The Issue The parties stipulated that the following legal issues were presented on the facts: When the taxpayer fails to claim the tax credit for sales tax on bad debts charged off during the month for which the return is filed as permitted by Section 212.17(8) Florida Statutes, may the taxpayer claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes? Does claiming a bad debt credit on a return for a month later than the month in which the charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes? STIPULATIONS The parties entered into a written stipulation of the issues, of the facts, and stipulated to the introduction into evidence of the attachments to the written stipulation of facts and the Exhibits 1 through 6. The following are the pertinent findings of fact in this case.
Findings Of Fact Causeway Lumber Company, Inc., (Causeway) is a Florida corporation engaged in the sale of lumber and building materials. During the years 1973- 1977 it operated two yards; one at 2701 South Andrews Avenue, Fort Lauderdale, Broward County, and one and 400 Northwest 2nd Avenue, Boca Raton, Palm Beach County. Because it operated in two counties, separate tax returns were filed for the Fort Lauderdale yard and the Boca Raton yard. Causeway uses the accrual method of accounting, the specific charge-off method of writing off bad debts, and its fiscal year ends March 31. Causeway did not collect the sales tax on credit sales at the time such sales were made, but billed sales tax to its customers as part of the credit sales. Although the sales taxes were not received by Causeway at the time the credit sales were made, Causeway reported and paid the sales tax on credit sales on the return for the month in which the sale was made as required in Section 212.06, Florida Statutes. In March of 1974, 1975, and 1976 the accounts receivable were reviewed and the account deemed worthless were written off as uncollectable and so reported on the corporation's income tax returns for those years. Causeway attempted to take as a credit in September of 1976 all of the bad debts written off in March of 1974, 1975 and 1976. The taking of this credit was questioned by the Comptroller, and Causeway paid the taxes due on the September 1976 sales tax remittance and then filed an application for refund on January 20, 1978, pursuant to provisions of Section 215.26, Florida Statutes. The Comptroller denied the application for refund stating as the grounds that there was no authority in Section 212.17, Florida Statutes, for a refund. Causeway's two outlets overpaid sales taxes in the following amounts in the years indicated: 1974 1975 1976 Boca Raton $ 1,072.51 $ 9,208.17 $ 30,477.11 Ft. Lauderdale 3,323.15 10,237.33 10,004.22 $ 4,395.66 $ 19,445.50 $ 40,481.33
Recommendation Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends to the Comptroller that the taxpayer be refunded the taxes overpaid in 1975, and 1976, in the total amount of $59,926.83. DONE and ORDERED this 9th day of October, 1978, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of October, 1978. COPIES FURNISHED: Richard W. Roe 2900 East Oakland Park Boulevard Fort Lauderdale, Florida 33306 Harold F. X. Purnell Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304 Eugene J. Cella General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 =================================================================
The Issue The issues are: Whether Latin America Sales made unreported sales which became subject to sales tax because they went unreported? Are purchases of inventory by Latin America Sales from overseas vendors subject to state use tax while temporarily warehoused in Miami and before export? Are purchases of inventory of Latin America Sales subject to state use tax because of its failure to register as a dealer, although its purchases would be exempt had it registered?
Findings Of Fact The Assessments The Department of Revenue assessed sales and use tax against Latin America Sales International for the period February 1, 1985 to June 30, 1987, in the amount of $114,682.88, a penalty of $28,670.72, and interest of $19,704.39, for a total of $163,057.99. It also assessed sales and use tax against the taxpayer for the period July 1, 1987 to January 31, 1988, in the amount of $72,374.71, a penalty of $18,093.68, and interest of $4,655.37, for a total of $95,123.76. These taxes were assessed for three reasons, failure to pay sales tax, failure to pay use tax and failure to pay tax due on rentals of space used to store sewing machine inventory in Florida. Sales Tax Latin America Sales International, Inc., is a Florida Corporation organized in 1975 by Cuban immigrants Ricardo and Elsie Miranda. It was formed to avail itself of a benefit created by the Internal Revenue Code for companies which qualified as western hemisphere trading corporations. Under 26 U.S.C. Section 921, a substantial tax reduction was available to United States corporations which made at least 95% of their sales to buyers outside of the United States, and within the western hemisphere. Mr. and Mrs. Miranda and a Mr. Ricardo Gomez had been operating a business known as Richards Sewing Machines Company, which sold industrial sewing machines both domestically and in Central American countries such as Guatemala, El Salvador, the Dominican Republic, Haiti and in Jamaica. They bought the industrial sewing machines in Taiwan and Italy. To take advantage of the deduction available to a western hemisphere trading corporation, Mr. and Mrs. Miranda incorporated Latin America Sales International, Inc. (Latin America). On its federal corporate income tax returns which were prepared by its certified public accountant, Eugene Drascher, Latin America obtained a deduction for its activities as a western hemisphere trading corporation for its fiscal years ending October 31, 1976, 1977, 1978, 1979 and 1980. Ultimately, this federal deduction was phased out. Richards Sewing Machines had been registered properly with the Florida Department of Revenue as a dealer and a payor of sales and use taxes, but no similar registration was filed for Latin America when it was formed. Mr. Drascher advised Mr. and Mrs. Miranda that the sales by Latin America would be made outside the United States, and consequently Florida was not entitled to collect sales tax from the foreign buyer, and that Latin America was only involved in importing and exporting industrial sewing machine inventory for resale, so the corporation was not responsible to pay use tax to the State of Florida on those sewing machines in its inventory. In essence, the CPA advised Mr. and Mrs. Miranda that there were no reports concerning sales and use tax to be filed and no reportable sales or use tax due from Latin America. This advice about reports was erroneous, and the failure of Latin America to register as a dealer has serious financial consequences with respect to liability for use tax. To allow persons claiming to engage in tax exempt sales to file no returns or to avoid registration entirely would provide a means of tax evasion which could be easily abused. All vendors must register and file tax returns so the Department of Revenue will be aware the vendor is in business and so the Department can audit to verify claims that sales are made in a way which is tax exempt. Some accomodations are made for tax exempt export sales; for instance, vendors may apply to file their returns semi-annually or annually rather than monthly. After the tax deduction available to western hemisphere trading corporations was phased out, Mr. and Mrs. Miranda continued to use Latin America to make foreign sales because the corporation had made a name for itself in the export market. In essence, Latin America had built up good will with its foreign customers. Latin America continued to engage only in export sales; it made no domestic sales within the United States or the State of Florida, except sales to other exporters. On those few occasions, Latin America obtained an appropriate resale certificate from the buyer/exporter. Latin America never filed any returns with the Florida Department of Revenue with respect to its inventory purchased from overseas vendors in Taiwan or Italy. Even if exempt, these purchases should have been reported as property held for export on schedule B of an annual sales tax return, under a dealer registration number Latin America should have obtained. (Tr. 118) Latin America received shipments of containers of sewing machines at the Miami free port, but because rent there was so expensive, Latin America transferred the inventory to a warehouse in Miami, after a customs broker paid the applicable federal customs duties on behalf of Latin America. Latin America never registered as an exporter with the State of Florida. Latin America never filed any returns with respect to gross sales made of its inventory stored in Miami which it exported to customers in the Caribbean or Central America. These sales should have been reported to the Department of Revenue under a dealer registration number as exempt sales. (Tr. 118) Richards Sewing Machines Company, which handled domestic sales and which was appropriately registered with the Department of Revenue, made proper and timely filings of all Florida Department of Revenue sales tax returns, Forms DR-15. The Department of Revenue initially audited the sales tax payments of Richards Sewing Machines, and the results of that audit are not at issue here directly. The Mirandas maintained their invoices in alphabetical order by vendor, so that invoices for Richards Sewing Machines and Latin America were physically located in the same file cabinet, although it would be obvious to the Mirandas from the face of the invoice whether the sale was one made by Richards Sewing Machine (a domestic sale), or Latin America (an export sale).1 Similarly, a single journal was used by Ms. Miranda to record the dollar amount of sales by both corporations. Each entry contained the purchaser, the sale date, the invoice number, the total amount of the sale, and if tax were collected on that sale, the amount of tax. Mrs. Miranda then used that journal to file on Form DR-15 with the Department of Revenue the gross amount of sales, taxable sales, and remit the tax collected by Richards Sewing Machines. No such filings were made by Latin America because the Mirandas had been advised by their accountant that no sales tax was due on export sales and none had been collected. Actually, returns showing that all sales were exempt should have been filed. See, Finding 7, above. In performing the audit of Richards Sewing Machines, the Department's auditors used that corporation's United States Corporate Income Tax Return, IRS Form 1120, for the applicable years, and compared the gross sales reported on those forms to the federal government with the amount of gross sales Richards Sewing Machines had reported monthly to the State of Florida on its Florida Sales and Use Tax Form, Form DR-15. The gross sales shown on the federal returns, Form 1120, for Richards Sewing Machines were 7.49 million dollars over the three years of the audit (1984, 1985 and 1986). Over the same period, Richards Sewing Machines had shown gross sales on Florida