Findings Of Fact The Petitioner paid intangible personal property taxes in the amount of $2,706.26 on March 22, 1977 for the tax year of 1977. The said taxes were not due until June, 1997. The Petitioner filed an application with the Respondent, Office of the Comptroller, State of Florida, on May 5, 1980, requesting a refund of the taxes paid because of the subsequent discovery by the Petitioner that the monies had been paid by mistake or in error. The Respondent, Office of The Comptroller, served a Notice of Intent to Deny by U.S. Mail upon the Petition on November 12, 1980. Respondent's Notice of Intent to Deny Refund is based upon the three- year statute of non-claim, as provided in Section 199.252, Florida Statutes. The issues to be determined are whether the right to refund accrued to the Petitioner when the taxes were paid (March 22, 1977) or when the taxes were due (June 30, 1977).
Findings Of Fact Respondent met Sibley Dennis Carpenter, Jr. (Carpenter) in 1974 or 1975, in connection with a land sale that is not otherwise relevant to this matter. In the summer of 1975, Carpenter asked respondent for assistance in obtaining financing for another, separate land transaction. On that occasion, Carpenter furnished respondent an unaudited, personal financial statement, prepared by an accounting firm, which put the net worth of Carpenter and his wife at slightly less than a half million dollars. On November 19, 1975, respondent became affiliated with Dennis Carpenter Realty, Inc., as a real estate salesman. Because he had other irons in the fire, he only appeared at the office of Dennis Carpenter Realty, Inc., once every month or two. Not until the spring of the following year, after he had been licensed as a real estate broker, did respondent have access to the company's books. In November of 1975, respondent met one Charles W. Van Cura, a hog farmer from Minnesota who expressed an interest in buying land in Florida, and referred Mr. Van Cura to Carpenter. Carpenter, possibly in the company of respondent, showed Mr. Van Cura certain real property belonging to Harvey H. Westphal and Margaret Westphal. Mr. Van Cura made an offer of one hundred fifteen thousand dollars ($115,000.00) for the property and deposited seven thousand five hundred dollars ($7,500.00) with Carpenter towards the purchase price, as evidenced by a binder receipt and deposit, dated December 31, 1975, and signed by Carpenter. Respondent's exhibit No. 1. Carpenter presented the offer to the Westphals, who refused Mr. Van Cura's offer but made a counteroffer of one hundred thirty-five thousand dollars ($135,000.00), by crossing out Mr. Van Cura's figures, substituting their own and signing their names. Both the offer and the counteroffer were "subject to receiving Federal Land Bank Loan of 70 percent of purchase price . . ." Van Cura told Carpenter he was unwilling to accept the Westphals' counteroffer. Carpenter persuaded respondent to buy the property himself, and, on January 6, 1976, Carpenter, respondent and Van Cura met in respondent's office. After some discussion, respondent drew two checks aggregating seventy- five hundred dollars ($7,500.00) to Van Cura's order. Petitioner's composite exhibit No. 6. Van Cura executed a receipt, respondent's exhibit No. 2, reciting that he had received seventy-five hundred dollars ($7,500.00) from respondent. At the time of this transaction, Carpenter could not have refunded Van Cura's deposit from the escrow account of Dennis Carpenter Realty, Inc., because there were insufficient funds in the account. Unbeknownst to respondent, Carpenter had never deposited Van Cura's money in the escrow account. On January 30, 1976, Carpenter drew up a written offer on behalf of respondent to purchase the Westphal property for one hundred thirty-five thousand dollars ($135,000.00). Petitioner's exhibit No. 1. The binder receipt and deposit recited that respondent "and or assigns" had deposited seventy-five hundred dollars ($7,500.00) with Carpenter in earnest money. Although the Westphals accepted this offer, the transaction never closed, for reasons which were not developed in the evidence. The Westphals never made demand for the seventy-five hundred dollar ($7,500.00) deposit, and respondent never got the money back from Carpenter. Respondent has since decided to "treat it . . . as a loan, or write it off." (R119) At no time did respondent relate to the Westphals the history of the earnest money deposit. In May of 1976, respondent was licensed as a real estate broker, and became secretary-treasurer of Dennis Carpenter Realty, Inc. Respondent and Carpenter agreed between themselves that the corporation should open an escrow account on which each could draw individually. This is reflected by a corporate resolution, dated May 4, 1976. Respondent's exhibit No. 7. Such an account was opened. When the first bank statement revealed to respondent that Carpenter had drawn improper checks against the escrow account, however, a second corporate resolution was drafted, dated July 23, 1976, respondent's exhibit No. 9, which authorized respondent, but not Carpenter, to draw against the escrow account.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That the administrative complaint be dismissed. DONE and ENTERED this 15th day of September, 1977, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Mr. Bruce I. Kamelhair, Esquire 2699 Lee Road Winter Park, Florida 32789 Mr. W. O. Birchfield, Esquire 3000 Independent Square Jacksonville, Florida 32201
The Issue Is Petitioner Haas Publishing Company liable for the taxes and interest assessed under Chapter 212, Florida Statutes, specifically the sales and use tax and related surtaxes, pursuant to Section 212.031, Florida Statutes, and Florida Administrative Code Rule 12A-1.070, for the audit period June 1, 1995 through May 31, 2000, and if so, to what extent?
