Findings Of Fact Petitioner, Omni International of Miami, Limited (Omni), is the owner of a large complex located at 1601 Biscayne Boulevard, Miami, Florida. The complex is commonly known as the Omni complex, and contains a shopping mall, hotel and parking garage. On July 30, 1981, Petitioner filed two applications for refund with Respondent, Department of Banking and Finance, seeking a refund of $57,866.20 and $4,466.48 for sales tax previously paid to the Department of Revenue on sales of electricity and gas consumed by its commercial tenants from April, 1978 through March, 1981. On November 22, 1982, Respondent denied the applications. The denial prompted the instant proceeding. The shopping mall portion of the Omni complex houses more than one hundred fifty commercial tenants, each of whom has entered into a lease arrangement with Omni. The utility companies do not provide individual electric and gas meters to each commercial tenant but instead furnish the utilities through a single master meter. Because of this, it is necessary that electricity and gas charges be reallocated to each tenant on a monthly basis. Therefore, Omni receives a single monthly electric and gas bill reflecting total consumption for the entire complex, and charges each tenant its estimated monthly consumption plus a sales tax on that amount. The utility charge is separately itemized on the tenant's bill and includes a provision for sales tax. Petitioner has paid all required sales taxes on such consumption. The estimated consumption is derived after reviewing the number of electric outlets, hours of operations, square footage, and number and type of appliances and lights that are used within the rented space. This consumption is then applied to billing schedules prepared by the utility companies which give the monthly charge. The estimates are revised every six months based upon further inspections of the tenant's premises, and any changes such as the adding or decreasing of appliances and lights, or different hours of operations. The lease agreement executed by Omni and its tenants provides that if Omni opts to furnish utilities through a master meter arrangement, as it has done in the past, the tenant agrees to "pay additional rent therefor when bills are rendered." This term was included in the lease to give Omni the right to invoke the rent default provision of the lease in the event a tenant failed to make payment. It is not construed as additional rent or consideration for the privilege of occupying the premises. Omni makes no profit on the sale of electricity and gas. Rather, it is simply being reimbursed by the tenants for their actual utility consumption. If the applications are denied, Petitioner will have paid a sales tax on the utility consumption twice -- once when the monthly utility bills were paid, and a second time for "additional rent" for occupancy of the premises.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Petitioner's applications for refund, with interest, be approved. DONE and RECOMMENDED this 15th day of April, 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 15th day of April, 1983.
Findings Of Fact The parties stipulated to certain facts, legal issues, and their respective contentions, as follow: "1. At all times pertinent to this action, Petitioner Lawrence Nali Construction Company, Inc., was a Florida Corporation licensed and doing business in the State of Florida. At all times pertinent to this action, Respondent Department of Revenue, State of Florida, was an agency of the State of Florida exercising duties relating to the assessment and collection of sales and use taxes pursuant to Chapter 212, Florida Statutes. Respondent conducted an audit of tran- sactions involving Petitioner for the period November 1, 1972, through October 31, 1975. As a result of that audit, Respondent claims that as of September 17, 1976, the Petitioner had a balance due to the Depart- ment of Revenue of $17,383.58 in taxes, interest and penalties. The assessment indicating the above amount is attached as Exhibit A. Petitioner is in agreement that if the assessment is upheld, Petitioner owes to the Respondent the amount of $17,383.58 plus interest calculated to date of payment to Respondent. The tax assessment in this case is based upon two factual situations: Petitioner, manufactured and installed asphaltic concrete from raw material at a rate certain per ton determined by bid, as an improvement to the real property of political entities consisting of cities, towns, municipalities, counties, school boards, junior colleges and others. Petitioner also hauled the asphalt to the job cite (sic) at a fixed ton/mile rate determined by bid. Petitioner, as a subcontractor, manu- factured and installed asphaltic concrete from raw material at a rate certain per ton determined by bid, as an improvement to the real property of political entities above described. The general contractor contracted with the