03-002683 Haas Publishing Companies vs. Department Of Revenue Status: Closed Recommended Order on Friday, June 18, 2004.

Summary: Chapter 12A-1.070 requires Respondent to allocate total rent or license to use real property fee and payments not subject to tax during audit, regardless of whether Petitioner allocated these in its contracts and/or records.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HAAS PUBLISHING COMPANIES, )

)

Petitioner, )

)

vs. ) Case No. 03 - 2683

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Upon due notice, a disputed - fact hearing was held in this

case on November 20 and 21, 2003, in Tallahassee, Florida,

before the Division of Administrative Hearings by its duly -

assigned Administrative Law Judge, Ella Jane P. Davis.

APPEARANCES

For Petitioner: Rex D. War e, Esquire

Steel Hector & Davis LLP

215 South Monroe Street, Suite 601

Tallahassee, Florida 32301

For Respondent: Lynn Lovejoy, Esquire

Office of the Attorney General

107 West Gain es Street

Collins Building

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

Is Petitioner Haas Publishing Company liable for the taxes

and interest assessed under Chapter 212, Florida S tatutes,

specifically the sales and use tax and related surtaxes,

pursuant to Section 212.031, Florida Statutes, and Florida

Administrative Code Rule 12A - 1.070, for the audit period June 1,

1995 through May 31, 2000, and if so, to what extent?

PRELIMINARY STATEMENT

This case involves the assessment of sales and use tax and

associated interest by Respondent, Florida Department of Revenue

(DOR) against Petitioner, Haas Publishing Companies (Petitioner,

Haas, or Taxpayer) for the audit period of June 1, 1995 through

May 31, 2000. DOR's file or identification number(s) for this

matter is Audit No(s). A0009601727 - 010, - 015, - 016, - 230, and -

530. The matter was referred to the Division of Administrative

Hearings on or about July 22, 2003.

By agreement, the dut y to go forward was upon DOR. ( Cf.

Discussion of burden of proof in the Conclusions of Law.) DOR

presented the oral testimony of Debra Gifford, DOR Tax Law

Specialist II, and had DOR Exhibits one through seven admitted

in evidence.

Petitioner's oral mo tion for summary recommended order,

pursuant to Section 120.80(14)(b)2., Florida Statutes was

denied.

Petitioner presented the oral testimony of Ken Sullender

and two experts, Lee Waronker and James Volkman, and had

Petitioner's Exhibits one through three admitted in evidence.

A Transcript was filed on December 16, 2003, and, by

agreement of the parties, proposed recommended orders were due

to be filed no later than January 16, 2003. Both parties timely

filed their Proposed Recommended Orders, which have been

considered in preparation of this Recommended Order.

The parties repeatedly graciously consented to a longer -

than - usual time frame for rendition of this Recommended Order,

due to intervening surgery and a recovery period for the

undersigned.

FINDING S OF FACT

1. Haas is a Delaware corporation, authorized to do

business in the State of Florida. It is a subsidiary of

Primedia, Inc. Haas publishes free consumer guides to

apartments and homes and is paid by the apartment owners,

realtors, and homeowner s who advertise in the publications. One

of Haas' divisions, Distributech, distributes the guides to

retail stores. Haas negotiates with retailers for an

appropriate site for its display of publications at each retail

location. Nationwide, Haas distribu tes its publications from

approximately 42,000 locations. Nationwide, Haas paid for the

exclusive right to distribute, under contracts, in approximately

20,000 locations. Otherwise, it distributes in "free"

locations.

2. As required by Section 72.011(1) (b), Florida Statutes,

Haas has complied with all applicable registration requirements

with respect to the taxes at issue herein.

3. DOR is the agency responsible for the administration

and enforcement of Florida's tax laws, including sales and use

tax an d various local surtaxes.

4. DOR conducted an audit of Haas for the period of

June 1, 1995 through May 31, 2000. The audit resulted in an

assessment of sales and use tax and associated surtaxes,

interest, and penalties (Assessment).

5. After protest and petition for reconsideration, DOR

issued its Notice of Reconsideration (NOR) to Haas on May 16,

2003, wherein DOR sustained the Assessment in full, but offered

to waive all penalties, without prejudicing Haas' right to

challenge the remainder of the Asses sment in full.

6. Haas accepted the Department's offer to waive all

penalties in their entirety, making a payment on the Assessment

at the time the Petition herein was filed. In other words, Haas

paid certain uncontested amounts in order to pursue the instant

challenge to the remainder of the Assessment of all taxes and

all interest, and in order to take advantage of an unrelated

"extended amnesty" provided by DOR. This formal proceeding

followed.

7. The auditor who actually performed the work of the

audit did not testify at the disputed - fact hearing. DOR's only

witness, Ms. Gifford, did not participate in the original audit.

However, Ms. Gifford reviewed the audit documents in detail and

professionally consulted with the auditor and other reviewers to

review the auditor's methods against the paperwork of the audit.

She also reviewed the audit with input from Haas and its

representative in the course of the Technical Assistance and

Dispute Resolution (TADR) process, and throughout the informal

challe nges preceding this formal proceeding. She also reviewed

all of the de novo material presented at the deposition of Haas'

principal, Mr. Sullender, for purposes of her testimony. She is

an expert capable of assisting the trier of fact, in that she is

a F lorida - licensed certified public accountant (CPA), and the

undersigned is satisfied with the accuracy of her explanation of

DOR's policies and procedures and of her predecessor's

methodology and calculations. Also, her interpretations of

rules and statute s are entitled to great weight where they

purport to be the interpretation of the agency, but they do not

constitute "factual" testimony and are not binding in this de

novo proceeding. Ms. Gifford's analysis of case law is not

entitled to that same defere nce.

8. At the disputed - fact hearing, Haas challenged both the

timeliness of the audit and the methodology of the audit. It is

axiomatic that the amount assessed depends upon the methodology

employed by the auditor, but DOR contended herein that becaus e

Haas protested only that an assessment had been made and because

Haas had accepted all available offers of mitigation, Haas could

not protest, at hearing, the amount calculated for the

Assessment, whether the audit's calculations were correct, or

whether the audit had been conducted in a timely manner. The

following allegations of the Petition herein are relevant to

these issues:

No payment made by Haas to a retailer

in Florida constituted payment for a lease

of real property;

No payment made by Haas to a retailer

in Florida constituted payment for a license

to use real property;

The payments made by Haas to retailers

were for distribution rights and/or

intrinsically valuable personal property

rights;

The payments made by Haas to retailers

were not subjec t to Florida sales and use

taxes and other surtaxes;

Alternatively, the payments made by

Haas to retailers should have been

apportioned by DOR, pursuant to Section

212.031, Florida Statutes;

Some or all of the taxes that the

Department claims that Haas owe s have been

paid by the retailers with whom Haas had

agreements;

The Department was without statutory

authority to impose the Assessment for taxes

and interest as set forth in Exhibit A; and

The Assessment that is the subject of

this proceeding is unlawful and violates the

provisions of Chapter 212, Florida Statutes;

Petitioner is entitled to relief under

Sections 72.011 and Section 120.80, Florida

Statutes. Section 212.031, Florida

Statutes, dictates that the payments made by

Haas to Florida retailers wer e not subject

to Florida tax and therefore requires that

the Assessment by DOR be stricken or

modified.

