98-004360 Division Of Alcoholic Beverages And Tobacco vs. Loroco, Inc., D/B/A Jesters Bar And Grill Status: Closed Recommended Order on Monday, August 23, 1999.

Summary: Vendor failed to substantiate claim for package sale deduction from surtax liability. Consequently, vendor is guilty of failing to timely pay required surcharge under Section 561.501, F.S., and was ordered to pay charges or suffer suspension of license.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, DIVISION )

OF ALCOHOLIC BEVERAGES AND )

TOBACCO, )

)

Petitioner, )

)

vs. ) Case No. 98-4360

)

LOROCO, INC., d/b/a JESTERS )

BAR & GRILL, )

)

Respondent. )

__________________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings,

by its duly-designated Administrative Law Judge, William J.

Kendrick, held a formal hearing in the above-styled case on

June 17, 1999, by videoteleconference, with sites in Tallahassee

and Fort Lauderdale, Florida.

APPEARANCES

For Petitioner: Miriam L. Wilkinson, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1007

For Respondent: Julius H. Browner, Esquire

1915 Northeast 45th Street, Suite 210

Fort Lauderdale, Florida 33308

STATEMENT OF THE ISSUE

At issue in this proceeding is whether Respondent committed

the offense set forth in the Administrative Action and, if so,

what penalty should be imposed.

PRELIMINARY STATEMENT

On June 5, 1998, the Department of Business and Professional

Regulation, Division of Alcoholic Beverages and Tobacco

(Department), filed an Administrative Action against the

Respondent, the holder of a 4COP alcoholic beverage license,

which charged that "[d] uring the period of January 1, 1995,

through December 31, 1997, you Loroco, Inc. d/b/a Jesters Bar &

Grill [Respondent] failed to pay the audit performed on the above

dates for the tax liability of $44,421.05 and penalty of

$15,352.33 and interest of $4,384.48 for a total liability of

$64,157.86, which has not been paid to the Florida Department of

Business [and Professional] Regulation, contrary to section

561.501, Florida Statutes." Based on such allegations, the

Department "intends to revoke; suspend; annul; impose

administrative fines, investigative cost, and late penalties; or

any combination of these authorized penalties."

Respondent disputed the Department's charges, including the

accuracy of the Department's audit, and the matter was referred

to the Division of Administrative Hearings for the assignment of

an administrative law judge to conduct an evidentiary hearing.

At hearing, Petitioner called Julio Torres, Marvin Ruskin,

and Austin Findlater as witnesses, and Petitioner's Exhibits 1,

2, 3, 5, 6, 7, and 8 were received into evidence. Respondent

called William Carey and Joel Marcus as witnesses, and

Respondent's Exhibit 1 was received into evidence.

The transcript of the hearing was filed July 29, 1999, and

the parties were accorded ten days from that date to file

proposed recommended orders. Petitioner elected to file a

proposed recommended order on August 6, 1999, and Respondent

filed written argument by letter dated August 9, 1999 (filed

August 12, 1999). The parties' post-hearing submittals have been

duly-considered.

FINDINGS OF FACT

1. At all times material hereto, Respondent Loroco, Inc.,

held license number 16-01137, series 4COP, authorizing the sale

of alcoholic beverages for consumption on and off the premises

known as Jesters Bar & Grill, located at 801 Northeast 62nd

Street, Fort Lauderdale, Florida (the "licensed premises").

2. In December 1996, the Department randomly selected

Respondent for a beverage surcharge audit. 1 The purpose of such

audit was to resolve whether the monthly reports submitted and

the surcharges remitted by the vendor since January 1, 1995, were

accurate or, stated differently, whether such submittals were

supported by retail records maintained by the vendor.

3. In April 1997, the Department's auditor met with

Respondent's accountant (Joel Marcus) to inform him of the audit

procedures and to request the documentation required for the

audit. Subsequently, Respondent confirmed that it had elected

the "purchase method" of reporting, and that it claimed a

deduction (adjustment) for alcoholic beverages sold in their

original containers for consumption off premises (package

sales). 2 Respondent further advised the Department that it had

documentation to support the deduction it claimed for package

sales; however, it failed to produce (or account for the absence

of) any such documentation during the course of the audit or at

anytime thereafter. 3

4. Since Respondent was unable to produce any documentation

to support its package sales deduction, the Department offered to

delay the audit for six months (rather than concluding the audit

and denying Respondent's claim for the package sales deduction)

to allow Respondent an opportunity to maintain records of package

sales for a six-month period (referred to as a six-month

prospective audit) and, if those records produced a reliable

result, apply that percentage of package sales to the entire

audit period. As for the records to be kept during the

prospective audit period, the Department requested that

Respondent maintain, inter alia , a beginning and ending inventory

for all alcoholic beverages in the package store; a price list

identifying each product by name, bottle size, and category

(i.e., beer, wine, or liquor), which would permit specific

identification of the product on cash register tapes when a

package sale was made; and a daily cash register tape (reflecting

each package sale), as well as a daily summary showing the date

and gallonage by category and the bank deposit made for each

day's activities. Respondent's accountant acknowledged agreement

with such procedures, and the prospective audit period began

July 1, 1997, and extended through December 31, 1997.

