The Issue Is the Respondent's assessment for corporate income tax and interest for the tax years ending 12/31/78, 12/31/79, and 12/31/80 appropriate, and may it be properly imposed upon Petitioner?
Findings Of Fact The instant dispute between the parties arose out of how the substantial business interests of Petitioner Murray Kramer Corp. are to be defined and by what accounting method its corporate income tax assessments are to be made. Milton P. Weiss, C.P.A., is Petitioner's accountant and qualified representative for purposes of this proceeding. He is neither an internal bookkeeper for the corporation nor a corporate officer thereof. At all times material, Petitioner was conducting business, deriving income, or existing within the State of Florida, pursuant to Chapter 220, F.S. Petitioner invests primarily through partnerships. Among Petitioner's holdings and investments is ownership of an orange grove in the State of Florida from which it derived income by way of the sales of citrus fruit grown in Florida during the taxable years at issue: 1978, 1979, and 1980. The orange grove constitutes real and tangible property in Florida for purposes of Florida's corporate income tax. Petitioner has consistently filed Florida corporate income tax returns on a "separate accounting" basis since the inception of Florida's Corporate Income Tax Law on January 1, 1972. Petitioner used this method for the years at issue: 1978, 1979, and 1980. It did so without petitioning the Respondent Department of Revenue for permission at or before the filing of the returns to use the "separate accounting" method to determine the Florida tax base. Accordingly, Petitioner did not receive prior written permission from the Department to use the "separate accounting" method for those years, and the Department did not require that the Petitioner use the "separate accounting" method in those years. Nonetheless, Petitioner asserts that its pattern of using the "separate accounting" method for six years put the Department on sufficient notice that the corporate taxpayer would continue to use that method indefinitely and further asserts that it was therefore entitled to use such a "separate accounting" method on the basis of its prior consistent usage. Petitioner's Florida corporate returns declare investment income from dividends, interest, gains from securities, partnership income, and income from its orange grove located in Florida. In each of the disputed tax years, Petitioner entered its federal taxable income on Line 1 of the Florida Corporation Income Tax Return, FORM F-1120. This amount is not at issue and is accepted as a "given" by both parties. However, in each of the disputed tax years, Petitioner did not complete the apportionment schedule on Page 3 of the respective returns. Instead of using the apportionment method, Petitioner computed what it characterized as "Florida Profit" or "Florida Income" on a schedule it attached, based totally on the profits it derived from the Florida orange grove and then inserted that amount on Line 6, Florida Portion of Adjusted Federal Income, of the "Computation of Florida Tax Liability" on the Florida return. This entry did not relate computationally to the amount of federal taxable income reported federally on Line 1. All gross receipts from the sale of citrus fruit by Petitioner were derived from sales made to Zellwood Fruit Distributors. This dollar amount is also undisputed. Petitioner received payment from its Florida orange grove operation in the form of checks drawn by Zellwood. Approximately June 20, 1983, Respondent Department of Revenue made an initial audit of Petitioner's books and records for the taxable years in question. Respondent's auditor assigned at that time had full and free access to Petitioner's books and records. He and his supervisor memorialized their view that the "separate accounting" method employed by Petitioner was proper, but this judgment call (by the auditor on June 29, 1983 and by his supervisor on July 1, 1983) was in the nature of free-form agency action and was neither accepted nor formalized by their superiors within the agency who ultimately determined that the Petitioner should have employed the "apportionment" method and that the burden was upon the Petitioner even under the apportionment method to establish that one hundred percent of its income was not derived in Florida. The Respondent Department therefore determined the tax owed by Petitioner upon the basis of 100% of Petitioner's income as opposed to the yearly percentages that Petitioner had unilaterally assigned to its orange grove, and issued its Revised Notice of Intent to Make Corporate Income Tax Audit Changes on November 7, 1983. Florida's apportionment formula is a three-factor function which takes selected business activities of the taxpayer and computes the portion of that activity attributable to Florida, divided by that activity everywhere. A composite of the subtotal of those three measures (payroll, sales, and property) of business activity are used to compute Florida's share of the "everywhere" base that would be available under the adjusted federal taxable income base. See, Section 214.71(1), F.S. The Department calculated the tax using the three statutorily recognized apportionment factors of payroll, sales, and property. Concerning the first apportionment factor, payroll, Petitioner had federally reported no amount of payroll, and therefore this factor was determined by the Department to be zero, and pursuant to Section 220.15, F.S., the payroll factor was eliminated and the other two factors were used exclusively. Concerning the sales factor, all gross receipts of the orange grove were considered to be derived within the State of Florida, and all gross income attributable to intangible personal property was excluded from the sales factor, pursuant to Section 220.15(1), F.S. Concerning the property factor, the Department determined that all real and tangible personal property was within the State of Florida. The situs of the intangible property was not established by the taxpayer. Therefore, because Section 214.71, F.S. limits the construction of the property factor to include only "real and tangible personal property," it was thus determined to exclude intangible property. The Respondent Department of Revenue issued its Notice of Proposed Assessment on November 16, 1983, showing a balance of $10,596.00 ($7308.00 tax, $275.00 penalty, and $3,013.00 interest computed through October 31, 1983, plus notice of daily interest of $2.40 per day from November 1, 1983 until paid.) Petitioner timely availed itself of informal protest procedures, and the Department issued its Notice of Decision on March 15, 1985. By its June 21, 1988 Notice of Reconsideration, the Department concluded its informal proceedings and denied Petitioner's assertion of the right to use a "separate accounting" method and further denied Petitioner's