08-004405 Saddle Creek Transportation, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, April 1, 2009.

Summary: Petitioner is not entitled to partial exemption provided in Section 212.08(9)(b), Florida Statutes, because it was not licensed as common carrier by the U.S. Department of Transportation.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SADDLE CREEK TRANSPORTATION, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 08-4405

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this

case on November 10, 2008, in Tallahassee, Florida, before

Carolyn S. Holifield, Administrative Law Judge of the Division

of Administrative Hearings.

APPEARANCES

For Petitioner: Matthew M. Bowles, Esquire

Grant Thornton, LLP

245 Peachtree Center Avenue Northeast

Suite 300

Atlanta, Georgia 30303

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 is entitled to a partial

refund pursuant to Subsection 212.08(9)(b), Florida Statutes

(2005), for sales tax paid on vehicles and parts thereof during

the period March 20, 2004, through August 20, 2006.

PRELIMINARY STATEMENT

On April 16, 2007, Respondent, Department of Revenue

("Department"), denied the application for a refund of sales tax

paid on charges for the purchase of motor vehicles, trailers,

and parts thereof filed by Petitioner, Saddle Creek

Transportation, Inc. ("Saddle Creek"). On June 1, 2007, Saddle

Creek filed a written protest challenging the Department's

denial of its application for a refund of sales tax. In its

Notice of Decision of Refund Denial dated July 30, 2007, the

Department upheld its initial denial of Saddle Creek's

application for a refund.

Saddle Creek timely challenged the Department's denial and

requested an administrative hearing. The matter was forwarded

to the Division of Administrative Hearings ("Division") on

September 8, 2008, for assignment of an Administrative Law Judge

to conduct the hearing.

Prior to the final hearing, the parties filed a Joint

Pre-Hearing Statement that included stipulated facts which

required no proof at hearing.

At hearing, the parties' Joint Exhibits 1 through 27 and

Petitioner's Exhibits 1 and 2, and the Affidavits of Darrell

Lake and Mark Cabrera were admitted into evidence. Respondent

stipulated to all facts in the Affidavits with the exception of

the paragraphs which referred to Petitioner as a "common

carrier." 1 Petitioner presented no witnesses. The Department

presented the testimony of one witness, Matthew Crockett, a tax

law specialist with the Department.

The hearing Transcript was filed with the Division on

December 3, 2008. Both parties timely filed post-hearing

submittals, which have been carefully considered in preparation

of this Recommended Order.

FINDINGS OF FACT

1. The Department is the state agency responsible for

administration of the Florida sales and use tax pursuant to

Sections 20.21 and 213.05, Florida Statutes (2008). 2

2. Saddle Creek is a Florida corporation with its

principal place of business located at 3010 Saddle Creek Road,

Lakeland, Florida.

3. Saddle Creek is a motor carrier within the meaning of

49 U.S.C. Section 13102(14). Pursuant to that provision, the

term "motor carrier" means "a person providing motor vehicle

transportation for compensation."

4. Effective November 21, 2003, Saddle Creek obtained its

Contract Carrier Permit from the Federal Motor Carrier Safety

Administration ("FMCSA"). The Contract Carrier Permit

authorized Saddle Creek to engage in transportation as a

"contract carrier" of property (except household goods) by motor

vehicle in interstate or foreign commerce.

5. Since November 21, 2003, Saddle Creek has engaged in

interstate commerce and has held itself out to the general

public as offering transportation and warehousing services for a

fee.

6. The fact that a company holds itself out to the general

public by offering transportation services for a fee does not

mean that it operates as a common carrier.

7. Since November 21, 2003, Saddle Creek has possessed

cargo liability insurance and has made said insurance available

to all of its shippers.

8. As a contract carrier, the fee, terms, conditions of

carriage, and the scope of liability can be specifically

defined, limited, and restricted by the contract between the

shipper and carrier. See 49 U.S.C. § 14101 (b).

9. Between December 1, 2003, and October 31, 2006, Saddle

Creek purchased trucks, trailers and parts for use on said

vehicles in Florida and paid sales tax on all purchases.

However, the parties stipulated that the time period at issue is

March 20, 2004, through August 20, 2006.

10. Effective March 9, 2007, Saddle Creek obtained its

Common Carrier Certificate from the FMCSA. The Common Carrier

Certificate authorized Saddle Creek to engage in transportation

as a "common carrier" of property (except household goods) by

motor vehicle in interstate or foreign commerce.

11. On March 12, 2007, Saddle Creek applied to the

Department for a refund of $175,023.99 for sales tax paid on

trucks, trailers and parts thereof, during the period of

March 20, 2004, through August 20, 2006. Saddle Creek claimed a

refund based on the partial exemption from sales tax provided to

interstate carriers in Subsection 212.08(9), Florida Statutes

(2005).

12. The Department denied Saddle Creek's Application for

Refund, because Saddle Creek was not licensed/registered or

classified by FMCSA as a common carrier during the time period

for which it was requesting a refund.

