The Issue The issues in this case are: (1) whether portions of Florida Administrative Code Rules 12D-9.020 and 12D-9.025 constitute invalid exercises of delegated legislative authority; (2) whether sections of Modules Four and Six of the 2010 Value Adjustment Board Training are unpromulgated rules; and (3) whether Property Tax Oversight Bulletin 11-01 is an unpromulgated rule.
Findings Of Fact The Parties Petitioner Turner is the Property Appraiser for Hillsborough County, Florida. Petitioners Crapo, Higgs, and Smith are the Property Appraisers for Alachua, Monroe, and Okaloosa Counties, respectively. Respondent, the Department of Revenue ("DOR"), is an agency of the State of Florida that has general supervision over the property tax process, which consists primarily of "aiding and assisting county officers in the assessing and collection functions." § 195.002(1), Fla. Stat. DOR is also required to prescribe "reasonable rules and regulations for the assessing and collecting of taxes . . . [to] be followed by the property appraisers, tax collectors . . . and value adjustment boards." § 195.027(1). Petitioner-Intervenor Roger A. Suggs is the Clay County Property Appraiser. Petitioner-Intervenor Gary R. Nikolitis is the Palm Beach County Property Appraiser. Petitioner-Intervenor PAAF is a statewide nonprofit professional association consisting of 35 property appraisers in various counties throughout Florida. Petitioner-Intervenor FAPA is a statewide nonprofit professional organization of Florida property appraisers. Respondent-Intervenor FUTMA is a statewide nonprofit association consisting of 46 of the largest property taxpayers in Florida. Ms. Cucchi, the second Respondent-Intervenor, is a property owner and taxpayer in Hillsborough County. Background of Florida's Property Tax System Article VII, Section Four of the Florida Constitution mandates that all property be assessed at "just value," and further requires that the Legislature prescribe, by general law, regulations that "shall secure a just valuation of all property for ad valorem taxation." Pursuant to chapters 192 through 196 of the Florida Statutes, locally elected property appraisers in each of Florida's 67 counties develop and report property assessment rolls. The assessment rolls——which property appraisers prepare each year and submit to DOR by July 1——contain information such as the names and addresses of the property owners, as well as the just, assessed, and taxable values of the properties within each appraiser's respective county. DOR is responsible for reviewing and ultimately approving or disapproving the assessment rolls. § 193.1142, Fla. Stat. Once DOR approves the assessment rolls, the property appraiser mails a "Notice of Proposed Property Taxes and Non-ad Valorem Assessments" (known as a "TRIM" notice) to each property owner. § 200.069, Fla. Stat. The notices advise each owner of his property's assessment for that year, the millage (tax) rate set by the taxing authorities, and the dates of the budget hearing for those authorities. After receiving a TRIM notice, a property owner may request an informal conference with the property appraiser's office to discuss the assessment of his or her property. Alternatively, or in addition to the informal conference, a property owner may challenge the assessment by filing a petition with the county value adjustment board or by brining a legal action in circuit court. § 194.011(3), Fla. Stat.; § 194.171, Fla. Stat. Value Adjustment Boards Pursuant to section 194.015(1), Florida Statutes, each of Florida's 67 value adjustment boards is composed of two members of the county commission, one member of the school board, and two citizen members.1 Of particular import to the instant case, section 194.015(1) requires value adjustment boards to retain private counsel to provide advice regarding legal issues that may arise during value adjustment hearings.2 In counties with populations greater than 75,000, the value adjustment board must appoint special magistrates3 to conduct hearings and issue recommended decisions. § 194.035(1), Fla. Stat. Hearings in counties with 75,000 citizens or fewer may be conducted by either magistrates or the value adjustment board itself. Id. DOR has no involvement in the appointment or removal of board attorneys, magistrates, or the members of value adjustment boards. Should a property owner choose to contest an assessment through the value adjustment board process, the board's clerk schedules an administrative hearing and sends a notice of hearing to the property owner and the property appraiser. § 194.032(2), Fla. Stat. At the hearing, the determinative issue is whether the assessment of the particular property at issue exceeds just value. In the event that a property owner is dissatisfied with the outcome of a value adjustment hearing, an appeal may be taken to the circuit court, where a de novo hearing will be conducted. § 194.036(2) & (3), Fla. Stat. Under certain conditions, the property appraiser may likewise appeal an adverse value adjustment board decision to the circuit court. § 194.036(1).4 2008 Legislative Reforms Prior to 2008, DOR was not charged with the responsibility of training value adjustment boards or their magistrates. However, pursuant to chapter 2008-197, Laws of Florida, the Legislature enacted a series of changes to the VAB process, including a new requirement that DOR "provide and conduct training for special magistrates at least once each state fiscal year." See § 194.035(3), Fla. Stat. Immediately after enactment of the law, DOR initiated rulemaking and developed 2008 interim training for value adjustment boards and special magistrates. Persons required to take the training include all special magistrates, as well as value adjustment board members or value adjustment board attorneys in counties that do not use special magistrates. § 194.035(1) & (3), Fla. Stat. In addition to the new training requirement, chapter 2008-197 mandated that DOR develop a Uniform Policies and Procedures Manual for use by value adjustment boards and magistrates. The Uniform Policies and Procedures Manual ("The Manual"), which is posted on DOR's website and is separate and distinct from DOR's training materials for value adjustment boards, consists of relevant statutes, administrative rules, provisions of the Florida Constitution, as well as forms. The Manual is also accompanied by two sets of separate documents, which are likewise available on DOR's web page: (1) "Other Legal Resources Including Statutory Criteria; and (2) "Reference Materials Including Guidelines," consisting of guidelines and links to other reference materials, including DOR's value adjustment board training materials, bulletins, and advisements. The introduction to the "Reference Materials Including Guidelines" reads in relevant part as follows: The set of documents titled "Reference Materials Including Guidelines," contains the following items: Taxpayer brochure General description and internet links to the Department's training for value adjustment boards and special magistrates; Recommended worksheets for lawful decisions; The Florida Real Property Appraisal Guidelines; * * * 7. Internet links to Florida Attorney General Opinions, Government in the Sunshine Manual, PTO Bulletins and Advertisements, and other reference materials. These reference materials are for consideration, where appropriate, by value adjustment boards and special magistrates in conjunction with the Uniform Policies and Procedures Manual and with the Other Legal Resources Including Statutory Criteria. The items listed above do not have the force or effect of law as do provisions of the constitution, statutes, and duly adopted administrative rules. Revisions to Value Adjustment Board Procedural Rules Pursuant to section 194.011, Florida Statutes, the Legislature charged DOR with the responsibility to prescribe, by rule, uniform procedures——consistent with the procedures enumerated in section 194.034, Florida Statutes——for hearings before value adjustment boards, as well as procedures for the exchange of evidence between taxpayers and property appraisers prior to value adjustment hearings. On February 24, 2010, following a 12-month period of public meetings, workshops, and hearings, the Governor and Cabinet approved the adoption of chapter 12D-9, Florida Administrative Code, which is titled, "Requirements for Value Adjustment Board in Administrative Reviews; Uniform Rules of Procedure for Hearings Before Value Adjustment Boards." As discussed in greater detail in the Conclusions of Law of this Order, Petitioner Turner contends that portions of Florida Administrative Code Rule 12D-9.020, which delineate the procedures for the exchange of evidence between property appraisers and taxpayers, contravene section 194.011. Petitioner Turner further alleges that section 194.011 is contravened by parts of Florida Administrative Code Rule 12D- 9.025, which governs the procedures for conducting a value adjustment hearing and the presentation of evidence. 