94-005133 Central Dade Malpractice Trust Fund vs. Department Of Revenue Status: Closed Recommended Order on Friday, May 19, 1995.

Summary: Medical malpractice self-insurance fund can credit against premium tax its payments made for corporate income and intangible taxes; rule held invalid.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CENTRAL DADE MALPRACTICE )

TRUST FUND, )

)

Petitioner, )

)

vs. ) CASE NO. 94-5133

)

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 March 13, 1995,

in Miami, Florida.

APPEARANCES

For Petitioner: Curtis H. Sitterson, Esquire

Stearns, Weaver, Miller, et al.

Museum Tower

150 West Flagler Street

Miami, Florida 33130

For Respondent: Lisa M. Raleigh

Assistant Attorney General

Office of the Attorney General

Tax Section, Capitol Building

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue presented is whether the Department's audit assessment against

Petitioner for additional insurance premium tax for the tax years 1989 and 1990

is proper.

PRELIMINARY STATEMENT

The Department issued its Notice of Reconsideration sustaining its

assessment against Petitioner for additional insurance premium tax, and

Petitioner timely filed two Petitions: one challenging the validity of Rule 12B-

8.001(5), Florida Administrative Code, which is the subject of DOAH Case No. 94-

5180RX, and one protesting the Department's assessment, which is the subject of

this proceeding. Those causes were consolidated for final hearing but are

hereby severed since the former results in a final order issued by the Division

of Administrative Hearings, and the latter results in a recommended order.

The Department presented the testimony of Joy B. Eldred. Additionally,

Petitioner's Exhibit numbered 1 and Joint Exhibits numbered 1-4 were admitted in

evidence.

Both parties submitted post-hearing proposed findings of fact. A specific

ruling on each proposed finding of fact can be found in the Appendix to this

Recommended Order.

AGREED FACTS

1. At all times material hereto, Petitioner Central Dade Malpractice Trust

Fund has been a medical malpractice self-insurance fund as defined in Section

627.357, Florida Statutes. Petitioner has been in existence and operation since

1979. Its sole purpose is to provide medical malpractice insurance to its

members, approximately 100 doctors in Dade County.

2. Petitioner has no capital and is not operated for profit. It cannot,

without permission from the Department of Insurance, pay dividends to its

members. Rather, Petitioner is required by law to hold 100 percent of its

premium and investment income to fund medical malpractice claims and pay its

operating expenses, including taxes. Petitioner's members are individually

liable or assessable for any shortfall in its trust funds.

3. The Department conducted an audit of Petitioner for insurance premium

tax for the audit period of 12/31/89 through 12/31/90. After the conclusion of

the audit and after administrative protest by Petitioner of the proposed

assessment, the Department issued its assessment on July 20, 1994. Petitioner

subsequently paid the entire assessment and is seeking a refund in this

proceeding.

4. Although Petitioner is a trust and not a corporation, as an insurer

Petitioner is subject to corporate income tax and intangible tax. Beginning

July 1, 1989, medical malpractice self-insurance funds also became subject to

the insurance premium tax provided for in Section 624.509, Florida Statutes.

That section further establishes a system of credits for taxes such as corporate

income, intangible, and other specified taxes against the insurance premium tax

assessed thereunder.

5. In computing the amount of tax due to the Department, Petitioner

applied credit for a portion of the corporate income tax and intangible tax paid

by it against its liability for the insurance premium tax for 1989 and 1990. In

performing its audit, the Department determined that Petitioner was not entitled

to credit against its insurance premium tax for the corporate income tax and

intangible tax paid by Petitioner. The Department determined, therefore, that

Petitioner owed additional tax to the Department.

6. The assessment issued against Petitioner was in the amount of $8,996.31

for additional tax, $899.63 for penalty, and $2,346.58 for interest through

March 10, 1993.

7. Petitioner was entitled to take credit for a portion of its corporate

income tax and intangible tax payments against its insurance premium tax

liability, and the Department's audit adjustments and subsequent assessment were

improper. Accordingly, Petitioner is entitled to a refund of $23,774.76 for tax

years 1989 and 1990.

8. Petitioner is not an entity subject to workers' compensation

assessments under Section 440.51, Florida Statutes.

CONCLUSIONS OF LAW

9. The Division of Administrative Hearings has jurisdiction over the

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

Statutes.

10. Section 627.357, Florida Statutes, regulates the establishment of

medical malpractice self-insurance funds, regulates the terms of their

existence, and provides as follows:

(9) Premiums, contributions, and assess-

ments received by a fund are subject to s.

624.509(1) and (2) and s. 624.5092, except

that the tax rate shall be 1.6 percent of

the gross amount of such premiums, contri-

butions, or assessments; provided, however,

for the period July 1, 1989, through December

31, 1989, the tax rate shall be 0.8 percent

and for calendar year 1990, the tax rate

shall be 1.3 percent.

By that subsection, originating in Chapter 88-206, Laws of Florida, medical

malpractice self-insurance funds such as Petitioner became subject to the

insurance premium tax effective July 1, 1989.

11. The premium tax had been previously established and given definition

in Section 624.509, Florida Statutes. Portions of that statute pertinent to

this proceeding are as follows:

(1) In addition to the license taxes provided

for in this chapter, each insurer shall also

annually, and on or before March 1 in each year,

. . . pay to the Department of Revenue a tax on

insurance premiums, risk premiums for title

insurance, or assessments, including membership

fees and policy fees and gross deposits received

from subscribers to reciprocal or interinsurance

agreements, and on annuity premiums or consider-

ations, received during the preceding calendar

year, the amounts thereof to be determined as

set forth in this section, to wit:

(a) An amount equal to 1.75 percent of the

gross amount of such receipts on account of life

and health insurance policies covering persons

resident in this state and on account of all

other types of policies and contracts (except

annuity policies or contracts taxable under

paragraph (b)) covering property, subjects, or

risks located, resident, or to be performed in

this state . . .

