19-001882 Bayfront Hma Medical Center, Llc vs. Department Of Revenue Status: Closed Recommended Order on Friday, February 7, 2020.

Summary: Bayfront Baby Place is not exempt from tax as a lease for re-lease or a space used exclusively as a dwelling unit. Recommend sustaining assessment and denying refund applications.

S TATEMENT OF T HE I SSUE S

These consolidated case s involve three issues: (1) whether the Department

of Revenue's ("the Department") assessment against Bayfront HMA M edical

Center, LLC ( "Bayfront"), for sales tax on commercial rent payments is

erroneous; (2) whether Bayfront is entitled to a refund for overpayment of

sales tax on commercial rent payments from August 1, 2014, to July 31, 2017;

and (3) whether Bayfront is entitled to a refu nd for overpayment of sales tax

on commercial rent payments from August 1, 2017 , to May 31, 2018.

P RELIMINARY S TATEMENT

In August 2017, the Department initiated a sales and use tax audit of

Bayfront. While the audit was underway, Bayfront filed a refund a pplication

with the Department seeking a refund of $546,068. In June 2018, the

Department issued to Bayfront a sales and use tax assessment in the sum of $148,452 and denied the refund application. In July 2018, Bayfront filed a

second refund application, which was denied by the Department in

September 2018. Bayfront timely filed informal protests to the assessment

and the two refund application denials. On October 4, 2018, the Department

issued decisions denying each of Bayfront's protests.

On November 3 0, 2018, Bayfront filed three petitions challenging each of

the Department's October 4, 2018, decisions. On April 11, 2019, the Department referred all three petitions to the Division of Administrative Hearings ("DOAH") for assignment to an administrative law judge. On

April 26, 2019, an Order was entered consolidating the cases and setting a

final hearing for June 10, 2019. On May 22, 2019, the hearing was continued

to August 8, 2019. Thereafter, on June 24, 2019, the Departme nt filed an

unopposed motion t o transfer venue. The motion was granted and on

June 27, 2019, the final hearing was set for August 13, 2019.

The final hearing was conducted as scheduled on August 13, 2019, and

September 30, 2019. Bayfront presented the testimony of five witnesses:

Charl es Tyson, Bayfront's Chief Financial Officer; Jane DeMauro, Director of

Bayfront Baby Place; James Malone, a tax consultant from FM Cost

Containment; David Stevens, preparer o f the Capstan report; and

Chuck Wallace, senior attorney for the Department's Tec hnical Assistance

and Dispute Resolution ("TADR") office in Tallahassee. Bayfront's Exhibits 1

through 24 were admitted.

The Department presented three witnesses: Chris Anderson, tax auditor

from the Department's refund office in Tallahassee; Tom Koah, se nior tax

specialist at the Department's Largo Service Center; and Chuck Wallace,

senior attorney for the Department's TADR office. The Department's

Exhibits 1 through 32 and 34 through 37 were admitted.

The two - volume final hearing Transcript was filed on November 1, 2019.

The parties agreed to 30 days in which to file proposed recommended orders.

The parties timely filed proposed recommended orders . The Department then

requested, and was granted the opportunity to file a supplemental proposed r ecommended o rder on the issue of an unadopted rule challenge raised by

Bayf ront for the first time in its Proposed Recommended O rder. The parties'

proposed recommended orders were taken into consideration in the preparation of this Recommended Order. All references t o the Florida

Statutes are to the 2019 version unless otherwise stated.

F INDINGS OF F ACT

1. The Department is the state agency responsible for administering

Florida's sales and use tax laws pursuant to chapter 212, Florida Statutes.

2. Bayfront, a for - pr ofit LLC, is a 480 - bed faci lity that is housed in a large

six - floor building with adjacent smaller buildings comprising the hospital

campus in downtown St. Petersburg. The Department issued Bayfront's sales

tax registration in August 2013.

3. The petitions in DOAH Case Nos. 19 - 1881 and 19 - 1882 contest the

Department's tax assessment and refund application denial for the period of

August 1, 2014 , to July 31, 2017. The petition in DOAH Case No. 19 - 1880

contests the Department's refund application denial for t he period of

August 1, 2017 , to May 31, 2018.

4. While the Department audited all of Bayfront's Florida sales and use

tax liabilities, in this proceeding , Bayfront only challenges the Department's

determination that Bayfront owes sales and use tax on its base rent and

additional rent payments for space it leases at Johns Hopkins All Children's

Hospital ("All Children's Hospital").

