Recommendation Based upon the foregoing, it is RECOMMENDED: That Vogue be obligated to pay the interest assessed on the corporation for failure to timely pay the corporate intangible property tax due for 1987 and 1988. That Vogue's penalty assessment be reduced by $200.00 as a compromise of assessment penalties due to the circumstances surrounding the corporation's late reporting. This reduction reflects the removal of the late reporting penalty by $100.00 for each year. That Vogue not be required to pay the $22.00 filing fee for the warrant that was filed by the Department, without statutory authority to do so, the Public Records of Collier County. Any other costs surrounding the warrant, including its removal from the public records, should not be borne by the Petitioner. DONE and ENTERED this 16th day of July, 1990, in Tallahassee, Leon County, Florida. VERONICA E. DONNELLY 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 16th day of July, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-5744 The Respondent's proposed findings of fact are addressed as follows: Admitted. See HO #1 and #2. Rejected. See HO #3 and #4. Accepted. See HO #4. Rejected. Irrelevant in these proceedings. Copies furnished: William H. Kaverman, Qualified Representative 3115 Gulfshore Boulevard North Apartment #709 Naples, Florida 33940 Vern D. Calloway, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32399 Lealand L. McCharen, Esquire Assistant Attorney General Tax Section, Capitol Building Tallahassee, Florida 32399-1050 William D. Moore, Esquire General Counsel Department of Revenue 203 Carlton Building Tallahassee, Florida 32399 J. Thomas Herndon Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-1000
Findings Of Fact Having listened to the testimony and considered the evidence presented in this cause, it is found as follows: Petitioner is a domestic corporation. Petitioner provided medicare services to patients in the 1969-70 fiscal year. An on-site audit by the medicare auditing team was concluded in December of 1971, and petitioner received $56,131.00 of medicare reimbursements in January of 1972, for the services provided in the 1969-70 fiscal year. The petitioner did not file an amended federal income tax return for the fiscal year ending September 30, 1979. The adjusted federal income reported on petitioner's federal income tax return for the fiscal year ending September 30, 1972, included the $56,131.00 of medicare reimbursements received by petitioner in January of 1972. On petitioner's Florida income tax return for its fiscal year ending September 30, 1972, petitioner did not include the $56,131.00 figure in its adjusted federal income. On March 31, 1975, the respondent notified petitioner of a proposed deficiency in the amount of $2,100.99 arising from the petitioner's omission of the medicare reimbursements from its adjusted federal income as shown on its Florida corporate income tax return for the fiscal year ending September 30, 1972. Further correspondence ensued between the petitioner and the Corporate Income Tax Bureau of the respondent and the petitioner filed the present petition requesting a hearing on the issue. The respondent requested the Division of Administrative Hearings to conduct the hearing.
Recommendation Based upon the above findings of fact and conclusions of law, it is my recommendation that there is no legal basis for affording the petitioner any relief from the proposed deficiency and that said deficiency in the amount of $2,100.00 be sustained. Respectfully submitted and entered this 17th day of September, 1975, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 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 Homer E. Ward, N.H.A. Administrator/President University Park Convalescent Center 1818 E. Fletcher Avenue Tampa, Florida 33612
The Issue The issue in this case is whether Petitioner is liable for certain taxes and, if so, how much.
Findings Of Fact Petitioner is a Florida corporation with its principal place of business in Manatee County, Florida. Petitioner is in the printing business. Specifically, Petitioner produces, manufactures, assembles, and publishes telephone directories for mobile home parks in Florida. All of Petitioner's work in connection with these directories takes place in Florida. The directories list the names, addresses, and telephone numbers of residents of the mobile home park for which the directory is prepared. The directories also contain advertisements, which Petitioner solicits from merchants seeking to sell goods or services to the mobile home park residents. Following the production of the directories, Petitioner distributes them to the mobile home park residents, who maintain possession of the directories. However, Petitioner retains ownership of each directory, even after it is distributed. Petitioner is solely responsible for the manufacture and distribution of the directories. Petitioner owns accounts receivable reflecting monies owned it by entities for which Petitioner has performed work. Petitioner owns treasury stock. Following an audit, Respondent issued its Intent to Make Sales and Use Tax Audit Changes. The proposed changes assessed additional sales and use taxes of $44,151.77, intangible tax of $1297.08, and $194,75 of health care tax. The bases of proposed liability for the sales and use tax were for the publication and distribution of directories for which no sales or use tax had been collected and for the sale of advertising during the period of the service tax from July 1, 1986, through December 31, 1986, for which no sales tax on advertising had been collected. The basis of proposed liability for the intangible tax was for the failure to pay intangible tax on accounts receivable and treasury stock. The basis of proposed liability for the health care tax was for the failure to pay the Hillsborough County Health Care Tax and Discretionary Sales Surtax. On February 11, 1991, Petitioner protested the proposed assessments. On April 24, 1992, Respondent issued its Notice of Decision sustaining the proposed sales and use tax and intangible tax, but eliminating the proposed health care tax. On May 12, 1992, Petitioner filed a Petition for Reconsideration concerning the proposed sales and use tax. On November 24, 1992, Respondent issued its Notice of Reconsideration sustaining the proposed sales and use tax. On January 21, 1993, Petitioner timely filed its petition for a formal administration hearing. Subject to the accuracy of its legal position, Respondent's assessment is factually accurate. Petitioner will pay the assessed amount of sales and use tax, plus interest, if its position is not sustained following the conclusion of this proceeding, including judicial review.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a final order be entered determining that, for each assessed period, Petitioner is liable for the assessed corporate intangible tax plus interest, the use tax on the cost price of the materials and other covered items plus interest, the sales tax on services on the advertising revenues, but not for any sales tax apart from the period covered by the sales tax on services. ENTERED on January 25, 1994, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings on January 25, 1994. COPIES FURNISHED: David M. Carr David Michael Carr, P.A. 600 East Madison Street Tampa, Florida 33602 Eric J. Taylor Assistant Attorney General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
The Issue The Petitioner and Respondent have agreed by stipulation that the following four issues of law are to be determined by the Hearing Officer: Whether Red Lobster must pay four percent sales tax on ad valorem taxes paid directly to a governmental taxing unit on leases in which it is set forth that Red Lobster, the Lessee, will, in addition to the rental payments, be obligated to pay the ad valorem taxes. Whether certain waitress uniforms and denominators purchased from vendors outside the State of Florida by Red Lobster and shipped to Red Lobster Headquarters within the State of Florida for storage purposes and subsequently transshipped for use in Red Lobster locations outside the State of Florida are subject to Florida sales or use tax. Whether those automobiles purchased by Red Lobster's parent company, General Mills, Inc., outside the State of Florida and on which a sales tax was paid in the state in which purchased and then leased to Red Lobster for use in the State of Florida for periods in excess of twelve months are subject to a Florida sales or use tax on the rental payments. Whether Red Lobster is obligated to pay an amount of sales tax determined by the Bracket System as set forth in Florida Statutes or is obligated to pay all sales tax actually collected so long as the sales tax collected equals or exceeds 4 percent of gross sales.
