The Issue The issue to be determined is whether Petitioner is liable for the sales and use tax, penalties, and interest assessed by the Department of Revenue and if so, what amount?
Findings Of Fact Petitioner, Rowe's Supermarkets, LLC ("Petitioner" or "Rowe's"), is a Florida limited liability company. Robert Rowe was the president and primary shareholder in Rowe's. Respondent, Department of Revenue ("DOR" or "Respondent"), is an agency of the State of Florida authorized to administer the tax laws of the State of Florida. §§ 20.21 and 213.51, Fla. Stat. (2011) During the audit giving rise to this proceeding, Rowe's had its principal address at 5435 Blanding Boulevard, Jacksonville, Florida. Currently, Rowe's is located at 1431 Riverplace Boulevard, Jacksonville, Florida. Rowe's organized in Florida on May 4, 2005. Rowe's was a sales and use tax dealer registered with the Department to conduct business in this state. It was in business approximately four years. Rowe's acquired several former Albertson's grocery retail stores, including the adjacent liquor stores, in Jacksonville, St. Augustine, and Orange Park, Florida. During the audit period, Rowe's sold five stores with the adjacent liquor stores. Soon after beginning operation, Rowe's experienced significant financial difficulties which ultimately led to its demise. Its secured lender forced Rowe's to liquidate assets whenever possible, and all proceeds from the sale of the stores were paid directly into a locked account to Rowe's lender, Textron Financial. On October 29, 2008, the Department issued to Rowe's a Notification to Audit Books and Records, Form DR-840, bearing audit number 200048409, for sales and use tax, for the audit period beginning October 1, 2005, and ending September 30, 2008. On August 14, 2009, the Department issued to Rowe's a Notice of Intent to Make Audit Changes, form DR-1215, for sales and use taxes, penalties and interest totaling $321,191.45, with additional interest accruing at $53.71 per day. On August 20, 2009, Rowe's canceled its sales and use tax Certificate of Registration. In a letter dated September 11, 2009, Rowe's requested an audit conference. The requested audit conference was held November 19, 2009. On January 8, 2010, the Department issued the taxpayer a Notice of Intent to Make Audit Changes, form DR-1215, Revision #1, for sales and use tax, penalty and interest totaling $180,435.61, with additional interest accruing at $25.32 per day. On March 10, 2010, the Department issued a NOPA, which indicated Rowe's owed $137,225.27 in sales and use tax; $44,755.99 in interest through March 10, 2010; and $59.70 in penalties, with additional interest accruing at $26.32 per day. Prior to issuance of the NOPA, the Department compromised $34,246.663 in penalties, based upon reasonable cause. By letter dated May 6, 2010, Rowe's filed a protest to dispute the proposed assessment. The letter stated: I am submitting this informal protest on behalf of Rowe's Supermarkets, LLC (RS) as its past President. RS is no longer in business and has not assets. Before this audit began RS was unable to pay its bills. Also, its line of credit, which was secured by all of RS's assets, was in default and had been called by the lender. RS was unable to refinance the loan because of its poor financial condition. As a result, it sold all of its assets to a new company which was able to obtain financing and used the proceeds of that sale to repay its secured loan. RS not only has no assets but also is subject to an unsatisfied judgment lien against it in the amount of $324,936.33, which has been accruing interest at 8% per year from August 25, 2009, the date the judgment was entered by the Circuit Court here in Jacksonville. Even if Supermarkets was still in business and could pay its bills, we don't think it should be assessed with these taxes on the basis of the audit that was conducted. The auditor's lack of communication skills made it difficult for us to understand what information she needed. To the extent we understood her requests, we made every effort to provide her with the relevant information. But because most of the stores RS operated had already been closed, the only repository for obtaining accurate information was RS's general ledger, which she declined to review. She never explained why she made the proposed adjustments. We still don't know. We did our best when RS was operating to properly collect all sales taxes, we reflected all of the sale tax collections in the general ledger and we timely turned over all of the those taxes to the department of revenue, as is clear in the general ledger. We request that the proposed assessment be dropped. The Department issued a Notice of Decision on October 14, 2010, which sustained the assessment in full. In issuing its Notice of Decision, the Department did not review any issues related to the assessment other than doubt as to collectability. With respect to this issue, the Department stated, "[b]ased on our evaluation of all the factors of this case, including the financial information, we have concluded that it is not in the best interest of the State to accept your offer." Petitioner's challenge to the assessment presents five issues: 1) whether it was entitled to an exemption in section 212.12(14) for those additional taxes assessed for "rounding" up to the whole cent as opposed to using the bracket system in section 212.12(9); 2) whether the Department's assessment of additional taxes for expenses was erroneous where it was based on a sampling plan not presented to or agreed to by the taxpayer; 3) whether the additional tax on liquor sales was based on an incorrect application of Florida Administrative Code Rule 12A- 1.057(3)(a); 4) whether the Department violated the Taxpayer's Bill of Rights; and whether the Department was correct in determining that compromise of the assessment based on collectability was not in the best interest of the state. Each issue is treated separately below. The Exemption pursuant to section 212.12(14) Section 212.12(9) and (10), Florida Statutes, requires that sales taxes be paid on a "bracket system," and prescribes the amount of tax due for each portion of a dollar. Subsection (9) provides the tax brackets for those counties, such as St. Johns, which do not have a discretionary sales surtax and for which the tax rate is 6 percent. Subsection (10) provides the brackets for those counties, such as Duval and Clay, where a discretionary sales surtax of one percent has been adopted, making the sales-tax rate 7 percent. Section 212.12(14) provides a "safe harbor" from additional assessment of taxes for those dealers who fail to apply the tax brackets required by section 212.12. The taxpayer is not assessed additional taxes, penalty, and interest based on the failure to apply the bracket system if it meets three requirements: that it acted in a good faith belief that rounding was the proper method of determining the amount of tax due; if it timely reported and remitted all taxes collected on each taxable transaction; and if the taxpayer agrees in writing to future compliance with the law and rules concerning brackets applicable to the dealer's transactions. It is undisputed that Rowe's was not using the bracket system to calculate and collect sales taxes. The point-of-sale cash register system Rowe's purchased when opening its business was represented to Petitioner as compliant with Florida requirements when in fact it was not. The Department's auditor, Delaine Arrington, determined that assessment of additional taxes was appropriate because she believed that Rowe's had not timely reported and remitted all taxes collected on each taxable transaction, and that Rowe's had not agreed in writing to future compliance with respect to the bracketing system. The sales tax records for Rowe's were based upon the meshing of three different computer systems. First, there was a point-of-sale system at each cash register which collected the data, such as sales amounts, taxable sales, and sales tax collected, for each