Department of Revenue Forms DR-15 of 7.46 million dollars. There was a $33,000 discrepancy, amounting to less than 1/2 of one percent. The Department's auditor never found any evidence that any sales made by Latin America failed to have attached a resale certificate, or a bill of lading showing that the machinery or parts sold were shipped outside the United States (Tr. 45, 110-11, 126, 129-30). The actual invoices, resale certificates and bills of lading have been destroyed. After the completion of the audit on Richards Sewing Machines, the auditor told Mrs. Miranda there was no further need to keep those records, and relying on that advice, Mrs. Miranda disposed of the records (Tr. 84-5). The Department never contested that this advice was given to Mrs. Miranda. Due to the commingling of the invoices and the sales journal for Richards Sewing Machines and Latin America, the auditor for the Florida Department of Revenue decided to audit Latin America, and received authorization to do so. The auditor believed that the total sales tax owed by these two separate legal entities had been combined and reported together on one Florida Department of Revenue Form DR-15, but separate Federal Income Tax Returns, Form 1120, had been filed for each of the two companies. She believed that the total gross sales for both companies on the federal tax returns should have equalled the amount shown on the DR-15s filed with Florida by Richards Sewing Machines. The auditor then determined that a percentage of sales should be computed for each year in order to prorate the sales reported on the DR-15s for each company, Richards Sewing Machines and Latin America. The methodology used was that the total sales reported on the Federal Forms 1120 filed by Richard Sewing Machines and Latin America for each of their fiscal years was prorated to a calendar year, to derive a monthly average gross sales for each entity. (Richards and Latin America had different fiscal years). The average was then multiplied by the applicable number of months in each calendar year to arrive at the annual sales total for each company. The estimated sales for each company were then divided by the total sales for both companies to obtain the percentage of sales for each company. Latin America's percentage was then applied to the gross sales report of the monthly DR-15s to determine its estimated gross sales for each month. (Department Exhibit 1, Audit Report, Page 9.) The monthly average of gross sales derived from Latin America's IRS Form 1120, was compared with its estimated monthly gross sales reported on the DR-15. For each month Latin America reported higher gross sales based on its IRS form, the difference was treated as unreported Florida sales and taxed at 5%. There is no logical reason for the Department to have engaged in its proration calculations. There is no credible evidence that any sales by Latin America to its export customers were subject to sales tax in Florida. Mrs. Miranda had prepared a list for the auditor which separated all invoices to demonstrate that all sales by Latin America were export sales. Appropriate bills of lading or certificates of resale for sales by Latin America were in the files. There is no reasonable basis to accept the Department's contention that State Form DR-15s filed by Richards Sewing Machines reflect combined sales figures for both Latin America and Richards Sewing Machines. The Department makes its argument because using the sales journal kept by Mrs. Miranda, the amount of sales tax due according to the journal is the same amount recorded on the DR-15s, but Richards Sewing Machines reported $33,000 more in sales to the federal government. From that the Department's witnesses somehow infer that the DR-15s reflected sales from both companies. The more reasonable inference here, however, is that the figures in the sales journal and DR-15 forms match because all sales by Latin America were foreign sales on which no tax was due, no tax was collected, and no tax was carried on the sales journal. When the amount of sales tax collected was computed from the sales journal, and reported by Mrs. Miranda on the State DR-15, that figure dealt solely with sales by Richards Sewing Machines. To the extent there is any discrepancy in the total sales Richards Sewing Machines reported to the State of Florida and to the Federal Government on Federal Form 1120, that discrepancy is due to a bookkeeping error. A small amount of additional tax was due on sales by Richards Sewing Machines in the years 1984 to 1986 ($33,000 times 5% or about $1,500). The evidence does not support an inference that taxable sales from both corporations were combined in the sales journal kept by Mrs. Miranda, and were then reported as a lump sum figure on the DR-15 filed by Richards Sewing Machines. The Department argues that its proration process did not tax Latin America for sales which were reported, because the Department agreed to recognize proper bills of lading or certificates of resale from customers of Latin America as justification for not collecting sales tax. It does, however, believe that tax should be assessed against Latin America for unreported sales, i.e., on the gross sales derived from its IRS Form 1120. Because the evidence is persuasive that Latin America made no sales which were taxable in Florida, the Department's argument is rejected as lacking a factual basis. All sales by Latin America were to exporters who gave a resale certificate to Latin America, or to foreign purchasers who provided an appropriate bill of lading showing that the material was exported from the State of Florida. It is true, however, that Latin America was required to file information returns reporting all of its sales, both gross and exempt. Its report would have shown all sales were exempt, and no tax was due. The mere failure to have filed the report does not make those export sales taxable. Use Tax Use tax is due for two reasons. Latin America made purchases of sewing machines and equipment from foreign manufacturers in Taiwan and Italy. It imported those machines and parts into the United States to an airport free zone. The machines and parts then cleared customs and were moved to a warehouse in Miami at 2303 Northwest 2nd Avenue, which interrupted the export process. Secondly, the failure of Latin America to have registered as a dealer has an important affect on its liability for use tax. Because it was never registered as a dealer during the audit period, it was impossible for Latin America to execute and deliver a certificate of resale to its Taiwanese and Italian suppliers of the industrial sewing machines it received and warehoused in Miami. Latin America introduced no proof that it was already contractually obligated to sell its inventory overseas at the time it was delivered to the free zone, or when it was removed from the free zone. Therefore, when Latin America removed the industrial sewing machines or parts from the airport free zone and stored them in its warehouse at 2303 Northwest 2nd Avenue in Miami, it engaged in a taxable event. The bills of lading showing eventual export of its inventory are insufficient to avoid the use tax, for "tax will apply if the property is diverted in transit to the purchaser," Rule 12A-1.064(1)(c), Florida Administrative Code. Under use tax law, removing those sewing machines from the stream of international commerce subjected them to use tax, even though Latin America may have harbored a subjective intent of ultimately reselling them to foreign purchasers in the Caribbean and Central America. Moreover, by failing to file as a dealer, Latin America also failed to report its purchases from its Taiwanese and Italian suppliers as exempt sales for which use tax was not due on schedule B of an annual return. It should have filed as a dealer engaged in resale. That failure to file a return is not the reason use tax is due, however. Latin America may be assessed use tax because it was not a registered dealer, took possessions of the sewing machines in Florida, and was unable to give a valid dealer's certificate of resale to its Taiwanese and Italian suppliers because it had never registered as a dealer. The tax is due at the rate of 5% on purchases made from its suppliers beginning February 1, 1985 to January 31, 1988, plus interest. See audit report, page 16- 17, Schedule B. Penalty There is no reason to assess any penalty on the use tax due in this case. The tax payer's failure to register as a dealer or to file information returns was based on the advice of a CPA, and that advice was facially reasonable. The Department is not required to impose a penalty if the applicable penalty, here 25% of the tax due, "would be too severe or unjust." Rule 12A-1.056(9)(a), Florida Administrative Code. Had Latin America registered as a dealer and given its suppliers a certificate of resale, no tax at all may have been due. There is no indication of some intent to evade a tax. Rather, laxness of the tax payer has rendered a transaction otherwise tax free fully taxable. Payment of the tax and interest is penalty enough. Commercial Rental Latin America offered no evidence with respect to the assessment the Department made for taxes due on commercial rentals. The amount involved is small, for the period November 1985 through June 1987, the tax due is $184.16.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered assessing use tax on inventory imported into Florida, plus interest and for tax due on commercial rentals, with interest. DONE and ENTERED this 30th day of October, 1990, at Tallahassee, Florida. WILLIAM R. DORSEY, JR. 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 30th day of October, 1990. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-0136 Rulings on proposals by Latin America: Discussed in Findings 4, 22 and 25. There is no credible evidence that Latin America ever actually sold sewing machines to Richards Sewing Machines for resale in the domestic market. There was, however, no legal impediment to doing so. Covered in paragraph 7, 8 and 11. Covered in Findings 17-19. Covered in Finding 10. The proposed findings based on materials which may have been produced in response to the Department's first request for production of documents have no bearing on this case, for they were not introduced into evidence at the final hearing. The testimony that all sales by Latin America were for export or to other exporters has been accepted. Rulings on proposals by the Department: Covered in Finding 1. Covered in Finding 2. Rejected as unnecessary. Rejected in Finding 17, although both corporations did file their own Form 1120s. The methodology is described in Finding 18. The methodology is described in Finding 18. Rejected because State Form DR-15 did not reflect combined sales figures. See, Findings 19 and 20. Rejected. See, Finding 21, although it is true that Latin America was not registered as a dealer, see, Finding 7. Adopted in Finding 25. Adopted in Finding 25. Adopted in Finding 27. Adopted in Findings 9 and 10. Adopted in Findings 9, 24 and 25. Adopted in Finding 24. Copies furnished: Mark R. Vogel, Esquire 201 South Biscayne Boulevard Miami Center, Suite 880 Miami, FL 33131 Matt Goldman, Esquire 1001 South Bayshore Drive Suite 1712 Miami, FL 33131 Linda Miklowitz, Esquire Lealand L. McCharen, Esquire Mark T. Aliff, Esquire Assistant Attorneys General Department of Legal Affairs Tax Section, The Capitol Tallahassee, FL 32399-1050 William D. Moore, General Counsel Department of Revenue 203 Carlton Building Tallahassee, FL 32399-0100 J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
