Findings Of Fact Based upon the record evidence adduced as well as the factual stipulation filed by the parties, the following facts are found. The Petitioner, International Cruise Shops (ICS), is a subsidiary company of the Greyhound Corporation. ICS, as pertinent hereto, operates gift shops, bars, beauty salons and exercise rooms and like "passenger amenity" type facilities ("shops") on board cruise ships operating out of the Port of Miami. The particular cruise ships of concern in this case are owned by Norwegian Caribbean Lines (NCL). The parties have stipulated that the vessels owned by NCL, to which this proceeding relates, operate exclusively in foreign commerce and that none of their operating mileage involved herein is in intrastate commerce. Because of this, ICS maintains that the transactions or purchases which are the subject of this proceeding are exempt from taxation under Section 212.08(8), Florida Statutes. The parties have stipulated that the sales tax at issue was not collected by the vendors involved and was not paid on the Items in question. The parties have also stipulated that all of the items in question, purchased in port, were used or consumed on board the NCL vessels involved and that the vessels were operating at the time in foreign commerce. It is also stipulated that ICS recognized at the time of the purchases that they were exempt ones and provided the vendors involved with its export exemption registration number. ICS takes the position that it is exempt from sales and use tax as to these items because the items purchased are "parts of a vessel" within the meaning of the exemption statute set forth at Section 212.08(8), Florida Statutes. It is also stipulated that during the relevant audit period ICS did not furnish the vendors involved in these purchases with the "partial exemption affidavit" described in Section 212.08(8)(b), Florida Statutes, the "partial exemption" statute. The Department in turn argues that ICS is not entitled to the exemption because it is not an "owner, operator or agent of a vessel." ICS maintains, contrarily, that its status as owner, operator or agent of a vessel is not determinative of its entitlement to the exemption, but rather the nature of the goods involved and their use is what is determinative. Be that as it may, the Petitioner maintains that it qualifies as an operator or agent of the vessels involved anyway. The Department also contends that even if ICS is an owner, operator, or agent, it failed to sign the affidavit mentioned above, stating that "the item or items to be partially exempted are [parts of a vessel] and setting forth the extent of such partial exemption." (emphasis supplied) See Section 212.08(8)(b), Florida Statutes. The Department originally served the Petitioner a Notice of Intent (to make sales and use tax audit changes) and a Notice of Proposed Assessment of tax, penalty and interest for the audit period from January 1, 1980, through December 31, 1982. The Department also issued a Notice of Intent to make sales and use tax audit changes, as well as a Notice of Proposed Assessment of Tax Penalty and Interest for the supplemental audit period of January 1, 1983, through April 30, 1983. Additionally, it is stipulated that the documents attached to the stipulation, as exhibits C and D respectively, are true and correct copies of an original shop agreement and bar agreement made and entered into as of January 1, 1980, between NCL and ICS. The parties have stipulated that those two documents represent the contractual agreements between NCL and ICS during the relevant audit periods at issue in this proceeding, and fairly reflect the relationship of the parties, although they do not agree that the language in the agreements to the effect that "ICS shall not be considered the agent" of NCL means that ICS is not the agent of NCL for any purpose at all. Those two agreements, as well as the unrefuted evidence of record, reveal that the services of bar operator and concessionaire, gift shop operator, as well as beauty shops and sauna operator, duty-free shop operator, and operations involving the purchasing for and operating of a shipboard duty-free and non-duty free shop for passengers and crew, are regular facets of cruise ship operations. It is the peculiar purpose of cruise ships to transport passengers, but provide all sorts of amenities and shopping services for passengers and crew of the type mentioned above and elsewhere in these agreements. There is no question that the duties ICS personnel were performing aboard NCL ships are integral functions of the operation of a cruise ship, as that relates to the exempt status claimed herein by ICS. The parties have additionally stipulated that exhibit F, attached to the stipulation, in evidence, is a random list of some of the supplies purchased by ICS during the audit period in question, far which no sales tax were paid. This listing is stipulated to be a representative sampling of the kinds of items for which the Department assessed tax under Schedule B of the assessment at issue. Exhibit G is a true and correct copy of a petition for reassessment of sales and use tax by ICS dated December 21, 1983. On February 9, 1984, ICS representatives attended a conference with the Department's disposition section personnel in Tallahassee. A Notice of Decision was entered September 30, 1985, by the tax conferee of the Department in response to the December 21, 1983 petition by ICS and as a result of that February 9, 1984 informal conference with the Department. A Petition for Reconsideration was filed by ICS dated October 28, 1985, concerning that notice of decision. On November 20, 1985, ICS representatives attended another informal conference with the Department's disposition section of its Office of General Counsel in Tallahassee. A supplemental petition was then filed by ICS dated February 12, 1986. Thereafter, a Notice of Reconsideration dated July 28, 1986, was executed by the tax conferee, Mark A. Zych, in response to the November 20, 1985 petition and informal conference. Thereafter, ICS filed the petition initiating this proceeding on September 19, 1986. The parties have additionally stipulated to, and the evidence of record reveals, that the items involved in this case were purchased by ICS from vendors for use in its shops and bars in the regular course of operation and business aboard the cruise ships. Those items at issue were stipulated to be used or consumed by ICS on Board NCL'S vessels. The shop and bar employees of ICS were paid on NCL's payroll and ICS would then reimburse NCL. Additionally, NCL negotiated a labor contract which covered the shop and bar employees of ICS, as well as its own employees. While they were on duty on board ship, the ICS personnel wore name tags indicating that they were NCL crew members, bearing the NCL logo. ICS personnel also participated in all safety drills and lifeboat drills like any other crew members. Each had specific stations and passenger safety duties assigned them, including lifeboat stations, just as any NCL employee crew members. ICS personnels' living quarters were in the same location as NCL employees' living quarters and ICS personnel were subject to the same duties, obligations and restrictions as NCL employees while on board the NCL ships, including restricted access to passenger areas and restrictions on mingling with passengers. The shop agreement (exhibit C to the stipulation in evidence) reveals that ICS performance of its shop, bar and other operations on board the cruise vessels was subject to the control of NCL. Numerous references in the shop agreement establish that NCL had pervasive control over ICS employees' performance of their duties on board NCL's cruise ships, as set forth at length in Appendix A, attached hereto and incorporated by reference in these findings of fact. One particularly revealing provision of the agreement is worth quoting. Section 16 of the Agreement requires ICS to designate a specific employee to act as supervisor of ICS employees on board the ships. This supervisor must agree to take orders from the master and ship's officers: ... and such qualified NCL personnel as shall be designated by the masters at all times and shall be under the control and direction and report directly to whomever the masters designate on board the vessels. ICS' supervisory personnel are to give prompt obedience to the instructions and orders of the NCL designee in regard to the operation of the shop concession. (emphasis supplied) The bar agreement, in evidence as exhibit D to the stipulation, contains a virtually identical provision. That bar agreement, for purposes of this proceeding, is essentially equivalent to the shop agreement. Additionally, the policy and procedures manual, in evidence as exhibit to the Stipulation, depicts numerous provisions which establish that, for all practical purposes, except for the reimbursement of NCL by ICS for salary for its employees, that ICS employees were considered as a part of the regular crew of the NCL cruise ships and subject to the direction and control of the ships' officers the same as any other crew member. This extended even to direction and control concerning how displays in the shops were set up, and how the shops and bars, were operated. In summary, that policy and procedures manual further demonstrates the pervasive control of NCL over the ICS employees and operations aboard the cruise ships, even to the extent of regulating vacation of ICS employees when they were ashore between cruises, etc. The testimony of ICS witnesses at the hearing confirms the existence of NCL's authority over ICS and its employees and demonstrates clearly that NCL fully exercised that right of control in the normal day to day operations of its cruise vessels. Sonia Jensen, district manager for ICS, has worked for ICS continuously since 1975. She established that NCL personnel supervise, direct and control ICS employees as to safety procedures, lifeboat drills and lifeboat station assignments, and as to all rules and regulations applying to crew members and their behavior. ICS employees on the ships are considered crew members. The testimony of Linda Loddo, district manager for ICS since 1973, corroborated that of Ms. Jensen in establishing that the authority of the NCL ships' officers extends to ICS employees as crew members, whether they are actually aboard ship or on land. Additionally, Ms. Jensen established that, based upon her considerable experience working in the cruise ship industry, that the shops and bars operated by ICS aboard the NCL cruise ships are an integral functioning part of, and appropriate to the operation of, a cruise vessel and a cruise line, in the normal course of its business and operations. Thus, ICS contends that it fits within the Department's interpretation of the relevant exemption statute, Section 212.08(8), Florida Statutes, because ICS is clearly both an "agent" of NCL and an "operator" of cruise ships. Its operations aboard the cruise ships are an integral and necessary function and part of the cruise ships operations in providing for the comfort and recreation of the passengers. ICS contends however, that the exemption, and entitlement to it, is determined by the nature of the items purchased, as that relates to what are considered "parts of vessels" for purposes of the exemption provision and that the exemption is not directly applicable to a particular class of people. The Petitioner argues that the sentence containing the phrase "owner, operator or agent" merely creates a presumption with regard to which items will constitute "parts of a vessel," but that the scope of the exemption, is not limited to purchases by only those three classes of persons.
