08-003893F Mcclellan Trucking Company vs. Department Of Revenue Status: Closed DOAH Final Order on Friday, April 24, 2009.

Summary: Respondent demonstrated it was substantially justified when it initiated agency action where Petitioner was not entitled to the only exemption it advocated it should receive, Respondent recognized and applied a exemption that Petitioner did not seek.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MCCLELLAN TRUCKING COMPANY, )

)

Petitioner, )

)

vs. ) Case No. 08-3893F

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

FINAL ORDER

On January 29-30, 2009, a duly-noticed hearing was held in

Tallahassee, Florida, before Administrative Law Judge Lisa

Shearer Nelson of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Bradford L. Stewart, Esquire

Billy R. Ready, P.A.

209 Palmetto Street

Post Office Box 1399

Auburndale, Florida 33823

For Respondent: Jeffrey M. Dikman, Esquire

Office of the Attorney General

Plaza Level One, The Capitol

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUES

The issues to be determined in this proceeding are whether

Petitioner is entitled to attorney's fees and costs pursuant to

Section 57.111, Florida Statutes, and if so, in what amount?

PRELIMINARY STATEMENT

On July 29, 2008, Petitioner McClellan Trucking Company

served a Petition for Attorney's Fees and Costs Under 57.111,

Florida Statutes. While the caption of the petition indicates

that it was filed with the Division of Administrative Hearings,

it was apparently filed with the Department of Revenue

(Respondent or DOR), which on August 11, 2008, forwarded it to

the Division for assignment of an administrative law judge.

The case was assigned to the undersigned and scheduled for

hearing to be held December 16, 2008. At the request of the

Respondent, the hearing was continued and rescheduled for

January 27, 2009. Thereafter, an additional day of hearing was

scheduled at Respondent's request. The discovery and motion

practice was substantial, and reference to the docket and the

Transcript in this case recounts the course of discovery, the

motions filed and the rulings thereon.

At hearing, Petitioner presented the testimony of Hugh

Adrian McClellan, and Petitioner's Exhibit 1 was admitted.

Respondent presented the testimony of Mathew Crockett, Fred

Miller and Ronald Palmer. Respondent's Exhibits 1-53, 56-58, and

73-80 were admitted into evidence without objection.

The three-volume Transcript was filed with the Division on

February 16, 2009. At the request of the parties, proposed

recommended orders were to be filed by March 30, 2009.

Respondent's Proposed Recommended Order was filed March 30, 2009:

Petitioner's was filed March 31, 2009. Both submissions have

been carefully considered in the preparation of this Final Order.

All references to Florida Statutes are to the codification in

effect during the audit period, unless otherwise specified.

FINDINGS OF FACT

1. Petitioner, McClellan Trucking Company, is a Florida

corporation organized for profit. It is a family-owned trucking

company located in Clermont, Florida, and constitutes a "small

business party" within the meaning of Section 57.111, Florida

Statutes (2008).

2. On December 19, 2006, McClellan Trucking Company was

notified that its account had been selected by DOR for a tax

compliance audit with respect to payment of sales and use tax for

the audit period beginning November 1, 2003 through October 31,

2006.

3. The Notice of Intent to Audit Books and Records attached

a copy of the Florida Taxpayers Bill of Rights, along with a

Sales and Use Tax Information Checklist identifying the type of

records required to be available during the audit. The Notice

also included the following statement:

VALID RESALE AND CONSUMER CERTIFICATES OF

EXEMPTION (SALES TAX) Only valid

certificates will be accepted during the

audit process as proper documentation for

exempt transactions. The Florida Courts have

ruled that sales tax is a vendor's tax;

therefore, if a valid certificate is not on

file, the vendor is liable for the tax

regardless to whom the sale is made or for

what purpose.

4. During the audit period, Petitioner purchased motor

vehicles and parts for motor vehicles without paying any sales

taxes at the time of purchase. This was accomplished by

Petitioner's delivery of "resale certificates" to the selling

dealer.

5. Petitioner sought to self-accrue and remit use taxes on

a pro-rated portion of the purchase price of the vehicles,

pursuant to the partial exemption contained in Section

212.08(9)(b), Florida Statutes.

