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


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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

1STATE OF FLORIDA

4DIVISION OF ADMINISTRATIVE HEARINGS

8RICHARD E. WELLS, )

12)

13Petitioner, )

15)

16vs. ) CASE NO. 94-7256

21)

22DEPARTMENT OF REVENUE, )

26)

27Respondent. )

29____________________________)

30RECOMMENDED ORDER

32Pursuant to notice, this cause came on for formal hearing before P. Michael

45Ruff, duly-designated Hearing Officer of the Division of Administrative

54Hearings, on April 8, 1996, in Pensacola, Florida.

62APPEARANCES

63For Petitioner: Richard E. Wells, pro se

70715 Pensacola Beach Boulevard

74Post Office Box 505

78Pensacola Beach, Florida 32562-0505

82For Respondent: Jarrell L. Murchison, Esquire

88Office of the Attorney General

93The Capitol - Tax Section

98Tallahassee, Florida 32399-1050

101STATEMENT OF THE ISSUES

105The issue to be resolved in this proceeding concerns whether the Petitioner

117is liable for sales tax, together with interest and penalties on the purported

130unpaid tax amount, as referenced in the assessment and the Respondent agency's

142notice of decision issued on October 18, 1994.

150PRELIMINARY STATEMENT

152This cause was initiated upon the conclusion of an audit conducted by the

165Respondent, Department of Revenue (Department), concerning payment of sales

174taxes by the Petitioner, Richard E. Wells, d/b/a the Marina Restaurant, during

186the period of October 1, 1987 through December 31, 1992 (the audit period). The

200Department made an initial determination that the gross sales of the restaurant

212were not fully reported to the Department and that all sales taxes were,

225therefore, not paid. The Department took the position that there was a dearth

238of records of revenues and sales taxes collected by the Petitioner, such that it

252elected to rely on revenue figures reported in the Petitioner's federal income

264tax returns. The Department believes that the taxpayer, the Petitioner, should

275be assessed in the amount of $71,308.30. This figure represents $45,694.90 of

289sales tax, $14,093.37 of interest thereon, $11,041.36 of penalties, and $314.98

302of use tax, with $91.02 of interest, and $72.67 of penalties thereon. Daily

315interest of $15.13 commencing on February 13, 1993, the date of the notice of

329proposed assessment, was also assessed. In the notice of proposed assessment

340dated February 12, 1993, the Department also assessed the amount of $1,060.97

353for the audit period, which includes penalties and interest, for local

364government infrastructure surtax, with daily interest thereon in the amount of

375$.29, commencing on February 15, 1993.

381The Petitioner filed a letter of protest with the Respondent dated February

39311, 1994. On October 18, 1994, a notice of decision was issued by the

407Department sustaining the proposed assessment amounts. The Petitioner contested

416the assessment and filed a petition with the Respondent dated December 13, 1994.

429The dispute was, in due course, transmitted to the Division of Administrative

441Hearings for resolution and this formal proceeding ensued.

449The parties requested that the matter not be scheduled for hearing until

461May 1995, whereupon a notice was issued scheduling the hearing for May 12, 1995.

475On April 28, 1995, a joint motion for continuance was filed indicating that the

489parties did not believe that a final hearing was necessary at that time and that

504settlement negotiations were under consideration between the parties. On June

51412, 1995, the parties filed a joint status report, at the direction of the

528Hearing Officer, indicating that the cause was not in a position to proceed to

542final hearing at that time and requesting that a status report be required only

556after a period of at least 90 days.

564The Marina Restaurant, revenues and records of which are the essential

575subject of this proceeding, burned to the ground on or about April 12, 1995.

589The Department requested certain documentation from the Petitioner pertaining to

599the fire and the payment of insurance proceeds. The search for relevant records

612and the discovery process engendered a substantial delay in the proceeding.

623Ultimately, the matter was scheduled for hearing, upon the failure of settlement

635negotiations, for April 8, 1996.

