Findings Of Fact The parties have stipulated to all facts in this proceeding. Those facts found relevant to a determination of the issue are as follows: Petitioner, American Telephone and Telegraph Company, is a New York corporation and is functionally divided into two divisions: the Long Lines Department and the General Department. Through its Long Lines Department, petitioner is a federally regulated public utility and common carrier which furnishes interstate and international telecommunications services. Long Lines is responsible generally for the construction, operation and maintenance of a nationwide system of interstate telecommunications facilities and related equipment which serve to interconnect the facilities of over 1700 operating telecommunications companies in the United States as well as telecommunications systems abroad. Some of these facilities extend into and through the State of Florida. In performing this interstate business, Long Lines operates, and thus has property or employees or both in 49 states, including Florida. Through its General Department, petitioner is the parent corporation of 21 operating telecommunications companies (known as "Associated Companies"), Western Electric Company, Inc. ("Western") and Bell Telephone Laboratories, Inc. ("Bell Labs"). The General Department holds and manages the stock owned in these subsidiaries and two minority owned companies, and provides capital. advice and assistance to them. It conducts these activities principally in New York and New Jersey and conducts no business and has no property or employees in Florida. The only business activities in the State of Florida during 1972, 1973 and 1974 were conducted through petitioner's Long Lines Department in connection with the operation of the interstate and international long distance telecommunications network. None of the Associated Companies is organized under the laws of Florida or has its headquarters in Florida. The Only Associated Company which conducts business or has property or employees within Florida is the Southern Bell Telephone and Telegraph Company (hereinafter "Southern Bell"), a wholly owned subsidiary of petitioner. Southern Bell files its own separate Florida income tax returns and during the period 1972-1974 paid approximately $10 million in income tax to Florida. The respondent concurs that petitioner is entitled to deduct 100 percent of the dividends paid by Southern Bell to petitioner. Western, also a wholly owned subsidiary of petitioner, is a manufacturing corporation with its own Board of Directors and officers, doing business in all 50 states. During the period 1972-1974 Western paid approximately $1.7 million in income tax to Florida. The respondent concurs that petitioner is entitled to deduct 100 percent of the dividends paid by Western to petitioner. For each of the 1972, 1973 and 1974 tax years, petitioner has filed a federal consolidated income tax return, and has made a valid election under Section 243 of the Internal Revenue Code for each of those years. That provision of the federal tax law permits a domestic corporation to deduct 100 percent of the dividends received from its wholly-owned domestic subsidiaries. Petitioner's federal income tax returns were audited by the Internal Revenue Service and the respective tax liabilities were determined and paid for each of the years in question. The Internal Revenue Service did not tax dividends received by petitioner from its affiliates. Petitioner timely filed its Florida corporate income tax returns for the years ending December 31, 1972, December 31, 1973 and December 31, 1974. Petitioner did not elect and was not required to file a Florida consolidated income tax return under Section 220.131, Florida Statutes. For each of the years in question, petitioner reported on line 1--"federal taxable income (line 30, Form 1120 or corresponding line on related form 1120 series, 990C or 990T)"- -of its Florida corporation income tax return (Form F-1120) its taxable income for federal income tax purposes computed as if petitioner had filed a separate federal income tax return for each of the years in question and for each preceding taxable year for which it was a member of an affiliated group. These amounts were: 1972 $ 94,020,281 1973 $213,364,165 1974 $110,770,402 On its Florida corporation income tax return for each of the years in question, petitioner made the additions and subtractions required by the form of the return in computing "adjusted federal income" and apportioned this amount by the prescribed three-factor formula to obtain "Florida net income." The Department of Revenue adjusted the amount of "federal taxable income" and hence "Florida net income" of petitioner for each of the years in question by adding thereto 15 percent of the dividends received from subsidiaries which were deductible for federal income tax purposes under Section 243 of the Internal Revenue Code. On April 10, 1978, the Department issued a notice of proposed deficiency for petitioner's tax years ended December 31, 1972, December 31, 1973 and December 31, 1974. The total amount of the proposed deficiency was $1,131,158, computed as follows: YEAR AUDITED TAX TAX AS FILED DEFICIENCY 1972 $426,468 $122,365 $304,103 1973 668,597 281,168 387,429 1974 594,300 154,674 439,626 Total $1,689,365 $558,207 $1,131,158 After a timely protest to the proposed deficiencies was filed by the petitioner, correspondence and an informal conference between the parties was had. Finally, on April 16, 1981, the Department issued a letter denying the protest and petitioner petitioned for an administrative hearing. Through correspondence and discussions with the petitioner, the Department of Revenue has taken the position that it would allow only an 85 percent dividend deduction for the dividends received by petitioner from those affiliates which were not subject to the Florida corporate income tax code. Petitioner is seeking to take a 100 percent deduction of all dividends which it received from its subsidiaries, as it did on its federal income tax returns. The dividends received by petitioner which the Department is attempting to subject to Florida tax by its proposed deficiency assessment are derived from its equity investment in its subsidiaries and they represent to petitioner a return on such investment. Since the actual capital, however, for that investment is furnished primarily by public investors, the principal use of the dividends received by petitioner is to meet its obligation to its shareholders and bondholders for the payment of dividends and interest. For example, in 1974 petitioner received dividends from the Associated Companies, Western and other affiliates in the amount of $2,538,443,000 and paid dividends to shareholders in the amount of $2,039,800,000 and interest on its long and intermediate term debt of $475,670,000. Petitioner, therefore, serves as the investor interface between the investing public and its subsidiary companies, whereby the purchase of petitioner's stock or debt issues actually represents an investment in the earnings of the Bell System. Petitioner, acting through its General Department, thus provides the avenue by which the subsidiaries pass their net earnings to the investing public. The income which the Department seeks to tax is derived from dividends received by petitioner primarily from earnings generated by the property and employees of the Associated Companies which are devoted to furnishing intrastate and interstate telecommunications services in their operating territories in states other than the State of Florida. These earnings are subject to income taxes in all states in which the Associated Companies provide telecommunications services that impose income taxes on corporations. The dividends received by petitioner do not contribute to the funding of Long Lines since (1) the pervasive regulation under which petitioner's subsidiaries operate limits their earnings to that amount sufficient for the needs of their own operations and effectively prevents those earnings from being available for use in other businesses and (2) earnings paid out as dividends by petitioner's subsidiaries are principally required to be passed to the public investors in the Bell System, through petitioner's General Department, in order to meet dividend and interest obligations to these outside shareholders and bondholders. During the tax years in question, the Department of Revenue had not promulgated any rule with respect to the disallowance of a deduction for 100 percent of dividends received as provided for under Section 243 of the Internal Revenue Code, and the Florida corporate income tax return forms did not require any such add-back or adjustment. During the 1980 legislative session, an amendment to Chapter 220, Florida Statutes, was proposed which would have changed the definition of "affiliated group of corporations." Such proposed legislation was not passed and did not become law.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that that portion of the Department's proposed assessment of deficiencies for the 1972, 1973 and 1974 tax years as is based upon dividends received by the petitioner from its affiliates be withdrawn as being contrary to law and invalid. Respectfully submitted and entered this 28th day of April, 1982. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of April, 1982.
The Issue The issues in this bid protest are, first, whether, as Petitioner alleges, Intervenor's failure to attach copies of "occupational licenses" to its proposal was a deviation from the requirements of the Request for Proposal; second, whether any such deviation was material; and third, whether Respondent's preliminary decision to award Intervenor the contract at issue was clearly erroneous, arbitrary or capricious, or contrary to competition.