(b) An amount equal to 1 percent of the gross

receipts on annuity policies or contracts paid

by holders thereof in this state.

(2) Payment by the insurer of the license taxes

and premium receipts taxes provided for in this

part of this chapter is a condition precedent to

doing business within this state.

* * *

(4) The intangible tax imposed under chapter

199, the income tax imposed under chapter 220,

and the emergency excise tax imposed under

chapter 221 which are paid by any insurer shall

be credited against, and to the extent thereof

shall discharge, the liability for tax imposed

by this section for the annual period in which

such tax payments are made.

* * *

(9) As used in this section "insurer" includes

any entity subject to the tax imposed by this section.

12. Effective March 25, 1990, the Department amended its Rule 12B-8.001,

Florida Administrative Code, which substantially tracks Section 624.509, Florida

Statutes, requiring the payment of a premium tax, and reciting the rate of

taxation and the methodology for computing the amount of tax owed. One of the

amendments to the Department's rule was the addition of Subsection (5), which

provides as follows:

(5) Any insurer paying assessments made under

s. 440.51, F.S., shall be allowed as a deduction

against the amount of any other tax levied by

the state upon the premiums, assessments, or

deposits for workers' compensation insurance on

contracts or policies of said insurance carrier,

self-insurer, or commercial self-insurance fund.

Self-insurance funds are not eligible for the

aforementioned credits described in Rule

12B-8.001(3), F.A.C., with the exception of

assessments made under s. 440.51, F.S. Wet

Marine and Transportation Insurers under s.

624.510, F.S., are eligible for a credit for

the total income tax paid under Chapter 220,

F.S., and the community contribution credit,

if applicable.

13. The Department relied on that subsection in issuing its assessment

against Petitioner. In DOAH Case No. 94-5180RX Petitioner challenged the

validity of that subsection, particularly the first complete sentence, which

reads as follows: "Self-insurance funds are not eligible for the aforementioned

credits described in Rule 12B-8.001(3), F.A.C., with the exception of

assessments made under s. 440.51, F.S." Petitioner argued that Subsection (5)

is an invalid exercise of delegated legislative authority because the subsection

is contrary to Section 624.509(4) and (9) and/or because it is arbitrary or

capricious. Section 120.52(8)(c) and (e), Florida Statutes.

14. Section 627.357(9), Florida Statutes, unambiguously requires medical

malpractice self-insurance funds to pay the insurance premium tax as a condition

precedent to doing business in Florida, as required in Section 624.509 (1) and

(2), Florida Statutes. The Legislature provided in Section 624.509(4) and (9)

that any insurer subject to payment of the insurance premium tax imposed in

Subsection (1) shall be entitled to credit against that tax a portion of the

payments made by it for intangible tax and corporate income tax. The

Department, on the other hand, has recited in Subsection (3) of Rule 12B-8.001

the availability of credit against the insurance premium tax for corporate

income tax and intangible tax payments, as provided in Section 624.509(4),

Florida Statutes, and has then provided in Subsection (5) of that rule that

medical malpractice self-insurance funds are not entitled to those credits. In

the Final Order entered in DOAH Case No. 94-5180RX on this date, subsection (5)

of Rule 12B-8.001, Florida Administrative Code, has been determined to be an

invalid exercise of delegated legislative authority. Thus, Petitioner was

entitled to credit against its insurance premium tax a portion of its payments

for intangible tax and corporate income tax in accordance with Section

624.509(4) and (9), Florida Statutes, and the Department's audit assessment was

improper.

15. Even had Rule 12B-8.001(5) not been determined to be an invalid

exercise of delegated legislative authority, the Department's reliance on the

language of that subsection to conclude that Petitioner was not entitled to tax

credit is erroneous. The first sentence in Subsection (5) is incomplete and

lacks meaning. It does, however, appear to relate to insurers paying

assessments pursuant to Section 440.51, Florida Statutes, and the parties hereto

agree that Petitioner is not such an insurer. It must be concluded, then, that

the self-insurance funds specified in the second sentence of Subsection (5)

relate to insurers paying assessments under Section 440.51, and the subsection's

declaration that such insurers are not eligible for the credit made available by

Section 624.509, Florida Statutes, is not applicable to Petitioner.

16. Further, even if Subsection (5) does apply to Petitioner, a conclusion

prevented by the poor construction of that subsection, the language that does

have meaning declares that self-insurance funds are not eligible for the

"aforementioned credits described in Rule 12B-8.001(3)." The Department's

prohibition against Petitioner taking advantage of any credits described in its

rule would have no effect on Petitioner taking advantage of credits authorized

by the Legislature in Section 624.509, Florida Statutes.

17. The Department having concluded that Petitioner was not entitled to

credit against its premium tax a portion of the corporate income and intangible

taxes paid by it, the Department's audit adjustments were in error. Petitioner

is entitled to a refund from the Department in the amount of $23,774.76 for the

tax years 1989 and 1990.

RECOMMENDATION

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

RECOMMENDED that a Final Order be entered finding that the Department's

assessment issued July 20, 1994, was improper and finding Petitioner entitled to

a refund in the amount of $23,774.76.

DONE and ORDERED this 19th day of May, 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 19th day of May, 1995.

APPENDIX TO RECOMMENDED ORDER

1. Petitioner's proposed findings of fact numbered 4, 5 and 7 have been

adopted either verbatim or in substance in this Recommended Order.

2. Petitioner's proposed findings of fact numbered 1, 3, 6, and 8 have

been rejected as not constituting findings of fact.

3. Petitioner's proposed findings of fact numbered 2, and 9-11 have been

rejected as being subordinate to the issues involved herein.

4. Respondent's proposed findings of fact numbered 1, 4, 5 and 12 have

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

5. Respondent's proposed findings of fact numbered 3, 6-10, 13, and 15-19

have been rejected as not constituting findings of fact.

6. Respondent's proposed finding of fact numbered 2 has been rejected as

being subordinate to the issues herein.

