Findings Of Fact Tireless, Inc., was incorporated in the State of Delaware in October, 1981. On October 15, 1984, Tireless, Inc. purchased a 61 foot 1985 Hatteras motor yacht from Toledo Beach Marina in LaSalle, Michigan, for a purchase price of $771,339.00. Delivery was to be taken at New Bern, North Carolina. The above stated price was the factory invoice price of $746,330.00 plus a $25,000.00 profit to the dealer. The invoice for the sale, dated October 4, 1984, reflecting that the yacht was sold to Toledo Beach Marina, nonetheless reflects that the customer, who was to pay 100 per cent of the purchase price prior to delivery by customer pick up was Mr. Geiger. After purchase, the yacht was documented in Wilmington, Delaware and home-ported there. The name and home port appearing on the transom of the vessel reflected, "Tireless, Wilmington, Delaware." The vessel constituted the sole asset of its owning corporation. The vessel was purchased as an investment. It was anticipated that it would be used by company personnel for pleasure as well as business meetings and it could and would be chartered out on occasion. Though the vessel reportedly was to be used on the Great Lakes, because of the reported possibility of severe weather in that area at the time of pick up and of ice forming in one or more of the 38 locks of the canal across New York State to Lake Erie, a decision was made to take the boat to Florida for winter storage. Recognizing that dockage facilities are quite often difficult to come by, arrangements were made for the boat to be docked at the Bahia Mar Yacht Basin in Fort Lauderdale, arguably the premier, most active and most prestigious anchorage in South Florida. These arrangements were made well in advance of the arrival of the vessel. This was to be a winter dockage only. From the time of its arrival at the yacht basin in November, 1984 until it left to go north in April, 1985, it did not leave the basin although it was moved from one slip to another in the same marina. While at the Bahia Mar Yacht Basin, certain modifications were made to the vessel such as the installation of additional electronics and a custom interior was installed. From November 1, 1984 through April 5, 1985, Mr. Geiger visited the boat on six occasions staying overnight on it for one or more nights each time. The boat was not used for parties nor did any other person live aboard the boat during its stay at Bahia Mar. Though the Tireless was brought from North Carolina to Fort Lauderdale, there were other ports to the north where the boat could have been wintered including New Bern, itself, and various ports in South Carolina and Georgia, not even considering those Florida ports to the north. Mr. Geiger contends that corporate officials picked the Fort Lauderdale berth because of the availability of berthing facilities and the capability of electronics installation found in the immediate area. This argument is not persuasive, however. There was nothing shown to be particularly unique about the electronics installed or the interior customizing done which could not have been done in other marinas between New Bern and Fort Lauderdale such as Wilmington, North Carolina; Charleston, South Carolina; Savannah, Georgia; or Jacksonville, Florida. What is obvious, though no direct evidence of this was presented, is that in the wintertime, the climate of Fort Lauderdale is far superior and friendly than those other ports as are the social aspects. The boat was sailed from the factory to Fort Lauderdale by a crew made up of Mr. Geiger as captain and several other non- profession sailors who were friends or acquaintances of his. Upon arrival in Fort Lauderdale, Mr. Geiger put the boat into the marina immediately and stayed but one day prior to leaving to return up north. In addition to the six or so visits paid to the boat by Mr. Geiger referenced above, other unidentified individuals from up north did come down and onto the yacht at its berth for short periods. During the trip down from North Carolina, the boat utilized the Intracoastal Waterway and stopped at one or two Florida marinas over night on the way. On or about September 26, 1984, Mr. Geiger entered into a license agreement for dockage space with the Bahia Mar Hotel and Yachting Center for slip # E-251 for the Tireless at a rate of 90 per day to start on November 15, 1984. Thereafter, on November 2, he entered another agreement with the marina for a different slip, # H-359. The rate and estimated length of stay reflected on this second agreement is listed as "cond." No explanation of this notation was given. The bills for the dockage reflect numerous phone calls and other charges on an almost daily basis, the explanation for which is that they were calls made by workmen or others in reference to the work being done on the boat. When these bills came due they were paid and payment was authorized either by Mr. Geiger as President of Tireless, Inc., or by a yacht broker resident at the marina who was supervising the work being done on the vessel. In April, 1985, the boat was sailed from South Florida up to South Carolina where it stayed for a few weeks then on to North Carolina for a week and on to New York where it stayed for several weeks prior to going to the Great Lakes and its dockage in Ohio for the summer. While up north, it was, as intended, used for pleasure, business, and charter on several occasions. One of the individuals who showed a strong interest in chartering the vessel while it was in Ohio indicated also that he might be interested in chartering it in South Florida for the winter. As a result, Mr. Geiger had the boat brought back in the fall of 1985. However, the proposed charter fell through. While in Florida, however, the boat was sold to another individual who paid approximately $805,000.00 for it. The boat was sold in January, 1986. It was not until some four months later that the Department of Revenue filed its notice of delinquent tax. An informal hearing was held as a result of the assessment and on October 2, 1986, the Department, in a letter to Petitioner's counsel, stated as a notice of reconsideration and the final position of the Department that it affirmed the assessment and expected it to be paid in full. In essence, the Department concluded that the vessel was imported into the State of Florida and stored here initially for a period in excess of five months. While here, it was modified and improved and was available for use by the owner even though it may not have been taken out and that all of this was done prior to its being used elsewhere, in another state, for more than six months. The Department considered this to be co-mingling with the mass of property in the State of Florida rendering the yacht subject to use tax, and its position appears to be legally correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Petitioner, Tireless, Inc., pay a use tax plus penalty and interest on the storage for use in Florida of the motor vessel, Tireless, and that such tax be based on a value assessment of $771,330.00. RECOMMENDED this 15th day of June, 1978 in Tallahassee, Florida. Arnold H. Pollock, Hearing Officer Division of Administrative Hearings The Oakland Building 2900 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of June. APPENDIX The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties hereto: By the Petitioner 1-8. Accepted and incorporated herein. Accepted as to the fact that prior arrangements were made due to concern over availability of winter dockage space. There was no evidence regarding any representations made by the Bahia Mar Club. Accepted. 11-12. Rejected. There was no evidence of actual weather conditions. In fact, the decision was made to go south reportedly due to possible weather conditions but no effort was made to make the trip to the Great Lakes at that time. 13. See 11-12. Accepted. Rejected while the vessel was not used for sailing, Mr. Geiger did live aboard on several visits down from Ohio. 16-17. No evidence was introduced by either party on the issue of intent. Evidence as to actual use or non-use is controlling in any event. 18-21. Rejected as irrelevant. 22. Accepted and incorporated herein. By the Respondent 1-5. Accepted and incorporated herein. 6-11. Accepted and incorporated herein. Rejected as contrary to the evidence. Accepted. 14-16. Accepted. 17-18. Accepted. 19-20. Accepted. COPIES FURNISHED: William D. Townsend, Esquire Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Debra A. Altizer, Esquire Post Office Box 14124 Fort Lauderdale, FL 33302 Kevin J. O'Donnell, Esquire Department of Legal Affairs Tax Section Capitol Building Tallahassee, FL 32399-1050 Randy Miller, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
Findings Of Fact On July 2nd, 1974, Closet Maid Corporation (CMC) acquired Beechcraft model BCO from Elliott Flying Service under an agreement which was not introduced into evidence at this hearing. Respondent contends that this is a lease agreement with option to purchase at the expiration of sixty (60) months. Exhibit 3 is a transfer of CMC's interest in this aircraft to NOS Corporation. The Notice of Proposed Assessment (Exhibit 1) claims a tax due of $9,633.70, penalties of $481.69, and interest of $1,011.54 or a total tax due of $11,126.93. The accuracy of this sum was not contested. CMC is a corporation the majority of whose stock is owned by Norman Sauer. NOS Corporation was formed to be the transferee of CMC's interest in the airplane and the stock of NOS is wholly owned by Sauer. CMC and Nodorana Farms, another corporation wholly owned by Sauer, entered into agreements with NOS to lease back the aircraft at a guaranteed minimum monthly rental in excess of $8,000.00, which will provide NOS with sufficient revenues to make the monthly payments on the aircraft of $4,214.89 plus operating expenses. Elliott Flying Service is the registered owner of the aircraft. The only documentary evidence presented regarding the agreement between CMC and Elliott Flying Service is Exhibit 3. Exhibit 3 is a Beech Acceptance Corporation, Inc. (BAC) Transfer of Interest Agreement form which states that the "note, conditional sale contract, lease, chattel mortgage, or other security agreement, herein called 'Instrument'", representing the agreement between CMC and Elliott, requires the consent of BAC for its transfer to NOS. At the date shown on Exhibit 3 of August 1st, 1976, Exhibit 3 recites the balance due on the aircraft of $240,842.39 "is payable in forty-seven (47) consecutive monthly installments of $4,214.89 each, first installment payable August 2nd, 1976, and one final installment of $42,742.56." Exhibit 3 further shows BAC to be the assignee of the "instrument" executed between CMC and Elliott. Exhibit 2C is headed NOS CORPORATION and shows monthly aircraft expenses. Included therein is depreciation of $2480.00 and interest expense of $2192.00. Accounting procedures prescribed by AICPA provide that equipment held on long term lease be capitalized. Accordingly, essentially the same accounting procedures would be used whether the aircraft was obtained on lease or conditional sales contract.
