Findings Of Fact On a date prior to November 2, 1971, petitioner exchanged property it then held for property it now holds. This transaction resulted in a capital gain for petitioner, although recognition of the gain has been deferred for federal tax purposes. For such purposes, petitioner's basis in the property it presently holds is deemed to be the same as its basis in the property it formerly held. On its own books, however, petitioner has stated its basis in the property it now holds as the market value of the property at the time it was acquired. This figure is higher than the figure used for federal tax purposes. Working from this higher figure, petitioner states larger depreciation allowances on its own books than it claims for federal tax purposes. On its 1973 Florida corporation income tax return, petitioner claimed these depreciation allowances instead of the smaller depreciation allowances it claimed on its federal income tax return for the same period.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent assess a deficiency against petitioner based on the income not stated in its 1973 return because of its unauthorized depreciation claim, together with interest and applicable penalties. DONE and ENTERED this 2nd day of February, 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: Joseph Philip Rouadi, C.P.A. 781 Wymore Road Maitland, Florida 32751 E. Wilson Crump, Esquire Post Office Box 5557 Tallahassee, Florida
Findings Of Fact At the time and place scheduled for final hearing, nobody appeared on behalf of petitioner and no evidence was adduced.
Recommendation It is, accordingly recommended that respondent dismiss petitioner's request for a formal administrative proceeding. RECOMMENDED this 19th day of November, 1991, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of November, 1991. COPIES FURNISHED: J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Vicki Weber, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Kevin J. O'Donnell, Esquire Department of Legal Affairs Tax Section, The Capitol Tallahassee, FL 32399-1050 Louise J. Allen, Esquire Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A. 150 W. Flagler Street, Suite 2200 Miami, FL 33130
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been licensed as a certified public accountant in the State of Florida, having been issued license number 0018740. Eileen and Robert Organ engaged Respondent's services to prepare income tax returns for Ma's Kitchen, Inc., and Respondent prepared several years of returns for them. In a letter dated March 19, 1999, the Organs advised Respondent that his services were no longer required. Thereafter, Respondent gave his file on Ma's Kitchen to his attorney to collect Respondent's outstanding bill for services rendered to the Organs in the amount of $6,000. On July 6, 1999, the Organs sent Respondent a letter stating that their new accountant needed the ledger books and files of Ma's Kitchen, that the Organs would pick up those records from Respondent, that Respondent's attorney had sent them letters, and that they would file a complaint against Respondent if they did not hear from Respondent. Respondent thereafter made unsuccessful attempts to contact the Organs. The Organs did not contact Respondent after their July 6 letter to make arrangements to pick up their file. Further, the Organs' new accountant did not contact Respondent to obtain copies of Respondent's records although he contacted someone in Respondent's attorney's office who told him he could come there to look at the file. The new accountant never went to Respondent's attorney's office to look at the records for Ma's Kitchen, Inc. Respondent had told his attorney to give the Organs any documents they asked for if they contacted him as long as they paid any copying charges. Respondent's attorney and the Organs' attorney wrote letters to each other, containing their interpretations of their clients' positions. Respondent's attorney took the position that all records provided by the Organs had been returned and that Respondent's work product was not needed by the Organ's new accountant but would be released when Respondent's bill was paid. The Organs' attorney demanded that Respondent return all records in his possession and suggested that Respondent owed money to his clients. The Organs had provided to Respondent check stubs, bank statements, payroll tax returns, and other financial information to be used to prepare tax returns for them. Using those documents, Respondent had entered the data in his computer and had created a computer-generated general ledger. He had returned to the Organs all records they gave him long before they terminated his services, and their attorney's demand that he return records already returned was non-productive. The demand of the Organs' attorney that Respondent return all corporate books and records was also non-productive. Respondent had never possessed Ma's Kitchens' articles of incorporation, corporate seal, by-laws, or minutes of meetings, those items commonly referred to as corporate books and records.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding Respondent not guilty and dismissing the Administrative Complaint filed against him in this cause. DONE AND ENTERED this 1st day of November, 2001, in Tallahassee, Leon County, Florida. LINDA M. RIGOT 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 1st day of November, 2001. COPIES FURNISHED: Charles F. Tunnicliff, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-2202 Samuel Francis May, Jr. 20283 State Road 7, Suite 300 Boca Raton, Florida 33498 Martha Willis, Division Director Division of Public Accounting Department of Business and Professional Regulation 240 Northwest 76 Drive, Suite A Gainesville, Florida 32607 Hardy L. Roberts, III, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-2202
The Issue The issue for determination is whether DOAH has jurisdiction to entertain an agency's motion for attorney's fees brought pursuant to section 185.05(5), Florida Statutes, where the motion was filed with DOAH approximately two and one-half years after the agency's entry of a final order in the administrative proceeding for which the agency seeks an award of attorney's fees and costs.
Findings Of Fact At all times pertinent to the matters in issue here, Bellot Realty operated a real estate sales office in Inverness, Florida. The Department of Transportation was the state agency responsible for the operation of the state's relocation assistance payment program relating to business moves caused by road building operations of the Department or subordinate entities. Frank M. Bellot operated his real estate sales office and mortgage brokerage, under the name Bellot Realty, at property located at 209 W. Main Street in Inverness, Florida since July, 1979. He operated a barber shop in the same place from 1962 to 1979. He moved out in October, 1991 because of road construction and modification activities started by the Department in 1989. The office was located in a strip mall and the other tenants of the mall were moving out all through 1990. Mr. Bellot remained as long as he did because when the Department first indicated it would be working in the area, its representatives stated they would be taking only the back portion of the building. This would have let Mr. Bellot remain. As time went on, however, the Department took the whole building, including his leasehold, which forced him out. He received a compensation award from the Department but nothing from any other entity. Though the instant project is not a Federal Aid Project, the provisions of Section 24.306e, U.S.C. applies. That statute defined average annual net earnings as 1/2 of net earnings before federal, state and local income taxes during the two taxable years immediately prior to displacement. During 1988, Mr. Bellot's staff consisted of himself and between 3 and 5 other agents from whom he earned income just as had been the case for several prior years. In 1988 his Federal Corporate Income Tax return reflected gross income of $120,843.00 and his profit was reflected as $27,377.25. The Schedule C attached to his personal Form 1040 for that year reflected gross sales of $25,078.00 with deductions of $5,250.00 for a net income of $19,828.00. Two of his agents foresaw the downturn in business as a result of the road change and left his employ during 1989. A third got sick and her working ability, with its resultant income, was radically reduced. This agent was his biggest producer. For 1989, Petitioner's tax return reflected the company's gross receipts were down to $50,935.75 and his operating loss was $5,700.03. However, the Schedule C for the 1989 Form 1040 reflected gross revenue of $21,450 with a net profit of $14,503. In 1990, the Schedule C for the Form 1040 reflected gross receipts of $5,565.00 which, after deduction of expenses, resulted in a net profit of $1,665.00 for the year. The corporate return reflects gross receipts of $23,965.96 and a net income figure from operations of $1,282.21. Mr. Bellot contends that neither 1989 or 1990 were typical business years as far as earnings go. Aside from a loss of activity and a general decline in business in Inverness, his parents, who were always in the office due to a terminal illness, caused him lost work time as he was very busy with them. He was also involved in a move and in refurbishing a house. In 1990, Mr. Bellot decided he could no longer stay in his office location due to the fact that the Department decided to take his whole building. Even if the taking had been of only one-half the building, however, it still would have put him out of business because it would have taken his parking area. At that time, the Department was rushing Mr. Bellot to vacate the premises. He was in difficult financial straits, however, and it would not have been possible for him to move but for the Department's compensation payments. As it was, he claims, the compensation was after the fact, and he had to borrow $30,000.00 in his mother's name in order to rehabilitate the building he moved into. Instead of utilizing income figures from years in which business activity was normal, the Department chose to use the income figures from 1989 and 1990, both of which were, he claims, for one reason or another, extraordinary. In doing so, since the income in those years was much lower than normal, the compensation he received was also much lower, he claims, than it should have been. He received $8,725.50. Had the 1988 and 1989 years income been used, the payment would have been $20,000.00, the maximum. He also claims the Department used the incorrect operating expense figures concerning travel expense. The Schedule C reflects a higher deduction for automobile expense for both years, arrived at by the application of a standard mileage expense approved by the Internal Revenue Service. In actuality, the expense was considerably less and, if the real figures had been used, his income would have been increased substantially for both years. Mr. Bellot's appeal was reviewed by Ms. Long, the Department's administrator for relocation assistance who followed the provisions of departmental manual 575-040-003-c which, at paragraph (IV) on page 33 of 35, requires the displacee to furnish proof of income by tax returns or other acceptable evidence. At subparagraph (e) on page 31 of 35 of the manual, the requirement exists for the displaced business to "contribute materially" to the income of the displace person for the "two taxable years prior to the displacement." If those two years are not representative, the Department may approve an alternate two year period if "the proposed construction has already caused an outflow of residents, resulting in a decline of net income. " To grant an alternative period, then, the Department must insure that the loss of income is due to the Department's construction and not to other considerations. Here, the Department's District Administrator took the position it was not it's actions which caused the Petitioner's loss of income. Ms. Long took the same position. The Department's District 5 initially notified the people of Inverness of the proposed project somewhere around 1988. The project was to straighten Main Street out through downtown Inverness for approximately 2 miles. There is no evidence as to when the first affected party moved and Ms. Long does not know whether or not the project had an adverse effect on business in downtown Inverness. Petitioner's evidence does not show that it did.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Petitioner's appeal of the Department's decision to refuse to use alternate tax years or actual mileage deduction in its calculation of a relocation assistance payment be denied. RECOMMENDED this 29th day of December, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK 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 29th day of December, 1992. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: Accepted. & 3. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and, in part, incorporated herein. Rejected as not proven by competent, non-hearsay, evidence. Accepted. Not proven. Merely a statement of Petitioner's position. Accepted that Petitioner's business income dropped. It cannot be said that the road project's were the primary cause of the decline in Petitioner's business. There is no independent evidence of this. Accepted and incorporated herein. First sentence accepted. Balance not based on independent evidence of record. Not a proper Finding of Fact but a comment on the evidence. First sentence accepted. Second sentence rejected. Accepted and incorporated herein. Not a Finding of Fact but a restatement of and attempted justification of Petitioner's position. Accepted and incorporated herein. Rejected as argument and not Finding of Fact. Not a Finding of Fact but a recapitulation of the evidence. FOR THE RESPONDENT: Accepted. & 3. Accepted. - 6. Accepted and incorporated herein. Accepted and incorporated herein. Accepted. & 10. Accepted. 11. & 12. Accepted. 13. Accepted. COPIES FURNISHED: Charles G. Gardner, Esquire Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0458 James R. Clodfelter Acquisitions Consultant Enterprises, Inc. P.O. Box 1199 Deerfield Beach, Florida 33443 Ben G. Watts Secretary Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0458 Thornton Jpp. Williams General Counsel Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0458
The Issue The issue in this case is whether Petitioner performed nontaxable services as a decorating contractor, as he maintains, or, rather, whether he leased tangible personal property and thereby incurred sales tax liability, as Respondent alleges.
Findings Of Fact The Parties At all relevant times, Petitioner Philip E. Hancock ("Hancock") was a sole proprietor doing business in and around Fort Lauderdale, Florida, under the names "Action Plant Rental" and "Action Plants." Respondent Department of Revenue ("Department"), an agency of the State of Florida, is authorized to administer the state's tax laws. An Overview of Hancock's Businesses In 1980, Hancock and his then-wife purchased a nursery and, as proprietors, started a business called "Landscape Concepts." Initially, the couple's business activities involved landscaping and (b) sales of plants and nursery stock at wholesale (mostly) and retail. Sometime in 1983, Landscape Concepts began "renting" plants and trees for special events, such as weddings, banquets, and charity fundraisers.2 In time, this plant rental business eclipsed the original landscaping and sales operations, and by the late 1980's the ascendant enterprise was dubbed "Action Plant Rental."3 In 1990, having established Action Plant Rental, the Hancocks sold their nursery, whereupon Landscape Concepts stopped selling plants on a regular basis. The landscaping business, in contrast, tapered off gradually, continuing for several more years until being discontinued completely at the end of 1993. As of January 1994, plant rental was Petitioner's sole vocation. A Closer Look At the Plant Rental Business The evidence concerning the details of how Hancock's plant rental business operated during the audit period is relatively sparse, consisting of little, if anything, other than Hancock's testimony, which is generally credible as far as it goes, but not comprehensive. Hancock's clients, for the most part, were not the individuals who hosted or sponsored the events for which Action Plant Rental supplied "green décor" (to use Hancock's phrase), but rather were the event planners, designers, florists, and hotels (which frequently acted as planners in connection with events held on their premises) who had been hired by the hosts or sponsors to make their events happen. Thus, Hancock usually did not deal directly with, for example, the bride, but with the bride's wedding planner. In effect, he was a subcontractor. Hancock did not enter into written contracts with his clients. When a client retained Hancock, the client informed Hancock when and where the event would be held, and told Hancock (or asked him for an opinion about) which plants would be appropriate. The evidence is ambiguous as to the degree of Hancock's input and discretion in selecting the particular plants to bring to a given event. While the undersigned is persuaded that Hancock had some involvement in choosing the plants at least some of the time, it cannot be found that this service, to the extent provided, added substantial value to the transaction——or was one for which clients specifically and knowingly paid. When the time came for Hancock to perform the agreement, he delivered the plants and trees to the site and, at a time before the event was to begin, set them up in the hall or ballroom. Setting up the plants to create a pleasing and appropriate environment no doubt required decorating skill. It is undisputed, moreover, that Hancock commonly added decorating touches, such as lights and decorative containers, to his plants and trees, which made the display more attractive. What is less clear, however, is