The Issue The issue in this case is whether the taxpayer owes use tax, penalty and interest on the purchase of tangible personal property under Chapter 212, Florida Statutes.
Findings Of Fact Iseaseal, LLC, a Delaware corporation, has its principal place of business at 695 East Main Street, Suite 103, Stamford, Connecticut. Its federal employer identification number is 06-1600000. On November 22, 2000, the taxpayer purchased a 1982, 72-foot, Hatteras CPMY yacht, named “Windcrest,” with hull number HATBN3270182 and 60 net tons of admeasurement. The purchase was made through a registered yacht broker. The yacht’s sales price was $725,000. On November 21, 2000, at the closing for the yacht, the taxpayer’s managing member, Paul Bakker, signed an Affidavit for Exemption of Boat Sold for Removal from the State of Florida by a Nonresident Purchaser. The yacht was also registered with the Coast Guard. However, to date, the yacht has not been registered or titled in Florida or any other U.S. state or territory. The taxpayer took possession of the yacht at Pier 66, in Fort Lauderdale, Florida, on November 22, 2000. Also, on November 22, 2000, the taxpayer was issued a 90-day decal known as a “cruising decal.” A cruising decal, with certain restrictions, exempts the purchase of a yacht from sales tax if the purchaser agrees to remove the yacht from Florida within 90 days after the date of purchase and does remove the purchased yacht. On December 28, 2000, the taxpayer removed the yacht from Florida to the Bahamas. The removal occurred within 90 days after the purchase date. As a result, the sale became exempt from Florida sales tax and the Petitioner did not pay Florida sales tax on the purchase of the yacht. On January 15, 2001, the taxpayer returned the yacht to Florida for repairs. A repair bill shows that the yacht remained at the repair facility for four and a half hours on January 16, 2001. The repair visit was within six months after the departure date of December 28, 2000. There was no evidence that the repair facility was registered with the Department of Revenue or how long the boat remained in Florida waters. The yacht also returned to Florida for repairs on May 21, 2001. Again there was no evidence that the repair facility was registered or how long the boat remained in Florida waters. The evidence did not establish that the tax exemption related to use of Florida waters for 20 days or repairing a boat in Florida apply. Since the purchase date, the Petitioner has leased mooring space in Florida. The Petitioner’s insurance policy also indicates that the yacht was moored in Florida and includes a Florida endorsement for such mooring. Additionally, the Petitioner reported to Connecticut’s Department of Revenue that the yacht was exempt from Connecticut sales tax because the yacht was purchased and berthed in the State of Florida. Based on copies of the bill of sale, closing statement, banking statements, credit card statements, mortgage documents, insurance agreements, mooring agreements, repair and parts receipts and a chronological listing of the yacht’s whereabouts since the date of purchase, the yacht has operated, and continues to operate, in Florida waters. Indeed, the yacht remained in Florida for more than 183 days from July 1, 2002 through December 31, 2002. Moreover, since September 11, 2002, the yacht has been moored or stored in Florida the majority of the time because the main users of the yacht lost interest in sailing the yacht and travel after the terrorist attack on the twin towers in New York City. The Department found that the Petitioner was liable for use tax on its use and storage of the yacht here in Florida. On May 5, 2004, the Department issued an enforcement billing to the Petitioner for use tax, penalty and interest, pursuant to Sections 212.05(1)(a)2 and 212.06(8), Florida Statutes. The Department assessed the Petitioner use tax and interest based on the sales price of the yacht. The Department also assessed the Petitioner a mandatory penalty equal to the tax because it returned the yacht to Florida within six months of the departure date. The Petitioner admitted that, through ignorance of Florida’s tax exemption law, he violated Chapter 212, but argues that the assessment of tax, interest and mandatory penalty is excessive. On May 24, 2004, the Department issued the Petitioner a Notice of Final Assessment for Sales and Use Tax, Penalty and Interest Due. The Notice set forth the basis for the assessment of tax, in the sum of $43,500, penalty, in the sum of $43,500, and interest, in the sum of $14,759.84, plus additional interest that accrues at the rate of $10.73 per day. The Department issued the Petitioner the Final Assessment because it returned the yacht to Florida within six months of the departure date and the yacht remained in Florida for more than 183 days in a calendar year. Since the Petitioner returned the yacht to Florida within 6 months of the purchase date and allowed the yacht to remain in Florida for more than 183 days in a calendar year, the Petitioner is liable for use tax, penalty and interest in the use and storage of the yacht in Florida.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Revenue enter a final order upholding the assessment of use tax, penalty and interest against the Petitioner. DONE AND ENTERED this 31st day of January, 2005, in Tallahassee, Leon County, Florida. S DIANE CLEAVINGER 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 31st day of January, 2005. COPIES FURNISHED: Paul Bakker Iseaseal, LLC 695 East Main Street Stamford, Connecticut 06901 Carrol Y. Cherry, Esquire Assistant Attorney General Office of the Attorney General Revenue Litigation Section Plaza Level 01, The Capitol Tallahassee, Florida 32399-1050 Bruce Hoffman, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Based on the stipulations of the parties, on the exhibits received in evidence, and on the testimony of the witnesses at the hearing, I make the following findings of fact: Petitioner is a state government licensing and regulatory agency, charged with the responsibility and duty to prosecute Administrative Complaints pursuant to the laws of the state of Florida, in particular Section 20.30, Florida Statutes, Chapters 120, 455 and 475, Florida Statutes, and rules promulgated pursuant thereto. Respondent is now and was at all times material hereto a licensed real estate broker in the state of Florida having been issued license number 0120021 in accordance with Chapter 475, Florida Statutes. The last license issued was as a broker at 1170 John Anderson Drive, Ormond Beach, Florida 32074. On November 26, 1986, Respondent signed a plea of guilty to the felony offense of willfully aiding or assisting in the preparation and presentation to the Internal Revenue Service of a false or fraudulent corporation federal income tax return in violation of 26 U.S.C. Sec. 7206(2), as charged in Count 7 of an indictment filed against Respondent and others. The indictment count to which Respondent pled guilty read as follows: That on or about January 13, 1983, in Volusia County, Florida in the Middle District of Florida, NORMA F. NEWFIELD, defendant herein, a resident of Ormond Beach, Volusia County, Florida, did willfully aid and assist in, procure, counsel, and advise the preparation and presentation to the Internal Revenue Service of a U.S. Corporation Income Tax Return, Form 1120, for the fiscal year ending October 31, 1982 for the corporation Aron P. Newfield, D.O., P.A., 255 South Yonge Street, Ormond Beach, Florida, which was false and fraudulent as to a material matter, in that the said corporate tax return represented the gross receipts for the corporation Aron P. Newfield, D.O., P.A., to be $361,366.00 for the fiscal year ending October 31, 1982, whereas, the defendant then and there well knew and believed the gross receipts for the corporation Aron P. Newfield, D.O., P.A., for the fiscal year ending October 31, 1982 were in excess of that heretofore stated; all in violation of Title 26, United States Code, Section 7206(2). On December 15, 1986, in the United States District Court for the Middle District of Florida, Respondent was found guilty of the felony offense described above. The Judgment And Probation/Commitment Order issued that date included the following disposition: The court asked whether defendant had anything to say why judgment should not be pronounced. Because no sufficient cause to the contrary was shown, or appeared to the court, the court adjudged the defendant guilty as charged and convicted and ordered that the defendant pay a fine to the United States of America in the amount of TWENTY- THOUSAND DOLLARS ($20,000.00). It Is Further Ordered that imposition of a sentence of imprisonment is suspended and the defendant is placed on probation with the probation office of the Court for a period of THREE (3) YEARS under the standing conditions of probation and the Special Conditions that the defendant perform 250 hours of community service and that the defendant serve FIVE (5) DAYS in a jail-type institution reporting to the institution designated by the Bureau of Prisons no later than Noon January 15, 1987. Said institution to be the Seminole County Jail. Following the completion of her 250 hours of community service, Respondent's Probation Officer recommended the Respondent be discharged from probation. By order dated April 21, 1987, the court discharged Respondent from probation. By letter dated May 18, 1987, and received May 20, 1987, counsel wrote to the Florida Real Estate Commission on Respondent's behalf and advised the Commission of Respondent's plea of guilty and of Respondent's conviction. The letter had attached to it copies of the judgment and sentence and the order terminating probation. The letter of May 18, 1987, was the first notification to the Commission by or on behalf of the Respondent regarding her plea of guilty and her felony conviction. The corporation named "Aron P. Newfield, D.O., P.A.," is an incorporated medical practice of Aron P. Newfield, who is Respondent's husband. The corporation named "Aron P. Newfield, D.O., P.A.," is not involved in the business of real estate brokerage.
