Findings Of Fact Based upon the record evidence adduced as well as the factual stipulation filed by the parties, the following facts are found. The Petitioner, International Cruise Shops (ICS), is a subsidiary company of the Greyhound Corporation. ICS, as pertinent hereto, operates gift shops, bars, beauty salons and exercise rooms and like "passenger amenity" type facilities ("shops") on board cruise ships operating out of the Port of Miami. The particular cruise ships of concern in this case are owned by Norwegian Caribbean Lines (NCL). The parties have stipulated that the vessels owned by NCL, to which this proceeding relates, operate exclusively in foreign commerce and that none of their operating mileage involved herein is in intrastate commerce. Because of this, ICS maintains that the transactions or purchases which are the subject of this proceeding are exempt from taxation under Section 212.08(8), Florida Statutes. The parties have stipulated that the sales tax at issue was not collected by the vendors involved and was not paid on the Items in question. The parties have also stipulated that all of the items in question, purchased in port, were used or consumed on board the NCL vessels involved and that the vessels were operating at the time in foreign commerce. It is also stipulated that ICS recognized at the time of the purchases that they were exempt ones and provided the vendors involved with its export exemption registration number. ICS takes the position that it is exempt from sales and use tax as to these items because the items purchased are "parts of a vessel" within the meaning of the exemption statute set forth at Section 212.08(8), Florida Statutes. It is also stipulated that during the relevant audit period ICS did not furnish the vendors involved in these purchases with the "partial exemption affidavit" described in Section 212.08(8)(b), Florida Statutes, the "partial exemption" statute. The Department in turn argues that ICS is not entitled to the exemption because it is not an "owner, operator or agent of a vessel." ICS maintains, contrarily, that its status as owner, operator or agent of a vessel is not determinative of its entitlement to the exemption, but rather the nature of the goods involved and their use is what is determinative. Be that as it may, the Petitioner maintains that it qualifies as an operator or agent of the vessels involved anyway. The Department also contends that even if ICS is an owner, operator, or agent, it failed to sign the affidavit mentioned above, stating that "the item or items to be partially exempted are [parts of a vessel] and setting forth the extent of such partial exemption." (emphasis supplied) See Section 212.08(8)(b), Florida Statutes. The Department originally served the Petitioner a Notice of Intent (to make sales and use tax audit changes) and a Notice of Proposed Assessment of tax, penalty and interest for the audit period from January 1, 1980, through December 31, 1982. The Department also issued a Notice of Intent to make sales and use tax audit changes, as well as a Notice of Proposed Assessment of Tax Penalty and Interest for the supplemental audit period of January 1, 1983, through April 30, 1983. Additionally, it is stipulated that the documents attached to the stipulation, as exhibits C and D respectively, are true and correct copies of an original shop agreement and bar agreement made and entered into as of January 1, 1980, between NCL and ICS. The parties have stipulated that those two documents represent the contractual agreements between NCL and ICS during the relevant audit periods at issue in this proceeding, and fairly reflect the relationship of the parties, although they do not agree that the language in the agreements to the effect that "ICS shall not be considered the agent" of NCL means that ICS is not the agent of NCL for any purpose at all. Those two agreements, as well as the unrefuted evidence of record, reveal that the services of bar operator and concessionaire, gift shop operator, as well as beauty shops and sauna operator, duty-free shop operator, and operations involving the purchasing for and operating of a shipboard duty-free and non-duty free shop for passengers and crew, are regular facets of cruise ship operations. It is the peculiar purpose of cruise ships to transport passengers, but provide all sorts of amenities and shopping services for passengers and crew of the type mentioned above and elsewhere in these agreements. There is no question that the duties ICS personnel were performing aboard NCL ships are integral functions of the operation of a cruise ship, as that relates to the exempt status claimed herein by ICS. The parties have additionally stipulated that exhibit F, attached to the stipulation, in evidence, is a random list of some of the supplies purchased by ICS during the audit period in question, far which no sales tax were paid. This listing is stipulated to be a representative sampling of the kinds of items for which the Department assessed tax under Schedule B of the assessment at issue. Exhibit G is a true and correct copy of a petition for reassessment of sales and use tax by ICS dated December 21, 1983. On February 9, 1984, ICS representatives attended a conference with the Department's disposition section personnel in Tallahassee. A Notice of Decision was entered September 30, 1985, by the tax conferee of the Department in response to the December 21, 1983 petition by ICS and as a result of that February 9, 1984 informal conference with the Department. A Petition for Reconsideration was filed by ICS dated October 28, 1985, concerning that notice of decision. On November 20, 1985, ICS representatives attended another informal conference with the Department's disposition section of its Office of General Counsel in Tallahassee. A supplemental petition was then filed by ICS dated February 12, 1986. Thereafter, a Notice of Reconsideration dated July 28, 1986, was executed by the tax conferee, Mark A. Zych, in response to the November 20, 1985 petition and informal conference. Thereafter, ICS filed the petition initiating this proceeding on September 19, 1986. The parties have additionally stipulated to, and the evidence of record reveals, that the items involved in this case were purchased by ICS from vendors for use in its shops and bars in the regular course of operation and business aboard the cruise ships. Those items at issue were stipulated to be used or consumed by ICS on Board NCL'S vessels. The shop and bar employees of ICS were paid on NCL's payroll and ICS would then reimburse NCL. Additionally, NCL negotiated a labor contract which covered the shop and bar employees of ICS, as well as its own employees. While they were on duty on board ship, the ICS personnel wore name tags indicating that they were NCL crew members, bearing the NCL logo. ICS personnel also participated in all safety drills and lifeboat drills like any other crew members. Each had specific stations and passenger safety duties assigned them, including lifeboat stations, just as any NCL employee crew members. ICS personnels' living quarters were in the same location as NCL employees' living quarters and ICS personnel were subject to the same duties, obligations and restrictions as NCL employees while on board the NCL ships, including restricted access to passenger areas and restrictions on mingling with passengers. The shop agreement (exhibit C to the stipulation in evidence) reveals that ICS performance of its shop, bar and other operations on board the cruise vessels was subject to the control of NCL. Numerous references in the shop agreement establish that NCL had pervasive control over ICS employees' performance of their duties on board NCL's cruise ships, as set forth at length in Appendix A, attached hereto and incorporated by reference in these findings of fact. One particularly revealing provision of the agreement is worth quoting. Section 16 of the Agreement requires ICS to designate a specific employee to act as supervisor of ICS employees on board the ships. This supervisor must agree to take orders from the master and ship's officers: ... and such qualified NCL personnel as shall be designated by the masters at all times and shall be under the control and direction and report directly to whomever the masters designate on board the vessels. ICS' supervisory personnel are to give prompt obedience to the instructions and orders of the NCL designee in regard to the operation