The Issue The issue is whether Petitioner owes additional sales and use tax, interest, and penalties, pursuant to a Notice of Proposed Assessment.
Findings Of Fact Ivan Soberal is the president and sole owner of Petitioner. Mr. Soberal started the business of Cycle Ivan's 12 years ago. At first, he operated as a sole proprietorship. He incorporated the business in 1997. This case commenced with Respondent's issuance of a Notice of Proposed Assessment dated October 23, 2002. The Notice of Proposed Assessment proposes the assessment of $26,917.69 in additional sales tax, $13,458.88 in penalty, and $9,417.61 in interest through October 23, 2002, for a total of $49,794.18. The notice warns: "If you choose to request either an administrative hearing or judicial proceeding, your request must be filed no later than FEBRUARY 20, 2003 or 60 days from the date the assessment becomes a Final Assessment." The notice adds: "The petition for an administrative hearing must be filed with the Department." Petitioner requested an administrative hearing by letter dated February 20, 2003, and received by, and filed with, Respondent on February 24, 2003. The audit period in this case is December 1, 1996, through November 30, 2001. During this time, Petitioner's business has been the sale and repair of motorcycles and scooters. Petitioner does not sell any new motorized vehicles with an engine displacement larger than 50 cc because doing so would require a dealer's license. Thus, most of the new motorized vehicles sold by Petitioner are small scooters manufactured in China or Japan. Petitioner sells used motorcycles on consignment. Over the years, Petitioner's business has transformed from primarily repairs to a greater emphasis on consignment sales to the present emphasis on part sales. This is an inadequate-records case. For the most part, the auditor used federal income tax returns and corporate income statements to calculate Petitioner's tax liability. The auditor had no cash register receipts, no journal entries, and limited bank statements (none for 1996, 1997, 1998, and 2001 and only two months in 1999 and three months in 2000). During the audit period, Petitioner used primarily repair orders to record sales of goods or services. After the audit period, Petitioner computerized its recordkeeping for inventory and sales, but, until then, the available records are extremely limited. Respondent's auditor tried to use samplings of Petitioner's invoices to determine any sales tax deficiencies, but the records were poorly maintained. Taking a sample over the first six months of 2000, the auditor was unable to find invoices totaling thousands of dollars, thus making it appear that Petitioner over-reported taxable sales during these months. Obviously, Petitioner did not over-report taxable sales, but instead had removed invoices from the records that it had provided the auditor. Recognizing the impossibility of reassembling Petitioner's actual taxable sales from its incomplete and nonexistent records, the auditor resorted to Petitioner's federal income tax returns and, for 2001, corporate income statements. By these means, Respondent's auditor determined Petitioner's gross sales, treated them entirely as taxable sales, and calculated the sales tax due on these gross sales. After having done so, the auditor subtracted the taxes actually remitted by Petitioner during the audit period, and the remainder is the sales tax deficiency in this case. Petitioner's basic claim is that many of its sales during the audit period are exempt. However, Petitioner's manner of calculating exempt sales during the audit period was no better than its recordkeeping. Each month, Petitioner subtracted its taxable sales, or what it deemed to be its taxable sales, from its bank deposits, and the remainder was its exempt sales. This method, of course, results in potentially vast overstatements of exempt sales. Petitioner lacks resale or consumer certificates of exemption to support its exemption claims. Mr. Soberal admitted at the hearing that he did not keep records of exempt sales. Exempt sales for Petitioner would also include parts sold to locations outside of the United States, but the nature of Petitioner's business suggests that this type of transaction would not produce significant sales. The only significant exemption in this case is service-only repairs, such as when parts are not required for the repair or the customer provides the parts. The best way of accounting for service-only repairs is to calculate them from the auditor's workpapers for the six months in early 2000 that he sampled. These workpapers identify which invoices are for service only and which invoices include parts, accessories, or other tangible personal property. After calculating the total of service-only repairs, it is possible to derive a fraction with the numerator being the total price of the service-only repairs and the denominator being the total sales reported by Petitioner, which, for each month, was higher than the total gross sales shown on the invoices that Petitioner produced for the auditor. Because this fraction is based on sales during the first half of 2000, which is relatively late in the audit period, it probably represents a fair allocation of service versus sales. As noted above, service transactions predominated early in the audit period, but sales transactions (first of vehicles and later of parts) predominated later in the audit period. Thus, the reduction of total gross sales for the entire audit period by this fraction generated the most reliable estimate of taxable sales during the audit period from available records and still does not reward Petitioner for its failure to maintain records. For January 2000, the service-only repairs total $1052.50 out of total reported sales of $8095.88. For February 2000, the service-only repairs total $1739.99 out of total reported sales of $10,311.55. For March 2000, the service-only repairs total $372.50 out of total reported sales of $11,654.93. For April 2000, the service-only repairs total $796.76 out of total reported sales of $8877.07. For June 2000, the service-only repairs total $595.50 out of total reported sales of $15,970.71. For July 2000, the service-only repairs total $409.95 out of total reported sales of $10,280.58. For these six months, service-only repairs total $4967.20 out of total reported sales of $65,190.72. The resulting reduction is 7.6 percent. Applying the reduction to the sales tax deficiency proposed in the Notice of Proposed Assessment, the resulting tax deficiency is reduced by $2045.74 to a new total of $24,871.95.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order dismissing Petitioner's protest as untimely and sustaining the total amount set forth in the Notice of Proposed Assessment dated October 23, 2002, or, in the alternative, reducing the additional sales tax due to $24,871.95 and recalculating the penalty and interest accordingly. DONE AND ENTERED this 14th day of November, 2003, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of November, 2003. COPIES FURNISHED: James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 George B. Grosheim Qualified Representative Accounting Services of South Florida. 1210 Southeast 5th Street Deerfield Beach, Florida 33441 Nicholas Bykowsky Assistant Attorney General Office of the Attorney General The Capitol--Tax Section Tallahassee, Florida 32399-1050
Findings Of Fact Coulter Electronics, Inc., Petitioner, is a manufacturer of machinery and instruments used primarily by medical and related professions. During fiscal years 1973 and 1974 the Department included in Coulter's apportionment formula certain inter-company sales of two of its subsidiary corporations, Coulter Diagnostics, Inc., (C.D.I.), and Blood Services, Inc., (B.S.I.). C.D.I. produces products which are used with the machinery and instruments to perform certain tests and B.S.I. produces certain materials which are used by C.D.I. to manufacture its products. Coulter is the parent corporation with C.D.I. being a 100 percent wholly-owned subsidiary and B.S.I. being an approximately 92 percent owned subsidiary. The central management group of Coulter selects and appoints management of both C.D.I. and B.S.I. with some overlap between the top management of the three corporations. During Petitioner's corporate fiscal years ending March 31, 1973, and March 31, 1974, Coulter, as the parent of an affiliated group of corporations, filed consolidated income tax returns for federal income tax purposes. Petitioner's subsidiaries also filed consolidated corporate income tax returns with the State for the fiscal years in question. As reflected on Petitioner's books, sales made to it in this State by its subsidiaries for the 1973 fiscal year total $13,875,153 and for the fiscal year ending 1974, the company sales total $13,961,516 (see Exhibit B to Petitioner's Complaint P.7). These inter- company sales were not included in either the denumerator or denominator of the Petitioner's apportionment formula in the original returns which are filed with the State of Florida. The department, pursuant to an audit by its corporate income tax bureau, included these, resulting in deficiencies of $39,436.00 for the 1973 tax year and $324.00 for the 1974 tax year. The Petitioner takes the position that the transactions in question do not constitute sales which are to be included in the sales factor of the apportionment formula, Section 214.71(3), F.S., because ownership, possession, control and right to direct