14-003133 Salma Petroleum, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Friday, January 9, 2015.

Summary: Because Petitioners failed to provide books and records in response to an audit, the Department made an estimate based upon the best information available. Department's assessment of sales tax, penalty, and interest should be imposed.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SALMA PETROLEUM, INC. ,

Petitioner,

vs. Case No. 14 - 3133

DEPARTMENT OF REVENUE,

Respondent.

_______________________________/

GAUSIA PETROLEUM, INC.,

Petitioner,

vs. Case No. 14 - 3134

DEPARTME NT OF REVENUE,

Respondent.

_______________________________/

RECOMMENDED ORDER

Pursuant to notice, a formal administrative hearing was

conducted before Administrative Law Judge Mary Li Creasy by video

teleconference at sites in Tallahassee and Lauderdale Lakes,

Florida, on October 29, 2014.

APPEARANCES

For Petitioner s : Zersis Minocher , pro se

12217 Northwest 35th Street

Coral Springs, Florida 33065

For Respondent: Carrol Y. Cherry, Esqu ire

Office of the Attorney General

P laza L evel 01, The Capitol

Revenue Litigation Bureau

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUE

Whether Petitioners are liable for sale s and use tax,

penalt y, and interest as assessed by the Department of R evenue

( the Department) ?

PRELIMINARY STATEMENT

These are consolidated cases involving the Department and

audit assessments against two corporate taxpayers: Salma

Petroleum, Inc. (Audit Number 200149872) (Salma), and Gausia

Petroleum, Inc. (Audit Number 200149749) (Gausia). These cases

were consolidated at hearing due to common witnesses, common

exhibits (except for the figures) , and similar testimony of the

management of both taxpayers .

On March 6, 2014, t he Department issued Petitioners each a

Notice of Proposed Assessment (NOPA) assessing Salma additional

sales and use tax in the sum of $159,282.26, plus penalty , and

interest. The Department assessed Gausia additional sales and

use t ax in the sum of $213,754.46, plus penalty , and interest.

Petitioners denied liability and requested formal hearings to

contest the assessments.

The Department referred the cases to the Division of

Administrative Hearings on July 9, 2014, and the matters were

assigned to Administrative Law Judge D. R. Alexander. The final

hearing s were originally scheduled for October 14, 2014.

Respondent ' s a mended m otions for c ontinuance were granted on

August 1 3 , 2014, and the final hearings were re - scheduled for

Octob er 29, 2014. The case s w ere transferred to the undersigned

on October 17, 2014, and proceeded to final hearing as scheduled

on October 29, 2014, at which time the cases were consolidated.

Petitioners called Arif Ahmed, manager of both entities , and

submit ted no exhibits. 1/ Respondent called two witnesses: Ron

Collier, Tax Audit Supervisor, and Richard Lawhon, Senior Tax

Specialist with Compliance Campaigns. Respondent ' s Exhibits 1

through 8 pertaining to Salma, and Exhibits 1 through 8

pertaining to Gau sia, were admitted.

Neither party ordered a transcript of the final hearing.

Both parties timely submitted p roposed r ecommended o rders which

were considered in the drafting of this Recommended Order.

Unless otherwise noted, all statutory references are to

Florida Statutes (2013).

FINDING S OF FACT

1. Salma is a Florida corporation with its principal place

of business at 2231 Del Prado Boulevard, Cape Coral, Florida ,

33990. Gausia is a Florida corporation with its principal place

of business at 11571 Gladi olus Drive, Fort Myers, Florida , 3390 8 .

2. Petitioners are in the business of operating gas

stations with convenience stores.

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

is authorized to administer the tax laws of the State of Florida.

4 . Petitioners were selected for audit because their

reported gross sales were less than the total cost of items

purchased (inventory) for the audit period.

5. The Department issued Salma and Gausia each a Notice of

Intent to Conduct a Limited Scope Audit or Se lf - Audit , dated

April 26, 2013, for sales and use tax, for the period February 1,

2010, through January 31, 2013 (collectively referred to as the

Notices).

