STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS CHARLES R. BIELINSKI, ) ) Petitioner, ) ) Case Nos. 04 0008 vs. ) 04 0009 ) 04 0010 DEPARTMENT OF REVENUE, ) 04 0011 ) 04 0012 Respondent. ) 04 0013 ) 04 0014 RECOMMENDED ORDER Upon due notice, this cause came on for a video teleconferencing hearing between Tallahassee and Pensacola, Florida, before Ella Jane P. Davis, a duly assigned Administ rative Law Judge of the Division of Administrative Hearings, on May 13, 2004. APPEARANCES For Petitioner: No appearance For Respondent: Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399 1050 STATEMENT OF THE ISSUE Whether the Department of Revenue (DOR) has properly issued an assessment against Petitioner for sales and use tax, interest, and penalty. PRELIMINARY STATEMENT Respondent DOR assessed Petitione r sales and use tax, plus interest and penalty, and associated taxes, with interest and penalty, for the period of November 1, 1997 through August 31, 2002 (hereinafter "the audit period"). Petitioner denied liability and requested an administrative heari ng. The case was referred to the Division of Administrative Hearings in seven files on or about January 5, 2004. An Order of Consolidation was entered January 16, 2004. A disputed fact hearing in all cases was scheduled by a Notice of Hearing issued Feb ruary 17, 2004. On February 25, 2004, an Order Granting Continuance and Re scheduling Hearing for May 13 14, 2004, was entered in response to the parties' Joint Motion for Continuance. After actual oral notice to both parties by telephone, a written no tice of video hearing for the same date and time was faxed to the parties on May 6, 2004. On the date of hearing, Petitioner did not appear at either video conferencing location, despite a delay of the hearing for one quarter of an hour. Respondent DOR presented the oral testimony of JoEllen Burke, and had 16 exhibits admitted in evidence. 1 Petitioner still had not appeared by the close of Respondent's case in chief. Although the docket was sounded in the hallway of the Pensacola, Florida, location, P etitioner could not be located. Petitioner also made no contact that day with the Division in Tallahassee. A Transcript was filed on June 3, 2004, and a Post Hearing Order was issued June 7, 2004. Only Respondent timely filed a Proposed Recommended Orde r. That proposal has been considered in the preparation of this Recommended Order. FINDINGS OF FACT 1. Petitioner is a Florida resident. 2. In 1996, Petitioner began doing business as a sole proprietor under the name of "Duraline Industries" and regis tered with DOR as a sales tax dealer. Later, this entity was called "Dura Steel." Petitioner also operated as a corporation, Steel Engineered Design Systems, Inc. Petitioner's Florida sales tax numbers are 42 11 009271 63 and 40 00 003416 80. For purpo ses of these consolidated cases, Petitioner has been audited and charged individually as "Charles R. Bielinski," because the audit revealed that no checks were made out to the corporation(s) and that the monies received were received by Mr. Bielinski as a sole proprietor in one or more "doing business as" categories. 3. Petitioner engaged in the business of fabricating items of tangible personal property, i.e. , prefabricated steel buildings, many of which later became improvements to real property in Flor ida. 4. Petitioner used some of the steel buildings in the performance of real property contracts by installing the buildings as improvements to real property. 5. Petitioner also engaged in the business of selling buildings and steel component parts su ch as sheets and trim in Florida. 6. Petitioner sold buildings and component parts in over the counter retail sales, also. 7. On October 7, 2002, DOR issued Petitioner a Notification of Intent to Audit Books and Records for the period of September 1, 1 999 through August 31, 2002. This audit was assigned number AO226920428. 8. In 2002, Petitioner provided DOR's auditor with his sales activity records, such as contracts and job information. A telephone conversation/interview of Petitioner was conducte d by the auditor. Over a period of several months, the auditor attempted to get Petitioner to provide additional records, but none were forthcoming. DOR deemed the contracts and job information provided by Petitioner to be an incomplete record of his sal es activity for the audit period. 9. Petitioner claimed that most of his sales activity records had been lost or destroyed. 10. Due to the absence of complete records, DOR sampled Petitioner's available records and other information related to his sale s in order to conduct and complete its audit. 11. Petitioner purchased materials used to fabricate his steel buildings. 12. Petitioner sometimes would erect the buildings on real property. 13. Petitioner fabricated main frames for smaller buildings a t a shop that he maintained at the Bonifay Airport. 14. Otherwise, Petitioner subcontracted with like companies to fabricate main frames for larger buildings. 