17-006516 Cellular Plus And Accessories, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, August 22, 2018.

Summary: Based on the facts presented and the admissions conclusively established during discovery by order of the administrative law judge, the sales tax, interest, and penalties imposed by the agency are affirmed and upheld.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CELLULAR PLUS AND ACCESSORIES,

INC.,

Petitioner,

vs. Case No. 17 - 6516

DEPARTMENT OF REVENUE,

Respondent.

_______________________________/

RECOMMENDED ORDER

This case was heard before Administrative Law Judge

Robert L. Kilbride of the Division of Administrative Hearings

( " Division " ) , on June 28, 2018 , by video tel econference with

sites in Miami and Tallahassee, Florida.

APPEARANCES

For Petitioner: Carlos M. Samlut, CPA ,

Qualified Representative

Samlut and Company

550 Biltmore Way, Suite 200

Coral Gables, Florida 33134

For Respondent: Randi Ellen Dincher, Esquire

Office of the Attorney Genera l

Revenue Litigation Bureau

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

Whether the Department of Revenue ' s ( " Department " )

assessment for sales and use tax, penalty , an d interest is valid,

correct , and should be upheld.

PRELIMINARY STATEMENT

On February 15, 2016 , the Department assessed Cellular Plus

and Accessori es, Inc. ( " Cellular " ) , wit h a proposed additional

sum due of $277,620.29 , which consisted of $194,346.98 in tax,

$48,586.76 for a penalty , and $34,686.55 in interest for the

audit period of September 1, 2011, through August 31, 2014 .

Cellular denied liability.

On June 16, 2017 , Cellular submitted a petition to the

Department, requesting an administra tive hearing to contest the

assessment.

On December 5, 2017, the Department referred the p etition to

the Division for an administrative h earing. Prior to the final

hearing, Cellular provided records sufficient to support a

compromise of a portion of th e assessment.

After reviewing the newly supplied records, the Department

issued a revised assessment on June 12, 2018 , which reduced the

additional sales and use tax owed to $158,290.02, plus $39,572.50

for a penalty ; and $55,040.52 in i nterest , cal culated through

June 12, 2018, for a total balance due, as o f that date, of

$252,903.04.

At the final administrative hearing on June 28, 2018 , the

Department introduced th e testimony of Martha Gregory, tax law

s pecialist for the Department; and Julia Mora les, tax a uditor for

the Department. The Department also introduced 29 exhibits.

Cellular presented the testimony of Erica Torres, a manager

at Cellular, and introduced no exhibits into ev idence. Per the

undersigned ' s O rder entered July 19, 2018, t he parties were

instructed to file proposed recommended orders no later than

August 6, 2018. A T ranscript of the hearing was filed with the

Division on July 26, 2018.

Unless otherwise noted, all statutory reference s are to the

Florida Statutes and Fl orida Administrative Code in effect at the

time of action .

PROCEDURAL HISTORY AND FINDINGS Î ADMISSIONS

Florida Rule of Civil Procedure 1.370(b)

In response to the Department ' s motion, on February 28,

2018 , the undersigned entered an Order Recognizing Matte rs Deemed

Admitted . The Department ' s Request for Admissions is attached to

its Amended Motion for Order Declaring Petitioner Admitted the

Department ' s First Request for Admissions, filed February 15,

2018.

Since Cellular failed to introdu ce sufficient evidence at

the hearing , or grounds for the undersigned to set aside the

Order Recognizing Matters Deemed Admitted , the fo llowing facts

relevant to this Recommended O rder are conclusively established:

A . Cellular owes the Department addit ional sales t ax in the

amount of $48,764.04 from the Northwest Store for the audit

period. See Admission VI. (E) on page 6 of 10; R esp. E x. 18 ,

Bates stamped pp . 083 - 088.

B . Cellular owes the Dep artment additional sales tax in the

amount of $17,085.01 fr om Store 411 for the au dit period. See

Admission VII. (D) on page 6 of 10; R esp. E x. 18, Bates stamped

pp. 071 - 075.

