00-001193 Copo Paint And Body Shop, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Monday, June 4, 2001.

Summary: Petitioner failed to demonstrate that Respondent abused its discretion in refusing to compromise the assessed tax, penalty, and interest. Sustain refusal to compromise the tax, penalty, or interest.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COPO PAINT AND BODY SHOP, INC. , )

)

Petitioner , )

)

vs. ) Case No. 00-1193

)

DEPARTMENT OF REVENUE , )

)

Respondent. )

________________________________)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case

on February 9, 2001 , by video teleconference with connecting

sites in West Palm Beach and Tallahassee, Florida, before

Errol H. Powell, a designated Administrative Law Judge of the

Division of Administrative Hearings.

APPEARANCES

For Petitioner : Joseph C. Moffa, Esquire

Moffa & Moffa , P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

For Respondent : Nicholas Bykowsky, Esquire

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue for determination is whether Respondent abused

its discretion in failing to settle or compromise the

outstanding tax assessment against Petitioner, based on

Petitioner's inability to pay, pursuant to Section 213.21,

Florida Statutes.

PRELIMINARY STATEMENT

For the period August 1, 1992, through July 31, 1997, the

Department of Revenue (Respondent), through a private accounting

firm, pursuant to contract, conducted a sales and use tax audit

of Copo Paint and Body Shop, Inc. (Petitioner). As a result of

the audit, Respondent assessed sales and use tax, penalty, and

interest against Petitioner in the amount of $325,218.68.

Petitioner protested the assessment and by Notice of

Decision dated September 17, 1999, Respondent notified

Petitioner that the assessment would not be changed. Petitioner

requested a reconsideration as to whether Respondent should

compromise the tax, interest, and penalty, based on grounds of

doubt of collectibility. By Notice of Reconsideration dated

January 7, 2000, Respondent notified Petitioner that Petitioner

failed to establish an inability to pay the assessment in full,

and Petitioner timely challenged Respondent's determination. On

March 20, 2000, this matter was referred to the Division of

Administrative Hearings.

The sole issue presented for hearing by the Petitioner is

whether Petitioner has the ability to pay the assessed sales and

use tax, penalty, and interest. At hearing, Petitioner

presented the testimony of one of its owners, who is also

Petitioner's president, and entered 17 exhibits (Petitioner’s

Exhibits numbered 1-9 and 11-17) into evidence. Petitioner's

Exhibit numbered 10 was withdrawn. Respondent presented the

testimony of two witnesses and entered 32 exhibits (Respondent's

Exhibits numbered 1-32) into evidence, with two of the exhibits

being deposition testimony.

A transcript of the hearing was ordered. At the request of

the parties, the time for filing post-hearing submissions was

set for more than ten days following the filing of the

transcript. The Transcript, consisting of one volume, was filed

on March 12, 2001. The parties timely filed their post-hearing

submissions, which have been considered in the preparation of

this Recommended Order.

FINDINGS OF FACT

1. Petitioner is a Florida corporation, engaged in the

business of painting and repairing damaged automobiles and other

vehicles. Petitioner's principal place of business and home

office is located at 100 Northwest 9th Terrace, Hallandale,

Florida.

2. Respondent is the agency charged with administering the

tax laws of the State of Florida, pursuant to, among other

provisions, Section 213.05, Florida Statutes.

3. Respondent is authorized to conduct audits of

taxpayers. It is further authorized to request information to

ascertain the tax liability of taxpayers, if any, pursuant to

Section 213.34, Florida Statutes.

4. It is undisputed that Petitioner is a taxpayer.

5. From September 2, 1997 through March 12, 1999,

Respondent conducted an audit of Petitioner to determine whether

Petitioner had been properly collecting and remitting sales and

use tax and whether any additional sales and use tax amounts

were due.

6. On September 2, 1997, Respondent forwarded its form

DR-840, Notice of Intent to Audit Books and Records, to

Petitioner. The period of time being audited was from August 1,

1992 through July 31, 1997.

7. For part of the audit period, Petitioner's records were

inadequate. Petitioner's record keeping was poor. For the

remainder of the audit period, Petitioner's records were

voluminous.