2010 Value Adjustment Training Materials In 2010, following the adoption of Rule Chapter 12D-9, DOR substantially revised the value adjustment board training materials. After the solicitation and receipt of public comments, the 2010 VAB Training was made available in late June 2010 on DOR's website. The 2010 VAB Training is posted on DOR's website in such a manner that an interested person must first navigate past a bold-font description which explains that the training is not a rule: This training is provided to comply with section 194.035, Florida Statutes. It is intended to highlight areas of procedure for hearings, consideration of evidence, development of conclusions and production of written decisions. This training is not a rule. It sets forth general information of which boards, board attorneys, special magistrates and petitioners / taxpayers should be aware in order to comply with Florida law. (Emphasis in original). The 2010 VAB Training consists of eleven sections, or "modules," portions of two of which Petitioners allege constitute unadopted rules: Module 4, titled "Procedures During the Hearing"; and Module 6, titled "Administrative Reviews of Real Property Just Valuations." While words and phrases such as "must," "should," and "should not" appear occasionally within the materials, such verbiage is unavoidable——and indeed necessary——in carrying out DOR's statutory charge of disseminating its understanding of the law to magistrates and value adjustment board members. Although DOR is required to create and disseminate training materials pursuant to section 194.035, the evidence demonstrates that the legal concepts contained within the 2010 VAB Training are not binding. Specifically, there is no provision of law that authorizes DOR to base enforcement or other action on the 2010 VAB Training, nor is there a statutory provision that provides a penalty in situations where a value adjustment board or special magistrate deviates from a legal principle enumerated in the materials. Further, the evidence demonstrates DOR has no authority to pursue any action against a value adjustment board or magistrate that chooses not to adhere to the legal concepts contained within the training. PTO Bulletin 11-01 On January 21, 2011, DOR issued Property Tax Oversight Bulletin 11-01, titled "Value Adjustment Board Petitions and the Eighth Criterion," to the value adjustment board attorneys for all 67 counties. DOR also disseminated courtesy copies of the bulletin by e-mail to over 800 interested parties. The bulletin, the full text of which is reproduced in the Conclusions of Law section of this Summary Final Order, consisted of a non-binding advisement regarding the use of the eighth just valuation criterion (codified in section 193.011(8), Florida Statutes5) in administrative reviews. The bulletin advised, in relevant part, that the eighth just value criterion: "must be properly considered in administrative reviews"; "is not limited to a sales comparison valuation approach"; and "must be properly considered in the income capitalization and cost less depreciation approaches" to valuation. The bulletin further advised that when "justified by sufficiently relevant and credible evidence, the Board or special magistrate should make an eighth criterion adjustment in any of the three valuation approaches." Although certain interested parties (i.e., a special magistrate in Nassau County, the director of valuation for the Hillsborough County Property Appraiser's Office, and legal counsel for the Broward County value adjustment board) perceived the bulletin to be mandatory, the evidence demonstrates that value adjustment boards and magistrates were not required to abide by the bulletin's contents. As with the training materials, DOR possesses no statutory authority to base enforcement action on the bulletin, nor could any form of penalty be lawfully imposed against a magistrate or value adjustment board that deviates from the legal advice contained within the document. Further, there is no evidence that DOR has taken (or intends to take) any agency action in an attempt to mandate compliance with the bulletin.
Findings Of Fact Winn-Dixie. Winn-Dixie is a Florida corporation with its principal offices at 5050 Edgewood Court, Post Office Box B, Jacksonville, Florida. [Stipulation of Facts]. Winn-Dixie's taxpayer identification number is 59-0514290. The Department's audit number is 88-04203785035. Winn-Dixie's fiscal year ends on the last Wednesday of June. Winn-Dixie's Intangible Tax Returns. Winn-Dixie has filed a Florida intangible tax return for every year beginning with the calendar year 1972. For calendar years 1972 through and including 1988, Winn-Dixie reported the value of its intangible personal property based upon the value of its intangible personal property at the end of its previous fiscal year, the last Wednesday of June. For example, in its 1972 intangible tax return Winn-Dixie reported the value of its intangible personal property as of June 26, 1971. The decision to use the value of its intangible personal property as of the end of its fiscal year for Florida intangible tax was made by Winn-Dixie without any direction from, or communication with, the Department. When Winn- Dixie began using its fiscal year end as the date to value its intangible personal property for Florida intangible tax purposes, no representation concerning the appropriateness of this method was made by the Department. Winn- Dixie made no effort to obtain approval of its method of valuation from the Department. Winn-Dixie indicated on each of its intangible tax returns for 1972 through 1988, that it had determined the value of its intangible personal property based upon its value as of the end of Winn-Dixie's fiscal year. Winn-Dixie used the fiscal year end value of its intangible personal property as the value of those assets for Florida intangible tax purposes for administrative convenience. It was easier to use such data than it would have been to redetermine the value of its intangible personal property at the end of each calendar year. When Harry Francis began working for Winn-Dixie in 1978, Mr. Francis was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Francis, who served as director of taxes for Winn-Dixie until 1989, was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. When Leon Calvert became the director of taxes for Winn-Dixie in 1989, Mr. Calvert was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Calvert was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. The explanations Mr. Francis and Mr. Calvert gave for not changing Winn-Dixie's method of valuing its intangible personal property for Florida intangible tax purposes were not credible. Both Mr. Francis or Mr. Calvert indicated that the valuation practice of Winn-Dixie was followed, in part, because of the need for consistency in the field of accounting. Neither Mr. Francis or Mr. Calvert, however, cited any generally accepted accounting principle to support the use of an incorrect method of valuing assets for tax purposes when that method is clearly contrary to law. Winn-Dixie does not collect intangible tax as an agent for the State of Florida by separately stating and passing along said tax to its customers. [Stipulation of Facts]. Therefore, Winn-Dixie has not lost any right to pass the asserted additional intangible tax liability along to others. Subsequent to the audit involved in this case Winn-Dixie prepared an analysis of the difference in the value of its intangible personal property for 1972 through 1984 and the value of its intangible personal property for 1972 through 1984 if it had valued its intangible personal property as of January first of each year. Based upon this analysis, Winn-Dixie over reported the value of its intangible personal property by $78,390,211.00 for the period from 1972 through 1984. [See Stipulation of Facts]. This amounted to an overpayment of taxes of approximately $81,485.00. Winn-Dixie has not filed any claim for refund of any amount of intangible taxes it may have overpaid as a result of using the value of its intangible personal property as of the end of its fiscal year. The weight of the evidence failed to prove that the value of Winn- Dixie's intangible personal property as of the end of its fiscal year for any year for which it has filed an intangible tax return was approximately the same as the "just value" of those assets as January first. 1972 and 1973 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1972 and 1973 were examined by the Department. [Stipulation of Facts]. Winn-Dixie's 1972 and 1973 returns clearly indicated that the value of the assets included in the returns was the value as of the last Wednesday of June as of the previous year, Winn-Dixie's fiscal year end. No changes to Winn-Dixie's valuation method were recommended by the Department to Winn-Dixie's 1972 or 1973 intangible tax returns. The weight of the evidence failed to prove that any Department employee made any statements as a result of the Department's audit of the 1972 and 1973 returns to Winn-Dixie concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1972 and 1973 returns because of a determination that the value of Winn-Dixie's intangible personal property in January was not materially different from the June value of its intangible personal property as reported by Winn-Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9- 12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1972 and 1973 returns by a Department employee concerning the filing of future year intangible tax returns. 