7. Respondent's proposed findings of fact numbered 14, 20, and 21 have

been rejected as being irrelevant to the issues in this cause.

8. Respondent's proposed findings of fact numbered 11 and 22 have been

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

cause.

COPIES FURNISHED:

Curtis H. Sitterson, Esquire

Stearns, Weaver, Miller, et al.

Museum Tower

150 West Flagler Street

Miami, Florida 33130

Linda Lettera, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314-6668

Lisa M. Raleigh, Esquire

Office of the Attorney General

Tax Section, The Capitol

Tallahassee, Florida 32399-1050

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.

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

AGENCY FINAL ORDER

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

STATE OF FLORIDA

DEPARTMENT OF REVENUE

CENTRAL DADE MALPRACTICE

TRUST FUND,

Petitioner,

CASE NO. 94-5133

vs. DOR 95-8-FOF

DEPARTMENT OF REVENUE

Respondent.

____________________________/

FINAL ORDER

This cause came on before the Department of Revenue for the purpose of

issuing a final order. The hearing officer assigned by the Division of

Administrative Hearings heard this cause and issued a Recommended Order on May

19, 1995. The Department filed Exceptions to the Recommended Order and a

Proposed Substitute Order on June 13, 1995. The Department's exceptions are

incorporated into this Final Order. Copies of the Recommended Order, the

exceptions thereto, the Joint Prehearing Stipulation, Joint Exhibit Two, and the

Department's Proposed Substitute Order are attached to this Final Order.

STATEMENT OF THE ISSUE

The Department adopts and incorporates in this Final Order the Statement of

the Issue in the Recommended Order.

PRELIMINARY STATEMENT

The Department adopts and incorporates in this Final Order the Preliminary

Statement in the Recommended Order and adds the following to such Preliminary

Statement: Testimony, exhibits, and rulings are reported in the transcript of

the formal hearing filed on March 27, 1995.

On May 19, 1995, Hearing Officer Rigot issued a Final Order holding invalid

Fla. Admin. Code R. 12B-8.001(5). The Department filed a Notice of Appeal of

that ruling and the case is currently pending before the First District Court of

Appeal. Also on May 19, 1995, Hearing Officer Rigot also issued a Recommended

Order which adjudged that:

[A] Final Order be entered finding that the

Department's assessment issued July 20, 1994,

was improper and finding Petitioner entitled

to a refund in the amount of $23,774.76.

On June 13, 1995, the Department timely filed Exceptions to the Recommended

Order.

FINDINGS OF FACT

Prior to the Final Hearing, the parties agreed to numerous facts and

entered into a Joint Prehearing Statement. The Hearing Officer entitles the

Findings of Fact section of the Recommended Order "Agreed Facts"; however,

instead of reciting the actual stipulation facts submitted by the parties, the

Hearing Officer paraphrases and adds facts that were not agreed to by the

parties. The "Agreed Facts" section should only recite the facts that were

actually agreed to by the parties. Accordingly, the Department substitutes the

Joint Prehearing Statement for the Hearing Officer's "Agreed Facts" numbers 1

through 6 as follows:

1. Central Dade is, and at all material times was, a Medical Malpractice

Self Insurance Fund as defined in Sec. 627.357, Fla. Stat. Central Dade is a

trust, not a corporation. It has been in existence and operation since 1979.

Its sole purpose is to provide medical malpractice insurance for its members,

i.e., approximately 100 doctors in Dade County. Central Dade has no capital and

is not operated for profit. It does not and cannot, absent permission from the

Department of Insurance, legally pay dividends to its members; rather it is

required by law to hold one hundred percent of its premium and investment income

to fund medical malpractice claims and pay its operating expenses (including

taxes). Central Dade's members are individually liable or assessable for any

shortfall in its trust funds.

2. Central Dade has standing to challenge Fla. Admin. Code Rule 12B-

8.001(5) because it is substantially affected by the Rule.

3. The Department, as an agency within the Executive Branch of the

government of the State of Florida, is authorized by Chapters 213 and 624, Fla.

Stat., to conduct audits and make assessments of tax pursuant to Chapter 624,

Fla. Stat., (Insurance Premium Tax).

4. The Department conducted an audit of Central Dade for the audit period

of 12/31/89 through 12/31/90 for Insurance Premium Tax. After the conclusion of

the audit and after administrative protest of the proposed assessment by Central

Dade, an assessment was issued on July 20, 1994.

5. The assessment became a Final Assessment on July 20, 1994. Central

Dade was assessed $8,996.31 tax; $899.63 penalty; and $2,346.58 interest through

March 10, 1993. Central Dade paid the entire assessment and is seeking a refund

of the payment through this action.

6. Central Dade timely filed a Petition seeking to have the tax assessment

declared invalid. Additionally, Central Dade filed a Petition pursuant to Sec.

120.56, Fla. Stat. challenging Fla. Admin. Code Rule 12B-8.001(5) as invalid.

7. Upon Motion by the Parties, the cases were consolidated for Final

Hearing.

8. Medical Malpractice Self-insurance Funds became subject to the

Insurance Premium Tax beginning July 1, 1989. Ch. 88-206, ss. 6, Laws of Fla.

9. Fla. Admin. Code Rule 12B-8.001(5) became effective March 25, 1990.

The parties agree the Rule was correctly promulgated and the Petitioner is only

challenging the applicability of the Rule to Petitioner and the substance of the

Rule.

10. The dispute between the parties concerns whether Petitioner is

entitled to the credits contained in Sec. 624.509.(4), Fla. Stat.

The parties additionally stipulated to the following:

11. If the Department prevails in this action, the Petitioner will not be

entitled to any refund for the tax years 1989 and 1990. [Joint Exhibit Two]

Any overpayment made by the Petitioner will be applied to subsequent tax years.