Findings Of Fact The Respondent Department of Revenue assessed certain sales and use tax against Petitioner Red Lobster Inns of America, Inc., for a three-year period commencing February 1, 1971 through January 31, 1974. The Petitioner filed a petition for hearing to the Division of Administrative Hearings pursuant to Chapter 120, Florida Statutes, contesting the imposition of said sales and use taxes by Respondent. Each of the issues will be treated separately. ISSUE I Whether Petitioner must pay 4 percent sales tax on ad valorem taxes paid directly to a governmental unit on leases in which it is set forth that Red Lobster, the Lessee, will, in addition to the rental payments, be obligated to pay the ad valorem taxes. Two kinds of leases are involved here. One type (Exhibit "A") provides the payment of "all real estate taxes" shall be "as additional rent" and a second type (Exhibit "B") provides that "The lessee shall be responsible for the payment of all real estate taxes" without labeling such payments as additional rental. In both types of leases, the ad valorem tax payments on the leased real estate are the obligation of Red Lobster, Lessee. The Petitioner, Lessee, paid the sales tax on the amount it considered "rent" paid but did not pay the sales tax on the monies paid the Lessor for the payment of the ad valorem taxes on the leased property. The Respondent Department of Revenue contends: that all the monies paid by Petitioner as Lessee, including the amount paid for the payment of ad valorem taxes, constitute consideration for the lease and thus constitute rent for purposes of Chapter 212. Petitioners contend: that these payments for ad valorem taxes are not "total rent charges for such real property" under Section 212.031(c); that to require that sales and use tax be paid on ad valorem tax payments is double taxation; that the imposition of a sales and use tax on an existing ad valorem tax constitutes a pyramiding of taxation contrary to Section 212.031(2)(b). Petitioner further contends that the rule 12A-1.70(3) exceeds the statutory authority of Section 212.031, Florida Statutes, inasmuch as the statute states a tax is levied on the "rent charged" whereas the rule states that the tax shall be paid "on all considerations." The lease between the parties marked for identification as Exhibit "A" provides in pertinent part on page 1, Section 2, Demise of Premises: "In consideration of the rents and covenants herein stipulated to be paid and performed by Lessee, Lessor hereby demises and lets to Lessee . . . the parcel of land . . . together with all buildings, structures and other improvements constructed thereon . . ." On page 5, in Section 9, Taxes and Other Charges: "(a) Lessee also agrees . . . to pay and discharge as auditional rent, punctually as and when the same shall become due and payable without penalty, all real estate taxes, personal property taxes, business and occupation taxes, occupational license taxes . . . and all other governmental taxes which at any time during the term of the lease shall become due " Clearly, the payment of taxes was understood by both parties as being part of the rent in Exhibit "A" contracts. The lease between the parties marked for identification as Exhibit "B" does not specifically provide that the payment of taxes is part of the rent. However, it speaks to the issue on page 1 providing: "That for and in consideration of the covenants and agreements herein contained and in consideration of the rents herein reserved to be paid by lessee to lessors, the parties hereto do hereby mutually covenant and agree . . . ." to do certain things and includes the specific requirement on page 3: "9. The lessee shall be responsible for the payment of all real estate taxes, both city and county, assessed against the demised premises and shall pay the same before the taxes become delinquent." It is apparent that the payment of real estate taxes is a part of the "total rent charges for such real property" in Exhibit "B" contracts. Designation by the Lessor as to the method of distributing the gross sum of rent does not relieve the Lessee from his payments to the Lessor or change the fact that it is for rent due and for the "return . . . which the tenant makes to the landlord for the use of the demised premises." 52 CJS, Section 462, p. 344. Thus, there is no pyramiding or double taxation. Inasmuch as the payment of ad valorem taxes is a part of the rental agreement between the parties, sales tax would be due on the amount paid by Lessee for ad valorem taxes regardless of whether the Lessee or the Lessor performed the transmittal duties of paying the taxes. The acceptance by the Lessee of the onerous duties of timely paying the numerous taxes, charges, assessments and other impositions is a valuable consideration and a part of the rent charge itself. The statute supports the assessment of Respondent. The contention that the rule is invalid is not well taken inasmuch as the rule is presumed valid for the purpose of this hearing. Thus, the Hearing Officer determines that the Petitioner Red Lobster Inns of America must pay the 4 percent sales tax on the ad valorem taxes paid directly to a governmental taxing unit. ISSUE II Whether the waitresses' uniforms and denominators (a counting device) purchased from vendors outside the State of Florida by Petitioner and shipped to Petitioner's headquarters in Florida for storage purposes and thereafter shipped for use in Red Lobster Inn locations outside the State of Florida are subject to Florida sales or use tax. The Respondent Department of Revenue sought to impose a use tax upon the uniforms and denominators which were purchased outside the state, sent in and then sent out again. The Petitioner Red Lobster Inns does not contest the assessment of sales or use tax on the uniforms and denominators that were used and consumed in this state. However, it contests the assessment on the items that were bought outside the state, sent in to Florida and then sent out of state in the same condition. Red Lobster uses uniforms both within and without the state and also denominators both inside and outside the state. The Respondent Department of Revenue contends: that the sales and use tax is properly applied inasmuch as the uniforms and denominators came to rest in the State of Florida, were delivered and stored and therefore became part of the mass property in the state. It contends that they were used in that a right of ownership was exercised. The Petitioner Red Lobster Inns contends: that the tax is not due on the items that were brought in and transshipped out again; that the goods never actually came to rest because the storage time was very short and was in fact part of the shipment process; that the uniforms and denominators were reshipped without having been used or consumed in this state. Section 212.05, Sales, storage, use tax.