The Issue The issue in this case is whether Callagy Tires, Inc. (Petitioner), collected and remitted the correct amount of sales and use tax on its operations for the audit period.
Findings Of Fact DOR is the state agency charged with the responsibility of administering and enforcing the tax laws of the state of Florida. In conjunction with that duty, DOR performs audits of business entities conducting sales and use transactions. At all times material to the issues of this case, Petitioner conducted business in Palm Bay, Florida, and was obligated to collect and remit sales and use tax in connection with the activities of its business enterprise. Petitioner’s Federal Identification Number is 59-2221722. Petitioner sells tires (wholesale and retail), provides tire services such as installation, and performs other repair and towing services subject to sales or use taxes. In order to properly perform its audit responsibilities, DOR requires that businesses maintain and present business records to support the collection of sales and use taxes. In this case, DOR notified Petitioner that it intended to audit the business operations for the audit period, June 1, 2004, through May 31, 2007. After the appropriate notice to Petitioner, the audit was initiated on or about July 18, 2007. Employees of DOR went to Petitioner’s place of business, requested business records, and attempted to audit and reconcile Petitioner’s reported tax payments with the amounts and types of taxes that should have been remitted, based upon the records kept by Petitioner. Theoretically, the sums remitted to the Department should match the records of the business entity. In this case, the amount remitted by Petitioner could not be reconciled with the business records maintained by the business entity. As a result of the audit, DOR sent Petitioner a Notice of Intent to Make Audit Changes that claimed Callagy Tires, Inc., owed sales and use tax in the amount of $121,707.41. By letter dated August 13, 2009, Petitioner filed a protest of the audit findings. Thereafter, the parties exchanged information that Petitioner claimed should require reconsideration of the audit results. Nevertheless, the Department could not reconcile the bank and audit information based upon the documentation submitted by Petitioner. The amounts of the Notice of Reconsideration remain at issue. As of the time of the hearing in this cause, Petitioner had not provided documentation to refute the findings of the Department’s audit. At hearing, DOR maintained that Petitioner owes $173,718.66, together with accruing interest. Specifically, the audit found that there was a difference between the gross sales reported by Petitioner on its federal return and the amounts reported on its state forms. The difference between the two returns constituted unreported sales for state tax purposes. Secondly, the Department determined that certain sales were not “exempt” as maintained by Petitioner. Based upon a sample of invoices provided by Petitioner, DOR found that Petitioner did not remit the full sales tax due on certain types of services. For example, the correct sales tax was not remitted on machining brake rotors, truing brake rotors, or making repairs that included the use of tangible personal property. The taxable event required a calculation of sales tax on the entire amount, not a percentage of the cost. The third area of discrepancy identified by the audit, related to unpaid sales tax on machinery, equipment, supplies, and services purchased by Petitioner for use in the operation of its business. Throughout the audit process, and, subsequently, Petitioner never presented documentation to dispute the Department’s audit findings. DOR gave Petitioner every opportunity to present records that would establish that the correct amounts of sale and use taxes were collected and remitted. Petitioner timely challenged the audit findings, but, has not, through its principal owner or its agents, provided documentation that show the taxes were appropriately calculated and paid. Petitioner maintains that an amended federal tax return verifies the state return previously filed is accurate. Notwithstanding that assertion, Petitioner has not presented the underlying documentation to support the state or federal return. Further, Petitioner refused to allow DOR to review all of its electronically stored records, and did not make the records available to DOR.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a final order sustaining the audit findings, and require the Petitioner to remit the unpaid sales and use taxes in the amount of $173,718.66, together with accrued interest, as provided by law. DONE AND ENTERED this 22nd day of March, 2011, in Tallahassee, Leon County, Florida. S J. D. PARRISH 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 22nd day of March, 2011. COPIES FURNISHED: Marshall Stranburg, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32314-6668 Eugene M. Callagy, Jr. Callagy Tires, Inc. 6625 Babcock Street, Southeast Malabar, Florida 32950 Patrick Hanley, Esquire 185 Forest Road Troy, Montana 59935-9572 John Mika, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Lisa Vickers, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32314-6668
Findings Of Fact High-Tech Yacht & Ship, Inc. (Petitioner) is a Florida corporation engaged in the business of retail sales of marine vessels. Also, Petitioner is a registered retail dealer in the State of Florida. The President of Petitioner is its only corporate officer. On or about September 2, 1993, Petitioner, in the capacity of a broker, sold a motor yacht at retail to Regency Group, Inc. (purchaser), through its representative, for $78,000. The motor yacht is described as a 1988, 41' Amerosport Chris Craft, hull Number CCHEU075E788, and called the "Motivator". At the closing of the sale, on or about September 2, 1993, the purchaser refused to pay the sales tax on the purchase, which was $4,680. However, the purchaser agreed to pay the sales tax after being informed by Petitioner that, without the payment of the sales tax, there could be no closing. The purchaser's representative submitted, at closing, a personal check in the amount of $4,680 for the sales tax. All of the necessary documents were completed for ownership and registration to be transferred to the purchaser. Subsequently, Petitioner received notice from its bank that the check for the sales tax had been dishonored by the purchaser's bank. The purchaser's representative had stopped payment on the check. In October 1993, Petitioner submitted its sales and use tax return for the month of September 1993 to Respondent in which the sale of the yacht was reported. Respondent automatically reviews sales and use tax returns. Respondent's review of Petitioner's return revealed a shortage of sales tax collected in the amount of $4,680.. In January 1994, Respondent issued a notice of tax action for assessment of additional tax in the amount of $4,710, plus interest and penalty, to Petitioner. The $4,710 included the loss of Petitioner's collection allowance of $30, which loss resulted from Petitioner's failure to timely remit all taxes due. Having received the notice of tax action, by letter dated January 20, 1994, Petitioner