1979, 1980 and 1981 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1979, 1980 and 1981 were examined by the Department. [Stipulation of Facts]. The auditor that performed the examination is now deceased. [Stipulation of Facts]. The director of taxes for Winn-Dixie at the time of the audit of the 1979, 1980 and 1981 returns described a conversation he had with the Department's auditor as follows: The gist of the conversation was why did we use the June year end instead of January 1st. And the answer was as I said before, it was a long-standing practice, it was a consistency method, it was not a question of cherry picking for a good date and it seemed to do no harm. The recollection I have is that he was hesitant to make a determination on his own as to whether he required an adjustment or required a recomputation using a different date and that he was checking with some unknown superior in the Department of Revenue and later the no-change audit resulted. I don't recall if he ever called me about his conversation with the superiors, but I do recall no adjustments of any kind were made to any of those tax returns. And I would have recalled. I was nervous about those because I had prepared them. And they were the first ones that had been audited since I had been there. So I was relieved that no adjustments were made. And that was the gist of my relationship with the auditor. [Transcript of Formal Hearing, page 94, lines 17-25, and page 95, lines 1-12]. No changes were recommended by the Department to Winn-Dixie's 1979, 1980 or 1981 intangible tax returns. [Stipulation of Facts]. The weight of the evidence, however, failed to prove why the Department made no changes. Winn-Dixie did not change its method of reporting its intangible personal property as a result of any representations from a Department employee. The weight of the evidence failed to prove that any Department employee made any statements to Winn-Dixie as a result of the Department's audit of the 1979, 1980 and 1981 returns concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1979, 1980 and 1981 returns because of a determination that the value of Winn-Dixie's intangible assets in January was not materially different from the June value of its intangible personal property as reported by Winn- Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9-12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1979, 1980 and 1981 returns by a Department employee concerning the filing of future year intangible tax returns. 1985, 1986, 1987 and 1988 Intangible Tax Returns. The Department performed an audit of Winn-Dixie's intangible tax returns for 1985, 1986, 1987 and 1988. For these tax years Winn-Dixie valued its intangible personal property as of the end of the fiscal year preceding the taxable year, consistent with prior years. As a result of the Department's audit of the 1985, 1986, 1987 and 1988 returns, the Department determined that Winn-Dixie had underpaid Florida intangible tax in the following amounts and issued an assessment for same: 1985 $(16,244.00) 1986 21,471.00 1987 93,980.00 1988 86,974.00 Total $186,181.00 The Department's auditor who performed the audit of Winn-Dixie's 1985, 1986, 1987 and 1988 tax returns determined the value of Winn-Dixie's intangible personal property based on the value of those assets as reasonably close to January first as provided to Winn-Dixie. The information provided by Winn-Dixie was reasonably close to the value of Winn-Dixie's intangible personal property as of January first. Winn-Dixie filed a Petition for Reconsideration dated August 24, 1990. By letter dated October 17, 1990, the Department issued a Notice of Reconsideration. [Stipulation of Facts]. Other Receivables. Winn-Dixie has taken the position that it overpaid intangible taxes for 1985, 1986, 1987 and 1988 because it incorrectly treated certain accounts as intangible personal property. The parties agreed that the amount of tax paid on these accounts for the years at issue was as follows: 1985 $ 8,614.00 1986 9,823.00 1987 11,120.00 1988 13,562.00 Total $43,119.00 The parties agreed that the amount of intangible tax paid on the accounts at issue should be refunded to Winn-Dixie if it is determined that Winn-Dixie improperly paid intangible tax on the accounts. The following are the accounts which Winn-Dixie has argued it should not have treated as intangible personal property: Account Number 123-2, perishable vendors- billed outside sales warehouse invoices. Account Number 123-3, vendors debit balances/billed advertising coupons, vendor freight claims, promotion allowances, billings, return merchandise, charges and other debit memo billings. Account Number 123-4, claims insurance and freight/insurance and freight claims against carriers. Account Numbers 123-2, 123-3 and 123-4 are listed as "receivables" on Winn-Dixie's federal income tax return balance sheet as of its fiscal year end, Winn-Dixie's accounts receivable trial balances and on Winn-Dixie's SEC public disclosure forms 10-K. Account Numbers 123-2 and 123-3 are essentially identical except for the type of vendor involved. Account Number 123-2 involves vendors of perishable products and Account Number 123-3 involves vendors of nonperishable products. Winn-Dixie strives to pay for merchandise it receives within seven to ten days from the date it receives an invoice for the merchandise in order to receive discounts and the best merchandise available. Winn-Dixie earns trade discounts, promotional allowances and volume discounts on some of the merchandise it handles. When Winn-Dixie pays an invoice on merchandise for which it may receive such reductions in costs, Winn- Dixie may not know the exact amount of the discount. Therefore, it pays the entire amount invoiced. As a result of the quick payment of invoices and the inability to calculate the exact amount of discounts or other reductions in the amount owed, Winn-Dixie pays more on some invoices than it ultimately may owe on the invoice. The amount of any estimated overpayments is reflected in Account Numbers 123-2 and 123-3. Winn-Dixie also receives coupons from customers on certain merchandise. The coupons received by Winn-Dixie entitle it to reimbursement on the product sold from the vendor. The amount which Winn-Dixie will ultimately receive for the coupons is also recorded in Account Numbers 123-2 and 123-3. The coupons are ultimately turned over to a coupon handling firm which pays Winn-Dixie for the coupons. Account Number 123-4 involves claims insurance and freight. It is similar to the other two accounts at issue except that it relates primarily to claims against railroads for misdelivery or damaged merchandise which Winn-Dixie is entitled to. As is true of other merchandise, Winn-Dixie strives to pay for merchandise shipped to it by rail within seven to ten days to be entitled to the discounts for quick payment. Therefore, Winn-Dixie is not always able to estimate the amount of damaged or missing merchandise it may be entitled to a reduction for. The amount of such reductions are reflected in Account Number 123-4. When the amounts owed to Winn-Dixie, which are reflected in Account Numbers 123-2, 123-3 and 123-4, are finally determined, Account Number 123-2, 123-3 or 123-4 is debited and the amount received is recorded in another account. The amounts recorded in Account Numbers 123-2, 123-3 and 123-4 are valued, recorded and returned for tax purposes as accounts receivable. Account Numbers 123-2, 123-3 and 123-4 are "accounts receivable" under generally accepted accounting principles. The weight of the evidence failed to prove that all of the amounts recorded in Account Numbers 123-2, 123-3 and 123-4 during the years in question were not due at the time they were entered in the accounts. Therefore, the weight of the evidence failed to prove what portion of Account Numbers 123-2, 123-3 or 123-4 are contingent.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department issue a Final Order assessing $186,181.44 in additional intangible tax, plus interest, against Winn-Dixie for 1985, 1986, 1987 and 1988, and dismissing Winn-Dixie's Petition for Administrative Proceedings. RECOMMENDED this 8th day of May 1991, in Tallahassee, Florida. LARRY J. SARTIN 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 8th day of May, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-8021 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Winn-Dixie's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 2-4 and 6. 2 6. 3 15 and 17. 16. See 18-20 and 30. The last sentence is not supported by the weight of the evidence. 21 and 23. The last sentence is not relevant. See 22. The last sentence is not relevant. Not relevant. Not supported by the weight of the evidence. 9 12. Not supported by the weight of the evidence. 12. The last sentence is not supported by the weight of the evidence. Not supported by the weight of the evidence. Not supported by the weight of the evidence. The last sentence is not relevant. 14 32-33, 35 and 40. 15 34. Not relevant. See 36 and 41. The weight of the evidence failed to prove that Winn- Dixie was "required to pay" its vendors within seven to ten days. 37-38. The weight of the evidence failed to prove the last sentence. 19 40-41. 20 42. 21 Not supported by the weight of the evidence. The Department's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 and 3. 2 and 4. 3 5. 4 7. 5 15 and 21. 6 28. 7 4. 8-9 29. 10-11 11. 12 22. 13 22 and 25-27. 14 24. 15 22. 16 18-20 and 25-27. 17 5. 18 21. 19 12. 20 13. 21 14. Not relevant. See 45. 24 35 and 40. 25 37-38 and 43. 26 39. 27 Not relevant. 28 32. 29 See 44. 30 34. COPIES FURNISHED: Thomas K. Purcell, Esquire Suite 1235, One Enterprise Center 225 Water Street Jacksonville, Florida 32211 Leonard F. Binder Kevin O'Donnell Assistant Attorneys General Department of Legal Affairs Tax Section, Capitol Building Tallahassee, Florida 32399-1050 J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