Findings Of Fact On August 27, 1976, the Respondent, State of Florida Department of Revenue, notified the Petitioner of its intention to assess sales tax, penalties and interest against the Respondent for business transactions in the period August 1, 1973 through July 31, 1976. This Notice of Proposed Assessment was revised on May 27, 1977, and the Petitioner was notified of that revision. By his letter of June 19, 1977, the Petitioner has challenged the assessment, as revised. Upon receipt of the June 19, 1977 petition, the Respondent moved for a more definite statement and the Petitioner was afforded fifteen (15) days from the date of the Order within which time to amend his petition. Petitioner took advantage of that opportunity to amend and by an undated document did make such an amendment. The Respondent subsequently moved to strike certain portions of the amended petition and filed its answer to the petition. A pre-hearing conference was held to consider the Motion To Strike and after that pre-hearing conference was concluded an Order was issued which struck certain portions of the amended Petition and allowed copies of the proposed notices of assessments of August 27, 1976 and the revision of May 27, 1977 to be made a part of the complaint/petition as Exhibits 1 and 2, respectively. After the pre-hearing Order had been issued by the undersigned, the case was noticed for hearing for December 5, 1977. At the December 5, 1977 hearing date a Second Revised Notice of Proposed Assessment of Tax, Penalties and Interest Under Chapter 212, Florida Statutes was tendered. This revision dated from December 5, 1977, was allowed to be introduced as the final position of the Respondent on the question of the assessment. It was also allowed to be attached as Exhibit 3 to the amended petition. (Under cover of a separate correspondence the original petition, amended petition, exhibits to the amended petition, an Order which was entered after consideration of the Motion To Strike, are being submitted as a part of the record herein). In the ordinary course of his duties a tax examiner employed by the Respondent went to the business premises of the Petitioner to perform an audit to determine whether or not the Petitioner was collecting and remitting sales tax for the category of sales which the Petitioner was making, that required the payment of sales tax. These requirements spoken of are those set forth in Chapter 212, F.S. Mr. DeCico, the tax examiner, allowed Mr. Farhud to pick three (3) months in the year 1976 as being the period to be audited. DeCico then returned to Farhud's place of business and showed him the details of the three (3) month audit. Farhud was dissatisfied wish this audit and indicated that he preferred to have the audit sample expended for a full three (3) years. DeCico replied that he would be willing to expand the audit period. but cautioned Farhud that expansion of the audit period might promote an increased liability. Nonetheless, at Farhud's request, the audit period was expanded to one for thirty-six (36) months. The new audit period dated from August 1, 1973, through July 1, 1976. The work papers on that audit may be found as Respondent's Exhibit No. 1 admitted into evidence. This audit which is depicted in the Respondent's Exhibit No. 1, left out invoices pertaining to stamps, electric bills, wrapping paper, grocery bags, etc., since they were not retail items for sale. The audit was rendered on August 27, 1976. Before the Notice of Assessment was filed, Farhud had expressed his displeasure with the outcome of the second audit process because he felt that certain amounts depicted in the gross sales were not accurate; to wit, the inclusion of certain so-called "service fees", namely income tax preparation, notary fees, etc. DeCico tried to get a reasonable statement of the amounts of the categories which Farhud desired to have excluded. Farhud did not have records of the matters and was unable to provide an estimate as to the amount of income which had been derived from the aforementioned "service fees". The August 27, 1976, proposed assessment was computed on the basis of the proposition that the gross sales are equivalent to actual sales and are subject to sales tax in the taxable categories. As indicated before, this audit did not take into consideration any "service fees", nor did it grant any allowance for pilferage. No allowance was made for the latter category, because Farhud had not provided any estimate and/or police records to indicate the amount which would be lost to pilferage, and cause a reduction of the sales tax liability. Farhud formally challenged the audit of August 27, 1976, by his correspondence of September 8, 1976 in which he rejects the amount claimed and asks for a hearing. A copy of this correspondence may be found as Respondent's Exhibit No. 2 admitted into evidence. An informal conference was held between the parties on October 12, 1976 to see if a resolution of the dispute could be achieved. Mr. Farhud was represented at the informal conference by Michael J. Burman, Esquire, an attorney in Jacksonville, Florida. By a letter of October 14, 1976, Farhud's attorney requested the Respondent to utilize the figures for the three (3) month audit period, as opposed to the thirty-six (36) month period. The letter concluded by stating that Mr. Burman was unaware of any intention Mr. Farhud had to appeal the assessment of August 27, 1976. This letter was followed by a series of letters in which the various parties were indicating the desire to determine whether or not Mr. Farhud intended to accept the August 27, 1976 assessment or to appeal it. In the course of his correspondence Mr. Farhud continued to insist that he did not accept the amount of assessment as accurate. Mr. Farhud failed to indicate to Mr. Burman whether he was going to appeal the assessment or not and Mr. Burman withdrew as his attorney, as shown in the January 31, 1977 correspondence addressed to one of the employees of the Respondent. This correspondence is Respondent's Exhibit No. 7 admitted into evidence. On February 2, 1977, the audit supervisor in the Jacksonville district of the Respondent wrote Mr. Farhud indicating the intention of the Respondent to collect the taxes pursuant to the August 27, 1976 audit. A copy of this correspondence is Respondent's Exhibit No. 8 admitted into evidence. It should be indicated at this point, that the Respondent's representative had continued to request documentation from Farhud on the items requested for exemption which have been referred to as "service fee". The subject of pilferage had also been discussed at the October 12, 1976 informal conference and a request made for some form of records of police reports which would verify pilferage allowances. No documentation had been provided at the time the February 2, 1977 letter was written to Farhud. Subsequent to the February 2, 1977 letter another informal conference was held on April 4, 1977. As a result of that conference it was determined that certain items would be deleted from the audit assessment of August 27, 1976. This is evidenced in Respondents Exhibit No. 9 which is a copy of a letter dated May 27, 1977, from the audit supervisor, Mr. McCrone, to Mr. Farhud. At the April 4, 1977, discussion the subject of pilferage allowance as brought up in the deletion of 4 percent of the purchase price of taxable goods, as to soft drinks, paper and said products, pet foods and miscellaneous sundries were allowed. No allowance was given for beer, wine and tobacco products because these were felt to be out of reach of prospective pilferers. Again, this deletion is found in the Respondent's Exhibit No. 9. The 4 percent figure was arrived at as an industry estimate. Farhud still was not satisfied after the April 4, 1977, conference had been held and adjustments to the assessment had been mode. In view of this dissatisfaction, the Respondent elected to make a new type of audit, which was performed and was premised upon an analysis of the taxable purchases by the Petitioner for the three (3) year period. These purchases were divided into taxable categories and these categories were then marked up in price using an industry average to arrive at the actual taxable sales. The industry average was based upon an examination of the United Food Stores, Inc.'s sales catalog, which had suggested retail prices for low volume and high volume stores. The Respondent gave the Petitioner the benefit of the range of high volume stores, although the Petitioner's store was a neighborhood convenience store and therefore a low volume operation. The effect of allowing the average retail price for the high volume stores was that it made the differential between his purchase price and the retail price less than that for a low volume neighborhood store, causing lesser tax liability. As stated before, this alternative method was elected for the reason that the Respondent had objected that the gross sales figures reported in the monthly tax returns were incorrect, due to the fact that the Petitioner was unable to document his claim for entitlement to certain exemptions due to pilferage and "service fees", and due to the belief that the more correct approach to the audit was the second method. The work sheet on the alternative method may be found on Respondent's Exhibit No. 10 admitted into evidence. The utilization of this method led to the revised assessment of May 27, 1977, which is the subject of the appeal by petition, and amended petition of the Petitioner. This revision was superceded by the second revision of December 5, 1977, which was allowed to be entered without objection from the Petitioner. The second revision reduces the amount of tax liability claimed by the Respondent. An analysis of the documents offered in this cause and the testimony, leads to the conclusion that the Petitioner/taxpayer owed sales tax during the audit period August 1, 1973 through July 31, 1976. Furthermore, the more correct form of audit procedure under the circumstances, was the alternate method employed in arriving at the May 27, 1977 revised Notice of Assessment as further revised by the December 5, 1977 Second Revised Notice of Proposed Assessment. This conclusion is grounded on the requirements of Section 212.05(1), F.S., which requires persons in the Petitioner's category for the exercise of the privilege of doing business, to assist in levying a tax in the amount of 4 percent in the categories covered. Furthermore, Sections 212.06(3) and 212.07(2), F.S., places the duty on the Petitioner to collect this 4 percent sales tax. The Petitioner failed to act in accordance with the provision of Chapter 212, F.S. and the Second Revised Notice of Proposed Assessment is correct and in keeping with the authority of Section 212.12(6), F.S.