C . Cellular owes the Dep artment additional sales tax in the

amount of $49,334.74 from the Miami Gardens Store for the aud it

period. See A dmission VIII. (D) on page 7 of 10; R esp. E x. 18 ,

Bates stamped pp. 076 - 082.

D . Cellular owes the Dep artment additional sales tax in the

amount of $18,110.53 from the Pembroke Store for the audit

period. See Admission IX. (D) on page 7 of 10; R esp. E x. 18 ,

Bates stamped pp. 089 - 095.

E . Cellular owes the Dep artment additional sales tax in the

amount of $11,938.23 from the Pine Island Store for the audit

period. See Admission X. (D) on page 8 of 10; R esp. E x. 18 , Bates

stamped pp. 096 - 102.

F . Cellular ow es the Dep artment additional sales tax in the

amount of $13,057.47 from the Southland Store for the audit

period. See Admission XI. (D) on page 9 of 10; R esp. E x. 18 ,

Bates stamped pp. 103 - 109.

Based upon these admissions, it is conclusively established

that Cellular owes to the Department $158,290.02 additional sales

tax. The sum owed for penalty and interest was not conclusively

established by the admissions.

FINDING S OF FACT

The undersigned makes the following findings of relevant and

material fact:

1. The Department is the agency responsible for

administering Florida ' s revenue laws, including the imposition

and collection of state sales and use taxes. §§ 20.21 and

213.05, Fla. Stat.

2. Cellular is a Florida S - corporation , having a principal

addr ess and mailing address of 11050 Pembroke Road, Miramar,

Florida 33025. R esp. E x. 4, Bates stamped p. 031.

3. Cellular is a " dealer " as defined under section

212.06(2), Florida Statutes , and is required to collect and remit

sales and use taxes to the Sta te. § 212.06(2), (3)(a),

Fla. Stat.

4. The Department notified Cellular of its intent to

conduct an audit by written notice and the request for specific

records mail ed on or about October 3, 2014. R esp. E x. 2.

5. The audit period is September 1, 2011 , to August 31,

2014. R esp. E x. 2, Bates stamped p. 279.

6 . Cellular has several locations in Florida where it sells

cellular phones, accessories, phone repair services , and minutes

for international calling cards to its customers. Cellular also

provides services such as money transfers and accepts payments on

behalf of Metro PCS. Store locations are in neighborhood

business centers and in malls. During the audit period , Cellular

had 11 store locations o perating in Florida. R esp. E x. 4, Bates

stamped p . 031.

7. Julia Morales is a tax a uditor for the Department.

She has been employed with the Department for 11 years.

Initially , Morales worked as a tax collector. She has held the

position of tax audi tor since 2011. Morales has a b achelor ' s

degree in finance and also engages in on going training with the

Department in orde r to stay current with Florida S tatutes and

Department rules. Morales performed the audit and prepared the

assessment in this case.

8. Early in the audit, Cellular informed the Dep artment

that most of its sales were exempt from Florida ' s sales tax.

Morales explained that insufficient sales records were supplied

by Cellular to enable the Department to establish the exempt

nature of sales transactions, and , therefore , exempt sales we re

disallowed by the Department. R esp. E x. 4, Bates stamped p. 033.

9. On September 3, 2015 , the Department issued an initial

Notice of Intent to Make Audit Changes ( " DR - 1215 " ) in the total

sum due, as of that date, of $463,677.61 (i.e. , $327,257.39 tax,

$81,814.34 penalty , and $54,605.88 interest). After receiving

the DR - 1215, Cellular requested a conference with Morales to

review the assessment. The conference was held on November 9,

2015. R esp. E x. 1, Bates stamped pp. 007 - 008; R esp. E x. 4,

p. 030; R esp. E x. 15, Bates stamped p. 131; Resp. Ex. 16, Bates

stamped pp. 130 - 189.

10. After the November 9, 2015 , conference, Cellular

provided Morales with sales invoices and detailed sales reports

for the audit period. Morales explained that the supplementa l

records established that Cellular ' s reported tax exempt sales

were properly exempt from sales tax , and , therefore , audit

assessment Exhibits A01 to A11 were deactivated. R esp. E x. 4,

Bates stamped pp. 029 - 031; R esp. E x. 18 , Bates stamped p p. 058 -

068.