9. The auditor sent Form DR - 840, the Notice of Intent to

Audit (NOI), to Haas on May 30, 2000. This item informed the

Taxpayer that the period of the audit would be June 1, 1995

through May 30, 2000, and that the audit would commence before

July 29, 2000 (within 60 days) unless an attached waiver was

signed and returned. The audit file does not reflect a signed

waiver within 60 days. Ms. Gifford, on behalf of DOR, testified

that the purpose of this NOI was to warn the Taxpayer that the

audit would begin within 60 days unless the Taxpayer waived the

timeline and that with a waiver, the audit would begin within

120 days.

10. Ms. Gifford further testi fied that DOR considers

itself limited to going back only five years from the date the

auditor begins to review a taxpayer's records and that the

Agency interprets Section 213.335, Florida Statutes, to require

completion of the audit within one year of the initial letter.

11. Ms. Gifford asserted that with a waiver, DOR would

interpret the several applicable statutes and rules to provide

the auditor with 120 days to begin an audit to encompass the

whole of June 1, 1995 to May 30, 2000. However, if an au dit is

not begun within 120 days, DOR understands that the statutory

audit period is not tolled and DOR usually removes the delay

period from the front end ( i.e. , DOR starts the audit period the

delayed number of days after June 1, 1995) and adds it to the

back end (ends the audit period the delayed number of days after

May 30, 2000) so that a five - year period of audit occurs, but

the audit period starts some date later than June 1, 1995, and

ends some date later than May 30, 2000. DOR considers the start

of the audit to be when the auditor begins looking at records of

the taxpayer.

12. Haas provided pertinent, but incomplete, records on

August 29, 2000, which was more than 60 days and less than 90

days after the May 30, 2000, NOI. Haas requested several

extensions to review work papers received from the auditor. All

were honored by DOR. A lot of correspondence ensued between the

auditor and Haas and between DOR and Haas' designated

representative(s)/accountants, but DOR's auditor did not record

any time spent on the audit file until he met with Haas or its

representative on October 23, 2000, more than 120 days after

May 30, 2000. On the basis of the auditor's work

record/timesheet, Haas contends that October 23, 2000, which was

more than 120 days after the May 30, 2000 NOI, is when the audit

actually began.

13. Exchanges of records, work papers, and information

continued, and on or about May 29, 2001, a vice - president of

Haas signed and FAXED to DOR's auditor a consent to extend the

statute of limitat ions for sales and use tax assessments through

March 29, 2002. However, he did not affix the corporate seal in

the designated part of the consent form. The consent form had

been prepared by the auditor and mailed to Haas on or about

March 25, 2001. It o nly listed "sales and use tax" as a

reference. It did not identify any other tax, which ultimately

made up the Assessment, including Charter Transit System Tax,

Local Government Infrastructure Tax, Indigent Care Tax, or

School Capital Outlay Tax, which, a lthough related to sales and

use tax, have separate designations. These surtax audits are

based on the same facts, circumstances, and records as the sales

and use tax audit herein but DOR lists and computes them

separately from the sales and use tax on so me of its forms.

( See Finding of Fact 19.) The validity and timeliness, vel non ,

of the foregoing consent to extension was not raised by

Petitioner until the disputed - fact hearing.

14. A Notice of Intent to Make Audit Changes (also called

an NOI) was dated September 21, 2001.

15. The Notice of Proposed Assessment (NOPA) was issued

December 5, 2001. DOR considers this document to be the

completion of the audit.

16. After the audit was completed, it was submitted to

DOR's TADR, a dispute resolution process.

17. A Notice of Decision (NOD) was entered July 30, 2002.

18. Haas petitioned for reconsideration, alleging

additional facts. By a May 16, 2003, Notice of Reconsideration

(NOR), the audit was upheld.

19. The NOR and NOIA lump all Chapter 212, Florida

Statutes' taxes together. The NOPA lists each surtax

separately.

20. The compromise of amounts and this formal proceeding

followed, as described above in Findings of Fact 5 - 6.

21. Many contracts and other records were not provided by

Haas to D OR until TADR, until the informal proceedings, or until

after the Petition for this formal proceeding had been filed.

22. Among other things, DOR had upheld the auditor's

initial decision with regard to calculating Haas' 1997 tax. The

auditor had not te sted or sampled Haas' records for the full of

the audit period in order to arrive at a tax figure for 1997.

Because Haas had not provided certain records (RDAs) for 1997,

Haas' figures for December 1996 were "extrapolated" by the

auditor to the first six months of 1997, while the figures for

January 1998 were "extrapolated" back to the last six months of

1997. Ms. Gifford felt this method constituted a legitimate

estimate of the taxes due where a taxpayer had failed to provide

adequate records.

23. For the audit period, Haas published and distributed,

free of charge to the public, apartment and home guides.

24. The distribution was accomplished through contracts,

on a regional and national level, with major retail store chains

such as K - Mart, Blockbuste r, Eckerd's, and Winn - Dixie Stores.

25. The tax - assessment problems herein are compounded by

Haas' choice not to use uniform contractual arrangements with

all retailers; by its failure to designate within its contracts

and/or accounting records what, if any, intangible uses it

believed it was paying for; and its failure to allocate within

its contracts and/or accounting records the amounts it believed

it was paying for each alleged intangible use.

26. Some of the contracts state that there is no corpo rate

relation between Haas and the retailer.

27. Haas has one major and several smaller competitors who

distribute their own publications at retail store chains.

28. Haas' contracts with the retail store chains

guarantee to Haas the exclusive right to distribute apartment

and home guides from the retail stores' locations and usually

include the right to use the retail chains' respective logos and

trademarks in Haas' promotional/sales materials and

publications. One exception is Seven - Eleven, which l imits to a

greater degree use of its trademark and logo than do some of the

other retailers.

29. Not every contract contains a reference to a

retailer's trademark or logo.

30. Haas used its exclusive rights to distribute with

certain retail store cha ins as an inducement to sell advertising

to the apartment owners, realtors, and others who advertise in

its publications. It was valuable to Haas to be able to tell

potential print advertisers that its apartment/home guide was

the only one allowed to be d istributed from the particular

retail chains. It was valuable to Haas to be able to show

potential print advertisers the logo of retailers in Haas'

promotional materials and publications.

