The Issue The issue in this case is whether Petitioner is entitled to a waiver of the bond requirement set forth Section 559.927, Florida Statutes.
Findings Of Fact Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: Ladatco is a "seller of travel" as that term is defined in Section 559.927(1)(a), Florida Statutes. Ladatco deals exclusively in wholesale travel packages. Ladatco primarily packages and sells tours of Central and South America to retail travel agents. Until the last few years, the retail travel agents handled virtually all of the ticketing involved in the packages. Changes in the industry have resulted in Ladatco becoming more involved in the ticketing aspect as part of the services it provides in assembling the packages. However, Ladatco has very little direct contact with consumers. Ladatco originally began operations in 1967 as a subsidiary of another company. Ladatco has been conducting business in its current corporate form since 1976. Michelle Shelburne has been working for the company since 1969. She has been the president of Ladatco for at least the last ten years and she owns fifty percent (50 percent) of the outstanding stock. Annie Burke and Rosa Perez are the other officers of the company and they each own approximately twenty two and half percent (22 1/2 percent) of the stock. Both Burke and Perez have worked for Ladatco since approximately 1970. The remaining five percent of the outstanding stock is owned by an attorney who has represented Ladatco since 1967. Ladatco has seven other full time employees and operates out of an office building that is owned jointly by Shelburne, Perez and Burke. Under Section 559.927(10)(b), Florida Statutes, a seller of travel is obligated to post a performance bond or otherwise provide security to the Department to cover potential future claims made by travelers. The security required by this statute is for the benefit of consumers and may be waived by the Department in certain circumstances. On or about May 27, 1994, Ladatco submitted an Application for Security Waiver (the "Application") pursuant to Section 559.927(10)(b)5, Florida Statutes. In lieu of audited financial statements, Ladatco submitted a copy of its 1993 income tax return with the Application. Line 30 of that income tax return reflects a net loss for tax purposes of $100,722. In reviewing an application for a bond waiver, the Department looks at the taxable income on the income tax return. It is the Department's position that if a company shows a loss for tax purposes, it is lacking in financial responsibility and is ineligible for a bond waiver. Based on this policy, the Department denied Ladatco's Application by letter dated August 2, 1994. The certified public accountant who has handled all outside accounting services for Ladatco since 1977 testified at the hearing in this matter. He submitted a history of operations for the company from 1985 through 1993. The accountant explained that, in 1986, Ladatco acquired a very expensive computer system with customized software. The cost of this system was depreciated over a five year period. In addition, until 1991, the company operated out of a building that it owned. The building was sold to the individual principals of the company in 1991. During the years the company owned the building, a significant amount of depreciation was generated for tax purposes. The large depreciation expenses for the years 1986 through 1991 generated losses for tax purposes which have been carried over for future years. Thus, while the company's operations for 1993 generated a profit of $65,000, the loss carry over resulted in a net loss for income tax purposes. The current year forecast for the company, based upon existing bookings, projects a net income in excess of $64,000 for the year ending December 31, 1994. In sum, an isolated look at the taxable income loss reflected on the 1993 income tax return does not provide an accurate picture of the financial responsibility of this company. This closely owned company has been in business for approximately twenty eight (28) years. The three principals in the company have all been with the firm for more than twenty four (24) years. The company has demonstrated a great deal of stability and, while profitability has fluctuated from year to year, the company has continually met its obligations for more than a quarter century. There is every indication that it will continue to do so in the future. Ladatco has maintained a bond with the Airline Reporting Corporation ("ARC") for approximately two and a half years. The amount of the bond varies from year to year, but is generally in the vicinity of $35,000. The statute provides that a company which has successfully maintained a bond with the ARC for three years is entitled to a security waiver. While the ARC bond only protects the airlines and not the travelers, Ladatco will qualify for a waiver under this provision in approximately May of 1995. There is no indication of any unresolved complaints against Ladatco nor is there any evidence of civil, criminal or administrative action against the company.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Agriculture and Consumer Services enter a Final Order granting Ladatco's application for security waiver pursuant to Section 559.927(10)(b)5, Florida Statutes. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of December 1994. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of December 1994. APPENDIX TO RECOMMENDED ORDER Only the Respondent has submitted proposed findings of fact. The following constitutes my ruling on those proposals. Adopted in pertinent part Finding of Fact 6 and also addressing the Preliminary Statement and in the Conclusions of Law. Adopted in substance in Finding of Fact 6. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 8. Adopted in substance in Finding of Facts 7 and 8. COPIES FURNISHED: Michelle D. Shelburne, President Ladatco, Inc. d/b/a Ladatco Tours 2220 Coral Way Miami, Florida 33145 Jay S. Levenstein, Senior Attorney Department of Agriculture and Consumer Services Room 515, Mayo Building Tallahassee, Florida 32399-0800 Honorable Bob Crawford Commissioner of Agriculture The Capitol, PL-10 Tallahassee, Florida 32399-0810 Richard Tritschler General Counsel Department of Agriculture and Consumer Services The Capitol, PL-10 Tallahassee, Florida 32399-0810
The Issue Whether the Elizabeth Puhn Irrevocable Trust is entitled to a refund of intangible personal property taxes paid to the State of Florida for the tax years 1993, 1994, and 1995.
Findings Of Fact Pursuant to the affidavits submitted into evidence in this case and on the entire record of this proceeding, the following findings of fact are made: The Department of Revenue ("Department") is the state agency responsible for administering and enforcing the collection of the intangible personal property tax in Florida. Section 199.202, Florida Statutes (1997). Shy Lurie is a co-trustee of the Elizabeth Irene Puhn Irrevocable Trust dated December 16, 1981 (hereinafter the "Trust"). Nicholas M. Daniels was a co-trustee of the Trust for the 1993, 1994, and 1995 tax years. Shy Lurie was a resident of North Carolina for the tax years in question. Nicholas M. Daniels was a resident of Miami, Florida, for the tax years in question. Trustees and Domicile The settlor of the Trust is Elizabeth B. Lurie. The co-trustees of the Trust at the inception of the Trust were Shy Lurie and Nicholas M. Daniels. The settlor, the co-trustees, and the beneficiary, Elizabeth Irene Puhn, were all residents of Miami, Florida, at the inception of the Trust. Nicholas M. Daniels was and continues to be an attorney licensed to practice law in the State of Florida for the tax years in question and thereafter. On December 20, 1996, Mr. Daniels resigned as a co-trustee effective as of such date, and Mr. Michael Smith, a resident of North Carolina, was appointed as a co-trustee effective as of December 20, 1996. Terms of the Trust The Trust provides for the income to be accumulated until the beneficiary, Elizabeth Irene Puhn, attains the age of thirty and during that period the income may be disbursed to the beneficiary in the co-trustees' discretion for certain specified expenses of the beneficiary. After the beneficiary attains the age of thirty, she is entitled to all net income from the Trust. The Trust shall terminate when the beneficiary reaches the age of forty, at which time the Trust's assets will be distributed to Elizabeth Irene Puhn or, if she is then deceased, then pursuant to the alternate dispositive provisions set forth in the Trust. The beneficiary currently resides in Durham, North Carolina. The beneficiary has been a resident of Durham, North Carolina, for approximately five (5) years, which included the tax years in question. Article VI of the Trust instrument provides that the trustees are granted the power and authority to do any of the enumerated powers specified in the Trust in the trustee's unrestricted judgment and discretion which the trustees deem advisable for the better management and preservation of the trust estate. Books, Records, and Custody of Assets All Trust books and records for the tax years in question were located at and all business was transacted at Shy Lurie's office in North Carolina. For the tax years in question, neither the Trust assets nor the Trust's books and records were located in the State of Florida. On February 5, 1985, Shy Lurie and Nicholas M. Daniels entered into an investment management