Findings Of Fact On October 14, 1985, Petitioner, Nicholas Cozzo, entered into a Stock Purchase Agreement for the sale of sixty (60) shares of the issued and outstanding capital stock of C & S Deli Sandwich and Fish, Inc., a Florida corporation, (the Company) to Robert A. Krueger and Joe Ellen Krueger (collectively, the Kruegers). As a result of the sale, Petitioner retained ownership of no further stock of the Company. (Exhibit A) On October 14, 1985, the Kruegers executed two (2) promissory notes in the amounts of $53,000.00 and $5,000.00, respectively, to Petitioner and a Security Agreement securing payment of the notes. (Composite Exhibit B and Exhibit C) On October 14, 1985, Petitioner tendered his resignation as Director, President and Treasurer of the Company. (Exhibit D) Petitioner's security interest to the furniture, furnishings, fixtures, equipment and inventory of the Company (the "collateral") was duly perfected by the filing of a Uniform Commercial Code Financing Statement with the Uniform Commercial Code Bureau, Florida Department of State, on October 21, 1985. (Exhibit E) A Uniform Commercial Code Financing Statement was recorded by the Petitioner in the Public Records of Pasco County, State of Florida, on October 15, 1985, in Official Records Book 1451, page 0493. (Exhibit F) In early 1987, the Kruegers defaulted under the terms of the promissory notes. Prior to April 24, 1987, Petitioner repossessed the furniture, furnishings, fixtures, equipment and inventory of the Company. No consideration was paid by Petitioner to the Company or the Kruegers upon his repossession of the foregoing described collateral. At no time did ownership of any of the capital stock of the Company revert back to Petitioner. On May 5, 1987, Petitioner by private sale disposed of the collateral to Vincent Lopez and Glen Delavega. (Exhibits G, H, and I) No surplus funds resulted from the sale of the repossessed collateral by Petitioner to Vincent Lopez and Glen Delavega. At no time material hereto did the Florida Department of Revenue issue a tax warrant against the Company respecting any unpaid sales tax. On or about May 6, 1987, Petitioner paid under protest to the Respondent Department of Revenue the delinquent unpaid sales tax of the Company in the amount of $1392.53. The Department is still attempting to verify that amount at this date. The Petitioner maintains he paid the amount in order for the Department to issue a sales tax certificate and number to Vincent Lopez and Glen Delavega. The Department maintains its procedure at the time was to issue a sales tax number to the new owners and then proceed against them under Section 212.10, Florida Statutes. It is the position of the Respondent that the Petitioner's repossession of the collateral constituted a sale within the purview of Section 212.10(1), Florida Statutes (1985), and Rule 12A-1.055, Florida Administrative Code, which places tax liability on the successor of a business whose previous owner has not satisfied outstanding sales tax obligations. Respondent further notes that the case Petitioner relies on, General Motors Acceptance Corporation v. Tom Norton Motor Corp., 366 So.2d 131 (Fla. 4th DCA 1979) was issued on January 10, 1979, while Section 679.105(5), Florida Statutes, which upholds tax laws when in conflict with security agreements, took effect January 1, 1980. Petitioner on the other hand claims that a lawful repossession of collateral under Florida's Uniform Commercial Code, Section 679.504, Florida Statutes (1985), does not constitute a "sale" of a business making him liable for the Company's unpaid sales tax. Petitioner continues to rely on GMAC, supra, and notes that it was cited by American Bank v. Con's Cycle Center, 466 So.2d 255 (Fla. 5th DCA 1985). A refund application was submitted by Petitioner to the Department of Revenue on June 10, 1987. This application was denied by the Department of Revenue by letter dated January 28, 1988. (Exhibit J)
Findings Of Fact On August 27, 1976, the Respondent, State of Florida Department of Revenue, notified the Petitioner of its intention to assess sales tax, penalties and interest against the Respondent for business transactions in the period August 1, 1973 through July 31, 1976. This Notice of Proposed Assessment was revised on May 27, 1977, and the Petitioner was notified of that revision. By his letter of June 19, 1977, the Petitioner has challenged the assessment, as revised. Upon receipt of the June 19, 1977 petition, the Respondent moved for a more definite statement and the Petitioner was afforded fifteen (15) days from the date of the Order within which time to amend his petition. Petitioner took advantage of that opportunity to amend and by an undated document did make such an amendment. The Respondent subsequently moved to strike certain portions of the amended petition and filed its answer to the petition. A pre-hearing conference was held to consider the Motion To Strike and after that pre-hearing conference was concluded an Order was issued which struck certain portions of the amended Petition and allowed copies of the proposed notices of assessments of August 27, 1976 and the revision of May 27, 1977 to be made a part of the complaint/petition as Exhibits 1 and 2, respectively. After the pre-hearing Order had been issued by the undersigned, the case was noticed for hearing for December 5, 1977. At the December 5, 1977 hearing date a Second Revised Notice of Proposed Assessment of Tax, Penalties and Interest Under Chapter 212, Florida Statutes was tendered. This revision dated from December 5, 1977, was allowed to be introduced as the final position of the Respondent on the question of the assessment. It was also allowed to be attached as Exhibit 3 to the amended petition. (Under cover of a separate correspondence the original petition, amended petition, exhibits to the amended petition, an Order which was entered after consideration of the Motion To Strike, are being submitted as a part of the record herein). In the ordinary course of his duties a tax examiner employed by the Respondent went to the business premises of the Petitioner to perform an audit to determine whether or not the Petitioner was collecting and remitting sales tax for the category of sales which the Petitioner was making, that required the payment of sales tax. These requirements spoken of are those set forth in Chapter 212, F.S. Mr. DeCico, the tax examiner, allowed Mr. Farhud to pick three (3) months in the year 1976 as being the period to be audited. DeCico then returned to Farhud's place of business and showed him the details of the three (3) month audit. Farhud was dissatisfied wish this audit and indicated that he preferred to have the audit sample expended for a full three (3) years. DeCico replied that he would be willing to expand the audit period. but cautioned Farhud that expansion of the audit period might promote an increased liability. Nonetheless, at Farhud's request, the audit period was expanded to one for thirty-six (36) months. The new audit period dated from August 1, 1973, through July 1, 1976. The work papers on that audit may be found as Respondent's Exhibit No. 1 admitted into evidence. This audit which is depicted in the Respondent's Exhibit No. 1, left out invoices pertaining to stamps, electric bills, wrapping paper, grocery bags, etc., since they were not retail items for sale. The audit was rendered on August 27, 1976. Before the Notice of Assessment was filed, Farhud had expressed his displeasure with the outcome of the second audit process because he felt that certain amounts depicted in the gross sales were not accurate; to wit, the inclusion of certain so-called "service fees", namely income tax preparation, notary fees, etc. DeCico tried to get a reasonable statement of the amounts of the categories which Farhud desired to have excluded. Farhud did not have records of the matters and was unable to provide an