18-004464 Pnc, Llc vs. Department Of Revenue Status: Closed Recommended Order on Monday, April 22, 2019.

Summary: Petitioner, as managing member of a company/taxpayer, was personally liable for a penalty, based on twice the total amount of sales and use tax owed the State for the audit period.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CHRISTOPHER B. SCOTT,

Petitioner,

vs. Case No. 18 - 4464

DEPARTMENT OF REVENUE,

Respondent.

_______________________________/

RECOMMENDED ORDER

Administrative Law Judge D. R. Alexa nder conducted a hearing

in this case by video teleconference at locations in Tampa and

Tallahassee, Florida, on February 6, 2019.

APPEARANCES

For Petitioner: William B. Meacham, Esquire

308 East Plymouth Street

Tampa, Fl orida 33603 - 5957

For Respondent: Mark S. Urban, Esquire

Florida Office of Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

STATEMENT OF THE ISSUE

The issue is whether Petit ioner, Christopher B. Scott, as

the managing member of PNC, LLC (PNC), is personally liable for a

penalty equal to twice the total amount of the sales and use tax

owed by PNC to the State of Florida. 1/

PRELIMINARY STATEMENT

On January 18, 2018, the Depar tment issued a Notice of

Assessment of Personal Liability (NAPL) to Christopher B. Scott

informing him that it intended to assess a penalty in an amount

equal to double the sales and use tax owed by PNC for the period

February 2013 through October 2014. T he NAPL reflects a penalty

in the amount of $158,647.50. Mr. Scott timely requested a

hearing to contest this action, and the matter was referred to

the Division of Administrative Hearings on August 23, 2018, to

resolve the dispute.

At the final hearing, Mr. Scott presented no witnesses but

offered Petitioner's Exhibits 1 through 11. Except for page 10

of Exhibit 4, and pages 36, 55, and 76 of Exhibit 10, they were

accepted in evidence. The Department presented the testimony of

one witness. Respondent' s Exhibits 1 through 29 were accepted in

evidence.

A one - volume Transcript of the hearing has been prepared.

The parties submitted proposed recommended order s (PROs) on

April 8, 2019, which h ave been considered.

FINDING S OF FACT

1 . The Department is t he state agency charged with

administering and enforcing the laws related to the imposition

and collection of sales and use taxes.

2. PNC is a now - dissolved Florida limited liability company

that did business under the name "CHEAP" at 309 South Howard

Ave nue, Tampa, Florida. PNC was registered as a business and

filed its Articles of Organization with the Secretary of State on

June 16, 2010. Until the company was dissolved by the Secretary

of State in 2018 for failure to pay the 2017 annual filing fees,

M r. Scott served as its managing member and had administrative

control over the collection and payment of taxes. Verna Bartlett

was PNC's controller.

3. PNC was registered with the Department as a dealer

pursuant to section 212.18, Florida Statutes, and was issued

Sales and Use Tax Certificate of Registration 39 - 8015401140 - 8.

A certificate of registration requires the taxpayer to file sales

and use tax returns and pay to the Department all taxes owed as

they are received.

4. After making numerous at tempts to collect delinquent

sales tax owed by PNC for tax reporting periods in 2013 and 2014,

the Department filed this action seeking to impose a personal

penalty assessment against Mr. Scott, the managing member of the

company.

5. Section 213.29, Flo rida Statutes, provides that any

person who has administrative control over the collection and

payment of taxes and who willfully fails to pay the tax or evades

the payment of the tax shall be liable to a penalty equal to

twice the amount of tax not paid. The penalty is based only on

the taxes owed, and not the interest and fees that have accrued.

The statute provides that if the business liability is fully

paid, the personal liability assessment will be considered

satisfied.

