STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
INTERNATIONAL CRUISE SHOPS, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 86-3769
) FLORIDA DEPARTMENT OF REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, this matter came on for hearing before P. Michael Ruff, duly designated Hearing Officer, in Miami, Florida.
APPEARANCES
For Petitioner: Robert W. Hanula, Esquire
The Greyhound Tower, Station 1701 Phoenix, Arizona 85077
For Respondent: Linda G. Miklowitz, Esquire
Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32399-1050 BACKGROUND
This matter arose upon two notices of proposed assessment of sales and use tax, penalty and interest issued against the Petitioner by Respondent, Department of Revenue (Department; Respondent). The Petitioner, International Cruise Shops, Inc. (ICS), timely protested these assessments and conducted negotiations with the Department with regard thereto for a number of years.
Additionally, this matter was held in abeyance by stipulation of the parties for a substantial period of time due to the pendency of the appeal in the Florida Export Tobacco v. Department of Revenue, 510 So.2d 936 (Fla. 1st DCA 1987). The sales and use tax assessments at issue concerned, originally, both sales of liquor by ICS, wherein the Department claimed that ICS failed to collect sales tax with regard to certain bar sales of liquor and also as to purchases of items by ICS for its own use and consumption aboard vacation cruise ships owned and operated by the Norwegian Caribbean Lines (NCL). After lengthy negotiations with the Department, the assessment as to the bar sales of liquor and the dispute related thereto was settled between those parties. No issues as to that assessment are before the Hearing Officer, except with regard to whether a penalty as to that assessment is due. Remaining in dispute is the assessment for sales and use tax, interest and penalty with regard to ICS's purchases of items for use and consumption aboard the NCL vessels, as well as the penalty issue with regard to the bar sales portion of the original assessments. The amount of tax in dispute is $50,428.40, plus interest and penalty.
After the cause was in abeyance for a substantial period of time pending the outcome of the Florida Export Tobacco appeal, it was again set for hearing after that case determined, as pertinent hereto, that disputes involving assessments for unpaid taxes, interest and penalties of the type involved herein were proper matters of jurisdiction before the Division of Administrative Hearings. The Petitioner presented two witnesses at the hearing, Sonia Jensen, the district manager for ICS and Linda Loddo, district manager of gift shop operations for ICS. The Respondent called Mr. Donald Bittner, regional supervisor for the Department of Revenue as its witness. The Respondent offered, and had admitted into evidence respondent's exhibit 1 and, additionally, a factual stipulation, with numerous related attachments, as a joint exhibit.
At the conclusion of the proceeding, the parties ordered a transcript thereof and requested an extended briefing schedule. Subsequent to the hearing, the briefing schedule was extended by agreement of the parties and the parties ultimately timely submitted proposed findings of fact and conclusions of law as well as legal memoranda. The requirements of Rule 28-5.402, Florida Administrative Code, have been waived.
The issues to be resolved in this proceeding concern whether the purchases made by ICS upon which the Department seeks to assert its sales and use tax authority are exempt purchases, by reason of their intended use and consumption being in foreign commerce. Included therein is the question of whether there was any requirement that the Petitioner submit an affidavit of exemption with regard to those items and the use and purpose for which they were purchased.
Also, as a necessary part of a determination of those general issues, is the determination of whether the items purchased by ICS constitute "parts of vessels" and were intended for use in the operation of the vessels, as well as the tangential issue of whether ICS personnel are agents of NCL.
FINDINGS OF FACT
Based upon the record evidence adduced as well as the factual stipulation filed by the parties, the following facts are found.
The Petitioner, International Cruise Shops (ICS), is a subsidiary company of the Greyhound Corporation. ICS, as pertinent hereto, operates gift shops, bars, beauty salons and exercise rooms and like "passenger amenity" type facilities ("shops") on board cruise ships operating out of the Port of Miami. The particular cruise ships of concern in this case are owned by Norwegian Caribbean Lines (NCL). The parties have stipulated that the vessels owned by NCL, to which this proceeding relates, operate exclusively in foreign commerce and that none of their operating mileage involved herein is in intrastate commerce. Because of this, ICS maintains that the transactions or purchases which are the subject of this proceeding are exempt from taxation under Section 212.08(8), Florida Statutes. The parties have stipulated that the sales tax at issue was not collected by the vendors involved and was not paid on the Items in question. The parties have also stipulated that all of the items in question, purchased in port, were used or consumed on board the NCL vessels involved and that the vessels were operating at the time in foreign commerce. It is also stipulated that ICS recognized at the time of the purchases that they were exempt ones and provided the vendors involved with its export exemption registration number.