generally informed Respondent of the circumstances regarding the sales tax shortage, including the dishonored check. Petitioner pointed out, among other things, that Respondent had the authority and the means to collect the tax, while it (Petitioner) had limited means, and suggested, among other things, that Respondent cancel the purchaser's Florida registration of the yacht. On or about January 31, 1994, approximately three months after the check for sales tax was dishonored, Petitioner issued a notice of dishonored check to the purchaser, in which Petitioner requested payment of the sales tax. The notice provided, among other things, that Petitioner could seek criminal prosecution and civil action if the monies were not paid to Petitioner. Having not received the $4,680, Petitioner contacted the local law enforcement agency. After investigation, the law enforcement agency informed Petitioner that a civil action would have to be instituted because the purchaser, through its representative, had indicated that it was not satisfied with the yacht. Although Petitioner engaged the services of an attorney for civil action, no civil action was commenced. Additionally, Petitioner did not engage the services of a collection agency for assistance in collecting the sales tax. Subsequent to its notice of tax action, on or about March 12, 1994, Respondent issued a notice of assessment to Petitioner. The notice of assessment provided, among other things, that Petitioner was being assessed taxes in the amount of $4,710, plus penalty and interest in the amount of $2,342.61, totalling $7,052.61. Petitioner protested the assessment. On February 8, 1995, Respondent issued its notice of reconsideration in which Respondent determined, among other things, that the assessment was appropriate and affirmed the assessment of $7,052.61, plus interest and penalty. The interest accrues at the rate of $1.55 per day. Petitioner has not remitted any of the assessed tax, including interest and penalty, to Respondent. Petitioner has not identified on its federal tax return the noncollection of the sales tax from the purchaser as a bad debt. Sales tax is part of the total sale price for an item. Respondent considers the sales tax as collectable by a seller in the same manner as any other debt owed by a purchaser to a seller. A retail dealer, who is also a seller, is considered to be an agent for the State in the collection of sales tax. The burden of collecting the sales tax is placed upon the retail dealer by Respondent. Some of Respondent's employees have been sympathetic to Petitioner's tax assessment matter. However, none of the employees indicated to or advised Petitioner that Respondent was or is in error.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order affirming the assessment of sales tax against High-Tech Yacht & Ship, Inc. in the amount of $7,052.61, plus interest and penalty. DONE AND ENTERED this 7th day of August 1996, in Tallahassee, Leon County, Florida. ERROL H. POWELL, 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 7th day of August 1996.
The Issue The issue is whether Petitioner is liable for sales and use taxes, penalties, and interest and, if so, how much.
Findings Of Fact Petitioner operated a bar and grill in Punta Gorda that served beer, wine, liquor, and food at retail. In the course of business, Petitioner collected tax from the customers. Petitioner reported to Respondent sales tax collections for May 1996, November 1996, March 1997, November 1997, and December 1997. In connection with these collections, Petitioner remitted to Respondent seven checks representing the net tax due Respondent. These checks totaled $6700.64. The bank on which the checks were drawn dishonored them. The remittance of net sales tax proceeds by payment through checks that are later dishonored implies a fraudulent, willful intent to evade the payment of these sums. Respondent has issued five warrants concerning the unremitted taxes, penalties, and interest. Warrant 953620064 shows that Petitioner owes $1171 in sales tax remittances for the five months from July through November 1995. With penalties and interest, the total due on this warrant, through June 5, 1998, is $1832.37. Interest accrues after June 5 at the daily rate of $0.35. Warrant 467049 shows that Petitioner owes $2940.25 in sales tax remittances for the following months: April 1996, October 1996, December 1996, and January 1997. Petitioner purportedly paid each of these remittances with five (two in January) checks that were later dishonored. With penalties, including the 100 percent penalty for fraud, and interest, the total due on this warrant, through June 5, 1998, is $7480.12. Interest accrues after June 5 at the daily rate of $0.95. Warrant 971680037 shows that Petitioner owes $1301.85 in sales tax remittances for the following months: December 1995, June 1996, July 1996, September 1996, November 1996, and February 1997. With penalties and interest, the total due on this warrant, through June 5, 1998, is $2669.69. Interest accrues after June 5 at the daily rate of $0.43. Warrant 471481 shows that Petitioner owes $2912.48 in sales tax remittances for October and November 1997, for which Petitioner made remittances with two dishonored checks. With penalties, including the 100 percent penalty, and interest, the total due on this warrant, through June 5, 1998, is $6751.49. Interest accrues after June 5 at the daily rate of $0.95. Warrant 989840034 shows that Petitioner owes $8077.76 in sales tax remittances for the following months: August 1997, September 1997, December 1997, January 1998, and February 1998. With interest, the total due on this warrant, through June 5, 1998, is $8285.21. Interest accrues after June 5 at the daily rate of $2.65. Totaling the five warrants, Petitioner owes a total of $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order determining that Petitioner owes $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid. DONE AND ENTERED this 10th day of July, 1998, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1998. COPIES FURNISHED: John N. Upchurch Nicholas Bykowsky Assistant Attorneys General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Judith Crown, President Tombstone, Inc. Suite P-50 1200 West Retta Esplanade Punta Gorda, Florida 33950 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
