The Issue The issue in this case is whether Petitioner is liable for intangible taxes, interest, and penalties, and, if so, how much.
Findings Of Fact Petitioner was incorporated in October, 1985. An S corporation, the original shareholders of Petitioner were Thomas Riden, who has practiced law in the Tampa Bay area for 25 years; Hal Lyons, who is experienced in the recreational business; Gus Stavros and Walter Loebenberg, who are established businessmen in the Tampa Bay area. The original business of Petitioner was boat-repairing. The first business location was the Pasadena property located in St. Petersburg. Petitioner derived its name from this property. The boat-repair business did not prosper. By December, 1985, Mr. Lyons wanted to sever his relationship with the company and did so at that time or shortly thereafter. This left the three other shareholders to run the business. Mr. Riden is a practicing attorney, who heads a 17-person law firm in Tampa. The other shareholders are prominent businessmen and investors, who were unavailable to handle the day-to-day responsibilities of the new company. In early 1986, the three remaining shareholders decided that they needed to hire someone with considerable experience in the boatyard business. They found a good general manager at another boatyard in the area. In negotiating with this individual, the shareholders decided that Petitioner needed to expand into boat sales in order to make the company prosper. Thus, on April 1, 1986, the shareholders caused Petitioner to acquire the assets of the other boatyard business, including the general manager with whom they had been negotiating. The results of the acquisition were that Petitioner now operated boatyards in Naples and Sarasota, as well as St. Petersburg, and sold boats from several prominent and predominantly expensive lines, such as Hatteras and Bertran. Some of these boats, such as the 77-foot Hatteras, retail for $4 million. Petitioner owned all of the boatyards except for the Sarasota location, which had been leased by the company which had sold its assets to Petitioner. Later in 1986, the land underlying the Sarasota boatyard was foreclosed, and Petitioner bought the assets of a nearby boatyard business in order to maintain a Sarasota presence. As hindsight later disclosed, Petitioner's dramatic business expansion was ill-timed, as 1986 was the last good year in the luxury boat market. The 1986 Tax Reform Act removed many tax advantages to owning or leasing luxury craft or boatyard businesses. Shortly thereafter, the crisis in the lending community associated with the savings and loan bail-out chilled lending, both as to prospective purchasers of luxury boats and of the boatyard business itself. Later, a special federal tax was imposed upon luxury boats of the type that Petitioner was marketing. And all of these events took place against a backdrop of declining real estate values, largely as a result of the some of the same reasons. For the reasons set forth in the preceding paragraph, Petitioner performed poorly. On gross receipts of $20.5 million in taxable year 1986, Petitioner showed a tax loss of $451,255. On gross receipts of $23.9 million in taxable year 1987, Petitioner showed a tax loss of $963,974. On gross receipts of $25.4 million in taxable year 1988, Petitioner showed a tax loss of $1.2 million. On gross receipts of $22.5 million in taxable year 1989, Petitioner showed a tax loss of $2.9 million. On gross receipts of $19.8 million in taxable year 1990, Petitioner showed a tax loss of $1.4 million. On gross receipts of $7.8 million in taxable year 1991, Petitioner showed a tax loss of $2.3 million. The financial statements similarly depict a financially stressed corporation. The balance sheet for the year ending December 31, 1986, shows a total shareholders' equity of ($103,344). For the year ending December 31, 1987, the balance sheet shows a total shareholder's equity of ($994,918). For the year ending December 31, 1988, the balance sheet shows a total shareholders' equity of ($1.7 million). For the year ending December 31, 1989, the balance sheet shows a total shareholders' equity of ($4.6 million). For the year ending December 31, 1990, the balance sheet shows a total shareholders' equity of ($7.1 million). None of the financial statements is audited because the corporation has not qualified as a going concern since its inception. The corporation has survived solely on the basis of the ongoing shareholder loans that it has received. The corporation ceases to exist as soon as the shareholders refuse to make more loans. Likewise, the shareholder debt, which is the intangible property that is the subject of the present proceeding, remains viable only as long as the shareholders are willing to continue to fund the corporation; in other words, the debt to the shareholders presently cannot be repaid from any source other than the shareholders. In starting Petitioner, as well as in acquiring the assets described above, the shareholders committed substantial sums of money to the company, either in the form of cash or, more frequently, personal guarantees so as to enable the new corporation to obtain bank loans for which it would not otherwise have been eligible. The practice of Petitioner and its shareholder was to treat the shareholder advances to the company as shareholder advances. These loans were undocumented and carried no interest. These loans are subordinated to all other debt of the corporation. As time passed, instead of obtaining repayment of their loans, the shareholders had to meet the constant demands of the business for more money. Although, in retrospect, it might have been prudent to cut losses early and sell the business assets for whatever they could get, the shareholders continued to fund the business. Their motivation in doing so varied. At first, they poured more money into the business in the hope that business would recover. Later, they continued to bail out the business in order to meet such basic obligations as inventory acquisition, payroll, and mortgage debt in the hope that, if they maintained the business until business and economic conditions improved sufficiently, they could at least cover outstanding debt with the sale proceeds. For varying