The Issue The issues to be resolved in this case are what amount of federal income tax expense is properly included as an expense in Premier's excessive profits filings for the years 2005-2007, and in light of that deduction, how much Petitioner must refund as excessive profits pursuant to section 627.215, Florida Statutes (2009)?
Findings Of Fact Premier is a foreign insurer authorized to write workers' compensation insurance in the State of Florida. As a workers' compensation insurer, Premier is subject to the jurisdiction of the Office. Premier began writing workers' compensation insurance coverage in Florida on January 1, 2005. The Office is a subdivision of the Financial Services Commission responsible for the administration of the Insurance Code, including section 627.215. Section 627.215(1)(a) requires that insurer groups writing workers' compensation insurance file with the Office on a form prescribed by the Commission, the calendar-year earned premium; accident-year incurred losses and loss adjustment expenses; the administrative and selling expenses incurred in or allocated to Florida for the calendar year; and policyholder dividends applicable to the calendar year. Insurer groups writing types of insurance other than workers' compensation insurance are also governed by section 627.215. Its purpose is to determine whether insurers have realized an excessive profit and if so, to provide a mechanism for determining the profit and ordering its return to consumers. Insurer groups are also required to file a schedule of Florida loss and loss adjustment experience for each of the three years prior to the most recent accident year. Section 627.215(2) provides that "[t]he incurred losses and loss adjustment expenses shall be valued as of December 31 of the first year following the latest accident year to be reported, developed to an ultimate basis, and at two 12-month intervals thereafter, each developed to an ultimate basis, so that a total of three evaluations will be provided for each accident year." Section 627.215 contains definitions that are critical to understanding the method for determining excess profits. Those definitions are as follows: "Underwriting gain or loss" is computed as follows: "the sum of the accident-year incurred losses and loss adjustment expenses as of December 31 of the year, developed to an ultimate basis, plus the administrative and selling expenses incurred in the calendar year, plus policyholder dividends applicable to the calendar year, shall be subtracted from the calendar-year earned premium." § 627.215(4). While the sum of the accident-year losses and loss adjustment expenses are required by the statute to be developed to an ultimate basis, the administrative and selling expenses are not. "Anticipated underwriting profit" means "the sum of the dollar amounts obtained by multiplying, for each rate filing of the insurer group in effect during such period, the earned premium applicable to such rate filing during such period by the percentage factor included in such rate filing for profit and contingencies, such percentage factor having been determined with due recognition to investment income from funds generated by Florida business, except that the anticipated underwriting profit . . . shall be calculated using a profit and contingencies factor that is not less than zero." § 627.215(8). Section 627.215 requires that the underwriting gain or loss be compared to the anticipated underwriting profit, which, as previously stated, is tied to the applicable rate filing for the insurer. Rate filings represent a forecast of expected results, while the excess profits filing is based on actual expenses for the same timeframe. The actual calculation for determining whether an insurer has reaped excess profits is included in section 627.215(7)(a): Beginning with the July 1, 1991, report for workers' compensation insurance, employer's liability insurance, and commercial casualty insurance, an excessive profit has been realized if the net aggregate underwriting gain for all these lines combined is greater than the net aggregate anticipated underwriting profit for these lines plus 5 percent of earned premiums for the 3 most recent calendar years for which data is filed under this section. . . Should the Office determine, using this calculation, that an excess profit has been realized, the Office is required to order a return of those excess profits after affording the insurer group an opportunity for hearing pursuant to chapter 120. OIR B1-15 (Form F) is a form that the Office has adopted in Florida Administrative Code Rule 69O-189.007, which was promulgated pursuant to the authority in section 627.215. The information submitted by an insurer group on Form F is used by the Office to calculate the amount of excessive profits, if any, that a company has realized for the three calendar-accident years reported. The terms "loss adjustment expenses," and "administrative and selling expenses," are not defined by statute. Nor are they defined in rule 69O-189.007 or the instructions for Form F. Form F's first page includes section four, under which calendar-year administrative and selling expenses are listed. Section four has five subparts: A) commissions and brokerage expenses; B) other acquisition, field supervision, and collection expense; C) general expenses incurred; D) taxes, licenses, and fees incurred; and E) other expenses not included above. No guidance is provided in section 627.215, in rule 60O-189.007, or in the instructions for Form F, to identify what expenses may properly be included in the Form F filing. There is no indication in any of these three sources, or in any other document identified by the Office, that identifies whether federal income taxes are to be included or excluded from expenses to be reported in a Form F filing. While the form clearly references taxes, licenses, and fees incurred under section 4(D), the instructions do not delineate what types of taxes, licenses, and fees should be included. The instructions simply state: "for each of the expenses in item 4, please provide an explanation of the methodology used in deriving the expenses, including supporting data." On or about June 30, 2009, Premier filed its original Form F Filing with the Office pursuant to section 627.215 and rule 69O-189.007. Rule 69O-189.007 requires that a Form F be filed each year on or before July 1. On March 19, 2010, the Office issued a Notice of Intent, directing Premier to return $7,673,945.00 in "excessive profits" pursuant to section 627.215. Premier filed a petition challenging the Office's determination with respect to the amount to be refunded, based in part on its position that federal income tax expense is appropriately included as an expense for calculation of excess profits. The parties attempted to resolve their differences over the next year or so. As part of their exchange of information, Premier subsequently filed three amendments to its Form F filing on December 11, 2009; on June 21, 2010; and on January 13, 2012. In each of its amended filings, Premier included the federal income tax expense attributable to underwriting profit it earned during the 2005-2007 period. These expenses were included under section 4(E). As reflected in the Preliminary Statement, Premier filed a challenge to the Office's policy of not allowing federal income taxes to be used as an expense for excess profits filings as an unadopted rule. On July 5, 2012, a Final Order was issued in Case No. 12-1201, finding that the Office's Policy regarding the inability to deduct federal income taxes as an expense for excess profits filings met the definition of a rule and had not been adopted as a rule, in violation of section 120.54(a). The Final Order in Case No. 12-1201 directed the Office to discontinue immediately all reliance upon the statement or any substantially similar statement as a basis for agency action. At this point, the parties have resolved their differences with respect to all of the calculations related to the determination of excess profits, with one exception. The sole issue remaining is the amount, if any, that should be deducted as an administrative expense for payment of federal income tax. The parties have also stipulated that, before any adjustment to federal income tax is made, Premier's underwriting profit for 2005 was $2,923,157 and for 2006 was $2,119,115. For 2008, Premier suffered an underwriting loss of $785,170. Premier's federal income tax rate for all three years was 35%. The maximum amount of underwriting profit that a company can retain is the net aggregate anticipated profit, plus five percent of earned premiums for the calendar years reported on workers' compensation business. For the 2005-2007 reporting years, Premier's maximum underwriting profit is stipulated to be $1,189,892. Anything over this amount is considered excessive profits which must be returned to policyholders. The parties also agree that, prior to any deduction for federal income tax paid by Premier, the amount of excess profit earned by Petitioner and subject to return to policyholders is $3,067,220. Premier has filed a fourth amended Form F, which incorporated all of the stipulations of the parties to date. The fourth amended Form F also includes an allocation of federal income tax expense based upon the statutory allocation methodology outlined in section 220.151, Florida Statutes (2009). Section 220.151 provides the statutory method for allocating federal income tax expenses for purpose of paying Florida corporate income taxes. This section directs that insurance companies shall allocate federal taxable income based on the ratio of direct written premium the insurance company has written in Florida for the relevant period, divided by the direct written premium anywhere. Premier paid its Florida corporate income tax based upon this statutory methodology. Consistent with the methodology in