STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SARASOTA SURF VACATION RENTALS, ) INC., G & B PROPERTIES, INC., ) and ROSIE A. TURNER, )

)

Petitioner, )

)

vs. ) CASE NO. 82-3245RP

) FLORIDA DEPARTMENT OF REVENUE, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on January 14, 1983, in Tallahassee, Florida. The issue for determination at the hearing was whether respondent's Rule 12A-1.61, Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority.

APPEARANCES

For Petitioners: David W. Wilcox

Icard, Merrill, Cullis Timm & Furen, P.A.

First City Center, Suite 507 1301 Sixth Avenue West Bradenton, Florida 33505

For Respondent: Thomas L. Barnhart

Assistant Attorney General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301

and

Clinton H. Coulter, Jr. Assistant General Counsel Department of Revenue

Room 204, Carlton Building Tallahassee, Florida 32301

INTRODUCTION

Pursuant to Section 120.56, Florida Statutes, petitioners filed a petition challenging the validity of the amendments to Rule 12A-1.61, Florida Administrative Code, adopted on November 9, 1982. At the hearing held on January 14, 1983, petitioners presented the testimony of William Thomas Sprinkle, the Vice President and Director of Rental Programs for G & B Properties, Inc.; Rosie A. Turner, one of the petitioners herein; William Zuna, respondent's Director of Research, Planning and Budgeting; Larry Voorhies,

respondent's Director of Research and Statistics; Jim Maddox, respondent's Assistant Director of the Division of Collection and Enforcement; and Milton H. McKown, respondent's Administrator of the Bureau of Technical Assistance. The respondent presented no witnesses or other evidence at the hearing.

Subsequent to the hearing, the parties submitted proposed findings of fact and proposed conclusions of law. To the extent that the proposed findings of fact are not contained in this Order, they are rejected as being either not supported by competent substantial evidence adduced at the hearing, irrelevant or immaterial to the issues in dispute, or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, as well as the pleadings on file, the following relevant facts are found:

1. In the October 1, 1982 edition of the Florida Administrative Weekly, Volume 8, No. 39 at page 2685, notice was published of the respondent's proposed amendment of Rule 12A-1.61, entitled "Rental of Living Quarters, Sleeping or Housekeeping Accommodations." This notice contained the following language:

   
   

   "IF REQUESTED, A HEARING WILL BE HELD AT:

   TIME AND DATE: 9:00 a.m., October 22, 1982

   PLACE: New Capitol, Lower Level"

   
   

2. By letter dated October 7, 1982, the respondent received a request for a hearing and notification of an intent to appear at the hearing scheduled for 9:00 a.m. on October 22, 1982, for the purpose of protesting the proposed change in Rule 12A-1.61. This letter was not written by or on behalf of any of the petitioners in this proceeding. The respondent did not acknowledge that it received this request, nor did it schedule or hold the public hearing on October 22, 1982.

   
   

3. On October 18 or 19, 1982, the petitioners in this proceeding filed with the respondent a "petition to convene separate proceeding pursuant to 120.54(16), Florida Statutes." Among other allegations, this petition states that:

   
   

   "3. Petitioners are particularly affected by the proposed rule and cannot adequately protect those interests merely by appearing at a public hearing. Petitioners intend to present extensive testimony from

   their own witnesses and from the staff of DOR. Requiring Petitioners to proceed at a hearing open to the public would so disrupt, hamper and frustrate Petitioners' presentation so as to unfairly restrain Petitioners' ability to adequately oppose adoption of the proposed rule.

4. Petitioners must be afforded an individual proceeding where they would have complete and uninterrupted access to the staff of DOR and be

able to present their own witnesses in an adversary-type proceeding, which cannot be done at a standard rule hearing. Only in this manner will Petitioners be afforded a fair hearing on the proposed rule.

WHEREFORE Petitioners respectfully request that DOR suspend its rule- making proceedings and convene a separate proceeding under the pro- visions of Section 120.57."

1. The respondent filed a Motion to Dismiss the petition to convene a separate proceeding pursuant to Section 120.54(16) on or about October 25, 1982.

