95-003038RX Fdr Services Corporation Of Florida vs. Department Of Revenue Status: Closed DOAH Final Order on Monday, November 13, 1995.

Summary: Rule was valid in its language which conditioned tax exemption on offering property for sale.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FDR SERVICES CORPORATION OF FLORIDA, )

)

Petitioner, )

)

vs. ) CASE NO. 95-3038RX

)

STATE OF FLORIDA, )

DEPARTMENT OF REVENUE, )

)

Respondent. )

_____________________________________)

FINAL ORDER

Notice was provided and on October 3, 1995, a formal hearing was held in

this case. Authority for conducting the hearing is set forth in Section

120.57(1), Florida Statutes. The hearing location was the Office of the

Division of Administrative Hearings, The DeSoto Building, 1230 Apalachee

Parkway, Tallahassee, Florida. Charles C. Adams was the hearing officer.

APPEARANCES

For Petitioner: Robert A. Pierce, Esquire

Emily S. Waugh, Esquire

MACFARLANE, AUSLEY, FERGUSON & MCMULLEN

Post Office Box 391

Tallahassee, Florida 32302

For Respondent: James McAuley, Assistant Attorney General

Charles Catanzaro,

Assistant Attorney General

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399

STATEMENT OF ISSUES

Is Department of Revenue Rule 12A-1.096(1)(b),(1)(d), (4), and (5)(e)1,

Florida Administrative Code, an invalid exercise of delegated legislative

authority? See Section 120.52(8), Florida Statutes.

PRELIMINARY STATEMENT

On June 16, 1995, Petitioner filed a petition claiming that it was entitled

to a temporary tax exemption permit and a refund of the full amount of the sales

and use tax with interest which it had paid Respondent under protest. To

resolve the dispute, Respondent transmitted the case to the Division of

Administrative Hearings on June 21, 1995, where it was assigned DOAH Case No.

95-3113.

On June 16, 1995, Petitioner, consistent with Section 120.52(8)(c), Florida

Statutes, filed a petition for administrative determination of the invalidity of

Rule 12A-1.096(1)(b), (1)(d), (4), and (5)(e)1, Florida Administrative Code. In

that petition, it is alleged that the rule enlarges, modifies or contravenes

Section 212.08(5)(b), Florida Statutes, by imposing additional requirements to

obtain the tax exemption permit described in Section 212.08(5)(a) and (b)3.a,

Florida Statutes. By order dated June 23, 1995, the Assistant Director of the

Division of Administrative Hearings assigned the undersigned to consider the

rule challenge. The order of assignment established DOAH Case No. 95-3038RX.

Petitioner moved to consolidate DOAH Case No. 95-3038RX and DOAH Case No.

95-3113. The parties also stipulated to extend the 30-day time limit for

considering the rule challenge. See Section 120.56(2), Florida Statutes. The

motion to consolidate was granted. The cases were consolidated for hearing

purposes only. Notice was provided and the cases were heard on the

aforementioned date.

At the consolidated hearing the parties presented a "joint prehearing

stipulation and statement" which contained stipulated facts. Those fact

stipulations were accepted and formed the basis for fact determination, as

supplemented with additional facts. The parties submitted the fact stipulations

in lieu of the presentation of testimony and tangible evidence. The parties

were granted ten days from the hearing date to submit proposed final and

recommended orders in the consolidated cases. Respondent requested an extension

for filing those proposals. Petitioner did not oppose the extension. The

parties were allowed to file their proposals on October 20, 1995. The proposals

were timely filed. The requirement to discuss proposed facts by the parties in

accordance with Section 120.59, Florida Statutes has been precluded, because the

underlying facts in the cases were agreed to.

FINDINGS OF FACT

FACTS UPON STIPULATION

1. Petitioner opened a new commercial laundry facility in Pompano Beach,

Florida, in 1993.

2. Petitioner installed in the new facility machinery and equipment

costing approximately $1,400,000.00 for the purposes of cleaning and processing

linens used by hospitals in the south Florida area (the "Laundry Equipment").

3. Petitioner charges a fee to hospitals in the south Florida area for

cleaning and processing the hospitals' linens with the Laundry Equipment.

4. The new facilities are additional, not replacement, facilities.

5. The Laundry Equipment:

(a) Qualifies as "industrial machinery and equipment", as defined by

Section 212.08(5)(b) and (6)(c), Florida Statutes;

(b) Was purchased by Petitioner for use in a new business;

(c) Processes items of tangible personal property, the hospital's linens,

at a fixed location;

(d) Was purchased before Petitioner first began its productive operations

and delivery was made within 12 months of that date; and

(e) Has increased productive output at Petitioner's commercial laundry

facility.

6. The equipment included a tunnel washer system, conveyers,

feeders/folders, ironers, a boiler, and air compressors.

