The Issue By stipulation of the parties, at issue is whether the definition of "amusement machine operator" in Emergency Rule 12AER91-2(1)(a), Florida Administrative Code, and the effective tax rate prescribed in Emergency Rule 12AER91-2(2), Florida Administrative Code, constitute invalid exercises of delegated authority.
Findings Of Fact Petitioner, the Florida Amusement Vending Association, Inc. (FAVA), is a Florida corporation comprised of members of the amusement, game and vending industry. FAVA is primarily composed of businesses operating in the State of Florida. Respondent is the statutory entity with authority for administration of revenue laws of the State of Florida. General authority for that administration is set forth in Chapter 213, Florida Statutes. Section 213.05 of that Chapter provides specific authority for administration of the sales and use taxes at issue in this proceeding. Pursuant to enactment of Chapter 91-112, Laws of Florida, a sales tax was imposed on charges for the use of coin- operated amusement machines, effective July 1, 1991. A new paragraph (j) was added to subsection 212.05(1), Florida Statutes, codifying the imposition of the sales tax at the statutory rate of 6 percent on each taxable transaction or incident related to use of coin-operated amusement machines. Respondent adopted Emergency Rules 12AER91-2 and 12AER91-3, Florida Administrative Code, pursuant to authority in section 171 of Chapter 91-112, Laws of Florida. The emergency rules were filed with the Secretary of State by Respondent on June 27, 1991 and became effective July 1, 1991. AMUSEMENT MACHINE OPERATOR The term "operator" with regard to coin-operated amusement machines is defined in Section 171 of Chapter 91-112, Laws of Florida, and reads as follows: The term "operator" means any person who possesses a coin-operated amusement machine for the purpose of generating sales through that machine and who is responsible for removing the receipts from the machine. Emergency Rule 12AER91-2(1)(a), defines the term "operator" in identical language, with exception of the words "amusement machine", as follows: The term "amusement machine operator" means any person who possesses a coin-operated amusement machine for the purpose of generating sales through that machine and who is responsible for removing the receipts from the machine. Both statute and rule state that an "operator" means the person possessing the coin-operated amusement machine for the purpose of generating sales through the machine and empowered with responsibility for removal of receipts from the machine. While industry practices vary regarding the individual responsible for removal of receipts from these machines, the machine owner often retains a key and responsibility for removal of money from the machine. EFFECTIVE TAX RATE The tax imposed on charges for the use of coin- operated amusement machines at the statutory rate of 6 percent is levied on each taxable transaction or incident related to use of coin-operated amusement machines. In Florida, and nationally, these machines are typically operated based upon payment of charges of 25 cents, 50 cents, 75 cents, and one dollar. Respondent's effective tax rate is based upon the prices typically charged for use of the machines. Effective tax rates are prescribed in the case of businesses or industries where it is impractical to separately state the tax on each transaction. Brackets have been established by legislative enactment in Section 212.12(09), Florida Statutes, stating the tax due on charges due on other than even multiples of a dollar. The rates reported in Section 212.12(09) are for prices of less than one dollar and are stated in terms of amount or cents of tax, rather than percentages. For a transaction greater than nine cents, up to one dollar, the effective tax rate almost always exceeds the nominal rate of six percent. Sometimes that tax rate may be as high as 11.76 percent. Emergency Rule 12AER91-2(2)(c), Florida Administrative Code, in pertinent part, states: Operators of coin-operated amusement machines into which money is inserted will be considered to be remitting tax at the rate prescribed by law if their remittances on the charges for the use of the machines do not fall below the effective tax rates established by this rule. These rates recognize the variations resulting from multiple charges. It is presumed that the charge for use of the coin-operated amusement machine was adjusted to include tax. The rule goes on to state the effective tax rates for counties with a nominal tax rate of 6 percent, 6.5 percent and seven percent. Where these tax rates are in effect, the effective tax rates are, respectively, 7.81 percent, 8.38 percent and 8.46 percent. 1/ While a dealer or operator is considered to be remitting tax at the rate prescribed by law, he should be prepared to demonstrate, in the event an audit by Respondent reveals remittance at a lesser rate, that his remittance is correct. As established by Section 212.12(9), Florida Statutes, a nominal 6 percent tax rate, for a transaction totalling 25 cents, presumes that the selling price was 23 cents with 2 cents tax (an effective tax rate of 8.7 percent). Likewise, the statute also establishes the presumption that a fifty cent transaction consists of a selling price was 47 cents, with 3 cents tax (an effective tax rate of 6.38 percent). If the transaction totals 75 cents, the statutory presumption is that 5 cents of the total is tax (an effective tax rate of 7.14 percent). Transactions totalling one dollar are statutorily presumed under Section 212.12(9), Florida Statutes, to include 6 cents tax within that total (an effective tax rate of 6.38 percent). When Respondent exercises its statutory authority 2/ to establish effective tax rates for an industry, in the absence of documentation of transactions establishing the amount of tax in accordance with the statutory rates set forth in Section 212.12(9), Florida Statutes, a determination of financial and economic characteristics of the whole industry is made. In the amusement vending machine industry, price per play is known, but no data exists on the number of transactions occurring in Florida at a particular machine. As an example, a customer could put multiple quarters in a machine for multiple plays constituting one transaction, or many individuals could put one quarter each in a machine for many transactions. Effective tax rates will not give the same economic result for each taxpayer, e.g., the rate may be high or low for a particular taxpayer. However, the rate is calculated in such a manner that it is correct for the industry as a whole, i.e., the effective rate is set so that the industry as a whole remits taxes on gross receipts in the same manner as would occur if the industry remitted taxes on each individual transaction. While no specific data applicable to the amusement game industry in Florida exists regarding number of transactions occurring at specific prices, Florida's amusement and game industry is not significantly different or atypical of the national industry. National data on the industry is available and was considered by Respondent in formulating the effective rates in the emergency rules challenged in this proceeding. Data reported in the publication Vending Times is generally accepted by the amusement game industry within Florida and nationwide. Game revenues by type of game for the entire United States were published in 1989 in that publication. That data was adjusted by Respondent and used to predict 1991 estimated sales in Florida and nationwide. Total game sales revenue estimated for Florida in 1991 by Respondent was $425,420,000. National sales revenue was predicted to be $9,529,890,000. Data developed by Playmeter Magazine, a publication generally accepted in the national and local state industry, supports a conclusion that 44 percent of all operators of pinball machines have no plays costing more than 25 cents and 52 percent of all electronic games operate for only 25 cents. There is no data establishing the amount of national revenue generated by these machines. Respondent's amusement game sales data study separated revenue by categories of amusement machine. The categories were derived from the census of the industry reported in Vending Times. Study data incorporated typical price points or sales prices used in the industry as well as the categories of coin- operated amusement games reported in the national survey. Respondent's study derived an estimate of revenues by type of game by relying upon typical price points or sale prices in the industry, national survey results, and independent consultations with persons responsible for the national surveys. The estimate of the share of those revenues predicted to be generated in the State of Florida from the amusement vending machine industry was based upon Florida personal income and Florida population as a share of national personal income and national population. After determining revenue estimates for the State of Florida, Respondent adjusted the estimates to reflect inflation; the State of Florida's general share of economic activity, as modified by retirees and transient population; and a minor adjustment reflecting that dart playing is notably weaker in Florida than in other states. Respondent's estimate of revenues was necessary due to the lack of industry revenue data categorized by price and play volume. As previously noted, the machines typically operate upon payment of charges of 25 cents, 50 cents, 75 cents, and one dollar. Respondent estimated revenues at each of these price points for 1991 in order to establish effective industry wide tax rates for each price amount. Respondent derived revenue estimates for each price point from projections of revenue expected to be received from each type of game. Adjustments for multiple 25 plays were made. Respondent's industry average effective tax rate of 7.81 percent set forth in Rule 12AER91-2 is derived from a calculation of a weighted average of effective tax rates for typical sales prices within the industry. Petitioner basically takes issue with Respondent's findings that the vast majority of industry revenue results from 25 cent transactions. While asserting that the data relied upon by Respondent in arriving at revenue estimates is out-dated, testimony presented by Petitioner that newer, higher revenue generating machines have taken the market in the State of Florida (thereby dictating application of a lower effective rate on the basis that most revenues now allegedly come from 50 cent or higher priced game play) was unsupported by any alternative documentation or research from any disinterested third party source and is not credited.
