Findings Of Fact The facts in this cause are essentially undisputed. The Pen Haven Company was a Subchapter "S" corporation for federal income tax purposes and therefore incurred no State income tax liability. It was formed in 1960 and retained its Subchapter "S" status thorough 1976 for federal income tax purposes. In December of 1977, the capital stock of Pen Haven Sanitation Company was sold to the Board of County Commissioners of Escambia County. Inasmuch as the sole corporate stock holder then was no longer an individual, but rather a governmental entity, the corporation Subchapter "S" election for federal income tax purposes was terminated. Escambia County did not wish to own stock in a private corporation so it accordingly liquidated Pen Haven and its assets were distributed to the County's direct ownership. Thereafter the Corporation filed a final corporate income tax return for 1977 which reflected capital gains on the assets of the corporation which had been distributed. Some of those assets had tax bases which had been reduced to zero through reduction by depreciation, most of which had been charged off prior to January 1, 1972, the effective date of the Florida corporate income tax code. All of the depreciation deductions had been taken prior to the termination of the Subchapter "S" status of the Pen Haven Company. On disposition of the Pen Haven assets however, a gain was reported equal to the fair market value or salvage value, less the basis. This gain was accordingly reported on Pen Haven's federal income tax return, and on the 1977 Florida corporate income tax return, albeit under the protest as to the Florida tax return. Inasmuch as Pen Haven had previously deducted depreciation since its inception, and had the benefit thereof for federal tax purposes, it was required by the Internal Revenue Service to recapture the depreciation for federal tax purposes upon its sale and the filing of its tax return in 1977. The same recapture of depreciation treatment was required of West Florida Utilities. Thereafter an application was made by the Petitioner corporations for Florida Corporate Income Tax Refunds asserting that they should have not paid taxes on the amount of gains which represented a recapture of depreciation which had been taken as a deduction prior to the effective date of the Florida corporate income tax on January 1, 1972. In effect the Petitioner is contending that the so- called "income" which is the subject of the tax in question was not realized in 1977, but rather merely "recognized" in that year by the federal tax law and that it represented income actually "realized" during the years when the depreciation was taken as a deduction prior to January 1, 1972. The Petitioners contend that "realization" for federal income tax purposes occurs when the taxpayer actually receives an economic gain. "Recognition" on the other hand refers only to that time when the tax itself becomes actually due and payable. The Petitioners maintain that when the tax became due and payable in 1977 that was merely the point of "recognition" of the subject taxable gain and not "realization" in that the gain was actually realized prior to the Florida Jurisdictional date of January 1, 1972, in the form of the economic benefit derived from those depreciation deductions applied to federal tax liability prior to that date. The Petitioners cite SRG Corporation vs. Department of Revenue, 365 So2d 687 (Fla. 1st DCA 1978), for the proposition that Florida could not tax those gains accruing to the taxpayer prior to Florida's having the constitutional and statutory power to impose a corporate income tax. The Respondent in essence agrees that the question of when the economic benefit to the Petitioners was received by them or was "realized" is the key question in this cause. The Respondent contends, however, that "realization" of a taxable gain occurred when the assets were disposed of by the Petitioners in 1977, well after the date when Florida's power to tax such a gain was enacted. The underlying facts in the case of West Florida Utilities are substantially similar. This corporation, however, was organized in 1962 and has never been clothed with Subchapter "S" corporate status. The only grounds upon which it can therefore claim a refund is its assertion that Florida does not have authority to tax that portion of the capital gains attributable to recapture of depreciation which was originally charged off as a deduction prior to January 1, 1972. The Department of Revenue and the Comptroller of the State of Florida both denied the refund claim made on behalf of the Petitioners, and thereafter they seasonably petitioned for a formal administrative hearing pursuant to Chapter 120.57(1), Florida Statutes.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence in the record, the candor and demeanor of the witness and pleadings and arguments of counsel it is, therefore RECOMMENDED this 3rd day of September, 1981, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF, 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 3rd day of September, 1981. COPIES FURNISHED: Thurston A. Shell Post Office Box 1831 Pensacola, Florida 32578 Robert A. Pierce, Esquire General Counsel Department of Revenue Tallahassee, Florida 32301 Michael Basile, Esquire Deputy General Counsel Office of Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301 Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32310
