Findings Of Fact The parties have stipulated to all facts in this proceeding. Those facts found relevant to a determination of the issue are as follows: Petitioner, American Telephone and Telegraph Company, is a New York corporation and is functionally divided into two divisions: the Long Lines Department and the General Department. Through its Long Lines Department, petitioner is a federally regulated public utility and common carrier which furnishes interstate and international telecommunications services. Long Lines is responsible generally for the construction, operation and maintenance of a nationwide system of interstate telecommunications facilities and related equipment which serve to interconnect the facilities of over 1700 operating telecommunications companies in the United States as well as telecommunications systems abroad. Some of these facilities extend into and through the State of Florida. In performing this interstate business, Long Lines operates, and thus has property or employees or both in 49 states, including Florida. Through its General Department, petitioner is the parent corporation of 21 operating telecommunications companies (known as "Associated Companies"), Western Electric Company, Inc. ("Western") and Bell Telephone Laboratories, Inc. ("Bell Labs"). The General Department holds and manages the stock owned in these subsidiaries and two minority owned companies, and provides capital. advice and assistance to them. It conducts these activities principally in New York and New Jersey and conducts no business and has no property or employees in Florida. The only business activities in the State of Florida during 1972, 1973 and 1974 were conducted through petitioner's Long Lines Department in connection with the operation of the interstate and international long distance telecommunications network. None of the Associated Companies is organized under the laws of Florida or has its headquarters in Florida. The Only Associated Company which conducts business or has property or employees within Florida is the Southern Bell Telephone and Telegraph Company (hereinafter "Southern Bell"), a wholly owned subsidiary of petitioner. Southern Bell files its own separate Florida income tax returns and during the period 1972-1974 paid approximately $10 million in income tax to Florida. The respondent concurs that petitioner is entitled to deduct 100 percent of the dividends paid by Southern Bell to petitioner. Western, also a wholly owned subsidiary of petitioner, is a manufacturing corporation with its own Board of Directors and officers, doing business in all 50 states. During the period 1972-1974 Western paid approximately $1.7 million in income tax to Florida. The respondent concurs that petitioner is entitled to deduct 100 percent of the dividends paid by Western to petitioner. For each of the 1972, 1973 and 1974 tax years, petitioner has filed a federal consolidated income tax return, and has made a valid election under Section 243 of the Internal Revenue Code for each of those years. That provision of the federal tax law permits a domestic corporation to deduct 100 percent of the dividends received from its wholly-owned domestic subsidiaries. Petitioner's federal income tax returns were audited by the Internal Revenue Service and the respective tax liabilities were determined and paid for each of the years in question. The Internal Revenue Service did not tax dividends received by petitioner from its affiliates. Petitioner timely filed its Florida corporate income tax returns for the years ending December 31, 1972, December 31, 1973 and December 31, 1974. Petitioner did not elect and was not required to file a Florida consolidated income tax return under Section 220.131, Florida Statutes. For each of the years in question, petitioner reported on line 1--"federal taxable income (line 30, Form 1120 or corresponding line on related form 1120 series, 990C or 990T)"- -of its Florida corporation income tax return (Form F-1120) its taxable income for federal income tax purposes computed as if petitioner had filed a separate federal income tax return for each of the years in question and for each preceding taxable year for which it was a member of an affiliated group. These amounts were: 1972 $ 94,020,281 1973 $213,364,165 1974 $110,770,402 On its Florida corporation income tax return for each of the years in question, petitioner made the additions and subtractions required by the form of the return in computing "adjusted federal income" and apportioned this amount by the prescribed three-factor formula to obtain "Florida net income." The Department of Revenue adjusted the amount of "federal taxable income" and hence "Florida net income" of petitioner for each of the years in question by adding thereto 15 percent