95-000907RU
Terry Ernst And Donna Ernst vs.
Department Of Revenue
Status: Closed
DOAH Final Order on Tuesday, May 16, 1995.
DOAH Final Order on Tuesday, May 16, 1995.
1STATE OF FLORIDA
4DIVISION OF ADMINISTRATIVE HEARINGS
8TERRY ERNST & DONNA ERNST, )
14)
15Petitioner, )
17)
18vs. ) CASE NO. 95-0907RU
23)
24DEPARTMENT OF REVENUE, )
28)
29Respondent. )
31___________________________)
32FINAL ORDER
34Pursuant to notice, the Division of Administrative Hearings, by its
44designated Hearing Officer, Joyous D. Parrish, held a formal hearing in the
56above-styled case on March 27, 1995, in Tallahassee, Florida.
65APPEARANCES
66For Petitioner: Jonathan D. Gerber
71Marvin A. Kirsner
74Shutts & Bowen
77One Clearlake Centre, Suite 500
82250 Australian Avenue
85West Palm Beach, Florida 33401
90For Respondent: Olivia P. Klein
95Charles Catanzaro
97Assistant Attorneys General
100Office of the Attorney General
105The Capitol-Tax Section
108Tallahassee, Florida 32399-1050
111STATEMENT OF THE ISSUES
115Whether the agency has an unpromulgated statement of general applicability
125that imposed a requirement not specifically required by statute or by an
137existing rule, and which has been utilized against Petitioners to their
148detriment.
149PRELIMINARY STATEMENT
151On February 28, 1995, the Petitioners filed a petition to invalidate agency
163statements pursuant to Section 120.535, Florida Statutes. Such petition alleged
173that Petitioners are officers and directors of HUSSH, Inc., a retail women's
185fashion business located in the Town of Palm Beach. Further, the petition
197claimed that pursuant to Rule 12A-1.064(1)(b)2., Florida Administrative Code,
206the Petitioners and their corporation have been audited by the Respondent, and
218that the agency asserts a tax liability assessment in the amount of $440,620.52
232against the taxpayers.
235The tax assessment set forth above is the subject of a Section 120.57(1),
248Florida Statutes, proceeding currently pending before the Division of
257Administrative Hearings (DOAH case nos. 94-2900 and 94-2901). In the instant
268case, Petitioners allege that the Respondent has
275failed to identify a single statute or rule
283which describes the documentation required
288to qualify for the Interstate Sales Exemption.
295Furthermore, Respondent has failed to identify
301a single statute or rule which describes the
309type of evidence required to prove that a
317person has violated the Interstate Sales Exemption.
324In essence, the Petitioners claim that the agency is applying an
335unpromulgated policy to determine that the documentation submitted by
344Petitioners is inadequate to support a sales tax exemption. And that, as a
357matter of law, Petitioners are entitled to know what documentation is required
369to be kept to support the exemption they claim.
378The petition set forth the following disputed issues of fact:
388a. Whether Petitioners are liable for a
395$440,620.52 penalty assessed against them
401by Respondent.
403b. Whether Petitioners engaged in a scheme
410to avoid, evade or defeat the collection and
418payment of the State of Florida sales tax as
427officers of the Corporate Taxpayer.
432c. Whether the Corporate Taxpayer's logs
438of out of state sales were "improperly documented."
446d. Whether information exists from "multiple
452third party sources" that Petitioners "wilfully
458(sic) promoted a tax avoidance scheme on in
466store delivered items.
469e. Whether a properly adopted statute or rule
477exists which describes the documentation required
483to qualify for the Interstate Sales Exemption.
490f. Whether a properly adopted statute or rule
498exists which describes the type of evidence required
506to prove that a person has violated the Interstate
515Sales Exemption.
517The Respondent filed a motion in opposition to the petition to invalidate
529agency statements on March 16, 1995. Such motion alleged that Section 120.535,
541Florida Statutes, is inapplicable to this case as a matter of law. More
554specifically, the Respondent claimed that the agency has promulgated rules in
565connection with this case, and that such rules comport with the statutory
577authority afforded the agency. Because the agency has rules which have been
589promulgated within its statutory authority, the Department maintained, there
598can be no failure to adopt rules to support a Section 120.535 petition.
