98-005654 Griffin`s Carpet Mart, Inc. vs. Department Of Revenue Status: Closed Settled and/or Dismissed prior to entry of RO/FO on Tuesday, November 14, 2000.

Summary: Petitioner failed to present sufficient evidence to show that the Department`s assessment was incorrect.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GRIFFIN'S CARPET MART, INC., )

)

Petitioner, )

)

vs. ) Case No. 98-5654

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

____________________________________)

RECOMMENDED ORDER

Upon due notice, William R. Cave, an Administrative Law

Judge for the Division of Administrative Hearings, held a formal

hearing in this matter on January 18, 2000, Tallahassee, Florida.

APPEARANCES

For Petitioner: James F. McCollum, Esquire

Law Offices of James F. McCollum, P.A.

129 South Commerce Avenue

Sebring, Florida 33870-3698

For Respondent: John Mika, Esquire

Nicholas Bykosky, Esquire

Office of the Attorney General

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

Is the purchase or use of tangible personal property by a

contractor who purchases material and supplies for use in

performing non-public works contracts taxable under Chapter 212,

Florida Statutes, and Rule 12A-1.051, Florida Administrative

Code?

PRELIMINARY STATEMENT

On October 26, 1998, the Department of Revenue (Department)

issued its Notice of Decision to Petitioner Griffin's Carpet

Mart, Inc. concerning the Department's Sales and Use Tax Audit

Assessment of Petitioner's business covering the period from

November 1, 1992 through October 31, 1997, which also included an

assessment for Local Government Infrastructure Surtax. Among

other things, the Notice of Decision advised Petitioner of its

appeal rights. By letter dated December 18, 1998, and received

by the Department's Agency Clerk on December 23, 1998, the

Petitioner requested a formal hearing under Chapter 120, Florida

Statutes. By letter dated December 29, 1998, the Department

referred this matter to the Division of Administrative Hearings

(Division) for the assignment of an Administrative Law Judge and

for the conduct of a formal hearing.

At the hearing, Petitioner presented the testimony of John

T. Griffin. The deposition of John T. Griffin taken August 20,

1999, was received in addition to his live testimony at the

hearing. The depositions of Garth Winsor taken September 27,

1999, Robert Flores taken September 27, 1999, Randy Reimer taken

September 27, 1999, Elizabeth Bosco Turner taken June 25, 1999,

and Rose Chancey taken July 16, 1999, were received in lieu of

their live testimony at the hearing. The deposition of John T.

Griffin is received subject to the objections to his testimony

made by Griffin's counsel, which are sustained. The depositions

of Rose Chancey and Elizabeth Bosco Turner are received subject

to the objections to their testimony made by the Department's

counsel, which are sustained. The Department presented the

testimonies of Richard B. Turnbull and Jonathan E. Swift. The

Department's Composite Exhibits numbered 1 and 2 and the

Department's Exhibit numbered 3 were received in evidence.

Sections 120.80(14), 212.02, 212.031, 212.05, 212.054, 212.06,

212.18 and 213.06, Florida Statutes, and Rules 12A-1.006, 12A-

1.016, 12A-1.051, 12A-1.070, 12A-1.091, and 12A-15, Florida

Administrative Code, were officially recognized.

Petitioner's Unopposed Motion to Allow Late Filing of Brief,

which was treated as a Motion to Extend the Time for Filing

Proposed Findings of Fact and Conclusions of Law, was granted

with the understanding that any time constraint imposed under

Rule 28-106.216(1), Florida Administrative Code was waived in

accordance with Rule 28-106.216(2), Florida Administrative Code.

The parties filed their Proposed Recommended Orders under the

extended time frame.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence

adduced at the hearing, the following relevant findings of fact

are made.

1. Petitioner is a Florida Corporation having its principal

place of business located at 560 Highway 27 North, Sebring,

Florida 33820, and is subject to the taxes imposed under Chapter

212, Florida Statutes.

2. The Department is the agency authorized to administer

the tax laws of the State of Florida, pursuant to Section 213.05,

Florida Statutes.

3. The Department is authorized to prescribe the records to

be kept by all persons subject to taxes under Chapter 212,

Florida Statutes. Such persons have a duty to keep and preserve

their records, and the records shall be open to examination by

the Department or its authorized agents at all reasonable hours

pursuant to Section 212.12(6), Florida Statutes.