7. By application dated September 3, 1993, Petitioner applied for a

temporary tax exemption permit with respect to the Laundry Equipment which it

planned to purchase for use in its new business.

8. Section 212.08(5)(b), Florida Statutes, requires that a taxpayer obtain

that permit to receive the exemption.

9. The Department denied Petitioner's application.

10. On August 22, 1994, Petitioner paid to the Department, under protest,

the sum of $18,095.36, which represented the tax of $16,773.98, plus interest of

$1,321.38, on Petitioner's purchase of the Laundry Equipment.

11. Petitioner timely filed its claim for refund, which the Department

denied.

12. Respondent denied Petitioner's request for a temporary tax exemption

permit, and Respondent denied Petitioner's refund claim based upon Rule 12A-

1.096, Florida Administrative Code.

13. Petitioner's request for a tax exemption permit and Petitioner's

refund claim are based upon the exemption provided in Section 212.08(5)(b),

Florida Statutes, which applies to a new (as opposed to an expanding) business.

CONCLUSIONS OF LAW

14. The Division of Administrative Hearings has jurisdiction over the

parties and the subject matter of this proceeding pursuant to Sections 120.56

and 120.57, Florida Statutes.

15. In challenging Rule 12A-1.096(1)(b), (1)(d), (4) and (5)(e), Florida

Administrative Code, Petitioner bears the burden of proving its allegations.

See Agrico Chemical Co. v. State, Dept. of Environ. Reg., 365 So.2d 759 (Fla.

1st DCA 1978) cert. denied, 376 So.2d 74 (Fla. 1979).

16. Before Petitioner may advance its challenge it must demonstrate that

it has standing as a "substantially affected" party. See Section 120.57(1),

Florida Statutes and Florida Soc'y of Ophthalmology v. Board of Optometry, 532

So.2d 1279 (Fla. 1st DCA 1988), rev. denied, 542 So.2d 1333 (Fla. 1989); Agrico

Chemical Co. v. State Dept. of Environ. Reg., 406 So.2d 478 (Fla. 2nd DCA 1981),

and Professional Firefighters of Florida, Inc. v. State Dept. of Health and

Rehab. Serv., 396 So.2d 1194 (Fla. 1st DCA 1981). In accordance with the

standard, Petitioner has shown that its interests are substantially affected by

the rule in question and Petitioner has standing to challenge the rule.

17. The grounds for the challenge are as set forth in Section

120.52(8)(c), Florida Statutes, wherein the Petitioner may succeed in its

challenge if it shows that the rule is "an invalid exercise of delegated

legislative authority." In particular, Section 120.52(8)(c), Florida Statutes

states:

(8) 'Invalid exercise of delegated legislative

authority' means action which goes beyond the

powers, functions, and duties delegated by the

Legislature. A proposed or existing rule is an

invalid exercise of delegated legislative authority

if any one or more of the following apply:

* * *

(c) The rules enlarges, modifies, or contravenes

the specific provisions of law implemented, citation

to which is required by s. 120.54(7);

18. Petitioner may not prevail in its challenge if the rule is reasonably

related to the purpose of the enabling legislation. See Dept. of Corrections v.

Hargrove, 615 So.2d 199 (Fla. 1st DCA 1993).

19. In pertinent part the enabling legislation, Section 212.08(5), Florida

Statutes, states:

212.08 Sales, rental, use, consumption, distribution,

and storage tax; specified exemptions. The sale at

retail, the rental, the use, the consumption, the

distribution, and the storage to be used or consumed

in this state of the following are herby specifically

exempt from the tax imposed by this part.

* * *

(5) EXEMPTIONS; ACCOUNT OF USE.

* * *

(b) Machinery and equipment used to increase

productive output.--

1. Industrial machinery and equipment purchased

for use in new businesses which manufacture, process,

compound, or produce for sales, or for exclusive use

in spaceport activities as defined in s. 212.02,

items of tangible personal property at fixed

locations are exempt from the tax imposed by this

chapter upon an affirmative showing by the taxpayer

to the satisfaction of the department that such items

are used in a new business in this state. Such

purchases must be made prior to the date the business

first begins its productive operations, and delivery

of the purchases item must be made within 12 months

of that date.

* * *

3.a. To receive an exemption provided by

subparagraph 1., a qualifying business entity shall

apply to the department for a temporary tax exemption

permit. The application shall state that a new

business exemption or expanded business exemption

is being sought. Upon a tentative affirmative

determination by the department pursuant to

subparagraph 1. . . ., the department shall issue

such permit.

* * *

4. The department shall promulgate rules

governing applications for, issuance of, and the

form of temporary tax exemption permits; provisions

for recapture of taxes; and the manner and form of

refund applications and may establish guidelines as

to the requisites for an affirmative showing of

increased productive output, commencement of

production, and qualification for exemption.