estimate as to the amount of income which had been derived from the aforementioned "service fees". The August 27, 1976, proposed assessment was computed on the basis of the proposition that the gross sales are equivalent to actual sales and are subject to sales tax in the taxable categories. As indicated before, this audit did not take into consideration any "service fees", nor did it grant any allowance for pilferage. No allowance was made for the latter category, because Farhud had not provided any estimate and/or police records to indicate the amount which would be lost to pilferage, and cause a reduction of the sales tax liability. Farhud formally challenged the audit of August 27, 1976, by his correspondence of September 8, 1976 in which he rejects the amount claimed and asks for a hearing. A copy of this correspondence may be found as Respondent's Exhibit No. 2 admitted into evidence. An informal conference was held between the parties on October 12, 1976 to see if a resolution of the dispute could be achieved. Mr. Farhud was represented at the informal conference by Michael J. Burman, Esquire, an attorney in Jacksonville, Florida. By a letter of October 14, 1976, Farhud's attorney requested the Respondent to utilize the figures for the three (3) month audit period, as opposed to the thirty-six (36) month period. The letter concluded by stating that Mr. Burman was unaware of any intention Mr. Farhud had to appeal the assessment of August 27, 1976. This letter was followed by a series of letters in which the various parties were indicating the desire to determine whether or not Mr. Farhud intended to accept the August 27, 1976 assessment or to appeal it. In the course of his correspondence Mr. Farhud continued to insist that he did not accept the amount of assessment as accurate. Mr. Farhud failed to indicate to Mr. Burman whether he was going to appeal the assessment or not and Mr. Burman withdrew as his attorney, as shown in the January 31, 1977 correspondence addressed to one of the employees of the Respondent. This correspondence is Respondent's Exhibit No. 7 admitted into evidence. On February 2, 1977, the audit supervisor in the Jacksonville district of the Respondent wrote Mr. Farhud indicating the intention of the Respondent to collect the taxes pursuant to the August 27, 1976 audit. A copy of this correspondence is Respondent's Exhibit No. 8 admitted into evidence. It should be indicated at this point, that the Respondent's representative had continued to request documentation from Farhud on the items requested for exemption which have been referred to as "service fee". The subject of pilferage had also been discussed at the October 12, 1976 informal conference and a request made for some form of records of police reports which would verify pilferage allowances. No documentation had been provided at the time the February 2, 1977 letter was written to Farhud. Subsequent to the February 2, 1977 letter another informal conference was held on April 4, 1977. As a result of that conference it was determined that certain items would be deleted from the audit assessment of August 27, 1976. This is evidenced in Respondents Exhibit No. 9 which is a copy of a letter dated May 27, 1977, from the audit supervisor, Mr. McCrone, to Mr. Farhud. At the April 4, 1977, discussion the subject of pilferage allowance as brought up in the deletion of 4 percent of the purchase price of taxable goods, as to soft drinks, paper and said products, pet foods and miscellaneous sundries were allowed. No allowance was given for beer, wine and tobacco products because these were felt to be out of reach of prospective pilferers. Again, this deletion is found in the Respondent's Exhibit No. 9. The 4 percent figure was arrived at as an industry estimate. Farhud still was not satisfied after the April 4, 1977, conference had been held and adjustments to the assessment had been mode. In view of this dissatisfaction, the Respondent elected to make a new type of audit, which was performed and was premised upon an analysis of the taxable purchases by the Petitioner for the three (3) year period. These purchases were divided into taxable categories and these categories were then marked up in price using an industry average to arrive at the actual taxable sales. The industry average was based upon an examination of the United Food Stores, Inc.'s sales catalog, which had suggested retail prices for low volume and high volume stores. The Respondent gave the Petitioner the benefit of the range of high volume stores, although the Petitioner's store was a neighborhood convenience store and therefore a low volume operation. The effect of allowing the average retail price for the high volume stores was that it made the differential between his purchase price and the retail price less than that for a low volume neighborhood store, causing lesser tax liability. As stated before, this alternative method was elected for the reason that the Respondent had objected that the gross sales figures reported in the monthly tax returns were incorrect, due to the fact that the Petitioner was unable to document his claim for entitlement to certain exemptions due to pilferage and "service fees", and due to the belief that the more correct approach to the audit was the second method. The work sheet on the alternative method may be found on Respondent's Exhibit No. 10 admitted into evidence. The utilization of this method led to the revised assessment of May 27, 1977, which is the subject of the appeal by petition, and amended petition of the Petitioner. This revision was superceded by the second revision of December 5, 1977, which was allowed to be entered without objection from the Petitioner. The second revision reduces the amount of tax liability claimed by the Respondent. An analysis of the documents offered in this cause and the testimony, leads to the conclusion that the Petitioner/taxpayer owed sales tax during the audit period August 1, 1973 through July 31, 1976. Furthermore, the more correct form of audit procedure under the circumstances, was the alternate method employed in arriving at the May 27, 1977 revised Notice of Assessment as further revised by the December 5, 1977 Second Revised Notice of Proposed Assessment. This conclusion is grounded on the requirements of Section 212.05(1), F.S., which requires persons in the Petitioner's category for the exercise of the privilege of doing business, to assist in levying a tax in the amount of 4 percent in the categories covered. Furthermore, Sections 212.06(3) and 212.07(2), F.S., places the duty on the Petitioner to collect this 4 percent sales tax. The Petitioner failed to act in accordance with the provision of Chapter 212, F.S. and the Second Revised Notice of Proposed Assessment is correct and in keeping with the authority of Section 212.12(6), F.S.
Recommendation Therefore, it is hereby RECOMMENDED: That the Second Revised Notice of Proposed Assessment of Tax, Penalties and Interest found as Exhibit 3 to the amended petition which total is $2,238.92 be allowed with such adjustments as may be necessary for a computation of interest prior to the rendition of a final order. DONE and ORDERED this 3rd day of January, 1978, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Nathan Weil, Esquire 203 Washington Street Jacksonville, Florida 32202 Patricia Turner, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Attorney, Division of Administration Department of Revenue Carlton Building Tallahassee, Florida 32304
The Issue Whether the Respondent, Aristen Group, L.L.C., d/b/a Pangaea Gryphon (Respondent or Licensee), failed to remit monies owed to the Petitioner, Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (Department or Petitioner) pursuant to the surcharge provisions found in Section 561.501(2), Florida Statutes (2007). If so, the Department seeks to discipline the licensee pursuant to Section 561.29, Florida Statutes (2007).
