STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
CARPET KING CARPETS, INC., | ) | |
) | ||
Petitioner, | ) | |
) | ||
vs. | ) Case | Nos. 03-3337 |
) | 03-3338 | |
DEPARTMENT OF REVENUE, | ) | 03-3339 |
Respondent. | ) ) |
)
RECOMMENDED ORDER
Pursuant to notice, a formal hearing was held in these cases on November 5, 2003, in Tampa, Florida, before T. Kent Wetherell, II, the designated Administrative Law Judge of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: No appearance.
For Respondent: John Mika, Esquire
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050
STATEMENT OF THE ISSUE
The issue is whether Petitioner owes the taxes, interest, and penalties assessed by the Department of Revenue based upon its audit of Petitioner for the period of August 1, 1996, through July 31, 2001.
PRELIMINARY STATEMENT
On October 28, 2002, the Department of Revenue (Department) issued three Notices of Proposed Assessment (NOPAs) to Petitioner, based upon its audit of Petitioner for the period of August 1, 1996, through July 31, 2001 (the audit period). The NOPAs informed Petitioner that it owed sales tax, infrastructure surtax, and indigent care surtax totaling approximately
$7,700.00, as well as interest and penalties related thereto. A separate NOPA was issued for each type of tax.
By letter dated November 5, 2002, Petitioner protested all of the proposed assessments and requested a formal administrative hearing. On September 18, 2003, after the parties were unable to resolve this matter informally, the Department referred Petitioner's protest to the Division of Administrative Hearings (Division) for the assignment of an Administrative Law Judge to conduct the hearing requested by Petitioner.
The Department separately referred each of the NOPAs to the Division, and each was assigned a separate case number by the Clerk. Upon the Department's motion, the three cases were consolidated by Order dated October 1, 2003.
The hearing was held, as scheduled, on November 5, 2003. Petitioner did not appear at the hearing and, as a result, did not present any witnesses or offer any exhibits. The Department
presented the testimony of David Coleman and offered one composite exhibit, which was received into evidence as Exhibit No. R1.
By Order dated November 14, 2003, the Department was directed to file copies of the statutes and rules that were in effect during the audit period and that are implicated in this case. The Department filed the statutes and rules on December 3, 2003, and official recognition is hereby taken of those authorities. See §§ 90.201(1), 90.202(9), and 120.57(1)(i), Fla. Stat. (2003).
The one-volume Transcript of the hearing was filed with the Division on December 8, 2003. The parties were given 10 days from the date the Transcript was filed to file their proposed recommended orders (PROs). Petitioner did not file a PRO. The Department's PRO was timely filed on December 9, 2003, and was given due consideration by the undersigned in preparing this Recommended Order.
FINDINGS OF FACT
Based upon the testimony and evidence received at the hearing, the following findings are made:
Petitioner is a Florida corporation engaged in the business of selling and installing floor covering materials, such as carpet and tile. Petitioner's business is located in Hillsborough County, Tampa, Florida.
Petitioner sales fall into two basic categories: "cash and carry sales" and "installation sales."
The "cash and carry sales" are retail sales of floor covering materials to customers that come into Petitioner's store. These sales do not involve any installation work by Petitioner.
The "installation sales" are sales in which Petitioner installs the floor covering material in the customer's home or business. These sales are performed pursuant to a lump-sum contract which incorporates the price of the installation and the price of the floor covering materials being installed.
Petitioner purchases the floor covering materials from suppliers and distributors. Those purchases become part of the inventory from which Petitioner makes its "installation sales."
Petitioner also makes general purchases of goods and services necessary for the day-to-day operation of its business. These purchases include items such as cleaning supplies and vehicle repairs.
Petitioner made several fixed-assets purchases during the audit period for use in its business. It purchased a word processor in August 1996, and it purchased equipment and fixtures in December 1996.
On those occasions that Petitioner collected sales tax from its customers on the "cash and carry sales" or paid sales
tax on its inventory purchases and general purchases, it remitted or reported those amounts to the Department. However, as discussed below, Petitioner did not collect the full amount of sales tax due on each sale, nor did it pay the full amount of sales tax due on each purchase.
The Department is the state agency responsible for administering Florida's sales tax laws. The Department is authorized to conduct audits of taxpayers to determine their compliance with the sales tax laws.
By letter dated September 10, 2001, the Department notified Petitioner of its intent to conduct a sales tax audit of Petitioner's records for the period of August 1, 1996, through July 31, 2001.
The audit was conducted by David Coleman, a tax auditor with seven years of experience with the Department.
Petitioner designated its certified public accountant,
P.J. Testa, as its representative for purposes of the Department's audit. That designation was memorialized through a power of attorney form executed by Petitioner on March 5, 2002.
