The Issue The issue is whether Petitioner is liable for sales and use taxes, penalties, and interest and, if so, how much.
Findings Of Fact Petitioner operated a bar and grill in Punta Gorda that served beer, wine, liquor, and food at retail. In the course of business, Petitioner collected tax from the customers. Petitioner reported to Respondent sales tax collections for May 1996, November 1996, March 1997, November 1997, and December 1997. In connection with these collections, Petitioner remitted to Respondent seven checks representing the net tax due Respondent. These checks totaled $6700.64. The bank on which the checks were drawn dishonored them. The remittance of net sales tax proceeds by payment through checks that are later dishonored implies a fraudulent, willful intent to evade the payment of these sums. Respondent has issued five warrants concerning the unremitted taxes, penalties, and interest. Warrant 953620064 shows that Petitioner owes $1171 in sales tax remittances for the five months from July through November 1995. With penalties and interest, the total due on this warrant, through June 5, 1998, is $1832.37. Interest accrues after June 5 at the daily rate of $0.35. Warrant 467049 shows that Petitioner owes $2940.25 in sales tax remittances for the following months: April 1996, October 1996, December 1996, and January 1997. Petitioner purportedly paid each of these remittances with five (two in January) checks that were later dishonored. With penalties, including the 100 percent penalty for fraud, and interest, the total due on this warrant, through June 5, 1998, is $7480.12. Interest accrues after June 5 at the daily rate of $0.95. Warrant 971680037 shows that Petitioner owes $1301.85 in sales tax remittances for the following months: December 1995, June 1996, July 1996, September 1996, November 1996, and February 1997. With penalties and interest, the total due on this warrant, through June 5, 1998, is $2669.69. Interest accrues after June 5 at the daily rate of $0.43. Warrant 471481 shows that Petitioner owes $2912.48 in sales tax remittances for October and November 1997, for which Petitioner made remittances with two dishonored checks. With penalties, including the 100 percent penalty, and interest, the total due on this warrant, through June 5, 1998, is $6751.49. Interest accrues after June 5 at the daily rate of $0.95. Warrant 989840034 shows that Petitioner owes $8077.76 in sales tax remittances for the following months: August 1997, September 1997, December 1997, January 1998, and February 1998. With interest, the total due on this warrant, through June 5, 1998, is $8285.21. Interest accrues after June 5 at the daily rate of $2.65. Totaling the five warrants, Petitioner owes a total of $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order determining that Petitioner owes $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid. DONE AND ENTERED this 10th day of July, 1998, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1998. COPIES FURNISHED: John N. Upchurch Nicholas Bykowsky Assistant Attorneys General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Judith Crown, President Tombstone, Inc. Suite P-50 1200 West Retta Esplanade Punta Gorda, Florida 33950 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
Findings Of Fact At the time and place scheduled for final hearing, nobody appeared on behalf of petitioner and no evidence was adduced.
Recommendation It is, accordingly recommended that respondent dismiss petitioner's request for a formal administrative proceeding. RECOMMENDED this 19th day of November, 1991, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of November, 1991. COPIES FURNISHED: J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Vicki Weber, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Kevin J. O'Donnell, Esquire Department of Legal Affairs Tax Section, The Capitol Tallahassee, FL 32399-1050 Louise J. Allen, Esquire Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A. 150 W. Flagler Street, Suite 2200 Miami, FL 33130
The Issue Does the taxpayer owe sales tax, penalty, and interest as assessed by the Department of Revenue.
Findings Of Fact Petitioner, Department of Revenue, is an agency of the State of Florida, lawfully created and organized pursuant to Section 20.21, Florida Statutes. By law, the Department is vested with the responsibility of regulating, controlling and administering the revenue laws of the State of Florida, including, specifically, the laws relating to the imposition and collection of the state's sales and use tax, pursuant to Chapter 212, Florida Statutes. Respondent, Worldwide Equipment Group, LLC, is a Florida limited liability company, whose principal address is Post Office Box 1050, Freeport, Florida 32439. Respondent sells and leases heavy equipment. In early 2006, Petitioner, Department of Revenue, conducted an audit of the books and records of Petitioner, pursuant to statutory notice. The period covered by the audit was March 1, 2002, through February 28, 2005. The audit was conducted by Department of Revenue auditor David Collins and addressed three issues. Issue A-01 addressed misclassified exempt sales, i.e. failure to collect appropriate sales and use tax or lack of documentation to prove tax exempt status of certain sales. Issue A-03 addressed discrepancies in sales for 2003 as reported for federal income tax returns and for state sales and use tax returns. Issue A-03 addressed interest owed due to a timing difference between actual transactions and the filing of state returns: basically a manipulation of the grace period for payment of sales and use taxes. Respondent was notified of the apparent discrepancies observed by the auditor. The original Notice of Intent To Make Audit Changes was issued February 17, 2006, and started at more than $75,000.00 in taxes, penalty, and interest due. Respondent then filed amended federal income tax returns, reflecting larger sales figures covering a portion of the audit period which reduced the discrepancy. The dispute was originally referred to the Division of Administrative Hearings (DOAH) on or about August 30, 2006. The original facts in dispute surrounded an addendum to the Notice of Proposed Assessment showing a balance due of $31,434.82. This was DOAH Case No. 06-3287. The request for a disputed-fact hearing was made by David R. Johnson CPA, who has a power of attorney on file with Petitioner Agency permitting him to represent Respondent. Throughout these proceedings, Worldwide has been served through Mr. Johnson by Petitioner and by DOAH. The parties filed a Joint Motion for Provisional Closing Order in DOAH Case No. 06-3287 on November 1, 2006. On November 2, 2006, DOAH Case No. 06-3287 was closed with leave to return if the parties' proposed settlement was not finalized. Mr. Johnson met once with counsel for Petitioner during the time the case was returned to the Agency. At some point, Respondent had produced certain accounting entries and supporting documents to the auditor. These were used to adjust the assessment levied by the Department. A Revised Notice Of Intent To Make Audit Changes dated March 13, 2007, was issued with a letter of the same date. The revised, and final Notice included an assessment of tax, penalty and interest totaling $15,065.24, as of the date of issue and information that the tax accrues interest at the rate of $3.10 per diem. On April 4, 2007, Petitioner filed before DOAH its Motion to Re-open Case and Notice for Trial. No timely response in opposition was filed by Respondent. By an Order to Re-open Case File, entered April 19, 2007, the case was re-opened as the instant DOAH Case No. 07-1710. Petitioner has established that the amount of $15,065.24 as tax, penalty, and interest was due as of March 13, 2007.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue sustain the March 13, 2007, assessment of the subject sales tax, penalties and interest to Petitioner. DONE AND ENTERED this 8th day of October, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 8th day of October, 2007. COPIES FURNISHED: Warren J. Bird, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32399-0100 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100 David R. Johnson, CPA 1265 Highway 331 South Defuniak Springs, Florida 32435 Worldwide Equipment Group LLC Post Office Box 1050 Freeport, Florida 32439
The Issue The issue is whether a proposed sales tax assessment should become final agency action.
