person paying the rental, and shall be due and payable at the time of the receipt of such rental payment by the lessor or person, as defined in this chapter, who receives said rental or payment. The owner, lessor or person receiving the rent shall remit the tax to the department at the times and in the manner hereinafter provided for dealers to remit taxes under this chapter. The same duties imposed by this chapter upon dealers and tangible property respecting the collection and remission of the tax, the making of returns, the keeping of books, records, and accounts and the compliance with the rules
and regulations of the department in the administration of this chapter shall apply to and be binding upon all persons who manage or operate hotels . . ., and to all persons who collect or receive such rents on behalf of such owner or lessor taxable under this chapter.
* * *
The tax levied by this section shall not apply to, be imposed upon, or collected from any person who shall reside continuously
longer than 12 months at anyone hotel . . ., and shall have paid tax levied by this section for twelve months of residence in any one hotel. . . .
* * *
(7)(a) The tax levied by this section shall not apply to or be imposed upon or collected upon the basis of rentals to any person who resides in any building or group of buildings intended primarily for lease or rent to persons as their permanent or principal place of residence.
It is the intent of the legislature that this subsection provide tax relief from persons who rent living accommodations rather own their home, while still providing a tax on the rental of lodging facilities that primarily serve transient guests.
The rental of facilities . . . which are intended primarily for rental as a principal or permanent place of residence is exempt from the tax imposed by this chapter. The rental of facilities that primarily serve transient guests is not exempt by this subsection. In the application of this law, or in making any determination against the exemption, the department shall consider and be guided by, among other things:
Whether or not a facility caters primarily to the traveling public;
Whether less than half of its tenants have a continuous residence in excess of 3 months; and
The nature of the advertising of the facility involved.
Section 212.17(6), F.S., provides that Respondent shall have the power to promulgate reasonable rules and regulations not inconsistent with Chapter 212 for the enforcement of such chapter and collection of revenue thereunder, "a and such rules and regulations shall when enforced deemed to be reasonable and just." Section 212.18(2) provides further authorization to issue rules and regulations not inconsistent with Chapter 212, as the Department "may deem necessary in enforcing its provisions in order that there shall not be collected on the average more than the rate levied herein."
Pursuant to the above statutory authorization, Respondent promulgated Rule 12A-1.61, Florida Administrative Code. The challenged portion of the rule reads as follows:
12A-1.61 Rental of living quarters, sleeping or housekeeping accommodations.
Every person, except housing authorities which are specifically exempt from provisions hereof by section 212.08(10), F.S., is exercising a taxable privilege when he engages in the business of renting, leasing or letting any living quarters, sleeping or housekeeping accommodations in connection with any hotel, motel, apartment house, duplex, rooming house, tourist or mobile home court subject to the provisions of Chapter 212, F.S. Notwithstanding the aforesaid provisions of this paragraph, effective March 1, 1972, the tax shall not apply to the rental of living accommodations which are rented primarily to persons as their principal or permanent place of residence but the tax shall apply to the rental of such facilities at hotels, motels, and seasonal lodging facilities that primarily serve transient guests. (See paragraph 9 of this rule.)
When a lodging facility does not primarily cater or advertise that it primarily caters to seasonal or transient guests, or to the traveling public, and when
fifty percent (50 percent) or more of its total units are rented to persons who have resided thereat continuously for the three months immediately preceding March 1, 1972, the facility shall have an exempt status until a redetermination has been made.
Landlords beginning business after March 1, 1972 shall determine the taxable status of their lodging facility as of the commencing of business. In making their determination, the above guidelines will be applied except that the three months prior residence requirement will be waived in those instances where leases or other records of the facility clearly reflect that the facility does not primarily cater to or advertise that it caters to seasonal or transient guests or the traveling public. All landlords are required to make a redeterimination of the taxable status of their businesses on July 1 of each year and in the event that his taxable status has changed, he shall notify the Department of such change.
Unless 50 percent or more of the tenants of a facility have resided thereat for more than three months, all rentals at the
facility are presumed to be taxable. However, when a facility has been in operation for less than three months, the following guidelines will be applied in determining the taxable status of the facility:
When a facility caters to the traveling public, it shall have a taxable status.
The nature of its advertising -- When a facility offers accommodations to the public for periods of 3 months or less, it shall be presumed to have a taxable status.
All rentals collected on and after March 1, 1972 will be subject to the foregoing application of the tax. (See paragraph (6) of this rule for exemption from the rental tax
of persons who have continuously resided at a taxable location for twelve months.)
Although subsection (7)(b) of Section 212.03 states the intent of the legislature to provide tax relief for persons who permanently rent living accommodations, that subsection and subsection (c) clarify such intent to only tax facilities that primarily serve transient guests, and not to tax facilities intended primarily for rental as a principal or permanent place of residence.