640The cause came on for hearing as noticed. The Petitioner testified on his

653own behalf at hearing but offered no exhibits into evidence. The Respondent

665presented the testimony of Gina Imm, the auditor who performed the audit on the

679Petitioner. The Respondent introduced into evidence Exhibits 1-7, which were

689admitted without objection.

692Upon conclusion of the proceeding, a transcript thereof was ordered and was

704duly filed with the Hearing Officer. Upon joint request of the parties, the

717time for submitted post-hearing Proposed Recommended Orders was extended by the

728Hearing Officer, so that Proposed Recommended Orders became due on June 4, 1996.

741Those Proposed Recommended Orders were timely submitted. The proposed findings

751of fact contained therein are addressed in this Recommended Order and again in

764the Appendix attached hereto and incorporated by reference herein.

773FINDINGS OF FACT

7761. The Petitioner is the sole proprietor of a marina and restaurant

788business located in Pensacola Beach, Florida. The Respondent is an agency of

800the State of Florida charged with enforcing pertinent statutes and rules

811providing for the collection of sales and use taxes, as well as penalties and

825interest for tax amounts determined to be due and payable but not timely paid to

840the Department and the State of Florida. Included within the Department's

851regulatory authority over the assessment and collection of sales and use taxes

863is the authority to conduct audits of taxpayers to determine amounts of tax due

877and owing to the State, as well as whether such taxes have been timely and

892properly remitted and otherwise accounted for. The relevant audit period

902involved in this proceeding extended from October 1, 1987 through December 31,

9141992.

9152. The Petitioner's marina and restaurant business operated during the

925audit period was operated on property owned by the Santa Rosa Island Authority

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

949Department of Environmental Protection, DEP). The property was leased to the

960Petitioner for the purpose of operation of this business.

9693. The property leased by the Petitioner from the Authority consisted of

981certain land above the mean high water mark and five boat slips. These five

995boat slips will be referred to sometimes hereafter as the "Santa Rosa boat

1008slips".

10104. During the audit period, the Petitioner operated the restaurant

1020business on the property leased from the Authority and rented the five boat

1033slips to various boating customers. The Petitioner also rented 70 other boat

1045slips to customers during the audit period. These slips were built by the

1058Petitioner in 1977 on submerged land which had been leased from the State of

1072Florida, Department of Natural Resources, Bureau of Land Management. This

1082property adjoined the property leased from the Authority.

10905. On November 16, 1992, the Department sent to the Petitioner a notice of

1104intent to audit its books and records. As part of the audit, the Department

1118requested that the Petitioner produce various records, including but not limited

1129to, the Petitioner's federal tax returns, Florida corporation income tax

1139returns, Florida sales and use tax returns, depreciation schedules, general

1149ledgers, property records, cash receipts journals, cash disbursement journals,

1158purchase journals, general journals, sales journals, sales invoices, shipping

1167documents, purchase invoices, intangible property records, sales tax exemption

1176certificates and lease agreements for the real or tangible property involved in

1188the Petitioner's business.

11916. The Petitioner basically was able to provide few records to support his

1204restaurant sales and boat slip rental receipts, except for Florida sales tax

1216returns and federal income tax returns. There were no sales control

1227documentation records, such as general ledgers and general journals provided to

1238the Department's auditor for review, except for a cash register tape for the

1251night of December 1, 1992, representing that night's restaurant gross receipts

1262activity.

12637. The Petitioner's method of record keeping essentially consisted of his

1274writing down the gross sales each evening from the cash register tapes, totaling

1287those figures at the end of the month, and reporting this total on his Florida

1302sales tax returns as the gross receipts from the restaurant business. However,

1314the Petitioner did not keep the cash register tapes or maintain other documents

1327to support the information reported to the Respondent on the monthly sales tax

1340returns.