* * *

6. For the purposes of the exemptions provided

in subparagraph[s] 1. . . . , these terms have the

following meanings:

a. 'Industrial machinery and equipment' means

'section 38 property' as defined in s. 48(a)(1)(A)

and (B)(i) of the Internal Revenue Code, provided

'industrial machinery and equipment' shall be

construed by regulations adopted by the Department

of Revenue to mean tangible property used as an

integral part of the manufacturing, processing,

compounding, or producing for sale, or for exclusive

use in spaceport activities as defined in s. 212.02,

of items of tangible personal property. Such term

includes parts and accessories only to the extent

that the exemption thereof is consistent with the

provisions of this paragraph.

20. The portions of Rule 12A-1.096, Florida Administrative Code, that are

challenged state:

12A-1.096 Industrial Machinery and Equipment for

Use in a New or Expanding Business.

(1) Definitions -- The following terms and

phrases when used in this rule shall have the

meaning ascribed to them except where the context

clearly indicates a different meaning:

* * *

(b) 'Industrial machinery and equipment' means

'Section 38 Property' as defined in Section

48(a)(1)(A) and (B)(i) of the United States

Internal Revenue Code, as amended, and includes

parts and accessories, essential to the manufac-

turing, processing, compounding or producing of

tangible personal property for sale, or for

exclusive use in spaceport activities as defined

in s.212.02, F.S. 'Industrial machinery and

equipment' also means pollution control equipment,

or sanitizing and sterilizing equipment which is

essential to manufacturing, processing, compounding

or producing items of tangible personal property.

'Industrial machinery and equipment' also means

monitoring machinery and equipment which is essential

to manufacturing, processing, compounding or producing

items of tangible personal property. In determining

what is essential to manufacturing, processing,

compounding or producing items of tangible personal

property, the examination will not turn on how

vertically integrated the taxpayer is but rather

on the specific activity that the taxpayer asserts

is part of the production process. For example, if

the activity is essentially one of transportation or

storage, associated equipment and machinery will not

qualify for exemption unless specifically exempted

in subsection (8) of this rule.

* * *

(d) 'Process' means a series of operations

conducing to an end which is an item of tangible

personal property for sale or for exclusive use in

spaceport activities as defined in s. 212.02, F.S.

* * *

(5) Temporary Tax Exemption Permit -- Refund.

* * *

(e) The right to a refund of sales or use taxes.

1. The right to a refund of sales or use taxes

paid on qualifying industrial machinery and equipment,

or installation thereof, shall accrue when the new

business first places a product in inventory or

immediately sells a product.

21. Moreover, 12A-1.096(4) Florida Statutes, set forth a "Decision Flow

Chart" that is designed to graphically illustrate the analysis for determining

whether any tax exemption applies. In that chart there is a requirement that

tangible personal property be "produced for sale or for exclusive use in Space

Sport activities" before taxpayers are entitled to the exemption.

22. This case turns upon whether the phrase "for sale" in Section

212.08(5)(b)1, Florida Statutes, modifies the verbs manufacture, process,

compound and produce or only modifies the latter verb. To resolve the issue the

legislature's intent must be determined.

23. Use of the review standards employed by courts in determining

legislative intent are appropriate in resolving this case.

24. Courts ascertain the legislative intent by giving generally accepted

construction to the phraseology of a statute and to the manner in which it is

punctuated. See Florida State Racing Commission v. Bourquardez, 42 So.2d 87

(Fla. 1949). In addition, to understand the proper application of a statute,

one must determine the purpose of the legislation. See Devin v. Hollywood, 351

So.2d 1022 (Fla. 4th DCA 1976). That legislative purpose is drawn from the

language of the statute. See S.R.G. Corp. v. Dept. of Revenue, 365 So.2d 687

(Fla. 1978). When a statute is drafted to clearly convey a specific meaning,

the proper function of the Court and this forum is to effectuate this stated

legislative intent. See Larrabee v. Capeletti Bros., Inc., 158 So.2d 540 (Fla.

3rd DCA 1963).

25. Courts and this forum are bound by the definite sentence structure in

a statute. See State v. Perez, 531 So.2d 961 (Fla. 1988).

26. "Even where a court is convinced that the Legislature really meant and

intended something not expressed in the sentence structure of the act, it will

not deem itself authorized to depart from the plain meaning of the language

which is free from ambiguity." State v. Egan, 287 So.2d 1,4 (Fla. 1973).

27. Once the statutory meaning is understood the rule can then be examined

to determine whether it enlarges, modifies or contravenes the provisions of the

statute. See State Dept of Bus. Reg. v. Salvation Ltd., 452 So.2d 65 (Fla. 1st

DCA 1984).

