The Issue The issue is whether Petitioner owes money to Respondent due to an overpayment of compensation.
Findings Of Fact At all relevant times, Respondent has employed Petitioner. By Stipulation, the parties agree that Respondent overpaid Petitioner the sum of $6282.41 by check dated February 14, 2005. The dispute is whether Respondent is entitled to repayment of an additional $2332 in withheld federal income taxes associated with the agreed-upon overpayment. On the date of the overpayment in February 2005, Respondent credited Petitioner with the gross sum of $9328. The net payment to Petitioner was $6282.41. The difference between the gross and the net was $2332 in withheld federal income taxes and $713.59 in employee-paid FICA and Medicaid. Respondent is not seeking repayment of the employee-paid FICA and Medicaid. Respondent discovered the error on December 31, 2005, so it was unable to process the paperwork necessary correct the situation with the tax withholding in the same tax year of 2005. By failing to discover the error in time to process the paperwork in the same tax year, Respondent was unable to effectively reverse the withholding transaction with the Internal Revenue Service. Thus, when Petitioner filed his 2005 federal income tax return, his gross income included this overpayment, and the amount of tax already paid included the $2332 that was erroneously withheld in Respondent's overpayment in February 2005. It is thus clear that Respondent overpaid Petitioner $6282.41 in net pay plus $2332 in income taxes that it withheld from Petitioner and submitted, to Petitioner's credit, to the Internal Revenue Service. The total overpayment is therefore $8614.41.
Recommendation It is RECOMMENDED that the Department of Juvenile Justice enter a final order determining that, due to an overpayment in 2005, Petitioner shall repay $8614.41, upon such terms, if any, as the department shall determine. DONE AND ENTERED this 24th day of October, 2006, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE 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 24th day of October, 2006. COPIES FURNISHED: Anthony J. Schembri, Secretary Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-3100 Jennifer Parker, General Counsel Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-1300 Michael B. Golen Assistant General Counsel Department of Juvenile Justice 2737 Centerview Drive Tallahassee, Florida 32399 Theodore E. Morakis 11904 Southwest 9th Manor Davie, Florida 33325
Findings Of Fact The facets herein are undisputed. On May 31, 1973 Petitioner purchased Thomas Concrete Company, and on February 28, 1973 Petitioner purchased Kelly Builders, Inc. Both companies were forthwith liquidated and federal income tax returns were filed in which depreciation in excess of fair value of the properties was recaptured for federal tax purposes. In his state corporate income tax returns Petitioner claimed deduction for that portion of the recaptured depreciation which occured prior to November 2, 1971, the effective date of the Florida Corporate Income Tax Statute. These deductions were disallowed by the Department of Revenue, that portion of the tax relating to Thomas Concrete Company was paid under protest, the portion relating to Kelly Builders, Inc. was not paid, and this petition was filed. In 1974 Petitioner sold real property on which it made a substantial capital gain. In computing its federal income tax the full capital gain was reported. However, that portion of its capital gain accruing prior to November 2, 1971 was excluded from its Florida corporate income tax and the assessment of $50,494.75 was levied against Petitioner by Respondent, Department of Revenue for the full amount of the capital gain as income received in 1974. The two issues here involved are whether Petitioner is taxable under Chapter 220 F.S. on depreciation taken prior to the effective date of Chapter 220, and subsequently recaptured, and whether Petitioner is taxable under Chapter 220, F.S. for the full amount of capital gain realized on property held prior to the effective date of Chapter 220 where part of appreciation occurred prior to the effective date of the Florida Corporate Income Tax law.
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 Is the Respondent's assessment for corporate income tax and interest for the tax years ending 12/31/78, 12/31/79, and 12/31/80 appropriate, and may it be properly imposed upon Petitioner?
Findings Of Fact The instant dispute between the parties arose out of how the substantial business interests of Petitioner Murray Kramer Corp. are to be defined and by what accounting method its corporate income tax assessments are to be made. Milton P. Weiss, C.P.A., is Petitioner's accountant and qualified representative for purposes of this proceeding. He is neither an internal bookkeeper for the corporation nor a corporate officer thereof. At all times material, Petitioner was conducting business, deriving income, or existing within the State of Florida, pursuant to Chapter 220, F.S. Petitioner invests primarily through partnerships. Among Petitioner's holdings and investments is ownership of an orange grove in the State of Florida from which it derived income by way of the sales of citrus fruit grown in Florida during the taxable years at issue: 1978, 1979, and 1980. The orange grove constitutes real and tangible property in Florida for purposes of Florida's corporate income tax. Petitioner has consistently filed Florida corporate income tax returns on a "separate accounting" basis since the inception of Florida's Corporate Income Tax Law on January 1, 1972. Petitioner used this method for the years at issue: 1978, 1979, and 1980. It did so without petitioning the Respondent Department of Revenue for permission at or before the filing of the returns to use the "separate accounting" method to determine the Florida tax base. Accordingly, Petitioner did not receive prior written permission from the Department to use the "separate accounting" method for those years, and the Department did not require that the Petitioner use the "separate accounting" method in those years. Nonetheless, Petitioner asserts that its pattern of using the "separate accounting" method for six years put the Department on sufficient notice that the corporate taxpayer would continue to use that method indefinitely and further asserts that it was therefore entitled to use such a "separate accounting" method on the basis of its prior consistent usage. Petitioner's Florida corporate returns declare investment income from dividends, interest, gains from securities, partnership income, and income from its orange grove located in Florida. In each of the disputed tax years, Petitioner entered its federal taxable income on Line 1 of the Florida