08-003938 Times Publishing, Co. vs. Department Of Revenue Status: Closed Recommended Order on Tuesday, October 20, 2009.

Summary: Exemptions in Subsections 212.08(5)(b) and 212.08(5)(1)(g), Florida Statutes, are properly read in pari materia to treat inserts as component parts of a newspaper rather than separate production to satisfy the 10% requirement in Subsection 212.08(5)(b).

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TIMES PUBLISHING, CO., )

)

Petitioner, )

)

vs. ) Case Nos. 08-3938

) 08-3939

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Administrative Law Judge (ALJ) Daniel Manry conducted the

final hearing of this case for the Division of Administrative

Hearings (DOAH) on June 10 and 11, 2009, in Tampa, Florida.

APPEARANCES

For Petitioner: Wilson Jerry Foster, Esquire

1342 Timberlane Road, Suite 102-A

Tallahassee, Florida 32312

For Respondent: John Mika, Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue is whether Petitioner showed by a preponderance

of the evidence that it is entitled to a refund of $1,500,216.60

in sales and use tax paid during the period from January 2005

through January 2007 to purchase industrial printing machinery

that allegedly satisfied the statutory requirement for a 10

percent increase in productive output for printing facilities

that manufacture, process, compound or produce tangible personal

property at fixed locations in the state within the meaning of

Subsection 212.08(5)(b), Florida Statutes (2005), and Florida

Administrative Rule 12A-1.096. 1/

PRELIMINARY STATEMENT

This proceeding has a long procedural history. Material

portions of the procedural history of this case are discussed in

the Findings of Fact. At this juncture in the Recommended

Order, it is sufficient to say that Petitioner requested an

administrative hearing to contest the proposed denial of a

refund. Respondent referred the request for hearing to DOAH to

assign an Administrative Law Judge to conduct the hearing.

At the hearing, Petitioner presented the testimony of two

witnesses and submitted 10 exhibits for admission into evidence.

Respondent presented the testimony of six witnesses and

submitted 28 exhibits.

The identity of the witness and exhibits, and the rulings

regarding each, are reported in the four-volume Transcript of

the hearing filed with DOAH on July 16, 2009 and September 21,

2009. The ALJ granted the unopposed request to keep the record

open to allow Respondent an opportunity to present rebuttal

testimony. The ALJ conducted a telephone hearing on August 21,

2009, concerning the request for rebuttal testimony. At the

conclusion of the hearing, Respondent withdrew its request for

rebuttal testimony.

The transcript of the motion hearing was filed with DOAH on

September 21, 2009. Petitioner and Respondent filed their

respective PROs on October 1, 2009.

FINDINGS OF FACT

1. Respondent is the agency responsible for administering

the state sales tax imposed in Chapter 212. Petitioner is a

"for profit" Florida corporation located in St. Petersburg,

Florida. Petitioner is engaged in the business of publishing

newspapers and commercial printing. Petitioner derives

approximately 85 percent of its revenue from advertising and

approximately 15 percent of its revenue from circulation

subscriptions.

2. In April, 2007, Petitioner requested a refund of

$403,780.05 in sales and use taxes paid for the purchase of

industrial machinery and equipment during the period from

January, 2005, to January, 2006. In October, 2007, Petitioner

requested a refund of $1,096,436.61 in sales and use taxes paid

for the purchase of industrial machinery and equipment for the

period from January, 2006, to January, 2007.

3. The first refund request in April, 2007, became DOAH

Case Number 08-3938, and the second refund request in October,

2007, became DOAH Case Number 08-3939. The two cases were

consolidated into this proceeding pursuant to the joint motion

of the parties.

4. The parties stipulated that the only issue for

determination in this consolidated proceeding is whether

Petitioner satisfied the requirement for a 10 percent increase

in productive output in Subsection 212.08(5)(b) and Rule 12A-

1.096. If a finding were to be made that Petitioner satisfied

the 10 percent requirement, the parties stipulate that the file

will be returned to Respondent for a determination of whether

the items purchased are qualifying machinery and equipment

defined in Subsection 212.08(5)(b) and Rule 12A-1.096.

5. The issue of whether Petitioner satisfied the statutory

requirement for a 10 percent increase in productive output in

Subsection 212.08(5)(b) and Rule 12A-1.096 is a mixed question

of law and fact. The ALJ concludes as a matter of law that

Petitioner did not satisfy the 10 percent requirement. The ALJ

discusses that conclusion briefly, for context, in paragraphs 6

and 7 of the Findings of Fact, and explains the conclusion and

the supporting legal authority more fully in the Conclusions of

Law.

