The Issue The first issue in this case is the amount of attorneys' fees to assess against Respondent, Department of Business and Professional Regulation, Division of Pari-Mutuel Wagering (Respondent or Division), pursuant to an Order of the First District Court of Appeal (First DCA) granting a motion by Petitioner, Ft. Myers Real Estate Holdings, LLC (Petitioner or Ft. Myers REH), for attorneys' fees pursuant to section 120.595(5), Florida Statutes (2010),1/ and remanding the case to DOAH to assess the amount. The second issue is whether Petitioner is entitled to recover attorneys' fees and costs incurred in this proceeding, and, if so, in what amount.
Findings Of Fact For reasons that the First DCA found to be a "gross abuse of agency discretion," the Division rendered a Final Order dismissing Ft. Myers REH's petition for a formal administrative hearing to contest the Division's denial of Ft. Myers REH's amended application for a quarter horse racing permit. The premise of the Division's Final Order was that Petitioner could not prove that it meets the requirements for a permit, hence its claimed injury was not "redressable." Ft. Myers REH appealed the Final Order. The Notice of Appeal to the First DCA was filed on April 5, 2010, signed by Cynthia Tunnicliff for Pennington, Moore, Wilkinson, Bell and Dunbar, P.A. (the Pennington firm). After two motions to extend the deadline for filing the initial brief, Ft. Myers REH filed its Initial Brief on July 26, 2010. With the Initial Brief, Ft. Myers REH filed a motion for an award of attorneys' fees under section 120.595(5), asserting that the agency action which precipitated the appeal was a gross abuse of the agency's discretion. The motion's prayer for relief asked for "entry of an order awarding the Appellant the attorneys' fees it has incurred prosecuting this appeal, pursuant to . . . Section 120.595(5)." As stated in the opinion, the First DCA found that the Division's Final Order was "contrary to the basic, settled principle of administrative law that a person whose substantial interests are determined by an agency is entitled to some kind of hearing . . . to challenge the agency's decision[.]" The court determined that the dismissal of Ft. Myers REH's petition was "so contrary to the fundamental principles of administrative law" that Petitioner was entitled to an award of attorneys' fees under section 120.595(5). To assess reasonable attorneys' fees, a starting place is necessarily the time records of Petitioner's appellate legal team. Although Judge Farmer offered his opinion that the time records had little to no significance in this case, nonetheless, even Judge Farmer accepted the time-based attorneys' fees shown on those time records as the base amount to which a multiplier should be applied. Therefore, the undersigned examined the time records in the context of the appellate record and considered the conflicting opinions of the parties' experts to assess whether the time incurred by Petitioner's legal team was reasonable in light of the steps needed to successfully prosecute the appeal. There was extensive motion practice in the appeal, which significantly increased the amount of time that might otherwise be considered reasonable for an appeal of an order summarily dismissing a petition for administrative hearing, with no record to speak of from proceedings below, such as would be developed in a trial or administrative hearing. Several motions were filed by the Division, including a motion to dismiss the appeal, which resulted in an Order to Show Cause directing Ft. Myers REH to demonstrate why the appeal should not be dismissed. The Division also filed two different motions to strike, one directed to Ft. Myers REH's response to the Order to Show Cause why the appeal should not be dismissed, and the other directed to the reply brief; both of these motions were denied. Ft. Myers REH filed even more motions than the Division. In addition to the motion for attorneys' fees pursuant to section 120.595(5) and two perfunctory motions for enlargement of time to file the initial brief, Ft. Myers REH also filed a motion for substitution of counsel, making the mid-stream decision that David Romanik, whose expertise was in gaming law, should be counsel of record instead of Cynthia Tunnicliff, whose expertise was in administrative and appellate law, even though both attorneys remained involved before and after the substitution. More substantively, in reaction to the Division's motion to dismiss, Ft. Myers REH filed a motion to supplement the record and a motion for judicial notice, which were denied; a motion to consolidate the appeal with a separate mandamus action it had filed, which was denied; and a motion to strike the Division's response to the motion to supplement the record, or, in the alternative, a motion for leave to respond to new legal issues raised in the Division's response, both of which were denied. The basis for the Division's motion to dismiss was that a newly enacted law rendered the appeal moot, because under the new law, Ft. Myers REH could no longer qualify for the quarter horse racing permit for which it had applied. The Division sought to invoke the general rule that the law in effect at the time of a final decision applies to determine whether to grant or deny an application for a permit or other form of license. See Lavernia v. Dep't of Prof'l. Reg., 616 So. 2d 53, 54 (Fla. 1st DCA 1993). Ft. Myers REH's motion flurry, even though unsuccessful, was a reasonable response to the Division's position in that Ft. Myers REH sought to demonstrate that one of the exceptions to the general rule, as recognized in Lavernia, was applicable. See, e.g., Dep't of HRS v. Petty-Eifert, 443 So. 2d 266, 267-268 (Fla. 1st DCA 1983)(under the circumstances of that case, applicants were entitled to have the law applied as it existed when they filed their applications). In its opinion, the First DCA acknowledged both the Division's mootness argument and Ft. Myers REH's contention that there were circumstances that would preclude the Division from applying the statutory changes to the permit application. The court deemed these issues more suitable for fleshing out in the administrative hearing on remand. See Ft. Myers, 53 So. 3d at 1162-1163. In addition to the other motions, Ft. Myers REH also filed a motion for an award of attorneys' fees and costs pursuant to section 57.105, in which Ft. Myers REH asserted that the Division's motion to dismiss the appeal was unsupported by material facts and then-existing law. The court considered and denied the section 57.105 motion. There were four attorneys who worked on the appeal on behalf of Ft. Myers REH: David S. Romanik from Oxford, Florida; and Cynthia Tunnicliff, Marc Dunbar, and Ashley Mayer, all of the Pennington firm in Tallahassee, Florida. The first three of these attorneys are long-time practitioners with substantial experience and particular areas of expertise. Mr. Romanik, who became the counsel of record in the middle of the appeal, is an attorney with 35 years' experience, gained in private practice and in executive, legal, and consulting positions in the racing/gaming industry. He was described as the "general counsel, sort of," for the Florida interests of Green Bridge Company, which is the parent company of, and primary investor in, Ft. Myers REH. While Mr. Romanik has some experience in administrative litigation and appellate practice, his primary area of expertise is in gaming law. Ms. Tunnicliff is a shareholder of the Pennington firm, with vast experience and a well-established excellent reputation for her expertise in administrative law and administrative litigation under the Administrative Procedure Act (APA), chapter 120, as well as in appellate practice. Ms. Tunnicliff's appellate experience is documented in well over 100 appeals in which she has appeared as counsel of record, spanning the last 25 years. Marc W. Dunbar has been practicing law for 17 years, and he also is a shareholder of the Pennington firm. Like Mr. Romanik, Mr. Dunbar's recognized area of legal expertise is in gaming law. For the last 13 years, he has been head of the firm's gaming law practice group, and he has substantial experience in gaming law and in providing consulting services to the pari-mutuel industry. Mr. Dunbar's testimony was that this has been the focus of his practice and has grown over the years such that it is now virtually all he does. Ashley Mayer was the lone associate who worked on the appeal. Ms. Mayer graduated in 2009 with high honors from Florida State University College of Law, where she was a member of the moot court team. Those who worked with her regularly at the Pennington firm, including Ms. Tunnicliff and Mr. Dunbar, thought very highly of her work as a one-year associate. Based on the expert opinions offered for and against the reasonableness of the time records for these four attorneys, including the hourly