13. In reaching this decision, the Department relied on

Florida Administrative Code Rule 12A-1.064, 3 which implements and

interprets Subsection 212.08(9)(b), Florida Statutes (2005).

14. The Department's interpretation of the above-

referenced rule is that entitlement to the partial exemption

authorized in Subsection 212.08(9)(b), Florida Statutes (2005),

requires that the motor carrier engaged in interstate commerce

as a common carrier be licensed as a common carrier by the

U.S. Department of Transportation.

CONCLUSIONS OF LAW

15. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties hereto

pursuant to Section 120.569 and Subsection 120.57(1), Florida

Statutes.

16. The Department is, and was at all times relevant to

this proceeding, authorized to control, administer and enforce

the revenue laws of the State of Florida. See §§ 20.21 and

213.05, Fla. Stat.

17. Florida's sales tax is imposed by Chapter 212, Florida

Statutes. Any exemption from sales tax must be specifically

authorized by statute.

18. Petitioner seeks a refund for sales tax paid for the

purchase of motor vehicles, trailers, and parts thereof pursuant

to the partial exemption authorized in Subsection 212.08(9)(b),

Florida Statutes (2005).

19. As the party seeking an exemption, Petitioner has the

burden of proving entitlement to the exemption that it seeks by

a preponderance of evidence.

20. Subsection 212.08(9)(b), Florida Statutes (2005),

provides in pertinent part:

(9) PARTIAL EXEMPTIONS; RAILROADS AND

MOTOR VEHICLES ENGAGED IN INTERSTATE OR

FOREIGN COMMERCE.-

* * *

(b) Motor vehicles that are engaged in

interstate commerce as common carriers, and

parts thereof, used to transport persons or

property in interstate or foreign commerce

are subject to tax imposed in this chapter

only to the extent provided herein. The

basis of the tax shall be the ratio of

intrastate mileage to interstate or foreign

mileage traveled by the carrier's motor

vehicles which were used in interstate or

foreign commerce and which had at least some

Florida mileage during the previous fiscal

year of the carrier. Such ratio is to be

determined at the close of the carrier's

fiscal year. . . Motor vehicles that are

engaged in interstate commerce, and parts

thereof, used to transport persons or

property in interstate and foreign commerce

are hereby determined to be susceptible to a

distinct and separate classification for

taxation under the provisions of this

chapter [4] . . . .

21. The Department is, and was at all times relevant to

this proceeding, authorized to adopt rules to implement the

provisions of the revenue law pursuant to Section 213.06,

Florida Statutes.

22. Pursuant to its rulemaking authority, the Department

promulgated Florida Administrative Code Rule 12A-1.064, which

provides in pertinent part:

(1) SCOPE. This rule is intended to

provide guidelines for the partial exemption

for railroad rolling stock and parts and

motor vehicles and parts provided in Section

212.08(9), F.S., to carriers who transport

persons or property for hire in interstate

and foreign commerce.

(2) MOTOR VEHICLES.

(a) Motor vehicles used to transport

persons or property for hire in interstate

or foreign commerce that are operated by any

common carrier licensed by the United States

Department of Transportation, and parts for

such motor vehicles, are subject to the

partial exemption provided in Section

212.08(9)(b), F.S. Tax imposed is based on

the ratio of Florida highway mileage to

total highway mileage traveled by the

carrier's motor vehicles that were used in

interstate or foreign commerce and that had

at least some Florida mileage during the

previous fiscal year of the carrier.

23. Florida Administrative Code Rule 12A-1.064 is a

duly-promulgated rule and, as such, is treated as presumptively

valid until invalidated.

24. In promulgating Florida Administrative Code Rule

12A-1.064(2), the Department has interpreted Subsection

212.08(9)(b), Florida Statutes (2005), to extend the subject

partial exemption to all common carriers that are

licensed/registered as such by the U.S. Department of

Transportation.

25. The Department has determined that in order to be

licensed by the U.S. Department of Transportation, a motor

carrier must register with the FMCSA, a unit under the Secretary

of the U.S. Department of Transportation. See 49 C.F.R.

§ 1.4(l)(2).

26. The FMCSA was established in 1999, with the enactment

of the Motor Carrier Safety Improvement Act, and became

effective on January 1, 2000. See P.L. 106-159. The FMCSA is

responsible for, among other things, carrying out motor carrier

registrations. See 49 C.F.R. § 1.4.(l)(2).

27. The FMCSA differentiates between types of motor

carriers, including between a common carrier and a contract

carrier, for the purpose of registration with the agency. See

49 C.F.R. § 365.107(a)(1). A carrier can register as a common

carrier, a contract carrier or as both.

28. The Interstate Commerce Commission Termination Act

of 1995 abolished the statutory distinction between common

carrier and contract carrier by merging those classes into a

single classification of "motor carrier" (i.e. a person

providing motor vehicle transportation for compensation).

continues to be a difference between statutory responsibilities,

rights and remedies arising out of "common carriage" and

"contract carriage" under the Carmack Amendment, 49 U.S.C.

