STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
CONKLIN SHOWS, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 92-4400
)
DEPARTMENT OF REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to Notice, a formal hearing was conducted in this case on December 16, 1992, in West Palm Beach, Florida before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Robert O. Rogers, Esquire
Rogers, Bowers, Dempsey and Paladino
505 S. Flagler Drive, Suite 1330 West Palm Beach, Florida 33401
For Respondent: Eric J. Taylor, Esquire
Assistant Attorney General
Department of Legal Affairs/Tax Section The Capitol
Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUE
The issue in this case is whether Respondent's assessment of taxes, penalties and interest against Petitioner for the alleged failure to remit retail sales and use taxes for the period from June of 1985 to February of 1990 should be sustained.
PRELIMINARY STATEMENT
Pursuant to Audit Number 89-23407271, the Respondent Department of Revenue (the "Department" or "DOR") assessed taxes, late penalties and interest against Petitioner, Conklin Shows, Inc. ("Conklin") as a result of Conklin's alleged failure to remit sales and use taxes for the period commencing June 1, 1985 and ending February 28, 1990. DOR issued its Notice of Proposed Assessment on April 25, 1991. Conklin timely disputed all taxes assessed in a letter of protest dated June 19, 1991. DOR issued a Notice of Decision on May 27, 1992 rejecting Conklin's protest. Conklin timely requested an administrative hearing on the matter. Conklin contends that the taxes, late penalties and interest have been improperly, incorrectly and unconstitutionally assessed. The case was transmitted to the Division of Administrative Hearings for formal hearing pursuant to Section 120.575, Florida Statutes (1992).
At the hearing, the parties agreed that Respondent would first present its case as to the basis for the assessments at issue. Respondent called one witness, Van Ho, a tax auditor for DOR. Respondent did not offer any exhibits into evidence. 1/ Petitioner presented the testimony of Robert Negus, general manager for Conklin, and David Sellers, the manager of financial operations for Conklin. Petitioner offered fifteen exhibits into evidence, all of which were accepted without objection.
The parties stipulated that Petitioner's Exhibit 4, which was a copy of an agreement between Petitioner and the Dade County Youth Fair, was the same form of agreement in effect between Conklin and the Youth Fair for all of the years in question. Similarly, the parties stipulated that Petitioner's Exhibit 5, which was a contract between Petitioner and a subcontractor who provided a ride at the Dade County Youth Fair, was identical to all subcontracts for rides for the Fair during the years 1985 and 1986. Petitioner's Exhibit 6 was the contract form used between Petitioner and all ride subcontractors during the years 1986 and 1987. Petitioner's Exhibit 7 was the contract form utilized for all rides at the Fair during the years 1988, 1989 and 1990. Petitioner's Exhibit 8 was the contract form used by Petitioner and the Association for food concessions at the Fair for the years in question. Petitioner's Exhibit 9 was identical in form to the subcontracts entered into by Petitioner and the Association regarding games provided at the Fair by Conklin during all the years in question. Petitioner's Exhibit 10 was a contract settlement statement between Conklin and the Dade County Youth Fair for the year 1990. The parties stipulated that a similar accounting was rendered for each of the years in question. Petitioner's Exhibit 11 was a typical settlement statement between Petitioner and ride subcontractors during the period. Petitioner's Exhibit 12 was a typical settlement sheet between Petitioner and game operators at the Fair during the years in question.
As discussed in more detail in the Findings of Fact below, the parties stipulated at the commencement of the hearing that prior to July 1, 1986 there was no basis for an assessment against Petitioner on the proceeds it received or retained from its ride subcontracts and food and game concession subcontracts.
Accordingly, DOR amended its assessment to reduce the claim against Petitioner by approximately $94,000 dollars. On March 26, 1993, Respondent filed a Notice of Filing Additional Exhibit attached to which was a summation which sets forth the revisions to the original assessment including the corresponding adjustments to the penalties and interest being sought. The Notice represents that Petitioner has reviewed the summation and has no objection to it being admitted into evidence as an amendment to Petitioner's Exhibit 1. Accordingly, that summation is hereby accepted into evidence and is deemed to supersede the corresponding portions of Petitioner's Exhibit 1.
On February 22, 1993, Petitioner submitted a letter attached to which was a DOR Advisement issued to an unnamed fair authority. A copy of the letter and the Advisement was sent to counsel for Respondent. Petitioner's letter set forth its argument as to the relevancy of the Advisement. No response or objection to the filing of the Advisement has been received from Respondent.
The Advisement has been reviewed and considered in conjunction with the other post-hearing submittals filed by the parties. A transcript of the proceedings has been filed and both parties have submitted proposed findings of fact and conclusions of law. A ruling on each proposed finding of fact is included in the Appendix to this Recommended Order.
Respondent's Proposed Recommended Order was filed on March 30, 1993. On April 1, 1993, Petitioner filed Petitioner's Objections to Proposed Recommended Order Submitted by Respondent (the "Objections"). Those Objections set forth Petitioner's position on certain proposed findings of fact submitted by Respondent. Respondent has not filed a response to the Objections. The rules of the Division of Administrative Hearings do not provide for the filing of a response, reply or objections to a proposed recommended order submitted by an opposing party. No request for leave to submit such Objections has been received nor has any stipulation been filed agreeing to such a response. However, since no motion to strike the Objections has been filed, the Objections have been reviewed and considered. No specific rulings are made in connection therewith.
FINDINGS OF FACT
Based upon the oral and documentary evidence presented at the final hearing and the entire record in this proceeding, the following findings of fact are made:
Petitioner Conklin Shows, Inc., is a Florida corporation with its principal place of business in West Palm Beach, Florida. Conklin is engaged in the business of providing midway attractions for large fairs. The company services between five and eight fairs per year and provides rides as well as food and game concessions. In most instances, Conklin provides a turn-key operation whereby it provides all rides and concessions, sells tickets, collects all fees and charges, and pays the particular fair authority the amount set forth in the underlying agreement between the parties. Conklin owns and operates some of the rides that it provides and also owns a few food concessions. It also contracts with independent ride owners as well as food and game concession owners to provide the services necessary for a particular fair.
Southeast Florida and Dade County Youth Fair Association, Inc. (the "Association") is a corporation which conducts an annual youth fair, in Dade County, Florida (the "Fair") in accordance with Chapter 616, Florida Statutes. Conklin has provided midway attractions, including rides, games and food concessions, for the Fair since the late 1970s. Initially, Conklin provided a complete turn-key operation for the Fair. In 1980 or 1981, the Fair advised Conklin that it wanted to modify the arrangement so that the Fair collected and dispersed all monies and retained the right to book attractions independently. Consequently, the parties modified their agreement so that the Association sold all the tickets used by the Fair-goers for admission and for rides. In other words, cash was not accepted from the public for admission and/or rides. The evidence indicates that cash was accepted at game and food booths. The Association employed all ticket sellers, sold admissions and tickets and paid the appropriate taxes on the sales. As discussed below, at the end of each day, the Association distributed the proceeds of the ticket sales and settled up with the food and game concessionaires. Conklin was paid an agreed upon percentage of the proceeds of the ticket sales after taxes. As part of the settlement, Conklin reimbursed the Association for certain expenses.
In approximately March of 1990, DOR began an audit of Conklin at its offices in West Palm Beach. The audit was conducted primarily by Ms. Van T. Ho, a tax auditor with DOR. The audit covered the period between June 1, 1985 through February 28, 1990. Ms. Ho concluded that certain contractual arrangements between Conklin and its subcontractors who provided rides, games and food concessions for the Fair should be construed as the sublease or sublicense of the rental of real property. Since Conklin had not remitted sales tax to the State of Florida for these subleases or sublicenses, she concluded
that sales tax should be assessed against Conklin. In addition, Ms. Ho reviewed Conklin's records regarding purchases of parts and materials and concluded that appropriate sales tax had not been paid on certain purchases.
The audit results with the additional assessed taxes, penalties and interest were incorporated in a Notice of Intent to Make Sales and Use Tax Audit Changes dated October 24, 1990 (the "Notice of Intent.")
In the Notice of Intent, DOR advised Conklin that it had been found liable on various transactions subject to tax under Chapter 212, Florida Statutes, during the period June 1, 1985 through February 28, 1990. The Notice of Intent sought a total of $655,982.04 for taxes, penalties and interest through October 24, 1990 with additional interest at the rate of $142.69 per day. A Notice of Proposed Assessment was issued by DOR on April 25, 1991. Conklin protested the proposed assessment in a letter dated June 19, 1991. Ultimately, DOR issued a Notice of Decision dated May 27, 1992 upholding the audit findings. Conklin timely initiated this administrative challenge to DOR's Notice of Decision.
At the commencement of the hearing in this matter, DOR announced that it was no longer contending that Conklin was subletting real property. Instead, DOR asserted that Conklin's contractual arrangements for ride subcontracts and for food and game concessions should be construed as licenses to use real property. Since the sales tax on a license to use real property did not become effective until July 1, 1986, DOR conceded that the assessment against Conklin should be reduced to delete any sales taxes related to the fairs conducted in February of 1985 and 1986.
As set forth in the Preliminary Statement, DOR set forth its recalculated assessment in a late-filed exhibit which was submitted on March 26, 1993. The parties stipulated that the recalculation submitted on March 26, 1993, should be accepted as an amendment to Petitioner's Exhibit 1. According to that amendment, Petitioner is seeking a total of $468,520.80 for taxes, penalties and interest allegedly due through January 17, 1991 with a per diem interest rate of $105.58.
For purposes of this proceeding, the proposed assessment can be broken down into four categories: (1) sales tax allegedly due from Petitioner on rental or license income from subcontractors who provided rides at the Fair; (2) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to food concessionaires; (3) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to game concessionaires; and (4) purchase tax allegedly due on parts and materials bought by Conklin which it claims were utilized in manufacturing or repairing rides for export.
Rides
During the years 1987 through 1990, Conklin contracted to provide rides to the Association for the Fair. Conklin was required to provide a specific number of rides in certain categories together with all personnel required to operate the rides. Conklin was also responsible for all expenses attributable to the operation and maintenance of the equipment. During all of the years in question, the Association sold the tickets for all rides, collected the proceeds and paid the applicable sales tax and remitted the agreed percentage of the after-tax receipts to Conklin. Conklin was paid a sliding scale percentage of the net revenues from the rides.
Conklin typically contracted to provide more rides than it owned. In order to satisfy its contractual obligation, Conklin entered into agreements with independent ride owners. These subcontractors would provide all transportation, assembly and disassembly necessary for the ride, together with all personnel required for operation. Conklin did not take possession or exercise any direction or control over the physical operations of the ride. The subcontractor was responsible for all expenses related to the operation and maintenance of the ride and was required to reimburse Conklin for a proportionate part of the common expenses. Conklin agreed to pay the ride owner a percentage of the receipts attributable to that ride after sales tax.