Recommendation Therefore, it is hereby RECOMMENDED: That the Second Revised Notice of Proposed Assessment of Tax, Penalties and Interest found as Exhibit 3 to the amended petition which total is $2,238.92 be allowed with such adjustments as may be necessary for a computation of interest prior to the rendition of a final order. DONE and ORDERED this 3rd day of January, 1978, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Nathan Weil, Esquire 203 Washington Street Jacksonville, Florida 32202 Patricia Turner, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Attorney, Division of Administration Department of Revenue Carlton Building Tallahassee, Florida 32304
The Issue The issues for determination are whether Respondent should assess tax, interest, and penalty on gross sales that Petitioner reported in Petitioner's federal income tax returns, but not in Petitioner's state sales tax returns; and on gross sales of services in transactions that also involved sales of tangible personal property.
Findings Of Fact Petitioner was a Florida corporation from May 1, 1995, through April 30, 2000 (the audit period). Petitioner maintained its principal place of business at 153 East Morse Boulevard, Winter Park, Florida 32789, and engaged in the business of providing services for interior design and decorating and selling tangible personal property used in the design and decoration of properties. On October 10, 2004, the Department of State, Division of Corporations, administratively dissolved Petitioner for failure to file Petitioner's annual report. Petitioner's federal employer identification number during the audit period was 59-2706005. Petitioner reported income and deductions for purposes of the federal income tax using the cash method of accounting. During the audit period, Petitioner was a registered dealer and filed a monthly Sales and Use Tax Return (DR-15) with Respondent. On June 2, 2000, Respondent sent Petitioner a Notification of Intent to Audit Books and Records (Form DR-840) bearing audit number A9933414838. Respondent and Petitioner agreed that a sampling method would be the most effective, expedient, and adequate method in which to audit Petitioner's books and records. Respondent examined and sampled the available books and records to determine whether Petitioner properly collected and remitted sales and use tax in compliance with Chapter 212, Florida Statutes (1993). For 1996, 1997, and 1999, Petitioner reported fewer gross sales on the DR-15s used for the purpose of the state sales tax than Petitioner reported on its Form 1120S federal income tax return. Respondent determined that the difference between gross sales reported for purposes of the state and federal taxes constituted unreported sales on which Respondent was statutorily required to assess sales tax, penalty, and interest. Respondent's auditor divided the yearly differences in the amounts reported on the Form 1120S and the DR-15s to determine a monthly difference for each month from 1996 through 1997. The auditor then scheduled the monthly difference and assessed the tax appropriately. The auditor also assessed tax for the value of design services that Petitioner provided to customers when Petitioner sold the customers design services and tangible personal property as a part of the same transaction. Pursuant to an agreement between Petitioner and Respondent's auditor, the sample included the entire year in 1999. Petitioner collected sales tax on all sales of tangible personal property, but did not collect sales tax on fees charged for decorator and design services provided in the same transactions. Respondent is authorized by rule to assess sales tax on the value of services provided in the same transaction in which Petitioner sold tangible personal property. The auditor correctly divided the total taxable design fees invoiced for 1999 by the total invoiced amount per sales by customer detail. The resulting quotient of .0752 percent was the applicable percentage of the design fees that were taxable in 1999. The auditor multiplied the applicable percentage by the gross sales that Petitioner reported on its federal tax returns for 1997, 1998, and 1999 to determine the total amount of design fees that were taxable. The auditor then properly scheduled and assessed the taxable interior design fees. On May 1, 2001, Respondent issued a Notice of Intent to Make Audit Changes (form DR-1215). The Notice provided that Petitioner owed $77,249.72 in taxes; $38,625.02 in penalties; and $29,471.12 in interest, for a total deficiency of $145,345.86. Interest continued to accrue on the unpaid assessment. On August 15, 2001, Respondent issued its Notice of Proposed Assessment. The Notice provided that Petitioner owed: $77,249.72 in taxes; $38,625.02 in penalties; and $32,145.15 in interest, for a total of $148,019.89 through August 15, 2001.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order assessing Petitioner for $148,019.89 in tax, penalty, and interest, plus the amount of interest that accrues from August 15, 2001, through the date of payment. DONE AND ENTERED this 4th day of February, 2005, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of February, 2005. COPIES FURNISHED: W. Scott Carter Carter Wolf Interiors, Inc. 153 East Morse Boulevard Winter Park, Florida 32789-7400 J. Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668 W. Scott Carter 1700 Briercliff Drive Orlando, Florida 32806-2408 James O. Jett, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue in this case is whether Callagy Tires, Inc. (Petitioner), collected and remitted the correct amount of sales and use tax on its operations for the audit period.
