Findings Of Fact Petitioner designs, manufactures, and sells the "Little Casino" video game machine. The machine is designed to enable a player, through the insertion of either one or two quarters, to play one of four games: poker, high-low, blackjack, or craps. The machine contains two switches which enable the owner to control the cost per game, whether 25 cents or 50 cents per game. Upon deposit of the appropriate amount of money, the player of the game receives 10,000 points to play the selected game. If the operator utilizes the entire 10,000 points in less than four hands or rolls, the game is over. If, however, the operator earns or wins 100,000 points by the conclusion of the fourth hand or roll, a free fifth hand or roll is allowed. If the operator earns 200,000 points by the conclusion of the fifth hand or roll, a free sixth hand or roll is allowed. The player of the game is allowed no more than six hands or rolls in the chosen game, regardless of the number of points scored. Depending upon the game option selected, cards or dice appear on the video screen. So far as can be determined from the record in this cause, the dealing of the cards or roll of the dice is entirely determined by the programming of the machine, and the player is wholly unable to control or influence the initial selection of cards or the roll of the dice. Little Casino does not allow free replays, does not accumulate free replays, and makes no permanent record of free replays. The game is not classified by the United States as requiring a federal gambling tax stamp under any applicable provisions of the Internal Revenue Code. The machine can be set to eliminate what Respondent considers to be the objectionable fifth and sixth hands.
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: Petitioner is a Florida corporation that was at all times material to the instant case (but is no longer) in the coin-operated machine business. It owned various amusement and game machines that were placed at different locations pursuant to agreements with the location operators. Most of these agreements were not reduced to writing. In those instances where there was a written agreement, a "Location Lease Agreement" form was used, with insertions made where appropriate in the spaces provided. The form indicated, among other things, that Petitioner was "in the business of leasing, renting, servicing, maintaining and repairing of coin-operated machines" and that the agreement was "for the placement, servicing and maintaining of certain coin-operated machines" in the location specified in the agreement. In the coin-operated machine trade, the custom was for the parties to an oral or written agreement for the placement of an amusement or game machine on the property of another to treat such an agreement as involving the location operator's rental of the machine owner's tangible personal property rather than the machine owner's rental of the location operator's real property. Petitioner and the location operators with whom it contracted followed this custom of the trade in their dealings with one another. They construed their agreements as involving the rental of Petitioner's tangible personal property by the location operators and acted accordingly. Petitioner collected from the location operators the sales tax due on such rentals and remitted the monies collected to Respondent. 1/ It engaged in this practice for approximately a decade without challenge by Respondent. In late 1990 and early 1991, Respondent conducted an audit of Petitioner's records. The audit covered the period from January 1, 1988, to September 30, 1990 (referred to herein as the "audit period"). Among the records reviewed were those agreements between Petitioner and location operators that were reduced to writing. Based upon their reading of these agreements, the auditors were of the view that the agreements into which Petitioner had entered were actually for the rental of the location operators' real property, not the rental of Petitioner's machines. They therefore concluded that Petitioner, as opposed to the location operators, should have paid sales tax and that Petitioner's purchase of machines and parts should not have been treated as tax exempt. The assessment which is the subject of this proceeding thereafter issued.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Revenue enter a final order withdrawing the assessment that is the subject of the instant proceeding. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23rd day of November, 1992. STUART M. LERNER 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 23rd day of November, 1992.
The Issue The issues for disposition in this case are whether proposed rules 61D-11.001(17) and 61D-11.002(5), Florida Administrative Code, which consist of the repeal of said rules, constitute an invalid exercise of delegated legislative authority as defined in section 120.52(8), Florida Statutes; and whether the Department of Business and Professional Regulation, Division of Pari-Mutuel Wagering’s (Respondent), failure to prepare a statement of estimated regulatory costs constituted a material failure to follow the applicable rulemaking procedures or requirements set forth in chapter 120.
Findings Of Fact Respondent is the state agency charged with regulating pari-mutuel wagering pursuant to chapter 550, Florida Statutes, and cardrooms pursuant to section 849.086, Florida Statutes. Each Petitioner currently holds a permit and license under chapter 550 to conduct pari-mutuel wagering and a license under section 849.086 to conduct cardroom operations. Petitioners offer designated player games at their respective cardrooms. The rules proposed for repeal, rules 61D-11.001(17) and 61D-11.002(5), relate to the play of designated player games. Rule 61D-11.001(17) provides that “‘[d]esignated player’ means the player identified by the button as the player in the dealer position.” Rule 61D-11.002(5) provides that: Card games that utilize a designated player that covers other players’ potential wagers shall be governed by the cardroom operator’s house rules. The house rules shall: Establish uniform requirements to be a designated player; Ensure that the dealer button rotates around the table in a clockwise fashion on a hand to hand basis to provide each player desiring to be the designated player an equal opportunity to participate as the designated player; and Not require the designated player to cover all potential wagers. Both rules were adopted on July 21, 2014. Both rules list sections 550.0251(12), and 849.086(4) and (11) as rulemaking authority, and section 849.086 as the law implemented. Designated Player Games A designated player game is a subset of traditional poker games in which a designated player plays his or her hand against each other player at the table, instead of all players competing against each other. The term “designated player game” is used synonymously with “player banked games.”3/ However, a designated player is not a cardroom operator. In traditional “pool” poker games, each player bets into a central pool, with the winning hand(s) among all of the players collecting from the pool of bets, minus the cardroom rake. In designated player games, each player at the table makes an individual bet, and compares their hand against the designated player’s hand. If the player’s hand is better than the designated player’s hand, then the designated player pays the player from the designated player’s stack of chips. If the designated player’s hand is better than the player’s hand, then the designated player collects the player’s wager. At an eight- seat table, it is as though there are seven separate “player versus designated player” games. Designated player games were first played at the Ebro (Washington County Kennel Club) cardroom in 2011. The game, known as “double hand poker,” was demonstrated to Respondent, and subsequently approved for play. Though the internal control that describes the rules of game play was not offered in evidence, a preponderance of the evidence demonstrates that the game used a designated player. After Respondent’s approval of Ebro’s double hand poker, Respondent entered an order rescinding its approval due to concerns that the use of a designated player resulted in the establishment of a banking game. That decision was challenged, and subsequently withdrawn, with the result being that “Ebro may immediately resume play of Double Hand Poker as approved by the division.” In 2012, the Palm Beach Kennel Club cardroom began offering “tree card poker” with a designated player. Although tree card poker had been approved by Respondent, the designated player element had not. Thus, since the game was not being played in accordance with the approved internal control, it was unauthorized. Respondent investigated the playing of tree card poker at Palm Beach Kennel Club. A video demonstration was provided that showed two hands of tree card poker being played with a designated player. The video depicted a single designated player playing his hand against each other player at the table, and paying or collecting wagers based on each individual hand. After having reviewed the demonstration video, Respondent ultimately determined that the use of a designated player did not violate the prohibition against banking games as defined. The Adoption of the