agreement with Montag & Caldwell, Inc., an Atlanta, Georgia, management company. Such agreement provided that supervision and management of the marketable securities portion of the trust estate is vested with Montag & Caldwell, Inc., and that the agreement may be terminated upon thirty (30) days notice by either party. The balance of the trust estate consists of stock in a closely held family business which has been under the sole control and custody of Shy Lurie for the taxable years in question. On January 17, 1985, Shy Lurie and Nicholas M. Daniels, as co-trustees, entered into a Custodial Agreement (hereinafter "Custodial Agreement") with the National Bank of Georgia (hereinafter the "Bank"), a national bank with its office and principal place of business in Atlanta, Georgia. In April 1986, the Custodial Agreement was taken over by NationsBank of Asheville, North Carolina. Such Custodial Agreement provides, in pertinent part, that the operation of the said account will involve instructions directed to or from time to time by Montag & Caldwell, Inc. The Custodial Agreement provides in paragraph 14, section 4, that the Bank is authorized to furnish the State of Georgia intangible tax section with a statement of the securities. The Custodial Agreement in paragraph 7 provides that where permissible all securities shall be registered in the name of the Bank's nominee and the custodian has the authority to make information returns and otherwise to furnish any information regarding this account to any local, state, or federal governmental authority upon the valid demand therefor. The Custodial Agreement cannot be assigned without the unanimous consent of the co-trustees and the investment advisor, Montag & Caldwell, Inc. Payment of Intangible Tax Shy Lurie, as a co-trustee, paid the State of Florida intangible tax in the amount of $12,457.00 for the 1993 tax year. Shy Lurie, as a co-trustee, paid the State of Florida intangible tax in the amount of $14,404.00 for the 1994 tax year. Shy Lurie, as a co-trustee, paid the State of Florida intangible tax in the amount $16,128.00 for the 1995 tax year. Shy Lurie, as a co-trustee, filed an Application for Refund from the State of Florida Department of Revenue (form DR-26) on or about February 29, 1996. On April 18, 1996, the Florida Department of Revenue responded with a Notice of Intent (form DR-1200R) indicating a proposed denial for all three claims. After additional information was submitted to the Department, the refund claims were granted in part and denied in part. On or about May 13, 1996, the Department notified Shy Lurie and the other co-trustee that a partial refund of fifty percent (50%) was granted for each tax year. Shy Lurie, through his attorney, on or about June 18, 1996, submitted a Memorandum of Law and additional documents to the Department. On or about July 19, 1996, after reviewing the Memorandum of Law and accompanying documents the Department issued a Notice of the Proposed Denial of Refund for the following tax years and for the following amounts: For tax year 1993 (DTA Number 9601056A and Source Number 96064010) in the amount of $6,228.50; For tax year 1994 (DTA Number 9601056B and source Number 96064011) in the amount of $7,202.00; and For tax year 1995 (DTA Number 9601056C and Source Number 96064012) in amount of $8,064.00. Shy Lurie, through his attorney, contested the denial of the refund and on or about August 5, 1996, Shy Lurie, through his attorney, filed a written protest with both the Bureau of Hearings and Appeals and the Bureau of Audit Standards. On December 16, 1996, Mr. Nicholas M. Daniels, attorney for the Trust, attended an informal conference with members of the Department, in an effort to settle this matter. The Department issued a Notice of Decision of Refund Denial for all three claims by a letter inadvertently dated January 7, 1996 (the year should have been 1997). Shy Lurie, through his attorney, filed a Petition for Formal Hearing pursuant to Chapter 120, Florida Statutes, on or about February 24, 1997.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order dismissing the Petition for Formal Hearing filed by the Petitioners in this case and denying all relief requested by the Petitioners therein. DONE AND ENTERED this 18th day of September, 1998, in Tallahassee, Leon County, Florida. PATRICIA HART MALONO Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 18th day of September, 1998.
The Issue The issue for determination is whether DOAH has jurisdiction to entertain an agency's motion for attorney's fees brought pursuant to section 185.05(5), Florida Statutes, where the motion was filed with DOAH approximately two and one-half years after the agency's entry of a final order in the administrative proceeding for which the agency seeks an award of attorney's fees and costs.
The Issue The issue is whether Petitioner collected and remitted to Respondent the correct amount of sales and use taxes during the audit period from October 1, 2004, through September 30, 2007, and, if not, what additional amount of tax plus penalty and interest is due.
Findings Of Fact Petitioner True Blue Pools (Petitioner, taxpayer, or TBP) is a domestic corporation headquartered in Miami-Dade County, Florida. TBP services, repairs, and renovates swimming pools and constructed some pools during the audit period. Respondent, Florida Department of Revenue (Respondent or DOR), is the agency of state government authorized to administer the tax laws of the State of Florida, pursuant to section 213.05, Florida Statutes.2 DOR is authorized to prescribe the records to be kept by all persons subject to taxes under chapter 212, Florida Statutes. Such persons have a duty to keep and preserve their records, and the records shall be open to examination by DOR or its authorized agents at all reasonable hours pursuant to section 212.12(6), Florida Statutes. DOR is authorized to conduct audits of taxpayers and to request information to ascertain their tax liability, if any, pursuant to section 213.34, Florida Statutes. On November 2, 2007, DOR initiated an audit of TBP to determine whether it was properly collecting and remitting sales and use taxes to DOR. The audit period was from October 1, 2004, through September 30, 2007. On December 15, 2008, DOR sent TBP its Notice of Intent to Make Audit Changes (NOI), with schedules, showing that TBP owed to DOR additional sales and use taxes in the amount of $113,632.17, penalty in the amount of $28,406.05, and interest through December 16, 2008, in the amount of $34,546.59, making a total assessment in the amount of $176,586.81. On October 26, 2009, DOR issued its Notice of Proposed Assessment. TBP timely challenged the Notice of Proposed Assessment, filing its petition with DOR and requesting an administrative hearing. Subsequent to the petition being filed, additional documentation was provided by TBP resulting in a revision to the tax, interest, and penalty amount due. DOR's revised work papers, dated May 27, 2010, claim Petitioner owes $64,430.83 in tax, $16,107.71 in penalty, and interest through May 27, 2010, in the amount of $27,071.99, with an assessment of $107,610.53. The assessed penalty, $16,107.71, was calculated after 25% of the penalty was waived, pursuant to subsection 213.21(3)(a), Florida Statutes, based on DOR's determination that there is no evidence of willful negligence, willful neglect, or fraud. The audit was conducted to determine liability in four categories: improper sales tax exemptions, unpaid sales taxes for taxable expenses, unpaid use taxes on fixed assets, and unpaid use taxes on taxable materials used to fulfill contracts to improve real property. Sales Tax Exemptions Due to the large volume of invoices and other records, the auditor conducted a random sampling of invoices for three months during the audit period, October 2004, January 2005, and September 2007.3 If no sales tax was collected and the Petitioner claimed that the transaction was exempt from the requirement to pay taxes, the auditor looked for proof that either the TBP customer was an exempt organization, for example, a school or a church, or that TBP had provided its suppliers with a DOR Form DR-13 to exempt from taxes products acquired for resale. In the absence proof of either type of exemption, DOR assumed taxes should have been paid. Using the difference between taxes collected and taxes due for the three months, the auditor determined that the percentage of error was .016521. When .016521 was applied to total sales of $1,485,890.79 for the 36-month audit period, the results showed that an additional $24,548.41 in sales taxes should have been collected from customers, and is due from TBP. Although a business is required to pay taxes for the materials it purchases to use in its business, it is not required to collect taxes from its customers when it enters into lump sum contracts to perform a service for customers. At least one invoice for $9,500.00 that the auditor treated as an improper exemption was, in fact, a partial payment on a lump-sum contract. The invoice referenced a "shotcrete draw," which represented the collection of funds after the concrete part of pool construction was completed. TBP is not required to collect taxes when it uses lump-sum contracts. Other invoices for pool repair and services were also mischaracterized as exempt by the TBP, but it is not clear that all were payments related to lump-sum contracts. DOR's auditor, nevertheless, testified as follows: With the knowledge that