Findings Of Fact In the original corporate income tax report submitted by Florida Power Corporation for the 1973 tax year the tax was computed using the federal income tax base. This included various depreciation methods and schedules in which accelerated depreciation had been claimed for federal tax purposes by Petitioner in years prior to 1972 and the initiation of the Florida Corporate Income Tax Law. By using accelerated depreciation schedules authorized by the federal tax laws, higher depreciation is allowed in the early years of an asset's useful life, leaving a lesser amount of depreciation to be charged off for tax purposes in the latter years of an asset's life. Essentially, Petitioner here contends that depreciable assets acquired prior to the effective date of the Florida Corporate Income Tax law were depreciated on accelerated schedules for federal tax purposes, but upon the effective date of the Florida Corporate Income Tax Law had value in excess of that shown on the federal tax schedule. By requiring taxpayers to use the same depreciation schedules for Florida taxes that are required for federal taxes Petitioner contends it is being penalized for the accelerated depreciation taken before the Florida income tax became constitutional. As an example of Petitioner's position it may be assumed that a depreciable asset was acquired for $100,000 with a useful life of 10 years, three years before the Florida Income Tax Law was passed. Also assume that during this three-year period from acquisition a double declining balance depreciation was taken for computing federal income taxes. Depreciation taken for the first year would be $20,000, for the second year $16,000 and for the third year $12,800, leaving a basis for further depreciation of $41,200 for this asset with seven years useful life remaining. For federal tax purposes Petitioner takes depreciation each year based upon initial cost less accumulated depreciation. Because this value decreased rapidly for the first three years in the assumed example and the excess depreciation thereby generated was not usable in reducing Florida taxes, Petitioner contends it is discriminated against in being required to, in effect, use the book value for federal tax purposes in computing its Florida income tax. Petitioner presented additional examples of reported income for federal income tax purposes which it claims should be exempt from Florida Income Tax. The specific deductions from which the $619,697 refund was computed were not broken down to show how much resulted from the accelerated depreciation schedules which commences prior to January 1, 1972, and how much was derived from these additional examples, some of which were given simply as an example of deferring income for tax purposes. Prior to January 1, 1972, Petitioner purchased some of its bonds prior to maturity and at a discount. As an example if Petitioner purchases $1,000,000 face value of these bonds for $800,000, it has realized a $200,000 gain which it must report as income for federal income tax purposes. These same federal tax rules allow Petitioner to elect to pay the income tax in the year received or spread it equally over the succeeding ten year period. Petitioner elected to spread the income over the succeeding ten year period and each year add $20,000 to its reported income for federal income tax purposes. Since the income was realized before January 1, 1972, Petitioner contends this is not subject to federal tax purposes. With respect to overhead during construction of depreciable assets the taxpayer is allowed to charge these costs off as an expense in the year incurred or capitalize these expenses. If the taxpayer elects to capitalize these expenses they are added to the cost of the constructed asset and recovered as depreciation as the asset is used. Petitioner elected to charge these expenses in the year incurred rather than capitalize them. Had they been capitalized originally, Petitioner would, in 1973, have been entitled to recover these costs in its depreciation of the asset. In its amended return it seeks to treat these costs as if they had been capitalized rather than expenses prior to January 1, 1972. Although apparently not involved in the amended return, Petitioner also presented an example where changes in accounting procedures can result in a gain to the taxpayer which is treated as income to the taxpayer, which he may elect to spread over future years in equal increments until the total gain has been reported.
