vs.
Respondent.
) Case No. 04-4276
Pursuant to notice, a formal hearing was held in this case on February 1, 2005, by video-teleconference between Tampa and Tallahassee, Florida, before Carolyn S. Holifield, a duly- designated Administrative Law Judge of the Division of Administrative Hearings.
For Petitioner: John Coakley, M.B.A., C.P.A.
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050
The issue is whether the Department of Revenue’s audit assessment of tax and interest against Petitioner, Dolphin
Tanker Systems, Inc., issued on June 15, 2004, should be sustained.
In a Notice of Proposed Assessment dated June 15, 2004, the Department of Revenue ("Department") assessed Dolphin Tanker Systems, Inc. ("Petitioner" or "Dolphin Systems"), $39,570.83, including tax and interest for the period through June 15, 2004, for the audit period April 1, 2000, through March 31, 2003.
Petitioner timely requested an administrative hearing to challenge the assessment. In a letter dated October 26, 2004, the Department notified Dolphin Systems that its Petition did not meet the criteria for petitions filed with the Department. Petitioner submitted a second Petition on November 12, 2004.
On or about November 24, 2004, the Department forwarded the request to the Division of Administrative Hearings for assignment of an Administrative Law Judge to conduct the hearing.
Prior the final hearing, on January 21, 2005, the parties filed a Pre-Hearing Statement containing Stipulated Facts which required no proof at hearing. At hearing, Petitioner presented the testimony of one witness, John Coakley, M.B.A., C.P.A., Petitioner's accountant. Petitioner offered no exhibits into evidence. The Department presented the testimony of two witnesses: Curtis Sailstad, C.P.A., a tax auditor in the
(2) Araks Navasartian, a tax audit supervisor with the Department. The Department's Composite Exhibit R1, the audit file, was admitted into evidence.
A Transcript of the hearing was filed with the Division of Administrative Hearings on February 14, 2005. At the conclusion of the hearing, the parties agreed that their proposed recommended orders would be filed ten days after the transcript was filed. Both parties timely filed Proposed Recommended Orders, which have been considered in the preparation 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:
The Department is authorized to conduct audits of taxpayers and to request information to ascertain their tax liability, if any, pursuant to Section 213.34, Florida Statutes.
In May 2003, the Department initiated an audit of Dolphin Systems to determine whether Dolphin Systems was properly collecting and remitting sales and use tax to the Department.
During the audit period, April 1, 2000 through March 31, 2003, Dolphin Systems purchased inventory, fixed assets, and other tangible property for use in its business.
Additional tax was determined to be due (at the combined rate of 6.75 percent) on the general, fixed asset and inventory purchases made by Dolphin Systems during the audit period for which sales tax was either not paid to the vendor or where Dolphin Systems did not accrue the correct amount of use tax.
Exempt Sales
The Department’s work papers identify sales for which adequate documentation was not provided to support Petitioner's claimed exempt status. Specifically, Petitioner had no resale
exemption certificates from sales made to either Florida dealers or to non-Florida dealers. There was no evidence that the item was or would be exported out of state.
By its own terms, Invoice No. 2423 relates to a transaction that describes a New Dolphin 3500 gallon tank; Berkeley water pump; spray heads; and wash-down hose with reel, air controls in cab, primed, painted, decaled, and mounted on a provided chassis.
Invoice No. 2423 reflects a sales price of $13,500.00, but does not show that sales tax was collected on the transaction.
Dolphin Systems contends that the transaction involving Invoice No. 2423 is exempt from sales tax because it was an out-of-state sale. If RSV and Associates took possession of the property in Florida, but could document that there was uninterrupted export of the goods/property out of the country or a statement from the vendor that the property went out of the State of Florida for resale, that sale would be exempt from sales tax. However, Dolphin Systems provided no such documentation to the Department.
To support its claim that the item was an out-of-state sale, Dolphin Systems provided shipping documentation which purported to show that the item listed on Invoice No. 2423 had been shipped to Puerto Rico. The unsigned shipping document
described the property being shipped to Puerto Rico as a two- door white 1994 International truck. However, because the item listed on Invoice No. 2423 was different from the property noted on the unsigned shipping document, the Department could not tie the two records together. Therefore, the Department appropriately concluded that there was no basis for exempting the transaction reflected in Invoice No. 2423.
Other Income
The Notice of Proposed Assessment assessed sales tax on $62,500.00, which Dolphin System had categorized as "Other Income" on its Federal income tax return for the year 2000, Form 1120 ("2000 Tax Return"). The Department based this assessment on its work papers identified as "other income" for which adequate documentation was not provided to support the claim that tax had been remitted.
Petitioner reported $62,500.00 in "other income" on its 2000 Tax Return and on its trial balance. No reconciliation of income per books, with income per return, was entered for this event.
