STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COCOA BEACH WOMAN’S CLUB )

FOUNDATION, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 97-0699

)

DEEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in this case in Melbourne, Florida, on June 17, 1997, before Arnold H. Pollock, an Administrative Law Judge with the Division of Administrative Hearings.

APPEARANCES

For the Petitioner: John R. Kancilia, Esquire

O’Brien, Reimenschneider, Kancilia & Lemonidis, P.A.

168 West Hibuscus Boulevard Melbourne, Florida 32901

For the Respondent: Kevin J. O’Donnell, Esquire

Department of Revenue Post Office Box 406216

Tallahassee, Florida 32314-6668 STATEMENT OF THE ISSUES

The issue for consideration in this case is whether the Cocoa Beach Woman’s Club Foundation, Inc., should be granted an exemption from Florida sales tax under the provisions of Section 212.08(7)(n), Florida Statutes.

PRELIMINARY STATEMENT

By Notice of Intent to Deny dated December 31, 1996, the Department of Revenue signified its intention to deny Petitioner’s Application For Consumer’s Certificate of Exemption (Form DR-5), on the basis that the checks representing the scholarships awarded by Petitioner were made payable to the student winners and not to the school for the school’s use, and that the primary purpose of the Petitioner’s activities is not directed toward minors, age seventeen and younger. By letter dated January 21, 1997, Jeanne M. Zopfi, Petitioner’s treasurer, disputed the factual allegations made by Respondent and, on behalf of the Foundation, requested formal hearing. This hearing ensued.

At the hearing, Petitioner presented the testimony of Ms. Zopfi and introduced Petitioner’s Exhibits 1 through 4. Respondent presented no evidence.

A transcript of the proceedings was furnished and subsequent to the receipt thereof, counsel for both parties submitted matters for consideration by the Judge which were carefully reviewed and evaluated in the preparation of this Recommended Order.

FINDINGS OF FACT

1. At all times pertinent to the issues herein the Respondent, Department of Revenue, was the state agency responsible for the collection of a sales tax on goods in

   Florida, and for granting exemptions therefrom to appropriate agencies. The Petitioner, Cocoa Beach Woman’s Club Foundation, Inc. (Foundation) was a charitable organization granted an exemption from federal income tax under Section 501(c)(3) of the United States Internal Revenue Code.

2. The Foundation was formed in May 1995 as a separate organization, but a part of the Cocoa Beach Woman’s Club, by members of the Club. The Foundation was established to raise funds for charitable projects and scholarships for high school graduates and the tutoring of elementary school students. Prior to the formation of the Foundation, its activities were carried out by the Cocoa Beach Woman’s Club from the Club’s founding in 1965 until the formation of the Foundation in 1995. The Foundation is headed by an elected executive officer.

3. On October 11, 1996, Jeanne Zophi, the Foundation’s treasurer, submitted an Application For Consumer’s Certificate of Exemption from Sales and Use tax to the Florida Department of Revenue. Enclosed with the application were the previously mentioned determination of exemption from federal income tax, a statement of purpose required by the Department’s rule, the organization’s Articles of Incorporation, the most current year statement of income, a financial statement for the fiscal year ending

   April 30, 1996, and the Foundation’s annual financial statement dated April 30, 1997.

4. On December 31, 1996, after review of the application, the Department of Revenue issued its Notice of Intent to Deny, alleging that, based on the information provided, it appeared that while the organization may have provided scholarship money, the funds were given directly to the students and not to the school for the school’s use. A second basis for denial was the Department’s contention that that primary purpose of the Foundation’s charitable activities was not directed toward minors, seventeen and younger.

5. The overall purposes of the Foundation’s activities are to raise funds for the area schools’ wish lists, for Alzheimer’s Disease research and treatment, for the payment of certified teachers to provide a tutor program to students in the local elementary and middle schools, and, since 1965, for college scholarships to any high school senior from Brevard County.

6. Each year the Foundation sponsors a contest to afford area students the opportunity to raise funds for the Foundation’s scholarship and charitable programs. The operation culminates in a Ball, a dinner dance to which tickets are also sold to the public for $35.00. The day before the Ball, the candidates turn their funds in to the

   Ball chairman. The candidate who raises the most money is named Queen of the Ball.

7. The Ball expenses are paid from the funds raised by the sale of the tickets to the public, not from the money raised by the candidates. The scholarships, in the amount of $3,000 to the Queen and $1,500 to each of the others, are paid from the money raised by the candidates as supplemented by other funds supplied by the Foundation. The scholarship recipients can select their own college, and the money for the scholarship is paid by the Foundation directly to the school.

8. The candidates are chosen from applications submitted by individuals through their respective schools. The Foundation works closely with high school counselors to publicize the opportunity and to encourage applicants. When the applications are received by the Foundation, the scholarship chairman and staff redact the names and gender of the applicants, and the selection of candidates to participate in the fund-raising portion of the procedure is based on the applicants’ SAT scores, their grades, their leadership their extra-curricular activities, and the like. By far the largest number of applicants comes from Cocoa Beach High School.

