The Issue The issue in this case is whether Petitioner is entitled to a waiver of the bond requirement set forth Section 559.927, Florida Statutes.
Findings Of Fact Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: Ladatco is a "seller of travel" as that term is defined in Section 559.927(1)(a), Florida Statutes. Ladatco deals exclusively in wholesale travel packages. Ladatco primarily packages and sells tours of Central and South America to retail travel agents. Until the last few years, the retail travel agents handled virtually all of the ticketing involved in the packages. Changes in the industry have resulted in Ladatco becoming more involved in the ticketing aspect as part of the services it provides in assembling the packages. However, Ladatco has very little direct contact with consumers. Ladatco originally began operations in 1967 as a subsidiary of another company. Ladatco has been conducting business in its current corporate form since 1976. Michelle Shelburne has been working for the company since 1969. She has been the president of Ladatco for at least the last ten years and she owns fifty percent (50 percent) of the outstanding stock. Annie Burke and Rosa Perez are the other officers of the company and they each own approximately twenty two and half percent (22 1/2 percent) of the stock. Both Burke and Perez have worked for Ladatco since approximately 1970. The remaining five percent of the outstanding stock is owned by an attorney who has represented Ladatco since 1967. Ladatco has seven other full time employees and operates out of an office building that is owned jointly by Shelburne, Perez and Burke. Under Section 559.927(10)(b), Florida Statutes, a seller of travel is obligated to post a performance bond or otherwise provide security to the Department to cover potential future claims made by travelers. The security required by this statute is for the benefit of consumers and may be waived by the Department in certain circumstances. On or about May 27, 1994, Ladatco submitted an Application for Security Waiver (the "Application") pursuant to Section 559.927(10)(b)5, Florida Statutes. In lieu of audited financial statements, Ladatco submitted a copy of its 1993 income tax return with the Application. Line 30 of that income tax return reflects a net loss for tax purposes of $100,722. In reviewing an application for a bond waiver, the Department looks at the taxable income on the income tax return. It is the Department's position that if a company shows a loss for tax purposes, it is lacking in financial responsibility and is ineligible for a bond waiver. Based on this policy, the Department denied Ladatco's Application by letter dated August 2, 1994. The certified public accountant who has handled all outside accounting services for Ladatco since 1977 testified at the hearing in this matter. He submitted a history of operations for the company from 1985 through 1993. The accountant explained that, in 1986, Ladatco acquired a very expensive computer system with customized software. The cost of this system was depreciated over a five year period. In addition, until 1991, the company operated out of a building that it owned. The building was sold to the individual principals of the company in 1991. During the years the company owned the building, a significant amount of depreciation was generated for tax purposes. The large depreciation expenses for the years 1986 through 1991 generated losses for tax purposes which have been carried over for future years. Thus, while the company's operations for 1993 generated a profit of $65,000, the loss carry over resulted in a net loss for income tax purposes. The current year forecast for the company, based upon existing bookings, projects a net income in excess of $64,000 for the year ending December 31, 1994. In sum, an isolated look at the taxable income loss reflected on the 1993 income tax return does not provide an accurate picture of the financial responsibility of this company. This closely owned company has been in business for approximately twenty eight (28) years. The three principals in the company have all been with the firm for more than twenty four (24) years. The company has demonstrated a great deal of stability and, while profitability has fluctuated from year to year, the company has continually met its obligations for more than a quarter century. There is every indication that it will continue to do so in the future. Ladatco has maintained a bond with the Airline Reporting Corporation ("ARC") for approximately two and a half years. The amount of the bond varies from year to year, but is generally in the vicinity of $35,000. The statute provides that a company which has successfully maintained a bond with the ARC for three years is entitled to a security waiver. While the ARC bond only protects the airlines and not the travelers, Ladatco will qualify for a waiver under this provision in approximately May of 1995. There is no indication of any unresolved complaints against Ladatco nor is there any evidence of civil, criminal or administrative action against the company.