political entities in various fashions but the Petitioner's duties were always the same and included manufacture, installation and hauling of asphaltic concrete based on a rate certain per ton and per ton mile. The issue in this case is whether the Respondent is correct in contending that the Petitioner must pay a sales and use tax on the produced asphalt which it uses in the performance of the construction contract jobs described in paragraph 6. It is agreed by the parties that no sales or use tax was remitted, by the Petitioner on the produced asphalt. It is agreed by the parties that no sales or use tax was paid by the instant customers to the Petitioner. It is Respondent's contention that, pursuant to the above-cited rules, the Peti- tioner is required to pay sales or use tax on the produced asphalt which is used to construct real property pursuant to a con- tract described in Rule 12A-1.51(2)(a), F.A.C. It is Petitioner's contention that the above-cited rules do not apply in the instant case since the customers involved in the instant fact situations are political subdivision or because the transaction was of the type described by Rule 12A-1.51(2)(d), F.A.C. Petitioner is entitled to rely on the earlier 1967 audit by Respondent because neither Petitioner's method of doing business, nor the law, has changed materially since 1967. Respondent agrees that this is an issue but fails to agree that Petitioner is so entitled to rely." All purchase orders or invitations for bid received by petitioner from political subdivisions stated that the entity was exempt from federal and state sales taxes and that such taxes should not be included in the bid. Typical bid forms entitled "Specifications for Asphaltic Concrete" called for a lump-sum price per ton for delivery and placement of the material by the vendor plus a sum per ton per mile for transportation costs. No breakdown of amounts for the cost of materials and cost of installation is reflected in the bid documents. (Testimony of Cowan, Cook, Exhibits 3, 7 (late filed)) Respondent audited petitioner's operations in 1967 and, although it had had previous transactions with governmental entities prior to that date, no assessment for back taxes was issued for failure to pay sales tax on such transactions nor was petitioner advised to do so in the future by state officials. After 1967, petitioner did not seek information from respondent concerning the subject of sales tax. As a consequence of the 1967 audit, petitioner believed that it was unnecessary to charge or pay sales tax on such transactions with political subdivisions. (Testimony of Cowan, Cook) As of April 1, 1977, Brevard County had a population of over 250,000. Although it is a large county in terms of size, respondent has only two auditors in the sales tax division to cover the entire county. (Testimony of Alberto, Cowan, Exhibit 4)
Recommendation That the petitioner Lawrence Nali Construction Company, Inc. be held liable for sales tax, penalty, and interest under Chapter 212, Florida Statutes, as set forth in respondent's proposed assessment. DONE and ENTERED this 9th day of September, 1977, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: Daniel Brown, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Andrew A. Graham, Esquire Post Office Box 1657 Cocoa, Florida 32922
Findings Of Fact In 1962, the Corporation decided to relocate its corporate offices from Newark, New Jersey, to the State of Florida. Implementing this decision, the Corporation secured a twenty year leasehold interest of an entire floor in the Universal Marion Building in Jacksonville, Florida, under which it was obligated to pay an annual rental of $52,000.00. Within a few months during the year 1962, the decision to relocate was rescinded. During the tax year in question, the Corporation retained a part-time employee in Florida for the sole purpose of attempting to either locate a purchaser of the leasehold interest or to avoid further obligations under the lease by negotiations and settlement with the landlord. This part-time employee received his directions from the corporate offices in Newark, New Jersey. Other than these efforts to relieve the burden of the unused leased premises, the Corporation conducted no commercial activities in the State of Florida during the tax year 1973. Although the Corporation's headquarters were ultimately moved to Jacksonville, in January 1976, the Corporation has never occupied the leased premises in question. In fact, in 1974, the Corporation entered into a sublease with the State of Florida for the duration of the lease. Pursuant to audit, DOR assessed the Corporation an additional $12,616.89 in income tax for the year ended December 31, 1973, using the three-factor formula method of apportionment.
The Issue The issue in this case is whether SNS Lakeland, Inc. (Petitioner), collected and remitted the correct amount of sales and use tax on its operations for the audit period.
