The Issue The issue in this proceeding is whether the Florida Corporate Income Tax Code subjects to taxation items realized for federal income tax purposes prior to the effective date of the Code but recognized for federal purposes after the effective date of the Florida Code.
Findings Of Fact In a joint stipulation filed with the Hearing Officer, the parties stipulated to the relevant facts of this proceeding. Findings (1) through (6) listed below are quoted directly from that stipulation of facts. In 1965 MORRIS TRADING CORPORATION (whose name at that time was Morris Grain Corporation) exchanged certain property used in its trade or business with Continental Grain Company for six thousand seven hundred twenty three (6,723) acres of real estate located in Florida a description of which is attached hereto and made a part hereof as Exhibit 1 containing a layout of the ranch acreage acquired by MORRIS TRADING CORPORATION from Continental Grain Company, including the nine hundred fifty eight (958) acre parcel sold in the fiscal year ending in 1968, the one thousand (1,000) acre parcel sold in the fiscal year ending in 1969, and the remaining acreage sold in the fiscal year ending in 1973, as well as a small parcel of property retained by the Corporation. Although MORRIS TRADING CORPORATION realized income for federal tax purposes in 1965 when it exchanged a grain elevator and other property for real estate described on Exhibit 1, the Corporation did not recognize any income for federal tax purposes in 1965 pursuant to Section 1031 of the Internal Revenue Code of 1954 as amended. The real estate acquired in exchange for the property traded by MORRIS TRADING CORPORATION had a fair market value in 1965 of ONE MILLION SIX HUNDRED THIRTEEN THOUSAND FIVE HUNDRED TWENTY AND NO/100 DOLLARS ($1,613,520.00), or TWO HUNDRED FORTY AND NO/100 DOLLARS ($240.00) per acre. The tax cost basis of the property given up by MORRIS TRADING CORPORATION in the exchange was TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED THIRTY TWO AND SIXTY SIX/100 DOLLARS ($267,832.66). MORRIS TRADING CORPORATION paid TWENTY THOUSAND FOUR HUNDRED FIFTY THREE AND FIFTY FIVE/100 DOLLARS ($20,453.55) in cash for the purchase of mineral rights to the four thousand six hundred five (4,605) acres sold during the fiscal year ending in 1973 and there were ONE HUNDRED SIXTY TWO THOUSAND FIVE HUNDRED TWENTY TWO AND FIFTY FIVE/100 DOLLARS ($162,522.55) of costs connected with the sale of the property consisting of commissions of ONE HUNDRED THIRTY THREE THREE HUNDRED AND NO/100 DOLLARS ($133,300.00), attorneys fees of EIGHTEEN THOUSAND AND NO/100 DOLLARS ($18,000.00), and documentary" stamps and miscellaneous expenses of ELEVEN THOU- SAND TWO HUNDRED TWENTY TWO AND FIFTY FIVE/100 DOLLARS ($11,222.55). MORRIS TRADING CORPORATION sold four thousand six hundred five (4,605) acres-of the property acquired in the exchange in 1965 during its fiscal year ending May 31, 1973, for a gross sales price of TWO MILLION NINE HUNDRED SIXTY ONE THOUSAND EIGHT HUNDRED SEVEN AND NINETY SIX/100 DOLLARS ($2,961,807.96). On its Florida corporate income tax return for the fiscal year ending May 31, 1973, Petitioner excluded income from the 1973 sale of the 4,605 acres, although this income was reported as recognized on its federal income tax return. The Respondent, Department of Revenue, issued its proposed deficiency for the 1973 fiscal year assessing Petitioner $121,389.33. This assessment was based upon the gain received by Petitioner for the 1973 transaction, said gain being measured by the difference between the original cost of the property exchanged in 1965 and the adjusted sales price of the property sold in 1973. The Petitioner filed a protest against the proposed deficiency. An informal conference failed to resolve the matter and the Petitioner thereafter filed its petition for an administrative hearing. On August 4, 1976, the parties entered into a joint motion for stay of proceedings pending the Florida Supreme Court's resolution of the case of Dept. of Revenue v. Leadership Housing, Inc. and Leadership Communities, Inc., 343 So.2d 611 (Fla. 1977). Thereafter, a prehearing conference was held to narrow and define the issues, briefs were filed and a hearing was held to receive oral argument on the legal issues involved.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the proposed corporate income tax deficiency for the Petitioner's fiscal year ending in 1973 be held invalid. Said deficiency should be recomputed by subtracting from the gross, sales price of the real estate sold in 1973 the amount realized on Petitioner's federal return in 1965, the selling expenses and the purchase of additional mineral rights. Respectfully submitted and entered this 15th day of February, 1978, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Gerald T. Hart Thompson, Wadsworth, Messer, Turner and Rhodes Post Office Box 1876 Suite 701, Lewis State Bank Building Tallahassee, Florida 32302 E. Wilson Crump, II Assistent Attorney General Department of Legal Affairs Post Office Box 5377 Tallahassee, Florida 32301
The Issue What, if any, is Petitioner's tax liability to the State of Florida, after any legitimate tax credits are applied, for June 1998 through December 1998?
Findings Of Fact During the period of June 1998 through September 1998, Petitioner Ron Ross Meardy operated a used car lot from a location in Duval County, Florida, to wit: 1400 Mayport Road, Atlantic Beach, Florida, 32233-3440. Mr. Meardy conducted business through a sole proprietorship named Auto Liquidation Center (ALC). Mr. Meardy's business included both retail sales and wholesale sales of motor vehicles. Between June 1998 and December 1998, Mr. Meardy was a registered dealer with DOR. Mr. Meardy's sales tax registration number was 26-02-151942-23/4, which registration number pertains to the Mayport location in Duval County, Florida. Mr. Meardy filed State of Florida Sales and Use Tax returns, standard form DR-15, for each month between December 1997 through May 1998. In so doing, he relied entirely on his employees. Mr. Meardy also filed State of Florida Solid Waste returns, standard form DR-15SW, for each month between December 1997 through May 1998. In so doing, he relied entirely on his employees. In September 1998, Mr. Meardy opened a car lot in St. Augustine, St. John's County, Florida and closed the Duval County car lot. Mr. Meardy filed no DR-15 (sales tax) forms for the period of June 1998 through December 1998. Mr. Meardy filed no DR-15SW (waste tax) forms for the period of June 1998 through December 1998. Mr. Meardy asserted that he did not know that his employees had made a lot of bad loans or failed to file tax returns for June 1998 through September 1998. Mr. Meardy admitted that from September to December 1998, he deliberately filed no tax returns. First, he claimed he did not file returns because there were no taxable sales made in that period. Then, he asserted that he did not file because, in an unrelated matter, the Florida Attorney General's Office, investigating several businesses "run" by him, held necessary business documents from October 27, 1998 until December 11, 1998 (+/- 45 days). Mr. Meardy's credible testimony that he did not have his business records from October 27, 1998 to December 1998 was unrefuted. As a result of Mr. Meardy's not having filed any DR-15 and DR-15SW forms for the period of June 1998 through December 1998, DOR filed a sales and solid waste tax warrant against him dated March 30, 1999, for $11,937.86. As permitted by law, this audit/warrant merely estimated Mr. Meardy's liability. Mr. Meardy did not then file formal tax returns, file a formal request for an alleged credit (DR-95 form), or provide DOR access to his business records so that DOR could make an accurate assessment/audit/warrant for any tax, penalty, interest, and/or credit. Instead, he timely-filed a Petition for Administrative Hearing on May 28, 1999. The Petition for Administrative Hearing, dated May 21 and filed May 28, 1999, was the first written expression by which Petitioner alerted DOR that he was seeking a tax credit due to repossessions he claimed to have made on defaulted loans. The Petition only stated that DOR "owes ALC money due to repossession credits." The Petition does not contain all of the information required by rule or by the standard credit claim form DR-95B. Petitioner had, in the past, applied for credit for tax paid on repossessed items by attaching the DR-95B form to his monthly tax returns (P-3). He maintained he had relied on his employees for this function. Petitioner's credible testimony that the Attorney General again held some of his documents from the end of May 1999, until September 30, 1999 (+/-five months), due to an unrelated matter, was unrefuted. However, at no time did Petitioner ever file a formal request for credit (form DR-95B) or any tax returns for the period at issue in this proceeding. Only during the course of discovery in the instant proceeding, which discovery Petitioner resisted by every legal means, did it become clear that Petitioner was claiming a tax credit from his May 1998 sales tax return, and that the credit he sought was in excess of the tax he had paid by way of his May 1998 tax return. Only during the discovery process herein did Petitioner provide DOR with any information concerning repossession and default amounts that he was claiming. He did this by producing a "database" (DOR-4). It is unclear from the evidence at hearing when this information was provided, but the date Petitioner claims in