11-003548 Fmg Enterprises, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Monday, October 24, 2011.

Summary: Taxpayer was required to post security as a condition of its sales and use tax certificate of registration.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FMG ENTERPRISES, INC. , )

)

Petitioner , )

)

vs. ) Case No. 11 - 3548

)

DEPARTMENT OF REVENUE , )

)

Respondent . )

)

RECOMMENDED ORDER

This case was heard on September 26, 2011, by video

teleconference at sites in Tallahassee, Florida and

Jacksonville, Florida, before E. Gary Early, an Administrative

Law Judge assigned by the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Michael R. Yokan, Esquire

Post Office Box 40755

Jacksonville, Florida 32203

For Respondent: Carrol Y. Cherry, Esquire

Assistant Attorney General

Office of the Attorney General

Revenue Litigation Bureau

The Capitol, PL - 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUE

W hether FMG Enterprises, Inc. must obtain and post security

in the amount of $21,250 as a condition of retaining its sales

and use tax dealerÓs certificate of registration as alleged in

the DepartmentÓs July 14, 2011 Notice of Intent to Revoke

Registration.

PRELIMINARY STATEMENT

On May 18, 2011, the Department executed a Notice of Intent

to Revoke Registration which required Petitioner to provide

security in the amount of $60,000 as a condition of maintaining

its sales and use tax dealerÓs registration certificate. The

Notice of Intent was based on PetitionerÓs failure to remit

sales tax collecte d by Petitioner in connection with the

operation of its business in March, 20 11. The $60,000 figure

was calculated by multiplying the DepartmentÓs estimated

collections of $5,000 per month times twelve months.

On June 13, 2011, Petitioner filed a Request for Formal

Administrative Hearing to contest the amount of the security

requ ested. An informal conference was held on June 21, 2011, at

which time the Department was advised that the actual opening

day of the PetitionerÓs business was April 7, 2011. As a result

of the information received by the Department at the time of the

inf ormal conference, it was determined that estimated tax

liability, based on returns for April and May, 2011, was in the

range of $1,500 to $1,800 per month. Based on the new

information, the Department issued an amended Notice of Intent

to Revoke Registrat ion in which the Department modified the

amount of the security to be provided to $21,250. The amended

Notice of Intent was issued on July 14, 2011.

On July 21, 2011, the Department transmitted PetitionerÓs

Request for Formal Administrative Hearing to the Division of

Administrative Hearings. Although Petitioner did not file an

amended petition, the Request for Formal Administrative Hearing

is deemed to relate to the DepartmentÓs July 14, 2011 amended

Notice of Intent to Revoke Registration.

Although this case is styled as FMG Enterprises, Inc. v.

Department of Revenue , as a case in which the Department is

seeking sanctions against FMG Enterprises, Inc.Ós sales and use

tax dealerÓs registration certificate, the burden of proof is on

the Department - de spite its designation as the Respondent - to

prove the facts necessary to support the relief sought. See

Fla. Admin. Code R. 28 - 106.2015.

The final hearing was scheduled for September 26, 2011 by

video hearing in Tallahassee, Florida and Jacksonville, Florida.

The hearing was held as scheduled. At the commencement of the

hearing, the Department moved to have two sets of requests for

admissions, served on August 18, 2011, deemed admitted due to

PetitionerÓs failure to timely answer. There having been no

objections to the admissions, and the time for filing responses

having passed, the RespondentÓs First Requests for Admission,

Nos. 1 - 13 and RespondentÓs Second Requests for Admission,

Nos. 1 - 2 were accepted as having been admitted.

Petitioner presente d no witnesses or exhibits in its case

in chief. Respondent presented the testimony of Alan Encinosa,

a Revenue Specialist in the DepartmentÓs Jacksonville service

center, and Blake Hartland, the Service Center Manager in the

DepartmentÓs Jacksonville ser vice center. Respondent offered

RespondentÓs Exhibits 1 - 9, which were admitted into evidence

without objection.