of the dividends received from subsidiaries which were deductible for federal income tax purposes under Section 243 of the Internal Revenue Code. On April 10, 1978, the Department issued a notice of proposed deficiency for petitioner's tax years ended December 31, 1972, December 31, 1973 and December 31, 1974. The total amount of the proposed deficiency was $1,131,158, computed as follows: YEAR AUDITED TAX TAX AS FILED DEFICIENCY 1972 $426,468 $122,365 $304,103 1973 668,597 281,168 387,429 1974 594,300 154,674 439,626 Total $1,689,365 $558,207 $1,131,158 After a timely protest to the proposed deficiencies was filed by the petitioner, correspondence and an informal conference between the parties was had. Finally, on April 16, 1981, the Department issued a letter denying the protest and petitioner petitioned for an administrative hearing. Through correspondence and discussions with the petitioner, the Department of Revenue has taken the position that it would allow only an 85 percent dividend deduction for the dividends received by petitioner from those affiliates which were not subject to the Florida corporate income tax code. Petitioner is seeking to take a 100 percent deduction of all dividends which it received from its subsidiaries, as it did on its federal income tax returns. The dividends received by petitioner which the Department is attempting to subject to Florida tax by its proposed deficiency assessment are derived from its equity investment in its subsidiaries and they represent to petitioner a return on such investment. Since the actual capital, however, for that investment is furnished primarily by public investors, the principal use of the dividends received by petitioner is to meet its obligation to its shareholders and bondholders for the payment of dividends and interest. For example, in 1974 petitioner received dividends from the Associated Companies, Western and other affiliates in the amount of $2,538,443,000 and paid dividends to shareholders in the amount of $2,039,800,000 and interest on its long and intermediate term debt of $475,670,000. Petitioner, therefore, serves as the investor interface between the investing public and its subsidiary companies, whereby the purchase of petitioner's stock or debt issues actually represents an investment in the earnings of the Bell System. Petitioner, acting through its General Department, thus provides the avenue by which the subsidiaries pass their net earnings to the investing public. The income which the Department seeks to tax is derived from dividends received by petitioner primarily from earnings generated by the property and employees of the Associated Companies which are devoted to furnishing intrastate and interstate telecommunications services in their operating territories in states other than the State of Florida. These earnings are subject to income taxes in all states in which the Associated Companies provide telecommunications services that impose income taxes on corporations. The dividends received by petitioner do not contribute to the funding of Long Lines since (1) the pervasive regulation under which petitioner's subsidiaries operate limits their earnings to that amount sufficient for the needs of their own operations and effectively prevents those earnings from being available for use in other businesses and (2) earnings paid out as dividends by petitioner's subsidiaries are principally required to be passed to the public investors in the Bell System, through petitioner's General Department, in order to meet dividend and interest obligations to these outside shareholders and bondholders. During the tax years in question, the Department of Revenue had not promulgated any rule with respect to the disallowance of a deduction for 100 percent of dividends received as provided for under Section 243 of the Internal Revenue Code, and the Florida corporate income tax return forms did not require any such add-back or adjustment. During the 1980 legislative session, an amendment to Chapter 220, Florida Statutes, was proposed which would have changed the definition of "affiliated group of corporations." Such proposed legislation was not passed and did not become law.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that that portion of the Department's proposed assessment of deficiencies for the 1972, 1973 and 1974 tax years as is based upon dividends received by the petitioner from its affiliates be withdrawn as being contrary to law and invalid. Respectfully submitted and entered this 28th day of April, 1982. DIANE D. TREMOR, 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 28th day of April, 1982.
The Issue The issue in this case is whether Petitioner is liable for corporate income and excise taxes that have been assessed by Respondent.