Mr. Coleman communicated with Mr. Testa throughout the course of the audit.
Mr. Coleman conducted the audit using a sampling methodology agreed to by Mr. Testa on behalf of Petitioner. Pursuant to that methodology, Mr. Coleman conducted a
comprehensive review of Petitioner's year-2000 purchase and sales invoices and extrapolated the results of that review to the other years in the audit period.
The sampling methodology was used because of the volume of records and transactions during the audit period and because of the unavailability of all of the records for the audit period. The year 2000 was chosen as the sample period because Petitioner's records for the other years in the audit period were incomplete or unavailable.
Mr. Coleman's audit of the year-2000 invoices focused on three broad types of transactions. First, he reviewed invoices of Petitioner's retail "cash and carry sales." Second, he reviewed the invoices through which Petitioner purchased the floor covering materials that it later sold as part of its "installation sales." Third, he reviewed the invoices through which Petitioner made general purchases of tangible personal property used in the day-to-day operation of its business.
The sampling methodology was used for the audit of Petitioner's "cash and carry sales," the inventory purchases related to the "installation sales," and the general purchases. The methodology was not used for the audit of Petitioner's fixed-asset purchases; Mr. Coleman reviewed all of the available records for the fixed-asset purchases during each year of the audit period.
Mr. Coleman's audit of Petitioner's retail "cash and carry sales" identified 29 invoices during year-2000 on which no sales tax or less than the full sales tax was paid by the customer. Those invoices amounted to $17,451.30, on which
$1,178.11 in total sales tax was due, but only $552.97 was paid. As a result, Mr. Coleman's audit identified a sales tax deficiency of $625.14 for the retail sales during the sample period.
Mr. Coleman's audit of Petitioner's purchases of floor covering that was later sold in the "installation sales" identified a considerable number of purchases during year-2000 on which no sales tax or less than the full sales tax was paid by Petitioner to the supplier or distributor of the materials. Those purchases amounted to $123,398.52, but only $123,397.80 of that amount was taxable. On the taxable amount, $8,330.07 in total sales tax was due, but only $6,810.68 was paid. As a result, Mr. Coleman's audit identified a sales tax deficiency of
$1,519.41 for Petitioner's inventory purchases during the sample period.
Mr. Coleman's audit of Petitioner's "general purchases" identified 10 sales during year-2000 on which sales tax was not paid. Those invoices amounted to $2,914.76, on which $196.77 in sales tax was due, but none of which was paid. As a result, Mr. Coleman's audit identified a sales tax
deficiency of $196.77 for the general purchases during the sample period.
Mr. Coleman's audit of Petitioner's fixed-asset purchases identified only two transactions during the entire audit period on which Petitioner did not pay the full sales tax. Those transactions amounted to $5,078.92, on which $330.14 in total sales tax was due, but none of which was paid. As a result, Mr. Coleman's audit identified a sales tax deficiency of
$330.14 for the fixed-asset purchases during the audit period.
The tax deficiencies calculated by Mr. Coleman for year-2000 for each category described above take into account any sales tax collected by Petitioner from its customers or paid by Petitioner to its vendors.
After Mr. Coleman computed the tax deficiencies based upon his audit of the year-2000 records, he calculated a "percentage of error" for each category of sales/purchases.
The percentage of error is the ratio used to extrapolate the results of the audit of the year-2000 records over the remainder of the audit period. No percentage of error was calculated for the fixed-asset purchases because Mr. Coleman reviewed the available records for those purchases over the entire audit period, not just year-2000.
The percentage of error was calculated by dividing the sales tax deficiency identified in a particular category for the
year-2000 by the total sales/purchases in that category for the year-2000.
For the year-2000, Petitioner had retail sales of
$1,143,182.45; general purchases of $21,254.88; and inventory purchases of $1,214,016.24. As a result, the applicable percentages of error were 0.000547 ($625.14 divided by
$1,143,182.45) for the retail sales; 0.009258 ($196.77 divided by $21,254.88) for the general purchases; and 0.001252 ($1,519.41 divided by $1,214,016.24) for the inventory purchases.
The percentages of error were then multiplied by the total sales in the applicable category for the entire audit period to calculate a total tax deficiency in each category.
Petitioner's total retail sales over the audit period were $4,455,373.40. Therefore, the total tax deficiency calculated for that category was $2,437.12 (i.e., $4,455,373.40 multiplied by 0.000547).
Petitioner's total general purchases over the audit period were $110,741.49. Therefore, the total tax deficiency calculated for that category was $1,025.25 (i.e., $110,741.49 multiplied by 0.009258).