Findings Of Fact Petitioner purchased the facilities of a bankrupt chemical recovery plant and on May 13, 1987, was issued a temporary tax exemption (Exhibit 1) for sales taxes on equipment purchased for the production or processing of tangible personal property for resale. Petitioner essentially operates a distillation plant where products are distilled and certain chemicals are produced. The plant also operates as a servicing facility in removing impurities from products submitted for distillation. Because the materials received at the plant were not as clean as originally anticipated, there was less product for resale and more servicing provided than originally intended. The items on which sales tax refunds are requested were used to ,repair and/or refurbish the distillation plant, and the business qualifies as new business under Section 212.08(5)(b)(1), Florida Statutes. In 1987, Petitioner had receivables totaling $824,819 of which only $63,474 (7.7%) was in the account for sale of tangible personal property (Exhibit 3). Petitioner's witness testified that the other receivable accounts (Exhibit 3) are not service accounts. Petitioner now has an inventory of tangible personal property for sale in excess of $100,000 which was produced through the distillation plant. Although Respondent's auditor initially contended that Petitioner had failed to produce all invoices and bills to justify the exemptions claimed, on cross-examination he acknowledged that the refund for sale taxes paid on the equipment purchased was denied solely on the basis that the equipment and plant was not used principally for the production of tangible personal property for sale. The Notice of Intent (Exhibit 6) denied Petitioner's application for a sales tax refund in the amount of $12,592.75 for the reason that: Business is primarily a service organiza- tion and tangible personal property is only a minute show (sic) of the operation. Records were incomplete. The witness who signed the Notice of Intent understands the denial of the refund of sales taxes was because the sale of tangible personal property produced by Petitioner was not the primary or a substantial part of the revenues generated by the plant.
Findings Of Fact Stipulated Facts Respondent conducted an audit of Petitioner's business records for the period July 1, 1985, through June 30, 1990. Respondent determined a deficiency in sales tax of $174,823.96, including penalty and interest through August 22, 1990. Petitioner objected to the deficiency. Respondent reviewed the audit, and made audit changes that are the subject of this proceeding. The audit changes determined a deficiency in use tax of $76,035.60, including tax ($47,910.10), penalty ($11,977.68), and interest through March 12, 1991 ($16,147.60). Interest accrues daily in the amount of $15.75. A First Revised Notice Of Intent To Make Sales Tax Changes, for the reduced assessment of $76,035.60, was issued on March 21, 1991. A Notice Of Proposed Assessment was issued on July 2, 1991. The Notice Of Proposed Assessment became a Final Assessment on August 31, 1991. Respondent made a prima facie showing of the factual and legal basis for the use tax assessment. Section 120.575(2), Florida Statutes. 1/ The audit and assessment are procedurally correct. Tax, interest, and penalty are correctly computed. Formation Petitioner was incorporated in Florida, in January, 1983, by Mr. B. Theodore Troy, president and sole shareholder. Petitioner's principal place of business is 101 Wymore Road, Suite 224, Altamonte Springs, Florida. Petitioner conducted business as American Advertising Distributors of Central Florida. Mr. Troy and his wife operated the business until liquidating Petitioner's assets in 1992. Operation Petitioner sold direct mail advertising to Florida businesses. Petitioner operated pursuant to a franchise agreement with American Advertising Distributors, Inc., of Mesa, Arizona ("AAD"). AAD was Petitioner's franchisor until AAD filed for bankruptcy in 1990. Petitioner solicited orders from Florida businesses 2/ for advertising coupons designed and printed by AAD in Arizona. AAD mailed the advertising coupons to addressees in Florida who were potential customers for Florida businesses. Florida businesses placed orders with Petitioner on written contracts, or sales agreements, labeled "advertising orders." AAD was not a party to advertising orders. Advertising orders identified "AAD" as American Advertising Distributors of Central Florida, and were imprinted with the name and address of "AAD" in Central Florida. Advertising orders specified the total charges, color and stock of paper, number of addressees, and areas of distribution. Petitioner assisted businesses with rough layout for art work. The rough layout was forwarded to AAD. AAD prepared finished art work and sent copies back to Petitioner for approval by Florida businesses. AAD then printed, collated, and mailed advertising coupons to addressees in Florida, without charge to addressees. Florida businesses paid non-refundable deposits when placing advertising orders. The remaining balance was paid upon approval of final art work. AAD did not submit invoices to Florida businesses. AAD submitted invoices to Petitioner for the amount due from Petitioner. 3/ Petitioner paid AAD 10 days before advertising coupons were mailed. Some advertising coupons were produced by Laberge Printers, Inc., in Orlando, Florida ("Laberge"). Coupons from Laberge were designed, printed, and distributed in the same manner as coupons from AAD. Two types of advertising coupons were provided by AAD and Laberge. The majority of coupons were distributed in coop mailings, or "bonus express" envelopes, containing coupons for up to 20 businesses. Bonus express envelopes were mailed approximately eight times a year. Advertising coupons were also distributed in "solo" mailings. A solo mailing was an individualized, custom printed coupon, or flyer, mailed to individual addressees. The total charges stated in advertising orders included the cost of services provided by Petitioner, AAD, and Laberge. Services included typesetting, art work, printing, inserting envelopes, and mailing. Florida imposed a tax on services, from July 1, 1987, through December 31, 1987. Petitioner collected and remitted tax imposed on the cost of services included in the total charges stated on advertising orders. Except for the services tax, neither Petitioner, AAD, nor Laberge collected and remitted sales or use tax to Florida or to Arizona. Petitioner never utilized resale certificates for any tax other than the tax on services. Collectibility Petitioner was financially able to pay the use tax assessment during 1990 and 1991. No later than August 22, 1990, Mr. Troy knew of the sales tax deficiency of $174,823.96. By March 21, 1991, Mr. Troy knew of the reduced use tax assessment of $76,035.60. During 1990 and 1991, Petitioner made discretionary payments to Mr. Troy of $110,389. Petitioner reported federal taxable income of $58,279 in 1990 and 1991. 4/ In arriving at taxable income, Petitioner deducted payments to Mr. Troy of $59,430 for compensation to officers, management fees, and salary. 5/ From taxable income of $58,279, Petitioner paid approximately $50,959 to Mr. Troy in nondeductible shareholder loans. 6/ Discretionary payments of $110,389, 7/ made to Mr. Troy in 1990 and 1991, were more than adequate to pay the use tax assessment of $76,036.60. At the end of 1991, Petitioner reported fixed assets with a book value of $14,933, a customer list valued at $104,447.72, and retained earnings of $102,605. The book value of intangible assets was $82,943, comprised primarily of the franchise, valued at $35,000, and goodwill of $45,000. Termination Of Operations But Continued Existence AAD petitioned for bankruptcy in 1990. Petitioner subsequently determined that its franchise and goodwill were worthless. In 1992, Petitioner reported a loss of $99,726 for federal tax purposes. All of Petitioner's assets, including its customer lists, were sold or transferred for $1,330 to Florida Mail, Inc. ("Florida Mail"). Florida Mail is a Florida corporation wholly owned by Mr. Troy. Florida Mail sells direct mail advertising; and shares Petitioner's principal place of business. Since 1992, Petitioner has been a shell corporation with $579 in assets.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order upholding the assessment of tax and interest and waive all of the penalty included in the assessment. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 2nd day of June, 1994. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 1994.
