94-004070 Division Of Alcoholic Beverages And Tobacco vs. Pizza Hut Of St. Johns, No. 1, Inc., D/B/A Pizza Hut Status: Closed Recommended Order on Friday, February 24, 1995.

Summary: Respondent underpaid surcharge on sale of beer during sudit period.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS )

AND PROFESSIONAL REGULATION, )

DIVISION OF ALCOHOLIC BEVERAGES )

AND TOBACCO, )

)

Petitioner, )

)

vs. ) CASE NO. 94-4070

)

PIZZA HUT OF ST. JOHNS #1, Inc., )

d/b/a PIZZA HUT, )

)

Respondent. )

_________________________________)

RECOMMENDED ORDER

Pursuant to written notice a formal hearing was held in this case before

Larry J. Sartin, a duly designated Hearing Officer of the Division of

Administrative Hearings, on January 19, 1995, in St. Augustine, Florida.

APPEARANCES

For Petitioner: Richard D. Courtemanche, Jr.

Assistant General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399-1007

For Respondent: Sam J. Alkhoury

Secretary/Treasurer

Pizza Hut of St. Johns #1, Inc.

Post Office Box 3406

St. Augustine, Florida 32085

STATEMENT OF THE ISSUES

This issue in this case is whether Respondent, Pizza Hut of St. Johns #1,

Inc., d/b/a Pizza Hut, owes additional surcharge on the sale of alcoholic

beverages for consumption on the premises of $1,078.96 plus penalties of $231.46

for the period July 1, 1990 through October 31, 1993.

PRELIMINARY STATEMENT

The Petitioner, the Department of Business and Professional Regulation,

Division of Alcoholic Beverages and Tobacco, performed an audit of Respondent.

Petitioner determined that Respondent owed additional surcharge on the sale of

alcoholic beverages for consumption on the premises of $1,078.96 plus penalties

of $231.46 for the period July 1, 1990 through October 31, 1993. An

Administrative Action, Case Number AX-65-93-0774, seeking payment of the

surcharge and penalty was entered February 15, 1994.

On February 17, 1994 Respondent requested a formal administrative hearing

to contest the Petitioner's audit findings.

Respondent's request for hearing was referred to the Division of

Administrative Hearings by letter dated July 18, 1994. The matter was

designated case number 94-4070 and was assigned to the undersigned.

At the final hearing Petitioner presented the testimony of Elizabeth M.

Doyle, Ronald Sullivan, Terrene Bennett, Kimball K. Ross, Tracy L. Zaher and

Elizabeth F. Anno. Petitioner offered 5 exhibits which were accepted into

evidence.

Respondent presented the testimony of Sam Alkoury. Respondent offered 2

exhibits which were accepted into evidence. Respondent's exhibit 2 has been

determined not to be relevant to this proceeding and constitutes hearsay.

Official recognition of Section 561.501, Florida Statutes, was taken.

No transcript of the final hearing was ordered by the parties.

The parties have filed proposed recommended orders containing proposed

findings of fact. A ruling on each proposed finding of fact has been made

either directly or indirectly in this Recommended Order or the proposed finding

of fact has been accepted or rejected in the Appendix which is attached hereto.

FINDINGS OF FACT

1. Petitioner, the Department of Business and Professional Regulation,

Division of Alcoholic Beverages and Tobacco (hereinafter referred to as the

"Division"), is an agency of the State of Florida responsible for, among other

things, the collection of a surcharge on the sale of alcoholic beverages for

consumption on the premises pursuant to Section 561.501, Florida Statutes.

2. Pursuant to Section 561.501, Florida Statutes, a "surcharge" of 10

cents is imposed upon the sale of each ounce of liquor and each 4 ounces of

wine, and 4 cents on each 12 ounces of beer sold at retail for consumption on

premises licensed by the Division.

3. Respondent, Pizza Hut of St. Johns #1, Inc., d/b/a Pizza Hut

(hereinafter referred to as "Pizza Hut"), is the holder of six licenses

authorizing it to sell beer and wine in Florida:

Number & Series Location

65-00014, 2-COP 1200 Ponce de Leon Blvd.