Findings Of Fact DOR is the state agency charged with the responsibility of administering and enforcing the tax laws of the state of Florida. In conjunction with that duty, DOR performs audits of business entities conducting sales and use transactions. At all times material to the issue of this case, Petitioner conducted business as a convenience store located at 811 East Palmetto Street, Lakeland, Florida. Petitioner was obligated to collect and remit sales and use tax in connection with the activities of its business enterprise. Petitioner’s Federal Identification Number is 26-0412370. Petitioner is authorized to conduct business within the state and its certificate of registration number is 63-8013863272-3. In order to properly perform its audit responsibilities, DOR requires that businesses maintain and present business records to support the collection of sales and use taxes. In this case, DOR notified Petitioner that it intended to audit the business operations for the audit period, June 1, 2007, through September 30, 2009. After the appropriate pre-audit notice and exchange of information, DOR examined Petitioner’s financial records. Since Petitioner did not maintain register tapes (that would track sales information most accurately), the Department examined all records that were available: financial statements, federal and state tax returns, purchase invoices/receipts, bank records, and register tapes that were available from outside the audit period. Petitioner’s reported tax payments with the amounts and types of taxes that it remitted should have been supported by the records it maintained. Theoretically, the sums remitted to the Department should match the records of the business entity. In this case, the amount remitted by Petitioner could not be reconciled with the business records maintained by the business entity. As a result, the auditor determined the sales tax due based upon the best information available. First, the auditor looked at the actual register tapes for the period November 10, 2010, through November 29, 2010 (sample tapes). Had Petitioner kept its sales receipts, the actual receipts for the audit period would have been used. Nevertheless, the sample tapes were used to estimate (based upon the actual business history of the company) the types and volumes of sales typically made at the store. Secondly, in order to determine the mark-up on the sales, the auditor used Petitioner’s purchase invoices, worksheets, profit and loss statements, and federal and state tax returns. In this regard, the auditor could compare the inventory coming in to the store with the reported results of the sales. Third, the auditor determined what percentage of the sales typically would be considered exempt from tax at the time of acquisition, but then re-sold at a marked-up price for a taxable event. Petitioner argued that 70 percent of its gross sales were taxable, but had no documentary evidence to support that conclusion. In contrast, after sampling records from four consecutive months, the Department calculated that the items purchased for sale at retail were approximately 78 percent taxable. By multiplying the effective tax rate (calculated at 7.0816) by the amount of taxable sales, the Department computed the gross sales tax that Petitioner should have remitted to the state. That gross amount was then reduced by the taxes actually paid by Petitioner. Petitioner argued that the mark-up on beer and cigarettes used by the Department was too high (thereby yielding a higher tax). DOR specifically considered information of similar convenience stores to determine an appropriate mark-up. Nevertheless, when contested by Petitioner, DOR adjusted the beer and cigarette mark-up and revised the audit findings. Petitioner presented no evidence of what the mark-up actually was during the audit period, it simply claimed the mark-up assumed by DOR was too high. On March 30, 2011, DOR issued the Notice of Proposed Assessment for sales and use tax, penalty, and interest totaling $27,645.79. Interest on that amount accrues at the rate of $4.20, per day. In reaching these figures, DOR abated the penalty by 80 percent. The assessment was rendered on sales tax for sales of food, drink, beer, cigarettes, and tangible personal property. Petitioner continues to contest the assessment. Throughout the audit process and, subsequently, Petitioner never presented documentation to dispute the Department’s audit findings. DOR gave Petitioner every opportunity to present records that would establish that the correct amounts of sales taxes were collected and remitted. Simply stated, Petitioner did not maintain the records that might have supported its position. In the absence of such records, the Department is entitled to use the best accounting and audit methods available to it to reconcile the monies owed the state.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order sustaining the audit findings, and require Petitioner to remit the unpaid sales and use taxes, penalty, and interest as stated in the Department’s audit findings. DONE AND ENTERED this 9th day of November, 2011, in Tallahassee, Leon County, Florida. S J. D. PARRISH 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 November, 2011. COPIES FURNISHED: Marshall Stranburg, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32314-6668 Ashraf Barakat SNS Lakeland, Inc 811 East Palmetto Street Lakeland, Florida 33801 Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, PL-01 Revenue Litigation Bureau Tallahassee, Florida 32399 Brent Hanson B and M Business Services, Inc. 6735 Conroy Road, Suite 210 Orlando, Florida 32835 Lisa Vickers, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Post Office Box 6668 Tallahassee, Florida 32314-6668