Findings Of Fact On September 18, 2009, Respondent Department of Transportation ("Department") issued Request for Proposal No. RFP-DOT-09/10-4007FS (the "RFP"). Through the RFP, which is entitled, "Treasure Coast Road Ranger Service Patrol," the Department solicited written proposals from qualified providers who would be willing and able to perform towing and emergency roadside services on Interstate 95 in Martin County, St. Lucie County, and Indian River County. The Department intended to award a three-year contract to the "responsive and responsible Proposer whose proposal is determined to be the most advantageous to the Department." The Department anticipated that the contract would have a term beginning on December 1, 2009, and ending on November 31, 2012. The annual contract price was not to exceed $1.59 million. Proposals were due on October 13, 2009. Four firms timely submitted proposals in response to the RFP, including Petitioner Sunshine Towing @ Broward, Inc. ("Sunshine") and Intervenor Anchor Towing and Marine of Broward, Inc. ("Anchor"). An evaluation ensued, pursuant to a process described in the RFP, during which the Department rejected two of the four proposals for failing to meet minimum requirements relating to technical aspects of the project. As a result, Sunshine and Anchor emerged as the only competitors eligible for the award. Sunshine offered to perform the contractual services for an annual price of $1,531,548. This sum was less than the price that Anchor proposed by $46,980 per year. Despite Sunshine's lower cost, Anchor nevertheless edged Sunshine in the final score, receiving 92.86 points (out of 100) from the Department's evaluators, to Sunshine's 87.75. On November 30, 2009, the Department duly notified the public of its intent to award the contract to Anchor. Sunshine promptly initiated the instant protest, whereby Sunshine seeks to have Anchor's proposal disqualified as nonresponsive, in hopes that the Department will then award the contract to Sunshine as the highest-ranked (indeed the sole) responsive proposer. Sunshine alleges that Anchor's proposal failed to conform strictly to the specifications of the RFP, principally because Anchor did not attach copies of its "occupational licenses" to the proposal. Anchor insists that its proposal was responsive but argues, alternatively, that if its proposal deviated from the specifications, the deviation was merely a minor irregularity which the Department could waive. Anchor further contends that Sunshine's proposal contains material deviations for which it should be deemed nonresponsive. The Department takes the position that Anchor's failure to attach "occupational licenses" was a minor irregularity that could be (and was) waived.1 The RFP includes a "Special Conditions" section wherein the specifications at the heart of this dispute are located. Of particular interest is Special Condition No. 8, which specifies the qualifications a provider must have to be considered qualified to perform the services called for under the contract to be awarded. Special Condition No. 8 provides as follows: QUALIFICATIONS General The Department will determine whether the Proposer is qualified to perform the services being contracted based upon their proposal demonstrating satisfactory experience and capability in the work area. The Proposer shall identify necessary experienced personnel and facilities to support the activities associated with this proposal. Qualifications of Key Personnel Those individuals who will be directly involved in the project should have demonstrated experience in the areas delineated in the scope of work. Individuals whose qualifications are presented will be committed to the project for its duration unless otherwise excepted by the Department's Project Manager. Where State of Florida registration or certification is deemed appropriate, a copy of the registration or certificate should be included in the proposal package. Authorized To Do Business in the State of Florida In accordance with sections 607.1501, 608.501, and 620.169, Florida Statutes, foreign corporations, foreign limited liability companies, and foreign limited partnerships must be authorized to do business in the State of Florida. Such authorization should be obtained by the proposal due date and time, but in any case, must be obtained prior to the posting of the intended award of the contact. For authorization, [contact the Florida Department of State].[2] Licensed to Conduct Business in the State of Florida If the business being provided requires that individuals be licensed by the Department of Business and Professional Regulation, such licenses should be obtained by the proposal due date and time, but in any case, must be obtained prior to the posting of the intended award of the contract. For licensing, [contact the Florida Department of Business and Professional Regulation]. References and experience must entail a minimum of three (3) years of experience in the towing industry in Florida. NOTE: Copies of occupational licenses must also be attached to the back of Form 'F'. (Boldface in original.) Special Condition No. 19, which defines the term "responsive proposal," provides as follows: RESPONSIVENESS OF PROPOSALS Responsiveness of Proposals Proposals will not be considered if not received by the Department on or before the date and time specified as the due date for submission. All proposals must be typed or printed in ink. A responsive proposal is an offer to perform the scope of services called for in this Request for Proposal in accordance with all the requirements of this Request for Proposal and receiving fifty (50) points or more on the Technical Proposal.[3] Proposals found to be non-responsive shall not be considered. Proposals may be rejected if found to be irregular or not in conformance with the requirements and instructions herein contained. A proposal may be found to be irregular or non-responsive by reasons that include, but are not limited to, failure to utilize or complete prescribed forms, conditional proposals, incomplete proposals, indefinite or ambiguous proposals, and improper and/or undated signatures. (Emphasis and boldface in original.) In the "General Instructions to Respondents" section of the RFP there appears the following reservation of rights: 16. Minor Irregularities/Right to Reject. The Buyer reserves the right to accept or reject any and all bids, or separable portions thereof, and to waive any minor irregularity, technicality, or omission if the Buyer determines that doing so will serve the State's best interests. The Buyer may reject any response not submitted in the manner specified by the solicitation documents. Anchor did not attach copies of any "occupational licenses" to the back of Form 'F' in its proposal. Anchor contends that it did not need to attach such licenses because none exists. This position is based on two undisputed facts: (1) The Florida Department of Business and Professional Regulation ("DBPR") does not regulate the business of providing towing and emergency roadside assistance; therefore, neither Anchor nor Sunshine held (or could hold) a state-issued license to operate, and neither company fell under DBPR's regulatory jurisdiction. (2) The instrument formerly known as an "occupational license," which local governments had issued for decades, not for regulatory purposes but as a means of raising revenue, is presently called (at least formally) a "business tax receipt," after the Florida Legislature, in 2006, amended Chapter 205 of the Florida Statutes, changing the name of that law from the "Local Occupational License Tax Act" to the "Local Business Tax Act." See 2006 Fla. Laws ch. 152. Sunshine asserts that the terms "occupational license" and "business tax receipt" are synonymous and interchangeable, and that the RFP required each offeror to attach copies of its occupational licenses/business tax receipts to the proposal. Sunshine insists that Anchor's failure to do so constituted a material deviation from the specifications because, without such documentation, the Department could not be sure whether an offeror was authorized to do business in any given locality. Sunshine presses this argument a step further based on some additional undisputed facts. As it happened, at the time the proposals were opened, Anchor held a local business tax receipt from the City of Pembroke Pines, which is the municipality in which Anchor maintains its principal place of business. Anchor had not, however, paid local business taxes to Broward County when they became due, respectively, on July 1, 2008, and July 1, 2009. Anchor corrected this problem on December 14, 2009, which was about two weeks after the Department had posted notice of its intent to award Anchor the contract, paying Broward County a grand total of $248.45 in back taxes, collection costs, and late penalties. As of this writing, all of Anchor's local business tax obligations are paid in full. Sunshine contends, however, that during the period of time that Anchor's Broward County business taxes were delinquent, Anchor was not authorized to do business in Broward County and hence was not a "responsible" proposer eligible for award of the contract. In support of this proposition, Sunshine relies upon Section 20-15 of the Broward County, Florida, Code of Ordinances ("Broward Code"), which states: Pursuant to the authority granted by Chapter 205, Florida Statutes, no person shall engage in or manage any business, profession or occupation, as the same are contemplated by Chapter 205, Florida Statutes, unless such person