STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

KOHL’S CORPORATION,

Petitioner,

vs.

OFFICE OF TOURISM, TRADE, AND ECONOMIC DEVELOPMENT,

Respondent.

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) Case No. 10-0391

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RECOMMENDED ORDER

Pursuant to notice a formal hearing was held in this case on April 19, 2010, in Tallahassee, Florida, before J. D. Parrish, a designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Ruth A. Kallio-Mielke

Deloitte Tax LLP

555 East Wells Street, Suite 1400 Milwaukee, Wisconsin 53202

For Respondent: Michelle Dennard, Esquire

Executive Office of the Governor The Capitol, Suite 1902 Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

Whether Kohl's Corporation (Kohl’s or Petitioner), is entitled to the Qualified Target Industry Tax Refund sought and

whether its certification as a Qualified Target Industry (QTI) should be revoked.

PRELIMINARY STATEMENT

On November 20, 2009, the Office of the Governor through the Office of Tourism, Trade, and Economic Development (Respondent or OTTED) issued a letter notifying Petitioner that its tax refund claim for fiscal year 2008-2009 as a QTI had been disapproved. The letter stated the basis for the disapproval was Petitioner's tax refund claim application and confirmation that Kohl’s did not meet the required job requirement. Further, the letter notified Petitioner that its certification as an QTI business was being revoked pursuant to Subsection 288.106(5)(b), Florida Statutes (2009). Unless otherwise indicated all references to the statutes are to Florida Statutes (2009).

Subsequent to the receipt of the notice, Petitioner filed an Election of Rights that disputed the facts upon which OTTED reached its decision and requested a formal hearing. On January 26, 2010, the case was forwarded to the Division of Administrative Hearings (DOAH) for formal proceedings. In

accordance with the parties’ Joint Response to Initial Order the matter was scheduled for final hearing.

At the hearing, Petitioner and Respondent presented testimony from Marty Wilson, vice-president for competitive programs and policies with Enterprise Florida, Incorporated

(EFI); and Tim Proctor, chief incentive analyst with OTTED. Petitioner's Exhibits A, B, and H were admitted into evidence. Respondent's Exhibits A through F were also received.

At the conclusion of the hearing, the parties were granted ten days from the date of the filing of the transcript within which to file their proposed recommended orders. The Transcript was filed with DOAH on May 6, 2010. On May 12, 2010, the parties filed a Joint Stipulation and Motion for Extension of Time to Submit Proposed Recommended Orders. By order entered May 14, 2010, the parties were granted leave until May 27, 2010, to file their proposed orders. Both parties timely filed Proposed Recommended Orders that have been fully considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. OTTED is the state entity charged with the responsibility of managing and overseeing the tax refund program for QTI businesses in the State of Florida. See § 288.106, Fla. Stat.

2. EFI processes applications from companies seeking to be established as a QTI. Normally, the time line for review of a QTI application from submission to approval or disapproval is approximately three to six months. If approved the QTI executes an agreement with OTTED. Additionally, the QTI must obtain

   
   

   approval from the local government cited to participate in the tax refund program.

3. In this case Kohl’s applied to become a QTI. The negotiations between Petitioner and various entities occurred over the course of two years. Ultimately, Petitioner executed an agreement dated August 30, 2006, that provided, in part:

   OTTED has determined that the QTI Business has met all of the requirements necessary to become certified as a QTI Business for participation in the Qualified Target Industry Tax Refund Program pursuant to Section 288.106, Florida Statutes, and

   
   

   The QTI Business’ Application for Certification as a Qualified Target Industry Business and all of its attachments are hereby incorporated into this Agreement as “Exhibit A,” and considered part of this Qualified Target Industry Tax Refund Agreement and subject to the terms herein,

   
   

   * * *

   
   

   4.0 QTI BUSINESS DESCRIPTION:

   
   

   1. The QTI Business is or will be an operating unit of Kohl’s Florida Management, FEIN # 13-3357362.

      
      

   2. The QTI Business understands and agrees that the requirements in Sections 7.0, 8.0,

   9.0 and Exhibit C of this Agreement pertain only to the project described in Section 5.0 of this Agreement for the business unit described in Section 4.0(a) of this Agreement.