The Issue Is Petitioner Haas Publishing Company liable for the taxes and interest assessed under Chapter 212, Florida Statutes, specifically the sales and use tax and related surtaxes, pursuant to Section 212.031, Florida Statutes, and Florida Administrative Code Rule 12A-1.070, for the audit period June 1, 1995 through May 31, 2000, and if so, to what extent?
Findings Of Fact Haas is a Delaware corporation, authorized to do business in the State of Florida. It is a subsidiary of Primedia, Inc. Haas publishes free consumer guides to apartments and homes and is paid by the apartment owners, realtors, and homeowners who advertise in the publications. One of Haas' divisions, Distributech, distributes the guides to retail stores. Haas negotiates with retailers for an appropriate site for its display of publications at each retail location. Nationwide, Haas distributes its publications from approximately 42,000 locations. Nationwide, Haas paid for the exclusive right to distribute, under contracts, in approximately 20,000 locations. Otherwise, it distributes in "free" locations. As required by Section 72.011(1)(b), Florida Statutes, Haas has complied with all applicable registration requirements with respect to the taxes at issue herein. DOR is the agency responsible for the administration and enforcement of Florida's tax laws, including sales and use tax and various local surtaxes. DOR conducted an audit of Haas for the period of June 1, 1995 through May 31, 2000. The audit resulted in an assessment of sales and use tax and associated surtaxes, interest, and penalties (Assessment). After protest and petition for reconsideration, DOR issued its Notice of Reconsideration (NOR) to Haas on May 16, 2003, wherein DOR sustained the Assessment in full, but offered to waive all penalties, without prejudicing Haas' right to challenge the remainder of the Assessment in full. Haas accepted the Department's offer to waive all penalties in their entirety, making a payment on the Assessment at the time the Petition herein was filed. In other words, Haas paid certain uncontested amounts in order to pursue the instant challenge to the remainder of the Assessment of all taxes and all interest, and in order to take advantage of an unrelated "extended amnesty" provided by DOR. This formal proceeding followed. The auditor who actually performed the work of the audit did not testify at the disputed-fact hearing. DOR's only witness, Ms. Gifford, did not participate in the original audit. However, Ms. Gifford reviewed the audit documents in detail and professionally consulted with the auditor and other reviewers to review the auditor's methods against the paperwork of the audit. She also reviewed the audit with input from Haas and its representative in the course of the Technical Assistance and Dispute Resolution (TADR) process, and throughout the informal challenges preceding this formal proceeding. She also reviewed all of the de novo material presented at the deposition of Haas' principal, Mr. Sullender, for purposes of her testimony. She is an expert capable of assisting the trier of fact, in that she is a Florida-licensed certified public accountant (CPA), and the undersigned is satisfied with the accuracy of her explanation of DOR's policies and procedures and of her predecessor's methodology and calculations. Also, her interpretations of rules and statutes are entitled to great weight where they purport to be the interpretation of the agency, but they do not constitute "factual" testimony and are not binding in this de novo proceeding. Ms. Gifford's analysis of case law is not entitled to that same deference. At the disputed-fact hearing, Haas challenged both the timeliness of the audit and the methodology of the audit. It is axiomatic that the amount assessed depends upon the methodology employed by the auditor, but DOR contended herein that because Haas protested only that an assessment had been made and because Haas had accepted all available offers of mitigation, Haas could not protest, at hearing, the amount calculated for the Assessment, whether the audit's calculations were correct, or whether the audit had been conducted in a timely manner. The following allegations of the Petition herein are relevant to these issues: No payment made by Haas to a retailer in Florida constituted payment for a lease of real property; No payment made by Haas to a retailer in Florida constituted payment for a license to use real property; The payments made by Haas to retailers were for distribution rights and/or intrinsically valuable personal property rights; The payments made by Haas to retailers were not subject to Florida sales and use taxes and other surtaxes; Alternatively, the payments made by Haas to retailers should have been apportioned by DOR, pursuant to Section 212.031, Florida Statutes; Some or all of the taxes that the Department claims that Haas owes have been paid by the retailers with whom Haas had agreements; The Department was without statutory authority to impose the Assessment for taxes and interest as set forth in Exhibit A; and The Assessment that is the subject of this proceeding is unlawful and violates the provisions of Chapter 212, Florida Statutes; Petitioner is entitled to relief under Sections 72.011 and Section 120.80, Florida Statutes. Section 212.031, Florida Statutes, dictates that the payments made by Haas to Florida retailers were not subject to Florida tax and therefore requires that the Assessment by DOR be stricken or modified. The auditor sent Form DR-840, the Notice of Intent to Audit (NOI), to Haas on May 30, 2000. This item informed the Taxpayer that the period of the audit would be June 1, 1995 through May 30, 2000, and that the audit would commence before July 29, 2000 (within 60 days) unless an attached waiver was signed and returned. The audit file does not reflect a signed waiver within 60 days. Ms. Gifford, on behalf of DOR, testified that the purpose of this NOI was to warn the Taxpayer that the audit would begin within 60 days unless the Taxpayer waived the timeline and that with a waiver, the audit would begin within 120 days. Ms. Gifford further testified that DOR considers itself limited to going back only five years from the date the auditor begins to review a taxpayer's records and that the Agency interprets Section 213.335, Florida Statutes, to require completion of the audit within one year of the initial letter. Ms. Gifford asserted that with a waiver, DOR would interpret the several applicable statutes and rules to provide the auditor with 120 days to begin an audit to encompass the whole of June 1, 1995 to May 30, 2000. However, if an audit is not begun within 120 days, DOR understands that the statutory audit period is not tolled and DOR usually removes the delay period from the front end (i.e., DOR starts the audit period the delayed number of days after June 1, 1995) and adds it to the back end (ends the audit period the delayed number of days after May 30, 2000) so that a five-year period of audit occurs, but the audit period starts some date later than June 1, 1995, and ends some date later than May 30, 2000. DOR considers the start of the audit to be when the auditor begins looking at records of the taxpayer. Haas provided pertinent, but incomplete, records on August 29, 2000, which was more than 60 days and less than 90 days after the May 30, 2000, NOI. Haas requested several extensions to review work papers received from the auditor. All were honored by DOR. A lot of correspondence ensued between the auditor and Haas and between DOR and Haas' designated representative(s)/accountants, but DOR's auditor did not record any time spent on the audit file until he met with Haas or its representative on October 23, 2000, more than 120 days after May 30, 2000. On the basis of the auditor's work record/timesheet, Haas contends that October 23, 2000, which was more than 120 days after the May 30, 2000 NOI, is when the audit actually began. Exchanges of records, work papers, and information continued, and on or about May 29, 2001, a vice-president of Haas signed and FAXED to DOR's auditor a consent to extend the statute of limitations for sales and use tax assessments through March 29, 2002. However, he did not affix the corporate seal in the designated part of the consent form. The consent form had been prepared by the auditor and mailed to Haas on or about March 25, 2001. It only listed "sales and use tax" as a reference. It did not identify any other tax, which ultimately made up the Assessment, including Charter Transit System Tax, Local Government Infrastructure Tax, Indigent Care Tax, or School Capital Outlay Tax, which, although related to sales and use tax, have separate designations. These surtax audits are based on the same facts, circumstances, and records as the sales and use tax audit herein but DOR lists and computes them separately from the sales and use tax on some of its forms. (See Finding of Fact 19.) The validity and timeliness, vel