31. In most places, the exclusive right to distribute from

the sp ecified retail locations distinguished Haas from its

competitors and allowed it to charge more for its advertising

than they did.

32. Mr. Sullender, Haas' principal, is credible that in

each instance where Haas' contracts do not mention the use of

trade marks and logos, each retail chain otherwise gave

permission or provided Haas with its logo and trademark

materials to use, as a result of the contracts. However, Haas

provided nothing to DOR prior to instituting this formal case,

by which DOR could have determined that such permission had been

provided outside the contracts.

33. Haas' right to place the retailers' logo or trademark

on Haas' publication racks was a valuable right and every Haas

rack displayed logos. Yet, the contracts do not obligate Ha as

to use the retailers' logos or trademarks, and Haas can still

distribute from the racks without a logo.

34. The contracts made no specific allocation of payments

by Haas to the retailers for use of the retailers' logos and

trademarks.

35. The issu e of whether payment for use of a logo or

trademark should have been separately allocated from Haas'

payment to the retailer in its contracts was not taken into

consideration by DOR because this issue, in those terms, was not

raised during the audit or sub sequent informal protest/review

procedures. However, the issue of allocation based on fair

rental value of the space utilized in connection with prior

audits of some of the respective retailers was raised. This is

largely an issue of semantics. ( See Fin dings of Fact 55 - 56.)

36. All except one of the contracts at issue guarantee

Haas the exclusive right to distribute its publications from the

particular retail chains' locations. Exclusivity of the rights

accruing to Haas is singularly important to Haa s' business.

However, Haas has been known to charge its competitors for space

on its racks. Haas also is free to enter into partnerships with

its competitors.

37. In order to secure the exclusive right to distribute

its publications from the retail loca tions and the right to use

the retailers' trademarks and logos, Haas pays fees to the

retail store chains under the contracts.

38. Typically, Haas has to "outbid" at least one other

competitor to obtain the foregoing exclusive rights.

39. The payments under the contracts were typically made

"per store," per month, and did not vary depending on the

location of the store within the State.

40. Part of Haas' negotiating strategy and ultimate

success in securing exclusive use of most of its locations is

t he judicious use of "signing bonuses." Signing bonuses are

specifically allocated in some, but not all, of Haas' contracts.

In some contracts, they are directly linked to the right of

exclusivity. They can be substantial amounts. However,

according to Ms. Gifford, signing bonuses have never been part

of DOR's Assessment in this case. (TR - 62 - 63)

41. Because the exclusive right to distribute its print

materials was so valuable to Haas, it paid up to $375 per month

per store under one contract.

42. When Haas did not secure the exclusive right to

distribute from a retail chain, it would not pay for the right

to distribute, but distributed its publications from "free"

locations. Nationwide, this compares at 20,000 paid to 22,000

unpaid locations. ( See Fi nding of Fact 1.)

43. The amount Haas paid a retail chain did not vary by

particular store location within the chain nor by the size of

the rack that Haas placed in a particular store. Haas' racks

take up from two to four - feet worth of floor space.

44. Haas supplied the racks, but, in general, the retail

chains had control over the size, type, and color of the racks

placed in its stores and limited Haas' access to the racks.

Haas was solely responsible for set - up, replenishing, and

maintenance of its ra cks on the retailer's property.

45. Haas purchases liability insurance.

46. Haas is always assigned covered space by the retailer.

Haas considers space near an entrance/exit of the retailer's

covered premises to be premium space. Retailers consider this

same space to be "dead space," beyond its cash registers, which

is essentially useless for display or sale of their retail

goods. However, some retailers park carts or post notices in

these areas.

47. Haas does not sell or distribute any goods of, or for,

the retailer. It merely stocks its own publications in its own

racks in the retailer's space. Haas has no other contact with

the retailers' business.

48. Under the contracts, retailers have no obligation to

market Haas' publications. They do no t buy or sell them or pay

to advertise in them. Retailers pay nothing to Haas.

49. If Haas uses a retailer's logo and/or trademark in

Haas' own advertising or in its publications per their

negotiated arrangement, it is for the purpose of promoting Haas'

publications. Use of the retailers' logos and trademarks has a

benefit to the retailer, but a purely incidental one, since the

retail customer who picks up a Haas publication from the Haas

rack has already made the decision to enter the retail store in

th e first place.

50. None of the retail chains ever attempted to charge

sales or use taxes to Haas based on the payments made under the

contracts.

51. There is no evidence that Haas or any retailer, on

Haas' behalf, tendered sales or use taxes to the Sta te on the

contracts at issue herein.

52. Although some contracts acknowledge that a retailer is

a franchisee of a third party, none of the contracts refer to

the relationship between Haas and the retailer as a "franchise"

or acknowledge Haas as a franchi see. Ms. Gifford did not equate

Haas' use of a retailer's logo or trademark to market Haas'

publications, not the retailer's goods, with all the

accoutrements of a franchise, as she understood those

accoutrements.

53. DOR issued to a different taxpaye r (not Haas)

Technical Assistance Advisement No. 03A - 002 (the TAA),

concerning real property lease agreements. Although this

advisory letter from a DOR attorney is not binding, except

between DOR and the party to whom it is addressed, and although

it is l imited to the specific facts discussed within it, the

legal conclusions therein are instructive, if not conclusive, of

DOR's official interpretation of the statutes and rules it

administers and of its agency policy with regard to when

allocations are appro priate between intangible rights and real

property rights.

54. TAA 03A - 002 cites, with approval, paragraphs 56

through 59 of the Final Order in Airport Limousine Service of

Orlando, Inc. v. Department of Revenue , DOAH Case No. 94 - 1790,

et seq. , (March 2 3, 1995) 1/ and State ex rel. N/S Associates v.

Board of Review of the Village of Greendale , 473 N.W. 2d 554

(Wisc. App. 1991), and states, "The test for isolating

intangible business value is as simple as asking whether the

disputed value is appended to th e property, and thus

transferable with the property, or is it independent of the

property so that it either stays with the seller or dissipates

upon sale." This TAA also states that DOR will view the

reasonableness of allocations of payments made pursuant to a

lease agreement on a case - by - case basis in reference to whether

the allocation is made in good faith or lacks any basis. It

further cites with approval Bystrom v. Union Land Investment,

Inc. , 477 So. 2d 585, 586 (Fla. 3rd DCA 1985) ("Good faith for

property tax valuation purposes will mean 'real, actual, and of

a genuine nature as opposed to a sham or deception.'") The TAA

anticipates that DOR would require that the taxpayer make

reasonable allocations, within the taxpayer's own records, of

lease pa yments to rent and other items not subject to tax, and

that the taxpayer would also be required to otherwise maintain

records adequate to establish how the taxpayer determined that

each allocation was reasonable, and further, that if DOR

auditors were sati sfied with the taxpayer's records, an

appraisal would not be required by DOR. The TAA does not

foreclose the requirement of an appraisal to test the taxpayer's

records. Synopsized, the TAA opines that separate payments by a

tenant to a landlord for trade mark, service mark, or logo rights

of the landlord are subject to the tax on real property rentals

unless the allocation of payments made by the taxpayer is

reasonable, and further, that the allocation is not reasonable

where no substantial, competent, and persuasive evidence is

provided to establish the value of the trademark, service mark,

or logo rights of the landlord received by the tenant and a

legitimate business purpose for the tenant to acquire those

rights is not demonstrated.

