vs. ) Case No. 07-1093
Respondent. )
Pursuant to notice, a final hearing was held in this case on August 23, 2007, by video teleconference with connecting sites in Lauderdale Lakes and Tallahassee, Florida, before Errol
H. Powell, a designated Administrative Law Judge of the Division of Administrative Hearings.
For Petitioner: Joseph C. Moffa, Esquire
Law Offices of Moffa & Gainor, P.A. One Financial Plaza, Suite 2202
The issue for determination is whether use tax is due on the cost price of mobile homes, which were initially purchased
to be resold to an ultimate consumer, but were subsequently rented to individuals for residential purposes.1
By Notice of Reconsideration (NOR) dated January 2, 2007, the Department of Revenue (Department) notified Victoria Estates, Ltd. (Victoria Estates), among other things, that the Department’s assessment issued in its Notice of Decision (NOD) dated July 21, 2005, was sustained. Victoria Estates filed a Petition for a Chapter 120 Hearing, challenging the NOR and requesting a hearing. On March 7, 2007, this matter was referred to the Division of Administrative Hearings, and subsequently, was transferred to the undersigned from another Administrative Law Judge.
The instant case was set for hearing to commence on May 17, 2007. Two continuances were granted, and the instant case was re-scheduled for final hearing.
Prior to hearing, the parties filed a Joint Pre-Hearing Stipulation. Also, prior to hearing, the undersigned took official recognition of the following: Amendment to Florida Administrative Code Rule 12A-1.61(9), filed December 10, 1974; Amendment to Florida Administrative Code Rule 12A-1.07(40), filed December 10, 1974; Rules and Regulations, Sales and Use Tax Law, amended and indexed through October 15, 1973, Sections 12A-1.07 and 1.61; Rules and Regulations, Sales and Use Tax Law,
amended and indexed through December 11, 1974, Sections 12A-1.07 and 1.61; Rules and Regulations, Sales and Use Tax Law, amended and indexed through November 8, 1976, Sections 12A-1.07 and 1.61; and Bulletin No. D.O.R. 74-10.
At hearing, Victoria Estates presented the testimony of two witnesses and entered one exhibit (Petitioner’s Exhibit numbered
1) into evidence. The Department presented the testimony of one witness and entered 14 exhibits (Respondent's Exhibits numbered 1-14) into evidence.
A transcript of the hearing was ordered. At the request of the parties, the time for filing post-hearing submissions was set for more than ten days following the filing of the transcript. The Transcript, consisting of one volume, was filed on October 5, 2007. The parties timely filed their post-hearing submissions, which were considered in the preparation of this Recommended Order.
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 Department is authorized to prescribe the records to be maintained by all persons subject to taxes under Chapter 212, Florida Statutes. Such persons have a duty to maintain and preserve their records, and the records are required to be open
to examination by the Department or its authorized agents at all reasonable hours, pursuant to Section 212.12(6), Florida Statutes.
The Department is authorized to conduct audits of taxpayers and to request information to ascertain the tax liability of the taxpayers, if any, pursuant to Section 213.34, Florida Statutes.
Victoria Estates is a partnership and is headquartered in Buffalo, New York.
During the period of January 1, 2000 through December 31, 2002, Victoria Estates' activity in Florida included the ownership and operation of a 200-site mobile home park (Park), located in the city of Port Charlotte, Florida.
The Park site included a golf course and a restaurant. Victoria Estates also owned two commercial strip malls--one in Bradenton, Florida and the other one in Holmes Beach, Florida.
Only the tax consequence of the Park activity is at issue in the instant case.
On February 20, 2003, the Department initiated an audit of Victoria Estates to determine whether Victoria Estates was properly collecting and remitting sales and use tax to the Department.
The audit covered the period of January 1, 2000 through December 31, 2002 (Audit Period).
Victoria Estates' University Park operation was classified as a "mobile home park," as defined in Section 513.01(4), Florida Statutes. Victoria Estates’ mobile home Park was regularly inspected by the Charlotte County Department of Health, pursuant to Chapter 513, Florida Statutes, and a yearly operating permit was granted by Charlotte County.
The Park was acquired in 1995. At that time, there were 130 sold units, with land rented, and 70 sites available for land lease.
Victoria Estates initially purchased mobile homes tax exempt by extending a resale certificate to the manufacturer. No sales tax is paid on this transaction because it is recognized as a sale for resale.
