94-002135 Tan, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Tuesday, June 27, 1995.

Summary: Petitioners who merely managed and did not own business, were not liable for payment of unpaid taxes generated by business' commercial activities.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TAN, INC., and LINDA A. W. MESA, )

)

Petitioners, )

)

vs. ) CASE NO. 94-2135

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

_________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted by video teleconference

in this case on April 18, 1995, in West Palm Beach and Tallahassee, Florida,

before Stuart M. Lerner, a duly designated Hearing Officer of the Division of

Administrative Hearings.

APPEARANCES

For Petitioners: Linda A. W. Mesa

99 South Sewall's Point Road

Stuart, Florida 34996

For Respondent: Lealand L. McCharen, Esquire

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

Whether the contested and unpaid portions of the tax, penalty and interest

assessment issued against Petitioners as a result of Audit No. 9317210175 should

be withdrawn as Petitioners have requested?

PRELIMINARY STATEMENT

By letter dated December 22, 1993, Respondent gave written notice

(hereinafter referred to as the "Notice of Proposed Assessment") of its

intention to impose an assessment against Petitioners and Robert M. Woods, Jr.,

in the amount of $340,580.74 for taxes allegedly owed (as well as penalties and

interest, as of December 7, 1993) in connection with certain business activities

that took place at the Shuckers Too restaurant and lounge (hereinafter referred

to as "Shuckers") in Jensen Beach, Florida during the six year period from June

1, 1987, to May 31, 1993 (hereinafter referred to as the "audit period"). On or

about April 19, 1994, Petitioners, who at the time were represented by counsel,

filed with Respondent a petition requesting a formal administrative hearing on

the matter.

In their petition, Petitioners argued that the assessment against them

should be reversed in full, except for that amount (approximately $1,260.00,

including estimated penalty and interest) 1/ which Petitioner TAN, Inc.,

conceded it owed for rental payments of approximately $15,000.00 covering the

period from December 3, 1992, to May 31, 1993.

The petition contained the following "Statement of Disputed Issues of

Material Fact:"

PETITIONERS dispute the following issues of

material fact:

A. General, Audit-Wide Facts. PETITIONER TAN

disputes that it operated any business or con-

ducted any taxable transactions during the Audit

Period other than during the period 12/03/92 -

5/31/93. PETITIONER TAN for all items disputes

that it is responsible for any transactions

before 12/03/92. PETITIONER MESA disputes that

she is or has ever been a dealer, and disputes

that she is responsible individually for any of

the transactions in the Notice of Proposed

Assessment. Furthermore, for any business

operations conducted by PETITIONER TAN during

12/03/92 - 05/31/93, PETITIONER TAN disputes the

use of any sampling techniques that are not

authorized and that are not calculated for the

12/03/92 - 05/31/93 period, and which are not

statistically sound. Petitioner MESA also disputes

the use of any sampling techniques against her, as

she disputes that she was a dealer at any time

during the Notice of Proposed Assessment period.

Further, each of the various subschedules comprising

the amounts assessed in the Notice of Proposed

Assessment were calculated using an "Effective

Rate," which is not authorized by Florida Statutes

and was improperly calculated by the Auditor.

PETITIONER TAN disputes the use of any Effective

Rates for any of the transactions occurring during

12/03/92 - 05/31/93. PETITIONER MESA disputes that

she is a dealer, that she is required to collect

and remit sales tax to the RESPONDENT, and there-

fore she disputes the use of any Effective Rate

as applied to her.

All of the above statements of disputed items are

General and apply Audit-wide to the items following.

B. Cash Register Receipts. PETITIONER TAN disputes

that the amounts reported on its DR-15 are incorrect,

and disputes that its records are inadequate and

unreliable for review of tax liability. PETITIONER

MESA disputes that she is a dealer, and that she is

required to collect and remit sales tax to RESPONDENT.

C. Tax Collection Rate. PETITIONERS dispute the

Auditor's use of unauthorized and erroneously

calculated "Effective Rates."

D. Sunday Brunch Sales. PETITIONER TAN disputes

that it did not collect or remit sales tax due, if

any, on Sunday Brunch Sales. PETITIONER MESA disputes

that she is a dealer and that she is required to

collect and remit sales tax to RESPONDENT.

E. Cigarette Vending Sales. PETITIONERS dispute

that they are "operators" who received any receipts

from Cigarette Vending sales.

F. Disallowed Exempt Sales. PETITIONER TAN disputes

that it is liable for any Disallowed Exempt Sales

occurring prior to 12/03/92. PETITIONER MESA

disputes that she is a dealer and that she is

required to collect and remit sales tax to RESPONDENT.

G. Unreported Vending Machine Location Rental Sales.

PETITIONERS dispute that they are the location owners

who rented any vending machine location and dispute

that they are required to collect and remit sales

tax to RESPONDENT.

H. Tiki Bar Sales. PETITIONER TAN disputes that it

did not collect and remit sales taxes due, if any,

on Tiki Bar Sales. PETITIONER MESA disputes that

she is a dealer and that she is required to collect

and remit sales tax to RESPONDENT.

I. Tee Shirt Sales. PETITIONERS dispute that they

have collected any receipts from Tee shirt sales and

that they are liable for any sales tax thereon.

PETITIONER MESA disputes that she is a dealer and

that she is required to collect and remit sales tax

to RESPONDENT.

