94-004909 Hmy New Yacht Sales, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, August 2, 1995.

Summary: Registered boat dealer not subject to use tax on vessel purchased for resale and used only as a demonstrator despite change in treatment on its books.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HMY NEW YACHT SALES, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 94-4909

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

___________________________)

RECOMMENDED ORDER

Pursuant to Notice, this cause was heard by Linda M. Rigot, the assigned

Hearing Officer of the Division of Administrative Hearings, on May 8, 1995, in

Tallahassee, Florida.

APPEARANCES

For Petitioner: Cynthia S. Tunnicliff, Esquire

Pennington & Haben, P.A.

Post Office Box 10095

Tallahassee, Florida 32302-2095

For Respondent: Mark T. Aliff, Esquire

Office of the Attorney General

Tax Section, The Capitol

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue presented is whether HMY New Yacht Sales, Inc., is liable for

the payment of use tax, together with penalty and interest, on a yacht which it

purchased for resale and for use as a demonstrator.

PRELIMINARY STATEMENT

On November 5, 1992, the Department issued to Petitioner its Notice of

Proposed Assessment, and Petitioner thereafter filed its Written Protest of

Florida Sales and Use Tax with the Department. On April 21, 1994, the

Department issued its Notice of Decision sustaining its assessment, and

Petitioner timely requested a formal hearing regarding that determination. This

cause was thereafter transferred to the Division of Adminis-trative Hearings to

conduct the formal proceeding.

Petitioner presented the testimony of Stephen D. Moynihan by way of

deposition. Denise Warren testified on behalf of the Department. Additionally,

Joint Exhibits numbered 1-4 and Peti-tioner's Exhibit numbered 1 were admitted

in evidence.

Both parties submitted post-hearing proposed findings of fact in the form

of proposed recommended orders. A specific ruling on each proposed finding of

fact can be found in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. Petitioner HMY New Yacht Sales, Inc., is a Florida cor-poration located

in Dania, Florida. It is a franchise and an authorized dealer for several lines

of new boats. Petitioner is registered as a dealer for Florida sales tax

purposes and has a dealer decal.

2. Petitioner became an authorized dealer for Davis Yachts, a manufacturer

located in North Carolina, in 1985. In January 1990 Petitioner purchased a boat

from Davis Yachts to be used for demonstration and promotional activities and

for resale. The boat was a 47-foot fiberglass sports fisherman named "The

Bandit."

3. When the boat was delivered, Petitioner outfitted The Bandit with

extensive electronics and fishing equipment, including a tuna tower, outriggers,

a fighting chair, rocket launchers, and live wells. It took approximately two

months (until the second week in March 1990) to outfit the boat to have it ready

for its intended sports fishing purpose. The type of equipping done by

Petitioner is typical of that done on every such boat when it is sold since such

a boat cannot be used for its intended purpose without the electronics and other

equipment. Petitioner, however, wanted the boat to be "ready to go," when

Petitioner sold it rather than having the purchaser wait for the outfitting to

be done before the purchaser could use the boat.

4. Petitioner paid the factory approximately $520,000 for the boat.

Petitioner's payments to local vendors for services and materials used in

outfitting the boat brought Petitioner's cost to approximately $590,000.

5. The Bandit was never documented or registered in the state of Florida.

It was only operated under Petitioner's dealer registration and decal, as

provided in Section 327.13, Florida Statutes.

6. The boat was purchased with the intent to sell it, and it was always

for sale from the first moment it was outfitted and ready to be shown. It was

never Petitioner's intent to keep the boat. As soon as it was outfitted, the

boat had on board, at all times, a file containing a complete inventory of the

boat's equipment, including custom and standard options, and a color brochure

with pictures of the boat to be given to potential customers.