8. A higher amount of gross sales were reported on

Petitioner's federal tax return than on Florida's tax return.

9. Petitioner could not document 95 percent of its exempt

sales reported to the State of Florida. Petitioner reported a

ratio of 35 percent for exempt sales on its filed Florida sales

and use tax returns.

10. Because of the two factors of inadequate and

voluminous records, sampling was required by Respondent. On

January 12, 1998, Petitioner and Respondent entered into a

written audit sampling agreement.

11. On June 5, 1998, Respondent provided its Notice of

Intent to Make Audit Changes to Petitioner.

12. On July 21, 1998, Respondent issued its Notice of

Intent to Make Audit Changes (revised), which was the first

revision, to Petitioner.

13. On January 12, 1999, Respondent issued its Notice of

Intent to Make Audit Changes (revised), which was the second

revision, to Petitioner.

14. On March 12, 1999, Respondent issued its Notice of

Proposed Assessment to Petitioner. This notice indicated that

Petitioner owed additional sales and use tax in the amount of

$166,306.93, penalty in the amount of $81,443.38, and interest

through March 12, 1999, in the amount of $77,468.37.

Consequently, the notice further indicated that the total amount

of the assessment against Petitioner was $325,218.68.

15. A compromise of the assessed tax, interest, or penalty

can be performed at Respondent's field level after an audit is

completed and the case is still in Respondent's field office.

However, the field office's authority is limited in that

affected taxpayer must agree to the amount of the tax assessed.

In the present case, Petitioner did not agree to the amount of

the tax assessed and, therefore, Respondent's field office could

not compromise the assessed tax, interest, or penalty against

Petitioner.

16. On September 17, 1999, Respondent issued its Notice of

Decision. Respondent notified Petitioner that the assessment

would not be changed.

17. Petitioner requested a reconsideration as to whether

Respondent should compromise the tax, interest, and penalty,

based on grounds of doubt of collectibility. By Notice of

Reconsideration issued January 7, 2000, Respondent notified

Petitioner of Petitioner's failure to establish an inability to

pay the assessment in full.

18. Petitioner timely challenged Respondent's

determination of Petitioner's inability to pay the assessment

and requested a hearing.

19. It is undisputed that Respondent has the discretion to

compromise an assessment. Respondent may compromise tax or

interest based on doubt of collectibility of the tax or

interest. The taxpayer bears the burden of providing

documentation to support the taxpayer's position that it cannot

pay the tax or interest.

20. Respondent examines whether a compromise is in the

best interests of the State of Florida in determining whether to

compromise an assessment. Respondent considers a compromise to

be in the best interests of the State and may compromise the

assessment under the following circumstances: (1) on the basis

of the taxpayer providing documentation of the taxpayer's

inability to pay the assessment in full but having the cash flow

to make payments in installments; or (2) when a taxpayer's

business or the taxpayer-corporation is insolvent and the

taxpayer's or corporation's assets were used to satisfy

legitimate liabilities and not used to enrich any person closely

related to the taxpayer or corporation; or (3) when a taxpayer

is gravely ill and the cash flow of the taxpayer's business is

poor. When it considers compromising any tax, interest, or

penalty, Respondent reviews several factors, including the audit

file, financial information, and any other factors or

circumstances which may affect collectibility.

21. The financial information considered includes positive

and negative sales trends, cost of goods sold, profitability,

and net worth. Additionally, any changes in assets, in

particular fixed assets, and liabilities are taken into account.

22. Other factors or circumstances considered include the

fair market value of a taxpayer's assets, the future prospects

of a taxpayer's business, and the solvency or insolvency of a

taxpayer's business. Respondent does not consider the

liquidation value of a taxpayer's business.

23. Petitioner was, and is, not familiar with the State of

Florida's sales and use tax law, as the law relates to

Petitioner's business.

24. Petitioner's president has no prior experience in

maintaining the books and records of a company or in completing

financial statements of a company. Petitioner's president never

attended a seminar, presented or sponsored by Respondent, on

Florida's sales and use tax, or read any of Respondent's

pamphlets on sales and use tax.

25. Petitioner has a New York accountant, who never

provided Petitioner's president or treasurer with any

instructions regarding Florida's sales and use tax.

