Findings Of Fact The Petitioner, Florida Welding Services Corp., is a Florida corporation doing business in the State of Florida. The Respondent, Florida Department of Revenue, is the agency charged with enforcing the taxing statutes of this State, including the Florida Income Tax Code, Chapter 220, Florida Statutes. Pursuant to Chapter 220, Florida Statutes, the Petitioner is required to file a Florida Corporate Income Tax Return annually with the Respondent. The Return is due on the first day of the fourth month after the close of the tax year. The Petitioner's tax year for 1977 was April 1, 1976, through March 31, 1977. The Florida Corporation Income Tax Return for the 1977 tax year was due on July 1, 1977, and the Petitioner failed to file its Return by this date. The Petitioner's tax year for 1978 was April 1, 1977, through March 31, 1978. The Florida Corporation Income Tax Return for the 1978 tax year was due on July 1, 1978, and the Petitioner failed to file its Return by this date. In January 1977, all of the Petitioner's corporate records were seized, pursuant to a subpoena issued in the United States Federal District Court in and for the Southern District of Florida. (See Exhibit 1) The Petitioner's records were not returned to it for over a year. On September 15, 1978, the Petitioner filed a Tentative Income Tax Return and Application for Extension of Time to File Income Tax Return, wherein Petitioner requested an extension of time until November 15, 1978, in which to file its Florida income tax return for the 1977 and 1978 tax years. (See Exhibit 2) On October 5, 1978, the Department of Revenue denied the Petitioner's request for an extension of time on grounds that the request had been filed after the respective due dates of July 1, 1977, and July 1, 1978. (See Exhibit 2) On November 16, 1978, the Department of Revenue received Petitioner's Florida Corporation Income Tax Returns for the tax years 1977 and 1978. The Petitioner also remitted the tax it believed owing for each taxable year, $3,734.96 for 1977 and $6,803.56 for 1978. On February 2, 1979, the Department of Revenue, Corporate Income Tax Bureau, issued a Delinquent Notice of Tax Due to the Petitioner. The Notice indicated that the Petitioner had a balance due of $1,547.28 for the tax year ending March 31, 1977, which amount represented $933.74 penalty and $613.54 interest. (See Exhibit 3) On February 5, 1979, the Department of Revenue, Corporate Income Tax Bureau, issued a Delinquent Notice of Tax Due to the Petitioner. The Notice indicated that the Petitioner had a balance due of $1,986.43 for the tax year ending March 31, 1978, which amount represented $1,700.89 penalty and $285.54 interest. (See Exhibit 4) On March 15, 1979, Mr. Karl J. Leib, Jr., contacted the Department of Revenue on behalf of his client, the' Petitioner, requesting the Department to delay in issuing any tax warrants against the Petitioner until Mr. Leib had an opportunity to communicate with someone from the Department. (See Exhibit 5) A follow-up letter was sent by Mr. Leib to the Department on June 8, 1979. (See Exhibit 6) On April, 23, 1980, the Department of Revenue issued to the Petitioner a Final Notice and Demand for payment in the amount of $1,547.28. (See Exhibit 7) Although no Final Notice and Demand for payment in the amount of $1,986.43 was issued by the Department, the amount is still outstanding and the Department maintains that Petitioner owes this sum as well. It is the Petitioner's position that its inability to timely file its Florida Corporate Income Tax Returns was entirely due to factors beyond its control, i.e., the confiscation of its corporate records. The Petitioner maintains that it should not be assessed penalty and interest for late filing, as its failure to timely file was "due to reasonable cause and not willful neglect," as is provided for in Section 214.40(1), Florida Statutes. The Department's position is twofold. First, the Petitioner's failure to make a timely request for extension of time in which to file its return does constitute willful neglect. Second, that while Section 214.40(1), Florida Statutes, may provide the Department with some discretion in assessing penalties, there is no comparable provision for modifying interest payments and such amount is absolutely mandated by the statute for any late filed returns. In addition to the foregoing, along with the attached Exhibits, the undersigned hereby incorporate by reference and jointly offer as evidence those Exhibits attached to Petitioner's Request for Formal Proceedings. WHEREFORE, both parties respectfully request the Hearing Officer to consider the foregoing facts and exhibits, along with a Memoranda of Law to be filed by each party within 10 days of the filing of this Joint Stipulation, and to issue his Recommended Order, without the necessity of holding a formal hearing.
The Issue The issue is whether respondent's license as a public adjuster should be revoked, suspended, or otherwise disciplined after his conviction for aiding in the preparation of a false tax return in violation of 26 U.S.C. Section 7206(2).
Recommendation It is RECOMMENDED that Mr. Lesser be found guilty of violation of Section 626.611(7), Florida Statutes (1987), and that his licensure as a public adjuster be suspended for a period of six months. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 28th day of December, 1989. WILLIAM R. DORSEY, JR. 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 28th day of December, 1989. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-0502 Rulings on findings proposed by the Department: 1 and 2. Adopted in finding of fact 3. Adopted in finding of fact 4. Implicit in findings of fact 5 and 6. Adopted in finding of fact 6. Adopted in finding of fact 8. Adopted in finding of fact 8. Adopted in finding of fact 8. Implicit in finding of fact 11. Rulings on findings proposed by Mr. Lesser: 1-11. Inapplicable. Adopted in finding of fact 3. Adopted in finding of fact 3, to the extent necessary. Rejected as unnecessary. Adopted in finding of fact 5. Adopted in finding of fact 5. Adopted in finding of fact 5, though finding of fact 5 includes certain logical deductions or inferences. Made more specific in findings of fact 5 and 6. Adopted as modified in finding of fact 7. Rejected. Not only were the laundering transactions illegitimate because they allowed Benevento Maneri to mischaracterize the source of their income, they also created false expenses for Lesser and Company, Inc., which artificially lowered the income of Lesser and Company, Inc., by the amount of the expense. Adopted as modified in finding of fact 7. It is difficult to determine what Mr. Lesser actually thought the source of the money was, but he knew it was illicit. See, finding of fact 7. Adopted as modified in finding of fact 8. Adopted as modified in finding of fact 9. 25 and 26. Adopted as modified in finding of fact 9. Adopted as modified in finding of fact 10 The extent of Mr. Lesser's danger cannot be determined from this record, although he was in some danger. Covered in finding of fact 9 Adopted as modified in finding of fact 11. Rejected. See, finding of fact 8. The IRS first contacted Mr. Lesser. He then went to Mr. Weinstein to set matters straight. Adopted as modified in finding of fact 11. Adopted as modified in finding of fact 4. Adopted as modified in finding of fact 12. Adopted as modified in finding of fact 12. A light sentence implies the factors set out in finding of fact 35, were taken into consideration, but does not prove that they were all the reasons the U.S. District Judge took into consideration. To the extent necessary, mentioned in finding of fact 12. Rejected as procedural. 38-51. Covered in findings of fact 13 and 14. The proposed findings are subordinate to the findings made in findings of fact 13 and 14. COPIES FURNISHED: S. Marc Herskovitz, Esquire Robert V. Elias, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 William W. Corry, Esquire Jack M. Skelding, Jr., Esquire Patrick J. Phelan, Jr., Esquire Parker, Skelding, Labasky & Corry 318 North Monroe Street Post Office Box 669 Tallahassee Florida 32301 Honorable Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300