The parties were granted ten days within which to file

proposed recommended orders. The Department timely filed a

Proposed Recommended Order, which has been duly considered by

the undersigned in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Respondent is the agency of the state of Florida

charged with the duty to enforce the collection of taxes imposed

pursuant to chapter 2 12, Florida Statutes, to issue warrants for

the collection of taxes, interest, and penalties and, where

necessary, to require a cash deposit, bond, or other security,

as a condition to a person obtaining or retaining a dealerÓs

cer tificate of registration under c hapter 212.

2. Petitioner is a Florida corporation with its principal

and mailing address at 9726 Touchton Road, Suite 301,

Jacksonville, Florida 32246. At all times material to this

case, Petitioner operated a restaurant and club known as Mojito s

Bar and Grill at its principal address. Petitioner is a

ÐdealerÑ as defined in section 212.06(2), Florida Statutes.

3. Chapter 212 requires specified persons conducting

business within the state to register with the Department and to

obtain a certifica te of registration for purposes of tax

collection.

4. Petitioner made application for and received a dealerÓs

certificate of registration, No. 26 - 8015498892 - 8, for the

operation of Mojitos Bar and Grill. The application indicated

that the business was t o open in March 2011.

5. Mojitos Bar and Grill did not open for business until

April 7, 2011.

6. As a dealer, the Petitioner was required to collect

sales and use taxes from patrons and customers of Mojitos Bar

and Grill, and to submit monthly tax returns and collected taxes

to the Department. Sales and use taxes for any given month are

due on the first day of the succeeding month, and must be paid to

the Department on or before the 20th day of that succeeding

month.

7. Petitioner did not fil e a Sales and Use Tax Return for

March 2011. Based on the March 2011 opening date referenced in

the application, the Department issued its May 18, 2011 Notice

of Intent to Revoke Registration and a Warrant demanding payment

in the amount of $ 5,046.85, whi ch represented the estimated tax

liability for March 2011, in the amount of $5,000.00, plus

interest and fees.

8. The $5,000.00 monthly tax liability estimate was

calculated using an algorithm developed by SAP, a German

software com pany. The algorithm p roduced the estimate based on

the location and type of the business and surrounding

businesses. Based on that figure, the Department determined

that it was necessary to require Petitioner to post security in

the amount of $60,000.00, which represented the projected

monthly tax estimate for one year.

9. An informal hearing was held on June 21, 2011. The

Department was provided with information that the business was

not open in March 2011. As a result, the Department filed a

satisfaction of the warrant a nd release of lien in the official

records of Duval County. The Department was also presented with

records of tax collections for April and May of 2011.

10. Petitioner filed its Sales and Use Tax Return for

April 2011, listing taxes collected for that m onth in the amount

of $2,107.57. The check for the April 2011 taxes was returned

for insufficient funds. The April 2011 tax liability has since

been paid.

11. Petitioner filed Sa les and Use Tax Returns for

May 2011, and paid said tax in the amount of $ 1,437.91. The

check was dated June 20, 2011, but the return was filed late.

Petitioner was assessed a late penalty of $125.38, although the

record contains no evidence that Petitioner had notice of the

late penalty before August 15, 2011. Petitioner has not paid

the late penalty assessed against it for the May, 2011 taxes.

12. Based on the April and May, 2011 sales and use tax

collections, the Department amended the amount of security being

required as a condition of Petitioner maintaining its sales and

use tax dealerÓs registration certificate from $60,000.00 to

$21,250.00. The amended Notice of Intent was issued on July 14,

2011.

13. Pursuant to notice provided in the amended Notice of

Intent, an informal conference was convened on August 15, 2 011.

No representative of Petitioner appeared at the informal

conference.

14. Although the Petitioner did not enter into a

compliance agreement with the Department as a result of the

August 15, 2011 informal conference, all ta xes due and owing for

the A pril 2011 and May 2011 collection periods have been paid .