4. The Department is authorized to conduct audits of

taxpayers and to request information to ascertain their tax

liability, if any, pursuant to Section 213.34, Florida Statutes.

5. The Department conducted an audit of Petitioner to

determine if Petitioner was properly collecting and remitting

sales and use tax to the Department.

6. The audit covers the period from November 1, 1992,

through October 31, 1997.

7. Petitioner is a retail carpet store, selling carpet and

other flooring material, both installed and non-installed, in

Sebring, Florida, and the surrounding areas. An invoice is

prepared for each sales transaction.

8. Petitioner rents the building in which its business is

conducted and where Petitioner’s inventory and supplies are

stored. Petitioner pays rent monthly. During the audit period,

tax was neither paid nor collected on the rent payments.

9. Petitioner purchases carpet samples from out-of-state

vendors for use in its business. During the audit period, sales

tax was not paid on all purchases.

10. Petitioner collected tax on the price of the carpet or

other flooring materials, as reflected on the invoice, where the

customer was a taxpaying entity and collected tax on the total

price on the invoice when the invoice specified installation.

11. Petitioner did not collect tax on the price of the

carpet or other flooring material, as reflected on the invoice,

for tax-exempt entities, whether the invoice reflected the carpet

or other flooring material as installed or non-installed.

12. On May 18, 1998, a Notice of Intent to Make Audit

Changes was presented to Petitioner. Additional sales and use

tax and infrastructure surtax were determined to be due for the

following taxable events: (a) rental expenses; (b) taxable

purchases of samples; and, (c) sales to tax-exempt entities where

the sale of carpet or other flooring materials included

installation to real property.

13. On May 18, 1998, Petitioner paid the additional tax

assessed for taxable rental expenses and taxable purchases of

samples and has been given credit for such payment.

14. Petitioner protests the tax assessed on the cost price

of carpeting used where the customer was a tax-exempt entity and

the sales price included installation.

15. On July 16, 1998, the Department sent to Petitioner its

Notice of Proposed Assessment showing that Petitioner owed

additional sales and use tax and infrastructure surtax in the

amount of $13,569.15 and $2,188.01, respectively. Added to the

tax owed by Petitioner were penalties in the amount of $6,730.78

and $1,085.02, respectively, and interest through July 16, 1998,

in the amount of $4,627.66 and $736.95, respectively. The total

assessment was $24,927.59 and $4,009.98, respectively. Credits

in the amount of $8,233.87 and $1,372.30 respectively, have been

applied against the taxes assessed and reflect the payments made

by Petitioner on May 18, 1998.

16. The amount of taxable rental expenses reported on the

audit work paper Schedule B010 is consistent with Petitioner’s

monthly reports.

17. The amount of taxable sample expenses reported on the

audit work paper Schedule B020 is consistent with Petitioner’s

monthly reports.

18 The amount of exempt sales reported on the audit work

paper Schedule B030 is consistent with Petitioner’s monthly

reports.

19. Petitioner timely filed a written protest of the

Department’s proposed assessment.

20. On October 25, 1998, the Department issued its Notice

of Decision as to the protest of Petitioner. The proposed

assessment was sustained by the Department.

21. All invoices in the Department’s Composite Exhibit

numbered 2, with the exception of invoices numbered 68, 197, 262,

432, 481, 482, 497, and 498, which are related to transactions

that do not involve real property, are records of contracts

between Petitioner and the tax-exempt entity to furnish and

install wall-to-wall carpet or other flooring materials on real

property. There is no retained title provision in any of these

contracts.

22. With the exception of invoices numbered 68, 197, 262,

432, 481, 482, 497, and 498, the invoices contained in the

Department’s Composite Exhibit numbered 2 reflect an improvement

being made to real property.

23. Each of the invoices in the Department’s Composite

Exhibit numbered 2 corresponds to a specific entry in Schedule

B030 of the audit work papers and which is included under Tab 7a,

pages 19 through 32, of the Department’s Composite Exhibit

numbered 1.

24. When Petitioner installed, or subcontracted the

installation of carpet, the carpet was affixed to the floor by

glue, nails, or other means and became the finished floor.

