11-003549 Sns Lakeland, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, November 9, 2011.

Summary: Petitioner's challenge to audit fails without records to support its claim.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SNS LAKELAND, INC. , )

)

Petitioner , )

)

vs. ) Case No. 11 - 3549

)

DEPARTMENT OF REVENUE , )

)

Respondent . )

)

RECOMMENDED ORDER

On September 20, 2011, a formal administrative hearing in

this case was held b efore J. D. Parrish, a designated

Administrative Law Judge (ALJ) of the Division of Administrative

Hearings (DOAH) .

APPEARANCES

For Petitioner: Brent Hanson

B and M Business Services, Inc.

6735 Conroy Road, Suite 210

Orlando, Florida 32835

For Respondent: Carrol Cherry, Esquire

Office of the Attorney General

Revenue Litigation Bureau

The Capitol, Plaza Level 01

Tallahas see, Florida 32399

STATEMENT OF THE ISSUE

The issue in this case is whether SNS Lakeland, Inc.

(Petitioner), collected and remitted the correct amount of sales

and use tax on its operations for the audit period.

PRELIMINARY STATEMENT

The Florida Depart ment of Revenue (Department or DOR)

conducted an audit of PetitionerÓs business operations to verify

that the amounts and types of sales and use taxes, were properly

remitted for the audit period. In conjunction with the audit,

DOR issued a Notice of Inte nt to Audit Books and Records, a Pre -

Audit and Electronic Data Survey, a Notice of Proposed

Assessment, an Addendum to Notice of Proposed Assessment, and a

Remittance Coupon. Petitioner timely challenged the assessment.

The Proposed Assessment dated March 30, 2011, contends

Petitioner owes $21,874.26 , as unpaid taxes, a penalty in the

amount of $1,093.71, interest on the unpaid taxes in the amount

of $4677.82 , for a total deficiency in the amount of $27,645.79.

Petitioner maintains that the margin of prof it utilized by the

Department incorrectly calculated the tax owed. Petitioner

argues that its mark - up on products was substantially less than

claimed by DOR.

DOR forwarded the matter to the DOAH for formal proceedings

on July 21, 2011. The case was sch eduled for hearing and all

parties were afforded notice.

At the hearing, DOR presented the testimony of Annette

Lopez, t ax a uditor III, employed by the Department and the

person responsible for conducting the audit at issue in this

proceeding. The Depart mentÓs Exhibits 1 through 12 were

admitted into evidence. Mohamad Mustafa, employee, and Brent

Hanson, accountant, testified on behalf of Petitioner. A

transcript of the proceeding has not been filed. The parties

filed proposed orders that have been con sidered in the

preparation of this Recommended Order.

FINDINGS OF FACT

1. DOR is the state agency charged with the responsibility

of administering and enforcing the tax laws of the state of

Florida. In conjunction with that duty, DOR performs audits of

b usiness entities conducting sales and use transactions.

2. At all times material to the issue of this case,

Petitioner conducted business as a convenience store located at

811 East Palmetto Street, Lakeland, Florida.

3. Petitioner was obligated to coll ect and remit sales and

use tax in connection with the activities of its business

enterprise. PetitionerÓs F ederal I dentification N umber is

26 - 0412370.

4. Petitioner is authorized to conduct business within the

state and its certificate of registration number is

63 - 8013863272 - 3.

5. In order to properly perform its audit

responsibilities, DOR requires that businesses maintain and

present business records to support the collection of sales and

use taxes.

6. In this case, DOR notified Petitioner that it intended

to audit the business operations for the audit period, June 1,

2007, through September 30, 2009.

7. After the appropriate pre - audit notice and exchange of

information, DOR examined PetitionerÓs financial records. Since

Petitioner did not m aintain register tapes (that would track

sales information most accurately), the Department examined all

records that were available: financial statements, federal and

state tax returns, purchase invoices/receipts, bank records, and

register tapes that we re available from outside the audit

period.

8. PetitionerÓs reported tax payments with the amounts and

types of taxes that it remitted should have been supported by

the records it maintained. Theoretically, the sums remitted to

the Department should matc h the records of the business entity.