Petitioner's total inventory sales over the audit period were $3,130,882.10. Therefore, the total tax deficiency
calculated for that category was $3,919.86 (i.e., $3,130,882.10 multiplied by 0.001252).
Petitioner's total tax deficiency was computed by adding the deficiencies in each category, as follows:
Retail Sales $2,437.12
General Purchases 1,025.25
Inventory Purchases 3,919.86
Fixed-asset purchases 330.14
TOTAL $7,712.37
Of that total, $6,863.02 reflects the state sales tax deficiency; $313.77 reflects the indigent care surtax deficiency; and $535.58 reflects the local government infrastructure surtax deficiency.
The sales tax rate in effect in Hillsborough County during the audit period was 6.75 percent. The state sales tax was six percent; the remaining 0.75 percent was for county surtaxes, namely the local government infrastructure surtax and the indigent care surtax. That rate was used by Mr. Coleman in calculating the tax deficiencies described above.
On October 4, 2002, Mr. Coleman hand-delivered the Notice of Intent to Make Audit Change (NOI) to Petitioner. The NOI is the end-product of Mr. Coleman's audit.
The NOI identified the total tax deficiency set forth above, as well as a penalty of $3,856.26, which is the standard
50 percent of the tax deficiency amount, and interest of
$2,561.63, which is calculated at a statutory rate.
The NOI included copies of Mr. Coleman's audit work- papers which showed how the taxes, penalties, and interest were calculated. The NOI also included a copy of the "Taxpayers' Bill of Rights" which informed Petitioner of the procedure by which it could protest the audit results reflected on the NOI.
On October 29, 2002, the Department issued three NOPAs to Petitioner. A separate NOPA was issued for each type of tax
-- i.e., sales tax, indigent care surtax, and local government infrastructure surtax. The cumulative amounts reflected on the NOPAs were the same as that reflected on the NOI, except that the interest due had been updated through the date of the NOPAs.
Interest continues to accrue on assessed deficiencies at a cumulative statutory rate of $1.81 per day.
The NOPAs were sent to Petitioner by certified mail, and were received by Petitioner on November 1, 2002.
By letter dated November 5, 2002, Petitioner protested the full amount of the taxes assessed on the NOPAs and requested a formal administrative hearing. The letter was signed by
Mr. Testa on Petitioner's behalf.
The protest letter does not allege that the methodology used by Mr. Coleman was improper or that the results of the audit were factually or legally erroneous. Instead, the
protest letter states that Petitioner was disputing the results of the audit because it was "following procedures set forth by an agent from a previous audit who established the manner in which [Petitioner was] to compute sales tax on the items being questioned by the current auditor."
Mr. Testa made similar comments to Mr. Coleman during the audit. When Mr. Coleman requested documentation from
Mr. Testa to corroborate those comments about the procedures allegedly established by the prior auditor, Mr. Testa was unable to provide any such documentation. The record of this proceeding is similarly devoid of evidence to support Petitioner's allegation on this point.
The record does not contain any evidence to suggest that Petitioner ever modified or revoked Mr. Testa's authority to represent it in connection with the audit or this protest, which Mr. Testa initiated on Petitioner's behalf.
Petitioner, through Mr. Testa, had due notice of the date, time, and location of the final hearing in these cases. Neither Mr. Testa, nor anyone else on Petitioner's behalf, appeared at the final hearing.
CONCLUSIONS OF LAW
The Division has jurisdiction over the parties to and subject matter of this proceeding pursuant to Sections 72.011(1), 120.569, and 120.57(1), Florida Statutes (2003).
The Department has the burden of proof in this proceeding. See § 120.80(14)(b)2., Fla. Stat. (2003). Its burden is "limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the . . . department made the assessment." Id. The standard of proof is a preponderance of the evidence. See
§ 120.57(1)(j), Fla. Stat. (2003).
The Department met its burden of proof. The evidence establishes that the Department made an assessment against Petitioner based upon an audit conducted in accordance with
the Department's rules and standard procedures, see
§§ 212.12(5)-(6), 212.13, Fla. Stat. (1999),1 and the methodology agreed to by Petitioner. The evidence further establishes that the assessment was supported by the facts available to the Department at the time of the audit, which are consistent with the facts established by the Department at the hearing. As discussed below, the Department's assessment has a sound legal basis as well.
Petitioner's "cash and carry sales" are retail sales and, therefore, are subject to the sales tax imposed by Section 212.05(1)(a)1.a., Florida Statutes (1999). See also Fla. Admin. Code R. 12A-1.051(6) (2003) ("Contractors . . . who sell property over-the-counter without performing installation services must collect tax on the full sales price of such items,
even though those items will be will become improvements to real property upon installation by the purchaser.")
