16-006333 130 Ne 40th Street, Llc, D/B/A Michael&Apos;S Genuine Food And Drink vs. Department Of Revenue Status: Closed Recommended Order on Friday, June 16, 2017.

Summary: DOR could not revisit its approval of enterprise zone credits to disallow them, but could verify credits against actual wages paid. Recommend assessment be reduced accordingly.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

130 NE 40TH STREET, LLC, d/b/a

MICHAEL'S GENUINE FOOD AND

DRINK,

Petitioner,

vs. Case No. 16 - 6333

DEPARTMENT OF REVENUE,

Respondent.

_______________________________/

RECOMMENDE D ORDER

On March 30, 2017, Administrative Law Judge Lisa Shearer

Nelson conducted a hearing pursuant to section 120.57(1), Florida

Statutes (2016) , by video - teleconferencing with sites in

Tallahassee and Lauderdale Lakes, Florida.

APPEARANCES

For Petiti oner: Joseph C. Moffa, Esquire

James F. McAuley, Esquire

Jonathan W. Taylor, Esquire

Moffa, Sutton, and Donnini, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

For Respondent: R yann E. White, Esquire

John Mika, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUE S

The issues to be determined in this proceeding are

1) whether Respondent, the Departme nt of Revenue (Respondent or

the Department ), demonstrat ed that i t made an assessment against

the taxpayer, as well as the factual and legal basis for the

assessment; 2) whether Petitioner, 130 NE 40 th Street, LLC , d/b/a

MichaelÓs Genuine Food and Drink (P etitioner or MichaelÓs), is

entitled to enterprise zone job credits (EZ credits) claime d on

its sales and use tax returns for the audited period; and

3) whether the penalty and interest assessed in the August 18,

2016, Notice of Decision is justified.

PREL IMINARY STATEMENT

Petitioner is challenging RespondentÓs assessment of sales

and use taxes against Petitioner as a result of an audit for the

period beginning February 1, 2012 , through January 31, 2015.

Th is challenge addresses the propriety of the Depart mentÓs

disallowance of EZ credits taken by Petitioner during the audit

period.

On August 18, 2016, Respondent issued a Notice of Decision

advising that Petitioner owed a total of $215,421 .26 in assessed

taxes, penalties and interest through that date. On October 14,

2016, Petitioner filed a request for a hearing , and on

October 28, 2016, the case was forwarded to the Division of

Administrative Hearings (Division) for assignment of an

administrative law judge.

The case was originally scheduled for hearing o n January 31,

2017. At PetitionerÓs request, it was rescheduled for March 30,

2017, and commenced and concluded on that day. Petitioner

presented the testimony of Omar Azze, and PetitionerÓs Exhibits

numbered 1 through 21, and lettered A and B, were admi tted into

evidence. Respondent presented the testimony of Robert Ward,

Suzanne Haines, and Kathleen Marsh, and RespondentÓs Exhibits

numbered 1 through 12 were admitted. The parties filed a Joint

Pre - hearing Stipulation that contained stipulated findings of

fact that have been incorporated into the findings below. The

Transcript of the hearing was filed with the Division on

April 13, 2017, and at the partiesÓ reque st, proposed recommended

orders were due 30 days after the filing of the T ranscript. Both

partiesÓ Proposed Recommended Orders were timely filed, and have

been considered in this Recommended Order. All references to

Florida Statutes are to the codification in effect during the

audit period, i.e. 2012 through 2014.

FINDING S OF FACT

1. Petition er is a Florida corporation with its home office

and principal place of business in Miami, Florida.

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

with administering the state Ó s sales tax laws under chapter 212,

Florida Statutes (2012 - 2014) .

3. MichaelÓs is a limited liability company located at

130 NE 40 th Street, Miami, Florida 33137. It operates a

restaurant and bar at that address .

Business Structure of M ichaelÓs

4 . MichaelÓs opened in 2007 and is located in an enterprise

zone in Miami. MichaelÓs enterprise zone identification number

is 1301.

5 . MichaelÓs is owned by Michael Sch w artz. In 2012,

Mr. Schwart z opened a second restaurant known as HarryÓs

Pizz e ria, which is also located in Miami. A third restaurant,

the Cypress Room, was a lso opened during the audit period,

although the timing of its opening is not clear from the record.

Neither HarryÓs Pizzeria nor the Cypress Room is the subject of

this audit.

6 . All of the res taurants are separate legal entities.

Mr. Schwart z is also the owner of a shared service company named

Genuine Hospitality Group (GHG). The direct employees of GHG a re

the comptroller for the restaurants , the director of beverage,

the director of operations, a marketing person, and the people

overseeing the vario us restaurant s . GHG does not have ownership

in any of the restaurants, but provides services to each of them ,

including at different times, payroll, marketing, operations, and

menu development . For example, during the years 201 2 and 2013,

GHG provided pa yroll functions for the various restaurants .

According to Omar Azze, GHGÓs comptroller, the idea was to create

a Ðcommon paymasterÑ for the restaurants, b ecause it would allow

them to have a larger pool of employees for health insurance, in

order to get a more favorable rate.

7 . When MichaelÓs decided to use this payroll method,

Mr. Azze called the Department and canc eled the reemployment tax

registration of Mich ae lÓs because the taxes w ould be paid through

GHG. Contrary to notations in the DepartmentÓ s records,

MichaelÓs never close d during the audit period: it still had the

same employees and management team. The idea for using a common

paymaster approach for the restaurants came from the restaurantsÓ

accounting consultant. Paying employees through GHG was never

intended to reduce the tax liability of MichaelÓs , or to transfer

control of the employees to GHG, and taxes related to payroll

were all paid through GHG for 2012 and 2013. E ach restaurant

maintained control over its own employees (general manager, two

or three assistant managers, the head chef, bus s ers, waiters,

cooks, support staff , and bartenders) and employee records, and

employees did not ÐfloatÑ from restaurant to restaurant. GHG

would pay the employees for MichaelÓs and the other res taurants,

and all of the restaurants would reimburse GHG for the payroll

payments for their respect ive employees. Mr. AzzeÓs testimony

regarding this arrangement is consistent with the deductions on

the restaurantsÓ respective federal tax returns for the payrolls

in 2012 and 2013 , and is credited .

