The Issue The issue to be resolved in this proceeding concerns whether the Petitioner is liable for sales tax, together with interest and penalties on the purported unpaid tax amount, as referenced in the assessment and the Respondent agency's notice of decision issued on October 18, 1994.
Findings Of Fact The Petitioner is the sole proprietor of a marina and restaurant business located in Pensacola Beach, Florida. The Respondent is an agency of the State of Florida charged with enforcing pertinent statutes and rules providing for the collection of sales and use taxes, as well as penalties and interest for tax amounts determined to be due and payable but not timely paid to the Department and the State of Florida. Included within the Department's regulatory authority over the assessment and collection of sales and use taxes is the authority to conduct audits of taxpayers to determine amounts of tax due and owing to the State, as well as whether such taxes have been timely and properly remitted and otherwise accounted for. The relevant audit period involved in this proceeding extended from October 1, 1987 through December 31, 1992. The Petitioner's marina and restaurant business operated during the audit period was operated on property owned by the Santa Rosa Island Authority (Authority) and the State of Florida Department of Natural Resources (now Department of Environmental Protection, DEP). The property was leased to the Petitioner for the purpose of operation of this business. The property leased by the Petitioner from the Authority consisted of certain land above the mean high water mark and five boat slips. These five boat slips will be referred to sometimes hereafter as the "Santa Rosa boat slips". During the audit period, the Petitioner operated the restaurant business on the property leased from the Authority and rented the five boat slips to various boating customers. The Petitioner also rented 70 other boat slips to customers during the audit period. These slips were built by the Petitioner in 1977 on submerged land which had been leased from the State of Florida, Department of Natural Resources, Bureau of Land Management. This property adjoined the property leased from the Authority. On November 16, 1992, the Department sent to the Petitioner a notice of intent to audit its books and records. As part of the audit, the Department requested that the Petitioner produce various records, including but not limited to, the Petitioner's federal tax returns, Florida corporation income tax returns, Florida sales and use tax returns, depreciation schedules, general ledgers, property records, cash receipts journals, cash disbursement journals, purchase journals, general journals, sales journals, sales invoices, shipping documents, purchase invoices, intangible property records, sales tax exemption certificates and lease agreements for the real or tangible property involved in the Petitioner's business. The Petitioner basically was able to provide few records to support his restaurant sales and boat slip rental receipts, except for Florida sales tax returns and federal income tax returns. There were no sales control documentation records, such as general ledgers and general journals provided to the Department's auditor for review, except for a cash register tape for the night of December 1, 1992, representing that night's restaurant gross receipts activity. The Petitioner's method of record keeping essentially consisted of his writing down the gross sales each evening from the cash register tapes, totaling those figures at the end of the month, and reporting this total on his Florida sales tax returns as the gross receipts from the restaurant business. However, the Petitioner did not keep the cash register tapes or maintain other documents to support the information reported to the Respondent on the monthly sales tax returns. The Petitioner reported as, "exempt income," the rental from the boat slips for the five Santa Rosa boat slips on the monthly sales tax returns filed with the Respondent. He did not report his monthly rental income from the remaining 70 boat slips on his sales tax returns filed with the Respondent. He did report a great deal more gross receipts on his federal income tax returns than on his Florida sales tax returns. The Department compared the Petitioner's federal income tax returns during the audit period with his Florida sales tax returns and determined that the gross receipts reported to the federal government were substantially larger than the gross receipts reported to the Department. It determined that the primary difference in the gross receipts was attributable to rental revenues from the boat slips, which were not accounted for by the Petitioner in his Florida monthly sales tax returns. The auditor determined that four percent of the recorded restaurant gross receipts were attributable to alcohol sales and 96 percent to food sales. The Department calculated the sales tax due on the undisclosed income through the audit, which represented gross receipts from the restaurant business and the boat-slip rental business, which was not reported by the Petitioner on his Florida sales tax returns. It calculated the sales tax due during the audit period on the rentals of the five boat slips, which were improperly listed as exempt sales on the Petitioner's monthly sales tax returns filed with the Respondent. It was also revealed that during the audit period, the Petitioner had sub-leased a portion of the Santa Rosa property to his former wife for $5,000.00 per year. The Department calculated that the Petitioner owed $300.00 in taxes based upon the sub-lease to his former wife. The Department additionally calculated that the Petitioner owed an additional $314.00 for use taxes, based upon non-exempt purchases of tangible personal property. The Department assessed the Petitioner's sales taxes based upon the estimated boat-slip rental receipts, although it did not assess the lease payments made by the Petitioner to the Authority or to the State of Florida, Department of Natural Resources. On February 12, 1993, the Department assessed the Petitioner a total of $71,308.30 for the audit period, representing $45,694.90 of sales tax due, $14,093.37 of interest due thereon, $11,041.36 of penalties, and $314.98 of use tax, together with $91.02 of interest due on use taxes unpaid, and $72.67 of penalties due thereon. Daily interest of $15.13 commencing on February 13, 1993 was also assessed. Additionally, on February 12, 1993, the Department assessed the Petitioner $1,060.97 for the audit period, including penalties and interest, for local government infrastructure surtax due. Daily interest of $.29, commencing on February 13, 1993, was assessed on that amount. The Petitioner, in essence, does not dispute the Department's calculation of the assessed amount. The Petitioner, rather, contends that he believes that he reported all income and paid all sales taxes which were due and that his certified public accountant failed to account properly for his gross receipts and income to the federal internal revenue service, without the Petitioner's knowledge, during the audit period. He maintains, therefore, that the method of calculation of the Department's tax assessment, based upon the difference between the gross receipts depicted on the federal income tax returns and on the sales tax returns filed with the Department, is inaccurate, apparently because of the CPA's errors. Additionally, the Petitioner maintains that he was of the belief that the boat-slip rentals were not taxable and reportable for sales tax purposes to the Department because he believes, citing Rule 12A-1.061(5)(a) and (b), Florida Administrative Code. He bases this view on his assertion that the persons residing in the boat slips were "95 percent" live-aboard-type tenants, residing on their boats and that, essentially, they treated their boats as beach homes or condominiums, etc., for purposes of that rule, by residing for longer periods than six months. He thus contends that the rental revenues from such residents were tax exempt. The Department, however, established through its auditor's testimony and the Department's Composite Exhibit 2, that the Petitioner's CPA, through information he generated, did not establish that the difference between the gross receipts reported to the internal revenue service on the federal tax returns and the gross receipts reported on the Florida sales tax returns was not taxable. The Petitioner's proof does not show the factual elements necessary to establish that the 75 boat slips meet the rule's standard for exempt revenues from non-taxable residences.