Recommendation Based on the foregoing findings of fact and conclusions of law I hereby recommend that the Petitioner's challenge to the Department's determination of sales taxes due herein pursuant to Chapter 212, Florida Statutes, be denied and that the revised assessment notices be upheld as issued. RECOMMENDED this 17th day of January, 1978, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Cecil Davis, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 Robert F. Nunez, Esquire Post Office Box 12726 St. Petersburg, Florida 33733 Mercer Farrington, Esquire Post Office Box 1548 Tallahassee, Florida 32302
Findings Of Fact Based upon the oral and documentary evidence presented at the final hearing and the entire record in this proceeding, the following findings of fact are made: Petitioner Conklin Shows, Inc., is a Florida corporation with its principal place of business in West Palm Beach, Florida. Conklin is engaged in the business of providing midway attractions for large fairs. The company services between five and eight fairs per year and provides rides as well as food and game concessions. In most instances, Conklin provides a turn-key operation whereby it provides all rides and concessions, sells tickets, collects all fees and charges, and pays the particular fair authority the amount set forth in the underlying agreement between the parties. Conklin owns and operates some of the rides that it provides and also owns a few food concessions. It also contracts with independent ride owners as well as food and game concession owners to provide the services necessary for a particular fair. Southeast Florida and Dade County Youth Fair Association, Inc. (the "Association") is a corporation which conducts an annual youth fair, in Dade County, Florida (the "Fair") in accordance with Chapter 616, Florida Statutes. Conklin has provided midway attractions, including rides, games and food concessions, for the Fair since the late 1970s. Initially, Conklin provided a complete turn-key operation for the Fair. In 1980 or 1981, the Fair advised Conklin that it wanted to modify the arrangement so that the Fair collected and dispersed all monies and retained the right to book attractions independently. Consequently, the parties modified their agreement so that the Association sold all the tickets used by the Fair-goers for admission and for rides. In other words, cash was not accepted from the public for admission and/or rides. The evidence indicates that cash was accepted at game and food booths. The Association employed all ticket sellers, sold admissions and tickets and paid the appropriate taxes on the sales. As discussed below, at the end of each day, the Association distributed the proceeds of the ticket sales and settled up with the food and game concessionaires. Conklin was paid an agreed upon percentage of the proceeds of the ticket sales after taxes. As part of the settlement, Conklin reimbursed the Association for certain expenses. In approximately March of 1990, DOR began an audit of Conklin at its offices in West Palm Beach. The audit was conducted primarily by Ms. Van T. Ho, a tax auditor with DOR. The audit covered the period between June 1, 1985 through February 28, 1990. Ms. Ho concluded that certain contractual arrangements between Conklin and its subcontractors who provided rides, games and food concessions for the Fair should be construed as the sublease or sublicense of the rental of real property. Since Conklin had not remitted sales tax to the State of Florida for these subleases or sublicenses, she concluded that sales tax should be assessed against Conklin. In addition, Ms. Ho reviewed Conklin's records regarding purchases of parts and materials and concluded that appropriate sales tax had not been paid on certain purchases. The audit results with the additional assessed taxes, penalties and interest were incorporated in a Notice of Intent to Make Sales and Use Tax Audit Changes dated October 24, 1990 (the "Notice of Intent.") In the Notice of Intent, DOR advised Conklin that it had been found liable on various transactions subject to tax under Chapter 212, Florida Statutes, during the period June 1, 1985 through February 28, 1990. The Notice of Intent sought a total of $655,982.04 for taxes, penalties and interest through October 24, 1990 with additional interest at the rate of $142.69 per day. A Notice of Proposed Assessment was issued by DOR on April 25, 1991. Conklin protested the proposed assessment in a letter dated June 19, 1991. Ultimately, DOR issued a Notice of Decision dated May 27, 1992 upholding the audit findings. Conklin timely initiated this administrative challenge to DOR's Notice of Decision. At the commencement of the hearing in this matter, DOR announced that it was no longer contending that Conklin was subletting real property. Instead, DOR asserted that Conklin's contractual arrangements for ride subcontracts and for food and game concessions should be construed as licenses to use real property. Since the sales tax on a license to use real property did not become effective until July 1, 1986, DOR conceded that the assessment against Conklin should be reduced to delete any sales taxes related to the fairs conducted in February of 1985 and 1986. As set forth in the Preliminary Statement, DOR set forth its recalculated assessment in a late-filed exhibit which was submitted on March 26, 1993. The parties stipulated that the recalculation submitted on March 26, 1993, should be accepted as an amendment to Petitioner's Exhibit 1. According to that amendment, Petitioner is seeking a total of $468,520.80 for taxes, penalties and interest allegedly due through January 17, 1991 with a per diem interest rate of $105.58. For purposes of this proceeding, the proposed assessment can be broken down into four categories: (1) sales tax allegedly due from Petitioner on rental or license income from subcontractors who provided rides at the Fair; (2) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to food concessionaires; (3) sales tax allegedly due as the result of the sublease or sublicense of real property by Conklin to game concessionaires; and (4) purchase tax allegedly due on parts and materials bought by Conklin which it claims were utilized in manufacturing or repairing rides for export. Rides During the years 1987 through 1990, Conklin contracted to provide rides to the Association for the Fair. Conklin was required to provide a specific number of rides in certain categories together with all personnel required to operate the rides. Conklin was also responsible for all expenses attributable to the operation and maintenance of the equipment. During all of the years in question, the Association sold the tickets for all rides, collected the proceeds and paid the applicable sales tax and remitted the agreed percentage of the after-tax receipts to Conklin. Conklin was paid a sliding scale percentage of the net revenues from the rides. Conklin typically contracted to provide more rides than it owned. In order to satisfy its contractual obligation, Conklin entered into agreements with independent ride owners. These subcontractors would provide all transportation, assembly and disassembly necessary for the ride, together with all personnel required for operation. Conklin did not take possession or exercise any direction or control over the physical operations of the ride. The subcontractor was responsible for all expenses related to the operation and maintenance of the ride and was required to reimburse Conklin for a proportionate part of the common expenses. Conklin agreed to pay the ride owner a percentage of the receipts attributable to that ride after sales tax. Each ride owner collected tickets from the Fair attendees. The subcontractors would turn their tickets over to Conklin. Conklin turned in the tickets for all rides provided by it and its subcontractors to the Association. After Conklin was paid its percentage by the Association, Conklin would pay the subcontractors a percentage attributable to their particular ride in accordance with the agreement between Conklin and that subcontractor. Conklin retained a portion of the amount received from the Association for all of the subcontracted rides. The subcontractors did not make any payments to Conklin nor did Conklin make any payments to the Association. The Association set the times of operation and other general policies for the Fair, but exercised no direction or control over the physical operation of any of the rides. In each case, the owner of the equipment furnished the operator and all operating supplies and made the particular ride available at the time dictated by the Association. DOR contends that the difference between the amount received by Conklin from the Association for rides provided by subcontractors and the amount paid by Conklin to the subcontractors was taxable because it arose from a sublicense of real property. 