Section 14706.

29. The FMCSA regulations in effect at all times relevant

to this proceeding mandate only that cargo insurance surety

requirements extend to common carriage, not contract carriage,

and that such insurance be made available to shippers by a

BMC-32 endorsement. 49 C.F.R. § 387.303(c). On the other hand,

no such cargo insurance surety requirements are imposed on

contract carriage. 5

30. Subsection 212.08(9)(b), Florida Statutes (2005),

provides an exemption for motor vehicles "engaged in interstate

commerce as common carriers." Florida Administrative Code Rule

12A-1.064(2)(a) interprets the foregoing statute to extend an

exemption to all common carriers that are licensed as such by

the U.S. Department of Transportation.

31. An agency interpretation of a rule by the agency

charged with its enforcement is entitled to great weight.

P.W. Ventures, Inc. v. Nichols , 533 So. 2d 281 (Fla. 1988).

Moreover, such interpretation must not be overturned unless

clearly erroneous or unreasonable. Pan American World Airways,

Inc. v. Florida Public Service Commission , 427 So. 2d 716, 719

(Fla. 1983).

32. Here, the Department is the agency charged with

enforcement of the revenue laws, including Chapter 212, Florida

Statutes. Thus, the Department's interpretation of Subsection

212.08(9)(b), Florida Statutes (2005), and Florida

Administrative Code Rule 12A-1.064(2)(a) is entitled to and

given great deference. Such deference is appropriate where, as

in this case, there has been no showing that the Department's

interpretation is clearly erroneous or unreasonable.

33. It is a well-established rule of law that tax

exemptions must be strictly construed against the taxpayer

seeking them and in favor of the State. Department of Revenue

v. Bank of America, N.A. , 752 So. 2d 637, 644 (Fla. 1st DCA

2000); Sebring Airport Authority v. McIntyre , 642 So. 2d 1072

(Fla. 1994); Capital City Country Club v. Tucker ; 613 So. 2d 448

(Fla. 1993); and Asphalt Pavers, Inc. v. Dept. of Revenue , 584

So. 2d 55 (Fla. 1st DCA 1991).

34. Applying the foregoing principle, in order to

demonstrate entitlement to the exemption under Subsection

212.08(9)(b), Florida Statutes (2005), Saddle Creek must

establish that it was licensed as a common carrier by the U.S.

Department of Transportation during the relevant time period.

35. Petitioner has failed to meet its burden of proof.

36. Here, there is no dispute that Saddle Creek was not

registered with the FMCSA as a common carrier (i.e., licensed as

common carrier by the U.S. Department of Transportation) until

March 8, 2007. Moreover, it is undisputed that, prior to that

date and at all times relevant to this proceeding, Saddle Creek

was registered with FMCSA as a contract carrier.

37. Saddle Creek was not licensed as a common carrier by

the U.S. Department of Transportation during the period

March 20, 2004, through August 20, 2006. Therefore, Saddle

Creek did not qualify for and is not entitled to the partial

exemption from sales tax specified in Subsection 212.08(9)(b),

Florida Statutes (2005), and Florida Administrative Code Rule

12A-1.064(2)(a).

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is

RECOMMENDED that Respondent, Department of Revenue, enter a

final order upholding it denial of Petitioner, Saddle Creek

Transportation, Inc.'s, application for a partial refund of

sales taxes.

DONE AND ENTERED this 1st day of April, 2009, in

Tallahassee, Leon County, Florida.

S

CAROLYN S. HOLIFIELD

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 1st day of April, 2009.

ENDNOTES

1/ The Department objected to paragraph 7 of Mr. Lake's

Affidavit and paragraph 5 in Mr. Cabrera's Affidavit, both of

which used/referenced the term "common carrier."

2/ All statutory references are to Florida Statutes (2008),

unless otherwise noted.

3/ The "history notes" of Florida Administrative Code Rule

12A-1.064 reflect that the rule has not been amended since

June 12, 2003.

4/ Subsection 212.08(9)(b), Florida Statutes (2005), was amended

by Chapter 97-54, Laws of Florida, to limit the exemption in

this provision to "common carriers."

5/ With regard to contract carriers, 49 U.S.C. Section

14101(b)(1), provides: "If the shipper and carrier [contract

carrier], in writing, expressly waive any or all rights and

remedies under this part for the transportation covered by the

contract, the transportation provided under the contract shall

not be subject to the waived rights and remedies . . . ."

COPIES FURNISHED :

Lisa Echeverri, Executive Director

Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street

Tallahassee, Florida 32399-0100

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Tallahassee, Florida 32314-6668

Matthew M. Bowles, Esquire

Grant Thornton, LLP

245 Peachtree Center Avenue Northeast

Suite 300

Atlanta, Georgia 30303

John Mika, Esquire

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

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.