Recommendation Having considered the foregoing findings of fact, stipulations and unrefuted evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore RECOMMENDED that the State of Florida, Department of Revenue enter a final order withdrawing and abating the assessment of sales and use taxes, interest and penalties against International Cruise Shops, Inc., in the particulars, and for the reasons, found and discussed above. It is further, Recommended, that the penalty sought to be imposed against International Cruise Shops by the Respondent, concerning the "bar sales assessment," be abated for the reasons delineated above. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 8th day of December, 1988. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of December, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-3769 Petitioner's proposed findings of fact Accepted. Accepted. Accepted. Accepted. Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter. Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted, but subordinate to the Hearing Officer's findings of fact on the subject matter. Rejected as constituting, in large part, a conclusion of law and not a proposed finding of fact and as subordinate to the Hearing Officer's findings of fact on this subject matter. Rejected as subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted. Accepted, but subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted. Accepted. Accepted. Respondent's proposed findings of fact The Respondent incorporates by reference the factual stipulation as its proposed findings of fact. Those findings of fact stipulated to have been accepted, of course, by the Hearing Officer, although not necessarily for the material import Respondent asserts they should be accorded through it's proposed recommended order. COPIES FURNISHED: Robert W. Hanula, Esquire The Greyhound Tower, Station 1701 Phoenix, Arizona 85077 Linda G. Miklowitz, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32399-1050 Katie D. Tucker, Esquire Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100 William D. Townsend, Esquire Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Petitioner is a not for profit corporation, with physical facilities in Florida, holding tax exemption certificate 06-01290-00-58, issued November 16, 1977. By letter dated October 22, 1984, Respondent announced its intent to revoke the certificate. Petitioner is qualified as a non-profit entity under Section 501(c)(3) of the Federal Internal Revenue Code. The certificate at issue has been held continuously by Petitioner since 1977. Petitioner provides credit counseling assistance free of charge to any individual 1/ who is encountering difficulty paying his debts. Petitioner typically assists such individuals by contacting creditors, obtaining their agreement to accept smaller payments, and by taking temporary control of the client's income and making periodic payments on the client's behalf. Petitioner also gives educational presentations on personal financial management in the communities where it operates (Orange, Seminole, and Volusia Counties). Additionally, it provides counseling for the U.S. Department of Housing and Urban Development to persons facing foreclosure of home mortgages. It does not charge a fee for this service. Petitioner relies primarily on the United Way for its operating revenues. It also receives major support from the creditors it deals with, asking them to contribute 15 per cent of the amount sent to them on behalf of its clients. Additionally, Petitioner receives interest incomes on client trust funds.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department of Revenue enter a Final Order reissuing Certificate of Exemption Number 06-01290-00-58 to Petitioner. DONE and ENTERED this 24th day of May, 1985, in Tallahassee, Florida. R. T. CARPENTER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of May, 1985.
Findings Of Fact The facts in this cause are essentially undisputed. The Pen Haven Company was a Subchapter "S" corporation for federal income tax purposes and therefore incurred no State income tax liability. It was formed in 1960 and retained its Subchapter "S" status thorough 1976 for federal income tax purposes. In December of 1977, the capital stock of Pen Haven Sanitation Company was sold to the Board of County Commissioners of Escambia County. Inasmuch as the sole corporate stock holder then was no longer an individual, but rather a governmental entity, the corporation Subchapter "S" election for federal income tax purposes was terminated. Escambia County did not wish to own stock in a private corporation so it accordingly liquidated Pen Haven and its assets were distributed to the County's direct ownership. Thereafter the Corporation filed a final corporate income tax return for 1977 which reflected capital gains on the assets of the corporation which had been distributed. Some of those assets had tax bases which had been reduced to zero through reduction by depreciation, most of which had been charged off prior to January 1, 1972, the effective date of the Florida corporate income tax code. All of the depreciation deductions had been taken prior to the termination of the Subchapter "S" status of the Pen Haven Company. On disposition of the Pen Haven assets however, a gain was reported equal to the fair market value or salvage value, less the basis. This gain was accordingly reported on Pen Haven's federal income tax return, and on the 1977 Florida corporate income tax return, albeit under the protest as to the Florida tax return. Inasmuch as Pen Haven had previously deducted depreciation since its inception, and had the benefit thereof for federal tax purposes, it was required by the Internal Revenue Service to recapture the depreciation for federal tax purposes upon its sale and the filing of its tax return in 1977. The same recapture of depreciation treatment was required of West Florida Utilities. Thereafter an application was made by the Petitioner corporations for Florida Corporate Income Tax Refunds asserting that they should have not paid taxes on the amount of gains which represented a recapture of depreciation which had been taken as a deduction prior to the effective date of the Florida corporate income tax on January 1, 1972. In effect the Petitioner is contending that the so- called "income" which is the subject of the tax in question was not realized in 1977, but rather merely "recognized" in that year by the federal tax law and that it represented income actually "realized" during the years when the depreciation was taken as a deduction prior to January 1, 1972. The Petitioners contend that "realization" for federal income tax purposes occurs when the taxpayer actually receives an economic gain. "Recognition" on the other hand refers only to that time when the tax itself becomes actually due and payable. The Petitioners maintain that when the tax became due and payable in 1977 that was merely the point of "recognition" of the subject taxable gain and not "realization" in that the gain was actually realized prior to the Florida Jurisdictional date of January 1, 1972, in the form of the economic benefit derived from those depreciation deductions applied to federal tax liability prior to that date. The Petitioners cite SRG Corporation vs. Department of Revenue, 365 So2d 687 (Fla. 1st DCA 1978), for the proposition that Florida could not tax those gains accruing to the taxpayer prior to Florida's having the constitutional and statutory power to impose a corporate income tax. The Respondent in essence agrees that the question of when the economic benefit to the Petitioners was received by them or was "realized" is the key question in this cause. The Respondent contends, however, that "realization" of a taxable gain occurred when the assets were disposed of by the Petitioners in 1977, well after the date when Florida's power to tax such a gain was enacted. The underlying facts in the case of West Florida Utilities are substantially similar. This corporation, however, was organized in 1962 and has never been clothed with Subchapter "S" corporate status. The only grounds upon which it can therefore claim a refund is its assertion that Florida does not have authority to tax that portion of the capital gains attributable to recapture of depreciation which was originally charged off as a deduction prior to January 1, 1972. The Department of Revenue and the Comptroller of the State of Florida both denied the refund claim made on behalf of the Petitioners, and thereafter they seasonably petitioned for a formal administrative hearing pursuant to Chapter 120.57(1), Florida Statutes.