individual transaction. A software system called BR Data would then "pull" the sales data from the individual cash registers to create the cumulative sales register reports for each store. The cumulative data from BR Data was then automatically imported into Petitioner's accounting software, MAS 90, to populate the figures in Rowe's general ledger. Taxes collected were recorded in the general ledger under the credit column. The data in this column was transmitted from BR Data. It could not be adjusted manually, although other columns in the general ledger could be. There were sometimes problems with the transmission of information from BR Data, which generally occurred where there was a power surge or a thunderstorm that would affect the communication of information. As a result of these communication problems, there were times that the sales figure transmitted would be double or triple the actual sales for that day. When such an error was discovered, Rowe's staff would contact BR Data and have the report rebuilt, and the general ledger entry would be corrected. Rowe's informed Ms. Arrington that there had been numerous problems with the exporting process and the resulting need to correct journal entries. Ms. Arrington acknowledged at hearing that she had been advised that due to these problems, the sales figures were sometimes doubled or tripled. Ms. Arrington reviewed the general sales ledger, the cumulative sales register reports, and the sales and use tax returns for the audit period. According to her review, there were three days in August 2006 where the amount of collected tax reflected in the cumulative sales register was higher than what was reflected in the general ledger. Based upon this review, she assessed $1,193.98 in additional sales taxes. For August 1, 2006, the general ledger indicated that $263.48 in sales tax was collected. The cumulative sales report reflected that $790.44 in sales tax was collected. This second number in the cumulative sales report is exactly three times the amount reflected in the general ledger. The difference between the cumulative sales report amount and the general ledger amount is $526.96. For August 2, 2006, the general ledger indicated that $277.04 was collected. The cumulative sales report reflected that $554.08 in sales tax was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $277.04. For August 11, 2006, the general ledger indicated that $389.98 in sales tax was collected. The cumulative sales report reflected that $779.96 was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $389.98. The difference in the amounts reflected in the general ledger (which Rowe's claims is the more accurate document), and the cumulative sales register (which Ms. Arrington relied upon), is $1,193.98, the amount of additional tax assessed for this item. Ms. Arrington acknowledged at hearing that she credited the cumulative sales register numbers over Rowe's general ledger documents, and that she knew during the audit that there were issues relating to BR Data that occurred during the audit period. The only document upon which she relied was the cumulative sales register. Given the credible testimony by Robert Rowe and Neil Newman regarding the process and the problems encountered with the interface of data, and the fact that in each instance, the difference was an exact multiple of the amount reflected in the general ledger, the greater weight of the evidence presented at hearing supports the finding that the general ledger represents the amount of sales tax actually collected and paid by Rowe's. This finding means that not only is the assessment of additional sales tax for August 2006, in error, but also that means that Rowe's met the second requirement for avoiding the assessment of additional taxes under section 212.12(14) for failing to use the bracket system. Ms. Arrington also found that Rowe's had not agreed in writing to future compliance with the bracket system. On or about November 19, 2009, in conjunction with the Audit Conference, Ms. Arrington prepared an Agreement for Future Compliance (Agreement) and provided it to Mr. Rowe for signature. The text of the Agreement, which is on DOR letterhead and specifically references the Sales and Use Tax Audit number for Rowe's, states: The following dealer had demonstrated the proper actions required by Section 212.12(14),(a) and (b), F.S. (see attachment), and agree [sic] to sign the following suggested form to compliance with the laws concerning brackets applicable to the dealer's transactions in the future. Rowe's Supermarkets, LLC - BP#2134130, succeeded by Rowe's IGA, LLC - 3082649 agrees to future compliance with the laws and rules concerning the proper application of the tax bracket system to the dealer's transactions. Mr. Rowe did not sign the Agreement at the Audit Conference because he wanted to be able to confirm that the point of sale system his store operated could be properly programmed to comply with the bracket system before signing a document stating he would comply. After discussions with both the vendor and Ms. Arrington, and making sure the system was in fact operating in compliance with the requirement, Mr. Rowe signed the Agreement on December 7, 2009, and returned it to the Department. Ms. Arrington did not recall receiving the Agreement, but also admitted she had no specific memory as to whether she received it. Her Case Activity Record indicates that on December 3, 2009, she spoke with Mr. Rowe about whether he was able to input the brackets in his point-of-sale system, and that he indicated he was able to do so. The greater weight of the evidence supports the finding that Mr. Rowe executed and returned the Agreement, and it is so found. The Use Tax Assessment Based on a Sampling Plan Section 212.12 allows the Department to use a sample from the taxpayer's records and project audit findings from the sample to the entire audit period where the records of the taxpayer are "adequate but voluminous in nature and substance." The statute, which is discussed in more detail in the Conclusions of Law, contemplates the use of a sampling plan agreed to by the taxpayer, and in the absence of an agreement, the taxpayer's right to have a review by the Department's Executive Director. The work papers to the Notice of Intent to Make Audit Changes dated January 8, 2010, include a sampling plan that runs from January 1, 2006, to December 31, 2006 for the calculation of use tax for purchases by Rowe's where sales tax was not collected by the vendor. Ms. Arrington reviewed Rowe's' records for expense purchases for 2006 to determine the total amount of additional tax due for that period. She then took the total additional tax on expenses for that period, i.e., $14,981.26, and divided it by 12 to obtain a monthly average additional tax of $1,248.44. She then applied that number to the entire 36-month audit period to determine a total assessment of additional tax for expense purchases of $44,943.84. Ms. Arrington testified that at the initial audit conference, she discussed different audit techniques in terms of sampling. However, a specific sampling plan was not discussed with Mr. Rowe and no Sampling Agreement was presented to him. No sampling plan was reviewed by the Executive Director. Ms. Arrington did not tell Mr. Rowe that 2006 would be the year used as the sample. Mr. Rowe never would have agreed to the use of 2006 as a sampling plan, because it would not be representative of the expenses incurred during the audit period. Using 2006 as a sampling period did not take into account the store closures during the audit period, and the concomitant reduction in expenses. Rowe's closed two grocery stores by March 2006, and operated only four stores for the remaining three quarters of the year. A third store was closed in January 2007, a fourth in May 2007 and a fifth in 2008, leaving only one store open for the entire audit period. All of the liquor stores were also closed during the audit period, the last one being sold in May 2008. Ms. Arrington knew that Rowe's had