Findings Of Fact Respondent is the agency responsible for administering the state sales tax imposed in Chapter 212, Florida Statutes (2001).1 From May 1, 2002, through April 30, 2005 (the audit period), Petitioner was a dealer, defined in Subsection 212.06(2), and was required to collect and remit sales tax to the state. Petitioner is a closely held Florida corporation located at 2802 Thomasson Drive, Naples, Florida 34112. Petitioner is engaged in the business of retail sales, including the sale of tangible personal property such as food, beer, beverages, and fishing bait (goods). Petitioner uses the accrual method of accounting. Petitioner elects, under Subchapter S of the Internal Revenue Code, to report income and deductions for purpose of the federal income tax on form 1120S. Sometime in June 2005, Respondent sent Petitioner a Notification of Intent to Audit Books and Records identified in the record by audit number A200015450. Upon completion of the audit, Respondent concluded that Petitioner had not reported all of the gross sales that occurred during the audit period (unreported sales) and assessed tax, penalty, and interest, through July 13, 2006, in the amount of $163,914.16. During the audit period, it is undisputed that Petitioner did not maintain cash register receipts identified in the record as Z-tapes (Z-tapes).2 Respondent claims the absence of Z-tapes deprives Respondent of adequate records to determine the amount of a tax deficiency, if any. Respondent defines adequate records in Florida Administrative Code Rule (Rule) 12-3.0012(3). The definition of adequate records does not include a requirement for Z-tapes. The trier of fact finds the evidence from Petitioner concerning the adequacy of its records to be credible and persuasive. Petitioner maintained adequate records within the meaning of Rule 12-3.0012(3). The records include books, accounts, and other records that are sufficient for Respondent's auditors (the auditors) to reliably determine a tax deficiency. The available records are accurate within the meaning of Rule 12-3.0012(3)(a)1. The records are adequate for the auditors to reconcile differences between gross sales reported for federal and state tax purposes. The available records are inclusive within the meaning of Rule 12-3.0012(3)(a)2. The records capture the transactions necessary to determine a tax deficiency. The available records include a breakdown of individual suppliers for all products that Petitioner sold during the audit period. The amount charged by each vendor ties into the total claimed for federal tax purposes on Petitioner's 1120S tax returns. The available records are authentic within the meaning of Rule 12-3.0012(a)3. It is undisputed that the available records are authentic. The available records are systematic within the meaning of Rule 12-3.0012(a)4. Available records include: daily summary tapes for each shift, spread sheets, and quarterly summaries, each of which is maintained by Petitioner, and journals and general ledgers, which are maintained by Petitioner's accountants. During the audit period, each shift operator manually prepared a worksheet for daily sales and reconciled those numbers with the corresponding bank deposit. Petitioner maintained working papers supported by summary tapes. The summary tapes document totals for each day's operations. Each summary tape is proofed against two of three tapes prepared by different employees. The daily totals are entered on a monthly spreadsheet and submitted to Petitioner's accountants quarterly for preparation of sales tax returns. The auditors were not satisfied with the records Petitioner maintained during the audit period. The cost of goods sold exceeded gross sales (operating losses) for two federal tax years during the three-year audit period (operating loss years).3 The auditors regarded the operating loss years as evidence of unreported sales. As Respondent explains: The controversy regarding the true amount of total sales made by Petitioner arose because [Respondent] could not accept as correct Petitioner's assertion that for two of the three years under audit, Petitioner's reported costs of goods sold were greater than its reported gross receipts [operating losses]. . . . The question puzzling the . . . auditors was - how could a business continue to operate if its costs were greater than its revenue? [Respondent] concluded unreported sales were indicated. . . . Respondent's PRO, paragraph 8, page 6. Respondent knew, or should have known, that unusual facts and circumstances existed during the audit period which answered the auditor's questions concerning the operating loss years. During a substantial part of the audit period, the road fronting the store, which provided virtually all practical access to the store, was closed for construction by the county government. The road closure depressed sales substantially and required Petitioner to sell some goods for less than cost and to offer customer incentives and promotions in an effort to maintain the customer base. The owner and her mother financed the operating losses with annual shareholder loans of approximately $200,000 for each of the two operating loss years. Petitioner provided the auditors with material information, including documentation of the road construction and shareholder loans. That information concerned the nature of the taxpayer's business and included information authorized in Rule 12-3.00112(3) such as third-party confirmations, corroborating evidence, and related supporting documentation. The auditors were not satisfied. They concluded that available records were not adequate. When records are inadequate, Respondent has statutory authority to conduct an audit on the basis of: test or sampling of the dealer's available records or other information relating to the sales or purchases made by such dealer for a representative period. (Emphasis supplied) § 212.12(6)(b). Subsection 212.12(6)(b) is the statutory basis for the proposed agency action. The Notice of Decision, in relevant part, cites Subsection 212.12(6)(b) as statutory authority for the proposed assessment. The available records were adequate for the auditors to use sampling authorized in Subsection 212.12(6)(b) based on Petitioner's federal tax information.4 For example, the auditors could have used the gross profit percentage reported for the federal tax year during the audit period in which Petitioner reported a profit (the profit year) to increase either: the cost of goods sold reported for federal tax purposes during the operating loss years, or the undisputed purchase invoice costs that Petitioner provided to Respondent. Respondent does not assert in its PRO that the proposed assessment is authorized by Subsection 212.12(6)(b). Rather, Respondent reasons at paragraph 23, page 9, of the PRO that the proposed assessment is based on an estimate authorized in Subsection 212.12(5)(b). Subsection 212.12(5)(b) would have authorized Respondent to "make an assessment" against Petitioner "based on an estimate from the best information then available" (emphasis supplied) if it were shown that Petitioner failed or refused to make records available, Respondent suspected fraud, or any of the other statutory prerequisites for an estimate existed. However, it is undisputed that none of the statutory prerequisites for an estimate authorized in Subsection 212.12(5)(b) exist in this proceeding. The Notice of Decision does not reference Subsection 212.12(5)(b), much less cite Subsection 212.12(5)(b) as authority for the proposed assessment. Nevertheless, the auditors estimated unreported gross sales for state tax purposes (unreported sales) based on three field visits to the store.5 In the first field visit, an auditor walked through the store with one of Petitioner's employees and compared the sale price marked on selected goods with costs recorded in the purchase invoices for those goods. The auditor estimated that Petitioner marked up purchase invoice costs for all goods by 50 percent (the 50 percent markup). The auditor estimated sales tax due on unreported sales in four steps. First, the auditor estimated gross sales by marking up the cost of goods sold on Petitioner's federal tax returns by 50 percent. Second, the auditor multiplied the estimated gross sales by 33.33 percent; a percentage derived from the ratio of taxable sales to gross sales (taxable sales ratio) reported by Petitioner. The auditor used the mathematical product of that calculation as the estimated taxable sales. In the third step, the auditor multiplied estimated taxable sales by the effective tax rate to estimate the total tax. Finally, the auditor estimated that the tax due on unreported sales was equal to the difference between the estimated total tax and the amount of taxes paid. The auditors were not satisfied. The auditors believed the taxable sales ratio reported by Petitioner was lower than the actual taxable sales ratio. The parties reached an audit agreement during a meeting conducted on December 8, 2005, subject to Petitioner's objection to an assessment based on any sampling or estimate. Each party determined a taxable sales ratio based on Z-tapes that were available from July 16 through November 2005 (the representative period) and applied the taxable sales ratio back over the entire audit period. Prior to the representative period, an auditor made a second field visit and identified certain goods, including potato chips, which he believed employees were incorrectly selling as non-taxable items. The auditor asked the employees to keep register tapes for the representative period in accordance with his instructions. After the second visit to the store, store employees kept Z-tapes during 141 shifts. The Z-tapes for the 141 shifts provide a "sample . . . for a representative period" within the meaning of Subsection 212.12(6)(b). Respondent determined the applicable taxable sales ratio to be 55.2 percent.6 A certified public accountant (CPA) retained by Petitioner determined that the taxable sales ratio during the representative period was 43 percent. The auditors were not satisfied. They conducted a third "field visit" to the store prior to March 1, 2006. In the third field visit, auditors again viewed goods for sale on store shelves. The auditors estimated the taxable sales ratio to be 75 percent and retained the 50 percent markup. Based on selected goods the auditors viewed on store shelves, the proposed assessment incorrectly estimates unreported sales using a taxable sales ratio and markup of 75 and 50 percent.7 The 50 percent markup lacks economic reality. The markup is necessarily limited to selected items and does not accurately reflect actual markup for all goods sold. Nor does the markup accurately reflect the impact of construction on Petitioner's business within the meaning of Rule 12-.0012(3)(b). Petitioner presented credible and persuasive testimony that the correct markup is 23 percent. That testimony is consistent with evidence sanctioned in Rule 12-3.0012(3)(b) that the industry operates on a markup of only 20 percent. A taxable sales ratio of 55.2 percent is reasonable and accurately reflects economic reality. The taxable sales ratio of 55.2 percent was correctly determined by a sampling method authorized in Subsection 212.12(6)(b). The sampling method used to determine a taxable sales ratio of 55.2 percent is consistent with the legislative description of sampling in Subsection 212.12(6)(c) that the Legislature authorizes when available records are adequate but voluminous.8 If the proposed assessment were correct, Respondent should not assess any penalties against Petitioner. It is undisputed that an alleged failure to maintain adequate records was unintentional and that Petitioner fully cooperated in the audit. On July 10, 2007, Petitioner paid Respondent an additional $47,727.41; comprised of additional tax totaling $35,589 and accrued interest of $12,138.41.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order assessing sales tax based on the available records maintained by Petitioner, and, if sampling is authorized, using a taxable sales ratio and markup that do not exceed 55.2 and 23 percent, respectively. DONE AND ENTERED this 4th day of March 2008, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of March, 2008.
The Issue The issues are whether Respondent violated Chapter 212, Florida Statutes, by failing to pay sales tax and local government infrastructure surtax, and if so, what penalty should be imposed.
