04-000680 Sheraton Bal Harbour Associates, Ltd. vs. Department Of Revenue Status: Closed Recommended Order on Tuesday, February 1, 2005.

Summary: Petitioner wanted refund of gross receipts tax paid after the Legislature repealed the exemption Respondent repealed the rule. Although entitled to exemption during period of exemption, failed to preserve benefit of exemption and challenge rule.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SHERATON BAL HARBOUR )

ASSOCIATES, LTD., )

)

Petitioner, )

)

vs. ) Case No. 04 - 0680

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

________________________________)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was sch eduled in this

case by video teleconference on May 28, 2004, with sites at Fort

Lauderdale and Tallahassee, Florida. The hearing was continued

to provide an opportunity for the parties to file motions for

summary recommended order. Both parties filed mot ions for

summary recommended order.

APPEARANCES

For Petitioner: Joseph C. Moffa, Esquire

Law Offices of Moffa & Gainor, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

For t Lauderdale, Florida 33394

For Respondent: Martha F. Barrera, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUE

The issue for determination is whether Petitioner is

entitled to a refund of gross receipts tax on its sales of

telecommunication services for the period May 1, 1997 through

October 1, 2001.

PRELIMINARY STATEMENT

By Notice of Decision of Refund Denial dated December 22,

2003, the Department of Revenue (Department) notified Sheraton

Bal Harbour Associates, Ltd., (Sheraton) that Sheraton's request

for a refund of gross receipts tax, totaling $195,310.33 for the

period May 1, 1997 through April 30, 2002, was denied. Among

other things, the Department based its denial upon Section

203.012, Florida Statutes, and Florida Administrative Code Rule

12B - 6.001(1)(c). Sheraton disputed the denial and requested a

hearing. On February 26, 2004, this matter was referred to the

Divisi on of Administrative Hearings.

A final hearing was scheduled by video teleconference to be

held on May 28, 2004. The hearing was continued to allow the

parties an opportunity to submit motions for summary recommended

order. The parties requested and were granted an extension of

time to submit their motions. Both parties submitted motions

for summary recommended order, together with stipulated findings

of fact and joint exhibits (Joint Exhibits numbered 1 - 12). The

parties' motions for summary recommend ed order have been

considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. The Department is the agency of the State of Florida

charged with implementing the State's tax statutes.

2. Sheraton operates a full service hotel, the Sherat on

Bal Harbour, located at 9701 Collins Avenue, Bal Harbour,

Florida.

3. Sheraton is licensed as a hotel under the provisions of

Chapter 509, Florida Statutes. Sheraton's principal business is

providing lodging, food, and other services to the guests at its

hotel.

4. Sheraton provides taxable transient rentals pursuant to

Section 212.03, Florida Statutes.

5. Sheraton offers its guests numerous amenities,

including retail shopping, banquet facilities, meeting rooms,

on - site dining, and luxury spa.

6. Sh eraton separately charges its guests for using these

services. Sheraton also collects and remits taxes on charges

for these services apart from the taxes it collects and remits

on the room rental charges.

7. In addition, Sheraton offers approximately 24 different

room types within five different season schedules.

8. The telecommunications services charges that are the

subject of these proceedings are charges for local and toll

telephone service. Sheraton charges guests who use the

telephones located in the guestrooms.

9. Sheraton purchased special equipment and services to

determine whether local or long distance calls are placed from a

guest room in order to bill the telephone call charges to the

individual guests. Sheraton purchased the switch from GTE

Communications, Inc. Sheraton's call accounting services are

provided by Homisco, and the Property Management System was

purchased from GEAC.

10. Hotel guests initiate a call from a guest room. Upon

conclusion of the call, a Nortell telephone switch sends the

time of the call, duration of the call, and number called to the

Hosmisco Call Accounting System. Homisco assigns a price for

the call based upon preprogrammed parameters and passes that

information to Sheraton's property management system. Th e

property management system assigns the appropriate taxes to the

call and posts the charge to the guest's folio.

11. Sheraton offers no advertised rate plan that includes

local calls that are not separately charged to the guest. At

times, which are infr equent, charges for local calls are

included as part of the sales negotiation process, however, this

is rare.