6. On January 18, 2018, the Department issued a NAPL

against Mr. Scott after PNC failed to pay the sales and use taxes

owed the State for the reporting periods from February 2013

through October 2014. The outstanding taxes, exclusive of

interest or penalties, total $79,325.75. The NAPL imposes a

total penalty of $158,647.50, or twice the amount of sales tax

owed by PNC. No payments have been made on the account since the

issuance of the NAPL, and, PNC, now closed, currently has a total

liability in excess of $200,000.00.

7. During the relevant time period, Mr. Scott was

personally responsible for collecting PNC's sales tax and

remitting it to the Department; he had the authority to sign

checks on behalf of PNC; he made financial decisions as to which

creditors should be paid; he ma de the decision to use the sales

tax collected for the business and for stipulation payments; and

he made the decision not to remit the sales tax that was

collected. This was confirmed by PNC's controller, Ms. Bartlett,

who responded to the Department's R equests for Admissions.

Mr. Scott also confirmed to a Department tax specialist that the

admissions provided by Ms. Bartlett were accurate.

8. Mr. Scott either never remitted payment or did not remit

payment timely on behalf of PNC for the following r eporting

periods: February, April, and December 2013, and January through

October 2014.

9. Tax warrants were issued and judgment liens were

recorded for the following reporting periods: February, April,

and December 2013, and January, February, and Ap ril through

October 2014. Resp. Ex. 5 and 6. All warrants and liens relate

to reporting periods that fall within the personal liability

assessment period.

10. A Notice of Jeopardy Finding and Notice of Final

Assessment (Notice of Jeopardy) dated June 18 , 2014, was issued

to PNC pertaining to the April 2014 reporting period. Resp. Ex.

11. This notice was issued after Mr. Scott ceased making regular

tax payments, the estimated deficiency was substantial, and the

Department determined that collection of t he tax would be

jeopardized by further delay.

11. A Notice of Jeopardy and Notice of Final Assessment

dated August 7, 2014, also was issued to PNC pertaining to the

April, May, and June 2014 reporting periods. Resp. Ex. 12.

12. Because PNC reported m ore than $20,000.00 in sales tax

each year, unless a waiver was obtained, Mr. Scott was required

to file and pay PNC's sales tax electronically for all reporting

periods within the personal liability period. See § 213.755(1),

Fla. Stat.; Fla. Admin. Code R. 12 - 24.003. Despite having

obtained no waiver, Mr. Scott never filed returns or paid PNC's

sales tax electronically. And even though he never remitted a

payment electronically, Mr. Scott indicated on at least six sales

tax returns during the relevant t ime period that sales tax for

the reporting period was remitted electronically. The only

conclusion to draw from this action is that Mr. Scott filed or

directed the filing of these returns knowing them to be false.

13. The record shows that, dating back to 2011, Mr. Scott

has a long - standing history of failing to abide by the tax laws

of the state as it relates to PNC. For example, on September 15,

2011, Mr. Scott was referred for criminal investigation by the

state attorney for his failure to pay taxes. Also, numerous

returns were filed without a payment. This is prima facie

evidence of conversion of the money due. § 212.14(3), Fla. Stat.

Respondent's Exhibit 1 summarizes numerous contacts by the

Department's Tampa District Office with Mr. Scott rega rding

collection notices, telephone calls, emails, assessment letters,

warrant letters, and the like in an effort to secure compliance

with tax laws. It is fair to find that Mr. Scott willfully

attempted to evade or avoid paying sales and reemployment tax es

during the relevant period.

14. To prevent its Sales and Use Tax Certificate of

Registration from being revoked, PNC entered into a compliance

agreement on July 10, 2013, to pay past due sales tax and

reemployment tax totaling $65,789.25.

15. The ag reement required PNC to: (a) accurately complete

all past due tax returns and reports no later than July 10, 2013;

(b) remit all past due payments in accordance with the attached

schedule, which required 11 monthly payments of $4,000.00

beginning on Augus t 10, 2013, and a final balloon payment on

July 10, 2014; (c) accurately complete and file all required tax

returns and reports for the next 12 months; and (d) timely remit

all taxes due for the next 12 months. A $15,000.00 down payment

also was required to be paid on or before July 10, 2013. An

addendum to the agreement (added by Mr. Scott) provided that

"[a]ll payments, including the $15,000.00 down payment, shall

first be applied to Sales and Use Tax."

