92-001766 Blackshears Ii Aluminum, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Tuesday, May 4, 1993.

Summary: Dealer who collects taxes on nontaxable transactions has duty to remit those funds to the state.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BLACKSHEARS II ALUMINUM,  )

INC., )

)

Petitioner, )

)

vs. ) CASE NO. 92-1766

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

____________________________)

RECOMMENDED ORDER

The above matter came before the undersigned on June 4, 1992, on the

parties' motions for partial summary adjudication. The parties were represented

at hearing as follows:

APPEARANCES

For Petitioner: Harold F. X. Purnell, Esquire

315 South Calhoun Street

Suite 500

Tallahassee, FL 32301

For Respondent: Joseph P. Mellichamp, III, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, FL 32399-1050

STATEMENT OF THE ISSUES

The issue is whether petitioner, a sales tax dealer, must pay taxes,

interest and penalties for collecting sales taxes on certain nontaxable

transactions and then failing to remit those funds to respondent.

PRELIMINARY STATEMENT

This matter began on January 7, 1992, when respondent, Department of

Revenue (DOR), issued its notice of reconsideration advising petitioner,

Blackshears II Aluminum, Inc., that a revised tax assessment was being issued

against petitioner in the amount of $623,131.69. Although the notice addressed

five issues, the only relevant issue here is respondent's determination that

petitioner had collected sales taxes on certain nontaxable transactions and,

absent evidence of refund assignments, petitioner was obligated to remit those

funds to the state. On March 6, 1992, petitioner filed a petition for formal

administrative hearing to contest the agency decision. In brief, petitioner

contended that respondent had assessed taxes, interest and penalties in excess

of its statutory authority. The matter was referred by respondent to the

Division of Administrative Hearings on March 19, 1992, with a request that a

Hearing Officer be assigned to conduct a hearing. By notice of hearing dated

June 2, 1992, a final hearing was scheduled on June 25 and 26, 1992, in Crystal

River, Florida. Prior to the hearing, each party filed a motion for partial

summary adjudication on the issue described above. Argument on the motions was

heard on June 4, 1992, in Tallahassee, Florida. During the motion hearing, the

parties agreed to continue the final hearing and have the matter abated while

they attempted to settle the other four issues. On April 6, 1993, the parties

filed a joint stipulation acknowledging that all factual issues had been

resolved and that only one legal issue remained for determination. They agreed

further that the undersigned could retain jurisdiction in this matter for the

purpose of entering a Recommended Order on that issue. Accordingly, this

Recommended Order deals with that issue and is the subject of the two pending

motions.

FINDINGS OF FACT

Based upon all of the evidence, including the pleadings, filings, and

stipulation of counsel, the following findings of fact are determined:

1. On an undisclosed date, respondent, Department of Revenue (DOR),

conducted an audit of petitioner, Blackshears II Aluminum, Inc. (Blackshears), a

registered sales tax dealer located in Crystal River, Florida. The audit

covered the period from June 1, 1985, through March 31, 1989. As a result of

that audit, on December 27, 1989, DOR issued a notice of intent to make sales

and use tax audit charges. After petitioner availed itself of various informal

procedures, a notice of reconsideration (notice) was issued on January 7, 1992,

imposing a final assessment of $623,131.69. This action prompted Blackshears to

initiate this proceeding.

2. Although the notice addressed five issues, only issue three is relevant

to this proceeding. That issue is broadly defined in the notice as "whether

taxes collected on nontaxable transactions are state funds." According to the

notice, the issue should be answered in the affirmative because

(e)very dealer in the State of Florida is an

agent for the state in that it is their

responsibility to collect and remit sales tax.

Blackshears collected the funds in the name of

the State of Florida and has presented no

refund assignments from the purchasers to

permit them to apply for refunds, therefore,

the State of Florida is due the funds. If the

Department were to permit the use of its name

to unjustly enrich Blackshears, a continuing

deception would occur.

3. The parties agree that petitioner collected sales taxes on various

transactions (real property contracts) during the audit period. Whether such

transactions were subject to the sales tax is in dispute, but for purposes of

resolving the issue presented here, the parties have agreed that the undersigned

can assume that the transactions were nontaxable. It is further agreed that

even though petitioner collected the taxes from its customers, it failed to

remit them to the state, and it has likewise failed to furnish proof that it

refunded those moneys to its customers. Accordingly, DOR's assessment seeks to

collect those taxes together with interest and substantial penalties.

