02-000320 Eight Hundred, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Tuesday, April 26, 2005.

Summary: Petitioner alleged in its defense that the primary source of its revenue was from non-taxable rent. However, Respondent proved that its revenue sources were from canteen and vending sales. Recommend that the $89,730 assessment be upheld.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

EIGHT HUNDRED, INC., )

)

Petitioner, )

)

vs. ) Case No. 02 - 0320

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the above - styled matter was heard

before Daniel M. Kilbride, Administrative Law Judge, of the

Division of Administrative Hearings on October 23, 2004, in

Orlando, Florida, and on November 23, 2004, in Tallahassee,

Florida. The following appearances were entered:

APPEARANCES

For Petitioner: Thomas F. Egan, Esquire

Law Office of Thomas F. Egan, P.A.

204 Park Lake Street

Orlando, Florida 32803

For Respondent: John Mika, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUES

Whether Petitioner, Eight Hundred, Inc. (Petitioner),

collected and remitted the proper amount of sales tax on its

retail sales activities, and either paid or accrued use tax on

its purchases.

PRELIMINARY S TATEMENT

In 1994, an audit was conducted on Petitioner for the

period August 1, 1989, through July 31, 1994. A Notice of

Intent to Make Sales and Use Tax Audit Changes (NOI) was issued

by Respondent in the summer of 1995. Petitioner protested the

NOI o n July 18, 1995, and requested an informal conference. No

request for an informal conference was granted, and Respondent

issued its Notice of Proposed Assessment (NOPA) on November 11,

1995.

Due to an ongoing criminal investigation by the Office of

the S tatewide Prosecutor, all further administrative action by

Respondent was suspended. This administrative action resumed

when on March 15, 2000, Petitioner filed a letter of protest of

the audit findings. On June 11, 2001, Respondent rejected

Petitioner's position in its Notice of Decision (NOD), and

following Petitioner's Petition for Reconsideration, Respondent

issued its Notice of Reconsideration (NOR) on November 16, 2001,

denying the Petition. On January 15, 2002, Petitioner filed its

Petition for For mal Administrative Hearing, and this matter was

referred to the Division of Administrative Hearings (DOAH) on

January 23, 2002. Discovery ensued and several continuances

were granted at the request of the parties to facilitate

discovery. On June 19, 2002 , Respondent filed a Motion for a

Determination that the accountant - client privilege had been

waived. Following the filing of the response by Petitioner,

legal memoranda by the parties, and oral argument, an Order was

entered granting the motion on July 2 5, 2002. Petitioner took

an interlocutory appeal of the Order to the Court of Appeal,

First District of Florida (First DCA). Proceedings in this

matter were stayed until the court ruled on the appeal. On

February 12, 2003, the court issued its opinion q uashing the

Order and directed that an evidentiary hearing be held. The

evidentiary hearing on the renewed Motion for Determination was

held on April 10, 2003, and the Order Granting Respondent's

Motion for Determination was issued on July 23, 2003. This new

Order was appealed to the First DCA. Proceedings were again

stayed. On February 4, 2004, the Court entered its Opinion

denying the Writ of Certiorari on the merits and issued its

Mandate on February 4, 2004.

Thereafter, discovery recommenced and fo llowing other

discovery and procedural motions and Orders, the formal hearing

commenced on October 23, 2004, in Orlando, Florida, and was

completed on November 23, 2004, in Tallahassee, Florida.

At the formal hearing, the following witnesses testified.

For Petitioner: Richard Rabanzinski; Philip Furtney, president

of Eight Hundred, Inc.; Pat Savage; and Rhonda Ward, records

custodian, Department of Revenue. For Respondent: Paul

Crawford, certified public accountant (CPA), contract auditor,

Department of Revenue; Linda Gammons - Thurman, Tax Specialist II,

Department of Revenue; David L. Schultz, CPA; and Rhonda Ward.