   
   

   * * *

   
   

   5.0 PROJECT DESCRIPTION:

   
   

   The project includes the location of the QTI Business’ headquarters in Osceola County.

   
   

   * * *

   
   

   7.0 DUTIES OF THE QTI BUSINESS: The QTI Business agrees that:

   1. The total amount of new full-time equivalent jobs in Florida that the QTI Business is, or will be, dedicating to this project is at least 100 as measured by the definition(s) in “Exhibit C,” Criteria for Measurement of Achievement of Terms Agreed to Under the Qualified Target Industry Tax Refund Program, and that these jobs will be fully implemented by December 31, 2008.

      
      

   2. The average annual wage of project jobs will be at least $51,554 as measured by the definition(s) in “Exhibit C”.

   
   

   * * *

   
   

   9.0 DUTIES OF OTTED:

   
   

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   (d) OTTED will not pay more than five times the amount of Local Financial Support received for each fiscal year

   
   

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   10.0 TERMINATION:

   
   

   (a) The Agreement may be terminated by OTTED upon failure of the QTI Business to comply with any material term or condition of this Agreement or a decision by the QTI Business either not to proceed with the project defined in Section 5.0 or to proceed with that project in a location outside of Osceola County, Florida.

   
   

4. In conjunction with Petitioner becoming a QTI Business the Board of County Commissioners for Osceola County, Florida, entered Resolution No. 05-072R. That document provided, in pertinent part:

   WHEREAS, Project 05-0509 is considering a Regional Corporate Headquarters project in Osceola County, Florida; and

   
   

   WHEREAS, the company is creating 100 new positions with an average wage at least 200% above the average wage in Osceola County, Florida; and

   
   

   WHEREAS, Osceola County acknowledges that the Qualified Target Industry Tax Refund Program, Section 288.106, Florida Statutes, requires continued local financial support from the County equal to 20 percent of the annual tax refund for the qualified target industry business.

   
   

   NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF OSCEOLA COUNTY, FLORIDA:

   
   

   SECTION 1. The Board hereby recommends that Project 05-0509, be approved as a Qualified Target Industry Business.

   
   

5. It is undisputed that the “Project 05-0509” referred to in the resolution was Petitioner’s project. Thus, the resolution recognized that Petitioner would be establishing a “regional corporate headquarters” in Osceola County. OTTED expected that the regional corporate headquarters would create not fewer than 100 jobs at an average annual wage for the project jobs of at least $51,554.

   
   

6. On or about January 30, 2008, Petitioner submitted a QTI Business Tax Refund Claim. Petitioner maintains that the agreement did not require that the new jobs be created in Osceola County and that the requisite number of jobs have been established. Petitioner further asserts that Kohl’s has invested substantial capital to build facilities in Florida and to create jobs such that to deny the refund is inequitable to the Petitioner.

7. Petitioner did not create 100 high wage jobs ($51,554 or more) for persons working in Osceola County, Florida. Petitioner did, however, create more than 100 such jobs in Florida based upon new management positions at its newly established retail outlets.

8. Osceola County will not provide local support for Petitioner’s refund request.

9. OTTED disapproved the refund request and notified Petitioner that the QTI Business Agreement would be terminated.

10. Petitioner challenged those decisions of OTTED.

    
    

11. Petitioner is a national retailer with over 1,000 stores nationwide in 49 states as of December 2009. Petitioner opened its first department store in Wisconsin in 1962.

12. Petitioner entered the Florida market in 2005. As of 2005, Petitioner had 732 stores operating in 41 states.

    
    

13. On November 15, 2005, Petitioner completed a General Project Overview describing its proposed QTI job creation project.

14. The project description carried identifying codes based upon the North American Industry and Classification System Code (NAICS) to identify the functions of the jobs that Petitioner would be creating. In this case, the codes utilized were consistent with corporate management not retail or retail support.

15. NAICS is a recognized coding system that is used by businesses to identify the work performed by its employees. The job function description dictates the appropriate NAICS code to specify.