This income was not included on the state sales tax return for that period; and, therefore, it was properly scheduled as an exception.
The Department included the $62,500.00 because Petitioner reported the income both on its financial statements
and 2000 Tax Return. Because Petitioner uses the accrual method, events that gave rise to the creation of income are reported in the year the event took place. Accordingly, the "other income" is properly attributable to the year 2000.
In response to the assessment, Dolphin Systems claimed that the $62,500.00 represented collection of a "bad debt," and the transaction represented a cash receipt of $62,500.00 from a settlement in a lawsuit for an unpaid invoice from prior years. As support for this claim, Dolphin Systems presented the Department with a copy of a Final Judgment in Dolphin System's favor. According to the Final Judgment dated September 1999, Kimmins Contracting Corporation ("Kimmins Contracting") was indebted to Dolphin Systems for $59,300.00, plus sales tax of
$3,595.50, for a total of $62,895.50 for property sold and delivered between June 16, 1998 and July 8, 1998. There is no dispute that this property was taxable.
Dolphin Systems also contended that in July 1998, it reported and remitted to the Department the sales tax on the property sold and delivered to Kimmins Contracting, even though Kimmins Contracting had not yet paid for the property or the sales tax thereon.
As additional support for its claim, Dolphin Systems submitted to the Department a Sales and Use Return for the collection period July 1998, which showed a taxable amount of
$100,000.00 and taxes collected as $6,112.50. Moreover, there was a discrepancy between the amount of gross sales on Petitioner's 2000 Tax Return and the gross sales reported for sales tax purposes to the Department on Form DR-15.
Notwithstanding Petitioner's claim, there was no supporting documentation to either explain the discrepancy or to establish that Petitioner had already paid sales tax on the "other income." In the absence of any back-up data, the Department appropriately concluded that the foregoing Sales and Tax Use Return did not show that the sales tax for tangible personal property sold to Kimmins Contracting was included in the amount of sales taxes reported and remitted to the Department in July 1998.
General Purchases
The Department's work papers identify general purchases from various vendors for which adequate documentation was not provided to show that either tax was paid on the purchase or that it was exempt as a purchase for resale.
In some instances, no invoices were presented; in which case, the Department could not determine that sales tax had, in fact, been paid. In other instances, invoices existed, but there was no documentation showing the purchase was for resale.
Dolphin Systems is in the business of purchasing and/or building and repairing tankers for resale. When tankers are purchased for resale and this can be documented, there is no tax on the item. Here, Dolphin Systems claimed, but was unable to document, that certain items were for resale. Without such documentation, the Department properly scheduled the items included in the Notice of Proposed Assessment.
Items normally purchased for resale are recorded in the cost of goods sold account, not in office supplies or shop supplies account. The items contained in these accounts normally are for items used in the business, and since they are being used, sales tax is due. Likewise, as in this case, reimbursement to the owner for credit card purchases, unless Petitioner documented the reason for each purchase, is a taxable
use.
In accordance with the Notice of Proposed Assessment,
the Department properly assessed Dolphin Systems $30,302.69 for taxes and $9,268.14 for interest through June 15, 2004.
Additionally, Dolphin Systems in liable for daily interest to be computed from June 16, 2004, at 6.64 per day. The Department has waived all penalties. There are no "other" penalties.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this
proceeding pursuant to Section 120.569 and Subsection 120.57(1), Florida Statutes (2004).
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.
In this case, Dolphin Systems challenges the Department assessments of sales tax as a result of an audit which is the subject of this proceeding.
Subsection 120.80(14)(b)2., Florida Statutes, provides that in any administrative proceeding in which a taxpayer contests the assessment of a tax, penalty, or interest, the Department's "burden of proof . . . shall be limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the applicable department made the assessment." Petitioner, as the taxpayer contesting the Department's assessment, has the burden of proving by a preponderance of the evidence that the factual or legal basis for the assessment is unreasonable or incorrect. Department of Revenue v. Nu-Life Health and Fitness Center, 623 So. 2d 747, 751-52 (Fla. 1st DCA 1992).
Pursuant to Section 213.34, Florida Statutes, the Department is authorized by law to "audit and examine the accounts, books, or records of all persons who are subject to a
revenue law . . . ." The basis for the tax assessment at issue was pursuant to that authority.
The Legislature has authorized the taxation of tangible personal property when the item is sold at retail. Section 212.05, Florida Statutes (2003), 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 . . . .
Subsection 212.05(1)(a)1., Florida Statutes, levies a tax at the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at retail in this state.
Subsection 212.06(3)(a), Florida Statutes, provides that every dealer making sales, within or outside the state, of tangible property for distribution, storage, or use or other consumption in Florida, shall at the time of making the sales, collect the tax imposed by Chapter 212, Florida Statutes, from the purchaser.
