10-008136 Reiser, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, June 29, 2011.

Summary: Petitioner is liable for a tax underpayment in the amount of $315.90 for failure to document one tax exempt sale. However, because the deficiency is less than its tax overpayments, the assessment should be voided.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

REISER , INC. , )

)

Petitioner , )

)

vs. )

) Case No. 10 - 8 136

DEPARTMENT OF REVENUE , )

)

Respondent . )

)

RECOMMENDED ORDER

A formal administrati ve hearing was conducted in this

matter before Ad ministrative Law Judge W. David Watkins of the

Florida Division of Administrative Hearings, on February 9,

2011, in Daytona Beach, Florida.

APPEARENCES

For Petitioner: Leanne Siegfri e d , Esquire

William A. MacQueen, Esquire

Halifax Law Group

Post Office Box 9397

Daytona Beach , Florida 3 21 20 - 9357

For Respondent: John Mika, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue is whether Petitioner collected and remitted to

Respondent the correct amount of sales and use taxes during the

audit period from March 1, 200 6 , through February 28 , 200 9 , and,

if not, what additional amount of tax and interest is due .

PRELIMINARY STATEMENT

On April 6, 20 10 , Respondent issued a Notice of Proposed

Assessment to Petitioner t o collect $ 36,564.82 in taxes, and

$ 8,743.02 in interest (through April 6, 2010), or a total of

$ 45,307.84 for the audit period. On August 4 , 2010, Respondent

received the challenge to the proposed assessment in a Petition

for Formal Administrative Hearin g, which was forwarded to the

Division of Administrative Hearings (DOAH) on August 20 , 2010,

and a ssigned DOAH Case Number 10 - 8136 .

A hearing was scheduled for November 30, 2010, but it was

cancelled after the Respondent filed a n Emergency Motion for

Conti nuance . On December 3, 2010 , the parties filed a request

to reschedule the final hearing, and b y Notice of Hearing, the

case was set for final hearing , and the hear ing was held on

February 9, 2011 .

At the hearing, Respondent presented the testimony of an

auditor, L ori Krueger . Respondent's Exhibits 1 - 1 3, 15, 16, 18

and 19 were received in evidence. Petitioner presented the

testimony of Paula Gregory and James Allen Reiser. Petitioner's

Exhibit s 1 and 2 w ere received in evidence. The Transcript of

the h earing was filed on February 28 , 201 1 . Proposed

R ecommended O rders were filed with the Division by both

Petitioner and Respondent on May 9, 2011 , and have been given

due consideration in the rendition of this Recommended Order .

All statutory references ar e to Florida Statutes (2006),

and all rule references are to the current Florida

Administrative Code, unless otherwise indicated.

FINDINGS OF FACT

1 . Petitioner Reiser, Inc. (Petitioner , taxpayer, or

Reiser ) , a Florida corporation , operated a Creative Pl aythings

franchise from late 2004 through early 2009. Reiser has not

conducted any business since early 2009.

2 . Reiser was in the business of selling recreational

playground equipment and related services, including

installation, maintenance and repair. In addition, playground

equipment on display at Petitioner's business location was also

made available for use during purchased "birthday parties , "

which also included party supplies, food and beverages.

3 . Respondent, Florida Department of Revenue (Res pondent ,

Department, or DOR), is the agency of state government

authorized to administer the tax laws of the State of Florida,

pursuant to section 213.05, Florida Statutes.

4 . DOR is authorized to prescribe the records to be kept

by all persons subject to taxes under chapter 212, Florida

Statutes. Such persons have a duty to keep and preserve their

records, and the records shall be open to examination by DOR or

its authorized agents at all reasonable hours pursuant to

section 212.12(6), Florida Statutes.

5 . DOR is authorized to conduct audits of taxpayers and to

request information to ascertain their tax liability, if any,

pursuant to section 213.34.

6 . On April 10, 2009 , DOR sent a Noti fication of Intent to

Audit Books and Records to Petitioner . The au dit period was

from March 1, 2006 , through February 28, 2009. The audit itself

was conducted between May 14, 2009 , and March 24, 2010.

