The Issue The issue is whether Petitioner owes the taxes, interest, and penalties assessed by the Department of Revenue based upon its audit of Petitioner for the period of August 1, 1996, through July 31, 2001.
Findings Of Fact Based upon the testimony and evidence received at the hearing, the following findings are made: Petitioner is a Florida corporation engaged in the business of selling and installing floor covering materials, such as carpet and tile. Petitioner's business is located in Hillsborough County, Tampa, Florida. Petitioner sales fall into two basic categories: "cash and carry sales" and "installation sales." The "cash and carry sales" are retail sales of floor covering materials to customers that come into Petitioner's store. These sales do not involve any installation work by Petitioner. The "installation sales" are sales in which Petitioner installs the floor covering material in the customer's home or business. These sales are performed pursuant to a lump-sum contract which incorporates the price of the installation and the price of the floor covering materials being installed. Petitioner purchases the floor covering materials from suppliers and distributors. Those purchases become part of the inventory from which Petitioner makes its "installation sales." Petitioner also makes general purchases of goods and services necessary for the day-to-day operation of its business. These purchases include items such as cleaning supplies and vehicle repairs. Petitioner made several fixed-assets purchases during the audit period for use in its business. It purchased a word processor in August 1996, and it purchased equipment and fixtures in December 1996. On those occasions that Petitioner collected sales tax from its customers on the "cash and carry sales" or paid sales tax on its inventory purchases and general purchases, it remitted or reported those amounts to the Department. However, as discussed below, Petitioner did not collect the full amount of sales tax due on each sale, nor did it pay the full amount of sales tax due on each purchase. The Department is the state agency responsible for administering Florida's sales tax laws. The Department is authorized to conduct audits of taxpayers to determine their compliance with the sales tax laws. By letter dated September 10, 2001, the Department notified Petitioner of its intent to conduct a sales tax audit of Petitioner's records for the period of August 1, 1996, through July 31, 2001. The audit was conducted by David Coleman, a tax auditor with seven years of experience with the Department. Petitioner designated its certified public accountant, P.J. Testa, as its representative for purposes of the Department's audit. That designation was memorialized through a power of attorney form executed by Petitioner on March 5, 2002. Mr. Coleman communicated with Mr. Testa throughout the course of the audit. Mr. Coleman conducted the audit using a sampling methodology agreed to by Mr. Testa on behalf of Petitioner. Pursuant to that methodology, Mr. Coleman conducted a comprehensive review of Petitioner's year-2000 purchase and sales invoices and extrapolated the results of that review to the other years in the audit period. The sampling methodology was used because of the volume of records and transactions during the audit period and because of the unavailability of all of the records for the audit period. The year 2000 was chosen as the sample period because Petitioner's records for the other years in the audit period were incomplete or unavailable. Mr. Coleman's audit of the year-2000 invoices focused on three broad types of transactions. First, he reviewed invoices of Petitioner's retail "cash and carry sales." Second, he reviewed the invoices through which Petitioner purchased the floor covering materials that it later sold as part of its "installation sales." Third, he reviewed the invoices through which Petitioner made general purchases of tangible personal property used in the day-to-day operation of its business. The sampling methodology was used for the audit of Petitioner's "cash and carry sales," the inventory purchases related to the "installation sales," and the general purchases. The methodology was not used for the audit of Petitioner's fixed-asset purchases; Mr. Coleman reviewed all of the available records for the fixed-asset purchases during each year of the audit period. Mr. Coleman's audit of Petitioner's retail "cash and carry sales" identified 29 invoices during year-2000 on which no sales tax or less than the full sales tax was paid by the customer. Those invoices amounted to $17,451.30, on which $1,178.11 in total sales tax was due, but only $552.97 was paid. As a result, Mr. Coleman's audit identified a sales tax deficiency of $625.14 for the retail sales during the sample period. Mr. Coleman's audit of Petitioner's purchases of floor covering that was later sold in the "installation sales" identified a considerable number of purchases during year-2000 on which no sales tax or less than the full sales tax was paid by Petitioner to the supplier or distributor of the materials. Those purchases amounted to $123,398.52, but only $123,397.80 of that amount was taxable. On the taxable amount, $8,330.07 in total sales tax was due, but only $6,810.68 was paid. As a result, Mr. Coleman's audit identified a sales tax deficiency of $1,519.41 for Petitioner's inventory purchases during the sample period. Mr. Coleman's audit of Petitioner's "general purchases" identified 10 sales during year-2000 on which sales tax was not paid. Those invoices amounted to $2,914.76, on which $196.77 in sales tax was due, but none of which was paid. As a result, Mr. Coleman's audit identified a sales tax deficiency of $196.77 for the general purchases during the sample period. Mr. Coleman's audit of Petitioner's fixed-asset purchases identified only two transactions during the entire audit period on which Petitioner did not pay the full sales tax. Those transactions amounted to $5,078.92, on which $330.14 in total sales tax was due, but none of which was paid. As a result, Mr. Coleman's audit identified a sales tax deficiency of $330.14 for the fixed-asset purchases during the audit period. The tax deficiencies calculated by Mr. Coleman for year-2000 for each category described above take into account any sales tax collected by Petitioner from its customers or paid by Petitioner to its vendors. After Mr. Coleman computed the tax deficiencies based upon his audit of the year-2000 records, he calculated a "percentage of error" for each category of sales/purchases. The percentage of error is the ratio used to extrapolate the results of the audit of the year-2000 records over the remainder of the audit period. No percentage of error was calculated for the fixed-asset purchases because Mr. Coleman reviewed the available records for those purchases over the entire audit period, not just year-2000. The percentage of error was calculated by dividing the sales tax deficiency identified in a particular category for the year-2000 by the total sales/purchases in that category for the year-2000. For the year-2000, Petitioner had retail sales of $1,143,182.45; general purchases of $21,254.88; and inventory purchases of $1,214,016.24. As a result, the applicable percentages of error were 0.000547 ($625.14 divided by $1,143,182.45) for the retail sales; 0.009258 ($196.77 divided by $21,254.88) for the general purchases; and 0.001252 ($1,519.41 divided by $1,214,016.24) for the inventory purchases. The percentages of error were then multiplied by the total sales in the applicable category for the entire audit period to calculate a total tax deficiency in each category. Petitioner's total retail sales over the audit period were $4,455,373.40. Therefore, the total tax deficiency calculated for that category was $2,437.12 (i.e., $4,455,373.40 multiplied by 0.000547). Petitioner's total general purchases over the audit period were $110,741.49. Therefore, the total tax deficiency calculated for that category was $1,025.25 (i.e., $110,741.49 multiplied by 0.009258). Petitioner's total inventory sales over the audit period were $3,130,882.10. Therefore, the total tax deficiency calculated for that category was $3,919.86 (i.e., $3,130,882.10 multiplied by 0.001252). Petitioner's total tax deficiency was computed by adding the deficiencies in each category, as follows: Retail Sales $2,437.12 General Purchases 1,025.25 Inventory Purchases 3,919.86 Fixed-asset purchases 330.14 TOTAL $7,712.37 Of that total, $6,863.02 reflects the state sales tax deficiency; $313.77 reflects the indigent care surtax deficiency; and $535.58 reflects the local government infrastructure surtax deficiency. The sales tax rate in effect in Hillsborough County during the audit period was 6.75 percent. The state sales tax was six percent; the remaining 0.75 percent was for county surtaxes, namely the local government infrastructure surtax and the indigent care surtax. That rate was used by Mr. Coleman in calculating the tax deficiencies described above. On October 4, 2002, Mr. Coleman hand-delivered the Notice of Intent to Make Audit Change (NOI) to Petitioner. The NOI is the end-product of Mr. Coleman's audit. The NOI identified the total tax deficiency set forth above, as well as a penalty of $3,856.26, which is the standard 50 percent of the tax deficiency amount, and interest of $2,561.63, which is calculated at a statutory rate. The NOI included copies of Mr. Coleman's audit work- papers which showed how the taxes, penalties, and interest were calculated. The NOI also included a copy of the "Taxpayers' Bill of Rights" which informed Petitioner of the procedure by which it could protest the audit results reflected on the NOI. On October 29, 2002, the Department issued three NOPAs to Petitioner. A separate NOPA was issued for each type of tax -- i.e., sales tax, indigent care surtax, and local government infrastructure surtax. The cumulative amounts reflected on the NOPAs were the same as that reflected on the NOI, except that the interest due had been updated through the date of the NOPAs. Interest continues to accrue on assessed deficiencies at a cumulative statutory rate of $1.81 per day. The NOPAs were sent to Petitioner by certified mail, and were received by Petitioner on November 1, 2002. By letter dated November 5, 2002, Petitioner protested the full amount of the taxes assessed on the NOPAs and requested a formal administrative hearing. The letter was signed by Mr. Testa on Petitioner's behalf. The protest letter does not allege that the methodology used by Mr. Coleman was improper or that the results of the audit were factually or legally erroneous. Instead, the protest letter states that Petitioner was disputing the results of the audit because it was "following procedures set forth by an agent from a previous audit who established the manner in which [Petitioner was] to compute sales tax on the items being questioned by the current auditor." Mr. Testa made similar comments to Mr. Coleman during the audit. When Mr. Coleman requested documentation from Mr. Testa to corroborate those comments about the procedures allegedly established by the prior auditor, Mr. Testa was unable to provide any such documentation. The record of this proceeding is similarly devoid of evidence to support Petitioner's allegation on this point. The record does not contain any evidence to suggest that Petitioner ever modified or revoked Mr. Testa's authority to represent it in connection with the audit or this protest, which Mr. Testa initiated on Petitioner's behalf. Petitioner, through Mr. Testa, had due notice of the date, time, and location of the final hearing in these cases. Neither Mr. Testa, nor anyone else on Petitioner's behalf, appeared at the final hearing.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue issue a final order imposing the taxes, interest, and penalties against Petitioner in the full amounts set forth in the three Notices of Proposed Assessment dated October 28, 2002. DONE AND ENTERED this 30th day of December, 2003, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 2003.