Each ride owner collected tickets from the Fair attendees. The subcontractors would turn their tickets over to Conklin. Conklin turned in the tickets for all rides provided by it and its subcontractors to the Association. After Conklin was paid its percentage by the Association, Conklin would pay the subcontractors a percentage attributable to their particular ride in accordance with the agreement between Conklin and that subcontractor. Conklin retained a portion of the amount received from the Association for all of the subcontracted rides. The subcontractors did not make any payments to Conklin nor did Conklin make any payments to the Association.
The Association set the times of operation and other general policies for the Fair, but exercised no direction or control over the physical operation of any of the rides. In each case, the owner of the equipment furnished the operator and all operating supplies and made the particular ride available at the time dictated by the Association.
DOR contends that the difference between the amount received by Conklin from the Association for rides provided by subcontractors and the amount paid by Conklin to the subcontractors was taxable because it arose from a sublicense of real property. 2/ Conklin, on the other hand, argues that its contractual arrangement with the subcontractors should be viewed as a nontaxable service transaction since it paid the subcontractors who in turn provided the rides together with operating personnel and expenses. As discussed in the Conclusions of Law below, Conklin's interpretation is consistent with the language of the subcontracts and more accurately reflects the relationship created by the parties. The mere fact that a ride was operated on real estate owned by another party should not be conclusive of whether the arrangement should be viewed as a license of real property as opposed to a rental of equipment.
Food Concessions
Conklin executed separate agreements with the Association to provide certain food and game concessions for the Fair during the years 1987 through 1990. The contracts between the Association and Conklin for food and game concessions were entitled "License Agreement for Exhibitors and Concessionaires." Those agreements specifically provided:
It is understood and agreed the below described space is not leased to the Licensee [Conklin], rather he is a Licensee and not a lessee thereof.
Under the food concession agreements, Conklin was obligated to provide specific food concessions, including all labor and operating expenses. The
contract between the Association and Conklin designated specific areas at the Fair where the concessions were to be set up. The Association was entitled to a percentage of the gross receipts of the sales by the concessions.
Conklin did not own any of the equipment utilized in connection with the food concessions. It entered into agreements with concessionaires to provide the personnel, equipment, goods and materials utilized. The concessionaire was responsible for all of the expenses involved with the concession. The concessionaire collected all of the money and settled daily with the Association by paying the Association the percentage due under its agreement with Conklin (which was normally twenty-five percent) together with the tax on that amount and the sales tax on all sales. The Association remitted the taxes on the rental (license) amount and the sales. Conklin was not privy to the settlement between the food concessionaires and the Fair. It was given a copy of the settlement sheet. The concessionaire paid Conklin a percentage of the gross based upon its agreement with Conklin. That percentage was normally between seven and ten percent.
In the Notice of Assessment, DOR lumped food and game concessions together and assessed tax based upon its determination of the amount received by Conklin. The evidence presented at the hearing in this case established that the Notice of Assessment mistakenly included gross revenues rather than the net received by Conklin from game concessions. Petitioner's Exhibit 13 sets forth the correct amounts received by Conklin from food and game concessions during the years in question. During the years 1987, 1989 and 1990, the amounts received by Conklin from food concessions at the Fair were $11,919.73,
$11,521.21 and $13,034.49 respectively. The Notice of Assessment indicates that there was no taxable income from food and game concessions in 1988. No explanation was given for this anomaly. Although there was no assessment for food and game concessions for 1988 in DOR's Notice of Assessment, Petitioner's Exhibit 13 indicates that Conklin received $16,975.22 from food and game concessions that year of which $11,938.44 was apparently attributable to food concessions.
DOR contends the amounts received by Conklin from the food concessionaires were taxable because the arrangement constituted a sublicense of real property. Conklin contends that the money received from food concessions is exempt from taxation for the years since 1988 pursuant to Section 212.031(1)(a)(10), Florida Statutes. In its Proposed Recommended Order, Conklin conceded that this exemption did not come into effect until 1988. Consequently, Conklin admitted that it owed tax on the proceeds it received from the food concessions in 1987 ($11,919.73.) The evidence presented in this case was insufficient to conclude that Conklin was entitled to the exemption for the years subsequent to 1987. The exemption relied upon by Conklin is limited to a publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium or recreational facility. While the parties agree that the Fairs in question were conducted pursuant to Chapter 616, Florida Statutes, no evidence was presented to establish that the Fair was conducted in one of the specified exempt facilities.
Game Concessions
With respect to the game concessions, Conklin agreed to provide a certain number of game booths and to pay a set fee to the Association for each game along with a five percent rental realty tax on that fixed amount. 3/
Conklin did not own or operate any game concessions itself. It contracted with the owner/operators of the various games. The owner/operator would provide all of the equipment and personnel. The game owner was responsible for collecting the money, paying all expenses of operation, paying the applicable sales tax to the Association and also paying the Association the contractual percentage and rental taxes set forth in the agreement between Conklin and the Association. The net profits from the game were to be split equally between Conklin and the owner of the game. In the event of a loss, Conklin was responsible for contributing one-half of the net amount. As discussed in the Conclusions of Law below, the amounts received by Conklin from the game concessions should be treated as the proceeds on joint venture partnerships between Conklin and the various concessionaires and, therefore, should not be taxable. If this conclusion is rejected and the amounts received by Conklin are viewed as taxable license or rental payments, the tax should be assessed on the share Conklin actually received. As set forth in Findings of Fact 17 above, the evidence established that DOR's calculation in the Notice of Assessment of the tax allegedly owed by Conklin for food and game concessions was incorrectly based upon the gross receipts for the game concessions rather than the net profits that Conklin actually received. During the years 1987, 1989 and 1990, Conklin's share of the profits from the games operated under its name amounted to $5,792.65, $1,554.64 and $1,179 respectively. The Notice of Assessment indicated there were no taxable receipts from food and game concessions in 1988. Petitioner's Exhibit 13 indicates that Conklin received
$16,975.22 from food and game concessions that year, of which $5,036.78 was apparently attributable to game concessions.
Exports
Conklin is also engaged in the business of repairing and manufacturing games and rides. In the course of the manufacture or repair of these games and rides, Conklin purchases parts and supplies.
Conklin's accountant testified that it paid the appropriate tax on all of its purchases except those items which were segregated out as being integral parts of products that were exported to Canada. DOR's auditor claims that she requested and was not provided with any documentation to support the exemption claim. While Petitioner's accountant claims that the company has documentation that the items in question were used in the manufacture and repair of items that were exported and this documentation was made available to DOR's auditor, no such documents were presented at the hearing in this matter to confirm that the final products were in fact exported. Consequently, the evidence was insufficient to establish that Conklin had complied with the applicable rule requirements and was entitled to the exemption it claimed.
Penalties
In 1984 and 1985, Conklin provided rides and concessions to the Martin County Fair under its usual turn-key system where it sold all the tickets. During those years, DOR sent an enforcement officer to the fair to ensure that all taxes were paid. The DOR enforcement officer reviewed all of Conklin's books and collected the sales tax from all the concessionaires. Although Conklin inquired as to whether it was paying all appropriate taxes, the DOR enforcement officer never indicated to Conklin that it was obligated to pay rental realty taxes on its subcontractual arrangements with ride owners and/or food and game concessionaires. Thus, there was some justification for Conklin's belief that it was not obligated to pay taxes on the ride subcontracts and the food and game concessions. Conklin's understanding of the law should have been
reexamined with the adoption of the statutory clarification for the imposition of sales tax on a license to use real property. See section 66 of Chapter 86-
152 of the Laws of Florida effective July 1986. However, none of the statutory or rule provisions relied upon by DOR clearly address contractual arrangements such as those Conklin had with its ride subcontractors where the purported sublicensee made no payments to the alleged sublicensor. In view of these factors, it would be inappropriate to impose penalties on Conklin for "taxable income" it allegedly received from the ride subcontracts. Similarly, even if Conklin's contention that its arrangements with game concessionaires should be viewed as a joint venture is rejected, penalties should not be imposed since the statutory and rule provisions do not clearly address this situation. With respect to the food concessions, Conklin has conceded that it owes tax on the amount received from food concessionaires in 1987. Conklin has offered no justification for the failure to pay the tax on this amount other than to claim that it did not believe any tax was due because of comments (or lack thereof) by DOR representatives during the 1984-85 Martin County Fair. However, the basis for imposing a tax on a sublicense of real estate was significantly clarified in 1986. Thus, Conklin's purported reliance on the comments made in 1984 and 1985 should not be given much weight. Penalties on the assessment on food concession receipts from 1987 are appropriate. For the years subsequent to 1988, Conklin relies on the exemption set forth in Section 212.031(1)(a)(10), Florida Statutes. While it is possible that the exemption applies, the evidence presented at the hearing in this matter was insufficient to establish that this exemption was applicable. Consequently, penalties on the food concession receipts subsequent to 1988 are not appropriate.
Following the issuance of the Notice of Proposed Assessment, Conklin admitted that it owed taxes on certain purchases that were made from out of state companies and shipped into the state. Conklin paid the tax on those items prior to the hearing in this matter. It is not clear what, if any, penalty was assessed with the late payment of the tax on these items. With respect to the remaining items, Conklin has steadfastly maintained its position that the items were utilized in connection with products that were exported. However, Conklin failed to convince DOR's auditor of the merits of its position and failed to provide sufficient evidence at the hearing in this matter to justify its claim. In view of all the circumstances, there is no basis for a waiver of penalties on this portion of the Notice of Assessment.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Sections 72.011 and 120.57(1), Florida Statutes.
As set forth in Section 120.575(2), Florida Statutes, DOR's "burden of proof . . . [is] limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which [DOR] has made this assessment. "After DOR has made a prima facie showing of the claim of the state, the burden of proof shifts to the Petitioner to show the assessment was incorrect and contrary to the law.
Section 212.031(1)(a), Florida Statutes (1991) provides as follows:
It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property
. . .
The underlined language was added to the statute by Section 66, Chapter 86-152, Laws of Florida, effective July 1, 1986.
Section 212.02(10)(i), Florida Statutes, (1991) (previously Section 212.02(14)(i), Florida Statutes, (1987)) provides:
"License" as used in this chapter with reference to the use of real property, means the granting of a privilege to use or occupy a building or a parcel of real property for any purpose.
The tax imposed by Section 212.031 is "in addition" to the total amount of the rental or license fee.
