STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TOTAL HEALTH FITNESS CENTER, INC.,

Petitioner,

vs.

DEPARTMENT OF REVENUE,

Respondent.

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) Case No. 07-2666

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RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case on August 23, 2007, in St. Petersburg, Florida, before Susan B. Harrell, a designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: James Waters, CPA,

Qualified Representative Post Office Box 20929

St. Petersburg, Florida 2314-6668

For Respondent: Warren J. Bird, Esquire

Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner should be assessed sales and use tax as set forth in the Notice of Reconsideration dated April 13, 2007.

PRELIMINARY STATEMENT

On January 13, 2006, Respondent, the Department of Revenue (Department), issued a Notice of Proposed Assessment against Petitioner, Total Health Fitness Center, Inc. (Total Health), setting forth a tax deficiency of $25,625.14 against Total Health for the period of October 1, 2001, through September 30, 2004. On April 13, 2007, the Department issued a Notice of Reconsideration in response to a petition for reconsideration filed by Total Health. The Notice of Reconsideration upheld the assessment.

Total Health filed a Petition for Formal Protest under Administrative Procedures Act, Chapter 120, Florida Statutes, and requested an administrative hearing. The case was forwarded to the Division of Administrative Hearings for assignment to an Administrative Law Judge to conduct the proceedings. The case was originally assigned to Administrative Law Judge Daniel Manry, but was reassigned to Administrative Law Judge Susan B. Harrell to conduct the final hearing.

At the final hearing, James Waters, who is a certified public accountant, was allowed to represent Total Health as a qualified representative.

At the final hearing, the Department called Thomas W. Igar as its witness. Respondent’s Exhibits 1 and 2 were admitted in

evidence. Total Health called Ray Campos as its witness. Petitioner’s Exhibit 1 was admitted in evidence.

Official recognition was taken of Subsection 212.031(1)(c), Florida Statutes (2001-2004).1

The one-volume Transcript was filed on September 14, 2007.

The parties agreed to file their proposed recommended orders within ten days of the filing of the Transcript. On September 21, 2007, and October 2, 2007, Respondent filed motions to extend the time for filing proposed recommended orders. The motions were granted. The parties timely filed

their Proposed Recommended Orders, which have been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. On April 13, 2007, the Department issued a Notice of Reconsideration to Total Health and summarized the relevant facts of the case, which it stated was based on information from the audit file, correspondence from Total Health and other available information. In its Petition for Formal Protest under Administrative Procedures Act, Chapter 120, Florida Statutes, Total Health stated that the facts are not in dispute and agreed to the facts as summarized by the Department in the Notice of Reconsideration. Those facts are set forth in paragraphs 2

   and 3 below.

2. Total Health is a private health and fitness club in Tampa, Florida. Total Health charges its members $30 per month for unlimited use of the club. Members of the club are only allowed to meet approved personal trainers at the club. Personal trainers are not allowed on the club’s premises without the club’s express approval.

3. Approved personal trainers contract with Total Health and are provided the following rights. The trainers have the right to use the club’s facility to perform training services. Total Health designates the trainers as approved personal trainers. Total Health controls all aspects of the trainers’ access to members. Trainers have access to the club’s membership list; however, the trainers must be introduced to prospective clients by Total Health. Total Health is required to promote the trainers’ services to the members. The trainers are given an exclusive license (or franchise) to use the club’s tradename, logos and business systems (membership list).

4. Total Health entered into oral contracts with individual personal trainers, who acted as independent contractors. In these contracts, Total Health splits the fees that are billed to club members for the services of the personal trainers.

5. Total Health also entered into a written contract with a corporation, Body Design, which provides the personal

   trainers. Body Design pays a fixed fee per month to Total Health. The contract with Body Design was referenced in the Notice of Reconsideration, but the contract was not entered into evidence.

6. The personal trainers have access to the workout areas with the exception of the aerobics area and child care areas. Personal trainers may train members at Total Health, but may also train members at the members’ homes. In the case of the individual independent contractors, the trainers are on the “honor system” about splitting fees that they receive from the members trained in the members’ homes.

7. The Department assessed a tax of $20,952.46 for the period of October 10, 2001, through September 30, 2004, plus interest. As of April 13, 2007, the tax and interest amounted

   to $28,460.90.

   
   

   CONCLUSIONS OF LAW

   
   

8. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. §§ 120.569 and 120.57, Fla. Stat. (2007).

9. Except for certain uses of real property, it is the intent of the Legislature “that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property. . . .” § 212.031(1)(a), Fla. Stat.