his Proposed Findings of Fact to have first produced DOR-4 is February 10, 2000. Petitioner also claims to have given someone at DOR a computer disc with his supporting information, but no DOR witness confirmed this. Petitioner produced no such disc at hearing. Exhibit DOR-4 did not provide the vehicle registration number as part of the property description, the date the sales and use tax was paid, the purchase price less trade-in, the purchase price less cash down, or the actual date of repossession. A copy of each invoice supporting each repossession was not attached. Petitioner did not submit any tax return with DOR-4. Petitioner admits that DOR-4 does not contain all of the information required by the tax credit claim form, DR-95B. DOR revised its assessment once, based on the information Petitioner was required to produce in this proceeding. DOR revised its assessment a second time as a result of the information Mr. Meardy provided in the course of his deposition taken January 19, 2001, approximately a week-and- a-half before final hearing. As agreed-to within the Joint Pre-hearing Stipulation, the revised assessment figure in this case is now limited to $2626.31 sales tax, $1313.40 penalty, and $75.35 interest, for a total of $4735.56, as of January 31, 2001. If the foregoing base amounts are, in fact, owed, penalties and interest continue to accrue, pursuant to statute. In making the final audit/assessment/warrant, DOR's Auditor IV, Thelmesia Whitfield, used original materials supplied by Petitioner. From these, she took the actual amounts Petitioner had listed on his dated invoices and other original records as the tax he collected for June 1998 through December 1998. She then calculated the sales tax due, but not remitted, for that period. In so doing, she determined that no additional taxes were due for the months of August 1998 through December 1998. She also concluded that for Petitioner's sales in June and July 1998, a penalty should be assessed at the legal rate of 10% per month on a cumulative basis up to 50% and interest should be assessed at the legal rate of 12% per year or 1% per month on the cumulative balance that is due. Petitioner's solid waste fee liability was calculated by Ms. Whitfield on the basis of the dated sales invoices provided by Petitioner where he had charged fees for tire and battery disposal. Ms. Whitfield's calculations did not include transactions without invoices or other original records. She noted that on several transactions Petitioner had collected more solid waste tax than was required, and she concluded that once collected, those amounts should be remitted to DOR unless they had been refunded to the customer. She calculated local option taxes at the applicable rate for Duval County. Ms. Whitfield's re-calculations do not reflect credits for the repossessions shown on DOR-4, because no state tax returns were filed from June through December 1998, because all the necessary information had not been provided, and because she believed the information on DOR-4 had been provided beyond the period available to claim repossession credits, which is 13 months after the repossession takes place. Ms. Whitfield's re-calculations also do not include credits for worthless accounts orally claimed by Petitioner in the course of his January 19, 2001, deposition or which he urges that she extrapolate from DOR-4, because Petitioner did not also provide either federal tax returns or equivalent financial statements as required by law. Because Petitioner was asking for a refund of more than he said he had paid, and because the sales he was referencing took place before the period being audited, Ms. Whitfield had no way to verify that the amount of sales tax actually had been paid. Therefore, Ms. Whitfield only used DOR-4 where there was a question as to whether a sale had taken place at all. Although DOR-4 is merely a summary, because it was produced by Petitioner and listed sales dates, she used it only as his admission that certain questionable sales had, in fact, taken place. Accordingly, it is found that DOR has not relied on estimations based on prior sales outside the time frame audited, but has made its final assessment (DOR Composite Exhibit 3) upon reasonable documentation provided by Petitioner, which documentation he represented as being accurate to the best of his ability. It is further found that DOR applied defineable legal standards. Petitioner essentially challenges DOR's last assessment/audit/warrant because Ms. Whitfield did not use DOR-4 to assign him a credit or off-set. He seeks to have the undersigned relate, according to his theory of repossession/default credits, DOR's final assessment reflected in DOR's audit report and work papers (DOR Composite Exhibit 3); DOR-4, Petitioner's "database"; and Petitioner's Exhibits 1-3 so as to determine Petitioner's sales tax and solid waste liability for the June 1998 through December 1998 period, and to thereby assign him a credit against his May 1998 tax return and payment (P-3). Petitioner's theory is based on his representation that his database (DOR-4) uses the first time he received money from each sale of a vehicle as the date of the sale/transaction, even though his own invoices and other original supporting data which he provided to DOR, showed different dates as the date of each sale. Then, he asserts that where vehicles have been repossessed, or where a sale has not "gone through," or where a loan has been defaulted (presumably even without repossession, of the car, although this is unclear), a credit should be related back to his May 1998, tax return (P-3). His argument and evidence are not persuasive for the following reasons. At the outset, it is noted that Petitioner's credit claim in excess of $12,000, is more than the tax Petitioner paid in May 1998, as reflected on Exhibit P-3. Likewise, although Petitioner's invoice used in Ms. Whitfield's calculations recorded a sale on June 22, 1998, to Lori Armstrong at $1500.00, Petitioner, without any supporting evidence, asserted at hearing that this sale actually was made on June 23, 1998, and that someone stole $500.00 of the tendered price, so he should pay tax, if at all, on a sale of only $1,000. He had a similar unsupported reason for attempting to reduce, by $100.00, the sales price on another invoice amount for Randy Davis, which invoice Ms. Whitfield had utilized. Petitioner also claimed, at hearing, again with no supporting evidence, that invoices he had previously produced and which were relied upon by Ms. Whitfield for customers Crumley, Mosley, and Lebourgeois "did not go through," and therefore he should not be liable for sales tax on these invoices. He asserted that since DOR could not find any title at the Department of Highway Safety and Motor Vehicles (DHSMV) for these customers, the inference must be drawn that those sales never closed and therefore no sales tax on them is owed by him. Petitioner also claimed at hearing that the Lebourgeois sale had resulted in a repossession. At hearing, Petitioner admitted liability for a $1,000 sale to a customer Millwater, but claimed that a credit from May 1998 would cover it, without any clear explanation of how this should occur. Petitioner maintained at hearing, again only because no title in that name had been located at the DHSMV, that an invoice of September 14, 1998, to a customer Wilkerson for $200 meant that the sale to Wilkerson was an out-of-state sale, and therefore no tax was owed. In his Proposed Findings of Fact, Petitioner does not address theft as an alleged reason he did not collect the full amounts shown on his invoices (see Finding of Fact 35), but he does seek a tax credit for all sales where no title was found at DHSMV and discusses at least the Crumley, Mosley, and Lebourgeois transactions as a source of these alleged "credits," sometimes for months in which he did not file any tax return. He also addressed customers Varner, Bailey, Little, Wright, Emanual, Lanier, Maynard, Porter, Williams, Arenas, Bays, Beasley, Butt, Carvey, Catlin, Chapman, Clendenin, Cunningham, Forbes, Catina Friend, Gonzalez, Knight, Lloyd, Owens, Strickland, Daniels, Johnson, and McDade, whose names and information (except for Bailey) appear on DOR-4, Petitioner's database, as repossessions or defaulted loans. Bailey appears on DOR-4 but in a different portion of DOR-4. (See Finding of Fact 47). The two biggest problems with Petitioner's theory are that he submitted no evidence to affirmatively demonstrate that any vehicle was repossessed, and Exhibit P-3 does not allow the undersigned any way of determining which vehicle sales were included in the May 1998 tax paid. Exhibit P-3 does provide information as to the repossessions claimed in May 1998 for previous months' sales, but it does not itemize or identify May 1998 sales upon which the tax was being paid in that month. Simply testifying that a repossession or default occurred and that someone entered that information into Petitioner's database (DOR-4) is not competent and credible proof that repossession occurred. In light of Petitioner's testimony that he relied on unreliable and dishonest employees to handle both his sales and tax matters at the Duval County office and without any explanation or documentation of how repossessions or loan defaults were handled from either of his business locations, the undersigned is left with the sense that Petitioner had neither hands-on experience with the listed repossessions nor with the subsequent entries of repossessions and/or loan defaults into his database. Although Petitioner