Corporation Income Tax Return, FORM F-1120. This amount is not at issue and is accepted as a "given" by both parties. However, in each of the disputed tax years, Petitioner did not complete the apportionment schedule on Page 3 of the respective returns. Instead of using the apportionment method, Petitioner computed what it characterized as "Florida Profit" or "Florida Income" on a schedule it attached, based totally on the profits it derived from the Florida orange grove and then inserted that amount on Line 6, Florida Portion of Adjusted Federal Income, of the "Computation of Florida Tax Liability" on the Florida return. This entry did not relate computationally to the amount of federal taxable income reported federally on Line 1. All gross receipts from the sale of citrus fruit by Petitioner were derived from sales made to Zellwood Fruit Distributors. This dollar amount is also undisputed. Petitioner received payment from its Florida orange grove operation in the form of checks drawn by Zellwood. Approximately June 20, 1983, Respondent Department of Revenue made an initial audit of Petitioner's books and records for the taxable years in question. Respondent's auditor assigned at that time had full and free access to Petitioner's books and records. He and his supervisor memorialized their view that the "separate accounting" method employed by Petitioner was proper, but this judgment call (by the auditor on June 29, 1983 and by his supervisor on July 1, 1983) was in the nature of free-form agency action and was neither accepted nor formalized by their superiors within the agency who ultimately determined that the Petitioner should have employed the "apportionment" method and that the burden was upon the Petitioner even under the apportionment method to establish that one hundred percent of its income was not derived in Florida. The Respondent Department therefore determined the tax owed by Petitioner upon the basis of 100% of Petitioner's income as opposed to the yearly percentages that Petitioner had unilaterally assigned to its orange grove, and issued its Revised Notice of Intent to Make Corporate Income Tax Audit Changes on November 7, 1983. Florida's apportionment formula is a three-factor function which takes selected business activities of the taxpayer and computes the portion of that activity attributable to Florida, divided by that activity everywhere. A composite of the subtotal of those three measures (payroll, sales, and property) of business activity are used to compute Florida's share of the "everywhere" base that would be available under the adjusted federal taxable income base. See, Section 214.71(1), F.S. The Department calculated the tax using the three statutorily recognized apportionment factors of payroll, sales, and property. Concerning the first apportionment factor, payroll, Petitioner had federally reported no amount of payroll, and therefore this factor was determined by the Department to be zero, and pursuant to Section 220.15, F.S., the payroll factor was eliminated and the other two factors were used exclusively. Concerning the sales factor, all gross receipts of the orange grove were considered to be derived within the State of Florida, and all gross income attributable to intangible personal property was excluded from the sales factor, pursuant to Section 220.15(1), F.S. Concerning the property factor, the Department determined that all real and tangible personal property was within the State of Florida. The situs of the intangible property was not established by the taxpayer. Therefore, because Section 214.71, F.S. limits the construction of the property factor to include only "real and tangible personal property," it was thus determined to exclude intangible property. The Respondent Department of Revenue issued its Notice of Proposed Assessment on November 16, 1983, showing a balance of $10,596.00 ($7308.00 tax, $275.00 penalty, and $3,013.00 interest computed through October 31, 1983, plus notice of daily interest of $2.40 per day from November 1, 1983 until paid.) Petitioner timely availed itself of informal protest procedures, and the Department issued its Notice of Decision on March 15, 1985. By its June 21, 1988 Notice of Reconsideration, the Department concluded its informal proceedings and denied Petitioner's assertion of the right to use a "separate accounting" method and further denied Petitioner's challenge to the Department's assessment by the "apportionment" method, which in this instance had not made any apportionment for "outside Florida" activities. The situs of intangible personal property was not sufficiently demonstrated by the Petitioner at formal hearing. The Petitioner also did not establish that it owns real or tangible personal property outside Florida. Zellwood Fruit Distributors provided Petitioner Murray Kramer with letters attesting that, based upon information received from Winter Gardens Citrus Products Cooperative, Winter Gardens' sales percentages in the State of Florida were as follows: 1979 1980 18.60% 21.07% Zellwood provided no such figures to Petitioner for the year 1978. Petitioner contends, on the basis of the after the fact Zellwood letters, that Zellwood was a member of Winter Gardens, a cooperative, and Murray Kramer was an associate grower of Zellwood. At formal hearing, no one from Zellwood or Winter Gardens testified; no contract between Petitioner Murray Kramer and either Zellwood or Winter Gardens was introduced to prove agency; no bills of lading, sales slips, corporate documents, or other connective link among the three entities was offered in evidence; nor was any primary, direct, non-hearsay evidence of sales amounts or situs of Winter Gardens' sales offered by Petitioner. Milton Weiss, Petitioner's accountant, asserted that if a straight "apportionment" (not "separate accounting") calculation had been made for the income derived in Florida by Petitioner, percentages would be: 1978 1979 1980 24.03% 15.31% 15.01% These percentages rely in part on what are clearly the out-of-court statements of Zellwood's correspondent, relaying further out-of-court statements from Winter Gardens Citrus. (See the immediately preceding Finding of Fact). Neither of these out-of-court hearsay statements is such as may be used to supplement or explain direct evidence, since no direct, primary source evidence of these sales or income has been presented before the undersigned in this de novo proceeding. See, Section 120.58(1), F.S. Petitioner has not directly paid wages during the tax years at issue. Petitioner has not produced any federal partnership tax returns nor other persuasive proof to account for the return on its investments through partnership channels. During the tax years at issue, Petitioner was not a member of a Florida cooperative, as