oO; Ki in STATE OF FLORIDA DEPARTMENT OF REVENUH 20 Pr ! TALLAHASSEE, FLORIDA 47 DEERBROOKE INVESTMENTS, INC., apes ) ) Petitioner, ) ) Vs. ) DOR CASE NO. 01-5-FOF ) ) ) ) DOAH CASE NO. 00-3114 FLORIDA DEPARTMENT OF REVENUE, Respondent. FINAL ORDER This cause came before the Department of Revenue for the purpose of issuing a final order. The Administrative Law Judge assigned by the Division of Administrative Hearings issued a Recommended Order, sustaining the Department’s assessment. A copy of the Recommended Order is attached to this Final Order. Petitioner timely filed exceptions to the Recommended Order and a copy of that filing is attached to this Final Order. For the reasons expressed herein, the Department adopts the Administrative Law Judge recommendations and specifically incorporates the Recommended Order except for Finding of Facts 46 and 92, which are modified as reflected below. Rulings on Petitioner’s exceptions are also set forth below. Petitioner’s Exception to Finding of Fact 17 Petitioner asserts that it is a misrepresentation that its ship, the Palm Beach Princess (the Vessel), travels “just far enough” to engage in gambling activities without violating state laws. Petitioner further avers that its Captain, Hrovj Michl, testified that the Vessel “travels into international waters on each of its cruises.” The Record clearly indicates that the Vessel travels exactly three miles out from port on each of its cruises-to-nowhere, whereupon gambling activities commence for a period lasting until preparations are made for the Vessel’s return to port. During gambling activities the Captain stems the tide at a point three miles off shore, which is exactly beyond the extent of Florida’s territorial waters. As per Presidential Proclamation No. 5928, Dec. 24, 1988, the Territorial Limits of the United States extend 12 miles from shore, whereupon international waters commence. Therefore, based upon testimony provided by Petitioner’s own witness, the Vessel travels just far enough to leave Florida’s territorial waters, but remains 9 miles inside of the territorial limits of the United States. Petitioner, at the hearing or in its exceptions, provides no contrary authority that expressly contradicts Presidential Proclamation 5928. As such, the Administrative Law Judge’s finding stands. Petitioner’s exception to Finding of Fact 17 is hereby rejected. Petitioner’s Exception to Finding of Fact 39 Petitioner asserts that it misstates the facts to find that “[t]he sole source of the Petitioner’s income during the audit period was in connection with business conducted in the U.S.” The Petitioner further claims that “Section 863(c) of the Internal Revenue Code contains a per se rule that treats [Petitioner’s] transportation income as derived from sources within the United States" even when Petitioner was engaged in foreign commerce. Petitioner deems that “compliance with an income source tule in the Internal Revenue Code [should not be] determinative of whether [Petitioner] is engaged in foreign commerce. The Record clearly indicates that Petitioner’s federal tax returns show income derived from a business conducted in the United States. The Record also indicates that Petitioner maintained an office located within the State of Florida, it exclusively operated its Vessel from a port within the State of Florida, and, as discussed in the preceding Exception, its Vessel never traveled into international waters or the territorial waters of any other state. With no connection to any other taxing authority within the United States and with no evidence of commerce conducted with a foreign entity, Petitioner's argument must fail as it concerns this Finding of Fact. Petitioner’s exception to Finding of Fact 39 is hereby rejected. Petitioner’s Exception to Finding of Fact 41 Petitioner asserts that its Vessel is engaged in foreign commerce because the Vessel travels, with passengers aboard, to a point slightly more that 3 miles off the coast of Florida. Section 1331 of Title 43 of the United States Code state that the “territorial sea of the United States henceforth extends to 12 nautical miles from the baselines of the United States determined in accordance with international law.” Because Petitioner’s Vessel travels only 3 miles offshore, the Vessel never reaches international waters. Additionally, to be engaged in commerce in the manner in which the Petitioner contends it occurs, Petitioner needs to “transport” passengers or property from one point to another. The Record clearly indicates the Vessel leaves from port and returns to the same port with no intervening stops. Thus, Petitioner’s claim fails on this point as well. Petitioner’s exception to Finding of Fact 41 is hereby