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PAUL SOLANO AND DIANE SOLANO vs DEPARTMENT OF REVENUE, 03-004272 (2003)
Division of Administrative Hearings, Florida Filed:Orlando, Florida Nov. 17, 2003 Number: 03-004272 Latest Update: Mar. 17, 2004

The Issue The issue is whether Petitioners owe the taxes, interest, and penalties assessed by the Department of Revenue based upon Petitioners’ alleged rental of their real property to a related corporation from June 2000 through August 2003.

Findings Of Fact Based upon the testimony and evidence received at the hearing, the following findings are made: In July 1997, Petitioners acquired the real property located at 640 North Semoran Boulevard in Orlando, Florida (hereafter “the Property”). The Property was acquired in Petitioners’ individual capacities, and they financed the purchase of the Property through a loan secured by a mortgage on the Property. The documents relating to the 1997 loan and mortgage were not introduced at the hearing. At the time the Property was acquired, Petitioner Paul Solano was engaged in the practice of accounting through a sole proprietorship known as P. Solano and Associates. Mr. Solano has been practicing accounting in Florida since 1969 and he is familiar with Florida's sales tax laws. The Property was treated as an asset of Mr. Solano’s sole proprietorship even though he was not using it as his place of business at the time. For example, depreciation expense related to the Property was itemized on Petitioners’ tax returns as a business expense. The mortgage payments made by Petitioners were also treated as business expenses of the sole proprietorship. In October 1999, Mr. Solano incorporated his accounting practice into an entity known as Solano & Associates Enterprises, Inc. (hereafter “the Corporation”). The sole business of the Corporation is providing accounting services. At the time of its formation, the Corporation was owned in equal 20 percent shares by Mr. Solano, his wife (Petitioner Diane Solano), their two daughters, and their son-in-law. There has been no change in the ownership of the Corporation since its inception. Mr. Solano is the president of the Corporation. The other owners/family members are also officers in the Corporation. Once the Corporation was formed, the depreciation expense related to the Property was included on the Corporation's tax returns, not Petitioners' tax return. At the time the Property was purchased, it was zoned for residential use. Between 1997 and 1999, Petitioners took the necessary steps to get the Property rezoned for commercial use so that the Corporation could conduct its accounting practice from that location. In November 1999, after the property had been rezoned, the Corporation and its owners applied for a loan from First Union National Bank (First Union) to obtain the funds necessary to renovate the existing building on the Property. Although unclear from the documentation in the record, Petitioners both testified that the 1999 loan was effectively a refinancing of the 1997 loan. The Corporation was not able to obtain a loan in its own name because it had only been in existence for a short period of time. The owners of the Corporation were not able to obtain a loan at a favorable interest rate, primarily because of the lack of credit history of Petitioners’ daughters and son-in- law. As a result, the loan was obtained by Petitioners in their individual capacities. Petitioners gave a mortgage on the Property as collateral for the 1999 loan. The mortgage document, entitled “Mortgage and Absolute Assignment of Leases” (hereafter "the 1999 mortgage"), was signed by Petitioners in their individual capacities on November 18, 1999; the Corporation was not identified in the 1999 mortgage in any way. The 1999 mortgage includes boiler-plate language referring to Petitioners’ obligation to maintain and enforce any leases on the Property and requiring the assignment of rents from any such leases to First Union. That language cannot be construed to mean that a lease actually existed at the time; in fact, the Property was still undergoing renovations at the time. The Corporation began doing business from the Property in February 2000 after the renovation work was complete and a certificate of occupancy was issued. The 1999 loan was refinanced in May 2000 with First Union. The loan amount was increased from $145,000 to $200,000 and the term of the loan was extended through a document entitled “Mortgage and Loan Modification and Extension Agreement” (hereafter "the 2000 mortgage"). The 2000 mortgage refers to the Corporation as the borrower and refers to Petitioners as the guarantors. Petitioners signed the 2000 mortgage in their individual capacities (to bind themselves as guarantors) as well as their capacities as corporate officers (to bind the Corporation as borrower). The related promissory note, dated May 5, 2000, also refers to the Corporation as the borrower, and it is signed by Petitioners in their capacity as officers of the Corporation. As part of the documentation for the refinancing in 2000, Petitioners executed an “Affidavit of Business Use” in which they attested they were the owners of the Property and that the loan proceeds would be “utilized exclusively for business or commercial purposes and not for personal use.” Petitioners also executed a “Mortgagors" Affidavit” in which they attested that they were in sole possession of the Property and that no other persons have claims or rights to possession of the property “except Solano & Associates Enterprises by virtue of a written lease which does not have an option to purposes or right of first refusal.” The monthly mortgage payment for the refinanced loan was $2,044.91. That amount was due on the fifth day of each month beginning on June 5, 2000, and it was automatically deducted from the Corporation’s bank account with First Union. In addition to making the mortgage payment for the Property, the Corporation paid the ad valorem taxes, insurance, and related expenses. The amount of those payments is not quantified in the record. Petitioners formally deeded the Property to the Corporation in October 2003. Mrs. Solano testified that the failure to do so earlier was simply an “oversight.” When the Property was formally deeded to the Corporation, Petitioners did not report any income or loss on the transaction for tax purposes. Any equity that had accumulated in the Property was simply “given” to the Corporation. The First Union mortgages were satisfied in October 2003 as part of a refinancing done by the Corporation with SunTrust bank after it became the owner of the Property.1 At that point, the Corporation had been in existence long enough to establish a credit history and obtain financing in its own name. The record does not include any documentation related to the 2003 refinancing transaction. Despite the representation in the “Mortgagors’ Affidavit” quoted above, there has never been any written or oral lease between Petitioners and the Corporation with respect to the use of the Property. Petitioners have always considered the Property to be a business asset, initially an asset of Mr. Solano’s sole proprietorship and then an asset of the Corporation. Petitioners never collected any sales tax from the Corporation on the mortgage payments made by the Corporation. Petitioners did not consider those payments to be rental payments. In late-June or early-July 2003, the Department sent a letter to Petitioners stating that the Property “appears to be subject to sales tax pursuant to Chapter 212.031, Florida Statutes.” The letter was sent as part of the Department’s “Corporation Rent Project” through which the Department compares records in various databases to identify commercial properties whose owner of record is different from the business operating at that location. Included with the letter was a questionnaire soliciting information from Petitioners regarding the Property and its use. The questionnaire was completed by Mr. Solano and returned to the Department in a timely manner. Mr. Solano marked a box on the questionnaire indicating that the Property is “[o]ccupied by a corporation in which a corporate officer is the property owner,” and he identified the Corporation as the entity occupying the Property. In response to the question as to “which of the following considerations are received by you,” Mr. Solano marked the following boxes: “The corporation remits payment for the mortgage loan”; “I do not receive rental income, but the related entity pays the mortgage payments”; and “No consideration is received from this related entity.” In response to the questions regarding the “monthly gross rental income of the property” and the “amount of real estate taxes . . . paid on the property by the lessee” for 2000 through 2003, Mr. Solano answered $0 for all periods. Terry Milligan, a tax specialist with the Department, determined based upon Mr. Solano’s responses on the questionnaire that the Corporation’s use of the Property was subject to the sales tax on rentals. Mr. Milligan advised Petitioners of that determination by letter dated July 29, 2003. The letter requested that Petitioners provide “a detailed month by month breakdown of rent (or mortgage payment) amounts, any other consideration, and property taxes that you received from the tenant (or tenant paid on your behalf) for the last thirty-six (36) months).” (Emphasis in original). Petitioners responded to Mr. Milligan’s request through a letter dated August 11, 2003. The letter explained that the reason that the title to the Property appeared under Petitioners’ name rather than the Corporation's name is “due to credit history.” More specifically, the letter stated that “[i]t was decided by the Board members, my wife and our [] children, to put it under our name since we have a long history of good credit.” Included with the letter was a bank statement showing the monthly mortgage payment of $2,044.91 and a notice of the proposed property tax assessment from Orange County for the Property, which was addressed to the Corporation. In addition to providing the requested documentation to Mr. Milligan, one of Petitioners’ daughters, Joylynn Aviles, spoke with Mr. Milligan to explain the circumstances relating to the financing and use of the Property. Ms. Aviles is the Secretary of the Corporation. Ms. Aviles also spoke with Mr. Milligan’s supervisor and an individual in the Department’s legal division. When it became apparent that the matter could not be resolved informally, Ms. Aviles requested that Mr. Milligan issue a final assessment so that Petitioners could bring a formal protest. In response, the Department issued the NOFA on September 11, 2003. The NOFA was preceded by a spreadsheet dated September 3, 2003, which showed how Mr. Milligan calculated the tax, penalties, and interest amounts set forth in the NOFA. As described in Mr. Milligan’s spreadsheet and his testimony at the hearing, the tax was computed based upon the monthly mortgage payments of $2044.91 made by the Corporation from June 2000 to August 2003. The June 2000 start-date for the assessment corresponds to the 36-month period referred to in Mr. Milligan’s July 29, 2003, letter; it also happens to correspond to the date that Corporation began making the mortgage payments. The August 2003 end-date for the assessment was used because it was the month preceding the date of the NOFA. The Department has not sought to expand the assessment to include the period between August 2003 and October 2003 when the Property was formally deeded to the Corporation. The NOFA does not include any assessment for the property taxes, insurance or other expenses paid by the Corporation on the Property. The Department has not sought to expand the assessment to include those amounts. The sales tax rate in effect in Orange County during the assessment period was six percent from June 2000 through December 2002, and it was 6.5 percent from January 2003 through August 2003. The 0.5 percent increase resulted from the imposition of a county surtax of some kind. The NOFA calculated a total tax due of $4,784.91. As shown in Mr. Milligan’s spreadsheet, that amount was calculated by multiplying the monthly mortgage payment by the tax rate in effect at the time of the payment and then totaling those monthly amounts. The NOFA calculated $465.79 in interest due on the unpaid tax through September 13, 2003. As shown in Mr. Milligan’s spreadsheet, that amount was calculated at the applicable statutory rates. Interest continues to accrue at 53 cents per day. The NOFA calculated a penalty due of $2,233.97. That amount was calculated based upon the applicable statutory rate as shown in Mr. Milligan’s spreadsheet and explained in the NOFA. In total, the NOFA imposed an assessment of $7,566.43. That amount includes the taxes, interest, and penalties described above. The NOFA informed Petitioners of the procedure by which they could protest the Department's assessment. On November 10, 2003, the Department received Petitioners' timely protest of the assessment. This proceeding followed.

Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue issue a final order rescinding the Notice of Final Assessment issued to Petitioners. DONE AND ENTERED this 17th day of March, 2004, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 17th day of March 2004.

Florida Laws (8) 120.57212.02212.031212.054212.07212.12213.2172.011
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PREMIER GROUP INSURANCE COMPANY vs OFFICE OF INSURANCE REGULATION, 12-000439 (2012)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Jan. 31, 2012 Number: 12-000439 Latest Update: Apr. 01, 2013

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.

Florida Laws (10) 120.54120.57120.68220.15220.151624.605627.0625627.215831.01910.01
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DEPARTMENT OF INSURANCE AND TREASURER vs. MELVIN MOSES LESSER, 89-000502 (1989)
Division of Administrative Hearings, Florida Number: 89-000502 Latest Update: Dec. 28, 1989

The Issue The issue is whether respondent's license as a public adjuster should be revoked, suspended, or otherwise disciplined after his conviction for aiding in the preparation of a false tax return in violation of 26 U.S.C. Section 7206(2).

Recommendation It is RECOMMENDED that Mr. Lesser be found guilty of violation of Section 626.611(7), Florida Statutes (1987), and that his licensure as a public adjuster be suspended for a period of six months. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 28th day of December, 1989. WILLIAM R. DORSEY, JR. 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 28th day of December, 1989. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-0502 Rulings on findings proposed by the Department: 1 and 2. Adopted in finding of fact 3. Adopted in finding of fact 4. Implicit in findings of fact 5 and 6. Adopted in finding of fact 6. Adopted in finding of fact 8. Adopted in finding of fact 8. Adopted in finding of fact 8. Implicit in finding of fact 11. Rulings on findings proposed by Mr. Lesser: 1-11. Inapplicable. Adopted in finding of fact 3. Adopted in finding of fact 3, to the extent necessary. Rejected as unnecessary. Adopted in finding of fact 5. Adopted in finding of fact 5. Adopted in finding of fact 5, though finding of fact 5 includes certain logical deductions or inferences. Made more specific in findings of fact 5 and 6. Adopted as modified in finding of fact 7. Rejected. Not only were the laundering transactions illegitimate because they allowed Benevento Maneri to mischaracterize the source of their income, they also created false expenses for Lesser and Company, Inc., which artificially lowered the income of Lesser and Company, Inc., by the amount of the expense. Adopted as modified in finding of fact 7. It is difficult to determine what Mr. Lesser actually thought the source of the money was, but he knew it was illicit. See, finding of fact 7. Adopted as modified in finding of fact 8. Adopted as modified in finding of fact 9. 25 and 26. Adopted as modified in finding of fact 9. Adopted as modified in finding of fact 10 The extent of Mr. Lesser's danger cannot be determined from this record, although he was in some danger. Covered in finding of fact 9 Adopted as modified in finding of fact 11. Rejected. See, finding of fact 8. The IRS first contacted Mr. Lesser. He then went to Mr. Weinstein to set matters straight. Adopted as modified in finding of fact 11. Adopted as modified in finding of fact 4. Adopted as modified in finding of fact 12. Adopted as modified in finding of fact 12. A light sentence implies the factors set out in finding of fact 35, were taken into consideration, but does not prove that they were all the reasons the U.S. District Judge took into consideration. To the extent necessary, mentioned in finding of fact 12. Rejected as procedural. 38-51. Covered in findings of fact 13 and 14. The proposed findings are subordinate to the findings made in findings of fact 13 and 14. COPIES FURNISHED: S. Marc Herskovitz, Esquire Robert V. Elias, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 William W. Corry, Esquire Jack M. Skelding, Jr., Esquire Patrick J. Phelan, Jr., Esquire Parker, Skelding, Labasky & Corry 318 North Monroe Street Post Office Box 669 Tallahassee Florida 32301 Honorable Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300

USC (1) 26 U.S.C 7206 Florida Laws (4) 120.57626.611626.621893.135
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CLARK`S FISH CAMP & SEAFOOD, INC. vs DEPARTMENT OF REVENUE, 02-004057 (2002)
Division of Administrative Hearings, Florida Filed:Jacksonville, Florida Oct. 18, 2002 Number: 02-004057 Latest Update: Jun. 30, 2003

The Issue The issue is whether Petitioner is subject to tax based on a lease or license to use real property pursuant to Sections 212.031, 212.054, and 212.55, Florida Statutes.

