The Issue The issue in this proceeding is whether the Florida Corporate Income Tax Code subjects to taxation items realized for federal income tax purposes prior to the effective date of the Code but recognized for federal purposes after the effective date of the Florida Code.
Findings Of Fact In a joint stipulation filed with the Hearing Officer, the parties stipulated to the relevant facts of this proceeding. Findings (1) through (6) listed below are quoted directly from that stipulation of facts. In 1965 MORRIS TRADING CORPORATION (whose name at that time was Morris Grain Corporation) exchanged certain property used in its trade or business with Continental Grain Company for six thousand seven hundred twenty three (6,723) acres of real estate located in Florida a description of which is attached hereto and made a part hereof as Exhibit 1 containing a layout of the ranch acreage acquired by MORRIS TRADING CORPORATION from Continental Grain Company, including the nine hundred fifty eight (958) acre parcel sold in the fiscal year ending in 1968, the one thousand (1,000) acre parcel sold in the fiscal year ending in 1969, and the remaining acreage sold in the fiscal year ending in 1973, as well as a small parcel of property retained by the Corporation. Although MORRIS TRADING CORPORATION realized income for federal tax purposes in 1965 when it exchanged a grain elevator and other property for real estate described on Exhibit 1, the Corporation did not recognize any income for federal tax purposes in 1965 pursuant to Section 1031 of the Internal Revenue Code of 1954 as amended. The real estate acquired in exchange for the property traded by MORRIS TRADING CORPORATION had a fair market value in 1965 of ONE MILLION SIX HUNDRED THIRTEEN THOUSAND FIVE HUNDRED TWENTY AND NO/100 DOLLARS ($1,613,520.00), or TWO HUNDRED FORTY AND NO/100 DOLLARS ($240.00) per acre. The tax cost basis of the property given up by MORRIS TRADING CORPORATION in the exchange was TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED THIRTY TWO AND SIXTY SIX/100 DOLLARS ($267,832.66). MORRIS TRADING CORPORATION paid TWENTY THOUSAND FOUR HUNDRED FIFTY THREE AND FIFTY FIVE/100 DOLLARS ($20,453.55) in cash for the purchase of mineral rights to the four thousand six hundred five (4,605) acres sold during the fiscal year ending in 1973 and there were ONE HUNDRED SIXTY TWO THOUSAND FIVE HUNDRED TWENTY TWO AND FIFTY FIVE/100 DOLLARS ($162,522.55) of costs connected with the sale of the property consisting of commissions of ONE HUNDRED THIRTY THREE THREE HUNDRED AND NO/100 DOLLARS ($133,300.00), attorneys fees of EIGHTEEN THOUSAND AND NO/100 DOLLARS ($18,000.00), and documentary" stamps and miscellaneous expenses of ELEVEN THOU- SAND TWO HUNDRED TWENTY TWO AND FIFTY FIVE/100 DOLLARS ($11,222.55). MORRIS TRADING CORPORATION sold four thousand six hundred five (4,605) acres-of the property acquired in the exchange in 1965 during its fiscal year ending May 31, 1973, for a gross sales price of TWO MILLION NINE HUNDRED SIXTY ONE THOUSAND EIGHT HUNDRED SEVEN AND NINETY SIX/100 DOLLARS ($2,961,807.96). On its Florida corporate income tax return for the fiscal year ending May 31, 1973, Petitioner excluded income from the 1973 sale of the 4,605 acres, although this income was reported as recognized on its federal income tax return. The Respondent, Department of Revenue, issued its proposed deficiency for the 1973 fiscal year assessing Petitioner $121,389.33. This assessment was based upon the gain received by Petitioner for the 1973 transaction, said gain being measured by the difference between the original cost of the property exchanged in 1965 and the adjusted sales price of the property sold in 1973. The Petitioner filed a protest against the proposed deficiency. An informal conference failed to resolve the matter and the Petitioner thereafter filed its petition for an administrative hearing. On August 4, 1976, the parties entered into a joint motion for stay of proceedings pending the Florida Supreme Court's resolution of the case of Dept. of Revenue v. Leadership Housing, Inc. and Leadership Communities, Inc., 343 So.2d 611 (Fla. 1977). Thereafter, a prehearing conference was held to narrow and define the issues, briefs were filed and a hearing was held to receive oral argument on the legal issues involved.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the proposed corporate income tax deficiency for the Petitioner's fiscal year ending in 1973 be held invalid. Said deficiency should be recomputed by subtracting from the gross, sales price of the real estate sold in 1973 the amount realized on Petitioner's federal return in 1965, the selling expenses and the purchase of additional mineral rights. Respectfully submitted and entered this 15th day of February, 1978, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Gerald T. Hart Thompson, Wadsworth, Messer, Turner and Rhodes Post Office Box 1876 Suite 701, Lewis State Bank Building Tallahassee, Florida 32302 E. Wilson Crump, II Assistent Attorney General Department of Legal Affairs Post Office Box 5377 Tallahassee, Florida 32301
The Issue Whether Respondent's sales and use Certificate of Registration should be revoked for failure to abide by the repayment terms agreed to in a Compliance Agreement entered into with Petitioner on August 29, 2013, as alleged in the Amended Administrative Complaint for Revocation of Certificate of Registration.