of the shop concession. (emphasis supplied) The bar agreement, in evidence as exhibit D to the stipulation, contains a virtually identical provision. That bar agreement, for purposes of this proceeding, is essentially equivalent to the shop agreement. Additionally, the policy and procedures manual, in evidence as exhibit to the Stipulation, depicts numerous provisions which establish that, for all practical purposes, except for the reimbursement of NCL by ICS for salary for its employees, that ICS employees were considered as a part of the regular crew of the NCL cruise ships and subject to the direction and control of the ships' officers the same as any other crew member. This extended even to direction and control concerning how displays in the shops were set up, and how the shops and bars, were operated. In summary, that policy and procedures manual further demonstrates the pervasive control of NCL over the ICS employees and operations aboard the cruise ships, even to the extent of regulating vacation of ICS employees when they were ashore between cruises, etc. The testimony of ICS witnesses at the hearing confirms the existence of NCL's authority over ICS and its employees and demonstrates clearly that NCL fully exercised that right of control in the normal day to day operations of its cruise vessels. Sonia Jensen, district manager for ICS, has worked for ICS continuously since 1975. She established that NCL personnel supervise, direct and control ICS employees as to safety procedures, lifeboat drills and lifeboat station assignments, and as to all rules and regulations applying to crew members and their behavior. ICS employees on the ships are considered crew members. The testimony of Linda Loddo, district manager for ICS since 1973, corroborated that of Ms. Jensen in establishing that the authority of the NCL ships' officers extends to ICS employees as crew members, whether they are actually aboard ship or on land. Additionally, Ms. Jensen established that, based upon her considerable experience working in the cruise ship industry, that the shops and bars operated by ICS aboard the NCL cruise ships are an integral functioning part of, and appropriate to the operation of, a cruise vessel and a cruise line, in the normal course of its business and operations. Thus, ICS contends that it fits within the Department's interpretation of the relevant exemption statute, Section 212.08(8), Florida Statutes, because ICS is clearly both an "agent" of NCL and an "operator" of cruise ships. Its operations aboard the cruise ships are an integral and necessary function and part of the cruise ships operations in providing for the comfort and recreation of the passengers. ICS contends however, that the exemption, and entitlement to it, is determined by the nature of the items purchased, as that relates to what are considered "parts of vessels" for purposes of the exemption provision and that the exemption is not directly applicable to a particular class of people. The Petitioner argues that the sentence containing the phrase "owner, operator or agent" merely creates a presumption with regard to which items will constitute "parts of a vessel," but that the scope of the exemption, is not limited to purchases by only those three classes of persons.
Recommendation Having considered the foregoing findings of fact, stipulations and unrefuted evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore RECOMMENDED that the State of Florida, Department of Revenue enter a final order withdrawing and abating the assessment of sales and use taxes, interest and penalties against International Cruise Shops, Inc., in the particulars, and for the reasons, found and discussed above. It is further, Recommended, that the penalty sought to be imposed against International Cruise Shops by the Respondent, concerning the "bar sales assessment," be abated for the reasons delineated above. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 8th day of December, 1988. P. MICHAEL RUFF 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 8th day of December, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-3769 Petitioner's proposed findings of fact Accepted. Accepted. Accepted. Accepted. Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter. Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted, but subordinate to the Hearing Officer's findings of fact on the subject matter. Rejected as constituting, in large part, a conclusion of law and not a proposed finding of fact and as subordinate to the Hearing Officer's findings of fact on this subject matter. Rejected as subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted. Accepted, but subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted. Accepted. Accepted. Respondent's proposed findings of fact The Respondent incorporates by reference the factual stipulation as its proposed findings of fact. Those findings of fact stipulated to have been accepted, of course, by the Hearing Officer, although not necessarily for the material import Respondent asserts they should be accorded through it's proposed recommended order. COPIES FURNISHED: Robert W. Hanula, Esquire The Greyhound Tower, Station 1701 Phoenix, Arizona 85077 Linda G. Miklowitz, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32399-1050 Katie D. Tucker, Esquire Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100 William D. Townsend, Esquire Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact At the times pertinent to this proceeding, James W. Johnson and James E. Cotter were the officers and owners of Underground Supply Company. In October 1986, Mr. Johnson and Mr. Cotter sold their interest in Underground Supply Company to Ferguson Enterprises. Mr. Johnson and Mr. Cotter remained liable for any contingent tax liabilities following the sale. Underground Supply Company was required by Section 199.042(1), Florida Statutes, to file its corporate intangible tax return for 1986 on or before June 30, 1986. Mr. Johnson, who was the president of Underground Supply Company from 1972 through 1987, knew of the intangible tax filing requirement and had the ultimate responsibility to file tax returns on behalf of the corporation. During an audit conducted by Respondent in 1989, it was determined that Underground Supply Company's corporate intangible tax return for 1986 had not been filed. Following the audit, Underground Supply Company was assessed taxes and interest on the taxes. In addition, a delinquency penalty was assessed pursuant to Section 199.282(3)(a), Florida Statutes. The taxes and interest were promptly paid by Mr. Johnson on behalf of Underground Supply Company. A failure to file penalty was initially assessed against Petitioner pursuant to Section 199.282(3)(b), Florida Statutes, but this penalty was removed by Respondent after it determined that the failure to file penalty was not applicable. The delinquency penalty in the amount of $1,078.86 was properly calculated and was properly assessed. From 1973 until Mr. Johnson and Mr. Cotter sold their business, one accountant, Mr. Melvin Fancher, performed the accounting services required by Underground Supply Company. From 1973 to August 1985, Mr. Fancher was an independent contractor who performed his services through the various accounting firms with which he was associated. In August 1985, Underground Supply Company hired Mr. Fancher as its in-house accountant. Mr. Fancher was familiar with the books and records of Underground Supply Company and had prepared intangible tax returns on behalf of the company in the past. Underground Supply Company had, prior to the 1986 intangible tax return, promptly filed all of its tax returns and had promptly paid all taxes due of it. The failure to file the 1986 intangible tax return was caused by Mr. Fancher's oversight and by Mr. Johnson's and Mr. Cotter's reliance on Mr. Fancher. The failure to file was an honest error. There was no intention on the part of Mr. Fancher, Mr. Johnson, Mr. Cotter or anyone else on behalf of Underground Supply Company to avoid the payment of the intangible tax for 1986. There was no evidence of extenuating circumstances which caused Mr. Fancher's failure to file the 1986 intangible tax return or for Underground Supply Company's failure to detect such failure. Mr. Johnson did not know why the tax return was not filed and he did not know why the failure to file was not detected prior to the 1989 audit. Although Underground Supply Company referenced Mr. Fancher's