28. In determining the statutory meaning, Respondent's interpretation is

ordinarily accorded deference. See Board of Trustees of the Internal

Improvement Trust Fund v. Levy, 20 Fla.L.Weekly, D1522 (Fla. 1st DCA, June 27,

1995) and Orange Park Kennel Club, Inc. v. State, Dept. of Business and

Professional Regulation, 644 So.2d 574 (Fla. 1stDCA 1994). But that deference

is not accorded if Respondent's interpretation conflicts with the intent of the

statute. See Mayo Clinic v. Dept. of Prof. Reg., 625 So.2d 918 (Fla. 1st DCA

1993).

29. In deciding the meaning of the statute, that decision is reached in

recognition that tax exemptions are special privileges or immunities, granted by

the sovereign only upon the occasion and to the extent that they are deemed to

conserve the general welfare. See Lummus v. Florida Adirondack School, Inc.,

168 So. 232 (Fla. 1936). But the appropriate disposition of the exemption claim

would prohibit Respondent from reading the statute in a manner that is not

expressed in the language of the exemption. See Green v. Eglin AFB Housing,

Inc., 104 So.2d 463 (Fla. 1st DCA 1958).

30. In passing Section 212.08(5)(b)1, Florida Statutes, the placement of a

comma after the word "produce", and before the modifying phrase "for sale",

would have clarified the legislative intent concerning the desire to modify the

verbs manufacture, process and compound, as well as the verb produce, when

indicating that the industrial machinery and equipment purchase for use in a new

business must ultimately lead to the availability of tangible personal property

for sale and not for purposes other than sale. Absent that punctuation, can the

language be construed to produce the same result as with the punctuation? The

answer is yes.

31. When the cited provisions within Section 212.08(5), Florida Statutes,

are read in context it does not appear that the legislature intended that new

businesses who purchased machinery and equipment to produce items of tangible

personal property could only claim exemption when that tangible personal

property was subject to sale, while other entities who started new businesses

and purchased industrial machinery and equipment for use in the new businesses

and who engaged in manufacturing, processing or compounding of items of tangible

personal property with no statutory limitation expressed as to the intended

disposition of that property would likewise be entitled to the exemption. With

that reading those manufacturing, processing and compounding would be entitled

to pursue a larger range of activities involving the ultimate use of the items

of tangible personal property not limited to the intent to offer that tangible

personal property for sale. That in a setting in which the statute does not

provide reasons why the manufacture, processing or compounding of tangible

personal property should be treated differently than the production of tangible

personal property. Failing an explanation for a dissimilar treatment of those

categories of activities by the new business entities, this statutory

construction would run contrary to the notion that exemptions are special

privileges or immunities granted only to the extent that the exemptions may be

deemed to conserve the general welfare. A reading which does not extend the

modifying term for sale to the verbs manufacture, process and compound, as well

as the verb produce, is illogical.

32. The more reasonable statutory construction is one in which those new

businesses who manufacture, process and compound tangible personal property are

treated the same as those who produce tangible personal property. In that

reading the modifying phrase "for sale" must be accounted for, in opposition to

the idea that the modifying phrase should be ignored and all activities by those

who manufacture, process, compound or produce items of tangible personal

property, regardless of the intended disposition of that property, should be

entitled to exemption for the payment of tax related to the purchase of the

industrial machinery and equipment. When the modifying phrase "for sale" is

employed in a uniform manner related to new businesses who manufacture, process,

compound or produce items of tangible personal property a reasonable result

pertains. Given that construction, Rule 12A-1.096(1)(b),(1)(d),(4), and

(5)(e)1, Florida Administrative Code, is a valid exercise of delegated

legislative authority.

It is therefore,

ORDERED:

That the petition challenging Rule 12A-1.096(1)(b),(1)(d), (4), and

(5)(e)1, Florida Administrative Code, is dismissed.

DONE and ORDERED this 13th day of November, 1995, in Tallahassee, Florida.

___________________________________

CHARLES C. ADAMS, 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 13th day of November, 1995.

COPIES FURNISHED:

Robert A. Pierce, Esquire

Emily S. Waugh, Esquire

MACFARLANE, AUSLEY, FERGUSON & MCMULLEN

Post Office Box 391

Tallahassee, FL 32302

James McAuley, Esquire

Office of the Attorney General

The Capitol-Tax Section

Tallahassee, FL 32399

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

Carroll Webb, Executive Director

Administrative Procedure Committee

120 Holland Building

Tallahassee, FL 32399-1300

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is entitled to judicial

review pursuant to Section 120.68, Florida Statutes. Review proceedings are

governed by the Florida Rules of Appellate Procedure. Such proceedings are

commenced by filing one copy of a Notice of Appeal with the Agency Clerk of the

Division of Administrative Hearings and a second copy, accompanied by filing

fees prescribed by law, with the District Court of Appeal, First District, or

with the District Court of Appeal in the Appellate District where the party

resides. The Notice of Appeal must be filed within 30 days of rendition of the

order to be reviewed.