J. Cash Register Receipts- NAT. PETITIONER TAN

disputes that it is responsible for any transactions

prior to 12/03/92. PETITIONER MESA disputes that

she is a dealer and that she is required to collect

and remit sales tax to RESPONDENT.

K. Purchases- Commercial Rent. PETITIONER TAN

disputes that it rented the premises prior to

12/03/92 and that it is liable for any sales tax

thereon. PETITIONER MESA disputes that she rented

the premises at any time and that she is liable for

any sales tax thereon.

Petitioners further alleged in their petition, among other things, the

following:

A. GENERAL ISSUES RELATING TO THE ENTIRE AUDIT

(1) Facts: PETITIONER TAN states that it began

its business operations on or about the date of

its incorporation, 12/03/92, continuing through

the end of the Audit period of 05/31/93.

PETITIONER TAN did not buy a business from anyone.

PETITIONER TAN is not a successor to and is not

liable for transactions occurring before 12/03/92.

PETITIONER MESA never operated any business

individually, and is not responsible for any of

the transactions that occurred during the Audit

Period. PETITIONER MESA did not direct any

corporate employees to fail to collect, truthfully

account for and pay over any tax due.

PETITIONER TAN has adequate records that are not

voluminous to show that it collected and remitted

sales tax payable at the statutory rate of 6 percent,

and PETITIONER TAN objects to the use of any sampling

techniques or Effective Rates in this Audit.

(2) Statutes, Rules:

(a) There was no sale of a business to Petitioner

TAN or PETITIONER MESA, therefore, Florida Statutes

Section 212.10 and Florida Administrative Code Rule

("Rule") 12A-1.055 do not apply, as such law governs

liability of either a seller or a buyer. PETITIONER

TAN is not liable for any activity prior to 12/03/92,

and PETITIONER MESA is not liable for any activity

during the Audit Period.

(b) Florida Statutes 212.05 and Rule 12A-1.056(13)

govern the taxability of "every person . . . who

engages in the business of selling tangible personal

property at retail . . ." That "person" is PETITIONER

TAN for activities occurring during the period

12/03/92 - 05/31/93, and is not PETITIONER MESA, as

she was not in such business individually.

(c) Florida Statute Section 212.12 (5),(6) provides

for the use of estimates, but only where the taxpayer

"fails or refuses" to make records available; further,

the Auditor is required to "statistically sample" such

records, and may not make unsubstantiated, unsound

estimates that are not statistically reliable.

PETITIONER TAN has adequate and not voluminous records

available. Furthermore, the samples used by the

Auditor that affect the period 12/03/92 - 05/31/93

are not statistically sound, and are not reliable for

that period.

(3) Relief Requested. The Assessment should be

reversed against PETITIONER TAN, as it properly

collected and remitted sales tax to the RESPONDENT,

and against PETITIONER MESA, as she is not and has

never been a dealer, and she is not required to

collect and remit sales tax to Respondent.

On April 25, 1994, the matter was referred to the Division of

Administrative Hearings for the assignment of a Hearing Officer to conduct the

formal administrative hearing Petitioners had requested. In their response to

the Initial Order issued by the Division, the parties stated that "[d]ue to

existing trial schedules and prior commitments of counsel, [they could] not be

ready for final hearing prior to October 14, 1994." To accommodate the parties'

schedules, the final hearing was originally scheduled to commence on October 20,

1994. By order issued October 12, 1994, at the parties' joint request, the

final hearing was continued and rescheduled to commence on January 26, 1995.

The day before the hearing was scheduled to commence, counsel for Petitioners

filed a motion requesting: 1) leave to withdraw as Petitioners' counsel of

record in this case; and 2) a continuance of the hearing. The motion was

granted and the hearing was rescheduled for April 18, 1995.

On April 11, 1995, the parties filed their Prehearing Stipulation. In

their Prehearing Stipulation, they described the nature of the controversy and

their respective positions as follows:

(a) The nature of the controversy in this

case is whether Petitioners are liable for tax

assessed on prior occupants of the restaurant

in question under Section 212.10, Fla. Stat.

and whether Petitioners are liable for tax

assessed during the time of Petitioners'

activities in the same restaurant.

(b) Petitioners' Position

Petitioners are not liable for taxes assessed

against any prior occupants or owners of the

restaurant because Petitioners did not purchase

the business or any part of its stock of goods.

Further, Petitioners did not lease the restaurant

in question. Petitioners are likewise not liable

for taxes assessed for the period of Petitioners'

presence in the restaurant because Petitioners

were only managing the restaurant for the owners.

Respondent's Position

Petitioners are liable for tax assessed on prior

occupants of the restaurant because Petitioners

occupied the restaurant, filed tax returns under

the prior occupant's sales tax number, and showed

overall control of the business operations.

Further, Petitioners did occupy the restaurant

and filed tax returns under their own number.

These factors show Petitioners' liability under

Section 212.10, Fla. Stat. and liability for

Petitioners' own operation of the business.