16. Although the down payment was made timely, the

agreement was breached the first month (August) because Mr. Scott

did not make the payment electronically. However, the agreement

was not voided by the Department until October 12, 2013.

Therefore, any payments made on or after October 12, 2013, wer e

not considered compliance payments and are not subject to the

addendum in the agreement.

17. A somewhat confusing aspect of this dispute concerns

Mr. Scott's contention, by way of cross - examination, that

contrary to the addendum, the Department incorrec tly applied his

$15,000.00 down payment and subsequent compliance payments to the

reemployment tax account, rather than the sales tax account, and

that his sales tax liability should be reduced by that amount.

As noted above, the addendum governs only the payments that

predate October 12, 2013, which are the down payment ($15,000.00)

and the August and September payments -- $4,000.00 each month.

This issue was not raised by Mr. Scott until the Department

issued a NAPL on April 13, 2017.

18. The NAPL is sued on April 13, 2017, indicated that the

outstanding tax owed by PNC through October 31, 2014, was

$90,808.17, and the personal assessment was twice that amount.

In response to Mr. Scott's request, the Department acknowledged

that it incorrectly applied the down payment to the reemployment

account. Also, it took a second look at the two payments made in

August and September, which predate the voiding of the agreement.

19. The August installment payment consisted of two

separate checks: $3,390.00 for s ales tax and $610.00 for

reemployment tax, and these amounts were applied in that manner.

The September payment, $4,000.00, submitted in one check, was

applied in the same manner as the August payment, with $610.00

going to the reemployment tax and the re mainder to sales tax.

Therefore, only $1,220.00 was incorrectly applied to the

reemployment tax during those two months.

20. On July 3, 2017, the Department reapplied a total of

$16,551.00 from the reemployment tax account to the sales tax

account for t he relevant reporting periods.

21. Mr. Scott contends the reapplication of the $16,551.00

to sales tax should reduce the amount of sales tax due by that

amount. However, section 213.75(2) dictates that if a lien or

warrant has been filed against the ta xpayer, as is true here, the

payment shall be applied in a priority order spelled out in the

statute. Thus, the Department applied that amount in the

following order: against the costs to record the liens against

PNC; against the administration collectio n processing fee, if

any; against any accrued interest; against any accrued penalty;

and against any tax due. Under this priority order, the

penalty/interest/fees categories totaled $5,066.58, while the tax

liability category totaled $11,484.42. A detail ed breakdown of

this allocation is found in Respondent's Exhibit 29. Therefore,

the total tax liability on the 2017 NAPL ($90,808.17) is reduced

by $11,484.42, resulting in a total tax liability of $79,323.75,

as shown on the updated 2018 NAPL.

22. In the same vein, in his PRO, Mr. Scott argues that he

was not given credit for payments of $9,110.24, $2,688.53,

$178.28, and $1,321.80, which reduce his sales tax liability to

$66,024.90 and the personal assessment to $132,049.80. See Pet'r

Ex. 10. Howeve r, all of these payments (some of which are bank

levies) were made after the compliance agreement was voided and

do not apply to the reporting periods in this case.

23. By way of cross - examination, Mr. Scott also contends

that he was never given an accoun ting of what PNC owes despite

"multiple requests" for the same. The record shows otherwise.

On April 13, 2017, the 2017 NAPL was mailed to Mr. Scott, along

with a ZT09, a computer - generated form which lists, in detail, a

taxpayer's outstanding taxes owed by reporting period. A second

copy of a ZT09 was faxed to him the following day. In his May 3,

2017, letter protesting the 2017 NAPL, Mr. Scott alleges that

payments were not applied properly. In response, the Department

sent a fax to Mr. Scott on May 10, 2017, listing checks that were

not honored by the bank and requesting information concerning

which payments PNC contends were not applied properly. In his

response on May 12, 2017, Mr. Scott did not provide the requested

information. On January 17, 2 018, the 2018 NAPL was mailed to

Mr. Scott, along with a ZT09. Finally, on April 12, 2018,

per Ms. Bartlett's request, the Department mailed a ZT09 with the

outstanding amounts due.