611After affording the parties an opportunity to offer oral argument, motions
622for summary final order (the Petitioners') and for dismissal of the petition
634(the Respondent's) were denied by order entered March 23, 1995. The order
646provided, in pertinent part:
650In this case, Petitioners have misstated the
657issues to be determined. Factual matters
663related to the tax assessment dispute are not
671at issue. The factual issues to be resolved
679by this case are as follows:
6851. Whether the agency has statements of
692general applicability not contemplated within
697the rule, and not promulgated in accordance
704with Section 120.54, Florida Statutes.
7092. If so, whether such unpromulgated state-
716ments have been applied to Petitioners.
7223. If so, whether such application has
729adversely affected Petitioners.
7324. If the foregoing questions are resolved
739in the affirmative, then whether rulemaking,
745pursuant to Section 120.54, Florida Statutes,
751is feasible and practicable must be determined.
758Because this case alleges unpromulgated statements,
764the legal sufficiency of the existing rule is not
773at issue.
775At the formal hearing on March 27, 1995, the parties stipulated to the
788admissibility of exhibits. Petitioners presented the testimony of Michael
797Hollander, a certified public accountant. Petitioners' exhibits, marked for
806identification as Petitioner's 1 through 12, have been received into evidence.
817Respondent offered the testimony of Peter Steffens, the revenue opportunity
827research administrator for the Department of Revenue. It sought and official
838recognition has been taken of the exhibits numbered 1 through 11.
849The transcript of the proceeding was filed on April 11, 1995. The parties
862filed a stipulation for enlargement of time to submit proposed orders which
874provided the proposals would be due on or before May 1, 1995. Both parties
888timely filed proposed final orders. Specific rulings on the proposed findings
899of fact are included in the appendix at the conclusion of this order.
912FINDINGS OF FACT
9151. On March 24, 1994, the Department of Revenue (Department) issued a
927Notice of Reconsideration (NOR) that claimed the Petitioners, Terry and Donna
938Ernst, had willfully failed to collect sales tax. Petitioners' assertion of an
950exemption in connection with the sales tax assessment was denied.
9602. The NOR provided that the Petitioners are the president and vice-
972president of Hussh, Inc., a retail apparel store in Palm Beach, Florida and that
986such company made sales to customers for delivery in the store and for shipment
1000outside of the State of Florida. At issue were the alleged shipments to out of
1015state destinations.
10173. Pertinent to this case is the language in the NOR found at page two
1032which provided:
1034Due to the inadequacy and volume of Hussh's
1042records, the auditor sampled the available
1048records, and assessed Hussh for asserted out
1055of state sales that were improperly documented.
1062According to the auditor, many of the sales
1070receipts or invoices of asserted out of state
1078shipments were missing the top portion of the
1086invoice. Significantly, this portion of the
1092invoice would contain the names, addresses,
1098and asserted export destination information on
1104each sale. Other invoices were stamped, "out of
1112state shipped," but no destination information
1118was present on the invoice. [Emphasis added.]
11254. The Petitioners maintain that the portions of the NOR emphasized in the
1138foregoing paragraph constitute an agency statement of general applicability and
1148is, therefore, an unpromulgated rule.
11535. The Department does not have a rule which lists all documentation which
1166might establish an exemption for sales tax assessment. Similarly, the
1176Department does not have a rule that lists the type of documentation which would
1190be inadequate to establish an exemption for sales taxes.
11996. The Department's existing rule, Rule 12A-1.064, Florida Administrative
1208Code, provides, in part:
1212(1)(a) Sales tax is imposed on the sales
1220price of each item or article of tangible
1228personal property, unless otherwise exempt,
1233when the property is delivered to the purchaser
1241or his representative in this state. However,
1248the tax does not apply to tangible personal
1256property irrevocably committed to the exportation
1262process at the time of sale, when such process
1271has been continuous or unbroken.
1276(b) Intent of the seller and the purchaser
1284that the property will be exported is not
1292sufficient to establish the exemption; nor
1298does delivery of the property to a point in
1307Florida for subsequent transportation outside
1312Florida necessarily constitute placing the
1317property irrevocably in the exportation
1322process. Tangible personal property shall
1327be deemed committed to the exportation process
1334if:
13351. The dealer is required by the terms of
1344the sale contract to deliver the goods outside
1352this state using his own mode of transportation.