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record and the candor and demeanor of the witnesses, it is, therefore RECOMMENDED that a Final Order be entered by the Respondent assessing the taxes, penalties, and accumulated interest in the above-found amounts. DONE AND ENTERED this 21st day of June, 1996, in Tallahassee, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of June, 1996. APPENDIX TO RECOMMENDED ORDER CASE NO. 94-7256 Petitioner's Proposed Findings of Fact Accepted. Accepted, based upon the Petitioner's testimony in this regard, but immaterial. 3-4. Rejected, as not established by preponderant evidence. The Petitioner did not show that all or even most of the tenants are on annual rentals and, moreover, if they were, the rule cited by the Petitioner himself requires that such lease agreements or contracts be written. The Petitioner has simply failed to establish that the boat-slip rental arrangements were exempt transactions. Rejected, as incorrect as a matter of law and as immaterial and irrelevant. Rejected, as immaterial and irrelevant to the issues in this proceeding. Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter and as not probative by a preponderance of evidence that the assessment is incorrect. Rejected, as immaterial to the issues in this proceeding. The Department is not seeking to establish fraudulent intent. 9-27. These constitute argument and enunciation of the Petitioner's and the Respondent's perceived legal positions, and attempted equitable arguments concerning justification for the Petitioner's lack of relevant records, including a description of his financial difficulties related to destruction of his business by fire and by two hurricanes. While this is understandable and regrettable, these arguments and positions asserted by the Petitioner are immaterial and irrelevant to the issues in this case. Respondent's Proposed Findings of Fact 1-26. Accepted. COPIES FURNISHED: Richard E. Wells 715 Pensacola Beach Boulevard Post Office Box 505 Pensacola Beach, FL 32562-0505 Jarrell L. Murchison, Esquire Office of the Attorney General The Capitol - Tax Section Tallahassee, FL 32399-1050 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
The Issue The issue in this case is whether Petitioner owes additional sales and use tax, plus penalties and interest, on the purchase of bowling equipment during the audit period August 1, 1987 to July 31, 1992.
Findings Of Fact The Parties. Petitioner, Beverly Hills Bowl, Inc., is a Florida corporation. Petitioner was formed by Charles and Evelyn Gill, the shareholders of Petitioner. Petitioner was formed to own and operate a bowling alley. Respondent is an agency of the State of Florida charged with, among other things, responsibility for assessing and collecting sales and use taxes in Florida pursuant to Chapter 212, Florida Statutes. The Respondent's Audit. Between July 23, 1992 and October 8, 1992, Respondent performed a sale and use tax audit of Petitioner for the period August 1, 1987 through July 31, 1992. Respondent concluded that Petitioner's books and records were reasonable except for documentation to support the payment of sales and use tax on a purchase by Petitioner of bowling equipment. Respondent issued a Notice of Proposed Assessment on October 29, 1992. Respondent proposed the assessment of $31,609.05 in sales and use tax. Petitioner paid $8,137.05 of the additional tax. The parties stipulated that the additional tax liability at issue in this proceeding amounts to $23,472.00. Respondent also assessed a penalty of $7,888.96 and interest of $5,264.15. Disputed Purchase. Petitioner purchased bowling lane equipment from United Bowling Products, Inc. (hereinafter referred to as "United"), a Florida corporation, during the audit period. Petitioner paid $391,200.00 to United for bowling lanes and equipment described on Petitioner's exhibit 1. Before consummating an agreement to sale bowling lanes to Petitioner, United gave Petitioner a "Proposal" offering to sell bowling lanes to Petitioner for $391,200.00. See Petitioner's exhibit 1. The Proposal states, among other things, the following: * WE OFFER THE ABOVE EQUIPMENT FOR $16,300.00 PER LANE INCLUDING INSTALLATION, FREIGHT, AND FLORIDA SALES TAX. . . . [Emphasis added]. Petitioner accepted the Proposal and purchased the bowling lanes for $391,200.00. Oral communications between Petitioner and United were also consistent with the Proposal concerning the inclusion of sales tax in the purchase price. No written documentation of the agreement between United and Petitioner was entered into. Petitioner received the bowling lanes and paid United $391,200.00. No written documentation or invoices were provided Petitioner by United upon consummation of the sale. The additional assessment at issue in this case is attributable to this sale of bowling equipment by United to Petitioner. Respondent's Treatment of the Purchase. Respondent concluded that, since the amount of sales tax was not separately stated on the Proposal, additional documentation of the payment of the sales tax by Petitioner to United was required. Respondent requested additional documentation but Petitioner was unable to provide it to Respondent's satisfaction. Respondent concluded that Petitioner was responsible for the payment of use tax on the equipment because it could not be proved to Respondent's satisfaction that sales tax had been paid to United. Respondent is also attempting to collect sales tax on the purchase from the primary dealer responsible for the collection and remittance of sales tax.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the assessment dated October 29, 1992 against Beverly Hills Bowl, Inc. DONE AND ENTERED this 26th day of September, 1995, 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 26th day of September, 1995. APPENDIX 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. Petitioner's Proposed Findings of Fact Accepted in 2-3, 5-6 and 11. Accepted in 9-11. Accepted in 1, 10 and 12. See 14. What Mr. Aliff may have said during the hearing may not form the basis of a finding of fact. Mr. Aliff was not sworn and did not testify. See 13. Respondent's Proposed Findings of Fact 1 Accepted in 1. 2-3 Accepted in 3. Accepted in 4. The last sentence is a conclusion of law. Hereby accepted. Accepted in 9-10 and 12. Hereby accepted. See 12-13. What the Citrus County Property Appraiser may have reported is hearsay. Accepted in 5. Not relevant. COPIES FURNISHED: Peter C. Johnston, CPA, P.A. 6 Beverly Hills Boulevard Beverly Hills, Florida 34465 Mark T. Aliff Assistant Attorney General Tax Section, Capitol Building Department of Legal Affairs Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, Esquire Department of Revenue Legal Office 204 Carlton Building Tallahassee, FL 32399-0100
The Issue The issues to be resolved in this proceeding concern whether the Petitioner, a Delaware Corporation with its principal place of business and domicile in Texas, has an obligation to collect and remit Florida sales taxes on sales it made to a Massachusetts-domiciled corporation, in view of the facts found below.
