Findings Of Fact Pursuant to a stipulation, the following facts are found. Petitioner is a West Virginia corporation, organized under the laws of that state on January 4, 1958. Prior to June 1, 1962, it operated an automobile dealership in Huntington, West Virginia. On June 1, 9162, Petitioner exchanged assets of its automobile dealership for fifty (50 percent) percent of the capital stock of Dutch Miller Chevrolet, Inc., a West Virginia corporation organized to succeed the automobile dealership formerly operated by the Petitioner. Prior thereto, in 1961, the Petitioner had acquired one hundred percent (100 percent) of the capital stock in Palm Beach Motors (the name of which was changed on August 10, 1961 to Roger Dean Chevrolet, Inc.). Roger Dean Chevrolet, Inc. is a wholly owned subsidiary of the Petitioner which operated on property owned by the Petitioner. The years involved herein are the fiscal years ending December 31, 1972 and 1973, during which years the Petitioner's principal income (except for the gain involved herein) consisted of rents received from Roger Dean Chevrolet, Inc. Petitioner and its subsidiary filed consolidated returns for the years involved. During the fiscal year ending December 31, 1972, Petitioner sold its stock in Dutch Miller Chevrolet, Inc. to an unrelated third party for a gain determined by the Respondent to be in the amount of $349,217.00, which, although the sale took place out of the State of Florida, the Respondent has determined to be taxable under the Florida Income Tax Code* (Chapter 220, Florida Statutes). In the fiscal years ending December 31, 1972 and 1973, Petitioner included in Florida taxable income, the amounts of $76.00 and $6,245.00, respectively, from the sale of property on April 23, 1971, such gain being reported for federal income tax purposes on the installment method under Section 453 of the Internal Revenue Code of 1954. Roger H. Dean, individually or by attribution during the years involved herein, was the owner of one hundred (100 percent) percent of the stock of Roger Dean Enterprises, Inc. and seventy-five (75 percent) percent of the stock of Florida Chrysler-Plymouth, Inc. The remaining twenty-five (25 percent) percent of Florida Chrysler-Plymouth, Inc. was owned by Robert S. Cuillo, an unrelated person. The Respondent disallowed the $5,000.00 exemption to the Petitioner in computing its Florida corporate income tax for each of the years in question on the theory that the two corporations were members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code of 1954. By letter dated April 13, 1976, the Respondent advised Petitioner of its proposed deficiencies for the fiscal years ending December 31, 1972 and 1973, in the respective amounts of $19,086.25 and $1,086.79. Within sixty (60) days thereafter (on or about May 10, 1976), Petitioner filed its written protest in response thereto. By letter dated May 27, 1976, the Respondent rejected the Petitioner's position as to the stock sale gain and exemption issues. Thereafter on September 17, 1976, a subsequent oral argument was presented at a conference held between the parties' representatives in Tallahassee, and by letter dated September 23, 1976, Respondent again rejected Petitioner's position on all pending issues raised herein. The issues posed herein are as follows: Whether under the Florida Corporate income tax code, amounts derived as gain from a sale of intangible personal property situated out of the State of *Herein sometimes referred to as the Code. Florida are properly included in the tax base of a corporation subject to the Florida code. Whether amounts derived as installments during tax years ending after January 1, 1972, from a sale made prior to that date are properly included in the tax base for Florida corporate income tax purposes. Whether two corporations one of whose stock is owned 100 percent by the same person who owns 75 percent of the stock in the other, with the remaining 25 percent of the stock in the second corporation being owned by an unrelated person, constitute members of a control group of corporations as defined by Section 1563 of the Internal Revenue Code of 1954. Many states, in determining corporate income tax liability, utilize a procedure generally referred to a "allocation" to determine which elements of income may be assigned and held to a particular jurisdiction, where a corporation does business in several jurisdictions. By this procedure, non- business income such as dividends, investment income, or capital gains from the sale of intangibles are assigned to the state of commercial domicile. This approach was specifically considered and rejected when Florida adopted its corporate income tax code. Thus, in its report of transmittal of the corporate income tax code to the legislature, at page 215, it was noted: "The staff draft does not attempt to allocate any items of income to the commercial domicile of a corporate taxpayer. It endeavors to apportion 100 percent of corporate net income, from whatever source derived, and to attribute to Florida its apportionable share of all the net income." Additional evidence of the legislature's intent in this area can be seen by noting that when the corporate income tax code was adopted, Florida repealed certain provisions of the Multi-state Tax Compact (an agreement for uniformity entered into among some twenty-five states). Thus, Article IV, Section (6)(c), a contained in Section 213.15, Florida Statutes, 1969, which previously read: "Capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial domicile is in this state", was repealed by Chapter 71-980, Laws of Florida, concurrently with the adoption of the Corporate Income Tax Code. This approach has survived judicial scrutiny by several courts. See for example, Johns-Mansville Products Corp. v. Commissioner of Revenue Administration, 343 A.2d 221 (N.H. 1975) and Butler v. McColgan, 315 U.S. 501 (1942). Respecting its constitutional argument that amounts derived as installments during tax years subsequent to January 1, 1972, from a sale made prior to the enactment of the Florida Corporate Income Tax Code, the Petitioner concedes that the Code contemplates the result reached by the proposed assessment. However, it argues that in view of the constitutional prohibition which existed prior to enactment of the Code, no tax should now be levied based on pre-Code transactions. The Florida Supreme Court in the recent case of the Department of Revenue v. Leadership Housing, So.2d (Fla. 1977), Case No. 47,440 slip opinion p. 7 n. 4, cited with apparent approval the decision in Tiedmann v. Johnson, 316 A.2d 359 (Me. 1974). The court in Tiedmann, reasoned that the legislature adopted a "yard-stick" or measuring device approach by utilizing federal taxable income as a base, and reasoned that there was no retroactivity in taxing installments which were included currently in the federal tax base for the corresponding state year even though the sale may have been made in a prior year. The Respondent denied the Petitioner a $5,000.00 exemption based on its determination that the two corporations herein involved were members of a controlled group of