26. During the audit period, Petitioner never requested

written advice from Respondent regarding the application of

Florida's sales and use tax to its business.

27. For the last three years, Petitioner's sales have been

a little less than $1,000,000.

28. For the years 1996 and 1997, Petitioner's federal tax

returns showed cash balances at the beginning of each year even

though the cash balance for 1997, $51,431, was less than for

1996, $93,497.

29. Petitioner's federal tax returns for 1996 through 1998

indicate a loss for each year during that time period. However,

a comparison between Petitioner's sales income in its federal

tax returns and its state tax returns shows that Petitioner's

sales income was grossly underreported.

30. Respondent's analysis worksheet, referred to as Doubt

as to Collectibility Analysis Worksheet, indicated a negative

dollar figure as to cash available by Petitioner to pay

Respondent.

31. Inconsistencies existed between the information

reported in Petitioner's tax returns and information provided by

Petitioner during the protest period. Petitioner's sales figure

as of August 31, 1999, an eight-month sales period for 1999,

stated in its Petition for Reconsideration, dated October 6,

1999, was substantially less than the sales figure reported on

Petitioner's sales and use tax returns filed during the same

time period. Additionally, Petitioner overstated the cost of

goods sold in one of its federal tax returns, which resulted in

an overstated net loss. The fair market value of Petitioner's

assets indicated in its Petition for Reconsideration, $30,000,

was more than 100 percent of the value reflected on Petitioner's

county tangible personal property return, $13,000.

32. Also, further areas of inconsistencies existed between

the information provided by Petitioner and the information

reported on Petitioner's tax returns. Petitioner indicated that

its former treasurer received a deferred compensation payment of

$60,000, but neither Petitioner's tax returns nor financial

statements reflected a payment for the expense. Petitioner

showed a loss on its 1996 federal tax return, which, according

to Petitioner, was a result of moving expenses and expenses in

the construction business; however, no expense unique to moving

or the construction business was reflected on Petitioner's tax

return or financial statement.

33. Petitioner's financial data, including federal tax

returns and state wage reports, showed trends and deficiencies.

A trend of an increase in gross sales for Petitioner was shown

for the years 1997 through 1999, in Petitioner's federal tax

returns for the same years and in Petitioner's Petition for

Reconsideration, regarding its gross sales as of August 31,

1999. Additionally, the same federal tax returns showed a trend

of an increase in net income for the same years in that

deductions in relation to sales were less than the previous

years.

34. For the years 1994 through 1997, as reported on

Petitioner's federal tax returns, Petitioner's depreciable

assets increased each year.

35. Respondent's analysis worksheet also showed a negative

dollar figure as to Petitioner's adjusted net worth.

36. As of August 31, 1999, the first eight months of 1999,

Petitioner's total assets were $40,814 and its total loans,

payable to banks, were $90,000.

37. Taking into consideration the totality of the

circumstances, Petitioner failed to provide Respondent with

adequate and complete documentation and information in order for

Respondent to make a determination of collectibility.

CONCLUSIONS OF LAW

38. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and the

parties thereto pursuant to Section 120.569 and Subsection

120.57(1), Florida Statutes.

39. Section 120.80, Florida Statutes (1999), provides in

pertinent part:

(14) DEPARTMENT OF REVENUE .–

* * *

(b ) Taxpayer contest proceedings.–

1. In any administrative proceeding brought

pursuant to this chapter as authorized by s.

72.011(1), the taxpayer shall be designated

the "petitioner" and the Department of

Revenue shall be designated the

"respondent," . . . .

2. In any such administrative proceeding,

the applicable department's burden of proof,

except as otherwise specifically provided by

general law, shall be limited to a showing

that an assessment has been made against the

taxpayer and the factual and legal grounds

upon which the applicable department made

the assessment.

40. Petitioner was required to keep suitable books and

records and to maintain such books and records during the audit

period. Section 213.35, Florida Statutes. Petitioner failed to

keep and maintain adequate records and Petitioner's records were

voluminous. Respondent was justified in using a sampling of

Petitioner's records and using the best information available.