2/ Conklin, on the other hand, argues that its contractual arrangement with the subcontractors should be viewed as a nontaxable service transaction since it paid the subcontractors who in turn provided the rides together with operating personnel and expenses. As discussed in the Conclusions of Law below, Conklin's interpretation is consistent with the language of the subcontracts and more accurately reflects the relationship created by the parties. The mere fact that a ride was operated on real estate owned by another party should not be conclusive of whether the arrangement should be viewed as a license of real property as opposed to a rental of equipment. Food Concessions Conklin executed separate agreements with the Association to provide certain food and game concessions for the Fair during the years 1987 through 1990. The contracts between the Association and Conklin for food and game concessions were entitled "License Agreement for Exhibitors and Concessionaires." Those agreements specifically provided: It is understood and agreed the below described space is not leased to the Licensee [Conklin], rather he is a Licensee and not a lessee thereof. Under the food concession agreements, Conklin was obligated to provide specific food concessions, including all labor and operating expenses. The contract between the Association and Conklin designated specific areas at the Fair where the concessions were to be set up. The Association was entitled to a percentage of the gross receipts of the sales by the concessions. Conklin did not own any of the equipment utilized in connection with the food concessions. It entered into agreements with concessionaires to provide the personnel, equipment, goods and materials utilized. The concessionaire was responsible for all of the expenses involved with the concession. The concessionaire collected all of the money and settled daily with the Association by paying the Association the percentage due under its agreement with Conklin (which was normally twenty-five percent) together with the tax on that amount and the sales tax on all sales. The Association remitted the taxes on the rental (license) amount and the sales. Conklin was not privy to the settlement between the food concessionaires and the Fair. It was given a copy of the settlement sheet. The concessionaire paid Conklin a percentage of the gross based upon its agreement with Conklin. That percentage was normally between seven and ten percent. In the Notice of Assessment, DOR lumped food and game concessions together and assessed tax based upon its determination of the amount received by Conklin. The evidence presented at the hearing in this case established that the Notice of Assessment mistakenly included gross revenues rather than the net received by Conklin from game concessions. Petitioner's Exhibit 13 sets forth the correct amounts received by Conklin from food and game concessions during the years in question. During the years 1987, 1989 and 1990, the amounts received by Conklin from food concessions at the Fair were $11,919.73, $11,521.21 and $13,034.49 respectively. The Notice of Assessment indicates that there was no taxable income from food and game concessions in 1988. No explanation was given for this anomaly. Although there was no assessment for food and game concessions for 1988 in DOR's Notice of Assessment, Petitioner's Exhibit 13 indicates that Conklin received $16,975.22 from food and game concessions that year of which $11,938.44 was apparently attributable to food concessions. DOR contends the amounts received by Conklin from the food concessionaires were taxable because the arrangement constituted a sublicense of real property. Conklin contends that the money received from food concessions is exempt from taxation for the years since 1988 pursuant to Section 212.031(1)(a)(10), Florida Statutes. In its Proposed Recommended Order, Conklin conceded that this exemption did not come into effect until 1988. Consequently, Conklin admitted that it owed tax on the proceeds it received from the food concessions in 1987 ($11,919.73.) The evidence presented in this case was insufficient to conclude that Conklin was entitled to the exemption for the years subsequent to 1987. The exemption relied upon by Conklin is limited to a publicly owned arena, sports stadium, convention hall, exhibition hall, auditorium or recreational facility. While the parties agree that the Fairs in question were conducted pursuant to Chapter 616, Florida Statutes, no evidence was presented to establish that the Fair was conducted in one of the specified exempt facilities. Game Concessions With respect to the game concessions, Conklin agreed to provide a certain number of game booths and to pay a set fee to the Association for each game along with a five percent rental realty tax on that fixed amount. 3/ Conklin did not own or operate any game concessions itself. It contracted with the owner/operators of the various games. The owner/operator would provide all of the equipment and personnel. The game owner was responsible for collecting the money, paying all expenses of operation, paying the applicable sales tax to the Association and also paying the Association the contractual percentage and rental taxes set forth in the agreement between Conklin and the Association. The net profits from the game were to be split equally between Conklin and the owner of the game. In the event of a loss, Conklin was responsible for contributing one-half of the net amount. As discussed in the Conclusions of Law below, the amounts received by Conklin from the game concessions should be treated as the proceeds on joint venture partnerships between Conklin and the various concessionaires and, therefore, should not be taxable. If this conclusion is rejected and the amounts received by Conklin are viewed as taxable license or rental payments, the tax should be assessed on the share Conklin actually received. As set forth in Findings of Fact 17 above, the evidence established that DOR's calculation in the Notice of Assessment of the tax allegedly owed by Conklin for food and game concessions was incorrectly based upon the gross receipts for the game concessions rather than the net profits that Conklin actually received. During the years 1987, 1989 and 1990, Conklin's share of the profits from the games operated under its name amounted to $5,792.65, $1,554.64 and $1,179 respectively. The Notice of Assessment indicated there were no taxable receipts from food and game concessions in 1988. Petitioner's Exhibit 13 indicates that Conklin received $16,975.22 from food and game concessions that year, of which $5,036.78 was apparently attributable to game concessions. Exports Conklin is also engaged in the business of repairing and manufacturing games and rides. In the course of the manufacture or repair of these games and rides, Conklin purchases parts and supplies. Conklin's accountant testified that it paid the appropriate tax on all of its purchases except those items which were segregated out as being integral parts of products that were exported to Canada. DOR's auditor claims that she requested and was not provided with any documentation to support the exemption claim. While Petitioner's accountant claims that the company has documentation that the items in question were used in the manufacture and repair of items that were exported and this documentation was made available to DOR's auditor, no such documents were presented at the hearing in this matter to confirm that the final products were in fact exported. Consequently, the evidence was insufficient to establish that Conklin had complied with the applicable rule requirements and was entitled to the exemption it claimed. Penalties In 1984 and 1985, Conklin provided rides and concessions to the Martin County Fair under its usual turn-key system where it sold all the tickets. During those years, DOR sent an enforcement officer to the fair to ensure that all taxes were paid. The DOR enforcement officer reviewed all of Conklin's books and collected the sales tax from all the concessionaires. Although Conklin inquired as to whether it was paying all appropriate taxes, the DOR enforcement officer never indicated to Conklin that it was obligated to pay rental realty taxes on its subcontractual arrangements with ride owners and/or food and game concessionaires. Thus, there was some justification for Conklin's belief that it was not obligated to pay taxes on the ride subcontracts and the food and game concessions. Conklin's understanding of the law should have been reexamined with the adoption of the statutory clarification for the imposition of sales tax on a license to use real property. See section 66 of Chapter 86- 152 of the Laws of Florida effective July 1986. However, none of the statutory or rule provisions relied upon by DOR clearly address contractual arrangements such as those Conklin had with its ride subcontractors where the purported sublicensee made no payments to the alleged sublicensor. In view of