ICS takes the position that it is exempt from sales and use tax as to these items because the items purchased are "parts of a vessel" within the meaning of the exemption statute set forth at Section 212.08(8), Florida Statutes. It is also stipulated that during the relevant audit period ICS did not furnish the vendors involved in these purchases with the "partial exemption affidavit" described in Section 212.08(8)(b), Florida Statutes, the "partial exemption" statute. The Department in turn argues that ICS is not entitled to the exemption because it is not an "owner, operator or agent of a vessel." ICS maintains, contrarily, that its status as owner, operator or agent of a vessel is not determinative of its entitlement to the exemption, but rather the nature of the goods involved and their use is what is determinative. Be that as it may, the Petitioner maintains that it qualifies as an operator or agent of the vessels involved anyway. The Department also contends that even if ICS is an owner, operator, or agent, it failed to sign the affidavit mentioned above, stating that "the item or items to be partially exempted are [parts of a vessel] and setting forth the extent of such partial exemption." (emphasis supplied) See Section 212.08(8)(b), Florida Statutes.
The Department originally served the Petitioner a Notice of Intent (to make sales and use tax audit changes) and a Notice of Proposed Assessment of tax, penalty and interest for the audit period from January 1, 1980, through December 31, 1982. The Department also issued a Notice of Intent to make sales and use tax audit changes, as well as a Notice of Proposed Assessment of Tax Penalty and Interest for the supplemental audit period of January 1, 1983, through April 30, 1983. Additionally, it is stipulated that the documents attached to the stipulation, as exhibits C and D respectively, are true and correct copies of an original shop agreement and bar agreement made and entered into as of January 1, 1980, between NCL and ICS. The parties have stipulated that those two documents represent the contractual agreements between NCL and ICS during the relevant audit periods at issue in this proceeding, and fairly reflect the relationship of the parties, although they do not agree that the language in the agreements to the effect that "ICS shall not be considered the agent" of NCL means that ICS is not the agent of NCL for any purpose at all.
Those two agreements, as well as the unrefuted evidence of record, reveal that the services of bar operator and concessionaire, gift shop operator, as well as beauty shops and sauna operator, duty-free shop operator, and operations involving the purchasing for and operating of a shipboard duty-free and non-duty free shop for passengers and crew, are regular facets of cruise ship operations. It is the peculiar purpose of cruise ships to transport passengers, but provide all sorts of amenities and shopping services for passengers and crew of the type mentioned above and elsewhere in these agreements. There is no question that the duties ICS personnel were performing aboard NCL ships are integral functions of the operation of a cruise ship, as that relates to the exempt status claimed herein by ICS.
The parties have additionally stipulated that exhibit F, attached to the stipulation, in evidence, is a random list of some of the supplies purchased by ICS during the audit period in question, far which no sales tax were paid. This listing is stipulated to be a representative sampling of the kinds of items for which the Department assessed tax under Schedule B of the assessment at issue. Exhibit G is a true and correct copy of a petition for reassessment of sales and use tax by ICS dated December 21, 1983.
On February 9, 1984, ICS representatives attended a conference with the Department's disposition section personnel in Tallahassee. A Notice of Decision was entered September 30, 1985, by the tax conferee of the Department in
response to the December 21, 1983 petition by ICS and as a result of that February 9, 1984 informal conference with the Department. A Petition for Reconsideration was filed by ICS dated October 28, 1985, concerning that notice of decision. On November 20, 1985, ICS representatives attended another informal conference with the Department's disposition section of its Office of General Counsel in Tallahassee. A supplemental petition was then filed by ICS dated February 12, 1986. Thereafter, a Notice of Reconsideration dated July 28, 1986, was executed by the tax conferee, Mark A. Zych, in response to the November 20, 1985 petition and informal conference. Thereafter, ICS filed the petition initiating this proceeding on September 19, 1986.
The parties have additionally stipulated to, and the evidence of record reveals, that the items involved in this case were purchased by ICS from vendors for use in its shops and bars in the regular course of operation and business aboard the cruise ships. Those items at issue were stipulated to be used or consumed by ICS on Board NCL'S vessels.
The shop and bar employees of ICS were paid on NCL's payroll and ICS would then reimburse NCL. Additionally, NCL negotiated a labor contract which covered the shop and bar employees of ICS, as well as its own employees. While they were on duty on board ship, the ICS personnel wore name tags indicating that they were NCL crew members, bearing the NCL logo. ICS personnel also participated in all safety drills and lifeboat drills like any other crew members. Each had specific stations and passenger safety duties assigned them, including lifeboat stations, just as any NCL employee crew members. ICS personnels' living quarters were in the same location as NCL employees' living quarters and ICS personnel were subject to the same duties, obligations and restrictions as NCL employees while on board the NCL ships, including restricted access to passenger areas and restrictions on mingling with passengers.
The shop agreement (exhibit C to the stipulation in evidence) reveals that ICS performance of its shop, bar and other operations on board the cruise vessels was subject to the control of NCL. Numerous references in the shop agreement establish that NCL had pervasive control over ICS employees' performance of their duties on board NCL's cruise ships, as set forth at length in Appendix A, attached hereto and incorporated by reference in these findings of fact. One particularly revealing provision of the agreement is worth quoting. Section 16 of the Agreement requires ICS to designate a specific employee to act as supervisor of ICS employees on board the ships. This supervisor must agree to take orders from the master and ship's officers:
... and such qualified NCL personnel as shall be designated by the masters at all times and shall be under the control and direction and report directly to whomever the masters designate on board the vessels. ICS' supervisory personnel are to give prompt obedience to the instructions and orders of the NCL designee in regard to the operation of the shop concession. (emphasis supplied)
The bar agreement, in evidence as exhibit D to the stipulation, contains a virtually identical provision. That bar agreement, for purposes of this proceeding, is essentially equivalent to the shop agreement.