that term, "cooperative," is used in Section 214.71(3)(a)2, F.S. (See Finding of Fact 15). Petitioner was unable, by evidence of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs, to establish that all amounts other than the percentages of gross income Petitioner had assigned by either of the alternative accounting methods was generated outside of the State of Florida. In so finding, the undersigned specifically rejects Petitioner's assertion that the initial audit report of June 1983 could, by itself alone, legally or factually establish that only the orange grove income was Florida income, that Petitioner's Florida income was solely from the orange grove, that the interest, dividends, and gains on securities sales were not derived in Florida, that the Petitioner taxpayer received rent income from partnerships, that the partnership real estate which gave rise to the rent income was 100% outside Florida, or that the Respondent's initial audit "verified" the figures needed to compute the sales factor, the figures for the property factor, and the figures for the payroll factor of the "apportionment" method for the following reasons: In addition to the first auditor's report being free-form agency action which was ultimately rejected by the agency, and in addition to the failure of either the first auditor or his supervisor to testify in the instant Section 120.57(1) de novo proceeding as to the accuracy of the underlying primary documentation which Petitioner Murray Kramer claimed the first auditor had apparently reviewed, Petitioner did not offer in evidence at formal hearing any such direct evidence documentation which it claimed had been reviewed by the auditors. Further, Respondent's successive auditor, Mr. Siska, testified that it is auditor practice to only examine those books and records individual auditors believe to be necessary to complete the audit. This discretionary element eliminates any guarantee of what the initial auditor relied upon. For the same reasons, Petitioner's assertion that the Internal Revenue Service (IRS) audit of its books and records for the year 1979 "verifies" that the Petitioner's books and records accurately reflect the transactions that took place, is rejected. Petitioner Murray Kramer had admitted a letter (P-10) notifying the corporation that the IRS' "examination of ... tax returns for the above periods shows no change as required in the tax reported. The returns are accepted as filed." The tax period indicated on this exhibit is "7912", which is not helpful, and even if it means, as Mr. Weiss testified, that the 1979 federal tax return which is part of the Florida Corporate Tax Return is accurate under federal law, this IRS letter alone does not verify all the underlying documentation for all three years in question. Also, specifically with regard to investments made through other entities, Mr. Weiss' testimony suggests that the wages paid and partnership returns of these other entities never were in the possession of, nor accessible by, this Petitioner. Petitioner's reliance on its federal returns is apparently based, in part, at least, upon its assertion that it is a "financial institution" as defined in Sections 214.71(3)(b) and 220.15(2), F.S., but the presentation quality of evidence in this case does not permit of such a finding, either. Petitioner has paid no portion of the assessed taxes.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a Final Order which dismisses the Petition and affirms the assessment. DONE and ORDERED this 26th day of June, 1989, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-4100 The following constitute rulings, pursuant to Section 120.59(2), F.S. upon the parties' respective proposed findings of fact (PFOF). Petitioner's PFOF: 1, 6. Accepted. 2, 9, 10, 11, 17, 19. Rejected for the reasons set out in the Recommended Order. 3, 5, 7, 8, 12, 14, 16. Accepted but not dispositive of any material issue for the reasons set forth in the Recommended Order. With regard to item 8, specifically, this determination is non-binding in the de novo proceeding. 4. Rejected upon the citation given as not proved or applicable as stated. 13. Accepted in part and rejected in part as not proved or applicable as stated. See Conclusions of Law 11-12. 15, 18. Rejected as out of context and misleading upon the record as a whole, and as not dispositive of any material issue, and as subordinate and unnecessary to the facts as found. Respondent's PFOF: 1, 2, 3, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18. Accepted. 4, 5. Accepted in part; what is not adopted is subordinate or unnecessary to the facts as found. 17. Accepted, but by itself is not dispositive of any material issue at bar, for the reasons set out in the Recommended Order. COPIES FURNISHED: Milton P. Weiss, C.P.A. 686 Hampstead Avenue West Hampstead, New York 11552 Jeffrey M. Dikman, Esquire Assistant Attorney General Tax Section Department of Legal Affairs The Capitol Tallahassee, Florida 32399-1050 Sharon A. Zahner, Esquire Assistant General Counsel Department of Revenue Room 204, Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668 William D. Townsend, Esquire General Counsel 203 Carlton Building Tallahassee, Florida 32399 Katie D. Tucker, Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100 Milton P. Weiss, C.P.A. 3091 North Course Drive Pompano Beach, Florida 33069 =================================================================
Findings Of Fact The parties stipulated to findings of fact set forth in paragraphs 1-5, below. Zurich is an insurer domiciled in the State of New York. Zurich is authorized to do insurance business in the State of Florida. Zurich pays insurance premium taxes to the State of Florida. As a foreign insurer doing business in Florida, Zurich is subject to the provisions of Florida's retaliatory tax, Section 624.5091, Florida Statutes. Respondent Department of Revenue (Revenue) is the state agency charged with the duty to implement and enforce Section 624.5091, Florida Statutes. Zurich's interests are substantially affected by Revenue's Rule 12B- 8.016(3)(a)(4), Florida Administrative Code, by virtue of the tax assessment made against Zurich pursuant to the rule. OTHER FACTS Prior to 1989, the Department of Insurance administered insurance taxation. Now, Revenue has that responsibility. Section 213.05, Florida Statutes, directs Revenue to administer provisions of Sections 624.509 through 624.514, Florida Statutes. Section 213.06(1), Florida Statutes, authorizes Revenue to promulgate rules to implement those responsibilities. Rule 12B-8.016 was first promulgated by Revenue in December of 1989 to implement statutory authority of Section 624.429 (currently renumbered as 624.5091). This statute authorized retaliatory taxation against non-domiciled