section 220.151, Premier allocated its federal taxable income to the State of Florida based upon the percentage of direct premium written on risks in Florida, and reduced the amount of its federal taxable income by the amount investment income reflected on its federal tax return. Premier then multiplied the Florida portion of its taxable income by its 35% federal tax rate, resulting in the federal income tax expense allocated to Florida. For the year 2005, Premier's federal taxable income according to its tax return is $7,614,512.89. After subtracting investment income listed on the tax return of $969,051.97, the taxable income attributable to premium is $6,645,460.92. For 2006, Premier's federal taxable income according to its tax return is $6,577,534.06. After subtracting investment income of $2,011,614.86, the taxable income attributable to premium is $4,565,919.20. For 2007, Premier's federal taxable income according to its tax return was $4,359,742.88. After subtracting investment income of $2,266,291.99, the taxable income attributable to premium is $2,093,450.89. For the three years combined, the federal taxable income was $18,551,789.83. The amount of investment income subtracted was $5,246,958.82, leaving a balance of taxable income attributable to premium as $13,304,831.01. For the years 2005 through 2007, Premier paid $2,665,079.51; $2,302,136.92; and $1,525,910.01 respectively, in federal income tax. During those same years, Premier wrote 58.8388%; 51.2514%; and 29.8536%, respectively, of its direct premium in Florida. Allocating a portion of Premier's federal tax income and income tax liability to Florida, consistent with section 220.151, results in a calculation of Florida's portion of taxable underwriting income. For 2005, this amount is $3,910,109.46; for 2006, $2,340,097.51; and for 2007, $624,970.45. The total amount of federal taxable income allocated to Florida for the three-year period of $6,875,177.42. The taxable income is then multiplied by the applicable tax rate of 35%, which results in a federal income tax expense allocated to Florida of $1,368,538.46 for 2005; $819,034.13 for 2006; and $218,739.45 for 2007, totaling $2,406,312.10 for the three-year period at issue. The undersigned notes that Premier only writes workers' compensation insurance. It does not write other lines of insurance, which makes the allocation of earned premium much simpler than it would be for a company writing multiple lines of insurance. Under the methodology described above, Premier determined that $2,406,312.10 is the appropriate amount of federal income tax expense to be deducted for calendar years 2005-2007, resulting in an excess profit pursuant to section 627.215, of $660,907. Mr. Hester, a certified public accountant and president of Premier, testified that this methodology was used by Premier in determining its Florida corporate income tax liability. The methodology described above uses the amounts that Premier actually paid in taxes, and therefore reflects the actual expense experienced by Premier. It is accepted as a reasonable method. According to Mr. Watford, the Office does not determine the methodology that must be used in allocating expenses. The insurance company provides the methodology and the data to support it, and then the Office determines whether, in a given case, the methodology is appropriate. Premier points out that the Office has provided no guidance on how to allocate federal income tax expense for excess profits reporting. That no guidance has been offered is understandable, inasmuch as the Office holds firmly to the belief that no allowance for federal income tax expense should be made. Nonetheless, the Office reviewed the method provided by Premier and did not find it to be reasonable. Premier included in its Form F filing for the years 2005-2007 a deduction for the portion of Florida corporate income tax expense not related to investment income. The Office accepted the Florida corporate income tax deduction, which is calculated using the same allocation method Premier used to allocate federal income tax expense. Indeed, the Office acknowledged at hearing that it has permitted the methodology of direct written premium in Florida divided by direct written premium written everywhere for the determination of other expenses for excess profits filings, and has only rejected the methodology on one occasion. However, it has not accepted this same methodology for determining the appropriate amount of federal income tax expense and does not believe it to be a reasonable methodology. The rationale for this distinction is that, in Mr. Watford's view, federal income tax is "a totally different type of expense." Mr. Watford did not consult an accountant or certified public accountant in making the determination that the methodology used was impermissible. Mr. Watford opined that in order to determine that a proposed methodology is reasonable, the insurance company would need to have an adjustment in the profit factor, i.e., submit a new rate filing for the years in question; have a projected tax expense that did not exceed the expense he calculated, based on the effect on future tax expenses caused by the return of excess profits; and submit a methodology that was "appropriate for the insurance company." This approach is rejected. First, the rate filing is supposed to be a forecast, and the Office cited to no authority for adjusting the forecast in light of actual events. Further, Mr. Watford admitted that in this instance, the profit and contingencies factor is already at zero for the years at issue, and section 627.125 provides that no factor less than zero can be used to determine excess profits. Second, the excess profits statute specifies that the deduction for administrative and selling expenses is for those expenses incurred in Florida or allocated to Florida for the current year. Unlike incurred losses and loss adjustment expenses, administrative and selling expenses are not developed to an ultimate basis, which appears to be what the Office is attempting to require. Administrative expenses are incurred by calendar year.1/ Other than the net cost of re-insurance, the Office has not permitted any expense that is to be valued at a date that is later than the end of the calendar year(s) at issue in the excess profits filing. The future effect of these expenses would be considered in the year that effect is realized. Third, allowing whatever is "appropriate for the insurance company" is simply too nebulous a standard, to the extent it is a standard at all, to apply.2/ As noted by Mr. Hester, federal income tax liabilities are governed by the Internal Revenue Code and its attendant regulations, and not tied specifically to underwriting gain or loss.3/ Similarly, Florida corporate income tax liabilities are governed by Florida's taxing statutes. The fact that their calculation is not governed by the Florida Insurance Code does not change the fact that they are administrative expenses borne by the insurance company.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office enter a Final Order finding that $2,406,312.10 may be deducted for federal income tax expense incurred or allocated to Florida for purposes of section 627.215, and that Premier must return $660,907.90 in excessive profits to its policyholders. DONE AND ENTERED this 19th day of December, 2012, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of December, 2012.
The Issue The issue is whether Petitioner is subject to tax based on a lease or license to use real property pursuant to Sections 212.031, 212.054, and 212.55, Florida Statutes.
Findings Of Fact Jack and Joan Peoples bought and began operating a bait and tackle shop/fish camp in Jacksonville, Duval County, Florida, in approximately 1971. The name of the business was Clark's Fish Camp and Seafood. As the business grew, Mr. and Mrs. Peoples began operating a restaurant in the shop. Initially, they lived on the business premises in an apartment adjoining the shop. When the restaurant became more successful, the restaurant was enlarged to include the apartment area and the family bought a home at another location. In January 1990, Mr. and Mrs. Peoples incorporated their business as a Florida Subchapter S Corporation. Pursuant to the organizational minutes, Mr. Peoples was elected president and Mrs. Peoples was elected vice-president and secretary. Petitioner issued common stock to Mr. and Mrs. Peoples as the sole shareholders, each owning a 50 percent interest, in exchange for the good will and name of Clark's Fish Camp and Seafood. Mr. and Mrs. Peoples did not transfer any real property, fixtures, or equipment to Petitioner. At all times material to this case, Mr. and Mrs. Peoples or Mrs. Peoples, in her sole capacity, owned the real property and fixtures utilized by Petitioner in the operation of the restaurant business. At all times relevant here, Mrs. Peoples acted as hostess, cook, and/or manager for the business. She controlled Petitioner's checkbook along with her kitchen manager, Florence Hatfield, and general manager, Steve Morris. During the audit at issue here, Russ Deeter, an accountant, and his associate/former employee, Maxine Downs were responsible for performing all of Petitioner's formal bookkeeping. Mr. Deeter had served as Petitioner's bookkeeper since the early 1970s. He sold his accounting business to Ms. Downs in 1981, but he continued to assist her with the routine bookkeeping for certain clients including Petitioner. Pursuant to the arrangement between Mr. Deeter and Ms. Downs, she created a general ledger in a computer using Petitioner's checkbook, sales receipts, invoices, etc., as source documents. The source documents were then returned to Petitioner. Additionally, Mr. Deeter prepared state and federal tax returns for Petitioner and Mr. and Mrs. Peoples. Mrs. Peoples maintained all of the source documents for Petitioner's business