challenge to the Department's assessment by the "apportionment" method, which in this instance had not made any apportionment for "outside Florida" activities. The situs of intangible personal property was not sufficiently demonstrated by the Petitioner at formal hearing. The Petitioner also did not establish that it owns real or tangible personal property outside Florida. Zellwood Fruit Distributors provided Petitioner Murray Kramer with letters attesting that, based upon information received from Winter Gardens Citrus Products Cooperative, Winter Gardens' sales percentages in the State of Florida were as follows: 1979 1980 18.60% 21.07% Zellwood provided no such figures to Petitioner for the year 1978. Petitioner contends, on the basis of the after the fact Zellwood letters, that Zellwood was a member of Winter Gardens, a cooperative, and Murray Kramer was an associate grower of Zellwood. At formal hearing, no one from Zellwood or Winter Gardens testified; no contract between Petitioner Murray Kramer and either Zellwood or Winter Gardens was introduced to prove agency; no bills of lading, sales slips, corporate documents, or other connective link among the three entities was offered in evidence; nor was any primary, direct, non-hearsay evidence of sales amounts or situs of Winter Gardens' sales offered by Petitioner. Milton Weiss, Petitioner's accountant, asserted that if a straight "apportionment" (not "separate accounting") calculation had been made for the income derived in Florida by Petitioner, percentages would be: 1978 1979 1980 24.03% 15.31% 15.01% These percentages rely in part on what are clearly the out-of-court statements of Zellwood's correspondent, relaying further out-of-court statements from Winter Gardens Citrus. (See the immediately preceding Finding of Fact). Neither of these out-of-court hearsay statements is such as may be used to supplement or explain direct evidence, since no direct, primary source evidence of these sales or income has been presented before the undersigned in this de novo proceeding. See, Section 120.58(1), F.S. Petitioner has not directly paid wages during the tax years at issue. Petitioner has not produced any federal partnership tax returns nor other persuasive proof to account for the return on its investments through partnership channels. During the tax years at issue, Petitioner was not a member of a Florida cooperative, as that term, "cooperative," is used in Section 214.71(3)(a)2, F.S. (See Finding of Fact 15). Petitioner was unable, by evidence of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs, to establish that all amounts other than the percentages of gross income Petitioner had assigned by either of the alternative accounting methods was generated outside of the State of Florida. In so finding, the undersigned specifically rejects Petitioner's assertion that the initial audit report of June 1983 could, by itself alone, legally or factually establish that only the orange grove income was Florida income, that Petitioner's Florida income was solely from the orange grove, that the interest, dividends, and gains on securities sales were not derived in Florida, that the Petitioner taxpayer received rent income from partnerships, that the partnership real estate which gave rise to the rent income was 100% outside Florida, or that the Respondent's initial audit "verified" the figures needed to compute the sales factor, the figures for the property factor, and the figures for the payroll factor of the "apportionment" method for the following reasons: In addition to the first auditor's report being free-form agency action which was ultimately rejected by the agency, and in addition to the failure of either the first auditor or his supervisor to testify in the instant Section 120.57(1) de novo proceeding as to the accuracy of the underlying primary documentation which Petitioner Murray Kramer claimed the first auditor had apparently reviewed, Petitioner did not offer in evidence at formal hearing any such direct evidence documentation which it claimed had been reviewed by the auditors. Further, Respondent's successive auditor, Mr. Siska, testified that it is auditor practice to only examine those books and records individual auditors believe to be necessary to complete the audit. This discretionary element eliminates any guarantee of what the initial auditor relied upon. For the same reasons, Petitioner's assertion that the Internal Revenue Service (IRS) audit of its books and records for the year 1979 "verifies" that the Petitioner's books and records accurately reflect the transactions that took place, is rejected. Petitioner Murray Kramer had admitted a letter (P-10) notifying the corporation that the IRS' "examination of ... tax returns for the above periods shows no change as required in the tax reported. The returns are accepted as filed." The tax period indicated on this exhibit is "7912", which is not helpful, and even if it means, as Mr. Weiss testified, that the 1979 federal tax return which is part of the Florida Corporate Tax Return is accurate under federal law, this IRS letter alone does not verify all the underlying documentation for all three years in question. Also, specifically with regard to investments made through other entities, Mr. Weiss' testimony suggests that the wages paid and partnership returns of these other entities never were in the possession of, nor accessible by, this Petitioner. Petitioner's reliance on its federal returns is apparently based, in part, at least, upon its assertion that it is a "financial institution" as defined in Sections 214.71(3)(b) and 220.15(2), F.S., but the presentation quality of evidence in this case does not permit of such a finding, either. Petitioner has paid no portion of the assessed taxes.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a Final Order which dismisses the Petition and affirms the assessment. DONE and ORDERED this 26th day of June, 1989, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-4100 The following constitute rulings, pursuant to Section 120.59(2), F.S. upon the parties' respective proposed findings of fact (PFOF). Petitioner's PFOF: 1, 6. Accepted. 2, 9, 10, 11, 17, 19. Rejected for the reasons set out in the Recommended Order. 3, 5, 7, 8, 12, 14, 16. Accepted but not dispositive of any material issue for the reasons set forth in the Recommended Order. With regard to item 8, specifically, this determination is non-binding in the de novo proceeding. 4. Rejected upon the citation given as not proved or applicable as stated. 13. Accepted in part and rejected in part as not proved or applicable as stated. See Conclusions of Law 11-12. 15, 18. Rejected as out of context and misleading upon the record as a whole, and as not dispositive of any material issue, and as subordinate and unnecessary to the facts as found. Respondent's PFOF: 1, 2, 3, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18. Accepted. 4, 5. Accepted in part; what is not adopted is subordinate or unnecessary to the facts as found. 17. Accepted, but by itself is not dispositive of any material issue at bar, for the reasons set out in the Recommended Order. COPIES FURNISHED: Milton P. Weiss, C.P.A. 686 Hampstead Avenue West Hampstead, New York 11552 Jeffrey M. Dikman, Esquire Assistant Attorney General Tax Section Department of Legal Affairs The Capitol Tallahassee, Florida 32399-1050 Sharon A. Zahner, Esquire Assistant General Counsel Department of Revenue Room 204, Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668 William D. Townsend, Esquire General Counsel 203 Carlton Building Tallahassee, Florida 32399 Katie D. Tucker, Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100 Milton P. Weiss, C.P.A. 3091 North Course Drive Pompano Beach, Florida 33069 =================================================================