these factors, it would be inappropriate to impose penalties on Conklin for "taxable income" it allegedly received from the ride subcontracts. Similarly, even if Conklin's contention that its arrangements with game concessionaires should be viewed as a joint venture is rejected, penalties should not be imposed since the statutory and rule provisions do not clearly address this situation. With respect to the food concessions, Conklin has conceded that it owes tax on the amount received from food concessionaires in 1987. Conklin has offered no justification for the failure to pay the tax on this amount other than to claim that it did not believe any tax was due because of comments (or lack thereof) by DOR representatives during the 1984-85 Martin County Fair. However, the basis for imposing a tax on a sublicense of real estate was significantly clarified in 1986. Thus, Conklin's purported reliance on the comments made in 1984 and 1985 should not be given much weight. Penalties on the assessment on food concession receipts from 1987 are appropriate. For the years subsequent to 1988, Conklin relies on the exemption set forth in Section 212.031(1)(a)(10), Florida Statutes. While it is possible that the exemption applies, the evidence presented at the hearing in this matter was insufficient to establish that this exemption was applicable. Consequently, penalties on the food concession receipts subsequent to 1988 are not appropriate. Following the issuance of the Notice of Proposed Assessment, Conklin admitted that it owed taxes on certain purchases that were made from out of state companies and shipped into the state. Conklin paid the tax on those items prior to the hearing in this matter. It is not clear what, if any, penalty was assessed with the late payment of the tax on these items. With respect to the remaining items, Conklin has steadfastly maintained its position that the items were utilized in connection with products that were exported. However, Conklin failed to convince DOR's auditor of the merits of its position and failed to provide sufficient evidence at the hearing in this matter to justify its claim. In view of all the circumstances, there is no basis for a waiver of penalties on this portion of the Notice of Assessment.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order amending the Notice of Assessment to: (a) delete all taxes, penalties and interest assessed against Conklin for the ride subcontracts and game concessions; (b) affirming the assessment of tax against Conklin for the amount it received from food concessionaires during the years 1987 through 1990 (the amount of the assessment should be amended to reflect the net proceeds Conklin received rather than the gross revenues reflected in the original Notice of Assessment) and imposing penalties and interest on the amount of tax due; and (c) affirming the assessment of taxes, penalties and interest for the purchase of items that were allegedly used in the repair or manufacture of goods for export. DONE and ENTERED this 13th day of January 1994, at Tallahassee, Florida. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of January, 1993.
The Issue The petition that initiated this proceeding challenged the taxes, interest, and penalties assessed against Petitioner by Respondent following an audit and identified the following four issues: Issue One. Does the sale of obsolete games at the "annual game sale" qualify for exemption from sales tax as an occasional or isolated sale? Issue Two. Are the purchases of video games exempt from Florida sales and use tax as sales for resales? Issue Three. Are the purchases of plush exempt from Florida sales and use tax as sales for resale or, alternatively, does taxation of the vending revenues and taxation of purchases of plush represent an inequitable double taxation? Issue Four. Should penalties be assessed based upon the facts and circumstances [of this proceeding].
Findings Of Fact Petitioner is an Illinois Corporation headquartered in Texas and licensed to do business in Florida. Petitioner owns and operates video and arcade game amusement centers, hereafter referred to as centers. Petitioner sells to center customers the opportunity to play the games in the centers. Petitioner purchases the games from sources outside itself; it does not manufacture the games it makes available in its centers. Petitioner paid sales tax upon the purchase of machines purchased in Florida and use tax upon the purchase of machines outside Florida and imported for use inside Florida. The Florida Department of Revenue (DOR) is the State of Florida agency charged with the enforcement of Chapter 212, Florida Statutes, Tax on Sales, Use and Other Transactions, the Transit Surtax, and the Infrastructure Surtax -- the state and local taxes at issue in this case. The DOR audited Petitioner for the period December 1, 1986 through November 30, 1991, hereafter referred to as the audit period. During the audit period, Petitioner operated 12 centers in the State of Florida. For purposes of the instant litigation, references to the centers will mean only the centers located in Florida. The audit determined that Petitioner owed $51,593.37 in sales and use tax, $440.81 in transit surtax, and $1,459.80 in infrastructure surtax. Each of the sums assessed included penalty and interest accrued as of September 13, 1994. In accordance with section 120.575(3), Florida Statutes, Petitioner paid $32,280 as follows: a. sales and use tax $22,411 b. interest 8,575 c. charter transit surtax 234 d. interest 64 e. infrastructure surtax 750 f. interest 246 The centers make available three types of games. The games are activated either by a coin or a token that is purchased at the center. Video games include pinball machines and electronic games which do not dispense coupons, tickets or prizes. Redemption games include skeeball, hoop shot and water race which dispense coupons or tickets which the player earns according to his or her skill. Merchandise games include electronic cranes which the operator or player maneuvers to retrieve a prize directly from the machine. Merchandise games do not dispense coupons or tickets. The tickets earned in the course of playing redemption games can be exchanged for prizes displayed at the centers. The prizes obtained directly from the merchandise games and exchanged following receipt from redemption games are termed "plush." Plush may be obtained only by seizing it in a redemption game or by redeeming coupons earned during the play of redemption games; it may not be purchased directly for cash. A merchandise game does not dispense an item of plush upon the insertion of a coin or token and activation of the crane's arm -- acquisition of plush requires a certain level of skill on the player's part. A redemption game does not dispense an item of plush upon the insertion of a coin or token and the push of a button -- acquisition of tickets requires a certain level of sill on the player's part. Petitioner purchases plush in bulk and distributes it to the various centers. Each of the centers sells some of its games to individual buyers. Petitioner's headquarters coordinates the sale. For each of the years in the audit period, the centers sold games at various dates. Petitioner characterizes as its "annual sale" the period November 1 through January 10 when most of the sales took place. The specific dates for the sales that took place during the audit period follow; numbers in square brackets indicate the number of sales on a particular date if there is more than one. a. December 1986 through July 1987 -- no information available -- but more than one sale was made during this time. b. November 1987: 2, 5, 7, 10, 17, 18[2], 20, 22, 25, 28[3] c. December 1987: 2, 4, 7, 15, 18, 23 d. November 1988: 4, 5, 7[2], 9, 10, 11, 17, 18, 20[2], 21[2], 25, 26, 28, 29 e. December 1988: 6, 7, 8, 10[2], 12[2], 16, 21, 22, 23[2], 24 f. January 1989: 3, 6, 7[4], 9, 12 g. November 1989: 6, 15, 16[2], 20 h. December 1989: 1, 6, 10, 22, 29[3], 31 January 1990: 26 March 1990: 26 April 1990: 26 l. June 1990: 12 m. November 1990: 3, 9, 13[2], 14, 16, 19, 24, 26 n. December 1990: 1, 2, 7, 20 January 1991: 8 May 1991: at least 1 q. November 1991: 4, 9, 10, 14, 15, 21 Petitioner did not provide its machine vendors resale certificates upon Petitioner's purchase of the games. Petitioner did not provide its plush vendors resale certificates upon Petitioner's purchase of plush. Petitioner did not apply for a refund of sales tax paid upon its purchase of games in Florida.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order that adopts the findings of fact and the conclusions of law contained herein. The assessments against Petitioner should be sustained to the extent the assessments are consistent with the findings of fact and the conclusions of law contained in this Recommended Order. DONE AND ENTERED this 28th day of June, 1996, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of June, 1996.