In this case, the amount remitted by Petitioner could not be

reconciled with the business records maintained by the business

entity.

9. As a result, the auditor determined the sales tax due

based upon the best inform ation available. First, the auditor

looked at the actual register tapes for the period November 10,

2010 , through November 29, 2010 (sample tapes). Had Petitioner

kept its sales receipts, the actual receipts for the audit

period would have been used. Ne vertheless, the sample tapes

were used to estimate (based upon the actual business history of

the company) the types and volumes of sales typically made at

the store.

10. Secondly, in order to determine the mark - up on the

sales, the auditor used Petitio nerÓs purchase invoices,

worksheets, profit and loss statements, and federal and state

tax returns. In this regard, the auditor could compare the

inventory coming in to the store with the reported results of

the sales.

11. Third, the auditor determined w hat percentage of the

sales typically would be considered exempt from tax at the time

of acquisition , but then re - sold at a marked - up price for a

taxable event. Petitioner argued that 70 percent of its gross

sales were taxable , but had no documentary evid ence to support

that conclusion.

12. In contrast, after sampling records from four

consecutive months, the Department calculated that the items

purchased for sale at retail were approximately 78 percent

taxable.

13. By multiplying the effective tax r ate (calculated at

7.0816) by the amount of taxable sales, the Department computed

the gross sales tax that Petitioner should have remitted to the

state. That gross amount was then reduced by the taxes actually

paid by Petitioner.

14. Petitioner argued that the mark - up on beer and

cigarettes used by the Department was too high (thereby yielding

a higher tax). DOR specifically considered information of

similar convenience stores to determine an appropriate mark - up.

Nevertheless, when contested by Petit ioner , DOR adjusted the

beer and cigarette mark - up and revised the audit findings.

Petitioner presented no evidence of what the mark - up actually

was during the audit period , it simply claimed the mark - up

assumed by DOR was too high.

15. On March 30, 2 011, DOR issued the Notice of Proposed

Assessment for sales and use tax, penalty, and interest totaling

$27,645.79. Interest on that amount accrues at the rate of

$4.20 , per day. In reaching these figures , DOR abated the

penalty by 80 percent. The asses sment was rendered on sales tax

for sales of food, drink, beer, cigarettes, and tangible

personal property. Petitioner continues to contest the

assessment.

16. Throughout the audit process and, subsequently,

Petitioner never presented documentation to di spute the

DepartmentÓs audit findings. DOR gave Petitioner every

opportunity to present records that would establish that the

correct amounts of sales taxes were collected and remitted.

Simply stated, Petitioner did not maintain the records that

might ha ve supported its position. In the absence of such

records , the Department is entitled to use the best accounting

and audit methods available to it to reconcile the monies owed

the state.

CONCLUSIONS OF LAW

17. DOAH has jurisdiction over the subject matte r and

parties in this cause. §§ 120.569, 120.57, and 213.67, Fla.

Stat. (20 11 ). Based upon the audit period, all references are

to Florida Statutes (2007) , unless otherwise noted.

18. Section 120.80, provides, in pertinent part:

(7) A taxpayer may cont est the notice of

intent to levy provided for under subsection

(6) by filing an action in circuit court.

Alternatively, the taxpayer may file a

petition under the applicable provisions of

chapter 120. After an action has been

initiated under chapter 120 , to contest the

notice of intent to levy, an action relating

to the same levy may not be filed by the

taxpayer in circuit court, and judicial

review is exclusively limited to appellate

review pursuant to s. 120.68. Also, after

an action has been initiated in circuit

court, an action may not be brought under

chapter 120.

19. Section 212.12, Florida Statutes, provides in part:

(2)(a) When any person required hereunder

to make any return or to pay any tax or fee

imposed by this chapter either fails to

time ly file such return or fails to pay the

tax or fee shown due on the return within

the time required hereunder, in addition to

all other penalties provided herein and by

the laws of this state in respect to such

taxes or fees, a specific penalty shall be

ad ded to the tax or fee in the amount of 10

percent of either the tax or fee shown on

the return that is not timely filed or any

tax or fee not paid timely. The penalty may

not be less than $50 for failure to timely

file a tax return required by s. 212.11 (1 )

or timely pay the tax or fee shown due on

the return except as provided in

s. 213.21 (10). If a person fails to timely

file a return required by s. 212.11 (1) , and

to timely pay the tax or fee shown due on

the return, only one penalty of 10 percent,

whic h may not be less than $50, shall be

imposed.