Findings Of Fact Petitioner is a subsidiary of PBS Building Systems America, Inc. (PBS- A). PBS-A and Petitioner filed consolidated Florida income and excise tax returns during the time in question. During the years in question, PBS-A had no tax nexus with Florida, but incurred losses that were available to offset gross income. During the years in question, Petitioner had nexus with Florida and incurred taxable income. The filing of the consolidated return reduced the taxable income of Petitioner by the losses of PBS-A. On December 19, 1990, Respondent issued two notices of proposed assessment for years ending December 31, 1985, through March 31, 1989. One notice identifies $8273 of unpaid corporate excise tax, plus $2798 of interest through September 15, 1990. The notice states that interest would continue to accrue at the daily rate of $2.27. The second notice of proposed assessment identifies $55,480 of unpaid corporate income tax, plus $20,254 of interest through September 15, 1990. The notice states that interest continues to accrue at the daily rate of $15.20. Petitioner filed a notice of protest dated February 15, 1991. By notice of decision dated October 17, 1991, Respondent rejected the protest and sustained the proposed deficiencies. The claimed deficiency for unpaid corporate income tax, however, was revised to $75,039. A notice of reconsideration dated July 21, 1992, restates the conclusions of the notice of decision. By petition for formal hearing dated September 16, 1992, Petitioner requested a formal hearing concerning the tax liabilities in question and specifically the conclusion that PBS- A was ineligible to file a consolidated return in Florida due to the absence of tax nexus with Florida. The September 16 letter recites facts to establish tax nexus with Florida through the establishment of financing relationships. However, it is unnecessary to consider the sufficiency of these factual assertions because they represent mere allegations. Petitioner failed to produce any evidence in the case and, when noticed for a corporate deposition, failed to appear. Additionally, Petitioner's failure to respond to requests for admission results in admissions that, during the relevant period, PBS-A was not a bank, brokerage house, or finance corporation and did not lend money to Petitioner.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Revenue enter a final order sustaining the above-described assessments against Petitioner. ENTERED on February 12, 1993, in Tallahassee, Florida. ROBERT E. MEALE 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 12th day of February, 1993. COPIES FURNISHED: Dr. James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Attorney Lisa Raleigh Department of Legal Affairs Tax Section, Capitol Building Tallahassee, FL 32399-1050 Kathryn M. Jaques Arthur Andersen & Co. Suite 1600 701 B Street San Diego, CA 92101-8195
Findings Of Fact Having considered the pleadings, evidence and legal arguments presented in this cause, the following facts are found: Petitioner is a corporation duly organized under the laws of the State of New Jersey and qualified to do business is one State of Florida. Two of the subsidiaries of Petitioner are Island Properties, Inc., formerly known as Heftler International, Inc., and Island Land Corporation, formerly known as Heftler Construction Company of Puerto Rico, Inc. These corporations are organized under the laws of the State of Florida and the State of New Jersey respectively and maintain principal places of business in Puerto Rico. For the fiscal years ending July 31, 1972 and July 31, 1973, petitioners properly included losses from the operations of the Puerto Rico corporations in their consolidated income tax returns filed with the Internal Revenue Service. For the fiscal years ending July 31, 1972, and July 31, 1973, petitioners timely filed with the respondent consolidated income tax returns including therein the operations of the Puerto Rico corporations. After a timely audit, the respondent excluded, for the purposes of computing adjusted federal income as defined by 220.13, the losses sustained by the Puerto Rico corporations. The respondent also excluded from the computation of the apportionment factors defined in F.S. s. 214.71 and 220.15 the value of the property, payroll and sales utilized in the operations of the Puerto Rico corporations. The respondent cited F.S. ss. 220.13(1)(b)2.b, 220.15(3) and 214.71 as its authority. The adjustments made by the respondent results in a net proposed deficiency of $75,076.46 for the two fiscal years in question. After attempts by the parties to resolve the issues by informal means failed, the petitioner requested a formal hearing and the respondent requested the Division of Administrative Hearings to conduct the hearing.