Findings Of Fact Winn-Dixie. Winn-Dixie is a Florida corporation with its principal offices at 5050 Edgewood Court, Post Office Box B, Jacksonville, Florida. [Stipulation of Facts]. Winn-Dixie's taxpayer identification number is 59-0514290. The Department's audit number is 88-04203785035. Winn-Dixie's fiscal year ends on the last Wednesday of June. Winn-Dixie's Intangible Tax Returns. Winn-Dixie has filed a Florida intangible tax return for every year beginning with the calendar year 1972. For calendar years 1972 through and including 1988, Winn-Dixie reported the value of its intangible personal property based upon the value of its intangible personal property at the end of its previous fiscal year, the last Wednesday of June. For example, in its 1972 intangible tax return Winn-Dixie reported the value of its intangible personal property as of June 26, 1971. The decision to use the value of its intangible personal property as of the end of its fiscal year for Florida intangible tax was made by Winn-Dixie without any direction from, or communication with, the Department. When Winn- Dixie began using its fiscal year end as the date to value its intangible personal property for Florida intangible tax purposes, no representation concerning the appropriateness of this method was made by the Department. Winn- Dixie made no effort to obtain approval of its method of valuation from the Department. Winn-Dixie indicated on each of its intangible tax returns for 1972 through 1988, that it had determined the value of its intangible personal property based upon its value as of the end of Winn-Dixie's fiscal year. Winn-Dixie used the fiscal year end value of its intangible personal property as the value of those assets for Florida intangible tax purposes for administrative convenience. It was easier to use such data than it would have been to redetermine the value of its intangible personal property at the end of each calendar year. When Harry Francis began working for Winn-Dixie in 1978, Mr. Francis was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Francis, who served as director of taxes for Winn-Dixie until 1989, was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. When Leon Calvert became the director of taxes for Winn-Dixie in 1989, Mr. Calvert was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Calvert was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. The explanations Mr. Francis and Mr. Calvert gave for not changing Winn-Dixie's method of valuing its intangible personal property for Florida intangible tax purposes were not credible. Both Mr. Francis or Mr. Calvert indicated that the valuation practice of Winn-Dixie was followed, in part, because of the need for consistency in the field of accounting. Neither Mr. Francis or Mr. Calvert, however, cited any generally accepted accounting principle to support the use of an incorrect method of valuing assets for tax purposes when that method is clearly contrary to law. Winn-Dixie does not collect intangible tax as an agent for the State of Florida by separately stating and passing along said tax to its customers. [Stipulation of Facts]. Therefore, Winn-Dixie has not lost any right to pass the asserted additional intangible tax liability along to others. Subsequent to the audit involved in this case Winn-Dixie prepared an analysis of the difference in the value of its intangible personal property for 1972 through 1984 and the value of its intangible personal property for 1972 through 1984 if it had valued its intangible personal property as of January first of each year. Based upon this analysis, Winn-Dixie over reported the value of its intangible personal property by $78,390,211.00 for the period from 1972 through 1984. [See Stipulation of Facts]. This amounted to an overpayment of taxes of approximately $81,485.00. Winn-Dixie has not filed any claim for refund of any amount of intangible taxes it may have overpaid as a result of using the value of its intangible personal property as of the end of its fiscal year. The weight of the evidence failed to prove that the value of Winn- Dixie's intangible personal property as of the end of its fiscal year for any year for which it has filed an intangible tax return was approximately the same as the "just value" of those assets as January first. 1972 and 1973 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1972 and 1973 were examined by the Department. [Stipulation of Facts]. Winn-Dixie's 1972 and 1973 returns clearly indicated that the value of the assets included in the returns was the value as of the last Wednesday of June as of the previous year, Winn-Dixie's fiscal year end. No changes to Winn-Dixie's valuation method were recommended by the Department to Winn-Dixie's 1972 or 1973 intangible tax returns. The weight of the evidence failed to prove that any Department employee made any statements as a result of the Department's audit of the 1972 and 1973 returns to Winn-Dixie concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1972 and 1973 returns because of a determination that the value of Winn-Dixie's intangible personal property in January was not materially different from the June value of its intangible personal property as reported by Winn-Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9- 12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1972 and 1973 returns by a Department employee concerning the filing of future year intangible tax returns. 