reasons related to their backgrounds and standing in their respective communities, the bankruptcy of individuals is a particularly unappealing prospect. Given the extent of shareholder guarantees, the bankruptcy of the corporation would not assist the shareholders in addressing their financial situations. After an audit, Respondent proposed an assessment of intangible tax based on the value of the shareholder loans for taxable years 1986 through 1989. Valuing these loans at their face value, the assessed intangible taxes totaled for each of the four years, respectively, $301.01, $2869.75, $998.51, and $1175.98. The assessed penalties for each of the four years are, respectively, $120.40, $1247.90, $499.41, and $570.40. The assessed interest for each of the four years is, respectively, $137.56, $967.07, $216.33, and $113.67. The grand total is $9217.99. Petitioner has proved that the fair value of the shareholder debt was considerably less than the face value of the debt. The debts were subordinated to all other debt of Petitioner. The financial condition of Petitioner, as well as prevailing business and economic conditions, decreased the value of these debts well below their face value. Additional shareholder loans, which were made for business and personal reasons, were worth less than their face amount immediately after being made due to the above-described factors. On top of the rest of these factors, there is no market for shareholder loans to a closely held corporation, especially when the loans are undocumented and the corporation can most generously be described as ailing. However, the fair value of the shareholder loans bear some speculative value, which, given the decline in fortunes during the years in question, itself declines over the four years. The fair value of the shareholder loans pertaining to taxable year 1986 are 25 percent of the face value. The fair value of the shareholder loans pertaining to taxable years 1987-1989 are 10 percent of the face value. Therefore, the intangible tax and related interest should be correspondingly reduced by 75 percent for 1986 and 90 percent for the remaining three years. The failure to pay the portion of intangible taxes finally determined to be due was due to reasonable cause and not wilful negligence, wilful neglect, or fraud.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Revenue enter a final order determining that Petitioner owes intangible taxes and interest on the shareholder loans whose value has been reduced by 75 percent for 1986 and 10 percent for 1987-1989 and that Petitioner owes no penalties. ENTERED on April 13, 1993, in Tallahassee, Florida. ROBERT E. MEALE 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 on April 13, 1993. COPIES FURNISHED: Dr. James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Clifford Hunt Julie Kirk Riden, Earl & Kiefner, P.A. 100 2d Avenue South, Ste 400N St. Petersburg, FL 33701 Leonard F. Binder Assistant Attorney General Office of the Attorney General The Capitol, Tax Section Tallahassee, FL 32399-1050
Recommendation Based upon the foregoing, it is RECOMMENDED: That Vogue be obligated to pay the interest assessed on the corporation for failure to timely pay the corporate intangible property tax due for 1987 and 1988. That Vogue's penalty assessment be reduced by $200.00 as a compromise of assessment penalties due to the circumstances surrounding the corporation's late reporting. This reduction reflects the removal of the late reporting penalty by $100.00 for each year. That Vogue not be required to pay the $22.00 filing fee for the warrant that was filed by the Department, without statutory authority to do so, the Public Records of Collier County. Any other costs surrounding the warrant, including its removal from the public records, should not be borne by the Petitioner. DONE and ENTERED this 16th day of July, 1990, in Tallahassee, Leon County, Florida. VERONICA E. DONNELLY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of July, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-5744 The Respondent's proposed findings of fact are addressed as follows: Admitted. See HO #1 and #2. Rejected. See HO #3 and #4. Accepted. See HO #4. Rejected. Irrelevant in these proceedings. Copies furnished: William H. Kaverman, Qualified Representative 3115 Gulfshore Boulevard North Apartment #709 Naples, Florida 33940 Vern D. Calloway, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32399 Lealand L. McCharen, Esquire Assistant Attorney General Tax Section, Capitol Building Tallahassee, Florida 32399-1050 William D. Moore, Esquire General Counsel Department of Revenue 203 Carlton Building Tallahassee, Florida 32399 J. Thomas Herndon Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-1000
Findings Of Fact American Beryllium Company, Inc. is a subsidiary of Loral Corporation. On March 16, 1981, American Beryllium Company, Inc. filed a separate company form DR-601-C for Florida Intangible Tax Return reflecting a tax liability of 52,483.00 and paid this amount accordingly upon this date. The above form and check were processed by the Department of Revenue on April 9, 1981. On April 29, 1981, the Loral Corporation filed a separate company 1981 form DR-601-C reflecting a tax liability of $45.70 and paid this amount accordingly upon this date. The above form and check were processed by the Department of Revenue on May 4, 1981. On April 27, 1984, Loral Corporation and American Beryllium Company, Inc., filed a consolidated and amended 1981 form DR-601-C reflecting a tax liability of $35.07. Also, on April 27, 1984, Loral Corporation and American Beryllium Company, Inc., filed a 1981 form DR-26 refund claim exclusive of interest and penalties in the amount of $2,443.63, which is $85.07 less than the $2,528.70 total amount of taxes reported and paid in 1981. The above refund claim was received by the Department of Revenue on May 1, 1984. The Office of the Comptroller denied Petitioner's refund request in the amount of $2,443.63. The Office of the Comptroller authorized and paid a refund in the amount of $45.70 to the Loral Corporation which it paid as taxes owed on April 29, 1981. This leaves a remaining balance of $2,397.93 paid by American Beryllium Company, Inc. as tax it paid on March 16, 1981.
