The Issue Petitioner's alleged liability for motor fuel and special fuel tax, interest, and penalties, pursuant to Chapter 206, F.S., as set forth in Notice of Proposed Assessments, dated April 1, 1977.
Findings Of Fact Petitioner Walker Oil Company is located in Pensacola, Florida and is licensed by the State of Florida under Chapter 206, Florida Statutes, as a dealer in special fuels. The firm is also licensed in the State of Alabama with respect to the sale of both special fuels and motor fuel. The company was formed in 1955 and during ensuing years operated service stations and sold motor fuel and special fuels in the Pensacola and south Alabama area. Its operations were audited yearly during the period 1955 to 1961 by Respondent. In 1972 an audit for the period October 1970 to March 1972 revealed underpayments of special fuel tax in the approximate amount of $600 during the audit period. (Testimony of Walker, Exhibit 5) In July 1975, Respondent's auditor, Clyde Whitehead, commenced an audit of Petitioner's records to determine whether any motor fuel or special fuel taxes were delinquent for the period July 1, 1972 through June 30, 1975. Although Petitioner's records were available to the auditor for the period January 1, 1974 through June 30, 1975, no records were available for the initial 18 month period of the audit from July 1, 1972 through December 31, 1973. Petitioner had filed monthly tax reports with Respondent as to special fuels, but had not submitted any such reports during the audit period for motor fuel. (Testimony of Whitehead, Walker) As a result of the audit, an assessment of $43,356.11, including interest and penalty, for motor fuel taxes incurred during the period January 1, 1974 through June 30, 1975, was asserted against Petitioner. The assessment was based on audit findings that Petitioner had sold 430,866 taxable gallons, but had not remitted the tax to Respondent. Petitioner paid the assessment. C. C. Walker, Petitioner's former president, testified at the hearing that such payment was made in order to secure the dismissal of then pending state criminal charges alleging that Petitioner had "bootlegged" gasoline during the period in question. (Testimony of Walker, Exhibit 2) Pursuant to the audit findings, a Notice of Proposed Assessment for delinquent motor fuel taxes during the period July 1, 1972 through December 1, 1973, in the amount of $20,076.43, including penalty and interest through March 31, 1977, was issued by Respondent on April 6, 1977. On the same date, a Notice of Proposed Assessment for special fuel tax in the amount of $51,022.96, including penalty and interest through March 31, 1977, was also issued to Petitioner. A revised assessment, dated September 19, 1978, deleted certain portions of interest charged on the original proposed assessments. These deletions resulted in the reduction of motor fuel assessment to $12,396.52, and the special fuel assessment to $38,052.90. After the hearing, under date of February 27, 1979, Respondent further reduced the motor fuel assessment to $6,732.22. (Exhibit 1, Hearing Officer Exhibit 1) Due to the absence of Petitioner's records for the first 18 month period of the audit, Respondent based liability for motor fuel and special fuel taxes for that period on an estimate, using audit findings of the second 18 month period of the audit for which Petitioner's records were available. This was the first instance in at least 13 years in which an estimated assessment of fuel tax had been made by Respondent. Respondent had no regulations or established policy for arriving at such an estimate, but its officials testified that they simply tried to be "fair and equitable" in making the determination. (Testimony of Williamson, Thomas, Deposition of Whitehead, Exhibit 3) Respondent's method of estimating Petitioner's motor fuel tax liability was predicated upon relating the known 1974-75 figures on purchases and sales of gasoline and the amount of tax found delinquent during that period, to known purchases of gasoline by Petitioner during the period of the estimated assessment. The audit for the period 1974-75 showed that 60 1/2 percent of Petitioner's gasoline purchases from known suppliers in Florida and Alabama had been sold in Florida. Respondent therefore determined from the sales records of Petitioner's known gasoline suppliers and from tax reports it had submitted to Alabama, that the firm had purchased 4,221,454 gallons of motor fuel during the 1972-73 period. Applying the 60 1/2 percent factor, Respondent's auditor determined that 2,554,259 gallons had been sold in Florida during that period. Since it had been found that Petitioner had sold 430,866 taxable gallons during the 1974-75 period for which tax had not been remitted to the state, which was 7 1/2 percent of its total Florida sales for that period, Respondent applied the same factor to the estimated amount of Florida sales during the 1972-73 period. This resulted in an estimated 191,569 gallons on which Respondent assumed Petitioner had collected but not remitted the motor fuel tax. By multiplying this figure by the 8 cents tax per gallon, it was estimated that Petitioner owed $15,325.52 to the state. This figure was later revised by the February 27th Notice of Adjusted Final Assessment to $10,176.15 plus a 10 percent penalty of $1,017.62. This reduction was based on the fact that approximately 1/3 of Petitioner's total sales of motor fuel during the 1974-75 period was made to one company named Pac-a-Sak, which did not do business with the firm during the first 18 month period of the audit. After deducting the sum of $4,461.55 representing overpayment of interest in the 1974-75 assessment payment, Respondent determined that $6,732.22 was due for motor fuel tax during the 1972- 73 audit period. The original estimated assessment reflects Respondent's acknowledgment that only the lesser amount reflected therein is due. (Testimony of Whitehead, Thomas, Deposition of Whitehead, (Exhibit 3), Exhibits 2, 4B, Hearing Officer's Exhibit 1) Respondent's proposed assessment against Petitioner for special fuel tax and penalty in the total amount of $38,052.90 is derived from audit findings based on availability of Petitioner's records for the 1974-75 portion of the audit period, and on an estimated assessment for the 1972-73 period. Additionally, Petitioner's Florida tax reports for the entire period were used in making the audit. It was determined that Petitioner had purchased 1,510,073 gallons of special fuel in Florida during the 1974-75 period and had sold 1,590,587 gallons in Florida during the same period. The auditor found that Petitioner had sold 156,150 gallons of special fuel for which Petitioner should have collected tax, but did not. The bulk of the untaxed gallonage was sold to Hinesway Trucking Company and Polar Ice Cream Company, neither of which were licensed as special fuel dealers in Florida. Therefore, all of the sales to these two companies were treated as taxable sales, because no resale certificates were obtained by Petitioner when it sold special fuel tax free to those companies. The principal of Hinesway Trucking Company had mistakenly informed Petitioner's office employee that it was licensed as a special fuel dealer when in fact it was not. The audit findings showed that Petitioner had sold a total of 841,855 taxable gallons during the 1974-75 period, for which tax was due in the amount of $67,348.40, but that tax had only been remitted by Petitioner in the amount of $46,809.60, leaving a total tax due of $20,538.80. The total due and payable by Petitioner to Respondent for this period was therefore computed to be $24,443.05, including penalty and interest through June 30, 1975. It is found that the audit correctly reflects Petitioner's special fuel tax liability for the 1974-75 period. (Deposition of Whitehead (Exhibit 3), Exhibit 2, 4A) The estimated special fuel tax for the 1972-73 period was calculated in a manner similar to that of the estimated motor fuel tax assessment. Respondent's auditor determined that Petitioner's taxable sales during the 1974- 75 period were approximately 53 percent of its total sales. He also determined that Petitioner had experienced a 15 percent increase in business in the latter period. It was therefore determined to estimate the sales for the 1972-73 period as being 85 percent of the total sales of 1,590,587 gallons during the later period which resulted in an estimated 1,351,999 gallons sold in Florida during 1972-73. Applying the taxable percentage of approximately 53 percent to this figure led to a finding that 715,577 taxable gallons had been sold by Petitioner. Petitioner had reported the sale of 539,893 taxable gallons; and accordingly, the audit found that additional tax was due on the difference of 175,684 gallons at 8 cents per gallon, resulting in estimated tax due of $14,054.72. Thus, this figure added to the 1974-75 deficiency of $20,538.80 resulted in an alleged special fuel tax deficiency for the audit period in the amount of $34,593.52, plus a 10 percent penalty in the amount of $3,459.38 for a total amount due of $38,052.90. Respondent, in formulating the above estimated assessment for the 1972-73 period, assumed that Petitioner had the same percentage of taxable sales as that for the 1974-75 period. However, approximately 150,000 taxable gallons on which tax had not been collected during the 1974-75 period were sold by Petitioner to Hinesway Trucking Company from about June 1974 through June 1975, under a misapprehension as to its nonlicensed status. Hinesway had not been a customer of Petitioner prior to 1974. Respondent's auditors made no allowances for this unusual situation, nor did it consider the low deficiencies accrued by Petitioner as a result of its 1970-72 audit. (Testimony of Walker, Deposition of Whitehead (Exhibit 3) Exhibit 1-2, 4A) Petitioner's president, C. C. Walker, testified at the hearing that as a result of the "personal vendetta" of an employee of Respondent in harassing Petitioner's customers and releasing unfounded information to the press, plus the instigation of criminal charges against the firm, a great loss of business was caused and severe damage to its reputation in the community. He denied any intentional wrongful acts on the part of the company or any of its personnel and claimed that any Florida sales of fuel for which tax was not paid was due to "human error." (Testimony of Walker)
Recommendation That the proposed assessment of motor fuel tax and penalty, as set forth in Respondent's Notice of Adjusted Final Assessment, dated February 27, 1979, be withdrawn. That Respondent's Notice of Proposed Assessment (adjusted) for special fuel tax and penalty, dated September 19, 1978, be revised to delete inclusion of Petitioner's sales to Hinesway Company as a factor in determining an estimated assessment, and that such revised assessment be asserted against Petitioner. DONE and ENTERED this 16 day of March, 1979, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Cecil Davis, Esquire Department of Legal Affairs The Capitol LL05 Tallahassee, Florida 32304 James R. Green, Esquire Seville Tower 226 South Palafox Street Pensacola, Florida 32501 ================================================================= AGENCY FINAL ACTION NOTICE =================================================================
The Issue Whether the Department of Revenue should assess Heftler Construction Company ("Taxpayer") for Florida corporate income taxes on a claim that: Taxpayer realized a gain under the Florida Income Tax Code when an asset acquired in 1971 (on liquidation of a joint venture) was sold in 1975 in satisfaction of an outstanding debt; and Taxpayer's losses created by the subtraction of foreign source income cannot operate to create or increase the Florida portion of the net operating loss carryover.
