97-004429 Rathon Corporation, F/K/A Diversey Corporation vs. Department Of Revenue Status: Closed Recommended Order on Monday, April 20, 1998.

Summary: Taxpayer not entitled to refund because it failed to prove overpayment or payment in error.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RATHON CORPORATION, f/k/a )

DIVERSEY CORPORATION, )

)

Petitioner, )

)

vs. ) Case No. 97-4429

)

STATE OF FLORIDA, )

DEPARTMENT OF REVENUE, )

)

Respondent. )

___________________________________)

RECOMMENDED ORDER

Notice was provided and on February 26, 1998, a formal

hearing was held in this case. Authority for conducting the

hearing is set forth in Sections 120.569(1), Florida Statutes,

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

Building, 1230 Apalachee Parkway, Tallahassee, Florida. The

hearing was conducted by Charles C. Adams, Administrative Law

Judge.

APPEARANCES

For Petitioner: H. Michael Madsen, Esquire

Vickers, Madsen and Goldman, LLP

Suite 100

1505 Metropolitan Boulevard

Tallahassee, Florida 32308-3765

For Respondent: John N. Upchurch, Esquire

James McCauley, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

Is Petitioner entitled to the repayment of funds paid to the

State Treasury through overpayment or error, in relation to use

taxes? The refund claim is $37,837.91. See Section 215.26,

Florida Statutes.

PRELIMINARY STATEMENT

On August 8, 1996, Petitioner made application to Respondent

for a refund of use taxes for the period July 1993 through March

1995. On December 12, 1996, that refund request was denied

through a Notice of Proposed Refund Denial For the Refund Claim.

That preliminary decision was contested through a protest letter

from Petitioner dated January 14,1997. The protest letter was

responded to by the Respondent by the issuance of a Notice of

Decision of Refund Denial dated July 16, 1997. On September 5,

1997, Petitioner contested the Respondent's decision to deny the

refund request by petitioning for a Chapter 120, Florida

Statutes, administrative hearing. On September 22, 1997, the

case was received by the Division of Administrative Hearings upon

the request by the Respondent to conduct an administrative

hearing.

The case was scheduled to be heard on January 8, 1998. The

case was re-scheduled and heard on February 26, 1998.

On December 15, 1997, Petiti oner filed a challenge pursuant

to Section 120.56, Florida Statutes, calling for the invalidation

of Rule 12A-1.091(3), Florida Administrative Code. That case was

assigned as DOAH Case No. 97-5908RX. On December 23, 1997, DOAH

Case Nos. 97-4429 and 97-5908RX, were consolidated for purposes

of hearing and the consolidated cases were subsequently noticed

to be heard on February 26, 1998.

On December 19, 1997, an order was entered which accepted

the Petitioner's A mended Petition in DOAH Case No. 97-4429.

On February 24, 1998, the Petitioner was allowed to amend

its Petition in DOAH Case No. 97-5908RX to add paragraph 13a.

Respondent had moved for Summary Final Order directed to

DOAH Case No. 97-5908RX. The motion challenged the Petitioner's

standing to contest the validity of Rule 12A-1.091(3), Florida

Administrative Code, among other grounds supporting the Motion

for Summary Final Order. No decision was made concerning the

Motion for Summary Final Order prior to the conduct of the

consolidated hearing. Ruling was reserved on the matters set

forth in the Motion for Summary Final Order pending entry of a

Final Order at the conclusion of the consolidated hearing. The

Final Order in DOAH Case No. 97-5908RX has been entered separate

from the Recommended Order in DOAH Case No. 97-4429.

At hearing Petitioner presented David Van Maele as its

witness. Petitioner's Exhibits one through ten were admitted.

Petitioner's post-hearing Exhibit eleven is admitted. The

deposition of Milton Harris McKown was also admitted. At hearing

Respondent presented Linda Bridges as its witness.

Upon Petitioner's request, these portions of the California

Revenue and Taxation Code, were officially recognized:

a. Excerpts from a Table of Contents;

b. Chapter One, Sections 6001 through 6024,

General Provisions and Definitions; and

c. Chapter 3, Section 6201 through 6207,

the Use Tax.

On March 6, 1998, a hearing transcript for the consolidated

hearing was filed. On March 20, 1998, the parties filed proposed

recommended and final orders directed to the consolidated cases.