change of status from independent contractor to in- house accountant in August 1985 in an attempt to explain the failure to file the intangible tax return due June 1986, there was no evidence of a connection between the two events. In October 1986 Mr. Johnson and Mr. Cotter sold Underground Supply Company to Ferguson Enterprises. During the examination of the books and records of Underground Supply in connection with the sale, no one discovered the omission to file the 1986 intangible tax return. Respondent denied Petitioner's request to waive the delinquency penalty, but it did review and revise the assessments, which resulted in a reduction of Petitioner's liability. Respondent's letter of December 14, 1989, which notified Petitioner of its final decision provided, in pertinent part, as follows: Section 213.21, F.S. grants the Department authority to settle or compromise penalty if there exists a reasonable cause as to the delinquent payment of tax due. The burden of showing the existence of reasonable cause and the absence of willful neglect is on the taxpayer. See Florida Administrative Code, Rule 12- 3.007. It is the position of the Department that the mistake of not filing a return due to a change in your CPAs is not an extenuating or unusual circumstance and does not meet the criteria of reasonable cause as provided by the rule cited above. The statute provided for an amnesty program in 1987 which gave relief to taxpayers who had not filed their intangible tax returns in prior periods. Accordingly, the revised assessment is sustained.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Respondent enter a final order which denies Petitioner's request for a waiver of the delinquency penalty assessed for the failure to timely file the 1986 intangible tax return. DONE AND ENTERED this 21st day of May, 1990, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Hearing Officer The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of May, 1990. APPENDIX TO THE RECOMMENDED ORDER IN CASE 90-0755 The post-hearing submittal filed by Petitioner contained no proposed findings of fact. The proposed findings of fact submitted by Respondent are adopted in material part by the Recommended Order. Copies furnished: James E. Cotter Qualified Representative 4460 Northwest 19th Terrace Fort Lauderdale, Florida Lealand L. McCharren Assistant Attorney General Department of Legal Affairs The Capitol - Tax Section Tallahassee, Florida 32399-1050 Mr. James W. Johnson Underground Supply Company 6969 Northwest 87th Avenue Parkland, Florida 33067 William D. Moore General Counsel Department of Revenue 203 Carlton Building Tallahassee, Florida 32399-0100 J. Thomas Herndon Executive Director Department of Revenue 203 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue in this case is whether Petitioner is entitled to a refund of nearly $500 thousand on an alleged overpayment of the stamp tax, where Petitioner paid the tax based on the entire undifferentiated consideration it had received, as a lump-sum payment, from the sale of an operating hotel business comprising real estate, tangible personal property, and intangible personal property.
Findings Of Fact On February 23, 2015, Petitioner 1701 Collins (Miami) Owner, LLC ("Taxpayer"), a Delaware limited liability company, entered into a Purchase and Sale Agreement ("Agreement") to sell a going concern, namely a hotel and conference center doing business in Miami Beach, Florida, as the SLS Hotel South Beach (the "Hotel Business"), to 1701 Miami (Owner), LLC, a Florida limited liability company ("Purchaser"). Purchaser paid Taxpayer $125 million for the Hotel Business. The Hotel Business comprised two categories of property, i.e., real estate ("RE") and personal property ("PP"). The PP, in turn, consisted of two subcategories of property, tangible personal property ("TPP") and intangible personal property ("ITPP"). It is undisputed that the property transferred pursuant to the Agreement included RE, TPP, and ITPP. The sale closed on June 5, 2015, and a special warranty deed was recorded on June 8, 2015, which showed nominal consideration of $10. Pursuant to the Agreement, Taxpayer was responsible for remitting the documentary stamp tax and the discretionary surtax (collectively, "stamp tax"). Stamp tax is due on instruments transferring RE; the amount of the tax, payable per instrument recorded, is based upon the consideration paid for RE. Stamp tax is not assessed on consideration given in exchange for PP. The Agreement contains a provision obligating the parties to agree, before closing, upon a reasonable allocation of the lump-sum purchase price between the three types of property comprising the Hotel Business. For reasons unknown, this allocation, which was to be made "for federal, state and local tax purposes," never occurred. The failure of the parties to agree upon an allocation, if indeed they even attempted to negotiate this point, did not prevent the sale from occurring. Neither party declared the other to be in breach of the Agreement as a result of their nonallocation of the consideration. The upshot is that, as between Taxpayer and the Purchaser, the $125 million purchase price was treated as undifferentiated consideration for the whole enterprise. Taxpayer paid stamp tax in the amount of approximately $1.3 million based on the full $125 million of undifferentiated consideration. Taxpayer paid the correct amount of stamp tax if the entire consideration were given in exchange for the RE transferred to Purchaser pursuant the Agreement——if, in other words, the Purchaser paid nothing for the elements of the Hotel Business consisting of PP. On February 6, 2018, Taxpayer timely filed an Application for Refund with Respondent Department of Revenue (the "Department"), which is the agency responsible for the administration of the state's tax laws. Relying on a report dated February 1, 2018 (the "Deal Pricing Analysis" or "DPA"), which had been prepared for Taxpayer by Bernice T. Dowell of Cynsur, LLC, Taxpayer sought a refund in the amount of $495,013.05. As grounds therefor, Taxpayer stated that it had "paid Documentary Stamp Tax on personal property in addition to real property." Taxpayer's position, at the time of the refund application and throughout this proceeding, is that its stamp tax liability should be based, not on the total undifferentiated consideration of $125 million given in the exchange for the Hotel Business, but on $77.8 million, which, according to the DPA, is the "implied value" of——i.e., the pro-rata share of the lump-sum purchase price that may be fairly allocated exclusively to——the RE transferred pursuant to the Agreement. Taxpayer claims that, to the extent it paid stamp tax on the "implied values" (as determined in the DPA) of the TPP ($7 million) and ITPP ($40.2 million) included in the transfer of the Hotel Business, it mistakenly overpaid the tax.1/ On February 23, 2018, the Department issued a Notice of Intent to Make Refund Claim Changes, which informed Taxpayer that the Department planned to "change" the refund amount requested, from roughly $500 thousand, to $0——to deny the refund, in other words. In explanation for this proposed decision, the Department wrote: "[The DPA] was produced 3 years after the [special warranty deed] was recorded. Please provide supporting information regarding allocation of purchase price on or around the time of the sale." This was followed, on April 2, 2018, by the Department's issuance of a Notice of Proposed Refund Denial, whose title tells its purpose. The grounds were the same as before: "[The DPA] was produced 3 years after the document was recorded." Taxpayer timely filed a protest to challenge the proposed refund denial, on May 31, 2018. Taxpayer argued that the $125 million consideration, which Purchaser paid for the Hotel Business operation, necessarily bought the RE, TPP, and ITPP constituting the going concern; and, therefore, because stamp tax is due only on the consideration exchanged for RE, and because there is no requirement under Florida law that the undifferentiated consideration exchanged for a going concern be allocated, at any specific time, to the categories or subcategories of property transferred in the sale, Taxpayer, having paid stamp tax on consideration given for TPP and ITPP, is owed a refund. The Department's tax conferee determined that the proposed denial of Taxpayer's refund request should be upheld because, as he explained in a memorandum prepared on