Findings Of Fact On October 14, 1985, Petitioner, Nicholas Cozzo, entered into a Stock Purchase Agreement for the sale of sixty (60) shares of the issued and outstanding capital stock of C & S Deli Sandwich and Fish, Inc., a Florida corporation, (the Company) to Robert A. Krueger and Joe Ellen Krueger (collectively, the Kruegers). As a result of the sale, Petitioner retained ownership of no further stock of the Company. (Exhibit A) On October 14, 1985, the Kruegers executed two (2) promissory notes in the amounts of $53,000.00 and $5,000.00, respectively, to Petitioner and a Security Agreement securing payment of the notes. (Composite Exhibit B and Exhibit C) On October 14, 1985, Petitioner tendered his resignation as Director, President and Treasurer of the Company. (Exhibit D) Petitioner's security interest to the furniture, furnishings, fixtures, equipment and inventory of the Company (the "collateral") was duly perfected by the filing of a Uniform Commercial Code Financing Statement with the Uniform Commercial Code Bureau, Florida Department of State, on October 21, 1985. (Exhibit E) A Uniform Commercial Code Financing Statement was recorded by the Petitioner in the Public Records of Pasco County, State of Florida, on October 15, 1985, in Official Records Book 1451, page 0493. (Exhibit F) In early 1987, the Kruegers defaulted under the terms of the promissory notes. Prior to April 24, 1987, Petitioner repossessed the furniture, furnishings, fixtures, equipment and inventory of the Company. No consideration was paid by Petitioner to the Company or the Kruegers upon his repossession of the foregoing described collateral. At no time did ownership of any of the capital stock of the Company revert back to Petitioner. On May 5, 1987, Petitioner by private sale disposed of the collateral to Vincent Lopez and Glen Delavega. (Exhibits G, H, and I) No surplus funds resulted from the sale of the repossessed collateral by Petitioner to Vincent Lopez and Glen Delavega. At no time material hereto did the Florida Department of Revenue issue a tax warrant against the Company respecting any unpaid sales tax. On or about May 6, 1987, Petitioner paid under protest to the Respondent Department of Revenue the delinquent unpaid sales tax of the Company in the amount of $1392.53. The Department is still attempting to verify that amount at this date. The Petitioner maintains he paid the amount in order for the Department to issue a sales tax certificate and number to Vincent Lopez and Glen Delavega. The Department maintains its procedure at the time was to issue a sales tax number to the new owners and then proceed against them under Section 212.10, Florida Statutes. It is the position of the Respondent that the Petitioner's repossession of the collateral constituted a sale within the purview of Section 212.10(1), Florida Statutes (1985), and Rule 12A-1.055, Florida Administrative Code, which places tax liability on the successor of a business whose previous owner has not satisfied outstanding sales tax obligations. Respondent further notes that the case Petitioner relies on, General Motors Acceptance Corporation v. Tom Norton Motor Corp., 366 So.2d 131 (Fla. 4th DCA 1979) was issued on January 10, 1979, while Section 679.105(5), Florida Statutes, which upholds tax laws when in conflict with security agreements, took effect January 1, 1980. Petitioner on the other hand claims that a lawful repossession of collateral under Florida's Uniform Commercial Code, Section 679.504, Florida Statutes (1985), does not constitute a "sale" of a business making him liable for the Company's unpaid sales tax. Petitioner continues to rely on GMAC, supra, and notes that it was cited by American Bank v. Con's Cycle Center, 466 So.2d 255 (Fla. 5th DCA 1985). A refund application was submitted by Petitioner to the Department of Revenue on June 10, 1987. This application was denied by the Department of Revenue by letter dated January 28, 1988. (Exhibit J)
The Issue The issue is whether Petitioner collected and remitted to Respondent the correct amount of sales and use taxes during the audit period from October 1, 2004, through September 30, 2007, and, if not, what additional amount of tax plus penalty and interest is due.
Findings Of Fact Petitioner True Blue Pools (Petitioner, taxpayer, or TBP) is a domestic corporation headquartered in Miami-Dade County, Florida. TBP services, repairs, and renovates swimming pools and constructed some pools during the audit period. Respondent, Florida Department of Revenue (Respondent or DOR), is the agency of state government authorized to administer the tax laws of the State of Florida, pursuant to section 213.05, Florida Statutes.2 DOR is authorized to prescribe the records to be kept by all persons subject to taxes under chapter 212, Florida Statutes. Such persons have a duty to keep and preserve their records, and the records shall be open to examination by DOR or its authorized agents at all reasonable hours pursuant to section 212.12(6), Florida Statutes. DOR is authorized to conduct audits of taxpayers and to request information to ascertain their tax liability, if any, pursuant to section 213.34, Florida Statutes. On November 2, 2007, DOR initiated an audit of TBP to determine whether it was properly collecting and remitting sales and use taxes to DOR. The audit period was from October 1, 2004, through September 30, 2007. On December 15, 2008, DOR sent TBP its Notice of Intent to Make Audit Changes (NOI), with schedules, showing that TBP owed to DOR additional sales and use taxes in the amount of $113,632.17, penalty in the amount of $28,406.05, and interest through December 16, 2008, in the amount of $34,546.59, making a total assessment in the amount of $176,586.81. On October 26, 2009, DOR issued its Notice of Proposed Assessment. TBP timely challenged the Notice of Proposed Assessment, filing its petition with DOR and requesting an administrative hearing. Subsequent to the petition being filed, additional documentation was provided by TBP resulting in a revision to the tax, interest, and penalty amount due. DOR's revised work papers, dated May 27, 2010, claim Petitioner owes $64,430.83 in tax, $16,107.71 in penalty, and interest through May 27, 2010, in the amount of $27,071.99, with an assessment of $107,610.53. The assessed penalty, $16,107.71, was calculated after 25% of the penalty was waived, pursuant to subsection 213.21(3)(a), Florida Statutes, based on DOR's determination that there is no evidence of willful negligence, willful neglect, or fraud. The audit was conducted to determine liability in four categories: improper sales tax exemptions, unpaid sales taxes for taxable expenses, unpaid use taxes on fixed assets, and unpaid use taxes on taxable materials used to fulfill contracts to improve real property. Sales Tax Exemptions Due to the large volume of invoices and other records, the auditor conducted a random sampling of invoices for three months during the audit period, October 2004, January 2005, and September 2007.3 If no sales tax was collected and the Petitioner claimed that the transaction was exempt from the requirement to pay taxes, the auditor looked for proof that either the TBP customer was an exempt organization, for example, a school or a church, or that TBP had provided its suppliers with a DOR Form DR-13 to exempt from taxes products acquired for resale. In the absence proof of either type of exemption, DOR assumed taxes should have been paid. Using the difference between taxes collected and taxes due for the three months, the auditor determined that the percentage of error was .016521. When .016521 was applied to total sales of $1,485,890.79 for the 36-month audit period, the results showed that an additional $24,548.41 in sales taxes should have been collected from customers, and is due from TBP. Although a business is required to pay taxes for the materials it purchases to use in its business, it is not required to collect taxes from its customers when it enters into lump sum contracts to perform a service for customers. At least one invoice for $9,500.00 that the auditor treated as an improper