has made a logical argument for "starting at ground zero" with regard to his May 1998 tax return, without more than is in evidence here, vehicles allegedly sold prior to June 1998 cannot be related to vehicles allegedly repossessed after June 1998 by way of the May 1998 tax return (P-3). (See Findings of Fact 21 and 41.) The absence of a title of registration in a given individual's name, without more, is not sufficient to infer that a sale was not consummated or that there had been an out-of- state sale. If the buyer had the duty to transfer title, failure of title proves nothing. If the dealer had the duty to transfer title, Petitioner's failure to transfer title does not automatically translate into a tax credit. The minimal documentation underlying DOR-4 which Petitioner offered (Exhibits P-1 and P-2), also is not persuasive of Petitioner's theory of the case, including but not limited to his suggestion that DOR is required to regard the sale date as being a date when money allegedly was first received, instead of the dates of sale on his invoices or other underlying documentation. It seems undisputed that "Ralston Varner" and "Varner Dean" are the same customer, full name "Ralston Dean Varner." Petitioner's Exhibit 1 is a receipt showing a payment by Ralston Varner for an "'88 Chevy Caviler" [sic] and is dated May 1, 1998, which is the date Petitioner claims to be the completion of sale date. By Petitioner's theory, sales tax on this purchase should have been included in his May 1998 tax return, entitling him to receive a tax credit upon repossession of this or some other vehicle. This cannot be determined from the tax return (P-3). Exhibit DOR-6 is a composite exhibit concerning a sale to Ralson Varner. Those pages preceding the page titled "Certification," dated July 19, 1998, were produced by Mr. Meardy at his office. The materials following the certification constitute a DHSMV "body jacket." The first page of DOR-6 reveals "6-10-98," as the date of the used car order, but pertains to a "1989 Ford T-Bird." The twelfth page, the "Installment Sale Contract-Motor Vehicle," is dated June 10, 1998, and also relates to a 1989 Ford "T-Bird." DOR's final audit refers to a 1989 Ford Thunderbird sold to "Varner Dean," not an '88 Chevy Cavalier, as urged by Petitioner. Petitioner's Exhibit 2 shows two receipts from Dennis Bailey, one on May 26, 1998 and one on June 2, 1998. Petitioner maintained that the sale in question went through on May 26, 1998, the sales tax was remitted on his May 1998 tax return, and the car was later repossessed. The May 1998 tax return (P-3) does not help decipher this. A Dennis Bailey appears on DOR-4 as of May 26, 1998, in relation to a Ford Taurus, but it is not one of the transactions Petitioner has singled out by the hand- written notations on DOR-4 as being defaulted or repossessed. Exhibit DOR-5 is a composite exhibit concerning the sale to Dennis Bailey which Ms. Whitfield audited. Those pages preceding the page titled "Certification," dated July 19, 1999, were produced by Petitioner. The materials following the certification constitute a DHSMV "body jacket." Exhibit DOR-5, page one, shows "June 2, 1998," as the date of the used car order. DOR-5, page 10, the fourth page following the certification, reveals the date of sale as "6-2-98," as reported to the DHSMV, both related to a 1988 Taurus. Under these circumstances, Petitioner's view of this sale cannot prevail. Also, Petitioner admitted that even by his theory and calculations, his May 1998 tax return was "off" by $1,007, and he had been unable to discover the reason (TR-103). Moreover, the evidence does not clearly establish that DOR-4 was presented to DOR within either 12 or 13 months of all the repossessions in question. (See Findings of Fact 19 and 21- 22.) Lastly, Petitioner did not present any evidence of refunds to customers of solid waste tax overpayments.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Department of Revenue enter a Final Order finding Petitioner is liable for the amounts as set out in Finding of Fact 24, without any credits or set-offs, and providing for accruing interest and penalties, pursuant to law. DONE AND ENTERED this 4th day of May, 2001, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of May, 2001. COPIES FURNISHED: Ron Ross Meardy Post Office Box 1853 St. Augustine, Florida 32085 Charles Catanzaro, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The two issues for determination are: (1) whether Rhinehart Equipment Co. (Rhinehart) a foreign corporation domiciled in Rome, Georgia, during the period July 1, 2002, through June 30, 2005, had "substantial nexus" with the state of Florida through its advertising, sale, and delivery into Florida of new and used heavy tractor equipment, sufficient to require it to collect and remit sales tax generated by these sales to the Florida tax authorities; and (2) Whether the applicable statute of limitations for assessing sale tax had expired when DOR issued its "final assessment" on September 11, 2009.
Findings Of Fact The Parties Rhinehart Equipment Co. (“Rhinehart”) is a retail heavy equipment dealer located in Rome, Georgia, and does not own or maintain a showroom or office location in Florida or directly provide financing to any Florida resident for any of its sales. Rhinehart does not provide Florida customers with any after-sale services such as assembly, technical advice, or maintenance. Rhinehart does not have any employees residing in Florida. Respondent is an agency of the State of Florida charged with the regulation, control, administration, and enforcement of the sales and use tax laws of the state of Florida embodied in Chapter 212, Florida Statutes, and as implemented by Florida Administrative Code Chapter 12A-1. Background In early March 2005, the Department received an anonymous tip pursuant to section 213.30, Florida Statutes. The caller alleged that Rhinehart was selling equipment to Florida residents without including sales and use tax in the sales price and was delivering the equipment to Florida customers using its own trucks. The tipster also alleged that Rhinehart was advertising in a commercial publication Heavy Equipment Trader, Florida Edition. By letter dated March 31, 2005, Respondent contacted Rhinehart and advised that its business activities in the state might be such as to require Rhinehart to register as a “dealer” for purposes of assessing Florida sales and use tax, and that it could be required to file corporate income tax returns, potentially subjecting it to liability for other Florida taxes. Included with this letter was a questionnaire for Rhinehart to complete and return to the Department "to assist us in determining whether Nexus exists between your company and the State of Florida." On May 2, 2005, Rhinehart, without the advice of counsel, responded to the Department’s inquiry by returning the completed questionnaire, which was signed by its president, Mark Easterwood. By letter addressed to Mr. Easterwood dated May 4, 2005, the Department advised that it had determined that Rhinehart had nexus with the state of Florida and that therefore Rhinehart was required to register as a dealer to collect and remit Florida sales and use tax. According to the letter, the Department's determination was "based on the fact that your company makes sales to Florida customers and uses the company's own truck to deliver goods to customers in the State of Florida." By application effective July 1, 2005, Rhinehart registered to collect and/or report sales and use tax to the state of Florida, In a letter dated June 8, 2005, the Department invited Rhinehart to self-disclose any tax liability that it may have incurred during the three-year period prior to its registration effective date, to wit, July 1, 2002, through June 30, 2005 (the audit period). Specifically, the letter stated: At this time, we would like to extend an opportunity for you to self-disclose any tax liability that you may have incurred prior to your registration effective date (for the period July 1, 2002, through June 30, 2005). This Self-Disclosure Program affords you an opportunity to pay any applicable tax and interest due for the prior three-year period (or when Nexus was first established) without penalty assessments. In response to the Department's June 8, 2005, letter, Rhinehart's legal counsel sent a letter dated August 8, 2005, requesting a meeting or conference call to discuss a "few legal issues" concerning the Department’s determination regarding nexus. Thereafter, Rhinehart began filing the required tax returns relating to its Florida sales, noting in writing by cover letter that the returns were being filed “under protest.” Rhinehart began collecting and remitting sales and use tax starting in July 2005. However, Rhinehart declined to provide any information regarding sales made prior to July 1, 2005. On September 30, 2005, Rhinehart's legal counsel sent the Department a detailed protest letter and advised that, in Rhinehart's view: (1) the Department had not established “substantial nexus” with Florida as interpreted under the Commerce Clause of the United States Constitution; and (2) Rhinehart was not required to register as a Florida dealer for sales and use tax purposes. On May 23, 2008, the Department issued a "Notice of Intent to Make an Assessment," and on September 11, 2009, a "Notice of Final Assessment," for the audit period. The assessment totaled $354,839.30, which was comprised of $229,695.00 in taxes and $125,144.30 in interest. The assessment was calculated by Respondent using