Subsections 212.12(5)(b) and (6)(b) and (c), Florida Statutes

(1999).

41. In the instant case, Petitioner does not challenge the

assessment, but challenges Respondent's failure to compromise

the assessment, including interest and penalty. As a result,

Respondent's assessment is considered valid. Even if Petitioner

had challenged the assessment, Respondent demonstrated that the

assessment was valid.

42. Respondent is required to impose a penalty when a

taxpayer fails to pay sales or use tax when due. Subsection

212.12(2)(a), Florida Statutes (1999).

43. Section 213.21, Florida Statutes (1999), provides in

pertinent part:

(3)(a ) A taxpayer's liability for any tax

or interest specified in s. 72.011(1) may be

compromised by the department upon the

grounds of doubt as to liability for or

collectibility of such tax or interest. A

taxpayer's liability for penalties under any

of the chapters specified in s. 72.011(1)

may be settled or compromised if it is

determined by the department that the

noncompliance is due to reasonable cause and

not to willful negligence, willful neglect,

or fraud. In addition, a taxpayer's

liability for penalties under any of the

chapters specified in s. 72.011(1) in excess

of 25 percent of the tax shall be settled or

compromised if the department determines

that the noncompliance is due to reasonable

cause and not to willful negligence, willful

neglect, or fraud. The department shall

maintain records of all compromises, and the

records shall state the basis for the

compromise. The records of compromise under

this paragraph shall not be subject to

disclosure pursuant to s. 119.07(1) and

shall be considered confidential information

governed by the provisions of s. 213.053.

* * *

(4 ) The department is authorized to enter

into agreements for scheduling payments of

taxes, interest, and penalties.

(5 ) The department shall establish by

rule guidelines and procedures for

implementation of this section.

44. Rule 12-13.002, Florida Administrative Code, provides

in pertinent part:

The meanings ascribed to the words and terms

listed below shall be applicable, unless a

different meaning is clearly indicated by

the context in which the word or term is

used.

(1) "Compromise" means a reduction of the

amount of tax, interest, or penalty imposed

to an amount less than the amount of tax,

interest, or penalty imposed under a revenue

law of this state. "Compromise" does not

include correction of an error through

cancellation of an erroneous billing,

revision or withdrawal of an erroneous

proposed assessment, or billing, or other

corrective actions taken by the Department.

(2) "Department" means the Florida

Department of Revenue.

(3) "Reasonable cause" means a basis for

compromise of penalty which has been shown

by the taxpayer to exist based upon the

facts and circumstances of the specific case

and which reflects that the taxpayer

exercised ordinary care and prudence in

complying with a revenue law of this state.

(4) "Revenue law of this state" means a

statute imposing a tax, penalty or interest,

license, or fee collected by the Department.

(5) "Settle " means the resolution of a

particular taxpayer's liability for tax,

interest, or penalty by the Department under

the provisions of this rule.

(6) "Taxpayer" means a person subject to

a revenue law of this state.

(7 ) In relation to an act or omission

which constitutes a violation of the revenue

laws of this state, "willful" means with

actual knowledge or belief that such act or

omission constitutes such violation and with

intent nevertheless to commit or cause such

act or omission.

45. Rule 12-13.003, Florida Administrative Code, provides

in pertinent part:

(2 ) No tax, interest, penalty, or service

fee shall be compromised or settled unless

the taxpayer first submits a written request

to compromise or settle tax, interest,

penalty, or service fees and establishes as

follows:

(a ) In regard to tax or interest, doubt

as to the taxpayer's liability for tax or

interest, or actual lack of collectibility

of the tax or interest as demonstrated to

the satisfaction of the Department by

audited financial statements or other

suitable evidence acceptable to the

Department. Grounds for finding doubt as to

liability and doubt as to collectibility,

respectively, are set forth in further

detail in Rules 12-13.005 and 12-13.006,

F.A.C.

(b ) In regard to penalty, that the

noncompliance was due to reasonable cause

and not to willful negligence, willful

neglect, or fraud. The taxpayer shall be

required to set forth in a written statement

the facts and circumstances which support

the taxpayer's basis for compromise and

which demonstrate the existence of

reasonable cause for compromise of the

penalty or service fee and such other

information as may be required by the

Department.

