08-003478 Best`s Maintenance And Janitorial Services, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Tuesday, February 3, 2009.

Summary: Petitioner proved by preponderance of the evidence that it did not use or consume paper products and soap used to refill restroom dispensers when providing nonresidential janitorial services. Sales and use tax assessment should be withdrawn.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BESTS MAINTENANCE AND )

JANITORIAL SERVICES, INC., )

)

Petitioner, )

)

vs. ) Case No. 08-3478

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

_________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on October 9, 2008, by video teleconference, with the parties

appearing in Miami, Florida, before Patricia M. Hart, a duly-

designated Administrative Law Judge of the Division of

Administrative Hearings, who presided in Tallahassee, Florida.

APPEARANCES

For Petitioner: Joseph C. Moffa, Esquire

Law Offices of Moffa & Gainor, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

For Respondent: John Mika, Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

Whether the Petitioner owes sales and/or use tax as set

forth in the Respondent's Notice of Decision dated May 12, 2008,

and, if so, the amount that is owed.

PRELIMINARY STATEMENT

In a Notice of Decision dated May 12, 2008, the Department

of Revenue ("Department") notified Bests Maintenance &

Janitorial Services, Inc. ("Bests") that the Department had

determined that it owed sales and use tax for the period

extending from September 1, 2002, through August 31, 2005, in

the assessed amount of $60,150.81, with a balance due of

$67,480.89, considering payments and interest accrued through

May 9, 2008. Bests timely filed a Petition for a Chapter 120

Hearing, in which it disputed its liability for sales and use

tax on tangible personal property supplied as part of an

agreement to provide custodial and cleaning services, and the

Department transmitted the matter to the Division of

Administrative Hearings for assignment of an administrative law

judge. Pursuant to notice, the final hearing was held on

October 9, 2008.

Prior to the final hearing, the parties filed a Joint

Prehearing Statement that contained extensive stipulated facts.

At the hearing, the Department acknowledged that it carried the

burden of proof by a preponderance of the evidence. The

Department presented the testimony of Joseph Franklin, an

employee of the Department, and Bests presented the testimony of

Stephen Schoor, an owner. Joint Exhibits 1 through 19 were

offered and received into evidence.

The transcript of the proceedings was filed with the

Division of Administrative Hearings on November 4, 2008, and the

parties timely filed proposed findings of fact and conclusions

of law, which have been considered in the preparation of this

Recommended Order.

FINDINGS OF FACT

The following facts were included in the stipulation of

facts included in the parties' Joint Prehearing Statement:

1. Bests is a domestic corporation headquartered in

Broward County, Florida.

2. Bests is a cleaning and maintenance company. The

company contracts with customers to clean non-residential

buildings only. The majority of the customers are government

agencies and state colleges. The company hires subcontractors

for some of the services such as pressure cleaning, window

cleaning, grounds maintenance and landscaping.

3. The Department is the agency of state government

authorized to administer the tax laws of the State of Florida.

§ 213.05, Fla. Stat. (2008). 1

4. The Department is authorized to prescribe the records

to be kept by all persons subject to taxes under Chapter 212,

Florida Statutes. Such persons have a duty to keep and preserve

their records, and the records shall be open to examination by

the Department or its authorized agents at all reasonable hours,

pursuant to Section 212.12(6), Florida Statutes.

5. The Department is authorized to conduct audits of

taxpayers and to request information to ascertain their tax

liability, if any, pursuant to Section 213.34, Florida Statutes.

6. On October 3, 2005, the Department initiated an audit

of Bests to determine whether Bests was properly collecting and

remitting sales and use tax to the Department.

7. The audit period was from September 1, 2002, through

August 31, 2005.

8. The audit determined liability existed in four areas 2 :

Exhibit A01 - cleaning contracts for which documentation

supporting the claimed exempt nature of the transaction could

not be produced; Exhibit B01 - paper products and hand soaps

purchased by Bests in performance of the facility custodial

service contract with Florida Atlantic University; Exhibit B02 -

items purchased by Bests for general use in the operation of its

business, such as office supplies, automobile and truck

expenses, repair and maintenance to equipment, computer

services, etc. Only the amount assessed in Exhibit B01 is at

issue.