Findings Of Fact DOR is the state agency charged with the responsibility of administering and enforcing the tax laws of the state of Florida. In conjunction with that duty, DOR performs audits of business entities conducting sales and use transactions. At all times material to the issues of this case, Petitioner conducted business in Palm Bay, Florida, and was obligated to collect and remit sales and use tax in connection with the activities of its business enterprise. Petitioner’s Federal Identification Number is 59-2221722. Petitioner sells tires (wholesale and retail), provides tire services such as installation, and performs other repair and towing services subject to sales or use taxes. In order to properly perform its audit responsibilities, DOR requires that businesses maintain and present business records to support the collection of sales and use taxes. In this case, DOR notified Petitioner that it intended to audit the business operations for the audit period, June 1, 2004, through May 31, 2007. After the appropriate notice to Petitioner, the audit was initiated on or about July 18, 2007. Employees of DOR went to Petitioner’s place of business, requested business records, and attempted to audit and reconcile Petitioner’s reported tax payments with the amounts and types of taxes that should have been remitted, based upon the records kept by Petitioner. Theoretically, the sums remitted to the Department should match the records of the business entity. In this case, the amount remitted by Petitioner could not be reconciled with the business records maintained by the business entity. As a result of the audit, DOR sent Petitioner a Notice of Intent to Make Audit Changes that claimed Callagy Tires, Inc., owed sales and use tax in the amount of $121,707.41. By letter dated August 13, 2009, Petitioner filed a protest of the audit findings. Thereafter, the parties exchanged information that Petitioner claimed should require reconsideration of the audit results. Nevertheless, the Department could not reconcile the bank and audit information based upon the documentation submitted by Petitioner. The amounts of the Notice of Reconsideration remain at issue. As of the time of the hearing in this cause, Petitioner had not provided documentation to refute the findings of the Department’s audit. At hearing, DOR maintained that Petitioner owes $173,718.66, together with accruing interest. Specifically, the audit found that there was a difference between the gross sales reported by Petitioner on its federal return and the amounts reported on its state forms. The difference between the two returns constituted unreported sales for state tax purposes. Secondly, the Department determined that certain sales were not “exempt” as maintained by Petitioner. Based upon a sample of invoices provided by Petitioner, DOR found that Petitioner did not remit the full sales tax due on certain types of services. For example, the correct sales tax was not remitted on machining brake rotors, truing brake rotors, or making repairs that included the use of tangible personal property. The taxable event required a calculation of sales tax on the entire amount, not a percentage of the cost. The third area of discrepancy identified by the audit, related to unpaid sales tax on machinery, equipment, supplies, and services purchased by Petitioner for use in the operation of its business. Throughout the audit process, and, subsequently, Petitioner never presented documentation to dispute the Department’s audit findings. DOR gave Petitioner every opportunity to present records that would establish that the correct amounts of sale and use taxes were collected and remitted. Petitioner timely challenged the audit findings, but, has not, through its principal owner or its agents, provided documentation that show the taxes were appropriately calculated and paid. Petitioner maintains that an amended federal tax return verifies the state return previously filed is accurate. Notwithstanding that assertion, Petitioner has not presented the underlying documentation to support the state or federal return. Further, Petitioner refused to allow DOR to review all of its electronically stored records, and did not make the records available to DOR.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a final order sustaining the audit findings, and require the Petitioner to remit the unpaid sales and use taxes in the amount of $173,718.66, together with accrued interest, as provided by law. DONE AND ENTERED this 22nd day of March, 2011, in Tallahassee, Leon County, Florida. S J. D. PARRISH 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 22nd day of March, 2011. COPIES FURNISHED: Marshall Stranburg, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Tallahassee, Florida 32314-6668 Eugene M. Callagy, Jr. Callagy Tires, Inc. 6625 Babcock Street, Southeast Malabar, Florida 32950 Patrick Hanley, Esquire 185 Forest Road Troy, Montana 59935-9572 John Mika, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Lisa Vickers, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32314-6668
The Issue Whether the Department of Revenue's ("Department") assessment of tax, penalty, and interest against American Import Car Sales, Inc., is valid and correct.
Findings Of Fact The Department is the agency responsible for administering the revenue laws of the State of Florida, including the imposition and collection of the state's sales and use taxes. Petitioner, American Import Car Sales, Inc., is a Florida S-corporation with its principle place of business and mailing address in Hollywood, Florida. Petitioner, during the period of June 1, 2007, through May 31, 2010 ("assessment period"), was in the business of selling and financing new and used motor vehicles. On June 29, 2010, the Department issued to Petitioner a Notice of Intent to Audit Books and Records (form DR-840) for sales and use tax for the assessment period. Said notice informed Petitioner that the audit would begin on or around 60 days from the date of the notice and included an attachment identifying the records and information that would be reviewed and should be available when the audit commenced. Specifically, the Sales and Use Tax Information Checklist attachment requested the following: chart of accounts, general ledgers, cash receipts journals, cash disbursement journals, federal income tax returns, county tangible property returns, Florida Sales and Use Tax returns, sales journals, sales tax exemption certificates (resale certificates), sales invoices, purchase invoices, purchase journals, lease agreements for real or tangible property, depreciation schedules, bank and financial statements, detail of fixed asset purchases, and other documents as needed. On the same date, in addition to the Notice of Intent, the Department issued to Petitioner, inter alia, an Electronic Audit Survey, and a Pre-Audit Questionnaire and Request for Information. On September 17, 2010, the auditor requested the following records to review by October 4, 2010: (1) general ledger for the assessment period; (2) federal returns for 2007, 2008, and 2009; (3) lease agreement for the business location; (4) deal folders for the assessment period; (5) all expense purchase invoices for the assessment period; (6) all purchase invoices relating to assets added to the Depreciation Schedule during the assessment period; (7) resale/exemption certificates, shipping documents, and any other exempt sales documentation to support exempt sales during the assessment period; (8) bank statements for the assessment periods; and (9) all worksheets used to prepare monthly sales tax returns for the assessment period. On October 5, 2010, the auditor met with Petitioner's President Joe Levy, Petitioner's Secretary Joanne Clements, and Petitioner's Certified Public Accountant, Steve Levy. At that time, Petitioner provided a hard copy of the 2007 and 2008 general ledger and profit and loss statements. At that time, the auditor again advised Petitioner that the Department needed the federal returns, as well as the completed electronic audit survey and pre-audit questionnaire. On October 5, 2010, the Department and Petitioner signed a Consent to Extend the Time to Issue an Assessment or to File a Claim for Refund (form DR-872). The consent provided that assessments or claims for refunds may be filed at any time on or before the extended statute of limitations, December 31, 2011. On October 18, 2010, Petitioner provided the Department with the completed electronic audit survey and pre-audit questionnaire. Thereafter, Petitioner provided the Department with the following books and records: (1) 2009 "deal folders;" Petitioner's general ledger in Excel format for June 1, 2007, through December 31, 2010; (3) January 2009 through May 2010 bank statements; (4) a listing of exempt sales; and (5) lease agreements with attendant invoices. On August 25, 2011, the Department issued its assessment, entitled a Notice of Intent to Make Audit Changes (form DR-1215)("NOI"). Said notice provided that Respondent owed $2,324,298.42 in tax, $581,074.61 in penalties, and $515,117.04 in interest through August 25, 2011. The NOI addressed Petitioner's alleged failure to collect and remit tax on: (1) certain vehicle sales (audit Exhibit A01-Sales Tax Collected and Not Remitted)1/; (2) vehicle sales with no documentation regarding its exempt status (audit Exhibit A02-Disallowed Exempt Sales)2/; (3) motor vehicle sales where no discretionary tax was assessed (audit Exhibit A03- Discretionary Surtax)3/; and (4) unreported sales (audit Exhibit A04-Unreported Sales). The assessment also related to Petitioner's alleged failure to pay/accrue tax on: (1) taxable purchases (audit Exhibit B01-Taxable Purchases); (2) fixed assets (audit Exhibit B02-Fixed Assets); and (3) commercial rent (Exhibit B03-Commercial Realty). At hearing, Petitioner stipulated that the only component of the NOI remaining at issue pertains to audit Exhibit A04-Unreported Sales, as Petitioner has conceded A01, A02, A03, and all fee schedules. An understanding of audit Exhibit A04, and the assessment methodology employed by the auditor, is articulated in the Department's Exhibit MM, entitled Explanation of Items, which is set forth, in pertinent part, as follows: Reason for Exhibit: The records received for the audit were inadequate. The taxpayer provided bank statements for the period of January 2009 through May 2010. This period was deemed the test period for unreported sales. A review of the bank statements for the test period revealed that sales were underreported. This exhibit was created to assess for sales tax on