7. While Petitioner was attempting to sell the boat, it was also used by

Petitioner as a sales promotional tool. Petitioner took the boat to various

fishing tournaments and exhibited it at boat shows and open houses. Davis

Yachts bore some of the expense of those activities since promoting the boat

inured to the benefit of Davis as well as of Petitioner. When the boat was

being used for promotional or sales activities, it would always have on board

employees or salespersons of Petitioner or of Davis Yachts and customers. On

occasion, family members accompanied Petitioner's salespersons on board the

boat. The manner in which The Bandit was marketed--taking it to fishing

tournaments and boat shows and having open house at various events--is typically

the way new sport fisherman yachts are sold throughout the industry.

8. The boat was shown to prospective customers at least once a month.

Approximately 50 customers were taken on sea trials.

9. The boat was never loaned or rented to anyone. It was used only under

the direction of Petitioner or Davis Yachts. The only compensation received by

Petitioner relating to the boat resulted from the occasions when Davis Yachts

split some of the expenses for the promotional or sales activities.

10. The boat did not sell as quickly as Petitioner hoped. In October 1990

Petitioner placed the boat on the Buck System, a multiple listing service which

distributes information to other yacht brokers concerning boats which are for

sale. Generally, boat dealers would not put new inventory in the multiple

listing system. Petitioner did so in this instance, however, in order to

quickly sell the boat because the government had announced a luxury tax proposal

which Petitioner feared would result in a downturn in the boat market. Even

with all the effort put into attempting to sell the boat, it did not sell until

November 1991.

11. In July 1992 the Department began a routine sales tax audit of

Petitioner. The audit was completed in September 1992 and covered the period of

time from March 1987 through February 1992.

12. The Department auditor determined that Petitioner owed use tax on The

Bandit because in November 1990, on the advice of its accountant, Petitioner

took the boat out of its inventory account and placed it in its fixed assets

account in order to take depreciation for federal income tax purposes. Based

solely on Petitioner's treatment of the vessel on its corporate books, the

auditor determined that Petitioner converted The Bandit to its own use and was,

therefore, responsible for payment of the statutory use tax rate of 6 percent of

the value of the boat as reflected on Petitioner's records.

13. Based upon the audit, the Department issued its Notice of Proposed

Assessment, assessing Petitioner $33,921.94 in tax, $8,480.50 in penalty, and

$7,085.52 in interest through September 16, 1992. Interest continues to accrue

at $11.15 per day.

CONCLUSIONS OF LAW

14. The Division of Administrative Hearings has jurisdiction over the

parties hereto and the subject matter hereof. Section 120.57(1), Florida

Statutes.

15. The parties do not dispute that Petitioner was a regis-tered dealer

for sales tax purposes and could purchase the boat for resale tax free and

collect the tax on the retail sale to the ultimate consumer. The dispute

between the parties involves only the question of whether Petitioner converted

the boat to its own use and became liable for the payment of use tax solely

because Petitioner changed its treatment of the vessel on the corporate books

for federal income tax purposes. The answer is that Peti-tioner did not.

16. There are no statutes or rules which specify that the classification

of an asset on the corporate books for federal income tax purposes is the only

factor to consider in determining whether property has been converted to a

taxpayer's own use. Although the auditor and the Department cited several

Florida statutes and administrative rules pertaining to use tax, none specifies

that the Department should look at no indicia of intent or use other than the

treatment of an asset on the corporate books for federal income tax purposes.

There are no statutory or rule provisions which address this particular issue.

17. Further, the Department presented evidence that generally accepted

accounting principles (GAAP) prohibit depre-ciating inventory but allow the

depreciation of fixed assets. The Department's auditor testified that GAAP is

used for federal income tax purposes, but the Department does not require

taxpayers to follow GAAP. Accordingly, generally accepted accounting principles

do not dictate that Petitioner's treatment of The Bandit on its corporate books

requires the payment of a use tax to the state of Florida.

18. Dispositive of liability for use tax in this proceeding is

Petitioner's use of The Bandit. The Department admits that The Bandit was

exempt from sales tax when purchased by Petitioner, a registered dealer.

Chapter 327, Florida Statutes, regulates the registration of vessels, and

Section 327.13(4) specifically regulates a registered dealer's use of a vessel

as follows:

(4) A manufacturer or dealer shall not use

or authorize the use of any vessel registered

pursuant to this section for other than

demonstration, sales promotional, or testing

purposes. Such vessel shall not be used for

any commercial or other use not specifically

authorized by this section.