The following exhibits were offered by Petitioner:

1) Petitioner's spread sheet with calculations of sales tax

subgroup "Canteen" remove d from total revenues (26 pages);

2) Lease of retail space between the Whitney Management

Corporation and the Universal Christian Conference, Inc., dated

January 12, 1990; 2a) Assignment of lease and amending Agreement

between the Universal Christian Confe rence, Inc., Pondella Hall

for Hire, Inc., d/b/a Towne Center Hall for Hire and the Whitney

Management Corporation, d/b/a the Whitney Equity Corporation

dated September 11, 1991; 3) Lease agreement between Avon Plaza

Associates and Pondella Hall for Hire, Inc.; 4) Lease agreement

between Joseph E. Marx Company c/o Marx Realty and Pondella Hall

for Hire, Inc., dated August 12, 1993; 4a) Assumption and

assignment of lease between Peter Marini, Antonio Monesano and

Giuseppe Montesano, and Marx Realty and Impro vement Co., Inc.,

dated April 25, 1989; 5) Amendment of lease between Lomangino

Enterprises, Inc., through its agent, the Trans Coastal Group,

Inc., and Pondella Hall for Hire, Inc., d/b/a Pondella Bingo

dated February 12, 1991; 6) Lease agreement between Lennar

Florida Retail II, Q.A., Ltd., and Pondella Hall for Hire, Inc.,

d/b/a Northtowne Bingo dated December 1, 1994; 7) (NOT ADMITTED)

Sublease agreement dated February 15, 1992, between Pondella

Hall for Hire, Inc., and Maii Tattersall; 8) (NOT ADMITTED )

Letter from David L. Ward to Robert A. Cone, Revenue

Investigator -- Criminal Enforcement regarding Pondella Hall for

Hire, Inc., dated August 14, 1995; 9) Information dated

March 24, 1997; 10) (NOT ADMITTED) Letter from Jodie Breece,

Office of Statewide P rosecution of Mr. Gene Sheffer, Criminal

Investigation Maitland Region dated September 12, 1995;

11) (DEPOSITION EXHIBIT 8) Letter from David L. Schultz, CPA,

Schultz Chapel and Co. to Terri Madsen, Contract Audit Division,

State of Florida, Department of Revenue dated July 18, 1995.

The following exhibits were offered by Respondent:

1) Audit work papers contained in Composite Exhibit No. 1,

marked with white colored tabs numbered 1 through 13; 2) NOI

dated June 23, 1995, marked with one red tab; 3) Notic e of

Intent to make audit changes for sales and use surtax dated

June 23, 1995, and marked with one red tab; 4) April 27, 2004,

trial deposition of David L. Schultz with eight exhibits

attached; 5) Pages 1 through 26 of the March 17, 2003,

deposition of Da vid L. Schultz and Exhibits 1 and 2; 6) July 19,

2004, trial deposition of Linda Gammons - Thurman with 24 exhibits

attached.

The following was admitted as a Joint Exhibit:

Correspondence contained in Composite Exhibit 1, marked with

blue colored tabs.

Re spondent offered the following rebuttal exhibit: Account

profile screens, payment screens, and payment detail worksheets.

Petitioner filed a motion to exclude this evidence and for

further relief to strike the audit in its entirety based on a

perceived v iolation of Section 90.956, Florida Statutes (2004).

After review of Bradenton Group, Inc. v. Department of Legal

Affairs , 701 So. 2d 1170 (Fla. 5th DCA 1997); Department of

Legal Affairs v. Bradenton Group, Inc. , 727 So. 2d 199 (Fla.

1998); Eight Hundred , Inc. v. State of Florida , 781 So. 2d 1187

(Fla. 5th DCA 2001); Pondella Hall for Hire, Inc. v. City of

St. Cloud , 837 So. 2d 510 (Fla. 5th DCA 2003); Pondella Hall for

Hire, Inc. v. Croft , 844 So. 2d 696 (Fla. 5th DCA 2003);

