STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

1. H. JOHNSON CONSTRUCTION )

   COMPANY, INC., )

   )

   Petitioner, )

   )

   vs. ) CASE NO. 92-0285

   )

   DEPARTMENT OF REVENUE, )

   )

   Respondent. )

   )

   
   

   RECOMMENDED ORDER

   
   

   On September 24, 1992, a formal administrative hearing was held in this case in Tampa, Florida, before J. Lawrence Johnston, Hearing Officer, Division of Administrative Hearings.

   
   

   APPEARANCES

   
   

   For Petitioner: Matias Blanco, Jr., Esquire

   701 North Franklin Street Tampa, Florida 33602

   
   

   For Respondent: James McAuley, Esquire

   Assistant Attorney General Tax Section

   Department of Legal Affairs The Capitol

   Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUE

   The issue in this case is whether the Respondent, the Department of Revenue, should assess against the Petitioner, G. H. Johnson Construction Company, Inc., sales or use tax, penalty, and interest and, if so, in what amount.

   
   

   PRELIMINARY STATEMENT

   
   

   The Department of Revenue (DOR) conducted several tax audits of the Petitioner (the taxpayer) for different audit periods between 1984 and 1988 which resulted, on or about January 11, 1989, in the assessment of different state and local taxes, together with penalty and interest, by Audit Assessment No. 85-32501057.

   
   

   The taxpayer protested the assessment. In addition, on or about March 12, 1989, the taxpayer made a partial payment in the amount of $11,394.14. The letter transmitting the payment both stated "we wish to contest the interest and penalties which have been accrued" and also requested "that the interest and penalties be waived." The letter concluded: "It is understood that acceptance

   of this payment constitutes acceptance of the above proposal that the interest and penalties be waived." The DOR accepted the payment with no apparent comment on the closing remarks in the letter.

   
   

   On or about April 23, 1991, the DOR issued a Notice of Decision sustaining the assessment. On or about May 23, 1991, the taxpayer filed a petition for reconsideration. On or about November 13, 1991, the DOR issued a Notice of Reconsideration again sustaining the assessment and describing the taxpayer's appeal rights.

   
   

   On or about January 13, 1992, the taxpayer filed a "Contest of Tax Assessment and Petition or Request for Formal Administrative Hearing under Chapter 120 Fla. Stat." In it, the taxpayer asserted that the DOR's acceptance of the $11,394.14 payment on or about March 12, 1989, constituted a waiver of the assessment of penalty and interest. The taxpayer also asserted that the taxes still claimed as unpaid "were largely as a result of untaxed purchases from out-of state vendors" and that they "arise from items purchased by the former owner [of the taxpayer] from out of state vendors and delivered to locations outside of the State of Florida and . . . not taxable transactions."

   
   

   On or about January 16, 1992, the DOR referred the matter to the Division of Administrative Hearings. On or about January, 1992, the DOR answered the petition, denying the significant allegations.

   
   

   Initially, the case was scheduled for hearing on May 29, 1992. But two agreed motions to continue were granted, and final hearing was not held until September 24, 1992.

   
   

   At the final hearing, the DOR presented the testimony of its auditor and had Respondent's Exhibits 1 through 7 admitted in evidence. The Petitioner called one witness and had Petitioner's Exhibits 1 and 2 admitted in evidence.

   
   

   At the conclusion of the hearing, the DOR ordered the preparation of a transcript of the final hearing and requested 20 days from the filing of the transcript in which to file proposed recommended orders. Without objection, the request was granted. The transcript was filed on October 6, 1992.

   Subsequently, two requests for additional extensions of time, to which the Petitioner did not object, were granted. Proposed recommended orders were served on November 6, 1992. The DOR's was filed the same day; the Petitioner's was filed on November 12, 1992. Explicit rulings on the proposed findings of fact contained in the parties' proposed recommended orders may be found in the attached Appendix to Recommended Order, Case No. 92

   
   

   FINDINGS OF FACT

   
   

   1. The Petitioner, G. H. Johnson Construction Company, Inc., is a general contractor with an office in, and doing business in, the State of Florida.

      
      

   2. During the period from June 1, 1984, through May 31, 1987, the Petitioner did not pay State of Florida use tax on $244,916.62 of items purchased for use in the State of Florida.

      
      

   3. During the period from July 1, 1987, through July 31, 1988, the Petitioner did not pay State of Florida use tax on $4,344.88 of items purchased for use in the State of Florida.

   4. During the period from April 1, 1985, through March 31, 1987, the Petitioner did not pay Hillsborough County local option indigent health care tax and discretionary sales surtax on $37,083.77 of items purchased or used in Hillsborough County, Florida. The tax rate established by Hillsborough County for those taxes was 0.0328767 percent. The tax due was $92.71.