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 On a date prior to November 2, 1971, petitioner exchanged property it then held for property it now holds. This transaction resulted in a capital gain for petitioner, although recognition of the gain has been deferred for federal tax purposes. For such purposes, petitioner's basis in the property it presently holds is deemed to be the same as its basis in the property it formerly held. On its own books, however, petitioner has stated its basis in the property it now holds as the market value of the property at the time it was acquired. This figure is higher than the figure used for federal tax purposes. Working from this higher figure, petitioner states larger depreciation allowances on its own books than it claims for federal tax purposes. On its 1973 Florida corporation income tax return, petitioner claimed these depreciation allowances instead of the smaller depreciation allowances it claimed on its federal income tax return for the same period.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent assess a deficiency against petitioner based on the income not stated in its 1973 return because of its unauthorized depreciation claim, together with interest and applicable penalties. DONE and ENTERED this 2nd day of February, 1979, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Joseph Philip Rouadi, C.P.A. 781 Wymore Road Maitland, Florida 32751 E. Wilson Crump, Esquire Post Office Box 5557 Tallahassee, Florida
The Issue The issue in this case is whether the Petitioner owes State of Florida use tax and local government infrastructure tax on the alleged use of three airplanes.
Findings Of Fact Charles and Dorothy Tolbert own and operate American Aircraft International, Inc. (American). American is in the business primarily of selling and brokering aircraft sales. Most of American's business involves brokering in which American earns a commission or fee for putting together a seller and buyer and bringing the transaction to a conclusion. On a much less frequent basis, American will purchase an airplane for resale. American advertises the availability of its airplanes, both brokered and American-owned, for either sale or lease. However, American has not had occasion to lease one of its own aircraft except as part of a lease-purchase agreement. American does not make any other use of airplanes it offers for sale or lease, except as necessary for maintenance and repairs and for demonstration to prospective purchasers or lessees. Such use would be cost-prohibitive. Fuel, crew, and insurance costs would be well in excess of the cost of a ticket on a commercial airline. American's insurance policy only covers the use of the planes for demonstration and maintenance purposes. On February 6, 1990, American traded for a King Air 200, N56GR, serial number 059, at an acquisition value of $650,000. The King Air 200 was delivered to American from Carlisle, Kentucky, and held by American for resale purposes only and was flown only for purposes of maintenance and repairs and for demonstration to prospective purchasers. When it was sold in 1991 to an English company, BC Aviation, Ltd., American had flown the aircraft only 7 hours. The aircraft was delivered out-of- state in May 1991. In July 1991, American bought a kit for a home-built aircraft called the Renegade, serial number 445. The kit was manufactured and sold by a company in British Columbia, Canada. American's intent in purchasing the kit was to build the airplane and decide whether to become a dealer. It took a year and a half to build, and by the time it was completed, American decided not to pursue the dealership. In September of 1991, American sold the Renegage to the Tolberts. The Tolberts registered the Renegade in September 1994, under N493CT. At first, the Tolberts did not pay sales tax on their purchase of the Renegade. They thought that, since they owned American, no sales tax was due. When the Department audited American and pointed out that sales tax was due, the Tolberts paid the tax in December 1994. In 1991, American also purchased a King Air B90, N988SL, serial number LJ438, for $175,000. The King Air B90 was held by American for resale purposes only and was flown only for purposes of maintenance and repairs and for demonstration to prospective purchasers. In July 1991, American sold the aircraft to Deal Aviation of Chicago, Illinois. However, Deal could not qualify for its own financing, so American agreed to lease-sell the aircraft to Deal. Under the lease-purchase agreement entered into on July 21, 1991, the purchase price was $269,000, payable $4,747.85 a month until paid in full. (The agreement actually said payments would be made for 84 months, but that would amount to total payments well in excess of the purchase price; the evidence did not explain this discrepancy.) American continued to hold title to the aircraft and continued to make payments due to the bank on American's financing for the aircraft. The lease- purchase agreement must have been modified, or payments accelerated, because American transferred title to the aircraft in April 1993. The Department asserted that a Dolphin Aviation ramp rental invoice on the King Air B90 issued in August for the month of September 1991 reflected that the aircraft was parked at the Sarasota-Bradenton Airport at the time of the invoice, which would have been inconsistent with American's testimony and evidence. But the invoice contained the handwritten notation of Dorothy Tolbert that the airplane was "gone," and her testimony was uncontradicted that she telephoned Dolphin when she got the invoice and to inform Dolphin that the invoice was in error since the plane had not been at the ramp since Deal removed it to Illinois on July 21, 1991. As a result, no ramp rent was paid after July 1991. Indeed, the Department's own audit schedules reflect that no ramp rent was paid on the King Air B90 after July 1991. The Department also presented an invoice dated September 16, 1991, in the amount of $3400 for engine repairs done on the King Air B90 by Hangar One Aviation in Tampa, Florida. The invoice reflects that the repairs were done for American and that they were paid in full on September 19, 1991, including Florida sales tax. The Department contended that the invoice was inconsistent with American's testimony and evidence. But although American paid for these repairs, together with Florida sales tax, Mrs. Tolbert explained that the repairs were made under warranty after the lease-purchase of the airplane by Deal. A minor engine problem arose soon after Deal removed the airplane to Illinois. Deal agreed to fly the plane to Hangar One for the repairs, and American agreed to pay for the repairs. After the repairs were made, Hangar One telephoned Mrs. Tolbert with the total, and she gave Hangar One American's credit card number in payment. She did not receive American's copy of the invoice until later. She does not recall if she: noticed the Florida sales tax and did not think to question it; noticed it and decided it was not enough money ($179) to be worth disputing; or just did not notice the Florida sales tax. When American's certified public accountant (CPA), Allan Shaw, prepared American's federal income tax return for 1990, he included the King Air 200 as a fixed capital asset on the company's book depreciation schedule and booked $26,146 of depreciation on the aircraft for 1990 on a cost basis of $650,000. For federal tax purposes, he took the maximum allowable depreciation deduction on the aircraft ($92,857) by attributing a seven-year life to the aircraft and using the double declining balance method of calculating depreciation. The next year, 1991, Shaw included the both the King Air B90 and the Renegade as fixed capital assets on the company's book depreciation schedule. He booked $9,378 of depreciation on the B90 on a cost basis of $175,000 and $1,872 on the Renegade on a cost basis of $25,922 for part of the year 1991. For federal tax purposes, he took the maximum allowable depreciation deduction on the B90 ($12,507) by attributing a seven-year life to the aircraft and using the double declining balance method of calculating depreciation. This depreciation was subtracted from the "gross income from other rental activities" on Schedule K of the return in the amount of $22,796, which represented the payments from Deal under the lease-purchase agreement. The Renegade was depreciated for the same amount as its book depreciation, and no income was recorded as having been generated from use of the Renegade. The next year, 1992, Shaw again included the both the King Air B90 and the Renegade as fixed capital assets on the company's book depreciation schedule. He booked $35,613 of depreciation on the B90 and $5,555 on the Renegade. For federal tax purposes, he took the maximum allowable depreciation deduction on the B90 ($25,014) by attributing a seven-year life to the aircraft and using the double declining balance method of calculating depreciation. This depreciation was subtracted from the "gross income from other rental activities" on Schedule K of the return in the amount of $51,737, which again represented the payments from Deal under the lease-purchase agreement. The Renegade was depreciated for the same amount as its book depreciation, and no income was recorded as having been generated from use of the Renegade. It is not clear from the evidence why American's CPA decided American was entitled to claim depreciation on the three aircraft in question. (Shaw also depreciated another airplane in 1989 which was before the period covered by the Department's audit.) Shaw's final hearing and deposition testimony was confusing as to whether he recalled discussing the question with the Tolberts. He may have; if he did, he probably discussed it with Mrs. Tolbert. Meanwhile, Mrs. Tolbert does not recall ever discussing the question of depreciation with Shaw. In all likelihood, Shaw probably made his own decision that American could depreciate the airplanes to minimize income taxes by claiming that they were fixed capital assets used in the business and not just inventory items being held for resale. For the King Air B90, there were lease payments Shaw could use to justify his decision; but there were no lease payments for the King Air 200 or the Renegade. The evidence was not clear whether there were lease payments for the airplane Shaw depreciated in 1989. For the next year, 1993, Shaw included the Renegade as a fixed capital asset on the company's book depreciation schedule and booked $7,712 of depreciation on the Renegade. For federal tax purposes, the Renegade was depreciated for the same amount as its book depreciation, and no income was recorded as having been generated from use of the Renegade. When the Department audited American starting in July 1994, tax auditor William Berger saw the depreciation schedules and tax returns, both of which indicated to him that the three airplanes in question were used by the company, but no sales or use tax was paid on them. (He also pointed out the Tolberts' failure to pay sales tax on the purchase of the Renegade from American, and the Tolberts later paid the tax, as previously mentioned.) As a result, on July 26, 1995, the Department issued two notices of intent. One was to make sales and use tax audit changes which sought to assess American $56,097.77 in use taxes, together with delinquent penalties of $14,657.36 and interest through July 26, 1995, in the amount of $31,752.61, for a total of $102,507.74, with subsequent interest accruing at the rate of $18.44 per day. The second was to make local government infrastructure surtax audit changes which sought to assess American $609.99 in the surtax, together with delinquent penalties of $163.14 and interest through July 26, 1995, in the amount of $256.33, for a total of $1,029.46, with subsequent interest accruing at the rate of $.20 per day. It is not clear from the record how the Department arrived at the use tax and surtax figures. The alleged use tax assessment should have been calculated as $51,061.32 (six percent of the acquisition costs of the airplanes), and the alleged surtax assessment should have been calculated at the statutory maximum of $50 per item, for a total of $150. On August 28, 1995, American made a partial payment of $5,496.44 on the Department's use tax and surtax audit change assessments, intending to leave a disputed assessed amount of $51,061.32 in use tax and $150 in surtax. It is not clear from the record what American intended the $5,496.44 to apply towards. American filed an Informal Protest of the use tax and surtax audit change assessments on February 26, 1996. The Informal Protest contended that the use tax and surtax were not due and that the federal income tax depreciation schedules were "not determinative." On October 6, 1996, the Department issued a Notice of Decision denying American's protest primarily