The Issue Whether the Department of Revenue (DOR) has properly issued an assessment against Petitioner for sales and use tax, interest, and penalty.
Findings Of Fact Petitioner is a Florida resident. In 1996, Petitioner began doing business as a sole proprietor under the name of "Duraline Industries" and registered with DOR as a sales tax dealer. Later, this entity was called "Dura Steel." Petitioner also operated as a corporation, Steel Engineered Design Systems, Inc. Petitioner's Florida sales tax numbers are 42-11-009271-63 and 40-00-003416- For purposes of these consolidated cases, Petitioner has been audited and charged individually as "Charles R. Bielinski," because the audit revealed that no checks were made out to the corporation(s) and that the monies received were received by Mr. Bielinski as a sole proprietor in one or more "doing business as" categories. Petitioner engaged in the business of fabricating items of tangible personal property, i.e., prefabricated steel buildings, many of which later became improvements to real property in Florida. Petitioner used some of the steel buildings in the performance of real property contracts by installing the buildings as improvements to real property. Petitioner also engaged in the business of selling buildings and steel component parts such as sheets and trim in Florida. Petitioner sold buildings and component parts in over- the-counter retail sales, also. On October 7, 2002, DOR issued Petitioner a Notification of Intent to Audit Books and Records for the period of September 1, 1999 through August 31, 2002. This audit was assigned number AO226920428. In 2002, Petitioner provided DOR's auditor with his sales activity records, such as contracts and job information. A telephone conversation/interview of Petitioner was conducted by the auditor. Over a period of several months, the auditor attempted to get Petitioner to provide additional records, but none were forthcoming. DOR deemed the contracts and job information provided by Petitioner to be an incomplete record of his sales activity for the audit period. Petitioner claimed that most of his sales activity records had been lost or destroyed. Due to the absence of complete records, DOR sampled Petitioner's available records and other information related to his sales in order to conduct and complete its audit. Petitioner purchased materials used to fabricate his steel buildings. Petitioner sometimes would erect the buildings on real property. Petitioner fabricated main frames for smaller buildings at a shop that he maintained at the Bonifay Airport. Otherwise, Petitioner subcontracted with like companies to fabricate main frames for larger buildings. Petitioner made some sales to exempt buyers, such as religious institutions and government entities. When he purchased the materials he used to fabricate the buildings, Petitioner occasionally provided his vendors with his resale certificate, in lieu of paying sales tax. Petitioner did not pay sales tax on the materials he purchased to fabricate buildings when such buildings were being fabricated for exempt buyers such as churches and governmental entities. On June 23, 2003, DOR issued Petitioner a Notice of Intent to Make Audit Changes (Form DR-840), for audit number AO226920428, covering the period of November 1, 1997 through August 31, 2002. DOR has assessed Petitioner sales tax on the buildings, sheets, and trim he sold over-the-counter in Florida. DOR has assessed Petitioner use tax on sales of the materials used in performing real property contracts in Florida. The auditor calculated a method of estimating taxes based on the limited documentation that had been provided by Petitioner. She used a sampling method based on Petitioner's contract numbering system; isolated the Florida contracts; and divided the Florida contracts between the actual sale of tangible property (sale of just the buildings themselves) and real property contracts (where Petitioner not only provided the building but also provided installation or erection services). The auditor scheduled the real property contracts and assessed only the material amounts as taxable in Florida. Since she had only 19 out of 47 probable contracts, or 40 percent, she projected up to what the taxable amount should be and applied the sales tax and surtax at the rate of seven percent, as provided by law. She then divided that tax for the entire audit period by the 58 months in the audit period, to arrive at a monthly tax amount. This monthly tax amount was broken out into sales and discretionary sales tax. Florida levies a six percent State sales tax. Each county has the discretion to levy a discretionary sales tax. Counties have similar discretion as to a surtax. The auditor determined that Petitioner collected roughly $22,000.00 dollars in tax from one of his sales tax registrations which had not been remitted to DOR. During the five-year audit period, Petitioner only remitted tax in May 1998. DOR gave Petitioner credit for the taxes he did remit to DOR during the audit period. The foregoing audit processes resulted in the initial assessment(s) of August 28, 2003, which are set out in Findings of Fact 25-31, infra. On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR-832/833), for additional discretionary surtax, in the sum of $2,582.19; interest through August 28, 2003, in the sum of $782.55; and penalty, in the sum of $1,289.91; plus additional interest that accrues at $0.50 per day. (DOAH Case No. 04-0008) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional sales and use tax in the sum of $154,653.32; interest through August 28, 2003, in the sum of $50,500.06; and penalty, in the sum of $77,324.54, plus additional interest that accrues at $31.54 per day. (DOAH Case No. 04-0009) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional local governmental infrastructure surtax, in the sum of $7,001.82; interest through August 28, 2003, in the sum of $2,352.09; and penalty in the sum of $3,497.35; plus additional interest that accrues at $1.45 per day. (DOAH Case No. 04-0010) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional indigent care surtax, in the sum of $513.08; interest through August 28, 2003, in the sum of $156.33; and penalty, in the sum of $256.24; plus additional interest that accrues at $0.10 per day. (DOAH Case No. 04-0011) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional school capital outlay surtax in the sum of $3,084.49; interest through August 28, 2003, in the sum of $922.23; and penalty, in the sum of $1,540.98; plus additional interest that