88-001628 Department Of Revenue vs. Nicholas Cozzo, D/B/A Nick's Deli Status: Closed Recommended Order on Thursday, July 14, 1988.

Summary: Repossession of personal property as collateral security for payment for sale of business constitues a sale on which tax is due.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NICHOLAS COZZO, )

d/b/a NICK'S DELI, )

)

Petitioner, )

)

vs. ) CASE NO. 88-1628

)

STATE OF FLORIDA, )

DEPARTMENT OF REVENUE AND )

OFFICE OF THE COMPTROLLER, )

)

Respondent. )

________________________________)

RECOMMENDED ORDER

By Amended Petition for Formal Hearing dated May 2, 1988, Nicholas Cozzo,

d/b/a Nick's Deli, Petitioner, seeks a refund of $1392.53 paid under protest to

the Department of Revenue, Respondent. Following motions for Recommended

Summary Final Orders, the parties submitted a STIPULATION OF FACTS and requested

the Hearing Officer submit a Recommended Order based upon the Stipulation and

arguments included in motions submitted by the parties. All facts listed below

are from the Stipulation. All exhibits noted in the Stipulation are forwarded

herewith as exhibits.

Subsequent to the submission of this Stipulation, Petitioner has forwarded

a copy of his check stated May 28, 1987 payable to the Department of Revenue in

the amount of $1392.53. (Exhibit K)

FINDINGS OF FACT

1. On October 14, 1985, Petitioner, Nicholas Cozzo, entered into a Stock

Purchase Agreement for the sale of sixty (60) shares of the issued and

outstanding capital stock of C & S Deli Sandwich and Fish, Inc., a Florida

corporation, (the Company) to Robert A. Krueger and Joe Ellen Krueger

(collectively, the Kruegers). As a result of the sale, Petitioner retained

ownership of no further stock of the Company. (Exhibit A)

2. On October 14, 1985, the Kruegers executed two (2) promissory notes in

the amounts of $53,000.00 and $5,000.00, respectively, to Petitioner and a

Security Agreement securing payment of the notes. (Composite Exhibit B and

Exhibit C)

3. On October 14, 1985, Petitioner tendered his resignation as Director,

President and Treasurer of the Company. (Exhibit D)

4. Petitioner's security interest to the furniture, furnishings, fixtures,

equipment and inventory of the Company (the "collateral") was duly perfected by

the filing of a Uniform Commercial Code Financing Statement with the Uniform

Commercial Code Bureau, Florida Department of State, on October 21, 1985.

(Exhibit E)

5. A Uniform Commercial Code Financing Statement was recorded by the

Petitioner in the Public Records of Pasco County, State of Florida, on October

15, 1985, in Official Records Book 1451, page 0493. (Exhibit F)

6. In early 1987, the Kruegers defaulted under the terms of the promissory

notes.

7. Prior to April 24, 1987, Petitioner repossessed the furniture,

furnishings, fixtures, equipment and inventory of the Company. No consideration

was paid by Petitioner to the Company or the Kruegers upon his repossession of

the foregoing described collateral. At no time did ownership of any of the

capital stock of the Company revert back to Petitioner.

8. On May 5, 1987, Petitioner by private sale disposed of the collateral

to Vincent Lopez and Glen Delavega. (Exhibits G, H, and I)

9. No surplus funds resulted from the sale of the repossessed collateral

by Petitioner to Vincent Lopez and Glen Delavega.

10. At no time material hereto did the Florida Department of Revenue issue

a tax warrant against the Company respecting any unpaid sales tax.

11. On or about May 6, 1987, Petitioner paid under protest to the

Respondent Department of Revenue the delinquent unpaid sales tax of the Company

in the amount of $1392.53. The Department is still attempting to verify that

amount at this date. The Petitioner maintains he paid the amount in order for

the Department to issue a sales tax certificate and number to Vincent Lopez and

Glen Delavega. The Department maintains its procedure at the time was to issue

a sales tax number to the new owners and then proceed against them under Section

212.10, Florida Statutes.

12. It is the position of the Respondent that the Petitioner's

repossession of the collateral constituted a sale within the purview of Section

212.10(1), Florida Statutes (1985), and Rule 12A-1.055, Florida Administrative

Code, which places tax liability on the successor of a business whose previous

owner has not satisfied outstanding sales tax obligations. Respondent further

notes that the case Petitioner relies on, General Motors Acceptance Corporation

v. Tom Norton Motor Corp., 366 So.2d 131 (Fla. 4th DCA 1979) was issued on

January 10, 1979, while Section 679.105(5), Florida Statutes, which upholds tax

laws when in conflict with security agreements, took effect January 1, 1980.

Petitioner on the other hand claims that a lawful repossession of collateral

under Florida's Uniform Commercial Code, Section 679.504, Florida Statutes

(1985), does not constitute a "sale" of a business making him liable for the

Company's unpaid sales tax. Petitioner continues to rely on GMAC, supra, and

notes that it was cited by American Bank v. Con's Cycle Center, 466 So.2d 255

(Fla. 5th DCA 1985).