7 . For the purposes of the audit, Petitioner's

accountants, Weston & Gregory, P.A., acted as Petitioner's

agents. The accounting firm's employees, Paula Gregory, Cathy

Duffy, and Amber Schottenham, were Petitioner's designated

representatives under the power of attorney executed by Reiser.

8 . On January 15, 20 10 , DOR sent Reiser its Notice of

Intent to Make Audit Changes (NOI), with schedules, showing that

Reiser owed to DOR additional sales and use taxes in the amount

of $ 42,242.80 , and interest through January 16, 20 10 , in the

amount of $ 9,562.40 , making a total assessm ent in the amount of

$51,810.20 .

9 . On February 24 , 20 10 , DOR sent Reiser a Revised Notice

of Intent to Make Audit Changes (NOI), with schedules, showing

that Reiser owed to DOR additional sales and use taxes in the

amount of $ 36,564.82 , and interest through February 24 , 20 10 , in

the amount of $ 8,455.51 , and a penalty in the amount of

$9141.22, making a total assessm ent in the amount of $54,161.55 .

10 . Each of the Department's NOIs informed Petitioner of

the right to request an audit conference prior to March 26,

2010 , if it did not agree with the adjustm ents. The invitation

to request an audit conference prior to March 26, 2010 , was

again extended to Petitioner by letter dated March 16, 2010.

11 . By letter dated March 16, 2010, and received by the

Department on March 23, 2010, Petitioner requested an ex tension

of time (in order to seek legal counsel) and notified the

Department of his desire to have an audit conference.

12 . The following day the Department sent Petitioner a

letter advising that the request for an extension of time was

being denied, and that "[T]he case file will be forwarded to

Tallahassee for further processing." As a consequence,

Petitioner did not receive an audit conference.

13 . On April 6, 20 10 , Respondent issued a Notice of

Proposed Assessment to Petitioner to collect $ 36,564.82 in

taxes, and $ 8,743.02 in interest (through April 6, 2010), or a

total of $ 45,307.84 for the audit period. No penalties were

included with the assessment.

14 . The proposed assessments related to five different

categories of alleged tax deficiencies. Those categories , and

the amounts at issue are :

1) Misclassified exempt sales ($13,371.44) ;

2) Disallowed exempt sales ($5,110.00) ;

3) Taxable sales - maintenance program ($11,700.00) ;

4) Unreported sales ( $6,316.56 ) ;

5) Fixed assets ( $66.82 ) .

15 . Reis er timely challenged the Notice of Proposed

Assessment, filing its petition with DOR and requesting an

administrative hearing.

The Statistical Sampling Method

16 . The Department is authorized by statute to utilize

sampling techniques in its record review , if the records of the

taxpayer are "voluminous in nature and substance." Section

212.12(6)(c), Florida Statutes, contemplates a good faith effort

to reach an agreement with the taxpayer as to the means and

methods to be used in the sampling process. In the event no

agreement is reached, the taxpayer is entitled to a review by

the Exec utive Director of DOR .

17 . The audit conducted by the Department used a

statistical sampling method. The decision to use the sampling

method, and the selection of the sam pling periods for the audit,

are both reflected in the "Sampling Plan" bearing the DOR report

date of May 18, 2009. In addition, the "Case Activity Record"

for the audit reflects that on May 18, 2009, DOR auditor Lori

Krueger "met with PGM 1 / to discuss au dit plan and sample

periods . " The case activity record also reflects that it wasn't

until June 23, 2009, that Auditor Krueger "review(ed) electronic

records rec'd." It therefore appears that the Department had

not evaluated whether Petitioner's records w ere "voluminous in

nature and substance" before reaching the decision to utilize a

sampling method. 2 /

18 . A written "Sampling Agreement" was signed by Auditor

Krueger on January 7, 2010 . However, there is no persuasive

evidence in this record that Petiti oner or any of its designated

representatives agreed to the sampling plan proposed by DOR.

Likewise, there is no evidence to indicate that DOR's Executive

Director reviewed the proposed sampling method for the audit.