Designated Player Rules As requests for approval of internal controls for games using designated players became more common, Respondent determined that it should adopt a rule to establish the parameters under which designated player games would be authorized. On December 16, 2013, after having taken public comment at a series of rulemaking workshops, Respondent published proposed rule 61D-11.002(5) which provided as follows: 61D-11.002 Cardroom Games. * * * Card games that utilize a designated player that covers other players’ wagers shall: Allow for only one designated player during any single hand; Not require the designated player to cover all wagers that could be made by the other players in the game; Not allow other players to cover wagers to achieve winnings that the designated player could have won had he or she covered the same wagers; Not allow or require a player to buy in for a different amount than any other player in the game in order to participate as the designated player; and Rotate a button or other object to designate which player is the designated player. The button or other object shall rotate clockwise around the table to give each player the opportunity to participate as the designated player. On February 14, 2014, a challenge to the proposed rule was filed that objected to restrictions on the manner in which designated player games could be conducted. The rule challenge hearing was continued, and the case placed in abeyance pending negotiations between the parties. On March 14, 2014, Respondent filed a Notice of Change to the proposed rule 61D-11.002, which added the following provisions to proposed rule 61D-11.002: The designated player shall: Cover the table minimum for each participating player; and Pay each player an amount above the table minimum equal to their pro rata share of the pot in the event the designated player cannot cover all wagers. A public hearing on the changes to the proposed rule was held on May 8, 2014. As to the designated player provisions of the proposed rule, Respondent received the following comment: [I]f we could modify this . . . taking the existing paragraph 5 and come up with three new criteria, one being uniform requirements for a designated player included within the house rules; allowing for the dealer button to rotate on a hand-by-hand basis for qualified designated players; also, not requiring the designated player to cover all potential wagers, but nonetheless allowing the house rules to set a designated minimum buy-in amount or just a chip count. I think if we had those particular parameters, we would allow the preservation of this game to continue in its current fashion . . . . And . . . we’re going to avoid [] any argument that the department has somehow created a banked card game, because the biggest thing here is that we’re not requiring that the designated player meet all the theoretical payouts of the game. On May 19, 2014, written comments were submitted on behalf of several pari-mutuel facilities. Those comments included proposed language that is identical to the rule that was ultimately adopted, and included the following: Multiple jurisdictions have determined a key element to banked card games is the house requiring all wagers be covered. We propose this language to distinguish between lawful games and impermissible banked games. On June 9, 2014, Respondent filed a Notice of Change that adopted the industry’s proposed language, and changed proposed rule 61D-11.002 to its present form. On June 13, 2014, the challenge to proposed rule 61D-11.002(5) was voluntarily dismissed, and the case was closed. On July 21, 2014, rule 61D-11.002(5) became effective. There can be little doubt that Respondent understood that it was, by its adoption of rule 61D-11.002(5), recognizing player banked games in which a designated player plays his or her hand against each other player at the table. The rule is substantial evidence that, as of the date of adoption, Respondent had determined that designated player games did not violate the prohibition against “banking games” as that term is defined in section 849.086. Internal Controls Over the course of several years, beginning generally in 2011 and extending well into 2015, Respondent was presented with internal controls from cardrooms around the state for playing designated player games. Internal controls are required before a particular game may be offered, and describe the rules of the game and the wagering requirements. The internal controls submitted by the Jacksonville Kennel Club; the Daytona Beach Kennel Club; the West Flagler Associates/Magic City Poker Room; and the Naples/Ft. Myers Greyhound Track Cardroom, described games in which designated players played their hand against those of the other players at the table, and paid and collected wagers from the designated player’s chip stack based on the rank of the designated player’s hand against the individual players. The games described did not involve pooled wagers, and clearly described player banked games. Respondent approved the internal controls for each of the four facilities. The process of approving internal controls occasionally included the submission of video demonstrations of the games described in the internal controls for which approval was being sought. Approval of internal controls was never done without the review and assent of Respondent’s legal department or the division director. With regard to the rules of the designated player games that underwent review and approval by Respondent, “all of them are about the same, few differences.” From 2011 through mid-2015, Respondent approved internal controls for playing one-card poker, two-card poker, three-card poker, Florida Hold ‘Em, and Pai Gow poker using designated players at numerous cardroom facilities. A preponderance of the evidence establishes that Respondent was aware of the fact that, for at least several facilities, “eligible” designated players were required to meet minimum financial criteria, which ranged from a minimum of $20,000 in chips, up to $100,000 in chips. In the case of the Daytona Beach Kennel Club cardroom, internal controls called for a designated player to submit an application, agree to a background check, and submit a deposit of $100,000. Respondent approved those internal controls. DBPR Training In August 2015, Mr. Taylor was invited by the Bestbet cardroom in Jacksonville4/ to participate in a training session it was offering for its employees. Mr. Taylor is an investigator for Respondent, and visited the pari-mutuel facilities at least once per week. Mr. Taylor was invited by the facility to get an overview of how the cardroom games that had been approved by Respondent, including designated player games, were played. The games that were the subject of the training were substantially similar to those depicted in the April 2012 training video, and those he had observed during his weekly inspections. The designated player games for which training was provided had been approved by Respondent. In September 2015, training in designated player games was provided at Respondent’s Tallahassee offices to several of its employees. Mr. Taylor perceived the training “as an overview to give us an idea of what we are going to see.” Neither Mr. Taylor nor any other participant in the training offered any suggestion that the training was being provided in anticipation of a shift in Respondent’s practice of approving the internal controls for designated player games. Current Rulemaking On September 23, 2014, Respondent published a Notice of Development of Rulemaking. The notice cited 15 of the 30 subsections of chapter 61D-11 as being the subject areas affected by the notice, and provided that “[t]he purpose and effect of the proposed rulemaking will be to address issues discovered in the implementation and practical application of cardroom rules adopted on July 21, 2014.” There is nothing in the notice to suggest that Respondent had modified its position on designated player games, and its continued approval of institutional controls approving such games is strong evidence that it had not. On August 4, 2015, Respondent published a Notice of Meeting/Workshop Hearing for a rule workshop to be held on August 18, 2015. The Notice listed each rule in chapter 61D-11 as the “general subject matter to be considered,” including those related to games of dominos. Respondent asserted that it had “posted a version of amended cardroom rules that included the [repeal of rule 61D-11.005] on its website,” though such was not published, nor did Respondent provide a record citation in support of its assertion. On October 29, 2015, Respondent published its proposed amendments to chapter 61D-11. Rule 61D-11.001(17), which defines the term “designated player” as “the player identified by the button as the player in the dealer position,” was proposed for repeal. Rule 61D-11.002(5), as set forth above, which had established the standards for designated player games, was proposed for repeal. Rule 61D-11.005 was proposed for amendment to add subsection (9), which provided that “[p]layer banked games, established by the house, are prohibited.” On December 2, 2015, the Division held a public hearing on the proposed amendments. During the public hearing, Mr. Zachem made it clear that the intent of the proposed amendments was to change