closed almost all of its stores during the audit period, and included information regarding the closings in her Standard Audit Report. She acknowledged at hearing that as the stores decreased, the expenses related to those stores would also most likely decrease. For the 12 months of 2006, the Department determined that an additional tax of $14,981.26 would be due, based on purchases of $253,637.22. There has been no evidence presented to rebut the accuracy of the tax assessment for these 2006 purchases. Petitioner presented evidence establishing that, for the 21 months of the audit period following 2006, Rowe's made purchases from the same vendors reflected in the 2006 sample of only $51,073.72, which would result in additional taxes of $3,575.16. No evidence was presented by either party as to whether there were any other purchases from other vendors for which taxes had not been paid. The difference between the use tax assessed against Rowe's by using the sampling plan and taxes due based on the actual purchases demonstrated at hearing is $22,642.08. In addition, there was one vendor, Advo, Inc. (Advo), which accounted for a significant percentage of the tax due based on the sampling plan. While the audit sample period was for twelve months, payments to Advo for a seven-month period accounted for approximately 58% of the total additional taxes due for expenses. There were no purchases from Advo after July 2006 because of Rowe's shrinking assets and inability to pay for direct advertising. Further, 15 of the 23 vendors reflected in the sample period from whom purchases were made had no sales to Rowe's from January 2007 through September 2008. The Department's work papers indicate that, within the sample year, the purchases tapered off significantly as the year progressed. Given the known closure of five grocery stores and six liquor stores during the audit period, using a time period where the most stores were open is not representative of the expenses experienced by Petitioner, and use of the sampling plan to which the taxpayer had not agreed was inappropriate, and led to an inflated assessment of additional taxes. The Effective Tax Rate at the Liquor Stores During the audit period, Rowe's operated package liquor stores adjacent to the grocery stores. By the time the audit commenced, Rowe's no longer owned any of the liquor stores, and no longer had the cash register tapes from the liquor stores. Because of the lack of cash register tapes, the auditor was unable to determine the effective tax rate Rowe's was collecting. She did not, however, ask Rowe's what rate was collected. A review of the sales tax returns indicates that it remitted a flat rate of 6 or 7 percent, depending on the county. These rates were consistent with what Rowe's was collecting for the grocery store sales, and cash register tapes were available from the grocery store. Ms. Arrington applied the tax rates identified in Florida Administrative Code Rules 12A-1.057(3)(a) and 12A- 15.012(2)(a), both of which identify the rate that should be collected where the dealer sells package goods but does not sell mixed drinks; does not separately itemize the sales price and the tax; and does not put the public on notice that tax is included in the total charge. The work papers paraphrase but do not quote the rules. With respect to the liquor store in St. Johns County, the work papers state: "[a]ccording to Rule 12A-1.057(3)(a), F.A.C., when the dealer is located in a county with no surtax and the public has not been put on notice through the posting of price lists or signs prominently displayed throughout the establishment that the tax is included in the total charge, package stores which sell no mixed drinks shall remit tax at the effective rate of .0635." With respect to the liquor stores in Clay and Duval Counties, the work papers state: "[a]ccording to Rule 12A- 15.012(2)(a)1., F.A.C., when a dealer, located in a county imposing a 1% surtax, sells package goods but does not sell mixed drinks and does not put the public on notice that tax is included in the total charge, the dealer is required to remit tax at the effective tax rate of .0730." The Department's auditor made the assumption that tax was not separately itemized for package store sales and assessed the additional tax accordingly. She did not ask the taxpayer whether this was the case and did not ask about signage in the package stores that were no longer owned by Rowe's. Mr. Rowe testified that the same point-of-sale program was used for the liquor stores as were used for the adjacent grocery stores. That program separately identified the tax due. His testimony is unrebutted and is credited. The Taxpayer's Bill of Rights At hearing, Petitioner took the position that the Department violated the Taxpayer's Bill of Rights as stated in section 213.015(5), by its failure to provide Petitioner with a "narrative description which explains the basis of audit changes, proposed assessments, assessments." In its Proposed Recommended Order, however, Petitioner candidly acknowledged that the evidence did not support a finding consistent with Petitioner's position. In light of this concession, no further findings of fact are necessary with respect to this issue. Collectibility Rowe's asserted in its challenge that it was unable to pay any taxes assessed because it was no longer in business and no longer had any assets. The Department declined to exercise its discretion to compromise the tax assessment based on collectability. While not specifically stated in its Notice of Decision, this position was apparently based upon the belief that the taxes could be paid by Rowe's IGA, LLC, to whom the assets of Rowe's was sold, and which shares the same managing member, Robert Rowe. The two companies share a managing member and one common location, which Rowe's sold to Rowe's IGA. However, no evidence was presented regarding the specifics of the assets sold to Rowe's IGA, and the only evidence presented indicates that any proceeds from the sale went to pay the secured lender for Rowe's, Textron Financial. Other than the involvement of Robert Rowe, no connection between the companies was established. Rowe's provided to the Department the copy of a judgment against it for $324,963.33, which bears interest at a rate of 8% annually. The Department did not identify any assets from which either the assessment or the judgment could be paid.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order that: Reduces the Department's assessment for additional taxes, penalties, and interest by any amounts attributable to the failure to comply with the sales bracket system at Petitioner's grocery stores; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the failure to remit all taxes due for the month of August 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to expense purchases for the period January 2007 through September 2008; Sustains the assessment for additional use tax, penalties, and interest for expense purchases in calendar year 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the asserted basis that Petitioner should have collected tax at a higher effective tax rate at its liquor stores based upon the application of rules 12A-1.057(3)(a) or 12A-15.012(2)(a); Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay tax on certain capital asset purchases identified in the audit; Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on commercial rent payments under certain of Petitioner's store leases identified in the audit; and Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on Petitioner's payment of ad valorem taxes under certain of Petitioner's store leases identified in the audit. In addition, it is Recommended that the Department reconsider its decision as to whether the remaining assessment is collectible, and whether it is in the best interest of the state to compromise the assessment, based on the record contained in this proceeding. DONE AND ENTERED this 31st day of July, 2012, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 2012.