Findings Of Fact At all times material to the allegations of this case, the Petitioner is the state agency charged with the responsibility of regulating persons holding alcoholic beverage licenses. See § 561.02, Fla. Stat. (2007). At all times material to the allegations of this matter the Respondent has been a licensee holding license number 1616908, series 4-COP. When the Licensee filed its surcharge audit questionnaire it elected to file its surcharge tax based upon the "purchase method." The Department offers alcoholic licensees two methods to compute the alcoholic beverage surcharge tax. The methods are known as the "purchase method" and the "sales method." The "purchase method" calculates the surcharge due to the Department based upon everything purchased during a given month. For the "sales method" the surcharge tax is computed based upon the actual cash register records for the sales during the reporting period. The Department may audit any licensee to compare the amounts remitted with the records maintained by the licensee to verify the correct surcharge tax was paid. In this case, the Licensee was audited for the period September 23, 2004 through August 31, 2006. To verify the surcharge amount was properly remitted, the Department reviewed the records of the beverage distributors used by the Licensee. When the Surcharge Audit Questionnaire was submitted the Respondent identified five suppliers of alcoholic beverages from whom the Licensee purchased beverages for the audit period. Those suppliers then provided their records to establish the beverages sold to the Respondent during the audit period. Based upon those records the Department compared the volume purchased and calculated the surcharge tax due and owing to the state versus the surcharge tax paid to the Petitioner during the audited period. Based upon that comparison, the Department found that the Licensee had failed to remit the correct surcharge payment. More specifically, the Department calculated that the Respondent owed the State a surcharge principle in the amount of $7,975.70. Based upon that amount the Department assessed a penalty in the amount of $4,217.87 along with interest in the amount of $1,409.54. The Respondent does not dispute the calculations for penalty and interest if the principle amount is correct. James Napolitano is the accountant for the Respondent. He was authorized to appear at the hearing on behalf of the Licensee but was unclear as to how the Department computed the surcharge amounts. Mr. Napolitano did not dispute that the Licensee was to remit the surcharge tax based upon the "purchase method." Mr. Napolitano represented that all purchases were to be signed for and opined that if they were, in fact, received by the Licensee the surcharge computation may be correct. Copies of the documents relied upon by the Department were provided to the Licensee at its business address. Mr. Napolitano did not receive them until the date of the hearing. Mr. Napolitano represented he intended to review the invoice records to verify the shipments were actually provided to the Licensee. No further information was offered by the Respondent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco, enter a Final Order providing that the Respondent owes the surcharge tax in the amount of $7,975.70, and assessing a penalty and interest based upon that amount. Further, the Final Order should provide a limited time for the repayment of the delinquent amount. Should the Licensee fail to timely remit the full amount, with penalty and interest, it is recommended that the license be suspended until such time as the amount is paid in full. DONE AND ENTERED this 3rd day of September, 2008, in Tallahassee, Leon County, Florida. J. D. PARRISH 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 3rd day of September, 2008. COPIES FURNISHED: Michael J. Wheeler, Esquire Assistant General Counsel Department of Business and Professional Regulation Northwood Centre, Suite 40 1940 North Monroe Street Tallahassee, Florida 32399-2202 James P. Napolitano 404 Jerusalem Avenue Hicksville, New York 11801 James P. Napolitano 5711 Seminole Way Hollywood, Florida 33314 Ned Luczynski, General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792 Cynthia Hill, Director Division of Alcoholic Beverages And Tobacco Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792
The Issue The issues are whether proposed rules 12-18.008, 12A-15.001 and 12A-1.044, Florida Administrative Code, are valid exercises of delegated legislative authority.
Findings Of Fact The Parties The Family Arcade Alliance (Alliance) is a group composed primarily of businesses that operate amusement game machines in the State of Florida which are activated either by token or coin. The parties agree that the Alliance is a substantially affected person as that term is defined in Section 120.54(4)(a), Florida Statutes (1991), and has standing to maintain these proceedings. The Department of Revenue (Department) is the entity of state government charged with the administration of the revenue laws. The Tax and the Implementing Rules Except for the period the services tax was in force, no sales tax had been imposed on charges made for the use of coin-operated amusement machines before the enactment of Chapter 91-112, Laws of Florida, which became effective on July 1, 1991. The Act imposed a 6 percent sales tax on each taxable transaction. Coin-operated amusement machines found in Florida are typical of those machines throughout the United States. The charges for consumer use of the machines are multiples of twenty-five-cent coins, i.e., 25 cents, 50 cents, 75 cents, and one dollar. The sales tax is most often added to the sale price of goods, but it is not practicable for the sellers of all products or services to separately state and collect sales tax from consumers. For example, there is no convenient way separately to collect and account for the sales tax on items purchased from vending machines such as snacks or beverages, or from newspaper racks. For these types of items, a seller reduces the price of the object or service sold, so that the tax is included in the receipts in the vending machine, newspaper rack or here, the coin-operated amusement machine. There are subtleties in the administration of the sales tax which are rarely noticed. The sales tax due on the purchase of goods or services is calculated at the rate of 6 percent only where the purchase price is a round dollar amount. For that portion of the sales price which is less than a dollar, the statute imposes not a 6 percent tax, but rather a tax computed according to a specific statutory schedule: Amount above or below Sales tax whole dollar amount statutorily imposed 1-9 0 10-16 1 17-33 2 34-50 3 51-66 4 67-83 5 84-100 6 Section 212.12(9)(a) through (h), Florida Statutes (1991). In most transactions the effect of the schedule is negligible and the consumer never realizes that the tax rate is greater than 6 percent for the portion of the sales price that is not a round dollar amount. Where a very large percentage of sales come from transactions of less than a dollar, the statutory schedule for the imposition of the sales tax takes on a greater significance. For those transactions between 9 cents up to a dollar the schedule's effective tax rate is never below the nominal tax rate of 6 percent, and may be as high as 11.76 percent. For example, the 1 cent sales tax on a 10 cent transaction yields an effective tax rate of 10 percent, not 6 percent. Where it is impracticable for businesses in an industry to separately state the tax for each sale, the statutes permit sellers (who are called "dealers" in the language of the statute) to file their tax returns on a gross receipts basis. Rather than add the amount of the tax to each transaction, taxes are presumed to be included in all the transactions and the dealer calculates the tax based on his gross receipts by using the effective tax rate promulgated by the Department in a rule. See Section 212.07(2), Florida Statutes (1991). Businesses also have the option to prove to the Department that in their specific situation the tax due is actually lower than a rule's effective tax rate for the industry, but those businesses must demonstrate the accuracy of their contentions that a lower tax is due. Applying the statutory tax schedule to sales prices which are typical in the amusement game machine industry (which are sometimes referred to as "price points") the following effective tax rates are generated at each price point: Total Sales Presumed Presumed Effective Price Selling Price Sales Tax Tax Rate 25 cents 23 cents 2 cents 8.7% 50 cents 47 cents 3 cents 6.38% 75 cents 70 cents 5 cents 7.14% $1.00 94 cents 6 cents 6.38% The determination of an effective tax rate for an industry as a whole also requires the identification of industry gross receipts from each of the price points. Once that effective tax rate is adopted as a rule, the Department treats dealers who pay tax using the effective tax rate as if they had remitted tax on each individual transaction. Proposed Rule 12A-1.044 establishes an industry-wide effective tax rate for monies inserted into