The Issue The issue in this case is whether Petitioner is liable for certain taxes and, if so, how much.
Findings Of Fact Petitioner is a Florida corporation with its principal place of business in Manatee County, Florida. Petitioner is in the printing business. Specifically, Petitioner produces, manufactures, assembles, and publishes telephone directories for mobile home parks in Florida. All of Petitioner's work in connection with these directories takes place in Florida. The directories list the names, addresses, and telephone numbers of residents of the mobile home park for which the directory is prepared. The directories also contain advertisements, which Petitioner solicits from merchants seeking to sell goods or services to the mobile home park residents. Following the production of the directories, Petitioner distributes them to the mobile home park residents, who maintain possession of the directories. However, Petitioner retains ownership of each directory, even after it is distributed. Petitioner is solely responsible for the manufacture and distribution of the directories. Petitioner owns accounts receivable reflecting monies owned it by entities for which Petitioner has performed work. Petitioner owns treasury stock. Following an audit, Respondent issued its Intent to Make Sales and Use Tax Audit Changes. The proposed changes assessed additional sales and use taxes of $44,151.77, intangible tax of $1297.08, and $194,75 of health care tax. The bases of proposed liability for the sales and use tax were for the publication and distribution of directories for which no sales or use tax had been collected and for the sale of advertising during the period of the service tax from July 1, 1986, through December 31, 1986, for which no sales tax on advertising had been collected. The basis of proposed liability for the intangible tax was for the failure to pay intangible tax on accounts receivable and treasury stock. The basis of proposed liability for the health care tax was for the failure to pay the Hillsborough County Health Care Tax and Discretionary Sales Surtax. On February 11, 1991, Petitioner protested the proposed assessments. On April 24, 1992, Respondent issued its Notice of Decision sustaining the proposed sales and use tax and intangible tax, but eliminating the proposed health care tax. On May 12, 1992, Petitioner filed a Petition for Reconsideration concerning the proposed sales and use tax. On November 24, 1992, Respondent issued its Notice of Reconsideration sustaining the proposed sales and use tax. On January 21, 1993, Petitioner timely filed its petition for a formal administration hearing. Subject to the accuracy of its legal position, Respondent's assessment is factually accurate. Petitioner will pay the assessed amount of sales and use tax, plus interest, if its position is not sustained following the conclusion of this proceeding, including judicial review.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a final order be entered determining that, for each assessed period, Petitioner is liable for the assessed corporate intangible tax plus interest, the use tax on the cost price of the materials and other covered items plus interest, the sales tax on services on the advertising revenues, but not for any sales tax apart from the period covered by the sales tax on services. ENTERED on January 25, 1994, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings on January 25, 1994. COPIES FURNISHED: David M. Carr David Michael Carr, P.A. 600 East Madison Street Tampa, Florida 33602 Eric J. Taylor Assistant Attorney General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
The Issue Is the Respondent's assessment for corporate income tax and interest for the tax years ending 12/31/78, 12/31/79, and 12/31/80 appropriate, and may it be properly imposed upon Petitioner?
Findings Of Fact The instant dispute between the parties arose out of how the substantial business interests of Petitioner Murray Kramer Corp. are to be defined and by what accounting method its corporate income tax assessments are to be made. Milton P. Weiss, C.P.A., is Petitioner's accountant and qualified representative for purposes of this proceeding. He is neither an internal bookkeeper for the corporation nor a corporate officer thereof. At all times material, Petitioner was conducting business, deriving income, or existing within the State of Florida, pursuant to Chapter 220, F.S. Petitioner invests primarily through partnerships. Among Petitioner's holdings and investments is ownership of an orange grove in the State of Florida from which it derived income by way of the sales of citrus fruit grown in Florida during the taxable years at issue: 1978, 1979, and 1980. The orange grove constitutes real and tangible property in Florida for purposes of Florida's corporate income tax. Petitioner has consistently filed Florida corporate income tax returns on a "separate accounting" basis since the inception of Florida's Corporate Income Tax Law on January 1, 1972. Petitioner used this method for the years at issue: 1978, 1979, and 1980. It did so without petitioning the Respondent Department of Revenue for permission at or before the filing of the returns to use the "separate accounting" method to determine the Florida tax base. Accordingly, Petitioner did not receive prior written permission from the Department to use the "separate accounting" method for those years, and the Department did not require that the Petitioner use the "separate accounting" method in those years. Nonetheless, Petitioner asserts that its pattern of using the "separate accounting" method for six years put the Department on sufficient notice that the corporate taxpayer would continue to use that method indefinitely and further asserts that it was therefore entitled to use such a "separate accounting" method on the basis of its prior consistent usage. Petitioner's Florida corporate returns declare investment income from dividends, interest, gains from securities, partnership income, and income from its orange grove located in Florida. In each of the disputed tax years, Petitioner entered its federal taxable income on Line 1 of the Florida Corporation Income Tax Return, FORM F-1120. This amount is not at issue and is accepted as a "given" by both parties. However, in each of the disputed tax years, Petitioner did not complete the apportionment schedule on Page 3 of the respective returns. Instead of using the apportionment method, Petitioner computed what it characterized as "Florida Profit" or "Florida Income" on a schedule it attached, based totally on the profits it derived from the Florida orange grove and then inserted that amount on Line 6, Florida Portion of Adjusted Federal Income, of the "Computation of Florida Tax Liability" on the Florida return. This entry did not relate computationally to the amount of federal taxable income reported federally on Line 1. All gross receipts from the sale of citrus fruit by Petitioner were derived from sales made to Zellwood Fruit Distributors. This dollar amount is also undisputed. Petitioner received payment from its Florida orange grove operation in the form of checks drawn by Zellwood. Approximately June 20, 1983, Respondent Department of Revenue made an initial audit of Petitioner's books and records for the taxable years in question. Respondent's auditor assigned at that time had full and free access to Petitioner's books and records. He and his supervisor memorialized their view that the "separate accounting" method employed by Petitioner was proper, but this judgment call (by the auditor on June 29, 1983 and by his supervisor on July 1, 1983) was in the nature of free-form agency action and was neither accepted nor formalized by their superiors within the agency who ultimately determined that the Petitioner should have employed the "apportionment" method and that the burden was upon the Petitioner even under the apportionment method to establish that one hundred percent of its income was not derived in Florida. The Respondent Department therefore determined the tax owed by Petitioner upon the basis of 100% of Petitioner's income as opposed to the yearly percentages that Petitioner had unilaterally assigned to its orange grove, and issued its Revised Notice of Intent to Make Corporate Income Tax Audit Changes on November 7, 1983. Florida's apportionment formula is a three-factor function which takes selected business activities of the taxpayer and computes the portion of that activity attributable to Florida, divided by that activity everywhere. A composite of the subtotal of those three measures (payroll, sales, and property) of business activity are used to compute Florida's share of the "everywhere" base that would be available under the adjusted federal taxable income base. See, Section 214.71(1), F.S. The Department calculated the tax using the three statutorily recognized apportionment factors of payroll, sales, and property. Concerning the first apportionment factor, payroll, Petitioner had federally reported no amount of payroll, and therefore this factor was determined by the Department to be zero, and pursuant to Section 220.15, F.S., the payroll factor was eliminated and the other two factors were used exclusively. Concerning the sales factor, all gross receipts of the orange grove were considered to be derived within the State of Florida, and all gross income attributable to intangible personal property was excluded from the sales factor, pursuant to Section 220.15(1), F.S. Concerning the property factor, the Department determined that all real and tangible personal property was within the State of Florida. The situs of the intangible property was not established by the taxpayer. Therefore, because Section 214.71, F.S. limits the construction of the property factor to include only "real and tangible personal property," it was thus determined to exclude intangible property. The Respondent Department of Revenue issued its Notice of Proposed Assessment on November 16, 1983, showing a balance of $10,596.00 ($7308.00 tax, $275.00 penalty, and $3,013.00 interest computed through October 31, 1983, plus notice of daily interest of $2.40 per day from November 1, 1983 until paid.) Petitioner timely availed itself of informal protest procedures, and the Department issued its Notice of Decision on March 15, 1985. By its June 21, 1988 Notice of Reconsideration, the Department concluded its informal proceedings and denied Petitioner's assertion of the right to use a "separate accounting" method and further denied Petitioner's challenge to the Department's assessment by the "apportionment" method, which in this instance had not made any apportionment for "outside Florida" activities. The situs of intangible personal property was not sufficiently demonstrated by the Petitioner at formal hearing. The Petitioner also did not establish that it owns real or tangible personal property outside Florida. Zellwood Fruit Distributors provided Petitioner Murray Kramer with letters attesting that, based upon information received from Winter Gardens Citrus Products Cooperative, Winter Gardens' sales percentages in the State of Florida were as follows: 1979 1980 18.60% 21.07% Zellwood provided no such figures to Petitioner for the year 1978. Petitioner contends, on the basis of the after the fact Zellwood letters, that Zellwood was a member of Winter Gardens, a cooperative, and Murray Kramer was an associate grower of Zellwood. At formal hearing, no one from Zellwood