6. The Notices requested that Petitioners provide the

Department: (a) a list of all their ve ndors for alcohol,

tobacco, soda, chips, candy, etc.; (b) their total purchases

of alcohol and tobacco, by vendor, for the period July 2010 to

June 2011; (c) copies of their federal tax returns for the

examination period; (d) purchase receipts for all purc hases

for the last complete calendar month; and (e) daily register

(Z tapes) for the last complete calendar month.

7. The Notices gave Petitioners 60 days to gather the

requested documents before the audit was to commence. The

Notices also requested that Petitioners complete an attached

Questionnaire and Self Analysis Worksheet.

8. In response to the Notices, Petitioners requested a 30 -

day extension of time until July 18, 2013, to provide the

requested documents and to designate a Power of Attorney.

9. Petitioners did not provide the Department any books and

records for inspection, nor did they complete and return the

q uestionnaire and s elf a nalysis w orksheets. As a result, the

Department ' s auditor determined the sales tax due based upon the

best infor mation available.

10. To calculate an estimated assessment of sales tax, the

Department used the purchase data of Petitioners ' wholesalers and

distributors of alcoholic beverages and tobacco, for July 1,

2010 , through June 30, 2011; the 2010 National Ass ociation of

Convenience Stores average markups and in - store sales percentages

of alcoholic beverage and tobacco products; and historical audit

data.

11. After reviewing the purchase data for July 1, 2010 ,

through June 30, 2011, and for July 1, 2011 , throu gh June 30,

2012, the Department ' s auditor determined that the data was

missing a few vendors.

12 . As a result, the Department ' s auditor estimated the

amount of Petitioners ' cigarette purchases, based on historical

audit data that shows that cigarette s ales are generally

4.31 times more than beer sales.

13 . The Department ' s auditor and audit supervisor testified

that the estimated gross sales seemed reasonable and consistent

with the national averages and the purchase data for July 1,

2011 , through Jun e 30, 2012.

14 . The Department estimated gross sales (i.e., the retail

sale value of the goods sold) by marking up the taxable sales and

exempt sales reported on the sales and use tax returns submitted

to the Department by Petitioners .

15 . For example, for July 1, 2010 , through June 30, 2011,

Salma purchased beer from its wholesalers and distributors for

$148,826.15, and the Department marked up the purchase price by

27 percent for a retail value of $189,009.21.

16. For July 1, 2010 , through June 30, 20 11, Gausia

purchased beer from its wholesalers and distributors for

$132,138.65, and the Department marked up the purchase price by

27 percent for a retail value of $167,816.09.

17 . The Department ' s markup on the alcoholic beverage and

tobacco products i s reasonable because the Department ' s auditor

testified that he used a combination of 2010 National Association

of Convenience Stores average markups and the competitive pricing

and information from audits of other convenience stores.

1 8 . The Department d etermined that the exemption ratio

reported on the sales and use tax returns submitted to the

Department by Petitioners was extremely high for their industry.

19 . The Department used an exemption ratio of 15 percent,

based on historical audit data for th e industry, to calculate

Petitioner s ' estimated taxable sales.

20 . A review of Petitioners ' sales and use tax returns

revealed that they did not apply the tax bracket system to their

taxable sales transactions, as required under sections 212.12(9)

and (10 ), Florida Statutes.

2 1. Instead, Petitioners remitted sales tax on their

taxable sales based on their gross receipts at a flat tax rate.

The Department ' s auditor testified that this method of reporting

tax is inappropriate and does not accurately reflec t the sales

activity of the business.

22 . The Department calculated the average effective tax

rate of 6.0856 percent, based on historical aud it data for the

industry.

23. To calculate the estimated tax due, the Department

multiplied the effective tax ra te by the estimated taxable sales

and gave Petitioners credit for any tax remitted with their tax

returns.

24 . The Department issued Salma a Notice of Intent to M ake

Audit Changes , dated August 8, 201 3, for audit number 200149872.

The Department issue d Gausia a Notice of Intent to Make Audit

Changes, dated August 8, 2013, for audit number 200149749.

25 . The Department assessed Petit i oners sales tax on their

sales of alcoholic beverages and tobacco.

