The Issue This case was initiated by a letter dated October 22, 1984, from the Department of Revenue ("Department") to National Christian Network, Inc. ("NCN") informing the organization that its Consumer Certificate of Exemption Number 05- 00852-00-15 would be revoked effective November 22, 1984, in accordance with Section 212.084(3) Florida Statutes. John Fox, Executive Vice president, responded with a timely request for an administrative hearing. The Department contends that NCN, as a radio and television network, does not qualify for a religious exemption under Subsection 212.08(7)(a) Florida Statutes and regulations interpreting that law. NCN argues that it is entitled to the certificate as a religious, charitable or educational organization. The only witness produced by either party was Raymond Kassis, and the facts elicited through his testimony are uncontroverted. One exhibit, the Articles of Incorporation, was placed into evidence by stipulation. The Department submitted its Proposed Finding of Fact, Conclusions of Law and Recommended Order; these have been considered and the proposed findings of fact have been incorporated below.
Findings Of Fact National Christian Network, Inc. was incorporated as a Florida nonprofit corporation on October 11, 1978. Its purposes, as stated in Article II, Articles of Incorporation include the following: * * * To establish, operate and maintain television and/or radio networks and/or stations. To produce and broadcast to the general public religious, charitable and/or educational programs either by television or radio, or both, for the purpose of educating and instructing the general public in religious, charitable or educational matters; to promote, extend and improve religion, charity and education and to participate in religious, charitable and/or educational programs in the united states, [sic] including but not limited to the State of Florida; to promote programs designed to increase public awareness and understanding of the needs and activities of religion, charity and/or education in the several states, including the State of Florida, and to encourage the public to give support, financial and otherwise, to such purposes. To acquire, take, receive, purchase, own, hold, use, manage, lease, mortgage, pledge, encumber, sell and convey, or otherwise dispose of any property, including but not limited to real, personal and mixed, tangible and intangible; to issue bonds, notes, evidences of indebtedness, receipts and obligation; to receive donations, subscriptions and contributions; to make donations to organizations created for similar or like purposes, and to have and exercise all other corporate rights and powers, to do all lawful acts necessary or desirable to carry out its purposes consistent with the laws of the State of Florida (as they now exist or from time to time may be amended), and Sec. 501(c)(3) of the Internal Revenue Code (as it now exists or from time to time may be amended) and not inconsistent with these Articles of Incorporation. * * * The primary purpose of NCN, in the words of its President, is to operate a national television network. Transcript, p. 10. NCN maintains status as an organization under Section 501(c)(3) of the Internal Revenue Code and holds non-commercial, educational, F.C.C. licenses for radio and television. The network activities are conducted at NCN's facility in Cocoa, Florida, twenty-four hours a day, and consist primarily of religious services by its seventy-eight multi-denominational member churches. Members include Protestant, Catholic and Jewish organizations. Some, but not all, of the church services are produced directly in the studio. The facility does not include a chapel. NCN maintains a cost share plan which pays for the broadcasts. Member organizations who can afford to pay, contribute their share; the others are given free air time. Funds for the network are solicited over the air. Funds are also solicited for charitable, educational and religious projects of the member churches. Free air time is provided to a wide variety of charitable organizations for fund raising activities. Some educational programs are aired; however, the network is not part of the system established by the Florida Department of Education pursuant to Sections 229.805 or 229.8051 Florida Statutes. The essence of NCN is that of a conduit, a medium for other organizations to transmit religious worship services into the homes of its viewers and listeners. It also, to a lesser degree, provides the medium for organizations to conduct charitable and educational activities.
Recommendation On the basis of the foregoing, I recommend that the intended agency action be upheld and that Consumer Certificate of Exemption No. 05-00852-00-25 be revoked in accordance with Section 212.084(3) Florida Statutes. DONE and ORDERED this 21st day of October, 1985, in Tallahassee, Florida. MARY CLARK, 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 21st day of October, 1985.
The Issue Whether Petitioner's employment as Executive Director of the State Commission on Local Government during the period July 1972 - December 1973 should be credited to his retirement account, and whether he should be allowed to purchase such service under Chapter 121, Florida Statutes. At the hearing, Petitioner testified in his own behalf and submitted three exhibits in evidence. Respondent did not call any witnesses or submit documentary evidence.