To the extent that Petitioners' position, as stated in the parties' Prehearing

Stipulation, regarding the unpaid portions of the assessment at issue in the

instant case, is at odds with any statements made in Petitioners' petition, the

filing of the Prehearing Stipulation served to amend the petition and alter the

issues to be litigated at hearing. See Lotspeich Company v. Neogard, 416 So.2d

1163, 1165 (Fla. 3d DCA 1982)("[p]retrial stipulations prescribing the issues on

which a case is to be tried are binding upon the parties and the court, and

should be strictly enforced"); Provident National Bank v. Thunderbird

Associates, 364 So.2d 790, 794 (Fla. 1st DCA 1978)(issues are fixed by the

pleadings, but may be changed by stipulation of the parties).

At the final hearing, which was held as scheduled on April 18, 1995,

Petitioners and Respondent each presented the testimony of one witness.

Petitioner Mesa testified for Petitioners. Eva Daniel, who conducted the audit

that led to the assessment that is the subject of the instant case, testified

for Respondent. In addition to the testimony of these two witnesses, a total of

14 exhibits (Petitioner's Exhibits 1 through 7 and Respondent's Exhibits 1

through 7) were offered and received into evidence.

At the close of the evidentiary portion of the hearing, the Hearing Officer

advised the parties on the record that post-hearing submittals had to be filed

no later than 30 days following the Hearing Officer's receipt of the hearing

transcript. The Hearing Officer received the hearing transcript on May 4, 1995.

On June 6, 1995, the parties filed a motion jointly requesting an extension of

the deadline for filing post-hearing submittals. By order issued June 7, 1995,

the Hearing Officer granted the motion and extended the deadline to June 12,

1995.

Respondent and Petitioners filed proposed recommended orders on June 12,

1995, and June 16, 1995. 2/ These proposed recommended orders contain, what

are labelled as, "findings of fact." These "findings of fact" are specifically

addressed in the Appendix to this Recommended Order.

FINDINGS OF FACT

Based upon the evidence adduced at hearing, and the record as a whole, the

following Findings of Fact are made:

1. Shuckers is an oceanfront restaurant and lounge located at 9800 South

Ocean Drive in Jensen Beach, Florida.

2. In November of 1992, Petitioner Mesa's brother, Robert Woods, Jr.,

telephoned Mesa and asked her if she wanted a job as Shuckers' bookkeeper.

3. Woods had been the owner of Shuckers since 1986 through his ownership

and control of the corporate entities (initially Shuckers Oyster Bar Too of

Jensen Beach, Florida, Inc., and then NAT, Inc.) that owned the business.

4. Mesa needed a job. She therefore accepted her brother's offer of

employment, notwithstanding that she had no previous experience or training as a

bookkeeper.

5. When Mesa reported for her first day of work on November 19, 1992, she

learned that Woods expected her to be not only the bookkeeper, but the general

manager of the business as well.

6. Mesa agreed to perform these additional responsibilities.

7. She managed the day-to-day activities of the business under the general

direction and supervision of Woods.

8. After a couple of weeks, Woods told Mesa that it would be best if she

discharged her managerial responsibilities through an incorporated management

company.

9. Woods had his accountant draft the documents necessary to form such a

corporation.

10. Among these documents were the corporation's Articles of

Incorporation. Mesa executed the Articles of Incorporation and, on December 3,

1992, filed them with the Secretary of State of the State of Florida, thereby

creating Petitioner TAN, Inc.

11. TAN, Inc.'s Articles of Incorporation provided as follows:

The undersigned subscribers to these Articles

of Incorporation, natural persons competent

to contract, hereby form a corporation under

the laws of the State of Florida.

ARTICLE I- CORPORATE NAME

The name of the corporation is:

TAN, INC.

ARTICLE II- DURATION

This corporation shall exist perpetually unless

dissolved according to Florida law.

ARTICLE III- PURPOSE

The corporation is organized for the purpose of

engaging in any activities or business permitted

under the laws of the United States and the State

of Florida.

ARTICLE IV- CAPITAL STOCK

The corporation is authorized to issue One

Thousand (1000) shares of One Dollar ($1.00)

par value Common Stock, which shall be designated

"Common Shares."

Article V- INITIAL REGISTERED OFFICE AND AGENT

The principal office, if known, or the mailing

address of this corporation is:

TAN, INC.

9800 South Ocean Drive

Jensen Beach, Florida 34957

The name and address of the Initial Registered

Agent of the Corporation is:

Linda A. W. Mesa

9800 South Ocean Drive

Jensen Beach, Florida 34957

ARTICLE VI- INITIAL BOARD OF DIRECTORS

This corporation shall have one (1) director

initially. The number of directors may be either

increased or diminished from time to time by

the By-laws, but shall never be less than one

(1). The names and addresses of the initial

directors of the corporation are as follows:

Linda A. W. Mesa

9800 South Ocean Drive

Jensen Beach, Florida 34957

ARTICLE VII- INCORPORATORS

The names and addresses of the incorporators

signing these Articles of Incorporation are as

follows:

Linda A. W. Mesa

9800 South Ocean Drive

Jensen Beach, Florida 34957

12. On the same day it was incorporated, December 3, 1992, TAN, Inc.,

entered into the following lease agreement with the trust (of which Woods was

the sole beneficiary) that owned the premises where Shuckers was located:

I, Michael Blake, Trustee, hereby lease to Tan,

Inc. the premises known as C-1, C-2, C-3, C-4,

9800 South Ocean Drive, Jensen Beach, Florida

for the sum of $3,000.00 per month.

This is a month to month lease with Illinois Land

Trust and Michael Blake, Trustee.

