14-003133 Salma Petroleum, Inc. vs. Department Of Revenue
 Status: Closed
Recommended Order on Friday, January 9, 2015.


View Dockets  
Summary: Because Petitioners failed to provide books and records in response to an audit, the Department made an estimate based upon the best information available. Department's assessment of sales tax, penalty, and interest should be imposed.

1STATE OF FLORIDA

4DIVISION OF ADMINISTRATIVE HEARINGS

8SALMA PETROLEUM, INC. ,

11Petitioner,

12vs. Case No. 14 - 3133

18DEPARTMENT OF REVENUE,

21Respondent.

22_______________________________/

23GAUSIA PETROLEUM, INC.,

26Petitioner,

27vs. Case No. 14 - 3134

33DEPARTME NT OF REVENUE,

37Respondent.

38_______________________________/

39RECOMMENDED ORDER

41Pursuant to notice, a formal administrative hearing was

49conducted before Administrative Law Judge Mary Li Creasy by video

59teleconference at sites in Tallahassee and Lauderdale Lakes,

67Florida, on October 29, 2014.

72APPEARANCES

73For Petitioner s : Zersis Minocher , pro se

8112217 Northwest 35th Street

85Coral Springs, Florida 33065

89For Respondent: Carrol Y. Cherry, Esqu ire

96Office of the Attorney General

101P laza L evel 01, The Capitol

108Revenue Litigation Bureau

111Tallahassee, Florida 32399 - 1050

116STATEMENT OF THE ISSUE

120Whether Petitioners are liable for sale s and use tax,

130penalt y, and interest as assessed by the Department of R evenue

142( the Department) ?

145PRELIMINARY STATEMENT

147These are consolidated cases involving the Department and

155audit assessments against two corporate taxpayers: Salma

162Petroleum, Inc. (Audit Number 200149872) (Salma), and Gausia

170Petroleum, Inc. (Audit Number 200149749) (Gausia). These cases

178were consolidated at hearing due to common witnesses, common

187exhibits (except for the figures) , and similar testimony of the

197management of both taxpayers .

202On March 6, 2014, t he Department issued Petitioners each a

213Notice of Proposed Assessment (NOPA) assessing Salma additional

221sales and use tax in the sum of $159,282.26, plus penalty , and

234interest. The Department assessed Gausia additional sales and

242use t ax in the sum of $213,754.46, plus penalty , and interest.

255Petitioners denied liability and requested formal hearings to

263contest the assessments.

266The Department referred the cases to the Division of

275Administrative Hearings on July 9, 2014, and the matters were

285assigned to Administrative Law Judge D. R. Alexander. The final

295hearing s were originally scheduled for October 14, 2014.

304Respondent ' s a mended m otions for c ontinuance were granted on

317August 1 3 , 2014, and the final hearings were re - scheduled for

330Octob er 29, 2014. The case s w ere transferred to the undersigned

343on October 17, 2014, and proceeded to final hearing as scheduled

354on October 29, 2014, at which time the cases were consolidated.

365Petitioners called Arif Ahmed, manager of both entities , and

374submit ted no exhibits. 1/ Respondent called two witnesses: Ron

384Collier, Tax Audit Supervisor, and Richard Lawhon, Senior Tax

393Specialist with Compliance Campaigns. Respondent ' s Exhibits 1

402through 8 pertaining to Salma, and Exhibits 1 through 8

412pertaining to Gau sia, were admitted.

418Neither party ordered a transcript of the final hearing.

427Both parties timely submitted p roposed r ecommended o rders which

438were considered in the drafting of this Recommended Order.

447Unless otherwise noted, all statutory references are to

455Florida Statutes (2013).

458FINDING S OF FACT

4621. Salma is a Florida corporation with its principal place

472of business at 2231 Del Prado Boulevard, Cape Coral, Florida ,

48233990. Gausia is a Florida corporation with its principal place

492of business at 11571 Gladi olus Drive, Fort Myers, Florida , 3390 8 .

5052. Petitioners are in the business of operating gas

514stations with convenience stores.