Findings Of Fact Upon consideration of the Stipulation of Facts and documentation attached thereto, the following relevant facts are found: Petitioner is registered to do business in Florida and is required to collect and remit sales tax. In January of 1982, petitioner was given written notice of respondent's intent to audit petitioner's books and records for the 1979, 1980, and 1981 fiscal years. The audit apparently occurred during March and April of 1982. On June 16, 1982, the respondent, through Tax Auditor John Felton, issued a "Notice of Intent to Make Sales and Use Tax Audit Changes." Petitioner was advised that if it bias aggrieved by the proposed audit changes, it would have until July 16, 1982, "or such additional time as may be authorized by the Department in writing" to contact the office and discuss any problems. Petitioner was further advised that if it did not avail itself of the discussion privilege, the Department would issue a proposed notice of deficiency in the amount of $6,975.68 for delinquent sales taxes, penalty and interest through June 16, 1982. By a form letter dated September 9, 1982, the Department provided the Notice of Proposed Assessment of tax, penalty and interest in the amount of $6,975.68. The form letter stated that, if there were objections to the proposed assessment, petitioner would have until November 9, 1982, or such additional time as may be authorized by the Department in writing, to contest the assessment pursuant to informal protest provisions. These provisions require a written protest postmarked within 60 days of the Proposed Assessment, or a written request within that same period of time for an extension of time to file the written protest. Mr. John Felton, a Tax Auditor for the respondent in California, visited the petitioner's office on September 22, 1982, for a post-audit meeting. Petitioner apparently informed Mr. Felton of the existence of exemption certificates but did not, at that time, have the appropriate documentation for the tax credits. Mr. Felton advised petitioner of the documentation required to support any claimed tax credits. By letter dated October 1, 1982, Mr. Felton enclosed the June 16, 1982 sales tax audit, the September 9, 1982 Notice of Proposed Assessment and advised petitioner's staff accountant as follows: "... You will note that some action must be taken with respect to the Notice of Proposed Assessment by 11/9/82. As soon as you have accumulated your docu- mentation in support of any claimed tax credits, contact me and I will have a revised proposed assessment issued. If I may be of further assistance, please call me at 714-956-4311 (preferably, since I expect to be out of my Sunnyvale office most of October) or 408-737-1405." Petitioner's General Accounting Manager attempted to telephone Mr. Felton on several occasions during the last week of October and the first week of November, 1982. These attempts were unsuccessful. Petitioner does not allege that it mailed any documentation to Mr. Felton or the Department or that it filed a timely written protest or a timely request for an extension of time to file a protest. On November 16, 1982, Mr. Felton called petitioner's staff accountant, who advised Mr. Felton that he would mail documentation supporting the tax credits on or before November 24, 1982. Having received no such documentation, Felton, by inter- office memorandum dated December 10, 1982, recommended to the respondent that the original proposed assessment dated September 9, 1982, be processed. Petitioner was notified by letter dated January 31, 1983, that the prior audit had become final and requesting petitioner to forward its remittance of $7,236.56, said amount consisting of the original assessment plus updated interest.
The Issue The issue in this case is whether SNS Lakeland, Inc. (Petitioner), collected and remitted the correct amount of sales and use tax on its operations for the audit period.
Findings Of Fact DOR is the state agency charged with the responsibility of administering and enforcing the tax laws of the state of Florida. In conjunction with that duty, DOR performs audits of business entities conducting sales and use transactions. At all times material to the issue of this case, Petitioner conducted business as a convenience store located at 811 East Palmetto Street, Lakeland, Florida. Petitioner was obligated to collect and remit sales and use tax in connection with the activities of its business enterprise. Petitioner’s Federal Identification Number is 26-0412370. Petitioner is authorized to conduct business within the state and its certificate of registration number is 63-8013863272-3. In order to properly perform its audit responsibilities, DOR requires that businesses maintain and present business records to support the collection of sales and use taxes. In this case, DOR notified Petitioner that it intended to audit the business operations for the audit period, June 1, 2007, through September 30, 2009. After the appropriate pre-audit notice and exchange of information, DOR examined Petitioner’s financial records. Since Petitioner did not maintain register tapes (that would track sales information most accurately), the Department examined all records that were available: financial statements, federal and state tax returns, purchase invoices/receipts, bank records, and register tapes that were available from outside the audit period. Petitioner’s reported tax payments with the amounts and types of taxes that it remitted should have been supported by the records it maintained. Theoretically, the sums remitted to the Department should match the records of the business entity. In this case, the amount remitted by Petitioner could not be reconciled with the business records maintained by the business entity. As a result, the auditor determined the sales tax due based upon the best information available. First, the auditor looked at the actual register tapes for the period November 10, 2010, through November 29, 2010 (sample tapes). Had Petitioner kept its sales receipts, the actual receipts for the audit period would have been used. Nevertheless, the sample tapes were used to estimate (based upon the actual business history of the company) the types and volumes of sales typically made at the store. Secondly, in order to determine the mark-up on the sales, the auditor used Petitioner’s purchase invoices, worksheets, profit and loss statements, and federal and state tax returns. In this regard, the auditor could compare the inventory coming in to the store with the reported results of the sales. Third, the auditor determined what percentage of the sales typically would be considered exempt from tax at the time of acquisition, but then re-sold at a marked-up price for a taxable event. Petitioner argued that 70 percent of its gross sales were taxable, but had no documentary evidence to support that conclusion. In contrast, after sampling records from four consecutive months, the Department calculated that the items purchased for sale at retail were approximately 78 percent taxable. By multiplying the effective tax rate (calculated at 7.0816) by the amount of taxable sales, the Department computed the gross sales tax that Petitioner should have remitted to the state. That gross amount was then reduced by the taxes actually paid by Petitioner. Petitioner argued that the mark-up on beer and cigarettes used by the Department was too high (thereby yielding a higher tax). DOR specifically considered information of similar convenience stores to determine an appropriate mark-up. Nevertheless, when contested by Petitioner, DOR adjusted the beer and cigarette mark-up and revised the audit findings. Petitioner presented no evidence of what the mark-up actually was during the audit period, it simply claimed the mark-up assumed by DOR was too high. On March 30, 2011, DOR issued the Notice of Proposed Assessment for sales and use tax, penalty, and interest totaling $27,645.79. Interest on that amount accrues at the rate of $4.20, per day. In reaching these figures, DOR abated the penalty by 80 percent. The assessment was rendered on sales tax for sales of food, drink, beer, cigarettes, and tangible personal property. Petitioner continues to contest the assessment. Throughout the audit process and, subsequently, Petitioner never presented documentation to dispute the Department’s audit findings. DOR gave Petitioner every opportunity to present records that would establish that the correct amounts of sales taxes were collected and remitted. Simply stated, Petitioner did not maintain the records that might have supported its position. In the absence of such records, the Department is entitled to use the best accounting and audit methods available to it to reconcile the monies owed the state.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order sustaining the audit findings, and require Petitioner to remit the unpaid sales and use taxes, penalty, and interest as stated in the Department’s audit findings. DONE AND ENTERED this 9th day of November, 2011, in Tallahassee, Leon County, Florida. S J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 9th day of November, 2011. COPIES FURNISHED: Marshall Stranburg, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32314-6668 Ashraf Barakat SNS Lakeland, Inc 811 East Palmetto Street Lakeland, Florida 33801 Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, PL-01 Revenue Litigation Bureau Tallahassee, Florida 32399 Brent Hanson B and M Business Services, Inc. 6735 Conroy Road, Suite 210 Orlando, Florida 32835 Lisa Vickers, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue Petitioners' liability for corporate income tax deficiency under Chapter 220, Florida Statutes.