Findings Of Fact The Department is the state agency charged with administering and enforcing Florida's revenue laws, including the laws related to the imposition and collection of sales and use tax pursuant to chapter 212, Florida Statutes (2014). Respondent is a Florida Profit Corporation doing business at 90791 Old Highway, Unit 1, Tavernier, Florida 33037. Respondent is a "dealer" as defined in section 212.06(2) and is required to comply with chapter 212. Respondent holds Certificate of Registration number 54- 8013269710-0 issued by the Department. A certificate of registration is required in order to do business in the state of Florida and authorizes its holder to collect and remit sales tax pursuant to chapter 212. The Department is authorized to revoke a dealer's certificate of registration for failure to comply with state tax laws. Prior to such revocation, the Department is required by statute to schedule a conference with the dealer. The dealer is required to attend the informal conference and may either present evidence to refute the Department's allegations of noncompliance or to enter into a compliance agreement with the Department to resolve the dealer's failure to comply with chapter 212. The Department issued and recorded warrants in the public records of Monroe County to secure collection of delinquent sales and use tax, plus penalties, filing fees, and interest from Respondent.1/ The Department initiated the process of revoking Respondent's Certificate of Registration by sending Respondent a Notice of Conference on Revocation of Certificate of Registration (Notice of Conference). The Notice of Conference advised that the informal conference would be held on August 29, 2013, and that the Department had initiated the process to revoke Respondent's Certificate of Registration for failure to remit sales and use tax and pay the reemployment tax that was determined to be due. The notice also informed Respondent that it would have the opportunity to make payment or present evidence to demonstrate why the Department should not revoke Respondent's Certificate of Registration. Respondent's President and Registered Agent, Spencer Slate, attended the informal conference on behalf of Respondent and entered into a Compliance Agreement with the Department. During the informal conference, Mr. Slate admitted to using the collected tax to pay for Respondent's payroll, fuel, and other business expenses instead of remitting the tax to the State. The Compliance Agreement states that due to Respondent's failure to timely file returns and pay all taxes due, Respondent admits to a past due sales and use tax liability of $51,506.55, consisting of tax, penalty, interest, and fees. The Compliance Agreement requires Respondent to make a down payment of $16,349.14 by August 29, 2013, and to make 12 monthly payments. The Compliance Agreement also provides that: IN CONSIDERATION for the Department refraining from pursuing revocation proceedings at this time, the taxpayer agrees: * * * To accurately complete and timely file all required returns and reports for the next 12 months, beginning with the first return/report due for 08/31/2013, payable on or before 09/20/2013. To timely remit all taxes due for the next 12 months, following the date of this agreement. Respondent made the down payment of $16,349.14, as required by the Compliance Agreement, and the first four scheduled payments, but defaulted on the terms of the Compliance Agreement as follows: Failed to make the monthly payments due, beginning with the fifth payment. Failed to timely remit taxes due for September 2013, October 2013, and November 2013. In addition, the payment for sales tax due September 2013 was returned due to insufficient funds. Failed to timely file sales and use tax returns and remit the taxes due for the tax periods May 2014, June 2014, and July 2014. The Compliance Agreement provides that "[i]f the taxpayer fails to comply with any obligation under this agreement, the Department has the right to pursue revocation of the taxpayer's certificate of registration." As provided by the Department's revocation worksheet dated December 5, 2014, Respondent currently has an outstanding sales and use tax liability in the amount of $67,501.98 and reemployment tax liability of $667.08, including tax, penalty, interest, and fees.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Revenue revoking the Certificate of Registration issued to and held by Respondent. DONE AND ENTERED this 30th day of January, 2015, in Tallahassee, Leon County, Florida. S MARY LI CREASY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of January, 2015.
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
The Issue The issue in this case is whether Petitioner is entitled to a waiver of the bond requirement set forth Section 559.927, Florida Statutes.
Findings Of Fact Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: Ladatco is a "seller of travel" as that term is defined in Section 559.927(1)(a), Florida Statutes. Ladatco deals exclusively in wholesale travel packages. Ladatco primarily packages and sells tours of Central and South America to retail travel agents. Until the last few years, the retail travel agents handled virtually all of the ticketing involved in the packages. Changes in the industry have resulted in Ladatco becoming more involved in the ticketing aspect as part of the services it provides in assembling the packages. However, Ladatco has very little direct contact with consumers. Ladatco originally began operations in 1967 as a subsidiary of another company. Ladatco has been conducting business in its current corporate form since 1976. Michelle Shelburne has been working for the company since 1969. She has been the president of Ladatco for at least the last ten years and she owns fifty percent (50 percent) of the outstanding stock. Annie Burke and Rosa Perez are the other officers of the company and they each own approximately twenty two and half percent (22 1/2 percent) of the stock. Both Burke and Perez have worked for Ladatco since approximately 1970. The remaining five percent of the outstanding stock is owned by an attorney who has represented Ladatco since 1967. Ladatco has seven other full time employees and operates out of an office building that is owned jointly by Shelburne, Perez and Burke. Under Section 559.927(10)(b), Florida Statutes, a seller of travel is obligated to post a performance bond or otherwise provide security to the Department to cover potential future claims made by travelers. The security required by this statute is for the benefit of consumers and may be waived by the Department in certain circumstances. On or about May 27, 1994, Ladatco submitted an Application for Security Waiver (the "Application") pursuant to Section 559.927(10)(b)5, Florida Statutes. In lieu of audited financial statements, Ladatco submitted a copy of its 1993 income tax return with the Application. Line 30 of that income tax return reflects a net loss for tax purposes of $100,722. In reviewing an application for a bond waiver, the Department looks at the taxable income on the income tax return. It is the Department's position that if a company shows a loss for tax purposes, it is lacking in financial responsibility and is ineligible for a bond waiver. Based on this policy, the Department denied Ladatco's Application by letter dated August 2, 1994. The certified public accountant who has handled all outside accounting services for Ladatco since 1977 testified at the hearing in this matter. He submitted a history of operations for the company from 1985 through 1993. The accountant explained that, in 1986, Ladatco acquired a very expensive computer system with customized software. The cost of this system was depreciated over a five year period. In addition, until 1991, the company operated out of a building that it owned. The building was sold to the individual principals of the company in 1991. During the years the company owned the building, a significant amount of depreciation was generated for tax purposes. The large depreciation expenses for the years 1986 through 1991 generated losses for tax purposes which have been carried over for future years. Thus, while the company's operations for 1993 generated a profit of $65,000, the loss carry over resulted in a net loss for income tax purposes. The current year forecast for the company, based upon existing bookings, projects a net income in excess of $64,000 for the year ending December 31, 1994. In sum, an isolated look at the taxable income loss reflected on the 1993 income tax return does not provide an accurate picture of the financial responsibility of this company. This closely owned company has been in business for approximately twenty eight (28) years. The three principals in the company have all been with the firm for more than twenty four (24) years. The company has demonstrated a great deal of stability and, while profitability has fluctuated from year to year, the company has continually met its obligations for more than a quarter century. There is every indication that it will continue to do so in the future. Ladatco has maintained a bond with the Airline Reporting Corporation ("ARC") for approximately two and a half years. The amount of the bond varies from year to year, but is generally in the vicinity of $35,000. The statute provides that a company which has successfully maintained a bond with the ARC for three years is entitled to a security waiver. While the ARC bond only protects the airlines and not the travelers, Ladatco will qualify for a waiver under this provision in approximately May of 1995. There is no indication of any unresolved complaints against Ladatco nor is there any evidence of civil, criminal or administrative action against the company.