first obtains a business tax receipt as required by this article, unless other exempt from this requirement . . . . On this latter point regarding Anchor's authority to operate in Broward County, Sunshine appears to be correct, at least in a narrow legal sense. It is abundantly clear, however, and the undersigned finds, that, as a matter of fact, Anchor was never in any danger of being shut down by the county. Indeed, even under the strict letter of the local law, Anchor was entitled to continue operating in Broward County unless and until the county took steps to compel the payment of the delinquent taxes. Broward Code Section 20-22, which deals with the enforcement of the business tax provisions, provides: Whenever any person who is subject to the payment of a business tax or privilege tax provided by this article shall fail to pay the same when due, the tax collector, within three (3) years from the due date of the tax, may issue a warrant directed to the Broward County Sheriff, commanding him/her to levy upon and sell any real or personal property of such person liable for said tax for the amount thereof and the cost of executing the warrant and to return such warrant to the tax collector and to pay him/her the money collected by virtue thereof within sixty (60) days from the date of the warrant. . . . The tax collector may file a copy of the warrant with the Clerk of the Circuit Court of Broward County[, which shall be recorded in the public records and thereby] become a lien for seven (7) years from the due date of the tax. . . . Any person subject to, and who fails to pay, a business tax or privilege tax required by this article, shall, on petition of the tax collector, be enjoined by the Circuit Court from engaging in the business for which he/she has failed to pay said business tax, until such time as he/she shall pay the same with costs of such action. There is no evidence suggesting that the county ever sought to enjoin, or that a court ever issued an injunction prohibiting, Anchor from engaging in business, nor does it appear, based on the evidence, that a tax warrant ever was issued, filed, or executed to force Anchor to pay its back taxes. Given the relatively small amount of tax due, the likelihood of such enforcement actions being taken must reasonably be reckoned as slim to none. While paying taxes when due is certainly the obligation of a good corporate citizen, it would not be reasonable, based on the facts established in this case, to infer that Anchor is a scofflaw for failing to timely pay a local tax amounting to about $80 per year. Anchor, in short, was a responsible proposer. Sunshine's other argument has more going for it. The RFP clearly and unambiguously mandated that "occupational licenses" be attached to a proposal. If, as Sunshine maintains, the terms "occupational license" and "business tax receipt" are clearly synonymous, then Anchor's proposal was noncompliant. For reasons that will be explained below, however, the undersigned has concluded, as a matter of law, that the term "occupational license" does not unambiguously denote a "business tax receipt"——at least not in the context of Special Condition No. 8. The specification, in other words, is ambiguous. No one protested the specification or otherwise sought clarification of the Department's intent. The evidence shows, and the undersigned finds, that the Department understood and intended the term "occupational license" to mean the instrument now known as a "business tax receipt." The Department simply used the outdated name, as many others probably still do, owing to that facet of human nature captured by the expression, "old habits die hard." The Department's interpretation of the ambiguous specification is not clearly erroneous and therefore should not be disturbed in this proceeding. Based on the Department's interpretation of Special Condition No. 8, the undersigned finds that Anchor's failure to attach copies of its occupational licenses was a deviation from the requirements of the RFP. That is not the end of the matter, however, for a deviation is not necessarily disqualifying unless it is found to be material. The letting authority may, in the exercise of discretion, choose to waive a minor irregularity if doing so will not compromise the integrity and fairness of the competition. There is no persuasive direct evidence in the record that the Department made a conscious decision to waive the irregularity in Anchor's proposal. Documents in the Department's procurement file show, however, that the Department knew that Anchor's proposal lacked copies of occupational licenses, and in any event this was a patent defect, inasmuch as nothing was attached to the back of Anchor's Form 'F'. It is therefore reasonable to infer that the Department elected to waive the irregularity, and the undersigned so finds. Necessarily implicit in the Department's action (waiving the deficiency) is an agency determination that that the irregularity was a minor one. The question of whether or not Anchor's noncompliance with Special Condition No. 8 was material is fairly debatable. Ultimately, however, the undersigned is unable to find, for reasons more fully developed below, that the Department's determination in this regard was clearly erroneous. Because the Department's determination was not clearly erroneous, the undersigned accepts that Anchor's failure to submit occupational licenses was a minor irregularity, which the Department could waive. The Department's decision to waive the minor irregularity is entitled to great deference and should be upheld unless it was arbitrary or capricious. The undersigned cannot say that waiving the deficiency in question was illogical, despotic, thoughtless, or otherwise an abuse of discretion; to the contrary, once it has been concluded that the irregularity is minor and immaterial, as the Department not incorrectly did here, waiver seems the reasonable and logical course of action. The upshot is that the proposed award to Anchor should be allowed to stand. The foregoing determination renders moot the disputed issues of fact arising from Anchor's allegation that Sunshine's proposal was nonresponsive. It is unnecessary, therefore, for the undersigned to make additional findings on that subject.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a Final Order consistent with its preliminary decision to award Anchor the contract at issue. DONE AND ENTERED this 6th day of April, 2010, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings 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 6th day of April, 2010.
Findings Of Fact Having considered the pleadings, evidence and legal arguments presented in this cause, the following facts are found: Petitioner is a corporation duly organized under the laws of the State of New Jersey and qualified to do business is one State of Florida. Two of the subsidiaries of Petitioner are Island Properties, Inc., formerly known as Heftler International, Inc., and Island Land Corporation, formerly known as Heftler Construction Company of Puerto Rico, Inc. These corporations are organized under the laws of the State of Florida and the State of New Jersey respectively and maintain principal places of business in Puerto Rico. For the fiscal years ending July 31, 1972 and July 31, 1973, petitioners properly included losses from the operations of the Puerto Rico corporations in their consolidated income tax returns filed with the Internal Revenue Service. For the fiscal years ending July 31, 1972, and July 31, 1973, petitioners timely filed with the respondent consolidated income tax returns including therein the operations of the Puerto Rico corporations. After a timely audit, the respondent excluded, for the purposes of computing adjusted federal income as defined by 220.13, the losses sustained by the Puerto Rico corporations. The respondent also excluded from the computation of the apportionment factors defined in F.S. s. 214.71 and 220.15 the value of the property, payroll and sales utilized in the operations of the Puerto Rico corporations. The respondent cited F.S. ss. 220.13(1)(b)2.b, 220.15(3) and 214.71 as its authority. The adjustments made by the respondent results in a net proposed deficiency of $75,076.46 for the two fiscal years in question. After attempts by the parties to resolve the issues by informal means failed, the petitioner requested a formal hearing and 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 recommended that there is no basis for affording petitioners any relief from the proposed deficiency and that said deficiency in the amount of $75,076.46 be sustained. Respectfully submitted and entered this 20th day of November, 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: Lewis M. Kanner, Esquire WILLIAMS, SALOMON, KANNER DAMIAN 1003 du Pont Building Miami, Florida 33131 E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 Mr. J. Ed Straughn Executive Director Department of Revenue Tallahassee, Florida 32304
The Issue The issues to be determined in this proceeding are 1) whether Respondent, the Department of Revenue (Respondent or the Department), demonstrated that it made an assessment against the taxpayer, as well as the factual and legal basis for the assessment; 2) whether Petitioner, 130 NE 40th Street, LLC, d/b/a Michael’s Genuine Food and Drink (Petitioner or Michael’s), is entitled to enterprise zone job credits (EZ credits) claimed on its sales and use tax returns for the audited period; and whether the penalty and interest assessed in the August 18, 2016, Notice of Decision is justified.