Recommendation Based upon the forgoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Agriculture and Consumer Services enter a Final Order granting Ladatco's application for security waiver pursuant to Section 559.927(10)(b)5, Florida Statutes. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of December 1994. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of December 1994. APPENDIX TO RECOMMENDED ORDER Only the Respondent has submitted proposed findings of fact. The following constitutes my ruling on those proposals. Adopted in pertinent part Finding of Fact 6 and also addressing the Preliminary Statement and in the Conclusions of Law. Adopted in substance in Finding of Fact 6. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 8. Adopted in substance in Finding of Facts 7 and 8. COPIES FURNISHED: Michelle D. Shelburne, President Ladatco, Inc. d/b/a Ladatco Tours 2220 Coral Way Miami, Florida 33145 Jay S. Levenstein, Senior Attorney Department of Agriculture and Consumer Services Room 515, Mayo Building Tallahassee, Florida 32399-0800 Honorable Bob Crawford Commissioner of Agriculture The Capitol, PL-10 Tallahassee, Florida 32399-0810 Richard Tritschler General Counsel Department of Agriculture and Consumer Services The Capitol, PL-10 Tallahassee, Florida 32399-0810
Findings Of Fact The parties have agreed that there are no issues of fact to be determined in this matter, and that the relevant facts are set out in Paragraphs 3 and 4 of the Petition which was received in evidence at the hearing as Hearing Officer's Exhibit 1. This matter involves a determination for Florida corporate income tax purposes of the net income derived by the Petitioner in connection with the purchase, development, and sale of certain property in Dade County, Florida. Petitioner purchased the property prior to January 1, 1972, the date upon which the Florida Income Tax Code became effective. Petitioner expended, through a subsidiary corporation, $369,058 in developing the property. These expenditures also occurred prior to January 1, 1972. For Federal income tax purposes the Petitioner had deducted these expenditures as business expenses during the years that they were incurred. Petitioner sold the property during 1972. Because the Petitioner had deducted the expenditures as business expenses, the expenditures could not properly have been included in the base price of the property for Federal income tax purposes, and the net income for Federal tax purposes was computed by subtracting the original purchase price from the sale price. Since the Florida Income Tax Code was not in effect at the time the expenditures were made, the Petitioner received no Florida tax benefit for the expenditures. In computing the net income for Florida tax purposes derived from the sale, the Petitioner included the expenditures in the base price of the property, and calculated its net income by subtracting the sum of the purchase price of the property and the expenditures from the sale price. The Department, contending that the $369,058 should not have been included in the base price of the property, issued a deficiency assessment which reflected the net income from the sale of property as the difference between the sale price and the purchase price. Petitioner originally contended that it was entitled to add the amount that the property appreciated prior to January 1, 1972 to the base price of the property. Petitioner is no longer contesting the deficiency assessment based upon a disallowance of that addition to the base price of the property. The Department was originally contending that it was entitled to interest at 12 percent per annum calculated retrospectively from the due date of the alleged deficiency. The Department has agreed to abandon its effort to impose that rate of interest. The issue raised in this case is whether the development expenses incurred by the Petitioner and deducted for Federal income tax purposes as business expenses prior to 1972 can be subtracted from Federal taxable income for the purpose of determining taxable income derived from the sale for Florida tax purposes.
Findings Of Fact 1. Petitioner is a Florida corporation wholly owned by Mr. Thomas C. Birkhead, president. Petitioner owns and operates the Satellite Motel in Cocoa Beach, Florida. The Audit Respondent conducted a sales and use tax audit of Petitioner's business records for the period September 1, 1985, through August 31, 1990. Respondent determined a deficiency and assessed Petitioner for $15,373.62, including tax, penalty, and interest through May 13, 1991. The assessment is for $1,922.42 in sales tax, $7,646.25 in use tax, $2,392.20 in delinquent penalty, and $3,412.75 in interest through May 13, 1991. Interest accrues daily in the amount of $3.15. Respondent made a prima facie showing of the factual and legal basis for the assessment. Petitioner failed to produce credible and persuasive evidence to overcome the prima facie showing. The audit and assessment are procedurally correct. Tax, interest, and penalty are correctly computed. Sampling Petitioner failed to maintain adequate records of its sales and purchases. Respondent properly conducted an audit by sampling Petitioner's available books and records in accordance with Section 212.12(6)(b), Florida Statutes. Although Petitioner's records of sales and purchases were inadequate, Petitioner produced some books and records for the entire audit period. Respondent properly limited the applicable penalty to a delinquent penalty. Audit Period Respondent is authorized to audit Petitioner for the period September 1, 1985, through August 31, 1990. Effective July 1, 1987, the period for which taxpayers are subject to audit was extended from three to five years. 1/ When Respondent conducted the audit, Respondent was authorized to conduct an audit within five years of the date tax was due. 2/ Tax owed by Petitioner for the period beginning September 1, 1985, was not due until the 20th day of the month following its collection. 3/ Therefore, Respondent was authorized to audit Petitioner's records anytime before October 20, 1990. 4/ On September 13, 1990, Respondent issued a Notice Of Intent To Audit Books And Records of the Petitioner (the "Notice Of Intent"). The Notice Of Intent tolled the running of the five year audit period for up to two years. 5/ Respondent completed its audit and issued its Notice Of Intent To Make Sales And Use Tax Audit Changes on May 13, 1991. 2. Sales Tax Petitioner sells snacks and beverages over the counter at the Satellite Motel. The sale of such tangible personal property is subject to sales tax. As a dealer, Petitioner must collect the applicable sales tax and remit it to Respondent. During the audit period, Petitioner failed to collect and remit applicable sales tax. As a dealer, Petitioner is liable for the uncollected sales tax. Respondent properly assessed Petitioner for $1,922.42 in uncollected sales tax. 3. Use Tax Petitioner rents televisions and linens and purchases business forms from Florida vendors. The rental and sale of such tangible personal property is subject to sales tax. During the audit period, Petitioner failed to pay sales tax to Florida vendors and used the televisions, linens, and business forms in its business at the Satellite Motel. Petitioner is liable for use tax on the use of those items during the audit period. Respondent properly assessed Petitioner for use tax in the amount of $7,646.25.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order upholding the assessment of tax, penalty, and interest through the date of payment. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of October, 1994. DANIEL MANRY 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 25th day of October, 1994.