records in a construction trailer/office located behind the restaurant on the property's highest ground. Because the property was prone to flooding, Petitioner placed the source documents and other business records on shelves in the trailer/office. The only file cabinets in the office were used to store restaurant supplies. On or about October 28, 1998, Respondent sent Petitioner a Notice of Intent to Audit Books and Records for sales and use taxes for the period October 1, 1993, to September 30, 1998. The notice also advised Petitioner that Respondent intended to conduct an audit of Petitioner's corporate intangible taxes for the period January 1, 1994, to January 1, 1998. The audit was scheduled to commence some time after December 28, 1998. In the meantime, Mr. Peoples became so ill that Mrs. Peoples closed their home and moved into a mobile home located on the business property. This move allowed Mrs. Peoples to oversee the restaurant business while she nursed her husband. Mr. Peoples died in March 1999. Thereafter, Mrs. Peoples became Petitioner's sole owner. Mrs. Peoples receives a bi-weekly salary from Petitioner in the amount of $3,000. She also makes draws from its bank account to pay business and personal expenses on an as-needed basis. Mrs. Peoples has an eighth grade education. However, she is, in large part, responsible for the success of Petitioner, which during the audit period grossed between $2,500,000 and $3,000,000 a year. Mrs. Peoples asserts that she does not remember signing any tax returns but admits that she signs documents without examining them when requested to do so by Mr. Deeter. By letter dated March 24, 1999, Respondent advised Petitioner that it was rescinding the October 28, 1998, Notice of Intent to Audit Books and Records and replacing it with a new notice. The new Notice of Intent to Audit Books and Records dated March 24, 1999, included an examination of Petitioner's charter city systems surtax for the period March 1, 1994, through February 28, 1999; Petitioner's sales and use tax from March 1, 1994, through February 28, 1999; and Petitioner's intangible personal property tax from January 1, 1995, through January 1, 1999. The new notice stated that the audit would begin on or before May 24, 1999. On May 23, 1999, Petitioner requested a postponement of the audit due to the death of Mr. Peoples. As a result of this request, Respondent postponed the audit until January 10, 2000. On May 25, 1999, Mrs. Peoples signed a Power of Attorney for Mr. Deeter to represent the business during the audit. In anticipation of the audit, Mrs. Peoples and her staff began going through the source documents stored in the trailer/office. Mr. Deeter also gathered pertinent records and computer printouts. All documents required for the audit were placed in boxes or sacks on the floor of the trailer/office. In September of 1999, Petitioner's property flooded due to a hurricane. The water rose above the elevated entrance to the trailer/office. Mrs. Peoples and Petitioner's employees made no effort to protect the documents on the floor of the trailer/office from the floodwaters. Petitioner's September 1999 insurance claims due to flood loss do not contain a claim for loss of documentation. The 1999 flood loss claims were small in comparison to the flood loss claims for 2001 even though the 1999 floodwaters rose high enough to destroy the records. Record evidence indicates that the trailer/office has flooded on more than one occasion. In September 1999, all of the documents on the floor of the office were destroyed. Subsequently, Mrs. Peoples and Ms. Hatfield disposed of the documents, including but not limited to, the printouts of the general ledger, bank statements, and cancelled checks. On January 7, 2000, Petitioner requested another postponement of the audit until July 1, 2000. Petitioner made the request due to the death of Ms. Downs in December 1999. After her death, Mr. Deeter discovered that Ms. Downs' computer and all backup tapes located in her home office were either stolen or otherwise unaccounted for. The missing computer records included Petitioner's bookkeeping records for the audit period at issue here. On January 15, 2000, Petitioner agreed to extend the time for Respondent to perform the audit. The agreement stated that Respondent could issue an assessment at any time before October 28, 2001. On July 6, 2000, Respondent issued a formal demand for Petitioner to produce certain records. The only records available were Mr. Deeter's own work papers, post-September 1999 materials that had not been placed in the trailer/office prior to the flood, or records prepared after the flood and death of Ms. Downs. On July 17, 2000, the parties signed an Audit Agreement. The agreement states that the audit of sales of tangible personal property would be controlled by the sampling method. On July 17, 2000, Mr. Deeter informed Respondent that Petitioner's records covering the period from 1993 through the middle of 1999 were not available because a flood had damaged them in September 1999. However, using his work papers, Mr. Deeter was able to provide Respondent with copies of some of the original federal tax returns that he had prepared for Petitioner and Mr. and Mrs. Peoples. During the hearing, Mr. Deeter asserted that he had delivered the original tax returns to Mr. and Mrs. Peoples who had the responsibility to sign, date, and file them with the U.S. Internal Revenue Service (IRS) at the appropriate times. Mrs. Peoples testified that she could not remember signing any returns. She believed that Mr. Deeter had assumed responsibility for filing the returns. The unsigned and undated copies of the returns that Mr. Deeter provided Respondent on July 17, 2000, included Petitioner's U.S. Income Tax Return for an S Corporation (Form 1120S) for 1996, 1997, and 1998. These returns showed that Petitioner took the following deductions from income for a lease expense: (a) 1996--$225,546; (b) 1997--$332,791; and 1998--$290,493. These are the amounts that Respondent seeks to tax as rent. Mr. Deeter also provided Respondent with an unsigned and undated copy of Mr. and Mrs. Peoples' 1998 U.S. Individual Income Tax Return (Form 1040). The return included both pages of Schedule E showing rents received from Petitioner. On July 28, 2000, Mr. Deeter provided Respondent with revised copies of Petitioner's 1120S forms and revised copies of Mr. and Mrs. Peoples' 1040 forms. The auditor's file does not contain copies of the revised returns because the auditor did not accept them. The record also indicates that Mr. Deeter did not want to leave the revised returns with Respondent because they were not copies of the original returns. During the hearing, Mr. Deeter testified that he furnished Respondent with revised returns to show that there was no difference in the amount of federal income tax due and payable by Mr. and Mrs. Peoples regardless of whether Petitioner reported a lease expense or a distribution of profit on its 1120S forms and regardless of whether Mr. and Mrs. Peoples reported Petitioner's income as rent received or a profit distribution on their 1040 forms. According to Mr. Deeter, he prepared the revised 1120S returns using his pencil copies of the original handwritten returns because he had never used a computer software program to prepare 1120S forms. Mr. Deeter had a computer software program to prepare 1040 forms, so he used that program to generate the revised 1040 returns. However, Mr. Deeter's testimony that the revised returns were drafts showing Petitioner's deduction of a lease expense and Mr. and Mrs. Peoples' receipt of rent is not persuasive. In November 2000, Respondent obtained copies of Petitioner's 1120S forms and Mr. and Mrs. Peoples' 1040 forms for 1994 and 1995 from the IRS. The IRS did not have copies of these returns for the years 1996 through 1999. However, there is record evidence that Mr. and Mrs. Peoples paid some income taxes for all years in question. The record does not contain copies of the 1994 and 1995 returns. Competent evidence indicates that, consistent with Respondent's routine practice, the auditor reviewed the 1040 and 1120S forms and returned them to the IRS without making copies for Respondent's file. Based on the auditor's review of Petitioner's 1120S returns, Respondent seeks to tax Petitioner for lease expense in the amounts of $152,782.24 in 1994 and $220,355.85 in 1995. During the hearing, Mr. Deeter conceded that he prepared Petitioner's 1120S forms for 1994 and 1995 showing deductions for a lease expense and Mr. and Mrs. Peoples' 1040 forms showing rent received from Petitioner. His testimony that he prepared all returns in subsequent years showing no lease expense for Petitioner and profit distributions instead of rent received for Mr. and Mrs. Peoples is not persuasive. In November 2000, Respondent issued a Notice of Intent to Make Audit Changes. The notice made no adjustment with respect to Petitioner's reported taxable sales. The only adjustment was based on lease payments from Petitioner to Mr. and Mrs. Peoples as consideration for the rent of the building and fixtures utilized by Petitioner in the conduct of its business. On January 26, 2001, Mr. Deeter had an audit conference with Respondent's staff. During the conference, Mr. Deeter requested that Respondent review Petitioner's amended 1120S forms for the years 1996, 1997, 1998, and 1999. The amended 1120S returns did not include deductions for a lease expense. Respondent would not accept the amended returns, but informed Mr. Deeter that it would review the amended returns if he could document that they had been filed with the IRS. On March 7, 2001, the IRS stamped the amended 1120S forms for 1996, 1997, 1998 and 1999 as having been received. Mrs. Peoples had signed the returns as Petitioner's president but she did not date her signatures. Mr. Deeter testified that his wife, Roberta Lawson, signed