5. In January 1998, after the prospective audit period

ended, the Department's auditor sought Respondent's records so

that he could conclude the audit; however, it was not until

around April 1998 that any records were produced. Notably, the

only record produced by Respondent was a log book, which

ostensibly recorded the daily package sales. Sales were

variously described by brand name or generic name (i.e., vodka,

gin, rum, tequila, chardonnay), and the number of items sold was

identified by the number of bottles, with or without reference to

bottle size. Stapled to each page of the log book was what was

represented to be a cash register tape which showed daily gross

sales in dollars. Notably, there was no beginning and ending

inventory; the log book contained no price reference; Respondent

produced no price list identifying each product by name, bottle

size, and category; and there was no daily case register tape

which itemized (identified) each product sold.

6. Notwithstanding the failings of Respondent's record

keeping, the Department's auditor attempted to accommodate

Respondent by speaking with its manager to secure the quantity

( gallonage) and price of each item sold so that he could discern

whether the prospective audit would support a package sale

deduction. However, such additional information merely

reinforced the inadequacy or unreliability of Respondent's record

keeping, and demonstrated that there was no record basis or,

stated differently, no "factual, substantial evidence" to support

a package sales deduction. Rule 61A-4.063(9), Florida

Administrative Code. In so concluding, it is observed that

Respondent's records were not only woefully inadequate, but were

also inherently unreliable. Such unreliability is evident from

the fact that the cash register tape, which purported to

represent daily gross sales in dollars, failed to match the total

of daily sales in the log book; the actual monthly reports

submitted (and surcharge paid) to the state during the period of

the prospective audit (July 1, 1997, through December 31, 1997)

claimed a package sales deduction that was, without explanation,

at material variance from the package sales reported in the log

book; and the package sales reported in the log book bore no

rational relationship to any package sales deduction claimed by

Respondent for any of the audit period. Consequently, it must be

concluded that Respondent failed to demonstrate its entitlement

to a package sales deduction for the audit period of January 1,

1995, through December 31, 1997, and that, as alleged by the

Department, Respondent has an outstanding tax liability of

$64,157.86 (surcharge due of $44,421.05, penalties due of

$15,352.33, and interest due of $4,384.48), as of April 15,

1998. 4

CONCLUSIONS OF LAW

7. The Division of Administrative Hearings has jurisdiction

over the parties to, and the subject matter of, these

proceedings. Sections 120.569, 120.57(1), and 120.60(5), Florida

Statutes.

8. Where, as here, the Department proposes to take punitive

action against a licensee, it must establish grounds for

disciplinary action by clear and convincing evidence. Section

120.57(1)(h), Florida Statutes (1997), and Department of Banking

and Finance v. Osborne Stern and Co. , 670 So. 2d 932 (Fla. 1996).

"The evidence must be of such weight that it produces in the mind

of the trier of fact a firm belief or conviction, without

hesitancy, as to the truth of the allegations sought to be

established." Slomowitz v. Walker , 429 So. 2d 797, 800 (Fla. 4th

DCA 1983).

9. Pertinent to this case, Section 561.29, Florida

Statutes, provides the Division of Alcoholic Beverages and

Tobacco with full power and authority to revoke or suspend the

license of any person holding a license under the Beverage Law,

or to impose a civil penalty against a licensee for any violation

mentioned in the Beverage Law, or any rule issued pursuant

thereto, not to exceed $1,000 for violations arising out of a

single transaction, when it is determined that, inter alia , the

licensee or, if a corporation, any officers thereof, have

violated any laws of this state.

10. Pertinent to the perceived violation of Section

561.29(1)(b), Florida Statutes, are the provisions of Section

561.501, Florida Statutes, which impose a surcharge on the sale

of alcoholic beverages for consumption on the premises. That

provision of law provides:

(1) . . . a surcharge of 10 cents is

imposed upon each ounce of liquor and each

4 ounces of wine, a surcharge of 6 cents is

imposed on each 12 ounces of cider, and a

surcharge of 4 cents is imposed on each

12 ounces of beer sold at retail for

consumption on premises licensed by the

division as an alcoholic beverage vendor.

