The Issue The issues to be determined in this proceeding are 1) whether Respondent, the Department of Revenue (Respondent or the Department), demonstrated that it made an assessment against the taxpayer, as well as the factual and legal basis for the assessment; 2) whether Petitioner, 130 NE 40th Street, LLC, d/b/a Michael’s Genuine Food and Drink (Petitioner or Michael’s), is entitled to enterprise zone job credits (EZ credits) claimed on its sales and use tax returns for the audited period; and whether the penalty and interest assessed in the August 18, 2016, Notice of Decision is justified.
Findings Of Fact Petitioner is a Florida corporation with its home office and principal place of business in Miami, Florida. Respondent is an agency of the State of Florida, charged with administering the state’s sales tax laws under chapter 212, Florida Statutes (2012-2014). Michael’s is a limited liability company located at 130 NE 40th Street, Miami, Florida 33137. It operates a restaurant and bar at that address. Business Structure of Michael’s Michael’s opened in 2007 and is located in an enterprise zone in Miami. Michael’s enterprise zone identification number is 1301. Michael’s is owned by Michael Schwartz. In 2012, Mr. Schwartz opened a second restaurant known as Harry’s Pizzeria, which is also located in Miami. A third restaurant, the Cypress Room, was also opened during the audit period, although the timing of its opening is not clear from the record. Neither Harry’s Pizzeria nor the Cypress Room is the subject of this audit. All of the restaurants are separate legal entities. Mr. Schwartz is also the owner of a shared service company named Genuine Hospitality Group (GHG). The direct employees of GHG are the comptroller for the restaurants, the director of beverage, the director of operations, a marketing person, and the people overseeing the various restaurants. GHG does not have ownership in any of the restaurants, but provides services to each of them, including at different times, payroll, marketing, operations, and menu development. For example, during the years 2012 and 2013, GHG provided payroll functions for the various restaurants. According to Omar Azze, GHG’s comptroller, the idea was to create a “common paymaster” for the restaurants, because it would allow them to have a larger pool of employees for health insurance, in order to get a more favorable rate. When Michael’s decided to use this payroll method, Mr. Azze called the Department and canceled the reemployment tax registration of Michael’s because the taxes would be paid through GHG. Contrary to notations in the Department’s records, Michael’s never closed during the audit period: it still had the same employees and management team. The idea for using a common paymaster approach for the restaurants came from the restaurants’ accounting consultant. Paying employees through GHG was never intended to reduce the tax liability of Michael’s, or to transfer control of the employees to GHG, and taxes related to payroll were all paid through GHG for 2012 and 2013. Each restaurant maintained control over its own employees (general manager, two or three assistant managers, the head chef, bussers, waiters, cooks, support staff, and bartenders) and employee records, and employees did not “float” from restaurant to restaurant. GHG would pay the employees for Michael’s and the other restaurants, and all of the restaurants would reimburse GHG for the payroll payments for their respective employees. Mr. Azze’s testimony regarding this arrangement is consistent with the deductions on the restaurants’ respective federal tax returns for the payrolls in 2012 and 2013, and is credited. It is found that, during the calendar years 2012 and 2013, the employees remained under the direction and control of Michael’s and that payroll services alone were handled by GHG. In 2014, the third year of the audit period, the Petitioner decided to stop having GHG performing payroll functions, and to handle payroll in-house using a QuickBooks program, in order to reduce costs. In terms of the audit, this change in payroll method meant that for the first two years of the audit, all of the employees for Michael’s were paid through GHG, as were all of Michael’s’ reemployment taxes. The third year of the audit, employees and reemployment taxes were paid through Michael’s directly. Applications for EZ Credits for Michael’s Section 212.096 allows certain eligible businesses within identified “enterprise zones” to take a credit against sales and use taxes when there are employees hired who live within the identified enterprise zones and when there has been an increase in jobs over the 12 months prior to the date of the application. Section 212.096(1)(a) defines an “eligible business” as “any sole proprietorship, firm, partnership, corporation, bank, savings association, estate, trust, business trust, receiver, syndicate, or other group or combination, or successor business, located in an enterprise zone.” In order to obtain the credit, an eligible business must file an application, including a statement made under oath that includes, for each new employee, the employee’s name and place of residence; the enterprise zone number for the zone in which the new employee lives; the name and address of the eligible business; the starting salary or hourly wages paid to the new employee; and a demonstration to the Department that, on the date of the application, the total number of full-time jobs is greater than it was 12 months prior to the application. The application is initially filed with the governing body or enterprise zone development agency, which reviews the application and determines whether it contains all of the required information and meets the requirements of section 212.096. If it does, then the enterprise zone coordinator certifies the application and transmits it to the Department. In addition, the business also forwards a certified application to the Department. Once the Department receives a certified application for enterprise zone credits, it has ten days to notify the business that the credit has been approved. If the application is incomplete or insufficient to support the credit, the Department is required to deny the credit and notify the business, which is free to reapply. Section 212.096(2)(a) provides that “[u]pon an affirmative showing . . . that the requirements of this section have been met, the business shall be allowed a credit against the tax remitted under this chapter.” The credit “shall be allowed for up to 24 consecutive months, beginning with the first tax return due pursuant to s. 212.11 after approval by the department.” § 212.096(2)(b), Fla. Stat. Petitioner regularly submitted applications for EZ credits, and during the audit period, submitted applications on the following dates: February 1, 2012; August 1, 2012; February 4, 2013; April 2, 2013; July 19, 2013; August 15, 2013; August 30, 2013; January 6, 2014; January 30, 2014; March 3, 2014; March 27, 2014; and June 17, 2014. Each of these applications was made listing Michael’s as the taxpayer. Petitioner used a company named Economic Development Consultants (EDC) to help it calculate the credits Michael’s would be entitled to claim. Each month, Petitioner provided to EDC the names of employees terminated or resigned and those newly hired, along with the new hires’ addresses. Petitioner would also provide to EDC the number of full-time employees for each month. In determining residency for its employees, Petitioner relied on the addresses received from employees when they were hired. EDC would then provide a report saying which employees qualified for a credit, and do the necessary paperwork in order to obtain approvals for the credits. Each of Petitioner’s applications for EZ credits submitted during the audit period was approved, and Petitioner took the EZ credits associated with those applications with the understanding that they were properly approved. At the time the Department approved each of the applications for EZ credits, it had access to the information in and attached to the applications, including the identities of employees eligible for the credits. What the Department did not have when it reviewed the applications would be the actual wages paid to the eligible employees, because most of those wages would not have been paid at that point. Actions Taken By the Auditor On February 27, 2015, the Department issued a Notice of Intent to Audit Books and Records to Michael’s, indicating that it would be subject to audit for the period February 1, 2012, through January 31, 2015. Robert Ward was the auditor assigned to conduct the audit. Mr. Ward was relatively new to the Department, and had not previously conducted an audit that involved EZ credits. As part of his audit preparation, Mr. Ward pulled a copy of the Department’s standard audit plan, as well as the Department’s audit plan specifications for the industry in question (here, the restaurant industry). He noted that Michael’s had been audited previously and that the current audit resulted from a “lead,” but could not recall the basis or substance of the lead. He also noted that EZ credits had been an issue in the previous audit, which spanned the period from March 1, 2007, through June 30, 2009. Mr. Ward conducted a pre-audit interview with Omar Azze, Petitioner’s comptroller, on May 1, 2015.1/ While there was an agenda prepared for this pre-audit meeting, it does not appear to be in the record. At this pre-audit meeting, Mr. Ward