on the ground that the depreciation of the aircraft for federal income tax purposes constituted using them for use tax purposes. After receiving the Notice of Decision, on November 4, 1996, American filed amended tax returns to remove the depreciation of the airplanes (together with the "gross income from other rental activities" on Schedule K of the 1991 return). (Although CPA Shaw refused to admit it, it is clear that American's federal income tax returns were amended in order to improve its defense against the Department's use tax and surtax assessments.) As a result of the amended returns, American had to pay an additional $15,878 in federal income tax on the 1990 return; there was no change in the tax owed on any of the other returns. On November 6, 1996, American filed a Petition for Reconsideration on the ground that the returns had been amended and the additional federal income tax paid. On January 10, 1997, the Department issued a Notice of Reconsideration denying American's Petition for Reconsideration on the ground that "subsequent modifications made to the federal income tax returns will have no affect [sic] upon" the use tax and surtax assessments.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order withdrawing the assessment of use tax and local government infrastructure surtax, delinquent penalties, and interest against American. RECOMMENDED this 3rd day of October, 1997, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SUNCOM 278-9675 Fax FILING (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of October, 1997. COPIES FURNISHED: Harold F. X. Purnell, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551 Albert J. Wollermann, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Linda Lettera, Esquire Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Pursuant to a stipulation, the following facts are found. Petitioner is a West Virginia corporation, organized under the laws of that state on January 4, 1958. Prior to June 1, 1962, it operated an automobile dealership in Huntington, West Virginia. On June 1, 9162, Petitioner exchanged assets of its automobile dealership for fifty (50 percent) percent of the capital stock of Dutch Miller Chevrolet, Inc., a West Virginia corporation organized to succeed the automobile dealership formerly operated by the Petitioner. Prior thereto, in 1961, the Petitioner had acquired one hundred percent (100 percent) of the capital stock in Palm Beach Motors (the name of which was changed on August 10, 1961 to Roger Dean Chevrolet, Inc.). Roger Dean Chevrolet, Inc. is a wholly owned subsidiary of the Petitioner which operated on property owned by the Petitioner. The years involved herein are the fiscal years ending December 31, 1972 and 1973, during which years the Petitioner's principal income (except for the gain involved herein) consisted of rents received from Roger Dean Chevrolet, Inc. Petitioner and its subsidiary filed consolidated returns for the years involved. During the fiscal year ending December 31, 1972, Petitioner sold its stock in Dutch Miller Chevrolet, Inc. to an unrelated third party for a gain determined by the Respondent to be in the amount of $349,217.00, which, although the sale took place out of the State of Florida, the Respondent has determined to be taxable under the Florida Income Tax Code* (Chapter 220, Florida Statutes). In the fiscal years ending December 31, 1972 and 1973, Petitioner included in Florida taxable income, the amounts of $76.00 and $6,245.00, respectively, from the sale of property on April 23, 1971, such gain being reported for federal income tax purposes on the installment method under Section 453 of the Internal Revenue Code of 1954. Roger H. Dean, individually or by attribution during the years involved herein, was the owner of one hundred (100 percent) percent of the stock of Roger Dean Enterprises, Inc. and seventy-five (75 percent) percent of the stock of Florida Chrysler-Plymouth, Inc. The remaining twenty-five (25 percent) percent of Florida Chrysler-Plymouth, Inc. was owned by Robert S. Cuillo, an unrelated person. The Respondent disallowed the $5,000.00 exemption to the Petitioner in computing its Florida corporate income tax for each of the years in question on the theory that the two corporations were members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code of 1954. By letter dated April 13, 1976, the Respondent advised Petitioner of its proposed deficiencies for the fiscal years ending December 31, 1972 and 1973, in the respective amounts of $19,086.25 and $1,086.79. Within sixty (60) days thereafter (on or about May 10, 1976), Petitioner filed its written protest in response thereto. By letter dated May 27, 1976, the Respondent rejected the Petitioner's position as to the stock sale gain and exemption issues. Thereafter on September 17, 1976, a subsequent oral argument was presented at a conference held between the parties' representatives in Tallahassee, and by letter dated September 23, 1976, Respondent again rejected Petitioner's position on all pending issues raised herein. The issues posed herein are as follows: Whether under the Florida Corporate income tax code, amounts derived as gain from a sale of intangible personal property situated out of the State of *Herein sometimes referred to as the Code. Florida are properly included in the tax base of a corporation subject to the Florida code. Whether amounts derived as installments during tax years ending after January 1, 1972, from a sale made prior to that date are properly included in the tax base for Florida corporate income tax purposes. Whether two corporations one of whose stock is owned 100 percent by the same person who owns 75 percent of the stock in the other, with the remaining 25 percent of the stock in the second corporation being owned by an unrelated person, constitute members of a control group of corporations as defined by Section 1563 of the Internal Revenue Code of 1954. Many states, in determining corporate income tax liability, utilize a procedure generally referred to a "allocation" to determine which elements of income may be assigned and held to a particular jurisdiction, where a corporation does business in several jurisdictions. By this procedure, non- business income such as dividends, investment income, or capital gains from the sale of intangibles are assigned to the state of commercial domicile. This approach was specifically considered and rejected when Florida adopted its corporate income tax code. Thus, in its report of transmittal of the corporate income tax code to the legislature, at page 215, it was noted: "The staff draft does not attempt to allocate any items of income to the commercial domicile of a corporate taxpayer. It endeavors to apportion 100 percent of corporate net income, from whatever source derived, and to attribute to Florida its apportionable share of all the net income." Additional evidence of the legislature's