Findings Of Fact Petitioner William James Tait, Jr. was employed by the State Legislature in 1972 during its regular session. On March 9, 1972, Chapter 72- 44, Laws of Florida, was enacted which created a Commission on Local Government for a period of two years for the purpose of advising the Governor and Legislature on appropriate measures to improve local government in Florida. The Act directed the Commission to employ and set the compensation of an executive director who in turn could employ and set the compensation of the Commission staff. The Act further provided that employees of the Commission would be paid for travel and per diem as provided by law. The express legislative intent was that the Commission was a temporary study commission. Section 9 of the Act provided in part as follows: . . . The Commission is not an agency within the legislative intent of chapters 216, 282, and 287, Florida Statutes. The selection of employees, their qualifications and compensation, and the establishment of policies relating to their work, and the payment of expenses of the commission, shall be as determined by the com- mission. In mid-June 1972, Petitioner was employed as the Commission's Executive Director and served full time in that capacity from July 1, 1972 through December 19, 1973. From January 1974 through June 1974, Petitioner served as Executive Director of the Commission on a half-time basis in addition to employment with the Department of Administration. During the course of his employment as Executive Director, Petitioner was paid from "Other Personal Services" appropriations, as were the other Commission staff employees. Petitioner made no contributions to the Florida Retirement System because he was being paid as an "Other Personal Services" employee. Support services for the Commission were received from the Joint Legislative Management Committee. The Commission terminated by Section 3 of Chapter 72-44 on July 1, 1974. (Testimony of Petitioner, Petitioner's Exhibit 1) By letter dated April 10, 1981, to the State Retirement Director, Petitioner requested a decision as to whether he could purchase.prior service credits in the Florida Retirement System for the period during which he had served as Executive Director of the Commission on Local Government. By letter of May 12, 1981, the State Retirement Director informed Petitioner that he was not considered eligible under the Florida Retirement System to purchase and receive credit for the period of service in question because his compensation was from Other Personal Services during his employment with the Commission. Petitioner thereafter requested a Section 120.57, F.S., administrative hearing on the denial of his request. (Testimony of Petitioner, Petitioner's Exhibits 2-3)
Recommendation In view of the foregoing findings of fact and con- -clusions of law, it is RECOMMENDED that Petitioner's request be DENIED. DONE and ENTERED this 30th day of November, 1981, in Tallahassee, Florida. THOMAS C. OLDHAM 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 30th day of November, 1981. COPIES FURNISHED: Augustus D. Aikens, Jr., Esquire Division of Retirement Cedars Executive Center 2639 North Monroe Street Suite 207C - Box 81 Tallahassee, Florida 32301 William James Tait, Jr. 809 Devon Drive Tallahassee, Florida 32308 Andrew J. McMullian, III Director, Division of Retirement Department of Administration Cedars Executive Center 2639 North Monroe Street Suite 2O7C - Box 81 Tallahassee, Florida 32301
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 issue is whether Petitioner showed by a preponderance of the evidence that it is entitled to a refund of $1,500,216.60 in sales and use tax paid during the period from January 2005 through January 2007 to purchase industrial printing machinery that allegedly satisfied the statutory requirement for a 10 percent increase in productive output for printing facilities that manufacture, process, compound or produce tangible personal property at fixed locations in the state within the meaning of Subsection 212.08(5)(b), Florida Statutes (2005), and Florida Administrative Rule 12A-1.096.1/
Findings Of Fact Respondent is the agency responsible for administering the state sales tax imposed in Chapter 212. Petitioner is a "for profit" Florida corporation located in St. Petersburg, Florida. Petitioner is engaged in the business of publishing newspapers and commercial printing. Petitioner derives approximately 85 percent of its revenue from advertising and approximately 15 percent of its revenue from circulation subscriptions. In April, 2007, Petitioner requested a refund of $403,780.05 in sales and use taxes paid for the purchase of industrial machinery and equipment during the period from January, 2005, to January, 2006. In October, 2007, Petitioner requested a refund of $1,096,436.61 in sales and use taxes paid for the purchase of industrial machinery and equipment for the period from January, 2006, to January, 2007. The first refund request in April, 2007, became DOAH Case Number 08-3938, and the second refund request in October, 2007, became DOAH Case Number 08-3939. The two cases were consolidated into this proceeding pursuant to the joint motion of the parties. The parties stipulated that the only issue for determination in this consolidated proceeding is whether Petitioner satisfied the requirement for a 10 percent increase in productive output in Subsection 212.08(5)(b) and Rule 12A- 1.096. If a finding were to be made that Petitioner satisfied the 10 percent requirement, the parties stipulate that the file will be returned to Respondent for a determination of whether the items purchased are qualifying machinery and equipment defined in Subsection 212.08(5)(b) and Rule 12A-1.096. The issue of whether Petitioner satisfied the statutory requirement for a 10 percent increase in productive output in Subsection 212.08(5)(b) and Rule 12A-1.096 is a mixed question of law and fact. The ALJ concludes as a matter of law that Petitioner did not satisfy the 10 percent requirement. The ALJ discusses that conclusion briefly, for context, in paragraphs 6 and 7 of the Findings of Fact, and explains the conclusion and the supporting legal authority more fully in the Conclusions of Law. It is an undisputed fact that Petitioner counts items identified in the record as "preprints," "custom inserts," and "circulation inserts" separately from the "newspaper" as a means of exceeding the 10 percent requirement in