STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE ORIGINAL GREAT AMERICAN ) CHOCOLATE CHIP COOKIE COMPANY, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 93-2824RX

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

FINAL ORDER

Pursuant to written notice a formal hearing was held in this case before Larry J. Sartin, a duly designated Hearing Officer of the Division of Administrative Hearings, on March 25, 1994, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Kenneth R. Hart, Esquire

Robert A. Pierce, Esquire

J. Jeffry Whalen, Esquire

Macfarlane, Ausley, Ferguson & McMullen Post Office Box 391

Tallahassee, Florida 32302

For Respondent: Mark T. Aliff

Eric J. Taylor

Assistant Attorneys General Tax Section, Capitol Building

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUE

Whether Rule 12A-1.011(3), Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority?

PRELIMINARY STATEMENT

On May 24, 1993, Petitioner, The Original Great American Chocolate Chip Cookie Company, Inc., filed a Petition for Administrative Determination of Invalidity of Rule. By Order of Assignment entered June 1, 1993, the petition was designated case number 93-2824RX and was assigned to the undersigned.

A Joint Motion to Consolidate and a Stipulation were filed with the petition. Pursuant to the Joint Motion to Consolidate, the parties requested that this case be consolidated with case number 92-5543, a proceeding instituted pursuant to Section 120.57(1), Florida Statutes, by Petitioner. Pursuant to the Stipulation, the parties agreed to waive the requirement that the final hearing of this case be conducted within thirty days of the filing of the petition.

On June 10, 1993, an Order Granting Joint Motion to Consolidate was entered. This case was consolidated with case number 92-5543. The final hearing of both cases was scheduled for September 27, 1993.

On September 20, 1993, a Third Order of Continuance was entered continuing the final hearing of the consolidated cases to give the parties an opportunity to settle their dispute. After entering a Fourth and a Fifth Order of Continuance, the final hearing was rescheduled for March 25, 1994.

Prior to the final hearing the parties filed a Joint Stipulation.

Stipulated facts contained in the Joint Stipulation have been accepted in this Final Order to the extent relevant to this proceeding.

At the final hearing Petitioner presented the testimony of Thomas Lynch and Thurman E. Proffit. Respondent presented the deposition testimony of Charles Strausser. Joint exhibits 1-16 were accepted into evidence.

A transcript of the final hearing was filed on April 1, 1994. Proposed final orders were, therefore, to be filed on or before May 2, 1994. On April 28, 1994, Respondent filed an Agreed Motion for Extension of Time to File Proposed Orders requesting that the parties be given until May 9, 1994 to file proposed final orders. The motion was granted.

The parties have filed proposed final orders containing proposed findings of fact. A ruling on each proposed finding of fact has been made either directly or indirectly in this Final Order or the proposed findings of fact has been accepted or rejected in the Appendix which is attached hereto.

FINDINGS OF FACT

1. The Parties.

   
   

   1. Petitioner, the Original Great American Chocolate Chip Cookie Company, Inc., is a corporation with it headquarters located in Atlanta, Georgia.

      
      

   2. Petitioner operates and franchises bakery shops which sell cookies, fudge nut brownies, cheesecake, German chocolate brownies and beverages in shopping malls and shopping centers in Florida.

      
      

   3. Respondent, the Florida Department of Revenue (hereinafter referred to as the "Department"), is an agency of the State of Florida created by Section 20.21, Florida Statutes. The Department is charged with the responsibility for, among other things, administering and enforcing Florida's sales and use tax law.

      
      

2. Standing of the Petitioner.

   
   

   1. On June 15, 1990, the Department notified Petitioner of its intent to conduct a sales and use tax audit of Petitioner's books and records. The audit was to cover the period July 1, 1987 to June 30, 1990.

      
      

   2. The Department conducted the audit and determined that Petitioner owes additional sales tax to the State of Florida in the amount of $50,217.71, plus penalties and interest.