55. Herein, Haas ha d not allocated rent and intangibles

within its own contracts/records. It was Ms. Gifford's view

that if the Taxpayer herein had not allocated the value of the

trademarks, etc. and the real property value of its contracts,

it was not up to DOR to do so in the course of an audit.

56. Nonetheless, during the protest period, DOR had

considered allocating the payments made by Haas under its

contracts, into taxable and non - taxable payments, by reviewing

the market rate rental for the space occupied and obtaini ng a

valuation of the identifiable intangible property. Ultimately,

DOR did not use this method on the basis that Haas had not

submitted sufficient records.

57. At hearing, Haas attempted to present evidence of the

fair market value of the real estate in volved and of the so -

called intangible rights through an intangible property

appraiser and a Florida - certified real estate appraiser.

58. Lee Waronker is a Florida - certified real estate

appraiser who was accepted as an expert in real estate

appraisal. M r. Waronker prepared a report which made a

comparison of Haas' contracts with allegedly comparable rental

properties, but he only used three "comparables," none of which

included racks owned by similar advertising businesses. He did

not consider what Peti tioner's real competitors paid for similar

space. Thus, when he arrives at an average fair rental value of

Haas' space in all the retailers' locations as $25 - 50 per square

foot, his base figures are suspect. Therefore, when he

concluded that since Haas w as paying an average of $355 per

square foot and all the remainder of the contract payments

should be allocated to intangible rights, such as trademarks and

exclusivity, he was not credible or persuasive. His figures

also apply only to the date of his app raisal in 2003, and

admittedly would not be representative of the value of the

rental property during the audit period. Therefore, his

analysis that only 11.3 percent, plus or minus, of the contract

prices constituted rent or a license to use is discounte d and

not accepted.

59. Petitioner also presented the testimony and report of

James N. Volkman, an intangible property appraiser who was

accepted as an expert in that field. Mr. Volkman obtained all

of his data from either the Securities and Exchange Co mmission

filings of eighty - three percent of the retailers involved, from

Haas, or from information compiled by DOR. These are legitimate

appraisal sources. He performed his appraisal within the

professional standards of the Financial Accounting Standards

Board. He concluded that Haas' contracts could best be

described as "distribution agreements," "because they are the

means by which Haas distributes its publications" and because

anyone familiar with the operations of a publisher would

understand a line item on a balance sheet of a "distribution

agreement" and not everyone would understand the term "license

to use real property." It is noted that "distribution

agreements" are not listed in the statute, but this, by itself,

is not a fatal flaw. He mainta ined that the Haas contracts

could not reasonably be characterized as a license to use real

property, because the amount paid was well in excess of the fair

rental value of the space.

60. However, as part of his analysis, Mr. Volkman did not

rely on Mr. Waronker's independent real estate appraisal, but

conducted his own analysis as to the amount a retailer would

likely charge a party seeking to utilize the floor space taken

up by the approximate size of a single Haas rack. In doing so,

Mr. Volkman was ad mittedly outside his realm of expertise.

61. Mr. Volkman allocated the amounts Haas was paying as

twelve percent to the "right to use real property"; twenty - four

percent to "non - compete rights" (his term for exclusivity);

fourteen percent to "trademark r ights"; thirty - five percent to

"distribution cost savings" (a term which seems to describe Haas

not having to identify and mail its publications to interested

persons or use a retailer's magazine rack); 2/ and fifteen percent

to "market penetration premium. " 3/ The last two calculations are

not credible and undermine the entire allocations summary he

presented. The distribution cost savings figure contains too

many assumptions not fully documented. Mr. Volkman also arrived

at his calculation of the "market penetration premium" merely by

selecting the residual percentage sufficient to make up the

difference, so that his other figures added up to 100 percent of

the total fee paid by Haas to retailers. His reason for doing

this is not plausible. He assumed t hat just because the growth

rate of Haas' business far exceeded the growth rate in multi -

family units, it must be that Haas substantially increased its

market share during the audit period due to exclusivity.

Ultimately, he could not explain the fifteen p ercent calculation

for "market penetration" by the documents he relied on for

calculating the other three categories. More damaging to the

weight and credibility of his report is that Mr. Volkman did not

consider Haas' signing bonuses as having anything t o do with the

exclusivity rights accruing to Haas. He considered the signing

bonuses not to be an intangible right but only "compensation to

retailers for negotiating these agreements." However, signing

bonus rights seem to be the only intangible rights allocated in

any of the contracts and were inherently recognized as such by

DOR when it chose not to address them in the Assessment. There

are also a number of other questionable portions of his report

and opinion which cause it to be discounted and not a ccepted

here.

CONCLUSIONS OF LAW

62. The Division of Administrative Hearings has

jurisdiction over the parties and subject matter of this cause,

pursuant to Sections 72.011(1), 120.569, 120.57(1), and 120.80,

Florida Statutes.

63. Haas alleges threshold jurisdictional flaws with the

initial audit which may be summarized as follows: (1) the audit

was not commenced within 120 days of May 30, 2000, so some

portion of the period audited should have been adjusted; (2) DOR

had only one year from May 30, 2000, to complete the audit

without a timely consent to extension executed by the taxpayer;

that date was not met and no valid consent was executed, so the

audit itself was barred; (3) the May 29, 2001, consent to

extension was invalid without the corporate seal , and thereby

the entire audit should fall; and (4) the consent to extension

is invalid for any taxes not specifically identified other than

sales and use taxes. DOR counters that none of the foregoing

theories of the case were alleged in the Petition her ein and

that because the Taxpayer settled a portion of the assessed debt

and did not raise certain of these theories in the prior

informal procedures, they cannot now be raised.

64. Addressing whether the threshold issues raised by

Petitioner in Conclusio n of Law 63 are appropriate to this

forum, it is concluded that the Taxpayer's prior agreements with

DOR at the time of partial payment were to the effect that no

ground of challenge would be precluded by partial payment;

therefore there was no waiver of d e novo challenges by

Petitioner as asserted by DOR. Also, statutes of limitation are

jurisdictional and may be raised at any time. Finally, the

Petition herein was adequate to raise all these issues.