Recommendation Based upon the above findings of fact and conclusions of law, it is recommended that there is no basis for affording petitioners any relief from the proposed deficiency and that said deficiency in the amount of $75,076.46 be sustained. Respectfully submitted and entered this 20th day of November, 1975, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Lewis M. Kanner, Esquire WILLIAMS, SALOMON, KANNER DAMIAN 1003 du Pont Building Miami, Florida 33131 E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 Mr. J. Ed Straughn Executive Director Department of Revenue Tallahassee, Florida 32304
The Issue Petitioners' liability for corporate income tax deficiency under Chapter 220, Florida Statutes.
Findings Of Fact Petitioner is a Georgia Corporation doing business as a heavy electrical contractor in Georgia and eight other states including Florida. In 1972, Petitioner submitted a request to the Department of Revenue that it be allowed to use "separate accounting" as the method for determining the amount of its adjusted federal income that was subject to taxation by the State of Florida under Chapter 220,Florida Statutes. By letter of October 3, 1972, T.H. Swindal, Respondent's Chief of the Corporation Income Tax Bureau, denied Petitioner's request with the following language: "The economics of large scale interstate construction operations, as we understand them, necessitate maximum utilization of a company's resources. At particular times and in a particular locale or with respect to particular types of construction activity contracts may be initially or regularly bid upon and undertaken which, on an individual contract basis, will be minimally profitable, if at all. Nevertheless, because these contracts permit cost absorption, continuing use and charge for equipment, trained crews and know-how; permit maximum employment of the company's capital and credit accomo- dations; permit initial entry into a new field of construction activity or a new locale, these contracts indirectly but significantly add to the profitability of the enterprise as a whole. We recognize too, that separate accounting essentially serves management and that management must evaluate competitive tax implications. "Separate accounting" does not, in our view, measure the impact of these cir- cumstances. We are of the opinion that Florida's three factor formula does measure the impact of these circumstances upon profit and thus provides a fairer Florida tax base." (Complaint, Petitioner's Exhibit 1) Respondent however, pursuant to a request of Petitioner, permitted the latter to leave its 1972 return as filed, but instructed it to file in the future utilizing the "three-factor" formula. Accordingly, the Petitioner filed its 1973 and 1974 tax returns utilizing the "three-factor" formula" as directed by the Respondent, and paid the appropriate tax due. By letter, dated September 15, 1975, Mr. Swindal informed Petitioner that examination of its returns for the years 1972 thru 1974 had resulted in a net proposed deficiency of $12,417.60. An accompanying report showed that the primary basis for the deficiency was Respondent's determination that the Florida portion of adjusted federal income for the years 1973 and 1974 should have been increased by the amounts of $87,772.93 and $160,117.83, respectively, based on a "separate accounting" computation. The reason given for this determination was stated as follows in the report: "Florida Statute 214.73(1) says in part that if the apportionment methods of Florida Statute 214.71 and 214.72 do not fairly represent the extent of a taxpayer's base attributable to this state, the department may require separate accounting. The department has determined the taxpayer should use separate accounting in accordance with the above-mentioned, statute." (Complaint and exhibits thereto) Respondent had not notified Petitioner between 1972 and 1975 of its apparent change in position with respect to the required method of accounting. At a conference held on February 19, 1976, between Petitioner's representatives and Mr. William T. Lutschak who represented the Respondent, Petitioner protested the asserted deficiency and requested that the Respondent adhere to its former determination that the "three-factor method" be applied in computing the tax. Petitioner's protest was denied orally at the conference and such denial w-s confirmed by Mr. Swindal's letter of February 24, 1976, as follows in pertinent part: "Careful analysis of the taxpayer's Florida activity and the financial results of that activity clearly demonstrate that the amount of income set forth in the auditor's report for the years at issue are attributable to taxpayer's Florida business and that F.S. 214.73(1), rather than F.S. 214.71, fairly represents the extent of the taxpayer's tax base attributable to this state." (Comp. & Exh. thereto) Respondent's auditor of Petitioner's 1973 and 1974 tax returns found nothing unusual concerning the latter's business operations during the above tax periods and is of the opinion that based on formulary accounting Petitioner's returns "fulfill the letter of the law". He also acknowledged that Petitioner met the criteria of a "unitary business". He testified that he was unable to determine the amount of property used by Petitioner on its various jobs in and out of Florida while at the audit site at Petitioner's home office in Alabama and that without such information it would be impossible to determine Petitioner's tax liability under the "three-factor method" because property is one of the factors. The auditor, after making a request of Petitioner for such figures during his audit, which did not produce immediate results, did not pursue the matter because he "had to go back to Tallahassee". In fact, such information was available in Petitioner's records. Respondent changed its policy with respect to the method of accounting required of Petitioner after consideration of a textbook on the concept of separate accounting and a resulting determination that the contracting business in general is a unique industry warranting special tax treatment. (Testimony of Harnden, Puckett, Malone, Exhibit 1, Pleadings). The alleged deficiency of $12,417.60 is correctly computed and properly due and owing if "separate accounting" is validly required with respect to Petitioner's tax returns. (Stipulation).