1979, 1980 and 1981 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1979, 1980 and 1981 were examined by the Department. [Stipulation of Facts]. The auditor that performed the examination is now deceased. [Stipulation of Facts]. The director of taxes for Winn-Dixie at the time of the audit of the 1979, 1980 and 1981 returns described a conversation he had with the Department's auditor as follows: The gist of the conversation was why did we use the June year end instead of January 1st. And the answer was as I said before, it was a long-standing practice, it was a consistency method, it was not a question of cherry picking for a good date and it seemed to do no harm. The recollection I have is that he was hesitant to make a determination on his own as to whether he required an adjustment or required a recomputation using a different date and that he was checking with some unknown superior in the Department of Revenue and later the no-change audit resulted. I don't recall if he ever called me about his conversation with the superiors, but I do recall no adjustments of any kind were made to any of those tax returns. And I would have recalled. I was nervous about those because I had prepared them. And they were the first ones that had been audited since I had been there. So I was relieved that no adjustments were made. And that was the gist of my relationship with the auditor. [Transcript of Formal Hearing, page 94, lines 17-25, and page 95, lines 1-12]. No changes were recommended by the Department to Winn-Dixie's 1979, 1980 or 1981 intangible tax returns. [Stipulation of Facts]. The weight of the evidence, however, failed to prove why the Department made no changes. Winn-Dixie did not change its method of reporting its intangible personal property as a result of any representations from a Department employee. The weight of the evidence failed to prove that any Department employee made any statements to Winn-Dixie as a result of the Department's audit of the 1979, 1980 and 1981 returns concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1979, 1980 and 1981 returns because of a determination that the value of Winn-Dixie's intangible assets in January was not materially different from the June value of its intangible personal property as reported by Winn- Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9-12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1979, 1980 and 1981 returns by a Department employee concerning the filing of future year intangible tax returns. 1985, 1986, 1987 and 1988 Intangible Tax Returns. The Department performed an audit of Winn-Dixie's intangible tax returns for 1985, 1986, 1987 and 1988. For these tax years Winn-Dixie valued its intangible personal property as of the end of the fiscal year preceding the taxable year, consistent with prior years. As a result of the Department's audit of the 1985, 1986, 1987 and 1988 returns, the Department determined that Winn-Dixie had underpaid Florida intangible tax in the following amounts and issued an assessment for same: 1985 $(16,244.00) 1986 21,471.00 1987 93,980.00 1988 86,974.00 Total $186,181.00 The Department's auditor who performed the audit of Winn-Dixie's 1985, 1986, 1987 and 1988 tax returns determined the value of Winn-Dixie's intangible personal property based on the value of those assets as reasonably close to January first as provided to Winn-Dixie. The information provided by Winn-Dixie was reasonably close to the value of Winn-Dixie's intangible personal property as of January first. Winn-Dixie filed a Petition for Reconsideration dated August 24, 1990. By letter dated October 17, 1990, the Department issued a Notice of Reconsideration. [Stipulation of Facts]. Other Receivables. Winn-Dixie has taken the position that it overpaid intangible taxes for 1985, 1986, 1987 and 1988 because it incorrectly treated certain accounts as intangible personal property. The parties agreed that the amount of tax paid on these accounts for the years at issue was as follows: 1985 $ 8,614.00 1986 9,823.00 1987 11,120.00 1988 13,562.00 Total $43,119.00 The parties agreed that the amount of intangible tax paid on the accounts at issue should be refunded to Winn-Dixie if it is determined that Winn-Dixie improperly paid intangible tax on the accounts. The following are the accounts which Winn-Dixie has argued it should not have treated as intangible personal property: Account Number 123-2, perishable vendors- billed outside sales warehouse invoices. Account Number 123-3, vendors debit balances/billed advertising coupons, vendor freight claims, promotion allowances, billings, return merchandise, charges and other debit memo billings. Account Number 123-4, claims insurance and freight/insurance and freight claims against carriers. Account Numbers 123-2, 123-3 and 123-4 are listed as "receivables" on Winn-Dixie's federal income tax return balance sheet as of its fiscal year end, Winn-Dixie's accounts receivable trial balances and on Winn-Dixie's SEC public disclosure forms 10-K. Account Numbers 123-2 and 123-3 are essentially identical except for the type of vendor involved. Account Number 123-2 involves vendors of perishable products and Account Number 123-3 involves vendors of nonperishable products. Winn-Dixie strives to pay for merchandise it receives within seven to ten days from the date it receives an invoice for the merchandise in order to receive discounts and the best merchandise available. Winn-Dixie earns trade discounts, promotional allowances and volume discounts on some of the merchandise it handles. When Winn-Dixie pays an invoice on merchandise for which it may receive such reductions in costs, Winn- Dixie may not know the exact amount of the discount. Therefore, it pays the entire amount invoiced. As a result of the quick payment of invoices and the inability to calculate the exact amount of discounts or other reductions in the amount owed, Winn-Dixie pays more on some invoices than it ultimately may owe on the invoice. The amount of any estimated overpayments is reflected in Account Numbers 123-2 and 123-3. Winn-Dixie also receives coupons from customers on certain merchandise. The coupons received by Winn-Dixie entitle it to reimbursement on the product sold from the vendor. The amount which Winn-Dixie will ultimately receive for the coupons is also recorded in Account Numbers 123-2 and 123-3. The coupons are ultimately turned over to a coupon handling firm which pays Winn-Dixie for the coupons. Account Number 123-4 involves claims insurance and freight. It is