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence in the record, the candor and demeanor of the witness and pleadings and arguments of counsel it is, therefore RECOMMENDED this 3rd day of September, 1981, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF, 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 3rd day of September, 1981. COPIES FURNISHED: Thurston A. Shell Post Office Box 1831 Pensacola, Florida 32578 Robert A. Pierce, Esquire General Counsel Department of Revenue Tallahassee, Florida 32301 Michael Basile, Esquire Deputy General Counsel Office of Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301 Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32310
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Petitioner, Christian Television Corporation, is a not for profit Florida corporation formed in April of 1977. It is exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code (1954). Its first application for a Florida Consumer's Certificate of Exemption was initially denied by the Department of Revenue in December of 1977. After petitioner was successful in a rule-challenge proceeding to a portion of the Department's rules defining a "church", the Department reversed its initial decision and issued the petitioner a Consumer's Certificate of Exemption. Based on that issuance, petitioner dismissed its request for a formal administrative hearing regarding the initial denial of exempt status. In 1983, the Legislature enacted Section 212.084, Florida Statutes, which required the Department of Revenue to review every sales tax exemption certificate issued before July 1, 1983, to ensure that the possessor of the certificate was actively engaged in an exempt endeavor. The Department was given the authority to revoke the certificates of those entities found to be no longer qualified for an exemption. Section 212.084(3), Florida Statutes. Pursuant to this statute, the respondent notified the petitioner that an application for renewal of its previously issued Certificate would be required. Petitioner submitted such an application and the respondent gave notice of its intent to revoke petitioner's Certificate effective January 29, 1986. According to its Articles of Incorporation, the petitioner was organized "to produce and broadcast to the general public religious television and radio programs and thereby educate and instruct the general public in religious matters, and make available guidance to promote the general public welfare..." In furtherance of this purpose, the petitioner operates a facility in Largo, Florida, in a 43,000 square foot building. The building contains two television broadcasting studios, control rooms, storage rooms, administrative offices, a counseling area and a chapel. The petitioner views its purpose as one of assisting churches of all denominations in presenting the gospel to the community. It produces many programs in its Largo studios and considers these programs to be ministries in themselves. Live audiences are often present in the studios, which can accommodate from 30 to 100 people, depending upon the program. For example, during the production of "Joy Junction", children from various Christian schools in the area attend the taping. Senior adults come to the Largo studios to attend the "Action Sixties" program, and single adults attend the taping of "Solo Act". In addition, the petitioner sells air time to local churches and ministries. The petitioner also conducts benevolence activities in cooperation with area churches and local agencies. These include fund-raisers for other ministries and raising money or collecting clothing and food for the needy. Petitioner provides on-air announcement services for area churches and ministerial associations and allows other ministries to utilize its broadcasting facilities. Petitioner's staff also attempts to work with "non-Christian people" within the community and "pass them through our ministry into other churches". The petitioner provides a telephone counseling service from its Largo facility. For this purpose, it utilizes 45 regular, and 100 substitute, volunteer counselors. These counselors are trained by petitioner's staff, and callers receive Biblical answers to their questions and problems. Many who call in want prayer for some particular need. Callers perceived to have a more severe problem are referred to a Christian counselor in the area. Approximately 32,000 calls per year are received on petitioner's "prayer lines". The petitioner's staff includes two ministers. One serves as the director of the benevolence ministry and the counseling department, and the other serves as director of community ministries and does the liaison work with other churches. Both were previously Pastors of their own churches, and feel that Christian Television is as much or more of a "church" as the more traditional churches they formerly pastored. They described the use of video technology as an advantage and an asset, rather than as a substitute for more traditional forms of religious training. Worship services are conducted in the petitioner's chapel by both the staff ministers and other volunteer or paid ministers. The chapel, containing 1200 square feet and having a seating capacity of about 150, has high ceilings and contains an organ, an altar, a pulpit and chairs. The estimated value of the assets within the chapel is ten or twenty thousand dollars. The chapel is actively utilized during the week for staff devotionals and communion services, and is open to the public for special services and advertised programs conducted by those using a Biblical approach. Other approved ministries are permitted to utilize the chapel without charge for Bible studies or special prayer times. The chapel is not used as a production or broadcasting studio. As of December 31, 1983, the value of petitioner's assets, including plant, property and equipment, was $2,185,564.00. During 1983, petitioner received contributions totalling $1,137,000.00, and realized slightly more than one million dollars in revenue by providing broadcast and production time to various religious organizations.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that petitioner's Consumer Certificate of Exemption be reissued for a period of five (5) years. Respectfully submitted and entered this 6th day of October, 1986. DIANE D. TREMOR 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 6th day of October, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-0456 The proposed findings of fact submitted by the petitioner and the respondent have been carefully considered and are accepted and/or incorporated in this Recommended Order, except as noted below: Petitioner: 3 - 5. Recitations of testimony accepted as correct, but not included as factualfindings. 7. Partially rejected as argument as opposed to factual findings. COPIES FURNISHED: Jon H. Anderson, Esquire NCNB Bank Building 5001 South Florida Avenue Lakeland, Florida 33803 Edwin A. Bayo, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32301 Randy Miller Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32301 William D. Townsend General Counsel 104 Carlton Building Tallahassee, Florida 32301
The Issue Whether the contested and unpaid portions of the tax, penalty and interest assessment issued against Petitioners as a result of Audit No. 9317210175 should be withdrawn as Petitioners have requested?