13418. The Petitioner reported as, "exempt income," the rental from the boat

1353slips for the five Santa Rosa boat slips on the monthly sales tax returns filed

1368with the Respondent. He did not report his monthly rental income from the

1381remaining 70 boat slips on his sales tax returns filed with the Respondent. He

1395did report a great deal more gross receipts on his federal income tax returns

1409than on his Florida sales tax returns.

14169. The Department compared the Petitioner's federal income tax returns

1426during the audit period with his Florida sales tax returns and determined that

1439the gross receipts reported to the federal government were substantially larger

1450than the gross receipts reported to the Department. It determined that the

1462primary difference in the gross receipts was attributable to rental revenues

1473from the boat slips, which were not accounted for by the Petitioner in his

1487Florida monthly sales tax returns.

149210. The auditor determined that four percent of the recorded restaurant

1503gross receipts were attributable to alcohol sales and 96 percent to food sales.

151611. The Department calculated the sales tax due on the undisclosed income

1528through the audit, which represented gross receipts from the restaurant business

1539and the boat-slip rental business, which was not reported by the Petitioner on

1552his Florida sales tax returns. It calculated the sales tax due during the audit

1566period on the rentals of the five boat slips, which were improperly listed as

1580exempt sales on the Petitioner's monthly sales tax returns filed with the

1592Respondent.

159312. It was also revealed that during the audit period, the Petitioner had

1606sub-leased a portion of the Santa Rosa property to his former wife for $5,000.00

1621per year. The Department calculated that the Petitioner owed $300.00 in taxes

1633based upon the sub-lease to his former wife.

164113. The Department additionally calculated that the Petitioner owed an

1651additional $314.00 for use taxes, based upon non-exempt purchases of tangible

1662personal property.

166414. The Department assessed the Petitioner's sales taxes based upon the

1675estimated boat-slip rental receipts, although it did not assess the lease

1686payments made by the Petitioner to the Authority or to the State of Florida,

1700Department of Natural Resources.

170415. On February 12, 1993, the Department assessed the Petitioner a total

1716of $71,308.30 for the audit period, representing $45,694.90 of sales tax due,

1730$14,093.37 of interest due thereon, $11,041.36 of penalties, and $314.98 of use

1744tax, together with $91.02 of interest due on use taxes unpaid, and $72.67 of

1758penalties due thereon. Daily interest of $15.13 commencing on February 13, 1993

1770was also assessed.

177316. Additionally, on February 12, 1993, the Department assessed the

1783Petitioner $1,060.97 for the audit period, including penalties and interest, for

1795local government infrastructure surtax due. Daily interest of $.29, commencing

1805on February 13, 1993, was assessed on that amount.

181417. The Petitioner, in essence, does not dispute the Department's

1824calculation of the assessed amount. The Petitioner, rather, contends that he

1835believes that he reported all income and paid all sales taxes which were due and

1850that his certified public accountant failed to account properly for his gross

1862receipts and income to the federal internal revenue service, without the

1873Petitioner's knowledge, during the audit period. He maintains, therefore, that

1883the method of calculation of the Department's tax assessment, based upon the

1895difference between the gross receipts depicted on the federal income tax returns

1907and on the sales tax returns filed with the Department, is inaccurate,

1919apparently because of the CPA's errors. Additionally, the Petitioner maintains

1929that he was of the belief that the boat-slip rentals were not taxable and

1943reportable for sales tax purposes to the Department because he believes, citing

1955Rule 12A-1.061(5)(a) and (b), Florida Administrative Code. He bases this view

1966on his assertion that the persons residing in the boat slips were "95 percent"

1980live-aboard-type tenants, residing on their boats and that, essentially, they

1990treated their boats as beach homes or condominiums, etc., for purposes of that

2003rule, by residing for longer periods than six months. He thus contends that the

2017rental revenues from such residents were tax exempt.

