STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COMMODITY CONTROL CORPORATION, d/b/a ) INDUSTRIAL EQUIPMENT AND SUPPLIES, )

)

Petitioner, )

)

vs. ) Case No. 99-1613

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to Notice, this cause was scheduled for final hearing on August 30, 1999. During a telephonic pre-hearing conference conducted on August 27, the parties stipulated that there remain no disputed issues of material fact. The parties agreed that the final hearing should be cancelled and further agreed to a schedule for filing their exhibits and proposed recommended orders.

The stipulated facts are contained in the Joint Prehearing Stipulation filed August 23, 1999, and in the Supplemental Prehearing Stipulation filed August 27. Those Stipulations, the record in this cause, Petitioner's Exhibits numbered 1 and 2, the Department's Exhibits numbered 1-7, and the proposed recommended orders filed by both parties have been considered in the entry of this Recommended Order.

STATEMENT OF THE ISSUE

The issue presented is whether the $5.00 per gallon tax on perchloroethylene provided for in Section 376.75, Florida Statutes, is subject to Florida sales and use tax pursuant to Chapter 212, Florida Statutes.

STIPULATED FACTS

1. Petitioner is a for-profit Florida corporation that sells perchloroethylene and other dry-cleaning supplies to the dry-cleaning industry. It is a "wholesale supply facility" as that term is defined in Section 376.301(17), Florida Statutes.

2. Petitioner is a member of the Florida Drycleaners' Coalition, a state-wide trade association whose members consist of the owners/operators of dry-cleaning facilities and wholesale supply facilities. In 1993 and prior to and during the 1994 Florida legislative session, the Florida Drycleaners' Coalition employed lawyers-lobbyists to suggest and seek passage of amendments to Chapter 376, Florida Statutes, commonly known as the Florida Dry-Cleaning Solvents Cleanup Program.

3. In 1994, the Florida Legislature enacted Chapter 94- 355, Laws of Florida, which amended Chapter 376, Florida Statutes. Chapter 94-355 created Section 376.3078(2)(a), Florida Statutes, which provides that:

   All penalties, judgments, recoveries, reimbursements, loans, and other fees and charges related to the implementation of

   this section and the tax revenues levied, collected, and credited pursuant to ss.

   376.70 and 376.75, and registration fees collected pursuant to s. 376.303(1)(d), shall be deposited into the Water Quality Assurance Trust Fund, to be used upon appropriation as provided in this section. Charges against the funds for dry-cleaning facility or wholesale supply site rehabilitation shall be made in accordance with the provisions of this section.

   
   

4. Chapter 94-355, Laws of Florida, also created Section 376.75, Florida Statutes, which provides, in part, as follows:

   1. Beginning October 1, 1994, a tax is levied on the privilege of producing in, importing into, or causing to be imported into the state perchloroethylene (tetrachloroethylene). A tax of $5.00 per gallon is levied on each gallon of perchloroethylene when first imported into or produced in the state. The tax is imposed when transfer of title or possession, or both, of the product occurs in this state or when the product commingles with the general mass of this state.

      
      

5. Petitioner's corporate secretary and 50 percent shareholder is David J. Pilger. He contributed financially to the employment by the Florida Drycleaners' Coalition of lawyers- lobbyists charged with seeking passage of amendments to Chapter 376, Florida Statutes, and met several times with those lawyers- lobbyists in Tallahassee. He was assured during those meetings that it was the opinion of those lawyers-lobbyists that there was no danger of Florida sales tax being applied to the $5.00 per gallon tax on perchloroethylene.

6. The Department conducted an audit of Petitioner for the period of January 1, 1993, through January 31, 1998.

7. At no time prior to the Department's audit of Petitioner's financial records did Petitioner receive from the Department materials of any kind indicating that Florida sales and use tax would apply to the $5.00 per gallon tax on perchloroethylene. The Department had, however, adopted emergency Rule 12BER94-2, effective October 1, 1994, and Rule 12B-12.003(2)(b), Florida Administrative Code, effective February 19, 1995.

8. The 1998 Florida Legislature amended Section 376.75, Florida Statutes, by enacting Chapter 98-189, Laws of Florida, effective July 1, 1998, which added a sentence regarding the

   $5.00 per gallon tax, as follows: "This tax is not subject to sales and use tax pursuant to ch. 212."

9. The Department has assessed and/or collected from certain taxpayers Florida sales and use tax on the sales price of perchloroethylene and the $5.00 per gallon tax on perchloroethylene. The sales and use taxes are deposited into the general revenue fund pursuant to Section 212.20(1), Florida Statutes. The $5.00 per gallon tax on perchloroethylene is deposited into the Water Quality Assurance Trust Fund, pursuant to Section 376.3078(2)(a), Florida Statutes.

10. The Department issued its Notice of Proposed Assessment to Petitioner on October 22, 1998, assessing sales and use tax of $39,098.66, penalties of $19,549.64, and interest of $11,184.10 through October 22, 1998, with interest of $12.85 to accrue per day.