Pondella Hall for Hire, Inc. v. Lamar , 866 So. 2d 719 (Fla. 5th

DCA 2004); rev. den. , 879 So. 2d 623 (Fla. 2004); and Eight

Hundred, Inc. v. State of Florida , 30 Fla. L. Weekly D500, 2005

WL 387674 (Fla. 5th DCA February 18, 2005), Petitioner's motion

is denied for the following reaso ns: First, the Florida

Department of Revenue was not a party in any of the above - cited

cases and did not have possession of the documents sought to be

returned; Second, the Form DR - 15 (DR - 15) downloads are not

summaries of data, but contain the actual inf ormation provided

by Petitioner; and Third, the DR - 15 is a document which is

prepared by the taxpayer and submitted to Respondent. The

document is designed so that the taxpayer can maintain a copy of

the form sent to Respondent. The testimony of Responde nt's

auditor was that he examined those DR - 15s which were contained

within the records provided by Petitioner's representative

during the audit in 1995. Therefore, Petitioner was in

possession of at least some of its own DR - 15s (those which were

shown to the auditor). Whether Petitioner failed to make and

retain a copy of all the DR - 15s for the audit period, or

misplaced or destroyed them, is an issue of fact on which

Petitioner has not presented any evidence. The testimony of

Rhonda Ward, Respondent's r ecord custodian, is that Respondent's

record retention policy for the DR - 15 is five fiscal years from

the date received; therefore, by policy, Respondent would have

destroyed yearly its copies of any DR - 15s received for each year

of the audit period beginn ing August 1, 1989, through July 31,

1994, or July 31, 1999, through July 31, 2000, respectively.

There has been no showing of bad faith or any other reason to

support striking the audit.

The final volume of the Transcript was filed on February 4,

2005. Following a request for extension of time to file

proposed recommended order, the parties filed their proposals on

March 16, 2005. A Notice of Filing Supplemental Authority was

filed by Petitioner on April 22, 2005. Each of the parties'

proposals has be en given careful consideration in the

preparation of this Recommended Order.

FINDINGS OF FACT

1. Petitioner is a Florida corporation.

2. Petitioner's revenues are derived, in part, through the

operation of vending machine businesses throughout the Stat e of

Florida. Petitioner placed coin - operated cigarette, food and

beverage, candy, and amusement vending machines in various bingo

halls located throughout the state.

3. These locations included: Pondella Hall for Hire,

Inc.; Avon Plaza Bingo; Bingo Tr ail; Causeway Plaza Bingo;

Dunnellon Bingo; Fountains Plaza Bingo; Lamirada Plaza Bingo;

Northtowne Bingo; Orlando Bingo; Pondella Bingo; Sanford Bingo;

Sarasota Crossings Bingo; South Belcher Bingo; and Towne Centre

Bingo.

4. Respondent is the state age ncy charged with the

responsibility of enforcing the Florida Revenue Act of 1949

(Chapter 212, Florida Statutes (2003)), as amended. Among other

things, Respondent performs audits on taxpayers to ensure that

all taxes due have been correctly paid.

5. In 1994, an audit was conducted on Petitioner covering

the audit period from August 1, 1989, through July 31, 1994.

6. After the results of the audit were obtained on

June 23, 1995, Petitioner issued a NOI wherein it proposed to

assess Petitioner $48,026.7 5 in unpaid sales tax, $18,520.05 in

delinquent penalties, and $15,836.40 in accrued interest on the

unpaid tax; and $4,383.13 in unpaid discretionary sales surtax,

$1,875.80 in delinquent penalties, and $1,088.58 in accrued

interest on the unpaid discreti onary sales surtax through the

date of the notice for a total of $89,730.71.

7. By letter dated July 18, 1995, Petitioner protested the

NOI and stated that (a) Petitioner was not willful in any of the

errors discovered during the audit; (b) Petitioner fi led and

paid the tax it believed to be accurate; and (c) Petitioner has

taken steps to correct the problems identified in the audit and

is now filing timely in accordance with the applicable rules

pertaining to the transactions in which it was engaged.

8. Petitioner requested that the penalties and interest be

abated and requested an informal conference if the letter

inquiry could not be honored. For reasons unknown, the

requested conference was not provided by Respondent.

9. On November 7, 1995, under a search warrant issued at

the request of the Florida statewide prosecutor, all business

and banking records of Petitioner, then known as Ponderosa - for -

Hire, Inc., were seized.

10. Respondent issued its NOPA sustaining the assessment

in full, which with accrued interest, then totaled $92,126.52.

11. On March 15, 2000, Petitioner filed a letter of

protest of the audit findings.

12. On June 11, 2001, Respondent issued its NOD rejecting

Petitioner's position.

13. On July 9, 2001, a Petition for Reconsider ation was

filed by Petitioner. Additional letters were sent to the

Respondent subsequent to the July 9, 2001, petition.