6. The pro-rated exemption is a separate and distinct

exemption from the sale for resale exemption. Under the pro-

rated exemption, DOR allows licensed interstate common carriers

who comply with the requirements of Florida Administrative Code

Rule 12A-1.064 to pro-rate and pay tax on a portion of the

purchase price of vehicles and related parts, with the tax being

based upon the percentage of total mileage driven that is within

Florida.

7. For the time period covered by the audit, Petitioner

McClellan Trucking Company was not registered as a dealer,

although Mr. McClellan was registered individually. In addition,

Petitioner did not have a license as a common carrier from the

United States Department of Transportation, and did not have a

direct pay permit from DOR.

8. Once notified, Petitioner took steps to correct each of

these deficiencies. On December 26, 2006, Petitioner became

registered as a dealer, and on December 31, 2006, Mr. McClellan

canceled the sole proprietorship registration. In January of

2007, Petitioner applied for a direct pay permit with DOR, which

was granted May 3, 2007. Finally, Petitioner applied for and

received a common carrier license from the United States

Department of Transportation.

9. Although these steps would serve to support the partial

exemption from taxes for future purchases, because neither the

direct pay permit or the common carrier license was in effect at

the time of the purchases covered by the audit, any such

purchases occurring during the audit period were determined not

to be exempt.

10. A Notice of Intent to Make Audit Changes (NOI) was

presented to Mr. McClellan on May 3, 2007, indicating that sales

and use taxes (with penalties and interest) were due in the

amount of $139,841.32.

11. The NOI includes the following notifications:

If you do not agree or if you have questions

about these audit adjustments:

• Do not sign this notice. Instead, request

an audit conference to review the factual

circumstances and reasons for the

adjustments.

• You have until 06/04/2007 to request a

conference.

• If you need an extension, submit a written

request before the date referenced in the

previous line.

Your Rights.

• Information about Taxpayers Rights is

enclosed explaining your options

regarding the audit adjustments. Review

your rights carefully.

• Take advantage of your right to an audit

conference to discuss adjustments, if you

have questions or disagree.

• Your right to an audit conference expires

if we do not hear from you within 30 days

of our issuing you this notice. We will

then issue a Notice of Proposed

Assessment for the audit, based on the

adjustments outlined in this notice.

• After the Notice of Proposed Assessment

has been issued, you have the right to

review the audit findings through formal

and informal protest procedures.

12. Petitioner did not sign the NOI, but instead retained

counsel who, on May 15, 2007, requested an audit conference. The

audit conference was scheduled for and took place on June 7,

2007. At that time, Mr. McClellan argued that the Department

should have notified him that his direct pay permit had expired,

and disagreed with the rule requirement that it have a common

carrier permit with the federal D.O.T. The audit assessment was

upheld.

13. Although Petitioner argued that Florida Administrative

Code Rule 12A-1.064 was in conflict with Section 212.08(9)(b),

Florida Statutes, Petitioner did not file a Petition pursuant to

Section 120.56, Florida Statutes, seeking to invalidate the rule.

14. Petitioner was notified by letter dated June 22, 2007,

that penalties related to the assessment were waived, and that

the audit file was being forwarded to the Tallahassee office,

which would issue a Notice of Proposed Assessment. Petitioner

received a new Notice of Intent to Make Audit Changes dated

July 5, 2007, which indicated a total due of $141,521.29. This

Notice continued to list penalties as part of the total.

15. On July 10, 2007, Petitioner's counsel wrote to Fred

Miller, the tax auditor, and questioned the failure to fully

waive the penalty.

16. On August 17, 2007, DOR issued a Notice of Proposed

Assessment (NOPA). The NOPA waived all penalties and listed a

balance due of $119,388.25. The NOPA also contained the

following language:

If you do not agree with the proposed

assessment set forth in this notice, you may

seek a review of the assessment through one

of the following: (a) an informal written

protest; (b) an administrative hearing; or

(c) a judicial proceeding. Procedures for

these various types of actions are set forth

in the enclosed brochure.

If you elect to file an informal written

protest, your protest must be filed with the

Department no later than 10/16/2007, unless

you request and receive an extension prior to

this date. If an informal written protest is

not timely filed, the proposed assessment

will become a FINAL ASSESSMENT on 10/16/2007.

