93-000338 Xyz Printing, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Tuesday, January 25, 1994.

Summary: Service tax due on advertising sold during period of service tax. Use tax due on cost of materials used in producing free telephone directories.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

XYZ PRINTING, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 93-0338

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

______________________________)

RECOMMENDED ORDER

The above-styled case has been presented by stipulation filed December 15,

1993.

APPEARANCES

The parties were represented at the hearing as follows:

For Petitioner: David M. Carr

David Michael Carr, P.A.

600 East Madison Strett

Tampa, Florida 33602

For Respondent: Eric J. Taylor

Assistant Attorney General

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUES

The issue in this case is whether Petitioner is liable for certain taxes

and, if so, how much.

PRELIMINARY STATEMENT

By Notice of Decision dated April 24, 1992, Respondent informed Petitioner

that the assessment of corporate intangible tax and sales tax was correct. The

amounts assessed are $44,151.77 for sales tax from June 1, 1985, through March

31, 1990, and $1297.08 for corporate intangible tax from July 1, 1985, through

March 31, 1987.

On Notice of Reconsideration dated November 24, 1992, Respondent informed

Petitioner that the assessment of sales and use tax was correct. The amount

assessed is $44,151.77 for sales and use tax from June 1, 1985, through March

31, 1990.

On January 19, 1993, Petitioner served its petition for hearing. The

petition challenges the proposed assessment of sales and use tax, intangible

tax, and indigent health care tax.

The parties presented the case by stipulation filed December 15, 1993.

Attached to the stipulation are four exhibits, which are all admitted. In a

letter accompanying the stipulation, petitioner concedes that the assessment is

correct as to the intangible tax concerning accounts receivable and treasury

stock.

The parties were given until January 5, 1994, within which to file proposed

recommended orders. Petitioner filed no proposed recommended order. Respondent

filed a proposed recommended order on January 12, 1994. Although late and thus

not entitled to rulings, Respondent's proposed findings generally reflect the

factual stipulations.

FINDINGS OF FACT

1. Petitioner is a Florida corporation with its principal place of

business in Manatee County, Florida. Petitioner is in the printing business.

Specifically, Petitioner produces, manufactures, assembles, and publishes

telephone directories for mobile home parks in Florida.

2. All of Petitioner's work in connection with these directories takes

place in Florida. The directories list the names, addresses, and telephone

numbers of residents of the mobile home park for which the directory is

prepared. The directories also contain advertisements, which Petitioner

solicits from merchants seeking to sell goods or services to the mobile home

park residents.

3. Following the production of the directories, Petitioner distributes

them to the mobile home park residents, who maintain possession of the

directories. However, Petitioner retains ownership of each directory, even

after it is distributed.

4. Petitioner is solely responsible for the manufacture and distribution

of the directories.

5. Petitioner owns accounts receivable reflecting monies owned it by

entities for which Petitioner has performed work. Petitioner owns treasury

stock.

6. Following an audit, Respondent issued its Intent to Make Sales and Use

Tax Audit Changes. The proposed changes assessed additional sales and use taxes

of $44,151.77, intangible tax of $1297.08, and $194,75 of health care tax.

7. The bases of proposed liability for the sales and use tax were for the

publication and distribution of directories for which no sales or use tax had

been collected and for the sale of advertising during the period of the service

tax from July 1, 1986, through December 31, 1986, for which no sales tax on

advertising had been collected.

8. The basis of proposed liability for the intangible tax was for the

failure to pay intangible tax on accounts receivable and treasury stock.

9. The basis of proposed liability for the health care tax was for the

failure to pay the Hillsborough County Health Care Tax and Discretionary Sales

Surtax.

10. On February 11, 1991, Petitioner protested the proposed assessments.

On April 24, 1992, Respondent issued its Notice of Decision sustaining the

proposed sales and use tax and intangible tax, but eliminating the proposed

health care tax.

11. On May 12, 1992, Petitioner filed a Petition for Reconsideration

concerning the proposed sales and use tax. On November 24, 1992, Respondent

issued its Notice of Reconsideration sustaining the proposed sales and use tax.

12. On January 21, 1993, Petitioner timely filed its petition for a formal

administration hearing.

13. Subject to the accuracy of its legal position, Respondent's assessment

is factually accurate. Petitioner will pay the assessed amount of sales and use

tax, plus interest, if its position is not sustained following the conclusion of

this proceeding, including judicial review.

CONCLUSIONS OF LAW

14. The Division of Administrative Hearings has jurisdiction over the

subject matter and the parties. Section 120.575, Florida Statutes. (Unless

otherwise indicated, all references to Sections are to the 1993 Florida

Statutes. All references to Rules are to the Florida Administrative Code.)

15. Neither party has raised the issue whether the portion of this case

concerning liability for the former tax on services requires consideration by a

panel of hearing officers and the issuance of a final order, as provided by

former Sections 120.575(1) and 120.65(5) (Fla. Stats. 1987).