non, of the foregoing consent to extension was not raised by Petitioner until the disputed-fact hearing. A Notice of Intent to Make Audit Changes (also called an NOI) was dated September 21, 2001. The Notice of Proposed Assessment (NOPA) was issued December 5, 2001. DOR considers this document to be the completion of the audit. After the audit was completed, it was submitted to DOR's TADR, a dispute resolution process. A Notice of Decision (NOD) was entered July 30, 2002. Haas petitioned for reconsideration, alleging additional facts. By a May 16, 2003, Notice of Reconsideration (NOR), the audit was upheld. The NOR and NOIA lump all Chapter 212, Florida Statutes' taxes together. The NOPA lists each surtax separately. The compromise of amounts and this formal proceeding followed, as described above in Findings of Fact 5-6. Many contracts and other records were not provided by Haas to DOR until TADR, until the informal proceedings, or until after the Petition for this formal proceeding had been filed. Among other things, DOR had upheld the auditor's initial decision with regard to calculating Haas' 1997 tax. The auditor had not tested or sampled Haas' records for the full of the audit period in order to arrive at a tax figure for 1997. Because Haas had not provided certain records (RDAs) for 1997, Haas' figures for December 1996 were "extrapolated" by the auditor to the first six months of 1997, while the figures for January 1998 were "extrapolated" back to the last six months of 1997. Ms. Gifford felt this method constituted a legitimate estimate of the taxes due where a taxpayer had failed to provide adequate records. For the audit period, Haas published and distributed, free of charge to the public, apartment and home guides. The distribution was accomplished through contracts, on a regional and national level, with major retail store chains such as K-Mart, Blockbuster, Eckerd's, and Winn-Dixie Stores. The tax-assessment problems herein are compounded by Haas' choice not to use uniform contractual arrangements with all retailers; by its failure to designate within its contracts and/or accounting records what, if any, intangible uses it believed it was paying for; and its failure to allocate within its contracts and/or accounting records the amounts it believed it was paying for each alleged intangible use. Some of the contracts state that there is no corporate relation between Haas and the retailer. Haas has one major and several smaller competitors who distribute their own publications at retail store chains. Haas' contracts with the retail store chains guarantee to Haas the exclusive right to distribute apartment and home guides from the retail stores' locations and usually include the right to use the retail chains' respective logos and trademarks in Haas' promotional/sales materials and publications. One exception is Seven-Eleven, which limits to a greater degree use of its trademark and logo than do some of the other retailers. Not every contract contains a reference to a retailer's trademark or logo. Haas used its exclusive rights to distribute with certain retail store chains as an inducement to sell advertising to the apartment owners, realtors, and others who advertise in its publications. It was valuable to Haas to be able to tell potential print advertisers that its apartment/home guide was the only one allowed to be distributed from the particular retail chains. It was valuable to Haas to be able to show potential print advertisers the logo of retailers in Haas' promotional materials and publications. In most places, the exclusive right to distribute from the specified retail locations distinguished Haas from its competitors and allowed it to charge more for its advertising than they did. Mr. Sullender, Haas' principal, is credible that in each instance where Haas' contracts do not mention the use of trademarks and logos, each retail chain otherwise gave permission or provided Haas with its logo and trademark materials to use, as a result of the contracts. However, Haas provided nothing to DOR prior to instituting this formal case, by which DOR could have determined that such permission had been provided outside the contracts. Haas' right to place the retailers' logo or trademark on Haas' publication racks was a valuable right and every Haas rack displayed logos. Yet, the contracts do not obligate Haas to use the retailers' logos or trademarks, and Haas can still distribute from the racks without a logo. The contracts made no specific allocation of payments by Haas to the retailers for use of the retailers' logos and trademarks. The issue of whether payment for use of a logo or trademark should have been separately allocated from Haas' payment to the retailer in its contracts was not taken into consideration by DOR because this issue, in those terms, was not raised during the audit or subsequent informal protest/review procedures. However, the issue of allocation based on fair rental value of the space utilized in connection with prior audits of some of the respective retailers was raised. This is largely an issue of semantics. (See Findings of Fact 55-56.) All except one of the contracts at issue guarantee Haas the exclusive right to distribute its publications from the particular retail chains' locations. Exclusivity of the rights accruing to Haas is singularly important to Haas' business. However, Haas has been known to charge its competitors for space on its racks. Haas also is free to enter into partnerships with its competitors. In order to secure the exclusive right to distribute its publications from the retail locations and the right to use the retailers' trademarks and logos, Haas pays fees to the retail store chains under the contracts. Typically, Haas has to "outbid" at least one other competitor to obtain the foregoing exclusive rights. The payments under the contracts were typically made "per store," per month, and did not vary depending on the location of the store within the State. Part of Haas' negotiating strategy and ultimate success in securing exclusive use of most of its locations is the judicious use of "signing bonuses." Signing bonuses are specifically allocated in some, but not all, of Haas' contracts. In some contracts, they are directly linked to the right of exclusivity. They can be substantial amounts. However, according to Ms. Gifford, signing bonuses have never been part of DOR's Assessment in this case. (TR-62-63) Because the exclusive right to distribute its print materials was so valuable to Haas, it paid up to $375 per month per store under one contract. When Haas did not secure the exclusive right to distribute from a retail chain, it would not pay for the right to distribute, but distributed its publications from "free" locations. Nationwide, this compares at 20,000 paid to 22,000 unpaid locations. (See Finding of Fact 1.) The amount Haas paid a retail chain did not vary by particular store location within the chain nor by the size of the rack that Haas placed in a particular store. Haas' racks take up from two to four-feet worth of floor space. Haas supplied the racks, but, in general, the retail chains had control over the size, type, and color of the racks placed in its stores and limited Haas' access to the racks. Haas was solely responsible for set-up, replenishing, and maintenance of its racks on the retailer's property. Haas purchases liability insurance. Haas is always assigned covered space by the retailer. Haas considers space near an entrance/exit of the retailer's covered premises to be premium space. Retailers consider this same space to be "dead space," beyond its cash registers, which is essentially useless for display or sale of their retail goods. However, some retailers park carts or post notices in these areas. Haas does not sell or distribute any goods of, or for, the retailer. It merely stocks its own publications in its own racks in the retailer's space. Haas has no other contact with the retailers' business. Under the contracts, retailers have no obligation to market Haas' publications. They do not buy or sell them or pay to advertise in them. Retailers pay nothing to Haas. If Haas uses a retailer's logo and/or trademark in Haas' own advertising or in its publications per their negotiated arrangement, it is for the purpose of promoting Haas' publications. Use of the retailers' logos and trademarks has a benefit to the retailer, but a purely incidental one, since the retail customer who picks up a Haas publication from the Haas rack has already made the decision to enter the retail store in the first place. None of the retail chains ever attempted to charge sales or use taxes to Haas based on the payments made under the contracts. There is no evidence that Haas or any retailer, on Haas' behalf, tendered sales or use taxes to the State on the contracts at issue herein. Although some contracts acknowledge that a retailer is a franchisee of a third party, none of the contracts refer to the relationship