11 . Audit assessment Exhibit A12 was also deactivated

because Cellular provided records needed to reconcile the

difference between gross sales reported on its 2012 federal tax

return and gross sales reported on the sales and use tax returns

for the same per iod. R esp. E x. 18 , Bates stamped p. 069.

12. Among the supplemental records supplied by Cellular to

establish the tax - exempt basis for some of its sales, its monthly

Sales Transaction De tail reports showed that six of Cellular ' s 11

stores did not remit to the Department all the sales tax they

coll ected during the audit period. Consequently, Morales added

audit as sessment Exhibits A13 through A18 to document the sales

tax collected but not remitted, detailed by store. R esp. E x. 4 ,

Bates stamped pp. 029 - 030; R esp. E x. 18 , Bates stamped pp. 070 -

110.

13. Morales testified that one of Cellular ' s stores that

under - r emitted sales tax, namely the Northwest Store, was

operating but not registered with the Department for the entire

audit period. Morales discove red that the Northwest Store

collected sales tax on its sales and did not start to remit

collected tax to the Department until September 2014, which was

after the audit pe riod. Of the remaining five stores, Cellular

remitted to the Department approximatel y 50 percent o f the sales

tax it collected from July 2012 to August 2014. R esp. E x. 18 ,

Bates stamped pp. 075, 082, 088, 095, 102, and 109.

14. As to consumable purchases (audit assessment

Exhibit B01) during the audit , Cellular failed to provide records

to establish that it paid use tax on consumable purchases. The

sums expensed in Cellular ' s federal tax returns, which could have

a sales tax implication, were relied upon by the auditor to

create Exhibit B01. R esp. E x. 4 , Bates stamped p. 034; R esp.

E x. 18 , Bates stamped pp. 111 - 125.

15. Based upon the supplemental records supplied after the

November 2015 conference, on February 4, 2016 , the Department

issued a revised Notice of Intent to Make Audit Changes

( " DR - 1215 " ) , reducing the total sum due, as of that date, to

$277,211.42 (i.e. , $194,346.98 tax, $48,586.76 penalty , and

$34,277.68 interest). R esp. E x. 18 , Bates stamped p. 053.

16. Penalty considerations were reviewed by the Department.

R esp. E x. 19. Due to Cellular ' s failure to remit to th e State

collected sales tax, penalty was not waived by the Department.

In addition, accrued statutory interest w as also imposed as

required by section 213.235, Florida Statutes. R esp. E x. 18 ,

Bates stamped pp. 054 - 056; R esp. E x. 29 , Bates stamped p. 2.

1 7. On February 15, 2016, the Department issued a Notice of

Proposed Assessment ( " NOPA " ) in the total sum due, as of that

date, of $277,620.29 (i.e. , $194,346.98 tax, $48,586.76 penalty ,

and $34,686.55 interest). R esp. E x. 23.

18. On March 18, 2016 , Ce llular submitted a timely protest

letter to the Department ' s Technical Assi stance and Dispute

Resolution ( " TADR " ). R esp. E x. 25.

19. Martha Gregory also testified for the Department. She

has been empl oyed with the Department for 20 years. Gregory

c urr ently holds the position of taxpayer services process m anager

in TADR . Gregory holds a bachelor ' s degree in accounting and has

also taken master ' s level courses. TADR manages an assessment

after a taxpayer submits a protest of a NOPA with the Department.

Gregory is familiar with TADR ' s involvement in Cellular ' s case.

20. Gregory testified that d espite repeated efforts by TADR

during the protest period , Cellular submitted no new information

to the Department for review. Consequently, on April 17, 2017 ,

TAD R issued a Notice of Decision ( " NOD " ) , sustaining the

assessment in its totality. Because of accruing interest, the

total sum due, as of that date, increased to $293,353.77. R esp.

E x. 24.