Findings Of Fact The Petitioner is a Delaware Corporation whose principal place of business is in Austin, Texas. The Petitioner designs, develops, and markets portable computer equipment, chiefly portable "tablet" personal computers with related "peripherals," which it sells and delivers in multiple states, including Florida. It sells these products to "re-sellers" and distributors, as well as to "end users." The Petitioner, by the Department's admission in Exhibit "A" (audit) does not maintain a physical presence in the State of Florida. It does employ one sales person for business in Florida, but maintains no warehouse or other facilities, vehicles nor other indicia of physical locations or operation in the state of Florida. The Petitioner is registered as a "dealer" with the State of Florida, Department of Revenue under the Florida Sales and Use Tax Law. The Petitioner does engage in some sales to Florida "end customers" or to re-sale purchasers in Florida. These transactions, however, are not at issue in this case. The dispute solely relates to transactions between the Petitioner and Advantec Computer System, Inc., of Marlboro, Massachusetts. The Respondent is an agency of the State of Florida charged with the regulation, control, administration, and enforcement of the sales and use tax laws of the State of Florida embodied in Chapter 212, Florida Statutes, and as implemented by Florida Administrative Code Chapter 12A-1. The Respondent conducted an audit of the books and records of the Petitioner, resulting in this proceeding, for the audit period April 1, 2003 to March 31, 2006. That audit was conducted by Xena Francis, and revealed, according to the Department's position, a purported sales tax payment deficiency on the part of the Petitioner in the above-referenced amounts. The Department, upon completion of the audit, issued a Notice of Intent to Make Audit Changes, thus advising the Petitioner of the amount of the tax penalty and interest it was assessing as a result of the audit. The transactions which the Department maintained were questionable, in terms of taxes not being paid with regard thereto, were those where the Petitioner sold computer products to entities who did not produce to the Petitioner a certificate of exemption from collection of sales tax by Florida on that transaction, and where the product was shipped by the Petitioner into Florida by common carrier. The Department essentially takes the position that, since the Petitioner has a state sales and use tax "dealer certificate," that it is responsible to prove any transactions as being exempt from the relevant taxing provisions of Chapter 212, Florida Statutes, and the above rule chapter. The Department apparently presumes as a part of this position that the fact that the product in question was shipped to ultimate users in Florida by common carrier from the Petitioner's place of business outside the state that such were Florida sales tax transactions. It thus contends that the burden is on the Petitioner to prove that they are exempt from such tax and collection. After it was advised of the audit findings and the basis for the assessment, the Petitioner provided to the Department certain exemption certificates for a number of the entities and transactions for which shipment had not been made into Florida. The Department accepted these and the assessment was adjusted downward to reflect the exempt status of those transactions, pursuant to the further information provided the Department by the Petitioner. The other disputed transactions for which no exemption certificate was provided by the Petitioner, were deemed by the auditor to be taxable. In essence, the auditor took the position, as does the Department, that every person making sales into the State of Florida is subject to sales and use tax unless specifically exempt and that it is incumbent upon the selling dealer (which it maintains is the Petitioner) to establish the exempt status of the transaction, at the time of sale, with a supporting re-sale certificate or some documentation to support the transactions, exempt status.1/ The sales which are the subject of this dispute are exclusively those between the Petitioner and Advantec Computer Systems, Inc. Advantec is a Massachusetts Incorporated and domiciled corporation. It apparently does not possess a Florida "re-sale certificate" or "dealer certificate." The Petitioner sold various computers and related products, as shown by the invoices in evidence, to Advantec. The invoices and the testimony adduced by the Petitioner established that those sales were between the Petitioner and Advantec, the Massachusetts corporation. Advantec, in turn, sold the products or some of them to Florida customers. Those customers did not pay the Petitioner for the sales, but paid Advantec. Advantec directed that delivery from the Petitioner be made not to Advantec itself, but to its Florida-end customer via common carrier from the Petitioner's out-of-state location or from its overseas supplier. In any event, delivery was made from outside Florida to the Florida Advantec customers by common carrier. The Petitioner billed no Florida customer and had no relationship with any Florida customer of Advantec. Instead it invoiced and billed Advantec for the price of the products involved on a "net 30-day" basis. Advantec would then pay the Petitioner for the amount invoiced by the Petitioner to Advantec. As to the Advantec sales at issue, there was no nexus, substantial or otherwise, between the Petitioner and Advantec's customers in Florida, except that the product was "drop shipped" from the Petitioner's relevant location out of the State of Florida to the Florida customer by common carrier, not by any vehicle owned, leased, or operated by any person or entity affiliated with the Petitioner. In fact, the deliveries in question were made by Federal Express as a drop shipment. Advantec's principal business activity is the re-sale and distribution of computers and related products. It has no presence in Florida and is not a registered dealer in Florida. When the Petitioner made the sales to Advantec Computer Systems, as shown by the invoices and testimony in evidence, it billed Advantec for the sales and did not collect sales tax. While the Petitioner has in its possession Advantec's Massachusetts-issued tax-exempt certificate, the Petitioner does not have a Florida tax-exempt certificate on-file for Advantec, because Advantec is not registered in Florida, and the sale by the Petitioner to Advantec is a Massachusetts sale with no Florida nexus. The Petitioner offered three Technical Assistance Advisements (TAA) into evidence, which it obtained from the Department in support of the fact that the transactions in question are not taxable. (See Exhibits 2, 3, 4 in evidence.) These exhibits were admitted on a limited basis over the Department's objection as being possibly material to a determination as to the weight and credibility of the Department's evidence in this case, but not as being legally binding or constituting legal precedent, which last quality is precluded by Section 213.22(1), Florida Statutes (2006). Additionally, the Petitioner offered and had admitted Petitioner's Exhibit 7, which was an e-mail received from a representative of the Department, in response to an inquiry by the Petitioner. This was admitted over hearsay objection as a party statement offered by the opposing party.2/ In that exchange between the Petitioner and the Department, the Petitioner, as shown by testimony and the exhibit, related the facts involved in the sales to Advantec. The Department's response indicated that, if indeed, the buyer and seller were both located outside the State of Florida and the goods when purchased were outside the State of Florida, then the sale is not a Florida sale, between the out-of-state buyer and the out- of-state seller (the Petitioner). If the goods were then delivered by common carrier to the out-of-state buyer's ultimate customers in Florida, from the Petitioner's out-of-state location, then the transaction between the Petitioner and the out-of-state buyer is not subject to the Florida sales tax law and, in essence, is non-jurisdictional, not as a "Florida nexus sale." In summary, the Petitioner sold the goods in question to Advantec and invoiced Advantec at its Massachusetts domicile and address on "net 30-day" term. No Florida customer, person, or entity was billed for the sales in question, nor was any payment collected from any individual or business entity located in the State of Florida. Once the sale was consummated between the Petitioner and Advantec, the Petitioner merely "dropped shipped," by common carrier, the goods purchased by Advantec to Advantec's ultimate customer located in the State of Florida.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Revenue, vacating and dismissing the assessment of the subject sales tax and interest to the Petitioner, Motion Computing, Inc. DONE AND ENTERED this 24th day of December, 2007, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF 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 Clerk of the Division of Administrative Hearings this 24th day of December, 2007.