12. The telecommunications charges, which are relevant to

these proceedings, were separately stated on the bills Sheraton

provided to its hotel g uests.

13. Sheraton is a member of the Florida Hotel and Motel

Association. Its member identification number is 8590.

Sheraton has been a member of the Florida Hotel and Motel

Association since 1980.

14. On a monthly basis, during the period from May 1 , 1997

to April 30, 2002 (the refund period), Sheraton self - accrued and

paid to the State of Florida gross receipt taxes on sales of

telecommunication services to its guests in the amount of

$195,310.33.

15. On or about July 9, 2002, Sheraton applied for a

refund of the gross receipt taxes it paid during the refund

period in the amount of $195,310.33. However, the parties agree

that no refund is due for the period after October 1, 2001,

which reduces the amount of the refund request to $185,508.95.

16. O n June 11, 2003, the Department denied the refund

request.

17. On August 4, 2003, Sheraton filed a protest with the

Department.

18. On December 22, 2003, the Department issued a Notice

of Decision sustaining the denial of a refund.

19. Sheraton timely filed its Petition for Administrative

Hearing.

20. For the calendar years ending December 2000, 2001, and

2002, the percentage of revenue from telecommunications as

compared to total revenues of Sheraton are 3.1%, 2.6%, and 1.8%,

respectively.

21. Florid a Administrative Code Rule 12B - 6.001(1)(c)3.b.

was in effect from 1990 to 2003, when it was repealed by the

Department.

CONCLUSIONS OF LAW

22. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and the

part ies thereto pursuant to Sections 120.569 and 120.57(1),

Florida Statutes (2003).

23. The applicable period of time in dispute, the refund

period, is May 1, 1997 through October 1, 2001.

24. Gross receipts tax is imposed upon "every person that

receives p ayment for any utility service . . . ." § 203.01(1),

Fla. Stat. (1995 and 1997). “Person” is defined to include "any

individual, firm, copartnership, joint adventure, association,

corporation, . . . or other group or combination acting as a

unit . . . .” §§ 203.012(10) and 212.02(12), Fla. Stat. (1995

and 1997). “Utility service” is defined as "electricity . . . ;

natural or manufactured gas . . . ; or telecommunication

services." § 203.012(9), Fla. Stat. (1995 and 1997).

“Telecommunication service” i s defined as "local telephone

service, toll telephone service, telegram or telegraph service,

teletypewriter service, or private communication service;

. . . ." § 203.012(5), Fla. Stat. (1995 and 1997).

25. Whether a taxpayer engages in the taxable util ity

business as its primary business or not has no effect upon the

imposition of the gross receipts tax; the taxpayer is still

subject to the gross receipts tax. Brooks - Scanlon Corp. v. Lee ,

131 Fla. 197, 179 So. 426 (1938).

26. The language of the afore mentioned pertinent parts of

the applicable statutory provisions did not change during the

amended refund period of May 1, 1997 through October 1, 2001,

and they, therefore, maintained their meaning throughout the

refund period. Consequently, the taxpayer remained subject to

the gross receipts tax. See Merritt Square Corp. v. State

Department of Revenue , 354 So. 2d 143 (Fla. 1st DCA 1978).

27. No dispute exists that, at all times during the refund

period, Sheraton was primarily engaged in the business of

providing hotel services to its guests, not telecommunication

services.

28. The evidence demonstrates that Sheraton is a provider

of telecommunication services pursuant to Section 203.01(1),

Florida Statutes, and as defined by Section 203.012(5), Florida

Statutes. Sheraton provided telecommunication services to its

guests in their rooms. Sheraton purchased and installed special

equipment to determine which room placed a telephone call,

whether local or long distance, which enabled Sheraton to

properly b ill a guest for the use of the telephone in the guest

room. Furthermore, Sheraton received payment for the

telecommunication services provided to its guests.

29. Without an exemption, Sheraton was required to pay

gross receipts tax on telecommunication s ervices provided to its

guests.