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Agriculture and Consumer Services enter a Final Order granting Ladatco's application for security waiver pursuant to Section 559.927(10)(b)5, Florida Statutes. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of December 1994. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of December 1994. APPENDIX TO RECOMMENDED ORDER Only the Respondent has submitted proposed findings of fact. The following constitutes my ruling on those proposals. Adopted in pertinent part Finding of Fact 6 and also addressing the Preliminary Statement and in the Conclusions of Law. Adopted in substance in Finding of Fact 6. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 8. Adopted in substance in Finding of Facts 7 and 8. COPIES FURNISHED: Michelle D. Shelburne, President Ladatco, Inc. d/b/a Ladatco Tours 2220 Coral Way Miami, Florida 33145 Jay S. Levenstein, Senior Attorney Department of Agriculture and Consumer Services Room 515, Mayo Building Tallahassee, Florida 32399-0800 Honorable Bob Crawford Commissioner of Agriculture The Capitol, PL-10 Tallahassee, Florida 32399-0810 Richard Tritschler General Counsel Department of Agriculture and Consumer Services The Capitol, PL-10 Tallahassee, Florida 32399-0810
Findings Of Fact The facts in this cause are essentially undisputed. The Pen Haven Company was a Subchapter "S" corporation for federal income tax purposes and therefore incurred no State income tax liability. It was formed in 1960 and retained its Subchapter "S" status thorough 1976 for federal income tax purposes. In December of 1977, the capital stock of Pen Haven Sanitation Company was sold to the Board of County Commissioners of Escambia County. Inasmuch as the sole corporate stock holder then was no longer an individual, but rather a governmental entity, the corporation Subchapter "S" election for federal income tax purposes was terminated. Escambia County did not wish to own stock in a private corporation so it accordingly liquidated Pen Haven and its assets were distributed to the County's direct ownership. Thereafter the Corporation filed a final corporate income tax return for 1977 which reflected capital gains on the assets of the corporation which had been distributed. Some of those assets had tax bases which had been reduced to zero through reduction by depreciation, most of which had been charged off prior to January 1, 1972, the effective date of the Florida corporate income tax code. All of the depreciation deductions had been taken prior to the termination of the Subchapter "S" status of the Pen Haven Company. On disposition of the Pen Haven assets however, a gain was reported equal to the fair market value or salvage value, less the basis. This gain was accordingly reported on Pen Haven's federal income tax return, and on the 1977 Florida corporate income tax return, albeit under the protest as to the Florida tax return. Inasmuch as Pen Haven had previously deducted depreciation since its inception, and had the benefit thereof for federal tax purposes, it was required by the Internal Revenue Service to recapture the depreciation for federal tax purposes upon its sale and the filing of its tax return in 1977. The same recapture of depreciation treatment was required of West Florida Utilities. Thereafter an application was made by the Petitioner corporations for Florida Corporate Income Tax Refunds asserting that they should have not paid taxes on the amount of gains which represented a recapture of depreciation which had been taken as a deduction prior to the effective date of the Florida corporate income tax on January 1, 1972. In effect the Petitioner is contending that the so- called "income" which is the subject of the tax in question was not realized in 1977, but rather merely "recognized" in that year by the federal tax law and that it represented income actually "realized" during the years when the depreciation was taken as a deduction prior to January 1, 1972. The Petitioners contend that "realization" for federal income tax purposes occurs when the taxpayer actually receives an economic gain. "Recognition" on the other hand refers only to that time when the tax itself becomes actually due and payable. The Petitioners maintain that when the tax became due and payable in 1977 that was merely the point of "recognition" of the subject taxable gain and not "realization" in that the gain was actually realized prior to the Florida Jurisdictional date of January 1, 1972, in the form of the economic benefit derived from those depreciation deductions applied to federal tax liability prior to that date. The Petitioners cite SRG Corporation vs. Department of Revenue, 365 So2d 687 (Fla. 1st DCA 1978), for the proposition that Florida could not tax those gains accruing to the taxpayer prior to Florida's having the constitutional and statutory power to impose a corporate income tax. The Respondent in essence agrees that the question of when the economic benefit to the Petitioners was received by them or was "realized" is the key question in this cause. The Respondent contends, however, that "realization" of a taxable gain occurred when the assets were disposed of by the Petitioners in 1977, well after the date when Florida's power to tax such a gain was enacted. The underlying facts in the case of West Florida Utilities are substantially similar. This corporation, however, was organized in 1962 and has never been clothed with Subchapter "S" corporate status. The only grounds upon which it can therefore claim a refund is its assertion that Florida does not have authority to tax that portion of the capital gains attributable to recapture of depreciation which was originally charged off as a deduction prior to January 1, 1972. The Department of Revenue and the Comptroller of the State of Florida both denied the refund claim made on behalf of the Petitioners, and thereafter they seasonably petitioned for a formal administrative hearing pursuant to Chapter 120.57(1), Florida Statutes.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence in the record, the candor and demeanor of the witness and pleadings and arguments of counsel it is, therefore RECOMMENDED this 3rd day of September, 1981, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of September, 1981. COPIES FURNISHED: Thurston A. Shell Post Office Box 1831 Pensacola, Florida 32578 Robert A. Pierce, Esquire General Counsel Department of Revenue Tallahassee, Florida 32301 Michael Basile, Esquire Deputy General Counsel Office of Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301 Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32310
The Issue Whether Petitioner collected and remitted to the Florida Department of Revenue the correct amount of sales tax on Petitioner's retail sales; and Whether Petitioner remitted to the Florida Department of Revenue the proper amount of sales tax on Petitioner's general and fixed assets purchases and on its commercial lease.