unreported sales. Source of Information: Sales tax returns and Bank of America bank statements for the test period of January 2009 through May 2010; The Department of Motor Vehicles (DMV) [sic] was acquired for the period of June 2007 through May 2010. Description of Mathematical Adjustments: The bank statements were reviewed for the period of January 2009 through May 2010. Taxable Sales on sales tax returns, sales tax on sales tax returns, taxable sales on Exhibit on [sic] Exhibit A01, sales tax Exhibit A01 and Exempt Sales on Exhibit A02 was subtracted from Bank Deposits to arrive at unreported sales. See calculations on page 53. Unreported sales for the period of January 2009 through May 2010 were scheduled into this exhibit. A rate analysis of the DMV database resulted in an effective tax rate of 6.2689. Scheduled transactions were multiplied by the effective tax rate of 6.2689 to determine the tax due on the test period. A percentage of error was calculated by dividing the tax due by the taxable sales for each test period. The percentage of error was applied to taxable sales for each month of the audit period which resulted in additional tax due. The auditor's analysis of the test period, applied to the entire assessment period, resulted in a determination that Petitioner owed $1,599,056.23 in tax for unreported sales. On August 25, 2011, the auditor met with Joe and Steve Levy to discuss and present the NOI. At that time, Joe and Steve Levy were advised that Petitioner had 30 days to provide additional documents to revise the NOI. On September 28, 2011, the Department issued correspondence to Petitioner advising that since a response to the NOI had not been received, the case was being forwarded to Tallahassee for issuance of the Notice of Proposed Assessment ("NOPA")(form DR-831). On October 7, 2011, the Department issued the NOPA, which identified the deficiency resulting from an audit of Petitioner's books and records for the assessment period. Pursuant to the NOPA, Petitioner was assessed $2,324,298.42 in tax, $31,332.46 in penalty, and $534,284.54 in interest through October 7, 2011. The NOPA provided Petitioner with its rights to an informal written protest, an administrative hearing, or a judicial proceeding. On December 5, 2011, Petitioner filed its Informal Written Protest to the October 7, 2011, NOPA. The protest noted that the NOPA was "not correct and substantially overstated." The protest raised several issues: (1) that the calculation was primarily based upon bank statement deposits; (2) not all deposits are sales and sources of income; and (3) a substantial amount of the deposits were exempt sales and loans. The protest further requested a personal conference with a Department specialist. On January 10, 2013, Martha Gregory, a tax law specialist and technical assistance dispute resolution employee of the Department, issued correspondence to Petitioner. The documented purpose of the correspondence was to request additional information regarding Petitioner's protest of the NOPA. Among other items, Ms. Gregory requested Petitioner provide the following: [D]ocumentation and explanations regarding the source of income—vehicle sales, loan payments, etc.—for each deposit. For vehicle sales deposits, provide the customer name, vehicle identification number and amount; for loan payments, provide proof of an existing loan and the amount received from the borrower; and for any other deposits, provide documentation of the source of this income. A conference was held with Petitioner on February 7, 2013. At the conference, Ms. Gregory discussed the January 10, 2013, correspondence including the request for information. The Department did not receive the requested information. Following the conference, the Department provided the Petitioner an additional 105 days to provide documentation to support the protest. Again, Petitioner failed to provide the information requested. On June 14, 2013, the Department issued its Notice of Decision ("NOD"). The NOD concluded that Petitioner had failed to demonstrate that it was not liable for the tax, plus penalty and interest, on unreported sales as scheduled in audit Exhibit A04, Unreported Sales, as assessed within the compliance audit for the assessment period. Accordingly, the protested assessment was sustained. On July 15, 2013, Petitioner filed a Petition for Reconsideration to appeal the Notice of Decision ("POR"). The POR advanced the following issues: (1) the records examined were not the books and records of Petitioner; (2) the audit should be reduced because the auditor's methodology was incorrect; and the Petitioner should be allowed a credit for bad debts taken during the audit period. At Petitioner's request, on October 22, 2013, Petitioner and Ms. Gregory participated in a conference regarding the POR. At the conference, Petitioner requested a 30-day extension to provide documentation in support of Petitioner's POR. No additional documentation was subsequently provided by Petitioner. On April 29, 2014, the Department issued its Notice of Reconsideration ("NOR"). The NOR sustained the protested assessment. Petitioner, on June 30, 2014, filed its Petition for Chapter 120 Hearing to contest the NOR. Petitioner did not file its federal tax returns for the years 2008, 2009, and 2010 until after the Department issued the NOR. Indeed, the federal returns were not filed until June 3, 2014.4/ Ms. Kruse conceded that the auditor's assessment utilized Petitioner's bank statements to determine unreported sales; however, the auditor did not make any adjustments for "unusual items that would have been on the face of the bank statements." Ms. Kruse further acknowledged that the auditor's assessment does not reference Petitioner's general ledger information. Ms. Kruse acknowledged that, for several representative months, the general ledger accurately reported the deposits for the bank statements provided. When presented with a limited comparison of the bank statement and the general ledger, Ms. Kruse further agreed that, on several occasions, deposits noted on the bank statements were probably not taxable transactions; however, the same were included as taxable sales in the auditor's analysis. Ms. Kruse credibly testified that the same appeared to be transfers of funds from one account into another; however, because the Department only possessed the bank statements from one account, and never received the requested "back up information" concerning the other account, the Department could not discern the original source of the funds.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that The Department conduct a new assessment of Petitioner's sales and use tax based on a test or sampling of Petitioner's available records or other information relating to the sales or purchases made by Petitioner for a representative period, giving due consideration to Petitioner's available records, including Petitioner's general ledger, to determine the proportion that taxable retail sales bear to total retail sales. DONE AND ENTERED this 17th day of April, 2015, in Tallahassee, Leon County, Florida. S TODD P. RESAVAGE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of April, 2015.
The Issue The issue is whether Respondent properly assessed a civil penalty against Petitioner, pursuant to Section 213.29, Florida Statutes (2007),1 after Respondent was adjudicated and sentenced in a criminal proceeding for the offense of theft of state funds.
Findings Of Fact Integrated Copy Systems failed to file sales tax returns or failed to remit sales tax, or both, to the Department during the periods July 2003 through April 2005. In an attempt to secure compliance, on May 12, 2005, the Department recorded a tax warrant with the clerk of court for Hillsborough County in the amount of $24,060.95. The amount of tax due listed on the warrant was $18,400.29, an amount which included, in part, an estimate of tax liability. This estimate was appropriate since Integrated Copy Systems had not filed sales tax returns for certain periods, and Respondent had no information as to the amount of taxable sales made for those periods. Petitioner was subsequently arrested and charged with the offense of theft of state funds, a third-degree felony, in State of Florida v. Michael Maynard, Case No. 05-22960, in the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. On December 13, 2007, Petitioner entered a plea to the criminal charge and was sentenced to probation, with conditions which included the payment of restitution,3 and adjudication was withheld. Petitioner testified that as part of an agreement in his criminal case, he paid the outstanding taxes and that "zero" taxes were due. Petitioner also testified that pursuant to an agreement with the prosecuting attorney, he was assessed and paid a civil fine $1,000.00. Petitioner made some payments to the Department for the sales taxes which he failed to remit for the periods of July 2003 through April 2005. However, Petitioner has not paid all the outstanding sales taxes owed for the subject time period, despite his belief to the contrary. The records generated and/or produced by Petitioner, which purport to reflect the payments made to the Department, do not take into account the accrual of interest and other penalties. The Department properly applied Petitioner's payments to the outstanding sales taxes owed by Integrated Copy Systems. To calculate the amount of sales and use tax owed by Integrated Copy Systems, the Department applied all payments made towards the tax liability of the company. The Department also removed the estimated amount of tax from the total amount of taxes due upon receipt of the company's sale tax returns for the missing periods. The Department accurately determined that as of December 21, 2007, Integrated Copy Systems still owed $7,075.48 in sales tax. On March 19, 2008, the Department issued a Notice of Final Assessment Sales or Use Tax, Penalty and Interest. The amount of the penalty assessed against Petitioner, in his capacity as corporate officer or responsible party, is $14,150.96, which is 200 percent of Integrated Copy Systems' tax liability.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent, Department of Revenue, enter a final order sustaining the sales tax assessment of $7,075.48; and the penalty assessment of $14,150.96 45. DONE AND ENTERED this 31st day of March, 2010, in Tallahassee, Leon County, Florida. S CAROLYN S. HOLIFIELD 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 March, 2010.
The Issue The issue is whether Petitioner is liable for sales and use taxes, penalties, and interest and, if so, how much.