Findings Of Fact Haas is a Delaware corporation, authorized to do business in the State of Florida. It is a subsidiary of Primedia, Inc. Haas publishes free consumer guides to apartments and homes and is paid by the apartment owners, realtors, and homeowners who advertise in the publications. One of Haas' divisions, Distributech, distributes the guides to retail stores. Haas negotiates with retailers for an appropriate site for its display of publications at each retail location. Nationwide, Haas distributes its publications from approximately 42,000 locations. Nationwide, Haas paid for the exclusive right to distribute, under contracts, in approximately 20,000 locations. Otherwise, it distributes in "free" locations. As required by Section 72.011(1)(b), Florida Statutes, Haas has complied with all applicable registration requirements with respect to the taxes at issue herein. DOR is the agency responsible for the administration and enforcement of Florida's tax laws, including sales and use tax and various local surtaxes. DOR conducted an audit of Haas for the period of June 1, 1995 through May 31, 2000. The audit resulted in an assessment of sales and use tax and associated surtaxes, interest, and penalties (Assessment). After protest and petition for reconsideration, DOR issued its Notice of Reconsideration (NOR) to Haas on May 16, 2003, wherein DOR sustained the Assessment in full, but offered to waive all penalties, without prejudicing Haas' right to challenge the remainder of the Assessment in full. Haas accepted the Department's offer to waive all penalties in their entirety, making a payment on the Assessment at the time the Petition herein was filed. In other words, Haas paid certain uncontested amounts in order to pursue the instant challenge to the remainder of the Assessment of all taxes and all interest, and in order to take advantage of an unrelated "extended amnesty" provided by DOR. This formal proceeding followed. The auditor who actually performed the work of the audit did not testify at the disputed-fact hearing. DOR's only witness, Ms. Gifford, did not participate in the original audit. However, Ms. Gifford reviewed the audit documents in detail and professionally consulted with the auditor and other reviewers to review the auditor's methods against the paperwork of the audit. She also reviewed the audit with input from Haas and its representative in the course of the Technical Assistance and Dispute Resolution (TADR) process, and throughout the informal challenges preceding this formal proceeding. She also reviewed all of the de novo material presented at the deposition of Haas' principal, Mr. Sullender, for purposes of her testimony. She is an expert capable of assisting the trier of fact, in that she is a Florida-licensed certified public accountant (CPA), and the undersigned is satisfied with the accuracy of her explanation of DOR's policies and procedures and of her predecessor's methodology and calculations. Also, her interpretations of rules and statutes are entitled to great weight where they purport to be the interpretation of the agency, but they do not constitute "factual" testimony and are not binding in this de novo proceeding. Ms. Gifford's analysis of case law is not entitled to that same deference. At the disputed-fact hearing, Haas challenged both the timeliness of the audit and the methodology of the audit. It is axiomatic that the amount assessed depends upon the methodology employed by the auditor, but DOR contended herein that because Haas protested only that an assessment had been made and because Haas had accepted all available offers of mitigation, Haas could not protest, at hearing, the amount calculated for the Assessment, whether the audit's calculations were correct, or whether the audit had been conducted in a timely manner. The following allegations of the Petition herein are relevant to these issues: No payment made by Haas to a retailer in Florida constituted payment for a lease of real property; No payment made by Haas to a retailer in Florida constituted payment for a license to use real property; The payments made by Haas to retailers were for distribution rights and/or intrinsically valuable personal property rights; The payments made by Haas to retailers were not subject to Florida sales and use taxes and other surtaxes; Alternatively, the payments made by Haas to retailers should have been apportioned by DOR, pursuant to Section 212.031, Florida Statutes; Some or all of the taxes that the Department claims that Haas owes have been paid by the retailers with whom Haas had agreements; The Department was without statutory authority to impose the Assessment for taxes and interest as set forth in Exhibit A; and The Assessment that is the subject of this proceeding is unlawful and violates the provisions of Chapter 212, Florida Statutes; Petitioner is entitled to relief under Sections 72.011 and Section 120.80, Florida Statutes. Section 212.031, Florida Statutes, dictates that the payments made by Haas to Florida retailers were not subject to Florida tax and therefore requires that the Assessment by DOR be stricken or modified. The auditor sent Form DR-840, the Notice of Intent to Audit (NOI), to Haas on May 30, 2000. This item informed the Taxpayer that the period of the audit would be June 1, 1995 through May 30, 2000, and that the audit would commence before July 29, 2000 (within 60 days) unless an attached waiver was signed and returned. The audit file does not reflect a signed waiver within 60 days. Ms. Gifford, on behalf of DOR, testified that the purpose of this NOI was to warn the Taxpayer that the audit would begin within 60 days unless the Taxpayer waived the timeline and that with a waiver, the audit would begin within 120 days. Ms. Gifford further testified that DOR considers itself limited to going back only five years from the date the auditor begins to review a taxpayer's records and that the Agency interprets Section 213.335, Florida Statutes, to require completion of the audit within one year of the initial letter. Ms. Gifford asserted that with a waiver, DOR would interpret the several applicable statutes and rules to provide the auditor with 120 days to begin an audit to encompass the whole of June 1, 1995 to May 30, 2000. However, if an audit is not begun within 120 days, DOR understands that the statutory audit period is not tolled and DOR usually removes the delay period from the front end (i.e., DOR starts the audit period the delayed number of days after June 1, 1995) and adds it to the back end (ends the audit period the delayed number of days after May 30, 2000) so that a five-year period of audit occurs, but the audit period starts some date later than June 1, 1995, and ends some date later than May 30, 2000. DOR considers the start of the audit to be when the auditor begins looking at records of the taxpayer. Haas provided pertinent, but incomplete, records on August 29, 2000, which was more than 60 days and less than 90 days after the May 30, 2000, NOI. Haas requested several extensions to review work papers received from the auditor. All were honored by DOR. A lot of correspondence ensued between the auditor and Haas and between DOR and Haas' designated representative(s)/accountants, but DOR's auditor did not record any time spent on the audit file until he met with Haas or its representative on October 23, 2000, more than 120 days after May 30, 2000. On the basis of the auditor's work record/timesheet, Haas contends that October 23, 2000, which was more than 120 days after the May 30, 2000 NOI, is when the audit actually began. Exchanges of records, work papers, and information continued, and on or about May 29, 2001, a vice-president of Haas signed and FAXED to DOR's auditor a consent to extend the statute of limitations for sales and use tax assessments through March 29, 2002. However, he did not affix the corporate seal in the designated part of the consent form. The consent form had been prepared by the auditor and mailed to Haas on or about March 25, 2001. It only listed "sales and use tax" as a reference. It did not identify any other tax, which ultimately made up the Assessment, including Charter Transit System Tax, Local Government Infrastructure Tax, Indigent Care Tax, or School Capital Outlay Tax, which, although related to sales and use tax, have separate designations. These surtax audits are based on the same facts, circumstances, and records as the sales and use tax audit herein but DOR lists and computes them separately from the sales and use tax on some of its forms. (See Finding of Fact 19.) The validity and timeliness, vel non, of the foregoing consent to extension was not raised by Petitioner until the disputed-fact hearing. A Notice of Intent to Make Audit Changes (also called an NOI) was dated September 21, 2001. The Notice of Proposed Assessment (NOPA) was