14. Respondent issued its NOR on November 16, 2001,

denying the petition.

15. On January 15, 2002, Petitioner filed its petition

with Respondent seeking an administrative hearing with DOAH.

16. The private accounting firm of Crawford and Jones

conducted a state sales and use tax audit of Petitioner under

the authority of Respondent's contract audit program. The audit

began on Septembe r 8, 1994, upon issuance of Respondent's Form

DR - 804 (DR - 804). The DR - 840 included a list of records which

were to be produced, including federal tax returns, state sales

and use tax returns, sales journals, invoices, and purchase

invoices.

17. The autho rized representatives of Respondent for the

audit was David L. Schultz of the accounting firm Schultz,

Chaipel and Company. Representation began upon presentation to

Respondent of Form DR - 843, Power of Attorney and Declaration of

Representation, dated Jan uary 9, 1995.

18. Included among the records provided to Respondent's

auditor were ledgers, journals, taxpayer copies of DR - 15 (sales

and use tax return), bank statements, tax returns, financial

statements.

19. A schedule of income earned by Petitioner, by location

and category of income, was provided to Respondent by

Mr. Schultz's office. This schedule of income had been created

by Philip Furtney, president of Petitioner, from records he kept

on his home computer. The categories of income listed on the

schedules were, for each hall location: canteen, cigarette,

soft drink machines, crane machines, and telephones. Beginning

in fiscal year 1992, a new category titled "miscellaneous" was

added; and in fiscal year 1993, the category "rent" was added.

20. Respondent's auditor compared the data contained in

these schedules, for each tax year, with other reported items,

such as tax returns and financial statements, to ascertain if

the figures reported were a reasonable representation of income

and that relia nce could be placed on the data. After

determining the schedules to be reasonable, Respondent's auditor

used this data to calculate the amount of sales tax due based on

the income reported.

21. The effective state sales tax rate, when sales are

made thro ugh coin - operated amusement and vending machines and

other devices, is found in Florida Administrative Code Rules

12A - 1.044 and 12A - 15.001. The effective state sales tax rate

for sales involving fractions of a dollar is found in Florida

Administrative Cod e Rules 12A - 1.004 and 12A - 15.002.

Respondent's auditor's work papers break out the different

effective tax rates for each of Petitioner's revenue activities,

including the different surtax rates.

22. Credit for taxes remitted by Petitioner was calculated

from the Form DR - 15 downloads.

22. Adjustments were made to this data where the total

amount reported was illogical, duplicative, or otherwise

appeared incorrect. The total amount of sales tax due, as

reported in the Schedule "A" sales, was determined b y

subtracting sales tax remitted to Respondent from the amount

calculated on total retail sales made. This amount was

$33,269.75 in sales tax and $3,912.95 in surtax.

23. "Use" tax liability was calculated on two activities:

First, items of tangible per sonal property purchased by

Petitioner during the audit period for which the invoices did

not affirmatively show that sales tax was paid; and secondly, on

the stuffed animals contained in the crane machines which are

considered concession prizes.

24. The method for calculating the use tax on concession

prizes is described in Florida Administrative Code Rule

12A - 1.080. Because the operator of game concessions award

tangible personal property as prizes to those who pay to play

the machine, the operator is t he ultimate consumer of the

property (prize). The basis for determining tax liability is

computed by multiplying six percent times 25 percent of the

gross receipts from all such games, in this instance, the crane

machines.

25. The total amount of use tax due, as reported in the

Schedule "B" purchases, was $14,757 in tax and $470.18 surtax.

26. After the NOI was issued, the audit file was forwarded

to Respondent's Tallahassee office.

27. The preponderance of the evidence supports the

conclusion that the sales activity of Petitioner included

revenue received from vending and amusement machines and snack

bar operations.

28. Federal tax return for the fiscal year 1992 does not

list any amount of income as being derived from rental activity.

The federal r eturns for years 1991 and 1993 list rental income;

however, no information was given to Respondent's auditor during

the audit to explain what this income was and from where it was

derived.

29. Applications for Registration were filed by Petitioner

when ea ch hall location began operations. Of the 23

registration applications filed, nine of them listed the major

business activity as vending - food and amusement; eight of them

listed the major business activity as restaurant, snack bar or

canteen service; five listed the major business activity as

rental; and one gave no activity.