24. Finally, in its PRO, the Department points out that

after the he aring ended, it discovered that it made an error, in

Mr. Scott's favor, in calculating his sales tax liability for the

relevant reporting periods. Had it correctly calculated the

amount of payments made by PNC, the sales tax liability for the

relevant per iod would be increased from $79,323.75 to $84,444.35,

which in turn would increase the personal assessment. However,

the Department consents to the lower tax and assessed penalty

amount, as reflected on the 2018 NAPL.

CONCLUSIONS OF LAW

25. In this case, the Department has the initial burden to

show that an assessment was made against Petitioner, and the

factual and legal grounds for the assessment are correct. See

§ 120.80(14)(b)2., Fla. Stat. The burden of persuasion then

shifts to Petitioner, who m ust prove, by a preponderance of the

evidence, that the factual and legal bases for the Department's

assessment were incorrect or unreasonable. See IPC Sports , Inc.

v. State, Dep't of Rev . , 829 So. 2d 330, 332 (Fla. 3d DCA 2002).

In other words, Petition er must show the assessment cannot be

sustained under any reasonable hypothesis of legality. Harris v.

State, Dep't of Rev. , 563 So. 2d 97, 99 (Fla. 1st DCA 1990).

26. Section 213.29 provides in part that any person having

administrative control over the collection and payment of taxes

shall, in addition to any other penalties, "be liable to a

penalty equal to twice the total amount of the tax evaded or not

accounted for or paid over" to the Department. An assessment of

penalty made pursuant to this sect ion "shall be deemed prima

facie correct in any judicial or quasi - judicial proceeding

brought to collect this penalty."

27. Respondent demonstrated by a preponderance of the

evidence, that PNC owed taxes, interest, and penalties for

nonpayment of sales tax for numerous reporting periods. The

Department recorded several warrants and liens in an effort to

collect on the outstanding taxes. The Department established the

correctness of the assessed amounts, and Petitioner did not show

that these amounts w ere incorrect, departed from the requirements

of the law, or were unsupported by any reasonable hypothesis of

legality.

28. The Department presented evidence sufficient to

establish Mr. Scott's willful attempt to evade or defeat his

responsibility, as m anaging member of the taxpayer, to collect

and pay sales tax on behalf of PNC. Petitioner did not present

evidence to counter this showing.

29. Accordingly, for the reasons set forth above, it is

determined that Petitioner, as managing member of PNC, is liable

to the Department for a penalty of $158,647.50, which is twice

the total amount of the sales and use tax owed by PNC to the

State of Florida. If the business liability is paid, the

personal liability assessment against Mr. Scott will be abated.

R ECOMMENDATION

Based on the foregoing Findings of Fac t and Conclusions of

Law, it is

RECOMMENDED that the Department of Revenue enter a final

order determining that Petitioner, Christopher B. Scott, is

liable to the Department for a penalty of $158,647.50.

DONE AND ENTERED this 22nd day of April , 2019 , in

Tallahassee, Leon County, Florida.

S

D. R. ALEXANDER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, F lorida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 22nd day of April , 2019 .

ENDNOTE

1/ By agreement of the parties, the original style of the case

has b een changed to reflect Mr. Scott as the only petitioner.

COPIES FURNISHED:

William B. Meacham, Esquire

308 East Plymouth Street

Tampa, Florida 33603 - 5957

(eServed)

Mark S. Urban, Esquire

Florida Office of Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

(eServed)

Mark S. Hamilton, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

James A. Zingale, Executive Director

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 Order. Any exceptions

to this Recommended Order should be filed with the agenc y that

will issue the Final Order in this case.