Findings Of Fact Jack and Joan Peoples bought and began operating a bait and tackle shop/fish camp in Jacksonville, Duval County, Florida, in approximately 1971. The name of the business was Clark's Fish Camp and Seafood. As the business grew, Mr. and Mrs. Peoples began operating a restaurant in the shop. Initially, they lived on the business premises in an apartment adjoining the shop. When the restaurant became more successful, the restaurant was enlarged to include the apartment area and the family bought a home at another location. In January 1990, Mr. and Mrs. Peoples incorporated their business as a Florida Subchapter S Corporation. Pursuant to the organizational minutes, Mr. Peoples was elected president and Mrs. Peoples was elected vice-president and secretary. Petitioner issued common stock to Mr. and Mrs. Peoples as the sole shareholders, each owning a 50 percent interest, in exchange for the good will and name of Clark's Fish Camp and Seafood. Mr. and Mrs. Peoples did not transfer any real property, fixtures, or equipment to Petitioner. At all times material to this case, Mr. and Mrs. Peoples or Mrs. Peoples, in her sole capacity, owned the real property and fixtures utilized by Petitioner in the operation of the restaurant business. At all times relevant here, Mrs. Peoples acted as hostess, cook, and/or manager for the business. She controlled Petitioner's checkbook along with her kitchen manager, Florence Hatfield, and general manager, Steve Morris. During the audit at issue here, Russ Deeter, an accountant, and his associate/former employee, Maxine Downs were responsible for performing all of Petitioner's formal bookkeeping. Mr. Deeter had served as Petitioner's bookkeeper since the early 1970s. He sold his accounting business to Ms. Downs in 1981, but he continued to assist her with the routine bookkeeping for certain clients including Petitioner. Pursuant to the arrangement between Mr. Deeter and Ms. Downs, she created a general ledger in a computer using Petitioner's checkbook, sales receipts, invoices, etc., as source documents. The source documents were then returned to Petitioner. Additionally, Mr. Deeter prepared state and federal tax returns for Petitioner and Mr. and Mrs. Peoples. Mrs. Peoples maintained all of the source documents for Petitioner's business records in a construction trailer/office located behind the restaurant on the property's highest ground. Because the property was prone to flooding, Petitioner placed the source documents and other business records on shelves in the trailer/office. The only file cabinets in the office were used to store restaurant supplies. On or about October 28, 1998, Respondent sent Petitioner a Notice of Intent to Audit Books and Records for sales and use taxes for the period October 1, 1993, to September 30, 1998. The notice also advised Petitioner that Respondent intended to conduct an audit of Petitioner's corporate intangible taxes for the period January 1, 1994, to January 1, 1998. The audit was scheduled to commence some time after December 28, 1998. In the meantime, Mr. Peoples became so ill that Mrs. Peoples closed their home and moved into a mobile home located on the business property. This move allowed Mrs. Peoples to oversee the restaurant business while she nursed her husband. Mr. Peoples died in March 1999. Thereafter, Mrs. Peoples became Petitioner's sole owner. Mrs. Peoples receives a bi-weekly salary from Petitioner in the amount of $3,000. She also makes draws from its bank account to pay business and personal expenses on an as-needed basis. Mrs. Peoples has an eighth grade education. However, she is, in large part, responsible for the success of Petitioner, which during the audit period grossed between $2,500,000 and $3,000,000 a year. Mrs. Peoples asserts that she does not remember signing any tax returns but admits that she signs documents without examining them when requested to do so by Mr. Deeter. By letter dated March 24, 1999, Respondent advised Petitioner that it was rescinding the October 28, 1998, Notice of Intent to Audit Books and Records and replacing it with a new notice. The new Notice of Intent to Audit Books and Records dated March 24, 1999, included an examination of Petitioner's charter city systems surtax for the period March 1, 1994, through February 28, 1999; Petitioner's sales and use tax from March 1, 1994, through February 28, 1999; and Petitioner's intangible personal property tax from January 1, 1995, through January 1, 1999. The new notice stated that the audit would begin on or before May 24, 1999. On May 23, 1999, Petitioner requested a postponement of the audit due to the death of Mr. Peoples. As a result of this request, Respondent postponed the audit until January 10, 2000. On May 25, 1999, Mrs. Peoples signed a Power of Attorney for Mr. Deeter to represent the business during the audit. In anticipation of the audit, Mrs. Peoples and her staff began going through the source documents stored in the trailer/office. Mr. Deeter also gathered pertinent records and computer printouts. All documents required for the audit were placed in boxes or sacks on the floor of the trailer/office. In September of 1999, Petitioner's property flooded due to a hurricane. The water rose above the elevated entrance to the trailer/office. Mrs. Peoples and Petitioner's employees made no effort to protect the documents on the floor of the trailer/office from the floodwaters. Petitioner's September 1999 insurance claims due to flood loss do not contain a claim for loss of documentation. The 1999 flood loss claims were small in comparison to the flood loss claims for 2001 even though the 1999 floodwaters rose high enough to destroy the records. Record evidence indicates that the trailer/office has flooded on more than one occasion. In September 1999, all of the documents on the floor of the office were destroyed. Subsequently, Mrs. Peoples and Ms. Hatfield disposed of the documents, including but not limited to, the printouts of the general ledger, bank statements, and cancelled checks. On January 7, 2000, Petitioner requested another postponement of the audit until July 1, 2000. Petitioner made the request due to the death of Ms. Downs in December 1999. After her death, Mr. Deeter discovered that Ms. Downs' computer and all backup tapes located in her home office were either stolen or otherwise unaccounted for. The missing computer records included Petitioner's bookkeeping records for the audit period at issue here. On January 15, 2000, Petitioner agreed to extend the time for Respondent to perform the audit. The agreement stated that Respondent could issue an assessment at any time before October 28, 2001. On July 6, 2000, Respondent issued a formal demand for Petitioner to produce certain records. The only records available were Mr. Deeter's own work papers, post-September 1999 materials that had not been placed in the trailer/office prior to the flood, or records prepared after the flood and death of Ms. Downs. On July 17, 2000, the parties signed an Audit Agreement. The agreement states that the audit of sales of tangible personal property would be controlled by the sampling method. On July 17, 2000, Mr. Deeter informed Respondent that Petitioner's records covering the period from 1993 through the middle of 1999 were not available because a flood had damaged them in September 1999. However, using his work papers, Mr. Deeter was able to provide Respondent with copies of some of the original federal tax returns that he had prepared for Petitioner and Mr. and Mrs. Peoples. During the hearing, Mr. Deeter asserted that he had delivered the original tax returns to Mr. and Mrs. Peoples who had the responsibility to sign, date, and file them with the U.S. Internal Revenue Service (IRS) at the appropriate times. Mrs. Peoples testified that she could not remember signing any returns. She believed that Mr. Deeter had assumed responsibility for filing the returns. The unsigned and undated copies of the returns that Mr. Deeter provided Respondent on July 17, 2000, included Petitioner's U.S. Income Tax Return for an S Corporation (Form 1120S) for 1996, 1997, and 1998. These returns showed that Petitioner took the following deductions from income for a lease expense: (a) 1996--$225,546; (b) 1997--$332,791; and 1998--$290,493. These are the amounts that Respondent seeks to tax as rent. Mr. Deeter also provided Respondent with an unsigned and undated copy of Mr. and Mrs. Peoples' 1998 U.S. Individual Income Tax Return (Form 1040). The return included both pages of Schedule E showing rents received from Petitioner. On July 28, 2000, Mr. Deeter provided Respondent with revised copies of Petitioner's 1120S forms and revised copies of Mr. and Mrs. Peoples' 1040 forms. The auditor's file does not contain copies of the revised returns because the auditor did not accept them. The record also indicates that Mr. Deeter did not want to leave the revised returns with Respondent because they were not copies of the original returns. During the hearing, Mr. Deeter testified that he furnished Respondent with revised returns to show that there was no difference in the amount of federal income tax due and payable by Mr. and Mrs. Peoples regardless of whether Petitioner reported a lease expense or a distribution of profit on its 1120S forms and regardless of whether Mr. and Mrs. Peoples reported Petitioner's income as rent received or a profit distribution on their 1040 forms. According to Mr. Deeter, he prepared the revised 1120S returns using his pencil copies of the original handwritten returns because he had never used a computer software program to prepare 1120S forms. Mr. Deeter had a computer software program to prepare 1040 forms, so he used that program to generate the revised 1040 returns. However, Mr. Deeter's testimony that the revised returns were drafts showing Petitioner's deduction of a lease expense and Mr. and Mrs. Peoples' receipt of rent is not persuasive. In November 2000, Respondent obtained copies of Petitioner's 1120S forms and Mr. and Mrs. Peoples' 1040 forms for 1994 and 1995 from the IRS. The IRS did not have copies of these returns for the years 1996 through 1999. However, there is record evidence that Mr. and Mrs. Peoples paid some income taxes for all years in question. The record does not contain copies of the 1994 and 1995 returns. Competent evidence indicates that, consistent with Respondent's routine practice, the auditor reviewed the 1040 and 1120S forms and returned them to the IRS without making copies for Respondent's file. Based on the auditor's review of Petitioner's 1120S returns, Respondent seeks to tax Petitioner for lease expense in the amounts of $152,782.24 in 1994 and $220,355.85 in 1995. During the hearing, Mr. Deeter conceded that he prepared Petitioner's 1120S forms for 1994 and 1995 showing deductions for a lease expense and Mr. and Mrs. Peoples' 1040 forms showing rent received from Petitioner. His testimony that he prepared all returns in subsequent years showing no lease expense for Petitioner and profit distributions instead of rent received for Mr. and Mrs. Peoples is not persuasive. In November 2000, Respondent issued a Notice of Intent to Make Audit Changes. The notice made no adjustment with respect to Petitioner's reported taxable sales. The only adjustment was based on lease payments from Petitioner to Mr. and Mrs. Peoples as consideration for the rent of the building and fixtures utilized by Petitioner in the conduct of its business. On January 26, 2001, Mr. Deeter had an audit conference with Respondent's staff. During the conference, Mr. Deeter requested that Respondent review Petitioner's amended 1120S forms for the years 1996, 1997, 1998, and 1999. The amended 1120S returns did not include deductions for a lease expense. Respondent would not accept the amended returns, but informed Mr. Deeter that it would review the amended returns if he could document that they had been filed with the IRS. On March 7, 2001, the IRS stamped the amended 1120S forms for 1996, 1997, 1998 and 1999 as having been received. Mrs. Peoples had signed the returns as Petitioner's president but she did not date her signatures. Mr. Deeter testified that his wife, Roberta Lawson, signed the amended 1120S returns as the tax preparer. Mrs. Lawson's purported signatures on the forms were dated appropriately for each tax year. However, Mrs. Lawson did not testify at the hearing. Mr. Deeter's testimony that the returns filed with the IRS on March 7, 2001, after the audit was completed were, in fact, exact copies of the returns that he and his wife prepared for Petitioner each year and provided to Respondent on July 17, 2000, is not persuasive. After receiving the amended 1120S returns, Respondent decided not to consider them in the audit because they were self-serving. On August 6, 2001, Respondent issued a Notice of Proposed Assessment of sales and use tax and charter transit system surtax. By letter dated October 2, 2001, Petitioner filed a timely informal protest of the proposed assessment. Petitioner asserted that it had never paid any rent to Mr. and Mrs. Peoples. On January 29, 2002, Respondent issued a Notice of Decision upholding the proposed assessments. However, Petitioner never received this notice. Therefore, Respondent reissued the Notice of Decision without any additional changes on August 14, 2002. During discovery, Petitioner provided Respondent with unsigned and undated copies of Mr. and Mrs. Peoples' 1040 forms for 1996, 1997, 1998, and 1999. These returns show taxable income derived from an S corporation on line 17, passive income and losses from Petitioner on page 2 of Schedule E, and depreciation on Form 4562. In other words, the returns reflect corporate distributions of profit from Petitioner and do not reference any income from rental real estate. Mr. Deeter's testimony during hearing that the 1040 returns provided to Respondent during discovery are exact copies of the original 1040 returns is not persuasive. As of December 12, 2002, Mr. and Mrs. Peoples had not filed 1040 returns for the years 2001, 2000, 1999, 1998, 1997, or 1996 with the IRS. The audit at issue here was based on the best information provided at the time of the audit. Respondent completed the audit on or about January 26, 2001. Petitioner does not assert that the calculation of the assessment was in error. Instead, Petitioner protests that any assessment is due. Petitioner could have requested its bank to provide it with copies of its statements and cancelled checks for the relevant period. Petitioner did not make such a request and Respondent was not under an obligation to do so. There is no evidence that a written lease for Petitioner to use Mr. and Mrs. People's property ever existed. However, the greater weight of the evidence indicates that Petitioner leased the restaurant property from Mr. and Mrs. Peoples for all relevant years. Mr. Deeter is an experienced accountant with over 30 years of experience. Petitioner and Mr. and Mrs. Peoples relied upon Mr. Deeter's advice as to what, if any, taxes should be paid on the lease. Armed with all of the necessary information, Mr. Deeter gave Petitioner obviously erroneous advice concerning the tax consequences associated with Petitioner leasing the property and paying 100 percent of its profits as consideration for the lease. To compound the problem, Mrs. Peoples negligently failed to ensure that Petitioner's business records, gathered specifically in anticipation of Respondent's audit, were safely preserved from hurricane floodwaters. Petitioner has had no previous tax compliance difficulties. It has not been subject to prior audits or assessments. Even so, the facts of this case indicate that Petitioner and Mr. and Ms. Peoples did not exercise ordinary care and prudence in complying with the revenue laws of Florida. Mr. Deeter testified that the fair market value or reasonable consideration for the lease is an amount equivalent to Mr. and Mrs. Peoples' depreciation. According to the depreciation schedules, which accompanied the 1040 forms provided to Respondent during discovery, the annual cost for the use of the property and fixtures were as follows: (a) 1996--$98,296; (b) 1997--$104,840; and (c) 1998--$114,106 ($179,554 less a one time extraordinary loss of $65,448 due to flood damage). Mr. Deeter also testified that using the information on the 1040 forms for 1996, the depreciation expense for 1994 and 1995 can be computed as follows: (a) 1994--$63,000 to $67,000; and (b) 1995--$77,000 to $79,000. Mr. Deeter's testimony that the fair market value of the lease is equivalent to the depreciation set forth on 1040 returns never filed with the IRS is not persuasive. Mr. Deeter testified that an estimate of reasonable net profits for a corporation of similar size and make-up could be determined by reference to ratio profiles prepared by Robert Morris and Associates. Mr. Deeter's testimony regarding average profit distributions to shareholders of similarly situated corporations and reasonable profit distributions for Petitioner are speculative and not persuasive.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Respondent enter a final order upholding the tax assessment. DONE AND ENTERED this 4th day of April, 2003, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD 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 4th day of April, 2003. COPIES FURNISHED: David B. Ferebee, Esquire Post Office Box 1796 Jacksonville, Florida 32201-1796 J. Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668 R. Lynn Lovejoy, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100

