Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that petitioners' request for a refund of corporate income taxes for the year ending January 31, 1975, be DENIED. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 14th day of January, 1981. DIANE D. TREMOR 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 14th day of January, 1981.
Findings Of Fact The Surf Club, Inc. is a corporation which in the taxable year commencing on or after January 1, 1972, earned a received income in the State of Florida and was a resident or citizen of this state. In December, 1972, The Surf Club filed an exempt organization business income tax return with the Department of Treasury, Internal Revenue Service, using Form 990-T. The taxpayer also filed a Florida Corporate Tax Return showing a tax due of $447.00. See Exhibit 1. Subsequently, the taxpayer filed an amended tax return for the year ending September 30, 1972, with the Department of Treasury, Internal Revenue Service, using Form 1120. Schedule D of Form 1120 reports a long-term capital gain in the amount of $54,601.00. Form 4797, page two, indicates that this capital gain was realized from the sale of an apartment building and land for a gross sales price of $1,496,184.00. The adjusted basis was $741,583.00 and the total gain was $754,601.00. The taxpayer filed an Amended Florida Corporation Income Tax Return, Form 1120X. Part II of this amended return reported the $754,601.00 sale of the real property. Attached to the federal tax return was an addendum showing the change of status of Surf Club from a social club exempt under the provisions of Section 501(c)(7) to a nonexempt organization. See Exhibit 2. The Department of Revenue controverted the amended return on the basis that the $754,601.00 in capital gains was deducted from taxable income by the taxpayer because the taxpayer had eliminated the value of the property accruing prior to the imposition of the Florida corporate income tax. Because the date of the sale closely approximated the date or the imposition of the tax, the taxpayer had deducted the total amount of the income derived from the sale. The tax due is $10,203.00. Exhibit 3. Introduced as Exhibit 4 was a revocation agreement whereby the exempt status of The Surf Club was revoked for all years beginning on or after October 1, 1970. The Surf Club did not have exempt status or assert exempt status as of the date that it filed its amended federal tax return for the year ending September 30, 1972.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, the Hearing Officer recommends that the corporate income tax in the amount of $10,203.00 be assessed against Surf Club. DONE and ORDERED this 25th day of October, 1978, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Patricia Turner, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Dan Paul, Esquire 1300 Southeast First National Bank Building Miami, Florida 33131
The Issue Whether the Petitioners are responsible for a use tax on the purchase of tangible personal property as assessed by the Respondent and, if so, in what amount.
Findings Of Fact The Department of Revenue is the state agency charged with the responsibility of collecting use tax in accordance with Florida law. At all times material to the allegations of this case, Petitioners were residents of Miami, Florida. In August, 1992, Hurricane Andrew struck the Miami area and destroyed most, if not all, of Petitioners' household furnishings. The Petitioners were devastated by their personal losses. Financially the Petitioners did not recover enough from the losses to replace all that had been damaged or destroyed by the storm. When it came time to refurnish their home, Petitioners traveled to North Carolina and selected new household furnishings which were paid for by them and imported into the State of Florida at their direction. These household furnishings are considered tangible personal property under the applicable Florida laws. The trucking companies which transported Petitioners' new furnishings were required to stop at Department of Agriculture and Consumer Services weigh stations, and copies of the bills of lading for Petitioners' personal property were produced and copied. The Department of Revenue utilized such bills of lading to calculate the use tax owed and due on the Petitioners' personal property. The Department of Revenue does not instruct the employees of the Department of Agriculture to stop particular kinds of trucks for inspection, but rather trains the Agriculutre employees to look for certain kinds of commodities, in order to identify all commodities that may be subject to sales and use tax. The Department of Agriculture employees are instructed by the Department of Revenue to forward to the Department of Revenue the bills of lading from those shipments containing consumer commodities that are for use or consumption and are subject to tax, and they are instructed not to forward bills of lading for items which are exempt from tax or which are intended for resale. The purpose of this program is to assist the Department of Revenue in its enforcement of the sales and use tax. A purchaser of goods from out-of-state is required to voluntarily comply with the statutes imposing the use tax. The Department of Revenue calculated the amounts due from Petitioners for the use tax