The Issue The issue is whether Respondent properly scored Petitioner's application for an allocation of low-income housing federal income tax credits.
Findings Of Fact Respondent is a not-for-profit corporation organized under Section 420.504, Florida Statutes. Respondent's purpose is to facilitate the construction of affordable housing in Florida by assisting developers interested in providing such housing. Respondent administers several affordable housing programs. The program involved in this case is the competitive housing credit (HC) program, which allocates the low-income housing federal income tax credits allowed by Section 42, Internal Revenue Code (Tax Credits). Developers use or, more often, sell the Tax Credits to make their projects financially feasible by offsetting the reduced income characteristically generated by affordable housing. The HC program allocates Tax Credits to those projects that Respondent determines best serve the affordable housing needs of Florida residents. The allocation process is competitive because Section 42, Internal Revenue Code, allocates to each state a limited amount of Tax Credits. Each year, developers propose projects whose collective qualified basis would yield many more Tax Credits than Florida is allocated under Section 42; this year, for instance, Respondent could have allocated four times the amount of Tax Credits actually available. To allocate the available Tax Credits, Respondent has established a competitive process. In the first stage, Respondent assigns preliminary scores to each completed application and then ranks the applications by their scores. The application with the most points tentatively receives the first Tax Credits to be allocated, and this process is repeated with the remaining applications, in their order of ranking, until the available Tax Credits are exhausted. In the second stage, Respondent invites those applicants whose applications have tentatively received an allocation of Tax Credits to enter credit underwriting. Credit underwriting involves a more detailed examination of each application, during which time applicants may make certain revisions in their proposed projects. At the conclusion of credit underwriting, Respondent makes final allocations of Tax Credits to specific proposed projects. This case involves the preliminary scoring that precedes credit underwriting. This case raises the issue of the accuracy of Respondent's scoring of one or two items in Petitioner's application: the loan commitment letter and, if the next issue is resolved in Petitioner's favor, the equity commitment letter. However, the most important issue in this case requires a determination of the extent to which, during the preliminary scoring process, an applicant may revise or correct the set-aside election made in its application or, in the alternative, the necessity, if any, that Petitioner attempt to make such a revision or correction. A minor issue in this case is the propriety of certain penalties that Respondent imposed. During the hearing, the parties stipulated that the Administrative Law Judge was not to attempt a comprehensive rescoring of Petitioner's application, if he were to sustain any portion of Petitioner's challenge. As explained by Respondent's witness, scoring involves a myriad of contingencies and, if presented with any items requiring rescoring, Respondent's employees running the scoring spreadsheet would require as much as one hour to recalculate Petitioner's score. Thus, the parties agreed that Respondent would perform any recalculation within one business day following the issuance of the recommended order, although, of course, performing the recalculation would not waive Respondent's right to file any exceptions that it deems necessary or otherwise oppose any recommended changes to the scoring of Petitioner's application. The parties also agreed upon an expedited schedule for post-hearing filings. The parties agreed to file their proposed recommended orders by 9:00 a.m. on October 19, 2000, serving the Administrative Law Judge by e-mail the prior evening. The Administrative Law Judge agreed to issue the recommended order on or before October 20, 2000. The parties further agreed to file exceptions on or before October 23, 2000, and any responses to exceptions on or before October 25, 2000. The parties and Administrative Law Judge have agreed upon this expedited filing schedule because the last opportunity for Petitioner to receive Tax Credits for the cycle for which it applied would require final action by Respondent's board at its October 27, 2000, meeting. The application for the subject cycle of the HC program comprises 24 Forms requesting detailed information. Respondent imposes a deadline by which all applicants must submit their completed applications. Following this deadline, Respondent conducts the preliminary scoring. The HC program has a maximum of 632 points, divided as follows: Form 1--0 points; Form 2--2 points; Form 3--85 points; Form 4--150 points; Form 5--20 points; Form 6--5 points; Form 7--106 points; Form 8--44 points; Form 9--100 points; Form 10--10 points; Form 11--50 points; Form 12--35 points; Form 13--0 points; Form 14--45 points; Form 15--10 points; Form 16--25 points; Form 17--95 points; Form 18--15 points; Form 19--0 points; Form 20--50 points; Form 21--30 points; Form 22--30 points; Form 23--0 points; and Form 24--0 points. The application forms impose minor penalties for the failure of an application to provide "complete, accurate information in the format and location prescribed by the instructions . . .." Any such omissions or inaccuracies in any or all of Forms 1-4 result in a 2.5 point penalty. In other words, omissions or inaccuracies in one or all four of these Forms result in a single 2.5 point penalty. Any such omissions or inaccuracies in any or all of Forms 5-10 result in a 1.5 point penalty. Any such omissions or inaccuracies in any or all of Forms 11-13 result in a 1 point penalty. Any such omissions or inaccuracies in one or all of Forms 14-19 result in a 1 point penalty. Any such omissions or inaccuracies in one or all of Forms 20-24 result in a 1 point penalty. Petitioner does not contest the 1 point penalty that Respondent has imposed for the erroneous entry, described below, at Form 20, Item I. However, Petitioner contests Respondent's scoring of other Items and assessment of other penalties, based on the election made at Form 20, Item I. These scoring and penalty issues include, but may not be limited to, the 2.5 point penalty imposed on Forms 1-4 due to an inconsistency between the set-aside information provided in Forms 1 and 20; up to 144.67 points lost in Form 4 due to the failure to meet the condition in the equity commitment letter that the qualified basis attributable to all 230 units qualify for Tax Credits; seven of eight points lost in Form 10 for the deficiency in leveraging Tax Credits due to the loss of nearly half of the expected Tax Credits; and 30 points lost in Form 21 due to the determination that the equity commitment letter is not firm and unconditional. Petitioner claims that these lost points and penalty, together with any points lost on Form 4 for the determination that the loan commitment letter is not firm and unconditional and the 1.5 point penalty for an omission from the environmental safety certification in Form 7, Exhibit D, improperly prevented Petitioner's application from entering credit underwriting for an allocation of Tax Credits. Petitioner timely submitted its application for the HC program. Form 1, Item I.A, of Petitioner's application states that Petitioner is a limited partnership whose general partner, Affordable Housing Solutions for Florida, Inc., is a not-for-profit corporation. At present, Petitioner's general partner owns 100 percent of the partnership interests. Form 1, Item I.C, states that Heritage Affordable Development, Inc., is the "co-developer," but has no ownership interest in Petitioner. Form 1, Item II.A, describes the proposed project as a rehabilitation of an existing development in Daytona Beach. Form 1 identifies a total of 230 residential units in the project, which is to be known as Daytona Garden Apartments. Form 1, Item IV, is a certification that is signed by Petitioner. In relevant part, the certification states: The Applicant and all Financial Beneficiaries understand and agree that full points will be awarded only in the event that all information required by each form is provided in accordance with the application requirements. Failure to provide complete, accurate information in the format and location prescribed by the application will result in a REDUCTION OF POINTS OR REJECTION OF THE APPLICATION as indicated on each form. Subject to the limited exceptions contained within Rule 67-48.005, F.A.C., only information contained within this application will be considered for purposes of points awarded or appealed. . . . Most of the points at issue in this case arise from a mistake that Respondent claims to have made in completing Form 20, Item I. This item requires the applicant to make a crucial election for its proposed project. The two relevant choices are: 1) 20 percent of the units are set aside for persons earning no more than 50 percent of the area median income (20/50) or 2) 40 percent of the units are set aside for persons earning no more than 60 percent of the area median income (40/60). The application notes clearly that, pursuant to federal regulation, 20/50 elections restrict all set-aside units to no more than 50 percent of the area median income. The percentage of set-aside units determines the extent to which the qualified basis of a project may yield Tax Credits. The purpose of Section 42, Internal Revenue Code, and the HC program is to facilitate the development of affordable housing. The set-aside election assures that the developer will reserve a certain percentage of units in the project for reduced-income residents. The 40/60 election means that the developer is setting aside a minimum of 40 percent of the units for residents earning no more than 60 percent of the area median income. The developer may choose to set aside for such reduced-income residents a greater percentage of the units in order to qualify for more Tax Credits. The 20/50 election offers the developer the same type of option, but, due to the cited federal regulation, the developer may only claim additional Tax Credits for units set aside for residents earning no more than 50 percent--not 60 percent--of the area median income. In making its election on Form 20, Item I, Petitioner placed an x in the box for the 20/50 election. Petitioner claims to have intended to have placed an x in the box for the 40/60 election. As already noted, the 20/50 election precludes the allocation of any Tax Credits for units set aside for residents earning more than 50 percent of the area median income. However, Petitioner's application sets aside nearly half of its 230 units for residents earning 60 percent of the area median income, and the application anticipates receiving tax credits for these set-asides, as well as the set-asides for residents earning 50 percent or less of the area median income. Numerous elements in Petitioner's application reveal Petitioner's expectation to qualify the entire basis of its project for Tax Credits. For instance, Form 1, Item III.E, shows that 100 percent of the 230 units are set aside. However, a note at the top of this sub-item warns: "If the set-aside percentage and the Number of Residential Units shown in Items E, F, G and H are found to be inconsistent with other forms in the Application, the information contained in Form. . . 