10-001679 Epic Hotel, Llc vs. Department Of Revenue Status: Closed Recommended Order on Monday, August 2, 2010.

Summary: DOR Final Order in Angler Resorts v. Dept of Revenue, Case No. DOR-08-17 -FOI (Fl. DOR, 3/16/08) required DOR accept statements about employees in Enterprise Zone sales tax refund application once Enterprise Zone Coordinator certified the application.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

EPIC HOTEL, LLC, )

)

Petitioner, )

)

vs. ) Case No. 10-1679

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Administrative Law Judge John D. C. Newton, II, of the

Division of Administrative Hearings (Division), conducted the

final hearing in this cause on June 1, 2010, by video

teleconference with sites in Miami and Tallahassee, Florida.

APPEARANCES

For Petitioner: Herbert Friesner, Esquire

Economic Development Consultants, Inc.

14361 Commerce Way, Suite 205

Miami Lakes, Florida 33016

For Respondent: Carrol Y. Cherry, Esquire

Office of the Attorney General

Revenue Litigation Bureau

The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

Is the taxpayer, Epic Hotel, LLC, entitled to a refund of

$10,000 of sales tax paid for building materials that were used

for the rehabilitation of real property located in an enterprise

zone, on the basis that 20 percent of its permanent, full-time

employees are residents of the Enterprise Zone?

PRELIMINARY STATEMENT

Florida offers a sales tax exemption, provided through a

refund process, for sales taxes paid on building materials used

to rehabilitate real property located in an “Enterprise Zone.”

This case is about a dispute over the amount of sales tax refund

to which Epic Hotel, LLC (Epic) is entitled. The Department of

Revenue (Department) denied Epic’s refund claim for sales tax in

the sum of $10,000. Epic requested a formal hearing to contest

the refund denial. The Department of Revenue approved $5,000 of

the refund claim based on information obtained during the course

of the dispute. The sole remaining issue is whether Epic has

sufficiently established that 20 percent of its permanent, full-

time employees reside inside the Enterprise Zone entitling Epic

to the tax exemption and an additional $5,000 refund.

The parties did not submit a joint pre-hearing statement.

The Department filed a unilateral pre-hearing statement. Epic

did not file a pre-hearing statement.

At the hearing, Epic called no witnesses. It offered two

exhibits into evidence. Both exhibits were admitted.

The Department of Revenue called two witnesses and admitted

six exhibits into evidence. The witnesses were John Shettle,

Tax Auditor II for the Department, and Andrea Nicole Hunter, Tax

Audit Supervisor.

Epic made a closing argument. The Department did not. The

parties were given an opportunity to submit proposed recommended

orders. The Department filed a Proposed Recommended Order.

Epic filed a Waiver of Right to File a Proposed Recommended

Order. Testimony, exhibits, and rulings are reported in the

transcript of the formal hearing filed with the Division on

June 18, 2010.

FINDINGS OF FACT

1. The Department is an agency of the State of Florida and

is authorized to administer the tax laws of the State of

Florida.

2. In 2008 Epic constructed and began operation of a hotel

in a State of Florida Enterprise Zone in Miami-Dade County,

Florida.

3. Epic sought a refund of sales tax paid on building

materials for the construction of the hotel.

4. The sales tax paid on building materials used in the

rehabilitation of real property located in an Enterprise Zone

may be exempt up to $10,000, upon a showing that the items have

been used for the rehabilitation of real property located in an

Enterprise Zone and that 20 percent or more of the taxpayer’s

fulltime, permanent employees reside in the Enterprise Zone.

5. On or about August 24, 2009, Epic filed an Application

for Refund–Sales and Use Tax. It requested refund of $10,000 in

sales tax for building materials used to build the hotel.

6. It submitted a completed Department form DR-26S and

other documents, including a completed Department form EZ-M.

7. The form EZ-M is the Department’s “Application for

Eligibility” for the Florida Enterprise Zone Program Building

Materials Sales Tax Refund. The form included a completed

Section I identifying permanent, full-time employees Epic

represented reside in the Enterprise Zone. The form represented

that 22 percent of Epic’s full-time, permanent employees reside

in the Enterprise Zone.

8. The Enterprise Zone Coordinator for the area signed the

EZ-M certifying, “that I have examined the statements contained

on this application certificate, and to the best of my knowledge

and belief they are true, correct and complete.” The record

does not indicate whether the Enterprise Zone Coordinator is an

employee of the Department.

9. John Shettle, Tax Auditor for the Department, audited

Epic’s refund application.

10. Mr. Shettle is responsible for auditing refund

applications. His duties include verifying that refund

applications are complete and accurate, and that the applicant

has provided the documentation required by the refund statute.

11. The Department issued Epic a Notice of Intent to Make

Refund Claim Changes, Form DR-1200R (for Refund Number

R09246069). It proposed to deny the refund claim for $10,000.

