STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TUSKAWILLA LEARNING CENTER,

Petitioner,

vs.

DEPARTMENT OF REVENUE,

Respondent.

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) Case No. 00-5119

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RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly-designated Administrative Law Judge, Jeff B. Clark, held a formal hearing in this case on March 20, 2001, in Sanford, Florida.

APPEARANCES

For Petitioner: Thomas E. Phillips

1625 Montessori Point

Oviedo, Florida 36527

For Respondent: John Mika, Esquire

Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUE

Whether the Department of Revenue properly denied Petitioner's March 10, 2000, Application For Refund of Sales and Use Tax, Petitioner having asserted that the Department of

Revenue obtained the Closing Agreement through misrepresentation

and intimidation.

PRELIMINARY STATEMENT

On March 10, 2000, Petitioner, Tuskawilla Learning Center, applied for a refund in sales and use tax in the amount of

$71,408.66 that it had paid under a Closing Agreement dated February 5, 1999. This started a process which resulted in the filing of an administrative complaint in the form of Petitioner's letter to Respondent, Department of Revenue (Department), dated August 12, 2000, and a request for an administrative hearing by the Department on December 21, 2000.

A Notice of Hearing was entered on January 3, 2001, setting the final hearing for February 28, 2001. An Order rescheduling the final hearing for March 20, 2001, was entered on

February 21, 2001.

At the final hearing Respondent presented three witnesses: Jacqueline Morris, tax auditor; Bill Crowell, process group manager; and Kathleen Marsh, tax law specialist, and offered two witnesses by deposition: T. Val Burgess, tax law specialist, and Janet Cumbie, tax law specialist. By agreement of the parties, Respondent's Composite Exhibit 1 was admitted into evidence. This exhibit was Respondent's file supporting the initial tax audit and assessment and the refund denial. This composite exhibit contains 16 separate sections.

Petitioner was represented by Thomas E. Phillips, Ph.D., CPA, CCA. Dr. Phillips is a corporate officer of Petitioner, Tuskawilla Learning Center, and testified on behalf of Petitioner. Petitioner offered 34 exhibits which were numbered 1-33 and 27A. All were admitted into evidence with the exception of exhibits 9, 10 and 11.

The Transcript of the final hearing was filed with the Division of Administrative Hearings on April 9, 2001. Both parties filed Proposed Recommended Orders.

FINDINGS OF FACT

1. Petitioner, Tuskawilla Learning Center, is a Florida corporation which operates a private Montessori School in Oviedo, Seminole County, Florida. Petitioner has elected to be an "S" corporation for federal income tax reporting purposes.

2. Tuskawilla Learning Center is owned by its shareholders, Thomas E. Phillips; his wife, Lois; his daughter, Terry Lynn DeLong; and his son-in-law, Daniel F. DeLong.

3. At all times material to this matter, a partnership comprised of the above-named owners of the Tuskawilla Learning Center also owned the real property upon which the Tuskawilla Learning Center operated.

4. In early July 1997, Respondent audited Petitioner's corporate transactions for the period from July 1, 1992, through

   June 30, 1997, for compliance with sales and use tax and the local government infrastructure surtax. During the audit Petitioner was requested to provide all information and documents which Petitioner felt supported its business activities.

5. Respondent issued a Notice Of Intent To Make Audit Changes on September 25, 1997, which advised Petitioner that the audit revealed that Petitioner had failed to pay use tax on purchases Petitioner made from out-of-state vendors, which Petitioner acknowledged and paid. The audit also revealed that Petitioner failed to pay sales tax on the monthly rental charges that Petitioner paid to the property owner on which the Tuskawilla Learning Center operated. Petitioner did not agree with Respondent's position on the sales tax on monthly rental charges.

6. On October 28, 1997, an audit conference was held in Orlando, Florida, where the tax assessment on the monthly rental charges was discussed. The parties were unable to resolve the issue, and Petitioner requested that the issue be referred to Tallahassee for further review.

7. The review in Tallahassee essentially confirmed the original audit findings, and a Notice of Proposed Assessment was issued on January 26, 1998.

8. Petitioner filed a protest and requested a further review of the Notice of Proposed Assessment. As a result, the entire audit was reviewed, and Petitioner was allowed to provide additional documentation to support its position.

9. On August 4, 1998, Respondent issued a Notice of Decision which essentially confirmed the findings of the original audit. At this point, Petitioner had certain rights of appeal which had to be exercised within specific time limits, or Petitioner could elect to pay the taxes and interest as set forth in a Closing Agreement in which Respondent waived the penalties which had accrued for failure to pay the tax.

10. The various time deadlines passed without Petitioner electing one of the avenues of appeal nor did Petitioner execute the Closing Agreement. After all deadlines for appeal had passed, Petitioner contacted Respondent through an attorney seeking relief. Respondent found no basis for relief but renewed the opportunity for Petitioner to sign the Closing Agreement.

11. On February 5, 1999, Petitioner executed the Closing Agreement and paid $71,693.87 (a $285.31 overpayment). The Closing Agreement clearly states:

    1. The taxpayer waives any and all rights to institute any judicial or administrative proceedings, including the remedies provided by ss. 213.21(2)(a) and 72.011(1), F.S., to recover, compromise, or avoid any tax,

       penalty or interest paid or payable pursuant to this agreement.

       
       

    2. This agreement is for the sole purpose of compromising and settling taxpayer's liability to the State of Florida . . .