insurers in the amount by which their state of domicile would tax Florida insurers in excess of Florida's comparable tax. The statute provides in pertinent part: When by or pursuant to the laws of any other state or foreign country any taxes, licenses, and other fees, in the aggregate, and any fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions are or would be imposed upon Florida insurers or upon the agents or representatives of such insurers, which are in excess of such taxes, licenses, and other fees, in the aggregate, or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers, of such other state or country under the statutes of this state, so long as such laws of such other state or country continue in force or are so applied, the same taxes, licenses, and other fees, in the aggregate, or fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions of whatever kind shall be imposed by the department upon the insurers, or upon the agents or representatives of such insurers, of such other state or country doing business or seeking to do business in this state. As it existed in 1989 and currently, the statute contains an exclusionary provision expressly excluding from the retaliatory tax any special purpose assessments in connection with insurance other than property insurance. This exclusionary provision is part of Subsection 3 of the current statute, 624.5091, and reads as follows: (3)This section does not apply as to personal income taxes, nor as to sales or use taxes, nor as to ad valorem taxes on real or personal property, nor as to reimbursement premiums paid to the Florida Hurricane Catastrophe Fund, nor as to emergency assessments paid to the Florida Hurricane Catastrophe Fund, nor as to special purpose obligations or assessments imposed in connection with particular kinds of insurance other than property insurance, except that deductions, from premium taxes or other taxes otherwise payable, allowed on account of real estate or personal property taxes paid shall be taken into consideration by the department in determining the propriety and extent of retaliatory action under this section. The parties concede that Revenue's Rule 12B-8.016 accurately tracts the first part of the retaliatory taxation statute. But a subpart of the Rule, 12B- 8.016(3)(a)(4), is challenged by Zurich in this proceeding because that subpart provides for inclusion of the assessment for administration of workers compensation in Florida and comparable assessments in other states. The rule subpart states: (3)(a) Other items which shall be included in the retaliatory calculations are: * * * 4. The workers compensation administrative assessment imposed by s. 440.51, F.S., as well as comparable assessments in other states. The State of Florida imposes assessment on workers compensation carriers such as Zurich in accordance with authority contained in Section 440.51, Florida Statutes, which is entitled "Expenses of Administration." Section 440.51 provides for the pro-rata assessment of all insurers and self- insurers of workers compensation to cover expenses of administering the workers compensation program. The assessment is a "special fund" that does not involve appropriated funds or general state revenues. Zurich's home state of New York imposes a comparable assessment. In accordance with Rule 12B-8.016(3)(a)(4), Florida Administrative Code, Revenue includes calculations for the Worker's Compensation Board Administrative Fund in the state of New York in Zurich's retaliatory tax calculation. In drafting the rule in 1989, Revenue relied upon Attorney General Opinion 057-173, which advised that Florida's Worker's Compensation Administrative Assessment should be considered a "tax" for purposes of retaliatory tax calculation. On this basis, Revenue's rule requires that such assessments be considered as "taxes" and included in the retaliatory tax calculation. However, following the issuance of Attorney General Opinion 057-173, the Florida legislature in 1959 enacted the present Subsection 624.5091(3), Florida Statutes, specifically excluding the consideration of "special purpose obligations or assessments imposed in connection with particular kinds of insurance other than property insurance" in retaliatory tax calculations. Following the 1959 enactment of the exclusionary language contained in Subsection 624.5091(3), Florida Statutes, the Department of Insurance did not include comparable worker compensation assessments of other states. The Department of Insurance administered insurance taxation until 1989. Department of Insurance forms introduced into evidence for 1986 showed that the Florida assessment, pursuant to Section 440.51 Florida Statutes, was treated as a deduction against Florida's premium tax and added back in on the Florida side of the retaliatory tax calculation. But the assessment was not included in a manner to inflate the calculation of the domiciliary state's comparative tax base. When Revenue assumed administration of insurance taxation in 1989, a proposed rule and an emergency rule were promulgated. Neither provided for inclusion of foreign states' special purpose administrative assessments in retaliatory tax calculation. In the course of the promulgation process, the determination to treat the worker compensation administrative assessment as a tax became a part of the rule. The purpose of Florida's retaliatory statute is to influence other states' legislative discretion to lower the tax burden on Florida insurers doing business in those other states. The items to be compared for retaliatory purposes are determined by the legislature and not by Revenue, Revenue auditors, or other states.
Findings Of Fact Gardinier Big River is a New Jersey corporation authorized to transact business within the State of Florida. Gardinier is a Delaware corporation authorized to transact business within the State of Florida. Gardinier is a wholly owned subsidiary of Gardinier Big River. Petitioners were subject to the corporate income tax imposed by Chapter 220, Florida Statutes, for the tax years 1974 through 1981. For the tax years 1974 and 1975, Gardinier and Gardinier Big River each filed separate annual corporate income tax returns. Beginning with the tax year 1976, and continuing through the tax year 1981, Petitioners filed consolidated annual corporate income tax returns as authorized by Section 220.131, Florida Statutes. Annual corporate income tax returns were filed by Petitioners as follows: (a) Gardinier timely filed on April 1, 1975, an annual corporate income tax return for its tax year ending June 30, 1974; (b) Gardinier Big River timely filed on January 1, 1976, an annual corporate income tax return for its tax year ending March 31, 1975; (c) Gardinier timely filed on April 1, 1976, an annual corporate