Subsection (c) provides further that Respondent in making any determination "against the exemption" must consider and be guided by three specific non- exclusive criteria. It is manifest from the wording of such criteria that the legislature intended to tax facilities providing accommodations mostly to short- term tenants and overnight travelers, and to exempt those facilities where the majority of accommodations were intended for and normally occupied by tenants for a substantial duration. It essentially draws the line as to permanent or transient tenancy on the basis of occupancy of more than three months in determining "permanent" tenancy. For exemption, it provides the guidepost of occupancy of a facility by half or more of the tenants in that category.
In examining the pertinent portion of the challenged rule, it is clear that Respondent substantially departed from the statutory mandate and revised the criteria to make it more difficult for a facility to become exempt from taxation. The first paragraph of subparagraph (1)(a) of Rule 12A-1.61 provides exempt status for a facility if it does not primarily cater or advertise that it primarily caters to seasonal or transient guests, or to the traveling public, and when 50 percent or more of its total units are rented to persons who have resided there continuously for the three months immediately preceding the date of determination of exempt status. The date has been fixed at July 1 of each year since 1972. The above formula for exemption presents two questions for determination. The first is whether the "fifty percent" determination may be restricted to a particular three-month period during the year, and secondly, whether the percentage requirement should be computed as to number of tenants compared to the facility's total units, or number of tenants residing in occupied units of the facility.
As to the first question posed above, Respondent first maintains that a periodic redetermination of a facility's status is required in order to enforce the taxing provision of the statute. No attack has been made by Petitioner as to the need for an annual redetermination, and such is considered to be a reasonable and necessary requirement. Respondent also asserts that the three-month period from April through June of each year is an appropriate period
for redetermination of status since they are "non-seasonal" months and would more accurately reflect the true status of the facility. However, Petitioner claims that such an arbitrary period is not reflective of the character of the facility during the entire year, and effectively precludes consideration of those tenants who customarily stay for a period in excess of three months during the winter season. This argument is deemed meritorious. A specific three- months period produces and inaccurate determination of a facility's eligibility for exempt status. The statute neither prescribes nor contemplates the application of such a limited period in arriving at a determination and, by implication from the general language of subsection 212.03(7)(c), plus the eligibility of "a principal place of residence" for exemption, indicates that it was not intended to exclude "seasonal" tenants from consideration. Accordingly, it is concluded that the rule is arbitrary and unreasonable in delineating the specific period of April through June as the only period for consideration in determining exempt status.
It is apparent that the second question concerning the manner of determining whether less than half of the tenants have had a continuous residence in excess of three months should only be applied on the basis of total tenants rather than a facility's total units. Petitioner cogently pointed out that the statutory criterion speaks of "tenants" rather than "total units", and that to apply the latter standard would deviate from the express statutory language. His argument is correct. Respondent presented no justification for its clearly erroneous method of computation which involves a consideration of all the hotel rooms regardless of how many are occupied during the year in question. Such a method clearly disregards and conflicts with the statutory requirement that Respondent shall consider the total number of tenants residing at the facility in arriving at the "fifty percent" determination. Under the rule, vacant rooms are taken into consideration in arriving at such determination which is obviously unwarranted and unauthorized by the terms of the statute. The only appropriate manner in which to satisfy the statutory criterion is to determine the total number of tenants residing at the facility during the course of the year and categorize them as transient or permanent guests by the length of their stay, utilizing any period of over three months as the test for "permanent" status.
In addition to the foregoing deficiency in the rule, subparagraph 1(a) does not provide for agency discretion in applying the statutory criteria for exemption. It may well be that a facility caters or advertises primarily to transients, but, in actuality, most of its units during a given year are occupied by tenants for periods in excess of three months. In such cases, the actualities of the situation should be considered in determining the tax status of the facility.
As to subparagraph (1)(b) of the rule, Petitioner effectively challenges only the first sentence thereof which purports to create a presumption that a facility is taxable unless 50 percent or more of the tenants have resided there for more than three months. Such a presumption is unwarranted because it ignores the other statutory considerations of whether the facility caters to the traveling public, and the nature of its advertising. The remainder of subparagraph (1)(b) is inapplicable to Petitioner and therefore is not addressed herein. Subparagraph (1)(c) of the rule was not specifically contested and is patently unconnected to this rule challenge.
The Proposed Final Order filed by the Petitioner has been fully considered and those portions that are not adopted herein are specifically rejected as being unnecessary or unwarranted in fact or law.