the products in question at all times rested with the parent corporation and the operations of the subsidiary corporations were at all times totally under the direction and control of the parent corporation. Florida Statutes, Section 214.71(3), generally provides that: "The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the taxable year period and the denom- inator of which is the total sales of the taxpayer everywhere during the taxable year or period." The Petitioner urges that its inter-company transactions do not constitute "sales" because they do not include elements traditionally associated with the legal concept of a sale such as passage of title from the vendor to the vendee in payment of a direct consideration from the vendee to the vendor. However, the statutorily defined concept of a sale is very broad in Section 220.15(1), Florida Statutes. That section provides in pertinent part that: "The term 'sales' in paragraph 214.71(3)(a) shall mean all gross receipts of the tax- payer except interest, dividends, rents, royalties, and gross receipts from the sale, exchange, maturity, redemption, or other disposition of securities; except that: (a) Rental income shall be in- cluded in the term 'sales' whenever a significant portion of the taxpayer's business consists of leasing or renting real or tangible personal property; (b) Royalty income shall be included in the term 'sales' whenever a significant portion of the taxpayer's business con- sists of dealing in or with the production, exploration, or development of minerals." (Emphasis supplied) Therein the legislature extended the term "sales" to much more than is traditionally associated with the legal concept of sales for purpose of defining the sales factor or corporate income tax apportionment formula. It thus appears that the presence or absence of title and the method of payment, necessary elements of the traditional concept of the "sale", would not necessarily prevent these inter-company transactions as reflected on the Petitioner's books, from being considered "sales" within the contemplation of the sales factor in the apportionment formula when consideration is given to the above section. Petitioner's Comptroller specifically testified that the inter-company sales formed a part of its gross receipts. None of the transactions involved here fall within any of the statutory exceptions. Evidence also reveals that the inter-company transactions reflected a percentage of profits for the various subsidiaries. Case law in this state has previously recognized that book transactions between members of an affiliated group could be considered as transactions for Florida's tax purposes even where there was no actual transfer of funds. See for example Zero Food Storage Division of American Consumer Industries, Inc. v. Department of Revenue, 337 2d 765(1st DCA Florida 1976). Other state courts have also construed the "sales" factor in their apportionment formula broadly so as to include receipts by the taxpayer that clearly fall without the traditional concept of a sale. See Twentieth Century Fox Film Corporation v. Phillips, 47 S.E. 2d 183 (1948). The Petitioner raises, for the first time, in its brief that the inclusion of inter-company sales in the sales factor of the apportionment formula as originally enacted related only to financial organizations. Petitioner based this argument on its contention that the original legislative enactment of the tax administration act as embodied in Chapter 71-359, Law of Florida, contained the language relating to inter-company sales as part of a subsection pertaining only to financial organization. It argues further that when the State Laws were codified in the Florida Statutes from 1971, and all succeeding years, it was placed as a separate subsection applicable to all corporations. This codification was made by the Division of Statutory Revision. That division receives its authority from Florida Statutes, Section 11.242. My consideration of the various paragraphs of Section 11.242(5), F.S., persuades me to conclude that the change which was made clearly fell within the power of the division and that the legislature has met continuously, at least on an annual basis, since 1971 when the above referenced arrangement was enacted in Section 214.71(3), F.S., by the Division of Statutory Revision, and it is that branch which should have addressed any alleged erroneous placement by the Division of Statutory Revision so as to conform to legislative intent. In any event, argument in this regard should be addressed to this legislature. For these reasons, I conclude that the inter-company sales as evidenced by the testimony constituting a part of Petitioner's gross receipts are therefore a proper item for inclusion in the sales factor of the apportionment formula, as provided in Chapter 214.71(3), Florida Statutes. As such, to the extent that the Florida sales here in question include a profit element, they are includable in the denominator and in the numerator.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, I hereby recommend: That the Petitioner's challenge of the Department's determination of corporation tax due pursuant to Chapter 220, Florida Statutes, be denied, and that the Respondent's proposed corporate income tax deficiencies for Petitioner's corporate fiscal years ending March 31, 1973 and 1974 be sustained. DONE and ENTERED this 27th day of December, 1977, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: James R. McCachren, Jr., Esquire Ervin, Varn, Jacobs & Odom, Law Offices 305 South Gadsden Street Tallahassee, Florida E. Wilson Crump, II Assistant Attorney General Department of Legal Affairs Fletcher Building Tallahassee, Florida 32304
The Issue The issue in this case is whether Petitioner is entitled to a waiver of the bond requirement set forth Section 559.927, Florida Statutes.
Findings Of Fact Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: Ladatco is a "seller of travel" as that term is defined in Section 559.927(1)(a), Florida Statutes. Ladatco deals exclusively in wholesale travel packages. Ladatco primarily packages and sells tours of Central and South America to retail travel agents. Until the last few years, the retail travel agents handled virtually all of the ticketing involved in the packages. Changes in the industry have resulted in Ladatco becoming more involved in the ticketing aspect as part of the services it provides in assembling the packages. However, Ladatco has very little direct contact with consumers. Ladatco originally began operations in 1967 as a subsidiary of another company. Ladatco has been conducting business in its current corporate form since 1976. Michelle Shelburne has been working for the company since 1969. She has been the president of Ladatco for at least the last ten years and she owns fifty percent (50 percent) of the outstanding stock. Annie Burke and Rosa Perez are the other officers of the company and they each own approximately twenty two and half percent (22 1/2 percent) of the stock. Both Burke and Perez have worked for Ladatco since approximately 1970. The remaining five percent of the outstanding stock is owned by an attorney who has represented Ladatco since 1967. Ladatco has seven other full time employees and operates out of an office building that is owned jointly by Shelburne, Perez and Burke. Under Section 559.927(10)(b), Florida Statutes, a seller of travel is obligated to post a performance bond or otherwise provide security to the Department to cover potential future claims made by travelers. The security required by this statute is for the benefit of consumers and may be waived by the Department in certain circumstances. On or about May 27, 1994, Ladatco submitted an Application for Security Waiver (the "Application") pursuant to Section 559.927(10)(b)5, Florida Statutes. In lieu of audited financial statements, Ladatco submitted a copy of its 1993 income tax return with the Application. Line 30 of that income tax return reflects a net loss for tax purposes of $100,722. In reviewing an application for a bond waiver, the Department looks at the taxable income on the income tax return. It is the Department's position that if a company shows a loss for tax purposes, it is lacking in financial responsibility and is ineligible for a bond waiver. Based on this policy, the Department denied Ladatco's Application by letter dated August 2, 1994. The certified public accountant who has handled all outside accounting services for Ladatco since 1977 testified at the hearing in this matter. He submitted a history of operations for the company from 1985 through 1993. The accountant explained that, in 1986, Ladatco acquired a very expensive computer system with customized software. The cost of this system was depreciated over a five year period. In addition, until 1991, the company operated out of a building that it owned. The building was sold to the individual principals of the company in 1991. During the years the company owned the building, a significant amount of depreciation was generated for tax purposes. The large depreciation expenses for the years 1986 through 1991 generated losses for tax purposes which have been carried over for future years. Thus, while the company's operations for 1993 generated a profit of $65,000, the loss carry over resulted in a net loss for income tax purposes. The current year forecast for the company, based upon existing bookings, projects a net income in excess of $64,000 for the year ending December 31, 1994. In sum, an isolated look at the taxable income loss reflected on the 1993 income tax return does not provide an accurate picture of the financial responsibility of this company. This closely owned company has been in business for approximately twenty eight (28) years. The three principals in the company have all been with the firm for more than twenty four (24) years. The company has demonstrated a great deal of stability and, while profitability has fluctuated from year to year, the company has continually met its obligations for more than a quarter century. There is every indication that it will continue to do so in the future. Ladatco has maintained a bond with the Airline Reporting Corporation ("ARC") for approximately two and a half years. The amount of the bond varies from year to year, but is generally in the vicinity of $35,000. The statute provides that a company which has successfully maintained a bond with the ARC for three years is entitled to a security waiver. While the ARC bond only protects the airlines and not the travelers, Ladatco will qualify for a waiver under this provision in approximately May of 1995. There is no indication of any unresolved complaints against Ladatco nor is there any evidence of civil, criminal or administrative action against the company.