Findings Of Fact The parties executed and filed a Prehearing Stipulation in this proceeding stipulating to the facts and agreeing that there were no issues of fact which remain to be litigated. Based upon the stipulation of facts, the facts found relevant to the issues in this rule challenge proceeding are as follows: Petitioner, American Telephone and Telegraph Company, is the parent corporation of the "Bell System," a group of corporations consisting of twenty- three associated operating telephone companies and other related corporations. For the 1972, 1973 and 1974 tax years, petitioner and its qualified subsidiaries filed a consolidated return for federal income tax purposes. Having made a valid election of the 100 percent dividend received deduction under Section 243 of the Internal Revenue Code, the Internal Revenue Service did not tax dividends received by petitioner from its affiliates. Petitioner's federal income tax returns were audited by the Internal Revenue Service and the respective tax liabilities were determined and paid for each of the years in question. For the same 1972, 1973 and 1974 tax years, petitioner filed Florida income tax returns on a separate unconsolidated basis. Petitioner did not elect and was not required to file a Florida consolidated income tax return under Section 220.131, Florida Statutes. Having timely made a valid election of the 100 percent dividend received deduction under Section 243 of the Internal Revenue Code for the 1972, 1973 and 1974 tax years, such dividends were excluded from taxable income on petitioner's Florida income tax returns. For each of the tax years in question, petitioner reported on line 1 -- "federal taxable income (line 30, Form 1120 or corresponding line on related form in 1120 series, 990C or 990T)" -- of its Florida corporation income tax return (Form F-1120) its taxable income for federal income tax purposes computed as if petitioner had filed a separate federal income tax return for each of the years in question and for each preceding taxable year for which it was a member of an affiliated group. Petitioner, on its Florida corporation income tax return for each of the years in question, made the additions and subtractions required by the return in computing "adjusted federal income" and apportioned this amount of the prescribed three-factor formula to obtain "Florida net income." The Department of Revenue adjusted the amount of "federal taxable income" and hence "Florida net income" of petitioner for each of the years in question by adding thereto 15 percent of the dividends received from petitioner's affiliates which were deductible for federal income tax purposes under Section 243(a)(3) of the Internal Revenue Code. The income which the respondent seeks to tax is derived from dividends received by petitioner primarily from earnings generated by the property and employees of petitioner's affiliates which are devoted to furnishing intrastate and inter- state telecommunications services in their operating territories in states other than the State of Florida. These earnings are subject to income taxes in all states in which the petitioner's affiliates provide telecommunications services that impose income taxes on corporations. On April 10, 1978, the Department of Revenue issued a notice of proposed deficiency for petitioner's tax years ended December 31, 1972, December 31, 1973 and December 31, 1974, representing a potential tax liability to the petitioner in the amount of $304,103 for 1972, $387,429 for 1973, and $439,626 for 1974, plus accrued interest on each proposed deficiency. Petitioner timely filed a protest to the proposed deficiencies, an informal conference was held and, on April 16, 1981, the respondent Department of Revenue issued a final notice of proposed deficiency. This document applied the policies which are being challenged in this proceeding so as to add back to petitioner's taxable income an amount equal to 15 percent of the dividends received by petitioner from affiliated corporations which were not incorporated, located or engaged in business in the State of Florida. Stated differently, the respondent's policy is to allow the 100 percent dividend received deduction for those dividends received from subsidiaries or affiliates subject to the Florida tax, but to allow only an 85 percent deduction on those dividends received from subsidiaries which are not subject to the Florida tax. This policy has been applied to other similarly situated taxpayers in Florida and it has not been promulgated as a rule. The Florida corporate income tax forms in use for 1972, 1973 and 1974 did not require taxpayers to add back any amount of dividends received from affiliates. There is no existing statute or rule which specifically imposes such a requirement.