25. Although tack strips, glue, nails, seaming tape, and

other items were not listed on the invoice, these items are

commonly used in the industry to complete performance of

contracts such as those involved in this proceeding.

26. In providing for the installation of carpet or other

flooring materials involved in this proceeding, Petitioner

engaged subcontractors and paid the subcontractor by the square

yard. The square yard price included all materials and labor.

With some exceptions, such as metal strips, materials used in the

installation of the carpet or other flooring materials were not

reflected on the invoices.

27. Since there was no itemization of parts and labor, the

invoices contained in the Department’s Composite Exhibit numbered

2, with the exception of invoices numbered 68, 197, 262, 432,

481, 482, 497, and 498, are lump-sum contracts.

28. During his testimony at the hearing, John T. Griffin

described Petitioner’s invoices as lump-sum contracts.

29. Petitioner argued that the Department had failed to

provide the proper information and training concerning the

Department’s position on the imposition of the tax. However,

based on the testimony of the Department’s witnesses concerning

this matter it appears that sufficient information and sufficient

training concerning the Department’s position on the imposition

of the tax was readily available to Petitioner or its employees.

30. The noncompliance by Petitioner with the applicable

sales and use tax rules was not due to willful negligence,

willful neglect, or fraud.

31. It is the recommendation of the Department’s employees

that the penalty assessed in this matter be waived.

32. As of January 18, 2000, the total sales and use tax,

penalty, and interest was $17,658.80. The local governmental

infrastructure total surtax, penalty, and interest was $2,786.58.

These totals do not reflect a downward adjustment for the taxes,

penalty, and interest assessed against invoices numbered 68, 197,

262, 432, 481, 482, 497, and 498. For these invoices, the

adjustment for taxes assessed, penalty, and interest shall be

calculated from the date of each specific invoice and Petitioner

given credit for any taxes, penalty, or interest charged against

it for invoices numbered 68, 197, 262, 432, 481, 482, 497, and

498.

33. The interest that has been assessed for the taxes that

were not paid on the rent of the building or the carpet samples

is appropriate. Petitioner does not disagree with this interest.

CONCLUSIONS OF LAW

34. The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter of this

proceeding pursuant to Section 120.57(1), Florida Statutes.

35. In an administrative proceeding, such as this one, the

Department’s burden is 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. Section

120.80(14)(b)2, Florida Statutes. The Department has met its

burden in this regard. The Department having met its burden, the

burden of going forward shifts to Petitioner to demonstrate by a

preponderance of the evidence that the assessment is incorrect.

36. Rule 12A-1-051(1),(2)(a)-(f),(3),(16), and (40),

Florida Administrative Code, provides in part as follows:

(1) This rule shall govern the taxability of

purchases or use of tangible personal

property by contractors who purchase or

manufacture materials and supplies for use in

the performance of non public works

contracts. . . . The method by which

contractors or subcontractors arrive at the

total contract price charged for repair,

alteration, improvement, and construction of

real property or for a combination of work on

both real and personal property must be

determined for the purpose of ascertaining

whether the receipts from sales made to or by

them are taxable.

(2) Such contractors may include, among

others, building, electrical, plumbing,

heating, painting, decorating, ventilating,

paper hanging, sheet metal, bridge, road,

landscape or roofing contractors and they may

use one of the following methods in arriving

at the total contract price:

(a) Contracts in which the contractor or

subcontractor agrees to furnish materials and

supplies and necessary services for a lump

sum;

(b) Contracts in which the contractor or

subcontractor agrees to furnish the materials

and supplies and necessary services on a cost

plus or fixed fee basis;

(c) Contracts in which the contractor or

subcontractor agrees to furnish materials and

supplies and necessary services with an upset

or guaranteed price which may not be

exceeded; and

(d) Contracts in which the contractor or

subcontractor repairs, alters, improves or

constructs real property and wherein he

agrees to sell specifically described and

itemized materials and supplies at an agreed

price or at the regular retail price and to

complete the work either for an additional

agreed price or on the basis of time

consumed.

(e) When a contractor or subcontractor uses

materials and supplies in fulfilling either a

lump sum , cost plus, fixed fee, guaranteed

price or any kind of contract except one

falling in class (d) above, he becomes the

ultimate consumer thereof. The person or

dealer who sells such materials and supplies

to such contractor or subcontractor is making

sales at retail and is required to collect

the tax from him based upon the receipts from

such sales.

