97-002799 Florida Truck Dock Company vs. Department Of Revenue Status: Closed Recommended Order on Friday, November 13, 1998.

Summary: Taxpayer liable for tax on equipment purchased for installation on customer's real estate.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA TRUCK DOCK COMPANY, )

)

Petitioner, )

)

vs. ) Case No. 97-2799

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

______________________________)

RECOMMENDED ORDER

Pursuant to notice, this matter was heard before the

Division of Administrative Hearings by its assigned

Administrative Law Judge, Donald R. Alexander, on September 10,

1998, in Daytona Beach, Florida.

APPEARANCES

For Petitioner: No appearance

For Respondent: Jeffrey M. Dikman, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue is whether Petitioner is liable for the sales and

use tax assessment issued by Respondent on February 21, 1995.

PRELIMINARY STATEMENT

This matter began on February 21, 1995, when Respondent,

Department of Revenue, issued a Notice of Proposed Assessment of

tax, penalty, and interest on a deficiency revealed by an audit

on the records of Petitioner, Florida Truck Dock Company. After

informal efforts to resolve the matter were unsuccessful,

Petitioner requested a formal hearing under Section 120.569,

Florida Statutes, to contest the assessment. The matter was

referred by Respondent to the Division of Administrative Hearings

on June 13, 1997, with a request that an Administrative Law Judge

be assigned to conduct a formal hearing.

After the matter was temporarily abated so that the parties

could pursue settlement negotiations, by Notice of Hearing dated

January 6, 1998, a final hearing was scheduled on June 9, 1998,

in Daytona Beach, Florida. At the parties' request, the matter

was rescheduled to September 10, 1998, at the same location.

Petitioner did not appear at the final hearing. However,

its counsel later filed a letter with the undersigned's office

which stated that due to the continuing health problems of the

owners of the business, they did not wish to pursue this

litigation. At final hearing, Respondent presented the testimony

of Wilbert D. Werden, a tax auditor IV, and it offered

Respondent's Exhibits 1-10. All exhibits were received in

evidence.

The transcript of hearing was filed on September 28, 1998.

Proposed findings of fact and conclusions of law were filed by

Respondent on October 23, 1998, and they have been considered by

the undersigned in the preparation of this Recommended Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of

fact are determined:

1. In this proceeding, Respondent, Department of Revenue

(DOR), has issued a proposed sales and use tax assessment in the

amount of $24,546.54, plus $6,640.12 in penalties, plus interest

from the date of the assessment, against Petitioner, Florida

Truck Dock Company (Petitioner or taxpayer). As of March 20,

1997, the assessment totaled $55,195.27, and it continues to

increase by $8.07 each day. The assessment constitutes taxes,

penalties, and interest allegedly due from Petitioner for various

materials and supplies purchased by Petitioner for use in the

performance of real property contracts for Petitioner's

customers. In its response to the assessment, Petitioner denied

that it owed the money.

2. Petitioner's business activities consisted primarily of

purchasing truck loading dock equipment from suppliers,

principally Kelly Company, Inc. (Kelly), and then installing such

equipment as an improvement to real estate. Its records indicate

that purchased equipment was generally brought into Florida and

installed in real property in the state under a contract whereby

parts and labor were furnished for one lump sum contract price.

3. The foregoing contracts were Class A or lump sum

contracts within the meaning of Rule 12A-1.051(2)(a), Florida

Administrative Code. Class A contracts are considered contracts

for the improvement of real estate, not contracts for the resale

of tangible personal property. In addition, when the equipment

was purchased, Petitioner had not issued resale certificates to

its vendors. Under these circumstances, Petitioner was properly

treated as an end-user of the equipment in question and owed use

taxes on all such purchases of tangible personal property.

4. This controversy began on March 30, 1992, when DOR

issued a Notification of Intent to Audit Books and Records of the

taxpayer in conjunction with a routine audit. The notice

requested that Petitioner make available various corporate

records pertaining to its sales and use tax and intangible tax

liability. However, only the sales and use tax is in issue here.

DOR later advised the taxpayer that the audit period would run

from March 1, 1987, through February 29, 1992, and that instead

of a detailed audit, only a three-month sampling of the full

audit period would be necessary.

5. An initial audit revealed that Petitioner was entitled

to a refund. None was given, however, because of information

supplied by an employee of the taxpayer regarding the possible

destruction and alteration of certain records by the taxpayer,

and the auditor's conclusion that a three-month sampling of the

records was not representative for the full five-year audit

period. In addition, the auditor concluded that the results of

the sample period were not reasonable. For these reasons, the

scope of the audit was expanded.