St. Augustine, Fl.

65-00400, 2-COP U.S. 1 and S.R. 312

St. Augustine, Fl.

65-00668, 2-COP 41 King Street

St. Augustine, Fl.

65-00563, 2-COP 112 E. Vilano Road, A1A

Vilano Beach, Fl.

28-00032, 2-COP 611 N. Ocean Street

Flagler Beach, Fl.

28-00188, 2-COP 10 Palm Harbor Village

Palm Coast, Fl.

4. Four of Pizza Hut's licenses are associated with restaurants located in

Volusia County, Florida and two are associated with restaurants located in St.

Johns County, Florida.

5. Pizza Hut's licenses allow it to sell beer and wine for consumption on

the premises or for carry-out in their original sealed packages.

6. Pizza Hut elected to report and pay surcharge imposed on the sale of

alcoholic beverages for consumption on the premises pursuant to Section 561.501,

Florida Statutes.

7. Pizza Hut has filed consolidated surcharge reports for all six licensed

premises since 1992.

8. Pizza Hut determined the amount of its surcharge by utilizing the

"sales method." Pursuant to this method, Pizza Hut attempted to record and

report its actual sales of beer. Employees recorded sales of beer on cash

register receipts. The total monthly sales recorded on cash register receipts

were then divided by the average price of a glass of beer to determine the

amount of beer sold. The surcharge rate was then applied to the amount of beer

Pizza Hut determined had been sold.

9. On or about November 12, 1993, the Division instigated an audit of

Pizza Hut. The audit was for the period July 1, 1990, through October 31, 1993.

10. The Division's auditor, Tracy Zaher, determined that Pizza Hut had

underpaid its surcharge for a sample period by more than 10 percent. Ms. Zaher

made this determination on information provided by Pizza Hut. Because the

underpayment was more than 10 percent, Ms. Zaher expanded her audit.

11. Ms. Zaher utilized a formula provided in Rule 61A-4.063(9), Florida

Administrative Code, to verify the amount of surcharge due from Pizza Hut. The

formula used by Ms. Zaher was essentially as follows:

a. Start with beginning inventory (provided by Pizza Hut);

b. Add actual purchases of beer during the audit period;

c. Subtract spillage and other non-sales of beer such as

beer used for cooking;

d. Subtract ending inventory.

e. Apply the surcharge to the resulting amount of beer

sold (provided by Pizza Hut).

12. Information concerning beer purchased during the sample period was

provided by Burkhardt Distributors and Daytona Budweiser. Burkhardt

Distributors and Daytona Budweiser are the exclusive distributors of Anheuser-

Busch beer in the area where Pizza Hut's restaurants are located, Volusia and

St. Johns counties.

13. Burkhardt Distributors and Daytona Budweiser were able to provide

information proving Pizza Huts purchases of beer for 1992 and 1993. Information

concerning purchases of beer to Pizza Hut for 1990 and 1991 was not available.

13. Because actual purchases of beer for 1990 and 1991 were not available,

the Division did not determine whether any additional surcharge was due from

Pizza Hut for those years. The formula provided by Rule 61A-4.063(9), Florida

Administrative Code, was only applied by the Division for the period January 1,

1992 through October 31, 1993.

14. Pizza Hut's beginning inventory as of January 1, 1992 and its ending

inventory as of October 31, 1993, was provided by Pizza Hut and accepted by the

Division as accurate.

15. "Spillage" is a reasonable estimate of the amount of beer lost by

accident. The Division assumed a spillage allowance of 10 percent for 1992 and

none for 1993. Pizza Hut failed to prove that the allowance for spillage used

by the Division was not reasonable.

16. The Division also subtracted a 1 percent collection allowance. This

allowance is allowed if surcharge reports are filed timely.

17. Pizza Hut failed to prove that it used any quantity of beer during the

sample period for other non-taxable purposes, such as cooking.