      
      

   3. The Department's proposed assessment was based upon Rule 12A-1.011(3), Florida Administrative Code.

3. The Rule At Issue.

   
   

   1. At issue in this proceeding is Rule 12A-1.011(3), Florida Administrative Code (hereinafter referred to as the "Challenged Rule"). The Challenged Rule has been in effect without significant change since December of 1987.

      
      

   2. The Challenged Rule provides:

      
      

      (3) Food or beverages are subject to tax when served, prepared or sold in or by restaurants; cafes; drugstores; lunch counters; cafeterias; hotels, boarding houses and tourist homes; amusement parks; racetracks; taverns; concession stands at arenas, auditoriums, carnivals, fairs, stadiums, theaters or other like places of business; or by any business or place required by law to be licensed by the Division of Hotels and Restaurants of the Department of Business Regulation, except bakery products sold in or by pastry shops, doughnut shops or like establishments for consumption off premises. Bakery products sold in or by pastry shops, doughnut shops, or like establishments for consumption on the seller's premises, while sitting, or while standing at or near the seller's premises are taxable. Where a person who, in addition to operating one of the aforementioned establishments, also maintains a separate grocery department, no tax need be collected on grocery department sales which are specifically exempt provided separate records are maintained; except, however, that items sold through the grocery department in the same form and eating condition as items sold from the menu at

      the eating establishment shall be subject to tax. [Emphasis added].

      
      

   3. The specific authority for the Challenged Rule is Sections 212.17(6), 212.18(2) and 213.06(1), Florida Statutes.

      
      

   4. Section 213.06(1), Florida Statutes, grants authority to the Department to adopt rules necessary to administer the revenue laws of Florida.

      
      

   5. The laws implemented by the Challenged Rule are Sections 212.02, 212.07(2), 212.08(1), 212.08(4)1., 212.08(7) and 212.18(2), Florida Statutes.

      
      

   6. Section 212.05, Florida Statutes, provides that the sale of tangible personal property at retail by anyone in the business of making such sales is a taxable privilege. A tax at the rate of 6 percent is imposed on the sales price.

   7. Several exemptions from the imposition of the tax imposed by Section 212.05, Florida Statutes, are provided in Section 212.08, Florida Statutes:

      
      

      1. EXEMPTIONS; GENERAL GROCERIES.--

         (a) There are exempt from the tax imposed by this chapter food and drinks for human consumption except candy. Unless the exemption provided by paragraph (7)(q) for school lunches, paragraph (7)(i) for meals to certain patients or inmates, paragraph (7)(k) for meals provided by certain nonprofit organizations, or paragraph (7)(z) for food or drinks sold through vending machines pertains, none of such items of food or drinks means:

         1. Food or drinks served, prepared, or

         sold in or by restaurants; drugstores; lunch counters; cafeterias; hotels; amusement parks; racetracks; taverns; concessions stands at arenas, auditoriums, carnivals, fairs, stadiums, theatres, or other like places of business; or by any business or place required by law to be licensed by the Division of Hotels and Restaurants of the Department of Business Regulation, except bakery products sold in or by pastry shops, doughnut shops, or like establishments for consumption off the premises;

         . . . .

         4. Foods or drinks cooked or prepared on the seller's premises and sold ready for immediate consumption either on or off the premises, excluding bakery products for

         off-premises consumption unless such foods are taxed under subparagraph 1. or subparagraph 2.; or

         . . . .

         For the purposes of this paragraph, "seller's premises" shall be constructed broadly, and means, but is not limited to, the lobby,

         aisle, or auditorium of a theater; the seating, aisle, or parking area of an arena, rink, or stadium; or the parking area of a drive-in or outdoor theater. The premises of a caterer with respect to catered meals or beverages shall be the place where such meals or beverages are served. [Emphasis added].