11. The Department issued its Notice of Proposed Assessment to Petitioner on October 22, 1998, assessing indigent care surtax of $2,128.98, penalties of $1,064.48, and interest of $611.97 through October 22, 1998, and interest of $.70 to accrue per day.

12. Petitioner charged its customers and remitted to the Department the $5.00 per gallon tax on perchloroethylene provided for in Section 376.75, Florida Statutes, but neither collected from the customer nor remitted to the Department sales and use tax on this $5.00 per gallon tax. The $5.00 per gallon tax collected by Petitioner from its customers was reflected at the bottom of Petitioner's invoices as "the ENVRN TAX."

13. Petitioner charged its customers and remitted to the Department the excise tax provided for in Section 206.9935(2), Florida Statutes, but neither collected from its customers nor remitted to the Department sales and use taxes or indigent care surtax on this excise tax. This tax was reflected at the bottom of Petitioner's invoices as "PERC TAX."

14. Petitioner does not contest the Department's assessment of sales and use taxes and indigent care surtax on the water quality tax provided for in Section 206.9935(2), Florida Statutes.

15. Petitioner does not dispute that its sales to its customers during the audit period were paid for by its customers.

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the subject matter hereof and the parties hereto. Sections 120.569 and 120.57(1), Florida Statutes.

17. Petitioner argues that Section 376.75(1), Florida Statutes, has not been interpreted by the Department in the light most favorable to the taxpayer and strictly against the taxing authority, that the statute represents the imposition of taxes upon taxes in contravention of Florida and federal case law, that the statute contains no unequivocal language requiring the pyramiding of taxes, and that, therefore, the $5.00 per gallon tax on perchloroethylene provided for by the statute is not subject to Florida sales and use tax. While Petitioner's arguments are compelling, they are not dispositive of this proceeding.

18. Petitioner's arguments as to the interpretation to be given the statute, while legally correct, do not consider the

    Department's rule. Rule 12B-12.0031(3)(a)2, formerly Rule 12B- 12.003(2)(b), Florida Administrative Code, provides that the perchloroethylene tax is to be included in the price upon which sales and use tax is computed, even if the perchloroethylene tax is listed as a separate item on the invoice. Petitioner has not challenged the validity of the Department's rule.

19. Accordingly, the statute itself does not impose sales and use tax on the perchloroethylene tax nor does Chapter 212, Florida Statutes, impose a tax upon this tax. Petitioner's liability for sales and use tax derives from the Department's rule, which imposed the tax until the Legislature amended the statute to specifically forbid the result created by the Department's rule, i.e., a tax upon a tax.

20. The Department's argument that the perchloroethylene tax is tangible personal property is contrary to the statutory definition of tangible personal property. Section 212.02(19), Florida Statutes, defines tangible personal property as property which "may be seen, weighed, measured, or touched or is in any manner perceptible to the senses. . . ." The perchloroethylene tax is not perceptible to the senses.

21. Section 213.21(3), Florida Statutes, authorizes the Department to settle or compromise a taxpayer's liability for penalties under a chapter specified in Section 72.011(1) if the noncompliance is due to reasonable cause and not willful

    negligence, willful neglect, or fraud. That Section also mandates the Department to settle or compromise any penalty exceeding 25 percent of the tax for the same reason. Chapters

    212 and 376 are specified in Section 72.011(1).

    
    

22. Here, Petitioner and the Department have stipulated that Petitioner's representative participated in the process which resulted in the enactment of the perchloroethylene tax, that Petitioner's representative obtained legal advice that the perchloroethylene tax was not subject to sales and use tax, and that the Department did nothing to notify Petitioner that it was enacting a rule which would result in the tax being taxed. Accordingly, it is uncontroverted that Petitioner's noncompliance was due to reasonable cause and was not due to willful negligence, willful neglect, or fraud. It would be unjust for the Department to collect any penalty from

Petitioner.

RECOMMENDATION

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

RECOMMENDED that a final order be entered sustaining the assessment against Petitioner, together with interest, but compromising the entire penalty amount.

DONE AND ENTERED this 22nd day of November, 1999, in Tallahassee, Leon County, Florida.

LINDA M. RIGOT

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 22nd day of November, 1999.

COPIES FURNISHED:

Jarrell L. Murchison, Esquire John Mika, Esquire Department of Legal Affairs The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Fred McCormack, Esquire Landers & Parsons, P.A.

310 West College Avenue Tallahassee, Florida 32301

Linda Lettera, General Counsel Department of Revenue

204 Carlton Building Tallahassee, Florida 32314-6668

Joseph C. Mellichamp, III, Esquire Office of the Attorney General Department of Legal Affairs

The Capitol, Tax Section Tallahassee, Florida 32399-1050

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 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: 99-001613

Orders for Case No: 99-001613