21. On June 16, 2017 , Cellular timely filed its petition

for a c hapter 120 , Florida Statutes , h earing. In its petition ,

Cellular contests all taxes, penalty , and interest that have been

assessed. ( See petition filed with the Division on December 5,

2017.)

22. After receiving the petition, the Department made

rep eated attempts to obtain information from Cellular to support

the claims raised in their petition. R esp. E x. 28.

23. Because no additional information was submitted by

Cellular, the petition was referred to the Division on

December 5, 2017.

24. Prior t o this final hearing of June 28, 2018, Cellular

provided additional records relevant to the sales tax assessed on

consumable purchases (audit assessment Exhi bit B01). Based upon

the newly supplied supplemental records, the Department also

deactivated Exhi bit B01 from the assessment and issued a revised

reduced assessment.

25. As a result, on June 12, 2018, the Department issued a

revised assessment , which reduced the additional sales and use

tax owed to $158,290.02, plus $39,572.50 for a penalty and

$5 5,040.52 in interest, for a total sum owed, as of that date, of

$252,903.04. R esp. E x. 29, Bates stamped p. 2.

26. Erica Torres appeared at the hearing as Cellular ' s

corporate representative and testified on Cellular ' s behalf.

Torres is employed by Cell ular as a manager in charge of sales

personnel, commissions, schedules , and bookkeeping. She has been

employed by Cellular since 2001.

27. Torres admitted that the reports relied upon by the

Department in determining that Cellular collected and failed t o

remit sales tax were correct.

28. Cellular introduced no credible or persuasive evidence

to support that the assessment was incorrect.

29. The undersigned finds that more credible and reliable

evidence is in favor of the Department. Cellular faile d to

demonstrate by a preponderance of the evidence that the

assessment or proposed penalty and interest proven by the

Department are incorrect.

CONCLUSIONS OF LAW

30. The Division has jurisdiction over the subject matter

and t he parties hereto pursuant to sections 120.56 9, 120.57(1) ,

and 120.80(14).

31. The Department is an agency of the S tate of Florida

and is charged with administer ing the ta x laws of the s tate. The

Department is authorized to conduct audits of all dealers subject

to Florida ' s reven ue laws imposed under chapter 212 , and to

request information to ascertain a dealer ' s tax liability, if

any. If an audit deficiency exists, the Department is authorized

to make an assessment and collect the tax. §§ 20.21, 213.05,

212.12(5)(a), 212.13, an d 213.34, Fla. Stat.

32. The Department is authorized to prescribe and inspect

the books and records kept by all dealers that are subject to

sales and use tax. §§ 212.12(5)(a) and 212.12(6)(a), Fla. Stat.

Furthermore, dealers are required to keep suita ble books and

records relating to sales tax and to preserve those books and

records. §§ 212.12(6)(a), 2 12.13, and 213.35, Fla. Stat.

33. As applied here, the term " dealer " is defined to mean

every person who sells at retail , or who offers for sale at

retail, or who has in his or her possession for sale at retail,

or for use, consumption, or distribution, or for storage to be

used or consumed in this state, tangible p ersonal property as

defined in c hapter 212. § 212.06(2)(c), Fla. Stat.

34. Dealers are required to keep suitable books and records

relating to sales and use tax and to preserve those books and

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

an audit is conducted, only those records and information

ava ilable when the audit commences are deemed acceptable.

§ 212.13(5), Fla. Stat.

35. For the audit period, Cellular w as a " dealer " as

defined under section 212.06, and was required to collect and

remit sales tax to the State. Cellula r was also responsible for

maintaining suitable books and records of its sales.

36. Florida ' s L egislature has declared that every person

who engages in the business of selling items of tangible pers onal

property at retail in the s tate is exercising a t axable

privilege. § 212.05, Fla. Stat. Florida ' s sales and use tax is

a tax on the privilege of engaging in business in the s tate.

§§ 212.05 and 212.06, Fla. Stat.

