STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TRICIL RECOVERY SERVICES, INC., )

)

Petitioner, )

)

vs. ) CASE No. 88-4405

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on November 29, 1988, at Bartow, Florida.

APPEARANCES

For Petitioner: Michael J. Masters

Tax Examiner

Tricil Recovery Systems, Inc. Route 3, Box 249

Bartow, Florida 33830

For Respondent: Ralph R. Jaeger, Esquire

Department of Legal Affairs Tax Section, The Capitol

Tallahassee, Florida 32399-1050

By Petition for Administrative Proceedings dated September 1, 1988, Tricil Recovery Services, Inc., Petitioner, by and through its tax manager, requested a hearing to contest the denial by the Department of Revenue, Respondent, of its request for a refund of sales taxes paid on the purchase of industrial equipment used to construct or refurbish its plant at Bartow, Florida. As grounds for the denial, Respondent contends the business is primarily a service company and not a producer of tangible property for resale.

At the hearing, Petitioner called one witness, Respondent called two witnesses and six exhibits were admitted into evidence.

Proposed findings have been submitted by Respondent. Treatment accorded those proposed findings is contained in the Appendix attached hereto and made a part hereof.

FINDINGS OF FACT

1. Petitioner purchased the facilities of a bankrupt chemical recovery plant and on May 13, 1987, was issued a temporary tax exemption (Exhibit 1) for sales taxes on equipment purchased for the production or processing of tangible personal property for resale.

2. Petitioner essentially operates a distillation plant where products are distilled and certain chemicals are produced. The plant also operates as a servicing facility in removing impurities from products submitted for distillation.

   
   

3. Because the materials received at the plant were not as clean as originally anticipated, there was less product for resale and more servicing provided than originally intended.

   
   

4. The items on which sales tax refunds are requested were used to ,repair and/or refurbish the distillation plant, and the business qualifies as new business under Section 212.08(5)(b)(1), Florida Statutes.

   
   

5. In 1987, Petitioner had receivables totaling $824,819 of which only

   $63,474 (7.7%) was in the account for sale of tangible personal property (Exhibit 3). Petitioner's witness testified that the other receivable accounts (Exhibit 3) are not service accounts.

   
   

6. Petitioner now has an inventory of tangible personal property for sale in excess of $100,000 which was produced through the distillation plant.

   
   

7. Although Respondent's auditor initially contended that Petitioner had failed to produce all invoices and bills to justify the exemptions claimed, on cross-examination he acknowledged that the refund for sale taxes paid on the equipment purchased was denied solely on the basis that the equipment and plant was not used principally for the production of tangible personal property for sale.

   
   

8. The Notice of Intent (Exhibit 6) denied Petitioner's application for a sales tax refund in the amount of $12,592.75 for the reason that:

   
   

   Business is primarily a service organiza- tion and tangible personal property is only a minute show (sic) of the operation.

   Records were incomplete.

   
   

9. The witness who signed the Notice of Intent understands the denial of the refund of sales taxes was because the sale of tangible personal property produced by Petitioner was not the primary or a substantial part of the revenues generated by the plant.

   
   

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

11. Section 212.08(5)(b)1, Florida Statutes (1987), provides:

    
    

    1. Industrial machinery and equipment purchased for use in new businesses which manufacture, process, compound, or produce for sale items of tangible personal pro- perty at fixed locations and services directly related to the installation of such machinery and equipment, excluding construction services, are exempt from

       the tax imposed by this chapter upon an affirmative showing by the taxpayer to the satisfaction of the department that such items are used in a new business in this state. Such purchases must be made prior to the date the business first begins its productive operations, and delivery of the purchased items must be made within 12 months of that date.

       
       

12. Here there is no question that Petitioner qualifies as a new business at a fixed location for which the exemption is intended or that the items on which the sales tax refund is claimed were purchased for use in this business. The sole issue is whether Petitioner manufactures, processes, compounds or produces for sale items of tangible personal property.

    
    

13. In statutory construction, legislative intent is the polestar by which courts must be guided. Wakulla County v. Davis: 395 So.2d 540 (Fla. 1981).

