vs. ) Case No. 11-1136
Respondent. )
Pursuant to notice, a formal hearing was held in this case on May 17, 2011, by video teleconference, with the Department of Revenue appearing in Lauderdale Lakes, Florida, before June C. McKinney, a duly-designated Administrative Law Judge of the Division of Administrative Hearings, who presided in
Tallahassee, Florida.
For Respondent: Jeffrey M. Dikman, Esquire
Senior Assistant Attorney General Office of the Attorney General The Capital, Plaza Level 01 Revenue Litigation Bureau Tallahassee, Florida 32399-1050
Whether Petitioner owes the taxes alleged by Respondent in the Notice of Proposed Assessment dated October 18, 2010.
Department of Revenue ("Respondent" or "Department") assessed Furniture Discounters of Miami, Inc. ("Petitioner" or "Furniture Discounters") sales and use tax and associated interest for the period of April 1, 2005, through April 30, 2008 ("the audit period"). Petitioner denied liability and requested an administrative hearing.
The case was referred to the Division of Administrative Hearings on March 2, 2011. The presiding administrative law judge set the final hearing for May 17, 2011, at 9:00 a.m.
On the date of hearing, Petitioner did not appear at either video conferencing locations, despite a delay of the hearing for
20 minutes. At hearing, Respondent presented the testimony of three witnesses: Lanoux Beauchamp, Jose Barandiaran, and Sandra Chung. Petitioner also offered Exhibits numbered 1 through 27 and 31 through 34 that were admitted into evidence.
The proceeding was recorded but was not transcribed. Only the Respondent filed a timely Proposed Recommended Order. That proposal has 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 of fact are made:
Furniture Discounters is a Florida corporation organized for profit and headquartered in Broward County, Florida.
The Department is an agency of the State of Florida that has been delegated the responsibility to collect sales and use tax imposed by chapter 212, Florida Statutes.
Petitioner engaged in the business of furniture sales during the audit period.
On May 29, 2008, the Department, through its auditor, Lanoux Beauchamp ("Beauchamp" or "auditor") issued Petitioner a Notification of Intent to Audit Books and Records for the audit period. The audit was assigned number 200043837.
During the audit period, Beauchamp worked with Howard Ginsberg, CPA, Furniture Discounter's representative for the matter. Ginsberg verbally abused the auditor with name-calling and vulgarity during the process.
Beauchamp's audit consisted of determining that Furniture Discounters had both unreported sales and unverified exemption claims.
The auditor began the audit on May 29, 2008, by requesting Furniture Discounters produce various books and records for the audit period, including a chart of accounts, general ledgers, cash receipts journals, cash disbursement journals, general journals, federal income tax returns, county tangible property returns, Florida sales and use tax returns, sales journals, sales tax exemption certificates, sales invoices, shipping documents, purchase invoices, purchase journals, lease agreements for real or tangible property, depreciation schedules, bank and financial statements, and details of fixed asset purchases.
Furniture Discounters provided insufficient records and conflicting information to Beauchamp during the audit process. Initially, Petitioner maintained that the business kept a sales journal and general ledger. Later, Ginsberg informed the Department that Furniture Discounters did not maintain sales journals or a general ledger.
Furniture Discounters also responded to the preaudit questionnaire that it maintained monthly sales destination runs or general records by state with a break-out of the tax charged but ultimately failed to produce either the monthly sales destination runs or general records by state with a break-out of the tax charged to the Department.
Due to the absence of complete records, the Department could not reconstruct Petitioner's transaction history and was incapable of conducting and completing an audit. As a result, the auditor resorted to the sampling methodology1 for the audit, which the Department is authorized to utilize at times when insufficient records are produced to conduct the audit.
The auditor randomly selected August 2005, November 2005, July 2006, May 2007, and August 2007 as the five sample months to audit. However, Furniture Discounters did not provide a complete set of invoices to the auditor for the sample months requested, so the audit still could not be conducted. The auditor next requested Petitioner's bank records to review.
Upon receipt of the bank records, the auditor's calculation method consisted of comparing Petitioner's bank deposits for the sample months to Petitioner's reported sales on its sales tax returns. During the process, the auditor fully credited Furniture Discounters for all taxes paid.