30. An exemption in the gross receipts tax law existed but

was repealed by the Florida Legislature in the year 2000 and was

not re - enacted in any further legislation. The exemption was

found at Section 203.012(2)(b), Flori da Statutes (1995 and

1997), and provided in pertinent part:

(b) Gross receipts for telecommunication

services do not include:

* * *

3. Charges made by hotels and motels, which

are required under the provisions of s.

212.03 to collect transient ren tals tax from

tenants and lessees, for local telephone

service or toll telephone service, when such

charge occurs incidental to the right of

occupancy in such hotel or motel; . . . .

The statute provided for an exemption of charges to guests for

local te lephone service or toll telephone service when the

charges occur incidental to the occupancy by the guest.

31. Section 203.012(3), Florida Statutes (1995 and 1997)

provided in pertinent part:

(3) The term "local telephone service"

means:

(a) The access to a local telephone system

. . . ; or

(b) Any facility or service provided in

connection with a service described in

paragraph (a).

* * *

(7) The term "toll telephone service"

means:

(a) A telephonic - quality communication for

which there is a tol l charge . . . ; or

(b) A service which entitles the subscriber

or user, upon the payment of a periodic

charge . . . or upon the basis of total

elapsed transmission time, to the privilege

of an unlimited number of telephonic

communications . . . .

32. S ection 212.03, Florida Statutes (1995 and 1997)

provides in pertinent part:

(1) It is hereby 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 to use any

living quarters or sleeping or housekeeping

accommodations in, from, or a part of, or in

connection with any hotel, . . . For the

exercise of such taxable privilege, a tax is

hereby levied . . . Such tax shall apply to

hotels . . . .

3 3. Sheraton argues that the exemption is applicable to

its situation because its primary business is providing hotel

services to its guests, not providing telecommunication

services, and because providing local telephone service and toll

telephone service to its guest are incidental to its business.

"It is well settled that he who would shelter himself under an

exemption clause in a tax statute must show clearly that he is

entitled under the law to exemption; and the law is to be

strictly construed as aga inst the person claiming the exemption

and in favor of the taxing power." Green v. Pederson , 99 So. 2d

292, 296 (Fla. 1957). "Exemption to 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 - 531 (Fla. 1974). As a result, Sheraton must clearly show

that its charges for telecommunication services fall within the

exemption, with any doubt being resolv ed in favor of the

Department.

34. Furthermore, Sheraton is requesting a refund of the

tax that it paid. "At common law, there was no right to a

refund of taxes from the sovereign. Thus, statutes authorizing

tax refunds or exemptions are in derogation o f common law;

statutes in derogation of the common law must be strictly

construed." Department of Revenue v. Bank of America , 752 So.

2d 637, 641 (Fla. 1st DCA 2000). As a result, the statutory

provision must be strictly construed in favor of the Departm ent.

35. The statutory provision provided an exemption for

local telephone service or toll telephone service,

telecommunication services, for the narrow and limited

circumstance when the charges are incidental to the right of

occupancy. The statutory pro vision did not provide a definition

of incidental.

36. Perusal of the legislative history provides a view of

the legislative intent. A Florida Senate Staff Analysis (Senate

Analysis), dated May 22, 1985, addressed proposed changes to the

gross receipts t ax and provided the current situation of the law

at that point in time. The Senate Analysis provided, among

other things, that, in 1984, the Florida Legislature enacted the

law expanding the gross receipts tax base by replacing "for the

use of telephone" with "telecommunications services" and

defining telecommunications services; that telecommunication

services included "such services as local telephone service;

toll telephone service, . . . ."; and that the law "excluded"

from the tax "such items as charg es for . . . hotel telephone

service charges . . . ." The Senate Analysis indicates that an

exemption for charges by hotels for telephone service charges

was intended.

37. Further, the plain meaning of incidental should be

considered. Black's Law Dicti onary (Revised Fourth Edition

1968) defines “incidental” as "depending upon or appertaining to

something else as primary; something necessary, appertaining to,

or depending upon another which is termed the principal;

something incidental to the main purpos e."

38. Sheraton's primary business is providing lodging,

food, and other services to its guests. Providing,

telecommunication services to its guest was not a major part of

Sheraton's business; it was a very small, minor part of

Sheraton's business.