1/

12. If the Petitioner prevails in this action, it will be entitled to a

refund of $23,774.76 for the tax years 1989 and 1990. [Joint Exhibit Two]

13. The Department rejects the Hearing Officer's "Agreed Fact" number 7

because it is a conclusion of law and not a finding of fact.

14. The Department rejects the Hearing Officer's "Agreed Fact" number 8 as

irrelevant to this proceeding.

The Department makes the following additional findings of fact based on

competent and substantial testimony and evidence presented at the Final Hearing:

15. A premium tax on "medical malpractice self-insurance [funds]" was

first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6, Laws of

Fla., amended Sec. 627.357, Fla. Stat. to provide:

627.357 Medical malpractice self-insurance --

(9) Premiums, contributions, and assessments received

by a fund are subject to s. 624.509 (1), (2), and (3),

except that the tax rate shall be 1.6 percent of the

gross amount of such premiums, contributions and

assessments. E.S.

The premium tax imposed on medical malpractice self-insurers was, pursuant to

the above-quoted statute, 1.6 percent of the gross amount of the premiums,

contributions and assessments.

16. A premium tax on "dental service plan corporations" self-insurance

funds was first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6,

Laws of Fla., amended Sec. 627.357, Fla. Stat. to provide:

637.406 Tax on premiums, contributions, and

assessments. Premiums, contributions, and assessments

received by a dental service plan corporation are

subject to the tax imposed by s. 624.509.

The premium tax imposed on dental service plan corporations in 1988 was 2

percent of the gross amount of the premiums, contributions, and assessments

pursuant to Sec. 624.509(1)(a), Fla. Stat. (1989).

17. The Legislature in the same Bill that added the amendments to Sec.

627.357 Fla. Stat., which subjected medical malpractice self-insurers to

subsections (1), (2) and (3) 2/ of Sec. 624.509, Fla. Stat., 3/ and made

dental service plan self-insurers subject to "s. 624.509" in its entirety also

made multiple employer welfare arrangements, 4/ Commercial self-insurance

funds, 5/ professional liability self-insurance, 6/ and group self-insurer

funds subject to subsections (1), (2), and (3) of Sec. 624.509, Fla. Stat.; but

made other insurers, such as the continuing care contracts, 7/ subject to Sec.

624.509, Fla. Stat., in its entirety. Further, all those entities which the

Legislature specifically made subject to noncredit paragraphs (1), (2) and (3)

of Sec. 624.509, Fla. Stat. (Supp. 1988) were given a lower 1.6 percent tax rate

by the Legislature. In contrast, those entities made subject to Sec. 624.509,

Fla. Stat., in its entirety, such as the dental service plan self-insurers,

without a listing of the specific paragraphs, and which are clearly entitled to

the credits therein, were made subject to the higher 2 percent tax rate provided

in Sec. 624.509(1), Fla. Stat. (Supp. 1988).

18. Sec. 624.509(1), (2), (3), (4), and (9), Fla. Stat. (Supp. 1988),

states in pertinent part:

624.509 Premium tax; rate and computation.

(1) In addition to the license taxes provided for in this chapter, each

insurer shall also annually, and on or before March 1 in each year, except as to

wet marine and transportation insurance taxed under s. 624.510, pay to the

Department of Revenue a tax on insurance premiums, risk premiums for title

insurance, or assessments, including membership fees and policy fees and gross

deposits received from subscribers to reciprocal or interinsurance agreements,

and on annuity premiums or considerations, received during the preceding

calendar year, the amounts thereof to be determined as set forth in this

section, to wit:

(a) An amount equal to 2 percent of the gross amount of such receipts on

account of life and health insurance policies covering persons resident in this

state and on account of all other types of policies and contracts (except

annuity policies or contracts taxable under paragraph (b)) covering property,

subjects, or risks located, resident, or to be performed in this state, omitting

premiums on reinsurance accepted, and less return premiums or assessments, but

without deductions:

1. For reinsurance ceded to other insurers;

2. For moneys paid upon surrender of policies or certificates for

cash surrender value;

3. For discounts or refunds for direct or prompt payment of premiums

or assessments; and

4. On account of dividends of any nature or amount paid and credited

or allowed to holders of insurance policies; certificates; or surety, indemnity,

reciprocal, or interinsurance contracts or agreements; and

(b) An amount equal to 1 percent of the gross receipts on annuity

policies or contracts paid by holders thereof in this state.

(2) Payment by the insurer of the license taxes and premium receipts

taxes provided for in this part of this chapter is a condition precedent to

doing business within this state.

(3) Notwithstanding other provisions of law, the distribution of the

premium tax and any penalties or interest collected thereunder shall be made to

the General Revenue Fund in accordance with rules adopted by the Department of

Revenue and approved by the Administration Commission.

(4) The intangible tax imposed under chapter 199, the income tax

imposed under chapter 220, and the emergency excise tax imposed under chapter

221 which are paid by any insurer shall be credited against, and to the extent

thereof shall discharge, the liability for tax imposed by this section for the

annual period in which such tax payments are made. As to any insurer issuing

policies insuring against loss or damage from the risks of fire, tornado, and

certain casualty lines, the tax imposed by this section, as intended and

contemplated by this subsection, shall be construed to mean the net amount of

such tax remaining after there has been credited thereon such gross premium

receipts tax as may be payable by such insurer in pursuance of the imposition of

such tax by any incorporated cities or towns in the state for firemen's relief

and pension funds and policemen's retirement funds maintained in such cities or

towns, as provided in and by relevant provisions of the Florida Statutes. For

purposes of this subsection, payments of estimated income tax under chapter 220

and of estimated emergency excise tax under chapter 221 shall be deemed paid

either at the time the insurer actually files its annual returns under chapter

220 or at the time such returns are required to be filed, whichever first

occurs, and not at such earlier time as such payments of estimated tax are

actually made.

(9) As used in this section "insurer" includes any entity subject to the

tax imposed by this section.