Bayfront Baby Place

5. On November 30, 200 7, All Children's Hospital (as the landlord) , and

Bayfront (as the tenant) entered into a l ease agreement for a term of 23 years

wherein Bayfront leas es 91,195 square feet, or 12.57 percent , of All

Children's Hospital to provide obstetric services. Bayfront refers to this space

as Bayfront Baby Place (although for purposes of this Recomm ended Order, it

may also be referred to as "Bayfront").

6. Together with All Children's Hospital, Bayfront Baby Place is a

regional perinatal intensive care center licensed under sections 383.15

through 383 .19, Florida Statutes. A regional p erinatal inten sive care center

is a specialized unit within a hospital specifically designed to provide a full

range of health services to women with high - risk pregnancies and intensive

care services for newborns. Bayfront Baby Place provides these services to

low and h igh - risk mothers and normal newborns. Both outpatients and

inpatients are treated at this facility. Approximately 50 to 60 percent of

Bayfront Baby Place's monthly patient visits are for outpatient treatment.

7. Bayfront Baby Place is a secure facility, r equiring identification for

patients and others entering the facility. The 94,195 square feet of leased

space is allocated as follows:

(a) The first floor has 3,532 square feet of leased space and consists of the

entrance with a security station, gift sho p, lobby area, and conference room.

Patients and family members enter at the first - floor entrance. The conference

room is used by Bayfront Baby Place's staff and to hold classes for the public.

Other than the entrance, inpatients do not usually use the fir st floor.

(b) The second floor has 264 square feet and is not accessible to Bayfront's

inpatients or outpatients.

(c) The third floor has 86,824 square feet and is used to provid e obstetric

medical services to inpatients and outpatients. On this floor th ere are

eight triage rooms used solely for outpatient care; 14 antepartum rooms for

both outpatient and in patient treatment; four operating rooms; eight

post - anesthesia recovery bays; 13 labor and delivery rooms; a nursery for

newborns; and 40 mother - baby inpatient rooms.

(d) The fourth floor has 575 square feet and is not accessible to Bayfront's

inpatients or outpatients.

8. Under its lease, Bayfront is responsible for paying sales tax on base

rent and additional rent payments. The lease specifies that u tility services

(electricity, water, sewer, heating, air conditioning, plumbing, medical gas,

etc.) are charged to the tenant as additional rent. All Children's Hospital

provides Bayfront with an itemized invoice each month detailing base rent,

Florida sal es tax, environmental services, routine maintenance, dietary

services, utilities, medical gases , and central energy plant.

9. Bayfront Baby Place's inpatient room charge exceeds $2,000 per day. 1

The room fee includes nursing care, medical supplies, dietary services , and

general overhead charges.

1 Bayfront characterizes the room charge as "rent." However, Bayfront's invoices label the

charge as "Private Room OB."

10. Patients receiving outpatient treatment are not considered inpatients

and are not charged an inpatient room charge.

11. Bayfront's witnesses, Charles Tyson, Jane DeMauro, and David

Stephens, all acknowledge the leased space is used exclusively to provide

medical services. It is not a hotel, a nursing home, a psychiatric facility, or a

substance abuse facility.

The Audit

12. On August 30, 2017, the Department initiated a sales and use tax

audit of Bayfront for the period of August 1, 2014, to July 31, 2017. The audit

was conducted by Glenn Morrison, an auditor at the Department's Largo Service Center, and the scope of the audit was all of Bayfront's sales and use

tax liabilities imposed under Florida law. Bayfront' s representative for the

audit was Camille Henry, Director of Finance.

13. The Department's initial assessment was issued on April 16, 2018 , and

assessed an amount due of $1,002,761.97 of tax and accrued interest. The

assessment contained seven audit exhib its. Bayfront is only contesting audit

assessment exhibit B03 - Commercial Rent fo r All Children's Hospital, in

which the Department determined Bayfront failed to pay sales and use tax

owed on utilities, maintenance , and other services that are component s of its

rent payments.

14. On May 8, 2018, tax consultant James Malone informed the

Department of FM Cost Containment's representation of Bayfront for the

audit. From May 17, 2018, to about May 31, 2018, FM Cost Containment

supplied additional taxpayer record s to the Department. After review of the

newly - supplied records, the auditor , Mr. Morrison , determined th e additional

records supported substantial reduction s to most of the audit assessment

exhibits. However, the Department rejected Bayfront's challenge to audit

exhibit B03 and made no change to B03 in the assessment revisions.

