Findings Of Fact Petitioner is employed as a Tax Auditor IV in Respondent's Property Tax Administration Program. He is assigned to work in Respondent's Regional Office in Jacksonville, Florida. The counties within the Jacksonville Region for Property Tax Administration are: Duval, Clay, Nassau, Putnam, St. John and Flagler. In January of 1996, Petitioner wrote to John Everton, Director of Respondent's Property Tax Administration Program requesting permission to run for Tax Collector of Clay County. In February of 1996, Petitioner talked to Mr. Everton's secretary. After making this call, Petitioner understood that Respondent's attorneys had his application to run for elective office and that he would soon receive an answer. Petitioner sent Mr. Everton an E Mail message on or about March 6, 1996. In this message, Petitioner asked Mr. Everton to check on his request to run for office and to expedite it immediately because time was of the essence. That same day, Mr. Everton responded to Petitioner's request with an E mail message. Expressing his apologies, Mr. Everton advised Petitioner that Respondent's attorneys had Petitioner's initial request. Mr. Everton stated that he would request that the attorneys respond immediately to Petitioner's inquiry. On or about March 13, 1996 Mr. Everton advised Petitioner that he would have to send his request for approval to run for local office directly to the agency head pursuant to the directive contained in Rule 60K-13.0031(1), Florida Administrative Code. By letter dated March 18, 1996 Petitioner requested that Larry Fuchs, Respondent's Executive Director, grant him permission to run for Tax Collector of Clay County. Mr. Fuchs received this letter on March 29, 1996. Mr. Fuchs responded to Petitioner's request by letter dated April 5, 1996. He reminded Petitioner that Rule 60K-13.0031(1), Florida Administrative Code, requires employees to apply directly to the agency head when requesting approval to become a candidate for local office. Mr. Fuchs then gave several reasons why he could not certify to the Department of Management Services that Petitioner's candidacy would involve no interest which conflicts or activity which interferes with his state employment. More specifically, Mr. Fuchs' April 5, 1996 letter stated in relevant part that: Under section 195.002, Florida Statutes, the Department of Revenue has supervision of the tax collection and all other aspects of the administration of such taxes. Your position with the Department may require you to review or audit the activities of the office you propose to seek. Also some of your duties in supervising other officials in the administration of property taxes may be affected by your proposed candidacy. Your job requires you to review appropriate tax returns, and other records to resolve complex issues related to taxing statutes administered by the Department of Revenue. It also requires you to identify and scrutinize transactions to ascertain whether taxpayers have escaped paying property taxes. In addition, it also requires you to review and audit procedures used by counties to identify and value tangible personal property and accomplish statutory compliance, to investigate taxpayer complaints, to conduct field review with county staff as appropriate, and to provide education an assistance to county taxing officials. Because of the Department's statutory super- vision of the office of tax collector, there cannot be a certification that your candidacy would involve "no interest which conflicts or activity which interferes " with your state employment within the definitions of section 110.233(4), Florida Statutes. The letter went on to say that: This letter is a specific instruction to you that you should not qualify or become a candidate for office while employed in your current position. If you wish to commence your campaign by performing the pre-filing requirements, the law requires that you first resign from the Department. Failure to do so shall result in disciplinary action to dismiss you from your position in accordance with the Department's disciplinary standards and procedures, and Rule 60K-4.010, F.A.C., the Department's Code of Conduct, Section 110.233, Florida Statutes, and Rule 60K-13.002(3), F.A.C. After receiving the above decision, Petitioner requested a formal hearing to challenge the denial of his request to run for Tax Collector of Clay County by letter dated April 10, 1996. Respondent received this letter on April 16, 1996. Respondent referred Petitioner's request for a formal hearing to the Division of Administrative Hearings on April 26, 1996. Petitioner responded to the Division of Administrative Hearings' Initial Order on May 7, 1996 advising the undersigned that he was unavailable for hearing May 28, 1996 through June 10, 1996 and July 5, 1996. He also included an initial pleading requesting, among other things, that Respondent immediately allow him to run for office and pay his filing fee because, in his opinion, it was too late for him to qualify using the alternative method of submitting petitions. On May 21, 1996 this matter was scheduled for hearing on July 9, 1996. Respondent filed a Unilateral Response to the Initial Order and a Prehearing Statement on May 30, 1996. On June 14, 1996 Petitioner filed a letter stating that it was impossible for him to be prepared for the hearing scheduled for July 9, 1996 for two reasons: (a) he had just returned to work after two weeks of vacation; and (b) he was overwhelmed by discovery associated with his upcoming hearing. Petitioner requested that this matter be continued until sometime after August 15, 1996. He represented that Respondent had no objection to his request. An order dated June 20, 1996 rescheduled the case for hearing on August 19, 1996. On July 18, 1996, Respondent sent Petitioner a letter granting him permission to qualify and file the necessary paperwork to become a candidate for Clay County Tax Collector. The letter also advised Petitioner of the conditions under which he could begin campaign activities while on Respondent's payroll. Respondent's change in position was due in part to the pending Final Order in Hendrick v. Department of Revenue, DOAH Case No. 96-2054. Respondent faxed its July 18, 1996 letter to Petitioner's office at 2:38 p.m. Petitioner's immediate supervisor contacted Petitioner at his home later that day at approximately 3:45 p.m. Petitioner did not request annual leave for the following day so that he could take whatever steps were necessary in order to qualify as a candidate for the office of Tax Collector. Instead, he opted to follow through with his previously arranged appointments for July 19, 1996. On July 22, 1996 Petitioner faxed a letter to Respondent indicating that Respondent had not given him sufficient time in which to meet all requirements to qualify as a candidate for elective office by noon on July 19, 1996. In order to qualify as a candidate for elective office in Clay County, Petitioner had to declare a bank depository for campaign purposes and designate a campaign treasurer. If Petitioner intended to use the alternative method of qualifying by filing petitions, he had to file an alternative affidavit and obtain petition forms from the Clay County Supervisor of Elections between January 3, 1996 and June 21, 1996. He had to submit the signed petitions (Democrats-688; Republicans-990, Independent-1,873) to the Supervisor of Elections on or before June 24, 1996. Regardless of whether Petitioner intended to qualify by paying a fee (Major Party-$5,876.40; Independent-$4,309.36) or by using the alternative petition method, he had to complete all paperwork on or before noon of July 19, 1996. Petitioner did not qualify by either method.