corporations as defined in Section 1563 of the Internal Revenue Code. Chapter 220.14(4), Florida Statutes, reads in pertinent part that: "notwithstanding any other provisions of this code, not more than one exemption under this section shall be allowed to the Florida members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code with respect to taxable years ending on or after December 31, 1972, filing separate returns under this code." Petitioner's reliance on the case of Fairfax Auto Parts of Northern Virginia, 65 T.C. 798 (1976), for the proposition that the 25 percent ownership of an unrelated third party in one of the corporations precluded that corporation and the Petitioner from being considered a "controlled group of corporations" within the meaning of Section 1563 of the Internal Revenue Code, is misplaced in view of the recent reversal on appeal by the Fourth Circuit. Fairfax Auto Parts of Northern Virginia v. C.I.R., 548 F.2d 501 (4th C.A. 1977). Based thereon, it appears that the Respondent correctly determined that the Petitioner and Florida Chrysler-Plymouth, Inc., were members of the same controlled group of corporations as provided in Section 1563 of the Internal Revenue Code and therefore properly determined that Petitioner was not entitled to a separate exemption. Based on the legislature's specific rejection of the allocation concept and assuming arguendo, that Florida recognized allocation income for the sales of intangibles, it appears that based on the facts herein, Petitioner is commercially domiciled in Florida. Examination of the tax return submitted to the undersigned revealed that the Petitioner has no property or payroll outside the state of Florida. Accordingly, it is hereby recommended that the proposed deficiencies as established by the Respondent, Department of Revenue, be upheld in its entirety. RECOMMENDED this 7th day of July, 1977, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 David S. Meisel, Esquire 400 Royal Palm Way Palm Beach, Florida 33480 Thomas M. Mettler, Esquire 340 Royal Poinciana Plaza Palm Beach, Florida 33480
Findings Of Fact High-Tech Yacht & Ship, Inc. (Petitioner) is a Florida corporation engaged in the business of retail sales of marine vessels. Also, Petitioner is a registered retail dealer in the State of Florida. The President of Petitioner is its only corporate officer. On or about September 2, 1993, Petitioner, in the capacity of a broker, sold a motor yacht at retail to Regency Group, Inc. (purchaser), through its representative, for $78,000. The motor yacht is described as a 1988, 41' Amerosport Chris Craft, hull Number CCHEU075E788, and called the "Motivator". At the closing of the sale, on or about September 2, 1993, the purchaser refused to pay the sales tax on the purchase, which was $4,680. However, the purchaser agreed to pay the sales tax after being informed by Petitioner that, without the payment of the sales tax, there could be no closing. The purchaser's representative submitted, at closing, a personal check in the amount of $4,680 for the sales tax. All of the necessary documents were completed for ownership and registration to be transferred to the purchaser. Subsequently, Petitioner received notice from its bank that the check for the sales tax had been dishonored by the purchaser's bank. The purchaser's representative had stopped payment on the check. In October 1993, Petitioner submitted its sales and use tax return for the month of September 1993 to Respondent in which the sale of the yacht was reported. Respondent automatically reviews sales and use tax returns. Respondent's review of Petitioner's return revealed a shortage of sales tax collected in the amount of $4,680.. In January 1994, Respondent issued a notice of tax action for assessment of additional tax in the amount of $4,710, plus interest and penalty, to Petitioner. The $4,710 included the loss of Petitioner's collection allowance of $30, which loss resulted from Petitioner's failure to timely remit all taxes due. Having received the notice of tax action, by letter dated January 20, 1994, Petitioner generally informed Respondent of the circumstances regarding the sales tax shortage, including the dishonored check. Petitioner pointed out, among other things, that Respondent had the authority and the means to collect the tax, while it (Petitioner) had limited means, and suggested, among other things, that Respondent cancel the purchaser's Florida registration of the yacht. On or about January 31, 1994, approximately three months after the check for sales tax was dishonored, Petitioner issued a notice of dishonored check to the purchaser, in which Petitioner requested payment of the sales tax. The notice provided, among other things, that Petitioner could seek criminal prosecution and civil action if the monies were not paid to Petitioner. Having not received the $4,680, Petitioner contacted the local law enforcement agency. After investigation, the law enforcement agency informed Petitioner that a civil action would have to be instituted because the purchaser, through its representative, had indicated that it was not satisfied with the yacht. Although Petitioner engaged the services of an attorney for civil action, no civil action was commenced. Additionally, Petitioner did not engage the services of a collection agency for assistance in collecting the sales tax. Subsequent to its notice of tax action, on or about March 12, 1994, Respondent issued a notice of assessment to Petitioner. The notice of assessment provided, among other things, that Petitioner was being assessed taxes in the amount of $4,710, plus penalty and interest in the amount of $2,342.61, totalling $7,052.61. Petitioner protested the assessment. On February 8, 1995, Respondent issued its notice of reconsideration in which Respondent determined, among other things, that the assessment was appropriate and affirmed the assessment of $7,052.61, plus interest and penalty. The interest accrues at the rate of $1.55 per day. Petitioner has not remitted any of the assessed tax, including interest and penalty, to Respondent. Petitioner has not identified on its federal tax return the noncollection of the sales tax from the purchaser as a bad debt. Sales tax is part of the total sale price for an item. Respondent considers the sales tax as collectable by a seller in the same manner as any other debt owed by a purchaser to a seller. A retail dealer, who is also a seller, is considered to be an agent for the State in the collection of sales tax. The burden of collecting the sales tax is placed upon the retail dealer by Respondent. Some of Respondent's employees have been sympathetic to Petitioner's tax assessment matter. However, none of the employees indicated to or advised Petitioner that Respondent was or is in error.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order affirming the assessment of sales tax against High-Tech Yacht & Ship, Inc. in the amount of $7,052.61, plus interest and penalty. DONE AND ENTERED this 7th day of August 1996, in Tallahassee, Leon County, Florida. ERROL H. POWELL, 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 7th day of August 1996.