"The tax . . . shall be charged by the lessor or person receiving the rent or payment in and by a rental or license fee arrangement with the lessee or person paying the rental or license fee, and shall be due and payable at the time of the receipt of such rental or license fee payment by the lessor or other person who receives the rental or payment." [emphasis supplied]
Section 212.031(3), Florida Statutes (1991). This statutory provision clearly assumes the payment of a rental or license fee by the person using the property. As set forth in the Findings of Fact above, Conklin did not receive any payments from the ride subcontractors.
With respect to the rides, the evidence established that the Association collected all of the money and paid Conklin a percentage for each of the rides which Conklin arranged for the Fair, including those rides which were provided and operated by Conklin's subcontractors. Conklin then paid its subcontractors in accordance with the agreements it had with them. There was no direct payment by the subcontractors to Conklin as contemplated by Sections 212.031(3).
DOR argues that Conklin received a license to use real property from the Association which it subsequently sublicensed to the ride subcontractors and game and food concessionaires. To support its position, DOR points to Section 212.031(6), Florida Statutes (1991) (previously Section 212.031(7), Florida Statutes (1985)) which provides:
The lease or rental of land or a hall or other facilities by a fair association subject to the provisions of Chapter 616 to a show promoter or prime operator of a carnival
or midway attraction is exempt from the tax imposed by this section; however, the sublease of land or a hall or other facilities by the show promoter or prime operator is not exempt from the provisions of this section.
DOR also cites Rule 12A-1.070, Florida Administrative Code, which provides "the sublease of land . . . by the show promoter . . . of a carnival or midway attraction is taxable." In essence, DOR argues that the difference between the money received by Conklin from the Association for the independently owned rides and the amount paid to the independent ride owners constitutes an implied rental payment from the subcontractors for the sublicense of real estate. DOR has not cited to any statutory authority for construing Conklin's contractual agreements in this manner. The evidence did not establish that Conklin deliberately structured its contractual arrangements in a manner to avoid sales tax. While the contractual arrangements could have been structured in a manner that clearly fell within the ambit of Section 212.031, Florida Statutes, there was no requirement that the parties do so. Absent clear legislative authority, DOR does not have the ability to ignore the contractual arrangements between the parties. State ex re Riverside Bank v. Green, 101 So. 2d 805 (Fla. 1958). See also, Frank Lyon Co. v. U.S., 435 U.S. 561 (1978). In fact, Rule 12A- 1.071(1)(a) (as well as previous Rule 12A-1.044(2)), Florida Administrative Code, provides that the terms and conditions of the agreement between the parties will govern whether an agreement is a lease or license to use tangible personal property or whether it is a lease or license to use real property. A fair reading of the contractual arrangement between Conklin and its ride subcontractors results in the conclusion that the transaction was actually the rental of tangible personal property with an operator. 4/
A distinction between a rental of equipment as opposed to a lease or license of real property was recognized in the examples set forth in the DOR rules applicable at the time of the transactions in question. Former Rule 12A- 1.044(7), Florida Administrative Code distinguished leases of real property from leases of equipment. Example (a) of this section involved a situation where the owner of a game machine placed it in a tavern in exchange for the tavern owner agreeing to pay the equipment owner a percentage of the gross. Example (b) involved an analogous situation except the machine owner was required to pay the airport a percentage of its receipts from the machine. In both instances, the transaction involved a right to place a machine in a particular location on a revenue sharing basis. The sole distinction between the two situations was who was making payment. Where the owner of the property paid an amount to the person providing the equipment, the transaction was considered a rental of equipment. Conversely, where the owner of the equipment collected the revenue and paid the owner of the property, the transaction was considered a lease of real property and, therefore, taxable.
Rule 12A-1.071(10), Florida Administrative Code, provides in pertinent part:
A transaction involving the use of equipment with an operator supplied by the owner of the equipment is a lease if control or direction over the use of the equipment passes to the customer.
When the operator of the equipment is on the rental payroll of the lessee, the
contract constitutes a rental of tangible personal property and is subject to the tax.
A transaction is not a lease if it is for the performance of a specific job in a manner to be determined by the owner or his operator.
When the owner of equipment furnishes the operator and all operating supplies, and contracts for their use to perform certain
work under his direction and according to his customer's specifications, and the customer does not take possession or have any direction or control over the physical operation, the contract constitutes a service transaction and not the rental of tangible personal property, and no tax is due on the transaction.
In its Notice of Decision, DOR suggested that even if the contractual arrangements between Conklin and its ride subcontractors were not construed as a license to use real property, Conklin's profits from the ride subcontracts could still be taxable as proceeds of a lease of tangible personal property. In this regard, DOR suggests that Conklin retained direction and control over the physical operations of the equipment under subparagraph (a) Rule 12A-1.071(10) and/or that the performance of the specific job was not in a manner totally determined by the subcontractor as required by subparagraph (c). The evidence in this case established that the owner of the ride retained full control over the operation of the ride limited only by some general conditions imposed by the Association. Those conditions did not rise to the level of direction or control that would subject the transaction to tax under subparagraphs (a) or (c). Instead, the transaction is more properly viewed as an exempt service transaction under subparagraph (d) pursuant to which Conklin paid for the furnishing and servicing of equipment. If the ride subcontracts are construed as taxable equipment rentals, the tax should be assessed on the amount paid to the subcontractor rather than the amount retained by Conklin.
With respect to the food concessions, Conklin was paid a set fee by the food concessionaire. These payments constitute taxable license fees unless exempted under the provisions of Section 212.031(1)(a)(10) which exempts rental or license fees received from a person providing food and drink concessionaire services within the premises of "any publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium, or recreational facility." While the evidence established that the Fair was conducted pursuant to Chapter 616, Florida Statutes, it is not clear whether the property upon which the Fair was conducted falls within the scope of this exemption. Absent an affirmative showing that the Fair was conducted on such property, the requested exemption must be denied. 5/
With respect to game concessions, there was a fixed rental fee to the Association, but no fixed license or rental fee to Conklin. Conklin's contractual arrangements exposed it to possible loss in the event the proceeds from the concessions were insufficient to cover expenses. In essence, Conklin was involved in a joint venture with the concessionaire for which it was entitled to a share of the profits. Such a transaction does not fall within the scope of Section 212.031.
Pursuant to Section 212.05, Florida Statutes, all items of tangible personal property are subject to the imposition of sales tax upon their sale
unless specifically exempted. Conklin contends that all items listed on Schedule B-1 of the Notice of Assessment for which tax was not paid are exempt because they were used in the manufacture of or repair of rides that were exported. Export sales are not subject to sales tax and items utilized in the manufacture of goods that are exported are also exempt from sales tax. See Rule 12A-1.064, Florida Administrative Code. In order to be entitled to this exemption, a taxpayer must follow the applicable conditions in Rule 12A- 1.064(1)(b) 1-5. The taxpayer bears the burden of establishing the exempt status of the transaction. See Rule 12A-1.038, Florida Administrative Code. In order to be entitled to the export exemption, a manufacturer must ship the goods out of the country. A customs document verifying that the item left the country and an affidavit or invoice from the purchaser will be accepted by DOR as evidence that the goods were exported. One of Conklin's representatives testified that he assembled the customs documents and made them available to the DOR auditor. However, the DOR auditor denied ever seeing any of those documents and they were not produced at the hearing. The testimony of Conklin's internal accountant that the export documents were assembled is insufficient to carry Conklin's burden of proof in this matter. 6/
Section 213.21(3), Florida Statutes provides
. . . a taxpayer's liability for penalties under any of the chapters specified in s. 72.011(1) may be settled or compromised if it is determined by the department that the noncompliance is due to reasonable cause and not to willful negligence, willful neglect, or fraud.
Grounds for reasonable cause for compromise of penalties can also be found in Rule 12-13.007, Florida Administrative Code. Subsection 2 of that rule provides
Reasonable cause is indicated by the existence of facts and circumstances which support the exercise of ordinary care and prudence on the part of the taxpayer in complying with the revenue laws of this state. Depending upon the circumstances, reasonable cause may exist even though the circumstances indicate that slight negligence, inadvertence, mistake, or error resulted in noncompliance.
As set forth in the Findings of Fact above, reasonable cause existed for Conklin's failure to pay tax on all of the transactions discussed in this case except for the food concession arrangements and the purchase tax on the items that were purportedly used in the manufacture of goods for export.
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order amending the
Notice of Assessment to: (a) delete all taxes, penalties and interest assessed
against Conklin for the ride subcontracts and game concessions; (b) affirming the assessment of tax against Conklin for the amount it received from food
concessionaires during the years 1987 through 1990 (the amount of the assessment should be amended to reflect the net proceeds Conklin received rather than the gross revenues reflected in the original Notice of Assessment) and imposing penalties and interest on the amount of tax due; and (c) affirming the assessment of taxes, penalties and interest for the purchase of items that were allegedly used in the repair or manufacture of goods for export.
DONE and ENTERED this 13th day of January 1994, 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 13th day of January, 1993.
ENDNOTES
1/ The parties agreed that all of the pertinent background documents would be offered as Petitioner's exhibits.
2/ At the hearing, very little evidence was presented as to how the DOR auditor determined the taxable rental income purportedly due from Conklin's contractual arrangements with the independent ride owners. It is difficult to reconcile the work papers attached to the Notice of Assessment with some of the other documents entered into evidence at the hearing in this matter. For example, the fourth page of the initial schedule attached to the Notice of Assessment indicates that the net revenue from the independently owned shows and rides during the 1990 fair was $2,168,657.23 of which sixty-three percent was retained by Conklin for taxable rental income of $1,366,254.05. However, the contract settlement statement for the year 1990 which was introduced as Petitioner's Exhibit 10 seems to indicate that the total amount received by Conklin for all rides, including those that it owned, was only $1,957,565.94. It is possible that the DOR auditor in making the assessment utilized the gross revenues attributable to the independently owned rides before the Association deducted the percentage which was owed to it. However, the evidence presented in this case was insufficient to reach any conclusions regarding the apparent inconsistencies. In view of the conclusions reached in this Recommended Order, such resolution is not necessary.
3/ The Association independently arranged for the vast majority of the game booths at the Fair.
4/ Even if DOR's theory was to prevail, the entire amount retained by Conklin with respect to the subcontracts should not be considered as proceeds from the sublicense of real estate since at least a portion of the proceeds should justifiably be attributed to its efforts in generating the contract with the Association and serving as a middle-man.
5/ Rule 12A-1.070(a)(8) recognizes that subleases to food concessionaires of space within an exempt facility are not taxable, but states that "licenses for such spaces have been taxable since July 1, 1986 and remain taxable." In view of the conclusions reached herein, it is not necessary to construe this provision and/or determine whether it is consistent with the Statute.