37. In general, tax laws should be construed strongly in

favor of the taxpayer and agai nst the Department, with all

ambiguities resolved in favor of the taxpayer. Lloyd

Enterprises, Inc. v. D ep ' t of R ev. , 651 So . 2d 735, 739 (Fla. 5th

DCA 1995). However, in this case , no material tax law

ambiguities or legal disputes concerning the interpr etation or

applicatio n of these tax laws to Cellular have been convincingly

raised as an issue in the assessment.

38. The tax imposed under Florida sales and use tax laws is

generally imposed on sales and use, admissions, transient rentals

and commercial rentals. §§ 212.05 and 212.06, Fla. Stat.

Florida sales tax and use tax are separate, but complementary

taxes, although they are often referred to as one tax. U.S.

Gypsum v. Green , 110 So. 2d 409 (Fla. 1959).

39. Sales tax is imposed a t the rate of si x percent (plus

the discretionary county sales surtax, when applicable) on the

sales price of tangible personal property. Sales tax is levied

when items are sold at retail in Florida and is computed on each

taxable sale for the purpose of remitting the am ount of tax due

to the State. §§ 212.05(1)(a)1.a . and 212.054, Fla. Stat.

40. Sales and use tax become State funds and property at

the moment of collection by the retail outlet. Collected taxes

are due to the Department on the first day of the succee ding

month and are delinquent on the 21st day of the succeeding month.

§§ 212.06(1)(a), 212.11, and 212.15(1), Fla. Stat.; Fla. Admin.

Code R. 12A - 1.056.

41. In these proceedings, the Department bears the initial

burden to demonstrate that the assessmen t has been made against

the taxpayer, and the factual and legal grounds upon which the

Department made the assessment. Once this occurs, the burden

then shifts to the taxpayer to demonstrate by a preponderance

of the evidence that the assessment is incor rect.

§ 120.80(14)(b)2 . , Fla. Stat.; IPC Sports, Inc. v. Dep ' t of Rev . ,

829 So. 2d 330, 333 (Fla . 3d DCA 2002).

42. Once the Department has met its initial burden, the

burden then shifts to the taxpayer who, in order to prevail, must

prove by a prep onderance of evidence that the tax assessment is

incorrect. Id. ; § 120.57(1)(j), Fla. Stat.

43. The Department ' s burden of proof in cases in which a

taxpayer challenges the validity of an assessment is set forth in

s ection 120.80(14)(b)2 . , which pro vides in pertinent part:

2. In any such administrative proceeding,

the applicable department ' s burden of proof,

except as otherwise specifically provided by

general law, shall be limited to a showing

that an assessment has been made against the

taxpayer a nd the factual and legal grounds

upon which the applicable department made

the assessment.

44 . If the Department meets its burden, then the taxpayer

must establish, also by the greater weight of the evidence, that

the assessment is incorrect. IPC S ports, Inc. v. State, Dep ' t of

Rev . , 829 So. 2d at 330, 332 . The Department m et its burden;

Cellular did not.

45 . In this case , the audit was commenced in October 2014,

after the Department sent Cellular a Notice of the Intent to

Conduct an Audit. R esp. E x. 1, Bates stamped p. 003; R esp.

E x. 2, Bates stamped pp. 278 - 280.

46 . On February 28, 2018 , the undersigned entered an Order

Recognizing Matters Deemed Admitted. At the final hearing,

Cellular failed to introduce sufficient or convincing evidence

for the undersigned to set aside the Order Recognizing Matters

Deemed Admitted . Thus, it is conclusively established that

Cellular owes to the Department $158,290.02 additional sales tax.

The sum owed for penalty and interest, however, was not

c onclusively established by the admissions.

47 . In addition to the ruling on the admissions, based upon

evidence introduced at the hearing, the Department met its burden

and demonstrated that the June 12, 2018 , revised sa les and use

tax assessment of $158 ,290.02, plus $39,572.50 for a penalty and

$55,040.52 in interest, were due for a total sum owed of

$252,903.04, as of June 12, 2018, is correct. There is a proper

factual and legal basis for the Department ' s current assessment,

penalty , and interest.