Findings Of Fact Formation and Liquidation of Joint Venture; Subsequent Sale of Asset Taxpayer is a New Jersey corporation, authorized to transact business in Florida. Heftler Realty Company ("Realty") is a Florida corporation, and is a subsidiary of Taxpayer. Taxpayer, for all years material to these proceedings, filed consolidated income tax returns with the Internal Revenue Service of the United States ("IRS") . Pursuant to the applicable provisions of the Internal Revenue Code ("IRC"), Taxpayer included in the income and expenses of its consolidated income tax returns the income and expenses of its operations in Puerto Rico. Taxpayer, for all years material to these proceedings, timely filed with the Department consolidated income tax returns. In 1969, Realty formed a joint venture with a company known as GACL, Inc., for the purpose of developing real property Realty, in accordance with its Joint Venture Agreement with GACL, Inc., prior to 1971, contributed to the joint venture the following assets with the following cost basis to Taxpayer on the date of contribution: ASSET DATE CONTRIBUTED TO JOINT VENTURE COST BASIS TO TAXPAYER ON DATE CONTRIBUTED Cash 3-5-69 $250,000 Land 3-5-69 2,000,000 In 1971, prior to the effective date of the Florida Income Tax Code ("Florida Code"), Chapter 220, Florida Statutes, the joint venture between Realty and GACL, Inc., was liquidated effective as of January 1, 1971. Pursuant to the plan of liquidation, Realty received, in liquidation of the joint venture, the assets as described in the attached Appendix. These assets had a then cost basis to the joint venture as described in the Appendix. The assets acquired by Realty in liquidation of the joint venture were subject to the debts described in the Appendix. Pursuant to the plan of liquidation of the joint venture, Realty agreed to acquire the assets and assume the attendant debts (itemized in the Appendix) as of January 1, 1971. At the time of the liquidation of the joint venture, Realty had a cost basis for its interest in the joint venture of a negative $285,749. (Realty had a negative basis in the assets because it sustained joint venture losses in excess of its contributions to the joint venture.) The net gain to Realty as' reported upon the federal income tax return of Taxpayer, after adjustment for depreciation, as a result of the liquidation was $1,238,37l. In 1971, Realty reduced its tax basis in the assets acquired in the liquidation. This adjustment (reduction) in the tax basis of the assets acquired by Taxpayer occurred prior to the effective date of the Florida Code. An asset acquired by Realty in 1971, pursuant to the plan of liquidation of the joint venture, was conveyed by Realty in 1975 to a creditor of Realty in satisfaction of debt. After adjusting the tax basis of the asset, a comparison of its book basis (to the joint venture) with the tax basis to Taxpayer after liquidation, reflects the following: Adjusted Basis as of Jan. 1, Tax Basis to Tax- Book Basis to payer or After Joint Venture Liquidation Difference 1971 $4,466,764 $3,055,722 $1,411,042 Accumulated Depreciation to Date of Sale (587,212) (414,541) (172,671) Adjusted Basis $3,879,552 $2,641,181 $1,238,371 For purposes of its Federal Income Tax, Taxpayer reported the transaction as a sale and computed the gain thereon as follows: $3,951,708 Expense of Sale $2,713,337 3. Total Gain $1,238,371 Gross Sale Price Cost or Other Basis and (The difference between the gross sales price and the adjusted basis referred to in paragraph 13 of $72,156 is an increase to the price due to escrow funds deposited with a mortgagee and assigned to the purchaser of the asset by Realty without Realty receiving reimbursement.) In computing the Florida income tax, pursuant to the Florida Code, for the fiscal year ending July 31, 1976, Taxpayer took as a subtraction an adjustment on line 8, Schedule II, page 2 of its income tax return. The subtraction was in the amount of the capital gain received upon the sale of the asset received in liquidation in the amount of $1,238,371. Taxpayer subtracted the gain, contending that it was realized prior to the effective date of the Florida Code. When acquired, the asset received in liquidation had a cost basis to the joint venture Of approximately $4,500,000. When the asset was distributed to Taxpayer, after the reduction by Taxpayer to the tax basis referred to in paragraph 11, the basis to Taxpayer of the asset was approximately $3,000,000. The tax basis in the amount of $3,000,000 was evidenced by the debts assumed by Taxpayer upon the liquidation; such assumption of debt is referred to in paragraph 7. Department contends that the gain on the sale of the asset acquired in liquidation was both realized and recognized in 1975 when the property was sold in satisfaction of a debt; it has issued a proposed assessment on that basis. Taxpayer contends that the gain was realized by Taxpayer for federal income tax purposes prior to the effective date of the Florida Code and that only the recognition of the gain occurred after the effective date of the Florida Code. II. 1975 Loss Created by Subtraction of Foreign Source Income; Attempt to Carryover Loss to Subsequent Years Taxpayer, in addition to the adjustment referred to above, in reporting income for its fiscal years ending July 31, 1976, July 31, 1977, and July 31, 1978, deducted a net operating loss carry-forward which included an item of $335,037 from its 1975 return (fiscal year ending July 31, 1976) and an item of $916,030 for fiscal year ending July 31, 1978, represented by a subtraction resulting from income earned in Puerto Rico. The subtraction resulted in losses during each of such years, which losses were carried forward by Taxpayer to the next ensuing year. Department contends that the losses created by the subtraction of foreign source income cannot be carried over to subsequent years to determine income and has issued a proposed assessment on that basis. Taxpayer contends that it is not the intent of the Florida Legislature to tax income derived from sources outside the United States and that the effect of a denial of the subtraction will result in the taxation, by Florida, of foreign source income received by Taxpayer.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department's proposed assessment of Taxpayer for corporate income tax deficiencies be issued. DONE AND RECOMMENDED this 21st day of January, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. 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 January, 1982.
The Issue The issue presented for decision in this case is whether state and local option taxes may be imposed upon Petitioner, Co-Op Oil Company, Inc. (“Co-Op Oil”), based upon the gallons of fuel sold at retail stations that were not owned or operated by Co-Op Oil, and to which Co-Op Oil did not consign fuel, but that were voluntarily “linked” to Co-Op Oil for reporting purposes via Department of Revenue (“DOR”) Form DR-120.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following findings of fact are made: During the audit period, Co-Op Oil was a domestic corporation engaged in the business of wholesale and retail petroleum distribution, and held Florida motor fuel tax license No. 09000447. Since the audit period, Co-Op Oil has exited the retail portion of the petroleum distribution business. DOR is an executive agency of the State of Florida. Among other duties, DOR is charged with administration and enforcement of Florida’s fuel tax laws, pursuant to Chapter 206, Florida Statutes. During the audit period, Co-Op Oil was a wholesale petroleum distributor to marinas, commercial fishermen, construction companies, and other businesses not served by retail facilities. Jim Smith, President of Co-Op Oil, testified that beginning in August, 1989, and continuing through December, 1994, Co-Op Oil requested that certain independent retailers to which Co-Op Oil supplied petroleum be “linked” to Co-Op Oil for retail tax reporting purposes. Mr. Smith testified that he made the decision to request linkage for those retail dealers that he believed incapable of correctly reporting the taxes on their own. His purpose was to ensure that all taxes owed to the state were actually reported and paid. Mr. Smith testified that he understood “linkage” to require Co-Op Oil to report and remit all the fuel taxes that Co-Op Oil actually collected on the gallons of fuel it sold to the linked dealers. Essentially, Co-Op Oil collected and remitted taxes on the net gallons of fuel it delivered to the dealers. DOR does not dispute that Co-Op Oil remitted all the taxes that it actually collected on the net gallons delivered to the linked dealers. However, in reporting taxes for the linked facilities, Co-Op Oil did not report “gains” for those facilities. The concept of “gains” is based on the principle that the volume of a volatile substance such as gasoline changes with the temperature. In the petroleum industry, a “net gallon” is based on the volume of a gallon of fuel at 60 degrees. The industry has developed a formula to account for the difference in volume caused by temperatures above or below 60 degrees. Under the adjustments made pursuant to the formula, a “gallon” of gasoline stored at a temperature below 60 degrees is worth more than a gallon stored at a temperature higher than 60 degrees because of its greater compression. The linked facilities in question were located in and around Pinellas County, where the year-round temperature in their underground tanks is significantly greater than 60 degrees, meaning that gasoline stored therein would reasonably be expected to expand after delivery by Co-Op Oil. This expansion would result in the retail facilities being able to sell marginally more gallons of fuel to the ultimate consumers than the net gallons purchased from Co-Op Oil at the wholesale level. This phenomenon of “gains” at the retail level, along with alleged abuses by dealers, led DOR to successfully persuade the Legislature in 1992 to adopt a statutory requirement that retailers who were not also wholesalers or refiners must collect and remit tax on the additional gallons of fuel sold at the retail level. Section 206.41(1)(b), Florida Statutes (1995), imposing the constitutional gas tax, contained the typical language: If any licensee owns or operates retail stations or has fuel on consignment at retail stations and has sold more fuel than was purchased tax-paid when the fuel was removed from the rack or than was reported to the state when first purchased or removed from storage tax-free, the licensee must report the additional gallons sold and pay the additional tax, due for the month, on his or her local option gasoline tax return or a return designated by the department. The “rack” is that part of a terminal facility by which petroleum products are loaded into tanker trucks or rail cars. Section 206.01(16), Florida Statutes (1995). In practice, the “rack” also refers to bulk plant facilities operated by wholesalers such as Co-Op Oil. Similar language requiring the reporting and payment of “gains” was included in Section 206.60(1)(b), Florida Statutes (1995)(county gas tax); Section 206.605(1)(b), Florida Statutes (1995)(municipal gas tax); Section 336.021(2)(b), Florida Statutes (1995)(county nine cent gas tax); Section 336.025(2)(b), Florida Statutes (1995)(local option gas tax); and 336.026(2)(a), Florida Statutes (1995)(State Comprehensive Enhanced Transportation System Tax). The cited sections from Chapter 336, Florida Statutes (1995) also provided that refiners, importers, wholesalers, and jobbers were to be considered as retail dealers when electing to remit the subject taxes on behalf of retail stations they owned or operated, or where they had fuel on consignment. Administratively, DOR accomplished the collection of the tax on “gains” by requiring dealers to base their tax returns on “metered gallons,” i.e., the reading of gallons at the gas pumps used by retail customers. Petitioner conceded at hearing that retail facilities, when filing their own tax returns, were required to calculate the taxes based on metered gallons. A Florida form DR-120 is the form upon which a motor fuel dealer reports the amount of motor fuel sold and the amount of local county option taxes due. On a monthly basis during the audit period, the Petitioner filed form DR-120 with the Respondent. All taxes reported by Co-Op Oil on these forms during the audit period were calculated based on net gallons sold by Co-Op Oil to the linked dealers. A Florida form DR-119 is the form upon which a motor fuel dealer reports the amount of fuel sold and the amount of state taxes due. On a monthly basis during the audit period, the Petitioner filed form DR-119 with the Respondent. All taxes reported by Co-Op Oil on these forms during the audit period were calculated based on net gallons sold by Co-Op Oil to the linked dealers. During the audit period, DOR had in place no formal mechanism by which a wholesaler such as Co-Op Oil could “link” its tax return to that of a retailer that it neither owned nor operated nor to which it consigned fuel. Mr. Smith credibly testified that in 1989 he was instructed by a DOR employee named Mary Ann Moye that such linkage could be accomplished by written notification to DOR and the actual reporting and collection of taxes by the wholesaler on behalf of the retailer. Peter Steffens, a 22-year DOR employee intimately familiar with the evolution and application of the fuel taxes at issue in this proceeding, testified that while “linkage” did not formally exist in statute or rule, DOR in fact treated “linked” retailers as consigned retailers. In other words, when a wholesaler such as Co-Op Oil linked a retailer’s return to its DR-120, the wholesaler would be treated as if it were consigning fuel to that retailer, whether it was collecting tax at the time of delivery or at the time of retail sale. DOR took the position that a wholesaler such as Co-Op Oil steps