Additionally, the policy and procedures manual, in evidence as exhibit to the Stipulation, depicts numerous provisions which establish that, for all
practical purposes, except for the reimbursement of NCL by ICS for salary for its employees, that ICS employees were considered as a part of the regular crew of the NCL cruise ships and subject to the direction and control of the ships' officers the same as any other crew member. This extended even to direction and control concerning how displays in the shops were set up, and how the shops and bars, were operated. In summary, that policy and procedures manual further demonstrates the pervasive control of NCL over the ICS employees and operations aboard the cruise ships, even to the extent of regulating vacation of ICS employees when they were ashore between cruises, etc.
The testimony of ICS witnesses at the hearing confirms the existence of NCL's authority over ICS and its employees and demonstrates clearly that NCL fully exercised that right of control in the normal day to day operations of its cruise vessels. Sonia Jensen, district manager for ICS, has worked for ICS continuously since 1975. She established that NCL personnel supervise, direct and control ICS employees as to safety procedures, lifeboat drills and lifeboat station assignments, and as to all rules and regulations applying to crew members and their behavior. ICS employees on the ships are considered crew members. The testimony of Linda Loddo, district manager for ICS since 1973, corroborated that of Ms. Jensen in establishing that the authority of the NCL ships' officers extends to ICS employees as crew members, whether they are actually aboard ship or on land. Additionally, Ms. Jensen established that, based upon her considerable experience working in the cruise ship industry, that the shops and bars operated by ICS aboard the NCL cruise ships are an integral functioning part of, and appropriate to the operation of, a cruise vessel and a cruise line, in the normal course of its business and operations.
Thus, ICS contends that it fits within the Department's interpretation of the relevant exemption statute, Section 212.08(8), Florida Statutes, because ICS is clearly both an "agent" of NCL and an "operator" of cruise ships. Its operations aboard the cruise ships are an integral and necessary function and part of the cruise ships operations in providing for the comfort and recreation of the passengers. ICS contends however, that the exemption, and entitlement to it, is determined by the nature of the items purchased, as that relates to what are considered "parts of vessels" for purposes of the exemption provision and that the exemption is not directly applicable to a particular class of people. The Petitioner argues that the sentence containing the phrase "owner, operator or agent" merely creates a presumption with regard to which items will constitute "parts of a vessel," but that the scope of the exemption, is not limited to purchases by only those three classes of persons.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes, and Florida Export Tobacco, supra.
Section 212.08(8)(a) and (b), Florida Statutes, provides as follows:
PARTIAL EXEMPTIONS; VESSELS ENGAGED IN INTERSTATE OR FOREIGN COMMERCE.
The sale or use of vessels and parts thereof used to transport persons or property in interstate or foreign commerce is subject to the taxes imposed in this chapter only to the extent
provided herein. The basis of the tax shall be the ratio of intrastate
mileage to interstate or foreign mileage traveled by the carrier's vessels which were used in interstate or foreign commerce and which had at least some Florida mileage during the previous fiscal year. The ratio should be determined at the close of the carrier's fiscal year. This ratio shall be applied each month to the total Florida purchases of such vessels and parts thereof which are used in Florida to establish that portion of the total used and consumed in intrastate movement and subject to the tax at the applicable rate. Items, appropriate to carry out the purposes for which a vessel is designed or equipped and used purchased by the owner, operator, or agent of a vessel for use on board such vessel shall be deemed to be parts of the vessel upon which the same are used or consumed. Vessels and parts thereof used to transport persons or property in interstate and foreign commerce are hereby determined to be susceptible to a distinct and separate classification for taxation under the provisions of this part. Vessels and parts thereof used exclusively in intrastate commerce do not qualify for the proration of tax.
The partial exemption provided for in this subsection shall not be allowed unless the purchaser signs an affidavit stating that the item or items to be partially exempted are for the exclusive use designated herein and setting forth the extent of such partial exemption. Any person furnishing a false affidavit to such effect for the purpose of evading payment of any tax imposed under this part is subject to the penalties set forth in s. 212.12 and as otherwise provided by law.
It is the intent of the Legislature that neither subsection (4) nor this subsection, whether as currently in effect or as amended by chapter 73-240, Laws of Florida and in effect between June 22, 1973, and June 13, 1977, shall be construed as imposing the tax provided by this part on vessels used as common carriers, contract carriers, or private carriers, engaged in interstate or foreign commerce,
except to the extent provided by the pro rata formula provided in subsection (4) and in paragraph (a).