Recommendation Based on the Findings of Fact and Conclusions of Law set forth above, it is recommended that Respondent enter a Final Order dismissing Petitioner's request for certification to the Department of Management Services that his candidacy for the office of Clay County Tax Collector would involve no interest which conflicts, or activity which interferes, with his state employment. DONE AND ENTERED this 15th day of October, 1996 in Tallahassee, Leon County, Florida. SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 1996. COPIES FURNISHED: Patrick A. Loebig, Esquire Peter S. Fleitman, Esquire Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Floyd L. Hylton 103 Century 21 Drive, Suite 213 Jacksonville, Florida 32216 Linda Lettera, Esquire Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue in this case is whether the Respondent's certificates of registration should be revoked for an alleged failure to file tax returns and to remit taxes to the Petitioner.
Findings Of Fact The Petitioner is the state agency responsible for collection of sales and use taxes in Florida, pursuant to chapter 212, Florida Statutes (2011).1/ The Respondent is a Florida company doing business at 7810 U.S. Highway 19, Port Richey, Florida, and is a "dealer" as defined at section 212.06(2). The Respondent holds two certificates of registration issued by the Petitioner (Certificate No. 61-8012297146-3 and Certificate No. 61-8012297147-0) and is statutorily required to file tax returns and remit taxes to the Petitioner. As set forth herein, the Respondent has failed to file tax returns or has filed returns that were not accompanied by the appropriate tax payments. During the time the Respondent has held the certificates, the Petitioner has filed 15 separate warrants against the Respondent related to unpaid taxes, fees, penalties, and interest. The Petitioner is authorized to cancel a dealer's certificate of registration for failure of a dealer to comply with state tax laws. Prior to such cancellation, the Petitioner is required by statute to convene a conference with a dealer. On June 24, 2011, the Petitioner issued a Notice of Conference on Revocation of Certificate of Registration (Notice). The conference was scheduled for July 27, 2011. The Respondent received the Notice and attended the conference. Certificate of Registration No. 61-8012297146-3 The Respondent failed to file tax returns related to Certificate No. 61-8012297146-3 for the period of August through December 2001. The Petitioner assessed estimated taxes of $587.50, fees of $110.95, and a penalty of $285.00. As of the date of the Notice, the accrued interest due was $633.79. Additionally, the Respondent failed to remit taxes of $5,623.63 related to Certificate No. 61-8012297146-3 that were due according to his filed tax returns. Based thereon, the Respondent assessed fees of $994.58 and a penalty of $2,478.26. As of the date of the Notice, the accrued interest due was $4,702.27. As of the date of the Notice, the Respondent's total unpaid obligation on Certificate No. 61-8012297146-3 was $15,415.98, including taxes of $6,211.13, fees of $1,105.53, penalties of $2,763.26, and accrued interest of $5,336.06. Certificate of Registration No. 61-8012297147-0 The Respondent failed to file tax returns related to Certificate No. 61-8012297147-0 for the months of June 2000, September 2000, May 2001, and August 2001. The Petitioner assessed estimated taxes of $619.00 and fees of $202.00. As of the date of the Notice, the accrued interest due was $782.56. Additionally, the Respondent failed to remit taxes related to Certificate No. 61-8012297147-0 of $4,332.48 that were due according to his filed tax returns. Based thereon, the Respondent assessed fees of $771.71 and a penalty of $1,576.87. As of the date of the Notice, the accrued interest due was $4,725.27. As of the date of the Notice, the Respondent's total unpaid obligation related to Certificate No. 61-8012297147-0 was $13,009.89, including taxes of $4,951.48, fees of $973.71, penalties of $1,576.87, and accrued interest of $5,507.83. The Audit A separate audit of the Respondent's business records for the period of February 2004 through January 2007 resulted in an additional assessment totaling $9,314.07, including taxes of $5,048.23, fees of $661.76, and a penalty of $252.42. As of the date of the Notice, the accrued interest due was $3,351.66. At the July 27, 2011, conference, the parties negotiated a compliance agreement under which the Respondent would have retained the certificates of registration. The agreement required the Respondent to make an initial deposit of $2,000.00 by August 15, 2011, and then to make periodic payments towards satisfying the unpaid obligation. The Respondent failed to pay the $2,000.00 deposit, and the Petitioner subsequently filed the Complaint at issue in this proceeding. As of the date that the Complaint was filed, the Respondent owed a total of $37,797.66 to the State of Florida, including taxes of $15,004.34, estimated taxes of $1,206.50, fees of $2,741.00, penalties of $4,592.55, and accrued interest of $14,253.27.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order revoking the certificates of registration held by the Respondent. DONE AND ENTERED this 1st day of May, 2012, in Tallahassee, Leon County, Florida. S WILLIAM F. QUATTLEBAUM 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 1st day of May, 2012.
The Issue Is the purchase or use of tangible personal property by a contractor who purchases material and supplies for use in performing non-public works contracts taxable under Chapter 212, Florida Statutes, and Rule 12A-1.051, Florida Administrative Code?