rates applied to the time entries, the undersigned finds as follows: there are some obvious flaws and less obvious insufficiencies in the time records that require adjustment; there is a large amount of duplication, which is tolerable to some extent given the stakes, but which exceeds a tolerable degree and requires some adjustment; the hourly rates for the two gaming law experts are too high for the non-gaming law legal services they each provided, requiring adjustment; and that the hourly rate for the one-year associate is too high, requiring adjustment. The time records of each of the four timekeepers will be addressed in turn, starting with the one-year associate, Ms. Mayer. As an example of an obvious flaw in the time records, the very first time entry is for researching and analyzing case law regarding bringing a civil rights lawsuit under 42 U.S.C. section 1983, for 2.8 hours. Another time entry described work related to a separate mandamus action, which Petitioner sought unsuccessfully to consolidate with the appeal. These entries are unrelated to the appeal. In addition, Ms. Mayer performed research regarding the process for assessing appellate attorneys' fees by remand to the lower tribunal. These entries do not relate to the appeal or to litigating over the entitlement to attorneys' fees. Several of Ms. Mayer's entries do not reflect legal work, but, rather, administrative or secretarial work, such as retrieving a law review article from the law library, conferring with a secretary regarding formatting briefs, and revising documents to conform to others' edits. Other than these entries, Ms. Mayer's time records seem generally appropriate, in that she performed a large amount of research before the initial brief, she performed drafting, and she continued to carry out research assignments throughout the appeal. Of the total 66.7 hours claimed, a reduction of 6.4 hours is warranted to account for the inappropriate entries. 60.3 hours are reasonable for Ms. Mayer. An hourly rate of $225 was applied to Ms. Mayer's time. Petitioner's expert attested, in general and in the aggregate, to the reasonableness of the hourly rates in Petitioner's time records for attorneys with comparable experience and skill, but gave no specific information regarding the basis for his opinions. Respondent's expert disagreed and testified that in her opinion, an hourly rate of $225.00 for a one-year associate was excessive. She based her opinion on The Florida Bar's 2010 Economics and Law Office Management Survey, which reported that for the north region of Florida, 47 percent of all attorneys at any experience level charge an hourly rate of $200.00 or less. In the opinion of Respondent's expert, a reasonable hourly rate for Ms. Mayer would be $150.00, instead of $225.00. While Respondent's expert's information was also somewhat generalized, the undersigned finds that based on the limited information provided, a reasonable rate for a highly skilled, but not very experienced attorney one year out of law school, would be $185.00 per hour. A reasonable attorney's fee for Ms. Mayer's legal work on the appeal is $11,155.50. Turning to Ms. Tunnicliff's time records, the hourly rate for Ms. Tunnicliff of $400.00, though high, is accepted as appropriately so. The rate is comparable to the rates charged by other attorneys of comparable skill and experience in the same locale, as ultimately agreed to by both parties' experts. Ms. Tunnicliff's time entries show that in general, she limited her hours appropriately to a high level of supervision, direction, and review, while allowing others, particularly Ms. Mayer, to conduct the more time-intensive research and drafting efforts. Based on the expert testimony and a review of the time record entries, a few adjustments to Ms. Tunnicliff's records are necessary. One-half hour is subtracted for an entry related to mandamus, because the mandamus action was separate and unrelated to work done to prosecute the appeal at issue. Another adjustment is necessary because of an error in the time records: The billing summary shows that Ms. Tunnicliff's total time was 31.6 hours, which was multiplied by the hourly rate to reach the fees sought for Ms. Tunnicliff's time. However, the individual time entries add up to a total of only 24.6 hours. With the additional deduction of one-half hour for work unrelated to the appeal, a total of 24.1 hours will be allowed for Ms. Tunnicliff's time. Applied to the agreed reasonable hourly rate, a reasonable attorney's fee for Ms. Tunnicliff's work on the appeal is $9,640.00. The time records for the two gaming law experts present more difficult issues, because the legal questions presented in the appeal were not gaming law questions; they were administrative law questions and, indeed, "basic, settled" administrative law questions. While certainly gaming law was the substantive, regulatory context in which these issues arose, it is clear from the time entry descriptions of exhaustive, duplicative legal research on rights to administrative hearings, party standing, and what law applies in license application proceedings, that at their core, the questions presented were general administrative law principles and were treated as such. Yet not only one, but two highly specialized gaming law experts whose experience and specialized expertise allow them to command hourly rates of $450 when practicing gaming law, spent most of the total attorney time prosecuting this administrative law appeal. Mr. Romanik's time records claim 195.5 total hours at $450 per hour, while Mr. Dunbar's time records claim 80.6 total hours, of which 30.2 were claimed at the rate of $450 per hour, while 50.4 additional hours were claimed at $300 per hour. The reduced $300 per-hour fee was an adjustment made at the urging of Petitioner's expert to account for research time spent not within Mr. Dunbar's area of expertise. Mr. Romanik's time records require adjustment. In general, many of the types of criticisms of these records by Respondent's expert are accepted, although the undersigned does not agree with the degree of adjustments deemed warranted by Respondent's expert. In general, Mr. Romanik's time entries reflect excessive hours spent by Mr. Romanik, doing tasks that were duplicative of tasks more appropriately performed by Ms. Mayer, which were, in fact, performed by Ms. Mayer, including research and initial drafting. Perhaps one reason for the sheer number of hours invested by Mr. Romanik was that he was performing research on basic, settled principles of administrative law, such as standing, hearing rights, licensing proceedings, what happens when the law changes while a license application is pending, and other questions of administrative procedure. Mr. Romanik's time records also reflect too many basic drafting tasks, such as initially drafting a request for oral argument. The time records also show excessive secretarial or administrative tasks, such as listing and downloading cases and uploading briefs. Not only did Mr. Romanik's specialized expertise in gaming law not facilitate his performing these tasks efficiently, but he inefficiently performed these tasks very expensively, i.e., at the claimed rate of $450 per hour. Nonetheless, Mr. Romanik apparently did the lion's share of work in redrafting the initial brief (initially drafted by Ms. Mayer), drafting the reply brief, drafting the numerous motions and responses to the Division's motions, and performing well at the oral argument. The high stakes and good outcome cannot be denied. Yet the total time claimed would be high at the hourly rate claimed, if Mr. Romanik were the sole attorney working on the appeal. Given his role as the "general contractor," it is conceivable that many of his hours were invested, or should be considered as having been invested, as "client" time in which Mr. Romanik was serving as the client liaison for the prosecution of the appeal to oversee the work done by the attorneys prosecuting the appeal. Regardless of how Mr. Romanik's hours are characterized, they were excessive and duplicative. To adjust for excessive time in tasks outside Mr. Romanik's area of expertise and for duplication, the undersigned finds that Mr. Romanik's time should be reduced by 83 hours. Reflecting the high stakes and good outcome, as well as the aggressive motion practice in the appeal, a reasonable--though still very high--number of hours for Mr. Romanik to have spent in prosecuting this appeal (with the substantial help of three other attorneys) is 112.50 hours. With almost all of the time Mr. Romanik spent in this appeal falling in areas outside of his recognized legal expertise, the undersigned finds that a high, but reasonable, hourly rate to apply to Mr. Romanik's time is $325.00. Essentially, Mr. Romanik's legal services fell more within the legal expertise of Ms. Tunnicliff. If $400.00 per hour is the acknowledged reasonable rate for someone