similar to the other two accounts at issue except that it relates primarily to claims against railroads for misdelivery or damaged merchandise which Winn-Dixie is entitled to. As is true of other merchandise, Winn-Dixie strives to pay for merchandise shipped to it by rail within seven to ten days to be entitled to the discounts for quick payment. Therefore, Winn-Dixie is not always able to estimate the amount of damaged or missing merchandise it may be entitled to a reduction for. The amount of such reductions are reflected in Account Number 123-4. When the amounts owed to Winn-Dixie, which are reflected in Account Numbers 123-2, 123-3 and 123-4, are finally determined, Account Number 123-2, 123-3 or 123-4 is debited and the amount received is recorded in another account. The amounts recorded in Account Numbers 123-2, 123-3 and 123-4 are valued, recorded and returned for tax purposes as accounts receivable. Account Numbers 123-2, 123-3 and 123-4 are "accounts receivable" under generally accepted accounting principles. The weight of the evidence failed to prove that all of the amounts recorded in Account Numbers 123-2, 123-3 and 123-4 during the years in question were not due at the time they were entered in the accounts. Therefore, the weight of the evidence failed to prove what portion of Account Numbers 123-2, 123-3 or 123-4 are contingent.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department issue a Final Order assessing $186,181.44 in additional intangible tax, plus interest, against Winn-Dixie for 1985, 1986, 1987 and 1988, and dismissing Winn-Dixie's Petition for Administrative Proceedings. RECOMMENDED this 8th day of May 1991, in Tallahassee, Florida. LARRY J. SARTIN 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 8th day of May, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-8021 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Winn-Dixie's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 2-4 and 6. 2 6. 3 15 and 17. 16. See 18-20 and 30. The last sentence is not supported by the weight of the evidence. 21 and 23. The last sentence is not relevant. See 22. The last sentence is not relevant. Not relevant. Not supported by the weight of the evidence. 9 12. Not supported by the weight of the evidence. 12. The last sentence is not supported by the weight of the evidence. Not supported by the weight of the evidence. Not supported by the weight of the evidence. The last sentence is not relevant. 14 32-33, 35 and 40. 15 34. Not relevant. See 36 and 41. The weight of the evidence failed to prove that Winn- Dixie was "required to pay" its vendors within seven to ten days. 37-38. The weight of the evidence failed to prove the last sentence. 19 40-41. 20 42. 21 Not supported by the weight of the evidence. The Department's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 and 3. 2 and 4. 3 5. 4 7. 5 15 and 21. 6 28. 7 4. 8-9 29. 10-11 11. 12 22. 13 22 and 25-27. 14 24. 15 22. 16 18-20 and 25-27. 17 5. 18 21. 19 12. 20 13. 21 14. Not relevant. See 45. 24 35 and 40. 25 37-38 and 43. 26 39. 27 Not relevant. 28 32. 29 See 44. 30 34. COPIES FURNISHED: Thomas K. Purcell, Esquire Suite 1235, One Enterprise Center 225 Water Street Jacksonville, Florida 32211 Leonard F. Binder Kevin O'Donnell Assistant Attorneys General Department of Legal Affairs Tax Section, Capitol Building Tallahassee, Florida 32399-1050 J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
Findings Of Fact In 1972 Petitioner received $743,982 of income from state and municipal bonds. On its federal income tax return the Petitioner allocated $471,229 of this amount to the policyholders' share as required by law and $272,753 to the company's share (Phase I). The Phase II figures were $359,669 and $384,313 respectively. Respondent has added back the entire $743,982 for purposes of computing Petitioner's Florida taxable income. Petitioner added back the $272,753 (Phase I) and $384,313 (Phase II). For 1972 Petitioner accrued $350,000 of Florida taxes on its federal income tax return. In computing its deductions on its federal income tax return 36.6612 percent of this amount was deducted in the Phase I computation and 51.6564 percent in the Phase II computation. Respondent has added back all of the Florida tax accrued in computing the Florida income tax owed by Petitioner. Petitioner's position is that only the company's percentages were deductible and only these amounts should be added back. The amount of additional Florida income tax assessment proposed for 1972 by the Respondent over that paid by Petitioner is $21,234. In 1973 Petitioner received $552,408 of income from state and municipal bonds. On its federal income tax return Petitioner allocated $335,662 of this amount to policyholders' share as required by law and $216,786 to the company's share (Phase I). The Phase II figures were $248,789 and $303,619 respectively. Respondent has added back the entire $552,408 for purposes of computing Petitioner's taxable income. Petitioner added back the $216,786 (Phase I) and $303,619 (Phase II). For 1973 Petitioner accrued $475,000 of Florida taxes on its federal income tax return. In computing its deductions on its federal income tax return 39.2438 percent of this amount was deductible in Phase I and 54.9628 percent in Phase II. Respondent has added back all of the Florida tax accrued. Petitioner's position is that only the company's percentages were deductible and only these amounts should be added back. The amount of additional Florida income tax assessment proposed for 1973 by Respondent was $20,184. It was further stipulated that the sole issues here involved are: The computation of the amount of tax exempt interest which is excludable from taxable income under section 103(a) Internal Revenue Code for purposes of the Florida corporate income tax; and The computation of the amount of Florida income tax accrued which is deductible for purposes of federal income tax and added back for purposes of computing the Florida income tax.