-- provides: "It is hereby declared to be the legislative intent that every person is exercising a tangible privilege who engages in the business of selling tangible personal property at retail in this state, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state . . . . * * * (2) At the rate of 4 percent of the cost price of each item or article of tangible personal property when the same is not sold but is used, consumed, distributed or stored for use or consumption in this state." Section 212.06(6), Sales, storage, use tax; collectible from dealers; dealers defined; dealers to collect from purchasers; legislative intent as to scope of tax, provides: "(6) It is however, the intention of this chapter to levy a tax on the sale at retail, the use, the consumption, the distribution, and the storage to be used or consumed in this state of tangible personal property after it has come to rest in this state and has become a part of the mass property of this state." The Petitioner was correct in paying the tax on the waitresses' uniforms and the denominators that were used and consumed in this state. Those uniforms and denominators that were temporarily stored in this state and sent outside the state in the same condition were not a part of the mass property of this state, had not come to rest in this state nor became a part of the mass property of this state. They were not used or consumed in this state. The use and consumption of the uniforms and denominators were subsequent to their shipment outside of the state and therefore no use tax is due on those items reshipped to other states. ISSUE III Whether those automobiles purchased by Red Lobster's parent company, General Mills, Inc., outside the State of Florida and on which a sales tax was paid in the state in which purchased and then leased to Red Lobster for use in the State of Florida for periods in excess of twelve months are subject to Florida sales or use tax on the rental payments. The Petitioner contends: that it is entitled to the exemption in Rule 12A-1.07(13)(b) because the purchase of the automobiles was made out of state and sales tax was paid out of state. The Respondent Department of Revenue contends: the exemption of the rule applies only when the sales tax was paid to the State of Florida. Section 212.21(2), Declaration of legislative intent.-- provides in pertinent part: "(2) It is hereby declared to be the specific legislative intent to tax each and every sale, admission, use, storage, consumption or rental levied and set forth in this chapter, except as to such sale, admission, use, storage, consumption or rental, as shall be specifically exempted therefrom by this chapter, subject to the conditions appertaining to such exemption." Section 212.07(9), Sales, storage, use tax; tax added to purchase price; dealer not to absorb liability of purchasers who cannot prove payment of the tax; penalties; general exemptions:-- provides in part: "(9) Any person who has . . . leased tangible personal property, . . . and cannot prove that the tax levied by this chapter has been paid to his vendor or lessor shall be directly liable to the state for any tax, interest, or penalty due on any such taxable transactions." Rule 12A-1.07(13)(b) provides: "When the term of a lease or rental to one lessee or rentee is for a period of 12 or more months, the lessor-owner may pay the tax on the acquisition of the vehicle. In such cases, the rental to the initial lessee and the renewals thereof to the same lessee are not subject to the rental tax. Rentals of the same vehicle to subsequent lessees by the owner are taxable." Clearly, it appears from the foregoing that the rule made pursuant to the authority of the legislature does in fact state that the tax may be paid "on the acquisition of the vehicle" and that the lessee is then not subject to the rental tax. The rule is presumed to be valid. Thus, in answer to the question in Issue III, the answer is that the rental cars are not subject to the Florida sales or use tax on the rental payments having been specifically exempted. ISSUE IV Whether Red Lobster is obligated to pay an amount of sales tax determined by the Bracket System set forth in Florida Statutes or is obligated to pay all sales tax actually collected so long as the sales tax collected equals or exceeds 4 percent of gross sales. The Respondent Department of Revenue contends: that the Petitioner must collect and pay the tax according to the Bracket Method provided in the statutes. The Petitioner contends: that it does not have to be governed by the Bracket Method as long as Petitioner pays 4 percent of its gross sales to the State of Florida and that the Bracket System is merely a convenience method. Section 212.12(1), Dealer's credit for collecting tax; penalties for noncompliance; powers of Department of Revenue in dealing with delinquents; brackets applicable to taxable transactions; records required, providing for the Bracket System.-- clearly states in pertinent part: "(10) . . . Notwithstanding the rate of taxes imposed upon the privilege of sales, admissions and rentals, and communication services, the following brackets shall be applicable to all 4 percent taxable transactions: On single sales of less than 10 cents no tax shall be added. On single sales in amounts from 10 cents to 25 cents, both inclusive, 1 cent shall be added for taxes. On sales in amounts from 26 cents to 50 cents, both inclusive, 2 cents shall be added for taxes. On sales in amounts from 51 cents to 75 cents, both inclusive, 3 cents shall be added for taxes. On sales in amounts from 76 cents to $1, both inclusive, 4 cents shall be added for taxes. On sales in amounts of more than $1, 4 percent shall be charged upon each dollar of price, plus the above bracket charges upon any fractional part of a dollar." It is self-evident that the foregoing statute does in fact require the Bracket Method to be used inasmuch as it dictates that is shall be applicable to all 4 percent taxable transactions. The tax is increased when the Bracket Method is used. In summary, the findings of the Hearing Officer are: On Issue I, Petitioner Red Lobster Inns of America must pay ad valorem tax on the full amount of the consideration as set forth in its various leases. On Issue II, the waitresses' uniforms and denominators which were reshipped in the same condition outside the state were not subject to Florida sales and use tax. On Issue III, the automobiles on which a sales tax was paid to the state in which they were purchased and then leased to Red Lobster for use in this state for periods in excess of twelve months are not subject to the Florida sales and use tax on rental payments. On Issue IV, Petitioner Red Lobster Inns of America is obligated to pay an amount of sales tax determined by the Bracket System as set forth in Florida Statutes.