Findings Of Fact Petitioner is a Georgia Corporation doing business as a heavy electrical contractor in Georgia and eight other states including Florida. In 1972, Petitioner submitted a request to the Department of Revenue that it be allowed to use "separate accounting" as the method for determining the amount of its adjusted federal income that was subject to taxation by the State of Florida under Chapter 220,Florida Statutes. By letter of October 3, 1972, T.H. Swindal, Respondent's Chief of the Corporation Income Tax Bureau, denied Petitioner's request with the following language: "The economics of large scale interstate construction operations, as we understand them, necessitate maximum utilization of a company's resources. At particular times and in a particular locale or with respect to particular types of construction activity contracts may be initially or regularly bid upon and undertaken which, on an individual contract basis, will be minimally profitable, if at all. Nevertheless, because these contracts permit cost absorption, continuing use and charge for equipment, trained crews and know-how; permit maximum employment of the company's capital and credit accomo- dations; permit initial entry into a new field of construction activity or a new locale, these contracts indirectly but significantly add to the profitability of the enterprise as a whole. We recognize too, that separate accounting essentially serves management and that management must evaluate competitive tax implications. "Separate accounting" does not, in our view, measure the impact of these cir- cumstances. We are of the opinion that Florida's three factor formula does measure the impact of these circumstances upon profit and thus provides a fairer Florida tax base." (Complaint, Petitioner's Exhibit 1) Respondent however, pursuant to a request of Petitioner, permitted the latter to leave its 1972 return as filed, but instructed it to file in the future utilizing the "three-factor" formula. Accordingly, the Petitioner filed its 1973 and 1974 tax returns utilizing the "three-factor" formula" as directed by the Respondent, and paid the appropriate tax due. By letter, dated September 15, 1975, Mr. Swindal informed Petitioner that examination of its returns for the years 1972 thru 1974 had resulted in a net proposed deficiency of $12,417.60. An accompanying report showed that the primary basis for the deficiency was Respondent's determination that the Florida portion of adjusted federal income for the years 1973 and 1974 should have been increased by the amounts of $87,772.93 and $160,117.83, respectively, based on a "separate accounting" computation. The reason given for this determination was stated as follows in the report: "Florida Statute 214.73(1) says in part that if the apportionment methods of Florida Statute 214.71 and 214.72 do not fairly represent the extent of a taxpayer's base attributable to this state, the department may require separate accounting. The department has determined the taxpayer should use separate accounting in accordance with the above-mentioned, statute." (Complaint and exhibits thereto) Respondent had not notified Petitioner between 1972 and 1975 of its apparent change in position with respect to the required method of accounting. At a conference held on February 19, 1976, between Petitioner's representatives and Mr. William T. Lutschak who represented the Respondent, Petitioner protested the asserted deficiency and requested that the Respondent adhere to its former determination that the "three-factor method" be applied in computing the tax. Petitioner's protest was denied orally at the conference and such denial w-s confirmed by Mr. Swindal's letter of February 24, 1976, as follows in pertinent part: "Careful analysis of the taxpayer's Florida activity and the financial results of that activity clearly demonstrate that the amount of income set forth in the auditor's report for the years at issue are attributable to taxpayer's Florida business and that F.S. 214.73(1), rather than F.S. 214.71, fairly represents the extent of the taxpayer's tax base attributable to this state." (Comp. & Exh. thereto) Respondent's auditor of Petitioner's 1973 and 1974 tax returns found nothing unusual concerning the latter's business operations during the above tax periods and is of the opinion that based on formulary accounting Petitioner's returns "fulfill the letter of the law". He also acknowledged that Petitioner met the criteria of a "unitary business". He testified that he was unable to determine the amount of property used by Petitioner on its various jobs in and out of Florida while at the audit site at Petitioner's home office in Alabama and that without such information it would be impossible to determine Petitioner's tax liability under the "three-factor method" because property is one of the factors. The auditor, after making a request of Petitioner for such figures during his audit, which did not produce immediate results, did not pursue the matter because he "had to go back to Tallahassee". In fact, such information was available in Petitioner's records. Respondent changed its policy with respect to the method of accounting required of Petitioner after consideration of a textbook on the concept of separate accounting and a resulting determination that the contracting business in general is a unique industry warranting special tax treatment. (Testimony of Harnden, Puckett, Malone, Exhibit 1, Pleadings). The alleged deficiency of $12,417.60 is correctly computed and properly due and owing if "separate accounting" is validly required with respect to Petitioner's tax returns. (Stipulation).
Recommendation That Petitioner be relieved from payment of the proposed assessment based on any tax deficiency produced by the requirement of separate accounting under Section 214.73, Florida Statutes. DONE and ENTERED 21st day of July, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division Northwood Mall Tallahassee, Florida 32303 James R. English, Esquire HENRY & BUCHANAN, P.A. P.O. Drawer 1049 Tallahassee, Florida 32302
The Issue The issue is whether Petitioner is liable for sales and use taxes, penalties, and interest and, if so, how much.
Findings Of Fact Petitioner operated a bar and grill in Punta Gorda that served beer, wine, liquor, and food at retail. In the course of business, Petitioner collected tax from the customers. Petitioner reported to Respondent sales tax collections for May 1996, November 1996, March 1997, November 1997, and December 1997. In connection with these collections, Petitioner remitted to Respondent seven checks representing the net tax due Respondent. These checks totaled $6700.64. The bank on which the checks were drawn dishonored them. The remittance of net sales tax proceeds by payment through checks that are later dishonored implies a fraudulent, willful intent to evade the payment of these sums. Respondent has issued five warrants concerning the unremitted taxes, penalties, and interest. Warrant 953620064 shows that Petitioner owes $1171 in sales tax remittances for the five months from July through November 1995. With penalties and interest, the total due on this warrant, through June 5, 1998, is $1832.37. Interest accrues after June 5 at the daily rate of $0.35. Warrant 467049 shows that Petitioner owes $2940.25 in sales tax remittances for the following months: April 1996, October 1996, December 1996, and January 1997. Petitioner purportedly paid each of these remittances with five (two in January) checks that were later dishonored. With penalties, including the 100 percent penalty for fraud, and interest, the total due on this warrant, through June 5, 1998, is $7480.12. Interest accrues after June 5 at the daily rate of $0.95. Warrant 971680037 shows that Petitioner owes $1301.85 in sales tax remittances for the following months: December 1995, June 1996, July 1996, September 1996, November 1996, and February 1997. With penalties and interest, the total due on this warrant, through June 5, 1998, is $2669.69. Interest accrues after June 5 at the daily rate of $0.43. Warrant 471481 shows that Petitioner owes $2912.48 in sales tax remittances for October and November 1997, for which Petitioner made remittances with two dishonored checks. With penalties, including the 100 percent penalty, and interest, the total due on this warrant, through June 5, 1998, is $6751.49. Interest accrues after June 5 at the daily rate of $0.95. Warrant 989840034 shows that Petitioner owes $8077.76 in sales tax remittances for the following months: August 1997, September 1997, December 1997, January 1998, and February 1998. With interest, the total due on this warrant, through June 5, 1998, is $8285.21. Interest accrues after June 5 at the daily rate of $2.65. Totaling the five warrants, Petitioner owes a total of $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order determining that Petitioner owes $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid. DONE AND ENTERED this 10th day of July, 1998, in Tallahassee, Leon County, Florida. ROBERT E. MEALE 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 10th day of July, 1998. COPIES FURNISHED: John N. Upchurch Nicholas Bykowsky Assistant Attorneys General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Judith Crown, President Tombstone, Inc. Suite P-50 1200 West Retta Esplanade Punta Gorda, Florida 33950 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue Whether petitioner taxpayer is liable for delinquent sales tax, penalties, and interest under Chapter 212, Florida Stat utes, as alleged by respondent Department in its notice of proposed assessment.