8 . It is found that, during the calendar years 2012 and

2013, the employees remained under the direction and control of

MichaelÓs and that payroll services alone were handled by GHG.

9 . In 2014, the third year of the audit period, the

Petition er decided to stop having GHG performing payroll

functions , and to hand le payroll in - house using a QuickBooks

program , in order to reduce costs . In terms of the audit, this

change in payroll method meant that for the first two years of

the audit, all of the employees for MichaelÓs were paid through

GHG, as were all of MichaelÓs Ó reemployment taxes. The third

year of the audit, employees and reemployment taxes were paid

through MichaelÓs directly.

A pplications for EZ C redi ts for M ichaelÓs

10 . Section 212.096 allows certain eligible businesses

within identified Ðenterprise zonesÑ to take a credit against

sa les and use taxes when there are employees hired who live

within the identified enterprise zones and when there has bee n an

increase in jobs over the 12 months prior to the date of the

application. Section 212.096(1)(a) defines an Ðeligible

businessÑ as Ðany sole proprietorship, firm, partnership,

corporation, bank, savings association, estate, trust, business

trust, rece iver, syndicate, or other group or combination, or

successor business, located in an enterprise zone.Ñ

11 . In order to obtain the credit, an eligible business

must file an application, including a statement made under oath

that includes, for each new empl oyee, the employeeÓs name and

place of residence ; the enterprise zone number for the zone in

which the new employee lives ; the name and address of the

eligible business ; the starting salary or hourly wages paid to

the new employee ; and a demonstration to t he D epartment that, on

the date of the application, the total number of full - time jobs

is greater than it was 12 months prior to the application.

12 . The application is initially filed with the governing

body or enterprise zone development agency, which r eviews the

application and determines whether it contains all of the

required information and meets the requirements of section

212.096. If it does, then the enterprise zone coordinator

certifies the application and transmits it to the Department . In

add ition, t he business also forwards a certified application to

the Department.

13 . Once the Department receive s a certified application

for enterprise zone credits, it has ten days to notify the

business that the credit has been approved. If the applicatio n

is incomplete or insufficient to support the credit, the

Department is required to deny the credit and notify the

business, wh ich is free to reapply.

14 . Section 212.096(2)(a) provides that Ð[u]pon an

affirmative showing . . . that the requirements of this section

have been met, the business shall be allowed a credit against the

tax remitted under this chapter.Ñ The credit Ð shall be allowed

for up to 24 consecutive months, beginning with the first tax

return due pursuant to s. 212.11 after approval b y the

department.Ñ £ 212.096( 2)(b), Fla. Stat.

15 . Petitioner regularly submitted applications for EZ

credits , and during the audit period, submitted applications on

the following dates: February 1, 2012; August 1, 2012;

February 4, 201 3; April 2, 2013; July 19, 2013; August 15, 2013;

August 30, 2013; January 6, 2014; January 30, 2014; March 3,

2014; March 27, 2014; and June 17, 2014. Each of these

applications was made listing MichaelÓs as the taxpayer.

16 . Petitioner used a company named Economic Dev elopment

Consultants (EDC) to help it calculate the credits Michael Ó s

would be entitled to claim. Each month, Petitioner provided to

EDC the names of employees terminated or resigned and those newly

hired , along with the new hiresÓ addresses . Petitioner would

also provide to EDC the number of full - time employees for each

month. In determining residency for its employees, Petitioner

relied on the addresses received from employees when they were

hired. EDC would then provide a report saying which employee s

qualified for a credit, and do the necessary paperwork in order

to obtain approvals for the credits.

17 . Each of PetitionerÓs applications for EZ credits

submitted during the audit period w as approved, and Petitioner

took the EZ credits associated with those applications with the

understanding that they were properly approved.

18 . At the time the Department approved each of the

applications for EZ credits, it had access to the information in

and attached to the applications, including the identities of

employees eligible for the credits. What the Department did not

have when it reviewed the applications would be the actual wages

paid to the eligible employees , because most of those wages would

not have been paid at that point.

Actions Taken By the Audit or

19 . On February 27, 2015, the Department issued a Notice of

Intent to Audit Books and Records to Michael Ós , indicating that

it would be subject to audit for the period February 1, 2012 ,

through January 31, 2015.

20 . Robert Ward was the auditor assig ned to conduct the

audit. Mr. Ward was relatively new to the Department, and had

not previously conducted an audit that involved EZ credits.

21 . As part of his audit preparation, Mr. Ward pulled a

copy of the DepartmentÓs standard audit plan , as well a s the

DepartmentÓs audit plan specifications for the industry in

question (here, the restaurant industry). He noted that

Michael Ós had been audited previously and that the current audit

resulted from a Ðlead , Ñ but could not recall the basis or

substance o f the lead. He also noted that EZ credits had been an

issue in the previous audit, which spanned the period from

March 1, 2007, through June 30, 2009.

22 . Mr. Ward conducted a pre - audit interview with Omar

Azze, PetitionerÓs comptroller, on May 1, 2015 . 1/ While there was

an agenda prepared for this pre - audit meeting, it does not appear

to be in the record. At this pre - audit meeting, Mr. Ward was

focused on the routine aspects of the a udit as opposed to EZ

credits. The issue of EZ credits was first ra ised in a meeting

with Mr. Azze and Mr. Schwartz on May 27, 2015. At that time,

Mr. Ward advised that EZ credits would be disallowed because the

employees for whom credits were taken were on the payroll of GHG

as opposed to MichaelÓ s. Mr. Ward stated at hearing that this

decision was made not based upon additional information , but

based upon the sharing of employees by different entities .

23 . Mr. Ward acknowledged that MichaelÓs had received

approval to take EZ credits , and that MichaelÓs provided all of

the documentation requested of it . He had sought guidance from

his trainer , Michelle Samuels, and a senior revenue consultant ,

Miguel Suarez. Mr. Ward was advised to verify the va lidity of

the EZ credits claimed, with the focus on the growth of full - tim e

employment.