CONCLUSIONS OF LAW

30. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties hereto

pursuant to Section 120.569 and Subsections 120.57(1) a nd

213.67(7), Florida Statutes (2004).

31. When a taxpayer disputes a proposed assessment of tax,

Subsection 120.80(14), Florida Statutes (2001), applies, which

reads in pertinent part:

(14) DEPARTMENT OF REVENUE. --

(a) Assessments. -- An assessment of tax,

penalty, or interest by the Department of

Revenue is not a final order as defined by

this chapter. Assessments by the Department

of Revenue shall be deemed final as provided

in the statutes and rules governing the

assessment and collection of tax es.

(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 "r espondent," except that for actions

contesting an assessment or denial of refund

under chapter 207, the Department of Highway

Safety and Motor Vehicles shall be

designated the "respondent," and for actions

contesting an assessment or denial of refund

under chapters 210, 550, 561, 562, 563, 564,

and 565, the Department of Business and

Professional Regulation shall be designated

the "respondent."

2. In any such administrative proceeding,

the applicable department's burden of proof,

except as otherwise sp ecifically 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.

* * *

4. Except as provided in s. 220 .719,

further collection and enforcement of the

contested amount of an assessment for

nonpayment or underpayment of any tax,

interest, or penalty shall be stayed

beginning on the date a petition is filed.

Upon entry of a final order, an agency may

resume c ollection and enforcement action.

5. The prevailing party, in a proceeding

under ss. 120.569 and 120.57 authorized by

s. 72.011(1), may recover all legal costs

incurred in such proceeding, including

reasonable attorney's fees, if the losing

party fail s to raise a justiciable issue of

law or fact in its petition or response.

32. Respondent is authorized to prescribe the records to

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

Florida Statutes (2001). Such persons have a duty to keep and

preserve their records, and the records shall be open to

examination by Respondent or its authorized agents at all

reasonable hours pursuant to Subsection 212.12(6), Florida

Statutes (2001).

33. Subsection 212.13(5)(c), Florida Statutes (2001),

provides that only records, receipts, invoices, resale

certificates, and related documents, which are available to the

auditor when the audit begins, shall be deemed acceptable for

the purposes of conducting such audit.

34. Subsection 212.05(1)(a)1.a., Florida Sta tutes (2001),

levies a tax at the rate of six percent of the sales price of

each item or article of tangible personal property when sold at

retail in this state.

35. Section 212.055, Florida Statutes (2001), authorizes

the appropriate governing bodies to levy a discretionary sales

surtax. During the audit period, the applicable surtax rate in

the various counties in which Petitioner conducted business was

either .5 or 1.0 percent.

36. Subsection 212.07(2), Florida Statutes (2001),

provides that any deale r who neglects, fails, or refuses to

collect the tax specified in Chapter 212, Florida Statutes

(2001), on all retail sales shall be liable for and pay the tax.

37. Subsection 212.07(8), Florida Statutes (2001),

provides that any person who has purchased, at retail, tangible

personal property and cannot prove that the tax levied by this

chapter has been paid to his vendor is directly liable to the

state for any such tax, interest, or penalty due on any such

taxable transactions.

38. In addition, when pena lties and interest are imposed,

pursuant to Subsections 212.12(2)(a) and 212.12(3), Florida

Statutes (2001), they shall be payable and collectible by

Respondent in the same manner as if they were a part of the tax

imposed.

39. Subsection 120.569(2), Flori da Statutes (2004), reads

in pertinent part:

(g) Irrelevant, immaterial, or unduly

repetitious evidence shall be excluded, but

all other evidence of a type commonly relied

upon by reasonably prudent persons in the

conduct of their affairs shall be

admissi ble, whether or not such evidence

would be admissible in a trial in the courts

of Florida. . . .

40. Subsection 120.57(1), Florida Statutes (2004), reads

in pertinent part:

(c) Hearsay evidence may be used for the

purpose of supplementing or explaining other

evidence, but it shall not be sufficient in

itself to support a finding unless it would

be admissible over objection in civil

actions. . . .