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 Having heard oral argument on the issues and considered the evidence presented in this cause, it is found as follows: Petitioner, Aerospace Workers, Inc., is a non-profit Florida corporation, which owns record title to the Union Lodge 166, located at 171 Taylor Avenue in Cape Canaveral, Florida. For the 1974 tax year, the Brevard County Property appraiser or Tax Assessor assessed the petitioner's lodge at full market value without allowance of any exemption. The reason given by the assessor for the disapproval of exempt status was that there is no provision under the Florida Statutes for the exemption of labor organizations. The petitioner, through its financial secretary, William J. Boydstun, then appealed the Tax Assessor's denial exempt status to the Brevard County Board of Tax Adjustment, claiming that the building should be tax exempt as one used for charitable purposes. Mr. Boydstun informed the BTA that the building in question "at any time we are not using it, has been thrown open to the public." The BTA was further informed that the building "has been used by the Brevard County Beach Erosion Control District by the Narc Aid Society, by the Avon and Winslow Beach Residents Assn., by the Roosevelt Garden Condominium Apartments, Inc. We have let local weddings take place. It has been used by the concerned Democrats and also by the County Commissioners in a couple of instances. Tomorrow we are letting the County use our building as a polling place." Mr. Boydstun also stated that petitioner's members donated $225,000.00 to the United Fund in Brevard County and had helped support the Brevard Junior Deputies, the Brevard Mental Health Center and various other organizations in the County. Also submitted to the BTA by Mr. Boydstun was a list of persons or groups who had used the building since December of 1973. Included in this list were the Mark Age Society (which petitioner stated during the hearing is a religious group), the Brevard County Beach Erosion Control District, the Avon by the Sea and Winslow Beach Residents' Association, the Roosevelt Garden Condominium Apartments, Inc., Concerned Democrats, political meetings for Senator Lawton Chiles, Mallory Horne and Governor Reubin Askew, and a minister for a local wedding. It was also stated that the building has been used as a polling place and for meetings for the United Fund Drive. The Tax Assessor represented to the BTA that he denied the exemption because labor unions are not given exemptions according to the Florida Law, and that the Department of Revenue denied an exemption for petitioner for that reason the previous year. At the meeting of the BTA on October 4, 1974, Chairman Hurdle moved that petitioner be granted a 50 percent charitable exemption on the basis that the property is used for charitable purposes. The motion carried by a vote of 2 to 1. The Tax Assessor did not concur. In its notice to the Executive Director of the Department of Revenue, the BTA explained its reasons for granting the Petitioner a fifty percent charitable exemption by stating that: "the Board found that the property should receive a 50 percent tax exemption because they felt that the use of the property provided a service which was of such a community service that its discontinuance could result in the allocation of public funds for the continuance of said services. The Board basically found that the use of the building by the general public met the requirements in the description of charitable purposes found in Chapter 196.012(6) of the Florida Statutes and therefore granted a 50 percent charitable tax exemption for the property described in Petition No. 11." In its "Notice of Proposed Agency Action to Invalidate Relief Granted by Board of Tax Adjustment," the Department of Revenue concluded in its "Staff Recommendation" that the BTA's findings and the evidence and testimony upon which they were based, were insufficient to support the ultimate finding that petitioner qualifies for a fifty percent exemption, and that the BTA had not come up with sufficient evidence to overcome the Property Appraiser's presumption of correctness. It was further concluded in said "Staff Recommendation" that there was no showing that the use of the property by the various community organizations was a use of more than 51 percent, and that the BTA's granting of a 50 percent exemption is expressly contrary to F.S. Section 196.012(3). SUMMARY OF ORAL ARGUMENTS The above factual findings constitute the record to which oral argument was limited at the hearing. It was the petitioner's position at the hearing that inasmuch as the Tax Assessor gave an invalid reason for denying the charitable exemption, there is no presumption of correctness attaching to his assessment. It was further contended that, given the reason for denial by the assessor (i.e., that labor organizations could not be exempt), petitioner did not believe it acceded to make a showing of predominant charitable usage. In the alternative, petitioner asserts that there was sufficient evidence before the BTA to permit the BTA to conclude that the property was used predominantly for charitable purposes. It was the respondent's position at the hearing that, regardless of the reason given by the assessor for his denial of exempt status, petitioner failed in its burden to prove the assessment wrong. In other words, it is the assessment itself which carries the presumption of correctness, and not the reasoning behind the assessment. Respondent contended that the record of the proceedings before the BTA is devoid of any evidence entitling petitioner to a charitable exemption.
Recommendation Based upon the findings of fact and conclusions of law, it is my recommendation that the action taken by the Brevard County Board of Tax Adjustment be invalidated and that the denial of exempt status made by the Brevard County Tax Assessor be affirmed. DONE and ORDERED this 4th day of October, 1975, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Collins Building, Room 104 Tallahassee, Florida 32399-1550 (904) 488-9675
The Issue Whether the Department of Revenue should assess Heftler Construction Company ("Taxpayer") for Florida corporate income taxes on a claim that: Taxpayer realized a gain under the Florida Income Tax Code when an asset acquired in 1971 (on liquidation of a joint venture) was sold in 1975 in satisfaction of an outstanding debt; and Taxpayer's losses created by the subtraction of foreign source income cannot operate to create or increase the Florida portion of the net operating loss carryover.