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Agriculture and Consumer Services enter a Final Order granting Ladatco's application for security waiver pursuant to Section 559.927(10)(b)5, Florida Statutes. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of December 1994. J. STEPHEN MENTON 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 16th day of December 1994. APPENDIX TO RECOMMENDED ORDER Only the Respondent has submitted proposed findings of fact. The following constitutes my ruling on those proposals. Adopted in pertinent part Finding of Fact 6 and also addressing the Preliminary Statement and in the Conclusions of Law. Adopted in substance in Finding of Fact 6. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 8. Adopted in substance in Finding of Facts 7 and 8. COPIES FURNISHED: Michelle D. Shelburne, President Ladatco, Inc. d/b/a Ladatco Tours 2220 Coral Way Miami, Florida 33145 Jay S. Levenstein, Senior Attorney Department of Agriculture and Consumer Services Room 515, Mayo Building Tallahassee, Florida 32399-0800 Honorable Bob Crawford Commissioner of Agriculture The Capitol, PL-10 Tallahassee, Florida 32399-0810 Richard Tritschler General Counsel Department of Agriculture and Consumer Services The Capitol, PL-10 Tallahassee, Florida 32399-0810
Findings Of Fact Petitioner purchased a used car in Florida in May of 1983 and paid 5 percent sales tax. Petitioner did not title said car in the State of Florida. When Petitioner returned to Maryland, his state of residence, Maryland imposed a 5 percent tax on said car when Petitioner titled said car. Petitioner applied for a sales tax refund to the Department of Revenue in the amount of $225.00. Respondent issued a Notice of Intent to deny said refund application on December 1, 1983. From the exhibits to which the parties stipulated, additional facts are found by the Hearing Officer. A bill of sale indicates that Petitioner purchased a 1979 Buick Regal from Eddy Auto Sales on May 14, 1983. A temporary registration and receipt issued by the State of Maryland on June 17, 1983, shows that Petitioner paid a "title tax" of $222.50 to the State of Maryland. By letter dated January 27, 1984, Agnes Stoicos of the Maryland Department of Transportation indicates that the Maryland tax is a 5 percent excise tax upon the issuance of all original and subsequent certificates of title, and the tax is used primarily for the construction and the maintenance of the Maryland highway system.
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner's application for licensure as a nonresident life, health and variable annuities insurance agent should be denied on the basis of his having pled guilty and been convicted of a felony. Embodied within that general issue are the issues of whether the felony involved is one of moral turpitude and whether the conviction, and the circumstances surrounding it, demonstrate that the Petitioner lacks fitness or trustworthiness to engage in the business of insurance.
Findings Of Fact The Petitioner, Preston Hursey, Jr., filed an application for qualification in Florida as a nonresident life, health and variable annuities agent. The application was filed on November 13, 1989. On April 9, 1990, the Department of Insurance issued a letter of denial with regard to that application based upon a felony conviction of the Petitioner in the past. The Respondent is an agency of the State of Florida charged, in pertinent part, with enforcing the licensure, admission and continuing practice standards for insurance agents of all types, embodied in Chapter 626, Florida Statutes, and with regulating the admission of persons to licensure as insurance agents in the State of Florida. On August 12, 1988, an Information was filed with the United States District Court for the District of Columbia, charging the Petitioner with three felony counts involving "aiding or assisting presentation of false income tax return". That is a felony violation of Title 26 U.S.C., Sections 7206(2). On November 15, 1989, the Petitioner was found guilty of three counts of aiding or assisting presentation of false income tax return in violation of that statutory section. The actual conduct for which he was convicted occurred prior to the charges. Prior to 1984, the Petitioner worked for some years as a medical examiner for insurance companies, taking medical histories, blood pressures, pulses and the like, for purposes of establishing insurance coverage for clients of the companies. Some time in early 1984, the Petitioner approached American Dynamics Corporation, as a client, with the intent of availing himself of the financial planning services of that company with the intent of saving on income taxes. The company was apparently counseling clients as to tax shelters in which they could invest or which they could claim, as a means of' avoidance of federal income tax. The Petitioner became very interested in that tax saving procedure and sometime in 1984 became involved with the firm as one of its financial counselor employees. The firm trained him in the service they offered to taxpayers, which involved financial planning by using trusts to defer taxes, as well as other means of sheltering income from tax liability. The company and the Petitioner counseled numerous clients and assisted them in taking advantage of alleged tax shelters, including the final act of preparing their tax returns. During the course of going to hearings with his clients, when their tax returns came under question by the Internal Revenue Service, the Petitioner became aware that apparently the service would not accept the tax shelter devices being used by his company and him as a legitimate means of avoiding taxes. He then sought legal advice from a tax attorney and received an opinion from him that the tax avoidance counseling methods, devices and tax return preparation the Petitioner and his employer were engaging in were not legal, and that the Petitioner should advise anyone he knew involved in such schemes to terminate their relationship. The Petitioner acted on that advice, terminated his relationship with the company and recommended to his clients that they terminate their relationship with the company and the tax avoidance devices being used. Through hindsight and learning more about relevant tax law in the last four to five years since the conduct occurred, the Petitioner realizes that the tax shelter schemes marketed by his employer at that time and, by himself, did not make financial or legal sense. The Petitioner at that time had very little training in financial counseling or advising and very little training in the Federal income tax laws arid regulations. In retrospect, after receiving much more such training as an agent of New York Life Insurance Company since that time, he realized the significance of the error he and his former employer committed. When the tax returns were prepared by the Petitioner and others employed with the firm involved, the tax return accurately reflected the gross income of he taxpayer, the "W2 forms", and all appropriate documentation. Then, the gross income of the taxpayer was shown as reduced by the amount of funds affected by the tax shelter system marketed by the Petitioner's former employer and the Petitioner. There was a statement on the tax return itself explaining the disparity in taxable income so that basically the Internal Revenue Service had the facts and circumstances of such situations disclosed to it. It, however, deemed anyone marketing such tax shelters as engaged in marketing "abusive tax shelters", in effect, in violation of the Internal Revenue Code. Ultimately, the Petitioner was prosecuted along with others involved in the transactions and suffered a felony conviction of three counts of violation of the statute referenced above. The Petitioner has steadfastly maintained both before and after his conviction that he had no intent to violate the tax laws of the United States, but rather believed, until he sought a legal opinion from a qualified attorney, that the service he was marketing was a legal one. After he came under prosecution by the Justice Department for the violation, the Petitioner cooperated fully with the Internal Revenue Service and the Justice Department. The