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: Shuckers is an oceanfront restaurant and lounge located at 9800 South Ocean Drive in Jensen Beach, Florida. In November of 1992, Petitioner Mesa's brother, Robert Woods, Jr., telephoned Mesa and asked her if she wanted a job as Shuckers' bookkeeper. Woods had been the owner of Shuckers since 1986 through his ownership and control of the corporate entities (initially Shuckers Oyster Bar Too of Jensen Beach, Florida, Inc., and then NAT, Inc.) that owned the business. Mesa needed a job. She therefore accepted her brother's offer of employment, notwithstanding that she had no previous experience or training as a bookkeeper. When Mesa reported for her first day of work on November 19, 1992, she learned that Woods expected her to be not only the bookkeeper, but the general manager of the business as well. Mesa agreed to perform these additional responsibilities. She managed the day-to-day activities of the business under the general direction and supervision of Woods. After a couple of weeks, Woods told Mesa that it would be best if she discharged her managerial responsibilities through an incorporated management company. Woods had his accountant draft the documents necessary to form such a corporation. Among these documents were the corporation's Articles of Incorporation. Mesa executed the Articles of Incorporation and, on December 3, 1992, filed them with the Secretary of State of the State of Florida, thereby creating Petitioner TAN, Inc. TAN, Inc.'s Articles of Incorporation provided as follows: The undersigned subscribers to these Articles of Incorporation, natural persons competent to contract, hereby form a corporation under the laws of the State of Florida. ARTICLE I- CORPORATE NAME The name of the corporation is: TAN, INC. ARTICLE II- DURATION This corporation shall exist perpetually unless dissolved according to Florida law. ARTICLE III- PURPOSE The corporation is organized for the purpose of engaging in any activities or business permitted under the laws of the United States and the State of Florida. ARTICLE IV- CAPITAL STOCK The corporation is authorized to issue One Thousand (1000) shares of One Dollar ($1.00) par value Common Stock, which shall be designated "Common Shares." Article V- INITIAL REGISTERED OFFICE AND AGENT The principal office, if known, or the mailing address of this corporation is: TAN, INC. 9800 South Ocean Drive Jensen Beach, Florida 34957 The name and address of the Initial Registered Agent of the Corporation is: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 ARTICLE VI- INITIAL BOARD OF DIRECTORS This corporation shall have one (1) director initially. The number of directors may be either increased or diminished from time to time by the By-laws, but shall never be less than one (1). The names and addresses of the initial directors of the corporation are as follows: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 ARTICLE VII- INCORPORATORS The names and addresses of the incorporators signing these Articles of Incorporation are as follows: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 On the same day it was incorporated, December 3, 1992, TAN, Inc., entered into the following lease agreement with the trust (of which Woods was the sole beneficiary) that owned the premises where Shuckers was located: I, Michael Blake, Trustee, hereby lease to Tan, Inc. the premises known as C-1, C-2, C-3, C-4, 9800 South Ocean Drive, Jensen Beach, Florida for the sum of $3,000.00 per month. This is a month to month lease with Illinois Land Trust and Michael Blake, Trustee. Mesa signed the agreement in her capacity as TAN, Inc.'s President. She did so at Woods' direction and on his behalf. No lease payments were ever made under the agreement. 3/ The execution of the lease agreement had no impact upon Shuckers. Woods remained its owner and the person who maintained ultimate control over its operations. At no time did he relinquish any part of his ownership interest in the business to either Mesa or her management company, TAN, Inc. Mesa worked approximately 70 to 80 hours a week for her brother at Shuckers doing what he told her to do, in return for which she received a modest paycheck. Woods frequently subjected his sister to verbal abuse, but Mesa nonetheless continued working for him and following his directions because she needed the income the job provided. As part of her duties, Mesa maintained the business' financial records and paid its bills. She was also required to fill out, sign and submit to Respondent the business' monthly sales and use tax returns (hereinafter referred to as "DR- 15s"). She performed this task to the best of her ability without any intention to defraud or deceive Respondent regarding the business' tax liability. The DR-15s she prepared during the audit period bore NAT, Inc.'s Florida sales and use tax registration number. On the DR-15 for the month of December, 1992, Mesa signed her name on both the "dealer" and "preparer" signature lines. Other DR-15s were co-signed by Mesa and Woods. In April of 1993, Woods told Mesa that she needed to obtain a Florida sales and use tax registration number for TAN, Inc., to use instead of NAT, Inc.'s registration number on Shuckers' DR-15s. In accordance with her brother's desires, Mesa, on or about May 14, 1993, filed an application for a Florida sales and use tax registration number for TAN, Inc., which was subsequently granted. On the application form, Mesa indicated that TAN, Inc. was the "owner" of Shuckers and that the application was being filed because of a "change of ownership" of the business. In fact, TAN, Inc. was not the "owner" of the business and there had been no such "change of ownership." By letter dated June 22, 1993, addressed to "TAN INC d/b/a Shuckers," Respondent gave notice of its intention to audit the "books and records" of the business to determine if there had been any underpayment of sales and use taxes during the five year period commencing June 1, 1988, and ending May 31, 1993. The audit period was subsequently extended to cover the six year period from June 1, 1987 to May 31, 1993. Relying in part on estimates because of the business' inadequate records, auditors discovered that there had been a substantial underpayment of sales and use taxes during the audit period. The auditors were provided with complete cash register tapes for only the following months of the audit period: June, July, August and December of 1992, and January, February, March, April and May of 1993. A comparison of these tapes with the DR-15s submitted for June, July, August and December of 1992, and January, February, March, April and May of 1993 revealed that there had been an underreporting of sales for these months. Using the information that they had obtained regarding the three pre- December, 1992, months of the audit period for which they had complete cash register tapes (June, July and August of 1992), the auditors arrived at an estimate of the amount of sales that had been underreported for the pre- December, 1992, months of the audit period for which they did not have complete cash register tapes. The auditors also determined that Shuckers' tee-shirt and souvenir sales, 4/ Sunday brunch sales, cigarette vending sales, vending/amusement machine location rentals 5/ and tiki bar sales that should have been included in the sales reported on the DR-15s submitted during the audit period were not included in these figures nor were these sales reflected on the cash register tapes that were examined. According of the "Statement of Fact" prepared by the auditors, the amount of these unreported sales were determined as follows: TEE-SHIRT SALES: Sales were determined by estimate. This was determined to be $2,000/ month. No records were available and no tax remitted through May, 1993. SUNDAY BRUNCH SALES: Sales were determined by estimate. This was determined to be 100 customers per brunch per month (4.333 weeks). No audit trail to the sales journal was found and no records were available. CIGARETTE VENDING SALES: The estimate is based on a review of a sample of purchases for the 11 available weeks. The eleven weeks were averaged to determine monthly sales at $3/pack. VENDING MACHINE LOCATION RENTAL REVENUE: The revenue estimate is based on a review of a one month sample. TIKI BAR SALES: The sales estimate is based on a review of infrequent cash register tapes of February, 1993. The daily sales was determined by an average of the sample. The number of days of operation per month was determined by estimate. In addition, the auditors determined that TAN, Inc. had not paid any tax on the lease payments it was obligated to make under its lease agreement with Illinois Land Trust and Michael Blake, Trustee, nor had any tax been paid on any of the pre-December, 1992, lease payments that had been made in connection with the business during the audit period. According to the "Statement of Fact" prepared by the auditors, the amount of these lease payments were determined as follows: The estimate is based on 1990 1120 Corporate return deduction claimed. This return is on file in the Florida CIT computer database. The 1990 amount was extended through the 6/87 - 11/92 period. For the period 12/92 - 5/93 audit period, TAN's current lease agreement of $3,000/month was the basis. No documentation was produced during the audit supporting any the sales tax exemptions that the business had claimed during the audit period on its DR-15s. 6/ Accordingly, the auditors concluded that the sales reported as exempt on the business' DR-15s were in fact taxable. Using records of sales made on a date selected at random (February 1, 1993), the auditors calculated effective tax rates for the audit period. They then used these effective tax rates to determine the total amount of tax due. An initial determination was made that a total of $201,971.71 in taxes (not including penalties and interest) was due. The amount was subsequently lowered to $200,882.28. On or about December 22, 1993, TAN, Inc., entered into the following Termination of Lease Agreement with Ocean Enterprises, Inc.: TAN, Inc., a Florida corporation, hereby consents to