or around December 27, 2018, "[t]he taxpayer [had failed to] establish that an allocation of consideration between Florida real property, tangible personal property, and intangible property was made prior to the transfer of the property such that tax would be based only on the consideration allocated to the real property." The Department issued its Notice of Decision of Refund Denial on January 9, 2019. In the "Law & Discussion" section of the decision, the Department wrote: When real and personal property are sold together, and there is no itemization of the personal property, then the sales price is deemed to be the consideration paid for the real property. [2] Likewise, when the personal property is itemized, then only the amount of the sales price allocated for the real property is consideration for the real property and subject to the documentary stamp tax. The first of these propositions will be referred to as the "Default Allocation Presumption." The second will be called "Consensual-Allocation Deference." The Department cited no law in support of either principle. In its intended decision, the Department found, as a matter of fact, that Taxpayer and Purchaser had not "established an allocation between all properties prior to the transfer" of the Hotel Business. Thus, the Department concluded that Taxpayer was not entitled to Consensual-Allocation Deference, but rather was subject to the Default Allocation Presumption, pursuant to which the full undifferentiated consideration of $125 million would be "deemed to be the consideration paid for the" RE. Taxpayer timely requested an administrative hearing to determine its substantial interests with regard to the refund request that the Department proposes to deny. After initiating the instant proceeding, Taxpayer filed a Petition to Determine Invalidity of Agency Statement, which was docketed under DOAH Case No. 19-3639RU (the "Rule Challenge"). In its section 120.56(4) petition, Taxpayer alleges that the Department has taken a position of disputed scope or effect ("PDSE"), which meets the definition of a "rule" under section 120.52(16) and has not been adopted pursuant to the rulemaking procedure prescribed in section 120.54. The Department's alleged PDSE, as described in Taxpayer's petition, is as follows: In the administration of documentary stamp tax and surtax, tax is due on the total consideration paid for real property, tangible property and intangible property, unless an allocation of consideration paid for each type of property sold has been made by the taxpayer on or before the date the transfer of the property or recording of the deed. If the alleged PDSE is an unadopted rule, as Taxpayer further alleges, then the Department is in violation of section 120.54(1)(a). Although the Rule Challenge will be decided in a separate Final Order, the questions of whether the alleged agency PDSE exists, and, if so, whether the PDSE is an unadopted rule, are relevant here, as well, because neither the Department nor the undersigned may "base agency action that determines the substantial interests of a party on an unadopted rule." § 120.57(1)(e)1., Fla. Stat. Accordingly, the Rule Challenge was consolidated with this case for hearing. The Department, in fact, has taken a PDSE, which is substantially the same as Taxpayer described it. The undersigned rephrases and refines the agency's PDSE, to conform to the evidence presented at hearing, as follows: In determining the amount stamp tax due on an instrument arising from the lump-sum purchase of assets comprising both RE and PP, then, absent an agreement by the contracting parties to apportion the consideration between the categories or subcategories of property conveyed, made not later than the date of recordation (the "Deadline"), it is conclusively presumed that 100% of the undifferentiated consideration paid for the RE and PP combined is attributable to the RE alone. According to the PDSE, the parties to a lump-sum purchase of different classes of property (a "Lump—Sum Mixed Sale" or "LSMS") possess the power to control the amount of stamp tax by agreeing upon a distribution of the consideration between RE and PP, or not, before the Deadline.2/ If they timely make such an agreement, then, in accordance with Consensual-Allocation Deference, which is absolute, the stamp tax will be based upon whatever amount the parties attribute to the RE. If they do not, then, under the Default Allocation Presumption, which is irrebuttable, the stamp tax will be based upon the undifferentiated consideration. Simultaneously with the issuance of this Recommended Order, the undersigned is rendering a Final Order in the Rule Challenge, which determines that the PDSE at issue is an unadopted rule. This determination precludes the undersigned, and the Department, from applying the PDSE as an authoritative rule of decision in determining Taxpayer's substantial interests. The undersigned concludes further, for reasons set forth below, that the PDSE does not reflect a persuasive or correct interpretation of the applicable law. Rather, because the stamp tax is assessed only against the consideration given in exchange for RE, the law requires that, in determining the amount of stamp tax due on an instrument arising from an LSMS, a pro-rata share of the undifferentiated consideration must be allocated to the RE. The amount of the undifferentiated consideration that is reasonably attributable to the RE conveyed in an LSMS is a question of fact. To prove its allegation that only $77.8 million of the consideration received from Purchaser for the Hotel Business, and not the entire $125 million, is attributable to the RE conveyed in the LSMS, Taxpayer relies upon the DPA and the testimony of Ms. Dowell, who authored that report. The Department did not present any expert testimony to rebut the opinions of Ms. Dowell concerning the allocation of the undifferentiated consideration. Rather, the Department argues that Ms. Dowell's opinions are unreliable as a matter of law and should be disregarded, if not excluded as inadmissible——a position that depends heavily upon the Daubert standard for screening expert testimony, which does not apply in administrative proceedings, for reasons that will be explained in the Conclusions of Law. Alternatively, the Department asserts, based on Taxpayer's 2015 federal income tax return, that the amount paid for the RE component of the Hotel Business was actually $122 million. Although this argument is inconsistent with the Department's main position, because it concedes that the allocation is a disputable issue of material fact, rather than a legal conclusion driven by the Default Allocation Presumption or Consensual-Allocation Deference, as applicable, the Department is correct that the tax return can be viewed as evidence in conflict with Ms. Dowell's testimony; the undersigned will resolve the evidential conflict in favor of Ms. Dowell's testimony, in findings below. Primarily, though, the Department eschews evidence bearing on the pro-rata allocation of the consideration on the grounds that the Default Allocation Presumption conclusively establishes the taxable amount as a matter of law. In other words, the Department considers Ms. Dowell's opinions to be irrelevant, regardless of her credibility as an expert witness—— or lack thereof. In this respect, the Department has made a strategic error because the Default Allocation Presumption, besides being extralegal, is both irrational and arbitrary. It is irrational to assume that the seller in an arm's length transaction would simply give away valuable PP for nothing of value in return. It is arbitrary automatically to assign all of the undifferentiated consideration paid in an LSMS to one category of property transferred, i.e., RE, to the exclusion of the other property types exchanged. Systematically allocating the entire purchase price to any other involved property class, e.g., TPP, would be equally (un)justifiable. Put another way, there is no rational answer to the question: Why not deem the entire purchase price allocable to the personal property? Why not a 50/50 split instead? Or 60/40? The Default Allocation Presumption, in short, is not even a reasonable inference. Without the Default Allocation Presumption to trump the DPA, the Department is left with the representations of value in the Form 4797 attached to Taxpayer's 2015 federal income tax return as its best, indeed only, rebuttal evidence. The form is used to report