of Ms. Tunnicliff's experience and expertise, the rate to apply to Mr. Romanik's time should be less, although not substantially so, recognizing that Mr. Romanik's gaming law expertise was a big advantage. If intricate issues of gaming law were involved in this appeal, as opposed to just being the substantive, regulatory context in which basic, settled principles of administrative law arose, then perhaps Mr. Romanik could command his standard hourly rate. Instead, with the predominant focus of Mr. Romanik's work, as reflected in his time entries on administrative and appellate law and procedure, the reasonable rate that will be applied to the reasonable time total found above is a blended rate that is discounted because of reduced expertise in the main area, but increased because of expertise in a collateral area. Applying the reasonable rate of $325.00 per hour to 112.50 hours for Mr. Romanik yields a reasonable attorney's fee of $36,562.50 for Mr. Romanik's prosecution of the appeal. Mr. Dunbar's time records suffer from the same essential problem as Mr. Romanik's--he is a gaming law expert, but his expertise was hardly utilized. If it was not necessary to tap into Mr. Romanik's gaming law expertise to any great extent, then it was not necessary and redundant to have a second gaming law expert substantially involved in the appeal. Additional problems with Mr. Dunbar's time records include several time entries with inadequate descriptions (e.g., "Research" or "Research re: key cite authority") and other entries with descriptions that did not seem to relate to the appeal (e.g., several entries two months after the initial brief was filed for "Research re: standards for appellate review of motion denial" when there was no denied motion for which appellate review was sought). Mr. Dunbar's time records had a large number of entries for performing basic research on questions of administrative law or appellate practice, such as standing, hearing rights, standards for supplementing the record on appeal, standards for motions to strike and to consolidate appeals, standards for reply briefs, and similar descriptions. Substantial adjustments are in order to remove the inadequately described time entries and the entries seemingly unrelated to this appeal and to substantially reduce the duplicative research done by Mr. Dunbar outside of his area that was also done by Ms. Mayer and/or Mr. Romanik and/or Ms. Tunnicliff. While some overlap is tolerable to ensure that all bases are covered, the time entries do not sufficiently establish what was added by Mr. Dunbar's substantial time- performing tasks outside his area of expertise to the already substantial time allowed for Mr. Romanik outside his area of expertise. Mr. Dunbar's reasonable time spent as a fourth attorney prosecuting this appeal is reduced by 43 hours, to 37.6 hours. A little more than half of the 37.6 hours found to be reasonable were in the non-research category, such as Mr. Dunbar's review and comment on the draft briefs and motions and assistance in preparation for oral argument. The research hours found reasonable were those that appeared to augment, but not duplicate, work by one or more other attorneys. As with Mr. Romanik, a blended reasonable hourly rate is applied, which recognizes that even for the non-research time allowed for Mr. Dunbar, his work was primarily outside his recognized legal expertise, although his expertise provided benefit in understanding the context in which the issues arose. An hourly rate of $300.00 is reasonable for 37.6 hours of work done by Mr. Dunbar in prosecuting this appeal, equaling a reasonable attorney's fee of $11,280.00. The following summarizes the number of hours, hourly rate, and resulting fee found to be reasonable for each of the four attorneys who aided in prosecuting the appeal: Attorney Hours Hourly Rate Fee Mayer 60.3 $185 $11,155.50 Dunbar 37.6 $300 $11,280.00 Romanik 112.5 $325 $36,562.50 Tunnicliff 24.1 $400 $ 9,640.00 Total hours by all attorneys: 234.50 Total time-based fees: $68,638.00 As previously alluded to, the stakes of this appeal were very high, in that without success in the appeal, Petitioner would have no chance of obtaining the quarter horse racing permit for which it had applied. While success in the appeal would not assure Petitioner that it would ultimately prevail in its effort to secure a permit, winning the appeal was a necessary step to keep the permit application alive and allow Petitioner to take the next step in the process. If, at the end of the long road ahead, Petitioner secures the sought-after permit, the value of that permit could be in the neighborhood of $70 million. Given the stakes, a higher amount of hours and greater degree of duplication were allowed than might normally be considered reasonable. The undersigned finds that there was not a huge risk factor with regard to the outcome of the appeal. While in a general sense and statistically speaking, odds always may be greatly against success in an appeal, those across-the-board statistics are mitigated in this case by such a clear violation of a "basic, settled" and "fundamental" principle of administrative law and due process. The complexity and novelty of the issues on appeal are reflected, as one would expect, in the number of hours found to be reasonable for Petitioner's team of attorneys to have spent in prosecuting this appeal. Even as reduced, the total hours found reasonable for this appeal are nearly three times the amount of time Respondent's expert would expect in the typical appeal. Thus, the hours found to have been reasonably invested were substantially higher than typical for an appeal, when one might have expected less hours than typical since this appeal did not follow a trial or administrative hearing. No evidence was presented to show that any of the four attorneys on Petitioner's appeal team were precluded from taking other work because of their role in the appeal or that there were any time constraints placed on the attorneys, either by the client or the circumstances. The evidence was not entirely clear regarding the nature of the arrangements with Ft. Myers REH for payment of attorneys' fees for the appeal. Two separate contingency fee agreements were admitted in evidence. One agreement, "[a]s of August 15, 2010[,]" was between Ft. Myers REH and Mr. Romanik (and his firm, David S. Romanik, P.A.). The operative term of the agreement provided that "[u]pon and after the execution of this fee agreement, the [Romanik] Firm shall handle this matter and all aspects of it on a contingent fee basis." The "matter" covered by the agreement was broadly described as "the pursuit of the issuance by the Division of Pari-Mutuel Wagering of a quarter horse racing and wagering permit . . . ." Therefore, from August 15, 2010, forward, Mr. Romanik and his firm agreed to be compensated on a contingent fee basis for not only the appeal, but also, any subsequent administrative hearings if the appeal was successful and any other administrative or judicial litigation required to secure the permit. Services would be considered successfully completed upon commencement of Ft. Myers REH's gaming operation pursuant to the permit. For such successful services, the Romanik firm would receive $5 million. In addition, the agreement provided that the firm would be entitled to "any and all fees that may be awarded" by any court or administrative tribunal. No evidence was presented regarding the prior fee arrangement that was in place until August 15, 2010, when the contingent fee arrangement took effect. Mr. Romanik and his firm entered into a separate contingency fee agreement with the Pennington firm to secure the Pennington firm's assistance, as a subcontractor, in prosecuting the appeal of the Division's dismissal of Ft. Myers REH's request for an administrative hearing to contest the denial of its quarter horse permit application. The agreement, dated September 1, 2010, was called "a revised representation agreement," which superseded "all prior agreements related to this matter." Payment for services under the agreement was contingent on success in the appeal and was set at "the greater of $100,000 or any fee award from the court, if any." No prior representation agreement for services provided by the Pennington firm in the appeal before September 1, 2010, either with Mr. Romanik and his firm or with Ft. Myers REH, was offered into evidence. However, Mr. Dunbar testified that before the Pennington firm entered into a contingency fee arrangement with Mr. Romanik and his firm, the Pennington firm provided services to Ft. Myers REH under a standard fee agreement by which the Pennington firm attorneys provided legal services for which they billed and were paid at their standard hourly rates. As of August 16, 2010, the standard fee agreement between Ft. Myers REH and the Pennington firm was apparently still in place, because in the motion for