The Issue Whether Petitioners should be permitted to purchase an aircraft for leasing purposes without paying sales tax.
Findings Of Fact Centurion, as a legal entity, was first incorporated under the laws of the State of Florida on or about May 23, 1996. Eagle, the parent corporation of Centurion, is a separate legal entity, also incorporated under the laws of the State of Florida. Both entities have their headquarters in Tallahassee, Florida. An assessment of sales/use taxes, and associated interest, was issued by Respondent against Centurion and reflected in a Notice of Reconsideration (NOR), dated April 18, 1997. No tax assessment has been issued against Eagle. The assessment was based upon the purchase by Centurion, of a 1968 Cessna Aircraft, Model #210H, Serial #21059002, in Florida, from Frank A. Tillman, for $30,000. Centurion, the sole purchaser, took title to the aircraft when it was purchased from Frank Tillman. No sales tax was collected on the transaction. However, tax was remitted by Eagle on the subsequent re-leasing of the aircraft in Florida. At the time of the sale, Centurion, the purchaser, was not registered as a dealer. However, Eagle, the parent corporation, was registered as a dealer. Evidence is in conflict concerning the exact date of purchase of the aircraft,1 but the parties are in agreement and the evidence supports the finding that the aircraft was purchased before Centurion obtained a dealership registration on October 24, 1996. Centurion did not seek to register as a dealer until Respondent later launched inquiries about the purchase. On August 21, 1996, Respondent issued a tax assessment/billing against Centurion based upon an estimated aircraft purchase price of $60,000. However, based upon additional information provided by Eagle, Respondent learned that the purchase price was only $30,000 and the assessment was reduced. Respondent’s NOR reflects the computation of the assessment based upon the purchase price of $30,000. Petitioners did not act as a “joint venture” or “unit” in that they did not register jointly as a “dealer” at the time of purchase; they did not acquire joint title to the aircraft; and they did not jointly issue a certificate of resale at the time of purchase. The following elements of joint venture were not evidenced by Petitioners at the time of sale: (1) a community of interest in the performance of the common purpose; (2) joint control or right of control; (3) a joint proprietary interest in the subject matter; (4) a right to share in the profits and (5) a duty to share in any losses which may be sustained. Testimony by James B. Curasi on behalf of Petitioners that a joint venture was established contradicts statements made by him previously to Respondent. In a letter dated September 19, 1996, Petitioners’ representative and witness, James B. Curasi, informed the Department of Revenue that the aircraft was leased by Centurion to Eagle Aircraft. He stated that the relationship between Eagle and Centurion was that of lessor and lessee, rather than that of joint venture partners. Specifically, Curasi stated the following in the letter: Please be advised that this aircraft was purchased by Centurion Aviation Company, a related company, and leased to Eagle Aircraft. (emphasis supplied.) Testimony by Curasi to the contrary is not credited. Additionally, a blanket certificate of resale, presented to Respondent after this formal administrative proceeding commenced, is signed only in the name of Eagle Aircraft as “purchaser,” and states that “all material, merchandise, or goods purchased by the undersigned from Frank Tillman” shall be for exempt resale purposes.
Recommendation Based upon the findings of fact and the conclusions of law, reached, it is, recommended that a final order be entered sustaining Respondent’s assessment. DONE AND ENTERED this 16th day of June, 1998, in Tallahassee, Leon County, Florida. DON W. 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 Filed with the Clerk of the Division of Administrative Hearings this 16th day of June, 1998.
The Issue Whether petitioner taxpayer is liable for delinquent sales tax, penalties, and interest under Chapter 212, Florida Stat utes, as alleged by respondent Department in its notice of proposed assessment.