I have for True Blue Pools, being a lump-sum contractor, True Blue Pools should not charge their customer any sales tax. Transcript at pages 67-68. DOR concedes that some of TBP's transactions are also exempt from taxes as improvements to real property. In its Proposed Recommended Order, DOR asserted that TBP's use of the term "improvements to real property" is overbroad, but it did not specify how or why this is the case. During cross- examination of the owner of TBP, only one invoice for $500.00 for leak detection on the Delgado property was shown to have been for a service rather than for swimming pool construction. Taxable Expenses DOR audited TBP's purchases of tangible personal property used in the daily operation of its business. The products included chlorine and other chemicals, office supplies, and vehicle parts, expenses, and repairs. The ledger for a 12- month period, calendar year 2006, showed an average monthly additional tax due of $111.18, or a total of $4,002.48 in additional taxes for the 36-month audit period. As noted in Petitioner's Proposed Recommended Order, "[t]he representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of all of these items " Fixed Assets TBP's list of fixed assets was taken from the depreciation schedule on Internal Revenue Service Form 4562. The items listed are computer- and software-related. TBP provided no proof that it had paid a use tax. The additional tax due equals $419.94. Petitioner's Proposed Recommended Order includes the statement that "[a]gain, the representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of these items " Taxable Materials Taxable materials, those purchased to fulfill a contract to improve real property, included items used to build, renovate, and repair pools. The items included concrete, meters, drains, and valves. For the 12-month sample period, calendar year 2006, TBP failed to pay taxes on material purchases in the total amount of $168,310.05, or an average of $14,078.96 a month. For the 36-month audit period, the total of the purchases was $506,842.56. With a 6 percent tax due for the state and 1 percent for the county, the total additional tax due on materials is $35,460.00. TBP conceded that it improperly used a resale exemption to purchase taxable materials from suppliers without paying taxes. The materials were used to provide services and were not resold. Acknowledging again that TBP uses lump-sum contracts, this time to support the collection of additional taxes, the auditor testified as follows: And the law states that the taxpayer's [sic] an ultimate consumer of all materials purchased to fulfill a lump-sum contract, and that's what they told me they operate under, a lump-sum contract. Transcript at page 58. At the hearing, TBP used its actual profit and loss statement to show that the cost of goods it sold (general purchases and taxable materials) in the amounts of $18,360.77 in October 2004, $8,519.22 in January 2005, and $4,818.65 in September 2007. Corresponding taxes for each of those months should have been $1,285.25, $596.35, and $337.31, or an average of $739.63 a month, or a total of $26,626.68 for 36 months. The goods that it sold were not at issue in the audit of taxable materials, rather it was TBP's purchases from vendors that should have been taxed that resulted in DOR's audit results. Total Additional Sales and Use Taxes Due The three categories of additional taxes due, $4,002.48 for taxable expenses, $419.94 for fixed assets, and $35,460.00 for taxable materials, equal $39,882.42 in additional taxes due during the audit period. Taxes Paid TBP filed DOR Forms DR-15, monthly sales and use tax reporting forms, and paid sales and use taxes during the audit period. For the sample months used by DOR to examine sales tax exemptions, TBP paid $1,839.10 in taxes in October 2004, $1,672.73 in January 2005, and $1,418.13 in September 2007. Using the three months to calculate an average, extended to 36 months, it is likely that TBP paid $59,712 in taxes. TBP asserted that DOR was required to, but did not, offset the deficiency of $39,882.42, by what appears to be an overpayment of $59,712.00 in sales and use taxes. Other than pointing out that the amount reported on the DR-15s differed, being sometimes more and sometimes less than the amount shown on the profit and loss statements, DOR did not dispute TBP's claim that it had paid sales and use taxes. TBP's representative explained that end-of-the-year adjustments for additional collections or for bad debt could cause the amounts on the DR-15s and profit and loss statements to differ. With regard to the taxes paid, DOR took the following position in its Proposed Recommended Order: Petitioner's DR-15's [sic] for the collection periods October 2004, and January 2005, [and September 2007] (Petitioner's Composite Exhibit 1) do reflect sales tax being collected and remitted to DOR. DOR does not allege that Petitioner never paid tax on its purchases, or made bona fide exempt sales for which no tax was collected. DOR's audit findings identify just those which occurred within the sample period, scheduled in the auditor's workpapers, and applied over the entire audit period. The DR-15s are taken from the sample months selected by DOR within the audit period, and DOR does not address TBP's claim that a set off for taxes paid was mandatory, pursuant to subsection 213.34(4), Florida Statutes. Using the audit schedules, DOR showed credit for taxes paid in the amounts of $20.63 for taxable expenses, $0 for fixed assets, and $24.31 in state taxes and $1.03 for county taxes on taxable materials. The amounts are far less that the $59,712.00 in sales/use taxes TBP showed that it paid during the audit period.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is recommended that the Department of Revenue issue a final order dismissing the Notice of Intent to Make Audit Changes dated December 15, 2010. DONE AND ENTERED this 20th day of January, 2011, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER 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 20th day of January, 2011.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined. Background Petitioner, Gator Coin Machine Company, Inc. (petitioner or Gator), is a Florida corporation engaged in the vending machine business throughout the northern part of the State extending from Leon County eastward to Duval County. Gator places coin-operated cigarette vending machines in various business locations, such as lounges, package stores, motels and restaurants. In return for allowing the machines to be placed on the premises, the location owner receives a fee for each pack of cigarettes sold from the machine. This fee is paid to the location owner and is considered a commission or rent for allowing Gator to "lease" the real property on which the machines are placed. All such commissions are subject to the sales tax, which rate may vary depending on the sales tax rate in a particular county. The sales tax is included with the commission (rent) paid to the location owner, and the location owner then has the obligation of remitting the tax to the state. However, the burden of showing that the tax has been paid to the location owner rests upon the vending machine owner. Respondent, Department of Revenue (DOR), is the state agency charged with the responsibility of enforcing the Florida Revenue Act of 1949, as amended. Among other things, DOR performs audits on taxpayers to insure that all taxes due have been correctly paid. To this end, in 1990 a routine audit was performed on Gator covering the audit period from June 1, 1985, through April 30, 1989. After the results of the audit were obtained and an initial assessment made, on January 22, 1991, DOR issued a revised notice of intent to make sales and use tax audit changes wherein it proposed to assess Gator $35,561.67 in unpaid sales taxes, $8,887.82 in delinquent penalties, and $12,934.34 in accrued interest on the unpaid taxes through the date of the revised notice, or a total of $57,383.83. The unpaid taxes related to taxes allegedly due on commissions paid to location owners during the audit period and were assessed against Gator on the grounds the taxpayer had not separately stated the tax on its evidence of sale and failed to provide internal documentation to verify that the taxes had actually been paid. On April 19, 1991, a third revision of the proposed assessment was issued which decreased slightly the unpaid taxes and corresponding penalties but increased the size of the assessment to $57,945.10 due to the continuing accrual of interest. On July 1, 1991, Gator was offered the opportunity to informally contest the assessment. A letter of protest was filed on July 29, 1991, wherein Gator generally contended that (a) its records conformed with the industry practice and that an adequate audit trail existed to substantiate the payment of taxes, and (b) the responsibility for payment of the taxes ultimately rested with the location owner rather than Gator. On February 10, 1992, DOR issued its notice of decision rejecting Gator's position but offering to reduce the penalty on the unpaid sales taxes to 5%. At the same time, and although Gator had not challenged the auditor's method of computing the amount of sales tax, DOR upheld the auditor's determination on that point. After a petition for reconsideration was filed by Gator on March 10, 1992, in which Gator raised for the first time a claim that it was due a refund of $11,015 for overpayment of taxes on cigarette