The Issue The issue is whether Respondent's Certificate of Registration 46-8015920490-4 should be revoked for the reasons stated in an Administrative Complaint for Revocation of Certificate of Registration (Administrative Complaint) issued by the Department of Revenue (Department) on July 17, 2015.
Findings Of Fact The Department is the state agency charged with administering and enforcing the state revenue laws, including the laws related to the imposition and collection of sales and use taxes pursuant to chapter 212. Respondent is an active for-profit Florida corporation and a licensed motor vehicle dealer located at 613 Southwest Pine Island Road, Suite 14, Cape Coral, Florida. For purposes of collecting and remitting taxes, Respondent is a dealer as defined in section 212.06(2) and is required to comply with chapter 212. Annais German is the president and agent of the corporation. Respondent holds Certificate of Registration number 46- 8015920490-4. A certificate of registration is required in order to do business in the state and requires its holder to collect and remit sales tax pursuant to chapter 212. See § 212.05(1), Fla. Stat. A dealer must file with the Department sales tax returns and remit the tax collected on a monthly basis. See § 212.15(1), Fla. Stat. The Department is authorized to revoke a dealer's certificate of registration for failure to comply with state tax laws. See § 212.18(3)(e), Fla. Stat. Before revoking a certificate of registration, the Department must convene an informal conference that the dealer is required to attend. See § 213.692(1)(a), Fla. Stat. At the conference, the dealer may either present evidence to refute the Department's allegations of noncompliance or enter into a compliance agreement with the Department to resolve the dealer's failure to comply with chapter 212. Id. After a compliance agreement is executed by the dealer, the Department may revoke the certificate of registration if the dealer fails to comply with its terms and conditions. If a breach occurs, the entire amount is due and payable immediately. After Respondent failed to remit taxes that were due, the Department issued tax warrants and rendered judgment liens against Respondent in March, April, and December 2014 and April 2015. An informal conference was conducted with the taxpayer on April 7, 2015. Respondent was represented at the conference by Orlando German, who was given power of attorney by Annais German to represent the corporation. He signed an agreement, which required the entire balance to be paid by the end of the month. Two weeks later, Annais German requested that a new agreement be executed which allowed her to pay the delinquent taxes over a longer period of time. The Department agreed with her request. On April 23, 2015, Ms. German executed an Agreement reflecting that her corporation owes $7,297.52. See Pet'r Ex. 2, p. 1. The Agreement required Respondent to make a down payment of $2,500.00 on or before April 28, 2015, followed by ten monthly payments of 375.00 on the 28th of each month, and a final payment of $671.52 on April 28, 2016. Id. at p. 3. The Agreement required these payments to be made at the Fort Myers Service Center. Id. Payments required under a compliance agreement are always remitted to the local district office, rather than Tallahassee, to allow the Department to track the payment and ensure that it is being made in a timely fashion. The Agreement also required Respondent to "timely remit payment in full for all types of taxes, returns, and reports due from the Taxpayer for the duration of this agreement (and any extensions hereof) or for the next 12 months following the date of this agreement, whichever is longer." Id. at p. 1. In other words, besides making payments for past due taxes, interest, penalties, and fees, Respondent was required to timely file returns and pay current obligations as they became due during the life of the Agreement. The Agreement specifically provides that if the taxpayer fails to comply with the Agreement, revocation proceedings will be initiated without further notice. Respondent paid the $2,500.00 down payment one day late, but as of the date of the hearing in this case, no other payments for past or current obligations have been made. Returns for April and May 2015 were not timely filed. Respondent admits that in April 2015, at least three vehicles were sold, but its April return, when eventually filed, reported that no sales were made. Since filing its June and July 2015 returns, Respondent has filed no other returns. By failing to pay the monthly obligations required by the Agreement or any current obligations, Respondent has violated the Agreement.
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 Respondent's Certificate of Registration 46- 8015920490-4. DONE AND ENTERED this 25th day of February, 2016 in Tallahassee, Leon County, Florida. S D. R. ALEXANDER 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 25th day of February, 2016. COPIES FURNISHED: Stephen M. Masterson, Esquire Office of the Attorney General Revenue Litigation Bureau The Capitol, PL-01 Tallahassee, Florida 32399-1050 (eServed) Annais German World Champions Auto, Inc. 429 Northwest 38th Place Cape Coral, Florida 33993-5536 Annais German World Champions Auto, Inc. 613 Southwest Pine Island Road, Suite 14 Cape Coral, Florida 33991-1950 George C. Hamm, Acting General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 (eServed) Marshall C. Stranburg, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 (eServed)
The Issue The issue herein is whether the Department of Revenue's sales tax assessment against West Broward Chamber of Commerce as a result of the purchase of promotional books by the Chamber from Creative Public Relations and Marketing, Inc., is valid.
Findings Of Fact The West Broward Chamber of Commerce (Petitioner) entered into an oral contract with Mr. Randy Avon, a representative of Creative Public Relations, to purchase a promotional booklet pertaining to the West Broward area for distribution to the public. (Petitioner's Exhibit #1). Creative Public Relations in turn contracted with International Graphics to print the booklet. Mr. Bernard Fox, the Department of Revenue's (Respondent Area Manager in the Fort Lauderdale office and Mr. James W. Darrow, who worked with International Graphics during the time the transaction in question took place, testified and established that Mr. Randy Avon secured a sales tax number for the purchase of the promotional books in issue and presented the sales tax number to International Graphics. International Graphics sold the books to Mr. Avon for resale, without tax. The Department of Revenue issued an assessment against Petitioner for sales tax, penalty and interest due on the purchase of the books in question by Petitioner in the total amount of $1,307.56. Evidence reveals that said assessment was due as of December 20, 1978, and that since that time interest is accruing at a daily rate of $.31. This assessment was based on a total purchase price of $24,214.10, which, according to Mr. Fox and the statements contained in Respondent's Exhibit #1, was the price that Mrs. Gail Duffy, Petitioner's Executive Director informed the Respondent that the Chamber paid for the promotional booklets. Petitioner's treasurer, Helen Kerns, also testified that the total purchase price paid by Petitioner for the books was $22,104 and that part of the purchase price was paid directly to Creative Public Relations due to a dispute with an officer of the contracting entity, International Graphics. Mrs. Kerns testified that commissions were, however, paid by the Petitioner to Creative Public Relations, which commissions were not included in the purchase price as testified to by Mrs. Kerns. James W. Darrow, a witness who was allegedly privy to the agreement and understanding between the Petitioner and the seller, Creative Public Relations, testified that the oral contract price specifically included sales taxes on the transaction. Additionally, Mrs. Duffy testified that in her opinion, the sales taxes due on the purchase by Petitioner had been paid because she under stood that the total purchase price paid to Creative Public Relations by Petitioner included the sales tax. No sales invoices, receipt, or other tangible evidence of sales were offered into evidence at the hearing herein. Petitioner contends that the sales tax in question was included in the total purchase price. Based thereon, Petitioner contends that Creative Public Relations is now liable for the tax. Respondent, on the other hand, takes the position that the taxes from the sales transaction can be imposed on either the seller or the purchaser.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue's sales tax assessment against Petitioner be upheld. DONE AND ENTERED this 10th day of September 1979 in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of September 1979. COPIES FURNISHED: James T. Moore, Esquire 1265 Northwest 40th Avenue Lauderhill, Florida 33313 Cecil L. Davis, Jr., Esquire Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32301 Robert A. White, Esquire 5460 North State Road #7, Suite 220 Fort Lauderdale, Florida 33319
The Issue The issue is whether Petitioner owes additional sales and use tax, interest, and penalties, pursuant to a Notice of Proposed Assessment.