* * *

(d ) Grounds for finding reasonable cause

are set forth in further detail in Rule 12-

13.007, F.A.C.

46. Rule 12-13.006, Florida Administrative Code, entitled

"Grounds for Finding Doubt as to Collectibility", provides in

pertinent part:

Tax or interest may be compromised or

settled on the grounds of "doubt as to

collectibility" when it is determined that

the financial status of the taxpayer is such

that it is in the best interests of the

State to settle or compromise the matter

because full payment of the tax obligation

is highly doubtful and there appears to be

an advantage in having the case permanently

and conclusively closed. The discretion to

make this determination is delegated to

those persons enumerated in Rule 12-13.004,

F.A.C.

47. Rule 12-13.007, Florida Administrative Code, provides

in pertinent part:

(4 ) Reliance upon the erroneous advice of

an advisor is a basis for reasonable cause

when the taxpayer relied in good faith upon

written advice of an advisor who was

competent in Florida tax matters and the

advisor acted with full knowledge of all of

the essential facts. Informal advice,

advice based upon insufficient facts, advice

received in cases where facts were

deliberately concealed, or obviously

erroneous advice are not grounds for

reasonable cause. To establish reasonable

cause based upon reliance on the advice of a

competent advisor, the taxpayers shall

demonstrate:

(a ) That the taxpayer sought timely

advice of a person who was competent in

Florida tax matters;

(b ) That the taxpayer provided the

advisor with all of the necessary

information and withheld nothing; and

(c ) That the taxpayer acted in good faith

upon written advice actually received from

the advisor.

(5 ) Reliance upon the express terms of

written advice given by the Department is a

basis for reasonable cause when the taxpayer

shows that the advice was timely sought from

a departmental employee and that all

material facts were disclosed, and that the

express terms of the advice were actually

followed.

48. Section 212.12, Florida Statutes, provides in

pertinent part:

(2)(a ) When any person, firm, or

corporation required hereunder to make any

return or to pay any tax or fee imposed by

this chapter fails to timely file such

return or fails to pay the tax or fee due

within the time required hereunder, in

addition to all other penalties provided

herein and by the laws of this state in

respect to such taxes or fees, a specific

penalty shall be added to the tax or fee in

the amount of 10 percent of any unpaid tax

or fee if the failure is for not more than

30 days, with an additional 10 percent of

any unpaid tax or fee for each additional 30

days, or fraction thereof, during the time

which the failure continues, not to exceed a

total penalty of 50 percent, in the

aggregate, of any unpaid tax or fee. In no

event may the penalty be less than $10 for

failure to timely file a tax return required

by s. 212.11(1)(b) or $5 for failure to

timely file a tax return authorized by s.

212.11(1)(c) or (d).

49. It is clear that Respondent has the discretion to

compromise an assessment of tax, penalty, or interest.

Petitioner bears the burden to demonstrate that Respondent

abused its discretion in refusing to compromise the assessed

tax, penalty, or interest.

50. Petitioner failed to demonstrate that Respondent

abused its discretion in refusing to compromise the assessed

tax, penalty, and interest. Petitioner failed to demonstrate

doubt as to collectibility of the assessed tax and interest. As

to penalty, Petitioner failed to demonstrate that its

noncompliance was due to reasonable cause. The underreporting,

inconsistencies, and discrepancies place considerable doubt on

Petitioner's assertion that it is unable to pay the assessment.

Furthermore, Petitioner failed to demonstrate that it relied

upon the advice of a competent advisor or upon written advice

from Respondent.

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 the assessment of tax, penalty, and interest

against Copo Paint and Body Shop, Inc., and sustaining the

refusal to compromise the tax, penalty, or interest.

DONE AND ENTERED this 4th day of June, 2001, in

Tallahassee, Leon County, Florida.

___________________________________

ERROL H. POWELL

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488- 9675 SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 4th day of June, 2001.

COPIES FURNISHED:

Joseph C. Moffa, Esquire

Moffa & Moffa , P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

Nicholas Bykowsky, Esquire

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Linda Lettera, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399-0100

James Zingale, 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.