felony violation of which he was convicted, by guilty plea, carried a sentence of three years imprisonment, one year for each tax return involved. That sentence was reduced by the court; however, in consideration of the circumstances of the Petitioner's offense and his cooperation with the prosecuting authorities, to one month of "work release", which he served by working during the day for senior citizens organizations and returning to a confinement facility in the evening. He also was required to render 200 hours of community service, which he has completed, and three years probation. Because of his excellent attitude and behavior and his demonstrated activities designed to further his education in the insurance and securities field, his successful pursuit of the insurance and securities marketing profession in other states and his obviously-positive motivation, his probation officer has recommended that his probation be terminated early, after only two years of it would have been completed in November, 1990. The sentence was reduced because of the Petitioner's positive record in his community, the fact that he had no prior criminal history and because of widespread support by responsible members of the community and by the probation officers who reviewed his case and situation. The judge, upon sentencing, also noted that he was impressed by the fact that the Petitioner wanted to continue to work in the insurance and securities field and was the sole support of a young son whom he was supporting and caring for as an active parent. He continues to do that. The record establishes that the Petitioner's conviction was the result of a guilty plea. That plea resulted from a negotiated "plea bargain" settlement with the prosecuting authorities. The Petitioner established with unrefuted testimony, that he never had any willful intent to commit a crime or defraud the Federal government and the Internal Revenue Service. While he had a general intent to offer the tax advice involved to clients and assist them in engaging in tax shelter arrangements and in preparing the related tax returns, he had no specific intent to commit acts which he knew to be illegal when he committed them, nor which he believed amounted to fraud or deceit of the Internal Revenue Service. Although he pled guilty to a crime involving, by the language of the above--cited statute, the element of falsity, which bespeaks of deceit or fraud, the evidence shows that the Petitioner harbored no such fraudulent or deceitful intent. This is corroborated by the fact that the Petitioner and his clients disclosed all income on the tax return and simply disclosed that a portion of it was sheltered, which procedure was determined by the Internal Revenue Service to be illegal. There was no evidence of record to indicate that the Petitioner sought to conceal income or otherwise commit a false or fraudulent act in the course of his financial and tax advice to these clients, nor in the preparation of their tax returns for submittal. While the statute he is convicted of violating appears to involve the element of moral turpitude because it refers to false or fraudulent tax returns, it is a very general type of charge which can cover many types of activities or conduct. Consequently, one should consider the specific conduct involved in a given instance, such as this one, to determine whether the crime committed factually involved moral turpitude. Based upon the unrefuted evidence of record culminating in the findings of fact made above, it is clear that the Petitioner committed no conduct involving moral turpitude at the time the activity in question was engaged in for the above reasons. The Petitioner has been in no legal altercation, criminal or otherwise, before or since the instance which occurred in 1984. He has become licensed in Washington DC, Maryland and Virginia as an insurance agent and as a broker agent. He represents numerous insurance companies, including, for approximately five years, the New York Life Insurance Company and other reputable companies. He has pursued his continuing education requirements and has earned more requirements than he needs for licensure in Florida and Maryland. He is actively seeking to improve his professional standing and competence in the insurance and securities field and is highly motivated to continue doing so. A great deal of his motivation comes from the fact that he is the sole support of his young 11-year-old son. He enjoys the insurance profession because it gives him time to participate in his son's many school-related and extracurricular activities, such as football. The Petitioner's testimony, and the proven circumstances of the situation, establish without question that he is an honest, forthright person who has candidly admitted a past mistake and who has worked actively, in the approximate six years which have elapsed since the conduct was committed, to rectify that blemish on his record. His efforts to rehabilitate himself personally and professionally involved his active participation as a parent for his son in his son's school life and otherwise, and participation in church and community activities. During the time period which has elapsed since the conduct in question occurred, he has sufficiently rehabilitated himself both personally and professionally so as to justify the finding that he has demonstrated trustworthiness and fitness to engage in the business of insurance. Indeed, three other states, after having the circumstances of his conviction fully disclosed to them, have licensed him or retained him as a licensee insurance agent. The Petitioner is a navy veteran of Vietnam, having served three tours in the Vietnam war, for which service he was decorated. He had a number of security clearances, including a top secret security clearance based upon his work in the field of communications and cryptology during that war. This honorable service, the efforts he has made to improve himself personally and professionally before and since the subject conduct occurred, the fact that it was an isolated incident on his record, the fact that it did not involve any established intent to defraud or deceive on his part, the fact that he is an active, positive parental role model, community member and church member, and his general demeanor at hearing of honesty and forthrightness convinces the Hearing Officer that the isolated incident of misconduct he committed did not involve a demonstrated lack of fitness and trustworthiness to engage in the business of insurance. Quite positively, the Petitioner has demonstrated his fitness and trustworthiness to engage in that business.
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 the Petitioner's application for licensure as a nonresident life, health and variable annuities insurance agent should be granted. DONE AND ENTERED this 7th day of February, 1991, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of February, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-3069 Petitioner's Proposed Findings of Fact 1-4. Accepted. 5. Rejected, as not clearly established by the evidence of record. 6-14. Accepted. Respondent's Proposed Findings of Fact 1-4. Accepted. 5. Rejected, as not clearly established by the evidence of record. COPIES FURNISHED: Mr. Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Don Dowdell, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Preston Hursey, Jr., pro se Post Office Box 43643 Washington, DC 20010 Willis F. Melvin, Jr., Esq. Andrew Levine, Esq. Department of Insurance Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300
Findings Of Fact At all times pertinent to this cause, Robert W. Pope has been the holder of license no. 62-600, series 4-COP, SRX, held with the State of Florida, Division of Beverage to trade as The Wedgewood Inn, located at 1701, 4th Street, South, St. Petersburg, Pinellas County, Florida. When the Respondent, Pope, began to operate the licensed premises he was given a registration sales tax number by the State of Florida, Department of Revenue. This number was provided in accordance with 212, F.S. That law required the remittance of the collected sales tax on a month to month basis, the period beginning with the first day of the month and ending with the last day of the month. The remittance was due on the first day of the following month and payable by the 20th day of the following month. Failure to pay by the 20th would result in a 5 percent penalty and 1 percent interest per month. The sales tax remittance due from the licensed premises for December, 1975 through August, 1976 was not made, and a lien was filed to aid collection of the tax. In mid 1976, the Respondent, contacted the State of Florida, Department of Revenue to discuss term payments of the sales tax remittance. The Respondent in October, 1976 tried to effect a partial release of the tax claim by paying $2,900. In keeping with their policy the Department of Revenue rejected these efforts. Subsequently, in February, 1977, the Respondent made a $10,000 initial payment and three monthly installments to satisfy the lien on this licensed premises and another licensed premises which the Respondent owned. At present all taxes due and owing under 212, F.S. are current. The above facts establish that the Respondent failed to comply with the provisions of 212, F.S. pertaining to the remittance of sales tax from the Respondent to the State of Florida, Department of Revenue. This violation, thereby subjects the Respondent to the possible penalties of 561.29, F.S.
