The Issue The issues are whether Respondent properly conducted a sales and use tax audit of Petitioner's books and records; and, if so, whether Petitioner is liable for tax and interest on its purchases of materials used for improvements to real property.
Findings Of Fact During the audit period, Petitioner was a Florida corporation with its principal place of business located at 7820 Professional Place, Suite 2, Tampa, Florida. Petitioner's Florida sales tax number was 39-00-154675-58, and Petitioner's federal employer identification number was 59-3089046. After the audit period, the Florida Department of State administratively dissolved Petitioner for failure to file statutorily required annual reports and filing fees. Petitioner engaged in the business of providing engineering services and fabricating control panels. Petitioner fabricated control panels in a shop Petitioner maintained on its business premises. Petitioner sold some of the control panels in over-the- counter sales. Petitioner properly collected and remitted sales tax on the control panels that Petitioner sold over-the-counter. Petitioner used other control panels in the performance of real property contracts by installing the panels as improvements to real property (contested panels). Petitioner was the ultimate consumer of the materials that Petitioner purchased and used to fabricate the contested panels. At the time that Petitioner installed the contested panels into real property, the contested panels became improvements to the real property. Petitioner failed to pay sales tax at the time Petitioner purchased materials used to fabricate the contested panels. Petitioner provided vendors with Petitioner's resale certificate, in lieu of paying sales tax, when Petitioner purchased the materials used to fabricate the contested panels. None of the purchase transactions for materials used to fabricate the contested panels were tax exempt. The audit is procedurally correct. The amount of the assessment is accurate. On October 23, 2000, Respondent issued a Notification of Intent to Audit Books and Records (form DR-840), for audit number A0027213470, for the period of October 1, 1995, through September 30, 2000. During an opening interview, the parties discussed the audit procedures and sampling method to be employed and the records to be examined. Based upon the opening interview, Respondent prepared an Audit Agreement and presented it to an officer and owner of the taxpayer. Respondent began the audit of Petitioner's books and records on January 22, 2001. On March 9, 2001, Respondent issued a Notice of Intent to Make Audit Changes (original Notice of Intent). At Petitioner's request, Respondent conducted an audit conference with Petitioner. At the audit conference, Petitioner provided documentation that the assessed transactions involved improvements to real property. At Petitioner's request, Respondent conducted a second audit conference with Petitioner's former legal counsel. Petitioner authorized its former legal counsel to act on its behalf during the audit. At the second audit conference, the parties discussed audit procedures and sampling methods, Florida use tax, fabricated items, and fabrication costs. Respondent revised the audit findings based upon additional information from Petitioner that the assessed transactions involved fabricated items of tangible personal property that became improvements to real property. Respondent assessed use tax on the materials used to fabricate control panels in those instances where Petitioner failed to document that Petitioner paid sales tax at the time of the purchase. Respondent also assessed use tax on fabrication costs including the direct labor and the overhead costs associated with the fabrication process, for the period of October 1, 1995, through June 30, 1999. Respondent eliminated use tax assessed on cleaning services in the original Notice of Intent because the amount of tax was de minimis. On August 29, 2001, Respondent issued a Revised Notice of Intent to Make Audit Changes (Revised Notice of Intent). On September 18, 2001, Petitioner executed a Consent to Extend the Time to Issue an Assessment to File a Claim for Refund until January 25, 2002. On October 18, 2001, Petitioner executed a second Consent to Extend the Time to Issue an Assessment to File a Claim for Refund until April 25, 2002. On February 6, 2002, Respondent issued a Notice of Proposed Assessment for additional sales and use tax, in the amount of $21,822.27; interest through February 6, 2002, in the amount of $10,774.64; penalty in the amount of $10,831.12; and additional interest that accrues at $6.97 per diem. Petitioner exhausted the informal remedies available from Respondent. On April 29, 2002, Petitioner filed a formal written protest that, in substantial part, objected to the audit procedures and sampling method employed in the audit. Respondent issued a Notice of Decision sustaining the assessment of tax, penalty, and interest. Respondent correctly determined that the audit procedures and sampling method employed in the audit were appropriate and consistent with Respondent's statutes and regulations. Respondent concluded that the assessment was correct based upon the best available information and that Petitioner failed to provide any documentation to refute the audit findings. Petitioner filed a Petition for Reconsideration that did not provide any additional facts, arguments, or records to support its position. On May 16, 2003, Respondent issued a Notice of Reconsideration sustaining the assessment of tax and interest in full, but compromising all penalties based upon reasonable cause.
Recommendation Based upon the findings of fact and the conclusions of law, it is RECOMMENDED that Respondent enter a Final Order denying Petitioner's request for relief and sustaining Respondent's assessment of taxes and interest in full. DONE AND ENTERED this 10th day of December, 2003, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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 10th day of December, 2003. COPIES FURNISHED: Carrol Y. Cherry, Esquire Office of the Attorney General Revenue Litigation Section The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Michael E. Ferguson Control Design Engineering, Inc. 809 East Bloomingdale Avenue, PMB 433 Brandon, Florida 33511 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue Whether Petitioner collected and remitted to the Florida Department of Revenue the correct amount of sales tax on Petitioner's retail sales; and Whether Petitioner remitted to the Florida Department of Revenue the proper amount of sales tax on Petitioner's general and fixed assets purchases and on its commercial lease.
