12-002527 American Business Usa Corp. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, February 27, 2013.

Summary: Assessment of sales tax plus interest on sale of flowers, other tangible personal property, and prepaid calling arrangements is valid.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

)

AMERICAN BUSINESS USA CORP., )

)

Petitioner, )

) Case No. 12-2527

vs. )

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

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

on January 10, 2013, in Miami, Florida, before Administrative

Law Judge Claude B. Arrington of the Division of Administrative

Hearings (DOAH).

APPEARANCES

For Petitioner: Ayuban Antonio Tomas, Esquire

Law Office of A. Antonio Tomas, P.A.

Suite 303

815 Ponce De Leon Boulevard

Coral Gables, Florida 33134

For Respondent: Carrol Y. Cherry, Esquire

Office of the Attorney General

Revenue Litigation Bureau

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

Whether the Department of Revenue's (Department) assessment

of tax and interest against American Business USA Corp.

(Taxpayer) is valid and correct.

PRELIMINARY STATEMENT

Following an audit, the Department assessed against the

Taxpayer additional sales and use taxes in the sum of

$137,225.27, plus interest. No penalty is being sought. The

Taxpayer denied liability and requested a formal administrative

hearing to challenge the assessment. The matter was referred to

DOAH, and this proceeding followed.

Prior to the formal hearing, the parties filed a Joint Pre-

Hearing Stipulation that contained factual stipulations that are

incorporated in the Findings of Fact section of this Recommended

Order.

The Taxpayer asserts that it is not liable for the assessed

sales taxes because it is not a "florist" within the meaning of

Florida Administrative Code Rule 12A-1.047. The Taxpayer also

asserts that it relied on advice and instruction from the

Department when it failed to collect sales tax on prepaid

calling arrangements, and should not be subject to any taxes or

penalties as a result of its reasonable reliance.

At the formal hearing, Mauricio Gomez and Blanca Niño, the

owners of the Taxpayer, testified on behalf of the Taxpayer.

The Taxpayer offered no exhibits. The Department presented no

witnesses, but offered 16 exhibits, each of which was admitted

into evidence.

No transcript has been filed. Each party timely filed a

Proposed Recommended Order, which has been duly considered by

the undersigned in the preparation of this Recommended Order.

Unless otherwise noted, all statutory references are to

Florida Statutes (2012). There has been no change to the

statutes cited in this Recommended Order at any time relevant to

this proceeding.

FINDINGS OF FACT

1. The Department is the agency responsible for

administering the revenue laws of the state of Florida,

including the imposition and collection of the state's sales and

use taxes pursuant to chapter 212, Florida Statutes.

2. The Taxpayer is an active for-profit corporation with

its principal address and mailing address at 12805 Newton Place,

Wellington, Florida 33414-6226.

3. The Taxpayer is a "dealer" as that term is defined by

section 212.06(2). The Taxpayer has a federal employer

identification number and a certificate of registration number. 1 /

4. The Taxpayer began doing business in Florida in

January 2001, but did not register with the Department as a

sales tax dealer until February 19, 2004. The Taxpayer does

business as "1Vende.com."

5. The Department audited the Taxpayer for sales and use

tax compliance. The audit period was April 1, 2008, through

March 31, 2011.

FACTS RELATED TO THE AUDIT PERIOD

6. Mr. Gomez and Ms. Niño, who are husband and wife, each

hold 50 percent of the shares in the Taxpayer.

7. There were two principal aspects of the Taxpayer's

business during the audit period. First, the Taxpayer

specialized in the sale of flowers, gift baskets, and other

items of tangible personal property. Second, the Taxpayer

specialized in the sale of "prepaid calling arrangements,"

within the meaning of section 212.05(1)(l).

8. All of the Taxpayer's sales were initiated online.

9. The Taxpayer sold to customers throughout Latin

America, in Spain, and in the United States (including Florida).

10. All payments to the Taxpayer were made by credit card

or wire transfer.

11. The Taxpayer generated electronic invoices for all its

sales.

12. The Taxpayer marketed itself to the public on its

website as a company that sells flowers.

13. The Taxpayer did not maintain any inventory of

flowers, gift baskets, or other items of tangible personal

property.

14. When the Taxpayer received an order over the Internet

for items of tangible personal property, the Taxpayer relayed

the order to a florist in the vicinity of the customer (the

local florist). The Taxpayer utilized the Internet or telephone

to relay an order. The Taxpayer did not use telegraph. The

Taxpayer used a local florist to fill the order it had received

for flowers, gift baskets, and other items of tangible personal

property.

15. The Taxpayer charged its customers sales tax on sales

of flowers, gift baskets, and other items of tangible personal

property delivered in Florida.