Recommendation It is recommended that the Respondent, Robert W. Pope, be required to pay a civil penalty in the amount of $250.00 or have the license no. 62-600, series 4- COP, SRX, suspended for a period of 10 days. DONE AND ENTERED this 28th day of July, 1977, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: William Hatch, Esquire Division of Beverage 725 South Bronough Street Tallahassee, Florida 32304 Robert W. Pope, Esquire 611 First Avenue, North St. Petersburg, Florida 33701
The Issue The issue to be determined is whether Petitioner is liable for the sales and use tax, penalties, and interest assessed by the Department of Revenue and if so, what amount?
Findings Of Fact Petitioner, Rowe's Supermarkets, LLC ("Petitioner" or "Rowe's"), is a Florida limited liability company. Robert Rowe was the president and primary shareholder in Rowe's. Respondent, Department of Revenue ("DOR" or "Respondent"), is an agency of the State of Florida authorized to administer the tax laws of the State of Florida. §§ 20.21 and 213.51, Fla. Stat. (2011) During the audit giving rise to this proceeding, Rowe's had its principal address at 5435 Blanding Boulevard, Jacksonville, Florida. Currently, Rowe's is located at 1431 Riverplace Boulevard, Jacksonville, Florida. Rowe's organized in Florida on May 4, 2005. Rowe's was a sales and use tax dealer registered with the Department to conduct business in this state. It was in business approximately four years. Rowe's acquired several former Albertson's grocery retail stores, including the adjacent liquor stores, in Jacksonville, St. Augustine, and Orange Park, Florida. During the audit period, Rowe's sold five stores with the adjacent liquor stores. Soon after beginning operation, Rowe's experienced significant financial difficulties which ultimately led to its demise. Its secured lender forced Rowe's to liquidate assets whenever possible, and all proceeds from the sale of the stores were paid directly into a locked account to Rowe's lender, Textron Financial. On October 29, 2008, the Department issued to Rowe's a Notification to Audit Books and Records, Form DR-840, bearing audit number 200048409, for sales and use tax, for the audit period beginning October 1, 2005, and ending September 30, 2008. On August 14, 2009, the Department issued to Rowe's a Notice of Intent to Make Audit Changes, form DR-1215, for sales and use taxes, penalties and interest totaling $321,191.45, with additional interest accruing at $53.71 per day. On August 20, 2009, Rowe's canceled its sales and use tax Certificate of Registration. In a letter dated September 11, 2009, Rowe's requested an audit conference. The requested audit conference was held November 19, 2009. On January 8, 2010, the Department issued the taxpayer a Notice of Intent to Make Audit Changes, form DR-1215, Revision #1, for sales and use tax, penalty and interest totaling $180,435.61, with additional interest accruing at $25.32 per day. On March 10, 2010, the Department issued a NOPA, which indicated Rowe's owed $137,225.27 in sales and use tax; $44,755.99 in interest through March 10, 2010; and $59.70 in penalties, with additional interest accruing at $26.32 per day. Prior to issuance of the NOPA, the Department compromised $34,246.663 in penalties, based upon reasonable cause. By letter dated May 6, 2010, Rowe's filed a protest to dispute the proposed assessment. The letter stated: I am submitting this informal protest on behalf of Rowe's Supermarkets, LLC (RS) as its past President. RS is no longer in business and has not assets. Before this audit began RS was unable to pay its bills. Also, its line of credit, which was secured by all of RS's assets, was in default and had been called by the lender. RS was unable to refinance the loan because of its poor financial condition. As a result, it sold all of its assets to a new company which was able to obtain financing and used the proceeds of that sale to repay its secured loan. RS not only has no assets but also is subject to an unsatisfied judgment lien against it in the amount of $324,936.33, which has been accruing interest at 8% per year from August 25, 2009, the date the judgment was entered by the Circuit Court here in Jacksonville. Even if Supermarkets was still in business and could pay its bills, we don't think it should be assessed with these taxes on the basis of the audit that was conducted. The auditor's lack of communication skills made it difficult for us to understand what information she needed. To the extent we understood her requests, we made every effort to provide her with the relevant information. But because most of the stores RS operated had already been closed, the only repository for obtaining accurate information was RS's general ledger, which she declined to review. She never explained why she made the proposed adjustments. We still don't know. We did our best when RS was operating to properly collect all sales taxes, we reflected all of the sale tax collections in the general ledger and we timely turned over all of the those taxes to the department of revenue, as is clear in the general ledger. We request that the proposed assessment be dropped. The Department issued a Notice of Decision on October 14, 2010, which sustained the assessment in full. In issuing its Notice of Decision, the Department did not review any issues related to the assessment other than doubt as to collectability. With respect to this issue, the Department stated, "[b]ased on our evaluation of all the factors of this case, including the financial information, we have concluded that it is not in the best interest of the State to accept your offer." Petitioner's challenge to the assessment presents five issues: 1) whether it was entitled to an exemption in section 212.12(14) for those additional taxes assessed for "rounding" up to the whole cent as opposed to using the bracket system in section 212.12(9); 2) whether the Department's assessment of additional taxes for expenses was erroneous where it was based on a sampling plan not presented to or agreed to by the taxpayer; 3) whether the additional tax on liquor sales was based on an incorrect application of Florida Administrative Code Rule 12A- 1.057(3)(a); 4) whether the Department violated the Taxpayer's Bill of Rights; and whether the Department was correct in determining that compromise of the assessment based on collectability was not in the best interest of the state. Each issue is treated separately below. The Exemption pursuant to section 212.12(14) Section 212.12(9) and (10), Florida Statutes, requires that sales taxes be paid on a "bracket system," and prescribes the amount of tax due for each portion of a dollar. Subsection (9) provides the tax brackets for those counties, such as St. Johns, which do not have a discretionary sales surtax and for which the tax rate is 6 percent. Subsection (10) provides the brackets for those counties, such as Duval and Clay, where a discretionary sales surtax of one percent has been adopted, making the sales-tax rate 7 percent. Section 212.12(14) provides a "safe harbor" from additional assessment of taxes for those dealers who fail to apply the tax brackets required by section 212.12. The taxpayer is not assessed additional taxes, penalty, and interest based on the failure to apply the bracket system if it meets three requirements: that it acted in a good faith belief that rounding was the proper method of determining the amount of tax due; if it timely reported and remitted all taxes collected on each taxable transaction; and if the taxpayer agrees in writing to future compliance with the law and rules concerning brackets applicable to the dealer's transactions. It is undisputed that Rowe's was not using the bracket system to calculate and collect sales taxes. The point-of-sale cash register system Rowe's purchased when opening its business was represented to Petitioner as compliant with Florida requirements when in fact it was not. The Department's auditor, Delaine Arrington, determined that assessment of additional taxes was appropriate because she believed that Rowe's had not timely reported and remitted all taxes collected on each taxable transaction, and that Rowe's had not agreed in writing to future compliance with respect