Findings Of Fact Petitioner is a Florida corporation with its home office and principal place of business in Miami, Florida. Respondent is an agency of the State of Florida, charged with administering the state’s sales tax laws under chapter 212, Florida Statutes (2012-2014). Michael’s is a limited liability company located at 130 NE 40th Street, Miami, Florida 33137. It operates a restaurant and bar at that address. Business Structure of Michael’s Michael’s opened in 2007 and is located in an enterprise zone in Miami. Michael’s enterprise zone identification number is 1301. Michael’s is owned by Michael Schwartz. In 2012, Mr. Schwartz opened a second restaurant known as Harry’s Pizzeria, which is also located in Miami. A third restaurant, the Cypress Room, was also opened during the audit period, although the timing of its opening is not clear from the record. Neither Harry’s Pizzeria nor the Cypress Room is the subject of this audit. All of the restaurants are separate legal entities. Mr. Schwartz is also the owner of a shared service company named Genuine Hospitality Group (GHG). The direct employees of GHG are the comptroller for the restaurants, the director of beverage, the director of operations, a marketing person, and the people overseeing the various restaurants. GHG does not have ownership in any of the restaurants, but provides services to each of them, including at different times, payroll, marketing, operations, and menu development. For example, during the years 2012 and 2013, GHG provided payroll functions for the various restaurants. According to Omar Azze, GHG’s comptroller, the idea was to create a “common paymaster” for the restaurants, because it would allow them to have a larger pool of employees for health insurance, in order to get a more favorable rate. When Michael’s decided to use this payroll method, Mr. Azze called the Department and canceled the reemployment tax registration of Michael’s because the taxes would be paid through GHG. Contrary to notations in the Department’s records, Michael’s never closed during the audit period: it still had the same employees and management team. The idea for using a common paymaster approach for the restaurants came from the restaurants’ accounting consultant. Paying employees through GHG was never intended to reduce the tax liability of Michael’s, or to transfer control of the employees to GHG, and taxes related to payroll were all paid through GHG for 2012 and 2013. Each restaurant maintained control over its own employees (general manager, two or three assistant managers, the head chef, bussers, waiters, cooks, support staff, and bartenders) and employee records, and employees did not “float” from restaurant to restaurant. GHG would pay the employees for Michael’s and the other restaurants, and all of the restaurants would reimburse GHG for the payroll payments for their respective employees. Mr. Azze’s testimony regarding this arrangement is consistent with the deductions on the restaurants’ respective federal tax returns for the payrolls in 2012 and 2013, and is credited. It is found that, during the calendar years 2012 and 2013, the employees remained under the direction and control of Michael’s and that payroll services alone were handled by GHG. In 2014, the third year of the audit period, the Petitioner decided to stop having GHG performing payroll functions, and to handle payroll in-house using a QuickBooks program, in order to reduce costs. In terms of the audit, this change in payroll method meant that for the first two years of the audit, all of the employees for Michael’s were paid through GHG, as were all of Michael’s’ reemployment taxes. The third year of the audit, employees and reemployment taxes were paid through Michael’s directly. Applications for EZ Credits for Michael’s Section 212.096 allows certain eligible businesses within identified “enterprise zones” to take a credit against sales and use taxes when there are employees hired who live within the identified enterprise zones and when there has been an increase in jobs over the 12 months prior to the date of the application. Section 212.096(1)(a) defines an “eligible business” as “any sole proprietorship, firm, partnership, corporation, bank, savings association, estate, trust, business trust, receiver, syndicate, or other group or combination, or successor business, located in an enterprise zone.” In order to obtain the credit, an eligible business must file an application, including a statement made under oath that includes, for each new employee, the employee’s name and place of residence; the enterprise zone number for the zone in which the new employee lives; the name and address of the eligible business; the starting salary or hourly wages paid to the new employee; and a demonstration to the Department that, on the date of the application, the total number of full-time jobs is greater than it was 12 months prior to the application. The application is initially filed with the governing body or enterprise zone development agency, which reviews the application and determines whether it contains all of the required information and meets the requirements of section 212.096. If it does, then the enterprise zone coordinator certifies the application and transmits it to the Department. In addition, the business also forwards a certified application to the Department. Once the Department receives a certified application for enterprise zone credits, it has ten days to notify the business that the credit has been approved. If the application is incomplete or insufficient to support the credit, the Department is required to deny the credit and notify the business, which is free to reapply. Section 212.096(2)(a) provides that “[u]pon an affirmative showing . . . that the requirements of this section have been met, the business shall be allowed a credit against the tax remitted under this chapter.” The credit “shall be allowed for up to 24 consecutive months, beginning with the first tax return due pursuant to s. 212.11 after approval by the department.” § 212.096(2)(b), Fla. Stat. Petitioner regularly submitted applications for EZ credits, and during the audit period, submitted applications on the following dates: February 1, 2012; August 1, 2012; February 4, 2013; April 2, 2013; July 19, 2013; August 15, 2013; August 30, 2013; January 6, 2014; January 30, 2014; March 3, 2014; March 27, 2014; and June 17, 2014. Each of these applications was made listing Michael’s as the taxpayer. Petitioner used a company named Economic Development Consultants (EDC) to help it calculate the credits Michael’s would be entitled to claim. Each month, Petitioner provided to EDC the names of employees terminated or resigned and those newly hired, along with the new hires’ addresses. Petitioner would also provide to EDC the number of full-time employees for each month. In determining residency for its employees, Petitioner relied on the addresses received from employees when they were hired. EDC would then provide a report saying which employees qualified for a credit, and do the necessary paperwork in order to obtain approvals for the credits. Each of Petitioner’s applications for EZ credits submitted during the audit period was approved, and Petitioner took the EZ credits associated with those applications with the understanding that they were properly approved. At the time the Department approved each of the applications for EZ credits, it had access to the information in and attached to the applications, including the identities of employees eligible for the credits. What the Department did not have when it reviewed the applications would be the actual wages paid to the eligible employees, because most of those wages would not have been paid at that point. Actions Taken By the Auditor On February 27, 2015, the Department issued a Notice of Intent to Audit Books and Records to Michael’s, indicating that it would be subject to audit for the period February 1, 2012, through January 31, 2015. Robert Ward was the auditor assigned to conduct the audit. Mr. Ward was relatively new to the Department, and had not previously conducted an audit that involved EZ credits. As part of his audit preparation, Mr. Ward pulled a copy of the Department’s standard audit plan, as well as the Department’s audit plan specifications for the industry in question (here, the restaurant industry). He noted that Michael’s had been audited previously and that the current audit resulted from a “lead,” but could not recall the basis or substance of the lead. He also noted that EZ credits had been an issue in the previous audit, which spanned the period from March 1, 2007, through June 30, 2009. Mr. Ward conducted a pre-audit interview with Omar Azze, Petitioner’s comptroller, on May 1, 2015.1/ While there was an agenda prepared for this pre-audit meeting, it does not appear to be in the record. At this pre-audit meeting, Mr. Ward was focused on the routine aspects of the audit as opposed to EZ credits. The issue of EZ credits was first raised in a meeting with Mr. Azze and Mr. Schwartz on May 27, 2015. At that time, Mr. Ward advised that EZ credits would be disallowed because the employees for whom credits were taken were on the payroll of GHG as opposed to Michael’s. Mr. Ward stated at hearing that this decision was made not based upon additional information, but based upon the sharing of employees by different entities. Mr. Ward acknowledged that Michael’s had received approval to take EZ credits, and that Michael’s provided all of the documentation requested of it. He had sought guidance from his trainer, Michelle Samuels, and a senior revenue consultant, Miguel Suarez. Mr. Ward was advised to verify the validity