Findings Of Fact Petitioning Taxpayer, Surface Preparation Group, Inc., is a "C" corporation, incorporated in the State of Texas. The Taxpayer's product or service is the sale, service, and rental of surface preparation equipment. The Taxpayer has been registered with the Department since October 7, 1999. By letter dated January 12, 2005, the Department notified the Taxpayer of its intent to audit the Taxpayer's books and records to verify the Taxpayer's compliance with Florida's sales and use tax statutes. The audit period in this case is from December 1, 2001, through November 30, 2004. When the audit started, the Taxpayer had a presence in LeGrange, Georgia. During the course of the audit and negotiations, the Taxpayer removed itself back to its Texas headquarters. Specific records were requested to be made available for the Department's auditor to review. Four subject areas were developed in the audit plan: (1) sales; (2) fixed expense; (3) general expense; and (4) commercial rent. Although the Taxpayer provided some sales data, the information contained therein did not correlate with other information the Department had concerning the Taxpayer's Florida sales. For instance, auditors had traced through general ledgers to Petitioner’s federal tax return and compared the return with the company’s Florida sales and use tax return, and the figures did not correlate. Despite repeated requests by the Department's auditor, the Taxpayer provided no information explaining the reasons for this discrepancy, nor was any information provided regarding the Taxpayer’s general purchases, fixed asset purchases, or its commercial lease expenses. Therefore, in order to complete the audit process, the Department had to use the best information available to estimate the additional tax due on fixed assets, general purchases, and commercial rent. That information in this case consisted of materials provided by the Taxpayer and industry averages and past audit assessments of businesses in similar industries. Because total sales reported by the Taxpayer on its DR-15 monthly sales returns were different than the amounts the Taxpayer reported in response to the audit request, there was no assurance that the reported taxable sales and exempt sales were correct. Accordingly, the Department's auditor disallowed all exempt sales as reported by the Taxpayer. Because the Taxpayer had a location in Polk County, Florida, during part of the audit period, it must have had fixed assets there. This meant that a use tax was due for all the Taxpayer’s purchases in Florida, without credit for sales tax paid to vendors who in many cases were located in Georgia. No information was provided by the Taxpayer for general expenses or rental expenses. Without any information from the Taxpayer for general expenses or rental location, the Department had to proceed differently than it would have normally proceeded. In anticipation of submitting more documents to be analyzed by the Department as part of the audit, Mr. Hillebrand, tax manager for Petitioner, signed, on October 24, 2005, a consent to extend the statute of limitations and time for completing the audit to July 31, 2006. (Exhibit R-2, page 000030). On March 15, 2006, Mr. Schnaible, one of the Taxpayer’s Controllers, signed a consent to extend until December 31, 2006. (Exhibit R-2, page 000029). On September 26, 2006, after analyzing all that had been received from the Taxpayer up to that date, the Department mailed a Notice of Intent to Make Audit Changes (NOI) to Petitioner, along with the work papers supporting the changes, and a letter from the auditor explaining the findings. The amount of tax assessed totaled $197,714.38, and comprised: Schedule A01: Disallowed Exempt Sales $169,994.38; Schedule B01: Estimated Fixed Asset Purchases $10,080.00; Estimated General Expenses: $5,040.00; and Estimated Commercial Rental $12,600.00. Interest accrued through September 26, 2006, totaled $57,353.50. The penalty at that date totaled $49,428.09, bringing the total assessment amount to $304,496.47. The Department’s September 26, 2006, letter offered the Taxpayer another opportunity to provide records if it disputed the auditor's findings, and another option to continue the audit process. (Exhibit R-2, pages 000044 through 000045). On October 25, 2006, Mr. Spomer, Taxpayer’s Controller who eventually signed the Petition and Amended Petition herein, wrote a letter (Exhibit R-2, page 000042) to the auditor stating that he requested to extend the audit and that he would mail back the signed, correct form. Normally, a DR-872e form to extend the statute and audit period must be signed within 30 days of the NOI. In this case, it was signed two months later. Apparently, one such form signed by Mr. Spomer was inadvertently filled-in by the Department with the extension date of "June 30, 2006," (copy attached to Amended Petition). Therefore, a second form was executed by Mr. Spomer on November 1, 2006. This form bears the correct extension date of June 30, 2007. (Exhibit R-2, page 000028). No additional information was provided by the Taxpayer which would change any of the tax amounts identified in the NOI. Therefore, on January 31, 2007, the Department issued it Notice of Proposed Assessment (NOPA). Therein, the amount of tax due remained unchanged. The amount of accrued interest through January 31, 2007, increased to $65,023.73, and the penalty was reduced to zero. The Department currently seeks $262,738.11, with interest accruing on the unpaid tax liability at the statutory rate.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order sustaining the Notice of Proposed Assessment dated January 31, 2007. DONE AND ENTERED this 6th day of December, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 6th day of December, 2007. COPIES FURNISHED: Bruce Hoffmann, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32399-0100 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100 John Mika, Esquire Office of the Attorney General The Capital - Revenue Litigation Bureau Tallahassee, Florida 32399-1050 Dale Spomer International Surface Preparation Group (Texas), Inc. 6330 West Loop South, Suite 900 Houston, Texas 77401
Findings Of Fact Petitioner is Carl R. Glass, d/b/a Osceola Forge located at 2749 North Orange Blossom Trail, Kissimmee, Florida 34744. Petitioner is engaged in the business of manufacturing and fabricating burglar bars, steel gates, decorative plastic ornamental castings and injection moldings. Petitioner built and erected one double sided billboard on his business property at 2749 North Orange Blossom Trail, Kissimmee, Florida. It is anchored by its owns supports into the ground as a permanent improvement to Petitioner's real property. The size of the billboard is approximately 12' x 38', plus an apron that runs along the length of the bottom of the billboard. Petitioner leases the face and apron of each side of billboard to customers who are generally required to supply their own labor and material to create an advertising message. The billboard was built to provide double-sided advertising for lanes of traffic going northbound or southbound past Petitioner's place of business. Petitioner has rented the billboard to various lessees for a monthly rental fee over the relevant period. Petitioner did not charge or collect sales and use taxes on the rental fee. Respondent conducted an audit of Petitioner's entire business, for the period May 1, 1986 through April 30, 1991. There was only one item assessed as a result of the audit which was on the lease of the billboard located on Petitioner's business property. Petitioner was assessed sales and use taxes, interest and penalties totalling $6,142.38, including taxes ($4,017.76) with a per diem interest rate of $1.32 to be computed from 10/3/91 to the present. Additional interest due, as of July 1, 1993, was calculated to equal $842.16 (638 days x $1.32). The sales tax assessment was based on invoices and other information provided by the Petitioner and followed the Department of Revenue routine procedures required for all audits. From January 1987 through February 1991, Petitioner, or his secretary, made five telephone calls from Osceola Forge to the Taxpayer Assistance Number of the Department of Revenue's regional office located in Maitland, Florida, requesting assistance. On each occasion, the Department's employee advised Petitioner or his employee that they could call the Department's Tallahassee 800 taxpayer assistance number. On at least one occasion, Petitioner's secretary or Petitioner was advised that the transaction was tax exempt, and need not be collected. Petitioner was aware of the 800 taxpayer assistance number in Tallahassee and tried to call the number. However, he was unable to get through, and called the local office only. On April 9, 1992, Petitioner personally telephoned the Titusville office of the Department of Revenue. On each occasion, Petitioner inquired whether or not sales or use taxes should be collected on the rental of the billboard. A free, updated Sales and Use Tax Rules Book is available to any tax payer upon request. In addition, a taxpayer could personally appear and bring documentation relating to any questions relating to the sales and use tax at any regional office. Petitioner did not obtain an updated rules book or personally appear at a regional office. On April 30, 1992, Petitioner filed a Protest Letter with Respondent challenging the abovementioned tax assessment. Respondent issued to Petitioner a Notice of Decision dated December 1, 1992. On January 8, 1993, Petitioner filed a Request for a Formal Administrative Hearing with Respondent. To date, Petitioner has not paid any of the contested taxes, interest, and penalties to Respondent. Petitioner relied on information provided by his secretary, his accountant, and brief phone conferences with the DOR's Maitland office to determine that the rental fees were tax exempt, and did not collect the sales tax from his customers. The DOR Audit Supervisor testified that there is a clear distinction between the taxable rental of a billboard and the nontaxable services of placing an advertising message on the billboard. The rental of the face of the billboard is a taxable transaction. On the other hand, if a person rents or leases a billboard, then hires a third party to place an advertising message on the billboard, this advertising service is tax exempt.