41. Subsection 90.803(18)(d), Florida Statutes (2004),

Admissions, is a hearsay exception, if offered agai nst a party

and is a statement made by the party's agent concerning a matter

within the scope of the agency or employment made during the

existence of the relationship. Counsel for Petitioner made a

standing objection to the documents considered during th e

April 27, 2004, deposition of Schultz and entered into evidence

that the documents speak for themselves. This objection is

overruled. Another standing objection was lodged against

Deposition Exhibit 2, citing lack of factual predicate. This

tribunal i s satisfied, from the whole of the matters testified

to by Schultz in deposition, that the documents have been

properly authenticated. As stated in Daniels v. State , 634 So.

2d 187, 192 (Fla. 3rd DCA 1994), "[a]uthentication is necessary

to establish that the 'matter in question is what its proponent

claims.'" See also § 90.901, Fla. Stat. (2004). This tribunal

must evaluate each piece of evidence on its own merits since

there is no specific list of authentication requirements.

Justus v. State , 438 So. 2d 358 (Fla. 1983), cert. den. 465 U.S.

1052, 104 S. Ct. 1332, 79 L. Ed. 2d 726 (1984).

42. In this taxpayer contest proceeding brought by

Petitioner, Respondent has met its burden of proof by making a

showing of the factual and legal grounds upon which this

assessment was grounded. This showing was made through the

testimony of Respondent's auditor who explained the methodology

used in calculating the tax assessment and by the documents

contained within the audit file. The reconstructed revenue

records of retail sales made by Petitioner when compared against

the total tax remitted to Respondent show a deficit. Likewise,

Respondent's auditor determined the depreciation schedules,

invoices, and other documents showing purchases made by

Petitioner, did no t indicate that the proper amount of sales tax

had been paid by Petitioner.

43. Petitioner has not shown by a preponderance of the

evidence that the assessment is incorrect. The president of

Petitioner, Philip Furtney, admitted that its business

activiti es included vending machine sales in the various bingo

halls, but denied it operated snack bars. Petitioner's agents,

however, described the business operations of vending machine

and snack bar operations.

44. Under the general law of agency, a principal may be

bound by the acts of his agent which are in the latter's

apparent authority. 1 Fla. Jur., Agency, § 34.

45. The record in this case is replete with instances

where agents of Petitioner, acting within the scope of their

authority, described what t he business activities of the

corporation were and from where its revenue was derived ( i.e.

correspondence during the audit period from Schultz to Donna

Underhill and John Henning, describing the audit progress and

ultimate results; communications between Respondent's auditor

and Schultz; reports by the accounting firm of Edward Arcara of

reviewed financial statements made to the stockholder of

Petitioner describing their revenue sources as canteen and

vending sales).

46. The leases, assignments, and assum ptions which

Petitioner introduced in evidence describe relationships between

other entities, none of whom were the subject of this audit.

Pondella Hall for Hire, Inc., did not merge with Eight Hundred,

Inc., until late in the year 1995, after the audit h ad been

completed and the NOI issued. None of these documents support

Petitioner's claim that the audit and subsequent assessment are

incorrect.

47. The schedule of income earned by Petitioner, by

location, and by category of income was prepared by Petit ioner.

Eight of the 23 Applications for Sales and Use Tax Registrations

filed by Petitioner with Respondent listed the major business

activity as restaurant, snack bar, or canteen.

48. The evidence is not convincing that Petitioner's

assertion that the c ategory "canteen" really meant "rent," as

testified to by Furtney, or that the eight sales tax

registrations were either mistakes or intentional registrations

but for other persons working under Petitioner's corporate

structure.

49. Petitioner's Exhibit 1 , a spread sheet with

calculations of sales tax subgroup "canteen" removed from total

revenues, was prepared by Petitioner's witness Richard

Rabanzinski. Rabanzinski testified that he did not know for a

fact whether the item listed as "canteen" was cantee n sales or

canteen rent, it was just automatically removed from the revenue

work papers.

50. Assuming, arguendo , that the income listed as

"canteen" was recognized as "rent," it is still taxable as a

commercial lease under Section 212.031, Florida Statute s (2003).

Petitioner claims these leases to be exempt under Subsection

212.031(10), Florida Statutes (2003). Exemptions to the taxing

statutes are special favors granted by the Legislature and are

to be strictly construed against the taxpayer. State ex. rel.