rejected. Petitioner’s Exception to Finding of Facts 86, 90, and 99 Petitioner excepts to the finding “that at all times material to the audit period, [Petitioner] maintained an office in Boca Raton, Florida.” Petitioner further avers that payments for the office space were in the form of “advances for payments due under a management agreement between [Petitioner] and [its management company].” These contentions are without merit as the Record is replete with sufficient, competent documentary evidence substantiating the existence of Petitioner’s Boca Raton office and the manner in which rent payments were made is immaterial to that finding. Petitioner’s exceptions to Finding of Facts 86, 90, and 99 are hereby rejected. Petitioner's Exception to Finding of Facts 87 and 89 Petitioner excepts to the findings that sales tax is due on photography and gift shop licenses and on its lease of gambling equipment. Petitioner bases its entitlement to an exemption on the claim that all of its resulting income “is attributable to the transportation of persons or property in foreign commerce under § 212.08, Florida Statutes... .” As discussed in Petitioner’s Exception to Finding of Fact 41, Petitioner does not engage in foreign commerce as described in under § 212.08, Florida Statutes, therefore Petitioner’s argument on these points fails. Petitioner’s exceptions to Finding of Facts 87 and 89 are hereby rejected. Petitioner’s Exception to Finding of Fact 88 Petitioner claims it is entitled to an exemption for the cost of food used in preparing the buffet meal served on its Vessel. In support of this contention, Petitioner points to Finding of Fact 46, which states: “[I]t is undisputed that the Petitioner did not pay sales tax on the food it purchased for resale to its passengers.” This claimed exemption would be properly granted if Petitioner’s purchase of food was indeed for “resale.” The Record, however, clearly shows that admission to Petitioner’s Vessel comes in the form of a lump-sum charge, which entitles patrons to all amenities offered on board the Vessel to include food, gambling, and other related services. The Administrative Law Judge in Paragraphs 44 and 45 of her Recommended Order discusses these facts. Since the Petitioner is providing a taxable admission, and since the cost of all goods and services, including meals, is included with that admission, Petitioner can not claim in this instance to be providing food for resale. Petitioner’s exception to Finding of Fact 88 is hereby rejected and Finding of Fact 46 is modified to accurately portray the character of Petitioner’s food purchase. Petitioner’s Exception to Finding of Fact 92 Finding of Fact 92 reads that the Department requested, but did not receive, certain records during the conduct of the Department’s audit. Petitioner, in its exception, acknowledges that the records were not provided, but adds that the requested records had been inadvertently destroyed by the ship’s water sprinkler system. Although the Finding of Fact makes no allegation of inappropriate or non-compliant behavior on the part of the Petitioner, there exists sufficient evidence in the Record detailing Petitioner’s cooperation during the audit process to warrant modification of this Finding of Fact. Petitioner’s exception to Finding of Fact 92 is hereby accepted in part and the Finding of Fact will be modified to reflect the reason for Petitioner’s non-production of tecords. Petitioner’s Exception to Finding of Facts 93 - 97 Petitioner’s objections to the Findings in Paragraphs 93 — 97 revolve around the contention that if one were to concede that the Vessel “‘stems the tide” on its cruises to nowhere [this could be] fundamentally inconsistent with the conclusion that the [Vessel] travels 34 miles during such voyages.” Petitioner avers that the Administrative Law Judge failed to consider contrary testimony and appears to have given substantial weight to the fact that Petitioner did not contest mileage figures until the time of the hearing. Petitioner also objects that “the determination of the mil[eJage traveled on a cruise to nowhere in this case should not have been based on determinations made prior to the instant proceeding, but should have been based solely upon the evidence in the record.” During testimony at his deposition and again while testifying at trial, Petitioner’s witness, Captain Hrvoj Michl, consistently confirmed the accuracy of the voyage reports offered into evidence at the hearing. These records clearly support the Department’s reliance upon the figure used to calculate portions of the assessment at issue and are at variance with the mileage proffered by the Petitioner in its Exceptions. The voyage reports clearly and consistently document