or Winter Gardens testified; no contract between Petitioner Murray Kramer and either Zellwood or Winter Gardens was introduced to prove agency; no bills of lading, sales slips, corporate documents, or other connective link among the three entities was offered in evidence; nor was any primary, direct, non-hearsay evidence of sales amounts or situs of Winter Gardens' sales offered by Petitioner. Milton Weiss, Petitioner's accountant, asserted that if a straight "apportionment" (not "separate accounting") calculation had been made for the income derived in Florida by Petitioner, percentages would be: 1978 1979 1980 24.03% 15.31% 15.01% These percentages rely in part on what are clearly the out-of-court statements of Zellwood's correspondent, relaying further out-of-court statements from Winter Gardens Citrus. (See the immediately preceding Finding of Fact). Neither of these out-of-court hearsay statements is such as may be used to supplement or explain direct evidence, since no direct, primary source evidence of these sales or income has been presented before the undersigned in this de novo proceeding. See, Section 120.58(1), F.S. Petitioner has not directly paid wages during the tax years at issue. Petitioner has not produced any federal partnership tax returns nor other persuasive proof to account for the return on its investments through partnership channels. During the tax years at issue, Petitioner was not a member of a Florida cooperative, as that term, "cooperative," is used in Section 214.71(3)(a)2, F.S. (See Finding of Fact 15). Petitioner was unable, by evidence of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs, to establish that all amounts other than the percentages of gross income Petitioner had assigned by either of the alternative accounting methods was generated outside of the State of Florida. In so finding, the undersigned specifically rejects Petitioner's assertion that the initial audit report of June 1983 could, by itself alone, legally or factually establish that only the orange grove income was Florida income, that Petitioner's Florida income was solely from the orange grove, that the interest, dividends, and gains on securities sales were not derived in Florida, that the Petitioner taxpayer received rent income from partnerships, that the partnership real estate which gave rise to the rent income was 100% outside Florida, or that the Respondent's initial audit "verified" the figures needed to compute the sales factor, the figures for the property factor, and the figures for the payroll factor of the "apportionment" method for the following reasons: In addition to the first auditor's report being free-form agency action which was ultimately rejected by the agency, and in addition to the failure of either the first auditor or his supervisor to testify in the instant Section 120.57(1) de novo proceeding as to the accuracy of the underlying primary documentation which Petitioner Murray Kramer claimed the first auditor had apparently reviewed, Petitioner did not offer in evidence at formal hearing any such direct evidence documentation which it claimed had been reviewed by the auditors. Further, Respondent's successive auditor, Mr. Siska, testified that it is auditor practice to only examine those books and records individual auditors believe to be necessary to complete the audit. This discretionary element eliminates any guarantee of what the initial auditor relied upon. For the same reasons, Petitioner's assertion that the Internal Revenue Service (IRS) audit of its books and records for the year 1979 "verifies" that the Petitioner's books and records accurately reflect the transactions that took place, is rejected. Petitioner Murray Kramer had admitted a letter (P-10) notifying the corporation that the IRS' "examination of ... tax returns for the above periods shows no change as required in the tax reported. The returns are accepted as filed." The tax period indicated on this exhibit is "7912", which is not helpful, and even if it means, as Mr. Weiss testified, that the 1979 federal tax return which is part of the Florida Corporate Tax Return is accurate under federal law, this IRS letter alone does not verify all the underlying documentation for all three years in question. Also, specifically with regard to investments made through other entities, Mr. Weiss' testimony suggests that the wages paid and partnership returns of these other entities never were in the possession of, nor accessible by, this Petitioner. Petitioner's reliance on its federal returns is apparently based, in part, at least, upon its assertion that it is a "financial institution" as defined in Sections 214.71(3)(b) and 220.15(2), F.S., but the presentation quality of evidence in this case does not permit of such a finding, either. Petitioner has paid no portion of the assessed taxes.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a Final Order which dismisses the Petition and affirms the assessment. DONE and ORDERED this 26th day of June, 1989, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS 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 26th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-4100 The following constitute rulings, pursuant to Section 120.59(2), F.S. upon the parties' respective proposed findings of fact (PFOF). Petitioner's PFOF: 1, 6. Accepted. 2, 9, 10, 11, 17, 19. Rejected for the reasons set out in the Recommended Order. 3, 5, 7, 8, 12, 14, 16. Accepted but not dispositive of any material issue for the reasons set forth in the Recommended Order. With regard to item 8, specifically, this determination is non-binding in the de novo proceeding. 4. Rejected upon the citation given as not proved or applicable as stated. 13. Accepted in part and rejected in part as not proved or applicable as stated. See Conclusions of Law 11-12. 15, 18. Rejected as out of context and misleading upon the record as a whole, and as not dispositive of any material issue, and as subordinate and unnecessary to the facts as found. Respondent's PFOF: 1, 2, 3, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18. Accepted. 4, 5. Accepted in part; what is not adopted is subordinate or unnecessary to the facts as found. 17. Accepted, but by itself is not dispositive of any material issue at bar, for the reasons set out in the Recommended Order. COPIES FURNISHED: Milton P. Weiss, C.P.A. 686 Hampstead Avenue West Hampstead, New York 11552 Jeffrey M. Dikman, Esquire Assistant Attorney General Tax Section Department of Legal Affairs The Capitol Tallahassee, Florida 32399-1050 Sharon A. Zahner, Esquire Assistant General Counsel Department of Revenue Room 204, Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668 William D. Townsend, Esquire General Counsel 203 Carlton Building Tallahassee, Florida 32399 Katie D. Tucker, Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100 Milton P. Weiss, C.P.A. 3091 North Course Drive Pompano Beach, Florida 33069 =================================================================
Findings Of Fact In the original corporate income tax report submitted by Florida Power Corporation for the 1973 tax year the tax was computed using the federal income tax base. This included various depreciation methods and schedules in which accelerated depreciation had been claimed for federal tax purposes by Petitioner in years prior to 1972 and the initiation of the Florida Corporate Income Tax Law. By using accelerated depreciation schedules authorized by the federal tax laws, higher depreciation is allowed in the early years of an asset's useful life, leaving a lesser amount of depreciation to be charged off for tax purposes in the latter years of an asset's life. Essentially, Petitioner here contends that depreciable assets acquired prior to the effective date of the Florida Corporate Income Tax law were depreciated on accelerated schedules for federal tax purposes, but upon the effective date of the Florida Corporate Income Tax Law had value in excess of that shown on the federal tax schedule. By requiring taxpayers to use the same depreciation schedules for Florida taxes that are required for federal taxes Petitioner contends it is being penalized for the accelerated depreciation taken before the Florida income tax became constitutional. As an example of Petitioner's position it may be assumed that a depreciable asset was acquired for $100,000 with a useful life of 10 years, three years before the Florida Income Tax Law was passed. Also assume that during this three-year period from acquisition a double declining balance depreciation was taken for computing federal income taxes. Depreciation taken for the first year would be $20,000, for the second year $16,000 and for the third year $12,800, leaving a basis for further depreciation of $41,200 for this asset with seven years useful life remaining. For federal tax purposes Petitioner takes depreciation each year based upon initial cost less accumulated depreciation. Because this value decreased rapidly for the first three years in the assumed example and the excess depreciation thereby generated was not usable in reducing Florida taxes, Petitioner contends it is discriminated against in being required to, in effect, use the book value for federal tax purposes in computing its Florida income tax. Petitioner presented additional examples of reported income for federal income tax purposes which it claims should be exempt from Florida Income Tax. The specific deductions from which the $619,697 refund was computed were not broken down to show how much resulted from the accelerated depreciation schedules which commences prior to January 1, 1972, and how much was derived from these additional examples, some of which were given simply as an example of deferring income for tax purposes. Prior to January 1, 1972, Petitioner purchased some of its bonds prior to maturity and at a discount. As an example if Petitioner purchases $1,000,000 face value of these bonds for $800,000, it has realized a $200,000 gain which it must report as income for federal income tax purposes. These same federal tax rules allow Petitioner to elect to pay the income tax in the year received or spread it equally over the succeeding ten year period. Petitioner elected to spread the income over the succeeding ten year period and each year add $20,000 to its reported income for federal income tax purposes. Since the income was realized before January 1, 1972, Petitioner contends this is not subject to federal tax purposes. With respect to overhead during construction of depreciable assets the taxpayer is allowed to charge these costs off as an expense in the year incurred or capitalize these expenses. If the taxpayer elects to capitalize these expenses they are added to the cost of the constructed asset and recovered as depreciation as the asset is used. Petitioner elected to charge these expenses in the year incurred rather than capitalize them. Had they been capitalized originally, Petitioner would, in 1973, have been entitled to recover these costs in its depreciation of the asset. In its amended return it seeks to treat these costs as if they had been capitalized rather than expenses prior to January 1, 1972. Although apparently not involved in the amended return, Petitioner also presented an example where changes in accounting procedures can result in a gain to the taxpayer which is treated as income to the taxpayer, which he may elect to spread over future years in equal increments until the total gain has been reported.