to the bracketing system. The sales tax records for Rowe's were based upon the meshing of three different computer systems. First, there was a point-of-sale system at each cash register which collected the data, such as sales amounts, taxable sales, and sales tax collected, for each individual transaction. A software system called BR Data would then "pull" the sales data from the individual cash registers to create the cumulative sales register reports for each store. The cumulative data from BR Data was then automatically imported into Petitioner's accounting software, MAS 90, to populate the figures in Rowe's general ledger. Taxes collected were recorded in the general ledger under the credit column. The data in this column was transmitted from BR Data. It could not be adjusted manually, although other columns in the general ledger could be. There were sometimes problems with the transmission of information from BR Data, which generally occurred where there was a power surge or a thunderstorm that would affect the communication of information. As a result of these communication problems, there were times that the sales figure transmitted would be double or triple the actual sales for that day. When such an error was discovered, Rowe's staff would contact BR Data and have the report rebuilt, and the general ledger entry would be corrected. Rowe's informed Ms. Arrington that there had been numerous problems with the exporting process and the resulting need to correct journal entries. Ms. Arrington acknowledged at hearing that she had been advised that due to these problems, the sales figures were sometimes doubled or tripled. Ms. Arrington reviewed the general sales ledger, the cumulative sales register reports, and the sales and use tax returns for the audit period. According to her review, there were three days in August 2006 where the amount of collected tax reflected in the cumulative sales register was higher than what was reflected in the general ledger. Based upon this review, she assessed $1,193.98 in additional sales taxes. For August 1, 2006, the general ledger indicated that $263.48 in sales tax was collected. The cumulative sales report reflected that $790.44 in sales tax was collected. This second number in the cumulative sales report is exactly three times the amount reflected in the general ledger. The difference between the cumulative sales report amount and the general ledger amount is $526.96. For August 2, 2006, the general ledger indicated that $277.04 was collected. The cumulative sales report reflected that $554.08 in sales tax was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $277.04. For August 11, 2006, the general ledger indicated that $389.98 in sales tax was collected. The cumulative sales report reflected that $779.96 was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $389.98. The difference in the amounts reflected in the general ledger (which Rowe's claims is the more accurate document), and the cumulative sales register (which Ms. Arrington relied upon), is $1,193.98, the amount of additional tax assessed for this item. Ms. Arrington acknowledged at hearing that she credited the cumulative sales register numbers over Rowe's general ledger documents, and that she knew during the audit that there were issues relating to BR Data that occurred during the audit period. The only document upon which she relied was the cumulative sales register. Given the credible testimony by Robert Rowe and Neil Newman regarding the process and the problems encountered with the interface of data, and the fact that in each instance, the difference was an exact multiple of the amount reflected in the general ledger, the greater weight of the evidence presented at hearing supports the finding that the general ledger represents the amount of sales tax actually collected and paid by Rowe's. This finding means that not only is the assessment of additional sales tax for August 2006, in error, but also that means that Rowe's met the second requirement for avoiding the assessment of additional taxes under section 212.12(14) for failing to use the bracket system. Ms. Arrington also found that Rowe's had not agreed in writing to future compliance with the bracket system. On or about November 19, 2009, in conjunction with the Audit Conference, Ms. Arrington prepared an Agreement for Future Compliance (Agreement) and provided it to Mr. Rowe for signature. The text of the Agreement, which is on DOR letterhead and specifically references the Sales and Use Tax Audit number for Rowe's, states: The following dealer had demonstrated the proper actions required by Section 212.12(14),(a) and (b), F.S. (see attachment), and agree [sic] to sign the following suggested form to compliance with the laws concerning brackets applicable to the dealer's transactions in the future. Rowe's Supermarkets, LLC - BP#2134130, succeeded by Rowe's IGA, LLC - 3082649 agrees to future compliance with the laws and rules concerning the proper application of the tax bracket system to the dealer's transactions. Mr. Rowe did not sign the Agreement at the Audit Conference because he wanted to be able to confirm that the point of sale system his store operated could be properly programmed to comply with the bracket system before signing a document stating he would comply. After discussions with both the vendor and Ms. Arrington, and making sure the system was in fact operating in compliance with the requirement, Mr. Rowe signed the Agreement on December 7, 2009, and returned it to the Department. Ms. Arrington did not recall receiving the Agreement, but also admitted she had no specific memory as to whether she received it. Her Case Activity Record indicates that on December 3, 2009, she spoke with Mr. Rowe about whether he was able to input the brackets in his point-of-sale system, and that he indicated he was able to do so. The greater weight of the evidence supports the finding that Mr. Rowe executed and returned the Agreement, and it is so found. The Use Tax Assessment Based on a Sampling Plan Section 212.12 allows the Department to use a sample from the taxpayer's records and project audit findings from the sample to the entire audit period where the records of the taxpayer are "adequate but voluminous in nature and substance." The statute, which is discussed in more detail in the Conclusions of Law, contemplates the use of a sampling plan agreed to by the taxpayer, and in the absence of an agreement, the taxpayer's right to have a review by the Department's Executive Director. The work papers to the Notice of Intent to Make Audit Changes dated January 8, 2010, include a sampling plan that runs from January 1, 2006, to December 31, 2006 for the calculation of use tax for purchases by Rowe's where sales tax was not collected by the vendor. Ms. Arrington reviewed Rowe's' records for expense purchases for 2006 to determine the total amount of additional tax due for that period. She then took the total additional tax on expenses for that period, i.e., $14,981.26, and divided it by 12 to obtain a monthly average additional tax of $1,248.44. She then applied that number to the entire 36-month audit period to determine a total assessment of additional tax for expense purchases of $44,943.84. Ms. Arrington testified that at the initial audit conference, she discussed different audit techniques in terms of sampling. However, a specific sampling plan was not discussed with Mr. Rowe and no Sampling Agreement was presented to him. No sampling plan was reviewed by the Executive Director. Ms. Arrington did not tell Mr. Rowe that 2006 would be the year used as the sample. Mr. Rowe never would have agreed to the use of 2006 as a sampling plan, because it would not be representative of the expenses incurred during the audit period. Using 2006 as a sampling period did not take into account the store closures during the audit period, and the concomitant reduction in expenses. Rowe's closed two grocery stores by March 2006, and operated only four stores for the remaining three quarters of the year. A third store was closed in January 2007, a fourth in May 2007 and a fifth in 2008, leaving only one store open for the entire audit period. All of the liquor stores were also closed during the audit