Findings Of Fact Petitioner is employed as a Tax Auditor IV in Respondent's Property Tax Administration Program. He is assigned to work in Respondent's Regional Office in Jacksonville, Florida. The counties within the Jacksonville Region for Property Tax Administration are: Duval, Clay, Nassau, Putnam, St. John and Flagler. In January of 1996, Petitioner wrote to John Everton, Director of Respondent's Property Tax Administration Program requesting permission to run for Tax Collector of Clay County. In February of 1996, Petitioner talked to Mr. Everton's secretary. After making this call, Petitioner understood that Respondent's attorneys had his application to run for elective office and that he would soon receive an answer. Petitioner sent Mr. Everton an E Mail message on or about March 6, 1996. In this message, Petitioner asked Mr. Everton to check on his request to run for office and to expedite it immediately because time was of the essence. That same day, Mr. Everton responded to Petitioner's request with an E mail message. Expressing his apologies, Mr. Everton advised Petitioner that Respondent's attorneys had Petitioner's initial request. Mr. Everton stated that he would request that the attorneys respond immediately to Petitioner's inquiry. On or about March 13, 1996 Mr. Everton advised Petitioner that he would have to send his request for approval to run for local office directly to the agency head pursuant to the directive contained in Rule 60K-13.0031(1), Florida Administrative Code. By letter dated March 18, 1996 Petitioner requested that Larry Fuchs, Respondent's Executive Director, grant him permission to run for Tax Collector of Clay County. Mr. Fuchs received this letter on March 29, 1996. Mr. Fuchs responded to Petitioner's request by letter dated April 5, 1996. He reminded Petitioner that Rule 60K-13.0031(1), Florida Administrative Code, requires employees to apply directly to the agency head when requesting approval to become a candidate for local office. Mr. Fuchs then gave several reasons why he could not certify to the Department of Management Services that Petitioner's candidacy would involve no interest which conflicts or activity which interferes with his state employment. More specifically, Mr. Fuchs' April 5, 1996 letter stated in relevant part that: Under section 195.002, Florida Statutes, the Department of Revenue has supervision of the tax collection and all other aspects of the administration of such taxes. Your position with the Department may require you to review or audit the activities of the office you propose to seek. Also some of your duties in supervising other officials in the administration of property taxes may be affected by your proposed candidacy. Your job requires you to review appropriate tax returns, and other records to resolve complex issues related to taxing statutes administered by the Department of Revenue. It also requires you to identify and scrutinize transactions to ascertain whether taxpayers have escaped paying property taxes. In addition, it also requires you to review and audit procedures used by counties to identify and value tangible personal property and accomplish statutory compliance, to investigate taxpayer complaints, to conduct field review with county staff as appropriate, and to provide education an assistance to county taxing officials. Because of the Department's statutory super- vision of the office of tax collector, there cannot be a certification that your candidacy would involve "no interest which conflicts or activity which interferes " with your state employment within the definitions of section 110.233(4), Florida Statutes. The letter went on to say that: This letter is a specific instruction to you that you should not qualify or become a candidate for office while employed in your current position. If you wish to commence your campaign by performing the pre-filing requirements, the law requires that you first resign from the Department. Failure to do so shall result in disciplinary action to dismiss you from your position in accordance with the Department's disciplinary standards and procedures, and Rule 60K-4.010, F.A.C., the Department's Code of Conduct, Section 110.233, Florida Statutes, and Rule 60K-13.002(3), F.A.C. After receiving the above decision, Petitioner requested a formal hearing to challenge the denial of his request to run for Tax Collector of Clay County by letter dated April 10, 1996. Respondent received this letter on April 16, 1996. Respondent referred Petitioner's request for a formal hearing to the Division of Administrative Hearings on April 26, 1996. Petitioner responded to the Division of Administrative Hearings' Initial Order on May 7, 1996 advising the undersigned that he was unavailable for hearing May 28, 1996 through June 10, 1996 and July 5, 1996. He also included an initial pleading requesting, among other things, that Respondent immediately allow him to run for office and pay his filing fee because, in his opinion, it was too late for him to qualify using the alternative method of submitting petitions. On May 21, 1996 this matter was scheduled for hearing on July 9, 1996. Respondent filed a Unilateral Response to the Initial Order and a Prehearing Statement on May 30, 1996. On June 14, 1996 Petitioner filed a letter stating that it was impossible for him to be prepared for the hearing scheduled for July 9, 1996 for two reasons: (a) he had just returned to work after two weeks of vacation; and (b) he was overwhelmed by discovery associated with his upcoming hearing. Petitioner requested that this matter be continued until sometime after August 15, 1996. He represented that Respondent had no objection to his request. An order dated June 20, 1996 rescheduled the case for hearing on August 19, 1996. On July 18, 1996, Respondent sent Petitioner a letter granting him permission to qualify and file the necessary paperwork to become a candidate for Clay County Tax Collector. The letter also advised Petitioner of the conditions under which he could begin campaign activities while on Respondent's payroll. Respondent's change in position was due in part to the pending Final Order in Hendrick v. Department of Revenue, DOAH Case No. 96-2054. Respondent faxed its July 18, 1996 letter to Petitioner's office at 2:38 p.m. Petitioner's immediate supervisor contacted Petitioner at his home later that day at approximately 3:45 p.m. Petitioner did not request annual leave for the following day so that he could take whatever steps were necessary in order to qualify as a candidate for the office of Tax Collector. Instead, he opted to follow through with his previously arranged appointments for July 19, 1996. On July 22, 1996 Petitioner faxed a letter to Respondent indicating that Respondent had not given him sufficient time in which to meet all requirements to qualify as a candidate for elective office by noon on July 19, 1996. In order to qualify as a candidate for elective office in Clay County, Petitioner had to declare a bank depository for campaign purposes and designate a campaign treasurer. If Petitioner intended to use the alternative method of qualifying by filing petitions, he had to file an alternative affidavit and obtain petition forms from the Clay County Supervisor of Elections between January 3, 1996 and June 21, 1996. He had to submit the signed petitions (Democrats-688; Republicans-990, Independent-1,873) to the Supervisor of Elections on or before June 24, 1996. Regardless of whether Petitioner intended to qualify by paying a fee (Major Party-$5,876.40; Independent-$4,309.36) or by using the alternative petition method, he had to complete all paperwork on or before noon of July 19, 1996. Petitioner did not qualify by either method.
Recommendation Based on the Findings of Fact and Conclusions of Law set forth above, it is recommended that Respondent enter a Final Order dismissing Petitioner's request for certification to the Department of Management Services that his candidacy for the office of Clay County Tax Collector would involve no interest which conflicts, or activity which interferes, with his state employment. DONE AND ENTERED this 15th day of October, 1996 in Tallahassee, Leon County, Florida. SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 1996. COPIES FURNISHED: Patrick A. Loebig, Esquire Peter S. Fleitman, Esquire Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Floyd L. Hylton 103 Century 21 Drive, Suite 213 Jacksonville, Florida 32216 Linda Lettera, Esquire Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The Petitioner in this action has accused the Respondent of violating Sections 473.04 and 473.251, Florida Statutes (1977); Pules 21A-4.01 and 21A- 7.01, Florida Administrative Code, as succeeded by Subsection 473.315(2) and Section 473.323, Florida Statutes (1979) and Rule 21A-22.01, Florida Administrative Code. Specifically, the Respondent is accused of undertaking an engagement in the practice of public accounting which he could not reasonably expect to complete with professional competence and that the Respondent committed acts discreditable to the profession with respect to accounting services provided to Mr. and Mrs. John E. Cholette.