Findings Of Fact The parties executed and filed a Prehearing Stipulation in this proceeding stipulating to the facts and agreeing that there were no issues of fact which remain to be litigated. Based upon the stipulation of facts, the facts found relevant to the issues in this rule challenge proceeding are as follows: Petitioner, American Telephone and Telegraph Company, is the parent corporation of the "Bell System," a group of corporations consisting of twenty- three associated operating telephone companies and other related corporations. For the 1972, 1973 and 1974 tax years, petitioner and its qualified subsidiaries filed a consolidated return for federal income tax purposes. Having made a valid election of the 100 percent dividend received deduction under Section 243 of the Internal Revenue Code, the Internal Revenue Service did not tax dividends received by petitioner from its affiliates. 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. For the same 1972, 1973 and 1974 tax years, petitioner filed Florida income tax returns on a separate unconsolidated basis. Petitioner did not elect and was not required to file a Florida consolidated income tax return under Section 220.131, Florida Statutes. Having timely made a valid election of the 100 percent dividend received deduction under Section 243 of the Internal Revenue Code for the 1972, 1973 and 1974 tax years, such dividends were excluded from taxable income on petitioner's Florida income tax returns. For each of the tax years in question, petitioner reported on line 1 -- "federal taxable income (line 30, Form 1120 or corresponding line on related form in 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. Petitioner, on its Florida corporation income tax return for each of the years in question, made the additions and subtractions required by the return in computing "adjusted federal income" and apportioned this amount of 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 petitioner's affiliates which were deductible for federal income tax purposes under Section 243(a)(3) of the Internal Revenue Code. The income which the respondent seeks to tax is derived from dividends received by petitioner primarily from earnings generated by the property and employees of petitioner's affiliates which are devoted to furnishing intrastate and inter- state 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 petitioner's affiliates provide telecommunications services that impose income taxes on corporations. On April 10, 1978, the Department of Revenue issued a notice of proposed deficiency for petitioner's tax years ended December 31, 1972, December 31, 1973 and December 31, 1974, representing a potential tax liability to the petitioner in the amount of $304,103 for 1972, $387,429 for 1973, and $439,626 for 1974, plus accrued interest on each proposed deficiency. Petitioner timely filed a protest to the proposed deficiencies, an informal conference was held and, on April 16, 1981, the respondent Department of Revenue issued a final notice of proposed deficiency. This document applied the policies which are being challenged in this proceeding so as to add back to petitioner's taxable income an amount equal to 15 percent of the dividends received by petitioner from affiliated corporations which were not incorporated, located or engaged in business in the State of Florida. Stated differently, the respondent's policy is to allow the 100 percent dividend received deduction for those dividends received from subsidiaries or affiliates subject to the Florida tax, but to allow only an 85 percent deduction on those dividends received from subsidiaries which are not subject to the Florida tax. This policy has been applied to other similarly situated taxpayers in Florida and it has not been promulgated as a rule. The Florida corporate income tax forms in use for 1972, 1973 and 1974 did not require taxpayers to add back any amount of dividends received from affiliates. There is no existing statute or rule which specifically imposes such a requirement.