coin-operated amusement machines or token dispensing machines of 7.81 percent. For counties with a one half or one percent surtax, the effective tax rates are 8.38 percent and 8.46 percent respectively. These rates include allowances for multiple plays, i.e., where the consumer deposits multiple coins to activate the machine. Proposed Rule 12A-1.044(1)(b) defines coin-operated amusement machines as: Any machine operated by coin, slug, token, coupon or similar device for the purpose of entertainment or amusement. Amusement machines include, but are not limited to, coin-operated radio and televisions, telescopes, pinball machines, music machines, juke boxes, mechanical games, video games, arcade games, billiard tables, moving picture viewers, shooting galleries, mechanical rides and all similar amusement devices. Proposed Rule 12-18.008 contained a definition of "coin-operated amusement machines" when the rule was first published which was essentially similar, but that rule's nonexclusive list of amusement machines did not include radios, televisions or telescopes. The Department has prepared a notice to be filed with the Joint Administrative Procedures Committee conforming the definitions so they will be identical. The current differences found in the nonexclusive descriptive lists are so slight as to be inconsequential. The Petitioners have failed to prove any confusion or ambiguity resulting from the differences that would impede evenhanded enforcement of the rule. Proposed Rule 12A-15.011 did not contain a separate definition of coin-operated amusement machines. Owners of amusement machines do not always own locations on which to place them. Machine owners may go to landowners and lease the right to place their machines on the landowner's property. The transaction becomes a lease of real property or a license to use real property. Sometimes owners of locations suitable for the placement of amusement machines lease machines from machine owners. Those transactions become leases of tangible personal property. Both transactions are subject to sales tax after July 1, 1991. Proposed rules 12A- 1.044(9)(c), (d) and 10(a), (c) prescribe which party to the leases of real estate or personal property will be responsible to collect, report and remit the tax. Under subsection 9(d) of proposed rule 12A-1.044, sales tax will not be due on any payment made to an owner of an amusement machine by the owner of the location where that machine is placed if: a) the lease of tangible personalty is written, b) the lease was executed prior to July 1, 1991, and c) the machine involved was purchased by the lessor prior to July 1, 1991. The tax will be effective only upon the expiration or renewal of the written lease. Similarly, proposed 12A-1.044(10)(d) provides that sales tax will not be due on written agreements for the lease of locations to owners of amusement machines if: a) the agreement to rent the space to the machine owner is in writing, and b) was entered into before July 1, 1991. At the termination of the lease agreement, the transaction becomes taxable. Changes to the proposed rules The Department published changes to the proposed rule 12A-1.044(3)(e) on October 18, 1991, which prescribed additional bookkeeping requirements on any amusement machine operators who wished to avoid the effective tax rate established in the proposed rule, and demonstrate instead a lower effective tax rate for their machines. The significant portions of the amendments read: In order to substantiate a lower effective tax rate, an operator is required to maintain books and records which contain the following information: * * * b. For an amusement machine operator, a list identifying each machine by name and serial number, the cost per play on each machine, the total receipts from each machine and the date the receipts are removed from each machine. If an operator establishes a lower effective tax rate on a per vending or amusement machine basis, the operator must also establish an effective tax rate for any machine which produces a higher rate than that prescribed in this rule. Operators using an effective rate other than the applicable tax rate prescribed within this rule must recompute the rate on a monthly basis. (Exhibit 6, pg. 4-5) There was also a change noticed to subsection (e) of the proposed rule 12A-1.044, which reads: (e) For the purposes of this rule, possession of an amusement or vending machine means either actual or constructive possession and control. To determine if a person has constructive possession and control, the following indicia shall be considered: right of access to the machine; duty to repair; title to the machine; risk of loss from damages to the machine; and the party possessing the keys to the money box. If, based on the indicia set out above, the owner of the machine has constructive possession and control, but the location owner has physical possession of the machine, then the operator shall be determined by who has the key to the money box and is responsible for removing the receipts. If both the owner of the machine and the location owner have keys to the money box and are responsible for removing the receipts, then they shall designate in writing who shall be considered the operator. Absent such designation, the owner of the machine shall be deemed to be the operator. (Exhibit 6, pg. 1-2) The Amusement Game Machine Industry All operators must be aware of how much money an amusement machine produces in order to determine whether it should be replaced or rotated to another location when that is possible, for if games are not changed over time, patrons become bored and go elsewhere to play games on machines which are new to them. The sophistication with which operators track machine production varies. It is in the economic self interest of all operators to keep track of the revenues produced by each machine in some way. In general, amusement game machine businesses fall into one of three categories: free standing independent operators, route vendors, and mall operators. Free standing independent operators have game arcades located in detached buildings, and offer patrons the use of amusement machines much in the same way that bowling alleys are usually freestanding amusement businesses. Like bowling alleys, they are designed to be destinations to which patrons travel with the specific purpose of recreation or amusement. They are usually independent businesses, not franchises or chains. Route operators place machines individually or in small numbers at other businesses, such as bars or convenience stores. People who use the machines are usually at the location for some other purpose. Those games are maintained on a regular basis by an operator who travels a route from game location to game location. The route operator or the location owner may empty the machine's money box. Mall operators tend to be parts of large chains of amusement game operators who rent store space in regional shopping malls. The mall is the patron's destination, and the game parlor is just one of the stores in the mall. Amusement machines are operated by either coin or by token. About 75 percent of independent amusement game operators use coin-operated machines. About 75 percent of the large chain operators found in malls use tokens. The cost of converting a coin-activated amusement machine to a token-activated amusement machine is about thirty dollars per machine. The mechanism costs $10 to $12, the rest of the cost comes from labor. Token operators must buy an original supply of tokens and periodically replenish that supply. The use of tokens enhances security because it gives the operator better control over their cash and permits the operator to run "promotions," for example, offering 5 rather than 4 tokens for a dollar for a specific period in an attempt to increase traffic in the store. Depending on the number purchased, tokens cost operators between 5 and 10 cents each. Token-activated machines accept only tokens. Coin-operated machines only accept a single denomination of coin. Change machines generally accept quarters and one, five and ten dollar bills. A change machine may be used either to provide players with quarters, which can be used to activate coin- operated machines, or they can be filled with tokens rather than quarters, and become a token dispenser. In a token-operated amusement location, the only machines which contain money are the change machines used to dispense tokens. The game machines will contain only tokens. Token machines record the insertion of each coin and bill by an internal meter as a domination of coin or currency is inserted. Token dispensing machines record their receivables as follows: when one quarter is inserted, the machine records one transaction. When a fifty-cent piece is inserted, the machine records one transaction. When three quarters are inserted, the machine records three transactions. When a dollar bill is inserted, the machine records one transaction. When a five dollar bill is inserted, the machine records one transaction. When a ten dollar bill is inserted, the machine records one transaction. Token machine meters record separately for each domination