accrues at $0.60 per day. (DOAH Case No. 04-0012) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), for additional charter transit system surtax, in the sum of $2,049.22; interest through August 28, 2003, in the sum of $766.07; and penalty, in the sum of $1,023.27; plus additional interest that accrues at $0.46 per day. (DOAH Case No. 04-0013) On August 28, 2003, DOR issued Petitioner a Notice of Proposed Assessment (Form DR 832/833), additional small county surtax, in the sum of $10,544.51; interest through August 28, 2003, in the sum of $3,437.85; and penalty in the sum of $5,282.30; plus additional interest that accrues at $2.15 per day. (DOAH Case No. 04-0014) However, the auditor testified at the May 13, 2004, hearing that she attended Petitioner's deposition on March 18, 2004. At that time, Petitioner provided additional documentation which permitted the auditor to recalculate the amount of tax due. The auditor further testified that she separated out the contracts newly provided at that time and any information which clarified the prior contracts she had received. She then isolated the contracts that would affect the Florida taxes due. Despite some of the new information increasing the tax on some of Petitioner's individual Florida contracts, the result of the auditor's new review was that overall, the contracts, now totaling 33, resulted in a reduction in total tax due from Petitioner. These changes were recorded in Revision No. 1 which was attached to the old June 23, 2003, Notice of Intent to Make Audit Changes, which was sent by certified mail to Petitioner. The certified mail receipt was returned to DOR as unclaimed. The auditor's calculations reducing Petitioner's overall tax are set out in Respondent's Exhibit 16 (Revision No. 1). That exhibit appears to now show that taxes are owed by Petitioner as follows in Findings of Fact 34-40 infra. For DOAH Case No. 04-0008, discretionary surtax (tax code 013), Petitioner only owes in the amount of $1,937.37, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0009, sales and use tax (tax code 010), Petitioner only owes in the amount of $111,811.04, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0010, local governmental infrastructure surtax (tax code 016), Petitioner only owes in the amount of $5,211.00, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0011, indigent care surtax (tax code 230), Petitioner only owes in the amount of $317.39, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0012, school capital outlay tax (tax code 530), Petitioner only owes in the amount of $2,398.68, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0013, charter transit system surtax (tax code 015), Petitioner only owes in the amount of $1,558.66, plus penalties and interest to run on a daily basis as provided by law. For DOAH Case No. 04-0014, small county surtax (tax code 270), Petitioner only owes in the amount of $7,211.83, plus penalties and interest to run on a daily basis as provided by law.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law set forth above, it is RECOMMENDED that the Department of Revenue enter a final order upholding the amount of tax calculated against Petitioner in its June 21, 2003, Notice of Intent to Make Audit Changes, Revision No. 1, in the principal amounts as set forth in Findings of Fact Nos. 34-40, plus interest and penalty accruing per day as provided by law, until such time as the tax is paid. DONE AND ENTERED this 14th day of July, 2004, 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 14th day of July, 2004.
Findings Of Fact The parties have stipulated to all facts in this proceeding. Those facts found relevant to a determination of the issue are as follows: Petitioner, American Telephone and Telegraph Company, is a New York corporation and is functionally divided into two divisions: the Long Lines Department and the General Department. Through its Long Lines Department, petitioner is a federally regulated public utility and common carrier which furnishes interstate and international telecommunications services. Long Lines is responsible generally for the construction, operation and maintenance of a nationwide system of interstate telecommunications facilities and related equipment which serve to interconnect the facilities of over 1700 operating telecommunications companies in the United States as well as telecommunications systems abroad. Some of these facilities extend into and through the State of Florida. In performing this interstate business, Long Lines operates, and thus has property or employees or both in 49 states, including Florida. Through its General Department, petitioner is the parent corporation of 21 operating telecommunications companies (known as "Associated Companies"), Western Electric Company, Inc. ("Western") and Bell Telephone Laboratories, Inc. ("Bell Labs"). The General Department holds and manages the stock owned in these subsidiaries and two minority owned companies, and provides capital. advice and assistance to them. It conducts these activities principally in New York and New Jersey and conducts no business and has no property or employees in Florida. The only business activities in the State of Florida during 1972, 1973 and 1974 were conducted through petitioner's Long Lines Department in connection with the operation of the interstate and international long distance telecommunications network. None of the Associated Companies is organized under the laws of Florida or has its headquarters in Florida. The Only Associated Company which conducts business or has property or employees within Florida is the Southern Bell Telephone and Telegraph Company (hereinafter "Southern Bell"), a wholly owned subsidiary of petitioner. Southern Bell files its own separate Florida income tax returns and during the period 1972-1974 paid approximately $10 million in income tax to Florida. The respondent concurs that petitioner is entitled to deduct 100 percent of the dividends paid by Southern Bell to petitioner. Western, also a wholly owned subsidiary of petitioner, is a manufacturing corporation with its own Board of Directors and officers, doing business in all 50 states. During the period 1972-1974 Western paid approximately $1.7 million in income tax to Florida. The respondent concurs that petitioner is entitled to deduct 100 percent of the dividends paid by Western to petitioner. For each of the 1972, 1973 and 1974 tax years, petitioner has filed a federal consolidated income tax return, and has made a valid election under Section 243 of the Internal Revenue Code for