Findings Of Fact The parties have agreed that there are no issues of fact to be determined in this matter, and that the relevant facts are set out in Paragraphs 3 and 4 of the Petition which was received in evidence at the hearing as Hearing Officer's Exhibit 1. This matter involves a determination for Florida corporate income tax purposes of the net income derived by the Petitioner in connection with the purchase, development, and sale of certain property in Dade County, Florida. Petitioner purchased the property prior to January 1, 1972, the date upon which the Florida Income Tax Code became effective. Petitioner expended, through a subsidiary corporation, $369,058 in developing the property. These expenditures also occurred prior to January 1, 1972. For Federal income tax purposes the Petitioner had deducted these expenditures as business expenses during the years that they were incurred. Petitioner sold the property during 1972. Because the Petitioner had deducted the expenditures as business expenses, the expenditures could not properly have been included in the base price of the property for Federal income tax purposes, and the net income for Federal tax purposes was computed by subtracting the original purchase price from the sale price. Since the Florida Income Tax Code was not in effect at the time the expenditures were made, the Petitioner received no Florida tax benefit for the expenditures. In computing the net income for Florida tax purposes derived from the sale, the Petitioner included the expenditures in the base price of the property, and calculated its net income by subtracting the sum of the purchase price of the property and the expenditures from the sale price. The Department, contending that the $369,058 should not have been included in the base price of the property, issued a deficiency assessment which reflected the net income from the sale of property as the difference between the sale price and the purchase price. Petitioner originally contended that it was entitled to add the amount that the property appreciated prior to January 1, 1972 to the base price of the property. Petitioner is no longer contesting the deficiency assessment based upon a disallowance of that addition to the base price of the property. The Department was originally contending that it was entitled to interest at 12 percent per annum calculated retrospectively from the due date of the alleged deficiency. The Department has agreed to abandon its effort to impose that rate of interest. The issue raised in this case is whether the development expenses incurred by the Petitioner and deducted for Federal income tax purposes as business expenses prior to 1972 can be subtracted from Federal taxable income for the purpose of determining taxable income derived from the sale for Florida tax purposes.
The Issue The issue posed for decision herein is whether or not the Petitioner, Adwell Corporation, is entitled to separate accounting in computing its Florida corporate income tax based on the nature of its Florida operations.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received, the arguments of counsel and the entire record compiled herein, the following relevant facts are found. The Petitioner, Adwell Corporation, is an Illinois corporation which is actively engaged in the business of farming approximately twelve thousand (12,000) acres of farmland near Jacksonville, Illinois; owns and leases ten (10) acres of real property under a "triple net lease" arrangement for a shopping mall in Minnesota and operates a two-hundred unit (200) apartment complex called the Yacht Basin Apartments (YBA) in Clearwater, Florida. An audit of Petitioner's books during 1978 resulted in a report of income tax audit changes dated July 28, 1978, for Petitioner's Florida income tax returns for fiscal years ending May 31, 1975; 1976 and 1977. The deficiency adjustment as proposed by the Respondent amounted to $1,248.00 for fiscal year ending May 31, 1975; $10,042.00 for fiscal year ending 1976 and $11,238.00 for fiscal year 1977. As originally filed, Petitioner, computing its Florida corporate income tax, based it on a separate accounting of its Florida activities on its claim that it is not a unitary business and that to combine its total corporate income of Florida, Illinois and Minnesota would unfairly represent the extent of its tax base attributable to Florida. Thus, Petitioner contends that the formula apportionment called for in Florida Statutes Sections 220.15 and 214.71 should not be applied. Instead, Petitioner contends that it is entitled to the exceptions to the general method of formula apportionment as set forth in Sections 214.72 and 214.73, Florida Statutes. PETITIONER'S ILLINOIS OPERATIONS As stated, Petitioner farms approximately twelve thousand (12,000) acres of agricultural land utilizing two methods of farming: the "direct" farming method and the "landlord/tenant" arrangement. During the years in question, the "direct" farming operation was used on approximately one-third (4,000 acres) of Petitioner's agricultural land. Under the "direct" method, in addition to the land, Petitioner provides the equipment, fertilizer, chemical, seed, and weed and pest control. Under the "direct" farm method, Petitioner retains an operator who is paid a flat