The Issue Whether the agency has an unpromulgated statement of general applicability that imposed a requirement not specifically required by statute or by an existing rule, and which has been utilized against Petitioners to their detriment.
Findings Of Fact On March 24, 1994, the Department of Revenue (Department) issued a Notice of Reconsideration (NOR) that claimed the Petitioners, Terry and Donna Ernst, had willfully failed to collect sales tax. Petitioners' assertion of an exemption in connection with the sales tax assessment was denied. The NOR provided that the Petitioners are the president and vice- president of Hussh, Inc., a retail apparel store in Palm Beach, Florida and that such company made sales to customers for delivery in the store and for shipment outside of the State of Florida. At issue were the alleged shipments to out of state destinations. Pertinent to this case is the language in the NOR found at page two which provided: Due to the inadequacy and volume of Hussh's records, the auditor sampled the available records, and assessed Hussh for asserted out of state sales that were improperly documented. According to the auditor, many of the sales receipts or invoices of asserted out of state shipments were missing the top portion of the invoice. Significantly, this portion of the invoice would contain the names, addresses, and asserted export destination information on each sale. Other invoices were stamped, "out of state shipped," but no destination information was present on the invoice. [Emphasis added.] The Petitioners maintain that the portions of the NOR emphasized in the foregoing paragraph constitute an agency statement of general applicability and is, therefore, an unpromulgated rule. The Department does not have a rule which lists all documentation which might establish an exemption for sales tax assessment. Similarly, the Department does not have a rule that lists the type of documentation which would be inadequate to establish an exemption for sales taxes. The Department's existing rule, Rule 12A-1.064, Florida Administrative Code, provides, in part: (1)(a) Sales tax is imposed on the sales price of each item or article of tangible personal property, unless otherwise exempt, when the property is delivered to the purchaser or his representative in this state. However, the tax does not apply to tangible personal property irrevocably committed to the exportation process at the time of sale, when such process has been continuous or unbroken. (b) Intent of the seller and the purchaser that the property will be exported is not sufficient to establish the exemption; nor does delivery of the property to a point in Florida for subsequent transportation outside Florida necessarily constitute placing the property irrevocably in the exportation process. Tangible personal property shall be deemed committed to the exportation process if: The dealer is required by the terms of the sale contract to deliver the goods outside this state using his own mode of transportation. The dealer must retain in his records trip tickets, truck log records, or other documentation reflecting the specific items and export destination; The dealer is required by the terms of the sale contract to deliver the goods to a common carrier for final and certain movement of such property to its out of state destination. Sales by a Florida dealer are exempt when the dealer delivers the merchandise to the transportation terminal for shipment outside this state and secures a dock or warehouse receipt and a copy of the bill of lading. On shipments to points outside the United States, a shipper's export declaration shall also be obtained; [Emphasis added.] Rule 12A-1.093, Florida Administrative Code, requires taxpayers to maintain and preserve records. This rule provides, in part: (2) Each dealer defined in Chapter 212, F.S., each licensed wholesaler, and any other person subject to the tax imposed by Chapter 212, F.S., shall keep and preserve a complete record of all transactions, together with invoices, bills of lading, gross receipts from sales, RESALE CERTIFICATES, CONSUMER EXEMPTION CERTIFICATES and other pertinent records and papers as may be required by the Department of Revenue for the reasonable administration of Chapter 212, F.S., and such books of account as may be necessary to determine the amount of tax due thereunder. The terms "bill of lading," "dock or warehouse receipt," and "invoice" are common terms used in the business community. Each connotes that, at the minimum, certain information will be retained on the face of the document. For example, according to Petitioners' witness, the minimum information expected on a bill of lading would be: the name of the person that the item is being shipped to, the item being shipped, the cost of the shipment, and the terms of the shipment with the value of the item being shipped. Similarly, the minimum information which is expected on an "invoice" would be: a description of the item sold, the amount of the sale, and the name of the person to whom the item was sold. The terms "bill of lading," "dock or warehouse receipt," and "invoice" are not defined by rule. The Department determined whether an exemption was documented based upon the results of this audit.