termination of that certain lease of the premises known as C-1, C-2, C-3 and C-4 of ISLAND BEACH CLUB, located at 9800 South Ocean Drive, Jensen Beach, Florida, dated December 3, 1992, acknowledges a landlord's lien on all assets for unpaid rent; and transfers and sets over and assigns possession of the aforesaid units and all of its right, title and interest in and to all inventory, equipment, stock and supplies located on said premises 7/ in full satisfaction of said unpaid rent; all of the foregoing effective as of this 22nd day of December, 1993. FOR AND IN CONSIDERATION of the foregoing termin- ation of lease, OCEAN ENTERPRISES, Inc., a Florida corporation, hereby agrees to pay Linda Mesa, each month all of the net revenues of the operation of the bar and restaurant located on said premises, up to the sum of $15,000.00, for sales tax liability asserted against TAN, Inc. or Linda A. W. Mesa based upon possession or ownership of said premises or any of the assets located thereon, plus attorney's fees incurred in connection with defending or negotiating settlement of any such liability. Net revenue shall mean gross revenue, less operating expenses, includ- ing, but not limited to, rent, up to the amount of $5,000.00 per month, costs of goods sold, utilities, payroll and payroll expense and insurance. OCEAN ENTERPRISES, Inc. represents that it has entered into a lease of said premises for a term of five years commencing on or about December 22, 1993, pursuant to the terms and conditions of which OCEANFRONT [sic] ENTERPRISES, Inc. was granted the right to operate a restaurant and bar business on said premises. Ocean Enterprises, Inc., leases the property from Island Beach Enterprises, which obtained the property through foreclosure. TAN, Inc., has been administratively dissolved.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Revenue enter a final order withdrawing the contested and unpaid portions of the assessment issued as a result of Audit No. 9317210175, as it relates to TAN, Inc., and Linda A. W. Mesa. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 27th day of June, 1995. STUART M. LERNER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 27th day of June, 1995.
The Issue Whether this cause should be dismissed for Petitioner's failure to comply with Section 120.80(14)(b)3., Florida Statutes.
Findings Of Fact Petitioner is contesting an assessment of taxes, pursuant to an audit conducted by Respondent Department of Revenue. The total amount of the assessment was $32,312.24. Following the audit, in a letter to the Department's auditor dated April 17, 2006, Petitioner's counsel stated that taxes "in the amount of $5,744.80 is something [Petitioner] would be obligated to pay under the laws of the State of Florida, and as such, they are willing to do so. They would be willing to pay interest due on this money."1/ This statement constitutes a clear admission that Petitioner owes the stated amount of the tax, $5,744.80, plus interest that accrues daily. Petitioner's Memorandum makes the un-sworn statement that: At the time the parties met to discuss the assessment with the representative of the Department of Revenue, Martha Watkins, they offered to pay $5,744.80 of the taxes but were informed it was part of the $32,312.24, and they could either pay it all or contest it. At all times material hereto the petitioners have stood ready to pay the $5,744.80. On April 17, 2006, we wrote a letter to Martha Watkins making this offer for the second time. On August 17, 2006, we again wrote to the Department of Revenue attaching our letter of April 17, 2006, again making this offer. At no time was a response received to either letter. The August 17, 2006, letter alluded to in Petitioner's Memorandum is not of record and neither a copy of that letter, nor an affidavit of its contents, has been submitted by either party. At no time has Petitioner asserted that any amount of tax money was unequivocally tendered to Respondent. No affidavit to that effect has been filed in this case. The Second Affidavit of Martha Watkins, submitted with the Department of Revenue's timely Memorandum states, in pertinent part: I conducted the audit of C AND C MECHANICAL CONTRACTORS, INC., from which arose the challenged assessment and this controversy. During the course of the audit, and subsequent communication with C AND C MECHANICAL CONTRACTORS, INC., regarding the audit and assessment of taxes and interest, C AND C MECHANICAL CONTRACTORS, INC., made at least one settlement offer, that was unacceptable, and was rejected by the Department as such. At no time did C AND C MECHANICAL CONTRACTORS, INC., unequivocally tender to me, or unequivocally offer to tender to me, the uncontested tax and applicable interest, and at no time did I refuse to accept any payment of taxes. On September 21, 2006, a Request for Administrative Hearing was filed with the Department of Revenue. On September 28, 2006, the Executive Director of the Department of Revenue entered an Order Dismissing the Petition with Leave to Amend. That Order reads, in pertinent part: On September 21, 2006, the Florida Department of Revenue received a "Request for Administrative Hearing" from Petitioner, C & C Mechanical Contractors. While the document clearly is a request for hearing, the petition does not state what the Petitioner is disputing. A record search shows that at least one Notice of Proposed Assessment was issued by the Department on June 15, 2006 to this Petitioner. It is impossible to determine from the petition whether this proposed assessment is being challenged. However, because this request was sent within the applicable time frame to dispute the Notice of Proposed Assessment, the Department will treat it as such. As required by law, the notice stated that a formal protest for an administrative hearing had to be received in the Office of the General Counsel within sixty days after the assessment became final and had to be in compliance with chapter 120, Florida Statutes. The petition fails to meet the requirements contained in chapter 120, Florida Statutes and Uniform Rule 28- 106.201, Florida Administrative Code, the appropriate rule for use in filing a petition requesting a hearing involving disputed issues of material fact. A copy of the appropriate rule is provided with this order. Specifically, the petition does not contain: (1) a statement of when and how the Petitioner received notice of the agency decision; (2) all disputed issues of material fact. If there are none, the petition must so indicate; (3) a concise statement of the ultimate facts alleged, including the specific facts the Petitioner contends warrant reversal or modification of the agency's proposed action; (4) a statement of the specific rules or statutes the Petitioner contends require reversal or modification of the agency's proposed action, and (5) a statement of the relief sought by the Petitioner, stating precisely the action the petitioner wishes the agency to take with respect to the agency's proposed action. Because of these deficiencies, Petitioner's documentation must be dismissed. IT IS ORDERED: The petition for hearing filed by Petitioner is DISMISSED. Such dismissal is without prejudice to Petitioner to amend the petition to provide the information listed above. . . . On October 11, 2006, the Amended Petition for Administrative Hearing was filed with the Department of Revenue. That Amended Petition stated, in pertinent part: 1. The Petitioner received a certified letter dated June 15, 2006, stating taxes were due and owing in the amount of $32,312.24. This amount included $5,774.80 in fabrication cost taxes which the Petitioner does not object too [sic]. The balance of the $32,312.24 was for taxes on items sold to non-taxable entities. The Petitioner would object to these taxes and gives as grounds the following: Items sold to non-taxable entities are not subject to the Florida Tax Code. The department made a determination the items sold to the non-taxable entities were taxable stating the contractor, in this case the Petitioner, was the end user. Florida Tax Code states in part ". . . a determination whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction rather than the form in which the transaction is cast." The department "shall adopt rules that give special consideration to factors that govern the status of the tangible personal property before its affixation to real property." The Department of Revenue has adopted a rule which is in violation of the incident [sic] of legislature and contrary to Florida Statute 212.08.2/ (Emphasis supplied). The Amended Petition constitutes a clear admission that the $5,744.80 portion of the taxes due under the audit were both uncontested and owed, as of October 11, 2006. The first Affidavit of Martha Watkins, filed November 28, 2006, in support of the pending Motion to Dismiss, states, in pertinent part: I am a [sic] sui juris and otherwise competent to testify in this matter. I am employed by the Florida Department of Revenue in the position of Tax Auditor III. I am familiar with the accounts, accounting methods, and maintenance of records at the Florida Department of Revenue for sales tax, interest, and penalties. I am authorized by the Department of Revenue to make affidavit regarding the payment status of sales taxes, interest and penalties relative to registered Florida dealers. I have reviewed, and have personal knowledge of the accounts of the Florida Department of Revenue regarding tax payment of C&C MECHANICAL CONTRACTORS, INC., a Florida corporation that has in the past been issued a Certificate of Registration by the Department of Revenue. According to the records of the Department of Revenue, as of November 27, 2006, C&C MECHANICAL CONTRACTORS, INC., has not paid any sums to the Department of Revenue against the assessed outstanding balance of sales tax, interest or penalties, since prior to April 16, 2006.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Florida Department of Revenue enter a final order dismissing the Amended Petition. DONE AND ENTERED this 27th day of February, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of February, 2007.