whether clients purchased Hancock's decorating expertise——or if, instead, Hancock executed the commands of someone else who decided how to arrange and present the plants. On this point, as others, it might have been helpful to hear from some clients. As it is, Hancock's own testimony is somewhat ambiguous. While the question is extremely close, the undersigned is persuaded, on the evidence presented, that Hancock usually operated under the direction of his client and had relatively little control over the design and arrangement of his plants and trees at the event site. Thus, the undersigned is unable to find that Hancock's decorating services provided the ultimate value to Hancock's clients. Once the plants were set in place and Hancock was assured that the arrangement satisfied his client, Hancock left the event site. (This meant, of course, that someone——the client, the host, or even a guest——could have moved the plants around.4 The Department contends that Hancock's absence from the premises demonstrates decisively that possession and control of the plants was surrendered to his client. The undersigned has given this fact some weight, but not a great deal. For one thing, there is no persuasive evidence that the client typically remained on-site with the plants. Further, since the plants were generally set up in a "public" place (as opposed to a personal space such as an office) over which neither the client, nor the host, nor the guests had exclusive control,5 the undersigned is not persuaded that the client or others attending the event had possession and control of the plants in any meaningful sense. Indeed, under the Department's theory, the plants apparently would have been in the constructive possession, at least, of everyone present at the party——a conclusion that runs counter to common sense and ordinary experience. The opportunity to move a plant is not, in the undersigned’s mind, equivalent to having a possessory right or power over the plant.) When the event was over, Hancock returned to the site to retrieve and remove his plants. Later, Hancock sent the client an invoice for his "services." As far as the evidence shows, Hancock did not bill his clients separately for delivery, set up, removal, or design, but rather he charged a lump sum for the plants, which price included these associated services as part of the total package. Petitioner's History As a Sales Tax-Paying Dealer From at least 1985, and continuing through the middle of 1994, Landscape Concepts, as a registered dealer having identification number 16-03-109301-76, collected and remitted sales taxes on the revenues generated through retail plant sales and plant rentals, filing monthly sales tax returns as legally required.6 If a client gave Petitioner a resale certificate, however, Petitioner did not collect sales tax from that client. Because most of Petitioner's plant rental customers were other businesses (e.g. event planners, florists, and hotels) that provided resale certificates to Petitioner, a relatively small percentage of these transactions were taxed. In mid-1994, while in one of the Department's regional offices attending to some since forgotten sales tax-related matter, Hancock was shown Rule 12A-1.071 of the Florida Administrative Code. This Rule then contained the following provision: (35)(a) A decorating contractor who uses materials and supplies such as bunting, streamers, colored paper, wreaths, pennants, lights, rope, etc., in fulfilling a contract which requires the furnishing of arrangements and decorations to, and their subsequent removal from, hotels, offices, public buildings, etc., is the consumer of such materials and supplies and shall pay tax on their acquisition. The contractor's charge under such contract is a service charge and is exempt. Fla. Admin. Code R. 12A-1.071(35)(a).7 Hancock concluded that he was entitled to the benefit of the foregoing "decorator's exemption." Hancock asked a local employee of the Department whether he could claim the exemption, and she advised him to write a letter to the Department's main office in Tallahassee. Hancock sent the Department a letter announcing his intent to stop filing monthly sales tax returns. Enclosed with this letter was Hancock's sales tax certificate, which Hancock purported to "relinquish." The Department did not respond to Hancock's letter. Hancock did not file another sales tax return.8 The Audit and Protest In January 2001, the Department commenced a sales and use tax audit of Hancock's plant rental business, initially concentrating on the five-year period from December 1, 1995 through November 30, 2000. The Department later enlarged the audit period to span 16 years, reaching all the way back to June 1, 1985, and continuing through June 30, 2001. This expansion was based on the Department's belief that Hancock had never filed any sales tax returns respecting his business——a belief that, as found above, would prove to be incorrect. After concluding that Hancock's tax records were "adequate but voluminous," the Department used a sampling method to calculate the amount of tax allegedly owed.9 To determine the total amount of revenue subject to sales tax, the Department used as a starting point the gross receipts figures as reported on Hancock's federal income tax returns for the years 1995 through 2000, inclusive.10 From these figures, the Department calculated the average monthly receipts for each of the six years in question (by dividing 12 into each respective year's gross sales revenue). It also computed an average annual gross sales figure (by dividing 6 into the sum of the known annual gross receipts), along with an average average-monthly sales amount (by dividing 6 into the sum of the average monthly receipts). Year Here are the relevant Gross Sales numbers: Avg. Monthly Sales 1995 $ 99,045 $ 8,253.75 1996 $113,973 $ 9,497.75 1997 $171,721 $14,310.08 1998 $169,961 $14,163.42 1999 $126,306 $10,525.50 2000 $154,253 $12,854.42 Average Annual Gross Sales: $139,210.00 Average Average-Monthly Sales: $ 11,600.82 The Department apparently acquired more specific information regarding monthly receipts for the 11-month period from January through November 2000. During this period, Hancock's gross receipts totaled $113,661.00.11 The Department determined, based on these figures, that the total tax due for this particular period was $6,861.41. Dividing 113,661 into 6,861.41, the Department derived a "percentage of error" of .060367. This "percentage of error" was effectively the tax rate because, as we have seen, the Department believed that Hancock had paid no taxes whatsoever. The "percentage of error" slightly exceeded 6 percent (the present state sales tax rate) due to the inclusion of some county taxes.12 The Department computed the total sales tax allegedly due and owing as follows. To determine the tax due per month for the 121 months comprising the periods from (a) June 1985 through December 1994 and (b) January through June 2001, for which there were no "known-sales" numbers, the Department applied the "percentage of error" (=tax rate) against the average average-monthly sales figure of $11,600.82. To determine the tax due per month for the years 1995 through 2000, the Department applied the "percentage of error" against each respective year's average monthly sales figure. The sum of these monthly figures equaled the total alleged tax liability. Here are the numbers: Period Average Monthly Sales Tax Rate Tax Due Per Month Tax Due For Period Jun 1985 — Dec 1994 (115 months) 11,600.82 0.060367 700.31 80,535.65 Jan (12 — Dec 1995 months) 8,253.75 0.060367 498.25 5,979.00 Jan (12 — Dec 1996 months) 9,497.7613 0.060367 573.35 6,880.20 Jan (12 — Dec 1997 months) 14,310.08 0.060367 863.86 10,366.32 Jan (12 — Dec 1998 months) 14,163.42 0.060367 855.00 10,260.00 Jan (12 — Dec 1999 months) 10,525.50 0.060367 635.39 7,624.68 Jan (12 — Dec 2000 months) 12,854.4314 0.060367 775.98 9,311.76 Jan — Jun 2001 (6 months) $11,600.82 0.060367 700.31 4,201.86 135,159.47 In sum, the Department found that Hancock was liable for $134,337.17 in state sales taxes and $822.30 in County Taxes, see endnote 12, which amounts, when added together, equaled $135,159.47. Additionally, the Department found that Hancock owed small amounts of state use taxes in connection with several fixed assets. This aspect of the case received little attention, if any, at final hearing and accordingly will not be examined in great detail here. The following table summarizes the amounts that the Department claims are due and owing: Asset Transaction Date Tax Due Computer September 1995 229.12 Office refrigerator April 1997 24.00 Computer October 1998 72.00 Office Furniture December 1998 21.62 Printer May 1999 24.66 371.40 In January 2002, the Department notified Hancock that it intended to collect the alleged tax deficiencies just described, in the total principal amount of $135,530.87. In addition, the Department claimed $135,666.86 in interest through January 2, 2002, together with a total of $52,359.05 in