19 . The audit periods selected by the Department included

the months of June 2006; January 2008; and December 2008.

During the course of the audit, Petitioner provided all records

available to it which were requested by the DOR auditors.

20 . As a Creative Playthings franchisee, all of

Petit ioner's transactions were entered into the "Counterpoint"

software provided by the franchisor. Sales tax was assessed and

accounted for via the software's programming, and Petitioner had

no ability to change the software. As such, Petitioner relied

on th e software to properly designate taxable and non - taxable

transactions.

Misclassified Exempt Sales

21 . Misclassified exempt s ales consisted of either

birthday party packages sold at taxpayer's location, or gift

certificates rede emed for merchandise. As t o the birthday party

sales , the package included invitations, Thank You notes, party

h ost/helper, pizza, beverages, birthday cake, goody bags, all

paper goods, balloons, treasure hunt along with prizes, and the

use of the demo pl ayground/gym equipment at P etitioner's

facility. DOR determined this activity to be the license to use

real property (the showroom facility), license to use tangible

personal property (the gym equipment), and the sale of tangible

personal property (gift bags, invitations, food, par ty favors)

for a lump sum. DOR determined the additional tax due from

misclassification of the referenced sales to be $13,371.44.

22 . Petitioner's owner, James Riser, Jr., explained the

nature of the birthday parties that were sold by his business:

ÐI s aw the need in the area for a place for

- - a place for birthday party services for

the area . There was nothing in the Ormond

Beach area that catered towards parents and

kids having birthday parties. S o , I decided

to do what basically is a birthday party

planner, slash service. And literally take

the entire process of the birthday party

away from the parents and put in our hands

to manage and control the entire birthday

party process.Ñ

( Final Hearing T ranscript, Page 162)

23 . The services provided by Petitioner included planning

for the theme selected by the purchaser; customizing all

invitations, T hank Y ou cards, paper goods, and games to match

such theme; staffing the premises with enough personnel for

supervision during the party ; and clean - up a fter the party.

Additional services i ncluded arranging for pizza and cake

delivery, as well as ordering a cake customized to the party's

theme, if requested. Non - consequential items, such as food,

dining supplies and goodie bags were included in the birt hday

party package price paid by the purchaser. Reiser paid sales

tax on all Items purchased for the party.

24 . T he fee for birthday parties was set at a flat rate

for a party of up to 12 children. Additional charges applied

for each child above 12 to help cover the increased costs which

arose from employing additional persons to supervise and clean -

up a party fo r more than twelve .

25 . In addition to meeting the need for a birthday party

planner/service, hosting the parties within Petitioner's

busines s also served as a marketing tool for the playground

equipment located there . Toward that end , all children entering

Petitioner's premises, regardless of whether the child was

attending a party, were free to play on swing set displays

throughout the entir e premises.

26 . According to DOR, the other misclassified exempt item

related to gift certificates redeemed for merchandise by

Petitioner. DOR correctly noted that the use of a gift

certificate in lieu of cash, check or credit card does not

render the tr ansaction exempt. However, the unrebutted evidence

established that the gift cards were given to customers as a

refund or discount , because the Counterpoint software did not

allow the franchise to provide a refund or di scount directly to

the customer duri ng or after a purchase. No additional income

was received by Petitioner for the gift cards given to

customers.

Disallowed Exempt Sales

27 . Disallowed exempt sales related to sales for which

Petitioner did not collect and remit tax, and did not provide a

resale or exemption certificate establishing the exempt nature

of the sale.

28 . Petitioner occasionally sold swing sets to individuals

or organizations that were entitled to purchase such sets tax -

free. However, it was incumbent on Petitioner to obtain a tax -

exempt certificate from the purchaser for all tax - free sales it

made .

29 . In determining a tax liability under this category DOR

did not review the transactions of each of the 36 months of the

audit period, but instead employed a percentage of error

methodology, determined from the review of the three sample

months. The determined error ratio was then apportioned across

the complete audit pe riod. The result was a project ed tax

liability of $ 5,110.00.