10. Subsection 212.031(1)(c), Florida Statutes, provides:

    
    

    For the exercise of such privilege, a tax is levied in an amount equal to 6 percent of and on the total rent or license fee charged for such real property by the person charging or collecting the rental or license fee. The total rent or license fee charged for such real property for any purpose and shall include base rent, percentage rents, or similar charges. Such charges shall be included in the total rent or license fee subject to tax under this section whether or not they can be attributed to the ability of the lessor’s or licensor’s property as used or operated to attract customers. Payments for intrinsically valuable personal property such as franchises, trademarks, service marks, logos, or patents are not subject to tax under this section. In the case of a contractual arrangement that provides for both payments taxable as total rent or license fee and payments not subject to tax, the tax shall be based on a reasonable allocation of such payments and shall not apply to that portion which is for nontaxable payments.

    
    

11. Total Health takes the position that it is selling its membership list rather than space in the club and is therefore exempt from sales and use tax pursuant to Subsection 212.031(1)(c), Florida Statutes, which provides for an exemption of intrinsically valuable personal property.

12. The Department takes the position that because the term “membership list” is not included in the list of intrinsically valuable personal property exempted in Subsection 212.031(1)(c), Florida Statutes, that none of the payments received from the personal trainers is exempt from the sales and

    use tax. The Department is relying on the principle of statutory construction, expression unis est exclusio alterius, which means the mention of one thing implies the exclusion of another. Moonlit Waters Apartments, Inc. v. Cauley, 666 So. 2d 898, 900 (Fla. 1996). The Department’s reliance on this principle of statutory construction is misplaced.

13. The appropriate doctrine of statutory construction to be used in interpreting the portion of Subsection 212.031(1)(c), Florida Statutes, at issue is noscitur a sociis, which means “that general and specific words capable of analogous meaning when associated together take color from each other so that the general words are restricted to a sense analogous to the less general.” State ex rel. Wedgworth Farms, Inc. v. Thompson,

    101 So. 2d 381, 385 (Fla. 1958).

    
    

14. Using the doctrine of noscitur a sociis, the intrinsically valuable personal property that is exempt from taxation must be of the type or class of property that follows the term “such as.” In the instant case, the property must be of the same class as franchises, logos, trademarks, service marks, and patents. These types of property are exclusive to the owner of the property. In other words, the owner enjoys the exclusive use of the property, and others are not allowed to use the property without the consent of the owner. A customer list would fall within the class of property that is exempt. To a

    private business, a customer list is for the exclusive use of the owner of the business, and the property is inherently valuable. The general public would not have access to the customer list without the consent of the business owner.

15. In the instant case, Total Health is selling more than the use of the customer list to the personal trainers. Total Health is also selling the use of the facility to the personal trainers who opt to train the customers on the premises of Total Health. In a situation in which the contract provides for payments that are taxable (the use of the facility) and nontaxable (the use of the membership list), Subsection 212.031(1)(c), Florida Statutes, provides that the tax shall be based on an allocation of taxable and nontaxable payments.

16. In its Notice of Reconsideration, the Department opined that the contract between Body Design and Total Health did not provide for the use of the customer list and listed the payments as rent. However, the contract was not introduced into evidence; the Department’s interpretation of the contract is hearsay and not admissible to prove the terms of the contract. See Zoda v. Hedden, 596 So. 2d 1225 (Fla. 2d DCA 1992).

17. There was evidence presented at the final hearing that the charge for a member’s use of the facility is $30 per month. Thus, the value of the use of the facility is $30 per month. A reasonable allocation of the taxable payments from the personal

trainers would be $30 per month per trainer. The remaining amount of the payments would be nontaxable.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered assessing a tax against $30 per month per trainer for the period of the audit and assessing interest based on the recalculated amount.

DONE AND ENTERED this 30th day of November, 2007, in Tallahassee, Leon County, Florida.

S

SUSAN B. HARRELL

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 November, 2007.

ENDNOTE

1/ Unless otherwise indicated, references to the Florida Statutes are to the 2001-2004 versions.

COPIES FURNISHED:

J. Bruce Hoffmann, General Counsel Department of Revenue

Post Office Box 6668 Tallahassee, Florida 32314-6668

Jim Waters

Post Office Box 20929

St. Petersburg, Florida 33742

Warren J. Bird, Esquire Office of the Attorney General The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

James Zingale, Executive Director Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street 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: 07-002666

Orders for Case No: 07-002666