20 for [the HC program] WILL BE RELIED UPON." Form 10, which calculates the leveraging effect of allocated tax credits based on the number of set-aside units, similarly reveals the expectation that 230 units would be set aside for lower-income residents and, thus, eligible for generating Tax Credits. On Form 20, Item III, Petitioner provided additional evidence of its expectation to obtain tax credits for all 230 of its set-aside units. Item III shows Petitioner's commitment to set aside 15.65 percent of the units for residents earning not more than 33 percent of the area median income, 36.09 percent of the units for residents earning not more than 50 percent of the area median income, and 48.26 percent for residents earning not more than 60 percent of the area median income. Form 20, Item III, requires the applicant to represent that it will maintain these set-aside percentages--clear evidence that the applicant is anticipating Tax Credits for all of the set-asides scheduled in Form 20, Item III. As a whole, though, the application reveals only that Petitioner expected to obtain Tax Credits for all 230 units. If the application, construed as a whole, were to represent the 20/50 election, nothing in the application reveals whether Petitioner's expectation to obtain a larger amount of Tax Credits emerged from a scrivener's error in marking the 20/50 election, rather than the 40/60 election, as Petitioner contends, or a failure to understand the regulatory limitation imposed upon the 20/50 election. Nothing in the application actually mentions a 40/60 election, and Petitioner did not attempt to address the apparent 20/50 election until after the deadline for submitting applications. One of Petitioner's witnesses was a vice president of Heritage Affordable Development, Inc. She testified that her job imposed upon her numerous responsibilities in preparing Petitioner's application, including the task of placing the x in the box for the 40/60 election, and she mistakenly placed the x in the box for the 20/50 election. This is the only direct evidence in the record indicating whether the 20/50 election was due to a misunderstanding of the federal regulation limiting the use of the 20/50 election or a mistake in checking the right box on the form. Although her testimony is self-serving, Petitioner's witness testified in a forthright manner, as she described her hurried and fatigued efforts to complete the application by the deadline. The Administrative Law Judge credits her testimony that she intended to check the 40/60 election, but, in her haste, checked the 20/50 election, and time did not permit her to discover her error until after she had submitted Petitioner's application. However, even if Petitioner's election were treated as a scrivener's error, the question would remain whether the correction of such an error would materially affect Petitioner's application. An extensive review of recent case law reveals no better definition of what is "material" than that offered by Respondent's witness, who testified that something is material if it affects the outcome. In other words, something is material if it is consequential. Changing a 20/40 set-aside election to a 40/60 set-aside election would be undeniably material to Petitioner's application. If the application effectively makes the 20/50 election, absent changing its election, Petitioner would suffer the major consequence of the loss of eligibility for Tax Credits for nearly half of the 230 units to be developed. Thus, the only way that the proposed change may be deemed inconsequential or immaterial is if the application, fairly construed, as a whole, already makes the 40/60 election, and Petitioner seeks only to clarify this election in Form 20, Item 1. As already noted, Form 20 expressly supersedes any contrary set-aside information in Form 1. The express deference in Form 1, Item II.E, to the set-aside information contained in Form 20, as well as the reference to "other forms in the Application," sufficiently notifies the careful reader of the application that the set-aside information in Form 20 is the definitive expression of the actual set-aside election contained in each application. However, Form 20 itself is contradictory concerning the set-aside election. The clear and first expression of the set- aside commitment in Form 20 chooses the 20/50 set-aside, but the second, more detailed (and thus less amenable to misstatement) expression of the set-aside commitment reveals the choice of the 40/60 set-aside in the set-aside schedule. The resulting ambiguity in Form 20 requires, under the case law discussed in the Conclusions of Law, consideration of the two provisions in Form 20, in pari materia, in an effort to discern the true meaning of this document in terms of the set- aside election. Construed together, as well as with the many other Items reflecting a 40/60 election and the absence of any other Items reflecting a 20/50 election, the application, as a whole, evidences a 40/60 set-aside election. As already noted, the determination that Petitioner's application effectively makes the 40/60 set-aside election affects the scoring of other Items. Most directly, Petitioner challenges the assessment of a 2.5 point penalty for the discrepancy between the set-asides elected in Form 20, Item I, and the set-asides shown in Form 1, Item II.E. Respondent may not assess a penalty on Form 1 because the set-asides shown in Form 1, Item II.E, are not incorrect. Although they are inconsistent with the set-aside election shown in Form 20, Item I, the error is in the latter Item, and Respondent has already assessed a penalty for this mistake. However, Respondent relied on another basis for the assessment of the 2.5 point penalty for Forms 1-4. Although the record is largely undeveloped on this point, Petitioner has failed to show that its provision of a utility allowance is not flawed by an omission of the utility provider in Form 1, Exhibit H. Thus, Petitioner has failed to prove that the 2.5 point penalty for Forms 1-4 is incorrect. A more important scoring issue that arises from the determination of the actual set-aside election involves Form 4, Exhibit B, which is the equity commitment letter issued on February 29, 2000, by SunAmerica Affordable Housing Partners, Inc. This is a firm undertaking by SunAmerica Affordable Housing Partners, Inc., to cause its affiliate to purchase a 99.9 percent limited partnership interest in Petitioner for a specified sum. The equity commitment letter requires that Petitioner obtain a specified amount of Tax Credits based on a determination that the qualified basis attributable to all 230 units is eligible for Tax Credits because all 230 units are set aside for reduced-income residents. Respondent allowed no points for the equity commitment letter because it was conditioned on all 230 units being set aside for reduced-income residents. However, as determined above, the application, fairly construed as a whole, makes the 40/60 election and thus satisfies this condition in the equity commitment letter. At the hearing, Respondent's witness, acknowledging that the apparent 20/50 election was the major reason why Respondent gave Petitioner no points for the equity commitment letter, testified that additional reasons existed for at least deducting points from the letter, as a conditional, rather than firm, commitment to purchase an equity interest in Petitioner. Form 4, page 4 of 14, describes the requirements imposed upon an equity commitment letter: A firm commitment from a Housing Credit Syndicator . . . is an agreement which is executed and accepted by all parties, is dated, and includes all terms and conditions of the agreement. . . . In order for a syndication/equity commitment to be scored firm, it must state the syndication rate (amount of equity being provided divided by the anticipated amount of credits the syndicator expects to receive), capital contribution pay-in schedule (stating the amounts to be paid prior to or simultaneous with the closing of construction financing and stating the amounts to be paid prior to closing of permanent financing, or in the event of a construction/permanent first mortgage, the amount to be paid prior to or simultaneous with the closing of construction financing and state the amounts to be paid prior to conversion to permanent financing), the percentage of the anticipated amount of credit allocation being purchased, and the anticipated housing credit allocation. Respondent's witness testified that the equity commitment letter fails to include a syndication rate and possibly a capital contribution pay-in schedule. However, as Respondent's witness admitted, the syndication rate is evident from the information contained in the equity commitment letter. As noted in the cited provision from Form 4, the syndication rate is the equity provided divided by the anticipated Tax Credits allocated to the syndicator. Using the information contained in the equity commitment letter, SunAmerica Affordable Housing Partners, Inc., is purchasing a partnership interest that will entitle it to 99.9 percent of the $7,380,700 in Tax Credits, or $7,373,319 in Tax Credits. Dividing SunAmerica's equity contribution of $5,906,032 by its share of Tax Credits yields the syndication rate of 80.1 percent. Likewise, the equity commitment letter adequately describes the capital contribution pay-in schedule. The equity commitment letter calls for SunAmerica to pay $3,248,317 upon the closing of the amended partnership agreement; $2,362,413 upon the commencement of construction (matched dollar-for-dollar with construction financing) and upon the satisfaction of the standard conditions set forth in SunAmerica's standard form partnership agreements; and $295,302 upon the commencement of amortization of the permanent loan, receipt of an audited cost certification of eligible basis, receipt of certain forms for the entire development; and satisfaction of the standard conditions set forth in SunAmerica's standard form partnership agreement. The adjuster clause, which reduces SunAmerica's capital contributions, dollar-for-dollar, for any reductions in actual Tax Credits is a standard provision in equity commitment letters and does not mean that the letter is firm and unconditional. Petitioner has thus proved that it is entitled to all available points for its equity commitment letter. Lastly, Petitioner has proved that it is entitled to additional points on Form 10 for leveraging Tax Credits. Respondent allowed only 2.55 points out of 10 points for Form 10 due to its treatment of the application as making the 20/50 election and thus the loss of nearly half of the set-aside units. Treating the application as making the 40/60 election results in Petitioner earning 9 points on Form 10. Form 4, Exhibit C, is the loan commitment letter issued on February 22, 2000, by SunAmerica, Inc. This is a firm undertaking by SunAmerica, Inc., to lend funds to Petitioner, subject only to the kinds of conditions that Respondent typically and reasonably determines are customary and not so substantive as to preclude a determination that the letter is firm and unconditional. Respondent allowed no points for the loan commitment letter because the letter requires that, prior to the loan closing, Petitioner and its guarantor (its sole owner and general partner, Affordable Housing Solutions for Florida, Inc.) "submit evidence satisfactory to [SunAmerica, Inc.] that [Petitioner] has invested at least $50,000 in the Property in the form of equity or unsecured debt." Petitioner relied in its application on the deferral of a developer's fee of $559,503.07 for a period of up to ten years to satisfy this requirement of the loan commitment letter. In this case, the co-developer, Heritage Affordable Development, Inc., has agreed to defer its developer's fee. Neither the lender nor Respondent has raised a question concerning the source of the funds derived from the deferral of the developer's fee. In essence, the lender is requiring the addition of $50,000 in funds without the dilution of ownership interests or creation of secured debt; thus, it is irrelevant that the source of the funds is a co-developer, rather than Petitioner itself or Petitioner's general partner. Because Petitioner is obligated eventually to pay the deferred developer's fee, Respondent correctly determined that the deferred developer's fee does not qualify as equity. Inexplicably, though, Respondent seems not to have seriously considered whether the deferred developer's fee qualifies as unsecured debt. As already noted, the loan commitment letter requires $50,000 of either equity or unsecured debt. A deferred developer's fee is unsecured debt. Deferring a developer's fee executes in a single step the two- step transaction in which Petitioner pays the developer the subject portion of the developer's fee, and the developer immediately lends it back to Petitioner, taking an unsecured note in return. When informed of the issue, the lender itself acknowledged the obvious, by letter dated October 9, 2000, that the deferred developer's fee is unsecured debt. Petitioner has thus proved that it is entitled to all available points for its loan commitment letter. Form 7, Exhibit D, is the Verification of Environmental Safety. This is a certificate by an environmental consultant that the site of the proposed development is free of potential problems, such as asbestos or lead-based paint in existing structures. The form initially generated by Respondent contains three lines at the top for the identification of the proposed developer and development, but inadvertently omits underlining in the main body of the certificate where the name of the environmental consultant is to be placed. The original form contains a parenthetical explanation in smaller type that states: "(Name of Firm which prepared the Phase I Environmental Report)." As already noted, the application imposes penalties for the "failure to provide complete, accurate information in the format and location prescribed by the instructions " Relatively minor in amount and sparingly assessed, as in a single penalty regardless of the number of errors in a series of Forms, penalties rightly punish deviations from strict, technical, and formal compliance with the demands imposed by the Forms. Petitioner's challenge of the assessment of a 1.5 point penalty for the obvious omission in Form 7, Exhibit D, unjustifiably attempts to substitute the substantive considerations that govern scoring for the formal considerations that govern assessing penalties. In any event, the omission from Form 7, Exhibit D, is substantial. Following the space for the name of the environmental consultant, Form 7 then provides the substance of the certification: "[X, Inc.] hereby certifies that a Phase I Environmental Assessment of the above proposed Development Site . . . was performed by this firm and a detailed report . . . was prepared." The omission of the name of the environmental consultant, coupled with a signature that poorly communicates the idea that the signatory is signing in a representative capacity on behalf of the environmental consultant, amply supports Respondent's assessment of a 1.5 point penalty. In summary, Petitioner has proved that Respondent has mis-scored Petitioner's application by deducting points on Form 4 for an equity commitment letter and loan commitment letter that are actually firm; deducting points on Form 10 for inadequate Tax Credit leveraging; and deducting points on Form 21 for an equity commitment letter that is actually firm. Respondent should rescore Petitioner's application to correct these items and any other items for which Petitioner lost points due to Respondent's treatment of the application as making a 20/50 set-aside election.