each of those years. That provision of the federal tax law permits a domestic corporation to deduct 100 percent of the dividends received from its wholly-owned domestic subsidiaries. Petitioner's federal income tax returns were audited by the Internal Revenue Service and the respective tax liabilities were determined and paid for each of the years in question. The Internal Revenue Service did not tax dividends received by petitioner from its affiliates. Petitioner timely filed its Florida corporate income tax returns for the years ending December 31, 1972, December 31, 1973 and December 31, 1974. Petitioner did not elect and was not required to file a Florida consolidated income tax return under Section 220.131, Florida Statutes. For each of the years in question, petitioner reported on line 1--"federal taxable income (line 30, Form 1120 or corresponding line on related form 1120 series, 990C or 990T)"- -of its Florida corporation income tax return (Form F-1120) its taxable income for federal income tax purposes computed as if petitioner had filed a separate federal income tax return for each of the years in question and for each preceding taxable year for which it was a member of an affiliated group. These amounts were: 1972 $ 94,020,281 1973 $213,364,165 1974 $110,770,402 On its Florida corporation income tax return for each of the years in question, petitioner made the additions and subtractions required by the form of the return in computing "adjusted federal income" and apportioned this amount by the prescribed three-factor formula to obtain "Florida net income." The Department of Revenue adjusted the amount of "federal taxable income" and hence "Florida net income" of petitioner for each of the years in question by adding thereto 15 percent of the dividends received from subsidiaries which were deductible for federal income tax purposes under Section 243 of the Internal Revenue Code. On April 10, 1978, the Department issued a notice of proposed deficiency for petitioner's tax years ended December 31, 1972, December 31, 1973 and December 31, 1974. The total amount of the proposed deficiency was $1,131,158, computed as follows: YEAR AUDITED TAX TAX AS FILED DEFICIENCY 1972 $426,468 $122,365 $304,103 1973 668,597 281,168 387,429 1974 594,300 154,674 439,626 Total $1,689,365 $558,207 $1,131,158 After a timely protest to the proposed deficiencies was filed by the petitioner, correspondence and an informal conference between the parties was had. Finally, on April 16, 1981, the Department issued a letter denying the protest and petitioner petitioned for an administrative hearing. Through correspondence and discussions with the petitioner, the Department of Revenue has taken the position that it would allow only an 85 percent dividend deduction for the dividends received by petitioner from those affiliates which were not subject to the Florida corporate income tax code. Petitioner is seeking to take a 100 percent deduction of all dividends which it received from its subsidiaries, as it did on its federal income tax returns. The dividends received by petitioner which the Department is attempting to subject to Florida tax by its proposed deficiency assessment are derived from its equity investment in its subsidiaries and they represent to petitioner a return on such investment. Since the actual capital, however, for that investment is furnished primarily by public investors, the principal use of the dividends received by petitioner is to meet its obligation to its shareholders and bondholders for the payment of dividends and interest. For example, in 1974 petitioner received dividends from the Associated Companies, Western and other affiliates in the amount of $2,538,443,000 and paid dividends to shareholders in the amount of $2,039,800,000 and interest on its long and intermediate term debt of $475,670,000. Petitioner, therefore, serves as the investor interface between the investing public and its subsidiary companies, whereby the purchase of petitioner's stock or debt issues actually represents an investment in the earnings of the Bell System. Petitioner, acting through its General Department, thus provides the avenue by which the subsidiaries pass their net earnings to the investing public. The income which the Department seeks to tax is derived from dividends received by petitioner primarily from earnings generated by the property and employees of the Associated Companies which are devoted to furnishing intrastate and interstate telecommunications services in their operating territories in states other than the State of Florida. These earnings are subject to income taxes in all states in which the Associated Companies provide telecommunications services that impose income taxes on corporations. The dividends received by petitioner do not contribute to the funding of Long Lines since (1) the pervasive regulation under which petitioner's subsidiaries operate limits their earnings to that amount sufficient for the needs of their own operations and effectively prevents those earnings from being available for use in other businesses and (2) earnings paid out as dividends by petitioner's subsidiaries are principally required to be passed to the public investors in the Bell System, through petitioner's General Department, in order to meet dividend and interest obligations to these outside shareholders and bondholders. During the tax years in question, the Department of Revenue had not promulgated any rule with respect to the disallowance of a deduction for 100 percent of dividends received as provided for under Section 243 of the Internal Revenue Code, and the Florida corporate income tax return forms did not require any such add-back or adjustment. During the 1980 legislative session, an amendment to Chapter 220, Florida Statutes, was proposed which would have changed the definition of "affiliated group of corporations." Such proposed legislation was not passed and did not become law.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that that portion of the Department's proposed assessment of deficiencies for the 1972, 1973 and 1974 tax years as is based upon dividends received by the petitioner from its affiliates be withdrawn as being contrary to law and invalid. Respectfully submitted and entered this 28th day of April, 1982. DIANE D. TREMOR, 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 28th day of April, 1982.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint for Revocation of Certificate of Registration issued on November 16, 2009, and, if so, what action should be taken.