section 57.105 sanctions served on Respondent on August 16, 2010, and subsequently filed with the First DCA on September 20, 2010, Mr. Dunbar represented that Ft. Myers REH "had retained the [Pennington law firm] to represent it in this matter and has agreed to pay its attorneys a reasonable fee for their services." This statement was not qualified by any contingency, such as that Ft. Myers REH only agreed to pay a reasonable fee to the Pennington firm if the appeal was successful. Thus, although Mr. Dunbar seemed to indicate in his testimony that the September 1, 2010, contingent fee agreement was intended to apply retroactively, that testimony is inconsistent with the representation in the section 57.105 motion signed by Mr. Dunbar. The evidence establishes that contingency fee agreements were entered into midway through the appeal. The greater weight of the credible evidence was insufficient to prove that before August 15, 2010, the attorneys providing services in the Ft. Myers REH appeal would only be paid if the appeal was successful. Thus, the undersigned finds that the fee arrangements for the appeal were partially contingent. The contingent fee agreements were reached as an accommodation to Ft. Myers REH's desire for such arrangements, rather than as an enticement that had to be offered by Ft. Myers REH in order to secure competent counsel to represent it in the appeal. No evidence was presented detailing the nature and length of Petitioner's relationship with its team of attorneys. As noted, Mr. Romanik has a relationship with Petitioner and its parent that is akin to general counsel over the parent's Florida interests, though it is unknown how long this relationship has existed. The Pennington firm, likewise, has done work for Petitioner and its parent before and has sent invoices for legal services to Mr. Romanik for his review, approval, and transmittal to the parent for payment. It is unknown how extensive or over what period of time this relationship existed. Petitioner established that it incurred an additional $28,087.00 in attorneys' fees charged for litigating the reasonable amount of attorney's fees in this proceeding, plus $44,016.00 in expert witness fees. In addition, Petitioner incurred $1,094.43 for expense items, of which $409.50 represents the cost of the final hearing transcript, and the balance represents costs for copying, courier service, and postage. Respondent did not dispute the reasonableness of those attorneys' fees, expert witness fees, and costs.
Findings Of Fact On 22 July 1977 James R. Rivers contracted to sell to John R. Hutchinson, Joan Hutchinson, Adrian Maxwell and Bugs Bunny Marina, Inc., the 65 foot F/V Bugs Bunny II for $113,323.29. (Exhibit 1). The price was comprised of a deposit of $1,500 upon acceptance of the contract, $13,500 at closing and purchasers to assume existing mortgage on the boat of approximately $98,323.29 held by Sun Bank of Volusia County. In addition to the $1,500 down payment, two additional payments were made to Rivers in the amounts of $500 and $14,276.75. No evidence was presented that these payments included, or did not include, payments other than were due pursuant to the contract. (Exhibit 1). This agreement to purchase was executed by the buyers in New York while the Bugs Bunny II was in Florida at the time the contract was executed, and it has remailed in Florida since that time. The Bugs Bunny II has been used as a charter fishing boat and for commercial fishing both before and after its acquisition by Petitioner. It is registered by the U.S. Government and has been issued U.S. Coast Guard official No. 549866. The parties stipulated that at closing, Rivers was not a registered dealer in Florida. At closing, title to the Bugs Bunny II was taken in the name of Bugs Bunny Marina, Inc. a New York Corporation, registered to do business in New York. By Assumption Agreement and Release the purchasers, jointly and severally, assumed and agreed to pay the mortgage indebtedness which as of June 23, 1977, was $98,323.29 and Rivers was released from further liability. No sale or use tax was collected by seller or paid by the buyers for this transaction.
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.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Petitioner, a corporation headquartered in Charlotte, North Carolina, is in the business of operating movie theatres both within and without the State of Florida. At these theatres Petitioner Operates concession stands which sell both candy items and drinks in various sizes at different prices to persons who frequent the theatres. For the period of time from September, 1985 through May, 1985, Petitioner remitted to the Department of Revenue sales tax on the total taxable value of all taxable items sold at its concession stands in all of its Florida theatres, in accordance with the presumptive effective rate of tax of 5.63 percent contained in Rule 12A-1.11(37), Florida Administrative Code. As a result of an audit for a previous period dated October 1, 1982, Petitioner remitted to the Department of Revenue the amount of $10,637.00 for sales tax on taxable items sold at its concession stands during this audit period in accordance with the presumptive effective tax rate of 4.5 percent as contained in Rule 12A-1.11(37), Florida Administrative Code during the audit period. On August 15, 1985, Petitioner filed with the Department of Revenue, as agent for Respondent, two (2) applications for sales tax refund in the amount of $16,876.52 and $10,637.00. The applications were dated August 13, 1985, and were timely filed. During the refund periods at issue in this matter, the Petitioner: (a) posted and charged flat prices for the various items offered for sale, which prices included sales tax (b) kept records of daily and weekly sales of taxable items at each of its Florida theatres (c) kept records of daily attendance at each movie shown by each Florida theatre and (d) kept records of weekly calculations, through inventory analysis, of sales of drinks and candy items, including the number, size and price of each item sold at each of its Florida theatre. During the refund periods at issue in this matter, the Petitioner did not maintain cash registers at its concession stands in its Florida theatres and did not maintain records made contemporaneously with the sale of taxable items from the concession stands which separately itemized the amounts of sales tax collected on each sale transaction occurring at the theatres' concession stands. Rather, Petitioner chose, for its own convenience, to operate a "cash box" operation at each of its concession stands in its Florida theatres and willingly remitted sales tax to the Department of Revenue pursuant to the presumptive effective tax rate contained in Rule 12-1.11(37), Florida Administrative Code for the relevant periods. In April, 1985, Petitioner placed computerized cash registers in each of its Florida theatre concession stands. These cash registers provided tapes of each individual transaction each day, specifically recording each taxable and nontaxable sale and the amount of sales tax due on each taxable sale with a daily summation on each tape at each theatre. Rule 12A-1.11(37), Florida Administrative Code, requires concessionaires such as Petitioner to remit sales tax at a rate of 5.63 percent of taxable sales under the present 5 percent statutory sales tax schedule and at 4.5 percent of taxable sales under the previous statutory sales tax schedule unless a concessionaire, through its records, shows another effective rate by "proof to the contrary". Petitioner produced an effective tax rate of 5.13 percent for the month of April 1985, for all its Florida theatres by dividing the total sales tax collected during April, 1985 by the total taxable sales during April, 1985, as evidenced by the cash register tapes from all of Petitioner's concession stands in Florida. Petitioner then used that tax rate as a base to retroactively reconstruct an effective tax rate for the refund periods by assuming that the product sales mix (product mix of products sold) and the transactional sales mix (the number of items purchased together in a single transaction by a customer) experienced during the refund periods were the same as that experienced during the month of April, 1985. There was no competent evidence that the product sales mix or the transactional sales mix experienced during the refund periods were the same as that experienced during the nonth of April, 1985. There is insufficient evidence in the record to support Petitioner's reconstructed effective tax rates that were used to calculate the refunds. Therefore, Petitioner has failed to show "proof to the contrary" that its reconstructed effective tax rates are correct or that the presumptive effective tax rate contained in Rule 12A-1.11(37), Florida Administrative Code were incorrect for the refund periods at issue in this matter.