penalties, making a grand total of $323,556.78. Hancock disputed the assessments and timely requested a formal administrative hearing. Ultimate Factual Determinations The factual question whether Hancock performed nontaxable services as a decorating contractor, as he maintains, or leased tangible personal property and thereby incurred sales tax liability, as the Department contends, is very close, at least based on the evidence presented. On a better record it might have been possible to answer this question with greater confidence——and, indeed, to obtain a different result. On this relatively limited record, however, the undersigned finds that the weight of the evidence tips ever so slightly in the Department's favor, primarily because it appears more likely than not that Hancock's clients were given a meaningful right to direct the use of the material personal property involved, namely the live plants and trees. Thus, while reasonable minds could differ, the undersigned finds that Hancock was engaging in the taxable business activity of leasing personal property. The evidence does not establish, however, and hence the undersigned does not find, that Hancock filed a grossly false or substantially incorrect return or made a substantial underpayment of tax. Likewise, Hancock did not file any fraudulent returns. Rather, Hancock properly filed returns through mid-1994, paying all of the sales and use taxes then due and owing. What Hancock failed to do was make all required tax payments after May 1994——a significant default, to be sure, but one that leaves him less liable, in fact, for back-taxes than the Department has contended. Hancock's decision to stop collecting and remitting sales taxes, moreover, was based not upon an intent to defraud but upon an honest, if mistaken, belief that the business of Action Plant Rental fell within the "decorator's exemption."15 Apart from any question of liability, the Department's assessment of the amount of state sales taxes and County Taxes allegedly due and owing for the period from June 1985 through December 1993 is clearly erroneous, for at least three reasons. First, the state sales tax was not six percent during that entire period, yet the Department has computed Hancock's alleged tax liability as if it were.16 Second, the Department did not make any adjustments to account for the time-value of money when it projected sales figures from 1995-2000 back as many as 15 years. It is commonly known, however, that dollars earned in the year 2000, for example, had less purchasing power than, say, 1985 dollars; thus, sales figures from 2000 must be discounted if a fair and reasonable comparison to 1985 is to be made. The Department's failure to reduce recent earnings to the then- present value of income derived from plant rentals in the earlier years of the audit period is tantamount to charging interest——which, of course, the Department has also assessed, separately. Finally, the Department's calculation assumed, incorrectly, that (a) Hancock's business had not changed during the entire 16-year audit period and (b) Hancock had never paid any sales taxes. In fact, until the end of 1993, Hancock derived income not only from his plant rental business but also from landscaping and plant sales; not only that, he paid sales taxes on the receipts from these activities, through May 1994. In sum, then, even if Hancock were liable for the taxes that allegedly accrued before 1994, the Department's figures for that period of the audit are simply too unreliable to be credited. Period Average Monthly Sales Tax Rate Tax Due Per Month Tax Due For Period Jun 1994 — Dec 1994 (7 months) 11,600.82 0.060367 700.31 4,902.17 Jan — Dec 1995 (12 months) 8,253.75 0.060367 498.25 5,979.00 Jan — Dec 1996 (12 months) 9,497.7617 0.060367 573.35 6,880.20 Jan — Dec 1997 (12 months) 14,310.08 0.060367 863.86 10,366.32 Jan — Dec 1998 (12 months) 14,163.42 0.060367 855.00 10,260.00 Jan — Dec 1999 (12 months) 10,525.50 0.060367 635.39 7,624.68 Jan — Dec 2000 (12 months) 12,854.4318 0.060367 775.98 9,311.76 Jan — Jun 2001 (6 months) $11,600.82 0.060367 700.31 4,201.86 59,525.99 It is found, therefore, that Hancock owes state sales taxes and County Taxes in the following sums: Additionally Hancock must pay use taxes amounting to $371.40, bringing to $59,897.39 the total principal amount of taxes proved to be due.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order directing Hancock to pay state sales taxes and County Taxes in the total amount of $59,525.99, plus state use taxes in the amount of $371.40, bringing to $59,897.39 the principal sum of back-taxes due and owing. In addition, Hancock should be ordered to pay interest and penalties on the unpaid taxes, in amounts to be determined by the Department in accordance with the methodologies reflected in the audit work papers that are included in the evidentiary record of this case. DONE AND ENTERED this 7th day of January, 2004, 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 7th day of January, 2004.
The Issue The issue in this case is whether the Petitioner owes State of Florida use tax and local government infrastructure tax on the alleged use of three airplanes.
Findings Of Fact Charles and Dorothy Tolbert own and operate American Aircraft International, Inc. (American). American is in the business primarily of selling and brokering aircraft sales. Most of American's business involves brokering in which American earns a commission or fee for putting together a seller and buyer and bringing the transaction to a conclusion. On a much less frequent basis, American will purchase an airplane for resale. American advertises the availability of its airplanes, both brokered and American-owned, for either sale or lease. However, American has not had occasion to lease one of its own aircraft except as part of a lease-purchase agreement. American does not make any other use of airplanes it offers for sale or lease, except as necessary for maintenance and repairs and for demonstration to prospective purchasers or lessees. Such use would be cost-prohibitive. Fuel, crew, and insurance costs would be well in excess of the cost of a ticket on a commercial airline. American's insurance policy only covers the use of the planes for demonstration and maintenance purposes. On February 6, 1990, American traded for a King Air 200, N56GR, serial number 059, at an acquisition value of $650,000. The King Air 200 was delivered to American from Carlisle, Kentucky, and held by American for resale purposes only and was flown only for purposes of maintenance and repairs and for demonstration to prospective purchasers. When it was sold in 1991 to an English company, BC Aviation, Ltd., American had flown the aircraft only 7 hours. The aircraft was delivered out-of- state in May 1991. In July 1991, American bought a kit for a home-built aircraft called the Renegade, serial number 445. The kit was manufactured and sold by a company in British Columbia, Canada. American's intent in purchasing the kit was to build the airplane and decide whether to become a dealer. It took a year and a half to build, and by the time it was completed, American decided not to pursue the dealership. In September of 1991, American sold the Renegage to the Tolberts. The Tolberts registered the Renegade in September 1994, under N493CT. At first, the Tolberts did not pay sales tax on their purchase of the Renegade. They thought that, since they owned American, no sales tax was due. When the Department audited American and pointed out that sales tax was due, the Tolberts paid the tax in December 1994. In 1991, American also purchased a King Air B90, N988SL, serial number LJ438, for $175,000. The King Air B90 was held by American for resale purposes only and was flown only for purposes of maintenance and repairs and for demonstration to prospective purchasers. In July 1991, American sold the aircraft to Deal Aviation of Chicago, Illinois. However, Deal could not qualify for its own financing, so American agreed to lease-sell the aircraft to Deal. Under the lease-purchase agreement entered into on July 21, 1991, the purchase price was $269,000, payable $4,747.85 a month until paid in full. (The agreement actually said payments would be made for 84 months, but that would amount to total payments well in excess of the purchase price; the evidence did not explain this discrepancy.) American continued to hold title to the aircraft and continued to make payments due to the bank on American's financing for the aircraft. The lease- purchase agreement must have been modified, or payments accelerated, because American transferred title to the aircraft in April 1993. The Department asserted that a Dolphin Aviation ramp rental invoice on the King Air B90 issued in August for the month of September 1991 reflected that the aircraft was parked at the Sarasota-Bradenton Airport at the time of the invoice, which would have been inconsistent with American's testimony and evidence. But the invoice contained the handwritten notation of Dorothy Tolbert that