Mesa signed the agreement in her capacity as TAN, Inc.'s President. She did so

at Woods' direction and on his behalf.

13. No lease payments were ever made under the agreement. 3/

14. The execution of the lease agreement had no impact upon Shuckers.

15. Woods remained its owner and the person who maintained ultimate

control over its operations.

16. At no time did he relinquish any part of his ownership interest in the

business to either Mesa or her management company, TAN, Inc.

17. Mesa worked approximately 70 to 80 hours a week for her brother at

Shuckers doing what he told her to do, in return for which she received a modest

paycheck. Woods frequently subjected his sister to verbal abuse, but Mesa

nonetheless continued working for him and following his directions because she

needed the income the job provided.

18. As part of her duties, Mesa maintained the business' financial records

and paid its bills.

19. She was also required to fill out, sign and submit to Respondent the

business' monthly sales and use tax returns (hereinafter referred to as "DR-

15s"). She performed this task to the best of her ability without any intention

to defraud or deceive Respondent regarding the business' tax liability.

20. The DR-15s she prepared during the audit period bore NAT, Inc.'s

Florida sales and use tax registration number.

21. On the DR-15 for the month of December, 1992, Mesa signed her name on

both the "dealer" and "preparer" signature lines.

22. Other DR-15s were co-signed by Mesa and Woods.

23. In April of 1993, Woods told Mesa that she needed to obtain a Florida

sales and use tax registration number for TAN, Inc., to use instead of NAT,

Inc.'s registration number on Shuckers' DR-15s.

24. In accordance with her brother's desires, Mesa, on or about May 14,

1993, filed an application for a Florida sales and use tax registration number

for TAN, Inc., which was subsequently granted.

25. On the application form, Mesa indicated that TAN, Inc. was the "owner"

of Shuckers and that the application was being filed because of a "change of

ownership" of the business. In fact, TAN, Inc. was not the "owner" of the

business and there had been no such "change of ownership."

26. By letter dated June 22, 1993, addressed to "TAN INC d/b/a Shuckers,"

Respondent gave notice of its intention to audit the "books and records" of the

business to determine if there had been any underpayment of sales and use taxes

during the five year period commencing June 1, 1988, and ending May 31, 1993.

27. The audit period was subsequently extended to cover the six year

period from June 1, 1987 to May 31, 1993.

28. Relying in part on estimates because of the business' inadequate

records, auditors discovered that there had been a substantial underpayment of

sales and use taxes during the audit period.

29. The auditors were provided with complete cash register tapes for only

the following months of the audit period: June, July, August and December of

1992, and January, February, March, April and May of 1993. A comparison of

these tapes with the DR-15s submitted for June, July, August and December of

1992, and January, February, March, April and May of 1993 revealed that there

had been an underreporting of sales for these months.

30. Using the information that they had obtained regarding the three pre-

December, 1992, months of the audit period for which they had complete cash

register tapes (June, July and August of 1992), the auditors arrived at an

estimate of the amount of sales that had been underreported for the pre-

December, 1992, months of the audit period for which they did not have complete

cash register tapes.

31. The auditors also determined that Shuckers' tee-shirt and souvenir

sales, 4/ Sunday brunch sales, cigarette vending sales, vending/amusement

machine location rentals 5/ and tiki bar sales that should have been included

in the sales reported on the DR-15s submitted during the audit period were not

included in these figures nor were these sales reflected on the cash register

tapes that were examined. According of the "Statement of Fact" prepared by the

auditors, the amount of these unreported sales were determined as follows:

TEE-SHIRT SALES: Sales were determined by

estimate. This was determined to be $2,000/

month. No records were available and no tax

remitted through May, 1993.

SUNDAY BRUNCH SALES: Sales were determined by

estimate. This was determined to be 100

customers per brunch per month (4.333 weeks).

No audit trail to the sales journal was found

and no records were available.

CIGARETTE VENDING SALES: The estimate is based

on a review of a sample of purchases for the 11

available weeks. The eleven weeks were averaged

to determine monthly sales at $3/pack.

VENDING MACHINE LOCATION RENTAL REVENUE: The

revenue estimate is based on a review of a one

month sample.

TIKI BAR SALES: The sales estimate is based on

a review of infrequent cash register tapes of

February, 1993. The daily sales was determined

by an average of the sample. The number of days

of operation per month was determined by estimate.

32. In addition, the auditors determined that TAN, Inc. had not paid any

tax on the lease payments it was obligated to make under its lease agreement

with Illinois Land Trust and Michael Blake, Trustee, nor had any tax been paid

on any of the pre-December, 1992, lease payments that had been made in

connection with the business during the audit period. According to the

"Statement of Fact" prepared by the auditors, the amount of these lease payments

were determined as follows:

The estimate is based on 1990 1120 Corporate

return deduction claimed. This return is on

file in the Florida CIT computer database. The

1990 amount was extended through the 6/87 -

11/92 period. For the period 12/92 - 5/93

audit period, TAN's current lease agreement of

$3,000/month was the basis.

33. No documentation was produced during the audit supporting any the

sales tax exemptions that the business had claimed during the audit period on

its DR-15s. 6/ Accordingly, the auditors concluded that the sales reported as

exempt on the business' DR-15s were in fact taxable.