6/ Rule 12A-1.064(1)(b) specifically provides that the intent of the seller and the purchaser that the property will be exported is not sufficient to establish the exemption. The evidence in this case established that Conklin did not properly use a resale certificate when purchasing items for the manufacture and/or repair of rides for export. Without such a resale certificate, Conklin was obligated to prove that the goods were in fact exported and qualified for the exemption pursuant to Rule 12A-1.064, Florida Administrative Code.
APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 92-4400
Both parties have submitted Proposed Recommended Orders. The following constitutes my rulings on the proposed findings of fact submitted by the parties.
Petitioner's Proposed Findings of Fact.
1. Adopted | in substance | in | Findings | of | Fact | 1. |
2. Adopted | in substance | in | Findings | of | Fact | 1. |
3. Adopted | in substance | in | Findings | of | Fact | 2. |
4. Adopted | in substance | in | Findings | of | Fact | 2. |
5. Adopted | in substance | in | Findings | of | Fact | 2 and 9. |
6. Adopted | in substance | in | Findings | of | Fact | 10. |
7. Adopted | in substance | in | Findings | of | Fact | 12. |
8. Adopted | in substance | in | Findings | of | Fact | 12. |
9. Adopted in | substance in | Findings of | Fact | 10-12. | ||
10. Adopted in | substance in | Findings of | Fact | 13. | ||
11. Adopted in | substance in | Findings of | Fact | 14-15. | ||
12. Adopted in | substance in | Findings of | Fact | 16. | ||
13. Adopted in | substance in | Findings of | Fact | 17. | ||
14. Adopted in | substance in | Findings of | Fact | 14 and 19. | ||
15. Adopted in | substance in | Findings of | Fact | 20. | ||
16. Adopted in | substance in | Findings of | Fact | 20. | ||
17. Adopted in | substance in | Findings of | Fact | 20. | ||
Subordinate to Findings of Fact 22.
Subordinate to Findings of Fact 23.
Subordinate to Findings of Fact 24.
Respondent's Proposed Findings of Fact.
Adopted in substance in Findings of Fact 1.
Adopted in substance in Findings of Fact 1.
Adopted in substance in Findings of Fact 2, 16 and 20.
Adopted in substance in Findings of Fact 9 and 10.
Adopted in substance in Findings of Fact 2.
Subordinate to Findings of Fact 2.
Adopted in substance in Findings of Fact 2 and 9.
Subordinate to Findings of Fact 2, 9-11, 16 and 20.
Adopted in substance in Findings of Fact 10.
Adopted in substance in Findings of Fact 10.
Adopted in substance in Findings of Fact 10 and 11.
Adopted in substance in Findings of Fact 11.
Adopted in substance in Findings of Fact 14.
The first two sentences are adopted in substance in Findings of Fact 14. The last sentence is rejected as vague and ambiguous.
Adopted in substance in Findings of Fact 16 and 20.
Subordinate to Findings of Fact 20.
Subordinate to Findings of Fact 20. The evidence indicated that tickets were not used for the game and food concessions.
Subordinate to Findings of Fact 20.
The first two sentences are adopted in substance in Findings of Fact 16. The last sentence is rejected as vague and ambiguous.
Adopted in substance in Findings of Fact 16.
Adopted in substance in Findings of Fact 21.
[sic] Adopted in substance in Findings of Fact 21.
Rejected as unnecessary.
Adopted in substance in Findings of Fact 21.
Adopted in substance in Findings of Fact 22.
Adopted in substance in Findings of Fact 22.
COPIES FURNISHED:
Robert O. Rogers, Esq. Richard Paladino, Esq.
Rogers, Bowers, Dempsey, et al.
505 S. Flagler Dr., Ste. 1330 West Palm Beach, FL 33401
Eric J. Taylor, Esq. Asst. Attorney General Dept. of Legal Affairs The Capitol-Tax Section
Tallahassee, FL 32399-1050
Linda Lettera, Esq. Dept. of Revenue Post Office Box 6668
Tallahassee, FL 32314-6668
Larry Fuchs Executive Director
104 Carlton Building Tallahassee, FL 32399-0100
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.
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF REVENUE
CONKLIN SHOWS, INC., )
)
Petitioner, )
)
) DOAH CASE NUMBER 92-4400
) DOR 94-1-FOF
DEPARTMENT OF REVENUE, )
)
Respondent. )
)
FINAL ORDER
This cause came on before me for the purpose of considering a Recommended Order and of issuing a Final Order. The Hearing Officer assigned by the Division of Administrative Hearings in the above styled case submitted the Recommended Order to the Department of Revenue. A copy of that Recommended Order is attached.
Also entered in this case were Petitioner's Proposed Recommended Order; Petitioner's Objections to Proposed Recommended Order; and, Petitioner's Reply to Respondent's Exceptions to the Recommended Order. Respondent filed Proposed Recommended Order; Respondent's Exceptions to the Recommended Order; and, Respondent's Substituted and Additional Paragraphs to the Recommended Order.
Copies of all these documents are also attached.
The Hearing Officer in his Recommended Order recommended that the Department of Revenue (herein either Department, or DOR) enter a Final Order which would (1) delete all taxes, penalties and interest assessed against Conklin for the ride subcontracts, and game concessions; affirm assessment of tax, interest, and penalties against Conklin for the food concessionaires during the years 1987 through 1990 with the tax assessed on net revenues rather than gross revenues; and affirm the tax, interest, and penalties against Conklin for the purchase of certain items used in the repair and manufacture of goods for export.
The Department, after a thorough review of the entire record in this case, rejects that portion of the Hearing Officer's Recommended Order (herein Recommended Order) which recommends that tax, interest, and penalties be deleted against Conklin as to both the ride subcontractors, and the game concessionaires; adopts and affirms the recommendation in the Recommended Order sustaining the assessment of tax, interest, and penalties against Conklin as to
food concessionaires during the years 1987 through 1990 with the tax assessment on net revenues during that period rather than gross revenues; and, adopts and affirms the recommendation in the Recommended Order sustaining the tax, interest, and penalties against Conklin for the purchase of those items used in the repair and manufacture of items for export.
FINDINGS OF FACT
All Findings of Fact set forth in the Recommended Order are adopted in this Final Order without modification or amendment except Finding of Fact 11, 13, and by adding one sentence to 17, and 20 to clarify either a typographical error or misunderstanding. The Findings of Fact read as follows:
Finding of Fact 1. Petitioner Conklin Shows, Inc., is a Florida corporation with its principal place of business in West Palm Beach, Florida. Conklin is engaged in the business of providing midway attractions for large fairs. The company services between five and eight fairs per year and provides rides as well as food and game concessions. In most instances, Conklin provides a turn-key operation whereby it provides all rides and concessions, sells tickets, collects all fees and changes, and pays the particular fair authority the amount set forth in the underlying agreement between the parties.
Conklin owns and operates some of the rides that it provides and also owns a few food concessions. It also contracts with independent ride owners as well as food and game concession owners to provide the services necessary for a particular fair.
Finding of Fact 2. Southeast Florida and Dade County Youth Fair Association, Inc., (the Association) is a corporation which conducts an annual youth fair, in Dade County, Florida (the "Fair") in accordance with Chapter 616, Florida Statutes. Conklin has provided midway attractions, including rides, games, and food concessions, for the Fair since the late 1970s. Initially, Conklin provided a complete turn-key operation for the Fair. In 1980 or 1981, the Fair advised Conklin that it wanted to modify the arrangement so that the Fair collected and dispersed all monies and retained the right to book attractions independently. Consequently, the parties modified their agreement so that the Association sold all the tickets used by the Fair-goers for admission and for rides. In other words, cash was not accepted from the public for admission and/or rides. The evidence indicates that cash was accepted at game and food booths. The Association employed all tickets sellers, sold admissions and tickets and paid the appropriate taxes on the sales. As discussed below, at the end of each day, the Association distributed the proceeds of ticket sales and settled up with the food and game concessionaires. Conklin was paid an agreed upon percentage of the proceeds of the ticket sales after taxes. As part of the settlement, Conklin reimbursed the Association for certain expenses.
Finding of Fact 3. In approximately March of 1990, DOR began an audit of Conklin at its offices in West Palm Beach. The audit was conducted primarily by Ms. Van T. Ho, a tax auditor with DOR. The audit covered the period between June 1, 1985 through February 28, 1990. Ms. Ho concluded that certain contractual arrangements between Conklin and its subcontractors who provided rides, games and food concessions for the Fair would be construed as the sublease or sublicense of the rental of real property. Since Conklin had not remitted sales tax to the State of Florida for these subleases or sublicenses, she concluded that sales tax should be assessed against Conklin. In addition,
Ms. Ho reviewed Conklin's records regarding purchases of parts and materials and concluded that appropriate sales tax had not been paid on certain purchases.
Finding of Fact 4. The audit results with the additional assessed taxes, penalties and interest were incorporated in a Notice of Intent to Make Sales and Use Tax Audit Changes dated October 24, 1990 (the "Notice of Intent.")
Finding of Fact 5. In the Notice of Intent, DOR advised Conklin that it had been found liable on various transactions subject to tax under Chapter 212, Florida Statutes, during the period June 1, 1985 through February 28, 1990. The Notice of Intent sought a total of $655,982.04 for taxes, penalties and interest through October 24, 1990 with additional interest at the rate of $142.69 per day. A Notice of Proposed Assessment was issued by DOR on April 25, 1991.
Conklin protested the proposed assessment in a letter dated June 19, 1991. Ultimately, DOR issued a Notice of Decision dated May 27, 1992 upholding the audit findings. Conklin timely initiated this administrative challenge to DOR's Notice of Decision.
Finding of Fact 6. At the commencement of the hearing in this matter, DOR announced that it was no longer contending that Conklin was subletting real property. Instead, DOR asserted that Conklin's contractual arrangements for ride subcontracts and for food and game concessions should be construed as licenses to use real property. Since the sales tax on a license to use real property did not become effective until July 1, 1986, DOR conceded that the assessment against Conklin should be reduced to delete any sales tax related to the fairs conducted in February of 1985 and 1986.
Finding of Fact 7. As set forth in the Preliminary Statement, DOR set forth its recalculated assessment in a late-filed exhibit which was submitted on March 26, 1993. The parties stipulated that the recalculation submitted on March 26, 1993, should be accepted as an amendment to Petitioner's Exhibit 1.
According to that amendment, Petitioner is seeking a total of $468,520.80 for taxes, penalties and interest allegedly due through January 17, 1991 with a per diem interest rate of $105.58.
Finding of Fact 8. For purposes of this proceeding, the proposed assessment can be broken down into four categories: (1) sales tax allegedly due from Petitioner on rental or license income from subcontractors who provided rides at the Fair; (2) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to food concessionaires; (3) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to game concessionaires; and (4) purchase tax allegedly due on parts and materials bought by Conklin which it claims were utilized in manufacturing or repairing rides for export.