Findings Of Fact Petitioner, St. Joe Paper Company, is a taxpayer subject to the requirements of the Florida Corporate Income Tax. Its principal offices are located at 803 Florida National Bank Building, Jacksonville, Florida. Petitioner filed its 1976 calendar year tax return with respondent, Department of Revenue (Department), on September 23, 1977. Although filings are normally due on April 1, the filing was made pursuant to an extension of time to and including October 1, 1977 which was granted by the Department. Petitioner was subsequently audited by the Internal Revenue Services (IRS) for calendar years 1972 through 1977. Thereafter, petitioner and IRS entered into a settlement in 1982 wherein they agreed that certain adjustments were required for each of the audited tax years. The adjustments resulted in an overpayment of the Florida Income Tax for 1976. Subsection 220.23(2) , Florida Statutes, requires that a taxpayer notify the Department whenever an IRS audit results in adjustments to the taxpayer's net income subject to the Florida corporate income tax for any taxable year. Because the IRS sett1enent affected the years 1972 through 1977, petitioner filed amended returns for those years with the Department on October 8, 1982. According to the amended returns, petitioner owed additional taxes for all years except 1976, when it had made an overpayment. It added these deficiencies, totaling $82,003.03, and subtracted the overpayment for 1976 ($18,174.10), resulting in a net tax owed the Department of $63,828.94. Petitioner also computed interest owed on its deficiencies for the years 1972-1975 and 1977 to be $39,956.58 and offset this amount with a $12,067.40 credit which it claimed was interest owed it by the Department for its overpayment of taxes for calendar year 1976. When the interest was added to the $63,828.94, the total liability was $91,718.42. The record is unclear whether petitioner calculated its 1976 interest using a 12 percent or 6 percent rate. The proper rate to be used is 6 percent. On August 5, 1983 the Department directed petitioner to appear at its Jacksonville office on August 11 to pay $12,067.40 and if it failed to do so, a tax warrant would be issued. Thereafter, on August 9 petitioner paid the deficiency. On August 15, 1983 petitioner filed an Application for Refund Form DR- 26 requesting a refund of its August 9 payment. In its application, it stated chat "(i)nterest computed on the tax refund for 1976 was offset against interest due for other years", and that the Department's refusal to allow this offset was error. On August 19, 1983 the Department's classification officer, audit classification, issued a letter denying the application on the following grounds: Florida Statutes 214.14 requires that interest be paid should the Department take longer than nine (9) months to refund an overpayment of tax. When computing interest, the Department does so under the theory that each year stands alone. Consequently, offsetting of deficiencies and overpayments is not recognized when computing interest. Your letter of October 8, 1982, shows that check number 2400 was sent, with the Amended Florida returns, to pay the net additional tax and interest. Consequently, the 1976 refund would be deemed to have been made within the nine-month period required under Florida Statute 214.14. This letter prompted the instant proceeding.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: that petitioner's application for a refund be GRANTED and that it be computed at a 6 percent rate to run from October 1, 1977. DONE and ENTERED this 18th day of November, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER 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 18th day of November, 1983. COPIES FURNISHED: Mr. W. W. Carlson Assistant Vice-President St. Joe Paper Co. 803 Florida National Bank Building Jacksonville, Florida 3220 Barbara Staros Harmon, Esquire Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301 Mr. Randy Miller Executive Director Department of Revenue Carlton Building, Room 102 Tallahassee, Florida 32301 =================================================================
Findings Of Fact The Petitioner is, and during the years in question was, a corporation organized under the laws of the State of Delaware, properly qualified and authorized to do business in the State of Florida, and the parent company of a consolidated group of corporations that kept its books and records and filed its federal and state income tax returns on the basis of a fiscal year ending August 31. During the tax years in question, the consolidated group consisted of 36 corporations, of which 15 (including Petitioner) had Florida transactions or were otherwise separately subject to taxation under the Florida Corporate Income Tax Code (the "Florida members"). The other 21 corporations had no such transactions or were not subject to taxation under the Florida Code (the "non- Florida members"). For both years 1972 and 1973, petitioner filed federal and Florida income tax returns on behalf of the entire group. On the Florida return's, it duly elected under the second sentence of Subsection 220.131(1), F.S., to include both the Florida and non-Florida members. As required by Subsections 220.131(1)(a), (b) and (c), each member of the group consented to such filing, the group filed a consolidated federal return for each year, and the component members of the Florida return group were identical to the members of the federal return group. Petitioner protested the proposed corporate income tax assessment for 1972 and 1973, but, by letter, dated July 7, 1976, T. H. Swindal, Chief, Corporation Income Tax Bureau, Florida Department of Revenue, adhered to the original determination that for a parent corporation to include all of its subsidiary corporations for the purposes of consolidating its taxable income, it must be incorporated in Florida. The letter further explained: ". . . The Florida Legislature obviously considered these classifications justified and constitutionally permissible. Any regulation, therefore, which is so drafted as to permit an interpretation which in substance changes or strikes the statutory classification is a nullity. It appears that the Department's regulation may have been inadvertently so drafted as to invite an unintended and contrary-to-the- statute interpretation. When the Department became aware of the situation it proceeded, in accordance with the prescribed statutory requirements of Chapter 120, to amend the regulation by striking those words being misinterpreted." The regulation referred to in Swindal's letter was Rule 12C-1.131(1), F.A.C., the first sentence of which had read as follows: "12C-1.131 Adjusted Federal Income; Affiliated Groups. The term "Florida parent company" as used in the second sentence of Code subsection 220.131(1) shall mean any corporation qualified to do business in Florida or otherwise subject to tax under the Code, irrespective of its place of incorporation " The aforesaid rule was in effect during 1972 and 1973, and was amended on August 4, 1975, to delete the above-mentioned sentence.