Recommendation It is RECOMMENDED that the Florida Housing Finance Corporation rescore Petitioner's application to reflect the findings and conclusions contained in this recommended order and, if the resulting score is sufficiently high, invite Petitioner to credit underwriting. DONE AND ENTERED this 19th day of October, 2000, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of October, 2000. COPIES FURNISHED: Pamela Duncan, Acting Executive Director Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32301 Jon C. Moyle, Jr. Cathy M. sellers Moyle, Flanigan, Katz, Kollins, Raymond & Sheehan, P.A. The Perkins House 118 North Gadsden Street Tallahassee, Florida 32301 Elizabeth G. Arthur General Counsel Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32301
Findings Of Fact At all times pertinent to the matters in issue here, Bellot Realty operated a real estate sales office in Inverness, Florida. The Department of Transportation was the state agency responsible for the operation of the state's relocation assistance payment program relating to business moves caused by road building operations of the Department or subordinate entities. Frank M. Bellot operated his real estate sales office and mortgage brokerage, under the name Bellot Realty, at property located at 209 W. Main Street in Inverness, Florida since July, 1979. He operated a barber shop in the same place from 1962 to 1979. He moved out in October, 1991 because of road construction and modification activities started by the Department in 1989. The office was located in a strip mall and the other tenants of the mall were moving out all through 1990. Mr. Bellot remained as long as he did because when the Department first indicated it would be working in the area, its representatives stated they would be taking only the back portion of the building. This would have let Mr. Bellot remain. As time went on, however, the Department took the whole building, including his leasehold, which forced him out. He received a compensation award from the Department but nothing from any other entity. Though the instant project is not a Federal Aid Project, the provisions of Section 24.306e, U.S.C. applies. That statute defined average annual net earnings as 1/2 of net earnings before federal, state and local income taxes during the two taxable years immediately prior to displacement. During 1988, Mr. Bellot's staff consisted of himself and between 3 and 5 other agents from whom he earned income just as had been the case for several prior years. In 1988 his Federal Corporate Income Tax return reflected gross income of $120,843.00 and his profit was reflected as $27,377.25. The Schedule C attached to his personal Form 1040 for that year reflected gross sales of $25,078.00 with deductions of $5,250.00 for a net income of $19,828.00. Two of his agents foresaw the downturn in business as a result of the road change and left his employ during 1989. A third got sick and her working ability, with its resultant income, was radically reduced. This agent was his biggest producer. For 1989, Petitioner's tax return reflected the company's gross receipts were down to $50,935.75 and his operating loss was $5,700.03. However, the Schedule C for the 1989 Form 1040 reflected gross revenue of $21,450 with a net profit of $14,503. In 1990, the Schedule C for the Form 1040 reflected gross receipts of $5,565.00 which, after deduction of expenses, resulted in a net profit of $1,665.00 for the year. The corporate return reflects gross receipts of $23,965.96 and a net income figure from operations of $1,282.21. Mr. Bellot contends that neither 1989 or 1990 were typical business years as far as earnings go. Aside from a loss of activity and a general decline in business in Inverness, his parents, who were always in the office due to a terminal illness, caused him lost work time as he was very busy with them. He was also involved in a move and in refurbishing a house. In 1990, Mr. Bellot decided he could no longer stay in his office location due to the fact that the Department decided to take his whole building. Even if the taking had been of only one-half the building, however, it still would have put him out of business because it would have taken his parking area. At that time, the Department was rushing Mr. Bellot to vacate the premises. He was in difficult financial straits, however, and it would not have been possible for him to move but for the Department's compensation payments. As it was, he claims, the compensation was after the fact, and he had to borrow $30,000.00 in his mother's name in order to rehabilitate the building he moved into. Instead of utilizing income figures from years in which business activity was normal, the Department chose to use the income figures from 1989 and 1990, both of which were, he claims, for one reason or another, extraordinary. In doing so, since the income in those years was much lower than normal, the compensation he received was also much lower, he claims, than it should have been. He received $8,725.50. Had the 1988 and 1989 years income been used, the payment would have been $20,000.00, the maximum. He also claims the Department used the incorrect operating expense figures concerning travel expense. The Schedule C reflects a higher deduction for automobile expense for both years, arrived at by the application of a standard mileage expense approved by the Internal Revenue Service. In actuality, the expense was considerably less and, if the real figures had been used, his income would have been increased substantially for both years. Mr. Bellot's appeal was reviewed by Ms. Long, the Department's administrator for relocation assistance who followed the provisions of departmental manual 575-040-003-c which, at paragraph (IV) on page 33 of 35, requires the displacee to furnish proof of income by tax returns or other acceptable evidence. At subparagraph (e) on page 31 of 35 of the manual, the requirement exists for the displaced business to "contribute materially" to the income of the displace person for the "two taxable years prior to the displacement." If those two years are not representative, the Department may approve an alternate two year period if "the proposed construction has already caused an outflow of residents, resulting in a decline of net income. " To grant an alternative period, then, the Department must insure that the loss of income is due to the Department's construction and not to other considerations. Here, the Department's District Administrator took the position it was not it's actions which caused the Petitioner's loss of income. Ms. Long took the same position. The Department's District 5 initially notified the people of Inverness of the proposed project somewhere around 1988. The project was to straighten Main Street out through downtown Inverness for approximately 2 miles. There is no evidence as to when the first affected party moved and Ms. Long does not know whether or not the project had an adverse effect on business in downtown Inverness. Petitioner's evidence does not show that it did.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Petitioner's appeal of the Department's decision to refuse to use alternate tax years or actual mileage deduction in its calculation of a relocation assistance payment be denied. RECOMMENDED this 29th day of December, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK 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 29th day of December, 1992. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: Accepted. & 3. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and, in part, incorporated herein. Rejected as not proven by competent, non-hearsay, evidence. Accepted. Not proven. Merely a statement of Petitioner's position. Accepted that Petitioner's business income dropped. It cannot be said that the road project's were the primary cause of the decline in Petitioner's business. There is no independent evidence of this. Accepted and incorporated herein. First sentence accepted. Balance not based on independent evidence of record. Not a proper Finding of Fact but a comment on the evidence. First sentence accepted. Second sentence rejected. Accepted and incorporated herein. Not a Finding of Fact but a restatement of and attempted justification of Petitioner's position. Accepted and incorporated herein. Rejected as argument and not Finding of Fact. Not a Finding of Fact but a recapitulation of the evidence. FOR THE RESPONDENT: Accepted. & 3. Accepted. - 6. Accepted and incorporated herein. Accepted and incorporated herein. Accepted. & 10. Accepted. 11. & 12. Accepted. 13. Accepted. COPIES FURNISHED: Charles G. Gardner, Esquire Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0458 James R. Clodfelter Acquisitions Consultant Enterprises, Inc. P.O. Box 1199 Deerfield Beach, Florida 33443 Ben G. Watts Secretary Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0458 Thornton Jpp. Williams General Counsel Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0458
The Issue The issue is whether Petitioner owes money to Respondent due to an overpayment of compensation.
Findings Of Fact At all relevant times, Respondent has employed Petitioner. By Stipulation, the parties agree that Respondent overpaid Petitioner the sum of $6282.41 by check dated February 14, 2005. The dispute is whether Respondent is entitled to repayment of an additional $2332 in withheld federal income taxes associated with the agreed-upon overpayment. On the date of the overpayment in February 2005, Respondent credited Petitioner with the gross sum of $9328. The net payment to Petitioner was $6282.41. The difference between the gross and the net was $2332 in withheld federal income taxes and $713.59 in employee-paid FICA and Medicaid. Respondent is not seeking repayment of the employee-paid FICA and Medicaid. Respondent discovered the error on December 31, 2005, so it was unable to process the paperwork necessary correct the situation with the tax withholding in the same tax year of 2005. By failing to discover the error in time to process the paperwork in the same tax year, Respondent was unable to effectively reverse the withholding transaction with the Internal Revenue Service. Thus, when Petitioner filed his 2005 federal income tax return, his gross income included this overpayment, and the amount of tax already paid included the $2332 that was erroneously withheld in Respondent's overpayment in February 2005. It is thus clear that Respondent overpaid Petitioner $6282.41 in net pay plus $2332 in income taxes that it withheld from Petitioner and submitted, to Petitioner's credit, to the Internal Revenue Service. The total overpayment is therefore $8614.41.