the amended 1120S returns as the tax preparer. Mrs. Lawson's purported signatures on the forms were dated appropriately for each tax year. However, Mrs. Lawson did not testify at the hearing. Mr. Deeter's testimony that the returns filed with the IRS on March 7, 2001, after the audit was completed were, in fact, exact copies of the returns that he and his wife prepared for Petitioner each year and provided to Respondent on July 17, 2000, is not persuasive. After receiving the amended 1120S returns, Respondent decided not to consider them in the audit because they were self-serving. On August 6, 2001, Respondent issued a Notice of Proposed Assessment of sales and use tax and charter transit system surtax. By letter dated October 2, 2001, Petitioner filed a timely informal protest of the proposed assessment. Petitioner asserted that it had never paid any rent to Mr. and Mrs. Peoples. On January 29, 2002, Respondent issued a Notice of Decision upholding the proposed assessments. However, Petitioner never received this notice. Therefore, Respondent reissued the Notice of Decision without any additional changes on August 14, 2002. During discovery, Petitioner provided Respondent with unsigned and undated copies of Mr. and Mrs. Peoples' 1040 forms for 1996, 1997, 1998, and 1999. These returns show taxable income derived from an S corporation on line 17, passive income and losses from Petitioner on page 2 of Schedule E, and depreciation on Form 4562. In other words, the returns reflect corporate distributions of profit from Petitioner and do not reference any income from rental real estate. Mr. Deeter's testimony during hearing that the 1040 returns provided to Respondent during discovery are exact copies of the original 1040 returns is not persuasive. As of December 12, 2002, Mr. and Mrs. Peoples had not filed 1040 returns for the years 2001, 2000, 1999, 1998, 1997, or 1996 with the IRS. The audit at issue here was based on the best information provided at the time of the audit. Respondent completed the audit on or about January 26, 2001. Petitioner does not assert that the calculation of the assessment was in error. Instead, Petitioner protests that any assessment is due. Petitioner could have requested its bank to provide it with copies of its statements and cancelled checks for the relevant period. Petitioner did not make such a request and Respondent was not under an obligation to do so. There is no evidence that a written lease for Petitioner to use Mr. and Mrs. People's property ever existed. However, the greater weight of the evidence indicates that Petitioner leased the restaurant property from Mr. and Mrs. Peoples for all relevant years. Mr. Deeter is an experienced accountant with over 30 years of experience. Petitioner and Mr. and Mrs. Peoples relied upon Mr. Deeter's advice as to what, if any, taxes should be paid on the lease. Armed with all of the necessary information, Mr. Deeter gave Petitioner obviously erroneous advice concerning the tax consequences associated with Petitioner leasing the property and paying 100 percent of its profits as consideration for the lease. To compound the problem, Mrs. Peoples negligently failed to ensure that Petitioner's business records, gathered specifically in anticipation of Respondent's audit, were safely preserved from hurricane floodwaters. Petitioner has had no previous tax compliance difficulties. It has not been subject to prior audits or assessments. Even so, the facts of this case indicate that Petitioner and Mr. and Ms. Peoples did not exercise ordinary care and prudence in complying with the revenue laws of Florida. Mr. Deeter testified that the fair market value or reasonable consideration for the lease is an amount equivalent to Mr. and Mrs. Peoples' depreciation. According to the depreciation schedules, which accompanied the 1040 forms provided to Respondent during discovery, the annual cost for the use of the property and fixtures were as follows: (a) 1996--$98,296; (b) 1997--$104,840; and (c) 1998--$114,106 ($179,554 less a one time extraordinary loss of $65,448 due to flood damage). Mr. Deeter also testified that using the information on the 1040 forms for 1996, the depreciation expense for 1994 and 1995 can be computed as follows: (a) 1994--$63,000 to $67,000; and (b) 1995--$77,000 to $79,000. Mr. Deeter's testimony that the fair market value of the lease is equivalent to the depreciation set forth on 1040 returns never filed with the IRS is not persuasive. Mr. Deeter testified that an estimate of reasonable net profits for a corporation of similar size and make-up could be determined by reference to ratio profiles prepared by Robert Morris and Associates. Mr. Deeter's testimony regarding average profit distributions to shareholders of similarly situated corporations and reasonable profit distributions for Petitioner are speculative and not persuasive.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Respondent enter a final order upholding the tax assessment. DONE AND ENTERED this 4th day of April, 2003, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of April, 2003. COPIES FURNISHED: David B. Ferebee, Esquire Post Office Box 1796 Jacksonville, Florida 32201-1796 J. Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668 R. Lynn Lovejoy, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Coulter Electronics, Inc., Petitioner, is a manufacturer of machinery and instruments used primarily by medical and related professions. During fiscal years 1973 and 1974 the Department included in Coulter's apportionment formula certain inter-company sales of two of its subsidiary corporations, Coulter Diagnostics, Inc., (C.D.I.), and Blood Services, Inc., (B.S.I.). C.D.I. produces products which are used with the machinery and instruments to perform certain tests and B.S.I. produces certain materials which are used by C.D.I. to manufacture its products. Coulter is the parent corporation with C.D.I. being a 100 percent wholly-owned subsidiary and B.S.I. being an approximately 92 percent owned subsidiary. The central management group of Coulter selects and appoints management of both C.D.I. and B.S.I. with some overlap between the top management of the three corporations. During Petitioner's corporate fiscal years ending March 31, 1973, and March 31, 1974, Coulter, as the parent of an affiliated group of corporations, filed consolidated income tax returns for federal income tax purposes. Petitioner's subsidiaries also filed consolidated corporate income tax returns with the State for the fiscal years in question. As reflected on Petitioner's books, sales made to it in this State by its subsidiaries for the 1973 fiscal year total $13,875,153 and for the fiscal year ending 1974, the company sales total $13,961,516 (see Exhibit B to Petitioner's Complaint P.7). These inter- company sales were not included in either the denumerator or denominator of the Petitioner's apportionment formula in the original returns which are filed with the State of Florida. The department, pursuant to an audit by its corporate income tax bureau, included these, resulting in deficiencies of $39,436.00 for the 1973 tax year and $324.00 for the 1974 tax year. The Petitioner takes the position that the transactions in question do not constitute sales which are to be included in the sales factor of the apportionment formula, Section 214.71(3), F.S., because ownership, possession, control and right to direct the products in question at all times rested with the parent corporation and the operations of the subsidiary corporations were at all times totally under the direction and control of the parent corporation. Florida Statutes, Section 214.71(3), generally provides that: "The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the taxable year period and the denom- inator of which is the total sales of the taxpayer everywhere during the taxable year or period." The Petitioner urges that its inter-company transactions do not constitute "sales" because they do not include elements traditionally associated with the legal concept of a sale such as passage of title from the vendor to the vendee in payment of a direct consideration from the vendee to the vendor. However, the statutorily defined concept of a sale is very broad in Section 220.15(1), Florida Statutes. That section provides in pertinent part that: "The term 'sales' in paragraph 214.71(3)(a) shall mean all gross receipts of the tax- payer except interest, dividends, rents, royalties, and gross receipts from the sale, exchange, maturity, redemption, or other disposition of securities; except that: (a) Rental income shall be in- cluded in the term 'sales' whenever a significant portion of the taxpayer's business consists of leasing or renting real or tangible personal property; (b) Royalty income shall be included in the term 'sales' whenever a significant portion of the taxpayer's business con- sists of dealing in or with the production, exploration, or development of minerals." (Emphasis supplied) Therein the legislature extended the term "sales" to much more than is traditionally associated with the legal concept of sales for purpose of defining the sales factor or corporate income tax apportionment formula. It thus appears that the presence or absence of title and the method of payment, necessary elements of the traditional concept of the "sale", would not necessarily prevent these inter-company transactions as reflected on the Petitioner's books, from being considered "sales" within the contemplation of the sales factor in the apportionment formula when consideration is given to the above section. Petitioner's Comptroller specifically testified that the inter-company sales formed a part of its gross receipts. None of the transactions involved here fall within any of the statutory exceptions. Evidence also reveals that the inter-company transactions reflected a percentage of profits for the various subsidiaries. Case