CONCLUSIONS OF LAW

The Department of Revenue adopts and incorporates in this Final Order

paragraphs 9 and 11 of the Conclusions of Law in the Recommended Order. The

remaining Conclusions of Law in the Recommended Order are rejected because they

misapprehend the law. This Final Order will expand and elaborate on the

Conclusions of Law in the Exceptions and Proposed Substitute Order filed by the

Department with the following:

1. Petitioner has standing to challenge the insurance premium tax

assessment at issue. Sec. 120.57, Fla. Stat. and Sec. 72.011, Fla. Stat.

2. The Department's burden of proof in a challenge to an insurance premium

tax assessment is limited to a prima facie showing:

. . . that an assessment has been made against the taxpayer

and the factual and legal grounds upon which the . . .

[D]epartment made the assessment.

Sec. 120.575(2), Fla. Stat.

The Department has met this burden.

3. The Florida Supreme Court has long held that the courts should not

assume the Legislature acted pointlessly. Neu v. Miami Herald Publishing Co.,

462 So.2d 821 (Fla. 1985); City of North Miami v. Miami Herald Publishing

Company, 468 So.2d 218 (Fla. 1985). It has also long been settled that a

statute must be construed in such a manner as to give meaning to each word and

that the words of the statute are to be given their plain meaning unless another

meaning is clearly indicated. Citizens of State v. Public Service Commission,

425 So.2d 534, 541-542 (Fla. 1982) St. Petersburg Bank & Trust v. Hamm, 414

So.2d 1071 (Fla. 1982); Terrinoni v. Westward Ho!, 418 So.2d 1143, 1146 (Fla.

1st DCA 1982). The Legislature clearly stated in Sec. 627.357, Fla. Stat.

(Supp. 1988) that only subsections (1), (2) and (3) of Sec. 624.509. Fla. Stat.,

were applicable to medical malpractice self-insurers.

4. Specific statutes control over general statutes. Adams v. Culver, 111

So.2d. 665 (Fla. 1959); Hamilton Co. Board of County Commissioners v. State of

Florida Department of Environmental Regulations, 587 So.2d 1378 (Fla. 1st DCA

1991). Subsection (9) of Sec. 624.509, Fla. Stat. was added to the statute by

Ch. 88-206, ss. 1, Laws of Fla., the same chapter that made medical malpractice

self insurers subject to insurance premium tax. Subsection (9) generally states

that an "insurer" is entitled to certain credits against its premium tax. Sec.

627.357(9), Fla. Stat. specifically states that medical malpractice self

insurers are subject to subsection (1), (2) and (3) of Sec. 624.509, Fla. Stat.

5. In 1988, paragraphs (1), (2) 8/ and (3) 9/ of Sec. 624.509, Fla.

Stat. (Supp. 1988), imposed the premium tax, set the rate, required payment as a

condition to do business, provided the timing of such payments, provided for

penalties and interest if such payments were not properly made and specified

that the payments were to be deposited in the General Revenue fund. No credits

were contained in these three paragraphs in 1988 and none are in these

paragraphs today 10/ .

6. The Legislature's selective incorporation in Sec. 627.357, Fla. Stat.

(Supp. 1988) of the noncredit provisions contained within Sec. 624.509 (1), (2),

and (3), Fla. Stat. (Supp. 1988) may not be ignored so as to incorporate the

credit provision separately set forth in Sec. 624.509 (4), Fla. Stat. (Supp.

1988). This selective incorporation was present from the beginning, when, in

1988, Sec. 627.357(9), Fla. Stat. (Supp. 1988) was enacted so as to subject all

"medical malpractice, etc. funds[s]" to premium taxation; it remained constant

throughout various legislative revisions to that Section. Ch. 89-167, ss. 16,

Laws of Fla., amended the above-quoted statute to delete the cross-reference to

Sec. 624.5092 (3), Fla. Stat. (1989) concerning "installment payments" 11/

without addition of a new cross-reference to Sec. 624.509 (4), Fla. Stat.

(1989), concerning the credits. The legislature's actions in surgically

deleting a reference to Sec. 624.5092(3), Fla. Stat. (installment payments)

without adding a cross-reference to Sec. 624.509(4), Fla. Stat. (the tax

credits), indicates that the Legislature did not intend to grant credits to

medical malpractice self-insurers.

7. Plaintiff's argument that Sec. 624.509(4), Fla. Stat., provides a

credit for an "insurer" and that plaintiff is an "insurer" ignores the

fundamental principle that statutes containing cross references must be read in

pari-materia. The Department was correct in construing that medical malpractice

insurers are subject to only subsections (1), (2) and (3) of Sec. 624.509, Fla.

Stat. The Recommended Order simply ignores the selective incorporation in Sec.

440.57(6), Fla. Stat. (Supp. 1988) and also ignores the principle that specific

statutes control over general statutes.

8. The Legislature's action in applying a reduced rate of tax, 1.6 percent

as opposed to the 2 percent 12/ rate, to those entities specifically made

subject to paragraphs (1), (2), and (3) of Sec. 624.509, Fla. Stat. (Supp.

1988), indicates the Legislature's intent to treat these self-insurers

differently than those self-insurers made subject to Sec. 624.509, Fla. Stat.

(Supp. 1988), in its entirety.

9. Tax credit statutes, unlike taxing statutes, are strictly construed

against the taxpayer and in favor of the taxing authority. Department of

Revenue v. Anderson, 403 So.2d 397 (Fla. 1981); National Brands Tire Co. v.

Department of Revenue, 383 So.2d 257, 259 (Fla. 3rd DCA 1980).

10. The legislative history affirmatively supports the Department of

Revenue's view that the tax credit was not intended by the Legislature to apply

to "medical malpractice self-insurers funds."

11. The Legislative intent to deny the credits in paragraph (4) of Sec.

624.509, Fla. Stat. (Supp. 1988), medical malpractice self-insurance funds to

group self-insurance funds, commercial self-insurance funds, and professional

liability self-insurance funds is further supported when notice is taken that

the pertinent 1988 bill made a lower insurance premium tax rate of 1.6 percent

applicable to those groups denied the credit and a higher rate of 2 percent

applicable to the groups getting the benefit of the credit. These differing

rates show the Legislative intent to tax different insurers in different

manners.