Findings Of Fact The Taxpayer Taxpayer is a family-operated Florida corporation which has engaged in retail sales at the Tampa Port Authority since 1975 or 1976; it is a licensed dealer registered with the Department. (Testimony of Roberts, Marylis.) Taxpayer's Sales During Audit Period From June 1, 1977, through July 31, 1980 (the audit period covered by the Department's proposed assessment), Taxpayer had gross sales in the approximate amount of $691,013.46. (Testimony of Roberts; Exhibit 2.) During that period, Taxpayer filed the required DR-15 monthly sales tax reports and paid taxes on all retail sales transactions which took place on the premises of its store located at 804 Robinson Street, (Tampa Port Authority) Tampa, Florida. (Testimony of Roberts.) During the same audit period -- in addition to sales on its store premises -- Taxpayer sold goods to merchant seamen on board foreign vessels temporarily docked at the Port of Tampa. These vessels operated in foreign commerce, entering the port from and returning to international waters outside the territorial limits of the United States. Taxpayer did not report these sales on its monthly sales tax reports; neither did it charge or collect sales tax from the on-board purchasers. (Testimony of Marylis.) Taxpayer failed to charge or collect sales tax in connection with its on-board sales because it relied on what it had been told by Department representatives. Prior to forming Taxpayer's corporation Thomas Marylis went to the local Department office to obtain a dealer's certificate. While there, he asked Manuel Alvarez, Jr., then the Department's regional audit supervisor, whether he was required to collect sales tax on ship-board sales. Alvarez replied that he didn't have to collect sales taxes on sales made to seamen when he delivered the goods to the ship. 1/ (Testimony of Marylis.) The on-board sales transactions took place in the following manner: Taxpayer (through its owner, Thomas Marylis) would board the foreign vessel and accept orders from the captain, chief mate, or chief steward. (Earlier, one of these persons would have taken orders from the rest of the crew.) If individual crewmen tried to place orders, Marylis would refer them to the captain, chief mate, or chief steward. After receiving orders from one of these three persons, Marylis would return to Taxpayer's store, fill the order, and transport the goods back to the vessel. Whoever placed the order would then examine the goods and give Marylis the money /2 collected from the crew. (Testimony of Roberts, Marylis.) The goods sold in this manner were ordinarily for the personal use of individual crew members; typical items were: shoes, underwear, working clothes, small radios, watches, suitcases, soap, paper towels, and other personal care products. (Testimony of Marylis.) Department Audit of Taxpayer In 1980, the Department audited Taxpayer's corporate books to determine if sales tax had been properly collected and paid. Taxpayer could produce no dock or warehouse receipts, bills of lading, resale certificates from other licensed dealers, or affidavits verifying that its on-board sales were made to out-of-state purchasers for transportation outside of Florida. (Testimony of Roberts, Marylis.) Due to Taxpayer's failure to supply documentation demonstrating that its ship-board sales from June 1, 1977, to July 31, 1980, were exempt from sales tax imposed by Chapter 212, Florida Statutes, the Department issued a proposed assessment on September 23, 1980. Through that assessment, the Department seeks to collect $21,201.01 in delinquent sales tax, $5,131.39 in penalties, and $3,892.18 in interest (in addition to interest at 12 percent per annum, or $6.97 per day, accruing until date of payment). (Exhibit 5.) Informal Conference with Department; Alvarez's Representations to Taxpayer In October 1980 -- after the audit -- Taxpayer (through Marylis) informally met with Manuel Alvarez, the Department's regional audit supervisor, to discuss the tax status of the shipboard sales. Specifically, they discussed the Department auditor's inability to confirm that Taxpayer delivered the items to the ships, as opposed to the buyers picking up the goods at the store. Alvarez told him: [I]f the buyers would come and just pick them up and take them. And I [Alvarez] think I told him that, if that was the case, it was taxable. But, if they just placed their orders there -- like we have had other ship supplies -- and they them- selves, or one of their employees, would take the items aboard ships, that would be an exempt sale. I did make that state ment. If we had any type of confirmation to that effect, when it comes to that. (Tr. 61.) 3/ (Testimony of Alvarez.) Alvarez then told Marylis to obtain documentation or verification that the sales were made on foreign vessels, i.e., proof that Taxpayer delivered the goods to the vessels. He assured Marylis that if he could bring such verification back, such sales "would come off the audit." (Tr. 62.)(Testimony of Alvarez.) Alvarez was an experienced Department employee: he retired in 1980, after 30 years of service. It was Alvarez's standard practice -- when dealing with sales tax exemption questions -- to reiterate the importance of documentation. He would always give the taxpayer an opportunity -- 30 days or more -- to obtain documentation that a sale was exempt from taxation. (Testimony of Alvarez.) Taxpayer's Verification In response to the opportunity provided by Alvarez, Taxpayer (through Marylis) obtained affidavits from numerous captains of foreign vessels and shipping agents. Those affidavits read, in pertinent part: I, [name inserted] , am the Captain aboard the vessel [name inserted] from [place of origin]. I am personally aware that Speros International Ship Supply Co., Inc. sells various commodities, supplies, clothing, and various sundry items to for eign ship personnel by delivering the said items to the ships docked at various termi- nals inside the Tampa Port Authority and other locations in Tampa, Florida from [date] to the present. (Testimony of Marylis; Exhibit 8.) Moreover, in an attempt to comply with the tax law and avoid similar problems in the future, Taxpayer printed receipt books to be used in all future on-board sales. The receipts reflect the type of goods sold, the date of delivery to the vessel, the foreign vessel's destination, and the total purchase price. Also included is a signature line for the individual who delivers and receives the goods. (Testimony of Marylis; Exhibit 7.)
