04-004126 Carter Wolf Interiors, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Friday, February 4, 2005.

Summary: Dealer owes tax, penalty, and interest on excess of gross sales reported for federal income tax over that reported for state sales tax and on gross sales of services provided in same transaction with tangible personal property.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CARTER WOLF INTERIORS, INC., )

)

Petitioner, )

)

vs. ) Case No. 04 - 4126

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Administrativ e Law Judge (ALJ) Daniel Manry conducted the

administrative hearing of this case on January 6, 2005, in

Orlando, Florida, on behalf of the Division of Administrative

Hearings (DOAH).

APPEARANCES

For Petitioner: No Appearance

For Respondent: James O. Jett, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUES

The issues for determination are whether Respondent should

assess tax, interest, and penalty on gross sales that Petitioner

reported in Petitioner's federal income tax returns, but not in

Petitioner's state sales tax returns; and on gross sales of

services in transactions that also involved sales of tangible

personal property .

PRELIMINARY STATEMENT

Upon completion of an audit, Respondent determined that

Petitioner owed tax, penalty, and interest in the amount of

$148,019.89 through August 15, 2001. Petitioner requested an

administrative hearing, and Respondent referred the matter to

DOAH to conduct the administrative hearing.

At the hearing, Petitioner neither appeared nor otherwise

submitted any evidence. Respondent called one witness and

submitted two exhibits for admission into evidence.

The identity of the witness a nd exhibits, and the rulings

regarding each, are reported in the one - volume Transcript of the

hearing filed with DOAH on January 12, 2005. Respondent timely

filed a proposed recommended order (PRO) on January 21, 2005.

Petitioner did not file a PRO.

FI NDINGS OF FACT

1. Petitioner was a Florida corporation from May 1, 1995,

through April 30, 2000 (the audit period). Petitioner

maintained its principal place of business at 153 East Morse

Boulevard, Winter Park, Florida 32789, and engaged in the

business of providing services for interior design and

decorating and selling tangible personal property used in the

design and decoration of properties. On October 10, 2004, the

Department of State, Division of Corporations, administratively

dissolved Petitioner for failure to file Petitioner's annual

report.

2. Petitioner's federal employer identification number

during the audit period was 59 - 2706005. Petitioner reported

income and deductions for purposes of the federal income tax

using the cash method of ac counting.

3. During the audit period, Petitioner was a registered

dealer and filed a monthly Sales and Use Tax Return (DR - 15) with

Respondent. On June 2, 2000, Respondent sent Petitioner a

Notification of Intent to Audit Books and Records (Form DR - 840)

b earing audit number A9933414838.

4. Respondent and Petitioner agreed that a sampling method

would be the most effective, expedient, and adequate method in

which to audit Petitioner's books and records. Respondent

examined and sampled the available books and records to

determine whether Petitioner properly collected and remitted

sales and use tax in compliance with Chapter 212, Florida

Statutes (1993).

5. For 1996, 1997, and 1999, Petitioner reported fewer

gross sales on the DR - 15s used for the purpos e of the state

sales tax than Petitioner reported on its Form 1120S federal

income tax return. Respondent determined that the difference

between gross sales reported for purposes of the state and

federal taxes constituted unreported sales on which Respond ent

was statutorily required to assess sales tax, penalty, and

interest.

6. Respondent's auditor divided the yearly differences in

the amounts reported on the Form 1120S and the DR - 15s to

determine a monthly difference for each month from 1996 through

199 7. The auditor then scheduled the monthly difference and

assessed the tax appropriately.

7. The auditor also assessed tax for the value of design

services that Petitioner provided to customers when Petitioner

sold the customers design services and tang ible personal

property as a part of the same transaction. Pursuant to an

agreement between Petitioner and Respondent's auditor, the

sample included the entire year in 1999.

8. Petitioner collected sales tax on all sales of tangible

personal property, b ut did not collect sales tax on fees charged

for decorator and design services provided in the same

transactions. Respondent is authorized by rule to assess sales

tax on the value of services provided in the same transaction in

which Petitioner sold tangi ble personal property.

9. The auditor correctly divided the total taxable design

fees invoiced for 1999 by the total invoiced amount per sales by

customer detail. The resulting quotient of .0752 percent was

the applicable percentage of the design fees th at were taxable

in 1999. The auditor multiplied the applicable percentage by

the gross sales that Petitioner reported on its federal tax

returns for 1997, 1998, and 1999 to determine the total amount

of design fees that were taxable. The auditor then pro perly

scheduled and assessed the taxable interior design fees.

10. On May 1, 2001, Respondent issued a Notice of Intent

to Make Audit Changes (form DR - 1215). The Notice provided that

Petitioner owed $77,249.72 in taxes; $38,625.02 in penalties;

and $29,4 71.12 in interest, for a total deficiency of

$145,345.86. Interest continued to accrue on the unpaid

assessment.