Rides
Finding of Fact 9. During the years 1987 through 1990, Conklin contracted to provide rides to the Association for the Fair. Conklin was required to provide a specific number of rides in certain categories together with all personnel required to operate the rides. Conklin was also responsible for all expenses attributable to the operation and maintenance of the equipment. During all of the years in question, the Association sold the tickets for all rides, collected the proceeds and paid the applicable sales tax and remitted the agreed percentage of the after-tax receipts to Conklin. Conklin was paid a sliding scale percentage of the net revenues for the rides.
Finding of Fact 10. Conklin typically contracted to provide more rides than it owned. In order to satisfy its contractual obligation, Conklin entered into agreements with independent ride owners. These subcontractors would provide all transportation, assembly and disassembly necessary for the ride, together with all personnel required for operation. Conklin did not take possession or exercise any direction or control over the physical operations of the ride. The subcontractor was responsible for all expenses related to the operation and maintenance of the ride and was required to reimburse Conklin for a proportionate part of the common expenses. Conklin agreed to pay the ride owner a percentage of the receipts attributable to that ride after sales tax.
[This Final Order adopts and affirms Finding of Fact 11 as expressed in the Recommended Order except as to the last sentence which reads, "[t]he subcontractor did not make any payments to Conklin nor did Conklin make any payments to the Association." First, payments were made by ride subcontractors as presented by the tickets collected by such subcontractors. In paragraph 4 of the Petitioner's Exhibit 5, 6, and 7., the "gross receipts" were determined by the "number of tickets collected". A division of these "gross receipts" was then computed. Second, in the same exhibits in paragraph 4.d. the ride subcontractors are required to pay to Conklin such sums as license and inspection fees, hook- ups and other similar charges. Consequently, this Final Order adds two explanatory sentences to the Finding of Fact 11. The Finding of Fact 11, as expressed in the Recommended Order and the explanatory sentences read as follows:]
Finding of Fact 11. Each ride owner collected tickets from the Fair attendees. The subcontractors would turn their tickets over to Conklin.
Conklin turned in the tickets for all rides provided by it and its subcontractors to the Association. After Conklin was paid its percentage by the Association, Conklin would pay the subcontractors a percentage attributable to their particular ride in accordance with the agreement between Conklin and that subcontractor. Conklin retained a portion of the amount received from the Association for all of the subcontracted rides. The subcontractors did not make any payments to Conklin nor did Conklin make any payments to the Association.
However, this is true only if the measure of gross proceeds, the tickets are ignored. The tickets presented to Conklin by the ride subcontractors at the close of business each day represented a money payment to Conklin because the tickets were the sole measure of the amount which was to be later retained by Conklin after both the Association and the subcontractors had shared in such gross receipts as such term is described in Petitioner's Exhibit 5, 6, and 7.
Finding of Fact 12. The Association set the times of operation and other general policies for the Fair, but exercised no direction or control over the physical operation of any of the rides. In each case, the owner of the equipment furnished the operator and all operating supplies and made the particular ride available at the time dictated by the Association.
[This Final Order adopts and affirms the Finding of Fact 13, as expressed in the Recommended Order, except as to the last two sentences which are stricken as not supported by competent and substantial evidence. As described above in the basis for the explanatory sentences added to Finding of Fact 11, the Petitioner's Exhibit 5, 6, and 7 discuss the division of the gross proceeds as measured by the tickets collected by the ride subcontractors and transferred to Conklin.
Finding of Fact 13. DOR contends that the difference between the amount received by Conklin from the Association for rides provided by subcontractors
and the amount paid by Conklin to the subcontractors was taxable because it arose from a sublicense of real property. Conklin, on the other hand, argues that its contractual arrangement with the subcontractors should be viewed as a nontaxable service transaction since it paid the subcontractors who in turn provided the rides together with operating personnel and expenses.
Food Concessions
Finding of Fact 14. Conklin executed separate agreements with the Association to provide certain food and game concessions for the Fair during the years 1987 through 1990. The contracts between the Association and Conklin for food and game concessions were entitled "License Agreement for Exhibitors and Concessionaires." Those agreements specifically provided:
It is understood and agreed the below described space is not leased to the Licensee [Conklin], rather he is a Licensee and not a lessee thereof.
Finding of Fact 15. Under the food concession agreements, Conklin was obligated to provide specific food concessions, including all labor and operating expenses. The contract between the Association and Conklin designated specific areas at the Fair where the concessions were to be set up. The Association was entitled to a percentage of the gross receipts of the sales by the concessions.
Finding of Fact 16. Conklin did not own any of the equipment utilized in connection with the food concessions. It entered into agreements with concessionaires to provide the personnel, equipment, goods and materials utilized. The concessionaire was responsible for all of the expenses involved with the concession. The concessionaire collected all of the money and settled daily with the Association by paying the Association the percentage due under its agreement with Conklin (which was normally twenty-five percent) together with the tax on that amount and the sales tax on all sales. The Association remitted the taxes on the rental (license) amount and the sales. Conklin was not privy to the settlement between the food concessionaires and the Fair. It was given a copy of the settlement sheet. The concessionaire paid Conklin a percentage of the gross based upon its agreement with Conklin. That percentage was normally between seven and ten percent.
[This Final Order adds a sentence to Finding of Fact 17 to clarify a typographical error or misunderstanding as to the assessment for food and game concessions for 1988.]
Finding of Fact 17. In the Notice Of Assessment, DOR lumped food and game concessions together and assessed tax based upon its determination of the amount received by Conklin. The evidence presented at the hearing in this case established that the Notice of Assessment mistakenly included gross revenues rather than the net received by Conklin from game concessions. Petitioner's Exhibit 13 sets forth the correct amounts received by Conklin from food and game concessions during the years in question. During the years 1987, 1989 and 1990, the amounts received by Conklin from food concessionaires at the Fair were
$11,919.73, $11,521.21 and $13,034.49 respectively. The Notice of Assessment indicates that there was no taxable income from food and game concessions in 1988. No explanation was given for this anomaly. Although there was no assessment for food and game concessions for 1988 in DOR's Notice of Assessment, Petitioner's Exhibit 13 indicates that Conklin received $16,975.22 from food and
game concessions that year of which $11,938.44 was apparently attributable to food concessions.
DOR, in its second revised Intent to Make Audit Changes included $16,975.22 as food and game concession income for 1988. Petitioner's Exhibit 16.
Finding of Fact 18. DOR contends the amounts received by Conklin from the food concessionaires were taxable because the arrangement constituted a sublicense of real property. Conklin contends that the money received from food concessions is exempt from taxation for the years since 1988 pursuant to Section 212.031(1)(a)(10), Florida Statutes. In its Proposed Recommended Order, Conklin conceded that this exemption did not come into effect until 1988. Consequently, Conklin admitted that it owed tax on the proceeds it received from the food concessions in 1987 ($11,919.73.) The evidence presented in this case was insufficient to conclude that Conklin was entitled to the exemption for the years subsequent to 1987. The exemption relied upon by Conklin is limited to a publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium or recreational facility. While the parties agree that the Fairs in question were conducted pursuant to Chapter 616, Florida Statutes, no evidence was presented to establish that the Fair was conducted in one of the specified exempt facilities.
Game Concessions
Finding of Fact 19. With respect to the game concessions, Conklin agreed to provide a certain number of game booths and to pay a set fee to the Association for each game along with five percent rental realty tax on the fixed amount.
[This Final Order adds one sentence to this Finding of Fact 20 to clarify a typographical error or misunderstanding as to game and food concession income for 1988. Petitioner's Exhibit 16.]
Finding of Fact 20. Conklin did not own or operate any game concessions itself. It contracted with the owner/operators of the various games. The owner/operator would provide all of the equipment and personnel. The game owner was responsible for collecting the money, paying all expenses of operation, paying the applicable sales tax to the Association and also paying the Association the contractual percentage and rental taxes set forth in the agreement between Conklin and the Association. The net profits from the game were to be split equally between Conklin and the owner of the game. In the event of a loss, Conklin was responsible for contributing one-half of the net amount. As discussed in the Conclusions of Law below, the amounts received by Conklin from the game concessions should be treated as the proceeds on joint venture partnerships between Conklin and the various concessionaires and, therefore, should not be taxable. If this conclusion is rejected and the amounts received by Conklin are viewed as taxable license or rental payments, the tax should be assessed on the share Conklin actually received. As set forth in Findings of Fact 17 above, the evidence established that DOR's calculation in the Notice of Assessment of the tax allegedly owed by Conklin for food and game concessions was incorrectly based upon the gross receipts for the game concessions rather than the net profits that Conklin actually received. During the years 1987, 1989 and 1990, Conklin's share of the profits from the games operated under its name amounted to $5,792.65, $1,554.64 and $1,179 respectively. The Notice of Assessment indicated there were no taxable receipts from food and game concessions in 1988. Petitioner's Exhibit 13 indicates that Conklin received $16,975.22 from food and game concessions that year, of which
$5,036.78 was apparently attributable to game concessions. DOR in its Second Revised Intent to make Audit Changes included $16,975.22 as food and game concession income for 1988. Petitioner's Exhibit 16.
Exports
Finding of Fact 21. Conklin is also engaged in the business of repairing and manufacturing games and rides. In the course of the manufacture or repair of these games and rides, Conklin purchases parts and supplies.
Finding of Fact 22. Conklin's accountant testified that it paid the appropriate tax on all its purchases except those items which were segregated out as being integral parts of products that were exported to Canada. DOR's auditor claims that she requested and was not provided with any documentation to support the exemption claim. While Petitioner's accountant claims that the company has documentation that the items in question were used in the manufacture and repair of items that were exported and this documentation was made available to DOR's auditor, no such documents were presented at the hearing in this matter to confirm that the final products were in fact exported.
Consequently, the evidence was insufficient to establish that Conklin had complied with the applicable rule requirements and was entitled to the exemption it claimed.
Penalties
Finding of Fact 23. In 1984 and 1985, Conklin provided rides and concessions to the Martin County Fair under its usual turn-key system where it sold all the tickets. During those years, DOR sent an enforcement officer to the fair to ensure that all taxes were paid. The DOR enforcement officer reviewed all of Conklin's books and collected the sales tax from all the concessionaires. Although Conklin inquired as to whether it was paying all appropriate taxes, the DOR enforcement officer never indicated to Conklin that it was obligated to pay rental realty taxes on its subcontractual arrangements with ride owners and/or food and game concessionaires. Thus, there was some justification for Conklin's belief that it was not obligated to pay taxes on the ride subcontracts and the food and game concessions. Conklin's understanding of the law should have been re-examined with the adoption of the statutory clarification for the imposition of sales tax on a license to use real property. See section 66 of Chapter 86-152 of the Laws of Florida effective July 1986.