Findings Of Fact Harris Corporation is a large, multi-national corporation with headquarters in Melbourne, Florida. Harris Corporation conducts its business through several divisions, one of which is Harris Composition Systems Division ("the taxpayer"). The taxpayer is engaged in the business of manufacturing and selling computerized printing equipment. On January 28, 1977, the State of Florida, Department of Revenue ("the Department") mailed a letter to the taxpayer, advising that an audit of the taxpayer's books and records be made available. The audit was undertaken by agents of the Department and on June 25, 1979, two Notices of Proposed Assessment (the "notices") were mailed to the taxpayer by the Department. The period covered by the Notices is January 1, 1974 through June 30, 1978. No proposed or actual assessment of the sales and use taxes referred to in the Notices was made by the Department prior to the proposed assessment. After receipt of the Notices, the taxpayer's representatives attended an informal conference with representatives of the Department on September 25, 1979. As a result of that conference the Department issued two Revised Notices of Proposed Assessment. The Revised Notices eliminated January 1, 1974 through May 31, 1974 from the period covered by the Notices but retained the period June 1, 1974 through June 30, 1978. The portion of the sales and use tax assessment proposed in the Revised Notices that is in dispute in this case is the portion that is attributable to the June 1, 1974 through June 30, 1976 period. The tax in controversy is $49,934.01. The Department has developed a form to be signed by taxpayers in situations where the Department believes that the statute of limitations on assessment of sales and use taxes may expire before an assessent can be made. The Department did not request that the taxpayer in this case execute such a form, nor did the Department request in any other manner that the taxpayer waive or extend the statute of limitations applicable to sales and use tax assessments and the taxpayer did not do so. Neither the Department nor the taxpayer instituted any judicial or administrative proceedings for review of the assessment proposed in the Notices or in the Revised Notices prior to the filing of a petition by the taxpayer in this case on March 20, 1980. The Department contends that any delay in issuing the proposed notices of assessment was directly attributable to difficulties encountered in obtaining records in a timely fashion from the taxpayer's parent company, and that the taxpayer should, therefore, be estopped to raise the defense of violation of the statute of limitations. The record in this proceeding does not support such a conclusion. Although there appear to have been some delays in performing the tax audits, the taxpayer was by no means responsible for all of those delays. In fact, the longest such delay, from about December 1, 1977, through May 3, 1978, was occasioned by the Department's own budgetary problems relating to per diem and travel expenses for its auditing team. Although some delays were requested by the taxpayer, they were acquiesced in by the Department in the course of establishing its own priorities in conducting the audit of all of the divisions of Harris Corporation. The record is devoid of any indication that the Department at any point considered any failure of the taxpayer to furnish requested information of sufficient severity to invoke the remedies available to the Department under Section 212.13(1), Florida Statutes (mandatory injunction to require examination of books and records) or Section 212.14(1), Florida Statutes (issuance of estimated tax deficiency together with distress warrant for collection of such taxes).
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That a Final Order be entered by the State of Florida, Department of Revenue, assessing sales and use taxes against Respondent in the amount of $49,934.01, together with the applicable amount of interest through the date of entry of said Final Order. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 14th day of January, 1981. WILLIAM E. WILLIAMS Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of January, 1981. COPIES FURNISHED: Linda C. Procta, Esquire Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304 Brian C. Ellis, Esquire 620 Twiggs Street Tampa, Florida 33602 ================================================================= AGENCY FINAL ORDER =================================================================
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
The Issue Whether Respondent Office of the Comptroller should refund to Petitioner taxes paid pursuant to Chapter 199 and 201, Florida Statutes.
