vs.
Respondent.
) Case No. 01-2447
Pursuant to notice, a formal hearing was held in this case on October 31, 2001, by video-teleconference between Tampa and Tallahassee, Florida, before Carolyn S. Holifield, a duly- designated Administrative Law Judge of the Division of Administrative Hearings.
Macfarlane, Ferguson & McMullen, P.A.
For Respondent: Eric J. Taylor, Esquire
Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section 01
The issue for determination is whether Petitioner owes unpaid sales and use tax, interest, and penalties for the period of February 1, 1994 through June 30, 1998.
Following an audit of Respondent, the Department of Revenue (Department), notified Petitioner, Macfarlane, Ferguson & McMullen, P.A., that it owed unpaid sales and use tax, penalties, and interest. Petitioner then filed a letter of protest which challenged the assessment. In the Notice of Reconsideration dated April 10, 2001, the Department maintained that Petitioner owed sales and use tax, penalties, and interest for the period February 1, 1994 through June 30, 1998.
According to the Notice of Reconsideration, Petitioner owed a balance of $67,837.43 in unpaid sales and use tax, penalties, and interest through April 12, 2001, with interest to accrue at a rate of $9.72 per day from April 13, 2001.
Petitioner timely filed a Petition for Administrative Hearing to contest the assessment. The Department forwarded the matter to the Division of Administrative Hearings for assignment of an administrative law judge to conduct the hearing and prepare a recommended order. The final hearing was originally scheduled for August 29, 2001, but was continued upon issuance of an order granting Petitioner's emergency motion to continue
the hearing. The hearing was rescheduled and heard on the aforementioned date.
On October 22, 2001, the parties filed a Joint Prehearing Statement which contained facts which required no proof at hearing. At the final hearing, Petitioner presented the testimony of Robert Cayo, regional operations manager of Lanier Professional Services, formerly Copy Control Center; Diane Garner, an employee of Copy Control Center; and Arleen Davidenko, a former auditor employed by Petitioner.
Petitioner's Exhibits 1-4 were admitted into evidence. The Department presented the testimony of Darlene Stewart Bebbington, a tax auditor from the Department's Tampa office. The Department's Exhibits 1-7 were admitted into evidence.
A Transcript of the hearing was filed with the Division of Administrative Hearings on November 26, 2001. At the conclusion of the hearing, the parties agreed that their proposed recommended orders would be filed on December 14, 2001. Prior to that date, on December 6, 2001, the parties requested and were granted an extension of time in which to file proposed recommended orders. The parties timely filed their proposals and memoranda of law under the extended time frame, which have been considered in entry of this Recommended Order.
Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings are made.
$10,200 and the maximum number of copies before additional charges were imposed increased to 170,000. Additional copy- related work over the flat rate charge was at additional cost. The additional costs not covered by the flat monthly fee were set forth in an appendix to the 1996 Contract.
Paragraph 6 of the 1996 Contract was entitled "Invoices." That section provides in pertinent part the following:
A summary invoice for all Customer Locations shall be sent by Copy Control to the bill-to address and contact person of the Customer set forth hereinbelow, on a monthly basis. The monthly minimum base charge will be invoiced on the first day of each month. Additional charges for copies in excess of target volume or additional
services from the previous month will be included with this invoice. In
addition, Copy Control specifically agrees to provide to such Customer contact person, on a monthly in arrears basis, a summary report of the C.C.M. [Copy Control Management] Services transaction activity at, (A) all Customer Locations; and, (B) the Copy Control back-up facility, if any ("Summary Report"). Each Summary Report will contain, at a minimum, the following information:
The total volume of Copies rendered;
The number of Copies rendered per Customer location;
The number of Copies above the Targeted Copy Volume, if any, and total Excess Copy Charge therefor by Customer Location and Copy Control back-up facility;
The volume of Copies and associated dollar amount rendered at Copy Control's back-up facility, if any;
The number of Copies "short" of Targeted Copy Volume;
Additional Supplies procured, if any;
Amount of overtime paid, if any, for Copy Control Personnel and dates therefor;
A description of the Related Services, if any provided by Copy Control and the charge(s) therefore, if any; (emphasis supplied)
Consistent with the terms of the 1996 Contract, CCC rendered an invoice to Macfarlane each month during the term of the contract and during the remainder of the audit period
covered by that contract. Each invoice listed charges for making copies and off-site copies and other copy-related work and/or materials and products. Under the line for "Copying Facilities Mgt. Billing" were the additional charges made according to the appendix to the contract.
