94-007256 Richard E. Wells vs. Department Of Revenue Status: Closed Recommended Order on Friday, June 21, 1996.

Summary: Petitioner failed to show sales tax paid on all rest/boat slip gross receipts; failed to provide records; failed to prove boat slips were tax exempt/rent residence

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RICHARD E. WELLS, )

)

Petitioner, )

)

vs. ) CASE NO. 94-7256

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

____________________________)

RECOMMENDED ORDER

Pursuant to notice, this cause came on for formal hearing before P. Michael

Ruff, duly-designated Hearing Officer of the Division of Administrative

Hearings, on April 8, 1996, in Pensacola, Florida.

APPEARANCES

For Petitioner: Richard E. Wells, pro se

715 Pensacola Beach Boulevard

Post Office Box 505

Pensacola Beach, Florida 32562-0505

For Respondent: Jarrell L. Murchison, Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUES

The issue to be resolved in this proceeding concerns whether the Petitioner

is liable for sales tax, together with interest and penalties on the purported

unpaid tax amount, as referenced in the assessment and the Respondent agency's

notice of decision issued on October 18, 1994.

PRELIMINARY STATEMENT

This cause was initiated upon the conclusion of an audit conducted by the

Respondent, Department of Revenue (Department), concerning payment of sales

taxes by the Petitioner, Richard E. Wells, d/b/a the Marina Restaurant, during

the period of October 1, 1987 through December 31, 1992 (the audit period). The

Department made an initial determination that the gross sales of the restaurant

were not fully reported to the Department and that all sales taxes were,

therefore, not paid. The Department took the position that there was a dearth

of records of revenues and sales taxes collected by the Petitioner, such that it

elected to rely on revenue figures reported in the Petitioner's federal income

tax returns. The Department believes that the taxpayer, the Petitioner, should

be assessed in the amount of $71,308.30. This figure represents $45,694.90 of

sales tax, $14,093.37 of interest thereon, $11,041.36 of penalties, and $314.98

of use tax, with $91.02 of interest, and $72.67 of penalties thereon. Daily

interest of $15.13 commencing on February 13, 1993, the date of the notice of

proposed assessment, was also assessed. In the notice of proposed assessment

dated February 12, 1993, the Department also assessed the amount of $1,060.97

for the audit period, which includes penalties and interest, for local

government infrastructure surtax, with daily interest thereon in the amount of

$.29, commencing on February 15, 1993.

The Petitioner filed a letter of protest with the Respondent dated February

11, 1994. On October 18, 1994, a notice of decision was issued by the

Department sustaining the proposed assessment amounts. The Petitioner contested

the assessment and filed a petition with the Respondent dated December 13, 1994.

The dispute was, in due course, transmitted to the Division of Administrative

Hearings for resolution and this formal proceeding ensued.

The parties requested that the matter not be scheduled for hearing until

May 1995, whereupon a notice was issued scheduling the hearing for May 12, 1995.

On April 28, 1995, a joint motion for continuance was filed indicating that the

parties did not believe that a final hearing was necessary at that time and that

settlement negotiations were under consideration between the parties. On June

12, 1995, the parties filed a joint status report, at the direction of the

Hearing Officer, indicating that the cause was not in a position to proceed to

final hearing at that time and requesting that a status report be required only

after a period of at least 90 days.

The Marina Restaurant, revenues and records of which are the essential

subject of this proceeding, burned to the ground on or about April 12, 1995.

The Department requested certain documentation from the Petitioner pertaining to

the fire and the payment of insurance proceeds. The search for relevant records

and the discovery process engendered a substantial delay in the proceeding.

Ultimately, the matter was scheduled for hearing, upon the failure of settlement

negotiations, for April 8, 1996.

The cause came on for hearing as noticed. The Petitioner testified on his

own behalf at hearing but offered no exhibits into evidence. The Respondent

presented the testimony of Gina Imm, the auditor who performed the audit on the

Petitioner. The Respondent introduced into evidence Exhibits 1-7, which were

admitted without objection.

Upon conclusion of the proceeding, a transcript thereof was ordered and was

duly filed with the Hearing Officer. Upon joint request of the parties, the

time for submitted post-hearing Proposed Recommended Orders was extended by the

Hearing Officer, so that Proposed Recommended Orders became due on June 4, 1996.

Those Proposed Recommended Orders were timely submitted. The proposed findings

of fact contained therein are addressed in this Recommended Order and again in

the Appendix attached hereto and incorporated by reference herein.