exemption was, in fact, a partial payment on a lump-sum contract. The invoice referenced a "shotcrete draw," which represented the collection of funds after the concrete part of pool construction was completed. TBP is not required to collect taxes when it uses lump-sum contracts. Other invoices for pool repair and services were also mischaracterized as exempt by the TBP, but it is not clear that all were payments related to lump-sum contracts. DOR's auditor, nevertheless, testified as follows: With the knowledge that I have for True Blue Pools, being a lump-sum contractor, True Blue Pools should not charge their customer any sales tax. Transcript at pages 67-68. DOR concedes that some of TBP's transactions are also exempt from taxes as improvements to real property. In its Proposed Recommended Order, DOR asserted that TBP's use of the term "improvements to real property" is overbroad, but it did not specify how or why this is the case. During cross- examination of the owner of TBP, only one invoice for $500.00 for leak detection on the Delgado property was shown to have been for a service rather than for swimming pool construction. Taxable Expenses DOR audited TBP's purchases of tangible personal property used in the daily operation of its business. The products included chlorine and other chemicals, office supplies, and vehicle parts, expenses, and repairs. The ledger for a 12- month period, calendar year 2006, showed an average monthly additional tax due of $111.18, or a total of $4,002.48 in additional taxes for the 36-month audit period. As noted in Petitioner's Proposed Recommended Order, "[t]he representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of all of these items " Fixed Assets TBP's list of fixed assets was taken from the depreciation schedule on Internal Revenue Service Form 4562. The items listed are computer- and software-related. TBP provided no proof that it had paid a use tax. The additional tax due equals $419.94. Petitioner's Proposed Recommended Order includes the statement that "[a]gain, the representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of these items " Taxable Materials Taxable materials, those purchased to fulfill a contract to improve real property, included items used to build, renovate, and repair pools. The items included concrete, meters, drains, and valves. For the 12-month sample period, calendar year 2006, TBP failed to pay taxes on material purchases in the total amount of $168,310.05, or an average of $14,078.96 a month. For the 36-month audit period, the total of the purchases was $506,842.56. With a 6 percent tax due for the state and 1 percent for the county, the total additional tax due on materials is $35,460.00. TBP conceded that it improperly used a resale exemption to purchase taxable materials from suppliers without paying taxes. The materials were used to provide services and were not resold. Acknowledging again that TBP uses lump-sum contracts, this time to support the collection of additional taxes, the auditor testified as follows: And the law states that the taxpayer's [sic] an ultimate consumer of all materials purchased to fulfill a lump-sum contract, and that's what they told me they operate under, a lump-sum contract. Transcript at page 58. At the hearing, TBP used its actual profit and loss statement to show that the cost of goods it sold (general purchases and taxable materials) in the amounts of $18,360.77 in October 2004, $8,519.22 in January 2005, and $4,818.65 in September 2007. Corresponding taxes for each of those months should have been $1,285.25, $596.35, and $337.31, or an average of $739.63 a month, or a total of $26,626.68 for 36 months. The goods that it sold were not at issue in the audit of taxable materials, rather it was TBP's purchases from vendors that should have been taxed that resulted in DOR's audit results. Total Additional Sales and Use Taxes Due The three categories of additional taxes due, $4,002.48 for taxable expenses, $419.94 for fixed assets, and $35,460.00 for taxable materials, equal $39,882.42 in additional taxes due during the audit period. Taxes Paid TBP filed DOR Forms DR-15, monthly sales and use tax reporting forms, and paid sales and use taxes during the audit period. For the sample months used by DOR to examine sales tax exemptions, TBP paid $1,839.10 in taxes in October 2004, $1,672.73 in January 2005, and $1,418.13 in September 2007. Using the three months to calculate an average, extended to 36 months, it is likely that TBP paid $59,712 in taxes. TBP asserted that DOR was required to, but did not, offset the deficiency of $39,882.42, by what appears to be an overpayment of $59,712.00 in sales and use taxes. Other than pointing out that the amount reported on the DR-15s differed, being sometimes more and sometimes less than the amount shown on the profit and loss statements, DOR did not dispute TBP's claim that it had paid sales and use taxes. TBP's representative explained that end-of-the-year adjustments for additional collections or for bad debt could cause the amounts on the DR-15s and profit and loss statements to differ. With regard to the taxes paid, DOR took the following position in its Proposed Recommended Order: Petitioner's DR-15's [sic] for the collection periods October 2004, and January 2005, [and September 2007] (Petitioner's Composite Exhibit 1) do reflect sales tax being collected and remitted to DOR. DOR does not allege that Petitioner never paid tax on its purchases, or made bona fide exempt sales for which no tax was collected. DOR's audit findings identify just those which occurred within the sample period, scheduled in the auditor's workpapers, and applied over the entire audit period. The DR-15s are taken from the sample months selected by DOR within the audit period, and DOR does not address TBP's claim that a set off for taxes paid was mandatory, pursuant to subsection 213.34(4), Florida Statutes. Using the audit schedules, DOR showed credit for taxes paid in the amounts of $20.63 for taxable expenses, $0 for fixed assets, and $24.31 in state taxes and $1.03 for county taxes on taxable materials. The amounts are far less that the $59,712.00 in sales/use taxes TBP showed that it paid during the audit period.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is recommended that the Department of Revenue issue a final order dismissing the Notice of Intent to Make Audit Changes dated December 15, 2010. DONE AND ENTERED this 20th day of January, 2011, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER 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 20th day of January, 2011.