Recommendation Based on the foregoing, it is RECOMMENDED: That Department's proposed assessment of Taxpayer for delinquent sales tax, penalties, and interest, be issued as final agency action. DONE AND RECOMMENDED this 17th day of February, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of February, 1982.
The Issue The issue in this case is whether Callagy Tires, Inc. (Petitioner), collected and remitted the correct amount of sales and use tax on its operations for the audit period.
Findings Of Fact DOR is the state agency charged with the responsibility of administering and enforcing the tax laws of the state of Florida. In conjunction with that duty, DOR performs audits of business entities conducting sales and use transactions. At all times material to the issues of this case, Petitioner conducted business in Palm Bay, Florida, and was obligated to collect and remit sales and use tax in connection with the activities of its business enterprise. Petitioner’s Federal Identification Number is 59-2221722. Petitioner sells tires (wholesale and retail), provides tire services such as installation, and performs other repair and towing services subject to sales or use taxes. In order to properly perform its audit responsibilities, DOR requires that businesses maintain and present business records to support the collection of sales and use taxes. In this case, DOR notified Petitioner that it intended to audit the business operations for the audit period, June 1, 2004, through May 31, 2007. After the appropriate notice to Petitioner, the audit was initiated on or about July 18, 2007. Employees of DOR went to Petitioner’s place of business, requested business records, and attempted to audit and reconcile Petitioner’s reported tax payments with the amounts and types of taxes that should have been remitted, based upon the records kept by Petitioner. Theoretically, the sums remitted to the Department should match the records of the business entity. In this case, the amount remitted by Petitioner could not be reconciled with the business records maintained by the business entity. As a result of the audit, DOR sent Petitioner a Notice of Intent to Make Audit Changes that claimed Callagy Tires, Inc., owed sales and use tax in the amount of $121,707.41. By letter dated August 13, 2009, Petitioner filed a protest of the audit findings. Thereafter, the parties exchanged information that Petitioner claimed should require reconsideration of the audit results. Nevertheless, the Department could not reconcile the bank and audit information based upon the documentation submitted by Petitioner. The amounts of the Notice of Reconsideration remain at issue. As of the time of the hearing in this cause, Petitioner had not provided documentation to refute the findings of the Department’s audit. At hearing, DOR maintained that Petitioner owes $173,718.66, together with accruing interest. Specifically, the audit found that there was a difference between the gross sales reported by Petitioner on its federal return and the amounts reported on its state forms. The difference between the two returns constituted unreported sales for state tax purposes. Secondly, the Department determined that certain sales were not “exempt” as maintained by Petitioner. Based upon a sample of invoices provided by Petitioner, DOR found that Petitioner did not remit the full sales tax due on certain types of services. For example, the correct sales tax was not remitted on machining brake rotors, truing brake rotors, or making repairs that included the use of tangible personal property. The taxable event required a calculation of sales tax on the entire amount, not a percentage of the cost. The third area of discrepancy identified by the audit, related to unpaid sales tax on machinery, equipment, supplies, and services purchased by Petitioner for use in the operation of its business. Throughout the audit process, and, subsequently, Petitioner never presented documentation to dispute the Department’s audit findings. DOR gave Petitioner every opportunity to present records that would establish that the correct amounts of sale and use taxes were collected and remitted. Petitioner timely challenged the audit findings, but, has not, through its principal owner or its agents, provided documentation that show the taxes were appropriately calculated and paid. Petitioner maintains that an amended federal tax return verifies the state return previously filed is accurate. Notwithstanding that assertion, Petitioner has not presented the underlying documentation to support the state or federal return. Further, Petitioner refused to allow DOR to review all of its electronically stored records, and did not make the records available to DOR.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a final order sustaining the audit findings, and require the Petitioner to remit the unpaid sales and use taxes in the amount of $173,718.66, together with accrued interest, as provided by law. DONE AND ENTERED this 22nd day of March, 2011, in Tallahassee, Leon County, Florida. S J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 2011. COPIES FURNISHED: Marshall Stranburg, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32314-6668 Eugene M. Callagy, Jr. Callagy Tires, Inc. 6625 Babcock Street, Southeast Malabar, Florida 32950 Patrick Hanley, Esquire 185 Forest Road Troy, Montana 59935-9572 John Mika, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Lisa Vickers, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32314-6668
Findings Of Fact During the period covered by the tax audit, Petitioner published and distributed free of charge two Jacksonville area editions of a weekly magazine entitled TV Facts. This magazine contains substantial advertising which provides all revenues. In addition to the advertising, television schedules and feature stories are included to interest the general public in the publication. Petitioner obtained a second class postal permit for the magazine, but has never used the mails for distribution. During the period at issue, the magazine was prepared in a three step process. The rough layout without television schedules was prepared by Petitioner and forwarded to Composition Compound, Inc., a Miami company. This company obtained the television schedules and prepared the final layout. Composition Compound then photographed this layout and sent the negatives to Sun 'N' Fun Printing, a Clearwater company. Sun 'N' Fun then printed the magazine and delivered it to Petitioner. Petitioner paid Composition Compound for all services provided by that company and Sun 'N' Fun. Thus, there was no direct business relationship between Petitioner and Sun 'N' Fun. Petitioner believed it qualified for the newspaper exemption and was neither charged nor paid any sales taxes until it learned through Respondent's audit of Composition Compound that such taxes were due. Respondent seeks to assess Petitioner sales taxes in the amount of $5,830.56 with penalty of $1,457.64 plus 12 percent interest to the date of payment for the audit period December 1, 1977, through November 30, 1980. Petitioner does not contest these computations, but believes the tax due, if any, should be reduced by the amounts it paid to Composition Compound to cover the sales tax billed by Sun 'N' Fun. Petitioner submitted Sun 'N' Fun invoice (Exhibit 7) to demonstrate that Composition Compound was billed for about $2,700.00 in sales taxes by Sun 'N' Fun for printing Petitioner's magazine between December 29, 1978, and December 29, 1979. Composition Compound separately computed its costs and profits which it billed to Petitioner (Exhibit 6). However, there was no separate brochure of the sales tax shown on the Composition Compound invoices, nor was any additional tax charged on the value added by that company.
