11-002567 Rhinehart Equipment Company vs. Department Of Revenue Status: Closed Recommended Order on Monday, August 27, 2012.

Summary: Petitioner's sales activities in Florida establish substantial nexus, therefore sales tax and interest is due on all non-exempt sales. Assessment is not time-barred.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RHINEHART EQUIPMENT CO. , )

)

Petitioner , )

)

vs. ) Case No. 11 - 25 67

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

SUMMARY RECOMMENDED ORDER

This came before the Administrative Law Judge W. David

Watkins on Petitioner's Motion for Summary Recommended Order ;

Respondent's Motion for Summary Recommended Order ; and the

responses in opposition to the motions filed by the opposing

party.

APPEARANCES

For Petitioner: Ayman F. Rizkalla, Esquire

Richard L. Winston, Esquire

K and L Gates, LLP

Suite 3900

200 South Biscayne Boulevard

Miami, Florida 33131

For Respondent: John Mika , Esquire

Office of the Attorney General

The Capitol , Plaza Level 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUES

The two issues for determination are: (1) whether Rhinehart

Equipment Co. ( Rhinehart) a foreign corporation domiciled in

Rome, Georgia, during the period July 1 , 2002 , through June 30,

2005, had "substantial nexus" with the state of Florida through

its advertising, sale, and delivery into Florida of new and used

heavy tractor equipment, sufficient to require it to collect and

remit sales tax generated by these sales to the Florida tax

authorities; and (2) Whether the applicable statute of

limitations for assessing sale tax had expired when DOR issued

its "final assessment " on September 11, 2009 .

PRELIMINARY STATEMENT

This cause arose when the Respondent, the Department of

Revenue, (Department), issued a "Notice of Final Assessment",

dated September 11, 2009, advising Petitioner that it was being

assessed $354,839.30 in Florida sales and use tax, with

interest, for the period July 1, 2002 , through June 30, 2005.

On September 30, 2009, Petitioner filed a letter of protest

with Respondent, and requested reconsideration of the

assessment. By letter dated March 9, 2011, Respondent advised

Rhinehar t that it had reconsidered the assessment and determined

that the tax and interest had been correct ly assessed . However,

due to the passage of time, the amount of additional interest

that had accrued brought the assessment to $380,967.89.

On May 9, 2011, Rhinehart filed a Petition for Formal

Hearing challenging the assessment , and on May 18, 2011, the

Department referred the petition to the Division of

Administrative Hearings for the conduct of a formal hearing and

rendition of a recommended order. On June 2, 2011, the

undersigned issued a notice of hearing, setting this matt er for

final hearing via teleconference on August 1, 2011, at locations

in Tallahassee and Miami. However, on June 29, 2011, the

parties filed an agreed motion to continue the final hearing in

order to complete discovery, and by order dated July 1, 2011,

the matter was placed in abeyance . On November 21, 2011 , the

matter was again noticed for final hearing, and again continued

at the request of the parties, ultimately being set for hearing

on May 1, 2012.

At the joint request of the parties a status con ference was

held on April 12, 2012. During the conference both parties

indicated their desire to waive the necessity of a final hearing

and instead, requested that the undersigned render a

determination based upon stipulated facts and dispositive

motions to be filed by the parties. On April 16, 2012, the

parties filed their Joint Proposed Briefing Schedule for the

submittal of stipulated facts, dispositive motions, and

responses to the motions.

On May 11, 2012, the parties filed a J oint S tipulation of

F acts and provided the undersigned with 22 stipulated exhibits.

Where relevant and material the joint stipulations have been

incorporated in this Summary Recommended Order .

Consistent with the agreed briefing schedule, both parties

filed motions for su mmary recommended order on May 21, 2011, and

responses in opposition to the opposing motion s on June 8, 2012.

The respective motions and responses have been carefully

considered in the preparation of this order.

All statutory references are to Florida S tatutes (2005),

and all rule references are to the current Florida

Administrative Code, unless otherwise indicated.