Recommendation That Petitioner not be held liable for the proposed assessment of corporate income tax deficiency for fiscal years 1972 and 1973. DONE and ENTERED this 26th day of April , 1977, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: E. Wilson Crump, II, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Alan L. Reinstein, Esquire Dancona, Pflaum, Wyatt and Riskind 30 North LaSalle Street Chicago, Illinois 60602
The Issue The issue posed for decision herein is whether or not the Petitioner, Adwell Corporation, is entitled to separate accounting in computing its Florida corporate income tax based on the nature of its Florida operations.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received, the arguments of counsel and the entire record compiled herein, the following relevant facts are found. The Petitioner, Adwell Corporation, is an Illinois corporation which is actively engaged in the business of farming approximately twelve thousand (12,000) acres of farmland near Jacksonville, Illinois; owns and leases ten (10) acres of real property under a "triple net lease" arrangement for a shopping mall in Minnesota and operates a two-hundred unit (200) apartment complex called the Yacht Basin Apartments (YBA) in Clearwater, Florida. An audit of Petitioner's books during 1978 resulted in a report of income tax audit changes dated July 28, 1978, for Petitioner's Florida income tax returns for fiscal years ending May 31, 1975; 1976 and 1977. The deficiency adjustment as proposed by the Respondent amounted to $1,248.00 for fiscal year ending May 31, 1975; $10,042.00 for fiscal year ending 1976 and $11,238.00 for fiscal year 1977. As originally filed, Petitioner, computing its Florida corporate income tax, based it on a separate accounting of its Florida activities on its claim that it is not a unitary business and that to combine its total corporate income of Florida, Illinois and Minnesota would unfairly represent the extent of its tax base attributable to Florida. Thus, Petitioner contends that the formula apportionment called for in Florida Statutes Sections 220.15 and 214.71 should not be applied. Instead, Petitioner contends that it is entitled to the exceptions to the general method of formula apportionment as set forth in Sections 214.72 and 214.73, Florida Statutes. PETITIONER'S ILLINOIS OPERATIONS As stated, Petitioner farms approximately twelve thousand (12,000) acres of agricultural land utilizing two methods of farming: the "direct" farming method and the "landlord/tenant" arrangement. During the years in question, the "direct" farming operation was used on approximately one-third (4,000 acres) of Petitioner's agricultural land. Under the "direct" method, in addition to the land, Petitioner provides the equipment, fertilizer, chemical, seed, and weed and pest control. Under the "direct" farm method, Petitioner retains an operator who is paid a flat fee for his services which is negotiated on a yearly basis. The remaining two-thirds (approximately 8,000 acres) of the agricultural land is farmed using the "landlord/tenant" method. Under this method, Petitioner, in addition to providing the land, provides the tenant farmer 50 percent of the seed, fertilizer and chemicals for weed and pest control. The crop is divided equally between the farmer and the Petitioner. In both farming methods, Petitioner determines with the crop will be planted; the type of crop and fertilizer and its method of application; the type chemicals for both pest and weed control and decides when and how the crop will be planted and harvested. Prior to 1970, Petitioner's headquarters (for the Illinois farming) was situated in Chicago, Illinois. In 1970, corporate headquarters were moved to Jacksonville, Illinois, based on the corporate decision that "absentee" ownership was not conducive to efficient and productive business operations. During 1970, Petitioner invested in real property in Florida and Minnesota using income realized from the forced sale of real estate under threat of governmental condemnation. PETITIONER'S FLORIDA OPERATIONS In Florida, Petitioner purchased the real property under the Yacht Basin Apartments which was simultaneously leased to the Yacht Basin Apartment owners. The Minnesota real property lay under and was leased to owners of a shopping center. Both leases were "triple net leases", thereby