         
         

   8. Section 212.05, Florida Statutes, establishes the general sales tax. Section 212.08(1)(a), Florida Statutes, creates an exemption from sales tax generally for food and drink. Section 212.08(1)(a)1., Florida Statutes, goes on to provide an exception from the general exemption from tax of sales of food and drink essentially in essence food and drink sold for immediate consumption. Finally, an exception, and thus an exemption, is created by Section 212.08(1)(a)1., Florida Statutes, for bakery products sold for consumption off the premises. It is language contained in the Challenged Rule similar to the exemption of Section 212.08(1)(a)1., Florida Statutes, of sales of bakery

      products for consumption off the premises that Petitioner is challenging. As such, the specific language of the Challenged Rule at issue in this case constitutes an exemption from the imposition of tax and not the imposition of tax.

      
      

4. The Department's Intent.

   
   

   1. The Department's interpretation of the Challenged Rule was provided by Charles Strausser. Joint Exhibit 7.

      
      

   2. The Department intended by adoption of the Challenged Rule to broadly define "seller's premises" for purposes of determining whether bakery product sales are subject to sales tax.

      
      

   3. The Department intended primarily to put the public on notice that the sale of bakery products for consumption in mall food courts and at "open air markets and things of this nature" are not considered to be sales for consumption off the seller's premises.

      
      

   4. Mr. Srausser, however, indicated that it is the Department's position that once the "seller's premises" are determined that, pursuant to the Challenged Rule, consumption "near" those premises would be subject to tax.

      
      

5. Petitioner's Challenge.

1. Petitioner has alleged that the Challenged Rule "enlarges, modifies, and contravenes" Section 212.08(1), Florida Statutes, by making bakery products sold in or by bakery shops, doughnut shops, or like establishments for consumption "while sitting, or while standing . . . near the premises "

   
   

2. Petitioner has also alleged that the same language of the Challenged Rule is "vague, fails to establish adequate standards for agency decisions, and vests unbridled discretion in the agency."

   
   

   CONCLUSIONS OF LAW

   
   

   1. Jurisdiction.

      
      

3. The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of this proceeding. Section 120.56(1), Florida Statutes.

   
   

   1. Burden of Proof.

      
      

4. The burden of proof in this proceeding was on the Petitioner. See Adam Smith Enterprises v. Department of Environmental Regulation, 553 So.2d 1260, (Fla. 1st DCA 1990); and Agrico Chemical Co. v. Department of Environmental Regulation, 365 So.2d 759 (Fla. 1st DCA 1979).

   1. Standing.

      
      

5. Section 120.56(1), Florida Statutes, provides, in pertinent part, the following:

   
   

   1. Any person substantially affected by a rule may seek an administrative determination of the invalidity of the rule on the ground that the rule is an invalid exercise of delegated legislative authority.

      
      

6. In order to conclude that a person is a "substantially affected" person, it must be proved:

   
   

   1. that he will suffer injury in fact which is of sufficient immediacy to entitle him to a . . . hearing, and 2) that his substantial injury is of a type or nature the proceeding is designed to protect.

      
      

      Florida Society of Ophthalmology v. Board of Optometry, 532 So.2d 1279, 1285 (Fla. 1st DCA 1988), rev. denied, 542 So.2d 1333 (1989). See also Agrico Chemical Company v. Department of Environmental Regulation, 406 So.2d 478 (Fla. 2d DCA 1981); and Professional Firefighters of Florida, Inc. v. Department of Health and Rehabilitative Services, 396 So.2d 1194 (Fla. 1st DCA 1981).

      
      

7. Based upon the evidence presented in this case, Petitioner is a "substantially affected" person with regard to the Challenged Rule.

   
   

   1. The Petitioner's Challenge.

      
      

8. Section 120.56, Florida Statutes, authorizes a substantially affected person to seek an administrative determination that any existing agency rule is an "invalid exercise of delegated legislative authority" as those terms are defined in Section 120.52(8), Florida Statutes.

   
   

9. An "invalid exercise of delegated legislative authority" is defined in Section 120.52(8), Florida Statutes, as follows:

   
   

   1. "Invalid exercise of delegated legislative authority" means action which goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one

      or more of the following apply:

      1. The agency has materially failed to follow the applicable rulemaking procedures set forth in s. 120.54;

      2. The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(7);

      3. The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(7);

      4. The rule is vague, fails to establish adequate standards for agency decisions, or vests unbridled discretion in the agency; or

      5. The rule is arbitrary or capricious.

   
   

10. In the petition filed in this case, it has been alleged that the Challenged Rule is an invalid exercise of delegated legislative authority as defined in Sections 120.52(8)(c) and (d), Florida Statutes.