Recommendation Based on the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the Comptroller enter his final order DENYING Petitioner's refund applications. Respectfully submitted and entered this 25th day of September, 1986, in Tallahassee, Leon County, Florida. WILLIAM R. CAVE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of September, 1986.
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.
Findings Of Fact Romie Huntsinger has been an auctioneer since 1970, and was licensed by the State of Florida with license number AU- 0000307 on March 7, 1988, shortly after the profession became regulated by the state. His license has remained current and in good standing since that date. On November 29, 1988, Huntsinger was conducting an auction as principal auctioneer in Orlando, Florida. A friend of his, James Poe, was standing near him when he received an irresistible call of nature (in his words). Huntsinger thrust the microphone at Poe and asked him to sell the next few items (call the bids). There is conflicting testimony as to whether Huntsinger was gone no more than 15 minutes or at least 45 minutes, but it is undisputed that Poe was calling the bids in his absence. James Poe was an auctioneer for many years and had his own business, but when the practice of auctioneering became regulated in 1987, he did not apply for a license. Time is of the essence in the conduct of an auction as each seller is allotted limited minutes for his lot to be offered. It was proper that Huntsinger delegate a substitute so that he could leave the microphone, but there were at least two other licensed auctioneers in the room.
Recommendation Based on the foregoing, including the disciplinary guidelines in Rule 21BB- 1.017, FAC, it is hereby, RECOMMENDED: That the Board of Aucti6neers issue its Final order finding that Romie Huntsinger violated Section 468.389(1)(j), F.S. and Rule 21BB 5.001(1), FAC, and imposing a reprimand and fine of $150.00. DONE and RECOMMENDED this 28th day of February, 1990, in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of February, 1990. COPIES FURNISHED: Cynthia Gelmine, Esquire Dept. of Professional Regulation 1940 N. Monroe St., Suite 60 Tallahassee, FL 32399-0792 Romie L. Huntsinger 3119 Illinworth Avenue Orlando, FL 32806 Kenneth D. Easley General Counsel Dept. of Professional Regulation 1940 N. Monroe St., Suite 60 Tallahassee, FL 32399-0792 Ms. LouElla Cook Executive Director Dept. of Professional Regulation Board of Auctioneers 1940 N. Monroe St., Suite 60 Tallahassee, FL 32399-0792
The Issue There is little controversy as to the facts in this cause. The issue is essentially a legal issue and is stated as follows: When parties act in reliance and in conformity to a prior construction by an agency of a statute or rule, should the rights gained and positions taken by said parties be impaired by a different construction of said statute by the agency? Both parties submitted post hearing proposed findings of fact in the form of proposed recommended orders filed March 17 and 18, 1983. To the extent the proposed findings of fact have not been included in the factual findings in this order, they are specifically rejected as being irrelevant, not being based on the most credible evidence, or not being a finding of fact.
Findings Of Fact The Petitioner, Vanguard Investment Company, is a Florida corporation with its principal offices at 440 Northeast 92nd Street, Miami Shores, Florida 33138. On or about March 3, 1981, Vanguard purchased an aircraft described as a Turbo Commander, serial number N9RN, from Thunderbird Aviation, Inc., for a purchase price of $120,000 plus $4,800 in sales tax. The sale price plus the sales tax was paid by Vanguard to Thunderbird, which remitted the $4,800 in sales tax to the Department of Revenue (DOR) less a three percent discount as authorized by law. On February 27, 1981, Vanguard had executed a lease of said aircraft to General Development Corporation for a term of two years commencing on March 1, 1981, contingent upon Vanguard's purchase of said aircraft from Thunderbird. Prior to March 1, 1981, General Development had leased said aircraft from Thunderbird, and the least terminated on February 28, 1981. Vanguard purchased said aircraft for the sole purpose and in anticipation of continuing its lease to General Development. Vanguard never took possession or control of said aircraft, which remained in General Development's possession at Opa-locka Airport in Dade County, Florida. No controversy exists that all sales tax payable under General Development's lease of the aircraft, both with Thunderbird and subsequently with Vanguard, had been remitted to DOR with no break in continuity of the lease as a result of the change in ownership of the aircraft on or about March 1, 1981. At the time Vanguard purchased the aircraft from Thunderbird, Vanguard had not applied for or received a sales and use tax registration number pursuant to Rule 12A-1.38, Florida Administrative Code. Vanguard applied for said sales and use tax registration number on or about April 2, 1981, approximately 30 days after the purchase of said aircraft. The sales and use tax registration number was granted by DOR on or about April 23, 1981. Shortly thereafter, Vanguard inquired of DOR concerning a refund of the $4,800 in sales tax paid on the aircraft plus the three percent discount taken by Thunderbird. In lieu of Vanguard's providing Thunderbird a resale certificate and having Thunderbird apply for the sales tax refund, it was suggested that Vanguard obtain an assignment of rights from Thunderbird and apply directly for the refund because Thunderbird had been dissolved immediately after the sale of the aircraft to Vanguard. Acquisition of the assignment of rights from Thunderbird by Vanguard was delayed by the dissolution of Thunderbird and the death of Thunderbird's principal officer. Vanguard received the assignment of rights from Thunderbird on or about July 1, 1982, and immediately applied for a refund of the sales tax. Said application for refund was well within the three years permitted by Florida law to apply for a sales tax refund. On November 22, 1982, the Office of Comptroller (OOC) notified Vanguard of its