associated with their personal property imported into Florida and reduced such amounts to a final assessment. This assessment was issued by the Department on or about July 25, 1996. Petitioners have not disputed the accuracy of the assessment nor the fact that they imported the personal property described in the bills of lading used to calculate the assessment. Petitioners maintain that they should not be required to remit the tax set forth in the assessment as they were the victims of Hurricane Andrew and, but for their losses from that storm, would not have incurred the expense of new furnishings. The final assessment identified the following sums owed by Petitioners: tax in the amount of $1,020.84; penalty in the amount of $510.42; and interest through July 25, 1996, in the amount of $137.87. Petitioners did not establish that they had paid sales tax in North Carolina for the personal property shipped to Florida. Petitioners did not establish that they paid the use tax in Florida for the personal property described in the bills of lading used to calculate the tax assessed. Petitioners did not purchase the personal property through a charitable organization such as the Red Cross which was afforded tax exemption after Hurricane Andrew to purchase furnishings for the storm's victims. Petitioners did not establish that they are financially unable to pay 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 affirming the assessment in this cause. DONE AND ENTERED this 5th day of August, 1997, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 5th day of August, 1997. COPIES FURNISHED: Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Elizabeth T. Bradshaw Assistant Attorney General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Alphonso Thurman Betty Thurman 13603 Southwest 102 Court Miami, Florida 33176
Findings Of Fact On January 31, 1984, the subject vessel, a 1969 sixty-five foot Hargrave Halmatic motor yacht, was purchased by Nelson Gross as President and principal of the corporation, Binghamton Too, Inc., for $457,500 in Houston Texas. It was financed through a Connecticut bank. The closing was held in Mr. Gross' New Jersey office. No sales or use tax has been paid on the yacht in Florida or in any other state. Mr. Gross' initial intent was to operate his new purchase as a commercial charter boat in conjunction with the "Binghamton," a ferryboat permanently moored and operating in Edgewater, New Jersey, as a floating restaurant. To get the new motor yacht there, Mr. Gross directed that it be brought to New Jersey around the Florida coast under its own power. The motor yacht reached Florida on February 17, 1984, but en route from Texas an unexpected vibration had arisen which required emergency repairs. These repairs were commissioned at Bradford Marine, Ft. Lauderdale, Florida, where the motor yacht remained, except for sea trials in connection with the vibration problem, until the first week in April, 1984. A cracked strut was diagnosed as the cause of the vibration problem. Repair costs of this emergency problem totalled $5,975. The balance of charges incurred at Bradford Marine, Ft. Lauderdale, was $21,729, including dockage. Many more of the repairs catalogued by Respondent's Exhibit 5, the Bradford Marine records for this period, were clearly voluntary, discretionary, and cosmetic in nature. The majority were of a non-emergency nature. The vessel, by then relettered "Binghamton Too," left Florida waters approximately April 20, 1984. "Binghamton Too" next spent approximately three weeks at Thunderbolt Marine Industries in Georgia at an approximate cost of $12,000. There, a strap was fabricated to hold the strut and the yacht proceeded on to New Jersey. The "Binghamton Too" began its charter business as part of the "Binghamton" operation in Edgewater, New Jersey on May 5, 1984. Seventy-five to eighty charters were accomplished between May, 1984 and October, 1984 under New Jersey state and local chartering, transit liquor, and environmental licenses and under U.S. Corps of Engineers permits. "Binghamton Too" returned to Florida waters sometime on or before October 25, 1984, when it was sighted at the Indian River Causeway Bridge. On October 26, 1984, it was sighted at Flagler Bridge in West Palm Beach. Thereafter, it went on to the Lantana Boat Works Marina, Lantana, Florida, for repairs. Lantana is the location of the yacht's original builder, whose equipment and expertise were preferable to that of other boatyards for certain strut repairs due to the peculiar nature of this type of yacht. After those repairs, the yacht was anchored in Palm Beach from January 1985 to April 1985. Although Mr. Gross testified that the strut repairs of necessity had to be done in the Lantana boatyard, his view is not necessarily conclusive of this issue because he admitted "Binghamton Too" was the first yacht he had ever purchased, because he was vague about equating desirability and necessity without any supporting direct expert testimony, and because of the facts found infra. The Lantana repair records from October 29 to December 31, 1984 show $42,521.82 in repairs, of which only $2,500 pertain to fabrication of a strut. Again, the majority of repairs was to refurbish and paint the vessel. Mr. Gross spent approximately October 1984 to April 1985, October 1985 