However, none of the statutory or rule provisions relied upon by DOR clearly address contractual arrangements such as those Conklin had with its ride subcontractors where the purported sublicensee made no payments to the alleged sublicensor. In view of those factors, it would be inappropriate to impose penalties on Conklin for "taxable income" it allegedly received from the ride subcontracts. Similarly, even if Conklin's contention that its arrangements with game concessionaires should be viewed as a joint venture is rejected, penalties should not be imposed since the statutory and rule provisions do not clearly address this situation. With respect to the food concessions, Conklin has conceded that it owes tax on the amount received from food concessionaires in 1987. Conklin has offered no justification for the failure to pay the tax on this amount other than to claim that it did not believe any tax was due because of comments (or lack thereof) by DOR representatives during the 1984-85 Martin County Fair. However, the basis for imposing a tax on a sublicense of real estate was significantly clarified in 1986. Thus, Conklin's purported reliance on the comments made in 1984 and 1985 should not be given much weight.
Penalties on the assessment on food concession receipts from 1987 are appropriate. For years subsequent to 1988, Conklin relies on the exemption set
forth in Section 212.031(1)(a)10., Florida Statutes. While it is possible that the exemption applies, the evidence presented at the hearing in this matter was insufficient to establish that this exemption was applicable. Consequently, penalties on the food concession receipts subsequent to 1988 are not appropriate.
Finding of Fact 24. Following the issuance of the Notice of Proposed Assessment, Conklin admitted that it owed taxes on certain purchases that were made from out of state companies and shipped into the state. Conklin paid the tax on those items prior to the hearing in this matter. It is not clear what, if any penalty was assessed with the late payment of the tax on these items.
With respect to the remaining items, Conklin has steadfastly maintained its position that the items were utilized in connection with products that were exported. However, Conklin failed to convince DOR's auditor of the merits of its position and failed to provide sufficient evidence at the hearing in this matter to justify its claim. In view of all the circumstances, there is no basis for a waiver of penalties on this portion of the Notice of Assessment.
CONCLUSIONS OF LAW
This Final Order adopts and affirms, in their entirety, without amendment, Conclusion of Law paragraphs 25 through 28 as expressed in the Recommended Order, and these paragraphs appear as follows:
Conclusion of Law 25. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Sections 72.011 and 120.57(1), Florida Statutes.
Conclusion of Law 26. As set forth in Section 120.575(2), Florida Statutes, DOR's "burden of proof . . . [is] limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which [DOR] has made this assessment." After DOR has made a prima facie showing of the claim of the state, the burden of proof shifts to the Petitioner to show the assessment was incorrect and contrary to the law.
Conclusion of Law 27. Section 212.031(1)(a), Florida Statutes (1991) provides as follows:
It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property . . .
The underlined language was added to the statute by Section 66, Chapter 86- 152, Laws of Florida, effective July 1, 1986.
Conclusion of Law 28. Section 212.02(10)(i), Florida Statutes, (1991) (previously Section 212.02(14)(i), Florida Statutes, (1987)) provides:
"License" as used in this chapter with reference to the use of real property, means the granting of privilege to use or occupy a building or a parcel of real property for any purpose.
[This Final Order adopts and affirms Conclusions of Law paragraph 29 as expressed in the Recommended Order with the exception of the last sentence wherein the Recommended Order states that, "[a]s set forth in the Findings of Fact above, Conklin did not receive any payments from the ride subcontractors." This sentence is struck. This Final Order provides the basis for its rejection, and the proper conclusion that payments were received by Conklin from its subcontractors. The adopted portion of the Conclusions of Law paragraph 29, as expressed in the Recommended Order, and the amended portion appear as follows:]
Conclusion of Law 29. The tax imposed by Section 212.031 is "in addition" to the total amount of the rental or license fee.
"The tax . . . shall be charged by the lessor or person receiving the rent or payment in and by a rental or license fee arrangement
with the lessee or person paying the rental or license fee, and shall be due and payable at the time of the receipt of such rental or license fee payment by the lessor or other or other person who receives the rental or payment." [emphasis supplied]
Section 212.031(3), Florida Statutes (1991). This statutory provision clearly assumes the payment of a rental or license fee by the person using the property. The elements of the transactions between the Association, Conklin, and the ride subcontractors show that payments were received by Conklin from the ride subcontractors in exchange for the license granted to such ride subcontractors, to use real property. In Finding of Fact paragraph 9, the Association is described as the seller of tickets for all rides. In Finding of Fact paragraph 11, the ride subcontractors are described as collecting these tickets from Fair attendees. The contract between Association and Conklin provides that Association shall be the seller of tickets. Thus, neither Conklin nor the ride subcontractors may accept cash in exchange for the rides. The tickets were sold by Association to the attendees to purchase individual rides from the ride subcontractors. The tickets collected by the ride subcontractors represented the money the ride subcontractors would have ordinarily collected from the attendees save for the provisions in the contract between Conklin and Association which required only for purposes of accounting control that the Association was to be the seller of all tickets. This method of using "money" in the form of tickets instead of cash was designed to give Association sole control over the receipt of cash. Tr. page 26, lines 23 through 25; Tr. page 106, lines 6 through 11; Tr. page 129, lines 11 through 19. This alternative form of payment does not alter the essence of the transaction between the ride subcontractors and Conklin which is that the ride subcontractors were licensees of real property and that the tickets transferred from these ride subcontractors to Conklin were payments in exchange for that license. Conklin and the ride subcontractors did not have a right to a percentage of the total tickets sold by Association. Tr. page 126, lines 3 through 6. Rather, both had a right to only a percentage of the tickets actually presented to the ride subcontractors by the attendees. Tr. page 125, lines 11 through 25; Tr. page 126, lines 1 through 6. The tickets were a substitute for money; a direct representation of money when Conklin and the ride subcontractors settled up accounts. The tickets in the form of money was transferred to Conklin. Tr. page 125, lines 13 through 20, and Tr. page 126 lines 3 through 6. Thus, the ride subcontractor collected revenue in the form of tickets and when these tickets were presented to Conklin they represented a payment of money to Conklin. The portion retained by Conklin
represented the payment to Conklin by the ride subcontractors for the license to use real property. Tr. page 76, lines 3 through 15.
[This Final Order adopts and affirms Conclusion of Law paragraph 30 as expressed in the Recommended Order with the exception of the last sentence.
This last sentence is struck. This sentence reads, "There was no direct payment by the subcontractors to Conklin as contemplated by Sections 212.031(3)." This sentence is stricken because it fails to describe the entire transaction between Conklin and the ride subcontractors with respect to the transfer of tickets from the ride subcontractors to Conklin and the fact that the tickets represented money and were paid to Conklin as described in Conclusion of Law 29 above, and as required in the contract between Conklin and the ride subcontractors. The adopted portion of the conclusion of law as expressed in the Recommended Order, and as described above, reads as follows:
Conclusion of Law 30. With respect to the rides, the evidence established that the Association collected all of the money and paid Conklin a percentage for each of the rides which Conklin arranged for the Fair, including those rides which were provided and operated by Conklin's subcontractors. Conklin then paid its subcontractors in accordance with the agreements it had with them.
[This Final Order adopts and affirms Conclusion of Law paragraph 31 as expressed in the Recommended Order except for the last sentence on page 19 which begins with the words, "[i]n essence. . . ." and all subsequent sentences of Conclusion of Law, paragraph 31. All such sentences are stricken. This basis of this strike is because these sentences (1) erroneously portray the Department as construing the rental payment made between the ride subcontractors and Conklin as an implied rental payment, (2) then require as a consequence the Department provide statutory authority for such a theory, (3) erroneously portray the Department as arguing that Conklin deliberately structured the contracts to avoid the ambit of s. 212.031, and (4) that the Recommended Order cites to Rule 12A-1.071(1)(a) as well as to Rule 12A-1.044(2) as support that the terms of the agreement will decide whether it is a lease or real property but the Respondent maintains that the agreement between the ride subcontractors and Conklin are licenses to use real property and that Conklin receives payment from such ride subcontractors in exchange for that license. In lieu of the stricken sentences in the Recommended Order this Final Order adopts the language provided in Respondent's Substituted and Additional Paragraphs to the Recommended Order. The adopted portion of the conclusion of law as expressed in the Recommended Order described above, and the amendment thereto read as follows:]
Conclusion of Law 31. DOR argues that Conklin received a license to use real property from the Association which it subsequently sublicensed to the ride subcontractors and game and food concessionaires. To support its position, DOR points to Section 212.031(6), Florida Statutes (1991) (previously Section 212.031(7), Florida Statutes (1985)) which provides:
The lease or rental of land or a hall or other facilities by a fair association subject to the provisions of Chapter 616 to a show promoter or prime operator of a carnival or midway attraction is exempt from the tax imposed by this section; however, the
sublease of land or a hall or other facilities by the show promoter or prime operator is not exempt from the provisions of the section.
DOR also cites Rule 12A-1.070, Florida Administrative Code, which provides "the sublease of land . . . by the show promoter . . . of a carnival or midway attraction is taxable." It is clear from Conklin's contracts that the arrangement as structured by Conklin fall within the ambit of section 212.031, Florida Statutes. The ride operators collected revenue from the use of their attractions and paid an agreed share of their proceeds to Conklin for that right to be at the Fair. The method chosen by the [Association] for the accounting security of the cash does not alter either Conklin's contracts or the real substance of the transactions. Conklin was licensing the use of the real property to the ride subcontractors.