Recommendation Affirm the position of the Respondent Department of Revenue on Issue I. Affirm the position of the Petitioner Red Lobster Inns of America on Issue II. Affirm the position of the Petitioner Red Lobster Inns of America on Issue III. Affirm the position of the Respondent Department of Revenue on Issue IV. DONE and ORDERED this 16th day of March, 1977, in Tallahassee, Florida. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of March, 1977. COPIES FURNISHED: Terrell Griffin, Esquire 515 Pan American Building 250 North Orange Avenue Orlando, Florida 32801 Charles E. DeMarco, Esquire Staff Attorney Red Lobster Inns of America, Inc. Post Office Box 13330 Orlando, Florida 32801 Caroline C. Mueller, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 =================================================================
Findings Of Fact Allis-Chalmers Corporation (ACC), Petitioner in Case 82-2774, is a Delaware corporation commercially domiciled in West Allis, Wisconsin. ACC operates in Florida at the following locations: U.S. Highway 1 opened 2/1/77 Grant (Industrial Pump Division) 5200 Kennedy Blvd. closed 10/30/78 Tampa (Industrial Pump Division) 406 Rio Street opened 11/1/78 101 Federal Place opened 5/1/80 Tarpon Springs (Cement & Mining System Division) (The locations listed are those operating during the audit period. Other locations closed prior to or opened after the audit period.) ACC makes sales of tangible personal property to Florida customers directly from the locations at (b) and (c) and also makes sales to Florida customers from these two locations where the property is shipped from out-of-state locations to the Florida customers. ACC is a diversified company which manufactures and markets the following items: (a) agricultural equipment; (b) hydropower equipment; (c) coal gasification systems; (d) ore conveyors, crushers and screening equipment; (e) bulk material-handling equipment, such as ship self-unloaders; (f) stackers and reclaimers for steel mills; (g) compressors and pumps; (h) cement and asphaltic concrete production equipment (i) valves for units larger than household or commercial plumbing installations; (j) systems for the direct reduction of iron ore; (k) kilns and coolers; (l) lawn and garden equipment; and (m) lift trucks and industrial tractors. The amount in dispute is as stated in the Petition and is not an issue in these proceedings. The only issue is the method of computing the intangible taxes. ACC contends the tax base should be the net accounts receivable based on sales transacted in Florida divided by sales transacted everywhere else. The department contends the ratio should be Florida-destination sales divided by sales everywhere else. The issue is the "business situs" of the intangibles. Allis-Chalmers Credit Corporation (ACCC), Petitioner in Cases 82-2816 and 82-2817, is a Wisconsin corporation doing business in Florida. It is the wholly-owned subsidiary of ACC and its principal business is financing the sale or lease of equipment by ACC dealers. Case 82-2816 involves an income tax assessment against ACCC for the years 1977-1979. The item in dispute involves treatment given to "waiver interest" in arriving at the ratio by which federal income tax is multiplied to determine state income tax due. This issue applies to the denominator of that equation, hence the higher the figure the lower the tax. On occasion ACC, as a marketing tool, agrees to forego interest on either retail or wholesale financing for a period of perhaps six months. If these notes are assigned to ACCC, ACC must pay the waived interest to ACCC that its dealer or the dealer's customer would otherwise have paid. This is charged to ACC at the rate of one and one-half times the cost of funds to ACCC plus the actual cost of insurance. This rate is one percent to three percent per annum less than ACCC would charge the original debtors for the same period. The difference takes into account the elimination of bad debts and the simplified collection from one source instead of many. Therefore, as contended by ACCC, this "waiver interest" is thus already net of the "expenses of the recipient related thereto." The department contends that "waiver interest," and ACCC's explanation thereof, merely reflects the fact that a reduced rate of return "interest" is charged by ACCC with respect to the higher quality risk attendant to its relationship with its parent, ACC. As to ACCC's interest expense as a cost carrying the underlying receivables, the department contends that the ratio of ACCC's interest expense as applied is an appropriate adjustment as none is reflected elsewhere as a cost of carrying "waiver interest" generating receivables. As to the related bad debt expense, the department contends it merely applied the overall bad debt information ACCC used in determining its underlying federal taxable income and, that in its use of such data, the department did not find evidence wherein ACCC in its determination of its federal bad debt expense, distinguished between classes of risks which may be in its aggregate receivables, including the receivables giving rise to the "waiver interest." Thus, the department contends that directly related expense includes interest expense and bad debt expense. By the department's calculation, "waiver interest" as an item in the sales denominator has been reduced by 61 percent to 70 percent in various years to reflect these two categories of directly related expense as mandated by Section 214.71(3)(b) Florida Statutes, and Section 220.44, Florida Statutes. The issue is what constitutes directly related expense to inter-company income. There is no dispute on the numbers. Either the return numbers or the audit numbers on this item will prevail. Case 82-2817 involves an intangible tax assessment against ACCC for the years 1979-1981. During the audit period ACCC was represented in Florida by one employee whose duties were to call on ACC Florida dealers to persuade these dealers to use ACCC for financing sales they made, to keep these dealers supplied with necessary forms, and to give advice to these dealers if complicated or difficult financing situations arose. This representative worked out of the Atlanta office but lived in Florida, the state for which this representative was responsible. Buyers of ACC equipment with good credit ratings can generally obtain bank financing at better rates than are offered by ACCC. The dealer is not required to assign conditional sales contracts to ACCC (via ACC) but is encouraged to do so. The sales contracts for Florida buyers of equipment delivered to Florida are the intangibles upon which the tax here involved was based. When a dealer sells a piece of equipment on which the buyer wants financing by ACCC, the dealer has the retail customer fill out the purchaser's statement and execute three additional forms that are provided by ACCC. Under his franchise agreement with the parent corporation, the dealer is required to use appropriate precautions in conducting financing transactions, to warranty the truth and completeness of statements in the documents and their enforceability, and to repurchase the paper on demand in the event of default. The dealer forwards the executed documents to ACCC's Atlanta branch office for review and approval before