was focused on the routine aspects of the audit as opposed to EZ credits. The issue of EZ credits was first raised in a meeting with Mr. Azze and Mr. Schwartz on May 27, 2015. At that time, Mr. Ward advised that EZ credits would be disallowed because the employees for whom credits were taken were on the payroll of GHG as opposed to Michael’s. Mr. Ward stated at hearing that this decision was made not based upon additional information, but based upon the sharing of employees by different entities. Mr. Ward acknowledged that Michael’s had received approval to take EZ credits, and that Michael’s provided all of the documentation requested of it. He had sought guidance from his trainer, Michelle Samuels, and a senior revenue consultant, Miguel Suarez. Mr. Ward was advised to verify the validity of the EZ credits claimed, with the focus on the growth of full-time employment. If a company subject to an audit had not received an approval letter for the credits, then the credits would be disallowed automatically. If there was an approval letter (as there was here), Mr. Ward understood that he was to look at the application itself and review the information provided with the application, including the schedules filed with the application, in order to validate the use of the EZ credits. Mr. Ward acknowledged that the person who reviewed the application for the Department when it was approved had all of this information. He was advised that the turn-around period for the initial applications was short, and that the initial reviewer is not required to validate the information, because the reviewer would trust the accuracy of the affirmation required of the taxpayer. The initial approval did not mean that the Department would not later go back and reexamine the information originally submitted. In addition to the documents submitted with the applications, Mr. Ward considered other Department records, such as reemployment tax records. He also verified addresses for named employees in the applications using the DAVID database of the Department of Highway Safety and Motor Vehicles. The DAVID database maintains information related to drivers’ licenses and car registrations. The information in the DAVID database is not available to the general public, and was not available to Petitioner. Mr. Ward also acknowledged that people can have a different mailing address from their residential address for a variety of reasons, and they were not always consistent, even in the DAVID database.2/ For example, one of the employees listed by Petitioner on an application dated August 1, 2012, was Aleksandar Gjurovski. The DAVID records indicate that on July 20, 2013, Mr. Gjurovski changed his mailing address. However, his residential address was not changed in the DAVID system until a date after the filing of the enterprise zone application. Mr. Ward relied on the change in the mailing address alone to determine that Mr. Gjurovski did not live within the enterprise zone at the time of the application. It is found that, at the time of the application, Mr. Gjurovski lived in the enterprise zone. After consultation with his supervisors, Mr. Ward disallowed all of the EZ credits for 2012 and 2013, as well as some of the credits for 2014. Respondent issued Michael’s a Notice of Intent to Make Audit Changes dated November 10, 2015, for audit number 200180508. The reasons given in the Explanation of Items included in the Work Papers are initially listed by employee, as opposed to by date. For all of the employees for which credits were claimed for 2012 and 2013, the primary reason stated by Mr. Ward is that the employees for which EZ credits were claimed were not employees of Michael’s, but instead were employees of another company. If the application for EZ credits was filed during 2012 or 2013, but the credits were claimed past December 2013, all of the credits related to that employee were disallowed. Other reasons listed for disallowing the tax credits were that there was no demonstrated job growth (for employees Kates, Gibson, Lopez, Jackson-Thompson, Daniels, Bradbury, Allante, Alicea, Wallace, and Herget); that the employee for which the credit was claimed did not live in the enterprise zone (for employees Coleman, Albert, Gjurovski, and Lopez); and discrepancies in terms of when employment ended compared to dates credits were claimed, or whether appropriate amount of credit was claimed for wages paid (for employees Kates, Poinsetti, Gomez, Daniels, Bradbury, Williams, Allante, and Herget). The first two of these reasons were based upon Mr. Ward’s verification of the information provided in the EZ credit applications. With respect to those employees for whom credits were disallowed because they had left the employ of Michael’s, Petitioner introduced a letter from the Department’s tax specialist, Suzanne Paul. The letter stated that a company could claim credits up to three months after employment ended in order to recapture the three months of employment required prior to submitting an application for that employee. Mr. Ward was not aware of this letter at the time he performed the audit, and had he known, it would have changed his note, at least as to Mr. Gjurovski, concerning that basis for disallowing the credit. Respondent assessed Michael’s sales and use tax for disallowed EZ credits, for untaxed purchases of fixed assets, and for untaxed consumable purchases. Only the assessment related to disallowed EZ credits is challenged in this proceeding. The Notice of Intent to Make Audit changes included a penalty of $62,609.01. In the letter accompanying the notice, Mr. Ward informed Petitioner that the penalty for items assessed in Exhibit B01 had been adjusted based on the reasonable cause guidelines outlined in Florida Administrative Code Rule 12- 13.007. It appears that there was no adjustment or compromise of penalties associated with the disallowance of EZ credits. Mr. Ward testified that penalties were assessed in this case because EZ credits were also an issue in the prior audit for Michael’s. The payroll arrangement at issue in this case was not at issue in the prior audit, however, as it did not begin until 2012. The financial dealings of Michael’s, including the payment of taxes to the Department, were also under a new comptroller, who was not involved in the first audit. Lastly, while the Department found fault with EZ credits in the first audit, it compromised the taxes assessed for the same amount as those associated with the EZ credits. Mr. Ward acknowledged that, under the circumstances related to this audit, the penalty seemed harsh. The Department issued a Notice of Proposed Assessment (NOPA) on December 15, 2015, in which it assessed taxes in the amount of $127,243.77, penalties of $62,609.01, and interest as of December 15, 2015, of $19,605.03. Michael’s filed an informal protest of the proposed assessment with the Department by means of a letter dated February 5, 2016. On August 18, 2016, the Department issued a Notice of Decision that sustained the proposed assessment against Michael’s in full. The Notice of Decision, which is, by its terms, the Department’s final position in this matter, only addresses the issue of whether Michael’s is an eligible employer for the purpose of receiving EZ credits.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order assessing additional taxes based upon discrepancies in wages paid for eligible employees, and rejecting those parts of the assessment attributable to disallowance of enterprise zone credits based on information related to Petitioner’s initial applications. It is further recommended that no penalties be imposed on the reduced assessment. DONE AND ENTERED this 16th day of June, 2017, 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 16th day of June, 2017.
Findings Of Fact Upon consideration of the stipulations of fact, the deposition of Luis Martinez, a senior appeals referee, taken on May 18, 1979, with exhibits and the stipulated documentary evidence adduced in this proceeding, the following relevant facts are found: At the time of the filing of the instant petition challenging Rule 8B- 5.13(1), both petitioner Cotilla and petitioner Prieto were parties in proceedings before the respondent to obtain unemployment compensation benefits. Their applications for benefits had originally been denied for lack of sufficient wage credits. Both petitioners had been continuously employed by Florida East Coast Deliveries, Inc. from 1974 through December of 1978. The finding of lack of credits was based on the employer's switch from the Florida Unemployment Compensation System to coverage under the Railroad Unemployment Insurance Act. By letters dated March 29, 1979, the attorney for the petitioners made a request to Manuel M. Garcia, the appeals referee, for subpoenas to produce certain documents and a witness at the hearing scheduled for April 12, 1979. The letter requesting subpoenas stated that the records and witnesses are expected to provide evidence to show that the claimants had in fact been paid sufficient wages for insured work under Fla. Stat. 443.05(1)(e), during their base periods to qualify for Florida Unemployment Compensation benefits, which they have earned." By letter dated March 30, 1979, Appeals Referee Garcia denied the request for subpoenas "at this point in time," stating that "I will take into consideration your request, and if necessary, subpoenas will be issued later. However, sufficient cause has not been shown at this point to warrant subpoenas. There