STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ISEASEAL, LLC,

Petitioner,

vs.

DEPARTMENT OF REVENUE,

Respondent.

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) Case No. 04-2373

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RECOMMENDED ORDER

Pursuant to Notice, a formal hearing was held in this matter before Diane Cleavinger, a duly designated Administrative Law Judge of the Division of Administrative Hearings, on October 26, 2004, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Paul Bakker, Managing Member

Iseaseal, LLC Financial Center

695 East Main Street Samford, Connecticut 06901

For Respondent: Carrol Y. Cherry, Esquire

Assistant Attorney General Office of the Attorney General Revenue Litigation Section Plaza Level 01, The Capitol

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue in this case is whether the taxpayer owes use tax, penalty and interest on the purchase of tangible personal property under Chapter 212, Florida Statutes.

PRELIMINARY STATEMENT

In 2000, Iseaseal, LLC (Petitioner) purchased and took delivery of a yacht in Florida. No sales tax was paid on the purchase because the yacht was exempt from such tax since it was removed from Florida within 90-days after the purchase date.

However, the Petitioner returned the yacht to Florida within six months of its departure date. Because the yacht returned to Florida, the Department assessed the taxpayer for use tax, penalty and interest on the use and storage of the yacht in Florida. The taxpayer disputed the assessment of the tax, penalty and interest and requested a formal administrative hearing to contest the assessment.

At the hearing, Petitioner offered the testimony of one witness. The Respondent offered the testimony of two witnesses and submitted four (4) exhibits into evidence.

After the hearing, Petitioner and Respondent filed Proposed Recommended Orders on December 8 and December 21, 2004, respectively.

FINDINGS OF FACT

1. Iseaseal, LLC, a Delaware corporation, has its principal place of business at 695 East Main Street, Suite 103, Stamford, Connecticut. Its federal employer identification number is 06-1600000.

2. On November 22, 2000, the taxpayer purchased a 1982, 72-foot, Hatteras CPMY yacht, named “Windcrest,” with hull number HATBN3270182 and 60 net tons of admeasurement. The purchase was made through a registered yacht broker.

3. The yacht’s sales price was $725,000.

   
   

4. On November 21, 2000, at the closing for the yacht, the taxpayer’s managing member, Paul Bakker, signed an Affidavit for Exemption of Boat Sold for Removal from the State of Florida by a Nonresident Purchaser. The yacht was also registered with the Coast Guard. However, to date, the yacht has not been registered or titled in Florida or any other U.S. state or territory.

5. The taxpayer took possession of the yacht at Pier 66, in Fort Lauderdale, Florida, on November 22, 2000. Also, on November 22, 2000, the taxpayer was issued a 90-day decal known as a “cruising decal.”

6. A cruising decal, with certain restrictions, exempts the purchase of a yacht from sales tax if the purchaser agrees

   to remove the yacht from Florida within 90 days after the date of purchase and does remove the purchased yacht.

7. On December 28, 2000, the taxpayer removed the yacht from Florida to the Bahamas. The removal occurred within 90 days after the purchase date. As a result, the sale became exempt from Florida sales tax and the Petitioner did not pay Florida sales tax on the purchase of the yacht.

8. On January 15, 2001, the taxpayer returned the yacht to Florida for repairs. A repair bill shows that the yacht remained at the repair facility for four and a half hours on January 16, 2001. The repair visit was within six months after the departure date of December 28, 2000. There was no evidence that the repair facility was registered with the Department of Revenue or how long the boat remained in Florida waters.

9. The yacht also returned to Florida for repairs on May 21, 2001. Again there was no evidence that the repair

   facility was registered or how long the boat remained in Florida waters. The evidence did not establish that the tax exemption related to use of Florida waters for 20 days or repairing a boat in Florida apply.

10. Since the purchase date, the Petitioner has leased mooring space in Florida.

11. The Petitioner’s insurance policy also indicates that the yacht was moored in Florida and includes a Florida endorsement for such mooring.

12. Additionally, the Petitioner reported to Connecticut’s Department of Revenue that the yacht was exempt from Connecticut sales tax because the yacht was purchased and berthed in the State of Florida.

13. Based on copies of the bill of sale, closing statement, banking statements, credit card statements, mortgage documents, insurance agreements, mooring agreements, repair and parts receipts and a chronological listing of the yacht’s whereabouts since the date of purchase, the yacht has operated, and continues to operate, in Florida waters.