Findings Of Fact Ivan Soberal is the president and sole owner of Petitioner. Mr. Soberal started the business of Cycle Ivan's 12 years ago. At first, he operated as a sole proprietorship. He incorporated the business in 1997. This case commenced with Respondent's issuance of a Notice of Proposed Assessment dated October 23, 2002. The Notice of Proposed Assessment proposes the assessment of $26,917.69 in additional sales tax, $13,458.88 in penalty, and $9,417.61 in interest through October 23, 2002, for a total of $49,794.18. The notice warns: "If you choose to request either an administrative hearing or judicial proceeding, your request must be filed no later than FEBRUARY 20, 2003 or 60 days from the date the assessment becomes a Final Assessment." The notice adds: "The petition for an administrative hearing must be filed with the Department." Petitioner requested an administrative hearing by letter dated February 20, 2003, and received by, and filed with, Respondent on February 24, 2003. The audit period in this case is December 1, 1996, through November 30, 2001. During this time, Petitioner's business has been the sale and repair of motorcycles and scooters. Petitioner does not sell any new motorized vehicles with an engine displacement larger than 50 cc because doing so would require a dealer's license. Thus, most of the new motorized vehicles sold by Petitioner are small scooters manufactured in China or Japan. Petitioner sells used motorcycles on consignment. Over the years, Petitioner's business has transformed from primarily repairs to a greater emphasis on consignment sales to the present emphasis on part sales. This is an inadequate-records case. For the most part, the auditor used federal income tax returns and corporate income statements to calculate Petitioner's tax liability. The auditor had no cash register receipts, no journal entries, and limited bank statements (none for 1996, 1997, 1998, and 2001 and only two months in 1999 and three months in 2000). During the audit period, Petitioner used primarily repair orders to record sales of goods or services. After the audit period, Petitioner computerized its recordkeeping for inventory and sales, but, until then, the available records are extremely limited. Respondent's auditor tried to use samplings of Petitioner's invoices to determine any sales tax deficiencies, but the records were poorly maintained. Taking a sample over the first six months of 2000, the auditor was unable to find invoices totaling thousands of dollars, thus making it appear that Petitioner over-reported taxable sales during these months. Obviously, Petitioner did not over-report taxable sales, but instead had removed invoices from the records that it had provided the auditor. Recognizing the impossibility of reassembling Petitioner's actual taxable sales from its incomplete and nonexistent records, the auditor resorted to Petitioner's federal income tax returns and, for 2001, corporate income statements. By these means, Respondent's auditor determined Petitioner's gross sales, treated them entirely as taxable sales, and calculated the sales tax due on these gross sales. After having done so, the auditor subtracted the taxes actually remitted by Petitioner during the audit period, and the remainder is the sales tax deficiency in this case. Petitioner's basic claim is that many of its sales during the audit period are exempt. However, Petitioner's manner of calculating exempt sales during the audit period was no better than its recordkeeping. Each month, Petitioner subtracted its taxable sales, or what it deemed to be its taxable sales, from its bank deposits, and the remainder was its exempt sales. This method, of course, results in potentially vast overstatements of exempt sales. Petitioner lacks resale or consumer certificates of exemption to support its exemption claims. Mr. Soberal admitted at the hearing that he did not keep records of exempt sales. Exempt sales for Petitioner would also include parts sold to locations outside of the United States, but the nature of Petitioner's business suggests that this type of transaction would not produce significant sales. The only significant exemption in this case is service-only repairs, such as when parts are not required for the repair or the customer provides the parts. The best way of accounting for service-only repairs is to calculate them from the auditor's workpapers for the six months in early 2000 that he sampled. These workpapers identify which invoices are for service only and which invoices include parts, accessories, or other tangible personal property. After calculating the total of service-only repairs, it is possible to derive a fraction with the numerator being the total price of the service-only repairs and the denominator being the total sales reported by Petitioner, which, for each month, was higher than the total gross sales shown on the invoices that Petitioner produced for the auditor. Because this fraction is based on sales during the first half of 2000, which is relatively late in the audit period, it probably represents a fair allocation of service versus sales. As noted above, service transactions predominated early in the audit period, but sales transactions (first of vehicles and later of parts) predominated later in the audit period. Thus, the reduction of total gross sales for the entire audit period by this fraction generated the most reliable estimate of taxable sales during the audit period from available records and still does not reward Petitioner for its failure to maintain records. For January 2000, the service-only repairs total $1052.50 out of total reported sales of $8095.88. For February 2000, the service-only repairs total $1739.99 out of total reported sales of $10,311.55. For March 2000, the service-only repairs total $372.50 out of total reported sales of $11,654.93. For April 2000, the service-only repairs total $796.76 out of total reported sales of $8877.07. For June 2000, the service-only repairs total $595.50 out of total reported sales of $15,970.71. For July 2000, the service-only repairs total $409.95 out of total reported sales of $10,280.58. For these six months, service-only repairs total $4967.20 out of total reported sales of $65,190.72. The resulting reduction is 7.6 percent. Applying the reduction to the sales tax deficiency proposed in the Notice of Proposed Assessment, the resulting tax deficiency is reduced by $2045.74 to a new total of $24,871.95.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order dismissing Petitioner's protest as untimely and sustaining the total amount set forth in the Notice of Proposed Assessment dated October 23, 2002, or, in the alternative, reducing the additional sales tax due to $24,871.95 and recalculating the penalty and interest accordingly. DONE AND ENTERED this 14th day of November, 2003, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of November, 2003. COPIES FURNISHED: James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 George B. Grosheim Qualified Representative Accounting Services of South Florida. 1210 Southeast 5th Street Deerfield Beach, Florida 33441 Nicholas Bykowsky Assistant Attorney General Office of the Attorney General The Capitol--Tax Section Tallahassee, Florida 32399-1050
The Issue Whether the Department of Revenue's ("Department") assessment of tax, penalty, and interest against American Import Car Sales, Inc., 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. Petitioner, American Import Car Sales, Inc., is a Florida S-corporation with its principle place of business and mailing address in Hollywood, Florida. Petitioner, during the period of June 1, 2007, through May 31, 2010 ("assessment period"), was in the business of selling and financing new and used motor vehicles. On June 29, 2010, the Department issued to Petitioner a Notice of Intent to Audit Books and Records (form DR-840) for sales and use tax for the assessment period. Said notice informed Petitioner that the audit would begin on or around 60 days from the date of the notice and included an attachment identifying the records and information that would be reviewed and should be available when the audit commenced. Specifically, the Sales and Use Tax Information Checklist attachment requested the following: chart of accounts, general ledgers, cash receipts journals, cash disbursement journals, federal income tax returns, county tangible property returns, Florida Sales and Use Tax returns, sales journals, sales tax exemption certificates (resale certificates), sales invoices, purchase invoices, purchase journals, lease agreements for real or tangible property, depreciation schedules, bank and financial statements, detail of fixed asset purchases, and other documents as needed. On the same date, in addition to the Notice of Intent, the Department issued to Petitioner, inter alia, an Electronic Audit Survey, and a Pre-Audit Questionnaire and Request for Information. On September 17, 2010, the auditor requested the following records to review by October 4, 2010: (1) general ledger for the assessment period; (2) federal returns for 2007, 2008, and 2009; (3) lease agreement for the business location; (4) deal folders for the assessment period; (5) all expense purchase invoices for the assessment period; (6) all purchase invoices relating to assets added to the Depreciation Schedule during the assessment period; (7) resale/exemption certificates, shipping documents, and any other exempt sales documentation to support exempt sales during the assessment period; (8) bank statements for the assessment periods; and (9) all worksheets used to prepare monthly sales tax returns for the assessment period. On October 5, 2010, the auditor met with Petitioner's President Joe Levy, Petitioner's Secretary Joanne Clements, and Petitioner's Certified Public Accountant, Steve Levy. At that time, Petitioner provided a hard copy of the 2007 and 2008 general ledger and profit and loss statements. At that time, the auditor again advised Petitioner that the Department needed the federal returns, as well as the completed electronic audit survey and pre-audit questionnaire. On October 5, 2010, the Department and Petitioner signed a Consent to Extend the Time to Issue an Assessment or to File a Claim for Refund (form DR-872). The consent provided that assessments or claims for refunds may be filed at any time on or before the extended statute of limitations, December 31, 2011. On October 18, 2010, Petitioner provided the Department with the completed electronic audit survey and pre-audit questionnaire. Thereafter, Petitioner provided the Department with the following books and records: (1) 2009 "deal folders;" Petitioner's general ledger in Excel format for June 1, 2007, through December 31, 2010; (3) January 2009 through May 2010 bank statements; (4) a listing of exempt sales; and (5) lease agreements with attendant invoices. On August 25, 2011, the Department issued its assessment, entitled a Notice of Intent to Make Audit Changes (form DR-1215)("NOI"). Said notice provided that Respondent owed $2,324,298.42 in tax, $581,074.61 in penalties, and $515,117.04 in interest through August 25, 2011. The NOI addressed Petitioner's alleged failure to collect and remit tax on: (1) certain vehicle sales (audit Exhibit A01-Sales Tax Collected and Not Remitted)1/; (2) vehicle sales with no documentation regarding its exempt status (audit Exhibit A02-Disallowed Exempt Sales)2/; (3) motor vehicle sales where no discretionary tax was assessed (audit Exhibit A03- Discretionary Surtax)3/; and (4) unreported sales (audit Exhibit A04-Unreported Sales). The assessment also related to Petitioner's alleged failure to pay/accrue tax on: (1) taxable purchases (audit Exhibit B01-Taxable Purchases); (2) fixed assets (audit Exhibit B02-Fixed Assets); and (3) commercial rent (Exhibit B03-Commercial Realty). At hearing, Petitioner stipulated that the only component of the NOI remaining at issue pertains to audit Exhibit A04-Unreported Sales, as Petitioner has conceded A01, A02, A03, and all fee schedules. An understanding of audit Exhibit A04, and the assessment methodology employed by the auditor, is articulated in the Department's Exhibit MM, entitled Explanation of Items, which is set forth, in pertinent part, as follows: Reason for Exhibit: The records received for the audit were inadequate. The taxpayer provided bank statements for the period of January 2009 through May 2010. This period was deemed the test period for unreported sales. A review of the bank statements for the test period revealed that sales were underreported. This exhibit was created to assess for sales tax on unreported sales. Source of Information: Sales tax returns and Bank of America bank statements for the test period of January 2009 through May 2010; The Department of Motor Vehicles (DMV) [sic] was acquired for the period of June 2007 through May 2010. Description of Mathematical Adjustments: The bank statements were reviewed for the period of January 2009 through May 2010. Taxable Sales on sales tax returns, sales tax on sales tax returns, taxable sales on Exhibit on [sic] Exhibit A01, sales tax Exhibit A01 and Exempt Sales on Exhibit A02 was subtracted from Bank Deposits to arrive at unreported sales. See calculations on page 53. Unreported sales for the period of January 2009 through May 2010 were scheduled into this exhibit. A rate analysis of the DMV database resulted in an effective tax rate of 6.2689. Scheduled transactions were multiplied by the effective tax rate of 6.2689 to