Florida Laws (12) 120.57120.80212.02212.031212.054212.055212.06212.21213.21213.3572.01195.091
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MERRITT-CHAPMAN AND SCOTT CORPORATION vs. DEPARTMENT OF REVENUE, 77-001423 (1977)
Division of Administrative Hearings, Florida Number: 77-001423 Latest Update: Apr. 13, 1978

Findings Of Fact In 1962, the Corporation decided to relocate its corporate offices from Newark, New Jersey, to the State of Florida. Implementing this decision, the Corporation secured a twenty year leasehold interest of an entire floor in the Universal Marion Building in Jacksonville, Florida, under which it was obligated to pay an annual rental of $52,000.00. Within a few months during the year 1962, the decision to relocate was rescinded. During the tax year in question, the Corporation retained a part-time employee in Florida for the sole purpose of attempting to either locate a purchaser of the leasehold interest or to avoid further obligations under the lease by negotiations and settlement with the landlord. This part-time employee received his directions from the corporate offices in Newark, New Jersey. Other than these efforts to relieve the burden of the unused leased premises, the Corporation conducted no commercial activities in the State of Florida during the tax year 1973. Although the Corporation's headquarters were ultimately moved to Jacksonville, in January 1976, the Corporation has never occupied the leased premises in question. In fact, in 1974, the Corporation entered into a sublease with the State of Florida for the duration of the lease. Pursuant to audit, DOR assessed the Corporation an additional $12,616.89 in income tax for the year ended December 31, 1973, using the three-factor formula method of apportionment.

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FLORIDA LAND SALES, CONDOMINIUMS, AND MOBILE HOMES vs. CAVALIER GROUP, INC., 80-000001 (1980)
Division of Administrative Hearings, Florida Number: 80-000001 Latest Update: Jun. 06, 1980

Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Respondent Cavalier Group filed applications for and obtained orders of registration from petitioner for Miami's Green Acres, Units I and II, in 1967 and 1968. Miami's Green Acres is located in the far western portion of Dade County and consists of 488 lots, ranging from 2 1/2 to 10 acres in size. Most of the lots have been sold by way of Agreement for Deed, and the last sale to the public occurred in 1974. Well over 200 lots have been deeded to the purchasers. The Florida Public Offering Statement, effective April 1, 1969, filed with the petitioner provides in pertinent part that "Miami's Green Acres presently has a mile and one-half of graded access roads. All other similar roads within the subdivision will be completed at the time the deed is required to be delivered to the purchasers." It further provides that "Access to the individual tracts will be pro- vided by graded access roads composed of compacted sand and rock .... These streets have been dedicated to Dade County for public use, but have not been accepted for maintenance." With respect to real estate taxes, the Public Offering Statement provides that "Real estate taxes will be advanced by seller as per contract and purchaser billed therefor prior to deeding of property. Seller retains possession until contract is paid in full and title is conveyed." The Agreements for Deed contain similar provisions. Tommy Farrell, a securities examiner with the petitioner, inspected the subject Miami Green Acres on May 22, 1979. Out of approximately eighteen (18) miles of road promised in the Public Offering Statement, Ms. Ferrell observed only 1 1/4 miles of drivable roads and approximately 6 miles of road which had been originally cut through, but were currently impassable by automobile. The road work has been completed for Unit I of the subdivision. According to Eugene R. Melton, respondent's president, the road work for Unit II has not been completed for various reasons. Initially, the construction of roads was held back because respondent's mortgagee, Arvida Corporation, refused to join in the declaration of easements. This fact concerning Arvida's refusal was made known to the petitioner at the time petitioner approved respondent's registration. Without any further notice to the petitioner concerning the promised road completion, respondent did not begin construction on the roads for Unit II until November, 1974. Approximately two weeks of work was accomplished when Dade County issued a cease and desist order. In February or March of 1975, the cease and desist order was lifted and construction recommenced. In May or June, 1975, heavy rains occurred and construction stopped. At this time, according to Mr. Melton, the road work was approximately 25 to 30 percent complete. No further work was done on the roads until May of 1976, when respondent entered into a contract with a company for the remainder of the work. This work continued only for a few months, bringing the completion up to 40 percent, according to respondent. Except for cleaning up, no further work occurred in 1976 or thereafter. Apparently, the Department of Environmental Regulation and the Army Corps of Engineers became involved in the project and all work ceased. Again, except for the 1968 failure of the mortgagee to join in the dedication of easements, respondent has never advised the petitioner of the problems it was having in the construction of the roads. Kenneth Harris, who was accepted as an expert witness in agricultural road construction, estimated that the cost of completing the remaining road work would be $16,400.00. This estimate was based upon a view of the premises and the assumption that the fill materials could be obtained at a price substantially below market price. Mr. Harris could not recall which roads he traversed while making his physical inspection and he underestimated the amount of road work needed to be done. The last subdivider's annual report submitted to the petitioner by the respondent indicates that approximately $75,000.00 remains to be spent on road work. Respondent did not pay the real estate taxes that accrued on lots within the subdivision during the years 1977 and 1978 prior to the date such taxes became delinquent. These taxes, with the exception of two or three parcels still unpaid, were not paid by respondent until March of 1980. 1/ Prior to March of 1980, respondent had collected from purchasers monies for reimbursement for taxes that had not been timely paid. Respondent did issue warranty deeds to some purchasers at the time that the 1977 and 1978 real estate taxes were delinquent. It is not clear from the evidence how many such deeds were issued, whether the purchasers were aware that the taxes were outstanding at the time they received their warranty deeds, or whether those purchasers had indeed already paid respondent for the taxes. The quarterly encumbrance reports filed by respondent with the petitioner covering the period from January 1, 1978, through June 30, 1979, do not inform the petitioner that the taxes were unpaid and delinquent. After the filing of the Notice to Show Cause, respondent included the unpaid taxes as an encumbrance on the quarterly encumbrance reports.

Recommendation Based upon the findings of fact and conclusions of law recited above, it is RECOMMENDED that: the respondent be found guilty of violating Sections 478.121(3) and 478.052(2), Florida Statutes (1977), (now ss. 498.033(3) and 498.039(3)); a civil penalty be imposed against the respondent for such violations in the total amount of $5,000.00; the respondent submit to the Petitioner within thirty (30) days of the final order a new estimate from a duly licensed engineer of the cost of constructing all roads promised in the Florida Public Offering Statement; the respondent enter into an improvement trust account based upon the estimated cost of completion of the promised road work; and the respondent be ordered to immediately pay all delinquent real estate taxes. Respectfully submitted and entered this 28th day of April, 1980, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675

Florida Laws (1) 6.03
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ROWES SUPERMARKETS, LLC vs DEPARTMENT OF REVENUE, 12-000698 (2012)
Division of Administrative Hearings, Florida Filed:Jacksonville, Florida Feb. 20, 2012 Number: 12-000698 Latest Update: Jan. 10, 2014

The Issue The issue to be determined is whether Petitioner is liable for the sales and use tax, penalties, and interest assessed by the Department of Revenue and if so, what amount?