law in this state has previously recognized that book transactions between members of an affiliated group could be considered as transactions for Florida's tax purposes even where there was no actual transfer of funds. See for example Zero Food Storage Division of American Consumer Industries, Inc. v. Department of Revenue, 337 2d 765(1st DCA Florida 1976). Other state courts have also construed the "sales" factor in their apportionment formula broadly so as to include receipts by the taxpayer that clearly fall without the traditional concept of a sale. See Twentieth Century Fox Film Corporation v. Phillips, 47 S.E. 2d 183 (1948). The Petitioner raises, for the first time, in its brief that the inclusion of inter-company sales in the sales factor of the apportionment formula as originally enacted related only to financial organizations. Petitioner based this argument on its contention that the original legislative enactment of the tax administration act as embodied in Chapter 71-359, Law of Florida, contained the language relating to inter-company sales as part of a subsection pertaining only to financial organization. It argues further that when the State Laws were codified in the Florida Statutes from 1971, and all succeeding years, it was placed as a separate subsection applicable to all corporations. This codification was made by the Division of Statutory Revision. That division receives its authority from Florida Statutes, Section 11.242. My consideration of the various paragraphs of Section 11.242(5), F.S., persuades me to conclude that the change which was made clearly fell within the power of the division and that the legislature has met continuously, at least on an annual basis, since 1971 when the above referenced arrangement was enacted in Section 214.71(3), F.S., by the Division of Statutory Revision, and it is that branch which should have addressed any alleged erroneous placement by the Division of Statutory Revision so as to conform to legislative intent. In any event, argument in this regard should be addressed to this legislature. For these reasons, I conclude that the inter-company sales as evidenced by the testimony constituting a part of Petitioner's gross receipts are therefore a proper item for inclusion in the sales factor of the apportionment formula, as provided in Chapter 214.71(3), Florida Statutes. As such, to the extent that the Florida sales here in question include a profit element, they are includable in the denominator and in the numerator.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, I hereby recommend: That the Petitioner's challenge of the Department's determination of corporation tax due pursuant to Chapter 220, Florida Statutes, be denied, and that the Respondent's proposed corporate income tax deficiencies for Petitioner's corporate fiscal years ending March 31, 1973 and 1974 be sustained. DONE and ENTERED this 27th day of December, 1977, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: James R. McCachren, Jr., Esquire Ervin, Varn, Jacobs & Odom, Law Offices 305 South Gadsden Street Tallahassee, Florida E. Wilson Crump, II Assistant Attorney General Department of Legal Affairs Fletcher Building Tallahassee, Florida 32304
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Petitioner, Christian Television Corporation, is a not for profit Florida corporation formed in April of 1977. It is exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code (1954). Its first application for a Florida Consumer's Certificate of Exemption was initially denied by the Department of Revenue in December of 1977. After petitioner was successful in a rule-challenge proceeding to a portion of the Department's rules defining a "church", the Department reversed its initial decision and issued the petitioner a Consumer's Certificate of Exemption. Based on that issuance, petitioner dismissed its request for a formal administrative hearing regarding the initial denial of exempt status. In 1983, the Legislature enacted Section 212.084, Florida Statutes, which required the Department of Revenue to review every sales tax exemption certificate issued before July 1, 1983, to ensure that the possessor of the certificate was actively engaged in an exempt endeavor. The Department was given the authority to revoke the certificates of those entities found to be no longer qualified for an exemption. Section 212.084(3), Florida Statutes. Pursuant to this statute, the respondent notified the petitioner that an application for renewal of its previously issued Certificate would be required. Petitioner submitted such an application and the respondent gave notice of its intent to revoke petitioner's Certificate effective January 29, 1986. According to its Articles of Incorporation, the petitioner was organized "to produce and broadcast to the general public religious television and radio programs and thereby educate and instruct the general public in religious matters, and make available guidance to promote the general public welfare..." In furtherance of this purpose, the petitioner operates a facility in Largo, Florida, in a 43,000 square foot building. The building contains two television broadcasting studios, control rooms, storage rooms, administrative offices, a counseling area and a chapel. The petitioner views its purpose as one of assisting churches of all denominations in presenting the gospel to the community. It produces many programs in its Largo studios and considers these programs to be ministries in themselves. Live audiences are often present in the studios, which can accommodate from 30 to 100 people, depending upon the program. For example, during the production of "Joy Junction", children from various Christian schools in the area attend the taping. Senior adults come to the Largo studios to attend the "Action Sixties" program, and single adults attend the taping of "Solo Act". In addition, the petitioner sells air time to local churches and ministries. The petitioner also conducts benevolence activities in cooperation with area churches and local agencies. These include fund-raisers for other ministries and raising money or collecting clothing and food for the needy. Petitioner provides on-air announcement services for area churches and ministerial associations and allows other ministries to utilize its broadcasting facilities. Petitioner's staff also attempts to work with "non-Christian people" within the community and "pass them through our ministry into other churches". The petitioner provides a telephone counseling service from its Largo facility. For this purpose, it utilizes 45 regular, and 100 substitute, volunteer counselors. These counselors are trained by petitioner's staff, and callers receive Biblical answers to their questions and problems. Many who call in want prayer for some particular need. Callers perceived to have a more severe problem are referred to a Christian counselor in the area. Approximately 32,000 calls per year are received on petitioner's "prayer lines". The petitioner's staff includes two ministers. One serves as the director of the benevolence ministry and the counseling department, and the other serves as director of community ministries and does the liaison work with other churches. Both were previously Pastors of their own churches, and feel that Christian Television is as much or more of a "church" as the more traditional churches they formerly pastored. They described the use of video technology as an advantage and an asset, rather than as a substitute for more traditional forms of religious training. Worship services are conducted in the petitioner's chapel by both the staff ministers and other volunteer or paid ministers. The chapel, containing 1200 square feet and having a seating capacity of about 150, has high ceilings and contains an organ, an altar, a pulpit and chairs. The estimated value of the assets within the chapel is ten or twenty thousand dollars. The chapel is actively utilized during the week for staff devotionals and communion services, and is open to the public for special services and advertised programs conducted by those using a Biblical approach. Other approved ministries are permitted to utilize the chapel without charge for Bible studies or special prayer times. The chapel is not used as a production or broadcasting studio. As of December 31, 1983, the value of petitioner's assets, including plant, property and equipment, was $2,185,564.00. During 1983, petitioner received contributions totalling $1,137,000.00, and realized slightly more than one million dollars in revenue by providing broadcast and production time to various religious organizations.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that petitioner's Consumer Certificate of Exemption be reissued for a period of five (5) years. Respectfully submitted and entered this 6th day of October, 1986. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of October, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-0456 The proposed findings of fact submitted by the petitioner and the respondent have been carefully considered and are accepted and/or incorporated in this Recommended Order, except as noted below: Petitioner: 3 - 5. Recitations of testimony accepted as correct, but not included as factualfindings. 7. Partially rejected as argument as opposed to factual findings. COPIES FURNISHED: Jon H. Anderson, Esquire NCNB Bank Building 5001 South Florida Avenue Lakeland, Florida 33803 Edwin A. Bayo, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32301 Randy Miller Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32301 William D. Townsend General Counsel 104 Carlton Building Tallahassee, Florida 32301
The Issue At issue herein is whether or not the Petitioner, a not-for- profit organization is entitled to a refund of taxes collected and paid to Respondent pursuant to the exemption provision of Subsection 212.04(2)(b)2., Florida Statutes.
