STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF REVENUE, )

)

Petitioner, )

)

vs. ) CASE NO. 96-3008

) MIAMI CAPITAL DEVELOPMENT, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a Section 120.57(1) hearing was conducted in this case by video teleconference (at sites in Miami and Tallahassee, Florida) on November 8, 1996, before Stuart M. Lerner, a duly designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Kevin J. ODonnell

Assistant General Counsel Department of Revenue Post Office Box 6668

Tallahassee, Florida 32314-6668

For Respondent: Robert A. Koppen, Esquire

Warren R. Wilson, Esquire Koppen, Watkins, Partners and

Associates, P.A.

700 Northeast 90th Street Miami, Florida 33138-3206

STATEMENT OF THE ISSUE

Whether Respondent is entitled to a Consumer Certificate of Exemption under Section 212.08?

PRELIMINARY STATEMENT

On May 24, 1996, the Department of Revenue (Department) issued an Administrative Complaint advising Respondent that, for the following reasons, it had determined that Respondent was no longer entitled to the Consumer Certificate of Exemption (Certificate Number 23-08-376730-51C, hereinafter also referred to as "Respondent's Certificate") which Respondent was seeking to renew: 1/

1. Based on the information provided, this organization is an economic development corporation, which does not meet the criteria established for charitable institutions.

2. This organization is a non-profit corporation organized to facilitate business development within the City of Miami. This organization is not the U.S. Government, a state, or any county, municipality, or political subdivision of a state.

3. The Department has reviewed your file and has determined that you do not meet the criteria for a Consumer Certificate of Exemption under Chapter 212, Florida Statutes.

On June 14, 1996, in response to the Department's Administrative Complaint, Respondent filed with the Department a Request for Administrative Hearing in which it disputed "the allegation in the . . . Administrative Complaint . . . , which states that [Respondent] does not meet the criteria established for charitable institutions." On June 26, 1996, the matter was referred to the Division of Administrative Hearings.

As noted above, the final hearing in this case was held on November 8, 1996. During the evidentiary portion of the hearing, a total of three witnesses testified: David Young, a Tax Specialist in the Department's Office of Central Registration; Elbert Waters, the Director of Community Development for the City of Miami; and Raul Martinez, Petitioner's Acting Executive Director. In addition to the testimony of these three witnesses, a total of 12 exhibits (Petitioner's Exhibits 1 through 4 and Respondent's Exhibits 1 through 8) were offered and received into evidence.

At the conclusion of the evidentiary portion of the hearing, the undersigned, on the record, advised the parties of their right to file proposed recommended orders and established a deadline (20 days after the undersigned's receipt of the transcript of the hearing) for the filing of these post-hearing submittals. The undersigned received the transcript of the hearing on December 5, 1996. On December 13, 1996, the Department filed an unopposed motion requesting an extension of the deadline for filing post-hearing submittals. By order issued December 16, 1996, the motion was granted and the filing deadline was extended to January 13, 1997. Petitioner and the Department filed proposed recommended orders on January 10, 1997, and January 13, 1997, respectively.

These proposed recommended orders have been carefully considered by the undersigned.

FINDINGS OF FACT

Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made:

1. Respondent is a nonprofit Florida corporation that was formed in 1980 to promote economic development and revitalization (and the resultant creation and retention of jobs) in targeted areas in the City of Miami and Dade County, Florida, by lending money to business desiring to locate or remain in these targeted areas.

   
   

2. Article II of Respondent's Articles of Incorporation sets forth the "purposes" of the corporation. It reads as follows:

   
   

   1. This corporation is organized exclusively for charitable, education and economic development purposes which include

      promotion of community welfare by: (i) lessening of neighborhood tensions, (ii) lessening discrimination and (iii) combatting community deterioration by promoting and fostering the economic development of the City of Miami and Dade County, Florida. In furtherance of these purposes the corporation intends to engage in the following types of activities:

      1. Making investments in, and loans to, corporate or other business entities with monies which are directly or indirectly attributable to funds provided by the City

         of Miami, Dade County, Florida or other funds provided by the United States, the State of Florida or any agency or instrumentality of any of the foregoing, with funds generated

         by the repayment of the principal amount and accrued interest thereon of any loans made with such funds, or any dividends or other distributions paid to the corporation by any entity in which the corporation has an ownership interest, and with any funds contributed to the corporation by any individual or entity;