4. The parties have also agreed that the portion of the total tax

assessment attributable to real property contracts is $277,406.53. As of March

29, 1993, the assessment totaled $636,570.37, after the accrual of interest and

penalties. However, petitioner has paid to the state $16,180.19, for which it

should receive credit.

5. During the audit period, Rule 12A-1.014(6), Florida Administrative

Code, was in effect and provided as follows:

(6) Whenever a dealer credits a customer with

tax on returned merchandise or for tax

erroneously collected, he must refund such tax

to his customer before his claim to the State

for credit or refund will be approved.

Under the terms of this rule, which interpreted the provisions of Chapter 212,

Florida Statutes, any moneys erroneously collected by a dealer as taxes were to

be remitted to the state. However, if the moneys were refunded to the customer,

the dealer could then receive a refund of the moneys previously paid or a credit

towards other taxes due.

CONCLUSIONS OF LAW

6. The Division of Administrative Hearings has jurisdiction of the subject

matter and the parties hereto pursuant to Subsections 120.57(1) and

120.575(1)(b), Florida Statutes.

7. Ordinarily, DOR's burden of proof is 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." Subsection

120.575(2), Florida Statutes. Assuming such a showing was made, petitioner

would then bear the burden of countering that showing and proving that the

assessment is incorrect. However, the burden of proof has only secondary

importance here since the parties have agreed that there are no factual matters

in dispute and that only a question of law must be decided. In addition, it is

noted that in resolving this legal issue, to the extent a construction of the

statutory law is required, those laws are to be construed strongly in favor of

the taxpayer and against the state, and that all ambiguities and doubts are to

be resolved in favor of the taxpayer. Maas Brothers, Inc. v. Dickinson, 195

So.2d 193, 198 (Fla. 1967).

8. Section 212.15, Florida Statutes, provides in relevant part as follows:

212.15 Taxes declared state funds; penalties

for failure to remit taxes; due and delinquent

dates; judicial review.-

(1) The taxes imposed by this chapter shall

become state funds at the moment of collection

and shall for each month be due to the

department on the first day of the succeeding

month and delinquent on the 21st day of such

month. All returns postmarked after the 20th

day of such month are delinquent.

* * *

(4) All taxes collected under this chapter

shall be remitted to the department. . . .

DOR asserts that under the foregoing statute, once a dealer intentionally or

inadvertently collects taxes from its customers on nontaxable transactions,

those moneys immediately have the status of taxes, and unless evidence is shown

by the dealer that the moneys were refunded to the customers, they should be

timely remitted to the state. In response, petitioner generally contends that

since there was no tax imposed by law on the various transactions, there can be

no tax which is subject to assessment nor any obligation to remit moneys to the

state. It further contends that since penalties and interest under Chapter 212,

Florida Statutes, can only be assessed on a tax imposed by that chapter, there

can likewise be no proper assessment here for interest and penalties. It is

noted that the parties were unable to cite any final agency order or appellate

decision which deals squarely with this issue.

9. The case of Department of Revenue v. Rudd, 545 So.2d 369 (Fla. 1st DCA

1989) is helpful in resolving this issue. In Rudd, a DOR employee (Rudd) had

illegally authorized refunds of sales taxes which had not in fact been paid.

The refunds were made from general revenue funds in response to applications for

refunds filed by Rudd's co-conspirators. When DOR attempted to recover some of

those funds from Rudd pursuant to a jeopardy tax warrant, Rudd argued that funds

which were improperly refunded by DOR were not "taxes" within the meaning of

subsection 212.15(4) and thus DOR could not use jeopardy tax warrants as a

vehicle to retrieve general revenue funds. Rejecting that argument as having

"patent incongruities", and noting that it was "hardly surprising that the issue

has not been litigated", the court held that a more reasonable interpretation of

subsection 212.15(4) is that general revenue funds improperly refunded as taxes

should be accorded the status of a tax. Id. at 371, n.3. Applying that

rationale to the issue presented here, it is concluded that moneys collected as

a sales tax by a dealer on nontaxable transactions should likewise be accorded

the status of a tax under section 212.15. Therefore, when Blackshears

represented to its customers that taxes were due on certain transactions, and

collected those moneys, they became "state funds at the moment of collection"