intent to deny Vanguard's application for the sales tax refund because Vanguard had failed to obtain a sales and use tax registration number prior to purchasing the aircraft from Thunderbird. At the time of the purchase, it was the policy of DOR to permit individuals to apply late for a sales and use tax registration number and not to deny refunds on the basis that the applicant did not have the sales and use tax registration number at the time of the taxable purchase. On or about July 1, 1982, this policy of DOR was altered to conform with the decision of the Florida Supreme Court in State Department of Revenue v. Robert N. Anderson, 403 So.2d 297 (Fla. 1981). Vanguard was aware of the DOR policy at the time of the sale, relied on that policy, and conformed to that policy. It was clearly stated that had Vanguard applied for its refund even a month earlier, in June of 1982, the refund would have been approved under the then-existing policy.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the application of Vanguard Investment Company for refund of sales tax be approved, and that said refund be paid by the Office of Comptroller. DONE and RECOMMENDED this 25th day of April, 1983, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of April, 1983. COPIES FURNISHED: Edward S. Kaplan, Esquire 907 DuPont Plaza Center Miami, Florida 33131 William G. Capko, Esquire Assistant Attorney General Office of Comptroller The Capitol, Suite 203 Tallahassee, Florida 32301 Thomas L. Barnhart, Esquire Assistant Attorney General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301 The Honorable Gerald A. Lewis Office of Comptroller The Capitol Tallahassee, Florida 32301
Findings Of Fact Petitioner owns the Palm Beach El Cid Bar and the Fifty-One-O-One Bar in West Palm Beach. Mixed drinks are sold at these establishments. In both bars, the cash registers record each item rung up but do not state the prices of the drinks separately from the sales taxes incurred on account of their sale. When James A. Blalock acquired petitioner approximately five years ago, he computed the sales tax owing on a day's sales at the Palm Beach El Cid Bar by examining a cash register tape which reflected the sales. For the day Mr. Blalock made his item by item calculations, he computed sales tax at 4 percent on each item, which yielded a figure slightly in excess of 4.2 percent on aggregate sales. Mr. Blalock then "made a supposition" that multiplying gross receipts (the sum of aggregate sales and aggregate sales taxes) by one twenty- fifth (4 percent) would yield a figure which would approximate 4.2 percent of aggregate sales. This supposition is well founded, as reflected by the equation .042 = X(1 + .042), where X equals the number by which gross receipts are to be multiplied. After Mr. Blalock had done his calculations, he made the assumption that the results for that day would hold true generally for both bars, and instructed petitioner's employees to multiply gross receipts by one twenty-fifth (4 percent) in order to compute petitioner's sales taxes. Petitioner's employees did in fact calculate and pay sales taxes monthly on this basis from August 1, 1974, through September 30, 1976, on sales at the Fifty-One-O-One Bar, and from October 1, 1979, through September 30, 1976, on sales at the Palm Beach El Cid Bar. Since Mr. Blalock's calculations, however, the "price structure" at the bars has changed three times. Nobody now remembers what day of the week was chosen as the basis for the original calculations. Gross sales at the Fifty-One-O-One Bar from August 1, 1974, through September 30, 1976, amounted to two hundred twenty thousand four hundred ninety- one dollars and thirty cents ($220,491.30). On these sales, petitioner paid sales taxes of eight thousand seven hundred forty-three dollars and twenty-eight cents ($8,743.28). Gross sales at the Palm Beach El Cid Bar from October 1, 1973, through September 30, 1976, amounted to four hundred ninety-two thousand six hundred forty-one dollars. and sixty-four cents ($492,641.64). On these sales, petitioner paid sales taxes of nineteen thousand six hundred sixty-five dollars and ninety-one cents ($19,665.91). At both of petitioner's bars, a price list which sated, for each item, its cost without tax, the amount of sales tax, and its cost with sales tax, was kept next to the cash register, for employees' use. Ordinarily, these price lists were not visible patrons. At least since the fall of 1971, respondent has permitted dealers in mixed alcoholic beverages to pay a sales tax equal to their gross sales less the quotient. of gross sales divided by 1.045, whenever it is impractical to record the sales price of each drink separately from the tax collected on account of the sale of the drink, but only if the dealer displays a price list on which the dealer "indicate[s]. . . the cost of each item, the applicable amount of sales tax to each and the total price of the item." Petitioner's exhibit No. 2.
Recommendation Upon consideration of the foregoing, and in keeping with the teachings of McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st D.C.A. 1977), it is RECOMMENDED: That respondent cease and desist from applying the policy set forth in petitioner's exhibit No. 2 until and unless the same shall be duly adopted as a rule, in the manner provided by law. That petitioner pay respondent twenty-two thousand one hundred sixty- eight dollars and eighty-seven cents ($22,168.87) on account of sales at the Palm Beach El Cid Bar and nine thousand nine hundred twenty-two dollars and eleven cents ($9,922.11) on account of sales at the Fifty-One-O-One Bar, together with applicable penalties and interest, less sales taxes petitioner has already paid on account of the Palm Beach El Cid Bar for the period October 1, 1973, to September 30, 1976, and on account of the Fifty-One-O-One Bar for the period August 1, 1974, to September 30, 1976. DONE and ENTERED this 19th day of August, 1977, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Mr. John E. Woodbery, Esquire Woodbery and Sapp 217 John Knox Road Tallahassee, Florida 32303 E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304
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.