24 . If a company subject to an audit had not received an

approval letter for the credits, then the credits would be

disallowed automatically. If there was an approval letter (as

there was here), Mr. Ward understood that he was to look at the

application itself and review the information provided with the

application , including the schedules filed with the application ,

in order to validate the use of the EZ credits .

25 . Mr. Ward acknowledged that the person who reviewed the

application f or the Department when it was approved had all of

this information. He was advised that the turn - around period for

the initial applications was short, and that the initial reviewer

is not required to validate the information, because the reviewer

would tr ust the accuracy of the affirmation required of the

taxpayer . The initial approval d id not mean that the Department

would not later go back and reexamine the information originally

submitted.

26 . In addition to the documents submitted with the

applicati ons, Mr. Ward considered other Department records, such

a s reemployment tax records. He also verified addresses for

named employees in the applications using the DAVID database of

the Department of Highway Safety and Motor Vehicles. The DAVID

database ma intains information related to driversÓ licenses and

car registrations. The information in the DAVID database is not

available to the general public, and was not avai lable to

Petitioner. Mr. Ward also acknowledged that people can have a

different mailing address from their residential address for a

variety of reasons, and they were not always consistent, even in

the DAVID database. 2/ For example, one of the employees listed by

Petitioner on an application dated August 1, 2012, was Aleksandar

Gj u ro vski. The DAVID records indicate that on July 20, 2013,

Mr. Gj u rovski changed his mailing address . However, his

residential address was not changed in the DAVID system until a

date after the filing of the enterprise zone application.

Mr. Ward relied on the cha nge in the mailing address alone to

determine that Mr. Gj u rovski did not live within the enterprise

zone at the time of the application. It is found that, at the

time of the application, Mr. Gj u rovski lived in the enterprise

zone.

27 . After consultation with his supervisors, Mr. Ward

disallowed all of the EZ credits for 2012 and 2013, as well as

some of the credits for 2014.

28 . Respondent issued MichaelÓs a Notice of Intent

to Make Audit Changes dated November 10, 2015, for audit

number 200180508. The reasons given in the Explanation of Items

include d in the Work Papers are initially listed by employee, as

opposed to by date. For all of the employees for which credits

were claimed for 2012 and 2013, th e primary reason stated by

Mr. Ward is that the em ployees for which EZ credits were claimed

were not employees of MichaelÓs , but instead were employees of

another company. If the application for EZ credits was filed

during 2012 or 2013, but the credits were claimed past

December 2013, all of the credits related to that employee were

disallowed.

29 . Other reasons listed for disallowing the tax credits

were that there was no demonstrated job growth ( for employees

Kates, Gibson, Lopez, Jackson - Thompson, Daniels, Bradbury,

Allante, Alicea, Wallace, and Her get); that the employee for

which the credit was claimed did not live in the enterprise zone

(for employees Coleman, Albert, Gjurovski, and Lopez); and

discrepancies in terms of when employment ended compared to dates

credits were claimed , or whether appro priate amount of credit was

claimed for wages paid (for employees Kates, Poinsetti, Gomez,

Daniels, Bradbury, Williams, Allante, and Herget) . The first two

of these reasons were based upon Mr. WardÓs verification of the

information provided in the EZ cred it applications.

30. With respect to those employees for whom credits were

disallowed because they had left the employ of MichaelÓs ,

Petitioner introduced a letter from the DepartmentÓs tax

specialist, Suzanne Paul . The letter stated that a company could

claim credits up to three months after employment ended in order

to recapture the three months of employment required prior to

submitting an application for that employee. Mr. Ward was not

aware of this letter at the time he performed the audit, and had

he known, it would have changed his note, at least as to

Mr. Gjurovski, concerning that basis for disallowing the credit.

3 1 . Respondent assessed MichaelÓs sales and use tax for

disallowed EZ credits, for untaxed purchases of fixed assets, and

for untaxed consumable purchases. Only the assessment related to

disallowed EZ credits is challenged in this proceeding.

3 2 . The Notice of Intent to Make Audit changes included a

penalty of $62,609.01. In the letter accompanying the notice,

Mr. Ward informed Petit ioner that the penalty for items assessed

in Exhibit B 01 had been adjusted based on the reasonable cause

guidelines outlined in Florida Administrative Code Rule 12 -

13.007. It appears that there was no adjustment or compromise of

penalties associated with the disallowance of EZ credits.

3 3 . Mr. Ward testified that penalties were assessed in this

case because EZ credits were also an issue in the prior audit for

MichaelÓs. The payroll arrangement at issue in this case was not

at issue in the prior audit, however, as it did not begin until

2012. The financial dealings of MichaelÓs , including the payment

of taxes to the Department, were also under a new comptroller,

who was not involved in the first audit. Lastly, while the

Department found fault with EZ c redits in the first audit, it

compromised the taxes assessed for the same amount as those

associated with the EZ credits. Mr. Ward acknowledged that,

under the circumstances related to this audit, the penalty seemed

harsh.

3 4 . The Department issued a Not ice of Proposed Assessment

(NOPA) on December 15, 2015, in which it assessed taxes in the

amount of $127,243.77, penalties of $62,609.01, and interest as

of December 15, 2015, of $19,605.03.

3 5 . MichaelÓs filed an informal protest of the proposed

assess ment with the Department by means of a letter dated

February 5, 2016.

3 6 . On August 18, 2016, the Department issued a Notice of

Decision that sustained the proposed assessment against MichaelÓs

in full. The Notice of Decision, which is, by its terms, the

DepartmentÓs final position in this matter, only addresses the

issue of whether MichaelÓs is an eligible employer for the

purpose of receiving EZ credits.

CONCLUSIONS OF LAW

3 7 . The Division of Administrative Hearings has

jurisdiction over the parties a nd the subject matter of this

proceeding. §§ 72.011(1) ( a), 120.569 , 120.57(1), and

120.80(14)(b), Fla. Stat. (2016).