Findings Of Fact Allis-Chalmers Corporation (ACC), Petitioner in Case 82-2774, is a Delaware corporation commercially domiciled in West Allis, Wisconsin. ACC operates in Florida at the following locations: U.S. Highway 1 opened 2/1/77 Grant (Industrial Pump Division) 5200 Kennedy Blvd. closed 10/30/78 Tampa (Industrial Pump Division) 406 Rio Street opened 11/1/78 101 Federal Place opened 5/1/80 Tarpon Springs (Cement & Mining System Division) (The locations listed are those operating during the audit period. Other locations closed prior to or opened after the audit period.) ACC makes sales of tangible personal property to Florida customers directly from the locations at (b) and (c) and also makes sales to Florida customers from these two locations where the property is shipped from out-of-state locations to the Florida customers. ACC is a diversified company which manufactures and markets the following items: (a) agricultural equipment; (b) hydropower equipment; (c) coal gasification systems; (d) ore conveyors, crushers and screening equipment; (e) bulk material-handling equipment, such as ship self-unloaders; (f) stackers and reclaimers for steel mills; (g) compressors and pumps; (h) cement and asphaltic concrete production equipment (i) valves for units larger than household or commercial plumbing installations; (j) systems for the direct reduction of iron ore; (k) kilns and coolers; (l) lawn and garden equipment; and (m) lift trucks and industrial tractors. The amount in dispute is as stated in the Petition and is not an issue in these proceedings. The only issue is the method of computing the intangible taxes. ACC contends the tax base should be the net accounts receivable based on sales transacted in Florida divided by sales transacted everywhere else. The department contends the ratio should be Florida-destination sales divided by sales everywhere else. The issue is the "business situs" of the intangibles. Allis-Chalmers Credit Corporation (ACCC), Petitioner in Cases 82-2816 and 82-2817, is a Wisconsin corporation doing business in Florida. It is the wholly-owned subsidiary of ACC and its principal business is financing the sale or lease of equipment by ACC dealers. Case 82-2816 involves an income tax assessment against ACCC for the years 1977-1979. The item in dispute involves treatment given to "waiver interest" in arriving at the ratio by which federal income tax is multiplied to determine state income tax due. This issue applies to the denominator of that equation, hence the higher the figure the lower the tax. On occasion ACC, as a marketing tool, agrees to forego interest on either retail or wholesale financing for a period of perhaps six months. If these notes are assigned to ACCC, ACC must pay the waived interest to ACCC that its dealer or the dealer's customer would otherwise have paid. This is charged to ACC at the rate of one and one-half times the cost of funds to ACCC plus the actual cost of insurance. This rate is one percent to three percent per annum less than ACCC would charge the original debtors for the same period. The difference takes into account the elimination of bad debts and the simplified collection from one source instead of many. Therefore, as contended by ACCC, this "waiver interest" is thus already net of the "expenses of the recipient related thereto." The department contends that "waiver interest," and ACCC's explanation thereof, merely reflects the fact that a reduced rate of return "interest" is charged by ACCC with respect to the higher quality risk attendant to its relationship with its parent, ACC. As to ACCC's interest expense as a cost carrying the underlying receivables, the department contends that the ratio of ACCC's interest expense as applied is an appropriate adjustment as none is reflected elsewhere as a cost of carrying "waiver interest" generating receivables. As to the related bad debt expense, the department contends it merely applied the overall bad debt information ACCC used in determining its underlying federal taxable income and, that in its use of such data, the department did not find evidence wherein ACCC in its determination of its federal bad debt expense, distinguished between classes of risks which may be in its aggregate receivables, including the receivables giving rise to the "waiver interest." Thus, the department contends that directly related expense includes interest expense and bad debt expense. By the department's calculation, "waiver interest" as an item in the sales denominator has been reduced by 61 percent to 70 percent in various years to reflect these two categories of directly related expense as mandated by Section 214.71(3)(b) Florida Statutes, and Section 220.44, Florida Statutes. The issue is what constitutes directly related expense to inter-company income. There is no dispute on the numbers. Either the return numbers or the audit numbers on this item will prevail. Case 82-2817 involves an intangible tax assessment against ACCC for the years 1979-1981. During the audit period ACCC was represented in Florida by one employee whose duties were to call on ACC Florida dealers to persuade these dealers to use ACCC for financing sales they made, to keep these dealers supplied with necessary forms, and to give advice to these dealers if complicated or difficult financing situations arose. This representative worked out of the Atlanta office but lived in Florida, the state for which this representative was responsible. Buyers of ACC equipment with good credit ratings can generally obtain bank financing at better rates than are offered by ACCC. The dealer is not required to assign conditional sales contracts to ACCC (via ACC) but is encouraged to do so. The sales contracts for Florida buyers of equipment delivered to Florida are the intangibles upon which the tax here involved was based. When a dealer sells a piece of equipment on which the buyer wants financing by ACCC, the dealer has the retail customer fill out the purchaser's statement and execute three