      
      

   5. The Petitioner did not pay State of Florida intangible tax on $622,634 of accounts receivable on the books of the company as of January 1, 1984.

1. The Petitioner paid State of Florida intangible tax on only $516,690 of

   $743,865 of accounts receivable on the books of the company as of January 1, 1986.

   
   

2. The Petitioner did not pay State of Florida intangible tax on

   $1,615,661 of accounts receivable and $225,000 of loans to stockholders on the books of the company as of January 1, 1987.

   
   

3. The Petitioner did not pay State of Florida intangible tax on $942,449 of accounts receivable and $225,000 of loans to stockholders on the books of the company as of January 1, 1988.

   
   

4. On or about March 12, 1989, the Petitioner made a partial payment in the amount of $11,394.14. The letter transmitting the payment both stated that "we wish to contest the interest and penalties which have been accrued" and also requested "that the interest and penalties be waived." The letter concluded: "It is understood that acceptance of this payment constitutes acceptance of the above proposal that the interest and penalties be waived." The DOR accepted the payment without direct comment on the closing remarks in the letter.

   
   

   CONCLUSIONS OF LAW

   
   

5. During the relevant time periods before February 1, 1988, the sales and use tax under Sections 212.04, 212.005, and 212.14, Florida Statutes, on items purchased for use in the State of Florida was five percent of the purchase price of the items. On February 1, 1988, the tax rate increased to six percent.

   
   

6. The unpaid State of Florida use tax on the $244,916.62 of items purchased for use in the State of Florida during the period from June 1, 1984, through May 31, 1987, was $12,245.85.

   
   

7. The unpaid State of Florida use tax on the $4,344.88 of items purchased for use in the State of Florida during the period from July 1, 1987, through July 31, 1988, was $222.71.

   
   

8. Under Sections 199.012 et seq., Fla. Stat., on June 30 of each of the calendar years 1984 through 1988, State of Florida intangible tax was due, at the rate of a tenth of one percent, on the amount of accounts receivable and loans to stockholders on the books of a taxpayer such as the Petitioner as of January 1 of the year.

   
   

9. The unpaid State of Florida intangible tax due on the $622,634 of accounts receivable on the books of the company as of January 1, 1984, was

   $622.63.

   
   

10. The State of Florida intangible tax due on the $227,175 balance of accounts receivable on the books of the company as of January 1, 1986, and for which no tax had been paid, was $227.18.

11. The unpaid State of Florida intangible tax due on the $1,615,661 of accounts receivable and $225,000 of loans to stockholders on the books of the company as of January 1, 1987, was $1,840.66.

    
    

12. The unpaid State of Florida intangible tax due on the $942,449 of accounts receivable and $225,000 of loans to stockholders on the books of the company as of January 1, 1988, was $1,167.45.

    
    

13. Section 212.12(2), Fla. Stat., provides for a penalty on delinquent sales and use tax in the amount of five percent of the unpaid tax due per month, until paid, not to exceed 25%, in the aggregate, of the tax due. Under Section 212.054(4), Fla. Stat., the same penalty applies to the unpaid Hillsborough County local option indigent health care tax and discretionary sales surtax.

    
    

14. Section 199.282(3), Fla. Stat., provides for a delinquent tax penalty in like amount, i.e., five percent of the delinquent tax per month, not to exceed 25% of the total tax not timely paid.

    
    

15. The different tax statutes all provide for the payment of interest on delinquent state and local option sales taxes and state intangible taxes in the amount of one percent per month on the unpaid balance until paid.

    
    

16. Through March 17, 1989, the date on which the DOR received the Petitioner's partial payment in the amount of $11,394.14, the Petitioner owed a total of $12,231.58 in interest on delinquent taxes. After applying the Petitioner's partial payment first to the taxes due, as requested in its letter transmitting the payment, additional interest accrued at the statutory rate on an outstanding balance of $5,025.05 taxes remaining due. Through the date of the final hearing, i.e., September 24, 1992, $8,236.36 of interest remained due, along with $5,512.42 of penalty and $5,025.05 of tax due. Interest continues to accrue at the rate of one percent per month on the $5,025.05 of tax due.

    
    

17. The taxpayer argues that it reached an accord and satisfaction with the DOR by transmitting the $11,394.14 payment to the DOR on or about March 12, 1989. The evidence presented by the taxpayer was insufficient to prove this affirmative defense to the assessment of the tax.

    
    

18. The letter was not clear. It both stated that "we wish to contest the interest and penalties which have been accrued" and also requested "that the interest and penalties be waived." The letter concluded: "It is understood that acceptance of this payment constitutes acceptance of the above proposal that the interest and penalties be waived." But it not only failed to pay the interest and penalties; it also failed to pay the full amount of the tax due. The DOR accepted the payment without direct comment on the closing remarks in the letter. But subsequent conduct by the DOR belies that there ever was an accord and satisfaction.

