STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ORMOND HOTEL CORPORATION, a )

Florida Corporation, )

)

Petitioner, )

)

vs. ) CASE NO. 80-268

) DEPARTMENT OF REVENUE, STATE ) OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED 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 ISSUES PRESENTED

Whether Petitioner is liable for sales taxes under Chapter 212, Florida Statutes, as set forth in Second Revised Notice of Proposed Assessment dated January 15, 1980.

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. 80-178R 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. 80-178R 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

1. 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)

   
   

2. 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 hearing "Retirement Homes." The latter advertisement states that the facility is "a residential hotel," but also includes the words "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)

   
   

3. 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-month 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.C. In arriving at his 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 predicted 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-month 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-month 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 rooms for the three-month period each year, the number of rooms occupied by "permanent" guests would have been over fifty percent for each year of the audit period. (Testimony of Boerner, Exhibits 1-2, 4)

   
   

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)

5. 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 room 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 (17 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

   
   

6. Petitioner herein contests imposition of Respondent's assertions of tax, penalties, and interest due for the audit period under Section 212.03, Florida Statutes. Specifically, Petitioner contends that its hotel facility is tax exempt under subsection 212.03(7) and that the manner in which Respondent determined the proposed assessment pursuant to its Rule 12A-1.61, Florida Administrative Code, is incorrect and conflicts with the statutory provisions.

   
   

7. By Final Order, this date, in Case No. DOAH 80-178R, which involves the same parties, this Hearing Officer invalidated Rule 12A-1.61(1) as being an invalid exercise of delegated legislative authority. Consequently, the proposed tax assessments will be considered in accordance with the statutory criteria for exemption without reference to Rule 12A-1.61.

   
   

8. Section 212.03 provides pertinently as follows:

   
   

   1. Transient rentals tax; rate, procedure, enforcement, etc.--

      1. 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;

         . . . .

      2. 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

   person 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.

   * * *

   1. 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 any one 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.

      1. 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 pri- marily serve transient guests.

      2. 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 appli- cation of this law, or in making any determination against th exemption, the department shall con- sider and be guided by, among other things:

   1. Whether or not a facility caters primarily, to the traveling public;

   2. Whether less than half of its tenants have a continuous residence in excess of 3 months; and

   3. The nature of the advertising of the

   facility involved.

   
   

9. 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 basically 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 gives the guidepost of occupancy of a facility by half or more of the tenants in that category.

   
   

10. The evidence establishes that Petitioner's facility unquestionably meets the statutory criteria for tax exemption. It shows that the hotel does not cater primarily to the traveling public, but to elderly retired individuals. Its advertising is directed primarily to the latter group and, although the hotel accepts guests for a short duration, the thrust of this advertising, including its telephone listing under the heading "Retirement Homes" and wherein the facility is described as a "residential hotel" shows that its advertising was aimed primarily to permanent rather than transient guests. Finally, it is clear from the evidence that 50 percent or more of the hotel's tenants must be considered to have had continuous residence there in excess of three months during each year of the audit period. In this connection, although neither party presented evidence as to the term of occupancy of all tenants during the entire twelve months of each year, Respondent's audit figures for the same

    three-month period of each year showed that the overwhelming majority of Petitioner's rented rooms were occupied by residents in excess of three months. Additionally, Petitioner presented evidence to show that during the 1977-78 year, 64.5 percent of the total rooms rented were occupied by persons for a period of more than three months. The foregoing considerations are deemed sufficient to show that Petitioner's hotel was intended primarily for rental as a principal or permanent place of residence during the audit period, and therefore was tax exempt.

    
    

11. Petitioner did not contest that portion of the proposed assessments concerning tax, interest, and penalties during on sales of food, drinks, and other such items. Accordingly, the proposed assessments are considered valid in those respects to the extent that payment has not already been made therefor.

    
    

12. The proposed recommended order filed by the Petitioner and memorandum filed by Respondent have been fully considered and those portions thereof that have not been adopted herein are considered to be either unnecessary, irrelevant, or unwarranted in fact and in law, and are hereby specifically rejected.

RECOMMENDATION

That the proposed tax assessments against Petitioner Ormond Hotel Corporation arising out of the rental of living accommodations at the Ormond Hotel during the period December 1, 1975 through March 1, 1979, be vacated, and that the remainder of the proposed assessments be enforced.

DONE and ORDERED this 10th day of June, 1980, in Tallahassee, Florida.

THOMAS C. OLDHAM, Hearing Officer Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 10th day of June, 1980.

COPIES FURNISHED:

J. Lester Kaney, Esquire Post Office Box 191

Daytona Beach, Florida 32015

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

Docket for Case No: 80-000268

Orders for Case No: 80-000268