Szabo Food Services, Inc. of North Carolina v. Dickinson , 286

So. 2d 529, 530 - 31 (Fla. 1973); Wanda Marine Corporation v.

State, Department of Revenue , 305 So. 2d 65, 69 (Fla. 1st DCA

1974). It is well settled that one who would shelter himself

unde r an exemption clause contained in a taxing statute must

clearly show that he is entitled under the law to such

exemption. Green v. Pederson , 99 So. 2d 292, 296 (Fla. 1957).

Reviewing Subsection 212.031(10), Florida Statutes (2001), as it

existed during the audit period, no evidence was introduced to

show that the property leased was within the premises of a movie

theater; a business operated under a permit issued pursuant to

Chapters 550 or 551, Florida Statutes (1995); or any public -

owned arena, sports stadium, convention hall, exhibition hall,

auditorium or recreational facility. In addition, Petitioner's

interpretation that the phrase "publicly owned" in Subsection

212.031(10), Florida Statutes (1995), refers only to an "arena,"

is incorrect. It shou ld be read to modify each of the terms

which follows the phrase.

51. Petitioner has not introduced persuasive evidence to

support its claim that it was unaware of the proposed tax

assessment. The NOI, which is the precursor to the NOPA was

mailed to the office of their agent, David L. Schultz in

July 1995. That it was received is demonstrated by the letter

subsequently written to Respondent seeking an abatement of

interest and penalty. Notice to the agent is notice to the

principal where knowledge is po ssessed or notice received by the

agent within the scope of his authority. Connelly v. Special

Road and Bridge District No. 5 , 99 Fla. 456, 126 So. 794 (Fla.

1930).

52. Unless and until the issues relating to this audit

were resolved, the outstanding tax liability remained. Although

the informal conference which Schulz requested in his July 18,

1995, letter was not provided, this does not excuse Petitioner

from not following up with Respondent on its own. A company

ignores a $89,730.71 assessment at its own peril.

53. The testimony at hearing established that the NOPA was

dated days after a search warrant had been served on

Petitioner's business. This fact conclusively refutes

Petitioner's allegation that the execution of the search warrant

prevented P etitioner from receiving notice and that this was an

intentional act by state agents. There was no indication that

the mail was not received. Businesses may close down, but mail

is either forwarded or returned undelivered. Neither occurred

in this insta nce. The general presumption is that mail properly

addressed, stamped, and mailed was received by the addressee and

proof of general office practice satisfies the requirement of

showing due mailing. Brown v. Giffen Industries, Inc. , 281

So. 2d 897, 900 ( Fla. 1973).

54. Respondent is authorized to compromise tax or

interest, if any of the criteria in Subsection 213.21(3),

Florida Statutes (2001), exist, including doubt as to liability

or collectibility of tax or interest. There has been no showing

by Pe titioner that the criteria in Subsection 213.21(3), Florida

Statutes (2001), has been met.

55. Penalties may be settled or compromised if it is

determined by Respondent that noncompliance is due to reasonable

cause and not to willful negligence, willful n eglect, or fraud.

The term "may" denotes a permissive, rather than mandatory term.

Harper v. State , 217 So. 2d 591 (Fla. 4th DCA 1968). On page 20

of the Standard Audit Report, Respondent's auditor did not

recommend any compromise of penalty. Petitione r did not

introduce any evidence which would support a finding in favor of

compromising the tax, interest, or penalty.

RECOMMENDATION

Based on the foregoing Findings of Facts and Conclusions of

Law, it is

RECOMMENDED that a final order be entered by Res pondent,

Department of Revenue, upholding its assessments in the NOR

dated November 16, 2001, for sales and use tax, the applicable

surtax, plus applicable penalty and interest against Petitioner.

DONE AND ENTERED this 26th day of April, 2005, in

Tallahas see, Leon County, Florida.

S

DANIEL M. KILBRIDE

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 (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 26th day of April, 2005.

COPIES FURNISHED :

John Mika, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florid a 32399 - 1050

Thomas F. Egan, Esquire

Law Office of Thomas F. Egan, P.A.

204 Park Lake Street

Orlando, Florida 32803

Bruce Hoffmann, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399 - 0100

James Zingale, Executive D irector

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 t his Recommended Order should be filed with the agency that

will issue the final order in this case.