FINDINGS OF FACT

The Parties

1. Rhinehart Equipment Co. (ÐRhinehartÑ) is a retail heavy

equipment dealer located in Rome, Georgia , and does not own or

maintain a showroom or office location in Florida or directly

provide financing to any Florida resident for any of its sales.

Rhinehart does not provide Florida customers with any after - sale

services such as assembly, technical advice , or maintenance.

Rhinehart does not have any employees residing in

Florida.

2 . Respondent is an agency of the State of Florida charged

with the regulation, control, administration, and enforcement of

the sales and use tax laws of the s tate of Florida embodied in

Chapter 212, Florida Statutes, and as implemented by Florida

Administrative Code C hapter 12A - 1.

Background

3 . In early March 2005, the Department received an

anonymous tip pursuant to s ection 213.30, Florida Statute s .

The caller alleged that Rhinehart was selling equipment to

Florida residents without including sales and use tax in the

sales price and was delivering the equipment to Florida

customers using its own trucks . The tipster also alleged that

Rhinehart was adverti sing in a commercial publication Heavy

Equipment Trader , Florida E dition.

4 . By letter dated March 31, 2005, Respondent contacted

Rhinehart and advised that its business activities in the state

might be such as to require Rhinehart to register as a Ðdeal erÑ

for purposes of assessing Florida sales and use tax , and that it

could be required to file corporate income tax returns ,

potentially subjecting it to liability for other Florida taxes.

Included with this letter was a questionnaire for Rhinehart to

complete and return to the Department "to assist us in

determining whether Nexus exists between your company and the

State of Florida."

5 . On May 2, 2005, Rhinehart, without the advice of

c ounsel, responded to the DepartmentÓs inquiry by returning the

completed questionnaire, which was signed by its president, Mark

Easterwood.

6 . By letter addressed to Mr. Easterwood dated May 4,

2005, the Department advised that it had determined that

Rh inehart ha d nexus with the s tate of Florida and that therefore

Rhinehart was required to register as a dealer to collect and

remit Florida sales and use tax. According to the letter, the

Department's determination was "based on the fact that your

company makes sales to Florida customers and uses the company's

own truck to deliver goods to customers in the State of

Florida."

7 . B y application effective July 1, 2005, Rhinehart

registered to collect and/or report sales and use tax to the

s tate of Florida,

8 . In a letter dated June 8, 2005, the Department invited

Rhinehart to self - disclose any tax liability that it may have

incurred during the three - year period prior to its registration

effective date , to wit, July 1, 2002 , through June 30, 2005 (the

audit period) . Specifically, the letter stated:

At this time, we would like to extend an opportunity for you to

self - disclose any tax liability that you may have incurred prior

to your registration effective date (for the period July 1,

2002, through June 30, 2005). This Self - Disclosure Program

affords you an opportunity to pay any applicable tax and

interest due for the prior three - year period (or when Nexus was

first established ) without penalty assessments.

9 . In response to the Department's June 8, 2005 , letter ,

Rhinehart 's legal counsel sent a le tter dated August 8, 2005 ,

requesting a meeting or conference call to discuss a "few legal

issues" concerning the Department Ós determination regarding

nexus.

10 . Thereafter, Rhinehart began filing the required tax

returns relating to its Florida sales, noting in writing by

cover letter that the returns were being filed Ðunder protest . Ñ

Rhinehart began collecting and remitting sales and use tax

starting in July 2005. However, Rhinehart declined to provide

any information regarding sales made prior to Jul y 1, 2005.

11 . On September 30, 2005, R h inehart's legal counsel sent

the Department a detailed protest letter and advised that , in

Rhinehart's view : (1) the Department had not established

Ðsubstantial nexusÑ with Florida as interpreted under the

Commerce Clause of the United States Constitution; and (2)

Rhinehart was not required to register as a Florida dealer for

sales and use tax purposes.