Findings Of Fact The parties agreed at the hearing that there were no issues of fact which remained to be determined. The parties stipulated that the relevant facts are as set out in paragraph 5 of the Petition for Administrative Hearing. The following findings are quoted directly from paragraph 5 of the Petition. Petitioner is a federally chartered savings and loan association. Petitioner initially employed the cash receipts and disbursements method of accounting for Federal Income Tax purposes. In a desire to more clearly reflect income, Petitioner applied for and received permission from the Internal Revenue Service allowing Petitioner to change its method of tax accounting from the cash to the accrual method, pursuant to Revenue Procedure 70-27. This change was to commence with the calendar year 1971. Consistent with this accounting method change, all net accrued income as of January 1, 1971, was recorded in its entirety in Petitioner's financial statements as of December 31, 1970. The total net adjustment required to convert to the accrual method was $758,911.00. Pursuant to an agreement entered into with the Internal Revenue Service, an annual adjustment of $75,891.00 was required. The annual adjustment spread the effect of the accounting change over a 10-year period, despite the fact that all the income was realized prior to January 1, 1971. On January 1, 1972, the Florida Income Tax Code became effective. Petitioner timely filed its 1970 and 1971 Florida Intangible Personal Property Tax Returns. Upon subsequent review of Petitioner's records, it became apparent that the intangible tax had been overpaid and a refund claim was submitted. The refund was issued to Petitioner by the State of Florida during the calendar year 1973 and reported in Petitioner's 1973 Federal Corporate Income Tax Return. On December 16, 1975, Respondent notified Petitioner that Petitioner was deficient in its payment of Florida Corporate Income Tax in the amount of $25,386.84. The total deficiency consisted of $3,267.00 for the year ended December 31, 1972; $19,202.00 for the year ended December 31, 1973; and $2,916.84 for the year ended December 31, 1974. Included in the alleged total deficiency of $25,386.84 is a tax in the amount of $14,696.70 for the year 1973. This tax is attributable to Petitioner's apportionment of a part of its 1973 income to sources outside of the State of Florida. Petitioner is no longer protesting this deficiency. On February 9, 1976, Petitioner filed its protest against Respondent's determination that a deficiency in tax existed. By letter dated March 9, 1976, Respondent denied Petitioner's protest filed on February 9, 1976.
The Issue The issue is whether Petitioner owes money to Respondent due to an overpayment of compensation.
Findings Of Fact At all relevant times, Respondent has employed Petitioner. By Stipulation, the parties agree that Respondent overpaid Petitioner the sum of $6282.41 by check dated February 14, 2005. The dispute is whether Respondent is entitled to repayment of an additional $2332 in withheld federal income taxes associated with the agreed-upon overpayment. On the date of the overpayment in February 2005, Respondent credited Petitioner with the gross sum of $9328. The net payment to Petitioner was $6282.41. The difference between the gross and the net was $2332 in withheld federal income taxes and $713.59 in employee-paid FICA and Medicaid. Respondent is not seeking repayment of the employee-paid FICA and Medicaid. Respondent discovered the error on December 31, 2005, so it was unable to process the paperwork necessary correct the situation with the tax withholding in the same tax year of 2005. By failing to discover the error in time to process the paperwork in the same tax year, Respondent was unable to effectively reverse the withholding transaction with the Internal Revenue Service. Thus, when Petitioner filed his 2005 federal income tax return, his gross income included this overpayment, and the amount of tax already paid included the $2332 that was erroneously withheld in Respondent's overpayment in February 2005. It is thus clear that Respondent overpaid Petitioner $6282.41 in net pay plus $2332 in income taxes that it withheld from Petitioner and submitted, to Petitioner's credit, to the Internal Revenue Service. The total overpayment is therefore $8614.41.