Findings Of Fact Formation and Liquidation of Joint Venture; Subsequent Sale of Asset Taxpayer is a New Jersey corporation, authorized to transact business in Florida. Heftler Realty Company ("Realty") is a Florida corporation, and is a subsidiary of Taxpayer. Taxpayer, for all years material to these proceedings, filed consolidated income tax returns with the Internal Revenue Service of the United States ("IRS") . Pursuant to the applicable provisions of the Internal Revenue Code ("IRC"), Taxpayer included in the income and expenses of its consolidated income tax returns the income and expenses of its operations in Puerto Rico. Taxpayer, for all years material to these proceedings, timely filed with the Department consolidated income tax returns. In 1969, Realty formed a joint venture with a company known as GACL, Inc., for the purpose of developing real property Realty, in accordance with its Joint Venture Agreement with GACL, Inc., prior to 1971, contributed to the joint venture the following assets with the following cost basis to Taxpayer on the date of contribution: ASSET DATE CONTRIBUTED TO JOINT VENTURE COST BASIS TO TAXPAYER ON DATE CONTRIBUTED Cash 3-5-69 $250,000 Land 3-5-69 2,000,000 In 1971, prior to the effective date of the Florida Income Tax Code ("Florida Code"), Chapter 220, Florida Statutes, the joint venture between Realty and GACL, Inc., was liquidated effective as of January 1, 1971. Pursuant to the plan of liquidation, Realty received, in liquidation of the joint venture, the assets as described in the attached Appendix. These assets had a then cost basis to the joint venture as described in the Appendix. The assets acquired by Realty in liquidation of the joint venture were subject to the debts described in the Appendix. Pursuant to the plan of liquidation of the joint venture, Realty agreed to acquire the assets and assume the attendant debts (itemized in the Appendix) as of January 1, 1971. At the time of the liquidation of the joint venture, Realty had a cost basis for its interest in the joint venture of a negative $285,749. (Realty had a negative basis in the assets because it sustained joint venture losses in excess of its contributions to the joint venture.) The net gain to Realty as' reported upon the federal income tax return of Taxpayer, after adjustment for depreciation, as a result of the liquidation was $1,238,37l. In 1971, Realty reduced its tax basis in the assets acquired in the liquidation. This adjustment (reduction) in the tax basis of the assets acquired by Taxpayer occurred prior to the effective date of the Florida Code. An asset acquired by Realty in 1971, pursuant to the plan of liquidation of the joint venture, was conveyed by Realty in 1975 to a creditor of Realty in satisfaction of debt. After adjusting the tax basis of the asset, a comparison of its book basis (to the joint venture) with the tax basis to Taxpayer after liquidation, reflects the following: Adjusted Basis as of Jan. 1, Tax Basis to Tax- Book Basis to payer or After Joint Venture Liquidation Difference 1971 $4,466,764 $3,055,722 $1,411,042 Accumulated Depreciation to Date of Sale (587,212) (414,541) (172,671) Adjusted Basis $3,879,552 $2,641,181 $1,238,371 For purposes of its Federal Income Tax, Taxpayer reported the transaction as a sale and computed the gain thereon as follows: $3,951,708 Expense of Sale $2,713,337 3. Total Gain $1,238,371 Gross Sale Price Cost or Other Basis and (The difference between the gross sales price and the adjusted basis referred to in paragraph 13 of $72,156 is an increase to the price due to escrow funds deposited with a mortgagee and assigned to the purchaser of the asset by Realty without Realty receiving reimbursement.) In computing the Florida income tax, pursuant to the Florida Code, for the fiscal year ending July 31, 1976, Taxpayer took as a subtraction an adjustment on line 8, Schedule II, page 2 of its income tax return. The subtraction was in the amount of the capital gain received upon the sale of the asset received in liquidation in the amount of $1,238,371. Taxpayer subtracted the gain, contending that it was realized prior to the effective date of the Florida Code. When acquired, the asset received in liquidation had a cost basis to the joint venture Of approximately $4,500,000. When the asset was distributed to Taxpayer, after the reduction by Taxpayer to the tax basis referred to in paragraph 11, the basis to Taxpayer of the asset was approximately $3,000,000. The tax basis in the amount of $3,000,000 was evidenced by the debts assumed by Taxpayer upon the liquidation; such assumption of debt is referred to in paragraph 7. Department contends that the gain on the sale of the asset acquired in liquidation was both realized and recognized in 1975 when the property was sold in satisfaction of a debt; it has issued a proposed assessment on that basis. Taxpayer contends that the gain was realized by Taxpayer for federal income tax purposes prior to the effective date of the Florida Code and that only the recognition of the gain occurred after the effective date of the Florida Code. II. 1975 Loss Created by Subtraction of Foreign Source Income; Attempt to Carryover Loss to Subsequent Years Taxpayer, in addition to the adjustment referred to above, in reporting income for its fiscal years ending July 31, 1976, July 31, 1977, and July 31, 1978, deducted a net operating loss carry-forward which included an item of $335,037 from its 1975 return (fiscal year ending July 31, 1976) and an item of $916,030 for fiscal year ending July 31, 1978, represented by a subtraction resulting from income earned in Puerto Rico. The subtraction resulted in losses during each of such years, which losses were carried forward by Taxpayer to the next ensuing year. Department contends that the losses created by the subtraction of foreign source income cannot be carried over to subsequent years to determine income and has issued a proposed assessment on that basis. Taxpayer contends that it is not the intent of the Florida Legislature to tax income derived from sources outside the United States and that the effect of a denial of the subtraction will result in the taxation, by Florida, of foreign source income received by Taxpayer.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department's proposed assessment of Taxpayer for corporate income tax deficiencies be issued. DONE AND RECOMMENDED this 21st day of January, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of January, 1982.
The Issue The issue in this proceeding is whether the Florida Corporate Income Tax Code subjects to taxation items realized for federal income tax purposes prior to the effective date of the Code but recognized for federal purposes after the effective date of the Florida Code.