* * *

(3) When any dealer, or other person

charged herein, fails to remit the tax, or

any portion thereof, on or before the day

when such tax is required by law to be paid,

there shall be added to the amount due

interest at the rate of 1 percent per month

of the amount due from the date due until

paid. Interest on the delinquent tax shall

be calculated beginning on the 21st day of

the month following the month for which the

tax is due, except as otherw ise provided in

this chapter.

(4) All penalties and interest imposed by

this chapter shall be payable to and

collectible by the department in the same

manner as if they were a part of the tax

imposed. The department may settle or

compromise any such inte rest or penalties

pursuant to s. 213.21.

(5)(a) The department is authorized to

audit or inspect the records and accounts of

dealers defined herein, including audits or

inspections of dealers who make mail order

sales to the extent permitted by another

st ate, and to correct by credit any

overpayment of tax, and, in the event of a

deficiency, an assessment shall be made and

collected. No administrative finding of

fact is necessary prior to the assessment of

any tax deficiency.

(b) In the event any dealer or other person

charged herein fails or refuses to make his

or her records available for inspection so

that no audit or examination has been made

of the books and records of such dealer or

person, fails or refuses to register as a

dealer, fails to make a r eport and pay the

tax as provided by this chapter, makes a

grossly incorrect report or makes a report

that is false or fraudulent, then, in such

event, it shall be the duty of the

department to make an assessment from an

estimate based upon the best inform ation

then available to it for the taxable period

of retail sales of such dealer, the gross

proceeds from rentals, the total admissions

received, amounts received from leases of

tangible personal property by such dealer,

or of the cost price of all article s of

tangible personal property imported by the

dealer for use or consumption or

distribution or storage to be used or

consumed in this state, or of the sales or

cost price of all services the sale or use

of which is taxable under this chapter,

together wi th interest, plus penalty, if

such have accrued, as the case may be. Then

the department shall proceed to collect such

taxes, interest, and penalty on the basis of

such assessment which shall be considered

prima facie correct, and the burden to show

the c ontrary shall rest upon the dealer,

seller, owner, or lessor, as the case may

be.

(6)(a) The department is given the power to

prescribe the records to be kept by all

persons subject to taxes imposed by this

chapter. It shall be the duty of every

person r equired to make a report and pay any

tax under this chapter, every person

receiving rentals or license fees, and

owners of places of admission, to keep and

preserve suitable records of the sales,

leases, rentals, license fees, admissions,

or purchases, as the case may be, taxable

under this chapter; such other books of

account as may be necessary to determine the

amount of the tax due hereunder; and other

information as may be required by the

department. It shall be the duty of every

such person so charged with such duty,

moreover, to keep and preserve as long as

required by s. 213.35 , all invoices and

other records of goods, wares, and

merchandise; records of admissions, leases,

license fees and rentals; and records of all

other subjects of taxation under this

chapter. All such books, invoices, and

other records shall be open to examination

at all reasonable hours to the department or

any of its duly authorized agents.

(b) For the purpose of this subsection, if

a dealer does not have adequate records of

h is or her retail sales or purchases, the

department may, upon the basis of a test or

sampling of the dealer's available records

or other information relating to the sales

or purchases made by such dealer for a

representative period, determine the

proportio n that taxable retail sales bear to

total retail sales or the proportion that

taxable purchases bear to total purchases.

This subsection does not affect the duty of

the dealer to collect, or the liability of

any consumer to pay, any tax imposed by or

purs uant to this chapter.

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

adequate but voluminous in nature and

substance, the department may sample such

records and project the audit findings

derived there from over the entire audit

period to determine the proportion t hat

taxable retail sales bear to total retail

sales or the proportion that taxable

pur chases bear to total purchases . . .