Findings Of Fact The Respondent, Frank Berman, is a certified public accountant and is so licensed by the Petitioner, State of Florida, Department of Professional Regulation, Board of Accountancy. He held this license at all times pertinent to the case in inquiry. This is an action by the Petitioner brought against the Respondent in the way of an Administrative Complaint charging the Respondent with these violations alluded to in the issues statement of this Recommended Order. The Despondent requested that a formal hearing be conducted to consider this matter and the case was referred to the Division of Administrative Hearings and the hearing conducted on March 13, 1980. The facts reveal that the Respondent began to provide services for a client, Inn on the Park, Inc., beginning in March of 1976. These services were provided while the Respondent was associated with Donald F. Powell, Certified Public Accountant, and the arrangement for the services was made by correspondence of Mr. Powell indicating that the Respondent would substitute for Powell in servicing the account of the aforementioned corporation. The Respondent continued in his association with Powell in the year 1970 and in his involvement with the service of the account of that corporate client. His primary contact with the Corporation was with Nadine Cholette, who together with her husband, John Cholette, was the co-principal in this closely- laid Florida corporation. By 1977 Frank Berman was no longer associated with accountant Powell but he continued to do accounting work for the Corporation, Inn on the Park, Inc. The services provided in the year 1977 were in keeping with the arrangement which the Cholettes had with Mr. Powell and are as reflected in the Petitioner's Composite Exhibits 1 and 2 and the Respondent's Composite Exhibits 1 and 2, admitted into evidence. On February 6, 1978, the Respondent wrote Mrs. Cholette setting forth certain services he was prepared to provide her Corporation in that calendar year. This included provision for semiannual financial reports; filing intangible and tangible personal property tax returns for the Cholettes; preparing the annual corporate report for 1978 and preparation of individual United States income tax returns for the Cholettes, all for a fee of $400.00. This correspondence may be found in the Petitioner's Composite Exhibit 1. The $400.00 fee was paid by the Cholettes, with the last installment of that amount being paid by check dated November 13, 1978, in the amount of $200.00. In the year 1978, the Cholettes determined to sell the principal asset of their corporation, which was a motel owned by the Corporation. In contemplation of this sale of the asset, the Cholettes attempted to contact Berman to discuss the implications of this sale from an accounting point of view. These attempted contacts were in the form of telephone communications initially and when the Cholettes were unsuccessful in reaching the Respondent in that way, Mr. Cholette eventually went to Berman's office to determine if Berman would be available to attend the closing of the real estate. At that time a conference was held between Cholette and Berman. This conference was held subsequent to the time the Cholettes received a deposit from the purchaser, with that deposit being made on September 7, 1978. Berman responded to the request by stating that he would be available to attend the closing on several days' notice. There was no formal letter of request for Berman's attendance at the real estate closing and no payment was made to Berman to secure his attendance at the closing. The attorney for the Cholettes representing then at the real estate closing subsequently contacted the Respondent about being present at the closing, and the Respondent returned the call of the attorney and indicated to the attorney's secretary that he could not make the closing and did not understand why the Cholettes wanted him at the closing. The closing took place on October 13, 1978. Mrs. Cholette wrote Berman on October 16, 1978, and in the course of that correspondence advised Berman that the "establishment" had been sold on October 13, 1978, which was the closing date. The letter went on to say that Mrs. Cholette would be in touch with the Respondent reference the closing of the "account" as soon as the October, 1978, month-end bank statement was received. On October 18, 1978, Mrs. Cholette again wrote to Respondent and requested at that time to be advised in writing about the necessary steps to be taken if the Cholettes decided to close the Corporation, Inn on the Park, Inc., and specifically, what the fees would be to keep the Corporation active or inactive. Following the October 18, 1978, correspondence, the Cholettes asked the Respondent to prepare their payroll tax returns for the Corporation in the third quarter of 1978 for filing. This was prepared on October 30, 1978, and a billing of $75.00 was made, which was paid by the Cholettes. The Cholettes met with Berman on November 6, 1978, and in the course of that meeting the tax implications of the sale of the corporate asset, i.e., realty, were discussed with Berman with a view in the mind of the Cholettes toward the future investment of the net proceeds of this sale. At the time of the meeting, Berman had already responded to the inquiry of Mrs. Cholette in reference applicable fees for maintaining the Corporation in an active or inactive state and did so by his correspondence of October 30, 1978, suggesting the fee schedule both that of the State of Florida and of Berman in his individual charges. There was further discussion at the conference on the subject of liquidation of the Corporation and Berman agreed to assist in those necessary steps to facilitate this end. To close out the Corporation, it was necessary to have available the bank records of the Corporation including all outstanding disbursements by the Corporation, and on November 8, 1978, the Cholettes brought part of those records to the Respondent. This did net constitute all outstanding disbursements because checks were still being written by the Corporation after that date in November. Some of the aforementioned checks are listed in the correspondence of Mrs. Cholette directed to the Respondent on November 23, 1978. This correspondence also again reminds the Respondent that the Cholettes are anxious to knew about the tax implications of the sale of the corporate asset in order to plan for future investments. The Cholettes not having heard from the Respondent for a period of time, wrote him by registered letter on December 8, 1978, and following a series of telephone calls which the Respondent had not returned. The correspondence of December 8, 1978, asked when the Cholettes might pick up those papers related to the closing of their company's books. It was followed by another letter of January 9, 1979, from Mrs. Cholette to Herman asking when the "papers" would be ready and attaching a list of checks and deposits made by the Corporation after October, 1978, including checks drawn in January, 1979. Another letter was written on January 13, 1979, from John E. Cholette to the Respondent recounting the matters of prior correspondence and advising the Respondent that the Cholettes intended to complain to the "Board of Accountancy" for Berman's delays. The Cholettes did complain about the Respondent's service by a letter dated January 13, 1979. Following that complaint the Respondent and the Cholettes met to try to reconcile their differences and to clear up pending matters. This meeting was at the instigation of the Respondent. The meeting took place on February 7, 1979, and out of the meeting an arrangement was entered into in which $175.00 was paid to the Respondent in additional fees, $100.00 being for preparation of the payroll tax returns for the fourth quarter ending December 31, 1978, and $75.00 for setting up corporate books for the period August 1, 1978, through October 31, 1978. At the time of the meeting, Berman assured the Cholettes that the corporate books could be closed within one week and not later than February 16, 1979. February 16, 1979, came and the Respondent called Mrs. Cholette and informed her that unless the Cholettes sent a letter of apology to the State Beard of Accountancy which retracted the grievances against him, the Respondent would not finish their work. The following day, Mr. Cholette contacted the Respondent and reminded the Respondent of the discussions of February 7, 1979, between the Respondent and the Cholettes and also stated that by prior agreement (the agreement of February 6, 1978), the Cholettes had paid the Respondent to prepare the Cholettes' individual income tax returns and for the preparation of a mid-year financial statement for the year 1978, neither of which had been delivered. In fact, the individual income tax forms for the tax year 1978 and the mid-year corporate financial statement for the year 1977-78 had not been completed by the Respondent, notwithstanding the payment for these services. Nonetheless, the Respondent returned the papers and materials to the Cholettes on February 17, 1978, and terminated his arrangement to provide accounting services to the Cholettes. Subsequent to the parting of the ways, the Cholettes employed the accounting firm of Marine, Andrews and Fisher, who in addition to other work, completed the individual income tax forms for the Cholettes at an additional cost to the Cholettes ever and above the amount of money that they had paid the Respondent to do this work.
Recommendation Upon consideration of the facts found herein and the legal conclusions reached, it is RECOMMENDED that the Respondent, Frank Berman, have his Certified Public Accountant's license held with the State of Florida, Department of Professional Regulation, Board of Accountancy, suspended for a period of six (6) months. 1/ DONE AND ENTERED this 29th day of August, 1980, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 filed with the Clerk of the Division of Administrative Hearings this 29th day of August, 1980.
The Issue The issues are as follows: (a) whether Respondent failed to file surcharge tax reports and to remit surcharge tax in the amount of $55,478.84 for the audit period January 1, 1994, through July 28, 1999; (b) whether Respondent failed to file surcharge tax reports from August 1, 1999, and continuing to the present; (c) whether Respondent failed to pay penalties and interest in the amount of $29,325.62 for the period beginning August 1, 1999, through December 31, 1999; and, if so, (d) whether Petitioner should revoke Respondent's alcoholic beverage license.
Findings Of Fact Petitioner is the state agency charged with enforcing regulations related to alcoholic beverage licenses in Florida. At all times material to this proceeding, Respondent was licensed to sell alcoholic beverages for consumption on the premises of its establishment in Jacksonville, Florida. Respondent held License No. 26-0058. Alcoholic beverage licensees may elect one of two ways to calculate and pay the required surcharge tax on alcoholic beverages for consumption on the premises. First, the licensee may calculate, report, and pay the tax using the "sales method" based on retail sales records. Second, the licensee may calculate, report, and pay the tax using the "purchase method" based on wholesale records such as invoices from wholesale distributors. In this case, Respondent elected to calculate, report, and pay its surcharge tax using the "purchase method." Licensees who are authorized to sell alcoholic beverages for consumption on the premises are required to submit surcharge tax reports and to pay the tax for each month by the 15th day of the following month. Respondent submitted reports and paid the tax for the months of January and February 1999. The next time that Respondent submitted a report and paid the tax was for the month of November 1999. For a licensee who uses the "purchase method," Petitioner conducts an audit by comparing the licensee's sales history and payment history. The sales history is based on invoices for the purchase of alcoholic beverages from wholesale distributors who report their sales to each licensee every month. The payment history is based on the monthly surcharge tax reports filed by the licensee. Petitioner conducted a surcharge tax audit of Respondent's business for the period beginning January 1, 1994, and ending July 28, 1999. The audit began on August 1, 1999, and ended on August 17, 1999. The audit established that Respondent owed $31,809.72 in surcharge tax, penalties, and interest for the audit period. The Final Surcharge Audit Report established that Respondent would owe $55,478.84 in surcharge tax, penalties, and interest if Respondent did not pay the former amount within 30 days. Respondent did not make the required payment. Petitioner conducted a periodic surcharge tax audit for the period beginning on August 1, 1999, and ending on December 31, 2001. The audit was conducted on April 30, 2002, and ended on June 4, 2002. The second audit established that Respondent owed an additional statutory tax, penalties, and interest in the amount of $29,325.62. Respondent's corporate representative testified that Respondent stopped filing the surcharge tax reports after the initial audit because there was a discrepancy between Respondent's records (invoices for alcoholic beverages purchased and delivered) and the records that Petitioner relied upon to conduct the audit (wholesale distributors' invoices for alcoholic beverages sold to Respondent). Respondent did not present any documentation to support this testimony, which is not credited. Additionally, there is no competent evidence that Respondent's auditor advised Respondent to stop filing the reports until the discrepancy was resolved. Respondent's corporate representative also testified that Respondent gave away some alcoholic beverages to customers. According to the corporate representative, this occurred when Respondent charged the customers one fee at the door and allowed them to drink free of charge. Respondent did not present any documentation to support this testimony, which is not credited. Finally, the corporate representative agreed that Respondent owed the assessed surcharge tax. However, he objected to paying the statutorily assessed penalties and interest because they were more than Respondent would have owed if it had paid the tax when it was due. Respondent's argument in this regard is without merit.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Petitioner enter a final order finding that Respondent owes $84,804.46 in tax, interest, and penalties and revoking its license to sell alcoholic beverages for consumption on the premises. DONE AND ENTERED this 20th day of November, 2002, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD 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 20th day of November, 2002. COPIES FURNISHED: Sherrie Barnes, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-2202 Captain Cynthia C. Britt Division of Alcoholic Beverages and Tobacco Department of Business and Professional Regulation 7960 Arlington Expressway Suite 600 Jacksonville, Florida 32211 Charles E. Scantling Corporate Representative Wackos, Inc., d/b/a Wackos 3484 Charmont Drive Jacksonville, Florida 32277 Peter Williams, Director Division of Alcoholic Beverages and Tobacco Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Hardy L. Roberts, III, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-2202
The Issue The issue for determination is whether Petitioner should be assessed sales and use tax for the audit period May 1, 1997 through April 30, 2002, per the Notice of Proposed Assessment dated July 3, 2003.