Recommendation Based on all of the foregoing, it is recommended that the Florida Real Estate Commission issue a final order in this case to the following effect: Dismissing the allegations in Count One of the Administrative Complaint; Finding the Respondent guilty of violation of Section 475.25(1)(f), Florida Statues, as alleged in Count Two of the Administrative Complaint; Finding the Respondent guilty of a violation of Section 475.25(1)(p), Florida Statutes, as alleged in Count Three of the Administrative Complaint; Imposing an administrative fine in the amount of One Thousand Dollars ($1,000.00) for the violation of Section 475.25(1)(f), Florida Statutes; Imposing an administrative fine in the amount of Five Hundred Dollars ($500.00) for the violation of Section 475.25(1)(p), Florida Statutes; and Suspending Respondent's license for a period of three (3) years for the violation of both Section 475.25(1)(f) and Section 475.25(1)(p) DONE AND ENTERED this 29th day of September, 1987, at Tallahassee, Florida. MICHAEL M. PARRISH, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of September, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-2571 The following are my rulings on the findings of act proposed by the parties in their respective proposed recommended orders. Findings Proposed by Petitioner The findings of fact in this recommended order contain the substance of all of the findings proposed by Petitioner. Findings Proposed by Respondent Ruling on the findings of fact proposed by Respondent has been complicated by the fact that at pages three through nine of the Respondent's proposed recommended order the proposed findings are intertwined with proposed conclusions of law and legal arguments. I have attempted to glean the proposed facts from the mixture of facts, conclusions, and arguments, and the findings of fact in this recommended order contain the substance of all of the findings of fact proposed by Respondent, except as specifically noted below. Proposed findings regarding Respondents application for restoration of civil rights are rejected as irrelevant. Proposed findings regarding a disgruntled former employee are rejected as irrelevant. Proposed findings regarding Respondents character traits for responsibility, honesty, and integrity are rejected in part because they are irrelevant and also in large part because they are not fully supported by persuasive competent substantial evidence. Most of the testimony about Respondent's character had to do with how generous and kind she was in her personal life rather than how she conducted her business activities. Proposed findings regarding notice to the Commission by Margaret Penoyer are rejected as irrelevant. COPIES FURNISHED: James H. Gillis, Esquire Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 James M. Russ, Esquire Tinker Building 18 West Pine Street Orlando, Florida 32801-2697 Harold Huff, Executive Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 Tom Gallagher, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750 William O'Neil, General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750
The Issue Broadly stated, the issue in this proceeding the validity of the proposed deficiency in petitioner's corporate income in the amount of $25,712.80 for the 1972 fiscal year. More specifically, the issue is whether Florida may lawfully tax for the gain it realized on the sale of securities in the of $941,418.00. Included within this issue is the question of whether the apportionment formula set forth in Florida Statutes is applicable to petitioner.
Findings Of Fact Upon consideration of the pleadings, the stipulations the parties and the record in this proceeding, the following relevant During the calendar year 1972, petitioner was a foreign " Corporation subject to the Florida Corporate Income Tax, imposed Chapter 220, Florida Statutes. Petitioner also operated a business in St. Louis, Missouri. January 1, 1972, petitioner held a 95 percent interest in Bal Harbour Joint Venture, which owned and operated the Ivanhoe Hotel and Restaurant in Bal Harbour, Florida. On December 15, 1972, petitioner was the sole owner of the Ivanhoe Hotel and Restaurant. November 16, 1972, the petitioner acquired by merger 100 percent interest in the Clearwater Beach Hilton, a motel and restaurant business located in Clearwater, Florida, and continued to own this interest on December 31, 1972. The Clearwater and Ivanhoe hotel and restaurant businesses in Florida and the petitioner's business in Missouri have separate, individual general managers. There is no central purchasing by the hotels and no centralized operating records are maintained by petitioner. There are no central reservation services available between the hotels and the hotels advertise separately and unilaterally in local publications in the cities in which they are located. No standardized product lines exist. On November 2, 1972, petitioner sold certain securities which resulted in a realized gain to petitioner for federal income tax purposes of $941,418.00. Said securities were purchased, located and sold in the State of Missouri, and had no relationship to petitioner's Florida transactions. Petitioner timely filed its 1972 Florida corporate income tax return on which it subtracted from its federal taxable income the gain realized from the sale of the securities. Its "Florida net income" and its "total tax due" were thus reported as "none." On or about May 8, 1974, respondent advised petitioner of a proposed deficiency in petitioner's 1972 tax in the amount of $29,392.00. In accordance with the provisions of Florida Statutes Sec. 214.11, petitioner timely filed with respondent its protest of the proposed deficiency assessment. After a hearing, respondent issued to petitioner its Notice of Decision in which the proposed, deficiency was reduced to $25,712.80, and the reasons therefor were set forth. Petitioner requested reconsideration by respondent. On March 11, 1975, the parties stipulated that further proceedings in this cause would be, processed under the Florida Administrative Procedures Act. The petition for hearing was forwarded by respondent to the Division of Administrative Hearings, the undersigned was duly assigned as the Hearing Officer.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that: the proposed deficiency assessment in the amount of $25,712.80 be vacated and set aside; and The respondent permit petitioner to file an amended 1972 return utilizing, within the discretion of the respondent, the employment of either separate accounting, a monthly averaging formula or another method which would effectuate an equitable apportionment of petitioner's income to the State of Florida. Respectfully submitted and entered this 8th day of August, 1977, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Donald A. Pleasants Shackleford, Farrior, Stallings and Evans Post Office Box 3324 Tampa, Florida 33601 Louis de la Parte, Jr. 725 East Kennedy Boulevard Tampa, Florida 33602 Patricia S. Turner Assistant General The Capitol Tallahassee, Florida 32304 ================================================================= AGENCY FINAL ORDER =================================================================
Findings Of Fact Stipulated Facts Respondent conducted an audit of Petitioner's business records for the period July 1, 1985, through June 30, 1990. Respondent determined a deficiency in sales tax of $174,823.96, including penalty and interest through August 22, 1990. Petitioner objected to the deficiency. Respondent reviewed the audit, and made audit changes that are the subject of this proceeding. The audit changes determined a deficiency in use tax of $76,035.60, including tax ($47,910.10), penalty ($11,977.68), and interest through March 12, 1991 ($16,147.60). Interest accrues daily in the amount of $15.75. A First Revised Notice Of Intent To Make Sales Tax Changes, for the reduced assessment of $76,035.60, was issued on March 21, 1991. A Notice Of Proposed Assessment was issued on July 2, 1991. The Notice Of Proposed Assessment became a Final Assessment on August 31, 1991. Respondent made a prima facie showing of the factual and legal basis for the use tax assessment. Section 120.575(2), Florida Statutes. 1/ The audit and assessment are procedurally correct. Tax, interest, and penalty are correctly computed. Formation Petitioner was incorporated in Florida, in January, 1983, by Mr. B. Theodore Troy, president and sole shareholder. Petitioner's principal place of business is 101 Wymore Road, Suite 224, Altamonte Springs, Florida. Petitioner conducted business as American Advertising Distributors of Central Florida. Mr. Troy and his wife operated the business until liquidating Petitioner's assets in 1992. Operation Petitioner sold direct mail advertising to Florida businesses. Petitioner operated pursuant to a franchise agreement with American Advertising Distributors, Inc., of Mesa, Arizona ("AAD"). AAD was Petitioner's franchisor until AAD filed for bankruptcy in 1990. Petitioner solicited orders from Florida businesses 2/ for advertising coupons designed and printed by AAD in Arizona. AAD mailed the advertising coupons to addressees in Florida who were potential customers for Florida businesses. Florida businesses placed orders with Petitioner on written contracts, or sales agreements, labeled "advertising orders." AAD was not a party to advertising orders. Advertising orders identified "AAD" as American Advertising Distributors of Central Florida, and were imprinted with the name and address of "AAD" in Central Florida. Advertising orders specified the total charges, color and stock of paper, number of addressees, and areas of distribution. Petitioner assisted businesses with rough layout for art work. The rough layout was forwarded to AAD. AAD prepared finished art work and sent copies back to Petitioner for approval by Florida businesses. AAD then printed, collated, and mailed advertising coupons to addressees in Florida, without charge to addressees. Florida businesses paid non-refundable deposits when placing advertising orders. The remaining balance was paid upon approval of final art work. AAD did not submit invoices to Florida businesses. AAD submitted invoices to Petitioner for the amount due from Petitioner. 