Petitioner was required to separately state the sales tax on its invoices and was required to collect sales tax on those sales from its customers. See §§ 212.07(2)-(3), Fla. Stat. Its failure to do so makes it liable for any unpaid sales tax. Id.
Petitioner's "installation sales" are subject to the use tax imposed by Section 212.05(1)(b), Florida Statutes, because Petitioner is in the business of installing the floor covering material in real property and is considered the end- user of the materials when the subsequent sale of the flooring material is through a lump sum contract. See Fla. Admin. Code
R. 12A-1.051(4) (2003) ("Contractors performing [lump sum contracts] do not resell the tangible personal property used to the real property owner but instead use the property themselves to provide the completed real property improvement."). Accordingly, Petitioner was required to pay sales tax to its suppliers/distributors upon the purchase of the flooring material, id., and its failure to do so makes it liable to the Department for the unpaid sales tax. See § 212.07(8), Fla. Stat.
The general purchases and fixed-asset purchases made by Petitioner are also subject to sales/use tax since they were
retail purchases of goods for Petitioner's own use. See
§ 212.05(1)(b), Fla. Stat. Because the evidence fails to establish that Petitioner paid the taxes due on those purchases, it is liable to the Department for the unpaid amounts. See
§ 212.07(8), Fla. Stat.
The county surtaxes at issue in this proceeding -- the local government infrastructure sales tax and the indigent care surtax -- are imposed in the same manner and on the same transactions that are subject to the sales tax. See §§ 212.054(2)(a), 212.055(2) and (4), Fla. Stat.; Fla. Admin. Code
R. 12A-15.003(1).2 Based upon the determinations above, the county surtaxes were also properly assessed against Petitioner.
The interest and penalties shown on the NOPAs were properly calculated and imposed. See §§ 212.12(2)(a) (penalty is 50 percent of tax deficiency where the deficiency is not paid within 30 days) and 212.12(3), Fla. Stat. (interest is calculated at a rate of one percent per month from the date that the tax was due to the date that the tax is paid).
The Department has authority to compromise all or part of the tax, interest, and penalty assessed against a taxpayer, but it is not required to do so. See § 213.21(3)(a), Fla. Stat. (2003); Fla. Admin. Code R. 12-13.005 through 12-13.007 (2003).
The taxpayer has the burden to establish the grounds upon which the Department should compromise any of those
amounts. Because Petitioner failed to appear at the hearing and did not offer any evidence on this issue, there is no record basis for the Department to compromise any of the taxes, interest, or penalties assessed against Petitioner.
Similarly, there is no evidence in the record to support the allegation of estoppel that is implicitly raised in Petitioner's protest letter. The record fails to establish what, if any, instructions the prior Department auditor gave to Petitioner, nor does it establish whether Petitioner's sales tax collection and reporting practices are consistent with those instructions. Accordingly, to the extent that Petitioner's estoppel defense has not been waived by its failure to appear at the final hearing, it is rejected. See also Glass v. Dept. of Revenue, 650 So. 2d 684, 686 (Fla. 5th DCA 1995) (rejecting estoppel defense premised on erroneous oral advice given by Department staff); Dept. of Revenue v. Anderson, 403 So. 2d 397,
400 (Fla. 1981) (stating that equitable estoppel will be applied against the State only in "exceptional circumstances").
Based upon the foregoing findings of fact and conclusions of law, it is
RECOMMENDED that the Department of Revenue issue a final order imposing the taxes, interest, and penalties against
Petitioner in the full amounts set forth in the three Notices of Proposed Assessment dated October 28, 2002.
DONE AND ENTERED this 30th day of December, 2003, in Tallahassee, Leon County, Florida.
S
T. KENT WETHERELL, II 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 30th day of December, 2003.
ENDNOTES
1/ Except as otherwise indicated, all references to the provisions of Chapter 212 are to the 1999 version of the Florida Statutes which were officially recognized.
2/ Except as otherwise indicated, all references to Rules are to the version of the Florida Administrative Code that was officially recognized.
COPIES FURNISHED:
John Mika, Esquire
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050
P. J. Testa
Post Office Box 4562 Tampa, Florida 33677
James Zingale, Executive Director Department of Revenue
104 Carlton Building Tallahassee, Florida 32399-0100
Bruce Hoffmann, General Counsel Department of Revenue
204 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 |
|---|---|---|
| Mar. 08, 2004 | Agency Final Order | |
| Dec. 30, 2003 | Recommended Order | Respondent`s assessment against a taxpayer who failed to collect the sales tax on retail sales and failed to pay sales tax on purchases of inventory and other items used in business of making improvements to real property was proper. |