gain or loss from sales of business property, such as, in this instance, the Hotel Business. In its return, Taxpayer reported gross sales prices of $20 million for the hotel land, $102 million for the hotel building, and $3 million for the hotel's furniture, fixtures, and equipment. In other words, Taxpayer represented to the Internal Revenue Service that $122 million of the undifferentiated consideration for the Hotel Business was attributable to RE, with the balance going towards TPP. Notably, Taxpayer did not list, much less assign value to, any "section 197 intangible" property, such as goodwill, going concern value, workforce in place, business records, operating systems, permits, licenses, trade names, etc. See 26 U.S.C § 197(d). Taxpayer's Form 4797 statements regarding the cumulative sales price of the RE are admissions that, arguably at least, conflict with Ms. Dowell's opinions as expressed in the DPA. See § 90.803(18), Fla. Stat. What is to be made of these admissions? They are not binding, of course. Taxpayer is free to disavow or distinguish the statements in its Form 4797, which is essentially what it has done. Different taxes, different rules, different reasons—— in these general terms, Taxpayer strives to deflect attention from, and dismiss as irrelevant any serious consideration of, its federal income tax filing. Taxpayer's position is not without merit because, in fact, the stamp tax is fundamentally different from the federal income tax, as are the laws governing these noncomparable revenue raising measures. On the other hand, Taxpayer did declare the gross sales prices of the land, building, and TPP to be as described above, and these statements of apparent historical fact would seem to be true regardless of the specific tax purposes that prompted their making. There is more to this evidence than Taxpayer would have it. Ultimately, however, the undersigned finds the Form 4797 evidence to be less persuasive than the DPA, for several reasons. First, it is undisputed that ITPP was conveyed in the LSMS of the Hotel Business, and this ITPP included section 197 intangibles. But: Was Taxpayer required to segregate, and report separately, the gross sales price of these section 197 intangibles on its Form 4797? The undersigned does not know. Or, was Taxpayer allowed (or even obligated) to put the value of the section 197 intangibles onto, say, the building? Again, the undersigned does not know. To evaluate the persuasive force of the Form 4797 admissions, however, one needs to know these things. If Taxpayer were not required, for example, to report separately the value of the section 197 intangibles, and if, further, there were tax advantages in not doing so, then the admissions at issue would not be very probative. There is no evidence in the record regarding how, from May 2012, when Taxpayer acquired the Hotel Business, Taxpayer valued the attendant section 197 intangibles, for federal income tax purposes. It is possible that, for reasons undisclosed in this proceeding, Taxpayer never segregated the cost of the section 197 intangibles but instead allowed the value of the ITPP to be taxed as part of the value of the building. In any event, topics such as the proper classification of business property under the Internal Revenue Code; the different amortization periods applicable to various types of property; the tax planning strategies an owner might cautiously, aggressively, or even illegally employ to minimize its liability; and the common mistakes made, or advantages overlooked, by tax preparers, are complex and beyond the scope of the current record.3/ As a result, the statements regarding asset prices in Taxpayer's 2015 federal income tax return, which sit in the record practically devoid of meaningful context, are consistent with too many alternative possibilities to be credited as persuasive admissions about the respective values of the land and building in question.4/ Second, as mentioned, Taxpayer did not state, on the Form 4797, that ITPP was sold for a price of $0, in which case one might expect Taxpayer also to have reported a loss on the sale of section 197 intangible property. Rather, Taxpayer did not disclose the sale of any ITPP in the LSMS at issue. This is important, from a weight-of-the-evidence standpoint, because it is an undisputed historical fact that valuable ITPP was conveyed to Purchaser in the subject transaction, which makes it unreasonable to infer a gross sales price of $0 for the ITPP. Imagine, however, the probative force the Form would have had if Taxpayer had listed a gross sales price of, say, $1 million for the ITPP, together with corresponding reductions in the prices of the RE and TPP; in such a hypothetical situation, the Form 4797 admissions would have been much more persuasive as an apportionment of the undifferentiated consideration. As it stands, however, the reasonably inferable likelihood is that Taxpayer did not report the sales price of the ITPP because it did not report the sale of ITPP——not because there was no sale (for there was) or because the sales price was $0 (which is unlikely), but for other reasons, unknowable on the instant record. Third, for purposes of levying Taxpayer's 2015 real estate property taxes, the Miami-Dade Tax Collector appraised the RE at $39 million. (This figure is the higher of two contemporaneous assessments by the local taxing authority.) This is less than one-third of $122 million——but, in contrast, constitutes 50% of Ms. Dowell's pro-rata allocation of consideration to the RE. There is no evidence in the record regarding the reliability of the local tax collector's appraisals of hotel property, or specifically the percentage of fair market value such assessments are reasonably likely to reflect. Therefore, the undersigned does not place too much weight on the 2015 ad-valorem tax assessments. Still, one cannot help but notice that Ms. Dowell's opinions on the RE's implied value are much closer to the Miami-Dade County Tax Collector's appraisal than the Form 4797 admissions.5/ Having found that the Form 4797 admissions possess some, but not much, probative value regarding the allocation of the undifferentiated consideration, the DPA emerges largely unscathed. As fact-finder, the undersigned has the discretion, nevertheless, to reject, as not credible, the expert testimony of Ms. Dowell. But he credits her opinions, both because Ms. Dowell is a qualified authority on the subject matter, and because the opinions she has expressed are objectively reasonable and logically supported. As for Ms. Dowell's credentials, she has a bachelor of science degree and a master of science degree, both in finance. She has worked in the field of property valuation for around 30 years. Working for major hotel companies, Ms. Dowell routinely performed the sort of allocation of value between asset classes that she has conducted in this case. In 2007, Ms. Dowell formed Cynsur, Inc., which performs value allocations for hospitality industry clients, predominately for taxation purposes, as here. Ms. Dowell has conducted approximately 1,000 deal pricing analyses for clients around the country. In the niche of implied value allocations between the categories of property transferred in LSMS transactions involving hotel operations, Ms. Dowell is clearly an experienced, knowledgeable, and credible expert. The DPA that Ms. Dowell prepared is not an independent appraisal of the hotel property per se, but an allocation of the undifferentiated consideration, which uses estimates of value as the basis for dividing the lump-sum purchase price into three shares, each representing an amount reasonably attributable to a type of property conveyed in the LSMS. The estimates of value that provide the grounds for determining the implied price-per- category are a kind of appraisal, but the DPA is not designed or expected to produce a total valuation that might exceed, or fall short of, the $125 million lump-sum purchase price that is being apportioned. Again, to be clear, the goal of the DPA is to divide the $125 million into asset classes, not to verify whether $125 million was the fair market value of the Hotel Business in 2015, because the stamp tax applies, not to fair market value as such, but to that portion of the undifferentiated consideration fairly attributable to the RE conveyed. Ms. Dowell's approach to apportionment is to determine the "implied values" of the RE and TPP by analyzing the income an owner would expect to