5183. The Department is an agency of the State of Florida and

530is authorized to administer the tax laws of the State of Florida.

5424 . Petitioners were selected for audit because their

551reported gross sales were less than the total cost of items

562purchased (inventory) for the audit period.

5685. The Department issued Salma and Gausia each a Notice of

579Intent to Conduct a Limited Scope Audit or Se lf - Audit , dated

592April 26, 2013, for sales and use tax, for the period February 1,

6052010, through January 31, 2013 (collectively referred to as the

615Notices).

6166. The Notices requested that Petitioners provide the

624Department: (a) a list of all their ve ndors for alcohol,

635tobacco, soda, chips, candy, etc.; (b) their total purchases

644of alcohol and tobacco, by vendor, for the period July 2010 to

656June 2011; (c) copies of their federal tax returns for the

667examination period; (d) purchase receipts for all purc hases

676for the last complete calendar month; and (e) daily register

686(Z tapes) for the last complete calendar month.

6947. The Notices gave Petitioners 60 days to gather the

704requested documents before the audit was to commence. The

713Notices also requested that Petitioners complete an attached

721Questionnaire and Self Analysis Worksheet.

7268. In response to the Notices, Petitioners requested a 30 -

737day extension of time until July 18, 2013, to provide the

748requested documents and to designate a Power of Attorney.

7579. Petitioners did not provide the Department any books and

767records for inspection, nor did they complete and return the

777q uestionnaire and s elf a nalysis w orksheets. As a result, the

790Department ' s auditor determined the sales tax due based upon the

802best infor mation available.

80610. To calculate an estimated assessment of sales tax, the

816Department used the purchase data of Petitioners ' wholesalers and

826distributors of alcoholic beverages and tobacco, for July 1,

8352010 , through June 30, 2011; the 2010 National Ass ociation of

846Convenience Stores average markups and in - store sales percentages

856of alcoholic beverage and tobacco products; and historical audit

865data.

86611. After reviewing the purchase data for July 1, 2010 ,

876through June 30, 2011, and for July 1, 2011 , throu gh June 30,

8892012, the Department ' s auditor determined that the data was

900missing a few vendors.

90412 . As a result, the Department ' s auditor estimated the

916amount of Petitioners ' cigarette purchases, based on historical

925audit data that shows that cigarette s ales are generally

9354.31 times more than beer sales.

94113 . The Department ' s auditor and audit supervisor testified

952that the estimated gross sales seemed reasonable and consistent

961with the national averages and the purchase data for July 1,

9722011 , through Jun e 30, 2012.

97814 . The Department estimated gross sales (i.e., the retail

988sale value of the goods sold) by marking up the taxable sales and

1001exempt sales reported on the sales and use tax returns submitted

1012to the Department by Petitioners .

101815 . For example, for July 1, 2010 , through June 30, 2011,

1030Salma purchased beer from its wholesalers and distributors for

1039$148,826.15, and the Department marked up the purchase price by

105027 percent for a retail value of $189,009.21.

105916. For July 1, 2010 , through June 30, 20 11, Gausia

1070purchased beer from its wholesalers and distributors for

1078$132,138.65, and the Department marked up the purchase price by

108927 percent for a retail value of $167,816.09.

109817 . The Department ' s markup on the alcoholic beverage and

1110tobacco products i s reasonable because the Department ' s auditor

1121testified that he used a combination of 2010 National Association

1131of Convenience Stores average markups and the competitive pricing

1140and information from audits of other convenience stores.

11481 8 . The Department d etermined that the exemption ratio

1159reported on the sales and use tax returns submitted to the

1170Department by Petitioners was extremely high for their industry.

117919 . The Department used an exemption ratio of 15 percent,

1190based on historical audit data for th e industry, to calculate

1201Petitioner s ' estimated taxable sales.

120720 . A review of Petitioners ' sales and use tax returns

1219revealed that they did not apply the tax bracket system to their

1231taxable sales transactions, as required under sections 212.12(9)

1239and (10 ), Florida Statutes.