fee for his services which is negotiated on a yearly basis. The remaining two-thirds (approximately 8,000 acres) of the agricultural land is farmed using the "landlord/tenant" method. Under this method, Petitioner, in addition to providing the land, provides the tenant farmer 50 percent of the seed, fertilizer and chemicals for weed and pest control. The crop is divided equally between the farmer and the Petitioner. In both farming methods, Petitioner determines with the crop will be planted; the type of crop and fertilizer and its method of application; the type chemicals for both pest and weed control and decides when and how the crop will be planted and harvested. Prior to 1970, Petitioner's headquarters (for the Illinois farming) was situated in Chicago, Illinois. In 1970, corporate headquarters were moved to Jacksonville, Illinois, based on the corporate decision that "absentee" ownership was not conducive to efficient and productive business operations. During 1970, Petitioner invested in real property in Florida and Minnesota using income realized from the forced sale of real estate under threat of governmental condemnation. PETITIONER'S FLORIDA OPERATIONS In Florida, Petitioner purchased the real property under the Yacht Basin Apartments which was simultaneously leased to the Yacht Basin Apartment owners. The Minnesota real property lay under and was leased to owners of a shopping center. Both leases were "triple net leases", thereby relieving Petitioner of the responsibilities of taxes, maintenance and the other activities associated with land ownership. During 1973, Adwell Corporation purchased the Yacht Basin Apartments and other related improvements which were situated on the Clearwater property. From 1973 through November of 2974, Adwell retained the services of an independent property management firm to manage the Yacht Basin Apartments. However, during this period (November of 1974), Petitioner relocated an accountant, Steve McClellan, who was then employed by Petitioner as an accountant in Jacksonville, Illinois to manage YBA. After Mr. McClellan became familiar with the management operations of the Yacht Basin Apartments, the arrangement was severed with the independent management contractor and Petitioner authorized Mr. McClellan to do virtually all that was necessary to efficiently manage and operate the Yacht Basin Apartments. Examples of the authority given and exercised by Mr. McClellan included hiring and firing employees; negotiating leases; expending large capital outlays for improvements and repairs, including for example, replacement of kitchen cabinets in several apartments, total roof repair and replacement, replacement of the master T.V. antenna and replacement of all windows. (See Petitioner's Exhibits 1 through 5.) Mr. McClellan was assigned the goal of operating the Florida apartments on the rent receipts, which goal was realized. Petitioner maintains what is referred to as an internal accounting procedure which requires that all checks be signed by the operation's President, Donald R. Pankey. Evidence adduced during the hearing reveals that Mr. McClellan was given almost complete control over the operation and management of the Florida property and in no instance was any recommended expenditure by him rejected by President Pankey. Evidence also reveals that Petitioner maintains separate accounts for each of its operations in Florida, Illinois and Minnesota. The Florida operations are not integrated with or dependent upon nor contribute to the other business operations of Petitioner in Illinois and Minnesota. The Florida property as stated compromises approximately ten (10) acres of reality plus the improvements. During the period in question, the Florida operation employed approximately twelve (12) to fifteen (15) employees. Aside from its Florida employees, Petitioner only employs the President and his secretary in Jacksonville, Illinois.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby, RECOMMENDED: That the Petitioner is entitled to and should be allowed to separately account its Florida corporate income tax as it originally filed its Florida corporate income tax returns for the tax years 1975, 1976 and 1977. Accordingly, it is therefore RECOMMENDED that the Respondent withdraw the Report of Income Tax Audit Changes dated July 28, 1978. RECOMMENDED this 12th day of September, 1980, in Tallahassee, Florida. JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1980. COPIES FURNISHED: Steven A. Crane, Esq. Post Office Box 3324 Tampa, Florida 33601 Shirley W. Ovletrea, Esq. and E. Wilson Crump, II, Esq. Assistant Attorneys General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301 Robert A. Pierce, Esq. General Counsel Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32301