of the EZ credits claimed, with the focus on the growth of full-time employment. If a company subject to an audit had not received an approval letter for the credits, then the credits would be disallowed automatically. If there was an approval letter (as there was here), Mr. Ward understood that he was to look at the application itself and review the information provided with the application, including the schedules filed with the application, in order to validate the use of the EZ credits. Mr. Ward acknowledged that the person who reviewed the application for the Department when it was approved had all of this information. He was advised that the turn-around period for the initial applications was short, and that the initial reviewer is not required to validate the information, because the reviewer would trust the accuracy of the affirmation required of the taxpayer. The initial approval did not mean that the Department would not later go back and reexamine the information originally submitted. In addition to the documents submitted with the applications, Mr. Ward considered other Department records, such as reemployment tax records. He also verified addresses for named employees in the applications using the DAVID database of the Department of Highway Safety and Motor Vehicles. The DAVID database maintains information related to drivers’ licenses and car registrations. The information in the DAVID database is not available to the general public, and was not available to Petitioner. Mr. Ward also acknowledged that people can have a different mailing address from their residential address for a variety of reasons, and they were not always consistent, even in the DAVID database.2/ For example, one of the employees listed by Petitioner on an application dated August 1, 2012, was Aleksandar Gjurovski. The DAVID records indicate that on July 20, 2013, Mr. Gjurovski changed his mailing address. However, his residential address was not changed in the DAVID system until a date after the filing of the enterprise zone application. Mr. Ward relied on the change in the mailing address alone to determine that Mr. Gjurovski did not live within the enterprise zone at the time of the application. It is found that, at the time of the application, Mr. Gjurovski lived in the enterprise zone. After consultation with his supervisors, Mr. Ward disallowed all of the EZ credits for 2012 and 2013, as well as some of the credits for 2014. Respondent issued Michael’s a Notice of Intent to Make Audit Changes dated November 10, 2015, for audit number 200180508. The reasons given in the Explanation of Items included in the Work Papers are initially listed by employee, as opposed to by date. For all of the employees for which credits were claimed for 2012 and 2013, the primary reason stated by Mr. Ward is that the employees for which EZ credits were claimed were not employees of Michael’s, but instead were employees of another company. If the application for EZ credits was filed during 2012 or 2013, but the credits were claimed past December 2013, all of the credits related to that employee were disallowed. Other reasons listed for disallowing the tax credits were that there was no demonstrated job growth (for employees Kates, Gibson, Lopez, Jackson-Thompson, Daniels, Bradbury, Allante, Alicea, Wallace, and Herget); that the employee for which the credit was claimed did not live in the enterprise zone (for employees Coleman, Albert, Gjurovski, and Lopez); and discrepancies in terms of when employment ended compared to dates credits were claimed, or whether appropriate amount of credit was claimed for wages paid (for employees Kates, Poinsetti, Gomez, Daniels, Bradbury, Williams, Allante, and Herget). The first two of these reasons were based upon Mr. Ward’s verification of the information provided in the EZ credit applications. With respect to those employees for whom credits were disallowed because they had left the employ of Michael’s, Petitioner introduced a letter from the Department’s tax specialist, Suzanne Paul. The letter stated that a company could claim credits up to three months after employment ended in order to recapture the three months of employment required prior to submitting an application for that employee. Mr. Ward was not aware of this letter at the time he performed the audit, and had he known, it would have changed his note, at least as to Mr. Gjurovski, concerning that basis for disallowing the credit. Respondent assessed Michael’s sales and use tax for disallowed EZ credits, for untaxed purchases of fixed assets, and for untaxed consumable purchases. Only the assessment related to disallowed EZ credits is challenged in this proceeding. The Notice of Intent to Make Audit changes included a penalty of $62,609.01. In the letter accompanying the notice, Mr. Ward informed Petitioner that the penalty for items assessed in Exhibit B01 had been adjusted based on the reasonable cause guidelines outlined in Florida Administrative Code Rule 12- 13.007. It appears that there was no adjustment or compromise of penalties associated with the disallowance of EZ credits. Mr. Ward testified that penalties were assessed in this case because EZ credits were also an issue in the prior audit for Michael’s. The payroll arrangement at issue in this case was not at issue in the prior audit, however, as it did not begin until 2012. The financial dealings of Michael’s, including the payment of taxes to the Department, were also under a new comptroller, who was not involved in the first audit. Lastly, while the Department found fault with EZ credits in the first audit, it compromised the taxes assessed for the same amount as those associated with the EZ credits. Mr. Ward acknowledged that, under the circumstances related to this audit, the penalty seemed harsh. The Department issued a Notice of Proposed Assessment (NOPA) on December 15, 2015, in which it assessed taxes in the amount of $127,243.77, penalties of $62,609.01, and interest as of December 15, 2015, of $19,605.03. Michael’s filed an informal protest of the proposed assessment with the Department by means of a letter dated February 5, 2016. On August 18, 2016, the Department issued a Notice of Decision that sustained the proposed assessment against Michael’s in full. The Notice of Decision, which is, by its terms, the Department’s final position in this matter, only addresses the issue of whether Michael’s is an eligible employer for the purpose of receiving EZ credits.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order assessing additional taxes based upon discrepancies in wages paid for eligible employees, and rejecting those parts of the assessment attributable to disallowance of enterprise zone credits based on information related to Petitioner’s initial applications. It is further recommended that no penalties be imposed on the reduced assessment. DONE AND ENTERED this 16th day of June, 2017, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON 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 16th day of June, 2017.
Findings Of Fact The parties agreed at the hearing that there were no issues of fact which remained to be determined. The parties stipulated that the relevant facts are as set out in paragraph 5 of the Petition for Administrative Hearing. The following findings are quoted directly from paragraph 5 of the Petition. Petitioner is a federally chartered savings and loan association. Petitioner initially employed the cash receipts and disbursements method of accounting for Federal Income Tax purposes. In a desire to more clearly reflect income, Petitioner applied for and received permission from the Internal Revenue Service allowing Petitioner to change its method of tax accounting from the cash to the accrual method, pursuant to Revenue Procedure 70-27. This change was to commence with the calendar year 1971. Consistent with this accounting method change, all net accrued income as of January 1, 1971, was recorded in its entirety in Petitioner's financial statements as of December 31, 1970. The total net adjustment required to convert to the accrual method was $758,911.00. Pursuant to an agreement entered into with the Internal Revenue Service, an annual adjustment of $75,891.00 was required. The annual adjustment spread the effect of the accounting change over a 10-year period, despite the fact that all the income was realized prior to January 1, 1971. On January 1, 1972, the Florida Income Tax Code became effective. Petitioner timely filed its 1970 and 1971 Florida Intangible Personal Property Tax Returns. Upon subsequent review of Petitioner's records, it became apparent that the intangible tax had been overpaid and a refund claim was submitted. The refund was issued to Petitioner by the State of Florida during the calendar year 1973 and reported in Petitioner's 1973 Federal Corporate Income Tax Return. On December 16, 1975, Respondent notified Petitioner that Petitioner was deficient in its payment of Florida Corporate Income Tax in the amount of $25,386.84. The total deficiency consisted of $3,267.00 for the year ended December 31, 1972; $19,202.00 for the year ended December 31, 1973; and $2,916.84 for the year ended December 31, 1974. Included in the alleged total deficiency of $25,386.84 is a tax in the amount of $14,696.70 for the year 1973. This tax is attributable to Petitioner's apportionment of a part of its 1973 income to sources outside of the State of Florida. Petitioner is no longer protesting this deficiency. On February 9, 1976, Petitioner filed its protest against Respondent's determination that a deficiency in tax existed. By letter dated March 9, 1976, Respondent denied Petitioner's protest filed on February 9, 1976.