Findings Of Fact Petitioning Taxpayer, Surface Preparation Group, Inc., is a "C" corporation, incorporated in the State of Texas. The Taxpayer's product or service is the sale, service, and rental of surface preparation equipment. The Taxpayer has been registered with the Department since October 7, 1999. By letter dated January 12, 2005, the Department notified the Taxpayer of its intent to audit the Taxpayer's books and records to verify the Taxpayer's compliance with Florida's sales and use tax statutes. The audit period in this case is from December 1, 2001, through November 30, 2004. When the audit started, the Taxpayer had a presence in LeGrange, Georgia. During the course of the audit and negotiations, the Taxpayer removed itself back to its Texas headquarters. Specific records were requested to be made available for the Department's auditor to review. Four subject areas were developed in the audit plan: (1) sales; (2) fixed expense; (3) general expense; and (4) commercial rent. Although the Taxpayer provided some sales data, the information contained therein did not correlate with other information the Department had concerning the Taxpayer's Florida sales. For instance, auditors had traced through general ledgers to Petitioner’s federal tax return and compared the return with the company’s Florida sales and use tax return, and the figures did not correlate. Despite repeated requests by the Department's auditor, the Taxpayer provided no information explaining the reasons for this discrepancy, nor was any information provided regarding the Taxpayer’s general purchases, fixed asset purchases, or its commercial lease expenses. Therefore, in order to complete the audit process, the Department had to use the best information available to estimate the additional tax due on fixed assets, general purchases, and commercial rent. That information in this case consisted of materials provided by the Taxpayer and industry averages and past audit assessments of businesses in similar industries. Because total sales reported by the Taxpayer on its DR-15 monthly sales returns were different than the amounts the Taxpayer reported in response to the audit request, there was no assurance that the reported taxable sales and exempt sales were correct. Accordingly, the Department's auditor disallowed all exempt sales as reported by the Taxpayer. Because the Taxpayer had a location in Polk County, Florida, during part of the audit period, it must have had fixed assets there. This meant that a use tax was due for all the Taxpayer’s purchases in Florida, without credit for sales tax paid to vendors who in many cases were located in Georgia. No information was provided by the Taxpayer for general expenses or rental expenses. Without any information from the Taxpayer for general expenses or rental location, the Department had to proceed differently than it would have normally proceeded. In anticipation of submitting more documents to be analyzed by the Department as part of the audit, Mr. Hillebrand, tax manager for Petitioner, signed, on October 24, 2005, a consent to extend the statute of limitations and time for completing the audit to July 31, 2006. (Exhibit R-2, page 000030). On March 15, 2006, Mr. Schnaible, one of the Taxpayer’s Controllers, signed a consent to extend until December 31, 2006. (Exhibit R-2, page 000029). On September 26, 2006, after analyzing all that had been received from the Taxpayer up to that date, the Department mailed a Notice of Intent to Make Audit Changes (NOI) to Petitioner, along with the work papers supporting the changes, and a letter from the auditor explaining the findings. The amount of tax assessed totaled $197,714.38, and comprised: Schedule A01: Disallowed Exempt Sales $169,994.38; Schedule B01: Estimated Fixed Asset Purchases $10,080.00; Estimated General Expenses: $5,040.00; and Estimated Commercial Rental $12,600.00. Interest accrued through September 26, 2006, totaled $57,353.50. The penalty at that date totaled $49,428.09, bringing the total assessment amount to $304,496.47. The Department’s September 26, 2006, letter offered the Taxpayer another opportunity to provide records if it disputed the auditor's findings, and another option to continue the audit process. (Exhibit R-2, pages 000044 through 000045). On October 25, 2006, Mr. Spomer, Taxpayer’s Controller who eventually signed the Petition and Amended Petition herein, wrote a letter (Exhibit R-2, page 000042) to the auditor stating that he requested to extend the audit and that he would mail back the signed, correct form. Normally, a DR-872e form to extend the statute and audit period must be signed within 30 days of the NOI. In this case, it was signed two months later. Apparently, one such form signed by Mr. Spomer was inadvertently filled-in by the Department with the extension date of "June 30, 2006," (copy attached to Amended Petition). Therefore, a second form was executed by Mr. Spomer on November 1, 2006. This form bears the correct extension date of June 30, 2007. (Exhibit R-2, page 000028). No additional information was provided by the Taxpayer which would change any of the tax amounts identified in the NOI. Therefore, on January 31, 2007, the Department issued it Notice of Proposed Assessment (NOPA). Therein, the amount of tax due remained unchanged. The amount of accrued interest through January 31, 2007, increased to $65,023.73, and the penalty was reduced to zero. The Department currently seeks $262,738.11, with interest accruing on the unpaid tax liability at the statutory rate.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order sustaining the Notice of Proposed Assessment dated January 31, 2007. DONE AND ENTERED this 6th day of December, 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 6th day of December, 2007. COPIES FURNISHED: Bruce Hoffmann, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32399-0100 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100 John Mika, Esquire Office of the Attorney General The Capital - Revenue Litigation Bureau Tallahassee, Florida 32399-1050 Dale Spomer International Surface Preparation Group (Texas), Inc. 6330 West Loop South, Suite 900 Houston, Texas 77401
Findings Of Fact Mini-Warehouses at Kendall, Ltd., d/b/a A+ Mini-Storage (KENDALL) is a Florida partnership maintaining its principal place of business at 12345 S.W. 117th Court, Miami, Florida. At all times material hereto, KENDALL held title to all privately owned real property, hereinafter abutting parcel, located adjacent to real property owned by the Florida Department of Transportation (DOT), hereinafter surplus property, situated in Dade County, Florida. KENDALL's abutting parcel is zoned IU-C, Industrial/Conditional - Manufacturing. DOT is a decentralized state agency. It has established several districts of which District 6, Dade County, is one. DOT's central office is located in Tallahassee, Florida. The surplus property and the abutting property are located in DOT's District 6. DOT identifies the surplus property as parcel no. 0739 which is a long, narrow right-of-way, consisting of .927 acres. It is 29 to 67 feet wide and approximately 950 feet long. The surplus property is zoned EU-M, Residential. On June 28, 1985, DOT and KENDALL entered into a written surplus property lease (original lease) for the subject surplus property. The original lease was automatically renewable and could be cancelled by either party with 30 days prior notice. Leasing the surplus property allowed KENDALL to reduce the amount of damage that the state's storm water runoff would otherwise cause to its abutting property. KENDALL was required by the original lease to pay DOT $2,400 annually, plus sales tax, for the use of the surplus property. KENDALL made the payments from 1985 to 1991. By letter dated May 3, 1991, DOT's District 6 office informed KENDALL that: (a) the original lease was unilaterally terminated; (b) KENDALL would be required to execute a renewal lease for 5 years with an option to renew for 5 more years, at an annual rate to be determined; (c) KENDALL might want to hire an independent appraiser from DOT's approved list of independent fee appraisers; and (d) KENDALL would have to negotiate a fee with the appraiser. Wanting to continue to lease the surplus property, KENDALL chose an appraiser from DOT's approved list of independent fee appraisers and hired him to appraise the surplus property. Per DOT's instructions, the independent appraiser contacted District 6's chief review appraiser for further instructions regarding the appraisal. The appraiser hired by KENDALL had a long working relationship with DOT. Throughout the 1980's to 1991, DOT and District 6 had accepted surplus property appraisals, without exception, from the appraiser that: (a) used only the contributory value method as a starting point in the appraisal process for fair market rent; (b) determined the fair market value that the surplus property would bring in a sale open to the public; and (c) made necessary market-based adjustments to arrive at a final figure, which was somewhere between the figure obtained in (a) and the figure obtained in (b), which represented the fair market rent for the surplus property. However, involving the surplus property at KENDALL, District 6's chief review appraiser informed the independent appraiser that only the unmodified across the fence or contributory value method would be acceptable when estimating rent that DOT should seek for the surplus property. Moreover, the chief review appraiser informed him that any other method would result in his appraisal being rejected. The chief review appraiser informed the independent appraiser that the factors to be used and considered were: (a) the surplus property's contributing value to KENDALL, as if the abutting property was vacant; and (b) a market rate of return based on the contributing value to KENDALL for fee simple ownership in perpetuity even though the renewal lease only conveyed surface rights, subject to a 30-day cancellation clause. In other words, District 6's chief review appraiser was instructing KENDALL's appraiser to use the across the fence appraisal method. This appraisal technique involves the following actions: Estimate the market value of the surplus property and the abutting property, as assembled. Estimate the market value of the abutting property, as it exists (without the surplus property added). Subtract the estimated market value of the abutting property, as it exists, from the estimated market value of the assembled abutting and surplus properties. The difference between the two value estimates should yield a supportable indication of market value for the surplus property. KENDALL's independent appraiser followed the instructions of the chief review appraiser for DOT's District 6. In his appraisal, he relied upon market data of the sales of commercial land, exclusively, and determined that the surplus property's highest and best use is to serve as a storage yard for parking trailers and boats, assuming the surplus property could be rezoned or a variance obtained to permit that use. Based