Thus, Chapter 327 provides for the registration of boats and provides for a

dealer registration when a boat is being used for demonstration and promotional

activities.

19. The evidence is uncontroverted that from the day Petitioner purchased

the Bandit until November 1991 when Petitioner sold the vessel to its ultimate

consumer Petitioner only used the vessel for demonstration and promotional

purposes. It was never used to carry passengers for hire or for any other

commercial activity. It was always for sale. The evidence is further

uncontroverted that the vessel was always operated under Petitioner's dealer

registration decal. The only conclusion that can be drawn from the evidence in

this cause is that the boat was purchased for resale and remained for resale

during the entire time it was held by the Petitioner. In short, the use of the

vessel never changed although the entry for the vessel on Petitioner's corporate

books did change. The Department's auditor did not consider Section 327.13,

Florida Statutes, in determining that Petitioner was liable for use tax because

she was not aware of the existence of that statutory provision.

20. It is interesting to note that the change in treatment on the

corporate books relied on by the Department to determine that the vessel was no

longer for sale but had been converted to Petitioner's own use occurred at about

the same time that Peti-tioner placed the vessel on the multiple listing service

to provide other yacht dealers with information on the vessel in order to

increase Petitioner's opportunities to sell The Bandit. The listing of The

Bandit on the multiple listing service is cer-tainly another indicia of

Petitioner's continuing intent to sell the vessel. The Department offers no

explanation for its choice of treatment on the corporate books for federal

income tax pur-poses being a controlling factor in determining the use of a ves-

sel rather than the continuous display of the dealer registration decal and the

listing of the vessel for sale on a multiple list-ing service.

21. The better reasoned argument is that the treatment of an item on the

corporate books may be one indication of whether personal property is being held

for resale, but it is not the only or conclusive indication. Where, as here,

Petitioner purchased a new vessel for resale as an exempt purchaser and

continuously put forth efforts to accomplish that resale, only using the vessel

as authorized for a registered dealer, then Petitioner evidenced no intent to

convert the boat and did not convert the boat to its own use based only on

bookkeeping entries in the corporate records, following the advice of its tax

pro-fessional. Under the Department's argument, it is the bookkeep-ing entry

which the Department has elevated to a taxable event rather than the actual use

of the vessel, a proposition not sup-ported by any statutory or rule citation.

22. In its Supplemental Proposed Recommended Order, Peti-tioner argues

that in the event the assessment of tax is upheld in this Recommended Order, no

penalty or interest should be imposed pursuant to the Department's broad

discretion in determining whether to assess penalty and interest for the late

payment of sales and use tax. Section 213.21(3), Florida Statutes, authorizes

the Department to settle or compromise a taxpayer's liability for penalties if

". . . the noncompliance is due to reasonable cause and not to willful

negligence, willful neglect, or fraud." No evidence was offered and no argument

was made that Petitioner failed to pay a use tax on The Bandit due to willful

negligence, willful neglect, or fraud. Rather, it is undisputed that Petitioner

believed no use tax was due and relied upon the advice of Petitioner's

accountant.

23. Similarly, Rule 12-13.001, Florida Administrative Code, authorizes the

Department to settle or compromise the liability for interest, and Section 12-

13.005 authorizes such settlement when there is doubt as to the liability for

interest based on the facts and circumstances of a specific case. In the case

at bar, there are no statutes or rules specifying that the classification of an

asset on corporate books for federal income tax purposes is the only criterion

the Department will utilize to determine that a vessel has been converted to the

retail dealer's own use, so as to render it taxable. In the case at bar,

Petitioner relied on advice of its tax professional and changed the way the boat

was treated on its corporate books, with no knowledge that such might render it

liable for use tax. Further, no evidence was offered that there was any intent

or attempt to wrongfully evade the Florida use tax.