Recommendation It is RECOMMENDED that the Department of Juvenile Justice enter a final order determining that, due to an overpayment in 2005, Petitioner shall repay $8614.41, upon such terms, if any, as the department shall determine. DONE AND ENTERED this 24th day of October, 2006, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of October, 2006. COPIES FURNISHED: Anthony J. Schembri, Secretary Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-3100 Jennifer Parker, General Counsel Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-1300 Michael B. Golen Assistant General Counsel Department of Juvenile Justice 2737 Centerview Drive Tallahassee, Florida 32399 Theodore E. Morakis 11904 Southwest 9th Manor Davie, Florida 33325
The Issue The issue is whether Petitioner collected and remitted to Respondent the correct amount of sales and use taxes during the audit period from October 1, 2004, through September 30, 2007, and, if not, what additional amount of tax plus penalty and interest is due.
Findings Of Fact Petitioner True Blue Pools (Petitioner, taxpayer, or TBP) is a domestic corporation headquartered in Miami-Dade County, Florida. TBP services, repairs, and renovates swimming pools and constructed some pools during the audit period. Respondent, Florida Department of Revenue (Respondent or DOR), is the agency of state government authorized to administer the tax laws of the State of Florida, pursuant to section 213.05, Florida Statutes.2 DOR is authorized to prescribe the records to be kept by all persons subject to taxes under chapter 212, Florida Statutes. Such persons have a duty to keep and preserve their records, and the records shall be open to examination by DOR or its authorized agents at all reasonable hours pursuant to section 212.12(6), Florida Statutes. DOR is authorized to conduct audits of taxpayers and to request information to ascertain their tax liability, if any, pursuant to section 213.34, Florida Statutes. On November 2, 2007, DOR initiated an audit of TBP to determine whether it was properly collecting and remitting sales and use taxes to DOR. The audit period was from October 1, 2004, through September 30, 2007. On December 15, 2008, DOR sent TBP its Notice of Intent to Make Audit Changes (NOI), with schedules, showing that TBP owed to DOR additional sales and use taxes in the amount of $113,632.17, penalty in the amount of $28,406.05, and interest through December 16, 2008, in the amount of $34,546.59, making a total assessment in the amount of $176,586.81. On October 26, 2009, DOR issued its Notice of Proposed Assessment. TBP timely challenged the Notice of Proposed Assessment, filing its petition with DOR and requesting an administrative hearing. Subsequent to the petition being filed, additional documentation was provided by TBP resulting in a revision to the tax, interest, and penalty amount due. DOR's revised work papers, dated May 27, 2010, claim Petitioner owes $64,430.83 in tax, $16,107.71 in penalty, and interest through May 27, 2010, in the amount of $27,071.99, with an assessment of $107,610.53. The assessed penalty, $16,107.71, was calculated after 25% of the penalty was waived, pursuant to subsection 213.21(3)(a), Florida Statutes, based on DOR's determination that there is no evidence of willful negligence, willful neglect, or fraud. The audit was conducted to determine liability in four categories: improper sales tax exemptions, unpaid sales taxes for taxable expenses, unpaid use taxes on fixed assets, and unpaid use taxes on taxable materials used to fulfill contracts to improve real property. Sales Tax Exemptions Due to the large volume of invoices and other records, the auditor conducted a random sampling of invoices for three months during the audit period, October 2004, January 2005, and September 2007.3 If no sales tax was collected and the Petitioner claimed that the transaction was exempt from the requirement to pay taxes, the auditor looked for proof that either the TBP customer was an exempt organization, for example, a school or a church, or that TBP had provided its suppliers with a DOR Form DR-13 to exempt from taxes products acquired for resale. In the absence proof of either type of exemption, DOR assumed taxes should have been paid. Using the difference between taxes collected and taxes due for the three months, the auditor determined that the percentage of error was .016521. When .016521 was applied to total sales of $1,485,890.79 for the 36-month audit period, the results showed that an additional $24,548.41 in sales taxes should have been collected from customers, and is due from TBP. Although a business is required to pay taxes for the materials it purchases to use in its business, it is not required to collect taxes from its customers when it enters into lump sum contracts to perform a service for customers. At least one invoice for $9,500.00 that the auditor treated as an improper exemption was, in fact, a partial payment on a lump-sum contract. The invoice referenced a "shotcrete draw," which represented the collection of funds after the concrete part of pool construction was completed. TBP is not required to collect taxes when it uses lump-sum contracts. Other invoices for pool repair and services were also mischaracterized as exempt by the TBP, but it is not clear that all were payments related to lump-sum contracts. DOR's auditor, nevertheless, testified as follows: With the knowledge that I have for True Blue Pools, being a lump-sum contractor, True Blue Pools should not charge their customer any sales tax. Transcript at pages 67-68. DOR concedes that some of TBP's transactions are also exempt from taxes as improvements to real property. In its Proposed Recommended Order, DOR asserted that TBP's use of the term "improvements to real property" is overbroad, but it did not specify how or why this is the case. During cross- examination of the owner of TBP, only one invoice for $500.00 for leak detection on the Delgado property was shown to have been for a service rather than for swimming pool construction. Taxable Expenses DOR audited TBP's purchases of tangible personal property used in the daily operation of its business. The products included chlorine and other chemicals, office supplies, and vehicle parts, expenses, and repairs. The ledger for a 12- month period, calendar year 2006, showed an average monthly additional tax due of $111.18, or a total of $4,002.48 in additional taxes for the 36-month audit period. As noted in Petitioner's Proposed Recommended Order, "[t]he representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of all of these items " Fixed Assets TBP's list of fixed assets was taken from the depreciation schedule on Internal Revenue Service Form 4562. The items listed are computer- and software-related. TBP provided no proof that it had paid a use tax. The additional tax due equals $419.94. Petitioner's Proposed Recommended Order includes the statement that "[a]gain, the representative of TBP did not dispute DOR's allegation that no tax may have been paid on the purchase of these items " Taxable Materials Taxable materials, those purchased to fulfill a contract to improve real property, included items used to build, renovate, and repair pools. The items included concrete, meters, drains, and valves. For the 12-month sample period, calendar year 2006, TBP failed to pay taxes on material purchases in the total amount of $168,310.05, or an average of $14,078.96 a month. For the 36-month audit period, the total of the purchases was $506,842.56. With a 6 percent tax due for the state and 1 percent for the county, the total additional tax due on materials is $35,460.00. TBP conceded that it improperly used a resale exemption to purchase taxable materials from suppliers without paying taxes. The materials were used to provide services and were not resold. Acknowledging again that TBP uses lump-sum contracts, this time to support the collection of additional taxes, the auditor testified as follows: And the law states that the taxpayer's [sic] an ultimate consumer of all materials purchased to fulfill a lump-sum contract, and that's what they told me they operate under, a lump-sum contract. Transcript at page 58. At the hearing, TBP used its actual profit and loss statement to show that the cost of goods it sold (general purchases and taxable materials) in the amounts of $18,360.77 in October 2004, $8,519.22 in January 2005, and $4,818.65 in September 2007. Corresponding taxes for each of those months should have been $1,285.25, $596.35, and $337.31, or an average of $739.63 a month, or a total of $26,626.68 for 36 months. The goods that it sold were not at issue in the audit of taxable materials, rather it was TBP's purchases from vendors that should have been taxed that resulted in DOR's audit results. Total Additional Sales and Use Taxes Due The three categories of additional taxes due, $4,002.48 for taxable expenses, $419.94 for fixed assets, and $35,460.00 for taxable materials, equal $39,882.42 in additional taxes due during the audit period. Taxes Paid TBP filed DOR Forms DR-15, monthly sales and use tax reporting forms, and paid sales and use taxes during the audit period. For the sample months used by DOR to examine sales tax exemptions, TBP paid $1,839.10 in taxes in October 2004, $1,672.73 in January 2005, and $1,418.13 in September 2007. Using the three months to calculate an average, extended to 36 months, it is likely that TBP paid $59,712 in taxes. TBP asserted that DOR was required to, but did not, offset the deficiency of $39,882.42, by what appears to be an overpayment of $59,712.00 in sales and use taxes. Other than pointing out that the amount reported on the DR-15s differed, being sometimes more and sometimes less than the amount shown on the profit and loss statements, DOR did not dispute TBP's claim that it had paid sales and use taxes. TBP's representative explained that end-of-the-year adjustments for additional collections or for bad debt could cause the amounts on the DR-15s and profit and loss statements to differ. With regard to the taxes paid, DOR took the following position in its Proposed Recommended Order: Petitioner's DR-15's [sic] for the collection periods October 2004, and January 2005, [and September 2007] (Petitioner's Composite Exhibit 1) do reflect sales tax being collected and remitted to DOR. DOR does not allege that Petitioner never paid tax on its purchases, or made bona fide exempt sales for which no tax was collected. DOR's audit findings identify just those which occurred within the sample period, scheduled in the auditor's workpapers, and applied over the entire audit period. The DR-15s are taken from the sample months selected by DOR within the audit period, and DOR does not address TBP's claim that a set off for taxes paid was mandatory, pursuant to subsection 213.34(4), Florida Statutes. Using the audit schedules, DOR showed credit for taxes paid in the amounts of $20.63 for taxable expenses, $0 for fixed assets, and $24.31 in state taxes and $1.03 for county taxes on taxable materials. The amounts are far less that the $59,712.00 in sales/use taxes TBP showed that it paid during the audit period.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is recommended that the Department of Revenue issue a final order dismissing the Notice of Intent to Make Audit Changes dated December 15, 2010. DONE AND ENTERED this 20th day of January, 2011, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of January, 2011.