Recommendation It is RECOMMENDED that the Department of Juvenile Justice enter a final order determining that, due to an overpayment in 2005, Petitioner shall repay $8614.41, upon such terms, if any, as the department shall determine. DONE AND ENTERED this 24th day of October, 2006, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of October, 2006. COPIES FURNISHED: Anthony J. Schembri, Secretary Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-3100 Jennifer Parker, General Counsel Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-1300 Michael B. Golen Assistant General Counsel Department of Juvenile Justice 2737 Centerview Drive Tallahassee, Florida 32399 Theodore E. Morakis 11904 Southwest 9th Manor Davie, Florida 33325
Findings Of Fact Petitioner is Carl R. Glass, d/b/a Osceola Forge located at 2749 North Orange Blossom Trail, Kissimmee, Florida 34744. Petitioner is engaged in the business of manufacturing and fabricating burglar bars, steel gates, decorative plastic ornamental castings and injection moldings. Petitioner built and erected one double sided billboard on his business property at 2749 North Orange Blossom Trail, Kissimmee, Florida. It is anchored by its owns supports into the ground as a permanent improvement to Petitioner's real property. The size of the billboard is approximately 12' x 38', plus an apron that runs along the length of the bottom of the billboard. Petitioner leases the face and apron of each side of billboard to customers who are generally required to supply their own labor and material to create an advertising message. The billboard was built to provide double-sided advertising for lanes of traffic going northbound or southbound past Petitioner's place of business. Petitioner has rented the billboard to various lessees for a monthly rental fee over the relevant period. Petitioner did not charge or collect sales and use taxes on the rental fee. Respondent conducted an audit of Petitioner's entire business, for the period May 1, 1986 through April 30, 1991. There was only one item assessed as a result of the audit which was on the lease of the billboard located on Petitioner's business property. Petitioner was assessed sales and use taxes, interest and penalties totalling $6,142.38, including taxes ($4,017.76) with a per diem interest rate of $1.32 to be computed from 10/3/91 to the present. Additional interest due, as of July 1, 1993, was calculated to equal $842.16 (638 days x $1.32). The sales tax assessment was based on invoices and other information provided by the Petitioner and followed the Department of Revenue routine procedures required for all audits. From January 1987 through February 1991, Petitioner, or his secretary, made five telephone calls from Osceola Forge to the Taxpayer Assistance Number of the Department of Revenue's regional office located in Maitland, Florida, requesting assistance. On each occasion, the Department's employee advised Petitioner or his employee that they could call the Department's Tallahassee 800 taxpayer assistance number. On at least one occasion, Petitioner's secretary or Petitioner was advised that the transaction was tax exempt, and need not be collected. Petitioner was aware of the 800 taxpayer assistance number in Tallahassee and tried to call the number. However, he was unable to get through, and called the local office only. On April 9, 1992, Petitioner personally telephoned the Titusville office of the Department of Revenue. On each occasion, Petitioner inquired whether or not sales or use taxes should be collected on the rental of the billboard. A free, updated Sales and Use Tax Rules Book is available to any tax payer upon request. In addition, a taxpayer could personally appear and bring documentation relating to any questions relating to the sales and use tax at any regional office. Petitioner did not obtain an updated rules book or personally appear at a regional office. On April 30, 1992, Petitioner filed a Protest Letter with Respondent challenging the abovementioned tax assessment. Respondent issued to Petitioner a Notice of Decision dated December 1, 1992. On January 8, 1993, Petitioner filed a Request for a Formal Administrative Hearing with Respondent. To date, Petitioner has not paid any of the contested taxes, interest, and penalties to Respondent. Petitioner relied on information provided by his secretary, his accountant, and brief phone conferences with the DOR's Maitland office to determine that the rental fees were tax exempt, and did not collect the sales tax from his customers. The DOR Audit Supervisor testified that there is a clear distinction between the taxable rental of a billboard and the nontaxable services of placing an advertising message on the billboard. The rental of the face of the billboard is a taxable transaction. On the other hand, if a person rents or leases a billboard, then hires a third party to place an advertising message on the billboard, this advertising service is tax exempt.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Revenue enter a Final Order upholding its sales and use tax assessment, waive penalties and interest accrued prior to October 2, 1991, and assess a tax of $4,017.76, plus interst from the date due. DONE and ENTERED this 14th day of July, 1993, in Tallahassee, Florida. DANIEL M. KILBRIDE 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 14th day of July, 1993. APPENDIX The following constitutes my specific rulings, in accordance with section 120.59, Florida Statutes, on proposed findings of fact submitted by the parties. Proposed findings of fact submitted by Petitioner. Petitioner did not submit proposed findings of fact. Proposed findings of fact submitted by Respondent. Proposed findings submitted by Respondent are accepted except as noted below. Those proposed findings neither noted below nor included in the Hearing Officer's findings were deemed unnecessary to the conclusions reached. Rejected as argument: paragraphs 37, 38, 39 COPIES FURNISHED: Carl R. Glass 2749 North Orange Blossom Trail Kissimmee, Florida 34741 James McAuley, Esquire Assistant Attorney General Capitol Building Tallahassee, Florida 32399-1050 Larry Fuchs Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background