The Issue Whether Petitioner ("DEPARTMENT") is entitled to assess sales or use taxes, penalties, and interest against Respondent ("VOLPE") pursuant to Chapter 212, Florida Statutes, as set out in its Notice of Proposed Assessment dated March 20, 1980.
Findings Of Fact During 1975-1977, VOLPE was a general contractor engaged in the construction of a United States Post Office and Vehicle Maintenance Facility at Miami, Florida. In connection with that construction project, VOLPE purchased materials from numerous subcontractors, including Hardware Lighting and Emporium, and Jemco, Inc. (Testimony of Alford, Danca; P.E. 2, 3) On March 8, 1979, after audit of VOLPE's records, the DEPARTMENT proposed to assess VOLPE for delinquent sales and use tax, together with interest and penalties thereon, which it claimed were due from VOLPE's purchase of materials from various subcontractors. The DEPARTMENT's proposed assessment was based on its inability to verify, to its satisfaction, that sales and use tax due from those sales transactions was paid by VOLPE to the vendors, and subsequently remitted to the DEPARTMENT. (Testimony of Alford, P.E. 3.) With the DEPARTMENT's encouragement, VOLPE then wrote its vendors in the various sales transactions requesting proof that the requisite Florida sales or use tax had been remitted to the DEPARTMENT. In response, two vendors, Ohio Medical Products and Power Wash, remitted tax vendors, (collected from VOLPE at time of sale) to the DEPARTMENT, in the amounts of $10,070 and $1,635.50, respectively. In addition, VOLPE discovered that it had not paid the requisite tax to a vendor in one transaction and remitted a payment to the DEPARTMENT in the amount of $1,442.53. (Testimony of Danca, Alford, P.E. 1.) These late tax payments made by Ohio Medical Products, Power Wash, and VOLPE in partial satisfaction of the DEPARTMENT's March 8, 1979, proposed assessment consisted only of the tax due on the individual sales, including interest thereon. No penalty payments were made because Salvatore Danca, VOLPE's comptroller involved in collecting the sales tax from the various vendors, reasonably and in good faith believed that the DEPARTMENT would waive penalties if late tax payments were promptly submitted. Although Louis A. Crocco, the DEPARTMENT's representative, by affidavit denies making such a representation, he admits that the possibility of adjusting the penalties, otherwise due, was discussed with Danca. In the absence of more explicit evidence from the DEPARTMENT concerning those discussions, or attacking the credibility of Danca's testimony, it is determined that, based on discussions with DEPARTMENT representatives, Danca reasonably and in good faith believed penalties would be waived. (Testimony of Danca; P.E. 1, 6, R.E. 2, 3, 4, 5, 6.) As a result of partial payments and adjustments made to the DEPARTMENT's proposed sales and use tax assessment, the DEPARTMENT issued a fourth revision of the proposed assessment on March 20, 1980. By that revision, the DEPARTMENT asserts VOLPE, as of March 20, 1980, is liable for payment of tax, interest, and penalties as follows: Sales Transaction Sales And Use Tax Due Interest Penalties (25 Percent) Jemco, Inc., sale of mechanization equipment to VOLPE, per agreement dated December 5, 1975. $16,229.53 $4,047.88 Hardware, Lighting and Emporium, sale of finished hardware and accessories to VOLPE per VOLPE Purchase Order dated October 2, 1975. 1,556.10 389.02 Ohio Medical Products' Power Wash's, and unidenti- fied vendor's sale to VOLPE for which late payments of tax due and interest have been made. -0- 2,737.43 TOTAL: $17,856.10 $5,779.42 $7,174.33 (Testimony of Alford, Danca, 3.) Stipulation of Counsel; P.E. 1, 2, [AS TO JEMCO, INC./VOLPE TRANSACTION] By its standard Agreement dated December 5, 1975, VOLPE agreed to purchase from Jemco, Inc., of Fort Worth, Texas, post office mechanization equipment for the contract price of $347,900. Subsequent change orders resulted in an adjustment to $405,689.70. In order to minimize on-site installation problems, Jemco, Inc., was required to maximize assembly of the mechanization equipment at its out-of-state plant prior to shipping to the Miami job site. (Testimony of Danca; P.E. 2, R.E. 1.) The written sales Agreement, including attachments, between Jemco, Inc., and VOLPE expressly states, in three separate places, that the total contract sales price includes Florida sales tax. The DEPARTMENT admits that VOLPE has paid all monies due Jemco, Inc., under the contract. By virtue of its full payment of the contract price which expressly included sales tax, it must be concluded that VOLPE paid the requisite sales or use tax to Jemco, Inc. (Stipulation of Counsel; P.E. 2.) VOLPE's standard form, entitled "Subcontractor's Application for Payment" was used as a basis to make incremental payments to Jemco, Inc., pursuant to the Agreement. That form required the subcontractor to certify that, among other things, it had complied with state tax laws applicable to performance of the Agreement. (Testimony of Danca; R.E. 11.) VOLPE's actions in connection with the Jemco, Inc., sales transaction were consistent with its standard practice when entering contracts with vendors or subcontractors. That practice is to require that the sales price include the payment of necessary sales tax, the vendor or subcontractor is required to remit the required tax to the appropriate government entity. After performance of the contract, the subcontractor is required to certify that these requirements have been satisfied. The certification is in the form of a General Release which discharges VOLPE from all claims, debts and liabilities which the subcontractor may have against VOLPE because of the contract. In this case, Jemco, Inc., executed such a General Release in favor of VOLPE. (Testimony of Danca; R.E. 1.) The DEPARTMENT has not audited Jemco, Inc.'s records, thus, it does not know whether the tax it seeks to assess against VOLPE has already been remitted by Jemco, Inc. (Testimony of Alford.) The DEPARTMENT offered no affirmative evidence to contravene VOLPE's assertion that it had paid the requisite sales or use tax to Jemco, Inc. Its claim rests solely on the fact that VOLPE's evidence of payment does not contain a sales invoice or other documentation which itemizes, or separately states the amount of sales tax due from VOLPE. [AS TO HARDWARE AND LIGHTING EMPORIUM TRANSACTION] By purchase agreement dated October 2, 1975, VOLPE agreed to purchase finished hardware from Hardware and Lighting Emporium of Miami, Florida, for the contract price of $23,877, which expressly included Florida state sales tax. Each billing invoice issued by Hardware and Lighting Emporium separately itemizes and states the Florida sales tax due. In applying for payment under the agreement, Hardware and Lighting Emporium completed the VOLPE "Subcontractor's Application for Payment" forms certifying compliance with state sales tax laws in performing the agreement. VOLPE has fully satisfied its payment obligations under the purchase agreement. (Testimony of Danca; P.E. 3, R.E. 9, 10.)