Such tax-exempt mobile homes were delivered to the Park, where they were setup on a lot and connected to utilities in accordance with the manufacturer's home installation procedure and the Code of Laws and Ordinances of Charlotte County, Florida.
The tax-exempt mobile homes were furnished, and each lot was landscaped. Approximately $28,000 in costs was incurred in preparing a mobile home and lot for sale and lease.
Victoria Estates' business plan was to sell the tax- exempt mobile home outright to the consumer and to rent the lot on which it was placed. Until the mobile home was sold,
Victoria Estates listed the mobile home as inventory on its books and records.
Victoria Estates allowed no mobile homes in the Park other than those it sold.
Victoria Estates leased the unsold mobile homes in order to offset operating costs of the Park.
Through September 2001, nine sites, with mobile home units, were leased over six months; 11 were leased for periods of less than six months; and 35 were available for sale/lease. Through March 2002, 15 sites, with mobile home units, were leased for periods over six months; 23 units were leased for periods less than six months; and 15 units were available for sale/lease.
When a mobile home was rented, Victoria Estates would remove it as inventory from its books and records and would record the mobile home as a fixed asset.
Victoria Estates utilized a written lease agreement with its tenants.
By a lease agreement with each tenant, Victoria Estates leased the mobile home and the land on which the mobile home was situated. No separate charge was stated in the lease agreement for the land or the mobile home.
The lease agreement included several conditions. The use of the land was restricted to residential purposes only. A
limitation was placed on overnight guests of the tenant. Services, such as water, electric, cable, and phone utilities, were already connected and in the name of Victoria Estates, which paid for the services, but Victoria Estates billed each tenant for their respective share of the expenses. Compliance with building, housing and health codes was the responsibility of Victoria Estates. Further, because the leased mobile home remained for sale, if a mobile home in which a tenant was residing was sold, the tenant was required to vacate the mobile home, but would be given the option to lease another mobile home, under the same terms and conditions, or have the lease declared null and void, with the return of the security deposit.
Most of the rentals of the mobile homes were seasonal in nature, and most of the revenue was received during the winter months of January through April. Furthermore, most of the renters were from out-of-state and were repeat renters.
Sales of the mobile homes were not doing well and operating costs continued. In order to stimulate and promote sales and to offset operating costs, Victoria Estates decided to rent the mobile homes. By renting a mobile home, Victoria Estates removed the mobile home from its inventory and classified the mobile home as a capital asset, thereby receiving an economic benefit for federal income tax purposes as a result of a depreciation deduction.
The Department's Senior Tax Specialist testified that Victoria Estate's action of renting the mobile homes to stimulate and promote sales of the mobile homes in the Park was in excess of what was necessary to sell the mobile homes. His testimony is found to be credible.
After their initial placement in the Park, no mobile homes were moved to another site during the Audit Period.
On April 2, 2004, the Department forwarded to Victoria Estates the Notice of Intent to Make Audit Changes, with schedules, showing that Victoria Estates owed the Department additional sales and use tax and surtax in the amount of
$77,854.22 and $2,363.12, respectively, with penalty in the amount of $39,927.14 on sales and use tax and $1,181.55 on surtax, and interest, through April 2, 2004, in the amount of
$22,841.83 on sales and use tax and $646.63 on surtax, totaling an assessment in the amount of $143,814.49. A penalty compromise of $20,054.35 was applied to the total, reducing the total amount due to $123,760.14.
The Department assessed sales tax on transient rentals, Schedule A01, and use tax on the cost price of the mobile homes, furniture, appliances, window treatment, and other furnishings, which were subsequently leased by Victoria Estates, as transient rentals in Schedule B010. Victoria Estates remitted $9,052.92 against this assessment.
Also, as to transient rentals, Victoria Estates failed to collect the proper amount of tax on some of them. The Department identified those portions of the assessment in Schedule A01; and Victoria Estates did not contest those portions of the assessment and paid the tax and interest due thereon.
Only the assessed amounts relating to the mobile home purchases are at issue in the instant case.
On June 15, 2004, the Department issued its Notice of Proposed Assessment.
Victoria Estates timely filed a written protest to the Department's proposed assessment.
On July 21, 2005, the Department issued its NOD as to the protest of Victoria Estates. In the NOD, the Department sustained the assessment as originally issued.
Victoria Estates filed for a reconsideration of the Department's decision.