3/ Petitioner paid AAD 10 days before advertising coupons were mailed. Some advertising coupons were produced by Laberge Printers, Inc., in Orlando, Florida ("Laberge"). Coupons from Laberge were designed, printed, and distributed in the same manner as coupons from AAD. Two types of advertising coupons were provided by AAD and Laberge. The majority of coupons were distributed in coop mailings, or "bonus express" envelopes, containing coupons for up to 20 businesses. Bonus express envelopes were mailed approximately eight times a year. Advertising coupons were also distributed in "solo" mailings. A solo mailing was an individualized, custom printed coupon, or flyer, mailed to individual addressees. The total charges stated in advertising orders included the cost of services provided by Petitioner, AAD, and Laberge. Services included typesetting, art work, printing, inserting envelopes, and mailing. Florida imposed a tax on services, from July 1, 1987, through December 31, 1987. Petitioner collected and remitted tax imposed on the cost of services included in the total charges stated on advertising orders. Except for the services tax, neither Petitioner, AAD, nor Laberge collected and remitted sales or use tax to Florida or to Arizona. Petitioner never utilized resale certificates for any tax other than the tax on services. Collectibility Petitioner was financially able to pay the use tax assessment during 1990 and 1991. No later than August 22, 1990, Mr. Troy knew of the sales tax deficiency of $174,823.96. By March 21, 1991, Mr. Troy knew of the reduced use tax assessment of $76,035.60. During 1990 and 1991, Petitioner made discretionary payments to Mr. Troy of $110,389. Petitioner reported federal taxable income of $58,279 in 1990 and 1991. 4/ In arriving at taxable income, Petitioner deducted payments to Mr. Troy of $59,430 for compensation to officers, management fees, and salary. 5/ From taxable income of $58,279, Petitioner paid approximately $50,959 to Mr. Troy in nondeductible shareholder loans. 6/ Discretionary payments of $110,389, 7/ made to Mr. Troy in 1990 and 1991, were more than adequate to pay the use tax assessment of $76,036.60. At the end of 1991, Petitioner reported fixed assets with a book value of $14,933, a customer list valued at $104,447.72, and retained earnings of $102,605. The book value of intangible assets was $82,943, comprised primarily of the franchise, valued at $35,000, and goodwill of $45,000. Termination Of Operations But Continued Existence AAD petitioned for bankruptcy in 1990. Petitioner subsequently determined that its franchise and goodwill were worthless. In 1992, Petitioner reported a loss of $99,726 for federal tax purposes. All of Petitioner's assets, including its customer lists, were sold or transferred for $1,330 to Florida Mail, Inc. ("Florida Mail"). Florida Mail is a Florida corporation wholly owned by Mr. Troy. Florida Mail sells direct mail advertising; and shares Petitioner's principal place of business. Since 1992, Petitioner has been a shell corporation with $579 in assets.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order upholding the assessment of tax and interest and waive all of the penalty included in the assessment. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 2nd day of June, 1994. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 1994.
Findings Of Fact At all times pertinent to the allegations contained here, the Respondents, Thomas C. Pluto, Kathleen M. Pluto, and Pluto Realty, Inc., were licensed as real estate brokers and a brokerage corporation respectively. On October 23, 1985, Karen S. Hicks, listed certain property owned by her, located at 1537 Oak Park Avenue, Sarasota, Florida, for sale with Allstar Realty of Sarasota, Inc., (Allstar), utilizing Annette Schmidt as broker. On or about November 25, 1985, Respondent Thomas C. Pluto entered into a contract for sale between himself/or assigns as buyer and Karen Hicks as seller. The contract was for the sale of the property mentioned above. Respondent, Thomas Pluto was representing an investor who was to be the actual buyer and Mr. Pluto neither intended nor desired to purchase the property for himself. Because of the unfavorable interest rate then existing on the mortgage in effect on the property, which resulted in a negative amortization and a less favorable purchase opportunity, the warranty deed, mortgage deed, and closing statement to be executed in closing of the contract of sale herein were to be back dated to September 12, 1985 in order to take advantage of certain peculiarities of the federal income tax law pertinent thereto. By Respondent's own admission, had this sale been consummated in this fashion, it would have constituted at least a conspiracy to defraud the U.S. Closing was held on December 27, 1985. Prior to the closing, the intended buyer of the property, Mr. Pluto's investor, backed out of the deal and Mr. Pluto so informed Ms. Hicks through her agent, Ms. Schmidt. Because Ms. Hicks was anxious to close, because of the Christmas season, and because Mr. Pluto felt that he still might be able to find an investor to take over the property, Mr. Pluto agreed to go through with the purchase and as a part of the closing, paid Ms. Schmidt a $1,000.00 split commission. When the documentation was prepared for the December 27, 1985 closing, Thomas C. Pluto was shown as the buyer, but the mortgage deed, the warranty deed, and the closing statements all reflected a date of September 12, 1985. These documents were drafted and prepared by Respondent, Kathleen Pluto, who received her instructions as to what date to utilize thereon from Respondent, Thomas C. Pluto. The date of September 12, 1985, was initially dictated by the accountant for the original proposed investor who stipulated that date be used in order to take advantage of certain tax advantages possibly involved. According to Mr. Pluto and Mrs. Pluto, independent of each other, Mr. Pluto never thought to change it, and she merely assumed the back date was still to be used. This back dating of documents was, however, even by admission by the Respondent, Thomas Pluto, an improper act. Since the closing did not go through, however, the significance of the back dating relates only to the issue of the intent of Mr. Pluto at the time he took title to the property. By the middle of February, 1986, Mr. Pluto was still unable to secure another buyer for the property and on February 21, 1986, he submitted a written request for an assumption package to the mortgagee, Cameron-Brown, Incorporated. This written request was followed up by a verbal request on February 24 and again on March 18 and April 8, 1986. The mortgage assumption package was ultimately received by Mr. Pluto on April 11, 1986 and was completed and returned to the mortgagee on April 15, 1986. It was, however, either never received or was misplaced by Cameron-Brown. On June 27, and again on July 8 - 21, 1986, another assumption package was requested which was received on July 23, 1986, and returned completed to the mortgage company on July 25, 1986. The assumption was ultimately finalized on August 12, 1986, with credit being given back to September 12, 1985, at the reguest of Ms. Hicks. In the interim, all mortgage payments were timely made by Mr. Pluto. The Respondents did not claim a tax deduction or any tax advantage on the basis of this transaction nor was it ever their intent that they gain a personal tax advantage from it. Petitioner alleges that Mr. Pluto left the original back date on the deed when he took title to the property to make the property more attractive to another buyer to whom the property could have been transferred and who could have taken advantage of the earlier date for tax purposes. Mr. Pluto, on the other hand, contends that was not his intention and that if that had been his intention, he would not have taken title to the property when he did in his own name because that would require another complete closing and the resultant additional fees and charges inherent therein. This would have made the property less desirable because of the already high interest rate, the negative amortization and other financial problems. In light of the above, it appears that Mr. Pluto was quite willing to participate in a potentially illegal scheme and at the time he executed the documents for the final closing, notwithstanding he claims he did not realize the date had not been changed, he was guilty of at the very least, culpable negligence and dishonest dealing by scheme. The fact that he paid the selling broker a commission after alleging he went through with the purchase as a favor to her, tends to weaken the credibility of his story.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Respondent, Thomas C. Pluto's, license be suspended for 90 days and that he be reprimanded but that the execution of the suspension be stayed for one year with provision for automatic remission at the end thereof; that Respondent, Kathleen M. Pluto, be reprimanded; and that the charges relating to Pluto Realty, Inc., be dismissed. RECOMMENDED this 4th day of February, 1988, at Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of February, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-3084 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. BY THE PETITIONER 1 Accepted and incorporated herein. 2&3 Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. 6&7 Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. 10&11 Accepted. 12 Accepted and incorporated herein. BY THE RESPONDENTS 1-3 Accepted and incorporated herein. 4&5 Accepted. 6-10 Accepted. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. Accepted except for the words, "through inadvertence, oversight, or mistake" Rejected as contra to the evidence. Accepted except for the words, "by oversight and error" Accepted. 19&20 Accepted and incorporated herein. 21 Accepted. COPIES FURNISHED: James R. Mitchell, Esquire DPR, Division of Real Estate Post Office Box 1900 Orlando, Florida 32801 Robert P. Rosin, Esquire 1900 Main Street, Suite 210 Sarasota, Florida 34236 Kathleen M. Pluto, pro se 8415 Midnight Pass Road Sarasota, Florida 34242 Darlene F. Keller Acting Executive Director DPR, Division of Real Estate Post Office Box 1900 Orlando, Florida 32801