the Division’s long-standing and consistently applied construction of section 849.086 as allowing designated player games to one of prohibiting designated player games, and in that regard stated that: The rules pertaining to designated player games are now going to be correlated with the statute that is the prohibition against designated player games. The statute does not allow designated player games. There has to be a specific authorization for a type of game in statute, and there is none in 849.086 pertaining to designated player games . . . . When some of these definitions in other areas were created, I don’t think that the concept of what these games could even become was fathomed by the division. Given the process by which internal controls for designated player games were approved by Respondent, including written descriptions and video demonstrations of play, the suggestion that Respondent could not “fathom” the effect of its rules and decisions is not accepted. On December 11, 2015, Petitioners individually filed petitions challenging the validity of the proposed rules. The cases were consolidated and ultimately placed into abeyance pending efforts to resolve the issues in dispute. Agency Action Concurrent with Rulemaking After the December 2015 public hearing, and prior to the adoption of any amendments to chapter 61D-11, Respondent filed a series of administrative complaints against cardrooms offering designated player games. Those administrative complaints were very broadly worded, and reflected Respondent’s newly-developed position that designated player games constituted “a banking game or a game not specifically authorized by Section 849.086, Florida Statutes.” In that regard, Mr. Zachem testified that a cardroom could have been operating in full compliance with its Respondent-approved internal controls and still have been the subject of an administrative complaint.5/ The position of Respondent was made clear by Mr. Zachem’s statement that if a cardroom has an approved designated player game “where a banker is using their table, their dealer, their facility they [the cardroom] are establishing a bank.”6/ Thus, there can be little doubt that Respondent now construes section 849.086 to mean that player banked games constitute prohibited “banking games” because, by allowing the player banked game in its facility, the cardroom “establishes” a bank against which participants play. After the December public hearing, Ms. Helms was instructed that she was to no longer approve internal controls if they included provisions regarding designated players. That blanket instruction came with no conditions. Since that instruction, the internal controls for at least one facility have been disapproved, despite their being “about the same” as internal controls that had been previously approved for other facilities. Ms. Helms testified that after the December 2015 rule hearing, “things kind of turned around” with regard to Respondent’s position on designated player games. She then rethought her selection of words, stating instead that “things changed.” Given the totality of the evidence in this case, Ms. Helms’ statement that the position of Respondent towards designated player games “turned around” is the more accurate descriptor. Notice of Change On January 15, 2016, the Division published a Notice of Change/Withdrawal of proposed rules. Through the issuance of this notice, the Division withdrew proposed rule 61D-11.005(9). The proposed repeal of rules 61D-11.001(17) and 61D-11.002(5) remained unchanged. Since that notice of change, the preponderance of the evidence demonstrates that Respondent has stopped approving internal controls that propose the offering of designated player games, and has continued to take action against facilities that offer designated player games. Respondent’s statements and actions, including those made in the course of this proceeding, demonstrate that Respondent intends the repeal of rules 61D-11.001(17) and 61D-11.002(5), to effectuate the prohibition of designated player games despite the withdrawal of proposed rule 61D-11.005(9). Lower Cost Regulatory Alternative When it proposed the subject amendments to rule 61D-11 on October 29, 2014, Respondent had not prepared a statement of estimated regulatory costs. Rather, the notice of proposed rule provided that: The agency has determined that this rule will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the agency. The agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: the economic review conducted by the agency. Any person who wishes to provide information regarding the statement of estimated regulatory costs, or to provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice. On November 19, 2015, in conjunction with the rulemaking process described above, a number of licensed cardroom operators, including some of the Petitioners, timely submitted a good faith proposal for a lower cost regulatory alternative (“LCRA”) to the proposed amendments to chapter 61D-11 that would have the effect of prohibiting designated player games, citing not only the creation of rule 61D-11.005(9), but the repeal of rule 61D-11.002(5). A preponderance of the evidence demonstrates that the LCRA indicated that the rule was likely to directly or indirectly increase regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. The LCRA, as described in the letter of transmittal, also concluded that regulatory costs could be reduced by not adopting the proposed rule amendments, thus maintaining Respondent’s previous long-standing interpretation of section 849.086, and thereby accomplishing the statutory objectives. Respondent employed no statisticians or economists, and there was no evidence to suggest that any such persons were retained to review the LCRA. Though Mr. Zachem did not “claim to be an expert in statistics,” he felt qualified to conclude that the LCRA was “a bit of a challenging representation.” Thus, Respondent simply concluded, with no explanation or support, that “the numbers that we received were unreliable.” Respondent did not prepare a statement of estimated regulatory costs or otherwise respond to the LCRA. Respondent argues that its abandonment of proposed rule 61D-11.005(9), which was the more explicit expression of its intent to prohibit designated player games, made the LCRA inapplicable to the rule as it was proposed for amendment after the January 15, 2016, notice of change. That argument is undercut by the fact that Respondent did not amend its statement of estimated regulatory costs as a result of the change in the proposed rule. Moreover, the evidence is overwhelming that Respondent, by its decision to disapprove internal controls that included designated player games, and its enforcement actions taken against cardrooms offering designated player games, specifically intended the amendments repealing the designated player standards to have the effect of prohibiting designated player games. Thus, despite the elimination of the specific prohibition on designated player games, there was no substantive effect of the change. Therefore, the LCRA remained an accurate expression of Petitioners’ estimated regulatory costs of the proposed rule. Ultimate Findings Respondent has taken the position that the repeal of rule 61D-11.005(9) was undertaken “[f]or clarity with the industry.” That position is simply untenable. Rather, Respondent has taken an activity that it previously found to be legal and authorized and, by repealing the rule and simply being silent on its effect, determined that activity to be prohibited. By so doing, Respondent has left it to “the industry” to decipher the meaning and effect of a statute that is, quite obviously, ambiguous and in need of the interpretive guidance that has been and should be provided by rule. The evidence is conclusive that, by its repeal of rule 61D-11.002(5), Respondent simply changed its mind as to whether playing with a designated player constituted the establishment of a prohibited banking game.7/ It previously determined that such games were lawful under the terms of section 849.086; it has now determined they are not. Though there is substantial evidence to suggest that the reason for the change was related to the renegotiation of the Seminole Compact, the reason is not important. What is important is that Respondent has taken divergent views of the statute in a manner that has substantially affected the interests of Petitioners. For Respondent to suggest that its repeal of the rules is a clarification, a simplification, or a reflection of the unambiguous terms of the statute, and that Petitioners should just tailor their actions to the statute without any interpretive guidance from Respondent, works contrary to the role of government to provide meaningful and understandable standards for the regulation of business in Florida. Respondent cannot, with little more than a wave and well-wishes, expect regulated businesses to expose themselves to liability through their actions under a statute that is open to more than one interpretation, when the agency itself has found it problematic to decipher the statute under which it exercises its regulatory authority.
The Issue The issues are whether proposed rules 12-18.008, 12A-15.001 and 12A-1.044, Florida Administrative Code, are valid exercises of delegated legislative authority.