Subsection 212.08(5)(b). Respondent construes the 10 percent exemption authorized in Subsection 212.08(5)(b) in pari materia with the exemption authorized in Subsection 212.08(5)(1)(g) for "preprints," "custom inserts," and "circulation inserts" (hereinafter "inserts"). The latter statutory exemption treats inserts as a "component part of the newspaper" which are not to be treated separately for tax purposes. For reasons stated more fully in the Conclusions of Law, the ALJ agrees with the statutory construction adopted by Respondent. That conclusion of law renders moot and, therefore, irrelevant and immaterial, the bulk of the evidence put forth by the parties during the two-day hearing because the evidence assumed arguendo that Petitioner's statutory interpretation would be adopted by the ALJ, i.e., inserts would be counted separately from the newspaper for purposes of satisfying the 10 percent requirement in Subsection 212.08(5)(b). In an abundance of caution, the fact-finder made findings of fact based on the legal assumption that inserts are statutorily required to be counted separately for purposes of the 10 percent requirement in Subsection 212.08(5)(b). Those findings are set forth in paragraphs 9 through 11. The verification audit by Respondent's field office was able to verify an output increase of only 4.27 percent for 2005 and only 8.72 percent for 2006. A preponderance of evidence in this de novo proceeding did not overcome those findings. The trier of fact finds the evidence from Petitioner during this de novo proceeding to be inconsistent and unpersuasive. For example, Petitioner inflated production totals by counting materials printed for its own use, and materials in which the unit of measurement was inconsistent. In other instances, production totals for printing presses identified in the record as Didde and Ryobi presses varied dramatically with circulation. In other instances, Petitioner's reporting positions changed during the course of the proceeding. There is scant evidence that the alleged increase in production created jobs in the local market in a manner consistent with legislative intent. Rather, a preponderance of evidence shows that when Petitioner placed the equipment in service it was job neutral or perhaps reduced jobs.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order finding that Petitioner did not satisfy the requirement for a 10 percent increase in productive output defined in Subsection 212.08(5)(b) and Rule 12A-1.096, and denying Petitioner's request for a refund. DONE AND ENTERED this 20th day of October 2009, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of October, 2009.
The Issue Whether Respondent is entitled to a Consumer Certificate of Exemption under Section 212.08?
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: Respondent is a nonprofit Florida corporation that was formed in 1980 to promote economic development and revitalization (and the resultant creation and retention of jobs) in targeted areas in the City of Miami and Dade County, Florida, by lending money to business desiring to locate or remain in these targeted areas. Article II of Respondent's Articles of Incorporation sets forth the "purposes" of the corporation. It reads as follows: This corporation is organized exclusively for charitable, education and economic development purposes which include promotion of community welfare by: (i) lessening of neighborhood tensions, (ii) lessening discrimination and (iii) combatting community deterioration by promoting and fostering the economic development of the City of Miami and Dade County, Florida. In furtherance of these purposes the corporation intends to engage in the following types of activities: Making investments in, and loans to, corporate or other business entities with monies which are directly or indirectly attributable to funds provided by the City of Miami, Dade County, Florida or other funds provided by the United States, the State of Florida or any agency or instrumentality of any of the foregoing, with funds generated by the repayment of the principal amount and accrued interest thereon of any loans made with such funds, or any dividends or other distributions paid to the corporation by any entity in which the corporation has an ownership interest, and with any funds contributed to the corporation by any individual or entity; Providing assistance for individuals, groups and organizations in planning and executing successful economic development projects; Providing professional assistance and counseling of all types, including business planning for individuals, organizations and their members where such counseling may be necessary for the economic development of low income or low employment areas; Acting as an intermediary, where appropriate, between various economic development programs and between organizations and individuals which may be involved in any capacity in economic development; Acquiring charitable contributions and assistance capital including seed money, which may be necessary for successful economic development projects; and Engaging in such other activities as the Board of Directors shall from time to time approve, provided that in no event shall this corporation be operated for purposes other than those permitted under Section 501(c)(3) of the Internal Revenue Code of 1954 or corresponding sections of any prior or future law. The corporation shall have the power, either directly or indirectly, either alone or in conjunction or cooperation with others, to do any and all lawful acts and things and to engage in any and all lawful activities which may be necessary, useful, suitable, desirable or proper for any and all of the purposes for which the corporation is organized, and to aid or assist other organizations whose activities are such as to further accomplish, foster or attain any of such purposes. Such activities shall include, but shall not be limited to, acceptance of gifts, grants, devises or bequests of funds, or any other property from any public or other governmental body and any private person, including but not limited to, private and public foundations, corporations and individuals. 