The Issue Whether the "Additional Payment" made by Hernando HMA, Inc., d/b/a Brooksville Regional Hospital to Hernando County pursuant to a document entitled Lease Agreement, as amended, constitutes "rent" subject to sales tax under section 212.031, Florida Statutes.1/
Findings Of Fact Hernando HMA, Inc. (HMA) is a for-profit entity which operates Brooksville Regional Hospital, Spring Hill Regional Hospital, and other entities, as successor to an entity that was in Chapter 11 bankruptcy proceedings from 1993 to 1998, Regional Healthcare, Inc. (RHI). The Department is an agency of the State of Florida that has been delegated the responsibility to collect sales and use taxes imposed by chapter 212, Florida Statutes. In 1998, as part of RHI's bankruptcy plan, HMA and the County entered into various agreements, including a lease agreement (1998 Lease), regarding the use and operation of several RHI hospital properties and improvements owned by the County, and leased back to RHI. Under the 1998 Lease and other agreements, HMA agreed to continue to operate the hospital facilities for 30 years with possession of the real property and improvements to be returned to the County at the end of the lease term. Section 1.2W. of the 1998 Lease defined "Rental Payment" as follows: "Rental Payment" means all payments due from Lessee to Lessor or otherwise required to be paid by Lessee pursuant to the terms of this lease. The 1998 Lease further provided in section 3.3 under the heading "Rent": The annual rental payment of the Leased Premises for each year of the Lease Term (the "Rental Payment") shall be in the amount of Three Hundred Thousand and 00/100 Dollars ($300,000). This Rental Payment shall be paid to Lessor by Lessee on the Commencement Date and on each anniversary date of the Commencement Date during the Lease Term. The 1998 Lease also provided that HMA, as Lessee, would pay "all taxes, if any, prior to delinquency." Under the 1998 Lease, the County agreed to lease the premises in consideration of HMA’s timely payment of rent and timely performance of the other covenants and agreements required under the lease. It was an “event of default” under the lease if HMA failed to observe and perform any covenant, condition, or agreement on its part which could be cured by a payment of money. Remedies for default under the 1998 Lease included termination of the lease by the County and exclusion of HMA from possession of the leased premises. Even though the leased premises under the 1998 Lease were not subject to ad valorem taxes because they were owned by the County, during public discussions of the proposed 1998 Lease, an issue arose about HMA's responsibility for payment of fire assessments that would have been paid if the property was not immune or exempt from ad valorem taxes. HMA agreed, by separate agreement, to pay the fire assessments and buy a new ambulance to serve the community. The fire assessment agreement was by separate document that was included as part of the closing of the 1998 Lease and other agreements involving the hospital facilities in June 1998. The 1998 Lease was dated June 1, 1998. The 1998 Lease terms included a merger clause in section 15.6 entitled “ENTIRE AGREEMENT,” which provided: This lease may not be modified, amended or otherwise changed orally, but may only be modified, amended or otherwise changed by an agreement in writing signed by both parties. This Lease Agreement and its accompanying guaranty constitute the entire agreement between the parties affecting this Lease. This Lease Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements, and understandings between the parties hereto with respect to the subject matter thereof, and no such outside or prior agreements shall be used to interpret or to construe this Lease. There are no promises, covenants, representations or inducements in addition to, or at variance with any of the terms of this Lease Agreement except the Guaranty. In 2001, the County and HMA began negotiations for relocation of the Brooksville Regional Hospital which was part of the leased premises described in the 1998 Lease. During the negotiations, HMA, through its attorney, Steven Mitchell, prepared a proposed comprehensive relocation agreement in consultation with former County Attorney Bruce Snow. Section 7.3 of the proposed relocation agreement contemplated revising the 1998 Lease and suggested the following preliminarily negotiated language for rental payments under a revised 1998 Lease: Rental Payments The Lessee shall pay to Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and no/100 Dollars ($300,000.00) per annum. The Lessee shall pay to Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of the same sum to be used by Hernando County as it deems appropriate, an amount equal to the ad valorem taxes that would have been paid on the New Facility Site as improved with the New Facility if the New Facility Site were not owned by Hernando County but owned by a for-profit entity. In the event the New Facility Site and the New Facility located thereon are subsequently required by law to pay ad valorem taxes then the obligation to pay the amount described in Section 7.3(b) herein shall immediately terminate and Lessee shall be responsible for the payment of the appropriate ad valorem tax. The proposed comprehensive relocation agreement was discussed at public meetings held by the Hernando County Board of Commissioners on September 17 and September 25, 2001. The minutes of the September 25, 2001, meeting indicate that the County Administrator advised that the proposed relocation agreement contemplated that HMA would continue to pay $300,000 annually as rent, and “would make a payment-in-lieu of taxes annually to the County . . . .” The minutes also reflect that, in responding to a question from a commissioner regarding whether there should be language in the agreement that would protect the “payment-in-lieu of taxes” provision in the event the law changed: [Former County Attorney] Snow replied that it was his recommendation that there should be a provision that to the extent that the organic law of the State provided that facilities, such as the new hospital or other hospital under the lease, were taxable for ad valorem tax purposes, that that provision of the organic law would apply to ensure that that provision superseded. He explained that the lease provision to provide for an ad valorem tax payment was only to the extent that the organic law did not otherwise compel it so that the County would be receiving ad valorem tax under either scenario. The minutes from the September 25, 2001, meeting further state: Mr. Snow replied to County Attorney Garth Coller that there had been recent Supreme Court decisions which may have a bearing on the organic law to the extent that a decision of that nature indicated that the facilities were subject to ad valorem tax, notwithstanding the ownership issue, then they were subject to ad valorem tax and the lease would need to clarify that. He suggested that if the FS or Constitution should change, even in the absence of an interpretation of the Supreme Court decision, the change would obligate the payment of ad valorem taxes pursuant to the constitutional or statutory provisions. He explained that organic law pertained to provisions of FS or the Constitution as opposed to a Court decision. Mr. Snow’s reported reference to recent “Supreme Court decisions” regarding ad valorem taxes undoubtedly was referring the decision, among others, in Sebring Airport Authority v. McIntyre, 718 So. 2d 296 (Fla. 1998). In that decision, rendered a few months after the County entered into the 1998 Lease, the Supreme Court of Florida stated with regard to municipal (as opposed to county) property: [T]here is nothing in article VII, section 3 that allows the legislature to exempt from ad valorem taxation municipally owned property or any other property that is being used primarily for a proprietary purpose or for any purpose other than a governmental, municipal or public purpose. To the extent section 196.012(6) attempts to exempt from taxation municipal property used for a proprietary purpose, the statute is unconstitutional. Id. at 298. The Sebring case did not address tax immunity of county property as distinguished from the issue of tax exemptions for the proprietary use of municipal property. The proposed “Rental Payments” language for revisions to the 1998 Lease, however, demonstrates that the drafters of the comprehensive relocation agreement were aware of the possibility that the Sebring rationale could be expanded and applied to county property. The comprehensive