Findings Of Fact The Parties The Family Arcade Alliance (Alliance) is a group composed primarily of businesses that operate amusement game machines in the State of Florida which are activated either by token or coin. The parties agree that the Alliance is a substantially affected person as that term is defined in Section 120.54(4)(a), Florida Statutes (1991), and has standing to maintain these proceedings. The Department of Revenue (Department) is the entity of state government charged with the administration of the revenue laws. The Tax and the Implementing Rules Except for the period the services tax was in force, no sales tax had been imposed on charges made for the use of coin-operated amusement machines before the enactment of Chapter 91-112, Laws of Florida, which became effective on July 1, 1991. The Act imposed a 6 percent sales tax on each taxable transaction. Coin-operated amusement machines found in Florida are typical of those machines throughout the United States. The charges for consumer use of the machines are multiples of twenty-five-cent coins, i.e., 25 cents, 50 cents, 75 cents, and one dollar. The sales tax is most often added to the sale price of goods, but it is not practicable for the sellers of all products or services to separately state and collect sales tax from consumers. For example, there is no convenient way separately to collect and account for the sales tax on items purchased from vending machines such as snacks or beverages, or from newspaper racks. For these types of items, a seller reduces the price of the object or service sold, so that the tax is included in the receipts in the vending machine, newspaper rack or here, the coin-operated amusement machine. There are subtleties in the administration of the sales tax which are rarely noticed. The sales tax due on the purchase of goods or services is calculated at the rate of 6 percent only where the purchase price is a round dollar amount. For that portion of the sales price which is less than a dollar, the statute imposes not a 6 percent tax, but rather a tax computed according to a specific statutory schedule: Amount above or below Sales tax whole dollar amount statutorily imposed 1-9 0 10-16 1 17-33 2 34-50 3 51-66 4 67-83 5 84-100 6 Section 212.12(9)(a) through (h), Florida Statutes (1991). In most transactions the effect of the schedule is negligible and the consumer never realizes that the tax rate is greater than 6 percent for the portion of the sales price that is not a round dollar amount. Where a very large percentage of sales come from transactions of less than a dollar, the statutory schedule for the imposition of the sales tax takes on a greater significance. For those transactions between 9 cents up to a dollar the schedule's effective tax rate is never below the nominal tax rate of 6 percent, and may be as high as 11.76 percent. For example, the 1 cent sales tax on a 10 cent transaction yields an effective tax rate of 10 percent, not 6 percent. Where it is impracticable for businesses in an industry to separately state the tax for each sale, the statutes permit sellers (who are called "dealers" in the language of the statute) to file their tax returns on a gross receipts basis. Rather than add the amount of the tax to each transaction, taxes are presumed to be included in all the transactions and the dealer calculates the tax based on his gross receipts by using the effective tax rate promulgated by the Department in a rule. See Section 212.07(2), Florida Statutes (1991). Businesses also have the option to prove to the Department that in their specific situation the tax due is actually lower than a rule's effective tax rate for the industry, but those businesses must demonstrate the accuracy of their contentions that a lower tax is due. Applying the statutory tax schedule to sales prices which are typical in the amusement game machine industry (which are sometimes referred to as "price points") the following effective tax rates are generated at each price point: Total Sales Presumed Presumed Effective Price Selling Price Sales Tax Tax Rate 25 cents 23 cents 2 cents 8.7% 50 cents 47 cents 3 cents 6.38% 75 cents 70 cents 5 cents 7.14% $1.00 94 cents 6 cents 6.38% The determination of an effective tax rate for an industry as a whole also requires the identification of industry gross receipts from each of the price points. Once that effective tax rate is adopted as a rule, the Department treats dealers who pay tax using the effective tax rate as if they had remitted tax on each individual transaction. Proposed Rule 12A-1.044 establishes an industry-wide effective tax rate for monies inserted into coin-operated amusement machines or token dispensing machines of 7.81 percent. For counties with a one half or one percent surtax, the effective tax rates are 8.38 percent and 8.46 percent respectively. These rates include allowances for multiple plays, i.e., where the consumer deposits multiple coins to activate the machine. Proposed Rule 12A-1.044(1)(b) defines coin-operated amusement machines as: Any machine operated by coin, slug, token, coupon or similar device for the purpose of entertainment or amusement. Amusement machines include, but are not limited to, coin-operated radio and televisions, telescopes, pinball machines, music machines, juke boxes, mechanical games, video games, arcade games, billiard tables, moving picture viewers, shooting galleries, mechanical rides and all similar amusement devices. Proposed Rule 12-18.008 contained a definition of "coin-operated amusement machines" when the rule was first published which was essentially similar, but that rule's nonexclusive list of amusement machines did not include radios, televisions or telescopes. The Department has prepared a notice to be filed with the Joint Administrative Procedures Committee conforming the definitions so they will be identical. The current differences found in the nonexclusive descriptive lists are so slight as to be inconsequential. The Petitioners have failed to prove any confusion or ambiguity resulting from the differences that would impede evenhanded enforcement of the rule. Proposed Rule 12A-15.011 did not contain a separate definition of coin-operated amusement machines. Owners of amusement machines do not always own locations on which to place them. Machine owners may go to landowners and lease the right to place their machines on the landowner's property. The transaction becomes a lease of real property or a license to use real property. Sometimes owners of locations suitable for the placement of amusement machines lease machines from machine owners. Those transactions become leases of tangible personal property. Both transactions are subject to sales tax after July 1, 1991. Proposed rules 12A- 1.044(9)(c), (d) and 10(a), (c) prescribe which party to the leases of real estate or personal property will be responsible to collect, report and remit the tax. Under subsection 9(d) of proposed rule 12A-1.044, sales tax will not be due on any payment made to an owner of an amusement machine by the owner of the location where that machine is placed if: a) the lease of tangible personalty is written, b) the lease was executed prior to July 1, 1991, and c) the machine involved was purchased by the lessor prior to July 1, 1991. The tax will be effective only upon the expiration or renewal of the written lease. Similarly, proposed 12A-1.044(10)(d) provides that sales tax will not be due on written agreements for the lease of locations to owners of amusement machines if: a) the agreement to rent the space to the machine owner is in writing, and b) was entered into before July 1, 1991. At the termination of the lease agreement, the transaction becomes taxable. Changes to the proposed rules The Department published changes to the proposed rule 12A-1.044(3)(e) on October 18, 1991, which prescribed additional bookkeeping requirements on any amusement machine operators who wished to avoid the effective tax rate established in the proposed rule, and demonstrate instead a lower effective tax rate for their machines. The significant portions of the amendments read: In order to substantiate a lower effective tax rate, an operator is required to maintain books and records which contain the following information: * * * b. For an amusement machine operator, a list identifying each machine by name and serial number, the cost per play on each machine, the total receipts from each machine and the date the receipts are removed from each machine. If an operator establishes a lower effective tax rate on a per vending or amusement machine basis, the operator must also establish an effective tax rate for any machine which produces a higher rate than that prescribed in this rule. Operators using an effective rate other than the applicable tax rate prescribed within this rule must recompute the rate on a monthly basis. (Exhibit 6, pg. 4-5) There was also a change noticed to subsection (e) of the proposed rule 12A-1.044, which reads: (e) For the purposes of this rule, possession of an amusement or vending machine means either actual or constructive possession and control. To determine if a person has constructive possession and control, the following indicia shall be considered: right of access to the machine; duty to repair; title to the machine; risk of loss from damages to the machine; and the party possessing the keys to the money box. If, based on the indicia set out above, the owner of the machine has constructive possession and control, but the location owner has physical possession of the machine, then the operator shall be determined by who has the key to the money box and is responsible for removing the receipts. If both the owner of the machine and the location owner have keys to the money box and are