RECOMMENDATION

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

RECOMMENDED that a Final Order be entered determining that Petitioner is

not liable for payment of use tax, penalty, or interest on The Bandit, and

withdrawing the assessment which is the subject of this proceeding.

DONE and ENTERED this 2nd day of August, 1995, at Tallahassee, Florida.

___________________________________

LINDA M. RIGOT, 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 2nd day of August, 1995.

APPENDIX TO RECOMMENDED ORDER

1. Petitioner's proposed findings of fact numbered 1-12, 15, and 19 have

been adopted either verbatim or in substance in this Recommended Order.

2. Petitioner's proposed findings of fact numbered 13, 14, and 18 have

been rejected as not constituting findings of fact but rather as constituting

argument of counsel, conclusions of law, or recitation of the testimony.

3. Petitioner's proposed findings of fact numbered 16, 17, and 20 have

been rejected as being unnecessary to the issues involved herein.

4. Respondent's proposed findings of fact numbered 1-3, 6, 8, and 9 have

been adopted either verbatim or in substance in this Recommended Order.

5. Respondent's proposed findings of fact numbered 4, 5, and 10 have been

rejected as not being supported by the weight of the competent evidence in this

cause.

6. Respondent's proposed finding of fact numbered 7 has been rejected as

being unnecessary to the issues involved herein.

COPIES FURNISHED:

Cynthia S. Tunnicliff, Esquire

Pennington & Haben, P.A.

Post Office Box 10095

Tallahassee, Florida 32302-2095

Mark T. Aliff, Esquire

Office of the Attorney General

Tax Section, The Capitol

Tallahassee, Florida 32399-1050

Linda Lettera

General Counsel

Department of Revenue

104 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 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.

=================================================================

DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL

FIRST DISTRICT, STATE OF FLORIDA

HYM YACHT SALES, INC., NOT FINAL UNTIL TIME EXPIRES TO

FILE MOTION FOR REHEARING AND

Appellant, DISPOSITION THEREOF IF FILED.

vs. CASE NO. 95-4169

DOAH CASE NO. 94-4909

DEPARTMENT OF REVENUE,

Appellee.

___________________________/

Opinion filed July 16, 1996.

An appeal from an order of the Department of Revenue.

Cynthia S. Tunnicliff of Pennington, Culpepper, Moore, Wilkinson, Dunbar &

Dunlap, Tallahassee, for Appellant.

Robert A. Butterworth, Attorney General, and Mark T. Aliff, Assistant Attorney

General, Tallahassee, for Appellee.

BARFIELD, C.J.

HMY New Yacht Sales, Inc. (HMY) challenges a final order of the Department

of Revenue (FOR) adopting the hearing officer's findings of fact, but rejecting

her conclusions of law and finding that HMY is liable for the payment of use tax

and interest on a yacht which it purchased for resale, but which was also used

by HMY and by the manufacturer for demonstration and general sales promotional

purposes. We affirm the finding that HMY is liable for the payment of use tax

and interest on the yacht, notwithstanding procedural error on the part of DOR.

The parties do not dispute the facts. HMY (a Florida boat dealer)

purchased the 47 - foot fishing yacht, "The Bandit," from Davis Yachts, Inc.

(the manufacturer)_ in January 1990 for $420,000. HMY intended to resell the

yacht, but also to use it for demonstration and sales promotional activities

until its resale. The yacht was taken to boat shows and fishing tournaments,

was used only under the direction of HMY or Davis Yachts, and was never loaned

or rented to anyone. Davis Yachts bore some of the expense of the promotional

activities, which inured to the benefit of both businesses. The yacht was at

all times operated under HMY's dealer registration and decal, as provided in

section 327.13(4), Florida Statutes (1991). 1/

In October 1990, HMY placed the yacht on a multiple listing service in an

effort to quickly sell it in face of a government announcement of a luxury tax

proposal which HMY feared would adversely affect the boat market. In November

1990, on the advice of its accountant, HMY took the yacht out of its inventory

account and placed it in its fixed assets account in order to take depreciation

for federal tax purposes. The boat was sold in November 1991.