income tax return for its tax year ending June 30, 1975; (d) Petitioners timely filed on January 3, 1977, a consolidated annual corporate income tax return for their tax year ending March 31, 1976; (e) Petitioners timely filed on March 30, 1977, a consolidated annual corporate income tax return for their tax year ending June 30, 1976; (f) Petitioners timely filed on March 21, 1978, a consolidated annual corporate income tax return for their tax year ending June 30, 1977; (g) Petitioners timely filed on March 27, 1979, a consolidated annual corporate income tax return for their tax year ending June 30, 1978; (h) Petitioners timely filed on April 1, 1980, a consolidated annual corporate income tax return for their tax year ending June 30, 1979; (i) Petitioners timely filed on April 1, 1981, a consolidated annual corporate income tax return for their tax year ending June 30, 1980; (j) Petitioners timely filed on December 8, 1981, a consolidated annual corporate income tax return for their tax year ending June 30, 1981. For each of the years 1974 through 1981, Petitioners, either individually or jointly, timely paid the corporate income tax which Petitioners determined to be due pursuant to Chapter 220, Florida Statutes (1983), by the return date specified in Section 220.222, Florida Statutes (1983), without regard for extensions. Specifically, corporate income taxes were paid by the Petitioners on the following dates for the following tax years: (a) tax year ending June 30, 1975--taxes paid by October 1, 1975; (b) tax year ending March 31, 1975--taxes paid by July 1, 1976; and (c) tax year ending June 30, 1980-- taxes paid by October 1, 1980. On several occasions, the latest of which was April 5, 1983, Petitioners and the Department agreed, for the tax years 1974 through 1981, to extensions of the assessment and refund limitation provisions found at Sections 214.09 and 214.16, Florida Statutes. On or about February 21, 1983, the Department commenced a corporate income tax audit of the Petitioners for the tax years 1974 through 1981. On or about April 23, 1983, as a result of the foregoing audit, the Department issued to Gardinier a Notice of Intent to Make Audit Changes indicating an overpayment of corporate income taxes for the tax year ending June 30, 1975, and an underpayment of corporate income taxes for the tax year ending June 30, 1974. On that same date, the Department issued to Petitioners jointly two separate Notices of Intent to Make Audit Changes indicating overpayments of corporate income taxes for the tax years ending March 31, 1976, and June 30, 1980, and underpayments of corporate income taxes for the tax years ending March 31, 1975, and June 30, 1979. In addition, these Notices indicated that penalty and interest assessments would be made against Gardinier for the alleged late payment of estimated taxes for the tax year ending June 30, 1975, and against Petitioners jointly for the alleged late payment of estimated taxes for the tax year ending March 31, 1976. A Notice of Intent to Make Audit Changes is a form used by the Department to advise taxpayers of overpayments or underpayments of taxes determined by the Department in an audit of the taxpayers' books and records. The notice forms are also referred to by the reference "DR 802." If the taxpayer agrees with the results set forth in the notice, it is instructed by the Department to sign the notice at the space indicated thereon and return it to the Department. By letters dated July 11, 1983, the Department advised Petitioners of its receipt of an unagreed Notice of Intent to Make Audit Changes from the Department's audit staff. The letters further stated that the audit resulted in a refund of taxes to Petitioners' account and that signed agreements to the refunds were required to be reviewed by the Department by September 12, 1983. By letter dated July 21, 1983, Petitioners notified the Department of their disagreement with certain aspects of the Notices of Intent to Make Audit Changes. Specifically, Petitioners disagreed with the assessment of penalty and interest for the alleged late payment of corporate income taxes for the tax years 1975 and 1976. In addition, Petitioners indicated their disagreement with the Department's failure to provide for the payment of interest on Petitioners' overpayments of corporate income taxes for the tax years 1975, 1976, and 1980. By letter dated August 4, 1983, the Department advised Petitioners of its agreement that penalty and interest assessments should not have been made for the tax years 1975 and 1976. In addition, the Department advised Petitioners that interest would not be paid upon the overpayments of corporate income taxes for the tax years 1975, 1976, and 1980. On August 16, 1983, Petitioners submitted to the Department signed Notices of Intent to Make Audit Changes indicating Petitioners' agreement and entitlement to a refund of the net overpayments of corporate income taxes for the tax years 1974 through 1981. By letter dated August 16, 1983, Petitioners protested the Department's failure to pay interest upon the overpayments of corporate income taxes and made a formal claim for payment pursuant to Section 214.14, Florida Statutes (1983), for said interest. On November 10, 1983, the Department issued to Petitioners a Notice of Decision denying Petitioners' claim for interest upon the overpayments of corporate income taxes. Petitioners did not request reconsideration of this Notice of Decision. The overpayment of corporate income taxes by Gardinier for the tax year ending June 30, 1975, was $204,277.61. The overpayment of corporate income taxes by Petitioners for the tax year ending March 31, 1976, was $109,658.00. The overpayment of corporate income taxes by Petitioners for the tax year ending June 30, 1980, was $222,021.00. Total overpayments of corporate income taxes by Petitioners, either individually or jointly, for the tax years 1975, 1976, and 1980 were $535,956.61. Total underpayments of corporate income taxes by Petitioners for the tax years 1974, 1975, and 1979, including penalties and interest assessed thereon, were $153,595.92. The Department refunded to Petitioners, by checks dated October 13 and November 16, 1983, $382,360.69 which amount represented the difference between total overpayments and underpayments by Petitioners of corporate income taxes for the tax years 1974 through 1981. The provisions of Chapters 214 and 220, Florida Statutes (1983), are applicable to the circumstances of this action. The parties hereby agree that the Joint Exhibits are true and accurate copies of the original documents. It is the intent of the parties hereto that this stipulation resolve all material facts necessary for a determination of the rights and liabilities of the parties in this action.