The Issue Broadly stated, the issue in this proceeding the validity of the proposed deficiency in petitioner's corporate income in the amount of $25,712.80 for the 1972 fiscal year. More specifically, the issue is whether Florida may lawfully tax for the gain it realized on the sale of securities in the of $941,418.00. Included within this issue is the question of whether the apportionment formula set forth in Florida Statutes is applicable to petitioner.
Findings Of Fact Upon consideration of the pleadings, the stipulations the parties and the record in this proceeding, the following relevant During the calendar year 1972, petitioner was a foreign " Corporation subject to the Florida Corporate Income Tax, imposed Chapter 220, Florida Statutes. Petitioner also operated a business in St. Louis, Missouri. January 1, 1972, petitioner held a 95 percent interest in Bal Harbour Joint Venture, which owned and operated the Ivanhoe Hotel and Restaurant in Bal Harbour, Florida. On December 15, 1972, petitioner was the sole owner of the Ivanhoe Hotel and Restaurant. November 16, 1972, the petitioner acquired by merger 100 percent interest in the Clearwater Beach Hilton, a motel and restaurant business located in Clearwater, Florida, and continued to own this interest on December 31, 1972. The Clearwater and Ivanhoe hotel and restaurant businesses in Florida and the petitioner's business in Missouri have separate, individual general managers. There is no central purchasing by the hotels and no centralized operating records are maintained by petitioner. There are no central reservation services available between the hotels and the hotels advertise separately and unilaterally in local publications in the cities in which they are located. No standardized product lines exist. On November 2, 1972, petitioner sold certain securities which resulted in a realized gain to petitioner for federal income tax purposes of $941,418.00. Said securities were purchased, located and sold in the State of Missouri, and had no relationship to petitioner's Florida transactions. Petitioner timely filed its 1972 Florida corporate income tax return on which it subtracted from its federal taxable income the gain realized from the sale of the securities. Its "Florida net income" and its "total tax due" were thus reported as "none." On or about May 8, 1974, respondent advised petitioner of a proposed deficiency in petitioner's 1972 tax in the amount of $29,392.00. In accordance with the provisions of Florida Statutes Sec. 214.11, petitioner timely filed with respondent its protest of the proposed deficiency assessment. After a hearing, respondent issued to petitioner its Notice of Decision in which the proposed, deficiency was reduced to $25,712.80, and the reasons therefor were set forth. Petitioner requested reconsideration by respondent. On March 11, 1975, the parties stipulated that further proceedings in this cause would be, processed under the Florida Administrative Procedures Act. The petition for hearing was forwarded by respondent to the Division of Administrative Hearings, the undersigned was duly assigned as the Hearing Officer.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that: the proposed deficiency assessment in the amount of $25,712.80 be vacated and set aside; and The respondent permit petitioner to file an amended 1972 return utilizing, within the discretion of the respondent, the employment of either separate accounting, a monthly averaging formula or another method which would effectuate an equitable apportionment of petitioner's income to the State of Florida. Respectfully submitted and entered this 8th day of August, 1977, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Donald A. Pleasants Shackleford, Farrior, Stallings and Evans Post Office Box 3324 Tampa, Florida 33601 Louis de la Parte, Jr. 725 East Kennedy Boulevard Tampa, Florida 33602 Patricia S. Turner Assistant General The Capitol Tallahassee, Florida 32304 ================================================================= AGENCY FINAL ORDER =================================================================
The Issue The issue in this case is whether the Petitioner should be issued a sales tax exemption certificate either as a "church" or as a "religious organization."
Findings Of Fact The Petitioner, In His Service, is a not-for-profit organization formed to give structure to a Bible study and prayer group Shirley B. Cole leads. Cole is the Petitioner's "pastor," but she is not ordained, does not officiate at weddings or funerals, and has no formal religious training other than participation in similar study groups in the past. The Petitioner is affiliated with an organization called the Federation of Independent Churches, which has an office on East Bird Street in Tampa, Florida. (In a post-hearing submission, Cole asserted that the Petitioner's "outreach is from Greater Ministries International, basically functioning as a satellite church, but there was no evidence regarding Greater Ministries International.) Portions of the Petitioner's by-laws were admitted in evidence at the final hearing. The by-laws make reference to three officers--president, vice-president, and secretary-treasurer--but Cole testified that she was the secretary and that someone else was the treasurer, and she did not seem to know anything about a president or vice-president. In addition, while the by-laws refer to a board of directors and meetings of the board of directors, Cole does not know anything about either. The Petitioner is small (not more than 15 members). It consists primarily of Cole and her friends and neighbors and some others who hear about the meetings. The group has met in various locations, including Cole's home at 5155 20th Avenue North, St. Petersburg, Florida, and the homes of other members of the group. In addition to Bible study and prayer, the group discusses health issues and other topics of interest and shares reading materials and tapes on topics of interest. From time to time, the group collects items of donated personal property for the use of members of the group and others in need who could use the items. In late June 1998, the Petitioner applied for a sales tax exemption certificate as a church. In response to a question from a representative of the Respondent DOR Cole stated that the Petitioner held services in her home every Thursday from 7:30 to 9:30 or 10 p.m. A DOR representative attempted to confirm Cole's representation by attending a meeting in Cole's home on Thursday, October 8, 1998, but no services were being held there, and no one was