34. Using records of sales made on a date selected at random (February 1,

1993), the auditors calculated effective tax rates for the audit period. They

then used these effective tax rates to determine the total amount of tax due.

35. An initial determination was made that a total of $201,971.71 in taxes

(not including penalties and interest) was due. The amount was subsequently

lowered to $200,882.28.

36. On or about December 22, 1993, TAN, Inc., entered into the following

Termination of Lease Agreement with Ocean Enterprises, Inc.:

TAN, Inc., a Florida corporation, hereby consents

to termination of that certain lease of the premises

known as C-1, C-2, C-3 and C-4 of ISLAND BEACH CLUB,

located at 9800 South Ocean Drive, Jensen Beach,

Florida, dated December 3, 1992, acknowledges a

landlord's lien on all assets for unpaid rent;

and transfers and sets over and assigns possession

of the aforesaid units and all of its right, title

and interest in and to all inventory, equipment,

stock and supplies located on said premises 7/

in full satisfaction of said unpaid rent; all of

the foregoing effective as of this 22nd day of

December, 1993.

FOR AND IN CONSIDERATION of the foregoing termin-

ation of lease, OCEAN ENTERPRISES, Inc., a Florida

corporation, hereby agrees to pay Linda Mesa, each

month all of the net revenues of the operation of

the bar and restaurant located on said premises,

up to the sum of $15,000.00, for sales tax liability

asserted against TAN, Inc. or Linda A. W. Mesa based

upon possession or ownership of said premises or any

of the assets located thereon, plus attorney's fees

incurred in connection with defending or negotiating

settlement of any such liability. Net revenue shall

mean gross revenue, less operating expenses, includ-

ing, but not limited to, rent, up to the amount of

$5,000.00 per month, costs of goods sold, utilities,

payroll and payroll expense and insurance.

OCEAN ENTERPRISES, Inc. represents that it has

entered into a lease of said premises for a term

of five years commencing on or about December 22,

1993, pursuant to the terms and conditions of which

OCEANFRONT [sic] ENTERPRISES, Inc. was granted the

right to operate a restaurant and bar business on

said premises.

37. Ocean Enterprises, Inc., leases the property from Island Beach

Enterprises, which obtained the property through foreclosure.

38. TAN, Inc., has been administratively dissolved.

CONCLUSIONS OF LAW

39. Payments made by a tenant for the lease of real property are taxable

under Chapter 212, Florida Statutes, which is known as the "Florida Revenue Act

of 1949" (hereinafter referred to as the "Act"). Section 212.031(1)(a), Fla.

Stat. The tenant is responsible for paying the tax on these lease payments.

Section 212.031(2)(a), Fla. Stat.

40. The rental or sale at retail of tangible personal property is also

taxable under the Act. Section 212.05, Fla. Stat.

41. The "dealer" making the sale is responsible for collecting the sales

tax from the purchaser at the time of sale. Sections 212.06(3) and 212.07(1),

Fla. Stat.

42. A "dealer who neglects, fails, or refuses to collect the [sales] tax .

. . upon any, every, and all retail sales made by him or his agents or employees

of tangible personal property . . . subject to the tax imposed by th[e Act is]

liable for and [must] pay the tax himself." Section 212.07(2), Fla. Stat.

43. The term "dealer," as used in the Act is defined in Section 212.06(2),

Florida Statutes, as follows:

(a) The term "dealer," as used in this

chapter, includes every person who manufactures

or produces tangible personal property for sale

at retail; for use, consumption, or distribution;

or for storage to be used or consumed in this

state.

(b) The term "dealer" is further defined to mean

every person, as used in this chapter, who imports,

or causes to be imported, tangible personal property

from any state or foreign country for sale at retail;

for use, consumption, or distribution; or for

storage to be used or consumed in this state.

(c) The term "dealer" is further defined to mean

every person, as used in this chapter, who sells at

retail or who offers for sale at retail, or who has

in his possession for sale at retail; or for use,

consumption, or distribution; or for storage to be

used or consumed in this state, tangible personal

property as defined herein, including a retailer

who transacts a mail order sale.

(d) The term "dealer" is further defined to mean

any person who has sold at retail; or used, or

consumed, or distributed; or stored for use or

consumption in this state, tangible personal

property and who cannot prove that the tax levied

by this chapter has been paid on the sale at retail,

the use, the consumption, the distribution, or the

storage of such tangible personal property. However,

the term "dealer" does not mean a person who is not

a "dealer" under the definition of any other paragraph

of this subsection and whose only owned or leased

property (including property owned or leased by an

affiliate) in this state is located at the premises

of a printer with which it has contracted for print-

ing, if such property consists of the final printed

product, property which becomes a part of the final

printed product, or property from which the printed

product is produced.

(e) The term "dealer" is further defined to mean

any person, as used in this chapter, who leases or

rents tangible personal property, as defined in this

chapter, for a consideration, permitting the use or

possession of such property without transferring

title thereto, except as expressly provided for to

the contrary herein.

(f) The term "dealer" is further defined to mean

any person, as used in this chapter, who maintains

or has within this state, directly or by a subsidiary,

an office, distributing house, salesroom, or house,

warehouse, or other place of business.