FINDINGS OF FACT

1. The Petitioner is the sole proprietor of a marina and restaurant

business located in Pensacola Beach, Florida. The Respondent is an agency of

the State of Florida charged with enforcing pertinent statutes and rules

providing for the collection of sales and use taxes, as well as penalties and

interest for tax amounts determined to be due and payable but not timely paid to

the Department and the State of Florida. Included within the Department's

regulatory authority over the assessment and collection of sales and use taxes

is the authority to conduct audits of taxpayers to determine amounts of tax due

and owing to the State, as well as whether such taxes have been timely and

properly remitted and otherwise accounted for. The relevant audit period

involved in this proceeding extended from October 1, 1987 through December 31,

1992.

2. The Petitioner's marina and restaurant business operated during the

audit period was operated on property owned by the Santa Rosa Island Authority

(Authority) and the State of Florida Department of Natural Resources (now

Department of Environmental Protection, DEP). The property was leased to the

Petitioner for the purpose of operation of this business.

3. The property leased by the Petitioner from the Authority consisted of

certain land above the mean high water mark and five boat slips. These five

boat slips will be referred to sometimes hereafter as the "Santa Rosa boat

slips".

4. During the audit period, the Petitioner operated the restaurant

business on the property leased from the Authority and rented the five boat

slips to various boating customers. The Petitioner also rented 70 other boat

slips to customers during the audit period. These slips were built by the

Petitioner in 1977 on submerged land which had been leased from the State of

Florida, Department of Natural Resources, Bureau of Land Management. This

property adjoined the property leased from the Authority.

5. On November 16, 1992, the Department sent to the Petitioner a notice of

intent to audit its books and records. As part of the audit, the Department

requested that the Petitioner produce various records, including but not limited

to, the Petitioner's federal tax returns, Florida corporation income tax

returns, Florida sales and use tax returns, depreciation schedules, general

ledgers, property records, cash receipts journals, cash disbursement journals,

purchase journals, general journals, sales journals, sales invoices, shipping

documents, purchase invoices, intangible property records, sales tax exemption

certificates and lease agreements for the real or tangible property involved in

the Petitioner's business.

6. The Petitioner basically was able to provide few records to support his

restaurant sales and boat slip rental receipts, except for Florida sales tax

returns and federal income tax returns. There were no sales control

documentation records, such as general ledgers and general journals provided to

the Department's auditor for review, except for a cash register tape for the

night of December 1, 1992, representing that night's restaurant gross receipts

activity.

7. The Petitioner's method of record keeping essentially consisted of his

writing down the gross sales each evening from the cash register tapes, totaling

those figures at the end of the month, and reporting this total on his Florida

sales tax returns as the gross receipts from the restaurant business. However,

the Petitioner did not keep the cash register tapes or maintain other documents

to support the information reported to the Respondent on the monthly sales tax

returns.

8. The Petitioner reported as, "exempt income," the rental from the boat

slips for the five Santa Rosa boat slips on the monthly sales tax returns filed

with the Respondent. He did not report his monthly rental income from the

remaining 70 boat slips on his sales tax returns filed with the Respondent. He

did report a great deal more gross receipts on his federal income tax returns

than on his Florida sales tax returns.

9. The Department compared the Petitioner's federal income tax returns

during the audit period with his Florida sales tax returns and determined that

the gross receipts reported to the federal government were substantially larger

than the gross receipts reported to the Department. It determined that the

primary difference in the gross receipts was attributable to rental revenues

from the boat slips, which were not accounted for by the Petitioner in his

Florida monthly sales tax returns.

10. The auditor determined that four percent of the recorded restaurant

gross receipts were attributable to alcohol sales and 96 percent to food sales.

11. The Department calculated the sales tax due on the undisclosed income

through the audit, which represented gross receipts from the restaurant business

and the boat-slip rental business, which was not reported by the Petitioner on

his Florida sales tax returns. It calculated the sales tax due during the audit

period on the rentals of the five boat slips, which were improperly listed as

exempt sales on the Petitioner's monthly sales tax returns filed with the

Respondent.

12. It was also revealed that during the audit period, the Petitioner had

sub-leased a portion of the Santa Rosa property to his former wife for $5,000.00

per year. The Department calculated that the Petitioner owed $300.00 in taxes

based upon the sub-lease to his former wife.

13. The Department additionally calculated that the Petitioner owed an

additional $314.00 for use taxes, based upon non-exempt purchases of tangible

personal property.

14. The Department assessed the Petitioner's sales taxes based upon the

estimated boat-slip rental receipts, although it did not assess the lease

payments made by the Petitioner to the Authority or to the State of Florida,

Department of Natural Resources.