Findings Of Fact Petitioner operated a bar and grill in Punta Gorda that served beer, wine, liquor, and food at retail. In the course of business, Petitioner collected tax from the customers. Petitioner reported to Respondent sales tax collections for May 1996, November 1996, March 1997, November 1997, and December 1997. In connection with these collections, Petitioner remitted to Respondent seven checks representing the net tax due Respondent. These checks totaled $6700.64. The bank on which the checks were drawn dishonored them. The remittance of net sales tax proceeds by payment through checks that are later dishonored implies a fraudulent, willful intent to evade the payment of these sums. Respondent has issued five warrants concerning the unremitted taxes, penalties, and interest. Warrant 953620064 shows that Petitioner owes $1171 in sales tax remittances for the five months from July through November 1995. With penalties and interest, the total due on this warrant, through June 5, 1998, is $1832.37. Interest accrues after June 5 at the daily rate of $0.35. Warrant 467049 shows that Petitioner owes $2940.25 in sales tax remittances for the following months: April 1996, October 1996, December 1996, and January 1997. Petitioner purportedly paid each of these remittances with five (two in January) checks that were later dishonored. With penalties, including the 100 percent penalty for fraud, and interest, the total due on this warrant, through June 5, 1998, is $7480.12. Interest accrues after June 5 at the daily rate of $0.95. Warrant 971680037 shows that Petitioner owes $1301.85 in sales tax remittances for the following months: December 1995, June 1996, July 1996, September 1996, November 1996, and February 1997. With penalties and interest, the total due on this warrant, through June 5, 1998, is $2669.69. Interest accrues after June 5 at the daily rate of $0.43. Warrant 471481 shows that Petitioner owes $2912.48 in sales tax remittances for October and November 1997, for which Petitioner made remittances with two dishonored checks. With penalties, including the 100 percent penalty, and interest, the total due on this warrant, through June 5, 1998, is $6751.49. Interest accrues after June 5 at the daily rate of $0.95. Warrant 989840034 shows that Petitioner owes $8077.76 in sales tax remittances for the following months: August 1997, September 1997, December 1997, January 1998, and February 1998. With interest, the total due on this warrant, through June 5, 1998, is $8285.21. Interest accrues after June 5 at the daily rate of $2.65. Totaling the five warrants, Petitioner owes a total of $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order determining that Petitioner owes $27,018.88 in taxes, penalties, and interest through June 5, 1998, and $5.33 per day for each ensuing day until the amount is paid. DONE AND ENTERED this 10th day of July, 1998, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1998. COPIES FURNISHED: John N. Upchurch Nicholas Bykowsky Assistant Attorneys General Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050 Judith Crown, President Tombstone, Inc. Suite P-50 1200 West Retta Esplanade Punta Gorda, Florida 33950 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Larry Fuchs, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue The issue in this case is whether Petitioner performed nontaxable services as a decorating contractor, as he maintains, or, rather, whether he leased tangible personal property and thereby incurred sales tax liability, as Respondent alleges.
Findings Of Fact The Parties At all relevant times, Petitioner Philip E. Hancock ("Hancock") was a sole proprietor doing business in and around Fort Lauderdale, Florida, under the names "Action Plant Rental" and "Action Plants." Respondent Department of Revenue ("Department"), an agency of the State of Florida, is authorized to administer the state's tax laws. An Overview of Hancock's Businesses In 1980, Hancock and his then-wife purchased a nursery and, as proprietors, started a business called "Landscape Concepts." Initially, the couple's business activities involved landscaping and (b) sales of plants and nursery stock at wholesale (mostly) and retail. Sometime in 1983, Landscape Concepts began "renting" plants and trees for special events, such as weddings, banquets, and charity fundraisers.2 In time, this plant rental business eclipsed the original landscaping and sales operations, and by the late 1980's the ascendant enterprise was dubbed "Action Plant Rental."3 In 1990, having established Action Plant Rental, the Hancocks sold their nursery, whereupon Landscape Concepts stopped selling plants on a regular basis. The landscaping business, in contrast, tapered off gradually, continuing for several more years until being discontinued completely at the end of 1993. As of January 1994, plant rental was Petitioner's sole vocation. A Closer Look At the Plant Rental Business The evidence concerning the details of how Hancock's plant rental business operated during the audit period is relatively sparse, consisting of little, if anything, other than Hancock's testimony, which is generally credible as far as it goes, but not comprehensive. Hancock's clients, for the most part, were not the individuals who hosted or sponsored the events for which Action Plant Rental supplied "green décor" (to use Hancock's phrase), but rather were the event planners, designers, florists, and hotels (which frequently acted as planners in connection with events held on their premises) who had been hired by the hosts or sponsors to make their events happen. Thus, Hancock usually did not deal directly with, for example, the bride, but with the bride's wedding planner. In effect, he was a subcontractor. Hancock did not enter into written contracts with his clients. When a client retained Hancock, the client informed Hancock when and where the event would be held, and told Hancock (or asked him for an opinion about) which plants would be appropriate. The evidence is ambiguous as to the degree of Hancock's input and discretion in selecting the particular plants to bring to a given event. While the undersigned is persuaded that Hancock had some involvement in choosing the plants at least some of the time, it cannot be found that this service, to the extent provided, added substantial value to the transaction——or was one for which clients specifically and knowingly paid. When the time came for Hancock to perform the agreement, he delivered the plants and trees to the site and, at a time before the event was to begin, set them up in the hall or ballroom. Setting up the plants to create a pleasing and appropriate environment no doubt required decorating skill. It is undisputed, moreover, that Hancock commonly added decorating touches, such as lights and decorative containers, to his plants and trees, which made the display more attractive. What is less clear, however, is whether clients purchased Hancock's decorating expertise——or if, instead, Hancock executed the commands of someone else who decided how to arrange and present the plants. On this point, as others, it might have been helpful to hear from some clients. As it is, Hancock's own testimony is somewhat ambiguous. While the question is extremely close, the undersigned is persuaded, on the evidence presented, that Hancock usually operated under the direction of his client and had relatively little control over the design and arrangement of his plants and trees at the event site. Thus, the undersigned is unable to find that Hancock's decorating services provided the ultimate value to Hancock's clients. Once the plants were set in place and Hancock was assured that the arrangement satisfied his client, Hancock left the event site. (This meant, of course, that someone——the client, the host, or even a guest——could have moved the plants around.4 The Department contends that Hancock's absence from the premises demonstrates decisively that possession and control of the plants was surrendered to his client. The undersigned has given this fact some weight, but not a great deal. For one thing, there is no persuasive evidence that the client typically remained on-site with the plants. Further, since the plants were generally set up in a "public" place (as opposed to a personal space such as an office) over which neither the client, nor the host, nor the guests had exclusive control,5 the undersigned is not persuaded that the client or others attending the event had possession and control of the plants in any meaningful sense. Indeed, under the Department's theory, the plants apparently would have been in the constructive possession, at least, of everyone present at the party——a conclusion that runs counter to common sense and ordinary experience. The opportunity to move a plant is not, in the undersigned’s mind, equivalent to having a possessory right or power over the plant.) When the event was over, Hancock returned to the site to retrieve and remove his plants. Later, Hancock sent the client an invoice for his "services." As far as the evidence shows, Hancock did not bill his clients separately for delivery, set up, removal, or design, but rather he charged a lump sum for the plants, which price included these associated services as part of the total package. Petitioner's History As a Sales Tax-Paying Dealer From at least 1985, and continuing through the middle of 1994, Landscape Concepts, as a registered dealer having identification number 16-03-109301-76, collected and remitted sales taxes on the revenues generated through retail plant sales and plant rentals, filing monthly sales tax returns as legally required.6 If a client gave Petitioner a resale certificate, however, Petitioner did not collect sales tax from that client. Because most of Petitioner's plant rental customers were other businesses (e.g. event planners, florists, and hotels) that provided resale certificates to Petitioner, a relatively small percentage of these transactions were taxed. In mid-1994, while in one of the Department's regional offices attending to some since forgotten sales tax-related matter, Hancock was shown Rule 12A-1.071 of the Florida Administrative Code. This Rule then contained the following provision: (35)(a) A decorating contractor who uses materials and supplies such as bunting, streamers, colored paper, wreaths, pennants, lights, rope, etc., in fulfilling a contract which requires the furnishing of arrangements and decorations to, and their subsequent removal from, hotels, offices, public buildings, etc., is the consumer of such materials and supplies and shall pay tax on their acquisition. The contractor's charge under such contract is a service charge and is exempt. Fla. Admin. Code R. 12A-1.071(35)(a).7 Hancock concluded that he was entitled to the benefit of the foregoing "decorator's exemption." Hancock asked a local employee of the