(g) "Dealer" also means and includes every person

who solicits business either by direct representa-

tives, indirect representatives, or manufacturers'

agents; by distribution of catalogs or other

advertising matter; or by any other means whatsoever,

and by reason thereof receives orders for tangible

personal property from consumers for use, consumption,

distribution, and storage for use or consumption in

the state; such dealer shall collect the tax imposed

by this chapter from the purchaser, and no action,

either in law or in equity, on a sale or transaction

as provided by the terms of this chapter may be had

in this state by any such dealer unless it is

affirmatively shown that the provisions of this

chapter have been fully complied with.

(h) "Dealer" also means and includes every

person who, as a representative, agent, or solicitor

of an out-of-state principal or principals, solicits,

receives, and accepts orders from consumers in the

state for future delivery and whose principal

refuses to register as a dealer. 8/

(i) "Dealer" also means and includes the state,

county, municipality, any political subdivision,

agency, bureau or department, or other state or

local governmental instrumentality.

(j) The term "dealer" is further defined to mean

any person who leases, or grants a license to use,

occupy, or enter upon, living quarters, sleeping

or housekeeping accommodations in hotels, apartment

houses, roominghouses, tourist or trailer camps,

real property, space or spaces in parking lots or

garages for motor vehicles, docking or storage

space or spaces for boats in boat docks or marinas,

or tie-down or storage space or spaces for aircraft

at airports. The term "dealer" also means any

person who has leased, occupied, or used or was

entitled to use any living quarters, sleeping or

housekeeping accommodations in hotels, apartment

houses, roominghouses, tourist or trailer camps,

real property, space or spaces in parking lots or

garages for motor vehicles or docking or storage

space or spaces for boats in boat docks or marinas,

or who has purchased communication services or

electric power or energy, and who cannot prove

that the tax levied by this chapter has been paid

to the vendor or lessor on any such transactions.

(k) "Dealer" also means any person who sells,

provides, or performs a service taxable under

this part. "Dealer" also means any person who

purchases, uses, or consumes a service taxable

under this part who cannot prove that the tax

levied by this part has been paid to the seller

of the taxable service.

(l) "Dealer" also means any person who solicits,

offers, provides, enters into, issues, or delivers

any service warranty taxable under this part, or

who receives, on behalf of such a person, any

consideration from a service warranty holder.

44. Respondent is authorized to inspect, examine and audit the accounts,

books and other records of "dealers" and to "make assessment of any deficiency

in tax, penalty, or interest determined to be due." Sections 212.12 and 213.34,

Fla. Stat.

45. Respondent may make such an assessment "from an estimate based upon

the best information then available to it," if the "dealer" "fails or refuses to

make his records available for inspection." Section 212.12(5)(b), Fla. Stat.

46. "[I]f a dealer does not have adequate records of his retail sales or

purchases, [Respondent] may, upon the basis of a test or sampling of the

dealer's available records or other information relating to the sales or

purchases made by such dealer for a representative period, determine the

proportion that taxable retail sales bear to total purchases." Section

212.12(6)(b), Fla. Stat.

47. "If the records of a dealer are adequate but voluminous in nature and

substance, [Respondent] may statistically sample such records, except for fixed

assets, and project the audit findings derived therefrom over the entire audit

period to determine the proportion that taxable retail sales bear to total

retail sales or the proportion that taxable purchases bear to total purchases."

Section 212.12(6)(c), Fla. Stat.

48. If a "dealer" liable for any tax, interest or penalty "sell[s] out his

business or stock of goods," the purchaser may assume the dealer's liability

pursuant to Section 212.10(1), Florida Statutes, which provides as follows:

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 provided, he shall be personally

liable for the payment of the taxes, interest, and

penalties accruing and unpaid on account of the

operation of the business by any former owner,

owners, or assigns. Any receipt or certificate

from the department does not, without an audit of

the selling dealer's books and records by the

department, guarantee that there is not a tax

deficiency owed the state from operation of the

seller's business. To secure protection from

transferee liability under this section, the

seller or purchaser may request an audit of the

seller's books and records. The department may

contract with private auditors pursuant to s.

213.28 to perform the audit. The department may

charge the cost of the audit to the person

requesting the audit.

49. According to Rule 12A-1.055(3), Florida Administrative Code:

(a) A business is deemed to have been "sold out"

when:

1. The dealer for consideration transfers, to

the extent that the transferring dealer no longer

continues in that business, to another, its stock

of goods or other component parts of the business

. . . .

2. A part owner of a business, such as a partner

or member of a joint adventure, sells his interest

in the business to another, and the legal effect of

doing so, under the law applicable to the facts, is

to terminate the former partnership or joint adven-

ture and to begin a new one, with the result that

all members of the new arrangement are obligated

for Chapter 212, F.S., taxes, interest and penalties

that accrued under the former arrangement.

3. A tenant abandons his business owing his land-

lord rent and the landlord, acting under an abandon-

ment clause in the lease, takes ownership of tangible

personal property left on the premises by the tenant.

(b) A business will be deemed to have been "sold

out" when a business previously operated under one

type of organization is transferred for consideration

to another type of organization, such as from a sole

proprietorship to a corporation, from a partnership

to a corporation; or when there is a corporate

reorganization as a result of which the business

is owned by a corporation other than the corporation

that previously owned it; or when ownership of a

business is transferred from a subsidiary to a

parent corporation or to another subsidiary of the

parent, or from a parent to a subsidiary.