Findings Of Fact Based on the testimony of the Petitioner's witness, the arguments of counsel and Respondent's brief submitted on June 5, 1979, the following relevant facts are found. The Petitioner, Miami Civic Music Association, is seeking a refund of taxes collected and paid prior to October 1, 1978, on the sale of membership fees. The Petitioner obtained a certificate qualifying it as a not-for-profit organization from the United States Internal Revenue Service since approximately 1945. This status has been submitted to Respondent. Prior to October 1, 1978, Petitioner submitted to Respondent approximately $1,602.33 based on the sale of membership dues received for musical performances which were to he held subsequent to October 1, 1978, i.e., October 25, 1978 through April, 1979. Petitioner bases its refund claim on the fact that the actual concert series which gave rise to the ticket sales occurred after October 1, 1978. Respondent's position is that the Petitioner is not entitled to a refund, first, on the ground that the tax collections for which the refund is being sought were collected prior to October 1, 1978, and therefore not properly refundable under the exemption provision of Subsection 212.04(2)(b)2., Florida Statutes. Secondly, Respondent contends that Petitioner is without standing to seek a refund since the sales tax applicable to admission charges purportedly collected must first be refunded to the respective subscribers which the Petitioner has not done in this case. Subsection 212.04(2)(b)2., Florida Statutes, provides: No tax shall be levied on dues, membership fees, and admission charges imposed by not- for-profit sponsoring organizations or community or recreational facilities. To receive this exemption, the sponsoring organization or facility must qualify as a not-for-profit entity under the provisions of s. 501(c)(3) of the United States Internal Revenue Cede of 1954, as amended. This exemption became effective October, 1978. The membership fees here in question were sold by Petitioner prior to October 1, 1978, and taxes were collected and remitted to the Department of Revenue. An examination of the legislative intent embodied in Chapter 212, Florida Statutes, reveals that each and every admission is taxed unless specifically exempted. (Subsection 212.21(3), Florida Statutes.) Inasmuch as there was no statutory exemption for Petitioner's organization prior to October 1, 1975, and based on the fundamental rule of statutory construction to the effect that a statute operates prospectively unless the intent is clearly expressed that it operates retrospectively. State, Department of Revenue v. Zuckerman-Vernon Corporation (Florida 1977) 354 So.2d 353. Subsection 212.04(2)(b)2., Florida Statutes, reveals no legislative intent that this amendment was to be applied retrospectively. Finally, since an admissions tax like sales taxes, are collected on behalf of the State by the operator, it is in effect a form of excise tax upon the customer for exercising his privilege of purchasing the admission, the Petitioner herein lacks standing inasmuch as it did not pay the taxes, but merely remitted to the Department of Revenue the tax which was paid by subscribers of the memberships from the organization. See, for example, Scripto, Inc. v. Carson, 101 So.2d 775 (Florida 1958) and State ex rel Szabo Food Services, Inc. of N.C. v. Dickinson, 250 So.2d 529 (Florida 1973). In this case, in the absence of the Petitioner showing that it was the party entitled to a refund of the taxes herein based on a claim of either an overpayment, a payment where no tax was due or a payment erroneously made, Petitioner failed to advance a basis upon which its claim can be granted. Section 215.26, Florida Statutes. For these reasons, I shall recommend that the Petitioner's claim for a refund herein be denied.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is hereby, RECOMMENDED: That the Petitioner's claim for a refund herein be DENIED. ENTERED this 29th day of June, 1979, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: James H. Wakefield, Esquire Hedges, Gossett, McDonald & wakefield 3325 Hollywood Boulevard, Suite 305 Hollywood, Florida 33021 Linda C. Procta, Esquire Assistant Attorney General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301
Findings Of Fact On or about August 18, 1977, Respondent, Charles Leon Winkleman (Winkleman), filed an application with Petitioner, Office of the Comptroller, Department of Banking and Finance (Department) for registration as an associated person with Tax Favored Securities, Inc., now known as Global Investors Securities, Inc. Winkleman's application was granted November 1, 1977. On April 11, 1984, Winkleman pled guilty to an information filed in the United States District Court, Southern District of Florida (District Court) , Case No. 84-6043-Cr-JLK, which charged that he: did wilfully and knowingly aid assist in, and counsel, procure, and advise the preparation and presentation to the Internal Revenue Service of a United States Individual Income Tax Return (Form 1040) of William I. and Amy Steele Donner for the calendar year 1978 which was false and fraudulent as to a material matter, in that it represented that said William I. Donner was entitled under the provisions of the Internal Revenue laws to claim deductions in the sum of $83,313.00 representing an ordinary loss of income, as a result of being owner of a sole proprietorship managed by Charles L. Winkleman, whereas, as . Winkleman . . . then and there well knew and believed William I. Donner was not entitled to said deductions all in violation of Title 26 United States Code, Section 7206(2). 1/ On April 18, 1984, Winkleman filed an amended Form U-4 with the Central Registration Depository, and thereby advised interested parties that he had pled guilty to the information filed in the District Court. A copy of the amended Form U-4 was, contemporaneously, filed with the Department. 2/ On June 6, 1984, the District Court entered a judgment of guilt on Winkleman's plea. Winkleman was sentenced to six months imprisonment and fined $3,000.00. Winkleman failed, however, to notify the Department of such conviction until April 10, 1987, and offered no explanation at hearing for such failure. Following Winkleman's plea of guilty in the District Court, the Department of Commerce and Economic Development, Division of Banking, Securities and Corporations (Department of Commerce) in Juneau, Alaska, issued a notice of intent to revoke Winkleman's registration. This notice, dated June 4, 1984, sought revocation based primarily on Winkleman's plea of guilty to the charges filed in the District Court. Winkleman failed to notify the Department of the pendency of the Alaska proceeding until April 10, 1987, and offered no explanation at hearing for such failure. On March 10, 1987, the Department of Commerce entered an order revoking Winkleman's registration in Alaska based on his conviction in the District Court. By amended Form U-4, filed April 10, 1987, Winkleman advised the Department of his conviction in the District Court and the revocation of his registration by the State of Alaska. 3/ The order of the Department of Commerce, revoking Winkleman's registration, is currently on appeal. Winkleman seeks reversal of such order predicated on his assertion that the Department of Commerce breached an agreement to allow him to withdraw his registration in lieu of revocation. On July 20, 1987, the court, which is reviewing the Department of Commerce proceedings, entered an order staying the order of revocation pending the disposition of Winkleman's appeal. On April 1, 1987, a hearing was held before the National Association of Securities Dealers, Inc. (NASD), to consider whether Winkleman, because of his conviction, should be disqualified as a registered representative with Global Investors Securities, Inc. On August 13, 1986, NASD entered a "Notice Pursuant to Rule 19h-1 of the Securities and Exchange Act of 1934" whereby it proposed that Winkleman not be disqualified. On January 8, 1987, the Securities and Exchange Commission (SEC) rendered its decision that it would not invoke Section 15A(g)(2) of the Securities and Exchange Act of 1934 to direct NASD to disqualify Winkleman.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the registration of Respondent, Charles Leon Winkleman, as an associated person under the Florida Securities and Investor Protection Act be REVOKED. DONE AND ENTERED this 6th day of October, 1987, in Tallahassee, Leon County, Florida. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of October, 1987.
The Issue The issue for determination is whether Petitioner should be granted a consumer’s certificate of exemption pursuant to Subsection 212.08(7)(o), Florida Statutes.
Findings Of Fact The Department of Revenue (Respondent) is the state agency charged with enforcement of Chapter 212, Florida Statues, and the issuance of certificates of exemption. Unto Others, Inc. (Petitioner) is an organization incorporated in the State of Florida as a non-profit corporation. Petitioner’s Articles of Incorporation, Article II, states Petitioner’s purpose as follows: The purposes for which the Corporation [Petitioner] is organized are exclusively religious, charitable, scientific, literary, and educational within the meaning of section 501(c)(3) of the Internal Revenue Code of 1986 or the corresponding provision of any future United States Internal Revenue law. Petitioner made application to the Respondent for a certificate of exemption as a charitable institution pursuant to Subsection 212.08(7)(o)2.b, Florida Statutes. Petitioner did not make application for an exemption as a scientific, religious, or educational institution, but it may in the future apply under these criteria. By Notice of Intent to Deny (Notice) dated January 30, 1998, the Respondent notified Petitioner that its application was being denied. The grounds stated in the Notice for the denial were the following: (1) "Your organization does not provide, nor does it raise funds for charitable institutions which provide one or more of the charitable services listed in the statute [Subsection 212.08(7)(o)2.b, Florida Statutes]."; and (2) "Your organization fails to meet the qualification for exemption from sales and use taxation, as set forth in Section 212.08(7), Florida Statutes." Currently, Petitioner’s sole function is the raising of funds to enable Petitioner to rehabilitate people and dwellings. All of Petitioner’s activities are conducted by non-paid volunteers. No evidence was presented to show that Petitioner rehabilitates any person or dwelling, or holds religious services. No evidence was presented to show that Petitioner governs or administers any office within any hierarchy of a larger organization. No evidence was presented to show that Petitioner participates with or controls another organization. No evidence was presented to show that Petitioner expends more than 50 percent of its expenditures toward any charitable service. No evidence was presented to show that Petitioner disburses more than 50 percent of its expenditures directly for a charitable service or to any entity that directly provides or performs any charitable service. No evidence was presented to show that Petitioner directly provides or performs any charitable service for any entity or person; or that Petitioner provides any goods or services as a charitable service. No evidence was presented to show that Petitioner directly provides a reasonable percentage of any charitable service free or at a substantially reduced cost to persons, animals, or organizations that are unable to pay for such services. No evidence was presented to show that any charitable service was provided free or at a substantially reduced cost. No evidence was presented to show that persons, animals, or organizations actually received any charitable service and that those persons, animals, or organizations were unable to pay for such service(s). Petitioner does not currently provide any of the services listed in Subsection 212.08(7)(o).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order denying a consumer's certificate of exemption to Unto Others, Inc. DONE AND ENTERED this 31st day of August, 1998, in Tallahassee, Leon County, Florida. ERROL H. POWELL 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 31st day of August, 1998.