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made. Petitioner is a Florida Corporation having its principal place of business located at 560 Highway 27 North, Sebring, Florida 33820, and is subject to the taxes imposed under Chapter 212, Florida Statutes. The Department is the agency authorized to administer the tax laws of the State of Florida, pursuant to Section 213.05, Florida Statutes. The Department 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 the Department or its authorized agents at all reasonable hours pursuant to Section 212.12(6), Florida Statutes. The Department 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. The Department conducted an audit of Petitioner to determine if Petitioner was properly collecting and remitting sales and use tax to the Department. The audit covers the period from November 1, 1992, through October 31, 1997. Petitioner is a retail carpet store, selling carpet and other flooring material, both installed and non-installed, in Sebring, Florida, and the surrounding areas. An invoice is prepared for each sales transaction. Petitioner rents the building in which its business is conducted and where Petitioner’s inventory and supplies are stored. Petitioner pays rent monthly. During the audit period, tax was neither paid nor collected on the rent payments. Petitioner purchases carpet samples from out-of-state vendors for use in its business. During the audit period, sales tax was not paid on all purchases. Petitioner collected tax on the price of the carpet or other flooring materials, as reflected on the invoice, where the customer was a taxpaying entity and collected tax on the total price on the invoice when the invoice specified installation. Petitioner did not collect tax on the price of the carpet or other flooring material, as reflected on the invoice, for tax-exempt entities, whether the invoice reflected the carpet or other flooring material as installed or non-installed. On May 18, 1998, a Notice of Intent to Make Audit Changes was presented to Petitioner. Additional sales and use tax and infrastructure surtax were determined to be due for the following taxable events: (a) rental expenses; (b) taxable purchases of samples; and, (c) sales to tax-exempt entities where the sale of carpet or other flooring materials included installation to real property. On May 18, 1998, Petitioner paid the additional tax assessed for taxable rental expenses and taxable purchases of samples and has been given credit for such payment. Petitioner protests the tax assessed on the cost price of carpeting used where the customer was a tax-exempt entity and the sales price included installation. On July 16, 1998, the Department sent to Petitioner its Notice of Proposed Assessment showing that Petitioner owed additional sales and use tax and infrastructure surtax in the amount of $13,569.15 and $2,188.01, respectively. Added to the tax owed by Petitioner were penalties in the amount of $6,730.78 and $1,085.02, respectively, and interest through July 16, 1998, in the amount of $4,627.66 and $736.95, respectively. The total assessment was $24,927.59 and $4,009.98, respectively. Credits in the amount of $8,233.87 and $1,372.30 respectively, have been applied against the taxes assessed and reflect the payments made by Petitioner on May 18, 1998. The amount of taxable rental expenses reported on the audit work paper Schedule B010 is consistent with Petitioner’s monthly reports. The amount of taxable sample expenses reported on the audit work paper Schedule B020 is consistent with Petitioner’s monthly reports. 18 The amount of exempt sales reported on the audit work paper Schedule B030 is consistent with Petitioner’s monthly reports. Petitioner timely filed a written protest of the Department’s proposed assessment. On October 25, 1998, the Department issued its Notice of Decision as to the protest of Petitioner. The proposed assessment was sustained by the Department. All invoices in the Department’s Composite Exhibit numbered 2, with the exception of invoices numbered 68, 197, 262, 432, 481, 482, 497, and 498, which are related to transactions that do not involve real property, are records of contracts between Petitioner and the tax-exempt entity to furnish and install wall-to-wall carpet or other flooring materials on real property. There is no retained title provision in any of these contracts. With the exception of invoices numbered 68, 197, 262, 432, 481, 482, 497, and 498, the invoices contained in the Department’s Composite Exhibit numbered 2 reflect an improvement being made to real property. Each of the invoices in the Department’s Composite Exhibit numbered 2 corresponds to a specific entry in Schedule B030 of the audit work papers and which is included under Tab 7a, pages 19 through 32, of the Department’s Composite Exhibit numbered 1. When Petitioner installed, or subcontracted the installation of carpet, the carpet was affixed to the floor by glue, nails, or other means and became the finished floor. Although tack strips, glue, nails, seaming tape, and other items were not listed on the invoice, these items are commonly used in the industry to complete performance of contracts such as those involved in this proceeding. In providing for the installation of carpet or other flooring materials involved in this proceeding, Petitioner engaged subcontractors and paid the subcontractor by the square yard. The square yard price included all materials and labor. With some exceptions, such as metal strips, materials used in the installation of the carpet or other flooring materials were not reflected on the invoices. Since there was no itemization of parts and labor, the invoices contained in the Department’s Composite Exhibit numbered 2, with the exception of invoices numbered 68, 197, 262, 432, 481, 482, 497, and 498, are lump-sum contracts. During his testimony at the hearing, John T. Griffin described Petitioner’s invoices as lump-sum contracts. Petitioner argued that the Department had failed to provide the proper information and training concerning the Department’s position on the imposition of the tax. However, based on the testimony of the Department’s witnesses concerning this matter it appears that sufficient information and sufficient training concerning the Department’s position on the imposition of the tax was readily available to Petitioner or its employees. The noncompliance by Petitioner with the applicable sales and use tax rules was not due to willful negligence, willful neglect, or fraud. It is the recommendation of the Department’s employees that the penalty assessed in this matter be waived. As of January 18, 2000, the total sales and use tax, penalty, and interest was $17,658.80. The local governmental infrastructure total surtax, penalty, and interest was $2,786.58. These totals do not reflect a downward adjustment for the taxes, penalty, and interest assessed against invoices numbered 68, 197, 262, 432, 481, 482, 497, and 498. For these invoices, the adjustment for taxes assessed, penalty, and interest shall be calculated from the date of each specific invoice and Petitioner given credit for any taxes, penalty, or interest charged against it for invoices numbered 68, 197, 262, 432, 481, 482, 497, and 498. The interest that has been assessed for the taxes that were not paid on the rent of the building or the carpet samples is appropriate. Petitioner does not disagree with this interest.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department enter a final order upholding its assessments dated October 25, 1998, of sales and use tax, the local infrastructure surtax, plus applicable interest against Griffin Carpet Mart, Inc., with credit being provided for any payments made and for the assessments related to invoices numbered 68, 197, 262, 432, 481, 482, 497, and 498. It is further recommended after considering all the circumstances surrounding this case, that all penalties be waived. DONE AND ENTERED this 7th day of April, 2000, in Tallahassee, Leon County, Florida. WILLIAM R. CAVE 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) 921-6947 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of April, 2000. COPIES FURNISHED: James F. McCollum, Esquire Law Offices of James F. McCollum, P.A. 129 South Commerce Avenue Sebring, Florida 33870-3698 John Mika, Esquire Nicholas Bykosky, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue The issues to be resolved in this proceeding concern whether the Petitioner owes sales and use tax or specifically use tax, on certain purchases of tangible personal property in accordance with the relevant provisions of Chapter 212, Florida Statutes.