responsible for removing the receipts, then they shall designate in writing who shall be considered the operator. Absent such designation, the owner of the machine shall be deemed to be the operator. (Exhibit 6, pg. 1-2) The Amusement Game Machine Industry All operators must be aware of how much money an amusement machine produces in order to determine whether it should be replaced or rotated to another location when that is possible, for if games are not changed over time, patrons become bored and go elsewhere to play games on machines which are new to them. The sophistication with which operators track machine production varies. It is in the economic self interest of all operators to keep track of the revenues produced by each machine in some way. In general, amusement game machine businesses fall into one of three categories: free standing independent operators, route vendors, and mall operators. Free standing independent operators have game arcades located in detached buildings, and offer patrons the use of amusement machines much in the same way that bowling alleys are usually freestanding amusement businesses. Like bowling alleys, they are designed to be destinations to which patrons travel with the specific purpose of recreation or amusement. They are usually independent businesses, not franchises or chains. Route operators place machines individually or in small numbers at other businesses, such as bars or convenience stores. People who use the machines are usually at the location for some other purpose. Those games are maintained on a regular basis by an operator who travels a route from game location to game location. The route operator or the location owner may empty the machine's money box. Mall operators tend to be parts of large chains of amusement game operators who rent store space in regional shopping malls. The mall is the patron's destination, and the game parlor is just one of the stores in the mall. Amusement machines are operated by either coin or by token. About 75 percent of independent amusement game operators use coin-operated machines. About 75 percent of the large chain operators found in malls use tokens. The cost of converting a coin-activated amusement machine to a token-activated amusement machine is about thirty dollars per machine. The mechanism costs $10 to $12, the rest of the cost comes from labor. Token operators must buy an original supply of tokens and periodically replenish that supply. The use of tokens enhances security because it gives the operator better control over their cash and permits the operator to run "promotions," for example, offering 5 rather than 4 tokens for a dollar for a specific period in an attempt to increase traffic in the store. Depending on the number purchased, tokens cost operators between 5 and 10 cents each. Token-activated machines accept only tokens. Coin-operated machines only accept a single denomination of coin. Change machines generally accept quarters and one, five and ten dollar bills. A change machine may be used either to provide players with quarters, which can be used to activate coin- operated machines, or they can be filled with tokens rather than quarters, and become a token dispenser. In a token-operated amusement location, the only machines which contain money are the change machines used to dispense tokens. The game machines will contain only tokens. Token machines record the insertion of each coin and bill by an internal meter as a domination of coin or currency is inserted. Token dispensing machines record their receivables as follows: when one quarter is inserted, the machine records one transaction. When a fifty-cent piece is inserted, the machine records one transaction. When three quarters are inserted, the machine records three transactions. When a dollar bill is inserted, the machine records one transaction. When a five dollar bill is inserted, the machine records one transaction. When a ten dollar bill is inserted, the machine records one transaction. Token machine meters record separately for each domination the total number of times coins or currency of each domination are deposited in the machine. The internal meters of token dispensing machines do not distinguish between insertion of several coins or bills by one person and the insertion of singular coins or bills by several persons. Token dispensing machines cannot distinguish the insertion of four quarters by one person on a single occasion from the insertion of one quarter by each of four persons at four different times. Similarly, the internal meters of amusement machines activated by coin rather than by token do not distinguish between insertion of several coins or bills by one person and the insertion of single coins or bills by several persons. Machines which are coin-activated also do not distinguish between the insertion of four quarters by one person at one time or the insertion of one quarter by each of four persons at different times. Coin-operation has certain cost advantages. The operator avoids the cost of switching the machine from coin to token operation, for machines are manufactured to use coins, and avoids the cost of purchasing and replenishing a supply of tokens. The operator does not risk activation of his machine by tokens purchased at another arcade, which have no value to him, and can better take advantage of impulse spending. Coin-operated machines do not have a separate device for collecting tax and it is not possible for an operator to fit games with machinery to collect an additional two cents on a transaction initiated by depositing a quarter in a machine. There are alternative methods available to operators of amusement game machines to recapture the amount of the new sales tax they may otherwise absorb.1 One is to raise the price of games. This can be done either by setting the machines to produce a shorter play time, or to require more quarters or tokens to activate the machines. Raising the prices will not necessarily increase an operator's revenues, because customers of coin-operated amusement businesses usually have a set amount of money budgeted to spend and will stop playing when they have spent that money. In economic terms, consumer demand for amusement play is inelastic. Amusement businesses could also sell tokens over- the-counter, and collect sales tax as an additional charge, much as they would if they sold small foods items over the counter such as candy bars. Over-the- counter sales systems significantly increase labor costs. An amusement business open for 90 hours per week might well incur an additional $30,000-a-year in operating costs by switching to an over-the-counter token sales system. In a small coin-operated business, the operator often removes the receipts by emptying the contents of each machine into a larger cup or container, without counting the receipts from each machine separately because it is too time consuming to do so. But see Finding 17 above. With a token-operated business, the operator can determine the percentage of revenue derived from twenty-five cent transactions, as distinct from token sales initiated by the insertion of one, five or ten dollar bills into token dispensing machines. The proposed rule has the effect (although it is unintended) of placing the coin-operated amusement operators at a relative disadvantage in computing sales tax when compared to the token-operated businesses. Token operators can establish that they are responsible for paying a tax rate lower than the 7.81 percent effective rate set in the rule because many of their sales are for one dollar, five dollars or ten dollars. The smaller businesses using coin-operated machines do not have the technological capacity to demonstrate that customers are spending dollars rather than single quarters. Consequently, coin operators will have an incentive to shift to token sales rather than pay the proposed rule's higher effective tax rate if a large percentage of their patrons spend dollars rather than single quarters. For example, Mr. Scott Neslund is an owner of a small business which has 80 amusement machines at a freestanding token-operated location. He is atypical of small amusement game operators because 75 percent of them use coin-operated machines rather than token-operated machines. Mr. Neslund can demonstrate that 92 percent of his sales are for one dollar or more. By applying the tax rate of six percent to those transactions, he pays substantially less than the proposed rule's effective tax rate of 7.81 percent. This is very significant to Mr. Neslund because over the nine years from 1982 to 1990, his average profit margin was 7.77 percent. Although a flat 6 percent tax would have consumed 73 percent of that profit margin, if his businesses were on a coin-operated basis he would have been required to pay the proposed rule's 7.81 percent effective tax rate, which would have consumed 93 percent of his profit margin, leaving him with a very thin profit margin of 1/2 of 1 percent. The difference between a 1/2 of 1 percent profit margin and 2 percent profit margin, on a percentage basis, is a four hundred percent difference. Mr. Neslund's average profit annually had been $24,000. The effective tax rate of 7.81 percent would take $22,7000 of that amount, leaving an average annual profit of only $1,700. It is impossible to extrapolate from this single example and have confidence in the accuracy of the extrapolation, however. The Department's Effective Tax Rate Study There is no data for the amusement game industry specific to Florida concerning the number of transactions occurring at specified price points, but there is national data available which the Department considered. There is no reason to believe that the Florida amusement game industry is significantly different