Petitioner, Gainesville Amateur Radio Society, Inc. (GARS or petitioner), a Florida non-profit corporation, was incorporated on December 31, 1975. Its stated purpose is to promote an interest in amateur radio operation. Among other things, GARS provides preparation for Federal Communication Commission licensing examinations, supports community activities with free communication services, and encourages public awareness of ham radio activities through the publication of a monthly newsletter called the GARS-MOUTH. Respondent, Department of Revenue (DOR), is charged with the responsibility of administering and implementing the Florida Revenue Act of 1949, as amended. It has the specific task of collecting sales taxes and enforcing the state tax code and rules. By law, certain transactions are exempt from the state sales and use tax. Among these are sales or lease transactions involving "scientific organizations." In order for an organization to be entitled to an exemption, it must make application with DOR for a consumer's certificate of exemption and demonstrate that it is a qualified scientific organization within the meaning of the law. Once the application is approved, the certificate entitles the holder to make tax exempt purchases that are otherwise taxable under Chapter 212, Florida Statutes. In the case of petitioner, a certificate would enable it to save a hundred or so dollars per year. Claiming that it was entitled to a certificate of exemption as a charitable organization, GARS filed an application with DOR on December 21, 1993. After having the application preliminarily disapproved by DOR on the ground it did not expend "in excess of 50.0 percent of the . . . organization's expenditures toward referenced charitable concerns, within (its) most recent fiscal year," a requirement imposed by DOR rule, GARS then amended its application to claim entitlement on the theory that it was a scientific organization. Although DOR never formally reviewed the amended application, it takes the position that GARS still does not qualify for a certificate under this new theory. Is GARS a Scientific Organization? Under Section 212.08(7)(o)2.c., Florida Statutes, a scientific organization is defined in relevant part as an organization which holds a current exemption from the federal income tax under section 501(c)(3) of the Internal Revenue Code. A DOR rule tracks this statute almost verbatim. Accordingly, as a matter of practice, in interpreting this statutory exemption, DOR simply defers to the final determination of the Internal Revenue Service (IRS). If the IRS grants an organization a 501(c)(3) status based on the determination that it is a scientific organization, then DOR accepts this determination at face value. DOR does not make an independent determination whether the organization is "scientific" or question the decision of the IRS. This statutory interpretation is a reasonable one and was not shown to be erroneous or impermissible. GARS received a federal income tax exemption from the IRS regional office in Atlanta, Georgia by letter dated August 12, 1993. The record shows that GARS was granted an "exempt organization" status as a "charitable organization" and as an "educational organization" under Treasury Regulation Section 1.501(c)(3). However, GARS did not receive an exempt status as a "scientific organization" nor did the IRS make that determination. Therefore, GARS does not qualify as a scientific organization within the meaning of the law. While petitioner submitted evidence to show that it engages in what it considers to be a number of scientific endeavors, these activities, while laudable, are irrelevant under Florida law in making a determination as to whether GARS qualifies for a sales tax exemption as a scientific organization. Therefore, the application must be denied.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent enter a final order denying petitioner's application for a consumer certificate of exemption. DONE AND ENTERED this 23rd day of June, 1995, 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 23rd day of June, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-1200 Petitioner: 1-2. Partially accepted in finding of fact 4. 3. Partially accepted in finding of fact 6. 4. Partially accepted in finding of fact 1. 5. Rejected as being irrelevant. 6. Rejected as being unnecessary. 7. Partially accepted in finding of fact 5. 8-9. Partially accepted in finding of fact 7. 10. Partially accepted in finding of fact 5. 11. Partially accepted in finding of fact 7. 12. Partially accepted in finding of fact 6. 13. Rejected as being unnecessary. 14. Partially accepted in finding of fact 6. Respondent: 1. Partially accepted in finding of fact 1. 2. Partially accepted in finding of fact 2. 3. Rejected as being unnecessary. 4. Rejected as being cumulative. 5-12. Partially accepted in finding of fact 7. 13-14. Partially accepted in finding of fact 4. 15. Partially accepted in finding of fact 3. 16. Covered in preliminary statement. 17. Partially accepted in finding of fact 4. 18-19. Partially accepted in finding of fact 6. 20-21. Rejected as being unnecessary. 22. Partially accepted in finding of fact 5. 23-24. Partially accepted in finding of fact 6. Note - Where a proposed finding has been partially accepted, the remainder has been rejected as being irrelevant, unnecessary for a resolution of the issues, not supported by the evidence, cumulative, subordinate, or a conclusion of law. COPIES FURNISHED: Mr. Larry Fuchs Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Linda Lettera, Esquire General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Sidney Schmukler, Esquire 3922 N. W. 20th Lane Gainesville, Florida 32605-3565 Olivia P. Klein, Esquire Department of Legal Affairs The Capitol-Tax Section Tallahassee, Florida 32399-1050
The Issue The issues for determination are whether Petitioner paid sales and use tax on rental income from transient housing in Osceola and Polk counties, and whether Petitioner paid sales and use tax on the purchase of fixed assets in accordance with the requirements of Sections 212.03 and 212.06, Florida Statutes (1995). (Statutory references are to Florida Statutes (1995) unless otherwise stated.)
