STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOSE A. ESPINO, )

)

Petitioner, )

)

vs. ) CASE NO. 90-8053

)

DEPARTMENT OF REVENUE )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on May 15, 1992, in Miami, Florida, before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Angel M. Gonzalez, Esquire

28 W. Flagler Street Suite 806

Miami, Florida 33130

For Respondent: James McAuley

Assistant Attorney General Tax Section, Capitol Building Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent's assessment of sales tax against Petitioner pursuant to Section 212.0505, Florida Statutes, should be upheld.

PRELIMINARY STATEMENT

Petitioner, Jose A. Espino, initiated this administrative proceeding to challenge the Respondent's assessment of sales tax pursuant to the provisions of Section 212.0505, Florida Statutes. Section 212.0505, Florida Statutes (1989), imposes a tax levy upon certain activities involving unlawful drugs. The Notice of Assessment and Jeopardy Findings issued by Respondent was dated October 15, 1990. Petitioner filed a Petition for Review of Assessment and Request for Hearing pursuant to Sections 120.576(1) and 120.575, Florida Statutes. The case was referred to the Division of Administrative Hearings which noticed and conducted the hearing.

The case was initially assigned to Hearing Officer Donald Conn and the case was scheduled for hearing on March 13, 1991. On January 18, 1991, Respondent served Requests for Admissions on Petitioner pursuant to Florida Rule of Civil Procedure 1.370 and Interrogatories pursuant to Florida Rule of Civil Procedure 1.340(e). On February 6, 1991, Petitioner responded to Respondent's Requests

for Admissions and Interrogatories. In his responses, Petitioner invoked his fifth amendment privilege against self-incrimination and refused to answer Nos. 4-20 of Respondent's Requests for Admissions and Nos. 15-20 of Respondent's Interrogatories.

On February 25, 1991, the parties filed an Agreed Joint Motion for Continuance with respect to the March 13, 1991 hearing. In that Joint Motion, the parties agreed that any further activity in this case should be delayed for

90 days in the hope that discovery and final hearing in this matter could proceed without the need to address Petitioner's refusal to respond to discovery based upon his right against self-incrimination. In an Order of Abeyance dated February 26, 1991, Hearing Officer Donald Conn granted the Joint Motion for Continuance.

In a Status Report dated May 30, 1991, Respondent requested that this case be rescheduled for final hearing. By Notice of Hearing dated June 3, 1992, the case was scheduled for hearing on September 3, 1991.

On June 13, 1991, Respondent filed a Motion to Determine Sufficiency of Petitioner's Response to Request for Admissions and to Compel Discovery (the "Discovery Motion") along with a Memorandum of Law in Support thereof. As set forth in an Order Rescheduling Hearing dated August 13, 1991, a telephone conference hearing was held on July 22, 1991 to discuss the status of this case and the Discovery Motion. During that telephone hearing, counsel for Petitioner requested a continuance on the grounds that his client was incarcerated in Ohio. It was expected that the criminal charges against Petitioner would be resolved in the near future. Respondent did not object to a continuance of the hearing and an extension of time to respond to outstanding discovery requests so long as the case was not postponed indefinitely. The case was rescheduled for hearing on January 23, 1992. The parties were specifically advised that "no further continuances [would] be granted absent extreme emergency." At the conclusion of the July 22 telephone conference call, the parties were granted 10 days to file supplemental memoranda on certain legal issues raised in connection with the Discovery Motion. A second telephone conference hearing was conducted on August 13, 1991. The August 13, 1991 Order Rescheduling Hearing directed Petitioner to respond to all outstanding discovery requests (including Requests for Admissions) on or before December 12, 1991 and Petitioner was advised that failure to respond to outstanding discovery requests by that date would be grounds for the imposition of sanctions, including the possible dismissal of this proceeding.

As set forth in an Order Rescheduling Hearing dated January 9, 1992, Petitioner filed an Emergency Motion for Continuance on December 19, 1991. On December 26, 1991, Respondent filed Respondent's Response to Emergency Motion for Continuance and Motion for Sanctions. A telephone conference hearing was held in connection with both Motions on January 7, 1992. In the Emergency Motion, Petitioner sought another continuance on the grounds that his criminal proceeding had been unforseeably postponed and he was still incarcerated in Ohio awaiting resolution of the criminal charges pending against him. After listening to argument from both parties, the January 23, 1992 hearing was cancelled over Respondent's objection and the case was rescheduled for hearing on May 15, 1992. Petitioner was granted an extension until April 15, 1992 to respond to outstanding discovery requests and was again reminded that "failure to respond to outstanding discovery requests by that date [would] be grounds for the imposition of sanctions, including the possible dismissal of this proceeding or a limitation on the introduction of evidence."