Findings Of Fact Based upon the oral and documentary evidence presented at the final hearing and the entire record in this proceeding, the following findings of fact are made: Petitioner Conklin Shows, Inc., is a Florida corporation with its principal place of business in West Palm Beach, Florida. Conklin is engaged in the business of providing midway attractions for large fairs. The company services between five and eight fairs per year and provides rides as well as food and game concessions. In most instances, Conklin provides a turn-key operation whereby it provides all rides and concessions, sells tickets, collects all fees and charges, and pays the particular fair authority the amount set forth in the underlying agreement between the parties. Conklin owns and operates some of the rides that it provides and also owns a few food concessions. It also contracts with independent ride owners as well as food and game concession owners to provide the services necessary for a particular fair. Southeast Florida and Dade County Youth Fair Association, Inc. (the "Association") is a corporation which conducts an annual youth fair, in Dade County, Florida (the "Fair") in accordance with Chapter 616, Florida Statutes. Conklin has provided midway attractions, including rides, games and food concessions, for the Fair since the late 1970s. Initially, Conklin provided a complete turn-key operation for the Fair. In 1980 or 1981, the Fair advised Conklin that it wanted to modify the arrangement so that the Fair collected and dispersed all monies and retained the right to book attractions independently. Consequently, the parties modified their agreement so that the Association sold all the tickets used by the Fair-goers for admission and for rides. In other words, cash was not accepted from the public for admission and/or rides. The evidence indicates that cash was accepted at game and food booths. The Association employed all ticket sellers, sold admissions and tickets and paid the appropriate taxes on the sales. As discussed below, at the end of each day, the Association distributed the proceeds of the ticket sales and settled up with the food and game concessionaires. Conklin was paid an agreed upon percentage of the proceeds of the ticket sales after taxes. As part of the settlement, Conklin reimbursed the Association for certain expenses. In approximately March of 1990, DOR began an audit of Conklin at its offices in West Palm Beach. The audit was conducted primarily by Ms. Van T. Ho, a tax auditor with DOR. The audit covered the period between June 1, 1985 through February 28, 1990. Ms. Ho concluded that certain contractual arrangements between Conklin and its subcontractors who provided rides, games and food concessions for the Fair should be construed as the sublease or sublicense of the rental of real property. Since Conklin had not remitted sales tax to the State of Florida for these subleases or sublicenses, she concluded that sales tax should be assessed against Conklin. In addition, Ms. Ho reviewed Conklin's records regarding purchases of parts and materials and concluded that appropriate sales tax had not been paid on certain purchases. The audit results with the additional assessed taxes, penalties and interest were incorporated in a Notice of Intent to Make Sales and Use Tax Audit Changes dated October 24, 1990 (the "Notice of Intent.") In the Notice of Intent, DOR advised Conklin that it had been found liable on various transactions subject to tax under Chapter 212, Florida Statutes, during the period June 1, 1985 through February 28, 1990. The Notice of Intent sought a total of $655,982.04 for taxes, penalties and interest through October 24, 1990 with additional interest at the rate of $142.69 per day. A Notice of Proposed Assessment was issued by DOR on April 25, 1991. Conklin protested the proposed assessment in a letter dated June 19, 1991. Ultimately, DOR issued a Notice of Decision dated May 27, 1992 upholding the audit findings. Conklin timely initiated this administrative challenge to DOR's Notice of Decision. At the commencement of the hearing in this matter, DOR announced that it was no longer contending that Conklin was subletting real property. Instead, DOR asserted that Conklin's contractual arrangements for ride subcontracts and for food and game concessions should be construed as licenses to use real property. Since the sales tax on a license to use real property did not become effective until July 1, 1986, DOR conceded that the assessment against Conklin should be reduced to delete any sales taxes related to the fairs conducted in February of 1985 and 1986. As set forth in the Preliminary Statement, DOR set forth its recalculated assessment in a late-filed exhibit which was submitted on March 26, 1993. The parties stipulated that the recalculation submitted on March 26, 1993, should be accepted as an amendment to Petitioner's Exhibit 1. According to that amendment, Petitioner is seeking a total of $468,520.80 for taxes, penalties and interest allegedly due through January 17, 1991 with a per diem interest rate of $105.58. For purposes of this proceeding, the proposed assessment can be broken down into four categories: (1) sales tax allegedly due from Petitioner on rental or license income from subcontractors who provided rides at the Fair; (2) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to food concessionaires; (3) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to game concessionaires; and (4) purchase tax allegedly due on parts and materials bought by Conklin which it claims were utilized in manufacturing or repairing rides for export. Rides During the years 1987 through 1990, Conklin contracted to provide rides to the Association for the Fair. Conklin was required to provide a specific number of rides in certain categories together with all personnel required to operate the rides. Conklin was also responsible for all expenses attributable to the operation and maintenance of the equipment. During all of the years in question, the Association sold the tickets for all rides, collected the proceeds and paid the applicable sales tax and remitted the agreed percentage of the after-tax receipts to Conklin. Conklin was paid a sliding scale percentage of the net revenues from the rides. Conklin typically contracted to provide more rides than it owned. In order to satisfy its contractual obligation, Conklin entered into agreements with independent ride owners. These subcontractors would provide all transportation, assembly and disassembly necessary for the ride, together with all personnel required for operation. Conklin did not take possession or exercise any direction or control over the physical operations of the ride. The subcontractor was responsible for all expenses related to the operation and maintenance of the ride and was required to reimburse Conklin for a proportionate part of the common expenses. Conklin agreed to pay the ride owner a percentage of the receipts attributable to that ride after sales tax. Each ride owner collected tickets from the Fair attendees. The subcontractors would turn their tickets over to Conklin. Conklin turned in the tickets for all rides provided by it and its subcontractors to the Association. After Conklin was paid its percentage by the Association, Conklin would pay the subcontractors a percentage attributable to their particular ride in accordance with the agreement between Conklin and that subcontractor. Conklin retained a portion of the amount received from the Association for all of the subcontracted rides. The subcontractors did not make any payments to Conklin nor did Conklin make any payments to the Association. The Association set the times of operation and other general policies for the Fair, but exercised no direction or control over the physical operation of any of the rides. In each case, the owner of the equipment furnished the operator and all operating supplies and made the particular ride available at the time dictated by the Association. DOR contends that the difference between the amount received by Conklin from the Association for rides provided by subcontractors and the amount paid by Conklin to the subcontractors was taxable because it arose from a sublicense of real property. 2/ Conklin, on the other hand, argues that its contractual arrangement with the subcontractors should be viewed as a nontaxable service transaction since it paid the subcontractors who in turn provided the rides together with operating personnel and expenses. As discussed in the Conclusions of Law below, Conklin's interpretation is consistent with the language of the subcontracts and more accurately reflects the relationship created by the parties. The mere fact that a ride was operated on real estate owned by another party should not be conclusive of whether the arrangement should be viewed as a license of real property as opposed to a rental of equipment. Food Concessions Conklin executed separate agreements with the Association to provide certain food and game concessions for the Fair during the years 1987 through 1990. The contracts between the Association and Conklin for food and game concessions were entitled "License Agreement for Exhibitors and Concessionaires." Those agreements specifically provided: It is understood and agreed the below described space is not leased to the Licensee [Conklin], rather he is a Licensee and not a lessee thereof. Under the food concession agreements, Conklin was obligated to provide specific food concessions, including all labor and operating expenses. The contract between the Association and Conklin designated specific areas at the Fair where the concessions were to be set up. The Association was entitled to a percentage of the gross receipts of the sales by the concessions. Conklin did not own any of the equipment utilized in connection with the food concessions. It entered into agreements with concessionaires to provide the personnel, equipment, goods and materials utilized. The concessionaire was responsible for all of the expenses involved with the concession. The concessionaire collected all of the money and settled daily with the Association by paying the Association the percentage due under