sales during the audit period, DOR issued its notice of reconsideration on June 12, 1992, denying the petition and offering Gator a point of entry on these issues. Such a request was timely filed and this proceeding ensued. The Tax The tax for which petitioner has been assessed became effective on July 1, 1986, and is found in Section 212.031, Florida Statutes. On an undisclosed date, DOR mailed each vending machine company in the state a flier which summarized the new changes in the tax law. The flier noted that the sales tax would be levied on each "license to use or occupy property" and specifically included "an agreement by the owner of real property granting one permission to install and maintain full-service coin-operated vending machines on the premises." Because the vending machine owner is considered to have been granted a license to use the real property of the location owner, the fee (rent) paid by the vending machine owner to the location owner was thus subject to the new sales tax. The notice further provided that the tax "must be collected by the person granting the privilege to use or occupy any real property from the person paying the license fee and is due and payable at the time of receipt." This flier constituted the only notice by DOR concerning the imposition of the new tax. There was no notice to the vending machine owners that they must separately state the sales tax from the commission when paying the commission to the location owner. This was because the flier's main purpose was to put the taxpayers on notice that they were subject to the new tax. Sometime after the tax became effective, DOR developed a rule to implement the new law. Specifically, it amended Rule 12A-1.044, Florida Adminstrative Code, to provide guidance to taxpayers in the coin-operated industry as to who had the taxpaying and collecting responsibility. However, the rule simply stated that the owner of the vending machine was responsible for paying the tax on the rental fee paid to the location owner and did not state how this payment was to be documented or recorded by the lessee. In the absence of any guidance from DOR, the Florida Amusement Association, of which Gator is a member, held meetings around the state to inform the members of their responsibilities under the new law. One method thought to be acceptable to establish payment of the sales tax was to keep internal documentation as to commission rate and tax paid to the various locations. As will be discussed hereinafter, Gator and other vending machine owners began following this practice. On May 11, 1992, or three years after the audit period had ended, and almost six years after the imposition of the tax, DOR adopted an amendment to rule 12A-1.044(10) to provide that "the tax must be separately stated from the amount of the lease or license payment." This constituted the first notice to vending machine owners that they were required to state separately on the check remitted to their locations each month the commission plus tax. It should also be noted that DOR has never specified the exact type of documentation required by this rule or the format in which the information should be submitted. The Industry Practice Petitioner is one of many coin-operated vending machine companies doing business in the state of Florida. The evidence shows that of some twenty representative companies doing business in the state, including Gator, all operate in the same manner. Generally, the vending machine owner has a low investment in equipment which is easily relocated from one place of business to another. Because it is not unusual for the businesses in which equipment is placed to frequently change ownership, and often times the location owner can shop around and obtain a better commission from another vending machine company, it is fairly common to have machines placed in a location for as few as six or seven months. Therefore, it is a common practice in the industry to do business on a handshake and without a formal written agreement. In other words, the agreement to allow the machines to be placed on the premises and the amount of commission (rent) to be paid for leasing that space is based largely on a handshake between the two owners. This accounts in part for the lack of documentation such as a charge ticket, sales slip or invoice between the two owners concerning the amount of sales tax associated with the rent since such documents or evidence of sale are not practicable. The lack of documentation is also attributable to the fact that until May 1992 DOR never advised the vending machine companies that some type of "evidence of sale" was needed. In determining the commission rate to be paid to the various locations, the vending machine owner must first ascertain what the market will bear in terms of selling a pack of cigarettes in the machine. After calculating his overhead, the vending machine owner then bargains with the location owner as to how much of the remaining difference between the cost of cigarettes and overhead and the selling price should be paid to the location owner. This amount of money agreed upon by the vending machine and location owners, and expressed in a per pack rate, is commonly known as the commission expense and includes the total sum of rent plus sales tax. For example, if the total commission is twenty cents per pack of cigarettes sold from each machine, the rent would be approximately 18.2 cents while the sales tax would make up the remainder of that amount. All vending machine owners, including Gator, made it explicitly clear to the location owner that the commission check was tax inclusive. During the audit period, it was standard industry practice for the vending machine owner to write a tax inclusive check to the location owner each month. In other words, a check for the amount due the location owner, including rent and tax, is paid to the location owner each month without any notation on the check as to what portion represents the rent and what portion represents the tax. In the case of Gator, its checks carried only the stamped notation "CIG- COM", which represented the words "cigarette commissions." The record shows that except for one small company with relatively few clients, all representative vending machine companies operated in this manner. Gator's Recordkeeping Like other vending machine companies, Gator's records consisted only of hand-written records on index cards. Indeed, Gator kept no computerized records at the time of the audit. More specifically, all calcuations as to taxes owed, the price of cigarettes, tax calculated on cigarettes vended through any given machine, and any additional information pertaining to the individual machines were kept on 8 x 10 white and pink index cards. These cards were commonly referred to as location cards and were updated each time the machine was moved from one location to another and when the price of cigarettes was changed. At the time of the audit, more than 99% of the original white and pink cards from the sample time period requested by the auditor were available for her inspection. The only documentation existing between the location and vending machine owners was the machine or route ticket, which is no different than merchandising tickets showing the number of units sold. This document reflected the amount of packs sold and the amount of money received from each machine but did not contain a separation of commission plus tax. This information was used by Gator to determine the number of packs sold from each machine during the month. The number of packs was then multiplied by the "rate" for that machine to ascertain the commission due the location owner. Although route tickets were contemporaneously prepared by a route (service) man, they were discarded before the audit began. This is probably because in a prior audit conducted in 1983 or 1984 DOR auditors expressed no interest in reviewing the route tickets. In any event, the route tickets are not essential to a resolution of the issues. A pink card was generated by Gator for each machine placed in a lessor's place of business. The card contained information, all written in pencil and amended as necessary, regarding inventory, location of machine, selling price of cigarettes, the negotiated commission rate to be paid to the location owner, and the tax computed on the license fee. The latter item was recorded in the top right hand side of the index card and, when coupled with the independent accounting firm's representation as to the integrity of the accounting system, provides reliable evidence that the commission paid to the location owner was tax inclusive. For example, petitioner's exhibit 2 received in evidence, which contains representative pink cards, reveals that on November 7, 1986, machine number 175 was installed at "River Walk Cruises #1" in Jacksonville and the location owner was thereafter paid a per pack commission of fourteen cents, of which 13.15 cents represented the rent while the remainder represented the sales tax. It is noted again that more than 99% of these cards from the sample period audited were available for inspection. A white card was also prepared for each machine and listed the number of packs sold, the per pack rate, and the amount paid to the location owner. However, it did not contain a breakdown between commission expense and the related tax. In addition, Gator maintained what was known as a monthly report, which was a summation and accumulation of sales information derived