relieving Petitioner of the responsibilities of taxes, maintenance and the other activities associated with land ownership. During 1973, Adwell Corporation purchased the Yacht Basin Apartments and other related improvements which were situated on the Clearwater property. From 1973 through November of 2974, Adwell retained the services of an independent property management firm to manage the Yacht Basin Apartments. However, during this period (November of 1974), Petitioner relocated an accountant, Steve McClellan, who was then employed by Petitioner as an accountant in Jacksonville, Illinois to manage YBA. After Mr. McClellan became familiar with the management operations of the Yacht Basin Apartments, the arrangement was severed with the independent management contractor and Petitioner authorized Mr. McClellan to do virtually all that was necessary to efficiently manage and operate the Yacht Basin Apartments. Examples of the authority given and exercised by Mr. McClellan included hiring and firing employees; negotiating leases; expending large capital outlays for improvements and repairs, including for example, replacement of kitchen cabinets in several apartments, total roof repair and replacement, replacement of the master T.V. antenna and replacement of all windows. (See Petitioner's Exhibits 1 through 5.) Mr. McClellan was assigned the goal of operating the Florida apartments on the rent receipts, which goal was realized. Petitioner maintains what is referred to as an internal accounting procedure which requires that all checks be signed by the operation's President, Donald R. Pankey. Evidence adduced during the hearing reveals that Mr. McClellan was given almost complete control over the operation and management of the Florida property and in no instance was any recommended expenditure by him rejected by President Pankey. Evidence also reveals that Petitioner maintains separate accounts for each of its operations in Florida, Illinois and Minnesota. The Florida operations are not integrated with or dependent upon nor contribute to the other business operations of Petitioner in Illinois and Minnesota. The Florida property as stated compromises approximately ten (10) acres of reality plus the improvements. During the period in question, the Florida operation employed approximately twelve (12) to fifteen (15) employees. Aside from its Florida employees, Petitioner only employs the President and his secretary in Jacksonville, Illinois.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby, RECOMMENDED: That the Petitioner is entitled to and should be allowed to separately account its Florida corporate income tax as it originally filed its Florida corporate income tax returns for the tax years 1975, 1976 and 1977. Accordingly, it is therefore RECOMMENDED that the Respondent withdraw the Report of Income Tax Audit Changes dated July 28, 1978. RECOMMENDED this 12th day of September, 1980, in Tallahassee, Florida. JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1980. COPIES FURNISHED: Steven A. Crane, Esq. Post Office Box 3324 Tampa, Florida 33601 Shirley W. Ovletrea, Esq. and E. Wilson Crump, II, Esq. Assistant Attorneys General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301 Robert A. Pierce, Esq. General Counsel Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32301
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that petitioners' request for a refund of corporate income taxes for the year ending January 31, 1975, be DENIED. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 14th day of January, 1981. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of January, 1981.
The Issue The primary issue in this proceeding is whether the taxable income of Jaffie Contracting Company of Florida, Inc. can be consolidated with the taxable income of Arlen Realty and Development Corp. in consolidated Florida Corporation Income Tax Returns for the taxable years ending February 28, 1973, and February 28, 1974. A second issue is whether Jaffie Contracting Company of Florida, Inc. should be liable for penalties for the underpayment of estimated taxes if it is determined that Jaffie Contracting Company of Florida, Inc. is not entitled to be included in Arlen Realty and Development Corp`s consolidated Florida Corporation Income Tax Returns for the fiscal years ending February 28, 1973, and February 28, 1974.