Findings Of Fact Having heard oral argument on the issues and considered the evidence presented in this cause, it is found as follows: Petitioner, Aerospace Workers, Inc., is a non-profit Florida corporation, which owns record title to the Union Lodge 166, located at 171 Taylor Avenue in Cape Canaveral, Florida. For the 1974 tax year, the Brevard County Property appraiser or Tax Assessor assessed the petitioner's lodge at full market value without allowance of any exemption. The reason given by the assessor for the disapproval of exempt status was that there is no provision under the Florida Statutes for the exemption of labor organizations. The petitioner, through its financial secretary, William J. Boydstun, then appealed the Tax Assessor's denial exempt status to the Brevard County Board of Tax Adjustment, claiming that the building should be tax exempt as one used for charitable purposes. Mr. Boydstun informed the BTA that the building in question "at any time we are not using it, has been thrown open to the public." The BTA was further informed that the building "has been used by the Brevard County Beach Erosion Control District by the Narc Aid Society, by the Avon and Winslow Beach Residents Assn., by the Roosevelt Garden Condominium Apartments, Inc. We have let local weddings take place. It has been used by the concerned Democrats and also by the County Commissioners in a couple of instances. Tomorrow we are letting the County use our building as a polling place." Mr. Boydstun also stated that petitioner's members donated $225,000.00 to the United Fund in Brevard County and had helped support the Brevard Junior Deputies, the Brevard Mental Health Center and various other organizations in the County. Also submitted to the BTA by Mr. Boydstun was a list of persons or groups who had used the building since December of 1973. Included in this list were the Mark Age Society (which petitioner stated during the hearing is a religious group), the Brevard County Beach Erosion Control District, the Avon by the Sea and Winslow Beach Residents' Association, the Roosevelt Garden Condominium Apartments, Inc., Concerned Democrats, political meetings for Senator Lawton Chiles, Mallory Horne and Governor Reubin Askew, and a minister for a local wedding. It was also stated that the building has been used as a polling place and for meetings for the United Fund Drive. The Tax Assessor represented to the BTA that he denied the exemption because labor unions are not given exemptions according to the Florida Law, and that the Department of Revenue denied an exemption for petitioner for that reason the previous year. At the meeting of the BTA on October 4, 1974, Chairman Hurdle moved that petitioner be granted a 50 percent charitable exemption on the basis that the property is used for charitable purposes. The motion carried by a vote of 2 to 1. The Tax Assessor did not concur. In its notice to the Executive Director of the Department of Revenue, the BTA explained its reasons for granting the Petitioner a fifty percent charitable exemption by stating that: "the Board found that the property should receive a 50 percent tax exemption because they felt that the use of the property provided a service which was of such a community service that its discontinuance could result in the allocation of public funds for the continuance of said services. The Board basically found that the use of the building by the general public met the requirements in the description of charitable purposes found in Chapter 196.012(6) of the Florida Statutes and therefore granted a 50 percent charitable tax exemption for the property described in Petition No. 11." In its "Notice of Proposed Agency Action to Invalidate Relief Granted by Board of Tax Adjustment," the Department of Revenue concluded in its "Staff Recommendation" that the BTA's findings and the evidence and testimony upon which they were based, were insufficient to support the ultimate finding that petitioner qualifies for a fifty percent exemption, and that the BTA had not come up with sufficient evidence to overcome the Property Appraiser's presumption of correctness. It was further concluded in said "Staff Recommendation" that there was no showing that the use of the property by the various community organizations was a use of more than 51 percent, and that the BTA's granting of a 50 percent exemption is expressly contrary to F.S. Section 196.012(3). SUMMARY OF ORAL ARGUMENTS The above factual findings constitute the record to which oral argument was limited at the hearing. It was the petitioner's position at the hearing that inasmuch as the Tax Assessor gave an invalid reason for denying the charitable exemption, there is no presumption of correctness attaching to his assessment. It was further contended that, given the reason for denial by the assessor (i.e., that labor organizations could not be exempt), petitioner did not believe it acceded to make a showing of predominant charitable usage. In the alternative, petitioner asserts that there was sufficient evidence before the BTA to permit the BTA to conclude that the property was used predominantly for charitable purposes. It was the respondent's position at the hearing that, regardless of the reason given by the assessor for his denial of exempt status, petitioner failed in its burden to prove the assessment wrong. In other words, it is the assessment itself which carries the presumption of correctness, and not the reasoning behind the assessment. Respondent contended that the record of the proceedings before the BTA is devoid of any evidence entitling petitioner to a charitable exemption.
Recommendation Based upon the findings of fact and conclusions of law, it is my recommendation that the action taken by the Brevard County Board of Tax Adjustment be invalidated and that the denial of exempt status made by the Brevard County Tax Assessor be affirmed. DONE and ORDERED this 4th day of October, 1975, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Collins Building, Room 104 Tallahassee, Florida 32399-1550 (904) 488-9675
Findings Of Fact Frank O. Sherrill is the sole stockholder of Oceania Charters, Inc. and is a resident of North Carolina from where he directs the operations of Oceania Charters, Inc. The principal, if not sole, asset of Oceania Charters, Inc. is the 101 foot motor yacht Captiva II. The Captiva II was built in Amsterdam, the Netherlands, pursuant to contract between the shipbuilder and Oceania Charters, Inc. and/or Frank Sherrill entered into in 1972. Sherrill purchased the vessel for the intended purpose that it be used as a charter vessel hired to various charterers for short or longer-term cruises. This is the fourth or fifth vessel that Respondent has owned and used in the charter business. The evidence was uncontradicted that the purpose of acquiring the Captiva II was to place it in charter service. The vessel was originally scheduled for completion in the summer of 1973 and it was intended to have the Captiva II proceed from Amsterdam to North Carolina under her own power. The vessel was not completed until late fall or early winter and the insurers would not insure the Captiva II if it proceeded across the North Atlantic under her own power at that time of year. Arrangements were made to ship the Captiva II from Amsterdam to Bermuda via freighter to off-load the Captiva II there and proceed under her own power to Wilmington, North Carolina for custom clearance and documentation. While loading the Captiva II damage was done to one stabilizer and to the hull. Upon arrival of the ship carrying the Captiva II at Bermuda, excess costs involved in off-loading and repairing there were weighed against the carrier's offer to off- load the Captiva II at the next port of call, Miami, and facilities at the latter port. It was then decided that the Captiva II should stay aboard for the voyage from Bermuda to Miami and there be off-loaded and repaired. This was done and upon arrival in Miami the Captiva II was off-loaded, repaired and fitted out for charter operations. Berthing arrangements were made and, except for charter trips, trips to Palm Beach soliciting charters, and sea trials the Captiva II has been moored at Miami. Mr. and Mrs. Sherrill stayed on board the Captiva II during the period she was being outfitted for charter operations and on several of the sea trials the vessel underwent. They were not on board during any of the charter trips and did not use the Captiva II for cruises themselves or make her available for use by their friends unless pursuant to a charter party. These facts were undisputed.