The following invoice, dated June 30, 1995, is representative of the monthly invoices issued by CCC to Macfarlane during the period covered by the Department's audit of Macfarlane. That invoice provides in material part the following:
COPY CONTROL CENTER INVOICE NO. 131611
3907 W. Osborne Avenue Tampa, Florida 33614
SOLD TO: MacFarlane Ausley & et al 23rd Floor LeeAnn Conley
111 E. Madison Street Tampa, Florida 33602
INVOICE DATE 6/30/95
QYT. ORDERED
1 | QTY. SHIPPED
1 | ITEM NO.
COPIES | DESCRIPTION
COPIES | UNIT PRICE
10000.00 |
| Copying | Facilities | Mgt.Billing | for June |
23913 | 23913 | Copies | Copies Overage | 0.04 |
1 |
1 |
TAX |
Tax on CCM Material |
106.39 |
1 | 1 | Copies | Off Site Services | 349.36 |
1 |
1 |
TONER |
90 TONER |
174.25 |
9 | 9 | STOCK | 8 1/2 x 11 White Paper | 2.85 |
|
SALE AMOUNT |
11612.17 |
MISC. CHARGES |
|
6.500% SALES TAX | 35.70 |
FREIGHT |
|
TOTAL | 11647.87 |
For all the invoices generated under the 1996 Contract, CCC taxed Macfarlane in accordance with its understanding of the formula devised and recommended by
Ms. Sanchez. Based on application of this formula, Macfarlane was charged and remitted only sales tax for the consumable goods portion of the contract.
During the audit period which is the subject of this proceeding, February 1, 1994 through June 30, 1998, the sales tax was either 6.5 percent or 7 percent, whichever was in effect at the time of the invoice.
The sales tax listed on the invoices do not reflect tax on the total amount of the invoice. A multiplication of the total amount by either 6.5 or 7 percent reveals that the amount of sales taxes paid by Macfarlane for the audit period in question, February 1, 1994 through June 30, 1998, was only on a small portion of the total invoice billing.
The 1993 Contract and the 1996 Contract between Macfarlane and CCC do not address, contain language, or speak directly to any "facilities management services." Neither do the contracts define the terms "service," "related services," or "other related services."
Although the terms listed in paragraph 22 above are not defined in the 1993 Contract and the 1996 Contract, Mr. Cayo, the regional operations manager of Lanier Professional
Services (LPS), formerly CCC, testified that other services included facilities management services. According to Mr. Cayo, "facilities management" at Macfarlane included making deliveries and rounds, key-oping equipment, filing, supporting, and cleaning and setting up conference rooms.
Diane Garner, an employee of CCC, was assigned to work at Macfarlane during the time of the audit period which is the subject of this proceeding. Ms. Garner testified that facilities management services or other services provided by CCC included providing coffee service, sorting mail, sending and delivering faxes, sending and delivering Federal Express packages, moving boxes, ordering and delivering office supplies, and making interoffice mail runs.
If the above-described facilities management services were provided, none of the invoices sent by CCC to Macfarlane separately listed any charges to Macfarlane for those services. Moreover, CCC did not separately list on its invoices to Macfarlane a charge for "mail delivery," "filing," "charge-back accounting," or "clerical services," or any other such services. If these services were deemed "related services," the provisions of the 1996 Contract quoted in paragraph 16 required that a description of such services be provided on the invoice or summary report. No description of the foregoing services
appears on any of the invoices prepared by CCC and issued to Macfarlane.
No other contracts existed between CCC and Macfarlane during the audit periods which reflect that the services described in paragraphs 23 and 24 above would be offered or provided by CCC to Macfarlane.
The Department audited Macfarlane in 1999. The audit was conducted by Darlene Bebbington, an auditor with the Department. During this audit, contrary to the position of
Ms. Sanchez during the aforementioned audit of CCC, the Department stated that Macfarlane was required to pay tax on the full amount of the invoices. This conclusion was reached by Ms. Bebbington based on the information contained on each invoice. The invoices did not itemize or otherwise separately list or detail products, materials, and/or services that were exempt from tax.