12. The Notice asked Epic to provide additional

documentation aimed at establishing that Epic owned the property

where the hotel was located and that the individuals identified

in Section I to the form EZ-M were full-time, permanent

employees of Epic. The requested documents included a copy of

Epic’s 940 Federal Unemployment Tax Return and a copy of Epic’s

W3 form.

13. Mr. Shettle conducted independent research on the

employee issue. He used the State’s unemployment tax records

and the Department of Business and Professional Regulation’s

employee leasing company registration data. He was unable to

locate any evidence that the employees listed in Schedule A were

employed by Epic. Epic has not presented any.

14. Epic has a Hotel Operating Agreement with Kimpton

Hotel & Restaurant Group, LLC. The Agreement provides for

Kimpton to “supervise, direct, and control the management,

operation, and promotion of the Epic hotel.”

15. The employees identified as Epic employees on

Section I of Epic’s EZ-M form are employees of Kimpton who

provide the contracted services at Epic. They are not direct

employees of Epic or employees leased by Epic.

16. Epic relied upon the Final Order of the Department of

Revenue in The Angler Resorts, LLC v. State of Florida,

Department of Revenue , Case No. DOR-08-17-FOI (Fla. Dept. of

Rev., March 16, 2008), in its dealings with the Department. In

reliance upon that Final Order, Epic maintained that it was not

required to provide anything more than the certified form EZ-M

and a completed Department form DR-26S.

17. The Department denied Epic’s refund application on the

basis that Epic could not be verified as the owner, lessee, or

lessor of the rehabilitated parcel, and that the individuals

listed in Section I could not be confirmed as employees of Epic.

18. During the course of this dispute about entitlement to

the refund, Epic established ownership of the property at the

time of the application. The Department consequently issued

Epic a refund of $5,000.

19. The Department has adopted rules governing the manner

and form of refund applications.

CONCLUSIONS OF LAW

20. The Division has jurisdiction over this matter.

§ 120.57, Fla. Stat. (2009).

21. Section 212.08(5)(g), Florida Statutes (2009), creates

a sales tax exemption for building materials used in the

rehabilitation of real property located in an enterprise zone.

The refund may be up to $10,000 if at least 20 percent of the

taxpayer’s full-time, permanent employees reside in the

Enterprise Zone. It is the statute that provides for the sales

tax refund that Epic seeks. Section 212.08(5)(g) provides:

(g) Building materials used in the

rehabilitation of real property located in

an enterprise zone.

1. Building materials used in the

rehabilitation of real property located in

an enterprise zone are exempt from the tax

imposed by this chapter upon an affirmative

showing to the satisfaction of the

department that the items have been used for

the rehabilitation of real property located

in an enterprise zone. Except as provided

in subparagraph 2, this exemption inures to

the owner, lessee, or lessor at the time the

real property is rehabilitated, but only

through a refund of previously paid taxes.

To receive a refund pursuant to this

paragraph, the owner, lessee, or lessor of

the rehabilitated real property must file an

application under oath with the governing

body or enterprise zone development agency

having jurisdiction over the enterprise zone

where the business is located, as

applicable. A single application for a

refund may be submitted for multiple,

contiguous parcels that were part of a

single parcel that was divided as part of

the rehabilitation of the property. All

other requirements of this paragraph apply

to each parcel on an individual basis. The

application must include:

a. The name and address of the person

claiming the refund.

b. An address and assessment roll parcel

number of the rehabilitated real property

for which a refund of previously paid taxes

is being sought.

c. A description of the improvements made

to accomplish the rehabilitation of the real

property.

d. A copy of a valid building permit issued

by the county or municipal building

department for the rehabilitation of the

real property.

e. A sworn statement, under penalty of

perjury, from the general contractor

licensed in this state with whom the

applicant contracted to make the

improvements necessary to rehabilitate the

real property, which lists the building

materials used to rehabilitate the real

property, the actual cost of the building

materials, and the amount of sales tax paid

in this state on the building materials. If

a general contractor was not used, the

applicant, not a general contractor, shall

make the sworn statement required by this

sub-subparagraph. Copies of the invoices

that evidence the purchase of the building

materials used in the rehabilitation and the

payment of sales tax on the building

materials must be attached to the sworn

statement provided by the general contractor

or by the applicant. Unless the actual cost

of building materials used in the

rehabilitation of real property and the

payment of sales taxes is documented by a

general contractor or by the applicant in

this manner, the cost of the building

materials is deemed to be an amount equal to

40 percent of the increase in assessed value

for ad valorem tax purposes.

f. The identifying number assigned pursuant

to s. 290.0065 to the enterprise zone in

which the rehabilitated real property is

located.

g. A certification by the local building

code inspector that the improvements

necessary to rehabilitate the real property

are substantially completed.

h. A statement of whether the business is a

small business as defined by s. 288.703(1).

i. If applicable, the name and address of

each permanent employee of the business,

including, for each employee who is a

resident of an enterprise zone, the

identifying number assigned pursuant to

s. 290.0065 to the enterprise zone in which

the employee resides.