the total number of times coins or currency of each domination are deposited in the machine. The internal meters of token dispensing machines do not distinguish between insertion of several coins or bills by one person and the insertion of singular coins or bills by several persons. Token dispensing machines cannot distinguish the insertion of four quarters by one person on a single occasion from the insertion of one quarter by each of four persons at four different times. Similarly, the internal meters of amusement machines activated by coin rather than by token do not distinguish between insertion of several coins or bills by one person and the insertion of single coins or bills by several persons. Machines which are coin-activated also do not distinguish between the insertion of four quarters by one person at one time or the insertion of one quarter by each of four persons at different times. Coin-operation has certain cost advantages. The operator avoids the cost of switching the machine from coin to token operation, for machines are manufactured to use coins, and avoids the cost of purchasing and replenishing a supply of tokens. The operator does not risk activation of his machine by tokens purchased at another arcade, which have no value to him, and can better take advantage of impulse spending. Coin-operated machines do not have a separate device for collecting tax and it is not possible for an operator to fit games with machinery to collect an additional two cents on a transaction initiated by depositing a quarter in a machine. There are alternative methods available to operators of amusement game machines to recapture the amount of the new sales tax they may otherwise absorb.1 One is to raise the price of games. This can be done either by setting the machines to produce a shorter play time, or to require more quarters or tokens to activate the machines. Raising the prices will not necessarily increase an operator's revenues, because customers of coin-operated amusement businesses usually have a set amount of money budgeted to spend and will stop playing when they have spent that money. In economic terms, consumer demand for amusement play is inelastic. Amusement businesses could also sell tokens over- the-counter, and collect sales tax as an additional charge, much as they would if they sold small foods items over the counter such as candy bars. Over-the- counter sales systems significantly increase labor costs. An amusement business open for 90 hours per week might well incur an additional $30,000-a-year in operating costs by switching to an over-the-counter token sales system. In a small coin-operated business, the operator often removes the receipts by emptying the contents of each machine into a larger cup or container, without counting the receipts from each machine separately because it is too time consuming to do so. But see Finding 17 above. With a token-operated business, the operator can determine the percentage of revenue derived from twenty-five cent transactions, as distinct from token sales initiated by the insertion of one, five or ten dollar bills into token dispensing machines. The proposed rule has the effect (although it is unintended) of placing the coin-operated amusement operators at a relative disadvantage in computing sales tax when compared to the token-operated businesses. Token operators can establish that they are responsible for paying a tax rate lower than the 7.81 percent effective rate set in the rule because many of their sales are for one dollar, five dollars or ten dollars. The smaller businesses using coin-operated machines do not have the technological capacity to demonstrate that customers are spending dollars rather than single quarters. Consequently, coin operators will have an incentive to shift to token sales rather than pay the proposed rule's higher effective tax rate if a large percentage of their patrons spend dollars rather than single quarters. For example, Mr. Scott Neslund is an owner of a small business which has 80 amusement machines at a freestanding token-operated location. He is atypical of small amusement game operators because 75 percent of them use coin-operated machines rather than token-operated machines. Mr. Neslund can demonstrate that 92 percent of his sales are for one dollar or more. By applying the tax rate of six percent to those transactions, he pays substantially less than the proposed rule's effective tax rate of 7.81 percent. This is very significant to Mr. Neslund because over the nine years from 1982 to 1990, his average profit margin was 7.77 percent. Although a flat 6 percent tax would have consumed 73 percent of that profit margin, if his businesses were on a coin-operated basis he would have been required to pay the proposed rule's 7.81 percent effective tax rate, which would have consumed 93 percent of his profit margin, leaving him with a very thin profit margin of 1/2 of 1 percent. The difference between a 1/2 of 1 percent profit margin and 2 percent profit margin, on a percentage basis, is a four hundred percent difference. Mr. Neslund's average profit annually had been $24,000. The effective tax rate of 7.81 percent would take $22,7000 of that amount, leaving an average annual profit of only $1,700. It is impossible to extrapolate from this single example and have confidence in the accuracy of the extrapolation, however. The Department's Effective Tax Rate Study There is no data for the amusement game industry specific to Florida concerning the number of transactions occurring at specified price points, but there is national data available which the Department considered. There is no reason to believe that the Florida amusement game industry is significantly different from the national industry. Nationally approximately 80 percent of all plays and 60 percent of all revenues come from single quarter (twenty-five- cent) plays. The Department's study used the typical sale prices charged in the industry and the categories of coin-operated amusement games reported in the national survey. Using them the Department derived an estimate of revenues by type of game for Florida. The effective tax rate the Department derived is the Department's best estimate of the price mix of transactions which occur through amusement machines. It is not itself an issue in this proceeding. Petitioners' counsel specifically agreed that they were not contesting the setting of the effective tax rate at 7.81 percent and presented no evidence that any other effective tax rate should have been set. The Department's Economic Impact Statement Dr. Brian McGavin of the Department prepared in July 1991 paragraphs 2, 3 and 5 of the economic impact statement for the proposed rules (Exhibits 14, 15 and 16), which concluded that proposed rules 12A-15.001, 12-18.008 and 12A- 1.044 would have no effect on small businesses. The economic impact statements for all three proposed rules contain identical information and involve the same issues concerning economic impact. Before drafting the economic impact statement published with these rules, Dr. McGavin had completed one other economic impact statement, had used a small manual which gave a general description of the process for developing economic impact statements and had discussed the process with another economist, Al Friesen, and his supervisor, Dr. James Francis, the Department's director of tax research. Dr. Francis prepares or reviews more than a dozen economic impact statements annually, and is well aware of the definition of small businesses found in Section 288.703(1), Florida Statutes. Dr. Francis reviewed Dr. McGavin's work and agreed with Dr. McGavin's conclusions. Paragraphs 2, 3 and 5 of the economic impact statements for these rules state: Estimated cost or economic benefits to persons directly affected by the proposed rule. The rule establishes effective tax rates for two categories of machines - 1) amusement machines, 2) vending machines. Amusement machines were not previously taxable (except during the Services tax period). * * * The costs of this rule are primarily compliance costs. The rules establishe several compliance provisions. quarterly sale and use tax reports. submission of supporting information for these reports on electronic media. affixation of registration certifi-cates to machines. presentation of certificates by operators to wholesale dealers. The filing requirement is obviously an integral and necessary part of the sales tax collection process . . . . The costs of complying will be borne by operators. If the operators have previously computerized their records, the marginal compliance costs will be negligible. For a small operator who has not computerized his operations, the costs of minimally configured PC systems - including software and training - would be roughly $2,000. This could be a major expense for a small operator . . . . We do not have data which will permit us to estimate the proportion of non-computerized operators in this industry. Effect of the proposed action on competition and on the open market for employment. * * * Given the low labor-intensity of this industry the overall effect should be very small. * * * 5. Impact of