vs. ) CASE NO. 88-1989
Respondent. )
Upon due notice, this cause came on for formal hearing on May 4, 1989 in Tallahassee, Florida, before Ella Jane P. Davis, a duly assigned hearing officer of the Division of Administrative Hearings.
For Petitioner: Gene D. Brown, Esquire
For Respondent: Linda G. Miklowitz, Esquire
The issue to be decided is whether or not the Department of Revenue may impose a 5% use tax upon the vessel, "Binghamton Too," of $23,750 plus 25% penalty and interest upon the theory that sufficient situs in Florida exists for imposition of Florida's use tax upon the sale price of the subject vessel, which was imported into Florida for use and storage.
At the commencement of formal hearing, the parties entered into several stipulations on the record, which stipulations have been utilized to the extent appropriate in the preparation of this Recommended Order.
Respondent Department of Revenue presented the oral testimony of Jay Cox, its Special Programs Analyst, and had nine exhibits admitted in evidence.
Petitioner presented the oral testimony of Nelson Gross, President and principal of Binghamton Too, Inc., and had one exhibit admitted in evidence.
No transcript was provided, but all timely-filed proposed findings of fact have been ruled upon in the Appendix to this Recommended Order, pursuant to Section 120.59(2) Florida Statutes.
On January 31, 1984, the subject vessel, a 1969 sixty-five foot Hargrave Halmatic motor yacht, was purchased by Nelson Gross as President and principal of the corporation, Binghamton Too, Inc., for $457,500 in Houston Texas. It was financed through a Connecticut bank. The closing was held in Mr. Gross' New Jersey office. No sales or use tax has been paid on the yacht in Florida or in any other state.
Mr. Gross' initial intent was to operate his new purchase as a commercial charter boat in conjunction with the "Binghamton," a ferryboat permanently moored and operating in Edgewater, New Jersey, as a floating restaurant. To get the new motor yacht there, Mr. Gross directed that it be brought to New Jersey around the Florida coast under its own power.
The motor yacht reached Florida on February 17, 1984, but en route from Texas an unexpected vibration had arisen which required emergency repairs.
These repairs were commissioned at Bradford Marine, Ft. Lauderdale, Florida, where the motor yacht remained, except for sea trials in connection with the vibration problem, until the first week in April, 1984. A cracked strut was diagnosed as the cause of the vibration problem. Repair costs of this emergency problem totalled $5,975. The balance of charges incurred at Bradford Marine, Ft. Lauderdale, was $21,729, including dockage. Many more of the repairs catalogued by Respondent's Exhibit 5, the Bradford Marine records for this period, were clearly voluntary, discretionary, and cosmetic in nature. The majority were of a non-emergency nature. The vessel, by then relettered "Binghamton Too," left Florida waters approximately April 20, 1984.
"Binghamton Too" next spent approximately three weeks at Thunderbolt Marine Industries in Georgia at an approximate cost of $12,000. There, a strap was fabricated to hold the strut and the yacht proceeded on to New Jersey.
The "Binghamton Too" began its charter business as part of the "Binghamton" operation in Edgewater, New Jersey on May 5, 1984. Seventy-five to eighty charters were accomplished between May, 1984 and October, 1984 under New Jersey state and local chartering, transit liquor, and environmental licenses and under U.S. Corps of Engineers permits.
"Binghamton Too" returned to Florida waters sometime on or before October 25, 1984, when it was sighted at the Indian River Causeway Bridge. On October 26, 1984, it was sighted at Flagler Bridge in West Palm Beach. Thereafter, it went on to the Lantana Boat Works Marina, Lantana, Florida, for repairs. Lantana is the location of the yacht's original builder, whose equipment and expertise were preferable to that of other boatyards for certain strut repairs due to the peculiar nature of this type of yacht. After those repairs, the yacht was anchored in Palm Beach from January 1985 to April 1985. Although Mr. Gross testified that the strut repairs of necessity had to be done in the Lantana boatyard, his view is not necessarily conclusive of this issue because he admitted "Binghamton Too" was the first yacht he had ever purchased, because he was vague about equating desirability and necessity without any supporting direct expert testimony, and because of the facts found infra.