    The starting point for interpreting a statute is the language of the statute itself; absent a clearly expressed legislative intent to the contrary, that language must ordinarily be regarded as conclusive. Consumer Products Safety Commission v. GTE Svlvania, 447 U.S. 102, 100 S.Ct. 2051, 64 L.Ed. 2d 766 (1980). Inasmuch as a statute is to be taken, construed and applied in the form enacted, the law clearly requires that the legislative intent be determined primarily from the language of the statute since the Legislature must be assumed to know the meaning of the words and to have expressed its intent by the use of the words found in the statute. Thayer v. State, 335 So.2d 815 (Fla. 1976).

    Where legislative intent as evidenced by the statute is plain and unambiguous, there is no necessity for any construction or interpretation of the statutes, and courts need only give effect to the plain meaning of its terms. State v. Egan, 287 So.2d 1 (Fla. 1973)

    
    

14. Petitioner's distillation plant produced tangible personal property in the form of chemicals which is sold by Petitioner. The plant also provides services to customers. Section 212.08(5)(b)1, above-quoted, does not say that a majority or any specific percentage of the accounts receivable of a new business must come from the sale of tangible personal property manufactured or processed at this new business; only that the business for which the machinery and equipment was purchased, manufactures, processes, compounds or produces for sale tangible personal property.

    
    

15. From the foregoing, it is concluded that Petitioner was a new business that purchased industrial machinery and equipment for use in manufacturing, processing, compounding or producing for sale items of tangible personal property and, as such, qualifies for the exemption provided in Section 212.08(5)(b)1, Florida Statutes. It is therefore

RECOMMENDED that Petitioner's application for a refund of $12,592.75 for sales taxes paid for industrial machinery and equipment be approved.

ENTERED this 9th day of January, 1989, in Tallahassee, Florida.

K. N. AYERS 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 9th day of January, 1989.

APPENDIX TO RECOMMENDED ORDER 88-4405

Treatment Accorded Respondent's Proposed Findings

1. Included in HO #1 and #4.

2. Included in HO preamble.

3. Included in HO #1.

4. Included in preamble.

5-6. Included in preamble.

1. Included in HO #7.

2. Included in preamble.

3. Included in preamble.

10-11. Rejected. No issue was raised at this hearing that all sales taxes for which a refund is here requested were not ultimately paid by Petitioner. No evidence was submitted to show that Petitioner was a contractor. Exhibit 2 merely shows that three contractors were engaged by Petitioner to do the work in refurbishing the facility. It is the materials used in this refurbishing and construction that forms the basis for the tax refunds requested.

1. Included in HO #4.

2. Included in HO #5.

3. Rejected. No issue was raised at this hearing that Petitioner did not purchase the tax exempt items prior to that date the business first began its productive operations or that delivery of the purchased items were not made within 12 months of that date. This is in the nature of an affirmative defense which should have been raised at the hearing. Failure to so raise constitutes a waiver of this defense.

4. Contained in HO #2.

COPIES FURNISHED:

Michael J. Masters Tax Examiner

Tricil Recovery Systems, Inc. Route 3, Box 249

Bartow, Florida 33830

Ralph R. Jaeger, Esquire Department of Legal Affairs Tax Section, The Capitol

Tallahassee, Florida 32399-1050

Katie D. Tucker Executive Director

102 Carlton Building Department of Revenue

Tallahassee, Florida 32399-0100

William D. Townsend General Counsel Department of Revenue

203 Carlton Building Tallahassee, Florida 32399-0100

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF REVENUE

TRICIL RECOVERY SERVICES, INC. )

)

Petitioner, )

) DOR CASE NO. 88-3R

vs. ) DOAH CASE NO. 88-4405

)

STATE OF FLORIDA )

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

FINAL ORDER

This case came before me for entry of a final order following entry of a recommended order by the Division of Administrative Hearings.

A hearing was held on April 7, 1989 to consider the entry of a final order at which both parties appeared and submitted oral argument.

The following appearances were entered: For the Petitioner: Michael J. Masters

Tax Examiner

Tricil Recovery Systems, Inc. Route 3, Box 249

Bartow, Florida 33830

For the Respondent: Ralph R. Jaeger, Esquire

Department of Legal Affairs Tax Section, The Capitol

Tallahassee, Florida 32399-1050 FINDINGS OF FACT

1 through 6. Findings of Fact numbers 1 through 6 set forth in the Recommended Order are adopted and incorporated by reference in this Final Order as if fully set forth.