Recommendation Based upon the findings of fact and conclusions of law, it is RECOMMENDED: That Respondent enter a Final Order upholding its assessment against Petitioner in full, including all taxes, penalties, and interest statutorily due until date of payment for both the sales and use tax and the local government infrastructure. DONE AND ENTERED this 29th day of September, 1998, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 29th day of September, 1998.
The Issue Whether petitioner taxpayer is liable for delinquent sales tax, penalties, and interest under Chapter 212, Florida Stat utes, as alleged by respondent Department in its notice of proposed assessment.
Findings Of Fact The Taxpayer Taxpayer is a family-operated Florida corporation which has engaged in retail sales at the Tampa Port Authority since 1975 or 1976; it is a licensed dealer registered with the Department. (Testimony of Roberts, Marylis.) Taxpayer's Sales During Audit Period From June 1, 1977, through July 31, 1980 (the audit period covered by the Department's proposed assessment), Taxpayer had gross sales in the approximate amount of $691,013.46. (Testimony of Roberts; Exhibit 2.) During that period, Taxpayer filed the required DR-15 monthly sales tax reports and paid taxes on all retail sales transactions which took place on the premises of its store located at 804 Robinson Street, (Tampa Port Authority) Tampa, Florida. (Testimony of Roberts.) During the same audit period -- in addition to sales on its store premises -- Taxpayer sold goods to merchant seamen on board foreign vessels temporarily docked at the Port of Tampa. These vessels operated in foreign commerce, entering the port from and returning to international waters outside the territorial limits of the United States. Taxpayer did not report these sales on its monthly sales tax reports; neither did it charge or collect sales tax from the on-board purchasers. (Testimony of Marylis.) Taxpayer failed to charge or collect sales tax in connection with its on-board sales because it relied on what it had been told by Department representatives. Prior to forming Taxpayer's corporation Thomas Marylis went to the local Department office to obtain a dealer's certificate. While there, he asked Manuel Alvarez, Jr., then the Department's regional audit supervisor, whether he was required to collect sales tax on ship-board sales. Alvarez replied that he didn't have to collect sales taxes on sales made to seamen when he delivered the goods to the ship. 1/ (Testimony of Marylis.) The on-board sales transactions took place in the following manner: Taxpayer (through its owner, Thomas Marylis) would board the foreign vessel and accept orders from the captain, chief mate, or chief steward. (Earlier, one of these persons would have taken orders from the rest of the crew.) If individual crewmen tried to place orders, Marylis would refer them to the captain, chief mate, or chief steward. After receiving orders from one of these three persons, Marylis would return to Taxpayer's store, fill the order, and transport the goods back to the vessel. Whoever placed the order would then examine the goods and give Marylis the money /2 collected from the crew. (Testimony of Roberts, Marylis.) The goods sold in this manner were ordinarily for the personal use of individual crew members; typical items were: shoes, underwear, working clothes, small radios, watches, suitcases, soap, paper towels, and other personal care products. (Testimony of Marylis.) Department Audit of Taxpayer In 1980, the Department audited Taxpayer's corporate books to determine if sales tax had been properly collected and paid. Taxpayer could produce no dock or warehouse receipts, bills of lading, resale certificates from other licensed dealers, or affidavits verifying that its on-board sales were made to out-of-state purchasers for transportation outside of Florida. (Testimony of Roberts, Marylis.) Due to Taxpayer's failure to supply documentation demonstrating that its ship-board sales from June 1, 1977, to July 31, 1980, were exempt from sales tax imposed by Chapter 212, Florida Statutes, the Department issued a proposed assessment on September 23, 1980. Through that assessment, the Department seeks to collect $21,201.01 in delinquent sales tax, $5,131.39 in penalties, and $3,892.18 in interest (in addition to interest at 12 percent per annum, or $6.97 per day, accruing until date of payment). (Exhibit 5.) Informal Conference with Department; Alvarez's Representations to Taxpayer In October 1980 -- after the audit -- Taxpayer (through Marylis) informally met with Manuel Alvarez, the Department's regional audit supervisor, to discuss the tax status of the shipboard sales. Specifically, they discussed the Department auditor's inability to confirm that Taxpayer delivered the items to the ships, as opposed to the buyers picking up the goods at the store. Alvarez told him: [I]f the buyers would come and just pick them up and take them. And I [Alvarez] think I told him that, if that was the case, it was taxable. But, if they just placed their orders there -- like we have had other ship supplies -- and they them- selves, or one of their employees, would take the items aboard ships, that would be an exempt sale. I did make that state ment. If we had any type of confirmation to that effect, when it comes to that. (Tr. 61.) 3/ (Testimony of Alvarez.) Alvarez then told Marylis to obtain documentation or verification that the sales were made on foreign vessels, i.e., proof that Taxpayer delivered the goods to the vessels. He assured Marylis that if he could bring such verification back, such sales "would come off the audit." (Tr. 62.)(Testimony of Alvarez.) Alvarez was an experienced Department employee: he retired in 1980, after 30 years of service. It was Alvarez's standard practice -- when dealing with sales tax exemption questions -- to reiterate the importance of documentation. He would always give the taxpayer an opportunity -- 30 days or more -- to obtain documentation that a sale was exempt from taxation. (Testimony of Alvarez.) Taxpayer's Verification In response to the opportunity provided by Alvarez, Taxpayer (through Marylis) obtained affidavits from numerous captains of foreign vessels and shipping agents. Those affidavits read, in pertinent part: I, [name inserted] , am the Captain aboard the vessel [name inserted] from [place of origin]. I am personally aware that Speros International Ship Supply Co., Inc. sells various commodities, supplies, clothing, and various sundry items to for eign ship personnel by delivering the said items to the ships docked at various termi- nals inside the Tampa Port Authority and other locations in Tampa, Florida from [date] to the present. (Testimony of Marylis; Exhibit 8.) Moreover, in an attempt to comply with the tax law and avoid similar problems in the future, Taxpayer printed receipt books to be used in all future on-board sales. The receipts reflect the type of goods sold, the date of delivery to the vessel, the foreign vessel's destination, and the total purchase price. Also included is a signature line for the individual who delivers and receives the goods. (Testimony of Marylis; Exhibit 7.)
Recommendation Based on the foregoing, it is RECOMMENDED: That Department's proposed assessment of Taxpayer for delinquent sales tax, penalties, and interest, be issued as final agency action. DONE AND RECOMMENDED this 17th day of February, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of February, 1982.
The Issue The issue for determination is whether Petitioner owes sales tax of $15,230.15 plus interest from October 15, 1993.