Rhinehart’s sales tax returns filed from July 2005 through March 2008. The Notice of Final Assessment advised Rhinehart that the final assessment would become binding agency action unless timely protested or contested through the informal protest process, or by filing a complaint in circuit court or petition for an administrative hearing. Rhinehart unsuccessfully sought to resolve the matter through informal review and then ultimately filed its petition seeking an administrative hearing to challenge the Department's September 11, 2009, assessment. Based on sales records and other information provided by Rhinehart, on March 9, 2011, the Department revised its September 11, 2009, assessment. The revised assessment totaled $380,967.89, which included the past due sales and use tax liability, and interest accrued through that date. Rhinehart's Florida Activities Rhinehart produced records of its sales to Florida customers during the audit period. Those records reflected sales to 116 different Florida customers as follows: one sale in the second-half of 2002; 12 sales in 2003; 84 sales in 2004; and 19 sales thorough June 2005. The total value of the merchandise sold to Florida residents was $2,928,981.00. The majority of Rhinehart's sales during the audit period were "sight unseen" by the customer, and were negotiated by telephone. Numerous hurricanes made landfall in Florida during the 2004 and 2005 hurricane season. Since 2005, Rhinehart’s sales to Florida customers have substantially dropped, with no sales occurring in some quarters. During the audit period Rhinehart accepted a number of trade-ins toward the purchase of new equipment. The records showed trade-in transactions as follows: none (0) in 2002; five (5) in 2003; eleven (11) in 2004; and none in 2005. Concurrent with the delivery of the new equipment purchased from Rhinehart, used equipment taken in trade was transported by Rhinehart employees using Rhinehart transport equipment back to Rhinehart’s location in Georgia. In these instances, the trade-in equipment remained with the Florida customer following negotiation of the sale and prior to Rhinehart physically taking possession of it. During the audit period the equipment accepted as trade-ins had a total value of $168,915.00. The valuation of trade-in equipment was done based on a customer’s representations (i.e. sight unseen, with no Rhinehart employee personally inspected the equipment) and pursuant to industry guidelines. Rhinehart’s drivers would deliver the purchased equipment, load any trade-in equipment, and return to Georgia, if possible, on the same day. To the extent that the Department of Transportation regulations mandated that they cease driving in a given day, the drivers would rest in the back of their trucks for the required amount of time, sometimes overnight, and then complete their journey back to Georgia. Rhinehart's dealership is located approximately 300 miles north of the Florida state line. Sales invoices reflect that Rhinehart's customers were located throughout the state of Florida, as far south as Miami on the east coast and Naples on the west coast. During the audit period, Rhinehart placed advertisements with with the Trader Publishing Company, located in Clearwater, Florida. The Trader Publishing Company is the publisher of the Heavy Equipment Trader magazine which is distributed in Georgia, Alabama, Florida, and Tennessee. Trader Publishing Company publishes a "Florida Edition" of the magazine which is directed to potential heavy equipment customers located in Florida. Stipulated Exhibit 19 consists of advertising invoices for advertisements placed by Rhinehart in the Florida Edition of Heavy Equipment Trader magazine during the audit period. These invoices establish that Rhinehart regularly and systematically purchased advertising for its products which was targeted toward potential customers located in Florida.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Revenue: Confirming that substantial nexus existed during the audit period and that Petitioner was therefore subject to the taxing authority of the state of Florida; Confirming that the assessment at issue is not time- barred; Allowing Petitioner a reasonable period of time to determine whether any of the sales it made during the audit period would have qualified as exempt sales pursuant to section 212.08(3) and if so, to obtain the required certifications from the purchasers; and Imposing on Petitioner an assessment for the unpaid taxes, with accrued interest, for all sales during the audit period not qualifying for exemption. DONE AND ENTERED this 27th day of August, 2012, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of August, 2012.
The Issue The issue in this case is whether Respondent, Michael Dean Mastin, committed the offenses alleged in an Administrative Complaint issued by Petitioner, the Department of Financial Services, on July 6, 2004, and, if so, what penalty should be imposed.
Findings Of Fact The Parties. Petitioner, the Department of Financial Services (hereinafter referred to as the "Department"), is the agency of the State of Florida charged with the responsibility for, among other things, the investigation and prosecution of complaints against individuals licensed to conduct insurance business in Florida. Ch. 626, Fla. Stat. (2004).1 Respondent, Michael Dean Mastin, is currently, and was at all times pertinent to this matter, licensed in Florida as a Life (2-16) and Life & Health (2-18) Agent. The Department, therefore, had, at all times relevant this matter, jurisdiction over his licenses and appointments. Mr. Mastin's license identification number is A167869. During the times relevant, Mr. Mastin conducted insurance business as a sole proprietor, using the fictitious name "AIT." He also conducted accounting services, including the preparation of Federal income tax returns for individuals (hereinafter referred to as "Tax Returns"). Tax Return Preparations. During the early part of 1998, in response to an advertisement concerning Tax Return preparation and investment advice carried in a local newspaper, Ervin "Augie" Augustine or Rhoda Augustine telephoned Mr. Mastin. At the time of this first contact, Mr. Augustine was approximately 85 or 86 years of age2 and Mrs. Augustine was 71 or 72 years of age.3 Mr. Augustine, who died on August 18, 2000, had been diagnosed with Alzheimer's in 1997. Mr. Augustine continued to handle most of the business affairs of the Augustines until early 2000. Mr. Mastin visited the Augustines at their home after they telephoned him. It was agreed during the meeting that Mr. Mastin would prepare the Augustine's 1997 Tax Return. Mr. Mastin subsequently prepared the Augustine's 1997 Tax Return. See Petitioner's Exhibit 7. That return was filed by the Augustines with the Internal Revenue Service during the spring of 1998. The Augustines, who maintained their important documents in files which they maintained at their home, filed a copy of the 1997 Tax Return prepared by Mr. Mastin. The copy of the 1997 Tax Return maintained by the Augustines did not include a "Schedule A." Schedule A is used by individual Federal income taxpayers to "itemize" deductions which may be taken against taxable income in computing the amount of income tax they must pay. In lieu of itemizing deductions, individual Federal income taxpayers may take the "standard" deduction, a statutorily established deductible amount. For the 1997 tax year, the standard deduction for married taxpayers 65 years of age or older filing a joint return was $8,500.00.4 The 1997 Tax Return prepared by Mr. Mastin and filed by the Augustines claimed a standard deduction of $8,500.00. At the time that Mr. Mastin prepared the Augustines' 1997 Tax Return, Mr. Mastin told them that he would waive his normal fee for the preparation of their 1997 Tax Return if they would purchase insurance-investment products from him. They agreed, and consequently, Mr. Mastin did not charge the Augustines any fee for preparing their 1997 Tax Return in anticipation of their purchase of insurance-investment products from him. Mr. Mastin subsequently gave the Augustines a presentation on insurance-investment products he wished to sell them, but they made no purchase at that time. During the spring of 1999, Mr. Mastin prepared the Augustine's 1998 Tax Return. See Petitioner's Exhibit 8. Again, Mr. Mastin did not charge the Augustines for his services. The Augustines kept a copy of the 1998 Tax Return prepared by Mr. Mastin. Like the 1997 Tax Return, the copy of the 1998 Tax Return maintained by the Augustines did not include a "Schedule A." Again like the 1997 Tax Return, the 1998 Tax Return prepared by Mr. Mastin and filed by the Augustines claimed a standard deduction, this time in the amount of $8,900.00, which was the amount of the standard deduction for married taxpayers 65 years of age or older filing a joint return for the 1998 tax year.5 On or about May 4, 1999, Mr. Mastin sold an annuity contract to the Augustines. The Augustines paid $30,000.00 for the annuity, for which Mr. Mastin earned a commission of $2,160.00. This purchase fulfilled the agreement between Mr. Mastin and the Augustines as to the waiver of his fees for Tax Return preparation. By letter dated June 1, 1999, Mr. Mastin memorialized his agreement with the Augustines concerning the waiver of his fees for Tax Return preparation in exchange for the Augustines purchasing the annuity contract through him. The letter (hereinafter referred to as the "Fee Waiver Letter"), which was signed by Mr. Mastin as "Accountant", and