65. Having concluded that the foregoing threshold i ssues

raised in Conclusion of Law 63 are proper to this formal

proceeding, attention must be paid to several statutes and rules

in order to resolve those issues.

66. Pertinent portions of Section 213.345, Florida

Statutes, state the following concerning t he commencement of an

audit:

. . . The department must commence an audit

within 120 days after it issues a notice of

intent to conduct audit, unless the taxpayer

requests a delay. If the taxpayer does not

request a delay and the department does not

begin the audit within 120 days after

issuing the notice, the tolling period shall

terminate unless the taxpayer and the

department enter into an agreement to extend

the period pursuant to s. 213.23. (Emphasis

supplied)

67. Pertinent portions of Florida Ad ministrative Code Rule

12 - 3.0012, corresponding to the above statute, define in more

detail what commences an audit:

Definitions. The following terms apply to

the Department's administration of the

program delegated to it by statute. These

terms shall ha ve the meaning given them in

this section, except where the context

clearly indicates different meaning.

(1)(a) The phrase "commence an audit,"

means when, subsequent to the issuance of a

Notification of Intent to Conduct and Audit

(DR840) or similar noti fication, the

Department performs an audit entrance

interview.

(b) The phrase "audit entrance interview"

means when one of the following actions

first occurs:

1. When the Department contacts the

taxpayer to explain and discuss the specific

audit plan o r to discuss the nature of the

taxpayer's business operations; or

2. When the Department requests that

specific books, records, documents, or other

information to be complied, provided, or

made available to the Department, other than

the books records, d ocuments or other

information which were requested in the

attachment to the DR840; or

3. When the Department begins reviewing the

accounts, books, or records of the taxpayer

. . . ." (Emphasis supplied)

68. Section 213.23, Florida Statutes, states, in pertinent

part:

Consent agreements extending the period

subject to assessment or available for

refund. --

(1) . . . if, before the expiration of time

prescribed in a revenue law of this state

for issuance of an assessment or claim of a

refund, both the d epartment and the taxpayer

have consented in writing to the issuance of

an assessment or claim of a refund after

such time, an assessment may be issued or a

claim for refund may be made at any time

prior to the expiration of the period agreed

upon. The pe riod so agreed upon may be

extended by subsequent agreements made

before the expiration of the period

previously agreed upon.

(2) . . . A consent agreement under this

section shall operate to extend the time for

issuance of an assessment, or filing of a

claim for refund only for those taxes,

licenses, or fees for the taxable periods

specified in the agreement.

69. The audit herein was not untimely. The NOI was dated

May 30, 2000. Information and records were received from Haas

on August 29, 2000, which was within the 120 - day tolling period

provided by statute. Therefore, Haas' contention that DOR was

only allowed to audit Haas back to December 6, 1996, five years

prior to the issuance of the NOPA on December 5, 2001, is

rejected.

70. Likewi se, the consent to extend the time of the audit

was executed and returned on May 29, 2001, within one year of

the May 30, 2000, NOI. This was timely per statute and rule.

71. Petitioner Haas contended that there was no valid

consent to extend the time of the audit because a corporate seal

was not present on the consent form. The auditor's request for

a corporate seal was a means of insuring that whoever signed the

consent had corporate authority to do so. Here, there is no

dispute that the consent was s igned and FAXED by Haas' vice -

president on May 29, 2001, within one year of May 30, 2000. A

corporate seal is not mandatory. All that is required is a

signature of an officer authorized to sign. Petitioner is not

entitled to have the audit period reduce d and all tax and

interest assessed before December 6, 1996, removed from the

Assessment due to a ministerial omission of its own executive.

72. Haas takes the position that the May 29, 2001, consent

is not valid for all related taxes prior to December 6, 1996,

because the consent lumped all the taxes the parties had long

been haggling over under the broad heading "sales and use

taxes." This position is without merit.

73. Moving to substantive issues, Haas contends that the

methodology whereby the audit or used Haas' 1996 and 1998 record

information to calculate the 1997 tax due was not permissible at

law. DOR considers the method appropriate and contends that

this theory of Petitioner's case cannot legitimately be raised

for the same reasons enunciated in Conclusion of Law 63.

74. For the reasons given in Conclusion of Law 64, it also

is concluded that this substantive issue addressing DOR's 1997

tax calculation also may be resolved in this formal proceeding.

( See Finding of Fact 22 and Conclusion of Law 92 discussing and

resolving this substantive issue.)

75. Substantively, Haas also asserts that all the payments

it made under the contracts for the entire June 1, 1995 through

May 31, 2000, audit period are for non - taxable intangible

personal propert y rights, which are "akin to a franchise,"

whereas DOR asserts that the payments Haas made under the

contracts in question represent taxable licenses to use real

property. Haas further puts forth that the fees it pays to the

various retailers for the spac e Haas uses to distribute free

publications are not licenses to use limited portions of the

retailers' real property, but fall under the precise wording of

Section 212.031 (1) (c), Florida Statutes, which reads in

pertinent part as follows:

. . . Payments for intrinsically

valuable personal property, such as

franchises, trademarks, service marks,

logos, or patents are not subject to tax

under this section. In the case of a

contractual arrangement that provides for

both payments taxable as total rent or

lic ense fee and payments not subject to tax,

the tax shall be based on a reasonable

allocation of such payments and shall not

apply to that portion which is for the

nontaxable payments.

76. DOR contends that the quoted statutory language

constitutes an exe mption, for which Petitioner bears a shifted

burden of proof, while Petitioner contends that the statute does

not exempt intangible personal property, but rather excludes it

from taxation in the first place, so that Haas owes no tax on

the contract amounts . It is noted that exemptions from tax are

strictly construed against the taxpayer. Section 212.21(2),

Florida Statutes, states that "it is hereby declared to be the

specific legislative intent to tax each and every sale,

admission, use, storage, consump tion, or rental levied and set

forth in this chapter, except as to such sale, admission, use,

storage, consumption, or rental as shall be specifically

exempted there from by this chapter subject to the conditions

appertaining to such exemption." See § 212 .21(2), Fla. Stat.

See , e.g. , State ex rel. Szabo Food Services, Inc. of North

Carolina v. Dickinson , 286 So. 2d 529, 530 - 31 (Fla. 1973); Wanda

Marine Corp. v. State Department of Revenue , 305 So. 2d 65, 69

(Fla. 1st DCA 1974); Capital City County Club, I nc. v. Tucker ,

613 So. 2d 443, 452 (Fla. 1993).

77. In the alternative, Haas asserts that the payments it

has made under its contracts should be allocated, pursuant to

the applicable statute, and tax only applied to the taxable

portion of the payments, and further, that DOR should be

required to make the appropriate allocation between the taxable

and non - taxable payments, regardless of whether or not Haas'

contracts did so.