The Issue The issue presented is whether the $5.00 per gallon tax on perchloroethylene provided for in Section 376.75, Florida Statutes, is subject to Florida sales and use tax pursuant to Chapter 212, Florida Statutes. STIPULATED FACTS Petitioner is a for-profit Florida corporation that sells perchloroethylene and other dry-cleaning supplies to the dry-cleaning industry. It is a "wholesale supply facility" as that term is defined in Section 376.301(17), Florida Statutes. Petitioner is a member of the Florida Drycleaners' Coalition, a state-wide trade association whose members consist of the owners/operators of dry-cleaning facilities and wholesale supply facilities. In 1993 and prior to and during the 1994 Florida legislative session, the Florida Drycleaners' Coalition employed lawyers-lobbyists to suggest and seek passage of amendments to Chapter 376, Florida Statutes, commonly known as the Florida Dry-Cleaning Solvents Cleanup Program. In 1994, the Florida Legislature enacted Chapter 94- 355, Laws of Florida, which amended Chapter 376, Florida Statutes. Chapter 94-355 created Section 376.3078(2)(a), Florida Statutes, which provides that: All penalties, judgments, recoveries, reimbursements, loans, and other fees and charges related to the implementation of this section and the tax revenues levied, collected, and credited pursuant to ss. 376.70 and 376.75, and registration fees collected pursuant to s. 376.303(1)(d), shall be deposited into the Water Quality Assurance Trust Fund, to be used upon appropriation as provided in this section. Charges against the funds for dry-cleaning facility or wholesale supply site rehabilitation shall be made in accordance with the provisions of this section. Chapter 94-355, Laws of Florida, also created Section 376.75, Florida Statutes, which provides, in part, as follows: Beginning October 1, 1994, a tax is levied on the privilege of producing in, importing into, or causing to be imported into the state perchloroethylene (tetrachloroethylene). A tax of $5.00 per gallon is levied on each gallon of perchloroethylene when first imported into or produced in the state. The tax is imposed when transfer of title or possession, or both, of the product occurs in this state or when the product commingles with the general mass of this state. Petitioner's corporate secretary and 50 percent shareholder is David J. Pilger. He contributed financially to the employment by the Florida Drycleaners' Coalition of lawyers- lobbyists charged with seeking passage of amendments to Chapter 376, Florida Statutes, and met several times with those lawyers- lobbyists in Tallahassee. He was assured during those meetings that it was the opinion of those lawyers-lobbyists that there was no danger of Florida sales tax being applied to the $5.00 per gallon tax on perchloroethylene. The Department conducted an audit of Petitioner for the period of January 1, 1993, through January 31, 1998. At no time prior to the Department's audit of Petitioner's financial records did Petitioner receive from the Department materials of any kind indicating that Florida sales and use tax would apply to the $5.00 per gallon tax on perchloroethylene. The Department had, however, adopted emergency Rule 12BER94-2, effective October 1, 1994, and Rule 12B-12.003(2)(b), Florida Administrative Code, effective February 19, 1995. The 1998 Florida Legislature amended Section 376.75, Florida Statutes, by enacting Chapter 98-189, Laws of Florida, effective July 1, 1998, which added a sentence regarding the $5.00 per gallon tax, as follows: "This tax is not subject to sales and use tax pursuant to ch. 212." The Department has assessed and/or collected from certain taxpayers Florida sales and use tax on the sales price of perchloroethylene and the $5.00 per gallon tax on perchloroethylene. The sales and use taxes are deposited into the general revenue fund pursuant to Section 212.20(1), Florida Statutes. The $5.00 per gallon tax on perchloroethylene is deposited into the Water Quality Assurance Trust Fund, pursuant to Section 376.3078(2)(a), Florida Statutes. The Department issued its Notice of Proposed Assessment to Petitioner on October 22, 1998, assessing sales and use tax of $39,098.66, penalties of $19,549.64, and interest of $11,184.10 through October 22, 1998, with interest of $12.85 to accrue per day. The Department issued its Notice of Proposed Assessment to Petitioner on October 22, 1998, assessing indigent care surtax of $2,128.98, penalties of $1,064.48, and interest of $611.97 through October 22, 1998, and interest of $.70 to accrue per day. Petitioner charged its customers and remitted to the Department the $5.00 per gallon tax on perchloroethylene provided for in Section 376.75, Florida Statutes, but neither collected from the customer nor remitted to the Department sales and use tax on this $5.00 per gallon tax. The $5.00 per gallon tax collected by Petitioner from its customers was reflected at the bottom of Petitioner's invoices as "the ENVRN TAX." Petitioner charged its customers and remitted to the Department the excise tax provided for in Section 206.9935(2), Florida Statutes, but neither collected from its customers nor remitted to the Department sales and use taxes or indigent care surtax on this excise tax. This tax was reflected at the bottom of Petitioner's invoices as "PERC TAX." Petitioner does not contest the Department's assessment of sales and use taxes and indigent care surtax on the water quality tax provided for in Section 206.9935(2), Florida Statutes. Petitioner does not dispute that its sales to its customers during the audit period were paid for by its customers.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered sustaining the assessment against Petitioner, together with interest, but compromising the entire penalty amount. DONE AND ENTERED this 22nd day of November, 1999, in Tallahassee, Leon County, Florida. LINDA M. RIGOT 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 22nd day of November, 1999. COPIES FURNISHED: Jarrell L. Murchison, Esquire John Mika, Esquire Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Fred McCormack, Esquire Landers & Parsons, P.A. 310 West College Avenue Tallahassee, Florida 32301 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32314-6668 Joseph C. Mellichamp, III, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue Whether the Petitioner owes sale and/or use tax for the purchase/lease of magnetic tapes containing mailing lists used by the Petitioner in its mail order business, as set forth in the Notice of Decision dated December 10, 2003, and, if so, the amount owed.