16. The Taxpayer did not charge its customers sales tax on

sales of flowers, gift baskets, and other items of tangible

personal property delivered outside of Florida.

17. The Taxpayer did not charge sales tax on the delivery

fee it charged its customers on orders of flowers, gift baskets,

and other items of tangible personal property.

18. The Taxpayer primarily sold prepaid calling

arrangements in $2.00, $5.00, $10.00, and $20.00 increments.

19. When customers purchased prepaid calling arrangements,

the Taxpayer sent them an authorization number by email.

20. The Taxpayer did not charge its customers sales tax on

the prepaid calling arrangements it sold.

THE AUDIT

21. The Taxpayer filed its federal tax returns on an

accrual basis with the fiscal year ending December 31.

22. The taxpayer's accountant recorded sales on the

federal tax returns (form IRS 1120) based on the deposits

recorded on the bank statements.

23. Mr. Gomez prepared the Florida sales and use tax

returns (form DR-15) for the Taxpayer and calculated the tax due

by multiplying its taxable sales by the applicable tax rate.

24. On May 9, 2011, the Department mailed the Taxpayer a

Notice of Intent to Audit Books and Records, form DR-840, for

audit 200105422.

25. The Department requested Mr. Gomez provide for audit

the Taxpayer's chart of accounts, general ledgers, cash receipt

journals, sales journals, resale certificates, general journals,

federal tax returns, state sales tax returns, shipping

documents, and bank statements.

26. Along with the DR-840, the Department mailed the

Taxpayer a Pre-audit Questionnaire and Request for Information

and Electronic Audit Survey.

27. On May 23, 2011, the Taxpayer returned to the

Department the completed Pre-audit Questionnaire and Request for

Information and Electronic Audit Survey.

28. On June 15, 2011, the Department's auditor and

Mr. Gomez had a pre-audit interview, in which they discussed

auditing techniques and records available for audit.

29. Mr. Gomez provided for audit a download of the

Taxpayer's electronic records, including its sales database,

bank statements, and federal tax returns.

30. The Taxpayer did not keep for audit books and records

that would allow the Department to reconcile the sales in the

electronic database to the deposits on the bank statement.

31. The Department determined that the Taxpayer's books

and records were inadequate for audit and relied upon the "best

information then available" of the Taxpayers' sales tax

liability, in accordance with section 212.12(5)(b). The

Taxpayer did not maintain sales invoices, sales journals, or

general ledgers.

32. On August 8, 2011, the Department's auditor met with

Mr. Gomez and discussed the audit findings regarding sales.

33. On August 18, 2011, the Department's auditor met with

Mr. Gomez and discussed the taxability of the prepaid calling

arrangements.

34. On October 31, 2011, the Department mailed the

Taxpayer a Notice of Intent to Make Audit Changes, form DR-1215,

for audit number 200105422.

35. Prior to issuing the DR-1215, the Department

compromised in full the assessed penalty.

36. On February 16, 2012, the Department mailed the

Taxpayer a Notice of Proposed Assessment for audit number

200105422. The Department assessed the Taxpayer $102,508.28 in

sales tax and interest through February 16, 2012, in the amount

of $18,097.52. Interest accrues at $19.62 per day until the tax

is paid in full. 2 /

ESTOPPEL

37. In its Amended Petition, the Taxpayer asserts that it

"relied on advice and instruction from [the Department] when it

failed to collect Telecommunication tax and should not be

subject to any taxes or penalties as a result of their [sic]

reasonable reliance."

38. Mr. Gomez and Ms. Niño made three visits to the

Department's service centers, but only one of those three visits

pre-dated the audit period. The other two visits were after the

audit period.

39. In February 2001 they visited the service center in

Miami, Florida, where they talked to someone named "Maria" about

the taxability of their new business.

40. Both Mr. Gomez and Ms. Niño testified that as a result

of the first visit with "Maria" in 2001, the Taxpayer only

charged customers sales tax on the sales of flowers, gift

baskets, and other items of tangible personal property delivered

in Florida. The owners testified that they relied on advice

given to them by "Maria."

41. "Maria" did not testify at the formal hearing. There

was no written confirmation of the advice given by "Maria."

42. After the audit period while the audit was ongoing

(between August 8 and August 18, 2011) they visited the service

center in Coral Springs, Florida, where they spoke to someone

named "Paula" about the ongoing audit.

43. The third and final visit was on August 18, 2011, when

they met with Everald Thomas at the service center in West Palm

Beach. Mr. Thomas was the Department's auditor in this case.

The owners talked to him about the taxability of the prepaid

calling arrangements.

44. The Taxpayer timely filed its Amended Petition for

Administrative Hearing. The Taxpayer continues to dispute the

assessment.