If you choose to request either an

administrative hearing or judicial

proceeding, your request must be filed no

later than 12/17/2007 or 60 days from the

date the assessment becomes a Final

Assessment. This time limit is mandated by

statute and cannot be waived by the

Department. The petition for an

administrative hearing must be filed with the

Department. For judicial proceedings, a

complaint must be filed with the appropriate

Clerk of the Court.

17. On September 20, 2007, Petitioner filed a Written

Protest. The protest contained the following arguments: 1) that

confusion over Petitioner's status as a common carrier was caused

by Adrian McClellan's registration as a sole proprietor as

opposed to Petitioner's registration as a corporation; and

2) that this technical error resulted in Petitioner's loss of

common carrier status that would permit the partial exemption

based on Petitioner's common carrier status.

18. The Written Protest was forwarded to the Department's

Technical Assistance and Dispute Resolution Section. On

January 16, 2008, counsel for Petitioner forwarded to Matt

Crockett, an employee in the Technical Assistance and Dispute

Resolution Section, additional documentation, including copies of

leases showing that McClellan leased a fleet of approximately 30

trucks to Watkins Motor Lines, now FedEx. However, Petitioner

continued to argue for the pro-rated exemption based upon common

carrier status.

19. On January 29, 2008, DOR issued a Notice of Decision

(NOD) upholding its original assessment. The NOD discusses

whether Petitioner is liable for Florida sales tax on purchase

transactions in which the taxpayer pro-rated the tax due on

tangible personal property purchased for use in interstate

commerce, and determines that Petitioner is not entitled to the

exemption. The NOD contains the following notice of taxpayer

appeal rights:

This Notice of Decision constitutes the final

decision of the Department unless a Petition

for Reconsideration is filed on a timely

basis, in which event the Notice of

Reconsideration will be the Department's

final decision. The requirements for a

Petition for Reconsideration are set forth

below.

* * *

Absent a timely-filed Petition for

Reconsideration, the assessment reflected in

the Notice of Decision is final and you have

three alternatives for further review:

1) Pursuant to Section 72.011, F.S., and

Rule Chapter 12-6, F.A.C., you may contest

the assessment in circuit court by filing a

complaint with the clerk of the court.

. . . .

2) Pursuant to Sections 72.011, 120.569,

120.57, and 120.80(14), F.S., and Rule

Chapter 12-6, F.A.C., you may contest the

assessment in an administrative forum by

filing a petition for a Chapter 120

administrative hearing with the Department of

Revenue . . . .

3) Pursuant to Section 120.68, F.S., you may

contest the assessment in the appropriate

district court of appeal . . . .

20. On February 28, 2008, Petitioner submitted a Petition

for Reconsideration. The Petition for Reconsideration continued

to advocate for the partial exemption based upon Petitioner's

asserted common carrier status. The Petition for Reconsideration

referenced Petitioner's leases to FedEx, which is a licensed

common carrier. On April 9, 2008, Petitioner provided a

Supplement to its Petition for Reconsideration. This supplement

contained the following arguments: 1) Petitioner was not

required to be registered with the Federal Motor Carrier Safety

Administration (FMCSA) during the audit period because the

Petitioner leased the motor vehicles to a common carrier

registered with FMCSA, and therefore, the vehicles were operated

by a common carrier; and 2) Petitioner has complied with Florida

Administrative Code 12A-1.064 except for the requirement that it

have direct pay authority, which it should be excused for based

upon misleading information received from the Department.

21. On May 21, 2008, DOR issued its Notice of

Reconsideration (NOR). In the NOR, the Department determined

that no assessment was due. The NOR states in pertinent part:

Taxpayer presents a new argument upon

reconsideration. Taxpayer argues that it

purchased motor vehicles exclusively for

leasing purposes during the audit period and

then leased these vehicles to Watkins Motor

Lines (Watkins). Accordingly, Taxpayer

believes that the vehicles were exempt from

Florida Sales Tax at the time of purchase.

Taxpayer has offered to supply affidavits

from Watkins' employees supporting Taxpayer's

claims.

* * *

Based on the history and current wording of

the statutes, the proper interpretation of s.