Findings Of Fact The Taxpayer Taxpayer is a family-operated Florida corporation which has engaged in retail sales at the Tampa Port Authority since 1975 or 1976; it is a licensed dealer registered with the Department. (Testimony of Roberts, Marylis.) Taxpayer's Sales During Audit Period From June 1, 1977, through July 31, 1980 (the audit period covered by the Department's proposed assessment), Taxpayer had gross sales in the approximate amount of $691,013.46. (Testimony of Roberts; Exhibit 2.) During that period, Taxpayer filed the required DR-15 monthly sales tax reports and paid taxes on all retail sales transactions which took place on the premises of its store located at 804 Robinson Street, (Tampa Port Authority) Tampa, Florida. (Testimony of Roberts.) During the same audit period -- in addition to sales on its store premises -- Taxpayer sold goods to merchant seamen on board foreign vessels temporarily docked at the Port of Tampa. These vessels operated in foreign commerce, entering the port from and returning to international waters outside the territorial limits of the United States. Taxpayer did not report these sales on its monthly sales tax reports; neither did it charge or collect sales tax from the on-board purchasers. (Testimony of Marylis.) Taxpayer failed to charge or collect sales tax in connection with its on-board sales because it relied on what it had been told by Department representatives. Prior to forming Taxpayer's corporation Thomas Marylis went to the local Department office to obtain a dealer's certificate. While there, he asked Manuel Alvarez, Jr., then the Department's regional audit supervisor, whether he was required to collect sales tax on ship-board sales. Alvarez replied that he didn't have to collect sales taxes on sales made to seamen when he delivered the goods to the ship. 1/ (Testimony of Marylis.) The on-board sales transactions took place in the following manner: Taxpayer (through its owner, Thomas Marylis) would board the foreign vessel and accept orders from the captain, chief mate, or chief steward. (Earlier, one of these persons would have taken orders from the rest of the crew.) If individual crewmen tried to place orders, Marylis would refer them to the captain, chief mate, or chief steward. After receiving orders from one of these three persons, Marylis would return to Taxpayer's store, fill the order, and transport the goods back to the vessel. Whoever placed the order would then examine the goods and give Marylis the money /2 collected from the crew. (Testimony of Roberts, Marylis.) The goods sold in this manner were ordinarily for the personal use of individual crew members; typical items were: shoes, underwear, working clothes, small radios, watches, suitcases, soap, paper towels, and other personal care products. (Testimony of Marylis.) Department Audit of Taxpayer In 1980, the Department audited Taxpayer's corporate books to determine if sales tax had been properly collected and paid. Taxpayer could produce no dock or warehouse receipts, bills of lading, resale certificates from other licensed dealers, or affidavits verifying that its on-board sales were made to out-of-state purchasers for transportation outside of Florida. (Testimony of Roberts, Marylis.) Due to Taxpayer's failure to supply documentation demonstrating that its ship-board sales from June 1, 1977, to July 31, 1980, were exempt from sales tax imposed by Chapter 212, Florida Statutes, the Department issued a proposed assessment on September 23, 1980. Through that assessment, the Department seeks to collect $21,201.01 in delinquent sales tax, $5,131.39 in penalties, and $3,892.18 in interest (in addition to interest at 12 percent per annum, or $6.97 per day, accruing until date of payment). (Exhibit 5.) Informal Conference with Department; Alvarez's Representations to Taxpayer In October 1980 -- after the audit -- Taxpayer (through Marylis) informally met with Manuel Alvarez, the Department's regional audit supervisor, to discuss the tax status of the shipboard sales. Specifically, they discussed the Department auditor's inability to confirm that Taxpayer delivered the items to the ships, as opposed to the buyers picking up the goods at the store. Alvarez told him: [I]f the buyers would come and just pick them up and take them. And I [Alvarez] think I told him that, if that was the case, it was taxable. But, if they just placed their orders there -- like we have had other ship supplies -- and they them- selves, or one of their employees, would take the items aboard ships, that would be an exempt sale. I did make that state ment. If we had any type of confirmation to that effect, when it comes to that. (Tr. 61.) 3/ (Testimony of Alvarez.) Alvarez then told Marylis to obtain documentation or verification that the sales were made on foreign vessels, i.e., proof that Taxpayer delivered the goods to the vessels. He assured Marylis that if he could bring such verification back, such sales "would come off the audit." (Tr. 62.)(Testimony of Alvarez.) Alvarez was an experienced Department employee: he retired in 1980, after 30 years of service. It was Alvarez's standard practice -- when dealing with sales tax exemption questions -- to reiterate the importance of documentation. He would always give the taxpayer an opportunity -- 30 days or more -- to obtain documentation that a sale was exempt from taxation. (Testimony of Alvarez.) Taxpayer's Verification In response to the opportunity provided by Alvarez, Taxpayer (through Marylis) obtained affidavits from numerous captains of foreign vessels and shipping agents. Those affidavits read, in pertinent part: I, [name inserted] , am the Captain aboard the vessel [name inserted] from [place of origin]. I am personally aware that Speros International Ship Supply Co., Inc. sells various commodities, supplies, clothing, and various sundry items to for eign ship personnel by delivering the said items to the ships docked at various termi- nals inside the Tampa Port Authority and other locations in Tampa, Florida from [date] to the present. (Testimony of Marylis; Exhibit 8.) Moreover, in an attempt to comply with the tax law and avoid similar problems in the future, Taxpayer printed receipt books to be used in all future on-board sales. The receipts reflect the type of goods sold, the date of delivery to the vessel, the foreign vessel's destination, and the total purchase price. Also included is a signature line for the individual who delivers and receives the goods. (Testimony of Marylis; Exhibit 7.)
Recommendation Based on the foregoing, it is RECOMMENDED: That Department's proposed assessment of Taxpayer for delinquent sales tax, penalties, and interest, be issued as final agency action. DONE AND RECOMMENDED this 17th day of February, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of February, 1982.
The Issue Petitioners' alleged liability for sales tax, interest and penalties under Chapter 212, Florida Statutes.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the arguments of counsel and the stipulation of facts entered herein, the following facts are found. Petitioners are Florida corporations having their principal place of business at Palm Beach International Airport, West Palm 8each, Florida. Petitioners conduct a fixed base aircraft operation by which they provide services to both aircraft owners and aircraft users. Petitioners are licensed, qualified and certified by the Federal Aviation Administration, the Civil Aeronautics Board, the State of Florida, and Palm Beach County to conduct its operation. Petitioners employ qualified mechanics, technicians, flight instructors, pilots, and consulting and sales personnel for conducting these services, which are described in detail below. Petitioners lease and occupy facilities appropriate for the storage, use, and repair of aircraft. Petitioners have written contractual agreements with aircraft owners in which Petitioners obtain the use of the aircraft. Petitioners pay the owners an agreed amount per hour for the use of the aircraft, which amount varies with the aircraft age and type. (Examples of said agreements are attached to Joint Exhibit number 1.) These agreements use the term "lease" to describe the Petitioners' rights to use the aircraft. The agreements provide that Petitioners will have exclusive supervision, control, and custody of the aircraft during the term of the agreement. The agreements permit the owner of the aircraft to use the aircraft for personal needs, however, so long as such use does not conflict with Petitioners' scheduled use thereof. Petitioners use the aircraft to conduct approved flight instruction for the public, to engage in charter transportation of passengers and property, and to rent to qualified pilots. Petitioners charge the third parties for instruction, charter, or rental and report the proceeds as "income" on their federal tax returns. Petitioners' payments to the aircraft owners are