upon the assumption of vacant or undeveloped commercial property and rezoned or variance surplus property for commercial use as a storage yard, the independent appraiser determined that the market value of the surplus property in fee simple was $128,000. He further ascertained that an investor would be satisfied with a 10 percent yield and determined that the across the fence value is an annual rent of $12,800 for a 50 to 100 year lease term, which is the prevailing market rent for the surplus property. The appraisal was accepted by DOT. Based on the accepted appraisal, DOT determined that the prevailing market rent for the surplus property was $12,800, plus tax, annually and assessed KENDALL accordingly. Wanting to continue to use the surplus property, KENDALL paid DOT $2,544 as partial payment of the annual rent, plus tax, for the initial year of renewal beginning June 28, 1991, and paid $24,617 for outstanding rent, plus tax, for the period June 28, 1991, through June 27, 1993. KENDALL has continuously paid the annual rent required by DOT. Not agreeing with the across the fence method, KENDALL obtained the approval from DOT for the submission of a second appraisal for the surplus property. DOT agreed but on the condition that the second appraisal had to be submitted by December 31, 1991. For the second appraisal, the independent appraiser used the method which he used previously and which was historically accepted by DOT. Contrary to the first appraisal, the appraiser determined in the second appraisal that the fair market rent for the surplus property was $3,000 a year if the entire parcel could be used as a storage yard and that the surplus property would only produce a nominal rent of $100 a year if leased to the general public. The second appraisal was submitted by DOT's imposed deadline. By letter dated October 9, 1991, the chief review appraiser for DOT's District 6 notified all approved appraisers on its list, including KENDALL's independent appraiser, of the surplus property appraisal policy that would be used. It states in pertinent part: SUBJECT: A STATEMENT OF DISTRICT APPRAISAL POLICY SURPLUS PROPERTY APPRAISALS - THE VALUATION PROCEDURE [I]t is inequitable to examine surplus properties without some evaluation of the abutting property. To be consistent in the appraisals for acquisition and those for sale by the Florida Department of Transportation, subjects should be estimated at their "ATF" or "Across The Fence" value. The surplus property appraisals should be addressed in the same way a "before and after" appraisal is conducted. The current Right of Way Appraisal Standards would be applicable in this assignment. The recommended appraisal procedure for surplus properties will be: Estimate the market value of the surplus property and the abutting property, as assembled. Estimate the market value of the abutting property, as it exists (without the surplus property added). Subtract the estimated market value of the abutting property, as it exists, from the estimated market value of the assembled abutting and surplus properties. The difference between the two value estimates should yield a supportable indication of market value for the surplus property. This process is logical and it appears to be reflective of the market. The appraisal problem is complicated by this procedure, but the result should be a more accurate and consistent estimate of market value of surplus property. In late 1991 or early 1992, KENDALL started the process to obtain a variance from Dade County. In accordance with DOT's requirement, KENDALL absorbed the costs associated with obtaining the variance. As of the date of hearing, KENDALL had expended between $10,000 and $15,000. Generally, the landowner is responsible for obtaining the variance or rezoning necessary for a lessee to use a leased parcel for its highest and best use. However, if the landowner is not obtaining the variance or rezoning, generally, the lessee receives a reduced rental rate. In July 1992, the chief review appraiser for DOT's District 6 notified KENDALL that the second appraisal was rejected. He rejected the appraisal without reviewing it. In May 1994, Dade County issued KENDALL a conditional variance. Assuming KENDALL satisfies numerous local concurrency and planning requirements, the final variance will permit it to use no more than 60 percent of the surplus property for storage purposes.
Findings Of Fact The Petitioner, Tommy C. Chastain, III, is a Property Appraiser II (appraiser) employed by the Respondent, State of Florida, Department of Revenue (Department). The Petitioner has been employed in that capacity in excess of 12 years. The Respondent is an agency of the State of Florida charged with enforcing and carrying out the taxing authority of the State of Florida, embodied in Chapter 212, Florida Statutes, and other extant law. Its regulatory authority, in raising state revenues through taxes, includes regulatory oversight and the certification process concerning county ad valorem tax rolls and related tax administration. On or about March 27, 1996, the Petitioner submitted a written request to the Department's Executive Director, Mr. Fuchs, requesting authorization to seek political office as a Property Aappraiser, a county officer, of Bradford County, Florida, while remaining an employee of the Department. This request was made pursuant to Rule 60K-13, Florida Administrative Code, a rule of the Department of Management Services (DMS) concerning the circumstances under which employees of the State of Florida may obtain permission to seek political office. This rule embodies an examination and determination of whether such candidacies pose conflicts with the duties and responsibilities of such a candidate's state employment. The Executive Director denied the request on April 16, 1996 on the basis that the Department was unable to certify, under prevailing DMS rules and Florida Statutes, that the Petitioner's candidacy would involve "no interest which conflicts or activity which interferes" with the Petitioner's state employment with the Department. The Petitioner sought a formal proceeding before the Division of Administrative Hearings to contest that initial determination. The Petitioner has been employed with the Department since 1983. Approximately two years after he was so employed, the Petitioner's wife was elected to the School Board of Bradford County, Florida. Due to his wife's position on the Bradford County School Board, the Petitioner requested and the Respondent, through the Petitioner's supervisor, agreed that the Petitioner should not and would not be assigned to do the Department's appraisal work in and with regard to Bradford County and its tax rolls. This was due to a perceived conflict of interest, or the possibility thereof, on the part of both the Petitioner and the Respondent. It was a voluntary arrangement. Since that time, the Petitioner has not been assigned to do any appraisal work related to Bradford County. The duties of a property appraiser for the Department, such as the Petitioner, involve assisting county property appraisers and employees in the county appraiser's office in appraisal techniques, to arrive at estimated values concerning commercial, residential and personal property. The Department appraiser administers policies and procedures pertaining to appraisal of real and personal property, set forth in the Florida Statutes and policies, rules and regulations of the Department, and it consults with all levels of government officials, as well as property owners and private appraisers, concerning problems involving appraisal of real and personal property. The Department property appraiser also investigates and reports on conduct and performance of county officials involved in the ad valorem taxing process. The property appraiser also investigates taxpayer complaints and applies the appraisal process, as defined by the American Institute of Real Estate Appraisers, to arrive at estimated values for these types of property. The appraisal studies performed by employees, such as the Petitioner, for a given tax year, are kept confidential from the county property appraiser, until a year-end review is conducted between the county and Department, pursuant to Section 195.096(2)(e), Florida Statutes. The Petitioner is assigned to the Lake City Regional Office in the property tax administration program. He does not perform appraisal work in and for Bradford County nor has he worked with that county's property appraiser or his staff. It is possible, however, that based upon legitimate business decisions by the Department, including considerations of saving expense funds, that he could be assigned to perform appraisal work in any county in the Lake County region, including Bradford County, although that has not been the case heretofore. The Petitioner's duties and responsibilities entail safeguarding certain confidential tax information, pursuant to Department directive 0101.10 and Section 6103 and 7213, of the Internal Revenue Code (IRC), as well as pursuant to various internal security procedures for safeguarding confidential information, including procedures and policies for safeguarding information sources, mandated by the Department's rules and policies. The Department appraisers are relied upon for their independent professional judgment in performing their duties and responsibilities involved in appraising property and in the tax administration process for the counties under their audit authority. Conflicts may arise between the Department appraiser and the county Property Appraiser. Judgmental adjustments to comparable sales transactions in a county that indicate market value for properties being appraised may differ between that of the county Property Appraiser and the Department appraiser, thereby affecting the measurement of the overall tax rolls the county Property Appraiser is required to submit to the Department for approval, pursuant to statute. The Petitioner's current duties and responsibilities provide him with access to information within the Lake City regional office files which include information related to Bradford County's assessment levels for a particular year, even though he himself is not assigned to work in the Bradford County taxing appraisal and tax roll approval process. Such information is available to the Petitioner prior to it becoming known to the Bradford County Property Appraiser, the official the Petitioner seeks to oppose in the upcoming election. County Property Appraisers make the determination of how to increase assessment or just value on each parcel of real estate and the amount of assessment valuation increase on homestead property, by authority of Sections 193.011 and 193.155, Florida Statutes. The Department is charged with oversight of each county Property Appraiser's office to insure that all properties are assessed at just value, with equity and uniformity. The Department's goal in property tax administration is to achieve compliance with statutory standards through the aid and cooperation of the local Property Appraiser and his