relocation agreement was approved by the County, and executed in late 2001. Attached as to that relocation agreement as Schedule C was an unsigned document entitled “First Amendment to Lease Agreement” that was not to be executed until the new facility was completed and transferred to the County. Subsection 3.3 of the First Amendment to Lease Agreement entitled “Rental Payments” provided: Rental Payments The Lessee shall pay to the Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and No/100 Dollars ($300,000.00) per annum. The Lessee shall pay to the Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of an amount (“Additional Payment”) equal to the sum of the following: An amount equal to that portion of the ad valorem taxes that would have been paid to Hernando County on the Leased Premises (as modified by the substitution of the New Facility Site for the Current Hospital Site) if the Leased Premises were not owned by Hernando County but owned by a for profit entity; and An amount equal to that portion of the ad valorem taxes that would have been paid to the Spring Hill Fire and Rescue District, the Township 22 Fire District and/or any other special taxing district that may be established pursuant to law; and An amount equal to all special assessments levied by Hernando County through any Municipal Service Benefit Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes; and An amount equal to all ad valorem tax levied by Hernando County through any Municipal Service Taxing Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes. In no event shall the Additional Payments exceed an amount equal to a full ad valorem tax assessment on the New Facility Site as determined annually by the Hernando County Property Appraiser. In the event the Lessee and/or Lessor is required by law to pay ad valorem taxes on the Leased Premises or any portion thereof, the obligation to pay to Lessor the Additional Payment described in this Section 3.3 shall immediately terminate (and/or be adjusted, whichever is applicable), and Lessee shall be responsible for payment of the appropriate ad valorem tax. The First Amendment to Lease Agreement further provided, “[e]xcept as expressly modified herein, all other terms and conditions set forth in the [1998] Lease Agreement are hereby ratified and confirmed.” The new hospital facility was completed and transferred to the County in 2005. On November 15, 2005, the County commission approved documents related to the transfer, including the First Amendment to Lease Agreement in the precise form as attached to the relocation agreement approved in 2001. The approval was obtained on a consent agenda, and the minutes reflect no further discussion by the commission or the public on the documents that were approved. In 2009, the Hernando County School District sued the County Property Appraiser, alleging that the properties subject to the 1998 Lease as amended by the First Amendment to Lease Agreement should not be exempt from ad valorem taxation. In a 13-page Order dismissing the School District’s action, Circuit Judge Daniel B. Merritt, Jr., distinguished the cases disallowing statutory ad valorem tax exemptions for properties owned by special tax districts or cities from the sovereign immunity against ad valorem taxes enjoyed by real estate owned by the State of Florida and its counties. In his ruling, Judge Merritt noted that Florida law specifically makes leasehold interests in governmental property subject to taxation, noting: The Legislature defines leasehold interests as intangible personal property and, hence, assessed by the Florida Department of Revenue, when: (1) rent is due; (2) the property is used for commercial purposes; (3) is not used for agriculture; (4) not financed with revenue bonds, and; (5) the lease is for an initial term of less than 100 years; §§196.199(2)(b), Florida Statutes (2008), 199.023(1)(d), Florida Statutes (2005), specifically preserved in Chapter 2006-312, Laws of Florida (2006). However, see below for further analysis with regard to presumed ownership of property leased for 100 years or more as set forth in §196.199(7), Florida Statutes. Judge Merritt also discussed those instances where “leased” property might not qualify as State or county property where lessees are the “equitable owners,” such as leaseholds of 100 years or more or where properties do not revert to the State until the end of a lease term. In his order, however, Judge Merritt noted that the tax immunity of the County was a fundamental attribute of county property and held that “under the terms of the Lease Agreements the Court concludes that HMA has merely the right to use and possession and is not the beneficial owner as a matter of law Hernando County’s immune property and improvements.” Judge Merritt’s Order was affirmed on appeal. School Board of Hernando County v. Mazourek, Case No. H-27-CA-2009-549 (5th Cir. 2009), per curiam aff’d, 2010 WL 4323055 (Fla. 5th DCA 2010) In December, 2010, the Department notified the County it had been selected for a tax compliance audit under chapter 212, Florida Statutes, Sales and Use Tax. The audit period was from January 1, 2007, through December 31, 2009. The County’s personnel were cordial and receptive during the audit process and the Department’s auditor determined that the books and records kept by the County had adequate internal accounting controls in place and sufficient data integrity. Out of the approximately 19 tax registration accounts the County has with the Department, the Department’s auditor found exception with only tax account #12445797, the tax collected and remitted under its lease with HMA. In her record review, the Department’s auditor noticed invoices and worksheets from the County to HMA, titled “Payment in lieu of taxes.” In examining the First Amendment to the Lease Agreement, Section 3.3 “Rental Payments,” the Department’s auditor determined that the County was not collecting sales tax on a portion of the rent received under that section. The monthly tax return filed by the County under account # 12445797 reflected that it was collecting and remitting the sales tax calculated on the $300,000.00 annual rent payment, but was not collecting and remitting sales tax calculated on the additional payments in lieu of taxes. The Department’s auditor determined the additional payments, required under the lease and made as a condition of occupancy, constituted a taxable transaction as additional rent consideration. The amount of the additional payments, made January 2007 and March 2008, as revealed on the County’s “Payment in lieu of taxes worksheets,” was multiplied by 6.5 percent to arrive at the additional tax amount due of $78,710.17. On December 9, 2010, the Department issued a Notice of Intent to Make Audit Changes, Form DR 1215, advising the County of its audit findings, which included $78,710.17 in taxes due, $14,526.37 in accrued interest through December 9, 2010, and a $19,677.55 late payment penalty. On December 21, 2010, the Department issued its Notice of Proposed Assessment, Form DR 831, showing an assessment of $78,710.17 in tax and $14,707.51 in accrued interest, for a total of $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem. All penalty amounts were waived. At the final hearing, the County argued that the additional payments from HMA under the First Amendment to Lease Agreement were not rent, but rather separate payments to pay for County services. While the actual language used in the First Amendment to Lease Agreement appears to unambiguously indicate that the additional payments were rent, the County offered additional evidence of facts and circumstances beyond the terms of the lease itself in support of its argument that the additional payments were not rent. That evidence was admitted, without objection, and has been considered in determining the intention of the parties to the lease with regard to the additional payments. In addition to evidence that the lease drafters were aware of certain cases decided on the issue of whether the leased premises would be subject to ad valorem taxes, the County offered the testimony of Mr. Mitchell regarding the “Rental Payments” language found in the First Amendment to Lease Agreement. When asked whether there had been much negotiation over the format or wording of the First Amendment to Lease Agreement, Mr. Mitchell recalled: No, there really wasn’t other than, you know, the concept – what this amendment does is what we had agreed to pay rental payment. The rental payment was $300,000. And then, we also had agreed independently just to go ahead and pay the County for certain services that they were providing to us. And then we specified those. Those were independent payments, not part of the rental payment. Mr. Mitchell further testified: [B]asically, this property is free of ad valorem tax. That is why the school board filed their lawsuit because, of course, they were not getting any of the ad valorem taxes. So, the property is free of payment of ad valorem taxes. We’re paying our 300,000. It was very, very clear. However, HMA felt that the County was providing certain services, the fire districts and whatnot. So, independent of the rent, we paid this amount. If you read the section dealing – it’s 3.3.