STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BIDDERS, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 94-1131

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

A formal hearing was conducted in this proceeding before Daniel Manry, a duly designated Hearing Officer of the Division of Administrative Hearings, on August 26, 1994, in Cocoa Beach, Florida.

APPEARANCES

For Petitioner: Mr. Thomas C. Birkhead, President

Bidders, Inc.

1600 North Atlantic Avenue Cocoa Beach, Florida 32931

For Respondent: Francisco M. Negron, Esquire

Assistant Attorney General

Department of Legal Affairs, Tax Section The Capitol

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUES

The issues for determination in this proceeding are whether a sales and use tax audit was properly conducted, and, if so, whether Petitioner is liable for the tax, penalty, and interest assessed.

PRELIMINARY STATEMENT

Respondent assessed Petitioner for sales and use tax in the amount of $15,373.62, including penalty and interest. Petitioner denied liability and requested a formal hearing.

At the formal hearing, Petitioner called six witnesses and submitted 11 exhibits. Respondent called one witness and submitted two exhibits. Testimony, exhibits, and rulings are reported in the transcript of the formal hearing filed with the undersigned on September 14, 1994.

The parties timely filed proposed recommended orders on September 26, 1994. Petitioner's proposed findings of fact are addressed in the Appendix to this Recommended Order.

Respondent's proposed findings of fact are accepted in substance.

FINDINGS OF FACT

1. Petitioner is a Florida corporation wholly owned by Mr. Thomas C. Birkhead, president. Petitioner owns and operates the Satellite Motel in Cocoa Beach, Florida.

1. The Audit

   
   

2. Respondent conducted a sales and use tax audit of Petitioner's business records for the period September 1, 1985, through August 31, 1990. Respondent determined a deficiency and assessed Petitioner for $15,373.62, including tax, penalty, and interest through May 13, 1991.

   
   

3. The assessment is for $1,922.42 in sales tax, $7,646.25 in use tax, $2,392.20 in delinquent penalty, and $3,412.75 in interest through May 13, 1991. Interest accrues daily in the amount of $3.15.

   
   

4. Respondent made a prima facie showing of the factual and legal basis for the assessment. Petitioner failed to produce credible and persuasive evidence to overcome the prima facie showing. The audit and assessment are procedurally correct.

   Tax, interest, and penalty are correctly computed.

   
   

   1. Sampling

      
      

5. Petitioner failed to maintain adequate records of its sales and purchases. Respondent properly conducted an audit by sampling Petitioner's available books and records in accordance with Section 212.12(6)(b), Florida Statutes.

   
   

6. Although Petitioner's records of sales and purchases were inadequate, Petitioner produced some books and records for the entire audit period. Respondent properly limited the applicable penalty to a delinquent penalty.

   
   

   1. Audit Period

7. Respondent is authorized to audit Petitioner for the period September 1, 1985, through August 31, 1990. Effective July 1, 1987, the period for which taxpayers are subject to audit was extended from three to five years. 1/ When Respondent conducted the audit, Respondent was authorized to conduct an audit within five years of the date tax was due. 2/

   
   

8. Tax owed by Petitioner for the period beginning September 1, 1985, was not due until the 20th day of the month following its collection. 3/ Therefore, Respondent was authorized to audit Petitioner's records anytime before October 20, 1990. 4/

   
   

9. On September 13, 1990, Respondent issued a Notice Of Intent To Audit Books And Records of the Petitioner (the "Notice Of Intent"). The Notice Of Intent tolled the running of the five year audit period for up to two years. 5/ Respondent completed its audit and issued its Notice Of Intent To Make Sales And Use Tax Audit Changes on May 13, 1991.

2. Sales Tax

1. Petitioner sells snacks and beverages over the counter at the Satellite Motel. The sale of such tangible personal property is subject to sales tax. As a dealer, Petitioner must collect the applicable sales tax and remit it to Respondent.

   
   

2. During the audit period, Petitioner failed to collect and remit applicable sales tax. As a dealer, Petitioner is liable for the uncollected sales tax. Respondent properly assessed Petitioner for $1,922.42 in uncollected sales tax.

3. Use Tax

1. Petitioner rents televisions and linens and purchases business forms from Florida vendors. The rental and sale of such tangible personal property is subject to sales tax.

   
   

2. During the audit period, Petitioner failed to pay sales tax to Florida vendors and used the televisions, linens, and business forms in its business at the Satellite Motel.

   Petitioner is liable for use tax on the use of those items during the audit period. Respondent properly assessed Petitioner for use tax in the amount of $7,646.25.

   
   

   CONCLUSIONS OF LAW

   
   

3. The Division of Administrative Hearings has jurisdiction over the subject matter and parties to this proceeding. Section 120.57(1). The parties were duly noticed for the formal hearing.