the airplane was "gone," and her testimony was uncontradicted that she telephoned Dolphin when she got the invoice and to inform Dolphin that the invoice was in error since the plane had not been at the ramp since Deal removed it to Illinois on July 21, 1991. As a result, no ramp rent was paid after July 1991. Indeed, the Department's own audit schedules reflect that no ramp rent was paid on the King Air B90 after July 1991. The Department also presented an invoice dated September 16, 1991, in the amount of $3400 for engine repairs done on the King Air B90 by Hangar One Aviation in Tampa, Florida. The invoice reflects that the repairs were done for American and that they were paid in full on September 19, 1991, including Florida sales tax. The Department contended that the invoice was inconsistent with American's testimony and evidence. But although American paid for these repairs, together with Florida sales tax, Mrs. Tolbert explained that the repairs were made under warranty after the lease-purchase of the airplane by Deal. A minor engine problem arose soon after Deal removed the airplane to Illinois. Deal agreed to fly the plane to Hangar One for the repairs, and American agreed to pay for the repairs. After the repairs were made, Hangar One telephoned Mrs. Tolbert with the total, and she gave Hangar One American's credit card number in payment. She did not receive American's copy of the invoice until later. She does not recall if she: noticed the Florida sales tax and did not think to question it; noticed it and decided it was not enough money ($179) to be worth disputing; or just did not notice the Florida sales tax. When American's certified public accountant (CPA), Allan Shaw, prepared American's federal income tax return for 1990, he included the King Air 200 as a fixed capital asset on the company's book depreciation schedule and booked $26,146 of depreciation on the aircraft for 1990 on a cost basis of $650,000. For federal tax purposes, he took the maximum allowable depreciation deduction on the aircraft ($92,857) by attributing a seven-year life to the aircraft and using the double declining balance method of calculating depreciation. The next year, 1991, Shaw included the both the King Air B90 and the Renegade as fixed capital assets on the company's book depreciation schedule. He booked $9,378 of depreciation on the B90 on a cost basis of $175,000 and $1,872 on the Renegade on a cost basis of $25,922 for part of the year 1991. For federal tax purposes, he took the maximum allowable depreciation deduction on the B90 ($12,507) by attributing a seven-year life to the aircraft and using the double declining balance method of calculating depreciation. This depreciation was subtracted from the "gross income from other rental activities" on Schedule K of the return in the amount of $22,796, which represented the payments from Deal under the lease-purchase agreement. The Renegade was depreciated for the same amount as its book depreciation, and no income was recorded as having been generated from use of the Renegade. The next year, 1992, Shaw again included the both the King Air B90 and the Renegade as fixed capital assets on the company's book depreciation schedule. He booked $35,613 of depreciation on the B90 and $5,555 on the Renegade. For federal tax purposes, he took the maximum allowable depreciation deduction on the B90 ($25,014) by attributing a seven-year life to the aircraft and using the double declining balance method of calculating depreciation. This depreciation was subtracted from the "gross income from other rental activities" on Schedule K of the return in the amount of $51,737, which again represented the payments from Deal under the lease-purchase agreement. The Renegade was depreciated for the same amount as its book depreciation, and no income was recorded as having been generated from use of the Renegade. It is not clear from the evidence why American's CPA decided American was entitled to claim depreciation on the three aircraft in question. (Shaw also depreciated another airplane in 1989 which was before the period covered by the Department's audit.) Shaw's final hearing and deposition testimony was confusing as to whether he recalled discussing the question with the Tolberts. He may have; if he did, he probably discussed it with Mrs. Tolbert. Meanwhile, Mrs. Tolbert does not recall ever discussing the question of depreciation with Shaw. In all likelihood, Shaw probably made his own decision that American could depreciate the airplanes to minimize income taxes by claiming that they were fixed capital assets used in the business and not just inventory items being held for resale. For the King Air B90, there were lease payments Shaw could use to justify his decision; but there were no lease payments for the King Air 200 or the Renegade. The evidence was not clear whether there were lease payments for the airplane Shaw depreciated in 1989. For the next year, 1993, Shaw included the Renegade as a fixed capital asset on the company's book depreciation schedule and booked $7,712 of depreciation on the Renegade. For federal tax purposes, the Renegade was depreciated for the same amount as its book depreciation, and no income was recorded as having been generated from use of the Renegade. When the Department audited American starting in July 1994, tax auditor William Berger saw the depreciation schedules and tax returns, both of which indicated to him that the three airplanes in question were used by the company, but no sales or use tax was paid on them. (He also pointed out the Tolberts' failure to pay sales tax on the purchase of the Renegade from American, and the Tolberts later paid the tax, as previously mentioned.) As a result, on July 26, 1995, the Department issued two notices of intent. One was to make sales and use tax audit changes which sought to assess American $56,097.77 in use taxes, together with delinquent penalties of $14,657.36 and interest through July 26, 1995, in the amount of $31,752.61, for a total of $102,507.74, with subsequent interest accruing at the rate of $18.44 per day. The second was to make local government infrastructure surtax audit changes which sought to assess American $609.99 in the surtax, together with delinquent penalties of $163.14 and interest through July 26, 1995, in the amount of $256.33, for a total of $1,029.46, with subsequent interest accruing at the rate of $.20 per day. It is not clear from the record how the Department arrived at the use tax and surtax figures. The alleged use tax assessment should have been calculated as $51,061.32 (six percent of the acquisition costs of the airplanes), and the alleged surtax assessment should have been calculated at the statutory maximum of $50 per item, for a total of $150. On August 28, 1995, American made a partial payment of $5,496.44 on the Department's use tax and surtax audit change assessments, intending to leave a disputed assessed amount of $51,061.32 in use tax and $150 in surtax. It is not clear from the record what American intended the $5,496.44 to apply towards. American filed an Informal Protest of the use tax and surtax audit change assessments on February 26, 1996. The Informal Protest contended that the use tax and surtax were not due and that the federal income tax depreciation schedules were "not determinative." On October 6, 1996, the Department issued a Notice of Decision denying American's protest primarily on the ground that the depreciation of the aircraft for federal income tax purposes constituted using them for use tax purposes. After receiving the Notice of Decision, on November 4, 1996, American filed amended tax returns to remove the depreciation of the airplanes (together with the "gross income from other rental activities" on Schedule K of the 1991 return). (Although CPA Shaw refused to admit it, it is clear that American's federal income tax returns were amended in order to improve its defense against the Department's use tax and surtax assessments.) As a result of the amended returns, American had to pay an additional $15,878 in federal income tax on the 1990 return; there was no change in the tax owed on any of the other returns. On November 6, 1996, American filed a Petition for Reconsideration on the ground that the returns had been amended and the additional federal income tax paid. On January 10, 1997, the Department issued a Notice of Reconsideration denying American's Petition for Reconsideration on the ground that "subsequent modifications made to the federal income tax returns will have no affect [sic] upon" the use tax and surtax assessments.