38. Petitioner is challenging the DepartmentÓs assessment

of sales and use taxes, penalties, and interest. In this type of

proceeding, t he Department bears the initial burden of

demonstrating that an assessment has been made against the

taxpayer, and the factual and legal grounds for making the

assessment. The burden then shifts to Petitioner to demonstrate

by a preponderance of the evide nce that the assessment is

incorrect. § 120.80(14 ) (b)2 . , Fla. Stat.; IPC Sports, Inc. v.

DepÓt of Rev . , 829 So. 2d 330, 332 (Fla. 3d DCA 2002).

The Statutory Framework

39. The crux of this case deals with the interplay between

t hree different statutes ad ministered by the Department:

section s 212.096 , 212. 11(5)(a) , and 213.34 . Section 212.096

specifically authorizes EZ job credits and prescribes the process

required to obtain them, while section 212.11 describes the

process for filing tax returns. Secti on 213.34 provides to the

Department its general authority to audit tax returns.

40. Section 212.096 provides , in pertinent part:

(1) For the purposes of the credit provided

in this section:

(a) ÐEligible businessÑ means any sole

proprietorship, firm, p artnership,

corporation, bank, savings association,

estate, trust, business trust, receiver,

syndicate, or other group or combination, or

successor business, located in an enterprise

zone. The business must demonstrate to the

department that, on the date of application,

the total number of full - time jobs defined

under paragraph (d) is greater than the total

was 12 months prior to that date.

* * *

(c) ÐNew employeeÑ means a person residing

in an enterprise zone or a participant in the

welfare transition program who begins

employment with an eligible business after

July 1, 1995, and who has not been previously

employed full time within the preceding

12 months by the eligible business, or a

successor eligible business, claiming the

credit allowed by this section.

(d) ÐJobÑ means a full - time position, as

consistent with terms used by the Department

of Economic Opportunity and the United States

Department of Labor for purposes of

reemployment assistance tax administration

and employment estimation resulting directly

from a business operation in this state.

This term does not include a temporary

construction job involved with the

construction of facilities or any job that

has previously been included in any

application for tax credits under

s. 220.181 (1). The term a lso includes

employment of an employee leased from an

employee leasing company licensed under

chapter 468 if such employee has been

continuously leased to the employer for an

average of at least 36 hours per week for

more than 6 months.

(e) ÐNew job has b een createdÑ means that,

on the date of application, the total number

of full - time jobs is greater than the total

was 12 months prior to that date, as

demonstrated to the department by a business

located in the enterprise zone.

A person shall be deemed to be employed if

the person performs duties in connection with

the operations of the business on a regular,

full - time basis, provided the person is

performing such duties for an average of at

least 36 hours per week each month. The

person must be performing such duties at a

business site located in the enterprise zone.

(2)(a) Upon an affirmative showing by an

eligible business to the satisfaction of the

department that the requirements of this

section have been met, the business shall be

allowed a credit ag ainst the tax remitted

under this chapter.

(b) The credit shall be computed as

20 percent of the actual monthly wages paid

in this state to each new employee hired when

a new job has been created, unless the

business is located within a rural enterprise

z one pursuant to s. 290.004 , in which case

the credit shall be 30 percent of the actual

monthly wages paid. If n o less than

20 percent of the employees of the business

are residents of an enterprise zone,

excluding temporary and part - time employees,

the credit shall be computed as 30 percent of

the actual monthly wages paid in this state

to each new employee hired w hen a new job has

been created, unless the business is located

within a rural enterprise zone, in which case

the credit shall be 45 percent of the actual

monthly wages paid. If the new employee

hired when a new job is created is a

participant in the welfa re transition

program, the following credit shall be a

percent of the actual monthly wages paid:

40 percent for $4 above the hourly federal

minimum wage rate; 41 percent for $5 above

the hourly federal minimum wage rate;

42 percent for $6 above the hourly federal

minimum wage rate; 43 percent for $7 above

the hourly federal minimum wage rate; and

44 percent for $8 above the hourly federal

minimum wage rate. For purposes of this

paragraph, monthly wages shall be computed as

one - twelfth of the expected annua l wages paid

to such employee. The amount paid as wages

to a new employee is the compensation paid to

such employee that is subject to reemployment

assistance tax. The credit shall be allowed

for up to 24 consecutive months, beginning

with the first tax return due pursuant to

s. 212.11 after approval by the department .

(3) In order to claim this credit, an

eligibl e business must file under oath with

the governing body or enterprise zone

d evelopment agency having jurisdiction over

t he enterprise zone where the business is

located, as applicable, a statement which

includes:

(a) For each new employee for whom this

cr edit is claimed, the employeeÓs name and

place of residence, including the identifying

number assigned pursuant to s. 290.0065 to

the enterprise zone in which the employee

resides if the new employee is a person

residing in an enterprise zone, and, if

applicable, documentation that the employee

is a welfare transition program participant.

(b) If applicable, the name and address of

each permanent employee of the business,

including, for each employee who is a

resident of an enterprise zone, the

identifying number assigned pursuant to

s. 290.0065 to the enterprise zone in which

the employee resides.

(c) The name and address of the eligible

business.

(d) The starting salary or hourly wages paid

to the n ew employee.

(e) Demonstration to the department that, on

the date of application , the total number of

full - time jobs defined under paragraph (1)(d)

is greater than the total was 12 months prior

to that date.

(f) The identifying number assigned pursuant

to s. 290.0065 to the enterprise zone in

which the business is located.

(g) Whether the business is a small bu siness

as defined by s. 288.703 (6).

(h) Within 10 working days after receipt of

an application, the governing b ody or

enterprise zone development agency shall

review the application to determine if it

contains all the information required

pursuant to this subsection and meets the

criteria set out in this section. The

governing body or agency shall certify all

appl ications that contain the information

required pursuant to this subsection and meet

the criteria set out in this section as

eligible to receive a credit. If applicable,

the governing body or agency shall also

certify if 20 percent of the employees of the

business are residents of an enterprise zone,

excluding temporary and part - time employees.