The Issue The issue in this case is whether the Petitioner is entitled to an award of attorney's fees and costs pursuant to section 57.111, Florida Statutes (2011).1/
Findings Of Fact The parties have stipulated that the Petitioner is a "small business party" as the term is defined at section 57.111(3)(d). On June 21, 2010, the Petitioner applied to acquire an existing alcoholic beverage "quota" license from another licensee. The Petitioner had to pay a fee to transfer the license pursuant to section 561.32(3)(a), Florida Statutes (2010), which provides as follows: Before the issuance of any transfer of license herein provided, the transferee shall pay a transfer fee of 10 percent of the annual license tax to the division, except for those licenses issued pursuant to s. 565.02(1) and subject to the limitation imposed in s. 561.20(1), for which the transfer fee shall be assessed on the average annual value of gross sales of alcoholic beverages for the 3 years immediately preceding transfer and levied at the rate of 4 mills, except that such transfer fee shall not exceed $5,000; in lieu of the 4-mill assessment, the transferor may elect to pay $5,000. Further, the maximum fee shall be applied with respect to any such license which has been inactive for the 3-year period. Records establishing the value of such gross sales shall accompany the application for transfer of the license, and falsification of such records shall be punishable as provided in s. 562.45. All transfer fees collected by the division on the transfer of licenses issued pursuant to s. 565.02(1) and subject to the limitation imposed in s. 561.20(1) shall be returned by the division to the municipality in which such transferred license is operated or, if operated in the unincorporated area of the county, to the county in which such transferred license is operated. (emphasis added). License transfer applicants are required to provide gross sales records pursuant to Florida Administrative Code Rule 61A-5.010(2)(b), which provides as follows: An applicant for a transfer of a quota liquor license shall provide records of gross sales for the past 3 years or for the period of time current licensee has held license in order that the division may compute the transfer fee. An applicant may, in lieu of providing these records, elect to pay the applicable transfer fee as provided by general law. The gross sales records provided to the Respondent by the Petitioner were for the five-month period between January 21 and June 21, 2010, and totaled $573,948.94 for the period. To compute the transfer fee, the Respondent divided the reported gross sales ($573,948.94) by five to estimate an average monthly gross sales figure of $114,789.79.2/ The Respondent multiplied the estimated average monthly gross sales by 12, to estimate annual gross sales of $1,377,477.48. The Respondent then applied the 4-mill rate to the estimated annual gross sales and determined the transfer fee to be $5,509.91. The Respondent also calculated the transfer fee through a formula set forth on a form that had been challenged as an unadopted rule by an applicant in a 2008 proceeding. While the 2008 rule challenge was pending, the Respondent commenced to adopt the form as a rule, but the dispute was ultimately resolved without a hearing, after which the Respondent discontinued the process to adopt the rule. According to the formula on the form, the transfer fee was $5,599.50. Because both of the Respondent's calculations resulted in transfer fees in excess of $5,000, the Respondent required the Petitioner to pay the statutory maximum of $5,000. The Petitioner paid the $5,000 transfer fee under protest. The Petitioner asserted that the appropriate transfer fee should have been $765.27. The Petitioner's calculation used the reported five months of gross sales ($573,948.94) as the total annual gross sales for the licensee. The Petitioner divided the $573,948.94 by three to determine a three-year average of $191,316.31 and then applied the 4-mill rate to the three-year average to compute a transfer fee of $765.27. On March 17, 2011, the Petitioner filed an Application for Refund of $4,234.73, the difference between the $5,000 paid and the $765.27 that the Petitioner calculated as the appropriate fee. The Application for Refund was filed pursuant to section 215.26, Florida Statutes, which governs requests for repayment of funds paid through error into the State Treasury, including overpayment of license fees. Section 215.26(2) requires that in denying an application for a tax refund, an agency's notice of denial must state the reasons for the denial. As authorized by section 72.11(2)(b)3, Florida Statutes, the Respondent has adopted rules that govern the process used to notify an applicant that a request for refund has been denied. Florida Administrative Code Rule 61-16.002(3) states as follows: Any tax refund denial issued by the Department of Business and Professional Regulation becomes final for purposes of Section 72.011, Florida Statutes, when final agency action is taken by the Department concerning the refund request and taxpayer is notified of this decision and advised of alternatives available to the taxpayer for contesting the action taken by the agency. By letter dated May 9, 2011, the Respondent notified the Petitioner that the request for refund had been denied and stated only that "[w]e reviewed the documentation presented and determined that a refund is not due." The Respondent's notice did not advise that the Petitioner could contest the decision. On May 16, 2011, the Petitioner submitted a Request for Hearing to the Respondent, asserting that the Respondent improperly calculated the transfer fee by projecting sales figures for months when there were no reported sales. On August 4, 2011, the Respondent issued a letter identified as an "Amended Notice of Denial" again advising that the Petitioner's refund request had been denied. The letter also stated as follows: The Division cannot process your refund application due to the fact that the transferee has not provided the Division records which show the average annual value of gross sales of alcoholic beverages for the three years immediately preceding the transfer. On September 14, 2011, the Respondent forwarded the Petitioner's Request for Hearing to the Division of Administrative Hearings (DOAH Case No. 11-4637). By letter dated October 10, 2011, the Respondent issued a "Second Amended Notice of Denial" which stated as follows: We regret to inform you that pursuant to Section 561.23(3)(a), Florida Statutes, your request for refund . . . in the amount of $4,234.73 is denied. However, the Division has computed the transfer fee and based upon the records submitted by you pursuant to Rule 61A-5.010(2)(b), F.A.C., the Division will issue the Applicant a refund in the amount of $2,704.20. The records referenced in the letter were submitted with the original application for transfer that was filed by the Petitioner on March 17, 2011. The Respondent's recalculated transfer fee was the result of applying the 4-mill levy directly to the reported five months of gross sales reported in the transfer application, resulting in a revised transfer fee of $2,295.80 and a refund of $2,704.20. On October 11, 2011, the Respondent filed a Motion for Leave to Amend the Amended Notice of Denial, which was granted, over the Petitioner's opposition, on October 21, 2011. DOAH Case No. 11-4637 was resolved by execution of a Consent Order wherein the parties agreed to the refund of $2,704.20 "solely to preclude additional legal fees and costs," but the Consent Order also stated that the "Petitioner expressly does not waive any claim for attorneys' fees in this matter pursuant to F.S. 57.111." The Petitioner is seeking an award of attorney's fees of $8,278.75 and costs of $75, for a total award of $8,353.75. The parties have stipulated that the amount of the attorney's fees and costs sought by the Petitioner are reasonable. The Respondent failed to establish that the original calculation of the applicable transfer fee was substantially justified. The evidence fails to establish that there are special circumstances that would make an award unjust.