Findings Of Fact The parties stipulated to the facts set forth in paragraphs 1 through 9 of the Petition herein, as follows: The agencies affected in this action are the Department of Revenue, Tallahassee, Florida, and the Office of the Comptroller, Tallahassee, Florida. The Petitioner is Zimmer Homes Corporation, 777 Southwest 12th Avenue, Pompano Beach, Florida. Zimmer Homes Corporation, on or about December 12, 1974, conveyed a piece of property described as follows: All of that part of the Southeast quarter of Section 10, Township 44 South, Range 42 East, of Palm Beach County, Florida, lying North of the North right-of-way (r/w) line of Forest Hill Boulevard, less the West 40 feet thereof for road right-of-way and less the East 40 feet thereof. The sellers paid the necessary excise tax on documents and intangible tax as follows: a. $11,250.00 total consideration $3,750,000.00 of Section Florida 201.02(1) Statutes b. 3,900.00 based upon note of $2,600,000.00 Section Florida 201.07 Statutes c. 1,542.00 based upon note of $1,027,906.00 Section Florida 201.07 Statutes d. 4,125.00 based upon total consider- ation of $3,750,000.00 Section Florida 201.021(1) Statutes e. 5,200.00 based upon mortgage secur- ing note of $2,600,000.00 Section Florida 199.032(2) Statutes f. 2,055.81 based upon mortgage secur- ing note of $1,027,906.00 Section Florida 199.032(2) Statutes A lawsuit was commenced for reasons not relevant to this Petition and the Circuit Court of the Fifteenth Judicial Circuit of Florida entered a Final Judgment on July 12, 1978, a copy of which is attached hereto as Exhibit "A". In the Final Judgment the Court determined that the Purchasers had a right to rescind the transaction. The Court ordered that all obligations of the parties arising out of the Purchase and Sale Agreement were cancelled and that the Purchasers were entitled to a sum of money in order to restore the parties to their original positions. (Petitioner's Exhibit 1). On March 22, 1979, pursuant to Section 215.26, Florida Statutes, Zimmer Homes Corporation applied for a refund of the excise tax on the documents in an amount as specified in Paragraphs 4(a), 4(b), 4(c) and 4(d), above. (Petitioner's Exhibit 4). On April 3, 1979, pursuant to Section 199.252, Florida Statutes, and Section 215.26, Florida Statutes, Zimmer Homes Corporation applied for a refund of the intangible tax paid in an amount as specified in Paragraphs 4(e) and 4(f) above. (Petitioner's Exhibit 4). According to a letter from the Office of the Comptroller dated April 23, 1979, a copy of which is attached hereto as Exhibit "B", the Office of the Comptroller indicated that they concurred with the findings and conclusions of the Department of Revenue in denying the refund request on the excise tax on documents as specified in paragraph 6 above. As grounds therefore, it was indicated that the refund requests were denied because the statute of limitations under Section 215.26, Florida Statutes, barred the request for refund. (Petitioner's Exhibit 3). By letter dated April 26, 1979, a copy of which is attached hereto as Exhibit "C", the Office of the Comptroller indicated that they concurred with the findings of the Department of Revenue on denying the refund for intangible taxes which had been paid as specified above. As grounds therefore it was indicated that the request was denied because the applicable statute of limitations had run. (Petitioner's Exhibit 2).
Recommendation That Petitioner's application for refund of tax paid under Chapters 199 and 201, Florida Statutes, be approved. DONE AND ENTERED this 6th day of September 1979 in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of September 1979. COPIES FURNISHED: Richard B. Burk, Esquire Scott, Burk, Royce and Harris 450 Royal Palm Way Palm Beach, Florida 33480 Barbara Harmon, Esquire Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32301 John D. Moriarty, Esquire Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32301 Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301
The Issue The issue in this case is whether Petitioner performed nontaxable services as a decorating contractor, as he maintains, or, rather, whether he leased tangible personal property and thereby incurred sales tax liability, as Respondent alleges.
Findings Of Fact The Parties At all relevant times, Petitioner Philip E. Hancock ("Hancock") was a sole proprietor doing business in and around Fort Lauderdale, Florida, under the names "Action Plant Rental" and "Action Plants." Respondent Department of Revenue ("Department"), an agency of the State of Florida, is authorized to administer the state's tax laws. An Overview of Hancock's Businesses In 1980, Hancock and his then-wife purchased a nursery and, as proprietors, started a business called "Landscape Concepts." Initially, the couple's business activities involved landscaping and (b) sales of plants and nursery stock at wholesale (mostly) and retail. Sometime in 1983, Landscape Concepts began "renting" plants and trees for special events, such as weddings, banquets, and charity fundraisers.2 In time, this plant rental business eclipsed the original landscaping and sales operations, and by the late 1980's the ascendant enterprise was dubbed "Action Plant Rental."3 In 1990, having established Action Plant Rental, the Hancocks sold their nursery, whereupon Landscape Concepts stopped selling plants on a regular basis. The landscaping business, in contrast, tapered off gradually, continuing for several more years until being discontinued completely at the end of 1993. As of January 1994, plant rental was Petitioner's sole vocation. A Closer Look At the Plant Rental Business The