Findings Of Fact The Petitioner, Florida Property Care, Inc. (Petitioner, taxpayer), was a Florida "Subchapter-S Corporation" having its home office in Dade City, Florida, at times pertinent hereto. The Petitioner's federal employer identification number was 59-3288869 and its Florida sales tax number was 06-1041158. The Petitioner was engaged in the business of cutting and removing trees, driveway construction, lawn maintenance, and landscaping. The Department of Revenue (Department) is an agency of the State of Florida charged with administering the tax laws of the state in accordance with Section 212 and 213, Florida Statutes. After issuing proper notification to the Petitioner on January 2, 2003, the Department conducted a sales and use tax audit of the Petitioner's business records. The audit covered the period of December 1, 1999 through December 16, 2001. The Petitioner corporation ceased doing business on December 16, 2001. The Department examined purchase invoices, general ledgers, and federal income tax returns of the Petitioner in the course of its audit. The Department elected to examine the records in detail rather than doing a statutorily permissible sample audit, since the assessment period was relatively short. The Petitioner was engaged in the business of making improvements to real property (construction driveways, landscaping, etc.) through the purchase and use of items of tangible personal property, as raw materials, it bought for use in its business. This included the purchase of limerock, plants, sod, mulch and the like for use in maintaining or landscaping real property. Because the Petitioner was engaged in the business of making improvements to real property, and not merely re-selling limerock, mulch, etc., it was generally only liable to pay sales tax on its purchases of items of tangible personal property used in its business, but not to charge and collect sales tax on its landscaping and real property improvement business activities or services for its ultimate customers. See Chapter 212, Fla. Stat. During the audit period, it was determined by the Department that sales tax had not been paid by the Petitioner on some of its purchases of items of tangible personal property used in the conduct of its business, such items as sod, limerock, asphalt, hay, and other products. The Department also found that the Petitioner had not paid sales tax on certain auto repairs that included both parts and labor charges. Accordingly, the Department noticed an assessment to the Petitioner for use tax on the purchases of items of tangible personal property, for which sales invoices produced in the audit, and by the Petitioner, did not indicate that sales tax had been paid when the items had been purchased from the suppliers. The Department calculated the additional tax due by multiplying the taxable amounts taken from the purchase invoices by the applicable tax rate. The Department also gave the Petitioner credit for sales taxes already paid. Specifically, on a purchase invoice for auto repairs, the Department gave the Petitioner credit for sales tax paid on the parts used in the repairs. The Petitioner's witnesses testified that the four purchase invoices identified as Petitioner's Composite Exhibit 2 in evidence, represented freight charges and were not tangible personal property purchase amounts for the limerock involved. Those purchase invoices, however, indicate on their face that they were for limerock. They indicate the total tonnage and the price per ton and do not indicate any portion of the charges representing freight or delivery charges. The price indicated per ton appears reasonable as a price for limerock and not just for freight charges. Moreover, the Petitioner's own witnesses concede that the purchase invoices in composite Exhibit 2 do not indicate any itemization or amount for freight charges. It is determined that these invoices are actually invoices for the purchase of limerock and not merely freight charges. The Petitioner contends that it assumed that the purchase invoices, identified as Petitioner's Exhibits 1, 4, and 7-9, in evidence, included sales tax in the unit price represented on those invoices, even though any sales tax increment of those invoices is not separately stated and itemized. The Petitioner's witness in this regard conceded, however, that he had no way of knowing whether the vendors from whom he purchased the goods actually charged sales tax on the subject invoices, since it was not itemized. He was only assuming that the tax was included in the unit price he paid, as a part of the total number. The Petitioner contends that it is not liable for the sales tax because sales tax was included in the unit price of the tangible personal property that the Petitioner purchased. The Petitioner argues, in the alternative, that it is not liable for sales tax because the vendors were responsible for charging and collecting the sales tax and that they should be held liable for the tax. In consideration of the evidence which shows that the Petitioner bought the limerock, sod, and other items for use in its business of providing landscaping, maintenance, and other improvements to real property, the Petitioner did not provide documentary or other evidence to corroborate its testimonial assumption or belief that the invoices were either not subject to tax or that the invoiced amounts included payment of the tax. Most of the invoices (the only documentary evidence of billing and the amount and category of payment), do not depict an itemization or category for tax on the face of the invoices. The evidence adduced by the Petitioner does show, as to Invoice Number 29, that tax indeed was paid on that purchase in the amount of $679.25. Additionally, with regard to APAC Invoice Number PORT 16175, $73.39 in tax was paid. Any assessment and collection of tax, penalty and interest by the Department upon conclusion of this proceeding should reflect credit to the Petitioner for these amounts. On June 3, 2003, a Notice of Proposed Assessment was issued by the Department to the Petitioner, setting forth deficient sales and use tax in the sum of $1,812.86, with interest through June 3, 2003, in the sum of $354.34, accruing at the rate of $.25 per day as well as a penalty in the sum of $906.44. The Notice of Proposed Assessment became a Final Assessment on August 2, 2003, for purposes of filing a request for formal proceeding before the Division of Administrative Hearings or for contesting the assessment in the circuit court. On September 30, 2003, the Petitioner elected to file a Petition with the Division of Administrative Hearings seeking a formal proceeding and hearing to contest the final assessment in this case.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and the arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Revenue assessing the tax as depicted in the notice of assessment, in evidence herein, including credit for the tax shown to have been collected on the two invoices referenced in the above Findings of Fact, and assessing interest and penalties in the amounts legally prescribed or as agreed to by the parties. DONE AND ENTERED this 9th day of June, 2004, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF 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 9th day of June, 2004. COPIES FURNISHED: Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Charles B. Morrow Jeanne Morrow Post Office Box 659 Astor, Florida 32102 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
The Issue Whether Petitioner collected and remitted to the Florida Department of Revenue the correct amount of sales tax on Petitioner's retail sales; and Whether Petitioner remitted to the Florida Department of Revenue the proper amount of sales tax on Petitioner's general and fixed assets purchases and on its commercial lease.