Findings Of Fact National Sun Control Company sells reflective film for installation on windows and glass doors throughout the southeastern United States. Sales are made only to distributors and dealers who do the installation or resell the film to customers. Petitioner holds a wholesalers occupational license and makes no sales to individuals for their own use. Petitioner sells the film only in 100 foot rolls and the normal order exceeds $100. Throughout Florida its maximum number of dealers has been about 25 and at present there are only 4 or 5 actively engaged in installing this film for their customers. Petitioner failed to ascertain that each of its dealers had a tax exemption number and when his accounts for the years 1974 - 1976 were audited by the Respondent, a sales tax was levied on all of Petitioner's sales to Florida dealers in the amount of $3,814.47. To this was added a 25 percent delinquent penalty of $953.62 and interest in the amount of $743.82. Petitioner has recovered some of the sales taxes for which it was assessed and remitted same to the Respondent. In the revised assessment dated April 5, 1977 the tax was shown to be $1,362.38, the penalty (reduced to 5 percent) to be $68.13 and interest $290.00. From this is deducted a partial payment made by Petitioner of $636.60, leaving a balance owed by Petitioner of $1083.91 Petitioner has provided Respondent with the names and addresses of each of the dealers to whom he shipped reflective film for installation and resale and has requested Respondent to collect the taxes owed from those dealers. One area supervisor responded (Exhibit 3) that the dealer said he had been told by Petitioner that the film was tax exempt and he refused to reimburse Petitioner for "the Florida Sales Tax that you [Petitioner) failed to collect."
The Issue The issue in this case is whether Petitioner owes additional sales and use tax, plus penalties and interest, on the purchase of bowling equipment during the audit period August 1, 1987 to July 31, 1992.
Findings Of Fact The Parties. Petitioner, Beverly Hills Bowl, Inc., is a Florida corporation. Petitioner was formed by Charles and Evelyn Gill, the shareholders of Petitioner. Petitioner was formed to own and operate a bowling alley. Respondent is an agency of the State of Florida charged with, among other things, responsibility for assessing and collecting sales and use taxes in Florida pursuant to Chapter 212, Florida Statutes. The Respondent's Audit. Between July 23, 1992 and October 8, 1992, Respondent performed a sale and use tax audit of Petitioner for the period August 1, 1987 through July 31, 1992. Respondent concluded that Petitioner's books and records were reasonable except for documentation to support the payment of sales and use tax on a purchase by Petitioner of bowling equipment. Respondent issued a Notice of Proposed Assessment on October 29, 1992. Respondent proposed the assessment of $31,609.05 in sales and use tax. Petitioner paid $8,137.05 of the additional tax. The parties stipulated that the additional tax liability at issue in this proceeding amounts to $23,472.00. Respondent also assessed a penalty of $7,888.96 and interest of $5,264.15. Disputed Purchase. Petitioner purchased bowling lane equipment from United Bowling Products, Inc. (hereinafter referred to as "United"), a Florida corporation, during the audit period. Petitioner paid $391,200.00 to United for bowling lanes and equipment described on Petitioner's exhibit 1. Before consummating an agreement to sale bowling lanes to Petitioner, United gave Petitioner a "Proposal" offering to sell bowling lanes to Petitioner for $391,200.00. See Petitioner's exhibit 1. The Proposal states, among other things, the following: * WE OFFER THE ABOVE EQUIPMENT FOR $16,300.00 PER LANE INCLUDING INSTALLATION, FREIGHT, AND FLORIDA SALES TAX. . . . [Emphasis added]. Petitioner accepted the Proposal and purchased the bowling lanes for $391,200.00. Oral communications between Petitioner and United were also consistent with the Proposal concerning the inclusion of sales tax in the purchase price. No written documentation of the agreement between United and Petitioner was entered into. Petitioner received the bowling lanes and paid United $391,200.00. No written documentation or invoices were provided Petitioner by United upon consummation of the sale. The additional assessment at issue in this case is attributable to this sale of bowling equipment by United to Petitioner. Respondent's Treatment of the Purchase. Respondent concluded that, since the amount of sales tax was not separately stated on the Proposal, additional documentation of the payment of the sales tax by Petitioner to United was required. Respondent requested additional documentation but Petitioner was unable to provide it to Respondent's satisfaction. Respondent concluded that Petitioner was responsible for the payment of use tax on the equipment because it could not be proved to Respondent's satisfaction that sales tax had been paid to United. Respondent is also attempting to collect sales tax on the purchase from the primary dealer responsible for the collection and remittance of sales tax.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the assessment dated October 29, 1992 against Beverly Hills Bowl, Inc. DONE AND ENTERED this 26th day of September, 1995, in Tallahassee Florida. LARRY J. SARTIN, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of September, 1995. APPENDIX The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Petitioner's Proposed Findings of Fact Accepted in 2-3, 5-6 and 11. Accepted in 9-11. Accepted in 1, 10 and 12. See 14. What Mr. Aliff may have said during the hearing may not form the basis of a finding of fact. Mr. Aliff was not sworn and did not testify. See 13. Respondent's Proposed Findings of Fact 1 Accepted in 1. 2-3 Accepted in 3. Accepted in 4. The last sentence is a conclusion of law. Hereby accepted. Accepted in 9-10 and 12. Hereby accepted. See 12-13. What the Citrus County Property Appraiser may have reported is hearsay. Accepted in 5. Not relevant. COPIES FURNISHED: Peter C. Johnston, CPA, P.A. 6 Beverly Hills Boulevard Beverly Hills, Florida 34465 Mark T. Aliff Assistant Attorney General Tax Section, Capitol Building Department of Legal Affairs Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, Esquire Department of Revenue Legal Office 204 Carlton Building Tallahassee, FL 32399-0100
Findings Of Fact On August 24, 1981, Famous Brands Television and Appliances, Inc., entered into a Consent Order with the State Attorney for Palm Beach County, Florida, whereby Famous Brands, together with its principals and officers and agents, agreed to cease and desist from utilizing "bait and switch" practices or be held in contempt of court. At all times material to that litigation, Respondent Bill Lacek was the president of Famous Brands Television and Appliances, Inc. Famous Brands became bankrupt. Lacek knew that his credibility had been affected by his management of Famous Brands. Therefore, when he opened V.T.S. Video, Inc., a similar business, he placed the corporation in the name of his sister Rose Richard. Although ostensibly the president and sole director of V.T.S. Video, Rose Richard's duties were limited to those of a bookkeeper/office manager, the same duties which she had when she worked for her brother at Famous Brands. V.T.S. Video was in the business of advertising and offering for sale video, television and stereo products to the general public. The business was located at 25 North Military Trail, West Palm Beach, Florida. Respondent Bill Lacek formulated, controlled, and directed the acts and practices at V.T.S. Video. He was personally responsible for the purchasing, advertising, marketing, and promoting of the products sold by V.T.S. Video. He personally wrote the advertising, established the sales commission structure for the employees of V.T.S. Video, and attended sales meetings. Lacek solicited customers through newspaper advertising, including advertisements in The Palm Beach Post. Lacek's advertisements included ads for Sony and Hitachi televisions and video cameras. Respondent Lacek's advertisements were not bona fide offers to sell the advertised products. When customers appeared at V.T.S. Video to purchase the advertised Sony or Hitachi products, they were told by V.T.S. Video employees that the Sony or Hitachi products were not available or that the only product available was a "floor model," i.e., a model which has been used at the business for demonstration purposes and which frequently has been damaged and is, therefore, an unattractive product for purchase. Additionally, Lacek and the employees of V.T.S. Video would disparage the advertised products and "switch" the shopper to a different brand, the item which Lacek intended to sell instead of the advertised product. To assure that his salesmen would follow his established "switch and bait" techniques, Lacek set