issued December 5, 2001. DOR considers this document to be the completion of the audit. After the audit was completed, it was submitted to DOR's TADR, a dispute resolution process. A Notice of Decision (NOD) was entered July 30, 2002. Haas petitioned for reconsideration, alleging additional facts. By a May 16, 2003, Notice of Reconsideration (NOR), the audit was upheld. The NOR and NOIA lump all Chapter 212, Florida Statutes' taxes together. The NOPA lists each surtax separately. The compromise of amounts and this formal proceeding followed, as described above in Findings of Fact 5-6. Many contracts and other records were not provided by Haas to DOR until TADR, until the informal proceedings, or until after the Petition for this formal proceeding had been filed. Among other things, DOR had upheld the auditor's initial decision with regard to calculating Haas' 1997 tax. The auditor had not tested or sampled Haas' records for the full of the audit period in order to arrive at a tax figure for 1997. Because Haas had not provided certain records (RDAs) for 1997, Haas' figures for December 1996 were "extrapolated" by the auditor to the first six months of 1997, while the figures for January 1998 were "extrapolated" back to the last six months of 1997. Ms. Gifford felt this method constituted a legitimate estimate of the taxes due where a taxpayer had failed to provide adequate records. For the audit period, Haas published and distributed, free of charge to the public, apartment and home guides. The distribution was accomplished through contracts, on a regional and national level, with major retail store chains such as K-Mart, Blockbuster, Eckerd's, and Winn-Dixie Stores. The tax-assessment problems herein are compounded by Haas' choice not to use uniform contractual arrangements with all retailers; by its failure to designate within its contracts and/or accounting records what, if any, intangible uses it believed it was paying for; and its failure to allocate within its contracts and/or accounting records the amounts it believed it was paying for each alleged intangible use. Some of the contracts state that there is no corporate relation between Haas and the retailer. Haas has one major and several smaller competitors who distribute their own publications at retail store chains. Haas' contracts with the retail store chains guarantee to Haas the exclusive right to distribute apartment and home guides from the retail stores' locations and usually include the right to use the retail chains' respective logos and trademarks in Haas' promotional/sales materials and publications. One exception is Seven-Eleven, which limits to a greater degree use of its trademark and logo than do some of the other retailers. Not every contract contains a reference to a retailer's trademark or logo. Haas used its exclusive rights to distribute with certain retail store chains as an inducement to sell advertising to the apartment owners, realtors, and others who advertise in its publications. It was valuable to Haas to be able to tell potential print advertisers that its apartment/home guide was the only one allowed to be distributed from the particular retail chains. It was valuable to Haas to be able to show potential print advertisers the logo of retailers in Haas' promotional materials and publications. In most places, the exclusive right to distribute from the specified retail locations distinguished Haas from its competitors and allowed it to charge more for its advertising than they did. Mr. Sullender, Haas' principal, is credible that in each instance where Haas' contracts do not mention the use of trademarks and logos, each retail chain otherwise gave permission or provided Haas with its logo and trademark materials to use, as a result of the contracts. However, Haas provided nothing to DOR prior to instituting this formal case, by which DOR could have determined that such permission had been provided outside the contracts. Haas' right to place the retailers' logo or trademark on Haas' publication racks was a valuable right and every Haas rack displayed logos. Yet, the contracts do not obligate Haas to use the retailers' logos or trademarks, and Haas can still distribute from the racks without a logo. The contracts made no specific allocation of payments by Haas to the retailers for use of the retailers' logos and trademarks. The issue of whether payment for use of a logo or trademark should have been separately allocated from Haas' payment to the retailer in its contracts was not taken into consideration by DOR because this issue, in those terms, was not raised during the audit or subsequent informal protest/review procedures. However, the issue of allocation based on fair rental value of the space utilized in connection with prior audits of some of the respective retailers was raised. This is largely an issue of semantics. (See Findings of Fact 55-56.) All except one of the contracts at issue guarantee Haas the exclusive right to distribute its publications from the particular retail chains' locations. Exclusivity of the rights accruing to Haas is singularly important to Haas' business. However, Haas has been known to charge its competitors for space on its racks. Haas also is free to enter into partnerships with its competitors. In order to secure the exclusive right to distribute its publications from the retail locations and the right to use the retailers' trademarks and logos, Haas pays fees to the retail store chains under the contracts. Typically, Haas has to "outbid" at least one other competitor to obtain the foregoing exclusive rights. The payments under the contracts were typically made "per store," per month, and did not vary depending on the location of the store within the State. Part of Haas' negotiating strategy and ultimate success in securing exclusive use of most of its locations is the judicious use of "signing bonuses." Signing bonuses are specifically allocated in some, but not all, of Haas' contracts. In some contracts, they are directly linked to the right of exclusivity. They can be substantial amounts. However, according to Ms. Gifford, signing bonuses have never been part of DOR's Assessment in this case. (TR-62-63) Because the exclusive right to distribute its print materials was so valuable to Haas, it paid up to $375 per month per store under one contract. When Haas did not secure the exclusive right to distribute from a retail chain, it would not pay for the right to distribute, but distributed its publications from "free" locations. Nationwide, this compares at 20,000 paid to 22,000 unpaid locations. (See Finding of Fact 1.) The amount Haas paid a retail chain did not vary by particular store location within the chain nor by the size of the rack that Haas placed in a particular store. Haas' racks take up from two to four-feet worth of floor space. Haas supplied the racks, but, in general, the retail chains had control over the size, type, and color of the racks placed in its stores and limited Haas' access to the racks. Haas was solely responsible for set-up, replenishing, and maintenance of its racks on the retailer's property. Haas purchases liability insurance. Haas is always assigned covered space by the retailer. Haas considers space near an entrance/exit of the retailer's covered premises to be premium space. Retailers consider this same space to be "dead space," beyond its cash registers, which is essentially useless for display or sale of their retail goods. However, some retailers park carts or post notices in these areas. Haas does not sell or distribute any goods of, or for, the retailer. It merely stocks its own publications in its own racks in the retailer's space. Haas has no other contact with the retailers' business. Under the contracts, retailers have no obligation to market Haas' publications. They do not buy or sell them or pay to advertise in them. Retailers pay nothing to Haas. If Haas uses a retailer's logo and/or trademark in Haas' own advertising or in its publications per their negotiated arrangement, it is for the purpose of promoting Haas' publications. Use of the retailers' logos and trademarks has a benefit to the retailer, but a purely incidental one, since the retail customer who picks up a Haas publication from the Haas rack has already made the decision to enter the retail store in the first place. None of the retail chains ever attempted to charge sales or use taxes to Haas based on the payments made under the contracts. There is no evidence that Haas or any retailer, on Haas' behalf, tendered sales or use taxes to the State on the contracts at issue herein. Although some contracts acknowledge that a retailer is a franchisee of a third party, none of the contracts refer to the relationship between Haas and the retailer as a "franchise" or acknowledge Haas as a franchisee. Ms. Gifford did not equate