The certification shall be in writing, and a

copy of the certification shall be

transmitted to the executive director of the

Department of Revenue. The business sh all be

responsible for forwarding a certified

application to the department within the time

specified in paragraph (i).

(i) All applications for a credit pursuant

to this section must be submitted to the

department within 6 months after the new

employee is hired, except applications for

credit for leased employees. Applications

for credit for leased employees must be

submitte d to the department within 7 months

after the employee is leased.

(4) Within 10 working days after receipt of

a completed application for a credit

authorized in this section, the department

shall inform the business that the

application has been approved. The credit

may be taken on the first return due after

receipt of approval from the department.

(5) In the event the application is

incomplete or insufficient to support the

credit authorized in this section, the

department shall deny the credit and noti fy

the business of that fact. The business may

reapply for this credit.

(emphasis added)

41. Section 212.11 deals with the filing of tax returns.

With respect to credits claimed on tax returns, it states:

(5)(a) Each dealer that claims any credits

granted in this chapter against that dealerÓs

sales and use tax liabilities shall submit to

the department, upon request, documentation

that provides all of the information required

to verify the dealerÓs entitlement to such

credits, excluding credits auth orized

pursuant to the provisions of s. 212.17 . All

information must be broken down as prescribed

by the departm ent and shall be submitted in a

manner that enables the department to verify

that the credits are allowable by law. With

respect to any credit that is granted in the

form of a refund of previously paid taxes,

supporting documentation must be provided

with the application for refund and the

penalty provisions of paragraph (c) do not

apply.

(b) The department shall adopt rules

regarding the forms and documentation

required to verify credits against sales and

use tax liabilities and the format in which

docum entation is to be submitted.

42. The Department has adopted a rule which specifies a

form to be used with respect to enterprise zone job credits. The

form, DR - 15ZC, is the form used when submitting the application

described in section 212.096. Fla. A dmin. Code R. 12A -

1.097( 5)(h).

43. Section 213.34 provides the DepartmentÓs auditing

authority. It states:

(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 depart ment,

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 bo oks and records

necessary to ascertain a taxpayerÓs

compliance with the revenue laws of this

state, provided that the departmentÓs 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 deficiency in tax, penalty,

or interest determined to be due.

(4) Notwithstanding the provisions of

s. 215.26 , the department shall offset the

overpayment of any tax during an audit period

against a deficiency of any tax , penalty, or

interest determined to be due during the same

audit period.

Angler Resorts and Epic Hotel

44. The issues to be resolved are whether the Department is

entitled to revisit its approval of PetitionerÓs applications for

EZ credits , what entit y or entities constitute the employer for

purposes of claiming the EZ credits , and whether the employees

for which GHG provided payroll services are employees of GHG or

of MichaelÓs.

45. Petitioner has consistently asserted that the

Department is not p ermitted to require documentation beyond what

a taxpayer has already submitted , and is not permitted to

reexamine its original decision to approve enterprise zone tax

credits. Petitioner bases much of its argument on orders

rendered in Angler Resorts, LLC v. Department of Revenue , Final

Order No. D OR - 08 - 17 - FOI (Fla. DOR Mar. 16, 2008) (available from

the agency clerk) , and the Recommended Order in Epic Hotel, LLC

v. Dep artmen t of Revenue , Case No. 10 - 1679 (Fla. DOAH Aug. 2,

2010; Fla. DOR Jan. 1 1 , 2011).

46. In Angler Resorts , the petitioner filed refund claims

for merchandise purchased for a business property loc a ted in an

enterprise zone pursuant to section 212.08 (5)(h) . The Department

requested information that exceeded the documentation identified

in the DepartmentÓs rule, in its review of Angler Resorts Ó claim

regarding the number of employees Angler Resorts employed in the

enterprise zone, and Angler Resorts declined to provide the

additional information. The claims were granted in part and

denied in part, and Angler Resorts requested a hearing pursuant

to section 120.57(2).

47. In its Final Order, the Department determined that it

had provided guidelines regarding what was necessary to show

qualification for the exemption/refund, and included t hose

guidelines in For ms EZ - E and DR - 26S, incorporated into the

DepartmentÓs rule 12A - 1.107(3). These guidelines did not include

the information requested by the Notice of Intent to Make Tax

Refund Claim Changes, and given the specific nature of the

certi fication process in section 212.08(5)(h), the Department

found that the claim for refund should not have been denied for

failure to provide the additional requested information.

48. Epic Hotel also dealt with a request for refund

pursuant to section 212. 08 (5) , albeit under paragraph (5)(g) . In

Epic Hotel , the taxpayer applied for a refund for the cost of

building materials used for the rehabilitation of real property

located in an enterprise zone. The Department requested

additional information, includi ng a copy of Epic HotelÓs federal

unemployment tax return and a copy of its W3 form. The auditor

assigned to review the refund application also performed

independent research on the employee issue, by using the stateÓs

unemployment tax records and DBPRÓs employee leasing company

registration data, and was unable to locate evidence that the

employees listed were employed by Epic Hotels. 3 / Epic Hotel

sought a hearing pursuant to section 120.57(1) on the

DepartmentÓs denial of Epic HotelÓs refund request .

A dministrative Law Judge John Newton issued a Recommended Order

finding that, based upon the holding in Angler Resorts , Epic

Hotel did not have to provide additional information about the

residence and number of employees as certified by the enterprise

zone coordinator. In its Final Order, the Department determined

that while the holding in Angler Resorts provided that the

taxpayer should not have been required to provide additional

information, the Department was free to consider information

obtained from other sources. The Final Order in its substituted

conclusions of law also relied on Mercedes Lighting and Electric

Supply, Inc. v. Department of General Services , 560 So. 2d 272,

278 (Fla. 1 st DCA 1990) for the premise that the doctrine of

stare decisis i s Ðcontrary to both the spirit and purpose of

chapter 120 proceedings.Ñ

49. It is noted that, since the Mercedes Lighting decision,

appellate courts have acknowledged that stare decisis does in

fact apply in administrative proceedings. Bethesda Healthca re

Sys. v. Ag . for Health Care Admin. , 945 So. 2d 574, 576 - 577 (Fla.