determine the tax due on the test period. A percentage of error was calculated by dividing the tax due by the taxable sales for each test period. The percentage of error was applied to taxable sales for each month of the audit period which resulted in additional tax due. The auditor's analysis of the test period, applied to the entire assessment period, resulted in a determination that Petitioner owed $1,599,056.23 in tax for unreported sales. On August 25, 2011, the auditor met with Joe and Steve Levy to discuss and present the NOI. At that time, Joe and Steve Levy were advised that Petitioner had 30 days to provide additional documents to revise the NOI. On September 28, 2011, the Department issued correspondence to Petitioner advising that since a response to the NOI had not been received, the case was being forwarded to Tallahassee for issuance of the Notice of Proposed Assessment ("NOPA")(form DR-831). On October 7, 2011, the Department issued the NOPA, which identified the deficiency resulting from an audit of Petitioner's books and records for the assessment period. Pursuant to the NOPA, Petitioner was assessed $2,324,298.42 in tax, $31,332.46 in penalty, and $534,284.54 in interest through October 7, 2011. The NOPA provided Petitioner with its rights to an informal written protest, an administrative hearing, or a judicial proceeding. On December 5, 2011, Petitioner filed its Informal Written Protest to the October 7, 2011, NOPA. The protest noted that the NOPA was "not correct and substantially overstated." The protest raised several issues: (1) that the calculation was primarily based upon bank statement deposits; (2) not all deposits are sales and sources of income; and (3) a substantial amount of the deposits were exempt sales and loans. The protest further requested a personal conference with a Department specialist. On January 10, 2013, Martha Gregory, a tax law specialist and technical assistance dispute resolution employee of the Department, issued correspondence to Petitioner. The documented purpose of the correspondence was to request additional information regarding Petitioner's protest of the NOPA. Among other items, Ms. Gregory requested Petitioner provide the following: [D]ocumentation and explanations regarding the source of income—vehicle sales, loan payments, etc.—for each deposit. For vehicle sales deposits, provide the customer name, vehicle identification number and amount; for loan payments, provide proof of an existing loan and the amount received from the borrower; and for any other deposits, provide documentation of the source of this income. A conference was held with Petitioner on February 7, 2013. At the conference, Ms. Gregory discussed the January 10, 2013, correspondence including the request for information. The Department did not receive the requested information. Following the conference, the Department provided the Petitioner an additional 105 days to provide documentation to support the protest. Again, Petitioner failed to provide the information requested. On June 14, 2013, the Department issued its Notice of Decision ("NOD"). The NOD concluded that Petitioner had failed to demonstrate that it was not liable for the tax, plus penalty and interest, on unreported sales as scheduled in audit Exhibit A04, Unreported Sales, as assessed within the compliance audit for the assessment period. Accordingly, the protested assessment was sustained. On July 15, 2013, Petitioner filed a Petition for Reconsideration to appeal the Notice of Decision ("POR"). The POR advanced the following issues: (1) the records examined were not the books and records of Petitioner; (2) the audit should be reduced because the auditor's methodology was incorrect; and the Petitioner should be allowed a credit for bad debts taken during the audit period. At Petitioner's request, on October 22, 2013, Petitioner and Ms. Gregory participated in a conference regarding the POR. At the conference, Petitioner requested a 30-day extension to provide documentation in support of Petitioner's POR. No additional documentation was subsequently provided by Petitioner. On April 29, 2014, the Department issued its Notice of Reconsideration ("NOR"). The NOR sustained the protested assessment. Petitioner, on June 30, 2014, filed its Petition for Chapter 120 Hearing to contest the NOR. Petitioner did not file its federal tax returns for the years 2008, 2009, and 2010 until after the Department issued the NOR. Indeed, the federal returns were not filed until June 3, 2014.4/ Ms. Kruse conceded that the auditor's assessment utilized Petitioner's bank statements to determine unreported sales; however, the auditor did not make any adjustments for "unusual items that would have been on the face of the bank statements." Ms. Kruse further acknowledged that the auditor's assessment does not reference Petitioner's general ledger information. Ms. Kruse acknowledged that, for several representative months, the general ledger accurately reported the deposits for the bank statements provided. When presented with a limited comparison of the bank statement and the general ledger, Ms. Kruse further agreed that, on several occasions, deposits noted on the bank statements were probably not taxable transactions; however, the same were included as taxable sales in the auditor's analysis. Ms. Kruse credibly testified that the same appeared to be transfers of funds from one account into another; however, because the Department only possessed the bank statements from one account, and never received the requested "back up information" concerning the other account, the Department could not discern the original source of the funds.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that The Department conduct a new assessment of Petitioner's sales and use tax based on a test or sampling of Petitioner's available records or other information relating to the sales or purchases made by Petitioner for a representative period, giving due consideration to Petitioner's available records, including Petitioner's general ledger, to determine the proportion that taxable retail sales bear to total retail sales. DONE AND ENTERED this 17th day of April, 2015, in Tallahassee, Leon County, Florida. S TODD P. RESAVAGE 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 17th day of April, 2015.
The Issue The issue is whether Respondent's Certificate of Registration 39-8011930243-9 should be revoked for the reasons stated in an Administrative Complaint for Revocation of Certificate of Registration (Administrative Complaint) issued by the Department of Revenue (Department) on June 5, 2014.
Findings Of Fact The Department is the state agency charged with administering and enforcing the state revenue laws, including the laws related to the imposition and collection of sales and use taxes pursuant to chapter 212. Respondent is a Florida limited liability corporation doing business as The Hyde Park Cafe at 1806 West Platt Street, Tampa, Florida. For purposes of collecting and remitting sales and use taxes, it is a dealer as defined in section 212.06(2) and is required to comply with chapter 212. Respondent holds Certificate of Registration number 39- 8011930243-9, which became effective on July 27, 2000. A certificate of registration is required in order to do business in the state and requires its holder to collect and remit sales tax pursuant to chapter 212. See § 212.05(1), Fla. Stat. Respondent is also an employing unit as defined in section 443.036(20) and is subject to the unemployment compensation tax (UCT) provisions of chapter 443, as provided in section 443.1215. Through an interagency agreement with the Department of Economic Opportunity, the Department provides collection services for UCTs. See § 443.1316(1), Fla. Stat. In doing so, the Department is considered to be administering a revenue law of the state. See § 443.1316(2), Fla. Stat. A dealer must file with the Department sales tax returns and remit the tax collected on a monthly basis. See § 212.15(1), Fla. Stat. Also, an employment unit must remit payment to the Department for UCTs due and owing on a quarterly basis. The Department is authorized to revoke a dealer's certificate of registration for failure to comply with state tax laws. See § 212.18(3)(e), Fla. Stat. If the Department files a warrant, notice of lien, or judgment lien certificate against the property of a dealer, it may also revoke a certificate of registration. See § 213.692(1), Fla. Stat. Before revoking a certificate of registration, the Department must convene an informal conference that the dealer is required to attend. See § 213.692(1)(a), Fla. Stat. At the conference, the dealer may either present evidence to refute the Department's allegations of noncompliance or enter into a compliance agreement with the Department to resolve the dealer's failure to comply with chapter 212. Id. After a compliance agreement is executed by the dealer, the Department may revoke the certificate of registration if the dealer fails to comply with its terms and conditions. See Pet'r Ex. 6, p. 2, ¶ E. If a breach occurs, the entire amount is due and payable immediately. Id. at ¶ G. An informal conference can be characterized as the Department's last administrative remedy to collect delinquent taxes before beginning revocation proceedings. A dealer can also enter into a diversion program with the State Attorney's Office to resolve liabilities, but the record shows that Respondent defaulted on that arrangement. According to the Department, collection problems with this dealer first began in 2003. Department records show that Respondent failed to remit required sales taxes for the months of January 2012, August through December 2012, January through December 2013, and January and February 2014. In addition, Respondent failed to remit UCTs for the calendar quarters ending September 2010, December 2010, March 2011, June 2011, September 2011, December 2011, March 2012, June 2012, September 2012, December 2012, and March 2013. Respondent does not dispute that it failed to timely remit and pay the foregoing taxes for the time periods listed above. For the purpose of collecting the delinquent taxes, the Department issued and filed against Respondent delinquent tax warrants, notices of lien, or judgment lien certificates in the Hillsborough County public records. See Pet'r Ex. 3. Before seeking revocation of Respondent's certificate of registration, on February 5, 2014, the Department's Tampa Service Center served on Respondent a Notice of Conference on Revocation of Certificate of Registration (Notice). See Pet'r Ex. 4. The Notice scheduled an informal conference on March 21, 2014. It listed 16 periods of sales and use tax noncompliance and 11 periods of re-employment tax noncompliance and provided the total tax liability as of that date. This number was necessarily fluid, as the taxes owed were accruing interest, penalties, and/or fees on a daily basis. The purpose of the informal conference was to give Respondent a final opportunity to make full payment of all delinquent taxes, or to demonstrate why the Department should not revoke its Certificate of Registration. As pointed out by the Department, an informal conference allows a dealer to bring up "any concerns" that it has regarding its obligations. Respondent's manager and registered agent, Christopher Scott, appeared at the conference on behalf of Respondent.1/ At the meeting, he acknowledged that the dealer had not timely paid the taxes listed in the Notice and that the money was used instead to keep the business afloat. However, Mr. Scott presented paperwork representing that sales and use tax returns and payments for the months of November 2013 through February 2014 had just been filed online, and checks in the amount of $8,101.41 and $9,493.99 were recently sent to Tallahassee. It takes 24 hours for online payments to show up in the system, and even more time for checks to be processed in Tallahassee. Accordingly, the Department agreed that Mr. Scott could have a few more days before signing a compliance agreement. This would allow the Department to verify that the payments were posted and recalculate the amount of taxes still owed. Also, before entering a compliance agreement, Respondent was required to make a down payment of around $20,000.00. Mr. Scott had insufficient cash, and a delay of a few days would hopefully allow him to secure the necessary money for a down payment. When none of the payments had posted by March 25, 2014, the Department calculated a total liability of $113,448.13, consisting of sales and use taxes and UCTs, penalties, interest, and fees. As of that date, none of the taxes listed in Finding of Fact 9 had been paid. On March 25, 2014, Respondent's controller, who did not attend the informal conference, sent an email to the Department requesting a breakdown on the new tax liability. In response to her request, the Department faxed a copy of the requested information. See Resp. Ex. 4. After getting this information, the controller continued to take the position that the Department's calculations overstate Respondent's tax liability. On March 31, 2014, Mr. Scott signed the compliance agreement. See Pet'r Ex. 6. Despite the controller testifying that she did not agree with the numbers, no question was raised by Mr. Scott when he signed the agreement. By then, the check in the amount of $8,101.41 had cleared and been credited to Respondent's account. Along with other funds, it was used towards the down payment of $20,000.00. The record does not show the