its agreement with Conklin (which was normally twenty-five percent) together with the tax on that amount and the sales tax on all sales. The Association remitted the taxes on the rental (license) amount and the sales. Conklin was not privy to the settlement between the food concessionaires and the Fair. It was given a copy of the settlement sheet. The concessionaire paid Conklin a percentage of the gross based upon its agreement with Conklin. That percentage was normally between seven and ten percent. In the Notice of Assessment, DOR lumped food and game concessions together and assessed tax based upon its determination of the amount received by Conklin. The evidence presented at the hearing in this case established that the Notice of Assessment mistakenly included gross revenues rather than the net received by Conklin from game concessions. Petitioner's Exhibit 13 sets forth the correct amounts received by Conklin from food and game concessions during the years in question. During the years 1987, 1989 and 1990, the amounts received by Conklin from food concessions at the Fair were $11,919.73, $11,521.21 and $13,034.49 respectively. The Notice of Assessment indicates that there was no taxable income from food and game concessions in 1988. No explanation was given for this anomaly. Although there was no assessment for food and game concessions for 1988 in DOR's Notice of Assessment, Petitioner's Exhibit 13 indicates that Conklin received $16,975.22 from food and game concessions that year of which $11,938.44 was apparently attributable to food concessions. DOR contends the amounts received by Conklin from the food concessionaires were taxable because the arrangement constituted a sublicense of real property. Conklin contends that the money received from food concessions is exempt from taxation for the years since 1988 pursuant to Section 212.031(1)(a)(10), Florida Statutes. In its Proposed Recommended Order, Conklin conceded that this exemption did not come into effect until 1988. Consequently, Conklin admitted that it owed tax on the proceeds it received from the food concessions in 1987 ($11,919.73.) The evidence presented in this case was insufficient to conclude that Conklin was entitled to the exemption for the years subsequent to 1987. The exemption relied upon by Conklin is limited to a publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium or recreational facility. While the parties agree that the Fairs in question were conducted pursuant to Chapter 616, Florida Statutes, no evidence was presented to establish that the Fair was conducted in one of the specified exempt facilities. Game Concessions With respect to the game concessions, Conklin agreed to provide a certain number of game booths and to pay a set fee to the Association for each game along with a five percent rental realty tax on that fixed amount. 3/ Conklin did not own or operate any game concessions itself. It contracted with the owner/operators of the various games. The owner/operator would provide all of the equipment and personnel. The game owner was responsible for collecting the money, paying all expenses of operation, paying the applicable sales tax to the Association and also paying the Association the contractual percentage and rental taxes set forth in the agreement between Conklin and the Association. The net profits from the game were to be split equally between Conklin and the owner of the game. In the event of a loss, Conklin was responsible for contributing one-half of the net amount. As discussed in the Conclusions of Law below, the amounts received by Conklin from the game concessions should be treated as the proceeds on joint venture partnerships between Conklin and the various concessionaires and, therefore, should not be taxable. If this conclusion is rejected and the amounts received by Conklin are viewed as taxable license or rental payments, the tax should be assessed on the share Conklin actually received. As set forth in Findings of Fact 17 above, the evidence established that DOR's calculation in the Notice of Assessment of the tax allegedly owed by Conklin for food and game concessions was incorrectly based upon the gross receipts for the game concessions rather than the net profits that Conklin actually received. During the years 1987, 1989 and 1990, Conklin's share of the profits from the games operated under its name amounted to $5,792.65, $1,554.64 and $1,179 respectively. The Notice of Assessment indicated there were no taxable receipts from food and game concessions in 1988. Petitioner's Exhibit 13 indicates that Conklin received $16,975.22 from food and game concessions that year, of which $5,036.78 was apparently attributable to game concessions. Exports Conklin is also engaged in the business of repairing and manufacturing games and rides. In the course of the manufacture or repair of these games and rides, Conklin purchases parts and supplies. Conklin's accountant testified that it paid the appropriate tax on all of its purchases except those items which were segregated out as being integral parts of products that were exported to Canada. DOR's auditor claims that she requested and was not provided with any documentation to support the exemption claim. While Petitioner's accountant claims that the company has documentation that the items in question were used in the manufacture and repair of items that were exported and this documentation was made available to DOR's auditor, no such documents were presented at the hearing in this matter to confirm that the final products were in fact exported. Consequently, the evidence was insufficient to establish that Conklin had complied with the applicable rule requirements and was entitled to the exemption it claimed. Penalties In 1984 and 1985, Conklin provided rides and concessions to the Martin County Fair under its usual turn-key system where it sold all the tickets. During those years, DOR sent an enforcement officer to the fair to ensure that all taxes were paid. The DOR enforcement officer reviewed all of Conklin's books and collected the sales tax from all the concessionaires. Although Conklin inquired as to whether it was paying all appropriate taxes, the DOR enforcement officer never indicated to Conklin that it was obligated to pay rental realty taxes on its subcontractual arrangements with ride owners and/or food and game concessionaires. Thus, there was some justification for Conklin's belief that it was not obligated to pay taxes on the ride subcontracts and the food and game concessions. Conklin's understanding of the law should have been reexamined with the adoption of the statutory clarification for the imposition of sales tax on a license to use real property. See section 66 of Chapter 86- 152 of the Laws of Florida effective July 1986. However, none of the statutory or rule provisions relied upon by DOR clearly address contractual arrangements such as those Conklin had with its ride subcontractors where the purported sublicensee made no payments to the alleged sublicensor. In view of these factors, it would be inappropriate to impose penalties on Conklin for "taxable income" it allegedly received from the ride subcontracts. Similarly, even if Conklin's contention that its arrangements with game concessionaires should be viewed as a joint venture is rejected, penalties should not be imposed since the statutory and rule provisions do not clearly address this situation. With respect to the food concessions, Conklin has conceded that it owes tax on the amount received from food concessionaires in 1987. Conklin has offered no justification for the failure to pay the tax on this amount other than to claim that it did not believe any tax was due because of comments (or lack thereof) by DOR representatives during the 1984-85 Martin County Fair. However, the basis for imposing a tax on a sublicense of real estate was significantly clarified in 1986. Thus, Conklin's purported reliance on the comments made in 1984 and 1985 should not be given much weight. Penalties on the assessment on food concession receipts from 1987 are appropriate. For the years subsequent to 1988, Conklin relies on the exemption set forth in Section 212.031(1)(a)(10), Florida Statutes. While it is possible that the exemption applies, the evidence presented at the hearing in this matter was insufficient to establish that this exemption was applicable. Consequently, penalties on the food concession receipts subsequent to 1988 are not appropriate. Following the issuance of the Notice of Proposed Assessment, Conklin admitted that it owed taxes on certain purchases that were made from out of state companies and shipped into the state. Conklin paid the tax on those items prior to the hearing in this matter. It is not clear what, if any, penalty was assessed with the late payment of the tax on these items. With respect to the remaining items, Conklin has steadfastly maintained its position that the items were utilized in connection with products that were exported. However, Conklin failed to convince DOR's auditor of the merits of its position and failed to provide sufficient evidence at the hearing in this matter to justify its claim. In view of all the circumstances, there is no basis for a waiver of penalties on this portion of the Notice of Assessment.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order amending the Notice of Assessment to: (a) delete all taxes, penalties and interest assessed against Conklin for the ride subcontracts and game concessions; (b) affirming the assessment of tax against Conklin for the amount it received from food concessionaires during the years 1987 through 1990 (the amount of the assessment should be amended to reflect the net proceeds Conklin received rather than the gross revenues reflected in the original Notice of Assessment) and imposing penalties and interest on the amount of tax due; and (c) affirming the assessment of taxes, penalties and interest for the purchase of items that were allegedly used in the repair or manufacture of goods for export. DONE and ENTERED this 13th day of January 1994, at Tallahassee, Florida. J. STEPHEN MENTON 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 13th day of January, 1993.