[2], or whatever it is, which I’ll read it to you, it talks about, at the very end – and they did it for whatever reason the property became taxable, you know, it effectively became taxable and we had to pay full ad valorem taxes on the property, then the specialties – these additional payments we called, you know, would go away and they, effectively, be part of rent. That's why it talks about it as such, and it was either additional payment and/or rent. Contrary to Mr. Mitchell’s recollection, section 3.3.2 of the First Amendment to Lease Agreement does not speak in terms of “additional payment and/or rent” but rather states that another payment would be made “either as rent or by virtue of a payment to Hernando County of an amount ('Additional Payment') . . .". Mr. Mitchell makes a valid point regarding the fact that HMA was concerned about having to pay both the additional payment and ad valorem taxes. Consistent with this concern, the lease amendment made it clear that HMA would not have to pay the additional amount if the property ever became subject to ad valorem taxes. Mr. Mitchell’s testimony in support of the County’s contention that HMA’s payment in lieu of taxes under the First Amendment to Lease Agreement was not rent, however, is unpersuasive. Considering the extrinsic evidence offered by the County, especially evidence of the parties concern that the subject County property might someday be subject to ad valorem taxes, together with the 1998 Lease, language negotiated for the proposed relocation agreement, and the actual terms of the First Amendment to Lease Agreement, it is found that the parties intended the language under the "Rental Payments" section to assure that HMA did not have to pay the additional amount twice. The extrinsic evidence offered by the County, however, was insufficient to support a finding that the parties intended to differentiate between “rent” and the “additional payment” or that, however characterized, the payment in lieu of taxes was not rent subject to assessment by the Department. If the parties had wanted to provide language that designated the payment in lieu of taxes as a payment for services instead of rent they could have, as they did in the Second Amendment to Lease Agreement entered into on September 13, 2011, just ten days prior to the final hearing in this case.2/ That Second Amendment to Lease Agreement changed the name of section 3.3 from “Rental Payments,” as found in the First Amendment, to “Rent and Additional Payment for County Services.” Pertinent subsections of the Second Amendment further provided: 3.3.2 Additional Payment for County Services. The Lessee shall pay to Lessor on an annual basis, as an additional payment (“Additional Payment”) for services provided by Hernando County [in its role as a service provider and local taxing authority], . . . * * * The Additional Payment is not intended to constitute “rent” and is not intended to create an event subject to Florida sales tax – but rather is intended to constitute a separate payment for the provision of services, payable to the local taxing authority, as provided in § 212.031(1)(c), Florida Statutes (which allow parties by contractual arrangement to distinguish between payments which are intended to be taxable and payments which are intended to be nontaxable), as this section may be amended or renumbered from time to time.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that, consistent with the Notice of Proposed Assessment dated December 21, 2010, and this Recommended Order, the Department of Revenue enter a final order finding that Petitioner owes tax and interest due totaling $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem, without penalties. DONE AND ENTERED this 30th day of December, 2011, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III 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 30th day of December, 2011.
Findings Of Fact Having considered the pleadings and the record as reconstructed by the parties, as well as oral argument on the issues, the following pertinent facts are found: For the years previous to 1973 and for the years subsequent to 1973, petitioner has been granted a partial charitable exemption from ad valorem taxation, pursuant to F.S. 196.012(6). Petitioner's secretary, who was the only full-time salaried employee and officer of petitioner's organization, had the responsibility of reviewing and answering all correspondence addressed to petitioner. Due to the secretary's illness and subsequent demise, an application for ad valorem tax exemption for 1973 was not timely filed, and the property appraiser thus denied the exemption. For the tax year 1973, a charitable exemption would have been granted petitioner had it timely filed its application and return by April 1, 1973. Upon appeal by petitioner to the Broward County BTA on the stated grounds of "change of officers," the BTA granted the exemption upon the recommendation of the tax assessor. The BTA notified the respondent of the change in the assessor's action. The staff recommendation of the respondent was to invalidate said change on the ground that petitioner failed to demonstrate that it came within an exception to the waiver rule of Section 196.011 and therefore the change by the BTA lacked legal sufficiency and/or the evidence presented was insufficient to overcome the assessor's presumption of correctness. Petitioner requested a hearing to review the staff recommendation, the Executive Director of the respondent requested the Division of Administrative Hearings to conduct the hearing, and the undersigned was assigned as the Hearing Officer.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the action of the Broward County Board of Tax Adjustment granting the exemption be invalidated. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 12th day of February, 1976. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings Carlton Building, Room 530 2009 Apalachee Parkway Tallahassee, Florida 32304 (904) 488-9675 NOTE: Text within the *-* is unreadable on the document on file with the Division. Therefore, the complete text is not available in this ACCESS document. COPIES FURNISHED: Mr. J. Ed Straughn Executive Director Department of Revenue The Capitol Tallahassee, FL 32304 Mr. Thomas M. Coker, Jr. 328 Bayview Building 1040 Bayview Drive Ft. Lauderdale, FL 33304 Mr. Stephen E. Mitchell Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, FL 32304 Mr. Gaylord A. Wood 603 Courthouse Square Building 200 SE 6th Street Ft. Lauderdale, FL 33301
Findings Of Fact Pursuant to a stipulation, the following facts are found. Petitioner is a West Virginia corporation, organized under the laws of that state on January 4, 1958. Prior to June 1, 1962, it operated an automobile dealership in Huntington, West Virginia. On June 1, 9162, Petitioner exchanged assets of its automobile dealership for fifty (50 percent) percent of the capital stock of Dutch Miller Chevrolet, Inc., a West Virginia corporation organized to succeed the automobile dealership formerly operated by the Petitioner. Prior thereto, in 1961, the Petitioner had acquired one hundred percent (100 percent) of the capital stock in Palm Beach Motors (the name of which was changed on August 10, 1961 to Roger Dean Chevrolet, Inc.). Roger Dean Chevrolet, Inc. is a wholly owned subsidiary of the Petitioner which operated on property owned by the Petitioner. The years involved herein are the fiscal years ending December 31, 1972 and 1973, during which years the Petitioner's principal income (except for the gain involved herein) consisted of rents received from Roger Dean Chevrolet, Inc. Petitioner and its subsidiary filed consolidated returns for the years involved. During the fiscal year ending December 31, 1972, Petitioner sold its stock in Dutch Miller Chevrolet, Inc. to an unrelated third party for a gain determined by the Respondent to be in the amount of $349,217.00, which, although the sale took place out of the State of Florida, the Respondent has determined to be taxable under the Florida Income Tax Code* (Chapter 220, Florida Statutes). In the fiscal years ending December 31, 1972 and 1973, Petitioner included in Florida taxable income, the amounts of $76.00 and $6,245.00, respectively, from the sale of property on April 23, 1971, such gain being reported for federal income tax purposes on the installment method under Section 453 of the Internal Revenue Code of 1954. Roger H. Dean, individually or by attribution during the years involved herein, was the owner of one hundred (100 percent) percent of the stock of Roger Dean Enterprises, Inc. and seventy-five (75 percent) percent of the stock of Florida Chrysler-Plymouth, Inc. The remaining twenty-five (25 percent) percent of Florida Chrysler-Plymouth, Inc. was owned by Robert S. Cuillo, an unrelated person. The Respondent disallowed the $5,000.00 exemption to the Petitioner in computing its Florida corporate income tax for each of the years in question on the theory that the two corporations were members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code of 1954. By letter dated April 13, 1976, the Respondent advised Petitioner of its proposed deficiencies for the fiscal years ending December 31, 1972 and 1973, in the respective amounts of $19,086.25 and $1,086.79. Within sixty (60) days thereafter (on or about May 10, 1976), Petitioner filed its written protest in response thereto. By letter dated May 27, 1976, the Respondent rejected the Petitioner's position as to the stock sale gain and exemption issues. Thereafter on September 17, 1976, a subsequent oral argument was presented at a conference held between the parties' representatives in Tallahassee, and by letter dated September 23, 1976, Respondent again rejected Petitioner's position on all pending issues raised herein. The issues posed herein are as follows: Whether under the Florida Corporate income tax code, amounts derived as gain from a sale of intangible personal property situated out of the State of *Herein sometimes referred to as the Code. Florida are properly included in the tax base of a corporation subject to the Florida code. Whether amounts derived as installments during tax years ending