Findings Of Fact In a joint stipulation dated December 8, 1978, filed with the Hearing Officer, the parties stipulated to the relevant facts of this proceeding. Stipulation of Facts for Case No. 78-1800, together with the appendices thereto, are adopted by reference and made a part of the Findings of Fact of this Recommended Order. The consolidated Florida Corporation Income Tax Returns filed by Arlen Realty and Development Corp. pursuant to the first sentence of Section 220.131(1), Florida Statutes, for the fiscal years ending February 28, 1973, and February 28, 1974, indicated that there was no tax liability for the affiliated group of corporations which included Petitioner, Jaffie Contracting Company of Florida, Inc., a subsidiary of Jaffie Contracting Company, Inc. The Respondent, Department of Revenue, asserted deficiencies against Petitioner's taxable income separating it from that of Arlen Realty and Development Corp`s affiliated group for the fiscal years ending February 28, 1973, and February 28, 1974, in the amounts of $10,491.30 and $17,548.75, respectively. The Department had determined that Petitioner was not properly includable as a member of Arlen's affiliated group of corporations for Florida Tax purposes. Respondent additionally proposed penalties for the failure to make declarations of estimated tax for the same fiscal years in the amount of $751.30 and $1,356.98, respectively. The basis for the proposed deficiencies was that Petitioner did not qualify for inclusion in Arlen Realty and Development Corp`s consolidated Florida corporation income tax return because Petitioner's parent, Jaffie Contracting Company, was not subject to the Florida tax imposed by the Florida Income Tax Code and was not included in the consolidated Florida return, thereby breaking the chain of ownership of the affiliated group of corporations. Petitioner filed a protest against the proposed deficiencies. Following the initial consideration and reconsideration by the Department of Revenue, the proposed deficiencies were sustained. On November 27, 1978, a pre-hearing conference was held for the purposes of defining the issues in the case. Petitioner and Respondent filed Briefs, and Petitioner filed a Reply Brief prior to the hearing at which oral argument on the legal issues was heard. Both parties submitted excellent memoranda and Proposed Recommended Orders. Petitioner contends: That it elected to file its return under the first sentence of Section 220.131(1), and contends it has satisfied all the statutory requirements and that the deficiencies for the fiscal years ending February 28, 1973, and February 28, 1974, are invalid; that it is not liable for penalties for failure to file declaration of estimated taxes. Respondent contends: That one of the members of the affiliated group of corporations is not eligible to be included in the affiliated group of corporations inasmuch as it was not subject to tax under the Florida Income Tax Code, Chapter 220, Florida Statutes, as required by the first sentence of Chapter 220.131(1); that an affiliated group of corporations for federal purposes is not an affiliated group for Florida tax purposes; that the failure of the Petitioner to pay estimated taxes pursuant to provisions of Section 220.34(2)(a) subject Petitioner to the imposition of penalties.
Recommendation It is recommended that the Florida Corporation Income Tax Division deficiencies assessed against Jaffie Contracting Company of Florida, Inc. by the Department for the fiscal years ending February 28, 1973, and February 28, 1974, including the applicable penalties be upheld. DONE and ORDERED this 27th day of February, 1979, in Tallahassee, Leon County, Florida. COPIES FURNISHED: Gerald T. Hart, Esquire William P. Battaglia, Esquire Post Office Box 1876 Suite 701, Lewis State Bank Building Tallahassee, Florida 32302 Cecil L. Davis, Jr. Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304 DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675
Findings Of Fact Having considered the pleadings, evidence and legal arguments presented in this cause, the following facts are found: Petitioner is a corporation duly organized under the laws of the State of New Jersey and qualified to do business is one State of Florida. Two of the subsidiaries of Petitioner are Island Properties, Inc., formerly known as Heftler International, Inc., and Island Land Corporation, formerly known as Heftler Construction Company of Puerto Rico, Inc. These corporations are organized under the laws of the State of Florida and the State of New Jersey respectively and maintain principal places of business in Puerto Rico. For the fiscal years ending July 31, 1972 and July 31, 1973, petitioners properly included losses from the operations of the Puerto Rico corporations in their consolidated income tax returns filed with the Internal Revenue Service. For the fiscal years ending July 31, 1972, and July 31, 1973, petitioners timely filed with the respondent consolidated income tax returns including therein the operations of the Puerto Rico corporations. After a timely audit, the respondent excluded, for the purposes of computing adjusted federal income as defined by 220.13, the losses sustained by the Puerto Rico corporations. The respondent also excluded from the computation of the apportionment factors defined in F.S. s. 214.71 and 220.15 the value of the property, payroll and sales utilized in the operations of the Puerto Rico corporations. The respondent cited F.S. ss. 220.13(1)(b)2.b, 220.15(3) and 214.71 as its authority. The adjustments made by the respondent results in a net proposed deficiency of $75,076.46 for the two fiscal years in question. After attempts by the parties to resolve the issues by informal means failed, the petitioner requested a formal hearing and the respondent requested the Division of Administrative Hearings to conduct the hearing.