(c) A business is deemed not to have been "sold

out" when:

1. A part owner of a business, such as a partner

or member of a joint adventure, sells his interest

in the business to another and the legal effect of

doing so, under the law applicable to the facts, is

not to terminate the former partnership or joint

adventure and to begin a new one, with the result

that while the new partner may assume responsibility

for tax and other obligations of the business that

accrued before the purchase of the interest in the

business, the new partner will not be responsible

for preexisting tax obligations on account of a

selling out of a business.

2. Real or tangible personal property of a

business is transferred by foreclosure;

3. There is a change in ownership of stock in

a corporation that owns a business; or

4. Parts of its assets are sold to various

purchasers, without the purchase of a major portion

of the assets of the business by one purchaser or

a group of purchasers acting in concert.

(d)1. A "stock of goods" for purposes of this

rule is synonymous with "inventory." A stock of

goods is demed to have been "sold out" if an

overwhelming preponderance of a dealer's inventory

is sold for a consideration, other than in the

ordinary course of business, to a purchaser or group

of purchasers who are acting in concert, and the

former owner of the business is no longer in business.

50. A "dealer" or other person against whom a deficiency assessment is

made may administratively challenge the assessment under Chapter 120, Florida

Statutes. Section 72.011, Fla. Stat.

51. In such an administrative proceeding, Respondent'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 [Respondent] made the assessment."

Section 120.575 (2), Fla. Stat. Upon Respondent making such a showing, the

burden shifts to the taxpayer to demonstrate by a preponderance of the evidence

that the assessment is incorrect. See Department of Health and Rehabilitative

Services v. Career Service Commission, 289 So.2d 412, 415 (Fla. 4th DCA

1974)("'[as a general rule the comparative degree of proof by which a case must

be established is the same before an administrative tribunal as in a judicial

proceeding- that is, a preponderance of the evidence'").

52. The assessment at issue in the instant case was the product of an

audit of Shuckers' business activitiess during the period commencing June 1,

1987, and ending May 31, 1993, which led Respondent to preliminarily determine

that Petitioners (along with Woods) should be held liable for the payment of

unpaid taxes (plus penalties and interest) that were generated as a result of

the operation of the business during the audit period.

53. TAN, Inc., conceded liability with respect to, and paid, that portion

of the assessment relating to the payments, totaling approximately $15,000.00,

that it had been responsible to make under its lease agreement with Illinois

Land Trust and Michael Blake, Trustee, for the period from December 3, 1992, to

May 31, 1993. 9/ It administratively challenged the remaining portions of the

assessment, however. Mesa did likewise.

54. At hearing, Petitioners presented evidence sufficient to establish

that these contested and unpaid portions of the assessment against them should,

as they have requested, be withdrawn by Respondent.

55. The preponderance of the evidence adduced at hearing establishes that

Petitioners' involvement in Shuckers' business activities was limited to their

acting as agents on behalf of the owner of Shuckers during approximately the

last six months of the audit period and that at no time did they themselves have

any ownership interest in any part of the business, including its stock or

inventory, or ultimate control over its operations.

56. Under such circumstances, Petitioners are not liable under the Act, as

"dealers" or in any other capacity, for the payment of those unpaid taxes the

owner of Shuckers should have collected during the period of Petitioners'

involvement (as the owner's agents) in the operations of the business; nor do

they have any liability under the Act, as purchasers, transferees, successors or

in any other capacity, for the payment of those unpaid taxes that were due and

owing at the time their involvement in the business began. 10/

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

hereby

RECOMMENDED that the Department of Revenue enter a final order withdrawing

the contested and unpaid portions of the assessment issued as a result of Audit

No. 9317210175, as it relates to TAN, Inc., and Linda A. W. Mesa.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 27th day of

June, 1995.

___________________________________

STUART M. LERNER

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 27th day of June, 1995.

ENDNOTES

1/ A check in this amount accompanied the petition.

2/ The certificate of service of Petitioners' proposed recommended order

reflects that a copy of their proposed recommended order was mailed to counsel

for Respondent on June 12, 1995, the same date that, according to the

certificate of service of Respondent's proposed recommended order, Respondent

mailed a copy of its proposed recommended order to Petitioners.

3/ This finding is based upon testimony given by Mesa at hearing, which the

Hearing Officer finds credible notwithstanding that it appears to be

inconsistent with the concession made in Petitioners' petition (which Mesa

signed, but apparently did not prepare) that TAN, Inc. made lease payments

totaling $15,000.00 from December 3, 1992, through May 31, 1993.

4/ These tee-shirts and souvenirs were sold from a kiosk located at the

entrance to the restaurant.

5/ The business received 50 percent of the monies collected from these

machines.

6/ There were no exemptions claimed either before June of 1988 or after

November of 1992.

7/ In fact, TAN, Inc., had no "right, title and interest in and to [any]

inventory, equipment, stock [or] supplies on said premises."