reflected as an "operating or overhead expense" for federal tax purposes. When using the aircraft, Petitioners employ and pay qualified flight instructors, pilots, crews and mechanics to fly and service the aircraft. The aircraft owners have no contractual agreement with these persons. Petitioners are responsible for providing all required inspection, maintenance, and repair services to the aircraft, subject to reimbursement by the owners. The aircraft owners pay the costs of fuel and lubricants used during Petitioners' use of the aircraft. Petitioners provide property damage insurance on the aircraft and liability insurance for the pilots, crew, and third parties who charter or use the aircraft. Petitioners are responsible, at the expiration of the agreement, to return the aircraft to the owner in substantially the same condition as at the commencement of the agreement, except for normal wear and depreciation. Petitioners advertise themselves to the public as a charter flying service and flying instruction service and actively solicit customers for these services. Petitioners are also in the business of selling aircraft and are authorized dealers for Cessna and Piper aircraft companies. Some of Petitioners' purchasers enter into agreements like those attached hereto, granting Petitioners exclusive use and control of the aircraft. Petitioners' purchasers properly pay sale tax under Chapter 212, Florida Statutes, when they purchase aircraft. They do not, insofar as Petitioners are aware, furnish Petitioners with resale certificates which certify that the purchase is solely for resale, in the manner designated by Rule 12A-1.38, Florida Administrative Code. Some of the purchasers have furnished exemption certificates, however, so those purchases were not taxed. Petitioners contend that they are an integrated business for the selling, storing, maintenance, and servicing of aircraft for aircraft purchasers and the provision of chartering and instruction services for third parties. Petitioners contend that their experience and expertise in providing all these services to owners and the general public is economically feasible only through an integrated operation of this nature, or through a substantially greater capital investment. Petitioners assert that the agreements by which they obtain exclusive use of the aircraft are agreements to provide expert management services to the owners, and are not subject to sales tax under Chapter 212, Florida Statutes. Respondent contends that the agreements by which Petitioners obtain exclusive use of the aircraft are separate and distinct from the rest of Petitioners' business, for sales tax purposes. Respondent also contends that the remainder of Petitioners' business is immaterial to the incidence of the tax. Respondent asserts that the agreements described herein are agreements to lease tangible personal property which are taxable as "sales" under Chapter 212, Florida Statutes. Petitioners also assert that certain of the agreements are not taxable because the aircraft owner paid sales tax on the initial purchase of the aircraft, as described in Paragraph 13 above. The Respondent contends that the prior payment of tax at the time of purchase is immaterial, since the purchase was not for resale. The issues thus presented herein are: whether the agreements are taxable transactions, as disputed in Paragraphs 14 and 15; and whether certain of the agreements are specifically nontaxable by virtue of the owner's payment of tax at the time of purchase, as disputed in Paragraph 16. The Respondent originally assessed Petitioners for tax, penalty, and interest in the amount of $19,149.08. It then appeared that in certain of Petitioners' transactions, the aircraft owners were already remitting sales tax. Respondent thereupon revised its assessment. The Respondent now alleges that the following amounts were due on March 15, 1978: Tax $11,144.68 Penalty 557.22 Interest 1,652.86 Total $13,354.76 The penalty and interest figures are subject to revision with the passage of time. The Respondent will update those figures upon issuance of a final order. Petitioners have paid no part of the foregoing assessment. Petitioners have not placed the computation of the amount due in issue, however, in the event they are held to be liable.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is hereby, RECOMMENDED: That the Revised Notice of Proposed Assessment of Tax, Penalties, and Interest under Chapter 212, Florida Statutes, dated March 15, 1978, be asserted against Petitioners pursuant to applicable law, with interest computed to reflect the passage of additional time. ENTERED this 20th day of August, 1979, in Tallahassee, Florida. JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: John A. Gentry, III, Esquire David K. Miller, Esquire Moyle, Gentry, Jones, Flanigan Assistant Attorney General & Groner, P.A. Department of Legal Affairs Post Office Box 3888 The Capitol, LL04 West Palm Beach, Florida 33402 Tallahassee, Florida 32301
Findings Of Fact Petitioner Out Island Charters, Inc., Miami, Florida is a Florida corporation engaged in the business of selling, leasing, repairing and chartering yachts in South Florida. Robert H. Anderson is president of the firm. During the tax period in question, i.e., December 1, 1973 to November 30, 1976, Petitioner sold various sailing vessels and made repairs thereon. The purchasers individually entered into a "Yacht Charter Management Agreement" with Petitioner under which the latter agreed to act as the owners' agent to obtain charters of the boats from third parties, and to maintain, repair, and dock the vessels at the owners expense. The agreement provided that Petitioner would receive a percentage of the gross bareboat charter fee. It also contained a provision that the owner could use his vessel at any time without cost provided that no charters had been booked for the particular time period. Although this was a standard provision in all of the contracts, some of the owners deleted it prior to execution of the agreement. In most cases, the owners used their vessels occasionally for the purpose of testing equipment and performing routine maintenance and repairs. At such times, some of them were accompanied by their wives, mechanics, or friends who assisted in handling the vessels or performing the routine maintenance functions. They did not use the vessels for purely personal pleasure trips. When the vessels were purchased, sales tax under Chapter 212, Florida Statutes, was neither collected from the buyers by the Petitioner nor otherwise paid to the state. Sales tax was not paid on various equipment purchases, repair parts, dockage, or other expenses incident to the management and maintenance of the vessels. However, sales tax was collected by Petitioner from the third parties who rented the vessels except for a few inadvertent omissions. At the time Petitioner sold the vessels, none of the purchasers had applied for nor received from Respondent a certificate of registration to engage in or conduct business as a "dealer" in yacht chartering under Chapter 212, Florida Statutes, nor had they provided Petitioner with a certificate of resale. Anderson believed the transactions to be exempt from sales tax because the vessels were purchased for rental purposes, and he was unaware that registration as a dealer and submission of a resale certificate were required to establish such an exemption. (Exhibits 5-7, 9, Testimony of Wolin, Witmer, Gay, Harrill, Krapf, Purdy, Anderson, McLean (Exhibit 1), Bennett (Exhibit 2)) Pursuant to an audit of Petitioner's business by Respondent's tax examiner, a proposed assessment of sales tax, penalties, and interest was issued to Petitioner in the total amount of $28,790.76. The parties met at an informal conference on March 29, 1977, and, as a result of adjustments at that time, a revised Notice of Proposed Assessment was issued on May 19, 1977, showing a total sum due of $26,646.91. Petitioner thereafter requested an administrative hearing in the matter. (Exhibit 3) In March, 1977, Petitioner's counsel advised the various purchasers of the pending tax audit and requested that they either pay the sales tax if they had used the boats for personal business, or, if the boats had been exclusively used for chartering purposes, that they execute affidavits to that effect, together with applications for certificate of registration as dealers and blanket certificates of resale. Most of the purchasers returned the executed documents and were later registered with the Respondent as dealers in the chartering business. (Testimony of Anderson, Gay, Wolin, Witmer, Harrill, Krapf, Purdy, McLean, Bennett, Exhibits 1 - 2, 4 - 14) In one particular transaction wherein James Morgan purchased a vessel from Petitioner, Anderson testified that the vessel was removed from Florida to Tennessee where Morgan lived on the day after full payment had been made under the