acknowledged by the Augustines, provides the following: This is to represent [sic] that an exchange for the tax return preparation for 1997 and 1998 and the extensive financial planning be in place of the commissions received under the American national [sic] annuity. If the annuity would not be taken [six] then the charge for the tax returns and financial planning will [sic] be the same as the commission and will [sic] be billed. Petitioner's Exhibit 11. This letter, which contains several errors in spelling and punctuation, and is also not worded very professionally, contains the initials "MM/mm" at the bottom of the letter under Mr. Mastin's signature. It is inferred that this refers to Michael Mastin as the author and, either himself or his wife, Mary Mastin, as the typist. The Augustines purchased additional annuity contracts from Mr. Mastin on September 8, 1999, October 8, 1999, and January 19, 2000. Mr. Mastin received commissions of $917.37, $2,160.00 and $10,500.00 respectively for these sales. On February 9, 2001, Mrs. Augustine made an additional payment on one of the previously purchased annuity contracts, for which Mr. Mastin received a commission of $1,350.00. Mr. Mastin prepared the 1999 and 2000 Tax Returns for the Augustines.6 See Petitioner's Exhibits 8 and 9. Again, Mr. Mastin did not charge for his Tax Return preparation services. The Augustines kept a copy of the 1999 Tax Return and Mrs. Augustine kept a copy of the 2000 Tax Return. Like the 1997 and 1998 Tax Returns, the copy of the 1999 and 2000 Tax Returns maintained by the Mrs. Augustine did not include a "Schedule A." Again like the 1997 and 1998 Tax Returns, the 1999 and 2000 Tax Returns prepared by Mr. Mastin claimed the standard deduction. For 1999, the amount of the claimed deduction was $8,900.00, which was the amount of the standard deduction for married taxpayers 65 years of age or older filing a joint return for the 1999 tax year.7 For 2000, the amount of the claimed deduction was $9,050.00, which was the amount of the standard deduction for married taxpayers 65 years of age or older filing a joint return for the 2000 tax year.8 Other than the commissions which Mr. Mastin earned for the annuity contracts he sold to the Augustines, Mr. Mastin, consistent with his initial verbal agreement and subsequently the Fee Waiver Letter, did not bill or charge the Augustines for the preparation of their 1997, 1998, 1999, and 2000 Tax Returns. Nor did they directly pay him for his Tax Return preparation services. Mr. Mastin's Unconvincing Position. Mr. Mastin asserted through his testimony that he charged the Augustines for Tax Return preparation services he provided them and that they did indeed pay him. His testimony is rejected for its lack of credibility. In support of his argument that he was paid for his Tax Return preparation services, Mr. Mastin asserted unconvincingly the following: That he received a check in 1999 in the amount of $100.00 for his preparation of the 1997 and 1998 Tax Returns, $45.00 cash in the spring of 2000 from Mr. Augustine for the 1999 Tax Return, and $50.00 cash in the spring of 2001 from Mrs. Augustine for the 2000 Tax Return; That the Tax Returns he prepared for the Augustines contained a Schedule A and that a deduction for the amount of the tax preparation fees which they paid him was claimed thereon. A copy of the alleged Schedule A's was admitted as Respondent's Exhibits 13 through, and including, 16; That invoices, admitted as Respondent's Exhibit 12, were sent to the Augustines for his Tax Return preparation services; and That he revoked the Fee Waiver Letter the day after he wrote it. Mr. Mastin's testimony and the evidence he offered in support of his assertion that he received three payments for his Tax Return preparation services to the Augustines was unconvincing for a number of reasons: The ultimate facts of this case taken as a whole, do not support Mr. Mastin's testimony; Mrs. Augustine, whose was more credible despite the occasional confusion in her testimony, denied that any payments were ever made to Mr. Mastin for his services; The $100.00 check, Respondent's Exhibit 11, was payable to Mr. Mastin, was signed by Mr. Augustine and was dated October 6, 1999. Although the evidence failed to prove what the check to Mr. Mastin was for, more importantly, the evidence failed to prove it was made in payment for any Tax Return preparations. The check was written during the time when the Augustines had purchased two annuity contracts and immediately prior to their purchase of a third. More importantly, this alleged payment of Tax Return preparation fees is inconsistent with the Fee Waiver Letter prepared by or on behalf of Mr. Mastin and signed by him. Finally, the date of the check is inconsistent with Mr. Mastin's deposition testimony that the Augustines paid him for the 1997 and 1998 Tax Returns when he took the 1998 Tax Return to them to be signed, which was some time during the spring of 1999, not October 1999; Mr. Mastin's assertion that he received cash for the 1999 Tax Return preparation and that the Augustines gave him only $45.00 because that was all the cash they had at the time is inconsistent with the fact that the Augustine's usual custom was to pay for expenses by check so that they would have a record of the transaction. There simply was no reason for them not to have followed this custom in paying for the preparation of their 1999 Tax Return. Additionally, if they had for some unexplained reason paid Mr. Mastin with cash, it is unlikely that the Augustines would not have had sufficient cash to pay the entire fee. There is also no reason, even if it were assumed that the Augustines did not have $50.00 in cash, that they wouldn't have used a check to pay the full amount of the asserted charge; and Mr. Mastin's testimony concerning the 2000 Tax Return fee he asserted Mrs. Augustine paid him is rejected for essentially the same reasons Mr. Mastin's testimony concerning the payment for the 1999 Tax Return has been rejected. Mr. Mastin's testimony and the evidence he offered in support of his assertion that he included a deduction on the Augustine's Tax Returns for the amount of the fee he received from them was unconvincing for a number of reasons: The ultimate facts of this case taken as a whole, do not support Mr. Mastin's testimony; The Schedule A's admitted as part of Respondent's Exhibits 14 through 16, while reflecting a deduction for the $100.00 he testified he received in 1999 and the $45.00 cash he received in 2000, were not included with the copy of the 1997 through 2000 Tax Returns maintained by the Augustines; and The amount of the total itemized deductions listed on the Schedule A's offered in evidence by Mr. Mastin unrealistically and unconvincingly equal the exact amount of the standard deduction reflected by the Augustine's copy of the Tax Returns filed by them for those years. The likelihood that the Augustine's itemized deductions would be exactly the same as the standard deduction four years in a row is ridiculously low.9 Mr. Mastin testified unconvincingly that invoices were provided to the Augustines for his services. The Augustines did not have a copy of those invoices in their files and their existence is inconsistent with the ultimate facts of this case and Mrs. Augustine's testimony that she never received them and had no copy of them in her files. Finally, Mr. Mastin's testified unconvincingly that he spoke to Mrs. Augustine immediately after the Fee Waiver Letter had been executed and mailed a letter the next day, June 2, 1999, to Mrs. Augustine revoking the Fee Waiver Letter. A copy of the June 2, 1999 letter (hereinafter referred to as the "Fee Waiver Revocation Letter), was admitted as Petitioner's Exhibit 26. According to Mr. Mastin, he spoke to Mrs. Augustine and sent the Fee Waiver Revocation Letter because he was concerned that the Fee Waiver Agreement violated the laws governing his conduct as a licensed insurance agent in Florida. The authenticity of the Fee Waiver Revocation Letter and Mr. Mastin's testimony concerning it are rejected for several reasons: The ultimate facts of this case taken as a whole, do not support Mr. Mastin's testimony or the authenticity of the Fee Waiver Revocation Letter; Mrs. Augustine denied ever receiving a telephone call from Mr. Mastin revocating the Fee Waiver Letter and denied receiving the Fee Waiver Revocation Letter. Mrs. Augustine did not have a copy of the Fee Waiver Revocation Letter in her files; The Fee Waiver Revocation Letter was addressed only to Mrs. Augustine. It was not addressed to Mr. Augustine, although he was still alive at the time the letter was alleged to have been written and mailed. Because of the failure to address the letter to both Mr. and Mrs. Augustine, as the Fee Waiver Letter was, it is concluded that the Fee Waiver Revocation Letter was prepared after this dispute arose, which was after Mr. Augustine had died; Although Mr. Mastin had had Mr. and Mrs. Augustine sign the Fee Waiver Letter, he did not take this precaution with the Fee Waiver Revocation Letter which was purportedly written in order for Mr. Mastin to avoid a possible violation of the laws governing his insurance practice; The initials at the bottom of the Fee Waiver Revocation Letter, indicating who had written the letter and who had typed it, are "MM/DEK." "DEK" are the initials of Mr. Mastin's secretary, Deborah Elfast Kelly. Ms. Kelly, however, testified that she did not remember typing the letter,10 that it is her custom to type her initials, not capitalized as the her initials