into the shoes of its linked retailers, and remains in those shoes after it delivers fuel to the retailers. To avoid the loss of taxes that are unquestionably owed, DOR places upon linked wholesalers a continuing responsibility to see that all taxes are reported and paid even after the fuel is physically delivered to the retailers. Given that DOR did not impose linkage on the wholesalers, but only allowed it at the written request of the wholesalers, this was a reasonable requirement. Because the statutes provided that a consignor must pay tax on “gains,” DOR took the position in its audit that Co-Op Oil was also required to pay “gains” for the stations it linked on its DR-119 and DR-120 tax returns for the audit period. Mr. Smith took the position that Co-Op Oil was required to pay tax only on those net gallons it sold to its retailers because, unlike a consignor, Co-Op Oil itself realized no profit from the “gains” of its retail dealer. Mr. Smith questioned the validity of the entire concept of “gains,” but was well aware of DOR’s position on the issue, having litigated an administrative tax assessment proceeding against DOR in 1993 in which “gains” was a central issue. See Co-Op Oil Company, Inc. v. Department of Revenue, Division of Administrative Hearings Case No. 93-2019 (Recommended Order, Sept. 22, 1993). Mr. Smith acknowledged that the tax on “gains” might be owed by the retail dealers, but took the position that DOR should seek payment of that tax directly from the retailers. Mr. Smith testified that he assumed that once the dealers were linked to Co-Op Oil, they would be treated as ultimate consumers for his reporting purposes. Mr. Smith admitted that his assumption was based on his reading of the statutes, not on any guidance he had received from DOR. DOR made initial inquiry to Mr. Smith as to the taxes being reported and paid by Co-Op Oil during telephone conversations in December, 1995. By follow-up letter dated January 4, 1996, Charles E. Pate, Senior Tax Specialist with DOR, wrote to Mr. Smith as follows, in pertinent part: It is not intended that the method of reporting you have chosen should reduce the tax liability that would result if each retail dealer were reporting individually on form DR-121. It is necessary that each dealer you are selling to reconstruct the difference between net and gross gallons for the period 7/92 through the present. All applicable state and local taxes will be assessed on the calculated adjustment. Mr. Pate testified that he made several subsequent requests to Mr. Smith for the information regarding the unreported “gains” of the retailers in question. Mr. Pate stated that, despite Mr. Smith's promises, the requested information was never provided by Co-Op Oil. It was undisputed that sales agreements with its retailers gave Co-Op Oil a contractual right to collect from the retailers any additional fuel tax that might become due. Mr. Smith acknowledged that he never supplied the “gains” information to Mr. Pate, but could not recall ever promising to do so, stating that his understanding of Mr. Pate’s letter was that DOR needed to require each dealer to reconstruct their sales for the audit period. Mr. Smith stated that all but three of the retailers in question were out of business, and that he did not attempt to obtain the information from the others. Mr. Smith’s testimony established that he is very knowledgeable as to fuel tax law. In addition to calculating and paying the taxes for his business since at least 1989, he has attended seminars on the subject, served on a task force made up of DOR and industry representatives that drafted changes to the fuel tax laws, and has acted as a legislative lobbyist on tax issues on behalf of his company and the Florida Petroleum Marketers Association. Given his knowledge, it was unreasonable for him to assume that a tax on “gains” otherwise owed by his retailers need not be paid simply because their tax returns were administratively linked with those of Co-Op Oil. DOR did not attempt directly to force the retailers to reconstruct their records. Mr. Pate did inform Mr. Smith that if Co-Op Oil would produce the records, then DOR would pursue the individual dealers. However, no dealer records were ever produced by Co-Op Oil. Mr. Pate was thus forced to assess the tax based on an estimate. He arrived at this estimate by assuming a one percent “gain” on the net gallons reported by Co-Op Oil for the linked retailers. This was a reasonable and conservative assumption, consistent with the industry standards for calculation of “gains.”
Recommendation Upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a final order sustaining the assessment of additional tax, penalties, and interest against Co-Op Oil. DONE AND ENTERED this 30th day of July, 1998, in Tallahassee, Leon County, Florida. LAWRENCE P. STEVENSON 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 30th day of July, 1998. COPIES FURNISHED: James E. Smith, President, Co-Op Oil Company, Inc. 4911 8th Avenue South Gulfport, Florida 33707 John N. Upchurch, Esquire Nicholas Bykowsky, Esquire Assistant Attorneys General Office of the Attorney General Tax Section The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
The Issue Whether or not the Petitioner, Radiant Oil Company of Jacksonville, is responsible to pay $4,466.64, plus the penalty and interest currently due from a proposed assessment by the Respondent, State of Florida, Department of Revenue, Motor Fuel Tax Bureau, under the alleged authority of Chapter 206, Florida Statutes.
Findings Of Fact The Radiant Oil Company of Jacksonville is a dealer in special fuels within the meaning of Chapter 206, Florida Statutes. The Respondent, State of Florida, Department of Revenue, Motor Fuel Tax Bureau is responsible for the enforcement of the tax provisions found in Chapter 206, Florida Statutes. On October 6, 1977, the Respondent issued a notice of proposed assessment against the Petitioner claiming the amount of tax due to be $4,837.92. This notice of proposed assessment may be found as part of the Composite Exhibit 1 of the Respondent, admitted into evidence. There remains in dispute $4,466.64 together with a possible penalty and interest that would be assessed. This amount of disputed tax, penalty and interest pertains to transactions between the Petitioner and the Boam Company, one of its customers. Specifically, the Respondent is asserting a tax on the amount of 55,833 gallons of diesel fuel which was sold to the Boam Company by the Petitioner. Diesel fuel is a "special fuel" within the meaning of Section 206.86(1), Florida Statutes. The Boam Company is not a dealer within the meaning of Chapter 206, Florida Statutes, it has executed an exemption certificate for the benefit of the Petitioner on a form provided by the Respondent. The certificate is Petitioner's Exhibit 1, admitted into evidence. The facts in the transaction which lead the Respondent to believe that the tax is owed are constituted through the method of Boam Company sending their tanker truck to the depot/business compound of the Radiant Oil Company for purposes of picking up the diesel fuel in question. After the individual deliveries of diesel fuel were made at the compound, that fuel was then taken by the Boam Company's tanker truck to be delivered for utilization by certain off road equipment owned by Boam Company. None of the fuel in dispute was used by any form of over the road vehicle which requires a motor vehicle license. (The 55,833 gallons in dispute does not involve the first 110 gallons of diesel fuel delivered on each pickup made by the Boam Company tanker at the Petitioner's compound.) The Petitioner takes the position that Section 206.87 (4)(a) exempts the questioned transactions from the taxes set forth in Chapter 206, Florida Statutes. That provision of Chapter 206 reads as follows: 206.87 Levy of tax.- The following sales shall not be subject to the tax herein imposed: Sales by a dealer when the special fuel is delivered for home, industrial, commercial, agricultural, or marine purposes, for consumption other than use, or for resale pursuant to paragraph (c) hereof. In particular the Petitioner contends that the sale by Radiant Oil Company to the Boam Company constitutes deliveries for commercial purposes other than use or other than for resale pursuant to paragraph (c) of the same section of Chapter 206, Florida Statutes. That paragraph (c) pertains to sales of five gallons or less by a person not a dealer, when that person does not have facilities for placing this special fuel in the fuel supply system of a motor vehicle, and would not fit the facts of this case. To understand the continuation of the argument by the Petitioner, it is necessary to look at the meaning of the word "use." In Section 206.86(5), Florida Statutes, "use" is defined in this fashion: 206.86 Definitions.- As used in this part: "Use" means the placing of special fuel into any receptacle on a motor vehicle from which fuel is supplied for the propulsion thereof. It is also necessary to understand what "motor vehicle" means within the definition of Chapter 206, Florida Statutes. "Motor vehicle," is defined in Section 206.86(2), Florida Statutes, as being: 208.86 Definitions.- As used in this part: (2) "Motor vehicle" means any form of vehicle machine, or mechanical contrivance which is propelled by any form of engine or motor which utilizes special fuel and is required, or which would be required, to be licensed under the motor vehicle license law if owned by a resident. It is the Petitioner's position that the vehicles which ultimately used the diesel fuel in question, did not require any form of license under the motor vehicle license law in the State of Florida, if they had been owned by a resident, and consequently did not constitute "motor vehicles" within the meaning of the definition found in the aforementioned section. Accordingly, from the point of view of the Petitioner this utilization of the motor fuel was for purposes of consumption other than "use." The Respondent replied to the Petitioner by stating that the exempt category which would apply in this instance is that found in Section 206.87(4)(b), Florida Statutes. That provision reads as follows: 206.87 Levy of Tax. - (4) The following sales shall not be subject to the tax herein imposed: (b) Sales at the dealer's place of business if not more than 110 gallons by a dealer into a receptacle not connected to the fuel supply system of a motor vehicle for consumption other than use. In the mind of the Respondent, this provision of the law creates an exemption for the sale of the first 110 gallons by a dealer, delivered into a receptacle not connected to the fuel supply system of a motor vehicle for consumption other than "use;" and acts to the exclusion of any possible exemption under 206.87(4)(a), Florida Statutes, which has been claimed by the Petitioner. Moreover, the Respondent relied strongly on a portion of the language of Section 206.87, Florida Statutes, which states ". . . unless expressly provided to the contrary in this part, every sale shall be deemed to be for use in this state . . . " Consequently, according to the Respondent, because Section 206.87 (4)(b), Florida Statutes, addresses the kind of transaction that the petitioner is involved in, this exemption creates the only possible exclusion from tax consequences that is available to the Petitioner. The Respondent expresses a retreating argument to the effect that the use of the word "delivered" found in Section 206.87 (4)(a), Florida Statutes, would mean direct delivery to the site of the place of consumption other than "use." After examining the position of the two parties, it is the undersigned's conclusion that Section 206.87(4)(a), Florida Statutes, creates an exemption from the possible tax consequences noted in Chapter 206, Florida Statutes. This conclusion is reached because the use of the word "delivered" in Section 206.87(4)(a) is followed by the word, "for" which creates the impression that delivery could be made either at the business location of the vendor, or at the location of the equipment that would be consuming the fuel for purposes other than "use." Had the legislature intended to limit the exemption found in the quoted provision to only those transactions involving deliveries to the home, industrial location, commercial location, agricultural location, or marine location, it would seem that they would have expressed it in the terms of the necessity to deliver "to the location" as opposed to stating it in terms of delivering "for purposes." In addition, the Section 206.87 (4)(b) Florida Statutes, does not exclude the right of the Petitioner to claim an exemption under Section 206.87(4)(a), Florida Statutes, nor is it inconsistent with that prior provision. Section 206.87(4)(b) , Florida Statutes, when read in pari materia with Section 206.87(4)(a) Florida Statutes, stands on its own and involves a different category of exemption. This category of exemption would include utilization of the special fuel for home, industrial, commercial, agricultural, or marine purposes, as well as any other utilization of the special fuel other than "use." Had it been intended for this provision, Section 206.87(4)(b), Florida Statutes, to exclude the right to exemption found in Section 206.87(4)(a), Florida Statutes, there would have been a connecting phrase between the two subsections (a) and (b) such as the word "or," such as the phrase "unless it exceeds the 110 gallon exemption found in the following subsection," or some similar comment. Since that type of language does not appear, it is unreasonable to assume that the legislature intended to have the prospective exempt organization or person required to accede to the exemption which affords the least advantage. For the reasons stated above the assessment in the amount of $4,466.64 plus the possible penalty and interest asserted under Chapter 206, Florida Statutes, should be rejected.