CONCLUSIONS OF LAW

45. DOAH has jurisdiction over the subject matter of and

the parties to this proceeding pursuant to sections 120.569,

120.57(1), and 212.18, Florida Statutes.

46. Section 212.06(2) defines the term "dealer." There is

no dispute that the Taxpayer is a dealer within the meaning of

that definition.

47. The Department is authorized to prescribe the books

and records to be kept by all dealers that are subject to sales

and use tax. § 212.12(6)(a), Fla. Stat. The Department is

authorized to audit or inspect the books and records of dealers

and, if a deficiency exists, to make an assessment and collect

it. § 212.12(5)(a), Fla. Stat.

48. Pursuant to section 212.12(5)(b), if a dealer fails or

refuses to make its records available for inspection so that no

audit or examination has been made of the books and records, the

Department has the affirmative duty to make an assessment of

taxes due from an estimate based on the best information then

available to it for the audit period, together with interest,

plus penalty. The Department must collect such tax, interest,

and penalty on the basis of such assessment, which shall be

considered prima facie correct, and the burden to show the

contrary rests upon the dealer.

49. The Department bears the initial burden to demonstrate

that the assessment has been made against the Taxpayer, and the

factual and legal grounds upon which the Department made the

assessment. The Department met that burden in this proceeding.

The burden shifted to the Taxpayer to demonstrate by a

preponderance of the evidence that the assessment is incorrect.

See IPC Sports, Inc. v. Dep't of Revenue , 829 So. 2d 330, 332

(Fla. 3d DCA 2002). The Taxpayer did not meet that burden.

50. Section 120.80(14)(b)2. pertains to taxpayer

challenges to assessments made by the Department, and provides

as follows:

2. In any such administrative proceeding,

the applicable 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.

51. The Florida sales tax is an excise tax on the

privilege of engaging in business in the state. The sales tax

is not a tax on the property sold. §§ 212.05 and 212.06, Fla.

Stat.

52. It is the legislative intent that every person is

exercising a taxable privilege who engages in the business of

selling items of tangible personal property at retail in this

state. § 212.05, Fla. Stat. Florida Administrative Code Rule

12A-1.038(1) is clear that each sale is taxable unless such sale

is specifically exempt.

53. A tax, at the rate of six percent of the sales price

of each item of tangible personal property is levied on each

taxable transaction when sold at retail in this state, computed

on each taxable sale for the purpose of remitting the amount of

tax due the state. § 212.05(1)(a)1.a., Fla. Stat.

54. Section 212.02 provides the following definitions:

15) "Sale" means and includes:

(a) Any transfer of title or possession, or

both, exchange, barter, license, lease, or

rental, conditional or otherwise, in any

manner or by any means whatsoever, of

tangible personal property for a

consideration. . . .

(16) "Sales price" means the total amount

paid for tangible personal property,

including any services that are a part of

the sale, valued in money, whether paid in

money or otherwise, and includes any amount

for which credit is given to the purchaser

by the seller, without any deduction

therefrom on account of the cost of the

property sold, the cost of materials used,

labor or service cost, interest charged,

losses, or any other expense whatsoever.

* * *

(19) "Tangible personal property" means and

includes personal property which may be

seen, weighed, measured, or touched or is in

any manner perceptible to the senses . . . .

55. Section 212.05(1)(l) pertains to florists in Florida

and provides as follows:

(l) Florists located in this state are

liable for sales tax on sales to retail

customers regardless of where or by whom the

items sold are to be delivered. Florists

located in this state are not liable for

sales tax on payments received from other

florists for items delivered to customers in

this state.

56. Florida Administrative Code Rule 12A-1.047(1) and (2)

pertain to florists in Florida and provide, in relevant part, as

follows:

(1) Florists are engaged in the business of

selling tangible personal property at retail

and their sales of flowers, wreaths,

bouquets, potted plants and other such items

of tangible personal property are taxable.

(2) Where florists conduct transactions

through a florists' telegraphic delivery

association, the following rules will apply

in the computation of the tax, which will be

on the entire amount paid by the customer

without any deductions whatsoever:

(a) On all orders taken by a Florida

florist and telegraphed to a second florist

in Florida for delivery in the state, the

sending florist is held liable for the tax.

(b) In cases where a Florida florist

receives an order pursuant to which he gives

telegraphic instructions to a second florist

located outside Florida for delivery of

flowers to a point outside Florida, tax will

likewise be owing with respect to the total

receipts of the sending florist from the

customer who places the order.

(c) In cases where Florida florists receive

telegraphic instructions from other florists

located either within or outside of Florida

for delivery of flowers, the receiving

florist will not be held liable for tax with

respect to any receipts which he may realize

from the transaction. In this instance, if

the order originated in Florida, the tax

will be due from and payable by the Florida

florist who first received the order and

gave telegraphic instructions to the second

florist.