[This Final Order adopts and affirms Conclusion of Law paragraph 32, as expressed in the Recommended Order, in its entirety but also adds the language in Respondent's Substituted and Additional Paragraphs to the Recommended Order. The adopted conclusion of law as expressed in the Recommended Order, and the amendment thereto read as follows:]
Conclusion of Law 32. A distinction between a rental of equipment opposed to a lease or license of real property was recognized in the examples set forth in the DOR rules applicable at the time of the transactions in question. Former Rule 12A- 1.044(7), Florida Administrative Code distinguished leases of real property from leases of equipment. Example (a) of this section involved a situation where the owner of a game machine placed it in a tavern in exchange for the tavern owner agreeing to pay the equipment owner a percentage of the gross. Example (b) involved an analogous situation except the machine owner was required to pay the airport a percentage of its receipts from the machine. In both instances, the transaction involved a right to place a machine in a particular location on a revenue sharing basis. The sole distinction between the two situations was who making payment. Where the owner of the property paid an amount to the person providing the equipment, the transaction was considered a rental of equipment. Conversely, where the owner of the equipment collected the revenue and paid the owner of the property, the transaction was considered a lease of real property and therefore taxable. In this case, where the ride operators collected the revenue, in the form of tickets, and paid them to Conklin and the [Association], the ride subcontractors were engaged in the taxable transaction of using real property. The contracts between Conklin and the ride subcontractors further substantiates this viewpoint. Petitioner's Exhibits 6 and 7 are subcontracts between Conklin and the ride subcontractors; Exhibit 6 is a contract with B&S Amusements and Exhibit 7 is a contract with Bruno Zacchini. As made part of each contract is a Schedule "A" and a Schedule "B." Schedule "A" details the agreed upon attraction that is to be provided by the ride subcontractor; in Exhibit 6, a Haunted House and Exhibit 7, Miniature Golf. Schedule "B" sets forth the "Percentage Payable To Conklin" that each ride subcontractor is to pay to Conklin for the Fair. B&S was to pays 67% of the revenue it received on the Haunted House and Mr. Zacchini was to pay Conklin 50% of the revenue he received on the miniature golf.
The express wording of the contracts show that the clear intent of the parties was that Conklin was to receive an agreed upon amount of the revenue received by each ride subcontractor. This amount received by Conklin was for
the right to use the real property on which to set up and operate the subcontractor rides. The revenue received by Conklin is clearly a taxable transaction.
[This Final Order adopts and affirms Conclusion of Law paragraph 33, as expressed in the Recommended Order, in its entirety without amendment. This adopted conclusion of law reads as follows:]
Conclusion of Law 33. Rule 12A-1.071(10), Florida Administrative Code, provides in pertinent part:
A transaction involving the use of equipment with an operator supplied the owner of the equipment is a lease if control or direction over the use of the equipment passes to the customer.
When the operator of the equipment is on the rental payroll of the lessee, the contract constitutes a rental of tangible personal property and is subject to the tax.
A transaction is not a lease if it is for the performance of a specific job in a manner to be determined by the owner or his operator.
When the owner of equipment furnishes the operator and all operating supplies, and contracts for their use to perform certain
work under his direction and according to his customer's specifications, and the customer does not take possession or have any direction or control over the physical operation, the contract constitutes a service transaction and not the rental of tangible personal property, and no tax is due on the transaction.
[This Final Order adopts and affirms Conclusion of Law 34 as expressed in the Recommended Order in its entirety without amendment. This conclusion of law reads as follows:]
Conclusion of Law 34. In its Notice of Decision, DOR suggested that even if the contractual arrangements between Conklin and its ride subcontractors were not construed as a license to use real property, Conklin's profits from the ride subcontracts could still be taxable as proceeds of a lease of tangible personal property. In this regard, DOR suggests that Conklin retained direction and control over the physical operations of the equipment under subparagraph (a) Rule 12A- 1.071(10) and/or that the performance of the specific job was not in a manner totally determined by the subcontractor as required by subparagraph (c). The evidence in this case established than the owner of the ride retained full control over the operation of the ride limited only by some general conditions imposed by the Association. Those conditions did not rise to the level of direction or control that would subject the transaction to tax under subparagraphs (a) or (c). Instead, the transaction is more properly viewed as an exempt service transaction under subparagraph (d) pursuant to which Conklin paid for the furnishing and servicing of equipment. If the ride subcontracts are construed as taxable equipment rentals, the tax should be assessed on the amount paid to the subcontractor rather than the amount retained by Conklin.
[This Final Order adopts and affirms Conclusion of Law paragraph 35, as expressed in the Recommended Order, in its entirety without amendment. This adopted conclusion of law reads as follows:]
Conclusion of Law 35. With respect to the food concessions, Conklin was paid a set fee by the food concessionaire. These payments constitute taxable license fees unless exempted under the provisions of Section 212.031(1)(a)10. which exempts rental or license fees received from a person providing food and drink concessionaire services within the premises of "any publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium, or recreational facility." While the evidence established that the Fair was conducted pursuant to Chapter 616, Florida Statutes, it is not clear whether the property upon which the Fair was conducted falls within the scope of this exemption. Absent an affirmative showing that the Fair was conducted on such property, the requested exemption must be denied.
[This Final Order adopts and affirms Conclusion of Law paragraph 36, as expressed in the Recommended Order except for the last two sentences which are stricken. The basis of the strike is that the conclusion that a joint venture existed merely because Conklin was exposed to a possible loss in the event the proceeds from the concessions were insufficient to cover expense is contrary to the law regarding joint ventures. Consequently, in substitution of the last two sentences, this Final Order adopts the language which appears in Respondent's Substituted And Additional Paragraphs To The Recommended Order. The adopted portion of the conclusion of law, and the amendment thereto, read as follows:]
Conclusion of Law 36. With respect to game concession, there was a fixed rental fee to the Association, but no fixed license or rental fee to Conklin. Conklin's contractual arrangements exposed it to possible loss in event the proceeds from the concessions were insufficient to cover expenses. Petitioner asserted that the relationship between Conklin and the game concessionaires was that of a joint venture. This conclusion fails on two grounds. First, there is no evidence in the record to support the legal requirements that a joint venture exist. Second, even using Findings of Fact numbered 19 and 20 in the Recommended Order, those facts do not support the legal conclusion that a joint venture existed between Conklin and the game concessionaires.
The elements of a joint venture are:
a community of interest in performance of a common purpose;
joint control or right of control;
a joint proprietary interest;
a right to share in profits; and
a duty to share in losses.
Kislak v. Kreedian, 95 So. 2d 510, 515 (Fla. 1957); Arango v. Reyka, 507 So.
2d 1211, 1212-1213 (Fla. 4th DCA 1987); McKissick v. Bilger, 480 So. 2d 211, 212 (Fla. 1st DCA 1985). A joint venture is created when two or more persons combine their property or time or a combination of both in conducting . . . some particular business deal. Kislak v. Kreedian at 515; Greiner v. General Electric Credit Corp., 215 So. 2d 61 (Fla. 4th DCA 1968).
However, the mere allegation of the existence of a joint venture is a legal conclusion; not proof of the existence of such a business relationship.
McKissick v. Bilger at 212. The existence of a contract, written or implied, establishing the joint venture relationship is indispensable to the creation of
a joint venture. Kislak v. Kreedian at 515. That is because a joint venture is foundered solely on a contract which controls the acts and conduct of the joint parties. Russell v. Thielen, 82 So. 2d 143 (Fla. 1955). Where the agreement is not reduced to writing or there is no proof of a written contract, that is an indication that no joint venture exists. Kislak v. Kreedian at 515. The burden lies in the party asserting a joint venture of "both alleging and proving that an agreement or contract supports the relationship as well as every element necessary to be embraced within the concept of a contract." Kislak v. Kreedian at 515. Accord, Pride Furniture Corporation v. Hollywood Federal Savings and Loan Association, 547 So. 2d 717,718 (Fla. 4th DCA 1989); McKissick v. Biler at
212. The "burden of establishing the existence of such a contract, including all its essential elements, is indeed, as it should be, a heavy and difficult one." Kislak v. Kreedian at 515.
The facts entered into the record fail to show that a joint venture existed. There was no evidence, mandatory to the existence of a joint venture, that there existed any contract, express or implied, between Conklin or any game concessionaire. The only written contract that was entered into evidence that had any relation to the games was the license between Conklin and the Fair.
Petitioner's exhibit 9. The only testimony about games was given by Mr. Robert Negus, an employee of Conklin. Tr. pages 134-135. After stating that Conklin had no games, Mr. Negus testified that "It goes to an outside contractor to provide the game." Tr. page 134, lines 9 and 10. There was no other evidence or testimony about the relationship between Conklin and the game concessionaires, no other evidence or testimony stating a contract existed between Conklin and the game concessionaires, no evidence that the relationship between Conklin and the game concessionaires was intended to be a joint venture, no other evidence or testimony about any of the elements of even an implied contract between Conklin and the game concessionaires. No written contract was offered into evidence.
Even if the facts elicited from Mr. Negus and the Hearing Officer's Findings of Fact numbered 19 and 20 are taken as true, these facts are not sufficient to support a finding that a joint venture existed. While it is arguable that these facts do not prove any of the elements of a joint venture relationship, the facts specifically do not prove any of the key factors necessary to show a joint venture. First, the facts do not reveal the existence of any contract, written or implied, that formed a joint venture, or even the intent between Conklin and the game concessionaires to form a joint venture.
This is a required showing. Kislak v. Kreedian, at 515; Pride Furniture Corporation v. Hollywood Federal Savings and Loan Association, 547 So. 2d. 25 718; McKissick v. Bilger, at 212.
The facts also do not prove some of the key elements necessary to the existence of a joint venture; the fact that there existed a "duty to share in losses" or equal liability in the operation held by Conklin or that Conklin had any right of control of the game concessionaires' operations. For a joint venture to exist, it must be the intent of the parties for both to have the right to share in the profits and a duty to share in the losses. Russell v.
Thielen, at 143; Tidewater Construction Company v. Monroe County, 146 So. 209 (Fla. 1933). The mere sharing of profits does not alone give rise to joint venture. Kislak v. Kreedian at 515. The facts do not prove that Conklin and the game concessionaires made mutual investments in the relationship at the time of its creation or any mutual contribution in material, money or services. See, Albert Pack Corporation v. Fickling Properties, Inc., 200 So. 907 (Fla. 1941). Finally, there is a total absence in the record that Conklin had any equal right to control the game concessionaires' operations. Such equal right of joint
authority, control and interest in the business venture is mandatory for the existence of a joint venture. Kislak v. Kreedian at 515; Albert Park Corporation v. Fickling Properties, Inc., at 907. The right of joint authority and control requires the existence of the right of each party to bind the other in the business venture. Boyd v. Hunter, 140 So. 666 (Fla. 1932). The facts of the case do not reveal the right to mutually bind each other in the game business. Rather, the testimony of Mr. Negus and the Hearing Officer's Finding of Fact 20 show that it is the game concessionaires who have the total and absolute authority and control over each game's operations, affairs, and finances. Such facts are inconsistent with the existence of a joint venture.
Green v. Putnam, 93 So. 2d 378 (Fla. 1957).
Without solid, substantial evidence of a contract for a joint venture or any of the elements of a joint venture, Conklin has not proved that a joint venture existed between Conklin and the game concessionaires.