12442 1. Instead, Petitioners remitted sales tax on their

1253taxable sales based on their gross receipts at a flat tax rate.

1265The Department ' s auditor testified that this method of reporting

1276tax is inappropriate and does not accurately reflec t the sales

1287activity of the business.

129122 . The Department calculated the average effective tax

1300rate of 6.0856 percent, based on historical aud it data for the

1312industry.

131323. To calculate the estimated tax due, the Department

1322multiplied the effective tax ra te by the estimated taxable sales

1333and gave Petitioners credit for any tax remitted with their tax

1344returns.

134524 . The Department issued Salma a Notice of Intent to M ake

1358Audit Changes , dated August 8, 201 3, for audit number 200149872.

1369The Department issue d Gausia a Notice of Intent to Make Audit

1381Changes, dated August 8, 2013, for audit number 200149749.

139025 . The Department assessed Petit i oners sales tax on their

1402sales of alcoholic beverages and tobacco.

140826 . The Notice of Intent to Make Audit Changes gave

1419Petitioners 30 days to request a conference with the auditor or

1430audit supervisor, to dispute the proposed changes. Petitioners

1438did not make such a request.

14442 7 . The Department issued a Notice of Pro posed Assessment

1456(NOPA) to Salma on March 6, 2014, for tax in the sum of

1469$159,282.26 ; for penalty in the sum of $39,820.57 ; and interest

1481as of March 6, 2013, in the sum of $27,772.36.

149228. The Department issued a NOPA to Gausia on March 6,

15032014, for tax in the sum of $213,754.46 ; for penalty in the sum

1517of $53, 438.62 ; and interest as of March 6, 2013, in the sum of

1531$36,921.79.

153329. Additional interest accrues at $30.55 per day until t he

1544tax is paid.

154730. The NOPAs became final assessment s on May 5, 2014.

155831 . After filing a request for an administrative hearing ,

1568Petitioners completed the Questionnaire and Self Analysis

1575Worksheet and produced the following documents to the Department :

1585(a) a list of all of their vendors for alcohol, tobacco, soda,

1597chips, candy, etc.; (b) a list of vendors for alcohol and

1608tobacco, for the examination period of July 2010 to June 2011;

1619(c) a summary of their taxable sales, for the period

1629February 2010 through December 2012; (d) copies of their

1638federal tax returns, for the tax years 2010 through 2013;

1648(e) copies of its purchase receipt s for the months of July 2013;

1661and (f) copies of their daily register (Z - tapes) for the month of

1675July 2013.

16773 2 . The Department ' s auditor testified that aside from

1689being untimely, the records and information provided by

1697Petitioners d uring these proceeding s w ere not reliable because

1708Petitioners did not provide any source documents that would allow

1718the Department to reconcile the reported figures and confirm the

1728supplied information. In addition, the purchase receipts and Z -

1738tapes were not rel evant because th ey were from outside of the

1751audit period.

175333 . The Z - tapes are also unreliable because the manager of

1766the convenience store testified at the final hearing that

1775employees purposely and routinely entered taxable sales into the

1784cash registers as tax exempt sales.

179034. Petitioners argue that the Department did not use the

1800best information available when estimating the taxes due.

1808Petitioners claim that because their businesses are combination

1816gas station/convenience stores, the national data for standalone

1824co nvenience stores is inapplicable. However, notably absent from

1833Petitioners ' testimon y or evidence was any alternative data upon

1844which the Department could have relied for more accurate

1853estimates. 2/

1855CONCLUSIONS OF LAW

1858Jurisdiction

185935 . The Division o f Administrative Hearings has

1868jurisdiction over the subject matter and parties to this

1877proceeding. § 120.57(1), Fla. Stat. (2014) .

1884Sales and Use Tax Audits

188936 . The Department is authorized to conduct audits,

1898relating to sales and use tax imposed under ch apter 212, Florida

1910Statutes, of a dealer and to request information to ascertain t he

1922dealer ' s liability, if any. § 212.13, Fla. Stat.