Findings Of Fact In a joint stipulation filed with the Hearing Officer, the parties stipulated to the relevant facts of this proceeding. Findings (1) through (6) listed below are quoted directly from that stipulation of facts. In 1965 MORRIS TRADING CORPORATION (whose name at that time was Morris Grain Corporation) exchanged certain property used in its trade or business with Continental Grain Company for six thousand seven hundred twenty three (6,723) acres of real estate located in Florida a description of which is attached hereto and made a part hereof as Exhibit 1 containing a layout of the ranch acreage acquired by MORRIS TRADING CORPORATION from Continental Grain Company, including the nine hundred fifty eight (958) acre parcel sold in the fiscal year ending in 1968, the one thousand (1,000) acre parcel sold in the fiscal year ending in 1969, and the remaining acreage sold in the fiscal year ending in 1973, as well as a small parcel of property retained by the Corporation. Although MORRIS TRADING CORPORATION realized income for federal tax purposes in 1965 when it exchanged a grain elevator and other property for real estate described on Exhibit 1, the Corporation did not recognize any income for federal tax purposes in 1965 pursuant to Section 1031 of the Internal Revenue Code of 1954 as amended. The real estate acquired in exchange for the property traded by MORRIS TRADING CORPORATION had a fair market value in 1965 of ONE MILLION SIX HUNDRED THIRTEEN THOUSAND FIVE HUNDRED TWENTY AND NO/100 DOLLARS ($1,613,520.00), or TWO HUNDRED FORTY AND NO/100 DOLLARS ($240.00) per acre. The tax cost basis of the property given up by MORRIS TRADING CORPORATION in the exchange was TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED THIRTY TWO AND SIXTY SIX/100 DOLLARS ($267,832.66). MORRIS TRADING CORPORATION paid TWENTY THOUSAND FOUR HUNDRED FIFTY THREE AND FIFTY FIVE/100 DOLLARS ($20,453.55) in cash for the purchase of mineral rights to the four thousand six hundred five (4,605) acres sold during the fiscal year ending in 1973 and there were ONE HUNDRED SIXTY TWO THOUSAND FIVE HUNDRED TWENTY TWO AND FIFTY FIVE/100 DOLLARS ($162,522.55) of costs connected with the sale of the property consisting of commissions of ONE HUNDRED THIRTY THREE THREE HUNDRED AND NO/100 DOLLARS ($133,300.00), attorneys fees of EIGHTEEN THOUSAND AND NO/100 DOLLARS ($18,000.00), and documentary" stamps and miscellaneous expenses of ELEVEN THOU- SAND TWO HUNDRED TWENTY TWO AND FIFTY FIVE/100 DOLLARS ($11,222.55). MORRIS TRADING CORPORATION sold four thousand six hundred five (4,605) acres-of the property acquired in the exchange in 1965 during its fiscal year ending May 31, 1973, for a gross sales price of TWO MILLION NINE HUNDRED SIXTY ONE THOUSAND EIGHT HUNDRED SEVEN AND NINETY SIX/100 DOLLARS ($2,961,807.96). On its Florida corporate income tax return for the fiscal year ending May 31, 1973, Petitioner excluded income from the 1973 sale of the 4,605 acres, although this income was reported as recognized on its federal income tax return. The Respondent, Department of Revenue, issued its proposed deficiency for the 1973 fiscal year assessing Petitioner $121,389.33. This assessment was based upon the gain received by Petitioner for the 1973 transaction, said gain being measured by the difference between the original cost of the property exchanged in 1965 and the adjusted sales price of the property sold in 1973. The Petitioner filed a protest against the proposed deficiency. An informal conference failed to resolve the matter and the Petitioner thereafter filed its petition for an administrative hearing. On August 4, 1976, the parties entered into a joint motion for stay of proceedings pending the Florida Supreme Court's resolution of the case of Dept. of Revenue v. Leadership Housing, Inc. and Leadership Communities, Inc., 343 So.2d 611 (Fla. 1977). Thereafter, a prehearing conference was held to narrow and define the issues, briefs were filed and a hearing was held to receive oral argument on the legal issues involved.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the proposed corporate income tax deficiency for the Petitioner's fiscal year ending in 1973 be held invalid. Said deficiency should be recomputed by subtracting from the gross, sales price of the real estate sold in 1973 the amount realized on Petitioner's federal return in 1965, the selling expenses and the purchase of additional mineral rights. Respectfully submitted and entered this 15th day of February, 1978, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Gerald T. Hart Thompson, Wadsworth, Messer, Turner and Rhodes Post Office Box 1876 Suite 701, Lewis State Bank Building Tallahassee, Florida 32302 E. Wilson Crump, II Assistent Attorney General Department of Legal Affairs Post Office Box 5377 Tallahassee, Florida 32301
The Issue The issue is whether Respondent properly scored Petitioner's application for an allocation of low-income housing federal income tax credits.
Findings Of Fact Respondent is a not-for-profit corporation organized under Section 420.504, Florida Statutes. Respondent's purpose is to facilitate the construction of affordable housing in Florida by assisting developers interested in providing such housing. Respondent administers several affordable housing programs. The program involved in this case is the competitive housing credit (HC) program, which allocates the low-income housing federal income tax credits allowed by Section 42, Internal Revenue Code (Tax Credits). Developers use or, more often, sell the Tax Credits to make their projects financially feasible by offsetting the reduced income characteristically generated by affordable housing. The HC program allocates Tax Credits to those projects that Respondent determines best serve the affordable housing needs of Florida residents. The allocation process is competitive because Section 42, Internal Revenue Code, allocates to each state a limited amount of Tax Credits. Each year, developers propose projects whose collective qualified basis would yield many more Tax Credits than Florida is allocated under Section 42; this year, for instance, Respondent could have allocated four times the amount of Tax Credits actually available. To allocate the available Tax Credits, Respondent has established a competitive process. In the first stage, Respondent assigns preliminary scores to each completed application and then ranks the applications by their scores. The application with the most points tentatively receives the first Tax Credits to be allocated, and this process is repeated with the remaining applications, in their order of ranking, until the available Tax Credits are exhausted. In the second stage, Respondent invites those applicants whose applications have tentatively received an allocation of Tax Credits to enter credit underwriting. Credit underwriting involves a more detailed examination of each application, during which time applicants may make certain revisions in their proposed projects. At the conclusion of credit underwriting, Respondent makes final allocations of Tax Credits to specific proposed projects. This case involves the preliminary scoring that precedes credit underwriting. This case raises the issue of the accuracy of Respondent's scoring of one or two items in Petitioner's application: the loan commitment letter and, if the next issue is resolved in Petitioner's favor, the equity commitment letter. However, the most important issue in this case requires a determination of the extent to which, during the preliminary scoring process, an applicant may revise or correct the set-aside election made in its application or, in the alternative, the necessity, if any, that Petitioner attempt to make such a revision or correction. A minor issue in this case is the propriety of certain penalties that Respondent imposed. During the hearing, the parties stipulated that the Administrative Law Judge was not to attempt a comprehensive rescoring of Petitioner's application, if he were to sustain any portion of Petitioner's challenge. As explained by