   
   

2. In the October 29, 1982, edition of the Florida Administrative Weekly, Volume 8, No. 43, at page 2976, the following announcement appears:

   
   

   "The Department of Revenue announces that the hearing scheduled for October 22, 1982 on Rule 12A-1.61--Rental of

   Living Quarters, Sleeping or Housekeeping Accommodations, has been deferred for one month. Notice of this Proposed Rule

   was given in the Florida Administrative Weekly Vol. 8, No. 39, dated October 1,

   1982, on pages 2686-2689."

   
   

3. By "Final Order Denying Rule-Making Hearing and Draw-out Proceeding" dated November 8, 1982, nunc pro tunc to November 3, 1982, the respondent denied the petitioners' requests for a Section 120.54(3) and a Section 120.54(16) hearing. It was concluded that the requests were filed beyond 14 days from October 1, 1982, the date upon which notice of the proposed rule was published, and thus were untimely. It was found that since no timely request for a Section 120.54(3) hearing had been received by the respondent (a fact which the respondent now admits was erroneous), the respondent was not required to schedule such a hearing and, indeed, had not exercised its option to schedule such a hearing. Therefore, the respondent concluded that there existed no rulemaking proceeding from which to "draw-out" and the petition for a Section 120.54(16) proceeding was therefore moot. No reference was made in the respondent's order to the announcement which had appeared in the October 29, 1982, Florida Administrative Weekly that the October 22, 1982, hearing on Rule 12A-1.61 had been deferred for one month. The respondent's Order also concluded that the request for a draw-out proceeding, even had it been timely filed, was fatally defective for its failure to affirmatively demonstrate that a Section 120.54(3) rulemaking proceeding would not provide adequate opportunity to protect the petitioners' substantial interest.

   
   

4. On November 9, 1982, the Governor and Cabinet adopted challenged Rule 12A-1.61, 1/ after receiving comments from the petitioners and counsel for the petitioners in this case.

5. The petitioners received notice that the Governor and Cabinet would take up the proposed rule on November 9, 1982, by way of a telephone call received approximately 24 hours before November ninth.

   
   

6. No notice was published in the Florida Administrative Weekly that a public meeting would be held by the Department of Revenue on November 9, 1982, which was the second Tuesday of the month. Notices did appear in the October 8, October 22, and November 5, 1982 editions of the Florida Administrative Weekly that public meetings would be held respectively on October 22, November 3 and November 16, 1982. These notices state that the "Department of Revenue will act on matters duly presented on its Agenda, which may include approval of rules" and other matters.

   
   

7. The rules which govern the organization and administration of the Department of Revenue provide that regular public meetings of the Governor and Cabinet to transact the business of the Department of Revenue shall be on the first and third Tuesdays of each month or at such other place or time as may be designated, and that a standard notice of the meeting must be published in the Florida Administrative Weekly at least seven (7) days in advance. Rule 12-1.03, Florida Administrative Code. Any agenda item "deferred must be re-agendaed for the next regularly scheduled meeting of the Governor and Cabinet unless a longer period of deferment is approved by a majority vote of the Governor and Cabinet." Rule 12-1.06, Florida Administrative Code.

   
   

8. In summary form, the challenged rule provides, inter alia, that individual condominium units are considered, with certain exceptions, taxable transient rental facilities if rented for periods of less than six months in continuous duration. The rule purports to make owners and/or rental agents for owners of individually-owned condominium units liable for the collection and payment of the applicable sales tax due on the rental.

   
   

9. The petitioners in this proceeding are owners and/or rental brokers or agents for owners of individually-owned condominium units in Sarasota, Florida. G & B Properties, Inc. and Sarasota Surf Vacation Rentals, Inc. each had over $1 million in gross rental revenues last year. Many, if not most, of their present leases and rental contracts were entered into prior to the effective date of the challenged rule and the five percent sales, or transient rental, tax was not incorporated into those rental contract terms. The challenged rule has or will cause certain changes in the operations of these petitioners. Additional staff and overtime work are required to notify lessees of the newly imposed tax. New bookkeeping materials are required to account for and handle the tax, and supplies on-hand can no longer be utilized. One real estate agent estimated the expense of changing his bookkeeping system to be $1,500. This agent also opined that a considerable block of renters has been lost due to the increased five percent charge and change in contract terms, and that there has been a loss of goodwill between himself, as a rental agent, and condominium owners and tenants who have entered into lease agreements in years past without the imposition of the tax.