evidence concerning the details of how Hancock's plant rental business operated during the audit period is relatively sparse, consisting of little, if anything, other than Hancock's testimony, which is generally credible as far as it goes, but not comprehensive. Hancock's clients, for the most part, were not the individuals who hosted or sponsored the events for which Action Plant Rental supplied "green décor" (to use Hancock's phrase), but rather were the event planners, designers, florists, and hotels (which frequently acted as planners in connection with events held on their premises) who had been hired by the hosts or sponsors to make their events happen. Thus, Hancock usually did not deal directly with, for example, the bride, but with the bride's wedding planner. In effect, he was a subcontractor. Hancock did not enter into written contracts with his clients. When a client retained Hancock, the client informed Hancock when and where the event would be held, and told Hancock (or asked him for an opinion about) which plants would be appropriate. The evidence is ambiguous as to the degree of Hancock's input and discretion in selecting the particular plants to bring to a given event. While the undersigned is persuaded that Hancock had some involvement in choosing the plants at least some of the time, it cannot be found that this service, to the extent provided, added substantial value to the transaction——or was one for which clients specifically and knowingly paid. When the time came for Hancock to perform the agreement, he delivered the plants and trees to the site and, at a time before the event was to begin, set them up in the hall or ballroom. Setting up the plants to create a pleasing and appropriate environment no doubt required decorating skill. It is undisputed, moreover, that Hancock commonly added decorating touches, such as lights and decorative containers, to his plants and trees, which made the display more attractive. What is less clear, however, is whether clients purchased Hancock's decorating expertise——or if, instead, Hancock executed the commands of someone else who decided how to arrange and present the plants. On this point, as others, it might have been helpful to hear from some clients. As it is, Hancock's own testimony is somewhat ambiguous. While the question is extremely close, the undersigned is persuaded, on the evidence presented, that Hancock usually operated under the direction of his client and had relatively little control over the design and arrangement of his plants and trees at the event site. Thus, the undersigned is unable to find that Hancock's decorating services provided the ultimate value to Hancock's clients. Once the plants were set in place and Hancock was assured that the arrangement satisfied his client, Hancock left the event site. (This meant, of course, that someone——the client, the host, or even a guest——could have moved the plants around.4 The Department contends that Hancock's absence from the premises demonstrates decisively that possession and control of the plants was surrendered to his client. The undersigned has given this fact some weight, but not a great deal. For one thing, there is no persuasive evidence that the client typically remained on-site with the plants. Further, since the plants were generally set up in a "public" place (as opposed to a personal space such as an office) over which neither the client, nor the host, nor the guests had exclusive control,5 the undersigned is not persuaded that the client or others attending the event had possession and control of the plants in any meaningful sense. Indeed, under the Department's theory, the plants apparently would have been in the constructive possession, at least, of everyone present at the party——a conclusion that runs counter to common sense and ordinary experience. The opportunity to move a plant is not, in the undersigned’s mind, equivalent to having a possessory right or power over the plant.) When the event was over, Hancock returned to the site to retrieve and remove his plants. Later, Hancock sent the client an invoice for his "services." As far as the evidence shows, Hancock did not bill his clients separately for delivery, set up, removal, or design, but rather he charged a lump sum for the plants, which price included these associated services as part of the total package. Petitioner's History As a Sales Tax-Paying Dealer From at least 1985, and continuing through the middle of 1994, Landscape Concepts, as a registered dealer having identification number 16-03-109301-76, collected and remitted sales taxes on the revenues generated through retail plant sales and plant rentals, filing monthly sales tax returns as legally required.6 If a client gave Petitioner a resale certificate, however, Petitioner did not collect sales tax from that client. Because most of Petitioner's plant rental customers were other businesses (e.g. event planners, florists, and hotels) that provided resale certificates to Petitioner, a relatively small percentage of these transactions were taxed. In mid-1994, while in one of the Department's regional offices attending to some since forgotten sales tax-related matter, Hancock was shown Rule 12A-1.071 of the Florida Administrative Code. This Rule then contained the following provision: (35)(a) A decorating contractor who uses materials and supplies such as bunting, streamers, colored