16. As of December 2009, Petitioner had established 48 stores throughout Florida. From those stores it identified 116 full-time equivalent jobs that it claimed met the terms of the QTI Business Agreement. Three of the jobs identified are located in Osceola County.

    CONCLUSIONS OF LAW

    
    

17. DOAH has jurisdiction over the parties to, and the subject matter of, these proceedings. §§ 120.569 and 120.57(1), Fla. Stat.

18. In administrative proceedings the party asserting the affirmative of the issue bears the burden of proof. Thus

    
    

    Petitioner must establish by a preponderance of the evidence that it is entitled to the refund sought. See Young v.

    Department of Community Affairs, 625 So. 2d 831 (Fla. 1993); and Balino v. Department of Health & Rehabilitative Services, 348 So. 2d 349 (Fla. 1st DCA 1977).

19. A “preponderance” of the evidence means the greater weight of the evidence. See Fireman's Fund Indemnity Co. v. Perry, 5 So. 2d 862 (Fla. 1942). As reviewed in this matter, Petitioner failed to establish by a preponderance of the evidence that it is entitled to the refund sought. Petitioner did not comply with the terms of the QTI Business Agreement. Kohl's did create new business ventures in Florida but did not create the requisite number of jobs in Osceola County that were mandated by the Agreement with OTTED.

20. Section 288.106, Florida Statutes, outlines the tax refund program for QTI Businesses; it provides, in part:

    1. DEFINITIONS. -- As used in this section:

       
       

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       1. “Corporate headquarters business” means an international, national, or regional headquarters office of a multinational or multistate business enterprise or national trade association, whether separate from or connected with other facilities used by such business.

          
          

       2. “Office” means the Office of Tourism, Trade, and Economic Development.

       
       

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       1. “Jobs” means full-time equivalent positions, as that term is consistent with terms used by the Agency for Workforce Innovation and the United States Department of Labor for purposes of unemployment compensation tax administration and employment estimation, resulting directly from a project in this state. The term does not include temporary construction jobs involved with the construction of facilities for the project or any jobs previously included in any application for tax refunds under s. 288.1045 or this section.

          
          

       2. “Local financial support” means funding from local sources, public or private, which is paid to the Economic Development Trust Fund and which is equal to 20 percent of the annual tax refund for a qualified target industry business. A qualified target industry business may not provide, directly or indirectly, more than 5 percent of such funding in any fiscal year. The sources of such funding may not include, directly or indirectly, state funds appropriated from the General Revenue Fund or any state trust fund, excluding tax revenues shared with local governments pursuant to law.

       
       

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       1. “New business” means a business which heretofore did not exist in this state, first beginning operations on a site located in this state and clearly separate from any other commercial or industrial operations owned by the same business.

          
          

       2. “Project” means the creation of a new business or expansion of an existing business.

       
       

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       (o) “Target industry business” means a corporate headquarters business or any business that is engaged in one of the target industries identified pursuant to the following criteria developed by the office in consultation with Enterprise Florida, Inc.:

       
       

       1. Future growth. -- Industry forecasts should indicate strong expectation for future growth in both employment and output, according to the most recent available data. Special consideration should be given to Florida’s growing access to international markets or to replacing imports.

          
          

       2. Stability. -- The industry should not be subject to periodic layoffs, whether due to seasonality or sensitivity to volatile economic variables such as weather. The industry should also be relatively resistant to recession, so that the demand for products of this industry is not necessarily subject to decline during an economic downturn.

          
          

       3. High wage. -- The industry should pay relatively high wages compared to statewide or area averages.

          
          

       4. Market and resource independent. -- The location of industry businesses should not be dependent on Florida markets or resources as indicated by industry analysis. Special consideration should be given to the development of strong industrial clusters which include defense and homeland security businesses.

          
          

       5. Industrial base diversification and strengthening. -- The industry should contribute toward expanding or diversifying the state’s or area’s economic base, as indicated by analysis of employment and output shares compared to national and regional trends. Special consideration should be given to industries that

          
          

          strengthen regional economies by adding value to basic products or building regional industrial clusters as indicated by industry analysis.