additional forms that are provided by ACCC. Under his franchise agreement with the parent corporation, the dealer is required to use appropriate precautions in conducting financing transactions, to warranty the truth and completeness of statements in the documents and their enforceability, and to repurchase the paper on demand in the event of default. The dealer forwards the executed documents to ACCC's Atlanta branch office for review and approval before any extension of credit to the customer. In Atlanta ACCC's branch manager, acting under a power of attorney from the parent corporation, accepts the document on behalf of the parent corporation, and tenders them to himself as agent for ACCC. If the paper meets the ACCC requirements as to form, terms, execution and credit-worthiness, as defined in the Master Credit Agreement between the parent corporation and ACCC, he then accepts the documents on behalf of ACCC. In some instances he conducts a supplemental credit inquiry by mail or telephone to assure ACCC's requirements are met. His acceptance of the documents for ACCC constitutes in effect the purchase and receipt of the obligation. The customer receives his financing, and the appropriate credits are transferred from ACCC to the parent corporation to the dealer's inventory account. The dealer receives an additional credit as an incentive to recommend ACCC's financing services to his customers. ACCC files the signed financing statement with the Florida Secretary of State to protect its security interest under U.C.C. Article 9, and pays the appropriate filing fee. ACCC also files continuation statements in the event the account is extended or refinanced beyond five years. The customer makes his installment payments reflecting the base price plus a time-price differential or finance charge by mailing the payments to ACCC's Atlanta lock box. ACCC furnishes him coupon books or reminder notices by mail. In the event a customer account becomes overdue, ACCC takes limited enforcement action by issuing dunning letters. ACCC, through its Florida Finance Representative, contacts the delinquent customer by telephone or in person, and arranges in appropriate cases for extensions or refinancing of the initial obligation, using printed forms with ACC's name prominently displayed thereon. In the event the customer defaults, ACCC has authority to repossess and resell the security, to sue on the note, or to amend, extend, renew or release the customer's obligations. In practice ACCC rarely, if ever, exercises these powers, but simply resells the paper to the parent corporation which takes the actions described above. The agreement between Allis-Chalmers and its dealers is that of buyer and seller and this agreement specifically provides the dealer is not an agent of Allis-Chalmers and is without authority to bind the company. In Case 82-2817 Petitioner contends that no tax is due because it is not transacting business within the state. The department contends that tax is due because the original contracts, which have been assigned once or twice depending upon whether they were wholesale or retail, have acquired a business situs in the state since they arose from, or are issued in connection with, the sale of tangible personalty in this state. In the event the department prevails, the parties have stipulated to the manner in which the modified tax shall be computed, for this case only. This stipulation is not material to the issues involved and is not replicated herein.
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
Findings Of Fact The Petitioner paid intangible personal property taxes in the amount of $2,706.26 on March 22, 1977 for the tax year of 1977. The said taxes were not due until June, 1997. The Petitioner filed an application with the Respondent, Office of the Comptroller, State of Florida, on May 5, 1980, requesting a refund of the taxes paid because of the subsequent discovery by the Petitioner that the monies had been paid by mistake or in error. The Respondent, Office of The Comptroller, served a Notice of Intent to Deny by U.S. Mail upon the Petition on November 12, 1980. Respondent's Notice of Intent to Deny Refund is based upon the three- year statute of non-claim, as provided in Section 199.252, Florida Statutes. The issues to be determined are whether the right to refund accrued to the Petitioner when the taxes were paid (March 22, 1977) or when the taxes were due (June 30, 1977).
The Issue Whether the Elizabeth Puhn Irrevocable Trust is entitled to a refund of intangible personal property taxes paid to the State of Florida for the tax years 1993, 1994, and 1995.
Findings Of Fact Pursuant to the affidavits submitted into evidence in this case and on the entire record of this proceeding, the following findings of fact are made: The Department of Revenue ("Department") is the state agency responsible for administering and enforcing the collection of the intangible personal property tax in Florida. Section 199.202, Florida Statutes (1997). Shy Lurie is a co-trustee of the Elizabeth Irene Puhn Irrevocable Trust dated December 16, 1981 (hereinafter the "Trust"). Nicholas M. Daniels was a co-trustee of the Trust for the 1993, 1994, and 1995 tax years. Shy Lurie was a resident of North Carolina for the tax years in question. Nicholas M. Daniels was a resident of Miami, Florida, for the tax years in question. Trustees and Domicile The settlor of the Trust is Elizabeth B. Lurie. The co-trustees of the Trust at the inception of the Trust were Shy Lurie and Nicholas M. Daniels. The settlor, the co-trustees, and the beneficiary, Elizabeth Irene Puhn, were all residents of Miami, Florida, at the inception of the Trust. Nicholas M. Daniels was and continues to be an attorney licensed to practice law in the State of Florida for the tax years in question and thereafter. On December 20, 1996, Mr. Daniels resigned as a co-trustee effective as of such date, and Mr. Michael Smith, a resident of North Carolina, was appointed as a co-trustee effective