appear on the Fee Waiver Revocation Letter, but in lower case; The spelling and punctuation in the Fee Waiver Revocation Letter, and the unprofessional language thereof, are consistent with other documents which were authored by Mr. Mastin and typed either by him or his wife and not someone employed as a secretary, like Ms. Kelly, who also provides secretarial services to a lawyer; and Finally, the Fee Waiver Revocation Letter was not provided by Mr. Mastin to any of the employees of the Department who initially investigated this matter and requested information concerning Mr. Mastin's business relationship with the Augustines until discovery had commenced. Such a letter could have resolved at least one of the charges Mr. Mastin faces in this case in his favor had he produced it earlier. The fact that it was not produced until this case began in earnest suggests that it is a recent creation. The Agent of Record Letter. Some time prior to 2002, Mrs. Augustine became interested in purchasing an additional annuity contract. After making several unsuccessful attempts to contact Mr. Mastin, she contacted another insurance agent and purchased annuity products from that agent. In early February or late January 2002, Mr. Mastin contacted Mrs. Augustine for the first time since preparing the Augustine's 2000 Tax Return. He telephoned her to determine whether she wished for him to prepare her 2001 Tax Return. During this conversation, in response to an inquiry from Mr. Mastin, Mrs. Augustine informed Mr. Mastin that she had purchased annuity products from another insurance agent. Mr. Mastin became very upset and angry with Mrs. Augustine. Shortly after their telephone conversation, Mrs. Augustine received a letter dated February 14, 2002, from Mr. Mastin. Petitioner's Exhibit 18. Mr. Mastin unreasonably criticized Mrs. Augustine for what he perceived as her lack of loyalty to him after all he thought he had done for her. He also told her that he had had "a chance to review [her] file", and informed her he was enclosing a "copy of an agreement that I found in the file that you signed on February 17, 2000, which should be self explanatory." He went on to state: I remember the exact time and sayings that you and Augie made [sic] that morning. This is a standardized legal document that has been and still is used widely over the country in this area [sic] and has been very successful [sic] in being enforceable. It is not my intend [sic] to get an attorney to handle this matter as I hope we can work this out like honorable adults. If I don’t' hear from you in 30 days, I will assume you will not be willing to honor the agreement. The February 14, 2002, letter contains the initials "MM/mm" under Mr. Mastin's signature. The spelling and punctuation in the letter, and the unprofessional language thereof, are consistent with other documents which were authored by Mr. Mastin and typed either by him or his wife and not someone employed as a secretary. Attached to the February 14, 2002, letter was a copy of what purported to be an agent of record letter. The Augustine's signatures appear at the bottom of the page. Mr. Mastin's signature appears, without any underlining, to the write of the signatures of the Augustines and, under his signature it is "DATED 02/17/00" (hereinafter referred to as the "Agent of Record Letter"). The Agent of Record Letter states the following: This is to certify that the firm Ait/Michael Mastin will be considered agent of record on all life insurance and or annuity products purchased from Ervin Augustine and or Rhoda Augustine. This agreement will begin February 17, 2000 and will terminate on February 17, 2003, unless a new agreement is signed by Ait. If the above products are purchased through another agency or broker, agent or direct [sic] all commissions that would have been paid in full shall be payable to Ait/Michael d. Mastin by either the life Insurance [sic] company, agency, broker, agent or owner or beneficiary of the policy or policies. If this action requires a court action or the hiring of an attorney to reach a settlement the above named persons or company shall be responsible for all attorney fees and court and related costs related to this matter for the execution of this agreement. Mrs. Augustine, who was almost 77 years of age when she received Mr. Mastin's letter and the Agent of Record Letter, became very upset about what she perceived to be the threatening tone of Mr. Mastin's letter and the consequence of having possibly violated the Agent of Record Letter. While she did not recall ever having seen, much less, signed the Agent of Record Letter, she recognized the signatures on the document to be her's and her husband's and, therefore, assumed in her panic that she had indeed signed it. Mrs. Augustine telephoned Mr. Mastin shortly after receiving his letter and the Agent of Record Letter in an unsuccessful effort to resolve the matter. After unsuccessfully attempting to work things out with Mr. Mastin, Mrs. Augustine, who was worried about having to pay Mr. Mastin the commissions earned by the insurance agent she had dealt with in what she afraid was a violation of the Agent of Record Letter, as well as any legal fees incurred by Mr. Mastin, went to the Department's Plantation, Florida, office on March 1, 3002, seeking assistance. Mrs. Augustine met with Debbie Brown, a Senior Manager, Analyst 1, in the Department's Bureau of Outreach, Division of Community Service. Mrs. Augustine completed a Consumer Assistance Report, in which she wrote the following: In the year 2000, the agent, Michael Mastin, had my husband sign the form, Agent of Record letter. My husband was diagnosed with Alzheimers in 1997 and so he signed the form. I was afraid of my husband's outburst & so I also signed. . . . Any life insurance or annuity that was purchased until the year 2003, even though he did not sell the products, I will have to pay him the commissions. Petitioner's Exhibit 17. Mrs. Augustine, having given the Agent of Record Letter more thought, could not remember having signed it, but due to the fact that it was her signature and that of her husband at the bottom of the document Mr. Mastin had sent, she believed that she must have signed it. Questioning why she did not remember signing the Agent of Record Letter and, likely, looking for a justification for not complying with its terms, she suggested that she had done so because Mr. Augustine, during an outburst of anger, had made her. Mrs. Augustine gave a copy of the February 1, 2002, letter and a copy of the Agent of Record Letter Mr. Mastin had sent her to Ms. Brown, who maintained possession and control of both in her office. Ms. Brown gave Mrs. Augustine a receipt for the documents. Although not kept under lock and key, the evidence in this case failed to prove that anyone had any reason to access either document. Shortly after her visit with Ms. Brown, Mrs. Augustine wrote the following letter to Mr. Mastin: Mike; Since I was given a 30day [sic] time limit, I thought I should send you this letter, to confirm the fact that I am responding to you. Some of the things that you wrote in your letter are incorrect, never the less [sic] I contacted the state insurance department, and you will hear from them. I was so stressed out with Augie's condition, I will never understand how you can do this to me. You know he had Alzeimer's [sic] and I signed the form to avoid an outburst from him. You have seen him during one of these episodes. Petitioner's Exhibit 49. Mrs. Augustine again indicated that she had signed the Agent of Record Letter for the same reasons she indicated she signed it in the Consumer Assistance Request she made with the Department. Ms. Brown informed Mr. Mastin of the filing of the Consumer Assistance Request by letter dated March 4, 2002. Mr. Mastin responded to that letter by letter dated March 8, 2002. Not satisfied with his response, Ms. Brown forwarded the matter to the Department's Bureau of Investigation, where it was assigned to Special Investigator Linda L. Grant. As part of her investigation, Ms. Grant met with Mrs. Augustine on April 9, 2002. After fully discussing the matter with Ms. Grant, Mrs. Augustine wrote a nine-page narrative explaining her involvement with Mr. Mastin. Parts of the narrative, such as policy numbers and other specific facts which Mrs. Augustine could not recall, had to be looked up. Ms. Grant assisted Mrs. Augustine by ensuring that information that Mrs. Augustine could not recall but could be found in other sources was obtained and included in the narrative. Ms. Grant also typed Mrs. Augustine's hand-written narrative. Mrs. Augustine was asked by Ms. Grant to read both her hand- written and the typed versions to ensure accuracy, and after she complied, both were sworn to by Mrs. Augustine. With regard to the Agent of Record Letter, Mrs. Augustine swore to the following: I later received a letter dated 2/14/02 from Mastin expressing his anger over the matter and stating he found an agreement in his file that I signed on 2/17/00 that is a legal[sic] enforceable document. He enclosed a copy of the alleged 2/17/00 agent of record letter. I was shocked because I had no recollection of the form and I did not have a copy of the agent of record letter in my files. The signatures on the letter appears [sic] to be mine and that of my late husband. I have no recollection of Mastin discussing the contents of the letter or any agreement regarding future commissions belonging to him through 2/17/03. In most of my purchases from Mastin he filled out all the paperwork and