Findings Of Fact Wales is a Florida S corporation. Its principal place of business is located at 2916 Southeast 6th Avenue, Fort Lauderdale, Florida. Wales' federal employee identification number is 59- 1703273. Wales' Florida sales and tax number is 16-03-095273- 26/1. By letter dated June 6, 2002, the Department issued to Wales a Notice of Intent to Audit Books and Records (Notice of Intent). The Notice of Intent identified the audit number as A0205310975. On July 10, 2002, the Department's auditor assigned to perform the audit conducted an initial interview with Wales. The auditor discussed, among other things, the audit and sample methods that would be employed during the audit. On August 13, 2002, the auditor began examining Wales' books and records at Wales' business location. Wales was cooperative during the audit. Wales provided all available books and records for the audit. The sole shareholders of Wales are Stewart Levy and Diane Levy. Wales leased its business location from Element Two Enterprises, Inc., ( Element Two) a related entity. Stewart Levy and Diane Levy are also the sole officers of Element Two, president and secretary, respectively. Element Two is the record owner of the improved real property located at 2916 Southeast 6th Avenue, Fort Lauderdale, Florida, (realty). The address for the realty is also the address for Wales' place of business. Element Two mortgaged the realty leased by Wales. Wales paid monthly monetary consideration to Element Two in lease payments, which directly correlated to the amount of the monthly mortgage payments. Ad valorem taxes and property insurance were included in the monthly mortgage payments. Wales paid the ad valorem taxes and property insurance on the leased property. The lease payments to Element Two by Wales included the amount of the ad valorem taxes, property insurance, and common areas of maintenance. Wales did not pay sales tax on any of the lease payments to Element Two. Element Two did not charge or remit sales tax to the Department on the lease payments by Wales. Element Two was not registered with the Department as a dealer. Only dealers that are registered can remit sales tax on lease payments. Consequently, Element Two could not remit sales tax on the lease payments by Wales. Wales did not utilize all of the property it leased. Wales sub-leased a portion of the leased property to an unrelated entity. A prior sales and use tax audit was conducted of the sub-lessee, which included the period May 1997 through December 1998. The Department examined the sublease audit to determine whether Wales owed additional sales tax. The Department's examination of that audit revealed that the sales and use tax on the rent paid by the sub-lessee for the period May 1997 through September 1998 was assessed and paid by the sub-lessee. For the period May 1997 through December 1998, Wales had neither charged or collected sales tax nor remitted sales tax to the Department on the sub-lessee's payments. No sales tax was charged or paid on the sublease payments for the period October 1998 through December 1998. From January 1999 through April 2002, Wales charged, collected, and remitted sales tax on the sublease payments. The Department credited Wales for sales tax already paid on the subleased portion for the period May 1997 through September 1998 and January 1999 through April 2002. On its general ledger, Wales posted the lease payments to Element Two as rent payments. Element Two posted the lease payments to its general ledger as rent income. On its federal income tax returns, Wales reported the lease payments to Element Two as rent expense. Element Two reported the lease payments on its federal income tax returns as rent income. On November 29, 2002, the Department issued to Wales a Notice of Intent to Make Audit Changes for audit number A0205310975. Wales requested and the Department agreed to hold an audit conference to discuss the audit findings. Wales claimed that rent payments made were not subject to sales tax because both Wales and Element Two signed the mortgage and promissory note on the realty leased by Wales. However, only Element Two was reflected as the borrower on the loan and only Element Two was the signatory on the mortgage even though both Wales and Element Two signed the promissory note. On January 10, 2003, Wales executed a Consent to Extend the Time to Issue an Assessment or to File a Claim for Refund (Consent). The Consent extended the statute of limitations for the period of time in which an assessment may be issued or a claim for refund may be filed to December 31, 2003. On July 3, 2003, the Department issued, by certified mail, the Notice and an Addendum to Proposed Assessment for audit number A0205310975. The Notice provided, among other things, for the assessment of sales and use tax in the amount of $17,481.73; penalty in the amount of $8,741.10; interest in the amount of $5,756.03, with additional daily interest being computed at the rate of $3.54 per day from July 3, 2003; and a total assessment in the amount $31,978.86. On September 1, 2003, the Notice became a Final Assessment for audit number A0205310975. Wales contested the Final Assessment and requested a hearing. Wales is not contesting that part of the audit which found that Wales failed to pay sales tax on certain fixed assets purchased for use in its business. At hearing, Wales contended that its federal income tax returns could be amended to reflect the payments to Element Two as mortgage payments instead of rent payments, which would, in turn, change the Department's audit to reflect the payments as mortgage not rent. To address this contention, the Department presented the testimony of an expert witness in the area of rental consideration and sales tax audits. The Department's expert testified that the consideration for rental or use of property is the payment between/to one who owns the real property and/from one who uses the property; and concluded that consideration, as rental, was provided to Wales by Element Two based on the Department's taxing statute, Section 212.031, Florida Statutes, and its rules and regulation, Florida Administrative Code Rule 12A-1.070. The expert opined that the mortgage payments were consideration for a lease or license to use the real property and that, therefore, the monthly lease payment, which equaled the monthly mortgage payment, paid by Wales to Element Two was consideration for the lease or license to use the realty. The expert's testimony is found to be credible. The evidence presented shows that the mathematical computations performed by the Department in its audit are correct. Further, the evidence shows that the mathematical computations as to tax, penalty, and interest assessed are correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue's assessment of sales tax, interest, and penalty against Wales Garage Corporation be sustained and that the Department of Revenue enter a final order assessing sales tax, interest, and penalty against Wales Garage Corporation for the period May 1, 1997 through April 30, 2002, consistent herewith. DONE AND ENTERED this 27th day of May, 2004, in Tallahassee, Leon County, Florida. S ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of May, 2004. COPIES FURNISHED: Gerald S. Schnitzer GSS Advisory Services, Inc. 2455 East Sunrise Boulevard, Suite 502 Fort Lauderdale, Florida 33304 Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, 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
Findings Of Fact In 1972 Petitioner received $743,982 of income from state and municipal bonds. On its federal income tax return the Petitioner allocated $471,229 of this amount to the policyholders' share as required by law and $272,753 to the company's share (Phase I). The Phase II figures were $359,669 and $384,313 respectively. Respondent has added back the entire $743,982 for purposes of computing Petitioner's Florida taxable income. Petitioner added back the $272,753 (Phase I) and $384,313 (Phase II). For 1972 Petitioner accrued $350,000 of Florida taxes on its federal income tax return. In computing its deductions on its federal income tax return 36.6612 percent of this amount was deducted in the Phase I computation and 51.6564 percent in the Phase II computation. Respondent has added back all of the Florida tax accrued in computing the Florida income tax owed by Petitioner. Petitioner's position is that only the company's percentages were deductible and only these amounts should be added back. The amount of additional Florida income tax assessment proposed for 1972 by the Respondent over that paid by Petitioner is $21,234. In 1973 Petitioner received $552,408 of income from state and municipal bonds. On its federal income tax return Petitioner allocated $335,662 of this amount to policyholders' share as required by law and $216,786 to the company's share (Phase I). The Phase II figures were $248,789 and $303,619 respectively. Respondent has added back the entire $552,408 for purposes of computing Petitioner's taxable income. Petitioner added back the $216,786 (Phase I) and $303,619 (Phase II). For 1973 Petitioner accrued $475,000 of Florida taxes on its federal income tax return. In computing its deductions on its federal income tax return 39.2438 percent of this amount was deductible in Phase I and 54.9628 percent in Phase II. Respondent has added back all of the Florida tax accrued. Petitioner's position is that only the company's percentages were deductible and only these amounts should be added back. The amount of additional Florida income tax assessment proposed for 1973 by Respondent was $20,184. It was further stipulated that the sole issues here involved are: The computation of the amount of tax exempt interest which is excludable from taxable income under section 103(a) Internal Revenue Code for purposes of the Florida corporate income tax; and The computation of the amount of Florida income tax accrued which is deductible for purposes of federal income tax and added back for purposes of computing the Florida income tax.
The Issue Whether sales tax and local government infrastructure surtax is due on the lingerie modeling session fees received by Petitioner, and, if so, whether the Department of Revenue should compromise any portion of the tax, interest, or penalty assessed against Petitioner.