30 . Initially, the Department determined that t hree

transactions were improperly classified as disallowed exempt.

After review, two of these sales were found to be properly

documented, and the number of allegedly non - compliant

transactions was reduced to one . The remaining sale was to the

parents of C.B. , an autistic child. C . B . 's father told

Mr. Reiser that the transaction should be tax exempt because he

had a prescrip tion for the swing set, as C.B. 's physician

believed the swing set would assist with C.B. 's autism. The

sale of the equipment totall ed $4,860.00, which if taxable,

would have generated a tax liability of $315.90. Petitioner was

unable to produce a copy of the tax - exempt certificate relating

to this sale.

Taxable Sales - Maintenance Program

31 . The next category of alleged deficiency w as taxable

sales relating to the maintenance programs offered to

Petitioner's customers. DOR took the position that w hether

called a "maintenance program" or an "extended warranty

program , " these transaction s were in essence the purchase of a

service warr anty , to wit , a contract or agreement to maintain,

repair or replace tangible personal property, whether or not the

contract provide d for the furnishing of parts . Because

Petitioner provided no records regarding the total amount of

revenue received from i ts maintenance program sales, D O R

estimated this amount based on the auditor's audit experience

in this particular industry . The additional tax projected to be

due under this category of sales was $11,700.00.

32 . Petitioner's franchisor, Creative Playth ings , provided

a warranty on all equipment sold by Petitioner . In addition to

th is free warranty , Petitioner also offered for sale extended

warranties at the time the swing set was purchased . However, a n

extended warranty could not be pur chased after the swing set was

i nstalled. If a customer purchased an extended warranty , sales

tax was assessed at the time of purchase. Mr. Reiser testified

that only one or two extended warranties were sold. In those

instances the warranties were included in the total purchase

price for the equipment, and tax was collected on the full

amount.

33 . Separate from the warranties, Petitioner also offered

maintenance services which swing set purchasers could request at

any time after their swing set was installed. All lab or

associated with maintenance service was warranted for 30 days

from the date the labor was performed. M ainte nance services

Petitioner provided included moving swing set s ; hammering in

stakes ; tightening b olts ; and resolving a ny issues with the wood

used for the swing set. As explained by Mr. Reiser:

After the sale, somewhere between 11 to 13

months after the sale, we would either call

or mail a flyer to everyone that had

purchased a swing set and said , ÐHey, by the

way, if youÓd like we can come service your

swing set .Ñ It was their option. They

could call us or not call us. And we were

just trying to provide that service to our

customers.

( Final Hearing Transcript, Page 173)

34 . If a customer wanted to add additional parts to its

swing set assembl y , such parts were not considered to be part of

Petitioner 's maintenance services; rather, the parts were

purchased inclusive of any maintenance charges, and tax was

remitted on the full amount. Mr. Reiser testified that

Petitioner p rovide d only four or f ive maintenance services per

month.

35 . Petitioner would charge the customer for the labor

involved with servicing the swing set at the time the request

was made. N o customer could pre - pay for swing set maintenance.

Unreported Sales

36 . DOR also ass erts that Petitioner is liable for an

additional $6,316.56 in tax as the result of u nreported s ales.

Th is claim is predicated upon the d ifference between

Petitioner 's income as reported on its federal tax returns and

gross receipts reported to the S tate o f Florida on Form 1120S

for the years 2007 and 2008.

37 . Petitioner provided the Department with a

reconciliation of these amounts based on the accounting method

used by Creative Playthings. Specifically, Petitioner's

software assessed sales tax i mmedia tely upon entering a

transaction into the system , and payment of sales tax on the

full amount of the sale was remitted accordingly, even i f the

entire purchase price had not yet been received. The software,

however, did not "release" the transaction and d esignate any

amounts received as income until installation of t he equipment

was complete. 3 / This often occurred months after the initial

purchase was made. As a result, income was released, and marked

as received for federal and state income tax purposes , months

after sales tax was assessed and remitted. Thus, transactions

that occurred near the end of a given year would not result in

income received until the beginning of the following year. 4 /

38 . Further, the amount of a sale did not always translate

to the amount of actual income received and Petitioner , at

times, ultimately received less than the initial purchase price

upon which sales tax was remitted in full. Discrepancies would

arise due to non - payment by customers, or occasional refunds

granted by Petitioner as a result of a delay caused by Creative

Playthings in manufacturing or delivering the equipment . Thus,

b y the time Petitioner learned its actual income from a given

sale, sales tax had already been remitted for the full amount of

the sal e.