gave me and my husband a stack to sign without reading. We both trusted him. . . . Petitioner's Exhibit 48. Mrs. Augustine gave Ms. Grant the actual copy of the February 14, 2002, letter and the attached Agent of Record Letter which Mr. Mastin had sent to her. Ms. Grant's conduct with Mrs. Augustine during her meeting with her on April 9, 2002, was professional and ethical. The information she obtained in the affidavit completed and signed by Mrs. Augustine was in no way unduly influenced by the assistance, which was intended to ensure that the narrative contained accurate and detailed information, which was given by Ms. Grant to Mrs. Augustine. Between the assignment of the matter to her and September 2002, Ms. Grant spoke with and met with Mr. Mastin on several occasions as part of her investigation. She acted professionally and with due regard for Mr. Mastin's rights throughout her dealings with him. Mr. Mastin wrote two letters to Mrs. Augustine, both dated September 19, 2002. Both letters essentially threaten Mrs. Augustine that he would seek fees from her if she continued to pursue her complaint against him with the Department. See Petitioner's Exhibits 21 and 22. The more Mrs. Augustine thought about the whole matter and with Ms. Grant's reasonable prodding of her memory, the more Mrs. Augustine began to doubt having signed the Agent of Record Letter. Mrs. Augustine eventually concluded that she simply had no memory of having signed the Agent of Record Letter. Consequently, on April 24, 2002, she returned to Ms. Grant's office and completed and signed a hand-written and typed four page supplement to her April 9, 2002, affidavit. In pertinent part, Mrs. Augustine wrote the following in her affidavit supplement: . . . . I have inspected a document dated Feb. 17, 2000 listing Parts I, II & III of a retainer agreement, and I have never seen this document. To my recollection, there was no written retainer agreement between Michael Mastin, myself and my late husband Ervin Augustine. I reaffirm that I never received or had knowledge of any Feb. 17, 2000 Agent of Record letter prior to Michael Mastin sending me a copy in his correspondence dated Feb. 14, 2002. . . . Petitioner's Exhibit 47. Mrs. Augustine goes on in the affidavit supplement to describe what she reasonably considered to be the threatening correspondence she had received from Mr. Mastin since she filed the Consumer Assistance Report with the Department. Again, Ms. Grant's conduct with Mrs. Augustine during her meeting with her on September 24, 2002, was professional and ethical. The information she obtained in the affidavit supplement completed and signed by Mrs. Augustine was in no way unduly influenced by the assistance, intended to ensure that the narrative supplement contained accurate and detailed information, which was given by Ms. Grant to Mrs. Augustine. On September 23, 2002, Ms. Grant and her immediate supervisor, Robert Keegan, met with Mr. Mastin. During this meeting Mr. Mastin gave copies of a number of documents pertaining to this matter to Ms. Grant and Mr. Keegan. One of the documents was a copy of an annuity contract application (hereinafter referred to as the "Application") that had been signed by the Augustines. Petitioner's Exhibit 42. Ms. Grant, who had astutely doubted the authenticity of the Agent of Record Letter due to Mrs. Augustine's confusion about the document, compared the signatures on the Application with the signatures on the Agent of Record Letter. Because of what Ms. Grant concluded were suspicious similarities between the signatures on the Application and Agent of Record Letter, both documents were submitted to the Crime Lab of the Broward County Sheriff's Office for analysis of Mrs. Augustine's signature. Howard Seiden, a forensic document examinter, who was accepted as an expert in this matter, examined Mrs. Augustine's signature on the Application and the Agent of Record Letter. He concluded the following: After examination of the submitted documents, it is the finding of this examiner that, the questioned Rhoda Augustine signature on the [Agent of Record Letter] is a reproduction of the Rhoda Augustine signature found on the [Application]. The most likely mechanism for this, is that the signature on the original document or a copy thereof of in [the Application] was copied, then cut from the copy and placed in position of the original document in [the Agent of Record Letter] and the entire document copied again. An alternate mechanism that may have been utilized is to scan the known signature in [the Application] and using computer software transfer that signature onto a scanned document of [the Agent of Record Letter]. This document could then be printed. After Mr. Mastin wrongfully suggested that the fabricated signature on the Agent of Record Letter provided to Mr. Seiden had been created by Ms. Grant, the copy of the Agent of Record Letter which Mrs. Augustine had provided to Ms. Brown when she first complained to the Department and which had been continuously maintained in the custody of Ms. Brown since Mrs. Augustine had provided it to her, was retrieved by Dennis Adams, a Special Investigator for the Department's Bureau of Investigation, and delivered directly to Mr. Seiden for analysis. At no time did the copy of Agent of Record Letter come into the possession of Ms. Grant. More importantly, no credible evidence was presented in this proceeding to suggest that Ms. Grant or anyone other than Mr. Mastin had anything to do with the fabrication of Mrs. Augustine's signature on the Agent of Record Letter. Mr. Seiden, after analyzing the copy of Agent of Record Letter maintained by Ms. Brown concluded that Mrs. Augustine's signature was an exact copy of the signature which had been reproduced from the Application onto the Agent of Record Letter sent by Mr. Mastin to Mrs. Augustine. Mr. Seiden's expert opinion explains why Mrs. Augustine was so confused when she received the Agent of Record Letter. The signature on it was indeed her signature, as she concluded it was. What she did not realize, however, was that her signature had been placed there, not by her, but by Mr. Mastin. Mr. Seiden's opinion also vindicates Ms. Grant's suspicion concerning the authenticity of the Agent of Record Letter. In summary, Mrs. Augustine did not sign the Agent of Record Letter. Instead, her signature had been cut and pasted from her actual signature on the Application. It is inferred that Mrs. Augustine's signature on the Agent of Record Letter was fabricated by Mr. Mastin or someone under his direction. Mr. Mastin's Unconvincing Position. Mr. Mastin asserted through his testimony and other evidence that he did not fabricate the Agent of Record Letter. In support of his position, while he did not dispute that the Agent of Record Letter had been fabricated, he suggested, unconvincingly, the following: Ms. Grant fabricated the Agent of Record Letter in an effort to bolster her career at the Department; and He has a copy of an agent of record letter with the Augustine's signatures on it which has not been proved to be a fabrication. Mr. Mastin's testimony and the evidence he offered in support of his assertion that he did not fabricate the Agent of Record Letter was unconvincing for a number of reasons: The ultimate facts of this case taken as a whole, do not support Mr. Mastin's testimony; Mrs. Augustine's prior inconsistent statements were adequately explained. She was sent a document by Mr. Mastin which, although it had never been signed by her, did in fact include a copy of her actual signature on it. Seeing her signature, she simply concluded that, although she did not remember signing it, she must have done so. Ultimately, the evidence proved that she did not sign the very document Mr. Mastin sent to her; Mr. Mastin's assertion that the fabricated document was created by Ms. Grant deserves no more discussion. This wrongful and malicious assertion is not supported by any credible evidence; and Finally, Mr. Mastin's assertion that he has a copy of an agent of record letter signed by the Augustines which has not been proved to be a fabrication is not supported by the weight of the evidence. Mr. Mastin' did have admitted an agent of record letter which was not proved to be a fabrication. He argues, therefore, that he had no reason to send a copy of a fabricated document. This argument is rejected. The copy of the agent of record letter admitted by Mr. Mastin could not be shown to be a fabrication without having the document or a copy thereof from which an actual signature would have been transferred to the copy of the document admitted by Mr. Mastin. Given this reasonable explanation for why the document has not been proved to be false, it cannot be concluded that it has not been fabricated. This is especially true in light of the fact that it has been proven that there is a fabricated Agent of Record Letter. This fact sheds sufficient doubt on the authenticity of the copy of the agent of record letter admitted by Mr. Mastin to reject its authenticity also. D. Primary Agent Designation. Mr. Mastin failed to designate himself as the primary agent for AIT, the factitious name he conducted insurance business under.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department finding that Michael Dean Mastin violated the provision of Chapter 626, Florida Statutes, described, supra., and revoking his license. DONE AND ENTERED this 2nd of August, 2005, in Tallahassee, Leon County, Florida. S LARRY J. SARTIN 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 2nd day of August, 2005.
