STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
TMW YACHT SALES, INC., )
)
Petitioner, )
)
vs. ) Case No. 00-0846
)
DEPARTMENT OF REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, a hearing was held in this case in accordance with Section 120.57(1), Florida Statutes, on February 5, 2002, by video teleconference at sites in Fort Lauderdale and Tallahassee, Florida, and on May 14, 2002, and June 13, 2002, by telephone, before Stuart M. Lerner, a duly- designated Administrative Law Judge of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Glen A. Stankee, Esquire
Ruden, McCloskey, Smith, Schuster and Russell, P.A.
200 East Broward, Boulevard, Suite 1500 Post Office Box 1900
Fort Lauderdale, Florida 33302
For Respondent: Nicholas Bykowsky, Esquire
Office of the Attorney General The Capitol-Tax Section, Plaza 01 Tallahassee, Florida 32399-1050
STATEMENT OF THE ISSUE
Whether Petitioner owes sales and use tax (plus penalties and interest) to the Department of Revenue (Department), as alleged in the Department's December 22, 1999, Notice of Decision.
PRELIMINARY STATEMENT
On December 22, 1999, the Department issued a Notice of Decision announcing that Petitioner owed taxes (plus penalties and interest) on the "purchase price of [the] vessel ["Destiny"] and related items purchased tax free" during the period from September 1, 1991, to August 31, 1996 (Audit Period).
On February 18, 2000, Petitioner filed a Petition for Administrative Hearing (Petition) challenging the Department's proposed assessment in its entirety.
In its Petition, Petitioner asserted that the following were the "issues of material fact in dispute":
Whether Petitioner used its vessel, the "Destiny" (the "Vessel"), exclusively for bare boat chartering purposes.
Whether Petitioner's purchases of tangible personal property in Florida pursuant to its Florida sales tax exemption certificate were exempt from Florida sales tax.
The following were the "ultimate facts alleged by Petitioner" in its Petition:
Petitioner has never engaged in any activity other than chartering the Vessel.
Every one of Petitioner's many charters during the relevant period other than the one which occurred on January 22, 1996, occurred outside Florida.
Petitioner was duly registered with the Respondent as a charter dealer at all times that the Vessel was in Florida.
Petitioner purchased the Vessel outside Florida and has used it exclusively for bare boat chartering purposes at all times thereafter.
Petitioner's shareholder/officer was never on the Vessel in Florida.
All items purchased by Petitioner on a tax exempt basis, including vessel repairs, china, computer, fishing equipment, food, refreshments and fuel were purchased pursuant to Petitioner's Florida sales tax exemption certificate to provision, promote and/or prepare the Vessel for charter.
Petitioner never provided the captain or crew for any charter of the Vessel except under a separate agreement as described in, and in full compliance with, Rule 12A- 1.071(17)(b), F.A.C.
Petitioner satisfied all conditions for exemption of the Vessel from Florida use tax.
In its Petition, Petitioner alleged that the Department's "proposed sales and use tax assessments [were] based on the following errors of law":
Respondent erroneously contends that "training the crew for charter and preparing
the vessel for charter . . . is [a] taxable [use]."
Respondent erroneously contends that imposition of Florida use tax depends on whether the Vessel is used exclusively for bare boat chartering while it is located outside Florida.
Respondent erroneously contends that any use of the Vessel other than bare boat charter results in the retroactive imposition of use tax to the date the Vessel was purchased even where, as here, the Vessel was purchased outside Florida and not subject to Florida sales tax.
Respondent erroneously disregards Petitioner's separate corporate existence by contending that personal use of the Vessel by the Petitioner's shareholder/officer constitutes personal use by the Petitioner rather than a lease of the Vessel by the Petitioner to its shareholder/officer.
Respondent erroneously contends that the agreements under which Petitioner chartered the Vessel did not constitute bare boat charter agreements under Rule 12A-1.071(17) and (19), F.A.C.
Petitioner erroneously contends that use of the Vessel for purposes other than bare boat chartering results in the retroactive loss of Petitioner's dealer status such that all Petitioner's purchases of tangible personal property in Florida pursuant to its Florida sales tax exemption certificate becomes taxable.
The Petition was referred to the Division of Administrative Hearings on February 23, 2000.
At the parties request, the case was placed in abeyance on March 13, 2000, and kept in abeyance until September 11, 2000,
at which time a final hearing was scheduled for February 27 through 28, 2001. The hearing was subsequently continued on three occasions and ultimately rescheduled to commence on February 5, 2002.
On the morning of February 5, 2002, the parties filed a Joint Stipulation of Facts, in which they stipulated that the "following facts are admitted and will require no proof at the hearing":
Petitioner is a Florida corporation whose principal address is 1323 Southeast 17th Street, Ft. Lauderdale, Florida, all of the outstanding stock of which is owned by Thomas M. Wheeler, ("Mr. Wheeler"), a resident of Texas.
Mr. Wheeler was the sole record officer and director of TMW at all times during the audit period.
In July of 1995, Petitioner purchased a certain 1989 124’ Broward motoryacht (the "vessel") from Jack Miller then named "Sea Bird." Prior to the time Jack Miller owned it, it was owned by Felix Sabonis and was named "Victory Lane."
Mr. Wheeler delegated full responsibility for Petitioner’s chartering operations to Captain Steven Ernest. Captain Ernest was employed by Petitioner throughout the entire audit period.
Captain Ernest served as the captain of the vessel at all relevant times.
At all relevant times, Captain Ernest held a U.S. Coast Guard Captain’s license, 1600 tons.
Captain Ernest was responsible for all aspects of Petitioner’s chartering operations, including hiring, firing and training the crew. Captain Ernest handled all charters for Petitioner.
The vessel was actively promoted for charter throughout the audit period by Captain Ernest and Bob Saxon & Associates. Bob Saxon & Associates was the listing broker and would advertise the vessel in leading yachting magazines. Bob Saxon & Associates kept the vessel’s chartering calendar.
The vessel was generally located in the Bahamas and the Caribbean during the winter months (November through May) and in Newport, Rhode Island, during the summer months (June through October), since this is where charterers use mega-yachts such as the vessel.
Captain Ernest brought the vessel to Florida between trips to the Caribbean and Newport for repairs and to market the vessel to charter brokers and at boat shows.
The appropriate amount of sales tax was collected and timely remitted to the Department of Revenue on every charter conducted to any extent in Florida.
Mr. Wheeler inspected the vessel in Florida before Petitioner purchased it, but after it was purchased, neither Mr. Wheeler, nor any member of his family, was ever onboard the vessel in Florida for any reason.
During the audit period the vessel was in Florida on the following dates, for the purposes indicated:
Dates: 7/26/95-8/23/95; Location: Bradford Marine; Purpose: Undergoing repair; No. of Days: 29
Dates: 9/28/95-10/25/95; Location: Bradford Marine; Purpose: Undergoing repair; No. of Days: 27
Dates: 10/26/95-10/30/95; Location: Ft. Lauderdale Boat Show; Purpose: Marketing for charter; No. of Days: 5
Dates: 10/31/95-11/2/05; Location: Bradford Marine; Purpose: Undergoing repair; No. of Days: 3
Dates: 11/18/95-11/29/95; Location: W.P.B.; Purpose: Marketing for Charter; No. of Days: 10
Dates: 12/18/95-12/20/95; Location: Pier 66; Purpose: Undergoing repairs; No. of Days: 3
Dates: 1/5/96-1/21/96; Location: Ft. Lauderdale; Purpose: Mktg., main./repair; No. of Days: 17
Date: 1/22/96; Location: Miami; Purpose: Charter; No. of Days: 1
Dates: 1/23/96-2/23/96; Location: Boat Show/Mktg; Purpose: Marketing; No. of Days: 31
Dates: 3/27/96-4/4/96; Location: Pier 66; Purpose: Prep. for Charter; No. of Days: 9
Dates: 4/15/96-4/24/96; Location: Pier 66/Broward East; Purpose: Undergoing repair; No. of Days: 9
Dates: 4/25/96-4/30/96; Location: Palm Beach; Purpose: Mktg., maintenance; ; No. of Days: 6
Dates: 5/1/96-5/5/96; Location: Pier 66; Purpose: Undergoing repair; No. of Days: 5
Dates: 5/6/96-5/16/96; Location: Broward Marine; Purpose: Undergoing repairs; No. of Days: 11
Every purchase of tangible personal property in Florida for which Petitioner’s sales tax exemption certificate was used was specifically approved by Captain Ernest.
The vessel accommodated ten charter guests in five state rooms, as well as a crew of seven, including the captain.
The crew is essential to any chartering operation. The success of the chartering operations depends on the performance of the crew, even though the chartering is conducted on a bareboat basis.
The crew lives onboard the vessel. No owner could hire or maintain crew unless living accommodations were provided onboard the vessel.
Petitioner’s insurance required that petitioner’s own captain conduct any charters of the vessel.
Petitioner’s insurance requires that some crew member be onboard at all times for fire watch.
Some of the equipment on the vessel runs constantly, including the generators which run for months at a time without ever being turned off. The engineer must take instrument and gauge readings every half hour, 24 hours a day, seven days per week.