Fixed Assets

39 . DOR's final proposed assessment relates to f ixed

a ssets of the business, that is, d epreciable assets purchased by

Petitioner for general use in the operation of its business .

Specifically , the Department asserts that Petitioner is l iable

for an additional $66.82 in tax due because of its failure to

produce doc umentation proving that sales tax was paid on the

purchase of the Startech s oftware used in the business .

40 . Mr. Reiser testified at hearing that he paid sales tax

when he pu rchased the referenced software , and his testimony was

uncontroverted.

Taxes Paid

41 . Petitioner 's accountant, Pa ula Gregory, testified that

Petitioner actually overpaid sales tax in the amount of

$46,822.96 during the period of March 2006 , until the bus iness

closed in September , 2009. This occurred because the total

amount of sales Petitioner reported for all years it operated,

and therefore paid sales tax on, exceeded the total amount of

income actually earned on such sales. Ms. Gregory's testimony

as to the amount of sales tax overpaid by Petitioner was

unrebutted, and is found to be credible.

Tota l Additional Sales and Use Taxes Du e

42 . As asserted by the Department, the five categories of

additional taxes due, plus interest, represent an underpayme nt

of $ 45,307.84 in tax liability for the audit period . In its

Proposed Recommended Order, Petitioner argues that should an

underpayment be determined, it should be offset by the excess

sales tax paid as the result of Petitioner Ós over - reporting its

sales . The Department did not take a position on this issue in

its Proposed Recommended Order.

43 . Even assuming the entirety of the alleged

underpayments at issue were proven by the Department (which they

were not), the amount of the overpayments made by Pet itioner

($46,822.96) 5 / would nevertheless exceed the tax owed

( $ 45,307.84).

CONCLUSIONS OF LAW

44 . The Division of Administrative Hearings has

jurisdiction over the parties to and subject matter of this

proceeding pursuant to s ections 72.011(1) , 120.569 , and

120.57(1), Florida Statutes (2010 ).

45 . DOR has the burden of proof in this proceeding , but

that burden is "limited to a showing that an assessment has been

made against the taxpayer and the factual and legal grounds upon

which the . . . department made the assessment." See

§ 120.80(14)(b)2., Fla. Stat.

46 . The standard of proof is a preponderance of the

evidence. See § 120.57(1)(j), Fla. Stat. A " preponderance" of

the evidence means the greater weight of the evidence. See

Fireman's Fund Indemnity Co. v. Perry , 5 So. 2d 862 (Fla. 1942).

47 . Chapter 212, Fl orid a Stat utes , authorizes taxation on

the sale of tangible personal property . In general , amounts

paid for the rendition of services are not taxable.

Furthermore, tangible personal property involved in prof essional

services is also exempt from t axation. § 212.08(7)(v), Fla.

Stat . See also Dep Ó t of Rev . v. Quotron Systems , 615 So. 2d

774 , at 777.

48 . With respect to the Department's use of the non -

statistical sampling method to project the alleged

underpay ments, s ection 212.12(6), provides in relevant part :

(c)1. If the records of a dealer are

adequate but voluminous in nature and

substance, the department may sample such

records, except for fixed assets, and

project the audit findings derived therefrom

ov er the entire audit period to determine

the proportion that taxable retail sales

bear to total retail sales or the proportion

that taxable purchases bear to total

purchases. In order to conduct such a

sample, the department must first make a

good faith ef fort to reach an agreement with

the dealer, which agreement provides for the

means and methods to be used in the sampling

process. In the event that no agreement is

reached, the dealer is entitled to a review

by the executive director.