Findings Of Fact Petitioner is a sole proprietorship organized in this state and doing business at 851 Monterey Road, Stuart, Florida. Respondent is the governmental agency responsible for administering the state sales tax in accordance with Chapter 212, Florida Statutes.1 In 1992, other businesses located at Petitioner's address reported to Respondent that they paid rent to Petitioner. However, Petitioner did not collect and remit sales tax on the rental income and was not registered as a dealer. On February 3, 1992, Respondent mailed a Notice of Intent to Audit Petitioner's books and records ("Notice of Intent to Audit") for the tax period February 1, 1987, through January 31, 1992. The Notice of Intent to Audit included a detailed list of the books and records needed for Respondent to conduct a detailed audit. The Notice also requested that Petitioner provide Respondent with a date on which it would be convenient to begin the audit. On February 11, 1992, Respondent had not heard from Petitioner. The auditor contacted Petitioner to schedule a date on which the audit could begin. At that time, Petitioner stated that he would not provide the auditor with any books and records. Petitioner refused to make available the books and records for 1990 through 1992 because Petitioner incorrectly suspected that Respondent maintained a secret "blacklist." Petitioner based his suspicion, in part, on the fact that he had refused to respond to a questionnaire Respondent had mailed to taxpayers throughout the state prior to the Notice of Intent to Audit. Petitioner also based his suspicion on the erroneous assumption that Respondent's audit was part of a criminal investigation by the Internal Revenue Service ("IRS") into Petitioner's federal taxes for 1987 and 1988. Petitioner refused to make available the books and records for 1987 through 1989 because those records were in the possession of the IRS. Petitioner maintained that the proposed audit was illegal. Respondent sent Petitioner copies of its statutory authority to audit Petitioner and made numerous attempts to arrange a mutually convenient time to begin the audit. Respondent did not commence the audit until March 10, 1993. On March 10, 1993, the auditor and audit group supervisor met with Petitioner and Mr. Eugene Nail, Petitioner's paralegal. Petitioner stated that he did not have the books and records Respondent needed to conduct a detailed audit because the IRS had confiscated them in connection with the pending criminal case. Respondent conducted the audit using the information Petitioner made available to the auditor. Petitioner made available: sales invoices for 1990 and 1991 and one month in 1992 grouped together by calendar month; sales and use tax return booklets; resale and exemption certificates; and commercial lease agreements. No journals and ledgers were available. Respondent determined Petitioner's tax deficiency by sampling the available information. Pursuant to Petitioner's request, the auditor used a six month sample period. The auditor explained to Petitioner that she would use Petitioner's invoices during the sample period to determine tax- exempt sales. She compared the invoices to resale certificates and calculated an error ratio based on discrepancies between the sales invoices and the resale certificates. Respondent determined the actual deficiency in sales tax during the six month sample period based on actual invoices that did not have a resale certificate and for which no sales tax was remitted. Respondent estimated the additional deficiency in sales tax by applying the error ratio to the balance of the audit period. Respondent examined only those invoices provided by Petitioner and previous sales tax returns filed by Petitioner. On April 9, 1993, the auditor conducted a meeting with Petitioner and discussed the audit procedures, results, applicable law, and abatement rules. On June 15, 1993, Respondent issued a Notice of Intent to Make Sales and Use Tax Changes in the amount of $45,469.05 ("Notice of Intent"). The Notice of Intent included a copy of all audit exhibits and workpapers. On August 30, 1993, Petitioner provided additional invoices to Respondent in a meeting with the auditor and audit group supervisor. On October 15, 1993, the auditor adjusted certain items in the audit file, reduced the proposed assessment, and issued a Revised Notice of Intent to Make Sales and Use Tax Changes in the amount of $37,417.45 ("Revised Notice of Intent"). Petitioner requested additional time to provide more information, including additional resale certificates. However, Petitioner failed to provide the additional information. By letter dated December 9, 1993, the audit group supervisor notified Petitioner that she was closing the case and sending it to the Tallahassee office as a contested case. On December 23, 1993, Respondent issued a Notice of Proposed Assessment to Petitioner assessing Petitioner for $37,417.45 in tax, penalty, and interest through October 15, 1993. On February 21, 1994, Respondent received Petitioner's written protest dated February 10, 1994. Respondent revised the audit figures again. On January 20, 1995, Respondent issued its Notice of Decision reducing the assessment against Petitioner to $15,230.15. The Notice of Decision assessed Petitioner for taxes of $8,900.55, penalties of $2,225.14, and interest of $4,104.46 through October 15, 1993. Interest accrues at the per diem rate of $2.93 until paid. On March 16, 1995, Petitioner timely appealed the Notice of Decision by filing a Petition for Formal Hearing with Respondent. Inadequate Records Petitioner failed to maintain adequate books and records within the meaning of Sections 212.12(6), 212.13(2), 212.35, and Florida Administrative Code Rules 12A-1.093(2) and (5).2 Petitioner failed to maintain adequate books and records for the five year audit period prescribed in Section 213.34(2). Petitioner failed to maintain general ledgers and journals for the five year audit period. The only records Petitioner maintained were sales invoices for 1990 and 1991 and one month in 1992. Petitioner was unable to produce adequate records for 1987 through 1989. Petitioner asserted that the IRS had those records and that Petitioner could not obtain the records required by Florida law. The federal tax case has been pending against Petitioner since 1990.3 During those seven years, Petitioner was unable to obtain copies of any records in the possession of the IRS. The journals and ledgers for 1987 and 1988 were maintained on computer floppy disks. Petitioner asserts that the floppy disks were lost. Petitioner asserts that his attorney kept the books and records for 1989 in an out-of-state location to avoid producing those records for the IRS. The journals and ledgers for 1990 though 1992 are in the possession of Petitioner's accountants. Petitioner did not produce those records during the audit or at the administrative hearing. Petitioner could have requested the journals and ledgers for 1989 through 1991 from his attorney and accountants, respectively, but chose not to do so. Petitioner made available to Respondent only sales invoices for 1990 and 1991 and one month in 1992. Without the general ledgers and cash journals to cross- reference the sales invoices, Respondent could not corroborate the financial records available for audit. Respondent was required by applicable law to conduct the audit by sampling Petitioner's available records. Exempt Sales: Resale Certificates Certain exempt sales claimed by Petitioner during the six month sample period were not supported by resale certificates. Respondent disallowed the exempt sales that were not supported by resale certificates and allowed the invoices that were supported by resale certificates. For the six month sample period, Respondent assessed an actual sales tax deficiency for those sales that did not have a corresponding resale certificate.4 Respondent prepared audit schedules for the six month sample period that listed the invoices with a sales tax deficiency due to the lack of a resale certificate. Based on the audit schedules, Respondent determined an error ratio and applied the error ratio over the five year audit period to determine the estimated tax deficiency.5 Respondent conducted the audit in accordance with generally accepted audit procedures and with applicable state law. Disallowed exempt sales were listed individually by invoice, name of vendor, and the date and amount of the sale. Disallowed exempt sales were listed for each of the six months in the sample period. Additional Taxable Sales Sales invoices for the six month sample period showed that Petitioner collected more sales tax than he reported to Respondent on his monthly sales tax returns. Respondent treated the collected, but unremitted, sales tax as "additional taxable sales" rather than as an unremitted sales tax. Respondent assessed Petitioner for the sales tax paid on Petitioner's invoices but not remitted to Respondent by Petitioner. The deficiency existed for May and June, 1990, and for January and February, 1991. Taxable Rent Respondent reviewed lease agreements relating to property rented by Petitioner at his business address. Respondent determined that Petitioner failed to collect and remit sales tax on the rental of his property. Respondent assessed Petitioner for sales tax Petitioner failed to collect and remit on taxable rent. Petitioner does not contest that portion of the assessment.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order and therein UPHOLD Respondent's assessment of $15,230.15 plus interest statutorily due from October 15, 1993, until paid.RECOMMENDED this 17th day of February, 1997, in Tallahassee, Florida. DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 17th day of February, 1997.