Findings Of Fact Petitioner, Rowe's Supermarkets, LLC ("Petitioner" or "Rowe's"), is a Florida limited liability company. Robert Rowe was the president and primary shareholder in Rowe's. Respondent, Department of Revenue ("DOR" or "Respondent"), is an agency of the State of Florida authorized to administer the tax laws of the State of Florida. §§ 20.21 and 213.51, Fla. Stat. (2011) During the audit giving rise to this proceeding, Rowe's had its principal address at 5435 Blanding Boulevard, Jacksonville, Florida. Currently, Rowe's is located at 1431 Riverplace Boulevard, Jacksonville, Florida. Rowe's organized in Florida on May 4, 2005. Rowe's was a sales and use tax dealer registered with the Department to conduct business in this state. It was in business approximately four years. Rowe's acquired several former Albertson's grocery retail stores, including the adjacent liquor stores, in Jacksonville, St. Augustine, and Orange Park, Florida. During the audit period, Rowe's sold five stores with the adjacent liquor stores. Soon after beginning operation, Rowe's experienced significant financial difficulties which ultimately led to its demise. Its secured lender forced Rowe's to liquidate assets whenever possible, and all proceeds from the sale of the stores were paid directly into a locked account to Rowe's lender, Textron Financial. On October 29, 2008, the Department issued to Rowe's a Notification to Audit Books and Records, Form DR-840, bearing audit number 200048409, for sales and use tax, for the audit period beginning October 1, 2005, and ending September 30, 2008. On August 14, 2009, the Department issued to Rowe's a Notice of Intent to Make Audit Changes, form DR-1215, for sales and use taxes, penalties and interest totaling $321,191.45, with additional interest accruing at $53.71 per day. On August 20, 2009, Rowe's canceled its sales and use tax Certificate of Registration. In a letter dated September 11, 2009, Rowe's requested an audit conference. The requested audit conference was held November 19, 2009. On January 8, 2010, the Department issued the taxpayer a Notice of Intent to Make Audit Changes, form DR-1215, Revision #1, for sales and use tax, penalty and interest totaling $180,435.61, with additional interest accruing at $25.32 per day. On March 10, 2010, the Department issued a NOPA, which indicated Rowe's owed $137,225.27 in sales and use tax; $44,755.99 in interest through March 10, 2010; and $59.70 in penalties, with additional interest accruing at $26.32 per day. Prior to issuance of the NOPA, the Department compromised $34,246.663 in penalties, based upon reasonable cause. By letter dated May 6, 2010, Rowe's filed a protest to dispute the proposed assessment. The letter stated: I am submitting this informal protest on behalf of Rowe's Supermarkets, LLC (RS) as its past President. RS is no longer in business and has not assets. Before this audit began RS was unable to pay its bills. Also, its line of credit, which was secured by all of RS's assets, was in default and had been called by the lender. RS was unable to refinance the loan because of its poor financial condition. As a result, it sold all of its assets to a new company which was able to obtain financing and used the proceeds of that sale to repay its secured loan. RS not only has no assets but also is subject to an unsatisfied judgment lien against it in the amount of $324,936.33, which has been accruing interest at 8% per year from August 25, 2009, the date the judgment was entered by the Circuit Court here in Jacksonville. Even if Supermarkets was still in business and could pay its bills, we don't think it should be assessed with these taxes on the basis of the audit that was conducted. The auditor's lack of communication skills made it difficult for us to understand what information she needed. To the extent we understood her requests, we made every effort to provide her with the relevant information. But because most of the stores RS operated had already been closed, the only repository for obtaining accurate information was RS's general ledger, which she declined to review. She never explained why she made the proposed adjustments. We still don't know. We did our best when RS was operating to properly collect all sales taxes, we reflected all of the sale tax collections in the general ledger and we timely turned over all of the those taxes to the department of revenue, as is clear in the general ledger. We request that the proposed assessment be dropped. The Department issued a Notice of Decision on October 14, 2010, which sustained the assessment in full. In issuing its Notice of Decision, the Department did not review any issues related to the assessment other than doubt as to collectability. With respect to this issue, the Department stated, "[b]ased on our evaluation of all the factors of this case, including the financial information, we have concluded that it is not in the best interest of the State to accept your offer." Petitioner's challenge to the assessment presents five issues: 1) whether it was entitled to an exemption in section 212.12(14) for those additional taxes assessed for "rounding" up to the whole cent as opposed to using the bracket system in section 212.12(9); 2) whether the Department's assessment of additional taxes for expenses was erroneous where it was based on a sampling plan not presented to or agreed to by the taxpayer; 3) whether the additional tax on liquor sales was based on an incorrect application of Florida Administrative Code Rule 12A- 1.057(3)(a); 4) whether the Department violated the Taxpayer's Bill of Rights; and whether the Department was correct in determining that compromise of the assessment based on collectability was not in the best interest of the state. Each issue is treated separately below. The Exemption pursuant to section 212.12(14) Section 212.12(9) and (10), Florida Statutes, requires that sales taxes be paid on a "bracket system," and prescribes the amount of tax due for each portion of a dollar. Subsection (9) provides the tax brackets for those counties, such as St. Johns, which do not have a discretionary sales surtax and for which the tax rate is 6 percent. Subsection (10) provides the brackets for those counties, such as Duval and Clay, where a discretionary sales surtax of one percent has been adopted, making the sales-tax rate 7 percent. Section 212.12(14) provides a "safe harbor" from additional assessment of taxes for those dealers who fail to apply the tax brackets required by section 212.12. The taxpayer is not assessed additional taxes, penalty, and interest based on the failure to apply the bracket system if it meets three requirements: that it acted in a good faith belief that rounding was the proper method of determining the amount of tax due; if it timely reported and remitted all taxes collected on each taxable transaction; and if the taxpayer agrees in writing to future compliance with the law and rules concerning brackets applicable to the dealer's transactions. It is undisputed that Rowe's was not using the bracket system to calculate and collect sales taxes. The point-of-sale cash register system Rowe's purchased when opening its business was represented to Petitioner as compliant with Florida requirements when in fact it was not. The Department's auditor, Delaine Arrington, determined that assessment of additional taxes was appropriate because she believed that Rowe's had not timely reported and remitted all taxes collected on each taxable transaction, and that Rowe's had not agreed in writing to future compliance with respect to the bracketing system. The sales tax records for Rowe's were based upon the meshing of three different computer systems. First, there was a point-of-sale system at each cash register which collected the data, such as sales amounts, taxable sales, and sales tax collected, for each individual transaction. A software system called BR Data would then "pull" the sales data from the individual cash registers to create the cumulative sales register reports for each store. The cumulative data from BR Data was then automatically imported into Petitioner's accounting software, MAS 90, to populate the figures in Rowe's general ledger. Taxes collected were recorded in the general ledger under the credit column. The data in this column was transmitted from BR Data. It could not be adjusted manually, although other columns in the general ledger could be. There were sometimes problems with the transmission of information from BR Data, which generally occurred where there was a power surge or a thunderstorm that would affect the communication of information. As a result of these communication problems, there were times that the sales figure transmitted would be double or triple the actual sales for that day. When such an error was discovered, Rowe's staff would contact BR Data and have the report rebuilt, and the general ledger entry would be corrected. Rowe's informed Ms. Arrington that there had been numerous problems with the exporting process and the resulting need to correct journal entries. Ms. Arrington acknowledged at hearing that she had been advised that due to these problems, the sales figures were sometimes doubled or tripled. Ms. Arrington reviewed the general sales ledger, the cumulative sales register reports, and the sales and use tax returns for the audit period. According to her review, there were three days in August 2006 where the amount of collected tax reflected in the cumulative sales register was higher than what was reflected in the general ledger. Based upon this review, she assessed $1,193.98 in additional sales taxes. For August 1, 2006, the general ledger indicated that $263.48 in sales tax was collected. The cumulative sales report reflected that $790.44 in sales tax was collected. This second number in the cumulative sales report is exactly three times the amount reflected in the general ledger. The difference between the cumulative sales report amount and the general ledger amount is $526.96. For August 2, 2006, the general ledger indicated that $277.04 was collected. The cumulative sales report reflected that $554.08 in sales tax was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $277.04. For August 11, 2006, the general ledger indicated that $389.98 in sales tax was collected. The cumulative sales report reflected that $779.96 was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $389.98. The difference in the amounts reflected in the general ledger (which Rowe's claims is the more accurate document), and the cumulative sales register (which Ms. Arrington relied upon), is $1,193.98, the amount of additional tax assessed for this item. Ms. Arrington acknowledged at hearing that she credited the cumulative sales register numbers over Rowe's general ledger documents, and that she knew during the audit that there were issues relating to BR Data that occurred during the audit period. The only document upon which she relied was the cumulative sales register. Given the credible testimony by Robert Rowe and Neil Newman regarding the process and the problems encountered with the interface of data, and the fact that in each instance, the difference was an exact multiple of the amount reflected in the general ledger, the greater weight of the evidence presented at hearing supports the finding that the general ledger represents the amount of sales tax actually collected and paid by Rowe's. This finding means that not only is the assessment of additional sales tax for August 2006, in error, but also that means that Rowe's met the second requirement for avoiding the assessment of additional taxes under section 212.12(14) for failing to use the bracket system. Ms. Arrington also found that Rowe's had not agreed in writing to future compliance with the bracket system. On or about November 19, 2009, in conjunction with the Audit Conference, Ms. Arrington prepared an Agreement for Future Compliance (Agreement) and provided it to Mr. Rowe for