9. On July 26, 2006, the Department sent Bests its Notice

of Intent to Make Audit Changes ("NOI"), with schedules, showing

that Bests owed to the Department additional sales and use tax

in the amount of $195,540.35, penalty in the amount of

$41,885.11, and interest through July 27, 2006, in the amount of

$41,514.08, making a total assessment in the amount of

$285,939.54.

10. Additional documentation was provided by Bests,

resulting in revisions to the NOI. On January 16, 2007, the

second and final revised NOI was issued. The amount of sales

and use tax due had been adjusted to $47,473.46 and interest in

the amount of $12,536.88. The penalty amount was waived in its

entirety.

11. On January 25, 2007, the Department issued its Notice

of Proposed Assessment.

12. Bests timely filed a written protest of the

Department's proposed assessment.

13. On May 12, 2008, the Department issued the Notice of

Decision ("NOD") in response to the protest by Bests, sustaining

the assessment in its entirety.

14. By check dated July 9, 2008, Bests remitted $12,500.00

to the Department to be applied to the assessment found in

Exhibits A01 and B02.

The following facts are based on the oral and documentary

evidence presented at the final hearing and on the entire record

of this proceeding:

15. On May 1, 2003, Florida Atlantic University issued a

Request for Proposal ("RFP") for facility custodial services at

its Boca Raton, Florida, campus. Section 5 of the General

Conditions of the RFP, advised that it was "a public corporation

of the State of Florida [that] does not pay Federal Excise or

Sales taxes on direct purchases of services." 3 Florida Atlantic

University has been considered a tax-exempt entity for the

purposes of this proceeding.

16. Section 3.0.0 of the RFP described the scope of work

covered by the RFP, and, in general, required that the

contractor be "fully responsible for providing services called

for in this RFP." 4 The scope of work described for restrooms and

locker rooms included cleaning, polishing, washing, dusting,

mopping, and scrubbing, and, pertinent to this case, the

contractor was specifically required to "[e]mpty waste

receptacles and change liner," and "[r]estock dispensers: soap,

paper towel, toilet tissue and sanitary napkins." 5

17. Section 4.4.8 of the RFP specified the supplies that

were to be furnished by the contractor:

Services shall include all equipment,

supplies and materials to include liquid

hand soap of a bactericidal type, paper

towels, toilet tissue, toilet seat covers,

sanitary napkins, wax bags, plastic bags for

waste paper baskets, all cleaners, waxes,

deodorants and other cleaning materials to

perform the contract services. . . .

* * *

Contractor shall be responsible for keeping

soap, paper towel, sanitary napkin and

toilet tissue dispensers adequately filled

at all times.

* * *

SUPPLIES AND MATERIALS

All product selection and usage must be

approved by the Director.

Minimally, the following products are used

(no equivalents without the approval of the

Director):

Johnson Softcare

Multi-fold Natural Scott Towels

JRT/JRT Escort Tissue

Merfin paper towel rolls

. . . [ 6 ]

18. Section 4.5.0 of the RFP specified the cleaning

standards that must be met by the contractor. Pertinent to this

proceeding, general cleaning standards for restrooms included

the following requirements:

d. Dispensers & Receptacles - All supply

dispensers shall be filled. . . .

Waste receptacles shall be emptied and

supply dispensers shall be refilled. . . .

All toilet stalls shall be furnished with

toilet seat cover dispensers. . . . The

Contractor shall be responsible for

maintaining them and making certain that

they are properly stocked at all times. [ 7 ]

19. Finally, Section 1 of the "Special Conditions" portion

of the RFP provides:

Florida Atlantic University's Physical Plant

Department ("Department") requires the

services of a Facilities Services Contractor

to provide Facility Custodial Services at a

firm square foot price for cleaning services

in designated buildings on FAU's Boca Raton

Campus. FAU is also requesting unit prices

to enable adding additional areas to the

contract, and per man-hour prices for adding

additional staffing services to the contract

as needed. [ 8 ]