Findings Of Fact Based upon the testimony and evidence received at the hearing, the following findings are made: Petitioner was established as a Florida corporation in November 1992. At the time of its incorporation, Petitioner's name was Ultimate Fantasy of Pinellas, Inc. Subsequently, the name was changed to U.F., Inc. Petitioner is an "S Corporation," having filed the required election pursuant to Section 1362 of the Internal Revenue Code in June 1994. Steve Smith was the sole shareholder and president of Petitioner during the audit period. Mr. Smith sold his interest in Petitioner in January 2002. Starting on October 1, 1994, Petitioner leased space for its business in a small shopping center at 8248 Ulmerton Road, in unincorporated Pinellas County. Petitioner's store was less than 1,000 square feet in size. Petitioner's lease included the following schedule of lease payments due from Petitioner to the lessor:1 Period Rent Sales Tax (7%) Total 10/1/94 - $585.00 $40.95 $625.95 9/30/96 10/1/96 - $605.00 $42.35 $647.35 9/30/98 10/1/98 - $630.00 $44.10 $674.10 9/30/99 4/1/00 - $670.00 $46.90 $716.90 3/31/02 The record does not include receipts showing that Petitioner actually made those lease payments. However, Mr. Smith testified that Petitioner made those payments, and the weight of the evidence clearly supports the inference that the payments were made. Specifically, Petitioner claimed a deduction for rent expenses on its federal income tax returns in amounts comparable to that set forth above, and Petitioner was actually operating its business at the location specified in the lease during the audit period. Petitioner made payments of $2,288.65 in sales tax to the lessor during the course of the audit period, computed as follows: Period Sales Tax Amount Months Total 5/1/95 - $40.95 17 $ 695.15 9/30/96 10/1/96 - $42.35 24 $1,016.40 9/30/98 10/1/98 - $44.10 12 $ 529.20 9/30/99 4/1/00 - $46.90 1 $ 46.90 4/30/00 8. Petitioner's lease stated that Petitioner would use the premises "as a retail store and for no other uses whatsoever." That limitation was apparently waived by the landlord because the lingerie modeling conducted in Petitioner's store required an adult entertainment permit from Pinellas County and the landlord's consent was required for Petitioner to obtain a permit. Petitioner's business includes the retail sale of lingerie as well as charging patrons a fee to watch lingerie modeling sessions which occur in Petitioner's store. Patrons are not charged to come into Petitioner's store. They are free to come in, look at merchandise, purchase merchandise, and/or leave. However, a patron who comes into Petitioner's store and wants to see a piece of lingerie modeled pays a fee to Petitioner. The fee is $30.00 per session, with a session lasting no more than a half hour. With a discount coupon, the fee was $20.00 per session. No sales tax was collected or remitted on those amounts. After the patron pays the fee to Petitioner, he then identifies the lingerie to be modeled and a model does so. The patron compensates the model for the session through tips. Neither Petitioner, nor any of its employees are involved in that transaction. The patron is not required to purchase the lingerie that is modeled and, as evidenced by the small amount of sales on which Petitioner paid tax during the audit period, such purchases rarely occurred. If the lingerie is purchased, Petitioner collects sales tax from the purchaser and remits it to the Department. If the lingerie is not purchased, it goes back into Petitioner's inventory. Almost all of Petitioner's income over the course of the audit period was derived from the lingerie modeling sessions. On the quarterly sales tax reports filed with the Department, Petitioner reported gross sales of $556,733.83 between May 1995 and December 1999. Of that amount, $554,829.88, or 99.65 percent, was from the fees for the lingerie modeling sessions and was reported as exempt sales. Only $1,978.57, or 0.35 percent, was reported as taxable lingerie sales. The women who model the lingerie are not employees of Petitioner. They are not paid anything by Petitioner, nor do they pay Petitioner anything. Petitioner did provide security for the models. The modeling sessions occurred in "segregated areas" of the store. They did not occur behind closed doors, behind a curtain, or in separate rooms, as that is prohibited by the Pinellas County Code.2 The "segregated areas" accounted for approximately 85 percent of the store's floor space. Thus, it is possible that a session could be observed from a distance by persons other than the patron who paid a fee to Petitioner. However, only the patron who pays the fee can view the modeling session in the "segregated areas" where the model performs. Before Petitioner opened for business, Mr. Smith contacted an accountant, Peter Ristorcelli, to provide accounting and tax services to Petitioner. Those services included compliance with Florida's sales tax laws. Mr. Ristorcelli had never worked for a client whose business was similar to that of Petitioner. Accordingly, Mr. Ristorcelli advised Petitioner to obtain guidance from the Department when he registered as a dealer and obtained a sales tax number. Mr. Smith went to the Department's Clearwater office pursuant to Mr. Ristorcelli's advice. While there, he explained the type and operation of Petitioner's business and asked whether sales tax was due on the receipts from the modeling sessions. Mr. Smith was told by an unknown Department employee that the receipts from the modeling sessions were not subject to the sales tax, but that they should be reported as exempt sales. Mr. Smith was also told that receipts from the sale of lingerie should be reported as taxable sales, and that sales tax should be collected on those sales. Mr. Smith conveyed this information to Mr. Ristorcelli who then confirmed it with Bonnie Steffes, an employee in the Department's sales tax collection division in the Clearwater office with whom Mr. Ristorcelli had prior dealings. In their conversations with the Department employees, both Mr. Smith and Mr. Ristorcelli fully explained the nature and manner of operation of Petitioner's business. Those explanations were not made in writing, nor were the Department's responses. Ms. Steffes is no longer employed by the Department, and she was not called as a witness at the hearing because she could not be located. Thus, the record does not contain any corroboration of the self-serving testimony of Mr. Smith and Mr. Ristorcelli on these events. Nevertheless, the undersigned finds their testimony to be credible. Petitioner followed the advice Mr. Smith and Mr. Ristorcelli received from the Department. Petitioner reported the receipts from the modeling sessions as exempt sales and did not collect or remit sales tax on those receipts. As stated above, Petitioner reported $554,829.88 in receipts from the modeling sessions for the period of May 1995 through December 1999. Petitioner reported the receipts from the sales of lingerie as taxable sales and collected and remitted sales tax on those receipts. As stated above, Petitioner reported taxable sales of $1,978.57, and it collected and remitted sales tax in the amount of $138.58 for the period of May 1995 through December 1999. Had Mr. Smith been told that the lingerie modeling sessions were taxable, he would have collected sales tax from the patron and remitted it to the Department. The Department's Audit On June 1, 2000, the Department gave Petitioner notice of its intent to conduct a sales tax audit on Petitioner's books and records for the audit period of May 1, 1995, to April 30, 2000. The audit was conducted by Jose Bautista, a tax auditor in the Department's Clearwater office. Mr. Bautista reviewed Petitioner's books and records and spoke with Mr. Ristorcelli and Mr. Smith on several occasions. In conducting the audit, Mr. Buatista utilized standard methods of assessment and followed the Department's rules and practices. He relied on the facts presented to him by Mr. Smith and Mr. Ristorcelli regarding the operation of Petitioner's business and, more specifically, the form and nature of the lingerie modeling transactions. The audit did not identify any underreporting of taxable lingerie sales, nor did it find any underreporting of the receipts from the modeling sessions. In this regard, the proposed assessment (discussed below) was simply based upon the Department's determination that the receipts from the lingerie modeling sessions were taxable, not exempt from taxation. The audit working papers indicate receipts of $573,642.89 upon which sales tax was not paid over the course of the audit period. That amount is solely attributable to the receipts from the modeling sessions over the audit period, as identified in the Department's audit. That amount does not correspond with the receipts for the modeling sessions reported to the Department by Petitioner on its periodic sales tax returns. As stated above, Petitioner reported exempt sales from the modeling sessions in the amount of $554,829.88 for the period of May 1995 through December 1999. For that same period, the audit working papers show receipts from the modeling sessions as being only $540,460.32, calculated as follows: Grand Total for Audit Period (5/95 - 4/00) Less: April 2000 ($7,177.49) $ 573,642.89 March 2000 ( 8,208.15) February 2000 ( 8,872.59) January 2000 ( 8,924.34) Total for Period ( 33,182.57) Of 5/95 - 12/99 $ 540,460.32 This discrepancy works in Petitioner's favor. Had the Department simply based its assessment on the amount reported by Petitioner as exempt sales between May 1995 and December 1999 ($554,829.88), and then added the receipts for the period of January 2000 through April 2000 ($33,182.57), the amount upon which Petitioner would have owed sales tax would have been $588,012.45 rather than $573,642.89 as found in the Department's audit. Based upon the audit conducted by Mr. Bautista, the Department issued a Notice of Intent to Make Audit Changes (Notice of Intent) on August 16, 2000. The Notice of Intent assessed a total tax deficiency of $40,155.29, which included a sales tax deficiency of $34,418.81 and a local government infrastructure surtax deficiency of $5,736.78. Those amounts were calculated in accordance with the standardized, statutory methods of calculation. Petitioner does not contest the calculation of the tax deficiency. The Notice of Intent also assessed interest and penalty. The interest and penalty were calculated on the amount of the tax deficiency pursuant to standardized, statutory methods of calculation. Petitioner does not contest the calculation of the interest or penalty. Petitioner, through Mr. Ristorcelli, sought administrative review of the Notice of Intent. That review is conducted at the district office level, which in this case was Clearwater. George Watson supervised the review. No changes were made based upon the review, and on October 26, 2000, the Department issued a Notice of Proposed Assessment which formally assessed the tax deficiency, interest, and penalty described above against Petitioner. Petitioner, through Mr. Ristorcelli, protested the Notice of Proposed Assessment, and on July 5, 2001, the Department issued its Notice of Decision rejecting the protest. The review which resulted in the Notice of Decision was conducted in Tallahassee by Charles Wallace. The Notice of Decision upheld the tax deficiency, interest, and penalty in full. Petitioner, through Mr. Ristorcelli, sought reconsideration of the Notice of Decision. On December 17, 2001, the Department issued its Notice of Reconsideration which again upheld the proposed assessment in full and refused to compromise any portion of the tax, interest, or penalty. The legal basis for the assessments asserted by the Department in the Notice of Intent and Notice of Proposed Assessment was that the fee paid to Petitioner by a patron to view a lingerie modeling session was an admission charge. Based upon additional facts and clarifying information presented to the Department by Petitioner through the protest process, the Department concluded that the fee charged by Petitioner was more akin to a license to use real property and therefore taxable as such. That is the legal position asserted by the Department in its Notice of Decision and its Notice of Reconsideration. That legal position was also argued by the Department at the hearing and in its Proposed Recommended Order.3 Despite the change in the legal basis of the assessment, the amount of the assessment set forth in the Notice of Reconsideration is the same as the amount set forth in the Notice of Intent and Notice of Proposed Assessment. It was still based upon the full amount of the receipts from the lingerie modeling sessions (as determined by the audit) which had been reported as exempt sales.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue issue a final order that assesses tax, interest, and penalties, against Petitioner in the amounts set forth in the Notice of Reconsideration dated December 17, 2001; and, if the tax assessed in the final order is based upon Section 212.031 (license to use) rather than Section 212.04 (admissions), the Department should grant Petitioner a credit in the amount of $1,945.35, for the sales tax paid by Petitioner to its landlord on that portion of Petitioner's store where the lingerie modeling sessions occurred. DONE AND ENTERED this 14th day of June, 2002, in Tallahassee, Leon County, Florida. 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 14th day of June, 2002.
The Issue The issue to be determined is whether Petitioner is liable for the sales and use tax, penalties, and interest assessed by the Department of Revenue and if so, what amount?