The owner always provides the captain and crew in any bareboat chartering operation involving a vessel the size and complexity of the Petitioner’s. The vessel requires constant maintenance, 24 hours a day, seven days a week, in addition to any repairs it may need.
As noted above, the final hearing was held on February 5, 2002, May 14, 2002, and June 13, 2002. The following witnesses testified at hearing: Steven Brown, Donald Bittner, Vicki Allen, and Captain Steven Ernest. In addition to the testimony of these witnesses, numerous exhibits were offered and received into evidence, including the transcripts of the depositions of Captain Ernest, Thomas Wheeler, Paul Oster, and Douglas
Soifer. 22/
On June 13, 2002, the day before the final day of hearing, the parties filed a Joint Stipulation of Law and a Second Joint Stipulation of Facts. In their Second Joint Stipulation of Facts, the parties stipulated that the "following facts are admitted and will require no proof at the hearing":
Mr. Wheeler did not own any real property in Florida at any time during the audit period.
Mr. Wheeler was not involved in any aspects of Petitioner’s chartering operations.
Petitioner was formed on December 11, 1989, for the business purpose of buying, selling and chartering vessels.
Prior to the time the vessel was owned by Mr. Miller and Mr. Sabonis, it had been used in very successful chartering operations under the name "Destiny." Petitioner renamed the vessel the "Destiny" in order to capitalize on the vessel's reputation as a successful chartering vessel.
Prior to Petitioner’s purchase and importation of the vessel into Florida, at Mr. Maas’ direction, Petitioner registered as a Florida dealer and has maintained its status as a dealer at all times throughout the audit period.
During the audit period, the vessel was chartered pursuant to the charter agreements and separate crew employment agreements that are marked as Bates Nos. 894-897, 989-900, 901-904, 905, 907-910, 911, 913-914, 915, 916-920, 921-922, 924-927, 929-933, 934, 936-940, 941-942, 1144, 1145-1149, 1150.
The vessel was never chartered during the audit period, in or out of Florida, except under a bareboat charter agreement and separate crew employment agreement.
The crew wages [were] paid to Petitioner by the charterer who, in turn, paid the funds to the crew members as part of their regular salaries. In addition to their salaries, Petitioner also provided crew members with health and dental insurance.
During the audit period, a typical charter was for one week at a rate of
$45,000, of which 80% was paid under the bareboat charter agreement for use of the vessel, and 20% was paid under the separate crew agreement as compensation for the crew.
Within very broad parameters, the bareboat charter agreements all granted possession, custody and control over the vessel's destination (subject to the captain’s responsibility for its safe operation) to the charterer.
Eventually, Petitioner built its chartering business up to about 20 weeks of charters per year, which made the vessel Bob Saxon & Associates’ top performer.
When Mr. Wheeler was onboard the vessel, he generally used it to conduct the business of one of his many other companies.
Mr. Wheeler kept no personal effects onboard the vessel.
On July 21, 1995, the Taxpayer purchased the vessel "Destiny," a 1989 Broward, one hundred and twenty-four foot motoryacht and received the bill of sale.
The purchase price of the Yacht was
$3,925,000.
The Taxpayer submitted to the Department an application for sales tax registration dated . . . July 17, 1995, on which the Taxpayer identified its business activity as "vessel sales and charters (bare boat)."
Petitioner, TMW Yacht Sales, Inc., is a Florida corporation that was formed for the sole purpose of owning an[d] operating a luxury yacht for bareboat charter.
Petitioner registered as a dealer with the Department on July 19, 1995.
In the Charterer Vessel Services Agreement, TMW Yacht Sales, Inc., agrees to provide crew services to the vessel when Wheeler charters the Destiny.
The Destiny was docked at Bradford Marine undergoing repairs from July 21, 1995 to August 23, 1995.
The Destiny underwent repairs at Bradford Marine during the period of August 12, 1995 through August 15, 1995.
The Destiny arrived in Newport, Rhode Island on August 28, 1995.
The Destiny attended the Newport Boat Show from August 28, 1995 through September 2, 1995.
The Destiny was located in Newport, Rhode Island on August 28, 1995.
The Destiny was located in Newport, Rhode Island on August 29, 1995.
The Destiny was located in Newport, Rhode Island on August 30, 1995.
In October, 1995, the Destiny was present at the Ft. Lauderdale Boat Show.
Petitioner did not charter the Destiny during the month of October, 1995.
Petitioner did not charter the Destiny during the month of November, 1995.
The Destiny left Ft. Lauderdale for Nassau, Bahamas on November 3, 1995.
On November 21, 1995, TMW purchased food items, kitchen supplies and trash bags in the amount of $264.81 from Publix.
On November 27, 1995, TMW purchased food items in the amount of $736.25 from Earthy Delights, items that were shipped from Michigan to the vessel in Fort Lauderdale.
On November 27, 1995, TMW purchased food items in the amount of $1,869.85 from Summerfield Farm.
On November 28, 1995, TMW purchased beer and assorted beverages in the amount of
$495.75 from the Beverage Warehouse.
On November 29, 1995, TMW purchased food items in the amount of $869.08 from Publix.
On November 30, 1995, the Destiny was in the Bahamas.
On December 20, 1995, the Destiny moved to the Bahamas.
Petitioner did not charter the Destiny during the month of February, 1996.
The Destiny moved to the Bahamas on February 24, 1996.
Petitioner did not charter the Destiny during the month of March, 1996.
The Destiny was moved to St. Maarten during the period of March 1, 1996 through March 3, 1996.
On March 7, 1996, the Destiny was moved to St. Baarths [sic].
The Destiny cruised from St. Baarths [sic] to St. Maarten on March 10, 1996.
From the period of March 11, 1996 through March 16, 1996 the Destiny was docked in St. Maarten.
During the period from March 17, 1996 through March 22, 1996, the Destiny cruised from St. Maarten[] to Puerto Rico.
The Destiny cruised from Puerto Rico to Ft. Lauderdale during the period of March 23, 1996 through March 27, 1996.
The Destiny sailed from Ft. Lauderdale to the Bahamas on April 5, 1996.
The Destiny cruised from Ft. Lauderdale to Palm Beach on April 24, 1996 and remained docked at Palm Beach until April 30, 1996.
The Destiny was in Ft. Lauderdale from May 1, 1996 through May 16, 1996.
The Destiny was docked in Ft. Lauderdale on May 16, 1996.
The Destiny cruised from Ft. Lauderdale to Newport, Rhode Island from May 17, 1996 through May 31, 1996.
During the period from May 20, 1996 through May 31, 1996, the Destiny’s crew was aboard the vessel.
During the period from June 1, 1996 through June 26, 1996, the Destiny was in Newport, Rhode Island.
The William C. Boardman Yacht Charter Agreement was prepared by Bartram and Brakenoff Yacht Brokerage on their standard charter agreement form.
The Destiny cruised to Portland, Maine, on June 27, 1996.
On July 8, 1996, the Destiny returned to Newport, Rhode Island.
On July 9, 1996, the Destiny cruised to Boston, Massachusetts.
During the period from July 9, through July 12, 1966, the Destiny cruised from Boston to Nantucket.
On July 12, 1996, the Destiny returned to Newport.
From July 13, 1996 through July 20, 1996, the Destiny remained in Newport.
From July 21, 1996 through July 28, 1996, the Destiny was chartered.
On July 29, 1996, the Destiny was moved to Hyannis, Massachusetts.
On July 31, 1996, the Destiny returned to Newport.
The Destiny was docked in Newport during the period from August 1, through August 3, 1996.
During the period from August 4 to August 18, 1996, the Destiny cruised from Newport to New York.
The Destiny was docked at Newport during the period from August 26 to August 31, 1996.
Petitioner trained its crew on the Yacht during the period at issue.
During the audit period, the insurance underwriter required pre-approval of all captains of the Destiny.
The liability insurance purchased for or on behalf of the Yacht during the period at issue was paid for by TMW.
The casualty insurance purchased for or on behalf of the Yacht during the period at issue was paid for by TMW.
The insurance policy for the period of July 21, 1995 through July 21, 1996 was issued by Lloyds and Institute of London Underwriters through C.A. Hansen Corporation as its agent, and it includes a term which grants TMW permission to charter the Destiny when "the owner and/or his captain/crew pre- approved by the Underwriter are in charge of the vessel."
At the conclusion of the evidentiary portion of the hearing on June 12, 2002, the undersigned, on the record, advised the parties of their right to file proposed recommended orders and established a deadline (September 16, 2002) for the filing of such post-hearing submittals.
Petitioner and the Department filed their Proposed Recommended Orders on September 16, 2002, and September 17, 2002, respectively. These post-hearing submittals 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 to supplement and clarify the numerous stipulations set forth in the parties' Joint Stipulation of Facts and Second Joint Stipulation of Facts: 23/
Mr. Wheeler is a very successful entrepreneur, who has numerous investments and businesses.
His interest in Petitioner represents only a small fraction of his wealth, and, consequently, he pays little or no attention to its business operations.
He has let Captain Ernest exercise day-to-day control over these operations. No one other than Captain Ernest has been delegated such authority.