status of the other payments that Mr. Scott claimed were mailed or filed online prior to the informal conference; however, on March 31, 2014, except for the one check, none had yet posted. The compliance agreement required scheduled payments for 12 months, with the final payment, a balloon payment in an undisclosed amount, being subject to renegotiation in the last month. Payments one and two were $1,500.00, while payments three through 11 were $2,900.00. The compliance agreement reflected a balance owed of $95,887.36, consisting of $60,504.34 in sales taxes and $35,347.02 in UCTs.2/ In return for the Department refraining from pursuing revocation proceedings, the compliance agreement required Respondent to "remit all past due amounts to the Department as stated in the attached payment agreement," "accurately complete and timely file all required tax returns and reports for the next 12 months," and "timely remit all taxes due for the next 12 months." Pet'r Ex. 1, p. 1. In other words, the compliance agreement addressed both delinquent taxes and current taxes that would be due during the following 12-month period, and it required that both categories of taxes be timely paid in the manner prescribed by the agreement. To summarize the salient points of the agreement, all taxes were to be timely paid; delinquent taxes were to be paid by certified check, money order, or cash and were to be mailed or hand delivered to the Tampa Service Center and not Tallahassee; and while not specifically addressed in the agreement, the dealer was instructed to pay all current obligations electronically, as required by law. Otherwise, Respondent was in violation of the compliance agreement. A Payment Agreement Schedule for past due taxes was incorporated into the compliance agreement and provided that the first payment was due April 30, 2014, payable to: Florida Department of Revenue, Tampa Service Center, 6302 East Dr. Martin Luther King, Jr. Boulevard, Suite 100, Tampa, Florida 33619. Payments 2 through 12 were to be mailed or hand delivered to the same address. This meant, with no ambiguity, that money should not be sent to Tallahassee. There is no credible evidence that these instructions were misunderstood. Unless a waiver is granted, Respondent is required by statute and rule to electronically file sales and use tax returns and UCT reports. See § 213.755, Fla. Stat.; Fla. Admin. Code R. 12-24.009 (where a taxpayer has paid its taxes in the prior state fiscal year in an amount of $20,000.00 or more, subsequent payments shall be made electronically). No waivers have been approved. In 2003, the Department notified Respondent of these requirements and Respondent complied with this directive until 2009. For reasons not disclosed, in 2009 Respondent voluntarily quit filing electronically. The record is silent on why this was allowed.3/ In any event, at the informal conference, Mr. Scott was specifically told that all current returns, reports, and taxes must be filed electronically, and not by mail, and that no money should be sent to Tallahassee. There is no credible evidence that he misunderstood these instructions. In its PRO, Respondent correctly points out that the requirement to file current returns electronically was not specifically addressed in the compliance agreement. This is because the compliance agreement does not set forth every statutory and rule requirement that applies to a dealer. If this amount of detail were required, a dealer could ignore any otherwise applicable rule or statute not found in the compliance agreement. This contention has no merit. Respondent failed to electronically file the current sales and use tax return and payment for the month of March 2014, due no later than April 21, 2014. Instead, it sent a paper check, which was returned by the bank for insufficient funds. This constituted a breach of the compliance agreement. Despite repeated instructions on how and where to pay the delinquent taxes, payment 1, due on April 30, 2014, was paid by regular check and sent to Tallahassee, rather than the Tampa office. This contravened the compliance agreement. When payment was not timely received by the Tampa Service Center, Respondent was told that a check must be delivered to the Tampa office by May 9. Respondent hand delivered a second check, this one certified, to the Tampa Service Center on May 9, 2014, or after the April 30 due date. The second check was treated as payment 1. Respondent points out that on May 7 the Tampa Service Center granted its request for an extension of time until May 9 in which to deliver the certified check. While this is true, the extension was allowed in an effort to "work with" the Respondent on the condition that the account would be brought current by that date; otherwise, revocation proceedings would begin. Even if the extra ten days is construed as a grace period for payment 1, there were other violations of the compliance agreement set forth below. Payment 2 for delinquent taxes, due on May 30, 2014, was paid by regular check and sent by mail to Tallahassee rather than the Tampa Service Center.4/ This contravened the compliance agreement. After the May 30, 2014 payment, Respondent made no further payments pursuant to the Payment Agreement Schedule. This constituted a violation of the compliance agreement. Respondent did not remit payment with its current sales and use return for the month of August 2014. This contravened the compliance agreement. Respondent did not file any current sales and use tax returns or remit payment for the months of July 2014 or September through January 2015. This contravened the compliance agreement. Beginning in March 2014, Respondent filed current reemployment tax returns and payments using the incorrect tax rate on every return. This delayed their processing and resulted in penalties being imposed. In addition, even though Respondent was repeatedly told that such returns must be filed electronically, none were filed in that manner, as required by statute and rule. This contravened the compliance agreement. In its PRO, Respondent contends the compliance agreement cannot be enforced because there was no "meeting of the minds" by the parties on all essential terms of the agreement. Specifically, it argues that the total amount of taxes owed was still in dispute -- the dealer contended that it owed $23,000.00 less than was shown in the agreement; the Payment Schedule Agreement did not specify the amount of the final balloon payment; the compliance agreement failed to state when payments are due if the due date falls on a weekend or holiday; the compliance agreement did not specify how the dealer's payments would be allocated between UCTs and sales and use taxes; and the compliance agreement failed to address the issue of filing electronically. Although some of these issues were not raised in the parties' Joint Pre-hearing Stipulation, or even addressed by testimony at hearing, they are all found to be without merit for the reasons expressed below. First, Mr. Scott did not dispute the amount of taxes owed when he signed the agreement, and he brought no evidence to the conference to support a different amount. Second, as explained to Mr. Scott at the informal conference, the precise amount of the balloon payment can only be established in the 12th month. This is because the exact amount depends on the dealer's compliance with the agreement over the preceding 11 months, and the amount of interest, penalties, and/or other fees that may have accrued during the preceding year. Third, there is no evidence that the dealer was confused when a due date for a payment fell on a weekend or holiday. Even if it was confused, reference to section 212.11(1)(e) and (f) would answer this question. Fourth, there is no statute or rule that requires the Department to specify how the delinquent payments are allocated. Moreover, neither Mr. Scott nor the controller requested that such an allocation be incorporated into the agreement before it was signed. Finally, the issue of filing electronically already has been addressed in Finding of Fact 22 and Endnote 3. At hearing, Respondent's controller testified that she was out of town when the conference was held, suggesting that Mr. Scott, who is not an accountant, was at a disadvantage when he attended the informal conference. However, Respondent had six weeks' notice before the conference, and there is no evidence that Respondent requested that the meeting be rescheduled to a more convenient day. Also, Respondent does not dispute that Mr. Scott was authorized to represent its interests at the conference, or that he could have been briefed by the controller before attending the informal conference or signing the compliance agreement. See also Endnote 1. Notably, at hearing, the controller testified that she "was involved in actually negotiating the agreement both before and after it was actually signed" even though she did not attend the conference. Tr. at 89. Respondent also contends that after the Department considered the compliance agreement to be breached, the dealer had no further obligation to make payments pursuant to the agreement or state law until the parties negotiated a new agreement. Aside from Respondent's failure to cite any authority to support this proposition, nothing in the compliance agreement comports with this assertion. To the contrary, the compliance agreement specifically provides that if a breach occurs, the entire tax liability becomes due immediately. See Pet'r Ex. 6, p. 2, ¶ G. Thus, Respondent is obligated to pay the entire tax liability, which now exceeds $200,000.00. All other arguments raised by Respondent have been carefully considered and are rejected as being without merit.
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 Respondent's Certificate of Registration 39- 8011930243-9. DONE AND ENTERED this 11th day of June, 2015, in Tallahassee, Leon County, Florida. S D. R. ALEXANDER 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 11th day of June, 2015.
The Issue The parties stipulated that the following legal issues were presented on the facts: When the taxpayer fails to claim the tax credit for sales tax on bad debts charged off during the month for which the return is filed as permitted by Section 212.17(8) Florida Statutes, may the taxpayer claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes? Does claiming a bad debt credit on a return for a month later than the month in which the charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes? STIPULATIONS The parties entered into a written stipulation of the issues, of the facts, and stipulated to the introduction into evidence of the attachments to the written stipulation of facts and the Exhibits 1 through 6. The following are the pertinent findings of fact in this case.
Findings Of Fact Causeway Lumber Company, Inc., (Causeway) is a Florida corporation engaged in the sale of lumber and building materials. During the years 1973- 1977 it operated two yards; one at 2701 South Andrews Avenue, Fort Lauderdale, Broward County, and one and 400 Northwest 2nd Avenue, Boca Raton, Palm Beach County. Because it operated in two counties, separate tax returns were filed for the Fort Lauderdale yard and the Boca Raton yard. Causeway uses the accrual method of accounting, the specific charge-off method of writing off bad debts, and its fiscal year ends March 31. Causeway did not collect the sales tax on credit sales at the time such sales were made, but billed sales tax to its customers as part of the credit sales. Although the sales taxes were not received by Causeway at the time the credit sales were made, Causeway reported and paid the sales tax on credit sales on the return for the month in which the sale was made as required in Section 212.06, Florida Statutes. In March of 1974, 1975, and 1976 the accounts receivable were reviewed and the account deemed worthless were written off as uncollectable and so reported on the corporation's income tax returns for those years. Causeway attempted to take as a credit in September of 1976 all of the bad debts written off in March of 1974, 1975 and 1976. The taking of this credit was questioned by the Comptroller, and Causeway paid the taxes due on the September 1976 sales tax remittance and then filed an application for refund on January 20, 1978, pursuant to provisions of Section 215.26, Florida Statutes. The Comptroller denied the application for refund stating as the grounds that there was no authority in Section 212.17, Florida Statutes, for a refund. Causeway's two outlets overpaid sales taxes in the following amounts in the years indicated: 1974 1975 1976 Boca Raton $ 1,072.51 $ 9,208.17 $ 30,477.11 Ft. Lauderdale 3,323.15 10,237.33 10,004.22 $ 4,395.66 $ 19,445.50 $ 40,481.33
Recommendation Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends to the Comptroller that the taxpayer be refunded the taxes overpaid in 1975, and 1976, in the total amount of $59,926.83. DONE and ORDERED this 9th day of October, 1978, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of October, 1978. COPIES FURNISHED: Richard W. Roe 2900 East Oakland Park Boulevard Fort Lauderdale, Florida 33306 Harold F. X. Purnell Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304 Eugene J. Cella General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 =================================================================
The Issue Whether the Department of Revenue's final assessment of sales and use tax plus interest against Petitioner Karsten Enterprises FL, Inc., is correct.