193237 . The term " dealer " is defined as any person who leases

1944or rents tangible personal property for a consideration,

1952perm itting the use or possession of such property without

1962transferring title to the property. § 212.06(2)(e), Fla. Stat.

197138 . The Department is authorized to prescribe the books and

1982records to be maintained by all dealers that are subject to sales

1994and use t ax. § 212.12(6)(a), Fla. Stat. Further, the Department

2005is authorized to audit or inspect the books and records of

2016dealers and, if a deficiency exists, to make an assessment and

2027collect it. § 212.12(5)(a), Fla. Stat.

203339 . Dealers are required to keep su itable books and records

2045relating to sales tax and to preserve those books and records.

2056§§ 212.12(6)(a), 212.13, and 213.35, Fla. Stat.

206340 . For conducting an audit, only records and information

2073available when the audit commences are deemed acceptable.

2081§ 212.13(5), Fla. Stat.

208541 . If a dealer fails or refuses to make its records

2097available for inspection so that no audit or examination has been

2108made of the books and records, the Department has the affirmative

2119duty to make an assessment from an estimate based upon the best

2131information then available to it for the taxable period of retail

2142sales, together with interest, plus penalty. § 212.12(5)(b),

2150Fla. Stat. The Department must collect such taxes, interest, and

2160penalty on the basis of such assessment w hich shall be considered

2172prima facie correct, and the burden to show the contrary rests

2183upon the dealer. Id.

2187Respective Burdens

218942 . Florida tax law creates the presumption of correctness

2199of the Department ' s assessment of tax, penalty , and interest.

2210§ 212.12(5)(b), Fla. Stat.

221443 . The Department has the initial burden to show that it

2226made an assessment against Petitioner and that the assessment was

2236valid and correct. IPC Sports, Inc. v. State, Dep ' t of Rev . , 829

2251So. 2d 330, 332 (Fla. 3d DCA 2002); D ep ' t of Rev . v. Nu - Life

2270Health & Fitness Ctr . , 623 So. 2d 747, 751 - 52 (Fla. 1st DCA

22851992); § 120.80(14)(b)2., Fla. Stat. Once the Department has met

2295this burden, the burden shifts to Petitioner to prove by a

2306preponderance of the evidence that the assessme nt is incorrect.

2316Id. ; § 120.57(1)(j), Fla. Stat.

2321Florida Sales and Use Tax

232644 . The Florida sales and use tax is an excise tax on the

2340privilege of engaging in business in the state, not a tax on the

2353property sold. §§ 212.05 & 212.06, Fla. Stat.

236145 . The tax imposed by the Florida sales and use tax law

2374generally include s sales and use, admissions, transient rentals

2383and commercial rentals taxes. §§ 212.05 & 212.06, Fla. Stat.

239346 . The Florida sales tax and use tax are separate, but

2405complementary taxes, al though they are often referred to as one

2416tax. U.S. Gypsum v. Green , 110 So. 2d 409 (Fla. 1958).

242747 . It is the legislative intent that every person is

2438exercising a taxable privilege who engages in the business of

2448selling items of tangible personal propert y at retail in this

2459state. § 212.05, Fla. Stat., and Fla. Admin. Code R . 12A -

24721.038(1).

247348 . A tax, at the rate of six (6) percent of the sales

2487price of each item of tangible personal property is levied on

2498each taxable transaction when sold at retail in th is state,

2509computed on each taxable sale for the purpose of remitting the

2520amount of tax due the state, and including each and every retail

2532sale. § 212.05(1)(a)1.a . , Fla. Stat.

253849 . The Department made a prima facie showing of the

2549validity of the respective assessments of sales tax, penalty , and

2559interest against Petitioners. Petitioners have not presented any

2567credible evidence to refute the methodology used by the

2576Department in the performance of its audit.

258350 . In order to set aside the findings of the au dit,

2596Petitioners should have kept records that would have accurately

2605identified the inventory and sales made at the gas

2614stations/ convenience store s . Petitioners kept no records to

2624support their claim. The conclusions reached by the Department

2633regarding t he taxable sales, exempt sales, presumption of markup

2643percentages, and tax rate are deemed reasonable.