that the Vessel traveled in excess of 30 miles on each of its cruises-to-nowhere. Petitioner’s exceptions to Finding of Facts 93 — 97 are hereby rejected. Petitioner’s Exception to Finding of Fact 93 Petitioner specifically objects the finding that the Department’s auditor relied on a mileage figure he received from on of the Petitioner’s ship captains during a telephone conference call arranged by Petitioner’s vice president. Petitioner, however, failed to produce the vice president [who was the only other participant in this conversation] at the hearing to contest the auditor’s claim. Additionally, as discussed in the preceding paragraph, there exists substantial evidence in the Record supporting the veracity of the auditor’s claim and his subsequent reliance on the mileage figure. Petitioner’s exception to Finding of Fact 93 is hereby rejected. Petitioner’s Exception to Finding of Fact 94 Petitioner specifically claims that there is nothing in the Record to substantiate that “records associated with the mileage issue were not reviewed further because the auditor did not realize the figure would be later disputed.” As recorded on Pages 48 and 49 of the hearing transcript, the department’s auditor testified that he first heard of the mileage figure during a meeting with one of the Petitioner’s executives. The auditor added that he subsequently viewed voyage records, prepared by the Petitioner’s captain, which supported this figure. Also, in answer to a direct question, the auditor testified that none of Petitioner’s employees disputed this figure while the audit work was being performed. These finding are consistent with the department’s tax conferee’s recollection, found on Pages 78 — 79, that no one from the Petitioner’s company raised an issue as to the mileage figure used. Based upon this testimony alone, there is substantial evidence supporting the Administrative Law Judge’s finding on this issue. Petitioner’s exception to Finding of Fact 94 is hereby rejected. Petitioner’s Exception to Finding of Fact 96 Petitioner, once again, excepts to the finding regarding the mileage figure produced at the Hearing. As previously discussed, the Administrative Law Judge correctly based this finding on figures produced by the Petitioner in Petitioner’s Voyage Report, and the accuracy of this report was verified by Petitioner’s witness under sworn testimony. Petitioner’s exception to Finding of Fact 96 is hereby rejected. Petitioner’s Exception to Finding of Facts 97 and 98 In addition to other exceptions already presented and analyzed in this Final Order, Petitioner argues that it “did not become aware of the DOR auditor’s erroneous conclusion regarding the correct travel distance of each voyage until the discovery process in the DOAH hearing.” In a Joint Pre-Hearing Stipulation files by the parties, it was agreed that the Department of Revenue issued a Notice of Proposed Assessment in this matter on March 12, 1999. The Department also issued a Notice of Decision pertaining to the assessment on June 12, 2000. The assessed amounts were based on the 34-mile figure in both instances, and both events preceded the complaint that initiated this DOAH proceeding. As evidenced by the information presented at the Hearing, evidence that verified the auditor’s use of the mileage figure, there exists sufficient documentation to support the Administrative Law Judge’s Finding of Fact. Petitioner’s exception to Finding of Facts 97 and 98 are hereby rejected. Petitioner’s Exception to Conclusion of Law 101 Petitioner argues that it has met its burden in proving that the assessment is incorrect. For reasons set forth in the Department’s responses to Petitioner’s Exceptions, and based upon the findings in the Administrative Law Judge’s Recommended Order, it is determined that there is ample documented evidence in this Record to refute Petitioner’s claim. Petitioner’s exception to Conclusion of Law 101 is hereby rejected. Petitioner’s Exceptions to Conclusion of Law 116 and 118 Petitioner iterates the exceptions that were discussed in its Exceptions to Finding of Facts 17, 41, 87, and 89. The analysis previously provided supports the Administrative Law Judge’s findings in these instances as well. Petitioner’s exceptions to Conclusions of Law 116 and 118 are hereby rejected. Petitioner’s Exceptions to Conclusions of Law 120, 123, 124, 129 and 132 Petitioner excepts to the conclusion that it exercised control over tangible personal property in Florida and it restates its claim that certain assessed items were non- taxable because of their use “in the stream of foreign commerce.” For reasons cited earlier, Petitioner’s claim of engaging in foreign comrnerce while conducting cruises-to-nowhere is rejected. The