Section 9(d) of the "Special Conditions" portion of the RFP

provides with respect to contract service costs: "This RFP

seeks firm pricing for facilities management services on both

existing and future buildings. The fixed fee will be broken

down as indicated on the forms. Charges for additional services

will be provided on the forms as unit prices." 9

20. The Contract Services Costs form to be submitted with

proposals is found in Section 5.3.1 of the RFP, and the

instructions provide: "The below listed annual fixed costs are

quoted for the provision of necessary management, supervision,

labor, material, supplies, equipment, vehicles, and all related

items to perform the work described in the Scope of Work and

Specifications contained herein and as related to the initial

areas of coverage. . . ." 10

21. Bests was awarded the contract for custodial services

at the Boca Raton campus, and Florida Atlantic University

entered in the Agreement for Services, with services to begin on

August 9, 2003, and end on June 30, 2006. In the agreement,

Bests agreed to provide custodial services in accordance with

the provisions of the RFP, and it agreed to be "responsible to

provide all material, labor, equipment and supplies necessary to

provide custodial and cleaning services for designated buildings

on Florida Atlantic University's Boca Raton Campus." 11 The

agreement also provided that the total amount payable under the

agreement would not exceed $3,500,000.00, with the amount

"determined in accordance with the Vendor's price proposal dated

May 29, 2003, incorporated and attached herein as Attachment A,

and based on estimated usage."

22. Bests calculated the total annual cost to include on

the Contract Service Costs form, first, by examining the

buildings included in the RFP and calculating the annual cost

per square foot of providing the cleaning and maintenance

services specified in the RFP. Bests separately calculated the

annual cost of the paper products and hand soap to be used to

fill the restroom dispensers by examining demographic data about

the users of the restroom facilities, as well as the hours of

usage, and added it to the annual cost per square foot of

providing the services specified in the RFP to arrive at its

total annual costs.

23. Bests purchases the paper supplies and soap used to

fill the restroom dispensers from a supplier, who delivers the

supplies directly to the storage room at the Florida Atlantic

University Boca Raton campus used by Bests to store their

cleaning materials and supplies. These paper products are used

by Bests to refill the restroom dispensers, as required by the

RFP.

24. The Department set forth the facts and legal grounds

on which it based it assessment of use tax for the paper

products and soap used to fill the restroom dispensers in the

Notice of Decision dated May 12, 2008, in which it concluded

"that the taxpayer is the ultimate consumer [of the paper

products and hand soap] and therefore liable for use tax on all

taxable cleaning supplies." 12 The Department based this

conclusion on the following reasoning:

"As shown, the laws governing sales and use

tax makes [sic] the purchaser obligated to

pay a use tax at the moment taxable goods

and services are purchased for its own use.

Take toilet tissue, paper towels, feminine

napkins and hand soap for instance. These

items are purchased by the taxpayer, removed

from their container by the taxpayer, then

unwrapped from the original packaging and

placed in service by placing them in paper

towel holders or toilet tissue holders

located in the area being cleaned (e.g.

restroom) by the taxpayer. At no time

during the term of the agreement does the

taxpayer's customer know the quantity of

items used, nor does the taxpayer's customer

personally handle these items. The taxpayer

takes issue with these items being subject

to use tax because the taxpayer does not

personally dispose of these items. . . .

[I]t is not the ultimate act resulting in

the disposal of the items that triggers the

tax. It is the taxpayer's use during the

cleaning process that makes the taxpayer the

ultimate consumer. [ 13 ]

Summary

25. The evidence establishes that the services Bests

agreed to perform under the Agreement for Services with Florida

Atlantic University included cleaning the restrooms in the

buildings covered by the agreement, refilling the restroom

dispensers, and providing the paper products and soap to be used

in refilling the restroom dispensers. The evidence establishes

that, taken in the context of the RFP as a whole, the purchase

of the paper products and soap supplies is incidental to the

main purpose of Bests agreement with Florida Atlantic

University, which is to provide custodial services. The

Department's contention that the paper products and soap used to

refill the restroom dispensers at the Florida Atlantic

University Boca Raton campus are cleaning supplies taxable to

Bests is rejected. The cleaning supplies taxable to Bests are

such things as mops, brooms, sweepers, cleaning agents,

chemical, solvents, and rags, that it uses and consumes in

performing cleaning services for Florida Atlantic University,

and Bests does not contest the tax assessment on such items.