contract. Anderson, however, did not know if Morgan provided him with an affidavit for exemption of the boat by removal from the state, and no documentary evidence concerning the transaction was presented by Petitioner at the hearing. (Testimony of Anderson, Exhibit 15) In another transaction, Anderson purchased a vessel in 1973 from Coastal Sailing Services, Inc., of Tallahassee, Florida, and paid sales tax in the amount of $1,027.40. Later, Anderson believed that he was exempt from the payment of tax because he had purchased the vessel solely for rental purposes. He communicated with Respondent's sales tax bureau through his accountant for information concerning refund procedures. Remus O. Cook, Jr., an examiner in the state sales tax bureau, advised in a letter of August 14, 1974, that a refund from Coastal Sailing Service could be secured if the vessel had been purchased solely for rental purposes, and that such request to the seller should be accompanied by a certificate of sales tax exemption utilizing a form enclosed with the letter. Although the vessel had been purchased by Anderson, the letter made reference to Out Island Charters, Inc. as the buyer and cited its sales tax registration number. Cook testified that it was departmental policy to grant an exemption if tangible personal property was purchased exclusively for rental purposes, even if the purchaser was not registered as a dealer at the time of sale. However, Henry Coe, Jr., Respondent's Executive Director, testified that registration at or a few days after the time of sale was a prerequisite to exemption in such cases. Anderson proceeded to request the refund from the seller, but the exemption form was executed in the name of Out Island Charters, Inc. He received the refund in 1975. Respondent's tax examiner assessed this sale in the current proposed tax assessment because he found no documentary evidence that Anderson intended to use the boat for charter purposes when he purchased it, and there was no evidence that Anderson was registered as a dealer at that time or furnished a resale certificate to the seller when it was purchased. No evidence was presented that Anderson had used the boat for personal purposes and he testified that he purchased it solely for rental, but conceded that he had no dealer's registration number at the time of purchase. (Testimony of Anderson, Lloyd, Exhibit 18, Depositions of Cook, Coe (Exhibits 19, 20)) Petitioner conceded at the hearing that the tax computations were correct, but contested liability therefor except for the several instances where sales tax had not been collected on boat rentals. (Testimony of Anderson)
Recommendation That the proposed tax assessment be enforced against Petitioner herein. DONE and ENTERED this 9th day of June, 1978, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of June, 1978. COPIES FURNISHED: Patricia S. Turner, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Howard Hochman, Esquire 2121 Biscayne Boulevard Suite 201 Miami, Florida 33137 John D. Moriarty, Esquire Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32304
Findings Of Fact Petitioner is Central Phosphates, Inc. ("CPI"), a Delaware corporation, engaged in the business of processing phosphate and manufacturing phosphate fertilizer. Petitioner rents and operates a phosphate fertilizer processing plant which is located in the vicinity of Plant City, Florida (the "Plant"). At issue in this proceeding is whether a sales tax under Section 212.05, Florida Statutes (1977), is due on the rental of the Plant. The Plant was constructed in 1974. The construction was financed in an arrangement involving CF Realty, a sister company of CPI which is wholly owned along with CPI by CF Industries, Inc. CF Realty originally purchased the equipment and other personal property that constitute the Plant from certain contractors. CF Realty then sold the Plant to Plantlease Corporation ("Plantlease"), a New York for profit corporation. Plantlease is a wholly owned subsidiary of Morgan Guarantee Company, a New York lending institution. Plantlease was organized solely and specifically to acquire title to the Plant and to lease the Plant back to CPI, which would operate the Plant. Plantlease paid for the Plant by assuming CF Realty's indebtedness on the construction loan and by paying some additional cash. Plantlease then leased the Plant to CPI for an initial term of 15 years. At the end of this initial term CPI has the right to elect to extend the lease for an additional two years or it may elect to purchase the Plant from Plantlease. At the end of the first extended term, CPI has the option of renewing the lease for a second renewal term of two years, or purchasing the Plant. If the lease is extended to the full 19 years, CPI is entitled to purchase the Plant at the end of that term. CPI makes quarterly rental payments to Plantlease pursuant to the lease. Since the first payment of rent in May, 1975, CPI has also been paying to Plantlease a sales tax of four percent of the amount of each payment pursuant to Section 212.05, Florida Statutes (1977). Plantlease, in turn, has remitted these payments to the Florida Department of Revenue with which it has registered as a dealer. Plantlease, as a potential claimant of a refund of the allegedly erroneously paid rental tax, has waived its right to a refund as reflected in its letter dated May 4, 1978, to the Florida Department of Revenue. Since May, 1975, CPI has paid sales taxes into the State Treasury in the amount of $861,322.55 which rental tax along with all other rental tax payments paid on the Plant since May, 1978, would be refunded if CPI were not liable for the rental tax. On May 8, 1978, CPI filed an Application for Refund with the Comptroller's Office of the State of Florida seeking a refund of the amount allegedly erroneously paid by CPI to the State Treasury and giving reasons for the claim for a refund. CPI bases its claim for a refund on the grounds that the Plantlease rental of the Plant to CPI constitutes an occasional or isolated sales transaction under Section 212.02 (9), Florida Statutes (1977). By letter dated May 30, 1978, the Comptroller's Office denied CPI's Application for Refund and determined that CPI's transaction with Plantlease was not exempt from Section 212.05, Florida Statutes (1977), and the regulations pursuant thereto. On or about July 7, 1978, CPI timely filed a Petition for a Section 120.57(1), Florida Statutes (1977), hearing on the issue of whether, for aforementioned reasons, a refund was due on the sales tax paid on the Plant. By application dated May 9, 1975, and received by respondent on May 12, 1975, Plantlease applied to respondent for a certificate of registration to engage in or conduct business as a dealer. Item 10 on the form application calls for "Type of Business." In the blank provided, Plantlease's agent has supplied "Rental of personal property." Underneath the blank, in parentheses, are examples of types of businesses, "Grocery, hardware, jewelry " Exhibit A-I, attached to Joint Exhibit No. 2. The foregoing findings of fact should be read in conjunction with the statement required by Stuckey's of Eastman, Georgia v. Department of Transportation, 340 So.2d 119 (Fla. 1st DCA 1976), which is attached as an appendix to the recommended order.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent deny petitioner's application for refund. DONE and ENTERED this 12th day of January, 1979, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 APPENDIX Except for the final paragraph, the findings of fact in the recommended order are based on the parties' stipulation, which was received as joint exhibit No. 2. Paragraphs one, two, three, five, nine and ten of petitioner's proposed findings of fact have been adopted in toto. The first sentence of paragraph four of petitioner's proposed findings of fact has been rejected as not being supported by the evidence. The second sentence has been adopted, in substance. Paragraph six of petitioner's proposed findings of fact has been adopted except for the second sentence, which is actually a proposed conclusion of law. Paragraph seven of petitioner's proposed findings of fact has been adopted, in substance. Paragraph eight of petitioner's proposed findings of fact has been adopted except for the second sentence, which is actually a proposed conclusion of law. Paragraphs eleven and twelve of petitioner's proposed findings of fact have been rejected as contrary to the evidence. COPIES FURNISHED: Charles Alvarez, Esquire Gary P. Sams, Esquire Mahoney, Hadlow & Adams Post Office Box 5617 Tallahassee, Florida 32301 Linda C. Procta, Esquire Harold F. X. Purnell, Esquire Assistant Attorneys General The Capitol, Room LL04 Tallahassee, Florida 32304
The Issue The issue is whether Petitioner owes tax, penalty, and interest under Section 212.05(1)(a)2., Florida Statutes,1/ for an aircraft that it allegedly purchased and used in Florida.