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, including the Joint Pre-Hearing Stipulation, the following findings of fact are made: The Department is the agency authorized to administer the tax laws of the State of Florida. See § 213.05, Florida Statutes (2004). At the times material to this proceeding, Spectramin was a Florida "S" corporation whose home office and principal place of business was located at 5401 Northwest 102 Avenue, Suite 119, Sunrise, Florida. Spectramin was a Florida- registered sales tax dealer. On October 19, 2001, the Department issued to Spectramin a Notification of Intent to Audit Books and Records for audit number A0127016590, which was a sales and use tax audit covering the Audit Period. On January 15, 2002, the Department and Spectramin signed an audit agreement that delineated the procedures and sampling method to be used by the Department for the audit. Because Spectramin's books and records were voluminous, the Department and Spectramin agreed to employ certain specified sampling procedures. For the audit, the Department examined Spectramin's purchase invoices, general ledgers, and income statements for the 2000 calendar year. At the times material to this proceeding, Spectramin was a mail-order company that sold nutritional supplements throughout the United States. It engaged in direct marketing of its products and employed two methods of direct marketing: Self-mailers were sent to prospective customers, and catalogs were sent to persons who had purchased its products, as a means of educating these buyers and converting them into repeat customers.1 In order to send self-mailers to prospective customers, Spectramin leased mailing lists consisting of names and addresses, and, in some instances, bar codes, compiled by various vendors who sold mailing lists. The contents of the mailing lists were based on demographic criteria specified by Spectramin. Under the terms of the lease, Spectramin was allowed to use the mailing list for only one mailing. Pertinent to this proceeding, Spectramin received some of the mailing lists in the form of data digitally encoded on magnetic tapes. The cost of leasing a mailing list was based on the number of names on the list, and the invoice for a list included a separately-stated, standard charge of $25.00 to cover the cost of the magnetic tape containing the data. The magnetic tapes themselves had no value to Spectramin; the only value of the tapes to Spectramin lay in the data encoded on the tapes, and the greatest part of the cost of the one-time lease was the cost of the data encoded on the magnetic tapes; for example, Spectramin paid $75.00 per 1,000 names for one of the mailing lists it leased, plus the $25.00 charge for the magnetic tape. Spectramin did not pay sales tax in Florida on the cost of the data encoded on the magnetic tapes at the time it leased the mailing lists. Spectramin did not have the computer equipment necessary to read the data on magnetic tapes, so it contracted with third-party letter shops and printers to process the magnetic tapes. The letter shops with which Spectramin has done business since 1991 are all located outside the state of Florida. Once a letter shop received magnetic tapes from Spectramin, the data on the tapes were downloaded to a computer, and cleaned, and sorted into usable names and addresses; the letter shop then sent the cleaned and sorted data to a print shop, which printed the names and addresses onto self-mailers provided by Spectramin. The letter shop sorted the self-mailers by zip code and mailed them. All of these operations took place outside Florida. At one time, Spectramin's practice was to have the mailing-list vendors ship the magnetic tapes encoded with the data directly to a letter shop specified by Spectramin. The letter shop held the Spectramin magnetic tapes until it had accumulated several tapes, and then it would process the data from the tapes, have the names and addresses printed on the self-mailers, and mail the self-mailers. Spectramin found that the letter shops with which it did business sometimes lost track of the tapes received for Spectramin's mailings, and it cost Spectramin additional time and money to track down the tapes or to purchase mailing lists. Because of the additional time and money Spectramin spent to track down the lists, it stopped having the magnetic tapes sent directly to the letter shop. At the times material to this proceeding, the magnetic tapes containing the digitally-encoded mailing lists were shipped directly to Spectramin by the mailing-list vendors, and Spectramin took delivery of the tapes at its principal place of business in Florida. The vendors sent the mailing lists to Spectramin's Florida office by overnight delivery through either Federal Express or United Parcel Service. It was Spectramin's usual business practice for an employee to take delivery of the magnetic tapes containing the mailing lists and to place them on a shelf in the front of the office. The boxes containing the magnetic tapes were not opened. When Spectramin had accumulated several boxes of magnetic tapes, an employee put the boxes into a larger box and sent the tapes by overnight delivery to one of the out-of-state letter shops with which Spectramin did business. Spectramin did not keep the tapes in its Florida office more than one or two days because the mailing lists it had leased lost their value with time.2 The only value of the magnetic tapes was in the names and addressed encoded on the tapes, and the only use to which Spectramin put the data was to cause the names and addresses it had leased to be printed on self-mailers and mailed to the prospective customers. Because the letter shops that printed the names and addresses and mailed the self-mailers were located outside of Florida, Spectramin did not "use" the data or the magnetic tapes in Florida. The only contact the magnetic tapes had with Florida was during the short period of time the tapes sat on the shelf at Spectramin's office before being shipped out of the state for processing. Spectramin did not pay use tax in Florida on the cost of the data encoded on the magnetic tapes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order withdrawing the sales and use tax assessment against Spectramin, Inc., for the audit period extending from September 1, 1996, through August 31, 2001. DONE AND ENTERED this 24th day of January, 2005, in Tallahassee, Leon County, Florida. S PATRICIA HART MALONO 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 24th day of January, 2005.
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.
The Issue Whether this cause should be dismissed for Petitioner's failure to comply with Section 120.80(14)(b)3., Florida Statutes.