When the "Destiny" was purchased by Petitioner, Mr.
Wheeler intended for it to be used, for a time, as a charter boat (on a bare boat basis) and then sold, hopefully for a profit.
From the time that Petitioner purchased the "Destiny" until the end of the Audit Period, Petitioner was not "involved in any business other than chartering the 'Destiny.'"
Captain Ernest was the one who "picked [the "Destiny"] out." He did so pursuant to Mr. Wheeler's instructions that he "make sure" to select a "good charter platform." Aside from giving Captain Ernest these instructions, Mr. Wheeler did not participate in the selection process.
The "Destiny" had a "perfect" configuration for chartering. In fact, it was "originally designed as a charter boat." It had last been used for chartering approximately five years before it was purchased by Petitioner.
Rob Maas (the "Mr. Maas" referred to in the parties' Stipulation of Fact 26) is the attorney who represented Petitioner at the time the "Destiny" was purchased.
At the request of Mr. Wheeler, who was "interested in satisfying all conditions for the Florida use tax exemption," Mr. Maas advised Mr. Wheeler and Captain Ernest as to "what was necessary to maintain the exemption." He told them that "bare boat charter forms" needed to be used when the vessel was chartered and that "any time the boat ever moved . . . [it had to be for] a business reason."
After being given such advice, Mr. Wheeler specifically instructed Captain Ernest to use the "Destiny"
exclusively for bare boat chartering and no other purpose, instructions that Captain Ernest followed.
Captain Ernest accepted delivery of the "Destiny" on behalf of Petitioner in the Bahamas, 1/ notwithstanding that the purchase agreement between Petitioner and the seller indicated that delivery of the vessel was to be made at Pier 66 in Fort Lauderdale, Florida.
Petitioner did not pay any sales tax on its purchase of the boat.
Mr. Wheeler was not present at the time delivery of the vessel was accepted.
After accepting delivery, Captain Ernest brought the boat to Fort Lauderdale. He did so because Fort Lauderdale was "the easiest place to get repairs done," a "good place to pick up crew . . . and finding things that you need for boats," and "the place you want to be" to charter a boat; however, he "probably [would] not" have entered Florida waters if had known that doing so would subject Petitioner to use tax liability.
Upon arriving in Fort Lauderdale, Captain Ernest took the "Destiny" directly to Bradford Marine Shipyard (Bradford Marine), a Fort Lauderdale repair facility, where it was "outfitted . . . specifically for charter."
On those occasions that Mr. Wheeler was on the "Destiny" during the Audit Period, he was aboard in the capacity
of a paying charterer pursuant to a bare boat charter agreement that he and Petitioner had entered into on July 21, 1995.
This bare boat charter agreement provided that Petitioner (as the "Owner") would make the "Destiny" available to Mr. Wheeler (as the "Charterer") "for charter on a 'stand-by' basis" and further provided, in pertinent part, as follows:
Vessel Availability. Charterer understands the Vessel is scheduled to undergo significant repairs and improvements during 1995 and will not be available when such work is scheduled. Charterer further understands and agrees its charter is on a non-exclusive basis and Owner intends to charter the Vessel through the use of a charter broker to other parties. In the event of a scheduling conflict between Charterer and another charterer, Charterer agrees Owner may "bump" Charterer from using the Vessel during the conflicting period.
Charter Broker. Owner and Charterer acknowledge that this is a direct charter without a charter broker. Accordingly, the charter rate is a discounted rate.
Term, Hire, & Payment. Subject to the Vessel's availability, Owner agrees to let, and Charterer to hire, the Vessel on such days and for such term as Owner and Charter[er] agree at the rate of $3,000.00 per day, plus state sales tax, if applicable. There will be an accounting at the end of each calendar year to determine Charterer's usage during the preceding year. Due to the Vessel's repair schedule in 1995, the first accounting shall occur at the end of 1996 for Charterer's usage from the date of this Agreement. Charterer shall pay Owner the charter hire determined by the accounting by January 31st of next year. In addition to the charter hire, Charterer
shall be responsible for all remaining expenses during charter, including but not limited to food, beverage, fuel, dockage, and accommodations. . . .
5. Control. The Vessel is chartered on a demise basis. Owner hereby transfers to Charterer full authority regarding operation and management of the Vessel for the charter terms. Charterer is solely responsible for retaining a master and crew and it is agreed that said Captain and/or crew are agents and employees of Charterer and not Owner. . . .
On July 21, 1995, Mr. Wheeler and Petitioner also entered into a separate agreement for the services of the "Destiny's" captain and crew.
This agreement between Mr. Wheeler (as "Charterer") and Petitioner (as "Contractor") for use of the "Destiny's" captain and crew provided, in pertinent part, as follows:
Term, Hire & Payment. Charterer hereby retains Contractor to provide crew services to the Vessel during the charter period at the rate of $500.00 per day. In addition, Charterer shall provide the master and crew with food and quarters aboard the Vessel while retained. There will be an accounting at the end of each calendar year to determine Charterer's usage during the preceding year. Due to the Vessel's repair schedule in 1995, the first accounting shall occur at the end of 1996 for Charterer's usage from the date of this Agreement.
Charterer shall pay Owner the charter hire determined by the accounting by January 31st of the next year.
Provisions. Charterer, before any charter use, shall advance an expense deposit for running expenses. The master shall use these funds to pay for food,
liquor, laundry, fuel and lubricants, harbor fees, communication expenses, and any other required supplies or services. If the deposit is insufficient to cover all charges, Charterer shall advance further funds, as needed, during the charter. Upon conclusion of a charter, the master shall provide an accounting to the Charterer of sums received and disbursed.
Crew Services. Contractor, on those days Charterer is to use the Vessel, shall provide a full-time, qualified captain and crew. Each crew member shall hold any required license and shall be properly uniformed. . . .
Navigation. The master shall act at the Charterer's direction; provided, however, that the master shall not have to carry out any order that jeopardizes the safety of the Vessel or those on board.
Relationship. Contractor is retained by Charterer only for the purposes and to the extent set forth in this Agreement, and Contractor's relationship to Charterer shall be that of an independent contractor. Neither the execution or performance of this Agreement shall render the parties partners or co-venturers for any purposes. . . .
Mr. Wheeler chartered the "Destiny" pursuant to the July 21, 1995, bare boat charter agreement (and utilized the services of the "Destiny's captain and crew pursuant to the separate July 21, 1995, employment agreement) on the following dates during the Audit Period: September 12, 1995, through September 15, 1995; December 21, 1995, through January 4, 1996; March 4, 1996, through March 7, 1996; July 21, 1996, through
July 28, 1996; and August 19, 1996, through August 25, 1996. 2/ These charters all occurred outside of Florida.
Mr. Wheeler was billed (in accordance with his agreements with Petitioner) for his use of the "Destiny," for the services performed for him by the "Destiny's" captain and crew, and for all "running expenses" incurred during his charters, and he paid Petitioner the full amount he was billed.
Mr. Wheeler was not the only one to charter the "Destiny" during the Audit Period. There were seven other charters: by Ryder Systems, Inc., of Miami, Florida, from 2:00
p.m. to 7:00 p.m. on January 22, 1996; by Barry Zekelman, from noon on April 6, 1996, to noon on April 13, 1996; by William Boardman, from noon on May 20, 1996, to noon on May 31, 1996; by David Cole, from noon on June 29, 1996, to noon on July 7, 1996; by the Robert E. Morris Company, from 4:00 p.m. on July 9, 1996, to 4:00 p.m. on July 12, 1996; by Thomas Russell, from 9:00 a.m. to 8:00 p.m. on July 30, 1996; and by Richard Dvorak, from 3:00
p.m. on August 4, 1996, to 3:00 p.m. on August 18, 1996.
Each of these charters, like Mr. Wheeler's charters of the "Destiny," occurred pursuant to a bare boat charter agreement (on a form containing provisions standard in the bare boat chartering industry, including, among others, one obligating the charterer to pay all "running expenses" during the charter), with the captain and crew being provided in
accordance with the terms of a separate employment agreement entered into by the charterer. (These separate employment agreements, unlike Mr. Wheeler's agreement for the services of the "Destiny's" captain and crew, were with Captain Ernest, not Petitioner.)
The arrangements made for the payment of the "Destiny's" captain and crew for services performed by them while the "Destiny" was under charter during the Audit Period were "customary in the industry."
Only one charter during the Audit Period, the Ryder Systems, Inc., of Miami, Florida, charter, took place in Florida.
Florida is not considered a preferred destination in the bare boat chartering industry.
A considerable amount of time was spent during the Audit Period marketing and promoting the "Destiny" to rebuild the reputation it had previously enjoyed as a charter boat. 3/ It was not until 1997 that Petitioner's bare boat chartering business "really took off as far as . . . charter numbers went."
Although the "Destiny" was under charter only for a small portion of the Audit Period, at no time during the remainder of the Audit Period (when it was not under charter) was it used for any purpose unrelated to Petitioner's bare boat chartering business.
The "Destiny" was used to house 4/ and feed Captain Ernest and the other members of the crew 5/ at all times during the Audit Period, whether the "Destiny" was under charter or not. Such use of the "Destiny" was in furtherance of Petitioner's bare boat chartering operations.