intent in this area can be seen by noting that when the corporate income tax code was adopted, Florida repealed certain provisions of the Multi-state Tax Compact (an agreement for uniformity entered into among some twenty-five states). Thus, Article IV, Section (6)(c), a contained in Section 213.15, Florida Statutes, 1969, which previously read: "Capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial domicile is in this state", was repealed by Chapter 71-980, Laws of Florida, concurrently with the adoption of the Corporate Income Tax Code. This approach has survived judicial scrutiny by several courts. See for example, Johns-Mansville Products Corp. v. Commissioner of Revenue Administration, 343 A.2d 221 (N.H. 1975) and Butler v. McColgan, 315 U.S. 501 (1942). Respecting its constitutional argument that amounts derived as installments during tax years subsequent to January 1, 1972, from a sale made prior to the enactment of the Florida Corporate Income Tax Code, the Petitioner concedes that the Code contemplates the result reached by the proposed assessment. However, it argues that in view of the constitutional prohibition which existed prior to enactment of the Code, no tax should now be levied based on pre-Code transactions. The Florida Supreme Court in the recent case of the Department of Revenue v. Leadership Housing, So.2d (Fla. 1977), Case No. 47,440 slip opinion p. 7 n. 4, cited with apparent approval the decision in Tiedmann v. Johnson, 316 A.2d 359 (Me. 1974). The court in Tiedmann, reasoned that the legislature adopted a "yard-stick" or measuring device approach by utilizing federal taxable income as a base, and reasoned that there was no retroactivity in taxing installments which were included currently in the federal tax base for the corresponding state year even though the sale may have been made in a prior year. The Respondent denied the Petitioner a $5,000.00 exemption based on its determination that the two corporations herein involved were members of a controlled group of corporations as defined in Section 1563 of the Internal Revenue Code. Chapter 220.14(4), Florida Statutes, reads in pertinent part that: "notwithstanding any other provisions of this code, not more than one exemption under this section shall be allowed to the Florida members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code with respect to taxable years ending on or after December 31, 1972, filing separate returns under this code." Petitioner's reliance on the case of Fairfax Auto Parts of Northern Virginia, 65 T.C. 798 (1976), for the proposition that the 25 percent ownership of an unrelated third party in one of the corporations precluded that corporation and the Petitioner from being considered a "controlled group of corporations" within the meaning of Section 1563 of the Internal Revenue Code, is misplaced in view of the recent reversal on appeal by the Fourth Circuit. Fairfax Auto Parts of Northern Virginia v. C.I.R., 548 F.2d 501 (4th C.A. 1977). Based thereon, it appears that the Respondent correctly determined that the Petitioner and Florida Chrysler-Plymouth, Inc., were members of the same controlled group of corporations as provided in Section 1563 of the Internal Revenue Code and therefore properly determined that Petitioner was not entitled to a separate exemption. Based on the legislature's specific rejection of the allocation concept and assuming arguendo, that Florida recognized allocation income for the sales of intangibles, it appears that based on the facts herein, Petitioner is commercially domiciled in Florida. Examination of the tax return submitted to the undersigned revealed that the Petitioner has no property or payroll outside the state of Florida. Accordingly, it is hereby recommended that the proposed deficiencies as established by the Respondent, Department of Revenue, be upheld in its entirety. RECOMMENDED this 7th day of July, 1977, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 David S. Meisel, Esquire 400 Royal Palm Way Palm Beach, Florida 33480 Thomas M. Mettler, Esquire 340 Royal Poinciana Plaza Palm Beach, Florida 33480
Findings Of Fact The parties have agreed that there are no issues of fact to be determined in this matter, and that the relevant facts are set out in Paragraphs 3 and 4 of the Petition which was received in evidence at the hearing as Hearing Officer's Exhibit 1. This matter involves a determination for Florida corporate income tax purposes of the net income derived by the Petitioner in connection with the purchase, development, and sale of certain property in Dade County, Florida. Petitioner purchased the property prior to January 1, 1972, the date upon which the Florida Income Tax Code became effective. Petitioner expended, through a subsidiary corporation, $369,058 in developing the property. These expenditures also occurred prior to January 1, 1972. For Federal income tax purposes the Petitioner had deducted these expenditures as business expenses during the years that they were incurred. Petitioner sold the property during 1972. Because the Petitioner had deducted the expenditures as business expenses, the expenditures could not properly have been included in the base price of the property for Federal income tax purposes, and the net income for Federal tax purposes was computed by subtracting the original purchase price from the sale price. Since the Florida Income Tax Code was not in effect at the time the expenditures were made, the Petitioner received no Florida tax benefit for the expenditures. In computing the net income for Florida tax purposes derived from the sale, the Petitioner included the expenditures in the base price of the property, and calculated its net income by subtracting the sum of the purchase price of the property and the expenditures from the sale price. The Department, contending that the $369,058 should not have been included in the base price of the property, issued a deficiency assessment which reflected the net income from the sale of property as the difference between the sale price and the purchase price. Petitioner originally contended that it was entitled to add the amount that the property appreciated prior to January 1, 1972 to the base price of the property. Petitioner is no longer contesting the deficiency assessment based upon a disallowance of that addition to the base price of the property. The Department was originally contending that it was entitled to interest at 12 percent per annum calculated retrospectively from the due date of the alleged deficiency. The Department has agreed to abandon its effort to impose that rate of interest. The issue raised in this case is whether the development expenses incurred by the Petitioner and deducted for Federal income tax purposes as business expenses prior to 1972 can be subtracted from Federal taxable income for the purpose of determining taxable income derived from the sale for Florida tax purposes.