Findings Of Fact Petitioner is a national banking and trust company headquartered in Utah. It does not have any operations or personnel in Florida. Petitioner routinely serves as “owner trustee” for non- U.S. citizens who want to register aircraft with the Federal Aviation Administration (FAA). Petitioner charges a fee (typically $4,000) to set up the trust, as well as an annual fee (typically $2,000) for its services as “owner trustee.” Petitioner holds legal title to the aircraft in its capacity as “owner trustee” because the FAA regulations do not allow non-U.S. citizens to register aircraft. Petitioner does not have any operational control over the aircraft even though it holds legal title. The tax assessment at issue in this case relates to a Cessna Citation 650 jet, tail number N385EM (hereafter “the aircraft”), which Petitioner holds legal title to as “owner trustee” pursuant to a Trust Agreement dated April 28, 2007. The trustor and beneficiary under the Trust Agreement is MAW.ZC, LLC, which is a Delaware limited liability company, controlled by a non-U.S. citizen, Nelson Ceballos. The sole purpose of the trust was to “ensure the eligibility of the Aircraft for United States registration with the [FAA].” The aircraft was purchased from Southern Jet Center (SJC) in Sanford, Florida, on May 3, 2007, for $3.74 million. The “purchaser” identified on the Bill of Sale was “Wells Fargo Bank Northwest, NA as Owner Trustee under Trust Agreement dated 4/28/07.” MAW.ZC, LLC, was not mentioned on the Bill of Sale. Petitioner’s witness, Jon Croasman, testified that MAW.ZC, LLC, negotiated the purchase of the aircraft with SJC, and then assigned the purchase right to Petitioner as “owner trustee” so that the aircraft would not lose its tail number and it would be easier to register the aircraft with the FAA. The record does not contain a written purchase agreement between MAW.ZC, LLC, and SJC or a written assignment of the purchase right from MAW.ZC, LLC, to Petitioner. According to Mr. Croasman, SJC was “kind of an unsophisticated seller” and it did not require these documents. Mr. Croasman was the only witness with personal knowledge of the events surrounding the purchase of the aircraft who testified at the final hearing. His testimony was logical and persuasive and is accepted as credible despite the absence of corroborating documentation. Petitioner did not pay anything to SJC for the purchase of the aircraft. The entire $3.74 million purchase price was paid by MAW.ZC, LLC. Petitioner was the purchaser of the aircraft in name only. The real purchaser was MAW.ZC, LLC. On May 4, 2007, Petitioner filed an application to register the aircraft with the FAA. The applicant listed on the application form was “Wells Fargo Bank Northwest, National Association, not in its individual capacity but solely as Owner Trustee under a Trust Agreement dated as of 4/28/07.” On the same day, the FAA issued a certificate of registration for the aircraft. The certificate was issued to “Wells Fargo Bank Northwest NA Trustee.” Registration of an aircraft with the FAA has no bearing on its ownership. Indeed, the official registration document for the aircraft issued by the FAA states: “This certificate is issued for registration purposes only and is not a certificate of title. The Federal Aviation Administration does not determine rights of ownership as between private parties.” On May 7, 2007, Petitioner filed with the Department an Affidavit for Exemption of Aircraft Sold for Removal from the State of Florida by a Nonresident Purchaser (hereafter “the Removal Affidavit”). The affidavit identified the purchaser of the aircraft as “Wells Fargo bank Northwest, NA, not in its individual capacity but solely as Owner Trustee for MAW.ZC, LLC.” The aircraft remained in Florida undergoing repairs at SJC from the date of purchase until July 2, 2007, when it was flown to Venezuela where it was based. It is undisputed that the aircraft left Florida within 20 days after the initial repairs were completed and, therefore, the sale was exempt from the sales tax. The Department informed Petitioner in a letter dated July 13, 2007, that the aircraft could not be brought back into Florida for a period of six months without its becoming subject to Florida’s use tax. Petitioner forwarded this letter to Mr. Ceballos, since he and MAW.ZC, LLC, were responsible for the operation of the aircraft. Petitioner did not exercise any control over the operation of the aircraft after its purchase. In April 2007, prior to the purchase of the aircraft, Petitioner and MAW.ZC, LLC, entered into an Aircraft Operating Agreement. This agreement was executed in conjunction with the Trust Agreement in anticipation of the purchase of the aircraft. The Aircraft Operating Agreement gave MAW.ZC, LLC, “an exclusive right to possess, use and operate the Aircraft.” The agreement required MAW.ZC, LLC, to pay all costs associated with the operation and maintenance of the aircraft. And, with respect to the operation of the aircraft, the agreement required only that MAW.ZC, LLC, cause the Aircraft to be operated by competent personnel in accordance with the manufacturer’s manuals and FAA and other government regulations. On June 15, 2007, Petitioner authorized Captain Alexander Nunez to pilot the aircraft “wherever necessary and specifically including but not limited to Venezuelan air space.” Petitioner interprets the Trust Agreement and the Aircraft Operating Agreement to preclude it from exercising any control over the operation of the aircraft even though Section 9.01(a) of the Trust Agreement gives Petitioner “absolute and complete discretion” in connection with matters involving the ownership and operation of the aircraft so as to protect the interests of the United States. According to Mr. Croasman, the language in Section 9.01 is required verbatim by the FAA for the sole purpose of ensuring that Petitioner, as “owner trustee,” will be able to operate the aircraft without violating its obligations under the Trust Agreement in the unlikely event that the U.S. government needs to use the aircraft for some reason.2/ And, as Mr. Croasman pointed out, Section 9.01(a) requires Petitioner to “exercise this discretion in all matters involving ownership and operation of the Aircraft by the Owner Trustee with due regard for the interests of the Trustor.” The Trust Agreement and the Aircraft Operating Agreement provided that MAW.ZC, LLC, was responsible for keeping records concerning the use of the aircraft. MAW.ZC, LLC, was also responsible for paying any taxes or expenses related to purchase or use of the aircraft. The aircraft crashed in Venezuela on February 18, 2008, killing Mr. Ceballos, Captain Nunez, and the copilot. The original flight records for the aircraft were destroyed in the crash, and no copies of those records were presented at the final hearing. No witness with personal knowledge regarding the operation of the aircraft was presented at the final hearing. The only evidence presented concerning the operation of the aircraft was flight data obtained from two Internet sources, FlightAware and fboweb.com. The FlightAware data was obtained by Department staff as part of their monitoring of the aircraft’s operation during the six-month period after its initial departure from Florida. The fboweb.com data was provided to the Department by David McDonald, the attorney for MAW.ZC, LLC, and Mr. Ceballos, who was acting as Petitioner’s authorized representative during the investigation and protest phase of this case. There is no evidence that Mr. McDonald had any personal knowledge of the information contained in the fboweb.com data, and he did not present it to the Department as his understanding of the aircraft’s operation. Indeed, the letter by which Mr. McDonald transmitted the fboweb.com data to the Department stated that he was “having trouble trying to decipher the information provided by fboweb.com” and that he was providing it to the Department because it appeared to be inconsistent with the FlightAware data conveyed to him by the Department staff. Mr. McDonald never expressly contested the assertion by the Department staff that the aircraft returned to Florida within the six months after it initial departure. His failure to do so was not, under the circumstances, an admission or acquiescence to the Department’s position that the aircraft did return to Florida within that period. Indeed, he informed the Department staff on several occasions that he had not been able to obtain information concerning the aircraft’s operation because the aircraft’s flight records were destroyed in the crash. No credible evidence was presented