Findings Of Fact This cause comes on for consideration based upon the Petitioner's challenge to the Notice of Proposed Assessment of Tax, Penalties and Interest under Chapter 212, Florida Statutes, that was filed by the Respondent March 13, 1978. A copy of the Notice of Proposed Assessment together with the attendant work papers may be found as the Respondent's composite Exhibit #3, admitted into evidence. (By stipulation of the parties, in view of certain evidence presented by the Petitioner in the course of the hearing a First Revised Notice of Proposed Assessment of Tax, Penalties and Interest under Chapter 212. Florida Statutes, has been filed and it is this First Revised Notice of Proposed Assessment of Tax, Penalties and Interest which is in dispute between the parties. A copy of the First Revised Notice of Proposed Assessment of Tax, Penalties and Interest, dated October 17, 1978 may be found as Hearing Officer's composite Exhibit #1, admitted Info evidence. That composite exhibit contains the First Revised Notice of Proposed Assessment, together with the applicable work sheets and Petitioner's Exhibits #1 through 3, admitted into evidence in the course of the hearing. These Petitioner's exhibits are those referred to as constituting the basis of the stipulation previously mentioned.) The Petitioner is registered with the State of Florida, Department of Revenue as a wholesale business, for purposes of Florida taxes. A copy of the certificate which shows this regis- tration may be found as Respondent's Exhibit #1 admitted into evidence. The Respondent, State of Florida, Department of Revenue is an agency of the State of Florida that audits business record, to include the Petitioner's records. Specifically, in this instance, an audit was conducted in accordance with Chapter 21, Florida Statutes, to ascertain whether or not the Petitioner was responsible for the payment of sales and use tax under the authority of Chapter 212, Florida Statutes. The tax examiner assigned to conduct the audit was carrying out that function as a follow-up to an audit performed on a business known as Quail Ridge located in Delray Beach, Florida. The audit of Quail Ridge led the Respondent to believe that the Petitioner had made certain retail sales to Quail Ridge without collecting sales tax. If this were true, then the Petitioner would become responsible for the payment of those sales taxes under the provision of Section 212.07(2), Florida Statutes. There ensued an audit of the Petitioner's books and records, which were constituted of certain bank statements and a ledger book together with invoices and signed resale certificates that were made available. In the course of this audit process, the Petitioner was allowed a period of two months within which time to collect certain invoices and signed resale certificates. The significance of the invoices and resale certificates was, assuming the sales had been made for purposes of resale; thereby constituting a wholesale transaction, no sales tax would be due because the collection of that sales tax would become the responsibility of the purchaser who had obtained the item from the Petitioner in a wholesale transaction. That purchaser would become the "dealer", within the meaning of Chapter 212, Florida Statutes, and therefore would be responsible for the collection of the sales tax upon a further sale to a third party in a retail transaction. After the Petitioner had been given time to establish those wholesale transactions in his flower business and given credit for certain months in which no business income was gained, the calculations were made by the tax examiner of the Respondent and the March 13, 1978, Notice of Proposed Assessment of Tax, Penalties and Interest under Chapter 212, Florida Statutes, was issued. This Notice of Proposed Assessment taxed the Petitioner for all business transactions arising from the sale of flowers which could not be established as exempt sales in the capacity of a wholesaler. (This requirement for the establishment of an exemption by the proof of the petitioner is found in Chapter 212, Florida Statute and in accordance with Rule 12A-1.38, Florida Administrative Code.) After the Notice of Proposed Assessment of March 13, 1978, had been served on the Petitioner, an informal conference was held between the tax examiner and the petitioner. This conference was held on April 26, 1978, and at that time the Petitioner offered to introduce further invoices and resale certificates. Brandjes claimed that these invoices and resale certificates established further exemptions. The invoices and resale certificates were not accepted at that time because the tax examiner felt that the case was to be submitted for formal hearing and he was not of the opinion that he could make further adjustments to the proposed assessment at that juncture. The same invoices and resale certificates which were of fered at the April 26, 1978 conference were produced in the course of the hearing before the undersigned. After such production, the Exhibits, 1 through 3, were submitted to the Respondent's tax examiner for review to establish possible further reduction of the proposed assessment, through the process of showing other exempt sales, or wholesale transaction. That review led to the First Revised Notice of Proposed Assessment of October 17, 1978, which reduces the amount of tax, penalties and interest claimed by the Respondent. The amount claimed, effective October 17, 1978, was $3,129.77. This included tax, penalties and interest computed to that date. The audit period is November 1, 1974 through October, 1978. The Petitioner in this cause has pled ignorance to the requirements of law in the question of collecting sales and use taxes under Chapter 212, Florida Statutes, and the necessity to establish exempt sales which were made as wholesale transactions. He makes his contention premised upon the belief that his registration as an inactive business relieved him of the necessity to collect the taxes and to establish an exemption from tax. Notwithstanding this belief on the part of the Petitioner, it is clear that Chapter 212, Florida Statutes through its provisions places an obligation on the Petitioner to collect sales and use taxes for a retail transaction and the failure to meet that obligation places the responsibility for that payment of sales and use taxes on business transactions entered into by the Petitioner, with the Petitioner. This carries with it the potentiality of the assessment of penalties and interest for the failure to collect and remit those taxes under Chapter 212, Florida Statutes. The only possibility to escape the payment of the sales and use taxes under Chapter 212, Florida Statutes exists with the ability of the Petitioner to establish that the sales were sales at wholesale and not taxable under Chapter 212, Florida Statutes. To the extent that the Petitioner has established the exemptions in keeping with Chapter 212, Florida Statutes and Rule 12A-1.38, Florida Administrative Code, the Petitioner has been given credit for those exemptions. The balance of the sales transactions in the audit period November 1, 1974 through October 1978, as reflected in the First Revised Notice of Proposed Assessment of Tax, Penalties and Interest, under Chapter 212, Florida Statutes, becomes the responsibility of the Petitioner for his failure to collect the taxes for the sales. Therefore, the Petitioner is responsible for the payment of tax, penalties and interest through October 17, 1978 in an aggregate amount of $3,129.77.