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a Final Order upholding its sales and use tax assessment, waive penalties and interest accrued prior to October 2, 1991, and assess a tax of $4,017.76, plus interst from the date due. DONE and ENTERED this 14th day of July, 1993, in Tallahassee, Florida. DANIEL M. KILBRIDE 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 14th day of July, 1993. APPENDIX The following constitutes my specific rulings, in accordance with section 120.59, Florida Statutes, on proposed findings of fact submitted by the parties. Proposed findings of fact submitted by Petitioner. Petitioner did not submit proposed findings of fact. Proposed findings of fact submitted by Respondent. Proposed findings submitted by Respondent are accepted except as noted below. Those proposed findings neither noted below nor included in the Hearing Officer's findings were deemed unnecessary to the conclusions reached. Rejected as argument: paragraphs 37, 38, 39 COPIES FURNISHED: Carl R. Glass 2749 North Orange Blossom Trail Kissimmee, Florida 34741 James McAuley, Esquire Assistant Attorney General Capitol Building Tallahassee, Florida 32399-1050 Larry Fuchs Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
The Issue Whether the Department of Revenue can levy on petitioner's bank accounts where the petitioner failed to challenge the final sales tax assessment and failed to remit the tax, penalties, and interest due pursuant to the assessment.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and the entire record of this proceeding, the following findings of fact are made: Petitioner, Forest Hill Convenience, Inc., is a Florida corporation. It owns one convenience store in Palm Beach County, Kwik Stop number 320, and owned a second convenience store in Palm Beach County, One-Stop Food Mart, during the time relevant to this proceeding. Samson Abraham Francis is Forest Hill's President and only corporate officer. In December 1993, at the request of Forest Hill and a third party which was interested in purchasing the convenience stores, Van T. Ho, a Tax Auditor IV with the Department, performed an audit of Forest Hill's books and records for the period October 1, 1992 through November 31, 1993. As a result of the audit, the Department identified sales tax deficiencies. Forest Hill was notified on January 10, 1994, that the audit had revealed a tax deficiency of $1,046.78, exclusive of penalties and interest. On January 11, 1994, Mr. Francis met with Ms. Ho to go over the audit results. On January 13, 1994, Ms. Ho telephoned Mr. Francis and notified him that she had discovered an error in the initial audit and that Forest Hill's sales tax deficiency was $5,217.45, for a total tax liability of $7,354.86, with penalties and accrued interest. Mr. Francis did not object to the revision during this telephone conversation, and Ms. Ho sent Forest Hill the revised audit papers, together with a Notice of Intent to Make Audit Changes dated January 18, 1994. In this Notice, Forest Hill was advised that it must submit any objections to the proposed audit changes, in writing, by February 17, 1994, and that, if no objections were filed, a Proposed Notice of Deficiency would issue on March 21, 1994. In a letter dated February 22, 1994, Mr. Francis requested an extension of time to allow Forest Hill's accountant time to review the Notice and the audit papers. Mr. Francis did not register a protest to the tax deficiency identified in the revised audit papers in this letter. A two-week extension was granted. Even though the Department did not receive an objection to the proposed audit changes, it offered, in a letter dated March 25, 1994, to schedule a meeting to resolve any objections Mr. Francis might have to the proposed tax liability. The Department did not receive a response to this letter, and, in a letter dated September 9, 1994, Mr. Francis was advised that the audit file was being forwarded to Tallahassee. A Notice of Proposed Assessment dated October 6, 1994, was sent to Forest Hill via certified United States mail to Mr. Francis's then-current home address. In the Notice, the Department advised Forest Hill that it owed the Department $8,320.21, consisting of $5,217.45 in sales tax, $2,284.02 in penalties, and $818.74 in interest, with additional interest accruing at the rate of $1.72 per day. The Department further advised Forest Hill that, if it did not request informal proceedings, the assessment would become final on December 5, 1995, and that no relief could be granted by the Department, the Division of Administrative Hearings, or the courts beyond sixty days from the date the assessment became final, that is, by February 3, 1995. The Notice was returned to the Department unclaimed after two attempts at delivery. Forest Hill did not timely file a request for informal proceedings to challenge the proposed assessment, and the proposed assessment became a final assessment on December 5, 1994. On January 24, 1995, a Tax Warrant was filed by the Department with the Clerk of Court in Palm Beach County, Florida, and Forest Hill was so advised in a letter dated January 24, 1995. Forest Hill did not challenge the final assessment in circuit court or by petition to the Division Administrative Hearings by the date specified in the Notice of Proposed Assessment. The Department issued a Notice of Delinquent Tax dated March 24, 1995, to Forest Hill's bank. On April 13, 1995, the Department received a letter from Mr. Francis, dated March 9, 1995, protesting the amount of the assessment. In a letter dated May 4, 1995, Linda Howe, the Department's West Palm Beach Collection and Enforcement Administrator, notified Forest Hill that the audit could not be reopened because all protest rights had expired. Ms. Howe advised Forest Hill that it could pursue a compromise with the Department, and she stated that a written request for such relief had to be filed with the Department within fourteen days, during which time she would suspend collection and enforcement action on the warrant. Forest Hill failed to respond to the Department's letter of May 4, 1995, and a Notice to Freeze, dated May 31, 1995, was sent to Great Western Bank in Delray Beach, Florida, freezing Forest Hill's assets in the amount of $9,050.25. Forest Hill did not satisfy the warrant, and, on June 13, 1995, the Department sent the Notice of Intent to Levy via certified United States mail to Forest Hill at its business address. The only basis on which Forest Hill challenges the Notice of Intent to Levy is that the amount of the assessment is incorrect and unfair. Forest Hill has, however, waived any right to contest the correctness or validity of the assessment. The Department followed the procedures established by statute and rule in proceeding to issue a final tax assessment against Forest Hill. Mr. Francis did not participate on Forest Hill's behalf in the informal proceedings offered by the Department to resolve his objections to the correctness of the tax deficiency, nor did he timely request a hearing to contest either the proposed assessment or the final assessment. The Department has met its burden of showing by a preponderance of the evidence that Forest Hill has an outstanding tax liability in the amount shown on the Notice of Intent to Levy. Forest Hill has failed to prove any ground upon which the Department's proposed levy is defective or illegal. It has, therefore, failed to establish that the Department cannot properly levy on the bank accounts and certificates of deposit subject to the Notice of Freeze and the Notice of Intent to Levy.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that the Department of Revenue enter a Final Order upholding the Department's Notice of Intent to Levy and allowing it to proceed with the garnishment of the bank accounts and certificates of deposit owned by Forest Hill Convenience, Inc., in the amount of $8,320.21, including tax, penalties, and interest, together with such interest as has accrued since October 7, 1994. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 12th day of March 1996. PATRICIA HART MALONO Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of March 1996.