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 Whether the "Additional Payment" made by Hernando HMA, Inc., d/b/a Brooksville Regional Hospital to Hernando County pursuant to a document entitled Lease Agreement, as amended, constitutes "rent" subject to sales tax under section 212.031, Florida Statutes.1/
Findings Of Fact Hernando HMA, Inc. (HMA) is a for-profit entity which operates Brooksville Regional Hospital, Spring Hill Regional Hospital, and other entities, as successor to an entity that was in Chapter 11 bankruptcy proceedings from 1993 to 1998, Regional Healthcare, Inc. (RHI). The Department is an agency of the State of Florida that has been delegated the responsibility to collect sales and use taxes imposed by chapter 212, Florida Statutes. In 1998, as part of RHI's bankruptcy plan, HMA and the County entered into various agreements, including a lease agreement (1998 Lease), regarding the use and operation of several RHI hospital properties and improvements owned by the County, and leased back to RHI. Under the 1998 Lease and other agreements, HMA agreed to continue to operate the hospital facilities for 30 years with possession of the real property and improvements to be returned to the County at the end of the lease term. Section 1.2W. of the 1998 Lease defined "Rental Payment" as follows: "Rental Payment" means all payments due from Lessee to Lessor or otherwise required to be paid by Lessee pursuant to the terms of this lease. The 1998 Lease further provided in section 3.3 under the heading "Rent": The annual rental payment of the Leased Premises for each year of the Lease Term (the "Rental Payment") shall be in the amount of Three Hundred Thousand and 00/100 Dollars ($300,000). This Rental Payment shall be paid to Lessor by Lessee on the Commencement Date and on each anniversary date of the Commencement Date during the Lease Term. The 1998 Lease also provided that HMA, as Lessee, would pay "all taxes, if any, prior to delinquency." Under the 1998 Lease, the County agreed to lease the premises in consideration of HMA’s timely payment of rent and timely performance of the other covenants and agreements required under the lease. It was an “event of default” under the lease if HMA failed to observe and perform any covenant, condition, or agreement on its part which could be cured by a payment of money. Remedies for default under the 1998 Lease included termination of the lease by the County and exclusion of HMA from possession of the leased premises. Even though the leased premises under the 1998 Lease were not subject to ad valorem taxes because they were owned by the County, during public discussions of the proposed 1998 Lease, an issue arose about HMA's responsibility for payment of fire assessments that would have been paid if the property was not immune or exempt from ad valorem taxes. HMA agreed, by separate agreement, to pay the fire assessments and buy a new ambulance to serve the community. The fire assessment agreement was by separate document that was included as part of the closing of the 1998 Lease and other agreements involving the hospital facilities in June 1998. The 1998 Lease was dated June 1, 1998. The 1998 Lease terms included a merger clause in section 15.6 entitled “ENTIRE AGREEMENT,” which provided: This lease may not be modified, amended or otherwise changed orally, but may only be modified, amended or otherwise changed by an agreement in writing signed by both parties. This Lease Agreement and its accompanying guaranty constitute the entire agreement between the parties affecting this Lease. This Lease Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements, and understandings between the parties hereto with respect to the subject matter thereof, and no such outside or prior agreements shall be used to interpret or to construe this Lease. There are no promises, covenants, representations or inducements in addition to, or at variance with any of the terms of this Lease Agreement except the Guaranty. In 2001, the County and HMA began negotiations for relocation of the Brooksville Regional Hospital which was part of the leased premises described in the 1998 Lease. During the negotiations, HMA, through its attorney, Steven Mitchell, prepared a proposed comprehensive relocation agreement in consultation with former County Attorney Bruce Snow. Section 7.3 of the proposed relocation agreement contemplated revising the 1998 Lease and suggested the following preliminarily negotiated language for rental payments under a revised 1998 Lease: Rental Payments The Lessee shall pay to Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and no/100 Dollars ($300,000.00) per annum. The Lessee shall pay to Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of the same sum to be used by Hernando County as it deems appropriate, an amount equal to the ad valorem taxes that would have been paid on the New Facility Site as improved with the New Facility if the New Facility Site were not owned by Hernando County but owned by a for-profit entity. In the event the New Facility Site and the New Facility located thereon are subsequently required by law to pay ad valorem taxes then the obligation to pay the amount described in Section 7.3(b) herein shall immediately terminate and Lessee shall be responsible for the payment of the appropriate ad valorem tax. The proposed comprehensive relocation agreement was discussed at public meetings held by the Hernando County Board of Commissioners on September 17 and September 25, 2001. The minutes of the September 25, 2001, meeting indicate that the County Administrator advised that the proposed relocation agreement contemplated that HMA would continue to pay $300,000 annually as rent, and “would make a payment-in-lieu of taxes annually to the County . . . .” The minutes also reflect that, in responding to a question from a commissioner regarding whether there should be language in the agreement that would protect the “payment-in-lieu of taxes” provision in the event the law changed: [Former County Attorney] Snow replied that it was his recommendation that there should be a provision that to the extent that the organic law of the State provided that facilities, such as the new hospital or other hospital under the lease, were taxable for ad valorem tax purposes, that that provision of the organic law would apply to ensure that that provision superseded. He explained that the lease provision to provide for an ad valorem tax payment was only to the extent that the organic law did not otherwise compel it so that the County would be receiving ad valorem tax under either scenario. The minutes from the September 25, 2001, meeting further state: Mr. Snow replied to County Attorney Garth Coller that there had been recent Supreme Court decisions which may have a bearing on the organic law to the extent that a decision of that nature indicated that the facilities were subject to ad valorem tax, notwithstanding the ownership issue, then they were subject to ad valorem tax and the lease would need to clarify that. He suggested that if the FS or Constitution should change, even in the absence of an interpretation of the Supreme Court decision, the change would obligate the payment of ad valorem taxes pursuant to the constitutional or statutory provisions. He explained that organic law pertained to provisions of FS or the Constitution as opposed to a Court decision. Mr. Snow’s reported reference to recent “Supreme Court decisions” regarding ad valorem taxes undoubtedly was referring the decision, among others, in Sebring Airport Authority v. McIntyre, 718 So. 2d 296 (Fla. 1998). In that decision, rendered a few months after the County entered into the 1998 Lease, the Supreme Court of Florida stated with regard to municipal (as opposed to county) property: [T]here is nothing in article VII, section 3 that allows the legislature to exempt from ad valorem taxation municipally owned property or any other property that is being used primarily for a proprietary purpose or for any purpose other than a governmental, municipal or public purpose. To the extent section 196.012(6) attempts to exempt from taxation municipal property used for a proprietary purpose, the statute is