12 . On May 23, 2008, the D epartment issued a "Notice of

Intent to M ake an Assessment , " and on September 11, 2009 , a

" Notice of Fina l Assessment , " for the audit period. The

assessment total ed $354,839.30, which was comprised of

$229,695.00 in taxes and $125,144.30 in interest. The

assessment was calculated by Respondent using RhinehartÓs sales

tax returns filed from July 2005 through March 2008. The Notice

of Final Assessment advised Rhinehart that the final assessment

would become binding agency action unless timely protested or

contested through the informal protest process , or by filing a

complaint in circuit court or petition for an administrative

hearing.

13 . Rhinehart unsuccessfully sought to resolve the matter

through informal review and then ultimatel y filed its petition

seeking an admi nistrative hearing to challenge the Department's

September 11, 2009 , assessment.

14 . Based o n sales records and other information provided

by Rhinehart, on March 9, 2011, the Department revised its

September 11, 2009 , assessment. The revised assessment totaled

$380,967.89, which included the past due sales and use tax

liability, and interest accrued through that date .

Rhinehart's Florida Activities

15 . Rhinehart produced records of its sales to Florida

customers during the audit period. Th ose records reflect ed

sales to 116 different Flo rida customers as follows: one sale in

the second - half of 2002; 12 sales in 2003; 84 sales in 2004; and

19 sales thorough June 2005. The total value of the merchandise

sold to Florida residents was $2,928,981.00.

16 . The majority of Rhinehart's sales during the audit

period were "sight unseen" by the customer, and were negotiated

by telephone.

17 . Numerous hurricanes made landfall in Florida during

the 2004 and 2005 hurricane season. Since 2005 , RhinehartÓs

sales to Florida customers have substantially dropped, with no

sales occurring in some quarters.

18 . During the audit period Rhinehart accepted a number of

trade - ins toward the purchase of new equipment . The records

showed trade - in transactions as follows: none (0) in 2002; five

(5) in 2003; eleven (11) in 2004; and none in 2005.

19 . Concurrent with the delivery of the new equipment

purchased from Rhinehart, u sed equipment taken in trade was

transported by Rhinehart employees using Rhinehart transport

equ ipment back to RhinehartÓs location in Georgia. In these

instances, the trade - in equipment remained with the Florida

customer following negotiation of the sale and prior to

Rhinehart physically taking possession of it.

20 . During the audit period t he e quipment accepted as

trade - in s had a total value of $168,915.00. The valuation of

trade - in equipment was done based on a customerÓs

repre sentations (i.e. sight unseen, with no Rhinehart employee

personally inspected the equipment) and pursuant to industry

guidelines.

21 . RhinehartÓs drivers would deliver the purchased

equipment , load any trade - in equipment, and return to Georgia,

if possible, on the same day. To the extent that the Department

of Transportation regulations mandated that they cease driving

in a given day, the drivers would rest in the back of their

trucks for the required amount of time, sometimes overnight, and

then complete their journey back to Georgia.

22 . Rhinehart's dealership is located approximately 300

miles north of the F lorida state line. Sales invoices reflect

that Rhinehart's customers were located throu ghout the state of

Florida, as far south as Miami on the east coast and Naples on

the west coast.

23 . During the audit period , Rhinehart placed

advertisements with w ith the Trader Publishing Company , located

in Clearwater, Florida. The Trader Publishing Company is the

publisher of the Heavy Equipment Trader magazine which is

distributed in Georgia, Alabama, Florida, and Tennessee. Trader

Publishing Company publishes a "Florida Edition" of the magazine

which is directed to potential heavy equipment customers located

in Florida.

24 . Stipulated Exhibit 19 consists of advertising invoices

for advertisements placed by Rhinehart in the Florida Edition of

Heavy Equipment Trader magazine during the audit period. These

invoices establish that Rhinehart regularly and systematically

purchased advertising for its products which was targeted toward

potential customers located in Florida.

CONCLUSIONS OF LAW

25 . The D ivision of Administrative Hearings has

jurisdiction of the subject matter of and the parties to this

proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (20 1 2 ).

Is the Assessment Time - Barred?

26 . As a threshold issue it must first be determined

whether the Department has the authority to pursue the

assessment at issue, or whether the applicable statutory

limitations period had run, thereby precluding any assessment.