The Issue Whether the Department of Revenue's (Department) assessment of tax and interest against American Business USA Corp. (Taxpayer) is valid and correct.
Findings Of Fact The Department is the agency responsible for administering the revenue laws of the state of Florida, including the imposition and collection of the state's sales and use taxes pursuant to chapter 212, Florida Statutes. The Taxpayer is an active for-profit corporation with its principal address and mailing address at 12805 Newton Place, Wellington, Florida 33414-6226. The Taxpayer is a "dealer" as that term is defined by section 212.06(2). The Taxpayer has a federal employer identification number and a certificate of registration number.1/ The Taxpayer began doing business in Florida in January 2001, but did not register with the Department as a sales tax dealer until February 19, 2004. The Taxpayer does business as "1Vende.com." The Department audited the Taxpayer for sales and use tax compliance. The audit period was April 1, 2008, through March 31, 2011. FACTS RELATED TO THE AUDIT PERIOD Mr. Gomez and Ms. Niño, who are husband and wife, each hold 50 percent of the shares in the Taxpayer. There were two principal aspects of the Taxpayer's business during the audit period. First, the Taxpayer specialized in the sale of flowers, gift baskets, and other items of tangible personal property. Second, the Taxpayer specialized in the sale of "prepaid calling arrangements," within the meaning of section 212.05(1)(l). All of the Taxpayer's sales were initiated online. The Taxpayer sold to customers throughout Latin America, in Spain, and in the United States (including Florida). All payments to the Taxpayer were made by credit card or wire transfer. The Taxpayer generated electronic invoices for all its sales. The Taxpayer marketed itself to the public on its website as a company that sells flowers. The Taxpayer did not maintain any inventory of flowers, gift baskets, or other items of tangible personal property. When the Taxpayer received an order over the Internet for items of tangible personal property, the Taxpayer relayed the order to a florist in the vicinity of the customer (the local florist). The Taxpayer utilized the Internet or telephone to relay an order. The Taxpayer did not use telegraph. The Taxpayer used a local florist to fill the order it had received for flowers, gift baskets, and other items of tangible personal property. The Taxpayer charged its customers sales tax on sales of flowers, gift baskets, and other items of tangible personal property delivered in Florida. The Taxpayer did not charge its customers sales tax on sales of flowers, gift baskets, and other items of tangible personal property delivered outside of Florida. The Taxpayer did not charge sales tax on the delivery fee it charged its customers on orders of flowers, gift baskets, and other items of tangible personal property. The Taxpayer primarily sold prepaid calling arrangements in $2.00, $5.00, $10.00, and $20.00 increments. When customers purchased prepaid calling arrangements, the Taxpayer sent them an authorization number by email. The Taxpayer did not charge its customers sales tax on the prepaid calling arrangements it sold. THE AUDIT The Taxpayer filed its federal tax returns on an accrual basis with the fiscal year ending December 31. The taxpayer's accountant recorded sales on the federal tax returns (form IRS 1120) based on the deposits recorded on the bank statements. Mr. Gomez prepared the Florida sales and use tax returns (form DR-15) for the Taxpayer and calculated the tax due by multiplying its taxable sales by the applicable tax rate. On May 9, 2011, the Department mailed the Taxpayer a Notice of Intent to Audit Books and Records, form DR-840, for audit 200105422. The Department requested Mr. Gomez provide for audit the Taxpayer's chart of accounts, general ledgers, cash receipt journals, sales journals, resale certificates, general journals, federal tax returns, state sales tax returns, shipping documents, and bank statements. Along with the DR-840, the Department mailed the Taxpayer a Pre-audit Questionnaire and Request for Information and Electronic Audit Survey. On May 23, 2011, the Taxpayer returned to the Department the completed Pre-audit Questionnaire and Request for Information and Electronic Audit Survey. On June 15, 2011, the Department's auditor and Mr. Gomez had a pre-audit interview, in which they discussed auditing techniques and records available for audit. Mr. Gomez provided for audit a download of the Taxpayer's electronic records, including its sales database, bank statements, and federal tax returns. The Taxpayer did not keep for audit books and records that would allow the Department to reconcile the sales in the electronic database to the deposits on the bank statement. The Department determined that the Taxpayer's books and records were inadequate for audit and relied upon the "best information then available" of the Taxpayers' sales tax liability, in accordance with section 212.12(5)(b). The Taxpayer did not maintain sales invoices, sales journals, or general ledgers. On August 8, 2011, the Department's auditor met with Mr. Gomez and discussed the audit findings regarding sales. On August 18, 2011, the Department's auditor met with Mr. Gomez and discussed the taxability of the prepaid calling arrangements. On October 31, 2011, the Department mailed the Taxpayer a Notice of Intent to Make Audit Changes, form DR-1215, for audit number 200105422. Prior to issuing the DR-1215, the Department compromised in full the assessed penalty. On February 16, 2012, the Department mailed the Taxpayer a Notice of Proposed Assessment for audit number 200105422. The Department assessed the Taxpayer $102,508.28 in sales tax and interest through February 16, 2012, in the amount of $18,097.52. Interest accrues at $19.62 per day until the tax is paid in full.2/ ESTOPPEL In its Amended Petition, the Taxpayer asserts that it "relied on advice and instruction from [the Department] when it failed to collect Telecommunication tax and should not be subject to any taxes or penalties as a result of their [sic] reasonable reliance." Mr. Gomez and Ms. Niño made three visits to the Department's service centers, but only one of those three visits pre-dated the audit period. The other two visits were after the audit period. In February 2001 they visited the service center in Miami, Florida, where they talked to someone named "Maria" about the taxability of their new business. Both Mr. Gomez and Ms. Niño testified that as a result of the first visit with "Maria" in 2001, the Taxpayer only charged customers sales tax on the sales of flowers, gift baskets, and other items of tangible personal property delivered in Florida. The owners testified that they relied on advice given to them by "Maria." "Maria" did not testify at the formal hearing. There was no written confirmation of the advice given by "Maria." After the audit period while the audit was ongoing (between August 8 and August 18, 2011) they visited the service center in Coral Springs, Florida, where they spoke to someone named "Paula" about the ongoing audit. The third and final visit was on August 18, 2011, when they met with Everald Thomas at the service center in West Palm Beach. Mr. Thomas was the Department's auditor in this case. The owners talked to him about the taxability of the prepaid calling arrangements. The Taxpayer timely filed its Amended Petition for Administrative Hearing. The Taxpayer continues to dispute the assessment.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order that validates the assessment against American Business USA Corp. DONE AND ENTERED this 27th day of February, 2013, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of February, 2013.