Haas' use of a retailer's logo or trademark to market Haas' publications, not the retailer's goods, with all the accoutrements of a franchise, as she understood those accoutrements. DOR issued to a different taxpayer (not Haas) Technical Assistance Advisement No. 03A-002 (the TAA), concerning real property lease agreements. Although this advisory letter from a DOR attorney is not binding, except between DOR and the party to whom it is addressed, and although it is limited to the specific facts discussed within it, the legal conclusions therein are instructive, if not conclusive, of DOR's official interpretation of the statutes and rules it administers and of its agency policy with regard to when allocations are appropriate between intangible rights and real property rights. TAA 03A-002 cites, with approval, paragraphs 56 through 59 of the Final Order in Airport Limousine Service of Orlando, Inc. v. Department of Revenue, DOAH Case No. 94-1790, et seq., (March 23, 1995)1/ and State ex rel. N/S Associates v. Board of Review of the Village of Greendale, 473 N.W. 2d 554 (Wisc. App. 1991), and states, "The test for isolating intangible business value is as simple as asking whether the disputed value is appended to the property, and thus transferable with the property, or is it independent of the property so that it either stays with the seller or dissipates upon sale." This TAA also states that DOR will view the reasonableness of allocations of payments made pursuant to a lease agreement on a case-by-case basis in reference to whether the allocation is made in good faith or lacks any basis. It further cites with approval Bystrom v. Union Land Investment, Inc., 477 So. 2d 585, 586 (Fla. 3rd DCA 1985) ("Good faith for property tax valuation purposes will mean 'real, actual, and of a genuine nature as opposed to a sham or deception.'") The TAA anticipates that DOR would require that the taxpayer make reasonable allocations, within the taxpayer's own records, of lease payments to rent and other items not subject to tax, and that the taxpayer would also be required to otherwise maintain records adequate to establish how the taxpayer determined that each allocation was reasonable, and further, that if DOR auditors were satisfied with the taxpayer's records, an appraisal would not be required by DOR. The TAA does not foreclose the requirement of an appraisal to test the taxpayer's records. Synopsized, the TAA opines that separate payments by a tenant to a landlord for trademark, service mark, or logo rights of the landlord are subject to the tax on real property rentals unless the allocation of payments made by the taxpayer is reasonable, and further, that the allocation is not reasonable where no substantial, competent, and persuasive evidence is provided to establish the value of the trademark, service mark, or logo rights of the landlord received by the tenant and a legitimate business purpose for the tenant to acquire those rights is not demonstrated. Herein, Haas had not allocated rent and intangibles within its own contracts/records. It was Ms. Gifford's view that if the Taxpayer herein had not allocated the value of the trademarks, etc. and the real property value of its contracts, it was not up to DOR to do so in the course of an audit. Nonetheless, during the protest period, DOR had considered allocating the payments made by Haas under its contracts, into taxable and non-taxable payments, by reviewing the market rate rental for the space occupied and obtaining a valuation of the identifiable intangible property. Ultimately, DOR did not use this method on the basis that Haas had not submitted sufficient records. At hearing, Haas attempted to present evidence of the fair market value of the real estate involved and of the so- called intangible rights through an intangible property appraiser and a Florida-certified real estate appraiser. Lee Waronker is a Florida-certified real estate appraiser who was accepted as an expert in real estate appraisal. Mr. Waronker prepared a report which made a comparison of Haas' contracts with allegedly comparable rental properties, but he only used three "comparables," none of which included racks owned by similar advertising businesses. He did not consider what Petitioner's real competitors paid for similar space. Thus, when he arrives at an average fair rental value of Haas' space in all the retailers' locations as $25-50 per square foot, his base figures are suspect. Therefore, when he concluded that since Haas was paying an average of $355 per square foot and all the remainder of the contract payments should be allocated to intangible rights, such as trademarks and exclusivity, he was not credible or persuasive. His figures also apply only to the date of his appraisal in 2003, and admittedly would not be representative of the value of the rental property during the audit period. Therefore, his analysis that only 11.3 percent, plus or minus, of the contract prices constituted rent or a license to use is discounted and not accepted. Petitioner also presented the testimony and report of James N. Volkman, an intangible property appraiser who was accepted as an expert in that field. Mr. Volkman obtained all of his data from either the Securities and Exchange Commission filings of eighty-three percent of the retailers involved, from Haas, or from information compiled by DOR. These are legitimate appraisal sources. He performed his appraisal within the professional standards of the Financial Accounting Standards Board. He concluded that Haas' contracts could best be described as "distribution agreements," "because they are the means by which Haas distributes its publications" and because anyone familiar with the operations of a publisher would understand a line item on a balance sheet of a "distribution agreement" and not everyone would understand the term "license to use real property." It is noted that "distribution agreements" are not listed in the statute, but this, by itself, is not a fatal flaw. He maintained that the Haas contracts could not reasonably be characterized as a license to use real property, because the amount paid was well in excess of the fair rental value of the space. However, as part of his analysis, Mr. Volkman did not rely on Mr. Waronker's independent real estate appraisal, but conducted his own analysis as to the amount a retailer would likely charge a party seeking to utilize the floor space taken up by the approximate size of a single Haas rack. In doing so, Mr. Volkman was admittedly outside his realm of expertise. Mr. Volkman allocated the amounts Haas was paying as twelve percent to the "right to use real property"; twenty-four percent to "non-compete rights" (his term for exclusivity); fourteen percent to "trademark rights"; thirty-five percent to "distribution cost savings" (a term which seems to describe Haas not having to identify and mail its publications to interested persons or use a retailer's magazine rack);2/ and fifteen percent to "market penetration premium."3/ The last two calculations are not credible and undermine the entire allocations summary he presented. The distribution cost savings figure contains too many assumptions not fully documented. Mr. Volkman also arrived at his calculation of the "market penetration premium" merely by selecting the residual percentage sufficient to make up the difference, so that his other figures added up to 100 percent of the total fee paid by Haas to retailers. His reason for doing this is not plausible. He assumed that just because the growth rate of Haas' business far exceeded the growth rate in multi- family units, it must be that Haas substantially increased its market share during the audit period due to exclusivity. Ultimately, he could not explain the fifteen percent calculation for "market penetration" by the documents he relied on for calculating the other three categories. More damaging to the weight and credibility of his report is that Mr. Volkman did not consider Haas' signing bonuses as having anything to do with the exclusivity rights accruing to Haas. He considered the signing bonuses not to be an intangible right but only "compensation to retailers for negotiating these agreements." However, signing bonus rights seem to be the only intangible rights allocated in any of the contracts and were inherently recognized as such by DOR when it chose not to address them in the Assessment. There are also a number of other questionable portions of his report and opinion which cause it to be discounted and not accepted here.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order finding the Assessment factually and legally correct and sustaining the Assessment plus interest to date. DONE AND ENTERED this 18th day of June, 2004, in Tallahassee, Leon County, Florida. S ______ ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of June, 2004.