Petitioner asserts that the ass essment at issue is time - barred.

Specifically, Petitioner argues that the Department was obliged

to issue the assessment, or take affirmative steps to toll the

limitations period, within three years of Rhinehart's

September 30, 2005 , protest letter to the Department .

27 . Section 95.091(3)(a), Florida Statutes, provides:

(3)(a) With the exception of taxes levied

under chapter 198 and tax adjustments made

pursuant to ss. 220.23 and 62 4.50921 , the

Department of Revenue may determine and

assess the amount of any tax, penalty, or

interest due under any tax enumerated in

s. 72.011 which it has authority to

administer and the Department of Business

and Professional Regulation may determine

and assess the amount of any tax, penalty,

or interest due under any tax enumerated in

s. 72.011 which it has authority to

administer:

1.a. For taxes due before July 1, 1999,

within 5 years after the date the tax is

due, any return with respect to the tax is

due, or such return is filed, whichever

occurs later; and for taxes due on or after

July 1, 1999, within 3 years after the date

the tax is due, any return with respect to

the tax is due, or such return is filed,

whichever occurs later;

b. Effective July 1, 2002, notwithstanding

sub - subparagraph a., within 3 years after

the date the tax is due, any return with

respect to the tax is due, or such return is

filed, whichever occurs later;

2. For taxes due before July 1, 1 999,

within 6 years after the date the taxpayer

either makes a substantial underpayment of

tax, or files a substantially incorrect

return;

3. At any time while the right to a refund

or credit of the tax is available to the

taxpayer;

4. For taxes due before July 1, 1999, at

any time after the taxpayer has filed a

grossly false return;

5. At any time after the taxpayer has

failed to make any required payment of the

tax, has failed to file a required return,

or has filed a fraudulent return, except

th at for taxes due on or after July 1, 1999,

the limitation prescribed in subparagraph 1.

applies if the taxpayer has disclosed in

writing the tax liability to the department

before the department has contacted the

taxpayer ; or

6. In any case in which the re has been a

refund of tax erroneously made for any

reason:

a. For refunds made before July 1, 1999,

within 5 years after making such refund; and

b. For refunds made on or after July 1,

1999, within 3 years after making such

refund, or at any time af ter making such

refund if it appears that any part of the

refund was induced by fraud or the

misrepresentation of a material fact.

(Emphasis added) .

28 . As can be seen by the above, the Department may pursue

an assessment " a t any time . . . " after a taxpayer has failed to

make any required payment of the tax, unless the taxpayer has

disclosed in writing the liability before being contacted by the

Department, in which case a three - year limitations period

applies.

29 . As pointed out by Rhineha rt in its motion, on

September 30, 2005 , Rhinehart filed with the Department its

protest (1) asserting that there was an insufficient nexus

between Rhinehart and the s tate of Florida; and (2) providing

sufficient information (including RhinehartÓs tax ID n umber,

address, and name of counsel) for the Department to pursue an

investigation or audit .

30 . Notwithstanding its written protests that nexus with

the s tate of Florida did not exist, Rhinehart's September 30,

2005 , letter came well after Rhinehart had been contacted by the

Department with respect to potential tax liability. On

March 31, 2005, the Department contacted Rhinehart to advise

that the company "may have Nexus" with Florida, and requesting

Rhinehart to complete and return the nexus invest igation

questionnaire. Shortly thereafter, on May 4, 2005, the

Department again wrote to Petitioner, this time to advise that

it had determined that the company had nexus with Florida, and

would therefore be liable for sales and use tax on products sold

t o Florida residents. Both of these "contacts" from the

Department came well before Petitioner's September 30, 2005,

letter.

31 . Inasmuch as Rhinehart did not disclose in writing its

tax liability before being contacted by the Department, the

three - year limitation set forth in section 95.091(3)(a)1.a. does

not apply, and the Department's assessment in this instance is

not time - barred.

Is There a "Substantial Nexus" with Florida ?