15. Petitioner made some sales to exempt buyers, such as religious institutions and governmen t entities. 16. When he purchased the materials he used to fabricate the buildings, Petitioner occasionally provided his vendors with his resale certificate, in lieu of paying sales tax. 17. Petitioner did not pay sales tax on the materials he purchase d to fabricate buildings when such buildings were being fabricated for exempt buyers such as churches and governmental entities. 18. On June 23, 2003, DOR issued Petitioner a Notice of Intent to Make Audit Changes (Form DR 840), for audit number AO2269 20428, covering the period of November 1, 1997 through August 31, 2002. 19. DOR has assessed Petitioner sales tax on the buildings, sheets, and trim he sold over the counter in Florida. 20. DOR has assessed Petitioner use tax on sales of the materials used in performing real property contracts in Florida. 21. The auditor calculated a method of estimating taxes based on the limited documentation that had been provided by Petitioner. She used a sampling method based on Petitioner's contract numbering s ystem; isolated the Florida contracts; and divided the Florida contracts between the actual sale of tangible property (sale of just the buildings themselves) and real property contracts (where Petitioner not only provided the building but also provided ins tallation or erection services). The auditor scheduled the real property contracts and assessed only the material amounts as taxable in Florida. Since she had only 19 out of 47 probable contracts, or 40 percent, she projected up to what the taxable amoun t should be and applied the sales tax and surtax at the rate of seven percent, as provided by law. She then divided that tax for the entire audit period by the 58 months in the audit period, to arrive at a monthly tax amount. This monthly tax amount was broken out into sales and discretionary sales tax. 22. Florida levies a six percent State sales tax. Each county has the discretion to levy a discretionary sales tax. Counties have similar discretion as to a surtax. 23. The auditor determined that Petitioner collected roughly $22,000.00 dollars in tax from one of his sales tax registrations which had not been remitted to DOR. During the five year audit period, Petitioner only remitted tax in May 1998. DOR gave Petitioner credit for the taxes he di d remit to DOR during the audit period. 24. The foregoing audit processes resulted in the initial assessment(s) of August 28, 2003, which are set out in Findings of Fact 25 31, infra . 25. On August 28, 2003, DOR issued Petitioner a Notice of Proposed A ssessment (Form DR 832/833), for additional discretionary surtax, in the sum of $2,582.19; interest through August 28, 2003, in the sum of $782.55; and penalty, in the sum of $1,289.91; plus additional interest that accrues at $0.50 per day. (DOAH Case No . 04 0008) 26. On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional sales and use tax in the sum of $154,653.32; interest through August 28, 2003, in the sum of $50,500.06; and penalty, in the sum of $77,324.54, plus additional interest that accrues at $31.54 per day. (DOAH Case No. 04 0009) 27. On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional local governmental infrastructure surtax, in th e sum of $7,001.82; interest through August 28, 2003, in the sum of $2,352.09; and penalty in the sum of $3,497.35; plus additional interest that accrues at $1.45 per day. (DOAH Case No. 04 0010) 28. On August 28, 2003, DOR issued Petitioner a Notice o f Proposed Assessment (Form DR 832/833), for additional indigent care surtax, in the sum of $513.08; interest through August 28, 2003, in the sum of $156.33; and penalty, in the sum of $256.24; plus additional interest that accrues at $0.10 per day. (DOAH Case No. 04 0011) 29. On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional school capital outlay surtax in the sum of $3,084.49; interest through August 28, 2003, in the sum of $922.23; and penalty, in the sum of $1,540.98; plus additional interest that accrues at $0.60 per day. (DOAH Case No. 04 0012) 30. On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional charter transit system surtax, in t he sum of $2,049.22; interest through August 28, 2003, in the sum of $766.07; and penalty, in the sum of $1,023.27; plus additional interest that accrues at $0.46 per day. (DOAH Case No. 04 0013) 31. On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), additional small county surtax, in the sum of $10,544.51; interest through August 28, 2003, in the sum of $3,437.85; and penalty in the sum of $5,282.30; plus additional interest that accrues at $2.15 per day. (DOAH Case No. 04 0014) 32. However, the auditor testified at the May 13, 2004, hearing that she attended Petitioner's deposition on March 18, 2004. At that time, Petitioner provided additional documentation which permitted the auditor to recalculate the amo unt of tax due. The auditor further testified that she separated out the contracts newly provided at that time and any information which clarified the prior contracts she had received. She then isolated the contracts that would affect the Florida taxes d ue. Despite some of the new information increasing the tax on some of Petitioner's individual Florida contracts, the result of the auditor's new review was that overall, the contracts, now totaling 33, resulted in a reduction in total tax due from Petitio ner. These changes were recorded in Revision No. 1 which was attached to the old June 23, 2003, Notice of Intent to Make Audit Changes, which was sent by certified mail to Petitioner. The certified mail receipt was returned to DOR as unclaimed. 