Findings Of Fact Petitioner is a corporation headquartered in Dothan, Alabama, doing business in Florida. The Department is an agency of the State of Florida that has been delegated the responsibility to collect sales and use tax imposed by Chapter 212, Florida Statutes. During the audit period in controversy, from October 1, 2004 through September 30, 2007, Petitioner was a dealer in manufactured or modular homes and did business at one or more Florida locations. During the pertinent period, Petitioner entered into various contracts to provide manufactured or modular homes to its customers for delivery at locations in Florida. At a Karsten Sales Center, models of residential factory-built buildings are displayed. These residential factory-built buildings are produced by manufacturers that Karsten uses for that purpose. In most of the transactions during the audit period, Petitioner's customers would contract with Petitioner for the sale and installation of a factory built building on property owned by the customer. In the remainder of the contracts during the audit period, Petitioner would either purchase the property or enter into a contract for the sale of the property to the customer, and Petitioner would install a home that Petitioner had purchased from a manufacturer and then sell the home and land package to the customer. The contract prices were a lump sum, which included not only the manufactured or modular home, but also installation of the home at a Florida location. Petitioner’s contracts with its customers did not itemize individual components of the modular or manufactured homes, such as individual nuts, bolts, and shingles, but instead agreed to deliver the entire modular or manufactured home on an installed basis. The contracts between Petitioner and its customers specify the type of home that the customer wanted to have erected or installed on the property. Upon selection of a floor plan, options, and other customization, the customer would agree to order a specific home from a manufacturer. Petitioner purchased the pre-fabricated manufactured or modular homes from various manufacturers. The manufacturer would produce the home upon receiving an order from Petitioner. The manufacturer shipped the completed home to Petitioner, delivering the home to the property where the home would ultimately be erected and installed. Once shipped to the site, the factory-built buildings were placed on a foundation constructed for that purpose. Petitioner would either directly, through the manufacturer, or through subcontractors, construct the foundations, place the homes on the foundations, and connect the homes to required utilities. All of these activities were done as part of Petitioner's contracts with its customers for real property improvement. In many instances, the manufacturer both delivered the homes to the sites and provided post-delivery services to the homes. Additional services provided by the manufacturer after it installed the homes on the foundations included trim work, repair work, and fit and finish work. Petitioner paid the manufactures directly for these post-delivery services. During the audit period at issue, Petitioner sold, erected and installed approximately 30 residential modular or factory-built buildings in the state of Florida. If the home was built by a Florida factory, the factory would include sales tax in its invoice to Petitioner, based upon the cost of materials, but not including labor, that the manufacturer used in the construction of the home prior to its delivery to the site. If an out-of-state manufacturer built the home, the manufacturer would not include a sales tax amount in its invoices to Petitioner. Rather, the out-of-state manufacturers indicated that the cost of materials for construction of the homes at the factory was approximately 60% of the purchase price Petitioner paid for the homes. When Petitioner closed its contracts with its customers, if the manufacturer was an out-of-state manufacturer that had not previously included a sales or use tax in its invoice to Petitioner, Petitioner would remit a use tax directly to the Department, based upon 60% of Petitioner’s purchase price of the manufactured or modular homes. In either case, whether paying sales tax directly to a Florida manufacturer based only on the Florida manufacturer's cost of materials, or remitting use tax on 60% of its purchase price of manufactured or modular homes from out-of-state manufacturers, rather than paying tax on 100% of the price it paid for the homes, Petitioner did not pay sales or use tax on the manufacturer’s labor or fabrication costs. In remitting use tax, or paying sales tax to the Florida manufacturers, Petitioner was seeking to pay tax only on the manufacturer’s cost of materials used in the manufacturing process. There is no dispute concerning the Department’s math calculations. Rather, Petitioner disputes that the labor costs were taxable. Petitioner has no proof that the Department has ever received payment of tax from any person on the manufacturer’s labor costs at issue in this proceeding. Drenea York, who testified for the Department, is an accountant and auditor with twenty years of experience, all in sales and use taxation. Tammy Miller, who testified for the Department, is an attorney who has worked with the Department for eight years within the Department's Technical Assistance and Dispute Resolution section (Department's Dispute Resolution Section). The Department's Dispute Resolution Section employs “Tax Conferees,” such as Ms. Miller, who hear informal taxpayer protests, issue the Department's notices of decisions regarding final assessments, and provide guidance to the public upon request. Her practice has focused principally upon sales and use taxation, and she has handled several cases involving taxation of modular home contractors. Tammy Miller signed the notice of decision regarding the Final Assessment at issue. She also wrote the article for the Florida Institute of Certified Public Accountants, which Petitioner introduced into evidence as P1. She testified as the Department’s corporate representative. Douglas Uhler testified as a former employee of Petitioner and also as an expert witness for the Petitioner. He is a CPA with some tax experience, who was not shown to be a specialist in taxation or in Florida sales and use taxation. He practices in Birmingham, Alabama, where he is licensed. He has knowledge and expertise in valuation and other areas, but was not qualified as an expert to testify as to the tax determinations at issue in this controversy. Neither Petitioner nor Mr. Uhler applied for a TAA. Mr. Uhler was permitted to testify, over the Department’s hearsay and relevancy objections, that he relied on an oral statement from an alleged Department employee, concerning how Florida sales and use tax law is applied in the manufactured and modular home industry. During his testimony, however, Mr. Uhler did not know the name of the person to whom he allegedly spoke and he was not sure that the person he spoke to was an employee of the Department of Revenue. Therefore, no weight was given to his testimony regarding his recollection of a conversation with an alleged Department employee on the issue of how Florida sales and use tax law is applied in the manufactured and modular home industry. During the audit period at issue, the Department made four revisions to its original audit report in response to additional information provided by the Petitioner. During this period, the Petitioner paid the uncontested portion of the Department's assessment, leaving only one issue in dispute: whether additional tax and interest is due on Petitioner’s purchase of the modular homes. The Department’s audit and resulting tax assessment considered Petitioner, and not the manufacturer, to be the “real property contractor” responsible for the payment of the tax, within the meaning of the aforementioned rule provisions. The Department’s determination that Petitioner was the responsible “real property contractor” is consistent with the fact that the real property improvement contracts at issue were entered directly between Petitioner and its customers, and not between the manufacturer and Petitioner’s customers. In its contracts with its customers, Petitioner directly arranged installation work, either providing the installation itself or through the manufacturer or a subcontractor on behalf of Petitioner's customers. The issue of whether Petitioner or the manufacturer performed the installation work, however, was not considered by the Department to be a determinative factor, in and of itself, in making the Final Assessment. According to the Department, it would not consider a manufacturer to be the responsible “real property contractor” unless the contracts for real property improvement were directly between the manufacturer and Petitioner’s customers. The evidence does not support a finding that Petitioner's customers had direct contracts for real property improvements with the manufacturers of the homes. The Department also considered Petitioner to be the “end user” under Chapter 212, Florida Statutes, and Florida Administrative Code Rule 12A-1.051(3) and (4), which, according to the Department, imposes tax on the “end user.” The Department considered Petitioner, as opposed to Petitioner's customers, to be the end user based upon the reasoning that Petitioner was the last party to purchase the modular units as “tangible personal property,” before the modular homes became affixed to real property. Ms. York and Ms. Miller explained that the Department did not consider Petitioner’s customers to be the “end users” because Petitioner's customers did not purchase resold items of “tangible personal property,” itemized in detail under Florida Administrative Code Rule 12A-1.051(3)(d). Rather, they explained that Petitioner’s customers, who purchased under lump- sum contracts, were considered to have purchased an improvement to real property, and improvements to real property fall outside the scope of the Florida sales and use tax chapter. In its audit, the Department examined Petitioner’s contracts with its customers solely to determine that the Petitioner was the end user or the “real property contractor.” The Department’s assessment did not seek to impose tax or interest liability on Petitioner’s transactions with its customers. Instead, the Department taxed Petitioner on Petitioner’s “cost price” of purchasing modular homes, giving Petitioner full credit for any partial tax that Petitioner had paid. As noted above, during the audit period, when it was dealing with a Florida manufacturer, Petitioner generally remitted sales or use tax directly to the manufacturer, at the time of purchase. More often, however, Petitioner paid sales or use tax on a monthly basis, by direct accrual or remittance to the Department on approximately 60% of the amount Petitioner paid for homes manufactured by out-of-state manufacturers. The invoices to Petitioner frequently included other itemized charges, which the Department did not consider part of Petitioner’s “cost price” of the purchased modular units. For example, if an invoice included sales or use tax, the Department excluded charges for tax when calculating Petitioner’s “cost price,” so as to avoid imposing tax on the itemized tax. Likewise, no charges for installation of the modular units onto real property were included in the Department’s calculation of “cost price.” The Department instead determined “cost price” by adding up the “Base Price” for purchasing the modular homes, together with itemized home “Options,” as they appeared on the manufacturer's invoices to Petitioner for the modular homes. Examples of several “Options” would be such things as better carpeting, a sliding glass door, or a plywood floor. The combined total of “Base Price” and “Options” were used by the Department in determining Petitioner’s “cost price” of purchasing the units as items of tangible personal property from the manufacturer’s