Recommendation That Petitioner be relieved from payment of the proposed assessment based on any tax deficiency produced by the requirement of separate accounting under Section 214.73, Florida Statutes. DONE and ENTERED 21st day of July, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division Northwood Mall Tallahassee, Florida 32303 James R. English, Esquire HENRY & BUCHANAN, P.A. P.O. Drawer 1049 Tallahassee, Florida 32302
Findings Of Fact Upon consideration of the pleadings, stipulations and oral representations of the parties, the following facts are found: During the years in question, petitioner was a corporation organized under the laws of the State of Delaware and was duly qualified and authorized to do business in the State of Florida. Petitioner is the parent corporation of a consolidated group of corporations, two of which (including petitioner) had Florida transactions or were otherwise separately subject to the Florida corporate income tax code. None of the other members of the consolidated group were subject to taxation in Florida. For the fiscal and calendar years 1972 through 1974, Petitioner filed federal and Florida income tax returns on behalf of the parent corporation, which included the returns for the consolidated group of corporations -- both the Florida and non- Florida members. Each member of the group consented to such consolidated filing and the component members of the Florida return group were identical to the members of the federal return group. Respondent issued its proposed deficiencies for the 1972 and 1973 tax years, ruling that for a parent corporation to include all of its subsidiary corporations for the purposes of consolidating its taxable income, it must be incorporated in Florida. For the years 1972, 1973 and 1974, respondent's Rule 12C-1.131(1), F.A.C., contained a definition of a "Florida parent company" as the term is used in the second sentence of Florida Statutes 220.131(1). This rule was amended on August 4, 1975, to delete said sentence defining the term "Florida parent company."
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that: petitioner pay the assessment of $3,786.33 for the year 1972, with interest, as stipulated by petitioner, the proposed assessment for the year 1973 in the amount of $112,281.06 be dismissed and set aside, and the petitioner's method of computing its corporate income tax for the year 1974 be upheld. Respectfully submitted and entered this 21st day of June, 1977, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of June, 1977. COPIES FURNISHED: M. Lewis Hall, Jr. Hall and Hedrick Greater Miami Federal Building 200 Southeast First Street Miami, Florida E. Wilson Crump, II Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303
The Issue Whether the Department of Revenue's ("Department") assessment for sales and use tax, penalty, and interest is valid, correct, and should be upheld.