To address issues raised by Ms. Bebbington during the audit, Macfarlane sought information from CCC regarding the sales tax amounts that were listed on the invoices. In response, CCC provided two letters to Macfarlane, one dated April 29, 1999, and the second one dated September 22, 1999.
In the April 29, 1999, letter to Macfarlane, Mr. Cayo explained how the company handled the sales tax issue for
Facilities Management customers and the rationale for doing so. Mr. Cayo stated that during the Department's audit of CCC,
Ms. Sanchez indicated that "Facilities Management" was a service and it "was not subject to be taxed." In the letter, Mr. Cayo also stated that all equipment and material used in the performance of these services needed to be taxed, but not the total "Facilities Management" charge.
The September 22, 1999, letter was from Andrew Schutte, Finance Manager of LPS, formerly CCC, to Macfarlane and was in response to a specific inquiry from Macfarlane. In that letter, Mr. Schutte stated that the two full-time CCC employees working at the Macfarlane office assigned 87 percent of their collective time performing various facilities management services and spent approximately 13 percent of their collective time making photocopies. However, the letter did not indicate how Mr. Schutte arrived at the quoted percentages or the time period for which those percentages applied.
Based on CCC's claim that the formula devised by Ms. Sanchez was used to calculate the amount of sales tax it
should charge Macfarlane, Ms. Bebbington pulled CCC's audit file from the Department's records.
The Department contends that any agreement to use a formula such as the one described in paragraph 10, should have, by Department policy, been in writing, signed by the auditor and
the supervisors, and placed in the audit file. However, upon a review of the Department's records, no such written agreement or documentation was in the CCC audit file.
In light of the Department's admission noted in paragraph 13 above, Ms. Sanchez devised a formula which was shared with CCC, but she apparently did not include this formula or her discussions with CCC in the audit file.
After Ms. Bebbington completed the audit of Macfarlane and based on the results thereof, the Department notified Macfarlane that it intended to impose additional sales and use tax, interest, and penalties. After the audit report was issued Macfarlane objected to the findings and requested that the Department reconsider the assessment.
On or about April 10, 2001, the Department issued a Notice of Reconsideration ("Notice") based on Macfarlane's protest of the Department's audit findings for the period of February 1, 1994 through June 30, 1998. The Notice showed that Macfarlane owed additional sales and use tax of $35,958.27, a penalty of $17,979.37, and interest through April 6, 2000, of
$16,701.32, and additional interest through April 12, 2000, of
$3,606.12. The notice also indicated that interest would continue to accrue at $9.72 per day from April 12, 2001. According to the Notice, Macfarlane made a payment of $6,407.65
to the Department on April 6, 2000, leaving an unpaid balance of
$67,837.43.
Macfarlane asserts that it should not have to pay sales and use tax on the full amount of the invoice because a portion of that amount is for services that are exempt from sales and use tax. Contrary to this assertion, the auditor found that the invoices and other documentary evidence provided to the Department did not provide substantial competent evidence that any portion of the invoice amounts were attributable to products, materials, or services that were exempt from tax. Accordingly, based on the information provided by Macfarlane, the Department properly concluded that the total amount of each invoice was subject to sales and use tax.
Because there is no substantial competent written documentation evidencing what tax exempt services were performed by CCC for Macfarlane and what specified portion of the monthly costs invoiced to Macfarlane were for those "claimed" tax exempt services, Macfarlane is liable for the entire amount on the invoices for the audit period.
There is nothing in the record to indicate that Macfarlane did not timely pay the total amount of the invoices, including the amount attributable by CCC to sales and use tax. But for CCC's changing the manner in which it calculated the sales and use tax for its customers in early 1994, Macfarlane
would have continued paying the tax on all goods and services as it did prior to January 1994.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and the parties thereto pursuant to Sections 120.569 and 120.80, and Subsection 120.57(1), Florida Statutes.
The Department is the agency of state government authorized to administer the tax laws of the State of Florida, pursuant to Section 213.05, Florida Statutes.
The Legislature has authorized the taxation of tangible personal property when the item is sold at retail. Section 212.05, Florida Statutes, states:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state . . .
The sales tax is imposed by Subsection 212.05(1)(a)1.a., Florida Statutes. According to that provision, the tax of six percent is computed on the "sales price" of each item sold in Florida.