32 . Section 212.21(2), provides that it is the specific

legislative intent to tax every sale provided for in that

c hapter except such as shall be proven to be specifically

exempted by provisions of c hapter 212.

33 . Section 212.02, provides as follows:

Section 212.02 definiti ons. - The following

terms and phrases when used in this chapter

have the meanings ascribed to them in this

section, except where the context clearly

indicates a different meaning.

* * *

(15) 'Sale' means and includes:

(a) Any transfer of title or po ssession or

both, exchange, barter, license, lease, or

rental, conditional or otherwise, in any

manner or by any means whatsoever, of

tangible personal property for a

consideration.

34 . Pursuant to s ection 212.18, any person desiring to

engage in or cond uct business in Florida as a dealer, as defined

in c hapter 212, must obtain a certificate of registration from

the Department, and the certificate issued by the Department

grants dealers the privilege of conducting business in the state

and imposes an obli gation to collect and timely remit sales tax.

See also Fla. Admin. Code R. 12A - 1.060.

35 . Florida Administrative Code R ule 12A - 1.038 provides

that transactions that result in shipment of tangible personal

property into the s tate of Florida are subject to sales and use

tax unless specifically exempt, and the selling dealer must

establish the exempt status of a transaction at the time of sale

with a supporting re - sale certificate or some documentation to

support the exempt status of the transaction.

36 . It has been determined that the taxability of a

transaction made by an out - of - state vendor into Florida

resulting in shipment of the goods which are the subject of the

transaction into Florida, depends on the out - of - state vendor's

"substantial nexus" wit h the state. Thus, the cases of Nat 'l

Bellas He ss, Inc. v. Illinois Dep't of Revenue , 386 U.S. 753

(1967) and Quill Corp . v. North Dakota , 504 U.S. 298 (1992)

(which re - affirmed the holding in the Nat' l Bellas Hess opinion)

stand for the proposition that if an out - of - state vendor only

has a connection with customers in the taxing state by common

carrier or mail, used in delivering goods to customers in the

state, then the state where the goods are delivered may not

compel the out - of - state vendor to collect a sales or use tax.

This is because a vendor whose only co ntacts with the taxing

state are by mail or common carrier lacks the "substantial

nexus" to the taxing state required by the cases interpreting

the commerc e clause of the United States Constitution. See

Complete Auto Transit, Inc. v. Brady , 430 U.S. 274 (1977), which

sets out the test whereby a state - imposed tax could be sustained

against a challenge under the commerce clause, which test

included the requir ement of a substantial nexus with the taxing

state.

37 . The principle running through these cases was affirmed

and followed in Florida in more recent times in Florida Dep' t of

Revenue v. Share International, Inc. , 667 So. 2d 226 (Fla. 1st

D CA 1995). Th e court, speaking through Judge Barfield

(concurred in by Judges Kahn and Shivers) followed this

"substantial nexus" test, established through the above

decisions. The factual situation in that case involved the

presence of the appellee Share Internationa l, Inc., in Florida

for three days a year at a seminar it conducted. The seminars

were conducted for chiropractors during the winter months in

Florida. Share International , Inc., sold certain items in

Florida during the seminars, registered with the Depa rtment and

collected and remitted the sales tax on those items sold in

Florida during the seminars. It did not, however, collect

Florida s ales taxes on sales or orders made by telephone or mail

from residents in Florida, but delivered by mail or common

ca rrier, or on orders received during the Florida seminars but

later delivered by mail or common carrier. The court upheld the

trial judge's finding that imposition and collection of the

sales tax on this out - of - state vendor would be unconstitutional

in ter ms of imposing a burden on interstate commerce in

violation of the federal commerce clause. This was because the

presence in the State for approximately three days per year of

Share employees and products, under the circumstances presented

in that case di d not establish a substantial nexus with Florida

which would permit the s tate of Florida to impose on Share the

duty to collect and remit taxes on its mail order sales to

Florida residents. The court, through Judge Barfield's opinion,

after affirming the trial judge, certified the question to the

Florida Supreme Court, as to whether, under the facts of that

case, "substantial nexus," within the meaning set forth in the

Quill Corporation , and Nat' l Bellas Hess decisions, existed

which would permit Florida to require Share to collect sales and

use taxes on all goods sold to Florida residents. In due

course, the Florida Supreme Court in Florida Dep' t of Revenue v.