Findings Of Fact On January 7, 1994, the Petitioner, Idarue Pearl Jackson, executed and submitted a Winner Claim Form to the Respondent, the Department of the Lottery (hereinafter referred to as the "Lottery"). Ms. Jackson filed a lottery ticket with the Winner Claim Form worth a cash prize of $2,500.00. On January 7, 1994, the Respondent, the Department of Health and Rehabilitative Services (hereinafter referred to as "DHRS"), informed the Lottery that Ms. Jackson owed the State of Florida $3,237.00 for excessive Aid to Families with Dependent Children (hereinafter referred to as "AFDC"), payments she had previously received. On or about January 26, 1994, Ms. Jackson was informed that the $2,500.00 prize would be applied in payment of her outstanding AFDC debt. On or about January 31, 1994, Ms. Jackson requested a formal administrative hearing to contest the decision of the Respondents. Prior to August of 1987 Ms. Jackson, then known as Idarue Shepard, began receiving AFDC payments from the Department of Health and Rehabilitative Services. Ms. Jackson signed an information and consent form provided by DHRS prior to receiving AFDC payments. In executing the form, Ms. Jackson agreed, among other things, to the following: C. I KNOW PUBLIC ASSISTANCE RECIPIENTS (APPLICANTS) HAVE THE RESPONSIBILITY TO: . . . . Repay the Department for any assistance received for which they are ineligible. The assistance owed will be deducted for each monthly grant amount until the entire amount is paid back. Ms. Jackson also agreed by executing the DHRS exhibit 3, to inform DHRS of any changes in her employment status which would impact her entitlement to AFDC payments. Beginning in August of 1987 Ms. Jackson began employment for which she earned a sufficient amount that she was no longer eligible for AFDC payments. Whether Ms. Jackson informed DHRS of this change is not clear. From August of 1987 through December of 1988 (excluding June of 1987), Ms. Jackson, continued to receive AFDC payments. Because of her employment, she was not entitled to the payments she received from August of 1987 to December of 1988. Ms. Jackson received a total of $3,336.00 in AFDC payments for which she was not eligible. Whether she received these payments because she failed to inform DHRS of her employment or because DHRS made an error in continuing to send her the payments is not relevant. What is relevant is that Ms. Jackson received the payments by check and that she cashed the checks. DHRS investigated the payments made to Ms. Jackson between August of 1987 and December of 1988 and determined that Ms. Jackson was not eligible for the amounts she received during that period of time. By letter dated November 4, 1989, DHRS informed Ms. Jackson that she owed DHRS for the payments she improperly received. In May of 1993, DHRS began withholding a part of other benefits Ms. Jackson was receiving in payment of the excessive AFDC payments she had received. As of the date of the final hearing of this case, Ms. Jackson still owed $3,192.00 to DHRS.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered dismissing Ms. Jackson's petition and transferring Ms. Jackson's $2,500.00 lottery prize to the Department of Health and Rehabilitative Services in partial satisfaction of Ms. Jackson's debt to the Department of Health and Rehabilitative Services. DONE AND ENTERED this 24th day of May, 1994, in Tallahassee, Florida. LARRY J. SARTIN 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 24th day of May, 1994. APPENDIX Case Number 94-0772 Ms. Jackson and DHRS have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Ms. Jackson's Proposed Findings of Fact The first paragraph (other than the first sentence) is not supported by the weight of the evidence. The first sentence is a statement of the position of the Respondents. The first three sentences of the second paragraph are statements of law. The fourth sentence of the second paragraph is not supported by the weight of the evidence. See finding of fact 13. The fifth sentence of the second paragraph is a statement of law. The sixth sentence of the second paragraph is not supported by the weight of the evidence. The third paragraph is argument. DHRS' Proposed Findings of Fact Accepted in 1 and 2. Accepted in 3. Accepted in 4. Accepted in 6. Accepted in 13 and hereby accepted. Accepted in 7 and 8. See 9 and 11. Accepted in 14 and 15. Accepted in 11. 10-11 Hereby accepted. COPIES FURNISHED: Idarue Pearl Jackson 17011 NW 37th Avenue Miami, Florida 33054 Honorable Gerald Lewis Comptroller, State of Florida Department of Banking and Finance The Capitol, Plaza Level Tallahassee, FL 32399-0350 William G. Reeves, Esquire General Counsel Department of Banking and Finance Room 1302, The Capitol Tallahassee, FL 32399-0350 Kim Tucker, Esquire General Counse Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Scott C. Wright Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 Louisa Warren Senior Attorney Department of the Lottery Capitol Complex Tallahassee, Florida 32399-4011 Katrina Saggio, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue Whether Respondent's application of the inflation protection clause of the agreement to purchase real estate, thereby increasing the purchase price, discriminated against Petitioner in violation of the Florida Fair Housing Act (FFHA) and Sections 760.20 through 760.37, Florida Statutes (2004).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Commission on Human Relations enter a final order dismissing Petitioner's Petition for Relief. DONE AND ENTERED this 24th day of January, 2006, in Tallahassee, Leon County, Florida. S FRED L. BUCKINE 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 24th day of January, 2006. COPIES FURNISHED: Denise Crawford, Agency Clerk Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301 Tyrone Harrison 8412 Peterson Road Odessa, Florida 33556 Cristina A. Equi, Esquire Gray & Robinson, P.A. 301 East Pine Street, Suite 1400 Post Office Box 3068 Orlando, Florida 32802-3068 Cecil Howard, General Counsel Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301
The Issue The issue presented is whether the Department's audit assessment against Petitioner for additional insurance premium tax for the tax years 1989 and 1990 is proper.
Findings Of Fact Prior to the Final Hearing, the parties agreed to numerous facts and entered into a Joint Prehearing Statement. The Hearing Officer entitles the Findings of Fact section of the Recommended Order "Agreed Facts"; however, instead of reciting the actual stipulation facts submitted by the parties, the Hearing Officer paraphrases and adds facts that were not agreed to by the parties. The "Agreed Facts" section should only recite the facts that were actually agreed to by the parties. Accordingly, the Department substitutes the Joint Prehearing Statement for the Hearing Officer's "Agreed Facts" numbers 1 through 6 as follows: Central Dade is, and at all material times was, a Medical Malpractice Self Insurance Fund as defined in Sec. 627.357, Fla. Stat. Central Dade is a trust, not a corporation. It has been in existence and operation since 1979. Its sole purpose is to provide medical malpractice insurance for its members, i.e., approximately 100 doctors in Dade County. Central Dade has no capital and is not operated for profit. It does not and cannot, absent permission from the Department of Insurance, legally pay dividends to its members; rather it is required by law to hold one hundred percent of its premium and investment income to fund medical malpractice claims and pay its operating expenses (including taxes). Central Dade's members are individually liable or assessable for any shortfall in its trust funds. Central Dade has standing to challenge Fla. Admin. Code Rule 12B- 8.001(5) because it is substantially affected by the Rule. The Department, as an agency within the Executive Branch of the government of the State of Florida, is authorized by Chapters 213 and 624, Fla. Stat., to conduct audits and make assessments of tax pursuant to Chapter 624, Fla. Stat., (Insurance Premium Tax). The Department conducted an audit of Central Dade for the audit period of 12/31/89 through 12/31/90 for Insurance Premium Tax. After the conclusion of the audit and after administrative protest of the proposed assessment by Central Dade, an assessment was issued on July 20, 1994. The assessment became a Final Assessment on July 20, 1994. Central Dade was assessed $8,996.31 tax; $899.63 penalty; and $2,346.58 interest through March 10, 1993. Central Dade paid the entire assessment and is seeking a refund of the payment through this action. Central Dade timely filed a Petition seeking to have the tax assessment declared invalid. Additionally, Central Dade filed a Petition pursuant to Sec. 120.56, Fla. Stat. challenging Fla. Admin. Code Rule 12B-8.001(5) as invalid. Upon Motion by the Parties, the cases were consolidated for Final Hearing. Medical Malpractice Self-insurance Funds became subject to the Insurance Premium Tax beginning July 1, 1989. Ch. 88-206, ss. 6, Laws of Fla. Fla. Admin. Code Rule 12B-8.001(5) became effective March 25, 1990. The parties agree the Rule was correctly promulgated and the Petitioner is only challenging the applicability of the Rule to Petitioner and the substance of the Rule. The dispute between the parties concerns whether Petitioner is entitled to the credits contained in Sec. 624.509.