          
          

       6. Economic benefits. -- The industry should have strong positive impacts on or benefits to the state and regional economies. The office, in consultation with Enterprise Florida, Inc., shall develop a list of such target industries annually and submit such list as part of the final agency legislative budget request submitted pursuant to s. 216.023(1). A target industry business may not include any industry engaged in retail activities; any electrical utility company; any phosphate or other solid minerals severance, mining, or processing operation; any oil or gas exploration or production operation; or any firm subject to regulation by the Division of Hotels and Restaurants of the Department of Business and Professional Regulation.

       
       

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       (q) “Qualified target industry business” means a target industry business that has been approved by the director to be eligible for tax refunds pursuant to this section.

       
       

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       1. APPLICATION AND APPROVAL PROCESS. —

          
          

          (a) To apply for certification as a qualified target industry business under this section, the business must file an application with the office before the business has made the decision to locate a new business in this state or before the business had made the decision to expand an existing business in this state. The application shall include, but is not limited to, the following information:

          
          

          1. The applicant’s federal employer identification number and the applicant’s state sales tax registration number.

             
             

          2. The permanent location of the applicant’s facility in this state at which the project is or is to be located.

             
             

          3. A description of the type of business activity or product covered by the project, including a minimum of a five-digit NAICS code for all activities included in the project. As used in this paragraph, “NAICS” means those classifications contained in the North American Industry Classification System, as published in 2007 by the Office of Management and Budget, Executive Office of the President.

             
             

          4. The number of net new full-time equivalent Florida jobs at the qualified target industry business as of December 31 of each year included in the project and the average wage of those jobs. If more than one type of business activity or product is included in the project, the number of jobs and average wage for those jobs must be separately stated for each type of business activity or product.

             
             

          5. The total number of full-time equivalent employees employed by the applicant in this state.

             
             

          6. The anticipated commencement date of the project.

             
             

          7. A brief statement concerning the role that the tax refunds requested will play in the decision of the applicant to locate or expand in this state.

             
             

          8. An estimate of the proportion of the sales resulting from the project that will be made outside this state.

             
             

          9. A resolution adopted by the governing board of the county or municipality in which the project will be located, which resolution recommends that certain types of businesses be approved as a qualified target industry business and states that the commitments of local financial support necessary for the target industry business exist. In advance of the passage of such resolution, the office may also accept an official letter from an authorized local economic development agency that endorses the proposed target industry project and pledges that sources of local financial support for such project exist. For the purposes of making pledges of local financial support under this subsection, the authorized local economic development agency shall be officially designated by the passage of a one-time resolution by the local governing authority.

             
             

          10. Any additional information requested by the office.

          
          

          * * *

          
          

          (f) This section does not create a presumption that an applicant shall receive any tax refunds under this section. However, the office may issue nonbinding opinion letters, upon the request of prospective applicants, as to the applicants’ eligibility and the potential amount of refunds.

          
          

       2. TAX REFUND AGREEMENT. —

          
          

          1. Each qualified target industry business must enter into a written agreement with the office which specifies, at a minimum:

             
             

             1. The total number of full-time equivalent jobs in this state that will be dedicated to the project, the average wage of those jobs, the definitions that will apply for measuring the achievement of these terms

                
                

                during the pendency of the agreement, and a time schedule or plan for when such jobs will be in place and active in this state.

                
                

             2. The maximum amount of tax refunds which the qualified target industry business is eligible to receive on the project and the maximum amount of a tax refund that the qualified target industry business is eligible to receive for each fiscal year, based on the job creation and maintenance schedule specified in subparagraph 1.

                
                

             3. That the office may review and verify the financial and personnel records of the qualified target industry business to ascertain whether that business is in compliance with this section.

                
                

             4. The date by which, in each fiscal year, the qualified target industry business may file a claim under subsection (5) to be considered to receive a tax refund in the following fiscal year.