On April 27, 1992, Respondent filed a Motion for Sanctions and Alternative Unopposed Motion for Continuance. As set forth in that Motion, Petitioner did not respond to the discovery requests as required in the Order Rescheduling Hearing dated January 9, 1992. On May 7, 1992, a telephone conference hearing was conducted in connection with the Motion. During the May 7, 1992 telephone hearing, counsel for Petitioner indicated that his client was still incarcerated in Ohio and would not be able to attend the May 15, 1992 hearing. Petitioner's ore tenus motion for continuance was denied after Respondent voiced an objection to any further continuances in this case. Since Petitioner had still not responded to the discovery requests as required in the prior orders and had not timely sought an extension, the parties were advised during the telephone conference hearing that, pursuant to Rule 1.370(b), Florida Rules of Civil Procedure, the Request for Admissions were deemed admitted.

The case proceeded to hearing as scheduled on May 15, 1992. Petitioner was not present at the hearing, but was represented by counsel. Counsel for Petitioner renewed his objection to this case going forward while Petitioner was incarcerated in Ohio. After considering the history of this case and the nature of this proceeding, that objection was again overruled.

At the hearing, Respondent called two witnesses to establish the basis for the assessment made in this case. Those witnesses were Bill Keiser, a Revenue Investigator and Coordinator of the Illegal Drug Tax Unit for Respondent, and Jerry Hull, who is employed by the Metro Dade Police Department in the Narcotics Division of the Special Investigations Department. Respondent also offered three exhibits into evidence. Respondent's Exhibits 1 and 2 were accepted without objection. Respondent's Exhibit 3 was the deposition testimony of Sherry Gomez, which was accepted under the provisions of Rule 1.330, Florida Rules of Civil Procedure.

Counsel for Petitioner offered two exhibits into evidence, a copy of the police report regarding the incident in question and a copy of Detective Hull's report. At the hearing, copies were not available of Petitioner's exhibits.

Counsel for Respondent arranged to have copies made of those exhibits and filed them with the Division of Administrative Hearings on May 19, 1992. Petitioner did not present any other evidence. The legal arguments raised by counsel for Petitioner are addressed in the Conclusions of Law below.

A transcript of the proceeding has been filed. Both parties have submitted proposed recommended orders in accordance with the schedule agreed to at the conclusion of the hearing. A ruling on each of the parties' proposed findings of fact is included in the Appendix to this Recommended Order.

On June 10, 1992, a letter was received from Petitioner indicating that he was still incarcerated in Ohio, but that he expected to return to Miami in the near future. He requested that resolution of this proceeding be delayed until he returned to Miami and had an opportunity to confer with his attorney. That request is denied.

FINDINGS OF FACT

1. Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made:

   
   

2. By Notice of Assessment and Jeopardy Findings dated October 15, 1990 (the "Assessment"), Respondent, Department of Revenue (Department), determined that taxes imposed under Section 212.0505, Florida Statutes, were due from Petitioner, Jose A. Espino, for the unlawful sale, use, consumption, distribution, manufacture, derivation, production, transportation or storage of a controlled substance, to wit: cocaine. Specifically, the notice provided Petitioner with a "Notice of Assessment of tax, penalty, and interest on the deficiency" as follows:

   
   

   Date of Transaction or

   Incident (On or About) August 22, 1990 Estimated Retail Price

   2 Kilo Cocaine $25,000.00 25% Surcharge

   [s.212.0505(1)(a), F.S.] $12,500.00

   25% Surcharge

   [s.212.0505(1)(b), F.S.] $ 6,250.00

   Penalty of 5% per month, maximum of 25% of Tax and Surcharge Due [s.212.12(2),

   F.S.] $ 937.50

   Additional Penalty of 50%

   [s.212.12(2), F.S.] $ 0

   Interest of 1% per month [s.212.12(3), F.S.],

   accrues at the rate of

   $6.16 per day. INTEREST

   computed thru 9/21/90 $ 49.28

   Total Amount Due with

   this Notice $19,736.78

   
   

3. The factual basis for the Assessment was Petitioner's involvement in the transactions described in Findings of Fact 4-9 below.