2/ Notwithstanding anything herein to the contrary, this corporation may exercise any and all, but not other, powers as are in furtherance of the exempt purposes of organizations set forth in Section 501(c)(3) of the Internal Revenue Code of 1954 and its regulations as the same now exist, or as they may be hereafter amended from time to time. No part of the income or principal of this corporation shall inure to the benefit of or be distributed to any member, director or officer of the corporation or any other private individual in such a fashion as to constitute an application of funds not within the purpose of exempt organizations described in Section 501(c)(3) of the Internal Revenue Code of 1954. However, reimbursement for expenditures or the payment of reasonable compensation for services rendered shall not be deemed to be a distribution of income or principal. In the event of the complete or partial liquidation or dissolution of the corporation whether voluntary or involuntary, no member, director or officer shall be entitled to any distribution or division of the corporation's property or its proceeds, and the balance of all money and other property received by the corporation from any source shall, after the payment of all debts and obligations of the corporation in accordance with Chapter 617 of the Florida Statutes, be distributed and paid over by the Board of Directors to the City of Miami for public purposes. The corporation does not contemplate receiving any pecuniary gain or profit, incidental or otherwise. No substantial part of the activities of the corporation shall be the carrying on of propaganda or otherwise attempting to influence legislation, and the corporation shall not participate or intervene in, directly or indirectly, (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Over the past 16 years, Respondent has made 472 direct low interest business loans amounting to approximately $31.4 million. 3/ The recipients of these loans have collectively received from both public and private sources nearly $16.3 million in additional, matching funds. A potential borrower need not be disadvantaged or suffering from a hardship in order to receive a loan from Respondent. Indeed, as a general rule, Respondent will not make a loan unless the applicant demonstrates, during the application process, an ability to repay the loan. To this extent, and to this extent alone, Respondent takes into consideration the applicant's economic status in determining whether to grant the applicant's loan application. An intended 4/ by-product of Respondent's lending activities has been the creation and preservation of jobs in the targeted areas. The business investment that Respondent's activities have made possible has produced approximately 3,313 new jobs and preserved an estimated 1,391 jobs in these areas. The Internal Revenue Service treats Respondent as an exempt organization under Section 501(3)(c) of the Internal Revenue Code. In 1991, Respondent received from the Department a Consumer Certificate of Exemption, which, according to the cover letter that accompanied the Certificate, was "granted to [Respondent] in accordance with Section 212.08(7), Florida Statutes" and "exempt[ed Respondent] from the payment of sales and use tax on purchases of tangible personal property." The Certificate had an "issue date" of February 7, 1991, and an "expiration date" of February 7, 1996. Prior to the "expiration date," Respondent filed an application with the Department to renew the Certificate. The Department has preliminarily determined that the Certificate should not be renewed. It is this preliminary determination that is the subject of the instant controversy
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department enter a final order finding that Respondent is not entitled to the Consumer Certificate of Exemption it is seeking pursuant to Section 212.08(7)(o)2.b.(IV), Florida Statutes. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of January, 1997. STUART M. LERNER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 16th day of January, 1997.
The Issue This issue is whether proposed amendments to Rules 12A-1.094(1) and 12A-1.094(4), Florida Administrative Code, constitute a valid exercise of delegated legislative authority.
Findings Of Fact Petitioners Florida Home Builders Association, Inc. (FHBA), and Florida A.G.C. Council (FAGC) are trade associations. A substantial number of their members contract with governmental entities for construction services and related sales of tangible personal property. FHBA and FAGC were organized, in part, to represent their members on matters relating to the construction industry, including proceedings involving agency rules. Petitioner Wackenhut Corrections Corporation (Wackenhut) frequently contracts with governmental entities. The proposed rule amendments will result in greater tax liability for Wackenhut in its performance of governmental contracts. Intervenor Florida School Board Association, Inc. (FSBA) represents all 67 local school boards in the State of Florida. FSBA's purpose is to represent its members before governmental agencies, in part to ensure cost containment in the construction, maintenance, and improvement of school facilities. Petitioners and Intervenor will be substantially affected if Respondent adopts the proposed rule amendments. They all have standing in this case. Section 212.05, Florida Statutes, imposes a tax on "retail sales" or "sales at retail." The statute also imposes a companion "use tax" when a retail sale does not occur in this state but the items sold are used here. Section 212.02(14), Florida Statutes, defines "retail sale" or "sale at retail" as a "sale to a consumer or to any person for any purpose other than resale in the form of tangible personal property." Section 212.02(20), Florida Statutes, defines "use" as the "exercise of any right or power over tangible personal property incident to ownership thereof, or interest therein, except it does not include the sale at retail of that property in the regular course of business." Therefore, when tangible personal property is purchased and resold while still tangible personal property, the individual or company that resells the property is a dealer and has an obligation to collect, but not to pay, sales tax. See Sections 212.06(2) and 212.07(1)(a), Florida Statutes. The obligation to pay the tax rests on the final purchaser of the items while they are still tangible personal property. Section 212.08(6), Florida Statutes, creates a sales tax exemption for direct sales to governmental entities. The statute also creates an exception to that exemption for sales to contractors who purchase or manufacture items for the purpose of installing them in a governmental project. At one time, governmental contractors benefited from the same sales tax exemption that governmental entities enjoyed, even when the contractor was the ultimate consumer. Section 212.08(7), Florida Statutes (1957), stated as follows in relevant part: (7) EXEMPTIONS; POLITICAL SUBDIVISIONS, INTERSTATE TRANSPORTATION, COMMUNICATIONS, ETC.