Findings Of Fact At all material times, Respondent Sauer was licensed in Florida as an ordinary life agent working for Money-Plan International, Inc. (Money-Plan) and selling National Western Life Insurance Company (National Western) insurance and annuity contracts. From October 10, 1984, until sometime prior to the events in question, Respondent Sauer had been an agent for Northern Life Insurance Company (Northern Life). Respondent Sauer had about five years' relevant job experience at the time of the events in question. At all material times, Respondent Connell was licensed in Florida as an ordinary life agent working for Money-Plan and selling National Western insurance and annuity contracts. Respondent Connell had no significant job experience prior to his employment with Money-Plan about three months prior to the events in question. His principal employment at all material times has been as a real estate broker. During the spring of 1986, Money-Plan was soliciting employees of the Manatee County School District for the purchase of two types of National Western annuity contracts. The flexible-premium annuity contract permits periodic contributions in such amounts and at such times as the policyholder selects. The single-premium annuity contract involves only a single premium, such as in the form of a rollover from another tax-qualified retirement plan. The Manatee County School Board had approved these National Western contracts and an annuity contract offered by Northern Life for sale to Manatee County School District employees, who could pay the premiums by a payroll-deduction plan. Each client described below, except for Jack Dietrich, is a schoolteacher employed by the Manatee County School Board; Mr. Dietrich is a principal of a Manatee County elementary school. Each Respondent used the same general sales procedure. First, he would contact the client, set up an appointment, make the sales presentation, and often obtain a signed application at the end of the appointment. He would then leave the client a copy of the application and a National Western brochure. Upon delivery of the annuity contract some weeks later, the client would have a chance to review the specific provisions and, if she did not like them, reject the contract without cost or further obligation. The front side of the two-sided, one-page application requires some basic identifying information concerning the annuity contract selected and the applicant. The back side contains five disclosure paragraphs in somewhat larger print than that on the front side. The first disclosure paragraph does not apply to the annuity contracts sold by Respondents in these cases. The last disclosure paragraph reminds the policyholder to review annually the tax status of the contract. The second disclosure paragraph applies to the single-premium contract. This paragraph warns that: a) a withdrawal of more than 10% of the Cash Value during the first seven years after the contract is issued will result in the loss of 10% of the contribution and b) if the policyholder fails to use one of the approved settlement options, the contribution will earn interest at the lower Cash Value rate rather than the higher Account Balance rate. The third disclosure paragraph applies to the flexible-premium annuity contract. This paragraph provides: FLEXIBLE PREMIUM ANNUITY FORM 01-1063 If, prior to the annuity date, I withdraw my contributions in excess of the renewal contributions made during the previous twelve months or if I do not use one of the retirement benefit options under the policy for distribution of my account on the annuity date, my account will be subject to the following: (a) a charge of twenty percent (20%) will be made against my contributions during the first contract year and all contribution increases during a twelve (12) month period from the date of any increase (a contribution increase occurs when the new contribution is greater than the initial contribution plus the sum of all prior increases) unless such contributions are not withdrawn prior to the end of the seventh (7th) contract year following the year of receipt, and (b) interest will be credited on my contributions at rates applicable under the Cash Value provisions and not the Account Balance provisions. The fourth disclosure paragraph applies to both the single-premium and flexible-premium annuity contracts. This paragraph identifies two types of guaranteed interest rates. Four guaranteed annual rates, ranging from 9 1/2% for the first year after issuance of the contract to 4% after ten years, apply to the Account Balance. A single guaranteed annual rate of 4% applies to the Cash Value. The brochure describes the flexible-premium contract as having: "Stop and Go privileges: Contributions are fully flexible and nay be increased, decreased or stopped, subject to employer rules and IRS regulations." Elsewhere, the brochure states: "To avoid the surrender charge, the participant simply annuitizes the contract and elects one or more settlement options." (Emphasis supplied.) The brochure states that the policyholder is not currently taxed on the portion of her salary deducted by the employer to pay for the premium or, as to both types of contract, the interest earned by the premiums within the annuity contract. National Western offers in the brochure to calculate for any policyholder the maximum amount of salary that she may defer so as to avoid current income tax on her periodic contributions. The brochure explains how a policyholder may, subject to restrictions imposed by law, borrow her annuity funds without the loan being treated as a taxable distribution. The brochure cautions that the loan must be repaid within five years unless the proceeds are used for certain specified purposes relating to a principal residence. The brochure states in boldface: "Each participant will have an Account Balance and a Cash Value Balance." The Account Balance is defined as all of the contributions or premiums with interest from the date of receipt to the annuity starting date (of, if earlier, the death of the annuitant). The brochure explains: "The Account Balance is the amount available when the participant retires or [elects to begin receiving payments] and selects one or more of the approved settlement options." In such event, "[t]here are no charges or fees deducted from the Account Balance ..." The Cash Value for the flexible-premium contract is defined as 80% of the first-year premiums and 100% of renewal premiums with interest from the date of receipt to the date of withdrawal. If the policyholder increases the amount of her premiums in any year, the amount of the increase is treated as first-year premiums. The policyholder vests as to the remaining 20% of the first-year premiums seven years after the issuance of the contract or, if applicable, seven years after the year in which the premiums are increased. The brochure explains: The Cash Value is the amount received if the participant surrenders the contract without electing one of the approved settlement options, which are described in the next section of the brochure. The brochure offers no explanation of the provisions governing the vesting of 10% of the Cash Value of the single-premium contract. The brochure sets forth the differences in interest rates between the Account Balance and Cash Value in a clear boldface table. The table notes that the Cash Value guaranteed interest rate may be higher for the first year if a higher rate is in effect at the time of the issuance of the contract. Neither the application or the brochure mentions the interest rate applicable to policy loans. The flexible-premium annuity contract generally conforms to the above- described provisions of the application and brochure. This is the type of contract that the Respondents sold to each of the clients described below. No sample of the single-premium annuity contract was offered into evidence. This is the type of contract that Respondent Sauer sold to Mr. Dietrich, in addition to a flexible-premium contract. The flexible-premium annuity contract adds an important additional requirement for the policyholder to vest in the remaining 20% of the first-year premiums when calculating the Cash Value. The flexible-premium contract requires that the policyholder pay, in the six years following the first anniversary of the contract, sufficient additional premiums so that the accrued Cash Value, immediately before the 20% credit, equals anywhere from four to seven times the total first-year premium, depending upon the age of the policyholder when the contract is issued. In the case of a policyholder with an issue age of 57 years or less, the multiple is four. No such requirement would be applicable to a single-premium contract where the parties intend from the start that there shall be no additional premiums. More favorable to the policyholder, the flexible-premium annuity- contract provides that, after ten years, the annual interest rate on the Cash Value will be the greater of the guaranteed rate or one point less than the rate then credited to the Account Balance. Concerning policy loans, the flexible-premium annuity contract states that the policyholder may obtain a loan "using the contract as loan security." The amount borrowed may not exceed 90% of the Cash Value. Interest on the loan must be paid in advance. The rate of interest, which remains in effect for an entire contract year, is the greater of the Moody's Corporate Bond Yield Average, which is determined twice annually, or one point greater than the Cash Value interest rate in effect on the contract anniversary. The initial annual loan rate stated in the annuity contract issued to Rebecca McQuillen was 10 1/2%. Each flexible-premium annuity contract issued contains a statement of benefits. The one-page statement contains four columns showing, by Cash Value and Account Balance, the accrual of benefits if guaranteed interest rates apply or if current interest rates apply. The statement warns: "This contract may result in a loss if kept for only 3 years, assuming withdrawal values are based on guaranteed rate and not on current rate." The initial guaranteed rates were, for a contract issued on April 15, 1986, 10 1/2% on the Account Balance and 8% on the Cash Value and, for a contract issued on May 15, 1986, 10% and 7 1/2%, respectively. Respondent Connell visited Ms. McQuillen and Virginia Taylor on separate occasions in the spring of 1986 for the purpose of selling National Western annuity contracts. During these visits, Henry James Jackson, Jr. accompanied Respondent Connell and made the sales presentations to the clients as part of the training that Respondent Connell was then undergoing. Mr. Jackson is the vice-president of Money-Plan and supervisor of Respondent Sauer, who manages the Sarasota office of Money-Plan and supervises four or five agents, including, at the time, Respondent Connell. Respondent Connell signed the applications of Ms. McQuillen and Ms. Taylor, as the selling agent, in order to receive the credit for the sales. Respondent Connell earned this credit by arranging the appointments. In their applications, Ms. McQuillen projected periodic contributions totalling, on an annual basis, $2400 from her to the flexible-premium contract, and Ms. Taylor projected a total annual contribution of $2280. Respondent Connell subsequently visited Linda Rush, to whom he was referred by Ms. McQuillen. Respondent Connell himself made the sales presentation to Ms. Rush. In his meeting with Ms. Rush, Respondent Connell explained the mechanics of the flexible-premium annuity contract. He discussed the current interest rates and