   
   

10. Prior to the adoption of the challenged rule, the respondent's rules did not address individual condominium units and a transient rental tax on such units was not collected from tenants, owners or rental agents by the Department of Revenue.

    
    

11. The "summary of the estimate of economic impact of the rule" contained in the notice of the amendment of Rule 12A-1.61 appearing in the October 1,

    1982, edition of the Florida Administrative Weekly, Volume 8, No. 39, page 2686, provides as follows:

    
    

    "None. The proposal contains amendments to existing rules and is predicated upon legislation enacted. The fiscal impact occurred upon the amendment to 212.03,

    F.S. by Chapter 97-359, Laws of Florida."

    
    

12. The actual Economic Impact Statement prepared for the challenged amendment recites that the cost to the respondent of implementing the amendment is estimated at $15,122, and the "amount of paperwork is substantial." For the "estimated cost or economic benefit to persons directly affected by the proposed action," the Economic Impact Statement notes that the Revenue Estimating Conference has identified the revenue loss as $2,702,000. It lists those classes of persons (tenants) exempted from the tax as persons benefiting from the rule, and further states that the revenue loss of $2,702,000 will be offset by about $200,000 resulting from the taxable status of certain condominium rentals. The Economic Impact Statement provides that the rule "will not place any business at a competitive disadvantage, nor will it have any impact on the open market for employment." In its "statement of data and method used in calculating estimates," the Economic Impact Statement sets forth the basis for the $15,122 agency cost of promulgating and implementing the proposed rule. It then states that the "revenue impact is based on Revenue Estimating Conference consensus estimates."

    
    

13. Neither the "Revenue Estimating Conference," its "consensus estimates" nor the basis or methodology utilized in its figures are further identified or explained in the respondent's Economic Impact Statement. According to the respondent's Director of Research, Planning and Budgeting, the Revenue Estimating Conference is an informal body under the Governor's office consisting of the State Economist and two legislative staff directors whose purpose is to develop revenue forecasts, impacts and estimates in a non-political environment. The figures utilized in the Economic Impact Statement for the challenged rule are taken directly from those utilized in connection with the passage of a 1979 amendment to Section 212.03, Florida Statutes, by Chapter 79-359, Laws of Florida. The respondent did not attempt to make its own estimate of revenues or costs or economic benefits to persons directly affected by the proposed rule, nor did the respondent request the Revenue Estimating Conference to revisit its 1979 estimate of economic impact.

    
    

14. The instant petition challenging the validity of Rule 12A-1.61 was filed by the petitioners with the Division of Administrative Hearings on December 2, 1982. By Order of Assignment dated December 10, 1982, the undersigned was designated as the Hearing Officer. By letter dated December 14, 1982, the undersigned suggested a final hearing date of January 3, 1983. The undersigned was informed by telephone message from counsel for the petitioners that the parties were going to file a stipulation waiving the requirement that a hearing be held within thirty days. While a written stipulation was never received to this effect, it was the understanding of the undersigned that the parties did not desire to utilize the previously suggested hearing date of January 3, 1983. Through telephone conversations between the offices of the Division of Administrative Hearings and counsel for the petitioner, a hearing date of January 10, 1983, at 4:00 p.m. was originally made available and then was changed to January 14, 1983, because more hours were thought to be necessary to complete the hearing. On January 12, 1983, a notice of appearance as co- counsel for the respondent was filed, as was a Motion to Dismiss or,

    Alternatively, to Stay Proceeding on the ground that the Division of Administrative Hearings lacked jurisdiction to entertain this rule-challenge proceeding inasmuch as the hearing was not scheduled within the thirty days required by Section 120.56(2), Florida Statutes. Oral argument on this motion was heard prior to the commencement of the final hearing on January 14, 1983. Finding that counsel for the petitioner reasonably believed that respondent's counsel had agreed to waive the thirty-day hearing requirement and that respondent had not demonstrated that it had been prejudiced in any manner whatsoever by the four-day delay in commencing the final hearing, the Motion to Dismiss or Stay was denied.

    
    

    CONCLUSIONS OF LAW

    
    

15. As owners and/or brokers and agents for owners of individually-owned condominium units, petitioners are actively engaged in the rental of such units for periods of less than six months. As such, they are substantially affected by a rule which requires the collection and remittance of a tax on such rentals and have standing to challenge its validity pursuant to Section 120.56, Florida Statutes.