receive on a separate investment in the RE or TPP, as the case may be, apart from the Hotel Business as a whole. She starts with a discounted cash flow analysis of the Hotel Business as a going concern, using the Purchaser's pro forma projections as developed at the time of the LSMS. In this instance, Purchaser had presented a five-year projection of cash flow to analyze the investment, which assumed that the Hotel Business would be sold at the end of year five. Using Purchaser's assumptions, Ms. Dowell determined that the hotel acquisition would yield an implied rate of return on (and of) investment of 11.99%. With this in mind, Ms. Dowell sought to quantify the present value of the income that an owner would expect to receive on an investment in the hotel RE alone, based on a hypothetical or proxy rent for this asset in isolation. To determine the hypothetical rent, Ms. Dowell needed to make certain assumptions, which are set forth in the DPA. She determined, ultimately, that 12% of gross operating revenue represents a reasonable approximation of the proxy rent for the RE assets in question. Of course, the assumptions underlying this determination are not necessarily, or even probably, the only reasonable assumptions that could have been made. The Department, however, did not offer any expert opinion evidence that challenged Ms. Dowell's assumptions, nor did it present alternative rental scenarios. Ms. Dowell discounted the projected, five-year RE income stream at 10%, reflecting the more conservative nature of a pure RE investment as compared to an investment in the Hotel Business as a going concern. The Department did not offer any expert opinion testimony disputing this discount factor. Ms. Dowell concluded that the net present value of the RE at issue was $77,803,500 ($77.8 million when rounded), which represents about 62% of the undifferentiated consideration for the Hotel Business. The undersigned credits this opinion and finds that $77.8 million is a reasonable allocation of consideration to the RE component of the Hotel Business. Ms. Dowell performed a similar analysis of a hypothetical standalone investment in the hotel TPP and calculated a net present value of $7 million, using a discount rate of 11%. This left the remainder of $40,196,500 to be allocated to ITPP. For present purposes, the breakdown between TPP and ITPP is relatively unimportant because the stamp tax is not payable on consideration given for PP of any stripe. Indeed, the ultimate factual determination that $77.8 million of the undifferentiated consideration is reasonably attributable to RE is the material finding; from that, it follows mathematically that the remaining balance of $47.2 million reflects consideration for the PP, however that figure might be allocated between TPP and ITPP. Thus, having found that $77.8 million is a reasonable allocation of consideration to the RE component of the Hotel Business, the undersigned is bound to determine that $47.2 million is a reasonable allocation of consideration to the PP. Because Taxpayer paid stamp tax on $125 million instead of $77.8 million, it overpaid the tax and is due a refund. It is undisputed that the amount of the stamp tax that Taxpayer paid on the excess consideration above $77.8 million is $495,013.05.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order approving Taxpayer's claim and authorizing payment of $495,013.05 to Taxpayer as a refund of overpayment of the stamp tax, plus statutory interest if and to the extent section 213.255, Florida Statutes, requires such additional compensation. (If a dispute of material fact arises in connection with the payment of interest, the Department should return the matter to DOAH for a hearing.) DONE AND ENTERED this 17th day of December, 2019, in Tallahassee, Leon County, Florida. S JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of December, 2019.
The Issue Whether surcharge taxes and excise taxes, plus penalties and interest, attributable to the sale of alcoholic beverages should be assessed against the Respondent, Trans World Airlines, Inc., d/b/a Trans World Airlines? Whether the Respondent's Division of Alcoholic Beverages and Tobacco license/permit number 78-14 should be subjected to a civil penalty or should be suspended or revoked for failure to timely file surcharge and excise tax reports and surcharge and excise taxes to the Petitioner?
Findings Of Fact The Petitioner is the State of Florida, Department of Business Regulation, Division of Alcoholic Beverages and Tobacco. The Respondent is Trans World Airlines, Inc., d/b/a Trans World Airlines. The Respondent has be granted an alcoholic beverage license by the Petitioner. That license is identified as license number 78-14, series X (hereinafter referred to as the "License"). At all times relevant to this proceeding the Respondent held the License. From January 1, 1988, through January 15, 1991 (hereinafter referred to as the "Tax Period"), the Respondent operated as an air carrier in the State of Florida. During the Tax Period the Respondent sold alcoholic beverages to passengers on aircraft flights over the State of Florida. As a result of the sales of alcoholic beverages over Florida airspace, the Respondent has incurred surcharge and excise tax liability to the Petitioner for the Tax Period. The Respondent has not remitted any amount of its surcharge or excise tax liability to the Petitioner for the Tax Period. The Respondent has failed to file monthly surcharge or excise tax reports during the Tax Period. In February, 1991, the Petitioner performed an audit of the Respondent for the Tax Period. During the Petitioner's audit of the Respondent, the employee of the Respondent responsible for remitting alcoholic beverage reports and taxes to various states, including Florida, admitted to the Petitioner that the Respondent remitted its alcoholic beverage taxes to other states and did not understand why the Respondent did not remit its alcoholic beverage surcharge and excise taxes to Florida. The Petitioner, as a result of its audit of the Respondent, computed the Respondent's liability for surcharge and excise taxes for the Tax Period. The Petitioner used a standard airline industry apportionment formula to compute the Respondent's tax liability. The apportionment formula utilized by the Petitioner to compute the Respondent's tax liability to Florida for the Tax Period consisted of the following computation (hereinafter referred to as the "Apportionment Formula"): (a) a ratio is computed by dividing total revenue air miles (based upon revenue plane miles) flown by the Respondent by the total revenue miles flown by the Respondent in Florida; (b) the ratio is multiplied by the total gallons of alcohol sold by the Respondent to determine the estimated amount of alcohol sold in Florida; and (c) the estimated amount of alcohol sold in Florida is multiplied by the Florida tax rate(s) to determine the total alcohol tax payable. In applying the Apportionment Formula, the Petitioner used revenue plane miles in calculating the first ratio of the Apportionment Formula. Line 22, page 18, line 9, page 28, lines 13-20, page 37, Transcript of August 21, 1991. The Petitioner did not use revenue passenger miles as argued by the Respondent. Revenue plane miles looks at the total miles flown by an aircraft without regard to the number of passengers on a flight. Revenue passenger miles takes into account the number of passengers on each flight by including the number of miles a plane flies times the number of passengers on board that flight. Revenue passenger miles takes into account the difference in the size of each plane involved in a flight. Revenue passenger miles more accurately reflects the amount of alcohol which may be consumed. The information utilized by the Petitioner in applying the Apportionment Formula to the Respondent for the Tax Period was information provided by the Respondent. The Respondent provided the Petitioner with revenue plane miles and not revenue passenger miles. Therefore, the Petitioner reasonably relied upon and used the best information available to it to compute the Respondent's liability for surcharge and excise taxes. It is reasonable for the Petitioner to use revenue plane miles to compute surcharge and excise taxes attributable to the sale of alcohol in Florida absent a taxpayer providing revenue passenger miles. The Apportionment Formula utilized by the Petitioner is a fair method of computing the tax liability