14. Indeed, the yacht remained in Florida for more than

    
    

    183 days from July 1, 2002 through December 31, 2002.

    
    

15. Moreover, since September 11, 2002, the yacht has been moored or stored in Florida the majority of the time because the main users of the yacht lost interest in sailing the yacht and travel after the terrorist attack on the twin towers in New York City.

16. The Department found that the Petitioner was liable for use tax on its use and storage of the yacht here in Florida.

17. On May 5, 2004, the Department issued an enforcement billing to the Petitioner for use tax, penalty and interest,

    pursuant to Sections 212.05(1)(a)2 and 212.06(8), Florida Statutes. The Department assessed the Petitioner use tax and interest based on the sales price of the yacht. The Department also assessed the Petitioner a mandatory penalty equal to the tax because it returned the yacht to Florida within six months of the departure date.

18. The Petitioner admitted that, through ignorance of Florida’s tax exemption law, he violated Chapter 212, but argues that the assessment of tax, interest and mandatory penalty is excessive.

19. On May 24, 2004, the Department issued the Petitioner a Notice of Final Assessment for Sales and Use Tax, Penalty and Interest Due. The Notice set forth the basis for the assessment of tax, in the sum of $43,500, penalty, in the sum of $43,500, and interest, in the sum of $14,759.84, plus additional interest that accrues at the rate of $10.73 per day. The Department issued the Petitioner the Final Assessment because it returned the yacht to Florida within six months of the departure date and the yacht remained in Florida for more than 183 days in a calendar year.

20. Since the Petitioner returned the yacht to Florida within 6 months of the purchase date and allowed the yacht to remain in Florida for more than 183 days in a calendar year, the

    Petitioner is liable for use tax, penalty and interest in the use and storage of the yacht in Florida.

    CONCLUSIONS OF LAW

    
    

21. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. § 120.57(1), Fla. Stat.

22. Florida tax law creates a presumption of correctness of the Department's assessment of tax, penalty and interest.

    § 212.12(5)(b), Fla. Stat. The Department's burden is limited in the first instance to a showing that it made an assessment against the Petitioner and that there was a factual and legal basis for the assessment. IPC Sports, Inc. v. State, Dept. of Revenue, 829 So. 2d 330 (Fla. 3d DCA 2002); Dept. of Revenue v. Nu-Life Health and Fitness Center, 623 So. 2d 747, 751-52 (Fla. 1st DCA 1992).

23. The Department made a prima facie showing of the validity of the use tax assessment.

24. The burden of proof therefore shifts to the Petitioner to establish by a preponderance of the evidence that it does not owe the assessed tax. See Florida Department of Transportation v. J.W.C. Company, Inc., 396 So. 2d 778 (Fla. 1st DCA 1981); Balino vs. Department of Health and Rehabilitative Services, 348 So. 2d 349 (Fla. 1st DCA 1977).

25. Petitioner must demonstrate that the Department 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 assessments under Chapter 193, Florida Statutes); Harris v. State, Department of Revenue, 563 So. 2d 97, 99 (Fla. 1st DCA 1990) (citing Straughn, supra, for assessments under Chapter 212).

26. To begin, all boats sold or delivered in Florida are subject to Florida sales tax, unless specifically exempt.

    § 212.05(1)(a), Fla. Stat. The tax is assessed at a rate of six

    
    

    (6) percent on the sales price of the boat. § 212.05(1)(a)1.a, Fla. Stat.

27. A boat may be purchased tax-exempt, if it is sold by or through a registered boat dealer or yacht broker to a nonresident purchaser who will remove the boat from the state and meets the other requirements of the statute.

    § 212.05(1)(a)2, Fla. Stat.

    
    

28. In order to qualify for the exemption the purchaser must sign a removal affidavit stating that he or she has read the law and rules regarding the specific exemption claimed and agrees to remove the boat from Florida. § 212.05(1)(a)2.d, Fla. Stat.; Fla. Admin. Code Rule 12A-1.007. Petitioner, through its agent signed a removal affidavit agreeing to remove the yacht

    from Florida. Petitioner was, therefore, on notice as to all the conditions pertaining to the exemption, or at least on notice that he needed to make further inquiries if he did not understand what the statute or rule provided. See Yes Dear, Inc. v. Department of Revenue, 523 So. 2d 1235, 1238 (Fla. 1st DCA 1988).