Share International, Inc. , 676 So. 2d 1362 (Fla. 1996), speaking

through Justice Anstead, affirmed and adopted the holding of the

First District Court of Appeal. The Department of Revenue later

petitioned for w rit of c ertiorari to the U . S . Supreme Court.

The Supreme Court in Dep't of Revenue v. Share International ,

519 U.S. 1056 (1997), denied certiorari .

38 . With respect to the issue of nexus, the facts before

the undersigned paint a significantly different picture than

those presented in National Bellas Hess , Quill , and Share .

Specifically, Rhinehart's physical presence in the state during

the audit period was regular and substantial. Using its

e mployees and transport equipment, Rhinehart consummated 116

sales and deliveries to Floridians located across the state.

The value of its sales to Floridians during that period was

$2,928,981.00. And unlike the situations in National Bella

Hess , Quill , and Share , the goods sold by Rhinehart were not

delivered by mail or common carrier, but rather by employees of

Rhinehart, using Rhi nehart transport vehicles . 1 /

39 . It is also noteworthy that not infrequently equipment

physically located in Florida was accepted by Rhinehart in

trade. The significance of these transactions is that, after

the sales contract had been negotiated and credit given for the

trade, the equipment remained in Florida until Rhinehart

employees retrieved it - - usually contemporaneously with the

delivery of the new equipment.

40 . Perhaps most significantly, the facts establish t hat

Rhinehart deliberately and systematically targeted Florida

customers in its advertising. This was not an instance of

customers who happened to live in Florida visiting the company's

website, viewing the available equipment, and placing a

telephonic or der. Rather, Rhinehart directly and regularly

advertised in a Florida publication specifically circulated to

potential Florida customers. This was a deliberate (and

successful) exploitation of the consumer market in Florida.

41 . Petitioner argues it sh ould not be subjected to

Florida taxation b ased on the 1954 United States Supreme Court

decision in those in Miller Brothers Co. v Maryland , 347 U.S.

340 (1954). However, n ot only are the facts in the present case

different as compared to Miller Brothers , but so is the legal

rationale underpinning the court's decision.

42 . The facts in Miller Brothers were that the store's

sales to Maryland customers were all made in Delaware where the

store was located ; there were no employees or agents of the

store sol iciting sales in Maryland ; it was Miller Brother's

policy never to accept telephone orders ; most of the merchandise

sold required personal inspection an d selection at the store in

Dela ware; although the store did not advertise directly in

Maryland it occas ionally did send circulars to Maryland

customers; and finally, the store delivered merchandise in

Maryland, sometimes using its own trucks, sometimes common

carrier.

43 . In contrast to the Miller Brothers scenario ,

Rhinehart's sales were all consumated in Florida. As noted

earlier, section 212.02(15) defines " s ale" to mean (a) Any

transfer of title or possession, or both, exchange, barter,

license, lease, or rental, conditional or otherwise, in any

manner or by any means whatsoever, of tangible personal property

for a consideration. Sale negotiations between Rhinehart and

the Florida customer usually began over the telephone , and were

mostly made sight unseen. Physical t ransfer of possession

always took place in Florida , and i n several instances equipm ent

located in Florida was taken in trade .

44 . The Department persuasively argues that the Illinois

case of Brown's Furniture Inc. v. Wagner , 171 Ill . 2d 410 , 665

N.E. 2d 795 (1996) provide s guidance . The issue in Brown's

Furniture was whether a Missouri f urniture retailer, who

physically sent its representatives to Illinois to make frequent

and regular deliveries of furniture with its own trucks,

satisfied the substantial nexus requirement. The state Supreme

Court found it did. The court commented on the utility of the

Miller Brothers decision, stating "because Quil1 made clear that

under contemporary due process doctrine a company is no longer

required to be physically present within a state before use tax

collection duties may be imposed , the continued authority of

Miller Brothers is in considerable doubt . " I d . at 804 . To the

extent Miller Brothers remained relevant precedence, the

Illinois Supreme Court observed it to be factually different.