as to what the FlightAware or fboweb.com services are, or how they obtain the flight data included in their records. For example, when asked to explain her “understanding of what Flight Aware is,” the Department witness used to introduce the data testified only that “[i]t’s a service that the Department subscribes to to track the flights for the aircraft.” The FlightAware data indicates that the aircraft made eleven flights into Florida between September 2007 and January 2008: Flight Date Destination 1 9/22/07 from Arturo Michelena International Airport (Arturo) in Venezuela to Kendall-Tamiami Executive Airport, and then to Simon Bolívar International Airport in Venezuela by way of Ft. Lauderdale Executive Airport on the same day 2 9/29/07 from Arturo to Hollywood International Airport (FLL), and then to Simon Bolivar International Airport the following day 3 10/1/07 from Arturo to FLL, and then back to Arturo the same day 4 10/4/07 from Arturo to FLL, then to Orlando Sanford International Airport (SFB) the following day, with a return to Arturo by way of FLL and Nassau International Airport on October 14 5 10/15/07 from Arturo to FLL, then to SFB on the same day 6 12/16/07 from Arturo to FLL, then to SFB the same day, with a return to Arturo on December 20 7 12/21/07 from Arturo to FLL, and then back to Arturo on the same day 8 12/23/07 from Arturo to FLL, and then back to Arturo on the same day 9 1/3/08 from Punta Cara International Airport to FLL, then to SFB on the same day, with a return to Arturo by way of FLL on January 6 10 1/10/08 from Arturo to FLL, and then back to Arturo on January 12 11 1/13/08 from Arturo to FLL, and then back to Arturo on the same day The fboweb.com data is, as Mr. McDonald noted, difficult to decipher. However, it appears to include most, if not all, of the flights that were listed in the FlightAware data. The fboweb.com data also lists flights on September 8- 9, 2007, between Arturo, FLL, and SFB. Those flights were not listed in the FlightAware data. No findings can be made as to whether the aircraft was indeed in Florida on the dates reflected in the FlightAware or fboweb.com data because that data is uncorroborated hearsay. Even if the FlightAware and fboweb.com data could be relied upon to establish that the aircraft was in Florida on the dates referenced above, only the September 8-9 flights listed in the fboweb.com data and the first eight flights listed in the FlightAware data would be relevant. The other three flights listed in the FlightAware data -– 1/3/08, 1/10/08, and 1/13/08 - – occurred more than six months after the aircraft’s initial departure from Florida on July 2, 2007. Mr. McDonald was able to locate and provide to the Department repair invoices related to only four of the nine relevant flights listed in the FlightAware and fboweb.com data – - 9/8/07, 10/4/07, 10/15/07, and 12/16/07. On each of those occasions, there is documentation showing that the aircraft underwent repairs at SJC in Sanford. There is no evidence that the aircraft underwent repairs in connection with the other five flights listed in the FlightAware data -– 9/22/07, 9/29/07, 10/1/07, 12/21/07, and 12/23/07. Mr. McDonald provided an invoice for a part that was purchased for the aircraft at FLL on September 29, 2007, but there is no evidence that the part was installed in Florida on that trip. No sales or use tax was paid on the aircraft by Petitioner or any other entity or person to Florida or to any other state or country. Petitioner does not dispute the amount of the tax, penalty, or interest calculated by the Department in the Notice of Reconsideration. The tax is $224,400, which is six percent of the sales price of the aircraft; the penalty is $224,400, which is 100 percent of the tax as required by Section 212.05(1)(a)2., Florida Statutes; and interest is accruing at a rate of $67.44 per day, with $27,273.10 of interest having accrued through the date of the Notice of Reconsideration. These amounts were assessed against Petitioner in its capacity as “owner trustee,” not its individual capacity.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department issue a final order rescinding the assessment at issue in this case. DONE AND ENTERED this 19th day of August, 2009, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 19th day of August, 2009.
The Issue Whether Petitioner is liable for sales or use tax, plus interest and penalties, as asserted by the Respondent's Notice of Decision dated March 16, 1995.
Findings Of Fact Petitioner is a Florida for-profit corporation whose sole stockholder is Corwin Zimmer. At all times pertinent to this proceeding, Petitioner operated an air taxi charter service out of the Fort Lauderdale, Florida, airport. Respondent is the agency of the State of Florida charged with the responsibility of enforcing the Florida Revenue Act of 1949, as amended, including the provisions of Chapter 212, Florida Statutes. At the times pertinent to this proceeding, Petitioner utilized three Learjets in its operations. At all times pertinent to this proceedings, each of these three jets was owned by a separate corporation and each corporation was owned by a single shareholder. Each jet was owned by a corporation to limit the liability of the individual shareholder. Each of the following owned one of these three jets: Alamo Jet, Inc., a Florida corporation wholly owned by Charles Schmidt; RLO, Inc., a Florida corporation wholly owned by Richard Owens; and Gulfstream Flight Services, Inc., a Florida corporation wholly owned by Dr. David Brown. These three corporations and their individual shareholders will be collectively referred to as the owners. These owners were unrelated to each other. Except for the agreements at issue in this proceeding, the owners were also unrelated to the Petitioner and Mr. Zimmer. None of the owners possessed the FAA licensure necessary to transport passengers for hire. At all times pertinent to this proceeding, each of the three owners had an agreement with Petitioner that was styled "Aircraft Management Agreement" (the agreement). Although written agreements could not be located for all three owners, Mr. Zimmer testified, credibly, that there existed a written agreement for each owner and that there was no material difference between the written agreement that was produced at the formal hearing and the other agreements. None of the owners fully utilized the jet it owned before entering into the agreement with Petitioner. As to each agreement, the owner was referred to as "owner" and his jet was described. Petitioner was referred to as "operator". The agreements do not contain the term "lease". The following are the responsibilities of the Petitioner as the operator pursuant to the agreement between Petitioner and Alamo Jet, Inc.: Place the Aircraft on its Air Carrier Certificate Number AT 705264 for the purpose of utilizing the aircraft in FAR 135 operations. Oversee all aircraft maintenance, aircraft records, aircraft time components, in accor- dance with the Learjet Model 55 maintenance program, Federal Aviation Regulations, and its operating certificate. Train flight crews, maintain crew records in accordance with Federal Aviation Regula- tions conduct initial, recurrent, six month proficiency flight checks. Provide the Owner with a flight crew at a rate of $450.00 per day, not to exceed $600.00 per month. Schedule all Aircraft, flight, crews and passenger activity through its dispatch department. Reimburse the Owner all moneys received from placing the Aircraft on the Garrett Engine Fleet Operations Program. Insure the Aircraft on its fleet operators policy and financially participate to recover the additional premium required for FAR 135 operations. Hanger the Aircraft at its Fort Lauder- dale facility at no charge to the owner. Provide fuel to the Owner at its Fort Lauderdale facility at $.25 above purchase cost. Insure that the aircraft [is] maintained in a like new condition with the exception of normal wear. Pay the Owner $800.00 per flight hour for the aircraft when it is utilized for FAR 135 operations. Provide the Owner with an aircraft state- ment and activity report by the 7th of the following month, and payment for the utiliza- tion of the aircraft by the 25th day of the month. Provide all charts, maps, and expendable storage at no charge to the Owner. Aggressively market the aircraft for maximum utilization. The Alamo Jet, Inc. agreement provided the following pertaining to aircraft flight utilization: Owner utilization: The Owner is responsible for all direct costs incurred from the flight. Maintenance Test Flights: The owner is responsible for all direct costs