Thus, Petitioner has materially resolved its tax liability for

those months, with the exception of non - payment of the

relatively small late penalty of $125.38 . Standing alone, the

facts of those t wo monthly payments are not sufficient grounds

to support a revocation of PetitionerÓs sales and use tax

dealerÓs registration certificate.

15 . The Department has required security in the amount of

$21,250.00. That equates to a monthly estimated sales tax

collection of approximately $1,770.00. The sales tax

collections in April 2011 and May 2011 were for $2,107.57 and

1,437.90, respectively. Therefore, the figure calculated by the

Department is reasonable.

16 . The Department generally requires tha t, when security

is determined to be necessary, one year of estimated tax

collections be posted. That length of time can be shorter based

on the circumstances. Given that the first two months of

PetitionerÓs operation as a dealer resulted in returned and late

payments, and since the May 2011 late penalty remains in

arrears, the DepartmentÓs decision to require one year of

estimated collections as security is reasonable.

17. The Department raised issues relating to allegations

of late or returned payme nts for taxes collected in June, July,

and August, 2011. However, since those issues do not form the

basis for the July 14, 2011, amended Notice of Intent to Revoke

Registration, and have not otherwise been pled, the undersigned

has not made any findings, or formulated any conclusions

regarding those issues.

18 . An informal drive - by inspection of Mojitos Bar and

Grill conducted on September 19, 2011 by Mr. Hartland indicated

that it was no longer open for business. That status was

confirmed by counsel fo r Petitioner.

CONCLUSIONS OF LAW

A. Jurisdiction .

19 . The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and of

the parties thereto pursuant to sections 120.569 and 120.57(1),

Florida Statutes.

B. Stand ards

20 . At all times material to this case, Petitioner was a

"dealer" as defined at subsection 212.06(2)(a) who was required

to register with the Department, to collect sales and use taxes

on behalf of the state, and to remit them to the Department on a

monthly basis.

21 . This matter involves two separate issues. The first

issue is whether the Department may require Petitioner to post

security in the amount of $21,250 as a condition of its sales

and use tax dealerÓs registration certificate. The s econd issue

is whether, if Petitioner fails to post such security, its

certificate may be revoked in this proceeding.

22 . Section 212.14 provides in pertinent part that:

212.14 Departmental powers; hearings;

distress warrants; bonds; subpoenas and

sub poenas duces tecum. Ï

* * *

(4) In all cases where it is necessary to

ensure compliance with the provisions of

this chapter, the department shall require a

cash deposit, bond, or other security as a

condition to a person obtaining or retaining

a dealerÓs certificate of registration under

this chapter. Such bond shall be in the

form and such amount as the department deems

appropriate under the particular

circumstances. Every person failing to

produce such cash deposit, bond or other

security as provided for herein shall not be

entitled to obtain or retain a dealerÓs

certificate of registration under this

chapter, and the Department of Legal Affairs

is hereby authorized to proceed by

injunction, when so requested by the

Department of Revenue, to prevent su ch

person from doing business subject to the

provisions of this chapter until such cash

deposit, bond or other security is posted

with the department, and any temporary

injunction for this purpose may be granted

by any judge or chancellor authorized by law

to grant injunctions. . . .

23 . Section 212.18 provides in pertinent part that:

212.18 Administration of law; registration

of dealers; rules. Ï

* * *

(2) The department shall administer and

enforce the assessment and collection of the

taxes, intere st, and penalties imposed by

this chapter. . . .