212.08(9)(b), F.S., is that it is intended to

reach motor vehicles owned or leased by

operators that are common carriers. Due to

the retention of the common carrier

requirement, many owner operators may not

qualify for taxation under the proration

statute, because they are contract carriers

rather than common carriers. There is a

misconception that owner operators that

contract with a common carrier are entitled

to the benefits of the proration statute due

to the common carrier status of the other

party to the contract. That is not the case.

The Legislature opened the door for contract

carriers to qualify after the ICC was

abolished and then reinstated the common

carrier requirement during the next

legislative session, which indicates clear

intent not to extend the exemption to those

who operate as contract carriers (even if

they contract exclusively or primarily with

common carriers).

In order to determine whether a particular

owner operator is eligible for the partial

exemption, it is necessary to define the

terms "common carrier" and "contract

carrier." In Ruke Transport Line, Inc. v.

Green , 156 So. 2d 176 (Fla. 1st DCA 1963),

the court noted that a common carrier must

offer his services to the public generally

and on the same terms for all. A common

carrier is "bound to serve all who apply and

is liable for refusal, without sufficient

reason to do so." A contract carrier, on the

other hand, engages in transport for hire but

can choose whether or not to accept any

particular engagement and the terms upon

which to accept it.

During the audit period, Taxpayer provided

transport services to one company, Watkins,

on a contract basis. Taxpayer has failed to

provide any evidence that it transported

persons or property for pay to anyone at

anytime as a common carrier. Moreover,

Taxpayer has failed to provide evidence that

it maintained a regularly scheduled service

for the general public while it was under

contract with Watkins. As a result, the

Department determined in Taxpayer's Notice of

Decision that Taxpayer's activities were

those of a contract carrier.

Taxpayer now argues that it purchased its

motor vehicles exclusively for leasing

purposes and leased the vehicles to Watkins.

Upon further consideration, of Taxpayer's new

arguments and close inspection of Taxpayer's

"Equipment Lease and Operating Contract,"

(the Agreement) with Watkins Motor Lines,

Inc. (Watkins), the Department has determined

that Taxpayer leased its motor vehicles to

Watkins.

* * *

The collective terms of the Agreement reveal

Taxpayer's intent to lease its vehicles to

Watkins. Rule 12A-1.072(2)(a), F.A.C.,

states that tangible personal property

purchased exclusively for leasing purposes by

a dealer registered with the Department at

the time of purchase may be purchased tax-

exempt. The purchasing dealer is required to

issue a copy of the dealer's Annual Resale

Certificate to the selling dealer at the time

of the purchase in lieu of paying tax, as

provided in Rule 12A-1.039, F.A.C. It is

clear that Taxpayer's vehicles, purchased

exclusively for leasing to common carriers,

were not taxable at the time of sale, because

Taxpayer tendered a copy of its resale

certificate to its dealers. . . .

After purchasing motor vehicles and parts in

Florida, Taxpayer erroneously remitted sales

tax to the Department at an apportioned rate

during the audit period. Consequently,

Taxpayer is eligible for a refund of tax paid

in error to the Department. . . .

Since Taxpayer leases motor vehicles to

common carriers, Taxpayer must collect

Florida Sales Tax on the lease payments

received from its customers. . . . .

22. Neither party sought review or further hearing on the

Notice of Reconsideration. Therefore, the decision became final.

23. No administrative complaint pursuant to Chapter 120,

Florida Statutes, was ever filed against Petitioner.

24. No complaint in circuit court was ever filed by the

Department against Petitioner.

25. No final order was ever filed with the agency clerk.

26. No notice of voluntary dismissal was ever filed.

27. There was a settlement of all issues that resulted in

the elimination of the amount of tax due.

28. Throughout the process, Petitioner advocated for the

application of the pro-rated tax exemption for common carriers.

It did not assert an entitlement to the sale for resale or lease

exemption.

29. Petitioner served a Petition for Attorney's Fees and

Costs pursuant to Section 57.111, Florida Statutes, on July 29,

2008. The Petition was filed with the Department of Revenue, as

opposed to the Division, on August 4, 2008.

30. Petitioner was a small business party within the

meaning of Section 57.111, Florida Statutes, during the audit

period.

31. Petitioner is seeking reimbursement of $15,969.00 in

attorney's fees and $1,765.00 in costs.

32. The parties have stipulated that the amount of

attorney's fees and costs sought is reasonable.