--There shall also be exempt from the tax imposed by this chapter sales made to the United States government, the state or any county, municipality or political subdivision of this state, including sales of tangible personal property made to contractors employed by any such government or political subdivision thereof where such tangible personal property goes into and becomes a part of public works owned by such government or political subdivision thereof. (Emphasis added) Chapter 59-402, Section 2, Laws of Florida, amended this provision by deleting the word "including" and substituting "provided, this exemption shall not include." Section 212.08(6), Florida Statutes (1991), provided as follows in relevant part: (6) EXEMPTIONS; POLITICAL SUBDIVISIONS.-- There are also exempt from the tax imposed by this chapter sales made to the United States Government, a state, or any county, municipality, or political subdivision of a state when payment is made directly to the dealer by the governmental entity. This exemption shall not inure to any transaction otherwise taxable under this chapter when payment is made by a government employee by any means, including, but not limited to, cash, check, or credit card when that employee is subsequently reimbursed by the governmental entity. This exemption does not include sales of tangible personal property made to contractors employed either directly or as agents of any such government or political subdivision thereof when such tangible personal property goes into or becomes a part of public works owned by such government or political subdivision thereof, except public works in progress or for which bonds or revenue certificates have been validated on or before August 1, 1959. Rule 12A-1.094, Florida Administrative Code, which implements Section 212.08(6), Florida Statutes, was last amended on August 10, 1992. The existing rule currently provides, as follows, in relevant part: 12A-1.094 Public Works Contracts. This rule shall govern the taxability of transactions in which contractors manufacture or purchase supplies and materials for use in public works, as that term is referred to in Section 212.08(6), This rule shall not apply to non- public works contracts as those contracts are governed under the provisions of Rule 12A-1.051, F.A.C. . . . In applying this rule, the following definitions are used. "Contractor" is one who is engaged in the repair, alteration, improvement or construction of real property. Contractors include, but are not limited to, persons engaged in building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier or billboard work. This definition includes subcontractors. "Public works" are defined as construction projects for public use or enjoyment, financed and owned by the government, in which private persons undertake the obligation to do a specific piece of work. The term "public works" is not restricted to the repair, alteration, improvement, or construction of real property and fixed works where the sale of tangible personal property is made to or by contractors involved in public works contracts. Such contracts shall include, but not be limited to, building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier or billboard contracts. "Real property" within the meaning of this rule includes all fixtures and improvements to real property. The status of a project as an improvement or affixture to real property is determined by the objective and presumed intent of the parties, based on the nature and use of the project and the degree of affixation to realty. Mobile homes and other mobile buildings are deemed fixtures if they (1) bear RP license tags, or (2) have the mobile features (such as wheels and/or axles) removed, and are placed on blocks or footings and permanently secured with anchors, tie-down straps or similar devices. * * * (4) The exemption in subsection (3)(a) is a general exemption for sales made to the government. The exception in subsection (2)(a) is a specific exception for sales to contractors. A determination of whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction, rather than the form in which the transaction is cast. The Executive Director or the Executive Director's designee in the responsible program will determine whether the substance of a particular transaction is governed by subsection (2)(a) or is a sale to a governmental body as provided by subsection (3) of this rule based on all of the facts and circumstances surrounding the transaction as a whole. The Executive Director or the Executive Director's designee in the responsible program will give special consideration to factors which govern the status of the tangible personal property prior to its affixation to real property. Such factors include provisions which govern bidding, indemnification, inspection, acceptance, delivery, payment, storage, and assumption of the risk of damage or loss for the tangible personal property prior to its affixation to real property. Assumption of the risk of damage or loss is a paramount consideration. A party may be deemed to have assumed the risk of loss if the party either: bears the economic burden of posting a bond or obtaining insurance covering damage or loss; or enjoys the economic benefit of the proceeds of such bond or insurance. Other factors that may be considered by the Executive Director or the Executive Director's designee in the responsible program include whether: the contractor is authorized to make purchases in its own name; the contractor is jointly or severally liable to the vendor for payment: purchases are not subject to prior approval by the government; vendors are not informed that the government is the only party with an independent interest in the purchase; and whether the contractors are formally denominated as purchasing agents for the government. Sales made pursuant to so called "cost-plus", "fixed-fee", "lump sum", and "guaranteed price" contracts are taxable sales to the contractor unless it can be demonstrated to the satisfaction of the Executive Director or the Executive Director's designee in the responsible program that such sales are, in substance, tax exempt sales to the government. Section 212.08(6), Florida Statutes, was last amended by Chapter 98-144, Laws of Florida. The statute currently states, as follows, in pertinent part: (6) EXEMPTIONS; POLITICAL SUBDIVISIONS.