Respondent's witness, scoring involves a myriad of contingencies and, if presented with any items requiring rescoring, Respondent's employees running the scoring spreadsheet would require as much as one hour to recalculate Petitioner's score. Thus, the parties agreed that Respondent would perform any recalculation within one business day following the issuance of the recommended order, although, of course, performing the recalculation would not waive Respondent's right to file any exceptions that it deems necessary or otherwise oppose any recommended changes to the scoring of Petitioner's application. The parties also agreed upon an expedited schedule for post-hearing filings. The parties agreed to file their proposed recommended orders by 9:00 a.m. on October 19, 2000, serving the Administrative Law Judge by e-mail the prior evening. The Administrative Law Judge agreed to issue the recommended order on or before October 20, 2000. The parties further agreed to file exceptions on or before October 23, 2000, and any responses to exceptions on or before October 25, 2000. The parties and Administrative Law Judge have agreed upon this expedited filing schedule because the last opportunity for Petitioner to receive Tax Credits for the cycle for which it applied would require final action by Respondent's board at its October 27, 2000, meeting. The application for the subject cycle of the HC program comprises 24 Forms requesting detailed information. Respondent imposes a deadline by which all applicants must submit their completed applications. Following this deadline, Respondent conducts the preliminary scoring. The HC program has a maximum of 632 points, divided as follows: Form 1--0 points; Form 2--2 points; Form 3--85 points; Form 4--150 points; Form 5--20 points; Form 6--5 points; Form 7--106 points; Form 8--44 points; Form 9--100 points; Form 10--10 points; Form 11--50 points; Form 12--35 points; Form 13--0 points; Form 14--45 points; Form 15--10 points; Form 16--25 points; Form 17--95 points; Form 18--15 points; Form 19--0 points; Form 20--50 points; Form 21--30 points; Form 22--30 points; Form 23--0 points; and Form 24--0 points. The application forms impose minor penalties for the failure of an application to provide "complete, accurate information in the format and location prescribed by the instructions . . .." Any such omissions or inaccuracies in any or all of Forms 1-4 result in a 2.5 point penalty. In other words, omissions or inaccuracies in one or all four of these Forms result in a single 2.5 point penalty. Any such omissions or inaccuracies in any or all of Forms 5-10 result in a 1.5 point penalty. Any such omissions or inaccuracies in any or all of Forms 11-13 result in a 1 point penalty. Any such omissions or inaccuracies in one or all of Forms 14-19 result in a 1 point penalty. Any such omissions or inaccuracies in one or all of Forms 20-24 result in a 1 point penalty. Petitioner does not contest the 1 point penalty that Respondent has imposed for the erroneous entry, described below, at Form 20, Item I. However, Petitioner contests Respondent's scoring of other Items and assessment of other penalties, based on the election made at Form 20, Item I. These scoring and penalty issues include, but may not be limited to, the 2.5 point penalty imposed on Forms 1-4 due to an inconsistency between the set-aside information provided in Forms 1 and 20; up to 144.67 points lost in Form 4 due to the failure to meet the condition in the equity commitment letter that the qualified basis attributable to all 230 units qualify for Tax Credits; seven of eight points lost in Form 10 for the deficiency in leveraging Tax Credits due to the loss of nearly half of the expected Tax Credits; and 30 points lost in Form 21 due to the determination that the equity commitment letter is not firm and unconditional. Petitioner claims that these lost points and penalty, together with any points lost on Form 4 for the determination that the loan commitment letter is not firm and unconditional and the 1.5 point penalty for an omission from the environmental safety certification in Form 7, Exhibit D, improperly prevented Petitioner's application from entering credit underwriting for an allocation of Tax Credits. Petitioner timely submitted its application for the HC program. Form 1, Item I.A, of Petitioner's application states that Petitioner is a limited partnership whose general partner, Affordable Housing Solutions for Florida, Inc., is a not-for-profit corporation. At present, Petitioner's general partner owns 100 percent of the partnership interests. Form 1, Item I.C, states that Heritage Affordable Development, Inc., is the "co-developer," but has no ownership interest in Petitioner. Form 1, Item II.A, describes the proposed project as a rehabilitation of an existing development in Daytona Beach. Form 1 identifies a total of 230 residential units in the project, which is to be known as Daytona Garden Apartments. Form 1, Item IV, is a certification that is signed by Petitioner. In relevant part, the certification states: The Applicant and all Financial Beneficiaries understand and agree that full points will be awarded only in the event that all information required by each form is provided in accordance with the application requirements. Failure to provide complete, accurate information in the format and location prescribed by the application will result in a REDUCTION OF POINTS OR REJECTION OF THE APPLICATION as indicated on each form. Subject to the limited exceptions contained within Rule 67-48.005, F.A.C., only information contained within this application will be considered for purposes of points awarded or appealed. . . . Most of the points at issue in this case arise from a mistake that Respondent claims to have made in completing Form 20, Item I. This item requires the applicant to make a crucial election for its proposed project. The two relevant choices are: 1) 20 percent of the units are set aside for persons earning no more than 50 percent of the area median income (20/50) or 2) 40 percent of the units are set aside for persons earning no more than 60 percent of the area median income (40/60). The application notes clearly that, pursuant to federal regulation, 20/50 elections restrict all set-aside units to no more than 50 percent of the area median income. The percentage of set-aside units determines the extent to which the qualified basis of a project may yield Tax Credits. The purpose of Section 42, Internal Revenue Code, and the HC program is to facilitate the development of affordable housing. The set-aside election assures that the developer will reserve a certain percentage of units in the project for reduced-income residents. The 40/60 election means that the developer is setting aside a minimum of 40 percent of the units for residents earning no more than 60 percent of the area median income. The developer may choose to set aside for such reduced-income residents a greater percentage of the units in order to qualify for more Tax Credits. The 20/50 election offers the developer the same type of option, but, due to the cited federal regulation, the developer may only claim additional Tax Credits for units set aside for residents earning no more than 50 percent--not 60 percent--of the area median income. In making its election on Form 20, Item I, Petitioner placed an x in the box for the 20/50 election. Petitioner claims to have intended to have placed an x in the box for the 40/60 election. As already noted, the 20/50 election precludes the allocation of any Tax Credits for units set aside for residents earning more than 50 percent of the area median income. However, Petitioner's application sets aside nearly half of its 230 units for residents earning 60 percent of the area median income, and the application anticipates receiving tax credits for these set-asides, as well as the set-asides for residents earning 50 percent or less of the area median income. Numerous elements in Petitioner's application reveal Petitioner's expectation to qualify the entire basis of its project for Tax Credits. For instance, Form 1, Item III.E, shows that 100 percent of the 230 units are set aside. However, a note at the top of this sub-item warns: "If the set-aside percentage and the Number of Residential Units shown in Items E, F, G and H are found to be inconsistent with other forms in the Application, the information contained in Form. . . 