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner's application for licensure as a nonresident life, health and variable annuities insurance agent should be denied on the basis of his having pled guilty and been convicted of a felony. Embodied within that general issue are the issues of whether the felony involved is one of moral turpitude and whether the conviction, and the circumstances surrounding it, demonstrate that the Petitioner lacks fitness or trustworthiness to engage in the business of insurance.
Findings Of Fact The Petitioner, Preston Hursey, Jr., filed an application for qualification in Florida as a nonresident life, health and variable annuities agent. The application was filed on November 13, 1989. On April 9, 1990, the Department of Insurance issued a letter of denial with regard to that application based upon a felony conviction of the Petitioner in the past. The Respondent is an agency of the State of Florida charged, in pertinent part, with enforcing the licensure, admission and continuing practice standards for insurance agents of all types, embodied in Chapter 626, Florida Statutes, and with regulating the admission of persons to licensure as insurance agents in the State of Florida. On August 12, 1988, an Information was filed with the United States District Court for the District of Columbia, charging the Petitioner with three felony counts involving "aiding or assisting presentation of false income tax return". That is a felony violation of Title 26 U.S.C., Sections 7206(2). On November 15, 1989, the Petitioner was found guilty of three counts of aiding or assisting presentation of false income tax return in violation of that statutory section. The actual conduct for which he was convicted occurred prior to the charges. Prior to 1984, the Petitioner worked for some years as a medical examiner for insurance companies, taking medical histories, blood pressures, pulses and the like, for purposes of establishing insurance coverage for clients of the companies. Some time in early 1984, the Petitioner approached American Dynamics Corporation, as a client, with the intent of availing himself of the financial planning services of that company with the intent of saving on income taxes. The company was apparently counseling clients as to tax shelters in which they could invest or which they could claim, as a means of' avoidance of federal income tax. The Petitioner became very interested in that tax saving procedure and sometime in 1984 became involved with the firm as one of its financial counselor employees. The firm trained him in the service they offered to taxpayers, which involved financial planning by using trusts to defer taxes, as well as other means of sheltering income from tax liability. The company and the Petitioner counseled numerous clients and assisted them in taking advantage of alleged tax shelters, including the final act of preparing their tax returns. During the course of going to hearings with his clients, when their tax returns came under question by the Internal Revenue Service, the Petitioner became aware that apparently the service would not accept the tax shelter devices being used by his company and him as a legitimate means of avoiding taxes. He then sought legal advice from a tax attorney and received an opinion from him that the tax avoidance counseling methods, devices and tax return preparation the Petitioner and his employer were engaging in were not legal, and that the Petitioner should advise anyone he knew involved in such schemes to terminate their relationship. The Petitioner acted on that advice, terminated his relationship with the company and recommended to his clients that they terminate their relationship with the company and the tax avoidance devices being used. Through hindsight and learning more about relevant tax law in the last four to five years since the conduct occurred, the Petitioner realizes that the tax shelter schemes marketed by his employer at that time and, by himself, did not make financial or legal sense. The Petitioner at that time had very little training in financial counseling or advising and very little training in the Federal income tax laws arid regulations. In retrospect, after receiving much more such training as an agent of New York Life Insurance Company since that time, he realized the significance of the error he and his former employer committed. When the tax returns were prepared by the Petitioner and others employed with the firm involved, the tax return accurately reflected the gross income of he taxpayer, the "W2 forms", and all appropriate documentation. Then, the gross income of the taxpayer was shown as reduced by the amount of funds affected by the tax shelter system marketed by the Petitioner's former employer and the Petitioner. There was a statement on the tax return itself explaining the disparity in taxable income so that basically the Internal Revenue Service had the facts and circumstances of such situations disclosed to it. It, however, deemed anyone marketing such tax shelters as engaged in marketing "abusive tax shelters", in effect, in violation of the Internal Revenue Code. Ultimately, the Petitioner was prosecuted along with others involved in the transactions and suffered a felony conviction of three counts of violation of the statute referenced above. The Petitioner has steadfastly maintained both before and after his conviction that he had no intent to violate the tax laws of the United States, but rather believed, until he sought a legal opinion from a qualified attorney, that the service he was marketing was a legal one. After he came under prosecution by the Justice Department for the violation, the Petitioner cooperated fully with the Internal Revenue Service and the Justice Department. The felony violation of which he was convicted, by guilty plea, carried a sentence of three years imprisonment, one year for each tax return involved. That sentence was reduced by the court; however, in consideration of the circumstances of the Petitioner's offense and his cooperation with the prosecuting authorities, to one month of "work release", which he served by working during the day for senior citizens organizations and returning to a confinement facility in the evening. He also was required to render 200 hours of community service, which he has completed, and three years probation. Because of his excellent attitude and behavior and his demonstrated activities designed to further his education in the insurance and securities field, his successful pursuit of the insurance and securities marketing profession in other states and his obviously-positive motivation, his probation officer has recommended that his probation be terminated early, after only two years of it would have been completed in November, 1990. The sentence was reduced because of the Petitioner's positive record in his community, the fact that he had no prior criminal history and because of widespread support by responsible members of the community and by the probation officers who reviewed his case and situation. The judge, upon sentencing, also noted that he was impressed by the fact that the Petitioner wanted to continue to work in the insurance and securities field and was the sole support of a young son whom he was supporting and caring for as an active parent. He continues to do that. The record establishes that the Petitioner's conviction was the result of a guilty plea. That plea resulted from a negotiated "plea bargain" settlement with the prosecuting authorities. The Petitioner established with unrefuted testimony, that he never had any willful intent to commit a crime or defraud the Federal government and the Internal Revenue Service. While he had a general intent to offer the tax advice involved to clients and assist them in engaging in tax shelter arrangements and in preparing the related tax returns, he had no specific intent to commit acts which he knew to be illegal when he committed them, nor which he believed amounted to fraud or deceit of the Internal Revenue Service. Although he pled guilty to a crime involving, by the language of the above--cited statute, the element of falsity, which bespeaks of deceit or fraud, the evidence shows that the Petitioner harbored no such fraudulent or deceitful intent. This is corroborated by the fact that the Petitioner and his clients disclosed all income on the tax return and simply disclosed that a portion of it was sheltered, which procedure was determined by the Internal Revenue Service to be illegal. There was no evidence of record to indicate that the Petitioner sought to conceal income or otherwise commit a false or fraudulent act in the course of his financial and tax advice to these clients, nor in the preparation of their tax returns for submittal. While the statute he is convicted of violating appears to involve the element of moral turpitude because it refers to false or fraudulent tax returns, it is a very general type of charge which can cover many types of activities or conduct. Consequently, one should consider the specific conduct involved in a given instance, such as this one, to determine whether the crime committed factually involved moral turpitude. Based upon the unrefuted evidence of record culminating in the findings of fact made above, it is clear that the Petitioner committed no conduct involving moral turpitude at the time the activity in question was engaged in for the above reasons. The Petitioner has been in no legal altercation, criminal or otherwise, before or since the instance which occurred in 1984. He has become licensed in Washington DC, Maryland and Virginia as an insurance agent and as a broker agent. He represents numerous insurance companies, including, for approximately five years, the New York Life Insurance Company and other reputable