-- There are also exempt from the tax imposed by this chapter sales made to the United States Government, a state, or any county, municipality, or political subdivision of a state when payment is made directly to the dealer by the governmental entity. This exemption shall not inure to any transaction otherwise taxable under this chapter when payment is made by a government employee by any means, including, but not limited to, cash, check, or credit card when that employee is subsequently reimbursed by the governmental entity. This exemption does not include sales of tangible personal property made to contractors employed either directly or as agents of any such government or political subdivision thereof when such tangible personal property goes into or becomes a part of public works owned by such government or political subdivision. A determination whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction rather than the form in which the transaction is cast. The department shall adopt rules that give special consideration to factors that govern the status of the tangible personal property before its affixation to real property. In developing these rules, assumption of the risk of damage or loss is of paramount consideration in the determination. Chapter 98-144, Laws of Florida, was the result of Respondent's "map-tracking" exercise to ensure that its rules were supported by appropriate legislation. Proposed amendments to Rules 12A-1.094(1) and 12A-1.094(4), Florida Administrative Code, are at issue here. Those rules, as revised by the proposed amendments, read as follows: This rule shall govern the taxability of transactions in which contractors manufacture or purchase supplies and material for use in public works contracts, as that term is referred to in Section 212.08(6), F.S. This rule shall not apply to non-public works contracts for the repair, alteration, improvement, or construction of real property, as those contracts are governed under the provisions of Rule 12A-1,051, F.A.C. In applying this rule, the following definitions are used. 1. "Contractor" is one that supplies and installs tangible personal property that is incorporated into or becomes a part of a public facility pursuant to a public works contract with a governmental entity exercising its authority in regard to the public property or facility. Contractors include, but are not limited to, persons engaged in building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier, or billboard work. This definition includes subcontractors. "Contractor" does not include a person that furnishes tangible personal property that is not affixed or appended in such a manner that it is incorporated into or becomes a part of the public property or public facility to which a public works contract relates. A person that provides and installs tangible personal property that is freestanding and can be relocated with no tools, equipment, or need for adaptation for use elsewhere is not a contractor within the scope of this rule. "Contractor" does not include a person that provides tangible personal property that will be incorporated into or becomes part of a public facility if such property will be installed by another party. Examples. A vendor sells a desk, sofas, chairs, tables, lamps, and art prints for the reception area in a new public building. The sales agreement requires the vendor to place the furniture according to a floor plan, set up the lamps, and hang the art prints. The vendor is not a contractor within the scope of this rule, because the vendor is not installing the property being sold in such a way that it is attached or affixed to the facility. A security system vendor furnishes and install low voltage wiring behind walls, motion detectors, smoke alarms, other sensors, control pads, alarm sirens, and other components of a security system for a new county courthouse. The components are direct wired, fit into recesses cut into the walls or other structural elements of the building, and are held in place by screws. The vendor is a contractor within the scope of this rule. The security system is installed and affixed in such a manner that it ha been incorporated into the courthouse. A vendor enters an agreement to provide and install the shelving system for a new public library. The shelves are built to bear the weight of books. The shelf configuration in each unit maximizes the number of books the shelves can hold. The number and size of the units ordered is based on the design for the library space. The units will run floor to ceiling and will be anchored in place by bolts or screws. The vendor is a contractor within the scope of this rule. The shelving system will be affixed in such a manner that it becomes a part of the public library. e. A manufacturer agrees to provide the prestressed concrete forms for a public parking garage. A construction company is awarded the bid to install those forms and build the garage. The manufacturer is not a contractor within the scope of this rule, because the manufacturer will not install any tangible personal property that becomes part of the garage. The construction company is a contractor within the scope of this rule. "Governmental entity" includes any agency or branch of the United States government, a state, or any county, municipality, or political subdivision of a state. The term includes authorities created by statute to operate public facilities using public funds, such as public port authorities or public-use airport authorities. "Public works" are defined as construction projects for public use or enjoyment, financed and owned by the government, in which private persons undertake the obligation to do a specific piece of work that involves installing tangible personal property in such a manner that it becomes a part of a public facility. For purposes of this rule, a public facility includes any land, improvement to land, building, structure, or other fixed site and related infrastructure thereon owned or operated by a governmental entity where governmental or public activities are conducted. The term "public works" is not restricted to the repair, alteration, improvement, or construction of real property and fixed