The Lantana repair records from October 29 to December 31, 1984 show
$42,521.82 in repairs, of which only $2,500 pertain to fabrication of a strut. Again, the majority of repairs was to refurbish and paint the vessel.
Mr. Gross spent approximately October 1984 to April 1985, October 1985 to April 1986, and October 1986 to April 1987 in his father's home in West Palm Beach, Florida. By his own testimony, he confirmed that he established the "technical" office for his "Binghamton Too" business there. He applied, in early December 1984, for a Florida sales tax registration to operate a charter business, representing Palm Beach as his place of business. The account was established January 1, 1985 with the account number of 60-22-080051-61. The captain and mate of the "Binghamton Too" also wintered in Florida each of these years.
On December 6, 1984, Mr. Gross wrote the State of New Jersey's Division of Taxation that the yacht's "principal location and headquarters are in West Palm Beach, Florida where it maintains an office and full-time employees," thus successfully arguing that the "Binghamton Too" should be exempt from New Jersey's registration requirements for any vessel residing in that state in excess of 180 days. This correspondence was in connection with a tax problem of the mother ship "Binghamton," still moored in New Jersey. Mr. Gross further represented that Florida was "Binghamton Too's" primary location with trips to the Bahamas."
For most of the period from late December, 1984 to early April, 1985, the yacht was in Palm Harbor Marina, West Palm Beach, Florida, the first time not in repairs, and clearly could have returned to New Jersey under its own power had Mr. Gross chosen to do so.
From January 24 to March 26, 1985, the boat was in operation, as sighted at the Pompano Beach and Fort Lauderdale bridges.
From April 1985 until October of 1985, the yacht was operated as part of Petitioner's commercial charter operation in New Jersey, which included over
100 charters during this time period. Nonetheless, on June 10, 1985, Mr. Gross purchased a boat slip at Ocean Reef Club in Key Largo, Florida. This slip was later sold.
Upon the foregoing Findings of Fact 6-12, which clearly establish a pattern of wintering the yacht in Florida waters, it is inferred that, despite Mr. Gross' testimony that it was "necessary" to have "Binghamton Too's" strut repaired in late 1984 by the original Florida manufacturer of the yacht, its presence in Florida from October 1984 until April, 1985 was primarily and substantially due to the preference of Mr. Gross, Petitioner's President, and not due to necessity or emergency.
In October of 1985, the yacht returned to Florida where it remained until April of 1986. During this time, the boat underwent further repairs, including the complete repainting of the hull, the need for which Mr. Gross attributed to the old paint being cracked and shaken off by the vibration of the yacht.
From April 1986 until October of 1986, the yacht was operated as part of Petitioner's commercial charter operation in New Jersey, which included over
100 charters during this time period.
The yacht returned to Florida in October, 1986, and again remained in Florida until early April, 1987, when it left for New Jersey.
In late October 1987, the yacht returned to Florida where it was traded in as part of the consideration for a larger yacht in November of 1987.
The closing date was December 30, 1987. The cash equivalent received by Petitioner as credit on the trade-in was $100,000.
In all, Petitioner asserts that over $200,000 was spent by the corporation on the "Binghamton Too" before it was traded.
Shortly after buying the "Binghamton Too", Petitioner had begun trying to sell it for the highest price obtainable. These sales efforts included large ads in national yachting publications and listings with active yacht brokers. The highest outright offer received by Petitioner was $75,000. However, this was Mr. Gross' first sales effort of this kind, and his opinion testimony that the "Binghamton Too" was not bought from the Petitioner outright and at a good price because of latent defects and cost of repair is neither credible nor persuasive since his opinion does not possess the reliability of an expert in assessing whether it was the condition of the yacht, its unusual "Halmatic" type, or some other factor which made the "Binghamton Too" undesirable to potential purchasers.