6. The auditor then requested, among other things, that

copies of all sales (summary) journals for the entire five-year

period be produced. Although Petitioner has always contended

that these journals were merely "commission" journals for

transactions between its vendors and customers, the auditor's

finding that they are records of cash transactions is consistent

with the language on the face of the journals, referring to

"deposits" and "total deposits." Further, a comparison of the

journals with Petitioner's own bank statements confirms this

finding.

7. At least twelve months of the records were missing, and

the taxpayer agreed to recreate the missing records. Once a copy

of all journals (both original and recreated) was produced, the

auditor tested their validity and then made various audit

adjustments, which are reflected on Schedule A-2 of Exhibit 5.

In those instances where inadequate cost price information

concerning equipment purchases was provided by the taxpayer, the

auditor properly used estimates in making his adjustments.

8. The tax liability for each taxable transaction was

recorded by the taxpayer under Account 367 on the sales journals.

The auditor then examined the source documents (original

invoices) to verify the accuracy of the recorded amounts. These

numbers were then compared with the taxes paid by the taxpayer on

its monthly tax returns filed with DOR. This comparison produced

a deficiency which represents approximately 75 percent of the

total assessment. However, in those instances where Petitioner

collected sales tax from its customers, and remitted the same to

DOR, Petitioner was not assessed with a tax for those same items.

9. A sampling of the audit period established that

Petitioner also had a number of lump-sum contracts with various

governmental customers on which it neither paid taxes to the

vendor when the equipment was purchased, nor did it collect taxes

from the end-user when the equipment was resold. Thus, it was

responsible for the use taxes on these transactions. The

deficiency is detailed on Schedule B-3 of the final audit report

(Exhibit 6), and it accounts for approximately 14 percent of the

total assessment.

10. The remaining part of the assessment is related to four

miscellaneous transactions which are unrelated to the sales

journals. Two of the transactions occurred during the short

period of time when the service tax was in effect in 1987, while

the remaining two relate to small purchases of equipment and

supplies by the taxpayer for its own consumption. There was no

evidence that the taxpayer paid the taxes due on these

transactions.

11. DOR met with the taxpayer, its accountant, and its

original counsel on various occasions in an effort to obtain more

documentation favorable to the taxpayer's position. In most

cases, the taxpayer refused to provide more records. At one

meeting, however, the taxpayer produced additional source

documents (invoices) that appeared to be altered from the

original invoices previously given to the auditor. These are

shown in Exhibit 7 received in evidence. When asked by the

auditor for copies of the same invoices sent to customers so that

the discrepancy could be resolved, the taxpayer refused to comply

with this request.

12. During the audit process, the taxpayer contended that

its primary supplier, Kelly, had already paid taxes on a number

of the transactions. No documentation was produced, however, to

support this contention. It also complained that there was bias

on the part of DOR's auditor. As to this contention, the record

shows that the auditor had no relationship with the taxpayer

prior to this audit, and for the intangible personal property

tax, the auditor's field work actually resulted in a refund for

Petitioner. Finally, the taxpayer contended that rather than

using the originally supplied records, the auditor should have

used Petitioner's recreated or altered records in making the

audit adjustments. This latter contention has been rejected.

CONCLUSIONS OF LAW

13. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties hereto

pursuant to Sections 120.569 and 120.57(1), Florida Statutes.

14. Section 120.80(14)(b)2., Florida Statutes (Supp. 1998),

provides that in a tax assessment proceeding such as this, the

"department's burden of proof . . . shall be limited to a showing

that an assessment has been made against the taxpayer and the

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

the assessment." The ultimate burden of persuasion, however,

rests upon the taxpayer to show that it is not liable for the

proposed assessment.

15. In this case, DOR has satisfied the requirement that it

provide the "factual and legal grounds" upon which the assessment

has been made. Conversely, the taxpayer failed to adduce any

proof that the assessment is without merit. This being so, the

assessment should be sustained.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of

law, it is

RECOMMENDED that the Department of Revenue enter a final

order sustaining its original assessment against Petitioner.

DONE AND ENTERED this 13th day of November, 1998, in

Tallahassee, Leon County, Florida.

___________________________________

DONALD R. ALEXANDER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Flor ida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 13th day of November, 1998.

COPIES FURNISHED:

Linda Lettera, Esquire

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399-0100

Jeffrey M. Dikman, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Benjamin K. Phipps, Esquire

Post Office Box 1351

Tallahassee, Florida 32302

L. H. Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this

Recommended Order within fifteen days of this order. Any

exceptions to this Recommended Order should be filed with the

Department of Revenue.