(f) In cases falling in class (d) above, the

contractor or subcontractor is deemed to be

selling tangible personal property at an

agreed retail price and shall collect tax

from his purchaser based upon the amount of

the receipts from such sales, excluding

installation charges if separately stated. A

dealer selling to such contractor or

subcontractor must obtain a resale

certificate in lieu of tax.

(3) If a contractor’s or subcontractor’s

business is only that of contracts in classes

(2(a),(b), or (c), he should not give a

resale certificate and should pay tax on any

of the materials and supplies purchased. If

his business is also that of taking class

(2)(d) contracts or of selling construction

materials or other tangible personal property

at retail, he shall furnish his dealers with

a resale certificate on all purchases for

resale. If a buyer gives a resale

certificate and thereafter consumes some of

the materials and supplies purchased in the

performance of contracts in classes

2)(a),(b),or (c), he must include in his

return to the Department of Revenue tax upon

the cost price of the materials and supplies

so used in addition to tax on retail sales

under class (2)(d) contracts. If a

contractor or subcontractor purchases

materials and supplies without a resale

certificate and subsequently sells some of

them at retail or uses them in fulfilling

class (d) contracts, he must collect the tax

thereon and report and pay same to the

Department of Revenue. In such cases the

contractor or subcontractor may take the tax

paid by him to his dealers as a credit on his

report to the Department. All contractors

and subcontractors must maintain records in

accordance with the requirements of

s. 213.35, F.S., as created by section 6,

Chapter 88-119, Laws of Florida, of all

materials used in the performance of

contracts for the improvement of realty,

adequate to show that the appropriate tax has

been accrued and remitted by them or paid to

their vendors, as the case may be.

* * *

(16) Materials purchased for use in the

performance of lump sum, cost plus, fixed fee

or guaranteed price contracts for the

improvement of real property are taxable to

all contractors, including but not limited to

the following contractors. . .

Block and brick masons

Burglar and fire alarm system

Carpets (See subsection (40) of this rule)

Cement workers

Door

Electrical

Elevator and escalator

Fencing

Flooring

* * *

(40) A contractor or subcontractor is

construed to be improving real property and

owes the tax on all materials and supplies

that he uses in fulfilling the contract when

he furnishes and installs wall-to-wall

carpeting pursuant to a lump sum , cost plus,

fixed fee, or guaranteed price contract when :

(a) There is no retained title provision in

the agreement; and

(b) The carpeting is affixed to the floor by

nails, glue or in some other manner and

becomes the finished floor . (Emphasis

supplied.)

37. Rule 12A-15.001(1) provides as follows:

(1) For the purpose of administering the

Discretionary Sales Surtax (referred to as

the Surtax, or Tax), all rules relating to

Sales and Use Tax (Chapter 12A-1, Florida

Administrative Code) shall apply to the

Surtax, except in those situations where

rules relating to the Surtax have been issued

to clarify specific statutory provisions.

38. Petitioner has failed to meet its burden to show that

the Department’s assessment was incorrect.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is recommended that the Department enter a final order

upholding its assessments dated October 25, 1998, of sales and

use tax, the local infrastructure surtax, plus applicable

interest against Griffin Carpet Mart, Inc., with credit being

provided for any payments made and for the assessments related to

invoices numbered 68, 197, 262, 432, 481, 482, 497, and 498. It

is further recommended after considering all the circumstances

surrounding this case, that all penalties be waived.

DONE AND ENTERED this 7th day of April, 2000, in

Tallahassee, Leon County, Florida.

___________________________________

WILLIAM R. CAVE

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 7th day of April, 2000.

COPIES FURNISHED:

James F. McCollum, Esquire

Law Offices of James F. McCollum, P.A.

129 South Commerce Avenue

Sebring, Florida 33870-3698

John Mika, Esquire

Nicholas Bykosky, Esquire

Office of the Attorney General

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Larry Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399-0100

Linda Lettera, General Counsel

Department of Revenue

204 Carlton Building

Post Office Box 6668

Tallahassee, Florida 32314-6668

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit 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.