Conclusions Conclusions: VOLPE established by a preponderance of evidence that it previously paid to its several vendors the sales and use tax which the DEPARTMENT now seeks. Accordingly, the proposed tax assessment, with penalties and interest thereon, cannot be sustained. Recommendation: That the DEPARTMENT's Notice of Proposed Assessment of Tax, Penalties, and Interest, under Chapter 212, Florida Statutes, dated March 20, 1980, be DISMISSED. Background By written notice issued on March 20, 1980, Petitioner ("DEPARTMENT") proposed to assess Respondent ("VOLPE") taxes, penalties, and interest allegedly due pursuant to Chapter 212, Florida Statutes. In response, VOLPE claimed that it had previously paid the tax in question, and requested an opportunity to submit proof at a formal hearing. On April 17, 1980, the DEPARTMENT forwarded VOLPE's request to the Division of Administrative Hearings, and asked that the requested hearing be conducted by a hearing officer. On May 15, 1980, final hearing was set for July 18, 1980. On June 17, 1980, the DEPARTMENT filed a motion to realign the parties. As grounds, it stated that VOLPE had the burden of proof, and the duty to present a prima facie case at hearing since VOLPE requested the hearing and was the party seeking relief. At the DEPARTMENT's request, ruling on its motion was withheld until presentation of arguments at final hearing. At hearing, the DEPARTMENT's motion was denied for the reasons stated in the Conclusions of Law below. In support of its proposed assessment against VOLPE, the DEPARTMENT called Marvin P. Alford, a tax examiner, as its only witness, and offered Petitioner's Exhibits 1/ 1 through 6, inclusive, each of which was received into evidence. VOLPE called Salvatore Danca, its comptroller, and Harold G. Gregory, its branch manager, as its witnesses, and offered Respondent's Exhibits 1 through 11, inclusive, each of which was received. At the conclusion of hearing, the parties were granted the opportunity to submit proposed findings of fact, conclusions of law, and memoranda within ten (10) days after filing of the transcript of hearing. The post-hearing submittals were filed by August 21, 1980. Based on the evidence submitted at hearing, the following facts are determined:
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED: That the DEPARTMENT's Notice of Proposed Assessment of Tax, Penalties, and Interest, Under Chapter 212, Florida Statutes, dated March 20, 1980, be DISMISSED. RECOMMENDED this 25th day of September, 1980, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings Room 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with Clerk of the Division of Administrative Hearings this 25th day of September, 1980.
The Issue Whether Petitioners are liable for sales and use tax, penalty, and interest as assessed by the Department of Revenue (the Department)?
Findings Of Fact Salma is a Florida corporation with its principal place of business at 2231 Del Prado Boulevard, Cape Coral, Florida, 33990. Gausia is a Florida corporation with its principal place of business at 11571 Gladiolus Drive, Fort Myers, Florida, 33908. Petitioners are in the business of operating gas stations with convenience stores. The Department is an agency of the State of Florida and is authorized to administer the tax laws of the State of Florida. Petitioners were selected for audit because their reported gross sales were less than the total cost of items purchased (inventory) for the audit period. The Department issued Salma and Gausia each a Notice of Intent to Conduct a Limited Scope Audit or Self-Audit, dated April 26, 2013, for sales and use tax, for the period February 1, 2010, through January 31, 2013 (collectively referred to as the Notices). The Notices requested that Petitioners provide the Department: (a) a list of all their vendors for alcohol, tobacco, soda, chips, candy, etc.; (b) their total purchases of alcohol and tobacco, by vendor, for the period July 2010 to June 2011; (c) copies of their federal tax returns for the examination period; (d) purchase receipts for all purchases for the last complete calendar month; and (e) daily register (Z tapes) for the last complete calendar month. The Notices gave Petitioners 60 days to gather the requested documents before the audit was to commence. The Notices also requested that Petitioners complete an attached Questionnaire and Self Analysis Worksheet. In response to the Notices, Petitioners requested a 30- day extension of time until July 18, 2013, to provide the requested documents and to designate a Power of Attorney. Petitioners did not provide the Department any books and records for inspection, nor did they complete and return the questionnaire and self analysis worksheets. As a result, the Department's auditor determined the sales tax due based upon the best information available. To calculate an estimated assessment of sales tax, the Department used the purchase data of Petitioners' wholesalers and distributors of alcoholic beverages and tobacco, for July 1, 2010, through June 30, 2011; the 2010 National Association of Convenience Stores average markups and in-store sales percentages of alcoholic beverage and tobacco products; and historical audit data. After reviewing the purchase data for July 1, 2010, through June 30, 2011, and for July 1, 2011, through June 30, 2012, the Department's auditor determined that the data was missing a few vendors. As a result, the Department's auditor estimated the amount of Petitioners' cigarette purchases, based on historical audit data that shows that cigarette sales are generally 4.31 times more than beer sales. The Department's auditor and audit supervisor testified that the estimated gross sales seemed reasonable and consistent with the national averages and the purchase data for July 1, 2011, through June 30, 2012. The Department estimated gross sales (i.e., the retail sale value of the goods sold) by marking up the taxable sales and exempt sales reported on the sales and use tax returns submitted to the Department by Petitioners. For example, for July 1, 2010, through June 30, 2011, Salma purchased beer from its wholesalers and distributors for $148,826.15, and the Department marked up the purchase price by 27 percent for a retail value of $189,009.21. For July 1, 2010, through June 30, 2011, Gausia purchased beer from its wholesalers and distributors for $132,138.65, and the Department marked up the purchase price by 27 percent for a retail value of $167,816.09. The Department's markup on the alcoholic beverage and tobacco products is reasonable because the Department's auditor testified that he used a combination of 2010 National Association of Convenience Stores average markups and the competitive pricing and information from audits of other convenience stores. The Department determined that the exemption ratio reported on the sales and use tax returns submitted to the Department by Petitioners was extremely high for their industry. The Department used an exemption ratio of 15 percent, based on historical audit data for the industry, to calculate Petitioners' estimated taxable sales. A review of Petitioners' sales and use tax returns revealed that they did not apply the tax bracket system to their taxable sales transactions, as required under sections 212.12(9) and (10), Florida Statutes. Instead, Petitioners remitted sales tax on their taxable sales based on their gross receipts at a flat tax rate. The Department's auditor testified that this method of reporting tax is inappropriate and does not accurately reflect the sales activity of the business. The Department calculated the average effective tax rate of 6.0856 percent, based on historical audit data for the industry. To calculate the estimated tax due, the Department multiplied the effective tax rate by the estimated taxable sales and gave Petitioners credit for any tax remitted with their tax returns. The Department issued Salma a Notice of Intent to Make Audit Changes, dated August 8, 2013, for audit number 200149872. The Department issued Gausia a Notice of Intent to Make Audit Changes, dated August 8, 2013, for audit number 200149749. The Department assessed Petitioners sales tax on their sales of alcoholic beverages and tobacco. The Notice of Intent to Make Audit Changes gave Petitioners 30 days to request a conference with the auditor or audit supervisor, to dispute the proposed changes. Petitioners did not make such a request. The Department issued a Notice of Proposed Assessment (NOPA) to Salma on March 6, 2014, for tax in the sum of $159,282.26; for penalty in the sum of $39,820.57; and interest as of March 6, 2013, in the sum of $27,772.36. The Department issued a NOPA to Gausia on March 6, 2014, for tax in the sum of $213,754.46; for penalty in the sum of $53,438.62; and interest as of March 6, 2013, in the sum of $36,921.79. Additional interest accrues at $30.55 per day until the tax is paid. The NOPAs became final assessments on May 5, 2014. After filing a request for an administrative hearing, Petitioners completed the Questionnaire and Self Analysis Worksheet and produced the following documents to the Department: (a) a list of all of their vendors for alcohol, tobacco, soda, chips, candy, etc.; (b) a list of vendors for alcohol and tobacco, for the examination period of July 2010 to June 2011; (c) a summary of their taxable sales, for the period February 2010 through December 2012; (d) copies of their federal tax returns, for the tax years 2010 through 2013; (e) copies of its purchase receipts for the months of July 2013; and (f) copies of their daily register (Z-tapes) for the month of July 2013. The Department's auditor testified that aside from being untimely, the records and information provided by Petitioners during these proceedings were not reliable because Petitioners did not provide any source documents that would allow the Department to reconcile the reported figures and confirm the supplied information. In addition, the purchase receipts and Z- tapes were not relevant because they were from outside of the audit period. The Z-tapes are also unreliable because the manager of the convenience store testified at the final hearing that employees purposely and routinely entered taxable sales into the cash registers as tax exempt sales. Petitioners argue that the Department did not use the best information available when estimating the taxes due. Petitioners claim that because their businesses are combination gas station/convenience stores, the national data for standalone convenience stores is inapplicable. However, notably absent from Petitioners' testimony or evidence was any alternative data upon which the Department could have relied for more accurate estimates.2/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order denying Petitioners' requests for relief and assessing, in full, the Department's assessments of sales tax, penalty, and interest against both Salma and Gausia. DONE AND ENTERED this 9th day of January, 2015, in Tallahassee, Leon County, Florida. S MARY LI CREASY 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 January, 2015.
The Issue Whether the contested and unpaid portions of the tax, penalty and interest assessment issued against Petitioners as a result of Audit No. 9317210175 should be withdrawn as Petitioners have requested?