of the Respondent to the State of Florida for the Tax Period. Using the data provided by the Respondent was reasonable. If the Respondent had provided revenue passenger miles, the Petitioner should have used that information in applying the Apportionment Formula. Based upon an application of the Apportionment Formula and using the data provided by the Respondent to the Petitioner, the Respondent owes the following amounts for the Tax Period: Surcharge: Surcharge $ 9,580.38 Penalty 1,699.87 Interest 356.01 Total $11,636.26 Excise: Excise $40,285.49 Interest 7,279.60 Total $47,565.09 The total liability of the Respondent for the Tax Period is $59,201.34. After the Petitioner's audit of the Respondent, the Respondent provided the Petitioner with revenue passenger miles and revenue ton miles. Revenue ton miles have no substantive affect on the taxable event at issue in this proceeding; the sale of alcohol in Florida. It is not clear whether the revenue passenger miles provided by the Respondent can be used by the Petitioner in applying the Apportionment Formula. If so, that information should be used to calculate the Respondent's liability for taxes, penalties and interest in this case. If the information is not sufficient, the parties agreed that the record would remain open to give the Respondent an opportunity to provide any information needed to calculate the Respondent's liability. The Respondent presented evidence concerning the percentage of flights by the Respondent during which alcoholic beverages were served over Florida and the percentage of flights by the Respondent during which alcoholic beverages were not served over Florida. This evidence is rejected because it did not specifically apply to the Tax Period and is not otherwise credible to prove the facts the Respondent was attempting to prove. So called "complimentary" alcoholic beverages are provided by the Respondent to some passengers. These beverages, however, are received as part of the consideration a passenger receives for purchasing a ticket from the Respondent. Such beverages are, therefore, sold by the Respondent.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a final order be issued requiring the Respondent, Trans World Airlines, Inc., d/b/a Trans World Airlines, to pay surcharge and excise taxes, plus penalties and interest thereon, based upon application of the Apportionment Formula in the amounts set out in finding of fact 19. The amount of surcharge and excise taxes, plus penalties and interest thereon, may be recalculated by the Petitioner based upon an application of the Apportionment Formula utilizing revenue passenger miles for the Tax Period if revenue passenger miles have been, or are subsequently, provided to the Petitioner by the Respondent. It is further recommended that the Respondent be assessed a civil penalty of $1,000.00 for its failure to remit surcharge taxes and a civil penalty of $1,000.00 for its failure to remit excise taxes. RECOMMENDED this 13th day of November, 1991, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of November, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-2441 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioner's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 2. 2 3. 3 5. 4 6. 5-6 Hereby accepted. 7 10/ 8 7. 9-11 11. 12 12. 13 13. 14 16. 15 18. But see 15-17. 16 17. See 12 and 18. Conclusion of law. Not relevant. See 12. 21-22 Although true, the burden of proof in this case was on the Petitioner. 23 8-9. 24 Not relevant. 25-26 19. 27 20. The Respondent's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1. 2 2-3. 3 5. 4 6. 5 12-13. 6 See 14-15. 7 See 21. 8-10 Not supported by the weight of the evidence. COPIES FURNISHED: Robin L. Suarez Assistant General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007 Thomas P. Lombardi Director - Tax Administration 100 S. Bedford Road Mt. Kisco, New York 10549 Donald D. Conn, Esquire General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000 Richard W. Scully, Director Division of Alcoholic Beverages and Tobacco Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000
The Issue The issue is whether Petitioners are liable for the sales and use tax audit assessment and charter transit system surtax audit assessment, as reflected in Respondent's Notices of Reconsideration dated March 17, 1998.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: From 1988 through 1993, Petitioner, Dane W. Lucas (Lucas), operated the Annabelle Lee, a cruise boat, under the name of River Entertainment. On January 1, 1994, Lucas incorporated his business under the name of River Cruises, Inc. (the corporation), which is also a Petitioner in this cause. In 1996, Respondent, Department of Revenue (DOR), conducted an audit of the records of both Petitioners to determine whether all sales and use taxes and charter transit system surtaxes had been properly reported and paid. As a result of the audit, DOR issued two proposed assessments dated January 28, 1997, against Lucas individually and two assessments dated July 22, 1997, against the corporation. However, the latter two assessments reflect the combined liability of both Lucas individually as well as the corporation and cover the five-year audit period from March 1, 1990, through February 28, 1995. After a protest letter was filed by Petitioners, DOR issued two Notices of Reconsideration on March 17, 1998. As to Lucas individually, the Notice of Reconsideration reflects that as of March 11, 1998, he owed $44,083.56 for sales and use taxes, with interest to accrue from that date at the rate of $7.26 per day. It further asserted that he owed $3,290.35 in charter transit system surtaxes as of the same date, with interest to accrue at the rate of $.058 per day. As to the corporation, the Notice of Reconsideration reflects that as of March 11, 1998, it was liable for $17,906.53, with interest to accrue as of March 11, 1998, at the rate of $2.97 per day. Also, it asserts that as of March 11, 1998, the corporation was liable for $5,839.94 for charter transit system surtaxes, with interest to accrue at the rate of $0.25 per day. On April 24, 1998, Petitioners remitted a check in the amount of $9,626.92, which represented what they believed was the proper tax assessment. As to the remaining portion, they deny that any moneys are owed; alternatively, they have requested that the amounts be compromised on the basis that they have no ability to pay the amount claimed by DOR.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a final order sustaining its original assessment against Petitioner. DONE AND ENTERED this 12th day of July, 1999, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 Filed with the Clerk of the Division of Administrative Hearings this 12th day of July, 1999. COPIES FURNISHED: Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Eric J. Taylor, Esquire Department of Legal Affairs 28 West Central Boulevard, Suite 310 Orlando, Florida 32801 Dane W. Lucas 1511 Montana Avenue Jacksonville, Florida 32207-8642 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact The parties stipulated to the accuracy of the factual allegations in the petition, which are hereby incorporated by reference. A brief recapitulation may be helpful. John L. Cockrell died resident in Florida on September 26, 1977. For federal tax purposes, his gross estate was valued at $746,373.54. Securities held in trust by an Indiana bank, valued at $702,581.05 on the day Mr. Cockrell died, accounted for the bulk of his estate. Petitioner paid federal estate taxes in excess of the federal credit for estate taxes paid the several states, which credit amounted to $12,349.44. In response to an assessment by Indiana tax authorities, petitioner paid Indiana estate tax in the amount of $11,578.83. Petitioner paid Florida estate tax in the amount of $12,349.44, together with interest in the amount of $111.28.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent refund to petitioner the sum of $11,690.11. DONE and ENTERED this 11th day of April, 1979, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: J. Lester Kaney, Esquire and Robert Aylward, Esquire Post Office Box 191 Daytona Beach, Florida 32015 E. Wilson Crump, II, Esquire Assistant Attorney General Post Office Box 5557 Tallahassee, Florida 32301
The Issue The issue in this case is whether the Respondent's certificates of registration should be revoked for an alleged failure to file tax returns and to remit taxes to the Petitioner.