works, although such projects are included within the term. "Real property" within the meaning of this rule includes all fixtures and improvements to real property. The status of a project as an improvement or fixture to real property will be determined by reference to the definitions contained in Rule 12A-1.051(2), F.A.C. * * * (4)(a) The exemption in s. 212.08(6), F.S., is a general exemption for sales made directly to the government. A determination whether a particular transaction is properly characterized as an exempt sale to a governmental entity or a taxable sale to or use by a contractor shall be based on the substance of the transaction, rather than the form in which the transaction is cast. The Executive Director or the Executive Director's designee in the responsible program will determine whether the substance of a particular transaction is a taxable sale to or use by a contractor or an exempt direct sale to a governmental entity based on all of the facts and circumstances surrounding the transaction as a whole. The following criteria that govern the status of the tangible personal property prior to its affixation to real property will be considered in determining whether a governmental entity rather than a contractor is the purchaser of materials: Direct Purchase Order. The governmental entity must issue its purchase order directly to the vendor supplying the materials the contractor will use and provide the vendor with a copy of the governmental entity's Florida Consumer's Certification of Exemption. Direct Invoice. The vendor's invoice must be issued to the governmental entity, rather than to the contractor. Passage of Title. The governmental entity must take title to the tangible personal property from the vendor at the time of purchase or delivery by the vendor. 5. Assumption of the Risk of Loss. Assumption of the risk of damage or loss by the governmental entity at the time of purchase is a paramount consideration. A governmental entity will be deemed to have assumed the risk of loss if the governmental entity bears the economic burden of obtaining insurance covering damage or loss or directly enjoys the economic benefit of the proceeds of such insurance. Sales are taxable sales to the contractor unless it can be demonstrated to the satisfaction of the Executive Director or the Executive Director's designee in the responsible division that such sales are, in substance, tax-exempt direct sales to the government. Respondent's staff assisted various industry groups in drafting proposed legislation for the 2001 and 2002 legislative sessions that would expand the sales tax exemption for public works contracts. The Legislature did not enact any of these proposals. The proposed rule amendments reflect Respondent's current practice regarding tax exemptions for public works contracts. The proposed amendments detail all factors, criteria, and standards that Respondent considers in determining whether transactions qualify for the exemption set forth in Section 212.08(6), Florida Statutes. The existing version of Rule 12A-1.094, Florida Administrative Code, as revised in 1992, does not reflect these factors. In drafting the proposed revisions to Rule 12A-1.094, Florida Administrative Code, Respondent's staff considered statutory language, questions asked by taxpayers, and cases involving protests of audit assessments. Respondent's staff also considered areas that it believed failed to provide clear guidance as to how taxpayers could structure transactions to avoid the tax. Finally, Respondent's staff considered the decisions in Housing by Vogue, Inc. v. Department of Revenue, 403 So. 2d 478 (Fla. 1st DCA 1981), and Housing by Vogue, Inc. v. Department of Revenue, 422 So. 2d 3 (Fla. 1982). As a general rule, a for-profit corporation instead of the contractor is liable to pay sales tax when the contractor agrees to purchase items and to resell the items to the corporation such that the corporation takes possession and ownership thereof. This would be true regardless of whether the contractor or some other individual eventually installs the items on the for-profit corporation's property or in its facility. In either instance, the contractor, as a reseller of tangible personal property, is a dealer who has the obligation to collect the sales tax from the for-profit corporation. The for-profit corporation would be the ultimate consumer of the items. If a contractor resells items to a non-governmental customer, who enjoys tax-exempt status, while the items are still tangible personal property, no sales tax is due. In such a case, it makes no difference whether the contractor or some other individual later installs the items. The taxability of sales to or by contractors who repair, alter, improve and construct real property pursuant to non-public works contracts is governed by Rule 12A-1.051, Florida Administrative Code, which states as follows in relevant part: Scope of the rule. This rule governs the taxability of the purchase, sale, or use of tangible personal property by contractors and subcontractors who purchase, acquire, or manufacture materials and supplies for use in the performance of real property contracts other than public works contracts performed for governmental entities, which are governed by the provisions of Rule 12A-1.094, F.A.C. . . . Definitions. For purposes of this rule, the following terms have the following meanings: * * * (c)1. "Fixture" means an item that is an accessory to a building, other structure, or to land, that retains its separate identity upon installation, but that is permanently attached to the realty. Fixtures include such items as wired lighting, kitchen or bathroom sinks, furnaces, central air conditioning units, elevators or escalators, or built-in cabinets, counters, or lockers. 