to April 1986, and October 1986 to April 1987 in his father's home in West Palm Beach, Florida. By his own testimony, he confirmed that he established the "technical" office for his "Binghamton Too" business there. He applied, in early December 1984, for a Florida sales tax registration to operate a charter business, representing Palm Beach as his place of business. The account was established January 1, 1985 with the account number of 60-22-080051-61. The captain and mate of the "Binghamton Too" also wintered in Florida each of these years. On December 6, 1984, Mr. Gross wrote the State of New Jersey's Division of Taxation that the yacht's "principal location and headquarters are in West Palm Beach, Florida where it maintains an office and full-time employees," thus successfully arguing that the "Binghamton Too" should be exempt from New Jersey's registration requirements for any vessel residing in that state in excess of 180 days. This correspondence was in connection with a tax problem of the mother ship "Binghamton," still moored in New Jersey. Mr. Gross further represented that Florida was "Binghamton Too's" primary location with trips to the Bahamas." For most of the period from late December, 1984 to early April, 1985, the yacht was in Palm Harbor Marina, West Palm Beach, Florida, the first time not in repairs, and clearly could have returned to New Jersey under its own power had Mr. Gross chosen to do so. From January 24 to March 26, 1985, the boat was in operation, as sighted at the Pompano Beach and Fort Lauderdale bridges. From April 1985 until October of 1985, the yacht was operated as part of Petitioner's commercial charter operation in New Jersey, which included over 100 charters during this time period. Nonetheless, on June 10, 1985, Mr. Gross purchased a boat slip at Ocean Reef Club in Key Largo, Florida. This slip was later sold. Upon the foregoing Findings of Fact 6-12, which clearly establish a pattern of wintering the yacht in Florida waters, it is inferred that, despite Mr. Gross' testimony that it was "necessary" to have "Binghamton Too's" strut repaired in late 1984 by the original Florida manufacturer of the yacht, its presence in Florida from October 1984 until April, 1985 was primarily and substantially due to the preference of Mr. Gross, Petitioner's President, and not due to necessity or emergency. In October of 1985, the yacht returned to Florida where it remained until April of 1986. During this time, the boat underwent further repairs, including the complete repainting of the hull, the need for which Mr. Gross attributed to the old paint being cracked and shaken off by the vibration of the yacht. From April 1986 until October of 1986, the yacht was operated as part of Petitioner's commercial charter operation in New Jersey, which included over 100 charters during this time period. The yacht returned to Florida in October, 1986, and again remained in Florida until early April, 1987, when it left for New Jersey. In late October 1987, the yacht returned to Florida where it was traded in as part of the consideration for a larger yacht in November of 1987. The closing date was December 30, 1987. The cash equivalent received by Petitioner as credit on the trade-in was $100,000. In all, Petitioner asserts that over $200,000 was spent by the corporation on the "Binghamton Too" before it was traded. Shortly after buying the "Binghamton Too", Petitioner had begun trying to sell it for the highest price obtainable. These sales efforts included large ads in national yachting publications and listings with active yacht brokers. The highest outright offer received by Petitioner was $75,000. However, this was Mr. Gross' first sales effort of this kind, and his opinion testimony that the "Binghamton Too" was not bought from the Petitioner outright and at a good price because of latent defects and cost of repair is neither credible nor persuasive since his opinion does not possess the reliability of an expert in assessing whether it was the condition of the yacht, its unusual "Halmatic" type, or some other factor which made the "Binghamton Too" undesirable to potential purchasers. The Florida Department of Revenue issued a Notice of Delinquent Tax January 30, 1987, of five-percent use tax upon the purchase price plus 25 percent penalty. Interest was figured at 12 percent per annum. Petitioner timely protested. The agency conceded that the purchase price on the original notice was mistakenly listed at $475,000, that the assessment appropriately should have been on $457,500 (see Finding of Fact No. 1) and that the State presently claims only the tax amount of 5% of Petitioner's initial $457,500 purchase price at $22,875, the 25 percent penalty at $5,719, and interest on the tax from February 18, 1984, to June 18, 1989 at $14,650. (Interest accrues at $7.52 daily.) The total assessment through June 18, 1989 is $43,234.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a Final Order affirming the assessment of $22,875, with 25% penalty and interest at $7.52 per day from February 18, 1984 until paid. DONE and RECOMMENDED this 11th day of August, 1989, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of August, 1989. APPENDIX TO RECOMMENDED ORDER Upon consideration of Section 120.59(2) Florida Statutes the following rulings are made upon the parties' respective proposed findings of fact (PFOF). Petitioner's PFOF: 1, 2,3, 5, 10, 11, 13, 14, 15, 17, 18, 19, 21, 22: Accepted except to the degree not proven. 