7. Finding of Fact number 7 set forth in the Recommended Order is rejected and modified as follows. Petitioner produced absolutely no invoices to show the type of machinery purchased and the amount paid for the machinery. A review of the entire record reveals that the thrust of the Department's auditor's testimony was that the equipment and plant were not used principally for the production of tangible personal property for sale and that the Petitioner's records and invoices did not support the refund of sales taxes. As to the second reason for denial of the refund, the facts further show that at least part of the refund was denied because the Petitioner did not have adequate records. Petitioner made no showing that the equipment purchased in each transaction for which the exemption is claimed would qualify for the exemption from sales tax. The Petitioner did not produce invoices to show that all of the equipment purchased could qualify for the exemption and the evidence therefore does not indicate the amount paid for each item of equipment and whether tax was paid on the equipment. A review of the entire record, including the transcript of the proceedings, indicates a reasoned finding that the Department denied the refund because the Petitioner's records were incomplete. Because Finding of Fact number 7 is not consistent with the entire record and does not consider the inadequacy of the Petitioner's records which do not support the full refund claimed, pursuant to Section 120.57(1)(b)10., F.S. I find that Finding of Fact number 7 is not based upon competent substantial evidence in the record.

8 through 9. Findings of Fact numbers 8 through 9 set forth in the Recommended Order are adopted and incorporated by reference in this Final Order as if fully set forth.

1. The Notice of Intent to Deny the refund (Exhibit #6) sets out the fact that records were incomplete.

   
   

2. The second reason for denial of the refund, namely, that the Petitioner's records were inadequate, is supported by testimony set out in the transcript at:

   
   

   1. Page 31, Line 13 through page 32, line 15;

   2. Page 33, line 12 through page 34, line 19;

   3. Page 36, line 5 through page 36, line 12;

      
      

3. Mr. Bolton, the Department's auditor, testified that he could not conclude from his audit that the Petitioner's records supported that the amount claimed as a refund, $12,592.75, had been paid in as taxes. (Transcript p. 32).

   
   

4. Mr. Bolton testified that Petitioner had not demonstrated or provided sufficient information for him to conclude that machines or equipment they purchased were exempt from sales tax. (Transcript p. 33).

5. Mr. Bolton testified that his first conclusion was that the Petitioner's records were incomplete to establish a right to a refund. (Transcript p. 36).

   
   

6. Mr. Joanos, the Department's administrator in the Refund Section, testified that Petitioner did not provide any additional information which showed an entitlement to an exemption. (Transcript p. 46).

   
   

7. The testimony and the exhibits showed there were four contractors involved in the purchasing and installation of equipment and machinery with Petitioner being one of the four.

   
   

8. Exhibit #2 is a computer generated list of amounts of sales tax paid by these four contractors. This exhibit indicates sales tax in the amount of

   $12,592.265 were paid by these four contractors with Petitioner paying

   $3,953.97, Dixie Southern Constructor, Inc., paying $5,559.62, Ken Robinson of Florida paying $2,701.66, and Hampton-Tilley Associates, Inc. (a subcontractor of Ken Robinson of Florida), paying $377.50. Accordingly, the greatest amount that could be due to Petitioner on the basis of the computer summary (Exhibit #2) would be $3,953.97. However, even this amount is not supported by invoices in the record.

   
   

9. Petitioner did not offer evidence indicating that Petitioner paid amounts to the state or that Petitioner has an assignment of rights to refund of any sales taxes which might have been paid by the other contractors.

   
   

10. Based on the testimony, I find that Petitioner has not tendered sufficient documentation to establish that the amount of refund of sales tax claimed was actually paid in taxes, because Petitioner has not produced invoices from its vendors.

    
    

11. Given the Conclusions of Law below regarding the nature of Petitioner's business qualifying for the exemption in section 212.08(5)(b)1. and in the interests of justice, the Department of Revenue will take official recognition and administrative notice of the fact that the invoices in its audit files show a refund due in the amount of $587.30.

    
    

12. The audit file does show that Petitioner paid tax directly to suppliers tax of $3,782.18. However, the suppliers have not yet presented any assignment of right to the refund to Petitioner nor has the auditor been able to establish all this tax was paid on equipment which qualified for the exemption/refund.

CONCLUSIONS OF LAW

1 through 2. Conclusions of Law numbers 1 through 2 set forth in the Recommended Order are adopted and incorporated by reference in this Final Order as if fully set forth.