33. T he auditor's calculations reducing Petitioner's overall tax are set out in Respondent's Exhibit 16 (Revision No. 1). That exhibit appears to now show that taxes are owed by Petitioner as follows in Findings of Fact 34 40 infra . 34. For DOAH Case No. 04 0 008, discretionary surtax (tax code 013), Petitioner only owes in the amount of $1,937.37, plus penalties and interest to run on a daily basis as provided by law. 35. For DOAH Case No. 04 0009, sales and use tax (tax code 010), Petitioner only owes in the amount of $111,811.04, plus penalties and interest to run on a daily basis as provided by law. 36. For DOAH Case No. 04 0010, local governmental infrastructure surtax (tax code 016), Petitioner only owes in the amount of $5,211.00, plus penalties and int erest to run on a daily basis as provided by law. 37. For DOAH Case No. 04 0011, indigent care surtax (tax code 230), Petitioner only owes in the amount of $317.39, plus penalties and interest to run on a daily basis as provided by law. 38. For DOAH Case No. 04 0012, school capital outlay tax (tax code 530), Petitioner only owes in the amount of $2,398.68, plus penalties and interest to run on a daily basis as provided by law. 39. For DOAH Case No. 04 0013, charter transit system surtax (tax code 015), P etitioner only owes in the amount of $1,558.66, plus penalties and interest to run on a daily basis as provided by law. 40. For DOAH Case No. 04 0014, small county surtax (tax code 270), Petitioner only owes in the amount of $7,211.83, plus penalties and interest to run on a daily basis as provided by law. CONCLUSIONS OF LAW 41. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this cause, pursuant to Sections 72.011(1), 120.569, 120.57(1), and 120.80, Florida Statutes. 42. DOR has the initial burden of showing, "that an assessment has been made against the taxpayer and the factual and legal grounds upon which [DOR] made the assessment." See § 120.80(14)(b)2. Fla. Stat. However, Petitioner has the ultimate b urden to prove by a preponderance of the evidence that the factual or legal basis for the assessment is unreasonable or incorrect. See Department of Revenue v. Nu Life Health and Fitness Center , 623 So. 2d 747, 751 752 (Fla. 1st DCA 1992). And see § 120. 57(1)(j), Fla. Stat. 43. In order to prevail, Petitioner must show, by a preponderance of the evidence, that DOR departed from the requirements of law or that the assessment was not supported by any reasonable hypothesis of legality. Cf Straughn v. Tuck , 354 So. 2d 368, 371 (Fla. 1978), (involving property tax assessment under Chapter 193, Florida Statutes); Harris v. State, Department of Revenue , 563 So. 2d 97, 99 (Fla. 1st DCA 1990), 2 (citing Straughn , supra , for assessments under Chapter 212, sales and use tax and derivative surtaxes). 44. Respondent is authorized to conduct audits of Petitioner's books and records and to request information to ascertain his tax liability, if any, pursuant to Section 212.13, Florida Statutes. 45. Petitioner had a sta tutory duty to maintain and produce suitable books and records relating to sales tax for audit, and such books and records must be made available to DOR or its authorized agents at all reasonable hours. Herein, Petitioner did not maintain and/or provide t o DOR records adequate for a sales and use tax audit. Where, as here, a sales tax dealer does not provide adequate records of his or her retail sales or purchases, DOR is authorized to determine the proportion that taxable retail sales bear to total retai l sales or the proportion that taxable purchases bear to total purchases, based upon a test or sampling of the dealer's available records or other information. § 212.12(6)(b), Fla. Stat. 46. Respondent DOR properly audited Petitioner's available books an d records, for the period of November 1, 1997 through August 31, 2002. It is commendable that this auditor persisted in obtaining Petitioner's records, such as they were, through the discovery process of this case in order to reach correct adjusted amount s on Exhibit R 16. 47. The Florida sales and use taxes are separate, but complementary taxes, and are generally referred to as one tax. U.S. Gypsum v. Green , 110 So. 2d 409 (Fla. 1959). 48. The Florida use tax complements the Florida sales tax, and tog ether they provide a uniform tax on retail sales and the use of all tangible personal property in Florida. Fla. Admin. Code R. 12A 1.091(4). 