the proposed action on small business firms. Small business firms are not affected by the proposed action. (Exhibits 14, 15 and 16) The Petitioners demonstrated that before Dr. McGavin prepared the economic impact statement he did not read section 120.54 on rulemaking and he did not conduct any industry research or refer to any sources of information on the amusement game industry in Florida or nationally. He did not use any data to calculate or measure economic impact, consult text books, or refer to any outside sources or statistical information, nor did he talk with any industry experts or representatives. He did not obtain any information about the industry by distributing questionnaires to those in the industry, nor did he know whether there were differences in day-to-day operations between large and small amusement businesses or the different types of accounting and bookkeeping systems used by small businesses. He had not read Section 288.073, Florida Statutes, which defines a small business. He did not know the impact the 7.81 percent effective tax rate established by the rule would have on small business, and he did not analyze the cost difference businesses experienced between the sale of tokens by machine and the sale of tokens over-the-counter by an employee. To the extent it even entered into Dr. McGavin's thought process, Dr. McGavin made the general assumption that token sales would either be made over the counter, in which case the sales tax could be separately collected, or possibly by selling fewer tokens per unit of currency. When the Legislature enacted Chapter 91-112, Laws of Florida, and imposed the tax on the use of coin operated amusement machines, it did not provide for any phasing in of the tax, nor for any tiering of the tax based on the size of the taxpayers. Nothing in the language of the statute imposing the tax indicates that the Legislature believed that there was a distinction to be made in the taxation of larger and smaller businesses which provide the same service, viz, use of amusement machines. The Department does permit certain accommodations to businesses which have a small volume of sales. A business may report quarterly rather than monthly if its tax liability is less than $100 for the preceding quarter, and if the tax liability is less than $200 for the previous six months, a dealer may request semiannual reporting periods. Regardless of size, a business with more than one location in a county may file one return. Both of these provisions may lessen the burden of complying with the tax imposed on the use of coin-operated amusement machines. The Economic Impact Analysis Performed For The Challengers By Dr. Elton Scott Dr. Elton Scott is an economist and a professor at the Florida State University. The Petitioners engaged him to evaluate the economic impact statement the Department had prepared when these proposed rules were published. After conducting his own analysis, Dr. Scott wrote a report in which he determined that the Department's economic impact statement was deficient. According to Dr. Scott, one must understand an industry to determine whether an economic impact flows from a regulation and to determine the magnitude of any impact or the differential impact the regulation may have on large and small businesses. To prepare his own economic impact analysis, Dr. Scott first obtained information about the operational characteristics of the industry by speaking directly with a handful of industry members. He developed a questionnaire that tested the experience and background of operators so that he could evaluate the reliability or accuracy of information he received from them. He then asked additional questions about the operators' individual businesses and questions about differences between large and small operators within the industry. Dr. Scott's testimony outlines the factors which should be used to make an economic impact statement as useful as possible, but his testimony does not, and cannot, establish minimum standards for what an economic impact analysis should contain. Those factors are controlled by the Legislature, and no doubt the requirements imposed on agencies could be more onerous, and if faithfully followed could produce more useful economic impact statements. The economic impact small businesses will bear is caused by the statute, not by the implementing rule, with the possible exception of the electronic filing requirement, which has not been challenged in any of the three proceedings consolidated here. Large businesses have several advantages over smaller ones. Large businesses have sophisticated accounting systems, whether they use token or coin-operated machines, which allow tracking not only of gross receipts but kinds of plays, which enhance the operator's ability to establish that the tax due is lower than the effective tax rate, while the less sophisticated systems of metering receipts in coin-operated small businesses require reliance on the effective tax rates. (Exhibit 9 pg. 4) Large businesses may extend the useful life of a game machine by rotating the machine from one location to another, may deal directly with manufactures in purchasing a larger number of games or machines and therefore obtain more favorable discounts. Small businesses cannot rotate games if they have only one location, and purchase at higher prices from manufactures. In general, smaller businesses have lower profit margins than larger businesses. All of these advantages exist independently of any rule implementing the sales tax statute.
Findings Of Fact 1. Petitioner is a Florida corporation wholly owned by Mr. Thomas C. Birkhead, president. Petitioner owns and operates the Satellite Motel in Cocoa Beach, Florida. The Audit Respondent conducted a sales and use tax audit of Petitioner's business records for the period September 1, 1985, through August 31, 1990. Respondent determined a deficiency and assessed Petitioner for $15,373.62, including tax, penalty, and interest through May 13, 1991. The assessment is for $1,922.42 in sales tax, $7,646.25 in use tax, $2,392.20 in delinquent penalty, and $3,412.75 in interest through May 13, 1991. Interest accrues daily in the amount of $3.15. Respondent made a prima facie showing of the factual and legal basis for the assessment. Petitioner failed to produce credible and persuasive evidence to overcome the prima facie showing. The audit and assessment are procedurally correct. Tax, interest, and penalty are correctly computed. Sampling Petitioner failed to maintain adequate records of its sales and purchases. Respondent properly conducted an audit by sampling Petitioner's available books and records in accordance with Section 212.12(6)(b), Florida Statutes. Although Petitioner's records of sales and purchases were inadequate, Petitioner produced some books and records for the entire audit period. Respondent properly limited the applicable penalty to a delinquent penalty. Audit Period Respondent is authorized to audit Petitioner for the period September 1, 1985, through August 31, 1990. Effective July 1, 1987, the period for which taxpayers are subject to audit was extended from three to five years. 1/ When Respondent conducted the audit, Respondent was authorized to conduct an audit within five years of the date tax was due. 2/ Tax owed by Petitioner for the period beginning September 1, 1985, was not due until the 20th day of the month following its collection. 3/ Therefore, Respondent was authorized to audit Petitioner's records anytime before October 20, 1990. 4/ On September 13, 1990, Respondent issued a Notice Of Intent To Audit Books And Records of the Petitioner (the "Notice Of Intent"). The Notice Of Intent tolled the running of the five year audit period for up to two years. 5/ Respondent completed its audit and issued its Notice Of Intent To Make Sales And Use Tax Audit Changes on May 13, 1991. 2. Sales Tax Petitioner sells snacks and beverages over the counter at the Satellite Motel. The sale of such tangible personal property is subject to sales tax. As a dealer, Petitioner must collect the applicable sales tax and remit it to Respondent. During the audit period, Petitioner failed to collect and remit applicable sales tax. As a dealer, Petitioner is liable for the uncollected sales tax. Respondent properly assessed Petitioner for $1,922.42 in uncollected sales tax. 3. Use Tax Petitioner rents televisions and linens and purchases business forms from Florida vendors. The rental and sale of such tangible personal property is subject to sales tax. During the audit period, Petitioner failed to pay sales tax to Florida vendors and used the televisions, linens, and business forms in its business at the Satellite Motel. Petitioner is liable for use tax on the use of those items during the audit period. Respondent properly assessed Petitioner for use tax in the amount of $7,646.25.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order upholding the assessment of tax, penalty, and interest through the date of payment. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of October, 1994. DANIEL MANRY 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 25th day of October, 1994.