as of December 20, 1996. Terms of the Trust The Trust provides for the income to be accumulated until the beneficiary, Elizabeth Irene Puhn, attains the age of thirty and during that period the income may be disbursed to the beneficiary in the co-trustees' discretion for certain specified expenses of the beneficiary. After the beneficiary attains the age of thirty, she is entitled to all net income from the Trust. The Trust shall terminate when the beneficiary reaches the age of forty, at which time the Trust's assets will be distributed to Elizabeth Irene Puhn or, if she is then deceased, then pursuant to the alternate dispositive provisions set forth in the Trust. The beneficiary currently resides in Durham, North Carolina. The beneficiary has been a resident of Durham, North Carolina, for approximately five (5) years, which included the tax years in question. Article VI of the Trust instrument provides that the trustees are granted the power and authority to do any of the enumerated powers specified in the Trust in the trustee's unrestricted judgment and discretion which the trustees deem advisable for the better management and preservation of the trust estate. Books, Records, and Custody of Assets All Trust books and records for the tax years in question were located at and all business was transacted at Shy Lurie's office in North Carolina. For the tax years in question, neither the Trust assets nor the Trust's books and records were located in the State of Florida. On February 5, 1985, Shy Lurie and Nicholas M. Daniels entered into an investment management agreement with Montag & Caldwell, Inc., an Atlanta, Georgia, management company. Such agreement provided that supervision and management of the marketable securities portion of the trust estate is vested with Montag & Caldwell, Inc., and that the agreement may be terminated upon thirty (30) days notice by either party. The balance of the trust estate consists of stock in a closely held family business which has been under the sole control and custody of Shy Lurie for the taxable years in question. On January 17, 1985, Shy Lurie and Nicholas M. Daniels, as co-trustees, entered into a Custodial Agreement (hereinafter "Custodial Agreement") with the National Bank of Georgia (hereinafter the "Bank"), a national bank with its office and principal place of business in Atlanta, Georgia. In April 1986, the Custodial Agreement was taken over by NationsBank of Asheville, North Carolina. Such Custodial Agreement provides, in pertinent part, that the operation of the said account will involve instructions directed to or from time to time by Montag & Caldwell, Inc. The Custodial Agreement provides in paragraph 14, section 4, that the Bank is authorized to furnish the State of Georgia intangible tax section with a statement of the securities. The Custodial Agreement in paragraph 7 provides that where permissible all securities shall be registered in the name of the Bank's nominee and the custodian has the authority to make information returns and otherwise to furnish any information regarding this account to any local, state, or federal governmental authority upon the valid demand therefor. The Custodial Agreement cannot be assigned without the unanimous consent of the co-trustees and the investment advisor, Montag & Caldwell, Inc. Payment of Intangible Tax Shy Lurie, as a co-trustee, paid the State of Florida intangible tax in the amount of $12,457.00 for the 1993 tax year. Shy Lurie, as a co-trustee, paid the State of Florida intangible tax in the amount of $14,404.00 for the 1994 tax year. Shy Lurie, as a co-trustee, paid the State of Florida intangible tax in the amount $16,128.00 for the 1995 tax year. Shy Lurie, as a co-trustee, filed an Application for Refund from the State of Florida Department of Revenue (form DR-26) on or about February 29, 1996. On April 18, 1996, the Florida Department of Revenue responded with a Notice of Intent (form DR-1200R) indicating a proposed denial for all three claims. After additional information was submitted to the Department, the refund claims were granted in part and denied in part. On or about May 13, 1996, the Department notified Shy Lurie and the other co-trustee that a partial refund of fifty percent (50%) was granted for each tax year. Shy Lurie, through his attorney, on or about June 18, 1996, submitted a Memorandum of Law and additional documents to the Department. On or about July 19, 1996, after reviewing the Memorandum of Law and accompanying documents the Department issued a Notice of the Proposed Denial of Refund for the following tax years and for the following amounts: For tax year 1993 (DTA Number 9601056A and Source Number 96064010) in the amount of $6,228.50; For tax year 1994 (DTA Number 9601056B and source Number 96064011) in the amount of $7,202.00; and For tax year 1995 (DTA Number 9601056C and Source Number 96064012) in amount of $8,064.00. Shy Lurie, through his attorney, contested the denial of the refund and on or about August 5, 1996, Shy Lurie, through his attorney, filed a written protest with both the Bureau of Hearings and Appeals and the Bureau of Audit Standards. On December 16, 1996, Mr. Nicholas M. Daniels, attorney for the Trust, attended an informal conference with members of the Department, in an effort to settle this matter. The Department issued a Notice of Decision of Refund Denial for all three claims by a letter inadvertently dated January 7, 1996 (the year should have been 1997). Shy Lurie, through his attorney, filed a Petition for Formal Hearing pursuant to Chapter 120, Florida Statutes, on or about February 24, 1997.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order dismissing the Petition for Formal Hearing filed by the Petitioners in this case and denying all relief requested by the Petitioners therein. DONE AND ENTERED this 18th day of September, 1998, in Tallahassee, Leon County, Florida. PATRICIA HART MALONO 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 18th day of September, 1998.