home. If there was a meeting on that day, it was held somewhere else. On or about December 28, 1998, DOR issued a Notice of Intent to Deny the Petitioner's application because the Petitioner did not have "an established physical place of worship at which nonprofit religious services and activities are regularly conducted and carried on." In January 1999, Cole requested an administrative proceeding on the Petitioner's application, representing that she was holding the Petitioner's meetings at her home every Monday from 7:30 p.m. On Monday, April 5, 1999, a DOR representative visited Cole's home at 7:30 or 7:35 p.m., but no one was home. At final hearing, Cole testified that she went to pick someone up to attend the meeting and was late returning. Cole had an April 1999 newsletter admitted in evidence. It indicates that she holds weekly Bible study meetings on Mondays at her home. It also indicates: "The week of April 19th will be our maintenance [health] meeting." It also indicates that the Monday, April 26, 1999, meeting would be a "covered dish dinner with prayer and praise fellowship afterward." Cole also had a book/tape loan check-out list admitted in evidence. The list indicates that two items were checked out on January 21, one on February 8, two on February 14, one on February 15, one on March 8, one on March 21, two on March 22, one on April 4, one on April 5, and four on April 12, 1999. (Two entries dated April 13 precede two on April 12, so it is assumed that all were on April 12, 1999). Cole owns her home, pays the taxes, and pays the utility bills. Cole also claims a homestead exemption. There are no signs, no physical attributes, or anything else that would identify Cole's house as a church. No part of the home is set aside for the Petitioner's exclusive use. The Petitioner pays no rent to Cole and does not reimburse Cole for any of her expenses (such as taxes and utility bills) of home ownership. Under local City of St. Petersburg zoning ordinances, Cole would have to obtain a special exception from the Environmental Development Commission to use her home as a church. Cole has not attempted to do so. Had she tried, the special exception would be denied because her home does not meet the ordinance's minimum lot and yard size criteria for such a special exception. (It is not clear whether Cole's home would meet the ordinance's parking, maximum floor area ratio, and maximum surface ratio criteria for a special exception for a church.) In light of past discrepancies between the Petitioner's representations and the facts, it was not clear from the evidence presented in this case that meetings have taken place, are taking place, or will take place in Cole's home on a regular basis.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the DOR enter a final order denying the Petitioner's application for a tax exemption certificate. DONE AND ENTERED this 18th day of May, 1999, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON 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 18th day of May, 1999. COPIES FURNISHED: Shirley Cole, Pastor In His Service 5155 20th Avenue, North St. Petersburg, Florida 33710 Kevin ODonnell, Assistant General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue Should the Department of Revenue grant Petitioner's request for a temporary tax exemption permit and request for refund of sales and use tax which has been paid under protest? See Section 212.08(5)(a) and (b)3a, Florida Statutes.
Findings Of Fact Petitioner opened a new commercial laundry facility in Pompano Beach, Florida, in 1993. Petitioner installed in the new facility machinery and equipment costing approximately $1,400,000.00 for the purposes of cleaning and processing linens used by hospitals in the south Florida area (the "Laundry Equipment"). Petitioner charges a fee to hospitals in the south Florida area for cleaning and processing the hospitals' linens with the Laundry Equipment. The new facilities are additional, not replacement, facilities. The Laundry Equipment: Qualifies as "industrial machinery and equipment", as defined by Section 212.08(5)(b) and (6)(c), Florida Statutes; Was purchased by Petitioner for use in a new business; Processes items of tangible personal property, the hospital's linens, at a fixed location; Was purchased before Petitioner first began its productive operations and delivery was made within 12 months of that date; and Has increased productive output at Petitioner's commercial laundry facility. The equipment included a tunnel washer system, conveyers, feeders/folders, ironers, a boiler, and air compressors. By application dated September 3, 1993, Petitioner applied for a temporary tax exemption permit with respect to the Laundry Equipment which it planned to purchase for use in its new business. Section 212.08(5)(b), Florida Statutes, requires that a taxpayer obtain that permit to receive the exemption. The Department denied Petitioner's application. On August 22, 1994, Petitioner paid to the Department, under protest, the sum of $18,095.36, which represented the tax of $16,773.98, plus interest of $1,321.38, on Petitioner's purchase of the Laundry Equipment. Petitioner timely filed its claim for refund, which the Department denied. Respondent denied Petitioner's request for a temporary tax exemption permit, and Respondent denied Petitioner's refund claim based upon Rule 12A- 1.096, Florida Administrative Code. Petitioner's request for a tax exemption permit and Petitioner's refund claim are based upon the exemption provided in Section 212.08(5)(b), Florida Statutes, which applies to a new (as opposed to an expanding) business.
Recommendation In consideration of the facts found and conclusions of law reached, it is, RECOMMENDED: That a final order be entered which denies the request for a tax exemption permit and a refund in the amount of $18,095.36. DONE and ENTERED this 13th day of November, 1995, in Tallahassee, Florida. CHARLES C. ADAMS, 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 November, 1995. COPIES FURNISHED: Robert A. Pierce, Esquire Emily S. Waugh, Esquire MACFARLANE, AUSLEY, FERGUSON & MCMULLEN Post Office Box 391 Tallahassee, FL 32302 James McAuley, Esquire Office of the Attorney General The Capitol-Tax Section Tallahassee, FL 32399 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
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.
The Issue Is Petitioner entitled to the repayment of funds paid to the State Treasury through overpayment or error, in relation to use taxes? The refund claim is $37,837.91. See Section 215.26, Florida Statutes.