factory. Petitioner's "cost price" as determined by the Department reflected the seller’s (in this case the manufacturer’s) material and labor costs. The Department's Final Assessment, however, did not include costs related to the installation of the modular homes onto real property, as those were considered by the Department as costs arising subsequent to the sale of the product as tangible personal property. The Final Assessment only sought tax on Petitioner’s purchase cost of the modular homes as tangible personal property leaving the factory. Because Petitioner had already paid tax on approximately 60% of its cost price, the Department’s assessment sought to capture the 40% of sales and use tax that Petitioner never paid. The Department's assessment determined that Petitioner owed tax on its own “cost price” as invoiced by the manufacturer. The Department determined that the Petitioner’s “cost price” was a different “cost price” than the manufacturer’s “cost price.” According to the Department, the manufacturer’s cost price excluded labor on its factory floor but Petitioner’s “cost price” included all materials and labor costs that were necessarily a component of Petitioner's actual purchase price. The Department’s auditor gave Petitioner full credit for all taxes paid, whether Petitioner had paid the tax by direct remittance or at the time that it paid an invoice, with one exception: credit was generally not given for payments made by Petitioner to a company named Cavalier because during the audit period at issue, Petitioner remitted certain amounts of sales tax to a manufacturer named Cavalier, but Cavalier refunded these amounts to Petitioner.3/ The Department’s audit and assessment did not treat Petitioner as a “manufacturer” nor give Petitioner the benefit of the special exemption, under Section 212.06(1)(b), Florida Statutes, which is available to manufacturers of a “factory- built building.” This is because the Department did not consider Petitioner to be a manufacturer. Although Petitioner argued that it qualified for the special exemption under Section 212.06(1)(b), Florida Statutes, under the theory that it was a "manufacturer," Petitioner failed to show that it is a “manufacturer” entitled to such exemption. In accordance with Petitioner's Application for Registration with the Department, Petitioner was registered as a “Manufactured (Mobile) Home Dealer” rather than as a manufacturer. In response to audit interview questions, Petitioner advised the auditor that it was in the business of “Retail Sale” of “Mobile and Modular Homes.” Petitioner made this same representation again in its response to a Pre-Audit Questionnaire and Request for Information. The first time that Petitioner ever asserted that it was a "manufacturer" was after Petitioner received the Department’s Notice of Intent to make Audit Changes, and became aware that, as a “real property contractor,” it would be assessed tax on 100% of its “cost price.” Petitioner then changed its self-description of its business model, asserting that it was a “manufacturer.” When Petitioner protested the Department’s assessment, however, it abandoned, at least at the informal protest stage, the argument that it was a manufacturer. Petitioner instead argued that it should be treated like a real property contractor engaged in the business of stick built homes. According to Tammy Miller, Petitioner's president, Mr. Copeland, told Ms. Miller during the informal protest process, that Petitioner was not a manufacturer. The Final Assessment corroborates Tammy Miller’s recollection because it addressed Petitioner’s various legal arguments but did not address Petitioner’s argument that it is a manufacturer, because that argument apparently was not made during the informal protest. The Amended Petition does not allege that Petitioner was a manufacturer or that it should be treated like one. Petitioner instead asserts that it is a modular home dealer who purchases from “the factory” and that it should be treated like a stick-built contractor. Petitioner stipulated that it is a modular home “dealer” and that it purchased the pre-fabricated manufactured or modular homes from various manufacturers. No evidence was introduced that Petitioner owns or operates factories or an assembly line. Rather, the evidence showed that Petitioner operated out of an office building in Alabama. No evidence was presented that Petitioner has been licensed or certified as a “manufacturer” by the Department of Community Affairs, which is the agency that regulates manufacturers of factory-built buildings. See Fla. Admin. Code R. 9B-1.002(15) and 1.007(1). Petitioner’s representative repeatedly referred to Petitioner, throughout opening statement, argument and testimony, as a dealer purchasing from the factory. The Department’s witnesses testified that the sales and use tax applies to “real property contractors” in a way that taxes all real property contractors (stick-built or modular) on their full “cost price” of purchased materials, regardless of whether the purchased materials are lumber, shingles, nails, finished kitchen cabinetry, or assembled modular home modules. The Department's witnesses explained that the cost price of each item purchased will vary because the item purchased in each instance is different and some items will include greater material and labor costs than others. The Final Assessment reflects the unpaid balance assessed, after all revisions and payments made, and provides a per diem amount so that accrued interest may be readily calculated. The Final Assessment determined that the unpaid balance of tax and interest for the audit period (after crediting Petitioner with all payments made) was as follows: $41,446.31 combined tax and interest through 1/26/09, with $7.57 per day for each day thereafter until the postmark date of payment. The Final Assessment waived all penalties.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that, consistent with the Final Assessment and this Recommended Order, the Department of Revenue enter a final order finding that Petitioner owes tax and interest due as of January 26, 2009, in the amount of $41,446.39, with interest thereafter accruing at $7.57 per day, without penalties. DONE AND ENTERED this 1st day of October, 2010, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of October, 2010.
Findings Of Fact Petitioner purchased a used car in Florida in May of 1983 and paid 5 percent sales tax. Petitioner did not title said car in the State of Florida. When Petitioner returned to Maryland, his state of residence, Maryland imposed a 5 percent tax on said car when Petitioner titled said car. Petitioner applied for a sales tax refund to the Department of Revenue in the amount of $225.00. Respondent issued a Notice of Intent to deny said refund application on December 1, 1983. From the exhibits to which the parties stipulated, additional facts are found by the Hearing Officer. A bill of sale indicates that Petitioner purchased a 1979 Buick Regal from Eddy Auto Sales on May 14, 1983. A temporary registration and receipt issued by the State of Maryland on June 17, 1983, shows that Petitioner paid a "title tax" of $222.50 to the State of Maryland. By letter dated January 27, 1984, Agnes Stoicos of the Maryland Department of Transportation indicates that the Maryland tax is a 5 percent excise tax upon the issuance of all original and subsequent certificates of title, and the tax is used primarily for the construction and the maintenance of the Maryland highway system.
The Issue The issue for determination is whether Petitioner owes unpaid sales and use tax, interest, and penalties for the period of February 1, 1994 through June 30, 1998.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings are made. Petitioner, Macfarlane, Ferguson, & McMullen, P.A., ("Macfarlane"), is a law firm located in Tampa, Florida. In May 1993, Macfarlane entered into a Copy Control Services Agreement ("1993 Contract") with Copy Control Center ("CCC"). The 1993 Contract, which was effective for three years, called for CCC to provide copying services within the physical confines of the MacFarlane law firm. CCC provided the personnel and MacFarlane provided the equipment and space for copying. The 1993 Contract called for a flat rate charge to Macfarlane. This stated flat rate charge covered a maximum number of copies each month. Pursuant to the terms of the 1993 Contract, so long as MacFarlane did not make more than 160,000 copies per month, it was charged a flat rate of $10,000 per month. Additional copy-related work over the flat rate charge for the maximum of 160,000 copies was at additional cost. An appendix to the 1993 Contract set forth the additional costs not covered by the flat monthly fee. If no copies were made under the contract, the base fee of the $10,000 would still have to be paid by Macfarlane. Paragraph 4 of the 1993 Contract required CCC to bill Macfarlane "monthly for the preceding month's copies." That paragraph of the 1993 Contract also provides that, "[i]ncluded with the invoice will be a detailed monthly usage report." The invoices issued under the 1993 Contract listed all costs for the month or preceding month. At the bottom of each invoice, CCC listed a total "sale amount" which consisted of the total of the copying facilities management charge and the additional charges. Between May 1993 and January 1994, Macfarlane paid sales tax on the total amount invoiced under the 1993 Contract (i.e. for all goods (copies) and services). In 1993 and 1994, the Department audited CCC. The audit was conducted by Elizabeth Sanchez, an auditor employed by the Department. Based on the 1993 and 1994 audit of CCC, the Department, through its auditor, Ms. Sanchez, alleged that CCC was not properly collecting sales tax from its clients, such as Macfarlane. Specifically, Ms. Sanchez determined that CCC should not have been taxing the entire cost of the 1993 Contract since a portion of the contract was related to services. Instead, the auditor represented that CCC should only tax the direct materials for the photocopy process (paper, toner, developer, and other supplies). Ultimately, CCC was assessed $16,000 in back taxes because it failed to pay sales tax on direct materials. During the aforementioned audit of CCC, Ms. Sanchez developed a formula which CCC could use in charging sales and use taxes to its clients. The formula was discussed with CCC personnel. CCC believed that the formula devised by Ms. Sanchez required or allowed the allocation of tax between nontaxable services and taxable photocopy consumables. Based on its understanding of the formula, CCC quit taxing Macfarlane for the entire amount of the monthly invoices issued under the 1993 Contract. Rather, consistent with its understanding of what was allowed under Ms. Sanchez's formula, CCC modified its billing to allocate tax between what CCC considered to be the facilities management services rendered under the 1993 Contract and the photocopy consumables used under that contract. The Department does not dispute that Ms. Sanchez developed a formula during the 1993 and 1994 audit of CCC. In fact, in the Department's Response to Petitioner's Request for Admissions, the Department admits that "Ms. Sanchez did audit Copy Control Center . . . and did develop a formula during that audit." However, the Department contends that the formula developed by Ms. Sanchez has no basis in law and fact and her actions are contrary to Rule 12A-1.0161(7)(a), Florida Administrative Code. According to the Department, that Rule requires both a statement of the actual cost of the taxable sales and the nontaxable services and the separation of taxable sales from non-taxable services in a contract or invoice for the service to be untaxed. In 1996, Macfarlane executed a new Copy Control Services Agreement with CCC (the "1996 Contract"). The 1996 Contract, dated May 22, 1996, was in effect from May 1996 through April 30, 2000. The 1996 Contract contained similar terms and conditions as the 1993 