between Haas and the retailer as a "franchise" or acknowledge Haas as a franchisee. Ms. Gifford did not equate Haas' use of a retailer's logo or trademark to market Haas' publications, not the retailer's goods, with all the accoutrements of a franchise, as she understood those accoutrements. DOR issued to a different taxpayer (not Haas) Technical Assistance Advisement No. 03A-002 (the TAA), concerning real property lease agreements. Although this advisory letter from a DOR attorney is not binding, except between DOR and the party to whom it is addressed, and although it is limited to the specific facts discussed within it, the legal conclusions therein are instructive, if not conclusive, of DOR's official interpretation of the statutes and rules it administers and of its agency policy with regard to when allocations are appropriate between intangible rights and real property rights. TAA 03A-002 cites, with approval, paragraphs 56 through 59 of the Final Order in Airport Limousine Service of Orlando, Inc. v. Department of Revenue, DOAH Case No. 94-1790, et seq., (March 23, 1995)1/ and State ex rel. N/S Associates v. Board of Review of the Village of Greendale, 473 N.W. 2d 554 (Wisc. App. 1991), and states, "The test for isolating intangible business value is as simple as asking whether the disputed value is appended to the property, and thus transferable with the property, or is it independent of the property so that it either stays with the seller or dissipates upon sale." This TAA also states that DOR will view the reasonableness of allocations of payments made pursuant to a lease agreement on a case-by-case basis in reference to whether the allocation is made in good faith or lacks any basis. It further cites with approval Bystrom v. Union Land Investment, Inc., 477 So. 2d 585, 586 (Fla. 3rd DCA 1985) ("Good faith for property tax valuation purposes will mean 'real, actual, and of a genuine nature as opposed to a sham or deception.'") The TAA anticipates that DOR would require that the taxpayer make reasonable allocations, within the taxpayer's own records, of lease payments to rent and other items not subject to tax, and that the taxpayer would also be required to otherwise maintain records adequate to establish how the taxpayer determined that each allocation was reasonable, and further, that if DOR auditors were satisfied with the taxpayer's records, an appraisal would not be required by DOR. The TAA does not foreclose the requirement of an appraisal to test the taxpayer's records. Synopsized, the TAA opines that separate payments by a tenant to a landlord for trademark, service mark, or logo rights of the landlord are subject to the tax on real property rentals unless the allocation of payments made by the taxpayer is reasonable, and further, that the allocation is not reasonable where no substantial, competent, and persuasive evidence is provided to establish the value of the trademark, service mark, or logo rights of the landlord received by the tenant and a legitimate business purpose for the tenant to acquire those rights is not demonstrated. Herein, Haas had not allocated rent and intangibles within its own contracts/records. It was Ms. Gifford's view that if the Taxpayer herein had not allocated the value of the trademarks, etc. and the real property value of its contracts, it was not up to DOR to do so in the course of an audit. Nonetheless, during the protest period, DOR had considered allocating the payments made by Haas under its contracts, into taxable and non-taxable payments, by reviewing the market rate rental for the space occupied and obtaining a valuation of the identifiable intangible property. Ultimately, DOR did not use this method on the basis that Haas had not submitted sufficient records. At hearing, Haas attempted to present evidence of the fair market value of the real estate involved and of the so- called intangible rights through an intangible property appraiser and a Florida-certified real estate appraiser. Lee Waronker is a Florida-certified real estate appraiser who was accepted as an expert in real estate appraisal. Mr. Waronker prepared a report which made a comparison of Haas' contracts with allegedly comparable rental properties, but he only used three "comparables," none of which included racks owned by similar advertising businesses. He did not consider what Petitioner's real competitors paid for similar space. Thus, when he arrives at an average fair rental value of Haas' space in all the retailers' locations as $25-50 per square foot, his base figures are suspect. Therefore, when he concluded that since Haas was paying an average of $355 per square foot and all the remainder of the contract payments should be allocated to intangible rights, such as trademarks and exclusivity, he was not credible or persuasive. His figures also apply only to the date of his appraisal in 2003, and admittedly would not be representative of the value of the rental property during the audit period. Therefore, his analysis that only 11.3 percent, plus or minus, of the contract prices constituted rent or a license to use is discounted and not accepted. Petitioner also presented the testimony and report of James N. Volkman, an intangible property appraiser who was accepted as an expert in that field. Mr. Volkman obtained all of his data from either the Securities and Exchange Commission filings of eighty-three percent of the retailers involved, from Haas, or from information compiled by DOR. These are legitimate appraisal sources. He performed his appraisal within the professional standards of the Financial Accounting Standards Board. He concluded that Haas' contracts could best be described as "distribution agreements," "because they are the means by which Haas distributes its publications" and because anyone familiar with the operations of a publisher would understand a line item on a balance sheet of a "distribution agreement" and not everyone would understand the term "license to use real property." It is noted that "distribution agreements" are not listed in the statute, but this, by itself, is not a fatal flaw. He maintained that the Haas contracts could not reasonably be characterized as a license to use real property, because the amount paid was well in excess of the fair rental value of the space. However, as part of his analysis, Mr. Volkman did not rely on Mr. Waronker's independent real estate appraisal, but conducted his own analysis as to the amount a retailer would likely charge a party seeking to utilize the floor space taken up by the approximate size of a single Haas rack. In doing so, Mr. Volkman was admittedly outside his realm of expertise. Mr. Volkman allocated the amounts Haas was paying as twelve percent to the "right to use real property"; twenty-four percent to "non-compete rights" (his term for exclusivity); fourteen percent to "trademark rights"; thirty-five percent to "distribution cost savings" (a term which seems to describe Haas not having to identify and mail its publications to interested persons or use a retailer's magazine rack);2/ and fifteen percent to "market penetration premium."3/ The last two calculations are not credible and undermine the entire allocations summary he presented. The distribution cost savings figure contains too many assumptions not fully documented. Mr. Volkman also arrived at his calculation of the "market penetration premium" merely by selecting the residual percentage sufficient to make up the difference, so that his other figures added up to 100 percent of the total fee paid by Haas to retailers. His reason for doing this is not plausible. He assumed that just because the growth rate of Haas' business far exceeded the growth rate in multi- family units, it must be that Haas substantially increased its market share during the audit period due to exclusivity. Ultimately, he could not explain the fifteen percent calculation for "market penetration" by the documents he relied on for calculating the other three categories. More damaging to the weight and credibility of his report is that Mr. Volkman did not consider Haas' signing bonuses as having anything to do with the exclusivity rights accruing to Haas. He considered the signing bonuses not to be an intangible right but only "compensation to retailers for negotiating these agreements." However, signing bonus rights seem to be the only intangible rights allocated in any of the contracts and were inherently recognized as such by DOR when it chose not to address them in the Assessment. There are also a number of other questionable portions of his report and opinion which cause it to be discounted and not accepted here.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order finding the Assessment factually and legally correct and sustaining the Assessment plus interest to date. DONE AND ENTERED this 18th day of June, 2004, in Tallahassee, Leon County, Florida. S ______ ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of June, 2004.