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.
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
The Issue The issue is whether Petitioner is qualified to be licensed as a Florida real estate sales associate.
Findings Of Fact Petitioner has a Bachelor of Science degree in accounting from Florida State University. After receiving a Florida license as a Certified Public Accountant (CPA) in 1974, Petitioner worked as a CPA in private practice until 1978. He then returned to school at Trinity University, where he earned a Master of Science degree in Health Care Administration. Petitioner worked for the Hospital Corporation of America (HCA) for approximately 20 years. In the early 1980's, Petitioner's job with HCA involved the management of physician clinics. One of the physicians requested Petitioner to prepare some financial statements and to assist with the preparations of some federal income tax returns for a private client. At that time, Petitioner was living and working in two locations: Atlanta, Georgia, and Dothan, Alabama. Petitioner was not licensed to practice as a CPA in any state except Florida. For approximately two and one-half years, Petitioner helped the private client maintain her books. During this time, Petitioner corresponded with the client, sending her letters with CPA after his name. In 1986, Petitioner decided to discontinue his business relationship with the private client. The private client, who was upset, filed a complaint against Petitioner. In 1987, the private client's complaint resulted in Petitioner’s pleading no contest to the offense of identifying himself as a CPA when he was not a licensed CPA in Georgia. Petitioner subsequently satisfied all sanctions related to the Georgia offense. The Florida Board of Accountancy has not disciplined Petitioner's CPA license. At the time of the hearing, Petitioner's Florida CAP license was inactive. In 1991, Petitioner received a stock bonus from his employer, HCA, when it purchased a private hospital. The bonus consisted of stock certificates in a spin-off company known as Quorum Health Care. The stock was restricted and could not be sold for five years. Petitioner never received a Federal Income Tax Form 1099 related to the stock bonus. Petitioner placed the stock certificates in his safe. He did not include the stock bonus on his personal federal income tax return. In 1994, the Internal Revenue Service audited Petitioner's personal tax returns. During the audit, Petitioner disclosed the stock bonus and immediately filed an amended income tax return, paying all tax and interest due and all penalties. In 1996, Petitioner filed a whistleblower lawsuit against his employer for Medicare fraud. Because the lawsuit was filed in Alabama, the United States Attorney in Birmingham, Alabama, intervened in the case. The lawsuit resulted in the recovery of $180,000,000 from Quorum Health Care. Petitioner was entitled to a whistleblower award in the amount of $5,000,000. In 1999, before Petitioner received his financial reward from the lawsuit, the United States Attorney in Birmingham, Alabama, advised Petitioner that he would be charged with failure to file a correct federal income tax return for the years 1991 and 1992. Petitioner granted the government's request to extend the statute of limitations while the government investigated the tax fraud allegations against him. In 2000, Petitioner pled guilty to income tax fraud and agreed to forego any reward for his participation in the whistleblower lawsuit. Petitioner was sentenced to serve two years in a federal prison, followed by one year of supervised probation. Petitioner also paid a $50,000 fine. Petitioner was incarcerated for 367 days. He was released from federal prison in August 2002. His supervised probation terminated February 2004. In January 2006, Petitioner's civil rights were restored. In an effort to prove rehabilitation, Petitioner presented evidence to show his involvement and/or active participation with the following: (a) his church; (b) children's sports programs; (c) Habitat for Humanity; (d) neighborhood hurricane recovery; (e) and other activities beneficial to his friends and family. The following three witnesses testified on Petitioner's behalf at the hearing: (a) Mike Papantonio, an attorney and Petitioner's brother-in-law; (b) Randal Spencer, a Florida licensed real estate broker who, along with his partners, sold a commercial building to Petitioner's wife; and (c) Carl Collins, Petitioner's neighbor since 2000. Each witness testified that Petitioner is honest, trustworthy, and of good character. At the time of the hearing, Petitioner was owner/manager of CommStructure, a company that manufactures and installs cellular towers. Petitioner oversees all financial aspects of the company. Petitioner's wife owns a real estate brokerage company, Spencer Realty. If Petitioner becomes licensed as a real estate sales associate, he would assist his wife in her business. A real estate sales associate, like a CPA, is responsible for important financial transactions where accuracy is important. Therefore, a real estate sales associate must be trustworthy regarding financial matters.