Findings Of Fact Having listened to the testimony and considered the evidence presented in this cause, it is found as follows: Petitioner is a domestic corporation. Petitioner provided medicare services to patients in the 1969-70 fiscal year. An on-site audit by the medicare auditing team was concluded in December of 1971, and petitioner received $56,131.00 of medicare reimbursements in January of 1972, for the services provided in the 1969-70 fiscal year. The petitioner did not file an amended federal income tax return for the fiscal year ending September 30, 1979. The adjusted federal income reported on petitioner's federal income tax return for the fiscal year ending September 30, 1972, included the $56,131.00 of medicare reimbursements received by petitioner in January of 1972. On petitioner's Florida income tax return for its fiscal year ending September 30, 1972, petitioner did not include the $56,131.00 figure in its adjusted federal income. On March 31, 1975, the respondent notified petitioner of a proposed deficiency in the amount of $2,100.99 arising from the petitioner's omission of the medicare reimbursements from its adjusted federal income as shown on its Florida corporate income tax return for the fiscal year ending September 30, 1972. Further correspondence ensued between the petitioner and the Corporate Income Tax Bureau of the respondent and the petitioner filed the present petition requesting a hearing on the issue. 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 my recommendation that there is no legal basis for affording the petitioner any relief from the proposed deficiency and that said deficiency in the amount of $2,100.00 be sustained. Respectfully submitted and entered this 17th day of September, 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: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 Homer E. Ward, N.H.A. Administrator/President University Park Convalescent Center 1818 E. Fletcher Avenue Tampa, Florida 33612
The Issue Does the taxpayer owe sales tax, penalty, and interest as assessed by the Department of Revenue.
Findings Of Fact Petitioner, Department of Revenue, is an agency of the State of Florida, lawfully created and organized pursuant to Section 20.21, Florida Statutes. By law, the Department is vested with the responsibility of regulating, controlling and administering the revenue laws of the State of Florida, including, specifically, the laws relating to the imposition and collection of the state's sales and use tax, pursuant to Chapter 212, Florida Statutes. Respondent, Worldwide Equipment Group, LLC, is a Florida limited liability company, whose principal address is Post Office Box 1050, Freeport, Florida 32439. Respondent sells and leases heavy equipment. In early 2006, Petitioner, Department of Revenue, conducted an audit of the books and records of Petitioner, pursuant to statutory notice. The period covered by the audit was March 1, 2002, through February 28, 2005. The audit was conducted by Department of Revenue auditor David Collins and addressed three issues. Issue A-01 addressed misclassified exempt sales, i.e. failure to collect appropriate sales and use tax or lack of documentation to prove tax exempt status of certain sales. Issue A-03 addressed discrepancies in sales for 2003 as reported for federal income tax returns and for state sales and use tax returns. Issue A-03 addressed interest owed due to a timing difference between actual transactions and the filing of state returns: basically a manipulation of the grace period for payment of sales and use taxes. Respondent was notified of the apparent discrepancies observed by the auditor. The original Notice of Intent To Make Audit Changes was issued February 17, 2006, and started at more than $75,000.00 in taxes, penalty, and interest due. Respondent then filed amended federal income tax returns, reflecting larger sales figures covering a portion of the audit period which reduced the discrepancy. The dispute was originally referred to the Division of Administrative Hearings (DOAH) on or about August 30, 2006. The original facts in dispute surrounded an addendum to the Notice of Proposed Assessment showing a balance due of $31,434.82. This was DOAH Case No. 06-3287. The request for a disputed-fact hearing was made by David R. Johnson CPA, who has a power of attorney on file with Petitioner Agency permitting him to represent Respondent. Throughout these proceedings, Worldwide has been served through Mr. Johnson by Petitioner and by DOAH. The parties filed a Joint Motion for Provisional Closing Order in DOAH Case No. 06-3287 on November 1, 2006. On November 2, 2006, DOAH Case No. 06-3287 was closed with leave to return if the parties' proposed settlement was not finalized. Mr. Johnson met once with counsel for Petitioner during the time the case was returned to the Agency. At some point, Respondent had produced certain accounting entries and supporting documents to the auditor. These were used to adjust the assessment levied by the Department. A Revised Notice Of Intent To Make Audit Changes dated March 13, 2007, was issued with a letter of the same date. The revised, and final Notice included an assessment of tax, penalty and interest totaling $15,065.24, as of the date of issue and information that the tax accrues interest at the rate of $3.10 per diem. On April 4, 2007, Petitioner filed before DOAH its Motion to Re-open Case and Notice for Trial. No timely response in opposition was filed by Respondent. By an Order to Re-open Case File, entered April 19, 2007, the case was re-opened as the instant DOAH Case No. 07-1710. Petitioner has established that the amount of $15,065.24 as tax, penalty, and interest was due as of March 13, 2007.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue sustain the March 13, 2007, assessment of the subject sales tax, penalties and interest to Petitioner. DONE AND ENTERED this 8th day of October, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of October, 2007. COPIES FURNISHED: Warren J. Bird, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32399-0100 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100 David R. Johnson, CPA 1265 Highway 331 South Defuniak Springs, Florida 32435 Worldwide Equipment Group LLC Post Office Box 1050 Freeport, Florida 32439
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.
The Issue The issue for determination is whether interest is due upon additional tax paid by Petitioners from the date of amended returns or whether interest should accrue from the date of Petitioners’ original returns.