Findings Of Fact Allstate Enterprises, Inc. is a Delaware corporation authorized to do business in Florida. Allstate Financial Corporation, ("Financial"), a wholly- owned subsidiary of Enterprises, is a Delaware corporation that is not qualified to do business in Florida. Financial was formed to provide funding for the financial service activities performed by Enterprises as hereinafter described. The principal offices of both corporations are located outside the State of Florida. Enterprises has two operating divisions, one of which is not involved in this case and the other one of which is in the business of lending money to individuals. The loans enable the borrowers to purchase automobiles and recreation vehicles from unrelated third parties. In exchange for cash, Enterprises receives from each borrower an installment note secured by a lien on the automobile or recreational vehicle which the borrower purchased with the borrowed cash. Respondent's standard form security agreement provides that the debtor shall not ". . . change the principal location of the property from [Florida]. . . without Allstate's written consent . . ." Enterprises sells the installment notes, on a discounted basis, to Financial pursuant to a written agreement. Debtors are not advised that their obligations have been sold, and they continue to make all of their payments directly to Enterprises. The sale from Enterprises to Financial of each takes place as soon as the loan is made to the individual and the note is obtained from him. Enterprises sells all of its rights and interests in all of the installment notes to Financial. The notes are sold to Financial without recourse, and Enterprises cannot use the sold notes as collateral since it retains no right, title, or interest in them. The sold notes are physically transferred to Financial and are maintained by Financial in the State of Delaware, where it maintains all of its financial records. All installment note files that are maintained by Enterprises are marked with the words "Sold to Allstate Financial Corporation." The activities performed by Enterprises for Financial are as authorized in an agreement between the parties, a copy of which was received into evidence as Exhibit No. 5. In this connection, Enterprises: (1) makes collections on the notes and remits proceeds from those collections to Financial; (2) keeps sufficient records to enable Financial to determine the status of outstanding notes; (3) repurchases notes from Financial in the event of default by the debtor, and conducts any repossession or foreclosure proceedings in its own behalf. The agreement between Enterprises and Financial specifically provides that, in performing its responsibilities under the contract, Enterprises is acting as the "agent" of Financial. At the time of sale of the installment notes, Financial remits to Enterprises 99.5 percent of the selling price and retains 0.5 percent as a reserve. The purpose of the reserve is to give Financial security for bad debts. Then, when Enterprises collects, on behalf of Financial, the payments due on the notes, Enterprises takes a credit for the 0.5 percent held in the reserve (to the extent not needed for bad debts), and remits to Financial the remaining 99.5 percent. Since Enterprises continually sells new installment notes to Financial and continuously makes collection on notes previously sold, for administrative convenience in the transfer of funds, the selling price of the due notes is netted against the collection of the open notes. However, the sale of the new notes is totally independent of the collections on the old notes. Enterprises is contractually obligated to remit all of the proceeds to Financial regardless of whether new notes are sold. Enterprises is not now, nor has it ever been, involved in the sale, leasing, or servicing of automobiles or recreational vehicles. Except for limited repossession activities, Enterprises does not now have, nor has it ever had, ownership or control of the vehicles which secured the notes. The Florida Department of Revenue has assessed Enterprises for Florida Intangible Tax for the years 1975, 1976, and 1977 in the amounts of $27,521.14, $23,016.94 and $24,103.78, respectively, plus interest and penalty. The assessments were based on the amount of the installment notes receivable for Florida residents as of December 30, 1975, 1976 and 1977, respectively. The amounts assessed were based upon figures furnished by Respondent, and the accuracy as to these assessments has not been questioned. It is clear, however, that these notes were all sold to Financial prior to the applicable dates for assessment of the tax.
Findings Of Fact FMCC is a corporation organized and existing under Delaware law. FMCC maintains its principal place of business in Dearborn, Michigan. FMCC is a wholly owned subsidiary of Ford Motor Company. FMCC qualified and is authorized to do business in the State of Florida pursuant to the foreign corporation provisions of Chapter 607, Florida Statutes, and has continuously maintained a registered office and agent in this state during the audit years at issue. During the tax years 1980-1982, inclusive, FMCC and Ford filed corporate tax returns in Florida and paid the taxes due thereon under the Florida Income Tax Code; FMCC maintained 7 to 8 branch offices and employed approximately 200 people in Florida; and Ford had contractual relationships with approximately 130 to 150 authorized Ford dealers in Florida. A copy of a representative agreement between Ford and the dealers is Exhibit 3 to this Stipulation. FMCC's principal business is financing the wholesale and retail sales of vehicles manufactured by Ford Motor Company. During the audit period FMCC provided financing for the purchase of vehicles as authorized by Ford dealers from Ford Motor Company. FMCC also: provided financing for the purchase of automobiles by the public from the dealers; and engaged in commercial, industrial and real estate financing, consumer loan financing, and leasing company financing in the State of Florida as well as other states. Attached as Composite Exhibit 4 are sample documents utilized by FMCC in the above financing. The majority of the intangibles in question are accounts receivables held by FMCC and owned by Florida debtors in connection with the purchase of tangible personal property shipped to or located in