The exemption provided for in Section 212.08(8) does not appear to require absolutely that the person entitled to benefit of the exemption, that is the purchaser of the "parts of a vessel," be an "owner, operator or agent of a vessel." Rather, that language appears to create a presumption that that is the case. The intent and material import of that statutory provision would appear to be that the items purchased must be used or consumed on board a vessel as "parts of the vessel" in a way appropriate to carry out the purposes for which the vessel is designed, equipped or used. In other words, it is the character of the goods or items and the use to which they are put, that is, a use which assists in carrying out the purposes for which the vessel is designed, equipped or used, in foreign commerce, which truly determines the character and applicability of the exemption from the state sales and use tax.
Be that as it may, even if the status as an "owner, operator or agent" is deemed to be an absolute requirement for the statutory exemption to be operative, the above stipulated facts, and facts proved by unrefuted evidence, illustrate that ICS qualifies as both an agent and an operator of the owner and vessels involved.
"Agency" has been defined as "the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to so act." See Restatement of Law Second, Agency, Section 14N. This authority also makes it clear that one can be an agent as well as an independent contractor at the same time. Florida case law affirms the definition of agency set forth in the Restatement test quoted above. In Fort Myers Airways v. American States, Inc., 411 So.2d 883 (Fla. App. 1982), the court held that:
The decisive test in determining whether the relationship of principal and agent exists is whether the employer has the right to control and direct the servant in the performance of his work
and in the manner in which his work is done.
The Department has argued that Sections 55 of the Shop Agreement and 56 of the Bar Agreement provide that ICS is not an agent of NCL. Those terms and those agreements are not controlling on the question of the existent of an agency relationship however. Those statements clearly, from their context, were intended to limit the agency relationship in one narrow area and not to disavow it altogether. Those two statements merely concern, in effect, NCL's desire to preclude ICS from being able to bind it in a financial sense, or pledge its credit. In any event, however, the parties' references as to their legal status are not necessarily determinative of the existence of a principal agency relationship. In Nazworth v. Swire Florida, Inc., 486 So.2d 637 (Fla. App.
1986), the court considered the effect of "descriptive labels" appearing in a written agreement on the nature of the relationship. The determinative issue on that appeal concerned whether an agreement between the owner of a shopping center and a management group rendered that management entity an independent contractor in relationship to the owner. The management company had hired a security guard who injured the plaintiff and her husband, who was killed, in an accident involving their respective automobiles. The determinative issue concerned whether the security guard and his employer, the management company,
was an independent contractor. The plaintiff therein relied on the terms of the management agreement between the two which referred to the management company as "agent." In response to that argument, the court stated:
But such references are of no moment... In any event, the agreement use of a certain descriptive label for one of the contracting parties is not determinative of the actual legal relationship between the parties. [citation omitted] id. at 638.
The court observed "the standard for determining whether an agent is an independent contractor is the degree of control exercised by the employer or owner over the agent... more particularly, it is the right of control and not actual control, which determines the relationship between the parties." [citations omitted]. The Nazworth court also cited Debolt v. Department of Health and Rehabilitative Services, 427 So.2d 221 (Fla. App. 1983), where summary judgment on the issue of the legal status of the parties was ruled improper, despite the reference in the contract provision to the existence of an "independent contractor" relationship.
Florida courts look to two sources to determine the legal relationship of the parties in a principal-agent context. First the court will consider the terms of the contract, if there is one. Language expressing the position that the parties are not in an agency relationship will often be overridden by other terms which indicate control by one party over another. See Sapp v. City of Tallahassee, 345 So.2d 363, 367 (Fla. App. 1977). The agreement's provisions are not necessarily dispositive of the agency question. "While agency is normally a contractual relationship created by agreement of the parties, it may also be inferred from past dealings between the parties. It may be proved by the facts and circumstances of each particular case, including the words and conduct of the parties." id.
Based on the foregoing, it is clear that an independent contractor may also be an agent and, in fact, usually will be. Thus, the above authority demonstrates that the proper inquiry to be made in this case, concerns whether the principal or master, NCL, had some degree of control over ICS. If that principal had some control, then the ICS will be an agent. If the principal can control the details of the physical performance of the services rendered, then the person is an agent and is also a servant or employee. It is irrelevant, what ICS and NCL claim their status is, in the agreements in evidence. The inquiry must be to the actual facts regarding NCL's and ICS' activities at issue, to determine if there were some control by NCL over the services and activities of ICS in its role as operator as the on-board shops and bars.
ICS was clearly at least the agent of NCL if not both its agent and employee. That is sufficient under Section 212.08(8) to secure the exemption for ICS in this case, even based on the Department's own interpretation of that section as requiring a party situated as ICS to be an "agent" or "operator".
ICS was indeed subject to the control of NCL. Its performance of the services it rendered aboard the cruise vessels was controlled to a high degree by NCL, clearly making ICS its agent. The various sections of the agreements at issue, as well as the policies and procedures manual in evidence, and discussed in the above findings of fact, clearly reveal a plethora of elements of control
by NCL over the activities and operations of ICS which clearly establish the agency relationship relevant to this proceeding.