paper, wreaths, pennants, lights, rope, etc., in fulfilling a contract which requires the furnishing of arrangements and decorations to, and their subsequent removal from, hotels, offices, public buildings, etc., is the consumer of such materials and supplies and shall pay tax on their acquisition. The contractor's charge under such contract is a service charge and is exempt. Fla. Admin. Code R. 12A-1.071(35)(a).7 Hancock concluded that he was entitled to the benefit of the foregoing "decorator's exemption." Hancock asked a local employee of the Department whether he could claim the exemption, and she advised him to write a letter to the Department's main office in Tallahassee. Hancock sent the Department a letter announcing his intent to stop filing monthly sales tax returns. Enclosed with this letter was Hancock's sales tax certificate, which Hancock purported to "relinquish." The Department did not respond to Hancock's letter. Hancock did not file another sales tax return.8 The Audit and Protest In January 2001, the Department commenced a sales and use tax audit of Hancock's plant rental business, initially concentrating on the five-year period from December 1, 1995 through November 30, 2000. The Department later enlarged the audit period to span 16 years, reaching all the way back to June 1, 1985, and continuing through June 30, 2001. This expansion was based on the Department's belief that Hancock had never filed any sales tax returns respecting his business——a belief that, as found above, would prove to be incorrect. After concluding that Hancock's tax records were "adequate but voluminous," the Department used a sampling method to calculate the amount of tax allegedly owed.9 To determine the total amount of revenue subject to sales tax, the Department used as a starting point the gross receipts figures as reported on Hancock's federal income tax returns for the years 1995 through 2000, inclusive.10 From these figures, the Department calculated the average monthly receipts for each of the six years in question (by dividing 12 into each respective year's gross sales revenue). It also computed an average annual gross sales figure (by dividing 6 into the sum of the known annual gross receipts), along with an average average-monthly sales amount (by dividing 6 into the sum of the average monthly receipts). Year Here are the relevant Gross Sales numbers: Avg. Monthly Sales 1995 $ 99,045 $ 8,253.75 1996 $113,973 $ 9,497.75 1997 $171,721 $14,310.08 1998 $169,961 $14,163.42 1999 $126,306 $10,525.50 2000 $154,253 $12,854.42 Average Annual Gross Sales: $139,210.00 Average Average-Monthly Sales: $ 11,600.82 The Department apparently acquired more specific information regarding monthly receipts for the 11-month period from January through November 2000. During this period, Hancock's gross receipts totaled $113,661.00.11 The Department determined, based on these figures, that the total tax due for this particular period was $6,861.41. Dividing 113,661 into 6,861.41, the Department derived a "percentage of error" of .060367. This "percentage of error" was effectively the tax rate because, as we have seen, the Department believed that Hancock had paid no taxes whatsoever. The "percentage of error" slightly exceeded 6 percent (the present state sales tax rate) due to the inclusion of some county taxes.12 The Department computed the total sales tax allegedly due and owing as follows. To determine the tax due per month for the 121 months comprising the periods from (a) June 1985 through December 1994 and (b) January through June 2001, for which there were no "known-sales" numbers, the Department applied the "percentage of error" (=tax rate) against the average average-monthly sales figure of $11,600.82. To determine the tax due per month for the years 1995 through 2000, the Department applied the "percentage of error" against each respective year's average monthly sales figure. The sum of these monthly figures equaled the total alleged tax liability. Here are the numbers: Period Average Monthly Sales Tax Rate Tax Due Per Month Tax Due For Period Jun 1985 — Dec 1994 (115 months) 11,600.82 0.060367 700.31 80,535.65 Jan (12 — Dec 1995 months) 8,253.75 0.060367 498.25 5,979.00 Jan (12 — Dec 1996 months) 9,497.7613 0.060367 573.35 6,880.20 Jan (12 — Dec 1997 months) 14,310.08 0.060367 863.86 10,366.32 Jan (12 — Dec 1998 months) 14,163.42 0.060367 855.00 10,260.00 Jan (12 — Dec 1999 months) 10,525.50 0.060367 635.39 7,624.68 Jan (12 — Dec 2000 months) 12,854.4314 0.060367 775.98 9,311.76 Jan — Jun 2001 (6 months) $11,600.82 0.060367 700.31 4,201.86 135,159.47 In sum, the Department found that Hancock was liable for $134,337.17 in state sales taxes and $822.30 in County Taxes, see endnote 12, which amounts, when added together, equaled $135,159.47. Additionally, the Department found that Hancock owed small amounts of state use taxes in connection with several fixed assets. This aspect of the case received little attention, if any, at final hearing and accordingly will not be examined in great detail here. The following table summarizes the amounts that the Department claims are due and owing: Asset Transaction Date Tax Due Computer September 1995 229.12 Office refrigerator April 1997 24.00 Computer October 1998 72.00 Office Furniture December 1998 21.62 Printer May 1999 24.66 371.40 In January 2002, the Department notified