   
   

4. Petitioner filed a timely Petition to Challenge the Notice of Assessment and Jeopardy Findings. The only basis for the challenge set forth in the Petition was a contention that Petitioner was not engaged in the unlawful transportation of cocaine and that Section 212.0505, Florida Statutes was not applicable under the facts and circumstances of this case. During discovery and at the formal hearing in this case, Petitioner also challenged the estimated retail price used by Respondent in making the calculations set forth in the Assessment. Petitioner has not contested the mathematical accuracy of the Assessment nor has Petitioner contested the form of the Assessment or presented any evidence that the procedures for issuing the Assessment were improper. No evidence was presented that Petitioner has paid the sales tax assessed by Respondent or that the sales tax assessed has been paid by another individual on his behalf.

5. In August of 1990, Petitioner, Jose A. Espino, was the owner of a paint and body shop located at 12524 S.W. 128th Street, Miami, Florida. Petitioner was present at the paint and body shop on August 22, 1990. On this date, he had agreed to meet with an individual who was working as a confidential informant for the Metro-Dade Police Department. Petitioner had previously negotiated with this confidential informant to sell four (4) kilos of cocaine at $30,000 per kilo.

   
   

6. On August 22, 1990, Jerry Hull, a senior narcotics detective with the Metro-Dade Police Department, and the confidential informant drove to Petitioner's place of business. Detective Hull was seated on the passenger side of the front seat and observed the Petitioner coming out of the building carrying a maroon utility bag. Petitioner approached the vehicle occupied by Detective Hull and the confidential informant. Detective Hull got out of the vehicle and allowed Petitioner to get into the front seat. Detective Hull got into the back seat and the confidential informant drove the car east on S.W. 128th Street.

   
   

7. As the confidential informant drove the vehicle, Detective Hull introduced himself to Petitioner and asked if he "brought the merchandise..." Petitioner stated that he had and inquired if Hull had the money. By his statements, Petitioner acknowledged his readiness to sell the cocaine he brought into the van.

   
   

8. After inquiring about the money, Petitioner opened the utility bag he had carried into the van and showed Detective Hull a package. Petitioner gave the package to Hull and opened a cut previously made in the wrapping exposing a white substance inside. Detective Hull asked Petitioner for a sample. Based on his experience, Detective Hull identified the substance in the package as cocaine. Petitioner has, by virtue of the Respondent's Request for Admissions, admitted the substance he was carrying was cocaine.

   
   

9. Petitioner told Detective Hull he had two (2) kilograms of cocaine in the bag. The Request for Admissions confirm that Petitioner carried two (2) kilograms of cocaine into the vehicle.

   
   

10. Shortly after Petitioner showed Detective Hull the cocaine, a police car pulled up behind the van driven by the confidential informant. The police stopped the van and Petitioner was arrested and charged with trafficking in cocaine. No evidence was presented as to the disposition of the criminal charges. A copy of the police arrest report was forwarded to the Department of Revenue.

    
    

11. As noted above, the Department of Revenue issued the Notice of Assessment and Jeopardy Findings on October 15, 1990. This Assessment was issued based upon the information contained in the Metro-Dade Police arrest report.

    
    

12. As set forth above, the Assessment was issued in the amount of

    $19,736.78. The estimated retail price used by the Department of Revenue in calculating the tax due was $12,500 per kilogram. This estimate of retail price was derived from a price list compiled by the Florida Department of Law Enforcement (FDLE). The price appearing in the FDLE report is based upon average prices for various types of illegal narcotics sold throughout Florida.

    The FDLE price list used by DOR in preparing the Assessment is segregated by the type of drug and by various regions of the state.

13. The price used in this Assessment was based upon the FDLE report compiled from information available as of June 7, 1989 for the Miami region. This region included Dade, Broward and Palm Beach counties and included prices for transactions involving the sale of one (1) kilo or more of cocaine. Thus, the report reflects the economic fact that larger quantity purchases occur at relatively lower prices.

    
    

14. The price of cocaine rose sharply between 1989 and 1990. A subsequent update of the FDLE report utilizing information available as of August 1, 1990, revealed prices in the Miami region rose to $22,000 for kilogram size sales of cocaine. Thus, it appears the price used in the Assessment in this case is significantly lower than either the anticipated sales price of the parties ($30,000 per kilo) or the price reported by the FDLE in its later report (August 1, 1990). If anything, the Assessment was based on a conservative estimate of actual retail prices in the Miami area at the time. Petitioner has not provided any persuasive evidence to show the Department of Revenue's estimated price of

    $12,500 per kilo is inappropriate.

    
    

15. Interest on the Assessment continues to accrue at the rate of $6.16 per day since September 28, 1990.

    
    

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding pursuant to Sections 72.011 and 120.57, Florida Statutes (1989).