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: Shuckers is an oceanfront restaurant and lounge located at 9800 South Ocean Drive in Jensen Beach, Florida. In November of 1992, Petitioner Mesa's brother, Robert Woods, Jr., telephoned Mesa and asked her if she wanted a job as Shuckers' bookkeeper. Woods had been the owner of Shuckers since 1986 through his ownership and control of the corporate entities (initially Shuckers Oyster Bar Too of Jensen Beach, Florida, Inc., and then NAT, Inc.) that owned the business. Mesa needed a job. She therefore accepted her brother's offer of employment, notwithstanding that she had no previous experience or training as a bookkeeper. When Mesa reported for her first day of work on November 19, 1992, she learned that Woods expected her to be not only the bookkeeper, but the general manager of the business as well. Mesa agreed to perform these additional responsibilities. She managed the day-to-day activities of the business under the general direction and supervision of Woods. After a couple of weeks, Woods told Mesa that it would be best if she discharged her managerial responsibilities through an incorporated management company. Woods had his accountant draft the documents necessary to form such a corporation. Among these documents were the corporation's Articles of Incorporation. Mesa executed the Articles of Incorporation and, on December 3, 1992, filed them with the Secretary of State of the State of Florida, thereby creating Petitioner TAN, Inc. TAN, Inc.'s Articles of Incorporation provided as follows: The undersigned subscribers to these Articles of Incorporation, natural persons competent to contract, hereby form a corporation under the laws of the State of Florida. ARTICLE I- CORPORATE NAME The name of the corporation is: TAN, INC. ARTICLE II- DURATION This corporation shall exist perpetually unless dissolved according to Florida law. ARTICLE III- PURPOSE The corporation is organized for the purpose of engaging in any activities or business permitted under the laws of the United States and the State of Florida. ARTICLE IV- CAPITAL STOCK The corporation is authorized to issue One Thousand (1000) shares of One Dollar ($1.00) par value Common Stock, which shall be designated "Common Shares." Article V- INITIAL REGISTERED OFFICE AND AGENT The principal office, if known, or the mailing address of this corporation is: TAN, INC. 9800 South Ocean Drive Jensen Beach, Florida 34957 The name and address of the Initial Registered Agent of the Corporation is: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 ARTICLE VI- INITIAL BOARD OF DIRECTORS This corporation shall have one (1) director initially. The number of directors may be either increased or diminished from time to time by the By-laws, but shall never be less than one (1). The names and addresses of the initial directors of the corporation are as follows: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 ARTICLE VII- INCORPORATORS The names and addresses of the incorporators signing these Articles of Incorporation are as follows: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 On the same day it was incorporated, December 3, 1992, TAN, Inc., entered into the following lease agreement with the trust (of which Woods was the sole beneficiary) that owned the premises where Shuckers was located: I, Michael Blake, Trustee, hereby lease to Tan, Inc. the premises known as C-1, C-2, C-3, C-4, 9800 South Ocean Drive, Jensen Beach, Florida for the sum of $3,000.00 per month. This is a month to month lease with Illinois Land Trust and Michael Blake, Trustee. Mesa signed the agreement in her capacity as TAN, Inc.'s President. She did so at Woods' direction and on his behalf. No lease payments were ever made under the agreement. 3/ The execution of the lease agreement had no impact upon Shuckers. Woods remained its owner and the person who maintained ultimate control over its operations. At no time did he relinquish any part of his ownership interest in the business to either Mesa or her management company, TAN, Inc. Mesa worked approximately 70 to 80 hours a week for her brother at Shuckers doing what he told her to do, in return for which she received a modest paycheck. Woods frequently subjected his sister to verbal abuse, but Mesa nonetheless continued working for him and following his directions because she needed the income the job provided. As part of her duties, Mesa maintained the business' financial records and paid its bills. She was also required to fill out, sign and submit to Respondent the business' monthly sales and use tax returns (hereinafter referred to as "DR- 15s"). She performed this task to the best of her ability without any intention to defraud or deceive Respondent regarding the business' tax liability. The DR-15s she prepared during the audit period bore NAT, Inc.'s Florida sales and use tax registration number. On the DR-15 for the month of December, 1992, Mesa signed her name on both the "dealer" and "preparer" signature lines. Other DR-15s were co-signed by Mesa and Woods. In April of 1993, Woods told Mesa that she needed to obtain a Florida sales and use tax registration number for TAN, Inc., to use instead of NAT, Inc.'s registration number on Shuckers' DR-15s. In accordance with her brother's desires, Mesa, on or about May 14, 1993, filed an application for a Florida sales and use tax registration number for TAN, Inc., which was subsequently granted. On the application form, Mesa indicated that TAN, Inc. was the "owner" of Shuckers and that the application was being filed because of a "change of ownership" of the business. In fact, TAN, Inc. was not the "owner" of the business and there had been no such "change of ownership." By letter dated June 22, 1993, addressed to "TAN INC d/b/a Shuckers," Respondent gave notice of its intention to audit the "books and records" of the business to determine if there had been any underpayment of sales and use taxes during the five year period commencing June 1, 1988, and ending May 31, 1993. The audit period was subsequently extended to cover the six year period from June 1, 1987 to May 31, 1993. Relying in part on estimates because of the business' inadequate records, auditors discovered that there had been a substantial underpayment of sales and use taxes during the audit period. The auditors were provided with complete cash register tapes for only the following months of the audit period: June, July, August and December of 1992, and January, February, March, April and May of 1993. A comparison of these tapes with the DR-15s submitted for June, July, August and December of 1992, and January, February, March, April and May of 1993 revealed that there had been an underreporting of sales for these months. Using the information that they had obtained regarding the three pre- December, 1992, months of the audit period for which they had complete cash register tapes (June, July and August of 1992), the auditors arrived at an estimate of the amount of sales that had been underreported for the pre- December, 1992, months of the audit period for which they did not have complete cash register tapes. The auditors also determined that Shuckers' tee-shirt and souvenir sales, 4/ Sunday brunch sales, cigarette vending sales, vending/amusement machine location rentals 5/ and tiki bar sales that should have been included in the sales reported on the DR-15s submitted during the audit period were not included in these figures nor were these sales reflected on the cash register tapes that were examined. According of the "Statement of Fact" prepared by the auditors, the amount of these unreported sales were determined as follows: TEE-SHIRT SALES: Sales were determined by estimate. This was determined to be $2,000/ month. No records were available and no tax remitted through May, 1993. SUNDAY BRUNCH SALES: Sales were determined by estimate. This was determined to be 100 customers per brunch per month (4.333 weeks). No audit trail to the sales journal was found and no records were available. CIGARETTE VENDING SALES: The estimate is based on a review of a sample of purchases for the 11 available weeks. The eleven weeks were averaged to determine monthly sales at $3/pack. VENDING MACHINE LOCATION RENTAL REVENUE: The revenue estimate is based on a review of a one month sample. TIKI BAR SALES: The sales estimate is based on a review of infrequent cash register tapes of February, 1993. The daily sales was determined by an average of the sample. The number of days of operation per month was determined by estimate. In addition, the auditors determined that TAN, Inc. had not paid any tax on the lease payments it was obligated to make under its lease agreement with Illinois Land Trust and Michael Blake, Trustee, nor had any tax been paid on any of the pre-December, 1992, lease payments that had been made in connection with the business during the audit period. According to the "Statement of Fact" prepared by the auditors, the amount of these lease payments were determined as follows: The estimate is based on 1990 1120 Corporate return deduction claimed. This return is on file in the Florida CIT computer database. The 1990 amount was extended through the 6/87 - 11/92 period. For the period 12/92 - 5/93 audit period, TAN's current lease agreement of $3,000/month was the basis. No documentation was produced during the audit supporting any the sales tax exemptions that the business had claimed during the audit period on its DR-15s. 6/ Accordingly, the auditors concluded that the sales reported as exempt on the business' DR-15s were in fact taxable. Using records of sales made on a date selected at random (February 1, 1993), the auditors calculated effective tax rates for the audit period. They then used these effective tax rates to determine the total amount of tax due. An initial determination was made that a total of $201,971.71 in taxes (not including penalties and interest) was due. The amount was subsequently lowered to $200,882.28. On or about December 22, 1993, TAN, Inc., entered into the following Termination of Lease Agreement with Ocean Enterprises, Inc.: TAN, Inc., a Florida corporation, hereby consents to termination of that certain lease of the premises known as C-1, C-2, C-3 and C-4 of ISLAND BEACH CLUB, located at 9800 South Ocean Drive, Jensen Beach, Florida, dated December 3, 1992, acknowledges a landlord's lien on all assets for unpaid rent; and transfers and sets over and assigns possession of the aforesaid units and all of its right, title and interest in and to all inventory, equipment, stock and supplies located on said premises 7/ in full satisfaction of said unpaid rent; all of the foregoing effective as of this 22nd day of December, 1993. FOR AND IN CONSIDERATION of the foregoing termin- ation of lease, OCEAN ENTERPRISES, Inc., a Florida corporation, hereby agrees to pay Linda Mesa, each month all of the net revenues of the operation of the bar and restaurant located on said premises, up to the sum of $15,000.00, for sales tax liability asserted against TAN, Inc. or Linda A. W. Mesa based upon possession or ownership of said premises or any of the assets located thereon, plus attorney's fees incurred in connection with defending or negotiating settlement of any such liability. Net revenue shall mean gross revenue, less operating expenses, includ- ing, but not limited to, rent, up to the amount of $5,000.00 per month, costs of goods sold, utilities, payroll and payroll expense and insurance. OCEAN ENTERPRISES, Inc. represents that it has entered into a lease of said premises for a term of five years commencing on or about December 22, 1993, pursuant to the terms and conditions of which OCEANFRONT [sic] ENTERPRISES, Inc. was granted the right to operate a restaurant and bar business on said premises. Ocean Enterprises, Inc., leases the property from Island Beach Enterprises, which obtained the property through foreclosure. TAN, Inc., has been administratively dissolved.