The Florida Department of Revenue issued a Notice of Delinquent Tax January 30, 1987, of five-percent use tax upon the purchase price plus 25 percent penalty. Interest was figured at 12 percent per annum. Petitioner timely protested. The agency conceded that the purchase price on the original notice was mistakenly listed at $475,000, that the assessment appropriately should have been on $457,500 (see Finding of Fact No. 1) and that the State presently claims only the tax amount of 5% of Petitioner's initial $457,500 purchase price at $22,875, the 25 percent penalty at $5,719, and interest on the tax from February 18, 1984, to June 18, 1989 at $14,650. (Interest accrues at
$7.52 daily.) The total assessment through June 18, 1989 is $43,234.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties and subject matter of this cause.
Respondent Florida Department of Revenue is an agency of the State of Florida and has the responsibility of administering Chapter 212 Florida Statutes.
Mr. Gross's testimony may be summed up as characterizing the corporate purchase of "Binghamton Too" as a poor investment full of latent defects which cost Petitioner in excess of $200,000 over three years.
It is Petitioner's position that from its date of purchase until January 1, 1985, the yacht was in Florida only for emergency repairs and other repairs which could only be made in the Lantana boatyard where the 65-foot Hargrave Halmatic yacht had been originally constructed and launched; that pursuant to the presumption created by Section 212.06(8), Florida Statutes, the yacht was not purchased for use in Florida; that the use tax applicable pursuant to Section 212.06(1)(a) Florida Statutes could not attach until the yacht was commingled with the mass of property in the state sometime after January 1, 1985; and at that as of that date, due to diminution in value and lapse of time between the original sale (January 31, 1984) and the taxable event (January 1, 1985, as claimed by Petitioner), the only taxable amount is a reasonable value of the boat as evidenced by the December 30, 1987 trade-in allowance of $100,000 to be applied as of the January 1, 1985 date.
Although the original motive for the yacht's lay-over in Ft. Lauderdale, starting February 18, 1984, without more, could constitute an emergency as contemplated by Department of Revenue v. Yacht Futura Corp., 510 So.2d 1047 (Fla. 1st DCA 1987), the facts of the two cases are distinguishable. Petitioner's "emergency," the vibration, was tentatively resolved for $5,975 (approximately one-quarter of the total amount spent on it at that stop). The 1984 repairs at Bradford Marina were not under warranty nor could they only be done there. What was done there also exceeded minor nonwarranty ordnance and routine maintenance. The majority of the expenses incurred in Florida at that time were designed to make the boat commercially successful and to convert it to its new name. Regardless of the yacht's proceeding on to New Jersey and working at charter there for five months after further repairs in Georgia, which repairs may or may not have been of an emergency nature, there was a subsequent pattern of wintering in Florida and intent to commingle the boat with Florida property and to use it in Florida as evidenced by keeping the captain and mate available in Florida each year, establishing a Florida office in late 1984, registering for a Florida sales tax number, and exempting the yacht from registration in New Jersey. Moreover, any resemblance of the instant case to Department of Revenue
v. Continental Developers & Conversions, Inc., 506 So.2d 436 (Fla. 2d DCA 1987), is purely superficial. Therein, it was held that no use taxes were owed by the owner of a yacht which never came to rest, but only temporarily stopped in Florida solely for repairs to correct its unseaworthy condition while en route to a permanent berth in Texas.
Having successfully argued in 1984 that the yacht was based (commingled) and intended to be operated in Florida so as to avoid the New Jersey tax consequences, Petitioner cannot now be heard to assert that its intent in 1984 was always for the yacht to be based in New Jersey.
Pursuant to Section 212.06(1)(a)(1983), Florida Statutes [1983], Petitioner, defined as a "dealer," pursuant to Section 212.06(2)(d), Florida Statutes [1983] is subject to a use tax calculated on the cost of the vessel as of the moment of commingling with the general mass of property in this state.