39. Strictly construing the tax exemption in the

Department's favor, against Sheraton, with any doubt in the

Department's favor and considering the legislative intent and

the plain meaning of the exemption, it is clear that at Sheraton

telecommunication servi ces were incidental to the right of

occupancy, per the statutory provision.

40. The Department's implementation of the exemption must

also be examined. To implement the exemption, the Department

adopted an amendment to Florida Administrative Code Rule 12 B -

6.001, which, according to the Department, "clarified" the

meaning of "incidental to the right of occupancy" by defining

what is "not incidental." Florida Administrative Code Rule 12B -

6.001(1), as amended, provided in pertinent part:

(c) Gross receipts for telecommunication

services do not include:

* * *

3.a. Charges made by hotels and motels

which are required under the provisions of

s. 212.03, F.S., to collect transient

rentals tax from tenants and lessees, for

local telephone service or toll t elephone

service when such charges occur incidental

to the right of occupancy;

b. Charges to customers by hotels and

motels for the use or access to

telecommunication service are not considered

incidental to the right of occupancy when

such charges are se parately stated,

itemized, or described on the bill, invoice,

or other tangible evidence of the sale of

the service.

As a result, the Department's interpretation of the exemption

was that telecommunication charges by hotels and motels were not

incidental to the right of occupancy if the charges were

separately evidenced to the guest; or conversely,

telecommunication services were considered incidental as long as

they were not separately evidenced to the guest.

41. Examination of the rule's history is help ful. After

the enactment of Section 203.12(2)(b)3, Florida Statutes, but

prior to adoption of the amended rule, the Department issued a

notice on August 26, 1989, regarding the imposition of gross

receipts tax on telecommunication services. The notice

pr ovided, among other things, that effective October 1, 1989,

hotels and motels must collect gross receipts tax on all local

service charges separately billed to their lodging or commercial

tenants and on long distance toll calls of any kind, billed to

any t enant.

42. In 1989, a challenge against the collection of gross

receipts tax on telecommunication services provided by hotels

and motels to the guests, seeking a declaratory judgment and an

injunction, was filed in the Circuit Court, Second Judicial

Circu it of Florida. Brock v. Department of Revenue , Case No.

89 - 3616. The circuit court granted a permanent injunction

against the Department's collection of the gross receipts tax

finding, among other things, that the Florida Legislature had

not defined inci dental; that the plain and ordinary meaning of

incidental clearly showed that telephone use by a guest was

within the plain and ordinary meaning of incidental; and that

defining incidental was within the authority of the Florida

Legislature, not the Depart ment.

43. The circuit court's decision was appealed to the First

District of Appeal. Department of Revenue v. Brock , 576 So. 2d

848 (Fla. 1st DCA 1991). The First District Court of Appeal

reversed the circuit court's decision holding that the

plaintiffs had failed to exhaust their administrative remedies

before challenging the Department's rule in court, finding that

"the exhaustion requirement is . . . .particularly appropriate

in the instant case." Id. , at 850. Even though the First

District Court of Appeal concluded that the Department acted

within its authority to adopt rules to carry out the intent and

purpose of a revenue statute, it stopped short of determining

whether the Department acted in excess of its delegated

legislative authority, but, in stead concluded that the

Department should be provided "an opportunity to explain its

interpretation of the rule and to create a record in an

administrative forum." Id. , at 850. Consequently, the First

District Court of Appeal did not make a ruling on th e merits of

the challenge to Florida Administrative Code Rule 12B -

6.001(1)(c)3.b.

44. No rule challenge was immediately initiated involving

Florida Administrative Code Rule 12B - 6.001(1)(c)3.b. as a result

of the decision by the First District Court of App eal.

45. In 2003, the Department repealed Florida

Administrative Code Rule 12B - 6.001(1)(c)3.b. After the repeal,

Sheraton initiated a rule challenge. The Department moved to

dismiss the rule challenge, but the Division of Administrative

Hearings denied the Department's motion. The Department

petitioned the First District Court of Appeal for a writ of

prohibition. Department of Revenue v. Sheraton Bal Harbour

Association, Ltd. , 864 So. 2d 454 (Fla. 1st DCA 2003). The

First District Court of Appeal gran ted the writ holding that a

challenge to a repealed rule is not authorized by Section

120.56, Florida Statutes, and that for DOAH to proceed with the

rule challenge would result in DOAH acting in excess of its

jurisdiction. DOAH dismissed the rule challen ge.