Those proposals have been considered in the preparation of the

Recommended Order in DOAH Case No. 97-4429, and the Final Order

in DOAH Case No. 97-5908RX.

FINDINGS OF FACT

1. Rathon Corporation, formerly known as Diversey

Corporation, is a Delaware Corporation authorized to do business

in Florida. It manufactures various detergents, cleaners, and

soaps, and the equipment to dispense those products. The

products are marketed in Florida and other states. The customers

of the products include hotels, hospitals, factories, and

restaurants. The devices that dispense the detergents, cleaners,

and soaps are referred to as "feeders." Those feeders can range

from simple hand soap dispensers to electronically regulated

machines that inject soap into commercial dishwashers. The

feeders are loaned to Petitioner's customers at no additional

charge for the period of time that the customer continues to

purchase the product(s) dispensed by the feeder. These

circumstances existed in the period of July 1993 through March

1995.

2. In the period of July 1993 through March 1995, Diversey

Corporation, now Rathon Corporation, paid the State of Florida

$58,969.22 in use tax associated with the feeders.

3. During the period in question, the Petitioner

manufactured the feeders at a facility in Santa Cruz, California.

The feeders were not warehoused in the Santa Cruz facility for an

extended period. They were prepared for shipment and shipped to

customers in the various states, to include Florida and

California customers, to be used in the places of business

operated by the customers. The feeders being shipped were not

packaged with other products.

4. During the period July 1993 through March 1995, the

Petitioner not only paid use tax to Florida for the feeders, it

paid use tax in forty-four other states and the District of

Columbia, based upon the costs of manufacturing the feeders.

California was among the other forty-four states.

5. During the period in question, Petitioner accrued and

paid use taxes to Florida and California limited to the feeders

used by customers in those states, based upon the product sales

allocation method it used in relation to the forty-three other

states and the District of Columbia.

6. The feeders that were provided to Florida customers were

shipped by common carrier. Upon their arrival in Florida no tax

had been paid to California pertaining to those feeders. When

the feeders arrived in Florida during the period at issue, use

tax would be remitted to Florida. Subsequently, the Petitioner

paid the State of California a use tax associated with the

feeders that had been shipped to Florida customers and upon which

a use tax had been imposed by the State of Florida and paid. The

California payment is described in detail below.

7. Petitioner had paid Florida use tax on the feeders

shipped to Florida customers based on the total manufactured cost

of the feeders to Petitioner, including materials, labor, and

overhead. The additional use tax paid to California for those

feeders was based only on the cost of materials.

8. The overall costs of feeders allocated to Florida for

the refund period was $982,803.00. Petitioner remitted a 6% use

tax to Florida totaling $58,969.22 for the period in question.

9. In 1996, Petitioner was audited for sales and use tax

compliance by the State of California. That audit process

included the refund period that is in question in this case,

July 1993 through March 1995. Following the audit, the State of

California issued a Notice of Determination asserting additional

liability for tax and interest that totaled $355,753.95.

Petitioner paid that assessment.

10. The California auditor had arrived at the assessment by

concluding that Petitioner owed California for 44.57% of all

feeders manufactured at Petitioner's Santa Cruz facility. The

44.57% represented all newly manufactured feeders that had been

loaned by Petitioner to its customers during the refund period

over the entire United States. As a consequence, the assessment

of use tax by the State of California included tax on feeders for

which Petitioner had paid Florida $58,969.22 in use tax prior to

the California assessment of $355,753.95. Petitioner did not

apply for credit in California for the portion of the $355,753.95

that would relate to the feeders brought to Florida during the

period in question. Petitioner took no action to obtain a credit

on the amount paid to Florida as a means to reduce the California

tax obligation pursuant to the 1996 audit, because Petitioner had

been told that the use tax for the feeders used by Florida

customers was legally due in California and not in Florida.

11. In arriving at the determination that 44.57% of the

feeders manufactured during the period in question had been

loaned to customers within the continental United States, the

California auditor took into account that 21.8% of the feeders

and feeder parts were sold for export, leaving 78.2% to be used

in the United States. Of the 78.2% remaining for the United

States, 57% were complete feeders sent to customers within the

United States, and 43% were repair parts that were sent to

Petitioner's Cambridge Division in Maryland, where those repair

parts were being stored for future use. The percentage of 44.57%

was arrived at by multiplying 57% times 78.2%, representing the

percent of total feeders manufactured for use in the United

States that were sent to customers within the United States and

not held in inventory as repair parts.