the sales commission structure so that no commission was paid to a salesman who sold the advertised product (if one were available) rather than the product to which the customer was to be switched. Further, the advertisements written by Lacek did not disclose the fact that the advertised item was a floor model. Hopper Electronics in Miami purchases from the factory rebuilt or refurbished products which it then sells to wholesalers. A rebuilt or refurbished product is a product which has been returned to the factory as defective by a customer or a distributor. The factory repairs the item and then re-boxes it for sale. In other words, a rebuilt or refurbished ("RB") product is a used product. Lacek purchased from Hopper on behalf of V.T.S. Video between 3,000 and 5,000 Emerson "RB" products between approximately late 1986 and late 1987. All of the Emerson RB units purchased from Hopper Electronics carried a label saying "RB" on the back of the unit itself and a label saying "RB" on the box containing the unit. Lacek paid Hopper Electronics a total of $780,000 for Emerson RB units during that time period. Although Lacek knew that the RB units were used and not new products, his newspaper ads for those units did not disclose that the products were used or that they were RB products. The Emerson televisions and VCRs purchased from Hopper were sold to the public as new products. Lacek instructed his employees not to disclose that the Emersons were not new products. If a customer questioned the "RB" label appearing on the back of the unit or on the box, the customer was told that the product had been re-boxed or that the product was from Riviera Beach. Respondent Bill Lacek knew that his sales practices were deceptive and that they constituted unfair trade practices, even prior to the institution of this proceeding, since they were the same practices that he was enjoined from utilizing when he signed the Consent Order on behalf of Famous Brands Television and Appliances, Inc., in 1981. Respondent Lacek's practices in the operation of V.T.S. Video have injured the public. Two Assistant Attorneys General represented Petitioner at the final hearing in this cause. Attached to Petitioner's proposed recommended order are affidavits from those attorneys stating that they have spent 220 hours combined in the "investigation and resolution" of this matter. Petitioner has failed to submit a cost affidavit and has therefore waived its statutory right to recover reasonable costs in this action. The Agreed Final Order to Cease and Desist entered into by Petitioner and Respondents V.T.S Video, Inc., and Rose Richard the day before the final hearing in this cause provides that Respondent V.T.S. Video, Inc., will pay to Petitioner the sum of $10,000 in civil penalties plus the sum of $15,000 for attorney's fees in this action.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, therefore, RECOMMENDED that a Final Order be entered: Finding Respondent Bill Lacek guilty of the allegations in the Complaint filed against him; Ordering Respondent Bill Lacek to cease and desist from all violations of Chapter 501, Part II, Florida Statutes, and of Chapter 2-9, Florida Administrative Code; Assessing against Respondent Bill Lacek a civil penalty in the amount of $1,500,000; and Denying Petitioner's claim for reimbursement of its attorney's fees and costs against Respondent Bill Lacek. DONE and ENTERED this ,7th day of March, 1989, in Tallahassee, Leon County, Florida. LINDA M. RIGOT Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of March, 1989. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 88-0505 Petitioner's proposed findings of fact numbered 5, 7-15, and 17 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 6 has been rejected as not constituting a finding of fact. Petitioner's proposed finding of fact numbered 16 has been rejected as not being supported by the record in this cause. COPIES FURNISHED: Rhonda G. Lapin, Esquire Andy Itzkovits, Esquire Assistant Attorneys General Suite N921 401 N.W. Second Avenue Miami, Florida 32128 James S. Telepman, Esquire 340 Royal Palm Way Post Office Box 2525 Palm Beach, Florida 33480 (Last known address for Respondent Bill Lacek) Honorable Robert A. Butterworth Attorney General The Capitol Tallahassee, Florida 32399-1050 =================================================================
The Issue The issue for consideration in this hearing is whether Petitioner, Larsen Communications and Professional Services, Inc., should be certified and designated as a Minority Business Enterprise.
Findings Of Fact At all times pertinent to the issues herein, the Commission on Minority Economic and Business Development was one of the agencies in Florida responsible for the certification of women and minority owned businesses in Florida as Minority Business Enterprises. Larsen Communications and Professional Services, Inc. was operating a video production and public relations company in Tampa. Petitioner, as a part of its business operation, sought and performed contracts with various agencies of the State of Florida. Valerie D. Larsen, current President and 75 percent owner of the Petitioner corporation, is a graduate of high school in Hillsborough County. After graduation, she went to work as a legal secretary and worked in that field for several years. She is currently a financial analyst with GTE Data Services. From 1991 through 1993 she was a student at the Tampa Academy of Performing Arts from which she claims to have graduated, though she has no diploma to so indicate. While there, she took training in on-camera acting, camera handling, voice over, and other facets of video production. She also acted in and produced plays, directed plays, and was active in all aspects of theatre production, both from the artistic and the business sides. In March, 1990, Ms. Larsen married her husband, a 1973 graduate of Florida State University with a bachelor's degree in Broadcast Communications. Mr. Larsen was, for many years, a television reporter in the Tampa area as well as elsewhere. He has considerable experience in the on-camera presentation of news stories and has written many of the pieces he delivered on air. From the very beginning, Mrs. Larsen wanted to own her own business, and over the years, as she worked as a legal secretary and with GTE, she maintained this ambition. Several years ago, when her husband was put out of work, she got the idea of starting her own production company, not only to give herself an opportunity to do that which she most enjoyed doing, but also to give her husband something to do as well. Ms. Larsen admits that she made a big mistake in not hiring an attorney to help her draft the business organization papers. Instead, she went to Office Depot and purchased an incorporation kit which she filled out without any professional advice and submitted to the Florida Secretary of State's office for registration. In doing so, she made her husband the President of the company even though she was in charge and actually made the business decisions. She did this in order to help her husband maintain his self respect. This officer designation was corrected sometime thereafter. When Ms. Larsen graduated from the Tampa Academy of Performing Arts she knew she wanted to start her own company and what she liked to do. Video production seemed to fit the bill, and on September 4, 1992, because she no longer could act due to her pregnancy, she started the company. The initial funding for the company came from a $2,500 withdrawal from funds owned jointly by the parties and to which she had contributed over the years. At the time the company was started, Mr. Larsen had his severance pay of $3,200 per month for two or three months. This money was used for the family's living expenses. The money which was invested in the company, and which had been in the joint account, came, Ms.Larsen avers, from her salary from GTE Data Services. Ms. Larsen is currently President of the company. She professes to make all business decisions. She consistently researches jobs to bid on and is a subscriber to the Florida Administrative Weekly, which lists bid opportunities. If she find something she feels the company can handle, she contacts the agency and asks for a proposal package. Then, she claims, she prepares and submits the company's bid. Ms. Larsen on the one hand claims to handle all the company accounting, but on the other hand states she hires a CPA to do the payroll. She claims also to make all the arrangements for financing and borrowing for the company, the hiring and firing of personnel, and the solicitation of work for the company. There are no full time employees, however, besides the Larsens. Usually, people with the particular skills needed for a specific job are contracted with on a tempor ary basis. She decides who she wants to use on a particular job, determines the costs as to how much each element will cost, and comes up with