[This Final Order adopts and affirms Conclusion of Law paragraph 37, as expressed in the Recommended Order, in its entirety, without amendment and this conclusion of law reads as follows:]
Conclusion of Law 37. Pursuant to Section 212.05, Florida Statutes, all items of tangible personal property are subject to the imposition of sales tax upon their sale unless specifically exempted. Conklin contends that all items listed on Schedule B-1 of the Notice of Assessment for which tax was not paid are exempt because they were used in the manufacture of or repair of rides that were exported. Export sales are not subject to sales tax and items utilized in the manufacture of goods that are exported are also exempt from sales tax. See Rule 12A-1.064, Florida Administrative Code. In order to be entitled to this exemption, a taxpayer must follow the applicable conditions in Rule 12A- 1.064(1)(b)1-5. The taxpayer bears the burden of establishing the exempt status of the transaction. See Rule 12A-1.038, Florida Administrative Code. In order to be entitled to the export exemption, a manufacturer must ship the goods out of the country. A customs document verifying that the item left the country and an affidavit or invoice from the purchaser will be accepted by DOR as evidence that the goods were exported. One of Conklin's representatives testified that he assembled the customs documents and made them available to the DOR auditor.
However, the DOR auditor denied ever seeing any of those documents and they were not produced at the hearing. The testimony of Conklin's internal accountant that the export documents were assembled is insufficient to carry Conklin's burden of proof in this matter.
[This Final Order adopts and affirms Conclusion of Law paragraph 38, as expressed in the Recommended Order, in its entirety, without amendment. This conclusion of law reads as follows:]
Conclusion of Law 38. Section 213.21(3), Florida Statutes, provides
. . . a taxpayer's liability for penalties under any of the chapters specified in s.72.011(1) may be settled or compromised if it is determined by the department that the noncompliance is due to reasonable cause
and not willful negligence, willful neglect, or fraud.
[This Final Order adopts and affirms Conclusion of Law paragraph 39, as expressed in the Recommended Order, in its entirety, without amendment. This conclusion of law reads as follows:]
Conclusion of Law 39. Grounds for reasonable cause for compromise of penalties can also be found in Rule 12-13.007, Florida Administrative Code. Subsection 2 of that rule provides;
Reasonable cause is indicated by the existence of facts and circumstances which support the exercise of ordinary care and prudence on the part of taxpayer in complying with the revenue laws of this state. Depending upon the circumstances, reasonable cause may exist even though the circumstances indicate that slight negligence, inadvertence, mistake, or error resulted in noncompliance.
[This Final Order adopts and affirms Conclusion of Law paragraph 40, as expressed in the Recommended Order, in its entirety, without amendment. This conclusion of law reads as follows:]
Conclusion of Law 40. As set forth in the Findings of Fact above, reasonable cause existed for Conklin's failure to pay tax on all of the transactions discussed in this case except for the food concession arrangements and the purchase tax on the item that were purportedly used in the manufacture of goods for export.
Rulings on petitioner's proposed findings of fact as described in Petitioner's Proposed Findings of Fact and Conclusions of Law and Legal Brief (herein Proposed Findings; Petitioner's Objections to Proposed Recommended Order submitted By Respondent (herein Objections); and Rulings on Petitioner's Reply to Respondent's Exceptions to the Recommended Order (herein Reply)
As to Proposed Findings, this Final Order accepts Findings of Fact 1 through 8; 11, 12, 14, 15, and 20. As to Finding of Fact 9, this Final Order clarifies that ride subcontractors collected the tickets and transferred these tickets to Conklin as part of the process of payment to Conklin in exchange for the license to use real property. Tr. page 51, lines 9 through 12. Tr. pages 56, 57, 58, 125 and 126, and, as further discussed in this Final Order. As to Findings of Fact 10, the Department's position as to the payment element is set forth in comments to Findings of Fact 9 above. This Final Order accepts the rest of Finding of Fact 10. As to Findings of Fact 13, for clarification as to concession income for 1988 see Petitioner's Exhibit 16, and second revised Intent to Make Audit changes. As to Findings of Fact 16, for clarification as to concession income for 1988, see Petitioner's Exhibit 16, and second revised Intent to Make Audit Changes. As to Finding of Fact 17, for clarification see Petitioner's Exhibit 16 and second revised Intent to Make Audit Changes. As to Findings of Fact 18, it is accepted that some equipment may have been exported but Petitioner failed to document such transactions as required by Department rule. Tr. page 62, line 21 through page 69, line 24. As to Findings of Fact 19, it is accepted that there was testimony from Petitioner that Petitioner was contacted by agents of the Department. No documentation or other proof was offered. Tr. page 152.
As to Objections and its Statement of Fact 6, this Final Order accepts this statement as clarification of the same numbered Statement of Fact as submitted
by the Respondent. As to Statement of Fact 17, this Final Order accepts this statement as clarification of the same numbered statement of Fact as submitted by Respondent. This Final Order rejects Conclusion of Law A.2.b. and c. as contrary to the provisions of the contract between Conklin and ride subcontractors, see agreements executed with B&S Amusements, Stanley Gill, and Bruno Zacchini, wherein paragraph 4 of each of the documents describe the division of "gross proceeds" by counting "the number of tickets collected" by the ride subcontractors. Similarly rejected is the characterization that a joint venture was formed by Conklin and the ride subcontractors. There is insufficient evidence that the required indicia of such a venture were met.
Also rejected is the assertion that the burden of proof was carried by Petitioner as to the Conclusion of Law 3.B. Petitioner simply do not produce, at the hearing, the documents required by Rule 12A-1.064(1)(b).
This Final Order rejects in the Reply the characterization of the amount retained by Conklin as "implied rent." Such amount represented not an implied rent payment but a direct payment by the ride subcontractor to Conklin in exchange of the grant to such subcontractor of a license to use real property. Also rejected is the argument that a joint venture was created between Conklin and the game operators. The only testimony with respect to the indicia of a joint venture was that of Mr. Negus when he answered a question on the sharing of losses. Tr. page 136, lines 1 through 6.
CONCLUSION
After a thorough review of the entire record in this matter, it is ORDERED:
That the assessment of tax and of interest against Conklin is sustained as to payments received from all ride subcontractors and game concessionaires in exchange for the grant to such subcontractors and concessionaires of licenses to use real property; that the deletions of all tax and interest against Conklin as to such subcontractors and game concessionaires as recommended by the Hearing Officer in the Recommended Order is rejected; that the assessment of tax, interest and penalties against Conklin is sustained for the amount it received from food concessionaires during the years 1987 through 1990, such assessment adjusted to reflect the net proceeds rather than the gross revenues from food concessionaires as stated in the original Notice of Assessment; that the assessment of tax, interest, and penalties against Conklin is sustained for the purchase of items that were allegedly used in the repair or manufacture of goods for export. The amount of taxes (less any payments made to the Department by Conklin) in all instances as stated in the Second Revision "Notice Of Intent To Make Audit Changes" (entered as an exhibit in this case) as to Schedule A of the assessment is $299,663.46, and as to Schedule B is 21,484.20. Further, daily interest will accrue on all taxes until paid.
Any party to this Final Order has the right to seek judicial review of the Final Order as provided in Section 120.68, Florida Statutes, by filing of a Notice of Appeal as provided in 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 Final Order is filed with the Clerk of the Department.
DONE AND ENTERED in Tallahassee, Leon County, Florida this 6th day of April, 1994.
STATE OF FLORIDA DEPARTMENT OF REVENUE
L.H. Fuchs Executive Director
CERTIFICATE OF FILING
I HEREBY CERTIFY that the foregoing FINAL ORDER has been filed in the official records of the Department of Revenue this 8th day of April, 1994.
JUDY LANGSTON AGENCY CLERK
Copies furnished to:
Robert O. Rogers, Esq.
Rogers, Bowers, Dempsey, et al.
505 S. Flagler Drive, Suite 1330 West Palm Beach, Florida 33401
Linda Lettera, Esq. General Counsel Department of Revenue
204 Carlton Building Post Office Box 6668
Tallahassee, Florida 32314-6668
Eric Taylor, Esq. Assistant Attorney General
Department of Legal Affairs-Tax Section The Capitol
Tallahassee, Florida 32399-1050 Attachments:
Hearing Officer's Recommended Order Petitioner's Proposed Recommended Order Respondent's Proposed Recommended Order
Petitioner's Objections to Proposed Recommended Order Submitted by Respondent
Respondent's Exceptions of the Recommended Order Petitioner's Reply to Respondent's Exceptions to the
Recommended Order
Respondent's Substituted and Additional Paragraphs to the Recommended Order
| Issue Date | Proceedings |
|---|---|
| Apr. 12, 1994 | Final Order filed. |
| Jan. 13, 1994 | Recommended Order sent out. CASE CLOSED. Hearing held December 16, 1993. |
| Apr. 01, 1993 | Petitioner`s Objections to Proposed Recommended Order Submitted by Respondent filed. |
| Mar. 26, 1993 | (Respondent) Notice of Filing Additional Exhibit w/(TAGGED) attachment; Proposed Recommended Order filed. |
| Mar. 19, 1993 | Order Granting Extension of Time to File Proposed Recommended Order sent out. (motion granted) |
| Mar. 10, 1993 | Respondent`s Unopposed Motion for Extension of Time in Which to File Proposed Recommended Order filed. |
| Feb. 22, 1993 | Letter to JSM from Robert O. Rogers (re: departments TAA 92A-080 which supports the position taken by Petitioner) w/supporting attachments filed. |
| Feb. 19, 1993 | Petitioner`s Proposed Findings of Fact, Conclusions of Law and Legal Brief; Attachment to Petitioner`s Proposed Findings of Fact, Conclusions of Law, and Legal Brief filed. |
| Feb. 08, 1993 | Transcript filed. |
| Dec. 21, 1992 | Petitioner`s Exhibits 11-15 filed. |
| Dec. 04, 1992 | (joint) Prehearing Stipulation filed. |
| Nov. 16, 1992 | Order Granting Motion for Leave to Amend sent out. (motion for leave to amend petition is granted) |
| Oct. 15, 1992 | (Petitioner) Motion for Leave to Amend Petition w/cover ltr; Amendment to Petition filed. |
| Aug. 07, 1992 | Notice of Hearing sent out. (hearing set for 12/16-17/92; 9:00am; WPB) |
| Aug. 07, 1992 | Order of Prehearing Instructions sent out. |
| Aug. 03, 1992 | (Petitioner) Response to Initial Order filed. |
| Jul. 31, 1992 | Respondent`s Response to the Petition filed. |
| Jul. 23, 1992 | Initial Order issued. |
| Jul. 21, 1992 | Agency referral letter; Petition for Formal Hearing; Agency Action letter filed. |
| Issue Date | Document | Summary |
|---|---|---|
| Apr. 06, 1994 | Agency Final Order | |
| Jan. 13, 1994 | Recommended Order | Midway Co's sub/cont w/ride owner was exempt lease of equipment w/operator than sublicense of realty; flood concess not exmpt; export exmpt not proven. |