18. The actual numbers used by the Division in determining the amount of

surcharge Pizza Hut should have paid for sales of beer between January 1, 1992

and October 31, 1993 were as follows:

Beginning Inventory: 197.94 gallons

Purchases: 16,144.26 gallons

Spillage: 1,242.43 gallons

Ending Inventory: 133.77 gallons

Total Beer Sold: 14,966.00 gallons

Times Surcharge rate: x $.43

Surcharge Payment Due: $6,435.38

Less Surcharge Paid: $5,308.22

Less Collection Allow.: 48.20

Underpayment: $1,078.96

19. The amount of additional surcharge owed by Pizza Hut determined by the

Division is attributable to the sale of an additional 2,509 gallons of beer

between January 1, 1992 and October 31, 1993. The additional beer equals

approximately 164 kegs of beer. The additional beer also equals, on average,

416 gallons of beer per store and 18 gallons of beer per month at each store.

20. When Ms. Zaher reported her audit findings to Mr. Alkoury, the owner

of Pizza Hut, he suggested that beer reported as purchased by beer distributors

was inaccurate because beer salesmen replaced empty kegs of beer with empty or

partly empty kegs, and beer was poured out by employees because it was too foamy

or too warm. The evidence failed to support either theory.

21. Mr. Alkoury also informed Ms. Zaher that his restaurants did not sell

beer by the pitcher. The Division determined, and the evidence proved, that Mr.

Alkoury was incorrect. Pizza Hut does in fact sell beer by the pitcher. Pizza

Hut, in applying the sales method, assumed that all beer was sold by the glass.

Because beer was in fact sold by the pitcher also, Pizza Hut's calculations of

the amount of beer sold during the audit period was inaccurately low.

21. Ms. Zaher assumed that 2 pitchers of beer were sold each day at each

of the restaurants. Applying the sales method with this assumption resulted in

surcharge due substantially the same as the surcharge determined to be due by

applying the formula of Rule 61A-4.063(9), Florida Administrative Code, for the

audit period.

22. Pizza Hut suggested that it should not be required to pay additional

surcharge because it had used the sales method, the sales method was approved by

the Division and it was not fair for the Division to use a different method to

audit it.

23. Pizza Hut failed to prove that it accurately applied the sales method.

The sales method is subject to human error and the evidence also indicates that

Pizza Hut failed to accurately take into account sales of beer by pitchers.

24. Pizza Hut also failed to prove that the method used by the Division to

audit Pizza Hut was inappropriate. Unlike the sales method, the method used by

the Division is not subject to the same human error that may occur by use of the

"sales method". Therefore, the method used by the Division in auditing Pizza

Hut is a reasonable method to verify whether a taxpayer's use of the sales

method was accurate. Additionally, the method used by the Division to audit

Pizza Hut is required to be used by the Division by Rule 61A-4.063(9), Florida

Administrative Code.

CONCLUSIONS OF LAW

25. The Division of Administrative Hearings has jurisdiction of the

parties to and the subject matter of this proceeding. Section 120.57(1),

Florida Statutes (1993)

26. Section 561.501(1), Florida Statutes (1991), provides as follows:

Notwithstanding s. 561.50 or any other provision

of the Beverage Law, a surcharge of 10 cents is

imposed upon each ounce of liquor and each 4

ounces of wine, and a surcharge of 4 cents is

imposed on each 12 ounces of beer sold at retail

for consumption on premises licensed by the

division as an alcoholic beverage vendor.

27. Section 561.501(3)(c), Florida Statutes, the Division is required to

promulgate by rule "guidelines and procedures" for implementation of the

surcharge. In furtherance of this requirement, the Division has adopted Rule

61A-4.063, Florida Administrative Code.

28. Rule 61A-4.063(1), Florida Administrative Code, requires that all

vendors such as Pizza Hut elect one of two methods for calculating surcharge.

Those methods are the "sales" method and the "purchase" method. Rule 61A-

4.063(4), Florida Administrative Code.

29. Pizza Hut elected to use the "sales" method to calculate its surcharge

liability.

30. Rule 61A-4.063(4)(c), Florida Administrative Code, provides the

following:

(c) If the vendor chooses the sales method,

the vendor will bear the burden of proof

that the method used accurately reflects

actual sales. . . .