from the national industry. Nationally approximately 80 percent of all plays and 60 percent of all revenues come from single quarter (twenty-five- cent) plays. The Department's study used the typical sale prices charged in the industry and the categories of coin-operated amusement games reported in the national survey. Using them the Department derived an estimate of revenues by type of game for Florida. The effective tax rate the Department derived is the Department's best estimate of the price mix of transactions which occur through amusement machines. It is not itself an issue in this proceeding. Petitioners' counsel specifically agreed that they were not contesting the setting of the effective tax rate at 7.81 percent and presented no evidence that any other effective tax rate should have been set. The Department's Economic Impact Statement Dr. Brian McGavin of the Department prepared in July 1991 paragraphs 2, 3 and 5 of the economic impact statement for the proposed rules (Exhibits 14, 15 and 16), which concluded that proposed rules 12A-15.001, 12-18.008 and 12A- 1.044 would have no effect on small businesses. The economic impact statements for all three proposed rules contain identical information and involve the same issues concerning economic impact. Before drafting the economic impact statement published with these rules, Dr. McGavin had completed one other economic impact statement, had used a small manual which gave a general description of the process for developing economic impact statements and had discussed the process with another economist, Al Friesen, and his supervisor, Dr. James Francis, the Department's director of tax research. Dr. Francis prepares or reviews more than a dozen economic impact statements annually, and is well aware of the definition of small businesses found in Section 288.703(1), Florida Statutes. Dr. Francis reviewed Dr. McGavin's work and agreed with Dr. McGavin's conclusions. Paragraphs 2, 3 and 5 of the economic impact statements for these rules state: Estimated cost or economic benefits to persons directly affected by the proposed rule. The rule establishes effective tax rates for two categories of machines - 1) amusement machines, 2) vending machines. Amusement machines were not previously taxable (except during the Services tax period). * * * The costs of this rule are primarily compliance costs. The rules establishe several compliance provisions. quarterly sale and use tax reports. submission of supporting information for these reports on electronic media. affixation of registration certifi-cates to machines. presentation of certificates by operators to wholesale dealers. The filing requirement is obviously an integral and necessary part of the sales tax collection process . . . . The costs of complying will be borne by operators. If the operators have previously computerized their records, the marginal compliance costs will be negligible. For a small operator who has not computerized his operations, the costs of minimally configured PC systems - including software and training - would be roughly $2,000. This could be a major expense for a small operator . . . . We do not have data which will permit us to estimate the proportion of non-computerized operators in this industry. Effect of the proposed action on competition and on the open market for employment. * * * Given the low labor-intensity of this industry the overall effect should be very small. * * * 5. Impact of the proposed action on small business firms. Small business firms are not affected by the proposed action. (Exhibits 14, 15 and 16) The Petitioners demonstrated that before Dr. McGavin prepared the economic impact statement he did not read section 120.54 on rulemaking and he did not conduct any industry research or refer to any sources of information on the amusement game industry in Florida or nationally. He did not use any data to calculate or measure economic impact, consult text books, or refer to any outside sources or statistical information, nor did he talk with any industry experts or representatives. He did not obtain any information about the industry by distributing questionnaires to those in the industry, nor did he know whether there were differences in day-to-day operations between large and small amusement businesses or the different types of accounting and bookkeeping systems used by small businesses. He had not read Section 288.073, Florida Statutes, which defines a small business. He did not know the impact the 7.81 percent effective tax rate established by the rule would have on small business, and he did not analyze the cost difference businesses experienced between the sale of tokens by machine and the sale of tokens over-the-counter by an employee. To the extent it even entered into Dr. McGavin's thought process, Dr. McGavin made the general assumption that token sales would either be made over the counter, in which case the sales tax could be separately collected, or possibly by selling fewer tokens per unit of currency. When the Legislature enacted Chapter 91-112, Laws of Florida, and imposed the tax on the use of coin operated amusement machines, it did not provide for any phasing in of the tax, nor for any tiering of the tax based on the size of the taxpayers. Nothing in the language of the statute imposing the tax indicates that the Legislature believed that there was a distinction to be made in the taxation of larger and smaller businesses which provide the same service, viz, use of amusement machines. The Department does permit certain accommodations to businesses which have a small volume of sales. A business may report quarterly rather than monthly if its tax liability is less than $100 for the preceding quarter, and if the tax liability is less than $200 for the previous six months, a dealer may request semiannual reporting periods. Regardless of size, a business with more than one location in a county may file one return. Both of these provisions may lessen the burden of complying with the tax imposed on the use of coin-operated amusement machines. The Economic Impact Analysis Performed For The Challengers By Dr. Elton Scott Dr. Elton Scott is an economist and a professor at the Florida State University. The Petitioners engaged him to evaluate the economic impact statement the Department had prepared when these proposed rules were published. After conducting his own analysis, Dr. Scott wrote a report in which he determined that the Department's economic impact statement was deficient. According to Dr. Scott, one must understand an industry to determine whether an economic impact flows from a regulation and to determine the magnitude of any impact or the differential impact the regulation may have on large and small businesses. To prepare his own economic impact analysis, Dr. Scott first obtained information about the operational characteristics of the industry by speaking directly with a handful of industry members. He developed a questionnaire that tested the experience and background of operators so that he could evaluate the reliability or accuracy of information he received from them. He then asked additional questions about the operators' individual businesses and questions about differences between large and small operators within the industry. Dr. Scott's testimony outlines the factors which should be used to make an economic impact statement as useful as possible, but his testimony does not, and cannot, establish minimum standards for what an economic impact analysis should contain. Those factors are controlled by the Legislature, and no doubt the requirements imposed on agencies could be more onerous, and if faithfully followed could produce more useful economic impact statements. The economic impact small businesses will bear is caused by the statute, not by the implementing rule, with the possible exception of the electronic filing requirement, which has not been challenged in any of the three proceedings consolidated here. Large businesses have several advantages over smaller ones. Large businesses have sophisticated accounting systems, whether they use token or coin-operated machines, which allow tracking not only of gross receipts but kinds of plays, which enhance the operator's ability to establish that the tax due is lower than the effective tax rate, while the less sophisticated systems of metering receipts in coin-operated small businesses require reliance on the effective tax rates. (Exhibit 9 pg. 4) Large businesses may extend the useful life of a game machine by rotating the machine from one location to another, may deal directly with manufactures in purchasing a larger number of games or machines and therefore obtain more favorable discounts. Small businesses cannot rotate games if they have only one location, and purchase at higher prices from manufactures. In general, smaller businesses have lower profit margins than larger businesses. All of these advantages exist independently of any rule implementing the sales tax statute.
The Issue The petition that initiated this proceeding challenged the taxes, interest, and penalties assessed against Petitioner by Respondent following an audit and identified the following four issues: Issue One. Does the sale of obsolete games at the "annual game sale" qualify for exemption from sales tax as an occasional or isolated sale? Issue Two. Are the purchases of video games exempt from Florida sales and use tax as sales for resales? Issue Three. Are the purchases of plush exempt from Florida sales and use tax as sales for resale or, alternatively, does taxation of the vending revenues and taxation of purchases of plush represent an inequitable double taxation? Issue Four. Should penalties be assessed based upon the facts and circumstances [of this proceeding].