after January 1, 1972, from a sale made prior to that date are properly included in the tax base for Florida corporate income tax purposes. Whether two corporations one of whose stock is owned 100 percent by the same person who owns 75 percent of the stock in the other, with the remaining 25 percent of the stock in the second corporation being owned by an unrelated person, constitute members of a control group of corporations as defined by Section 1563 of the Internal Revenue Code of 1954. Many states, in determining corporate income tax liability, utilize a procedure generally referred to a "allocation" to determine which elements of income may be assigned and held to a particular jurisdiction, where a corporation does business in several jurisdictions. By this procedure, non- business income such as dividends, investment income, or capital gains from the sale of intangibles are assigned to the state of commercial domicile. This approach was specifically considered and rejected when Florida adopted its corporate income tax code. Thus, in its report of transmittal of the corporate income tax code to the legislature, at page 215, it was noted: "The staff draft does not attempt to allocate any items of income to the commercial domicile of a corporate taxpayer. It endeavors to apportion 100 percent of corporate net income, from whatever source derived, and to attribute to Florida its apportionable share of all the net income." Additional evidence of the legislature's intent in this area can be seen by noting that when the corporate income tax code was adopted, Florida repealed certain provisions of the Multi-state Tax Compact (an agreement for uniformity entered into among some twenty-five states). Thus, Article IV, Section (6)(c), a contained in Section 213.15, Florida Statutes, 1969, which previously read: "Capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial domicile is in this state", was repealed by Chapter 71-980, Laws of Florida, concurrently with the adoption of the Corporate Income Tax Code. This approach has survived judicial scrutiny by several courts. See for example, Johns-Mansville Products Corp. v. Commissioner of Revenue Administration, 343 A.2d 221 (N.H. 1975) and Butler v. McColgan, 315 U.S. 501 (1942). Respecting its constitutional argument that amounts derived as installments during tax years subsequent to January 1, 1972, from a sale made prior to the enactment of the Florida Corporate Income Tax Code, the Petitioner concedes that the Code contemplates the result reached by the proposed assessment. However, it argues that in view of the constitutional prohibition which existed prior to enactment of the Code, no tax should now be levied based on pre-Code transactions. The Florida Supreme Court in the recent case of the Department of Revenue v. Leadership Housing, So.2d (Fla. 1977), Case No. 47,440 slip opinion p. 7 n. 4, cited with apparent approval the decision in Tiedmann v. Johnson, 316 A.2d 359 (Me. 1974). The court in Tiedmann, reasoned that the legislature adopted a "yard-stick" or measuring device approach by utilizing federal taxable income as a base, and reasoned that there was no retroactivity in taxing installments which were included currently in the federal tax base for the corresponding state year even though the sale may have been made in a prior year. The Respondent denied the Petitioner a $5,000.00 exemption based on its determination that the two corporations herein involved were members of a controlled group of corporations as defined in Section 1563 of the Internal Revenue Code. Chapter 220.14(4), Florida Statutes, reads in pertinent part that: "notwithstanding any other provisions of this code, not more than one exemption under this section shall be allowed to the Florida members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code with respect to taxable years ending on or after December 31, 1972, filing separate returns under this code." Petitioner's reliance on the case of Fairfax Auto Parts of Northern Virginia, 65 T.C. 798 (1976), for the proposition that the 25 percent ownership of an unrelated third party in one of the corporations precluded that corporation and the Petitioner from being considered a "controlled group of corporations" within the meaning of Section 1563 of the Internal Revenue Code, is misplaced in view of the recent reversal on appeal by the Fourth Circuit. Fairfax Auto Parts of Northern Virginia v. C.I.R., 548 F.2d 501 (4th C.A. 1977). Based thereon, it appears that the Respondent correctly determined that the Petitioner and Florida Chrysler-Plymouth, Inc., were members of the same controlled group of corporations as provided in Section 1563 of the Internal Revenue Code and therefore properly determined that Petitioner was not entitled to a separate exemption. Based on the legislature's specific rejection of the allocation concept and assuming arguendo, that Florida recognized allocation income for the sales of intangibles, it appears that based on the facts herein, Petitioner is commercially domiciled in Florida. Examination of the tax return submitted to the undersigned revealed that the Petitioner has no property or payroll outside the state of Florida. Accordingly, it is hereby recommended that the proposed deficiencies as established by the Respondent, Department of Revenue, be upheld in its entirety. RECOMMENDED this 7th day of July, 1977, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings 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 David S. Meisel, Esquire 400 Royal Palm Way Palm Beach, Florida 33480 Thomas M. Mettler, Esquire 340 Royal Poinciana Plaza Palm Beach, Florida 33480
The Issue The issue for determination is whether Petitioner is liable for the Local Option Tourist Development Tax assessment as set forth by Respondent's Notice of Reconsideration and Notice of Final Assessment, dated March 10, 2005, for the audit period October 1, 2000 through September 30, 2003.
Findings Of Fact At all times material hereto, the Resort operated as a hotel licensed under the provisions of Chapter 509, Florida Statutes, and was located at 501 East Camino Real, Boca Raton, Palm Beach County, Florida 33432. At all times material hereto, the Resort’s taxpayer identification number was 65-0762249 and Florida tax registration number was 60-03-1871843-99. No dispute exists that Palm Beach County enacted the TDT, authorized by Section 125.0204, Florida Statutes. No dispute exists that TDT is levied on room rental revenues in Palm Beach County pursuant to Section 125.0104, Florida Statutes. The Resort is subject to and is a dealer under the TDT. Pursuant to an ordinance enacted by Palm Beach County, the Resort is obligated to collect and remit to Palm Beach County the TDT due on taxable transactions. A TDT audit of the Resort’s business was performed by the Tax Collector covering the period from October 1, 2000 through September 30, 2003. The Tax Collector relied upon the information and documents provided by the Resort in performing the audit. During the audit period, guests desiring to reserve and book a room at the Resort were required to pay a deposit, which guaranteed the reservation, of one night’s room within 10 days of making the reservation. No matter what the length of stay, the deposit did not vary. The Resort did not collect any sales tax or TDT on the deposits. A deposit confirmation form (Confirmation Form) always confirmed the deposit. The front of the Confirmation Form contained the abbreviation “Guar” for guaranteed and, among other things, referred the guest to the reverse side of the Confirmation Form for important information (“PLEASE SEE REVERSE SIDE FOR IMPORTANT ADDITIONAL INFORMATION”). The guarantee, as indicated on the back of the Confirmation Form, was that the accommodations were guaranteed to the confirming-guest from the scheduled date of arrival through 2:00 a.m. of the next day. The back of the Confirmation Form provided in pertinent part: DEPOSITS – A deposit of one night’s room revenue is required within 10 days of making a reservation. Advance deposits made via credit card will be billed at the time of booking. Your deposit will hold a room until 2 A.M. of the day following your scheduled arrival date. Upon arrival, the deposit is applied to your last confirmed night of the reservation. In the event of an early departure, the deposit is non- refundable unless the Resort is notified prior to or at check-in. CANCELLATIONS – Deposits are refundable in the event of cancellation, providing notice is received at least 14 days prior to scheduled arrival date between January 4th to April 30th, 7 days between May 1st to May 27th and October 1st to December 19th, and 72 hours between May 28th to September 30th. Cancellations, without penalty, for the Holiday/Christmas period (December 19th through January 3, 2004), must be received prior to November 30, 2003 or deposit will be subject to full forfeiture, in accordance with established resort policies. Please be sure to record your cancellation number to insure proper return. ACCOMMODATIONS – We will make every effort to meet requests for specific room types, views, and bedding preferences, however, on occasion, we cannot always accomplish such requests, and reserve the right to provide alternate accommodations. For the majority of the audit period, forfeited deposits were identified as “no-show” revenue. A block of rooms may be held available and reserved for a group. Fees are charged for unused rooms within a reserved room block. These fees are “attrition fees.” The Resort was unable to separately identify no-show revenue attributable to reservations for which persons failed to check-in by the cutoff day and time, as opposed to reservations for which persons