the State of Florida. FMCC is the holder of security agreements executed by thousands of Florida debtors. These security agreements gave FMCC a lien on tangible personal property located in the State of Florida. The Florida Secretary of State's Office was utilized by FMCC during the assessment period to perfect and protect its liens created under these security agreements with Florida debtors by the filing of U.C.C. financing statements. None of the original notes are stored in Florida. During the assessment period, FMCC utilized or could have utilized the Florida Courts to recover sums due by Florida debtors on delinquent accounts receivable. In addition, FMCC utilizes the Florida Department of Highway Safety and Motor Vehicles to perfect its liens on motor vehicles pursuant to Chapter 319, Florida Statutes. In 1983, the Department conducted an audit of the FMCC intangible tax returns for tax years 1980 through 1982, inclusive. On June 3, 1983, the Department proposed an assessment of tax, penalty and interest in the total amount of $2,560,379.00. See Exhibit 5. FMCC filed a timely protest. On October 8, 1984, the Department issued a Notice of Decision. See Exhibit 2. On December 12, 1984, the Department acknowledged receipt of FMCC's timely November 8, 1984 Petition for Reconsideration. On February 18, 1985, the Department issued a Notice of Reconsideration. See Exhibit 6. FMCC elected to file a Petition for Formal Proceedings, which was received on April 8, 1985. On the basis of the revised audit report, the Department of Revenue imposed the intangible tax on FMCC for the tax years 1980 through 1982, inclusive, in the following categories, and in the taxable amounts listed as follows: 1/1/80 1/1/81 1/1/82 Commercial Finance Receivables-- $342,892,615 $403,061,571 $486,412,164 Retail Commercial Finance Receivables-- 218,591,180 241,993,462 228,303,569 Wholesale Simple Interest Lease Receivables-- 66,345,902 75,978,095 71,315,777 Retail Lease Finance Receivables N/A N/A N/A Capital Loan Receivables 3,112,877 2,064,698 2,419,770 Consumer Loan Receivables 10,144,531 14,122,666 18,578,699 Service Equipment Financing--Dealer I.D. 481,869 368,186 422,108 Receivables Ford Rent-A-Car Receivables 27,825,283 26,179,377 20,362,896 Ford Parts & Service Receivables -0- 10,499,401 10,800,313 (10) Accounts Receivables--Customers & Others 3,452,194 4,581,629 4,952,234 (11) Accounts Receivables--Affiliate 1,617,880 2,914,094 4,438,849 (12) C.I.R. Receivables 23,243,257 27,387,938 24,222,621 TOTAL FLORIDA RECEIVABLES------ 697,707,588 809,151,117 872,229,000 TAX AT 1 MILL---- 697,708 809,151 872,229 LESS ORIGINAL TAX PAYMENT------ 312,703 351,976 339,142 LESS PETITION PAYMENT ON AGREED CATEGORIES------ 51,069 53,567 44,586 TOTAL REMAINING TAX ASSESSED------ $333,936 $403,608 $488,501 TOTAL TAX FOR ALL YEARS----- $1,226,045 REVISED ASSESSMENT FIGURES DOES NOT INCLUDE $1,386.18 OF THE PETITION PAYMENT At the time it filed its petition for a formal hearing, FMCC agreed to and paid the 1 mill tax, but no interest or penalty, on the following amounts. The taxability of these items is no longer in dispute, only penalty and interest. 1980 1981 1982 (8) Ford Rent-A-Car 27,825,283 26,179,377 20,362,896 Receivables (12) CIR 23,243,257 27,387,938 24,222,621 Receivables Capital Loan Receivables (item 5 of paragraph 11) reflect amounts of money owed by Ford dealers to FMCC. The obligation arises from loans made to Ford dealers located in Florida to expand showroom or other facilities and for working capital. The items located as (10) Accounts Receivable - Customers and Others and (11) Accounts Receivables - Affiliates in paragraph 11 reflect only the amount of accrued interest to which FMCC is entitled on notes from non-affiliates and affiliates, respectively, from the last settlement date prior to year end until the end of each respective year. The principal amounts owed on these notes, which are not secured by realty, are included in other categories. The Department does not assess a tax for similar interest when the amount owed is secured by realty. Wholesale and retail intangibles were created and handled in 1980, 1981 and 1982 by FMCC in the manner set forth in Exhibit 7. The Department of Revenue has imposed penalties in the amount of $543,968 composed of $330,051 as the 25% delinquent penalty imposed pursuant to Fla. Stat. Section 199.052(9)(a) (1983), and $15,886 as the 15% undervalued Property penalty imposed pursuant to Section 199.052(9)(d)(1983), Florida Statutes. The Department offered abatement of the 15% omission penalty ($198,031) imposed pursuant to Fla. Stat. Section 199.052(9)(c) (1983). The closing agreement required pursuant to Fla. Stat. Section 213.21 reflecting this reduction of penalty was not signed by petitioner. FMCC's intangible tax returns have been audited on prior occasions. The manner of reporting was identical to the manner in which FMCC reported its intangibles for tax years 1980 through 1982. The 1973-1975 and the 1976-1978 audits were "no change" audits. FMCC's method of reporting receivables generated from Florida sales was challenged by the Department of Revenue. The challenge was dropped because the Department of Revenue did not have the statutory authority to assess sales of tangible personal property with an f.o.b. point other than Florida. Chapter 77-43, Laws of Florida amended Section 199.112, Fla. Stat. to allow tangible personal property (sic) [to be taxed] regardless of the f.o.b. point of sale. This amendment applied to the January 1, 1978 taxable year. There was a 1978-1980 "no change" audit. Ford Motor Company has filed refund claims for certain categories for the tax year 1981 and 1982. Ford Motor Company claims that it inadvertently paid intangible tax on accounts receivable owned by FMCC. As presented in the Notice of Decision, no refund will be made as it will be handled as a credit against taxes due by Ford Motor Company. While not an announced policy, the Department of Revenue drafted and utilized proposed rules relating to compromising penalties. These rules are not final. Attached as Exhibit 8 are the proposed rules. A copy of these rules was provided to Petitioner by letter dated July 28, 1986. In addition, while not an announced policy the Department of Revenue utilized guidelines established by the Internal Revenue Service and federal court for compromising penalties.