12. Central Dade argues that taxing self-insurers at a lower rate, but

denying the self-insurers the credits, results in "illogical and fundamental

unfairness." While it is true that Central Dade's effective tax rate is higher

under the taxing scheme selected by the Legislature for self-insurers than the

taxing scheme selected by the Legislature for other types of insurers, this fact

does not prove any unfairness or legislative intent. It is well within the

Legislative prerogative to tax similar transactions and entities at differing

rates. People Against Sec. 561.501, Inc. v. Dept. of Business Regulation, 587

So.2d 644 (Fla. 1st DCA 1991). Taxation is a legislative function and the

Courts should not "engage in conjecture as to whether means exist by which the

legislature might have better, or even more fairly, accomplished its end of

raising revenue." Id. at 646.

13. The Department reasonably interprets the statute. The insurance

premium tax is statutorily applied in one of two ways: for insurers generally,

premiums are taxed at a rate of 2 percent for 1988 and 1.75 percent for 1989 to

the present, but various credits are allowed (see, generally Sec. 624.509, Fla.

Stat.); for specialized insurers, such as the petitioner, premiums are taxed at

a lower rate of 1.6 percent, but no credits are granted. See, Sec. 627.357(9),

Fla. Stat. See, also, Sec. 628.6015, Fla. Stat. (using the 1.6 percent rate

with no credits for assessable mutual insurers).

14. Credits against a tax cannot be allowed without explicit statutory

authority. The Department cannot imply a credit or exemption into a statute as

credits and exemptions must be construed narrowly, against the taxpayer.

Asphalt Pavers, Inc. v. Department of Revenue, 584 So.2d 55 (Fla. 1st DCA 1991).

The Department's adjustments to the Petitioner's returns are upheld.

CONCLUSION

Based on the foregoing, Petitioner is not entitled to the credits in

subsection (4) of Sec. 624.509, Fla. Stat. Therefore, on review of the record

in this matter, it is

ORDERED:

That the determination of the Recommended Order, that the Department's

assessment issued July 20, 1994, was improper and that Petitioner is entitled to

a refund in the amount of $23,774.76 should be, and hereby is rejected. The

assessment is thus sustained in full and Petitioner's refund request is denied.

Any party to this Final Order has the right to seek judicial review of this

Final Order as provided in Sec. 120.68, Fla. Stat., by the filing of a Notice of

Appeal as provided in Rule 9.110, Florida Rules of Appellate Procedure, with the

Clerk of the Department of Revenue in the Office of General Counsel, P.O. Box

6668, Tallahassee, Florida 32314-6668, and by filing a copy of the Notice of

Appeal, accompanied by the applicable filing fees, with the appropriate District

Court of Appeal. The Notice of Appeal must be filed within 30 days from the

date this Final Order is filed with the Clerk of the Department.

DONE AND ENTERED, this 17th day of August, 1995, in Leon County,

Tallahassee, Florida.

STATE OF FLORIDA

DEPARTMENT OF REVENUE

_____________________

L. H. FUCHS

EXECUTIVE DIRECTOR

ENDNOTES

1/ After the Final Hearing, Petitioner sent a letter to the Hearing Officer

clarifying that even if the Department prevailed in this action Petitioner had

overpaid its insurance premium tax for 1989 and 1990. The parties had agreed

that overpayment would be applied to subsequent tax years.

2/ In 1988, Section (3) concerned installment payments. This subsection was

deleted from Sec. 624.509, Fla. Stat., in 1989. Ch. 89-167, ss. 1, at 582, Laws

of Fla.

3/ CS/CS/CS//SB 1054 as reported in Ch. 88-206, ss. 17, at 1190, Laws of Fla.

4/ Sec. 624.4425, Fla. Stat. (Supp. 1988); Ch. 88-206, ss. 3, at 1187, Laws of

Fla.

5/ Sec. 624.475, Fla. Stat. (Supp. 1988); Chapter 88-206, ss. 4 at 1187, Laws

of Fla.

6/ Sec. 627.356, Fla. Stat. (Supp. 1988); Ch. 88-206, ss. 5, Laws of Fla.

7/ Sec. 651.027, Fla. Stat. (Supp. 1988); Ch. 88-206, ss. 13, at 1189, Laws of

Fla.

8/ In 1988 and currently, the insurance premium tax is imposed and the rate is

set in the first paragraph of section 624.509, Florida Statutes, and paragraph

(2) provides that payment of the premium is a "condition precedent to doing

business within this state." See Sec. 624.509, Fla. Stat. (1988 Supp.) and Sec.

624.509, Fla. Stat. (1993).

9/ In 1988, paragraphs (3)(a) through (3)(e) of Sec. 624.509, Fla. Stat. (Supp.

1988) addressed the timing of the payments, penalties, interest, and compromise.

These sections are now found in Sec. 624.5092, Fla. Stat. (1993). Paragraph

(3)(f) of Sec. 624.509, Fla. Stat. (Supp. 1988), addressed the distribution of

the monies collected to the General Revenue Fund. This provision is now found

in Sec. 624.509(3), Fla. Stat.

10/ Paragraphs (4) and (5) of section 624.509, Florida Statutes, (Supp. 1988),

provided for certain credits. These credits are currently found in paragraphs

(4) and (5) of section 624.509, Florida Statutes, (1993).

11/ The installment payment provision, which is not in dispute, can also be

found in Sec. 624.509(3), Fla. Stat. (Supp. 1988).

12/ The 2 percent rate was amended to 1.75 in Chapter 89-167, L.O.F.

CERTIFICATE OF FILING

I HEREBY CERTIFY that the foregoing FINAL ORDER has been filed in the official

records of the Department of Revenue this 17th day of August, 1995.