Findings Of Fact The stipulated facts are as follows: The petitioner is GJPR Two Corporation, formerly Employers Insurance Management Corporation, a Florida Corporation, and its address is c/o W. L. Adams, Esquire, Pyszka, Kessler, Adams and Solomon, 2699 South Bayshore Drive, Miami, Florida 33133. Said petitioner has a substantial interest in these proceedings and has proper standing herein. The agencies affected are the Department of Revenue, Tallahassee, Florida, and the Office of the Comptroller of Florida, Tallahassee, Florida; no other agencies are affected. These proceedings have been properly initiated and are now properly before the Division of Administrative Hearings of the Department of Administration of the State of Florida. The parties are not in dispute as to any issues of fact, and agree to the following findings of fact: On or about June 1, 1977, petitioner sold all of its assets of every kind and type in a single transaction to Arthur J. Gallagher and Company. The assets sold included two aircraft. When the registration documents of such aircraft were presented to the State of Florida for transfer, payment of sales tax was required in the sum of $4,056.00. Said sum was paid under protest on or about June 10, 1977. Until the sale of its assets, the business of petitioner had always been the sale of insurance and the administration of self-insurance programs for insureds and self-insureds throughout Florida and other states. The aircraft had been used in the business of petitioner, but petitioner had never engaged in the sale or leasing of aircraft as all or any part of its business. Since the sale of its assets, petitioner has not been engaged in business and petitioner has adopted and filed with the Internal Revenue Service of the United States a Resolution requiring that petitioner conduct no further business and that petitioner be liquidated. The sale of the two aircraft upon which the tax in question was paid under protest is an occasional or isolated sale. Petitioner filed a Claim for Refund upon the ground that the sale was an isolated sale. The Claim for Refund was denied by letter of August 11, 1977 from the Office of the Comptroller of the State of Florida, a copy of which is appended hereto and incorporated herein as Exhibit "A."
Recommendation That the denial of tax refund to the petitioner by the State Comptroller be affirmed. DONE and ENTERED this 24th day of January, 1978, in Tallahassee, Florida. THOMAS C. OLDHAM 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 24th day of January, 1978. COPIES FURNISHED: Richard J. Horwich, Esquire Suite 302 University Federal Building 2222 Ponce de Leon Boulevard Coral Gables, Florida 33134 Cecil Davis, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Department of Revenue Room 104 Carlton Building Tallahassee, Florida 32304
The Issue The issues are whether Respondent properly conducted a sales and use tax audit of Petitioner's books and records; and, if so, whether Petitioner is liable for tax and interest on its purchases of materials used for improvements to real property.
Findings Of Fact During the audit period, Petitioner was a Florida corporation with its principal place of business located at 7820 Professional Place, Suite 2, Tampa, Florida. Petitioner's Florida sales tax number was 39-00-154675-58, and Petitioner's federal employer identification number was 59-3089046. After the audit period, the Florida Department of State administratively dissolved Petitioner for failure to file statutorily required annual reports and filing fees. Petitioner engaged in the business of providing engineering services and fabricating control panels. Petitioner fabricated control panels in a shop Petitioner maintained on its business premises. Petitioner sold some of the control panels in over-the- counter sales. Petitioner properly collected and remitted sales tax on the control panels that Petitioner sold over-the-counter. Petitioner used other control panels in the performance of real property contracts by installing the panels as improvements to real property (contested panels). Petitioner was the ultimate consumer of the materials that Petitioner purchased and used to fabricate the contested panels. At the time that Petitioner installed the contested panels into real property, the contested panels became improvements to the real property. Petitioner failed to pay sales tax at the time Petitioner purchased materials used to fabricate the contested panels. Petitioner provided vendors with Petitioner's resale certificate, in lieu of paying sales tax, when Petitioner purchased the materials used to fabricate the contested panels. None of the purchase transactions for materials used to fabricate the contested panels were tax exempt. The audit is procedurally correct. The amount of the assessment is accurate. On October 23, 2000, Respondent issued a Notification of Intent to Audit Books and Records (form DR-840), for audit number A0027213470, for the period of October 1, 1995, through September 30, 2000. During an opening interview, the parties discussed the audit procedures and sampling method to be employed and the records to be examined. Based upon the opening interview, Respondent prepared an Audit Agreement and presented it to an officer and owner of the taxpayer. Respondent began the audit of Petitioner's books and records on January 22, 2001. On March 9, 2001, Respondent issued a Notice of Intent to Make Audit Changes (original Notice of Intent). At Petitioner's request, Respondent conducted an audit conference with Petitioner. At the audit conference, Petitioner provided documentation that the assessed transactions involved improvements to real property. At Petitioner's request, Respondent conducted a second audit conference with Petitioner's former legal counsel. Petitioner authorized its former legal counsel to act on its behalf during the audit. At the second audit conference, the parties discussed audit procedures and sampling methods, Florida use tax, fabricated items, and fabrication costs. Respondent revised the audit findings based upon additional information from Petitioner that the assessed transactions involved fabricated items of tangible personal property that became improvements to real property. Respondent assessed use tax on the materials used to fabricate control panels in those instances where Petitioner failed to document that Petitioner paid sales tax at the time of the purchase. Respondent also assessed use tax on fabrication costs including the direct labor and the overhead costs associated with the fabrication process, for the period of October 1, 1995, through June 30, 1999. Respondent eliminated use tax assessed on cleaning services in the original Notice of Intent because the amount of tax was de minimis. On August 29, 2001, Respondent issued a Revised Notice of Intent to Make Audit Changes (Revised Notice of Intent). On September 18, 2001, Petitioner executed a Consent to Extend the Time to Issue an Assessment to File a Claim for Refund until January 25, 2002. On October 18, 2001, Petitioner executed a second Consent to Extend the Time to Issue an Assessment to File a Claim for Refund until April 25, 2002. On February 6, 2002, Respondent issued a Notice of Proposed Assessment for additional sales and use tax, in the amount of $21,822.27; interest through February 6, 2002, in the amount of $10,774.64; penalty in the amount of $10,831.12; and additional interest that accrues at $6.97 per diem. Petitioner exhausted the informal remedies available from Respondent. On April 29, 2002, Petitioner filed a formal written protest that, in substantial part, objected to the audit procedures and sampling method employed in the audit. Respondent issued a Notice of Decision sustaining the assessment of tax, penalty, and interest. Respondent correctly determined that the audit procedures and sampling method employed in the audit were appropriate and consistent with Respondent's statutes and regulations. Respondent concluded that the assessment was correct based upon the best available information and that Petitioner failed to provide any documentation to refute the audit findings. Petitioner filed a Petition for Reconsideration that did not provide any additional facts, arguments, or records to support its position. On May 16, 2003, Respondent issued a Notice of Reconsideration sustaining the assessment of tax and interest in full, but compromising all penalties based upon reasonable cause.
Recommendation Based upon the findings of fact and the conclusions of law, it is RECOMMENDED that Respondent enter a Final Order denying Petitioner's request for relief and sustaining Respondent's assessment of taxes and interest in full. DONE AND ENTERED this 10th day of December, 2003, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 10th day of December, 2003. COPIES FURNISHED: Carrol Y. Cherry, Esquire Office of the Attorney General Revenue Litigation Section The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Michael E. Ferguson Control Design Engineering, Inc. 809 East Bloomingdale Avenue, PMB 433 Brandon, Florida 33511 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact The Petitioner paid intangible personal property taxes in the amount of $2,706.26 on March 22, 1977 for the tax year of 1977. The said taxes were not due until June, 1997. The Petitioner filed an application with the Respondent, Office of the Comptroller, State of Florida, on May 5, 1980, requesting a refund of the taxes paid because of the subsequent discovery by the Petitioner that the monies had been paid by mistake or in error. The Respondent, Office of The Comptroller, served a Notice of Intent to Deny by U.S. Mail upon the Petition on November 12, 1980. Respondent's Notice of Intent to Deny Refund is based upon the three- year statute of non-claim, as provided in Section 199.252, Florida Statutes. The issues to be determined are whether the right to refund accrued to the Petitioner when the taxes were paid (March 22, 1977) or when the taxes were due (June 30, 1977).