4. Petitioner has the burden of proof in this proceeding. Section 120.575(2). Petitioner must show by a preponderance of evidence that Respondent departed from the requirements of law or that the assessment was not supported by any reasonable hypothesis of legality. Cf. Straughn v. Tuck, 354 So.2d 368, 371 (Fla. 1978)(involving property tax assessments under Chapter 193); Harris v. State, Department of Revenue, 563 So.2d 97, 99 (Fla. 1st DCA 1990)(citing Straughn for assessments under Chapter 212).

4. The Audit

1. Respondent made a prima facie showing of the factual and legal basis for the sales and use tax assessment. Section 120.575(2), Florida Statutes. Petitioner failed to produce credible and persuasive evidence to overcome the prima facie showing.

   
   

2. Sampling is an appropriate method for conducting an audit when a taxpayer fails to maintain adequate records of sales and purchases. Section 212.12(6)(b), Florida Statutes. Petitioner failed to maintain adequate records of its sales and purchases. Respondent properly conducted the audit by sampling Petitioner's available books and records.

   
   

3. Respondent properly audited Petitioner's records for the period September 1, 1985, through August 31, 1990. Respondent is authorized to conduct an audit within five years after the date tax is due. Section 95.091(3), Florida Statutes. Sales tax imposed on transactions conducted during September, 1985, was not due until the 20th day of the following month. Section 212.11. Respondent could have audited Petitioner's records any time before October 20, 1990.

   
   

4. The Notice Of Intent issued by Respondent on September 13, 1990, tolled the running of the five year audit period for up to two years. Section 95.091(3)(b), Florida Statutes.

Respondent completed its audit and issued its Notice Of Intent To Make Sales And Use Tax Audit Changes on May 13, 1991; well before the two year tolling period expired.

1. Sales Tax

   
   

   1. Snacks And Beverages

      
      

      1. Food and drink are generally exempt from sales tax. Section 212.08(1)(a), Florida Statutes. However, food and drink sold by hotels and motels are specifically excepted from the general exemption for food and drink. Section 212.08(1)(a)1.

         Therefore, snacks and beverages sold in the Satellite Motel are subject to sales tax. Section 212.05.

         
         

      2. Petitioner sells snacks and beverages at the Satellite Motel and is a "dealer" for sales tax purposes. Sections 212.06(2)(c) and (d), Florida Statutes. Sales tax is collectible from the dealer irrespective of whether the dealer actually collects the tax from purchasers. Sections 212.06 and 212.07.

         
         

      3. During the audit period, Petitioner failed to collect sales tax on the sale of snacks and beverages at the Satellite Motel. As a dealer, Petitioner is liable for sales tax in the amount of $1,922.42. Section 212.07(2).

   2. Televisions, Linens, And Business Forms

1. Business forms sold to Petitioner are tangible personal property subject to sales tax. Section 212.05(1)(a), Florida Statutes. Unlike food and drink, business forms do not enjoy an exemption from sales tax.

   
   

2. The term "sale" includes any rental of tangible personal property. Sections 212.02(16), 212.05(1)(c) and (d), Florida Statutes. Unless specifically exempt, the rental of televisions and linens to Petitioner is subject to sales tax.

   
   

3. Petitioner argues that rentals of televisions and linens are purchases for resale and exempt from sales tax. Petitioner argues that the televisions and linens are "re-rented" to guests of the Satellite Motel.

   
   

4. Rentals of televisions and linens are not exempt from sales tax as purchases for resale. Petitioner rented televisions and linens for use in exercising the taxable privilege of renting rooms at the Satellite Motel and not for "resale" to motel guests. See, Florida Hotel and Motel Association, Inc. v. State, Department of Revenue, 635 So.2d 1044, 1047 (Fla. 1st DCA 1994).

   
   

5. In Florida Hotel and Motel Association, the petitioner sought a declaratory statement that items of tangible personal property placed in a guest room, including televisions and linens, are purchased for resale and exempt from sales tax. In rejecting that contention, the court noted:

   
   

   Those jurisdictions which have addressed the issue have routinely held that furniture, furnishings and consumables purchased for use in guest rooms are purchased for use as part of the business of operating a hotel or motel, rather than for "resale" and

   . . . accordingly, the purchases are not exempt from sales tax. [citations omitted].

   Florida Hotel and Motel Association, 635 So.2d at 1047.

   
   

6. The tax imposed on the rental of televisions and linens and the tax imposed on the rental of rooms at the Satellite Motel do not constitute double taxation. In Florida Hotel and Motel Association, the court held:

We likewise agree . . . that no duplicate taxation occurs because the taxes at issue

are levied on two separate taxable privileges. The tax imposed upon the purchase of tangible

personal property used to furnish guest rooms is imposed upon the privilege of selling tangible personal property at retail, pursuant to section 212.05(1)(a)1.a., Florida Statutes (1991); whereas the tax imposed upon the rental of guest rooms is imposed upon the privilege of operating a hotel or motel, pursuant to section 212.03.