202518. The Department, however, established through its auditor's testimony

2034and the Department's Composite Exhibit 2, that the Petitioner's CPA, through

2045information he generated, did not establish that the difference between the

2056gross receipts reported to the internal revenue service on the federal tax

2068returns and the gross receipts reported on the Florida sales tax returns was not

2082taxable. The Petitioner's proof does not show the factual elements necessary to

2094establish that the 75 boat slips meet the rule's standard for exempt revenues

2107from non-taxable residences.

2110CONCLUSIONS OF LAW

211319. The Division of Administrative Hearings has jurisdiction over the

2123subject matter and the parties hereto pursuant to Sections 120.57(1) and

2134120.575, Florida Statutes.

213720. It is provided in Section 120.575(2), Florida Statutes, that the

2148Department's burden of proof is limited to a showing that an assessment has been

2162made against the taxpayer and its factual and legal basis. Once that

2174demonstration has been made by the Department, the burden shifts to the

2186taxpayer, the Petitioner, to demonstrate by a preponderance of the evidence,

2197that the assessment is incorrect. See, Department of Revenue v. Nu-Life Health

2209and Fitness Center, 623 So.2d 747, 751-752 (Fla. 1st DCA 1992).

222021. The Petitioner failed to maintain or to supply adequate records, as

2232required by Section 213.35, Florida Statutes (1991). See, also, Rule 12A-1.093,

2243Florida Administrative Code. When a person or dealer, in the status of the

2256Petitioner, fails to make available records for purposes of audit by the

2268Department, as was the case in this situation, it is the duty of the Department

2283to "make an assessment from an estimate based upon the best information then

2296available to it for the taxable period." Section 212.12(5)(b), Florida Statutes

2307(1991).

230822. The record in this case clearly establishes that the Department was

2320justified in using the Petitioner's own figures filed on his federal income tax

2333returns and those on the Florida sales tax returns as the best information

2346available, given the paucity of records supplied to the Department. The sales

2358tax deficiency resulted from the Petitioner's failure to report the full amount

2370of his gross receipts on the monthly sales tax returns filed with the

2383Respondent. The Petitioner's position that apparently his failure to pay the

2394assessed amount was due to inadvertence or a mistake as to the operative effect

2408of the relevant statutes and rules, by him and by his CPA, is immaterial. The

2423Department is not seeking to establish that the subject deficiency was due to

2436any fraudulent intent on the Petitioner's part.

244323. The preponderant evidence clearly establishes that the Department was

2453justified in using the so-called "exempt sales" figures from the Petitioner's

2464monthly sales tax returns for assessing sales tax on the five Santa Rosa boat-

2478slip rentals, which, indeed, were not exempt from taxation. Rental amounts

2489obtained from leasing boat slips are taxable as rentals or leases of real

2502property by authority of Section 212.031(1)(a), Florida Statutes (1991), and

2512Rules 12A-1.070 and 12A-1.073(1)(b), Florida Administrative Code. The

2520Petitioner failed to offer any significant proof that the boat slips were

2532residences which qualified for the exemption referenced in Rule 12A-1.061(5)(a)

2542and (b), Florida Administrative Code.

254724. The gross receipts from food and drink sold at the Petitioner's

2559restaurant are taxable, pursuant to Section 212.05, Florida Statutes (1991), and

2570Rules 12A-1.011 and 12A-1.057, Florida Administrative Code. The Petitioner has

2580not demonstrated facts, by a preponderance of the evidence, which would entitle

2592him and any of his operations involved in this proceeding to be exempt from

2606taxation, pursuant to the exemption provision at Section 212.08, Florida

2616Statutes (1991). According to Section 212.08(13), Florida Statutes:

2624No transaction shall be exempt from the tax

2632imposed by this chapter except those

2638expressly exempted herein . . .

2644None of the transactions or operations were shown to fit within the exemptions

2657specifically granted by that section.