1360The dealer must retain in his records trip tickets,
1369truck log records, or other documentation reflecting
1376the specific items and export destination;
13822. The dealer is required by the terms of the
1392sale contract to deliver the goods to a common
1401carrier for final and certain movement of such
1409property to its out of state destination. Sales
1417by a Florida dealer are exempt when the dealer
1426delivers the merchandise to the transportation
1432terminal for shipment outside this state and
1439secures a dock or warehouse receipt and a copy
1448of the bill of lading. On shipments to points
1457outside the United States, a shipper's export
1464declaration shall also be obtained;
1469[Emphasis added.]
14717. Rule 12A-1.093, Florida Administrative Code, requires taxpayers to
1480maintain and preserve records. This rule provides, in part:
1489(2) Each dealer defined in Chapter 212, F.S.,
1497each licensed wholesaler, and any other person
1504subject to the tax imposed by Chapter 212, F.S.,
1513shall keep and preserve a complete record of all
1522transactions, together with invoices, bills of
1528lading, gross receipts from sales, RESALE
1534CERTIFICATES, CONSUMER EXEMPTION CERTIFICATES
1538and other pertinent records and papers as may
1546be required by the Department of Revenue for the
1555reasonable administration of Chapter 212, F.S.,
1561and such books of account as may be necessary to
1571determine the amount of tax due thereunder.
15788. The terms "bill of lading," "dock or warehouse receipt," and "invoice"
1590are common terms used in the business community. Each connotes that, at the
1603minimum, certain information will be retained on the face of the document. For
1616example, according to Petitioners' witness, the minimum information expected on
1626a bill of lading would be: the name of the person that the item is being shipped
1643to, the item being shipped, the cost of the shipment, and the terms of the
1658shipment with the value of the item being shipped.
16679. Similarly, the minimum information which is expected on an "invoice"
1678would be: a description of the item sold, the amount of the sale, and the name
1694of the person to whom the item was sold.
170310. The terms "bill of lading," "dock or warehouse receipt," and "invoice"
1715are not defined by rule.
172011. The Department determined whether an exemption was documented based
1730upon the results of this audit.
1736CONCLUSIONS OF LAW
173912. The Division of Administrative Hearings has jurisdiction over the
1749parties to, and the subject matter of, these proceedings.
175813. Section 120.535, Florida Statutes, provides, in pertinent part:
1767(1) Rulemaking is not a matter of agency
1775discretion. Each agency statement defined
1780as a rule under s. 120.52(16) shall be adopted
1789by the rulemaking procedure provided by s.
1796120.54 as soon as feasible and practicable.
1803Rulemaking shall be presumed feasible and
1809practicable to the extent provided by this
1816subsection unless one of the factors provided
1823by this subsection is applicable.
182814. Section 120.52(16), Florida Statutes, provides, in part:
"1836Rule" means each agency statement of general
1843applicability that implements, interprets, or
1848prescribes law or policy or describes the
1855organization, procedure, or practice require-
1860ments of an agency and includes any form which
1869imposes any requirement or solicits any infor-
1876mation not specifically required by statute or
1883by an existing rule. The term also includes
1891the amendment or repeal of a rule. The term
1900does not include:
1903(a) Internal management memoranda which
1908do not affect either the private interests of
1916any person or any plan or procedure important
1924to the public and which have no application
1932outside the agency issuing the memorandum.
1938(b) Legal memoranda or opinions issued
1944to an agency by the Attorney General or agency
1953legal opinions prior to their use in connection
1961with an agency action.
1965* * *
196815. Rule 12A-1.064, Florida Administrative Code, outlines when the
1977taxpayer is entitled to an interstate sales exemption. The rule utilizes
1988language which is common in the business community, and which adequately
1999identifies the types of information which can establish the exemption.
2009Petitioners cannot claim ignorance of the meaning of commonly used terms to
2021justify a challenge to the existing rule. In fact, the Petitioners have not
2034challenged the rule.
203716. The Department's explanation of how Petitioners failed to document the
2048exemption claimed is not a statement of general applicability, but is merely an
2061attempt to state the minimum information contemplated by the existing rule.