Recommendation It is recommended that the portion of the proposed assessment to the extent of $4,466.64 together with the penalty and interest be denied, and the Petitioner not be required to make such payment. DONE and ENTERED this 19th day of May, 1978, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 1978. COPIES FURNISHED: Jack G. Hand, Jr., Esquire 1320 Atlantic Bank Building Jacksonville, Florida 32202 Maxie Broome, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32304 =================================================================
The Issue Whether or not Sohio, a subsidiary of BP Oil Company, Inc., is liable for the payment of certain local option gas taxes to the Department of Revenue under the facts of this case.
Findings Of Fact This cause was initiated by the Petition for Formal Hearing filed with the Department of Revenue on or about February 2, 1989. This petition was in response to the Department's assessment of February 29, 1988. During the period from January 1, 1986 to December 31, 1987, Petitioner Sohio made sales of gasoline to various customers including 290,698 gallons of gasoline to Enos Ying (Ying), and 634,555 gallons of gasoline to Basil Roberts (Roberts). Petitioner's sales to Ying and to Roberts occurred at their respective places of business in Broward County, Florida, which imposed a six cent per gallon local option gas tax, pursuant to Chapter 336, F.S. during 1986 and 1987. At all times material, Petitioner was licensed in the State of Florida as a "refiner". Petitioner collected motor fuel tax under Chapter 206, F.S., but did not collect or remit local option gasoline tax under Chapter 336, F.S., with regard to its sale of gasoline to Ying and to Roberts. Petitioner did not obtain resale certificates or affidavits from Ying or Roberts covering its sales to them. On November 1, 1985, the Department of Revenue published an "Important Notice to all Retail Gasoline Dealers" which stated that: Effective January 1, 1986, Sections 336.021 and 336.025, Florida Statutes, requires (sic) the Retail Gasoline Dealer to collect and remit the local option gas tax and the voted gas tax on the sale of motor or special fuel at the retail level within a county which imposes one of the above taxes. On January 17, 1986, the Department of Revenue issued an "Important Notice to Motor Fuel Wholesalers, Importers or Distributors Concerning 1986 Licenses" and a list of retail service stations licensed for 1986 as of January 10, 1986, which notice stated: Those accounts that are unlicensed in 1986 will be receiving notification concerning their account and should secure their licenses immediately in order to prevent further complications, On the reverse side of the aforesaid notice, it was stated, Those accounts that are licensed in 1986 are responsible for remitting the local option gas taxes under Chapter 336, Florida Statutes. If you sell to an unlicensed retail dealer, the wholesaler, importer or refiner is responsible for collecting and remitting the local option taxes due under Chapter 336, Florida Statutes. Evidence should be obtained from the retail dealers as to his (sic) current status with the Department prior to selling to the account on a tax-free (Chapter 336, F.S.) basis. No rules or regulations of the Respondent Department under Chapter 336, F.S. or which make specific reference to Chapter 336, F.S. were promulgated by the Department during the period in question. On February 29, 1988, the Respondent issued a notice of delinquent local option gas tax, penalty and interest due and assessed against Petitioner in the amount of $1,302,545.13 (tax of $956,420.65, penalty of $229,806.11 and interest of $116,318.37) regarding sales made by the Petitioner to its customers including Ying and Roberts. A schedule describing the items forming the basis of the assessment was enclosed therewith, which schedule described the transaction subject to the assessment as being sales made to unlicensed retail dealers. The Respondent has never pursued collection of the tax, penalty and interest at issue from either Ying or Roberts. Petitioner did not know or have reason to know whether or not Ying or Roberts had paid the tax in question. On March 17, 1988, Petitioner filed a protest with the office of the General Counsel of the Florida Department of Revenue objecting to the entire assessment on the grounds Petitioner was not liable for the local option tax in regard to the subject transactions and in the alternative, that the retail dealers involved were either listed by the Department of Revenue as being licensed or had filed returns and previously paid their tax. By letter dated April 5, 1988, Petitioner was informed by Christine F. McCann, Special Programs Analyst, Bureau of Enforcement of the Florida Department Revenue, that the above referenced assessment had been revised downward to reflect the liability of $253,260.11 (tax of $182,813.42, penalty of $45,370.91, and interest of $25,075.78) on the grounds that the Petitioner had identified certain dealers as being licensed by the Department, who were part of a transaction for which the Respondent sought to tax Petitioner. As a result of an informal conference held on May 27, 1988, a Notice of Reconsideration was issued on December 7, 1988 which further reduced the assessment against Petitioner to a total of $80,463.39 (tax of $57,769.38, interest of $8,251.61 and penalty of $14,442.40) on the grounds that the Petitioner either identified additional dealers as being licensed by the Department or demonstrated that the retail dealers though not licensed by the Department, had paid the tax in question in regard to the subject transactions. The assessment as revised by the Department's Notice of Reconsideration continues to be in error in that it yet includes certain retail dealers although not licensed and other than Ying and Roberts, who have already paid the tax in question and therefore the assessment should be revised downward further. After the above-referenced adjustment, there remains and is now in controversy in this case the following amounts: SALES TO YING SALES TO ROBERTS Tax $17,436.48 Tax $38,073.30 Penalty 4,359.13 Penalty 9,518.37 Interest to Interest to 4/20/89 4,073.15 4/20/89 9,679.30 TOTAL $25,868.76 $57,270.97 GRAND TOTAL $83,139.73 as of 4/20/89. Should the Respondent prevail in this matter, interest will continue to accrue until the tax is paid. During the course of the informal protest procedures before the Department of Revenue, Petitioner established that all the sales which were the subject of the original notice, except those to Ying and to Roberts, were either to licensed gasoline retailers or to unlicensed gasoline retailers who had collected and remitted the local option tax due. Upon the testimony of Charles (Chuck) M. Reed Jr., Retail Marketer, who has been a dealer lease and supply agent for Ying and for Roberts from Gulf BP, parent corporation of Petitioner Sohio, it is found that Sohio's customary sales both to Ying and to Roberts were made exclusively by filling underground gasoline tanks at the respective establishments of Ying and of Roberts on delivery by the truckload of no less than 7,100 gallons and no more than 8,402 gallons at a time. Also upon the basis of his testimony and the photographs he took which were admitted in evidence, it is found that Ying and Roberts made retail sales to the general motoring public. More specifically, signs posting product affiliation and prices [see Section 206.01 (7) F.S.] which were observed by Mr. Reed identified each of these establishments as retail outlets. The sales agreements between Petitioner and Ying and between Petitioner and Roberts are also clearly in support of this finding. It is also proper to infer from Mr. Reed's testimony that he watched a majority of the gasoline gallons sold to Roberts and to Ying pumped into their respective underground tanks and then observed them pumping gasoline out of those tanks into motorists' cars via the traditional hose arrangements found in commercial gasoline stations, that it was the same Sohio gasoline which was pumped and sold by Ying and Roberts at retail. It was not necessary for Mr. Reed to physically observe the gasoline coursing through the hoses or account specifically day by day from delivery in bulk by Sohio to dispensation one car gasoline tank at a time by Ying and by Roberts in light of the exclusivity clauses of their contracts with Sohio. Therefore, Sohio established that the gasoline it sold to Ying and to Roberts was resold by Ying and by Roberts to the general motoring public. Ying and Roberts therefore fall in the category of being gasoline retailers unlicensed by the Department of Revenue, of whom it is undetermined whether they submitted their county local option gas tax due and from whom Petitioner Sohio, licensed as a refiner, did not obtain resale certificates or affidavits covering Sohio's sales to them. Petitioner did not establish that Ying and Roberts had collected and remitted the local option gasoline tax in controversy. There is no statute or rule which precludes Petitioner selling to an unlicensed dealer. Respondent Department of Revenue requested that Petitioner Sohio provide information which would indicate whether Ying and Roberts had collected and remitted the local option gasoline tax. Since all of the revisions and reductions of the original assessment against Petitioner as set out above were done by the Respondent based on information supplied by the Petitioner, the Respondent anticipated that Petitioner also would be able to provide information on Ying and Roberts. Respondent could have searched its records to find out if Ying and Roberts had paid their tax, and then gone directly to Ying and Roberts to find out why they did not pay the tax, if that were the case. However, due to the agency's search system which is geared to retailer license numbers, Department of Revenue employees asserted that such a search is probably impossible and certainly is impractical. All retail gasoline dealers are required to be licensed in order to sell gasoline. Accordingly, income tax forms are mailed by the agency only to those retail dealers who have obtained a license, despite the assertion in the agency's Notice described in Finding of Fact 8 that unlicensed retailers who had paid their tax without such a number/license were traceable. The problem appears to be that Petitioner sold to persons (unlicensed retailers Ying and Roberts) who had no vehicles (respective retail license numbers) by which to submit the local option gas tax. Instead of pursuing Ying and Roberts for payment of the county local option gas tax, the agency chose to come back against Petitioner for either the certificates or affidavits specifically required with regard to collection and remittance of the state motor fuel tax under Section 206.425 F.S., or for other proof of Roberts' and Ying's compliance concerning the county local option gas tax. According to Mr. Zych, Administrator of the Disposition Section of the Office of the General Counsel and superior to Ms. McCann, the agency would have accepted properly executed retail certificates if Petitioner had gotten them. Without such proof forthcoming from Petitioner, the agency held Petitioner liable for the local option gas tax imposed by the statute upon the retailer. So far as Ms. McCann, Respondent's Special Program Analyst, was concerned, this election to proceed against Sohio was completely in the discretion of her superior. There is no rule that requires Petitioner to get an exemption certificate or affidavit before they sell to a retail dealer.
Recommendation Upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order rescinding its Notice of Assessment against Petitioner with regard to its sales to Ying and Roberts and letting Petitioner go hence without ay. DONE AND ENTERED this 16th day of June, 1989, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of June, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-0638 The following constitutes specific rulings pursuant to Section 120.59(2), Florida Statutes, upon the parties respective proposed findings of fact (PFOF): Petitioner' s PFOF: All of Petitioner's proposed findings of fact are accepted, but those not adopted have not been adopted because they are unnecessary, subordinate to the facts as found or mere legal argument. Respondent ` s PFOF: 1.-6. Accepted. 7. Accepted as modified to conform to the record and the natural inferences of the evidence of record. 8.-11. Accepted but not necessarily adopted as subordinate and unnecessary to the facts as found. 12. Accepted. 13.-15. Accepted but not necessarily adopted as subordinate and unnecessary to the facts as found. Rejected as not supported by the greater weight of the competent substantial evidence and the natural logical inferences there from. Accepted but not adopted because not dispositive of any material issue of fact in dispute in this cause. COPIES FURNISHED: Mark A. Taylor, Esquire Excise Tax Analyst Ira L Smith, Esquire Director, Ad Volorem Tax Division BP America, Inc. 200 Public Square 38-3600-L Cleveland, Ohio 44114-2375 Lealand McCharen Assistant Attorney General Department of Legal Affairs Tax Section, The Capitol Tallahassee, FL 32399-1050 William D. Townsend General Counsel Department of Revenue 203 Carlton Building Tallahassee, FL 32399-0100 Katie D. Tucker Executive Director 102 Carlton Building Tallahassee, FL 32399-0100
The Issue The issues to be determined in this proceeding are 1) whether Respondent, the Department of Revenue (Respondent or the Department), demonstrated that it made an assessment against the taxpayer, as well as the factual and legal basis for the assessment; 2) whether Petitioner, 130 NE 40th Street, LLC, d/b/a Michael’s Genuine Food and Drink (Petitioner or Michael’s), is entitled to enterprise zone job credits (EZ credits) claimed on its sales and use tax returns for the audited period; and whether the penalty and interest assessed in the August 18, 2016, Notice of Decision is justified.