26 . The Notice of Intent to Make Audit Changes gave

Petitioners 30 days to request a conference with the auditor or

audit supervisor, to dispute the proposed changes. Petitioners

did not make such a request.

2 7 . The Department issued a Notice of Pro posed Assessment

(NOPA) to Salma on March 6, 2014, for tax in the sum of

$159,282.26 ; for penalty in the sum of $39,820.57 ; and interest

as of March 6, 2013, in the sum of $27,772.36.

28. The Department issued a NOPA to Gausia on March 6,

2014, for tax in the sum of $213,754.46 ; for penalty in the sum

of $53, 438.62 ; and interest as of March 6, 2013, in the sum of

$36,921.79.

29. Additional interest accrues at $30.55 per day until t he

tax is paid.

30. The NOPAs became final assessment s on May 5, 2014.

31 . After filing a request for an administrative hearing ,

Petitioners completed the Questionnaire and Self Analysis

Worksheet and produced the following documents to the Department :

(a) a list of all of their vendors for alcohol, tobacco, soda,

chips, candy, etc.; (b) a list of vendors for alcohol and

tobacco, for the examination period of July 2010 to June 2011;

(c) a summary of their taxable sales, for the period

February 2010 through December 2012; (d) copies of their

federal tax returns, for the tax years 2010 through 2013;

(e) copies of its purchase receipt s for the months of July 2013;

and (f) copies of their daily register (Z - tapes) for the month of

July 2013.

3 2 . The Department ' s auditor testified that aside from

being untimely, the records and information provided by

Petitioners d uring these proceeding s w ere not reliable because

Petitioners did not provide any source documents that would allow

the Department to reconcile the reported figures and confirm the

supplied information. In addition, the purchase receipts and Z -

tapes were not rel evant because th ey were from outside of the

audit period.

33 . The Z - tapes are also unreliable because the manager of

the convenience store testified at the final hearing that

employees purposely and routinely entered taxable sales into the

cash registers as tax exempt sales.

34. Petitioners argue that the Department did not use the

best information available when estimating the taxes due.

Petitioners claim that because their businesses are combination

gas station/convenience stores, the national data for standalone

co nvenience stores is inapplicable. However, notably absent from

Petitioners ' testimon y or evidence was any alternative data upon

which the Department could have relied for more accurate

estimates. 2/

CONCLUSIONS OF LAW

Jurisdiction

35 . The Division o f Administrative Hearings has

jurisdiction over the subject matter and parties to this

proceeding. § 120.57(1), Fla. Stat. (2014) .

Sales and Use Tax Audits

36 . The Department is authorized to conduct audits,

relating to sales and use tax imposed under ch apter 212, Florida

Statutes, of a dealer and to request information to ascertain t he

dealer ' s liability, if any. § 212.13, Fla. Stat.

37 . The term " dealer " is defined as any person who leases

or rents tangible personal property for a consideration,

perm itting the use or possession of such property without

transferring title to the property. § 212.06(2)(e), Fla. Stat.

38 . The Department is authorized to prescribe the books and

records to be maintained by all dealers that are subject to sales

and use t ax. § 212.12(6)(a), Fla. Stat. Further, 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.

39 . Dealers are required to keep su itable books and records

relating to sales tax and to preserve those books and records.

§§ 212.12(6)(a), 212.13, and 213.35, Fla. Stat.

40 . For conducting an audit, only records and information

available when the audit commences are deemed acceptable.

§ 212.13(5), Fla. Stat.

41 . 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 from an estimate based upon the best

information then available to it for the taxable period of retail

sales, together with interest, plus penalty. § 212.12(5)(b),

Fla. Stat. The Department must collect such taxes, interest, and

penalty on the basis of such assessment w hich shall be considered

prima facie correct, and the burden to show the contrary rests

upon the dealer. Id.

Respective Burdens

42 . Florida tax law creates the presumption of correctness

of the Department ' s assessment of tax, penalty , and interest.

§ 212.12(5)(b), Fla. Stat.