Findings Of Fact There is no dispute that the Department is the state agency charged with the responsibility of regulating, controlling, and administering the revenue laws of the State of Florida, including the laws relating to the imposition and collection of the state's sales and use tax pursuant to chapter 212, Florida Statutes. There is no dispute that Abkey is a Florida corporation whose principal address is 7800 Southwest 104th Street, Miami, Florida 33156. Abkey is a restaurant. At the time of hearing, Abkey had 33 employees and was operating at a deficit. There is no dispute that, at all times material hereto, Abkey possessed Florida sales tax certificate of registration number 23-8012096448-9, issued by the Department on April 18, 1994. There is no dispute that Abkey is a dealer as defined in section 212.06(2), Florida Statutes, and has been a dealer at all times material hereto. For the month of June 2009, Abkey failed to file a sales tax return. As a result of this failure, the Department assessed Abkey an estimated sales tax due in the amount of $9,500.00. For 2005, Abkey failed to remit its self-reported sales tax liability to the Department for the months of July, September, October, November, and December. Abkey self-reported its tax liability, by filing sales tax returns, for the said months. For 2006, Abkey failed to remit its self-reported sales tax liability to the Department for the months of January and May. Abkey self-reported its tax liability, by filing sales tax returns, for the said months. Also, for 2006, Abkey failed to timely remit its sales tax liability for the month of October for which the Department assessed a penalty and an administrative/collection/processing fee. For 2007, Abkey failed to remit its self-reported sales tax liability to the Department for the months of February and August. Abkey self-reported its tax liability, by filing sales tax returns, for the said months. Also, for 2007, Abkey failed to timely remit its sales tax liability for the month of October, for which the Department assessed a penalty and an administrative/collection/processing fee. In total, for 2005, 2006, and 2007, Abkey self- reported sales tax due and failed to remit to the Department sales tax reportedly due in the amount of $122,355.36. As a result of Abkey's failure to file the sales tax return, to remit the $122,355.36 in sales tax, and to remit timely sales tax, the Department assessed Abkey, as of October 29, 2009, $16,287.59 in interest, $4,891.73 in penalties, and $13,845.10 in administrative/collection/ processing fees. Additionally, for the month of February 2007, Abkey issued to the Department a dishonored check (electronic funds transfer) on March 23, 2007, in the amount of $18,254.00. The Department assessed a $150.00 return check fee for the dishonored check. Shortly after being notified of the dishonored check by the Department, Abkey paid the $18,254.00. Abkey has a significant history of delinquency in remitting payments to the Department. The Department made several attempts, unsuccessfully, to collect the delinquent tax liabilities, including issuing Tax Warrants. In January 2007, the Department sought to revoke Abkey's Certificate of Registration for delinquent returns and outstanding liability and engaged in an informal conference with Abkey. As a result of the informal conference, Abkey and the Department entered into a Compliance Agreement executed on February 15, 2010. The Compliance Agreement required Abkey, among other things, to remit all past due payments; for 12 months (January through December 2007), to timely file tax returns and to timely remit all sales tax due; and to make a down payment of $45,000.00 (in three monthly installments but no later than April 1, 2007), 11 monthly payments of $5,000.00 (beginning May 1, 2007), and a balloon payment of $141,982.43 on April 1, 2008. Further, regarding the balloon payment of $141,982.43, the Compliance Agreement provided that the balloon payment might be negotiated for another 12 months. However, in order for Abkey to take advantage of this provision, Abkey was required to be compliant with the terms of the Compliance Agreement and its account was required to be in good standing with the Department. In accordance with the Compliance Agreement, Abkey paid the down payment of $45,000.00 (in three monthly installments) and the 11 payments of $5,000.00 although the 11 payments were late. Additionally, for the period of January through December 2007, Abkey was late filing tax returns and remitting sales tax. Abkey requested a renewal of the Compliance Agreement. Despite the late payments, the Department approved the renewal of the Compliance Agreement. A Compliance Agreement Renewal was executed on May 1, 2008. It required Abkey, among other things, to remit all past due payments and to timely file tax returns and timely remit all sales tax due for the next 12 months (May 1, 2008 through April 30, 2009); and to make 11 monthly payments of $5,000.00 (beginning May 1, 2008), and a balloon payment of $120,749.14 on April 1, 2009. Furthermore, regarding the balloon payment of $120,749.14, the Compliance Agreement Renewal provided that the balloon payment might be negotiated for another 12 months. However, in order for Abkey to take advantage of this provision, Abkey was required to be compliant with the terms of the Compliance Agreement Renewal and its account was required to be in good standing with the Department. Under the Compliance Agreement Renewal, Abkey made four payments of $5,000.00 but the payments were late. Abkey requested a reduction in the amount of the monthly payments from $5,000.00 to $2,000.00. The Department granted Abkey's request. Abkey made 12 payments of $2,000.00 but the payments were late. Additionally, for the period of May 1, 2008 through April 30, 2009, Abkey was late filing tax returns and remitting sales tax. Further, Abkey failed to make the balloon payment of $120,749.14 that was due on April 1, 2009. Abkey did not request a renegotiation of the balloon payment. At that time, Abkey did not request another Compliance Agreement. As of September 28, 2010, Abkey owed the Department $122,355.36 in actual sales tax (per Abkey's sales tax returns), $9,500.00 in estimated tax, $4,419.73 in penalty2, $14,572.80 in administrative/collection/processing fees3, $25,032.28 in interest, and $20.00 in warrant fees; totaling $175,900.17. The Department seeks to revoke Abkey's Certificate of Registration.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order revoking the Certificate of Registration issued to and held by Abkey No. 1 Limited. DONE AND ENTERED this 18th day of February, 2011, in Tallahassee, Leon County, Florida. S ERROL H. POWELL 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 18th day of February, 2011.