from the white cards. The report listed the rate and number of packs sold for each machine. Like the white card, the monthly report did not contain a breakdown between the rent and sales tax. Finally, journals and ledgers were prepared containing summaries of information taken from the machine cards. Expert testimony by two certified public accountants (CPAs) and a longtime industry representative established that petitioner's records (general accounting records, route tickets, location cards and ledgers) were in conformity with good accounting practice and the industry norm. If anything, Gator's records were more comprehensive than most other vending machine companies and satisfied the requirements of applicable rules and statutes. More specifically, by maintaining location cards which show the sales price per pack of cigarettes with a breakdown between the tax and rent, Gator's records were consistent with good accounting practices and the type of recordkeeping maintained by the industry. It was further established that the industry practice is to conduct business on a "tax inclusive" basis, that is, to issue checks without separately stating what portion of the amount is taxes. In addition, cancelled checks, bank statements, journals and ledgers were available to verify commissions paid to various locations. DOR did not challenge the accuracy of this supporting documentation and agreed, for example, that the month-end commission summaries tied into petitioner's journals and checks. Both financial experts concluded, and the undersigned so finds, that the records establish that the taxes were paid. During final hearing, and for the first time during the administrative hearing process, DOR challenged both the testimony of the experts and the reliability of petitioner's records on the ground the CPAs who testified were not present when the checks were written and thus had no personal knowledge that the checks were tax inclusive. However, the CPAs established the integrity of petitioner's recordkeeping and accounting system and the fact that the system used by Gator produces accurate information that can be relied upon by third party users. This was not credibly contradicted. It can be reasonably inferred from these facts that the hand-written notations on the pink cards concerning the sales tax computed on the license fee were accurate and that the corresponding checks paid to the location owners were tax inclusive. DOR also suggested that the penciled entries on the pink cards pertaining to the tax may have been prepared solely for purposes of this litigation and were not contemporaneous. For the reason stated above, this assertion is also rejected. It should be noted further that except for the allegations themselves, DOR did not challenge the authenticity of the records nor produce any evidence of circumstances that would show the records lacked trustworthiness. DOR further contended that because there was no written contract or other tangible evidence of sale between the two owners where the tax was separately stated, there was insufficient evidence to support petitioner's claim that the taxes were paid. Put another way, DOR contended that Gator needed not only internal documents (such as location cards) to verify the payment of taxes, it also needed documents submitted to the location owner reflecting the separation of tax and commission. However, prior to the 1992 amendment to rule 12A-1.044(10), there was no formal or informal requirement to do so nor had DOR given notice of such a need, and since the internal documentation confirms the payment of the taxes, no other evidence is required. Finally, the evidence shows that a vending machine company has never been considered a "dealer" within the meaning of Subsection 212.07(2), Florida Statutes, as asserted by DOR, and thus the requirement in that subsection that a dealer separately state the amount of tax on the evidence of sale is not applicable. Indeed, this interpretation of the statute is consistent with the language in Rule 12A-1.086, Florida Administrative Code, which characterizes the lessor (location owner) rather than the lessee as the dealer. Refund Issue Gator contends that using an error rate of two or three percent, a recomputation of its taxes paid during the audit period reveals that it is owed a refund of $11,015 occasioned by its bookkeeper incorrectly computing the tax due on the gross sales price of cigarettes rather than on the net price. Since the alleged overpayment of taxes occurred during the period from June 1, 1985, through April 30, 1989, the last alleged overpayment of taxes would have occurred shortly after April 30, 1989. Prior to March 10, 1992, when Gator filed its petition for reconsideration with DOR, Gator had not filed a request for a refund on DOR Form 26 (DR-26), which is the form on which refunds must be requested. In its petition for reconsideration, Gator noted that "a Petition for Refund will be filed in the immediate future if this has not previously been accomplished." As of the date of hearing, which was more than three years after the last alleged overpayment of taxes was made, no DR-26 had been filed. Therefore, the request for refund is deemed to be untimely.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent enter a final order granting the petition of Gator Coin Machine Company, Inc. and rescinding (withdrawing) the assessment set forth in the notice of reconsideration dated June 12, 1992, but denying petitioner's request for a refund of $11,015 for sales taxes allegedly overpaid during the audit period. DONE AND ENTERED this 19th day of March, 1993, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 19th day of March, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-4806 Petitioner: 1-2. Partially accepted in finding of fact 2. 3-6. Partially accepted in finding of fact 3. 7. Partially accepted in finding of fact 1. 8-9. Rejected as being unnecessary. 10. Partially accepted in finding of fact 17. 11. Partially accepted in finding of fact 15. 12-14. Rejected to the extent they are inconsistent with findings of fact 17 and 18. 15-17. Partially accepted in finding of fact 8. 18-20. Rejected as being irrelevant. 21-22. Rejected as being unnecessary. 23-24. Partially accepted in finding of fact 11. 25. Rejected as being unnecessary. 26. Partially accepted in findings of fact 13 and 14. 27. Partially accepted in finding of fact 14. 28-29. Partially accepted in finding of fact 17. 30-33. Partially accepted in finding of fact 4. 34-35. Partially accepted in finding of fact 5. 36. Partially accepted in finding of fact 15. 37. Rejected as being unnecessary. 38-39. Partially accepted in finding of fact 15. 40-41. Partially accepted in finding of fact 8. 42. Partially accepted in findings of fact 10 and 15. 43-45. Partially accepted in finding of fact 9. 46-49. Partially accepted in finding of fact 6. 50-51. Partially accepted in finding of fact 7. 52. Rejected as being unnecessary. 53-54. Partially accepted in finding of fact 10. 55-56. Partially accepted in finding of fact 7. Partially accepted in finding of fact 15. Rejected as being a conclusion of law. Rejected as being a conclusion of law. Partially accepted in finding of fact 15. 61-63. Rejected to the extent they are inconsistent with findings of fact 17 and 18. 64-65. Partially accepted in finding of fact 12. 66-68. Partially accepted in finding of fact 14. 69. Partially accepted in finding of fact 7. 70-75. Rejected as being unnecessary. Partially accepted in finding of fact 12. Rejected to the extent it is inconsistent with findings of fact 17 and 18. Partially accepted in finding of fact 15. 79-81. Partially accepted in finding of fact 16. 82. Partially accepted in findings of fact 13 and 14. 83-84. Partially accepted in finding of fact 12. Rejected to the extent it is inconsistent with findings of fact 17 and 18. Partially accepted in finding of fact 16. 87-88. Rejected to the extent they are inconsistent with findings of fact 17 and 18. Partially accepted in finding of fact 16. Partially accepted in finding of fact 17. Partially accepted in finding of fact 16. Rejected as being irrelevant since the collection of taxes from Jax Liquors occurred after the audit period. 93-95. Rejected as being unnecessary. Respondent: 1-2. Partially accepted in finding of fact 1. 3-4. Partially accepted in finding of fact 9. 5. Partially accepted in finding of fact 13. 6-8. Partially accepted in finding of fact 12. 9. Partially accepted in finding of fact 10. 10. Rejected as being unnecessary. 11a. Partially accepted in finding of fact 12. 11b. Partially accepted in findings of fact 10, 13 and 15. 11c. Partially accepted in finding of fact 14. 11d. Partially accepted in finding of fact 14. 12-15. Partially accepted in finding of fact 10. Note - Where a proposed finding has been partially accepted, the remainder has been rejected as being unnecessary, subordinate, irrelevant, not supported by the more credible and persuasive evidence, or a conclusion of law. COPIES FURNISHED: Linda Lettera, Esquire General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Mr. Larry Fuchs Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 William A. Friedlander, Esquire Marie A. Mattox, Esquire 3045 Tower Court Tallahassee, FL 32303 Eric J. Taylor, Esquire Department of Legal Affairs The Capitol-Tax Section Tallahassee, FL 32399-1050
The Issue The issue is whether Petitioner is liable for sales and use taxes, penalties, and interest and, if so, how much.