    
    

17. Section 212.0505, Florida Statutes, is the section of the Florida Revenue Code which provides for the taxation of illegal drugs including controlled substances enumerated in Section 893.03, Florida Statutes. Cocaine is a "controlled substance" enumerated in Section 893.03, Florida Statutes (1989).

    
    

18. Petitioner has the burden of proof in this proceeding. See Awan v. Department of Revenue, 570 So.2d 1329 (Fla. 2d DCA 1990) and Harris v. Department of Revenue, 563 So.2d 97 (Fla. 1st DCA 1990).

    
    

19. Section 212.0505, Florida Statutes (1989), provides, in pertinent part:

    
    

    (1)(a) Every person is exercising a taxable privilege who engages in this state in the unlawful sale, use, consumption, distribution,

    ...transportation,...or storage of any... controlled substance enumerated in s. 893.03. For the exercise of such privilege, a tax is levied on each taxable transaction or incident, including each occasional or isolate unlawful sale, use, consumption, distribution,... transportation, or storage, at the rate of 50 percent of the estimated retail price of the

    ...controlled substance involved in the transaction or incident. (5) Any assessment made pursuant to this section shall be deemed prima facie correct in any judicial or administrative proceeding in this state. The suppression of evidence on any ground by a

    court in a criminal case involving a transaction or incident taxable under this section or the dismissal of criminal charges in such a case shall not affect any assessment made under this section.

    
    

20. The activities that invoke the tax consequences of Section 212.0505, Florida Statutes (1989), include "sale" "use," "distribution," or "transportation" of cocaine. The terms "sale" and "use" are defined at Section 212.02(21) and (27), Florida Statutes (1989), as:

    
    

    (20) "Sale" means and includes:

    (a) Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration. (27) "Use" means and includes the exercise of any right or power over tangible personal property incident to the ownership thereof, or interest therein, except that it does not include the sale at retail of that property in the regular course of business. "Use" also means the consumption or enjoyment of the benefit of services.

    
    

21. The words "distribution" and "transportation" are not defined in Section 212.02, Florida Statutes, so those terms should be given their plain and ordinary meaning. Lage v. Pan American Bank, 529 So.2d 1242 (Fla. 3d DCA 1988), Simmons v. Schimmel, 476 So.2d 1342 (Fla. 3d DCA 1985), review denied, 486 So.2d

    597 (Fla. 1986). The term "distribution" is defined as "the act or process of distributing,...the marketing or merchandising of commodities," and the term "transportation" is defined synonymously with "transport" as "to transfer or convey from one place to another." Webster's New Collegiate Dictionary (1974).

    
    

22. Further assistance in interpreting the statutory terms can be found by reviewing the definitions set forth in related statutes. Section 893.02, Florida Statutes (1989), includes the following pertinent definitions of terms used in Chapter 893, the Florida Comprehensive Drug Abuse Prevention and Control Act:

    
    

    (5) "Deliver" or "delivery" means the actual, constructive, or attempted transfer from one person to another of a controlled substance, whether or not there is an agency relationship.

    (7) "Distribute" means to deliver, other than by administering or dispensing, a controlled substance.

    
    

23. In United States v. Tamargo, 672 F.2d 887 (11th Cir. 1982), the court explored the meaning of the term "distribute" with respect to illegal drugs.

    
    

    Appellants' final contention is that the evidence was insufficient to support their convictions for distribution of methaqualone. "The term 'distribute' means to deliver...a controlled substance." 21 U.S.C. Sec. 802(1). "The terms 'deliver' or 'delivery' mean the

    actual constructive, or attempted transfer of a controlled substance...." 21 U.S.C. sec. 802(8) (emphasis added). The statutory scheme clearly defines "distribution" as a delivery, and "delivery" can be merely an attempted transfer.

    
    

24. The meaning of the term "distribute" is also discussed in United States v. Pool, 660 F.2d 547 (5th Cir. 1981), at page 561:

    
    

    We note that the term "distribute," 21 U.S.C. Sec. 802(11), is not restricted to distribution of a drug to the ultimate consumer. It also may, in appropriate circumstances, refer to the distribution of a controlled substance from one conspirator to another. See United States v.

    Bass, 535 F.2d 110 (D.C. Cir. 1976). Here, for example, the transfer of marijuana from the mother ship to the off-load boat constitutes distribution as contemplated by 21 U.S.C. Sec. 802(11).