Findings Of Fact The Petitioner is, and during the years in question was, a corporation organized under the laws of the State of Delaware, properly qualified and authorized to do business in the State of Florida, and the parent company of a consolidated group of corporations that kept its books and records and filed its federal and state income tax returns on the basis of a fiscal year ending August 31. During the tax years in question, the consolidated group consisted of 36 corporations, of which 15 (including Petitioner) had Florida transactions or were otherwise separately subject to taxation under the Florida Corporate Income Tax Code (the "Florida members"). The other 21 corporations had no such transactions or were not subject to taxation under the Florida Code (the "non- Florida members"). For both years 1972 and 1973, petitioner filed federal and Florida income tax returns on behalf of the entire group. On the Florida return's, it duly elected under the second sentence of Subsection 220.131(1), F.S., to include both the Florida and non-Florida members. As required by Subsections 220.131(1)(a), (b) and (c), each member of the group consented to such filing, the group filed a consolidated federal return for each year, and the component members of the Florida return group were identical to the members of the federal return group. Petitioner protested the proposed corporate income tax assessment for 1972 and 1973, but, by letter, dated July 7, 1976, T. H. Swindal, Chief, Corporation Income Tax Bureau, Florida Department of Revenue, adhered to the original determination that for a parent corporation to include all of its subsidiary corporations for the purposes of consolidating its taxable income, it must be incorporated in Florida. The letter further explained: ". . . The Florida Legislature obviously considered these classifications justified and constitutionally permissible. Any regulation, therefore, which is so drafted as to permit an interpretation which in substance changes or strikes the statutory classification is a nullity. It appears that the Department's regulation may have been inadvertently so drafted as to invite an unintended and contrary-to-the- statute interpretation. When the Department became aware of the situation it proceeded, in accordance with the prescribed statutory requirements of Chapter 120, to amend the regulation by striking those words being misinterpreted." The regulation referred to in Swindal's letter was Rule 12C-1.131(1), F.A.C., the first sentence of which had read as follows: "12C-1.131 Adjusted Federal Income; Affiliated Groups. The term "Florida parent company" as used in the second sentence of Code subsection 220.131(1) shall mean any corporation qualified to do business in Florida or otherwise subject to tax under the Code, irrespective of its place of incorporation " The aforesaid rule was in effect during 1972 and 1973, and was amended on August 4, 1975, to delete the above-mentioned sentence.
Recommendation That Petitioner not be held liable for the proposed assessment of corporate income tax deficiency for fiscal years 1972 and 1973. DONE and ENTERED this 26th day of April , 1977, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: E. Wilson Crump, II, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Alan L. Reinstein, Esquire Dancona, Pflaum, Wyatt and Riskind 30 North LaSalle Street Chicago, Illinois 60602
Findings Of Fact Petitioner is engaged in the cattle business and sells these cattle to in-state and out-of-state buyers who purchase the cattle at Clewiston, Florida, and have them transported either by the purchaser's own equipment or by a commercial carrier to their in-state or out-of-state destination. Those sales determined to be out-of-state sales are not included in the numerator of the fraction used to compute what percentage of Petitioner's income results from Florida sales and is therefore subject to Florida income tax. In making the determination respecting out-of-state sales Respondent applies the destination test if the cattle are shipped by common carrier but treats all other carriers as agents of the buyer to whom the cattle are delivered at Clewiston, thereby making such sales in-state sales. It is this policy determination which Petitioner contends is a rule. The policy has not been promulgated in accordance with Chapter 120, Florida Statutes, and, if this interpretation constitutes a rule, it is invalid because it was never promulgated as required. In determining whether certain sales are subject to the Florida sales tax, the Legislature in Section 212.06(5)(a), Florida Statutes, excluded from tax that tangible property imported or manufactured for export and provided such tangible property shall not be considered as being manufactured for export unless the 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. The rationale of the sales tax provision is used by Respondent in determining whether the sales are in-state sales for the purpose of computing Florida income tax. Respondent has promulgated, to its auditors, as a policy and as an interpretation of the statute, the directive to apply the destination test in determining out-of-state sales only when the merchandise sold is shipped by common carrier to a destination out of state. It is this policy determination or interpretation of the statutes that Petitioner contends is a rule and attacks in these proceedings. In the testimony Respondent acknowledged that this policy determination is uniformly applied. It also has application both within and outside the agency. Respondent further testified that if the merchandise (here cattle) had been delivered by Petitioner to the buyer outside the State of Florida by any means of transportation Petitioner chose, it would have treated the sale as an out-of-state sale.