Findings Of Fact Rathon Corporation, formerly known as Diversey Corporation, is a Delaware Corporation authorized to do business in Florida. It manufactures various detergents, cleaners, and soaps, and the equipment to dispense those products. The products are marketed in Florida and other states. The customers of the products include hotels, hospitals, factories, and restaurants. The devices that dispense the detergents, cleaners, and soaps are referred to as "feeders." Those feeders can range from simple hand soap dispensers to electronically regulated machines that inject soap into commercial dishwashers. The feeders are loaned to Petitioner's customers at no additional charge for the period of time that the customer continues to purchase the product(s) dispensed by the feeder. These circumstances existed in the period of July 1993 through March 1995. In the period of July 1993 through March 1995, Diversey Corporation, now Rathon Corporation, paid the State of Florida $58,969.22 in use tax associated with the feeders. During the period in question, the Petitioner manufactured the feeders at a facility in Santa Cruz, California. The feeders were not warehoused in the Santa Cruz facility for an extended period. They were prepared for shipment and shipped to customers in the various states, to include Florida and California customers, to be used in the places of business operated by the customers. The feeders being shipped were not packaged with other products. During the period July 1993 through March 1995, the Petitioner not only paid use tax to Florida for the feeders, it paid use tax in forty-four other states and the District of Columbia, based upon the costs of manufacturing the feeders. California was among the other forty-four states. During the period in question, Petitioner accrued and paid use taxes to Florida and California limited to the feeders used by customers in those states, based upon the product sales allocation method it used in relation to the forty-three other states and the District of Columbia. The feeders that were provided to Florida customers were shipped by common carrier. Upon their arrival in Florida no tax had been paid to California pertaining to those feeders. When the feeders arrived in Florida during the period at issue, use tax would be remitted to Florida. Subsequently, the Petitioner paid the State of California a use tax associated with the feeders that had been shipped to Florida customers and upon which a use tax had been imposed by the State of Florida and paid. The California payment is described in detail below. Petitioner had paid Florida use tax on the feeders shipped to Florida customers based on the total manufactured cost of the feeders to Petitioner, including materials, labor, and overhead. The additional use tax paid to California for those feeders was based only on the cost of materials. The overall costs of feeders allocated to Florida for the refund period was $982,803.00. Petitioner remitted a 6% use tax to Florida totaling $58,969.22 for the period in question. In 1996, Petitioner was audited for sales and use tax compliance by the State of California. That audit process included the refund period that is in question in this case, July 1993 through March 1995. Following the audit, the State of California issued a Notice of Determination asserting additional liability for tax and interest that totaled $355,753.95. Petitioner paid that assessment. The California auditor had arrived at the assessment by concluding that Petitioner owed California for 44.57% of all feeders manufactured at Petitioner's Santa Cruz facility. The 44.57% represented all newly manufactured feeders that had been loaned by Petitioner to its customers during the refund period over the entire United States. As a consequence, the assessment of use tax by the State of California included tax on feeders for which Petitioner had paid Florida $58,969.22 in use tax prior to the California assessment of $355,753.95. Petitioner did not apply for credit in California for the portion of the $355,753.95 that would relate to the feeders brought to Florida during the period in question. Petitioner took no action to obtain a credit on the amount paid to Florida as a means to reduce the California tax obligation pursuant to the 1996 audit, because Petitioner had been told that the use tax for the feeders used by Florida customers was legally due in California and not in Florida. In arriving at the determination that 44.57% of the feeders manufactured during the period in question had been loaned to customers within the continental United States, the California auditor took into account that 21.8% of the feeders and feeder parts were sold for export, leaving 78.2% to be used in the United States. Of the 78.2% remaining for the United States, 57% were complete feeders sent to customers within the United States, and 43% were repair parts that were sent to Petitioner's Cambridge Division in Maryland, where those repair parts were being stored for future use. The percentage of 44.57% was arrived at by multiplying 57% times 78.2%, representing the percent of total feeders manufactured for use in the United States that were sent to customers within the United States and not held in inventory as repair parts. Again, California based its use tax for tangible personal property manufactured in that state to include only the cost of materials. Consequently, when the California auditor computed use tax to be collected by California using the 44.57% of total feeders manufactured to be used in the United States by Petitioner's customers in the United States, the California auditor used a cost factor of 55% of overall costs which was attributable to the cost of materials only. The total cost of feeders manufactured by Petitioner in California during the period in question, as related in the California tax audit, was $19,028,714.00. The total cost manufactured for use in the United States was $8,481,098.00, representing 44.57% of the overall cost of manufacturing. When the $8,481.098.00 is multiplied by 55%, representing the cost of materials only, the total costs of the goods subject to the use tax for the period in question is $4,664,604.00. A use tax rate of 7% was applied against the amount of $4,664,604.00. To attribute the portion of use tax paid to California following the 1996 audit associated with feeders that had been sent to Florida during the period in question, the answer is derived by multiplying $982,803.00 by 55% for a total of $540,542.00, and in turn multiplying that amount by 7%, the rate of tax imposed by California. That total is $37,837.91 in use tax that was subsequently paid to California