15. The Department's Largo Service Center held a telephone conference

with James Malone on June 7, 2018, and reviewed all issues. On June 8,

2018, the Largo Service Center issued i ts revised Notice of Intent to Make

Audit Changes. Mr. Malone did not request a second audit conference, and

instead asked the Largo Service Center to close his file and forward it to

Tallahassee for further processing.

16. On June 21, 2018, the Department 's Compliance Standards Process

office in Tallahassee issued to Bayfront a Notice of Proposed Assessment having a balance due of $124,395.34 tax and $24,412.02 accrued interest.

17. On June 29, 2018, Bayfront, through FM Cost Containment, filed a

timely i nformal protest with the Department, challenging audit exhibit B03.

In its protest, Mr. Malone cites sections 212.08(7) and 21 2.031(1)(a)2., Florida

Statutes; Florida Administrative Code Rule 12A - 1.001; and Beverl y

En terprises - Florida, Inc. v. Department of Revenue , No. 94 - 2259 - CA - 16 - L

(Fla. 18th Cir. Ct. Apr. 30, 1996) to support the claim that "the lease, rental,

and license to use rooms exclusively as dwelling units by patients in hospitals

and other qualify ing healthcare facilities are … exempt from ta x."

18. On October 4, 2018, the Department issued a Notice of Decisi on

sustaining the assessment and , due to accruing interest , Bayfront's tax

liability increased to $151,588.36. This decision was prepared by TADR tax

conferee Clay Brower, who retired fro m the Department in the fall of 2018. In

its Notice of Decision, the Department rejected Bayfront's argument that its

leased space is used exclusively as dwelling units and explained that only

patients and inmates are exempt from paying sales tax under sec tion

21 2.08(7)(i), a sales tax exemption that is not available to Bayfront , which is

a Florida for - profit business entity and not a patient or inmate.

19. On November 30, 2018, Bayfront filed a petition challenging the

Department's Notice of Decision.

Re fund I ( Case No. 19 - 1881)

20. On May 29, 2018, Bayfront filed an application with the Department

seeking a refund of $546,068.49 for the period of November 1 , 2014 , to

July 31, 2017 ("Refund I"). Because the Department's service center was still

involved w ith the audit, this refund application was se nt to auditor

Glenn Morrison in Largo for processing.

21. As Bayfront's landlord, All Children's Hospital is the taxpayer

responsible for remitting commercial rent tax to the s tate. § 212.031(3) , Fla.

Stat. In order to have standing for a refund claim, Bayfront needed to obtain

an assignment of rights from its landlord. § 215.26(1), Fla. Stat. Along with

its refund application, Bayfront provided the Department with All Children's

Hospital's executed assignment d ated May 24, 2018 , for the refund period.

22. Bayfront's reason set fo rth in its refund application was: "NT Rental

Tax - Patients Rooms - Sec. 212.08(7), F.S.; Sec. 212.031(1)(a)2., F.S.; Rule 12A -

1.001 indicate that the lease, rental and license to use room s exclusively as

dwelling units by patients in hospitals and other qualifying healthcare

facilities are also exempt from tax."

23. On June 25, 2018, the Department issued its Notice of Intent to Make

Tax Refund Claim Changes , denying Bayfront's applicatio n.

24. On June 29, 2018, Bayfront timely filed a n informal protest with the

Department challenging the denial of its refund application. In its protest ,

Bayfront repeated the same argument from its protest of the assessment.

See ¶17 .

25. On October 4, 20 18, the Department issued a Notice of Decision of

Refund Denial sustaining the denial of the refund application on the same basis as its Notice of Decision.

26. On November 30, 2018, Bayfront filed a petition challenging the

Department's Notice of Decision of Refund Denial.

Refund II (C ase No. 19 - 1880)

27. On July 10, 2018, Bayfront filed a second refund application with the

Department. This refund claim sought $117,586.85 for the period of August 1,

2017 , to May 31, 2018 ("Refund II"). Bayfront 's reason in this application

was: "Tax paid on NT Rental Tax - Patients Rooms pursuant to Sec.

212.08(7), F.S.; Sec 212.031(1)(a)2."

28. Refund II was sent to Tallahassee for processing and was assigned to

refund tax auditor Chris Anderson.