48 . When a taxpayer fails to timely remit sales taxes to

the State , a penalty is added to the additio nal tax owed in the

amount of ten percent of the unpaid taxes if the delay of

remit ting taxes is for not more than 30 days. There is an

additional ten perc ent penalty for each additional 30 days while

the failure to remit taxes continues, not to exceed a total

penalty of 50 percent in the aggregate, of any unpaid tax due.

§ 212.12(2)(b), Fla. Stat.

49 . In this case , Cellular failed to remit collected sa les

tax for a period in excess of seven years from the start of the

audit period. Therefore, the total penalty in the aggregate has

accrued to 50 percent of the $194,346.98 tax due, which is

$97,173.52. R esp. E x. 18 , Bates stamped pp. 054 - 055; R esp.

E x. 29.

50 . A taxpayer ' s liability f or penalty that is more than

25 percent of the tax due shall be compromised if the Department

determines that the noncompliance is due to reasonable cause and

not to willful negligence, willful neglect, or fraud.

§ 213.21 (3)(a), Fla. Stat. In determining whether further

compromise of the penalty is appropriate, a taxpayer ' s failure to

remit collected taxes weighs against further reduction of the

penalty. Fla. Admin. Code R. 12 - 13.007(1)(a)4 . and

12 - 13.0075(2)(a)5.

51 . Here, the Department determined that there was not

evidence of willful negligence, willful neglect , or fraud. Since

the total penalty in the aggregate accrued to 50 percent of the

$194,346.98 tax due (i.e. , $97,173.52 total penalty), the

Department waived Cellular ' s liability for that portion of the

total penalty that exceeded 25 percent of the $194,346.98 tax due

and assessed a penalty in the amount of $48,586.76. In revising

the assessment in June 2018, based upon the same calculation, the

penalty was r educed to $39,572.50. Recognizing the Department

conclusively established that Cellular failed to remit collected

sales tax, the June 12, 2018 , revised assessment ' s imposition of

the $39,572.50 penalty was correctly assessed. R esp. E x. 29.

52 . When a t axpayer fails to timely remit sales taxes to

the State, interest (in addition to the penalty) shall be added

to the payment deficiencies, with the rate of in terest

establis hed pursuant to section 213.235 . See also Fla. Admin.

Code R. 12 - 3.0015.

53 . A ta xpayer ' s liability for interest may be compromised

or adjusted by the Department upon grounds of doubt as to

liability or collectability. § 213.21(3), Fla. Stat. A

taxpayer ' s failure to remit collected taxes weighs against a

compromise of interest due to doubt as to collectability.

Fla. Admin. Code R. 12 - 13.0075(1)(b)3 .

54 . Recognizing the Department conclusively established

that Cellular failed to remit collected sales tax, there is no

reasonable doubt as to liability or grounds as to collectability .

Cellular ' s cumulative liability for interest due is correctly

computed per the schedule in R espondent ' s E xhibit 18 , Bates

stamped pages 054 through 056, and properly reduced as presented

in the June 12, 2018 , revised assessment. R esp. E x. 29, Bates

stam ped p. 2.

55 . Cellular failed to meet its burden and prove that the

assessment was incorrect.

56 . The assessment of tax, penalty , and interest by the

Department is correct and valid.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusion s of

Law, it is RECOMMENDED that the Depart ment of Revenue enter a

final o rder denying Cellular ' s requests for relief and sustaining

the assessment in its entirety.

DONE AND ENTERED this 22nd day of August , 2018 , in

Tallahassee, Leon County, Florida.

S

ROBERT L. KILBRIDE

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Fi led with the Clerk of the

Division of Administrative Hearings

this 22nd day of August , 2018 .

COPIES FURNISHED:

Mark S. Hamilton, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

Randi Ellen Dinche r, Esquire

Office of the Attorney General

Revenue Litigation Bureau

The Capitol , Plaza Level 01

Tallahassee, Florida 32399

(eServed)

Carlos M. Samlut, CPA

Samlut and Company

550 Biltmore Way , Suite 200

Coral Gables, Florida 33134

(eServed)

Leon M. Bie galski, Exe cutive Director

D epartment of R evenue

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 Recommend ed Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.