In 1992, DOR performed a routine sales tax audit of HMY, covering the

period from March 1987 through February 1992. Based upon the change in the

accounting status of the yacht from inventory to capital asset, the auditor

determined that HMY had converted "The Bandit" to its own use and was therefore

responsible for payment of the statutory use tax under section 212.05, Florida

Statute (1991). Based on the audit, DOR issued a notice of proposed assessment

of use tax, penalty, and interest, and HMY filed a written protest. DOR

thereafter issued a notice of decision sustaining its assessment, and HMY

requested a formal hearing, which was held before a Department of Administrative

Hearings (DOAH) hearing officer.

HMY's prehearing statement argued that no use tax was due because the yacht

"was purchased for resale and used as a demonstrator" and that "[a] dealer is

not deemed to have used a vessel in Florida so as to be subject to the use tax

when he has a vessel for sale and is using it as a demonstrator, with a Florida

dealer registration decal as provided in Section 327.13, Florida Statutes."

DOR's prehearing statement stated its position, "that Petitioner's accounting

treatment for the boat in question and use as a general demonstrator vessel

converted the vessel to Petitioner's use and rendered it taxable, pursuant to

Chapter 212, Fla. Stat., despite the fact that this boat was sold in October,

1991."

The hearing officer considered the live testimony of the DOR auditor and

deposition testimony of the vice president of HMY. HMY's attorney argued that

HMY was not liable for the use tax "simply because of the treatment that was

given the yacht on the corporate books." DOR argued:

. . .the use of which this boat was put, accountingwise, was

inconsistent with that to be afforded inventory. And at

that point in time, it was converted to the use and benefit

of this particular taxpayer, and benefits were derived . . .

[a]nd that is the basis [for the use tax assessment].

When HMY's vice president was asked whether the yacht was purchased as a

demonstrator, he responded:

A. Yes. Our intention, in 1990, was to have a boat for

demonstration and promotional purposes to enhance our

business and to use as a vehicle, or vessel in this

case to draw more business and create more sales.

That was the purpose in getting that boat in 1990.

Q. Did it create more sales?

A. I absolutely think it did.

He testified that it was always HMY's intent to resell the yacht, that the yacht

was always for sale, that it was operated under HMY's dealer registration and

decal, and that HMY complied with section 327.13. On cross-examination, he

agreed that the reason for purchasing the yacht was "for use as a demonstrator,

as opposed for (sic) an investment . . . the plan, from day one, was to use it

as it was used, which was as a demonstrator . . . [t]he plan was for it to be a

demonstrator boat, and to use it for promotional activities that we were

involved with then, and still are today, and to do the boat tests, and to do the

factory some good when they needed sea trial and demonstrations done in our part

of the country; it was a designated plan." He admitted that Davis Yachts

contributed to some of the demonstration and promotional expenses of the yacht,

"because the end result was that it was a benefit, supposed to be a benefit, to

both of us to have this thing as a demonstrator . . . that was a lot of the

reason for Davis' participation, was that it was going to be good for us both,

and as a demonstrator, we would be able to have this boat available for these

kinds of things." The auditor testified that she was not aware of section

327.13(4), and that the sole basis for the use tax assessment was the change in

accounting of the yacht.

In its proposed recommended order, DOR suggested the hearing officer find

that the use tax assessment was made against the yacht "because the Petitioner

converted this boat to its own use by transferring it out of inventory and

taking a federal income tax benefit that is inconsistent with the treatment to

be afforded inventory, which cannot be depreciated." It proposed that the

hearing officer make the following conclusions of law: that under the applicable

statutes, "the use of which the Petitioner converted this vessel was

inconsistent with its keeping [it] as inventory"; that "the conclusion that [the

vessel] was used in the trade or business is warranted"; and that although HMY

purchased the yacht without sales tax liability, "its inconsistent accounting

treatment and actual use of the vessel supports the conclusion that "The

Bandit's had been converted to Petitioner's use and merged with the mass of

property in this State, therefore rendering it liable for use tax as assessed by

Respondent. . ."