Hancock that it intended to collect the alleged tax deficiencies just described, in the total principal amount of $135,530.87. In addition, the Department claimed $135,666.86 in interest through January 2, 2002, together with a total of $52,359.05 in penalties, making a grand total of $323,556.78. Hancock disputed the assessments and timely requested a formal administrative hearing. Ultimate Factual Determinations The factual question whether Hancock performed nontaxable services as a decorating contractor, as he maintains, or leased tangible personal property and thereby incurred sales tax liability, as the Department contends, is very close, at least based on the evidence presented. On a better record it might have been possible to answer this question with greater confidence——and, indeed, to obtain a different result. On this relatively limited record, however, the undersigned finds that the weight of the evidence tips ever so slightly in the Department's favor, primarily because it appears more likely than not that Hancock's clients were given a meaningful right to direct the use of the material personal property involved, namely the live plants and trees. Thus, while reasonable minds could differ, the undersigned finds that Hancock was engaging in the taxable business activity of leasing personal property. The evidence does not establish, however, and hence the undersigned does not find, that Hancock filed a grossly false or substantially incorrect return or made a substantial underpayment of tax. Likewise, Hancock did not file any fraudulent returns. Rather, Hancock properly filed returns through mid-1994, paying all of the sales and use taxes then due and owing. What Hancock failed to do was make all required tax payments after May 1994——a significant default, to be sure, but one that leaves him less liable, in fact, for back-taxes than the Department has contended. Hancock's decision to stop collecting and remitting sales taxes, moreover, was based not upon an intent to defraud but upon an honest, if mistaken, belief that the business of Action Plant Rental fell within the "decorator's exemption."15 Apart from any question of liability, the Department's assessment of the amount of state sales taxes and County Taxes allegedly due and owing for the period from June 1985 through December 1993 is clearly erroneous, for at least three reasons. First, the state sales tax was not six percent during that entire period, yet the Department has computed Hancock's alleged tax liability as if it were.16 Second, the Department did not make any adjustments to account for the time-value of money when it projected sales figures from 1995-2000 back as many as 15 years. It is commonly known, however, that dollars earned in the year 2000, for example, had less purchasing power than, say, 1985 dollars; thus, sales figures from 2000 must be discounted if a fair and reasonable comparison to 1985 is to be made. The Department's failure to reduce recent earnings to the then- present value of income derived from plant rentals in the earlier years of the audit period is tantamount to charging interest——which, of course, the Department has also assessed, separately. Finally, the Department's calculation assumed, incorrectly, that (a) Hancock's business had not changed during the entire 16-year audit period and (b) Hancock had never paid any sales taxes. In fact, until the end of 1993, Hancock derived income not only from his plant rental business but also from landscaping and plant sales; not only that, he paid sales taxes on the receipts from these activities, through May 1994. In sum, then, even if Hancock were liable for the taxes that allegedly accrued before 1994, the Department's figures for that period of the audit are simply too unreliable to be credited. Period Average Monthly Sales Tax Rate Tax Due Per Month Tax Due For Period Jun 1994 — Dec 1994 (7 months) 11,600.82 0.060367 700.31 4,902.17 Jan — Dec 1995 (12 months) 8,253.75 0.060367 498.25 5,979.00 Jan — Dec 1996 (12 months) 9,497.7617 0.060367 573.35 6,880.20 Jan — Dec 1997 (12 months) 14,310.08 0.060367 863.86 10,366.32 Jan — Dec 1998 (12 months) 14,163.42 0.060367 855.00 10,260.00 Jan — Dec 1999 (12 months) 10,525.50 0.060367 635.39 7,624.68 Jan — Dec 2000 (12 months) 12,854.4318 0.060367 775.98 9,311.76 Jan — Jun 2001 (6 months) $11,600.82 0.060367 700.31 4,201.86 59,525.99 It is found, therefore, that Hancock owes state sales taxes and County Taxes in the following sums: Additionally Hancock must pay use taxes amounting to $371.40, bringing to $59,897.39 the total principal amount of taxes proved to be due.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order directing Hancock to pay state sales taxes and County Taxes in the total amount of $59,525.99, plus state use taxes in the amount of $371.40, bringing to $59,897.39 the principal sum of back-taxes due and owing. In addition, Hancock should be ordered to pay interest and penalties on the unpaid taxes, in amounts to be determined by the Department in accordance with the methodologies reflected in the audit work papers that are included in the evidentiary record of this case. DONE AND ENTERED this 7th day of January, 2004, in Tallahassee, Leon County, Florida. S JOHN G. VAN LANINGHAM 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 7th day of January, 2004.
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.