When an item is not sold at retail in Florida, and is not subject to the Florida sales tax, but being used in Florida, the item is subject to the "use tax" imposed by Subsection 212.05(1)(b), Florida Statutes, which states:
At the rate 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 in this state.
"Use" is defined as the "exercise of any right or power over tangible personal property incident to ownership thereof, or interest therein. . . ." Subsection 212.02(20), Florida Statutes.
The use tax is also imposed by Subsection 212.06(1)(a), Florida Statutes, which states in pertinent part:
The aforesaid tax at the rate of 6 percent of the retail sales price as of the moment of sale, 6 percent of the cost price as of the moment of purchase, or 6 percent of the cost price as of the moment of commingling with the general mass of property in this state, as the case may be, shall be collectible from all dealers as herein defined on the sale at retail, the use, the consumption, the distribution, and the storage for use or consumption in this state of tangible personal property or services taxable under this chapter.
Macfarlane contends that the subject invoices represented the costs of materials and/or products, taxable services, and tax exempt services. Therefore, Macfarlane claims it is improper for the Department to assess sales and use tax for the total amount of the invoices when a portion of that amount is attributable to tax exempt services.
Rule 12A-1.0161(7), Florida Administrative Code, provides some insight into this case. That Rule addresses sales and use tax on transactions that involve both the sale of a
taxable service and the sale of a service that is not taxable, or transactions that involve both the sale of a taxable service and the sale or use of property that is not subject to sales or use tax. Rule 12A-1.0161(7)(a), Florida Administrative Code, provides the following:
If a transaction involves both the sale of a taxable service as provided in subsection
above, and the sale of a service that is not taxable, or if it involves both the sale of a taxable service and the sale or use of property that is not subject to sales or use tax, the charges shall be separately identified and stated with respect to the taxable and nontaxable portions of the transaction. The tax shall apply to the transaction to the extent that the consideration paid in connection with the transaction is payment for the sale of taxable services. Failure to separately state the charges shall create a presumption that the entire transaction is a taxable service. The burden shall be on the seller of the service or the purchaser of the service, whichever is applicable, to overcome this presumption by providing documentary evidence (i.e., time sheets, schedules, receipts, or other documents which support activities) as to the amount of the transaction that is exempt from tax. If the Department determines that the taxable and exempt portions of a transaction are inaccurately stated, the Department is authorized to adjust such portions with support by substantial competent evidence. (emphasis supplied)
In this case, Macfarlane contends that the 1993 Contract and the 1996 Contract involve both nontaxable services (facilities management) and taxable tangible property (photocopies). However, despite this assertion, the evidence
established that the invoices issued by CCC to Macfarlane under those contracts do not separately identify or state the taxable and nontaxable portions of the services. Because the taxable and the claimed nontaxable portions were not separately stated or identified, the Department determined that the entire amount of the invoices issued to Macfarlane by CCC were taxable.
Notwithstanding the Department's presumption that the full amount of the invoices was taxable, Macfarlane could overcome the presumption by providing documentary evidence as to the amount of the services that were exempt from tax.
The burden is on Macfarlane to establish that the services it claims are exempt from tax are, in fact, exempt. To meet this burden, Macfarlane must present documentary evidence that supports its claim. In this case, Macfarlane failed to meet its burden.
Rule 12A-1.0161, Florida Administrative Code, quoted above, gives specific examples of the kind of documentary evidence that may be used to support such claims. The specific documents listed are "time sheets, schedules, receipts, or other documents which support activities." Interestingly, these documents appear to be ones that are typically made at or near the time of the activity that they purport to support.
Macfarlane presented testimony regarding the services that were to be provided under the 1993 Contract and the 1996
Contract. Despite objections to such testimony by the Department, it was properly admissible in this administrative proceeding. However, the testimony, standing alone, was unpersuasive in establishing that the claimed tax exempt facilities management services and other services were provided pursuant to the terms of the contracts. While such services may have been provided to Macfarlane by CCC, the contract provisions do not make that clear or apparent.
Macfarlane also failed to establish that any part of the total invoice amounts was attributable to tax exempt services performed by CCC. The document presented to establish this, a letter dated September 22, 1999, was written more than five years after the beginning of the audit period and more than a year after the end of the audit period. The letter was written by a manager of LPS, formerly CCC, in response to a specific inquiry by Macfarlane regarding the amount of time on- site operators provided by CCC spent making copies. No evidence was presented to support CCC's response that the CCC operators assigned to Macfarlane spent 13 percent of their time making copies and spent the remaining 87 percent of their time performing facilities management services and other clerical duties during the entire audit period or any part thereof.