As all of those examples in the findings of fact and appendix incorporated therein illustrate, nearly every possible aspect of the performance of ICS' services were controlled to a significant degree by NCL, the ships' masters and officers. Indeed, Section 16 of the agreements, which requires that ICS must designate a specific employee to act as supervisor, states:
This supervisor also must agree to take orders from the masters and ship's officers and such qualified NCL personnel as shall be designated by the masters at all times and shall be under the control and direction and report directly to whomever the masters designate on board the vessels. ICS' supervisory personnel are to give prompt obedience to the instructions and orders of the NCL designee in regard to the operation of the shop concession.
This quoted provision summarizes the facts of the relationship between those two entities as they actually existed. Regardless of what ICS and NCL chose to call themselves, or the reasons why, in different portions of the agreement, there can be no reasonable basis for concluding other than that NCL's and ICS' relationship was that of principal and agent. Therefore, based upon the Department's own interpretation of Section 212.08(8), the exemption for "parts of a vessel" purchased for use or consumption in interstate or foreign commence is available to ICS. It has been proven to be an "agent" of NCL within the meaning of that exemption statute and in accordance with the accepted law in Florida concerning agency relationships.
Aside from the fact that ICS was the agent of NCL for purposes of this proceeding, it is also clear that ICS is an "operation" of the vessels involved. ICS operates shops and concessions aboard the vessels that were established to be appropriate to the purposes for which the cruise ships are operated, used and designed. The shop, concession and bar operations of ICS aboard the ships are clearly an integral, functional part of the total service to the passengers for which those ships were designed and for which purpose they are used. The particular facet of interstate and foreign commerce in which they engage is not only involved in transporting passengers, but in transporting passengers on vacation, during which they seek to relax and enjoy themselves recreationally. The various shops, concessions and bars operated by ICS aboard the cruise ships are designed to facilitate that recreational, passenger-carrying purpose. As such, they are an integral function of the operation of those cruise vessels and ICS is, through its personnel who operate the shops and concessions, an "operator" of each vessel involved. It is not essential that one operate the engines or other mechanical systems or "steer the ship" in order to be an "operator" within the meaning of the exemption statute, Section 212.08(8).
There is also no question, given the unrefuted evidence of record, the stipulations and the above findings of fact, that the items purchased concerning which this dispute has arisen, are within the statutory definition of "parts of the vessels." The various items clearly were used and consumed aboard the vessels involved, as stipulated. It was also proven that the items at issue were appropriate to carry out the purposes for which the vessel was being
equipped and used. Section 212.08(8). Such items under that statute "shall be deemed to be parts of the vessel upon which the same is used or consumed." They were used and consumed on vessels operating wholly in interstate or foreign commerce and therefore, under the above cited statute, those items are exempt from taxation.
Concerning the question of the alleged requirement of an affidavit, in order to claim the exemption, for parts of a vessel being used or consumed in foreign commerce, it is concluded that the above statute, on its face, provides that the affidavit is only pertinent to a "partial exemption" and not a complete exemption, as is involved in the instant case. The parties herein have agreed that there are no Florida miles to be pro-rated under the statutory formula to determine whether any part is intrastate mileage and thus subject to sales and use tax. As stated in Section 212.08(8)(a), "vessels and parts thereof used to transport persons or property in interstate and foreign commerce are hereby determined to be susceptible to a distinct and separate classification for taxation under the provisions of this part." The Florida Legislature has thus expressed its intent to treat vessels traveling exclusively in foreign or interstate waters separately and distinctly from vessels which operate both in Florida waters and in non-Florida waters. This intent is expressed in Section 212.08(8)(c), which provides, in relevant part, that "neither subsection (4) nor this subsection ... shall be construed as imposing the tax provided by this part on vessels ... engaged in interstate or foreign commerce ... except to the extent provided by the pro rata formula provided in subsection (4) and in paragraph (8)." Here, the vessels involved were clearly operating in foreign commerce with no Florida mileage to be pro rated, thus the parts of those vessels involved in this consideration, which were used and consumed aboard the NCL cruise ships, are subject to the full exemption for "parts of a vessel" moving in foreign commerce, rather than any partial exemption.
Section 212.08(8)(b) states in pertinent part:
(b) The partial exemption provided for in this subsection shall not be allowed unless the purchaser signs an
affidavit stating that the item or items to be partially exempted are for the exclusive use designated herein and setting forth the extent of such partial exemption. (emphasis supplied).
The plain language of the statute indicates that the need for the affidavit arises only when the partial exemption is involved or sought. No such requirement exists for a transaction involving a full exemption, as is the situation at bar. If a full exemption is involved, the affidavit is immaterial because there is no statutory or constitutional basis for the Department to tax foreign commerce at all. Thus, there is no basis for requiring that an affidavit be furnished the seller in order to assist him in differentiating between items related to Florida intrastate mileage and subject to tax, with those related to interstate or foreign commerce and not subject to the tax.
This provision should not be interpreted to mean that the affidavit referenced in the above-quoted statute must be furnished by a purchaser when that purchase is entitled to a full exemption from the tax.
It is undisputed that the NCL vessels involved in this proceeding were never used in Florida territorial waters. Therefore, ICS would be entitled to a
full exemption and not the partial exemption envisioned under the above-quoted statute.