COPIES FURNISHED TO:

LINDA M. RIGOT, HEARING OFFICER

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE DESOTO BUILDING, 1230 APALACHEE PARKWAY

TALLAHASSEE, FLORIDA 32399-1550

CURTIS H. SITTERSON, ESQUIRE

STEARNS, WEAVER, MILLER, WEISSLER,

ALHADEFF & SITTERSON, P.A.

MUSEUM TOWER

150 WEST FLAGLER STREET

MIAMI, FLORIDA 33130

LYNNE OVERTON, ESQUIRE

OFFICE OF THE ATTORNEY GENERAL

TAX SECTION, THE CAPITOL

TALLAHASSEE, FLORIDA 32399-1050

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

DISTRICT COURT OPINION

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

IN THE DISTRICT COURT OF APPEAL

FIRST DISTRICT, STATE OF FLORIDA

STATE OF FLORIDA, NOT FINAL UNTIL TIME EXPIRES TO

DEPARTMENT OF REVENUE, FILE MOTION FOR REHEARING AND

DISPOSITION THEREOF IF FILED

Appellant,

V. CASE NOS. 95-2159/3142

DOAH CASE NOS. 94-5133, 94-5180RX

CENTRAL DADE MALPRACTICE

TRUST FUND,

Appellee.

___________________________/

Opinion filed May 7, 1996.

An appeal from an order of the Division of Administrative Hearings. Cross

Appeal from an order of the Department of Revenue.

Robert A. Butterworth, Attorney General; Jeffrey M. Dikman and C. Lynne Overton,

Assistant Attorneys General, Tallahassee, for Appellant.

Bradford Swing and Curtis H. Sitterson of Stearns, Weaver, Miller, Weissler,

Miami, for Appellee.

DAVIS, J.

In the first of these consolidated cases, the State of Florida appeals the

final order of the Hearing Officer, invalidating Rule 12B-8.001(5), Florida

Administrative Code, as an invalid exercise of delegated legislative authority.

In the second, Central Dade Malpractice Trust Fund appeals 1/ the final order

of the Department of Revenue, upholding an audit assessing additional insurance

premium tax, a penalty and interest, and rejecting a separate recommended order

by the same hearing officer. The Hearing Officer's recommended order concluded

that Central Dade Malpractice Trust Fund was entitled to a tax refund because

the Department of Revenue had erroneously computed its tax obligation without

applying certain credits permitted by section 624.509 Florida Statutes (Supp.

1990). The sole issue in both cases is whether Central Dade is entitled to the

credits enumerated in section 624.509 against its liability for insurance

premium tax. We conclude that under a plain reading of the unambiguous language

of this statute, read in conjunction with section 627.357(9), Florida Statutes

(Supp. 1990), the statute allows such credits; therefore, we affirm the final

order of the Hearing Officer in case no. 95- 2159, and reverse the final order

of the Department of Revenue in case no. 95-3142.

In computing its premium tax liability for 1989 and 1990, Central Dade

applied against its liability a credit for a portion of the corporate income tax

and intangible tax it had paid. The Department of Revenue conducted an audit,

disallowed any credits, and issued an assessment against Central Dade

Malpractice Trust Fund for additional insurance premium tax, a penalty and

interest. Central Dade paid the assessment, and then filed two petitions with

the Division of Administrative Hearings. In one petition, Central Dade

protested the Department of Revenue's assessment and sought a refund. In the

other, Central Dade challenged the validity of Rule 12B-8.001(5), Florida

Administrative Code, and in particular the first complete sentence thereof,

which states: "Self-insurance funds are not eligible for the aforementioned

credits described in Rule 12B-8.0()i(3), F.A.C., with the exception of

assessments made under s. 440.51, F.S." Central Dade contended that subsection

(5) was an invalid exercise of delegated legislative authority because it was

contrary to subsections 624.509(4) through (9) 2/

Chapter 88-206, Laws of Florida, made medical malpractice self-insurance

funds such as Central Dade, as well as other enumerated insurers, / 3 subject

to the premium tax. In promulgating except that the tax rate shall be 1.6

percent of the gross amount Rule 12B-8.001(5), Florida Administrative Code, the

Department of Revenue erroneously interpreted section 627.357(9) to disallow any

credits to Central Dade otherwise permitted by section 624.509, because of the

belief that the specific enumeration of subsections (1) and y(2) in section

627.357(9) precluded the application of other subsections of the premium tax

statute. We-reject that construction based upon the plain language of the

statutes. "While legislative intent controls construction of statutes in

Florida, that intent is determined primarily from the language of the statute.

The plain meaning of the statutory language is the first consideration." St.

Petersburg Bank & Trust Co. v. Hamm, 414 So.2d 1071, 1073 (Fla. 1982)(citations

omitted)

Section 627.357(9), Florida Statutes (Supp. 1990), provides that:

"Premiums, contributions, and assessments received by a fund are subject to s.

624.509(1) and (2) and s. 624.5092, except that the tax rate shall be 1.6

percent of the gross amount of such premiums, contributions or assessments;

provided, however, for the period July 1, 1989, through December 31, 1989, the

tax rate shall be 0.8 percent and for calendar year 1990, the tax rate shall be

1.3 percent." Subsections (1) and (2) of section 624.509 set the amount of the

tax. It is obvious from a plain reading of section 627.357(9), that the

Legislature specifically cross-referenced those particular subsections because

those subsections alone are being modified by the lower rate contained in the

dependent clause "except that the tax rate shall be 1.6 percent..."

More importantly, the enumeration in section 627.357(9) of subsections (1)

and (2) of section 624.509 does not preclude the applicability of the credits

governed by subsections (4) through (8) because subsection (1) of section

624.509 itself expressly incorporates the disputed credits into the final

computation of the premium tax. Subsection (1) provides that the amount of the

tax is "to be determined as set forth in this section..." The words "this

section" plainly refer to section 624.509 in its entirety, including the

subsections which permit the credits which the Department disallowed in this

case.