The evidence presented failed to establish what portion of the total invoice amounts was attributable to tax
exempt services that may have been provided by CCC to Macfarlane. Likewise, no substantial competent evidence was presented to support the claims of Macfarlane that a substantial portion of the amount on the invoice was for tax exempt services.
Next, Macfarlane asserts that the Department should be estopped from assessing additional sales and use tax on Macfarlane because it remitted all taxes that were stated on the invoices. Macfarlane argues that the only time it did not pay the "allegedly" proper sales tax was after the Department's employee advised CCC to apportion the sales tax between taxable goods and nontaxable services.
As a general rule, equitable estoppel will apply against the state or any governmental entity only in rare instances and exceptional circumstances. State Department of Revenue v. Anderson, 403 So. 2d 397, 400 (Fla. 1981), citing North American Co. v. Green, 120 So. 2d 603 (Fla. 1959).
The elements of estoppel are: (1) a representation as to a material fact that is contrary to a later-asserted position; (2) reliance on that representation; and (3) a change in position detrimental to the party claiming estoppel, caused by the representation and reliance thereon. Anderson, 403 So. 2d at 400. In order to prevail on a claim of estoppel, the
party seeking relief thereunder must establish all three elements.
With regard to the first element of estoppel, the representation was not made to Macfarlane, but to CCC, the company that prepared and issued the invoices which stated the amount of sales tax Macfarlane was required to pay. There is no evidence nor was it ever asserted that the Department's auditor made any representations to Macfarlane. As to the second element, reliance on the representation, it is clear that it was CCC, not Macfarlane, that relied on its understanding of the Department's auditor's representations to change the manner in which it charged sales tax to Macfarlane. The third element requires that the party claiming estoppel show a change detrimental to its position which was caused by the representation and reliance thereon. Here, there was no detrimental change in Macfarlane's position based on representations made by the Department to Macfarlane because no such representations were ever made.
In this case, Macfarlane failed to establish the elements necessary to establish estoppel against the Department.
Finally, Macfarlane contends that it should not be assessed penalties and interest for any past due sales and use tax. Based on the substantial competent evidence adduced at hearing, this position is supported in law.
Subsection 213.21(3), Florida Statutes, authorizes the Department to settle or compromise a taxpayer's liability for tax, interest, or penalties under a chapter specified in Subsection 72.011(1), Florida Statutes. The latter Subsection includes Chapters 212 and 213, Florida Statutes. Pursuant to Subsection 213.21(3), Florida Statutes, a taxpayer's liability for tax and interest may be compromised by the Department "upon grounds of doubt as to liability for or collectibility of such tax or interest." A taxpayer's liability for penalties may be settled or compromised "if it is determined by the [D]epartment that the noncompliance is due to reasonable cause and not to willful negligence, willful neglect, or fraud." That Section mandates the Department to settle or compromise any penalty exceeding 25 percent of the tax for the same reason.
In light of the totality of the evidence, there are sufficient grounds of doubt as to liability for the entire amount of the assessed tax. Thus, there is a basis for compromising the assessed interest.
Macfarlane's noncompliance was due to reasonable cause and was not due to willful negligence, willful neglect, or fraud. Therefore, the penalty assessed against Petitioner should be compromised. Moreover, because the assessed penalty exceeds 25 percent of the tax, the Department is required to settle or compromise the penalty assessed if noncompliance is
due to reasonable cause and not to willful negligence, willful neglect, or fraud.
Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that a final order be entered sustaining the assessment for sales and use tax against Petitioner, but compromising the entire interest and penalty amount.
DONE AND ENTERED this 6th day of March, 2002, in Tallahassee, Leon County, Florida.
CAROLYN S. HOLIFIELD
Filed with the Clerk of the Division of Administrative Hearings this 6th day of February, 2002.
James W. Goodwin, Esquire MacFarlane, Ferguson & McMullen, P.A.
Jarrell L. Murchison, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050
Eric J. Taylor, Esquire
Office of the Attorney General Department of Legal Affairs The Capitol, Plaza Level 01
Macfarlane, Ferguson & McMullen, P.A.
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order must be filed with the agency that will issue the Final Order in this case.