16. Section 212.05 recognizes a taxable privilege for

selling tangible personal property at retail

in this state, . . . or who rents or

furnishes any of the things or services

taxable under this chapter, or who stores for

use of consumption in this state any item or

article of tangible personal property . . .

and who leases or rents such property within

the state.

17. A tax of 6 percent is imposed on the "sales price of each item or

article of tangible personal property when sold at retail in this state,"

pursuant to Section 212.05(1)(a)1.a.

18. Section 212.02(15)(a) provides that a "retail sale" or "sale at

retail"

means a sale to a consumer or to any person

for any purpose other than for resale in the

form of tangible personal property or

services taxable under this part, and

includes all such transactions that may be

made in lieu of retail sales or sales at

retail.

19. Section 212.02(17) defines "sales price" as

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. . . .

20. Section 212.02(20) states that 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

.... The term "tangible personal property"

does not include stocks, bonds, notes,

insurance, or other obligations or

securities; [or] intangibles as defined by

the intangible tax law of the state . . ..

21. A tax of 6 percent is imposed on the "cost price of each item or

article of tangible personal property when the same is not sold but is used,

consumed, distributed, or stored for use or consumption in this state," pursuant

to Section 212.05(1)(b).

22. Section 212.06(1)(b) adds:

Except as otherwise provided, any person who

manufactures, produces, compounds, processes,

or fabricates in any manner tangible personal

property for his own use shall pay a tax upon

the cost of the product manufactured,

produced, compounded, processed, or

fabricated without any deduction therefrom on

account of the cost of material used, labor

or service costs, or transportation charges,

notwithstanding the provisions of s. 212.02

defining "cost price."

23. Section 212.02(21) states that "use"

means and includes the exercise of any right

or power over tangible personal property

incident to the ownership thereof, or

interest therein, except that it does not

include the sale at retail of that property

in the regular course of business.

24. The subject transaction resembles the transaction in which a publisher

sells advertising for inclusion in a "shopper"- type newspaper that is

distributed for free. The taxation of the latter transaction is the subject of

Rule 12A-1.008.

25. Rule 12A-1.008(2)(d)3 addresses the publisher of an advertising insert

that is not taxed as a "newspaper." When the publisher incorporates the insert

into a publication to be given away, the publisher must self-accrue and pay use

tax based on the cost price.

26. Rule 12A-1.008(2)(c)2 defines "cost price" as

the actual cost or printing of newspapers,

magazines, and other publications, without

any deductions therefrom on account of the

cost of materials used, labor or services

cost, transportation charges, or other direct

or indirect overhead costs that are a part of

printing costs of the property. . . .

27. Rule 12A-1.008(2)(d)4 also addresses the publisher of an advertising

insert that is not taxed as a "newspaper." This provision recognizes that no

sales or use tax is due on the payment from an advertiser to a publisher that is

to deliver the advertising copy to potential buyers.

28. The subject transaction is similar to the transaction between

advertisers and the publisher of flyers or shoppers that do not meet the

definition of newspapers. The retention of title by Petitioner is irrelevant.

The key factors are that Petitioner, like the shopper publisher, sells

advertising, prints the medium by which the advertising is disseminated, and

distributes the publication for free to persons who are potential customers of

the advertisers. Like some shoppers that contain news, the subject telephone

directories also contain noncommercially useful information in the form of names

and addresses of mobile home park residents. But the telephone directories do

not and could not exist but for the presence of the advertising.

29. Based on the foregoing, Petitioner is liable for a use tax on the cost

of the materials and other items used or consumed in the production of the

directories, but this cost price does not include advertising revenues. Under

the conventional sales and use tax on tangible personal property, Petitioner is

not liable for any sales or use tax on the advertising revenues, nor do the

advertising revenues form part of the sale price under the sales tax or the cost

price under the use tax.

30. However, the advertising revenues were subject to the sales tax on

services during the latter half of 1986. For this limited period, Petitioner is

liable for sales tax on the advertising revenues.

31. Given the fact that no conventional sales tax is due and the

advertising revenues are not part of the cost price, there is no pyramiding or

duplication of the conventional sales or use tax with the services tax.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that a final order be entered determining that, for each

assessed period, Petitioner is liable for the assessed corporate intangible tax

plus interest, the use tax on the cost price of the materials and other covered

items plus interest, the sales tax on services on the advertising revenues, but

not for any sales tax apart from the period covered by the sales tax on

services.

ENTERED on January 25, 1994, in Tallahassee, Florida.

___________________________________

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

on January 25, 1994.

COPIES FURNISHED:

David M. Carr

David Michael Carr, P.A.

600 East Madison Street

Tampa, Florida 33602

Eric J. Taylor

Assistant Attorney General

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Larry Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399-0100

Linda Lettera, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399-0100

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. Some agencies allow a larger period within 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.