a final bid price. She might have Mr. Larsen do some of the research and plug details into the computerized bid shell, but she does the majority of the bid process and makes the ultimate decision as to whether a bid will be submitted. She also pays all the bills. Mrs. Larsen claims she must do a lot of research for the business which she does in her spare time at work, during her lunch periods and in the evenings. She also calls Mr. Larsen at home and gives him things to look up. For her research, she uses the University of South Florida library, two newspapers and other research sources dealing with the subject matter of the pending bid, so that she can effectively evaluate the project and submit an appropriate bid. Bid prices are based on what it will cost her to hire the required people and lease the required equipment. Since the company is small, she hires most artists, such as writers, photographers, editors and graphic artists, on a per job basis. If Larsen is successful and is awarded a bid for a particular production, Ms. Larsen has the initial job of preparing the script for the production, the blueprint to present to the photographer. A script is prepared for each production designed around the requirements of that particular subject. Most scripts are written on the basis of her research and that of her husband, and the skills needed to prepare a script include an ability to do research, writing skills, formatting skills, experience and creativity. Once the script is prepared, it is presented to the client for review and suggestions. Upon final approval, Ms. Larsen hires the photographer who will do the shooting. Often the photographer works alone, but sometimes either Ms. or Mr. Larsen accompanies him. Mr. Larsen does some of the research and the typing and purchases some supplies, but major purchases are approved and determined by Ms. Larsen. He also is responsible for answering the phone. Mr. Larsen is often the narrator on their productions, which is appropriate because of his on-air experience and his voice. In Mr. Larsen's prior career as a news journalist he wrote some of his material and appeared on camera. The nature of news broadcasting, however, is different from the productions of Larsen Communications. Whereas news reporting is primarily a recitation of facts which have occurred, Larsen's productions are far more creative, designed to tell a story or sell a particular product or point of view. Therefore, his prior experience, while good for on camera work, is not necessarily translatable to the management of the work the company does. In fact, Ms. Larsen is of the opinion that he does not have any skills she does not have, and is convinced that if he were not with the company, his absence would not have much effect on its operation. She is quite confident that she could do what he does or could easily hire someone to do what he does. Larsen Communications is a small company. To date, not more than 10 contracts have been awarded to it, and in each case, the solicitation process described above was used. Earnings from the company are split. Ms. Larsen receives an intermittent draw, depending on the company income. Mr. Larsen receives a set salary of $1,000 per month. There are no bonuses paid because this is all Ms. Larsen feels can be afforded, and even Mr. Larsen's salary is based on the company's money flow. He has been a salaried employee for several years, but only recently has he been paid by check. Aside from Ms. Larsen's 75 percent of the stock and Mr. Larsen's 25 percent, there are no other owners of the company and no one else shares any risk of loss. If the business fails, Ms. Larsen will bear the biggest loss, and Mr. Larsen would have to find a job elsewhere. The original application for MBE certification submitted by Larsen in 1994 sought certification in three areas: video production, public relations and media relations. This has been amended and now the only certification sought is that in video production. Ms. Larsen believes that all three areas are interrelated. Mr. Larsen confirms the testimony of Ms. Larsen regarding the responsibility for accomplishment of duties within the corporation. When the company was formed, he was unemployed and he agreed to support Ms. Larsen in the operation of her business; the company was her brainchild. She is the one who secured and filled out the incorporation forms that were submitted to the Secretary of State's office, and he did not know what the papers intended or what they said he was to do. He knows he was the original President of the company and a Director, but he also recognizes that those designations have been changed in the interim. Based on his education and experience, he believes he is qualified in video production, public relations and media relations. However, he was in news broadcasting by experience and throughout his career, and the business of Larsen Communications is totally different - more like entertainment. Mr. Larsen indicated he probably could be called the Marketing Director of the company, but it is a small company and in reality he has no title. He is authorized to make decisions on minor matters, but the ultimate decisions are made by Ms. Larsen. The company is her baby, her brainchild and her business, and he agrees that if he were to walk away from the company, while she might have trouble running the business alone while maintaining a full time job elsewhere, she has the skills, the experience and the ability to do so. He could be replaced easily. At no time, according to Mr. Larsen, did he ever run the company. He has researched and written scripts but Ms. Larsen has always had a major idea or input into whatever he has done and he works, he claims, at her direction. When Larsen's application was forwarded to the Commission, it was evaluated by Mr. Ringgold who conducted a telephone interview with Mr. and Ms. Larsen on August 29, 1994. At this point, the Commission now agrees there is now no issue as to the ownership of the corporation and that Larsen Communications in owned by Ms. Larsen. Nonetheless, Mr. Ringgold recommended that Larsen's application be denied under the provisions of Rule 60A-2.005, F.A.C. because he believed that Ms. Larsen does not assume the majority share of risk; that she does not have the authority to control and the experience to exercise dominant control over the corporation; that she does not have sufficient technical capability to run the corporation; that her control is not real, substantial and continuing; that she does not control the purchase of equipment and supplies; that she does not have independence in seeking business and that she does not have direction and control over all aspects of the business. Because he now accepts the fact that Ms. Larsen has knowledge and control of the company's financial affairs, the preexisting objection on that grounds is withdrawn, but taken together, as of the date of the hearing, Mr. Ringgold still recommended denial. No evidence was presented by the Commission, other than the testimony of Mr. Larsen which tended to support Petitioner's position, which would show with particularity any basis for disbelieving Petitioner's assertions. When Mr. Ringgold made his recommendation for denial, his decision was based on the matters submitted by the applicant and the information gained in the telephone interview. He did not make an on-site inspection of Larsen's facility. By the same token, he did not know of Ms. Larsen's schooling at the Tampa Academy of performing Arts at the time he made his recommendation. He does not recall ever having changed his mind regarding a recommendation in the nine years he has been doing this work. Mr. Ringgold has his educational credentials in speech and has some knowledge of video production having worked in that area for his uncle while in school.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Petitioner, Larsen Communications and Professional Services, Inc., be granted certification as a Minority Business Enterprise. RECOMMENDED this 29th day of August, 1995, in Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of August, 1995. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 94-5839 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: Not a Finding of Fact but a Conclusion of Law. - 4. Accepted and incorporated herein. Accepted and incorporated herein except for references to F.A.C. which are Conclusions of law. - 8. Accepted and incorporated herein. FOR THE RESPONDENT: None Submitted. COPIES FURNISHED: Miriam L. Sumpter, Esquire 2700 North MacDill Avenue Suite 218 Tampa, Florida 33607 Joseph L. Shields, Esquire Commission on Minority Economic and Business Development 201 Collins Building 107 West Gaines Street Tallahassee, Florida 32399-2000 Crandall Jones Executive Administrator Commission on Minority Economic and Business Development Collins Building - Suite 201 107 West Gaines Street Tallahassee, Florida 32399-2000