The Issue The issue posed for decision herein is whether or not the Petitioner, Adwell Corporation, is entitled to separate accounting in computing its Florida corporate income tax based on the nature of its Florida operations.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received, the arguments of counsel and the entire record compiled herein, the following relevant facts are found. The Petitioner, Adwell Corporation, is an Illinois corporation which is actively engaged in the business of farming approximately twelve thousand (12,000) acres of farmland near Jacksonville, Illinois; owns and leases ten (10) acres of real property under a "triple net lease" arrangement for a shopping mall in Minnesota and operates a two-hundred unit (200) apartment complex called the Yacht Basin Apartments (YBA) in Clearwater, Florida. An audit of Petitioner's books during 1978 resulted in a report of income tax audit changes dated July 28, 1978, for Petitioner's Florida income tax returns for fiscal years ending May 31, 1975; 1976 and 1977. The deficiency adjustment as proposed by the Respondent amounted to $1,248.00 for fiscal year ending May 31, 1975; $10,042.00 for fiscal year ending 1976 and $11,238.00 for fiscal year 1977. As originally filed, Petitioner, computing its Florida corporate income tax, based it on a separate accounting of its Florida activities on its claim that it is not a unitary business and that to combine its total corporate income of Florida, Illinois and Minnesota would unfairly represent the extent of its tax base attributable to Florida. Thus, Petitioner contends that the formula apportionment called for in Florida Statutes Sections 220.15 and 214.71 should not be applied. Instead, Petitioner contends that it is entitled to the exceptions to the general method of formula apportionment as set forth in Sections 214.72 and 214.73, Florida Statutes. PETITIONER'S ILLINOIS OPERATIONS As stated, Petitioner farms approximately twelve thousand (12,000) acres of agricultural land utilizing two methods of farming: the "direct" farming method and the "landlord/tenant" arrangement. During the years in question, the "direct" farming operation was used on approximately one-third (4,000 acres) of Petitioner's agricultural land. Under the "direct" method, in addition to the land, Petitioner provides the equipment, fertilizer, chemical, seed, and weed and pest control. Under the "direct" farm method, Petitioner retains an operator who is paid a flat fee for his services which is negotiated on a yearly basis. The remaining two-thirds (approximately 8,000 acres) of the agricultural land is farmed using the "landlord/tenant" method. Under this method, Petitioner, in addition to providing the land, provides the tenant farmer 50 percent of the seed, fertilizer and chemicals for weed and pest control. The crop is divided equally between the farmer and the Petitioner. In both farming methods, Petitioner determines with the crop will be planted; the type of crop and fertilizer and its method of application; the type chemicals for both pest and weed control and decides when and how the crop will be planted and harvested. Prior to 1970, Petitioner's headquarters (for the Illinois farming) was situated in Chicago, Illinois. In 1970, corporate headquarters were moved to Jacksonville, Illinois, based on the corporate decision that "absentee" ownership was not conducive to efficient and productive business operations. During 1970, Petitioner invested in real property in Florida and Minnesota using income realized from the forced sale of real estate under threat of governmental condemnation. PETITIONER'S FLORIDA OPERATIONS In Florida, Petitioner purchased the real property under the Yacht Basin Apartments which was simultaneously leased to the Yacht Basin Apartment owners. The Minnesota real property lay under and was leased to owners of a shopping center. Both leases were "triple net leases", thereby relieving Petitioner of the responsibilities of taxes, maintenance and the other activities associated with land ownership. During 1973, Adwell Corporation purchased the Yacht Basin Apartments and other related improvements which were situated on the Clearwater property. From 1973 through November of 2974, Adwell retained the services of an independent property management firm to manage the Yacht Basin Apartments. However, during this period (November of 1974), Petitioner relocated an accountant, Steve McClellan, who was then employed by Petitioner as an accountant in Jacksonville, Illinois to manage YBA. After Mr. McClellan became familiar with the management operations of the Yacht Basin Apartments, the arrangement was severed with the independent management contractor and Petitioner authorized Mr. McClellan to do virtually all that was necessary to efficiently manage and operate the Yacht Basin Apartments. Examples of the authority given and exercised by Mr. McClellan included hiring and firing employees; negotiating leases; expending large capital outlays for improvements and repairs, including for example, replacement of kitchen cabinets in several apartments, total roof repair and replacement, replacement of the master T.V. antenna and replacement of all windows. (See Petitioner's Exhibits 1 through 5.) Mr. McClellan was assigned the goal of operating the Florida apartments on the rent receipts, which goal was realized. Petitioner maintains what is referred to as an internal accounting procedure which requires that all checks be signed by the operation's President, Donald R. Pankey. Evidence adduced during the hearing reveals that Mr. McClellan was given almost complete control over the operation and management of the Florida property and in no instance was any recommended expenditure by him rejected by President Pankey. Evidence also reveals that Petitioner maintains separate accounts for each of its operations in Florida, Illinois and Minnesota. The Florida operations are not integrated with or dependent upon nor contribute to the other business operations of Petitioner in Illinois and Minnesota. The Florida property as stated compromises approximately ten (10) acres of reality plus the improvements. During the period in question, the Florida operation employed approximately twelve (12) to fifteen (15) employees. Aside from its Florida employees, Petitioner only employs the President and his secretary in Jacksonville, Illinois.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby, RECOMMENDED: That the Petitioner is entitled to and should be allowed to separately account its Florida corporate income tax as it originally filed its Florida corporate income tax returns for the tax years 1975, 1976 and 1977. Accordingly, it is therefore RECOMMENDED that the Respondent withdraw the Report of Income Tax Audit Changes dated July 28, 1978. RECOMMENDED this 12th day of September, 1980, in Tallahassee, Florida. JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1980. COPIES FURNISHED: Steven A. Crane, Esq. Post Office Box 3324 Tampa, Florida 33601 Shirley W. Ovletrea, Esq. and E. Wilson Crump, II, Esq. Assistant Attorneys General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301 Robert A. Pierce, Esq. General Counsel Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32301
The Issue Whether Petitioner, Nick Farah, Sr., is liable for the taxes assessed under Chapter 212, Florida Statutes, for the March 1, 1989 - February 28, 1994 audit period, and to what degree, if any, the audit debt may be compromised as uncollectible.