12. Again, California based its use tax for tangible

personal property manufactured in that state to include only the

cost of materials. Consequently, when the California auditor

computed use tax to be collected by California using the 44.57%

of total feeders manufactured to be used in the United States by

Petitioner's customers in the United States, the California

auditor used a cost factor of 55% of overall costs which was

attributable to the cost of materials only.

13. The tota l cost of feeders manufactured by Petitioner in

California during the period in question, as related in the

California tax audit, was $19,028,714.00. The total cost

manufactured for use in the United States was $8,481,098.00,

representing 44.57% of the overall cost of manufacturing. When

the $8,481.098.00 is multiplied by 55%, representing the cost of

materials only, the total costs of the goods subject to the use

tax for the period in question is $4,664,604.00. A use tax rate

of 7% was applied against the amount of $4,664,604.00.

14. To attribute the portion of use tax paid to California

following the 1996 audit associated with feeders that had been

sent to Florida during the period in question, the answer is

derived by multiplying $982,803.00 by 55% for a total of

$540,542.00, and in turn multiplying that amount by 7%, the rate

of tax imposed by California. That total is $37,837.91 in use

tax that was subsequently paid to California after $58,962.22 had

been paid to Florida for use tax on the same feeders.

15. Diversey Corporation sought a tax refund in the amount

of $58,977.00, through an application dated August 8, 1996, in

relation to the period July 1993 through March. Eventually

through the decision by the Respondent in its Notice of Decision

of Refund Denial dated July 16, 1997, Respondent refused to grant

the refund of $58,977.00. At present, Petitioner requests that

it be given a refund of $37,837.91, which represents the portion

of use tax paid to Florida that has been duplicated in a payment

of use tax to California.

16. Respondent, in its Notice of Decision of Refund Denial

entered on July 16, 1997, and based upon the facts adduced at the

final hearing, premises its proposed agency action denying the

refund request upon the language set for in Section 212.06(1)(a)

and (7), Florida Statutes. The determination to deny the refund

request was not based upon reliance on Rule 12A-1.091(3), Florida

Administrative Code. The theory for denying the refund is

premised upon Respondent's argument that use tax was due to

Florida, "as of the moment" feeders arrived in Florida for use in

Petitioner's business operations associated with its customers.

Petitioner then paid the use tax to Florida at the time the

feeders arrived in Florida. Having not paid California Use Tax

prior to paying Florida Use Tax, Respondent concludes, through

its proposed agency action, that it need not refund to Petitioner

the use taxes it paid to California at a later date.

17. Petitioner had referred to Rule 12A-1.091, Florida

Administrative Code, following receipt of the Notice of Proposed

Refund Denial issued on December 9, 1996, possibly creating the

impression that Petitioner believed that Rule 12A-1.091, Florida

Administrative Code, would support its claim for refund. It

later developed that Petitioner did not have in mind reliance

upon Rule 12A-1.091, Florida Administrative Code, to support its

claim for refund. Instead, Petitioner made reference to that

rule and specifically Rule 12A-1.091(3), Florida Administrative

Code, as a means to perfect a challenge to Rule 12A-1.091(3),

Florida Administrative Code, filed with the Division of

Administrative Hearings on December 15, 1997, claiming that the

challenged rule was an invalid exercise of authority. That

challenge was assigned DOAH Case No. 97-5908RX.

18. In summary, notwithstanding Petitioner's argument to

the contrary, Respondent has never relied upon Rule 12A-1.091(3),

Florida Administrative Code, or any other part of that rule in

its proposed agency action denying the refund request. Absent

Petitioner's affirmative reliance upon Rule 12A-1.091(3), Florida

Administrative Code, the rule has no part to play in resolving

this dispute.

CONCLUSIONS OF LAW

19. The Division of Administrative Hearings has

jurisdiction over this subject matter and the parties to this

action pursuant to Sections 120.569(1), and 120.57(1), Florida

Statutes.