Section 212.02(5), Florida Statutes [1983], defines "cost price" as "the actual cost of articles of tangible personal property without any deduction there from on account of the cost of materials used, labor or service costs, transportation charges, or any expense whatsoever." The taxable amount for the subject vessel is the 1984 selling price of $457,500, paid by Petitioner as purchaser, not the $100,000 trade-in value after $200,000 had been spent by Petitioner for repair, upkeep, cosmetic improvement, and storage during four successive winters in Florida.
The cost price of an article, for the purpose of computing use tax, is determined and fixed on the basis of the transaction between the seller and the buyer at the time of consummation thereof, which in effect, means that for use- tax purposes, cost price and purchase price are synonymous. See, U.S. Gypsum Co. v. Green, 110 So.2d 409 (Fla. 1959). Thus, the Petitioner's argument that he is entitled to deductions in his cost price because of subsequent repairs to the boat are unfounded in Florida law. See United States Steel Corp. v. Dickinson, 272 So.2d 497 (Fla. 1973). Also, Petitioner has failed to demonstrate that if he had paid the sales tax or use tax in the beginning, he would be entitled to a refund because the purchase proved-to be worth less than the selling price.
Section 212.02(8) Florida Statutes defines "use" as
"... the exercise of any right or power over tangible personal property incident to the ownership thereof, or interest therein, ...
Section 212.02(7) Florida Statutes defines "storage" as "... any keeping or retention in this state
of tangible personal property for use or
consumption in this state or for any other purpose other than sale at retail in the regular course of business."
Electing to remain in the Bradford Marina in Ft. Lauderdale beginning February 18, 1984, for largely discretionary, as opposed to fully emergency repairs, constituted "use" and "storage" of the subject vessel in Florida waters during that period. Furthermore, the return of the yacht to Florida when Mr. Gross came south in October 1984, and its remaining through the end of the year in Florida waters for the purpose of further optional repairs in addition to those repairs necessarily done by the yacht's manufacturer at the Lantana boatyard, exhibit further Florida "use" and "storage" in 1984. The Lantana repairs were clearly not emergency repairs and notwarranty repairs, and the choice of the Lantana boatyard was discretionary as opposed to necessary. The Florida licensures and Mr. Gross' New Jersey tax representations reinforce this construction of the circumstances surrounding the yacht's second stay in Florida in 1984.
The tax assessment, based on the January 31, 1984 sales price is consistent with the intent expressed in the statute at Section 212.06(6), Florida Statutes, as follows:
"[i]t is ... the intention of this chapter to levy a tax on ... the use ... and the storage to be used or consumed in this state of tangible personal property after it has come to rest in this state and has become a part of the mass personal property of this state."
Contrary to Petitioner's assertion that Section 212.08 Florida Statutes, creates a presumption against a use tax for 1984, the opposite is true where the pattern of "wintering" in Florida is as strong as it is here. Section 212.08, Florida Statutes, provides as follows:
Use tax will apply and be due on tangible personal property imported or caused to be imported into this state for use, consumption, distribution, or storage to be used or consumed in this state; provided, however, that it shall be presumed that tangible personal property used in another state, territory of the United States, or the District of Columbia for 6 months or longer before being imported into this state was not purchased for use in this state.
(Emphasis supplied)
January 31, 1984 to February 17, 1984, is only eighteen days. May 1984 to October 1984 in New Jersey is not a full six months, either.
Sales tax exemptions are to be construed strictly against the taxpayer. Wanda Marine Corp. v. State Dept. of Revenue, 305 So.2d 65 (Fla. 1974). The Petitioner has not met his burden of proof in showing entitlement to any exemption.
Section 212.06(7) provides for a set-off from use tax for "a like tax equal to or greater than the amount imposed by this chapter lawfully imposed and paid in another state Petitioner has not shown it has paid a use tax to any other state for the subject vessel.
The provision of Section 212.08(7)(t), Florida Statutes, exempting boats temporarily docked in Florida, was added by Section 2, Ch. 87-370 Laws of Florida [reference therein is to Section 212.08 (7)(w)], and did not become effective until October 1, 1987. Therefore its benefits are not available to Petitioner under the facts of this case.