staff. Cooperation by the county appraisers is essential. If Department employees gather information, contemporaneously with running for office against the Property Appraiser, it would tend to arouse suspicion in the county Property Appraisers and their staffs concerning the Department's motivations. It would call into question the independence of the Department in local tax administration matters in all the counties under its jurisdiction, as well as in a particular county involved. The independent judgment of Department appraisers, in performing their assessment studies for counties, is essential for the Department to determine whether the county Property Appraiser's increases and assessments are in compliance with the Department policies, administrative rules, and statutory requirements. The failure of the county Property Appraiser's tax roll to comply with the Department standards can result in disapproval of the county tax roll, which, in turn, may lead to punitive, interim roll procedures and ultimately culminate in litigation if the discrepancies are not amicably resolved. The Department appraiser performing such assessment studies for the year in controversy would likely be required to testify and ultimately defend his or her work product in litigation in a manner adverse to the interests of the county Property Appraiser. Moreover, appraisal studies performed by a Department appraiser for one county can affect the appraisal assessments in another county. The Department develops a "systematic base rate" for use in the appraisal system, from data gathered from a particular region, including appraisal data for the entire region. Data gathered for the Lake City region, where the Petitioner practices, would include data for Bradford, Baker, Union and Alachua Counties, as well as for southern Clay County, in determining what rate would be appropriate for any of those counties for individual base rates. Thus, the appraisal work performed by the Petitioner, even though he does not do appraisal work in Bradford County, can affect the appraisal assessments in Bradford County. The Department appraisers are called upon to resolve disputes over tax roll assessments in counties other than that in which they are regularly assigned. The Petitioner, for instance, has been called upon to provide aid and assistance in the Jacksonville Regional Office in this capacity, during the time he has been assigned to the Lake City Regional Office. Confidential appraisal information generated by the county Property Appraisers and their staff is available to all the Department appraisers within a particular region, as is confidential appraisal information generated by a Department appraiser assigned to a particular county in that region. The Petitioner has, and has had, access to all confidential appraisal information pertaining to Bradford County, in his Lake City Region, even though he himself is not assigned to do appraisal work in Bradford County. He has had access to that information prior to the information being made available to the Bradford County Property Appraiser. The Department's goal, through its aid and assistance to the county Property Appraisers, is for the Property Appraisers in the counties to meet their statutory and constitutional obligations and have their tax rolls approved by the Department. If the county tax rolls are not in compliance with the Department assessments, and issues are not reconciled within 90 percent of the Department's assessment values, then the Department will issue review notices or administrative orders directing compliance. Such disputes can culminate in litigation. In order to avoid disruption to the tax administration process and to the impartial and independent appraisal judgment exercised by the Department's appraisal staff, as well as by the county appraisal staffs, it is essential that the atmosphere of trust, confidence and reliance on the exercise of independent judgment by the Department's appraisers, and by the county appraisers, be maintained. In the Department's experience, the candidacy of a Department appraiser for the local county Property Appraiser's office can easily arouse suspicion and distrust on the part of the county Property Appraisers towards the Department's tax administration staff and its appraisers. It can foster the belief in the county Property Appraisers, even if mistaken, that the Department is fostering the candidacies and elections of its own staff members with their own ideas and judgments concerning appraisal processes and techniques against the interests of the incumbent appraisers and their counties. This is a state of affairs the Department must assiduously seek to avoid, which is why it has historically followed a policy of not approving its property appraisers' candidacies for county Property Appraiser offices while they are still Department employees. The property tax administration program is primarily responsible for measuring the relevant levels of assessment of property in the state between the various counties and certifying that level for each county annually for the Department of Education, for use in disbursement of general revenue funds to the counties based upon the relevant levels of assessment in reference to a statewide average level of assessment. Thus, as an incident of that function, the tax rolls of each county must be approved each year by the Department. In the appraisals conducted by both the county appraisers and the Department, of the sampled properties that are provided in any county, the methodologies that are used to appraise the property depend on the independent, impartial judgment of the appraiser doing the appraisals and applying that methodology. A candidate for the Property Appraiser office has the ability to affect that judgment and call into question the product of those appraisals and methodologies (Department employee candidate). If tax rolls are litigated in any county in which those appraisals were done, or in counties bordering on those counties, the appraisals could be called into question in the course of litigation of those tax rolls if disapproved by the Department, as analogous appraisals. The appraisers who performed those appraisals for the same county or for neighboring counties, which were called into question in disputes with the Property Appraiser of a particular county, could be called as witnesses to defend their work product, even though their work was done in and for different counties in the Department's region from the litigating county. The Department appraiser has the ability to call into question the methodologies used in any county in the state. Even if that Department appraiser was not assigned to the county in question, under the Department's practice in the Petitioner's regional office, the appraisers for the various counties have a review function over the appraisal work done for any particular county, a sort of "peer review process". Because of this process and their access to the confidential records pertaining to any county in their region, a Department appraiser who is a candidate for the county Property Appraiser's office against an incumbent, in a county in his region, could thus have access to information which might be advantageous to his political campaign. Access and use of this information, even if only a possibility and not actually practiced by such an appraiser candidate, would jeopardize the Department's relationship of cooperation and trust with each of the county Property Appraisers. The county Property Appraiser, in turn, has the ability to call into question both the appraisals made by the Department's field appraisers in other counties and the methodologies applied in those appraisals, the policies of the Department that underlie those methodologies, the decision-making process for which those methodologies and policies were decided and the administration of property taxes in general by the Department. They can do this through the vehicle of disputing formally or informally the application of Department appraisal techniques, methodologies and policies in his or her own county. The Department thus has a concern and a very real interest in maintaining the perception, in the administration of its taxing authority, that the independent and impartial adherence to the revenue statutes and policies involved is maintained. The Department has a real concern that if it authorizes one of its appraisers to run for the county Property Appraiser's office, the Department's policies would be perceived as motivated by an effort to install replacements to the incumbent county Property Appraisers who are more favorable to the Department's view of tax appraisal and assessment methodologies and policies. If the credibility of the Department's decision to disapprove a county's tax roll is called into question because a Department appraiser is challenging that incumbent property appraiser, the Department would be prejudiced during the litigation over disapproval of that county's tax roll. This is due to the fact that a candidate for Property Appraiser, rather than a disinterested Department employee, will have performed some of the appraisal work, even if done in a different county, upon which the Department is relying to defend its litigation position and its appraisal methodologies and policies by the means of comparing independent and purportedly analogous appraisal methodologies and practices by the Department in the various neighboring counties. In Lake County, Florida, for example, the current county Property Appraiser is now being challenged by a former Department appraiser. That former Department appraiser's work product in a neighboring county has been called into question and made the subject of the political campaign in the media. The methodologies used by the former Department appraiser, the appraiser's competency in applying those methodologies, the appraiser's training and level of education, and the Department's policies and the decision-making process under which those policies were selected, have been called into question in the political campaign. In a like vein, the appraisal methodology used by the Department for Dixie County has been introduced into litigation presently occurring in Levy County. The issue is the neighboring county's methodology for applying and calculating the "base rate", which is a unit of measurement per square foot for dollar valuation of structures. The county Property Appraisers have knowledge of how the Department appraisers and other counties apply Department policy and the Department appraisers assigned to each county know how their counterparts assigned to neighboring counties apply appraisal principles in Department appraisal policy. They know this because they have direct access to the confidential appraisal- related records as to each county in their region and, moreover because, as found above, they engage in a "peer review" of each other's audit and appraisal work periodically. Because of this knowledge of or access to confidential information pertaining to any particular county by any