* * *

(3)(d) The department may revoke any

dealer's certificate of registration when

the dealer fails to comply with this

chapter. Prior to revocation of a dealer's

certificate of registration, the depart ment

must schedule an informal conference at

which the dealer may present evidence

regarding the department's intended

revocation or enter into a compliance

agreement with the department. The

department must notify the dealer of its

intended action and th e time, place, and

date of the scheduled informal conference by

written notification sent by United States

mail to the dealer's last known address of

record furnished by the dealer on a form

prescribed by the department. The dealer is

required to attend t he informal conference

and present evidence refuting the

department's intended revocation or enter

into a compliance agreement with the

department which resolves the dealer's

failure to comply with this chapter. The

department shall issue an administrativ e

complaint under s. 120.60 if the dealer

fails to attend the department's informal

conference, fails to enter into a compliance

agreement with the department resolving the

dealer's noncompliance with this chapter, or

fails to comply with the executed comp liance

agreement.

24 . The Department complied with the notice requirements

related to the informal confer ence for the April 2011 and

May 2011 tax payments through its July 14, 2011 Notice of Intent

to Revoke Registration.

C. The Burden and Standard of Proof .

2 5 . The Department bears the burden of proving the

specific allegations of fact that support the relief sought in

the Notice of Intent to Revoke Registration by clear and

convincing evidence. § 120.57(1)(j), Fla. Stat.; Latham v. Fla.

CommÓn on Et hics , 694 So. 2d 83, 87 (Fla. 1st DCA 1997); see

also DepÓt of Banking & Fin., Div. of Securities and Investor

Protection v. Osborne Stern and Co. , 670 So. 2d 932 (Fla. 1996);

Ferris v. Turlington , 510 So. 2d 292 (Fla. 1987); and Pou v.

DepÓt of Ins. and T reasurer , 707 So. 2d 941 (Fla. 3d DCA 1998).

26 . Clear and convincing evidence Ðrequires more proof

than a Òpreponderance of the evidenceÓ but less than Òbeyond and

to the exclusion of a reasonable doubt.ÓÑ In re Graziano ,

696 So. 2d 744, 753 (Fla. 1997) . For proof to be considered

clear and convincingÑ . . . the evidence

must be found to be credible; the facts to

which the witnesses testify must be

distinctly remembered; the testimony must be

precise and explicit and the witnesses must

be lacking in co nfusion as to the facts in

issue. The evidence must be of such weight

that it produces in the mind of the trier of

fact a firm belief or conviction, without

hesitancy, as to the truth of the

allegations sought to be established.

In re Davey , 645 So. 2d 398, 404 (Fla. 1994) quoting, with

approval, from Slomowitz v. Walker , 429 So. 2d 797, 800 (Fla.

4th DCA 1983)); see also In re Henson , 913 So. 2d 579, 590 (Fla.

2005). "Although this standard of proof may be met where the

evidence is in conflict, it seem s to preclude evidence that is

ambiguous." Westinghouse Electric Corp., Inc. v. Shuler Bros.,

Inc. , 590 So. 2d 986, 989 (Fla. 1st DCA 1991).

27 . The allegations of fact set forth in the charging

document are the facts upon which the revocation proceedin g is

predicated. Trevisani v. DepÓt of Health , 908 So. 2d 1108, 1109

(Fla. 1st DCA 2005). See also Cottrill v. DepÓt of Ins. ,

685 So. 2d 1371, 1372 (Fla. 1st DCA 1996). In this case, the

Notice of Intent to Revoke Registration was predicated on the

alle gation that Petitioner was Ðd elinquent in filing [its]

April 2011 Sales and Use tax return and paid it with a worthless

check,Ñ and was Ðdelinquent in filing [its] May 2011 Sales and

Use tax return.Ñ

28 . PetitionerÓs late or deficient sales tax collecti ons

for June 2011; July 2011; and August 2011 were not pled in the

July 14, 2011 Notice of Intent to Revoke Registration as grounds

for either the requirement that Petitioner post security as a

condition of its certificate, or for revocation of PetitionerÓ s

certificate. Therefore, facts related to those months cannot

form the basis for the relief sought by the Department in this

case.