4: Rejected as stated because not supported by the greater weight of the evidence as a whole. 6, 12: Rejected in part as not proven, in part as subordinate and unnecessary, and in part as to the conclusion-if law as "latent." 7, 8, 9: Accepted except as subordinate and unnecessary to the facts as found. 16: Accepted that Mr. Gross testified to this amount, however, the evidence does not support the amount precisely nor that it all went to "repairs." 20: Accepted as modified to better express the record as a whole. Respondent's PFOF: 1: Accepted, but as a Conclusion of Law. 2, 3, 4, 9, 10, 12, 13, 14, 15, 16, 17, 19, 20, 21, 22, 23: Accepted. 5: Accepted in substance; what is not adopted is either mere recitation/characterization of testimony, is cumulative, or is subordinate to the facts as found. 6: Accepted but subordinate and unnecessary to the facts as found. 7: Sentence 1 is accepted. The remainder is rejected as mere legal argument or subordinate to the facts as found. 8, 11: Accepted as modified to conform to the record as a whole. Mr. Gross testified to a May 5, 1984 date for No. 8. 18: Except for mere legal argument, accepted. 24: Accepted upon the terms set forth in the Recommended Order. 25: Except as subordinate and unnecessary, accepted. COPIES FURNISHED: Gene D. Brown, Esquire 3836 Killearn Court Tallahassee, Florida 32308 Linda G. Miklowitz, Esquire Department of Legal Affairs Tax Section, The Capitol Tallahassee, Florida 32399-1050 William D. Moore, General Counsel Department of Revenue 203 Carlton Building Tallahassee, Florida 32399-0100 Katie D. Tucker Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100
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 Based upon the record evidence adduced as well as the factual stipulation filed by the parties, the following facts are found. The Petitioner, International Cruise Shops (ICS), is a subsidiary company of the Greyhound Corporation. ICS, as pertinent hereto, operates gift shops, bars, beauty salons and exercise rooms and like "passenger amenity" type facilities ("shops") on board cruise ships operating out of the Port of Miami. The particular cruise ships of concern in this case are owned by Norwegian Caribbean Lines (NCL). The parties have stipulated that the vessels owned by NCL, to which this proceeding relates, operate exclusively in foreign commerce and that none of their operating mileage involved herein is in intrastate commerce. Because of this, ICS maintains that the transactions or purchases which are the subject of this proceeding are exempt from taxation under Section 212.08(8), Florida Statutes. The parties have stipulated that the sales tax at issue was not collected by the vendors involved and was not paid on the Items in question. The parties have also stipulated that all of the items in question, purchased in port, were used or consumed on board the NCL vessels involved and that the vessels were operating at the time in foreign commerce. It is also stipulated that ICS recognized at the time of the purchases that they were exempt ones and provided the vendors involved with its export exemption registration number. ICS takes the position that it is exempt from sales and use tax as to these items because the items purchased are "parts of a vessel" within the meaning of the exemption statute set forth at Section 212.08(8), Florida Statutes. It is also stipulated that during the relevant audit period ICS did not furnish the vendors involved in these purchases with the "partial exemption affidavit" described in Section 212.08(8)(b), Florida Statutes, the "partial exemption" statute. The Department in turn argues that ICS is not entitled to the exemption because it is not an "owner, operator or agent of a vessel." ICS maintains, contrarily, that its status as owner, operator or agent of a vessel is not determinative of its entitlement to the exemption, but rather the nature of the goods involved and their use is what is determinative. Be that as it may, the Petitioner maintains that it qualifies as an operator or agent of the vessels involved anyway. The Department also contends that even if ICS is an owner, operator, or agent, it failed to sign the affidavit mentioned above, stating that "the item or items to be partially exempted are [parts of a vessel] and setting forth the extent of such partial exemption." (emphasis supplied) See Section 212.08(8)(b), Florida Statutes. The Department originally served the Petitioner a Notice of Intent (to make sales and use tax audit changes) and a Notice of Proposed Assessment of tax, penalty and interest for the audit period from January 1, 1980, through December 31, 1982. The Department also issued a Notice of Intent to make sales and use tax audit changes, as well as a Notice of Proposed Assessment of Tax Penalty and Interest for the supplemental audit period of January 1, 1983, through April 30, 1983. Additionally, it is stipulated that the documents attached to the stipulation, as exhibits C and D respectively, are true and correct copies of an original shop agreement and bar agreement made and entered into as of January 1, 1980, between NCL and ICS. The parties have