26. Bests did not use or consume the paper products and

soap, or otherwise exercise the rights of ownership over these

products, simply because its employees removed them from the

room in which they were stored, removed them from their

packaging, and placed them in the restroom dispensers. Bests

never exercised any rights of ownership over the products at

issue, and the Department's contention that the taxable event in

this case occurred when "the items were delivered to Bests and

Bests put those items into operation" is rejected. 14 First, the

evidence establishes that delivery of the paper products and

soap was made to a storage room on the Florida Atlantic

University Boca Raton campus and that Bests left in the storage

room the paper products and soap remaining at the time the

Florida Atlantic University contract was complete. Second,

Bests did not consume or use the products simply by placing them

in the restroom dispensers. Placing them in the dispensers was

part of custodial service Bests provided under the agreement

with Florida Atlantic University; the mere fact that Bests was

required as part of its Agreement for Services with Florida

Atlantic University to purchase the paper products and soap did

not render Bests the user or consumer of the products.

27. Rather, the evidence establishes that Florida Atlantic

University provided the paper products and soap for the use of

its students and staff, both for sanitation purposes and for the

convenience and comfort of its students and staff. Florida

Atlantic University, therefore, used the paper products and soap

as part of the business of operating a university, and, were it

not for its tax-exempt status, Florida Atlantic University would

be responsible for paying Florida's sales and use tax on the

paper products and soap.

28. Finally, the Department's contention that Bests did

not "sell" the paper products and soap to Florida Atlantic

University because they were not separately priced in its

proposal or separately listed in the invoices submitted to

Florida Atlantic University is rejected. The RFP pursuant to

which Bests submitted its proposal specifically required that

the total cost of providing the cleaning services and supplies,

including the paper products and soap used to fill the restroom

dispensers, were to be included on the Contract Service Costs

form, and the evidence establishes that Bests asked Florida

Atlantic University if it could invoice the paper products and

soap separately and was told that they could not.

CONCLUSIONS OF LAW

29. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and of

the parties thereto pursuant to Sections 120.569 and 120.57(1),

Florida Statutes.

30. Section 212.05, Florida Statutes (2005), 15 provides in

pertinent part

It is hereby declared to be the legislative

intent that every person is exercising a

taxable privilege who engages in the

business of selling tangible personal

property at retail in this state, including

the business of making mail order sales, 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.

(1) For the exercise of such privilege, a

tax is levied on each taxable transaction or

incident, which tax is due and payable as

follows:

* * *

(b) At the rate of 6 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;

31. The following definitions are found in Section 212.02,

Florida Statutes (2005):

(20) "Use" means and includes the exercise

of any right or power over tangible personal

property incident to the ownership thereof,

or interest therein, except that it does not

include the sale at retail of that property

in the regular course of business.

(21) The term "use tax" referred to in this

chapter includes the use, the consumption,

the distribution, and the storage as herein

defined.

32. Non-residential cleaning services are taxable.

§ 213.05(1)(j)1.b., Fla. Stat. (2005). The Department has

adopted rules dealing more specifically with nonresidential

cleaning services. Florida Administrative Code Rule 12A-1.0091

provides in pertinent part:

(1)(a) Nonresidential cleaning services are

subject to tax. Nonresidential cleaning

services are those services (not involving

repair) rendered to maintain the clean and

sanitary appearance and operating condition

of a nonresidential building, but they do

not include cleaning services provided for

tangible personal property. Examples of

such nonresidential cleaning services

subject to tax are:

1. Acoustical tile cleaning services;

2. Building cleaning services, interior;

3. Chimney cleaning services;

4. Custodians of schools on a contract or

fee basis;