After making the comparisons, Beauchamp determined that Furniture Discounters had under-reported its sales during August 2005 in the amount of $32,576.11; May 2007 in the amount of $13,949.47; and August 2007 in the amount of $23,790.57.
The auditor further computed the monthly sales by examining the exemptions that Furniture Discounters claimed for the five sample months and the liability arising from each, if
any. The auditor concluded that Furniture Discounters also had liability for the sample months November 2005, July 2006, and August 2007, because Petitioner failed to produce a sufficient number of invoices to correspond to the claimed exemptions.
For the other two sample months, Furniture Discounters produced sufficient invoices to match the amounts claimed but failed to produce supporting documentation that established the basis for the claimed exemption.
Beauchamp took the error ratio produced from the examination and applied it to the entire audit period and concluded the deficiency determination of $25,074.00 in November 2005; $40,663.34 in July 2006; and $11,312.00 in August 2007.
On January 22, 2010, the auditor issued Petitioner's audit report, which contained a summary, supporting schedules of all adjustments, a narrative explanation of the adjustments, and a conclusion that Petitioner owed the following: taxes in the amount of $100,214.47; a penalty in the amount of $25,053.61; and interest in the amount of $31,981.57, for a sum total of
$157.249.65.
On January 27, 2010, upon receipt of the audit report Ginsberg requested an audit conference.
At the February 9, 2010, audit conference, Ginsberg agreed to provide additional records requested to the
Department. The Department also agreed to assign a new auditor to the Furniture Discounters audit per Ginsberg's request.
Jose Barandiaran ("Barandiaran" or "auditor 2") became the successor auditor and contacted Ginsberg on March 5, 2010, requesting the additional records.
Furniture Discounters produced additional bank records for Barandiaran to examine that had not been provided to Beauchamp. Barandiaran was able to review 34 out of 37 months with the additional bank records supplied. Petitioner never produced bank records for April, May, or June of 2005.2
After examination of the additional bank statements, auditor 2 reduced the amount of the proposed deficiency determination for under-reported sales, by expanding the period beyond the five sample months to include the additional months for which Furniture Discounters had produced additional bank records.
In the audit report, Barandiaran stated grounds for his revision as "The taxpayer provided additional bank statements for the audit period. The sample was expanded to include the months that had supporting bank statements. The exhibit was adjusted accordingly."
Furniture Discounters did not provide any additional documentation for Barandiaran to revise the unverified exemption claims portion of the audit, even though Petitioner had received
several extensions during the audit to provide sufficient documentation.
On May 21, 2010, auditor 2 issued Petitioner's audit report, which included a summary of the under-reported sales and misclassified exempt sales, supporting schedules of all adjustments, a narrative explanation of items, and the following conclusion that the Petitioner owed: $82,956.94 in taxes; a penalty in the amount of $20,739.24; and interest through May 21, 2010, in the amount of $28,377.41, for a total balance owed of $132,073.59.
On June 4, 2010, Furniture Discounters protested the Department's proposed deficiency of May 21, 2010, and requested a second audit conference.
On July 8, 2010, the Department met with Ginsberg for a second audit conference. Sandra Chung ("Chung"), the Audit Group Supervisor, met with Ginsberg and explained what additional documentation was needed to demonstrate Furniture Discounters' position as to the taxes owed.
After the July conference, Ginsberg supplied the Department additional records including invoices and resale certificates. In Ginsberg's cover letter, he complained that the Department should not include the working capital start-up contribution of $100,000.00.
The letter stated," . . . the initial investment of
$100,000.00, it is inconceivable that a business with inventory for sale could start operations without an initial investment. In the case of stocking a store full of furniture, this investment, by the very nature of the business, would be sizable."
No $100,000.00 deposit appeared on any bank statements submitted to the Department from Petitioner for the audit period, and therefore the Department did not tax such a deposit. In its audit and every revised audit, the Department consistently credited Furniture Discounters for all taxes collected and remitted, no matter how the calculations were made.
After reviewing the additional documents submitted by Furniture Discounters, on August 5, 2010, the Department issued the Third Revised Report. The under-reported sales audit portion was reduced again as Petitioner had provided additional invoices and proof of exemptions for February 2007.
After the third audit revision, Furniture Discounters' liability still remained due to the discrepancy between reported sales and tax remitted. Additionally, missing invoices and proof of claimed exemptions still remained.