Recommendation It is recommended that the Petitioner, Jack Brandjes, d/b/a Jack's Flowers be required to pay the tax, penalties, add interest under Chapter 212, Florida Statutes in the amount of $3,129.77 as set forth in the October 17, 1978 First Revised Notice of Proposed Assessment of Tax, Penalties and Interest. DONE AND ENTERED this 31st day of October, 1978. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32399-1550 (904) 488-9675 COPIES FURNISHED: Jack Brandjes c/o Jack's Flowers Ixora Market 4700 Canal 14 Road Lake Worth, Florida 33463 Cecil Davis, Esquire State of Florida Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Attorney, Division of Administration Department of Revenue Tallahassee, Florida 32304
The Issue The issue is whether Petitioner showed by a preponderance of the evidence that it is entitled to a refund of $1,500,216.60 in sales and use tax paid during the period from January 2005 through January 2007 to purchase industrial printing machinery that allegedly satisfied the statutory requirement for a 10 percent increase in productive output for printing facilities that manufacture, process, compound or produce tangible personal property at fixed locations in the state within the meaning of Subsection 212.08(5)(b), Florida Statutes (2005), and Florida Administrative Rule 12A-1.096.1/
Findings Of Fact Respondent is the agency responsible for administering the state sales tax imposed in Chapter 212. Petitioner is a "for profit" Florida corporation located in St. Petersburg, Florida. Petitioner is engaged in the business of publishing newspapers and commercial printing. Petitioner derives approximately 85 percent of its revenue from advertising and approximately 15 percent of its revenue from circulation subscriptions. In April, 2007, Petitioner requested a refund of $403,780.05 in sales and use taxes paid for the purchase of industrial machinery and equipment during the period from January, 2005, to January, 2006. In October, 2007, Petitioner requested a refund of $1,096,436.61 in sales and use taxes paid for the purchase of industrial machinery and equipment for the period from January, 2006, to January, 2007. The first refund request in April, 2007, became DOAH Case Number 08-3938, and the second refund request in October, 2007, became DOAH Case Number 08-3939. The two cases were consolidated into this proceeding pursuant to the joint motion of the parties. The parties stipulated that the only issue for determination in this consolidated proceeding is whether Petitioner satisfied the requirement for a 10 percent increase in productive output in Subsection 212.08(5)(b) and Rule 12A- 1.096. If a finding were to be made that Petitioner satisfied the 10 percent requirement, the parties stipulate that the file will be returned to Respondent for a determination of whether the items purchased are qualifying machinery and equipment defined in Subsection 212.08(5)(b) and Rule 12A-1.096. The issue of whether Petitioner satisfied the statutory requirement for a 10 percent increase in productive output in Subsection 212.08(5)(b) and Rule 12A-1.096 is a mixed question of law and fact. The ALJ concludes as a matter of law that Petitioner did not satisfy the 10 percent requirement. The ALJ discusses that conclusion briefly, for context, in paragraphs 6 and 7 of the Findings of Fact, and explains the conclusion and the supporting legal authority more fully in the Conclusions of Law. It is an undisputed fact that Petitioner counts items identified in the record as "preprints," "custom inserts," and "circulation inserts" separately from the "newspaper" as a means of exceeding the 10 percent requirement in Subsection 212.08(5)(b). Respondent construes the 10 percent exemption authorized in Subsection 212.08(5)(b) in pari materia with the exemption authorized in Subsection 212.08(5)(1)(g) for "preprints," "custom inserts," and "circulation inserts" (hereinafter "inserts"). The latter statutory exemption treats inserts as a "component part of the newspaper" which are not to be treated separately for tax purposes. For reasons stated more fully in the Conclusions of Law, the ALJ agrees with the statutory construction adopted by Respondent. That conclusion of law renders moot and, therefore, irrelevant and immaterial, the bulk of the evidence put forth by the parties during the two-day hearing because the evidence assumed arguendo that Petitioner's statutory interpretation would be adopted by the ALJ, i.e., inserts would be counted separately from the newspaper for purposes of satisfying the 10 percent requirement in Subsection 212.08(5)(b). In an abundance of caution, the fact-finder made findings of fact based on the legal assumption that inserts are statutorily required to be counted separately for purposes of the 10 percent requirement in Subsection 212.08(5)(b). Those findings are set forth in paragraphs 9 through 11. The verification audit by Respondent's field office was able to verify an output increase of only 4.27 percent for 2005 and only 8.72 percent for 2006. A preponderance of evidence in this de novo proceeding did not overcome those findings. The trier of fact finds the evidence from Petitioner during this de novo proceeding to be inconsistent and unpersuasive. For example, Petitioner inflated production totals by counting materials printed for its own use, and materials in which the unit of measurement was inconsistent. In other instances, production totals for printing presses identified in the record as Didde and Ryobi presses varied dramatically with circulation. In other instances, Petitioner's reporting positions changed during the course of the proceeding. There is scant evidence that the alleged increase in production created jobs in the local market in a manner consistent with legislative intent. Rather, a preponderance of evidence shows that when Petitioner placed the equipment in service it was job neutral or perhaps reduced jobs.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order finding that Petitioner did not satisfy the requirement for a 10 percent increase in productive output defined in Subsection 212.08(5)(b) and Rule 12A-1.096, and denying Petitioner's request for a refund. DONE AND ENTERED this 20th day of October 2009, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of October, 2009.
The Issue 1. Whether the Emergency Rules on Sales and Use Tax on Services and Other Transactions adopted by the Respondent effective July 1, 1987, were adopted pursuant to Section 33, Chapter 87-6, l987 Laws of Florida, and Section 120.54(9), Florida Statutes (1987)? 2. Whether Rules 12AER87-31(1)(c), (5), (7)(i)(7)(k), (10), (12) and (13), Florida Administrative Code, constitute an invalid exercise of delegated legislative authority?