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: Respondent enter a final order denying Petitioner a license as a real estate sales associate. DONE AND ENTERED this 20th day of April, 2006, in Tallahassee, Leon County, Florida. S SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of April, 2006. COPIES FURNISHED: Daniel R. Biggins, Esquire Department of Legal Affairs The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Daniel Villazon, Esquire Daniel Villazon, P.A. 1020 Verona Street Kissimmee, Florida 34741 Nancy B. Hogan, Chairman Real Estate Commission Department of Business and Professional Regulation 400 West Robinson Street, Suite 801N Orlando, Florida 32801 Josefina Tamayo, General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792
Findings Of Fact Pursuant to a stipulation, the following facts are found. Petitioner is a West Virginia corporation, organized under the laws of that state on January 4, 1958. Prior to June 1, 1962, it operated an automobile dealership in Huntington, West Virginia. On June 1, 9162, Petitioner exchanged assets of its automobile dealership for fifty (50 percent) percent of the capital stock of Dutch Miller Chevrolet, Inc., a West Virginia corporation organized to succeed the automobile dealership formerly operated by the Petitioner. Prior thereto, in 1961, the Petitioner had acquired one hundred percent (100 percent) of the capital stock in Palm Beach Motors (the name of which was changed on August 10, 1961 to Roger Dean Chevrolet, Inc.). Roger Dean Chevrolet, Inc. is a wholly owned subsidiary of the Petitioner which operated on property owned by the Petitioner. The years involved herein are the fiscal years ending December 31, 1972 and 1973, during which years the Petitioner's principal income (except for the gain involved herein) consisted of rents received from Roger Dean Chevrolet, Inc. Petitioner and its subsidiary filed consolidated returns for the years involved. During the fiscal year ending December 31, 1972, Petitioner sold its stock in Dutch Miller Chevrolet, Inc. to an unrelated third party for a gain determined by the Respondent to be in the amount of $349,217.00, which, although the sale took place out of the State of Florida, the Respondent has determined to be taxable under the Florida Income Tax Code* (Chapter 220, Florida Statutes). In the fiscal years ending December 31, 1972 and 1973, Petitioner included in Florida taxable income, the amounts of $76.00 and $6,245.00, respectively, from the sale of property on April 23, 1971, such gain being reported for federal income tax purposes on the installment method under Section 453 of the Internal Revenue Code of 1954. Roger H. Dean, individually or by attribution during the years involved herein, was the owner of one hundred (100 percent) percent of the stock of Roger Dean Enterprises, Inc. and seventy-five (75 percent) percent of the stock of Florida Chrysler-Plymouth, Inc. The remaining twenty-five (25 percent) percent of Florida Chrysler-Plymouth, Inc. was owned by Robert S. Cuillo, an unrelated person. The Respondent disallowed the $5,000.00 exemption to the Petitioner in computing its Florida corporate income tax for each of the years in question on the theory that the two corporations were members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code of 1954. By letter dated April 13, 1976, the Respondent advised Petitioner of its proposed deficiencies for the fiscal years ending December 31, 1972 and 1973, in the respective amounts of $19,086.25 and $1,086.79. Within sixty (60) days thereafter (on or about May 10, 1976), Petitioner filed its written protest in response thereto. By letter dated May 27, 1976, the Respondent rejected the Petitioner's position as to the stock sale gain and exemption issues. Thereafter on September 17, 1976, a subsequent oral argument was presented at a conference held between the parties' representatives in Tallahassee, and by letter dated September 23, 1976, Respondent again rejected Petitioner's position on all pending issues raised herein. The issues posed herein are as follows: Whether under the Florida Corporate income tax code, amounts derived as gain from a sale of intangible personal property situated out of the State of *Herein sometimes referred to as the Code. Florida are properly included in the tax base of a corporation subject to the Florida code. Whether amounts derived as installments during tax years ending after January 1, 1972, from a sale made prior to that date are properly included in the tax base for Florida corporate income tax purposes. Whether two corporations one of whose stock is owned 100 percent by the same person who owns 75 percent of the stock in the other, with the remaining 25 percent of the stock in the second corporation being owned by an unrelated person, constitute members of a control group of corporations as defined by Section 1563 of the Internal Revenue Code of 1954. Many states, in determining corporate income tax liability, utilize a procedure generally referred to a "allocation" to determine which elements of income may be assigned and held to a particular jurisdiction, where a