207217. The Petitioners have not proven that the language complained of has
2084been applied in other circumstances or to other taxpayers or that the terms used
2098in the existing rule are so vague or uncertain that the language constitutes a
2112statement of general applicability to clarify the rule. In terms of the
2124language complained of, only these taxpayers are affected by the NOR. Its
2136attempt to explain why the exemption was not allowed does not necessarily apply
2149to the facts or circumstances of another audit.
215718. In this case, the Petitioners have failed to establish that the
2169language of the Notice of Reconsideration is a statement of general
2180applicability. The statement in the Petitioners' Notice advised them of
2190information that was lacking with regard to the establishment of the exemption.
2202There has been no showing that the agency applies the information given in the
2216notice to all taxpayers or in any manner requires that all taxpayers retain and
2230submit specified information to establish the exemption. The information
2239requested from Petitioners would have aided in the audit process and is within
2252the discretion of the agency to request. The existing rules, however, merely
2264require that the dealer "keep and preserve a complete record of all
2276transactions, together with invoices, bills of lading, gross receipts from
2286sales, RESALE CERTIFICATES, CONSUMER EXEMPTION CERTIFICATES and other pertinent
2295records and papers." And, that
2300the terms of the sale contract to deliver the
2309goods to a common carrier for final and certain
2318movement of such property to its out of state
2327destination. Sales by a Florida dealer are
2334exempt when the dealer delivers the merchandise
2341to the transportation terminal for shipment
2347outside this state and secures a dock or ware-
2356house receipt and a copy of the bill of lading.
236619. The taxpayer may, in his discretion, retain the documentation as will
2378show the necessary information. Therefore, the language of the NOR was within
2390the existing rules.
239320. Petitioners' argument also fails because if correct, the Department
2403would face the onerous task of listing and defining all of the types of business
2418records which could be acceptable. Neither the authorizing statutes nor Section
2429120.535, Florida Statutes, places that burden on the agency. Under the existing
2441rules, taxpayers have the freedom to establish the exemption by the business
2453records they choose. The minimum information which must be retained must
2464establish the item purchased was exported, the dealer is on full notice of the
2478necessary documentation necessary to establish the exemption.
2485ORDER
2486Based on the foregoing, it is, hereby,
2493ORDERED:
2494Petitioners' challenge is hereby dismissed.
2499DONE AND ENTERED this 16th day of May, 1995, in Tallahassee, Leon County,
2512Florida.
2513___________________________________
2514JOYOUS D. PARRISH
2517Hearing Officer
2519Division of Administrative Hearings
2523The DeSoto Building
25261230 Apalachee Parkway
2529Tallahassee, Florida 32399-1550
2532(904) 488-9675
2534Filed with the Clerk of the
2540Division of Administrative Hearings
2544this 16th day of May, 1995.
2550APPENDIX TO FINAL ORDER, CASE NO. 95-0907RU
2557Rulings on the proposed findings of fact submitted by the Petitioners:
25681. Paragraphs 1, 4, 5, 8, 9, 10, and 11 are accepted.
25802. Paragraphs 2 and 3 are rejected as contrary to the weight of the
2594credible evidence.
25963. Paragraphs 6 and 7 are accepted but are not relevant.
26074. Paragraphs 12, 13, 14, 15, 17, and 18 are rejected as irrelevant or
2621argument.
26225. Paragraph 16 is rejected as an incomplete statement of fact which in
2635its part is contrary to the weight of all credible evidence. It is not feasible
2650to define all business terms of all business documents which dealers may choose
2663to use to document an exempted transaction. Dealers are given the flexibility
2675to select the documentation as they may choose so long as the information is
2689there to establish the exemption. The terms in the rule are commonly known,
2702everyday terms which persons in the business community use.
2711Rulings on the proposed findings of fact submitted by the Respondent:
27221. Paragraphs 1, 2, 3, 4 (emphasis supplied by party), 5, 6, 7, 9, 10, 11,
273812, 13, 18, and 19 are accepted.