is no indication in your letter that the employer has refused to comply with any request for documents and/or witnesses. In addition, is questionable whether subpoenas can be issued and served prior to the April 12, hearing. Finally, the documents and information you are requesting are so general in nature, and its relevancy is at best questionable." Petitioners' attorney requested a reconsideration of her subpoena request by letter dated April 2, 1979. This letter stated in great detail why the attorney for the claimants (petitioners herein) felt that the information and documents requested were relevant to the issue in dispute. On April 9, 1979, Referee Garcia again denied the request for subpoenas by a letter stating: Most of the information that you provided as to why these documents should be subpoenaed refer to the instant employer's liability under the Florida Unemployment Compensation Law. In addition, your clients' position, earnings, and weeks of employment with the instant employer are not being disputed, as far as I can tell. My previous denial of your request for subpoenas at this point in time still stands. I will consider a second Hearing near the employer's vicinity, subpoena or a field investigation after the hearing, if such are necessary to comply, with due process. To clarify one point the subpoenas you are requesting are not being denied because of the time involved in issuing and serving subpoenas. The matter was mentioned because it is impractical to request documents of unproven relevancy, which in all probability will not be available for the April 12, 1979, Hearing, even if the subpoenas are issued." A hearing was held in petitioner Cotilla's appeal on April 12, 1979. The employer, Florida East Coast Deliveries, Inc., refused to voluntarily supply the requested information. The petitioners did not have knowledge of or access to the requested information except by the subpoenas which were refused. Thomas J. Edwards appeared at the April 12th hearing as agent of the employer, but he did not have the information requested in the subpoena request. Other agents of the employer did have the requested information. Petitioner Prieto's hearing was postponed until May 7, 1979. By letter dated April 23rd, his attorney renewed her requests for subpoenas and the request was again denied. Since the basis for the denial of petitioners' unemployment benefits was the question of the employer's liability under the Florida Unemployment Compensation Act, the information requested was relevant to the proof of their case. In addition, in petitioner Prieto's case, it was relevant to the issue concerning the timeliness of his appeal, in that the testimony and evidence sought were relevant to the wrongfulness of the respondent's actions in denying him benefits which petitioner Prieto contends was a cause of his failure to file his appeal within ten (10) days. At their unemployment hearing, the petitioners were unable to prove the circumstances under which their former employer switched coverage from the Florida Unemployment Compensation Act to the Railroad Unemployment Insurance Act. Petitioner Cotilla has not received any unemployment compensation benefits, and no decision has been rendered in the case of petitioner Prieto. The basis for all of the denials of the subpoena requests which have occurred in the unemployment compensation proceedings of the petitioners is the challenged Rule 8B-5.13(1). This Rule, which is set forth in full below, provides in pertinent part that subpoenas "may" be issued by the appeals referee upon timely written application and that the application must state the "reason for appearance to include what testimony or evidence the witness is expected to provide." Pursuant to Rule 8B-5.13(1), it is the current practice of respondent's appeals referees to deny requests for subpoenas which do not contain a written explanation of the reason the subpoena is needed prior to the hearing. The explanation must state, to the satisfaction of the appeals referee, the materiality, relevance and competence of the testimony or evidence sought. Absent such a showing which is deemed satisfactory by the referee, the request for subpoenas will be denied. Even when the request provides an explanation which illustrates that the evidence or testimony sought is material, relevant and competent, it is typical practice for the appeals referee to attempt to use other means of obtaining the facts sought. For example, someone from the referee's office will telephone the person to whom the subpoena request is directed and ask them to voluntarily appear at the hearing. Also, the referees may request a field auditor or field examiner to examine employer records and file a report at the hearing. If it becomes apparent to the referee at the hearing that a witness or document is needed, the hearing will be continued and a subpoena will be issued.
Conclusions This cause came on before Tom Gallagher, as Chief Financial Officer of the State of Florida, for consideration of and final agency action on the Recommended Order issued herein on October 4, 2003, by Administrative Law Judge J.D. Parrish. No exceptions to that Recommended Order were filed. , Having reviewed the Recommended Order and the record of this proceeding, and being otherwise apprised in all material premises, IT IS HEREBY ORDERED that the Findings of Fact and Conclusions of Law made and announced by the Administrative Law Judge in the Recommended Order are adopted without exception as the Findings of Fact and Conclusions of law of the agency. IT IS HEREBY FURTHER ORDERED that Janusz Kraj shall pay to the Division of Worker's Compensation a civil penalty in the amount of $1,100, within thirty days from the date hereof, said sum to thereafter bear interest at the rate of 9% per anum until paid. IT {S$ HEREBY FURTHER ORDERED that the Stop Work And Penalty Assessment Order entered by the Division of Worker's Compensation is affirmed, and that Janusz Kraj shall cease all business operations unless and until he provides evidence satisfactory to the Division of Worker's Compensation of having now complied with the workers compensation law by securing the necessary worker's compensation for covered employees and, pursuant to Section 440.107(7)(a), Florida Statutes, paid the civil penalty imposed herein. Lh DONE AND ORDERED this 3° — day of November, 2003. ST ) Sie \eouw Tom Gallag Chief Financial Officer Tomy “ay a PEF LAO
The Issue Whether Petitioner properly issued a Stop-Work Order and Penalty Assessment against Respondent for failing to obtain workers' compensation insurance that meets the requirements of chapter 440, Florida Statutes.
Findings Of Fact Petitioner is the state agency responsible for enforcing the Florida Workers' Compensation Law, chapter 440, Florida Statutes, including those provisions that require employers to secure and maintain payment of workers? compensation insurance for their employees who may suffer work- related injuries. Respondent is an active Florida limited liability company, having been organized in 2006. Howard?s Famous Restaurant is a diner-style restaurant located at 488 South Yonge Street, Ormond Beach, Florida. It seats approximately 60 customers at a time, and is open for breakfast and lunch. In 2006, Edward Kraher and Thomas Baldwin jointly purchased Howard?s Famous Restaurant. They were equal partners. Mr. Baldwin generally handled the business aspects of the restaurant, while Mr. Kraher was responsible for the food. At the time the restaurant was purchased, Mr. Baldwin organized That?s Right Enterprises, LLC, to hold title to the restaurant and conduct the business of the restaurant. Mr. Baldwin and Mr. Kraher were both identified as managing members of the company.1/ On June 27, 2007, a 2007 Limited Liability Company Annual Report for That?s Right Enterprises, LLC, was filed with the Secretary of State. The Annual Report bore the signature of Mr. Kraher, and contained a strike-through of the letter that caused the misspelling of Mr. Kraher?s name. Mr. Kraher testified that the signature on the report appeared to be his, but he had no recollection of having seen the document, or of having signed it. He suggested that Mr. Baldwin may have forged his signature, but offered no explanation of why he might have done so. Although Mr. Kraher could not recall having signed the annual report, and may have had little understanding of its significance, the evidence supports a finding that Mr. Kraher did, in fact, sign the annual report for That?s Right Enterprises, LLC, as a managing member of the business entity. From March 9, 2009, through March of 2011, Mr. Kraher and Mr. Baldwin received salaries as officers, rather than employees, of That?s Right Enterprises, LLC. Their pay was substantially equivalent during that period. The paychecks were issued by the company?s accountant. Mr. Kraher denied having specific knowledge that he was receiving a salary as an officer of That?s Right Enterprises, LLC. Since Mr. Baldwin left the company, Mr. Kraher has continued to use the same accountant, and has continued to receive his salary as an officer of That?s Right Enterprises, LLC. On March 24, 2011, after having bought out Mr. Baldwin?s interest in the company by paying certain company- related debt owed by Mr. Baldwin, Mr. Kraher filed an annual report for That?s Right Enterprises, LLC. In the annual report, which was prepared and filed at his request, Mr. Kraher assumed control as the sole member and registered agent