Findings Of Fact Based upon the agreement of the parties as to the relevant facts in this case, the following facts are found: For the calendar years ending December 31, 1972 and 1973, petitioner filed its federal corporate income tax returns reporting gross income from dividends in excess of its taxable income before the special deduction of 85 percent of the dividends received, limited to 85 percent of taxable income. As a result, a maximum of 15 percent of its net income was included in its taxable income on the federal tax returns. The federal returns for calendar years ending December 31, 1972 and 1973 reflected the deduction of net capital losses incurred and carried forward from years ending prior to January 1, 1972, the effective date of the Florida corporate income tax code. For its calendar years 1972 and 1973, petitioner filed its Florida corporation income tax returns reporting no Florida net income. The respondent examined the returns and determined deficiencies of $374.49 for 1972 and $566.40 for 1973. Such determination was based primarily on the additions to income of net capital losses carried forward from years ending prior to January 1, 1972.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that there is no basis for affording petitioner relief from the proposed deficiency and that said deficiencies of corporate income tax of $374.49 and $556.40 for 1972 and 1973 respectively, be sustained. Respectfully submitted and entered this 22nd day of June, 1976, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Mr. T.H. Swindal Chief, Corporate Income Tax Bureau Department of Revenue Post Office Box 3906 Tallahassee, Florida 32303 Mr. Robert Fried Suite 210, Professional Centre 9000 Southwest 87th Court Miami, Florida 33176 Attorney for Petitioner Mr. Stephen E. Mitchell Assistant Attorney General Office of Legal Affairs The Capitol Tallahassee, Florida 32304 Attorney for Respondent
The Issue Whether this cause should be dismissed for Petitioner's failure to comply with Section 120.80(14)(b)3., Florida Statutes.
Findings Of Fact Petitioner is contesting an assessment of taxes, pursuant to an audit conducted by Respondent Department of Revenue. The total amount of the assessment was $32,312.24. Following the audit, in a letter to the Department's auditor dated April 17, 2006, Petitioner's counsel stated that taxes "in the amount of $5,744.80 is something [Petitioner] would be obligated to pay under the laws of the State of Florida, and as such, they are willing to do so. They would be willing to pay interest due on this money."1/ This statement constitutes a clear admission that Petitioner owes the stated amount of the tax, $5,744.80, plus interest that accrues daily. Petitioner's Memorandum makes the un-sworn statement that: At the time the parties met to discuss the assessment with the representative of the Department of Revenue, Martha Watkins, they offered to pay $5,744.80 of the taxes but were informed it was part of the $32,312.24, and they could either pay it all or contest it. At all times material hereto the petitioners have stood ready to pay the $5,744.80. On April 17, 2006, we wrote a letter to Martha Watkins making this offer for the second time. On August 17, 2006, we again wrote to the Department of Revenue attaching our letter of April 17, 2006, again making this offer. At no time was a response received to either letter. The August 17, 2006, letter alluded to in Petitioner's Memorandum is not of record and neither a copy of that letter, nor an affidavit of its contents, has been submitted by either party. At no time has Petitioner asserted that any amount of tax money was unequivocally tendered to Respondent. No affidavit to that effect has been filed in this case. The Second Affidavit of Martha Watkins, submitted with the Department of Revenue's timely Memorandum states, in pertinent part: I conducted the audit of C AND C MECHANICAL CONTRACTORS, INC., from which arose the challenged assessment and this controversy. During the course of the audit, and subsequent communication with C AND C MECHANICAL CONTRACTORS, INC., regarding the audit and assessment of taxes and interest, C AND C MECHANICAL CONTRACTORS, INC., made at least one settlement offer, that was unacceptable, and was rejected by the Department as such. At no time did C AND C MECHANICAL CONTRACTORS, INC., unequivocally tender to me, or unequivocally offer to tender to me, the uncontested tax and applicable interest, and at no time did I refuse to accept any payment of taxes. On September 21, 2006, a Request for Administrative Hearing was filed with the Department of Revenue. On September 28, 2006, the Executive Director of the Department of Revenue entered an Order Dismissing the Petition with Leave to Amend. That Order reads, in pertinent part: On September 21, 2006, the Florida Department of Revenue received a "Request for Administrative Hearing" from Petitioner, C & C Mechanical Contractors. While