Contrary to the situation in Department of Revenue v. Yacht Futura Corp., supra., which involved new boat repairs under warranty, Petitioner here had no such impetus in February 1984 to stop at Bradford Marine. It was not until October 1984, and then only from October 1984 until January 1985, that the yacht was at its builder's Lantana boatyard and part of this stay was clearly for discretionary care as well as essential care. This second Florida stay was hardly an "emergency", even though the yacht's peculiar design made using its home marina more desirable than using another marina. Also, at this point, Mr. Gross was trying to start a Florida charter business, using the subject vessel, and he kept the yacht near his office in his father's home for another four months.
United Engines, Inc. v. Dept. of Revenue, 508 So.2d 459 (Fla. 1st DCA 1987) shows what happens to a vessel's exemption after it returns to Florida. In that case, the vessel was removed from the state within 10 days of purchase, thereby qualifying for the sales tax exemption, but returned more than seven
months later and again twice after that. The court affirmed the tax assessment. Herein, even if the subject yacht's two-month stay in Florida from February to April, 1984, did not constitute "use" or "storage," its return in October, 1984 and subsequent arrivals each spring would render Petitioner liable for the Florida use tax.
Department of Revenue v. G. R. Swan Enterprises, Inc., 506 So.2d 455 (Fla. 1st DCA 1987), upon which United Engines, supra, relied, also provides legal authority for the instant assessment. Therein, evidence of the yacht owner's act of operating the vessel and docking it at various marinas in Florida over a two-month period after the yacht was imported for warranty maintenance overcame any rebuttable presumption of Section 212.06(8), Florida Statutes, had been purchased for use exclusively outside the State of Florida. Even though that yacht had been exempt from sales tax at the time of the original purchase, it was held liable for use tax. Likewise, the Petitioner herein is not responsible for sales tax, as the sale of the subject vessel to Petitioner occurred in Texas, Petitioner immediately imported the boat into Florida where it was used and stored from February to April, 1984, and later from October to December, 1984.
Upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a Final Order affirming the assessment of $22,875, with 25% penalty and interest at $7.52 per day from February 18, 1984 until paid.
DONE and RECOMMENDED this 11th day of August, 1989, in Tallahassee, Leon County, Florida.
ELLA JANE P. DAVIS
Filed with the Clerk of the Division of Administrative Hearings this 11th day of August, 1989.
Upon consideration of Section 120.59(2) Florida Statutes the following rulings are made upon the parties' respective proposed findings of fact (PFOF).
1, 2,3, 5, 10, 11, 13, 14, 15, 17, 18, 19, 21, 22: Accepted except to the degree not proven.
4: Rejected as stated because not supported by the greater weight of the evidence as a whole.
6, 12: Rejected in part as not proven, in part as subordinate and unnecessary, and in part as to the conclusion-if law as "latent."
7, 8, 9: Accepted except as subordinate and unnecessary to the facts as found. 16: Accepted that Mr. Gross testified to this amount, however, the evidence does not support the amount precisely nor that it all went to "repairs." 20: Accepted as modified to better express the record as a whole.
1: Accepted, but as a Conclusion of Law.
2, 3, 4, 9, 10, 12, 13, 14, 15, 16, 17, 19, 20, 21, 22, 23: Accepted.
5: Accepted in substance; what is not adopted is either mere recitation/characterization of testimony, is cumulative, or is subordinate to the facts as found.
6: Accepted but subordinate and unnecessary to the facts as found.
7: Sentence 1 is accepted. The remainder is rejected as mere legal argument or subordinate to the facts as found.
8, 11: Accepted as modified to conform to the record as a whole. Mr. Gross testified to a May 5, 1984 date for No. 8.
18: Except for mere legal argument, accepted.
24: Accepted upon the terms set forth in the Recommended Order. 25: Except as subordinate and unnecessary, accepted.
Gene D. Brown, Esquire 3836 Killearn Court
Linda G. Miklowitz, Esquire Department of Legal Affairs Tax Section, The Capitol
William D. Moore, General Counsel Department of Revenue
Katie D. Tucker Executive Director Department of Revenue