stipulated that those two documents represent the contractual agreements between NCL and ICS during the relevant audit periods at issue in this proceeding, and fairly reflect the relationship of the parties, although they do not agree that the language in the agreements to the effect that "ICS shall not be considered the agent" of NCL means that ICS is not the agent of NCL for any purpose at all. Those two agreements, as well as the unrefuted evidence of record, reveal that the services of bar operator and concessionaire, gift shop operator, as well as beauty shops and sauna operator, duty-free shop operator, and operations involving the purchasing for and operating of a shipboard duty-free and non-duty free shop for passengers and crew, are regular facets of cruise ship operations. It is the peculiar purpose of cruise ships to transport passengers, but provide all sorts of amenities and shopping services for passengers and crew of the type mentioned above and elsewhere in these agreements. There is no question that the duties ICS personnel were performing aboard NCL ships are integral functions of the operation of a cruise ship, as that relates to the exempt status claimed herein by ICS. The parties have additionally stipulated that exhibit F, attached to the stipulation, in evidence, is a random list of some of the supplies purchased by ICS during the audit period in question, far which no sales tax were paid. This listing is stipulated to be a representative sampling of the kinds of items for which the Department assessed tax under Schedule B of the assessment at issue. Exhibit G is a true and correct copy of a petition for reassessment of sales and use tax by ICS dated December 21, 1983. On February 9, 1984, ICS representatives attended a conference with the Department's disposition section personnel in Tallahassee. A Notice of Decision was entered September 30, 1985, by the tax conferee of the Department in response to the December 21, 1983 petition by ICS and as a result of that February 9, 1984 informal conference with the Department. A Petition for Reconsideration was filed by ICS dated October 28, 1985, concerning that notice of decision. On November 20, 1985, ICS representatives attended another informal conference with the Department's disposition section of its Office of General Counsel in Tallahassee. A supplemental petition was then filed by ICS dated February 12, 1986. Thereafter, a Notice of Reconsideration dated July 28, 1986, was executed by the tax conferee, Mark A. Zych, in response to the November 20, 1985 petition and informal conference. Thereafter, ICS filed the petition initiating this proceeding on September 19, 1986. The parties have additionally stipulated to, and the evidence of record reveals, that the items involved in this case were purchased by ICS from vendors for use in its shops and bars in the regular course of operation and business aboard the cruise ships. Those items at issue were stipulated to be used or consumed by ICS on Board NCL'S vessels. The shop and bar employees of ICS were paid on NCL's payroll and ICS would then reimburse NCL. Additionally, NCL negotiated a labor contract which covered the shop and bar employees of ICS, as well as its own employees. While they were on duty on board ship, the ICS personnel wore name tags indicating that they were NCL crew members, bearing the NCL logo. ICS personnel also participated in all safety drills and lifeboat drills like any other crew members. Each had specific stations and passenger safety duties assigned them, including lifeboat stations, just as any NCL employee crew members. ICS personnels' living quarters were in the same location as NCL employees' living quarters and ICS personnel were subject to the same duties, obligations and restrictions as NCL employees while on board the NCL ships, including restricted access to passenger areas and restrictions on mingling with passengers. The shop agreement (exhibit C to the stipulation in evidence) reveals that ICS performance of its shop, bar and other operations on board the cruise vessels was subject to the control of NCL. Numerous references in the shop agreement establish that NCL had pervasive control over ICS employees' performance of their duties on board NCL's cruise ships, as set forth at length in Appendix A, attached hereto and incorporated by reference in these findings of fact. One particularly revealing provision of the agreement is worth quoting. Section 16 of the Agreement requires ICS to designate a specific employee to act as supervisor of ICS employees on board the ships. This supervisor must agree to take orders from the master and ship's officers: ... and such qualified NCL personnel as shall be designated by the masters at all times and shall be under the control and direction and report directly to whomever the masters designate on board the vessels. ICS' supervisory personnel are to give prompt obedience to the instructions and orders of the NCL designee in regard to the operation of the shop concession. (emphasis supplied) The bar agreement, in evidence as exhibit D to the stipulation, contains a virtually identical provision. That bar agreement, for purposes of this proceeding, is essentially equivalent to the shop agreement. Additionally, the policy and procedures manual, in evidence as exhibit