the document clearly is a request for hearing, the petition does not state what the Petitioner is disputing. A record search shows that at least one Notice of Proposed Assessment was issued by the Department on June 15, 2006 to this Petitioner. It is impossible to determine from the petition whether this proposed assessment is being challenged. However, because this request was sent within the applicable time frame to dispute the Notice of Proposed Assessment, the Department will treat it as such. As required by law, the notice stated that a formal protest for an administrative hearing had to be received in the Office of the General Counsel within sixty days after the assessment became final and had to be in compliance with chapter 120, Florida Statutes. The petition fails to meet the requirements contained in chapter 120, Florida Statutes and Uniform Rule 28- 106.201, Florida Administrative Code, the appropriate rule for use in filing a petition requesting a hearing involving disputed issues of material fact. A copy of the appropriate rule is provided with this order. Specifically, the petition does not contain: (1) a statement of when and how the Petitioner received notice of the agency decision; (2) all disputed issues of material fact. If there are none, the petition must so indicate; (3) a concise statement of the ultimate facts alleged, including the specific facts the Petitioner contends warrant reversal or modification of the agency's proposed action; (4) a statement of the specific rules or statutes the Petitioner contends require reversal or modification of the agency's proposed action, and (5) a statement of the relief sought by the Petitioner, stating precisely the action the petitioner wishes the agency to take with respect to the agency's proposed action. Because of these deficiencies, Petitioner's documentation must be dismissed. IT IS ORDERED: The petition for hearing filed by Petitioner is DISMISSED. Such dismissal is without prejudice to Petitioner to amend the petition to provide the information listed above. . . . On October 11, 2006, the Amended Petition for Administrative Hearing was filed with the Department of Revenue. That Amended Petition stated, in pertinent part: 1. The Petitioner received a certified letter dated June 15, 2006, stating taxes were due and owing in the amount of $32,312.24. This amount included $5,774.80 in fabrication cost taxes which the Petitioner does not object too [sic]. The balance of the $32,312.24 was for taxes on items sold to non-taxable entities. The Petitioner would object to these taxes and gives as grounds the following: Items sold to non-taxable entities are not subject to the Florida Tax Code. The department made a determination the items sold to the non-taxable entities were taxable stating the contractor, in this case the Petitioner, was the end user. Florida Tax Code states in part ". . . a determination whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction rather than the form in which the transaction is cast." The department "shall adopt rules that give special consideration to factors that govern the status of the tangible personal property before its affixation to real property." The Department of Revenue has adopted a rule which is in violation of the incident [sic] of legislature and contrary to Florida Statute 212.08.2/ (Emphasis supplied). The Amended Petition constitutes a clear admission that the $5,744.80 portion of the taxes due under the audit were both uncontested and owed, as of October 11, 2006. The first Affidavit of Martha Watkins, filed November 28, 2006, in support of the pending Motion to Dismiss, states, in pertinent part: I am a [sic] sui juris and otherwise competent to testify in this matter. I am employed by the Florida Department of Revenue in the position of Tax Auditor III. I am familiar with the accounts, accounting methods, and maintenance of records at the Florida Department of Revenue for sales tax, interest, and penalties. I am authorized by the Department of Revenue to make affidavit regarding the payment status of sales taxes, interest and penalties relative to registered Florida dealers. I have reviewed, and have personal knowledge of the accounts of the Florida Department of Revenue regarding tax payment of C&C MECHANICAL CONTRACTORS, INC., a Florida corporation that has in the past been issued a Certificate of Registration by the Department of Revenue. According to the records of the Department of Revenue, as of November 27, 2006, C&C MECHANICAL CONTRACTORS, INC., has not paid any sums to the Department of Revenue against the assessed outstanding balance of sales tax, interest or penalties, since prior to April 16, 2006.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Florida Department of Revenue enter a final order dismissing the Amended Petition. DONE AND ENTERED this 27th day of February, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 27th day of February, 2007.