20 for [the HC program] WILL BE RELIED UPON." Form 10, which calculates the leveraging effect of allocated tax credits based on the number of set-aside units, similarly reveals the expectation that 230 units would be set aside for lower-income residents and, thus, eligible for generating Tax Credits. On Form 20, Item III, Petitioner provided additional evidence of its expectation to obtain tax credits for all 230 of its set-aside units. Item III shows Petitioner's commitment to set aside 15.65 percent of the units for residents earning not more than 33 percent of the area median income, 36.09 percent of the units for residents earning not more than 50 percent of the area median income, and 48.26 percent for residents earning not more than 60 percent of the area median income. Form 20, Item III, requires the applicant to represent that it will maintain these set-aside percentages--clear evidence that the applicant is anticipating Tax Credits for all of the set-asides scheduled in Form 20, Item III. As a whole, though, the application reveals only that Petitioner expected to obtain Tax Credits for all 230 units. If the application, construed as a whole, were to represent the 20/50 election, nothing in the application reveals whether Petitioner's expectation to obtain a larger amount of Tax Credits emerged from a scrivener's error in marking the 20/50 election, rather than the 40/60 election, as Petitioner contends, or a failure to understand the regulatory limitation imposed upon the 20/50 election. Nothing in the application actually mentions a 40/60 election, and Petitioner did not attempt to address the apparent 20/50 election until after the deadline for submitting applications. One of Petitioner's witnesses was a vice president of Heritage Affordable Development, Inc. She testified that her job imposed upon her numerous responsibilities in preparing Petitioner's application, including the task of placing the x in the box for the 40/60 election, and she mistakenly placed the x in the box for the 20/50 election. This is the only direct evidence in the record indicating whether the 20/50 election was due to a misunderstanding of the federal regulation limiting the use of the 20/50 election or a mistake in checking the right box on the form. Although her testimony is self-serving, Petitioner's witness testified in a forthright manner, as she described her hurried and fatigued efforts to complete the application by the deadline. The Administrative Law Judge credits her testimony that she intended to check the 40/60 election, but, in her haste, checked the 20/50 election, and time did not permit her to discover her error until after she had submitted Petitioner's application. However, even if Petitioner's election were treated as a scrivener's error, the question would remain whether the correction of such an error would materially affect Petitioner's application. An extensive review of recent case law reveals no better definition of what is "material" than that offered by Respondent's witness, who testified that something is material if it affects the outcome. In other words, something is material if it is consequential. Changing a 20/40 set-aside election to a 40/60 set-aside election would be undeniably material to Petitioner's application. If the application effectively makes the 20/50 election, absent changing its election, Petitioner would suffer the major consequence of the loss of eligibility for Tax Credits for nearly half of the 230 units to be developed. Thus, the only way that the proposed change may be deemed inconsequential or immaterial is if the application, fairly construed, as a whole, already makes the 40/60 election, and Petitioner seeks only to clarify this election in Form 20, Item 1. As already noted, Form 20 expressly supersedes any contrary set-aside information in Form 1. The express deference in Form 1, Item II.E, to the set-aside information contained in Form 20, as well as the reference to "other forms in the Application," sufficiently notifies the careful reader of the application that the set-aside information in Form 20 is the definitive expression of the actual set-aside election contained in each application. However, Form 20 itself is contradictory concerning the set-aside election. The clear and first expression of the set- aside commitment in Form 20 chooses the 20/50 set-aside, but the second, more detailed (and thus less amenable to misstatement) expression of the set-aside commitment reveals the choice of the 40/60 set-aside in the set-aside schedule. The resulting ambiguity in Form 20 requires, under the case law discussed in the Conclusions of Law, consideration of the two provisions in Form 20, in pari materia, in an effort to discern the true meaning of this document in terms of the set- aside election. Construed together, as well as with the many other Items reflecting a 40/60 election and the absence of any other Items reflecting a 20/50 election, the application, as a whole, evidences a 40/60 set-aside election. As already noted, the determination that Petitioner's application effectively makes the 40/60 set-aside election affects the scoring of other Items. Most directly, Petitioner challenges the assessment of a 2.5 point penalty for the discrepancy between the set-asides elected in Form 20, Item I, and the set-asides shown in Form 1, Item II.E. Respondent may not assess a penalty on Form 1 because the set-asides shown in Form 1, Item II.E, are not incorrect. Although they are inconsistent with the set-aside election shown in Form 20, Item I, the error is in the latter Item, and Respondent has already assessed a penalty for this mistake. However, Respondent relied on another basis for the assessment of the 2.5 point penalty for Forms 1-4. Although the record is largely undeveloped on this point, Petitioner has failed to show that its provision of a utility allowance is not flawed by an omission of the utility provider in Form 1, Exhibit H. Thus, Petitioner has failed to prove that the 2.5 point penalty for Forms 1-4 is incorrect. A more important scoring issue that arises from the determination of the actual set-aside election involves Form 4, Exhibit B, which is the equity commitment letter issued on February 29, 2000, by SunAmerica Affordable Housing Partners, Inc. This is a firm undertaking by SunAmerica Affordable Housing Partners, Inc., to cause its affiliate to purchase a 99.9 percent limited partnership interest in Petitioner for a specified sum. The equity commitment letter requires that Petitioner obtain a specified amount of Tax Credits based on a determination that the qualified basis attributable to all 230 units is eligible for Tax Credits because all 230 units are set aside for reduced-income residents. Respondent allowed no points for the equity commitment letter because it was conditioned on all 230 units being set aside for reduced-income residents. However, as determined above, the application, fairly construed as a whole, makes the 40/60 election and thus satisfies this condition in the equity commitment letter. At the hearing, Respondent's witness, acknowledging that the apparent 20/50 election was the major reason why Respondent gave Petitioner no points for the equity commitment letter, testified that additional reasons existed for at least deducting points from the letter, as a conditional, rather than firm, commitment to purchase an equity interest in Petitioner. Form 4, page 4 of 14, describes the requirements imposed upon an equity commitment letter: A firm commitment from a Housing Credit Syndicator . . . is an agreement which is executed and accepted by all parties, is dated, and includes all terms and conditions of the agreement. . . . In order for a