Findings Of Fact Petitioner operated a bar and grill in Punta Gorda that served beer, wine, liquor, and food at retail. In the course of business, Petitioner collected tax from the customers. Petitioner reported to Respondent sales tax collections for May 1996, November 1996, March 1997, November 1997, and December 1997. In connection with these collections, Petitioner remitted to Respondent seven checks representing the net tax due Respondent. These checks totaled $6700.64. The bank on which the checks were drawn dishonored them. The remittance of net sales tax proceeds by payment through checks that are later dishonored implies a fraudulent, willful intent to evade the payment of these sums. Respondent has issued five warrants concerning the unremitted taxes, penalties, and interest. Warrant 953620064 shows that Petitioner owes $1171 in sales tax remittances for the five months from July through November 1995. With penalties and interest, the total due on this warrant, through June 5, 1998, is $1832.37. Interest accrues after June 5 at the daily rate of $0.35. Warrant 467049 shows that Petitioner owes $2940.25 in sales tax remittances for the following months: April 1996, October 1996, December 1996, and January 1997. Petitioner purportedly paid each of these remittances with five (two in January) checks that were later dishonored. With penalties, including the 100 percent penalty for fraud, and interest, the total due on this warrant, through June 5, 1998, is $7480.12. Interest accrues after June 5 at the daily rate of $0.95. Warrant 971680037 shows that Petitioner owes $1301.85 in sales tax remittances for the following months: December 1995, June 1996, July 1996, September 1996, November 1996, and February 1997. With penalties and interest, the total due on this warrant, through June 5, 1998, is $2669.69. Interest accrues after June 5 at the daily rate of $0.43. Warrant 471481 shows that Petitioner owes $2912.48 in sales tax remittances for October and November 1997, for which Petitioner made remittances with two dishonored checks. With penalties, including the 100 percent penalty, and interest, the total due on this warrant, through June 5, 1998, is $6751.49. Interest accrues after June 5 at the daily rate of $0.95. Warrant 989840034 shows that Petitioner owes $8077.76 in sales tax remittances for the following months: August 1997, September 1997, December 1997, January 1998, and February 1998. With interest, the total due on this warrant, through June 5, 1998, is $8285.21. Interest accrues after June 5 at the daily rate of $2.65. Totaling the five warrants, Petitioner owes a total of $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order determining that Petitioner owes $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid. DONE AND ENTERED this 10th day of July, 1998, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1998. COPIES FURNISHED: John N. Upchurch Nicholas Bykowsky Assistant Attorneys General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Judith Crown, President Tombstone, Inc. Suite P-50 1200 West Retta Esplanade Punta Gorda, Florida 33950 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue At issue in this case is whether Respondents, the Office of Insurance Regulation ("OIR" or "the Office") or the Financial Services Commission ("the Commission") have developed agency statements of general applicability meeting the definition of a rule in section 120.52(10), Florida Statutes (2011), governing its review, evaluation, recalculation, and disposition of excessive profits filings submitted pursuant to section 627.215, Florida Statutes (2011). If so, it must be determined whether those statements have been adopted as rules pursuant to the rulemaking process in section 120.54(1).
Findings Of Fact Premier is a foreign insurer authorized to write workers' compensation insurance in the State of Florida. As a workers' compensation insurer, Premier is subject to the jurisdiction of the Office. Premier began writing workers' compensation insurance coverage in Florida on January 1, 2005. The Office is a subdivision of the Financial Services Commission responsible for the administration of the Insurance Code, including section 627.215. Section 627.215(1)(a) requires that insurer groups writing workers' compensation insurance file with the Office on a form prescribed by the Commission, the calendar-year earned premium; accident-year incurred losses and loss adjustment expenses; the administrative and selling expenses incurred in Florida or allocated to Florida for the calendar year; and policyholder dividends applicable to the calendar year. Insurer groups writing other types of insurance are also governed by the provisions of this section. The purpose of section 627.215 is to determine whether insurers have realized an excessive profit and if so, to provide a mechanism for determining the profit and ordering its return to consumers. Insurer groups are also required to file a schedule of Florida loss and loss adjustment experience for each of the three years prior to the most recent accident year. Section 627.215(2) provides that "[t]he incurred losses and loss adjustment expenses shall be valued as of December 31 of the first year following the latest accident year to be reported, developed to an ultimate basis, and at two 12-month intervals thereafter, each developed to an ultimate basis, so that a total of three evaluations will be provided for each accident year." Section 627.215 contains definitions that are critical to understanding the method for determining excess profits. Those definitions are as follows: "Underwriting gain or loss" is computed as follows "the sum of the accident-year incurred losses and loss adjustment expenses as of December 31 of the year, developed to an ultimate basis, plus the administrative and selling expenses incurred in the calendar year, plus policyholder dividends applicable to the calendar year, shall be subtracted from the calendar-year earned premium." § 627.215(4). "Anticipated underwriting profit" means "the sum of the dollar amounts obtained by multiplying, for each rate filing of the insurer group in effect during such period, the earned premium applicable to such rate filing during such period by the percentage factor included in such rate filing for profit and contingencies, such percentage factor having been determined with due recognition to investment income from funds generated by Florida business, except that the anticipated underwriting profit . . . shall be calculated using a profit and contingencies factor that is not less than zero." § 627.215(8). Section 627.215 requires that the underwriting gain or loss be compared to the anticipated underwriting profit, which, as previously stated, is tied to the applicable rate filing for the insurer. Rate filings represent a forecast of expected results, while the excess profits filing is based on actual expenses for the same timeframe. The actual calculation for determining whether an insurer has reaped excess profits is included in section 627.215(7)(a): Beginning with the July 1, 1991, report for workers' compensation insurance, employer's liability insurance, and commercial casualty insurance, an excessive profit has been realized if the net aggregate underwriting gain for all these lines combined is greater than the net aggregate anticipated underwriting profit for these lines plus 5 percent of earned premiums for the 3 most recent calendar years for which data is filed under this section. . . Should the Office determine, using this calculation, that an excess profit has been realized, the Office is required to order a return of those excess profits after affording the insurer group an opportunity for hearing pursuant to chapter 120. OIR B1-15 (Form F) is a form that the Office has adopted in Florida Administrative Code Rule 69O-189.007, which was promulgated pursuant to the authority in section 627.215. The information submitted by an insurer group on Form F is used by the Office to calculate the amount of excessive profits, if any, that a company has realized for the three calendar-accident years reported. The terms "loss adjustment expenses," and "administrative and selling expenses," are not defined by statute. Nor are they defined in rule 69O-189.007 or the instructions for Form F. On or about June 30, 2009, Premier filed its original Form F Filing with the Office pursuant to section 627.215 and rule 69O-189.007. Rule 69O-189.007 requires that a Form F be filed each year on or before July 1. The first page of Form F includes section four, under which calendar year administrative and selling expenses are listed. Section four includes five subparts: A) commissions and brokerage expenses; B) other acquisition, field supervision and collection expense; C) general expenses incurred; D) taxes, licenses and fees incurred; and E) other expenses not included above. Premier subsequently filed three amendments to its Form F filing on December 11, 2009; on June 21, 2010; and on January 13, 2012. In each of its amended filings, Premier included the federal income tax expense attributable to underwriting profit it earned during the 2005-2007 period. These expenses were included under section four(E). No guidance is provided in section 627.215, in rule 60O- 189.007, or in the instructions for Form F, to identify what expenses may properly be included in the Form F filing. There is no indication in any of these three sources, or in any other document identified by the Office, that identifies whether federal income taxes are to be included or excluded from expenses to be reported in a Form F filing. While the form clearly references taxes, licenses and fees incurred under section 4(D), the instructions do not delineate what types of taxes, licenses and fees should be included. The instructions simply state: "for each of the expenses in item 4, please provide an explanation of the methodology used in deriving the expenses, including supporting data." The Office takes the position that federal income taxes should not be reported as an expense for the purpose of determining excess profits. It position, as characterized by Petitioner, is that "in determining what expenses may be deducted in calculating whether and to what extent excessive profits have been realized during the reporting period, the Office shall disallow any deduction for federal income tax or the net effect of federal income tax accrued or paid during the reporting period." According to James Watford, a Department actuary who reviews the excess profits reports, this position has not changed at any time in the last ten years. In August 2009, a petition was filed against the Office challenging the statement stated above as an unadopted rule. FFVA Mutual Insurance Co. v. Office of Insurance Regulation, DOAH Case No. 09-4193RU. The proceeding in the FFVA case was placed in abeyance based upon the Office's agreement to initiate rulemaking. A Notice of Development of Rulemaking was published and a workshop was conducted on February 22, 2010. On or about June 17, 2010, James Watford circulated proposed changes to rule 69O-189.007, which included changes to the instructions to Form F. Among those proposed changes was the addition of the following statement: "[f]ederal income tax is not to be included as an expense because the 'anticipated underwriting profit' is based on a pre-Federal income tax profit and contingencies factor." This language would have placed the position consistently taken by the Office in the materials incorporated into the rule. On November 17, 2010, a second rule development workshop was held on the proposed changes to rule 69O-189.007. However, no further action toward adopting the proposed revisions took place. At some point, the FFVA challenge was dismissed based upon a settlement between the parties, and the Office never sought approval from the Commission to notice the proposed changes for rulemaking. No further action has been taken to adopt the Office's position through the chapter 120 rulemaking process, and no credible explanation was provided to explain why the Office did not present the proposed changes to the Commission to obtain permission to notice the proposed rules. Although Mr. Watford testified that the Office has "clearly enunciated [its] position on federal income tax," he acknowledged that it has not been adopted through the rulemaking process. He stated, "before that ever came into existence, we had discussions with companies about the appropriateness of including that the fact that it is already included in the profit factor. . . . It was not published in a rule, because it is -- we thought it was pretty commonly understood by most parties." The Office insists that it is not feasible to consider federal income taxes in the excess profits calculation. It pointed to no real impediment to adopting its position of not considering federal income taxes through the rulemaking process. On January 4, 2011, Governor Scott issued Executive Order 11-1, which temporarily suspended rulemaking for executive branch agencies reporting to the Governor. Executive Order 11-1 was issued 11 months after the Office published its first Notice of Rule Development in February 2010, and did not apply to either the Office or the Commission. The Office also points to publications published by other entities, such as the Actuarial Standards Board and the National Association of Insurance Commissioners ("NAIC"), to support its position that federal income taxes may not be considered in determining excess profits. However, section 627.215 does not reference any of these publications, and they are not incorporated by reference in the Office's rule regarding excessive profits. Nor do these publications expressly reference what can be considered for excess profits calculations. During the 2012 legislative session, section 627.215 was amended to delete the excess profits filing requirement for workers' compensation insurance. § 7, ch. 2012-213, Laws of Fla. Section 627.213 had not been amended prior to this year since 2003. However, the Office continues to assert its position with respect to the exclusion federal income taxes as an expense to those filings remaining in the "pipeline." Section 627.215 continues to apply to other types of insurance.