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 contested and unpaid portions of the assessment issued as a result of Audit No. 9317210175, as it relates to TAN, Inc., and Linda A. W. Mesa. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 27th day of June, 1995. 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 27th day of June, 1995.
The Issue Does the taxpayer owe sales tax, penalty, and interest as assessed by the Department of Revenue.
Findings Of Fact Petitioner, Department of Revenue, is an agency of the State of Florida, lawfully created and organized pursuant to Section 20.21, Florida Statutes. By law, the Department is vested with the responsibility of regulating, controlling and administering the revenue laws of the State of Florida, including, specifically, the laws relating to the imposition and collection of the state's sales and use tax, pursuant to Chapter 212, Florida Statutes. Respondent, Worldwide Equipment Group, LLC, is a Florida limited liability company, whose principal address is Post Office Box 1050, Freeport, Florida 32439. Respondent sells and leases heavy equipment. In early 2006, Petitioner, Department of Revenue, conducted an audit of the books and records of Petitioner, pursuant to statutory notice. The period covered by the audit was March 1, 2002, through February 28, 2005. The audit was conducted by Department of Revenue auditor David Collins and addressed three issues. Issue A-01 addressed misclassified exempt sales, i.e. failure to collect appropriate sales and use tax or lack of documentation to prove tax exempt status of certain sales. Issue A-03 addressed discrepancies in sales for 2003 as reported for federal income tax returns and for state sales and use tax returns. Issue A-03 addressed interest owed due to a timing difference between actual transactions and the filing of state returns: basically a manipulation of the grace period for payment of sales and use taxes. Respondent was notified of the apparent discrepancies observed by the auditor. The original Notice of Intent To Make Audit Changes was issued February 17, 2006, and started at more than $75,000.00 in taxes, penalty, and interest due. Respondent then filed amended federal income tax returns, reflecting larger sales figures covering a portion of the audit period which reduced the discrepancy. The dispute was originally referred to the Division of Administrative Hearings (DOAH) on or about August 30, 2006. The original facts in dispute surrounded an addendum to the Notice of Proposed Assessment showing a balance due of $31,434.82. This was DOAH Case No. 06-3287. The request for a disputed-fact hearing was made by David R. Johnson CPA, who has a power of attorney on file with Petitioner Agency permitting him to represent Respondent. Throughout these proceedings, Worldwide has been served through Mr. Johnson by Petitioner and by DOAH. The parties filed a Joint Motion for Provisional Closing Order in DOAH Case No. 06-3287 on November 1, 2006. On November 2, 2006, DOAH Case No. 06-3287 was closed with leave to return if the parties' proposed settlement was not finalized. Mr. Johnson met once with counsel for Petitioner during the time the case was returned to the Agency. At some point, Respondent had produced certain accounting entries and supporting documents to the auditor. These were used to adjust the assessment levied by the Department. A Revised Notice Of Intent To Make Audit Changes dated March 13, 2007, was issued with a letter of the same date. The revised, and final Notice included an assessment of tax, penalty and interest totaling $15,065.24, as of the date of issue and information that the tax accrues interest at the rate of $3.10 per diem. On April 4, 2007, Petitioner filed before DOAH its Motion to Re-open Case and Notice for Trial. No timely response in opposition was filed by Respondent. By an Order to Re-open Case File, entered April 19, 2007, the case was re-opened as the instant DOAH Case No. 07-1710. Petitioner has established that the amount of $15,065.24 as tax, penalty, and interest was due as of March 13, 2007.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue sustain the March 13, 2007, assessment of the subject sales tax, penalties and interest to Petitioner. DONE AND ENTERED this 8th day of October, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 8th day of October, 2007. COPIES FURNISHED: Warren J. Bird, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32399-0100 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100 David R. Johnson, CPA 1265 Highway 331 South Defuniak Springs, Florida 32435 Worldwide Equipment Group LLC Post Office Box 1050 Freeport, Florida 32439
The Issue Whether this cause should be dismissed for Petitioner's failure to comply with Section 120.80(14)(b)3., Florida Statutes.
Findings Of Fact Petitioner is contesting an assessment of taxes, pursuant to an audit conducted by Respondent Department of Revenue. The total amount of the assessment was $32,312.24. Following the audit, in a letter to the Department's auditor dated April 17, 2006, Petitioner's counsel stated that taxes "in the amount of $5,744.80 is something [Petitioner] would be obligated to pay under the laws of the State of Florida, and as such, they are willing to do so. They would be willing to pay interest due on this money."1/ This statement constitutes a clear admission that Petitioner owes the stated amount of the tax, $5,744.80, plus interest that accrues daily. Petitioner's Memorandum makes the un-sworn statement that: At the time the parties met to discuss the assessment with the representative of the Department of Revenue, Martha Watkins, they offered to pay $5,744.80 of the taxes but were informed it was part of the $32,312.24, and they could either pay it all or contest it. At all times material hereto the petitioners have stood ready to pay the $5,744.80. On April 17, 2006, we wrote a letter to Martha Watkins making this offer for the second time. On August 17, 2006, we again wrote to the Department of Revenue attaching our letter of April 17, 2006, again making this offer. At no time was a response received to either letter. The August 17, 2006, letter alluded to in Petitioner's Memorandum is not of record and neither a copy of that letter, nor an affidavit of its contents, has been submitted by either party. At no time has Petitioner asserted that any amount of tax money was unequivocally tendered to Respondent. No affidavit to that effect has been filed in this case. The Second Affidavit of Martha Watkins, submitted with the Department of Revenue's timely Memorandum states, in pertinent part: I conducted the audit of C AND C MECHANICAL CONTRACTORS, INC., from which arose the challenged assessment and this controversy. During the course of the audit, and subsequent communication with C AND C MECHANICAL CONTRACTORS, INC., regarding the audit and assessment of taxes and interest, C AND C MECHANICAL CONTRACTORS, INC., made at least one settlement offer, that was unacceptable, and was rejected by the Department as such. At no time did C AND C MECHANICAL CONTRACTORS, INC., unequivocally tender to me, or unequivocally offer to tender to me, the uncontested tax and applicable interest, and at no time did I refuse to accept any payment of taxes. On September 21, 2006, a Request for Administrative Hearing was filed with the Department of Revenue. On September 28, 2006, the Executive Director of the Department of Revenue entered an Order Dismissing the Petition with Leave to Amend. That Order reads, in pertinent part: On September 21, 2006, the Florida Department of Revenue received a "Request for Administrative Hearing" from Petitioner, C & C Mechanical Contractors. While the document clearly is a request for hearing, the petition does not state what the Petitioner is disputing. A record search shows that at least one Notice of Proposed Assessment was issued by the Department on June 15, 2006 to this Petitioner. It is impossible to determine from the petition whether this proposed assessment is being challenged. However, because this request was sent within the applicable time frame to dispute the Notice of Proposed Assessment, the Department will treat it as such. As required by law, the notice stated that a formal protest for an administrative hearing had to be received in the Office of the General Counsel within sixty days after the assessment became final and had to be in compliance with chapter 120, Florida Statutes. The petition fails to meet the requirements contained in chapter 120, Florida Statutes and Uniform Rule 28- 106.201, Florida Administrative Code, the appropriate rule for use in filing a petition requesting a hearing involving disputed issues of material fact. A copy of the appropriate rule is provided with this order. Specifically, the petition does not contain: (1) a statement of when and how the Petitioner received notice of the agency decision; (2) all disputed issues of material fact. If there are none, the petition must so indicate; (3) a concise statement of the ultimate facts alleged, including the specific facts the Petitioner contends warrant reversal or modification of the agency's proposed action; (4) a statement of the specific rules or statutes the Petitioner contends require reversal or modification of the agency's proposed action, and (5) a statement of the relief sought by the Petitioner, stating precisely the action the petitioner