    
    

16. It is contended by the petitioners that the amendments to Rule 12A- 1.61, Florida Administrative Code, adopted by the Governor and Cabinet on November 9, 1982, constitute an invalid exercise of delegated legislative authority for failure to comply with the rule-making requirements of Chapter 120, Florida Statutes. Specifically, it is alleged that the respondent failed to comply with the rule-adoption procedures set forth in Section 120.54, Florida Statutes, with respect to notice, an opportunity for a public hearing under Section 120.54(3), an opportunity for a formal proceeding under Sections 120.54(16) and 120.57 and the preparation of an adequate statement of economic impact. In response, the Department of Revenue contends that the Economic Impact Statement prepared for the amendment to Rule 12A-1.61 is adequate and that any procedural errors with respect to the notice or hearing requirements of Section 120.54 were harmless since petitioners did have and did avail themselves of the opportunity to appear before the Governor and Cabinet at its November 9, 1982 meeting.

    
    

17. Prior to the amendment of a rule, an agency is required to prepare a detailed economic impact statement estimating the cost of the proposed action to the agency, the cost or economic benefit to all persons directly affected, and the impact on competition and the open market for employment. The economic impact statement must also include a detailed statement of the data and method used in making each of the above estimates. Failure to provide an adequate statement of economic impact is grounds for holding the rule invalid. Section 120.54(2), Florida Statutes. An agency is also required, in its original notice of intended action, to provide a summary of the estimate of the economic impact of the proposed rule on all persons affected by it. Section 120.54(1), Florida Statutes. Here, the respondent has failed to comply with both of these statutory requirements

    
    

18. The original notice of the proposed amendment of Rule 12A-1.61 which appeared in the October 1, 1982, Florida Administrative Weekly summarizes the proposed action's economic impact as "None," explaining further that the fiscal impact occurred upon the 1979 amendment to Section 212.03, Florida Statutes. This statement not only contradicts the specific Economic Impact Statement prepared for the proposed amendment (which contains statements of estimated agency costs of $15,122 and revenue losses of $2,702,000 to be offset by about

    $200,000); it also, as did the Economic Impact Statement itself, fails to

    address the economic impact of the rule on tenants who will be required to pay the tax and on those charged with the responsibility of collecting and remitting the tax. The evidence adduced by the petitioners in this proceeding amply demonstrates that condominium owners and rental agents for such owners will be impacted economically by the respondent's implementation of a plan and enforcement of the collection of a transient rental tax on individually-owned condominium units rented for periods of six months or less. The fact that the legislative enactment may provide the authority for the promulgation or amendment of a rule on the subject does not relieve the agency from notifying the public and informing itself as to the economic impacts of the proposed action. The notice and information statutorily required by Section 120.54, Florida Statutes, is notice of economic impact, and not notice of when an impact occurred.

    
    

19. Turning now to the Economic Impact Statement actually prepared for the amendment to Rule 12A-1.61, it is concluded that it too fails to adequately comply with the requirements set forth in Section 120.54(2), Florida Statutes. While the estimated costs to the agency of promulgating and implementing the amendment, as well as the statement of data and method used in calculating such estimates, were not demonstrated to be inadequate, the remainder of the statement is totally inadequate. The Economic Impact Statement reveals, and the testimony adduced at the hearing confirms, that the respondent itself made no determination of the rule's cost or benefit to persons directly affected by the proposed action. Rather, the respondent relied upon certain figures identified by the Revenue Estimating Conference in 1979 as representative of revenue losses and offsets. No attempt was made by the respondent to confirm the accuracy of those figures for the year 1982 or to calculate new figures for 1982. Even if the respondent were correct in relying upon the Revenue Estimating Conference figures without further verification or updated information, there is no indication in the Economic Impact Statement as to the data and/or methodology utilized to obtain such figures. Florida Statutes, Section 120.54(2)(a)4 requires a "detailed" statement of the data and method used in making each of the estimates contained in an Economic Impact Statement. As indicated in the discussion regarding the notice of this amendment to Rule 12A-1.61, the Economic Impact Statement totally fails to address the economic impact upon condominium owners who rent their units for periods of less than six months, tenants of such units or rental agents or brokers who handle such rentals and derive their livelihood therefrom. These are persons obviously affected by the rule in a direct manner, and the agency's failure to consider these costs and/or to provide notice of these economic impacts renders the rule invalid.