unconstitutional. Id. at 298. The Sebring case did not address tax immunity of county property as distinguished from the issue of tax exemptions for the proprietary use of municipal property. The proposed “Rental Payments” language for revisions to the 1998 Lease, however, demonstrates that the drafters of the comprehensive relocation agreement were aware of the possibility that the Sebring rationale could be expanded and applied to county property. The comprehensive relocation agreement was approved by the County, and executed in late 2001. Attached as to that relocation agreement as Schedule C was an unsigned document entitled “First Amendment to Lease Agreement” that was not to be executed until the new facility was completed and transferred to the County. Subsection 3.3 of the First Amendment to Lease Agreement entitled “Rental Payments” provided: Rental Payments The Lessee shall pay to the Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and No/100 Dollars ($300,000.00) per annum. The Lessee shall pay to the Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of an amount (“Additional Payment”) equal to the sum of the following: An amount equal to that portion of the ad valorem taxes that would have been paid to Hernando County on the Leased Premises (as modified by the substitution of the New Facility Site for the Current Hospital Site) if the Leased Premises were not owned by Hernando County but owned by a for profit entity; and An amount equal to that portion of the ad valorem taxes that would have been paid to the Spring Hill Fire and Rescue District, the Township 22 Fire District and/or any other special taxing district that may be established pursuant to law; and An amount equal to all special assessments levied by Hernando County through any Municipal Service Benefit Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes; and An amount equal to all ad valorem tax levied by Hernando County through any Municipal Service Taxing Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes. In no event shall the Additional Payments exceed an amount equal to a full ad valorem tax assessment on the New Facility Site as determined annually by the Hernando County Property Appraiser. In the event the Lessee and/or Lessor is required by law to pay ad valorem taxes on the Leased Premises or any portion thereof, the obligation to pay to Lessor the Additional Payment described in this Section 3.3 shall immediately terminate (and/or be adjusted, whichever is applicable), and Lessee shall be responsible for payment of the appropriate ad valorem tax. The First Amendment to Lease Agreement further provided, “[e]xcept as expressly modified herein, all other terms and conditions set forth in the [1998] Lease Agreement are hereby ratified and confirmed.” The new hospital facility was completed and transferred to the County in 2005. On November 15, 2005, the County commission approved documents related to the transfer, including the First Amendment to Lease Agreement in the precise form as attached to the relocation agreement approved in 2001. The approval was obtained on a consent agenda, and the minutes reflect no further discussion by the commission or the public on the documents that were approved. In 2009, the Hernando County School District sued the County Property Appraiser, alleging that the properties subject to the 1998 Lease as amended by the First Amendment to Lease Agreement should not be exempt from ad valorem taxation. In a 13-page Order dismissing the School District’s action, Circuit Judge Daniel B. Merritt, Jr., distinguished the cases disallowing statutory ad valorem tax exemptions for properties owned by special tax districts or cities from the sovereign immunity against ad valorem taxes enjoyed by real estate owned by the State of Florida and its counties. In his ruling, Judge Merritt noted that Florida law specifically makes leasehold interests in governmental property subject to taxation, noting: The Legislature defines leasehold interests as intangible personal property and, hence, assessed by the Florida Department of Revenue, when: (1) rent is due; (2) the property is used for commercial purposes; (3) is not used for agriculture; (4) not financed with revenue bonds, and; (5) the lease is for an initial term of less than 100 years; §§196.199(2)(b), Florida Statutes (2008), 199.023(1)(d), Florida Statutes (2005), specifically preserved in Chapter 2006-312, Laws of Florida (2006). However, see below for further analysis with regard to presumed ownership of property leased for 100 years or more as set forth in §196.199(7), Florida Statutes. Judge Merritt also discussed those instances where “leased” property might not qualify as State or county property where lessees are the “equitable owners,” such as leaseholds of 100 years or more or where properties do not revert to the State until the end of a lease term. In his order, however, Judge Merritt noted that the tax immunity of the County was a fundamental attribute of county property and held that “under the terms of the Lease Agreements the Court concludes that HMA has merely the right to use and possession and is not the beneficial owner as a matter of law Hernando County’s immune property and improvements.” Judge Merritt’s Order was affirmed on appeal. School Board of Hernando County v. Mazourek, Case No. H-27-CA-2009-549 (5th Cir. 2009), per curiam aff’d, 2010 WL 4323055 (Fla. 5th DCA 2010) In December, 2010, the Department notified the County it had been selected for a tax compliance audit under chapter 212, Florida Statutes, Sales and Use Tax. The audit period was from January 1, 2007, through December 31, 2009. The County’s personnel were cordial and receptive during the audit process and the Department’s auditor determined that the books and records kept by the County had adequate internal accounting controls in place and sufficient data integrity. Out of the approximately 19 tax registration accounts the County has with the Department, the Department’s auditor found exception with only tax account #12445797, the tax collected and remitted under its lease with HMA. In her record review, the Department’s auditor noticed invoices and worksheets from the County to HMA, titled “Payment in lieu of taxes.” In examining the First Amendment to the Lease Agreement, Section 3.3 “Rental Payments,” the Department’s auditor determined that the County was not collecting sales tax on a portion of the rent received under that section. The monthly tax return filed by the County under account # 12445797 reflected that it was collecting and remitting the sales tax calculated on the $300,000.00 annual rent payment, but was not collecting and remitting sales tax calculated on the additional payments in lieu of taxes. The Department’s auditor determined the additional payments, required under the lease and made as a condition of occupancy, constituted a taxable transaction as additional rent consideration. The amount of the additional payments, made January 2007 and March 2008, as revealed on the County’s “Payment in lieu of taxes worksheets,” was multiplied by 6.5 percent to arrive at the additional tax amount due of $78,710.17. On December 9, 2010, the Department issued a Notice of Intent to Make Audit Changes, Form DR 1215, advising the County of its audit findings, which included $78,710.17 in taxes due, $14,526.37 in accrued interest through December 9, 2010, and a $19,677.55 late payment penalty. On December 21, 2010, the Department issued its Notice of Proposed Assessment, Form DR 831, showing an assessment of $78,710.17 in tax and $14,707.51 in accrued interest, for a total of $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem. All penalty amounts were waived. At the final hearing, the County argued that the additional payments from HMA under the First Amendment to Lease Agreement were not rent, but rather separate payments to pay for County services. While the actual language used in the First Amendment to Lease Agreement appears to unambiguously indicate that the additional payments were rent, the County offered additional evidence of facts and circumstances beyond the terms of the lease itself in support of its argument that the additional payments were not rent. That