    
    

    1. Does the Challenged Rule Enlarge, Modified or Contravene the Law Implemented: Section 120.52(8)(c), Florida Statutes?

       
       

11. Statutorily created agencies, such as the Department, are without inherent rulemaking authority. Section 120.54(15), Florida Statutes. Any such authority granted to an agency is limited by the statute conferring the authority. See U.S. Shoe Corp. v. Department of Professional Regulation, 578 So.2d 376 (Fla. 1st DCA, 1991).

    
    

12. Where an agency is granted rulemaking authority, it is granted wide discretion in exercising that authority. Department of Professional Regulation

    v. Durrani, 455 So.2d 515 (Fla. 1st DCA 1984). An agency's interpretation of statutes which govern the agency's statutory duties and responsibilities is to be given great weight and should not be rejected unless clearly erroneous. Florida Hospital Association, Inc. v. Health Care Cost Containment Board, 593 So.2d 1137 (Fla. 1st DCA 1992).

    
    

13. Where authorization for rulemaking is not clearly conferred or fairly implied and consistent with the agency's general statutory duties, an agency is without authority to adopt a rule. See Department of Professional Regulation v. Florida Society of Professional Land Surveyors, 475 So.2d 939 (Fla. 1st DCA 1985). Any attempt to extend or enlarge an agency's jurisdiction beyond its statutory authority will be declared to be invalid. Board of Trustees of the Internal Improvement Trust Fund v. Board of Professional Land Surveyors, 566 So.2d 1358 (Fla. 1st DCA 1990).

    
    

14. The pertinent law implemented by the Challenged Rule is Section 212.08(1), Florida Statutes.

    
    

15. Pursuant to Section 212.08(1), Florida Statutes, an exception to the exemption from the imposition of sales tax on sales of food for consumption is provided for bakery goods sold "in or by" a pastry shop, doughnut shop or "like establishments" if the goods are sold "for consumption off the premises."

    
    

16. Section 212.08, Florida Statutes, provides that the "seller's premises" is to be interpreted broadly.

    
    

17. The Challenged Rule repeats, and is, therefore, consistent with, most of the Section 212.08(1), Florida Statutes. The Challenged Rule, however, goes beyond the specific language of Section 212.08(1), Florida Statutes, by providing that consumption on the seller's premises includes "while sitting, or while standing . . . near the seller's premises "

    
    

18. The intent of Section 212.08(1), Florida Statutes, is to impose tax on sales of bakery goods sold for consumption "on" the seller's premises. If a sale is not "on" the seller's premises, it may not be subjected to sales tax.

19. Although the Department has been granted the specific authority to define the seller's premises broadly, the consumption must take place "on" and not just "near" the seller's premises in order to be considered taxable.

    
    

20. In interpreting Section 212.08(1), Florida Statutes, the terms "off" and "near" should be given their plain and ordinary meaning. See Holly v. Ald,

    450 So.2d 217 (Fla. 1984). The term "off" has been defined as "physical separation or distance from a position of rest, attachment, or union."

    Webster's Ninth New Collegiate Dictionary 819 (1984). The term has also been defined as "no longer (or not) on." Webster's New Twentieth Century Dictionary, 1243 (2d Ed. 1960). "On" has been defined as "upon, in a position above, but in contact with the surface . . . ." Id. at 1249.

    
    

21. The definition of "on" is not consistent with the term "near." The definition of "off," the opposite of "on," on the other hand is consistent with the term "near." "Near" means "close to or by; not far from in space, time, degree, etc.; as near the shore." Id. at 1199. [Emphasis in original]. Therefore, someone may be "near" and still be "off." But, if they are "near," they are not "on."