      2. Providing assistance for individuals, groups and organizations in planning and executing successful economic development projects;

      3. Providing professional assistance and counseling of all types, including business planning for individuals, organizations and their members where such counseling may be necessary for the economic development of low income or low employment areas;

      4. Acting as an intermediary, where appropriate, between various economic development programs and between organizations and individuals which may be involved in any capacity in economic development;

      5. Acquiring charitable contributions and assistance capital including seed money,

         which may be necessary for successful economic development projects; and

      6. Engaging in such other activities as the Board of Directors shall from time to time approve, provided that in no event shall this corporation be operated for purposes other than those permitted under Section 501(c)(3) of the Internal Revenue Code of 1954 or corresponding sections of any prior or future law.

   2. The corporation shall have the power, either directly or indirectly, either alone or in conjunction or cooperation with others, to do any and all lawful acts and things and to engage in any and all lawful activities

      which may be necessary, useful, suitable, desirable or proper for any and all of the purposes for which the corporation is organized, and to aid or assist other organizations whose activities are such as to further accomplish, foster or attain any of such purposes. Such activities shall include, but shall not be limited to, acceptance of gifts, grants, devises or bequests of funds, or any other property from any public or other governmental body and any private person, including but not limited to, private and public foundations, corporations and individuals. 2/

   3. Notwithstanding anything herein to the contrary, this corporation may exercise any and all, but not other, powers as are in furtherance of the exempt purposes of organizations set forth in Section 501(c)(3) of the Internal Revenue Code of 1954 and its regulations as the same now exist, or as they may be hereafter amended from time to time.

   4. No part of the income or principal of this corporation shall inure to the benefit of or be distributed to any member, director or officer of the corporation or any other private individual in such a fashion as to constitute an application of funds not within the purpose of exempt organizations described in Section 501(c)(3) of the Internal Revenue Code of 1954. However, reimbursement for expenditures or the payment of reasonable compensation for services rendered shall not be deemed to be a distribution of income or principal.

   5. In the event of the complete or partial liquidation or dissolution of the corporation whether voluntary or involuntary, no member, director or officer shall be entitled to any distribution or division of the corporation's property or its proceeds, and the balance of all money and other property received by the corporation from any source shall, after the payment of all debts and obligations of the corporation in accordance with Chapter 617 of the Florida Statutes, be distributed and paid over by the Board of Directors to the City of Miami for public purposes.

   6. The corporation does not contemplate receiving any pecuniary gain or profit, incidental or otherwise.

   7. No substantial part of the activities of the corporation shall be the carrying on of propaganda or otherwise attempting to influence legislation, and the corporation shall not participate or intervene in, directly or indirectly, (including the

      publishing or distribution of statements) any political campaign on behalf of or in

      opposition to any candidate for public office.

      
      

3. Over the past 16 years, Respondent has made 472 direct low interest business loans amounting to approximately $31.4 million. 3/ The recipients of these loans have collectively received from both public and private sources nearly $16.3 million in additional, matching funds.

   
   

4. A potential borrower need not be disadvantaged or suffering from a hardship in order to receive a loan from Respondent.

   
   

5. Indeed, as a general rule, Respondent will not make a loan unless the applicant demonstrates, during the application process, an ability to repay the loan. To this extent, and to this extent alone, Respondent takes into consideration the applicant's economic status in determining whether to grant the applicant's loan application.

   
   

6. An intended 4/ by-product of Respondent's lending activities has been the creation and preservation of jobs in the targeted areas. The business investment that Respondent's activities have made possible has produced approximately 3,313 new jobs and preserved an estimated 1,391 jobs in these areas.

   
   

7. The Internal Revenue Service treats Respondent as an exempt organization under Section 501(3)(c) of the Internal Revenue Code.

   
   

8. In 1991, Respondent received from the Department a Consumer Certificate of Exemption, which, according to the cover letter that accompanied the Certificate, was "granted to [Respondent] in accordance with Section 212.08(7), Florida Statutes" and "exempt[ed Respondent] from the payment of sales and use tax on purchases of tangible personal property."