Findings Of Fact Petitioner, Rowe's Supermarkets, LLC ("Petitioner" or "Rowe's"), is a Florida limited liability company. Robert Rowe was the president and primary shareholder in Rowe's. Respondent, Department of Revenue ("DOR" or "Respondent"), is an agency of the State of Florida authorized to administer the tax laws of the State of Florida. §§ 20.21 and 213.51, Fla. Stat. (2011) During the audit giving rise to this proceeding, Rowe's had its principal address at 5435 Blanding Boulevard, Jacksonville, Florida. Currently, Rowe's is located at 1431 Riverplace Boulevard, Jacksonville, Florida. Rowe's organized in Florida on May 4, 2005. Rowe's was a sales and use tax dealer registered with the Department to conduct business in this state. It was in business approximately four years. Rowe's acquired several former Albertson's grocery retail stores, including the adjacent liquor stores, in Jacksonville, St. Augustine, and Orange Park, Florida. During the audit period, Rowe's sold five stores with the adjacent liquor stores. Soon after beginning operation, Rowe's experienced significant financial difficulties which ultimately led to its demise. Its secured lender forced Rowe's to liquidate assets whenever possible, and all proceeds from the sale of the stores were paid directly into a locked account to Rowe's lender, Textron Financial. On October 29, 2008, the Department issued to Rowe's a Notification to Audit Books and Records, Form DR-840, bearing audit number 200048409, for sales and use tax, for the audit period beginning October 1, 2005, and ending September 30, 2008. On August 14, 2009, the Department issued to Rowe's a Notice of Intent to Make Audit Changes, form DR-1215, for sales and use taxes, penalties and interest totaling $321,191.45, with additional interest accruing at $53.71 per day. On August 20, 2009, Rowe's canceled its sales and use tax Certificate of Registration. In a letter dated September 11, 2009, Rowe's requested an audit conference. The requested audit conference was held November 19, 2009. On January 8, 2010, the Department issued the taxpayer a Notice of Intent to Make Audit Changes, form DR-1215, Revision #1, for sales and use tax, penalty and interest totaling $180,435.61, with additional interest accruing at $25.32 per day. On March 10, 2010, the Department issued a NOPA, which indicated Rowe's owed $137,225.27 in sales and use tax; $44,755.99 in interest through March 10, 2010; and $59.70 in penalties, with additional interest accruing at $26.32 per day. Prior to issuance of the NOPA, the Department compromised $34,246.663 in penalties, based upon reasonable cause. By letter dated May 6, 2010, Rowe's filed a protest to dispute the proposed assessment. The letter stated: I am submitting this informal protest on behalf of Rowe's Supermarkets, LLC (RS) as its past President. RS is no longer in business and has not assets. Before this audit began RS was unable to pay its bills. Also, its line of credit, which was secured by all of RS's assets, was in default and had been called by the lender. RS was unable to refinance the loan because of its poor financial condition. As a result, it sold all of its assets to a new company which was able to obtain financing and used the proceeds of that sale to repay its secured loan. RS not only has no assets but also is subject to an unsatisfied judgment lien against it in the amount of $324,936.33, which has been accruing interest at 8% per year from August 25, 2009, the date the judgment was entered by the Circuit Court here in Jacksonville. Even if Supermarkets was still in business and could pay its bills, we don't think it should be assessed with these taxes on the basis of the audit that was conducted. The auditor's lack of communication skills made it difficult for us to understand what information she needed. To the extent we understood her requests, we made every effort to provide her with the relevant information. But because most of the stores RS operated had already been closed, the only repository for obtaining accurate information was RS's general ledger, which she declined to review. She never explained why she made the proposed adjustments. We still don't know. We did our best when RS was operating to properly collect all sales taxes, we reflected all of the sale tax collections in the general ledger and we timely turned over all of the those taxes to the department of revenue, as is clear in the general ledger. We request that the proposed assessment be dropped. The Department issued a Notice of Decision on October 14, 2010, which sustained the assessment in full. In issuing its Notice of Decision, the Department did not review any issues related to the assessment other than doubt as to collectability. With respect to this issue, the Department stated, "[b]ased on our evaluation of all the factors of this case, including the financial information, we have concluded that it is not in the best interest of the State to accept your offer." Petitioner's challenge to the assessment presents five issues: 1) whether it was entitled to an exemption in section 212.12(14) for those additional taxes assessed for "rounding" up to the whole cent as opposed to using the bracket system in section 212.12(9); 2) whether the Department's assessment of additional taxes for expenses was erroneous where it was based on a sampling plan not presented to or agreed to by the taxpayer; 3) whether the additional tax on liquor sales was based on an incorrect application of Florida Administrative Code Rule 12A- 1.057(3)(a); 4) whether the Department violated the Taxpayer's Bill of Rights; and whether the Department was correct in determining that compromise of the assessment based on collectability was not in the best interest of the state. Each issue is treated separately below. The Exemption pursuant to section 212.12(14) Section 212.12(9) and (10), Florida Statutes, requires that sales taxes be paid on a "bracket system," and prescribes the amount of tax due for each portion of a dollar. Subsection (9) provides the tax brackets for those counties, such as St. Johns, which do not have a discretionary sales surtax and for which the tax rate is 6 percent. Subsection (10) provides the brackets for those counties, such as Duval and Clay, where a discretionary sales surtax of one percent has been adopted, making the sales-tax rate 7 percent. Section 212.12(14) provides a "safe harbor" from additional assessment of taxes for those dealers who fail to apply the tax brackets required by section 212.12. The taxpayer is not assessed additional taxes, penalty, and interest based on the failure to apply the bracket system if it meets three requirements: that it acted in a good faith belief that rounding was the proper method of determining the amount of tax due; if it timely reported and remitted all taxes collected on each taxable transaction; and if the taxpayer agrees in writing to future compliance with the law and rules concerning brackets applicable to the dealer's transactions. It is undisputed that Rowe's was not using the bracket system to calculate and collect sales taxes. The point-of-sale cash register system Rowe's purchased when opening its business was represented to Petitioner as compliant with Florida requirements when in fact it was not. The Department's auditor, Delaine Arrington, determined that assessment of additional taxes was appropriate because she believed that Rowe's had not timely reported and remitted all taxes collected on each taxable transaction, and that Rowe's had not agreed in writing to future compliance with respect to the bracketing system. The sales tax records for Rowe's were based upon the meshing of three different computer systems. First, there was a point-of-sale system at each cash register which collected the data, such as sales amounts, taxable sales, and sales tax collected, for each individual transaction. A software system called BR Data would then "pull" the sales data from the individual cash registers to create the cumulative sales register reports for each store. The cumulative data from BR Data was then automatically imported into Petitioner's accounting software, MAS 90, to populate the figures in Rowe's general ledger. Taxes collected were recorded in the general ledger under the credit column. The data in this column was transmitted from BR Data. It could not be adjusted manually, although other columns in the general ledger could be. There were sometimes problems with the transmission of information from BR Data, which generally occurred where there was a power surge or a thunderstorm that would affect the communication of information. As a result of these communication problems, there were times that the sales figure transmitted would be double or triple the actual sales for that day. When such an error was discovered, Rowe's staff would contact BR Data and have the report rebuilt, and the general ledger entry would be corrected. Rowe's informed Ms. Arrington that there had been numerous problems with the exporting process and the resulting need to correct journal entries. Ms. Arrington acknowledged at hearing that she had been advised that due to these problems, the sales figures were sometimes doubled or tripled. Ms. Arrington reviewed the general sales ledger, the cumulative sales register reports, and the sales and use tax returns for the audit period. According to her review, there were three days in August 2006 where the amount of collected tax reflected in the cumulative sales register was higher than what was reflected in the general ledger. Based upon this review, she assessed $1,193.98 in additional sales taxes. For August 1, 2006, the general ledger indicated that $263.48 in sales tax was collected. The cumulative sales report reflected that $790.44 in sales tax was collected. This second number in the cumulative sales report is exactly three times the amount reflected in the general ledger. The difference between the cumulative sales report amount and the general ledger amount is $526.96. For August 2, 2006, the general ledger indicated that $277.04 was collected. The cumulative sales report reflected that $554.08 in sales tax was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $277.04. For August 11, 2006, the general ledger indicated that $389.98 in sales tax was collected. The cumulative sales report reflected that $779.96 was collected, an amount exactly twice the amount recorded in the general ledger. The difference between the two documents is $389.98. The difference in the amounts reflected in the general ledger (which Rowe's claims is the more accurate document), and the cumulative sales register (which Ms. Arrington relied upon), is $1,193.98, the amount of additional tax assessed for this item. Ms. Arrington acknowledged at hearing that she credited the cumulative sales register numbers over Rowe's general ledger documents, and that she knew during the audit that there were issues relating to BR Data that occurred during the audit period. The only document upon which she relied was the cumulative sales register. Given the credible testimony by Robert Rowe and Neil Newman regarding the process and the problems encountered with the interface of data, and the fact that in each instance, the difference was an exact multiple of the amount reflected in the general ledger, the greater weight of the evidence presented at hearing supports the finding that the general ledger represents the amount of sales tax actually collected and paid by Rowe's. This finding means that not only is the assessment of additional sales tax for August 2006, in error, but also that means that Rowe's met the second requirement for avoiding the assessment of additional taxes under section 212.12(14) for failing to use the bracket system. Ms. Arrington also found that Rowe's had not agreed in writing to future compliance with the bracket system. On or about November 19, 2009, in conjunction with the Audit Conference, Ms. Arrington prepared an Agreement for Future Compliance (Agreement) and provided it to Mr. Rowe for signature. The text of the Agreement, which is on DOR letterhead and specifically references the Sales and Use Tax Audit number for Rowe's, states: The following dealer had demonstrated the proper actions required by Section 212.12(14),(a) and (b), F.S. (see attachment), and agree [sic] to sign the following suggested form to compliance with the laws concerning brackets applicable to the dealer's transactions in the future. Rowe's Supermarkets, LLC - BP#2134130, succeeded by Rowe's IGA, LLC - 3082649 agrees to future compliance with the laws and rules concerning the proper application of the tax bracket system to the dealer's transactions. Mr. Rowe did not sign the Agreement at the Audit Conference because he wanted to be able to confirm that the point of sale system his store operated could be properly programmed to comply with the bracket system before signing a document stating he would comply. After discussions with both the vendor and Ms. Arrington, and making sure the system was in fact operating in compliance with the requirement, Mr. Rowe signed the Agreement on December 7, 2009, and returned it to the Department. Ms. Arrington did not recall receiving the Agreement, but also admitted she had no specific memory as to whether she received it. Her Case Activity Record indicates that on December 3, 2009, she spoke with Mr. Rowe about whether he was able to input the brackets in his point-of-sale system, and that he indicated he was able to do so. The greater weight of the evidence supports the finding that Mr. Rowe executed and returned the Agreement, and it is so found. The Use Tax Assessment Based on a Sampling Plan Section 212.12 allows the Department to use a sample from the taxpayer's records and project audit findings from the sample to the entire audit period where the records of the taxpayer are "adequate but voluminous in nature and substance." The statute, which is discussed in more detail in the Conclusions of Law, contemplates the use of a sampling plan agreed to by the taxpayer, and in the absence of an agreement, the taxpayer's right to have a review by the Department's Executive Director. The work papers to the Notice of Intent to Make Audit Changes dated January 8, 2010, include a sampling plan that runs from January 1, 2006, to December 31, 2006 for the calculation of use tax for purchases by Rowe's where sales tax was not collected by the vendor. Ms. Arrington reviewed Rowe's' records for expense purchases for 2006 to determine the total amount of additional tax due for that period. She then took the total additional tax on expenses for that period, i.e., $14,981.26, and divided it by 12 to obtain a monthly average additional tax of $1,248.44. She then applied that number to the entire 36-month audit period to determine a total assessment of additional tax for expense purchases of $44,943.84. Ms. Arrington testified that at the initial audit conference, she discussed different audit techniques in terms of sampling. However, a specific sampling plan was not discussed with Mr. Rowe and no Sampling Agreement was presented to him. No sampling plan was reviewed by the Executive Director. Ms. Arrington did not tell Mr. Rowe that 2006 would be the year used as the sample. Mr. Rowe never would have agreed to the use of 2006 as a sampling plan, because it would not be representative of the expenses incurred during the audit period. Using 2006 as a sampling period did not take into account the store closures during the audit period, and the concomitant reduction in expenses. Rowe's closed two grocery stores by March 2006, and operated only four stores for the remaining three quarters of the year. A third store was closed in January 2007, a fourth in May 2007 and a fifth in 2008, leaving only one store open for the entire audit period. All of the liquor stores were also closed during the audit period, the last one being sold in May 2008. Ms. Arrington knew that Rowe's had closed almost all of its stores during the audit period, and included information regarding the closings in her Standard Audit Report. She acknowledged at hearing that as the stores decreased, the expenses related to those stores would also most likely decrease. For