6. It is an undisputed fact that Petitioner counts items

identified in the record as "preprints," "custom inserts," and

"circulation inserts" separately from the "newspaper" as a means

of exceeding the 10 percent requirement in Subsection

212.08(5)(b). Respondent construes the 10 percent exemption

authorized in Subsection 212.08(5)(b) in pari materia with the

exemption authorized in Subsection 212.08(5)(1)(g) for

"preprints," "custom inserts," and "circulation inserts"

(hereinafter "inserts"). The latter statutory exemption treats

inserts as a "component part of the newspaper" which are not to

be treated separately for tax purposes.

7. For reasons stated more fully in the Conclusions of

Law, the ALJ agrees with the statutory construction adopted by

Respondent. That conclusion of law renders moot and, therefore,

irrelevant and immaterial, the bulk of the evidence put forth by

the parties during the two-day hearing because the evidence

assumed arguendo that Petitioner's statutory interpretation

would be adopted by the ALJ, i.e. , inserts would be counted

separately from the newspaper for purposes of satisfying the 10

percent requirement in Subsection 212.08(5)(b).

8. In an abundance of caution, the fact-finder made

findings of fact based on the legal assumption that inserts are

statutorily required to be counted separately for purposes of

the 10 percent requirement in Subsection 212.08(5)(b). Those

findings are set forth in paragraphs 9 through 11.

9. The verification audit by Respondent's field office was

able to verify an output increase of only 4.27 percent for 2005

and only 8.72 percent for 2006. A preponderance of evidence in

this de novo proceeding did not overcome those findings.

10. The trier of fact finds the evidence from Petitioner

during this de novo proceeding to be inconsistent and

unpersuasive. For example, Petitioner inflated production

totals by counting materials printed for its own use, and

materials in which the unit of measurement was inconsistent. In

other instances, production totals for printing presses

identified in the record as Didde and Ryobi presses varied

dramatically with circulation. In other instances, Petitioner's

reporting positions changed during the course of the proceeding.

11. There is scant evidence that the alleged increase in

production created jobs in the local market in a manner

consistent with legislative intent. Rather, a preponderance of

evidence shows that when Petitioner placed the equipment in

service it was job neutral or perhaps reduced jobs.

CONCLUSIONS OF LAW

12. DOAH has jurisdiction over the subject matter and

Fla. Stat. (2009). DOAH provided the parties with adequate

notice of the administrative hearing.

13. Respondent has the initial burden of proof.

Respondent must make a prima facie showing of the factual and

legal sufficiency of the denial of refund. § 120.80(14)(b)2.

The burden of proof then shifts to Petitioner to show by a

preponderance of the evidence that Petitioner is entitled to a

refund of tax. IPC Sports v. Department of Revenue , 829 So. 2d

330, 332 (Fla. 3d DCA 2002).

14. Respondent made a prima facie showing of the factual

and legal sufficiency of the denial of refund . The proposed

denial of refund was appropriate based on the verification audit

performed by the field office.

15. Petitioner failed to show by a preponderance of the

evidence that Petitioner is entitled to a refund. Subsection

212.08(5)(b) provides an exemption from sales tax, in relevant

part, for industrial machinery and equipment purchased for use

in expanding manufacturing facilities or plant units. The

statute requires an affirmative showing by the taxpayer, to the

satisfaction of the Department of Revenue (DOR), that the items

purchased are used to increase productive output by not less

than 10 percent (hereinafter, the "10 percent exemption").

16. Tax exemption statutes are matters of legislative

grace. They must be strictly construed against the taxpayer.

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

(Fla. 1981); Department of Revenue v. Bank of America, N.A. , 752

So. 2d 637, 641 (Fla. 1st DCA 2000); Asphalt Pavers, Inc. v.

Department of Revenue , 584 So. 2d 55, 57 (Fla. 1st DCA 1991).

17. Respondent construes the 10 percent exemption

authorized in Subsection 212.08(5)(b) in pari materia with the

exemption authorized in Subsection 212.08(5)(1)(g) for

"preprints," "custom inserts," and "circulation inserts"

(hereinafter "inserts"). The latter statutory exemption treats

inserts as a "component part of the newspaper".