how they were set by market conditions. Although he did not discuss the specifics of the Account Balance versus the Cash Value, he gave Ms. Rush a copy of the application and the brochure. He also discussed generally that the annuity contract was primarily a retirement policy and that Ms. Rush would not enjoy all of its benefits, partly due to penalties, if she failed to keep it until retirement. Ms. Rush signed an application at the conclusion of their meeting. She projected a total annual contribution of $1200. Later, at Ms. McQuillen's request, Respondent Connell attended a meeting with her and a friend of hers named Mike Donaldson, who represents Northern Life. Mr. Donaldson had informed the clients of both Respondents, directly or indirectly, that his company's annuity contract was superior to those of National Western because of the latter's "two-tiered" interest rate whereby a lower rate of interest was credited to the Cash Value than the Account Balance. Respondent Connell did not perform well in the confrontation with his more experienced counterpart. Subsequently, the three above-described clients timely cancelled their contracts at no cost to themselves. In the spring of 1986, Respondent Sauer made a sales presentation to Mr. Dietrich. Mr. Dietrich's issue age was 56 years and he had owned a 15-year old tax-sheltered annuity with a surrender value of $8200. Meeting with Mr. Dietrich six times for a total of six to eight hours, Respondent Sauer discussed at length tax-sheltered annuities, as well as life insurance. The discussions involved the flexible-premium annuity contract that was purchased by all of the other clients involved in these cases, as well as a single-premium annuity contract for the $8200 rollover contribution. With regard to the flexible-premium annuity contract, Respondent Sauer discussed with Mr. Dietrich the lower interest rate used if the policyholder surrendered the contract, the penalty of 20% of the first-year premiums if the contract was surrendered in the first seven years, and the various ways that the policyholder could avoid the penalties. Respondent Sauer explained generally the similar penalties and lower interest rate applicable to a prematurely terminated single-premium annuity contract. In making the sales presentations to Mr. Dietrich, Respondent Sauer emphasized the loan options available with the these tax-sheltered annuities. Respondent Sauer stressed the small margin between the interest credited on the contract and the interest charged on a policy loan and stated that, at times, a National Western policyholder could borrow his annuity funds at a lower interest rate than he was being paid on the funds by the company. He also informed Mr. Dietrich that he did not need to pay back the loan, but could instead roll it over every five years. The loan options in the National Western annuity contracts are a major selling point and offset to some degree the so-called "two-tiered" interest rate. These tax-sheltered annuities compare favorably to other annuity contracts because the National Western policyholder does not earn a lower interest rate on that portion of the policy balance encumbered by the loan. Also, National Western has historically maintained a more favorable margin than that maintained by other companies between the loan rates charged and the interest paid on the Account Balance. At the time of the hearing, for example, the interest paid annually on the Account Balance was 9.5% and the interest charged annually on policy loans was 9.09%. Mr. Dietrich signed two applications. In the application for a flexible-premium contract, he projected a total annual contribution of $3850. In the application for a single-premium contract, he projected a rollover contribution of $8200. Respondent Sauer left Mr. Dietrich a copy of the application and the brochure. In the spring of 1986, Respondent Sauer made a sales presentation of the flexible-premium contract to Noah Frantz. Respondent Sauer explained to Mr. Frantz the different interest rates applicable to the Account Balance and the Cash Value, as well as the 20% penalty for early surrender. The sales presentation to Mr. Frantz took place shortly after the confrontation between Respondent Connell and Mr. Donaldson representing Northern Life. Respondent Sauer therefore found it necessary to inform Mr. Frantz that Respondent was familiar with the Northern Life tax-sheltered annuity because he used to sell it. Respondent Sauer emphasized the point by showing his Northern Life license to Mr. Frantz. Respondent Sauer obtained a signed application for a flexible-premium contract from Mr. Frantz, who projected a total annual contribution of $300. Respondent Sauer left Mr. Frantz a copy of the application and brochure. Subsequently, Mr. Dietrich and Mr. Frantz timely cancelled their annuity contracts at no cost to themselves. An important feature of the tax-sheltered annuities is their favorable federal income tax treatment. Within certain limits, the policyholder is able to exclude front his gross income the amount of his salary used to pay the premiums. The contributions, whether periodic or one-time, then earn tax-free interest, which is taxed when distributed later in the form of annuity payments. The Tax Equity and Fiscal Responsibility Act (TEFRA) imposes certain requirements on loans involving tax-sheltered annuities. In general, if these requirements are not satisfied, a nontaxable loan is converted into a taxable distribution. Both before and after TEFRA, however, a loan would be converted into a taxable distribution if the borrower, at the time of taking out the loan, had no intention of repaying it. An intent to roll over the loan periodically rather than repay it is evidence of a taxable distribution rather than a true loan. The use of a tax-sheltered annuity as security for a loan increases the risk that the policyholder will be forced to surrender prematurely the contract. In such event, the interest rate on the policy loan would generally be greater than the interest rate credited to the Cash Value because the loan interest rate is at least one point over the current Cash Value interest rate. The only time that a favorable margin could develop would be if, subsequent to setting the loan rate for the next year, the Cash Value rate increased by more than one point. It is more likely that a favorable margin would exist between the higher Account Balance interest rate and the loan interest rate. However, in April, 1986, the two stated rates were equal, although the effective rate charged on loans would presumably be somewhat higher because the annual interest is paid in advance at the beginning of each year. The viability of the strategy of borrowing at lower rates than are credited to the contract during the term of the loan depends upon the ability of National Western to establish and maintain a favorable margin between the Account Balance rate and the loan rate and the ability of the policyholder to retain his eligibility for the higher Account Balance rate. Neither Respondent made any material misrepresentations or omissions with respect to the flexible-premium contracts sold to Ms. McQuillen, Ms. Taylor, Ms. Rush, or Mr. Frantz. Each sales presentation gave an accurate and reasonably complete description of a somewhat complicated insurance product. Any possible material omissions in the presentation, or in the client's understanding of the material presented, were substantially cured by the application and brochure. The sales presentation to Mr. Dietrich was inaccurate with respect to Respondent Sauer's recommendation that Mr. Dietrich could, by continually rolling over loans, borrow against his contract without ever repaying the loan. By neglecting to mention the possible adverse tax consequences of such a strategy, Respondent Sauer inadvertently misled Mr. Dietrich. The sales presentation to Mr. Dietrich concerning the flexible-premium contract contained another omission. There was no mention in the application, brochure, or sales presentation of the requirement that Mr. Dietrich contribute, in the next four years, a sum equal to four times the amount of his first-year contributions in order to vest the unvested 20% of his first-year contributions when calculating his Cash Value. To the contrary, the brochure emphasized the flexibility accorded the policyholder in setting the amount of his contributions, as described in Paragraph 11 above. Although this omission occurred in all of the presentations, it had greater significance in the case of Mr. Dietrich, who planned on making- significantly greater first-year contributions than the other clients planned to make. In purchasing the flexible-premium annuity, Mr. Dietrich was obligating himself to contribute, based on his projected first-year contributions, an additional $15,400 over the next six years into what he had assumed was a flexible-premium contract.
Recommendation In view of the foregoing, it is hereby RECOMMENDED that a Final Order be entered finding Respondent Connell and Respondent Sauer not guilty and dismissing the Administrative Complaint filed against each of them. ENTERED this 30th day of November, 1988, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of November, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 88-3302, 88-3303 Treatment Accorded Petitioner's Proposed Findings 1-4. Adopted in substance. Rejected as irrelevant. Adopted. 7 & 9. Rejected as unsupported by the evidence. 8. First sentence adopted. Second and third sentences rejected as recitation of testimony. Fourth sentence rejected as unsupported by the evidence. Rejected as recitation of evidence. First sentence adopted. Second and fourth sentences rejected as unsupported by the evidence. Third sentence rejected as legal argument. & 14. Adopted in substance. & 15-16. Rejected as irrelevant, except that last eight words of first sentence of Paragraph 16 are adopted. 17 & 21. Rejected as unsupported by the evidence. Adopted. Rejected as irrelevant. Adopted in substance, except that first 16 words arerejected as unsupported by the evidence. Treatment Accorded Respondent's Proposed Findings 1-3 & 6. Adopted. 4 & 5. Rejected as subordinate. 7-11. Adopted in substance. Rejected as recitation of evidence. Adopted through word "policy." Remainder rejected asirrelevant. Last sentence rejected as subordinate. Remainder rejected as recitation of testimony. Rejected as recitation of evidence and legal argument. First sentence adopted. Remainder rejected as recitation of evidence. Rejected as irrelevant. 18-19. Rejected as recitation of evidence. 20. First two sentences adopted, except that from "and" through end of first sentence rejected as irrelevant. Last sentence rejected as not finding of fact. 21-22 & 25. Adopted in substance. 23-24. Adopted. 26. Rejected as unsupported by the evidence. 27-28. Rejected as recitation of testimony. 29-31. Adopted in substance. 30. Adopted. 32. Rejected as irrelevant through "policy." Remainder adopted in substance. 33-34. Adopted in substance, except that first sentence ofParagraph 34 is rejected as recitation of testimony. Rejected as irrelevant. Rejected as unsupported by the evidence, except that the first and tenth sentences are adopted. Adopted in substance. Rejected as irrelevant. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Richard R. Logsdon, Esquire 1423 South Fort Harrison Avenue Clearwater, Florida 34616 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue The issue is whether Petitioner violated Chapter 440, Florida Statutes, by not having workers’ compensation insurance coverage, and if so, what penalty should be imposed.