Rule 12A-1.64(2)(d), Florida Administrative Code, a rule of the Department, reads in pertinent part:
For purposes of compliance with this provision, mileage of such ships and vessels from the territorial limit to port dockside and return to international waters, foreign or coastwise, is not considered to be mileage in Florida.
In lieu of sales tax registration,
the owner, master or agent of such ships or vessels may furnish vendors with a signed statement that they do not operate on or in the canals or inland waterways of this state. (emphasis supplied).
Because ICS at all pertinent times has held a sales tax registration it has satisfied the requirement for vessels operating outside of Florida waters provided for in this rule.
With regard to the full exemption situation involved in this case, the Department's regulations don't refer to an "affidavit" but to a "signed statement" and the permissive word "may" is used with regard thereto. An affidavit is clearly not the same as a simple "signed statement." The contents of the affidavit referred to in Section 212.08(8) are different from what the Department suggests should appear in the "signed statement" referred to in Rule 12A-1.64(2)(d). Thus, the Department's own rules reflect that there is a real difference between partial and full exemption situations, where the items purchased will be used solely in foreign commerce, as is the case here.
An examination of the Department's instructions concerning the form of the affidavit provided for in the above statute confirms this difference:
If you have purchased a vessel that will not be used in or on the canals, inland waterways or within the territorial waters of Florida, your purchase is exempt from tax and items purchased for use on board the vessel are exempt. For general purposes of application of the tax, running from non-Florida waters to portside and returning to non-Florida waters is not considered as being in Florida territorial waters.
If your commercial vessel operates in non-Florida waters and also in
Florida territorial waters, you will be partially exempt from the sales or use tax. If this is how you will operate
you must register with the Department of Revenue in accordance with Rule 12A- 1.64, Florida Administrative Code...
Thus, the Department's regulations make it clear that Section 212.08(8)(b) and its partial exemption affidavit is not given in the full exemption situation. Rather, a simple statement that the vessel does not go into Florida territorial waters may be given in the absence of some other exemption registration.
While the resale certificate, the affidavit mentioned in Section 212.08(8) and, in this case, the "signed statement" from the purchaser are different, they are all designed to protect the Florida seller who is duty-bound to collect the tax on sales, unless there is some evidence from the purchaser that an exemption is involved. None of these documents, however, are designed, nor required, as a condition precedent to determine whether a purchaser is entitled to a statutory exemption. This is particularly true in the case of the full "parts of a vessel" exemption situation, which pertains here, and which relies on constitutional principals for its existence, whereby the state may not tax items travelling solely in interstate or foreign commerce.
No authority has been advanced which would provide that a purchaser of items such as involved herein which are "parts of a vessel in foreign commerce," will lose the exemption of Section 212.08(8) by simply failing to comply with the affidavit provision cited above. The presence or absence of the affidavit cannot change the basic nature and character of the purchase transaction involved, that is, that the items purchased are solely used, employed and consumed in foreign commerce, which by the clear language of the above-quoted statute, cannot be taxed by Florida. Moreover, case law reveals that the seller in the Florida taxing scheme, and not the purchaser, bears the burden of paying the sales and use tax and proving any pertinent exemptions. The purchaser is entitled to the benefit of any exemption regardless of the existence of the so- called affidavit.
Prevailing case authority in Florida shows that the doctrine relied on here by the Department that "exemptions are strictly construed against the taxpayer" applies to sellers, whose duty it is under Florida law to collect the tax or prove that an exemption validly exists. The attempted placement of that burden on the buyers by the Department here is inconsistent with the Florida statutory scheme. The buyer is not the taxpayer under the Florida Sales and Use Tax law, the seller is. This is because the seller is the party engaged in the privilege of sales activity in Florida which, according to case law, is the appropriate taxing incident.
Concerning this dichotomy between the seller and purchaser as to sales and use tax liability, the case of State Department of Revenue v. Anderson, 403 So.2d 397 (Fla. 1981), stands for the proposition that it is the responsibility of those benefiting from the privilege of engaging in sales activity in the state of Florida (i.e. sellers) to comply with relevant statutes and rules, including demonstrating that a particular transaction or transactions was exempt from tax or, in the alternative, being required to pay the tax. In Anderson, the seller involved, the tax payer, was engaged in selling, repairing and chartering yachts. The seller sold the yachts to certain individuals who entered into "management agreements" whereby those individuals would lease the yachts to third parties. Anderson, the tax payer and seller, did not collect ales tax from the purchasers. He believed the sales transactions were exempt because the purchases were for rental purposes (i.e., "sales for resales").
When he sold the yachts, however, none of his purchasers were "registered dealers" as required by Chapter 212, Florida Statutes, an analogous situation to that of the case at bar.
The Supreme Court concluded that a dealer who makes a sale for resale, which does not comply with Chapter 212 and the Department's rules, is himself liable for payment of the sales tax. The purchasers, on the other hand, were not held responsible for the tax.