(2) The vendor shall report and remit

payments to the division each month by the

15th of the month following the month in

which the surcharges are imposed. For

purposes of compensating the retailer for the

keeping of prescribed records and the proper

accounting and remitting of surcharges

imposed under this section, the retailer

shall be allowed to deduct from the payment

due the state 1 percent of the amount of the

surcharge due. Retail records shall be kept

on the quantities of all liquor, wine, and

beer purchased, inventories, and sales. . . .

Records must be maintained for 3 years.

Failure to accurately and timely remit

surcharges imposed under this section is a

violation of the Beverage Law.

11. The Department has adopted Rule 61A-4.063, Florida

Administrative Code, to implement the beverage surcharge imposed

by section 561.501. Pertinent to this case, the rule provides:

(4) The surcharge calculation methods are

as follows:

* * *

(b) Purchase method -- Vendors who select

the purchases method shall calculate the

surcharge by multiplying the units of all

alcoholic beverages purchased during the

month times the applicable surcharge rate,

less applicable spillage allowances specified

in subsection (6) of this rule. . . .

* * *

c) . . . If the vendor uses the purchases

method, the vendor will bear the burden of

proof that purchases are accurately recorded.

* * *

(5) The surcharge rates are as follows:

(a) Ten cents for each 1 ounce of liquor;

(b) Ten cents for each 4 ounces of wine;

(c) Four cents for each 12 ounces of beer;

and

(d) Commercially produced coolers served

in a sealed container, whether beer, wine or

liquor-based shall be assessed a surcharge of

4 cents per 12 ounce container.

(6) Vendors reporting under the purchases

method are allowed a standard monthly

allowance for spillage which may be applied

as a deduction from the units of each type of

product purchased. Spillage shall include

loss from evaporation, breakage and other

incidental losses prior to sale. The rate of

spillage allowance is 10 percent for draft

beer and liquor and 5 percent for all other

alcoholic beverage products. Vendors

reporting under the sales method are not

allowed any monthly allowance for spillage.

* * *

(8) Each vendor licensed in any manner for

consumption on premises shall maintain

complete and accurate records on the

quantities of all alcoholic beverage

purchases, inventories, and sales. Records

include purchase invoices, inventory records,

receiving records, cash register tapes,

computer records generated from automatic

dispensing devices, and any other records

used in determining sales. . . . All records

must be maintained for a period of 3 years.

(9) Employees of the division shall have

access to and shall have the right to examine

the accounting records, invoices, or any

other source documents used to determine a

vendor's compliance with this rule. Each

vendor is required to give the division the

means, facilities and opportunity to verify

the accuracy of the surcharge imposed by

section 561.501, Florida Statutes. In order

to determine whether the monthly reports

submitted by the vendor are accurate, the

division shall use the formula of beginning

inventory plus purchases for the period, less

ending inventory, less the spillage

allowance, to ascertain sales for the period.

Adjustments made to this formula in favor of

the licensee will be based on factual,

substantiated evidence. The results of the

formula will represent sales transactions as

defined herein and in section 561.01(9),

Florida Statutes, for the period under

review.

* * *

(15) When the division performs an audit

on the vendor, it shall determine the

surcharge due. If the division determines

that any amount of gross surcharge is due

from the vendor, it shall notify the vendor

in writing by personal service or U.S. Mail,

return receipt requested, stating that the

vendor has 30 days from the receipt of

written notification in which to correct the

findings of the audit and remit payment. If

the vendor does not correct the findings of

the audit or remit payment within the

allotted time then the division will notify

the vendor in writing by personal service or

U.S. Mail, return receipt requested, that it

intends to assess the proper amount due

including applicable penalties and begin

administrative proceedings.

(Emphasis added.)

12. Here, the Department proposes to take disciplinary

action against Respondent based on its allegation that Respondent

failed to pay a surcharge liability for the audit period

beginning January 1, 1995, and ending December 31, 1997. That

audit revealed a surcharge due of $44,421.05, penalties of

$15,352.33, and interest of $4,384.48, for a total liability of

$64,157.86 (as of April 15, 1998), and was derived by the

Department's disallowance of Respondent's claim of a package sale

deduction during the audit period. According to the Department,

Respondent failed to produce any "factual, substantial evidence,"

as required by Rule 61A-4.063(9), Florida Administrative Code, to

support the deduction. The Department's position has merit.

13. In resolving that the Department accurately calculated

Respondent's liability for the audit period of January 1, 1995,

and ending December 31, 1997, and properly disallowed

Respondent's claim to a package sale deduction, it is observed

that, contrary to the requirements of law, Respondent failed to

maintain or produce any records for the audit period and,

consequently, failed to offer any "factual, substantial evidence"

to support the adjustment claimed. It is further observed that,

notwithstanding such failure, Respondent was accorded the

opportunity to participate in a six-month prospective audit to

substantiate its claim for a package sale adjustment, but again

failed to maintain any reliable records to support the deduction.