2. This exemption inures to a municipality,

county, other governmental unit or agency,

or nonprofit community-based organization

through a refund of previously paid taxes if

the building materials used in the

rehabilitation are paid for from the funds

of a community development block grant,

State Housing Initiatives Partnership

Program, or similar grant or loan program.

To receive a refund, a municipality, county,

other governmental unit or agency, or

nonprofit community-based organization must

file an application that includes the same

information required in subparagraph 1. In

addition, the application must include a

sworn statement signed by the chief

executive officer of the municipality,

county, other governmental unit or agency,

or nonprofit community-based organization

seeking a refund which states that the

building materials for which a refund is

sought were funded by a community

development block grant, State Housing

Initiatives Partnership Program, or similar

grant or loan program.

3. Within 10 working days after receipt of

an application, the governing body or

enterprise zone development agency shall

review the application to determine if it

contains all the information required by

subparagraph 1, or subparagraph 2, and meets

the criteria set out in this paragraph. The

governing body or agency shall certify all

applications that contain the required

information and are eligible to receive a

refund. If applicable, the governing body

or agency shall also certify if 20 percent

of the employees of the business are

residents of an enterprise zone, excluding

temporary and part-time employees. The

certification must be in writing, and a copy

of the certification shall be transmitted to

the executive director of the Department of

Revenue. The applicant is responsible for

forwarding a certified application to the

department within the time specified in

subparagraph 4.

4. An application for a refund must be

submitted to the department within 6 months

after the rehabilitation of the property is

deemed to be substantially completed by

the local building code inspector or by

November 1 after the rehabilitated property

is first subject to assessment.

5. Only one exemption through a refund of

previously paid taxes for the rehabilitation

of real property is permitted for any single

parcel of property unless there is a change

in ownership, a new lessor, or a new lessee

of the real property. A refund may not be

granted unless the amount to be refunded

exceeds $500. A refund may not exceed the

lesser of 97 percent of the Florida sales or

use tax paid on the cost of the building

materials used in the rehabilitation of the

real property as determined pursuant to sub-

subparagraph 1.e. or $ 5,000, or, if at

least 20 percent of the employees of the

business are residents of an enterprise

zone, excluding temporary and part-time

employees, the amount of refund may not

exceed the lesser of 97 percent of the sales

tax paid on the cost of the building

materials or $10,000. A refund shall be

made within 30 days after formal approval by

the department of the application for the

refund.

6. The department shall adopt rules

governing the manner and form of refund

applications and may establish guidelines as

to the requisites for an affirmative showing

of qualification for exemption under this

paragraph.

7. The department shall deduct an amount

equal to 10 percent of each refund granted

under the provisions of this paragraph from

the amount transferred into the Local

Government Half-cent Sales Tax Clearing

Trust Fund pursuant to s. 212.20 for the

county area in which the rehabilitated real

property is located and shall transfer that

amount to the General Revenue Fund.

8. For the purposes of the exemption

provided in this paragraph, the term:

a. “Building materials” means tangible

personal property which becomes a component

part of improvements to real property.

b. “Real property” has the same meaning as

provided in s. 192.001(12).

c. “Rehabilitation of real property” means

the reconstruction, renovation, restoration,

rehabilitation, construction, or expansion

of improvements to real property.

d. “Substantially completed” has the same

meaning as provided in s. 192.042(1).

9. This paragraph expires on the date

specified in s. 290.016 for the expiration

of the Florida Enterprise Zone Act.

22. The issue in this case is whether Epic is entitled to

the $10,000 refund allowed when at least 20 percent of the

employees of the refund applicant are residents of the

Enterprise Zone.

23. The Department has adopted rules to implement the

refund statute. They are Florida Administrative Code

Rules 12A-1.107 and 12A-1.097. The Department interpreted and

applied those rules in the Final Order of the Department of

Revenue in The Angler Resorts, LLC v. State of Florida,

Department of Revenue , Case No. DOR-08-17-FOI (Fla. Dept. of

Rev., March 16, 2008) ( Angler Resorts ). The Angler Resorts

Final Order holds that Forms EZ-E and DR-26S incorporated by

Department rule do not authorize the Department to require

exemption applicants whose Application for Eligibility have been

certified by Enterprise Zone Coordinator to provide additional

information supporting the statements about the number or

residence of employees.