The Anderson case thus involved a seller who had not obtained the proper certificate to show that a transaction was exempt from the tax. The Supreme Court quoted with emphasis DOR rule 12A-1.38, Florida Administrative Code, as follows: "The exempt status of the transaction must be established by the dealer." (emphasis supplied by the court). The court then held that it was the responsibility of those engaged or benefiting from the privilege of engaging in sales activity in the state (sellers) to comply with the statutes and rules.
A later case involving the distinction between seller and purchaser in the context of technical compliance with the provisions of an exemption statute or rule, is UPS, Inc. v. State, Office of the Comptroller, 443 So.2d 262 (Fla. App. 1983). In that case, UPS mistakenly paid sales and use taxes on vehicles or parts of vehicles purchased which really qualified for a partial exemption. The Comptroller was held to have mistakenly relied on the Anderson decision for the proposition that UPS had not filed "dealer certificates" at the time of purchase as required hay Rule 12A-1.64(5)(a), Florida Administrative Code. The court in the UPS decision stated: "To deny a refund because of failure to comply with an administrative rule in such a situation would render Section 215.26(2) meaningless as it applies to Section 212.08(9)." The fact that UPS was a purchaser, not a seller, (who, under the Anderson decision benefits from the privilege of engaging in sales activity in Florida) was a crucial distinction there.
The principal that the sales tax is a tax on the seller in Florida is highlighted by the case of Donoghue v. Wallach, 455 So.2d 1085 (Fla. App. 1984). That case involved a purchaser who bought a mobile home from a seller who failed to collect a tax and failed to separately state the sales tax on the relevant invoice. The seller paid the sales tax and later sued the buyer for the recovery of it. The circuit held for the seller reasoning that "payment of sales tax is an obligation of the buyer...." The buyer appealed and prevailed. The court relied upon Section 212.07(1) in concluding that the tax shall be collected by the dealer, that is the seller, from the purchaser. The court quoted from the decision in Ryder Truck Rental, Inc. v. Bryant, 170 So.2d 822 (Fla. 1964), a Supreme Court decision:
It is well settled that the sales or use tax is the tax on the privileges of engaging in a particular business or owned (sic) occupation. The tax is not levied against the consumer, but upon the business man who is engaged in the business or occupation.
The court, in fact, held in that case that the seller, by failing to collect the tax and separately state the amount on the invoice to the buyer, waived any later right to recover the taxes paid from the buyer. But the point was that the taxes assessed in that case were the liability of the seller. The provisions for the exemption of Section 212.08(8) are for the benefit of the
seller to prevent his being liable for the payment of taxes to the Department if the transaction involved is an exempt one. The seller, thus, carries the burden of proving entitlement to that exemption. It is the seller whom must obtain the affidavit, or other evidence of exemption, from the purchaser and the failure to obtain that exposes the seller, not the buyer, to liability for the taxes involved.
The intent of the Florida Legislature in exempting vessels and parts of vessels is to avoid imposing an unconstitutional tax on foreign commerce.
The exercise of the right to engage in foreign commerce cannot be conditioned upon an administrative interpretation of the statute at issue which requires the purchaser to give an affidavit, on penalty of being taxed if he fails to do so. The Legislature, in Section 212.08(8)(c) quoted above, clearly and unequivocally stated that vessels operating in interstate and foreign commerce are not subject to Florida sales and use tax. The Supreme Court in Tropical Shipping and Construction Co. Ltd. v. Askew, 364 So.2d 433 (Fla. 1978), discussed the legislative intent and purpose underlying the exemption as follows:
The purpose of the partial tax exemption is to prevent the state from exceeding its powers to tax Interstate and foreign commerce. The pro ration formula was designed so that Florida would only tax that portion of commerce
activity that occurred within the state...
In interpreting this statute we are faced with two competing policies. First, we are obligated to narrowly construe tax exemption
statutes... [citations omitted]. On the other hand, we must construe the statute in accordance with the provisions of the United States Constitution... [citations omitted]. That is, we may not construe the statue so narrowly as to deny businesses engaged in interstate or foreign commerce their right to be free from undue state interference.
(emphasis supplied).
The other Florida decision interpreting Section 212.08(8) is Klosters Redieri v. State, 348 So.2d 656 (1977), in which the court reached the conclusion that the intent of this statutory provision was to tax an interstate or foreign commerce carrier only upon the basis of "presence within the territorial limits of the State of Florida."
These cases demonstrate that the statute really reflects a United States constitutional imperative against the state taxing, and thereby interfering with, foreign commerce. Therefore, the claim that a purchaser, situated as ICS is herein, must give an affidavit in order to be entitled to the exemption from tax on its activity, which clearly lies within foreign commerce, is to say that the Legislature could impose a tax prohibited by the constitution simply by interposing various procedural hurdles, such as requiring the purchaser to file an affidavit, the failure to comply with which would result in the tax being imposed. Such an interpretation of the above-quoted provision clearly would be at odds with the legislative intent underlying it, as discussed
above. That which was not taxable in the constitutional and statutory sense does not become taxable merely by the tax payer's failure to take certain procedural steps.