Findings Of Fact Petitioner is contesting an assessment of taxes, pursuant to an audit conducted by Respondent Department of Revenue. The total amount of the assessment was $32,312.24. Following the audit, in a letter to the Department's auditor dated April 17, 2006, Petitioner's counsel stated that taxes "in the amount of $5,744.80 is something [Petitioner] would be obligated to pay under the laws of the State of Florida, and as such, they are willing to do so. They would be willing to pay interest due on this money."1/ This statement constitutes a clear admission that Petitioner owes the stated amount of the tax, $5,744.80, plus interest that accrues daily. Petitioner's Memorandum makes the un-sworn statement that: At the time the parties met to discuss the assessment with the representative of the Department of Revenue, Martha Watkins, they offered to pay $5,744.80 of the taxes but were informed it was part of the $32,312.24, and they could either pay it all or contest it. At all times material hereto the petitioners have stood ready to pay the $5,744.80. On April 17, 2006, we wrote a letter to Martha Watkins making this offer for the second time. On August 17, 2006, we again wrote to the Department of Revenue attaching our letter of April 17, 2006, again making this offer. At no time was a response received to either letter. The August 17, 2006, letter alluded to in Petitioner's Memorandum is not of record and neither a copy of that letter, nor an affidavit of its contents, has been submitted by either party. At no time has Petitioner asserted that any amount of tax money was unequivocally tendered to Respondent. No affidavit to that effect has been filed in this case. The Second Affidavit of Martha Watkins, submitted with the Department of Revenue's timely Memorandum states, in pertinent part: I conducted the audit of C AND C MECHANICAL CONTRACTORS, INC., from which arose the challenged assessment and this controversy. During the course of the audit, and subsequent communication with C AND C MECHANICAL CONTRACTORS, INC., regarding the audit and assessment of taxes and interest, C AND C MECHANICAL CONTRACTORS, INC., made at least one settlement offer, that was unacceptable, and was rejected by the Department as such. At no time did C AND C MECHANICAL CONTRACTORS, INC., unequivocally tender to me, or unequivocally offer to tender to me, the uncontested tax and applicable interest, and at no time did I refuse to accept any payment of taxes. On September 21, 2006, a Request for Administrative Hearing was filed with the Department of Revenue. On September 28, 2006, the Executive Director of the Department of Revenue entered an Order Dismissing the Petition with Leave to Amend. That Order reads, in pertinent part: On September 21, 2006, the Florida Department of Revenue received a "Request for Administrative Hearing" from Petitioner, C & C Mechanical Contractors. While the document clearly is a request for hearing, the petition does not state what the Petitioner is disputing. A record search shows that at least one Notice of Proposed Assessment was issued by the Department on June 15, 2006 to this Petitioner. It is impossible to determine from the petition whether this proposed assessment is being challenged. However, because this request was sent within the applicable time frame to dispute the Notice of Proposed Assessment, the Department will treat it as such. As required by law, the notice stated that a formal protest for an administrative hearing had to be received in the Office of the General Counsel within sixty days after the assessment became final and had to be in compliance with chapter 120, Florida Statutes. The petition fails to meet the requirements contained in chapter 120, Florida Statutes and Uniform Rule 28- 106.201, Florida Administrative Code, the appropriate rule for use in filing a petition requesting a hearing involving disputed issues of material fact. A copy of the appropriate rule is provided with this order. Specifically, the petition does not contain: (1) a statement of when and how the Petitioner received notice of the agency decision; (2) all disputed issues of material fact. If there are none, the petition must so indicate; (3) a concise statement of the ultimate facts alleged, including the specific facts the Petitioner contends warrant reversal or modification of the agency's proposed action; (4) a statement of the specific rules or statutes the Petitioner contends require reversal or modification of the agency's proposed action, and (5) a statement of the relief sought by the Petitioner, stating precisely the action the petitioner wishes the agency to take with respect to the agency's proposed action. Because of these deficiencies, Petitioner's documentation must be dismissed. IT IS ORDERED: The petition for hearing filed by Petitioner is DISMISSED. Such dismissal is without prejudice to Petitioner to amend the petition to provide the information listed above. . . . On October 11, 2006, the Amended Petition for Administrative Hearing was filed with the Department of Revenue. That Amended Petition stated, in pertinent part: 1. The Petitioner received a certified letter dated June 15, 2006, stating taxes were due and owing in the amount of $32,312.24. This amount included $5,774.80 in fabrication cost taxes which the Petitioner does not object too [sic]. The balance of the $32,312.24 was for taxes on items sold to non-taxable entities. The Petitioner would object to these taxes and gives as grounds the following: Items sold to non-taxable entities are not subject to the Florida Tax Code. The department made a determination the items sold to the non-taxable entities were taxable stating the contractor, in this case the Petitioner, was the end user. Florida Tax Code states in part ". . . a determination whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction rather than the form in which the transaction is cast." The department "shall adopt rules that give special consideration to factors that govern the status of the tangible personal property before its affixation to real property." The Department of Revenue has adopted a rule which is in violation of the incident [sic] of legislature and contrary to Florida Statute 212.08.2/ (Emphasis supplied). The Amended Petition constitutes a clear admission that the $5,744.80 portion of the taxes due under the audit were both uncontested and owed, as of October 11, 2006. The first Affidavit of Martha Watkins, filed November 28, 2006, in support of the pending Motion to Dismiss, states, in pertinent part: I am a [sic] sui juris and otherwise competent to testify in this matter. I am employed by the Florida Department of Revenue in the position of Tax Auditor III. I am familiar with the accounts, accounting methods, and maintenance of records at the Florida Department of Revenue for sales tax, interest, and penalties. I am authorized by the Department of Revenue to make affidavit regarding the payment status of sales taxes, interest and penalties relative to registered Florida dealers. I have reviewed, and have personal knowledge of the accounts of the Florida Department of Revenue regarding tax payment of C&C MECHANICAL CONTRACTORS, INC., a Florida corporation that has in the past been issued a Certificate of Registration by the Department of Revenue. According to the records of the Department of Revenue, as of November 27, 2006, C&C MECHANICAL CONTRACTORS, INC., has not paid any sums to the Department of Revenue against the assessed outstanding balance of sales tax, interest or penalties, since prior to April 16, 2006.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Florida Department of Revenue enter a final order dismissing the Amended Petition. DONE AND ENTERED this 27th day of February, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of February, 2007.
The Issue Whether the Department of Revenue (DOR) has properly issued an assessment against Petitioner for sales and use tax, interest, and penalty.