78. It is concluded that on the substantive issues raised

in Conclusions of Law 73, 75, and 77, DOR has the initial burden

of showing "that an assessment has been made against the

taxpayer and the factual and legal grounds upon which [DOR] made

the assessment." See § 120.80(14)(b)2, Fla. Stat. However,

Petitioner has the ultimate bu rden to prove by a preponderance

of the evidence that the factual or legal basis for the

assessment is unreasonable or incorrect. See Department of

Revenue v. Nu - Life Health and Fitness Center , 623 So. 2d 747,

751 - 52 (Fla. 1st DCA 1992). And see, § 120.5 7(1)(j), Fla. Stat.

79. When DOR has satisfied its burden of proof by

establishing the factual and legal basis for the audit findings,

the burden of proof then shifts to the Petitioner to prove by a

preponderance of the evidence that it qualified for th e

exemption from sales and use taxes. § 120.80, Fla. Stat. See ,

e.g. , Department of Revenue v. G. R. Swan Enterprises, Inc. ,

506 So. 2d 455, 457 (Fla. 1st DCA 1987).

80. Section 212.08, Florida Statutes, is very restrictive

in the nature of the exempti ons granted, and that is the

statutory section that deals most with exemptions. There is

nothing within that statutory section to exempt Haas from sales

tax on a license to use real property. See also Green v. Surf

Club, Inc. , 136 So. 2d 354 (Fla. 3rd DC A 1961).

81. Section 212.02, Florida Statutes, states in pertinent

part as follows:

212.02 Definitions. -- The following terms

and phrases when used in this chapter have

the meanings ascribed to them in this

section, except where the context clearly

indi cates a different meaning: . . . .

(2) "Business" means any activity engaged

in by any person, or caused to be engaged in

by him or her, with the objective of private

or public gain, benefit, or advantage,

either direct or indirect. Except for the

sales of any aircraft, boat, mobile home, or

motor vehicle, the term "business" shall not

be construed in this chapter to include

occasional or isolated sales or transactions

involving tangible personal property or

services by a person who does not hold

himself or herself out as engaged in

business, but includes other charges for the

sale or rental of tangible personal

property, sales of services taxable under

this chapter, sales of or charges of

admission, communication services, all

rentals and leases of livin g quarters, other

than low - rent housing operated under chapter

421, sleeping or housekeeping accommodations

in hotels, or trailer camps, and all rentals

of or licenses in real property, . . . Any

tax on such sales, charges, rentals,

admissions, or other tr ansactions made

subject to the tax imposed by this chapter

shall be collected by the state, county,

municipality, any political subdivision,

agency, bureau, or department, or other

state or local governmental instrumentality

in the same manner as other dea lers, unless

specifically exempted by this chapter.

(Emphasis supplied)

(10) "Lease," "let," or "rental" means

leasing or renting of living quarters or

sleeping or housekeeping accommodations in

hotels, apartment houses, roominghouses,

tourist or trai ler camps and real property,

the same being defined as follows:

(h) "Real property" means the surface land,

improvements thereto, and fixtures, and is

synonymous with "realty" and "real estate."

(Emphasis supplied)

(i) "License," as used in this chapt er with

reference to the use of real property , means

the granting of a privilege to use or occupy

a building or a parcel of real property for

any purpose. (Emphasis supplied)

(12) "Person" includes any individual,

firm, copartnership, joint adventure,

a ssociation, corporation, estate, trust,

business trust, receiver, syndicate, or

other group or combination acting as a unit

and also includes any political subdivision,

municipality, state agency bureau, or

department and also includes the plural as

well a s the singular number.

82. Section 212.06, Florida Statutes, provides the

definition of "dealer" for purposes of sales and use taxation in

pertinent part as follows:

(2)(j) The term "dealer" is further defined

to mean any person who leases, or grants a

license to use, occupy, or enter upon,

living quarters, sleeping or housekeeping

accommodations in hotels, apartment houses,

roominghouses, tourist or trailer camps,

real property, space or spaces in parking

lots or garages for motor vehicles, docking

or storage space or spaces for boats in boat

docks or marinas, or tie - down or storage

space or spaces for aircraft at airports.

The term "dealer" also means any person who

has leased, occupied, or used or was

entitled to use any living quarters,

sleeping or housekeeping accommodations in

hotels, apartment houses, roominghouses,

tourist or trailer camps, real property ,

space or spaces in parking lots or garages

for motor vehicles or docking or storage

space or spaces for boats in boat docks or

marinas, or who has purchased communication

services or electric power or energy, and

who cannot prove that the tax levied by this

chapter has been paid to the vendor or

lessor on any such transactions. The term

"dealer" does not include any person who

leases, lets, rent s, or grants a license to

use, occupy, or enter upon any living

quarters, sleeping quarters, or housekeeping

accommodations in apartment houses,

roominghouses, tourist camps, or trailer

camps, and who exclusively enters into a

bona fide written agreement o r continuous

residence for longer than 6 months in

duration which any person who leases, lets,

rents, or is granted a license to use such

property. (Emphasis added).

83. Section 212.031(1)(a),(c), and (d), Florida Statutes,

provides in pertinent part:

(1)(a) It is declared to be the legislative

intent that every person is exercising a

taxable privilege who engages in the

business of renting, leasing, letting, or

granting a license for the use of any real

property. . . .

(c) For the exercise of such p rivilege, a

tax is levied in an amount equal to 6

percent of and on the total rent or license

fee charged for such real property by the

person charging or collecting the rental or

license fee. The total rent or license fee

charged for such real property s hall include

payments for the granting of any privilege

to use or occupy real property for any

purpose and shall base rent, percentage

rents, or similar charges. Such charges

shall be included in the total rent or

license fee subject to tax under this

s ection whether or not they can be

attributed to the ability of the lessor's or

licensor's property as used or operated to

attract customers . . .

(d) When the rental or license fee of any

such real property is paid by way of

property, goods, wares, merch andise,

services, or other thing of value, the tax

shall be at the rate of 6 percent of the

value of the property, goods, wares,

merchandise, services, or other thing of

value.

(3) The tax imposed by this section shall

be in addition to the total amount of the

rental or license fee, shall be charged by

the lessor or person receiving the rent or

payment in and by a rental or license fee

arrangement with the lessee or person paying

the rental or license fee, and shall be due

and payable at the time of the r eceipt of

such rental or license fee payment by the

lessor or other person who receives the

rental or payment. (Emphasis supplied)

84. Likewise, DOR has promulgated rules corresponding to

Section 212.031, Florida Statutes. Florida Administrative C ode

Rule 12A - 1.070 states in pertinent part:

12A - 1.070 Leases and Licenses of Real

Property; Storage of Boats and Aircraft.

(1)(a) Every person who rents or leases any

real property or who grants a license to

use, occupy, or enter upon any real property

is exercising a taxable privilege. . .