The Issue Whether the Petitioner owes sale and/or use tax for the purchase/lease of magnetic tapes containing mailing lists used by the Petitioner in its mail order business, as set forth in the Notice of Decision dated December 10, 2003, and, if so, the amount owed.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, including the Joint Pre-Hearing Stipulation, the following findings of fact are made: The Department is the agency authorized to administer the tax laws of the State of Florida. See § 213.05, Florida Statutes (2004). At the times material to this proceeding, Spectramin was a Florida "S" corporation whose home office and principal place of business was located at 5401 Northwest 102 Avenue, Suite 119, Sunrise, Florida. Spectramin was a Florida- registered sales tax dealer. On October 19, 2001, the Department issued to Spectramin a Notification of Intent to Audit Books and Records for audit number A0127016590, which was a sales and use tax audit covering the Audit Period. On January 15, 2002, the Department and Spectramin signed an audit agreement that delineated the procedures and sampling method to be used by the Department for the audit. Because Spectramin's books and records were voluminous, the Department and Spectramin agreed to employ certain specified sampling procedures. For the audit, the Department examined Spectramin's purchase invoices, general ledgers, and income statements for the 2000 calendar year. At the times material to this proceeding, Spectramin was a mail-order company that sold nutritional supplements throughout the United States. It engaged in direct marketing of its products and employed two methods of direct marketing: Self-mailers were sent to prospective customers, and catalogs were sent to persons who had purchased its products, as a means of educating these buyers and converting them into repeat customers.1 In order to send self-mailers to prospective customers, Spectramin leased mailing lists consisting of names and addresses, and, in some instances, bar codes, compiled by various vendors who sold mailing lists. The contents of the mailing lists were based on demographic criteria specified by Spectramin. Under the terms of the lease, Spectramin was allowed to use the mailing list for only one mailing. Pertinent to this proceeding, Spectramin received some of the mailing lists in the form of data digitally encoded on magnetic tapes. The cost of leasing a mailing list was based on the number of names on the list, and the invoice for a list included a separately-stated, standard charge of $25.00 to cover the cost of the magnetic tape containing the data. The magnetic tapes themselves had no value to Spectramin; the only value of the tapes to Spectramin lay in the data encoded on the tapes, and the greatest part of the cost of the one-time lease was the cost of the data encoded on the magnetic tapes; for example, Spectramin paid $75.00 per 1,000 names for one of the mailing lists it leased, plus the $25.00 charge for the magnetic tape. Spectramin did not pay sales tax in Florida on the cost of the data encoded on the magnetic tapes at the time it leased the mailing lists. Spectramin did not have the computer equipment necessary to read the data on magnetic tapes, so it contracted with third-party letter shops and printers to process the magnetic tapes. The letter shops with which Spectramin has done business since 1991 are all located outside the state of Florida. Once a letter shop received magnetic tapes from Spectramin, the data on the tapes were downloaded to a computer, and cleaned, and sorted into usable names and addresses; the letter shop then sent the cleaned and sorted data to a print shop, which printed the names and addresses onto self-mailers provided by Spectramin. The letter shop sorted the self-mailers by zip code and mailed them. All of these operations took place outside Florida. At one time, Spectramin's practice was to have the mailing-list vendors ship the magnetic tapes encoded with the data directly to a letter shop specified by Spectramin. The letter shop held the Spectramin magnetic tapes until it had accumulated several tapes, and then it would process the data from the tapes, have the names and addresses printed on the self-mailers, and mail the self-mailers. Spectramin found that the letter shops with which it did business sometimes lost track of the tapes received for Spectramin's mailings, and it cost Spectramin additional time and money to track down the tapes or to purchase mailing lists. Because of the additional time and money Spectramin spent to track down the lists, it stopped having the magnetic tapes sent directly to the letter shop. At the times material to this proceeding, the magnetic tapes containing the digitally-encoded mailing lists were shipped directly to Spectramin by the mailing-list vendors, and Spectramin took delivery of the tapes at its principal place of business in Florida. The vendors sent the mailing lists to Spectramin's Florida office by overnight delivery through either Federal Express or United Parcel Service. It was Spectramin's usual business practice for an employee to take delivery of the magnetic tapes containing the mailing lists and to place them on a shelf in the front of the office. The boxes containing the magnetic tapes were not opened. When Spectramin had accumulated several boxes of magnetic tapes, an employee put the boxes into a larger box and sent the tapes by overnight delivery to one of the out-of-state letter shops with which Spectramin did business. Spectramin did not keep the tapes in its Florida office more than one or two days because the mailing lists it had leased lost their value with time.2 The only value of the magnetic tapes was in the names and addressed encoded on the tapes, and the only use to which Spectramin put the data was to cause the names and addresses it had leased to be printed on self-mailers and mailed to the prospective customers. Because the letter shops that printed the names and addresses and mailed the self-mailers were located outside of Florida, Spectramin did not "use" the data or the magnetic tapes in Florida. The only contact the magnetic tapes had with Florida was during the short period of time the tapes sat on the shelf at Spectramin's office before being shipped out of the state for processing. Spectramin did not pay use tax in Florida on the cost of the data encoded on the magnetic tapes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order withdrawing the sales and use tax assessment against Spectramin, Inc., for the audit period extending from September 1, 1996, through August 31, 2001. DONE AND ENTERED this 24th day of January, 2005, in Tallahassee, Leon County, Florida. S PATRICIA HART MALONO Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of January, 2005.