Findings Of Fact First Florida timely filed consolidated federal corporate income tax returns and consolidated Florida Chapter 220 tax returns for the tax years ending 12/31/86, 12/31/87, 12/31/88, 12/31/89, and 12/31/90. Barnett timely filed consolidated federal corporate income tax returns and consolidated Florida Chapter 220 tax returns for 12/31/88, 12/31/89, 12/31/90, and 12/31/91. Barnett acquired First Florida on December 7, 1992. At the time of the merger, First Florida was being audited by the Internal Revenue Service (IRS) for the tax years 1986, 1987, 1988, 1989, and 1990. Barnett subsequently agreed with the IRS to federal tax adjustments for each of the respective tax years with regard to First Florida and itself. Alternatively, it may be stated that Petitioners under- reported “federal taxable income,” on line 30 of their original federal corporate income tax returns (“original federal returns”), and correspondingly, on line 1 of their original Florida corporate income tax returns (“original Florida returns”), for the tax years at issue. As a result of an audit by the Internal Revenue Service, various adjustments were made to “federal taxable income.” These adjustments became final and were agreed upon by the Petitioners and the Internal Revenue Service. The effect of these adjustments was to increase “federal taxable income” beyond that which had been previously reported by Petitioners on line 30 of their original federal returns, and, therefore, to increase Petitioners’ federal and Florida tax liability. After the federal audit adjustments became final in 1995, Petitioners paid to the federal government the additional amount of tax determined by the Internal Revenue Service to be due. Also in 1995, Petitioners timely reported the federal audit adjustments to the State of Florida, within sixty days after the federal audit changes became final, pursuant to Section 220.23, Florida Statutes. This was done by filing Form F-1120X notifications, in order to “amend” their original Florida return filings, for each of the pertinent tax years (hereinafter, “amendatory notifications”). The amendatory notifications filed by Petitioners increased and revised the amounts which were previously reported on line 1 of the original Florida returns, for each of the pertinent tax years. The purpose of filing amendatory notifications was to remit additional taxes determined to be due to the State of Florida, as a result of the federal audit adjustments. However, Petitioners did not remit any interest to the State of Florida at the time of filing the amendatory notifications. After receipt of the amendatory notifications, Respondent issued Notices of Tax Action to Petitioner Barnett Banks, Inc., as successor in interest to First Florida Banks, Inc., informing Petitioner that additional interest was due in the following amounts: $86,234.80 for 1986, $70,901.18 for 1987, $55,883.73 for 1988, $27,620.11 for 1989, and $15,115.37 for 1990. Respondent also issued Notices of Tax Action to Petitioner Barnett Banks, Inc., and/or its subsidiaries informing Petitioner and/or its subsidiaries that additional interest was due in the following amounts: $74,658.99 for 1988, $21,463.16 for 1989, $34,930.18 for 1990, and $6,850.31 for 1991. Respondent did not assess any penalties against Petitioners, because both the original returns and the subsequent amendatory notifications were timely filed and because no finding of willful or negligent under-reporting was made by Respondent. Petitioners paid under protest the amounts of interest claimed to be due by Respondent and timely sought a refund, which was denied. This action for formal administrative review challenges Respondent’s assessment of liability for interest and related refund denial. No dispute exists concerning the mathematical computation of the assessed amount. Prior to 1993, Respondent’s policy, with regard to payment of interest under circumstances similar to those presented in these proceedings, did not require the payment of interest if the amendatory notifications were timely filed and additional tax timely paid. This finding is established by the testimony of Joan Eckert, formerly employed by Respondent during the years 1987-93 as a technical assistant and as a tax law specialist. In addition to routinely advising that interest was not payable where additional taxes were timely paid, Eckert participated in the drafting of a proposed rule that was subsequently published in 1993, further documenting and describing Respondent’s policy at that time in such situations. Published in Volume 19, No. 24, June 18, 1993, of the Florida Administrative Weekly, the proposed rule provided in pertinent part as follows: If the amended return concedes the accuracy of a federal change or correction, any deficiency in Florida corporate income, franchise, or emergency excise tax is deemed assessed on the date of filing the amended return. Therefore, no penalty or interest will be assessed if the amended return is filed not later than 60 days after the date notification is required by s. 220.23(2)(a)2., F.S. However, the proposed rule was never formerly adopted in the form and content as originally published. By May 17, 1994, Respondent’s policy solidified in another direction and Florida Administrative Code Rule 12C-1.023(6), was enacted, which provides: If the amended return concedes the accuracy of a federal change or correction, any deficiency in Florida corporate income, franchise, or emergency excise tax is deemed assessed on the date of filing the amended return. No penalty will be assessed if the amended return is filed not later than 60 days after the date notification is required by Section 220.23(2)(a)3., F.S. and subsection (5) of this rule. However, interest will be due on any deficiency from the original due date of the return through the date of payment. In this proceeding, Respondent’s representatives have deliberately elected to rely upon Respondent’s statutory authority for the instant assessment, as opposed to a duly enacted rule on the basis that the formal rule was not in effect until 1994, and the assessment was for interest on taxes that predated the rule.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a Final Order be entered directing refunds to Petitioners of interest payments made to Respondent in these consolidated cases. DONE AND ENTERED this 10th 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 10th day of June, 1998. COPIES FURNISHED: Jeffrey M. Dikman, Esquire Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 David M. Wells, Esquire Eric Bilik, Esquire McGuire, Woods, and Criser 50 North Laura Street, Suite 3300 Jacksonville, Florida 32202 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