The same differences exist in the present case.

45 . The facts found herein compel the conclusion that

Rhinehart's business activities establish substantial nexus with

the state of Florida.

Florida's Mail Order Statute

46 . Section 212.0596 governs the taxation of "mail order

sales , " and provides in pertinent part:

212.0596 Taxation of mail order sales. Ï

(1) For purposes of this chapter, a "mail

order sale" is a sale of tangible personal

property, ordered by mail or other means of

communication, from a dealer who receives

the order in a nother state of the United

States, or in a commonwealth, territory, or

other area under the jurisdiction of the

United States, and transports the property

or causes the property to be transported,

whether or not by mail, from any

jurisdiction of the United States, including

this state, to a person in this state,

including the person who ordered the

property.

(2) Every dealer as defined in s.

212.06 (2)(c) who makes a mail order sale is

subject to the power of this state to levy

and collect the tax imposed by this chapter

when:

* * *

(d) The property was delivered in this

state in fulfillment of a sales contract

that was entered into in this state, in

accordance with applicable conflict of laws

rules, when a person in this state accepted

an offer by ordering the property;

( e) The dealer, by purposefully or

systematically exploiting the market

provided by this state by any media -

assisted, media - facilitated, or media -

solicited means, including, but not limited

to, direct mail advertising, unsolicited

distribution of catalogs, computer - assisted

shopping, television, radio, or other

electronic media, or magazine or newspaper

advertisements or other media , creates nexus

with this state;

(Emphasis added) .

47 . According to the above statute, Rhinehart's sales

during the audit period meet the definition of "mail order

sales , " since the orders were telephonically received in Georgia

and resulted in the transport of tangible personal property to

customers located in Florida . Moreover, pursuant to section

212.0596(2)(d) and (e), those sales subject Rhinehart to

Florida's taxing authority, since two of the statutory indicia

of nexus (orders placed by Florida residents for delivery in

Florida , and magazine advertising in Flori da) have been met.

48 . Section 212.0596 statutorily confirms that RhinehartÓs

business activities in Florida during the audit period create

nexus with the state and subject RhinehartÓs sales to Florida

taxation . Rhinehart has not challenged the constitu tionality of

this statute, nor does this tribunal possess the authority to

render a determination as to the statuteÓs constitutionality .

Florida Marine Fisheries Comm Ó n v. Pringle , 736 So.2d 17 (Fla.

1st DCA 1999) . Further , the undersigned is required to construe

applicable statutes in a manner that effectuates their

legislative intent and, whenever possible, preserves their

constitutionality . See Myers v. Hawkins , 362 So.2d 926, 930

(Fla. 1978); State v. McDonald , 357 So.2d 405, 407 (Fla. 1978);

Novo v. Scott , 438 So.2d 477, 478 (Fla. 3d DCA 1983) (a statute

should be construed in a manner that effectuates legislative

intent, and all doubts should be resolved in favor of its

constitutionality).

Exemption for Sale of Certain Farm Equipment

49 . Florida l aw specifically exempts the sale of certain

power farm equipment within the state when the purchaser

provides the seller with a certification that the equipment

qualifies for the exemption. Section 212.08(3) provides:

(3) EXEMPTIONS; CERTAIN FARM EQUIPME NT. --

There shall be no tax on the sale, rental,

lease, use, consumption, or storage for use

in this state of power farm equipment used

exclusively on a farm or in a forest in the

agricultural production of crops or products

as produced by those agricultura l industries

included in s. 570.02 (1), or for fire

prevention and suppression work with respect

to such crops or products. Harvesting may

not be construed to include processing

activities. This exemption is not forfeited

by moving farm equipment between farms or

forests. However, this exemption shall not

be allowed unless the purchaser, renter, or

lessee signs a certificate stating tha t the

farm equipment is to be used exclusively on

a farm or in a forest for agricultural

production or for fire prevention and

suppression, as required by this subsection.