   
   

9. The Certificate had an "issue date" of February 7, 1991, and an "expiration date" of February 7, 1996.

   
   

10. Prior to the "expiration date," Respondent filed an application with the Department to renew the Certificate.

    
    

11. The Department has preliminarily determined that the Certificate should not be renewed.

    
    

12. It is this preliminary determination that is the subject of the instant controversy

    
    

    CONCLUSIONS OF LAW

    
    

13. The Department is authorized, pursuant to Section 212.084, Florida Statutes, to issue (and reissue) to qualified institutions, organizations and individuals tax exemption certificates that are valid for five years.

    
    

14. In the instant case, Respondent is seeking the reissuance of a certificate exempting it, under Section 212.08, Florida Statutes, from the payment of sales and use tax on purchases of tangible personal property. Respondent claims that it is entitled to the certificate because it is a "charitable institution," within the meaning of Section 212.08(7)(o)2.b., Florida Statutes, 5/ which provides as follows:

    "Charitable institutions" means only nonprofit corporations qualified as nonprofit pursuant to s. 501(c)(3), United States Internal Revenue Code of 1954, as amended, and other nonprofit entities, the sole or primary function of which is to provide, or to raise funds for organizations which provide, one or more of the following services if a reasonable percentage of such service is provided free

    of charge, or at a substantially reduced cost, to persons, animals, or organizations that

    are unable to pay for such service:

    1. Medical aid for the relief of disease, injury, or disability;

    2. Regular provision of physical necessities such as food, clothing, or shelter;

    3. Services for the prevention of or rehabilitation of persons from alcoholism or drug abuse; the prevention of suicide; or the alleviation of mental, physical, or sensory health problems;

    4. Social welfare services including adoption placement, child care, community care for the elderly, and other social welfare services which clearly and substantially benefit a client population which is disadvantaged or suffers a hardship;

    5. Medical research for the relief of disease, injury, or disability;

    6. Legal Services; or

    7. Food, shelter, or medical care for animals or adoption services, cruelty investigations, or education programs concerning animals;

    and the term includes groups providing volunteer staff to organizations designated charitable institutions under this sub- subparagraph; nonprofit organizations the sole or primary purpose of which is to coordinate, network, or link other institutions designated as charitable institutions under this sub-subpargraph with those persons, animals, or organizations in need of their services; and nonprofit national, state, district, or other governing, coordination, or administrative organizations the sole or primary purpose of which is to represent or regulate the customary activities of other institutions designated as charitable institutions under this sub-subparagraph. Notwithstanding any other requirement of this section, any blood bank that relies solely upon volunteer donations of blood and tissue, that is licensed under chapter 483, and that qualifies as tax exempt under s. 501(c)(3)

    of the Internal Revenue Code constitutes a charitable institution and is exempt from the tax imposed by this part.

    
    

    More specifically, Petitioner contends that it is a "charitable institution" within the meaning of Section 212.08(7)(o)2.b. (IV), Florida Statutes.

    
    

15. "The provisions of . . . [S]ection [212.08(7)(o)2.b., Florida Statutes, authorizing tax exemptions for 'charitable institutions' must] be strictly defined, limited and applied." Section 212.08(7)(o)2.b., Fla. Stat.; see also Asphalt Pavers, Inc., v. Department of Revenue, 584 So.2d 55, 57 (Fla. 1st DCA 1991)("an exemption clause in a tax statute is to be strictly construed against the person claiming the exemption"); Department of Revenue v. Skop, 383 So.2d 678, 680 (Fla. 5th DCA 1980)("[w]hile doubtful language in taxing statutes should be resolved in favor of the taxpayer, the reverse is true in the construction of exceptions and exemptions from taxation"); Wanda Marine Corporation v. Department of Revenue, 305 So.2d 65, 69 (Fla. 1st DCA 1974)("tax exemptions must be strictly construed against the claimant").

    
    

16. According to Rule 12A-1.001(3)(g)1., Florida Administrative Code, a nonprofit entity is entitled to a certificate of exemption as a "charitable institution" only if it meets the following requirements:

    
    

    1. [its] sole or primary function is providing a "qualified charitable service" as defined in this subsection; and

    2. a reasonable percentage of such service is provided free of charge, or at a substantially reduced cost, to persons animals, or organizations that are unable to pay for such service.