Findings Of Fact Petitioner is an Illinois Corporation headquartered in Texas and licensed to do business in Florida. Petitioner owns and operates video and arcade game amusement centers, hereafter referred to as centers. Petitioner sells to center customers the opportunity to play the games in the centers. Petitioner purchases the games from sources outside itself; it does not manufacture the games it makes available in its centers. Petitioner paid sales tax upon the purchase of machines purchased in Florida and use tax upon the purchase of machines outside Florida and imported for use inside Florida. The Florida Department of Revenue (DOR) is the State of Florida agency charged with the enforcement of Chapter 212, Florida Statutes, Tax on Sales, Use and Other Transactions, the Transit Surtax, and the Infrastructure Surtax -- the state and local taxes at issue in this case. The DOR audited Petitioner for the period December 1, 1986 through November 30, 1991, hereafter referred to as the audit period. During the audit period, Petitioner operated 12 centers in the State of Florida. For purposes of the instant litigation, references to the centers will mean only the centers located in Florida. The audit determined that Petitioner owed $51,593.37 in sales and use tax, $440.81 in transit surtax, and $1,459.80 in infrastructure surtax. Each of the sums assessed included penalty and interest accrued as of September 13, 1994. In accordance with section 120.575(3), Florida Statutes, Petitioner paid $32,280 as follows: a. sales and use tax $22,411 b. interest 8,575 c. charter transit surtax 234 d. interest 64 e. infrastructure surtax 750 f. interest 246 The centers make available three types of games. The games are activated either by a coin or a token that is purchased at the center. Video games include pinball machines and electronic games which do not dispense coupons, tickets or prizes. Redemption games include skeeball, hoop shot and water race which dispense coupons or tickets which the player earns according to his or her skill. Merchandise games include electronic cranes which the operator or player maneuvers to retrieve a prize directly from the machine. Merchandise games do not dispense coupons or tickets. The tickets earned in the course of playing redemption games can be exchanged for prizes displayed at the centers. The prizes obtained directly from the merchandise games and exchanged following receipt from redemption games are termed "plush." Plush may be obtained only by seizing it in a redemption game or by redeeming coupons earned during the play of redemption games; it may not be purchased directly for cash. A merchandise game does not dispense an item of plush upon the insertion of a coin or token and activation of the crane's arm -- acquisition of plush requires a certain level of skill on the player's part. A redemption game does not dispense an item of plush upon the insertion of a coin or token and the push of a button -- acquisition of tickets requires a certain level of sill on the player's part. Petitioner purchases plush in bulk and distributes it to the various centers. Each of the centers sells some of its games to individual buyers. Petitioner's headquarters coordinates the sale. For each of the years in the audit period, the centers sold games at various dates. Petitioner characterizes as its "annual sale" the period November 1 through January 10 when most of the sales took place. The specific dates for the sales that took place during the audit period follow; numbers in square brackets indicate the number of sales on a particular date if there is more than one. a. December 1986 through July 1987 -- no information available -- but more than one sale was made during this time. b. November 1987: 2, 5, 7, 10, 17, 18[2], 20, 22, 25, 28[3] c. December 1987: 2, 4, 7, 15, 18, 23 d. November 1988: 4, 5, 7[2], 9, 10, 11, 17, 18, 20[2], 21[2], 25, 26, 28, 29 e. December 1988: 6, 7, 8, 10[2], 12[2], 16, 21, 22, 23[2], 24 f. January 1989: 3, 6, 7[4], 9, 12 g. November 1989: 6, 15, 16[2], 20 h. December 1989: 1, 6, 10, 22, 29[3], 31 January 1990: 26 March 1990: 26 April 1990: 26 l. June 1990: 12 m. November 1990: 3, 9, 13[2], 14, 16, 19, 24, 26 n. December 1990: 1, 2, 7, 20 January 1991: 8 May 1991: at least 1 q. November 1991: 4, 9, 10, 14, 15, 21 Petitioner did not provide its machine vendors resale certificates upon Petitioner's purchase of the games. Petitioner did not provide its plush vendors resale certificates upon Petitioner's purchase of plush. Petitioner did not apply for a refund of sales tax paid upon its purchase of games in Florida.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order that adopts the findings of fact and the conclusions of law contained herein. The assessments against Petitioner should be sustained to the extent the assessments are consistent with the findings of fact and the conclusions of law contained in this Recommended Order. DONE AND ENTERED this 28th day of June, 1996, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON, 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 28th day of June, 1996.
The Issue The issues in this case are whether Respondent unlawfully conducted gambling operations at its licensed business establishment, and, if so, what penalty is warranted.
Findings Of Fact The Department is the state agency responsible for, inter alia, licensing and monitoring businesses licensed under the Florida Beverage and Tobacco laws. Department headquarters are in Tallahassee, Florida. Respondent is a duly-licensed business monitored by the Department. The business, known as Tubby's, is a small bar or pub that serves alcohol pursuant to its license. The business has five video games with names such as Stone Age, Cherry Master, and Haunted House. The games allow customers to accumulate points as they play. The points are then registered on a written slip of paper printed by the video game after each period of play. There are a number of video surveillance cameras in Tubby's which are used to monitor the hallway, bathroom, and bartenders. The bar has experienced trouble in the past with drug deals and installed the cameras to prevent such activities from re-occurring. One of the video cameras, the one pointed toward the video game area, was in fact not actually a working camera according to Tubby's representative.3 On October 19, 2007, two agents employed by the Department conducted an investigation of Tubby's to ascertain whether illegal gambling was going on in the establishment. Special Agent Michael Chandler sat at one of the video machines and played approximately $5.00 worth of currency. Upon completion, he had accumulated 4 points as evidenced by a game slip which printed from the machine. The game slip had the following information printed on it: "TUBBY'S GAME 1; NO CASH VALUE; 1/20/07 01:17:37 1404."4 Chandler gave the slip to the bartender, and it was placed on a red diary or log kept behind the bar. When the slip was later recovered by Chandler, his undercover name (Mike Boone) had been written on the slip. Also written across the top of the slip were the words, "Not Paid. Same guy as last night." Special Agent Robert Baggett also played one of the games. He played $30.00 worth of coins and won 100 points as indicated on his game slips.5 Baggett says another patron told him that he could get actual money for the slips, but that testimony was not confirmed by non-hearsay evidence. Baggett gave his slips to the bartender and asked what he could receive for them. This exchange between Baggett and his counsel at final hearing addressed what happened next: Q: And did the bartender do anything with the game slips? A: He asked me my name, and I gave him my alias. And he advised me that the scores will be tabulated at the end of the week, and that if I got the highest score my name would be placed on the electronic scoreboard that hung next to the bar area. Q: To your understanding, do the game slips have any value? A: Based upon my previous education, training and experience, these points are redeemable for monetary items. Because we have conducted several investigations in the past where we actually were paid out in the form of bar tabs or actual money. There was no mention by the bartender of cash payments being available for the game slips that Baggett acquired at Tubby's. In fact, in contrast to what Baggett had experienced in other investigations, this establishment specifically applied earned points to a non-monetary function, i.e., listing the winners' names on a game board. Based on their determination that illegal gambling was occurring, Chandler and Baggett seized a number of lottery tickets, a bank bag filled with cash, and the game slips from the log book. The cash was primarily twenty-dollar bills wrapped in bundles of $1,000 each for a total of $3,049.00. Each night, the Automatic Teller Machine (ATM) was replenished with cash. The register report produced at final hearing by Respondent clearly indicates a daily deposit of cash into the ATM. Goulet's testimony that the cash in the bank bag was used to replenish the ATM on site at Tubby's is credible. The game slips from customers were shredded or otherwise disposed of at the end of each week because there was no reason to keep them. This explanation is credible. The Department’s concern and position that the slips should be maintained in case some customer questioned his or her point total is speculative and not supported by the facts. Also confiscated from the establishment by Chandler and Baggett was a hand-written list of professional football teams. The list contained the first names or nicknames of 13 individuals, along with a statement of each player's record from the prior week. This sheet was obviously representative of some sort of football pool, but there is no evidence whatsoever that it was used for gambling purposes or involved the payment or exchange of money. The video camera in the gaming area of Tubby's was, as previously discussed, not a working camera. The game area was purposely set up by Tubby's management to look like a casino gambling area. This was meant to enhance the enjoyment of playing the video machines. Goulet testified that Tubby's is an alternative lifestyle bar and that its clientele is fairly regular, i.e., they see the same people over and over. Due to its location off the main thoroughfares, there are not a lot of folks who just drop in to the bar.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Business and Professional Regulation finding that Respondent, Rick's of South Florida, Inc., d/b/a Tubby's, is not guilty of conducting illegal gambling at its business site. Based upon the foregoing recommendation, it is further RECOMMENDED that Exhibits 5, 8, and 10 be returned to Respondent. DONE AND ENTERED this 29th day of May, 2008, in Tallahassee, Leon County, Florida. R. BRUCE MCKIBBEN 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 29th day of May, 2008.
The Issue Whether subsections (1) and (2) of Florida Administrative Code Rule 12A-1.074 enlarge, modify or contravene the specific provisions of law implemented, or are arbitrary or capricious, and thus constitute an invalid exercise of delegated legislative authority.