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined. Background Petitioner, Gator Coin Machine Company, Inc. (petitioner or Gator), is a Florida corporation engaged in the vending machine business throughout the northern part of the State extending from Leon County eastward to Duval County. Gator places coin-operated cigarette vending machines in various business locations, such as lounges, package stores, motels and restaurants. In return for allowing the machines to be placed on the premises, the location owner receives a fee for each pack of cigarettes sold from the machine. This fee is paid to the location owner and is considered a commission or rent for allowing Gator to "lease" the real property on which the machines are placed. All such commissions are subject to the sales tax, which rate may vary depending on the sales tax rate in a particular county. The sales tax is included with the commission (rent) paid to the location owner, and the location owner then has the obligation of remitting the tax to the state. However, the burden of showing that the tax has been paid to the location owner rests upon the vending machine owner. Respondent, Department of Revenue (DOR), is the state agency charged with the responsibility of enforcing the Florida Revenue Act of 1949, as amended. Among other things, DOR performs audits on taxpayers to insure that all taxes due have been correctly paid. To this end, in 1990 a routine audit was performed on Gator covering the audit period from June 1, 1985, through April 30, 1989. After the results of the audit were obtained and an initial assessment made, on January 22, 1991, DOR issued a revised notice of intent to make sales and use tax audit changes wherein it proposed to assess Gator $35,561.67 in unpaid sales taxes, $8,887.82 in delinquent penalties, and $12,934.34 in accrued interest on the unpaid taxes through the date of the revised notice, or a total of $57,383.83. The unpaid taxes related to taxes allegedly due on commissions paid to location owners during the audit period and were assessed against Gator on the grounds the taxpayer had not separately stated the tax on its evidence of sale and failed to provide internal documentation to verify that the taxes had actually been paid. On April 19, 1991, a third revision of the proposed assessment was issued which decreased slightly the unpaid taxes and corresponding penalties but increased the size of the assessment to $57,945.10 due to the continuing accrual of interest. On July 1, 1991, Gator was offered the opportunity to informally contest the assessment. A letter of protest was filed on July 29, 1991, wherein Gator generally contended that (a) its records conformed with the industry practice and that an adequate audit trail existed to substantiate the payment of taxes, and (b) the responsibility for payment of the taxes ultimately rested with the location owner rather than Gator. On February 10, 1992, DOR issued its notice of decision rejecting Gator's position but offering to reduce the penalty on the unpaid sales taxes to 5%. At the same time, and although Gator had not challenged the auditor's method of computing the amount of sales tax, DOR upheld the auditor's determination on that point. After a petition for reconsideration was filed by Gator on March 10, 1992, in which Gator raised for the first time a claim that it was due a refund of $11,015 for overpayment of taxes on cigarette sales during the audit period, DOR issued its notice of reconsideration on June 12, 1992, denying the petition and offering Gator a point of entry on these issues. Such a request was timely filed and this proceeding ensued. The Tax The tax for which petitioner has been assessed became effective on July 1, 1986, and is found in Section 212.031, Florida Statutes. On an undisclosed date, DOR mailed each vending machine company in the state a flier which summarized the new changes in the tax law. The flier noted that the sales tax would be levied on each "license to use or occupy property" and specifically included "an agreement by the owner of real property granting one permission to install and maintain full-service coin-operated vending machines on the premises." Because the vending machine owner is considered to have been granted a license to use the real property of the location owner, the fee (rent) paid by the vending machine owner to the location owner was thus subject to the new sales tax. The notice further provided that the tax "must be collected by the person granting the privilege to use or occupy any real property from the person paying the license fee and is due and payable at the time of receipt." This flier constituted the only notice by DOR concerning the imposition of the new tax. There was no notice to the vending machine owners that they must separately state the sales tax from the commission when paying the commission to the location owner. This was because the flier's main purpose was to put the taxpayers on notice that they were subject to the new tax. Sometime after the tax became effective, DOR developed a rule to implement the new law. Specifically, it amended Rule 12A-1.044, Florida Adminstrative Code, to provide guidance to taxpayers in the coin-operated industry as to who had the taxpaying and collecting responsibility. However, the rule simply stated that the owner of the vending machine was responsible for paying the tax on the rental fee paid to the location owner and did not state how this payment was to be documented or recorded by the lessee. In the absence of any guidance from DOR, the Florida Amusement Association, of which Gator is a member, held meetings around the state to inform the members of their responsibilities under the new law. One method thought to be acceptable to establish payment of the sales tax was to keep internal documentation as to commission rate and tax paid to the various locations. As will be discussed hereinafter, Gator and other vending machine owners began following this practice. On May 11, 1992, or three years after the audit period had ended, and almost six years after the imposition of the tax, DOR adopted an amendment to rule 12A-1.044(10) to provide that "the tax must be separately stated from the amount of the lease or license payment." This constituted the first notice to vending machine owners that they were required to state separately on the check remitted to their locations each month the commission plus tax. It should also be noted that DOR has never specified the exact type of documentation required by this rule or the format in which the information should be submitted. The Industry Practice Petitioner is one of many coin-operated vending machine companies doing business in the state of Florida. The evidence shows that of some twenty representative companies doing business in the state, including Gator, all operate in the same manner. Generally, the vending machine owner has a low investment in equipment which is easily relocated from one place of business to another. Because it is not unusual for the businesses in which equipment is placed to frequently change ownership, and often times the location owner can shop around and obtain a better commission from another vending machine company, it is fairly common to have machines placed in a location for as few as six or seven months. Therefore, it is a common practice in the industry to do business on a handshake and without a formal written agreement. In other words, the agreement to allow the machines to be placed on the premises and the amount of commission (rent) to be paid for leasing that space is based largely on a handshake between the two owners. This accounts in part for the lack of documentation such as a charge ticket, sales slip or invoice between the two owners concerning the amount of sales tax associated with the rent since such documents or evidence of sale are not