Having a full-time captain and crew aboard a "mega" yacht available for bare boat charter, even when the yacht is not under charter, is essential to conduct successful chartering operations.
The captain and crew must be available, on the vessel, to host the charter brokers and prospective charterers who come aboard between charters (sometimes with little or no advance notice) and to perform those everyday tasks necessary to maintain the vessel.
To attract and keep qualified onboard personnel, it is necessary to provide them with, as part of their compensation package, free room and board on the "mega" yacht. Doing so is the standard practice in the bare boat chartering industry.
When it was not under charter during the Audit Period, the "Destiny" was heavily promoted and marketed in an attempt to attract bare boat charter business. "[A] lot of promotion" and marketing was needed because the "Destiny" was reentering the charter market after a five year hiatus and Captain Ernest "was new to the charter industry."
The promotional and marketing efforts included entering the "Destiny" in boat shows, hosting luncheons for charter brokers aboard the "Destiny," taking charter brokers and their guests on "fam" trips on the "Destiny," and showing the "Destiny" to prospective clients.
Captain Ernest and the crew always tried to make the "Destiny" look its best when charter brokers and prospective charterers came aboard. Flowers were purchased and used to enhance the appearance of the "Destiny."
When charter brokers came aboard the "Destiny," they were wined and dined and otherwise shown the type of service Captain Ernest and the crew were capable of delivering to charterers. (The reputation of the captain and crew for quality service determines "what charters [a "mega" yacht bare boat chartering business is] going to get and how [the] business is going to go.")
It was particularly important "in the early days" for Captain Ernest and his crew to "make an impression on the brokers" because they were not known in the broker community.
During the Audit Period, when not under charter, the "Destiny" was stocked with supplies and provisions purchased for use in connection with Petitioner's bare boat chartering operations.
These supplies and provisions included fuel and various food and beverage items.
Some of the food and beverage items were for use during promotional and marketing activities aboard the vessel. The chef (who specialized in European-style dishes) would often serve rack of lamb or roast duck (as a main course) to visiting charter brokers.
There were also food and beverage items on the vessel for the members of the crew.
In addition, items that could not readily be obtained in the Caribbean islands (at a reasonably competitive price) were purchased before the "Destiny" departed for the Caribbean. These items were stored on the vessel so that they would be available for any charter that Captain Ernest might be able to obtain while the vessel was located in Caribbean. (Charterers paid Petitioner for the items they and their guests consumed during the charter.)
It was "common" for Petitioner to buy large quantities of meats and seafood and store these items for later use in the seven freezers on the "Destiny." For example, on one occasion, Petitioner bought 71.49 pounds of leg of lamb (from a company that would "cryovac" the meat so that it would keep for a very long time).
There were many occasions during the Audit Period, when the "Destiny" was not under charter, that it was moved from one location to another. All such movements, however, were in furtherance of Petitioner's bare boat chartering operations.
For example, it was moved from time to time to attend boat shows and to pick up charter brokers and prospective charterers who wanted to look at the vessel.
On other occasions, it was taken to repair facilities and other places ("mainly . . . in Florida"), such as Pier 66, to have repair and maintenance work done.
It was also taken out on "quite a few" sea trials.
In addition, there were times it was moved to avoid the problems that can arise if a boat just "sit[s] at the dock." "It's very important for a boat to stay moving and stay running" in order for it to remain in good working order.
Another reason it was moved was to be in "the prime areas for [charter] pick-ups." 6/
In summary, during the Audit Period, the "Destiny" was either chartered on a bare boat basis (with captain and crew furnished under a separate employment agreement) or used in a manner reasonably designed to further Petitioner's bare boat chartering business, and for no other purpose.
Furthermore, every tax-free Florida purchase of tangible personal property made by Petitioner under its Florida
sales tax exemption certificate from the time of its acquisition of the "Destiny" until the end of the Audit Period (including the purchase of Yamaha WaveRunners on August 14, 1995, for
$12,770.00 7/) was made in furtherance of Petitioner's bare boat chartering business. 8/
By letter dated October 11, 1996, the Department informed Petitioner that it was going to audit Petitioner's "books and records" for the Audit Period. Petitioner was selected for audit because it had reported only a relatively small amount of taxable charter revenue on the Florida sales and use tax returns it filed during the Audit Period.
The Department began its review of Petitioner's "books and records" on January 23, 1997, at Mr. Maas' office.
The Department's "audit findings" were that the "Destiny" "was purchased for [a] dual purpose, for leasing and to be used by the shareholder" and therefore "the vessel and other purchases [made by Petitioner during the Audit Period under its sales tax exemption certificate] are taxable at the cost price." Based upon these audit findings, the Department issued a Notice of Intent to Make Audit Changes, in which it advised Petitioner that Petitioner owed $250,744.18 in sales and use taxes, $125,325.07 in penalties, and $56,948.55 in interest through July 18, 1997, for a total of $433,017.80, "plus
additional interest of $82.44 per day . . . from 07/18/97 through the date [of] payment."
By letter dated April 22, 1998, Petitioner protested the Department's proposed assessment.
On December 22, 1999, the Department issued its Notice of Decision sustaining the proposed assessment and announcing that, as of December 22, 1999, Petitioner owed the Department
$506,142.08, with "interest continu[ing] to accrue at $82.44 per day from 12/23/99."
Petitioner subsequently filed a Petition for Chapter
120 Administrative Hearing on the Department's proposed action.
CONCLUSIONS OF LAW
In their Joint Stipulation of Law, the parties have stipulated to the following regarding the law applicable to this proceeding:
1. Section 120.80(14)(b), Fla. Stat., provides in pertinent part as follows:
"1. In any administrative proceeding brought pursuant to this chapter as authorized by s. 72.011(1), the taxpayer shall be designated the 'petitioner' and the Department of Revenue shall be designated the 'respondent' . . . .
2. In any such administrative proceeding, the applicable department's burden of proof, except as otherwise specifically provided by general law, shall be limited to a showing that an assessment has been made against the taxpayer and the
factual and legal grounds upon which the applicable department made the assessment.
3.a. Prior to filing a petition under this chapter, the taxpayer shall pay to the applicable department the amount of taxes, penalties, and accrued interest assessed by that department which are not being contested by the taxpayer. Failure to pay the uncontested amount shall result in the dismissal of the action and imposition of an additional penalty of 25% of the amount taxed.
b. The requirements of s. 72.011(2) and (3)(a) are jurisdictional for any action under this chapter to contest an assessment or denial of refund by the Department of Revenue "
Section 212.05, Fla. Stat., at all material times has provided in pertinent part as follows:
"Sales, storage, use tax.- It is hereby declared to be the legislative intent that every person is exercising a taxable privilege . . . who stores for use[9/] or consumption in this state[10/] any item or article of tangible personal
property[11/] . . . and who leases or rents such property within the state."
Section 212.05(1)(b), Fla. Stat., at all material times has provided in pertinent part that use tax is imposed:
"At the rate of 6 percent of the cost price of each item or article of tangible personal property when the same is not sold but is used, consumed, distributed, or stored for use or consumption in this state; however, for tangible property originally purchased exempt from tax for use exclusively for lease and which is converted to the owner's own use, tax may be paid on
the fair market value of the property at the time of conversion."
Section 212.06(1)(a), Fla. Stat., at all material times has provided in pertinent part:
"The aforesaid tax at the rate of . . .
6 percent of the cost price as of the moment of commingling with the general mass of property in this state . . . shall be collectible from all dealers as herein defined on the sale at retail,[12/] the use, the consumption, the distribution, and the storage[13/] for use or consumption in this state of tangible personal property. "
Section 212.06(4), Fla. Stat., at all material times has provided that:
"[T]he use, or consumption, or distribution, or storage to be used or consumed in this state of tangible personal property shall each be equivalent to a sale at retail, and the tax shall thereupon immediately levy and be collected in the manner provided herein, provided there shall be no duplication of the tax in any event."
Section 212.06(7), Fla. Stat., at all material times has provided that the Florida use tax does not apply:
"In respect to the use or consumption of tangible personal property . . . or storage of tangible personal property for use or consumption in this state, upon which a like tax equal to or greater than the amount imposed by this chapter has been lawfully imposed and paid in another state. "
Section 212.07(1)(b), Fla. Stat., at all material times has provided that:
"A resale must be in strict compliance with s. 212.18 and the rules and regulations, and any dealer who makes a
sale[14/] for resale which is not in strict compliance with s. 212.18 and the rules and regulations shall himself or herself be liable for and pay the tax. Any dealer who makes a sale for resale shall document the exempt nature of the transaction, as established by rules promulgated by the department, by retaining a copy of the purchaser's resale certificate. In lieu of maintaining a copy of the certificate, a dealer may document, prior to the time of sale, an authorization number provided telephonically or electronically by the department, or by such other means established by rule of the department. The department shall adopt rules that provide that, for purchasers who purchase on account from a dealer on a continual basis, the dealer may rely on a resale certificate issued pursuant to s. 212.18(3)(c), valid at the time of receipt from the purchaser, without seeking annual verification of the resale certificate. A dealer may, through the informal protest provided for in s.