1. The procedural irregularities attending the adoption of the amendments of Rule 12A-1.61 also renders it an invalid exercise of delegated legislative authority. The respondent's contention of harmless error or collateral estoppel based upon the petitioners' appearance and opportunity to speak at the November 9, 1982 Governor and Cabinet meeting cannot be sustained in light of the numerous procedural errors which occurred in this rule-adoption process. First, one observes a notice on October 1, 1982, which contains an erroneous summary of economic impact and provides that a hearing will be held on October 22, 1982, if requested. Such a hearing was timely requested, but the request was either overlooked or ignored. When the petitioners timely requested a "draw out" proceeding under the provisions of Section 120.54(16), Florida Statutes, they were told on November 8, 1982, that they were too late and that there was no proceeding from which to "draw out." Yet, some ten days prior to November 8th, the public was advised in the Florida Administrative Weekly that the hearing scheduled for October 22, 1982 on Rule 12A-1.61 had been deferred for one month. Notwithstanding the rules of the Department of Revenue which require that

   regular public meetings of the Governor and Cabinet to conduct the business of the Department be held on the first and third Tuesday of each month and that seven days advance notice of each meeting be given, and notwithstanding the fact that the general notices which did appear were of meetings to be held on November 3 and November 16, this challenged rule was adopted on November 9th.

   Again, it must be emphasized that the public was advised in the Florida Administrative Weekly--the same publication in which the Department is required to give advance notice of its regular meeting--that the hearing on Rule 12A-1.61 scheduled, for October 22, 1982, had been deferred for one month. To seriously contend that petitioners' appearance at the November 9, 1982, Governor and Cabinet meeting (for which they were provided twenty-four hours' notice) constitutes an estoppel, waiver or renders other errors harmless is to completely disregard the Department's own rules and the rule-making requirements and rationale behind Chapter 120, Florida Statutes. Persons affected by proposed agency action in the form of a rule are entitled to present evidence and argument on the issues under consideration. Section 120.54(3), Florida Statutes. In order to effectively do so, such persons must have notice of when the agency's business will be conducted and information as to how they can meaningfully participate in the rule-making process. They obtain such information from the agency's own rules, the statutes and rules which govern the rule-making process, and the notices provided by the agency in accordance with those statutes and rules. The respondent's disregard of its own rules and Chapter 120, Florida Statutes, are not rendered harmless by the petitioners' diligence in somehow, after exhausting other procedural remedies, learning that an un-noticed meeting was to occur and making an appearance at that meeting.

   
   

2. In conclusion, the amendments to Rule 12A-1.61, Florida Administrative Code, adopted by the Governor and Cabinet on November 9, 1982, are invalid because of the respondent's failure to provide an adequate statement of economic impact and failure to comply with the rule-adoption procedures set forth in Section 120.54, Florida Statutes.

FINAL ORDER

Based upon the findings of fact and conclusions of law recited herein, IT IS ORDERED THAT the amendments to Rule 12A-1.61, Florida Administrative Code, constitute an invalid exercise of delegated legislative authority.

DONE and ORDERED this 17th day of February, 1983, in Tallahassee, Florida.

DIANE D. TREMOR

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 17th Day of February, 1983.

ENDNOTE

1/ It is interesting to note that the copy of the challenged Rule received into evidence in this proceeding bears the notation that it was filed with the Secretary of State on November 8, 1902.

COPIES FURNISHED:

David W. Wilcox, Esquire Icard, Merrill, Cullis

Timm & Furen, P.A.

First City Center, Suite 407 1301 Sixth Avenue West Bradenton, Florida 33505

Thomas L. Barnhart, Esquire Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301

Clinton H. Coulter, Jr., Esquire Department of Revenue

Room 204 Carlton Building Tallahassee, Florida 32301

Mr. Randy Miller Executive Director Department of Revenue Room 102 Carlton Building

Tallahassee, Florida 32301

Ms. Liz Cloud Bureau Chief

Administrative Code Section Department of State

1802 The Capitol

Tallahassee, Florida 32301

Mr. Carroll Webb Executive Director Administrative Procedures Committee

120 Holland Building Tallahassee, Florida 32301

Docket for Case No: 82-003245RX

Orders for Case No: 82-003245RX