practicable. The lack of documentation is also attributable to the fact that until May 1992 DOR never advised the vending machine companies that some type of "evidence of sale" was needed. In determining the commission rate to be paid to the various locations, the vending machine owner must first ascertain what the market will bear in terms of selling a pack of cigarettes in the machine. After calculating his overhead, the vending machine owner then bargains with the location owner as to how much of the remaining difference between the cost of cigarettes and overhead and the selling price should be paid to the location owner. This amount of money agreed upon by the vending machine and location owners, and expressed in a per pack rate, is commonly known as the commission expense and includes the total sum of rent plus sales tax. For example, if the total commission is twenty cents per pack of cigarettes sold from each machine, the rent would be approximately 18.2 cents while the sales tax would make up the remainder of that amount. All vending machine owners, including Gator, made it explicitly clear to the location owner that the commission check was tax inclusive. During the audit period, it was standard industry practice for the vending machine owner to write a tax inclusive check to the location owner each month. In other words, a check for the amount due the location owner, including rent and tax, is paid to the location owner each month without any notation on the check as to what portion represents the rent and what portion represents the tax. In the case of Gator, its checks carried only the stamped notation "CIG- COM", which represented the words "cigarette commissions." The record shows that except for one small company with relatively few clients, all representative vending machine companies operated in this manner. Gator's Recordkeeping Like other vending machine companies, Gator's records consisted only of hand-written records on index cards. Indeed, Gator kept no computerized records at the time of the audit. More specifically, all calcuations as to taxes owed, the price of cigarettes, tax calculated on cigarettes vended through any given machine, and any additional information pertaining to the individual machines were kept on 8 x 10 white and pink index cards. These cards were commonly referred to as location cards and were updated each time the machine was moved from one location to another and when the price of cigarettes was changed. At the time of the audit, more than 99% of the original white and pink cards from the sample time period requested by the auditor were available for her inspection. The only documentation existing between the location and vending machine owners was the machine or route ticket, which is no different than merchandising tickets showing the number of units sold. This document reflected the amount of packs sold and the amount of money received from each machine but did not contain a separation of commission plus tax. This information was used by Gator to determine the number of packs sold from each machine during the month. The number of packs was then multiplied by the "rate" for that machine to ascertain the commission due the location owner. Although route tickets were contemporaneously prepared by a route (service) man, they were discarded before the audit began. This is probably because in a prior audit conducted in 1983 or 1984 DOR auditors expressed no interest in reviewing the route tickets. In any event, the route tickets are not essential to a resolution of the issues. A pink card was generated by Gator for each machine placed in a lessor's place of business. The card contained information, all written in pencil and amended as necessary, regarding inventory, location of machine, selling price of cigarettes, the negotiated commission rate to be paid to the location owner, and the tax computed on the license fee. The latter item was recorded in the top right hand side of the index card and, when coupled with the independent accounting firm's representation as to the integrity of the accounting system, provides reliable evidence that the commission paid to the location owner was tax inclusive. For example, petitioner's exhibit 2 received in evidence, which contains representative pink cards, reveals that on November 7, 1986, machine number 175 was installed at "River Walk Cruises #1" in Jacksonville and the location owner was thereafter paid a per pack commission of fourteen cents, of which 13.15 cents represented the rent while the remainder represented the sales tax. It is noted again that more than 99% of these cards from the sample period audited were available for inspection. A white card was also prepared for each machine and listed the number of packs sold, the per pack rate, and the amount paid to the location owner. However, it did not contain a breakdown between commission expense and the related tax. In addition, Gator maintained what was known as a monthly report, which was a summation and accumulation of sales information derived from the white cards. The report listed the rate and number of packs sold for each machine. Like the white card, the monthly report did not contain a breakdown between the rent and sales tax. Finally, journals and ledgers were prepared containing summaries of information taken from the machine cards. Expert testimony by two certified public accountants (CPAs) and a longtime industry representative established that petitioner's records (general accounting records, route tickets, location cards and ledgers) were in conformity with good accounting practice and the industry norm. If anything, Gator's records were more comprehensive than most other vending machine companies and satisfied the requirements of applicable rules and statutes. More specifically, by maintaining location cards which show the sales price per pack of cigarettes with a breakdown between the tax and rent, Gator's records were consistent with good accounting practices and the type of recordkeeping maintained by the industry. It was further established that the industry practice is to conduct business on a "tax inclusive" basis, that is, to issue checks without separately stating what portion of the amount is taxes. In addition, cancelled checks, bank statements, journals and ledgers were available to verify commissions paid to various locations. DOR did not challenge the accuracy of this supporting documentation and agreed, for example, that the month-end commission summaries tied into petitioner's journals and checks. Both financial experts concluded, and the undersigned so finds, that the records establish that the taxes were paid. During final hearing, and for the first time during the administrative hearing process, DOR challenged both the testimony of the experts and the reliability of petitioner's records on the ground the CPAs who testified were not present when the checks were written and thus had no personal knowledge that the checks were tax inclusive. However, the CPAs established the integrity of petitioner's recordkeeping and accounting system and the fact that the system used by Gator produces accurate information that can be relied upon by third party users. This was not credibly contradicted. It