corporation does business in several jurisdictions. By this procedure, non- business income such as dividends, investment income, or capital gains from the sale of intangibles are assigned to the state of commercial domicile. This approach was specifically considered and rejected when Florida adopted its corporate income tax code. Thus, in its report of transmittal of the corporate income tax code to the legislature, at page 215, it was noted: "The staff draft does not attempt to allocate any items of income to the commercial domicile of a corporate taxpayer. It endeavors to apportion 100 percent of corporate net income, from whatever source derived, and to attribute to Florida its apportionable share of all the net income." Additional evidence of the legislature's intent in this area can be seen by noting that when the corporate income tax code was adopted, Florida repealed certain provisions of the Multi-state Tax Compact (an agreement for uniformity entered into among some twenty-five states). Thus, Article IV, Section (6)(c), a contained in Section 213.15, Florida Statutes, 1969, which previously read: "Capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial domicile is in this state", was repealed by Chapter 71-980, Laws of Florida, concurrently with the adoption of the Corporate Income Tax Code. This approach has survived judicial scrutiny by several courts. See for example, Johns-Mansville Products Corp. v. Commissioner of Revenue Administration, 343 A.2d 221 (N.H. 1975) and Butler v. McColgan, 315 U.S. 501 (1942). Respecting its constitutional argument that amounts derived as installments during tax years subsequent to January 1, 1972, from a sale made prior to the enactment of the Florida Corporate Income Tax Code, the Petitioner concedes that the Code contemplates the result reached by the proposed assessment. However, it argues that in view of the constitutional prohibition which existed prior to enactment of the Code, no tax should now be levied based on pre-Code transactions. The Florida Supreme Court in the recent case of the Department of Revenue v. Leadership Housing, So.2d (Fla. 1977), Case No. 47,440 slip opinion p. 7 n. 4, cited with apparent approval the decision in Tiedmann v. Johnson, 316 A.2d 359 (Me. 1974). The court in Tiedmann, reasoned that the legislature adopted a "yard-stick" or measuring device approach by utilizing federal taxable income as a base, and reasoned that there was no retroactivity in taxing installments which were included currently in the federal tax base for the corresponding state year even though the sale may have been made in a prior year. The Respondent denied the Petitioner a $5,000.00 exemption based on its determination that the two corporations herein involved were members of a controlled group of corporations as defined in Section 1563 of the Internal Revenue Code. Chapter 220.14(4), Florida Statutes, reads in pertinent part that: "notwithstanding any other provisions of this code, not more than one exemption under this section shall be allowed to the Florida members of a controlled group of corporations, as defined in Section 1563 of the Internal Revenue Code with respect to taxable years ending on or after December 31, 1972, filing separate returns under this code." Petitioner's reliance on the case of Fairfax Auto Parts of Northern Virginia, 65 T.C. 798 (1976), for the proposition that the 25 percent ownership of an unrelated third party in one of the corporations precluded that corporation and the Petitioner from being considered a "controlled group of corporations" within the meaning of Section 1563 of the Internal Revenue Code, is misplaced in view of the recent reversal on appeal by the Fourth Circuit. Fairfax Auto Parts of Northern Virginia v. C.I.R., 548 F.2d 501 (4th C.A. 1977). Based thereon, it appears that the Respondent correctly determined that the Petitioner and Florida Chrysler-Plymouth, Inc., were members of the same controlled group of corporations as provided in Section 1563 of the Internal Revenue Code and therefore properly determined that Petitioner was not entitled to a separate exemption. Based on the legislature's specific rejection of the allocation concept and assuming arguendo, that Florida recognized allocation income for the sales of intangibles, it appears that based on the facts herein, Petitioner is commercially domiciled in Florida. Examination of the tax return submitted to the undersigned revealed that the Petitioner has no property or payroll outside the state of Florida. Accordingly, it is hereby recommended that the proposed deficiencies as established by the Respondent, Department of Revenue, be upheld in its entirety. RECOMMENDED this 7th day of July, 1977, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 David S. Meisel, Esquire 400 Royal Palm Way Palm Beach, Florida 33480 Thomas M. Mettler, Esquire 340 Royal Poinciana Plaza Palm Beach, Florida 33480
The Issue The issue is whether respondent's license as a public adjuster should be revoked, suspended, or otherwise disciplined after his conviction for aiding in the preparation of a false tax return in violation of 26 U.S.C. Section 7206(2).