                
                

             5. That local financial support will be annually available and will be paid to the account. The director may not enter into a written agreement with a qualified target industry business if the local financial support resolution is not passed by the local governing authority within 90 days after he or she has issued the letter of certification under subsection (3).

             
             

          2. Compliance with the terms and conditions of the agreement is a condition precedent for the receipt of a tax refund each year. The failure to comply with the terms and conditions of the tax refund agreement results in the loss of eligibility for receipt of all tax refunds previously authorized under this section and the revocation by the director of the certification of the business entity as a qualified target industry business, unless the business is eligible to receive and

          
          

          elects to accept a prorated refund under paragraph (5)(d) or the office grants the business an economic-stimulus exemption.

          
          

          * * *

          
          

          (d) The agreement must contain the following legend, clearly printed on its face in bold type of not less than 10 points in size: “This agreement is neither a general obligation of the State of Florida, nor is it backed by the full faith and credit of the State of Florida. Payment of tax refunds are conditioned on and subject to specific annual appropriations by the Florida Legislature of moneys sufficient to pay amounts authorized in section 288.106 Florida Statutes.”

          
          

       3. ANNUAL CLAIM FOR REFUND. —

       
       

       1. To be eligible to claim any scheduled tax refund, a qualified target industry business that has entered into a tax refund agreement with the office under subsection

          (4) must apply by January 31 of each fiscal year to the office for the tax refund scheduled to be paid from the appropriation for the fiscal year that begins on July 1 following the January 31 claims-submission date. The office may, upon written request, grant a 30-day extension of the filing date.

          
          

       2. The claim for refund by the qualified target industry business must include a copy of all receipts pertaining to the payment of taxes for which the refund is sought and data related to achievement of each performance item specified in the tax refund agreement. The amount requested as a tax refund may not exceed the amount specified for the relevant fiscal year in that agreement.

          
          

       3. A tax refund may not be approved for a qualified target industry business unless the required local financial support has

       
       

       been paid into the account for that refund. If the local financial support provided is less than 20 percent of the approved tax refund, the tax refund must be reduced. In no event may the tax refund exceed an amount that is equal to 5 times the amount of the local financial support received. Further, funding from local sources includes any tax abatement granted to that business under

       s. 196.1995 or the appraised market value of municipal or county land conveyed or provided at a discount to that business.

       The amount of any tax refund for such business approved under this section must be reduced by the amount of any such tax abatement granted or the value of the land granted; and the limitations in subsection

       (2) and paragraph (3)(e) must be reduced by the amount of any such tax abatement or the value of the land granted. A report listing all sources of the local financial support shall be provided to the office when such support is paid to the account.

       
       

       * * *

       
       

       (Emphasis Added)

       
       

21. It is concluded that the QTI Business approval for Petitioner did not match the project Kohl’s actually completed. Petitioner did not establish the requisite number of jobs in Osceola County, did not achieve support from the county wherein those jobs were to be created, and did not establish a regional headquarters as contemplated by the statute. Petitioner incurred substantial financial investment to establish a retail presence in Florida, but the Osceola County site created only a few jobs. The statute specifically requires compliance with the QTI Business Agreement in order to receive the refund monies.

Petitioner did not establish it complied with the agreement. Additionally, since it has been established the agreement was not met, it is appropriate to revoke Petitioner's status as a QTI Business.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office of Tourism, Trade and Economic Development enter a final order denying the QTI Business refund claim submitted by Petitioner and revoke Kohl’s status as a QTI Business.

DONE AND ENTERED this 10th day of June, 2010, in Tallahassee, Leon County, Florida.

S

J. D. PARRISH

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 10th day of June, 2010.

COPIES FURNISHED:

Michelle Dennard, Esquire Executive Office of the Governor The Capitol, Suite 1902 Tallahassee, Florida 32399

Ruth A. Kallio-Mielke Deloitte Tax LLP

555 East Wells Street, Suite 1400 Milwaukee, Wisconsin 53202-3824

Dale Brill, Director

Office of Tourism, Trade and Economic Development

The Capitol, Suite 1902 Tallahassee, Florida 32399-0001

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: 10-000391

Orders for Case No: 10-000391