any extension of credit to the customer. In Atlanta ACCC's branch manager, acting under a power of attorney from the parent corporation, accepts the document on behalf of the parent corporation, and tenders them to himself as agent for ACCC. If the paper meets the ACCC requirements as to form, terms, execution and credit-worthiness, as defined in the Master Credit Agreement between the parent corporation and ACCC, he then accepts the documents on behalf of ACCC. In some instances he conducts a supplemental credit inquiry by mail or telephone to assure ACCC's requirements are met. His acceptance of the documents for ACCC constitutes in effect the purchase and receipt of the obligation. The customer receives his financing, and the appropriate credits are transferred from ACCC to the parent corporation to the dealer's inventory account. The dealer receives an additional credit as an incentive to recommend ACCC's financing services to his customers. ACCC files the signed financing statement with the Florida Secretary of State to protect its security interest under U.C.C. Article 9, and pays the appropriate filing fee. ACCC also files continuation statements in the event the account is extended or refinanced beyond five years. The customer makes his installment payments reflecting the base price plus a time-price differential or finance charge by mailing the payments to ACCC's Atlanta lock box. ACCC furnishes him coupon books or reminder notices by mail. In the event a customer account becomes overdue, ACCC takes limited enforcement action by issuing dunning letters. ACCC, through its Florida Finance Representative, contacts the delinquent customer by telephone or in person, and arranges in appropriate cases for extensions or refinancing of the initial obligation, using printed forms with ACC's name prominently displayed thereon. In the event the customer defaults, ACCC has authority to repossess and resell the security, to sue on the note, or to amend, extend, renew or release the customer's obligations. In practice ACCC rarely, if ever, exercises these powers, but simply resells the paper to the parent corporation which takes the actions described above. The agreement between Allis-Chalmers and its dealers is that of buyer and seller and this agreement specifically provides the dealer is not an agent of Allis-Chalmers and is without authority to bind the company. In Case 82-2817 Petitioner contends that no tax is due because it is not transacting business within the state. The department contends that tax is due because the original contracts, which have been assigned once or twice depending upon whether they were wholesale or retail, have acquired a business situs in the state since they arose from, or are issued in connection with, the sale of tangible personalty in this state. In the event the department prevails, the parties have stipulated to the manner in which the modified tax shall be computed, for this case only. This stipulation is not material to the issues involved and is not replicated herein.
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
The Issue The issue in this case is whether Petitioner is liable for corporate income and excise taxes that have been assessed by Respondent.
Findings Of Fact Petitioner is a subsidiary of PBS Building Systems America, Inc. (PBS- A). PBS-A and Petitioner filed consolidated Florida income and excise tax returns during the time in question. During the years in question, PBS-A had no tax nexus with Florida, but incurred losses that were available to offset gross income. During the years in question, Petitioner had nexus with Florida and incurred taxable income. The filing of the consolidated return reduced the taxable income of Petitioner by the losses of PBS-A. On December 19, 1990, Respondent issued two notices of proposed assessment for years ending December 31, 1985, through March 31, 1989. One notice identifies $8273 of unpaid corporate excise tax, plus $2798 of interest through September 15, 1990. The notice states that interest would continue to accrue at the daily rate of $2.27. The second notice of proposed assessment identifies $55,480 of unpaid corporate income tax, plus $20,254 of interest through September 15, 1990. The notice states that interest continues to accrue at the daily rate of $15.20. Petitioner filed a notice of protest dated February 15, 1991. By notice of decision dated October 17, 1991, Respondent rejected the protest and sustained the proposed deficiencies. The claimed deficiency for unpaid corporate income tax, however, was revised to $75,039. A notice of reconsideration dated July 21, 1992, restates the conclusions of the notice of decision. By petition for formal hearing dated September 16, 1992, Petitioner requested a formal hearing concerning the tax liabilities in question and specifically the conclusion that PBS- A was ineligible to file a consolidated return in Florida due to the absence of tax nexus with Florida. The September 16 letter recites facts to establish tax nexus with Florida through the establishment of financing relationships. However, it is unnecessary to consider the sufficiency of these factual assertions because they represent mere allegations. Petitioner failed to produce any evidence in the case and, when noticed for a corporate deposition, failed to appear. Additionally, Petitioner's failure to respond to requests for admission results in admissions that, during the relevant period, PBS-A was not a bank, brokerage house, or finance corporation and did not lend money to Petitioner.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Revenue enter a final order sustaining the above-described assessments against Petitioner. ENTERED on February 12, 1993, in Tallahassee, Florida. ROBERT E. MEALE 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 12th day of February, 1993. COPIES FURNISHED: Dr. James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Attorney Lisa Raleigh Department of Legal Affairs Tax Section, Capitol Building Tallahassee, FL 32399-1050 Kathryn M. Jaques Arthur Andersen & Co. Suite 1600 701 B Street San Diego, CA 92101-8195
The Issue The issue is whether petitioner's candidacy for the office of Tax Collector would conflict or interfere with his employment as an auditor for the Department of Revenue.