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order withdrawing the assessment of use tax and local government infrastructure surtax, delinquent penalties, and interest against American. RECOMMENDED this 3rd day of October, 1997, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SUNCOM 278-9675 Fax FILING (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of October, 1997. COPIES FURNISHED: Harold F. X. Purnell, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551 Albert J. Wollermann, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Linda Lettera, Esquire Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Winn-Dixie. Winn-Dixie is a Florida corporation with its principal offices at 5050 Edgewood Court, Post Office Box B, Jacksonville, Florida. [Stipulation of Facts]. Winn-Dixie's taxpayer identification number is 59-0514290. The Department's audit number is 88-04203785035. Winn-Dixie's fiscal year ends on the last Wednesday of June. Winn-Dixie's Intangible Tax Returns. Winn-Dixie has filed a Florida intangible tax return for every year beginning with the calendar year 1972. For calendar years 1972 through and including 1988, Winn-Dixie reported the value of its intangible personal property based upon the value of its intangible personal property at the end of its previous fiscal year, the last Wednesday of June. For example, in its 1972 intangible tax return Winn-Dixie reported the value of its intangible personal property as of June 26, 1971. The decision to use the value of its intangible personal property as of the end of its fiscal year for Florida intangible tax was made by Winn-Dixie without any direction from, or communication with, the Department. When Winn- Dixie began using its fiscal year end as the date to value its intangible personal property for Florida intangible tax purposes, no representation concerning the appropriateness of this method was made by the Department. Winn- Dixie made no effort to obtain approval of its method of valuation from the Department. Winn-Dixie indicated on each of its intangible tax returns for 1972 through 1988, that it had determined the value of its intangible personal property based upon its value as of the end of Winn-Dixie's fiscal year. Winn-Dixie used the fiscal year end value of its intangible personal property as the value of those assets for Florida intangible tax purposes for administrative convenience. It was easier to use such data than it would have been to redetermine the value of its intangible personal property at the end of each calendar year. When Harry Francis began working for Winn-Dixie in 1978, Mr. Francis was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Francis, who served as director of taxes for Winn-Dixie until 1989, was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. When Leon Calvert became the director of taxes for Winn-Dixie in 1989, Mr. Calvert was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Calvert was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. The explanations Mr. Francis and Mr. Calvert gave for not changing Winn-Dixie's method of valuing its intangible personal property for Florida intangible tax purposes were not credible. Both Mr. Francis or Mr. Calvert indicated that the valuation practice of Winn-Dixie was followed, in part, because of the need for consistency in the field of accounting. Neither Mr. Francis or Mr. Calvert, however, cited any generally accepted accounting principle to support the use of an incorrect method of valuing assets for tax purposes when that method is clearly contrary to law. Winn-Dixie does not collect intangible tax as an agent for the State of Florida by separately stating and passing along said tax to its customers. [Stipulation of Facts]. Therefore, Winn-Dixie has not lost any right to pass the asserted additional intangible tax liability along to others. Subsequent to the audit involved in this case Winn-Dixie prepared an analysis of the difference in the value of its intangible personal property for 1972 through 1984 and the value of its intangible personal property for 1972 through 1984 if it had valued its intangible personal property as of January first of each year. Based upon this analysis, Winn-Dixie over reported the value of its intangible personal property by $78,390,211.00 for the period from 1972 through 1984. [See Stipulation of Facts]. This amounted to an overpayment of taxes of approximately $81,485.00. Winn-Dixie has not filed any claim for refund of any amount of intangible taxes it may have overpaid as a result of using the value of its intangible personal property as of the end of its fiscal year. The weight of the evidence failed to prove that the value of Winn- Dixie's intangible personal property as of the end of its fiscal year for any year for which it has filed an intangible tax return was approximately the same as the "just value" of those assets as January first. 1972 and 1973 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1972 and 1973 were examined by the Department. [Stipulation of Facts]. Winn-Dixie's 1972 and 1973 returns clearly indicated that the value of the assets included in the returns was the value as of the last Wednesday of June as of the previous year, Winn-Dixie's fiscal year end. No changes to Winn-Dixie's valuation method were recommended by the Department to Winn-Dixie's 1972 or 1973 intangible tax returns. The weight of the evidence failed to prove that any Department employee made any statements as a result of the Department's audit of the 1972 and 1973 returns to Winn-Dixie concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1972 and 1973 returns because of a determination that the value of Winn-Dixie's intangible personal property in January was not materially different from the June value of its intangible personal property as reported by Winn-Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9- 12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1972 and 1973 returns by a Department employee concerning the filing of future year intangible tax returns. 1979, 1980 and 1981 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1979, 1980 and 1981 were examined by the Department. [Stipulation of Facts]. The auditor that performed the examination is now deceased. [Stipulation of Facts]. The director of taxes for Winn-Dixie at the time of the audit of the 1979, 1980 and 1981 returns described a conversation he had with the Department's auditor as follows: The gist of the conversation was why did we use the June year end instead of January 1st. And the answer was as I said before, it was a long-standing practice, it was a consistency method, it was not a question of cherry picking for a good date and it seemed to do no harm. The recollection I have is that he was hesitant to make a determination on his own as to whether he required an adjustment or required a recomputation using a different date and that he was checking with some unknown superior in the Department of Revenue and later the no-change audit resulted. I don't recall if he ever called me about his conversation with the superiors, but I do recall no adjustments of any kind were made to any of those tax returns. And I would have recalled. I was nervous about those because I had prepared them. And they were the first ones that had been audited since I had been there. So I was relieved that no adjustments were made. And that was the gist of my relationship with the auditor. [Transcript of Formal Hearing, page 94, lines 17-25, and page 95, lines 1-12]. No changes were recommended by the Department to Winn-Dixie's 1979, 1980 or 1981 intangible tax returns. [Stipulation of Facts]. The weight of the evidence, however, failed to prove why the Department made no changes. Winn-Dixie did not change its method of reporting its intangible personal property as a result of any representations from a Department employee. The weight of the evidence failed to prove that any Department employee made any statements to Winn-Dixie as a result of the Department's audit of the 1979, 1980 and 1981 returns concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1979, 1980 and 1981 returns because of a determination that the value of Winn-Dixie's intangible assets in January was not materially different from the June value of its intangible personal property as reported by Winn- Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9-12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1979, 1980 and 1981 returns by a Department employee concerning the filing of future year intangible tax returns. 