31. Rule 61A-4.063(9), Florida Administrative Code, provides the

following:

. . . In order to determine whether the monthly

reports submitted by the vendor are accurate,

the division shall use the formula of beginning

inventory plus purchases for the period, less

ending inventory, less the spillage allowance,

to ascertain sales for the period. Adjustments

to this formula in favor of the licensee will

be based on factual, substantiated evidence.

The results of the formula will represent

sales transactions as defined herein and in

section 561.01(9), Florida Statutes, for the

period under review.

32. Rule 61a-4.063(9), Florida Administrative Code, requires that the

Division determine whether a vendor's calculation of surcharge, whether

determined through the sales method or the purchase method, is accurate by the

formula provided. The Division's audit of Pizza Hut was consistent with the

formula provided in Rule 61A-4.063(9), Florida Administrative Code.

33. Having accurately applied the formula provided in Rule 61A-4.063(9),

Florida Administrative Code, the burden of proving that the surcharge paid by

Pizza Hut was accurate was on Pizza Hut. Pizza Hut failed to meet that burden.

34. Pizza Hut essentially argued that the Division should not be allowed

to check the accuracy of its surcharge payments with a method other than the

method used by Pizza Hut--the sales method. Rule 61A-4.063(9), Florida

Administrative Code, however, requires that the Division use the method it used

in conducting its audit of Pizza Hut.

RECOMMENDATION

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

RECOMMENDED that the Division enter a Final Order requiring that Pizza Hut

of St. Johns #1, d/b/a Pizza Hut, pay additional surcharge pursuant to Section

561.501(1), Florida Statutes (1991), in the amount of $1,078.96, plus penalties

of $231.46.

DONE and ENTERED this 24th day of February, 1995, in Tallahassee, Florida.

___________________________________

LARRY J. SARTIN

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 24th day of February, 1995.

APPENDIX

The parties have submitted proposed findings of fact. It has been noted

below which proposed findings of fact have been generally accepted and the

paragraph number(s) in the Recommended Order where they have been accepted, if

any. Those proposed findings of fact which have been rejected and the reason

for their rejection have also been noted.

The Division's Proposed Findings of Fact

1 Accepted in 1.

2 Accepted in 5.

3 Accepted in 6-7.

4 Accepted in 12-13.

5 Accepted in 12-13.

6 Hereby accepted.

7 Although generally accurate, these proposed findings only relate the

weight to be given Ms. Zaher's testimony.

8 Accepted in 2.

9 Accepted in 11.

10 Accepted in 9. See 8.

11 Accepted in 13.

12 Accepted in 14 and 17.

13 Accepted in 15.

14 Accepted in 16.

15 Accepted in 9 and 13.

16 Accepted in 18.

17 Accepted in 18.

18 Accepted in 19.

19 See 20-24.

20 Accepted in 20.

21 Accepted in 21.

22 See 21.

23-24 Accurate summary of Mr. Alkoury's testimony. See 20-24.

Pizza Hut's Proposed Findings of Fact

Paragraph:

1 Statement of Pizza Hut's position.

2 "Fact I": The date the surcharge became effective, the methods of

determining surcharge and Pizza Hut's use of the sales method are correct. Why

Pizza Hut elected the sales method is not relevant. The information provided to

the undersigned concerning sales of beer was hearsay and did not relate to the

audit period.

3 "Fact II": Pizza Hut does have 6 restaurants. The evidence proved that

the 6 restaurants have been reported surcharge on a consolidated basis.

4 "Division Problem I": Not supported by the weight of the evidence.

5 and 6 "Problem II": See 12-14.

7 "Problem III": See 11 and 20-24.

8 "Question": Not a proposed finding of fact.

9 "Problem": See 11 and 20-24.

10 "Problem": See 11 and 20-24.

11 Not relevant.

12 Not supported by the weight of the evidence.

13 Not supported by the weight of the evidence.

COPIES FURNISHED:

Richard D. Courtemanche, Jr.

Senior Attorney

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399-1007

Sam J. Alkhoury

Secretary/Treasurer

Post Office Box 3406

St. Augustine, Florida 32085

John J. Harris, Director

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Jack McRay

Acting General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399-0792

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.