There can be no doubt that the Legislature, by using the term "this

section," meant the whole of section 624.509. The Preface contained in The

Florida Statutes, which explains the usage of the terms chapter, section and

subsection, states that chapters are arranged by subject matter, and identified

by a whole number; sections within a chapter are identified by a "whole decimal

number consisting of the chapter number followed by digits appearing to the

right of the decimal point;" and subsections are identified "by whole Arabic

numbers enclosed by parentheses." Reference to "this section" within subsection

624.509(1) mandates the Department of Revenue to permit medical malpractice

self-insurance funds the credits for corporate and intangible taxes in

subsection 624.509(4), when calculating the premium taxes due and owing under

section 624.509.

Our conclusion is supported by the fact that legislative intent may be

discerned from the Legislature's election to use different words to convey

different meanings within a statute. [Dep't of Professional Regulation. Bd. of

Medical Examiners v. Durrani], 455 So.2d 515, 518 (Fla. 1st DCA 1984).

Throughout section 624.509 the Legislature referred to the entire premium tax

statute, including credits, by using the word "section," and made specific

reference to particular subsections within section 624.509 by using the word

"subsection." [See, e.g.], subsection 624.509(4), Florida Statutes (Supp. 1990)

("As to any insurer issuing policies insuring against loss or damage from the

risks of fire, tornado, and certain casualty lines, the tax imposed by this

section, as intended and contemplated by this [subsection], shall be construed

to mean the net amount of such tax remaining after there has been, credited

thereon such gross premium receipts tax as may be payable by such insurer in

pursuance of the imposition of such tax by any incorporated cities or towns...")

[Emphasis added]; subsection 624.509(5)("There shall be allowed a credit against

the net tax imposed by' this section equal to 15 percent of the amount paid by

the insurer in salaries to employees located or based within this state and who

are covered by the provisions of chapter 443. For purposes of this

subsection:... (c) The term "net tax" means the tax imposed by this [section]

after applying the calculations and credits set forth in subsection (4).")

[Emphasis added]; subsection 624.509(6)("The Total of the credit granted for the

taxes paid by the insurer under chapters 220 and 221 and the credit granted by

subsection (5) shall not exceed 65 percent of the tax due under subsection (1)

after deducting therefrom the taxes paid by the insurer...") [Emphasis added];

subsection 624.509(7) ("Credits and deductions against the tax imposed by this

section shall be taken in the following order:...") [Emphasis added].

Reading subsection 624.509(1) with reference to the entirety of section

624.509, in conjunction with section 627.357, based upon the plain meaning of

the words contained within those sections, we conclude that the Legislature

intended medical malpractice self insurers to pay the tax imposed in section

624.509, using the lower rate specified in section 627.357, and then applying

the credits, as provided in subsections (4) through (8) of section 624.509.

Accordingly, we AFFIRM the Hearing Officer's final order in case no. 95-

2159 invalidating Fla. Admin. Code Rule 12B-8.001(5), as an invalid exercise of

delegated legislative authority, because the rule improperly denied the

applicability of the credits granted by the Legislature. We REVERSE the final

order of the Department of Revenue in case no. 95-3142 which upheld the

assessment of additional tax, a penalty and interest, and denied Central Dade

Malpractice Trust Fund's application for a tax refund, because the additional

tax was erroneously imposed by denying the credits to which Central Dade

Malpractice Trust Fund was entitled.

ZEHMER, C.J., and BARFIELD, J., CONCUR.

ENDNOTES

1/ These appeals were consolidated and case no. 95-3142 became a cross-appeal.

2/ Subsections 624.509(4) through (8) govern credits against the insurance

premium tax; subsection (9) provides that, "as used in this section insurer

includes any entity subject to the tax imposed by this section."

3/ The Legislature did not use uniform language throughout the act, however.

With respect to reciprocal insurers, for example, section 7 of chapter 88-206,

Laws of Florida, provided for the creation of section 629.5011, Florida

Statutes, stating that "[p]remiums and assessments received by reciprocal

insurers are subject to any premium tax provided for in s. 624.509." See also

12, 13, chapter 88-206, Laws of Florida, (premiums, contributions, and

assessments received by dental service plans, and entrance fees received by a

provider in payment for a continuing care contract, are "subject to the tax

imposed by s. 624.509"). In contrast, 6, chapter 88-206, Laws of Florida,

amended section 627.357, Florida, Statutes, by adding subsection (9), providing:

"[p]remiums, contributions, and assessments received by a fund are subject to s.

624.509(1), (2), and (3), of such premiums, contributions and assessments." See

also 3, 4, 5, 17, Chapter 88-206, Laws of Florida (using similar language to

impose lower premium tax rate on premiums, contributions and assessments

received by an arrangement under section 624.4425, as well as those received by

commercial self-insurance funds regulated by section 624.475, and those received

by professional liability self-insurance funds under section 627.356, and the

premiums, contributions and assessments received by worker's compensation group

self-insurer's funds under section 440.57).

MANDATE

From

DISTRICT COURT OF APPEAL OF FLORIDA

FIRST DISTRICT

To the Honorable L. H. Fuchs, Executive Director*

State of Florida, Department of Revenue

WHEREAS, in that certain cause filed in this Court styled:

CENTRAL DADE MALPRACTICE

TRUST FUND,

vs. Case No. 95-3142

Your Case No. 94-5133

DEPARTMENT OF REVENUE

The attached opinion was rendered on May 7, 1996.

YOU ARE HEREBY COMMANDED that further proceedings be had in accordance with said

opinion, the rules of this Court and the laws of the State of Florida.

WITNESS the Honorable Richard W. Ervin, III, Acting

Chief Judge of the District Court of Appeal of Florida, First District and

the Seal of said court at Tallahassee, the Capitol, on this 23rd day of May,

1996.

__________________________________________________

(Seal) Karen Robert

Deputy Clerk, District Court of Appeal of Florida,

First District