1985, 1986, 1987 and 1988 Intangible Tax Returns. The Department performed an audit of Winn-Dixie's intangible tax returns for 1985, 1986, 1987 and 1988. For these tax years Winn-Dixie valued its intangible personal property as of the end of the fiscal year preceding the taxable year, consistent with prior years. As a result of the Department's audit of the 1985, 1986, 1987 and 1988 returns, the Department determined that Winn-Dixie had underpaid Florida intangible tax in the following amounts and issued an assessment for same: 1985 $(16,244.00) 1986 21,471.00 1987 93,980.00 1988 86,974.00 Total $186,181.00 The Department's auditor who performed the audit of Winn-Dixie's 1985, 1986, 1987 and 1988 tax returns determined the value of Winn-Dixie's intangible personal property based on the value of those assets as reasonably close to January first as provided to Winn-Dixie. The information provided by Winn-Dixie was reasonably close to the value of Winn-Dixie's intangible personal property as of January first. Winn-Dixie filed a Petition for Reconsideration dated August 24, 1990. By letter dated October 17, 1990, the Department issued a Notice of Reconsideration. [Stipulation of Facts]. Other Receivables. Winn-Dixie has taken the position that it overpaid intangible taxes for 1985, 1986, 1987 and 1988 because it incorrectly treated certain accounts as intangible personal property. The parties agreed that the amount of tax paid on these accounts for the years at issue was as follows: 1985 $ 8,614.00 1986 9,823.00 1987 11,120.00 1988 13,562.00 Total $43,119.00 The parties agreed that the amount of intangible tax paid on the accounts at issue should be refunded to Winn-Dixie if it is determined that Winn-Dixie improperly paid intangible tax on the accounts. The following are the accounts which Winn-Dixie has argued it should not have treated as intangible personal property: Account Number 123-2, perishable vendors- billed outside sales warehouse invoices. Account Number 123-3, vendors debit balances/billed advertising coupons, vendor freight claims, promotion allowances, billings, return merchandise, charges and other debit memo billings. Account Number 123-4, claims insurance and freight/insurance and freight claims against carriers. Account Numbers 123-2, 123-3 and 123-4 are listed as "receivables" on Winn-Dixie's federal income tax return balance sheet as of its fiscal year end, Winn-Dixie's accounts receivable trial balances and on Winn-Dixie's SEC public disclosure forms 10-K. Account Numbers 123-2 and 123-3 are essentially identical except for the type of vendor involved. Account Number 123-2 involves vendors of perishable products and Account Number 123-3 involves vendors of nonperishable products. Winn-Dixie strives to pay for merchandise it receives within seven to ten days from the date it receives an invoice for the merchandise in order to receive discounts and the best merchandise available. Winn-Dixie earns trade discounts, promotional allowances and volume discounts on some of the merchandise it handles. When Winn-Dixie pays an invoice on merchandise for which it may receive such reductions in costs, Winn- Dixie may not know the exact amount of the discount. Therefore, it pays the entire amount invoiced. As a result of the quick payment of invoices and the inability to calculate the exact amount of discounts or other reductions in the amount owed, Winn-Dixie pays more on some invoices than it ultimately may owe on the invoice. The amount of any estimated overpayments is reflected in Account Numbers 123-2 and 123-3. Winn-Dixie also receives coupons from customers on certain merchandise. The coupons received by Winn-Dixie entitle it to reimbursement on the product sold from the vendor. The amount which Winn-Dixie will ultimately receive for the coupons is also recorded in Account Numbers 123-2 and 123-3. The coupons are ultimately turned over to a coupon handling firm which pays Winn-Dixie for the coupons. Account Number 123-4 involves claims insurance and freight. It is similar to the other two accounts at issue except that it relates primarily to claims against railroads for misdelivery or damaged merchandise which Winn-Dixie is entitled to. As is true of other merchandise, Winn-Dixie strives to pay for merchandise shipped to it by rail within seven to ten days to be entitled to the discounts for quick payment. Therefore, Winn-Dixie is not always able to estimate the amount of damaged or missing merchandise it may be entitled to a reduction for. The amount of such reductions are reflected in Account Number 123-4. When the amounts owed to Winn-Dixie, which are reflected in Account Numbers 123-2, 123-3 and 123-4, are finally determined, Account Number 123-2, 123-3 or 123-4 is debited and the amount received is recorded in another account. The amounts recorded in Account Numbers 123-2, 123-3 and 123-4 are valued, recorded and returned for tax purposes as accounts receivable. Account Numbers 123-2, 123-3 and 123-4 are "accounts receivable" under generally accepted accounting principles. The weight of the evidence failed to prove that all of the amounts recorded in Account Numbers 123-2, 123-3 and 123-4 during the years in question were not due at the time they were entered in the accounts. Therefore, the weight of the evidence failed to prove what portion of Account Numbers 123-2, 123-3 or 123-4 are contingent.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department issue a Final Order assessing $186,181.44 in additional intangible tax, plus interest, against Winn-Dixie for 1985, 1986, 1987 and 1988, and dismissing Winn-Dixie's Petition for Administrative Proceedings. RECOMMENDED this 8th day of May 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 8th day of May, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-8021 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. Winn-Dixie's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 2-4 and 6. 2 6. 3 15 and 17. 16. See 18-20 and 30. The last sentence is not supported by the weight of the evidence. 21 and 23. The last sentence is not relevant. See 22. The last sentence is not relevant. Not relevant. Not supported by the weight of the evidence. 9 12. Not supported by the weight of the evidence. 12. The last sentence is not supported by the weight of the evidence. Not supported by the weight of the evidence. Not supported by the weight of the evidence. The last sentence is not relevant. 14 32-33, 35 and 40. 15 34. Not relevant. See 36 and 41. The weight of the evidence failed to prove that Winn- Dixie was "required to pay" its vendors within seven to ten days. 37-38. The weight of the evidence failed to prove the last sentence. 19 40-41. 20 42. 21 Not supported by the weight of the evidence. The Department's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 and 3. 2 and 4. 3 5. 4 7. 5 15 and 21. 6 28. 7 4. 8-9 29. 10-11 11. 12 22. 13 22 and 25-27. 14 24. 15 22. 16 18-20 and 25-27. 17 5. 18 21. 19 12. 20 13. 21 14. Not relevant. See 45. 24 35 and 40. 25 37-38 and 43. 26 39. 27 Not relevant. 28 32. 29 See 44. 30 34. COPIES FURNISHED: Thomas K. Purcell, Esquire Suite 1235, One Enterprise Center 225 Water Street Jacksonville, Florida 32211 Leonard F. Binder Kevin O'Donnell Assistant Attorneys General Department of Legal Affairs Tax Section, Capitol Building Tallahassee, Florida 32399-1050 J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
Findings Of Fact In 1972 Petitioner received $743,982 of income from state and municipal bonds. On its federal income tax return the Petitioner allocated $471,229 of this amount to the policyholders' share as required by law and $272,753 to the company's share (Phase I). The Phase II figures were $359,669 and $384,313 respectively. Respondent has added back the entire $743,982 for purposes of computing Petitioner's Florida taxable income. Petitioner added back the $272,753 (Phase I) and $384,313 (Phase II). For 1972 Petitioner accrued $350,000 of Florida taxes on its federal income tax return. In computing its deductions on its federal income tax return 36.6612 percent of this amount was deducted in the Phase I computation and 51.6564 percent in the Phase II computation. Respondent has added back all of the Florida tax accrued in computing the Florida income tax owed by Petitioner. Petitioner's position is that only the company's percentages were deductible and only these amounts should be added back. The amount of additional Florida income tax assessment proposed for 1972 by the Respondent over that paid by Petitioner is $21,234. In 1973 Petitioner received $552,408 of income from state and municipal bonds. On its federal income tax return Petitioner allocated $335,662 of this amount to policyholders' share as required by law and $216,786 to the company's share (Phase I). The Phase II figures were $248,789 and $303,619 respectively. Respondent has added back the entire $552,408 for purposes of computing Petitioner's taxable income. Petitioner added back the $216,786 (Phase I) and $303,619 (Phase II). For 1973 Petitioner accrued $475,000 of Florida taxes on its federal income tax return. In computing its deductions on its federal income tax return 39.2438 percent of this amount was deductible in Phase I and 54.9628 percent in Phase II. Respondent has added back all of the Florida tax accrued. Petitioner's position is that only the company's percentages were deductible and only these amounts should be added back. The amount of additional Florida income tax assessment proposed for 1973 by Respondent was $20,184. It was further stipulated that the sole issues here involved are: The computation of the amount of tax exempt interest which is excludable from taxable income under section 103(a) Internal Revenue Code for purposes of the Florida corporate income tax; and The computation of the amount of Florida income tax accrued which is deductible for purposes of federal income tax and added back for purposes of computing the Florida income tax.