the 12 months of 2006, the Department determined that an additional tax of $14,981.26 would be due, based on purchases of $253,637.22. There has been no evidence presented to rebut the accuracy of the tax assessment for these 2006 purchases. Petitioner presented evidence establishing that, for the 21 months of the audit period following 2006, Rowe's made purchases from the same vendors reflected in the 2006 sample of only $51,073.72, which would result in additional taxes of $3,575.16. No evidence was presented by either party as to whether there were any other purchases from other vendors for which taxes had not been paid. The difference between the use tax assessed against Rowe's by using the sampling plan and taxes due based on the actual purchases demonstrated at hearing is $22,642.08. In addition, there was one vendor, Advo, Inc. (Advo), which accounted for a significant percentage of the tax due based on the sampling plan. While the audit sample period was for twelve months, payments to Advo for a seven-month period accounted for approximately 58% of the total additional taxes due for expenses. There were no purchases from Advo after July 2006 because of Rowe's shrinking assets and inability to pay for direct advertising. Further, 15 of the 23 vendors reflected in the sample period from whom purchases were made had no sales to Rowe's from January 2007 through September 2008. The Department's work papers indicate that, within the sample year, the purchases tapered off significantly as the year progressed. Given the known closure of five grocery stores and six liquor stores during the audit period, using a time period where the most stores were open is not representative of the expenses experienced by Petitioner, and use of the sampling plan to which the taxpayer had not agreed was inappropriate, and led to an inflated assessment of additional taxes. The Effective Tax Rate at the Liquor Stores During the audit period, Rowe's operated package liquor stores adjacent to the grocery stores. By the time the audit commenced, Rowe's no longer owned any of the liquor stores, and no longer had the cash register tapes from the liquor stores. Because of the lack of cash register tapes, the auditor was unable to determine the effective tax rate Rowe's was collecting. She did not, however, ask Rowe's what rate was collected. A review of the sales tax returns indicates that it remitted a flat rate of 6 or 7 percent, depending on the county. These rates were consistent with what Rowe's was collecting for the grocery store sales, and cash register tapes were available from the grocery store. Ms. Arrington applied the tax rates identified in Florida Administrative Code Rules 12A-1.057(3)(a) and 12A- 15.012(2)(a), both of which identify the rate that should be collected where the dealer sells package goods but does not sell mixed drinks; does not separately itemize the sales price and the tax; and does not put the public on notice that tax is included in the total charge. The work papers paraphrase but do not quote the rules. With respect to the liquor store in St. Johns County, the work papers state: "[a]ccording to Rule 12A-1.057(3)(a), F.A.C., when the dealer is located in a county with no surtax and the public has not been put on notice through the posting of price lists or signs prominently displayed throughout the establishment that the tax is included in the total charge, package stores which sell no mixed drinks shall remit tax at the effective rate of .0635." With respect to the liquor stores in Clay and Duval Counties, the work papers state: "[a]ccording to Rule 12A- 15.012(2)(a)1., F.A.C., when a dealer, located in a county imposing a 1% surtax, sells package goods but does not sell mixed drinks and does not put the public on notice that tax is included in the total charge, the dealer is required to remit tax at the effective tax rate of .0730." The Department's auditor made the assumption that tax was not separately itemized for package store sales and assessed the additional tax accordingly. She did not ask the taxpayer whether this was the case and did not ask about signage in the package stores that were no longer owned by Rowe's. Mr. Rowe testified that the same point-of-sale program was used for the liquor stores as were used for the adjacent grocery stores. That program separately identified the tax due. His testimony is unrebutted and is credited. The Taxpayer's Bill of Rights At hearing, Petitioner took the position that the Department violated the Taxpayer's Bill of Rights as stated in section 213.015(5), by its failure to provide Petitioner with a "narrative description which explains the basis of audit changes, proposed assessments, assessments." In its Proposed Recommended Order, however, Petitioner candidly acknowledged that the evidence did not support a finding consistent with Petitioner's position. In light of this concession, no further findings of fact are necessary with respect to this issue. Collectibility Rowe's asserted in its challenge that it was unable to pay any taxes assessed because it was no longer in business and no longer had any assets. The Department declined to exercise its discretion to compromise the tax assessment based on collectability. While not specifically stated in its Notice of Decision, this position was apparently based upon the belief that the taxes could be paid by Rowe's IGA, LLC, to whom the assets of Rowe's was sold, and which shares the same managing member, Robert Rowe. The two companies share a managing member and one common location, which Rowe's sold to Rowe's IGA. However, no evidence was presented regarding the specifics of the assets sold to Rowe's IGA, and the only evidence presented indicates that any proceeds from the sale went to pay the secured lender for Rowe's, Textron Financial. Other than the involvement of Robert Rowe, no connection between the companies was established. Rowe's provided to the Department the copy of a judgment against it for $324,963.33, which bears interest at a rate of 8% annually. The Department did not identify any assets from which either the assessment or the judgment could be paid.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order that: Reduces the Department's assessment for additional taxes, penalties, and interest by any amounts attributable to the failure to comply with the sales bracket system at Petitioner's grocery stores; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the failure to remit all taxes due for the month of August 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to expense purchases for the period January 2007 through September 2008; Sustains the assessment for additional use tax, penalties, and interest for expense purchases in calendar year 2006; Reduces the Department's assessment for additional use taxes, penalties, and interest by any amounts attributable to the asserted basis that Petitioner should have collected tax at a higher effective tax rate at its liquor stores based upon the application of rules 12A-1.057(3)(a) or 12A-15.012(2)(a); Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay tax on certain capital asset purchases identified in the audit; Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on commercial rent payments under certain of Petitioner's store leases identified in the audit; and Sustains the Department's assessment for additional sales tax, penalties, and interest against Petitioner for failure to pay sales tax on Petitioner's payment of ad valorem taxes under certain of Petitioner's store leases identified in the audit. In addition, it is Recommended that the Department reconsider its decision as to whether the remaining assessment is collectible, and whether it is in the best interest of the state to compromise the assessment, based on the record contained in this proceeding. DONE AND ENTERED this 31st day of July, 2012, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON 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 31st day of July, 2012.
The Issue The issues in this case are: (1) whether portions of Florida Administrative Code Rules 12D-9.020 and 12D-9.025 constitute invalid exercises of delegated legislative authority; (2) whether sections of Modules Four and Six of the 2010 Value Adjustment Board Training are unpromulgated rules; and (3) whether Property Tax Oversight Bulletin 11-01 is an unpromulgated rule.
Findings Of Fact The Parties Petitioner Turner is the Property Appraiser for Hillsborough County, Florida. Petitioners Crapo, Higgs, and Smith are the Property Appraisers for Alachua, Monroe, and Okaloosa Counties, respectively. Respondent, the Department of Revenue ("DOR"), is an agency of the State of Florida that has general supervision over the property tax process, which consists primarily of "aiding and assisting county officers in the assessing and collection functions." § 195.002(1), Fla. Stat. DOR is also required to prescribe "reasonable rules and regulations for the assessing and collecting of taxes . . . [to] be followed by the property appraisers, tax collectors . . . and value adjustment boards." § 195.027(1). Petitioner-Intervenor Roger A. Suggs is the Clay County Property Appraiser. Petitioner-Intervenor Gary R. Nikolitis is the Palm Beach County Property Appraiser. Petitioner-Intervenor PAAF is a statewide nonprofit professional association consisting of 35 property appraisers in various counties throughout Florida. Petitioner-Intervenor FAPA is a statewide nonprofit professional organization of Florida property appraisers. Respondent-Intervenor FUTMA is a statewide nonprofit association consisting of 46 of the largest property taxpayers in Florida. Ms. Cucchi, the second Respondent-Intervenor, is a property owner and taxpayer in Hillsborough County. Background of Florida's Property Tax System Article VII, Section Four of the Florida Constitution mandates that all property be assessed at "just value," and further requires that the Legislature prescribe, by general law, regulations that "shall secure a just valuation of all property for ad valorem taxation." Pursuant to chapters 192 through 196 of the Florida Statutes, locally elected property appraisers in each of Florida's 67 counties develop and report property assessment rolls. The assessment rolls——which property appraisers prepare each year and submit to DOR by July 1——contain information such as the names and addresses of the property owners, as well as the just, assessed, and taxable values of the properties within each appraiser's respective county. DOR is responsible for reviewing and ultimately approving or disapproving the assessment rolls. § 193.1142, Fla. Stat. Once DOR approves the assessment rolls, the property appraiser mails a "Notice of Proposed Property Taxes and Non-ad Valorem Assessments" (known as a "TRIM" notice) to each property owner. § 200.069, Fla. Stat. The notices advise each owner of his property's assessment for that year, the millage (tax) rate set by the taxing authorities, and the dates of the budget hearing for those authorities. After receiving a TRIM notice, a property owner may request an informal conference with the property appraiser's office to discuss the assessment of his or her property. Alternatively, or in addition to the informal conference, a property owner may challenge the assessment by filing a petition with the county value adjustment board or by brining a legal action in circuit court. § 194.011(3), Fla. Stat.; § 194.171, Fla. Stat. Value Adjustment Boards Pursuant to section 194.015(1), Florida Statutes, each of Florida's 67 value adjustment boards is composed of two members of the county commission, one member of the school board, and two citizen members.1 Of particular import to the instant case, section 194.015(1) requires value adjustment boards to retain private counsel to provide advice regarding legal issues that may arise during value adjustment hearings.2 In counties with populations greater than 75,000, the value adjustment board must appoint special magistrates3 to conduct hearings and issue recommended decisions. § 194.035(1), Fla. Stat. Hearings in counties with 75,000 citizens or fewer may be conducted by either magistrates or the value adjustment board itself. Id. DOR has no involvement in the appointment or removal of board attorneys, magistrates, or the members of value adjustment boards. Should a property owner choose to contest an assessment through the value adjustment board process, the board's clerk schedules an administrative hearing and sends a notice of hearing to the property owner and the property appraiser. § 194.032(2), Fla. Stat. At the hearing, the determinative issue is whether the assessment of the particular property at issue exceeds just value. In the event that a property owner is dissatisfied with the outcome of a value adjustment hearing, an appeal may be taken to the circuit court, where a de novo hearing will be conducted. § 194.036(2) & (3), Fla. Stat. Under certain conditions, the property appraiser may likewise appeal an adverse value adjustment board decision to the circuit court. § 194.036(1).4 2008 Legislative Reforms Prior to 2008, DOR was not charged with the responsibility of training value adjustment boards or their magistrates. However, pursuant to chapter 2008-197, Laws of Florida, the Legislature enacted a series of changes to the VAB process, including a new requirement that DOR "provide and conduct training for special magistrates at least once each state fiscal year." See § 194.035(3), Fla. Stat. Immediately after enactment of the law, DOR initiated rulemaking and developed 2008 interim training for value adjustment boards and special magistrates. Persons required to take the training include all special magistrates, as well as value adjustment board members or value adjustment board attorneys in counties that do not use special magistrates. § 194.035(1) & (3), Fla. Stat. In addition to the new training requirement, chapter 2008-197 mandated that DOR develop a Uniform Policies and Procedures Manual for use by value adjustment boards and magistrates. The Uniform Policies and Procedures Manual ("The Manual"), which is posted on DOR's website and is separate and distinct from DOR's training materials for value adjustment boards, consists of relevant statutes, administrative rules, provisions of the Florida Constitution, as well as forms. The Manual is also accompanied by two sets of separate documents, which are likewise available on DOR's web page: (1) "Other Legal Resources Including Statutory Criteria; and (2) "Reference Materials Including Guidelines," consisting of guidelines and links to other reference materials, including DOR's value adjustment board training materials, bulletins, and advisements. The introduction to the "Reference Materials Including Guidelines" reads in relevant part as follows: The set of documents titled "Reference Materials Including Guidelines," contains the following items: Taxpayer brochure General description and internet links to the Department's training for value adjustment boards and special magistrates; Recommended worksheets for lawful decisions; The Florida Real Property Appraisal Guidelines; * * * 7. Internet links to Florida Attorney General Opinions, Government in the Sunshine Manual, PTO Bulletins and Advertisements, and other reference materials. These reference materials are for consideration, where appropriate, by value adjustment boards and special magistrates in conjunction with the Uniform Policies and Procedures Manual and with the Other Legal Resources Including Statutory Criteria. The items listed above do not have the force or effect of law as do provisions of the constitution, statutes, and duly adopted administrative rules. Revisions to Value Adjustment Board Procedural Rules Pursuant to section 194.011, Florida Statutes, the Legislature charged DOR with the responsibility to prescribe, by rule, uniform procedures——consistent with the procedures enumerated in section 194.034, Florida Statutes——for hearings before value adjustment boards, as well as procedures for the exchange of evidence between taxpayers and property appraisers prior to value adjustment hearings. On February 24, 2010, following a 12-month period of public meetings, workshops, and hearings, the Governor and Cabinet approved the adoption of chapter 12D-9, Florida Administrative Code, which is titled, "Requirements for Value Adjustment Board in Administrative Reviews; Uniform Rules of Procedure for Hearings Before Value Adjustment Boards." As discussed in greater detail in the Conclusions of Law of this Order, Petitioner Turner contends that portions of Florida Administrative Code Rule 12D-9.020, which delineate the procedures for the exchange of evidence between property appraisers and taxpayers, contravene section 194.011. Petitioner Turner further alleges that section 194.011 is contravened by parts of Florida Administrative Code Rule 12D- 9.025, which governs the procedures for conducting a value adjustment hearing and the presentation of evidence. 