(19)(a) The lease or rental of real

property or a license fee arrangement to use

or occupy real property between related

"persons", as defined in s. 212.02(12),

F.S., in the capacity of lessor/lessee, is

subject to tax.

(b) The total consideration, whether direct

or indirect, payments or credits, or other

consideration in kind, furnished by the

lessee to the lessor is subject to tax

despite any relationship between the lessor

and the lessee.

(c) The total conside ration furnished by

the lessee to a related lessor for the

occupation of real property or the use or

entitlement to the use of real property

owned by the related lessor is subject to

tax, even though the amount of the

consideration is equal to the amount o f the

consideration legally necessary to amortize

a debt owned by the related lessor and

secured by the real property occupied, or

used, and even though the consideration is

ultimately used to pay that debt.

85. Rule 12A - 1.070(4)(a) and (b) states i n pertinent part:

(a) The tenant or person actually

occupying, using, or entitled to use any

real property from which rental or license

fee is subject to taxation under s. 212.031,

F.S., shall pay the tax to his immediate

landlord or other person granting the right

to such tenant or person to occupy or use

such real property.

(b) The tax shall be paid at the rate of 5

percent prior to February 1, 1988 and 6

percent on or after February 1, 1988, on all

considerations due and payable by the tenant

or other person actually occupying, using,

or entitled to use any real property to his

landlord or other person for the privilege

of use, occupancy, or the right to use or

occupy any real property for any purpose.

86. Section 212.07(8), Florida Statutes, st ates the

following:

Any person who has purchased at retail,

used, consumed, distributed, or stored for

use or consumption in this state tangible

personal property, admissions,

communications or other services taxable

under this chapter, or leased tangibl e

personal property, or who has leased,

occupied, or used or was entitled to use any

real property , space or spaces in parking

lots or garages for motor vehicles, docking

or storage space or spaces for boats in boat

docks or marinas, and cannot prove that the

tax levied by this chapter has been paid to

his or her vendor, lessor, or other person

is directly liable to the state for any tax,

interest, or penalty due on any such taxable

transactions . (Emphasis supplied)

87. Section 213.35, Florida Statu tes, states the

following:

Books and records. - Each person required by

law to perform an act in the administration

of any law enumerated in Section 72.011

shall keep suitable books and records

relating to that tax, such as invoices,

bills of lading, any o ther pertinent records

and papers, and shall preserve such books

and records until expiration of the time

within which the department may make an

assessment with respect to that tax pursuant

to Section 95.091(3). (Emphasis supplied)

88. Section 212 .12(5)(b), Florida Statutes, states the

following:

(b) In the event any dealer or other person

charged herein fails or refuses to make his

or her records available for inspection so

that no audit or examination has been made

of the books and records of su ch dealer or

person , fails or refuses to register as a

dealer, fails to make a report and pay the

tax as provided by this chapter, makes a

grossly incorrect report or makes a report

that is false or fraudulent, then, in such

event, it shall be the duty of the

department to make an assessment from an

estimate based upon the best information

then available to it for the taxable period

of retail sales of such dealer, the gross

proceeds from rentals, the total admissions

received, amounts received from leases o f

tangible personal property by such dealer,

or of the cost price of all articles of

tangible personal property imported by the

dealer for use or consumption or

distribution or storage to be used or

consumed in this state, or of the sales or

cost price of all services the sale or use

of which is taxable under this chapter,

together with interest, plus penalty, if

such have accrued, as the case may be. Then

the department shall proceed to collect such

taxes, interest, and penalty on the basis of

such assess ment which shall be considered

prima facie correct , and the burden to show

the contrary shall rest upon the dealer,

seller, owner, or lessor, as the case may

be. (Emphasis supplied)

89. Section 212.12(6)(b), Florida Statutes, states the

following:

For the purpose of this subsection, if a

dealer does not have adequate records of his

or her retail sales or purchases, the

department may, upon the basis of a test or

sampling of the dealer's available records

or other information relating to the sales

or purchases made by such dealer for a

representative period, . . .

90. Chapter 212, Florida Statutes, imposes sales tax on

the privilege of engaging in specified businesses. Richard

Bertran & Co. v. Green , 132 So. 2d 24 (Fla. 3rd DCA 1961). Haas

i s primarily in the business of publishing and distributing free

apartment and new home guides at selected retailer locations.

Petitioner, therefore, is exercising a taxable privilege subject

to sales and use tax under Chapter 212, Florida Statutes, for

th e license to use a retailer's property to display its free

consumer guides.

91. DOR met its initial burden of proof. The evidence

shows that DOR made an assessment against Petitioner based upon

an audit conducted pursuant to DOR's rules and standard

procedures under the authority of Chapter 212, Florida Statutes,

and that the Assessment was supported by the facts available to

DOR at the time of the audit. Petitioner failed to show that

DOR's audit was factually incorrect. The material facts relied

upon by DOR in making its Assessment and upholding the

assessment in the NOR were provided by Petitioner, and they are

consistent with the facts found herein.

92. Petitioner tried to show that the method of conducting

the audit for 1997, was faulty. However, as noted in Sections

212.12, 212.07, and 213.35, Florida Statutes, when a taxpayer

does not provide all the records necessary to conduct an audit,

DOR's auditor may use the best records available and may use a

sampling of the records and informat ion to estimate the tax.

Therefore, Haas' position that the 1997 tax as calculated should

be removed from the Assessment is not persuasive. Ms. Gifford's

unfortunate choice of the word "extrapolation" notwithstanding,

an estimate based on a reasonable s ample portion of the five -

year audit was used by the auditor, and that is sufficient to

establish DOR's prima facie case. Within the audit file, there

is proof that the T axpayer was not forthcoming with all the

necessary documents and records.

93. T hat said, we at last come to the central substantive

issue in this proceeding: whether DOR's audit was legally

correct. Resolution of that issue turns on whether Haas'

payments to retailers (signing bonuses excluded) are subject to

the sales and use tax and local related surtaxes as determined

by DOR.

94. In this particular case, Petitioner is considered the

"licensee" in the license to use real property situation.

However, since the Petitioner did not offer any proof either

during the audit or at hearing that any retailer was responsible

for the collection and submission of tax to DOR, then Petitioner

is liable for the tax under Section 212.07, Florida Statutes.

95. "License" as has been defined, supra. , is not

considered a right, but a privi lege to occupy land in order to

do business without taking any title. Petitioner has been

granted a privilege, through its contractual agreements, to use

the land of the retailer (the retail store properties) in order

to distribute its free publications.

96. No definition of "franchise" is provided under Section

199.023, Florida Statutes, relating to intangible personal

property taxes or under Chapter 212, Florida Statutes, sales and

use tax. But see the definition of "franchise" at Section

817.416(1)(b ), Florida Statutes.