    
    

22. By providing that sales of bakery products that are not necessarily "on" the seller's premises, but are only "near" the seller's premises, are taxable the Department has adopted a rule that "enlarges, modifies, or contravenes the specific provisions of law implemented "

    
    

23. The Petitioner has proved that the Challenged Rule is an invalid exercise of delegated legislative authority as defined in Section 120.52(8)(c), Florida Statutes, to the extent that the Challenged Rule provides that sales of bakery products for consumption by a person sitting or standing "near" the seller's premises are taxable.

    
    

    1. Is the Challenged Rule Vague, Does it Fail to Establish Adequate Standards for Agency Decisions or Vest Unbridled Discretion in the Department in Violation of Section 120.52(8)(d), Florida Statutes?

    
    

24. The Petitioner has suggested that the Challenged Rule is vague, fails to establish adequate standards for agency decisions and vest unbridled discretion in the Department.

    
    

25. For the reasons stated, supra, the use of the term "near" in the Challenged Rule makes the Challenged Rule vague, fails to establish adequate standards for agency decisions and vest unbridled discretion in the Department.

    
    

26. The Department has indicated that it intended, by the use of the term "near" in the Challenged Rule, to define "seller's premises" to include food courts in malls and at "open air markets and things of this nature" and to make it clear that such sales are not considered to be sales for consumption off the seller's premises. This intent is not, however, apparent from the Challenged Rule. By the use of the term "near" the Challenged Rule appears to be extending the tax on bakery products to bakery products sold "off" the premises if they are sold close by or "near." That is the only reasonable interpretation of the Challenged Rule's use of the term "near" and such an interpretation is contrary to the Department's authority and even its intent.

27. Based upon the weight of the evidence, the Petitioner has proved that the Challenged Rule's use of the term "near" is vague, fails to establish adequate standards for agency decisions and vest unbridled discretion in the Department. The Challenged Rules is, therefore, an invalid exercise of delegated legislative authority as defined in Section 120.52(8)(d), Florida Statutes to the extent that the Challenged Rule provides that sales of bakery products for consumption by a person sitting or standing "near" the seller's premises are taxable.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that the Petitioner has proved that Rule 12A-1.011(3), Florida

Administrative Code, constitutes an invalid exercise of delegated legislative

authority to the extent that the Challenged Rule provides that sales of bakery products for consumption by a person sitting or standing "near" the seller's premises are taxable.

DONE and ORDERED this 3rd day of August, 1994, in Tallahassee, Florida.

LARRY J. SARTIN

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 3rd day of August, 1994.

APPENDIX

Case Number 93-2824RX

The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Final Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.

The Petitioner's Proposed Findings of Fact

1. Accepted in 1.

2. Accepted in 3.

3. Accepted in 2.

4. Accepted in 4.

5. Hereby accepted.

6. Accepted in 11 and 13.

7. Accepted in 8.

8. Hereby accepted.

9-18 These proposed findings of fact are not relevant to the rule challenge proceeding.

19-20 Statement of law. See 14.

21 Statement of law.

The Department's Proposed Findings of Fact

1. Accepted in 4.

2. Accepted in 5 and hereby accepted.

3. Hereby accepted.

4. Accepted in 1-2.

5. Hereby accepted.

6-29 These proposed findings of fact are not relevant to the rule challenge proceeding. Accepted in

1. Accepted in 10.

2. See 7.

3. Accepted in 12.

33-36 Accepted in 13.

1. Accepted in 8, 11 and hereby accepted.

2. Hereby accepted.

3. See 8.

4. Hereby accepted.

COPIES FURNISHED:

Kenneth R. Hart, Esquire Robert A. Pierce, Esquire

J. Jeffry Whalen, Esquire Post Office Box 391 Tallahassee, Florida 32302

Mark T. Aliff Eric J. Taylor

Assistant Attorneys General Tax Section, Capitol Building Department of Legal Affairs

Tallahassee, Florida 32399-1050

Carroll Webb, Executive Director Administrative Procedures Committee Holland Building, Room 120

NOTICE OF RIGHT TO JUDICIAL REVIEW

ANY PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 93-002824RX

Orders for Case No: 93-002824RX