to the Stipulation, depicts numerous provisions which establish that, for all practical purposes, except for the reimbursement of NCL by ICS for salary for its employees, that ICS employees were considered as a part of the regular crew of the NCL cruise ships and subject to the direction and control of the ships' officers the same as any other crew member. This extended even to direction and control concerning how displays in the shops were set up, and how the shops and bars, were operated. In summary, that policy and procedures manual further demonstrates the pervasive control of NCL over the ICS employees and operations aboard the cruise ships, even to the extent of regulating vacation of ICS employees when they were ashore between cruises, etc. The testimony of ICS witnesses at the hearing confirms the existence of NCL's authority over ICS and its employees and demonstrates clearly that NCL fully exercised that right of control in the normal day to day operations of its cruise vessels. Sonia Jensen, district manager for ICS, has worked for ICS continuously since 1975. She established that NCL personnel supervise, direct and control ICS employees as to safety procedures, lifeboat drills and lifeboat station assignments, and as to all rules and regulations applying to crew members and their behavior. ICS employees on the ships are considered crew members. The testimony of Linda Loddo, district manager for ICS since 1973, corroborated that of Ms. Jensen in establishing that the authority of the NCL ships' officers extends to ICS employees as crew members, whether they are actually aboard ship or on land. Additionally, Ms. Jensen established that, based upon her considerable experience working in the cruise ship industry, that the shops and bars operated by ICS aboard the NCL cruise ships are an integral functioning part of, and appropriate to the operation of, a cruise vessel and a cruise line, in the normal course of its business and operations. Thus, ICS contends that it fits within the Department's interpretation of the relevant exemption statute, Section 212.08(8), Florida Statutes, because ICS is clearly both an "agent" of NCL and an "operator" of cruise ships. Its operations aboard the cruise ships are an integral and necessary function and part of the cruise ships operations in providing for the comfort and recreation of the passengers. ICS contends however, that the exemption, and entitlement to it, is determined by the nature of the items purchased, as that relates to what are considered "parts of vessels" for purposes of the exemption provision and that the exemption is not directly applicable to a particular class of people. The Petitioner argues that the sentence containing the phrase "owner, operator or agent" merely creates a presumption with regard to which items will constitute "parts of a vessel," but that the scope of the exemption, is not limited to purchases by only those three classes of persons.
Recommendation Having considered the foregoing findings of fact, stipulations and unrefuted evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore RECOMMENDED that the State of Florida, Department of Revenue enter a final order withdrawing and abating the assessment of sales and use taxes, interest and penalties against International Cruise Shops, Inc., in the particulars, and for the reasons, found and discussed above. It is further, Recommended, that the penalty sought to be imposed against International Cruise Shops by the Respondent, concerning the "bar sales assessment," be abated for the reasons delineated above. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 8th day of December, 1988. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of December, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-3769 Petitioner's proposed findings of fact Accepted. Accepted. Accepted. Accepted. Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter. Rejected, as subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted, but subordinate to the Hearing Officer's findings of fact on the subject matter. Rejected as constituting, in large part, a conclusion of law and not a proposed finding of fact and as subordinate to the Hearing Officer's findings of fact on this subject matter. Rejected as subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted. Accepted, but subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted. Accepted. Accepted. Respondent's proposed findings of fact The Respondent incorporates by reference the factual stipulation as its proposed findings of fact. Those findings of fact stipulated to have been accepted, of course, by the Hearing Officer, although not necessarily for the material import Respondent asserts they should be accorded through it's proposed recommended order. COPIES FURNISHED: Robert W. Hanula, Esquire The Greyhound Tower, Station 1701 Phoenix, Arizona 85077 Linda G. Miklowitz, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32399-1050 Katie D. Tucker, Esquire Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100 William D. Townsend, Esquire Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact This cause comes on for consideration based upon the Petitioner's challenge to the Notice of Proposed Assessment of Tax, Penalties and Interest under Chapter 212, Florida Statutes, that was filed by