In its posthearing Memorandum, Respondent asserts that, although Section 212.03(7)(c) sets out the three factors to be used in applying the law, it also provides authority for the Department to develop its own criteria, and that Rule 12A-1.61 was adopted to establish "a more precise means of determining if a rental facility is exempt." In this regard, Respondent maintains correctly that it is the Petitioner's burden of proof to show the rule's invalidity, and that the construction placed on a statute by a state administrative body charged with the responsibility for its enforcement is entitled to great weight. Respondent further maintains that there is no essential difference between the words "tenants" and "units" and that such terms properly should be used interchangeably. This contention is deemed erroneous. Unambiguous statutory language must be accorded its plain meaning. Carson v. Miller, 370 So.2d 10 (Fla. 1979). It is apparent that there is a clear distinction between the two terms. "Tenants", in the context of the statute, obviously refers to those who rent or lease rooms. If the legislature had intended that the exemption be tested against the number of rooms or "units" in a facility, it undoubtedly would have so stated. Any administrative rule promulgated in furtherance of a statute must be consistent with the provisions thereof and may not amend, add to, or repeal the statute. 30 Fla. Jur. 2d, Administrative Law, Section 55. In Florida Beverage Corporation v. Wynne, 306 So.2d 200 (Fla. 1st DCA 1975), the Court stated:
Where the empowering provision of a statute states simply that an agency may "make such rules and regulations as may be necessary to carry out the provisions of this Act", the validity of regulations promulgated thereunder will be sustained so long as they are reasonably related to the purposes of the enabling legislation, and are not arbitrary or capricious.
Although Rule 12A-1.61(1) is considered "reasonably related" to the statute's purpose, its alteration of the basic test for exemption therein is considered arbitrary and unreasonable. An "arbitrary" decision is one not supported by facts or logic. Agrico Chemical Company v. State, Etc., 365 So.2d 759 (Fla. 1st DCA 1978). The portion of the rule in question falls within that definition in the manner heretofore stated. Respondent's claim that its rule version of Section 212.03(7)(c) is authorized as an additional criterion is not meritorious because it does not add an additional factor for consideration in determining exemption, but merely changes the criterion shown in subsection (7)(c)(2).
Finally, Respondent points to prior administrative decisions involving the rule as dispositive of the situation. None is controlling here. In Hartley
v. Department of Revenue, DOAH Case No. 77-1154, the Hearing Officer considered Rule 12A-1.61 in the context of a Section 120.57(1) hearing wherein the validity of a tax assessment was in issue. It was not a rule challenge under Section 120.56, and therefore is not considered binding on this Hearing Officer. A challenge of the rule in Plotkin and Management Corporation, DBA Rindale Hotel
v. Department of Revenue, in DOAH CASE NO. 79-038R, involved an assertion that the rule was ambiguous and the Hearing Officer held that the legislature had not delegated authority under Section 120.56 to consider such a ground for rule challenge. The companion case DOAH No. 79-017 involved the tax assessment itself and is not controlling in this proceeding.
Pursuant to Section 120.56, Florida Statutes, it is determined that the following portions of Rule 12A-1.61(1), Florida Administrative Code, constitute an invalid exercise of delegated legislative authority:
12A-1.61 Rental of living quarters, sleeping or housekeeping accommodations.
(1) * * *
When a lodging facility does not primarily cater or advertise that it primarily caters to seasonal or transient guests, or to the traveling public, and when
fifty percent (50 percent) or more of its total units are rented to persons who have resided thereat continuously for the three months immediately preceding March 1, 1972, the facility shall have an exempt status until a redetermination has been made.
Landlords beginning business after March 1, 1972 shall determine the taxable status of their lodging facility as of the commencing of business. In making their determination, the above guidelines will be applied except that the three months prior residence requirement will be waived in those instances where leases or other records of the facility clearly reflect that the facility does not primarily cater to or advertise that it caters to seasonal or transient guests or the traveling public. . . .
Unless 50 percent or more of the tenants of a facility have resided thereat for more than
three months, all rentals at the facility are presumed to be taxable. . . .
* * *
DONE AND ORDERED this 10th day of June 1980 in Tallahassee, Florida.
COPIES FURNISHED:
J. Lester Kaney, Esquire Post Office Box 191
Daytona Beach, Florida 32015
THOMAS C. OLDHAM
Hearing Officer
Division of Administrative Hearings
101 Collins Building Tallahassee, Florida 32301 (904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 10th day of June 1980.
Linda C. Procta, Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32301
John D. Moriarty, Esquire Department of Revenue
Room 104, Carlton Building Tallahassee, Florida 32301
Liz Cloud, Chief
Bureau of Administrative Code 1802 Capitol Building
Tallahassee, Florida 32301
Carroll Webb, Executive Director Administrative Procedures Committee
120 Holland Building Tallahassee, Florida 32301
| Issue Date | Proceedings |
|---|---|
| Jun. 10, 1980 | CASE CLOSED. Final Order sent out. |
| Issue Date | Document | Summary |
|---|---|---|
| Jun. 10, 1980 | DOAH Final Order | Rule challenged partially invalid for confusing tenants and units--changing statutory language. Rule is arbitrary and ambiguous. |