Findings Of Fact On August 27, 1976, the Respondent, State of Florida Department of Revenue, notified the Petitioner of its intention to assess sales tax, penalties and interest against the Respondent for business transactions in the period August 1, 1973 through July 31, 1976. This Notice of Proposed Assessment was revised on May 27, 1977, and the Petitioner was notified of that revision. By his letter of June 19, 1977, the Petitioner has challenged the assessment, as revised. Upon receipt of the June 19, 1977 petition, the Respondent moved for a more definite statement and the Petitioner was afforded fifteen (15) days from the date of the Order within which time to amend his petition. Petitioner took advantage of that opportunity to amend and by an undated document did make such an amendment. The Respondent subsequently moved to strike certain portions of the amended petition and filed its answer to the petition. A pre-hearing conference was held to consider the Motion To Strike and after that pre-hearing conference was concluded an Order was issued which struck certain portions of the amended Petition and allowed copies of the proposed notices of assessments of August 27, 1976 and the revision of May 27, 1977 to be made a part of the complaint/petition as Exhibits 1 and 2, respectively. After the pre-hearing Order had been issued by the undersigned, the case was noticed for hearing for December 5, 1977. At the December 5, 1977 hearing date a Second Revised Notice of Proposed Assessment of Tax, Penalties and Interest Under Chapter 212, Florida Statutes was tendered. This revision dated from December 5, 1977, was allowed to be introduced as the final position of the Respondent on the question of the assessment. It was also allowed to be attached as Exhibit 3 to the amended petition. (Under cover of a separate correspondence the original petition, amended petition, exhibits to the amended petition, an Order which was entered after consideration of the Motion To Strike, are being submitted as a part of the record herein). In the ordinary course of his duties a tax examiner employed by the Respondent went to the business premises of the Petitioner to perform an audit to determine whether or not the Petitioner was collecting and remitting sales tax for the category of sales which the Petitioner was making, that required the payment of sales tax. These requirements spoken of are those set forth in Chapter 212, F.S. Mr. DeCico, the tax examiner, allowed Mr. Farhud to pick three (3) months in the year 1976 as being the period to be audited. DeCico then returned to Farhud's place of business and showed him the details of the three (3) month audit. Farhud was dissatisfied wish this audit and indicated that he preferred to have the audit sample expended for a full three (3) years. DeCico replied that he would be willing to expand the audit period. but cautioned Farhud that expansion of the audit period might promote an increased liability. Nonetheless, at Farhud's request, the audit period was expanded to one for thirty-six (36) months. The new audit period dated from August 1, 1973, through July 1, 1976. The work papers on that audit may be found as Respondent's Exhibit No. 1 admitted into evidence. This audit which is depicted in the Respondent's Exhibit No. 1, left out invoices pertaining to stamps, electric bills, wrapping paper, grocery bags, etc., since they were not retail items for sale. The audit was rendered on August 27, 1976. Before the Notice of Assessment was filed, Farhud had expressed his displeasure with the outcome of the second audit process because he felt that certain amounts depicted in the gross sales were not accurate; to wit, the inclusion of certain so-called "service fees", namely income tax preparation, notary fees, etc. DeCico tried to get a reasonable statement of the amounts of the categories which Farhud desired to have excluded. Farhud did not have records of the matters and was unable to provide an estimate as to the amount of income which had been derived from the aforementioned "service fees". The August 27, 1976, proposed assessment was computed on the basis of the proposition that the gross sales are equivalent to actual sales and are subject to sales tax in the taxable categories. As indicated before, this audit did not take into consideration any "service fees", nor did it grant any allowance for pilferage. No allowance was made for the latter category, because Farhud had not provided any estimate and/or police records to indicate the amount which would be lost to pilferage, and cause a reduction of the sales tax liability. Farhud formally challenged the audit of August 27, 1976, by his correspondence of September 8, 1976 in which he rejects the amount claimed and asks for a hearing. A copy of this correspondence may be found as Respondent's Exhibit No. 2 admitted into evidence. An informal conference was held between the parties on October 12, 1976 to see if a resolution of the dispute could be achieved. Mr. Farhud was represented at the informal conference by Michael J. Burman, Esquire, an attorney in Jacksonville, Florida. By a letter of October 14, 1976, Farhud's attorney requested the Respondent to utilize the figures for the three (3) month audit period, as opposed to the thirty-six (36) month period. The letter concluded by stating that Mr. Burman was unaware of any intention Mr. Farhud had to appeal the assessment of August 27, 1976. This letter was followed by a series of letters in which the various parties were indicating the desire to determine whether or not Mr. Farhud intended to accept the August 27, 1976 assessment or to appeal it. In the course of his correspondence Mr. Farhud continued to insist that he did not accept the amount of assessment as accurate. Mr. Farhud failed to indicate to Mr. Burman whether he was going to appeal the assessment or not and Mr. Burman withdrew as his attorney, as shown in the January 31, 1977 correspondence addressed to one of the employees of the Respondent. This correspondence is Respondent's Exhibit No. 7 admitted into evidence. On February 2, 1977, the audit supervisor in the Jacksonville district of the Respondent wrote Mr. Farhud indicating the intention of the Respondent to collect the taxes pursuant to the August 27, 1976 audit. A copy of this correspondence is Respondent's Exhibit No. 8 admitted into evidence. It should be indicated at this point, that the Respondent's representative had continued to request documentation from Farhud on the items requested for exemption which have been referred to as "service fee". The subject of pilferage had also been discussed at the October 12, 1976 informal conference and a request made for some form of records of police reports which would verify pilferage allowances. No documentation had been provided at the time the February 2, 1977 letter was written to Farhud. Subsequent to the February 2, 1977 letter another informal conference was held on April 4, 1977. As a result of that conference it was determined that certain items would be deleted from the audit assessment of August 27, 1976. This is evidenced in Respondents Exhibit No. 9 which is a copy of a letter dated May 27, 1977, from the audit supervisor, Mr. McCrone, to Mr. Farhud. At the April 4, 1977, discussion the subject of pilferage allowance as brought up in the deletion of 4 percent of the purchase price of taxable goods, as to soft drinks, paper and said products, pet foods and miscellaneous sundries were allowed. No allowance was given for beer, wine and tobacco products because these were felt to be out of reach of prospective pilferers. Again, this deletion is found in the Respondent's Exhibit No. 9. The 4 percent figure was arrived at as an industry estimate. Farhud still was not satisfied after the April 4, 1977, conference had been held and adjustments to the assessment had been mode. In view of this dissatisfaction, the Respondent elected to make a new type of audit, which was performed and was premised upon an analysis of the taxable purchases by the Petitioner for the three (3) year period. These purchases were divided into taxable categories and these categories were then marked up in price using an industry average to arrive at the actual taxable sales. The industry average was based upon an examination of the United Food Stores, Inc.'s sales catalog, which had suggested retail prices for low volume and high volume stores. The Respondent gave the Petitioner the benefit of the range of high volume stores, although the Petitioner's store was a neighborhood convenience store and therefore a low volume operation. The effect of allowing the average retail price for the high volume stores was that it made the differential between his purchase price and the retail price less than that for a low volume neighborhood store, causing lesser tax liability. As stated before, this alternative method was elected for the reason that the Respondent had objected that the gross sales figures reported in the monthly tax returns were incorrect, due to the fact that the Petitioner was unable to document his claim for entitlement to certain exemptions due to pilferage and "service fees", and due to the belief that the more correct approach to the audit was the second method. The work sheet on the alternative method may be found on Respondent's Exhibit No. 10 admitted into evidence. The utilization of this method led to the revised assessment of May 27, 1977, which is the subject of the appeal by petition, and amended petition of the Petitioner. This revision was superceded by the second revision of December 5, 1977, which was allowed to be entered without objection from the Petitioner. The second revision reduces the amount of tax liability claimed by the Respondent. An analysis of the documents offered in this cause and the testimony, leads to the conclusion that the Petitioner/taxpayer owed sales tax during the audit period August 1, 1973 through July 31, 1976. Furthermore, the more correct form of audit procedure under the circumstances, was the alternate method employed in arriving at the May 27, 1977 revised Notice of Assessment as further revised by the December 5, 1977 Second Revised Notice of Proposed Assessment. This conclusion is grounded on the requirements of Section 212.05(1), F.S., which requires persons in the Petitioner's category for the exercise of the privilege of doing business, to assist in levying a tax in the amount of 4 percent in the categories covered. Furthermore, Sections 212.06(3) and 212.07(2), F.S., places the duty on the Petitioner to collect this 4 percent sales tax. The Petitioner failed to act in accordance with the provision of Chapter 212, F.S. and the Second Revised Notice of Proposed Assessment is correct and in keeping with the authority of Section 212.12(6), F.S.
Recommendation Therefore, it is hereby RECOMMENDED: That the Second Revised Notice of Proposed Assessment of Tax, Penalties and Interest found as Exhibit 3 to the amended petition which total is $2,238.92 be allowed with such adjustments as may be necessary for a computation of interest prior to the rendition of a final order. DONE and ORDERED this 3rd day of January, 1978, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Nathan Weil, Esquire 203 Washington Street Jacksonville, Florida 32202 Patricia Turner, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Attorney, Division of Administration Department of Revenue Carlton Building Tallahassee, Florida 32304
The Issue What, if any, is Petitioner's tax liability to the State of Florida, after any legitimate tax credits are applied, for June 1998 through December 1998?