57. The Taxpayer asserts that it is not a florist within

the meaning of section 212.05(1)(l) or rule 12A-1.047 because of

the manner in which it fills the orders it receives. That

assertion is rejected. The Taxpayer stipulated that it

specializes in selling flowers and markets itself to the public

as a company that sells flowers.

58. The Department construes the Taxpayer's activity to be

that of a florist. Since the collection of sales and use tax

from florists is based on statutes for whose administration the

Department is responsible, the Department's interpretation of

the statute and validly adopted rules related to the statute

will not be disturbed unless the interpretation is clearly

erroneous. See State Contracting and Eng'g Corp. v. Dep't of

Transp. , 709 So. 2d 607, 610 (Fla. 1st DCA 1988). From the

general principle of deference follows the more specific

principle that an agency's interpretation need not be the sole

interpretation or even the most desirable one; it need only be

within the range of permissible interpretations. See State Bd.

of Optometry v. Fla. Soc. of Ophthalmology , 538 So. 2d 878, 885

(Fla. 1st DCA 1988) and Suddath Van Lines, Inc. v. Dep't of

Envtl. Prot. , 668 So. 2d 209, 212 (Fla. 1st DCA 1996).

59. The Taxpayer's sale of flowers, wreaths, bouquets,

potted plants, and other such items of tangible personal

property were subject to sales tax pursuant to section

212.05.(1)(l) and rule 12A-1.047(1).

60. The undersigned rejects the Taxpayer's argument that

rule 12A-1.047 does not apply to it because the Taxpayer does

not communicate using the telegraph. It is apparent that the

rule is illustrative, and was meant to apply to florists who

communicate via telephone and Internet.

This conclusion is even more compelling in light of the very

clear language of section 212.05(1)(l).

61. Florida also imposes sales tax at the rate of six

percent on charges for prepaid calling arrangements pursuant to

section 212.05(1)(e)1., which requires that the tax on charges

for prepaid calling arrangements be collected at the time of the

sale and remitted to the Department by the selling dealer. The

term "prepaid calling arrangements" is defined by section

212.05(1)(e)1.a.(I) as follows:

(I) "Prepaid calling arrangement" means the

separately stated retail sale by advance

payment of communications services that

consist exclusively of telephone calls

originated by using an access number,

authorization code, or other means that may

be manually, electronically, or otherwise

entered and that are sold in predetermined

units or dollars whose number declines with

use in a known amount.

62. The taxpayer stipulated that it specialized in the

sale of prepaid calling arrangements within the meaning of the

statutory definition and that it did not collect or remit sales

taxes on those sales.

63. Section 212.054 authorizes Florida counties to impose

a discretionary surtax on sales. In addition to the sales tax

at the rate of six percent, the Taxpayer was also required to

collect and remit any applicable surtax, and it was appropriate

for the auditor to factor in surtaxes in calculating the

assessment.

64. The undersigned rejects the Taxpayer's contention that

the doctrine of equitable estoppels prevents the Department from

making the subject assessment. The court in Dep't of Revenue v.

Anderson , 403 So. 2d 397, 400 (Fla. 1981), made the following

observations as to the doctrine of equitable estoppels.

As a general rule, equitable estoppel will

be applied against the state only in rare

instances and under exceptional

circumstances. . . . Another general rule is

that the state cannot be estopped through

mistaken statements of the law. . . . In

order to demonstrate estoppel, the following

elements must be shown: 1) a representation

as to a material fact that is contrary to a

later-asserted position; 2) reliance on that

representation; and 3) a change in position

detrimental to the party claiming estoppel,

caused by the representation and reliance

thereon. . . .

[Citations omitted.]

65. The elements necessary to constitute equitable

estoppel have not been established in this proceeding.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

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

final order that validates the assessment against American

Business USA Corp.

DONE AND ENTERED this 27th day of February, 2013, in

Tallahassee, Leon County, Florida.

CLAUDE B. ARRINGTON

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 27th day of February, 2013.

ENDNOTES

1/ Those numbers were set forth in paragraph 4 of the Joint Pre-

Hearing Stipulation.

2/ The Taxpayer asserts that it is not liable for sales taxes on

the grounds discussed in this Recommended Order. The Taxpayer

has not attacked the auditor's calculations of the sales taxes

and interest due.

COPIES FURNISHED :

Ayuban Antonio Tomas, Esquire

Law Office of A. Antonio Tomas, P.A.

Suite 303

815 Ponce De Leon Boulevard

Coral Gables, Florida 33134

Nancy Terrel, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314-6668

Carrol Y. Cherry, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Revenue Litigation Bureau

Tallahassee, Florida 32399

Marshall Stranburg, Executive Director

Department of Revenue

Post Office Box 6668

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.

12-2527ro