266225. In a case contesting the correctness or extent of the tax assessment,

2675including penalties and interest thereon, brought by a petitioner or plaintiff

2686before the circuit court or the Division of Administrative Hearings, the burden

2698to present facts to support the petition or complaint contesting the assessment

2710is on the petitioner or plaintiff. See, Smith's Bakery, Inc. v. Jernigan, 134

2723So.2d 519, 521 (Fla. 1st DCA 1961). Tax assessments such as those in the

2737instant case are considered prima facie correct upon a prima facie showing of

2750the facts supporting the assessment made by the Department, with the burden on

2763the party against whom the assessment is made to overcome that showing by a

2777preponderance of the evidence. Department of Revenue v. Nu-Life Health and

2788Fitness Center, supra. See, also, In re: Estate of Ziy, 223 So.2d 42, 43 (Fla.

28031969). The Petitioner herein has not met that burden to show that the

2816assessment was improper.

281926. The Petitioner did not provide relevant, material factual evidence to

2830show that the assessment was incorrect nor to show that the subject matter of

2844the assessments or part of it was, in reality, exempt from taxation. The

2857Petitioner's various legal and equitable arguments advanced, while they may

2867demonstrate that the Petitioner had no fraudulent intent related to the tax

2879deficiency involved, have no materiality or relevance to the issues in this

2891proceeding.

289227. The Department has established that the above-described calculations

2901and resulting assessment of unpaid taxes, interest and penalties thereon have

2912been calculated according to law, on the best information available to the

2924Department, determined after ample opportunity for the Petitioner to augment

2934that information and to show otherwise, to no avail. Therefore, the assessments

2946of tax, interest and penalties are shown to be correct.

2956RECOMMENDATION

2957Having considered the foregoing Findings of Fact, Conclusions of Law, the

2968evidence of record and the candor and demeanor of the witnesses, it is,

2981therefore

2982RECOMMENDED that a Final Order be entered by the Respondent assessing the

2994taxes, penalties, and accumulated interest in the above-found amounts.

3003DONE AND ENTERED this 21st day of June, 1996, in Tallahassee, Florida.

3015___________________________________

3016P. MICHAEL RUFF, Hearing Officer

3021Division of Administrative Hearings

3025The DeSoto Building

30281230 Apalachee Parkway

3031Tallahassee, Florida 32399-1550

3034(904) 488-9675

3036Filed with the Clerk of the

3042Division of Administrative Hearings

3046this 21st day of June, 1996.

3052APPENDIX TO RECOMMENDED ORDER CASE NO. 94-7256

3059Petitioner's Proposed Findings of Fact

30641. Accepted.

30662. Accepted, based upon the Petitioner's testimony in this regard, but

3077immaterial.

30783-4. Rejected, as not established by preponderant evidence. The

3087Petitioner did not show that all or even most of the tenants are on annual

3102rentals and, moreover, if they were, the rule cited by the Petitioner himself

3115requires that such lease agreements or contracts be written. The Petitioner has

3127simply failed to establish that the boat-slip rental arrangements were exempt

3138transactions.

31395. Rejected, as incorrect as a matter of law and as immaterial and

3152irrelevant.

31536. Rejected, as immaterial and irrelevant to the issues in this

3164proceeding.

31657. Rejected, as subordinate to the Hearing Officer's findings of fact on

3177this subject matter and as not probative by a preponderance of evidence that the

3191assessment is incorrect.

31948. Rejected, as immaterial to the issues in this proceeding. The

3205Department is not seeking to establish fraudulent intent.

32139-27. These constitute argument and enunciation of the Petitioner's and

3223the Respondent's perceived legal positions, and attempted equitable arguments

3232concerning justification for the Petitioner's lack of relevant records,

3241including a description of his financial difficulties related to destruction of

3252his business by fire and by two hurricanes. While this is understandable and

3265regrettable, these arguments and positions asserted by the Petitioner are

3275immaterial and irrelevant to the issues in this case.