Findings Of Fact Petitioning Taxpayer, Surface Preparation Group, Inc., is a "C" corporation, incorporated in the State of Texas. The Taxpayer's product or service is the sale, service, and rental of surface preparation equipment. The Taxpayer has been registered with the Department since October 7, 1999. By letter dated January 12, 2005, the Department notified the Taxpayer of its intent to audit the Taxpayer's books and records to verify the Taxpayer's compliance with Florida's sales and use tax statutes. The audit period in this case is from December 1, 2001, through November 30, 2004. When the audit started, the Taxpayer had a presence in LeGrange, Georgia. During the course of the audit and negotiations, the Taxpayer removed itself back to its Texas headquarters. Specific records were requested to be made available for the Department's auditor to review. Four subject areas were developed in the audit plan: (1) sales; (2) fixed expense; (3) general expense; and (4) commercial rent. Although the Taxpayer provided some sales data, the information contained therein did not correlate with other information the Department had concerning the Taxpayer's Florida sales. For instance, auditors had traced through general ledgers to Petitioner’s federal tax return and compared the return with the company’s Florida sales and use tax return, and the figures did not correlate. Despite repeated requests by the Department's auditor, the Taxpayer provided no information explaining the reasons for this discrepancy, nor was any information provided regarding the Taxpayer’s general purchases, fixed asset purchases, or its commercial lease expenses. Therefore, in order to complete the audit process, the Department had to use the best information available to estimate the additional tax due on fixed assets, general purchases, and commercial rent. That information in this case consisted of materials provided by the Taxpayer and industry averages and past audit assessments of businesses in similar industries. Because total sales reported by the Taxpayer on its DR-15 monthly sales returns were different than the amounts the Taxpayer reported in response to the audit request, there was no assurance that the reported taxable sales and exempt sales were correct. Accordingly, the Department's auditor disallowed all exempt sales as reported by the Taxpayer. Because the Taxpayer had a location in Polk County, Florida, during part of the audit period, it must have had fixed assets there. This meant that a use tax was due for all the Taxpayer’s purchases in Florida, without credit for sales tax paid to vendors who in many cases were located in Georgia. No information was provided by the Taxpayer for general expenses or rental expenses. Without any information from the Taxpayer for general expenses or rental location, the Department had to proceed differently than it would have normally proceeded. In anticipation of submitting more documents to be analyzed by the Department as part of the audit, Mr. Hillebrand, tax manager for Petitioner, signed, on October 24, 2005, a consent to extend the statute of limitations and time for completing the audit to July 31, 2006. (Exhibit R-2, page 000030). On March 15, 2006, Mr. Schnaible, one of the Taxpayer’s Controllers, signed a consent to extend until December 31, 2006. (Exhibit R-2, page 000029). On September 26, 2006, after analyzing all that had been received from the Taxpayer up to that date, the Department mailed a Notice of Intent to Make Audit Changes (NOI) to Petitioner, along with the work papers supporting the changes, and a letter from the auditor explaining the findings. The amount of tax assessed totaled $197,714.38, and comprised: Schedule A01: Disallowed Exempt Sales $169,994.38; Schedule B01: Estimated Fixed Asset Purchases $10,080.00; Estimated General Expenses: $5,040.00; and Estimated Commercial Rental $12,600.00. Interest accrued through September 26, 2006, totaled $57,353.50. The penalty at that date totaled $49,428.09, bringing the total assessment amount to $304,496.47. The Department’s September 26, 2006, letter offered the Taxpayer another opportunity to provide records if it disputed the auditor's findings, and another option to continue the audit process. (Exhibit R-2, pages 000044 through 000045). On October 25, 2006, Mr. Spomer, Taxpayer’s Controller who eventually signed the Petition and Amended Petition herein, wrote a letter (Exhibit R-2, page 000042) to the auditor stating that he requested to extend the audit and that he would mail back the signed, correct form. Normally, a DR-872e form to extend the statute and audit period must be signed within 30 days of the NOI. In this case, it was signed two months later. Apparently, one such form signed by Mr. Spomer was inadvertently filled-in by the Department with the extension date of "June 30, 2006," (copy attached to Amended Petition). Therefore, a second form was executed by Mr. Spomer on November 1, 2006. This form bears the correct extension date of June 30, 2007. (Exhibit R-2, page 000028). No additional information was provided by the Taxpayer which would change any of the tax amounts identified in the NOI. Therefore, on January 31, 2007, the Department issued it Notice of Proposed Assessment (NOPA). Therein, the amount of tax due remained unchanged. The amount of accrued interest through January 31, 2007, increased to $65,023.73, and the penalty was reduced to zero. The Department currently seeks $262,738.11, with interest accruing on the unpaid tax liability at the statutory rate.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order sustaining the Notice of Proposed Assessment dated January 31, 2007. DONE AND ENTERED this 6th day of December, 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 6th day of December, 2007. COPIES FURNISHED: 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 John Mika, Esquire Office of the Attorney General The Capital - Revenue Litigation Bureau Tallahassee, Florida 32399-1050 Dale Spomer International Surface Preparation Group (Texas), Inc. 6330 West Loop South, Suite 900 Houston, Texas 77401
Findings Of Fact Gardinier Big River is a New Jersey corporation authorized to transact business within the State of Florida. Gardinier is a Delaware corporation authorized to transact business within the State of Florida. Gardinier is a wholly owned subsidiary of Gardinier Big River. Petitioners were subject to the corporate income tax imposed by Chapter 220, Florida Statutes, for the tax years 1974 through 1981. For the tax years 1974 and 1975, Gardinier and Gardinier Big River each filed separate annual corporate income tax returns. Beginning with the tax year 1976, and continuing through the tax year 1981, Petitioners filed consolidated annual corporate income tax returns as authorized by Section 220.131, Florida Statutes. Annual corporate income tax returns were filed by Petitioners as follows: (a) Gardinier timely filed on April 1, 1975, an annual corporate income tax return for its tax year ending June 30, 1974; (b) Gardinier Big River timely filed on January 1, 1976, an annual corporate income tax return for its tax year ending March 31, 1975; (c) Gardinier timely filed on April 1, 1976, an annual corporate income tax return for its tax year ending June 30, 1975; (d) Petitioners timely filed on January 3, 1977, a consolidated annual corporate income tax return for their tax year ending March 31, 1976; (e) Petitioners timely filed on March 30, 1977, a consolidated annual corporate income tax return for their tax year ending June 30, 1976; (f) Petitioners timely filed on March 21, 1978, a consolidated annual corporate income tax return for their tax year ending June 30, 1977; (g) Petitioners timely filed on March 27, 1979, a consolidated annual corporate income tax return for their tax year ending June 30, 1978; (h) Petitioners timely filed on April 1, 1980, a consolidated annual corporate income tax return for their tax year ending June 30, 1979; (i) Petitioners timely filed on April 1, 1981, a consolidated annual corporate income tax return for their tax year ending June 30, 1980; (j) Petitioners timely filed on December 8, 1981, a consolidated annual corporate income tax return for their tax year ending June 30, 1981. For each of the years 1974 through 1981, Petitioners, either individually or jointly, timely paid the corporate income tax which Petitioners determined to be due pursuant to Chapter 220, Florida Statutes (1983), by the return date specified in Section 220.222, Florida Statutes (1983), without regard for extensions. Specifically, corporate income taxes were paid by the Petitioners on the following dates for the following tax years: (a) tax year ending June 30, 1975--taxes paid by October 1, 1975; (b) tax year ending March 31, 1975--taxes paid by July 1, 1976; and (c) tax year ending June 30, 1980-- taxes paid by October 1, 1980. On several occasions, the latest of which was April 5, 1983, Petitioners and the Department agreed, for the tax years 1974 through 1981, to extensions of the assessment and refund limitation provisions found at Sections 214.09 and 214.16, Florida Statutes. On or about February 21, 1983, the