can be reasonably inferred from these facts that the hand-written notations on the pink cards concerning the sales tax computed on the license fee were accurate and that the corresponding checks paid to the location owners were tax inclusive. DOR also suggested that the penciled entries on the pink cards pertaining to the tax may have been prepared solely for purposes of this litigation and were not contemporaneous. For the reason stated above, this assertion is also rejected. It should be noted further that except for the allegations themselves, DOR did not challenge the authenticity of the records nor produce any evidence of circumstances that would show the records lacked trustworthiness. DOR further contended that because there was no written contract or other tangible evidence of sale between the two owners where the tax was separately stated, there was insufficient evidence to support petitioner's claim that the taxes were paid. Put another way, DOR contended that Gator needed not only internal documents (such as location cards) to verify the payment of taxes, it also needed documents submitted to the location owner reflecting the separation of tax and commission. However, prior to the 1992 amendment to rule 12A-1.044(10), there was no formal or informal requirement to do so nor had DOR given notice of such a need, and since the internal documentation confirms the payment of the taxes, no other evidence is required. Finally, the evidence shows that a vending machine company has never been considered a "dealer" within the meaning of Subsection 212.07(2), Florida Statutes, as asserted by DOR, and thus the requirement in that subsection that a dealer separately state the amount of tax on the evidence of sale is not applicable. Indeed, this interpretation of the statute is consistent with the language in Rule 12A-1.086, Florida Administrative Code, which characterizes the lessor (location owner) rather than the lessee as the dealer. Refund Issue Gator contends that using an error rate of two or three percent, a recomputation of its taxes paid during the audit period reveals that it is owed a refund of $11,015 occasioned by its bookkeeper incorrectly computing the tax due on the gross sales price of cigarettes rather than on the net price. Since the alleged overpayment of taxes occurred during the period from June 1, 1985, through April 30, 1989, the last alleged overpayment of taxes would have occurred shortly after April 30, 1989. Prior to March 10, 1992, when Gator filed its petition for reconsideration with DOR, Gator had not filed a request for a refund on DOR Form 26 (DR-26), which is the form on which refunds must be requested. In its petition for reconsideration, Gator noted that "a Petition for Refund will be filed in the immediate future if this has not previously been accomplished." As of the date of hearing, which was more than three years after the last alleged overpayment of taxes was made, no DR-26 had been filed. Therefore, the request for refund is deemed to be untimely.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent enter a final order granting the petition of Gator Coin Machine Company, Inc. and rescinding (withdrawing) the assessment set forth in the notice of reconsideration dated June 12, 1992, but denying petitioner's request for a refund of $11,015 for sales taxes allegedly overpaid during the audit period. DONE AND ENTERED this 19th day of March, 1993, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-4806 Petitioner: 1-2. Partially accepted in finding of fact 2. 3-6. Partially accepted in finding of fact 3. 7. Partially accepted in finding of fact 1. 8-9. Rejected as being unnecessary. 10. Partially accepted in finding of fact 17. 11. Partially accepted in finding of fact 15. 12-14. Rejected to the extent they are inconsistent with findings of fact 17 and 18. 15-17. Partially accepted in finding of fact 8. 18-20. Rejected as being irrelevant. 21-22. Rejected as being unnecessary. 23-24. Partially accepted in finding of fact 11. 25. Rejected as being unnecessary. 26. Partially accepted in findings of fact 13 and 14. 27. Partially accepted in finding of fact 14. 28-29. Partially accepted in finding of fact 17. 30-33. Partially accepted in finding of fact 4. 34-35. Partially accepted in finding of fact 5. 36. Partially accepted in finding of fact 15. 37. Rejected as being unnecessary. 38-39. Partially accepted in finding of fact 15. 40-41. Partially accepted in finding of fact 8. 42. Partially accepted in findings of fact 10 and 15. 43-45. Partially accepted in finding of fact 9. 46-49. Partially accepted in finding of fact 6. 50-51. Partially accepted in finding of fact 7. 52. Rejected as being unnecessary. 53-54. Partially accepted in finding of fact 10. 55-56. Partially accepted in finding of fact 7. Partially accepted in finding of fact 15. Rejected as being a conclusion of law. Rejected as being a conclusion of law. Partially accepted in finding of fact 15. 61-63. Rejected to the extent they are inconsistent with findings of fact 17 and 18. 64-65. Partially accepted in finding of fact 12. 66-68. Partially accepted in finding of fact 14. 69. Partially accepted in finding of fact 7. 70-75. Rejected as being unnecessary. Partially accepted in finding of fact 12. Rejected to the extent it is inconsistent with findings of fact 17 and 18. Partially accepted in finding of fact 15. 79-81. Partially accepted in finding of fact 16. 82. Partially accepted in findings of fact 13 and 14. 83-84. Partially accepted in finding of fact 12. Rejected to the extent it is inconsistent with findings of fact 17 and 18. Partially accepted in finding of fact 16. 87-88. Rejected to the extent they are inconsistent with findings of fact 17 and 18. Partially accepted in finding of fact 16. Partially accepted in finding of fact 17. Partially accepted in finding of fact 16. Rejected as being irrelevant since the collection of taxes from Jax Liquors occurred after the audit period. 93-95. Rejected as being unnecessary. Respondent: 1-2. Partially accepted in finding of fact 1. 3-4. Partially accepted in finding of fact 9. 5. Partially accepted in finding of fact 13. 6-8. Partially accepted in finding of fact 12. 9. Partially accepted in finding of fact 10. 10. Rejected as being unnecessary. 11a. Partially accepted in finding of fact 12. 11b. Partially accepted in findings of fact 10, 13 and 15. 11c. Partially accepted in finding of fact 14. 11d. Partially accepted in finding of fact 14. 12-15. Partially accepted in finding of fact 10. Note - Where a proposed finding has been partially accepted, the remainder has been rejected as being unnecessary, subordinate, irrelevant, not supported by the more credible and persuasive evidence, or a conclusion of law. COPIES FURNISHED: Linda Lettera, Esquire General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Mr. Larry Fuchs Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 William A. Friedlander, Esquire Marie A. Mattox, Esquire 3045 Tower Court Tallahassee, FL 32303 Eric J. Taylor, Esquire Department of Legal Affairs The Capitol-Tax Section Tallahassee, FL 32399-1050
Findings Of Fact At the time and place scheduled for final hearing, nobody appeared on behalf of petitioner and no evidence was adduced.