CONCLUSIONS OF LAW

33. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties to this

action in accordance with Sections 120.569 and 120.57(1), Florida

Statutes (2008).

34. In this case, Petitioner seeks an award of attorney's

fees and costs pursuant to Section 57.111, Florida Statutes

(2008), the Florida Equal Access to Justice Act (FEAJA). Section

57.111 was enacted in order to "diminish the deterrent effect of

seeking review of, or defending against, governmental action by

providing in certain situations an award of attorney's fees and

costs against the state." § 57.111(2), Fla. Stat. (2008). To

meet this goal, Section 57.111(4)(a) provides:

(4)(a) Unless otherwise provided by law, an

award of attorney's fees and costs shall be

made to a prevailing small business party in

any adjudicatory proceeding or

administrative proceeding pursuant to

chapter 120 initiated by a state agency,

unless the actions of the agency were

substantially justified or special

circumstances exist which would make the

award unjust.

35. The burden of proof in these proceedings is a shifting

one. The general rule is that the party asserting the

affirmative of an issue bears the burden as to that issue.

Florida Department of Transportation v. J.W.C. Company , 396 So.

2d 778 (Fla. 1st DCA 1981). In cases under the FEAJA, the party

seeking the award of fees is required to show that it is a small

business, as defined by Section 57.111; the prevailing party; and

that the underlying adjudicatory process was initiated by the

state agency. Once this threshold is met, the agency must show

that its action in initiating the agency proceeding was

"substantially justified." Helmy v. Department of Business and

Professional Regulation , 707 So. 2d 366, 368 (Fla. 1st DCA 1998);

Gentele v. Department of Professional Regulation , 513 So. 2d 672

(Fla. 1st DCA 1987); Pinellas Rebos Club, Inc. v. Department of

Revenue , DOAH Case No. 96-3150F, 97 ER FALR 1009 (DOAH 1997);

Lauren, Inc. v. Department of Revenue , Case No. 93-0256F, 94 TAX

FALR 430 (DOAH 1993).

36. Respondent has asserted that Section 213.21, Florida

Statutes, prohibits any award of attorney's fees and costs

pursuant to Section 57.111, Florida Statutes, because Section

213.21(1)(3) provides that the taxpayer has the right to be

represented during informal conferences "at the taxpayer's cost."

The statute does not expressly say that a taxpayer is prohibited

from seeking reimbursement of those costs through an award under

Section 57.111. However, it is not necessary to reach this issue

because, based upon the facts presented, Petitioner is not

entitled to an award of attorney's fees and costs under the

statute.

37. The parties have stipulated that Petitioner is a small

business party within the meaning of Section 57.111(3)(d).

Petitioner must also prove that it is a prevailing small business

party as defined in Section 57.111(3)(c). To do so, Petitioner

must demonstrate one of the following:

1. That a final judgment or order has been

entered in favor of the small business party

and such judgment or order has not been

reversed on appeal or the time for seeking

judicial review of the judgment or order has

expired;

2. A settlement has been obtained by the

small business party which is favorable to

the small business party on the majority of

issues which such party raised during the

course of the proceeding;

3. The state agency has sought a voluntary

dismissal of its complaint.

38. The Notice of Reconsideration was not a final judgment

or order. As noted in the findings of fact, no order was

docketed with the Agency Clerk, as required in the definition of

a final order in Section 120.52(7), Florida Statutes. More

importantly, Section 120.80(14), Florida Statutes (2007),

specifically exempts assessments from the definition of a final

order.

39. DOR never sought voluntary dismissal of a complaint,

because no complaint, as such, was ever filed.

40. However, there was a settlement obtained by Petitioner

which is favorable on the majority of issues it raised during the

course of the proceeding. DOR maintains that there is no dispute

but that no settlement was ever reached. A careful review of the

Transcript of the hearing, however, shows that DOR concerned

itself with whether there was a settlement agreement document

signed between the parties to compromise the proposed assessment.

While such agreements are permissible under Section 213.21,

Florida Statutes, the language of Section 57.111(3)(c)2. does not

require such a formalized process. It merely requires that the

majority of the issues be decided in Petitioner's favor.