Recommendation From the foregoing, it is RECOMMENDED: That Respondent enter a final order holding Petitioner liable for $5,830.56 in taxes assessed on December 11, 1980, and for interest computed at the rate of 1 percent per month thereafter until said tax is paid to Respondent. DONE AND ENTERED this 9th day of November, 1981, in Tallahassee, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of November, 1981.
Findings Of Fact Modern Tool and Die, (MTD), is a privately held corporation engaged in manufacturing equipment. In 1965 they started the manufacture of bumper guards which required electroplating. They entered into agreements with MPC pursuant to which MTD erected two buildings adjacent to their plant which they leased to MPC in which to do the electroplating of the bumper guards. MPC is also a privately held corporation and there is no common ownership of these two companies. The two buildings built for MPC's occupancy were partitioned, compartmented and wired as desired by MPC and at its expense. Florida Power Corporation supplied electricity to the complex through the main transformer of MTD. In 1965 and to a lesser extent now, electricity rates per kilowatt-hour (kwh) were lowered with increased usage of electricity. Since both MTD and MPC are large users of electricity they obtain a cheaper rate if all electricity used is billed from the master meter serving MTD. Accordingly, and at the recommendation of the power company, additional transformers and meters were placed at the two buildings occupied by MPC and read monthly at or about the same time the master meter is read by the power company. The kw used at the two buildings is forwarded by MPC to MTD each month. The latter, upon receipt of the power company bill, computes the cost of the power per kwh and in turn bills MPC for its portion of the bill based upon the usage forwarded by MPC to MTD. Upon the commencement of this working agreement between these two companies in 1965 MPC, pursuant to an oral lease, has paid rent to MTD monthly at the rate of approximately $2,400 per month. It has also paid to MTD its pro rata cost for the electricity used each month. The rent is invoiced each month on the first of the month as in Exhibit 3 and paid by the 10th by MPC. Sales tax is added to the rent and remitted to DOR. Electricity usage is also invoiced by MTD to MPC on or about the 20th of the month and paid by MPC on or about the first of the following month. (Exhibit 4). Sales tax on the electricity used is paid by MTD to Florida Power Company who presumably remits this to DOR. During the 15 years these two companies have shared the cost of electric power they have been audited numerous times; the arrangement was made known to the auditors; and no auditor, prior to the present, suggested that the cost of electricity was part of the rent paid by MPC upon which sales tax was due. Notice of Proposed Assessment (Exhibit 1) in the amount of $9,747.34 is based upon the cost of electricity billed to MPC during the period of the audit December 1, 1976 through November 30, 1979 multiplied by 4 percent sales tax plus penalties and interest. The parties stipulated to the accuracy of this amount. They differ only as to whether the tax is owed.
Findings Of Fact Petitioner owns the Palm Beach El Cid Bar and the Fifty-One-O-One Bar in West Palm Beach. Mixed drinks are sold at these establishments. In both bars, the cash registers record each item rung up but do not state the prices of the drinks separately from the sales taxes incurred on account of their sale. When James A. Blalock acquired petitioner approximately five years ago, he computed the sales tax owing on a day's sales at the Palm Beach El Cid Bar by examining a cash register tape which reflected the sales. For the day Mr. Blalock made his item by item calculations, he computed sales tax at 4 percent on each item, which yielded a figure slightly in excess of 4.2 percent on aggregate sales. Mr. Blalock then "made a supposition" that multiplying gross receipts (the sum of aggregate sales and aggregate sales taxes) by one twenty- fifth (4 percent) would yield a figure which would approximate 4.2 percent of aggregate sales. This supposition is well founded, as reflected by the equation .042 = X(1 + .042), where X equals the number by which gross receipts are to be multiplied. After Mr. Blalock had done his calculations, he made the assumption that the results for that day would hold true generally for both bars, and instructed petitioner's employees to multiply gross receipts by one twenty-fifth (4 percent) in order to compute petitioner's sales taxes. Petitioner's employees did in fact calculate and pay sales taxes monthly on this basis from August 1, 1974, through September 30, 1976, on sales at the Fifty-One-O-One Bar, and from October 1, 1979, through September 30, 1976, on sales at the Palm Beach El Cid Bar. Since Mr. Blalock's calculations, however, the "price structure" at the bars has changed three times. Nobody now remembers what day of the week was chosen as the basis for the original calculations. Gross sales at the Fifty-One-O-One Bar from August 1, 1974, through September 30, 1976, amounted to two hundred twenty thousand four hundred ninety- one dollars and thirty cents ($220,491.30). On these sales, petitioner paid sales taxes of eight thousand seven hundred forty-three dollars and twenty-eight cents ($8,743.28). Gross sales at the Palm Beach El Cid Bar from October 1, 1973, through September 30, 1976, amounted to four hundred ninety-two thousand six hundred forty-one dollars. and sixty-four cents ($492,641.64). On these sales, petitioner paid sales taxes of nineteen thousand six hundred sixty-five dollars and ninety-one cents ($19,665.91). At both of petitioner's bars, a price list which sated, for each item, its cost without tax, the amount of sales tax, and its cost with sales tax, was kept next to the cash register, for employees' use. Ordinarily, these price lists were not visible patrons. At least since the fall of 1971, respondent has permitted dealers in mixed alcoholic beverages to pay a sales tax equal to their gross sales less the quotient. of gross sales divided by 1.045, whenever it is impractical to record the sales price of each drink separately from the tax collected on account of the sale of the drink, but only if the dealer displays a price list on which the dealer "indicate[s]. . . the cost of each item, the applicable amount of sales tax to each and the total price of the item." Petitioner's exhibit No. 2.
Recommendation Upon consideration of the foregoing, and in keeping with the teachings of McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st D.C.A. 1977), it is RECOMMENDED: That respondent cease and desist from applying the policy set forth in petitioner's exhibit No. 2 until and unless the same shall be duly adopted as a rule, in the manner provided by law. That petitioner pay respondent twenty-two thousand one hundred sixty- eight dollars and eighty-seven cents ($22,168.87) on account of sales at the Palm Beach El Cid Bar and nine thousand nine hundred twenty-two dollars and eleven cents ($9,922.11) on account of sales at the Fifty-One-O-One Bar, together with applicable penalties and interest, less sales taxes petitioner has already paid on account of the Palm Beach El Cid Bar for the period October 1, 1973, to September 30, 1976, and on account of the Fifty-One-O-One Bar for the period August 1, 1974, to September 30, 1976. DONE and ENTERED this 19th day of August, 1977, 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: Mr. John E. Woodbery, Esquire Woodbery and Sapp 217 John Knox Road Tallahassee, Florida 32303 E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304