265051 . Further, without information to show that Petitioners

2659paid the statutory amount of sales tax on all their taxable

2670sales, the Department had the du ty to make an estimated

2681assessment that included estimated taxable sales and average

2689effective tax rate.

269252 . Petitioners had the duty to maintain records and make

2703them available to the Department for audit. Petitioners may not

2713now argue that their untim ely produced, incomplete, and non -

2724responsive records contradict the audit results.

273053 . P etitioners failed to overcome the presumption of

2740correctness of the assessment by a preponderance of the evidence.

2750Accordingly, the assessments are valid and correct.

2757RECOMMENDATION

2758Based on the foregoing Findings of Fact and Conclusions of

2768Law, it is RECOMMENDED that the Department of Revenue enter a

2779final order denying Petitioners ' requests for relief and

2788assessing, in full, t he Department ' s assessments of sales tax ,

2800penalty , and interest against both Salma and Gausia .

2809DONE AND ENTERED this 9th day of January , 2015 , in

2819Tallahassee, Leon County, Florida.

2823S

2824MARY LI CREASY

2827Administrative Law Judge

2830Division of Administrative Hearings

2834The DeSoto Building

28371230 Apalachee P arkway

2841Tallahassee, Florida 32399 - 3060

2846(850) 488 - 9675

2850Fax Filing (850) 921 - 6847

2856www.doah.state.fl.us

2857Filed with the Clerk of the

2863Division of Administrative Hearings

2867this 9th day of January , 2015 .

2874ENDNOTE S

28761/ Ahmed testified that he is the husband of the owner of both

2889Gausia and Salma as well as the manager of the two

2900establishments.

29012/ Gausia also argued that the assessed tax is completely

2911disproportionate to the inventory it carries a nd to the value of

2923its business based upon the current listing of the business for

2934sale. This testimony was not corroborated by admissible

2942documents and was not persuasive. Gausia attached its business

2951for sale listing and a monthly average balance sheet to its

2962Proposed Recommended Order. However, these documents wer e not

2971considered because they were not identified as exhibits prior to

2981the hearing , or admitted at the hearing.

2988COPIES FURNISHED:

2990Carrol Y. Cherry, Esquire

2994Office of the Attorney General

2999P laza L evel 01, The Capitol

3006Revenue Litigation Bureau

3009Tallahassee, Florida 32399 - 1050

3014(eServed)

3015Zersis Minocher

301712217 Northwest 35th Street

3021Coral Springs, Florida 33065

3025Nancy L. Staff, General Counsel

3030Department of Revenue

3033Post Office Box 6668

3037Tallahassee, Florida 32314 - 6668

3042(eServed)

3043Marshall Stranburg, Executive Director

3047Department of Revenue

3050Post Office Box 6668

3054Tallahassee, Florida 32314 - 6668

3059(eServed)

3060NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

3066All parties have the right to submit written exceptions within

307615 days from the date of this Recommended Order. Any exc eptions

3088to this Recommended Order should be filed with the agency that

3099will issue the Final Order in this case.