Findings Of Fact Based on the stipulated facts and the uncontested affidavit of H. French Brown, IV, the following findings of facts are made. The rule provisions at issue in this proceeding are subsections (1) and (2) of Florida Administrative Code Rule 12A- 1.074, hereinafter referenced as "the Rule." The Rule provides: 12A-1.074 Trade-Ins. Where used articles of tangible personal property, accepted and intended for resale, are taken in trade, or a series of trades, at the time of sale, as a credit or part payment on the sale of new articles of tangible personal property, the tax levied by Chapter 212, F.S., shall be paid on the sales price of the new article of tangible personal property, less credit for the used article of tangible personal property taken in trade. A separate or independent sale of tangible personal property is not a trade- in, even if the proceeds from the sale are immediately applied by the seller to a purchase of new articles of tangible personal property. Where used articles of tangible personal property, accepted and intended for resale, are taken in trade, or a series of trades, at the time of sale, as a credit or part payment on the sale of used articles, the tax levied by Chapter 212, F.S., shall be paid on the sales price of the used article of tangible personal property, less credit for the used articles of tangible personal property taken in trade. A separate or independent sale of tangible personal property is not a trade-in, even if the proceeds from the sale are immediately applied by the seller to a purchase of new articles of tangible personal property.1/ The Rule states that it is intended to implement the following statutory provisions: Sections 212.02(15), 212.02(16), 212.07(2), 212.07(3), and 212.09, Florida Statutes. Section 212.02, Florida Statutes, provides, in relevant part: 212.02 Definitions -- The following terms and phrases when used in this chapter have the meanings ascribed to them in this section, except where the context clearly indicates a different meaning: * * * "Sale" means and includes: (a) Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration. . . . "Sales price" means the total amount paid for tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever. . . Trade-ins or discounts allowed and taken at the time of sale shall not be included within the purview of this subsection. . . Section 212.07(2), Florida Statutes, set forth the method and manner by which a dealer is to charge and collect sales tax. Section 212.07(3), Florida Statutes, sets forth penalties for a dealer who fails to collect sales tax. Neither of these provisions affects the matters at issue in this proceeding. part: Section 212.09, Florida Statutes, provides, in relevant 212.09 Trade-ins deducted; exception.-- Where used articles, accepted and intended for resale, are taken in trade, or a series of trades, as a credit or part payment on the sale of new articles, the tax levied by this chapter shall be paid on the sales price of the new article, less the credit for the used article taken in trade. Where used articles, accepted and intended for resale, are taken in trade, or a series of trades, as a credit or part payment on the sale of used articles, the tax levied by this chapter shall be paid on the sales price of the used article less the credit for the used article taken in trade. [2/] GameStop is a Minnesota corporation that is authorized to do business in the State of Florida, and a registered dealer for purposes of collecting and remitting sales and use tax to the Department. GameStop is a publicly held international retailer of new and used video game hardware, software, and accessories, with over 6,000 stores worldwide, including stores in Florida. One of GameStop's customary business practices is to accept from its customers used gaming software, hardware, and accessories that the GameStop store manager determines is in resalable or re-furbishable condition. In return for the used articles, a GameStop customer may choose among three options: Option 1: The customer may receive cash in exchange for the used items. Option 2: The customer may apply the value assigned to the item by the store manager as part payment toward the immediate purchase of another new or used item from GameStop. Option 3: The customer may receive a credit for the value of the used item, which may be used only toward the purchase of new or used items from GameStop at some time in the future. If the GameStop customer elects Option 1, he receives 20 percent less value in the cash exchange than he would have received pursuant to the part payment offered by Option 2 or the credit toward a future purchase offered by Option 3. For a customer who chooses Option 3, GameStop tracks outstanding credits by issuing to the customer an "EdgeCard." When the customer returns to a GameStop store and requests to apply credits toward the purchase of a new or used item, the GameStop salesperson can swipe the electronic strip on the back of the EdgeCard and learn the credit amount available to the customer. The EdgeCard system merely tracks the amount of ongoing credits available to the customer. It does not record any request made by the customer to reserve or identify a specific item toward which the credits will later be used. The credits on an EdgeCard never expire. Once the customer has chosen Option 3, he may go to a GameStop store or access the GameStop website at any time thereafter and apply the credit on his account toward the purchase of new or used items from GameStop. GameStop also offers traditional gift cards that are purchased via cash or credit card rather than in exchange for used articles. Purchases made using a gift card or gift certificate are taxable for the full purchase price.3/ When a customer uses a gift card to purchase an item at a GameStop store, GameStop does not reduce the taxable sales price by the amount of the credit or value stored on the gift card and used in the purchase. GameStop assigns no redeemable cash value to the EdgeCard or to traditional gift cards. GameStop does not allow a gift card to be used to store credits obtained through the exchange of used items, reserving that function exclusively to the EdgeCard. The value of a GameStop gift card can be redeemed only through the purchase of new or used items from GameStop. Credits can be added to an EdgeCard only by turning over used articles to GameStop. A customer may not purchase credits. A credit on an EdgeCard can only be redeemed by the subsequent purchase of new or used items from GameStop. The GameStop customer who selects Option 3 first submits his used game or item of hardware to the GameStop store, which assigns it a dollar value and credits that amount to the customer's EdgeCard account in exchange for the item. At some later date, the customer returns to the GameStop store and trades the credit stored on the EdgeCard for some used or new item. The customer may build up credits on the EdgeCard with any number of transactions over any length of time before trading in the credits for an item from GameStop. The customer is not required to identify the item toward which he wishes to apply his EdgeCard credits until the time he actually trades the credits for the item. The Edge Card system replaced GameStop's former practice of requiring a customer who chose to obtain a credit for the submission of used articles to retain a cash register receipt showing the amount of the credit. This "paper credit" would then be redeemable toward the purchase of another item at a later date. There is no expiration date on an EdgeCard, a gift card, or a paper credit. GameStop does not replace the credits on a lost EdgeCard or a lost gift card. For purposes of accounting, GameStop carries unredeemed EdgeCard credits on its books for a period of three years as customer liabilities. GameStop does the same for unredeemed value on gift cards. GameStop continues to honor unredeemed EdgeCard credits and gift card values that are more than three years old, but no longer carries them on its books as customer liabilities. Prior to 2007, for the purpose of collecting sales tax from its customers, GameStop deducted the value of EdgeCard or any paper credits used in the purchase of new or used items from the purchase price for the purpose of calculating sales tax due. GameStop has remitted to the Department tax for the entire sales price of new or used items purchased from approximately January 2007 through August 31, 2007, in response to an audit by the Department, without reducing the taxable sales price by the value of any EdgeCard or paper credits used. GameStop has a return policy that allows a customer who is not satisfied with an item purchased from GameStop to return the item within a certain period of time and under certain conditions. When a customer returns an item in compliance with GameStop's return policy, the customer receives full retail value back, including the amount of the tax paid on the original purchase. A customer who returns an item in compliance with GameStop's return policy can elect to receive the return value in the form of cash, as a reimbursement to the customer's credit card, or as value stored on a GameStop merchandise card. The GameStop merchandise card does not record credits received via the return of used articles. The Department states that its historical administration and interpretation of the Rule and the statutes it implements do not strictly limit trade-in credits to a simultaneous exchange situation, or to transactions occurring within any particular time frame. However, the Department states that it does require the customer to identify the merchandise to be purchased with the EdgeCard credits at the time the credits are acquired. The Department does not consider the transaction to constitute a "trade-in" unless the item to be purchased with the EdgeCard credits has been specifically identified by the customer at the time the customer first returned a used item to GameStop.