Findings Of Fact The International Repertory Company and Ballet, Inc. is. a Pennsylvania non-profit corporation authorized to transact business in Florida. The Hungarian Church of Reformation (hereinafter called church) is a bona fide religious organization, and, as such, exempt from various taxes. In 1977 and again in 1978 Petitioner and the church entered into an agreement to jointly sponsor the various cultural events brought to Miami by Petitioner. The business of Petitioner is to bring artists to Miami and present performances by these artists. The artists come from all over the world, some are renowned others are just emerging, and the performers consist principally of musicians, dancers, singers and actors. The performances add to the cultural life of the community and many of the more renowned performers receive recognition by city officials by being presented keys to the city, etc. The performances sponsored by Petitioner and church are generally presented in the Dade County Auditorium, which is rented by the sponsors at a flat fee of $300 per performance, plus 5 percent of the net proceeds of the ticket sales. In computing the net proceeds of the ticket sales to determine the sum owed to Dade County for use of the auditorium the sponsor deducted 4 percent from the gross receipts which is the percentage of the ticket price that the admission tax comprises. The assessed tax was computed on the reports of ticket sales prepared by Petitioner and presented to Dade County. The admissions tax was not collected by the Petitioner when the tickets were sold. Having to pay the assessment levied by Respondent could force Petitioner into bankruptcy. The Department of Revenue has not enforced the collection of admission taxes for some church groups in the past; however, those regularly sponsoring entertainment for which admission is charged are now being required to collect and remit the admission tax on tickets sold to such events.
The Issue The issue in this case is whether Petitioner is entitled to an exemption from sales and use tax as a religious or charitable organization.
Findings Of Fact By Application for Consumer Certificate of Exemption dated March 17, 1992, Petitioner requested a sales tax exemption as a religious organization. The application indicates that Petitioner was incorporated on February 18, 1992. At all times, the president of Petitioner has been Reverend Robert M. Rinaldi. By letter dated April 16, 1992, Respondent requested that Petitioner supply information concerning its primary purpose, including a list of all activities or services and to whom they are generally offered. The letter also requested, among other things, statements of receipts and expenditures and a copy of the letter determining that Petitioner is exempt from federal income tax. Petitioner submitted to Respondent evidence of 12 expenditures during the quarter ending March 31, 1992. The expenditures and their descriptions are as follows: Morrisons-- dinner business; Holiday Inn in Tampa--lodging for quarterly convention; Maas Brother in Naples--attire; Marshalls-- personal; Martha's Health Food Shop--personal; Things Remembered--card case/business cards; RJ Cafe Tropical--lunch interview; Beach Works Marco Island--attire; annual membership fee for vice president's American Express card; Las Vegas Discount golf and tennis in Naples--personal; Eckerd's Vision Works--medical eyeglasses; Quality Inn Golf Country Club in Naples--lodging during business travel; Avon Fashions/Hampton-- personal; Del Wright in Sarasota--automobile expenses and travel; JC Penney--personal; Amador's Restaurant in Naples-- dinner/lunch; Avon Fashions/Hampton--personal; annual membership fee for treasurer's American Express card; and Mobil Oil--business travel. Petitioner produced other evidence of similar types of expenditures, such as for fitness center fees, car insurance, car service, car payments, utilities, and rent. Nothing in the record links these expenditures to religious or charitable activities. There were expenditures for printing religious tracts and self- improvement educational materials, but they do not appear to be a substantial part of the total expenditures of Petitioner during the time in question. After receiving these materials, a representative of Respondent telephoned Reverend Rinaldi and stated that Petitioner would have to submit additional documentation of its income and expenses and formal affiliation with prison chapels where Petitioner reportedly conducted outreach programs. Respondent's representative also asked for evidence of Reverend Rinaldi's counselling credentials. Petitioner next submitted a copy of a letter from the Department of Treasury determining that Petitioner was exempt from federal income tax. Petitioner also submitted a budget for the year ending 1992 and a proposed budget for the year ending 1993. However, the budgets did not document a charitable purpose. The budget reveals that the largest disbursement was $4200, which was rent for an office and living quarters. The largest single receipt was $1764.27, which was a contribution from the incorporator, who was Rev. Rinaldi. There were no charitable receipts, such as from contributions from members, the public, or anonymous sources. On November 10, 1992, Respondent sent a letter to Petitioner requesting additional information, including statements of the primary purpose of the organization and of receipts and expenditures. The request asked for a description or explanation for each charity-related program expenditure. On November 18, 1992, Petitioner submitted a second Application for Consumer's Certificate of Exemption. The information was essentially unchanged from the first application. Rev. Rinaldi also sent Respondent a religious flyer. On February 10, 1993, Petitioner submitted a third Application for Consumer's Certificate of Exemption. The material was essentially unchanged from the preceding two applications. On March 30, 1993, one of Respondent's representatives sent a letter to Petitioner stating that Petitioner does not meet the criteria for exemption from sales tax. In response, Petitioner sent a letter to Respondent received April 8, 1993, requesting reconsideration of the denial. On May 4, 1993, Respondent sent Petitioner a letter stating that, as indicated during an earlier telephone conversation, Respondent had not yet received sufficient documentation to justify a sales tax exemption. Following up on Rev. Rinaldi's opinion that Petitioner qualified as a charitable organization, the letter suggests that he submit materials describing each charitable service or activity, the types of persons receiving such services, the frequency that the services are offered, the demonstrated benefit provided by Petitioner to disadvantaged persons, the fees charged by Petitioner, and the availability of Petitioner's services at the same or less cost elsewhere. The letter also asks for a statement of income and expenses. In response, Petitioner filed a fourth Application for Consumer's Certificate of Exemption on November 10, 1993. Rev. Rinaldi explained Petitioner's activities as informing people of the truth and the second coming of Jesus Christ and stopping addictions to drugs and alcohol. The enclosed materials included a church telephone number. The materials state that services are available 24 hours a day for no fees and are provided solely for the spiritual preparation of humanity. The materials also indicate several addresses at which religious activities are conducted. Upon investigation, Respondent learned that Petitioner's telephone number had been disconnected, the street address is Rev. Rinaldi's apartment, and the addresses at which religious activities are conducted are locations of Alcoholic Anonymous, from which Rev. Rinaldi and his church had been barred as public disturbances. Checking with the post office, the investigator learned that all mail for Rev. Rinaldi and Petitioner is being forwarded to an address in New York. Respondent asked for more information, and Petitioner supplied information no different than that previously supplied. By letter dated April 26, 1994, Respondent informed Petitioner that its application was denied. Following another exchange of correspondence, Respondent sent Petitioner a Notice of Intent to Deny dated June 17, 1994. The Notice of Intent to Deny states that Respondent determined that: [Petitioner] travels from church to church and does not assemble regularly at a particular established location. [Petitioner] conducts services for short periods of time at numerous temporary locations. [Respondent] has reviewed your application and supporting documents and has determined that the primary purpose of your organization fails to meet the qualifications for sales tax exemption authorized by Section 212.08(7), Florida Statutes. By letter dated June 24, 1994, Petitioner requested a formal hearing on its application for sales tax exemption. Petitioner does not regularly conduct services. Petitioner does not engage in other religious activities nor does Petitioner provide services typically associated with a church. Petitioner has no established physical place for worship. Petitioner has generalized plans to construct one or more places for worship. However, these plans are post-apocalyptic in nature and thus do not assure the commencement of construction in the immediate future.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Revenue enter a final order denying Petitioner's application for an exemption certificate from sales and use tax. ENTERED on December 20, 1994, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings on December 20, 1994. COPIES FURNISHED: Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Rev. Robert Rinaldi P.O. Box 1081 167 N. Collier Blvd. J-3 Marco Island, FL 33937-1081 Attorney Lisa M. Raleigh Office of the Attorney General The Capitol--Tax Section Tallahassee, FL 32399-1050
The Issue The Petitioner in this action has accused the Respondent of violating Sections 473.04 and 473.251, Florida Statutes (1977); Pules 21A-4.01 and 21A- 7.01, Florida Administrative Code, as succeeded by Subsection 473.315(2) and Section 473.323, Florida Statutes (1979) and Rule 21A-22.01, Florida Administrative Code. Specifically, the Respondent is accused of undertaking an engagement in the practice of public accounting which he could not reasonably expect to complete with professional competence and that the Respondent committed acts discreditable to the profession with respect to accounting services provided to Mr. and Mrs. John E. Cholette.