On January 2, 2007, the Department issued its NOR in which the Department sustained the assessment as originally issued.
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 120.57(1), Florida Statutes (2007).
Sections 72.011(1) and 213.67(7), Florida Statutes (2007), authorize Victoria Estates, as the taxpayer, to file a petition contesting the assessment under the provisions of Chapter 120, Florida Statutes (2007).
In a dispute involving an assessment of tax, penalty, or interest, the Department’s burden of proof is limited to a showing (1) that the assessment was made against the taxpayer and (2) the factual and legal grounds upon which the Department made the assessment. § 120.80(14)(b)2., Fla. Stat. Once the Department meets the initial burden of proof, the burden shifts to the taxpayer to demonstrate by a preponderance of the evidence that the assessment is incorrect. See IPC Sports, Inc.
v. Department of Revenue, 829 So. 2d 330, 332 (Fla. 3d DCA 2002).
Section 212.02, Florida Statutes, provides in pertinent part:
(15) “Sale” means and includes:
Any transfer of title or possession, or both, exchange, barter, license, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration.
The rental of living quarters or sleeping or housekeeping accommodations in hotels, apartment houses or roominghouses,
or tourist or trailer camps, as hereinafter defined in this chapter.
Section 212.03, Florida Statutes, provides in pertinent part:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license to use any living quarters or sleeping or housekeeping accommodations in, from, or a part of, or in connection with any hotel, apartment house, roominghouse, or tourist or trailer
camp. . . For the exercise of such taxable privilege, a tax is hereby levied in an amount equal to 6 percent of and on the total rental charged for such living quarters or sleeping or housekeeping accommodations by the person charging or collecting the rental. . . .
Section 212.05, Florida Statutes, provides in pertinent part:
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, including the business of making mail order sales, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state.
For the exercise of such privilege, a tax is levied on each taxable transaction or incident, which tax is due and payable as follows:
(a)1.a. 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, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and including each and every retail sale.
Florida Administrative Code Rule 12A-1.061, provides in pertinent part:
(9) MOBILE HOMES, RECREATIONAL VEHICLES, AND PARKS.
(a)1. Mobile homes, travel trailers, motor homes, recreational vehicles, or any other vehicle are transient accommodations, even though the mobile home or vehicle may be subject to other Florida taxes when both of the following conditions are met (See subsection 12A-1.007(11), F.A.C.):
The mobile home or vehicle must be a place where living quarters or sleeping or housekeeping accommodations are provided to guests or tenants for consideration; and
The mobile home or vehicle must have a fixed location and may not be operated over the roads of this State. . . .
Florida Administrative Code Rule 12A-1.007(11) provides in pertinent part:
(f)1. The rental of a mobile home as tangible personal property is taxable. A mobile home purchased tax exempt for exclusive rental as tangible personal property is subject to use tax if the mobile home ceases to be used for the purpose for which it was purchased. The owner shall accrue and pay to the Department of Revenue use tax computed on the fair market value of the mobile home at the time it is used for any purpose other than exclusively for rental as tangible personal property.
2. Notwithstanding the fact that a mobile home is subject to a license tax under the Motor Vehicle License Law, it is
nevertheless a "rooming house" within the meaning of Chapter 212, F.S., when it has a fixed location and is used or held out to the public to be a place where living quarters, sleeping, or housekeeping accommodations are supplied for pay to transient or permanent guests or tenants.
The purchase of a mobile home to be used as living accommodations within the purview of Section 212.03, F.S., is taxable at the time of purchase even though the mobile home may be untagged or have affixed thereto a motor vehicle license tag or an "RP" decal.
The mobile homes purchased tax exempt by Victoria Estates were not purchased exclusively for rental, but were initially purchased for resale. As a result, Florida Administrative Code Rule 12A-1.007(11) is inapplicable. However, some of the mobile homes were leased by Victoria Estates.
The leased mobile homes in the instant case were affixed to real property, involving a setup process, with county oversight, including permitting, and involving the connection of utilities and landscaping; and they were furnished. The furnished mobile homes were rented, with the lots to which they were affixed; they were dwelling units.
Victoria Estates admits that it was engaging in the business of providing transient living accommodations. In accordance with such conduct, Victoria Estates collected and remitted the transient rental tax throughout the audit period. Further, in instances where Victoria Estates failed to collect
the proper amount of tax, as part of the assessment, Victoria Estates paid the tax and interest due. Using the mobile homes to engage in the business of providing transient rental accommodations was a “use” of the mobile homes.