after $58,962.22 had been paid to Florida for use tax on the same feeders. Diversey Corporation sought a tax refund in the amount of $58,977.00, through an application dated August 8, 1996, in relation to the period July 1993 through March. Eventually through the decision by the Respondent in its Notice of Decision of Refund Denial dated July 16, 1997, Respondent refused to grant the refund of $58,977.00. At present, Petitioner requests that it be given a refund of $37,837.91, which represents the portion of use tax paid to Florida that has been duplicated in a payment of use tax to California. Respondent, in its Notice of Decision of Refund Denial entered on July 16, 1997, and based upon the facts adduced at the final hearing, premises its proposed agency action denying the refund request upon the language set for in Section 212.06(1)(a) and (7), Florida Statutes. The determination to deny the refund request was not based upon reliance on Rule 12A-1.091(3), Florida Administrative Code. The theory for denying the refund is premised upon Respondent's argument that use tax was due to Florida, "as of the moment" feeders arrived in Florida for use in Petitioner's business operations associated with its customers. Petitioner then paid the use tax to Florida at the time the feeders arrived in Florida. Having not paid California Use Tax prior to paying Florida Use Tax, Respondent concludes, through its proposed agency action, that it need not refund to Petitioner the use taxes it paid to California at a later date. Petitioner had referred to Rule 12A-1.091, Florida Administrative Code, following receipt of the Notice of Proposed Refund Denial issued on December 9, 1996, possibly creating the impression that Petitioner believed that Rule 12A-1.091, Florida Administrative Code, would support its claim for refund. It later developed that Petitioner did not have in mind reliance upon Rule 12A-1.091, Florida Administrative Code, to support its claim for refund. Instead, Petitioner made reference to that rule and specifically Rule 12A-1.091(3), Florida Administrative Code, as a means to perfect a challenge to Rule 12A-1.091(3), Florida Administrative Code, filed with the Division of Administrative Hearings on December 15, 1997, claiming that the challenged rule was an invalid exercise of authority. That challenge was assigned DOAH Case No. 97-5908RX. In summary, notwithstanding Petitioner's argument to the contrary, Respondent has never relied upon Rule 12A-1.091(3), Florida Administrative Code, or any other part of that rule in its proposed agency action denying the refund request. Absent Petitioner's affirmative reliance upon Rule 12A-1.091(3), Florida Administrative Code, the rule has no part to play in resolving this dispute.
Recommendation Based upon the findings of fact and the conclusions of law, reached, it is, RECOMMENDED: That Petitioner's request for repayment of funds paid to the State Treasury in the amount of $37,837.91, paid as use taxes for all years in question, be DENIED. DONE AND ENTERED this 20th day of April, 1998, in Tallahassee, Leon County, Florida. COPIES FURNISHED: H. Michael Madsen, Esquire Vickers, Madsen, and Goldman, LLP Suite 101 1705 Metropolitan Boulevard CHARLES C. ADAMS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 20th day of April, 1998. Tallahassee, Florida 32308-3765 John N. Upchurch, Esquire James McCauley, Esquire Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Linda Lettera, Esquire Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The two issues for determination are: (1) whether Rhinehart Equipment Co. (Rhinehart) a foreign corporation domiciled in Rome, Georgia, during the period July 1, 2002, through June 30, 2005, had "substantial nexus" with the state of Florida through its advertising, sale, and delivery into Florida of new and used heavy tractor equipment, sufficient to require it to collect and remit sales tax generated by these sales to the Florida tax authorities; and (2) Whether the applicable statute of limitations for assessing sale tax had expired when DOR issued its "final assessment" on September 11, 2009.
Findings Of Fact The Parties Rhinehart Equipment Co. (“Rhinehart”) is a retail heavy equipment dealer located in Rome, Georgia, and does not own or maintain a showroom or office location in Florida or directly provide financing to any Florida resident for any of its sales. Rhinehart does not provide Florida customers with any after-sale services such as assembly, technical advice, or maintenance. Rhinehart does not have any employees residing in Florida. Respondent is an agency of the State of Florida charged with the regulation, control, administration, and enforcement of the sales and use tax laws of the state of Florida embodied in Chapter 212, Florida Statutes, and as implemented by Florida Administrative Code Chapter 12A-1. Background In early March 2005, the Department received an anonymous tip pursuant to section 213.30, Florida Statutes. The caller alleged that Rhinehart was selling equipment to Florida residents without including sales and use tax in the sales price and was delivering the equipment to Florida customers using its own trucks. The tipster also alleged that Rhinehart was advertising in a commercial publication Heavy Equipment Trader, Florida Edition. By letter dated March 31, 2005, Respondent contacted Rhinehart and advised that its business activities in the state might be such as to require Rhinehart to register as a “dealer” for purposes of assessing Florida sales and use tax, and that it could be required to file corporate income tax returns, potentially subjecting it to liability for other Florida taxes. Included with this letter was a questionnaire for Rhinehart to complete and return to the Department "to assist us in determining whether Nexus exists between your company and the State of Florida." On May 2, 2005, Rhinehart, without the advice of counsel, responded to the Department’s inquiry by returning the completed questionnaire, which was signed by its president, Mark Easterwood. By letter addressed to Mr. Easterwood dated May 4, 2005, the Department advised that it had determined that Rhinehart had nexus with the state of Florida and that therefore Rhinehart was required to register as a dealer to collect and remit Florida sales and use tax. According to the letter, the Department's determination was "based on the fact that your company makes sales to Florida customers and uses the company's own truck to deliver goods to customers in the State of Florida." By application effective July 1, 2005, Rhinehart registered to collect and/or report sales and use tax to the state of Florida, In a letter dated June 