Finally, at hearing, Respondent offered no additional proof or

record from which it could be resolved, with any sense of

confidence, what adjustment, if any, Respondent should receive.

Consequently, it must be concluded that the Department accurately

assessed Respondent's liability and that Respondent is guilty of

violating the provisions of Section 561.29(1)(b), Florida

Statutes, as alleged in the Administrative Action.

14. Having reached the foregoing conclusion, it remains to

resolve the appropriate penalty for Respondent's offense.

Pertinent to this issue, Rule 61A-2.022, Florida Administrative

Code, establishes the penalty guidelines to be considered by the

Department when it elects to take disciplinary action against a

licensee. Gadsden State Bank v. Lewis , 348 So. 2d 343 (Fla. 1st

DCA 1977)(Agencies must honor their own substantive rules until

they are amended or abrogated). C.f. Williams v. Department of

Transportation , 531 So. 2d 994 (Fla. 1st DCA 1988)(Agency is

required to comply with its disciplinary guidelines in taking

disciplinary action against its employees.) For a violation of

Section 561.501(2), Florida Statutes, and, therefore, Subsection

561.29(1)(b), Florida Statutes, the table which follows Rule 61A-

2.002(11), Florida Administrative Code, provides the following

penalty for a "first occurrence" of "late surcharge payments":

"Corrective action and 25 percent of the total late surcharge

principal payments if licensee is current with surcharge

reports. . . ." Here, the Department, by its proposed

recommended order, suggests, as a penalty, that "Respondent be

ordered to pay to the Division its outstanding tax liability of

$44,421.05, including penalties of $15,352.33 and interest of

$4,384.48, for a total of $64,157.86."

15. Giving due consideration to the circumstances, as well

as the Department's disciplinary guidelines, the appropriate

penalty in this case is the satisfaction of the debt to the

Department or the execution of a mutually-agreeable payment plan

within 30 days of the entry of the final order, failing which

Respondent's license should be suspended until such time as the

debt is satisfied or a payment plan is approved.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that a final order be entered which finds

Respondent guilty of violating the provisions of Section

561.29(1)(b), Florida Statutes, as alleged in the Administrative

Action.

It is further RECOMMENDED that for such violation the final

order require the satisfaction of the debt to the Department or

the execution of a mutually-agreeable payment plan within 30 days

of the entry of the final order, failing which Respondent's

satisfied or a payment plan is approved.

DONE AND ENTERED this 23rd day of August, 1999, in

Tallahassee, Leon County, Florida.

___________________________________

WILLIAM J. KENDRICK

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 23rd day of August, 1999.

ENDNOTES

1/ The surcharge is a tax imposed on the volume (calculated in

ounces) of liquor, wine, and beer sold for consumption on the

licensed premises. Section 561.501(1), Florida Statutes.

2/ In general, a licensed vendor may elect one of two methods for

calculation of the surcharge: the sales method or the purchase

method. Under the sales method, the vendor calculates the

surcharge by multiplying the volume (stated in ounces) of

alcoholic beverages sold for consumption on the premises times the

applicable surcharge rate. Under the purchase method, the vendor

calculates the surcharge by multiplying the volume (stated in

ounces) of all alcoholic beverages purchased during the month

times the applicable surcharge rate, less the applicable spillage

allowance. Rule 61A-4.063(4), Florida Administrative Code.

Vendors may also be entitled to claim a deduction (adjustment) for

alcoholic beverages used for cooking, for alcoholic beverages

offered free of any charge, and for any alcoholic beverages sold

for consumption off premises (package sales). However, any such

adjustment must be based on "factual, substantial evidence."

Rule 61A-4.063(9), Florida Administrative Code. Such evidence,

one would reasonably expect, would consist of the retail records

on the quantities of all liquor, wine, and beer purchased;

inventories; and sales each vendor is required to maintain.

Section 561.501(2), Florida Statutes, and Rule 61A-4.063(8),

Florida Administrative Code.

3/ Indeed, the only records ever produced by Respondent were

those records ostensibly maintained during the course of a six-

month prospective audit, discussed infra .

4/ In so concluding, it is not suggested that Respondent had no

package sales. Rather, it is concluded that, while it may have

had package sales, Respondent failed to reliably document them and

that it would be pure speculation to attribute a figure ( gallonage

or otherwise) to package sales.

COPIES FURNISHED:

Miriam L. Wilkinson, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1007

Julius H. Browner, Esquire

1915 Northeast 45th Street

Suite 210

Fort Lauderdale, Florida 33308

Joel Marcus, CPA

676 West Prospect Road

Fort Lauderdale, Florida 33301

Joseph Martelli, Director

Division of Alcoholic Beverages

and Tobacco

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

William Woodyard, General Counsel

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

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.