the Respondent March 13, 1978. A copy of the Notice of Proposed Assessment together with the attendant work papers may be found as the Respondent's composite Exhibit #3, admitted into evidence. (By stipulation of the parties, in view of certain evidence presented by the Petitioner in the course of the hearing a First Revised Notice of Proposed Assessment of Tax, Penalties and Interest under Chapter 212. Florida Statutes, has been filed and it is this First Revised Notice of Proposed Assessment of Tax, Penalties and Interest which is in dispute between the parties. A copy of the First Revised Notice of Proposed Assessment of Tax, Penalties and Interest, dated October 17, 1978 may be found as Hearing Officer's composite Exhibit #1, admitted Info evidence. That composite exhibit contains the First Revised Notice of Proposed Assessment, together with the applicable work sheets and Petitioner's Exhibits #1 through 3, admitted into evidence in the course of the hearing. These Petitioner's exhibits are those referred to as constituting the basis of the stipulation previously mentioned.) The Petitioner is registered with the State of Florida, Department of Revenue as a wholesale business, for purposes of Florida taxes. A copy of the certificate which shows this regis- tration may be found as Respondent's Exhibit #1 admitted into evidence. The Respondent, State of Florida, Department of Revenue is an agency of the State of Florida that audits business record, to include the Petitioner's records. Specifically, in this instance, an audit was conducted in accordance with Chapter 21, Florida Statutes, to ascertain whether or not the Petitioner was responsible for the payment of sales and use tax under the authority of Chapter 212, Florida Statutes. The tax examiner assigned to conduct the audit was carrying out that function as a follow-up to an audit performed on a business known as Quail Ridge located in Delray Beach, Florida. The audit of Quail Ridge led the Respondent to believe that the Petitioner had made certain retail sales to Quail Ridge without collecting sales tax. If this were true, then the Petitioner would become responsible for the payment of those sales taxes under the provision of Section 212.07(2), Florida Statutes. There ensued an audit of the Petitioner's books and records, which were constituted of certain bank statements and a ledger book together with invoices and signed resale certificates that were made available. In the course of this audit process, the Petitioner was allowed a period of two months within which time to collect certain invoices and signed resale certificates. The significance of the invoices and resale certificates was, assuming the sales had been made for purposes of resale; thereby constituting a wholesale transaction, no sales tax would be due because the collection of that sales tax would become the responsibility of the purchaser who had obtained the item from the Petitioner in a wholesale transaction. That purchaser would become the "dealer", within the meaning of Chapter 212, Florida Statutes, and therefore would be responsible for the collection of the sales tax upon a further sale to a third party in a retail transaction. After the Petitioner had been given time to establish those wholesale transactions in his flower business and given credit for certain months in which no business income was gained, the calculations were made by the tax examiner of the Respondent and the March 13, 1978, Notice of Proposed Assessment of Tax, Penalties and Interest under Chapter 212, Florida Statutes, was issued. This Notice of Proposed Assessment taxed the Petitioner for all business transactions arising from the sale of flowers which could not be established as exempt sales in the capacity of a wholesaler. (This requirement for the establishment of an exemption by the proof of the petitioner is found in Chapter 212, Florida Statute and in accordance with Rule 12A-1.38, Florida Administrative Code.) After the Notice of Proposed Assessment of March 13, 1978, had been served on the Petitioner, an informal conference was held between the tax examiner and the petitioner. This conference was held on April 26, 1978, and at that time the Petitioner offered to introduce further invoices and resale certificates. Brandjes claimed that these invoices and resale certificates established further exemptions. The invoices and resale certificates were not accepted at that time because the tax examiner felt that the case was to be submitted for formal hearing and he was not of the opinion that he could make further adjustments to the proposed assessment at that juncture. The same invoices and resale certificates which were of fered at the April 26, 1978 conference were produced in the course of the hearing before the undersigned. After such production, the Exhibits, 1 through 3, were submitted to the Respondent's tax examiner for review to establish possible further reduction of the proposed assessment, through the process of showing other exempt sales, or wholesale transaction. That review led to the First Revised Notice of Proposed Assessment of October 17, 1978, which reduces the amount of tax, penalties and interest claimed by the Respondent. The amount claimed, effective October 17, 1978, was $3,129.77. This included tax, penalties and interest