The Issue Whether the Rule 12A-1.57 (3), Florida Administrative Code, should be invalidated as an invalid exercise of delegated legislative authority within the meaning of Section 120.56, Florida Statutes.
Findings Of Fact This case is here presented on the petition of Holiday Inn Oceanside/Cleveland Caribbean, Inc., which prays for the determination of the invalidity of an existing rule of the Florida Administrative Code. That rule is Rule 12A-1.57(3), Florida Administrative Code. The petition to challenge the rule was filed on May 17, 1979, and in keeping with the provisions of Section 120.56, Florida Statutes, the Director of the Division of Administrative Hearings entered an Order of Assignment on May 23, 1979, which designated Charles C. Adams as the Hearing Officer to consider this rules challenge. By prior agreement, which is set out in detail in the introductory portion of this Order, the case is presented on the record created in the companion case of State of Florida, Department of Revenue, Petitioner, vs. Holiday Inn Oceanside/Cleveland Caribbean, Inc., Respondent, DOAH. Case No. 79-247, and memoranda directed to the rules challenge claim. The pertinent provisions of Section 120.56, Florida Statutes, by which this rules challenge is made is that provision found in Subsection 120.56(1), Florida Statutes, which states: Administrative determination of rule by hearing officer Any person substantially affected by a rule may seek an administrative determination of the invalidity of the rule on the ground that the rule is an invalid exercise of delegated legislative authority. Under the language of that subsection of law, the threshold question to be determined in this matter concerns the standing of the Petitioner to bring this claim. Petitioner's standing is assured in view of the fact that through the companion case, DOAH. 79-247, the Respondent in the present dispute has utilized Rule 12A-1.57(3), Florida Administrative Code, as its basis for claiming tax in the amount of $10,176.18, plus 5 percent penalty and interest accrued thereon. Therefore, the Petitioner in this cause is substantially affected by the subject rule and has the necessary standing to attack the validity of that rule on the grounds that the rule is allegedly an invalid exercise of delegated authority. The language of Rule 12A-1.57 (3), Florida Administrative Code, is as follows: 12A-1.57 Alcoholic and malt beverages. (3) Dealers in alcoholic and malt beverages are required to remit the actual tax collected to the State. In some instances, however, it may be impractical for such dealers to separately record the sales price of the beverage and the tax collected thereon. In such cases, dealers may elect to report tax on the following basis. Package stores who sell no mixed drinks should remit the tax at 4.3 percent of total receipts and dealers who sell mixed drinks or a combination of mixed drinks and packaged goods should remit the tax at the rate of 4.5 percent of total receipts. In those instances where the sales price and the tax have not been separately recorded but where it can be demonstrated that the public has been put on notice means of price lists posted prominently throughout the establishment that the total charge includes tax, the dealer may deduct the tax from the total receipts to arrive at the appropriate tax and gross sales figures using the method shown below: Total receipts divided by the tax rate gross sales. For example, a package store which sells no mixed drinks and whose total receipts are $2,000 could compute sales as follows: $2,000 divided by 1.043 percent gross sales $1,917.54 tax collected 82.46 A dealer who sells drinks or a combination of drinks and package goods and whose total receipts are $2,000 would compute sales as follows: $2,000 divided by 1.045 percent gross sales $1,913.87 tax collected 86.12 When the public has not been put on notice through the posting of price lists that tax is included in the total charge, tax shall be computed by multiplying total receipts by the applicable rates referred to in this rule. The Petitioner sets out its attack on the validity of the aforementioned rule by referring to the statutory provisions of Subsections 212.17(6) and 212.18(2), Florida Statutes. These subsections were also given as the specific authority when the subject rule was enacted. The referenced provisions of Chapter 212, Florida Statutes, indicate: 212.17(6) The department shall have the power to make, prescribe and publish reasonable rules and regulations not inconsistent with this chapter, or other laws, or the constitution of this state, or the United States, for the enforcement of the provisions of this chapter and the collection of revenue hereunder, and such rules and regulations shall when enforced be deemed to be reasonable and just. 212.18(2) The department shall administer and enforce the assessment and collection of the taxes, interest, and penalties imposed by this chapter. It is authorized to make and publish such rules and regulations not inconsistent with this chapter, as it may deem necessary in enforcing its provisions in order that there shall not be collected on the average more than the rate levied herein. The department is authorized to and it shall provide by rule and regulation a method for accomplishing this end. It shall prepare instructions to all persons required by this chapter to collect and remit the tax to guide such persons in the proper collection and remission of such tax and to instruct such persons in the practices that may be necessary for the purpose of enforcement of this chapter and the collection of the tax imposed hereby. The use of tokens in the collection of this tax is hereby expressly forbidden and prohibited. In analyzing the language of the aforementioned provisions, the Petitioner urges that although the Respondent has the authority and obligation to make rules and regulations to implement the provisions of Chapter 212, Florida Statutes, these rules and regulations may not violate the provisions of the statute, other laws of Florida or the Constitution of the United States or the Constitution of the State of Florida. When the precautionary comment of the statute is read in conjunction with Subsection 212.18(2), Florida Statutes, wherein that subsection states that rules and regulations shall be established in a fashion "in order that there shall not be collected on the average more, than the rate levied herein", the Petitioner believes there is created a prohibition against the assessment of a 4.5 percent sales tax on the sale by the Petitioner of mixed drinks and package goods, as called for by the terms of Rule 12A-1.57(3), Florida Administrative Code. Following the Petitioner's line of reasoning, it contends that the overall statutory meaning of Chapter 212, Florida Statutes, calls for the imposition of a 4 percent sales tax and to add an additional .5 percent sales tax by the utilization of Rule 12A-1.57(3), Florida Administrative Code, is an invalid exercise of delegated legislative authority. The subject rule according to the Petitioner is a derogation of the controlling provision of Subsection 212.18(2), Florida Statutes, which does not allow tax to be collected on the average more than the rate of 4 percent, thereby causing this Petitioner to pay an additional $10,176.18, together with a 5 percent penalty and interest. In replying to the Petitioner's attack on the rule, the Respondent refers to the same Subsections 212.17(6) and 212.18(2), Florida Statutes, to support its claim of the validity of the questioned rule. The Respondent feels that the application of a 4.5 percent rate on those occasions where a dealer did not keep itemized sales receipts showing the sales price and tax separately recorded for each and every transaction, was in keeping with the proviso that, "There shall not be collected on the average more than the rate levied herein", Subsection 212.18(2), Florida Statutes, supra. The Respondent then cites sane examples of the implementation of the 4.5 percent theory by showing hypothetical known sales prices in one column, tax due on those sales prices in the second column, and the total amount of price and tax in a third column. By this formula the price total was $3.70, the tax due $.17 and the total amount of price and tax, $3.87. The Respondent then applies the 4.5 percent theory found in Rule 12A-1.57(3), Florida Administrative Code, to that amount by dividing the total receipts which includes sales price figures and the tax, by the 1.045 divisor. This gives a figure of $3.703 as the gross amount of