evidence was admitted, without objection, and has been considered in determining the intention of the parties to the lease with regard to the additional payments. In addition to evidence that the lease drafters were aware of certain cases decided on the issue of whether the leased premises would be subject to ad valorem taxes, the County offered the testimony of Mr. Mitchell regarding the “Rental Payments” language found in the First Amendment to Lease Agreement. When asked whether there had been much negotiation over the format or wording of the First Amendment to Lease Agreement, Mr. Mitchell recalled: No, there really wasn’t other than, you know, the concept – what this amendment does is what we had agreed to pay rental payment. The rental payment was $300,000. And then, we also had agreed independently just to go ahead and pay the County for certain services that they were providing to us. And then we specified those. Those were independent payments, not part of the rental payment. Mr. Mitchell further testified: [B]asically, this property is free of ad valorem tax. That is why the school board filed their lawsuit because, of course, they were not getting any of the ad valorem taxes. So, the property is free of payment of ad valorem taxes. We’re paying our 300,000. It was very, very clear. However, HMA felt that the County was providing certain services, the fire districts and whatnot. So, independent of the rent, we paid this amount. If you read the section dealing – it’s 3.3.[2], or whatever it is, which I’ll read it to you, it talks about, at the very end – and they did it for whatever reason the property became taxable, you know, it effectively became taxable and we had to pay full ad valorem taxes on the property, then the specialties – these additional payments we called, you know, would go away and they, effectively, be part of rent. That's why it talks about it as such, and it was either additional payment and/or rent. Contrary to Mr. Mitchell’s recollection, section 3.3.2 of the First Amendment to Lease Agreement does not speak in terms of “additional payment and/or rent” but rather states that another payment would be made “either as rent or by virtue of a payment to Hernando County of an amount ('Additional Payment') . . .". Mr. Mitchell makes a valid point regarding the fact that HMA was concerned about having to pay both the additional payment and ad valorem taxes. Consistent with this concern, the lease amendment made it clear that HMA would not have to pay the additional amount if the property ever became subject to ad valorem taxes. Mr. Mitchell’s testimony in support of the County’s contention that HMA’s payment in lieu of taxes under the First Amendment to Lease Agreement was not rent, however, is unpersuasive. Considering the extrinsic evidence offered by the County, especially evidence of the parties concern that the subject County property might someday be subject to ad valorem taxes, together with the 1998 Lease, language negotiated for the proposed relocation agreement, and the actual terms of the First Amendment to Lease Agreement, it is found that the parties intended the language under the "Rental Payments" section to assure that HMA did not have to pay the additional amount twice. The extrinsic evidence offered by the County, however, was insufficient to support a finding that the parties intended to differentiate between “rent” and the “additional payment” or that, however characterized, the payment in lieu of taxes was not rent subject to assessment by the Department. If the parties had wanted to provide language that designated the payment in lieu of taxes as a payment for services instead of rent they could have, as they did in the Second Amendment to Lease Agreement entered into on September 13, 2011, just ten days prior to the final hearing in this case.2/ That Second Amendment to Lease Agreement changed the name of section 3.3 from “Rental Payments,” as found in the First Amendment, to “Rent and Additional Payment for County Services.” Pertinent subsections of the Second Amendment further provided: 3.3.2 Additional Payment for County Services. The Lessee shall pay to Lessor on an annual basis, as an additional payment (“Additional Payment”) for services provided by Hernando County [in its role as a service provider and local taxing authority], . . . * * * The Additional Payment is not intended to constitute “rent” and is not intended to create an event subject to Florida sales tax – but rather is intended to constitute a separate payment for the provision of services, payable to the local taxing authority, as provided in § 212.031(1)(c), Florida Statutes (which allow parties by contractual arrangement to distinguish between payments which are intended to be taxable and payments which are intended to be nontaxable), as this section may be amended or renumbered from time to time.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that, consistent with the Notice of Proposed Assessment dated December 21, 2010, and this Recommended Order, the Department of Revenue enter a final order finding that Petitioner owes tax and interest due totaling $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem, without penalties. DONE AND ENTERED this 30th day of December, 2011, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III 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 30th day of December, 2011.
Findings Of Fact The parties have agreed that there are no issues of fact to be determined in this matter, and that the relevant facts are set out in Paragraphs 3 and 4 of the Petition which was received in evidence at the hearing as Hearing Officer's Exhibit 1. This matter involves a determination for Florida corporate income tax purposes of the net income derived by the Petitioner in connection with the purchase, development, and sale of certain property in Dade County, Florida. Petitioner purchased the property prior to January 1, 1972, the date upon which the Florida Income Tax Code became effective. Petitioner expended, through a subsidiary corporation, $369,058 in developing the property. These expenditures also occurred prior to January 1, 1972. For Federal income tax purposes the Petitioner had deducted these expenditures as business expenses during the years that they were incurred. Petitioner sold the property during 1972. Because the Petitioner had deducted the expenditures as business expenses, the expenditures could not properly have been included in the base price of the property for Federal income tax purposes, and the net income for Federal tax purposes was computed by subtracting the original purchase price from the sale price. Since the Florida Income Tax Code was not in effect at the time the expenditures were made, the Petitioner received no Florida tax benefit for the expenditures. In computing the net income for Florida tax purposes derived from the sale, the Petitioner included the expenditures in the base price of the property, and calculated its net income by subtracting the sum of the purchase price of the property and the expenditures from the sale price. The Department, contending that the $369,058 should not have been included in the base price of the property, issued a deficiency assessment which reflected the net income from the sale of property as the difference between the sale price and the purchase price. Petitioner originally contended that it was entitled to add the amount that the property appreciated prior to January 1, 1972 to the base price of the property. Petitioner is no longer contesting the deficiency assessment based upon a disallowance of that addition to the base price of the property. The Department was originally contending that it was entitled to interest at 12 percent per annum calculated retrospectively from the due date of the alleged deficiency. The Department has agreed to abandon its effort to impose that rate of interest. The issue raised in this case is whether the development expenses incurred by the Petitioner and deducted for Federal income tax purposes as business expenses prior to 1972 can be subtracted from Federal taxable income for the purpose of determining taxable income derived from the sale for Florida tax purposes.