Findings Of Fact On a date prior to November 2, 1971, petitioner exchanged property it then held for property it now holds. This transaction resulted in a capital gain for petitioner, although recognition of the gain has been deferred for federal tax purposes. For such purposes, petitioner's basis in the property it presently holds is deemed to be the same as its basis in the property it formerly held. On its own books, however, petitioner has stated its basis in the property it now holds as the market value of the property at the time it was acquired. This figure is higher than the figure used for federal tax purposes. Working from this higher figure, petitioner states larger depreciation allowances on its own books than it claims for federal tax purposes. On its 1973 Florida corporation income tax return, petitioner claimed these depreciation allowances instead of the smaller depreciation allowances it claimed on its federal income tax return for the same period.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent assess a deficiency against petitioner based on the income not stated in its 1973 return because of its unauthorized depreciation claim, together with interest and applicable penalties. DONE and ENTERED this 2nd day of February, 1979, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Joseph Philip Rouadi, C.P.A. 781 Wymore Road Maitland, Florida 32751 E. Wilson Crump, Esquire Post Office Box 5557 Tallahassee, Florida
Findings Of Fact Petitioner is a corporation organized and existing under the laws of Florida with its sole place of business located at 6186 Southwest 8th Street, Miami, Florida. Petitioner operates a delicatessen and restaurant in the same building at the above location. Petitioner's restaurant prepares food to be served to paying customers who consume that food at tables provided in the restaurant for that purpose. This food is served by waiters and waitresses who prepare guest checks which separately indicate the amount of sales tax charged thereon. Petitioner's delicatessen sells unprepared food to customers who do not consume that food on the premises and for whom no eating facilities are provided. The items sold by Petitioner's delicatessen are grocery-type items. A common cash register serves the two facilities, which cash register has a separate key for the sale of delicatessen items and a separate key for the sale of restaurant items. The restaurant and delicatessen occupy the same general space and are not separated by a wall or other physical barrier. Petitioner's Exhibit 4 contains a list of those items sold on the delicatessen or grocery side of Petitioner's business. The accuracy of that list was not challenged in this proceeding and it is found as a matter of fact that those items on Petitioner's Exhibit 4 accurately reflect the items sold by Petitioner across his delicatessen counter. That list includes items such as bread, rolls, bagels, milk, beer, soda, catsup, canned goods and various meats such as salami, bologna, franks, fish and ham. Petitioner collects sales tax for those items sold in the restaurant portion of the business and does not collect sales tax on those items sold in the delicatessen portion of the business. The taxable and nontaxable items are segregated and distinguished on the cash register tapes. Petitioner has so conducted his business from its inception in 1959 through the audit period in question. Throughout that period of time Petitioner regularly maintained separate and distinct records sufficient to allocate sales between taxable restaurant sales and nontaxable delicatessen or grocery sales. Petitioner's tax returns have reflected this behavior for the above period of time. When the business first opened Mr. Leo Hoffman, the owner of Petitioner corporation, contacted the Department of Revenue by telephone and was told that the foregoing method of operation was proper. Petitioner has always filed tax returns reflecting this activity and such returns were apparently not questioned until the audit at issue here. The period of time for which Petitioner was audited in this cause was January 1, 1976, to December 31, 1978. On March 12, 1979, Respondent issued a proposed sales and use tax delinquency assessment against Petitioner in the amount of $40,018.14. This assessment was based on the total sales revenue generated by both of Petitioner's enterprises and did not allocate sales revenue between the delicatessen portion of the business and the restaurant portion of the business. On May 10, 1979, the Respondent issued a revised proposed sales tax delinquency assessment against Petitioner in the amount of $33,259.20. This revised assessment was based on the total sales revenue generated by both of Petitioner's separate enterprises and did not allocate sales revenue between the delicatessen portion of the business and the restaurant portion of the business. Petitioner did pay approximately $12,000 in sales tax for the subject audit period. That was the sales tax Petitioner