Findings Of Fact Petitioner is a Florida corporation with its principal place of business located at 3501 West Vine Street, Suite 387, Kissimmee, Florida. Petitioner primarily engages in the business of renting and managing transient property in the Orlando-Disney World area for absentee owners. Respondent is the state agency responsible for the administration of the Florida sales and use tax pursuant to Section 213.05. Respondent selected Petitioner for audit because Petitioner filed several sales and use tax returns reporting no taxable income (zero returns). Zero returns are unusual for a tourist-based business in the Orlando-Disney area. Osceola County, Florida (Osceola), also audited Petitioner for the period December 1994 through December 1999. Osceola is a political subdivision of the state and is responsible for administering and assessing the Tourist Development Tax authorized in Section 212.03 and Section 13-16, Osceola County Code of Ordinances (Code). Osceola audited Petitioner because Petitioner failed to file any tax returns with Osceola. Osceola correctly assessed Petitioner $394,378.39 for tax, penalty, and interest. The mathematical computations in the Osceola audit are correct. Osceola conducted its audit in accordance with generally accepted auditing principals. The Osceola audit revealed that Petitioner began doing business on January 1, 1995, but reported that it began doing business on both November 16, 1999, and March 12, 1998. The Osceola audit revealed that Petitioner failed to maintain required tax records, including guest registration forms; cash receipts; a general ledger; and documents necessary to verify amounts reported in tax returns. Petitioner did not reconcile its bank statements and did not maintain records necessary to verify that all receipts from guest registrations were properly entered into Petitioner's computer system of record keeping. Respondent began its audit on January 8, 2001. However, Respondent was unable to examine most of Petitioner's books and records due to a lack of cooperation from Petitioner. Respondent made several attempts to obtain Petitioner's books and records, but Petitioner provided Respondent with only consumable purchase invoices. Respondent and Osceola have an agreement to share information. Respondent relied on information obtained by Osceola in the course of the Osceola audit. Osceola provided Respondent with copies of Osceola's work papers including a spreadsheet of undeclared revenue compiled from Petitioner's books and records. Osceola also provided Respondent with a list of 102 properties managed by Petitioner during the audit period. Approximately 61 properties are located in Osceola County and 41 are located in Polk County. Respondent bases its assessment on an estimate derived from the Osceola assessment, records, and work papers. Respondent conducted its audit in accordance with applicable law. The mathematical computations in Respondent's audit are correct. Petitioner owes sales and use tax in the respective amounts of $218,152.88 and $125,680.72, due on rentals derived from transient housing in Osceola and Polk counties. Petitioner also owes sales and use tax in the amount of $2,100 from the sale of fixed assets. Interest accrues at the daily rate of $98.13.
Recommendation Based upon the findings of fact and the conclusions of law, it is RECOMMENDED that Respondent enter a Final Order assessing Petitioner for tax, penalty, and accrued interest. DONE AND ENTERED this 11th day of July, 2003, 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 11th day of July, 2003. COPIES FURNISHED: Carrol Y. Cherry, Esquire Office of the Attorney General, Tax Section The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Martha F. Barrera, Esquire Office of the Attorney General, Tax Section The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 A.C.E. Property Management of Orlando, Inc. 3501 West Vine Street, Suite 387 Kissimmee, Florida 34741 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100
The Issue The Petitioner and Respondent have agreed by stipulation that the following four issues of law are to be determined by the Hearing Officer: Whether Red Lobster must pay four percent sales tax on ad valorem taxes paid directly to a governmental taxing unit on leases in which it is set forth that Red Lobster, the Lessee, will, in addition to the rental payments, be obligated to pay the ad valorem taxes. Whether certain waitress uniforms and denominators purchased from vendors outside the State of Florida by Red Lobster and shipped to Red Lobster Headquarters within the State of Florida for storage purposes and subsequently transshipped for use in Red Lobster locations outside the State of Florida are subject to Florida sales or use tax. Whether those automobiles purchased by Red Lobster's parent company, General Mills, Inc., outside the State of Florida and on which a sales tax was paid in the state in which purchased and then leased to Red Lobster for use in the State of Florida for periods in excess of twelve months are subject to a Florida sales or use tax on the rental payments. Whether Red Lobster is obligated to pay an amount of sales tax determined by the Bracket System as set forth in Florida Statutes or is obligated to pay all sales tax actually collected so long as the sales tax collected equals or exceeds 4 percent of gross sales.
Findings Of Fact The Respondent Department of Revenue assessed certain sales and use tax against Petitioner Red Lobster Inns of America, Inc., for a three-year period commencing February 1, 1971 through January 31, 1974. The Petitioner filed a petition for hearing to the Division of Administrative Hearings pursuant to Chapter 120, Florida Statutes, contesting the imposition of said sales and use taxes by Respondent. Each of the issues will be treated separately. ISSUE I Whether Petitioner must pay 4 percent sales tax on ad valorem taxes paid directly to a governmental unit on leases in which it is set forth that Red Lobster, the Lessee, will, in addition to the rental payments, be obligated to pay the ad valorem taxes. Two kinds of leases are involved here. One type (Exhibit "A") provides the payment of "all real estate taxes" shall be "as additional rent" and a second type (Exhibit "B") provides that "The lessee shall be responsible for the payment of all real estate taxes" without labeling such payments as additional rental. In both types of leases, the ad valorem tax payments on the leased real estate are the obligation of Red Lobster, Lessee. The Petitioner, Lessee, paid the sales tax on the amount it considered "rent" paid but did not pay the sales tax on the