sales, which is then subtracted from $ 3.87 total receipts, the known total of sales and tax due in the hypothetical; revealing a figure of $.167 as tax due, as contrasted with $.17 known amount of tax due in the hypothetical. To the Respondent this demonstrates that The actual tax collected exceeds the amount of speculated tax applying the 4.5 percent rule. The comparison is then taken a step further by utilizing the Petitioner's claimed rate of tax which is 4.1666667 percent (which the Petitioner in its hypothetical has reduced to 4.16667 for its hypothetical computations), and by dividing the known total receipts in the hypothetical by the figure 1.041667, the gross sales amount is $3.715. When this is subtracted from $3.87 total receipts, the amount resulting is $.155, which is less than $.17 tax due under the hypothetical and less exact than the application of the 4.5 percent formula of the rule, which gives $.167 as tax due. The Petitioner has vigorously opposed the utilization of the hypothetical and stated that its formula of 4.1666667 percent his a formula arrived at in view of its claim that all drinks are in increments of $.25 to include tax, thereby making their sales tax percentage infallible when applied to the sales which were made during the time period which is the subject of the audit in the case DOAH. 79-247 and making Rule 12A-1.57(3), Florida Administrative Code, inapplicable. It is not necessary in this case to resolve the question of the applicability of the subject rule to the Petitioner, nor to determine if the tax is due; having found that the Respondent is attempting to apply the rule to the Petitioner, the sole purpose of this Order is to comment on the validity of Rule 12A-1.57(3), Florida Administrative Code, when considered in keeping with the conditions of Section 120.56, Florida Statutes. Within those parameters and after considering the positions of the parties, thee Respondent is found to be correct. Section 212.05, Florida Statutes, sets the rate of sales tax at 4 percent on sale of articles of tangible personal property when sold at retail in the State of Florida. A further refinement to this general statement calling for a 4 percent sales tax is found in the provision Subsection 212.12(10), Florida Statutes, which creates a bracketing system, the effect of which has been seen in, the hypothetical offered by the, Respondent in its argument. That effect includes the possibility that the actual amount of tax will exceed 4 percent. The breakout of the bracketing provisions in Subsection 212.12, Florida Statutes, is as follows: 212.12(10) Taxes imposed by this chapter upon the privilege of the use, consumption, or storage for consumption, or sale of tangible personal property, admissions and rentals, and communication services as herein taxed shall be collected upon the basis of an addition of the tax imposed by this chapter to the total price of such admissions, rentals, communication services or sale price of such article or articles that are purchased, sold or leased at any one time by or to a customer or buyer, and the dealer, or person charged herein, is required to pay a privilege tax in the amount of the tax imposed by this chapter on the total of his gross sales of tangible personal property, admissions, and rentals, communication services and such person or dealer shall add the tax imposed by this chapter to the price, rental or admissions, and communication services and collect the total sum from the purchaser, admittee, lessee or consumer. Notwithstanding the rate of taxes imposed upon the privilege of sales, admissions and rentals, and communication services, the following brackets shall be applicable to all 4 percent taxable transactions: On single sales of less than 10 cents no tax shall be added. On single sales in amounts from 10 cents to 25 cents, both inclusive, 1 cent shall be added for taxes. On sales in amounts from 26 cents to 50 cents, both inclusive, 2 cents shall be added for taxes. On sales in amounts from 51 cents to 75 cents, both inclusive, 3 cents shall be added for taxes. On sales in amounts from 76 cents to $1, both inclusive, 4 cents shall be added for taxes. On sales in amounts of more than $1, 4 percent shall be charged upon each dollar of price, plus the above bracket charges upon any fractional part of a dollar. Consequently, Rule 12A-1.57(3), Florida Administrative Code, in its general call for a 4.5 percent tax as an option to other methods of tax computation, is consistent with the statutes, other laws of Florida and the Constitutions of the United States and the State of Florida and does not cause the collection on the average of more than the 4 percent tax levied by Chapter 212, Florida Statutes. As such, it is a valid exercise of delegated legislative authority. The Respondent has submitted Proposed Findings of Fact, Conclusions of Law and Recommendation and to the extent that those matters are not inconsistent with this Order, they have been utilized. To the extent that those proposals by the Respondent are inconsistent with this Order, they are specifically rejected.
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 =================================================================
The Issue The parties stipulated that the following legal issues were presented on the facts: When the taxpayer fails to claim the tax credit for sales tax on bad debts charged off during the month for which the return is filed as permitted by Section 212.17(8) Florida Statutes, may the taxpayer claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes? Does claiming a bad debt credit on a return for a month later than the month in which the charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes? STIPULATIONS The parties entered into a written stipulation of the issues, of the facts, and stipulated to the introduction into evidence of the attachments to the written stipulation of facts and the Exhibits 1 through 6. The following are the pertinent findings of fact in this case.
Findings Of Fact Causeway Lumber Company, Inc., (Causeway) is a Florida corporation engaged in the sale of lumber and building materials. During the years 1973- 1977 it operated two yards; one at 2701 South Andrews Avenue, Fort Lauderdale, Broward County, and one and 400 Northwest 2nd Avenue, Boca Raton, Palm Beach County. Because it operated in two counties, separate tax returns were filed for the Fort Lauderdale yard and the Boca Raton yard. Causeway uses the accrual method of accounting, the specific charge-off method of writing off bad debts, and its fiscal year ends March 31. Causeway did not collect the sales tax on credit sales at the time such sales were made, but billed sales tax to its customers as part of the credit sales. Although the sales taxes were not received by Causeway at the time the credit sales were made, Causeway reported and paid the sales tax on credit sales on the return for the month in which the sale was made as required in Section 212.06, Florida Statutes. In March of 1974, 1975, and 1976 the accounts receivable were reviewed and the account deemed worthless were written off as uncollectable and so reported on the corporation's income tax returns for those years. Causeway attempted to take as a credit in September of 1976 all of the bad debts written off in March of 1974, 1975 and 1976. The taking of this credit was questioned by the Comptroller, and Causeway paid the taxes due on the September 1976 sales tax remittance and then filed an application for refund on January 20, 1978, pursuant to provisions of Section 215.26, Florida Statutes. The Comptroller denied the application for refund stating as the grounds that there was no authority in Section 212.17, Florida Statutes, for a refund. Causeway's two outlets overpaid sales taxes in the following amounts in the years indicated: 1974 1975 1976 Boca Raton $ 1,072.51 $ 9,208.17 $ 30,477.11 Ft. Lauderdale 3,323.15 10,237.33 10,004.22 $ 4,395.66 $ 19,445.50 $ 40,481.33
Recommendation Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends to the Comptroller that the taxpayer be refunded the taxes overpaid in 1975, and 1976, in the total amount of $59,926.83. DONE and ORDERED this 9th day of October, 1978, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of October, 1978. COPIES FURNISHED: Richard W. Roe 2900 East Oakland Park Boulevard Fort Lauderdale, Florida 33306 Harold F. X. Purnell Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304 Eugene J. Cella General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 =================================================================