of the company. Mr. Baldwin was removed as a managing member and registered agent, and other changes were made consistent therewith. Mr. Kraher denied any understanding of the significance of his operating as the same corporate entity, but rather thought he was “buying a new LLC.” On March 8, 2012, Petitioner's investigator, Carolyn Martin, conducted an inspection of Howard?s Famous Restaurant. Ms. Martin introduced herself to one of the waitresses working at the restaurant. The waitress called Mr. Kraher from the kitchen to speak with Ms. Martin. Mr. Kraher identified himself as the owner of the restaurant for the past six years. Ms. Martin asked Mr. Kraher for evidence that Respondent?s employees were covered by workers? compensation insurance. Mr. Kraher retrieved a folder containing the restaurant?s insurance policies and information. Ms. Martin reviewed the folder, and determined that Respondent did not have workers? compensation insurance. Mr. Kraher, who was very cooperative with Ms. Martin throughout the inspection, was genuinely surprised that the restaurant employees were not covered by workers? compensation insurance. He had taken out “a million-dollar insurance policy” that he thought covered everything he needed to have. While Ms. Martin was at the restaurant, Mr. Kraher called his insurance agent who, after reviewing his file, confirmed that Respondent did not have workers? compensation insurance. Mr. Kraher immediately asked his agent to bind a policy, and paid his first six-month premium using a business credit card. A copy of the policy was quickly faxed by the agent to Ms. Martin. Ms. Martin took the names of Respondent?s employees, which included two kitchen staff and four wait staff. Some of the employees worked in excess of 30 hours per week, while others worked part-time. Ms. Martin went to her vehicle and completed a Field Interview Worksheet. Ms. Martin reviewed the Coverage and Compliance Automated System (CCAS), which is the statewide database for workers? compensation information, to confirm Respondent?s status in the workers? compensation system. Using the CCAS, Ms. Martin confirmed that Respondent had no workers? compensation coverage on file for any employee of the company. She also accessed the Florida Division of Corporations website to ascertain Respondent?s corporate status. After having gathered the information necessary to determine Respondent?s status, Ms. Martin contacted her supervisor and received authorization to issue a consolidated Stop-Work Order and Order of Penalty Assessment. The Stop-Work Order required Respondent to cease all business operations statewide. The Order of Penalty Assessment assessed a penalty, pursuant to section 440.107(7)(d), equal to 1.5 times the amount the employer would have paid in premium when applying the approved manual rates to the employer's payroll for the preceding three-year period. The consolidated order was hand- delivered to Mr. Kraher on behalf of Respondent at 11:00 a.m. on March 8, 2012. At the time she delivered the consolidated Stop-Work Order and Order of Penalty Assessment, Ms. Martin also hand- delivered a Request for Production of Business Records for Penalty Assessment Calculation. The Request required that Respondent produce business records for the preceding three-year period, from March 9, 2009, through March 8, 2012. Respondent was given five days in which to provide the records. On or about March 12, 2012, Mr. Kraher produced three boxes of business records to Ms. Martin. Those records were forwarded by Ms. Martin, and placed in the queue for review by the penalty auditor. The records were reviewed by Petitioner?s penalty auditor, Lynne Murcia, and were found to be insufficient to establish the actual compensation paid to Respondent?s employees for the preceding three year period. Therefore, pursuant to section 440.107(7)(e), salaries were imputed for each of the six employees based on the statewide average weekly wage. Ms. Murcia used the “Scopes Manual” published by the National Council on Compensation Insurance to ascertain the classification of Respondent?s business, based upon the nature of the goods and services it provided. Class code 9082, titled “Restaurant NOC,” is described as “the „traditional? restaurant that provides wait service.” Ms. Murcia correctly determined that Howard?s Famous Restaurant fell within class code 9082. The salaries of Respondent?s six employees, as employees of a class code 9082 restaurant, were imputed as though they worked full-time for the full three-year period from March 9, 2009, to March 8, 2012, pursuant to section 440.107(7)(e). The total imputed gross payroll amounted to $1,130,921.64. The penalty for Respondent?s failure to maintain workers? compensation insurance for its employees is calculated as 1.5 times the amount Respondent would have paid in premium for the preceding three-year period. The National Council on Compensation Insurance periodically issues a schedule of workers? compensation rates per $100 in salary, which varies based on the Scopes Manual classification of the business. The workers? compensation insurance premium was calculated by multiplying one percent of the imputed gross payroll ($11,309.21) by the approved manual rate for each quarter (which varied from $2.20 to $2.65, depending on the quarterly rate), which resulted in a calculated premium of $26,562.06. The penalty was determined by multiplying the calculated premium by 1.5, resulting in the final penalty of $39,843.18. On March 28, 2012, Petitioner issued an Amended Order of Penalty Assessment assessing a monetary penalty amount of $39,843.18 against Respondent. Respondent subsequently provided Petitioner with additional payroll records regarding the six employees. The records had been in the possession of Respondent?s accountant. The records, which included Respondent?s bank statements and payroll records for the six employees, were determined to be adequate to calculate the actual employee salaries for the preceding three-year period. Ms. Murcia revised her penalty worksheet to reflect that payroll was now based on records, rather than being imputed.2/ Respondent?s total payroll for the three-year period in question was determined to be $154,079.82. Applying the same formula as that applied to determine the penalty amount reflected in the Amended Penalty Assessment, the premium was calculated to have been $3,624.33, with a resulting penalty of $5,436.64. On April 24, 2012, Petitioner issued a 2nd Amended Order of Penalty Assessment reducing Respondent's penalty from $39,843.18 to $5,436.64.
Recommendation Based on the findings of fact and conclusions of law, it is RECOMMENDED that the Department of Financial Services, Division of Workers? Compensation, enter a final order assessing a penalty of $5,436.64 against Respondent, That?s Right Enterprises, LLC, for its failure to secure and maintain required workers? compensation insurance for its employees. DONE AND ENTERED this 31st day of August, 2012, in Tallahassee, Leon County, Florida. S E. GARY EARLY 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 August, 2012.
The Issue At issue in this proceeding is whether the Respondent, Klenk Roofing, Inc. ("Klenk Roofing"), failed to abide by the coverage requirements of the Workers' Compensation Law, chapter 440, Florida Statutes, by not obtaining workers' compensation insurance for its employees and, if so, whether the Petitioner properly assessed a penalty against the Respondent pursuant to section 440.107.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following findings of fact are made: The Department is the state agency responsible for enforcing the requirement of the workers' compensation law that employers secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107, Fla. Stat. Klenk Roofing is a corporation based in Daytona Beach. The Division of Corporations’ “Sunbiz” website indicates that Klenk Roofing was first incorporated on February 23, 2005, and remained an active corporation up to the date of the hearing. Klenk Roofing’s principal office is at 829 Pinewood Street in Daytona Beach. As the name indicates, Klenk Roofing’s primary business is the installation of new roofs and the repair of existing roofs. Klenk Roofing was actively engaged in roofing operations during the two-year audit period from July 24, 2012, through July 23, 2014. Kent Howe is a Department compliance investigator assigned to Volusia County. Mr. Howe testified that his job includes driving around the county conducting random compliance investigations of any construction sites he happens to see. On July 23, 2014, Mr. Howe was driving through a residential neighborhood when he saw a house under construction at 2027 Peninsula Drive in Daytona Beach. He saw a dumpster in the driveway with the name “Klenk Roofing” written on its side. Mr. Howe also saw a gray van with the name “Klenk Roofing” on the door. Mr. Howe saw three men working on the house. He spoke first with Vincent Ashton, who was collecting debris and placing it in the dumpster. Mr. Howe later spoke with Jonny Wheeler and Craig Saimes, both of whom were laying down adhesive tarpaper on the roof when Mr. Howe approached the site. All three men told Mr. Howe that they worked for Klenk Roofing and that the owner was Ronald Klenk. Mr. Ashton and Mr. Wheeler told Mr. Howe that they were each being paid $10 per hour. Mr. Saimes would not say how much he was being paid. After speaking with the three Klenk Roofing employees, Mr. Howe returned to