Findings Of Fact Petitioner is a Florida corporation with its home office and principal place of business in Miami, Florida. Respondent is an agency of the State of Florida, charged with administering the state’s sales tax laws under chapter 212, Florida Statutes (2012-2014). Michael’s is a limited liability company located at 130 NE 40th Street, Miami, Florida 33137. It operates a restaurant and bar at that address. Business Structure of Michael’s Michael’s opened in 2007 and is located in an enterprise zone in Miami. Michael’s enterprise zone identification number is 1301. Michael’s is owned by Michael Schwartz. In 2012, Mr. Schwartz opened a second restaurant known as Harry’s Pizzeria, which is also located in Miami. A third restaurant, the Cypress Room, was also opened during the audit period, although the timing of its opening is not clear from the record. Neither Harry’s Pizzeria nor the Cypress Room is the subject of this audit. All of the restaurants are separate legal entities. Mr. Schwartz is also the owner of a shared service company named Genuine Hospitality Group (GHG). The direct employees of GHG are the comptroller for the restaurants, the director of beverage, the director of operations, a marketing person, and the people overseeing the various restaurants. GHG does not have ownership in any of the restaurants, but provides services to each of them, including at different times, payroll, marketing, operations, and menu development. For example, during the years 2012 and 2013, GHG provided payroll functions for the various restaurants. According to Omar Azze, GHG’s comptroller, the idea was to create a “common paymaster” for the restaurants, because it would allow them to have a larger pool of employees for health insurance, in order to get a more favorable rate. When Michael’s decided to use this payroll method, Mr. Azze called the Department and canceled the reemployment tax registration of Michael’s because the taxes would be paid through GHG. Contrary to notations in the Department’s records, Michael’s never closed during the audit period: it still had the same employees and management team. The idea for using a common paymaster approach for the restaurants came from the restaurants’ accounting consultant. Paying employees through GHG was never intended to reduce the tax liability of Michael’s, or to transfer control of the employees to GHG, and taxes related to payroll were all paid through GHG for 2012 and 2013. Each restaurant maintained control over its own employees (general manager, two or three assistant managers, the head chef, bussers, waiters, cooks, support staff, and bartenders) and employee records, and employees did not “float” from restaurant to restaurant. GHG would pay the employees for Michael’s and the other restaurants, and all of the restaurants would reimburse GHG for the payroll payments for their respective employees. Mr. Azze’s testimony regarding this arrangement is consistent with the deductions on the restaurants’ respective federal tax returns for the payrolls in 2012 and 2013, and is credited. It is found that, during the calendar years 2012 and 2013, the employees remained under the direction and control of Michael’s and that payroll services alone were handled by GHG. In 2014, the third year of the audit period, the Petitioner decided to stop having GHG performing payroll functions, and to handle payroll in-house using a QuickBooks program, in order to reduce costs. In terms of the audit, this change in payroll method meant that for the first two years of the audit, all of the employees for Michael’s were paid through GHG, as were all of Michael’s’ reemployment taxes. The third year of the audit, employees and reemployment taxes were paid through Michael’s directly. Applications for EZ Credits for Michael’s Section 212.096 allows certain eligible businesses within identified “enterprise zones” to take a credit against sales and use taxes when there are employees hired who live within the identified enterprise zones and when there has been an increase in jobs over the 12 months prior to the date of the application. Section 212.096(1)(a) defines an “eligible business” as “any sole proprietorship, firm, partnership, corporation, bank, savings association, estate, trust, business trust, receiver, syndicate, or other group or combination, or successor business, located in an enterprise zone.” In order to obtain the credit, an eligible business must file an application, including a statement made under oath that includes, for each new employee, the employee’s name and place of residence; the enterprise zone number for the zone in which the new employee lives; the name and address of the eligible business; the starting salary or hourly wages paid to the new employee; and a demonstration to the Department that, on the date of the application, the total number of full-time jobs is greater than it was 12 months prior to the application. The application is initially filed with the governing body or enterprise zone development agency, which reviews the application and determines whether it contains all of the required information and meets the requirements of section 212.096. If it does, then the enterprise zone coordinator certifies the application and transmits it to the Department. In addition, the business also forwards a certified application to the Department. Once the Department receives a certified application for enterprise zone credits, it has ten days to notify the business that the credit has been approved. If the application is incomplete or insufficient to support the credit, the Department is required to deny the credit and notify the business, which is free to reapply. Section 212.096(2)(a) provides that “[u]pon an affirmative showing . . . that the requirements of this section have been met, the business shall be allowed a credit against the tax remitted under this chapter.” The credit “shall be allowed for up to 24 consecutive months, beginning with the first tax return due pursuant to s. 212.11 after approval by the department.” § 212.096(2)(b), Fla. Stat. Petitioner regularly submitted applications for EZ credits, and during the audit period, submitted applications on the following dates: February 1, 2012; August 1, 2012; February 4, 2013; April 2, 2013; July 19, 2013; August 15, 2013; August 30, 2013; January 6, 2014; January 30, 2014; March 3, 2014; March 27, 2014; and June 17, 2014. Each of these applications was made listing Michael’s as the taxpayer. Petitioner used a company named Economic Development Consultants (EDC) to help it calculate the credits Michael’s would be entitled to claim. Each month, Petitioner provided to EDC the names of employees terminated or resigned and those newly hired, along with the new hires’ addresses. Petitioner would also provide to EDC the number of full-time employees for each month. In determining residency for its employees, Petitioner relied on the addresses received from employees when they were hired. EDC would then provide a report saying which employees qualified for a credit, and do the necessary paperwork in order to obtain approvals for the credits. Each of Petitioner’s applications for EZ credits submitted during the audit period was approved, and Petitioner took the EZ credits associated with those applications with the understanding that they were properly approved. At the time the Department approved each of the applications for EZ credits, it had access to the information in and attached to the applications, including the identities of employees eligible for the credits. What the Department did not have when it reviewed the applications would be the actual wages paid to the eligible employees, because most of those wages would not have been paid at that point. Actions Taken By the Auditor On February 27, 2015, the Department issued a Notice of Intent to Audit Books and Records to Michael’s, indicating that it would be subject to audit for the period February 1, 2012, through January 31, 2015. Robert Ward was the auditor assigned to conduct the audit. Mr. Ward was relatively new to the Department, and had not previously conducted an audit that involved EZ credits. As part of his audit preparation, Mr. Ward pulled a copy of the Department’s standard audit plan, as well as the Department’s audit plan specifications for the industry in question (here, the restaurant industry). He noted that Michael’s had been audited previously and that the current audit resulted from a “lead,” but could not recall the basis or substance of the lead. He also noted that EZ credits had been an issue in the previous audit, which spanned the period from March 1, 2007, through June 30, 2009. Mr. Ward conducted a pre-audit interview with Omar Azze, Petitioner’s comptroller, on May 1, 2015.1/ While there was an agenda prepared for this pre-audit meeting, it does not appear to be in the record. At this pre-audit meeting, Mr. Ward was focused on the routine aspects of the audit as opposed to EZ credits. The issue of EZ credits was first raised in a meeting with Mr. Azze and Mr. Schwartz on May 27, 2015. At that time, Mr. Ward advised that EZ credits would be disallowed because the employees for whom credits were taken were on the payroll of GHG as opposed to Michael’s. Mr. Ward stated at hearing that this decision was made not based upon additional information, but based upon the sharing of employees by different entities. Mr. Ward acknowledged that Michael’s had received approval to take EZ credits, and that Michael’s provided all of the documentation requested of it. He had sought guidance from his trainer, Michelle Samuels, and a senior revenue consultant, Miguel Suarez. Mr. Ward was advised to verify the validity of the EZ credits claimed, with the focus on the growth of full-time employment. If a company subject to an audit had not received an approval letter for the credits, then the credits would be disallowed automatically. If there was an approval letter (as there was here), Mr. Ward understood that he was to look at the application itself and review the information provided with the application, including the schedules filed with the application, in order to validate the use of the EZ credits. Mr. Ward acknowledged that the person who reviewed the application for the Department when it was approved had all of this information. He was advised that the turn-around period for the initial applications was short, and that the initial reviewer is not required to validate the information, because the reviewer would trust the accuracy of the affirmation required of the taxpayer. The initial approval did not mean that the Department would not later go back and reexamine the information originally submitted. In addition to the documents submitted with the applications, Mr. Ward considered other Department records, such as reemployment tax records. He also verified addresses for named employees in the applications using the DAVID database of the Department of Highway Safety and Motor Vehicles. The DAVID database maintains information related to drivers’ licenses and car registrations. The information in the DAVID database is not available to the general public, and was not available to Petitioner. Mr. Ward also acknowledged that people can have a different mailing address from their residential address for a variety of reasons, and they were not always consistent, even in the DAVID database.2/ For example, one of the employees listed by Petitioner on an application dated August 1, 2012, was Aleksandar Gjurovski. The DAVID records indicate that on July 20, 2013, Mr. Gjurovski changed his mailing address. However, his residential address was not changed in the DAVID system until a date after the filing of the enterprise zone application. Mr. Ward relied on the change in the mailing address alone to determine that Mr. Gjurovski did not live within the enterprise zone at the time of the application. It is found that, at the time of the application, Mr. Gjurovski lived in the enterprise zone. After consultation with his supervisors, Mr. Ward disallowed all of the EZ credits for 2012 and 2013, as well as some of the credits for 2014. Respondent issued Michael’s a Notice of Intent to Make Audit Changes dated November 10, 2015, for audit number 200180508. The reasons given in the Explanation of Items included in the Work Papers are initially listed by employee, as opposed to by date. For all of the employees for which credits were claimed for 2012 and 2013, the primary reason stated by Mr. Ward is that the employees for which EZ credits were claimed were not employees of Michael’s, but instead were employees of another company. If the application for EZ credits was filed during 2012 or 2013, but the credits were claimed past December 2013, all of the credits related to that employee were disallowed. Other reasons listed for disallowing the tax credits were that there was no demonstrated job growth (for employees Kates, Gibson, Lopez, Jackson-Thompson, Daniels, Bradbury, Allante, Alicea, Wallace, and Herget); that the employee for which the credit was claimed did not live in the enterprise zone (for employees Coleman, Albert, Gjurovski, and Lopez); and discrepancies in terms of when employment ended compared to dates credits were claimed, or whether appropriate amount of credit was claimed for wages paid (for employees Kates, Poinsetti, Gomez, Daniels, Bradbury, Williams, Allante, and Herget). The first two of these reasons were based upon Mr. Ward’s verification of the information provided in the EZ credit applications. With respect to those employees for whom credits were disallowed because they had left the employ of Michael’s, Petitioner introduced a letter from the Department’s tax specialist, Suzanne Paul. The letter stated that a company could claim credits up to three months after employment ended in order to recapture the three months of employment required prior to submitting an application for that employee. Mr. Ward was not aware of this letter at the time he performed the audit, and had he known, it would have changed his note, at least as to Mr. Gjurovski, concerning that basis for disallowing the credit. Respondent assessed Michael’s sales and use tax for disallowed EZ credits, for untaxed purchases of fixed assets, and for untaxed consumable purchases. Only the assessment related to disallowed EZ credits is challenged in this proceeding. The Notice of Intent to Make Audit changes included a penalty of $62,609.01. In the letter accompanying the notice, Mr. Ward informed Petitioner that the penalty for items assessed in Exhibit B01 had been adjusted based on the reasonable cause guidelines outlined in Florida Administrative Code Rule 12- 13.007. It appears that there was no adjustment or compromise of penalties associated with the disallowance of EZ credits. Mr. Ward testified that penalties were assessed in this case because EZ credits were also an issue in the prior audit for Michael’s. The payroll arrangement at issue in this case was not at issue in the prior audit, however, as it did not begin until 2012. The financial dealings of Michael’s, including the payment of taxes to the Department, were also under a new comptroller, who was not involved in the first audit. Lastly, while the Department found fault with EZ credits in the first audit, it compromised the taxes assessed for the same amount as those associated with the EZ credits. Mr. Ward acknowledged that, under the circumstances related to this audit, the penalty seemed harsh. The Department issued a Notice of Proposed Assessment (NOPA) on December 15, 2015, in which it assessed taxes in the amount of $127,243.77, penalties of $62,609.01, and interest as of December 15, 2015, of $19,605.03. Michael’s filed an informal protest of the proposed assessment with the Department by means of a letter dated February 5, 2016. On August 18, 2016, the Department issued a Notice of Decision that sustained the proposed assessment against Michael’s in full. The Notice of Decision, which is, by its terms, the Department’s final position in this matter, only addresses the issue of whether Michael’s is an eligible employer for the purpose of receiving EZ credits.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order assessing additional taxes based upon discrepancies in wages paid for eligible employees, and rejecting those parts of the assessment attributable to disallowance of enterprise zone credits based on information related to Petitioner’s initial applications. It is further recommended that no penalties be imposed on the reduced assessment. DONE AND ENTERED this 16th day of June, 2017, 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 16th day of June, 2017.