2. In order for an item to be considered a fixture, it is not necessary that the owner of the item also own the real property to which the item is attached. . . . * * * (g) "Real property" means land, improvements to land, and fixtures. It is synonymous with the terms "realty" and "real estate." Pursuant to the statute and the proposed rule amendments, contractors who purchase tangible personal property that goes into or becomes a part of a public works are not entitled to an exemption from paying sales tax. Such a contractor would be the ultimate consumer of the tangible personal property and not a dealer. The statute and the rule at issue here require Respondent to look at the substance instead of the form of each transaction to determine when sales tax is due. To say that no tax is due anytime a contractor agrees to purchase and resell items to a governmental customer, such that the governmental customer takes possession and ownership thereof before the same contractor installs the items, would be contrary to the statute. To find otherwise would place form over substance, allowing the contractor and the governmental entity to avoid the statutorily imposed tax by casting the transaction as a resale. The proposed rule amendments do not expand the sales and/or use tax imposed by Chapter 212, Florida Statutes. Instead, they implement the statutory provision requiring governmental contractors to pay sales tax when they supply and install items in a governmental project pursuant to a public works contract. Depending on the circumstances, "public works" include a construction project on a job site where the governmental entity owns the real property. It also includes a construction project on a job site where the governmental entity owns a public facility located on real property owned by a private individual. The term "public works" includes a public facility which is owned and operated by a governmental entity for the purpose of conducting governmental activities regardless of who owns the real property on which it is located. According to the statute, Respondent's rules must give special consideration to the status of tangible personal property "before its affixation to real property." This provision does not mean that a transaction is not taxable unless the tangible personal property becomes a "fixture" or "appurtenance" to real property. Instead, Respondent's proposed rule amendments properly implement the broader legislative intent to tax any sale to a contractor who supplies and installs tangible personal property in public works. Respondent looks first to see whether the tangible personal property will be a fixture or improvement to real property. Next, Respondent must determine whether the tangible personal property will be permanently attached and function as a part of a public works project that does not fit the definition of real property. For example, a port authority may operate an office out of a permanently docked ship. The statute directs Respondent to consider the assumption of risk of damage or loss to be most important but not the only factor in determining whether the sale of tangible personal property is taxable. In addition to the assumption of risk of loss, the proposed rule amendments require a nontaxable sale to show the following: (a) a direct purchase order to the vendor who will supply materials to the contractor; (b) a direct invoice from the vendor rather than the contractor; (c) direct payment to the vendor; and (d) passage of title at time of purchase or delivery. The five factors are inclusive of the elements that Respondent will consider when determining whether of a sale is, in substance, a direct nontaxable sale to a governmental entity.
Findings Of Fact Respondent, Maria DeSillers, is the mother of Ronald David DeSillers, Jr. (Ronnie), a minor, now deceased. Because of an illness suffered by her son, respondent solicited, either directly or indirectly, funds for the benefit of her son. On January 29, 1987 respondent opened an account in the Coral Gables Federal Savings and Loan Association under the name "Maria DeSillers as Custodian for Ronald David DeSillers, Jr. under the Florida Uniform Transfers to Minors Act" (custodial account). A deposit of approximately $660,000 was made into the custodial account the same day. The establishment of the account was made under the authority of Chapter 710, Florida Statutes (1987), which governs the transfer of property by gift to minors. Under the statutory scheme set forth in Chapter 496, Florida Statutes (1987), charitable organizations, subject to certain exceptions, must register with petitioner, Department of State, Division of Licensing (Division). Although respondent acknowledges that her actions of soliciting funds constituted a charitable organization as defined by Subsection 496.02(2)(a), Florida Statutes (1987), the parties have stipulated that respondent has never registered as a charitable organization with the Division. On April 29, 1987 Ronnie died intestate (without a will). The balance in the custodial account on the day of his death was $509,912.50. The parties have stipulated that, after Ronnie's death, the following transfers and expenditures were made by respondent from Ronnie's custodial account: On May 13, 1987 respondent transferred $227,971 from the custodial account into a Maria DeSillers account which stated it was in trust for her parents, Manuela and Jose Marchante. On June 20, 1987 respondent paid $400 from the custodial account to Plaza Venetia as a deposit on a rental unit. On June 27, 1987 respondent paid $1,350 from the custodial account to Plaza Venetia. The stipulation does not disclose the purpose of this payment. On July 9 and 10, 1987 respondent made cash withdrawals from the custodial account in the amounts of $7,000 and $3,000, respectively. On July 10, 1987 respondent transferred $158,132 from the account in trust for her parents into a Barnett Bank Account entitled "Maria DeSillers." On January 19, 1988 respondent withdrew $25,000 from the custodial account to pay attorney fees. On December 31, 1987 petitioner subpoenaed the bank records of the custodial account and commenced an investigation into the matter. The investigation culminated in the issuance of an administrative complaint against respondent on January 29, 1988 alleging she had violated Subsection 496.04(1)(b), Florida Statutes (1987), by failing to register with petitioner as a charitable organization after having lost her exemption from registration. That prompted this proceeding. The parties have stipulated that the balance in the custodial account was $262,015.37 on November 18, 1987 and $239,287.93 on February 17, 1988. On March 7, 1988 the circuit court in and for the Eleventh Judicial Circuit, Probate Division, appointed Karen Gievers, Esquire, as curator to protect the remaining assets of Ronnie's estate.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the administrative complaint filed against Maria DeSillers be DISMISSED with prejudice. DONE AND ORDERED this 20th day of June, 1988, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 20th day of June, 1988.