and Blackshears had a duty to timely remit those funds to the state. To

conclude otherwise would place an unreasonable and illogical interpretation on

the law, reach a result that is contrary to the holding in Rudd, and allow a

dealer to collect taxes from his customers on nontaxable transactions, yet avoid

any responsibility of remitting those moneys to the state. The assessment

should accordingly be sustained.

10. In reaching the above conclusion, the undersigned has given thoughtful

consideration to the arguments of petitioner, one of which merits further

discussion. Petitioner points out that effective July 1, 1991, the legislature

enacted Section 213.756, Florida Statutes, which provides as follows:

Funds collected are state tax funds. - Funds

collected from a purchaser under the

representation that they are taxes provided

for under the state revenue laws are state

funds from the moment of collection and are

not subject to refund absent proof that such

funds have been refunded previously to the

purchaser.

Petitioner argues that by adopting this law, the legislature expressly

acknowledged the lack of any authority prior to the law's effective date for DOR

to make the challenged assessment. It is true, of course, that ordinarily a law

is intended to have prospective operation and the legislative inclusion of a

July 1, 1991, effective date would manifest that intention. However, a

subsequent statutory enactment such as this "does not necessarily indicate an

intent to change the law for the intent may be to clarify what was doubtful, and

to safeguard against misapprehension as to existing law." State ex rel. Szabo

Food Services, Inc. of North Carolina v. Dickinson, 286 So.2d 529, 531 (Fla.

1973). Prior to the enactment of section 213.756, DOR construed the revenue

laws, including section 212.15, as imposing a responsiblity on dealers to

promptly remit all moneys collected as taxes. This statutory interpretation was

embodied in rule 12A-1.046(6) during the audit period, and DOR's broad

construction of the word "taxes" found in section 212.15 has been approved by

the courts. Rudd, supra. It is also clear that the legislature agreed with

DOR's construction of the law since section 213.756 essentially codifies the

intent and requirement of rule 12A-1.014(6) and assumes that all moneys

collected as taxes have been previously remitted to the state. Therefore, it is

concluded that section 213.756 was intended to make the revenue laws "correspond

to what had been previously been supposed or assumed to be the law." Szabo at

531. Put another way, the intent of section 213.756 was not to change the law,

but rather to clarify "what was doubtful, and to safeguard misapprehension as to

existing law." Id.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that respondent enter a final order granting its motion for

partial summary adjudication and sustaining the assessment on issue three of its

notice of reconsideration, plus interest and penalties, less those taxes already

paid and identified in paragraph 2 of the parties' joint stipulation.

DONE and ENTERED this 3rd day of May, 1993, in Tallahassee, Florida.

___________________________________

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 3rd day of May, 1993.

COPIES FURNISHED:

Larry Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, FL 32399-0100

Linda Lettera, Esquire

204 Carlton Building

Tallahassee, FL 32399-0100

C. Lynne Chapman, Esquire

Department of Legal Affairs

The Capitol-Tax Section

Tallahassee, FL 32399-1050

Harold F. X. Purnell, Esquire

315 South Calhoun Street

Suite 500

Tallahassee, FL 32301

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

ALL PARTIES HAVE THE RIGHT TO SUBMIT WRITTEN EXCEPTIONS TO THIS RECOMMENDED

ORDER. ALL AGENCIES ALLOW EACH PARTY AT LEAST 10 DAYS IN WHICH TO SUBMIT

WRITTEN EXCEPTIONS. YOU SHOULD CONTACT THE AGENCY THAT WILL ISSUE THE FINAL

ORDER IN THIS CASE CONCERNING AGENCY RULES ON THE DEADLINE FOR FILING EXCEPTIONS

TO THIS RECOMMENDED ORDER. ANY EXCEPTIONS TO THIS RECOMMENDED ORDER SHOULD BE

FILED WITH THE AGENCY THAT WILL ISSUE THE FINAL ORDER IN THIS CASE.