Findings Of Fact The parties have agreed that there are no issues of fact to be determined in this matter, and that the relevant facts are set out in Paragraphs 3 and 4 of the Petition which was received in evidence at the hearing as Hearing Officer's Exhibit 1. This matter involves a determination for Florida corporate income tax purposes of the net income derived by the Petitioner in connection with the purchase, development, and sale of certain property in Dade County, Florida. Petitioner purchased the property prior to January 1, 1972, the date upon which the Florida Income Tax Code became effective. Petitioner expended, through a subsidiary corporation, $369,058 in developing the property. These expenditures also occurred prior to January 1, 1972. For Federal income tax purposes the Petitioner had deducted these expenditures as business expenses during the years that they were incurred. Petitioner sold the property during 1972. Because the Petitioner had deducted the expenditures as business expenses, the expenditures could not properly have been included in the base price of the property for Federal income tax purposes, and the net income for Federal tax purposes was computed by subtracting the original purchase price from the sale price. Since the Florida Income Tax Code was not in effect at the time the expenditures were made, the Petitioner received no Florida tax benefit for the expenditures. In computing the net income for Florida tax purposes derived from the sale, the Petitioner included the expenditures in the base price of the property, and calculated its net income by subtracting the sum of the purchase price of the property and the expenditures from the sale price. The Department, contending that the $369,058 should not have been included in the base price of the property, issued a deficiency assessment which reflected the net income from the sale of property as the difference between the sale price and the purchase price. Petitioner originally contended that it was entitled to add the amount that the property appreciated prior to January 1, 1972 to the base price of the property. Petitioner is no longer contesting the deficiency assessment based upon a disallowance of that addition to the base price of the property. The Department was originally contending that it was entitled to interest at 12 percent per annum calculated retrospectively from the due date of the alleged deficiency. The Department has agreed to abandon its effort to impose that rate of interest. The issue raised in this case is whether the development expenses incurred by the Petitioner and deducted for Federal income tax purposes as business expenses prior to 1972 can be subtracted from Federal taxable income for the purpose of determining taxable income derived from the sale for Florida tax purposes.
The Issue The issue presented is whether HMY New Yacht Sales, Inc., is liable for the payment of use tax, together with penalty and interest, on a yacht which it purchased for resale and for use as a demonstrator.
Findings Of Fact Petitioner HMY New Yacht Sales, Inc., is a Florida cor-poration located in Dania, Florida. It is a franchise and an authorized dealer for several lines of new boats. Petitioner is registered as a dealer for Florida sales tax purposes and has a dealer decal. Petitioner became an authorized dealer for Davis Yachts, a manufacturer located in North Carolina, in 1985. In January 1990 Petitioner purchased a boat from Davis Yachts to be used for demonstration and promotional activities and for resale. The boat was a 47-foot fiberglass sports fisherman named "The Bandit." When the boat was delivered, Petitioner outfitted The Bandit with extensive electronics and fishing equipment, including a tuna tower, outriggers, a fighting chair, rocket launchers, and live wells. It took approximately two months (until the second week in March 1990) to outfit the boat to have it ready for its intended sports fishing purpose. The type of equipping done by Petitioner is typical of that done on every such boat when it is sold since such a boat cannot be used for its intended purpose without the electronics and other equipment. Petitioner, however, wanted the boat to be "ready to go," when Petitioner sold it rather than having the purchaser wait for the outfitting to be done before the purchaser could use the boat. Petitioner paid the factory approximately $520,000 for the boat. Petitioner's payments to local vendors for services and materials used in outfitting the boat brought Petitioner's cost to approximately $590,000. The Bandit was never documented or registered in the state of Florida. It was only operated under Petitioner's dealer registration and decal, as provided in Section 327.13, Florida Statutes. The boat was purchased with the intent to sell it, and it was always for sale from the first moment it was outfitted and ready to be shown. It was never Petitioner's intent to keep the boat. As soon as it was outfitted, the boat had on board, at all times, a file containing a complete inventory of the boat's equipment, including custom and standard options, and a color brochure with pictures of the boat to be given to potential customers. While Petitioner was attempting to sell the boat, it was also used by Petitioner as a sales promotional tool. Petitioner took the boat to various fishing tournaments and exhibited it at boat shows and open houses. Davis Yachts bore some of the expense of those activities since promoting the boat inured to the benefit of Davis as well as of Petitioner. When the boat was being used for promotional or sales activities, it would always have on board employees or salespersons of Petitioner or of Davis Yachts and customers. On occasion, family members accompanied Petitioner's salespersons on board the boat. The manner in which The Bandit was marketed--taking it to fishing tournaments and boat shows and having open house at various events--is typically the way new sport fisherman yachts are sold throughout the industry. The boat was shown to prospective