Department whether he could claim the exemption, and she advised him to write a letter to the Department's main office in Tallahassee. Hancock sent the Department a letter announcing his intent to stop filing monthly sales tax returns. Enclosed with this letter was Hancock's sales tax certificate, which Hancock purported to "relinquish." The Department did not respond to Hancock's letter. Hancock did not file another sales tax return.8 The Audit and Protest In January 2001, the Department commenced a sales and use tax audit of Hancock's plant rental business, initially concentrating on the five-year period from December 1, 1995 through November 30, 2000. The Department later enlarged the audit period to span 16 years, reaching all the way back to June 1, 1985, and continuing through June 30, 2001. This expansion was based on the Department's belief that Hancock had never filed any sales tax returns respecting his business——a belief that, as found above, would prove to be incorrect. After concluding that Hancock's tax records were "adequate but voluminous," the Department used a sampling method to calculate the amount of tax allegedly owed.9 To determine the total amount of revenue subject to sales tax, the Department used as a starting point the gross receipts figures as reported on Hancock's federal income tax returns for the years 1995 through 2000, inclusive.10 From these figures, the Department calculated the average monthly receipts for each of the six years in question (by dividing 12 into each respective year's gross sales revenue). It also computed an average annual gross sales figure (by dividing 6 into the sum of the known annual gross receipts), along with an average average-monthly sales amount (by dividing 6 into the sum of the average monthly receipts). Year Here are the relevant Gross Sales numbers: Avg. Monthly Sales 1995 $ 99,045 $ 8,253.75 1996 $113,973 $ 9,497.75 1997 $171,721 $14,310.08 1998 $169,961 $14,163.42 1999 $126,306 $10,525.50 2000 $154,253 $12,854.42 Average Annual Gross Sales: $139,210.00 Average Average-Monthly Sales: $ 11,600.82 The Department apparently acquired more specific information regarding monthly receipts for the 11-month period from January through November 2000. During this period, Hancock's gross receipts totaled $113,661.00.11 The Department determined, based on these figures, that the total tax due for this particular period was $6,861.41. Dividing 113,661 into 6,861.41, the Department derived a "percentage of error" of .060367. This "percentage of error" was effectively the tax rate because, as we have seen, the Department believed that Hancock had paid no taxes whatsoever. The "percentage of error" slightly exceeded 6 percent (the present state sales tax rate) due to the inclusion of some county taxes.12 The Department computed the total sales tax allegedly due and owing as follows. To determine the tax due per month for the 121 months comprising the periods from (a) June 1985 through December 1994 and (b) January through June 2001, for which there were no "known-sales" numbers, the Department applied the "percentage of error" (=tax rate) against the average average-monthly sales figure of $11,600.82. To determine the tax due per month for the years 1995 through 2000, the Department applied the "percentage of error" against each respective year's average monthly sales figure. The sum of these monthly figures equaled the total alleged tax liability. Here are the numbers: Period Average Monthly Sales Tax Rate Tax Due Per Month Tax Due For Period Jun 1985 — Dec 1994 (115 months) 11,600.82 0.060367 700.31 80,535.65 Jan (12 — Dec 1995 months) 8,253.75 0.060367 498.25 5,979.00 Jan (12 — Dec 1996 months) 9,497.7613 0.060367 573.35 6,880.20 Jan (12 — Dec 1997 months) 14,310.08 0.060367 863.86 10,366.32 Jan (12 — Dec 1998 months) 14,163.42 0.060367 855.00 10,260.00 Jan (12 — Dec 1999 months) 10,525.50 0.060367 635.39 7,624.68 Jan (12 — Dec 2000 months) 12,854.4314 0.060367 775.98 9,311.76 Jan — Jun 2001 (6 months) $11,600.82 0.060367 700.31 4,201.86 135,159.47 In sum, the Department found that Hancock was liable for $134,337.17 in state sales taxes and $822.30 in County Taxes, see endnote 12, which amounts, when added together, equaled $135,159.47. Additionally, the Department found that Hancock owed small amounts of state use taxes in connection with several fixed assets. This aspect of the case received little attention, if any, at final hearing and accordingly will not be examined in great detail here. The following table summarizes the amounts that the Department claims are due and owing: Asset Transaction Date Tax Due Computer September 1995 229.12 Office refrigerator April 1997 24.00 Computer October 1998 72.00 Office Furniture December 1998 21.62 Printer May 1999 24.66 371.40 In January 2002, the Department notified Hancock that it intended to collect the alleged tax deficiencies just described, in the total principal amount of $135,530.87. In addition, the Department claimed $135,666.86 in interest through January 2, 2002, together with a total of $52,359.05 in penalties, making a grand total of $323,556.78. Hancock disputed the assessments and timely requested a formal administrative hearing. Ultimate Factual Determinations The factual question whether Hancock performed nontaxable services as a decorating contractor, as he maintains, or leased tangible personal property and thereby incurred sales tax liability, as the Department contends, is very close, at least based on the evidence presented. On a better record it might have been possible to answer this question with greater confidence——and, indeed, to obtain a different result. On this relatively limited record, however, the undersigned finds that the weight of the evidence tips ever so slightly in the Department's favor, primarily because it appears more likely than not that Hancock's clients were given a meaningful right to direct the use of the material personal property involved, namely the live plants and trees. Thus, while reasonable minds could differ, the undersigned finds that Hancock was engaging in the taxable business activity of leasing personal property. The evidence does not establish, however, and hence the undersigned does not find, that Hancock filed a grossly false or substantially incorrect return or made a substantial underpayment of tax. Likewise, Hancock did not file any fraudulent returns. Rather, Hancock properly filed returns through mid-1994, paying all of the sales and use taxes then due and owing. What Hancock failed to do was make all required tax payments after May 1994——a significant default, to be sure, but one that leaves him less liable, in fact, for back-taxes than the Department has contended. Hancock's decision to stop collecting and remitting sales taxes, moreover, was based not upon an intent to defraud but upon an honest, if mistaken, belief that the business of Action Plant Rental fell within the "decorator's exemption."15 Apart from any question of liability, the Department's assessment of the amount of state sales taxes and County Taxes allegedly due and owing for the period from June 1985 through December 1993 is clearly erroneous, for at least three reasons. First, the state sales tax was not six percent during that entire period, yet the Department has computed Hancock's alleged tax liability as if it were.16 Second, the Department did not make any adjustments to account for the time-value of money when it projected sales figures from 1995-2000 back as many as 15 years. It is commonly known, however, that dollars earned in the year 2000, for example, had less purchasing power than, say, 1985 dollars; thus, sales figures from 2000 must be discounted if a fair and reasonable comparison to 1985 is to be made. The Department's failure to reduce recent earnings to the then- present value of income derived from plant rentals in the earlier years of the audit period is tantamount to charging interest——which, of course, the Department has also assessed, separately. Finally, the Department's calculation assumed, incorrectly, that (a) Hancock's business had not changed during the entire 16-year audit period and (b) Hancock had never paid any sales taxes. In fact, until the end of 1993, Hancock derived income not only from his plant rental business but also from landscaping and plant sales; not only that, he paid sales taxes on the receipts from these activities, through May 1994. In sum, then, even if Hancock were liable for the taxes that allegedly accrued before 1994, the Department's figures for that period of the audit are simply too unreliable to be credited. Period Average Monthly Sales Tax Rate Tax Due Per Month Tax Due For Period Jun 1994 — Dec 1994 (7 months) 11,600.82 0.060367 700.31 4,902.17 Jan — Dec 1995 (12 months) 8,253.75 0.060367 498.25 5,979.00 Jan — Dec 1996 (12 months) 9,497.7617 0.060367 573.35 6,880.20 Jan — Dec 1997 (12 months) 14,310.08 0.060367 863.86 10,366.32 Jan — Dec 1998 (12 months) 14,163.42 0.060367 855.00 10,260.00 Jan — Dec 1999 (12 months) 10,525.50 0.060367 635.39 7,624.68 Jan — Dec 2000 (12 months) 12,854.4318 0.060367 775.98 9,311.76 Jan — Jun 2001 (6 months) $11,600.82 0.060367 700.31 4,201.86 59,525.99 It is found, therefore, that Hancock owes state sales taxes and County Taxes in the following sums: Additionally Hancock must pay use taxes amounting to $371.40, bringing to $59,897.39 the total principal amount of taxes proved to be due.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order directing Hancock to pay state sales taxes and County Taxes in the total amount of $59,525.99, plus state use taxes in the amount of $371.40, bringing to $59,897.39 the principal sum of back-taxes due and owing. In addition, Hancock should be ordered to pay interest and penalties on the unpaid taxes, in amounts to be determined by the Department in accordance with the methodologies reflected in the audit work papers that are included in the evidentiary record of this case. DONE AND ENTERED this 7th day of January, 2004, in Tallahassee, Leon County, Florida. S 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 7th day of January, 2004.
Findings Of Fact At the time and place scheduled for final hearing, nobody appeared on behalf of petitioner and no evidence was adduced.
Recommendation It is, accordingly recommended that respondent dismiss petitioner's request for a formal administrative proceeding. RECOMMENDED this 19th day of November, 1991, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of November, 1991. COPIES FURNISHED: J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Vicki Weber, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Kevin J. O'Donnell, Esquire Department of Legal Affairs Tax Section, The Capitol Tallahassee, FL 32399-1050 Louise J. Allen, Esquire Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A. 150 W. Flagler Street, Suite 2200 Miami, FL 33130