213.21 and the rules of the Department of Revenue, provide the department with evidence of the exempt status of a sale. Consumer certificates of exemption executed by those exempt entities that were registered with the department at the time of sale, resale certificates provided by purchasers who were active dealers at the time of sale, and verification by the department of a purchaser's active dealer status at the time of sale in lieu of a resale certificate shall be accepted by the department when submitted during the protest period, but may not be accepted in any proceeding under chapter 120 or any circuit court action instituted under chapter 72."
Fla. Admin. Code Rule 12A-1.007(3)(a) at all material times has provided that:
"(3) Tax Credit for Purchases Outside Florida.
A credit is allowed to a person who as purchaser provides documentary evidence that a lawfully imposed sales or use tax has been paid to another state, territory of the United States, or the District of Columbia on any aircraft, boat, mobile home, motor vehicle, or other vehicle which later becomes subject to Florida tax. The credit shall be the amount of legally imposed sales and use tax paid to another state, territory of the United States, or the District of Columbia."
Fla. Admin. Code Rule 12A-1.007 at all material times has provided in pertinent part that:
"(2) Purchases Outside Florida. . . .
(b) Tax shall apply and be due on any . . . boat. . . or other vehicle imported or caused to be imported from a foreign country into this state for use,
consumption, distribution, or storage to be used or consumed in this state. It is immaterial whether such. . . boat, or
other vehicle was used in another country for a period of six months or more prior to the time it is brought into Florida.
Furthermore, tax paid in another country will not be recognized by the State of Florida in arriving at the tax due.
(9)(b)2. [A]ny boat which remains in this state for more than an aggregate of 183 days in any 1-year period shall be presumed to be commingled with the general mass of property of this state, and tax shall be due on the sales price of the boat, except under the following circumstances: . . .
(9)(b)2.b. A boat which is physically in the care, custody, and control of a facility registered with the Department for the purpose of repairs, alterations, refitting, or modifications, and such
activities have been properly documented in accordance with Rule 12A-1.0071, F.A.C." 15/
Fla. Admin. Code Rule 12A-1.007(14)(a) at all material times has provided in pertinent part that:
"The rental or lease of an aircraft, boat, mobile home, or motor vehicle, which is used or stored in this state, shall be taxable without regard to its prior use or tax paid on the purchase outside this state."
Fla. Admin. Code Rule 12A-1.007(14)(b)1. at all material times has provided in pertinent part that:
"The purchase of an aircraft, boat, mobile home, or motor vehicle exclusively for rental purposes may be made tax
exempt . . . . The lessor shall collect tax from his customers on the total rental charge."
Fla. Admin. Code Rule 12A-1.070(19)(a) at all material times has provided in pertinent part that:
"The lease or rental of . . . property . . . between related 'persons,' . . . is subject to tax."
Fla. Admin. Code Rule 12A-1.071(2)(a) at all material times has provided in pertinent part that:
"Tangible personal property purchased exclusively for leasing purposes may be purchased tax exempt, providing the lessor is registered with the Department as a dealer at the time of purchase and issues the vendor a valid resale certificate in lieu of tax. "
Fla. Admin. Code Rule 12A-1.071(2)(b)1 at all material times has provided in pertinent part that:
"Any person who purchases tangible personal property for the dual purpose of leasing it to others and also for his own use, or who purchases tangible personal property with the intention only of leasing it but in fact also uses the property itself, shall pay the tax on the cost price of such property and shall also collect and remit the tax on all leases of such property."
Fla. Admin. Code Rule 12A-1.071(2)(b)2. at all material times has provided in pertinent part that:
"The subsequent conversion to one's own use of tangible personal property which has been purchased tax exempt for exclusive lease, will be subject to use tax at the time of conversion. The basis of the use tax will be 'fair market value' at the time of conversion. If the fair market value of the tangible personal property cannot be determined, then the use tax due at the time of conversion should be based on the acquisition cost of the tangible personal property."[16/]
Fla. Admin. Code Rule 12A-1.071(4)(a) at all material times has provided:
"(4)(a) If the lessee of tangible personal property removes the property from the State of Florida, the consideration contracted to be paid subsequent to such removal is not taxable, provided the lessee furnishes the lessor with a signed certificate identifying the property, and the date the property was or will be removed from this state. If the lessee has obtained self-accrual authority from the Department of Revenue, as provided in Rule 12A-1.0911, F.A.C., then the lessee's records must
substantiate when the property was removed from this state. Rental amounts charged or paid while the property is in Florida are taxable, even though the property is moved from the state immediately after the lessee takes possession of it. This does not apply to motor vehicles. See Rule 12A-1.007, F.A.C., for application of tax to rental of motor vehicles."
Fla. Admin. Code Rule 12A-1.071(19) at all material times has provided in pertinent part that:
"Unless a boat or vessel is purchased exclusively for rental on a bare boat basis as described in paragraph (17), the purchase of the boat or vessel and parts thereof is taxable."
Fla. Admin. Code Rule 12A-1.071(17) at all material times has provided in pertinent part that:
"The lease or rental is considered to be on a 'bare boat' basis when: (a) The lessor does not provide a crew; or (b) The lessor does provide a crew but it is hired by the lessee under a separate employment contract. (Under such circumstances the employment contract cost is not a part of the gross proceeds derived from the lease or rental and is not taxable.)"
Fla. Admin. Code Rule 12A-1.071(17) at all material times has further provided in pertinent part that:
"When a boat or vessel is leased or rented on a 'bare boat' basis, the tax applies to the gross proceeds derived from the lease or rental. . . ." 17/
Fla. Admin. Code Rule 12A-1.091(3) at all material times has provided in pertinent part that:
"The provisions of the Florida Sales and Use Tax shall not apply to the use or consumption, or distribution or storage of tangible personal property for use or consumption in this state upon which a like tax equal to or greater than the amount due this state has been lawfully imposed and paid in another state, territory of the United States, or the District of Columbia before use tax payable to this state would otherwise have become due. If the amount of tax so lawfully imposed and paid in another state, territory of the United States, or the District of Columbia is not equal to or greater than the amount of tax imposed by Chapter 212, F.S., then the person from whom the use tax is due shall pay to the Department of Revenue an amount sufficient to make the tax paid in the other state, territory of the United States, or the District of Columbia and in this state equal to the amount imposed by that Chapter."
Fla. Admin. Code Rule 12A-1.091(4) at all material times has provided in pertinent part that:
"The use tax does not apply to any property of which the retail sale is specifically exempt from payment of the Florida sales tax. The two taxes, sales and use, stand as complements to each other, and taken together provide a uniform tax upon either the sale at retail or the use of all tangible personal property irrespective of where it may have been purchased.
The statutory and rule provisions referenced in these Stipulations of Law are accurately recited therein.
In their Joint Stipulation of Law, the parties have further stipulated "that Petitioner, as a Florida registered dealer, would not be subject to Florida use tax on the value or
cost of the ["Destiny"] if Petitioner establishes that the vessel was used exclusively for bare boat chartering purposes" and that the sole "[i]ssue[] of [l]aw for [d]etermination by [the] Administrative [Law] Judge [is] [w]hether Petitioner’s use of the vessel . . . within and without Florida qualified it for the Florida use tax exemption" available to a Florida-registered dealer that uses its vessel "exclusively for rental on a bare boat basis as described in paragraph (17)" of Rule 12A-1.071, Florida Administrative Code.
To decide this issue, the meaning of the language establishing this "bare boat chartering" exemption must be determined. The undersigned was presented with the very same task in the recent case of B.W. Marine, Inc., v. Department of Revenue, No. 00-0012, 2001 WL 1347503 (Fla. DOAH October 26, 2001)(Recommended Order), wherein the taxpayer "owned a 125' Christensen motoryacht . . . for which it claimed exemption from Florida use tax as having been purchased and used exclusively for bare boat chartering purposes." In Conclusions of Law 129 through 135 of his Recommended Order in that case, the undersigned stated the following:
To resolve this "controversy" between the parties, it is necessary to ascertain the meaning of the language creating the exemption claimed by Petitioner. In its Proposed Recommended Order, Petitioner contends that, in undertaking such task, one should be guided by the following:
"Because the Florida Legislature granted the dealers' sales and use tax exemption with the obvious purpose and intent of encouraging leasing activity in the state, any questions of interpretation and construction of the statute and the administrative rules promulgated to implement it, should be resolved consistently with that intent and, to the extent possible, in the manner which furthers the purposes and goals of the statute. Florida Department of Business and Professional Regulation, Division of Pari- mutuel Wagering v. Investment Corp. of Palm Beach, 747 So. 2d 374 (Fla. 1999). All parts of a statute must be read together in order to achieve a consistent whole. Where possible, effect must be given to all statutory provisions and related statutory provisions must be construed in harmony with one another. Young v. Progressive Southeastern Insurance Co., 753 So. 2d 80 (Fla. 2000), citing Forsythe v. Longboat Key Beach Erosion Control District, 604 So. 2d
452 (Fla. 1992). Statutes must be interpreted in the most logical and sensible way. If possible, the court must avoid an interpretation that produces an unreasonable consequence. Wakulla County v. Davis, 395 So. 2d 540 (Fla. 1981). Statutes are not construed in isolation. They must be interpreted in the context of other statutes on the same general subject. Florida Jai Alai, Inc. v. Lake Howell Water & Reclamation District, 274 So. 2d 522 (Fla. 1973)."