After the third audit conference on August 4, 2010, with Ginsberg by telephone conference, Furniture Discounters failed to ever provide any additional records to the Department.
On October 18, 2010, the Department issued a Notice of Proposed Assessment ("NOPA")3 assessing Furniture Discounters
$89,337.94, which is the balance of tax and interest due as of October 18, 2010, with an additional $12.50 due each day thereafter that tax remains unpaid. No penalties were assessed. Furniture Discounters assessment remains unpaid.
Petitioner denied liability and requested a formal hearing to contest the NOPA.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and of the parties thereto pursuant to sections 72.011(1), 120.569, 120.57(1), and 120.80, Florida Statutes.
In this matter, the Department has the initial burden of showing "that an assessment has been made against the taxpayer and the factual and legal grounds upon which [the Department] made the assessment." See section 120.80(14)(b)2. However, Petitioner has the ultimate burden to prove by a preponderance of the evidence that the factual or legal basis for the assessment is unreasonable or incorrect. See Dep't of
Rev v Nu-Life Health and Fitness Ctr, 623 So. 2d 747, 751-752 (Fla. 1st DCA 1992); see also § 120.57(1)(j).
In order to prevail, Petitioner must show by a preponderance of the evidence, that the Department departed from the requirements of the law or that the assessment was not supported by any reasonable hypothesis of legality. Straughn v.
Tuck, 354 So. 2d 368, 371 (Fla. 1978) (involving property tax assessment under chapter 193, Florida Statutes); Harris v.
State, Dep't of Rev, 563 So. 2d 97, 99 (Fla. 1st DCA 1990), (citing Straughn, supra, for assessments under chapter 212, sales and use tax and derivative surtaxes).
The Department is authorized to conduct audits of Petitioner's books and records and to request information to ascertain tax liability, if any, pursuant to section 212.13.
Petitioner had a statutory duty during the audit period to maintain and produce suitable books and records relating to sales and use tax for the audit, and such books and records must be made available to the Department or its authorized agent. Herein, Petitioner did not maintain and/or provide to the Department records adequate for a sales and use tax audit after being provided extensions and being provided three audit conferences where the Department outlined what was needed and requested Furniture Discounters provide the additional documentation.
Where, as here, a Petitioner fails to provide adequate records of his or her retail sales or purchases, the Department is authorized to determine the proportion that taxable purchases bear to total purchases based upon a test or sampling methodology of the dealer's available records or other information including bank statements pursuant to section 212.12 (6)(b). Beauchamp properly utilized the sampling method as a last resort after Furniture Discounters produced insufficient records for the audit.
The Department properly audited Petitioner's available books and records, for the audit period. In fact, the Department expanded its audit from the five-month sampling each time Furniture Discounters provided additional documentation. The Department also gave Petitioner credit for all taxes collected and remitted. It is commendable that both auditors persisted in obtaining Petitioner's records and completed the audit with correct adjusted amounts specified in the NOPA with the lack of cooperation provided by Petitioner.
In this matter, Respondent made a prima facie showing of the validity of the sales and use tax assessment(s) and Petitioner, by failing to appear, failed to produce any evidence to overcome the prima facie showing of the revised assessments' validity.
Therefore, the Department's assessment of tax penalty and interest as expressed in the NOPA should be sustained.
RECOMMENDED that the Department of Revenue enter a final order upholding the amount of tax calculated against Petitioner in its Notice of Proposed Assessment in the principal amounts and interest as set forth in Findings of Fact No. 34, until such time as the tax is paid.
DONE AND ENTERED this 16th day of June, 2011, in Tallahassee, Leon County, Florida.
JUNE C. MCKINNEY
Filed with the Clerk of the Division of Administrative Hearings this 16th day of June, 2011.
1 The sampling methodology allows the auditor to choose random months and determine the proportion that taxable purchases bear
to total purchases from Petitioner's available records related to sales.
2 April, May, and June 2005 were the first three months of the audit period and the start up period for Furniture Discounters as a company.
3 Respondent's Exhibit 27.
Jeffrey M. Dikman, Esquire Office of the Attorney General The Capitol, Plaza 01 Tallahassee, Florida 32399
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.