believed he owed for the restaurant portion of his business. The additional assessment is apparently the sales tax (with penalty and interest) Respondent believes is owed for the delicatessen portion of Petitioner's business. The items sold on the delicatessen side of Petitioner's business represent approximately 75 percent of his gross revenue. The items sold on the restaurant, or taxable side of Petitioner's business, represents approximately 25 percent of his gross revenue. The assessment by Respondent against Petitioner was based, at least in part, upon Rule 12A-1.11(1), Florida Administrative Code. Petitioner holds a restaurant license from the State of Florida, Division of Hotels and Restaurants. Petitioner also holds a retail sales license from Dade County for its delicatessen operation.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, therefore, RECOMMENDED: To the extent that the assessment for unpaid sales tax is based upon sales made by the delicatessen or grocery side of Petitioner's business, such assessment is invalid and should be withdrawn. DONE AND ENTERED this 4th day of June 1980 in Tallahassee, Florida. CHRIS H. BENTLEY Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of June 1980. COPIES FURNISHED: Mark J. Wolff, Esquire Sparber, Shevin, Rosen, Shapo & Heilbronner, P.A. First Federal Building, 30th Floor One Southeast Third Avenue Miami, Florida 33131 Linda C. Procta, Esquire Department of Legal Affairs Office of the Attorney General The Capitol, LL04 Tallahassee, Florida 32304
The Issue Petitioners' liability for corporate income tax deficiency under Chapter 220, Florida Statutes.
Findings Of Fact Petitioner is a Georgia Corporation doing business as a heavy electrical contractor in Georgia and eight other states including Florida. In 1972, Petitioner submitted a request to the Department of Revenue that it be allowed to use "separate accounting" as the method for determining the amount of its adjusted federal income that was subject to taxation by the State of Florida under Chapter 220,Florida Statutes. By letter of October 3, 1972, T.H. Swindal, Respondent's Chief of the Corporation Income Tax Bureau, denied Petitioner's request with the following language: "The economics of large scale interstate construction operations, as we understand them, necessitate maximum utilization of a company's resources. At particular times and in a particular locale or with respect to particular types of construction activity contracts may be initially or regularly bid upon and undertaken which, on an individual contract basis, will be minimally profitable, if at all. Nevertheless, because these contracts permit cost absorption, continuing use and charge for equipment, trained crews and know-how; permit maximum employment of the company's capital and credit accomo- dations; permit initial entry into a new field of construction activity or a new locale, these contracts indirectly but significantly add to the profitability of the enterprise as a whole. We recognize too, that separate accounting essentially serves management and that management must evaluate competitive tax implications. "Separate accounting" does not, in our view, measure the impact of these cir- cumstances. We are of the opinion that Florida's three factor formula does measure the impact of these circumstances upon profit and thus provides a fairer Florida tax base." (Complaint, Petitioner's Exhibit 1) Respondent however, pursuant to a request of Petitioner, permitted the latter to leave its 1972 return as filed, but instructed it to file in the future utilizing the "three-factor" formula. Accordingly, the Petitioner filed its 1973 and 1974 tax returns utilizing the "three-factor" formula" as directed by the Respondent, and paid the appropriate tax due. By letter, dated September 15, 1975, Mr. Swindal informed Petitioner that examination of its returns for the years 1972 thru 1974 had resulted in a net proposed deficiency of $12,417.60. An accompanying report showed that the primary basis for the deficiency was Respondent's determination that the Florida portion of adjusted federal income for the years 1973 and 1974 should have been increased by the amounts of $87,772.93 and $160,117.83, respectively, based on a "separate accounting" computation. The reason given for this determination was stated as follows in the report: "Florida Statute 214.73(1) says in part that if the apportionment methods of Florida Statute 214.71 and 214.72 do not fairly represent the extent of a taxpayer's base attributable to this state, the department may require separate accounting. The department has determined the taxpayer should use separate accounting in accordance with the above-mentioned, statute." (Complaint and exhibits thereto) Respondent had not notified Petitioner between 1972 and 1975 of its apparent change in position with respect to the required method of accounting. At a conference held on February 19, 1976, between Petitioner's representatives and Mr. William