Findings Of Fact The First Variable Rate Fund for Government Income, Inc., (hereinafter referred to as the Fund) is an open-end diversified investment company incorporated under Maryland law. The Fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management company. The Fund has an authorized capital of 2.5 billion shares of common stock with a par value of $.001 per share which may be issued in classes and are freely transferable. Each outstanding share is entitled to one vote on all matters submitted to a vote of stockholders and to a prorata share of dividends declared and of the Fund's net assets in liquidation. Shares of the Fund are issued and redeemed at their net asset value. It is the Fund's policy to maintain a constant net asset value of $1.00 per share. The net asset value is determined by subtracting liabilities from value of assets and dividing the remainder by the number of outstanding shares. The Fund's shares are sold to the public without a sales charge. The Fund is a money market fund. Its investment goals are high current income, preservation of capital and liquidity. In pursuing these goals, the Fund invests solely in debt obligations issued or guaranteed by the United States, its agencies or instrumentalities, assignments of interests in such obligations, and commitments to purchase such obligations ("U.S. Government- backed obligators"). The fund may invest in U.S. Government-backed obligations subject to repurchase agreements with recognized securities dealers and banks. Some of the U.S. Government-backed securities are supported by the full faith and credit of the U.S. Treasury; others are supported by the right of the issuer to borrow from the Treasury; still others are supported only by the credit of the instrumentality. The Portfolio of Investments of the Fund on December 31, 1982 contains the following types of investments: U.S. Treasury Bills; Student Loan Marketing Association; Certificates of Deposit; Certificates of Deposit Investment Pools with U.S. Government guarantee on the underlying certificates; Repurchase agreements collateralized by securities issued by or guaranteed by the U.S. Government; Variable rate loans guaranteed by agencies of the U.S. Government. The Portfolio of Investments of the Fund on December 31, 1981 contains the following types of investments: U.S. Treasury Bills; Federal Farm Credit Banks; Repurchase agreements substantially collateralized by securities issued or guaranteed by the U.S. Government; Certificate of Deposit Investment pools with U.S. Government guarantee on the underlying certificates; Variable rate loans guaranteed by agencies of the U.S. Government. Repurchase agreements are transactions in which a person purchases a security and simultaneously commits to resell that security to the seller at a mutually agreed upon time and price. The seller's obligation is secured by the underlying security. The resale price reflects the purchase price plus an agreed upon market rate of interest. While the underlying security may bear a maturity in excess of one year, the term of the repurchase agreement is always less than one year. In the event of the bankruptcy of a seller during the term of a repurchase agreement, a substantial legal question exists as to whether the Fund would be deemed the owners of the underlying security or would be deemed only to have a security interest in and lien upon such security. If the Fund's interest is deemed a security interest in and lien upon such security, the Fund may realize a loss or may be delayed in receiving the repurchase price due it pursuant to the agreement or in selling the underlying security. The Fund will only engage in repurchase agreements with recognized securities dealers and banks. In addition, the Fund will only engage in repurchase agreements reasonably designed to secure fully during the term of the agreement the seller's obligation to repurchase the underlying security and will monitor the market value of the underlying security during the term of the agreement. If the value of the underlying security declines, the Fund may require the seller to pledge additional securities or cash or secure the seller's obligations pursuant to the agreement. If the seller defaults on its obligation to repurchase and the value of the underlying security declines, the Fund may incur a loss and may incur expenses in selling the underlying security. Although all the securities purchased by the Fund are Government-backed as to principal or secured by such securities, some of the types of Government securities the Fund buys may be sold at a premium which is not backed by a Government guarantee. The premiums are amortized over the life of the security; however, if a security should default or be prepaid, the fund could realize as a loss the unamortized portion of such premium. Petitioners, R. W. and Joyce S. Aronson remitted $66.56 by check #235 dated April 10, 1982 in payment of Florida Intangible Tax for 1982. If it is determined that the Fund at issue herein is totally exempt from taxation, the aforesaid Petitioners are entitled to a refund in the amount of $3.96. Petitioner, Helen T. Aronson remitted $84.30 by check #138 dated February 28, 1983 in payment of Florida Intangible Tax for 1983. If it is determined that the Fund at issue herein is totally exempt from taxation, the aforesaid Petitioner is entitled to a refund in the amount of $16.73. The Department of Revenue computes intangible tax on shares of corporations on the basis of "just value" which for publicly held corporations, is market value. The Department of Revenue computed the value of the shares of the Fund on the basis of market value. A review of the Prospectus forwarded with the stipulation of facts discloses that in the Prospectus dated March 1, 1982 only $73,186,000 was invested in United States Government obligations of the total of $1,121,285,000 invested by the Fund; and that in Prospectus dated February 28, 1983, $199,387,000 was invested in United States Government obligations of the total of $1,125,500,000 invested by the Fund. Thus, approximately 6.5 percent in 1982 and 17.7 percent in 1983 of the value of the funds were invested in funds exempt from the Florida intangible tax. Six and one-half percent (6-1/2 %) of $3.96 is $0.26 and 17.7 percent of $16.73 is $2.96.