(4), Fla. Stat. The parties additionally stipulated to the following: If the Department prevails in this action, the Petitioner will not be entitled to any refund for the tax years 1989 and 1990. [Joint Exhibit Two] Any overpayment made by the Petitioner will be applied to subsequent tax years. 1/ If the Petitioner prevails in this action, it will be entitled to a refund of $23,774.76 for the tax years 1989 and 1990. [Joint Exhibit Two] The Department rejects the Hearing Officer's "Agreed Fact" number 7 because it is a conclusion of law and not a finding of fact. The Department rejects the Hearing Officer's "Agreed Fact" number 8 as irrelevant to this proceeding. The Department makes the following additional findings of fact based on competent and substantial testimony and evidence presented at the Final Hearing: A premium tax on "medical malpractice self-insurance [funds]" was first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6, Laws of Fla., amended Sec. 627.357, Fla. Stat. to provide: 627.357 Medical malpractice self-insurance -- (9) Premiums, contributions, and assessments received by a fund are subject to s. 624.509 (1), (2), and (3), except that the tax rate shall be 1.6 percent of the gross amount of such premiums, contributions and assessments. E.S. The premium tax imposed on medical malpractice self-insurers was, pursuant to the above-quoted statute, 1.6 percent of the gross amount of the premiums, contributions and assessments. A premium tax on "dental service plan corporations" self-insurance funds was first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6, Laws of Fla., amended Sec. 627.357, Fla. Stat. to provide: 637.406 Tax on premiums, contributions, and assessments. Premiums, contributions, and assessments received by a dental service plan corporation are subject to the tax imposed by s. 624.509. The premium tax imposed on dental service plan corporations in 1988 was 2 percent of the gross amount of the premiums, contributions, and assessments pursuant to Sec. 624.509(1)(a), Fla. Stat. (1989). The Legislature in the same Bill that added the amendments to Sec. 627.357 Fla. Stat., which subjected medical malpractice self-insurers to subsections (1), (2) and (3) 2/ of Sec. 624.509, Fla. Stat., 3/ and made dental service plan self-insurers subject to "s. 624.509" in its entirety also made multiple employer welfare arrangements, 4/ Commercial self-insurance funds, 5/ professional liability self-insurance, 6/ and group self-insurer funds subject to subsections (1), (2), and (3) of Sec. 624.509, Fla. Stat.; but made other insurers, such as the continuing care contracts, 7/ subject to Sec. 624.509, Fla. Stat., in its entirety. Further, all those entities which the Legislature specifically made subject to noncredit paragraphs (1), (2) and (3) of Sec. 624.509, Fla. Stat. (Supp. 1988) were given a lower 1.6 percent tax rate by the Legislature. In contrast, those entities made subject to Sec. 624.509, Fla. Stat., in its entirety, such as the dental service plan self-insurers, without a listing of the specific paragraphs, and which are clearly entitled to the credits therein, were made subject to the higher 2 percent tax rate provided in Sec. 624.509(1), Fla. Stat. (Supp. 1988). 18. Sec. 624.509(1), (2), (3), (4), and (9), Fla. Stat. (Supp. 1988), states in pertinent part: 624.509 Premium tax; rate and computation. In addition to the license taxes provided for in this chapter, each insurer shall also annually, and on or before March 1 in each year, except as to wet marine and transportation insurance taxed under s. 624.510, pay to the Department of Revenue a tax on insurance premiums, risk premiums for title insurance, or assessments, including membership fees and policy fees and gross deposits received from subscribers to reciprocal or interinsurance agreements, and on annuity premiums or considerations, received during the preceding calendar year, the amounts thereof to be determined as set forth in this section, to wit: An amount equal to 2 percent of the gross amount of such receipts on account of life and health insurance policies covering persons resident in this state and on account of all other types of policies and contracts (except annuity policies or contracts taxable under paragraph (b)) covering property, subjects, or risks located, resident, or to be performed in this state, omitting premiums on reinsurance accepted, and less return premiums or assessments, but without deductions: For reinsurance ceded to other insurers; For moneys paid upon surrender of policies or certificates for cash surrender value; For discounts or refunds for direct or prompt payment of premiums or assessments; and On account of dividends of any nature or amount paid and credited or allowed to holders of insurance policies; certificates; or surety, indemnity, reciprocal, or interinsurance contracts or agreements; and An amount equal to 1 percent of the gross receipts on annuity policies or contracts paid by holders thereof in this state. Payment by the insurer of the license taxes and premium receipts taxes provided for in this part of this chapter is a condition precedent to doing business within this state. Notwithstanding other provisions of law, the distribution of the premium tax and any penalties or interest collected thereunder shall be made to the General Revenue Fund in accordance with rules adopted by the Department of Revenue and approved by the Administration Commission. The intangible tax imposed under chapter 199, the income tax imposed under chapter 220, and the emergency excise tax imposed under chapter 221 which are paid by any insurer shall be credited against, and to the extent thereof shall discharge, the liability for tax imposed by this section for the annual period in which such tax payments are made. As to any insurer issuing policies insuring against loss or damage from the risks of fire, tornado, and certain casualty lines, the tax imposed by this section, as intended and contemplated by this subsection, shall be construed to mean the net amount of such tax remaining after there has been credited thereon such gross premium receipts tax as may be payable by such insurer in pursuance of the imposition of such tax by any incorporated cities or towns in the state for firemen's relief and pension funds and policemen's retirement funds maintained in such cities or towns, as provided in and by relevant provisions of the Florida Statutes. For purposes of this subsection, payments of estimated income tax under chapter 220 and of estimated emergency excise tax under chapter 221 shall be deemed paid either at the time the insurer actually files its annual returns under chapter 220 or at the time such returns are required to be filed, whichever first occurs, and not at such earlier time as such payments of estimated tax are actually made. (9) As used in this section "insurer" includes any entity subject to the tax imposed by this section.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding that the Department's assessment issued July 20, 1994, was improper and finding Petitioner entitled to a refund in the amount of $23,774.76. DONE and ORDERED this 19th day of May, 1995, at Tallahassee, Florida. LINDA M. RIGOT, 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 May, 1995. APPENDIX TO RECOMMENDED ORDER Petitioner's proposed findings of fact numbered 4, 5 and 7 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 1, 3, 6, and 8 have been rejected as not constituting findings of fact. Petitioner's proposed findings of fact numbered 2, and 9-11 have been rejected as being subordinate to the issues involved herein. Respondent's proposed findings of fact numbered 1, 4, 5 and 12 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed findings of fact numbered 3, 6-10, 13, and 15-19 have been rejected as not constituting findings of fact. Respondent's proposed finding of fact numbered 2 has been rejected as being subordinate to the issues herein. Respondent's proposed findings of fact numbered 14, 20, and 21 have been rejected as being irrelevant to the issues in this cause. Respondent's proposed findings of fact numbered 11 and 22 have been rejected as not being supported by the weight of the competent evidence in this cause. COPIES FURNISHED: Curtis H. Sitterson, Esquire Stearns, Weaver, Miller, et al. Museum Tower 150 West Flagler Street Miami, Florida 33130 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Lisa M. Raleigh, Esquire Office of the Attorney General Tax Section, The Capitol Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issues to be resolved in this case are what amount of federal income tax expense is properly included as an expense in Premier's excessive profits filings for the years 2005-2007, and in light of that deduction, how much Petitioner must refund as excessive profits pursuant to section 627.215, Florida Statutes (2009)?