In her recommended order, the hearing officer concluded that HMY's actual

use of "The Bandit" was dispositive of its liability for use tax. She cited the

fact that HMY had complied with section 327.13(4) and stated that the DOR

auditor did not consider section 327.13 in determining that HMY was liable for

use tax "because she was not aware of the existence of the statutory provision."

She noted that the change in treatment of the yacht on the corporate books

"occurred at about the same time that Petitioner placed the vessel on the

multiple listing service to provide other yacht dealers with information on the

vessel in order to increase Petitioner's opportunities to sell The Bandit." She

concluded:

The better reasoned argument is that the treatment of

an item on the corporate books may be one indication

of whether personal property is being held for resale,

but it is not the only or conclusive indication. Where,

as here, Petitioner purchased a new vessel for resale as

an exempt purchaser and continuously put forth efforts

to accomplish that resale, only using the vessel as

authorized for a registered dealer, then Petitioner

evidenced no intent to convert the boat and did not

covert the boat to its own used based only on book-

keeping entries in the corporate records, following

the advice of its tax professional. Under the Depar-

ment's argument, it is the bookkeeping entry which

the Department has elevated to a taxable event rather

than the actual use of the vessel, a proposition not

supported by any statutory or rule citation.

The hearing officer noted DOR's broad discretion, under section 231.21(3), in

determining whether to assess penalties and interest for the late payment of

sales or use tax if "the noncompliance is due to reasonable cause and not to

willfull negligence, willful neglect, or fraud." She found that "no evidence

was offered that there was any intent or attempt to wrongfully evade the Florida

use tax." She recommended "that a Final Order be entered determining that

Petitioner is not liable for payment of use tax, penalty, or interest on The

Bandit, and withdrawing the assessment which is the subject of this proceeding."

In its final order, DOR adopted the hearing officer's findings of fact and

her legal conclusion that it had jurisdiction, but rejected her other

conclusions of law, "because they misapprehend the law or rely on or recite

incomplete or inapplicable portions of the statutes or rules," and substituted

its own conclusions of law. Noting the definition of "use" in section

212.02(21), it concluded that the facts "establish that Petitioner exercised

rights and powers incident to ownership of an interest in the property beyond

those necessary for resale of the property." It noted that HMY had admitted

using the yacht for demonstration and promotion of sales of other boats, and to

generally promote goodwill for its businesses. It stated:

Demonstration and promotional use of specific tangible

personal property restricted to that necessary to achieve

sale of that specific tangible personal property, would

not result in assessment of use tax. There is, however, no

exemption from tax for tangible personal property purchased

and used for purposes of demonstrating and promoting other

tangible personal property.

(Emphasis in the original; footnote omitted.) It also noted that "'The Bandit'

was extensively used by petitioner and by Davis Yachts, Inc. (a separate legal

entity), for demonstration and promotion of sales of other boats in Davis

Yachts's inventory, or to be manufactured by Davis Yachts, and Petitioner

received direct compensation for that use." It concluded that "[t]he use by

Petitioner of 'The Bandit' for the promotion of its other boats and the use by

and for another entity were the exercise by Petitioner of rights and powers

incident to ownership beyond any required for resale of the property so used."

DOR found that section 327.13 addresses safe operation and registration of

vessels, not taxation, and that "it does not provide an exemption from taxes

imposed pursuant to Chapter 212." The agency concluded that it was not

possible, under the narrow construction of tax exemption statutes required by

Green v. Pederson, 99 So. 2d 292 (Fla. 1957),

. . .to imply that the legislature, by specifying uses of

a vessel for purposes of regulation and registration under

Chapter 327, intended to provide an exemption from a tax

expressly imposed under sections 212.05 and 212.06, F.S. If

the legislature had intended to grant such an exemption, it

could have expressly done so. Compare, for example, section

212.0601, F.S., which provides an exemption from use tax

(other than a specified annual amount for each dealer

license plate) on use of a motor vehicle with a dealer

license plate under section 320.08(1), F.S.