41. The more pivotal concern is whether settlement was

reached in Petitioner's favor on the majority of issues raised by

Petitioner. The answer to this question turns on whether one

focuses on the overall goal of the Petitioner's actions; i.e. , to

avoid the assessment; or the theory by which the assessment is

avoided. Here, the theory Petitioner sought to use (the pro-

rated exemption for common carriers) was unsuccessful and remains

so. For the period of time affected by the audit, Petitioner was

not entitled to the pro-rated exemption. However, the larger,

and in truth more important, issue is whether Petitioner was

liable for additional sales and use taxes for the audit period.

On this point, Petitioner clearly prevailed, as the assessment

went from nearly one hundred-twenty thousand dollars to zero.

While the Department points to the language in the Notice of

Reconsideration advising Petitioner that it must pay taxes on the

leases, the Notice does not indicate any taxes are due and

assessed. Petitioner is a prevailing small business party.

42. Finally, Petitioner must show that the state agency,

DOR, has initiated agency action against it. The term "initiated

by a state agency" has been defined in Section 57.111(3)(b):

(b) The term "initiated by a state agency"

means that the state agency:

1. Filed the first pleading in any state or

federal court in this state:

2. Filed a request for an administrative

hearing pursuant to chapter 120; or

3. Was required by law or rule to advise a

small business party of a clear point of

entry after some recognizable event in the

investigatory or other free-form proceeding

of the agency . (Emphasis supplied.)

43. Clearly, DOR did not file the first pleading in any

state or federal court in this state, and did not file a request

for an administrative hearing pursuant to Chapter 120. However,

DOR was required by law, and in fact, did advise Petitioner of a

clear point of entry after some recognizable event in the

investigatory or other free-form proceeding of the agency.

44. Section 120.569, Florida Statutes, provides in

pertinent part:

(1) The provisions of this section apply in

all proceedings in which the substantial

interests of a party are determined by an

agency, unless the parties are proceeding

under s. 120.573 or 120.574. . . . Each

notice shall inform the recipient of any

administrative hearing or judicial review

that is available under this section,

s. 120.57, or s. 120.68; shall indicate the

procedure that must be followed to obtain the

hearing or judicial review; and shall state

the time limits that apply.

45. Sections 120.573 and 120.574 provide for mediation and

summary hearings, which neither party has asserted were utilized

in this case. Even assuming that informal conferences could be

considered mediation, the procedure used does not comply with the

requirements in Section 120.573 for a mediation agreement.

46. Consistent with Section 120.569(1), Florida

Administrative Code Rule 28-106.111(1) provides that "[t]he

notice of agency decision shall contain the information required

by Section 120.569(1), F.S." (Emphasis supplied) While Section

120.57(5), Florida Statutes, provides that "[t]his section does

not apply to agency investigations preliminary to agency action,"

Section 120.569 contains no such restriction on its scope.

47. While DOR stresses that the informal conference process

is, by rule, a part of the investigative process, Florida

Administrative Code Rule 12-6.003(5), Section 57.111(3)(b)3.

contemplates that notice of a clear point of entry would occur

"after some recognizable event in the investigatory of other

free-form proceeding of the agency." It focuses on a

recognizable event in the investigative process, but does not

necessarily require that the process be completed.

48. In this case, the agency notified Petitioner of its

intended agency action when it sent its Notice of Proposed

Decision. As referenced in finding of fact 16, Petitioner was

advised of its rights to challenge the proposed assessment

through the informal written protest; a Chapter 120 hearing; or a

judicial proceeding. It provided the time deadlines for each

type of challenge. Most importantly, if no challenge was filed,

the assessment would become final.

49. In sum, Petitioner has demonstrated that it is a small

business party; that it is a prevailing party by virtue of

resolving the majority of issues in its favor; and that the DOR

initiated agency action against it. The burden shifts to the

Department to demonstrate that it was substantially justified at

the time it initiated agency action, or that special

circumstances exist that would make an award unjust.

50. According to Section 57.111(3)(e), a proceeding is

substantially justified if it had a reasonable basis in law and

fact at the time it was initiated by the agency. In this case,

the Department has met its burden to demonstrate substantial

justification.