Findings Of Fact The Petitioner is the state agency responsible for collection of sales and use taxes in Florida, pursuant to chapter 212, Florida Statutes (2011).1/ The Respondent is a Florida company doing business at 7810 U.S. Highway 19, Port Richey, Florida, and is a "dealer" as defined at section 212.06(2). The Respondent holds two certificates of registration issued by the Petitioner (Certificate No. 61-8012297146-3 and Certificate No. 61-8012297147-0) and is statutorily required to file tax returns and remit taxes to the Petitioner. As set forth herein, the Respondent has failed to file tax returns or has filed returns that were not accompanied by the appropriate tax payments. During the time the Respondent has held the certificates, the Petitioner has filed 15 separate warrants against the Respondent related to unpaid taxes, fees, penalties, and interest. The Petitioner is authorized to cancel a dealer's certificate of registration for failure of a dealer to comply with state tax laws. Prior to such cancellation, the Petitioner is required by statute to convene a conference with a dealer. On June 24, 2011, the Petitioner issued a Notice of Conference on Revocation of Certificate of Registration (Notice). The conference was scheduled for July 27, 2011. The Respondent received the Notice and attended the conference. Certificate of Registration No. 61-8012297146-3 The Respondent failed to file tax returns related to Certificate No. 61-8012297146-3 for the period of August through December 2001. The Petitioner assessed estimated taxes of $587.50, fees of $110.95, and a penalty of $285.00. As of the date of the Notice, the accrued interest due was $633.79. Additionally, the Respondent failed to remit taxes of $5,623.63 related to Certificate No. 61-8012297146-3 that were due according to his filed tax returns. Based thereon, the Respondent assessed fees of $994.58 and a penalty of $2,478.26. As of the date of the Notice, the accrued interest due was $4,702.27. As of the date of the Notice, the Respondent's total unpaid obligation on Certificate No. 61-8012297146-3 was $15,415.98, including taxes of $6,211.13, fees of $1,105.53, penalties of $2,763.26, and accrued interest of $5,336.06. Certificate of Registration No. 61-8012297147-0 The Respondent failed to file tax returns related to Certificate No. 61-8012297147-0 for the months of June 2000, September 2000, May 2001, and August 2001. The Petitioner assessed estimated taxes of $619.00 and fees of $202.00. As of the date of the Notice, the accrued interest due was $782.56. Additionally, the Respondent failed to remit taxes related to Certificate No. 61-8012297147-0 of $4,332.48 that were due according to his filed tax returns. Based thereon, the Respondent assessed fees of $771.71 and a penalty of $1,576.87. As of the date of the Notice, the accrued interest due was $4,725.27. As of the date of the Notice, the Respondent's total unpaid obligation related to Certificate No. 61-8012297147-0 was $13,009.89, including taxes of $4,951.48, fees of $973.71, penalties of $1,576.87, and accrued interest of $5,507.83. The Audit A separate audit of the Respondent's business records for the period of February 2004 through January 2007 resulted in an additional assessment totaling $9,314.07, including taxes of $5,048.23, fees of $661.76, and a penalty of $252.42. As of the date of the Notice, the accrued interest due was $3,351.66. At the July 27, 2011, conference, the parties negotiated a compliance agreement under which the Respondent would have retained the certificates of registration. The agreement required the Respondent to make an initial deposit of $2,000.00 by August 15, 2011, and then to make periodic payments towards satisfying the unpaid obligation. The Respondent failed to pay the $2,000.00 deposit, and the Petitioner subsequently filed the Complaint at issue in this proceeding. As of the date that the Complaint was filed, the Respondent owed a total of $37,797.66 to the State of Florida, including taxes of $15,004.34, estimated taxes of $1,206.50, fees of $2,741.00, penalties of $4,592.55, and accrued interest of $14,253.27.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order revoking the certificates of registration held by the Respondent. DONE AND ENTERED this 1st day of May, 2012, in Tallahassee, Leon County, Florida. S WILLIAM F. QUATTLEBAUM 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 1st day of May, 2012.
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 Petitioners' liability for sales tax, penalty and interest as set forth in revised notice of proposed assessment dated February 1, 1978.
Findings Of Fact On September 15, 1975, Miles L. Johnson, a Beverage Agent with the Division of Alcohol and Tobacco, Department of Business Regulation, conducted a surveillance of premises occupied by Petitioners located at 4440 Southwest 64th Court, Dade County, Florida. Shortly after 8:00 a.m., he observed one Andy Tucker arrive and enter the residence and later exit the same carrying something which he placed in the trunk of a car. He then reentered the house. Agent Johnson looked in the trunk and observed that it contained numerous cartons of cigarettes. Tucker again exited from the residence carrying a case of cigarettes which he also placed in the trunk. He then drove to another house, followed by Johnson, who observed him take the cigarettes into a garage. Johnson then prepared an affidavit and obtained a warrant from the Dade County Circuit Court to search the Marson residence for un-taxed cigarettes. Johnson gave the warrant to another agent, John Fay, to serve the same upon the Marsons. Johnson later arrived at the residence and observed that Marson had a copy of the warrant in his possession and that Fay had his copy and was executing the return thereon. Johnson was informed by officers at the residence that 420 cartons of cigarettes, marijuana and contraband liquor had been found in the house. The agents also had found certain records in the form of invoices from a cigarette distributor in North Carolina indicating purchases of a large amount of cigarettes, together with handwritten notes showing the sale of cigarettes to a large number of individuals, Johnson observed that the cigarettes had North Carolina excise tax stamps, but no Florida tax stamps thereon. The Marsons were thereafter arrested and the cigarettes and other materials were seized and retained by the Beverage Agents. No return was made on the search warrant, however, due to the fact that the Department's copy of the warrant was inadvertently left in the Marson residence and was never recovered (testimony of Johnson). Agent Victor E. Sosa of the Department of Business Regulation was assigned to prepare an excise tax warrant on the cigarettes seized from the Marson residence. For this purpose, he used the case report prepared by Agent Miles Johnson. Thereafter, the report was forwarded to the Department of Revenue. It contained information to the effect that 24, 171 cartons of un- taxed cigarettes allegedly sold by the Petitioners were subject to State sales tax. Respondent's auditor thereafter issued a formal demand to the Marsons to produce records concerning cigarette transactions, but they did not produce any such records pursuant to the request. The auditor proceeded to prepare an estimated proposed assessment on the basis of the information provided by the Department of Business Regulation. Notice of proposed assessment of tax, penalties and interest under Chapter 212, Florida Statutes, in the total amount of $6,094.08 was issued to Petitioners on December 27, 1977 (Testimony of Sosa, Pooley, Tompkins, Respondent's Exhibits 1, 2).
Recommendation That the proposed assessment against Petitioners be withdrawn. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 1st day of June, 1979. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings Room 101, Collins Building 530 Carlton Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of June, 1979. COPIES FURNISHED: William D. Townsend, Esq. Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304 Richard A. Burt, Esq. 527 Ingraham Building Miami, Florida 33131