signature. The text of the Agreement, which is on DOR letterhead and specifically references the Sales and Use Tax Audit number for Rowe's, states: The following dealer had demonstrated the proper actions required by Section 212.12(14),(a) and (b), F.S. (see attachment), and agree [sic] to sign the following suggested form to compliance with the laws concerning brackets applicable to the dealer's transactions in the future. Rowe's Supermarkets, LLC - BP#2134130, succeeded by Rowe's IGA, LLC - 3082649 agrees to future compliance with the laws and rules concerning the proper application of the tax bracket system to the dealer's transactions. Mr. Rowe did not sign the Agreement at the Audit Conference because he wanted to be able to confirm that the point of sale system his store operated could be properly programmed to comply with the bracket system before signing a document stating he would comply. After discussions with both the vendor and Ms. Arrington, and making sure the system was in fact operating in compliance with the requirement, Mr. Rowe signed the Agreement on December 7, 2009, and returned it to the Department. Ms. Arrington did not recall receiving the Agreement, but also admitted she had no specific memory as to whether she received it. Her Case Activity Record indicates that on December 3, 2009, she spoke with Mr. Rowe about whether he was able to input the brackets in his point-of-sale system, and that he indicated he was able to do so. The greater weight of the evidence supports the finding that Mr. Rowe executed and returned the Agreement, and it is so found. The Use Tax Assessment Based on a Sampling Plan Section 212.12 allows the Department to use a sample from the taxpayer's records and project audit findings from the sample to the entire audit period where the records of the taxpayer are "adequate but voluminous in nature and substance." The statute, which is discussed in more detail in the Conclusions of Law, contemplates the use of a sampling plan agreed to by the taxpayer, and in the absence of an agreement, the taxpayer's right to have a review by the Department's Executive Director. The work papers to the Notice of Intent to Make Audit Changes dated January 8, 2010, include a sampling plan that runs from January 1, 2006, to December 31, 2006 for the calculation of use tax for purchases by Rowe's where sales tax was not collected by the vendor. Ms. Arrington reviewed Rowe's' records for expense purchases for 2006 to determine the total amount of additional tax due for that period. She then took the total additional tax on expenses for that period, i.e., $14,981.26, and divided it by 12 to obtain a monthly average additional tax of $1,248.44. She then applied that number to the entire 36-month audit period to determine a total assessment of additional tax for expense purchases of $44,943.84. Ms. Arrington testified that at the initial audit conference, she discussed different audit techniques in terms of sampling. However, a specific sampling plan was not discussed with Mr. Rowe and no Sampling Agreement was presented to him. No sampling plan was reviewed by the Executive Director. Ms. Arrington did not tell Mr. Rowe that 2006 would be the year used as the sample. Mr. Rowe never would have agreed to the use of 2006 as a sampling plan, because it would not be representative of the expenses incurred during the audit period. Using 2006 as a sampling period did not take into account the store closures during the audit period, and the concomitant reduction in expenses. Rowe's closed two grocery stores by March 2006, and operated only four stores for the remaining three quarters of the year. A third store was closed in January 2007, a fourth in May 2007 and a fifth in 2008, leaving only one store open for the entire audit period. All of the liquor stores were also closed during the audit period, the last one being sold in May 2008. Ms. Arrington knew that Rowe's had closed almost all of its stores during the audit period, and included information regarding the closings in her Standard Audit Report. She acknowledged at hearing that as the stores decreased, the expenses related to those stores would also most likely decrease. For the 12 months of 2006, the Department determined that an additional tax of $14,981.26 would be due, based on purchases of $253,637.22. There has been no evidence presented to rebut the accuracy of the tax assessment for these 2006 purchases. Petitioner presented evidence establishing that, for the 21 months of the audit period following 2006, Rowe's made purchases from the same vendors reflected in the 2006 sample of only $51,073.72, which would result in additional taxes of $3,575.16. No evidence was presented by either party as to whether there were any other purchases from other vendors for which taxes had not been paid. The difference between the use tax assessed against Rowe's by using the sampling plan and taxes due based on the actual purchases demonstrated at hearing is $22,642.08. In addition, there was one vendor, Advo, Inc. (Advo), which accounted for a significant percentage of the tax due based on the sampling plan. While the audit sample period was for twelve months, payments to Advo for a seven-month period accounted for approximately 58% of the total additional taxes due for expenses. There were no purchases from Advo after July 2006 because of Rowe's shrinking assets and inability to pay for direct advertising. Further, 15 of the 23 vendors reflected in the sample period from whom purchases were made had no sales to Rowe's from January 2007 through September 2008. The Department's work papers indicate that, within the sample year, the purchases tapered off significantly as the year progressed. Given the known closure of five grocery stores and six liquor stores during the audit period, using a time period where the most stores were open is not representative of the expenses experienced by Petitioner, and use of the sampling plan to which the taxpayer had not agreed was inappropriate, and led to an inflated assessment of additional taxes. The Effective Tax Rate at the Liquor Stores During the audit period, Rowe's operated package liquor stores adjacent to the grocery stores. By the time the audit commenced, Rowe's no longer owned any of the liquor stores, and no longer had the cash register tapes from the liquor stores. Because of the lack of cash register tapes, the auditor was unable to determine the effective tax rate Rowe's was collecting. She did not, however, ask Rowe's what rate was collected. A review of the sales tax returns indicates that it remitted a flat rate of 6 or 7 percent, depending on the county. These rates were consistent with what Rowe's was collecting for the grocery store sales, and cash register tapes were available from the grocery store. Ms. Arrington applied the tax rates identified in Florida Administrative Code Rules 12A-1.057(3)(a) and 12A- 15.012(2)(a), both of which identify the rate that should be collected where the dealer sells package goods but does not sell mixed drinks; does not separately itemize the sales price and the tax; and does not put the public on notice that tax is included in the total charge. The work papers paraphrase but do not quote the rules. With respect to the liquor store in St. Johns County, the work papers state: "[a]ccording to Rule 12A-1.057(3)(a), F.A.C., when the dealer is located in a county with no surtax and the public has not been put on notice through the posting of price lists or signs prominently displayed throughout the establishment that the tax is included in the total charge, package stores which sell no mixed drinks shall remit tax at the effective rate of .0635." With respect to the liquor stores in Clay and Duval Counties, the work papers state: "[a]ccording to Rule 12A- 15.012(2)(a)1., F.A.C., when a dealer, located in a county imposing a 1% surtax, sells package goods but does not sell mixed drinks and does not put the public on notice that tax is included in the total charge, the dealer is required to remit tax at the effective tax rate of .0730." The Department's auditor made the assumption that tax was not separately itemized for package store sales and assessed the additional tax accordingly. She did not ask the taxpayer whether this was the case and did not ask about signage in the package stores that were no longer owned by Rowe's. Mr. Rowe testified that the same point-of-sale program was used for the liquor stores as were used for the adjacent grocery stores. That program separately identified the tax due. His testimony is unrebutted and is credited. The Taxpayer's Bill of Rights At hearing, Petitioner took the position that the Department violated the Taxpayer's Bill of Rights as stated in section 213.015(5), by its failure to provide Petitioner with a "narrative description which explains the basis of audit changes, proposed assessments, assessments." In its Proposed Recommended Order, however, Petitioner candidly acknowledged that the evidence did not support a finding consistent with Petitioner's position. In light of this concession, no further findings of fact are necessary with respect to this issue. Collectibility Rowe's asserted in its challenge that it was unable to pay any taxes assessed because it was no longer in business and no longer had any assets. The Department declined to exercise its discretion to compromise the tax assessment based on collectability. While not specifically stated in its Notice of Decision, this position was apparently based upon the belief that the taxes could be paid by Rowe's IGA, LLC, to whom the assets of Rowe's was sold, and which shares the same managing member, Robert Rowe. The two companies share a managing member and one common location, which Rowe's sold to Rowe's IGA. However, no evidence was presented regarding the specifics of the assets sold to Rowe's IGA, and the only evidence presented indicates that any proceeds from the sale went to pay the secured lender for Rowe's, Textron Financial. Other than the involvement of Robert Rowe, no connection between the companies was established. Rowe's provided to the Department the copy of a judgment against it for $324,963.33, which bears interest at a rate of 8% annually. The Department did not identify any assets from which either the assessment or the judgment could be paid.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order that: Reduces the Department's assessment for additional taxes, penalties, and interest by any amounts attributable to the failure to comply with the sales bracket system at Petitioner's grocery stores; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the failure to remit all taxes due for the month of August 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to expense purchases for the period January 2007 through September 2008; Sustains the assessment for additional use tax, penalties, and interest for expense purchases in calendar year 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the asserted basis that Petitioner should have collected tax at a higher effective tax rate at its liquor stores based upon the application of rules 12A-1.057(3)(a) or 12A-15.012(2)(a); Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay tax on certain capital asset purchases identified in the audit; Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on commercial rent payments under certain of Petitioner's store leases identified in the audit; and Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on Petitioner's payment of ad valorem taxes under certain of Petitioner's store leases identified in the audit. In addition, it is Recommended that the Department reconsider its decision as to whether the remaining assessment is collectible, and whether it is in the best interest of the state to compromise the assessment, based on the record contained in this proceeding. DONE AND ENTERED this 31st day of July, 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 31st day of July, 2012.