Department appraiser assigned to any county in that same region, that appraiser could have an undue advantage in a political campaign. The county Property Appraisers, of course, realize this. If the Department countenanced such employed Department appraisers opposing county Property Appraisers for election, immediate distrust and suspicion of the Department's motives would arise on the part of the county Property Appraisers. Thus, such a candidacy by a still-employed Department appraiser would represent a conflict of interest with his continued employment with the Department, which requires the maintenance of both the appearance and the fact of independent, impartial exercise of appraisal judgment and the maintenance of confidentiality of the tax administration-related records pertaining to any county. The appraisal studies, along with all documentation attendant thereto, are confidential until they are completed for the year-end assessment. The findings therein are then discussed with the county Property Appraisers. Only after that time do they become public record. Section 196.095(2)(e), Florida Statutes. In summary, the candidacy for the office of county property appraiser by a still-employed Department appraiser presents a real conflict of interest between the Petitioner's employment with the Department in that circumstance and the Department's statutory mission, which includes, as a necessary part, the maintenance of a cooperative relationship between the Department tax administration personnel and the county Property Appraisers. There exists the possibility that the platform or public statements of the Petitioner as a candidate would conflict with the Department's administration and interpretation of the tax laws under Chapters 192-197, Florida Statutes, which could impair the essential reputation of the Department for impartiality and independent judgment in appraisal work and administration of the tax laws among all of the counties under its jurisdiction. This would create a direct conflict with the Petitioner's continued state employment under those circumstances.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is RECOMMENDED that a Final Order be entered by the Department of Revenue denying certification that the Petitioner's candidacy for the office of Property Appraiser for Bradford County involves no interest which conflicts with or activity which interferes with his state employment and thus denying authorization for him to become a candidate for that office while remaining employed by the Department of Revenue, for purposes of Section 110.233(4)(a), Florida Statutes. DONE AND ENTERED this 1st day of August, 1996, in Tallahassee, Florida. P. MICHAEL RUFF, 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 1st day of August, 1996. APPENDIX TO RECOMMENDED ORDER Petitioner's Proposed Findings of Fact 1-11. Accepted, but not in themselves materially dispositive of the issues presented for resolution by the Hearing Officer. Respondent's Proposed Findings of Fact 1-26. Accepted, except to the extent modified by the Hearing Officer. 27. Rejected, as immaterial due to its speculative nature. 28-43. Accepted, except as modified by the findings of fact of the Hearing Officer. COPIES FURNISHED: G. Keith Quinney, Jr., Esquire Bryant, Miller & Olive, P.A. 201 South Monroe Street, Suite 500 Tallahassee, FL 32301 Peter S. Fleitman, Esquire Brian F. McGrail, Esquire Post Office Box 6668 Tallahassee, FL 32314-6668 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
Findings Of Fact Upon consideration of the pleadings and the evidence adduced at the hearing, the following pertinent facts are found: Prior to 1974, the subject land, consisting of approximately 150 acres, was zoned and classified as agricultural land and the agricultural assessment was about $300.00 per acre. In November of 1973, petitioner Kings Point Housing Corp. purchased the land for $7,125.00 per acre. This land is located immediately adjacent to acreage upon which Kings Point operates a large housing development. At the time of this purchase and for some years prior to that time, the land in question had been under lease and used for cattle grazing. The present lessee was petitioner K. D. Eatmon. The lease was entered into in February of 1971 for the purpose of cattle grazing and provided for a term of five years, with either party having the option to terminate the lease upon ninety days prior written notice. For at least the previous twenty years, the land had never been used for anything other than a cattle ranch. On January 1, 1974, the land was being used for agricultural purposes; to wit: cattle grazing. At some time during 1974, petitioner Kings Point petitioned for a zoning change of the subject land. This petition was denied. Petitioners timely filed their application for agricultural classification of the land for purposes of ad valorem taxation. The property appraiser of Palm Beach County denied the application on the ground that the land had been purchased by Kings Point at a price three or more times the agricultural assessment placed on the land. Petitioners appealed this denial to the BTA. After a hearing, the BTA found that the appraiser's presumption of correctness had been overcome and that petitioners were entitled to an agricultural classification of the property. As grounds for this decision, the BTA recited the facts that "petitioner is currently using and was using on January 1, 1974, the subject property for bona fide agricultural purposes" and the "property by mandate of the Board of County Commissioners for Palm Beach County can be used for nothing other than agricultural purposes for a minimum of one year." The BTA notified the respondent Department of Revenue of the change in classification and assessment pursuant to Florida Status 193.122. The respondent's staff recommended that the BTA's action be invalidated on the ground that the evidence presented was insufficient to overcome the property appraiser's presumption of correctness. The petitioners requested a hearing to review the staff recommendation, the Executive Director of the Department of Revenue requested the Division of Administrative Hearings to conduct the hearing and the undersigned was assigned as the hearing officer. The property appraiser of Palm Beach County was joined as a party-respondent. Due to the fact that a court reporter was not present at the hearing, the parties stipulated that their respective legal positions would be reduced to writing by the submission of memoranda to the hearing officer. To date, no such memorandum has been received from petitioners.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the action of the Palm Beach County Board of Tax Adjustment in granting petitioners' land an agricultural classification for the tax year 1974 be validated and upheld. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 12th day of March 1976. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of March 1976. COPIES FURNISHED: Mr. J. Ed Straughn Executive Director Department of Revenue The Capitol Tallahassee, Florida 32304 Robert M. Schwartz, Esquire 7000 Atlantic Avenue Delray Beach, Florida 33446 William C. Sprott 315 Third Street, Suite 101 West Palm Beach, Florida Robert Lee Shapiro Levy, Plisco, Perry, Reiter and Shapiro, P.A. 120 North Country Road Palm Beach, Florida 33480
Findings Of Fact Having heard oral argument on the issues and considered the record transmitted to the respondent by the BTA, it is found as follows: Petitioner is the owner of all of Port St. Lucie section 46 as shown in Plat Book 16, page 30 of the Public Records of St. Lucie County, Florida. For the 1973 tax year, petitioner timely filed its return to the St. Lucie County Tax Assessor for agricultural classification of its land. On November 6, 1973, the tax assessor, James W. Bass, notified petitioner that its lands were not entitled to be classified as agricultural for the reason that said land was subdivided subsequent to the enactment of F.S. 193.461 and hence the land was reclassified as nonagricultural, and was assessed at $358,400.00. Thereafter, petitioner filed its petition with the BTA to contest the assessor's disapproval of its application for agricultural classification. A transcript of the proceedings before the BTA apparently does not exist. However, the minutes of the meeting reveals that the lessee of the subject property testified that he then had 300 head of cattle on the property, was planning to buy 500 more head when the price went down and that, if his lease were renewed for another five years, he planned to improve the tract and run 1500 head of cattle on the property. The BTA was further informed by the tax assessor that an agricultural classification was denied because part of the tract had a plat filed on it. By an unanimous vote, the BTA granted the subject property an agricultural classification and reduced the assessment. Such action was based on the grounds that the property had been continuously used as agricultural property, that the lease was renegotiated, that the property was contingent with other property leased by the lessee had approximately 300 head of cattle on the property. The Chairman of the BTA thereafter notified petitioner that it had granted the relief applied for and had directed the assessor to: assess the lands as agricultural zoned land; and adjust the assessed value of the property "to $43,010, which value represents a fair equalized assessment of the said property for the year 1973." The BTA thereafter notified the respondent's Executive Director of the change and, by staff recommendation upon reconsideration, it was concluded that the evidence presented to the BTA was not sufficient to overcome the assessor's presumption of correctness. This conclusion was based upon the language of F.S. 193.461(4)(a)(4), and it was recommended that the action of the BTA be invalidated. By joint stipulation following certain legal proceedings involving the procedures for review, the parties stipulated that this cause would be heard before the Division of Administrative Hearings, and the undersigned hearing officer was assigned to conduct the hearing.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the action of the St. Lucie County Board of Tax Adjustment in granting an agricultural classification and in reducing the assessment of petitioner's property for the tax year 1973 be invalidated. Respectfully submitted and entered this 19th day of February, 1976, in Tallahasse, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: J. Ed Straughn Executive Director Department of Revenue The Capital Tallahassee, Florida 32304 Susan Diner, Esquire Paul & Thomson 1300 Southeast First National Bank Building Miami, Florida Stephen E. Mitchell, Esquire Assistant Attorney General Office of Legal Affairs The Capitol Tallahassee, Florida 32304
The Issue The issue is whether Petitioners owe the taxes, interest, and penalties assessed by the Department of Revenue based upon Petitioners’ alleged rental of their real property to a related corporation from June 2000 through August 2003.