The Issue The issues in this bid protest are, first, whether, as Petitioner alleges, Intervenor's failure to attach copies of "occupational licenses" to its proposal was a deviation from the requirements of the Request for Proposal; second, whether any such deviation was material; and third, whether Respondent's preliminary decision to award Intervenor the contract at issue was clearly erroneous, arbitrary or capricious, or contrary to competition.
Findings Of Fact On September 18, 2009, Respondent Department of Transportation ("Department") issued Request for Proposal No. RFP-DOT-09/10-4007FS (the "RFP"). Through the RFP, which is entitled, "Treasure Coast Road Ranger Service Patrol," the Department solicited written proposals from qualified providers who would be willing and able to perform towing and emergency roadside services on Interstate 95 in Martin County, St. Lucie County, and Indian River County. The Department intended to award a three-year contract to the "responsive and responsible Proposer whose proposal is determined to be the most advantageous to the Department." The Department anticipated that the contract would have a term beginning on December 1, 2009, and ending on November 31, 2012. The annual contract price was not to exceed $1.59 million. Proposals were due on October 13, 2009. Four firms timely submitted proposals in response to the RFP, including Petitioner Sunshine Towing @ Broward, Inc. ("Sunshine") and Intervenor Anchor Towing and Marine of Broward, Inc. ("Anchor"). An evaluation ensued, pursuant to a process described in the RFP, during which the Department rejected two of the four proposals for failing to meet minimum requirements relating to technical aspects of the project. As a result, Sunshine and Anchor emerged as the only competitors eligible for the award. Sunshine offered to perform the contractual services for an annual price of $1,531,548. This sum was less than the price that Anchor proposed by $46,980 per year. Despite Sunshine's lower cost, Anchor nevertheless edged Sunshine in the final score, receiving 92.86 points (out of 100) from the Department's evaluators, to Sunshine's 87.75. On November 30, 2009, the Department duly notified the public of its intent to award the contract to Anchor. Sunshine promptly initiated the instant protest, whereby Sunshine seeks to have Anchor's proposal disqualified as nonresponsive, in hopes that the Department will then award the contract to Sunshine as the highest-ranked (indeed the sole) responsive proposer. Sunshine alleges that Anchor's proposal failed to conform strictly to the specifications of the RFP, principally because Anchor did not attach copies of its "occupational licenses" to the proposal. Anchor insists that its proposal was responsive but argues, alternatively, that if its proposal deviated from the specifications, the deviation was merely a minor irregularity which the Department could waive. Anchor further contends that Sunshine's proposal contains material deviations for which it should be deemed nonresponsive. The Department takes the position that Anchor's failure to attach "occupational licenses" was a minor irregularity that could be (and was) waived.1 The RFP includes a "Special Conditions" section wherein the specifications at the heart of this dispute are located. Of particular interest is Special Condition No. 8, which specifies the qualifications a provider must have to be considered qualified to perform the services called for under the contract to be awarded. Special Condition No. 8 provides as follows: QUALIFICATIONS General The Department will determine whether the Proposer is qualified to perform the services being contracted based upon their proposal demonstrating satisfactory experience and capability in the work area. The Proposer shall identify necessary experienced personnel and facilities to support the activities associated with this proposal. Qualifications of Key Personnel Those individuals who will be directly involved in the project should have demonstrated experience in the areas delineated in the scope of work. Individuals whose qualifications are presented will be committed to the project for its duration unless otherwise excepted by the Department's Project Manager. Where State of Florida registration or certification is deemed appropriate, a copy of the registration or certificate should be included in the proposal package. Authorized To Do Business in the State of Florida In accordance with sections 607.1501, 608.501, and 620.169, Florida Statutes, foreign corporations, foreign limited liability companies, and foreign limited partnerships must be authorized to do business in the State of Florida. Such authorization should be obtained by the proposal due date and time, but in any case, must be obtained prior to the posting of the intended award of the contact. For authorization, [contact the Florida Department of State].[2] Licensed to Conduct Business in the State of Florida If the business being provided requires that individuals be licensed by the Department of Business and Professional Regulation, such licenses should be obtained by the proposal due date and time, but in any case, must be obtained prior to the posting of the intended award of the contract. For licensing, [contact the Florida Department of Business and Professional Regulation]. References and experience must entail a minimum of three (3) years of experience in the towing industry in Florida. NOTE: Copies of occupational licenses must also be attached to the back of Form 'F'. (Boldface in original.) Special Condition No. 19, which defines the term "responsive proposal," provides as follows: RESPONSIVENESS OF PROPOSALS Responsiveness of Proposals Proposals will not be considered if not received by the Department on or before the date and time specified as the due date for submission. All proposals must be typed or printed in ink. A responsive proposal is an offer to perform the scope of services called for in this Request for Proposal in accordance with all the requirements of this Request for Proposal and receiving fifty (50) points or more on the Technical Proposal.[3] Proposals found to be non-responsive shall not be considered. Proposals may be rejected if found to be irregular or not in conformance with the requirements and instructions herein contained. A proposal may be found to be irregular or non-responsive by reasons that include, but are not limited to, failure to utilize or complete prescribed forms, conditional proposals, incomplete proposals, indefinite or ambiguous proposals, and improper and/or undated signatures. (Emphasis and boldface in original.) In the "General Instructions to Respondents" section of the RFP there appears the following reservation of rights: 16. Minor Irregularities/Right to Reject. The Buyer reserves the right to accept or reject any and all bids, or separable portions thereof, and to waive any minor irregularity, technicality, or omission if the Buyer determines that doing so will serve the State's best interests. The Buyer may reject any response not submitted in the manner specified by the solicitation documents. Anchor did not attach copies of any "occupational licenses" to the back of Form 'F' in its proposal. Anchor contends that it did not need to attach such licenses because none exists. This position is based on two undisputed facts: (1) The Florida Department of Business and Professional Regulation ("DBPR") does not regulate the business of providing towing and emergency roadside assistance; therefore, neither Anchor nor Sunshine held (or could hold) a state-issued license to operate, and neither company fell under DBPR's regulatory jurisdiction. (2) The instrument formerly known as an "occupational license," which local governments had issued for decades, not for regulatory purposes but as a means of raising revenue, is presently called (at least formally) a "business tax receipt," after the Florida Legislature, in 2006, amended Chapter 205 of the Florida Statutes, changing the name of that law from the "Local Occupational License Tax Act" to the "Local Business Tax Act." See 2006 Fla. Laws ch. 152. Sunshine asserts that the terms "occupational license" and "business tax receipt" are synonymous and interchangeable, and that the RFP required each offeror to attach copies of its occupational licenses/business tax receipts to the proposal. Sunshine insists that Anchor's failure to do so constituted a material deviation from the specifications because, without such documentation, the Department could not be sure whether an offeror was authorized to do business in any given locality. Sunshine presses this argument a step further based on some additional undisputed facts. As it happened, at the time the proposals were opened, Anchor held a local business tax receipt from the City of Pembroke Pines, which is the municipality in which Anchor maintains its principal place of business. Anchor had not, however, paid local business taxes to Broward County when they became due, respectively, on July 1, 2008, and July 1, 2009. Anchor corrected this problem on December 14, 2009, which was about two weeks after the Department had posted notice of its intent to award Anchor the contract, paying Broward County a grand total of $248.45 in back taxes, collection costs, and late penalties. As of this writing, all of Anchor's local business tax obligations are paid in full. Sunshine contends, however, that during the period of time that Anchor's Broward County business taxes were delinquent, Anchor was not authorized to do business in Broward County and hence was not a "responsible" proposer eligible for award of the contract. In support of this proposition, Sunshine relies upon Section 20-15 of the Broward County, Florida, Code of Ordinances ("Broward Code"), which states: Pursuant to the authority granted by Chapter 205, Florida Statutes, no person shall engage in or manage any business, profession or occupation, as the same are contemplated by Chapter 205, Florida Statutes, unless such person first obtains a business tax receipt as required by this article, unless other exempt from this requirement . . . . On this latter point regarding Anchor's authority to operate in Broward County, Sunshine appears to be correct, at least in a narrow legal sense. It is abundantly clear, however, and the undersigned finds, that, as a matter of fact, Anchor was never in any danger of being shut down by the county. Indeed, even under the strict letter of the local law, Anchor was entitled to continue operating in Broward County unless and until the county took steps to compel the payment of the delinquent taxes. Broward Code Section 20-22, which deals with the enforcement of the business tax provisions, provides: Whenever any person who is subject to the payment of a business tax or privilege tax provided by this article shall fail to pay the same when due, the tax collector, within three (3) years from the due date of the tax, may issue a warrant directed to the Broward County Sheriff, commanding him/her to levy upon and sell any real or personal property of such person liable for said tax for the amount thereof and the cost of executing the warrant and to return such warrant to the tax collector and to pay him/her the money collected by virtue thereof within sixty (60) days from the date of the warrant. . . . The tax collector may file a copy of the warrant with the Clerk of the Circuit Court of Broward County[, which shall be recorded in the public records and thereby] become a lien for seven (7) years from the due date of the tax. . . . Any person subject to, and who fails to pay, a business tax or privilege tax required by this article, shall, on petition of the tax collector, be enjoined by the Circuit Court from engaging in the business for which he/she has failed to pay said business tax, until such time as he/she