Findings Of Fact At all times pertinent to this cause, Robert W. Pope, has been the holder of license no. 62-600, series 4-COP, SRX, held with the State of Florida, Division of Beverage to trade as The Wedgewood Inn, located at 1701, 4th Street, South, St. Petersburg, Pinellas County, Florida. When the Respondent, Pope, began to operate the licensed premises he was given a registration sales tax number by the State of Florida, Department of Revenue. This number was provided in accordance with 212, F.S. That law required the remittance of the collected sales tax on a month to month basis, the period beginning with the first day of the month and ending with the last day of the month. The remittance was due on the first day of the following month and payable by the 20th day of the following month. Failure to pay by the 20th would result in a 5 percent penalty and 1 percent interest per month. The sales tax remittance due from the licensed premises for September, 1976 through December, 1976 was not made and a lien was recorded to aid collection of the tax. Payment of the amount of $4,500.00 was paid in February or March, 1977 to satisfy the Department of Revenue lien claims. At present all taxes due and owing under 212, F.S. are current. The above facts established that the Respondent failed to comply with the provisions of 212, F.S. pertaining to the remittance of sales tax from the Respondent to the State of Florida, Department of Revenue. This violation, thereby subjects the Respondent to the possible penalties of 561.29, F.S.
Recommendation It is recommended that the Respondent, Robert W. Pope, be required to pay a civil penalty in the amount of $500.00 or have the license no. 62-600, series 4- COP, SRX, suspended for a period of 20 days. DONE AND ENTERED this 28th day of July, 1977, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: William Hatch, Esquire Division of Beverage 725 South Bronough Street Tallahassee, Florida 32304 Robert W. Pope, Esquire 611 First Avenue, North St. Petersburg, Florida 33701
Findings Of Fact Petitioner is the owner and operator of Quality Inn Royal in Clearwater, Florida, and is the owner of an adjacent building that housed AGE Royal Pub, Inc., doing business as Royal Pub Lounge and Restaurant on July 1, 1983. In 1983 Royal Pub Lounge and Restaurant was operated by Glenn H. Hatch, M.D. (retired), under a lease from Petitioner. During this same period Petitioner, as a special promotion, had accepted guests under an arrangement which included breakfast as part of their package. It also had members of the Philadelphia Phillies baseball team as guests, with arrangement with the team to allow the players to charge their meals at the restaurant to their rooms. On July 12, 1983, eighty-three rooms were occupied. On July 12, 1983, Hatch failed to open the restaurant. When contacted he advised he was not going to continue operating the restaurant and pub. At this time Hatch was in arrears in rent by more than $11,000 and the food and liquor inventory totaled $2,787.15 (Exhibit 1). In order to allow it to comply with its contractual agreements with its guests, Petitioner, on July 12, 1983, entered into an agreement with Hatch (Exhibit 2) whereby Hatch surrendered his right to occupy the premises, Petitioner released Hatch from all liabilities under the lease, and Hatch agreed to hold Petitioner harmless from all liens perfected against Hatch before July 12, 1983. At this time, Petitioner was primarily concerned with providing breakfast to its guests as it had contracted to do and needed the restaurant open to comply with these contracts. The restaurant and lounge remained closed on July 12, but Petitioner purchased additional supplies, hired personnel, and opened the restaurant on July 13, 1983, and operated the restaurant, serving breakfast and lunch to guests, for approximately one week, when a new tenant was obtained to take over the restaurant and lounge. During the period the restaurant was operated by Petitioner it closed each afternoon around 2:00 p.m. Total sales during this period was $1,352.54. The food consumed at the restaurant during this one-week operation cost approximately $500 and labor costs were approximately $1,000. Pursuant to a city ordinance making the landlord responsible for unpaid utility bills of a tenant, Petitioner was required to pay the City of Clearwater $2,469.21 for electricity used on the premises before July 13, 1983. On or about August 2, 1983, the Department of Revenue filed a warrant for collection of Sales and Use taxes against AGH Royal Pub, Inc., d/b/a Royal Pub Lounge and Restaurant for unpaid Sales and Use taxes for a period of time ending July 12, 1983, in an amount of approximately $17,000. This warrant became a lien on the supplies at the facility on August 19, 1983, when recorded. On December 23, 1983, Petitioner satisfied this lien by paying $17,389.12 in order that the new tenant could get a liquor license. On June 30, 1983, Petitioner served upon Hatch at Royal Pub Restaurant and Lounge a Notice of Delinquency in Rent in the amount of $7,825 through June 30, 1983. This notice required lessee to pay this sum within 30 days or give up possession of the premises. Petitioner had a statutory lien upon the inventory of food and liquor of the lessee superior to any lien acquired subsequent to the bringing of the property on the leased premises. Following successful negotiations with the new tenant to operate the restaurant and lounge, Petitioner became aware of the sales tax liability incurred during Hatch's operation of the facility when the new tenant was denied a liquor license because of the unpaid sales tax by his predecessor. In order to get the restaurant and lounge in operation by an independent operator, Petitioner paid the taxes under protest. Prior to the denial of the liquor license to the successor operator of Royal Pub Lounge and Restaurant, Petitioner was not aware of a tax liability incurred by Hatch nor could it have ascertained the existence of such liability by the exercise of due diligence. Records of delinquent sales taxes are confidential and not available to persons in the position of the landlord (Stipulation). Petitioner is a limited partnership which owns several motels. These motels are operated by McClellan Marsh Management Corp., which has interlocking directors, with some officers common to Petitioner. Although many of these motels have restaurant facilities on the premises, these facilities are' always operated by lessees who are wholly independent of the lessor.
The Issue Whether Respondents' alcoholic beverage license should be disciplined for the reasons stated in Petitioner's Notice to Show Cause dated September 14, 1982.
Findings Of Fact Based on the evidence presented, the following facts are determined: The Long Branch was operating under DABT License No. 74-878 in License Series 4-COP-SRX. This type of license requires food and nonalcoholic beverage sales to constitute at least 51 percent of all sales. Audit of the Long Branch's records, which were examined on a month-by- month breakdown of the sales for the period July 1 1981, to July 1, 1982, showed food and non- alcoholic beverage sales at 7.7 percent and alcoholic beverage sales at 92.3 percent of total sales. For the period July 1 through July 27, 1982, the ratio was 4.3 percent to 95.7 percent. At no time during the more than one year period audited did the food sales reach the required 51 percent.
Recommendation Based on the foregoing, it is RECOMMENDED: That Respondents' License No. 74-878 be revoked. RECOMMENDED this 31st day of March, 1983, in Tallahassee, Florida. ARNOLD H. POLLOCK, 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 31st day of March, 1983. COPIES FURNISHED: Thomas M. and Sandra J. Spera Long Branch 600 South Yonge Street Ormond Beach, Florida Mr, Howard M. Rasmussen Director, Division of Alcoholic Beverages and Tobacco Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Mr Gary R. Rutledge Secretary Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301
The Issue Does the taxpayer owe sales tax, penalty, and interest as assessed by the Department of Revenue.