Findings Of Fact This case involves an assessment of sales taxes and charter transit system surtaxes associated with audit number 9501539, and covering the audit period of March 1, 1989, to February 28, 1994 (audit period), for Farah's Gazebo Restaurant (the restaurant) located at 3541 University Boulevard, North, Jacksonville, Florida. Sales of food and alcoholic beverages were made at the restaurant during the audit period. Sales tax was collected and remitted to the Department on the sales of alcoholic beverages during the audit period, but not on the sales of prepared food. The assessment relates to the sale of food during the audit period. The restaurant was first opened as a sandwich shop in 1974 by both Petitioners, Nick Farah, Sr., and Sue Farah, who at all times material have been husband and wife. Mrs. Farah's middle initial is "N." Mr. Farah is now 74 years old. Mrs. Farah is 63. When the restaurant was opened in 1974, Nick Farah, Sr., opened a utility account with the City of Jacksonville in his name alone. At all times material, that same account in Nick Farah, Sr.'s name has been used by the restaurant. At all times material, Nick Farah, Sr., and Sue Farah had a checking account (number 467835202-01), in the name "Nick Farah d/b/a Farah's Gazebo Cafe, Restaurant & Lounge" with American National Bank of Florida (American National checking account). During the audit period, this account was used by Petitioners as both the restaurant's checking account and their personal checking account. During the audit period, all proceeds from sales at the restaurant were deposited into the American National checking account. All of the Petitioners' personal living expenses were paid from monies deposited into the American National checking account. During the audit period, Nick Farah, Sr., ran banking and shopping errands for the restaurant at his wife's direction, and considered it appropriate to write checks on behalf of the restaurant in his wife's absence. When their restaurant was first opened, Petitioners obtained a sales tax registration certificate from the Department of Revenue. This certificate was issued in the names of both Petitioners. In 1986, Petitioners refurbished and expanded their sandwich shop to a full restaurant serving dinner along with alcoholic beverages. During the several months in which the restaurant was being expanded, the restaurant was closed for business. Petitioners have a son, Nick Farah, Jr., who has a restaurant and lounge in Gainesville, Florida. Nick Farah, Jr., helped his parents expand their restaurant and donated certain restaurant equipment for the expansion. In 1986, Nick Farah, Jr., obtained alcoholic beverage license 26-02438SRX solely in his name for the restaurant. In 1988, Petitioners' other son, John Farah, became actively involved with the operation of the restaurant, in order to allow his father, Nick Farah, Sr., to retire. John Farah's involvement with the restaurant lasted approximately six or seven months, after which he was no longer involved. In 1988, due to numerous medical problems, including high blood pressure, prostate cancer, diabetes, and weak eyes, Nick Farah, Sr., "retired." He advised the social security office in 1988 of his retirement and filed all necessary papers in order to begin to receive his social security benefits. His social security income was "direct deposited" to a Barnett Bank account set up solely for that purpose. Nick Farah, Sr., listed himself as "retired" on the couple's joint 1989-1994 federal income tax returns. These returns include Schedule C, "Profit or Loss from Business," and listed the restaurant as solely owned by Sue Farah, as proprietor. On these returns, Sue Farah stated that she was sole owner of the business known as Farah's Gazebo Restaurant. When Nick Farah, Sr., retired, Sue Farah began paying bills and making all executive decisions concerning employees, doing the ordering, deciding on the menu, and pricing. However, since 1988, the restaurant also has had a manager who has dealt with the employees and food ordering as well. Although he considers himself retired, Nick Farah, Sr., consistently has gone to the restaurant to eat, talk with friends, and play rummy. He has also performed errands and written checks for the restaurant. (See Finding of Fact 8) In testimony, he referred to the American National account as "our Gazebo account." (TR-111) Sales Tax Registration Certificate No. 26-08-093045- 08/1 was issued in the name of Nick Farah, Sr., Sue N. Farah, and Nick Farah, Jr., until June 1, 1992. On June 1, 1992, Sales Tax Registration Certificate No. 26-08-126824-08/1 was issued in the names of Nick Farah, Sr., and Sue N. Farah. This was done to separate the restaurant from Nick Farah, Jr.'s, Gainesville restaurant. The type of business organization listed on the certificate is "partnership." On each of the sales tax registration certificates, Nick Farah, Sr.'s social security number was used as the federal identification number. In 1993, the Alcoholic Beverage License was renewed in the names of Nick Farah, Sr., and Sue Farah. Petitioners' personal residence is held jointly in their names. During the audit period, Petitioners refinanced their personal residence and obtained a home equity loan through American National Bank. The proceeds from this loan were used to pay expenses related to the restaurant. (See Finding of Fact 52). On March 24, 1994, the Department issued its DR-840 Notice of Intent to Audit Books and Records to "Nick & Sue Farah d/b/a Farah Gazebo Restaurant." Notices of Intent are usually issued in the name(s) on the current Sales Tax Registration Certificate. On April 14, 1994, the Farahs both executed a Power of Attorney appointing their attorney to represent them in matters relating to the audit. Subsequent to the audit, the Department issued its "Notice of Intent to Make Sales & Use Tax Audit Changes," under Chapter 212, Florida Statutes, on November 4, 1994, in the names of "Nick & Sue Farah d/b/a Farah Gazebo Restaurant." Taxes for the audit period March 1, 1989 - February 28, 1994, were assessed in the amount of $65,093.44. Penalties were assessed up to that point in time in the amount of $20,679.43. Interest was assessed up to that point in time in the amount of $22,678.86. The total was $108,451.73. Interest would continue to run. Also on November 4, 1994, the Department issued its "Notice of Intent to Make Charter County Transit System Surtax Changes" in the names of "Nick & Sue Farah d/b/a Farah Gazebo Restaurant." Taxes were assessed in the amount of $5,424.46; penalties were assessed in the amount of $1,723.27; and interest was assessed in the amount of $1,889.92 for a total of $9,037.65. The Department revised its audit on January 17, 1995. Two revised Notices of Intent were issued, each in the names of "Nick & Sue Farah d/b/a Farah Gazebo Restaurant," with assessment in the following amounts: $62,974.40 (sales and use taxes), $19,839.95 (penalties), and $28,373.14 (interest); and $5,247.86 (charter county surtaxes), $1,653.29 (penalties), and $2,367.18 (interest). These revised notices were issued to reflect the deduction of certain non-revenue items from the gross deposits reflected on the Petitioners' bank statement. They also show accruing interest. By their attorney's letter dated February 6, 1995, Petitioners raised the issue of Nick Farah, Sr.'s liability for the assessment, arguing that his involvement with the restaurant during the audit period was insufficient to render him a "taxpayer" as contemplated by the applicable statutes and rules, and insufficient to create such a tax liability for him. The letter from Petitioners' counsel stated that Petitioner Sue Farah "considered the restaurant to be hers, and has filed her federal income tax returns accordingly. She is willing to sign the Notice of Intent and enter into a payment arrangement." Donald Ritchie, the Department's Jacksonville tax auditor who had initiated the audit, subsequently issued a "Memo to File," dated February 7, 1995, stating, Auditor contacted atty. Jeff Dollinger in response to his letter of 2-6-95 in which he states TP's claim that Sue Farah is sole proprietor of restaurant and Nick is not a "dealer" in connection with the restaurant operation. He stated in a telephone conversation that Sue Farah wished to sign NOI indicating agreement with the proposed audit changes "with the exception of penalty" and obtain a stipulated payment schedule but only if registration and audit were changed to eliminate Nick's name. On February 7 and 8, 1995, Peggy Bowen, a Departmental superior of Mr. Ritchie, directed two memoranda by electronic mail (e-mail) to another Departmental employee, Allen Adams, located in Tallahassee. These memoranda requested guidance on how to proceed with the questions raised by Petitioners' counsel. In response to these requests, a series of e-mail memoranda were exchanged within the Tallahassee office of the Department. The first, on February 8, 1995, from George Stinson, stated, in part: What advantage would we have if we assessed "Nick's Partnership"? . . . from what Peggy said, "Nick's Partnership" doesn't even exist, but "Sue's Sole Proprietorship" does. It seems to me that it would be absurd to assess an entity ("Nick's Partnership") that, by the taxpayer's own admission, doesn't exist. Just because the registration social data on the database is erroneous doesn't mean we should issue an erroneous assessment. The second February 8, 1995, electronic mail memorandum from Allen Adams to Peggy Bowen, stated, "OK, I take this as an approval to change our NOI and get an agreed case." The final electronic mail memorandum dated February 9, 1995, from George Stinson to Allen Adams provides: Allen...While mulling this all over in my brain, it occurred to me it would not be unwise for Peggy to prepare (but hold on to for the time being) an NOI under "Nick's Partnership" in case the other one somehow goes awry. If "Sue's Sole Proprietership" [sic] tries to pull a "fast one" and reneg on their agreement and stip because they claim they weren't