Findings Of Fact Based upon the testimony and evidence received at the hearing, the following findings are made: In July 1997, Petitioners acquired the real property located at 640 North Semoran Boulevard in Orlando, Florida (hereafter “the Property”). The Property was acquired in Petitioners’ individual capacities, and they financed the purchase of the Property through a loan secured by a mortgage on the Property. The documents relating to the 1997 loan and mortgage were not introduced at the hearing. At the time the Property was acquired, Petitioner Paul Solano was engaged in the practice of accounting through a sole proprietorship known as P. Solano and Associates. Mr. Solano has been practicing accounting in Florida since 1969 and he is familiar with Florida's sales tax laws. The Property was treated as an asset of Mr. Solano’s sole proprietorship even though he was not using it as his place of business at the time. For example, depreciation expense related to the Property was itemized on Petitioners’ tax returns as a business expense. The mortgage payments made by Petitioners were also treated as business expenses of the sole proprietorship. In October 1999, Mr. Solano incorporated his accounting practice into an entity known as Solano & Associates Enterprises, Inc. (hereafter “the Corporation”). The sole business of the Corporation is providing accounting services. At the time of its formation, the Corporation was owned in equal 20 percent shares by Mr. Solano, his wife (Petitioner Diane Solano), their two daughters, and their son-in-law. There has been no change in the ownership of the Corporation since its inception. Mr. Solano is the president of the Corporation. The other owners/family members are also officers in the Corporation. Once the Corporation was formed, the depreciation expense related to the Property was included on the Corporation's tax returns, not Petitioners' tax return. At the time the Property was purchased, it was zoned for residential use. Between 1997 and 1999, Petitioners took the necessary steps to get the Property rezoned for commercial use so that the Corporation could conduct its accounting practice from that location. In November 1999, after the property had been rezoned, the Corporation and its owners applied for a loan from First Union National Bank (First Union) to obtain the funds necessary to renovate the existing building on the Property. Although unclear from the documentation in the record, Petitioners both testified that the 1999 loan was effectively a refinancing of the 1997 loan. The Corporation was not able to obtain a loan in its own name because it had only been in existence for a short period of time. The owners of the Corporation were not able to obtain a loan at a favorable interest rate, primarily because of the lack of credit history of Petitioners’ daughters and son-in- law. As a result, the loan was obtained by Petitioners in their individual capacities. Petitioners gave a mortgage on the Property as collateral for the 1999 loan. The mortgage document, entitled “Mortgage and Absolute Assignment of Leases” (hereafter "the 1999 mortgage"), was signed by Petitioners in their individual capacities on November 18, 1999; the Corporation was not identified in the 1999 mortgage in any way. The 1999 mortgage includes boiler-plate language referring to Petitioners’ obligation to maintain and enforce any leases on the Property and requiring the assignment of rents from any such leases to First Union. That language cannot be construed to mean that a lease actually existed at the time; in fact, the Property was still undergoing renovations at the time. The Corporation began doing business from the Property in February 2000 after the renovation work was complete and a certificate of occupancy was issued. The 1999 loan was refinanced in May 2000 with First Union. The loan amount was increased from $145,000 to $200,000 and the term of the loan was extended through a document entitled “Mortgage and Loan Modification and Extension Agreement” (hereafter "the 2000 mortgage"). The 2000 mortgage refers to the Corporation as the borrower and refers to Petitioners as the guarantors. Petitioners signed the 2000 mortgage in their individual capacities (to bind themselves as guarantors) as well as their capacities as corporate officers (to bind the Corporation as borrower). The related promissory note, dated May 5, 2000, also refers to the Corporation as the borrower, and it is signed by Petitioners in their capacity as officers of the Corporation. As part of the documentation for the refinancing in 2000, Petitioners executed an “Affidavit of Business Use” in which they attested they were the owners of the Property and that the loan proceeds would be “utilized exclusively for business or commercial purposes and not for personal use.” Petitioners also executed a “Mortgagors" Affidavit” in which they attested that they were in sole possession of the Property and that no other persons have claims or rights to possession of the property “except Solano & Associates Enterprises by virtue of a written lease which does not have an option to purposes or right of first refusal.” The monthly mortgage payment for the refinanced loan was $2,044.91. That amount was due on the fifth day of each month beginning on June 5, 2000, and it was automatically deducted from the Corporation’s bank account with First Union. In addition to making the mortgage payment for the Property, the Corporation paid the ad valorem taxes, insurance, and related expenses. The amount of those payments is not quantified in the record. Petitioners formally deeded the Property to the Corporation in October 2003. Mrs. Solano testified that the failure to do so earlier was simply an “oversight.” When the Property was formally deeded to the Corporation, Petitioners did not report any income or loss on the transaction for tax purposes. Any equity that had accumulated in the Property was simply “given” to the Corporation. The First Union mortgages were satisfied in October 2003 as part of a refinancing done by the Corporation with SunTrust bank after it became the owner of the Property.1 At that point, the Corporation had been in existence long enough to establish a credit history and obtain financing in its own name. The record does not include any documentation related to the 2003 refinancing transaction. Despite the representation in the “Mortgagors’ Affidavit” quoted above, there has never been any written or oral lease between Petitioners and the Corporation with respect to the use of the Property. Petitioners have always considered the Property to be a business asset, initially an asset of Mr. Solano’s sole proprietorship and then an asset of the Corporation. Petitioners never collected any sales tax from the Corporation on the mortgage payments made by the Corporation. Petitioners did not consider those payments to be rental payments. In late-June or early-July 2003, the Department sent a letter to Petitioners stating that the Property “appears to be subject to sales tax pursuant to Chapter 212.031, Florida Statutes.” The letter was sent as part of the Department’s “Corporation Rent Project” through which the Department compares records in various databases to identify commercial properties whose owner of record is different from the business operating at that location. Included with the letter was a questionnaire soliciting information from Petitioners regarding the Property and its use. The questionnaire was completed by Mr. Solano and returned to the Department in a timely manner. Mr. Solano marked a box on the questionnaire indicating that the Property is “[o]ccupied by a corporation in which a corporate officer is the property owner,” and he identified the Corporation as the entity occupying the Property. In response to the question as to “which of the following considerations are received by you,” Mr. Solano marked the following boxes: “The corporation remits payment for the mortgage loan”; “I do not receive rental income, but the related entity pays the mortgage payments”; and “No consideration is received from this related entity.” In response to the questions regarding the “monthly gross rental income of the property” and the “amount of real estate taxes . . . paid on the property by the lessee” for 2000 through 2003, Mr. Solano answered $0 for all periods. Terry