The undersigned agrees with Petitioner. See, e.g., State v. Rife, 789 So. 2d 288,
292 (Fla. 2001)("'[W]hen construing a statutory provision, legislative intent is the polestar that guides' the Court's inquiry. . . . Legislative intent is determined primarily from the language of a statute."); Florida Birth-Related Neurological Injury Compensation Association
v. Florida Division of Administrative Hearings, 686 So. 2d 1349 (Fla.
1997)("[C]onsideration must be accorded not only to the literal and usual meaning of the words, but also to their meaning and effect on the objectives and purposes of the statute's enactment."); and Heredia v.
Allstate Insurance Company, 358 So. 2d 1353, 1354-55 (Fla. 1978)("In matters requiring statutory construction, courts always seek to effectuate legislative intent.").
Furthermore, to the extent that there is any uncertainty concerning the intended scope of the claimed exemption, which cannot be resolved by application of the guidelines described by Petitioner in its Proposed Recommended Order, the uncertainty must be resolved in favor of an interpretation that limits, rather than extends, the operation of the exemption.[18/] See Asphalt Pavers, Inc. v. Department of Revenue, 584 So. 2d 55, 57 (Fla. 1st DCA 1991)("[A]n 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)("While 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."); and Wanda Marine Corporation v. Department of Revenue, 305 So. 2d 65, 69 (Fla. 1st DCA 1974)("[T]ax exemptions must be strictly construed against the claimant.").
The language describing the "bare boat chartering" exemption that is the subject of the instant controversy is found in Rule 12A-1.071(19), Florida Administrative Code, which provides that, "[u]nless a boat or vessel is purchased exclusively for rental on a bare boat basis as described in paragraph (17), the purchase of the boat or vessel and parts thereof is taxable." Subsection (19) of Rule 12A-1.071, Florida Administrative Code, clarifies Subsection
(2)(a)1 of the Rule (which provides that "[t]angible personal property purchased exclusively for leasing purposes may be purchased tax exempt, providing the lessor is registered with the Department as a dealer at the time of purchase and issues the vendor a valid resale certificate in lieu of tax"), as well as Rule 12A- 1.007(14)(b)1, Florida Administrative Code (which provides that "[t]he purchase of an aircraft, boat, mobile home, or motor vehicle exclusively for rental purposes may be made tax exempt"). These rule provisions implement the legislative pronouncement, made in Section 212.05(1)(b), Florida Statutes, that "tangible property [may be] purchased exempt from tax [if purchased] for use exclusively for lease."
Because "[t]he use tax does not apply to any property of which the retail sale is specifically exempt from payment of the Florida sales tax," (Rule 12A-1.091(4), Florida Administrative Code), Rule 12A- 1.071(19), Florida Administrative Code, effectively exempts from Florida use tax any boat that is imported into Florida and used in the state "exclusively for rental on a bare boat basis as described in paragraph (17)" of Rule 12A-1.071, Florida Administrative Code.
The term "exclusively," as used in Rule 12A-1.071(19), Florida Administrative Code, is defined in neither Rule Chapter 12A-1, Florida Administrative Code, nor Chapter 212, Florida Statutes. Absent such a definition, the term should be given its plain and ordinary meaning: solely, entirely, wholly, or only, there being no indication that a contrary meaning was intended. See Seagrave v. State, 2001 WL 776269 (Fla. 2001)[19/]("'One of the most fundamental tenets of statutory construction requires that we give statutory language its plain and ordinary meaning, unless words are defined in the statute or by the clear
intent of the legislature.' When necessary, the plain and ordinary meaning of words can be ascertained by reference to a dictionary."); Dade County v. Pan American World Airways, Inc., 275 So. 2d 505, 512 (Fla. 1973)("By this analysis we have not changed the ordinary meaning of 'exclusive' from its dictionary definition of 'single,' 'sole' and 'entirely.'"); Rast v. Hulvey, 80 So. 750 (Fla. 1919)("It will be observed that under this section of the statute, which is the only one applicable, the property of 'educational institutions' within this state actually occupied and used solely for educational purposes is exempt from taxation. It was not the intention of the Legislature to exempt from taxation property used for educational purposes and other purposes jointly. The word 'solely,' according to Webster's New International Dictionary, means 'without another; singly; alone; entirely; wholly.' The word 'solely' was not used idly in the statute, but was written therein to express the legislative will, as to what class of property shall be exempted, and under a proper construction of this act, no property used for educational purposes is exempt from taxation, unless there is a total absence of usage for other purposes unconnected with educational purposes."); and Speers v. C.I.R., 1994 WL 126680 (U.S. Tax Ct. 1994)("The exclusive use requirement of section 280A(c)(1) is an 'all-or-nothing standard.' . . . Combined personal and business use precludes deductibility of the cost of the residence."); Cf. Section 196.012(2), Florida Statutes ("'Exclusive use of property' means use of property solely for exempt purposes. Such purposes may include more than one class of exempt use.").
To understand what constitutes "rental on a bare boat basis," within the meaning of Rule 12A-1.071(19), Florida Administrative [Code], reference must be made to Subsection
(17) of the Rule, which provides as follows:
"When a boat or vessel is leased or rented on a 'bare boat' basis, the sales tax applies to the gross proceeds derived from the lease or rental. The lease or rental is considered to be on a 'bare boat' basis when: (a) The lessor does not provide a crew; or (b) The lessor does provide a crew but it is hired by the lessee under a separate employment contract. (Under such circumstances the employment contract cost is not a part of the gross proceeds derived from the lease or rental and is not taxable.)"
It is apparent from a reading of this rule provision (particularly its first sentence) that, to be considered a "rental," as that term is used therein and in Subsection (19), a charter must be a Florida charter (which is subject to Florida sales tax unless the charterer enjoys a sales tax exemption), a view that is in keeping with the "obvious purpose and intent [of Subsection (19)] of encouraging leasing activity in the state."
"Rental on a bare boat basis," within the meaning of Rule 12A-1.071(19), Florida Administrative [Code], includes not only the actual "rental" of the boat "on a bare boat basis," but also those reasonably necessary, directly related activities undertaken in connection with and in furtherance of such "rental." See Ocean Beach Realty Co. v. City of Miami Beach, 143 So. 301, 302 (Fla. 1932)("It has been held that the laying out of walks and even streets around or through a park is not at all inconsistent with the dedication for park purposes where the same are necessary or contribute to the full enjoyment of the property for park purposes."); Rast v. Hulvey, 80 So. 750 (Fla. 1919)("If the building used as a school is also used by the owner as a residence or home, and not incidentally in connection with the use of the building as a school, or if the owner of the building
lives in it as a matter of personal convenience or advantage, and not because it is necessary in the discharge of their duties as educators, then it cannot be said it is being used solely for school purposes."); Cedars of Lebanon Hospital v.
Los Angeles County, 221 P.2d 31, 35 (Cal. 1950)("It thus appears that under the rule of strict but reasonable construction, the phrase 'property used exclusively for * * * hospital * * * purposes' [in the tax exemption provision under scrutiny] should be held to include any property which is used exclusively for any facility which is incidental to and reasonably necessary for the accomplishment of hospital purposes; or, in other words, for any facility which is reasonably necessary for the fulfillment of a generally recognized function of a complete modern hospital."); and Board of Appraisal Review for Travis County Appraisal District v. Protestant Episcopal Church Council of Diocese of Texas, 676 S.W.2d 616, 622 (Tex. App. 1984)("We believe, however, that the concept of reasonable necessity will allow the trial court's conclusion that the uses made of the 185 acres, as shown by the evidence, are reasonably necessary for operation of the school and that such uses are exclusively for school purposes. The uses are not merely convenient under the evidence; rather, they form an integral part of the students' 'education' considered both in a narrow and in an enlarged sense."). A more narrow and literal interpretation would defeat the "obvious purpose and intent" of the "bare boat chartering" exemption. See Board of Trustees of Kansas East Conference of United Methodist Church v. Cogswell, 473 P.2d 1, 11 (Kan. 1970)("A strict construction of tax exemption provisions in the constitution and statutes does not warrant an unreasonable construction of such laws."); Eckberg v. Belfer, 24 N.W.2d 851 (Minn. 1946)("A too narrow and literal interpretation must not be permitted to overshadow the spirit and defeat the purpose
for which the regulations were promulgated."); and City of Long Branch v. Monmouth Medical Center, 351 A.2d 756, 760 (N.J. App. 1976)("While a statute granting a tax exemption . . . must be construed strictly against the one claiming the exemption, the statute must also be construed reasonably so that the apparent legislative purpose is not destroyed.").