Findings Of Fact The Respondent, Frank Berman, is a certified public accountant and is so licensed by the Petitioner, State of Florida, Department of Professional Regulation, Board of Accountancy. He held this license at all times pertinent to the case in inquiry. This is an action by the Petitioner brought against the Respondent in the way of an Administrative Complaint charging the Respondent with these violations alluded to in the issues statement of this Recommended Order. The Despondent requested that a formal hearing be conducted to consider this matter and the case was referred to the Division of Administrative Hearings and the hearing conducted on March 13, 1980. The facts reveal that the Respondent began to provide services for a client, Inn on the Park, Inc., beginning in March of 1976. These services were provided while the Respondent was associated with Donald F. Powell, Certified Public Accountant, and the arrangement for the services was made by correspondence of Mr. Powell indicating that the Respondent would substitute for Powell in servicing the account of the aforementioned corporation. The Respondent continued in his association with Powell in the year 1970 and in his involvement with the service of the account of that corporate client. His primary contact with the Corporation was with Nadine Cholette, who together with her husband, John Cholette, was the co-principal in this closely- laid Florida corporation. By 1977 Frank Berman was no longer associated with accountant Powell but he continued to do accounting work for the Corporation, Inn on the Park, Inc. The services provided in the year 1977 were in keeping with the arrangement which the Cholettes had with Mr. Powell and are as reflected in the Petitioner's Composite Exhibits 1 and 2 and the Respondent's Composite Exhibits 1 and 2, admitted into evidence. On February 6, 1978, the Respondent wrote Mrs. Cholette setting forth certain services he was prepared to provide her Corporation in that calendar year. This included provision for semiannual financial reports; filing intangible and tangible personal property tax returns for the Cholettes; preparing the annual corporate report for 1978 and preparation of individual United States income tax returns for the Cholettes, all for a fee of $400.00. This correspondence may be found in the Petitioner's Composite Exhibit 1. The $400.00 fee was paid by the Cholettes, with the last installment of that amount being paid by check dated November 13, 1978, in the amount of $200.00. In the year 1978, the Cholettes determined to sell the principal asset of their corporation, which was a motel owned by the Corporation. In contemplation of this sale of the asset, the Cholettes attempted to contact Berman to discuss the implications of this sale from an accounting point of view. These attempted contacts were in the form of telephone communications initially and when the Cholettes were unsuccessful in reaching the Respondent in that way, Mr. Cholette eventually went to Berman's office to determine if Berman would be available to attend the closing of the real estate. At that time a conference was held between Cholette and Berman. This conference was held subsequent to the time the Cholettes received a deposit from the purchaser, with that deposit being made on September 7, 1978. Berman responded to the request by stating that he would be available to attend the closing on several days' notice. There was no formal letter of request for Berman's attendance at the real estate closing and no payment was made to Berman to secure his attendance at the closing. The attorney for the Cholettes representing then at the real estate closing subsequently contacted the Respondent about being present at the closing, and the Respondent returned the call of the attorney and indicated to the attorney's secretary that he could not make the closing and did not understand why the Cholettes wanted him at the closing. The closing took place on October 13, 1978. Mrs. Cholette wrote Berman on October 16, 1978, and in the course of that correspondence advised Berman that the "establishment" had been sold on October 13, 1978, which was the closing date. The letter went on to say that Mrs. Cholette would be in touch with the Respondent reference the closing of the "account" as soon as the October, 1978, month-end bank statement was received. On October 18, 1978, Mrs. Cholette again wrote to Respondent and requested at that time to be advised in writing about the necessary steps to be taken if the Cholettes decided to close the Corporation, Inn on the Park, Inc., and specifically, what the fees would be to keep the Corporation active or inactive. Following the October 18, 1978, correspondence, the Cholettes asked the Respondent to prepare their payroll tax returns for the Corporation in the third quarter of 1978 for filing. This was prepared on October 30, 1978, and a billing of $75.00 was made, which was paid by the Cholettes. The Cholettes met with Berman on November 6, 1978, and in the course of that meeting the tax implications of the sale of the corporate asset, i.e., realty, were discussed with Berman with a view in the mind of the Cholettes toward the future investment of the net proceeds of this sale. At the time of the meeting, Berman had already responded to the inquiry of Mrs. Cholette in reference applicable fees for maintaining the Corporation in an active or inactive state and did so by his correspondence of October 30, 1978, suggesting the fee schedule both that of the State of Florida and of Berman in his individual charges. There was further discussion at the conference on the subject of liquidation of the Corporation and Berman agreed to assist in those necessary steps to facilitate this end. To close out the Corporation, it was necessary to have available the bank records of the Corporation including all outstanding disbursements by the Corporation, and on November 8, 1978, the Cholettes brought part of those records to the Respondent. This did net constitute all outstanding disbursements because checks were still being written by the Corporation after that date in November. Some of the aforementioned checks are listed in the correspondence of Mrs. Cholette directed to the Respondent on November 23, 1978. This correspondence also again reminds the Respondent that the Cholettes are anxious to knew about the tax implications of the sale of the corporate asset in order to plan for future investments. The Cholettes not having heard from the Respondent for a period of time, wrote him by registered letter on December 8, 1978, and following a series of telephone calls which the Respondent had not returned. The correspondence of December 8, 1978, asked when the Cholettes might pick up those papers related to the closing of their company's books. It was followed by another letter of January 9, 1979, from Mrs. Cholette to Herman asking when the "papers" would be ready and attaching a list of checks and deposits made by the Corporation after October, 1978, including checks drawn in January, 1979. Another letter was written on January 13, 1979, from John E. Cholette to the Respondent recounting the matters of prior correspondence and advising the Respondent that the Cholettes intended to complain to the "Board of Accountancy" for Berman's delays. The Cholettes did complain about the Respondent's service by a letter dated January 13, 1979. Following that complaint the Respondent and the Cholettes met to try to reconcile their differences and to clear up pending matters. This meeting was at the instigation of the Respondent. The meeting took place on February 7, 1979, and out of the meeting an arrangement was entered into in which $175.00 was paid to the Respondent in additional fees, $100.00 being for preparation of the payroll tax returns for the fourth quarter ending December 31, 1978, and $75.00 for setting up corporate books for the period August 1, 1978, through October 31, 1978. At the time of the meeting, Berman assured the Cholettes that the corporate books could be closed within one week and not later than February 16, 1979. February 16, 1979, came and the Respondent called Mrs. Cholette and informed her that unless the Cholettes sent a letter of apology to the State Beard of Accountancy which retracted the grievances against him, the Respondent would not finish their work. The following day, Mr. Cholette contacted the Respondent and reminded the Respondent of the discussions of February 7, 1979, between the Respondent and the Cholettes and also stated that by prior agreement (the agreement of February 6, 1978), the Cholettes had paid the Respondent to prepare the Cholettes' individual income tax returns and for the preparation of a mid-year financial statement for the year 1978, neither of which had been delivered. In fact, the individual income tax forms for the tax year 1978 and the mid-year corporate financial statement for the year 1977-78 had not been completed by the Respondent, notwithstanding the payment for these services. Nonetheless, the Respondent returned the papers and materials to the Cholettes on February 17, 1978, and terminated his arrangement to provide accounting services to the Cholettes. Subsequent to the parting of the ways, the Cholettes employed the accounting firm of Marine, Andrews and Fisher, who in addition to other work, completed the individual income tax forms for the Cholettes at an additional cost to the Cholettes ever and above the amount of money that they had paid the Respondent to do this work.
Recommendation Upon consideration of the facts found herein and the legal conclusions reached, it is RECOMMENDED that the Respondent, Frank Berman, have his Certified Public Accountant's license held with the State of Florida, Department of Professional Regulation, Board of Accountancy, suspended for a period of six (6) months. 1/ DONE AND ENTERED this 29th day of August, 1980, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 filed with the Clerk of the Division of Administrative Hearings this 29th day of August, 1980.