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Petitioner, Robert M. Hendrick, a career service employee, is employed with respondent, Department of Revenue (DOR), as a Tax Auditor IV in its Leesburg, Florida field office. He has been employed by DOR since September 1991. In his position, petitioner primarily audits tangible personal property assessments performed by the local Property Appraiser and, on occasion, he inspects the property which is the subject of the assessment. In March 1996, the Lake County Tax Collector publicly announced that he would not run for reelection. After learning of this decision, by letter dated March 19, 1996, petitioner requested authorization from his employer to run for that office. The letter was received by DOR's Executive Director on April 1, 1996. On April 10, 1996, the Executive Director issued a letter denying the request on the ground the candidacy would conflict with petitioner's job duties. More specifically, the letter stated in relevant part that: Under section 195.002, Florida Statutes, the Department of Revenue has supervision of the tax collection and all other aspects of the administration of such taxes. Your position with the Department may require you to review or audit the activities of the office you propose to seek. Also some of your duties in supervising other officials in the administration of property taxes may be affected by your proposed candidacy. Your job requires you to review appropriate tax returns, and other records to resolve complex issues related to taxing statutes administered by the Department of Revenue. It also requires you to identify and scrutinize transactions to ascertain whether taxpayers have escaped paying property taxes. In addition, it also requires you to review and audit procedures used by counties to identify and value tangible personal property and accomplish statutory compliance, to investigate taxpayer complaints, to conduct field review with county staff as appropriate, and to provide education and assistance to county taxing officials. Because of the Department's statutory supervision of the office of tax collector, there cannot be a certification that your candidacy would involve "no interest which conflicts or activity which interferes" with your state employment within the definitions in section 110.233(4), Florida Statutes. The letter went on to say that This letter is a specific instruction to you that you should not qualify or become a candidate for office while employed in your current position. If you wish to commence your campaign by performing the pre-filing requirements, the law requires that you first resign from the Department. Failure to do so shall result in disciplinary action to dismiss you from your position in accordance with the Department's disciplinary standards and procedures, and Rule 60K-4.010, F.A.C., on the grounds that you are in violation of the Department's Code of Conduct, Section 110.233, Florida Statutes, and Rule 60K- 13.002(3), F.A.C. After receiving the above decision, by letter dated April 15, 1996, petitioner requested that the Executive Director reconsider his decision. Thereafter, on April 24, 1996, petitioner filed a request for a formal hearing to contest the agency's decision. Both the Property Appraiser and Tax Collector play a role in the property tax program in the State of Florida. The Property Appraiser generally values or assesses property subject to taxation and applies the millage rate set by the taxing authority. After the tax roll is approved by DOR, it is certified to the Tax Collector who then collects the taxes and distributes them to the appropriate taxing authorities. It is noted that ad valorem taxes make up the lion's share of taxes at the local level while tangible personal property taxes are a very small source of revenues. DOR is charged with the duties of providing oversight to the property tax program and aid and assistance to the Property Appraiser and Tax Collector. In this regard, DOR views the two offices as an integral part of the property tax program rather than two separate entities. It characterizes the program as "a stream or process where (the) lines of delineation (between the two offices) are not as distinct as they might have been ten or fifteen years ago." Because of the highly sensitive nature of the tax program, it follows that a certain degree of trust and integrity must exist between DOR (and its employees) and the local offices. Petitioner does not interface with the office of Tax Collector in any respect, and his duties do not require that he audit any of that office's records. His only duties are to audit the tangible personal property assessments performed by the Property Appraiser. These facts were not controverted. Although he has never differed with a valuation of the Property Appraiser during his five year tenure at DOR, and no such disagreement has occurred in Lake County during the last twenty-five years, petitioner could conceivably disagree with an assessment while running for office during the next few months. If the matter could not be informally settled, the tax rolls would not be certified by DOR, and litigation against DOR could be initiated by the Property Appraiser. Under those unlikely circumstances, petitioner might be called as a witness in the case, although the general practice has always been for DOR to use personnel from the Tallahassee office in litigation matters. To the very minor extent that petitioner could affect the tax rolls by disagreeing with the Property Appraiser's valuations, this could also impact the amount of money collected by the Tax Collector. DOR cites these circumstances as potentially affecting in an adverse way the level of trust and integrity between DOR and the office of Tax Collector. However, under the facts and circumstances of this case, this potential conflict is so remote and miniscule as to be wholly immaterial. The evidence also shows that in his audit role, petitioner has the "opportunity . . . to look and have access to tax returns," some of which "are of TPP (tangible personal property) nature (and) have attached to them federal tax returns" which might be used by the Property Appraiser for establishing the value of tangible personal property. Whether petitioner has ever had access to, or reviewed such, returns is not of record. In any event, to the extent this set of circumstances would pose a potential conflict with the Property Appraiser, as to the Tax Collector, it would be no more significant than the purported conflict described in finding of fact 7. Finally, DOR suggests that if petitioner was unsuccessful in his bid for office, it would likely damage the "relationship of trust" that now exists between DOR and the Tax Collector. Again, this purported conflict is so speculative as to be deemed immaterial. The parties have stipulated that, as of the date of hearing, petitioner's only option for qualifying to run for office is to pay a $6,173.00 qualifying fee no later than noon, July 19, 1996. The opportunity for submitting an appropriate number of signatures in lieu of a filing fee expired on June 24, 1996. On the few, isolated occasions during the last twenty-five years when the Lake County Tax Collector has requested information from DOR personnel, he has spoken by telephone with DOR legal counsel in Tallahassee. Those matters of inquiry, primarily relating to ad valorem taxes, do not concern any area related to petitioner's job duties. He also pointed out that his office always cooperates with the office of the Property Appraiser, especially when "corrections" must be made due to errors by that office. Even so, he described the two offices as being separate and with entirely different duties. This testimony is accepted as being the most persuasive on this issue. At least four persons have already announced that they would run for Tax Collector for Lake County. The parties have stipulated that one of those persons is a regional administrator for the Department of Highway Safety and Motor Vehicles who was not required to resign his position in order to run for office. According to the incumbent Tax Collector, that individual supervises other state employees who occasionally audit certain aspects of his office pertaining to automobile license plates and decals. Because of the time constraints in this case, and although not legally obligated to do so, respondent has voluntarily agreed to allow petitioner to take annual leave (or presumably leave without pay) commencing on the date he qualifies for local public office, or July 19, 1996, and to remain on leave until a final order is issued by the agency. At that time, if an adverse decision is rendered, petitioner must choose between resigning or withdrawing as a candidate. These terms are embodied in a letter from DOR's counsel to petitioner dated July 3, 1996. If petitioner is allowed to run for office without resigning, he has represented that he will campaign while on leave or after regular business hours. He has also represented, without contradiction, that his campaign activities will not interfere with his regular duties. If elected, he intends to resign his position with DOR.