Accordingly, for a boat owner to qualify for an exemption from Florida use tax pursuant to the "exclusively for rental on a bare boat basis" language in Subsection
(19) of Rule 12A-1.071, Florida Administrative Code, the boat, while in Florida, must either be rented on a "bare boat basis" (that is, without captain and crew or with captain and crew furnished under a separate employment agreement) or used in a manner reasonably designed to further the boat's use for "bare boat" chartering in Florida and for no other purpose. Any other use of the boat in Florida will make the owner ineligible for the exemption. (How the boat is used outside Florida does not have any bearing on the owner's eligibility for the exemption. Eligibility for the exemption (like use tax liability) is based upon what is done with the boat while it is in Florida.)
Id. at *26-29.
Exceptions were filed to the undersigned's Recommended Order. Among these exceptions were exceptions to Conclusions of Law 133 and 135. The Department addressed these exceptions in a Final Order issued on April 10, 2002, which provided, in pertinent part, as follows:
The Department agrees with the Petitioner that the Administrative Law Judge erred in his interpretation of paragraphs (17) and
(19) of Rule 12A-1.071, Florida Administrative Code; the Department agrees with Petitioner that those paragraphs do not limit the use tax exemption to those vessels that rent on a bare boat basis exclusively in Florida. The Department's rules reflect its longstanding interpretation, supported by substantial competent evidence on the record, that the boat or vessel must be purchased exclusively for lease or rental on a bare boat basis, considered to be bare boat if the lessor does not provide a crew, or if the lessor provides a crew, the crew is hired by the lessee under a separate employment contract. Therefore, the Department agrees with the Petitioner that provisioning and fueling for otherwise qualifying non-Florida bare boat charters would be examples of exempt uses.
Just as bare boat charters outside Florida are still, for purposes of compliance with the rule and enjoyment of the exemption, "exclusively for lease or rental on a bare boat basis," however, any use of the boat outside Florida which is not "exclusively for lease or rental on a bare boat basis" destroys the exemption. The Petitioner cannot have it both ways; it cannot interpret the rules to exempt provisioning and fueling for bare boat charters everywhere, but non-qualifying pleasure cruises only in Florida waters. Such an interpretation is unreasonable and internally inconsistent.
The Administrative Law Judge's Conclusions of Law are consistent, but the Department has never interpreted the rules so narrowly to limit use only to Florida waters.
Conversely, Petitioner's expansive construction of the exemption would be inconsistent with the oft-quoted rule that tax exemptions are to be strictly construed. Petitioner argues in its construction of the rules that activities conducted in Florida to further bare boat charters outside
Florida may enjoy the fruits of the exemption, but non-qualifying use outside Florida, such as pleasure cruises with the owner, friends and relatives, somehow falls outside the rule's requirement for bare boat charter exclusivity. Such a construction is strained. The Department's long-standing interpretation and application of the rule, as set forth above, is favored as consistent and reasonable.
* * *
Respondent contends that the Recommended Order erred in concluding
"[h]ow the boat is used outside Florida does not have any bearing on the owner's eligibility for the exemption. Eligibility for the exemption (like use tax liability) is based upon what is done with the boat while it is in Florida."
The analysis contained within the rulings on Petitioner's Exceptions to Conclusions of Law have previously addressed this conclusion, and the modification to this conclusion set forth below addresses those concerns accordingly. As Respondent correctly notes, "[i]t would be inappropriate for the Division to enlarge the exemption by permitting a taxpayer to assert that it used the vessel exclusively for bare-boat chartering purposes but then to use the vessel outside Florida for non- qualifying family entertainment." To the extent, therefore, that Respondent's exception is consistent with the modification of Conclusion of Law 135 set forth below, it is accepted.
. . . . The Department . . . adopts and incorporates Conclusions of Law set forth in paragraphs 126 through 132; [and] 134 . . . of the Recommended Order; paragraphs 133 and
135 . . . of the Conclusions of Law are modified as set forth below.
Conclusion of Law 133
To understand what constitutes "rental on a bare boat basis," within the meaning of Rule 12A-1.071(19), Florida Administrative [Code], reference must be made to Subsection
(17) of the Rule, which provides as follows:
"When a boat or vessel is leased or rented on a 'bare boat' basis, the sales tax applies to the gross proceeds derived from the lease or rental. The lease or rental is considered to be on a 'bare boat' basis when: (a) The lessor does not provide a crew; or (b) The lessor does provide a crew but it is hired by the lessee under a separate employment contract. (Under such circumstances the employment contract cost is not a part of the gross proceeds derived from the lease or rental and is not taxable.)"
It is apparent from a reading of this rule provision that sales tax only applies on Florida charters undertaken on a "bare boat" basis. Paragraph (19) of Rule 12A-1.071, Florida Administrative Code, reads in pertinent part: "[u]nless a boat or vessel is purchased exclusively for lease or rental on a bare boat basis as described in paragraph (17), the purchase of the boat or vessel and parts thereof is taxable." The Department reasonably construes paragraph
(19) of Rule 12A-1.071, Florida Administrative Code, to require that all use of a boat purchased for lease or rental on a bare boat basis must be exclusively for bare boat charter, wherever that use takes place, otherwise the exemption is lost and use tax on the purchase price of the boat applies. The phrase "as described in paragraph (17)" therein reasonably refers to the immediately preceding "bare boat basis," not "lease or rental." By doing so, paragraph (19) simply imports from paragraph (17) the two methods that bare boat status may be achieved:
either "(a) The lessor does not provide a crew; or (b) The lessor does provide a crew but it is hired by the lessee under a separate employment contract."
Conclusion of Law 135
Accordingly, for a boat owner to qualify for an exemption from Florida use tax pursuant to the "exclusively for rental on a bare boat basis" language in paragraph (19) of Rule 12A-1.071, Florida Administrative Code, the boat must either be rented on a "bare boat basis" (that is, without captain and crew or with captain and crew furnished under a separate employment agreement) or used in a manner reasonably designed to further the boat's use for "bare boat" chartering and for no other purpose. Any other use of the boat will make the owner ineligible for the exemption.
This reasonable interpretation by the Department of its own rule must be given deference. See Citizens of the State of Florida v. Wilson, 568 So. 2d 1267, 1271 (Fla. 1990)("An agency's interpretation of its own rules is entitled to great deference."); Miles v. Florida A and M University, 813 So. 2d 242, 245 (Fla. 1st DCA 2002)("A reviewing court should defer to an agency's interpretation of its own rules unless the interpretation is clearly erroneous." 20/); and Golfcrest Nursing Home v. Agency for Health Care Administration, 662 So. 2d 1330, 1333 (Fla. 1st DCA 1995) ("An agency's interpretation of its own rules and regulations is entitled to great weight, and shall not be overturned unless the interpretation is clearly erroneous.").
Deferring (as he must) to the Department's interpretation (articulated in B.W. Marine) of the "exclusively for rental on a bare boat basis" language found in Subsection
(19) of Rule 12A-1.071, Florida Administrative Code, the undersigned finds that the record in the instant case affirmatively establishes that the "Destiny" was used during the Audit Period "exclusively for rental on a bare boat basis," within the meaning of Subsection (19) of Rule 12A-1.071, Florida Administrative Code, 21/ and that therefore Petitioner, in fact, qualified for the exemption upon which it relied in not paying the sales and use tax the Department claims Petitioner owes the state.
Accordingly, no portion of the assessment against Petitioner can be sustained.
Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby
RECOMMENDED that the Department enter a final order finding that its assessment against Petitioner is incorrect in its entirety.
DONE AND ENTERED this 24th day of September, 2002, in Tallahassee, Leon County, Florida.
STUART M. LERNER
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 24th day of September, 2002.
ENDNOTES
1/ Five exhibits (Bates Stamp Numbers 1056, 1061, 1077, 1078, and 1079, which were offered by the Department) were rejected.
2/ The undersigned has accepted these comprehensive factual stipulations. See Gunn Plumbing, Inc. v. The Dania Bank, 252 So. 2d 1, 4 (Fla. 1971)("A stipulation properly entered into and relating to a matter upon which it is appropriate to stipulate is binding upon the parties and upon the Court."); Johnson v.
Johnson, 663 So. 2d 663, 665 (Fla. 2d DCA 1995)("[T]o foster the legal policy of encouraging stipulations to minimize litigation and expedite resolution of disputes, the law provides that '(s)uch stipulations should be enforced if entered into with good faith and not obtained by fraud, misrepresentation, or mistake, and not against public policy."); and EGYB, Inc. v.
First Union National Bank of Florida, 630 So. 2d 1216, 1217 (Fla. 5th DCA 1994)("Unless grounds for re[s]cission or withdrawal are shown, the trial court is bound to strictly enforce the agreement between the parties.").