24. Although Angler Resorts involved Section 212.08(5)(h),

Florida Statutes (2008), it is relevant here because the

provisions of subsections (g) and (h) involving the percentage

of employees residing in the enterprise zone are the same. Also

the employment and certification portions of the form EZ-M in

this case are the same as those in Form EZ-E interpreted and

applied in Angler Resorts . Compare Department Exhibit 3 to Form

EZ-E found at http://www.floridaenterprisezone.com/

Zones/Org1/uploads/BEREFUNDrevised-09-2008.DOC. Likewise the

Form DR-26S is the same. Compare Department Exhibit 1 to Form

Dr-26S found at

http://dor.myflorida.com/dor/forms/2008/dr26s.pdf .

25. Application of Angler Resorts results in the

conclusion that Epic did not have to provide further information

about the residence and number of employees as certified by the

Enterprise Zone coordinator. This is true even though Epic did

not establish the individuals were Epic employees. In fact the

evidence establishes that they are not Epic employees. But

Angler Resorts holds that once the Application for Eligibility

has been certified by the Enterprise Zone Coordinator, further

information about the employer and employees may not be required

or considered.

26. The similarity of the rules and forms involves requires

application of Angler Resorts . The reasoning of the Department

in Conclusion of Law 14 of Angler Resorts about Section

212.08(5)(h), Florida Statutes, and Form EZ-E cannot be

reasonably rejected in interpreting Sections 212.08(5)(g),

Florida Statutes, and Form EZ-M when the same Department is

applying identical provisions of its rules and forms. In

Conclusion of Law 14 the Department stated:

Section 212.08(5)(h)6, Florida Statutes

permits the Respondent [Department] to

establish guidelines as to what is necessary

to show qualification for the exemption.

Respondent has provided guidelines in

Forms EZ-E and DR-26S, incorporated by rule

in compliance with Chapter 120, F.S. These

guidelines do not include the information

requested by the Notice of Intent to Make

Tax Refund Claims changes for that refund.

Given the specific nature of the

certification process provided in Section

212.08(5)(h), Florida Statutes, and the

permissive nature of the grant of authority

to establish the guidelines for the

requisites for a necessary showing of

qualification for the exemption, the

information requested in the Attachment to

Respondent’s Notice of Intent to Make Tax

Refund Claim Changes . . . falls outside

that required by the implemented statute or

rule (which includes Forms EZ-E and DR-26S,

incorporated by reference in Respondent’s

rules). Accordingly, Petitioner’s claims

for refund in excess of $5000 should not

have been denied on the basis of failure to

produce the requested information.

Additional documentary requirements should

be subject to the rulemaking process

governed by Section 120.54, Florida

Statutes.

27. The Department maintains that Angler Resorts should

not be applied in this case. It argues that following the

Department’s Final Order in Angler Resorts would impermissibly

infringe on the Department’s authority. The law is to the

contrary.

28. An agency has authority to interpret the statutes over

which it has substantive jurisdiction, as well as its own rules.

L.B. Bryan & Co. v. School Bd. , 746 So. 2d 1194 (Fla. 1st DCA

1999). The agency’s interpretation is entitled to due

deference. See Florida Wildlife Federation v. Collier County ,

819 So. 2d 200 (Fla. 1st DCA 2002); D.A.B. Constructors, Inc. v.

State, Dep’t of Transportation , 656 So. 2d 940 (Fla. 1st DCA

1995); Florida Hospital Association, Inc. v. Health Care Cost

Containment Board , 593 So. 2d 1137 (Fla. 1st DCA 1992). The

agency’s interpretation does not have to be the only or the best

interpretation.

29. The interpretation in Angler Resorts is not the only

or the best interpretation. But the Final Order in Angler

Resorts is the Department’s interpretation and application of a

statute it is charged with administering and of rules and forms

that it adopted. It is a Final Order, not argument in a

proceeding where the Department is merely a litigant. It

applies here.

30. The Department has the power to amend the rules, as it

noted in Angler Resorts in March, 2008. It has not done so,

although the Department appears to have begun the process. The

Department noticed development of rule amendments to Florida

Administrative Code Rule 12A-1.107(3), Notice of Development of

Rule Making, Florida Administrative Weekly , November 6, 2009,

Vol. 35, p. 44.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is Recommended that the Department of Revenue grant

Epic’s refund application and approve a sales tax refund for the

total amount of $10,000.

DONE AND ENTERED this 2nd day of August, 2010, in

Tallahassee, Leon County, Florida.

S

JOHN D. C. NEWTON, II

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 2nd day of August, 2010.

COPIES FURNISHED :

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Tallahassee, Florida 32314-6668

Carrol Y. Cherry, Esquire

Office of the Attorney General

Revenue Litigation Bureau

The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

Herb Friesner

Economic Development Consultants, Inc.

14361 Commerce Way, Suite 205

Miami Lakes, Florida 33016

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.