15. On February 12, 1993, the Department assessed the Petitioner a total

of $71,308.30 for the audit period, representing $45,694.90 of sales tax due,

$14,093.37 of interest due thereon, $11,041.36 of penalties, and $314.98 of use

tax, together with $91.02 of interest due on use taxes unpaid, and $72.67 of

penalties due thereon. Daily interest of $15.13 commencing on February 13, 1993

was also assessed.

16. Additionally, on February 12, 1993, the Department assessed the

Petitioner $1,060.97 for the audit period, including penalties and interest, for

local government infrastructure surtax due. Daily interest of $.29, commencing

on February 13, 1993, was assessed on that amount.

17. The Petitioner, in essence, does not dispute the Department's

calculation of the assessed amount. The Petitioner, rather, contends that he

believes that he reported all income and paid all sales taxes which were due and

that his certified public accountant failed to account properly for his gross

receipts and income to the federal internal revenue service, without the

Petitioner's knowledge, during the audit period. He maintains, therefore, that

the method of calculation of the Department's tax assessment, based upon the

difference between the gross receipts depicted on the federal income tax returns

and on the sales tax returns filed with the Department, is inaccurate,

apparently because of the CPA's errors. Additionally, the Petitioner maintains

that he was of the belief that the boat-slip rentals were not taxable and

reportable for sales tax purposes to the Department because he believes, citing

Rule 12A-1.061(5)(a) and (b), Florida Administrative Code. He bases this view

on his assertion that the persons residing in the boat slips were "95 percent"

live-aboard-type tenants, residing on their boats and that, essentially, they

treated their boats as beach homes or condominiums, etc., for purposes of that

rule, by residing for longer periods than six months. He thus contends that the

rental revenues from such residents were tax exempt.

18. The Department, however, established through its auditor's testimony

and the Department's Composite Exhibit 2, that the Petitioner's CPA, through

information he generated, did not establish that the difference between the

gross receipts reported to the internal revenue service on the federal tax

returns and the gross receipts reported on the Florida sales tax returns was not

taxable. The Petitioner's proof does not show the factual elements necessary to

establish that the 75 boat slips meet the rule's standard for exempt revenues

from non-taxable residences.

CONCLUSIONS OF LAW

19. The Division of Administrative Hearings has jurisdiction over the

subject matter and the parties hereto pursuant to Sections 120.57(1) and

120.575, Florida Statutes.

20. It is provided in Section 120.575(2), Florida Statutes, that the

Department's burden of proof is limited to a showing that an assessment has been

made against the taxpayer and its factual and legal basis. Once that

demonstration has been made by the Department, the burden shifts to the

taxpayer, the Petitioner, to demonstrate by a preponderance of the evidence,

that the assessment is incorrect. See, Department of Revenue v. Nu-Life Health

and Fitness Center, 623 So.2d 747, 751-752 (Fla. 1st DCA 1992).

21. The Petitioner failed to maintain or to supply adequate records, as

required by Section 213.35, Florida Statutes (1991). See, also, Rule 12A-1.093,

Florida Administrative Code. When a person or dealer, in the status of the

Petitioner, fails to make available records for purposes of audit by the

Department, as was the case in this situation, it is the duty of the Department

to "make an assessment from an estimate based upon the best information then

available to it for the taxable period." Section 212.12(5)(b), Florida Statutes

(1991).

22. The record in this case clearly establishes that the Department was

justified in using the Petitioner's own figures filed on his federal income tax

returns and those on the Florida sales tax returns as the best information

available, given the paucity of records supplied to the Department. The sales

tax deficiency resulted from the Petitioner's failure to report the full amount

of his gross receipts on the monthly sales tax returns filed with the

Respondent. The Petitioner's position that apparently his failure to pay the

assessed amount was due to inadvertence or a mistake as to the operative effect

of the relevant statutes and rules, by him and by his CPA, is immaterial. The

Department is not seeking to establish that the subject deficiency was due to

any fraudulent intent on the Petitioner's part.

23. The preponderant evidence clearly establishes that the Department was

justified in using the so-called "exempt sales" figures from the Petitioner's

monthly sales tax returns for assessing sales tax on the five Santa Rosa boat-

slip rentals, which, indeed, were not exempt from taxation. Rental amounts

obtained from leasing boat slips are taxable as rentals or leases of real

property by authority of Section 212.031(1)(a), Florida Statutes (1991), and

Rules 12A-1.070 and 12A-1.073(1)(b), Florida Administrative Code. The

Petitioner failed to offer any significant proof that the boat slips were

residences which qualified for the exemption referenced in Rule 12A-1.061(5)(a)

and (b), Florida Administrative Code.