Findings Of Fact During the period of June 1998 through September 1998, Petitioner Ron Ross Meardy operated a used car lot from a location in Duval County, Florida, to wit: 1400 Mayport Road, Atlantic Beach, Florida, 32233-3440. Mr. Meardy conducted business through a sole proprietorship named Auto Liquidation Center (ALC). Mr. Meardy's business included both retail sales and wholesale sales of motor vehicles. Between June 1998 and December 1998, Mr. Meardy was a registered dealer with DOR. Mr. Meardy's sales tax registration number was 26-02-151942-23/4, which registration number pertains to the Mayport location in Duval County, Florida. Mr. Meardy filed State of Florida Sales and Use Tax returns, standard form DR-15, for each month between December 1997 through May 1998. In so doing, he relied entirely on his employees. Mr. Meardy also filed State of Florida Solid Waste returns, standard form DR-15SW, for each month between December 1997 through May 1998. In so doing, he relied entirely on his employees. In September 1998, Mr. Meardy opened a car lot in St. Augustine, St. John's County, Florida and closed the Duval County car lot. Mr. Meardy filed no DR-15 (sales tax) forms for the period of June 1998 through December 1998. Mr. Meardy filed no DR-15SW (waste tax) forms for the period of June 1998 through December 1998. Mr. Meardy asserted that he did not know that his employees had made a lot of bad loans or failed to file tax returns for June 1998 through September 1998. Mr. Meardy admitted that from September to December 1998, he deliberately filed no tax returns. First, he claimed he did not file returns because there were no taxable sales made in that period. Then, he asserted that he did not file because, in an unrelated matter, the Florida Attorney General's Office, investigating several businesses "run" by him, held necessary business documents from October 27, 1998 until December 11, 1998 (+/- 45 days). Mr. Meardy's credible testimony that he did not have his business records from October 27, 1998 to December 1998 was unrefuted. As a result of Mr. Meardy's not having filed any DR-15 and DR-15SW forms for the period of June 1998 through December 1998, DOR filed a sales and solid waste tax warrant against him dated March 30, 1999, for $11,937.86. As permitted by law, this audit/warrant merely estimated Mr. Meardy's liability. Mr. Meardy did not then file formal tax returns, file a formal request for an alleged credit (DR-95 form), or provide DOR access to his business records so that DOR could make an accurate assessment/audit/warrant for any tax, penalty, interest, and/or credit. Instead, he timely-filed a Petition for Administrative Hearing on May 28, 1999. The Petition for Administrative Hearing, dated May 21 and filed May 28, 1999, was the first written expression by which Petitioner alerted DOR that he was seeking a tax credit due to repossessions he claimed to have made on defaulted loans. The Petition only stated that DOR "owes ALC money due to repossession credits." The Petition does not contain all of the information required by rule or by the standard credit claim form DR-95B. Petitioner had, in the past, applied for credit for tax paid on repossessed items by attaching the DR-95B form to his monthly tax returns (P-3). He maintained he had relied on his employees for this function. Petitioner's credible testimony that the Attorney General again held some of his documents from the end of May 1999, until September 30, 1999 (+/-five months), due to an unrelated matter, was unrefuted. However, at no time did Petitioner ever file a formal request for credit (form DR-95B) or any tax returns for the period at issue in this proceeding. Only during the course of discovery in the instant proceeding, which discovery Petitioner resisted by every legal means, did it become clear that Petitioner was claiming a tax credit from his May 1998 sales tax return, and that the credit he sought was in excess of the tax he had paid by way of his May 1998 tax return. Only during the discovery process herein did Petitioner provide DOR with any information concerning repossession and default amounts that he was claiming. He did this by producing a "database" (DOR-4). It is unclear from the evidence at hearing when this information was provided, but the date Petitioner claims in his Proposed Findings of Fact to have first produced DOR-4 is February 10, 2000. Petitioner also claims to have given someone at DOR a computer disc with his supporting information, but no DOR witness confirmed this. Petitioner produced no such disc at hearing. Exhibit DOR-4 did not provide the vehicle registration number as part of the property description, the date the sales and use tax was paid, the purchase price less trade-in, the purchase price less cash down, or the actual date of repossession. A copy of each invoice supporting each repossession was not attached. Petitioner did not submit any tax return with DOR-4. Petitioner admits that DOR-4 does not contain all of the information required by the tax credit claim form, DR-95B. DOR revised its assessment once, based on the information Petitioner was required to produce in this proceeding. DOR revised its assessment a second time as a result of the information Mr. Meardy provided in the course of his deposition taken January 19, 2001, approximately a week-and- a-half before final hearing. As agreed-to within the Joint Pre-hearing Stipulation, the revised assessment figure in this case is now limited to $2626.31 sales tax, $1313.40 penalty, and $75.35 interest, for a total of $4735.56, as of January 31, 2001. If the foregoing base amounts are, in fact, owed, penalties and interest continue to accrue, pursuant to statute. In making the final audit/assessment/warrant, DOR's Auditor IV, Thelmesia Whitfield, used original materials supplied by Petitioner. From these, she took the actual amounts Petitioner had listed on his dated invoices and other original records as the tax he collected for June 1998 through December 1998. She then calculated the sales tax due, but not remitted, for that period. In so doing, she determined that no additional taxes were due for the months of August 1998 through December 1998. She also concluded that for Petitioner's sales in June and July 1998, a penalty should be assessed at the legal rate of 10% per month on a cumulative basis up to 50% and interest should be assessed at the legal rate of 12% per year or 1% per month on the cumulative balance that is due. Petitioner's solid waste fee liability was calculated by Ms. Whitfield on the basis of the dated sales invoices provided by Petitioner where he had charged fees for tire and battery disposal. Ms. Whitfield's calculations did not include transactions without invoices or other original records. She noted that on several transactions Petitioner had collected more solid waste tax than was required, and she concluded that once collected, those amounts should be remitted to DOR unless they had been refunded to the customer. She calculated local option taxes at the applicable rate for Duval County. Ms. Whitfield's re-calculations do not reflect credits for the repossessions shown on DOR-4, because no state tax returns were filed from June through December 1998, because all the necessary information had not been provided, and because she believed the information on DOR-4 had been provided beyond the period available to claim repossession credits, which is 13 months after the repossession takes place. Ms. Whitfield's re-calculations also do not include credits for worthless accounts orally claimed by Petitioner in the course of his January 19, 2001, deposition or which he urges that she extrapolate from DOR-4, because Petitioner did not also provide either federal tax returns or equivalent financial statements as required by law. Because Petitioner was asking for a refund of more than he said he had paid, and because the sales he was referencing took place before the period being audited, Ms. Whitfield had no way to verify that the amount of sales tax actually had been paid. Therefore, Ms. Whitfield only used DOR-4 where there was a question as to whether a sale had taken place at all. Although DOR-4 is merely a summary, because it was produced by Petitioner and listed sales dates, she used it only as his admission that certain questionable sales had, in fact, taken place. Accordingly, it is found that DOR has not relied on estimations based on prior sales outside the time frame audited, but has made its final assessment (DOR Composite Exhibit 3) upon reasonable documentation provided by Petitioner, which documentation he represented as being accurate to the best of his ability. It is further found that DOR applied defineable legal standards. Petitioner essentially challenges DOR's last assessment/audit/warrant because Ms. Whitfield did not use DOR-4 to assign him a credit or off-set. He seeks to have the undersigned relate, according to his theory of repossession/default credits, DOR's final assessment reflected in DOR's audit report and work papers (DOR Composite Exhibit 3); DOR-4, Petitioner's "database"; and Petitioner's Exhibits 1-3 so as to determine Petitioner's sales tax and solid waste liability for the June 1998 through December 1998 period, and to thereby assign him a credit against his May 1998 tax return and payment (P-3). Petitioner's theory is based on his representation that his database (DOR-4) uses the first time he received money from each sale of a vehicle as the date of the sale/transaction, even though his own invoices and other original supporting data which he provided to DOR, showed different dates as the date of each sale. Then, he asserts that where vehicles have been repossessed, or where a sale has not "gone through," or where a loan has been defaulted (presumably even without repossession, of the car, although this is unclear), a credit should be related back to his May 1998, tax return (P-3). His argument and evidence are not persuasive for the following reasons. At the outset, it is noted that Petitioner's credit claim in excess of $12,000, is more than the tax Petitioner paid in May 1998, as reflected on Exhibit P-3. Likewise, although Petitioner's invoice used in Ms. Whitfield's calculations recorded a sale on June 22, 1998, to Lori Armstrong at $1500.00, Petitioner, without any supporting evidence, asserted at hearing that this sale actually was made on June 23, 1998, and that someone stole $500.00 of the tendered price, so he should pay tax, if at all, on a sale of only $1,000. He had a similar unsupported reason for attempting to reduce, by $100.00, the sales price on another invoice amount for Randy Davis, which invoice Ms. Whitfield had utilized. Petitioner