period, the last one being sold in May 2008. Ms. Arrington knew that Rowe's had closed almost all of its stores during the audit period, and included information regarding the closings in her Standard Audit Report. She acknowledged at hearing that as the stores decreased, the expenses related to those stores would also most likely decrease. For the 12 months of 2006, the Department determined that an additional tax of $14,981.26 would be due, based on purchases of $253,637.22. There has been no evidence presented to rebut the accuracy of the tax assessment for these 2006 purchases. Petitioner presented evidence establishing that, for the 21 months of the audit period following 2006, Rowe's made purchases from the same vendors reflected in the 2006 sample of only $51,073.72, which would result in additional taxes of $3,575.16. No evidence was presented by either party as to whether there were any other purchases from other vendors for which taxes had not been paid. The difference between the use tax assessed against Rowe's by using the sampling plan and taxes due based on the actual purchases demonstrated at hearing is $22,642.08. In addition, there was one vendor, Advo, Inc. (Advo), which accounted for a significant percentage of the tax due based on the sampling plan. While the audit sample period was for twelve months, payments to Advo for a seven-month period accounted for approximately 58% of the total additional taxes due for expenses. There were no purchases from Advo after July 2006 because of Rowe's shrinking assets and inability to pay for direct advertising. Further, 15 of the 23 vendors reflected in the sample period from whom purchases were made had no sales to Rowe's from January 2007 through September 2008. The Department's work papers indicate that, within the sample year, the purchases tapered off significantly as the year progressed. Given the known closure of five grocery stores and six liquor stores during the audit period, using a time period where the most stores were open is not representative of the expenses experienced by Petitioner, and use of the sampling plan to which the taxpayer had not agreed was inappropriate, and led to an inflated assessment of additional taxes. The Effective Tax Rate at the Liquor Stores During the audit period, Rowe's operated package liquor stores adjacent to the grocery stores. By the time the audit commenced, Rowe's no longer owned any of the liquor stores, and no longer had the cash register tapes from the liquor stores. Because of the lack of cash register tapes, the auditor was unable to determine the effective tax rate Rowe's was collecting. She did not, however, ask Rowe's what rate was collected. A review of the sales tax returns indicates that it remitted a flat rate of 6 or 7 percent, depending on the county. These rates were consistent with what Rowe's was collecting for the grocery store sales, and cash register tapes were available from the grocery store. Ms. Arrington applied the tax rates identified in Florida Administrative Code Rules 12A-1.057(3)(a) and 12A- 15.012(2)(a), both of which identify the rate that should be collected where the dealer sells package goods but does not sell mixed drinks; does not separately itemize the sales price and the tax; and does not put the public on notice that tax is included in the total charge. The work papers paraphrase but do not quote the rules. With respect to the liquor store in St. Johns County, the work papers state: "[a]ccording to Rule 12A-1.057(3)(a), F.A.C., when the dealer is located in a county with no surtax and the public has not been put on notice through the posting of price lists or signs prominently displayed throughout the establishment that the tax is included in the total charge, package stores which sell no mixed drinks shall remit tax at the effective rate of .0635." With respect to the liquor stores in Clay and Duval Counties, the work papers state: "[a]ccording to Rule 12A- 15.012(2)(a)1., F.A.C., when a dealer, located in a county imposing a 1% surtax, sells package goods but does not sell mixed drinks and does not put the public on notice that tax is included in the total charge, the dealer is required to remit tax at the effective tax rate of .0730." The Department's auditor made the assumption that tax was not separately itemized for package store sales and assessed the additional tax accordingly. She did not ask the taxpayer whether this was the case and did not ask about signage in the package stores that were no longer owned by Rowe's. Mr. Rowe testified that the same point-of-sale program was used for the liquor stores as were used for the adjacent grocery stores. That program separately identified the tax due. His testimony is unrebutted and is credited. The Taxpayer's Bill of Rights At hearing, Petitioner took the position that the Department violated the Taxpayer's Bill of Rights as stated in section 213.015(5), by its failure to provide Petitioner with a "narrative description which explains the basis of audit changes, proposed assessments, assessments." In its Proposed Recommended Order, however, Petitioner candidly acknowledged that the evidence did not support a finding consistent with Petitioner's position. In light of this concession, no further findings of fact are necessary with respect to this issue. Collectibility Rowe's asserted in its challenge that it was unable to pay any taxes assessed because it was no longer in business and no longer had any assets. The Department declined to exercise its discretion to compromise the tax assessment based on collectability. While not specifically stated in its Notice of Decision, this position was apparently based upon the belief that the taxes could be paid by Rowe's IGA, LLC, to whom the assets of Rowe's was sold, and which shares the same managing member, Robert Rowe. The two companies share a managing member and one common location, which Rowe's sold to Rowe's IGA. However, no evidence was presented regarding the specifics of the assets sold to Rowe's IGA, and the only evidence presented indicates that any proceeds from the sale went to pay the secured lender for Rowe's, Textron Financial. Other than the involvement of Robert Rowe, no connection between the companies was established. Rowe's provided to the Department the copy of a judgment against it for $324,963.33, which bears interest at a rate of 8% annually. The Department did not identify any assets from which either the assessment or the judgment could be paid.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order that: Reduces the Department's assessment for additional taxes, penalties, and interest by any amounts attributable to the failure to comply with the sales bracket system at Petitioner's grocery stores; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the failure to remit all taxes due for the month of August 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to expense purchases for the period January 2007 through September 2008; Sustains the assessment for additional use tax, penalties, and interest for expense purchases in calendar year 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the asserted basis that Petitioner should have collected tax at a higher effective tax rate at its liquor stores based upon the application of rules 12A-1.057(3)(a) or 12A-15.012(2)(a); Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay tax on certain capital asset purchases identified in the audit; Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on commercial rent payments under certain of Petitioner's store leases identified in the audit; and Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on Petitioner's payment of ad valorem taxes under certain of Petitioner's store leases identified in the audit. In addition, it is Recommended that the Department reconsider its decision as to whether the remaining assessment is collectible, and whether it is in the best interest of the state to compromise the assessment, based on the record contained in this proceeding. DONE AND ENTERED this 31st day of July, 2012, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 2012.
The Issue The issue is whether Petitioner is liable for sales and use taxes, penalties, and interest and, if so, how much.