29. Additionally, the boat must be of a class or type which would be required to be registered, titled, or documented in Florida or by the United States Government. § 212.05(1)(a)2, Fla. Stat.; Fla. Admin. Code Rule 12A-1.007(9)(a)1.a.

30. Section 328.48, Florida Statutes, requires every boat that is operated in Florida waters to be titled or registered in this state. Since the yacht in question here was operated in Florida waters, it was required to be registered with the State of Florida.

31. However, upon purchase in Florida when the boat is greater than five net tons of admeasurement, a nonresident purchaser may obtain a cruising decal from the selling dealer or broker, which authorizes the boat to remain in Florida waters up to 90 days after purchase. § 212.05(1)(a)2.f, Fla. Stat.

32. In this case, the Windcrest was 60 net tons of admeasurement and a cruising decal was obtained when the boat was purchased. The decal allowed the yacht to remain in Florida

    for 90 days after the purchase date. Section 212.05(1)(a)2.f, Florida Statutes, prohibits the 90-day period being tolled or extended for any reason including repairs.

33. The taxpayer removed the yacht from Florida within

90-days after the date of purchase, thereby exempting it from the sales tax pursuant to Section 212.05(1)(a)2. Yes Dear, 523 So. 2d, at 1236.

34. Sections 212.05(1)(a)2.f and 212.06(8)(a), (b), Florida Statutes, provide that use tax will apply and be due on a boat brought into Florida within six months after the boats departure date. Section 212.05(1)(a)2, Florida Statutes, provides, in pertinent part:

* * *

If the purchaser fails to remove the qualifying boat from this state within 90-days after purchase or a nonqualifying boat or an airplane from this state within 10-days after purchase or, when the boat or airplane is repaired or altered, within 20-days after completion of such repairs or alterations, or permits the boat or airplane to return to this state within 6 months from the date of departure, or if the purchaser fails to furnish the department with any of the documentation required by this subparagraph within the prescribed time period, the purchaser shall be liable for use tax on the cost price of the boat or airplane and, in addition thereto, payment of a penalty to the Department of Revenue equal to the tax payable. This penalty shall be in lieu of the penalty imposed by s. 212.12(2) and is mandatory and shall not be waived by the department. The 90-day period following the sale of a qualifying boat tax exempt to a nonresident may not be tolled for any reason. (Emphasis

supplied.)

1. In this case, the taxpayer returned the yacht to Florida within six-months after the date of departure. Pursuant to the statute, the yacht became subject to the use tax.

   § 212.06(8). Yes Dear, 523 So. 2d, at 1236.

   
   

2. The original sales tax exemption does not isolate the taxpayer from the use tax based on its subsequent return, use and storage of the yacht in Florida for almost four years. Department of Revenue v. G.R. Swan Enterprises, Inc., 506 So. 2d 455, 457 (Fla. 1st DCA 1987).

3. A boat that remains in Florida for more than 183 days in a one-year period is presumed taxable, unless it qualifies under another exemption. § 212.06(12), Fla. Stat.

4. The yacht, in this case, is subject to tax, not only because it was returned to Florida within six months of the departure date, but also because it remained in Florida for more than 183 days in a calendar year.

5. Moreover, the Petitioner’s use and maintenance of the yacht in Florida, for almost four years, constitutes a "storage" that is a taxable transaction in itself under Chapter 212.

   §§ 212.02(7) and 212.02(13), Fla. Stat. See Swan Enterprises, 506 So. 2d, at 459-460.

6. Finally, Section 212.08(7)(t), Florida Statutes, permits boat owners to dock their boats in Florida for up to 20 days per calendar year without paying use tax on the boat’s

   purchase price, provided the boat is placed in a registered repair facility. Section 212.08(7)(t), Florida Statutes, provides, in pertinent part:

   1. Notwithstanding the provisions of chapter 328, pertaining to the registration of vessels, a boat upon which the state sales or use tax has not been paid is exempt from the use tax under this chapter if it enters and remains in this state for a period not to exceed a total of 20-days in any calendar year calculated from the date of first dockage or slippage at a facility, registered with the department, that rents dockage or slippage space in this state. If a boat brought into this state for use under this paragraph is placed in a facility, registered with the department, for repairs, alterations, refitting, or modifications and such repairs, alterations, refitting, or modifications are supported by written documentation, the 20-day period shall be tolled during the time the boat is physically in the care, custody, and control of the repair facility, including the time spent on sea trials conducted by the facility. The 20-day time period may be tolled only once within a calendar year when a boat is placed for the first time that year in the physical care, custody, and control of a registered repair facility; . .