4 th DCA 2006); Nordheim v. DepÓt of Envtl. Prot . , 719 So. 2d

1212, 1214 (Fla. 3d DCA 1998)( PERC abused its discretion in

failing to consider its prior precedent, because its decision was

inconsistent with officially stated agency policy or a prior

agency practice, in violation of section 120.68(6)(e) 3.);

Gessler v. DepÓt of Bus. & ProfÓl Reg. , 627 So. 2d 501, 503 (Fla.

4 th DCA 1993) (Ð It appears the legislature has made a policy

decision that the judicial concept of stare decisis should apply

to administrative proceedings by requiring the agency to provide

reasonable access to prior agency orders.Ñ) . The concept is

built into the standards of review for administrative proceedings

in secti on 120.68(6). Nonetheless, it is reasonable for an

agency to consider a prior decision to be distinguishable when

either the facts or the law are different from those presented in

the prior action .

50. Here, the Department considered both Angler Resorts and

Epic Hotel to be distinguishable because both dealt w ith requests

for refunds pursuant to section 212.08, while MichaelÓs involves

an application for credits pursuant to section 212.096. While

there are similarities in the two statutes, there are dec ided

differences. However, those differences do not make Angler

Resorts and Epic Hotel immaterial, as the Department contends,

but rather, more compelling.

Requests for Refunds Versus Applications for Job Credits

51. First, the process outlined in sec tion 212.08(5)(g)

and (h) , while similar, provides that a taxpayer files an

application with the governing body or enterprise zone agency,

and lists the information that the statute requires to establish

the basis for a refund . However, unlike the provisi on in section

212.096, once the application is certified by the enterprise zone

development agency, the next step in the process is for the

Department to review the application and process the refund,

which is the stage at which both Angler Resorts and Epi c Hotel

were decided. See § 212.08(5)(g)5. a nd 212.08(5) (h)5., Fla.

Stat.

52. This case does not present in the same posture.

Section 212.096(4) and (5) , unlike section 212.08(5)(g) and (h),

expressly provides a ten - day window for the Department to exa mine

the application for enterprise zone job credits once the

enterprise zone coordinator has reviewed the application, and

requires the Department to either approve or deny the application

once it has determined whether the application is incomplete or

in sufficient to support the credit sought. T his ten - day window

is meant for more than what the enterprise zone coordinator has

already done. Section 212.096(2)(a) specifies that Ð[u]pon an

affirmative showing . . . to the satisfaction of the department

tha t the requirements of this section have been met, the business

shall be allowed a credit against the tax remitted in this

chapter.Ñ Paragraph (2)(b) states that the credit shall be

allowed for up to 24 consecutive months, Ðbeginning with the

first tax ret urn due pursuant to section 212.11 after approval by

the department .Ñ When read together, these provisions make it

clear that the DepartmentÓs approval process is to occur during

the ten - day window after receiving the certified application.

53. To inter pret the requirements of section 212.096 as the

Department does , serves to make both the ten - day window for

approval in paragraphs (4) and (5), and the assurance to the

taxpayer in paragraphs (2)(a) and (b) a nullity. As stated by

the Supreme Court of Flo rida in Forsythe v. Longboat Key Beach

Erosion Control District , 604 So. 2d 452, 455 - 456 (Fla. 1992):

It is axiomatic that all parts of a statute

must be read together in order to achieve a

consistent who le . Where possible, courts

must give full effect to all statutory

provisions and construe related statutory

provisions in harmony with one another. . . .

To rule that a district which crosses county

lines is dependent because it satisfies the

criteria in subsection 189.403(2) would make

a nullity of the s econd sentence in

subsection 189.403(3). It is a cardinal rule

of statutory interpretation that courts

should avoid readings that would render part

of a statute m eaningless.

(citations omitted ).

See also Garay v. DepÓt of Mgmt. Servs. , 46 So. 3d 1227, 1229

(Fla. 1 st DCA 2010) (appellantÓs interpretation of forfeiture

statute would render it a nullity).

5 4 . There is no question that with respect to each of the

applications submitted during the audit period, the Department

approved the applications. U nder the rationale expressed in

Angler Resorts , MichaelÓs provided everything it was supposed to

provide during the application process, and the Department had

the opportunity to verify that information before approving the

applications. Indeed, the appli cation form submitted is the only

form identified by the Department for verifying EZ credits in

rule 12A - 1.097(5)(e), adopted pursuant to section 212.11.

Section 212.096 (2)(a) mandates that once the application has been

approved, the business shall be per mitted to take the credit.

5 5 . That being said, the wages actually paid to the

employees, upon which the credits are based, are clearly not

available at the time of the application, and remain subject to

verification during the audit process. See §§ 2 12.096( 7) and (8)

and 213.34. As applied to this case, the Department should not

have reexamined the applications already approved in order to

disallow the EZ credits based on its conclusion that employees

did not live within the enterprise zone, were not employees of

MichaelÓs at the time of the application, or that there was not

an increase in employment, as those issues should have been

addressed at the time the application was approved. Had the

Department done so, MichaelÓs would have had the opportun ity to

correct any mistakes and reapply. The Department was , however,

within its authority to verify whether the credits taken were

appropriate , given the wages paid and the continued employment of

the employees for whom the credits are claimed.

Who Is the Employer?

5 6 . Petitioner argue s that the inquiry stops at the

determination that the Department should not have reexamined the

applications submitted. However, because the Department must

verify that the EZ credit is tied to the wages for each claim ed

employee, it was not impermissible for the Department, in the

course of its audit, to insure that the named employees remained

employed by MichaelÓs during audit period. In that context, who

constituted the employer during the audit period remains an i ssue

for the Department to consider .

5 7 . The Department contends that many of the employees were

rightfully disallowed because they were employees of GHG as

opposed to MichaelÓs. Mr. Ward based his conclusion on GHG Ós

provi sion of payroll services durin g the first two years of the

audit period, and pa yment of the reemployment tax for those

employees. It is noted that the Department Ós records indicated

that MichaelÓs did not have an active reemployment tax account at

the time the Department approved the applications.