monies paid the Lessor for the payment of the ad valorem taxes on the leased property. The Respondent Department of Revenue contends: that all the monies paid by Petitioner as Lessee, including the amount paid for the payment of ad valorem taxes, constitute consideration for the lease and thus constitute rent for purposes of Chapter 212. Petitioners contend: that these payments for ad valorem taxes are not "total rent charges for such real property" under Section 212.031(c); that to require that sales and use tax be paid on ad valorem tax payments is double taxation; that the imposition of a sales and use tax on an existing ad valorem tax constitutes a pyramiding of taxation contrary to Section 212.031(2)(b). Petitioner further contends that the rule 12A-1.70(3) exceeds the statutory authority of Section 212.031, Florida Statutes, inasmuch as the statute states a tax is levied on the "rent charged" whereas the rule states that the tax shall be paid "on all considerations." The lease between the parties marked for identification as Exhibit "A" provides in pertinent part on page 1, Section 2, Demise of Premises: "In consideration of the rents and covenants herein stipulated to be paid and performed by Lessee, Lessor hereby demises and lets to Lessee . . . the parcel of land . . . together with all buildings, structures and other improvements constructed thereon . . ." On page 5, in Section 9, Taxes and Other Charges: "(a) Lessee also agrees . . . to pay and discharge as auditional rent, punctually as and when the same shall become due and payable without penalty, all real estate taxes, personal property taxes, business and occupation taxes, occupational license taxes . . . and all other governmental taxes which at any time during the term of the lease shall become due " Clearly, the payment of taxes was understood by both parties as being part of the rent in Exhibit "A" contracts. The lease between the parties marked for identification as Exhibit "B" does not specifically provide that the payment of taxes is part of the rent. However, it speaks to the issue on page 1 providing: "That for and in consideration of the covenants and agreements herein contained and in consideration of the rents herein reserved to be paid by lessee to lessors, the parties hereto do hereby mutually covenant and agree . . . ." to do certain things and includes the specific requirement on page 3: "9. The lessee shall be responsible for the payment of all real estate taxes, both city and county, assessed against the demised premises and shall pay the same before the taxes become delinquent." It is apparent that the payment of real estate taxes is a part of the "total rent charges for such real property" in Exhibit "B" contracts. Designation by the Lessor as to the method of distributing the gross sum of rent does not relieve the Lessee from his payments to the Lessor or change the fact that it is for rent due and for the "return . . . which the tenant makes to the landlord for the use of the demised premises." 52 CJS, Section 462, p. 344. Thus, there is no pyramiding or double taxation. Inasmuch as the payment of ad valorem taxes is a part of the rental agreement between the parties, sales tax would be due on the amount paid by Lessee for ad valorem taxes regardless of whether the Lessee or the Lessor performed the transmittal duties of paying the taxes. The acceptance by the Lessee of the onerous duties of timely paying the numerous taxes, charges, assessments and other impositions is a valuable consideration and a part of the rent charge itself. The statute supports the assessment of Respondent. The contention that the rule is invalid is not well taken inasmuch as the rule is presumed valid for the purpose of this hearing. Thus, the Hearing Officer determines that the Petitioner Red Lobster Inns of America must pay the 4 percent sales tax on the ad valorem taxes paid directly to a governmental taxing unit. ISSUE II Whether the waitresses' uniforms and denominators (a counting device) purchased from vendors outside the State of Florida by Petitioner and shipped to Petitioner's headquarters in Florida for storage purposes and thereafter shipped for use in Red Lobster Inn locations outside the State of Florida are subject to Florida sales or use tax. The Respondent Department of Revenue sought to impose a use tax upon the uniforms and denominators which were purchased outside the state, sent in and then sent out again. The Petitioner Red Lobster Inns does not contest the assessment of sales or use tax on the uniforms and denominators that were used and consumed in this state. However, it contests the assessment on the items that were bought outside the state, sent in to Florida and then sent out of state in the same condition. Red Lobster uses uniforms both within and without the state and also denominators both inside and outside the state. The Respondent Department of Revenue contends: that the sales and use tax is properly applied inasmuch as the uniforms and denominators came to rest in the State of Florida, were delivered and stored and therefore became part of the mass property in the state. It contends that they were used in that a right of ownership was exercised. The Petitioner Red Lobster Inns contends: that the tax is not due on the items that were brought in and transshipped out again; that the goods never actually came to rest because the storage time was very short and was in fact part of the shipment process; that the uniforms and denominators were reshipped without having been used or consumed in this state. Section 212.05, Sales, storage, use tax.-- provides: "It is hereby declared to be the legislative intent that every person is exercising a tangible privilege who engages in the business of selling tangible personal property at retail in this state, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state . . . . * * * (2) At the rate of 4 percent of the cost price of each item or article of tangible personal property when the same is not sold but is used, consumed, distributed or stored for use or consumption in this state." Section 212.06(6), Sales, storage, use tax; collectible from dealers; dealers defined; dealers to collect from purchasers; legislative intent as to scope of tax, provides: "(6) It is however, the intention of this chapter to levy a tax on the sale at retail, the use, the consumption, the distribution, and the storage to be used or consumed in this state of tangible personal property after it has come to rest in this state and has become a part of the mass property of this state." The Petitioner was correct in paying the tax on the waitresses' uniforms and the