Recommendation Based upon the above findings of fact and conclusions of law, it is recommended that there is no basis for affording petitioners any relief from the proposed deficiency and that said deficiency in the amount of $75,076.46 be sustained. Respectfully submitted and entered this 20th day of November, 1975, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Lewis M. Kanner, Esquire WILLIAMS, SALOMON, KANNER DAMIAN 1003 du Pont Building Miami, Florida 33131 E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 Mr. J. Ed Straughn Executive Director Department of Revenue Tallahassee, Florida 32304
The Issue Whether Petitioners are liable for sales and use tax, penalty, and interest as assessed by the Department of Revenue (the Department)?
Findings Of Fact Salma is a Florida corporation with its principal place of business at 2231 Del Prado Boulevard, Cape Coral, Florida, 33990. Gausia is a Florida corporation with its principal place of business at 11571 Gladiolus Drive, Fort Myers, Florida, 33908. Petitioners are in the business of operating gas stations with convenience stores. The Department is an agency of the State of Florida and is authorized to administer the tax laws of the State of Florida. Petitioners were selected for audit because their reported gross sales were less than the total cost of items purchased (inventory) for the audit period. The Department issued Salma and Gausia each a Notice of Intent to Conduct a Limited Scope Audit or Self-Audit, dated April 26, 2013, for sales and use tax, for the period February 1, 2010, through January 31, 2013 (collectively referred to as the Notices). The Notices requested that Petitioners provide the Department: (a) a list of all their vendors for alcohol, tobacco, soda, chips, candy, etc.; (b) their total purchases of alcohol and tobacco, by vendor, for the period July 2010 to June 2011; (c) copies of their federal tax returns for the examination period; (d) purchase receipts for all purchases for the last complete calendar month; and (e) daily register (Z tapes) for the last complete calendar month. The Notices gave Petitioners 60 days to gather the requested documents before the audit was to commence. The Notices also requested that Petitioners complete an attached Questionnaire and Self Analysis Worksheet. In response to the Notices, Petitioners requested a 30- day extension of time until July 18, 2013, to provide the requested documents and to designate a Power of Attorney. Petitioners did not provide the Department any books and records for inspection, nor did they complete and return the questionnaire and self analysis worksheets. As a result, the Department's auditor determined the sales tax due based upon the best information available. To calculate an estimated assessment of sales tax, the Department used the purchase data of Petitioners' wholesalers and distributors of alcoholic beverages and tobacco, for July 1, 2010, through June 30, 2011; the 2010 National Association of Convenience Stores average markups and in-store sales percentages of alcoholic beverage and tobacco products; and historical audit data. After reviewing the purchase data for July 1, 2010, through June 30, 2011, and for July 1, 2011, through June 30, 2012, the Department's auditor determined that the data was missing a few vendors. As a result, the Department's auditor estimated the amount of Petitioners' cigarette purchases, based on historical audit data that shows that cigarette sales are generally 4.31 times more than beer sales. The Department's auditor and audit supervisor testified that the estimated gross sales seemed reasonable and consistent with the national averages and the purchase data for July 1, 2011, through June 30, 2012. The Department estimated gross sales (i.e., the retail sale value of the goods sold) by marking up the taxable sales and exempt sales reported on the sales and use tax returns submitted to the Department by Petitioners. For example, for July 1, 2010, through June 30, 2011, Salma purchased beer from its wholesalers and distributors for $148,826.15, and the Department marked up the purchase price by 27 percent for a retail value of $189,009.21. For July 1, 2010, through June 30, 2011, Gausia purchased beer from its wholesalers and distributors for $132,138.65, and the Department marked up the purchase price by 27 percent for a retail value of $167,816.09. The Department's markup on the alcoholic beverage and tobacco products is reasonable because the Department's auditor testified that he used a combination of 2010 National Association of Convenience Stores average markups and the competitive pricing and information from audits of other convenience stores. The Department determined that the exemption ratio reported on the sales and use tax returns submitted to the Department by Petitioners was extremely high for their industry. The Department used an exemption ratio of 15 percent, based on historical audit data for the industry, to calculate Petitioners' estimated taxable sales. A review of Petitioners' sales and use tax returns revealed that they did not apply the tax bracket system to their taxable sales transactions, as required under sections 212.12(9) and (10), Florida Statutes. Instead, Petitioners remitted sales tax on their taxable sales based on their gross receipts at a flat tax rate. The Department's auditor testified