Findings Of Fact Petitioner operated a bar and grill in Punta Gorda that served beer, wine, liquor, and food at retail. In the course of business, Petitioner collected tax from the customers. Petitioner reported to Respondent sales tax collections for May 1996, November 1996, March 1997, November 1997, and December 1997. In connection with these collections, Petitioner remitted to Respondent seven checks representing the net tax due Respondent. These checks totaled $6700.64. The bank on which the checks were drawn dishonored them. The remittance of net sales tax proceeds by payment through checks that are later dishonored implies a fraudulent, willful intent to evade the payment of these sums. Respondent has issued five warrants concerning the unremitted taxes, penalties, and interest. Warrant 953620064 shows that Petitioner owes $1171 in sales tax remittances for the five months from July through November 1995. With penalties and interest, the total due on this warrant, through June 5, 1998, is $1832.37. Interest accrues after June 5 at the daily rate of $0.35. Warrant 467049 shows that Petitioner owes $2940.25 in sales tax remittances for the following months: April 1996, October 1996, December 1996, and January 1997. Petitioner purportedly paid each of these remittances with five (two in January) checks that were later dishonored. With penalties, including the 100 percent penalty for fraud, and interest, the total due on this warrant, through June 5, 1998, is $7480.12. Interest accrues after June 5 at the daily rate of $0.95. Warrant 971680037 shows that Petitioner owes $1301.85 in sales tax remittances for the following months: December 1995, June 1996, July 1996, September 1996, November 1996, and February 1997. With penalties and interest, the total due on this warrant, through June 5, 1998, is $2669.69. Interest accrues after June 5 at the daily rate of $0.43. Warrant 471481 shows that Petitioner owes $2912.48 in sales tax remittances for October and November 1997, for which Petitioner made remittances with two dishonored checks. With penalties, including the 100 percent penalty, and interest, the total due on this warrant, through June 5, 1998, is $6751.49. Interest accrues after June 5 at the daily rate of $0.95. Warrant 989840034 shows that Petitioner owes $8077.76 in sales tax remittances for the following months: August 1997, September 1997, December 1997, January 1998, and February 1998. With interest, the total due on this warrant, through June 5, 1998, is $8285.21. Interest accrues after June 5 at the daily rate of $2.65. Totaling the five warrants, Petitioner owes a total of $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order determining that Petitioner owes $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid. DONE AND ENTERED this 10th day of July, 1998, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1998. COPIES FURNISHED: John N. Upchurch Nicholas Bykowsky Assistant Attorneys General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Judith Crown, President Tombstone, Inc. Suite P-50 1200 West Retta Esplanade Punta Gorda, Florida 33950 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
Findings Of Fact On January 22, 1986, American Aviation Resources, Inc., sold an airplane to Munur Yurtsever, a resident of Brazil. This aircraft was a Hansa jet model HFB-320 with U.S. registration number N71DL (the subject aircraft). On January 28, 1986, Mr. Yurtsever transferred title of the subject aircraft to Petitioner, Selcuk Yetimoglu. At the time of the transfer, the subject aircraft was in the State of Florida undergoing repairs. At all times pertinent to this proceeding, Mr. Yetimoglu resided at 20530 Jacaranda Road, Cutler Ridge, Miami, Florida, in a residence owned by Mr. Yurtsever. The aircraft bill of sale dated January 28, 1986, reflects that Mr. Yetimoglu was the purchaser of the subject aircraft and that Mr. Yurtsever was the seller. The bill of sale recited that the consideration paid was $20.00 and other good and valuable consideration. While the bill of sale reflects that Mr. Yetimoglu resided in Miami, Florida, the bill of sale does not state that the sale occurred in the State of Florida. On January 29, 1986, Mr. Yetimoglu applied to the U.S. Federal Aviation Administration (FAA) for the registration of the subject aircraft in his name. On March 13, 1986, Mr. Yetimoglu wrote to the FAA regarding the registration and stated, in pertinent part, as follows: Mr. Munur Yurtsever sold the aircraft to me on January 28, 1986, five days after he bought the aircraft from American Aviation Resources, Inc. when he found out that the government of Brazil did not give him a (sic) permission to import the aircraft and that he could not register the aircraft in the United States because he was not a citizen of the United States. By letter dated May 15, 1986, Mr. Yetimoglu provided the FAA proof that the subject aircraft had not been registered in Brazil. Mr. Yetimoglu was the record owner of the subject aircraft between January 28, 1986, and March 13, 1987. On March 13, 1987, Mr. Yetimoglu sold the subject aircraft back to Mr. Yurtsever. The bill of sale identifies the purchaser as being: Munur Yurtsever Rico Taxi Aereo Ltda. Av. Mal. Camara 160-GR. Rio de Janeiro - RJ Brazil On April 8, 1987, Mr. Yetimoglu wrote the FAA and stated, in pertinent part: ... I request cancelation of U.S. registra- tion for the aircraft ... because I sold the aircraft back to Rico Taxi Aereo Ltda. ... On January 11, 1988, Respondent issued to Petitioner a "Notice of Delinquent Tax Penalty and Interest Due and Assessed" (Notice of Assessment) based on the transaction involving Mr. Yetimoglu, Mr. Yurtsever, and the subject aircraft. The Notice of Assessment contained the following statement: "This Department has information that you purchased the following aircraft. However, there is no evidence of payment of Florida Sales and/or Use Tax". The Notice of Assessment reflected that Respondent had, pursuant to Section 212.12(5)(b), Florida Statutes, estimated the value of the aircraft as being $320,000 and assessed the following taxes, interest, and penalties: Florida State Sales/Use Tax 5% $16,000.00 (Estimated) Per 212.06(8), F.S. Penalty 5% per month; Maximum 25% of 4,000.00 (25%) Tax Due Per Section 212.12(2), F.S. Additional Penalty 11,840.00 (50%) Per 212.12(2)(a), F.S. Interest = 1% per month from date of 3,680.00 (23%) Purchase To Date of Payment Per Section 212.12(3), F.S. Less Tax Paid ----------------- TOTAL DUE WITH THIS NOTICE $35,520.00 Respondent requested that Mr. Yetimoglu provide it information and documentation as to the value of the aircraft. Mr. Yetimoglu contends that he paid Mr. Yurtsever nothing for the aircraft, that the title was transferred to him and registered in the FAA in his name so that the aircraft could be test flown after it was repaired, and that Mr. Yurtsever had paid $100,000 for the aircraft. There was no evidence as to the sales price that Mr. Yetimoglu paid for the aircraft other than Mr. Yetimoglu's testimony. Respondent estimated that the reasonable value of the subject aircraft on January 28, 1986, was $320,000. This estimate was based on an appraisal prepared for Respondent and assumed that the aircraft was in a scrapped or junked condition. Respondent generally uses a standard reference work on the value of aircraft to assist it in estimating the value of the subject aircraft. Because of its age and model, the subject aircraft is no longer listed in this standard reference. In support of his contention that Mr. Yurtsever paid $100,000 for the aircraft, Mr. Yetimoglu provided Respondent with a copy of a wire transfer of funds from Mr. Yurtsever to American Aviation Resources, Inc. in the amount of $100,000. However, there was no documentation provided that established that the $100,000 constituted the entire purchase price paid by Mr. Yurtsever. The dispute between the parties as to the value of the aircraft is resolved by finding, based on the greater weight of the evidence, that the reasonable value of the aircraft at the times pertinent to this proceeding was $320,000.00. In December 1986, while Mr. Yetimoglu was the record owner, the subject aircraft engaged in international flight between the Turks and Caicos Islands and the State of Florida. Respondent's Notice of Redetermination, dated February 26, 1990, upheld the Notice of Assessment on the basis that the underlying transaction was subject to use tax pursuant to Section 212.06(8), Florida Statutes. The issue to be resolved was framed by the Notice of Redetermination as being: "The only issue involved pertains to a use tax assessment upon an aircraft brought into this country". This determination was based, in part, upon a letter to Respondent from an attorney who was representing Mr. Yetimoglu at the time the letter was written. 1/ The letter implied that the aircraft was brought into Florida after the title was transferred to Mr. Yetimoglu, and provided, in pertinent part, as follows: The transferor of the aircraft, Munur Yurtsever, is a nonresident alien. His inten- tion is to deliver the plane to a purchaser outside the country. Mr. Yurtsever advises that the F.A.A. will not allow the plane to be flown in this country unless it is owned by a U.S. resident. As it was imperative to fly the plane here in order to prepare it for its flight outside the country, Mr. Yurtsever transferred the plane to his partner, Selcuk Yetimoglu, who is a resident of the United States. ... At the formal hearing, Mr. Yetimoglu established that the aircraft was in Florida undergoing repairs at the time the title was transferred to him. Prior to and at the formal hearing, Respondent asserted the position that use taxes, interest, and penalties were due for this transaction. In its post- hearing submittal, Respondent, for the first time in this proceeding, contends that sales taxes, interest and penalties are due for this transaction.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered which withdraws the subject assessment. RECOMMENDED in Tallahassee, Leon County, Florida, this 11th day of March, 1991. CLAUDE B. ARRINGTON 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 11th day of March, 1991.