Findings Of Fact The Respondent is an agency of the State of Florida. It is charged with the responsibility to implement, enforce and collect the taxes levied by the State of Florida, including Chapter 212, Florida Statutes (1987). During the 1987 Legislative Session the Legislature enacted Committee Substitute for Senate Bill 777, which is codified as Chapter 87-6, 1987 Laws of Florida (hereinafter referred to as "Chapter 87-6"). This act, which amended Chapter 212, Florida Statutes, was signed into law by the Governor on April 23, 1987. Section 5 of Chapter 87-6, created Section 212.0594, Florida Statutes. This new Section of Chapter 212 imposed a sales tax on construction services performed on or after July 1, 1987. Section 33 of Chapter 87-6, authorized the Respondent to adopt emergency rules pursuant to Section 120.54(9), Florida Statutes, to implement the new law. In authorizing the adoption of emergency rules, the Legislature determined that the failure to promptly implement the provisions of Chapter 87-6 would present an immediate threat to the welfare of the State because revenues needed for the operation of the State would not be collected. On June 6, 1987, the Legislature enacted Committee Substitute for House Bill 1506, which is codified as Chapter 87-101, 1987 Laws of Florida (hereinafter referred to as "Chapter 87-101"). Chapter 87-101 is commonly known as the Sales Tax Glitch Bill. Chapter 87-101 was passed by the Legislature on June 6, 1987, signed into law by the Governor on June 30, 1987, and was effective beginning July 1, 1987. Section 5 of Chapter 87-101 repealed Section 5 of Chapter 87-6. Section 6 of Chapter 87-101, created a new Section 212.0594, Florida Statutes, taxing construction services, in replace of the Section 212.0594, Florida - Statutes, previously created by Section 5 of Chapter 87-6. Thus the Legislature substantially changed the manner in which sales tax was to be imposed upon construction services. Section 20 of Chapter 87-101 amended Section 33 of Chapter 87-6 but continued the authorization to adopt emergency rules and the justification for doing so. On May 8, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold public meetings and workshops on May 19 and 26, 1987, and June 6, 1987. Proposed rules relating to Chapter 87-6 were to be considered at these meetings and workshops. On May 22, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold public meetings and workshops on May 26, 1987, and June 26, 1987. Proposed rules relating to Chapter 87-6 were to be considered at these meetings and workshops. On May 29, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold a public meeting and workshop on June 6, 1987, to consider proposed rules relating to Chapter 87-6. On June 5, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold a public meeting and workshop on June 12, 1987, to consider proposed rules relating to Chapter 87-6. Ultimately, the Respondent held four workshops concerning the emergency rules: May 19 and 26, 1987, and June 6 and 12, 1987. The workshop conducted on June 12, 1987, was conducted to consider Rules 12AER87-31, Florida Administrative Code. The rules considered at the June 12, 1987, workshop had been redrafted to implement Chapter 87-101. The rules considered at the workshop were available for a short period of time before the workshop and during the workshop. Comments were received by the Department at the June 12, 1987, workshop from the public, including representatives of the construction industry. As a result of these comments, changes in the Emergency Rules were made following the workshop. The Emergency Rules took into account the method of taxing construction services provided for in Chapter 87-101 rather than the method previously provided for in Chapter 87-6. The Respondent's emergency rules, including Rule 12AER87-31, Florida Administrative Code, were certified by the Executive Director of the Respondent and delivered to the Secretary of State for publication on June 18, 1987. The Respondent delivered the full text of the emergency rules, a statement of the specific reasons for finding an immediate danger, a statement of the reasons for concluding that the procedure followed to adopt the rules was fair under the circumstances and a summary of the purpose of the rules for publication in the first available issue of the Florida Administrative Weekly. The emergency rules had to be filed with the Secretary of State no later than June 18, 1987, in order to be published in the Florida Administrative Weekly by July 1, 1987, the effective date of Chapters 87-6 and 87-101 and the emergency rules. The full text of the emergency rules was published in the Florida Administrative Weekly on June 26, 1987. The text of this notice, which was accepted into evidence as Petitioner's exhibit 4, is hereby incorporated into this Final Order. The Emergency Rules had an effective date of July 1, 1987. Initially the Emergency Rules were to expire January 1, 1988, six months after their effective date, as specified in Chapter 87-101. Pursuant to Section 1, Chapter 87-539, 1987 Laws of Florida, the Emergency Rules are effective through June 30, 1988. Representatives of the Respondent and the Petitioner met between the passage of Chapter 87-101 by the Legislature and June 18, 1987, and discussed the act. The Respondent expended a great deal of time and effort in adopting the emergency rules implementing Chapters 87-6 and 87-101, and in providing information to the public. The method of taxation to be implemented was unique and, therefore, the Respondent was unable to look to other jurisdictions for guidance concerning implementation of the tax. The taxation of construction services was one of a multitude of services taxed. Chapter 87-101, required substantial redrafting of the emergency rules, including Rule 12AER87-31, Florida Administrative Code, within a relatively short period of time. The new tax necessitated the registration of 100,000 to 150,000 new sales tax "dealers" by July 1, 1987. Prior to July 1, 1987, the Respondent received thousands of telephone calls and thousands of written requests seeking information concerning the sales tax on services. The Respondent was extensively involved with the Legislature during the period of time when Chapters 87-6 and 87-101 were adopted. Representatives of the Respondent discussed the acts with Legislative members and staff. Dr. James Francis acted as a liaison between the Respondent and the Legislature. Dr. Francis also served on the Revenue Estimating Conference. In his capacity with the Revenue Estimating Conference, Dr. Francis prepared estimates of tax revenues from the services tax. A revenue impact analysis of the services tax was also provided by the Respondent to the Legislature based upon each amendment and proposed amendment to Chapters 87-6 and 87-101. Representatives of the petitioner expressed dissatisfaction with the method of taxation of construction services contained in Chapter 87-6 because of the required itemization of building material costs on each contract. The Respondent prepared a revenue neutral (no loss of tax revenue previously estimated to be generated by Chapter 87-6) method of imposing the services tax on construction services without requiring itemization of building material costs. Pursuant to this method, a set percentage, generally equal to the average percentage of building material costs, is backed out of "contract price" or "cost price." The remainder is treated as the amount of the "contract price" or "cost price" attributable to the construction services. The revenue estimated by the Respondent and provided to the Legislature, based upon the elimination of an average percentage of building material costs, was based upon the inclusion in "contract price" and "cost price" of all expenditures associated with the construction industry, including the total expenditures for building materials supplied by owners to contractors. The Legislature was aware of this fact before it adopted Chapter 87-101. Fiscal notes for Chapter 87-101, which the Respondent had available prior to the adoption of the Emergency Rules, numerically quantified the estimated revenue to be generated by Chapter 87-101. The Respondent also knew what amounts were included in the estimate of revenue contained in the fiscal notes. These amounts were consistent with the revenue estimates provided by the Respondent to the Legislature. The Emergency Rules represent a contemporaneous administrative construction of Chapters 87-6 and 87-101 by an agency charged with responsibility to administer the acts and which was intimately involved in the adoption of the acts. The Petitioner has challenged the validity of Rules 12AER87-31(1)(c), (5), (7)(i), (7)(k), (10), (12) and (13) Florida Administrative Code. The Petitioner withdrew its challenge of other portions of the Emergency Rules. Rule 12AER87-31(7)(i), Florida Administrative Code, defines the terms "contract price" which determines the amount of tax due on construction work performed pursuant to a contract and any speculative construction which is sold within six months of completion. The Petitioner has challenged Rule 12AER87-31(7)(i), Florida Administrative Code, to the extent that contract price is defined to include the fair market value of materials used by a contractor if the value of those materials is not otherwise included in the contract price. The Petitioner's contractor witnesses' understanding of Rule 12AER87- 31(7)(i), Florida Administrative Code, that the fair market value of materials supplied by the owner are to be included in the computation of contract price, is consistent with the Respondent's interpretation of the Rule. Prime contractors often estimate the cost of building materials in their daily business activities. The Respondent's interpretation of Rule 12AER87-31(1)(c), Florida Administrative Code, does not require a contractor or subcontractor who uses building materials which are purchased tax free to remit a tax. The rule simply makes it clear that there is not necessarily any link between the question of whether the purchase of building materials and the provision of construction services are tax exempt.