13. A refund application was submitted by Petitioner to the Department of

Revenue on June 10, 1987. This application was denied by the Department of

Revenue by letter dated January 28, 1988. (Exhibit J)

CONCLUSIONS OF LAW

14. The Division of Administrative Hearings has jurisdiction over the

parties to, and the subject matter of, these proceedings.

15. Section 212.10(1), Florida Statutes, provides:

If any dealer liable for any tax, interest,

or penalty levied hereunder shall sell out

his business or stock of goods, he shall

make a final return and payment within 15

days after the date of selling the business;

his successor, successors, or assigns shall

withhold a sufficient portion of the purchase

money to safely cover the account of such

taxes, interest, or penalties due and unpaid

until such former owner shall produce a

receipt from the Department showing that they

have been paid or a certificate stating that

no taxes, interest, or penalty are due. If

the purchasers of a business or stock of

goods shall fail to withhold a sufficient

amount of the purchase money as above pro-

vided, he shall be personally liable for the

payment of the taxes, interest, or penalties

accruing and unpaid on account of the opera-

tion of the business by any former owner,

owners, or assigns.

16. Rule 12A-1.055, Florida Administrative Code, generally tracks Section

212.10(1).

17. The issue here presented is whether a "sale" of the business occurred

when Petitioner reacquired the assets of the business or whether no sale took

place and the sole issue is priority of liens between the tax lien and secured

chattel mortgage lien held by Petitioner on the assets of the business.

18. Respondent relies on Jacobs v. Kirk, 223 So.2d 795 (Fla. 4th DCA 1969)

to support its position that a sale occurred when Petitioner repossessed the

property. Jacobs involved the situation where the tenant owing sales taxes

abandoned the demised premises leaving the entire stock of goods, and the

landlord claimed title thereto pursuant to the terms of the lease. Further, in

Jacobs the tax lien was filed subsequent to the landlord taking title to the

goods left by the tenant. In holding this taking constituted a "sale", the

court stated at p. 798:

In this case the transfer of the personal

property to the landlord under the lease

provision was just as effective a "sale"

of the tenant's stock of goods as if the

tenant had negotiated a sale of the stock

of goods to a third person and thereafter

paid the proceeds over to the landlord.

We hold the transfer under the lease pro-

vision amounted to a sale of the tenant's

stock of goods within the contemplation

of FS, 1965, Section 212.10(1), FSA.

Neither the tenant (as seller) nor the

landlord (as purchaser) having complied

with the requirement of that section,

the landlord (as purchaser) became per-

sonally liable for the payment of the

taxes, interest and penalties which had

accrued during the former owner's opera-

tion of its business.

19. Here the only assets of the Company, the stock of which Petitioner

sold to Krueger, was the fixtures and equipment on which Petitioner held a

Security Agreement as collateral for the promissory notes Krueger executed to

consummate the purchase of the company. In Jacobs, supra, the tenant's assets

on which the landlord had a lien for rent due was the stock owned by the tenant

on the premises. If taking this stock by the landlord constituted a sale as

Jacobs holds, the repossession of the equipment and fixtures by Petitioner also

constitutes a sale.

20. Section 212.10(1), above quoted, requires the purchaser of a business

or stock of goods to withhold a sufficient amount of the purchase money to pay

sales taxes that have accrued to the business and be personally liable for such

payment if he fails to do so. Here the second purchasers (Lopez and Delavega)

purchased the company fixtures and equipment under warranty from Petitioner that

the equipment was clear of all liens, including tax liens. These purchasers,

pursuant to Section 212.10(1), could potentially have liability for the accrued

sales tax and call upon Petitioner to comply with his warranty and satisfy this

potential tax lien.

21. Petitioner contends that General Motors Acceptance Corporation v. Tom

Norton Motor Company, 366 So.2d 131 (Fla. 4th DCA 1979) holds that a security

interest perfected prior to the issuance of a tax lien taken priority over the

tax lien. That court cited Jacobs v. Kirk, supra, for that very position

leaving intact the holding in Jacobs that when all of the assets of the

taxpayers are taken, a sale occurs and the tax burden follows the assets.

22. In view of the holding that a sale occurred, it is unnecessary to

consider Respondent's position taken in its Amended Motion for Recommended

Summary Judgment that Petitioner does not qualify for refund pursuant to Section

215.26.

23. From the foregoing, it is concluded that when Petitioner repossessed

the assets of the company pursuant to the Security Agreement, a sale occurred

and the sales tax owed followed the assets. It is

RECOMMENDED that a Final Order be entered denying Petitioner's claim for

refund of $1392.53 sales tax paid under protest.

ENTERED this 14th day of July, 1988, in Tallahassee, Florida.

_________________________________

K. N. AYERS

Hearing Officer

Division of Administrative Hearings

The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 14th day of July, 1988.

COPIES FURNISHED:

Linda G. Miklowitz, Esquire

Assistant Attorney General

Department of Legal Affairs

Tax Section, The Capitol

Tallahassee, Florida 312399-1050

Jacob I. Reiber, Esquire

Post Office Box 7055

Wesley Chapel, Florida 34249

William D. Townsend

General Counsel

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399-0100

Randy Miller

Executive Director

Department of Revenue

102 Carlton Building

Tallahassee, Florida 32399-0100