companies. He has pursued his continuing education requirements and has earned more requirements than he needs for licensure in Florida and Maryland. He is actively seeking to improve his professional standing and competence in the insurance and securities field and is highly motivated to continue doing so. A great deal of his motivation comes from the fact that he is the sole support of his young 11-year-old son. He enjoys the insurance profession because it gives him time to participate in his son's many school-related and extracurricular activities, such as football. The Petitioner's testimony, and the proven circumstances of the situation, establish without question that he is an honest, forthright person who has candidly admitted a past mistake and who has worked actively, in the approximate six years which have elapsed since the conduct was committed, to rectify that blemish on his record. His efforts to rehabilitate himself personally and professionally involved his active participation as a parent for his son in his son's school life and otherwise, and participation in church and community activities. During the time period which has elapsed since the conduct in question occurred, he has sufficiently rehabilitated himself both personally and professionally so as to justify the finding that he has demonstrated trustworthiness and fitness to engage in the business of insurance. Indeed, three other states, after having the circumstances of his conviction fully disclosed to them, have licensed him or retained him as a licensee insurance agent. The Petitioner is a navy veteran of Vietnam, having served three tours in the Vietnam war, for which service he was decorated. He had a number of security clearances, including a top secret security clearance based upon his work in the field of communications and cryptology during that war. This honorable service, the efforts he has made to improve himself personally and professionally before and since the subject conduct occurred, the fact that it was an isolated incident on his record, the fact that it did not involve any established intent to defraud or deceive on his part, the fact that he is an active, positive parental role model, community member and church member, and his general demeanor at hearing of honesty and forthrightness convinces the Hearing Officer that the isolated incident of misconduct he committed did not involve a demonstrated lack of fitness and trustworthiness to engage in the business of insurance. Quite positively, the Petitioner has demonstrated his fitness and trustworthiness to engage in that business.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is therefore, RECOMMENDED that the Petitioner's application for licensure as a nonresident life, health and variable annuities insurance agent should be granted. DONE AND ENTERED this 7th day of February, 1991, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of February, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-3069 Petitioner's Proposed Findings of Fact 1-4. Accepted. 5. Rejected, as not clearly established by the evidence of record. 6-14. Accepted. Respondent's Proposed Findings of Fact 1-4. Accepted. 5. Rejected, as not clearly established by the evidence of record. COPIES FURNISHED: Mr. Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Don Dowdell, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Preston Hursey, Jr., pro se Post Office Box 43643 Washington, DC 20010 Willis F. Melvin, Jr., Esq. Andrew Levine, Esq. Department of Insurance Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300
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.
The Issue Petitioners' liability for corporate income tax deficiency under Chapter 220, Florida Statutes.
Findings Of Fact Petitioner is a Georgia Corporation doing business as a heavy electrical contractor in Georgia and eight other states including Florida. In 1972, Petitioner submitted a request to the Department of Revenue that it be allowed to use "separate accounting" as the method for determining the amount of its adjusted federal income that was subject to taxation by the State of Florida under Chapter 220,Florida Statutes. By letter of October 3, 1972, T.H. Swindal, Respondent's Chief of the Corporation Income Tax Bureau, denied Petitioner's request with the following language: "The economics of large scale interstate construction operations, as we understand them, necessitate maximum utilization of a company's resources. At particular times and in a particular locale or with respect to particular types of construction activity contracts may be initially or regularly bid upon and undertaken which, on an individual contract basis, will be minimally profitable, if at all. Nevertheless, because these contracts permit cost absorption, continuing use and charge for equipment, trained crews and know-how; permit maximum employment of the company's capital and credit accomo- dations; permit initial entry into a new field of construction activity or a new locale, these contracts indirectly but significantly add to the profitability of the enterprise as a whole. We recognize too, that separate accounting essentially serves management and that management must evaluate competitive tax implications. "Separate accounting" does not, in our view, measure the impact of these cir- cumstances. We are of the opinion that Florida's three factor formula does measure the impact of these circumstances upon profit and thus provides a fairer Florida tax base." (Complaint, Petitioner's Exhibit 1) Respondent however, pursuant to a request of Petitioner, permitted the latter to leave its 1972 return as filed, but instructed it to file in the future utilizing the "three-factor" formula. Accordingly, the Petitioner filed its 1973 and 1974 tax returns utilizing the "three-factor" formula" as directed by the Respondent, and paid the appropriate tax due. By letter, dated September 15, 1975, Mr. Swindal informed Petitioner that examination of its returns for the years 1972 thru 1974 had resulted in a net proposed deficiency of $12,417.60. An accompanying report showed that the primary basis for the deficiency was Respondent's determination that the Florida portion of adjusted federal income for the years 1973 and 1974 should have been increased by the amounts of $87,772.93 and $160,117.83, respectively, based on a "separate accounting" computation. The reason given for this determination was stated as follows in the report: "Florida Statute 214.73(1) says in part that if the apportionment methods of Florida Statute 214.71 and 214.72 do not fairly represent the extent of a taxpayer's base attributable to this state, the department may require separate accounting. The department has determined the taxpayer should use separate accounting in accordance with the above-mentioned, statute." (Complaint and exhibits thereto) Respondent had not notified Petitioner between 1972 and 1975 of its apparent change in position with respect to the required method of accounting. At a conference held on February 19, 1976, between Petitioner's representatives and Mr. William T. Lutschak who represented the Respondent, Petitioner protested the asserted deficiency and requested that the Respondent adhere to its former determination that the "three-factor method" be applied in computing the tax. Petitioner's protest was denied orally at the conference and such denial w-s confirmed by Mr. Swindal's letter of February 24, 1976, as follows in pertinent part: "Careful analysis of the taxpayer's Florida activity and the financial results of that activity clearly demonstrate that the amount of income set forth in the auditor's report for the years at issue are attributable to taxpayer's Florida business and that F.S. 214.73(1), rather than F.S. 214.71, fairly represents the extent of the taxpayer's tax base attributable to this state." (Comp. & Exh. thereto) Respondent's auditor of Petitioner's 1973 and 1974 tax returns found nothing unusual concerning the latter's business operations during the above tax periods and is of the opinion that based on formulary accounting Petitioner's returns "fulfill the letter of the law". He also acknowledged that Petitioner met the criteria of a "unitary business". He testified that he was unable to determine the amount of property used by Petitioner on its various jobs in and out of Florida while at the audit site at Petitioner's home office in Alabama and that without such information it would be impossible to determine Petitioner's tax liability under the "three-factor method" because property is one of the factors. The auditor, after making a request of Petitioner for such figures during his audit, which did not produce immediate results, did not pursue the matter because he "had to go back to Tallahassee". In fact, such information was available in Petitioner's records. Respondent changed its policy with respect to the method of accounting required of Petitioner after consideration of a textbook on the concept of separate accounting and a resulting determination that the contracting business in general is a unique industry warranting special tax treatment. (Testimony of Harnden, Puckett, Malone, Exhibit 1, Pleadings). The alleged deficiency of $12,417.60 is correctly computed and properly due and owing if "separate accounting" is validly required with respect to Petitioner's tax returns. (Stipulation).
Recommendation That Petitioner be relieved from payment of the proposed assessment based on any tax deficiency produced by the requirement of separate accounting under Section 214.73, Florida Statutes. DONE and ENTERED 21st day of July, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM 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 James R. English, Esquire HENRY & BUCHANAN, P.A. P.O. Drawer 1049 Tallahassee, Florida 32302