    
    

19. The statute in effect at the time, Section 213.21(2)(a), Fla. Stat. (Supp. 1988), required the executive director of the DOR, or his designee, to enter into a written closing agreement with taxpayers in order to settle or compromise the taxpayer's liability for any tax, interest, or penalty. That requirement has been constant through today and remains codified as Section 213.21(2)(a), Fla. Stat. (Supp. 1992). The Petitioner's March 12, 1989, check and transmittal letter did not follow the requirements of the statute, and the DOR's cashing of the check without comment cannot constitute an accord and satisfaction, as a matter of law.

20. The Petitioner also argues essentially that the DOR should be estopped to pursue the full amount of the tax, together with interest and penalty, because the taxpayer does not have the documentation available to contest the tax. This argument necessarily implies that the documentation was available on or about March 12, 1989, when the partial payment was made, and that the taxpayer relied on the DOR's conduct in accepting the partial payment in failing to maintain the documentation. But the taxpayer did not prove those essential facts.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Petitioner, the Department of Revenue, enter a final order assessing against the Petitioner, G. H. Johnson Construction Company, Inc.: (1) sales and use tax in the amount of $5,025.05; (2) interest in the amount of

$8,236.36 as of September 24, 1992, and accruing at the rate of one percent per month on the $5,025.05 of tax due from that date forward; and (3) penalty in the amount of $5,512.42.

RECOMMENDED this 30th day of November, 1992, in Tallahassee, Florida.

J. LAWRENCE JOHNSTON 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 30th day of November, 1992.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-0285

To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact:

Petitioner's Proposed Findings of Fact.

1. Rejected as contrary to the greater weight of the evidence. The DOR uses additional available information to ascertain, as best it can, where purchases are delivered and used. Those means include, but are not limited to, conferring with the taxpayer and requesting evidence showing delivery and use elsewhere.

   
   

2. Rejected as subordinate to facts contrary to the greater weight of the evidence.

   
   

3. Rejected as not supported by any competent evidence and as subordinate to facts contrary to the greater weight of the evidence.

4. Rejected in part as conclusion of law and in part as contrary to facts found and to the greater weight of the evidence.

   
   

5. Subordinate clause, rejected as contrary to facts found and to the greater weight of the evidence. Main clause, rejected as conclusion of law.

   
   

6. Accepted but subordinate and unnecessary.

   
   

7. In part, accepted and incorporated to the extent not subordinate or unnecessary; in part, rejected as paraphrasing the letter.

   
   

8. Accepted and incorporated.

   
   

9. Rejected as not supported by the evidence why the taxpayer sent the March 12, 1989, letter and check.

10.-11. Rejected in part as conclusion of law and in part as contrary to facts found and to the greater weight of the evidence.

12. Not a proposed finding of fact.

Respondent's Proposed Findings of Fact.

1. Accepted and incorporated.

   
   

2. Accepted but unnecessary.

   
   

3. Accepted but subordinate and unnecessary.

   
   

4. Largely subordinate to facts found. In part, conclusion of law. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

5.-8. Largely subordinate to facts found. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

9.-10. In part, conclusion of law. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

11. Accepted and incorporated to the extent not subordinate or unnecessary.

12.-13. In part, conclusion of law. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

1. In part, argument. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

   
   

2. In part, argument. Otherwise, subordinate and unnecessary.

COPIES FURNISHED:

Matias Blanco, Jr., Esquire 701 North Franklin Street Tampa, Florida 33602

James McAuley, Esquire Assistant Attorney General Tax Section

Department of Legal Affairs The Capitol

Tallahassee, Florida 32399-1050

Linda Lettera, Esquire General Counsel Department of Revenue

204 Carlton Building Tallahassee, Florida 32399-0100

Dr. James Zingale Executive Director Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

ALL PARTIES HAVE THE RIGHT TO SUBMIT TO THE DEPARTMENT OF REVENUE WRITTEN EXCEPTIONS TO THIS RECOMMENDED ORDER. ALL AGENCIES ALLOW EACH PARTY AT LEAST TEN DAYS IN WHICH TO SUBMIT WRITTEN EXCEPTIONS. SOME AGENCIES ALLOW A LARGER PERIOD WITHIN WHICH TO SUBMIT WRITTEN EXCEPTIONS. YOU SHOULD CONSULT WITH THE DEPARTMENT OF REVENUE CONCERNING ITS RULES ON THE DEADLINE FOR FILING EXCEPTIONS TO THIS RECOMMENDED ORDER.

Docket for Case No: 92-000285

Orders for Case No: 92-000285