wishes the agency to take with respect to the agency's proposed action. Because of these deficiencies, Petitioner's documentation must be dismissed. IT IS ORDERED: The petition for hearing filed by Petitioner is DISMISSED. Such dismissal is without prejudice to Petitioner to amend the petition to provide the information listed above. . . . On October 11, 2006, the Amended Petition for Administrative Hearing was filed with the Department of Revenue. That Amended Petition stated, in pertinent part: 1. The Petitioner received a certified letter dated June 15, 2006, stating taxes were due and owing in the amount of $32,312.24. This amount included $5,774.80 in fabrication cost taxes which the Petitioner does not object too [sic]. The balance of the $32,312.24 was for taxes on items sold to non-taxable entities. The Petitioner would object to these taxes and gives as grounds the following: Items sold to non-taxable entities are not subject to the Florida Tax Code. The department made a determination the items sold to the non-taxable entities were taxable stating the contractor, in this case the Petitioner, was the end user. Florida Tax Code states in part ". . . a determination whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction rather than the form in which the transaction is cast." The department "shall adopt rules that give special consideration to factors that govern the status of the tangible personal property before its affixation to real property." The Department of Revenue has adopted a rule which is in violation of the incident [sic] of legislature and contrary to Florida Statute 212.08.2/ (Emphasis supplied). The Amended Petition constitutes a clear admission that the $5,744.80 portion of the taxes due under the audit were both uncontested and owed, as of October 11, 2006. The first Affidavit of Martha Watkins, filed November 28, 2006, in support of the pending Motion to Dismiss, states, in pertinent part: I am a [sic] sui juris and otherwise competent to testify in this matter. I am employed by the Florida Department of Revenue in the position of Tax Auditor III. I am familiar with the accounts, accounting methods, and maintenance of records at the Florida Department of Revenue for sales tax, interest, and penalties. I am authorized by the Department of Revenue to make affidavit regarding the payment status of sales taxes, interest and penalties relative to registered Florida dealers. I have reviewed, and have personal knowledge of the accounts of the Florida Department of Revenue regarding tax payment of C&C MECHANICAL CONTRACTORS, INC., a Florida corporation that has in the past been issued a Certificate of Registration by the Department of Revenue. According to the records of the Department of Revenue, as of November 27, 2006, C&C MECHANICAL CONTRACTORS, INC., has not paid any sums to the Department of Revenue against the assessed outstanding balance of sales tax, interest or penalties, since prior to April 16, 2006.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Florida Department of Revenue enter a final order dismissing the Amended Petition. DONE AND ENTERED this 27th day of February, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 27th day of February, 2007.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background Petitioner, Gainesville Amateur Radio Society, Inc. (GARS or petitioner), a Florida non-profit corporation, was incorporated on December 31, 1975. Its stated purpose is to promote an interest in amateur radio operation. Among other things, GARS provides preparation for Federal Communication Commission licensing examinations, supports community activities with free communication services, and encourages public awareness of ham radio activities through the publication of a monthly newsletter called the GARS-MOUTH. Respondent, Department of Revenue (DOR), is charged with the responsibility of administering and implementing the Florida Revenue Act of 1949, as amended. It has the specific task of collecting sales taxes and enforcing the state tax code and rules. By law, certain transactions are exempt from the state sales and use tax. Among these are sales or lease transactions involving "scientific organizations." In order for an organization to be entitled to an exemption, it must make application with DOR for a consumer's certificate of exemption and demonstrate that it is a qualified scientific organization within the meaning of the law. Once the application is approved, the certificate entitles the holder to make tax exempt purchases that are otherwise taxable under Chapter 212, Florida Statutes. In the case of petitioner, a certificate would enable it to save a hundred or so dollars per year. Claiming that it was entitled to a certificate of exemption as a charitable organization, GARS filed an application with DOR on December 21, 1993. After having the application preliminarily disapproved by DOR on the ground it did not expend "in excess of 50.0 percent of the . . . organization's expenditures toward referenced charitable concerns, within (its) most recent fiscal year," a requirement imposed by DOR rule, GARS then amended its application to claim entitlement on the theory that it was a scientific organization. Although DOR never formally reviewed the amended application, it takes the position that GARS still does not qualify for a certificate under this new theory. Is GARS a Scientific Organization? Under Section 212.08(7)(o)2.c., Florida Statutes, a scientific organization is defined in relevant part as an organization which holds a current exemption from the federal income tax under section 501(c)(3) of the Internal Revenue Code. A DOR rule tracks this statute almost verbatim. Accordingly, as a matter of practice, in interpreting this statutory exemption, DOR simply defers to the final determination of the Internal Revenue Service (IRS). If the IRS grants an organization a 501(c)(3) status based on the determination that it is a scientific organization, then DOR accepts this determination at face value. DOR does not make an independent determination whether the organization is "scientific" or question the decision of the IRS. This statutory interpretation is a reasonable one and was not shown to be erroneous or impermissible. GARS received a federal income tax exemption from the IRS regional office in Atlanta, Georgia by letter dated August 12, 1993. The record shows that GARS was granted an "exempt organization" status as a "charitable organization" and as an "educational organization" under Treasury Regulation Section 1.501(c)(3). However, GARS did not receive an exempt status as a "scientific organization" nor did the IRS make that determination. Therefore, GARS does not qualify as a scientific organization within the meaning of the law. While petitioner submitted evidence to show that it engages in what it considers to be a number of scientific endeavors, these activities, while laudable, are irrelevant under Florida law in making a determination as to whether GARS qualifies for a sales tax exemption as a scientific organization. Therefore, the application must be denied.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent enter a final order denying petitioner's application for a consumer certificate of exemption. DONE AND ENTERED this 23rd day of June, 1995, in Tallahassee, Florida. DONALD R. ALEXANDER 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 June, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-1200 Petitioner: 1-2. Partially accepted in finding of fact 4. 3. Partially accepted in finding of fact 6. 4. Partially accepted in finding of fact 1. 5. Rejected as being irrelevant. 6. Rejected as being unnecessary. 7. Partially accepted in finding of fact 5. 8-9. Partially accepted in finding of fact 7. 10. Partially accepted in finding of fact 5. 11. Partially accepted in finding of fact 7. 12. Partially accepted in finding of fact 6. 13. Rejected as being unnecessary. 14. Partially accepted in finding of fact 6. Respondent: 1. Partially accepted in finding of fact 1. 2. Partially accepted in finding of fact 2. 3. Rejected as being unnecessary. 4. Rejected as being cumulative. 5-12. Partially accepted in finding of fact 7. 13-14. Partially accepted in finding of fact 4. 15. Partially accepted in finding of fact 3. 16. Covered in preliminary statement. 17. Partially accepted in finding of fact 4. 18-19. Partially accepted in finding of fact 6. 20-21. Rejected as being unnecessary. 22. Partially accepted in finding of fact 5. 23-24. Partially accepted in finding of fact 6. Note - Where a proposed finding has been partially accepted, the remainder has been rejected as being irrelevant, unnecessary for a resolution of the issues, not supported by the evidence, cumulative, subordinate, or a conclusion of law. COPIES FURNISHED: Mr. Larry Fuchs Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Linda Lettera, Esquire General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Sidney Schmukler, Esquire 3922 N. W. 20th Lane Gainesville, Florida 32605-3565 Olivia P. Klein, Esquire Department of Legal Affairs The Capitol-Tax Section Tallahassee, Florida 32399-1050
The Issue The issue is whether Petitioner collected and remitted to Respondent the correct amount of sales and use taxes during the audit period from October 1, 2004, through September 30, 2007, and, if not, what additional amount of tax plus penalty and interest is due.