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a final order granting petitioner's request that it certify to the Department of Management Services that his candidacy for the office of Lake County Tax Collector would involve no interest which conflicts, or activity which interferes, with his state employment. DONE AND ENTERED this 10th day of July, 1996, in Tallahassee, Florida. DONALD R. ALEXANDER, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1996. APPENDIX TO RECOMMENDED ORDER Respondent: Partially accepted in finding of fact 1. Partially accepted in findings of fact 2 and 3. 3-5. Partially accepted in finding of fact 1. 6. Partially accepted in finding of fact 5. 7-9. Partially accepted in finding of fact 4. 10-11. Partially accepted in finding of fact 7. 12. Rejected as being irrelevant since petitioner was not an employee of DOR in 1990. 13-17. Partially accepted in finding of fact 7. 18. Rejected as being unnecessary. 19-20. Partially accepted in finding of fact 5. 21. Partially accepted in finding of fact 8. 22-23. Partially accepted in finding of fact 5. Partially accepted in finding of fact 9. Rejected as being unnecessary. Note - Where a proposed finding of fact has been partially accepted, the remainder has been rejected as being irrelevant, not supported by the evidence, unnecessary, subordinate, or a conclusion of law. COPIES FURNISHED: L. H. Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, Esquire Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Mr. Robert M. Hendrick 5022 County Road 48 Okahumpka, Florida 34762 Peter S. Fleitman, Esquire Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue The central issue in this case is whether the Petitioner owes sales, use, intangible taxes, penalties and interest; and, if so, the amount.
Findings Of Fact Petitioner, Allor, Inc., performs accounting services through the individual, Allan Steinberg. Subsequent to an audit of one of Mr. Steinberg's clients, the Department directed Curt Horton, a tax auditor, to perform an audit of Allor, Inc. In furtherance of the audit, Mr. Horton requested records necessary to complete the review. He discussed the audit with Mr. Steinberg and advised him of all records needed. When Mr. Steinberg produced no records the audit was estimated based on the federal tax return. Later, Mr. Horton adjusted the estimate based on actual deposits for sales. For purchases, a one year period was selected and, again, the federal tax return was reviewed. The audit was performed in this manner as the records offered by the taxpayer were insufficient to perform the audit in the more conventional format. Mr. Horton made numerous requests to the taxpayer for documentation. Mr. Horton extended the time to provide records so that the taxpayer had additional opportunity to document the audit. Credit was given for invoices that the taxpayer was able to produce and, for the remainder of the period, the amounts were averaged to determine the tax amount owed. The sales and use tax audit covered the period December 1, 1985, through November 30, 1990. The amount of the tax owed was calculated at $4,933.35. The amount of the penalty was $1,099.92. The interest owed through October 11, 1991, was $2,026.61. Based upon the foregoing, the total assessment for this audit was $8,059.88 with interest continuing to accrue at the rate of $1.62 per day. With regard to the intangible tax assessment for the period 1984 through 1991, Mr. Horton computed the accounts receivable and estimated that $2,000.00 per year would be the amount for this category. Since this taxpayer filed no intangible tax returns at all, the penalty owed was high relative to the tax amount owed. Based upon the foregoing computation, the intangible tax owed calculated to be $33.33 whereas the penalty for not filing was $2,763.55. The interest through September 20, 1991, was $14.76. Based upon the foregoing, the total assessment for the intangible tax owed was $2,811.64 with interest continuing to accrue at the rate of $.01 per day. Following the audit, the results of which were made available to the taxpayer on or about March 20, 1992, the Department issued a notice of decision on April 23, 1993, which responded to a protest letter filed by Petitioner on May 15, 1992. In substance, that notice sustained the results of the audit and noted that the taxpayer had not presented any additional documentation to support a conclusion to the contrary. Thereafter, the Petitioner filed another letter of protest and the Department issued a notice of reconsideration on February 7, 1994. That notice provided that upon further review, the proposed sustained amount for the sales and use tax was $6,945.63 and the amount owed for the intangible audit assessment was $48.09. This latter amount was reduced because the Department proposed to compromise the penalty in full. All of the acts of the auditor in this case were in keeping with the standard audit practices of the Department. None of the documents marked for identification as Petitioner's composite 2, which have not been received into evidence, were made available to the Department at any time during the audit. The Department afforded the Petitioner approximately three years after the audit to produce relevant documentation.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the Department of Revenue enter a final order sustaining the proposed sustained amounts set forth in the notice of reconsideration dated February 7, 1994. DONE AND RECOMMENDED this 28th day of September, 1995, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of September, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-1892 Rulings on the proposed findings of fact submitted by the Petitioner: 1. None submitted. Rulings on the proposed findings of fact submitted by the Respondent: 1. Paragraphs 1 through 11 are accepted. COPIES FURNISHED: Allan D. Steinberg Tax Accountant Allor, Inc. Suite 14-B 4953 North University Drive Lauderhill, Florida 33351 Mark T. Aliff Assistant Attorney General Office of the Attorney General The Capitol-Tax Section Tallahassee, Florida 32399-1050 Linda Lettera General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs Executive Director 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue is whether Petitioner is liable for the sales and use tax assessment issued by Respondent on February 21, 1995.