Contract, including a flat-rate charge and a maximum number of copies before additional charges were imposed. The flat-rate charge in the 1996 contract was $10,200 and the maximum number of copies before additional charges were imposed increased to 170,000. Additional copy- related work over the flat rate charge was at additional cost. The additional costs not covered by the flat monthly fee were set forth in an appendix to the 1996 Contract. Paragraph 6 of the 1996 Contract was entitled "Invoices." That section provides in pertinent part the following: A summary invoice for all Customer Locations shall be sent by Copy Control to the bill-to address and contact person of the Customer set forth hereinbelow, on a monthly basis. The monthly minimum base charge will be invoiced on the first day of each month. Additional charges for copies in excess of target volume or additional services from the previous month will be included with this invoice. In addition, Copy Control specifically agrees to provide to such Customer contact person, on a monthly in arrears basis, a summary report of the C.C.M. [Copy Control Management] Services transaction activity at, (A) all Customer Locations; and, (B) the Copy Control back-up facility, if any ("Summary Report"). Each Summary Report will contain, at a minimum, the following information: The total volume of Copies rendered; The number of Copies rendered per Customer location; The number of Copies above the Targeted Copy Volume, if any, and total Excess Copy Charge therefor by Customer Location and Copy Control back-up facility; The volume of Copies and associated dollar amount rendered at Copy Control's back-up facility, if any; The number of Copies "short" of Targeted Copy Volume; Additional Supplies procured, if any; Amount of overtime paid, if any, for Copy Control Personnel and dates therefor; A description of the Related Services, if any provided by Copy Control and the charge(s) therefore, if any; (emphasis supplied) Consistent with the terms of the 1996 Contract, CCC rendered an invoice to Macfarlane each month during the term of the contract and during the remainder of the audit period covered by that contract. Each invoice listed charges for making copies and off-site copies and other copy-related work and/or materials and products. Under the line for "Copying Facilities Mgt. Billing" were the additional charges made according to the appendix to the contract. The following invoice, dated June 30, 1995, is representative of the monthly invoices issued by CCC to Macfarlane during the period covered by the Department's audit of Macfarlane. That invoice provides in material part the following: COPY CONTROL CENTER INVOICE NO. 131611 3907 W. Osborne Avenue Tampa, Florida 33614 SOLD TO: MacFarlane Ausley & et al 23rd Floor LeeAnn Conley 111 E. Madison Street Tampa, Florida 33602 INVOICE DATE 6/30/95 QYT. ORDERED 1 QTY. SHIPPED 1 ITEM NO. COPIES DESCRIPTION COPIES UNIT PRICE 10000.00 Copying Facilities Mgt.Billing for June 23913 23913 Copies Copies Overage 0.04 1 1 TAX Tax on CCM Material 106.39 1 1 Copies Off Site Services 349.36 1 1 TONER 90 TONER 174.25 9 9 STOCK 8 1/2 x 11 White Paper 2.85 SALE AMOUNT 11612.17 MISC. CHARGES 6.500% SALES TAX 35.70 FREIGHT TOTAL 11647.87 For all the invoices generated under the 1996 Contract, CCC taxed Macfarlane in accordance with its understanding of the formula devised and recommended by Ms. Sanchez. Based on application of this formula, Macfarlane was charged and remitted only sales tax for the consumable goods portion of the contract. During the audit period which is the subject of this proceeding, February 1, 1994 through June 30, 1998, the sales tax was either 6.5 percent or 7 percent, whichever was in effect at the time of the invoice. The sales tax listed on the invoices do not reflect tax on the total amount of the invoice. A multiplication of the total amount by either 6.5 or 7 percent reveals that the amount of sales taxes paid by Macfarlane for the audit period in question, February 1, 1994 through June 30, 1998, was only on a small portion of the total invoice billing. The 1993 Contract and the 1996 Contract between Macfarlane and CCC do not address, contain language, or speak directly to any "facilities management services." Neither do the contracts define the terms "service," "related services," or "other related services." Although the terms listed in paragraph 22 above are not defined in the 1993 Contract and the 1996 Contract, Mr. Cayo, the regional operations manager of Lanier Professional Services (LPS), formerly CCC, testified that other services included facilities management services. According to Mr. Cayo, "facilities management" at Macfarlane included making deliveries and rounds, key-oping equipment, filing, supporting, and cleaning and setting up conference rooms. Diane Garner, an employee of CCC, was assigned to work at Macfarlane during the time of the audit period which is the subject of this proceeding. Ms. Garner testified that facilities management services or other services provided by CCC included providing coffee service, sorting mail, sending and delivering faxes, sending and delivering Federal Express packages, moving boxes, ordering and delivering office supplies, and making interoffice mail runs. If the above-described facilities management services were provided, none of the invoices sent by CCC to Macfarlane separately listed any charges to Macfarlane for those services. Moreover, CCC did not separately list on its invoices to Macfarlane a charge for "mail delivery," "filing," "charge-back accounting," or "clerical services," or any other such services. If these services were deemed "related services," the provisions of the 1996 Contract quoted in paragraph 16 required that a description of such services be provided on the invoice or summary report. No description of the foregoing services appears on any of the invoices prepared by CCC and issued to Macfarlane. No other contracts existed between CCC and Macfarlane during the audit periods which reflect that the services described in paragraphs 23 and 24 above would be offered or provided by CCC to Macfarlane. The Department audited Macfarlane in 1999. The audit was conducted by Darlene Bebbington, an auditor with the Department. During this audit, contrary to the position of Ms. Sanchez during the aforementioned audit of CCC, the Department stated that Macfarlane was required to pay tax on the full amount of the invoices. This conclusion was reached by Ms. Bebbington based on the information contained on each invoice. The invoices did not itemize or otherwise separately list or detail products, materials, and/or services that were exempt from tax. To address issues raised by Ms. Bebbington during the audit, Macfarlane sought information from CCC regarding the sales tax amounts that were listed on the invoices. In response, CCC provided two letters to Macfarlane, one dated April 29, 1999, and the second one dated September 22, 1999. In the April 29, 1999, letter to Macfarlane, Mr. Cayo explained how the company handled the sales tax issue for Facilities Management customers and the rationale for doing so. Mr. Cayo stated that during the Department's audit of CCC, Ms. Sanchez indicated that "Facilities Management" was a service and it "was not subject to be taxed." In the letter, Mr. Cayo also stated that all equipment and material used in the performance of these services needed to be taxed, but not the total "Facilities Management" charge. The September 22, 1999, letter was from Andrew Schutte, Finance Manager of LPS, formerly CCC, to Macfarlane and was in response to a specific inquiry from Macfarlane. In that letter, Mr. Schutte stated that the two full-time CCC employees working at the Macfarlane office assigned 87 percent of their collective time performing various facilities management services and spent approximately 13 percent of their collective time making photocopies. However, the letter did not indicate how Mr. Schutte arrived at the quoted percentages or the time period for which those percentages applied. Based on CCC's claim that the formula devised by Ms. Sanchez was used to calculate the amount of sales tax it should charge Macfarlane, Ms. Bebbington pulled CCC's audit file from the Department's records. The Department contends that any agreement to use a formula such as the one described in paragraph 10, should have, by Department policy, been in writing, signed by the auditor and the supervisors, and placed in the audit file. However, upon a review of the Department's records, no such written agreement or documentation was in the CCC audit file. In light of the Department's admission noted in paragraph 13 above, Ms. Sanchez devised a formula which was shared with CCC, but she apparently did not include this formula or her discussions with CCC in the audit file. After Ms. Bebbington completed the audit of Macfarlane and based on the results thereof, the Department notified Macfarlane that it intended to impose additional sales and use tax, interest, and penalties. After the audit report was issued Macfarlane objected to the findings and requested that the Department reconsider the assessment. On or about April 10, 2001, the Department issued a Notice of Reconsideration ("Notice") based on Macfarlane's protest of the Department's audit findings for the period of February 1, 1994 through June 30, 1998. The Notice showed that Macfarlane owed additional sales and use tax of $35,958.27, a penalty of $17,979.37, and interest through April 6, 2000, of $16,701.32, and additional interest through April 12, 2000, of $3,606.12. The notice also indicated that interest would continue to accrue at $9.72 per day from April 12, 2001. According to the Notice, Macfarlane made a payment of $6,407.65 to the Department on April 6, 2000, leaving an unpaid balance of $67,837.43. Macfarlane asserts that it should not have to pay sales and use tax on the full amount of the invoice because a portion of that amount is for services that are exempt from sales and use tax. Contrary to this assertion, the auditor found that the invoices and other documentary evidence provided to the Department did not provide substantial competent evidence that any portion of the invoice amounts were attributable to products, materials, or services that were exempt from tax. Accordingly, based on the information provided by Macfarlane, the Department properly concluded that the total amount of each invoice was subject to sales and use tax. Because there is no substantial competent written documentation evidencing what tax exempt services were performed by CCC for Macfarlane and what specified portion of the monthly costs invoiced to Macfarlane were for those "claimed" tax exempt services, Macfarlane is liable for the entire amount on the invoices for the audit period. There is nothing in the record to indicate that Macfarlane did not timely pay the total amount of the invoices, including the amount attributable by CCC to sales and use tax. But for CCC's changing the manner in which it calculated the sales and use tax for its customers in early 1994, Macfarlane would have continued paying the tax on all goods and services as it did prior to January 1994.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that a final order be entered sustaining the assessment for sales and use tax against Petitioner, but compromising the entire interest and penalty amount. DONE AND ENTERED this 6th day of March, 2002, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 6th day of February, 2002. COPIES FURNISHED: James W. Goodwin, Esquire MacFarlane, Ferguson & McMullen, P.A. 400 North Tampa Street, Suite 2300 Tampa, Florida 33602 Bruce Hoffman, 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 Jarrell L. Murchison, Esquire Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Eric J. Taylor, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 David Adams, Esquire Charles Moore, Esquire Macfarlane, Ferguson & McMullen, P.A. 400 North Tampa Street, Suite 2300 Tampa, Florida 33602