      . Within 72 hours after the date upon which the registered repair facility took possession of the boat, the facility must have in its possession, on forms prescribed by the department, an affidavit which states that the boat is under its care, custody, and control and that the owner does not use the boat while in the facility. Upon completion of the repairs, alterations, refitting, or modifications, the registered repair facility must, within 72 hours after the date of release, have in its possession a copy of the release form which shows the date of release and any other information

      the department requires. The repair facility shall maintain a log that documents all alterations, additions, repairs, and sea trials during the time the boat is under the care, custody, and control of the facility. The affidavit shall be maintained by the registered repair facility as part of its records for as long as required by s.

      213.35. When, within 6 months after the date of its purchase, a boat is brought into this state under this paragraph, the 6-month period provided in s. 212.05(1)(a)2. or s. 212.06(8) shall be tolled.

      (Emphasis supplied.)

      
      

7. The safe harbor period begins on the day the owner first obtains dockage at a repair facility. However, if a boat is placed in the registered facility for repairs, the 20-day safe harbor period is tolled while the boat is undergoing repair. Once the repairs are completed, the owner has the balance of the 20-day time period to leave the state. The

   20-day safe harbor period may be tolled only once per calendar year. § 212.08(7)(t), Fla. Stat.

8. The Petitioner offered no evidence to establish any of the yacht’s visits to Florida fell under the provisions of Section 212.08(7)(t). Therefore, these provisions do not apply.

9. Although the sale of the yacht originally qualified for exemption from Florida sales tax due to its timely removal from the state, the yacht's return from the Bahamas to Florida less than two months later triggered the use tax, interest and penalty assessed by the Department. Sections 212.05(1)(a)2 and

   212.06(8), Florida Statutes; State v. Galadriel, Inc., 525 So. 2d 990, 990-991 (Fla. 3rd DCA 1988); Yes Dear, 523 So. 2d, at

   1237; United Engines, Inc. v. Department of Revenue, 508 So. 2d 459, 461 (Fla. 1st DCA 1987); Swan Enterprises, 506 So. 2d, at

   458.

   
   

10. The mandatory penalty (equal to the tax) was properly imposed against the taxpayer, under Section 212.05(1)(a)2, because the taxpayer brought the yacht back into Florida within six months of the purchase date. See Yes Dear, supra. Dominion Land & Title Corp. v. Department of Revenue, 320 So. 2d 815, 818 (Fla. 1975); State, Dep't of Revenue v. Zuckerman-Vernon Corp.,

    354 So. 2d 353, 358 (Fla. 1977)(both courts upheld the assessment of a mandatory penalty similar to the one in this case).

11. Courts have found similar mandatory penalties to be reasonable. Dominion Land, supra (“The Legislature's power in the field of taxation is plenary and such legislative power to tax necessarily carries with it the power to fix reasonable penalties to insure the collection of such taxes.” Id., at 818.); Zuckerman-Vernon Corp, supra.

12. The taxpayer is seeking a reduction or waiver of the tax penalty assessed in this case. However, the statute clearly states the penalty is mandatory and cannot be waived. Therefore, the use tax, interest and penalty assessed by the

Department is a valid tax assessment pursuant to Section 212.06(8). Galadriel, 525 So. 2d, at 990-991; Yes Dear, 523 So. 2d, at 1237; United Engines, 508 So. 2d, at 461; Swan Enterprises, 506 So. 2d, at 458.

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law, it is

RECOMMENDED:

That the Department of Revenue enter a final order upholding the assessment of use tax, penalty and interest against the Petitioner.

DONE AND ENTERED this 31st day of January, 2005, in Tallahassee, Leon County, Florida.

S

DIANE CLEAVINGER

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 31st day of January, 2005.

COPIES FURNISHED:

Paul Bakker Iseaseal, LLC

695 East Main Street Stamford, Connecticut 06901

Carrol Y. Cherry, Esquire Assistant Attorney General Office of the Attorney General Revenue Litigation Section Plaza Level 01, The Capitol Tallahassee, Florida 32399-1050

Bruce Hoffman, General Counsel Department of Revenue

204 Carlton Building Tallahassee, Florida 32399-0100

James Zingale, Executive Director 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.

Docket for Case No: 04-002373

Orders for Case No: 04-002373