Milligan, a tax specialist with the Department, determined based upon Mr. Solano’s responses on the questionnaire that the Corporation’s use of the Property was subject to the sales tax on rentals. Mr. Milligan advised Petitioners of that determination by letter dated July 29, 2003. The letter requested that Petitioners provide “a detailed month by month breakdown of rent (or mortgage payment) amounts, any other consideration, and property taxes that you received from the tenant (or tenant paid on your behalf) for the last thirty-six (36) months).” (Emphasis in original). Petitioners responded to Mr. Milligan’s request through a letter dated August 11, 2003. The letter explained that the reason that the title to the Property appeared under Petitioners’ name rather than the Corporation's name is “due to credit history.” More specifically, the letter stated that “[i]t was decided by the Board members, my wife and our [] children, to put it under our name since we have a long history of good credit.” Included with the letter was a bank statement showing the monthly mortgage payment of $2,044.91 and a notice of the proposed property tax assessment from Orange County for the Property, which was addressed to the Corporation. In addition to providing the requested documentation to Mr. Milligan, one of Petitioners’ daughters, Joylynn Aviles, spoke with Mr. Milligan to explain the circumstances relating to the financing and use of the Property. Ms. Aviles is the Secretary of the Corporation. Ms. Aviles also spoke with Mr. Milligan’s supervisor and an individual in the Department’s legal division. When it became apparent that the matter could not be resolved informally, Ms. Aviles requested that Mr. Milligan issue a final assessment so that Petitioners could bring a formal protest. In response, the Department issued the NOFA on September 11, 2003. The NOFA was preceded by a spreadsheet dated September 3, 2003, which showed how Mr. Milligan calculated the tax, penalties, and interest amounts set forth in the NOFA. As described in Mr. Milligan’s spreadsheet and his testimony at the hearing, the tax was computed based upon the monthly mortgage payments of $2044.91 made by the Corporation from June 2000 to August 2003. The June 2000 start-date for the assessment corresponds to the 36-month period referred to in Mr. Milligan’s July 29, 2003, letter; it also happens to correspond to the date that Corporation began making the mortgage payments. The August 2003 end-date for the assessment was used because it was the month preceding the date of the NOFA. The Department has not sought to expand the assessment to include the period between August 2003 and October 2003 when the Property was formally deeded to the Corporation. The NOFA does not include any assessment for the property taxes, insurance or other expenses paid by the Corporation on the Property. The Department has not sought to expand the assessment to include those amounts. The sales tax rate in effect in Orange County during the assessment period was six percent from June 2000 through December 2002, and it was 6.5 percent from January 2003 through August 2003. The 0.5 percent increase resulted from the imposition of a county surtax of some kind. The NOFA calculated a total tax due of $4,784.91. As shown in Mr. Milligan’s spreadsheet, that amount was calculated by multiplying the monthly mortgage payment by the tax rate in effect at the time of the payment and then totaling those monthly amounts. The NOFA calculated $465.79 in interest due on the unpaid tax through September 13, 2003. As shown in Mr. Milligan’s spreadsheet, that amount was calculated at the applicable statutory rates. Interest continues to accrue at 53 cents per day. The NOFA calculated a penalty due of $2,233.97. That amount was calculated based upon the applicable statutory rate as shown in Mr. Milligan’s spreadsheet and explained in the NOFA. In total, the NOFA imposed an assessment of $7,566.43. That amount includes the taxes, interest, and penalties described above. The NOFA informed Petitioners of the procedure by which they could protest the Department's assessment. On November 10, 2003, the Department received Petitioners' timely protest of the assessment. This proceeding followed.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue issue a final order rescinding the Notice of Final Assessment issued to Petitioners. DONE AND ENTERED this 17th day of March, 2004, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 17th day of March 2004.
Findings Of Fact The parties stipulated to findings of fact set forth in paragraphs 1-5, below. Zurich is an insurer domiciled in the State of New York. Zurich is authorized to do insurance business in the State of Florida. Zurich pays insurance premium taxes to the State of Florida. As a foreign insurer doing business in Florida, Zurich is subject to the provisions of Florida's retaliatory tax, Section 624.5091, Florida Statutes. Respondent Department of Revenue (Revenue) is the state agency charged with the duty to implement and enforce Section 624.5091, Florida Statutes. Zurich's interests are substantially affected by Revenue's Rule 12B- 8.016(3)(a)(4), Florida Administrative Code, by virtue of the tax assessment made against Zurich pursuant to the rule. OTHER FACTS Prior to 1989, the Department of Insurance administered insurance taxation. Now, Revenue has that responsibility. Section 213.05, Florida Statutes, directs Revenue to administer provisions of Sections 624.509 through 624.514, Florida Statutes. Section 213.06(1), Florida Statutes, authorizes Revenue to promulgate rules to implement those responsibilities. Rule 12B-8.016 was first promulgated by Revenue in December of 1989 to implement statutory authority of Section 624.429 (currently renumbered as 624.5091). This statute authorized retaliatory taxation against non-domiciled insurers in the amount by which their state of domicile would tax Florida insurers in excess of Florida's comparable tax. The statute provides in pertinent part: When by or pursuant to the laws of any other state or foreign country any taxes, licenses, and other fees, in the aggregate, and any fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions are or would be imposed upon Florida insurers or upon the agents or representatives of such insurers, which are in excess of such taxes, licenses, and other fees, in the aggregate, or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers, of such other state or country under the statutes of this state, so long as such laws of such other state or country continue in force or are so applied, the same taxes, licenses, and other fees, in the aggregate, or fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions of whatever kind shall be imposed by the department upon the insurers, or upon the agents or representatives of such insurers, of such other state or country doing business or seeking to do business in this state. As it existed in 1989 and currently, the statute contains an exclusionary provision expressly excluding from the retaliatory tax any special purpose assessments in connection with insurance other than property insurance. This exclusionary provision is part of Subsection 3 of the current statute, 624.5091, and reads as follows: (3)This section does not apply as to personal income taxes, nor as to sales or use taxes, nor as to ad valorem taxes on real or personal property, nor as to reimbursement premiums paid to the Florida Hurricane Catastrophe Fund, nor as to emergency assessments paid to the Florida Hurricane Catastrophe Fund, nor as to special purpose obligations or assessments imposed in connection with particular kinds of insurance other than property insurance, except that deductions, from premium taxes or other taxes otherwise payable, allowed on account of real estate or personal property taxes paid shall be taken into consideration by the department in determining the propriety and extent of retaliatory action under this section. The parties concede that Revenue's Rule 12B-8.016 accurately tracts the first part of the retaliatory taxation statute. But a subpart of the Rule, 12B- 8.016(3)(a)(4), is challenged by Zurich in this proceeding because that subpart provides for inclusion of the assessment for administration of workers compensation in Florida and comparable assessments in other