syndication/equity commitment to be scored firm, it must state the syndication rate (amount of equity being provided divided by the anticipated amount of credits the syndicator expects to receive), capital contribution pay-in schedule (stating the amounts to be paid prior to or simultaneous with the closing of construction financing and stating the amounts to be paid prior to closing of permanent financing, or in the event of a construction/permanent first mortgage, the amount to be paid prior to or simultaneous with the closing of construction financing and state the amounts to be paid prior to conversion to permanent financing), the percentage of the anticipated amount of credit allocation being purchased, and the anticipated housing credit allocation. Respondent's witness testified that the equity commitment letter fails to include a syndication rate and possibly a capital contribution pay-in schedule. However, as Respondent's witness admitted, the syndication rate is evident from the information contained in the equity commitment letter. As noted in the cited provision from Form 4, the syndication rate is the equity provided divided by the anticipated Tax Credits allocated to the syndicator. Using the information contained in the equity commitment letter, SunAmerica Affordable Housing Partners, Inc., is purchasing a partnership interest that will entitle it to 99.9 percent of the $7,380,700 in Tax Credits, or $7,373,319 in Tax Credits. Dividing SunAmerica's equity contribution of $5,906,032 by its share of Tax Credits yields the syndication rate of 80.1 percent. Likewise, the equity commitment letter adequately describes the capital contribution pay-in schedule. The equity commitment letter calls for SunAmerica to pay $3,248,317 upon the closing of the amended partnership agreement; $2,362,413 upon the commencement of construction (matched dollar-for-dollar with construction financing) and upon the satisfaction of the standard conditions set forth in SunAmerica's standard form partnership agreements; and $295,302 upon the commencement of amortization of the permanent loan, receipt of an audited cost certification of eligible basis, receipt of certain forms for the entire development; and satisfaction of the standard conditions set forth in SunAmerica's standard form partnership agreement. The adjuster clause, which reduces SunAmerica's capital contributions, dollar-for-dollar, for any reductions in actual Tax Credits is a standard provision in equity commitment letters and does not mean that the letter is firm and unconditional. Petitioner has thus proved that it is entitled to all available points for its equity commitment letter. Lastly, Petitioner has proved that it is entitled to additional points on Form 10 for leveraging Tax Credits. Respondent allowed only 2.55 points out of 10 points for Form 10 due to its treatment of the application as making the 20/50 election and thus the loss of nearly half of the set-aside units. Treating the application as making the 40/60 election results in Petitioner earning 9 points on Form 10. Form 4, Exhibit C, is the loan commitment letter issued on February 22, 2000, by SunAmerica, Inc. This is a firm undertaking by SunAmerica, Inc., to lend funds to Petitioner, subject only to the kinds of conditions that Respondent typically and reasonably determines are customary and not so substantive as to preclude a determination that the letter is firm and unconditional. Respondent allowed no points for the loan commitment letter because the letter requires that, prior to the loan closing, Petitioner and its guarantor (its sole owner and general partner, Affordable Housing Solutions for Florida, Inc.) "submit evidence satisfactory to [SunAmerica, Inc.] that [Petitioner] has invested at least $50,000 in the Property in the form of equity or unsecured debt." Petitioner relied in its application on the deferral of a developer's fee of $559,503.07 for a period of up to ten years to satisfy this requirement of the loan commitment letter. In this case, the co-developer, Heritage Affordable Development, Inc., has agreed to defer its developer's fee. Neither the lender nor Respondent has raised a question concerning the source of the funds derived from the deferral of the developer's fee. In essence, the lender is requiring the addition of $50,000 in funds without the dilution of ownership interests or creation of secured debt; thus, it is irrelevant that the source of the funds is a co-developer, rather than Petitioner itself or Petitioner's general partner. Because Petitioner is obligated eventually to pay the deferred developer's fee, Respondent correctly determined that the deferred developer's fee does not qualify as equity. Inexplicably, though, Respondent seems not to have seriously considered whether the deferred developer's fee qualifies as unsecured debt. As already noted, the loan commitment letter requires $50,000 of either equity or unsecured debt. A deferred developer's fee is unsecured debt. Deferring a developer's fee executes in a single step the two- step transaction in which Petitioner pays the developer the subject portion of the developer's fee, and the developer immediately lends it back to Petitioner, taking an unsecured note in return. When informed of the issue, the lender itself acknowledged the obvious, by letter dated October 9, 2000, that the deferred developer's fee is unsecured debt. Petitioner has thus proved that it is entitled to all available points for its loan commitment letter. Form 7, Exhibit D, is the Verification of Environmental Safety. This is a certificate by an environmental consultant that the site of the proposed development is free of potential problems, such as asbestos or lead-based paint in existing structures. The form initially generated by Respondent contains three lines at the top for the identification of the proposed developer and development, but inadvertently omits underlining in the main body of the certificate where the name of the environmental consultant is to be placed. The original form contains a parenthetical explanation in smaller type that states: "(Name of Firm which prepared the Phase I Environmental Report)." As already noted, the application imposes penalties for the "failure to provide complete, accurate information in the format and location prescribed by the instructions " Relatively minor in amount and sparingly assessed, as in a single penalty regardless of the number of errors in a series of Forms, penalties rightly punish deviations from strict, technical, and formal compliance with the demands imposed by the Forms. Petitioner's challenge of the assessment of a 1.5 point penalty for the obvious omission in Form 7, Exhibit D, unjustifiably attempts to substitute the substantive considerations that govern scoring for the formal considerations that govern assessing penalties. In any event, the omission from Form 7, Exhibit D, is substantial. Following the space for the name of the environmental consultant, Form 7 then provides the substance of the certification: "[X, Inc.] hereby certifies that a Phase I Environmental Assessment of the above proposed Development Site . . . was performed by this firm and a detailed report . . . was prepared." The omission of the name of the environmental consultant, coupled with a signature that poorly communicates the idea that the signatory is signing in a representative capacity on behalf of the environmental consultant, amply supports Respondent's assessment of a 1.5 point penalty. In summary, Petitioner has proved that Respondent has mis-scored Petitioner's application by deducting points on Form 4 for an equity commitment letter and loan commitment letter that are actually firm; deducting points on Form 10 for inadequate Tax Credit leveraging; and deducting points on Form 21 for an equity commitment letter that is actually firm. Respondent should rescore Petitioner's application to correct these items and any other items for which Petitioner lost points due to Respondent's treatment of the application as making a 20/50 set-aside election.