Florida Laws (10) 120.569120.57120.8015.01220.21212.12212.13213.015213.2172.011
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FLORIDA REAL ESTATE COMMISSION vs. JOHN E. KNOWLES, 86-002602 (1986)
Division of Administrative Hearings, Florida Number: 86-002602 Latest Update: Mar. 16, 1987

Findings Of Fact At all times pertinent to the allegations contained in this Administrative Complaint, the Respondent was licensed as a registered real estate broker in the State of Florida. In the early part of 1982, Respondent entered into a partnership agreement for the purchase and operation of the Cleveland Street Apartments with several individuals including Mr. Bradwell, Mr. Boulson, Mr. Crouse, and Mr. Tafton (sp). Respondent was to be managing partner because of his status as a real estate broker responsible for the operation of the facility and the payment of all expenses including taxes. Periodically, the Respondent would notify the other partners of the status of their investment. This generally indicated a negative cash flow and required additional contributions from the partners in order to meet the expenses incurred in the operation. Specifically, among the obligations to be paid were county real estate taxes for the years 1983 and 1984. In response to Respondent's notification to the partners of the taxes due, each partner periodically forwarded his pro rata share of the expenses, including taxes, to the Respondent with the anticipation that these expenses would be met and the taxes would be paid. As it happened, however, when Mr. Boulson, one of the partners, went to the Palm Beach County Court House at some time in 1985 to inquire as to what the taxes for that year would be, he was advised that the 1983 and 1984 real property taxes on the property had not been paid and were delinquent. This came as a complete surprise to him, and he and the other partners were required to contribute additional funds to pay both the 1983 and 1984 property taxes and the interest accrued thereon. Respondent admits that he did not pay the 1983 and 1984 taxes as they were due. He contends, however, that because of the fact that the apartment was operated with a negative cash flow, and because of the fact that the other partners repeatedly made their makeup contributions after the fact and slowly, he was forced to advance the money for other expenses as far as he could and utilized the money when paid by the other partners for taxes, to make up the other expense shortfall that he could not or did not make. Respondent contends that if the other partners had paid their assessments in a timely fashion, the other bills could have been paid on time and it would not have been necessary for him to utilize the money contributed for tax payments for the payment of these other expenses. This argument is without merit. The accountant's testimony clearly shows that sufficient money was paid in by the partners to pay the expenses and that the inflow/outflow was in balance, assuming the taxes had been paid on time as required. The evidence is overwhelming that Respondent was derelict in his responses to his partners and in his availability to them when they attempted to contact him regarding apartment business. In addition, Mr. Sonderholm, the individual from whom Respondent and the other partners bought the property, and who held a purchase money mortgage on it, indicates that for the first year, Respondent faithfully made the mortgage payments on time. However, thereafter, he began to be delinquent in the payments and on at least five occasions, issued checks in payment of the monthly mortgage payment which were returned dishonored for non-sufficient funds. Each of these checks was in an amount in excess of two thousand dollars. Toward the end of the relationship, in August, 1985, Respondent submitted his last property operating statement to the partners which showed a net operating loss in excess of $800.00 for the period covered, along with a request that that sum be forwarded to Respondent for reimbursement of expenses. By the admission of Mr. Bradwell, this money was not paid to the Respondent because it was extremely difficult to contact him and repeated efforts by phone, mail, and in person at his office were unsuccessful. By this time, however, the property was being managed for the partnership by a different management agent and after Respondent stopped handling the property for the partnership, he was no longer furnished any statements regarding the partnership operations though he was officially still a partner. This was because, according to Mr. Bradwell, it was impossible to reach Respondent and no one knew where he was. There is, however, a letter from Mrs. Crouse, dated in October, 1985, which is addressed to Respondent at his address of record which he received. There is also evidence to indicate that other letters sent to him at this address by certified mail were returned undelivered. These letters were not offered into evidence, however, and there is no way to know if the nondelivery was due to an inadequate address or whether Respondent refused delivery. Respondent was not furnished tax form K-1 for his share of the partnership for 1985 in early 1986 because the other partners felt, after consultation with their attorney, that his unavailability, coupled with his failure to properly manage the funds of the partnership and his alleged misapplication thereof was sufficient to deprive him of his partnership interest. There is no evidence to indicate that Respondent failed to make 1985 tax payments as required. In 1984, Respondent entered into a partnership with James M. VanSleet to purchase and operate an apartment building in Lake Worth, Florida. Because Respondent was in the real estate brokerage business and operated a property management concern, he was given, as a part of his partnership function, the tasks of manager and rental agent for the building. This arrangement was, however, a partnership rather than a broker-client relationship. In his capacity as rental agent in May, 1984, Respondent rented a unit in the building to Anthony Grieco and received a check from Mr. Grieco in the amount of $900.00 which represented a $500.00 security deposit and the first month's rent in advance. Mr. Grieco occupied the premises until May, 1985 and upon moving out, requested that his security deposit be refunded. He was advised by the Respondent that an inspection was necessary and that if the inspection revealed no damage, the deposit would be refunded. Several days later, he was notified that the inspection was satisfactory and that the $500.00 would be refunded, however, repeated contacts both by Mr. Grieco and his father, as well as others on his behalf, failed to result in return of the deposit which has not been returned as of the date of hearing. In his efforts to secure the return of the deposit, Mr. Grieco was subjected to numerous delaying tactics such as being required to call back week after week because the refund check was not ready; a failure of Respondent to return calls left for him; and references to the other partner, Mr. VanSleet as the source of refund. Notwithstanding the fact that the $500.00 security deposit has not been returned to Mr. Grieco, there is no evidence as to what was done with it or whether it was misappropriated to Respondent's own use as alleged in the Administrative Complaint. Toward the end of 1985, Mr. VanSleet turned the operation of this building over to another rental agent. At that time, he had received several requests for the return of deposits which had been paid to Respondent and which Respondent had failed to reimburse. Mr. VanSleet's practice was to allow the tenant to remain an extra month in the unit without rent rather than pay back the cash deposit.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Respondent's license as a registered real estate broker in Florida be suspended for a period of two years; that he be required to demonstrate to the satisfaction of the Division of Real Estate his continuing education in the ethics of the real estate profession; and that he pay an administrative fine of $2,500.00. RECOMMENDED this 16th day of March, 1987, at Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of March, 1987. COPIES FURNISHED: Harold Huff, Executive Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802 Van Poole, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Arthur R. Shell, Jr., Esquire Division of Real Estate Post Office Box 1900 Orlando, Florida 32801 John E. Knowles 755 Huff Road West Palm Beach, Florida 33415 =================================================================

Florida Laws (2) 120.57475.25
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XYZ PRINTING, INC. vs DEPARTMENT OF REVENUE, 93-000338 (1993)
Division of Administrative Hearings, Florida Filed:Tampa, Florida Jan. 26, 1993 Number: 93-000338 Latest Update: Apr. 21, 1994

The Issue The issue in this case is whether Petitioner is liable for certain taxes and, if so, how much.

Findings Of Fact Petitioner is a Florida corporation with its principal place of business in Manatee County, Florida. Petitioner is in the printing business. Specifically, Petitioner produces, manufactures, assembles, and publishes telephone directories for mobile home parks in Florida. All of Petitioner's work in connection with these directories takes place in Florida. The directories list the names, addresses, and telephone numbers of residents of the mobile home park for which the directory is prepared. The directories also contain advertisements, which Petitioner solicits from merchants seeking to sell goods or services to the mobile home park residents. Following the production of the directories, Petitioner distributes them to the mobile home park residents, who maintain possession of the directories. However, Petitioner retains ownership of each directory, even after it is distributed. Petitioner is solely responsible for the manufacture and distribution of the directories. Petitioner owns accounts receivable reflecting monies owned it by entities for which Petitioner has performed work. Petitioner owns treasury stock. Following an audit, Respondent issued its Intent to Make Sales and Use Tax Audit Changes. The proposed changes assessed additional sales and use taxes of $44,151.77, intangible tax of $1297.08, and $194,75 of health care tax. The bases of proposed liability for the sales and use tax were for the publication and distribution of directories for which no sales or use tax had been collected and for the sale of advertising during the period of the service tax from July 1, 1986, through December 31, 1986, for which no sales tax on advertising had been collected. The basis of proposed liability for the intangible tax was for the failure to pay intangible tax on accounts receivable and treasury stock. The basis of proposed liability for the health care tax was for the failure to pay the Hillsborough County Health Care Tax and Discretionary Sales Surtax. On February 11, 1991, Petitioner protested the proposed assessments. On April 24, 1992, Respondent issued its Notice of Decision sustaining the proposed sales and use tax and intangible tax, but eliminating the proposed health care tax. On May 12, 1992, Petitioner filed a Petition for Reconsideration concerning the proposed sales and use tax. On November 24, 1992, Respondent issued its Notice of Reconsideration sustaining the proposed sales and use tax. On January 21, 1993, Petitioner timely filed its petition for a formal administration hearing. Subject to the accuracy of its legal position, Respondent's assessment is factually accurate. Petitioner will pay the assessed amount of sales and use tax, plus interest, if its position is not sustained following the conclusion of this proceeding, including judicial review.

Recommendation Based on the foregoing, it is hereby RECOMMENDED that a final order be entered determining that, for each assessed period, Petitioner is liable for the assessed corporate intangible tax plus interest, the use tax on the cost price of the materials and other covered items plus interest, the sales tax on services on the advertising revenues, but not for any sales tax apart from the period covered by the sales tax on services. ENTERED on January 25, 1994, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings on January 25, 1994. COPIES FURNISHED: David M. Carr David Michael Carr, P.A. 600 East Madison Street Tampa, Florida 33602 Eric J. Taylor Assistant Attorney General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100

Florida Laws (4) 120.65212.02212.05212.06 Florida Administrative Code (1) 12A-1.008
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