states. The rule subpart states: (3)(a) Other items which shall be included in the retaliatory calculations are: * * * 4. The workers compensation administrative assessment imposed by s. 440.51, F.S., as well as comparable assessments in other states. The State of Florida imposes assessment on workers compensation carriers such as Zurich in accordance with authority contained in Section 440.51, Florida Statutes, which is entitled "Expenses of Administration." Section 440.51 provides for the pro-rata assessment of all insurers and self- insurers of workers compensation to cover expenses of administering the workers compensation program. The assessment is a "special fund" that does not involve appropriated funds or general state revenues. Zurich's home state of New York imposes a comparable assessment. In accordance with Rule 12B-8.016(3)(a)(4), Florida Administrative Code, Revenue includes calculations for the Worker's Compensation Board Administrative Fund in the state of New York in Zurich's retaliatory tax calculation. In drafting the rule in 1989, Revenue relied upon Attorney General Opinion 057-173, which advised that Florida's Worker's Compensation Administrative Assessment should be considered a "tax" for purposes of retaliatory tax calculation. On this basis, Revenue's rule requires that such assessments be considered as "taxes" and included in the retaliatory tax calculation. However, following the issuance of Attorney General Opinion 057-173, the Florida legislature in 1959 enacted the present Subsection 624.5091(3), Florida Statutes, specifically excluding the consideration of "special purpose obligations or assessments imposed in connection with particular kinds of insurance other than property insurance" in retaliatory tax calculations. Following the 1959 enactment of the exclusionary language contained in Subsection 624.5091(3), Florida Statutes, the Department of Insurance did not include comparable worker compensation assessments of other states. The Department of Insurance administered insurance taxation until 1989. Department of Insurance forms introduced into evidence for 1986 showed that the Florida assessment, pursuant to Section 440.51 Florida Statutes, was treated as a deduction against Florida's premium tax and added back in on the Florida side of the retaliatory tax calculation. But the assessment was not included in a manner to inflate the calculation of the domiciliary state's comparative tax base. When Revenue assumed administration of insurance taxation in 1989, a proposed rule and an emergency rule were promulgated. Neither provided for inclusion of foreign states' special purpose administrative assessments in retaliatory tax calculation. In the course of the promulgation process, the determination to treat the worker compensation administrative assessment as a tax became a part of the rule. The purpose of Florida's retaliatory statute is to influence other states' legislative discretion to lower the tax burden on Florida insurers doing business in those other states. The items to be compared for retaliatory purposes are determined by the legislature and not by Revenue, Revenue auditors, or other states.
Findings Of Fact In years past, the Petitioner, William G. King, was registered by the Respondent, the Department of Labor and Employment Security, Bureau of Agricultural Programs (DLES), as a farm labor contractor. As a farm labor contractor, King can average earning about $8000 a year more than he could earn in an hourly wage job (at legal minimum wage or close to it.) In good years, he can make substantially more; in bad years, he can incur substantial losses. King's crew size averages 40 laborers but can vary from 3 to 200, depending on circumstances. The season for harvesting Florida citrus runs from about November to June. From June to August, King tries to follow the melon harvest from Florida into North Carolina. If conditions are bad for harvesting melons during parts of the summer, he tries to secure contracts to have his crews pick moths out of trees during these months. In August, he drives a crew in his bus to New York to pick apples. All of these activities, until King is outside Florida, require DLES registration as a farm labor contractor. In the early 1980's, King's farm labor contracting business experienced difficulties. While paying his crew per actual box of citrus picked, King was paid per estimated box based on the weight of the citrus he delivered. During lengthier than normal periods of hard freeze, King paid his crew more than he was paid and suffered substantial losses. In this financial condition, King did not pay unemployment compensation tax. By March 1982, King owed about $14,300, with interest and penalties. During the preceding year, King was able to save $10,000, which he applied to the tax bill in March, 1982. He also signed an agreement to pay $4,310.48 in monthly installments of $540. King paid $745 in March and $540 in either April or May, 1982 (or perhaps both). But, as a result of more financial setbacks in 1984 and 1985, the tax indebtedness increased to approximately $20,000 to $24,000, with interest and penalties. When the DLES refused to renew King's registration in 1985, King approached the DLES local office to attempt to make arrangements for payment of the debt. King offered to have the grower with whom he intended to contract pay the DLES $100 a month on the debt. The DLES agent questioned the viability of the arrangement because the DLES usually requires a 20% down payment, but he did not outright decline King's offer. He said the offer had to be in writing. When King went to the party with whom he intended to contract, the party refused to send $100 per month to the DLES but agreed to send the DLES $1200 once a year and reduce King's compensation by $100 per month. Ultimately, in spring, 1986, the DLES refused the repayment arrangement because the DLES insisted on a down payment of approximately $5000, which King did not have. Since 1986, King has not been able to make a 20% down payment on his tax bill and has not made any payments on the debt. His financial ability to make payments is handicapped by his inability to work as a farm labor contractor in Florida. For a full season or two, King was driving a crew in his bus to New York to pick apples. But in 1987, King was advised that it was illegal even to do this without a Florida registration and that the activity exposed him to a $10,000 fine. Instead, he would have to meet his crew in New York. In response, King applied to renew his Florida registration. Not having made any recent payments on his tax bill, King owes the DLES $32,949.02 in unemployment compensation taxes, interest, penalties and filing fees.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the DLES enter a final order: granting the Petitioner's application to renew his farm labor contractor registration, with reservations. issue to the Petitioner a farm labor contractor registration certificate, with the restrictions: that the Petitioner not be permitted to pay, handle or be responsible for payroll; that the Petitioner be required to notity those with whom he contracts--both laborers and growers--of the terms of the restriction on his registration certificate; and that the Petitioner be required to file a quarterly report to the DLES giving the name, address and telephone number of the person responsible for payroll(s), especially unemployment compensation tax, for each laborer in his crew(s) during the preceding quarter. that the Petitioner initially be permitted to make annual $1200 payments on his outstanding unemployment compensation tax bill, with no penalty for making larger payments in accordance with his financial ability. RECOMMENDED this 21st day of March, 1988, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 21st day of March, 1988. COPIES FURNISHED: William G. King 785 Phillips Way (L.H.) Haines City, Florida 33844 Moses E. Williams, Esquire Office of General Counsel Suite 117 Montgomery Building 2562 Executive Center Circle, East Tallahassee, Florida 32399-0658 Hugo Menendez, Secretary Department of Labor and Employment Security 206 Berkeley Building 2590 Executive Center Circle, East Tallahassee, Florida 32399-2152 Kenneth Hart, Esquire General Counsel 131 Montgomery Building 2562 Executive Center Circle, East Tallahassee, Florida 32399-0658