    
    

17. "Qualified charitable service," as used in Rule 21A-1.001(3)(g)1., Florida Administrative Code, means:

    
    

    1. Medical aid for the relief of disease, injury, or disability;

    2. Regular provision of physical

       necessities such as food, clothing, or shelter;

    3. Services for the prevention of or rehabilitation of persons from alcoholism or drug abuse; the prevention of suicide; or the alleviation of mental, physical, or sensory health problems; services include public education or awareness programs intended to relieve or prevent any disease, injury, or disability;

    4. Social welfare services including adoption placement, child care, community

       care for the elderly, and other social welfare services which clearly and substantially benefit a client population which is disadvantaged or suffers a hardship;

    5. Medical research for the relief of disease, injury or disability;

    6. Legal services;

    7. Food, shelter, or medical care for

       animals or adoption services, cruelty investigations, or education programs concerning animals;

    8. Providing volunteer manpower to charitable institutions as defined in this subsection; or

    9. Raising funds for "charitable institutions" as defined in this subsection.

    
    

    Rule 12A-1.001(3)(g)2., Fla. Admin. Code.

    
    

18. "Persons unable to pay," as used in Rule 12A-1.001(3)(g)1., Florida Administrative Code, means "persons whose annual income is 150 percent or less of the current Federal Poverty Guidelines." Rule 12A-1.001(3)(g)3.a.I., Fla. Admin. Code.

    
    

19. "Substantially reduced cost," as used in Rule 12A-1.001(3)(g)1., Florida Administrative Code, means "the normal charge, market price, or fair market value to a purchaser or recipient, diminished in an amount of considerable quantity." Rule 12A-1.001(3)(g)3.d., Fla. Admin. Code.

    
    

20. "Sole or primary function," as used in Rule 12A-1.001(3)(g)1., Florida Administrative Code, means "that a charitable institution, excluding hospitals, must establish and support its function as providing or raising funds for services as outlined in subparagraphs 1. and 2. above, by expending in excess of

    50.0 percent of the charitable institution's operational expenditures towards 'qualified charitable services,' as defined in subparagraph 2.a.-g., within the charitable institution's most recent fiscal year." Rule 12A-1.001(3)(g)3.e., Fla. Admin. Code.

    
    

21. Whether a nonprofit entity meets the "reasonable percentage" requirement of Rule 12A-1.001(3)(g)1.b, Florida Administrative Code, is to be determined in accordance with the guidelines set forth in Rule 12A- 1.001(3)(g)4., Florida Administrative Code, which provides, in pertinent part, as follows:

    
    

    1. For charitable institutions other than hospitals, a "reasonable percentage" of the charitable services provided free or at a substantially reduced cost to those unable to pay will be determined by the particular circumstances of each institution. The following factors shall be considered in determining whether a nonprofit entity is providing a reasonable percentage of its charitable services free of charge or at a substantially reduced cost to persons, animals, or institutions unable to pay for such services:

       1. services are provided free of charge;

       2. services are provided at a substantially reduced cost to recipient;

       3. available services are provided to anyone who requests the service without regard to ability to pay;

       4. the ratio of services offered without cost or at a substantially reduced cost to

          the cost of all services provided;

       5. the fair market value of the provided services free or at a substantially reduced cost compared to the amount of sales tax savings to the institution resulting from exemption;

       6. the likelihood that due to the nature of the services provided and the geographic area in which the services are provided, the services will be delivered to those unable to pay;

       7. medical research services and public education and awareness programs are intended to benefit the public in that they are directed toward or involve diseases, injuries, or disabilities which can affect members of the public.