* * *

(9) Taxes imposed by this chapter upon the

privilege of the use, consumption, storage

for consumption, or sale of tang ible

personal property, admissions, license fees,

rentals, communication services, and upon

the sale or use of services as herein taxed

shall be collected upon the basis of an

addition of the tax imposed by this chapter

to the total price of such admission s,

license fees, rentals, communication or

other services, or sale price of such

article or articles that are purchased,

sold, or leased at any one time by or to a

customer or buyer; the dealer, or person

charged herein, is required to pay a

privilege tax in the amount of the tax

imposed by this chapter on the total of his

or her gross sales of tangible personal

property, admissions, license fees, rentals,

and communication services or to collect a

tax upon the sale or use of services, and

such person or de aler shall add the tax

imposed by this chapter to the price,

license fee, rental, or admissions, and

communication or other services and collect

the total sum from the purchaser, admittee,

licensee, lessee, o r consumer . . .

20. Section 212.13, provides, in part:

(1) For the purpose of enforcing the

collection of the tax levied by this

chapter, the department is hereby

specifically authorized and empowered to

examine at all reasonable hours the books,

records, and other documents of all

transportation com panies, agencies, or firms

that conduct their business by truck, rail,

water, aircraft, or otherwise, in order to

determine what dealers, or other persons

charged with the duty to report or pay a tax

under this chapter, are importing or are

otherwise shipp ing in articles or tangible

personal property which are liable for said

tax. In the event said transportation

company, agency, or firm refuses to permit

such examination of its books, records, or

other documents by the department as

aforesaid, it is guilt y of a misdemeanor of

the first degree, punishable as provided in

s. 775.082 or s. 775.083. If, however, any

subsequent offense involves intentional

destruction of such records with an intent

to evade payment of or deprive the state of

any tax revenues, s uch subsequent offense

shall be a felony of the third degree,

punishable as provided in s. 775.082 or s.

775.083. The department shall have the

right to proceed in any chancery court to

seek a mandatory injunction or other

appropriate remedy to enforce it s right

against the offender, as granted by this

section, to require an examination of the

books and records of such transportation

company or carrier.

(2) Each dealer, as defined in this

chapter, shall secure, maintain, and keep as

long as required by s. 213.35 , a complete

record of tangible personal property or

services received, used, sold at retail,

distributed or stored, leased or rented by

said dealer, together with invoices, bills

of lading, gross receipts from such sales,

and other pertinent record s and papers as

may be required by the department for the

reasonable administration of this chapter;

all such records which are located or

maintained in this state shall be open for

inspection by the department at all

reasonable hours at such dealer's stor e,

sales office, general office, warehouse, or

place of business located in this state.

Any dealer who maintains such books and

records at a point outside this state must

make such books and records available for

inspection by the department where the

gen eral records are kept. Any dealer

subject to the provisions of this chapter

who violates these provisions is guilty of a

misdemeanor of the first degree, punishable

as provided in s. 775.082 , or s. 775.083.

If, however, any subsequent offense involves

in tentional destruction of such records with

an intent to evade payment of or deprive the

state of any tax revenues, such subsequent

offense shall be a felony of the third

degree, punishable as provided in

s. 775.082 , or s. 775.083.

(3) For the purpose of enforcement of this

chapter, every manufacturer and seller of

tangible personal property or services

licensed within this state is required to

permit the department to examine his or her

books and records at all reasonable hours,

and, upon his or her refus al, the department

may require him or her to permit such

examination by resort to the circuit courts

of this state, subject however to the right

of removal of the cause to the judicial

circuit wherein such person's business is

located or wherein such perso n's books and

records are kept, provided further that such

person's books and records are kept within

the state. When the dealer has made an

allocation or attribution pursuant to the

definition of sales price in s. 212.02 (16),

the department may prescribe by rule the

books and records that must be made

available during an audit of the dealer's

books and records and examples of methods

for determining the reasonableness thereof.

Books and records kept in the regular course

of business include, but are not limited to,

general ledgers, price lists, cost records,

customer billings, billing system reports,

tariffs, and other regulatory filings and

rules of regulatory authorities. Such

record may be required to be made available

to the department in an electron ic format

when so kept by the dealer. The dealer may

support the allocation of charges with books

and records kept in the regular course of

business covering the dealer's entire

service area, including territories outside

this state. During an audit, the department

may reasonably require production of any

additional books and records found necessary

to assist in its determination.