11. On August 15, 2001, Respondent issued its Notice of

Proposed Assessment. The Notice provided that Petitioner owed:

$77,249.72 in taxes; $38,625.02 in penalties; and $32,145.15 in

interest, for a total of $148,019.89 through August 15, 2001.

CONCLUSIONS OF LAW

12. DOAH has personal jurisdiction over the parties. DOAH

provided the parties with adequate notice of the administrative

hearin g. Although the Notice of Hearing sent to Petitioner by

United States Postal Service was returned as undeliverable, the

separate Notice of Hearing that DOAH mailed to the residence

address of Petitioner's President was not returned.

13. Service of proces s on a corporation is sufficient if

served on the president or vice - president of the corporation.

§ 48.081, Fla. Stat. (2004); see also Stewart v. Julana

Development Corp. , 678 So. 2d 1385, 1388 (Fla. 3rd DCA 1996).

Service of process on a corporation d issolved after July 1,

1990, is the same as service of process on any other

corporation. § 48.101, Fla. Stat. (2004).

14. The Notice of Hearing sent to the residence address of

the corporate president was properly addressed, stamped, and

mailed and wa s not returned. Mail properly addressed, stamped,

and mailed is presumed to be received by the addressee if not

returned. Brown v. Giffen Industries, Inc. , 281 So. 2d 897, 900

(Fla. 1973).

15. DOAH has subject matter jurisdiction over the proposed

ass essment for 1997, 1998, and 1999, pursuant to Subsections

120.57(1) and 213.67(7), Florida Statutes (1996). The proposed

assessment affects the substantial interests of Petitioner, and

this proceeding involves disputed issues of fact.

16. Respondent has the initial burden of proof.

Respondent must make a prima facie showing of the factual and

legal sufficiency of the assessment. § 120.80(14)(b)2., Fla.

Stat. (1996). The burden of proof then shifts to Petitioner to

show that it does not owe any amount o r owes less than the

amount assessed.

17. Respondent satisfied its burden of proof. During the

audit period that began in May 1995, Petitioner was registered

as a "dealer" for the purpose of the state sales tax.

Petitioner offered for sale or sold tangi ble personal property

at retail. § 212.06(2)(c), Fla. Stat. (1994). For each month

of the audit period, Petitioner filed a sales tax return on form

DR - 15 pursuant to Section 212.11, Florida Statutes (1994).

18. For 1997, 1998, and 1999, Petitioner rep orted fewer

gross sales for the purpose of the state sales tax than

Petitioner reported for the purpose of the federal income tax.

During the same period, Petitioner provided decorator and design

services in transactions involving the sale of tangible per sonal

property, but did not report the sale of those services for the

purpose of the state sales tax in violation of Florida

Administrative Code Rule 12A - 1.001(17)(c)1.

19. The excess of the gross sales Petitioner reported on

its federal tax returns for 1 997, 1998, and 1999, over the gross

sales Petitioner reported to the state on the DR - 15 forms for

the same period, represented unreported sales for the purpose of

the state sales tax (unreported sales). The product derived by

multiplying the applicable pe rcentage by the value of services

provided in transactions involving the sale of tangible personal

property during the same three years represented under - reported

sales for the purpose of the state sales tax (under - reported

sales). Petitioner submitted no evidence to show that the

amount of unreported sales included part or all of the amount of

under - reported sales.

20. Charges for services during 1997, 1998, and 1999, that

involve sales of tangible personal property as inconsequential

elements for whic h no separate charges are made are exempt from

the sales tax. § 212.08(7)(v), Fla. Stat. (1996). Exemptions

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. 1973).

21. Petitioner was responsible for maintaining records of

its gross sales, including invoices and other documents required

to support its sales tax reporting position in 1997, 1998, and

1999. §§ 212.13(2) and 213.35, Fla. Stat. (1996). Petitioner

introduced no evidence to support a finding that Petitioner does

not owe the amount assessed or owes less than the amount

assessed.

22. During the audit period, Petitioner w as a dealer that

failed to collect and remit the tax due on retail sales and is

liable for the tax, penalty, and interest. Petitioner owes the

amount assessed. § 212.07(3), Fla. Stat. (1996).

RECOMMENDATION

Based on the foregoing Findings of Fact and Co nclusions of

Law, it is

RECOMMENDED that Respondent enter a final order assessing

Petitioner for $148,019.89 in tax, penalty, and interest, plus

the amount of interest that accrues from August 15, 2001,

through the date of payment.

DONE AND ENTERED thi s 4th day of February, 2005, in

Tallahassee, Leon County, Florida.

S

DANIEL MANRY

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 4th day of February, 2005.

COPIES FURNISHED :

W. Scott Carter

Carter Wolf Interiors, Inc.

153 East Morse Boulevard

Winter Park, Florida 32789 - 7400

J. Bruce Hoffmann, General Counsel

Department of Revenue

204 Carlton Building

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

W. Scott Carter

1700 Briercliff Drive

Orlando, Florida 32806 - 2408

James O. J ett, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

James Zingale, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399 - 0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.