Findings Of Fact Petitioner operates a gas station and convenience store in Winter Garden. Mohammad Sultan is Petitioner’s owner and president. On November 2, 2006, Margaret Cavazos conducted an unannounced inspection of Petitioner’s store. Ms. Cavazos is a workers’ compensation compliance investigator employed by the Department. Petitioner had nine employees, including Mr. Sultan and his wife, on the date of Ms. Cavazos' inspection. Petitioner had more than four employees at all times over the three-year period preceding Ms. Cavazos' inspection. Petitioner did not have workers’ compensation insurance coverage at the time of Ms. Cavazos’ inspection, or at any point during the three years preceding the inspection. On November 2, 2006, the Department served a Stop-Work Order and Order of Penalty Assessment on Petitioner, and Ms. Cavazos requested payroll documents and other business records from Petitioner. On November 6, 2006, the Department served an Amended Order of Penalty Assessment,1 which imposed a penalty of $70,599.78 on Petitioner. The penalty was calculated by Ms. Cavazos, using the payroll information provided by Petitioner and the insurance premium rates published by the National Council on Compensation Insurance. The parties stipulated at the final hearing that the gross payroll attributed to Mr. Sultan for the period of January 1, 2006, through November 2, 2006, should have been $88,000, rather than the $104,000 reflected in the penalty worksheet prepared by Ms. Cavazos. The net effect of this $16,000 correction in the gross payroll attributed to Mr. Sultan is a reduction in the penalty to $68,922.18.2 On November 3, 2006, Mr. Sultan filed a notice election for exemption from the Workers’ Compensation Law. His wife did not file a similar election because she is not an officer of Petitioner. The election took effect on November 3, 2006. On November 6, 2006, Petitioner obtained workers’ compensation insurance coverage through American Home Insurance Company, and Petitioner also entered into a Payment Agreement Schedule for Periodic Payment of Penalty in which it agreed to pay the penalty imposed by the Department over a five-year period. On that same date, the Department issued an Order of Conditional Release from Stop-Work Order. Petitioner made the $7,954.30 “down payment” required by the Payment Agreement Schedule, and it has made all of the required monthly payments to date. The payments required by the Payment Agreement Schedule are $1,044.09 per month, which equates to approximately $12,500 per year. Petitioner was in compliance with the Workers’ Compensation Law at the time of the final hearing. Petitioner reported income of $54,358 on gross receipts in excess of $3.1 million in its 2005 tax return. Petitioner reported income of $41,728 in 2004, and a loss of $8,851 in 2003. Petitioner had total assets in excess of $750,000 (including $540,435 in cash) at the end of 2005, and even though Petitioner had a large line of credit with Amsouth Bank, its assets exceeded its liabilities by $99,041 at the end of 2005. Mr. Sultan has received significant compensation from Petitioner over the past four years, including 2003 when Petitioner reported a loss rather than a profit. He received a salary in excess of $104,000 in 2006, and he was paid $145,333 in 2005, $63,750 in 2004, and $66,833 in 2003. Mr. Sultan’s wife is also on Petitioner’s payroll. She was paid $23,333.40 in 2006, $25,000 in 2005, and $12,316.69 in 2004. Mr. Sultan characterized 2005 as an “exceptional year,” and he testified that his business has fallen off recently due to an increase in competition in the area. Todd Baldwin, Petitioner’s accountant, similarly testified that 2006 was not as good of a year as 2005, but no corroborating evidence on this issue (such as Petitioner’s 2006 tax return) was presented at the final hearing. Mr. Sultan testified that payment of the penalty imposed by the Department adversely affects his ability to run his business. The weight given to that testimony was significantly undercut by the tax returns and payroll documents that were received into evidence, which show Petitioner’s positive financial performance and the significant level of compensation paid to Mr. Sultan and his wife over the past several years. The effect of the workers’ compensation exemption elected by Mr. Sultan is that his salary will no longer be included in the calculation of the workers’ compensation insurance premiums paid by Petitioner. If his salary had not been included in Ms. Cavazos’ calculations, the penalty imposed on Petitioner would have been $40,671.36. Ms. Cavazos properly included Mr. Sultan’s salary in her penalty calculations because he was being paid by Petitioner and he did not file an election for exemption from the Workers' Compensation Law until after her inspection.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department issue a final order imposing a penalty of $68,922.18 on Petitioner to be paid in accordance with a modified payment schedule reflecting the reduced penalty and the payments made through the date of the final order. DONE AND ENTERED this 22nd day of August, 2007, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 August, 2007.
Findings Of Fact The Petitioner, G. H. Johnson Construction Company, Inc., is a general contractor with an office in, and doing business in, the State of Florida. During the period from June 1, 1984, through May 31, 1987, the Petitioner did not pay State of Florida use tax on $244,916.62 of items purchased for use in the State of Florida. During the period from July 1, 1987, through July 31, 1988, the Petitioner did not pay State of Florida use tax on $4,344.88 of items purchased for use in the State of Florida. During the period from April 1, 1985, through March 31, 1987, the Petitioner did not pay Hillsborough County local option indigent health care tax and discretionary sales surtax on $37,083.77 of items purchased or used in Hillsborough County, Florida. The tax rate established by Hillsborough County for those taxes was 0.0328767 percent. The tax due was $92.71. The Petitioner did not pay State of Florida intangible tax on $622,634 of accounts receivable on the books of the company as of January 1, 1984. The Petitioner paid State of Florida intangible tax on only $516,690 of $743,865 of accounts receivable on the books of the company as of January 1, 1986. The Petitioner did not pay State of Florida intangible tax on $1,615,661 of accounts receivable and $225,000 of loans to stockholders on the books of the company as of January 1, 1987. The Petitioner did not pay State of Florida intangible tax on $942,449 of accounts receivable and $225,000 of loans to stockholders on the books of the company as of January 1, 1988. On or about March 12, 1989, the Petitioner made a partial payment in the amount of $11,394.14. The letter transmitting the payment both stated that "we wish to contest the interest and penalties which have been accrued" and also requested "that the interest and penalties be waived." The letter concluded: "It is understood that acceptance of this payment constitutes acceptance of the above proposal that the interest and penalties be waived." The DOR accepted the payment without direct comment on the closing remarks in the letter.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Petitioner, the Department of Revenue, enter a final order assessing against the Petitioner, G. H. Johnson Construction Company, Inc.: (1) sales and use tax in the amount of $5,025.05; (2) interest in the amount of $8,236.36 as of September 24, 1992, and accruing at the rate of one percent per month on the $5,025.05 of tax due from that date forward; and (3) penalty in the amount of $5,512.42. RECOMMENDED this 30th day of November, 1992, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 30th day of November, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-0285 To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. Rejected as contrary to the greater weight of the evidence. The DOR uses additional available information to ascertain, as best it can, where purchases are delivered and used. Those means include, but are not limited to, conferring with the taxpayer and requesting evidence showing delivery and use elsewhere. Rejected as subordinate to facts contrary to the greater weight of the evidence. Rejected as not supported by any competent evidence and as subordinate to facts contrary to the greater weight of the evidence. Rejected in part as conclusion of law and in part as contrary to facts found and to the greater weight of the evidence. Subordinate clause, rejected as contrary to facts found and to the greater weight of the evidence. Main clause, rejected as conclusion of law. Accepted but subordinate and unnecessary. In part, accepted and incorporated to the extent not subordinate or unnecessary; in part, rejected as paraphrasing the letter. Accepted and incorporated. Rejected as not supported by the evidence why the taxpayer sent the March 12, 1989, letter and check. 10.-11. Rejected in part as conclusion of law and in part as contrary to facts found and to the greater weight of the evidence. 12. Not a proposed finding of fact. Respondent's Proposed Findings of Fact. Accepted and incorporated. Accepted but unnecessary. Accepted but subordinate and unnecessary. Largely subordinate to facts found. In part, conclusion of law. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. 5.-8. Largely subordinate to facts found. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. 9.-10. In part, conclusion of law. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. 11. Accepted and incorporated to the extent not subordinate or unnecessary. 12.-13. In part, conclusion of law. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. In part, argument. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. In part, argument. Otherwise, subordinate and unnecessary. COPIES FURNISHED: Matias Blanco, Jr., Esquire 701 North Franklin Street Tampa, Florida 33602 James McAuley, Esquire Assistant Attorney General Tax Section Department of Legal Affairs The Capitol Tallahassee, Florida 32399-1050 Linda Lettera, Esquire General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Dr. James Zingale Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Amended Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact Paragraph 1 of the Petitioner's exceptions to the Findings of Fact argues the findings in paragraph 17 of the Hearing Officers' Findings of Fact do not reflect the evidence and testimony submitted at the Final Hearing. In particular, at issue is whether the Respondent completed the statutorily and administratively required "due diligence affidavit" for each Florida insurance risk he placed with a surplus lines carrier. 