2010 Value Adjustment Training Materials In 2010, following the adoption of Rule Chapter 12D-9, DOR substantially revised the value adjustment board training materials. After the solicitation and receipt of public comments, the 2010 VAB Training was made available in late June 2010 on DOR's website. The 2010 VAB Training is posted on DOR's website in such a manner that an interested person must first navigate past a bold-font description which explains that the training is not a rule: This training is provided to comply with section 194.035, Florida Statutes. It is intended to highlight areas of procedure for hearings, consideration of evidence, development of conclusions and production of written decisions. This training is not a rule. It sets forth general information of which boards, board attorneys, special magistrates and petitioners / taxpayers should be aware in order to comply with Florida law. (Emphasis in original). The 2010 VAB Training consists of eleven sections, or "modules," portions of two of which Petitioners allege constitute unadopted rules: Module 4, titled "Procedures During the Hearing"; and Module 6, titled "Administrative Reviews of Real Property Just Valuations." While words and phrases such as "must," "should," and "should not" appear occasionally within the materials, such verbiage is unavoidable——and indeed necessary——in carrying out DOR's statutory charge of disseminating its understanding of the law to magistrates and value adjustment board members. Although DOR is required to create and disseminate training materials pursuant to section 194.035, the evidence demonstrates that the legal concepts contained within the 2010 VAB Training are not binding. Specifically, there is no provision of law that authorizes DOR to base enforcement or other action on the 2010 VAB Training, nor is there a statutory provision that provides a penalty in situations where a value adjustment board or special magistrate deviates from a legal principle enumerated in the materials. Further, the evidence demonstrates DOR has no authority to pursue any action against a value adjustment board or magistrate that chooses not to adhere to the legal concepts contained within the training. PTO Bulletin 11-01 On January 21, 2011, DOR issued Property Tax Oversight Bulletin 11-01, titled "Value Adjustment Board Petitions and the Eighth Criterion," to the value adjustment board attorneys for all 67 counties. DOR also disseminated courtesy copies of the bulletin by e-mail to over 800 interested parties. The bulletin, the full text of which is reproduced in the Conclusions of Law section of this Summary Final Order, consisted of a non-binding advisement regarding the use of the eighth just valuation criterion (codified in section 193.011(8), Florida Statutes5) in administrative reviews. The bulletin advised, in relevant part, that the eighth just value criterion: "must be properly considered in administrative reviews"; "is not limited to a sales comparison valuation approach"; and "must be properly considered in the income capitalization and cost less depreciation approaches" to valuation. The bulletin further advised that when "justified by sufficiently relevant and credible evidence, the Board or special magistrate should make an eighth criterion adjustment in any of the three valuation approaches." Although certain interested parties (i.e., a special magistrate in Nassau County, the director of valuation for the Hillsborough County Property Appraiser's Office, and legal counsel for the Broward County value adjustment board) perceived the bulletin to be mandatory, the evidence demonstrates that value adjustment boards and magistrates were not required to abide by the bulletin's contents. As with the training materials, DOR possesses no statutory authority to base enforcement action on the bulletin, nor could any form of penalty be lawfully imposed against a magistrate or value adjustment board that deviates from the legal advice contained within the document. Further, there is no evidence that DOR has taken (or intends to take) any agency action in an attempt to mandate compliance with the bulletin.
The Issue The issue is whether petitioner's candidacy for the office of Tax Collector would conflict or interfere with his employment as an auditor for the Department of Revenue.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Petitioner, Robert M. Hendrick, a career service employee, is employed with respondent, Department of Revenue (DOR), as a Tax Auditor IV in its Leesburg, Florida field office. He has been employed by DOR since September 1991. In his position, petitioner primarily audits tangible personal property assessments performed by the local Property Appraiser and, on occasion, he inspects the property which is the subject of the assessment. In March 1996, the Lake County Tax Collector publicly announced that he would not run for reelection. After learning of this decision, by letter dated March 19, 1996, petitioner requested authorization from his employer to run for that office. The letter was received by DOR's Executive Director on April 1, 1996. On April 10, 1996, the Executive Director issued a letter denying the request on the ground the candidacy would conflict with petitioner's job duties. More specifically, the letter stated in relevant part that: Under section 195.002, Florida Statutes, the Department of Revenue has supervision of the tax collection and all other aspects of the administration of such taxes. Your position with the Department may require you to review or audit the activities of the office you propose to seek. Also some of your duties in supervising other officials in the administration of property taxes may be affected by your proposed candidacy. Your job requires you to review appropriate tax returns, and other records to resolve complex issues related to taxing statutes administered by the Department of Revenue. It also requires you to identify and scrutinize transactions to ascertain whether taxpayers have escaped paying property taxes. In addition, it also requires you to review and audit procedures used by counties to identify and value tangible personal property and accomplish statutory compliance, to investigate taxpayer complaints, to conduct field review with county staff as appropriate, and to provide education and assistance to county taxing officials. Because of the Department's statutory supervision of the office of tax collector, there cannot be a certification that your candidacy would involve "no interest which conflicts or activity which interferes" with your state employment within the definitions in section 110.233(4), Florida Statutes. The letter went on to say that This letter is a specific instruction to you that you should not qualify or become a candidate for office while employed in your current position. If you wish to commence your campaign by performing the pre-filing requirements, the law requires that you first resign from the Department. Failure to do so shall result in disciplinary action to dismiss you from your position in accordance with the Department's disciplinary standards and procedures, and Rule 60K-4.010, F.A.C., on the grounds that you are in violation of the Department's Code of Conduct, Section 110.233, Florida Statutes, and Rule 60K- 13.002(3), F.A.C. After receiving the above decision, by letter dated April 15, 1996, petitioner requested that the Executive Director reconsider his decision. Thereafter, on April 24, 1996, petitioner filed a request for a formal hearing to contest the agency's decision. Both the Property Appraiser and Tax Collector play a role in the property tax program in the State of Florida. The Property Appraiser generally values or assesses property subject to taxation and applies the millage rate set by the taxing authority. After the tax roll is approved by DOR, it is certified to the Tax Collector who then collects the taxes and distributes them to the appropriate taxing authorities. It is noted that ad valorem taxes make up the lion's share of taxes at the local level while tangible personal property taxes are a very small source of revenues. DOR is charged with the duties of providing oversight to the property tax program and aid and assistance to the Property Appraiser and Tax Collector. In this regard, DOR views the two offices as an integral part of the property tax program rather than two separate entities. It characterizes the program as "a stream or process where (the) lines of delineation (between the two offices) are not as distinct as they might have been ten or fifteen years ago." Because of the highly sensitive nature of the tax program, it follows that a certain degree of trust and integrity must exist between DOR (and its employees) and the local offices. Petitioner does not interface with the office of Tax Collector in any respect, and his duties do not require that he audit any of that office's records. His only duties are to audit the tangible personal property assessments performed by the Property Appraiser. These facts were not controverted. Although he has never differed with a valuation of the Property Appraiser during his five year tenure at DOR, and no such disagreement has occurred in Lake County during the last twenty-five years, petitioner could conceivably disagree with an assessment while running for office during the next few months. If the matter could not be informally settled, the tax rolls would not be certified by DOR, and litigation against DOR could be initiated by the Property Appraiser. Under those unlikely circumstances, petitioner might be called as a witness in the case, although the general practice has always been for DOR to use personnel from the Tallahassee office in litigation matters. To the very minor extent that petitioner could affect the tax rolls by disagreeing with the Property Appraiser's valuations, this could also impact the amount of money collected by the Tax Collector. DOR cites these circumstances as potentially affecting in an adverse way the level of trust and integrity between DOR and the office of Tax Collector. However, under the facts and circumstances of this case, this potential conflict is so remote and miniscule as to be wholly immaterial. The evidence also shows that in his audit role, petitioner has the "opportunity . . . to look and have access to tax returns," some of which "are of TPP (tangible personal property) nature (and) have attached to them federal tax returns" which might be used by the Property Appraiser for establishing the value of tangible personal property. Whether petitioner has ever had access to, or reviewed such, returns is not of record. In any event, to the extent this set of circumstances would pose a potential conflict with the Property Appraiser, as to the Tax Collector, it would be no more significant than the purported conflict described in finding of fact 7. Finally, DOR suggests that if petitioner was unsuccessful in his bid for office, it would likely damage the "relationship of trust" that now exists between DOR and the Tax Collector. Again, this purported conflict is so speculative as to be deemed immaterial. The parties have stipulated that, as of the date of hearing, petitioner's only option for qualifying to run for office is to pay a $6,173.00 qualifying fee no later than noon, July 19, 1996. The opportunity for submitting an appropriate number of signatures in lieu of a filing fee expired on June 24, 1996. On the few, isolated occasions during the last twenty-five years when the Lake County Tax Collector has requested information from DOR personnel, he has spoken by telephone with DOR legal counsel in Tallahassee. Those matters of inquiry, primarily relating to ad valorem taxes, do not concern any area related to petitioner's job duties. He also pointed out that his office always cooperates with the office of the Property Appraiser, especially when "corrections" must be made due to errors by that office. Even so, he described the two offices as being separate and with entirely different duties. This testimony is accepted as being the most persuasive on this issue. At least four persons have already announced that they would run for Tax Collector for Lake County. The parties have stipulated that one of those persons is a regional administrator for the Department of Highway Safety and Motor Vehicles who was not required to resign his position in order to run for office. According to the incumbent Tax Collector, that individual supervises other state employees who occasionally audit certain aspects of his office pertaining to automobile license plates and decals. Because of the time constraints in this case, and although not legally obligated to do so, respondent has voluntarily agreed to allow petitioner to take annual leave (or presumably leave without pay) commencing on the date he qualifies for local public office, or July 19, 1996, and to remain on leave until a final order is issued by the agency. At that time, if an adverse decision is rendered, petitioner must choose between resigning or withdrawing as a candidate. These terms are embodied in a letter from DOR's counsel to petitioner dated July 3, 1996. If petitioner is allowed to run for office without resigning, he has represented that he will campaign while on leave or after regular business hours. He has also represented, without contradiction, that his campaign activities will not interfere with his regular duties. If elected, he intends to resign his position with DOR.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a final order granting petitioner's request that it certify to the Department of Management Services that his candidacy for the office of Lake County Tax Collector would involve no interest which conflicts, or activity which interferes, with his state employment. DONE AND ENTERED this 10th day of July, 1996, in Tallahassee, Florida. DONALD R. ALEXANDER, 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 10th day of July, 1996. APPENDIX TO RECOMMENDED ORDER Respondent: Partially accepted in finding of fact 1. Partially accepted in findings of fact 2 and 3. 3-5. Partially accepted in finding of fact 1. 6. Partially accepted in finding of fact 5. 7-9. Partially accepted in finding of fact 4. 10-11. Partially accepted in finding of fact 7. 12. Rejected as being irrelevant since petitioner was not an employee of DOR in 1990. 13-17. Partially accepted in finding of fact 7. 18. Rejected as being unnecessary. 19-20. Partially accepted in finding of fact 5. 21. Partially accepted in finding of fact 8. 22-23. Partially accepted in finding of fact 5. Partially accepted in finding of fact 9. Rejected as being unnecessary. Note - Where a proposed finding of fact has been partially accepted, the remainder has been rejected as being irrelevant, not supported by the evidence, unnecessary, subordinate, or a conclusion of law. COPIES FURNISHED: L. H. Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, Esquire Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Mr. Robert M. Hendrick 5022 County Road 48 Okahumpka, Florida 34762 Peter S. Fleitman, Esquire Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue The issues in this case are whether Respondent failed to remit taxes, interest, penalties, and fees pursuant to a Compliance Agreement between Respondent and Petitioner; and, if so, whether Petitioner should revoke Respondent's sales tax registration certificate in consequence thereof.