5 8 . MichaelÓs contends that it was an eligible business

under the definition in section 212.096 because paragraph (1)(a)

includes in its definition Ðany sole proprietorship, firm,

partnership . . . syndicate, or other group or combination . . .

located in an enterprise zone.Ñ It also relies on its payment

for the salaries of the employees, despite GHG performing the

payroll function, its claim for these employees on its federal

income taxes , and the employeesÓ continued performance of the

r esponsibilities for MichaelÓs that they performed prior to

January 1, 2012.

5 9 . MichaelÓs Ó reliance on the inclusion of syndicates and

groups in the definition of eligible employees must fail. While

the definition would allow MichaelÓs and GHG to appl y for EZ

credits as a group, each of the applications was submitted in

MichaelÓs name alone. Just as the Department cannot reconsider

the validity of the approval of the applications at the audit

stage, MichaelÓs cannot claim the benefit of a designation it did

not use when applying for the EZ credits.

60 . The determinative factor is whether the employees fit

the definition contained in section 212.096( 1)(d), which

provides:

A person shall be deemed to be employed if

the person performs duties in connec tion with

the operations of the business on a regular,

full - time basis, provided the person is

performing such duties for an average of at

least 36 hours per week each month. The

person must be performing such duties at a

business located in the enterpris e zone.

Notably, nothing in this provision ties employment to which entity

provides payment for reemployment taxes or which entity is listed

on the employeeÓs paycheck. The focus is on the duties performed.

6 1 . Omar Azze testified that the applications were

completed by providing information received from new hires at the

restaurant. He also testified that the restaurant has a general

manager, assistant managers, a head chef, bu s sers, waiters,

cooks, support staff, and bartenders , which are clearly fun ctions

of a restaurant. The people working at each restaurant did not

change when GHG began performing payro ll functions; MichaelÓs had

its own distinct payroll and payroll records , and its employees

performed the same functions before January 1, 2012, as they did

after that date . The employeesÓ salaries also were claimed on

MichaelÓs Ó federal income tax returns. Based on a preponderance

of the evidence, the employees for which credits were sought were

employees of MichaelÓ s, providing duties located wit hin the

enterprise zone.

6 2 . Whether or not the employees worked the requisite 36

hours per week would not be something contained in the EZ credit

application, and would be subject to audit.

6 3 . In summary, the Department met its initial burden of

d emonstrating that it made an assessment, and the factual and

legal basis upon which it relied in making the assessment .

Petitioner contends that the Notice of Decision does not address

the factual basis for disallowances for 2014 , and , therefore , no

factu al and legal basis for disallowing any credits in that year

was demonstrated . However , as noted in the Findings of Fact,

many of the credits disallowed for 2014 were based on

applications filed in the prior two years, and with respect to

the applications filed in January and March 2014, were based on

employment beginning in 2013 . In addition, the issue challenged

by MichaelÓs and addressed by the Department in its Notice of

Decision dealt with the DepartmentÓs ability to revisit the basis

of the applicati ons, which was an issue that affected the audit

process for all three years.

6 4 . While the Department must demonstrate the factual and

legal basis for making its assessment, section 120.80(14)(b)2.

does not require that the Department prove that ultimat ely, its

factual and legal basis was correct. MichaelÓs met its burden of

demonstrating that the legal basis the Department used for

disallowing the majority of EZ credits was flawed.

6 5 . Petitioner acknowledges in footnote 10 of its Proposed

Recommende d Order that the audit or disallowed credits based on a

discrepan cy in the wages paid , and he assessed $3,657.00 based on

that disallowance . The DepartmentÓs actions in auditing the

amount of wages paid compared to the credits claimed w ere

authorized and p roper. Clearly, however, the scope of disallowed

credits based on wage discrepancies is substantially restricted

compared to disallowances reflected in the Notice of Decision.

Penalty Considerations

6 6 . With respect to that portion of the assessment tha t

remains, whether an assessment of penalties is appropriate under

the DepartmentÓs rule must be determined . Obviously the amount

of assessment subject to penalties would be significantly reduced

should the Department accept the C onclusions of L aw contain ed in

this Recommended Order. In the event that the Department chooses

to reject these C onclusions of L aw, an analysis of the

appropriate penalty based upon rule 12 - 13.007 , for both the

original assessment and the conclusions rejecting much of the

assessm ent, is provided .

6 7 . Rule 12 - 13.007(1) provides that the Executive Director

or designee shall :

[M] ake a determination whether the taxpayerÓs

noncompliance was due to reasonable cause and

not to willful negligence, willful neglect,

or fraud based on the facts and circumstances

of the specific case. The standard used in

this determination is whether the taxpayer

exercised ordinary care and prudence and was

nevertheless unable to comply.

6 8 . The rule lists a number of factors to consider when

determin i ng reasonable cause and provides , in pertinent part:

(1) (a) When evaluating the facts and

circumstances relevant to penalties assessed

as a result of an audit, the Department shall

consider information provided by the taxpayer

in relation to the following :

1. Whether the taxpayer has been audited

previously, and, if so, whether the penalties

which are the subject of the compromise

request result from taxpayer actions that

resulted in a specific issue - related

deficiency assessment during one or more of

the previous audits. It is not the intent of

this subparagraph to apply to infrequent

occurrences of human error;

2. The materiality of the tax deficiency

assessed in an audit when considered within

the context of taxes correctly reported and

timely remitte d by the taxpayer for the same

tax during the same audit period;

3. Whether the taxpayer has initiated

controls or other actions that will promote

proper future reporting with respect to those

activities which contributed to the audit

deficiency and relat ed penalties; and

4. Whether the tax was collected and not

remitted to the state by the taxpayer.

6 9 . Here, MichaelÓs has been audited previously, and at

least some of the disallowance in the previous audit involved EZ

credits. The reasons for the dis allowance in th e previous audit

are not clear from this record, and the majority of the prior

assessment attributed to EZ credits was compromised.