Recommendation It is RECOMMENDED that Mr. Lesser be found guilty of violation of Section 626.611(7), Florida Statutes (1987), and that his licensure as a public adjuster be suspended for a period of six months. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 28th day of December, 1989. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 1989. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-0502 Rulings on findings proposed by the Department: 1 and 2. Adopted in finding of fact 3. Adopted in finding of fact 4. Implicit in findings of fact 5 and 6. Adopted in finding of fact 6. Adopted in finding of fact 8. Adopted in finding of fact 8. Adopted in finding of fact 8. Implicit in finding of fact 11. Rulings on findings proposed by Mr. Lesser: 1-11. Inapplicable. Adopted in finding of fact 3. Adopted in finding of fact 3, to the extent necessary. Rejected as unnecessary. Adopted in finding of fact 5. Adopted in finding of fact 5. Adopted in finding of fact 5, though finding of fact 5 includes certain logical deductions or inferences. Made more specific in findings of fact 5 and 6. Adopted as modified in finding of fact 7. Rejected. Not only were the laundering transactions illegitimate because they allowed Benevento Maneri to mischaracterize the source of their income, they also created false expenses for Lesser and Company, Inc., which artificially lowered the income of Lesser and Company, Inc., by the amount of the expense. Adopted as modified in finding of fact 7. It is difficult to determine what Mr. Lesser actually thought the source of the money was, but he knew it was illicit. See, finding of fact 7. Adopted as modified in finding of fact 8. Adopted as modified in finding of fact 9. 25 and 26. Adopted as modified in finding of fact 9. Adopted as modified in finding of fact 10 The extent of Mr. Lesser's danger cannot be determined from this record, although he was in some danger. Covered in finding of fact 9 Adopted as modified in finding of fact 11. Rejected. See, finding of fact 8. The IRS first contacted Mr. Lesser. He then went to Mr. Weinstein to set matters straight. Adopted as modified in finding of fact 11. Adopted as modified in finding of fact 4. Adopted as modified in finding of fact 12. Adopted as modified in finding of fact 12. A light sentence implies the factors set out in finding of fact 35, were taken into consideration, but does not prove that they were all the reasons the U.S. District Judge took into consideration. To the extent necessary, mentioned in finding of fact 12. Rejected as procedural. 38-51. Covered in findings of fact 13 and 14. The proposed findings are subordinate to the findings made in findings of fact 13 and 14. COPIES FURNISHED: S. Marc Herskovitz, Esquire Robert V. Elias, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 William W. Corry, Esquire Jack M. Skelding, Jr., Esquire Patrick J. Phelan, Jr., Esquire Parker, Skelding, Labasky & Corry 318 North Monroe Street Post Office Box 669 Tallahassee Florida 32301 Honorable Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Findings Of Fact The Petitioner is, and during the years in question was, a corporation organized under the laws of the State of Delaware, properly qualified and authorized to do business in the State of Florida, and the parent company of a consolidated group of corporations that kept its books and records and filed its federal and state income tax returns on the basis of a fiscal year ending August 31. During the tax years in question, the consolidated group consisted of 36 corporations, of which 15 (including Petitioner) had Florida transactions or were otherwise separately subject to taxation under the Florida Corporate Income Tax Code (the "Florida members"). The other 21 corporations had no such transactions or were not subject to taxation under the Florida Code (the "non- Florida members"). For both years 1972 and 1973, petitioner filed federal and Florida income tax returns on behalf of the entire group. On the Florida return's, it duly elected under the second sentence of Subsection 220.131(1), F.S., to include both the Florida and non-Florida members. As required by Subsections 220.131(1)(a), (b) and (c), each member of the group consented to such filing, the group filed a consolidated federal return for each year, and the component members of the Florida return group were identical to the members of the federal return group. Petitioner protested the proposed corporate income tax assessment for 1972 and 1973, but, by letter, dated July 7, 1976, T. H. Swindal, Chief, Corporation Income Tax Bureau, Florida Department of Revenue, adhered to the original determination that for a parent corporation to include all of its subsidiary corporations for the purposes of consolidating its taxable income, it must be incorporated in Florida. The letter further explained: ". . . The Florida Legislature obviously considered these classifications justified and constitutionally permissible. Any regulation, therefore, which is so drafted as to permit an interpretation which in substance changes or strikes the statutory classification is a nullity. It appears that the Department's regulation may have been inadvertently so drafted as to invite an unintended and contrary-to-the- statute interpretation. When the Department became aware of the situation it proceeded, in accordance with the prescribed statutory requirements of Chapter 120, to amend the regulation by striking those words being misinterpreted." The regulation referred to in Swindal's letter was Rule 12C-1.131(1), F.A.C., the first sentence of which had read as follows: "12C-1.131 Adjusted Federal Income; Affiliated Groups. The term "Florida parent company" as used in the second sentence of Code subsection 220.131(1) shall mean any corporation qualified to do business in Florida or otherwise subject to tax under the Code, irrespective of its place of incorporation " The aforesaid rule was in effect during 1972 and 1973, and was amended on August 4, 1975, to delete the above-mentioned sentence.
Recommendation That Petitioner not be held liable for the proposed assessment of corporate income tax deficiency for fiscal years 1972 and 1973. DONE and ENTERED this 26th day of April , 1977, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: E. Wilson Crump, II, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Alan L. Reinstein, Esquire Dancona, Pflaum, Wyatt and Riskind 30 North LaSalle Street Chicago, Illinois 60602