3284Respondent's Proposed Findings of Fact

32891-26. Accepted.

3291COPIES FURNISHED:

3293Richard E. Wells

3296715 Pensacola Beach Boulevard

3300Post Office Box 505

3304Pensacola Beach, FL 32562-0505

3308Jarrell L. Murchison, Esquire

3312Office of the Attorney General

3317The Capitol - Tax Section

3322Tallahassee, FL 32399-1050

3325Linda Lettera, General Counsel

3329Department of Revenue

3332204 Carlton Building

3335Tallahassee, FL 32399-0100

3338Larry Fuchs, Executive Director

3342Department of Revenue

3345104 Carlton Building

3348Tallahassee, FL 32399-0100

3351NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

3357All parties have the right to submit to the agency written exceptions to this

3371Recommended Order. All agencies allow each party at least ten days in which to

3385submit written exceptions. Some agencies allow a larger period within which to

3397submit written exceptions. You should contact the agency that will issue the

3409Final Order in this case concerning agency rules on the deadline for filing

3422exceptions to this Recommended Order. Any exceptions to this Recommended Order

3433should be filed with the agency that will issue the Final Order in this case.

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Date
Proceedings
Date: 09/09/1996
Proceedings: Final Order filed.
PDF:
Date: 09/06/1996
Proceedings: Agency Final Order
PDF:
Date: 09/06/1996
Proceedings: Recommended Order
PDF:
Date: 06/21/1996
Proceedings: Recommended Order sent out. CASE CLOSED. Hearing held 04/08/96.
Date: 06/04/1996
Proceedings: (Respondent) Notice of Filing; Respondent`s Proposed Recommended Order filed.
Date: 06/04/1996
Proceedings: (Petitioner) Proposed Recommended Order filed.
Date: 05/29/1996
Proceedings: Letter to R. Wells from J. Murchison Re: Filing proposed recommended orders filed.
Date: 05/20/1996
Proceedings: Order sent out. (Proposed Recommended Order`s are Due by 6/4/96)
Date: 05/16/1996
Proceedings: Joint Motion for A Fifteen Day Extension of Time to File Proposed Recommended Order filed.
Date: 04/19/1996
Proceedings: Transcript with Exhibits attached filed.
Date: 04/08/1996
Proceedings: CASE STATUS: Hearing Held.
Date: 04/03/1996
Proceedings: Respondent`s Notice to Produce Evidence at Formal Hearing filed.
Date: 02/07/1996
Proceedings: Second Notice of Hearing sent out. (hearing set for 4/8/96; 1:30pm; Pensacola)
Date: 06/12/1995
Proceedings: (Respondent) Joint Status Report filed.
Date: 05/22/1995
Proceedings: (Petitioner) Amended Petition filed.
Date: 05/04/1995
Proceedings: Order sent out. (parties are directed to confer and advise the undersigned of mutually-agreeable hearing dates by June 12, 1995)
Date: 04/28/1995
Proceedings: Joint Motion for Continuance filed.
Date: 02/22/1995
Proceedings: Notice of Hearing sent out. (hearing set for 5/12/95; 10:00am; Pensacola)
Date: 01/23/1995
Proceedings: (Respondent) Joint Response to Initial Order filed.
Date: 01/19/1995
Proceedings: Ltr. to Hearing Officer from R. Wells re: Reply to Initial Order filed.
Date: 01/10/1995
Proceedings: Initial Order issued.
Date: 12/30/1994
Proceedings: Agency referral letter; Request for Administrative Hearing, letter form; Agency Action letter filed.

Case Information

Judge:
P. MICHAEL RUFF
Date Filed:
12/30/1994
Date Assignment:
01/10/1995
Last Docket Entry:
09/09/1996
Location:
Pensacola Beach, Florida
District:
Northern
Agency:
ADOPTED IN TOTO
 

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