       This agreement is final and conclusive with respect to the audit assessment or specific transaction/assessment and period

       described . . . and no additional assessment may be made by the Department against the taxpayer for the specific liability referenced above, except upon showing of fraud or misrepresentation of material

       fact . . . .

       
       

12. On March 10, 2001, Petitioner filed an Application for Refund of the taxes and interest paid with the Closing Agreement. Attached to the Application for Refund was Petitioner's four-page "position paper," which outlined facts and arguments related to the sales tax issue. Petitioner's Application for Refund states that "the State has misled us."

13. The Application for Refund went through the review process. On May 5, 2000, Respondent issued a Notice of Proposed Denial for the refund claim. Petitioner sought an informal review of the proposed refund denial.

14. After an informal review of the proposed refund denial, on June 16, 2000, Respondent issued a Notice of Decision denying Petitioner's Application for Refund.

15. On August 12, 2000, Petitioner forwarded a letter to Respondent, which was interpreted as a request for an administrative hearing to review the decision to deny the

    Application for Refund which resulted in the instant administrative hearing.

16. Thomas E. Phillips has a Ph.D. in accounting from the University of Nebraska, is a Certified Public Accountant, and had taught accounting at the University of Central Florida for

    23 years prior to his retirement. He and his family founded the Tuskawilla Learning Center.

17. On behalf of Petitioner, Dr. Phillips maintains that the tax audit and subsequent review process were "intimidating" and that Respondent "misled" Petitioner. Notwithstanding

    Dr. Phillips' assertion that the audit and review process were "intimidating," he testified that he found the auditor and her supervisor "not intimidating, but were very pleasant."

18. Dr. Phillips testified about several aspects of the audit and review process and activities that occurred during the audit and review process that he found objectionable. For example, Dr. Phillips testified that Respondent failed to respond to his inquiries in an appropriate way and that Respondent had misinterpreted certain case law that he felt applicable. Nothing offered by Dr. Phillips suggests any impropriety or misrepresentation by Respondent.

    CONCLUSIONS OF LAW

    
    

19. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding. Section 120.569, Florida Statutes.

20. Sales and use taxes are imposed pursuant to Chapter 212, Florida Statutes.

21. A taxpayer may contest the denial of the refund of tax, interest, or penalty paid under a section or chapter specified in Subsection 72.011(1)(a), Florida Statutes. Chapter 212, Florida Statutes, is specifically included in Subsection 72.011(1)(a), Florida Statutes.

22. In any administrative proceeding brought under Chapter 120, Florida Statutes, the Administrative Procedure Act, authorized by Subsection 72.011(1), Florida Statutes, Respondent's burden of proof is limited to showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the assessment was made.

    Section 120.80, Florida Statutes. Respondent has clearly met this burden in this proceeding.

23. Respondent, through its executive director or his or her designee, is authorized to enter into Closing Agreements with any taxpayer settling or compromising the taxpayer's liability for any tax, interest, or penalty assessed under any of the chapters specified in Subsection 72.011(1), Florida

    Statutes. When a written Closing Agreement has been approved by the Department and signed by the executive director or his or her designee and the taxpayer, it shall be final and conclusive, and except upon a showing of fraud or misrepresentation of material fact, no additional assessment may be made by the Department against the taxpayer for the tax, interest, or penalty specified in the Closing Agreement for the time period specified in the Closing Agreement, and the taxpayer shall not be entitled to institute any judicial or administrative proceedings to recover any tax, interest, or penalty paid pursuant to the Closing Agreement. Subsection 213.21(2)(a), Florida Statutes.

24. Petitioner has the burden of proving, by a preponderance of the evidence, that the Closing Agreement was obtained by "fraud or misrepresentation of a material fact" if Petitioner is to be successful in setting aside the Closing Agreement. Subsection 120.57(1)(j), Florida Statutes.

25. "Misrepresentation" is defined in Black's Law Dictionary (rev. 4th ed.), as: "Any manifestation by words or other conduct by one person to another that, under the circumstances, amounts to an assertion not in accordance with the facts."

26. In Lance v. Wade, 457 So. 2d 1008, 1011 (Fla. 1984),

the Florida Supreme Court advises that:

The elements of actionable fraud are:

1. a false statement containing a material fact;

2. knowledge by the person making this statement that the representation is false;

3. the intent by the person making the statement that the representation will induce another to act on it; and,

4. reliance on the representation to the injury of the other party.

In summary, there must be an intentional material misrepresentation upon which the other party relies to his detriment.

1. Petitioner has presented no evidence of misrepresentation, fraud, or any other inappropriate conduct on the part of Respondent.

2. Where parties have entered into an agreement voluntarily and there is no indication that the agreement was obtained by fraud, misrepresentation, or mistake of fact, no relief will be given. Curr v. Helene Transportation Corporation, 287 So. 2d 695 (Fla. 3rd DCA 1974).

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that Respondent enter a final order denying Petitioner's Application for Refund.

DONE AND ENTERED this 26th day of April, 2001, in Tallahassee, Leon County, Florida.

JEFF B. CLARK

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 26th day of April, 2001.

COPIES FURNISHED:

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

The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050

John Mika, Esquire

Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Thomas E. Phillips 1625 Montessori Point

Oviedo, Florida 36527

Linda Lettera, 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.

Docket for Case No: 00-005119

Orders for Case No: 00-005119