his vehicle to perform computer research on Klenk Roofing. He first consulted the Sunbiz website for information about the company and its officers. His search confirmed that Klenk Roofing was an active Florida corporation and that Ronald Klenk was its registered agent. Ronald Klenk was listed as the president of the corporation and Kyle Klenk was listed as the vice president. Mr. Howe next checked the Department's Coverage and Compliance Automated System ("CCAS") database to determine whether Klenk Roofing had secured the payment of workers' compensation insurance coverage or had obtained an exemption from the requirements of chapter 440. CCAS is a database that Department investigators routinely consult during their investigations to check for compliance, exemptions, and other workers' compensation related items. CCAS revealed that Klenk Roofing had no active workers' compensation insurance coverage for its employees and that Ronald and Kyle Klenk had elected exemptions as officers of the corporation pursuant to section 440.05 and Florida Administrative Code Rule 69L-6.012. Mr. Howe’s next step was to telephone Ronald Klenk to verify the employment of the three workers at the jobsite and to inquire as to the status of Klenk Roofing's workers' compensation insurance coverage. Mr. Klenk verified that Klenk Roofing employed Mr. Wheeler, Mr. Ashton, and Mr. Saimes. Mr. Klenk also informed Mr. Howe that Klenk Roofing did not have workers' compensation insurance coverage for the three employees. Based on his jobsite interviews with the employees, his interview with Mr. Klenk, and his Sunbiz and CCAS computer searches, Mr. Howe concluded that as of July 23, 2014, Klenk Roofing had three employees working in the construction industry and that the company had failed to procure workers’ compensation coverage for these employees in violation of chapter 440. Mr. Howe consequently issued a Stop-Work Order that he personally served on Mr. Klenk on July 23, 2014. Also on July 23, 2014, Mr. Howe served Klenk Roofing with a Request for Production of Business Records for Penalty Assessment Calculation, asking for documents pertaining to the identification of the employer, the employer's payroll, business accounts, disbursements, workers' compensation insurance coverage records, professional employer organization records, temporary labor service records, documentation of exemptions, documents relating to subcontractors, documents of subcontractors' workers compensation insurance coverage, and other business records to enable the Department to determine the appropriate penalty owed by Klenk Roofing. Anita Proano, penalty audit supervisor for the Department, was assigned to calculate the appropriate penalty to be assessed on Klenk Roofing. Penalties for workers' compensation insurance violations are based on doubling the amount of evaded insurance premiums over the two-year period preceding the Stop-Work Order, which, in this case was the period from July 24, 2012, through July 23, 2014. § 440.107(7)(d), Fla. Stat. At the time Ms. Proano was assigned, Klenk Roofing had not provided the Department with sufficient business records to enable Ms. Proano to determine the company’s actual gross payroll. Section 440.107(7)(e) provides that where an employer fails to provide business records sufficient to enable the Department to determine the employer’s actual payroll for the penalty period, the Department will impute the weekly payroll at the statewide average weekly wage as defined in section 440.12(2), multiplied by two.1/ In the penalty assessment calculation, the Department consulted the classification codes and definitions set forth in the SCOPES of Basic Manual Classifications (“Scopes Manual”) published by the National Council on Compensation Insurance (“NCCI”). The Scopes Manual has been adopted by reference in Florida Administrative Code Rule 69L-6.021. Classification codes are four-digit codes assigned to occupations by the NCCI to assist in the calculation of workers' compensation insurance premiums. Rule 69L-6.028(3)(d) provides that “[t]he imputed weekly payroll for each employee . . . shall be assigned to the highest rated workers’ compensation classification code for an employee based upon records or the investigator’s physical observation of that employee’s activities.” Ms. Proano applied NCCI Class Code 5551, titled “Roofing — All Kinds and Drivers,” which “applies to the installation of new roofs and the repair of existing roofs.” The corresponding rule provision is rule 69L-6.021(2)(uu). Ms. Proano used the approved manual rates corresponding to Class Code 5551 for the periods of non-compliance to calculate the penalty. On September 17, 2014, the Department issued an Amended Order of Penalty Assessment in the amount of $214,335.58, based upon an imputation of wages for the employees known to the Department at that time. After Klenk Roofing provided further business records, the Department on December 16, 2014, was able to issue a Second Amended Order of Penalty Assessment in the amount of $87,159.20, based on a mixture of actual payroll information and imputation. The Department eventually received records sufficient to determine Klenk Roofing's payroll for the time period of July 24, 2012, through July 23, 2014. The additional records enabled Ms. Proano to calculate a Third Amended Order of Penalty Assessment in the amount of $19.818.04. The evidence produced at the hearing established that Ms. Proano utilized the correct class codes, average weekly wages, and manual rates in her calculation of the Third Amended Order of Penalty Assessment. The Department has demonstrated by clear and convincing evidence that Klenk Roofing was in violation of the workers' compensation coverage requirements of chapter 440. Jonny Wheeler, Vincent Ashton, and Craig Saimes were employees of Klenk Roofing performing services in the construction industry without valid workers' compensation insurance coverage. The Department has also demonstrated by clear and convincing evidence that the penalty was correctly calculated by Ms. Proano, through the use of the approved manual rates, business records provided by Klenk Roofing, and the penalty calculation worksheet adopted by the Department in Florida Administrative Code Rule 69L-6.027. Klenk Roofing could point to no exemption, insurance policy, or employee leasing arrangement that would operate to lessen or extinguish the assessed penalty. At the hearing, Ronald Klenk testified he was unable to obtain workers’ compensation coverage during the penalty period because it was prohibitively expensive to carry coverage for fewer than four employees. He stated that the insurers demanded a minimum of $1,500 per week in premiums, which wiped out his profits when the payroll was low. Mr. Klenk presented a sympathetic picture of a small business squeezed by high premiums, but such equitable considerations have no effect on the operation of chapter 440 or the imposition of the penalty assessed pursuant thereto.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers' Compensation, assessing a penalty of $19,818.04 against Klenk Roofing, Inc. DONE AND ENTERED this 28th day of April, 2015, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 28th day of April, 2015.
The Issue The issue is whether Respondent is liable for a penalty of $286,400.01 for the alleged failure to maintain workers’ compensation insurance for its employees in violation of Subsection 440.107(7)(d), Florida Statutes (2008).1
Findings Of Fact Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers’ compensation for the benefit of their employees in accordance with the requirements of Section 440.107. Respondent is a Florida corporation engaged in the construction business. On May 19, 2009, Petitioner's investigator inspected one of Respondent's job sites located at 6665 Mirabella Lane, Naples, Florida. The purpose of the inspection was to determine whether Respondent was in compliance with workers' compensation requirements. The investigator observed workers laying concrete block in a residential development under construction. The investigator interviewed the workers and learned the identity of the individual owner of Respondent. The investigator determined through the Coverage and Compliance Automated System (CCAS) that Respondent had secured workers' compensation coverage. However, Respondent maintained minimum coverage identified in the record as an "if any" policy. An "if any" policy imposes a premium based on zero employees and zero payroll and requires Respondent to notify the insurer of any new employees within three days of being hired. Respondent had reported no workers to his workers' compensation carrier, but had reported 54 employees for purposes of unemployment compensation taxes.2 None of the individuals reported for unemployment compensation taxes had secured workers' compensation coverage for themselves. Respondent is liable for workers' compensation for the 54 workers described in the preceding paragraph, which the trier of fact finds are employees of Respondent. None of the workers has an exemption from workers' compensation coverage. Petitioner correctly calculated the amount owed by Respondent, which is $286,400.01.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order imposing a penalty assessment in the amount of $286,400.01. DONE AND ENTERED this 13th day of July, 2010, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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 13th day of July, 2010.