Recommendation It is, accordingly recommended that respondent dismiss petitioner's request for a formal administrative proceeding. RECOMMENDED this 19th day of November, 1991, in Tallahassee, Florida. ROBERT T. BENTON, II 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 19th day of November, 1991. COPIES FURNISHED: J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Vicki Weber, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Kevin J. O'Donnell, Esquire Department of Legal Affairs Tax Section, The Capitol Tallahassee, FL 32399-1050 Louise J. Allen, Esquire Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A. 150 W. Flagler Street, Suite 2200 Miami, FL 33130
Findings Of Fact Petitioner, Omni International of Miami, Limited (Omni), is the owner of a large complex located at 1601 Biscayne Boulevard, Miami, Florida. The complex is commonly known as the Omni complex, and contains a shopping mall, hotel and parking garage. On July 30, 1981, Petitioner filed two applications for refund with Respondent, Department of Banking and Finance, seeking a refund of $57,866.20 and $4,466.48 for sales tax previously paid to the Department of Revenue on sales of electricity and gas consumed by its commercial tenants from April, 1978 through March, 1981. On November 22, 1982, Respondent denied the applications. The denial prompted the instant proceeding. The shopping mall portion of the Omni complex houses more than one hundred fifty commercial tenants, each of whom has entered into a lease arrangement with Omni. The utility companies do not provide individual electric and gas meters to each commercial tenant but instead furnish the utilities through a single master meter. Because of this, it is necessary that electricity and gas charges be reallocated to each tenant on a monthly basis. Therefore, Omni receives a single monthly electric and gas bill reflecting total consumption for the entire complex, and charges each tenant its estimated monthly consumption plus a sales tax on that amount. The utility charge is separately itemized on the tenant's bill and includes a provision for sales tax. Petitioner has paid all required sales taxes on such consumption. The estimated consumption is derived after reviewing the number of electric outlets, hours of operations, square footage, and number and type of appliances and lights that are used within the rented space. This consumption is then applied to billing schedules prepared by the utility companies which give the monthly charge. The estimates are revised every six months based upon further inspections of the tenant's premises, and any changes such as the adding or decreasing of appliances and lights, or different hours of operations. The lease agreement executed by Omni and its tenants provides that if Omni opts to furnish utilities through a master meter arrangement, as it has done in the past, the tenant agrees to "pay additional rent therefor when bills are rendered." This term was included in the lease to give Omni the right to invoke the rent default provision of the lease in the event a tenant failed to make payment. It is not construed as additional rent or consideration for the privilege of occupying the premises. Omni makes no profit on the sale of electricity and gas. Rather, it is simply being reimbursed by the tenants for their actual utility consumption. If the applications are denied, Petitioner will have paid a sales tax on the utility consumption twice -- once when the monthly utility bills were paid, and a second time for "additional rent" for occupancy of the premises.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Petitioner's applications for refund, with interest, be approved. DONE and RECOMMENDED this 15th day of April, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER 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 15th day of April, 1983.
Findings Of Fact At all times pertinent to this cause, Robert W. Pope, has been the holder of license no. 62-600, series 4-COP, SRX, held with the State of Florida, Division of Beverage to trade as The Wedgewood Inn, located at 1701, 4th Street, South, St. Petersburg, Pinellas County, Florida. When the Respondent, Pope, began to operate the licensed premises he was given a registration sales tax number by the State of Florida, Department of Revenue. This number was provided in accordance with 212, F.S. That law required the remittance of the collected sales tax on a month to month basis, the period beginning with the first day of the month and ending with the last day of the month. The remittance was due on the first day of the following month and payable by the 20th day of the following month. Failure to pay by the 20th would result in a 5 percent penalty and 1 percent interest per month. The sales tax remittance due from the licensed premises for September, 1976 through December, 1976 was not made and a lien was recorded to aid collection of the tax. Payment of the amount of $4,500.00 was paid in February or March, 1977 to satisfy the Department of Revenue lien claims. At present all taxes due and owing under 212, F.S. are current. The above facts established that the Respondent failed to comply with the provisions of 212, F.S. pertaining to the remittance of sales tax from the Respondent to the State of Florida, Department of Revenue. This violation, thereby subjects the Respondent to the possible penalties of 561.29, F.S.
Recommendation It is recommended that the Respondent, Robert W. Pope, be required to pay a civil penalty in the amount of $500.00 or have the license no. 62-600, series 4- COP, SRX, suspended for a period of 20 days. DONE AND ENTERED this 28th day of July, 1977, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: William Hatch, Esquire Division of Beverage 725 South Bronough Street Tallahassee, Florida 32304 Robert W. Pope, Esquire 611 First Avenue, North St. Petersburg, Florida 33701