18. Respondent's statutory construction is reasonable

under the facts in this case. Petitioner cited no legal

authority supporting a different statutory authority or showing

that Respondent's statutory construction is erroneous.

19. A statutory subsection, such as the 10 percent

exemption in Subsection 212.08(5)(b), cannot be read in

isolation. The 10 percent exemption must be read "within the

context of the entire section", and due regard must be given to

the contextual interrelationship between its parts. See Lamar

Outdoor Advertising-Lakeland v. Florida Department of

Advertising , Case No. 1D08-5369 (Fla. 1st DCA Aug. 19, 2009)

(citing Florida Department of Environmental Protection v.

ContractPoint Florida Parks, LLC, 986 So. 2d 1286, 1265 (Fla.

2008)). The doctrine of in pari materia requires statutes

relating to the same subject or object to be construed together

to harmonize them and give effect to legislative intent.

Florida Department of State, Division of Elections v. Martin ,

916 So. 2d 763, 768 (Fla. 2005).

20. The parties spent much time and evidence on the issue

of whether Respondent's statutory interpretation in this

proceeding deviates from its statutory interpretation in the two

previous cases. Petitioner argues that Respondent is bound by

the interpretation in the earlier two cases under the doctrine

of administrative stare decisis pursuant to the decision in

Gessler v. Department of Business and Professional Regulation ,

627 So. 2d 501, 503 (Fla. 4th DCA 1993).

21. As a threshold matter, the fact-finder finds that the

two previous cases do not deviate from Respondent's statutory

interpretation in this proceeding. Moreover, the Legislature

may authorize administrative agencies such as Respondent to

interpret, but never to alter statutes. Carver v. State of

Florida, Division of Retirement , 848 So. 2d 1203, 1206 (Fla. 1st

DCA 2003) ( citing Cortez v. State Board of Regents , 655 So. 2d

132, 136 (Fla. 1st DCA 1995)). An administrative agency has

statutory authority to propose only that agency action that

implements or interprets the specific powers and duties granted

by the enabling statute. § 120.52(8). The judicial doctrine in

Gessler cannot be interpreted to require Respondent to take

agency action in this proceeding that is inconsistent with

Legislative authority in Subsection 212.08(5)(b).

22. Even if one or more of Respondent's rules were to

authorize Respondent to deviate from the statutory authority in

Subsection 212.08(5)(b), rulemaking is authorized in furtherance

of statutory authority and not to amend, expand, or enlarge

statutory authority. Willette v. Air Products and Bassett and

Department of Labor and Employment Security, Division of

Workers' Compensation , 700 So. 2d 397, 399 (Fla. 1st DCA 1997).

In Willette , the court wrote:

Executive branch rulemaking is authorized in

furtherance of, not in opposition to,

legislative policy. Just as a court cannot

give effect to a statute (or administrative

rule) in a manner repugnant to a

constitutional provision, so a duly

promulgated rule, although "presumptively

valid until invalidated in a section 120.56

rule challenge [citations omitted]," must

give way in judicial proceedings to any

contradictory statute that applies.

Id.

23. The separation of powers doctrine provides that no

branch of government may encroach upon the powers of another and

that no branch may delegate its power to another branch. Fla.

Const. , Art. II, § 3. The second prohibition is the non-

delegation doctrine. Chiles v. Children A, B, C, D, E, and F ,

589 So. 2d 260, 264-266 (Fla. 1991). Respondent must administer

legislative programs pursuant to minimal standards and

guidelines ascertainable by reference to statutory terms enacted

by the Legislature. Id.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that Respondent enter a final order finding

that Petitioner did not satisfy the requirement for a 10 percent

increase in productive output defined in Subsection 212.08(5)(b)

and Rule 12A-1.096, and denying Petitioner's request for a

refund.

DONE AND ENTERED this 20th day of October 2009, 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

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 20th day of October, 2009.

ENDNOTE

1/ References to chapters, sections, and subsections are to

Florida Statutes (2005) unless otherwise stated. References to

rules are to rules promulgated in the Florida Administrative

Code in effect on April 1, 2008).

COPIES FURNISHED :

John Mika, Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, Florida 32399-1050

Wilson Jerry Foster, Esquire

1342 Timberlane Road, Suite 102A

Tallahassee, Florida 32312

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Post Office Box 6668

Tallahassee, Florida 32314-6668

Lisa Echeverri, Executive Director

Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street

Tallahassee, Florida 32399-0100

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.