70 . The rule also provides a series of examples of what

might be consider ed reasonable cause. They inclu de the following:

(3) Ignorance of the law or an erroneous

belief as to the need to comply with a

revenue law constitutes reasonable cause when

there are facts and circumstances which

indicate ordinary care and prudence was

exercised by the taxpayer.

(a) For example, ignorance of the law or an

erroneous belief held by the taxpayer is a

basis for reasonable cause when the taxpayer

has a limited knowledge of business, a

limited education, limited experience in

Florida tax matters, or advice received from

a competent advisor was relied upon in

complying with the provisions of a revenue

law.

(b) A good faith belief held by a taxpayer

with limited business knowledge, limited

education, or limited experience with Florida

tax matters is a basis for reasonable ca use

when there is reasonable doubt as to whether

compliance is required in view of conflicting

rulings, decisions, or ambiguities in the

law.

(4) Reliance upon the erroneous advice of an

advisor is a basis for reasonable cause when

the taxpayer relied in good faith upon

written advice of an advisor who was

competent in Florida tax matters and the

advisor acted with full knowledge of all of

the essential facts. Informal advice, advice

based upon insufficient facts, advice

received in cases where facts were

deliberately concealed, or obviously

erroneous advice are not grounds for

reasonable cause. To establish reasonable

cause based upon reliance on the advice of a

competent advisor, the taxpayer shall

demonstrate:

(a) That the taxpayer sought timely advic e

of a person who was competent in Florida tax

matters;

(b) That the taxpayer provided the advisor

with all of the necessary information and

withheld nothing; and

(c) That the taxpayer acted in good faith

upon written advice actually received from

the ad visor.

* * *

(6) Reliance upon another person to comply

with filing requirements, or to obtain

information, or to properly prepare returns

or reports, is a basis for reasonable cause,

depending upon the circumstances.

Noncompliance due to nonperform ance of a

ministerial - type function, inadvertent

misplacement of returns, reports, or

information, or the failure of the taxpayerÓs

agent to properly prepare or file returns or

reports are each a basis for reasonable cause

when the taxpayer estab lishes that adequate

procedures or steps for complying existed;

that the person responsible for performing

the function ordinarily performed the task

properly; or, that extenuating or unusual

circumstances prevented compliance.

71 . In this case, the com ptroller in charge of PetitionerÓs

finances began his employment shortly before the audit period. He

is not the same employee involved in the prior audit. Moreover,

he testified that before setting up the arrangement with GHG to

provide services to Micha elÓs, management had consulted an

accounting consultant who had assured them that the arrangement

was permissible, and that they would be authorized to take the EZ

credits. Based on Mr. AzzeÓs testimony, MichaelÓs was relying on

an advisor they perceived to be competent . Moreover, there

existed conflicting decisions regarding the process related to

enterprise zone credits, i.e., Angler Resorts and Epic Hotel , and

MichaelÓs relied on those decisions. The amount attributable to

EZ credits in the prior audi t was compromised for settlement

purposes, leading to the reasonable belief by Petitioner that its

position with respect to EZ credits was defensible. These factors

would create reasonable cause under the criteria in rule 12 -

13.007(3) .

7 2 . Petitioner al so relied on another company hired to

assist in filing requirements for the applications for EZ credits.

Mr. Azze described what information was supplied to EDC in order

to prepare the reports, and the information supplied seems

reasonable. Moreover, the method by which Mr. Ward verified

addresses for employees was not a tool available to Petitioner,

and Mr. Ward admitted that the DAVID files are not definitive in

terms of address verification.

7 3 . Finally, if the assessment is limited to the amount

att ributable to wage verification, then the amount assessed is not

material when considered within the context of the taxes correctly

reported and timely remitted for the tax period subject to the

audit.

7 4 . After considering these factors, it is recommende d that

no penalty be assessed, regardless of whether the assessment is

consistent with the recommendation in this Order or wh ether the

Department chooses to reject these conclusions of law in favor of

a different interpretation.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

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

f inal o rder assessing additional taxes based upon discrepancies

in wages paid for eligible employees, and rejecting those parts

of the assessment a ttributable to disallowance of enterprise zone

credits based on information related to PetitionerÓs initial

applications. It is further recommended that no penalties be

imposed on the reduced assessment.

DONE AND ENTERED this 16th day of June , 2017 , in

Ta llahassee, Leon County, Florida.

S

LISA SHEARER NELSON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (85 0) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 16th day of June , 2017 .

ENDNOTE S

1/ Mr. Azze became the comptroller for GHG in July 2011. He was

not the comptroller for the period covered by the p rior audit.

2/ As Mr. Ward admitted, DAVID is not a definitive basis for

verifying a personÓs residence. Given the nature of employees

typically working at a restaurant, the question arises whether

any of these workers could be students living in the enterprise

zone while attending school, but maintaining their permanent

residence elsewhere. No evidence was presented on this issue

other than that MichaelÓs relied upon the information provided by

its employees when they applied for employment.

3 / The administrative law judge found that the employees

identified in Epic HotelÓs application were employees of Kimpton

Hotel and Restaurant Group, Inc., who provide contracted services

at Epic Hotel, but were not direct employees or employees leased

by Epic H otel.

COPIES FURNISHED:

Timothy E. Dennis, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

(eServed)

Joseph C. Moffa, Esquire

Moffa, Sutton, and Donnini, P.A.

One Financial Plaza, Suite 2202

100 Southea st Third Avenue

Fort Lauderdale, Florida 33394

(eServed)

Ryann E. White, Esquire

Office of the Attorney General

The Capitol , Plaza Level 01

Tallahassee, Florida 32399 - 1050

(eServed)

Jonathan W. Taylor, Esquire

Moffa, Sutton, and Donnini, P.A.

One Finan cial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

(eServed)

John Mika, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

(eServed)

James F. McAuley, Esquire

Moffa, Sutton, and Donnini, P.A.

One Financial Plaza, Suite 2202

100 Southeast Third Avenue

Fort Lauderdale, Florida 33394

(eServed)

Leon M. Biegalski, Executive Director

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

Mark S. Ham ilton, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended O rder. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.