5. Deodorant servicing of restrooms;

6. Disinfecting services;

7. Floor waxing services;

8. Housekeeping (cleaning services) on a

contract or fee basis;

9. Janitorial services on a contract or fee

basis;

10. Lighting maintenance services (bulb

replacement and cleaning);

11. Maid services on a contract or fee

basis;

12. Maintenance of buildings (except

repairs);

13. Office cleaning services;

14. Restroom cleaning services;

15. Service station cleaning and degreasing

services;

16. Venetian blind cleaning;

17. Washroom sanitation service; and

18. Window cleaning (interior or exterior).

* * *

(5) Cleaning service providers are

considered the ultimate users or consumers

of the tangible personal property sold to

them and used in connection with their

service and are required to pay the tax

imposed upon such sales of tangible personal

property to their dealers.

33. Florida Administrative Code Rule 12A-1.0161 provides

in pertinent part:

(1)(a) A tax is imposed on the sale at

retail or use in this state of . . .

nonresidential cleaning services described

in Rule 12A-1.0091, F.A.C. . . . The tax is

imposed at the rate of 6 percent of the

total sales price or cost price of such

service. . . .

* * *

(5) Service providers are considered the

ultimate consumers of any tangible personal

property used in providing their services.

As such, the service provider is liable for

the sales and use tax on any purchases of

tangible personal property used in providing

the services.

34. Pursuant to Section 120.80(14)(b)2., Florida Statutes,

the "department's burden of proof, except as otherwise

specifically provided by general law, shall be limited to a

showing that an assessment has been made against the taxpayer

and the factual and legal grounds upon which the applicable

Department made the assessment." "Once the Department has met

this initial burden of proof, the burden of proof shifts to the

taxpayer to demonstrate by a preponderance of the evidence that

the assessment is incorrect." IPC Sports, Inc. v. State, Dep't

of Revenue , 829 So. 2d 330, 329 (Fla. 3d DCA 2002).

35. The Department met its burden of proving the facts and

the legal grounds on which it based its assessment.

36. Based on the findings of fact herein, however, Bests

has satisfied its burden of proving by a preponderance of the

evidence that it is not the "user" of the paper products and

soap at issue. Bests is not the ultimate user or consumer of

the paper products and soap because it does not use or consume

the paper products and soap when providing cleaning services to

Florida Atlantic University. Rather, Bests used these products

to refill restroom dispensers on the Florida Atlantic University

Boca Raton campus and, thereby, provided these products for the

use of Florida Atlantic University.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Revenue issue a

final order withdrawing the sales and use tax assessment against

Bests Maintenance and Janitorial Services, Inc., for the audit

period extending from September 1, 2002, through August 31,

2005.

DONE AND ENTERED this 3rd day of February, 2009, in

Tallahassee, Leon County, Florida.

___________________________________

PATRICIA M. HART

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 3rd day of February, 2009.

ENDNOTES

1 / References to the Florida Statutes herein are to the 2008

edition unless otherwise indicated.

2 / There were actually only three items addressed in the audit.

3 / Joint Exhibit 14 at page 1.

4 / Joint Exhibit 14 at page 20.

5 / Joint Exhibit 14 at page 22.

6 / Joint Exhibit 14 at page 37.

7 / Joint Exhibit 14 at page 40.

8 / Joint Exhibit 14 at page 6.

9 / Joint Exhibit 14 at page 11.

10 / Joint Exhibit 14 at page 49.

11 / Joint Exhibit 15 at page 1.

12 / Joint Exhibit 16 at page 5.

13 / Joint Exhibit 16 at page 4.

14 / Transcript at page 45.

15 / The statutory language in the 2005 edition of the Florida

Statutes was in effect during the audit period.

COPIES FURNISHED:

Joseph C. Moffa, Esquire

Law Offices of Moffa & Gainor, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

Jarrell L. Murchison, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Tallahassee, Florida 32314-6668

John Mika, Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, Florida 32399-1050

Lisa Echeverri, Executive Director

Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street

Tallahassee, Florida 32314-6668

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this recommended order. Any exceptions

to this recommended order should be filed with the agency that

will issue the final order in this case.