that this method of reporting tax is inappropriate and does not accurately reflect the sales activity of the business. The Department calculated the average effective tax rate of 6.0856 percent, based on historical audit data for the industry. To calculate the estimated tax due, the Department multiplied the effective tax rate by the estimated taxable sales and gave Petitioners credit for any tax remitted with their tax returns. The Department issued Salma a Notice of Intent to Make Audit Changes, dated August 8, 2013, for audit number 200149872. The Department issued Gausia a Notice of Intent to Make Audit Changes, dated August 8, 2013, for audit number 200149749. The Department assessed Petitioners sales tax on their sales of alcoholic beverages and tobacco. The Notice of Intent to Make Audit Changes gave Petitioners 30 days to request a conference with the auditor or audit supervisor, to dispute the proposed changes. Petitioners did not make such a request. The Department issued a Notice of Proposed Assessment (NOPA) to Salma on March 6, 2014, for tax in the sum of $159,282.26; for penalty in the sum of $39,820.57; and interest as of March 6, 2013, in the sum of $27,772.36. The Department issued a NOPA to Gausia on March 6, 2014, for tax in the sum of $213,754.46; for penalty in the sum of $53,438.62; and interest as of March 6, 2013, in the sum of $36,921.79. Additional interest accrues at $30.55 per day until the tax is paid. The NOPAs became final assessments on May 5, 2014. After filing a request for an administrative hearing, Petitioners completed the Questionnaire and Self Analysis Worksheet and produced the following documents to the Department: (a) a list of all of their vendors for alcohol, tobacco, soda, chips, candy, etc.; (b) a list of vendors for alcohol and tobacco, for the examination period of July 2010 to June 2011; (c) a summary of their taxable sales, for the period February 2010 through December 2012; (d) copies of their federal tax returns, for the tax years 2010 through 2013; (e) copies of its purchase receipts for the months of July 2013; and (f) copies of their daily register (Z-tapes) for the month of July 2013. The Department's auditor testified that aside from being untimely, the records and information provided by Petitioners during these proceedings were not reliable because Petitioners did not provide any source documents that would allow the Department to reconcile the reported figures and confirm the supplied information. In addition, the purchase receipts and Z- tapes were not relevant because they were from outside of the audit period. The Z-tapes are also unreliable because the manager of the convenience store testified at the final hearing that employees purposely and routinely entered taxable sales into the cash registers as tax exempt sales. Petitioners argue that the Department did not use the best information available when estimating the taxes due. Petitioners claim that because their businesses are combination gas station/convenience stores, the national data for standalone convenience stores is inapplicable. However, notably absent from Petitioners' testimony or evidence was any alternative data upon which the Department could have relied for more accurate estimates.2/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order denying Petitioners' requests for relief and assessing, in full, the Department's assessments of sales tax, penalty, and interest against both Salma and Gausia. DONE AND ENTERED this 9th day of January, 2015, in Tallahassee, Leon County, Florida. S MARY LI CREASY 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 9th day of January, 2015.
Findings Of Fact The facets herein are undisputed. On May 31, 1973 Petitioner purchased Thomas Concrete Company, and on February 28, 1973 Petitioner purchased Kelly Builders, Inc. Both companies were forthwith liquidated and federal income tax returns were filed in which depreciation in excess of fair value of the properties was recaptured for federal tax purposes. In his state corporate income tax returns Petitioner claimed deduction for that portion of the recaptured depreciation which occured prior to November 2, 1971, the effective date of the Florida Corporate Income Tax Statute. These deductions were disallowed by the Department of Revenue, that portion of the tax relating to Thomas Concrete Company was paid under protest, the portion relating to Kelly Builders, Inc. was not paid, and this petition was filed. In 1974 Petitioner sold real property on which it made a substantial capital gain. In computing its federal income tax the full capital gain was reported. However, that portion of its capital gain accruing prior to November 2, 1971 was excluded from its Florida corporate income tax and the assessment of $50,494.75 was levied against Petitioner by Respondent, Department of Revenue for the full amount of the capital gain as income received in 1974. The two issues here involved are whether Petitioner is taxable under Chapter 220 F.S. on depreciation taken prior to the effective date of Chapter 220, and subsequently recaptured, and whether Petitioner is taxable under Chapter 220, F.S. for the full amount of capital gain realized on property held prior to the effective date of Chapter 220 where part of appreciation occurred prior to the effective date of the Florida Corporate Income Tax law.