Findings Of Fact Petitioner True Blue Pools (Petitioner, taxpayer, or TBP) is a domestic corporation headquartered in Miami-Dade County, Florida. TBP services, repairs, and renovates swimming pools and constructed some pools during the audit period. Respondent, Florida Department of Revenue (Respondent or DOR), is the agency of state government authorized to administer the tax laws of the State of Florida, pursuant to section 213.05, Florida Statutes.2 DOR is authorized to prescribe the records to be kept by all persons subject to taxes under chapter 212, Florida Statutes. Such persons have a duty to keep and preserve their records, and the records shall be open to examination by DOR or its authorized agents at all reasonable hours pursuant to section 212.12(6), Florida Statutes. DOR is authorized to conduct audits of taxpayers and to request information to ascertain their tax liability, if any, pursuant to section 213.34, Florida Statutes. On November 2, 2007, DOR initiated an audit of TBP to determine whether it was properly collecting and remitting sales and use taxes to DOR. The audit period was from October 1, 2004, through September 30, 2007. On December 15, 2008, DOR sent TBP its Notice of Intent to Make Audit Changes (NOI), with schedules, showing that TBP owed to DOR additional sales and use taxes in the amount of $113,632.17, penalty in the amount of $28,406.05, and interest through December 16, 2008, in the amount of $34,546.59, making a total assessment in the amount of $176,586.81. On October 26, 2009, DOR issued its Notice of Proposed Assessment. TBP timely challenged the Notice of Proposed Assessment, filing its petition with DOR and requesting an administrative hearing. Subsequent to the petition being filed, additional documentation was provided by TBP resulting in a revision to the tax, interest, and penalty amount due. DOR's revised work papers, dated May 27, 2010, claim Petitioner owes $64,430.83 in tax, $16,107.71 in penalty, and interest through May 27, 2010, in the amount of $27,071.99, with an assessment of $107,610.53. The assessed penalty, $16,107.71, was calculated after 25% of the penalty was waived, pursuant to subsection 213.21(3)(a), Florida Statutes, based on DOR's determination that there is no evidence of willful negligence, willful neglect, or fraud. The audit was conducted to determine liability in four categories: improper sales tax exemptions, unpaid sales taxes for taxable expenses, unpaid use taxes on fixed assets, and unpaid use taxes on taxable materials used to fulfill contracts to improve real property. Sales Tax Exemptions Due to the large volume of invoices and other records, the auditor conducted a random sampling of invoices for three months during the audit period, October 2004, January 2005, and September 2007.3 If no sales tax was collected and the Petitioner claimed that the transaction was exempt from the requirement to pay taxes, the auditor looked for proof that either the TBP customer was an exempt organization, for example, a school or a church, or that TBP had provided its suppliers with a DOR Form DR-13 to exempt from taxes products acquired for resale. In the absence proof of either type of exemption, DOR assumed taxes should have been paid. Using the difference between taxes collected and taxes due for the three months, the auditor determined that the percentage of error was .016521. When .016521 was applied to total sales of $1,485,890.79 for the 36-month audit period, the results showed that an additional $24,548.41 in sales taxes should have been collected from customers, and is due from TBP. Although a business is required to pay taxes for the materials it purchases to use in its business, it is not required to collect taxes from its customers when it enters into lump sum contracts to perform a service for customers. At least one invoice for $9,500.00 that the auditor treated as an improper exemption was, in fact, a partial payment on a lump-sum contract. The invoice referenced a "shotcrete draw," which represented the collection of funds after the concrete part of pool construction was completed. TBP is not required to collect taxes when it uses lump-sum contracts. Other invoices for pool repair and services were also mischaracterized as exempt by the TBP, but it is not clear that all were payments related to lump-sum contracts. DOR's auditor, nevertheless, testified as follows: With the knowledge that I have for True Blue Pools, being a lump-sum contractor, True Blue Pools should not charge their customer any sales tax. Transcript at pages 67-68. DOR concedes that some of TBP's transactions are also exempt from taxes as improvements to real property. In its Proposed Recommended Order, DOR asserted that TBP's use of the term "improvements to real property" is overbroad, but it did not specify how or why this is the case. During cross- examination of the owner of TBP, only one invoice for $500.00 for leak detection on the Delgado property was shown to have been for a service rather than for swimming pool construction. Taxable Expenses DOR audited TBP's purchases of tangible personal property used in the daily operation of its business. The products included chlorine and other chemicals, office supplies, and vehicle parts, expenses, and repairs. The ledger for a 12- month period, calendar year 2006, showed an average monthly additional tax due of $111.18, or a total of $4,002.48 in additional taxes for the 36-month audit period. As noted in Petitioner's Proposed Recommended Order, "[t]he representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of all of these items " Fixed Assets TBP's list of fixed assets was taken from the depreciation schedule on Internal Revenue Service Form 4562. The items listed are computer- and software-related. TBP provided no proof that it had paid a use tax. The additional tax due equals $419.94. Petitioner's Proposed Recommended Order includes the statement that "[a]gain, the representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of these items " Taxable Materials Taxable materials, those purchased to fulfill a contract to improve real property, included items used to build, renovate, and repair pools. The items included concrete, meters, drains, and valves. For the 12-month sample period, calendar year 2006, TBP failed to pay taxes on material purchases in the total amount of $168,310.05, or an average of $14,078.96 a month. For the 36-month audit period, the total of the purchases was $506,842.56. With a 6 percent tax due for the state and 1 percent for the county, the total additional tax due on materials is $35,460.00. TBP conceded that it improperly used a resale exemption to purchase taxable materials from suppliers without paying taxes. The materials were used to provide services and were not resold. Acknowledging again that TBP uses lump-sum contracts, this time to support the collection of additional taxes, the auditor testified as follows: And the law states that the taxpayer's [sic] an ultimate consumer of all materials purchased to fulfill a lump-sum contract, and that's what they told me they operate under, a lump-sum contract. Transcript at page 58. At the hearing, TBP used its actual profit and loss statement to show that the cost of goods it sold (general purchases and taxable materials) in the amounts of $18,360.77 in October 2004, $8,519.22 in January 2005, and $4,818.65 in September 2007. Corresponding taxes for each of those months should have been $1,285.25, $596.35, and $337.31, or an average of $739.63 a month, or a total of $26,626.68 for 36 months. The goods that it sold were not at issue in the audit of taxable materials, rather it was TBP's purchases from vendors that should have been taxed that resulted in DOR's audit results. Total Additional Sales and Use Taxes Due The three categories of additional taxes due, $4,002.48 for taxable expenses, $419.94 for fixed assets, and $35,460.00 for taxable materials, equal $39,882.42 in additional taxes due during the audit period. Taxes Paid TBP filed DOR Forms DR-15, monthly sales and use tax reporting forms, and paid sales and use taxes during the audit period. For the sample months used by DOR to examine sales tax exemptions, TBP paid $1,839.10 in taxes in October 2004, $1,672.73 in January 2005, and $1,418.13 in September 2007. Using the three months to calculate an average, extended to 36 months, it is likely that TBP paid $59,712 in taxes. TBP asserted that DOR was required to, but did not, offset the deficiency of $39,882.42, by what appears to be an overpayment of $59,712.00 in sales and use taxes. Other than pointing out that the amount reported on the DR-15s differed, being sometimes more and sometimes less than the amount shown on the profit and loss statements, DOR did not dispute TBP's claim that it had paid sales and use taxes. TBP's representative explained that end-of-the-year adjustments for additional collections or for bad debt could cause the amounts on the DR-15s and profit and loss statements to differ. With regard to the taxes paid, DOR took the following position in its Proposed Recommended Order: Petitioner's DR-15's [sic] for the collection periods October 2004, and January 2005, [and September 2007] (Petitioner's Composite Exhibit 1) do reflect sales tax being collected and remitted to DOR. DOR does not allege that Petitioner never paid tax on its purchases, or made bona fide exempt sales for which no tax was collected. DOR's audit findings identify just those which occurred within the sample period, scheduled in the auditor's workpapers, and applied over the entire audit period. The DR-15s are taken from the sample months selected by DOR within the audit period, and DOR does not address TBP's claim that a set off for taxes paid was mandatory, pursuant to subsection 213.34(4), Florida Statutes. Using the audit schedules, DOR showed credit for taxes paid in the amounts of $20.63 for taxable expenses, $0 for fixed assets, and $24.31 in state taxes and $1.03 for county taxes on taxable materials. The amounts are far less that the $59,712.00 in sales/use taxes TBP showed that it paid during the audit period.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is recommended that the Department of Revenue issue a final order dismissing the Notice of Intent to Make Audit Changes dated December 15, 2010. DONE AND ENTERED this 20th day of January, 2011, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER 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 20th day of January, 2011.