T. Lutschak who represented the Respondent, Petitioner protested the asserted deficiency and requested that the Respondent adhere to its former determination that the "three-factor method" be applied in computing the tax. Petitioner's protest was denied orally at the conference and such denial w-s confirmed by Mr. Swindal's letter of February 24, 1976, as follows in pertinent part: "Careful analysis of the taxpayer's Florida activity and the financial results of that activity clearly demonstrate that the amount of income set forth in the auditor's report for the years at issue are attributable to taxpayer's Florida business and that F.S. 214.73(1), rather than F.S. 214.71, fairly represents the extent of the taxpayer's tax base attributable to this state." (Comp. & Exh. thereto) Respondent's auditor of Petitioner's 1973 and 1974 tax returns found nothing unusual concerning the latter's business operations during the above tax periods and is of the opinion that based on formulary accounting Petitioner's returns "fulfill the letter of the law". He also acknowledged that Petitioner met the criteria of a "unitary business". He testified that he was unable to determine the amount of property used by Petitioner on its various jobs in and out of Florida while at the audit site at Petitioner's home office in Alabama and that without such information it would be impossible to determine Petitioner's tax liability under the "three-factor method" because property is one of the factors. The auditor, after making a request of Petitioner for such figures during his audit, which did not produce immediate results, did not pursue the matter because he "had to go back to Tallahassee". In fact, such information was available in Petitioner's records. Respondent changed its policy with respect to the method of accounting required of Petitioner after consideration of a textbook on the concept of separate accounting and a resulting determination that the contracting business in general is a unique industry warranting special tax treatment. (Testimony of Harnden, Puckett, Malone, Exhibit 1, Pleadings). The alleged deficiency of $12,417.60 is correctly computed and properly due and owing if "separate accounting" is validly required with respect to Petitioner's tax returns. (Stipulation).
Recommendation That Petitioner be relieved from payment of the proposed assessment based on any tax deficiency produced by the requirement of separate accounting under Section 214.73, Florida Statutes. DONE and ENTERED 21st day of July, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division Northwood Mall Tallahassee, Florida 32303 James R. English, Esquire HENRY & BUCHANAN, P.A. P.O. Drawer 1049 Tallahassee, Florida 32302
Findings Of Fact During the three year period from October 1, 1974 through September 30, 1977 Air Jamaica purchased prepared meals from Jerry's Caterers at Miami (Jerry's) in the total amount of $740,760.04 and Taca purchased prepared meals from Jerry's in the total amount of $161,379.72. Sales tax, penalty and interest through March 20, 1978 were assessed against Air Jamaica in the amount of $35,291.54 on the total paid for meals from Jerry's. Sales tax plus interest through November 20, 1977 were assessed against Taca in the amount of $9,359.86 on the total paid for meals from Jerry's. These figures are accepted as accurately representing 4 percent of the cost of meals purchased plus interest and penalties. The operations with respect to the meals were identical for both Air Jamaica and Taca. Prepared meals were delivered to the aircraft by Jerry's in trays holding 25 meals. These trays are supplied with heating elements and act as ovens in which the meals are heated. When placed aboard the aircraft by Jerry's' employees the trays holding meals intended to be served hot are plugged into electrical outlets on the plane. Prepared food delivered to the aircraft by Jerry's intended to be served cold obviously are not plugged into the electrical outlets. Air Jamaica departs from Miami and serves only Montego Bay and Jamaica. Taca departs from Miami and serves the cities of Belize, El Salvador, Nicaragua and Panama. Some 30 to 50 minutes after leaving Miami each company serves a meal for which no separate charge is made to the passenger. At the time these meals are served the aircraft is well outside the boundaries of Florida and either over Cuba or international waters. Although no separate charge is made for the meal served the cost of the meal, like every other operational and administrative cost, is considered in arriving at the air fare charged to the passenger for the transportation from Miami to destination. Jerry's bills the airlines for the number of meals delivered at a wholesale price of $3.48 per meal for meals served to first class passengers and $2.19 for meals served to economy passengers. Each airline provided Jerry's with tax resale certificates which relieved Jerry's from the collection of sales tax on meals delivered to the aircraft.