49 . Under the facts of this case, t he sampling method used

by the Department i s unauthorized , and would render an

inequitable result. T he Department failed to establish that

Petitioner had agreed to the sampling methodology , and in fact,

the "Sampling Agreement" offer ed in evidence, although signed by

the DOR auditor, was not signed by a representative of

Petitioner. Having failed to obtain Petitioner's consent to the

sampling methodology, the Department also failed to establish

that the sampling methodology was revie w ed by its Executive

Director, as required pursuant to section 212.12(6)(c)(1) .

Accordingly, in this instance the Department is not entitled to

apply a statistical sampling method ology to project additional

tax liability.

50 . Petitioner 's birthday party planning services

constitute professional services which fall within the exemption

set forth in section 212.08(7)(v). Although certain

inconsequential elements, such as pizza, cards, and goodie bags,

were included, Petitioner paid taxes for all such item s upon

their purchase, and no separate charge for these items was made

to groups purchasing the birthday party services.

51 . Likewise, the fees charged for the birthday parties

held at Petitioner 's premises were not an admission charge,

which is subject to taxation pursuant to section 212.04.

Petitioner 's business location was not a place of amusement, nor

were tickets sold to each person entering the premises. In

fact, all children, regardless of whether they were associated

with a party, at any time, were invited to play on the swing

sets located there . This distinguishes Petitioner 's birthday

party services from an admission fee charged for the use of

equipment, such as with taxable admissions for activities suc h

as bowling, golfing, swimming, or pla ying b illiards . See e.g . ,

Fla. Admin. Code R. 12A - 1.005(3)(g).

52 . The central purpose of the birthday parties was to

provide services in organizing a party, followed by supervision

and cleanup. Such services are not taxable pursuant to c hapter

212. S ee Dept. of Rev . v . Camp Universe, Inc. , 273 So. 2d 148,

149 - 150 (Fla. 1st DCA 1973) (holding " A lthough it i s true that

there is recreation , there is amusement , and there i s sport at

Camp Universe, the C ourt considers that to be more i ncidental

and inclusi ve within the overall and overriding and more

important service of giving custodial treatment to children,

including supervisin g their activities and i nstruction.") .

Accordingly, Petitioner is not responsible for sales tax

associated with the sale of its birthday party services.

53 . T he evidence established that the gift cards which DOR

asserts created a tax liability were not sold in exchange for

income, but rather represented refunds or discounts extended to

customers by Petitioner . Consequently, Peti tioner is not

responsible for sales tax for the gift cards when no income was

ever received for same.

54 . Regarding the tax exempt sales , i t was und isputed that

only one such sale occurred for which Petitioner could not

produce the proper documentation. As noted above, the

Department's use of a sampling methodology to inflate this

single incident to a liability of $5,110.00 is rejected.

However, inasmuch as Petitioner failed to produce evidence that

the sale qualified for tax exemption, that tax liabili ty of

$315.90 must be borne by Petitioner.

55 . Section 212.0506 provides that service warranties are

subject to tax ation . A service warranty i s defined as a

"contract or agreement whi c h indemnifies the holder of the

contract or agreement for the cost of maintaining , repairing , or

replacing tangible personal property." § 212.0505(3), Fla.

Stat . The evidence established that the maintenance services

provided by Petitioner do not fall within this statutory

definition. Petitioner's c ustomer s purchased mai ntenance

services from Petitioner at the time they needed or desired such

services, and no indemnification for those services was

provided. Moreover , r ule 12A - 1.105(3 ) contemplates that service

warranties c an be cancelled , whereas the maintenance servi c es

provided by Petitioner were purc hased at the time desired; were

complete upon purchase ; and could not be c ancelled. Since the

maintenance services provided by Petitioner were not "service

warranties , " DOR failed to demonstrate that it has a factual or

le gal basis to impose a tax liability for such services.

56 . As to the Department's concern about u n r eported s ales

based upon the apparent discrepancies in Petitioner's state and

federal filings , the explanation provided by Petitioner's

accountant for thos e discrepancies is credible and is accepted.