27452. Paragraph 8 is rejected as argument or conclusion of law.
27563. Paragraphs 14 through 17 are rejected as irrelevant to this case.
2768COPIES FURNISHED:
2770Jonathan D. Gerber
2773Marvin A. Kirsner
2776Shutts & Bowen
2779One Clearlake Centre, Suite 500
2784250 Australian Avenue
2787West Palm Beach, Florida 33401
2792Olivia P. Klein
2795Charles Catanzaro
2797Assistant Attorneys General
2800Office of the Attorney General
2805The Capitol-Tax Section
2808Tallahassee, Florida 32399-1050
2811Larry Fuchs
2813Executive Director
2815104 Carlton Building
2818Tallahassee, Florida 32399-0100
2821Linda Lettera
2823General Counsel
2825204 Carlton Building
2828Tallahassee, Florida 32399-0100
2831NOTICE OF RIGHT TO JUDICIAL REVIEW
2837A party who is adversely affected by this final order is entitled to judicial
2851review pursuant to Section 120.68, Florida Statutes. Review proceedings are
2861governed by the Florida Rules Of Appellate Procedure. Such proceedings are
2872commenced by filing one copy of a notice of appeal with the Agency Clerk Of The
2888Division Of Administrative Hearings and a second copy, accompanied by filing
2899fees prescribed by law, with the District Court Of Appeal, First District, or
2912with the District Court Of Appeal in the appellate district where the party
2925resides. The notice of appeal must be filed within 30 days of rendition of the
2940order to be reviewed.
- Date
- Proceedings
- Date: 02/14/1997
- Proceedings: Record returned from 4th DCA filed.
- Date: 12/02/1996
- Proceedings: BY ORDER OF THE COURT (notice of voluntary dismissal filed appeal is dismissed) filed.
- Date: 11/25/1996
- Proceedings: Notice of Voluntary Dismissal (Appellants) filed.
- Date: 09/23/1996
- Proceedings: Appellants` Status Report (filed in the Fourth DCA) filed.
- Date: 08/23/1996
- Proceedings: BY ORDER OF THE COURT (appellants are directed to file a status report within 30 days from date of this order) from the fourth DCA filed.
- Date: 08/16/1996
- Proceedings: Appellants` Status Report filed.
- Date: 05/28/1996
- Proceedings: BY ORDER OF THE COURT (Status report due on or before 08/15/96) filed.
- Date: 05/17/1996
- Proceedings: Appellants` Status Report (filed in the 4th DCA) filed.
- Date: 04/03/1996
- Proceedings: BY ORDER OF THE COURT (Substitution of counsel) filed.
- Date: 04/01/1996
- Proceedings: Stipulation for Substitution of Counsel filed.
- Date: 04/01/1996
- Proceedings: (Petitioner) Stipulation for Substitution of Counsel; Order of Substitution of Counsel (for HO signature) filed.
- Date: 03/08/1996
- Proceedings: By Order of the Court (status report due 5/15/96) filed.
- Date: 03/01/1996
- Proceedings: Appellants` Status Report filed. (filed in the 4th DCA)
- Date: 01/09/1996
- Proceedings: Appellants` Status Report filed.
- Date: 11/03/1995
- Proceedings: BY ORDER OF THE COURT (Appellants to file status report within 120 days) filed.
- Date: 10/26/1995
- Proceedings: APPELLANTS` STATUS REPORT filed.
- Date: 09/27/1995
- Proceedings: Index, Record, Certificate of Record sent out.
- Date: 09/08/1995
- Proceedings: BY ORDER OF THE COURT (Motion for extension of time is granted) filed.
- Date: 09/08/1995
- Proceedings: BY ORDER OF THE COURT (initial brief) filed.
- Date: 08/28/1995
- Proceedings: (Petitioner) Motion for Extension of Time filed.
- Date: 08/10/1995
- Proceedings: Payment in the amount of $36.00 for indexing filed.
- Date: 08/03/1995
- Proceedings: Index & Statement of Service sent out.
- Date: 06/19/1995
- Proceedings: Letter to DOAH from DCA filed. DCA Case No. 4-95-2033.
- Date: 06/15/1995
- Proceedings: Certificate of Notice of Appeal sent out.
- Date: 06/15/1995
- Proceedings: Notice of Appeal filed.
- Date: 05/01/1995
- Proceedings: Respondent`s Proposed Final Order filed.