Select the PDF icon to view the document.
PDF
Date
Proceedings
PDF:
Date: 09/30/2015
Proceedings: Transmittal letter from Claudia Llado forwarding one-volume Transcript to the agency.
PDF:
Date: 03/18/2015
Proceedings: Respondent's Exceptions to Recommended Order filed.
PDF:
Date: 03/18/2015
Proceedings: Agency Final Order filed.
PDF:
Date: 03/09/2015
Proceedings: Agency Final Order
PDF:
Date: 01/28/2015
Proceedings: Order Denying Requests for Written Exemption.
PDF:
Date: 01/26/2015
Proceedings: Request for Written Exemption filed.
PDF:
Date: 01/26/2015
Proceedings: Request for Written Exemption filed.
PDF:
Date: 01/09/2015
Proceedings: Recommended Order
PDF:
Date: 01/09/2015
Proceedings: Recommended Order (hearing held October 29, 2014). CASE CLOSED.
PDF:
Date: 01/09/2015
Proceedings: Recommended Order cover letter identifying the hearing record referred to the Agency.
PDF:
Date: 12/22/2014
Proceedings: Certificate of Service filed.
PDF:
Date: 12/22/2014
Proceedings: Petitioner`s Proposed Recommended Order filed.
PDF:
Date: 12/19/2014
Proceedings: Respondent's Proposed Recommended Order filed.
PDF:
Date: 12/02/2014
Proceedings: Order Establishing Deadline for Filing Proposed Recommended Orders.
Date: 10/29/2014
Proceedings: CASE STATUS: Hearing Held.
PDF:
Date: 10/29/2014
Proceedings: Order of Consolidation (DOAH Case Nos. 14-3133 and 14-3134).
PDF:
Date: 10/28/2014
Proceedings: Respondent's Motion in Limine filed.
PDF:
Date: 10/28/2014
Proceedings: Notice of Appearance (Zersis Minocher).
PDF:
Date: 10/28/2014
Proceedings: Notice of Appearance of Witness (Zersis Minocher).
Date: 10/24/2014
Proceedings: Respondent's Proposed Exhibits filed (exhibits not available for viewing).
PDF:
Date: 10/24/2014
Proceedings: Respondent's Unilateral Pre-hearing Statement filed.
PDF:
Date: 10/24/2014
Proceedings: Respondent's (Proposed) Exhibit List filed.
PDF:
Date: 10/17/2014
Proceedings: Notice of Transfer.
PDF:
Date: 08/13/2014
Proceedings: Order Granting Continuance and Re-scheduling Hearing by Video Teleconference (hearing set for October 29, 2014; 9:00 a.m.; Lauderdale Lakes, FL).
PDF:
Date: 08/12/2014
Proceedings: Respondent's Amended Motion for Continuance filed.
PDF:
Date: 08/12/2014
Proceedings: Respondent's Motion for Continuance filed.
PDF:
Date: 07/23/2014
Proceedings: Order of Pre-hearing Instructions.
PDF:
Date: 07/23/2014
Proceedings: Notice of Hearing by Video Teleconference (hearing set for October 14, 2014; 9:00 a.m.; Lauderdale Lakes and Tallahassee, FL).
PDF:
Date: 07/18/2014
Proceedings: Respondent's Second Request for Production of Documents filed.
PDF:
Date: 07/15/2014
Proceedings: Respondent's First Request for Production of Documents filed.
PDF:
Date: 07/15/2014
Proceedings: Notice of Serving Respondent's First Set of Written Interrogatories filed.
PDF:
Date: 07/15/2014
Proceedings: Respondent's First Requests for Admission filed.
PDF:
Date: 07/15/2014
Proceedings: (Respondent's) Notice of Intent to Introduce into Evidence Records Containing Data Summaries filed.
PDF:
Date: 07/14/2014
Proceedings: Joint Response to Initial Order filed.
PDF:
Date: 07/10/2014
Proceedings: Notice of Appearance (Carrol Cherry) filed.
PDF:
Date: 07/09/2014
Proceedings: Initial Order.
PDF:
Date: 07/09/2014
Proceedings: Addendum to Notice of Proposed Assessment filed.
PDF:
Date: 07/09/2014
Proceedings: Notice of Proposed Assessment filed.
PDF:
Date: 07/09/2014
Proceedings: Petition for Formal Hearing (Formal Protest) filed.
PDF:
Date: 07/09/2014
Proceedings: Agency referral filed.

Case Information

Judge:
MARY LI CREASY
Date Filed:
07/09/2014
Date Assignment:
10/17/2014
Last Docket Entry:
09/30/2015
Location:
Lauderdale Lakes, Florida
District:
Southern
Agency:
ADOPTED IN TOTO
 

Counsels

Related Florida Statute(s) (7):

Related Florida Rule(s) (1):