49. It is the legislative intent of the statute that every person is exercising a taxable privilege who engages i n the business of selling tangible personal property at retail in this state. § 212.05, Fla. Stat. 50. It is the specific legislative intent that each and every sale, admission, use, storage, consumption or rental is taxable under Chapter 212, Florida St atutes, unless specifically exempt. Fla. Admin. Code R. 12A 1.03A(1). 51. It is the clear intent and purpose of the sales and use tax statute that the tax is to be paid by the ultimate consumer. Davis v. Ponte Vedra Club , 78 So. 2d 858 (Fla. 1955) (conc luded that a seller is an agent of the State who is charged with the duty to collect and remit the tax). 52. Generally, any person who has purchased, at retail in this State, tangible personal property and cannot prove that sales and use tax has been paid , is directly liable for any tax, interest, or penalty due on any such taxable transactions. See § 212.07(8), Fla. Stat. Petitioner purchased at retail in Florida tangible personal property, and has not proven that he paid sales tax on such purchases. 53. Florida Administrative Code Rule 12A 1.05(1), governs the taxability of the purchase, sale or use of tangible personal property by contractors and subcontractors who purchase, acquire or manufacture materials for use in the performance of real propert y contracts. 54. "Real property contract" means an agreement, oral or written, whether on a lump sum, time and materials, costs plus, guaranteed price, or any other basis, to furnish and install tangible personal property that becomes a part of, or is dir ectly wired or plumbed into the land or structure thereon. Fla. Admin. Code R. 12A 1.051(2)(h)1.c. Petitioner fabricated and installed the steel buildings in performance of real property contracts. 55. Specifically, a contractor who fabricates an item o f tangible personal property for his own use must pay a use tax upon the cost of the property fabricator without deducting any fabricating cost. § 212.06(1)(b), Fla. Stat., and Fla. Admin. Code R. 12A 1.043(1)(a) and 12A 1.051(10). 56. "Fabricated cost" means the cost to a real property contractor of fabricated items including direct material, direct labor and indirect fabricating costs attributable to fabricating an article of tangible personal property for one's own use. § 212.06(1)(b), Fla. Stat., an d Fla. Admin. Code R. 12A 1.051(2)(a). Petitioner is liable for use tax on the fabricated costs of the materials used to fabricate the steel buildings. 57. "Fabricated items" means items that contractors manufacture, produce, process, compound, or fabric ate for their own use in performing contracts for improvements to real property. § 212.06(1)(b), Fla. Stat., and Fla. Admin. Code R. 12A 1.051(2)(b). The steel buildings are fabricated items used by Petitioner in performing real property contracts. 58. "Improvement to real property" or "real property improvement" includes the activities of building, erecting, constructing, altering, improving, repairing, or maintaining real property. § 212.06(14)(c), Fla. Stat., and Fla. Admin. Code R. 12A 2.051(2)(d). Petitioner's installation of those steel buildings onto real property constitutes a real property improvement. 59. The term "fabricating items" applies only to items the contractor manufactures, produces, processes, compounds, or fabricates at a plant or shop maintained by the contractor. § 212.06(1)(b), Fla. Stat., and Fla. Admin. Code R. 12A 1.051(2)(b). Petitioner fabricated and maintained the steel buildings at a shop at the local airport. 60. Contractors that both use material themselves in the p erformance of contracts and re sell materials either in over the counter sales or under retail plus installation contracts are called "dual operators". See Fla. Admin. Code R. 12A 1.051(9). Petitioner is a dual operator. 61. When dual operators purchase materials that they may either use themselves or that they may resale, they may issue a copy of the contractor's Annual Resale Certificate (Form DR 13) to their vendor. See Fla. Admin. Code R. 12A 1.051(9). Petitioner could have extended a copy of its r esale certificate to its vendors, if Petitioner was not certain, at the time of purchase, whether the materials would be resold or used in the performance of improvement to real property. 62. If such materials are subsequently resold, the dual operator sh ould collect sales tax from its customers and remit the tax to the Respondent. However, if such materials are used by the duel operator, it should accrue and remit use tax to DOR. See § 212.07(1) and (8), Fla. Stat., and Fla. Admin. Code R. 12A 1.051(9). Petitioner failed to accrue and remit use tax to Respondent on the use of materials purchased and used to fabricate steel buildings. 63. Contractors who sell tangible personal property over the counter without performing installation services must colle ct tax on the full sales price of such items, even though those items will become improvements to real property, upon installation by the purchaser. At the point at which these items are sold in over the counter transactions, those items are tangible pers onal property. See Fla. Admin. Code R. 12A 1.051(6). Petitioner sold steel buildings and other component parts over the counter. 