Findings Of Fact Petitioner, Department of Revenue, is an agency of the State of Florida, lawfully created and organized pursuant to Section 20.21, Florida Statutes. By law, the Department is vested with the responsibility of regulating, controlling and administering the revenue laws of the State of Florida, including, specifically, the laws relating to the imposition and collection of the state's sales and use tax, pursuant to Chapter 212, Florida Statutes. Respondent, Worldwide Equipment Group, LLC, is a Florida limited liability company, whose principal address is Post Office Box 1050, Freeport, Florida 32439. Respondent sells and leases heavy equipment. In early 2006, Petitioner, Department of Revenue, conducted an audit of the books and records of Petitioner, pursuant to statutory notice. The period covered by the audit was March 1, 2002, through February 28, 2005. The audit was conducted by Department of Revenue auditor David Collins and addressed three issues. Issue A-01 addressed misclassified exempt sales, i.e. failure to collect appropriate sales and use tax or lack of documentation to prove tax exempt status of certain sales. Issue A-03 addressed discrepancies in sales for 2003 as reported for federal income tax returns and for state sales and use tax returns. Issue A-03 addressed interest owed due to a timing difference between actual transactions and the filing of state returns: basically a manipulation of the grace period for payment of sales and use taxes. Respondent was notified of the apparent discrepancies observed by the auditor. The original Notice of Intent To Make Audit Changes was issued February 17, 2006, and started at more than $75,000.00 in taxes, penalty, and interest due. Respondent then filed amended federal income tax returns, reflecting larger sales figures covering a portion of the audit period which reduced the discrepancy. The dispute was originally referred to the Division of Administrative Hearings (DOAH) on or about August 30, 2006. The original facts in dispute surrounded an addendum to the Notice of Proposed Assessment showing a balance due of $31,434.82. This was DOAH Case No. 06-3287. The request for a disputed-fact hearing was made by David R. Johnson CPA, who has a power of attorney on file with Petitioner Agency permitting him to represent Respondent. Throughout these proceedings, Worldwide has been served through Mr. Johnson by Petitioner and by DOAH. The parties filed a Joint Motion for Provisional Closing Order in DOAH Case No. 06-3287 on November 1, 2006. On November 2, 2006, DOAH Case No. 06-3287 was closed with leave to return if the parties' proposed settlement was not finalized. Mr. Johnson met once with counsel for Petitioner during the time the case was returned to the Agency. At some point, Respondent had produced certain accounting entries and supporting documents to the auditor. These were used to adjust the assessment levied by the Department. A Revised Notice Of Intent To Make Audit Changes dated March 13, 2007, was issued with a letter of the same date. The revised, and final Notice included an assessment of tax, penalty and interest totaling $15,065.24, as of the date of issue and information that the tax accrues interest at the rate of $3.10 per diem. On April 4, 2007, Petitioner filed before DOAH its Motion to Re-open Case and Notice for Trial. No timely response in opposition was filed by Respondent. By an Order to Re-open Case File, entered April 19, 2007, the case was re-opened as the instant DOAH Case No. 07-1710. Petitioner has established that the amount of $15,065.24 as tax, penalty, and interest was due as of March 13, 2007.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue sustain the March 13, 2007, assessment of the subject sales tax, penalties and interest to Petitioner. DONE AND ENTERED this 8th day of October, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of October, 2007. COPIES FURNISHED: Warren J. Bird, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32399-0100 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100 David R. Johnson, CPA 1265 Highway 331 South Defuniak Springs, Florida 32435 Worldwide Equipment Group LLC Post Office Box 1050 Freeport, Florida 32439
Findings Of Fact Certain hospital equipment ("Equipment") was sold in 1973 and 1974 by Hospital Contract Consultants ("Vendor") to F & E Community Developers and Jackson Realty Builders (hereinafter referred to as "Purchasers") who simultaneously leased the Equipment to Petitioner. These companies are located in Indiana. At the time of purchase, Florida sales tax ("Tax") was paid by the Purchasers and on or about March 18, 1974, the tax was remitted to the State of Florida by the Vendor. However, the Tax was paid in the name of Medical Facilities Equipment Company, a subsidiary of Vendor. In 1976, the Department of Revenue audited Petitioner and on or about April 26, 1976 assessed a tax on purchases and rental of the Equipment. On or about April 26, 1976, petitioner agreed to pay the amount of the assessment on the purchases and rentals which included the Equipment, in monthly installments of approximately Ten Thousand and no/100 Dollars ($10,000.00) each and subsequently paid such amount of assessment with the last monthly installment paid on or about November 26, 1976. On or about December, 1976, the Department of Revenue, State of Florida, checked its records and could not find the Vendor registered to file and pay sales tax with the State of Florida. Petitioner then looked to the State of Indiana for a tax refund. On or about January 4, 1977, Petitioner filed for a refund of sales tax from the State of Florida in the amount of Thirty Five Thousand One Hundred Four and 02/100 Dollars ($35,104.02). This amount was the sales tax paid to and remitted by various vendors for certain other equipment purchased in 1973 and 1974 and simultaneously leased. The amount of this refund request was granted and paid. Relying upon the facts expressed in paragraph 4 heretofore, Petitioner on or about June 2, 1977 filed with the Department of Revenue of the State of Indiana for the refund of the Tax. On or about June 7, 1979, the Department of Revenue of Indiana determined that the Vendor was registered in the State of Florida as Medical Facilities Equipment Company and therefore Petitioner should obtain the refund of the Tax form the State of Florida. So advised, Petitioner then filed the request for amended refund, which is the subject of this lawsuit, on July 16, 1979 in the amount of Seventeen Thousand Two Hundred Sixteen and 28/100 Dollars ($17,216.28). This request for refund was denied by Respondent, Office of the Comptroller, on the basis of the three year statute of non-claim set forth in section 215.26, Florida Statutes. Purchasers have assigned all rights, title and interest in sales and use tax refunds to Petitioner. During the audit of Petitioner in 1976 the lease arrangement on the equipment apparently came to light and Petitioner was advised sales tax was due on the rentals paid for the equipment. This resulted in an assessment against Petitioner of some $80,000 which was paid at the rate of $10,000 per month, with the last installment in November, 1976. The auditor advised Petitioner that a refund of sales tax on the purchase of this equipment was payable and he checked the Department's records for those companies registered as dealers in Florida. These records disclosed that sales taxes on the sale of some of this rental equipment had been remitted by the sellers of the equipment but Hospital Contract Consultants was not registered. Petitioner was advised to claim a refund of this sales tax from Indiana, the State of domicile of Hospital Contract Consultants. By letter on March 18, 1974, Amedco Inc., the parent company of wholly owned Hospital Contract Consultants, Inc. had advised the Florida Department of Revenue that Medical Facilities Equipment Company, another subsidiary, would report under ID No. 78-23-20785-79 which had previously been assigned to Hospital Contract Consultants Inc. which had erroneously applied for this registration. (Exhibit 2) Not stated in that letter but contained in Indiana Department of Revenue letter of April 18, 1979 was the information that the name of Hospital Contract Consultants had been changed to Medical Facilities Equipment Company. The request for the refund of some $17,000 submitted to Indiana in 1976 was finally denied in 1979 after research by the Indiana Department of Revenue showed the sales tax had been paid to Florida and not to Indiana.