Record also contains substantial documented evidence to support the Department’s contention that Petitioner exercised control over tangible personal property while the Vessel was docked in Florida. Also, in recognition of this country’s 12-mile territorial limit, Petitioner’s claim for proration of the miles traveled beyond Florida’s 3-mile is deemed inappropriate as it misidentifies the starting point of international waters. Petitioner’s exception to Conclusions of Law 120, 123, 124, 129 and 132 are hereby rejected. Petitioner’s Exceptions to Conclusions of Law 126 and 127 Petitioner’s claim of entitlement to a resale food exemption is based on the proposition that the meal consumed by its passengers is “an essential element of the entertainment package purchased....” The Administrative Law Judge, having toured the ship, and having been briefed by both parties as to the applicable case law on this subject, considered this argument and rejected it. In review, the evidence supports this determination. Petitioner’s exceptions to Conclusion of Law 126 and 127 are hereby rejected. Petitioner’s Exceptions to Conclusions of Law 131 Petitioner reargues its contention that it did not lease or rent office space in Florida and it adds, that if it were deemed to have rented office space, “[it] is entitled to 10 credit for the sales tax [that] has already been paid....” As previously discussed, the Administrative Law Judge made her findings of fact and conclusions of law based upon competent and substantial evidence. In this conclusion, the Administrative Law Judge states, “[t]he Petitioner is responsible for the sales tax that was not paid during the period of its occupancy of the real property....” (Emphasis supplied) The matter of whether Petitioner is, or is not, entitled to a credit is not at issue, nor is there any finding or conclusion that would prevent Petitioner from seeking a refund or credit through proper legal means. As such, Petitioner’s exception falls outside the scope of this Conclusion. Petitioner’s exception to Conclusion of Law 131 is hereby rejected. Adoption and Modification of the Recommended Order The Statement of the Issues is modified as set forth below to more accurately reflect the issues addressed by the Administrative Law Judge. The Preliminary Statement as set forth in the Administrative Law Judge’s Recommended Order is adopted in its entirety. The Department adopts and incorporates the Findings of Fact set forth in paragraphs 1 through 45, 47 through 91, and 93 through 99 of the Recommended Order. Findings of Fact 46 and 92 are modified as presented below. The Department also adopts and incorporates Conclusions of Law set forth in paragraphs 100 through 132 of the Recommended Order. STATEMENT OF THE ISSUES Whether Petitioner’s transactions regarding capital purchases and improvements, gift shop lease payments, concessionaire revenues, purported office lease payments, and 11 gaming equipment (leased and purchased) are subject to Florida sales or use tax during the audit period and whether Petitioner is entitled to the resale exemption for food purchased and provided to its customers during the audit period. Finding of Fact 46 During the audit period, the Petitioner sold tickets to its cruises generally for $25 (most cruises) and $30 (weekend, evening, and Sunday brunch cruises). In general, the cost of its food during the audit period was $7.50 per passenger. It is undisputed that the petitioner did not pay sales tax on the food it purchased for later consumption by its passengers. Finding of Fact 92 During the audit period Mr. Genden requested, but could not receive, records pertaining to register tapes and ship documents that would show how and when the registers were opened and closed, and ship policies concerning when registers were opened and closed. The requested records had been destroyed by the inadvertent activation of the Vessel’s sprinkler system. The Recommended Order, subject to the modifications stated above, is adopted and attached below. 12 DONE AND ENTERED in Tallahassee, Leon County, Florida this_ 244 day of November, 2001 STATE OF FLORIDA DEPARTMENT OF REVENUE < Zingge xecutive Direct, Certificate of Filing J HEREBY CERTIFY that the foregoing FINAL ORDER has been filed in the official records of the Department of Revenue this day of 1 nueeben >, 2001. wit : 4 Al FENCY CLERK Copies furnished to: Kenneth M. Hart, Esquire Nicole M. Nugan, Esquire Gunster, Yoakley & Stewart, P.A. 777 South Flagler Drive, Suite 500, East Tower, West Palm Beach, Florida 33401 William L. Hyde, Esquire Gunster, Yoakley & Stewart, P.A, 215 South Monroe Street, Suite 830 Tallahassee, Florida 32301 13

Docket for Case No: 00-003114

Orders for Case No: 00-003114