(4) For the further purpose of enforcement

of this chapter, every wholesaler of

tangible personal property or services

licens ed within this state is required to

permit the department to examine his or her

books and records at all reasonable hours.

He or she must also maintain such books and

records as long as required by s. 213.35 , in

order to disclose the sales of all goods or

services sold, to whom sold, and also the

amount of items sold, in such form and in

such manner as the department may reasonably

require, so as to permit the department to

determine the volume of goods or services

sold by wholesalers to dealers, as define d

under this chapter, and the dates and

amounts of sales made. The department may

require any manufacturer or wholesaler who

refuses to keep such records or to permit

such inspection, through the circuit courts

of Florida, to submit to such inspection,

su bject however to the right of removal of

the cause as hereinbefore provided in this

section.

21. Section 213.34, provides, in part:

(1) The Department of Revenue shall have

the authority to audit and examine the

accounts, books, or records of all persons

who are subject to a revenue law made

applicable to this chapter, or otherwise

placed under the control and administration

of the department, for the purpose of

ascertaining the correctness of any return

which has been filed or payment which has

been made , or for the purpose of making a

return where none has been made.

(2) The department, or its duly authorized

agents, may inspect such books and records

necessary to ascertain a taxpayer's

compliance with the revenue laws of this

state, provided that the d epartment's power

to make an assessment or grant a refund has

not terminated under s. 95.091 (3).

(3) The department may correct by credit or

refund any overpayment of tax, penalty, or

interest revealed by an audit and shall make

assessment of any deficien cy in tax,

penalty, or interest determined to be due.

22. In this case, DOR must show by a preponderance of

evidence that the audit results and the assessment of the unpaid

sales and use tax should be upheld. It has met its burden. The

audit notes and t he methodology of the audit support the amounts

and basis for all sales and use tax not remitted by Petitioner.

Contrary to PetitionerÓs claim, the mark - up for beer and

cigarettes was not excessive.

23. Petitioner has not presented any documentation to

refute the audit results. Florida tax law creates the

presumption of correctness of the DepartmentÓs assessment of

tax, penalty, and interest. See § 212.12(5)(b). Additionally,

Petitioner has not presented any credible evidence to refute the

methodolog y used by the Department in the performance of its

audit.

24. In order to set aside the findings of the audit,

Petitioner should have kept records that would have accurately

identified the inventory and sales made at the convenience

store. Petitioner ke pt no records to support its claim. The

conclusions reached by DOR regarding the taxable sales,

presumption of percentages, and tax rate are deemed accurate.

Petitioner did not present any rule or statute that could hold

otherwise. Further, without info rmation to show that Petitioner

paid sales tax on all its taxable transactions, the Department

must include such transactions within the audit results.

Petitioner had the duty to maintain records and make them

available. Petitioner may not argue that the inadequacy of its

records contradicts the audit results.

RECOMMENDATION

Based upon the foregoing F indings of F act and C onclusions

of L aw, it is RECOMMENDED that the Department of Revenue enter a

final order sustaining the audit findings, and require

Petit ioner to remit the unpaid sales and use taxes, penalty, and

interest as stated in the DepartmentÓs audit findings.

DONE AND ENTERED this 9th day of November, 2011, in

Tallahassee, Leon County, Florida.

S

J. D. PARRISH

Adm inistrative 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

Division of Administrative Hear ings

this 9th day of November , 2011 .

COPIES FURNISHED :

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Tallahassee, Florida 32314 - 6668

Ashraf Barakat

SNS Lakeland, Inc

811 East Palmett o Street

Lakeland, Florida 33801

Carrol Y. Cherry, Esquire

Office of the Attorney General

The Capitol, PL - 01

Revenue Litigation Bureau

Tallahassee, Florida 32399

Brent Hanson

B and M Business Services, Inc.

6735 Conroy Road, Suite 210

Orlando, Florida 32835

Lisa Vickers, Executive Director

Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit writte n 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 ca se.