3. Conclusion of Law number 3 is modified as follows. Petitioner qualifies as a new business at a fixed location for which the exemption is intended and the items on which the sales tax refund is claimed were purchased for use in this business. Petitioner manufactures, processes, compounds or produces for sale items of tangible personal property. The sole issue is the amount of the refund for which there are records submitted by Petitioner to support the refund. The issue is whether Petitioner has provided adequate documentation to

carry its burden of proof. Petitioner is therefore entitled so much of the refund as is supported by the records.

4 through 6. Conclusions of Law numbers 4 through 6 set forth in the Recommended Order are adopted and incorporated by reference in this Final Order as if fully set forth.

1. Tax exemptions are narrowly construed. Tropical Shipping & Const. Co., Ltd. v. Askew, 364 So.2d 433 (Fla. 1978).

   
   

2. It is essential that the taxpayer establish by evidence that it paid the tax or has an assignment of rights from the party paying the tax before a right to a refund can exist, because a tax refund under section 215.26, F.S., is a matter of legislative grace. State ex rel. Victor Chemical Works v. Gay, 74 So.2d 560, 562 (Fla. 1954); Reynolds Fasteners, Inc. v. Wright, 197 So.2d 295,

   297 (Fla. 1967). Being an "embodiment of legislative grace," a statute such as section 215.26 should be construed strictly against the taxpayer and in favor of the taxing authority. See National Brands Tire v. D.O.R., 383 So.2d 257, 259 (Fla. 3d DCA 1980) citing State ex rel. Szabo Food Services, Inc. v. Dickinson,

   286 So.2d 529 (Fla. 1973); United States Gypsum Co. v. Green, 110 So.2d 409 (Fla. 1959); and State ex rel. Wedgeworth Farms, Inc. v. Thompson, 101 So.2d 381 (Fla. 1958).

3. Section 215.26, F.S. provides for refund of taxes to the person who paid same, or his

heirs, personal representatives, or assigns....

At oral argument, the Petitioner's representative asserted that the record of invoices and the auditor's report supported approximately $3,900.00 of the refund. However, a review of that report and the record does not reveal any amount of refund supported by the record. This agency may, however, take administrative notice of its own records.

Based upon a review of the Department's audit file in this matter, I conclude that the amount of the refund supported by the actual invoices and records submitted to date by the Petitioner amounts to $587.30.

The Recommended Order in this proceeding attached hereto is hereby incorporated by reference, and made a part of this Final Order as if fully set forth.

Based on the Recommended Order and the findings of fact and conclusions of law contained in it, as modified in this Final Order, I find that Petitioner has not shown grounds sufficient for the Department of Revenue to approve a refund in accordance with Florida Administrative Code Rule 3A-44.020, F.A.C., and Section 215.26, F.S.

Based upon the foregoing, the refund request filed by the Petitioner is granted in the amount of $587.30 and in other respects is denied.

DONE AND ORDERED at Tallahassee in accordance with Florida Administrative Code Rule 3A-44.020 this 10th day of April, 1989.

Any Party to this Order has the right to seek judicial review of the Order pursuant to Section 120.68, F.S., by the filing of a Notice of Appeal pursuant

to Rule 9.110, Florida Rules of Appellate Procedure, with the clerk of the Department in the Office of General Counsel, Post Office Box 6668, Tallahassee, Florida 32314-6668 and by filing a copy of the Notice of Appeal accompanied by the applicable filing fees with the appropriate District Court of Appeal. The Notice of Appeal must be filed within 30 days from the date this Order is filed with the Agency Clerk of the Department

STATE OF FLORIDA DEPARTMENT OF REVENUE

KATIE D. TUCKER

Executive Director

Filed with the Agency Clerk and served on the parties this 10th day of April, 1989.

Agency Clerk

COPIES FURNISHED:

Michael J. Nasters Tax Examiner

Tricil Recovery Systems, Inc. Route 3, Box 249

Bartow, Florida 33830

Ralph R. Jaeger, Esquire Department of Legal Affairs Tax Section, The Capitol

Tallahassee, Florida 32399-1050

Jeff Kielbasa

Acting General Counsel Department of Revenue Tallahassee, Florida 32399-0100

K. N. Ayers Hearing Officer

Division of Administrative Hearings The Oakland Building

Tallahassee, Florida 32399-1550

Attachment - Hearing Officer's Recommended Order

Docket for Case No: 88-004405

Orders for Case No: 88-004405