The Issue Whether the "Additional Payment" made by Hernando HMA, Inc., d/b/a Brooksville Regional Hospital to Hernando County pursuant to a document entitled Lease Agreement, as amended, constitutes "rent" subject to sales tax under section 212.031, Florida Statutes.1/
Findings Of Fact Hernando HMA, Inc. (HMA) is a for-profit entity which operates Brooksville Regional Hospital, Spring Hill Regional Hospital, and other entities, as successor to an entity that was in Chapter 11 bankruptcy proceedings from 1993 to 1998, Regional Healthcare, Inc. (RHI). The Department is an agency of the State of Florida that has been delegated the responsibility to collect sales and use taxes imposed by chapter 212, Florida Statutes. In 1998, as part of RHI's bankruptcy plan, HMA and the County entered into various agreements, including a lease agreement (1998 Lease), regarding the use and operation of several RHI hospital properties and improvements owned by the County, and leased back to RHI. Under the 1998 Lease and other agreements, HMA agreed to continue to operate the hospital facilities for 30 years with possession of the real property and improvements to be returned to the County at the end of the lease term. Section 1.2W. of the 1998 Lease defined "Rental Payment" as follows: "Rental Payment" means all payments due from Lessee to Lessor or otherwise required to be paid by Lessee pursuant to the terms of this lease. The 1998 Lease further provided in section 3.3 under the heading "Rent": The annual rental payment of the Leased Premises for each year of the Lease Term (the "Rental Payment") shall be in the amount of Three Hundred Thousand and 00/100 Dollars ($300,000). This Rental Payment shall be paid to Lessor by Lessee on the Commencement Date and on each anniversary date of the Commencement Date during the Lease Term. The 1998 Lease also provided that HMA, as Lessee, would pay "all taxes, if any, prior to delinquency." Under the 1998 Lease, the County agreed to lease the premises in consideration of HMA’s timely payment of rent and timely performance of the other covenants and agreements required under the lease. It was an “event of default” under the lease if HMA failed to observe and perform any covenant, condition, or agreement on its part which could be cured by a payment of money. Remedies for default under the 1998 Lease included termination of the lease by the County and exclusion of HMA from possession of the leased premises. Even though the leased premises under the 1998 Lease were not subject to ad valorem taxes because they were owned by the County, during public discussions of the proposed 1998 Lease, an issue arose about HMA's responsibility for payment of fire assessments that would have been paid if the property was not immune or exempt from ad valorem taxes. HMA agreed, by separate agreement, to pay the fire assessments and buy a new ambulance to serve the community. The fire assessment agreement was by separate document that was included as part of the closing of the 1998 Lease and other agreements involving the hospital facilities in June 1998. The 1998 Lease was dated June 1, 1998. The 1998 Lease terms included a merger clause in section 15.6 entitled “ENTIRE AGREEMENT,” which provided: This lease may not be modified, amended or otherwise changed orally, but may only be modified, amended or otherwise changed by an agreement in writing signed by both parties. This Lease Agreement and its accompanying guaranty constitute the entire agreement between the parties affecting this Lease. This Lease Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements, and understandings between the parties hereto with respect to the subject matter thereof, and no such outside or prior agreements shall be used to interpret or to construe this Lease. There are no promises, covenants, representations or inducements in addition to, or at variance with any of the terms of this Lease Agreement except the Guaranty. In 2001, the County and HMA began negotiations for relocation of the Brooksville Regional Hospital which was part of the leased premises described in the 1998 Lease. During the negotiations, HMA, through its attorney, Steven Mitchell, prepared a proposed comprehensive relocation agreement in consultation with former County Attorney Bruce Snow. Section 7.3 of the proposed relocation agreement contemplated revising the 1998 Lease and suggested the following preliminarily negotiated language for rental payments under a revised 1998 Lease: Rental Payments The Lessee shall pay to Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and no/100 Dollars ($300,000.00) per annum. The Lessee shall pay to Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of the same sum to be used by Hernando County as it deems appropriate, an amount equal to the ad valorem taxes that would have been paid on the New Facility Site as improved with the New Facility if the New Facility Site were not owned by Hernando County but owned by a for-profit entity. In the event the New Facility Site and the New Facility located thereon are subsequently required by law to pay ad valorem taxes then the obligation to pay the amount described in Section 7.3(b) herein shall immediately terminate and Lessee shall be responsible for the payment of the appropriate ad valorem tax. The proposed comprehensive relocation agreement was discussed at public meetings held by the Hernando County Board of Commissioners on September 17 and September 25, 2001. The minutes of the September 25, 2001, meeting indicate that the County Administrator advised that the proposed relocation agreement contemplated that HMA would continue to pay $300,000 annually as rent, and “would make a payment-in-lieu of taxes annually to the County . . . .” The minutes also reflect that, in responding to a question from a commissioner regarding whether there should be language in the agreement that would protect the “payment-in-lieu of taxes” provision in the event the law changed: [Former County Attorney] Snow replied that it was his recommendation that there should be a provision that to the extent that the organic law of the State provided that facilities, such as the new hospital or other hospital under the lease, were taxable for ad valorem tax purposes, that that provision of the organic law would apply to ensure that that provision superseded. He explained that the lease provision to provide for an ad valorem tax payment was only to the extent that the organic law did not otherwise compel it so that the County would be receiving ad valorem tax under either scenario. The minutes from the September 25, 2001, meeting further state: Mr. Snow replied to County Attorney Garth Coller that there had been recent Supreme Court decisions which may have a bearing on the organic law to the extent that a decision of that nature indicated that the facilities were subject to ad valorem tax, notwithstanding the ownership issue, then they were subject to ad valorem tax and the lease would need to clarify that. He suggested that if the FS or Constitution should change, even in the absence of an interpretation of the Supreme Court decision, the change would obligate the payment of ad valorem taxes pursuant to the constitutional or statutory provisions. He explained that organic law pertained to provisions of FS or the Constitution as opposed to a Court decision. Mr. Snow’s reported reference to recent “Supreme Court decisions” regarding ad valorem taxes undoubtedly was referring the decision, among others, in Sebring Airport Authority v. McIntyre, 718 So. 2d 296 (Fla. 1998). In that decision, rendered a few months after the County entered into the 1998 Lease, the Supreme Court of Florida stated with regard to municipal (as opposed to county) property: [T]here is nothing in article VII, section 3 that allows the legislature to exempt from ad valorem taxation municipally owned property or any other property that is being used primarily for a proprietary purpose or for any purpose other than a governmental, municipal or public purpose. To the extent section 196.012(6) attempts to exempt from taxation municipal property used for a proprietary purpose, the statute is unconstitutional. Id. at 298. The Sebring case did not address tax immunity of county property as distinguished from the issue of tax exemptions for the proprietary use of municipal property. The proposed “Rental Payments” language for revisions to the 1998 Lease, however, demonstrates that the drafters of the comprehensive relocation agreement were aware of the possibility that the Sebring rationale could be expanded and applied to county property. The comprehensive relocation agreement was approved by the County, and executed in late 2001. Attached as to that relocation agreement as Schedule C was an unsigned document entitled “First Amendment to Lease Agreement” that was not to be executed until the new facility was completed and transferred to the County. Subsection 3.3 of the First Amendment to Lease Agreement entitled “Rental Payments” provided: Rental Payments The Lessee shall pay to the Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and No/100 Dollars ($300,000.00) per annum. The Lessee shall pay to the Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of an amount (“Additional Payment”) equal to the sum of the following: An amount equal to that portion of the ad valorem taxes that would have been paid to Hernando County on the Leased Premises (as modified by the substitution of the New Facility Site for the Current Hospital Site) if the Leased Premises were not owned by Hernando County but owned by a for profit entity; and An amount equal to that portion of the ad valorem taxes that would have been paid to the Spring Hill Fire and Rescue District, the Township 22 Fire District and/or any other special taxing district that may be established pursuant to law; and An amount equal to all special assessments levied by Hernando County through any Municipal Service Benefit Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes; and An amount equal to all ad valorem tax levied by Hernando County through any Municipal Service Taxing Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes. In no event shall the Additional Payments exceed an amount equal to a full ad valorem tax assessment on the New Facility Site as determined annually by the Hernando County Property Appraiser. In the event the Lessee and/or Lessor is required by law to pay ad valorem taxes on the Leased Premises or any portion thereof, the obligation to pay to Lessor the Additional Payment described in this Section 3.3 shall immediately terminate (and/or be adjusted, whichever is applicable), and Lessee shall be responsible for payment of the appropriate ad valorem tax. The First Amendment to Lease Agreement further provided, “[e]xcept as expressly modified herein, all other terms and conditions set forth in the [1998] Lease Agreement are hereby ratified and confirmed.” The new hospital facility was completed and transferred to the