3/ In its Response (dated March 19, 2001) to Respondent's First Request for Admissions, Petitioner admitted, among other things, that the vessel was "delivered to Fort Lauderdale, Florida"; however, following the February 5, 2002, session of the final hearing in this case (at which Petitioner, through counsel, stated its position that the "vessel was purchased outside of
Florida and was imported," and later during the session presented, without objection by the Department, the credible testimony of Captain Ernest (not rebutted by any other witness) that, acting on behalf of Petitioner, he accepted delivery of the vessel in the Bahamas), the parties entered into a Second Joint Stipulation of Facts (dated June 13, 2002), in which they stipulated, in the first clause of Stipulation of Fact 26, that Petitioner "import[ed] . . . the vessel into Florida." This stipulation represents an acknowledgement on the part of both parties that Petitioner's admission that the vessel was "delivered to Fort Lauderdale, Florida" was made in error and, accordingly, the undersigned has treated this stipulation as having superceded Petitioner's admission (which admission Petitioner is deemed, by its actions at the final hearing on February 5, 2002, and by its participation in the filing of the Second Joint Stipulation of Facts, to have requested permission to withdraw, a request the undersigned hereby grants pursuant to Rule 1.370(b), Florida Rules of Civil Procedure).
4/ In its Proposed Recommended Order, the Department unpersuasively argues that, inasmuch as "[t]he Wheeler charter and yacht employment agreements taken together provide that TMW furnish the yacht, as well as the captain, crew and provisions anytime Mr. Wheeler used the vessel, TMW provided a full service charter not a bare boat charter, during Wheeler's cruises." The contention that Mr. Wheeler's charters were not bare boat charters, but rather were "full service charters," is contrary to the second sentence of the parties' Stipulation of Fact 27, as well as their Stipulation of Fact 30, which read as follows:
27. . . . . The vessel was never chartered during the audit period, in or out of Florida, except under a bare boat charter agreement and separate crew employment agreements.
30. Within very broad parameters, the bareboat charter agreements all granted possession, custody and control over the vessel's destination (subject to the captain’s responsibility for its safe operation) to the charterer.
Furthermore, as will be explained later, under the Department's rules: a charter will be considered to be on bare boat basis even though the captain and crew, as well as the vessel, are furnished by the lessor, provided the captain and crew are hired
under a separate employment agreement (as was they were by Mr. Wheeler); and, for a charter to constitute a "service transaction" and not a "rental," the charterer cannot "have any direction or control over [the] operation" of the vessel under charter.
5/ Under its original owner, the "Destiny" was "chartered heavily" and eventually "became the number one charter boat in the industry."
6/ The crew's quarters, consisting of four staterooms, along with three bathrooms, with showers, for their use, were (and still are) located "down below, forward on the boat." There were "a number of recreational things for [crew members] to do" on the vessel during their spare time. They had access to, among other things, computers and video games.
7/ A chef, engineer, first mate, deck hand, and two stewardesses made up the remainder of the crew.
8/ The Bahamas was one of these "prime areas." Captain Ernest rented a car to use onshore in the Bahamas when he needed land transportation there to "discharge . . . [his] responsibilities as charter captain" in charge of Petitioner's bare boat chartering operations. Among the other expenses incurred by Petitioner when the "Destiny" was docked in the Bahamas were charges for telephone calls made by Captain Ernest and other members of the crew.
9/ The WaveRunners were bought by Captain Ernest as an "accessory" for the "Destiny." They were used "strictly" by charterers and their guests. Most "mega" yachts available for charter have WaveRunners.
10/ Petitioner also made tax-free purchases of tangible personal property in Florida in 1992 and 1993 in connection with another boat, the "Jolt," that it had owned. Petitioner had purchased the "Jolt," an approximately 40-foot Chris Craft boat, in the early 1990's exclusively for resale and sold it prior to acquiring the "Destiny."
11/ "Use" is defined in Subsection (20) of Section 212.02, Florida Statutes, as "the exercise of any right or power over tangible personal property incident to the ownership thereof, or interest therein, except that it does not include the sale at retail of that property in the regular course of business."
12/ As used in Chapter 212, Florida Statutes, the phrase "in this state" means "within the state boundaries of Florida as defined in s. 1, Art. II of the State Constitution and includes all territory within these limits owned by or ceded to the United States." Section 212.02(8), Florida Statutes.
13/ "Tangible personal property," as used in Chapter 212, Florida Statutes, includes boats. See Section 212.02(19), Florida Statutes ("'Tangible personal property' means and includes personal property which may be seen, weighed, measured, or touched or is in any manner perceptible to the senses, including . . . boats ").
14/ A "sale at retail" is defined in Subsection (14)(a) of Section 212.02, Florida Statutes, as "a sale to a consumer or to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter, and includes all such transactions that may be made in lieu of retail sales or sales at retail."
15/ The term "storage," as used in Chapter 212, Florida Statutes, "means and includes any keeping or retention in this state of tangible personal property for use or consumption in this state or for any purpose other than sale at retail in the regular course of business." Section 212.02(18), Florida Statutes.
16/ A "sale," as that term is used in Chapter 212, Florida Statutes, includes "[a]ny transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration" and "[t]he rental of living quarters or sleeping or housekeeping accommodations in . . . roominghouses." Section 212.02(15)(a) and (b), Florida Statutes. Pursuant to Subsection (10)(c) of Section 212.02, Florida Statutes, "[e]very house, boat, vehicle, motor court, trailer court, or other structure or any place or location kept, used, maintained, or advertised as, or held out to the public to be, a place where living quarters or sleeping or housekeeping accommodations are supplied for pay to transient or permanent guests or tenants, whether in one or adjoining buildings, shall for the purpose of this chapter be deemed a roominghouse."
17/ In its Proposed Recommended Order, the Department makes the following argument:
TMW [Petitioner] failed to submit any competent evidence that at all times during the audit period for which it claims that the vessel was undergoing repairs, . . . that such repairs were performed at a licensed repair facility as defined in Fla. Admin. Code R. 12A-1.007(9)(b)2.b. which permits vessels to remain in registered repair facilities for repairs and maintenance without incurring a use tax, providing that the requirements of that rule are strictly satisfied and that such activities have been properly documented in accordance with Fla. Admin. Code R. 12A- 1.0071. The record is devoid of any documentation which shows that TMW complied with the guidelines of Rules 12A-1.007 and 12A-1.0071.
Petitioner, however, is not claiming that it was entitled to the "repair and maintenance" exemption described in Subsection (9)(b)2.b. of Rule 12A-1.007, Florida Administrative Code; rather, it is the "bare boat chartering" exemption described in Subsection (19) of Rule 12A-1.071, Florida Administrative Code, upon which it is relying.
18/ See also Section 212.05(1)(b), which provides, in pertinent part, as follows:
[H]owever, for tangible property originally purchased exempt from tax for use exclusively for lease and which is converted to the owner's own use, tax may be paid on the fair market value of the property at the time of conversion. If the fair market value of the property cannot be determined, use tax at the time of conversion shall be based on the owner's acquisition cost.
Under no circumstances may the aggregate amount of sales tax from leasing the property and use tax due at the time of conversion be less than the total sales tax that would have been due on the original acquisition cost paid by the owner.
19/ Pursuant to Subsection (16) of Rule 12A-1.071, Florida Administrative Code:
When a boat or vessel is chartered with crew furnished, for the carriage or transportation of persons or property from one point to another and the charterer does not have any direction or control over its operation, the contract constitutes a service transaction and not the rental of tangible personal property and is exempt.
20/ Strictly construing exemption provisions in tax statutes against the person claiming the exemption is consistent with the "[d]eclaration of legislative intent" in Subsection (2) of Section 212.21, Florida Statutes, "to tax each and every sale, admission, use, storage, consumption, or rental levied and set forth in this chapter, except as to such sale, admission, use, storage, consumption, or rental as shall be specifically exempted therefrom by this chapter subject to the conditions appertaining to such exemption."
21/ This case is now reported at 802 So. 2d 281.
22/ An agency may not "place a construction on a rule which is clearly contradictory to the unambiguous language of the rule" (which the Department's interpretation is not). Kearse v.
Department of Health and Rehabilitative Services, 474 So. 2d 819, 820 (Fla. 1st DCA 1985). Rather, it must give effect to this "unambiguous language" unless and until the language is changed through the rulemaking process. See Marrero v.
Department of Professional Regulation, 622 So. 2d 1109, 1112 (Fla. 1st DCA 1993)("Since the Board is bound to comply with its own rules until they have been repealed or otherwise invalidated, it cannot take the position in this case that its rule does not embrace 'applicants' for licensure as well as license holders, contrary to the unambiguous language of the rule.").
23/ The Department's audit of Petitioner's "books and records" revealed various activities and purchases that the Department considered to be "questionable." While the Department may have been justified in questioning these activities and purchases, any questions regarding their connection with Petitioner's bare boat chartering operations were answered by Captain Ernest's credible testimony on the subject.
COPIES FURNISHED:
Glen A. Stankee, Esquire
Ruden, McCloskey, Smith, Schuster and Russell, P.A.
Post Office Box 1900
Fort Lauderdale, Florida 33302
Martha F. Barrera, Esquire Nicholas Bykowsky, Esquire Office of the Attorney General
The Capitol-Tax Section, Plaza 01 Tallahassee, Florida 32399-1050
Bruce Hoffmann, General Counsel Department of Revenue
204 Carlton Building Tallahassee, Florida 32399-0100
James Zingale, 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.
| Issue Date | Document | Summary |
|---|---|---|
| Sep. 24, 2002 | Recommended Order | Owner of yacht who used it exclusively in connection with bare boat chartering business exempt from paying sales and use tax. |