also claimed, at hearing, again with no supporting evidence, that invoices he had previously produced and which were relied upon by Ms. Whitfield for customers Crumley, Mosley, and Lebourgeois "did not go through," and therefore he should not be liable for sales tax on these invoices. He asserted that since DOR could not find any title at the Department of Highway Safety and Motor Vehicles (DHSMV) for these customers, the inference must be drawn that those sales never closed and therefore no sales tax on them is owed by him. Petitioner also claimed at hearing that the Lebourgeois sale had resulted in a repossession. At hearing, Petitioner admitted liability for a $1,000 sale to a customer Millwater, but claimed that a credit from May 1998 would cover it, without any clear explanation of how this should occur. Petitioner maintained at hearing, again only because no title in that name had been located at the DHSMV, that an invoice of September 14, 1998, to a customer Wilkerson for $200 meant that the sale to Wilkerson was an out-of-state sale, and therefore no tax was owed. In his Proposed Findings of Fact, Petitioner does not address theft as an alleged reason he did not collect the full amounts shown on his invoices (see Finding of Fact 35), but he does seek a tax credit for all sales where no title was found at DHSMV and discusses at least the Crumley, Mosley, and Lebourgeois transactions as a source of these alleged "credits," sometimes for months in which he did not file any tax return. He also addressed customers Varner, Bailey, Little, Wright, Emanual, Lanier, Maynard, Porter, Williams, Arenas, Bays, Beasley, Butt, Carvey, Catlin, Chapman, Clendenin, Cunningham, Forbes, Catina Friend, Gonzalez, Knight, Lloyd, Owens, Strickland, Daniels, Johnson, and McDade, whose names and information (except for Bailey) appear on DOR-4, Petitioner's database, as repossessions or defaulted loans. Bailey appears on DOR-4 but in a different portion of DOR-4. (See Finding of Fact 47). The two biggest problems with Petitioner's theory are that he submitted no evidence to affirmatively demonstrate that any vehicle was repossessed, and Exhibit P-3 does not allow the undersigned any way of determining which vehicle sales were included in the May 1998 tax paid. Exhibit P-3 does provide information as to the repossessions claimed in May 1998 for previous months' sales, but it does not itemize or identify May 1998 sales upon which the tax was being paid in that month. Simply testifying that a repossession or default occurred and that someone entered that information into Petitioner's database (DOR-4) is not competent and credible proof that repossession occurred. In light of Petitioner's testimony that he relied on unreliable and dishonest employees to handle both his sales and tax matters at the Duval County office and without any explanation or documentation of how repossessions or loan defaults were handled from either of his business locations, the undersigned is left with the sense that Petitioner had neither hands-on experience with the listed repossessions nor with the subsequent entries of repossessions and/or loan defaults into his database. Although Petitioner has made a logical argument for "starting at ground zero" with regard to his May 1998 tax return, without more than is in evidence here, vehicles allegedly sold prior to June 1998 cannot be related to vehicles allegedly repossessed after June 1998 by way of the May 1998 tax return (P-3). (See Findings of Fact 21 and 41.) The absence of a title of registration in a given individual's name, without more, is not sufficient to infer that a sale was not consummated or that there had been an out-of- state sale. If the buyer had the duty to transfer title, failure of title proves nothing. If the dealer had the duty to transfer title, Petitioner's failure to transfer title does not automatically translate into a tax credit. The minimal documentation underlying DOR-4 which Petitioner offered (Exhibits P-1 and P-2), also is not persuasive of Petitioner's theory of the case, including but not limited to his suggestion that DOR is required to regard the sale date as being a date when money allegedly was first received, instead of the dates of sale on his invoices or other underlying documentation. It seems undisputed that "Ralston Varner" and "Varner Dean" are the same customer, full name "Ralston Dean Varner." Petitioner's Exhibit 1 is a receipt showing a payment by Ralston Varner for an "'88 Chevy Caviler" [sic] and is dated May 1, 1998, which is the date Petitioner claims to be the completion of sale date. By Petitioner's theory, sales tax on this purchase should have been included in his May 1998 tax return, entitling him to receive a tax credit upon repossession of this or some other vehicle. This cannot be determined from the tax return (P-3). Exhibit DOR-6 is a composite exhibit concerning a sale to Ralson Varner. Those pages preceding the page titled "Certification," dated July 19, 1998, were produced by Mr. Meardy at his office. The materials following the certification constitute a DHSMV "body jacket." The first page of DOR-6 reveals "6-10-98," as the date of the used car order, but pertains to a "1989 Ford T-Bird." The twelfth page, the "Installment Sale Contract-Motor Vehicle," is dated June 10, 1998, and also relates to a 1989 Ford "T-Bird." DOR's final audit refers to a 1989 Ford Thunderbird sold to "Varner Dean," not an '88 Chevy Cavalier, as urged by Petitioner. Petitioner's Exhibit 2 shows two receipts from Dennis Bailey, one on May 26, 1998 and one on June 2, 1998. Petitioner maintained that the sale in question went through on May 26, 1998, the sales tax was remitted on his May 1998 tax return, and the car was later repossessed. The May 1998 tax return (P-3) does not help decipher this. A Dennis Bailey appears on DOR-4 as of May 26, 1998, in relation to a Ford Taurus, but it is not one of the transactions Petitioner has singled out by the hand- written notations on DOR-4 as being defaulted or repossessed. Exhibit DOR-5 is a composite exhibit concerning the sale to Dennis Bailey which Ms. Whitfield audited. Those pages preceding the page titled "Certification," dated July 19, 1999, were produced by Petitioner. The materials following the certification constitute a DHSMV "body jacket." Exhibit DOR-5, page one, shows "June 2, 1998," as the date of the used car order. DOR-5, page 10, the fourth page following the certification, reveals the date of sale as "6-2-98," as reported to the DHSMV, both related to a 1988 Taurus. Under these circumstances, Petitioner's view of this sale cannot prevail. Also, Petitioner admitted that even by his theory and calculations, his May 1998 tax return was "off" by $1,007, and he had been unable to discover the reason (TR-103). Moreover, the evidence does not clearly establish that DOR-4 was presented to DOR within either 12 or 13 months of all the repossessions in question. (See Findings of Fact 19 and 21- 22.) Lastly, Petitioner did not present any evidence of refunds to customers of solid waste tax overpayments.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Department of Revenue enter a Final Order finding Petitioner is liable for the amounts as set out in Finding of Fact 24, without any credits or set-offs, and providing for accruing interest and penalties, pursuant to law. DONE AND ENTERED this 4th day of May, 2001, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of May, 2001. COPIES FURNISHED: Ron Ross Meardy Post Office Box 1853 St. Augustine, Florida 32085 Charles Catanzaro, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue Whether sales tax and local government infrastructure surtax is due on the lingerie modeling session fees received by Petitioner, and, if so, whether the Department of Revenue should compromise any portion of the tax, interest, or penalty assessed against Petitioner.
Findings Of Fact Based upon the testimony and evidence received at the hearing, the following findings are made: Petitioner was established as a Florida corporation in November 1992. At the time of its incorporation, Petitioner's name was Ultimate Fantasy of Pinellas, Inc. Subsequently, the name was changed to U.F., Inc. Petitioner is an "S Corporation," having filed the required election pursuant to Section 1362 of the Internal Revenue Code in June 1994. Steve Smith was the sole shareholder and president of Petitioner during the audit period. Mr. Smith sold his interest in Petitioner in January 2002. Starting on October 1, 1994, Petitioner leased space for its business in a small shopping center at 8248 Ulmerton Road, in unincorporated Pinellas County. Petitioner's store was less than 1,000 square feet in size. Petitioner's lease included the following schedule of lease payments due from Petitioner to the lessor:1 Period Rent Sales Tax (7%) Total 10/1/94 - $585.00 $40.95 $625.95 9/30/96 10/1/96 - $605.00 $42.35 $647.35 9/30/98 10/1/98 - $630.00 $44.10 $674.10 9/30/99 4/1/00 - $670.00 $46.90 $716.90 3/31/02 The record does not include receipts showing that Petitioner actually made those lease payments. However, Mr. Smith testified that Petitioner made those payments, and the weight of the evidence clearly supports the inference that the payments were made. Specifically, Petitioner claimed a deduction for rent expenses on its federal income tax returns in amounts comparable to that set forth above, and Petitioner was actually operating its business at the location specified in the lease during the audit period. Petitioner made payments of $2,288.65 in sales tax to the lessor during the course of the audit period, computed as follows: Period Sales Tax Amount Months Total 5/1/95 - $40.95 17 $ 695.15 9/30/96 10/1/96 - $42.35 24 $1,016.40 9/30/98 10/1/98 - $44.10 12 $ 529.20 9/30/99 4/1/00 - $46.90 1 $ 46.90 4/30/00 8. Petitioner's lease stated that Petitioner would use the premises "as a retail store and for no other uses whatsoever." That limitation was apparently waived by the landlord because the lingerie modeling conducted in Petitioner's store required an adult entertainment permit from Pinellas County and the landlord's consent was required for Petitioner to obtain a permit. Petitioner's business includes the retail sale of lingerie as well as charging patrons a fee to watch lingerie modeling sessions which occur in Petitioner's store. Patrons are not charged to come into Petitioner's store. They are free to come in, look at merchandise, purchase merchandise, and/or leave. However, a patron who comes into Petitioner's store and wants to see a piece of lingerie modeled pays a fee to Petitioner. The fee is $30.00 per session, with a session lasting no more than a half hour. With a discount coupon, the