97. Petitioner has not demonstrated that a franchisor -

franchisee or concessionaire relationship existed with any

retailer. Haas does not promote the retailers' businesses in

any significant way. This is so even as to the mann er in which

Haas uses the logos and trademarks of the retailers.

98. Petitioner clearly is paying for the right to use real

property. Haas' business does not rise or fall upon the use of

the retailers' logos or trademarks, which are of mutual bene fit

to the retailer, as the lessor, and to Haas, as the lessee.

Haas' business does rise or fall on the use of the retailer's

property, its location, and its attraction of a mutual audience.

If one takes away the real property aspect of the arrangement,

Haas cannot operate, because it cannot distribute. If one takes

away the use of the retailers' logos etc. on Haas' racks,

neither Haas nor the retailer suffers any demonstrable loss.

This is not the same situation as a franchisee selling a product

or run ning a business under a franchisor's oversight or formula.

Rather, the intent and purpose of the contracts is to allow Haas

to exercise exclusive distribution and management privileges

over its own displays and distribution. If one takes away the

use of the retailers' logos, etc., as printed in Haas'

publications and promotional materials, Haas would have to

convey the same information to advertisers another way, but the

retailer here, unlike a franchisor, would lose nothing to speak

of. Haas could perha ps simply print in its promotional

materials and in its apartment/home guides a sentence or two

stating that Haas' publications are the only similar

publications distributed at the specific named retailers'

locations.

99. It is tempting to resolve this c ase as did the Circuit

Judge in American Telephone and Telegraph Company v. Florida

Dept. of Revenue , 764 So. 2d 665 (Fla. 1st DCA 2000), who, in

applying the tax on sales of tangible personal property and

services to that tangible personal property held t hat "[t]he

sale of engineering [services] was inextricably intertwined with

the sales of the telecommunication equipment in the

transactions" so that they were part of the sale. However, that

case involved sales of tangible goods and services and is

other wise distinguishable from the one at bar, dealing with

intangible rights. There is also different language in the

respective statutes.

100. The better solution herein, given that the plain

language of Section 212.031 (1)(c), Florida Statutes, requir es

"[i]n the case of a contractual arrangement that provides for

both payments taxable as total rent or license fee and payments

not subject to tax, the tax shall be based on a reasonable

allocation of such payments and shall not apply to that portion

whic h is for the non - taxable payments," is to apply the statute

as written and allocate the interests if that allocation is at

all possible. The statute should not be read to mean that only

if the contractual arrangement itself allocates, is allocation

necess ary. The statutory language clearly requires allocation

in the course of an audit if that allocation can be achieved on

the basis of the records provided by the taxpayer. DOR has

recognized this interpretation in its TAA 03 - 002. As the

Administrative La w Judge in Airport Limousine Service of

Orlando, Inc. v. Dept. of Revenue , supra. , stated:

Section 212.031 imposes a sales tax for the

use and occupancy of real property, but not

upon payments for intangibles such as a

franchise, concession, or other privi lege to

do business. The sales tax imposed by

Section 212.031 is limited to payments for

the use of real property. (Emphasis

supplied)

101. The problem remains, however, that only the signing

bonuses were allocated, in Petitioner's contracts, to th e right

of exclusivity. DOR did not include the signing bonuses in

completing its audit. In not including the signing bonuses,

DOR, in effect, created an allocation for the intangible right

of exclusivity. This allocation may not have captured all the

e lements of exclusivity, but Petitioner's experts' testimony at

hearing did not provide a credible alternative allocation.

102. The Assessment must stand.

RECOMMENDATION

Based on the foregoing Findings of Facts and Conclusions of

Law, it is

RECOM MENDED that the Department of Revenue enter a final

order finding the Assessment factually and legally correct and

sustaining the Assessment plus interest to date.

DONE AND ENTERED this 18th day of June, 2004, in

Tallahassee, Leon County, Florida.

S

______ _____________________________

ELLA JANE P. DAVIS

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.st ate.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 18th day of June, 2004.

ENDNOTES

1/ That case was a determination of the validity, vel non , of DOR

proposed rules. The cited paragraphs address concessionaires in

a public ly owned airport, and read:

56. It is easy to determine that

concessionaire payments typically comprise

rent or some other payment for the use and

occupancy of real property plus a payment

for an intangible, such as the privilege to

do business with air port users. Obviously,

Respondent is not required to accept the

parties' labeling or allocations of these

payments. But it is difficult to determine

how much of a mixed payment is for the use

or occupancy of real property, which is

taxable (ignoring, as always, the special

treatment of certain airport license

payments, as well as other exemptions), and

how much is for a privilege to do business,

which is nontaxable. The issue is whether a

"reasonable allocation" is possible between

the two components in a mixed payment.

57. As ordered in Avis and suggested by the

Straughn letter and Townsend memorandum, the

allocation process should begin with finding

a fair rental value. It is difficult to

estimate the fair market rent for space in a

large commercial airport. The universe of

comparables is small due to the uniqueness

of major airports. But the appraisal of

airport real property is not impossible.

Nonairport comparables normally exist that,

with suitable adjustments, yield reasonable

approximations o f fair market rentals.

58. A real estate appraisal helps determine

how much of a concessionaire's payment

should be characterized as rent. However,

the allocation problem can be approached at

the same time from the opposite end. In

appraising business assets, an accountant or

business appraiser estimates the value of

the concession, franchise, or other

privilege to do business with airport

visitors.

59. The business - income approach to the

allocation problem is aided by analysis of

the payments made by completely off - airport

car rental concessionaires in Sacramento,

Minneapolis, and Dallas. These payments

provide a rough approximation of the value

of this intangible, even though they

probably require major adjustments to

reflect, among other things, di ffering

passenger counts and demographics, as well

as the costs incurred by the airport

authorities in providing transportation to

the off - airport sites.

2/ This figure is derived, in part, by comparing distribution

and circulation expense in 1999 of an other part of Haas'

corporate family (see Finding of Fact 1), getting a percentage

of that cost as against that entity's revenues, applying that

percentage to Haas' revenues and then assuming that Haas could

economically pay this amount to its distributors (retailers) in

place of finding an alternative distribution method. Therefore,

he concluded that Haas was passing that percentage to its

retailers.

3/ By this total calculation, Haas submits that it owes only

$67,000 as opposed to approximately $552, 000, in tax.

COPIES FURNISHED:

Rex D. Ware, Esquire

Steel Hector & Davis LLP

215 South Monroe Street, Suite 601

Tallahassee, Florida 32301

Lynn Lovejoy, Esquire

Office of the Attorney General

107 West Gaines Street

Collins Building

Tallahassee, Flori da 32399

James Zingale, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399 - 0100

Bruce Hoffmann, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399 - 0100

NOTICE OF RIGHT TO SUBM IT 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.