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 or allocated to Florida for the calendar year; and policyholder dividends applicable to the calendar year. Insurer groups writing types of insurance other than workers' compensation insurance are also governed by section 627.215. Its purpose 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). While the sum of the accident-year losses and loss adjustment expenses are required by the statute to be developed to an ultimate basis, the administrative and selling expenses are not. "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. Form F's first page includes section four, under which calendar-year administrative and selling expenses are listed. Section four has 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. 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." 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. On March 19, 2010, the Office issued a Notice of Intent, directing Premier to return $7,673,945.00 in "excessive profits" pursuant to section 627.215. Premier filed a petition challenging the Office's determination with respect to the amount to be refunded, based in part on its position that federal income tax expense is appropriately included as an expense for calculation of excess profits. The parties attempted to resolve their differences over the next year or so. As part of their exchange of information, 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 4(E). As reflected in the Preliminary Statement, Premier filed a challenge to the Office's policy of not allowing federal income taxes to be used as an expense for excess profits filings as an unadopted rule. On July 5, 2012, a Final Order was issued in Case No. 12-1201, finding that the Office's Policy regarding the inability to deduct federal income taxes as an expense for excess profits filings met the definition of a rule and had not been adopted as a rule, in violation of section 120.54(a). The Final Order in Case No. 12-1201 directed the Office to discontinue immediately all reliance upon the statement or any substantially similar statement as a basis for agency action. At this point, the parties have resolved their differences with respect to all of the calculations related to the determination of excess profits, with one exception. The sole issue remaining is the amount, if any, that should be deducted as an administrative expense for payment of federal income tax. The parties have also stipulated that, before any adjustment to federal income tax is made, Premier's underwriting profit for 2005 was $2,923,157 and for 2006 was $2,119,115. For 2008, Premier suffered an underwriting loss of $785,170. Premier's federal income tax rate for all three years was 35%. The maximum amount of underwriting profit that a company can retain is the net aggregate anticipated profit, plus five percent of earned premiums for the calendar years reported on workers' compensation business. For the 2005-2007 reporting years, Premier's maximum underwriting profit is stipulated to be $1,189,892. Anything over this amount is considered excessive profits which must be returned to policyholders. The parties also agree that, prior to any deduction for federal income tax paid by Premier, the amount of excess profit earned by Petitioner and subject to return to policyholders is $3,067,220. Premier has filed a fourth amended Form F, which incorporated all of the stipulations of the parties to date. The fourth amended Form F also includes an allocation of federal income tax expense based upon the statutory allocation methodology outlined in section 220.151, Florida Statutes (2009). Section 220.151 provides the statutory method for allocating federal income tax expenses for purpose of paying Florida corporate income taxes. This section directs that insurance companies shall allocate federal taxable income based on the ratio of direct written premium the insurance company has written in Florida for the relevant period, divided by the direct written premium anywhere. Premier paid its Florida corporate income tax based upon this statutory methodology. Consistent with the methodology in section 220.151, Premier allocated its federal taxable income to the State of Florida based upon the percentage of direct premium written on risks in Florida, and reduced the amount of its federal taxable income by the amount investment income reflected on its federal tax return. Premier then multiplied the Florida portion of its taxable income by its 35% federal tax rate, resulting in the federal income tax expense allocated to Florida. For the year 2005, Premier's federal taxable income according to its tax return is $7,614,512.89. After subtracting investment income listed on the tax return of $969,051.97, the taxable income attributable to premium is $6,645,460.92. For 2006, Premier's federal taxable income according to its tax return is $6,577,534.06. After subtracting investment income of $2,011,614.86, the taxable income attributable to premium is $4,565,919.20. For 2007, Premier's federal taxable income according to its tax return was $4,359,742.88. After subtracting investment income of $2,266,291.99, the taxable income attributable to premium is $2,093,450.89. For the three years combined, the federal taxable income was $18,551,789.83. The amount of investment income subtracted was $5,246,958.82, leaving a balance of taxable income attributable to premium as $13,304,831.01. For the years 2005 through 2007, Premier paid $2,665,079.51; $2,302,136.92; and $1,525,910.01 respectively, in federal income tax. During those same years, Premier wrote 58.8388%; 51.2514%; and 29.8536%, respectively, of its direct premium in Florida. Allocating a portion of Premier's federal tax income and income tax liability to Florida, consistent with section 220.151, results in a calculation of Florida's portion of taxable underwriting income. For 2005, this amount is $3,910,109.46; for 2006, $2,340,097.51; and for 2007, $624,970.45. The total amount of federal taxable income allocated to Florida for the three-year period of $6,875,177.42. The taxable income is then multiplied by the applicable tax rate of 35%, which results in a federal income tax expense allocated to Florida of $1,368,538.46 for 2005; $819,034.13 for 2006; and $218,739.45 for 2007, totaling $2,406,312.10 for the three-year period at issue. The undersigned notes that Premier only writes workers' compensation insurance. It does not write other lines of insurance, which makes the allocation of earned premium much simpler than it would be for a company writing multiple lines of insurance. Under the methodology described above, Premier determined that $2,406,312.10 is the appropriate amount of federal income tax expense to be deducted for calendar years 2005-2007, resulting in an excess profit pursuant to section 627.215, of $660,907. Mr. Hester, a certified public accountant and president of Premier, testified that this methodology was used by Premier in determining its Florida corporate income tax liability. The methodology described above uses the amounts that Premier actually paid in taxes, and therefore reflects the actual expense experienced by Premier. It is accepted as a reasonable method. According to Mr. Watford, the Office does not determine the methodology that must be used in allocating expenses. The insurance company provides the methodology and the data to support it, and then the Office determines whether, in a given case, the methodology is appropriate. Premier points out that the Office has provided no guidance on how to allocate federal income tax expense for excess profits reporting. That no guidance has been offered is understandable, inasmuch as the Office holds firmly to the belief that no allowance for federal income tax expense should be made. Nonetheless, the Office reviewed the method provided by Premier and did not find it to be reasonable. Premier included in its Form F filing for the years 2005-2007 a deduction for the portion of Florida corporate income tax expense not related to investment income. The Office accepted the Florida corporate income tax deduction, which is calculated using the same allocation method Premier used to allocate federal income tax