64. Contractors are the ultimate consumers of materials and supplies they use to perform real property contracts and must pa y tax on their costs of those materials and supplies, unless the contractors has entered into a "retail sale plus installation." 3 Fla. Admin. Code R. 12A 1.051(4). 65. Petitioner herein was the ultimate consumer of the materials used to fabricate the ste el buildings, and therefore is liable for tax on such use. 66. Because contractors performing real property improvement contracts do not resell the tangible personal property used to the real property, but instead use the property themselves to provide th e completed real property improvement, such contractors should pay tax to their vendors on all purchases. Fla. Admin. Code R. 12A 1.051(4). 67. Petitioner was liable to pay sales tax, at the time of purchase, on the materials used for real property imp rovements 68. Respondent was correct in assessing Petitioner sales tax on its purchases at retail in Florida of tangible personal property. 69. Generally any person who uses tangible personal property in Florida and who cannot prove that taxes were paid on at the time of sale is liable for the use tax. See § 212.07(8), Fla. Stat. Petitioner used the material purchased to fabricate steel buildings and has not proven that he paid the sales tax at the time of sale. 70. Specifically, a contractor who manu factures factory buildings for his own use in the performance of contracts for the construction or improvement of real property must pay a tax only upon the cost price of the items used to manufacture such buildings. See Fla. Admin. Code R. 12A 1.043(3)(a ). 71. "Factory built building" means a structure manufactured in a manufacturing facility for installation or erection as a finished building, and includes, but is not limited to, residential, commercial, institutional, storage, and industrial structures . See Fla. Admin. Code R. 12A 1.043(3)(b). 72. "Cost price" means the actual cost of the articles of tangible personal property, without any deductions therefrom on account of the cost of materials used, label or services costs, transportation charges, o r any expenses whatsoever. See § 212.02(4), Fla. Stat. 73. The tax is due at the time the article of tangible personal property is manufactured, produced, compounded, processed, or fabricated for use or consumption. Fla. Admin. Code R. 12A 1.043(1)(f). 74. Petitioner became liable for use tax on the materials at the time Petitioner used such materials to fabricate steel buildings. 75. Respondent made a prima facie showing of the validity of the sales and use tax assessment(s) and Petitioner, by failing to appear, failed to produce any evidence to overcome the prima facie showing of the revised assessments' validity. 76. DOR's assessment of tax, penalty, and interest as expressed in Findings of Fact Nos. 34 40, supra should be sustained. RECOMMENDATIO N Based on the foregoing Findings of Facts and Conclusions of Law set forth above, it is RECOMMENDED that the Department of Revenue enter a final order upholding the amount of tax calculated against Petitioner in its June 21, 2003, Notice of Intent to M ake Audit Changes, Revision No. 1, in the principal amounts as set forth in Findings of Fact Nos. 34 40, plus interest and penalty accruing per day as provided by law, until such time as the tax is paid. DONE AND ENTERED this 14th day of July, 2004, in Tal lahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399 3060 (850) 488 9675 SUNCOM 278 967 5 Fax Filing (850) 921 6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of July, 2004. ENDNOTES 1/ Despite some confusion in the Transcript and the absence of an "exhibits page" therein, the under signed considers the June 21, 2003, Notice of Intent to Make Audit Changes Revision No. 1 to have been admitted in evidence as "Exhibit R 16" (TR 46). 2/ Overruled on other grounds, Florida Department of Revenue v. Herre , 634 So. 2d 618 (Fla. 1994). 3/ "Retail sale plus installation contracts" are contracts for improvements to real property in which the contractor or subcontractor agrees to sell specifically described an itemized materials or supplies at an agreed price or at the regular retail price an d to complete and further agrees to complete the work either for an additional agreed price on the basis of time consumed. Fla. Admin. Code R. 12A 1.51(3)(d). The present case does not involve this type of contract. COPIES FURNISHED: Charles R. Biel inski 2904 East Blount Street Pensacola, Florida 32503 Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399 1050 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tal lahassee, 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 t he 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: 04-000012

Orders for Case No: 04-000012