County in 2005. On November 15, 2005, the County commission approved documents related to the transfer, including the First Amendment to Lease Agreement in the precise form as attached to the relocation agreement approved in 2001. The approval was obtained on a consent agenda, and the minutes reflect no further discussion by the commission or the public on the documents that were approved. In 2009, the Hernando County School District sued the County Property Appraiser, alleging that the properties subject to the 1998 Lease as amended by the First Amendment to Lease Agreement should not be exempt from ad valorem taxation. In a 13-page Order dismissing the School District’s action, Circuit Judge Daniel B. Merritt, Jr., distinguished the cases disallowing statutory ad valorem tax exemptions for properties owned by special tax districts or cities from the sovereign immunity against ad valorem taxes enjoyed by real estate owned by the State of Florida and its counties. In his ruling, Judge Merritt noted that Florida law specifically makes leasehold interests in governmental property subject to taxation, noting: The Legislature defines leasehold interests as intangible personal property and, hence, assessed by the Florida Department of Revenue, when: (1) rent is due; (2) the property is used for commercial purposes; (3) is not used for agriculture; (4) not financed with revenue bonds, and; (5) the lease is for an initial term of less than 100 years; §§196.199(2)(b), Florida Statutes (2008), 199.023(1)(d), Florida Statutes (2005), specifically preserved in Chapter 2006-312, Laws of Florida (2006). However, see below for further analysis with regard to presumed ownership of property leased for 100 years or more as set forth in §196.199(7), Florida Statutes. Judge Merritt also discussed those instances where “leased” property might not qualify as State or county property where lessees are the “equitable owners,” such as leaseholds of 100 years or more or where properties do not revert to the State until the end of a lease term. In his order, however, Judge Merritt noted that the tax immunity of the County was a fundamental attribute of county property and held that “under the terms of the Lease Agreements the Court concludes that HMA has merely the right to use and possession and is not the beneficial owner as a matter of law Hernando County’s immune property and improvements.” Judge Merritt’s Order was affirmed on appeal. School Board of Hernando County v. Mazourek, Case No. H-27-CA-2009-549 (5th Cir. 2009), per curiam aff’d, 2010 WL 4323055 (Fla. 5th DCA 2010) In December, 2010, the Department notified the County it had been selected for a tax compliance audit under chapter 212, Florida Statutes, Sales and Use Tax. The audit period was from January 1, 2007, through December 31, 2009. The County’s personnel were cordial and receptive during the audit process and the Department’s auditor determined that the books and records kept by the County had adequate internal accounting controls in place and sufficient data integrity. Out of the approximately 19 tax registration accounts the County has with the Department, the Department’s auditor found exception with only tax account #12445797, the tax collected and remitted under its lease with HMA. In her record review, the Department’s auditor noticed invoices and worksheets from the County to HMA, titled “Payment in lieu of taxes.” In examining the First Amendment to the Lease Agreement, Section 3.3 “Rental Payments,” the Department’s auditor determined that the County was not collecting sales tax on a portion of the rent received under that section. The monthly tax return filed by the County under account # 12445797 reflected that it was collecting and remitting the sales tax calculated on the $300,000.00 annual rent payment, but was not collecting and remitting sales tax calculated on the additional payments in lieu of taxes. The Department’s auditor determined the additional payments, required under the lease and made as a condition of occupancy, constituted a taxable transaction as additional rent consideration. The amount of the additional payments, made January 2007 and March 2008, as revealed on the County’s “Payment in lieu of taxes worksheets,” was multiplied by 6.5 percent to arrive at the additional tax amount due of $78,710.17. On December 9, 2010, the Department issued a Notice of Intent to Make Audit Changes, Form DR 1215, advising the County of its audit findings, which included $78,710.17 in taxes due, $14,526.37 in accrued interest through December 9, 2010, and a $19,677.55 late payment penalty. On December 21, 2010, the Department issued its Notice of Proposed Assessment, Form DR 831, showing an assessment of $78,710.17 in tax and $14,707.51 in accrued interest, for a total of $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem. All penalty amounts were waived. At the final hearing, the County argued that the additional payments from HMA under the First Amendment to Lease Agreement were not rent, but rather separate payments to pay for County services. While the actual language used in the First Amendment to Lease Agreement appears to unambiguously indicate that the additional payments were rent, the County offered additional evidence of facts and circumstances beyond the terms of the lease itself in support of its argument that the additional payments were not rent. That evidence was admitted, without objection, and has been considered in determining the intention of the parties to the lease with regard to the additional payments. In addition to evidence that the lease drafters were aware of certain cases decided on the issue of whether the leased premises would be subject to ad valorem taxes, the County offered the testimony of Mr. Mitchell regarding the “Rental Payments” language found in the First Amendment to Lease Agreement. When asked whether there had been much negotiation over the format or wording of the First Amendment to Lease Agreement, Mr. Mitchell recalled: No, there really wasn’t other than, you know, the concept – what this amendment does is what we had agreed to pay rental payment. The rental payment was $300,000. And then, we also had agreed independently just to go ahead and pay the County for certain services that they were providing to us. And then we specified those. Those were independent payments, not part of the rental payment. Mr. Mitchell further testified: [B]asically, this property is free of ad valorem tax. That is why the school board filed their lawsuit because, of course, they were not getting any of the ad valorem taxes. So, the property is free of payment of ad valorem taxes. We’re paying our 300,000. It was very, very clear. However, HMA felt that the County was providing certain services, the fire districts and whatnot. So, independent of the rent, we paid this amount. If you read the section dealing – it’s 3.3.[2], or whatever it is, which I’ll read it to you, it talks about, at the very end – and they did it for whatever reason the property became taxable, you know, it effectively became taxable and we had to pay full ad valorem taxes on the property, then the specialties – these additional payments we called, you know, would go away and they, effectively, be part of rent. That's why it talks about it as such, and it was either additional payment and/or rent. Contrary to Mr. Mitchell’s recollection, section 3.3.2 of the First Amendment to Lease Agreement does not speak in terms of “additional payment and/or rent” but rather states that another payment would be made “either as rent or by virtue of a payment to Hernando County of an amount ('Additional Payment') . . .". Mr. Mitchell makes a valid point regarding the fact that HMA was concerned about having to pay both the additional payment and ad valorem taxes. Consistent with this concern, the lease amendment made it clear that HMA would not have to pay the additional amount if the property ever became subject to ad valorem taxes. Mr. Mitchell’s testimony in support of the County’s contention that HMA’s payment in lieu of taxes under the First Amendment to Lease Agreement was not rent, however, is unpersuasive. Considering the extrinsic evidence offered by the County, especially evidence of the parties concern that the subject County property might someday be subject to ad valorem taxes, together with the 1998 Lease, language negotiated for the proposed relocation agreement, and the actual terms of the First Amendment to Lease Agreement, it is found that the parties intended the language under the "Rental Payments" section to assure that HMA did not have to pay the additional amount twice. The extrinsic evidence offered by the County, however, was insufficient to support a finding that the parties intended to differentiate between “rent” and the “additional payment” or that, however characterized, the payment in lieu of taxes was not rent subject to assessment by the Department. If the parties had wanted to provide language that designated the payment in lieu of taxes as a payment for services instead of rent they could have, as they did in the Second Amendment to Lease Agreement entered into on September 13, 2011, just ten days prior to the final hearing in this case.2/ That Second Amendment to Lease Agreement changed the name of section 3.3 from “Rental Payments,” as found in the First Amendment, to “Rent and Additional Payment for County Services.” Pertinent subsections of the Second Amendment further provided: 3.3.2 Additional Payment for County Services. The Lessee shall pay to Lessor on an annual basis, as an additional payment (“Additional Payment”) for services provided by Hernando County [in its role as a service provider and local taxing authority], . . . * * * The Additional Payment is not intended to constitute “rent” and is not intended to create an event subject to Florida sales tax – but rather is intended to constitute a separate payment for the provision of services, payable to the local taxing authority, as provided in § 212.031(1)(c), Florida Statutes (which allow parties by contractual arrangement to distinguish between payments which are intended to be taxable and payments which are intended to be nontaxable), as this section may be amended or renumbered from time to time.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that, consistent with the Notice of Proposed Assessment dated December 21, 2010, and this Recommended Order, the Department of Revenue enter a final order finding that Petitioner owes tax and interest due totaling $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem, without penalties. DONE AND ENTERED this 30th day of December, 2011, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III 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 30th day of December, 2011.
The Issue The issue for determination is whether Respondent is authorized to levy Petitioner's bank account and apply the funds to reduce or satisfy Petitioner's unpaid unemployment taxes, interest, and penalties.