canceled but failed to cancel within the required time-period. Furthermore, the Resort was unable to separately identify the general category of no-show revenue attributable to unused rooms within a reserved room block. For the first four months of the audit period, the Resort asserted that it mistakenly included attrition fees in the no-show revenue. For the remainder of the audit period, the Resort asserts that attrition fees were not included in the no- show revenue. The Resort was unable to separately identify attrition fees in the no-show revenue. Therefore, the attrition fees could not be separately factored out of the no-show revenue. Consequently, an inference is drawn and a finding of fact is made that, as to the first four months of the audit period, all revenue shown as no-show revenue is considered as no-show revenue. During the audit period, the Resort identified no-show revenue in its monthly financial reports totaling $2,139,252.00. No TDT was collected by the Resort on the no-show revenue of $2,139,252.00 collected during the audit period. No dispute exists that, during the audit period, the TDT was due on the rental of the Resort’s rooms and that the TDT was collected and remitted to the Tax Collector by the Resort. Having conducted the audit, on March 1, 2004, the Tax Collector issued a “DRAFT” Notice of Intent to Make Audit Changes (Draft Notice). The Draft Notice indicated, among other things, that $88,775.28 in TDT was due, which included TDT in the amount of $85,570.08 on the no-show revenue of $2,139,252.00 and included denied exempt rental in the amount of $3,205.20; and that a credit in the amount of $19,583.64 was due, as an overpayment of tax, discovered by the auditor. Furthermore, the Draft Notice indicated that, as a result, a proposed total tax assessment was due in the amount of $149,252.07, which included penalties in the amount of $44,387.64 and interest in the amount of $35,672.79 as of March 31, 2004, with additional interest of $57.74 per day through the date of the Resort’s payment. After the issuance of the Draft Notice, the Tax Collector’s auditor met with a representative of the Resort. Of particular interest to the Resort was to return to its monthly financial reports and to separately indicate in the monthly financial reports the categories of no-show revenue representing failure to check-in, failure to timely cancel, and failure to use rooms in block (attrition revenue). However, the Resort was unable to identify and separately indicate these categories of revenue. Subsequently, the Resort was to provide the Tax Collector’s auditor with an eight-month sample of financial records “to address the issue of no show revenues versus cancellation fees.” The eight-month sample would “represent the transactions for the entire audit period.” However, the Resort was unable to provide data that would allow for the separation of the categories. The sample was not provided. After the sample was not provided by the Resort, the Resort took the position that none of its no-show revenue was subject to the TDT. On June 7, 2004, after the Resort changed its position, the Tax Collector issued a Notice of Intent to Make Audit Changes (Notice). The Notice indicated, among other things, that, as of June 21, 2004, the tax assessment for the audit period was in the amount of $153,986.75, which represented TDT on no-show rentals in the amount of $85,570.08, a denial of exempt rentals in the amount of $3,205.20, a credit for overpayment of TDT in the amount of $19,583.64, penalties in the amount of $44,387.64, and interest in the amount of $40,407.47, plus additional interest of $57.74 per day through the date of payment. As to no-show revenues, the Notice indicated that such revenues were taxable and also cited, as supporting authority, Florida Administrative Code Rules 12A-1.061(5)(b) and 12A- 1.061(5)(b)2. Citing Florida Administrative Code Rule 12A- 1.061(5)(b), the Notice provided the following: “Rental charges or room rates include deposits or prepayments that guarantee the guest or tenant the use or possession, or the right to the use or possession, of transient accommodations during a specified rental period under the provisions of an agreement with the owner or owner’s representatives of transient accommodations. The owner or owner’s representative is required to provide transient accommodations to any guest or tenant that enters into such an agreement and pays the required prepayment or deposit, even when the guest or tenant does not occupy the accommodation.” Citing Florida Administrative Code Rule 12A-1.061(5)(b), the Notice provided the following: “Example: A hotel guarantees that it will provide room accommodations on a designated date to potential guests that make reservations and pay a required room deposit. To receive a refund of the required room deposit, the potential guest must cancel his or her reservation by 4:00pm of the designated date. A potential guest that has made reservations and has paid the required room deposit fails to arrive at the hotel on the designated date to use the reserved room accommodations. Because the potential guest fails to cancel the reservations, the guest forfeits the room deposit. Even though the guest did not occupy a room at the hotel, the forfeited room deposit is subject to tax.” Further, the Tax Collector indicated in the Notice that the “stated policy of [the Resort] that a guest’s deposit will hold a room (which is a guarantee to the guest that they will have a room available) until the day following their scheduled arrival date. . . whether or not the guest shows up. It is irrelevant whether the guest shows up or not on the scheduled date of arrival, their deposit has paid for a room and this is a taxable transaction.” As to attrition and cancellation fees, the Notice indicated that such fees were considered "penalties" and were, therefore, "not taxable" revenue “because if a guest cancels their reservation too late, their deposit is not refunded even though a room is not held for them.” The Resort requested an audit conference. On August 6, 2004, an audit conference was held at which the parties were unable to reach an agreement. On August 9, 2004, the Tax Collector issued a Notice of Proposed Assessment (Proposed Assessment). The Proposed Assessment indicated that the total assessment, including tax, penalty and interest accrued through August 20, 2004, was in the amount of $157,451.15. Additionally, the Proposed Assessment contained, among other things, a re-citation of Florida Administrative Code Rules 12A-1.061(5)(b) and 12A-1.061(5)(b)2. The Resort protested the Proposed Assessment. By letter dated August 8, 2004, the Resort requested from the Department of Revenue (DOR) a Letter of Technical Advice (LTA) regarding the taxation of cancellations and no- shows.2 By letter dated October 27, 2004, a representative of DOR issued a LTA on the facts and circumstances presented to DOR by the Resort, providing that the LTA was “not an official statement or opinion of this Department [DOR] but, instead, represents the opinion of the writer” and that if the Resort wished “an official binding statement on the issues, you may file a written request for a Technical Assistance Advisement . . . .”3 A finding of fact is made that the LTA was not binding on the parties. The LTA was not an opinion of DOR or a statement of policy by DOR on the taxation of cancellations and no-shows. The Resort did not request a Technical Assistance Advisement from DOR. On January 4, 2005, the Tax Collector issued a Notice of Decision (Decision) denying the Resort’s protest and a Notice of Final Assessment (Final Assessment). The Decision contained, among other things, a part of the provision of Florida Administrative Code Rule 12A- 1.061(3)(a)—“Rental charges or room rates for the use or possession, or the right to the use or possession, of transient accommodations are subject to tax. . .”—and the provisions of Florida Administrative Code Rule 12A-1.061(5)(b). The Final Assessment indicated that the total assessment was in the amount of $141,515.48, plus additional interest of $19.40 per day, as of January 1, 2005, through the date of payment. The total assessment was reduced due to the Tax Collector discovering an error in the calculation of the interest. The Resort requested a reconsideration of the Final Assessment. The Tax Collector denied the request for reconsideration. The Resort requested a hearing pursuant to Chapter 120, Florida Statutes (2005).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Palm Beach County Tax Collector enter a final order affirming the final assessment of Local Option Tourist Development Tax against Boca Raton Resort and Club, for the audit period October 1, 2000 through September 30, 2003, in the total amount of $141,515.48 (which includes tax, penalties, and interest), plus additional interest of $19.40 per day, as of January 1, 2005, through the day of payment. DONE AND ENTERED this 1st day of June, 2006, in Tallahassee, Leon County, Florida. S ERROL H. POWELL 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 1st day of June, 2006.
Recommendation It is, therefore, recommended that the petition be dismissed for lack of standing on the part of the Petitioner to bring such action. DONE AND ENTERED this 7th day of May, 1979, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Trace H. Bolosky, Esquire Carroll, McPeak, Bolesky & Schryver 1169 Eighth Street South Naples, Florida 33940 George L. Varnadoe, Esquire Post Office Box 17907 Naples, Florida 33941 Joseph C. Mellichamp, III, Esquire Assistant Attorney General The Capitol, LL04 Tallahassee, 32301 John D. Moriarty, Esquire Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32301