Possession by a seller, lessor, or other

dealer of a written certification by the

p urchaser, renter, or lessee certifying the

purchaser's, renter's, or lessee's

entitlement to an exemption permitted by

this subsection relieves the seller from the

responsibility of collecting the tax on the

nontaxable amounts, and the department shall

loo k solely to the purchaser for recovery of

such tax if it determines that the purchaser

was not entitled to the exemption.

50 . A review of the Rhinehart sales invoices during the

audit period indicates the potential that some of the equipment

purchased, such as tractors, mowers, augers, front - end loaders,

tillers, etc. , 2 / may have been purchased for use exclusively on a

farm for agricultural production 3 / purposes or for fire

prevention and suppression relating to agricultural activities ,

and therefore qualify for exemption from ta xation. It can

reasonably be inferred that Rhinehart Ós customer s who purchased

qualifying equipment during the audit period would have provided

the required certification for agricultural exemption had they

been advised that s ales tax would otherwise be included in the

purchase price . Accordingly, in fairness to the Petitioner , who

was not advised until nearly the end of the audit period of its

responsibility to collect and remit sales tax to Florida, a

reasonable period of ti me (e.g. 90 days) should be given to

Rhinehart to attempt to contact customers who purchased

equipment during the audit period to ascertain whether the

equipment would have qualified for the agricultural exemption,

and if so, to obtain the necessary certif ications from the

purchasers. Any sales documented to qualify for the exemption

should be removed from PetitionerÓs tax assessment, along with

the accrued interest, in arriving at RhinehartÓs final tax

liability for the audit period.

RECOMMENDATION

Having considered the foregoing Findings of Fact,

Conclusions of Law, the evidence of record, and the pleadings

and arguments of the parties, it is, therefore,

RECOMMENDED that a final order be entere d by the Department

of Revenue :

1) C onfirming that substantial nexus existed during the

audit period and that Petitioner was therefore subject to the

taxing authority of the state of Florida;

2) Confirming that the assessment at issue is not time -

barred;

3) Allowing Petitioner a reasonable period of ti me to

determine whether any of the sales it made during the audit

period would have qualified as exempt sales pursuant to s ection

212.08(3) and if so, to obtain the required certifications from

the purchasers; and

4) I mpos ing on Petitioner an assessment for the unpaid

taxes, with accrued interest , for all sales during the audit

period not qualifying for exemption .

DONE AND ENTERED this 2 7th day of August , 2012 , in

Tallahassee, Leon County, Florida.

S

W. DAVID WATKINS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto 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

D ivision of Administrative Hearings

this 2 7th day of August , 2012 .

ENDNOTES

1 / In Georgia, the Bellas Hess "safe harbor" insulating out - of -

state vendors from taxation applies only when delivery of goods

is made via common carrier or U.S. mail. Ga. Code Ann .

§ 48 - 8 - 2(8)(L)

2 / See rule 12A - 1.087(3)(a) for a non - exhaustive list of tax -

exempt power farm equipme nt.

3/ "Agricultural production" means the production of plants and

animals useful to humans, including the preparation, planting,

cultivating, or harvesting of these products or any other

practices necessary to accomplish production through the harvest

phase, and includes aquaculture, horticulture, floriculture,

viticulture, forestry, dairy, livestock, poultry, bees, and any

and all forms of farm products and farm production.

§ 212.02(32), Fla. Stat.

COPIES FURNISHED :

John Mika, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

[e-mail]

Ayman F. Rizkalla, Esquire

K and L Gates, LLP

Suite 3900

200 South Biscayne Boulevard

Miami, Florida 33131

[e-mail]

Nancy Te rrel, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

[e-mail]

Marshall Stranburg, Interim Exec utive Dir ector

Department of Revenue

Post Office Box 666 8

Tallahassee, Florida 32314 - 6668

[e-mail]

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.