In summary, then, the evidence of record and the above findings of fact establish that ICS is clearly the agent of NCL, for purposes of claiming the statutory exemption at issue as related to its purchases of the items involved in this proceeding which were used and consumed or for use and consumption in foreign commerce. It has been demonstrated that ICS and its personnel operating aboard the cruise ships are operators, for purposes of the statutory exemption at issue. It has also been proven that the items purchased, concerning which the sales tax dispute has arisen, are items appropriate for carrying out the purposes for which the vessels involved were designed, equipped and used, and were purchased for use on board those vessels. Thus, they are proven to be within the "parts of the vessel" exemption. It is not required that such items be attached to and a physical part of the vessel, such as a hatch cover, but rather that they be appropriate to carry out the purposes for which the vessel is designed and operated. "Parts of the vessel" has been construed to include even consumable items. See, Klosters, supra.
Finally, it has been demonstrated and concluded that the purchaser need not file the affidavit in order to obtain the benefit, as to this assessment, of the full exemption for" parts of the vessel" used in foreign commerce. The mere fact that any taxpayer fails to file the affidavit does not empower the state to tax a transaction, or the incidents of it, which would otherwise be fully exempt as occurring in foreign commerce. The provision in the statute providing that the partial exemption should not be allowed unless the affidavit is provided and signed applies to the situation where there is some intrastate, taxable Florida commerce involved and the courts have deemed that such a requirement, which assists the tax payer and the state in differentiating between taxable and nontaxable transactions or portions of transactions, is not an undue burden on interstate or foreign commerce. Such is not the situation here however. It has been abundantly established that the transactions at issue and the products or goods involved are clothed with the full exemption from sale and use tax envisioned in the above statute, since they occurred within foreign commerce.
Finally, it has been demonstrated that, throughout the history of this case, ICS has acted reasonably and in good faith in an effort to comply with the tax laws of the State of Florida. The history of this case reveals that a number of good faith attempts were made on the part of ICS to ascertain its tax obligations and to fully comply with them. The Department has issued a number of conflicting "free form" decisions regarding the assessments at issue, with substantial negotiation between the parties occurring in between. These negotiations were in good faith and were the result of a bona fide belief by the parties that their positions were accurate and justifiable. Any non-payment of the sale or use tax by ICS was shown to be devoid of any intent to evade the tax and was not due to negligence or intentional disregard of the pertinent statutes or rules. It would thus appear unjust to impose the penalty related to the bar sales assessment, which the tax payer has long since settled with the Department and paid. The Hearing Officer concludes that since both parties negotiated in good faith concerning that assessment, without any apparent intent or attempt by the tax payer to wrongfully evade the tax or to negligently or intentionally disregard it, that the penalty sought to be imposed should be abated. The interest and penalty sought to be assessed against the petitioner along with the tax assessment at issue in the instant proceeding should, of course, be abated
and not imposed, since the tax at issue has not been found to be due and owing because of the applicable exemption.
Having considered the foregoing findings of fact, stipulations and unrefuted evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore
RECOMMENDED that the State of Florida, Department of Revenue enter a final order withdrawing and abating the assessment of sales and use taxes, interest and penalties against International Cruise Shops, Inc., in the particulars, and for the reasons, found and discussed above. It is further,
Recommended, that the penalty sought to be imposed against International Cruise Shops by the Respondent, concerning the "bar sales assessment," be abated for the reasons delineated above.
DONE AND ENTERED in Tallahassee, Leon County, Florida, this 8th day of December, 1988.
P. MICHAEL RUFF Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 8th day of December, 1988.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-3769
Petitioner's proposed findings of fact
Accepted.
Accepted.
Accepted.
Accepted.
Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter.
Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter.
Accepted, but subordinate to the Hearing Officer's findings of fact on the subject matter.
Rejected as constituting, in large part, a conclusion of law and not a proposed finding of fact and as subordinate to the Hearing Officer's findings of fact on this subject matter.
Rejected as subordinate to the Hearing Officer's findings of fact on this subject matter.
Accepted.
Accepted, but subordinate to the Hearing Officer's findings of fact on this subject matter.
Accepted.
Accepted.
Accepted.
Respondent's proposed findings of fact
The Respondent incorporates by reference the factual stipulation as its proposed findings of fact. Those findings of fact stipulated to have been accepted, of course, by the Hearing Officer, although not necessarily for the material import Respondent asserts they should be accorded through it's proposed recommended order.
COPIES FURNISHED:
Robert W. Hanula, Esquire
The Greyhound Tower, Station 1701 Phoenix, Arizona 85077
Linda G. Miklowitz, Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32399-1050
Katie D. Tucker, Esquire Executive Director Department of Revenue
102 Carlton Building Tallahassee, Florida 32399-0100
William D. Townsend, Esquire Department of Revenue
104 Carlton Building Tallahassee, Florida 32399-0100
| Issue Date | Proceedings |
|---|---|
| Dec. 08, 1988 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 13, 1989 | Agency Final Order | |
| Dec. 08, 1988 | Recommended Order | Recommended sales/use tax be abated/withdrawn. Facts established petitioner was agent entitled to exemption & purchased items consumed on vessel. |
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