computed to that date. The audit period is November 1, 1974 through October, 1978. The Petitioner in this cause has pled ignorance to the requirements of law in the question of collecting sales and use taxes under Chapter 212, Florida Statutes, and the necessity to establish exempt sales which were made as wholesale transactions. He makes his contention premised upon the belief that his registration as an inactive business relieved him of the necessity to collect the taxes and to establish an exemption from tax. Notwithstanding this belief on the part of the Petitioner, it is clear that Chapter 212, Florida Statutes through its provisions places an obligation on the Petitioner to collect sales and use taxes for a retail transaction and the failure to meet that obligation places the responsibility for that payment of sales and use taxes on business transactions entered into by the Petitioner, with the Petitioner. This carries with it the potentiality of the assessment of penalties and interest for the failure to collect and remit those taxes under Chapter 212, Florida Statutes. The only possibility to escape the payment of the sales and use taxes under Chapter 212, Florida Statutes exists with the ability of the Petitioner to establish that the sales were sales at wholesale and not taxable under Chapter 212, Florida Statutes. To the extent that the Petitioner has established the exemptions in keeping with Chapter 212, Florida Statutes and Rule 12A-1.38, Florida Administrative Code, the Petitioner has been given credit for those exemptions. The balance of the sales transactions in the audit period November 1, 1974 through October 1978, as reflected in the First Revised Notice of Proposed Assessment of Tax, Penalties and Interest, under Chapter 212, Florida Statutes, becomes the responsibility of the Petitioner for his failure to collect the taxes for the sales. Therefore, the Petitioner is responsible for the payment of tax, penalties and interest through October 17, 1978 in an aggregate amount of $3,129.77.
Recommendation It is recommended that the Petitioner, Jack Brandjes, d/b/a Jack's Flowers be required to pay the tax, penalties, add interest under Chapter 212, Florida Statutes in the amount of $3,129.77 as set forth in the October 17, 1978 First Revised Notice of Proposed Assessment of Tax, Penalties and Interest. DONE AND ENTERED this 31st day of October, 1978. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32399-1550 (904) 488-9675 COPIES FURNISHED: Jack Brandjes c/o Jack's Flowers Ixora Market 4700 Canal 14 Road Lake Worth, Florida 33463 Cecil Davis, Esquire State of Florida Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Attorney, Division of Administration Department of Revenue Tallahassee, Florida 32304
Findings Of Fact Having considered the pleadings, evidence and legal arguments presented in this cause, the following facts are found: Petitioner is a corporation duly organized under the laws of the State of New Jersey and qualified to do business is one State of Florida. Two of the subsidiaries of Petitioner are Island Properties, Inc., formerly known as Heftler International, Inc., and Island Land Corporation, formerly known as Heftler Construction Company of Puerto Rico, Inc. These corporations are organized under the laws of the State of Florida and the State of New Jersey respectively and maintain principal places of business in Puerto Rico. For the fiscal years ending July 31, 1972 and July 31, 1973, petitioners properly included losses from the operations of the Puerto Rico corporations in their consolidated income tax returns filed with the Internal Revenue Service. For the fiscal years ending July 31, 1972, and July 31, 1973, petitioners timely filed with the respondent consolidated income tax returns including therein the operations of the Puerto Rico corporations. After a timely audit, the respondent excluded, for the purposes of computing adjusted federal income as defined by 220.13, the losses sustained by the Puerto Rico corporations. The respondent also excluded from the computation of the apportionment factors defined in F.S. s. 214.71 and 220.15 the value of the property, payroll and sales utilized in the operations of the Puerto Rico corporations. The respondent cited F.S. ss. 220.13(1)(b)2.b, 220.15(3) and 214.71 as its authority. The adjustments made by the respondent results in a net proposed deficiency of $75,076.46 for the two fiscal years in question. After attempts by the parties to resolve the issues by informal means failed, the petitioner requested a formal hearing and the respondent requested the Division of Administrative Hearings to conduct the hearing.
Recommendation Based upon the above findings of fact and conclusions of law, it is recommended that there is no basis for affording petitioners any relief from the proposed deficiency and that said deficiency in the amount of $75,076.46 be sustained. Respectfully submitted and entered this 20th day of November, 1975, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Lewis M. Kanner, Esquire WILLIAMS, SALOMON, KANNER DAMIAN 1003 du Pont Building Miami, Florida 33131 E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 Mr. J. Ed Straughn Executive Director Department of Revenue Tallahassee, Florida 32304
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.