Findings Of Fact The undersigned makes the following findings of relevant and material fact: The Department is the agency responsible for administering Florida's revenue laws, including the imposition and collection of state sales and use taxes. §§ 20.21 and 213.05, Fla. Stat. Cellular is a Florida S-corporation, having a principal address and mailing address of 11050 Pembroke Road, Miramar, Florida 33025. Resp. Ex. 4, Bates stamped p. 031. Cellular is a "dealer" as defined under section 212.06(2), Florida Statutes, and is required to collect and remit sales and use taxes to the State. § 212.06(2), (3)(a), Fla. Stat. The Department notified Cellular of its intent to conduct an audit by written notice and the request for specific records mailed on or about October 3, 2014. Resp. Ex. 2. The audit period is September 1, 2011, to August 31, 2014. Resp. Ex. 2, Bates stamped p. 279. Cellular has several locations in Florida where it sells cellular phones, accessories, phone repair services, and minutes for international calling cards to its customers. Cellular also provides services such as money transfers and accepts payments on behalf of Metro PCS. Store locations are in neighborhood business centers and in malls. During the audit period, Cellular had 11 store locations operating in Florida. Resp. Ex. 4, Bates stamped p. 031. Julia Morales is a tax auditor for the Department. She has been employed with the Department for 11 years. Initially, Morales worked as a tax collector. She has held the position of tax auditor since 2011. Morales has a bachelor's degree in finance and also engages in ongoing training with the Department in order to stay current with Florida Statutes and Department rules. Morales performed the audit and prepared the assessment in this case. Early in the audit, Cellular informed the Department that most of its sales were exempt from Florida's sales tax. Morales explained that insufficient sales records were supplied by Cellular to enable the Department to establish the exempt nature of sales transactions, and, therefore, exempt sales were disallowed by the Department. Resp. Ex. 4, Bates stamped p. 033. On September 3, 2015, the Department issued an initial Notice of Intent to Make Audit Changes ("DR-1215") in the total sum due, as of that date, of $463,677.61 (i.e., $327,257.39 tax, $81,814.34 penalty, and $54,605.88 interest). After receiving the DR-1215, Cellular requested a conference with Morales to review the assessment. The conference was held on November 9, 2015. Resp. Ex. 1, Bates stamped pp. 007-008; Resp. Ex. 4, p. 030; Resp. Ex. 15, Bates stamped p. 131; Resp. Ex. 16, Bates stamped pp. 130-189. After the November 9, 2015, conference, Cellular provided Morales with sales invoices and detailed sales reports for the audit period. Morales explained that the supplemental records established that Cellular's reported tax exempt sales were properly exempt from sales tax, and, therefore, audit assessment Exhibits A01 to A11 were deactivated. Resp. Ex. 4, Bates stamped pp. 029-031; Resp. Ex. 18, Bates stamped pp. 058- 068. Audit assessment Exhibit A12 was also deactivated because Cellular provided records needed to reconcile the difference between gross sales reported on its 2012 federal tax return and gross sales reported on the sales and use tax returns for the same period. Resp. Ex. 18, Bates stamped p. 069. Among the supplemental records supplied by Cellular to establish the tax-exempt basis for some of its sales, its monthly Sales Transaction Detail reports showed that six of Cellular's 11 stores did not remit to the Department all the sales tax they collected during the audit period. Consequently, Morales added audit assessment Exhibits A13 through A18 to document the sales tax collected but not remitted, detailed by store. Resp. Ex. 4, Bates stamped pp. 029-030; Resp. Ex. 18, Bates stamped pp. 070- 110. Morales testified that one of Cellular's stores that under-remitted sales tax, namely the Northwest Store, was operating but not registered with the Department for the entire audit period. Morales discovered that the Northwest Store collected sales tax on its sales and did not start to remit collected tax to the Department until September 2014, which was after the audit period. Of the remaining five stores, Cellular remitted to the Department approximately 50 percent of the sales tax it collected from July 2012 to August 2014. Resp. Ex. 18, Bates stamped pp. 075, 082, 088, 095, 102, and 109. As to consumable purchases (audit assessment Exhibit B01) during the audit, Cellular failed to provide records to establish that it paid use tax on consumable purchases. The sums expensed in Cellular's