shall pay the same with costs of such action. There is no evidence suggesting that the county ever sought to enjoin, or that a court ever issued an injunction prohibiting, Anchor from engaging in business, nor does it appear, based on the evidence, that a tax warrant ever was issued, filed, or executed to force Anchor to pay its back taxes. Given the relatively small amount of tax due, the likelihood of such enforcement actions being taken must reasonably be reckoned as slim to none. While paying taxes when due is certainly the obligation of a good corporate citizen, it would not be reasonable, based on the facts established in this case, to infer that Anchor is a scofflaw for failing to timely pay a local tax amounting to about $80 per year. Anchor, in short, was a responsible proposer. Sunshine's other argument has more going for it. The RFP clearly and unambiguously mandated that "occupational licenses" be attached to a proposal. If, as Sunshine maintains, the terms "occupational license" and "business tax receipt" are clearly synonymous, then Anchor's proposal was noncompliant. For reasons that will be explained below, however, the undersigned has concluded, as a matter of law, that the term "occupational license" does not unambiguously denote a "business tax receipt"——at least not in the context of Special Condition No. 8. The specification, in other words, is ambiguous. No one protested the specification or otherwise sought clarification of the Department's intent. The evidence shows, and the undersigned finds, that the Department understood and intended the term "occupational license" to mean the instrument now known as a "business tax receipt." The Department simply used the outdated name, as many others probably still do, owing to that facet of human nature captured by the expression, "old habits die hard." The Department's interpretation of the ambiguous specification is not clearly erroneous and therefore should not be disturbed in this proceeding. Based on the Department's interpretation of Special Condition No. 8, the undersigned finds that Anchor's failure to attach copies of its occupational licenses was a deviation from the requirements of the RFP. That is not the end of the matter, however, for a deviation is not necessarily disqualifying unless it is found to be material. The letting authority may, in the exercise of discretion, choose to waive a minor irregularity if doing so will not compromise the integrity and fairness of the competition. There is no persuasive direct evidence in the record that the Department made a conscious decision to waive the irregularity in Anchor's proposal. Documents in the Department's procurement file show, however, that the Department knew that Anchor's proposal lacked copies of occupational licenses, and in any event this was a patent defect, inasmuch as nothing was attached to the back of Anchor's Form 'F'. It is therefore reasonable to infer that the Department elected to waive the irregularity, and the undersigned so finds. Necessarily implicit in the Department's action (waiving the deficiency) is an agency determination that that the irregularity was a minor one. The question of whether or not Anchor's noncompliance with Special Condition No. 8 was material is fairly debatable. Ultimately, however, the undersigned is unable to find, for reasons more fully developed below, that the Department's determination in this regard was clearly erroneous. Because the Department's determination was not clearly erroneous, the undersigned accepts that Anchor's failure to submit occupational licenses was a minor irregularity, which the Department could waive. The Department's decision to waive the minor irregularity is entitled to great deference and should be upheld unless it was arbitrary or capricious. The undersigned cannot say that waiving the deficiency in question was illogical, despotic, thoughtless, or otherwise an abuse of discretion; to the contrary, once it has been concluded that the irregularity is minor and immaterial, as the Department not incorrectly did here, waiver seems the reasonable and logical course of action. The upshot is that the proposed award to Anchor should be allowed to stand. The foregoing determination renders moot the disputed issues of fact arising from Anchor's allegation that Sunshine's proposal was nonresponsive. It is unnecessary, therefore, for the undersigned to make additional findings on that subject.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a Final Order consistent with its preliminary decision to award Anchor the contract at issue. DONE AND ENTERED this 6th day of April, 2010, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 6th day of April, 2010.
Findings Of Fact The parties stipulated to findings of fact set forth in paragraphs 1-5, below. Zurich is an insurer domiciled in the State of New York. Zurich is authorized to do insurance business in the State of Florida. Zurich pays insurance premium taxes to the State of Florida. As a foreign insurer doing business in Florida, Zurich is subject to the provisions of Florida's retaliatory tax, Section 624.5091, Florida Statutes. Respondent Department of Revenue (Revenue) is the state agency charged with the duty to implement and enforce Section 624.5091, Florida Statutes. Zurich's interests are substantially affected by Revenue's Rule 12B- 8.016(3)(a)(4), Florida Administrative Code, by virtue of the tax assessment made against Zurich pursuant to the rule. OTHER FACTS Prior to 1989, the Department of Insurance administered insurance taxation. Now, Revenue has that responsibility. Section 213.05, Florida Statutes, directs Revenue to administer provisions of Sections 624.509 through 624.514, Florida Statutes. Section 213.06(1), Florida Statutes, authorizes Revenue to promulgate rules to implement those responsibilities. Rule 12B-8.016 was first promulgated by Revenue in December of 1989 to implement statutory authority of Section 624.429 (currently renumbered as 624.5091). This statute authorized retaliatory taxation against non-domiciled insurers in the amount by which their state of domicile would tax Florida insurers in excess of Florida's comparable tax. The statute provides in pertinent part: When by or pursuant to the laws of any other state or foreign country any taxes, licenses, and other fees, in the aggregate, and any fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions are or would be imposed upon Florida insurers or upon the agents or representatives of such insurers, which are in excess of such taxes, licenses, and other fees, in the aggregate, or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers, of such other state or country under the statutes of this state, so long as such laws of such other state or country continue in force or are so applied, the same taxes, licenses, and other fees, in the aggregate, or fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions of whatever kind shall be imposed by the department upon the insurers, or upon the agents or representatives of such insurers, of such other state or country doing business or seeking to do business in this state. As it existed in 1989 and currently, the statute contains an exclusionary provision expressly excluding from the retaliatory tax any special purpose assessments in connection with insurance other than property insurance. This exclusionary provision is part of Subsection 3 of the current statute, 624.5091, and reads as follows: (3)This section does not apply as to personal income taxes, nor as to sales or use taxes, nor as to ad valorem taxes on real or personal property, nor as to reimbursement premiums paid to the Florida Hurricane Catastrophe Fund, nor as to emergency assessments paid to the Florida Hurricane Catastrophe Fund, nor as to special purpose obligations or assessments imposed in connection with particular kinds of insurance other than property insurance, except that deductions, from premium taxes or other taxes otherwise payable, allowed on account of real estate or personal property taxes paid shall be taken into consideration by the department in determining the propriety and extent of retaliatory action under this section. The parties concede that Revenue's Rule 12B-8.016 accurately tracts the first part of the retaliatory taxation statute. But a subpart of the Rule, 12B- 8.016(3)(a)(4), is challenged by Zurich in this proceeding because that subpart provides for inclusion of the assessment for administration of workers compensation in Florida and comparable assessments in other states. The rule subpart states: (3)(a) Other items which shall be included in the retaliatory calculations are: * * * 4. The workers compensation administrative assessment imposed by s. 440.51, F.S., as well as comparable assessments in other states. The State of Florida imposes assessment on workers compensation carriers such as Zurich in accordance with authority contained in Section 440.51, Florida Statutes, which is entitled "Expenses of Administration." Section 440.51 provides for the pro-rata assessment of all insurers and self- insurers of workers compensation to cover expenses of administering the workers compensation program. The assessment is a "special fund" that does not involve appropriated funds or general state revenues. Zurich's home state of New York imposes a comparable assessment. In accordance with Rule 12B-8.016(3)(a)(4), Florida Administrative Code, Revenue includes calculations for the Worker's Compensation Board Administrative Fund in the state of New York in Zurich's retaliatory tax calculation. In drafting the rule in 1989, Revenue relied upon Attorney General Opinion 057-173, which advised that Florida's Worker's Compensation Administrative Assessment should be considered a "tax" for purposes of retaliatory tax calculation. On this basis, Revenue's rule requires that such assessments be considered as "taxes" and included in the retaliatory tax calculation. However, following the issuance of Attorney General Opinion 057-173, the Florida legislature in 1959 enacted the present Subsection 624.5091(3), Florida Statutes, specifically excluding the consideration of "special purpose obligations or assessments imposed in connection with particular kinds of insurance other than property insurance" in retaliatory tax calculations. Following the 1959 enactment of the exclusionary language contained in Subsection 624.5091(3), Florida Statutes, the Department of Insurance did not include comparable worker compensation assessments of other states. The Department of Insurance administered insurance taxation until 1989. Department of Insurance forms introduced into evidence for 1986 showed that the Florida assessment, pursuant to Section 440.51 Florida Statutes, was treated as a deduction against Florida's premium tax and added back in on the Florida side of the retaliatory tax calculation. But the assessment was not included in a manner to inflate the calculation of the domiciliary state's comparative tax base. When Revenue assumed administration of insurance taxation in 1989, a proposed rule and an emergency rule were promulgated. Neither provided for inclusion of foreign states' special purpose administrative assessments in retaliatory tax calculation. In the course of the promulgation process, the determination to treat the worker compensation administrative assessment as a tax became a part of the rule. The purpose of Florida's retaliatory statute is to influence other states' legislative discretion to lower the tax burden on Florida insurers doing business in those other states. The items to be compared for retaliatory purposes are determined by the legislature and not by Revenue, Revenue auditors, or other states.
The Issue The issues for determination are whether the emergency suspension of Respondents' licenses was proper and whether revocation of those licenses is required.