43 . The Department has the initial burden to show that it

made an assessment against Petitioner and that the assessment was

valid and correct. IPC Sports, Inc. v. State, Dep ' t of Rev . , 829

So. 2d 330, 332 (Fla. 3d DCA 2002); D ep ' t of Rev . v. Nu - Life

Health & Fitness Ctr . , 623 So. 2d 747, 751 - 52 (Fla. 1st DCA

1992); § 120.80(14)(b)2., Fla. Stat. Once the Department has met

this burden, the burden shifts to Petitioner to prove by a

preponderance of the evidence that the assessme nt is incorrect.

Id. ; § 120.57(1)(j), Fla. Stat.

Florida Sales and Use Tax

44 . The Florida sales and use tax is an excise tax on the

privilege of engaging in business in the state, not a tax on the

property sold. §§ 212.05 & 212.06, Fla. Stat.

45 . The tax imposed by the Florida sales and use tax law

generally include s sales and use, admissions, transient rentals

and commercial rentals taxes. §§ 212.05 & 212.06, Fla. Stat.

46 . The Florida sales tax and use tax are separate, but

complementary taxes, al though they are often referred to as one

tax. U.S. Gypsum v. Green , 110 So. 2d 409 (Fla. 1958).

47 . It is the legislative intent that every person is

exercising a taxable privilege who engages in the business of

selling items of tangible personal propert y at retail in this

state. § 212.05, Fla. Stat., and Fla. Admin. Code R . 12A -

1.038(1).

48 . A tax, at the rate of six (6) percent of the sales

price of each item of tangible personal property is levied on

each taxable transaction when sold at retail in th is state,

computed on each taxable sale for the purpose of remitting the

amount of tax due the state, and including each and every retail

sale. § 212.05(1)(a)1.a . , Fla. Stat.

49 . The Department made a prima facie showing of the

validity of the respective assessments of sales tax, penalty , and

interest against Petitioners. Petitioners have not presented any

credible evidence to refute the methodology used by the

Department in the performance of its audit.

50 . In order to set aside the findings of the au dit,

Petitioners should have kept records that would have accurately

identified the inventory and sales made at the gas

stations/ convenience store s . Petitioners kept no records to

support their claim. The conclusions reached by the Department

regarding t he taxable sales, exempt sales, presumption of markup

percentages, and tax rate are deemed reasonable.

51 . Further, without information to show that Petitioners

paid the statutory amount of sales tax on all their taxable

sales, the Department had the du ty to make an estimated

assessment that included estimated taxable sales and average

effective tax rate.

52 . Petitioners had the duty to maintain records and make

them available to the Department for audit. Petitioners may not

now argue that their untim ely produced, incomplete, and non -

responsive records contradict the audit results.

53 . P etitioners failed to overcome the presumption of

correctness of the assessment by a preponderance of the evidence.

Accordingly, the assessments are valid and correct.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

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

final order denying Petitioners ' requests for relief and

assessing, in full, t he Department ' s assessments of sales tax ,

penalty , and interest against both Salma and Gausia .

DONE AND ENTERED this 9th day of January , 2015 , in

Tallahassee, Leon County, Florida.

S

MARY LI CREASY

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee P arkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 9th day of January , 2015 .

ENDNOTE S

1/ Ahmed testified that he is the husband of the owner of both

Gausia and Salma as well as the manager of the two

establishments.

2/ Gausia also argued that the assessed tax is completely

disproportionate to the inventory it carries a nd to the value of

its business based upon the current listing of the business for

sale. This testimony was not corroborated by admissible

documents and was not persuasive. Gausia attached its business

for sale listing and a monthly average balance sheet to its

Proposed Recommended Order. However, these documents wer e not

considered because they were not identified as exhibits prior to

the hearing , or admitted at the hearing.

COPIES FURNISHED:

Carrol Y. Cherry, Esquire

Office of the Attorney General

P laza L evel 01, The Capitol

Revenue Litigation Bureau

Tallahassee, Florida 32399 - 1050

(eServed)

Zersis Minocher

12217 Northwest 35th Street

Coral Springs, Florida 33065

Nancy L. Staff, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

Marshall Stranburg, Executive Director

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

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 exc eptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.