Findings Of Fact Petitioner Department of Revenue ("Department") is the agency of state government authorized to administer the tax laws of the State of Florida. Respondent Servers, Inc. ("Servers") is a Florida corporation whose principal place of business is located in Plantation, Florida. Servers sells tangible personal property at retail and consequently is required to collect from its customers, and remit to the Department, sales tax on every transaction which is taxable under Chapter 212, Florida Statutes. In connection with this responsibility, Servers is an authorized "dealer," holding a sales tax certificate of registration numbered 16-8012479332-4 (the "Certificate"), which the Department issued on May 11, 2002. On May 2, 2008, the Department issued a notice to Servers, which initiated a proceeding to revoke Servers' Certificate for failure to remit taxes. Servers was invited to appear at an informal conference with the Department on June 18, 2008. At the informal conference, Servers would have the opportunity to avoid revocation either by presenting evidence refuting the charges regarding unpaid taxes, or by entering into a compliance agreement pursuant to which the outstanding liability would be satisfied. The informal conference took place as scheduled. Bruce Drumm, Servers' president, appeared on behalf of the corporation. At the conference, the Department and Servers entered into a written compliance agreement (the "Agreement"). Under the Agreement, Servers admitted that it owed the State of Florida a grand total of $10,868.60, a sum which comprised $8,453.45 in unpaid taxes, $1,557.86 in interest, fees in the amount of $40.00, and a penalty of $817.29. Servers agreed to pay its debt in installments, in exchange for the Department's promise to forbear from revoking Servers' Certificate. The Agreement called for Servers to make a down payment of $1,500 on June 25, 2008, followed by six monthly payments in the respective amounts of $750 (July through October) and $1,200 (November and December), due on specific dates beginning July 16, 2008, and ending December 16, 2008. The balance remaining after Servers' payment of $6,900 pursuant to foregoing schedule was "to be renegotiated on December 16, 2008." The Agreement did not provide that time was of the essence with regard to Servers' duty to make the installment payments, nor was there a grace period applicable to the payment deadlines. The Agreement did, however, state as follows: E. If the certificate holder fails to comply with any obligation under this agreement, the Department has the right to initiate revocation procedures by filing an Administrative Complaint, with a copy to the certificate holder, but without further notice to the certificate holder of the default. In the event of an action to revoke the certificate the Department shall introduce this Agreement into evidence as proof of the facts recited herein. * * * G. If the certificate holder fails to perform any of the obligations under this agreement, including the timely filing of returns and payment of all taxes, penalties and interest as they become due, all amounts of the tax, interest and penalty settled under this agreement and any unpaid balance shall be immediately due and payable and collectible by all legal means. In addition to promising to pay the outstanding indebtedness, Servers agreed: To accurately complete all past due sales tax returns and file them no later than Due date. To remit all past due payments to the Department as stated in the attached payment agreement. To accurately complete and timely file all required sales tax returns for the next 12 months, beginning with the period 07/2008 through 06/2009. To timely remit all sales tax collections due for the next 12 months, associated with the periods stated above. To comply with all other provisions of Chapter 212, Florida Statutes. Servers delivered each of the seven scheduled payments to the Department, fulfilling this particular financial obligation. Two of the payments (for October and December, respectively), however, were tendered on the next day after the due date, and one payment (September) was tendered on the second day after the due date. The Department accepted these late payments. The Department claims that each of these brief delays in performance on Servers' part amounted to a substantial violation of the Agreement. It alleges also that Servers further breached the Agreement by filing late returns for July and September 2008, and by being overdue in payment of taxes for the months of October and November 2008. Of these additional alleged breaches, only one was clearly proved. Based on the evidence presented, the undersigned finds that Servers' payment of the taxes due in November 2008 was delinquent. The proof of Servers' delinquency came in the form of an admission, which was offered against Servers during the cross- examination of the Department's sole witness, Tara Teague Schaffner. The damaging testimony, in other words, was elicited not by the Department, but by Servers' representative, Mr. Drumm. The admission, moreover, was memorialized in the Department's business records, from which Ms. Schaffner (in response to Mr. Drumm's questions) read lengthy excerpts out loud, thereby "publishing" the contents of the Department's internal documents into the evidentiary record of this proceeding. The business records from which Ms. Schaffner quoted were not offered into evidence. That the Department's records constituted "business records" for purposes of the business-records exception to the hearsay rule was established through Mr. Drumm's interrogation of Ms. Schaffner. Prompted by Mr. Drumm's questioning, Ms. Schaffner testified credibly, and the undersigned finds, that the Department's file on Servers contains, among other things, notes concerning conversations with the taxpayer, which were made contemporaneously, in the performance of a regular business activity, by a person with knowledge of the conversations, and which were kept in the regular course of the Department's business. For reasons that will be discussed below, the undersigned has concluded that the contents of the Department's business records, though presented in an unusual manner, nevertheless constitute admissible evidence which clearly and convincingly proves that Servers committed at least one material breach of the Agreement, namely being delinquent with regard to payment of taxes due in November 2008. To facilitate the forthcoming analysis of the admissibility of the dispositive evidence, and to show the basis for the finding that Servers breached the Agreement, the critical testimony is quoted here: Q [by Mr. Drumm] And do you [i.e. the Department] have any comments [in your records] regarding the 12/16 payment [for which the schedule in the Agreement provided]? A [by Ms. Schaffner] We have a note on the 17th of December [2008]. It says received stip payment due December 16th, twelve hundred dollars, hand delivered on December 17th. Q Are there any comments in the notes regarding my request to negotiate the balance due at that time? A On the 21st it says that Ms. Aboite [an employee of the Department] called you. She spoke to Bruce Drumm, the owner, reference delinquency for October and November 2008. He said that the return of payment was mailed yesterday for November and December 2008, informed him about the payment for October, stated he claimed to check the records and call me back. Advised he was informed all current returns should be mailed to the Hollywood Service Center for the 12th month, informed Mr. Drumm stip payment late, was due on December 17th. T. 44-45 (emphasis added). There are, to be sure, some discrepancies in Ms. Schaffner's testimony, which might be attributable to her misreading of information contained in the Department's records, or to inaccuracies in the entries themselves. For example, the "21st" of December 2008, which is when Ms. Aboite reportedly called Mr. Drumm——assuming the referenced month was December—— fell on a Sunday. While it is possible that Ms. Aboite transacted official business on Sunday, December 21, 2008, the undersigned doubts that such occurred, and declines to so find. The undersigned does find, however, that the conversation recorded in the notes took place around (and most likely after) December 17, 2008. This much is clear from the context of the comments. Ms. Schaffner's testimony, after all, came in response to a question of Mr. Drumm's inquiring about his request to negotiate with the Department "at that time," meaning the period of December 16-17, 2008. Similarly, the comment that the payment "was due" on December 17, 2008, is not correct. The payment was due on December 16 and was received by the Department on December 17, 2008. These facts are not disputed. Either the witness, or the maker of the notes from which the witness read, was mistaken. These are minor points, however, that ultimately do not seriously discredit Ms. Schaffner's testimony that, according to the Department's records, Servers' owner, Mr. Drumm, admitted on or about December 17, 2008, having just recently (the day before) mailed the tax payment due in November 2008. That payment (as will be discussed below) was delinquent as a matter of law if it were mailed after November 20, 2008—— which Mr. Drumm plainly admitted was the case. In sum, whatever other defaults under the Agreement Servers might have committed, the established fact is——as the evidence clearly and convincingly proves——that Servers failed to timely remit all sales tax collections due in November 2008. This failure was a material and substantial breach of the Agreement.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order revoking sales tax certificate of registration numbered 16- 8012479332-4, which the Department issued to Servers, Inc., on May 11, 2002. DONE AND ENTERED this 31st day of July, 2009, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 2009.