The parties have stipulated that Dolphin Systems is a dealer within the meaning of Subsection 212.06(2)(c), Florida Statutes.
As a dealer, Dolphin Systems is obligated to collect the taxes as mandated by Subsection 212.06(3)(a), Florida Statutes, which provides the following:
(3)(a) Except as provided in paragraph (b), every dealer making sales, whether within or outside the state, of tangible personal property for distribution, storage, or use or other consumption, in this state, shall, at the time of making sales, collect the tax imposed by this chapter from the purchaser.
Any dealer who neglects, fails, or refuses to collect the tax specified in Chapter 212, Florida Statutes, on all retail sales shall be liable for and pay the tax. § 212.07(2), Fla. Stat.
Petitioner was registered as a "dealer" for sales tax purposes, and for each month of the audit period, submitted its sales tax information on Form DR-15 to the Department as required by Section 212.11, Florida Statutes.
It is the specific legislative intent to tax each and every sale, use, storage, or consumption unless said sale, use, storage or consumption is specifically exempt. § 212.21(2), Fla. Stat.
Pursuant to Section 212.07, Florida Statutes, a sale for resale must be in strict compliance with Section 212.18, Florida Statutes, and the applicable administrative rules. The applicable rule is Florida Administrative Code Rule
12A-1.039(1)(a), which states:
(1)(a) It is the specific legislative intent that each and every sale, use, storage, consumption, or rental is taxable, unless such sale, use, storage, consumption, or rental is specifically exempt. The
exempt nature of the transaction must be established by the selling dealer.
Subsection 212.06(5)(a)1, Florida Statutes, states, in
part:
[T]angible personal property may not be considered as being imported, produced, or manufactured for export unless the importer, producer, or manufacturer delivers the same to a licensed exporter for exporting or to a common carrier for shipment outside the state or mails the same by United States mail to a destination outside the
state. . . .
See also Florida Administrative Code Rule 12A-1.0015, Sales for Export; Sales to Nonresident Dealers and Foreign Diplomats.
Subsection 212.07(8), Florida Statutes, provides that any person who has purchased, at retail, tangible personal property and cannot prove that the tax levied by this chapter has been paid to his vendor, is directly liable to the state for any such tax, interest, or penalty due on any such taxable transactions.
For each of the items contained in the Department's work papers related to Petitioner's claimed sales exemptions, Petitioner failed to establish that the sale was a sale for resale. Petitioner failed to provide to the Department a resale certificate, or with regard to the sale to RSV and Associates, Invoice No. 2423, that the items listed on the invoice were exported.
Finally, with regard to the "other income," the evidence established that Petitioner reported gross sales on its 2000 Tax Return in an amount that exceeded the amount of gross sales reported for sales tax purposes to the Department on Form DR-15. Furthermore, Petitioner failed to produce documentation to explain the discrepancy. Thus, the Department appropriately determined that the difference between the amount of gross sales reported on the 2000 Tax Return and the amount of gross sales reported to the Department on Form DR-15 represented unreported sales by Petitioner.
With regard to the "general purchase" category, the evidence established that the Department’s auditor examined purchase invoices from the accounts payable file and traced the invoices to the general ledger. In doing so, he identified transactions for which Petitioner could not establish it had paid sales tax or that the purchase was for resale.
The Department has met its burden of showing that it made an assessment against Petitioner and has provided the factual and legal grounds upon which the assessment was made.
§ 120.80(14)(b)2., Fla. Stat. Additionally, in instances where Petitioner claimed that the transactions were exempt from sales tax, no documentation was provided to support the claims.
Petitioner, on the other hand, has failed to meet its burden. Petitioner does not dispute and seemed to acknowledge
that the company had poor record-keeping. Nonetheless, Petitioner argues that in absence of adequate written records, the Department should accept Dolphin Systems' verbal explanations and/or its inconsistent records to determine the characterization and classification of the various transactions.
As stated in the Notice of Proposed Assessment, the evidence established that the Department accurately assessed Petitioner sales and use tax of $30,302.69 and $9,268.14 interest (accrued through June 14, 2004, with a $6.64 per diem accrual rate), for a total of $30,570.83.
Pursuant to Subsection 212.12(3), Florida Statutes, when interest is imposed, that interest shall be payable and collectible by the Department in the same manner as if they were a part of the tax imposed. § 212.12(4), Fla. Stat.
RECOMMENDED that the Department of Revenue issue a final order sustaining the assessment for sales and use tax and interest against Petitioner.
DONE AND ENTERED this 7th day of April, 2005, in Tallahassee, Leon County, Florida.
CAROLYN S. HOLIFIELD
Filed with the Clerk of the Division of Administrative Hearings this 7th day of April, 2005.
1/ Unless otherwise indicated, all citations are to Florida Statutes (2003).
J. Bruce Hoffmann, General Counsel Department of Revenue
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050
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.