Department commenced a corporate income tax audit of the Petitioners for the tax years 1974 through 1981. On or about April 23, 1983, as a result of the foregoing audit, the Department issued to Gardinier a Notice of Intent to Make Audit Changes indicating an overpayment of corporate income taxes for the tax year ending June 30, 1975, and an underpayment of corporate income taxes for the tax year ending June 30, 1974. On that same date, the Department issued to Petitioners jointly two separate Notices of Intent to Make Audit Changes indicating overpayments of corporate income taxes for the tax years ending March 31, 1976, and June 30, 1980, and underpayments of corporate income taxes for the tax years ending March 31, 1975, and June 30, 1979. In addition, these Notices indicated that penalty and interest assessments would be made against Gardinier for the alleged late payment of estimated taxes for the tax year ending June 30, 1975, and against Petitioners jointly for the alleged late payment of estimated taxes for the tax year ending March 31, 1976. A Notice of Intent to Make Audit Changes is a form used by the Department to advise taxpayers of overpayments or underpayments of taxes determined by the Department in an audit of the taxpayers' books and records. The notice forms are also referred to by the reference "DR 802." If the taxpayer agrees with the results set forth in the notice, it is instructed by the Department to sign the notice at the space indicated thereon and return it to the Department. By letters dated July 11, 1983, the Department advised Petitioners of its receipt of an unagreed Notice of Intent to Make Audit Changes from the Department's audit staff. The letters further stated that the audit resulted in a refund of taxes to Petitioners' account and that signed agreements to the refunds were required to be reviewed by the Department by September 12, 1983. By letter dated July 21, 1983, Petitioners notified the Department of their disagreement with certain aspects of the Notices of Intent to Make Audit Changes. Specifically, Petitioners disagreed with the assessment of penalty and interest for the alleged late payment of corporate income taxes for the tax years 1975 and 1976. In addition, Petitioners indicated their disagreement with the Department's failure to provide for the payment of interest on Petitioners' overpayments of corporate income taxes for the tax years 1975, 1976, and 1980. By letter dated August 4, 1983, the Department advised Petitioners of its agreement that penalty and interest assessments should not have been made for the tax years 1975 and 1976. In addition, the Department advised Petitioners that interest would not be paid upon the overpayments of corporate income taxes for the tax years 1975, 1976, and 1980. On August 16, 1983, Petitioners submitted to the Department signed Notices of Intent to Make Audit Changes indicating Petitioners' agreement and entitlement to a refund of the net overpayments of corporate income taxes for the tax years 1974 through 1981. By letter dated August 16, 1983, Petitioners protested the Department's failure to pay interest upon the overpayments of corporate income taxes and made a formal claim for payment pursuant to Section 214.14, Florida Statutes (1983), for said interest. On November 10, 1983, the Department issued to Petitioners a Notice of Decision denying Petitioners' claim for interest upon the overpayments of corporate income taxes. Petitioners did not request reconsideration of this Notice of Decision. The overpayment of corporate income taxes by Gardinier for the tax year ending June 30, 1975, was $204,277.61. The overpayment of corporate income taxes by Petitioners for the tax year ending March 31, 1976, was $109,658.00. The overpayment of corporate income taxes by Petitioners for the tax year ending June 30, 1980, was $222,021.00. Total overpayments of corporate income taxes by Petitioners, either individually or jointly, for the tax years 1975, 1976, and 1980 were $535,956.61. Total underpayments of corporate income taxes by Petitioners for the tax years 1974, 1975, and 1979, including penalties and interest assessed thereon, were $153,595.92. The Department refunded to Petitioners, by checks dated October 13 and November 16, 1983, $382,360.69 which amount represented the difference between total overpayments and underpayments by Petitioners of corporate income taxes for the tax years 1974 through 1981. The provisions of Chapters 214 and 220, Florida Statutes (1983), are applicable to the circumstances of this action. The parties hereby agree that the Joint Exhibits are true and accurate copies of the original documents. It is the intent of the parties hereto that this stipulation resolve all material facts necessary for a determination of the rights and liabilities of the parties in this action.
The Issue Whether the Department of Revenue's (Department) assessment of tax and interest against American Business USA Corp. (Taxpayer) is valid and correct.
Findings Of Fact The Department is the agency responsible for administering the revenue laws of the state of Florida, including the imposition and collection of the state's sales and use taxes pursuant to chapter 212, Florida Statutes. The Taxpayer is an active for-profit corporation with its principal address and mailing address at 12805 Newton Place, Wellington, Florida 33414-6226. The Taxpayer is a "dealer" as that term is defined by section 212.06(2). The Taxpayer has a federal employer identification number and a certificate of registration number.1/ The Taxpayer began doing business in Florida in January 2001, but did not register with the Department as a sales tax dealer until February 19, 2004. The Taxpayer does business as "1Vende.com." The Department audited the Taxpayer for sales and use tax compliance. The audit period was April 1, 2008, through March 31, 2011. FACTS RELATED TO THE AUDIT PERIOD Mr. Gomez and Ms. Niño, who are husband and wife, each hold 50 percent of the shares in the Taxpayer. There were two principal aspects of the Taxpayer's business during the audit period. First, the Taxpayer specialized in the sale of flowers, gift baskets, and other items of tangible personal property. Second, the Taxpayer specialized in the sale of "prepaid calling arrangements," within the meaning of section 212.05(1)(l). All of the Taxpayer's sales were initiated online. The Taxpayer sold to customers throughout Latin America, in Spain, and in the United States (including Florida). All payments to the Taxpayer were made by credit card or wire transfer. The Taxpayer generated electronic invoices for all its sales. The Taxpayer marketed itself to the public on its website as a company that sells flowers. The Taxpayer did not maintain any inventory of flowers, gift baskets, or other items of tangible personal property. When the Taxpayer received an order over the Internet for items of tangible personal property, the Taxpayer relayed the order to a florist in the vicinity of the customer (the local florist). The Taxpayer utilized the Internet or telephone to relay an order. The Taxpayer did not use telegraph. The Taxpayer used a local florist to fill the order it had received for flowers, gift baskets, and other items of tangible personal property. The Taxpayer charged its customers sales tax on sales of flowers, gift baskets, and other items of tangible personal property delivered in Florida. The Taxpayer did not charge its customers sales tax on sales of flowers, gift baskets, and other items of tangible personal property delivered outside of Florida. The Taxpayer did not charge sales tax on the delivery fee it charged its customers on orders of flowers, gift baskets, and other items of tangible personal property. The Taxpayer primarily sold prepaid calling arrangements in $2.00, $5.00, $10.00, and $20.00 increments. When customers purchased prepaid calling arrangements, the Taxpayer sent them an authorization number by email. The Taxpayer did not charge its customers sales tax on the prepaid calling arrangements it sold. THE AUDIT The Taxpayer filed its federal tax returns on an accrual basis with the fiscal year ending December 31. The taxpayer's accountant recorded sales on the federal tax returns (form IRS 1120) based on the deposits recorded on the bank statements. Mr. Gomez prepared the Florida sales and use tax returns (form DR-15) for the Taxpayer and calculated the tax due by multiplying its taxable sales by the applicable tax rate. On May 9, 2011, the