expense. Indeed, the Office acknowledged at hearing that it has permitted the methodology of direct written premium in Florida divided by direct written premium written everywhere for the determination of other expenses for excess profits filings, and has only rejected the methodology on one occasion. However, it has not accepted this same methodology for determining the appropriate amount of federal income tax expense and does not believe it to be a reasonable methodology. The rationale for this distinction is that, in Mr. Watford's view, federal income tax is "a totally different type of expense." Mr. Watford did not consult an accountant or certified public accountant in making the determination that the methodology used was impermissible. Mr. Watford opined that in order to determine that a proposed methodology is reasonable, the insurance company would need to have an adjustment in the profit factor, i.e., submit a new rate filing for the years in question; have a projected tax expense that did not exceed the expense he calculated, based on the effect on future tax expenses caused by the return of excess profits; and submit a methodology that was "appropriate for the insurance company." This approach is rejected. First, the rate filing is supposed to be a forecast, and the Office cited to no authority for adjusting the forecast in light of actual events. Further, Mr. Watford admitted that in this instance, the profit and contingencies factor is already at zero for the years at issue, and section 627.125 provides that no factor less than zero can be used to determine excess profits. Second, the excess profits statute specifies that the deduction for administrative and selling expenses is for those expenses incurred in Florida or allocated to Florida for the current year. Unlike incurred losses and loss adjustment expenses, administrative and selling expenses are not developed to an ultimate basis, which appears to be what the Office is attempting to require. Administrative expenses are incurred by calendar year.1/ Other than the net cost of re-insurance, the Office has not permitted any expense that is to be valued at a date that is later than the end of the calendar year(s) at issue in the excess profits filing. The future effect of these expenses would be considered in the year that effect is realized. Third, allowing whatever is "appropriate for the insurance company" is simply too nebulous a standard, to the extent it is a standard at all, to apply.2/ As noted by Mr. Hester, federal income tax liabilities are governed by the Internal Revenue Code and its attendant regulations, and not tied specifically to underwriting gain or loss.3/ Similarly, Florida corporate income tax liabilities are governed by Florida's taxing statutes. The fact that their calculation is not governed by the Florida Insurance Code does not change the fact that they are administrative expenses borne by the insurance company.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office enter a Final Order finding that $2,406,312.10 may be deducted for federal income tax expense incurred or allocated to Florida for purposes of section 627.215, and that Premier must return $660,907.90 in excessive profits to its policyholders. DONE AND ENTERED this 19th day of December, 2012, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of December, 2012.
Recommendation Based upon the foregoing, it is RECOMMENDED: That Vogue be obligated to pay the interest assessed on the corporation for failure to timely pay the corporate intangible property tax due for 1987 and 1988. That Vogue's penalty assessment be reduced by $200.00 as a compromise of assessment penalties due to the circumstances surrounding the corporation's late reporting. This reduction reflects the removal of the late reporting penalty by $100.00 for each year. That Vogue not be required to pay the $22.00 filing fee for the warrant that was filed by the Department, without statutory authority to do so, the Public Records of Collier County. Any other costs surrounding the warrant, including its removal from the public records, should not be borne by the Petitioner. DONE and ENTERED this 16th day of July, 1990, in Tallahassee, Leon County, Florida. VERONICA E. DONNELLY 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 July, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-5744 The Respondent's proposed findings of fact are addressed as follows: Admitted. See HO #1 and #2. Rejected. See HO #3 and #4. Accepted. See HO #4. Rejected. Irrelevant in these proceedings. Copies furnished: William H. Kaverman, Qualified Representative 3115 Gulfshore Boulevard North Apartment #709 Naples, Florida 33940 Vern D. Calloway, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32399 Lealand L. McCharen, Esquire Assistant Attorney General Tax Section, Capitol Building Tallahassee, Florida 32399-1050 William D. Moore, Esquire General Counsel Department of Revenue 203 Carlton Building Tallahassee, Florida 32399 J. Thomas Herndon Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-1000
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 On January 15, 1975, Gerardo Benesch, Jitka Benesch, H. Albert Grotte, Regina Grotte, Milorad Dordevic, Catalina Dordevic, Milodrag Savovic and Marina Savovic executed an agreement associating themselves in a general partnership, Andean Investment Company. The stated purpose of the partnership was to engage in the business of real estate development, selling, renting, and dealing generally in real estate of all kinds. It was recited in the agreement that, by forming the partnership, the parties wished to reduce their prior expense of managing separate properties through separate managerial agreements. To this end, they transferred certain real estate by quit-claim deed to the partnership, and these properties represented its capital. The agreement provided in Article IV that the net profits or net losses of the partnership would be distributed or chargeable, as the case might be, to each of the partners in percentage proportions based on the amount of their investment in the partnership. The property consisted of warehouses located in Deerfield Beach and Fort Lauderdale, Florida, from which rentals were derived (Petition and Exhibits thereto). All of the properties were encumbered by mortgages of varying amounts and all but two of the quit-claim deeds transferred title subject to the mortgage thereon. Two deeds provided specifically that the partnership assumed the existing mortgage. Although Petitioner's counsel states that this was not intended and was a "scrivener's error", Petitioner partnership has, in fact, made the mortgage payments on all of the properties since their transfer under the aforesaid deeds (Composite Exhibit 1, Stipulation). Petitioner paid only minimal documentary stamp tax on the deeds. Respondent thereafter issued four proposed Notices of Assessment of Documentary Stamp Tax, Surtax, and Penalty against the Petitioner on January 6, 1976, in the total amount of $3,797.00. The tax was computed under Rule 12A-4.13(10)(c), F.A.C., based on transfers of realty (Composite Exhibit 2, Testimony of Dahlem). At the hearing, Petitioner disputed the manner in which Respondent had computed the documentary stamp tax in that each assessment dealt with a husband and wife who held individual percentage interests in the net worth of the partnership. Respondent's computation did not take into consideration the double interest in each assessment. The parties therefore agreed that a recomputation would be made by Respondent and submitted as a late-filed exhibit. This was done and the new computation reflects a total tax liability, including surtax and penalty, in the total amount of $4,053.40 (Composite Exhibit 3).
Recommendation That Petitioner's request for relief from tax liability be denied, and that Petitioner's liability for documentary stamp tax, surtax, and penalties in the total amount of $4,053.40 be sustained. DONE and ORDERED this 26th day of May, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 Allan F. Meyer, Esquire Suite 1500 Post Office Box 14310 Ft. Lauderdale, Florida 33302 Zayle A. Bernstein, Esquire Post Office Box 14310 Fort Lauderdale, Florida 33302