of operation. There will be no charge for the crew conducting the test flight. Flight Crew Training: The Operator shall be responsible for the direct cost of operation. This includes MSF payment, hourly maintenance cost, [and] fuel. FAR 135 Air Carrier Flights: The Operator is responsible for all cost incurred in addition to the payment of $800.00 per flight hour to the owner. The Alamo Jet, Inc. agreement provides that the Owner agrees to and is responsible for the following: Payment of the insurance premium less the additional amount required for commercial operations. Cost of maintaining the aircraft. To coordinate all flights with the Operators dispatch department. The Alamo Jet, Inc. agreement provides the following general conditions: Operator will aggressively market the charter utilization of the aircraft, and estimate its use at 600 hours the first year. No guarantee as to the amount of aircraft revenue hours are included in this agreement. Generally, Petitioner's flights are in the continental United States. During the audit period, each owner used its aircraft approximately ten days a month. Each owner could use its aircraft except when it was undergoing a major inspection or was down for maintenance. Other than those times, each owner had a key and unlimited access to its aircraft. Each owner had bumping privileges with respect to their aircraft. If an owner's aircraft was booked for a flight by Petitioner when the owner wanted to use it, the Petitioner would make the owner's aircraft available to the owner and re-book the passenger on another aircraft. Petitioner provided the pilot and crew when an owner wanted to use its aircraft at a per hour rate that was less than that charged for its taxi service. When an owner wanted to use his aircraft, he would contact one of Petitioner's employees to coordinate his use with the Petitioner. Mr. Zimmer testified that he did not intend the agreements with the owners to be leases. From the inception of the agreements, Mr. Zimmer viewed the arrangements as being contracts for the management of the aircraft so that his company and each owner could use its jet but also generate revenue when its jet was being used by Petitioner in its air taxi operations, referred to as FAR 135 operations. Mr. Zimmer testified that he intended that his relationship with the owners of the aircraft to be a marriage of operations and aircraft. Petitioner had the air carrier certificate, and the personnel and facilities to maintain the aircraft and provide air taxi service. 1/ During the audit, Mr. Dreker told Mr. Zimmer that the Respondent was treating the payments to the owners as lease payments. Before that time, no one had told Mr. Zimmer that the relationship constituted a lease. Each agreement required the owner to deliver its aircraft to Petitioner for use pursuant to the terms of the agreement. The owner gave up its exclusive possession, control, and dominion of its aircraft pursuant to the terms of the agreement. Petitioner controlled the use of the aircraft, subject to the terms of the agreement, which set forth the rights of the owner. Each agreement permitted the owner to fully utilize its jet. For the years 1987, 1988, 1989, 1990, and 1991, the Petitioner reported for federal income tax purposes in connection with its use of the three jets under the category "cost of goods sold - other costs - Jet Leases" the respective amounts of $650,531.00, $753,181.00, $923,374.00, $899,917.00, and $693,603.00. For the years 1987, 1988, 1989, 1990, and 1991, the Petitioner referred to the payments made to the owners as "Lease Payments". For the years 1987, 1988, 1989, 1990, and 1991, the Petitioner's books referred to the payments made to the owners as "Lease Payments". Mr. Zimmer was involved in the operation of the Petitioner from the time it was incorporated. He did not, however, become the sole stockholder until 1982. During 1982, Petitioner leased an airplane from American Jet in St. Louis, Missouri. The lease of that airplane is reflected on Petitioner's 1982 Federal income tax return, which was prepared by Rosen and Santini, P.A. Beginning in 1983, after Mr. Zimmer purchased the stock of the Petitioner, Robert J. Dreker, a CPA employed by Schmidt & Co., prepared all of Petitioner's federal tax returns. Petitioner's books were set up before Mr. Dreker became its CPA. Mr. Dreker did not believe that referring to the payments to owners as lease payments in Petitioner's Federal tax return or in its chart of accounts was significant because the payments were clearly deductible for tax purposes. Consequently, he retained the nomenclature reflected on the 1983 tax return and in the chart of accounts as he found them. Petitioner's chart of accounts was maintained on a daily basis by a bookkeeper. Three individuals filled the bookkeeper position at different times, none of whom had any special training or experience in tax matters. Mr. Dreker was of the opinion that referring to the payments to owners as lease payments did not conform to generally accepted accounting principles and mischaracterizes the relationship. Mr. Dreker was of the opinion that the payments to owners should be called management expenses or owner revenue payments. Mr. Dreker or his accounting firm had never been employed to prepare a certified financial statement for the Petitioner. Respondent audited Petitioner for the period May 1, 1987, through April 30, 1992. The auditor, Cynthia McHale, reviewed Petitioner's books and records, including the agreement with Alamo Jet, and interviewed Mr. Zimmer. Based on that audit the Respondent determined that the agreements between Petitioner and the owners constituted leases and that Petitioner was liable for sales or use taxes on those leases. Ms. McHale understood that Mr. Zimmer and Mr. Dreker did not intend the agreements to be leases. The amounts determined to be due were reflected by the Notice of Decision dated March 16, 1995, which is the agency action challenged by Petitioner. Respondent asserts that Petitioner owes taxes in the amount of $238,454.24, penalty in the amount of $59,613.55, interest through August 12, 1993, in the amount of $102,633.11, for a total of $400,700.90, plus interest accruing from August 12, 1993, at the rate of $77.46 per day. Petitioner disputes that the agreements constitute leases and asserts that no tax is due. Petitioner does not challenge the underlying calculation that produced the figures contained in the Notice of Decision dated March 16, 1995. Pursuant to its agreement with the owners, the Petitioner provided hangar storage space for the storage of the jets. Respondent has not assessed any tax for that storage. Petitioner did not assess taxes on the charges made by Petitioner to the passengers using its air taxi service since these charges are specifically exempt from taxation. In 1981, Petitioner corresponded with Respondent about its need to register with Respondent for sales tax purposes. The Respondent's reply, dated July 30, 1981, advised that Petitioner did not need to register for sales tax purposes because the Petitioner's business was a nontaxable service. At about the time the sales tax on services went into effect, Mr. Dreker talked with two employees of the Respondent in separate conversations and described the Petitioner's operations to them. Based on those conversations, Mr. Dreker formed the opinion that Petitioner was not subject to either sales tax or service tax. Petitioner did not pay to the Respondent or to the owners a service tax on the payments made to the owners between July 1, 1987, and December 31, 1987, the dates the service tax was in effect in Florida. The 1981 correspondence and Mr. Dreker's telephone conversations are the only evidence that supports Petitioner's estoppel argument. Mr. Dreker did not receive a written response to his telephone inquiry and he did not send a written inquiry to Respondent requesting a Letter of Technical Advice, a request for a Technical Assistance Advisement, or a Declaratory Statement.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order that adopts the findings of fact and conclusions of law contained herein and sustains the assessments contained in the Notice of Decision dated March 16, 1995, that Petitioner owes taxes in the amount of $238,454.24, penalty in the amount of $59,613.55, interest through August 12, 1993, in the amount of $102,633.11, for a total of $400,700.90, plus interest accruing from August 12, 1993, at the rate of $77.46 per day. DONE AND ENTERED this 6th day of May 1996 in Tallahassee, Leon County, Florida. 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 6th day of May 1996.