Conversely, the Department's speculation that the discrepancy in

income reported on Petitioner's federal tax returns and state

Forms 1120S represent unreported sales, was not established by

credible evidence. Rather, the evidence established that

Petitioner did not underreport any of its sales, and in fact,

paid taxes on all sales even if it did not ultimately receive

full payment .

57 . The Department did not establish that Petitioner

failed to pay taxes on an y of its fixed assets used in the

business, and accordingly, Petitioner i s not liable for

additional taxes within this category.

58 . Section 213.34, Florida Statutes, provides in relevant

part:

(4) Notwithstanding the provisions of

section 215.26, the de partment shall offset

the overpayment of any tax during an audit

period against a deficiency of any tax,

penalty, or interest determined to be due

during the same audit period.

59 . Petitioner 's position that it is entitled to an offset

of its tax liabili ty against overpayments made is supported by

the decision in Dep ' t of Rev . v. Kemper Investors Life Ins. Co. ,

660 So. 2d 1124 , at 1129 - 1130 (Fla. 1st DCA 1995) , in which the

c ourt ruled as follows:

Here, although there was no audit of an

alleged overpaymen t of insurance premium

taxes in the audit period under review, we

are of the view that this omission works

against the Department, rather than against

the taxpayer. By reference to section

215.26 , the language of section 213.34(4)

appears to place a responsibility upon the

state, through its department s and

officials, correctly and timely to determine

the tax burden falling upon the taxpayer,

over and above its responsibilities in

merely responding to claims for a refund.

We view these amendments as remedial

legislation, and therefore applicable to the

resolution of the case before us.

(citations omitted )

As shown above, section 213.34 specifically

states that the Department shall offset the

overpay ment of any tax during an audit

period against a deficiency of any tax

determined to be due during the same audit

period.

60 . Petitioner is liable for a tax underpayment in the

amount of $315.90 for failure to document one tax exempt sale.

However, b ec ause this de ficiency is less than its tax

overpayments, the assessment should be voided.

RECOMMENDATION

Based upon the forgoing findings of fact and conclusions of

law, it is recommended that the Department of Revenue issue a

final order dismissing the Not ice of Proposed Assessment dated

April 6 , 2010.

DONE AND ENTERED this 2 9 th day of June , 2011 , in

Tallahassee, Leon County, Florida.

S

W. DAVID WATKINS

Administrative Law Judge

Division of Administrative Hearings

The DeSo to Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 2 9 th day of June , 2011 .

ENDNOTES

1 / PGM is the Project Group Manager, also referred to as the tax

audit supervisor.

2 / The Case Activity Report for the Reiser audit reflects that

the first contact between Auditor Krueger and Petitioner's

representatives was a convers ation on May 19, 2009.

3 / Whereas under Internal Revenue Service regulations the

payment of deposits toward the purchase of equipment was

reported by Petitioner as income immediately upon its receipt.

4 / As succinctly explained in a footnote to Petitio ner's

accountant's reconciliation statement for 2009 (Petitioner

Ex. 2):

Differences between recorded income and

sales reported on the FL sales tax returns

are a result of timing differences due to

invoice closing dates; The taxpayer reports

income on Fo rm 1120S o n the cash basis of

accounting; therefore, accounts receivable

at year end would not be reported on Form

1120S until job is completed and invoice is

paid.

5 / Petitioner established the amount of its overpayment for the

period March, 2006 , until the business closed in September,

2009, while the audit period was March, 2006 , through

February 28, 2009. Should the Department determine in its Final

Order that Petitioner is not entitled to the full amount of the

offset because a portion of the overpa yments accrued after the

audit period, Petitioner could pursue a refund of those

overpayments pursuant to section 215.26(2) .

COPIES FURNISHED :

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Str eet

Tallahassee, Florida 32314 - 6668

John Mika, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

Leanne Siegfried, Esquire

Halifax Law Group

Post Office Box 9397

Daytona Beach, Florida 32120 - 9357

Lisa Vickers, Executive Director

Department of Revenue

The Carlton Building, Room 1 04

501 South Calhoun Street

Tallahassee, Florida 32314 - 6668

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.