20. Sections 212.05 and 212.06, Florida Statutes, establish

a use tax of 6% against the cost price of the feeders brought to

Florida for the reporting periods beginning July 1993 and ending

March 1995. The use tax was imposed as of the moment of the co-

mingling of those feeders with the general mass of property in

Florida. See Section 212.06(1)(a) and (4), Florida Statutes.

Accordingly, the use tax was paid by the Petitioner for those

periods. The amount of tax was $58,962.22, an appropriate

amount.

21. Petitioner would not have to remit the use tax for the

period in question under circumstances contemplated in the

statutory language found at Section 212.06(7), Florida Statutes,

which states:

The provisions of this Chapter do not apply

in respect to the use or consumption of

tangible personal property, or distribution

or storage of tangible personal property for

use or consumption in this state, upon which

a like tax equal to or greater than the

amount imposed by this Chapter has been

lawfully imposed and paid in another state,

territory of the United States, or the

District of Columbia. The proof of payment

of such tax shall be made according to rules

and regulations of the department. . . .

In fact, a tax equal to or greater than the amount imposed by

Chapter 212, Florida Statutes, had not been lawfully imposed and

paid in California when Petitioner properly remitted payments to

Florida for the period commencing July 1993 and ending March

1995. For this reason, Petitioner was not entitled to avoid the

provisions of Chapter 212, Florida Statutes, related to the

imposition of the use tax in question. The subsequent payment of

use tax to California upon the same goods does not create the

opportunity to reconsider the terms of Section 212.06(7), Florida

Statutes, as that provision would allow Petitioner to avoid

payment of use tax to Florida for the period in question.

22. Having paid Florida use tax in the period in question,

Petitioner now contends for a refund of those taxes under

authority set forth in Section 215.26(1), Florida Statutes, which

states:

Repayment of funds paid into State Treasury

through error.

(1) The Comptroller of the state may refund

to the person who paid same, or his or

her heirs, personal representatives, or

assigns, any moneys paid into the State

Treasury which constitute:

(a) An overpayment of any tax, license, or

account due;

(b) A payment where no tax, license or n

account is due; and

(c) Any payment made into the State Treasury

in error; . . .

Specifically Petitioner claims that it has "overpaid" or paid

Florida "in error" in the amount of $37,837.91, paid to

California for the feeders shipped to Florida and as part of the

overall use tax of $58,969.22. Neither theory requesting

repayment of funds from the State Treasury is compelling. First,

Florida was not overpaid the amount of use tax that it was

entitled to. Second, no proof was adduced at hearing which would

show that the Petitioner, when it paid Florida use tax, intended

any outcome other than the payment of use tax to Florida to which

it was entitled. When the payment was made, Florida was no less

entitled to collect the use tax than California would be entitled

to collect use tax. Petitioner's actions cannot be perceived as

erroneous, recognizing the possibility that Petitioner could have

paid California before paying Florida for use tax, but failed to

do so. Florida law recognizes the consequences of paying

California first by creating a credit for that payment, if made.

Florida law makes no attempt to consider which state would have

been entitled to first impose the use tax as that reality would

control the hierarchy in the imposition of use tax. Without the

establishment of priorities concerning the right to collect the

use tax in the two jurisdictions, it is not erroneous for

Petitioner to pay Florida and not California.

23. Respondent has shown the factual and legal basis for

the assessment of use taxes in the period commencing July 1993

and ending March 1995. Petitioner has failed to prove its

entitled to the repayment of those funds paid to the State

Treasury. See Section 120.80(14)(b), Florida Statutes.

RECOMMENDATION

Based upon the findings of fact and the conclusions of law,

reached, it is,

RECOMMENDED:

That Petitioner's request for repayment of funds paid to the

State Treasury in the amount of $37,837.91, paid as use taxes for

all years in question, be DENIED.

DONE AND ENTERED this 20th day of April , 1998, in

Tallahassee, Leon County, Florida.

___________________________________

CHARLES C. ADAMS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 20th day of April, 1998.

COPIES FURNISHED:

H. Michael Madsen, Esquire

Vickers, Madsen,

and Goldman, LLP

Suite 101

1705 Metropolitan Boulevard

Tallahassee, Florida 32308-3765

John N. Upchurch, Esquire

James McCauley, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Linda Lettera, Esquire

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399-0100

Larry 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 within

15 days from the date of this recommended order. Any exceptions

to this recommended order should be filed with the agency that

will issue the final order in this case.