Findings Of Fact Stipulated Facts Respondent conducted an audit of Petitioner's business records for the period July 1, 1985, through June 30, 1990. Respondent determined a deficiency in sales tax of $174,823.96, including penalty and interest through August 22, 1990. Petitioner objected to the deficiency. Respondent reviewed the audit, and made audit changes that are the subject of this proceeding. The audit changes determined a deficiency in use tax of $76,035.60, including tax ($47,910.10), penalty ($11,977.68), and interest through March 12, 1991 ($16,147.60). Interest accrues daily in the amount of $15.75. A First Revised Notice Of Intent To Make Sales Tax Changes, for the reduced assessment of $76,035.60, was issued on March 21, 1991. A Notice Of Proposed Assessment was issued on July 2, 1991. The Notice Of Proposed Assessment became a Final Assessment on August 31, 1991. Respondent made a prima facie showing of the factual and legal basis for the use tax assessment. Section 120.575(2), Florida Statutes. 1/ The audit and assessment are procedurally correct. Tax, interest, and penalty are correctly computed. Formation Petitioner was incorporated in Florida, in January, 1983, by Mr. B. Theodore Troy, president and sole shareholder. Petitioner's principal place of business is 101 Wymore Road, Suite 224, Altamonte Springs, Florida. Petitioner conducted business as American Advertising Distributors of Central Florida. Mr. Troy and his wife operated the business until liquidating Petitioner's assets in 1992. Operation Petitioner sold direct mail advertising to Florida businesses. Petitioner operated pursuant to a franchise agreement with American Advertising Distributors, Inc., of Mesa, Arizona ("AAD"). AAD was Petitioner's franchisor until AAD filed for bankruptcy in 1990. Petitioner solicited orders from Florida businesses 2/ for advertising coupons designed and printed by AAD in Arizona. AAD mailed the advertising coupons to addressees in Florida who were potential customers for Florida businesses. Florida businesses placed orders with Petitioner on written contracts, or sales agreements, labeled "advertising orders." AAD was not a party to advertising orders. Advertising orders identified "AAD" as American Advertising Distributors of Central Florida, and were imprinted with the name and address of "AAD" in Central Florida. Advertising orders specified the total charges, color and stock of paper, number of addressees, and areas of distribution. Petitioner assisted businesses with rough layout for art work. The rough layout was forwarded to AAD. AAD prepared finished art work and sent copies back to Petitioner for approval by Florida businesses. AAD then printed, collated, and mailed advertising coupons to addressees in Florida, without charge to addressees. Florida businesses paid non-refundable deposits when placing advertising orders. The remaining balance was paid upon approval of final art work. AAD did not submit invoices to Florida businesses. AAD submitted invoices to Petitioner for the amount due from Petitioner. 3/ Petitioner paid AAD 10 days before advertising coupons were mailed. Some advertising coupons were produced by Laberge Printers, Inc., in Orlando, Florida ("Laberge"). Coupons from Laberge were designed, printed, and distributed in the same manner as coupons from AAD. Two types of advertising coupons were provided by AAD and Laberge. The majority of coupons were distributed in coop mailings, or "bonus express" envelopes, containing coupons for up to 20 businesses. Bonus express envelopes were mailed approximately eight times a year. Advertising coupons were also distributed in "solo" mailings. A solo mailing was an individualized, custom printed coupon, or flyer, mailed to individual addressees. The total charges stated in advertising orders included the cost of services provided by Petitioner, AAD, and Laberge. Services included typesetting, art work, printing, inserting envelopes, and mailing. Florida imposed a tax on services, from July 1, 1987, through December 31, 1987. Petitioner collected and remitted tax imposed on the cost of services included in the total charges stated on advertising orders. Except for the services tax, neither Petitioner, AAD, nor Laberge collected and remitted sales or use tax to Florida or to Arizona. Petitioner never utilized resale certificates for any tax other than the tax on services. Collectibility Petitioner was financially able to pay the use tax assessment during 1990 and 1991. No later than August 22, 1990, Mr. Troy knew of the sales tax deficiency of $174,823.96. By March 21, 1991, Mr. Troy knew of the reduced use tax assessment of $76,035.60. During 1990 and 1991, Petitioner made discretionary payments to Mr. Troy of $110,389. Petitioner reported federal taxable income of $58,279 in 1990 and 1991. 4/ In arriving at taxable income, Petitioner deducted payments to Mr. Troy of $59,430 for compensation to officers, management fees, and salary. 5/ From taxable income of $58,279, Petitioner paid approximately $50,959 to Mr. Troy in nondeductible shareholder loans. 6/ Discretionary payments of $110,389, 7/ made to Mr. Troy in 1990 and 1991, were more than adequate to pay the use tax assessment of $76,036.60. At the end of 1991, Petitioner reported fixed assets with a book value of $14,933, a customer list valued at $104,447.72, and retained earnings of $102,605. The book value of intangible assets was $82,943, comprised primarily of the franchise, valued at $35,000, and goodwill of $45,000. Termination Of Operations But Continued Existence AAD petitioned for bankruptcy in 1990. Petitioner subsequently determined that its franchise and goodwill were worthless. In 1992, Petitioner reported a loss of $99,726 for federal tax purposes. All of Petitioner's assets, including its customer lists, were sold or transferred for $1,330 to Florida Mail, Inc. ("Florida Mail"). Florida Mail is a Florida corporation wholly owned by Mr. Troy. Florida Mail sells direct mail advertising; and shares Petitioner's principal place of business. Since 1992, Petitioner has been a shell corporation with $579 in assets.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order upholding the assessment of tax and interest and waive all of the penalty included in the assessment. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 2nd day of June, 1994. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 1994.