federal tax returns, which could have a sales tax implication, were relied upon by the auditor to create Exhibit B01. Resp. Ex. 4, Bates stamped p. 034; Resp. Ex. 18, Bates stamped pp. 111-125. Based upon the supplemental records supplied after the November 2015 conference, on February 4, 2016, the Department issued a revised Notice of Intent to Make Audit Changes ("DR-1215"), reducing the total sum due, as of that date, to $277,211.42 (i.e., $194,346.98 tax, $48,586.76 penalty, and $34,277.68 interest). Resp. Ex. 18, Bates stamped p. 053. Penalty considerations were reviewed by the Department. Resp. Ex. 19. Due to Cellular's failure to remit to the State collected sales tax, penalty was not waived by the Department. In addition, accrued statutory interest was also imposed as required by section 213.235, Florida Statutes. Resp. Ex. 18, Bates stamped pp. 054-056; Resp. Ex. 29, Bates stamped p. 2. On February 15, 2016, the Department issued a Notice of Proposed Assessment ("NOPA") in the total sum due, as of that date, of $277,620.29 (i.e., $194,346.98 tax, $48,586.76 penalty, and $34,686.55 interest). Resp. Ex. 23. On March 18, 2016, Cellular submitted a timely protest letter to the Department's Technical Assistance and Dispute Resolution ("TADR"). Resp. Ex. 25. Martha Gregory also testified for the Department. She has been employed with the Department for 20 years. Gregory currently holds the position of taxpayer services process manager in TADR. Gregory holds a bachelor's degree in accounting and has also taken master's level courses. TADR manages an assessment after a taxpayer submits a protest of a NOPA with the Department. Gregory is familiar with TADR's involvement in Cellular's case. Gregory testified that despite repeated efforts by TADR during the protest period, Cellular submitted no new information to the Department for review. Consequently, on April 17, 2017, TADR issued a Notice of Decision ("NOD"), sustaining the assessment in its totality. Because of accruing interest, the total sum due, as of that date, increased to $293,353.77. Resp. Ex. 24. On June 16, 2017, Cellular timely filed its petition for a chapter 120, Florida Statutes, hearing. In its petition, Cellular contests all taxes, penalty, and interest that have been assessed. (See petition filed with the Division on December 5, 2017.) After receiving the petition, the Department made repeated attempts to obtain information from Cellular to support the claims raised in their petition. Resp. Ex. 28. Because no additional information was submitted by Cellular, the petition was referred to the Division on December 5, 2017. Prior to this final hearing of June 28, 2018, Cellular provided additional records relevant to the sales tax assessed on consumable purchases (audit assessment Exhibit B01). Based upon the newly supplied supplemental records, the Department also deactivated Exhibit B01 from the assessment and issued a revised reduced assessment. As a result, on June 12, 2018, the Department issued a revised assessment, which reduced the additional sales and use tax owed to $158,290.02, plus $39,572.50 for a penalty and $55,040.52 in interest, for a total sum owed, as of that date, of $252,903.04. Resp. Ex. 29, Bates stamped p. 2. Erica Torres appeared at the hearing as Cellular's corporate representative and testified on Cellular's behalf. Torres is employed by Cellular as a manager in charge of sales personnel, commissions, schedules, and bookkeeping. She has been employed by Cellular since 2001. Torres admitted that the reports relied upon by the Department in determining that Cellular collected and failed to remit sales tax were correct. Cellular introduced no credible or persuasive evidence to support that the assessment was incorrect. The undersigned finds that more credible and reliable evidence is in favor of the Department. Cellular failed to demonstrate by a preponderance of the evidence that the assessment or proposed penalty and interest proven by the Department are incorrect.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order denying Cellular's requests for relief and sustaining the assessment in its entirety. DONE AND ENTERED this 22nd day of August, 2018, in Tallahassee, Leon County, Florida. S ROBERT L. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of August, 2018. COPIES FURNISHED: Mark S. Hamilton, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 (eServed) Randi Ellen Dincher, Esquire Office of the Attorney General Revenue Litigation Bureau The Capitol, Plaza Level 01 Tallahassee, Florida 32399 (eServed) Carlos M. Samlut, CPA Samlut and Company 550 Biltmore Way, Suite 200 Coral Gables, Florida 33134 (eServed) Leon M. Biegalski, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 (eServed)