51. Section 212.05, Florida Statutes, provides that every

person is exercising a taxable privilege when engaging in the

business of selling tangible personal property at retail,

including the rental or furnishing of any of the items or

services taxable under Chapter 212, and that for the exercise of

such privilege, a tax is levied on each taxable transaction or

event. While taxing statutes are strictly construed against a

taxing authority, exemptions are strictly construed against the

taxpayer. Department of Revenue v. Anderson , 403 So. 2d 397, 399

(Fla. 1981); Pioneer Oil Co. v. Department of Revenue , 401 So. 2d

1319, 1321 (Fla. 1981)("Exemptions contained in taxing statutes

are special favors granted by the legislature and should be

strictly construed against the taxpayers.").

52. Petitioner sought an exemption to its tax obligation

provided in Section 212.08(9), Florida Statutes. This exemption

is implemented by means of Rule 12-1.064. During the audit

period, Petitioner (whether considered to be Adrian McClellan

d/b/a McClellan Trucking Co., as registered during that time, or

McClellan Trucking Co. as re-registered during the audit process)

did not possess a direct pay permit or a license issued by the

United States Department of Transportation.

53. While Petitioner argues that the rule requirement for

federal licensure as common carrier exceeds the statutory

authority for Rule 12-1.064, this argument is a red herring.

First, Petitioner never filed a challenge to Rule 12-1.064.

Second, whether or not licensure is required, as discussed at

length in the NOR, Petitioner is a contract carrier as opposed to

a common carrier, because it does not offer its services to the

public generally and on the same terms for all. Finally, it is

undisputed that Petitioner did not have a direct pay permit

during the audit period, and obtaining the appropriate permits

after the audit period did not render the prior sales exempt.

Anderson , 403 So. 2d at 399 ("we do not find that the later

registration and tender of certificates by some of the purchasers

establishes their exempt status at the time of sale.").

Petitioner simply did not meet the requirements to receive the

pro-rated exemption for common carriers. The Department had a

substantial basis in law and fact for determining that this

exemption did not apply.

54. Moreover, special circumstances exist that would make

the award of attorney's fees and costs unjust in this case. It

was the Department's staff, not Petitioner or its counsel, that

determined that Petitioner was entitled to the sale for resale

exemption that ultimately resulted in the elimination of the tax

assessment. Petitioner insists that this does not matter,

because the Department "knew" from the beginning of the audit

that it leased vehicles to Watkins Trucking/FedEx. However, as

stated specifically in Florida Administrative Code Rule 12A-

1.039(1)(a), "The exempt nature of the transaction must be

established by the selling dealer." It is not the responsibility

of the auditor assigned to determine every possible exemption to

which a taxpayer may be entitled. It is the taxpayer's

responsibility to assert the exemption and provide sufficient

information to substantiate the applicability of the exemption.

Pioneer Oil ; DOR v. Anderson . To award Petitioner attorney's

fees and costs because a Department employee recognized and gave

Petitioner the benefit of an exemption that Petitioner never

argued would be a windfall to which Petitioner is not entitled.

CONCLUSION

Based on the foregoing it is found that the Department of

Revenue was substantially justified when it initiated agency

action and that special circumstances also exist that would make

an award of attorney's fees and costs unjust. Accordingly,

Petitioner's Petition for Attorney's Fees is dismissed.

DONE AND ORDERED this 24th day of April, 2009, in

Tallahassee, Leon County, Florida.

S

LISA SHEARER NELSON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 24th day of April, 2009.

COPIES FURNISHED:

Bradford L. Stewart, Esquire

Billy R. Ready, P.A.

Post Office Box 1399

Auburndale, Florida 33823

Jeffrey M. Dikman, Esquire

Office of the Attorney General

The Capitol, Plaza 01

Tallahassee, Florida 32399

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Tallahassee, Florida 32399-0100

Lisa Echeverri, Executive Director

Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street

Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is entitled

to judicial review pursuant to Section 120.68, Florida Statutes.

Review proceedings are governed by the Florida Rules of Appellate

Procedure. Such proceedings are commenced by filing the original

notice of appeal with the Clerk of the Division of Administrative

Hearings and a copy, accompanied by filing fees prescribed by

law, with the District Court of Appeal, First District, or with

the District Court of Appeal in the Appellate District where the

party resides. The notice of appeal must be filed within 30 days

of rendition of the order to be reviewed.