It also concluded that HMY's converting the yacht "from an inventory item to a

capital asset was not incident to resale of the property, but was a purposeful

use in order to claim depreciation on federal income tax returns" and that "by

signing a federal income tax returns" and that "by signing a federal income tax

return in which it claimed a deduction for depreciation with respect to the

yacht, Petitioner declared that the yacht was not in its inventory of stock in

trade held primarily for resale, and that the yacht was used in its trade or

business." It ruled that HMY was liable for payment of use tax and interest on

the use of "The Bandit" because it "extensively used this property." However,

it exercised its discretion under section 212.21(3) "to waive the penalty

related to this portion of the assessment."

We find that DOR properly adopted all the hearing officer's factual

findings, notwithstanding how they were labeled by the hearing officer, and that

it also properly rejected her legal conclusions. The hearing officer apparently

misread the law as stating that a dealer is exempt from the use tax even though

it uses the vessel for taxable purposes, if it also intends to sell the vessel.

DOR did not dispute that HMY always intended resale of the yacht, or that resale

of "The Bandit" and any demonstration or promotional activities intended to aid

in selling "The Bandit" are considered non-taxable uses. Its determination that

HMY is liable for use tax was based in part on the fact that in addition to

resale of "The Bandit," HMY also used the yacht to sell other yachts and to

promote its business and the manufacturer's business, all of which DOR

interprets as falling within the statutory definition of a taxable "use." This

interpretation of the statute is a reasonable one and is within the agency's

scope of activity.

The problem is that, notwithstanding that HMY does not deny that it used

"The Bandit" to sell other boats and to promote its business and the business of

Davis Yachts, the hearing officer did not make such a finding that "The Bandit"

was used for more than to aid in its own resale, probably because she did not

interpret the statute as making this determination central to the question of

whether HMY was liable for use tax in this case. It was not within the agency's

province to make this factual finding. See Boulton v. Morgan, 643 So. 2d 1103

(Fla. 4th DCA 1994); Friends of Children v. Department of Health and

Rehabilitative Services, 504 So. 2d 1345 (Fla. 1st DCA 1987); Cohn v. Department

of Professional Regulation, 477 So. 2d 1039 (Fla. 3d DCA 1985). Were the actual

use of the yacht the only basis for the instant tax assessment, we would be

compelled to remand this case to DOR for further proceedings, including remand

by the agency to the hearing officer for entry of a recommended order containing

all findings of fact necessary to the determination of whether HMY would be

liable for use tax on "The Bandit." However, because the tax assessment is also

based upon HMY's accounting treatment of the yacht, we find affirmance of the

final order is proper.

We approve DOR's determination that HMY was liable for a use tax on "The

Bandit" based on its conclusion that HMY's converting the yacht "from an

inventory item to a capital asset was not incident to resale of the property,

but was a purposeful use in order to claim depreciation on federal income tax

returns" and that "by signing a federal income tax return in which it claimed a

deduction for depreciation with respect to the yacht, Petitioner declared that

the yacht was not in its inventory of stock in trade held primarily for resale,

and that the yacht was used in its trade or business. We also approve the

agency's interpretation of the statutory definition of "use" with respect to

demonstration and promotional activities, i.e., that such activities related

solely to resale of the vessel do not constitute a taxable "use," but that when

such activities are also related to the sale of other vessels or to the general

promotion of the dealer's business or another business, they constitute a

taxable "use" of the vessel.

Notwithstanding the agency's improper factfinding with respect to the

actual use of the yacht, the final order determining that HMY is liable for use

tax on "The Bandit," including interest, is AFFIRMED.

KAHN, J., and SMITH, SENIOR JUDGE, CONCUR.

ENDNOTE

1/ Section 327.13 relates to the registration by dealers and manufacturers of

boats used for demonstration, sales promotional, or testing purposes:

A manufacturer or dealer shall not use or authorize the use

of any vessel registered pursuant to this section for other

than demonstration, sales promotional, or testing purposes.

Such vessel shall not be used for any commercial or other

use not specifically authorized by this section.