    
    

25. The findings of facts above establish that the Petitioner exercised a taxable privilege under Section 212.0505, Florida Statutes and is subject to the use tax provisions of Chapter 212. Petitioner exercised this taxable privilege with respect to the two (2) kilograms of cocaine he brought into the van to sell to Detective Hull on August 22, 1990. Petitioner argues that since the confidential informant was driving the vehicle which did not belong to Petitioner, Petitioner can not be deemed to have "transported" the cocaine and should not be taxed. This argument is an unduly narrow interpretation of the statute which ignores the other activities covered by the statute. The evidence established Petitioner exercised a right or power incident to ownership over the cocaine by bringing it into the vehicle and offering it for sale. Petitioner's actions constitute using and transporting cocaine within the meaning of Section 212.0505(1)(a), Florida Statutes. Further, Petitioner's actions were an attempted delivery of cocaine within the State of Florida and constitute distribution for purposes of Section 212.0505(1)(a), Florida Statutes.

    
    

26. An agency's interpretation of its rules and governing statutes is entitled to great weight and will not be overturned unless the interpretation is clearly erroneous. Health Quest Corporation, et al. v. Dept. HRS & Arbor Health Care Co., et al., 11 FALR 5427 (1989); ABC Liquors, Inc. v. Dept. of Business Regulation, 397 So.2d 696 (Fla. 1st DCA 1981); Dept. of Insurance v. Southeast Volusia Hospital Dist., 438 So.2d 815 (Fla. 1983). The Department's interpretation that Petitioner's actions fall within the scope of Section 212.0505 was appropriate and should be followed in this case.

    
    

27. Section 212.0505(1)(a), Florida Statutes, imposes a sales and use tax..."at the rate of 50 percent of the estimated retail value..." The Department of Revenue has estimated the retail value of the two kilograms of cocaine to be $12,500 per kilogram based upon information collected by the FDLE. Inasmuch as the statute authorizes an assessment based upon an estimated retail value, the Department of Revenue Assessment using information collected by FDLE appears appropriate and reasonable.

    
    

28. Section 212.0505(1)(b), Florida Statutes, imposes a surcharge of 25 percent of the estimated retail price. Under this provision, the Department of Revenue has properly determined the surcharge applicable to the estimated retail value to be $6,250. Section 212.0505(3), Florida Statutes, authorizes

assessment of penalty and interest pursuant to Chapter 212. Section 212.12(3), Florida Statutes, provides for penalties and interest at a statutory rate. The Department of Revenue has properly calculated the penalties and interest applicable to this Assessment. Interest began to accrue at the daily rate of

$6.16 and continues to accrue until paid.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a Final Order in this case

concluding that the Petitioner, Jose A. Espino, is liable for taxes, penalties, and interest pursuant to Section 212.0505, Florida Statutes (1989), and assessing the amount of such liability at $19,736.78, plus interest at the rate of $6.11 per day since September 28, 1990.

DONE and ENTERED this 31st day of July, 1992, at Tallahassee, Florida.

J. STEPHEN MENTON Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 1992.

APPENDIX

Both parties have submitted Proposed Recommended Orders. The following constitutes my rulings on the proposed findings of fact submitted by the parties.

The Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in the Findings of Fact of Fact Number in the Recommended Order Where Accepted or

Reason for Rejection.

1. Adopted in substance in Findings of Fact 3 and in the Preliminary Statement.

2. Rejected as constituting legal argument. While the Petition in this case did not challenge the mathematical accuracy of the tax assessment, Petitioner asserted in discovery and at the formal hearing that the estimated retail value utilized by Respondent in making the Assessment was not accurate. This suggestion is rejected. As set forth in Findings of Fact 12 and 13 and Conclusions of Law 12, the estimated retail value utilized by Respondent in this case was reasonable.

3. Rejected as vague and constituting legal argument rather than a Finding of Fact.

4. Subordinate to Findings of Fact 12 and 13.

5. Subordinate to Findings of Fact 5 and addressed in Conclusions of Law 10.

The Respondent's Proposed Findings of Fact

Proposed Finding Paragraph Number in the Findings of Fact of Fact Number in the Recommended Order Where Accepted or

Reason for Rejection.

1. Adopted in substance in the Preliminary Statement.

2. Adopted in substance in Findings of Fact 3.

3. Adopted in substance in Findings of Fact 3.

4. Adopted in substance in Findings of Fact 3.

5. Addressed in the Preliminary Statement.

COPIES FURNISHED:

Vicki Weber, General Counsel Department of Revenue

204 Carlton Building Tallahassee, Florida 32399

Thomas Herndon, Executive Director Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

Angel M. Gonzalez, Esquire

28 W. Flagler Street Suite 806

Miami, Florida 33130

James McAuley

Assistant Attorney General Tax Section, Capitol Building

Tallahassee, Florida 32399-1550

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 90-008053

Orders for Case No: 90-008053