fee was $20.00 per session. No sales tax was collected or remitted on those amounts. After the patron pays the fee to Petitioner, he then identifies the lingerie to be modeled and a model does so. The patron compensates the model for the session through tips. Neither Petitioner, nor any of its employees are involved in that transaction. The patron is not required to purchase the lingerie that is modeled and, as evidenced by the small amount of sales on which Petitioner paid tax during the audit period, such purchases rarely occurred. If the lingerie is purchased, Petitioner collects sales tax from the purchaser and remits it to the Department. If the lingerie is not purchased, it goes back into Petitioner's inventory. Almost all of Petitioner's income over the course of the audit period was derived from the lingerie modeling sessions. On the quarterly sales tax reports filed with the Department, Petitioner reported gross sales of $556,733.83 between May 1995 and December 1999. Of that amount, $554,829.88, or 99.65 percent, was from the fees for the lingerie modeling sessions and was reported as exempt sales. Only $1,978.57, or 0.35 percent, was reported as taxable lingerie sales. The women who model the lingerie are not employees of Petitioner. They are not paid anything by Petitioner, nor do they pay Petitioner anything. Petitioner did provide security for the models. The modeling sessions occurred in "segregated areas" of the store. They did not occur behind closed doors, behind a curtain, or in separate rooms, as that is prohibited by the Pinellas County Code.2 The "segregated areas" accounted for approximately 85 percent of the store's floor space. Thus, it is possible that a session could be observed from a distance by persons other than the patron who paid a fee to Petitioner. However, only the patron who pays the fee can view the modeling session in the "segregated areas" where the model performs. Before Petitioner opened for business, Mr. Smith contacted an accountant, Peter Ristorcelli, to provide accounting and tax services to Petitioner. Those services included compliance with Florida's sales tax laws. Mr. Ristorcelli had never worked for a client whose business was similar to that of Petitioner. Accordingly, Mr. Ristorcelli advised Petitioner to obtain guidance from the Department when he registered as a dealer and obtained a sales tax number. Mr. Smith went to the Department's Clearwater office pursuant to Mr. Ristorcelli's advice. While there, he explained the type and operation of Petitioner's business and asked whether sales tax was due on the receipts from the modeling sessions. Mr. Smith was told by an unknown Department employee that the receipts from the modeling sessions were not subject to the sales tax, but that they should be reported as exempt sales. Mr. Smith was also told that receipts from the sale of lingerie should be reported as taxable sales, and that sales tax should be collected on those sales. Mr. Smith conveyed this information to Mr. Ristorcelli who then confirmed it with Bonnie Steffes, an employee in the Department's sales tax collection division in the Clearwater office with whom Mr. Ristorcelli had prior dealings. In their conversations with the Department employees, both Mr. Smith and Mr. Ristorcelli fully explained the nature and manner of operation of Petitioner's business. Those explanations were not made in writing, nor were the Department's responses. Ms. Steffes is no longer employed by the Department, and she was not called as a witness at the hearing because she could not be located. Thus, the record does not contain any corroboration of the self-serving testimony of Mr. Smith and Mr. Ristorcelli on these events. Nevertheless, the undersigned finds their testimony to be credible. Petitioner followed the advice Mr. Smith and Mr. Ristorcelli received from the Department. Petitioner reported the receipts from the modeling sessions as exempt sales and did not collect or remit sales tax on those receipts. As stated above, Petitioner reported $554,829.88 in receipts from the modeling sessions for the period of May 1995 through December 1999. Petitioner reported the receipts from the sales of lingerie as taxable sales and collected and remitted sales tax on those receipts. As stated above, Petitioner reported taxable sales of $1,978.57, and it collected and remitted sales tax in the amount of $138.58 for the period of May 1995 through December 1999. Had Mr. Smith been told that the lingerie modeling sessions were taxable, he would have collected sales tax from the patron and remitted it to the Department. The Department's Audit On June 1, 2000, the Department gave Petitioner notice of its intent to conduct a sales tax audit on Petitioner's books and records for the audit period of May 1, 1995, to April 30, 2000. The audit was conducted by Jose Bautista, a tax auditor in the Department's Clearwater office. Mr. Bautista reviewed Petitioner's books and records and spoke with Mr. Ristorcelli and Mr. Smith on several occasions. In conducting the audit, Mr. Buatista utilized standard methods of assessment and followed the Department's rules and practices. He relied on the facts presented to him by Mr. Smith and Mr. Ristorcelli regarding the operation of Petitioner's business and, more specifically, the form and nature of the lingerie modeling transactions. The audit did not identify any underreporting of taxable lingerie sales, nor did it find any underreporting of the receipts from the modeling sessions. In this regard, the proposed assessment (discussed below) was simply based upon the Department's determination that the receipts from the lingerie modeling sessions were taxable, not exempt from taxation. The audit working papers indicate receipts of $573,642.89 upon which sales tax was not paid over the course of the audit period. That amount is solely attributable to the receipts from the modeling sessions over the audit period, as identified in the Department's audit. That amount does not correspond with the receipts for the modeling sessions reported to the Department by Petitioner on its periodic sales tax returns. As stated above, Petitioner reported exempt sales from the modeling sessions in the amount of $554,829.88 for the period of May 1995 through December 1999. For that same period, the audit working papers show receipts from the modeling sessions as being only $540,460.32, calculated as follows: Grand Total for Audit Period (5/95 - 4/00) Less: April 2000 ($7,177.49) $ 573,642.89 March 2000 ( 8,208.15) February 2000 ( 8,872.59) January 2000 ( 8,924.34) Total for Period ( 33,182.57) Of 5/95 - 12/99 $ 540,460.32 This discrepancy works in Petitioner's favor. Had the Department simply based its assessment on the amount reported by Petitioner as exempt sales between May 1995 and December 1999 ($554,829.88), and then added the receipts for the period of January 2000 through April 2000 ($33,182.57), the amount upon which Petitioner would have owed sales tax would have been $588,012.45 rather than $573,642.89 as found in the Department's audit. Based upon the audit conducted by Mr. Bautista, the Department issued a Notice of Intent to Make Audit Changes (Notice of Intent) on August 16, 2000. The Notice of Intent assessed a total tax deficiency of $40,155.29, which included a sales tax deficiency of $34,418.81 and a local government infrastructure surtax deficiency of $5,736.78. Those amounts were calculated in accordance with the standardized, statutory methods of calculation. Petitioner does not contest the calculation of the tax deficiency. The Notice of Intent also assessed interest and penalty. The interest and penalty were calculated on the amount of the tax deficiency pursuant to standardized, statutory methods of calculation. Petitioner does not contest the calculation of the interest or penalty. Petitioner, through Mr. Ristorcelli, sought administrative review of the Notice of Intent. That review is conducted at the district office level, which in this case was Clearwater. George Watson supervised the review. No changes were made based upon the review, and on October 26, 2000, the Department issued a Notice of Proposed Assessment which formally assessed the tax deficiency, interest, and penalty described above against Petitioner. Petitioner, through Mr. Ristorcelli, protested the Notice of Proposed Assessment, and on July 5, 2001, the Department issued its Notice of Decision rejecting the protest. The review which resulted in the Notice of Decision was conducted in Tallahassee by Charles Wallace. The Notice of Decision upheld the tax deficiency, interest, and penalty in full. Petitioner, through Mr. Ristorcelli, sought reconsideration of the Notice of Decision. On December 17, 2001, the Department issued its Notice of Reconsideration which again upheld the proposed assessment in full and refused to compromise any portion of the tax, interest, or penalty. The legal basis for the assessments asserted by the Department in the Notice of Intent and Notice of Proposed Assessment was that the fee paid to Petitioner by a patron to view a lingerie modeling session was an admission charge. Based upon additional facts and clarifying information presented to the Department by Petitioner through the protest process, the Department concluded that the fee charged by Petitioner was more akin to a license to use real property and therefore taxable as such. That is the legal position asserted by the Department in its Notice of Decision and its Notice of Reconsideration. That legal position was also argued by the Department at the hearing and in its Proposed Recommended Order.3 Despite the change in the legal basis of the assessment, the amount of the assessment set forth in the Notice of Reconsideration is the same as the amount set forth in the Notice of Intent and Notice of Proposed Assessment. It was still based upon the full amount of the receipts from the lingerie modeling sessions (as determined by the audit) which had been reported as exempt sales.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order that assesses tax, interest, and penalties, against Petitioner in the amounts set forth in the Notice of Reconsideration dated December 17, 2001; and, if the tax assessed in the final order is based upon Section 212.031 (license to use) rather than Section 212.04 (admissions), the Department should grant Petitioner a credit in the amount of $1,945.35, for the sales tax paid by Petitioner to its landlord on that portion of Petitioner's store where the lingerie modeling sessions occurred. DONE AND ENTERED this 14th day of June, 2002, in Tallahassee, Leon County, Florida. 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 14th day of June, 2002.