customers at least once a month. Approximately 50 customers were taken on sea trials. The boat was never loaned or rented to anyone. It was used only under the direction of Petitioner or Davis Yachts. The only compensation received by Petitioner relating to the boat resulted from the occasions when Davis Yachts split some of the expenses for the promotional or sales activities. The boat did not sell as quickly as Petitioner hoped. In October 1990 Petitioner placed the boat on the Buck System, a multiple listing service which distributes information to other yacht brokers concerning boats which are for sale. Generally, boat dealers would not put new inventory in the multiple listing system. Petitioner did so in this instance, however, in order to quickly sell the boat because the government had announced a luxury tax proposal which Petitioner feared would result in a downturn in the boat market. Even with all the effort put into attempting to sell the boat, it did not sell until November 1991. In July 1992 the Department began a routine sales tax audit of Petitioner. The audit was completed in September 1992 and covered the period of time from March 1987 through February 1992. The Department auditor determined that Petitioner owed use tax on The Bandit because in November 1990, on the advice of its accountant, Petitioner took the boat out of its inventory account and placed it in its fixed assets account in order to take depreciation for federal income tax purposes. Based solely on Petitioner's treatment of the vessel on its corporate books, the auditor determined that Petitioner converted The Bandit to its own use and was, therefore, responsible for payment of the statutory use tax rate of 6 percent of the value of the boat as reflected on Petitioner's records. Based upon the audit, the Department issued its Notice of Proposed Assessment, assessing Petitioner $33,921.94 in tax, $8,480.50 in penalty, and $7,085.52 in interest through September 16, 1992. Interest continues to accrue at $11.15 per day.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered determining that Petitioner is not liable for payment of use tax, penalty, or interest on The Bandit, and withdrawing the assessment which is the subject of this proceeding. DONE and ENTERED this 2nd day of August, 1995, at Tallahassee, Florida. LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of August, 1995. APPENDIX TO RECOMMENDED ORDER Petitioner's proposed findings of fact numbered 1-12, 15, and 19 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 13, 14, and 18 have been rejected as not constituting findings of fact but rather as constituting argument of counsel, conclusions of law, or recitation of the testimony. Petitioner's proposed findings of fact numbered 16, 17, and 20 have been rejected as being unnecessary to the issues involved herein. Respondent's proposed findings of fact numbered 1-3, 6, 8, and 9 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed findings of fact numbered 4, 5, and 10 have been rejected as not being supported by the weight of the competent evidence in this cause. Respondent's proposed finding of fact numbered 7 has been rejected as being unnecessary to the issues involved herein. COPIES FURNISHED: Cynthia S. Tunnicliff, Esquire Pennington & Haben, P.A. Post Office Box 10095 Tallahassee, Florida 32302-2095 Mark T. Aliff, Esquire Office of the Attorney General Tax Section, The Capitol Tallahassee, Florida 32399-1050 Linda Lettera General Counsel Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Frank O. Sherrill is the sole stockholder of Oceania Charters, Inc. and is a resident of North Carolina from where he directs the operations of Oceania Charters, Inc. The principal, if not sole, asset of Oceania Charters, Inc. is the 101 foot motor yacht Captiva II. The Captiva II was built in Amsterdam, the Netherlands, pursuant to contract between the shipbuilder and Oceania Charters, Inc. and/or Frank Sherrill entered into in 1972. Sherrill purchased the vessel for the intended purpose that it be used as a charter vessel hired to various charterers for short or longer-term cruises. This is the fourth or fifth vessel that Respondent has owned and used in the charter business. The evidence was uncontradicted that the purpose of acquiring the Captiva II was to place it in charter service. The vessel was originally scheduled for completion in the summer of 1973 and it was intended to have the Captiva II proceed from Amsterdam to North Carolina under her own power. The vessel was not completed until late fall or early winter and the insurers would not insure the Captiva II if it proceeded across the North Atlantic under her own power at that time of year. Arrangements were made to ship the Captiva II from Amsterdam to Bermuda via freighter to off-load the Captiva II there and proceed under her own power to Wilmington, North Carolina for custom clearance and documentation. While loading the Captiva II damage was done to one stabilizer and to the hull. Upon arrival of the ship carrying the Captiva II at Bermuda, excess costs involved in off-loading and repairing there were weighed against the carrier's offer to off- load the Captiva II at the next port of call, Miami, and facilities at the latter port. It was then decided that the Captiva II should stay aboard for the voyage from Bermuda to Miami and there be off-loaded and repaired. This was done and upon arrival in Miami the Captiva II was off-loaded, repaired and fitted out for charter operations. Berthing arrangements were made and, except for charter trips, trips to Palm Beach soliciting charters, and sea trials the Captiva II has been moored at Miami. Mr. and Mrs. Sherrill stayed on board the Captiva II during the period she was being outfitted for charter operations and on several of the sea trials the vessel underwent. They were not on board during any of the charter trips and did not use the Captiva II for cruises themselves or make her available for use by their friends unless pursuant to a charter party. These facts were undisputed.