Findings Of Fact Petitioner is a Florida resident. In 1996, Petitioner began doing business as a sole proprietor under the name of "Duraline Industries" and registered with DOR as a sales tax dealer. Later, this entity was called "Dura Steel." Petitioner also operated as a corporation, Steel Engineered Design Systems, Inc. Petitioner's Florida sales tax numbers are 42-11-009271-63 and 40-00-003416- For purposes of these consolidated cases, Petitioner has been audited and charged individually as "Charles R. Bielinski," because the audit revealed that no checks were made out to the corporation(s) and that the monies received were received by Mr. Bielinski as a sole proprietor in one or more "doing business as" categories. Petitioner engaged in the business of fabricating items of tangible personal property, i.e., prefabricated steel buildings, many of which later became improvements to real property in Florida. Petitioner used some of the steel buildings in the performance of real property contracts by installing the buildings as improvements to real property. Petitioner also engaged in the business of selling buildings and steel component parts such as sheets and trim in Florida. Petitioner sold buildings and component parts in over- the-counter retail sales, also. On October 7, 2002, DOR issued Petitioner a Notification of Intent to Audit Books and Records for the period of September 1, 1999 through August 31, 2002. This audit was assigned number AO226920428. In 2002, Petitioner provided DOR's auditor with his sales activity records, such as contracts and job information. A telephone conversation/interview of Petitioner was conducted by the auditor. Over a period of several months, the auditor attempted to get Petitioner to provide additional records, but none were forthcoming. DOR deemed the contracts and job information provided by Petitioner to be an incomplete record of his sales activity for the audit period. Petitioner claimed that most of his sales activity records had been lost or destroyed. Due to the absence of complete records, DOR sampled Petitioner's available records and other information related to his sales in order to conduct and complete its audit. Petitioner purchased materials used to fabricate his steel buildings. Petitioner sometimes would erect the buildings on real property. Petitioner fabricated main frames for smaller buildings at a shop that he maintained at the Bonifay Airport. Otherwise, Petitioner subcontracted with like companies to fabricate main frames for larger buildings. Petitioner made some sales to exempt buyers, such as religious institutions and government entities. When he purchased the materials he used to fabricate the buildings, Petitioner occasionally provided his vendors with his resale certificate, in lieu of paying sales tax. Petitioner did not pay sales tax on the materials he purchased to fabricate buildings when such buildings were being fabricated for exempt buyers such as churches and governmental entities. On June 23, 2003, DOR issued Petitioner a Notice of Intent to Make Audit Changes (Form DR-840), for audit number AO226920428, covering the period of November 1, 1997 through August 31, 2002. DOR has assessed Petitioner sales tax on the buildings, sheets, and trim he sold over-the-counter in Florida. DOR has assessed Petitioner use tax on sales of the materials used in performing real property contracts in Florida. The auditor calculated a method of estimating taxes based on the limited documentation that had been provided by Petitioner. She used a sampling method based on Petitioner's contract numbering system; isolated the Florida contracts; and divided the Florida contracts between the actual sale of tangible property (sale of just the buildings themselves) and real property contracts (where Petitioner not only provided the building but also provided installation or erection services). The auditor scheduled the real property contracts and assessed only the material amounts as taxable in Florida. Since she had only 19 out of 47 probable contracts, or 40 percent, she projected up to what the taxable amount should be and applied the sales tax and surtax at the rate of seven percent, as provided by law. She then divided that tax for the entire audit period by the 58 months in the audit period, to arrive at a monthly tax amount. This monthly tax amount was broken out into sales and discretionary sales tax. Florida levies a six percent State sales tax. Each county has the discretion to levy a discretionary sales tax. Counties have similar discretion as to a surtax. The auditor determined that Petitioner collected roughly $22,000.00 dollars in tax from one of his sales tax registrations which had not been remitted to DOR. During the five-year audit period, Petitioner only remitted tax in May 1998. DOR gave Petitioner credit for the taxes he did remit to DOR during the audit period. The foregoing audit processes resulted in the initial assessment(s) of August 28, 2003, which are set out in Findings of Fact 25-31, infra. On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR-832/833), for additional discretionary surtax, in the sum of $2,582.19; interest through August 28, 2003, in the sum of $782.55; and penalty, in the sum of $1,289.91; plus additional interest that accrues at $0.50 per day. (DOAH Case No. 04-0008) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional sales and use tax in the sum of $154,653.32; interest through August 28, 2003, in the sum of $50,500.06; and penalty, in the sum of $77,324.54, plus additional interest that accrues at $31.54 per day. (DOAH Case No. 04-0009) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional local governmental infrastructure surtax, in the sum of $7,001.82; interest through August 28, 2003, in the sum of $2,352.09; and penalty in the sum of $3,497.35; plus additional interest that accrues at $1.45 per day. (DOAH Case No. 04-0010) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional indigent care surtax, in the sum of $513.08; interest through August 28, 2003, in the sum of $156.33; and penalty, in the sum of $256.24; plus additional interest that accrues at $0.10 per day. (DOAH Case No. 04-0011) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional school capital outlay surtax in the sum of $3,084.49; interest through August 28, 2003, in the sum of $922.23; and penalty, in the sum of $1,540.98; plus additional interest that accrues at $0.60 per day. (DOAH Case No. 04-0012) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional charter transit system surtax, in the sum of $2,049.22; interest through August 28, 2003, in the sum of $766.07; and penalty, in the sum of $1,023.27; plus additional interest that accrues at $0.46 per day. (DOAH Case No. 04-0013) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), additional small county surtax, in the sum of $10,544.51; interest through August 28, 2003, in the sum of $3,437.85; and penalty in the sum of $5,282.30; plus additional interest that accrues at $2.15 per day. (DOAH Case No. 04-0014) However, the auditor testified at the May 13, 2004, hearing that she attended Petitioner's deposition on March 18, 2004. At that time, Petitioner provided additional documentation which permitted the auditor to recalculate the amount of tax due. The auditor further testified that she separated out the contracts newly provided at that time and any information which clarified the prior contracts she had received. She then isolated the contracts that would affect the Florida taxes due. Despite some of the new information increasing the tax on some of Petitioner's individual Florida contracts, the result of the auditor's new review was that overall, the contracts, now totaling 33, resulted in a reduction in total tax due from Petitioner. These changes were recorded in Revision No. 1 which was attached to the old June 23, 2003, Notice of Intent to Make Audit Changes, which was sent by certified mail to Petitioner. The certified mail receipt was returned to DOR as unclaimed. The auditor's calculations reducing Petitioner's overall tax are set out in Respondent's Exhibit 16 (Revision No. 1). That exhibit appears to now show that taxes are owed by Petitioner as follows in Findings of Fact 34-40 infra. For DOAH Case No. 04-0008, discretionary surtax (tax code 013), Petitioner only owes in the amount of $1,937.37, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0009, sales and use tax (tax code 010), Petitioner only owes in the amount of $111,811.04, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0010, local governmental infrastructure surtax (tax code 016), Petitioner only owes in the amount of $5,211.00, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0011, indigent care surtax (tax code 230), Petitioner only owes in the amount of $317.39, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0012, school capital outlay tax (tax code 530), Petitioner only owes in the amount of $2,398.68, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0013, charter transit system surtax (tax code 015), Petitioner only owes in the amount of $1,558.66, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0014, small county surtax (tax code 270), Petitioner only owes in the amount of $7,211.83, plus penalties and interest to run on a daily basis as provided by law.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law set forth above, it is RECOMMENDED that the Department of Revenue enter a final order upholding the amount of tax calculated against Petitioner in its June 21, 2003, Notice of Intent to Make Audit Changes, Revision No. 1, in the principal amounts as set forth in Findings of Fact Nos. 34-40, plus interest and penalty accruing per day as provided by law, until such time as the tax is paid. DONE AND ENTERED this 14th day of July, 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 14th day of July, 2004.
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.