Victoria Estates offered the mobile homes as rentals to promote sales throughout the Park, to offset operating costs of the Park, and to take a deduction for depreciation of a capital asset for federal income tax purposes.
The case of HMY New Yacht Sales v. Department of Revenue, 676 So. 2d 1385 (Fla. 1st DCA 1996), is instructive in determining when the “use” of an asset goes beyond what is necessary to sell the asset and becomes a taxable “use” by the owner. The court held that:
We approve DOR's [Department of Revenue’s] determination that HMY was liable for a use tax on "The Bandit" based on its conclusion that HMY's converting the yacht "from an inventory item to a capital asset was not incident to resale of the property, but was a purposeful use in order to claim depreciation on federal income tax returns" and that "by signing a federal income tax return in which it claimed a deduction for depreciation with respect to the yacht, Petitioner declared that the yacht was not in its inventory of stock in trade held primarily for resale, and that the yacht was used in its trade or business." We also approve the agency's interpretation of the statutory definition of "use" with respect to demonstration and promotional activities, i.e., that such activities related solely to resale of the vessel do not constitute a taxable "use," but that when such activities
are also related to the sale of other vessels or to the general promotion of the dealer's business or another business, they constitute a taxable "use" of the vessel.
In its post-hearing submission, Victoria Estates cites the case of Allied Marine Group v. Department of Revenue, 701 So. 2d 630 (Fla. 4th DCA 1997), in support of its position that its leased mobile homes should not be subject to the assessment. The undersigned finds Allied Marine Group, supra, persuasive, but not in Victoria Estates’ favor. In reaching its decision, the court in Allied Marine Group considered the decision in HMY New Yacht Sales, supra. The court in Allied Marine Group
recognized that the Department, as the agency charged with administering Chapter 212, Florida Statutes, is “entitled to have its reading of the use tax statute afforded ‘great weight,’ [citation omitted]” and that “taxing statutes are to be ‘strictly construed’ against the taxing authority [citation omitted].” At 631. But, the court held that “no statutory support” exists for the Department’ position that “an untaxed single-purpose business activity becomes subject to the use tax simply because the taxpayer acts with a second business-related motivation.” Id. Accordingly, the court in Allied Marine Group, supra, held that the taxpayer, a yacht retailer, entering fishing tournaments, which the administrative adjudicator found to be “an essential, regularly-conducted ‘selling event’
intended to promote the sale of the [yacht in question], was not transformed into a taxable use merely because [the taxpayer] had the additional objective of generally promoting its business.
Significantly, the [administrative adjudicator] did not find that [the taxpayer] did anything that it would not have done had it entered the vessel in the tournament solely for the promotion of the sale of the [vessel] itself.” Id. Hence, the court determined that use tax should not have been imposed by the Department when the taxpayer entered the vessel in the fishing tournament.
In promoting the sale of its yacht, the taxpayer in Allied Marine Group, supra, did not go to the extent of removing the yacht from its inventory and classifying the yacht as a capital asset, thereby receiving an economic benefit for federal income tax purposes as a result of the depreciation deduction. In the instant case, Victoria Estates’ additional actions were in excess of what was necessary to sell the mobile homes.
Therefore, Victoria Estates’ additional actions of removing the leased mobile homes from its inventory and classifying the mobile homes as capital assets, thereby receiving an economic benefit for federal income tax purposes as a result of the depreciation deduction, caused the leased mobile homes to be subject to the use tax.
Hence, the evidence fails to demonstrate that the leased mobile homes were not subject to the use tax and that, therefore, the assessment is incorrect.
RECOMMENDED that the Department of Revenue enter a final order upholding the assessment for tax and interest against Victoria Estates, Ltd.
DONE AND ENTERED this 20th day of February 2008, in Tallahassee, Leon County, Florida.
ERROL H. POWELL
Filed with the Clerk of the Division of Administrative Hearings this 20th day of February, 2008.
1/ The parties agreed to the issue in dispute per their Joint Pre-Hearing Statement.
2/ Stipulated facts were included in the parties’ Joint Pre- Hearing Statement.
Joseph C. Moffa, Esquire
Law Offices of Moffa & Gainor, P.A. One Financial Plaza, Suite 2202
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.