24. The gross receipts from food and drink sold at the Petitioner's

restaurant are taxable, pursuant to Section 212.05, Florida Statutes (1991), and

Rules 12A-1.011 and 12A-1.057, Florida Administrative Code. The Petitioner has

not demonstrated facts, by a preponderance of the evidence, which would entitle

him and any of his operations involved in this proceeding to be exempt from

taxation, pursuant to the exemption provision at Section 212.08, Florida

Statutes (1991). According to Section 212.08(13), Florida Statutes:

No transaction shall be exempt from the tax

imposed by this chapter except those

expressly exempted herein . . .

None of the transactions or operations were shown to fit within the exemptions

specifically granted by that section.

25. In a case contesting the correctness or extent of the tax assessment,

including penalties and interest thereon, brought by a petitioner or plaintiff

before the circuit court or the Division of Administrative Hearings, the burden

to present facts to support the petition or complaint contesting the assessment

is on the petitioner or plaintiff. See, Smith's Bakery, Inc. v. Jernigan, 134

So.2d 519, 521 (Fla. 1st DCA 1961). Tax assessments such as those in the

instant case are considered prima facie correct upon a prima facie showing of

the facts supporting the assessment made by the Department, with the burden on

the party against whom the assessment is made to overcome that showing by a

preponderance of the evidence. Department of Revenue v. Nu-Life Health and

Fitness Center, supra. See, also, In re: Estate of Ziy, 223 So.2d 42, 43 (Fla.

1969). The Petitioner herein has not met that burden to show that the

assessment was improper.

26. The Petitioner did not provide relevant, material factual evidence to

show that the assessment was incorrect nor to show that the subject matter of

the assessments or part of it was, in reality, exempt from taxation. The

Petitioner's various legal and equitable arguments advanced, while they may

demonstrate that the Petitioner had no fraudulent intent related to the tax

deficiency involved, have no materiality or relevance to the issues in this

proceeding.

27. The Department has established that the above-described calculations

and resulting assessment of unpaid taxes, interest and penalties thereon have

been calculated according to law, on the best information available to the

Department, determined after ample opportunity for the Petitioner to augment

that information and to show otherwise, to no avail. Therefore, the assessments

of tax, interest and penalties are shown to be correct.

RECOMMENDATION

Having considered the foregoing Findings of Fact, Conclusions of Law, the

evidence of record and the candor and demeanor of the witnesses, it is,

therefore

RECOMMENDED that a Final Order be entered by the Respondent assessing the

taxes, penalties, and accumulated interest in the above-found amounts.

DONE AND ENTERED this 21st day of June, 1996, in Tallahassee, Florida.

___________________________________

P. MICHAEL RUFF, 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 21st day of June, 1996.

APPENDIX TO RECOMMENDED ORDER CASE NO. 94-7256

Petitioner's Proposed Findings of Fact

1. Accepted.

2. Accepted, based upon the Petitioner's testimony in this regard, but

immaterial.

3-4. Rejected, as not established by preponderant evidence. The

Petitioner did not show that all or even most of the tenants are on annual

rentals and, moreover, if they were, the rule cited by the Petitioner himself

requires that such lease agreements or contracts be written. The Petitioner has

simply failed to establish that the boat-slip rental arrangements were exempt

transactions.

5. Rejected, as incorrect as a matter of law and as immaterial and

irrelevant.

6. Rejected, as immaterial and irrelevant to the issues in this

proceeding.

7. Rejected, as subordinate to the Hearing Officer's findings of fact on

this subject matter and as not probative by a preponderance of evidence that the

assessment is incorrect.

8. Rejected, as immaterial to the issues in this proceeding. The

Department is not seeking to establish fraudulent intent.

9-27. These constitute argument and enunciation of the Petitioner's and

the Respondent's perceived legal positions, and attempted equitable arguments

concerning justification for the Petitioner's lack of relevant records,

including a description of his financial difficulties related to destruction of

his business by fire and by two hurricanes. While this is understandable and

regrettable, these arguments and positions asserted by the Petitioner are

immaterial and irrelevant to the issues in this case.

Respondent's Proposed Findings of Fact

1-26. Accepted.

COPIES FURNISHED:

Richard E. Wells

715 Pensacola Beach Boulevard

Post Office Box 505

Pensacola Beach, FL 32562-0505

Jarrell L. Murchison, Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, FL 32399-1050

Linda Lettera, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, FL 32399-0100

Larry Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, FL 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit to the agency written exceptions to this

Recommended Order. All agencies allow each party at least ten 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.