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: In this proceeding, Respondent, Department of Revenue (DOR), has issued a proposed sales and use tax assessment in the amount of $24,546.54, plus $6,640.12 in penalties, plus interest from the date of the assessment, against Petitioner, Florida Truck Dock Company (Petitioner or taxpayer). As of March 20, 1997, the assessment totaled $55,195.27, and it continues to increase by $8.07 each day. The assessment constitutes taxes, penalties, and interest allegedly due from Petitioner for various materials and supplies purchased by Petitioner for use in the performance of real property contracts for Petitioner's customers. In its response to the assessment, Petitioner denied that it owed the money. Petitioner's business activities consisted primarily of purchasing truck loading dock equipment from suppliers, principally Kelly Company, Inc. (Kelly), and then installing such equipment as an improvement to real estate. Its records indicate that purchased equipment was generally brought into Florida and installed in real property in the state under a contract whereby parts and labor were furnished for one lump sum contract price. The foregoing contracts were Class A or lump sum contracts within the meaning of Rule 12A-1.051(2)(a), Florida Administrative Code. Class A contracts are considered contracts for the improvement of real estate, not contracts for the resale of tangible personal property. In addition, when the equipment was purchased, Petitioner had not issued resale certificates to its vendors. Under these circumstances, Petitioner was properly treated as an end-user of the equipment in question and owed use taxes on all such purchases of tangible personal property. This controversy began on March 30, 1992, when DOR issued a Notification of Intent to Audit Books and Records of the taxpayer in conjunction with a routine audit. The notice requested that Petitioner make available various corporate records pertaining to its sales and use tax and intangible tax liability. However, only the sales and use tax is in issue here. DOR later advised the taxpayer that the audit period would run from March 1, 1987, through February 29, 1992, and that instead of a detailed audit, only a three-month sampling of the full audit period would be necessary. An initial audit revealed that Petitioner was entitled to a refund. None was given, however, because of information supplied by an employee of the taxpayer regarding the possible destruction and alteration of certain records by the taxpayer, and the auditor's conclusion that a three-month sampling of the records was not representative for the full five-year audit period. In addition, the auditor concluded that the results of the sample period were not reasonable. For these reasons, the scope of the audit was expanded. The auditor then requested, among other things, that copies of all sales (summary) journals for the entire five-year period be produced. Although Petitioner has always contended that these journals were merely "commission" journals for transactions between its vendors and customers, the auditor's finding that they are records of cash transactions is consistent with the language on the face of the journals, referring to "deposits" and "total deposits." Further, a comparison of the journals with Petitioner's own bank statements confirms this finding. At least twelve months of the records were missing, and the taxpayer agreed to recreate the missing records. Once a copy of all journals (both original and recreated) was produced, the auditor tested their validity and then made various audit adjustments, which are reflected on Schedule A-2 of Exhibit 5. In those instances where inadequate cost price information concerning equipment purchases was provided by the taxpayer, the auditor properly used estimates in making his adjustments. The tax liability for each taxable transaction was recorded by the taxpayer under Account 367 on the sales journals. The auditor then examined the source documents (original invoices) to verify the accuracy of the recorded amounts. These numbers were then compared with the taxes paid by the taxpayer on its monthly tax returns filed with DOR. This comparison produced a deficiency which represents approximately 75 percent of the total assessment. However, in those instances where Petitioner collected sales tax from its customers, and remitted the same to DOR, Petitioner was not assessed with a tax for those same items. A sampling of the audit period established that Petitioner also had a number of lump-sum contracts with various governmental customers on which it neither paid taxes to the vendor when the equipment was purchased, nor did it collect taxes from the end-user when the equipment was resold. Thus, it was responsible for the use taxes on these transactions. The deficiency is detailed on Schedule B-3 of the final audit report (Exhibit 6), and it accounts for approximately 14 percent of the total assessment. The remaining part of the assessment is related to four miscellaneous transactions which are unrelated to the sales journals. Two of the transactions occurred during the short period of time when the service tax was in effect in 1987, while the remaining two relate to small purchases of equipment and supplies by the taxpayer for its own consumption. There was no evidence that the taxpayer paid the taxes due on these transactions. DOR met with the taxpayer, its accountant, and its original counsel on various occasions in an effort to obtain more documentation favorable to the taxpayer's position. In most cases, the taxpayer refused to provide more records. At one meeting, however, the taxpayer produced additional source documents (invoices) that appeared to be altered from the original invoices previously given to the auditor. These are shown in Exhibit 7 received in evidence. When asked by the auditor for copies of the same invoices sent to customers so that the discrepancy could be resolved, the taxpayer refused to comply with this request. During the audit process, the taxpayer contended that its primary supplier, Kelly, had already paid taxes on a number of the transactions. No documentation was produced, however, to support this contention. It also complained that there was bias on the part of DOR's auditor. As to this contention, the record shows that the auditor had no relationship with the taxpayer prior to this audit, and for the intangible personal property tax, the auditor's field work actually resulted in a refund for Petitioner. Finally, the taxpayer contended that rather than using the originally supplied records, the auditor should have used Petitioner's recreated or altered records in making the audit adjustments. This latter contention has been rejected.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a final order sustaining its original assessment against Petitioner. DONE AND ENTERED this 13th day of November, 1998, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 13th day of November, 1998. COPIES FURNISHED: Linda Lettera, Esquire Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Jeffrey M. Dikman, Esquire Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Benjamin K. Phipps, Esquire Post Office Box 1351 Tallahassee, Florida 32302 L. H. Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