Department mailed the Taxpayer a Notice of Intent to Audit Books and Records, form DR-840, for audit 200105422. The Department requested Mr. Gomez provide for audit the Taxpayer's chart of accounts, general ledgers, cash receipt journals, sales journals, resale certificates, general journals, federal tax returns, state sales tax returns, shipping documents, and bank statements. Along with the DR-840, the Department mailed the Taxpayer a Pre-audit Questionnaire and Request for Information and Electronic Audit Survey. On May 23, 2011, the Taxpayer returned to the Department the completed Pre-audit Questionnaire and Request for Information and Electronic Audit Survey. On June 15, 2011, the Department's auditor and Mr. Gomez had a pre-audit interview, in which they discussed auditing techniques and records available for audit. Mr. Gomez provided for audit a download of the Taxpayer's electronic records, including its sales database, bank statements, and federal tax returns. The Taxpayer did not keep for audit books and records that would allow the Department to reconcile the sales in the electronic database to the deposits on the bank statement. The Department determined that the Taxpayer's books and records were inadequate for audit and relied upon the "best information then available" of the Taxpayers' sales tax liability, in accordance with section 212.12(5)(b). The Taxpayer did not maintain sales invoices, sales journals, or general ledgers. On August 8, 2011, the Department's auditor met with Mr. Gomez and discussed the audit findings regarding sales. On August 18, 2011, the Department's auditor met with Mr. Gomez and discussed the taxability of the prepaid calling arrangements. On October 31, 2011, the Department mailed the Taxpayer a Notice of Intent to Make Audit Changes, form DR-1215, for audit number 200105422. Prior to issuing the DR-1215, the Department compromised in full the assessed penalty. On February 16, 2012, the Department mailed the Taxpayer a Notice of Proposed Assessment for audit number 200105422. The Department assessed the Taxpayer $102,508.28 in sales tax and interest through February 16, 2012, in the amount of $18,097.52. Interest accrues at $19.62 per day until the tax is paid in full.2/ ESTOPPEL In its Amended Petition, the Taxpayer asserts that it "relied on advice and instruction from [the Department] when it failed to collect Telecommunication tax and should not be subject to any taxes or penalties as a result of their [sic] reasonable reliance." Mr. Gomez and Ms. Niño made three visits to the Department's service centers, but only one of those three visits pre-dated the audit period. The other two visits were after the audit period. In February 2001 they visited the service center in Miami, Florida, where they talked to someone named "Maria" about the taxability of their new business. Both Mr. Gomez and Ms. Niño testified that as a result of the first visit with "Maria" in 2001, the Taxpayer only charged customers sales tax on the sales of flowers, gift baskets, and other items of tangible personal property delivered in Florida. The owners testified that they relied on advice given to them by "Maria." "Maria" did not testify at the formal hearing. There was no written confirmation of the advice given by "Maria." After the audit period while the audit was ongoing (between August 8 and August 18, 2011) they visited the service center in Coral Springs, Florida, where they spoke to someone named "Paula" about the ongoing audit. The third and final visit was on August 18, 2011, when they met with Everald Thomas at the service center in West Palm Beach. Mr. Thomas was the Department's auditor in this case. The owners talked to him about the taxability of the prepaid calling arrangements. The Taxpayer timely filed its Amended Petition for Administrative Hearing. The Taxpayer continues to dispute the assessment.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order that validates the assessment against American Business USA Corp. DONE AND ENTERED this 27th day of February, 2013, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON 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 27th day of February, 2013.
Findings Of Fact The Petitioner, Integra Corporation, had a dispute with the Florida Department of Revenue with respect to sales or use tax allegedly due in the amount of $605,305.70 on lease payments made on its rental of hotels from their owners. An assessment for taxes due was processed in the normal manner by the Department of Revenue. Integra Corporation filed a Protest of the assessment, and after the Department's Notice of Decision denied the Protest, Integra filed a timely Petition for Reconsideration. Ultimately the Department issued a Notice of Reconsideration which rejected the arguments of Integra Corporation. Integra Corporation agrees that the Notice of Reconsideration was transmitted on April 24, 1990, for it alleges that fact in paragraph 3 of its Petition. The Department's final rejection of the arguments made by Integra Corporation against the assessment of sales and use tax made in the Notice of Reconsideration dated April 24, 1990, prompted Integra Corporation to mail by certified mail, return receipt #P796 304 819, to the Division of Administrative Hearings on June 21, 1990, an original Petition challenging the Department's tax assessment. That petition was captioned Integra Corporation, Petitioner v. Department of Revenue, Respondent, and was filed by the Clerk of the Division of Administrative Hearings on June 25, 1990. No copy of the original Petition was served on the Department of Revenue, or its counsel. The opening paragraph states that Integra Corporation "hereby petitions the Department of Revenue for administrative proceedings. . ." The Clerk of the Division of Administrative Hearings realized that the Petition should not have been addressed to or filed with the Division of Administrative Hearings, and on that same day forwarded the Petition to the appropriate agency, the Department of Revenue, which received the Petition on June 27, 1990.
Recommendation It is RECOMMENDED that the petition filed by Integra Corporation be dismissed as untimely. DONE and ENTERED this 10th day of September, 1990, at Tallahassee, Florida. WILLIAM R. DORSEY, JR. 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 10th day of September, 1990.
The Issue The issue posed for decision herein is whether or not the Petitioner, Adwell Corporation, is entitled to separate accounting in computing its Florida corporate income tax based on the nature of its Florida operations.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received, the arguments of counsel and the entire record compiled herein, the following relevant facts are found. The Petitioner, Adwell Corporation, is an Illinois corporation which is actively engaged in the business of farming approximately twelve thousand (12,000) acres of farmland near Jacksonville, Illinois; owns and leases ten (10) acres of real property under a "triple net lease" arrangement for a shopping mall in Minnesota and operates a two-hundred unit (200) apartment complex called the Yacht Basin Apartments (YBA) in Clearwater, Florida. An audit of Petitioner's books during 1978 resulted in a report of income tax audit changes dated July 28, 1978, for Petitioner's Florida income tax returns for fiscal years ending May 31, 1975; 1976 and 1977. The deficiency adjustment as proposed by the Respondent amounted to $1,248.00 for fiscal year ending May 31, 1975; $10,042.00 for fiscal year ending 1976 and $11,238.00 for fiscal year 1977. As originally filed, Petitioner, computing its Florida corporate income tax, based it on a separate accounting of its Florida activities on its claim that it is not a unitary business and that to combine its total corporate income of Florida, Illinois and Minnesota would unfairly represent the extent of its tax base attributable to Florida. Thus, Petitioner contends that the formula apportionment called for in Florida Statutes Sections 220.15 and 214.71 should not be applied. Instead, Petitioner contends that it is entitled to the exceptions to the general method of formula apportionment as set forth in Sections 214.72 and 214.73, Florida Statutes. PETITIONER'S ILLINOIS OPERATIONS As stated, Petitioner farms approximately twelve thousand (12,000) acres of agricultural land utilizing two methods of farming: the "direct" farming method and the "landlord/tenant" arrangement. During the years in question, the "direct" farming operation was used on approximately one-third (4,000 acres) of Petitioner's agricultural land. Under the "direct" method, in addition to the land, Petitioner provides the equipment, fertilizer, chemical, seed, and weed and pest control. Under the "direct" farm method, Petitioner retains an operator who is paid a flat fee for his services which is negotiated on a yearly basis. The remaining two-thirds (approximately 8,000 acres) of the agricultural land is farmed using the "landlord/tenant" method. Under this method, Petitioner, in addition to providing the land, provides the tenant farmer 50 percent of the seed, fertilizer and chemicals for weed and pest control. The crop is divided equally between the farmer and the Petitioner. In both farming methods, Petitioner determines with the crop will be planted; the type of crop and fertilizer and its method of application; the type chemicals for both pest and weed control and decides when and how the crop will be planted and harvested. Prior to 1970, Petitioner's headquarters (for the Illinois farming) was situated in Chicago, Illinois. In 1970, corporate headquarters were moved to Jacksonville, Illinois, based on the corporate decision that "absentee" ownership was not conducive to efficient and productive business operations. During 1970, Petitioner invested in real property in Florida and Minnesota using income realized from the forced sale of real estate under threat of governmental condemnation. PETITIONER'S FLORIDA OPERATIONS In Florida, Petitioner purchased the real property under the Yacht Basin Apartments which was simultaneously leased to the Yacht Basin Apartment owners. The Minnesota real property lay under and was leased to owners of a shopping center. Both leases were "triple net leases", thereby relieving Petitioner of the responsibilities of taxes, maintenance and the other activities associated with land ownership. During 1973, Adwell Corporation purchased the Yacht Basin Apartments and other related improvements which were situated on the Clearwater property. From 1973 through November of 2974, Adwell retained the services of an independent property management firm to manage the Yacht Basin Apartments. However, during this period (November of 1974), Petitioner relocated an accountant, Steve McClellan, who was then employed by Petitioner as an accountant in Jacksonville, Illinois to manage YBA. After Mr. McClellan became familiar with the management operations of the Yacht Basin Apartments, the arrangement was severed with the independent management contractor and Petitioner authorized Mr. McClellan to do virtually all that was necessary to efficiently manage and operate the Yacht Basin Apartments. Examples of the authority given and exercised by Mr. McClellan included hiring and firing employees; negotiating leases; expending large capital outlays for improvements and repairs, including for example, replacement of kitchen cabinets in several apartments, total roof repair and replacement, replacement of the master T.V. antenna and replacement of all windows. (See Petitioner's Exhibits 1 through 5.) Mr. McClellan was assigned the goal of operating the Florida apartments on the rent receipts, which goal was realized. Petitioner maintains what is referred to as an internal accounting procedure which requires that all checks be signed by the operation's President, Donald R. Pankey. Evidence adduced during the hearing reveals that Mr. McClellan was given almost complete control over the operation and management of the Florida property and in no instance was any recommended expenditure by him rejected by President Pankey. Evidence also reveals that Petitioner maintains separate accounts for each of its operations in Florida, Illinois and Minnesota. The Florida operations are not integrated with or dependent upon nor contribute to the other business operations of Petitioner in Illinois and Minnesota. The Florida property as stated compromises approximately ten (10) acres of reality plus the improvements. During the period in question, the Florida operation employed approximately twelve (12) to fifteen (15) employees. Aside from its Florida employees, Petitioner only employs the President and his secretary in Jacksonville, Illinois.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby, RECOMMENDED: That the Petitioner is entitled to and should be allowed to separately account its Florida corporate income tax as it originally filed its Florida corporate income tax returns for the tax years 1975, 1976 and 1977. Accordingly, it is therefore RECOMMENDED that the Respondent withdraw the Report of Income Tax Audit Changes dated July 28, 1978. RECOMMENDED this 12th day of September, 1980, in Tallahassee, Florida. JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1980. COPIES FURNISHED: Steven A. Crane, Esq. Post Office Box 3324 Tampa, Florida 33601 Shirley W. Ovletrea, Esq. and E. Wilson Crump, II, Esq. Assistant Attorneys General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301 Robert A. Pierce, Esq. General Counsel Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32301
Findings Of Fact The Petitioner is, and during the years in question was, a corporation organized under the laws of the State of Delaware, properly qualified and authorized to do business in the State of Florida, and the parent company of a consolidated group of corporations that kept its books and records and filed its federal and state income tax returns on the basis of a fiscal year ending August 31. During the tax years in question, the consolidated group consisted of 36 corporations, of which 15 (including Petitioner) had Florida transactions or were otherwise separately subject to taxation under the Florida Corporate Income Tax Code (the "Florida members"). The other 21 corporations had no such transactions or were not subject to taxation under the Florida Code (the "non- Florida members"). For both years 1972 and 1973, petitioner filed federal and Florida income tax returns on behalf of the entire group. On the Florida return's, it duly elected under the second sentence of Subsection 220.131(1), F.S., to include both the Florida and non-Florida members. As required by Subsections 220.131(1)(a), (b) and (c), each member of the group consented to such filing, the group filed a consolidated federal return for each year, and the component members of the Florida return group were identical to the members of the federal return group. Petitioner protested the proposed corporate income tax assessment for 1972 and 1973, but, by letter, dated July 7, 1976, T. H. Swindal, Chief, Corporation Income Tax Bureau, Florida Department of Revenue, adhered to the original determination that for a parent corporation to include all of its subsidiary corporations for the purposes of consolidating its taxable income, it must be incorporated in Florida. The letter further explained: ". . . The Florida Legislature obviously considered these classifications justified and constitutionally permissible. Any regulation, therefore, which is so drafted as to permit an interpretation which in substance changes or strikes the statutory classification is a nullity. It appears that the Department's regulation may have been inadvertently so drafted as to invite an unintended and contrary-to-the- statute interpretation. When the Department became aware of the situation it proceeded, in accordance with the prescribed statutory requirements of Chapter 120, to amend the regulation by striking those words being misinterpreted." The regulation referred to in Swindal's letter was Rule 12C-1.131(1), F.A.C., the first sentence of which had read as follows: "12C-1.131 Adjusted Federal Income; Affiliated Groups. The term "Florida parent company" as used in the second sentence of Code subsection 220.131(1) shall mean any corporation qualified to do business in Florida or otherwise subject to tax under the Code, irrespective of its place of incorporation " The aforesaid rule was in effect during 1972 and 1973, and was amended on August 4, 1975, to delete the above-mentioned sentence.
Recommendation That Petitioner not be held liable for the proposed assessment of corporate income tax deficiency for fiscal years 1972 and 1973. DONE and ENTERED this 26th day of April , 1977, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: E. Wilson Crump, II, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Alan L. Reinstein, Esquire Dancona, Pflaum, Wyatt and Riskind 30 North LaSalle Street Chicago, Illinois 60602