- Date: 05/01/1995
- Proceedings: Petitioner`s Proposed Findings of Fact, Proposed Conclusions of Law and Proposed Final Order filed.
- Date: 04/19/1995
- Proceedings: (Joint) Stipulation for Enlargement of Time to Submit Proposed Orders filed.
- Date: 04/12/1995
- Proceedings: Letter to Lisa Barnes from Vicki L. Solari Re: Enclosing check for $149.00 for copy of transcript filed.
- Date: 04/11/1995
- Proceedings: Transcript filed.
- Date: 03/27/1995
- Proceedings: CASE STATUS: Hearing Held.
- Date: 03/24/1995
- Proceedings: (Respondent) Notice of Taking Deposition filed.
- Date: 03/24/1995
- Proceedings: Petitioner`s Notice of Serving Answers to Respondent`s First Set of Interrogatories on Short Notice; Petitioners` Answers to Respondent`s First Set of Interrogatories on Short Notice w/cover letter filed.
- Date: 03/23/1995
- Proceedings: Order sent out. (ruling on motions)
- Date: 03/23/1995
- Proceedings: Letter to HO from Jonathan D. Gerber Re: Florida State University Law Review article addressing F.S. 120.535 filed.
- Date: 03/22/1995
- Proceedings: Respondent Florida Department of Revenue`s Objection to Petitioners Motion for Rehearing Conference; Rules filed.
- Date: 03/22/1995
- Proceedings: Notice of Serving of Respondent`s First Set of Interrogatories to Petitioners; Respondent Florida Department of Revenue`s Objection to Petitioners Request for Subpoena; Respondent Florida Department of Revenue`s Objection to Petitioners Request for Appear
- Date: 03/22/1995
- Proceedings: (Respondent) Notice of Hearing; Respondent Florida Department of Revenue's Reply to Petitioner's First Request for Production; Respondent Florida Department of Revenue's Reply to Petitioners Request fo Admissions; Respondent's Motion to Expedite Discover
- Date: 03/21/1995
- Proceedings: Petitioners` Reply Memorandum to Respondent`s Motion in Opposition to Petition w/cover letter filed.
- Date: 03/20/1995
- Proceedings: Petitioner`s Request for Subpoena; Petitioner`s Request for Appearance By Telephone; Letter to Olivia Klein from Marvin A. Kirsner (cc: HO) Re: Responses to discovery requests filed.
- Date: 03/20/1995
- Proceedings: Respondent`s Response in Opposition to Petitioner`s Motion for Summary Final Order filed.
- Date: 03/20/1995
- Proceedings: Petitioner`s Request for Subpoena; Petitioners Request for Appearance By Telephone filed.
- Date: 03/16/1995
- Proceedings: Respondent`s Motion in Opposition to Petition to Invalidate Agency Statements; Respondent`s Answer to Petition to Invalidate Agency Statements; Respondent`s Motion to Expedite Motion in Opposition to Petition; Exhibits rec `d.
- Date: 03/14/1995
- Proceedings: Petitioner`s Motion for Prehearing Conference; Petitioner`s Motion to Expedite Answer to Discovery; Petitioner`s Motion for Summary Final Order filed.
- Date: 03/06/1995
- Proceedings: Notice of Hearing sent out. (hearing set for 3/27/95; 9:30am; Tallahassee)
- Date: 03/03/1995
- Proceedings: Letter to Liz Cloud & Carroll Webb from J. York w/cc: Agency General Counsel sent out.
- Date: 03/03/1995
- Proceedings: Order of Assignment sent out.
- Date: 02/28/1995
- Proceedings: Petition to Invalidate Agency Statements filed.
- Date: 02/28/1995
- Proceedings: Notice of Appearance; Petitioners` First Request for Admissions to Respondent; Notice of Serving Interrogatories; Petitioners` First Set of Interrogatories to Respondent; Petitioners` First Request for Production; Petitioners` Notice of Related Case (95-0
Case Information
- Judge:
- J. D. PARRISH
- Date Filed:
- 02/28/1995
- Date Assignment:
- 03/03/1995
- Last Docket Entry:
- 02/14/1997
- Location:
- Tallahassee, Florida
- District:
- Northern
- Agency:
- Department of Revenue
- Suffix:
- RU