denominators that were used and consumed in this state. Those uniforms and denominators that were temporarily stored in this state and sent outside the state in the same condition were not a part of the mass property of this state, had not come to rest in this state nor became a part of the mass property of this state. They were not used or consumed in this state. The use and consumption of the uniforms and denominators were subsequent to their shipment outside of the state and therefore no use tax is due on those items reshipped to other states. ISSUE III Whether those automobiles purchased by Red Lobster's parent company, General Mills, Inc., outside the State of Florida and on which a sales tax was paid in the state in which purchased and then leased to Red Lobster for use in the State of Florida for periods in excess of twelve months are subject to Florida sales or use tax on the rental payments. The Petitioner contends: that it is entitled to the exemption in Rule 12A-1.07(13)(b) because the purchase of the automobiles was made out of state and sales tax was paid out of state. The Respondent Department of Revenue contends: the exemption of the rule applies only when the sales tax was paid to the State of Florida. Section 212.21(2), Declaration of legislative intent.-- provides in pertinent part: "(2) It is hereby declared to be the specific legislative intent to tax each and every sale, admission, use, storage, consumption or rental levied and set forth in this chapter, except as to such sale, admission, use, storage, consumption or rental, as shall be specifically exempted therefrom by this chapter, subject to the conditions appertaining to such exemption." Section 212.07(9), Sales, storage, use tax; tax added to purchase price; dealer not to absorb liability of purchasers who cannot prove payment of the tax; penalties; general exemptions:-- provides in part: "(9) Any person who has . . . leased tangible personal property, . . . and cannot prove that the tax levied by this chapter has been paid to his vendor or lessor shall be directly liable to the state for any tax, interest, or penalty due on any such taxable transactions." Rule 12A-1.07(13)(b) provides: "When the term of a lease or rental to one lessee or rentee is for a period of 12 or more months, the lessor-owner may pay the tax on the acquisition of the vehicle. In such cases, the rental to the initial lessee and the renewals thereof to the same lessee are not subject to the rental tax. Rentals of the same vehicle to subsequent lessees by the owner are taxable." Clearly, it appears from the foregoing that the rule made pursuant to the authority of the legislature does in fact state that the tax may be paid "on the acquisition of the vehicle" and that the lessee is then not subject to the rental tax. The rule is presumed to be valid. Thus, in answer to the question in Issue III, the answer is that the rental cars are not subject to the Florida sales or use tax on the rental payments having been specifically exempted. ISSUE IV Whether Red Lobster is obligated to pay an amount of sales tax determined by the Bracket System set forth in Florida Statutes or is obligated to pay all sales tax actually collected so long as the sales tax collected equals or exceeds 4 percent of gross sales. The Respondent Department of Revenue contends: that the Petitioner must collect and pay the tax according to the Bracket Method provided in the statutes. The Petitioner contends: that it does not have to be governed by the Bracket Method as long as Petitioner pays 4 percent of its gross sales to the State of Florida and that the Bracket System is merely a convenience method. Section 212.12(1), Dealer's credit for collecting tax; penalties for noncompliance; powers of Department of Revenue in dealing with delinquents; brackets applicable to taxable transactions; records required, providing for the Bracket System.-- clearly states in pertinent part: "(10) . . . Notwithstanding the rate of taxes imposed upon the privilege of sales, admissions and rentals, and communication services, the following brackets shall be applicable to all 4 percent taxable transactions: On single sales of less than 10 cents no tax shall be added. On single sales in amounts from 10 cents to 25 cents, both inclusive, 1 cent shall be added for taxes. On sales in amounts from 26 cents to 50 cents, both inclusive, 2 cents shall be added for taxes. On sales in amounts from 51 cents to 75 cents, both inclusive, 3 cents shall be added for taxes. On sales in amounts from 76 cents to $1, both inclusive, 4 cents shall be added for taxes. On sales in amounts of more than $1, 4 percent shall be charged upon each dollar of price, plus the above bracket charges upon any fractional part of a dollar." It is self-evident that the foregoing statute does in fact require the Bracket Method to be used inasmuch as it dictates that is shall be applicable to all 4 percent taxable transactions. The tax is increased when the Bracket Method is used. In summary, the findings of the Hearing Officer are: On Issue I, Petitioner Red Lobster Inns of America must pay ad valorem tax on the full amount of the consideration as set forth in its various leases. On Issue II, the waitresses' uniforms and denominators which were reshipped in the same condition outside the state were not subject to Florida sales and use tax. On Issue III, the automobiles on which a sales tax was paid to the state in which they were purchased and then leased to Red Lobster for use in this state for periods in excess of twelve months are not subject to the Florida sales and use tax on rental payments. On Issue IV, Petitioner Red Lobster Inns of America is obligated to pay an amount of sales tax determined by the Bracket System as set forth in Florida Statutes.
Recommendation Affirm the position of the Respondent Department of Revenue on Issue I. Affirm the position of the Petitioner Red Lobster Inns of America on Issue II. Affirm the position of the Petitioner Red Lobster Inns of America on Issue III. Affirm the position of the Respondent Department of Revenue on Issue IV. DONE and ORDERED this 16th day of March, 1977, in Tallahassee, Florida. DELPHENE C. STRICKLAND 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 16th day of March, 1977. COPIES FURNISHED: Terrell Griffin, Esquire 515 Pan American Building 250 North Orange Avenue Orlando, Florida 32801 Charles E. DeMarco, Esquire Staff Attorney Red Lobster Inns of America, Inc. Post Office Box 13330 Orlando, Florida 32801 Caroline C. Mueller, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304 =================================================================