the "registered" or "840'd" entity, we can file off the other one to make sure all bases are covered. If the TP seems to be dragging their feet and we're getting into a jeopardy situation, we could even have both NOI's (and assessments) in existence concurrently to keep us protected. Donald Ritchie testified that he did not know of the existence of a "Nick's Partnership" or where such a term came from. However, see Findings of Fact 21, 25, and 46. A memo to file was subsequently produced by Peggy Bowen, dated February 10, 1995, which stated in part: I spoke to Allen Adams on the telephone regarding the memo from George Stinson dated 2/9/95. We agreed that our procedure would be to revise the existing NOI which is in the name Nick and Sue Farah to Sue Farah, and correct the SSN, under the existing audit number. We issued the existing NOI as a sole proprietorship, as Nick & Sue Farah, and we are only clarifying the name of the sole proprietorship to Sue Farah. There were not any partnership federal tax returns filed only joint 1040. Neither Petitioner was privy to the internal e-mail memoranda of the Department. The parties have stipulated that the Department agreed to remove Nick Farah, Sr.'s name from the Notices of Intent in exchange for Sue Farah's agreement to sign the notices as "agreed" liabilities. Accordingly, the Department's Second Revised Notices of Intent were issued on February 13, 1995. The Second Revised Notices of Intent were issued in the name "Sue Farah d/b/a Farah Gazebo Restaurant." These were issued by Donald Ritchie.1 The Second Revised Notice of Intent to make Sales and Use Tax Audit Changes (also referred to as "the second NOI") states in paragraph #1, "The Department of Revenue presents you with a Notice of Intent to make Sales and Use Tax Audit Changes for the period of time which you have been found to be liable on various transactions subject to the tax under Chapter 212, Florida Statutes, during the period 03/01/89 Through 02/28/94." It further states on the bottom of the first page, "NOTE: The execution and filing of this waiver will expedite adjustment of the tax liability as indicated above. . . . If you now agree with the tax audit changes, please sign this form and return it to the audit office indicated above." Petitioner Sue Farah signed the Second Revised Notices of Intent on March 10, 1995. Also on March 10, 1995, Petitioner Sue Farah submitted a request for compromise of taxes, penalties, and interest. The Department's representative in Jacksonville agreed to waive the penalties on the assessment. Subsequently, the Department's auditor forwarded the audit file to Tallahassee for further consideration of the Request for Compromise of Taxes and Interest. Donald Ritchie testified that during the course of the audit, it was apparent to him that it was an operation that was owned and operated by a husband and wife, Nick Farah, Sr., and Sue Farah, but that a Notice of Intent is issued in the name of the taxpayer as it is listed on the sales tax registration. It is noted, however, that the audit period covered a period in which there were two sales tax registration numbers for the restaurant in the name(s) first of Nick, Sr., Sue and Nick, Jr., until June 1, 1992, and thereafter as Nick Farah, Sr. and Sue Farah, a partnership. (See Findings of Fact 20-21.) After the audit was conducted, the audit file was forwarded to Tallahassee for review. Included within the audit file was the Standard Audit Program & Report for Sales and Use Tax form. Donald Ritchie testified that he filled out the Standard Audit Program & Report for Sales and Use Tax form listing the taxpayers as "Nick & Sue Farah d/b/a Farah's Gazebo Restaurant," and indicating that the entity was a "sole proprietorship" because he understood that a business entity run by a husband and wife did not constitute a partnership but rather a sole proprietorship in the absence of the formal procedures of organizing a partnership. Donald Ritchie further testified that he forwarded the file to Tallahassee as an "unagreed audit," because after signing the second NOI the Petitioners had asked for "additional conditions," including a request by Sue Farah for compromise of the taxes, penalties, and interest, that had not been specified at the time Sue Farah signed. However, he conceded that anyone signing an NOI could request such compromise. It is also clear that Sue Farah had always retained the right to compromise the penalties. (See Findings of Fact 30, 32 and 44-45) The Department subsequently issued its Notices of Proposed Assessment (NOPA) on September 6, 1995, in the names of both husband and wife, as "Nick & Sue Farah/Farah Gazebo Restaurant." By letter dated November 3, 1995, Petitioner Sue Farah d/b/a Farah Gazebo Restaurant protested the entire proposed assessments, on the ground of "doubt as to collectability." By letter dated January 15, 1996, Petitioner Sue Farah submitted her financial information in support of her protest. Petitioners had borrowed additional monies in order to pay off general debts and debt associated with the restaurant involved in this proceeding. They then borrowed again in order to open a second restaurant on "Mandarin" in Jacksonville. This new venture was to be run by a newly created corporation, of which Sue Farah is sole stockholder. Petitioners are agreed that if the restaurant which is at issue in this cause were sold, Sue Farah would get all the proceeds. By letter dated March 15, 1996, Kathleen Marsh, CPA and Tax Law Specialist for the Department, requested certain financial information from both Petitioners in order to consider the issues raised in the letter of protest, including but not limited to, audit papers, bank statements for the years 1995 and 1996, and various information relating to the operation and financial position of the second restaurant. By letter dated April 8, 1996, Kathleen Marsh notified Petitioners that she had not yet received the information she had requested, and was going to issue the Notice of Decision. By letter dated April 17, 1996, Petitioners' CPA responded in part to the Department's request for additional financial information, but it does not amount to a certification or audit of the Farahs' financial statements. Also on April 17, 1996, the Department issued its Notice of Decision, sustaining the assessment in its entirety, determining that doubt as to collectability had not been established by the Petitioners. The Petitioners sought reconsideration of the Department's determination, raising the additional argument that Nick Farah, Sr., was not sufficiently involved in the operation of the restaurant during the audit period so as to be liable for the tax assessment. The following information had been requested by the Department but was never received from the Petitioners: a copy of an IRS audit, bank statements for all accounts for the years 1995 and 1996, information relating to ownership of stock in the new restaurant corporation, and information relating to sales tax registration for the new restaurant. The Department issued its Notice of Reconsideration on November 5, 1996, again sustaining the assessment in its entirety and determining that doubt as to collectability still had not been established. It further determined that Nick Farah, Sr., was a registered dealer under Chapter 212, Florida Statutes, and was otherwise sufficiently involved in the operation of the restaurant so as to be liable for the assessment. Petitioners timely filed their Petition for this administrative hearing under Chapter 120, Florida Statutes. Petitioners agreed that the amount of the tax assessed by the Department is correct. Since the offer of compromise, several properties owned either jointly by husband and wife or owned solely by Nick Farah, Sr., have been foreclosed. Otherwise, the sworn financial statements in the audit file have been adopted by the Petitioners' testimony as still accurate. None of these financial statements bear a certification by a certified public accountant. Neither Mr. nor Mrs. Farah's financial situation has remained static in the ensuing two years. Sue Farah still desires to compromise the total tax bill with small monthly payments, but she could not articulate an amount she can currently pay and relied on her earlier offer.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a Final Order be entered by the Department of Revenue that: Assesses the entire liability for the March 1, 1989 - February 28, 1994, audit period against Sue Farah for the taxes, penalties, and accruing interest; Absolves Nick Farah, Sr., of any liability for the same audit period; and Denies all compromise of the amount(s) assessed. DONE AND ENTERED this 10th day of June, 1998, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of June, 1998.