Recommendation It is RECOMMENDED that the Florida Housing Finance Corporation rescore Petitioner's application to reflect the findings and conclusions contained in this recommended order and, if the resulting score is sufficiently high, invite Petitioner to credit underwriting. DONE AND ENTERED this 19th day of October, 2000, in Tallahassee, Leon County, Florida. ROBERT E. MEALE 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 19th day of October, 2000. COPIES FURNISHED: Pamela Duncan, Acting Executive Director Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32301 Jon C. Moyle, Jr. Cathy M. sellers Moyle, Flanigan, Katz, Kollins, Raymond & Sheehan, P.A. The Perkins House 118 North Gadsden Street Tallahassee, Florida 32301 Elizabeth G. Arthur General Counsel Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32301
Findings Of Fact FMCC is a corporation organized and existing under Delaware law. FMCC maintains its principal place of business in Dearborn, Michigan. FMCC is a wholly owned subsidiary of Ford Motor Company. FMCC qualified and is authorized to do business in the State of Florida pursuant to the foreign corporation provisions of Chapter 607, Florida Statutes, and has continuously maintained a registered office and agent in this state during the audit years at issue. During the tax years 1980-1982, inclusive, FMCC and Ford filed corporate tax returns in Florida and paid the taxes due thereon under the Florida Income Tax Code; FMCC maintained 7 to 8 branch offices and employed approximately 200 people in Florida; and Ford had contractual relationships with approximately 130 to 150 authorized Ford dealers in Florida. A copy of a representative agreement between Ford and the dealers is Exhibit 3 to this Stipulation. FMCC's principal business is financing the wholesale and retail sales of vehicles manufactured by Ford Motor Company. During the audit period FMCC provided financing for the purchase of vehicles as authorized by Ford dealers from Ford Motor Company. FMCC also: provided financing for the purchase of automobiles by the public from the dealers; and engaged in commercial, industrial and real estate financing, consumer loan financing, and leasing company financing in the State of Florida as well as other states. Attached as Composite Exhibit 4 are sample documents utilized by FMCC in the above financing. The majority of the intangibles in question are accounts receivables held by FMCC and owned by Florida debtors in connection with the purchase of tangible personal property shipped to or located in the State of Florida. FMCC is the holder of security agreements executed by thousands of Florida debtors. These security agreements gave FMCC a lien on tangible personal property located in the State of Florida. The Florida Secretary of State's Office was utilized by FMCC during the assessment period to perfect and protect its liens created under these security agreements with Florida debtors by the filing of U.C.C. financing statements. None of the original notes are stored in Florida. During the assessment period, FMCC utilized or could have utilized the Florida Courts to recover sums due by Florida debtors on delinquent accounts receivable. In addition, FMCC utilizes the Florida Department of Highway Safety and Motor Vehicles to perfect its liens on motor vehicles pursuant to Chapter 319, Florida Statutes. In 1983, the Department conducted an audit of the FMCC intangible tax returns for tax years 1980 through 1982, inclusive. On June 3, 1983, the Department proposed an assessment of tax, penalty and interest in the total amount of $2,560,379.00. See Exhibit 5. FMCC filed a timely protest. On October 8, 1984, the Department issued a Notice of Decision. See Exhibit 2. On December 12, 1984, the Department acknowledged receipt of FMCC's timely November 8, 1984 Petition for Reconsideration. On February 18, 1985, the Department issued a Notice of Reconsideration. See Exhibit 6. FMCC elected to file a Petition for Formal Proceedings, which was received on April 8, 1985. On the basis of the revised audit report, the Department of Revenue imposed the intangible tax on FMCC for the tax years 1980 through 1982, inclusive, in the following categories, and in the taxable amounts listed as follows: 1/1/80 1/1/81 1/1/82 Commercial Finance Receivables-- $342,892,615 $403,061,571 $486,412,164 Retail Commercial Finance Receivables-- 218,591,180 241,993,462 228,303,569 Wholesale Simple Interest Lease Receivables-- 66,345,902 75,978,095 71,315,777 Retail Lease Finance Receivables N/A N/A N/A Capital Loan Receivables 3,112,877 2,064,698 2,419,770 Consumer Loan Receivables 10,144,531 14,122,666 18,578,699 Service Equipment Financing--Dealer I.D. 481,869 368,186 422,108 Receivables Ford Rent-A-Car Receivables 27,825,283 26,179,377 20,362,896 Ford Parts & Service Receivables -0- 10,499,401 10,800,313 (10) Accounts Receivables--Customers & Others 3,452,194 4,581,629 4,952,234 (11) Accounts Receivables--Affiliate 1,617,880 2,914,094 4,438,849 (12) C.I.R. Receivables 23,243,257 27,387,938 24,222,621 TOTAL FLORIDA RECEIVABLES------ 697,707,588 809,151,117 872,229,000 TAX AT 1 MILL---- 697,708 809,151 872,229 LESS ORIGINAL TAX PAYMENT------ 312,703 351,976 339,142 LESS PETITION PAYMENT ON AGREED CATEGORIES------ 51,069 53,567 44,586 TOTAL REMAINING TAX ASSESSED------ $333,936 $403,608 $488,501 TOTAL TAX FOR ALL YEARS----- $1,226,045 REVISED ASSESSMENT FIGURES DOES NOT INCLUDE $1,386.18 OF THE PETITION PAYMENT At the time it filed its petition for a formal hearing, FMCC agreed to and paid the 1 mill tax, but no interest or penalty, on the following amounts. The taxability of these items is no longer in dispute, only penalty and interest. 1980 1981 1982 (8) Ford Rent-A-Car 27,825,283 26,179,377 20,362,896 Receivables (12) CIR 23,243,257 27,387,938 24,222,621 Receivables Capital Loan Receivables (item 5 of paragraph 11) reflect amounts of money owed by Ford dealers to FMCC. The obligation arises from loans made to Ford dealers located in Florida to expand showroom or other facilities and for working capital. The items located as (10) Accounts Receivable - Customers and Others and (11) Accounts Receivables - Affiliates in paragraph 11 reflect only the amount of accrued interest to which FMCC is entitled on notes from non-affiliates and affiliates, respectively, from the last settlement date prior to year end until the end of each respective year. The principal amounts owed on these notes, which are not secured by realty, are included in other categories. The Department does not assess a tax for similar interest when the amount owed is secured by realty. Wholesale and retail intangibles were created and handled in 1980, 1981 and 1982 by FMCC in the manner set forth in Exhibit 7. The Department of Revenue has imposed penalties in the amount of $543,968 composed of $330,051 as the 25% delinquent penalty imposed pursuant to Fla. Stat. Section 199.052(9)(a) (1983), and $15,886 as the 15% undervalued Property penalty imposed pursuant to Section 199.052(9)(d)(1983), Florida Statutes. The Department offered abatement of the 15% omission penalty ($198,031) imposed pursuant to Fla. Stat. Section 199.052(9)(c) (1983). The closing agreement required pursuant to Fla. Stat. Section 213.21 reflecting this reduction of penalty was not signed by petitioner. FMCC's intangible tax returns have been audited on prior occasions. The manner of reporting was identical to the manner in which FMCC reported its intangibles for tax years 1980 through 1982. The 1973-1975 and the 1976-1978 audits were "no change" audits. FMCC's method of reporting receivables generated from Florida sales was challenged by the Department of Revenue. The challenge was dropped because the Department of Revenue did not have the statutory authority to assess sales of tangible personal property with an f.o.b. point other than Florida. Chapter 77-43, Laws of Florida amended Section 199.112, Fla. Stat. to allow tangible personal property (sic) [to be taxed] regardless of the f.o.b. point of sale. This amendment applied to the January 1, 1978 taxable year. There was a 1978-1980 "no change" audit. Ford Motor Company has filed refund claims for certain categories for the tax year 1981 and 1982. Ford Motor Company claims that it inadvertently paid intangible tax on accounts receivable owned by FMCC. As presented in the Notice of Decision, no refund will be made as it will be handled as a credit against taxes due by Ford Motor Company. While not an announced policy, the Department of Revenue drafted and utilized proposed rules relating to compromising penalties. These rules are not final. Attached as Exhibit 8 are the proposed rules. A copy of these rules was provided to Petitioner by letter dated July 28, 1986. In addition, while not an announced policy the Department of Revenue utilized guidelines established by the Internal Revenue Service and federal court for compromising penalties.