46. "The principles of statutory construction are entwined

with the doctrine which provides that an agency's construction

of a statute is entitled to great weight and will not be

overturned unless clearly erroneous." (citations omitted)

Department of Revenue v. Bank of America , supra , at 641 - 642.

"The law is well settled that long - standing statutory

interpretations made by officials charged with the

administration of the statutes are given great weight by the

court." (citations omitted) Austin v. Au stin , 350 So. 2d 102,

104 (Fla. 1st DCA 1977). "On the other hand, 'judicial

adherence to the agency's view is not demanded when it is

contrary to the statute's plain meaning.'" (citations omitted)

D'Alto v. Department of Environmental Protection , 860 S o. 2d

1003, 1005 (Fla. 1st DCA 2003).

47. The plain meaning of incidental demonstrates that

Sheraton’s telephone charges to a guest are incidental to the

right of occupancy. As the Department points out in its post -

hearing submission, the "statute impose s the tax, not the Rule."

Similarly, the statute grants the exemption, not the rule. The

statute unambiguously provides that telephone charges in a

certain category, "incidental to the right of occupancy," are

exempt from gross receipts tax; the statute does not hinge the

exemption on how the charges are billed or noted by the hotel or

motel to the guest. The Department's interpretation through its

rule is clearly contrary to the exemption provided by the

statutory provision.

48. Hence, based on the exe mption statute, Sheraton was

entitled to the exemption and was exempt from paying tax on

gross receipts for the telecommunication services.

49. Having determined that Sheraton is entitled to the

exemption, the question now becomes whether Sheraton is enti tled

to a refund. At the time Sheraton paid the tax, the tax was

paid in accordance with the Department's interpretation of the

statute and the rule implementing the statute. The statutory

exemption has been repealed and not re - enacted in further

legisla tion. This proceeding is not a rule challenge, and the

rule in the instant case has not been declared an invalid rule

in a rule challenge. Furthermore, the rule has been repealed.

The exemption was not preserved by further legislation.

Sheraton did not preserve its right to the benefit of the

exemption through a pending court action. Sheraton did not

bring a rule challenge prior to the repeal of the Department’s

rule in 2003.

50. Sheraton did not pay the tax in error because Sheraton

was required to p ay the tax. Sheraton argues that, if a

determination is made that it was entitled to the exemption, it

should be entitled to a refund. Sheraton does not cite to any

statutory provision or a rule that specifically authorizes a

refund for such taxes paid o r to any case law to support its

position. When Sheraton requested a refund from the Department,

Sheraton was required, among other things, to complete certain

"refund" documents. Also, a perusal of the Department's denial

does not indicate that the Depa rtment’s denial included a

position that it was precluded from issuing a refund if the

Department agreed that the exemption applied to Sheraton's

situation. The undersigned does not find Sheraton's argument

persuasive.

RECOMMENDATION

Based on the foregoin g Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Department of Revenue enter a final

order denying Sheraton Bal Harbour Associates, Ltd. a refund in

the amount of $185,508.95 for gross receipt taxes paid on sales

of telecommunication s ervices for the period May 1, 1997 through

October 1, 2001.

DONE AND ENTERED this 1st day of February, 2005, in

Tallahassee, Leon County, Florida.

S

__________________________________

ERROL H. POWELL

Administrative Law Judge

Division of Administrative Hea rings

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 1st day of February, 200 5.

COPIES FURNISHED:

Joseph C. Moffa, Esquire

Law Offices of Moffa & Gainor, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

Martha F. Barrera, Esquire

Office of the Attorney General

The Capitol, Plaza Le vel 01

Tallahassee, Florida 32399 - 1050

Bruce Hoffmann, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399 - 0100

James Zingale, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399 - 0 100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this recommended order. Any exceptions

to this recommended order should be filed with the agency that

will issue the final order in this case.