1/ Counts eleven (11) through twenty (20) of the Department's Amended Administrative Complaint allege that the Respondent feed to properly execute and/or secure the statutorily required affidavits of due diligence when placing an insurance risk with a surplus lines insurer. The Hearing Officer concluded that the existence or nonexistence of the completed affidavits was not certain in nine (9) of the ten (10) files, and therefore refused to conclude they were not completed. Nine of the ten affidavits contained within the Department's Amended Complaint, although technically incomplete by Department standards, were properly signed by the producing agent. Department testimony supports the proposition that the requisite information, since not contained on the affidavit, did not exist. The Respondent claims the required information was in the insurance file and was completed before exporting the particular risk to the surplus lines carrier, but that the Department failed to copy that information during its' investigation. The Department did not produce clear and convincing evidence that this information was not in the file. Based upon such, the Department's exception to the finding of fact in paragraph 17 is hereby REJECTED. Paragraph 2 of the Petitioner's Exceptions excepts to paragraph 18 of the Recommended Order. In particular, the Petitioner excepts to the finding by the Hearing Officer in paragraph 33 (Count XIX that the Respondent failed to properly verify due diligence on one insurance file only. For the reasons stated above in response to the exception to the Finding of Fact in paragraph 17, the Departments' exception to the Finding of Fact in paragraph 18 is REJECTED. Paragraph 3 of the Petitioner's Exceptions excepts to paragraph 19 of the Recommended Order. In particular, the Petitioner states that the Finding of Fact stating the violations alleged by the Department did not result from intentional, dishonest, or untrustworthy conduct, is a conclusion of law and not a finding of fact. The finding of whether a particular act was intentional or not is indeed a conclusion of law and not one of fact. However, the Petitioner does not challenge the actual finding but, rather its form. For this reason, the Hearing Officer's Finding of Fact in paragraph 19 of the Recommended Order shall be considered a Conclusion of Law in this Final Order. PETITIONER'S EXCEPTIONS TO CONCLUSIONS OF LAW Paragraph 4 of the Petitioner's Exceptions excepts to paragraph 29 of the Recommended Order. In particular, the Petitioner excepts to the finding by the Hearing Officer that any outstanding liability for surplus lines premium tax could not be determined until subsequent tax credits become known, and that the outstanding interest for assessed for unpaid liabilities shall be at the new interest rate reflected in the 1992 amendment to the Surplus Lines Law. Additionally, the Hearing Officer concluded that any penalties and interest assessed on the outstanding tax liability could not be determined prior to a determination of what tax is outstanding when subsequent credits are calculated. This rationale is faulty since any determination of premium tax due is based solely upon the premium accepted in a particular quarter, an amount that is fixed and easily ascertainable. Any credits or adjustments to the amount of premium tax occurred subsequent to the fixing of the quarterly tax liability. Statutory and administrative procedures exist whereby the total outstanding surplus lines tax liability can be adjusted to reflect any tax credits that may have become realized after the fixing of tax liability. The calculation of total surplus lines tax liability including any credits is easily made when utilizing hindsight. However, hindsight can not change the fact that the Respondent accepted a specified amount of insurance premium upon which tax liability affixes. That liability for unpaid taxes, pursuant to the Surplus Lines Law is to be taxed at the statutory rate, which effective April 8, 1992, was 9 percent. The parties specifically stipulated that if the 9 percent interest rate should apply, only those unpaid tax balances which existed after April 8, 1992 are to be taxed at the 9 percent rate. The Respondent argued that outstanding tax liabilities which arose prior to April 8, 1992, should be taxed at the prior rate. Pursuant to case law and the Department's interpretation, the interest rate change is to be applied to all outstanding liabilities that existed on the effective date of the statutory amendment. Therefore, and pursuant to a stipulation executed between the parties, the total interest due on November 1,1994 is $8,527 and $2.10 per day, for every day alter November 1, 1994. As such, the Hearing Officer's recommendation in paragraph 29 of the Conclusions of Law is hereby REJECTED, and the Respondent shall pay $8,527 as interest for outstanding balances through November 1, 1994, and $2. 10 per day for each day after November 1, 1994 until all liability is extinguished. Paragraph 5 of the Petitioner's Exceptions excepts to paragraph 31 of the Recommended Order. In particular, the Petitioner excepts to the conclusion that "[w]ithin a few months, when the Department applied credits due Respondent against that tax liability, the liability was extinguished". Paragraph 31 of the Hearing Officer's Recommended Order solely refers to Count XI of the Amended Administrative Complaint or particularly, the surplus lines tax liability for the third quarter of 1993. The Parties had previously stipulated that $307 interest for the late payment of surplus lines tax liability was the only amount outstanding from the third quarter of 1993. Based upon that stipulation, the exception to Hearing Officer's Conclusion of Law in paragraph 31 of the Recommended Order is REJECTED. Paragraph 6 of the Petitioner's Exceptions excepts to paragraph 34 of the Recommended Order. In particular, the Petitioner excepts to the conclusion that is based upon the earlier excepted Findings of Fact in paragraph seventeen (17) and eighteen (18). The exceptions to these findings were specifically rejected earlier in this Final Order and thus it is proper that any exception to the legal conclusion based upon these findings also be rejected. Therefore, the Department's exception to the Conclusion of Law in paragraph 34 of the Hearing Officer's Recommended Order that 1,the Department offered no evidence that due diligence had not been preformed" with respect to nine (9) of the ten (10) counts is hereby REJECTED. PETITIONER'S EXCEPTION TO THE HEARING OFFICER'S RECOMMENDATION The Petitioner has also submitted an exception to the Recommendation offered by the Hearing Officer. In particular, the Petitioner excepts to the Recommendation that is based upon the earlier excepted Findings of Fact and Conclusions of Law which have been rejected. Since the Hearing Officer's recommendation was based upon Conclusion of Law that have been rejected, the Recommendation is also hereby REJECTED in part and ACCEPTED in part. Upon careful consideration of the Recommended Order and the Exceptions filed by the Respondent, and being otherwise advised in the premises, it is hereby ORDERED: The Findings of Fact, as recited by the Hearing Officer, are adopted within this Final Order as the Department's Findings of Fact. The Conclusions of Law of the Hearing Officer, with the exception of those Conclusions rejected by this Final Order are adopted as the Department's Conclusions of Law. The Respondent, as found by the Hearing Officer, is hereby found guilty and to have committed the violations as alleged in Counts I, II, V-X, XI, and XIX. Counts III, IV, XII-XVIII, XX, XXI, and XXII, are hereby dismissed pursuant to the Hearing Officers Recommended Order and as adopted by this Final Order. Respondent shall pay within thirty (30) days of entry of this Final Order $27,498 for the surplus lines premium tax Mr. Skoller failed to collect, plus the amount of $8,527 and $2. 10 per day from November 1, 1994, as interest on the unpaid taxes. Respondent, as recommended by the Hearing Officer and adopted by this Final Order, shall pay within thirty (30) days of entry of this Final Order $307 as interest for the delayed payment of surplus lines premium tax for the third quarter of 1993. Mr. Skoller, as recommended by the Respondent and adopted by the Hearing Officer, was to pay one thousand dollars ($1,000) as an administrative penalty in this matter for his failure to complete the "due diligence affidavit" as alleged in Count XIX of the Amended Administrative Complaint. Section 626.935, Florida Statutes specifically directs that "the Department shall suspend, revoke, or refuse to renew the license of a surplus lines agent and all other licenses held by the licensee" for any violation of the Surplus Lines Law and the failure to pay tax on surplus lines premiums. Sections 626.935(1)(e) and 626.935(1)(i), Florida Statutes. As such, the one thousand dollar ($1,000) administrative penalty recommended by the Hearing Officer is REJECTED as improper in consideration of the above mandatory suspension, revocation, or non- renewal. Based upon the findings of guilt by the Hearing Officer for violating Counts I, II, V-X, XI and XIX, of the Departments' Amended Administrative Complaint, including statutory violations of Sections 626.932 and 626.916, Florida Statutes, all insurance agent licenses presently held by the Respondent, including his surplus lines insurance agents license shall be suspended for a period of one year pursuant to the mandatory provisions of Section 626.935, Florida Statutes. Said suspension shall become effective ten (10) days after issuance of this Final Order and is justified by the findings of guilt by the Hearing Officer. Pursuant to sections 626.112 and 626.915, Florida Statutes, Respondent shall not engage or attempt or profess to engage in any transaction or business for which any insurance agents license or appointment is required under the Insurance Code, including surplus lines. Pursuant to Section 626.641(1), Florida Statutes a license, appointment, or eligibility which has been suspended shall not be reinstated except upon request for such reinstatement; but the Department shall not grant such reinstatement if it finds that the circumstance or circumstances for which the license, appointment, or eligibility was suspended still exist or are likely to recur. 9. Should Mr. Skoller fail to pay those surplus lines taxes, interest, and penalties within the time frames delineated herein, such delay shall be added to the total time period for which the Respondent's surplus lines insurance agents license is to be suspended. Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to Section 120.68, Florida Statutes, and Rule 9.110, Florida Rules of Appellate Procedure. Review proceedings must be instituted by filing of a Notice of Appeal with the General Counsel, acting as the agency clerk, at 612 Larson Building, Tallahassee, Florida 32399-0300, and a copy of the same and the filing fee with the appropriate District Court of Appeal within thirty (30) days of the rendition of this Order. DONE and ORDERED this 9th day of May, 1995. BILL NELSON, Treasurer and Insurance Commissioner
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered: Finding Respondent guilty of violating Counts I, II, V-X, XI, and XIX; Dismissing Counts III, IV, XII-XVIII, XX, XXI and XXII of the Amended Administrative Complaint filed in this cause; Requiring Respondent to pay within thirty days of entry of the Final Order in this cause the amount of $27,498 for the tax he failed to collect, plus interest in the amount of $3,246 and additional interest at the rate of $.80 per day for every day after November 1, 1994, until that amount is paid; Requiring Respondent to pay the amount of $307 in interest for the delayed payment of taxes for the third quarter of 1993; Requiring Respondent to pay a fine in the amount of $1,000 for violating Count XIX with respect to the application of Michael Adams; and Providing that if Respondent fails to pay the tax, interest, and penalty provided for in this Recommendation within thirty days after entry of the Final Order in this cause his surplus lines license be suspended until the tax is paid. DONE and ENTERED this 19th day of January, 1995, at Tallahassee, Florida. LINDA M. RIGOT Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of January, 1995. APPENDIX TO RECOMMENDED ORDER Petitioner's proposed findings of fact numbered 1-8, 10-17, 38, and 40 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 18-37 and 39 have been rejected as being subordinate to the issues remaining in this cause. Petitioner's proposed findings of fact numbered 41 and 42 have been rejected as not being supported by the weight of the evidence in this cause. Petitioner's proposed finding of fact numbered 9 has been rejected as not constituting a finding of fact but rather as constituting a conclusion of law. Respondent's proposed findings of fact numbered 1-14 contained in the section of his proposed recommended order entitled Summary Conclusions of Fact have been adopted either verbatim or in substance in this Recommended Order as have been all of the unnumbered paragraphs contained in the section entitled Initial Conclusions of Fact. COPIES FURNISHED: John R. Dunphy, Esquire Division of Legal Services Department of Insurance and Treasurer 412 Larson Building Tallahassee, Florida 32399-0300 Edward W. Dougherty, Jr., Esquire 315 South Calhoun Street Suite 500 Tallahassee, Florida 32301 Bill O'Neal, General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300 Bill Nelson State Treasurer and Insurance Commissioner The Capitol Plaza Level Tallahassee, Florida 32399-0300