29 . Petitioner failed to timely remit tax receipts for

April and May, 2011. The tax liability was ultimately paid,

althou gh Petitioner remains in arrears for the la te penalty

assessed for the May 2011 payment. Based on those facts, the

Department has demonstrated that a cash deposit, bond, or other

security is necessary as a condition of Petitioner retaining its

sales and u se tax dealerÓs certificate of registration, and to

ensure PetitionerÓs compliance with chapter 212.

30 . The amount of the security being requested was based

on reasonable assumptions, and is an appropriate amount to

ensure PetitionerÓs compliance with chapter 212.

31 . The remedy of requiring that security be posted as a

condition of PetitionerÓs certificate of registration having

been proven, the more difficult question is whether revocation

of the certificate of registration is available to the

Dep artment in this proceeding if Petitioner does not post the

security ordered. The Department has argued that if Petitioner

does not post the security, the final order should provide that

its certificate of registration be revoked.

32 . Section 212.14(4) provides that dealers who fail to

provide security ordered by the Department Ðshall not be

entitled to obtain or retain a dealerÓs certificate of

registration.Ñ In that event, the Department of Legal Affairs

is legislatively authorized to seek injunctive relief to prevent

the dealer from doing business until the security is posted.

33 . Section 212.18(3)(d) provides the procedure for

revocation of a dealer's certificate of registration when the

dealer has failed to comply with chapter 212. Prior to

rev ocation, the Department is required to schedule an informal

conference to allow the dealer to refute the facts on which the

revocation is based, or to enter into a compliance agreement

with the Department. The Department properly provided notice of

an inf ormal conference as part of its July 14, 2011 Notice of

Intent to Revoke Registration, but no representative of the

Petitioner appeared. Section 212.18(3)(d) then provides that:

The department shall issue an administrative

complaint under s. 120.60 if th e dealer

fails to attend the department's informal

conference, fails to enter into a compliance

agreement with the department resolving the

dealer's noncompliance with this chapter, or

fails to comply with the executed compliance

agreement.

The Department has not filed an administrative complaint seeking

revocation of PetitionerÓs certificate of registration.

34 . Section 212.18(3)(d) clearly requires a two - stage

process leading to revocation of a dealerÓs certificate of

registration. The first stage i s the notice to the dealer of an

informal conference. That notice was provided in the form of

the Notice of Intent to Revoke Registration. Only after the

informal conference has been held is the Department authorized

to issue an administrative complaint. Therefore, the notice of

its informal conferences Î - in this case in the form of the

Notice of Intent to Revoke Registration - - and the

administrative complaint are sequential, and cannot be construed

to be the same document. See , e.g. , DepÓt of Rev. v. Linda

Arnette, d/b/a GiffÓs Sub Shop , Case No. 07 - 4051 (Fla. DOAH Mar.

14, 2008; Final Order not available).

35 . The legislative requirement that a section 120.60

administrative complaint be issued prior to revocation cannot be

disregarded. Therefore, the undersigned can recommend in this

proceeding that security be posted pursuant to section 212.14,

but that recommendation cannot include revocation as a remedy

for non - compliance until an administrative complaint is issued

by the Department.

RECOMMENDAT ION

Upon consideration of the findings of fact and conclusions

of law set forth herein, it is

RECOMMENDED that the Department of Revenue enter a final

order requiring Petitioner to post security in the amount of

$21,250.00 within 30 days of the entry of t he final order.

DONE AND ENTERED this 24th day of October, 2011, in

Tallahassee, Leon County, Florida.

S

E. GARY EARLY

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Park way

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 24th day of October , 2011 .

COPIES FURNISHED :

Michael R. Yokan, Esquire

Post Office Bo x 40755

Jacksonville, Florida 32203 - 0755

Timothy E. Dennis, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

400 South Monroe Street

Tallahassee, Florida 32399 - 1050

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Tallahassee, Florida 32314 - 6668

Lisa Vickers, Executive Director

The Carlton Building, Room 1 04

501 South Calhoun Street

Tallahassee, Florida 32314 - 6668

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties hav e 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.