8/ This is the only instance under the statute where a representative or agent

may be deemed to be a "dealer" based upon conduct in which it engages on behalf

of its principal. See Frank J. Rooney v. Leisure Resorts, 624 So.2d 773, 777

(Fla. 4th DCA 1993, rev. granted, 639 So.2d 979 (Fla. 1994)("[w]hen the

legislature has carefully employed a term in one section of the statute, but

omits it in another section of the same act, it should not be implied where it

is excluded;" "[a] court may not, in the process of construction, supply the

omission"); St. George Island, LTD., v. Rudd, 547 So.2d 958, 961 (Fla. 1st DCA

1989)("the presence of a term in one portion of a statute and its absence from

another argues against reading it as implied by the section from which it is

omitted"); Ocasio v. Bureau of Crimes Compensation, 408 So.2d 751, 753 (Fla. 3d

DCA 1982)(Legislature's use of different language in different portions of the

same statute "is strong evidence that it intended a . . . different meaning");

cf. Johnson v. Fraedrich, 472 So.2d 1266, 1268 (Fla. 1st DCA 1985)("[a]n act

done by an agent on behalf of the principal within the scope of the agency is

not the act of the agent but of the person by whose direction it is done").

9/ Accordingly, the propriety of this portion of the assessment is not at issue

in the instant case.

10/ In applying the applicable provisions of the Act to the facts of the

instant case, it must be kept in mind that "[t]ax laws should be construed

strongly in favor of the taxpayer and against the government with all

ambiguities or doubts resolved in the taxpayer's favor." See Lloyd Enterprises,

Inc. v. Department of Revenue, 651 So.2d 735, 739 (Fla. 5th DCA 1995).

APPENDIX TO RECOMMENDED ORDER

The following are the Hearing Officer's specific rulings on the "findings

of facts" proposed by the parties:

Petitioners' Proposed Findings

1-3. Accepted and incorporated in substance, although not necessarily

repeated verbatim, in this Recommended Order.

4. Rejected as a finding of fact because it is more in the nature of a

summary of testimony than a finding of fact.

5-8. Not incorporated in this Recommended Order because it would add only

unnecessary detail to the factual findings made by the Hearing Officer.

9. Accepted and incorporated in substance.

10. To the extent that this proposed finding states that "there w[ere]

never any moneys paid to the Trust for rent," it has been accepted and

incorporated in substance. To the extent that it states that, as a result,

"[t]he lease agreement was never activated," it has been rejected as a finding

of fact because it is more in the nature of legal argument.

11. Accepted and incorporated in substance.

Respondent's Proposed Findings

1-3. Accepted and incorporated in substance.

4. To the extent that this proposed finding states that the application

was filed and granted "on or about April 1, 1993," it has been rejected because

it is contrary to the greater weight of the evidence. Otherwise, it has been

accepted and incorporated in substance.

5. Accepted and incorporated in substance.

6. To the extent that this proposed finding states that (a) Mesa filed DR-

15s "throughout the audit period," as opposed to only for approximately the last

six months of the audit period, and (b) NAT, Inc., was at the time the "previous

owner" of the business, it has been rejected because it is contrary to the

greater weight of the evidence. Otherwise, it has been accepted and

incorporated in substance.

7. To the extent that this proposed finding suggests that TAN, Inc., (or

Mesa) was the owner of Shuckers from December of 1992 through the end of the

audit period, it has been rejected because it is contrary to the greater weight

of the evidence.

8. Accepted and incorporated in substance.

9. To the extent that this proposed finding suggests that TAN, Inc., (or

Mesa) assumed ownership of the business from "previous owners," it has been

rejected because it is contrary to the greater weight of the evidence.

Otherwise, it has been accepted and incorporated in substance.

10. Before "and:" Accepted and incorporated in substance; After "and:"

Not incorporated in this Recommended Order because, even if true, it would not

change the outcome of the instant case.

11. Not incorporated in this Recommended Order because it would add only

unnecessary detail to the factual findings made by the Hearing Officer.

12. Accepted and incorporated in substance.

13. First and second sentences: To the extent that these proposed

findings state that (a) TAN, Inc., (or Mesa) was transferred ownership of the

business, and (b) TAN, Inc., (or Mesa), as opposed to the owner of the business,

"received 50 percent of the proceeds of the business," they have been rejected

because they are contrary to the greater weight of the evidence. Otherwise,

they have been accepted and incorporated in substance; Third sentence: Not

incorporated in this Recommended Order because it would add only unnecessary

detail to the factual findings made by the Hearing Officer.

14. Accepted and incorporated in substance.

15. First sentence: Accepted and incorporated in substance; Second and

third sentences: Not incorporated in this Recommended Order because, even if

true, they would not change the outcome of the instant case.

16. To the extent that this proposed finding suggests that TAN, Inc., (or

Mesa) assumed ownership of the business from a "prior owner," it has been

rejected because it is contrary to the greater weight of the evidence.

Otherwise, it has been accepted and incorporated in substance.

17. Accepted and incorporated in substance.

18. To the extent that this proposed finding suggests that ownership of

the business was transferred to TAN, Inc., (or Mesa) by a "previous owner," it

has been rejected because it is contrary to the greater weight of the evidence.

To the extent that it states that TAN, Inc., and Mesa were "assessed tax under

transferee liability for lease payments made by [Woods' corporations] on which

no tax was shown to have been paid," it has been accepted and incorporated in

substance.

COPIES FURNISHED:

Linda A. W. Mesa

99 South Sewall's Point Road

Stuart, Florida 34996

Lealand L. McCharen

Assistant Attorney General

Office of the Attorney General

The Capitol- Tax Section

Tallahassee, Florida 32399-1050

Linda Lettera

General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399-0100

Larry Fuchs

Executive Director

Department of Revenue

104 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 OF TIME 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.