Findings Of Fact Petitioner, Harold Pratt Paving and Sealing, Inc., is a Florida corporation with its home office and principal place of business at 2242 Bruner Lane, Southeast, Ft. Myers, Florida 33192. Harold W. Pratt is the president and director of the company. Petitioner is an employer within the meaning of Chapter 443, Florida Statutes (2003), and is subject to the provisions of that chapter. As an employer, Petitioner employs and pays wages to his employees. In accordance with Subsection 443.131(1), Florida Statutes (2003), Petitioner is required to pay a payroll tax to the Unemployment Compensation Trust Fund, which is required to finance unemployment benefits. Petitioner's State of Florida unemployment tax account number is 2032262. Contributions, also referred to as unemployment taxes, are self-reported by employers. The contributions accrue and are payable by employers for each calendar quarter the employer is subject to Chapter 443, Florida Statutes (2003), for wages paid during each calendar quarter for employment. The contributions are due and payable by the employer to the tax collection service provider the last day of the month following the calendar quarter for which they are payable. The payments become delinquent on the first working day of the following month. See § 443.131(1), Fla. Stat. (2003), and Fla. Admin. Code R. 60BB-2.027. As of the date of the hearing, Petitioner owes unemployment taxes and associated interest and penalties in the amount of $46,133.94. The Department of Revenue is authorized to administer the tax laws of the State of Florida pursuant to Section 213.05, Florida Statutes (2003). The Department of Revenue serves as the tax collection service provider pursuant to Section 443.1316, Florida Statutes (2003), and is responsible for the collection of unemployment taxes. Typically, when an employer does not timely submit its unemployment tax payment and report, the Department sends the employer a delinquency notice. The employer then has 15 to 20 days to respond. If payment is not received, the Department then takes more serious action. On November 19, 2003, the Department issued a Subpoena Duces Tecum to Mr. Pratt to produce specified employment records at the Department's Ft. Myers office on December 15, 2003. Mr. Pratt and Ms. Jaffray, Petitioner's secretary and bookkeeper, produced the records as required by the subpoena. On December 15, 2003, when Mr. Pratt and Ms. Jaffray were at the Department's office, they talked to Ms. Philander, the Department auditor assigned to Petitioner's case, about entering into a time payment agreement with the Department. The time payment agreement is available to employers who owe delinquent unemployment taxes and allows them to make payments over time. This option is permitted at the discretion of the Department auditor assigned to the employer. In December 2003, Mr. Pratt and/or Ms. Jaffray, and Ms. Philander discussed the time payment agreement option, but did not execute any agreement. Because Mr. Pratt had not yet submitted Petitioner's current wage report to Tallahassee, but would be submitting it soon, Ms. Philander wanted to wait until the total amount of Petitioner's outstanding unemployment taxes was calculated. Once that amount was determined, the parties planned to enter into a time payment agreement. Ms. Philander advised Mr. Pratt and Ms. Jaffray that she would contact them once the adjustment had been made. Some time after December 15, 2003, and mid-January 2004, Ms. Philander received Petitioner's unemployment tax account statement. She then called Ms. Jaffray and notified her that Petitioner's account statement had come in and that she and Mr. Pratt would be receiving a copy of the statement. Ms. Philander also told Ms. Jaffray that Mr. Pratt should come up with figures that would be appropriate for the terms of repayment. In a January 16, 2004, telephone conversation, Ms. Jaffray told Ms. Philander that she would call her the following week to tell her the amount of money that Petitioner would pay under a time payment agreement. Ms. Jaffray explained that she could not provide this information until Mr. Pratt told her the amount he could pay. The following week, Ms. Philander never received a call from either Mr. Pratt or Ms. Jaffray. At one point, Ms. Jaffray told Ms. Philander that Petitioner could pay $5,000 down, in certified funds, and $5,000, in certified funds, per month thereafter. However, Ms. Jaffray told Ms. Philander that she would have to check with Mr. Pratt before this payment plan could be finalized. After she did not hear from Mr. Pratt or Ms. Jaffray, on February 1, 2004, Ms. Philander called Petitioner's office and left a message on Petitioner's answering machine or voice mail. On February 4, 2004, Ms. Philander left another message for Mr. Pratt that she needed the money or she would start "injunction." Mr. Pratt never offered any proposed payment amounts to Ms. Philander and never signed a time payment agreement. On or about February 5, 2004, the Department sent a Notice to Freeze to the Colonial Bank in Birmingham, Alabama. In the notice, which was sent by certified mail, the Department advised Colonial Bank that Petitioner "has a delinquent liability for tax, penalty, and interest of $46,133.94, which is due to the State of Florida." Moreover, the Department directed the bank not to transfer, dispose, or return any credits, debts, or other personal property owned by or owed to Petitioner. On February 10, 2004, the Colonial Bank verified that it held one account identified as belonging to Petitioner, which had a current balance of $20,625.75. On February 11, 2004, the Department issued a Notice of Intent to Levy on personal property belonging to Petitioner in the possession or control of the Colonial Bank. The Notice of Levy stated that "the action is taken for nonpayment of taxes, penalty, and interest in the sum of $46,133.94, and will proceed unless you pay this delinquent amount within 21 days from the date of receipt of this Notice of Intent to Levy." The notice also advised Petitioner of his right to a hearing. The Department mailed the Notice of Intent to Levy to Petitioner by certified mail, which was received by Petitioner on February 12, 2004.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Revenue enter a final order that: (1) levies $20,625.75 in Petitioner's bank account at the Colonial Bank; (2) applies the funds to reduce Petitioner's delinquent taxes, interest, and penalties; and (3) credits Petitioner for said payment. DONE AND ENTERED this 30th day of August, 2004, in Tallahassee, Leon County, Florida. S CAROLYN S. HOLIFIELD 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 30th day of August, 2004. COPIES FURNISHED: Harold Pratt, President Harold Pratt Paving & Sealing, Inc. 2242 Bruner Lane, Southeast Fort Myers, Florida 33912 James O. Jett, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue is whether Respondent is liable for a penalty of $265,604.81 based on payroll records for the period from October 28, 2008, through October 27, 2008, pursuant to Subsection 440.107(7), Florida Statutes (2008).1
Findings Of Fact Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers’ compensation insurance for the benefit of their employees in accordance with Section 440.107. Respondent is a Florida corporation engaged in the construction business. On October 27, 2008, a compensation compliance investigator and other investigators for Petitioner conducted a targeted investigation of Respondent’s business based on reports from a confidential informant that Respondent was not in compliance with Chapter 440 and the Insurance Code. The compliance investigator met two relatives of the sole shareholder of the company, who identified themselves as employees. The compliance investigator also identified construction work being conducted by two workers, who, it is undisputed, were not in compliance with Chapter 440. The disputed issues of fact are comprised of two issues. The first issue is whether payments to relatives of the sole shareholder are compensation or loans. The second issue is whether cash payments to the sole shareholder are compensation or business expenses. None of the loans to family members were repaid to the employer at the time of the hearing. Loans that have not been repaid to the employer are defined as payroll by Florida Administrative Code Rule 69L-6.035, and Respondent owes that portion of the penalty assessment allocable to the first issue. Respondent provided ample evidence to demonstrate that the disputed transactions were loans rather than compensation for employment. One relative is disabled and unable to work at the level for which he is allegedly compensated. He will repay the loans out of the sale proceeds of his home upon his death. Other family members have less tragic but similarly sad stories. However, deviation from Florida Administrative Code Rule 69L- 6.035 would merely invite remand pursuant to Section 120.69. The remaining issue is whether cash payments by Respondent to its sole shareholder are properly characterized as compensation or business expenses. Florida Administrative Code Rule 69L-6.035(1)(f) defines payroll to include expense reimbursements to the extent the business records do not confirm the expense was incurred as a valid business expense. For the reasons stated hereinafter, it is less than clear and convincing that the disputed cash payments are payroll within the meaning of Florida Administrative Code Rule 69L-6.035(1)(f). The sole shareholder explained under oath at the hearing that the cash payments at issue were for business expenses, including the payment of construction materials. He does not give workers charge cards to buy construction materials. He gives them cash. They do not always bring him receipts. The witness submitted detailed tabulations of approximately $77,002.46 in such expenses during the audit period, and the trier of fact found the testimony and supporting documentation to be credible and persuasive. The sole shareholder also testified that he incurred cash office expenses during the audit period of approximately $22,500.00 and submitted documentation to support that testimony. He also purchased three trucks for the business and made cash down payments on each truck with documentation to support the cash payments. The trier of fact finds that testimony and supporting documentation to be credible and persuasive. Based on the evidence through the date of the hearing, it is less than clear and convincing that the disputed cash payments to the sole shareholder were not incurred as valid business expenses within the meaning of Florida Administrative Code Rule 69L-6.035(f). The testimony of the sole shareholder and the supporting documentary evidence also shows that the disputed amounts were not cash payments to the sole shareholder in his capacity as an employee within the meaning of Florida Administrative Code Rule 69L-6.035(1)(b).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order imposing a fine consistent with the amount attributable to unpaid loans. DONE AND ENTERED this 24th day of November, 2009, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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 24th day of November, 2009.