8, 2005, the Department invited Rhinehart to self-disclose any tax liability that it may have incurred during the three-year period prior to its registration effective date, to wit, July 1, 2002, through June 30, 2005 (the audit period). Specifically, the letter stated: At this time, we would like to extend an opportunity for you to self-disclose any tax liability that you may have incurred prior to your registration effective date (for the period July 1, 2002, through June 30, 2005). This Self-Disclosure Program affords you an opportunity to pay any applicable tax and interest due for the prior three-year period (or when Nexus was first established) without penalty assessments. In response to the Department's June 8, 2005, letter, Rhinehart's legal counsel sent a letter dated August 8, 2005, requesting a meeting or conference call to discuss a "few legal issues" concerning the Department’s determination regarding nexus. Thereafter, Rhinehart began filing the required tax returns relating to its Florida sales, noting in writing by cover letter that the returns were being filed “under protest.” Rhinehart began collecting and remitting sales and use tax starting in July 2005. However, Rhinehart declined to provide any information regarding sales made prior to July 1, 2005. On September 30, 2005, Rhinehart's legal counsel sent the Department a detailed protest letter and advised that, in Rhinehart's view: (1) the Department had not established “substantial nexus” with Florida as interpreted under the Commerce Clause of the United States Constitution; and (2) Rhinehart was not required to register as a Florida dealer for sales and use tax purposes. On May 23, 2008, the Department issued a "Notice of Intent to Make an Assessment," and on September 11, 2009, a "Notice of Final Assessment," for the audit period. The assessment totaled $354,839.30, which was comprised of $229,695.00 in taxes and $125,144.30 in interest. The assessment was calculated by Respondent using Rhinehart’s sales tax returns filed from July 2005 through March 2008. The Notice of Final Assessment advised Rhinehart that the final assessment would become binding agency action unless timely protested or contested through the informal protest process, or by filing a complaint in circuit court or petition for an administrative hearing. Rhinehart unsuccessfully sought to resolve the matter through informal review and then ultimately filed its petition seeking an administrative hearing to challenge the Department's September 11, 2009, assessment. Based on sales records and other information provided by Rhinehart, on March 9, 2011, the Department revised its September 11, 2009, assessment. The revised assessment totaled $380,967.89, which included the past due sales and use tax liability, and interest accrued through that date. Rhinehart's Florida Activities Rhinehart produced records of its sales to Florida customers during the audit period. Those records reflected sales to 116 different Florida customers as follows: one sale in the second-half of 2002; 12 sales in 2003; 84 sales in 2004; and 19 sales thorough June 2005. The total value of the merchandise sold to Florida residents was $2,928,981.00. The majority of Rhinehart's sales during the audit period were "sight unseen" by the customer, and were negotiated by telephone. Numerous hurricanes made landfall in Florida during the 2004 and 2005 hurricane season. Since 2005, Rhinehart’s sales to Florida customers have substantially dropped, with no sales occurring in some quarters. During the audit period Rhinehart accepted a number of trade-ins toward the purchase of new equipment. The records showed trade-in transactions as follows: none (0) in 2002; five (5) in 2003; eleven (11) in 2004; and none in 2005. Concurrent with the delivery of the new equipment purchased from Rhinehart, used equipment taken in trade was transported by Rhinehart employees using Rhinehart transport equipment back to Rhinehart’s location in Georgia. In these instances, the trade-in equipment remained with the Florida customer following negotiation of the sale and prior to Rhinehart physically taking possession of it. During the audit period the equipment accepted as trade-ins had a total value of $168,915.00. The valuation of trade-in equipment was done based on a customer’s representations (i.e. sight unseen, with no Rhinehart employee personally inspected the equipment) and pursuant to industry guidelines. Rhinehart’s drivers would deliver the purchased equipment, load any trade-in equipment, and return to Georgia, if possible, on the same day. To the extent that the Department of Transportation regulations mandated that they cease driving in a given day, the drivers would rest in the back of their trucks for the required amount of time, sometimes overnight, and then complete their journey back to Georgia. Rhinehart's dealership is located approximately 300 miles north of the Florida state line. Sales invoices reflect that Rhinehart's customers were located throughout the state of Florida, as far south as Miami on the east coast and Naples on the west coast. During the audit period, Rhinehart placed advertisements with with the Trader Publishing Company, located in Clearwater, Florida. The Trader Publishing Company is the publisher of the Heavy Equipment Trader magazine which is distributed in Georgia, Alabama, Florida, and Tennessee. Trader Publishing Company publishes a "Florida Edition" of the magazine which is directed to potential heavy equipment customers located in Florida. Stipulated Exhibit 19 consists of advertising invoices for advertisements placed by Rhinehart in the Florida Edition of Heavy Equipment Trader magazine during the audit period. These invoices establish that Rhinehart regularly and systematically purchased advertising for its products which was targeted toward potential customers located in Florida.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Revenue: Confirming that substantial nexus existed during the audit period and that Petitioner was therefore subject to the taxing authority of the state of Florida; Confirming that the assessment at issue is not time- barred; Allowing Petitioner a reasonable period of time to determine whether any of the sales it made during the audit period would have qualified as exempt sales pursuant to section 212.08(3) and if so, to obtain the required certifications from the purchasers; and Imposing on Petitioner an assessment for the unpaid taxes, with accrued interest, for all sales during the audit period not qualifying for exemption. DONE AND ENTERED this 27th day of August, 2012, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of August, 2012.