The Issue The issue in this case is whether the taxpayer owes use tax, penalty and interest on the purchase of tangible personal property under Chapter 212, Florida Statutes.
Findings Of Fact Iseaseal, LLC, a Delaware corporation, has its principal place of business at 695 East Main Street, Suite 103, Stamford, Connecticut. Its federal employer identification number is 06-1600000. On November 22, 2000, the taxpayer purchased a 1982, 72-foot, Hatteras CPMY yacht, named “Windcrest,” with hull number HATBN3270182 and 60 net tons of admeasurement. The purchase was made through a registered yacht broker. The yacht’s sales price was $725,000. On November 21, 2000, at the closing for the yacht, the taxpayer’s managing member, Paul Bakker, signed an Affidavit for Exemption of Boat Sold for Removal from the State of Florida by a Nonresident Purchaser. The yacht was also registered with the Coast Guard. However, to date, the yacht has not been registered or titled in Florida or any other U.S. state or territory. The taxpayer took possession of the yacht at Pier 66, in Fort Lauderdale, Florida, on November 22, 2000. Also, on November 22, 2000, the taxpayer was issued a 90-day decal known as a “cruising decal.” A cruising decal, with certain restrictions, exempts the purchase of a yacht from sales tax if the purchaser agrees to remove the yacht from Florida within 90 days after the date of purchase and does remove the purchased yacht. On December 28, 2000, the taxpayer removed the yacht from Florida to the Bahamas. The removal occurred within 90 days after the purchase date. As a result, the sale became exempt from Florida sales tax and the Petitioner did not pay Florida sales tax on the purchase of the yacht. On January 15, 2001, the taxpayer returned the yacht to Florida for repairs. A repair bill shows that the yacht remained at the repair facility for four and a half hours on January 16, 2001. The repair visit was within six months after the departure date of December 28, 2000. There was no evidence that the repair facility was registered with the Department of Revenue or how long the boat remained in Florida waters. The yacht also returned to Florida for repairs on May 21, 2001. Again there was no evidence that the repair facility was registered or how long the boat remained in Florida waters. The evidence did not establish that the tax exemption related to use of Florida waters for 20 days or repairing a boat in Florida apply. Since the purchase date, the Petitioner has leased mooring space in Florida. The Petitioner’s insurance policy also indicates that the yacht was moored in Florida and includes a Florida endorsement for such mooring. Additionally, the Petitioner reported to Connecticut’s Department of Revenue that the yacht was exempt from Connecticut sales tax because the yacht was purchased and berthed in the State of Florida. Based on copies of the bill of sale, closing statement, banking statements, credit card statements, mortgage documents, insurance agreements, mooring agreements, repair and parts receipts and a chronological listing of the yacht’s whereabouts since the date of purchase, the yacht has operated, and continues to operate, in Florida waters. Indeed, the yacht remained in Florida for more than 183 days from July 1, 2002 through December 31, 2002. Moreover, since September 11, 2002, the yacht has been moored or stored in Florida the majority of the time because the main users of the yacht lost interest in sailing the yacht and travel after the terrorist attack on the twin towers in New York City. The Department found that the Petitioner was liable for use tax on its use and storage of the yacht here in Florida. On May 5, 2004, the Department issued an enforcement billing to the Petitioner for use tax, penalty and interest, pursuant to Sections 212.05(1)(a)2 and 212.06(8), Florida Statutes. The Department assessed the Petitioner use tax and interest based on the sales price of the yacht. The Department also assessed the Petitioner a mandatory penalty equal to the tax because it returned the yacht to Florida within six months of the departure date. The Petitioner admitted that, through ignorance of Florida’s tax exemption law, he violated Chapter 212, but argues that the assessment of tax, interest and mandatory penalty is excessive. On May 24, 2004, the Department issued the Petitioner a Notice of Final Assessment for Sales and Use Tax, Penalty and Interest Due. The Notice set forth the basis for the assessment of tax, in the sum of $43,500, penalty, in the sum of $43,500, and interest, in the sum of $14,759.84, plus additional interest that accrues at the rate of $10.73 per day. The Department issued the Petitioner the Final Assessment because it returned the yacht to Florida within six months of the departure date and the yacht remained in Florida for more than 183 days in a calendar year. Since the Petitioner returned the yacht to Florida within 6 months of the purchase date and allowed the yacht to remain in Florida for more than 183 days in a calendar year, the Petitioner is liable for use tax, penalty and interest in the use and storage of the yacht in Florida.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Revenue enter a final order upholding the assessment of use tax, penalty and interest against the Petitioner. DONE AND ENTERED this 31st day of January, 2005, in Tallahassee, Leon County, Florida. S DIANE CLEAVINGER 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 31st day of January, 2005. COPIES FURNISHED: Paul Bakker Iseaseal, LLC 695 East Main Street Stamford, Connecticut 06901 Carrol Y. Cherry, Esquire Assistant Attorney General Office of the Attorney General Revenue Litigation Section Plaza Level 01, The Capitol Tallahassee, Florida 32399-1050 Bruce Hoffman, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