9. Whereas the scholarship program is the largest user of qualifying funds, another program is the tutoring program

   wherein certified teachers are hired by the Foundation to provide necessary tutoring to appropriate students in selected public and private schools. The tutoring program is clearly a benefit to minors, and the Department so admits. In addition, each Spring, the Foundation presents a number of $50.00 government bonds, and plaques to deserving students in the Brevard County school system for academic excellence.

10. During the 1995-1996 school season, the Foundation awarded five college scholarships totaling $6,500.00. Though at the time each check was issued, some of the recipients had reached their eighteenth birthday, the

    determination of recipients, and the notification to them of their selection, were made prior to their eighteenth birthday. In addition to the five scholarships, the Foundation also spent $4,210.50 on the tutor program and

    $943.70 for other qualifying local contributions. Taken together, the total qualifying contributions amounted to

    $11,654.20, which constituted 62 percent of the Foundation’s total donations during the period and which were somewhat in excess of $18,000.

11. For the fiscal year ending April 30, 1997, the Foundation received donations totaling $50,597.38. Of that amount, $35,917 was dedicated to minors. This constituted

    71 percent of the total.

12. Respondent presented no evidence to contradict the evidence presented by the Petitioner.

    CONCLUSIONS OF LAW

    
    

13. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter in this case. Section 120.57(1), Florida Statutes.

14. Under the provisions of Section 212.08(7)(n), Florida Statutes, certain organizations which provide special educational, cultural, recreational and social benefits to minors may be exempted from payment of the Florida sales tax. The criteria for the granting of this exemption include:

    ... nonprofit organizations which are incorporated pursuant to chapter 617 or which hold a current exemption from federal corporate income tax pursuant to

    s. 501(c)(3) of the Internal Revenue Code the primary purpose of which is providing activities that contribute to the development of good character or good sportsmanship, or to the educational or cultural development, of minors. This exemption is extended only to that level of the organization that has a salaried executive officer or an elected nonsalaried executive officer.

15. The Petitioner in this matter, claiming the exemption from sales tax, has the burden to establish its entitlement to the exemption and must show that it meets all the criteria for exemption.

16. While the term “primary purpose” is not defined by statute or Department rule, the Department’s rule 12A-

    1.001(3)(g)3.e defines the term, “sole or primary function,” as found in the exemption relating to charitable institutions, as requiring an expenditure of more than 50 percent of the organization’s operational expenditures on a qualifying charitable service. It is clear, however, that the exemption provided for under Section 212.08(7)(n) is available only to those organizations which provide activities for minors.

17. There seems to be little question that the Foundation expended more than 50 percent of its operational expenditures on scholarships, grants and other services which benefited minors in both 1995-1996 and 1996-1997. The issue remaining for determination, however, is whether those expenditures constituted expenditures on activities for minors or whether they were no more than disbursements of funds to other organizations which provided the activities for minors. The Department has agreed that the hiring of tutors for qualified minor students in both public and private schools is a qualifying expenditure. However, the amount expended on that activity does not constitute more than 50 percent of the organization’s expenditure. Only with the inclusion of the amounts paid as scholarship money to the colleges and universities to be attended by scholarship recipients would the amount of the total expenditure qualify.

18. The Department urges, and it so appears, that there is a distinction to be drawn between providing activities and raising funds for organizations which provide an activity. See Section 212.08(7)(o)2.b., Florida Statutes, which deals with charitable institutions. This provision was subsequently broadened by the legislature to include entities which raise funds for organizations which provide charitable services. It does not appear such an expansion was extended to the instant type of organization.

19. However, by requiring recipient participation in a major fund-raising activity which provides a substantial portion of the scholarship funds awarded, by its publicizing the awards, and by the public participation in its fundraising and festivities, the Foundation provides minors with an activity which contributes to the development of good character, which, itself, constitutes an incentive toward educational achievement.

20. The Department contends that the evidence indicates that a scholarship recipient may retain the award and yet not attend college. This appears to be a misunderstanding or misinterpretation of the evidence presented which, uncontroverted by the Department, indicates the scholarship money is paid to the educational institution and not to the student.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Revenue enter a Final Order granting the Cocoa Beach Woman’s Club Foundation, Inc., an exemption from Florida sales tax.

DONE AND ENTERED this 25th day of July, 1997, in Tallahassee, Leon County, Florida.

ARNOLD H. POLLOCK

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6947

Filed with the Clerk of the Division of Administrative Hearings this 25th day of July, 1977.

COPIES FURNISHED:

John R. Kancilia, Esquire O’Brien, Riemenschneider,

Kancilia and Lemonidis, P.A.

1686 West Hibiscus Boulevard Melbourne, Florida 32901

Kevin J. ODonnell, Esquire Department of Revenue Post Office Box 6668

Tallahassee, Florida 32314-6668

Linda Lettera General Counsel

Department of Revenue

204 Carlton Building Tallahassee, Florida 32399-0100

Larry Fuchs Executive Director

Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days of 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: 97-000699

Orders for Case No: 97-000699