Florida Hotel and Motel Association, 635 So.2d at 1048.

6. Use Tax

1. The primary function of the use tax is to complement the sales tax so as to make uniform the taxation of transactions subject to tax. United States Gypsum Company v. Green, 110 So.2d 409, 412 (Fla. 1959); Gore Newspaper Company v. Department Of Revenue, 398 So.2d 945, 946 (Fla. 4th DCA 1981). Use tax applies to the use of tangible personal property in Florida when the purchaser can not prove that applicable sales tax was collected and remitted by the vendor. Section 212.07(9), Florida Statutes. 6/

   
   

2. During the audit period, Petitioner used televisions, linens, and business forms within the meaning of Section 212.02(21), Florida Statutes. Petitioner can not prove that applicable sales tax was paid at the time Petitioner rented or purchased those items of tangible personal property from Florida vendors. Petitioner is liable for the applicable use tax. Section 212.07(9) 7/

   
   

3. Use tax is imposed on the cost price of each item of tangible personal property without deduction for the cost of labor, service, transportation, or similar services. Sections 212.02(4) and 212.06(1)(a). The use tax due from Petitioner is properly computed based on the total charges paid by Petitioner for televisions, linens, and business forms. Respondent properly assessed use tax against Respondent in the amount of $7,646.25.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that Respondent enter a Final Order upholding the assessment of tax, penalty, and interest through the date of payment.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of October, 1994.

DANIEL MANRY

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 25th day of October, 1994.

ENDNOTES

1/ Ch. 87-6, Laws of Fla., as amended by Ch. 87-101, Laws of Fla.

2/ Sec. 95.091(3), Fla. Stat. 3/ Sec. 212.11, Fla. Stat.

4/ Sec. 95.091(3), Fla. Stat.

5/ Sec. 95.091(3)(b), Fla. Stat.

6/ The manner in which use tax complements the sales tax can be illustrated in the following four examples. First, as in this proceeding, use tax applies to the use of tangible personal property ("property") inside the state when the property is sold inside the state by a Florida vendor to a Florida purchaser, and the purchaser can not prove that applicable sales tax was paid. Sec. 212.07(9), Fla. Stat. Second, use tax applies to the use of property inside the state when the property is not sold but is manufactured or produced and used inside the state. Secs.

212.05(1)(b) and 212.06(4); Gore Newspaper Company v. Department Of Revenue, 398 So.2d 945, 946 (Fla. 4th DCA 1981). Third, use tax applies to the use of property inside the state when the property is sold by an out-of-state vendor to a Florida purchaser, and the purchaser can not prove that the out-of-state vendor collected and remitted sales tax equal to or greater than the Florida use tax. Secs. 212.05(1)(b), 212.0596, 212.06(4), and 212.06(7); D.H. Holmes Company, Ltd. v. McNamara, 486 U.S. 24,

108 S.Ct. 1619 (1988); United States Gypsum Company v. Green, 110 So.2d 409, 412 (Fla. 1959). Finally, use tax applies to the use

of property inside the state when the property is sold by an out- of-state vendor to an out-of-state purchaser who uses the property in the other state for less than six months and can not prove that sales tax in an amount equal to or greater than the Florida use tax was paid to the state in which the sale took place. Secs. 212.05(1)(b), 212.06(4), 212.06(6), and 212.06(7)

and (8).

7/ Petitioner may also be liable for use tax as a "dealer." The term "dealer" is defined in Section 212.06(2)(d), Fla. Stat., to mean:

. . . any person who has . . . used

. . . in this state . . . tangible personal property and who cannot prove that the tax levied by this chapter has been paid on the sale at retail . . . [or] use . . . of such tangible personal property. . . . (emphasis supplied)

Petitioner used televisions, linens, and business forms and can not prove that either the sales or use tax was paid on those items.

Sec. 212.06(1)(a), Fla. Stat., provides that use tax "shall be collectible from all dealers . . . on the . . . use . . . in this state of tangible personal property." See also, Secs.

212.05(2) and 212.07(2). A dealer who fails to collect and remit use tax must itself pay the tax to the state. Secs. 212.07(2) and (3).

APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-1131

Petitioner's Proposed Findings of Fact

COPIES FURNISHED:

Linda Lettera, Esquire General Counsel Department of Revenue

104 Carlton Building Tallahassee, FL 32399-0100

Larry Fuchs, Executive Director Department of Revenue

104 Carlton Building Tallahassee, FL 32399-0100

Francisco M. Negron, Esquire Asst. Attorney General

Dept. of Legal Affairs The Capitol-Tax Section

Tallahassee, FL 32399-1050

Thomas C. Birkhead, President Bidders, Inc.

1600 N.1 Atlantic Avenue Cocoa Beach, FL 32391

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

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

Docket for Case No: 94-001131

Orders for Case No: 94-001131