Findings Of Fact Respondent Robinson, an authorized Chevron representative, is the sole proprietor of Jack A. Robinson, Distributor. Respondent R&R Partnership (R&R) is a partnership between Jack A. Robinson and Dee Ann Rich (Rich). Respondent I-10 Corporation (Stacks) is a subchapter S corporation in which Respondent Robinson is a 50 percent shareholder. Rich is the general manager of Jack A. Robinson, Distributor and exercises administrative responsibilities with regard to Respondents Stacks and R & R Corporation. Robinson holds Special Fuel Dealer's License No. 10 Wholesaler's License No. 09000950/9356 issued by Petitioner. Robinson sells diesel fuel and gasoline at wholesale to I unrelated parties. I products at retail. Robinson admits in response to Counts III, IV, VI, VII, VIII, IX, X, XI, XII, XVI, XIX, XXII, XXIII, XXIV, XXVII, and XXX, of the Notice To Show Cause in DOAH Case No. 93-1563 that $210,876.19 of tax remains due and owing. Rich is Jack A. Robinson's step supervising and preparing tax returns for Robinson. With regard to the $210,876.19 admitted as due and owing, these state funds were collected by Respondent Jack A. Robinson as an agent for the State of Florida but, instead of being remitted to the state, these funds were spent by Respondent in the course of business operation. DOAH Case No. 93-1563 In response to Counts I, II, V, XV, XVII, XXI, XVI, XXVIII, and XXIX of the Notice To Show Cause in DOAH Case No. 93 that $103,452.71 tax is due. As to Count I, the balance for the tax return period of February 1990, for motor fuel tax due is $2,524.14. In regard to Count II, Respondent also owes motor fuel tax in the amount of $26,839.71 for the tax return period of March, 1990. Although Rich requested Respondent's bank to make the appropriate electronic funds transfer to Petitioner, the amount was not received by Petitioner and no explanation was provided by Respondent for the failure of Petitioner to receive this amount. As to Count V, Respondent owes a total motor fuel tax of $12,900.27. The previous total of $36,232.69 was reduced by a late partial payment of $11,562.53, and an additional payment of $11,769.87 on September 25, 1991. No payment of tax was made for the period of March 1992. As to Count XIV, Respondent Robinson filed a tax return for January 1993, motor fuel local option tax in the month of February 1993. The return showed a total tax due of $21,044.62. A collection allowance of $148.56 is shown deducted. No proof of payment of the tax was presented. In regard to Count XVII, a return for the tax period of March 1990, was filed on behalf of Respondent Robinson, declaring a total special fuel tax due of $23,572.82. No evidence was presented that payment was actually made, although Rich testified that a wire transfer payment of that amount was requested by Respondent. With regard to Respondent Robinson, the amounts of tax admitted in responsive pleading together with all counts of the Notice To Show Cause where no evidence or allegation of payment was presented total: Admitted in pleading $210,876.19 Admitted owing for March of 1990 in Motor Fuel and Special Fuel Tax $ 50,412.53 Copies of Returns introduced and alleged to have been filed, but unsupported by Petitioner's records and otherwise unsubstan- tiated by proof (for August of 1992 and January of 1993). $ 35,655.06 No proof of payment presented for balance of November of 1990 tax. $ 12,900.27 Admitted, paid less than due for January 1990; August 1990; and November, 1990. $ 8,058.52 This amount does not include applicable penalties and interest. DOAH Case No. 93-1565 Counts I through IV are admitted by Respondent R & R Partnership as to the amounts owned for a total tax due of $9,189.12. This amount does not include applicable penalties and accrued interest. While R & R reported taxes due on Respondent Robinson's returns, no proof was submitted that these taxes were paid to Petitioner. For the tax period of January, 1993, Rich maintained that a return was filed on behalf of R & R partnership and payment made. However, the copy of the payment check presented at hearing had "2/93" written in pencil as the date of the check and no evidence was presented that the check was presented for payment to Respondent's bank. DOAH CASE NO. 93-1564 With regard to I allegations of Counts I, II, III, IV, V, VII, VIII, X, XI, and XII. As to Counts VI and IX, Respondent denies only that there was improper reporting, not that the amount of tax is not due. Respondent maintains that all taxes collected by Stacks were paid to Respondent Robinson and reported on those returns. The periods of January 1990; February 1990; March 1990; April 1990; August 1990; November 1990; February 1992; correspond to the counts of the Notice To Show Cause to which Stacks denies all allegations. These periods and denied counts match precisely with periods in Counts IX, X, XI, XII, XV, XVI, XVII, XVIII, XIX, XX, XXI, XXII, of the Notice To Show Cause filed against Respondent Robinson. Robinson admits Counts IX, X, XI, XII, XVI, XVII, XIX, XX, and XXII and presented no proof of payment at hearing with regard to Count XV and XVII. This fact, coupled with testimony that Stacks and R & R taxes were paid to Robinson and reported as line items on his returns, show that Stacks does owe the taxes claimed by Petitioner in the amount of $36,029.45 exclusive of interest and penalties. Debra Swift, a Certified Public Accountant, employed by Petitioner, personally reviewed records of Petitioner in determining the amounts of tax, penalty and interest due from each Respondent. All payments received by Petitioner were credited by Swift in performing her calculations.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a Final Order be entered revoking the fuel licenses of all three Respondents. DONE AND ENTERED this 13th day of May, 1993, in Tallahassee, Leon County, Florida. DON W. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of May, 1993. APPENDIX The following constitutes my rulings pursuant to Section 120.59, Florida Statutes, on proposed findings of fact submitted by the parties. Petitioner's Proposed Findings: 1.-12. Adopted, though not verbatim. 13.-15. Accepted. 16.-22. Accepted. Respondent's Proposed Findings: 1. Rejected, no record citation. 2.-3. Adopted. 4. Accepted, except for last sentence which is rejected as legal conclusion. 5.-7. Adopted. 8.-9. Rejected, subordinate to HO findings on this point. 10.-12. Rejected, weight of the evidence. 13. Rejected, relevancy. 14.-16. Rejected, subordinate to HO findings. 17. Adopted by reference. 18.-21. Rejected, subordinate to HO findings. 22.-24. Rejected, weight of the evidence, no citation. 25._38. Rejected, subordinate to HO findings. 39.-40. Rejected, weight of the evidence. 41.-42. Adopted by reference. 43.-44. Rejected, subordinate, misconstruction of testimony. 45. Rejected, conclusion of law, weight of the evidence. 46.-48. Rejected, subordinate, argumentative, relevancy. COPIES FURNISHED: Lealand L. McCharen Assistant Attorney General Department of Legal Affairs The Capitol-Tax Section Tallahassee, FL 32399-1050 Timothy J. Warfel Messer, Vickers Suite 701 First Florida Bank Building 215 South Monroe Street Post Office Box 1878 Tallahassee, FL 32302 Linda Lettera General Counsel 204 Carlton Building Tallahassee, FL 32399-0100 Larry Fuchs Executive Director 104 Carlton Building Tallahassee, FL 32399-0100
The Issue The issue presented is whether the $5.00 per gallon tax on perchloroethylene provided for in Section 376.75, Florida Statutes, is subject to Florida sales and use tax pursuant to Chapter 212, Florida Statutes. STIPULATED FACTS Petitioner is a for-profit Florida corporation that sells perchloroethylene and other dry-cleaning supplies to the dry-cleaning industry. It is a "wholesale supply facility" as that term is defined in Section 376.301(17), Florida Statutes. Petitioner is a member of the Florida Drycleaners' Coalition, a state-wide trade association whose members consist of the owners/operators of dry-cleaning facilities and wholesale supply facilities. In 1993 and prior to and during the 1994 Florida legislative session, the Florida Drycleaners' Coalition employed lawyers-lobbyists to suggest and seek passage of amendments to Chapter 376, Florida Statutes, commonly known as the Florida Dry-Cleaning Solvents Cleanup Program. In 1994, the Florida Legislature enacted Chapter 94- 355, Laws of Florida, which amended Chapter 376, Florida Statutes. Chapter 94-355 created Section 376.3078(2)(a), Florida Statutes, which provides that: All penalties, judgments, recoveries, reimbursements, loans, and other fees and charges related to the implementation of this section and the tax revenues levied, collected, and credited pursuant to ss. 376.70 and 376.75, and registration fees collected pursuant to s. 376.303(1)(d), shall be deposited into the Water Quality Assurance Trust Fund, to be used upon appropriation as provided in this section. Charges against the funds for dry-cleaning facility or wholesale supply site rehabilitation shall be made in accordance with the provisions of this section. Chapter 94-355, Laws of Florida, also created Section 376.75, Florida Statutes, which provides, in part, as follows: Beginning October 1, 1994, a tax is levied on the privilege of producing in, importing into, or causing to be imported into the state perchloroethylene (tetrachloroethylene). A tax of $5.00 per gallon is levied on each gallon of perchloroethylene when first imported into or produced in the state. The tax is imposed when transfer of title or possession, or both, of the product occurs in this state or when the product commingles with the general mass of this state. Petitioner's corporate secretary and 50 percent shareholder is David J. Pilger. He contributed financially to the employment by the Florida Drycleaners' Coalition of lawyers- lobbyists charged with seeking passage of amendments to Chapter 376, Florida Statutes, and met several times with those lawyers- lobbyists in Tallahassee. He was assured during those meetings that it was the opinion of those lawyers-lobbyists that there was no danger of Florida sales tax being applied to the $5.00 per gallon tax on perchloroethylene. The Department conducted an audit of Petitioner for the period of January 1, 1993, through January 31, 1998. At no time prior to the Department's audit of Petitioner's financial records did Petitioner receive from the Department materials of any kind indicating that Florida sales and use tax would apply to the $5.00 per gallon tax on perchloroethylene. The Department had, however, adopted emergency Rule 12BER94-2, effective October 1, 1994, and Rule 12B-12.003(2)(b), Florida Administrative Code, effective February 19, 1995. The 1998 Florida Legislature amended Section 376.75, Florida Statutes, by enacting Chapter 98-189, Laws of Florida, effective July 1, 1998, which added a sentence regarding the $5.00 per gallon tax, as follows: "This tax is not subject to sales and use tax pursuant to ch. 212." The Department has assessed and/or collected from certain taxpayers Florida sales and use tax on the sales price of perchloroethylene and the $5.00 per gallon tax on perchloroethylene. The sales and use taxes are deposited into the general revenue fund pursuant to Section 212.20(1), Florida Statutes. The $5.00 per gallon tax on perchloroethylene is deposited into the Water Quality Assurance Trust Fund, pursuant to Section 376.3078(2)(a), Florida Statutes. The Department issued its Notice of Proposed Assessment to Petitioner on October 22, 1998, assessing sales and use tax of $39,098.66, penalties of $19,549.64, and interest of $11,184.10 through October 22, 1998, with interest of $12.85 to accrue per day. The Department issued its Notice of Proposed Assessment to Petitioner on October 22, 1998, assessing indigent care surtax of $2,128.98, penalties of $1,064.48, and interest of $611.97 through October 22, 1998, and interest of $.70 to accrue per day. Petitioner charged its customers and remitted to the Department the $5.00 per gallon tax on perchloroethylene provided for in Section 376.75, Florida Statutes, but neither collected from the customer nor remitted to the Department sales and use tax on this $5.00 per gallon tax. The $5.00 per gallon tax collected by Petitioner from its customers was reflected at the bottom of Petitioner's invoices as "the ENVRN TAX." Petitioner charged its customers and remitted to the Department the excise tax provided for in Section 206.9935(2), Florida Statutes, but neither collected from its customers nor remitted to the Department sales and use taxes or indigent care surtax on this excise tax. This tax was reflected at the bottom of Petitioner's invoices as "PERC TAX." Petitioner does not contest the Department's assessment of sales and use taxes and indigent care surtax on the water quality tax provided for in Section 206.9935(2), Florida Statutes. Petitioner does not dispute that its sales to its customers during the audit period were paid for by its customers.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered sustaining the assessment against Petitioner, together with interest, but compromising the entire penalty amount. DONE AND ENTERED this 22nd day of November, 1999, in Tallahassee, Leon County, Florida. LINDA M. RIGOT 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 22nd day of November, 1999. COPIES FURNISHED: Jarrell L. Murchison, Esquire John Mika, Esquire Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Fred McCormack, Esquire Landers & Parsons, P.A. 310 West College Avenue Tallahassee, Florida 32301 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32314-6668 Joseph C. Mellichamp, III, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