Findings Of Fact Based upon the agreement of the parties as to the relevant facts in this case, the following facts are found: For the calendar years ending December 31, 1972 and 1973, petitioner filed its federal corporate income tax returns reporting gross income from dividends in excess of its taxable income before the special deduction of 85 percent of the dividends received, limited to 85 percent of taxable income. As a result, a maximum of 15 percent of its net income was included in its taxable income on the federal tax returns. The federal returns for calendar years ending December 31, 1972 and 1973 reflected the deduction of net capital losses incurred and carried forward from years ending prior to January 1, 1972, the effective date of the Florida corporate income tax code. For its calendar years 1972 and 1973, petitioner filed its Florida corporation income tax returns reporting no Florida net income. The respondent examined the returns and determined deficiencies of $374.49 for 1972 and $566.40 for 1973. Such determination was based primarily on the additions to income of net capital losses carried forward from years ending prior to January 1, 1972.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that there is no basis for affording petitioner relief from the proposed deficiency and that said deficiencies of corporate income tax of $374.49 and $556.40 for 1972 and 1973 respectively, be sustained. Respectfully submitted and entered this 22nd day of June, 1976, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Mr. T.H. Swindal Chief, Corporate Income Tax Bureau Department of Revenue Post Office Box 3906 Tallahassee, Florida 32303 Mr. Robert Fried Suite 210, Professional Centre 9000 Southwest 87th Court Miami, Florida 33176 Attorney for Petitioner Mr. Stephen E. Mitchell Assistant Attorney General Office of Legal Affairs The Capitol Tallahassee, Florida 32304 Attorney for Respondent
Findings Of Fact Petitioner is engaged in the cattle business and sells these cattle to in-state and out-of-state buyers who purchase the cattle at Clewiston, Florida, and have them transported either by the purchaser's own equipment or by a commercial carrier to their in-state or out-of-state destination. Those sales determined to be out-of-state sales are not included in the numerator of the fraction used to compute what percentage of Petitioner's income results from Florida sales and is therefore subject to Florida income tax. In making the determination respecting out-of-state sales Respondent applies the destination test if the cattle are shipped by common carrier but treats all other carriers as agents of the buyer to whom the cattle are delivered at Clewiston, thereby making such sales in-state sales. It is this policy determination which Petitioner contends is a rule. The policy has not been promulgated in accordance with Chapter 120, Florida Statutes, and, if this interpretation constitutes a rule, it is invalid because it was never promulgated as required. In determining whether certain sales are subject to the Florida sales tax, the Legislature in Section 212.06(5)(a), Florida Statutes, excluded from tax that tangible property imported or manufactured for export and provided such tangible property shall not be considered as being manufactured for export unless the manufacturer delivers the same to a licensed exporter for exporting or to a common carrier for shipment outside the State or mails the same by United States Mail to a destination outside the State. The rationale of the sales tax provision is used by Respondent in determining whether the sales are in-state sales for the purpose of computing Florida income tax. Respondent has promulgated, to its auditors, as a policy and as an interpretation of the statute, the directive to apply the destination test in determining out-of-state sales only when the merchandise sold is shipped by common carrier to a destination out of state. It is this policy determination or interpretation of the statutes that Petitioner contends is a rule and attacks in these proceedings. In the testimony Respondent acknowledged that this policy determination is uniformly applied. It also has application both within and outside the agency. Respondent further testified that if the merchandise (here cattle) had been delivered by Petitioner to the buyer outside the State of Florida by any means of transportation Petitioner chose, it would have treated the sale as an out-of-state sale.
Findings Of Fact 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.
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.