    2. If a charitable institution, other than a hospital, does not screen to determine whether its clientele are unable to pay, the institution may submit to the Department a statement signed by an officer or director of the institution which specifies the institution's best good faith estimate of the percentage of its services provided without charge or at a substantially reduced cost to persons unable to pay and the basis for that estimate. 6/

    
    

22. The burden was on Respondent at hearing to establish, by a preponderance of the evidence, that it is a "charitable institution," within the meaning of Section 212.08(7)(o)2.b.(IV), Florida Statutes, entitled to the tax exemption certificate it is seeking. See Department of Banking and Finance v. Osborne Stern and Company, 670 So.2d 932, 934 (Fla. 1996); Pershing Industries, Inc., v. Department of Banking and Finance, 591 So.2d 991, 994 (Fla. 1st DCA 1991); Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778,

    787-88 (Fla. 1st DCA 1981); Section 120.57(1)(h), Fla. Stat. ("[f]indings of fact shall be based on a preponderance of the evidence, except in penal or licensure disciplinary proceedings or except as otherwise provided by statute").

    
    

23. Respondent failed to meet its burden of proof. While it may have shown that it is a nonprofit corporation that engages in activities that ultimately benefit the public welfare, it has not established that it qualifies as a tax-exempt "charitable institution," within the meaning of Section 212.08(7)(o)2.b.(IV), Florida Statutes, (a statutory provision which, in accordance with the mandate of Section 212.08(7)(o)2.b., Florida Statutes, must "be strictly defined, limited and applied.")

    
    

24. Respondent's "sole or primary function" is to make business loans. Even assuming that the making of business loans constitutes a "qualified charitable service" under Section 212.08(7)(o)2.b.(IV), Florida Statutes, the evidentiary record does not reveal that a "reasonable percentage" of these loans are provided "free of charge" (that is, interest free) or "at a substantially reduced cost," nor does it establish that a "reasonable percentage" of these loans are made to "persons, animals, or organizations unable to pay," as these terms are defined in Rule 12A-1.001, Florida Administrative Code. 7/

25. Accordingly, Respondent is not entitled to the reissuance of the Consumer Certificate of Exemption it is seeking pursuant to Section 212.08(7)(o)2.b.(IV), Florida Statutes.

RECOMMENDATION

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

RECOMMENDED that the Department enter a final order finding that Respondent is not entitled to the Consumer Certificate of Exemption it is seeking pursuant to Section 212.08(7)(o)2.b.(IV), Florida Statutes.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of January, 1997.

STUART M. LERNER

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 16th day of January, 1997.

ENDNOTES

1/ Respondent had filed its application to renew its Certificate prior to the Certificate's February 7, 1996, expiration date.

2/ Although Respondent receives public funding, including monies from the City of Miami, it has yet to receive any contributions from the private sector.

3/ The record does not reveal how much lower the interest rate charged by Respondent is than the prevailing market rate.

4/ The potential impact that a loan will have on job opportunities for persons from low and moderate income families is a factor that Respondent considers (favorably) in evaluating a loan application. The greater such potential impact, the greater the risk Respondent will be willing to undertake.

5/ Respondent does not argue (nor does the evidence adduced at hearing reveal) that Respondent is a governmental entity exempt from taxation pursuant to subsection (6) of Section 212.08, Florida Statutes.

6/ There is no indication that Respondent submitted such a signed statement in the instant case.

7/ Respondent provides its "services," as that term is used in Section 212.08(7)(o)2.b., Florida Statutes, to the businesses that borrow money from it. That these businesses may use the money that they borrow from Respondent in a manner that results in the creation and/or retention of jobs in economically depressed and disadvantaged areas has no bearing on Respondent's entitlement to an exemption under Section 212.08(7)(o)2.b.(IV), Florida Statutes, (even if the recipients of these jobs are all "persons unable to pay," as defined in Rule

12A-1.001(3)(g)3.a.I., Florida Administrative Code,) inasmuch as the provision of these jobs, (assuming it constitutes a "qualified charitable service" under Section 212.08(7)(o)2.b.(IV), Florida Statutes,) is a "service" provided, not by Respondent, but by the employing businesses.

COPIES FURNISHED:

Kevin J. ODonnell Assistant General Counsel Department of Revenue Post Office Box 6668

Tallahassee, Florida 32314-6668

Robert A. Koppen, Esquire Warren R. Wilson, Esquire Koppen, Watkins, Partners

and Associates, P.A.

700 Northeast 90th Street Miami, Florida 33138-3206

Larry Fuchs, Executive Director Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

Linda Lettera, General Counsel Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of 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: 96-003008

Orders for Case No: 96-003008