29. By Notice of Propo sed Refund Denial issued on September 4, 2018, the

Department denied Bayfront's application determining that the lease was

taxable and the leased space was not transient rental accommodations under

r ule 12A - 1.061. When Mr. Anderson issued the denial of the refund claim he

did not know of the earlier audit or the first refund application denial. His

analysis and conclusion were based solely on issues raised by Bayfront in Refund II.

30. On September 7, 2018, Bayfront timely filed a n informal protest with

the Department challenging the denial of Refund II. In this protest , Bayfront

repeated the same argument it made in its protest of the initial assessment and Refund I. See ¶17 .

31. On October 4, 2018, the Department issued a Notice of Decision of

Refund Deni al sustaining the denial of Refund II on the same bas is as its

Notice of Decision sustaining the assessment and the Notice of Decision of

Refund Denial in Refund I.

32. On November 30, 2018, Bayfront filed a petition challenging the

Department's Notice of Decision of Refund Denial of Refund II.

Bayfront's Position

33. Bayfront's three petitions are essentially the same, with the only

difference being the specific facts relevant to the audit assessment and each refund application.

34. In the Joint Pre - hear ing Stipulation, Bayfront claims it is exempt and

excluded from sales and use tax on its commer cial rent payments because:

(1) patient rooms and space used principally by patients are dwelling units

excluded from tax under section 212.031(1)(a)2.; and (2) Bayfront's re - lease of

space to its patients is excluded from tax as a sale for resale pursuant to

rule 12A - 1.039(1)(b). In its Proposed Recommended Order, Bayfront also

argues that the Department's cr iteria for distinguishing a space used

exclusively as a dwelling unit fro m a space used for medical care constitutes

an unadopted rule.

The Capstan Report

35. In support of its arguments that patient - accessible areas of Bayfront

are used exclusively as dwelling units, or should be considered a lease for

re - le ase, and thus excluded from tax, Bayfront retained the services of

Capstan, a separate consulting firm, to prepare a space - use report.

36. The report, prepared by David Stephens, provides a facility use

analysis of Bayfront Baby Place based on the square f ootage of the public

space and private space. To prepare the report, Mr. Stephens, conducted an

on - site inspection on September 21, 2018, and subse quently prepared the

September 24, 2018, Capstan report after viewing each floor of the leased

space with Bay front staff. Mr. Stephens, who is not an engineer, testified as a

lay witness, rather than an expert.

37. For purposes of the Capstan report, spaces determined to be accessible

to patients and, therefore, "public," included patient rooms, patient suites, o perating rooms, the nursery, hallways, bathrooms, lobbies, conference

rooms, and the front portion of nurses' stations. Spaces determined to be

administrative and, therefore, "private," included employee rooms, employee

break rooms, areas behind the nursin g stations, offices, labs, laundry rooms,

storage spaces, hazardous waste rooms, and janitorial closets.

38. Based on the floor plans and information from the visit, Mr. Stephens

used satellite imagery to determine the square footage accessible to patients

and the square footage accessible to only Bayfront staff.

39. The parties dispute what portion of the third floor is public versus

private. At final hearing, Mr. Stephens tes tified that the public (patient -

accessible) portion o f the entire lea sed space i s 85 percent (77,483 divided by

91,195) , if the first and third floors are considered. If only the public square

feet from the third floor are considered, the total public square feet for the

entir e leased space equals 81 percent (73,951 divided by 91,195) . Mr.

Stephens also did a separate calculation for only the patient rooms, patient

suites, and hallways, and determined the total public squ are feet for those

areas to be 52 percent of the leased space .

40. The Capstan report is of limited value. Other tha n visiting Bayfront

Baby Place on one occasion, Mr. Stephens testified that he was unfamiliar

with the taxpayer, he engaged in no independent research, and the

classification of leased space as "public" vers us "private" was supplied by

FM Cost Containment, the entity hired by Bayfront to respond to the audit.

The report fails to distinguish between the portions of the facility used

exclusively by inpatients, from that used for outpatient medical treatment.

C ONCLUSIONS OF L AW

41. The Division of Administrat ive Hearings has jurisdiction over the

subject matter and the parties hereto pursuant to sections 120.569, 120.57(1)

and 120.80(14).

Applicable Burdens

42. The Department bears the initial burden to demonstrate that the

assessment has been made against the taxpayer and the factual and legal

grounds upon which the Department made the assessment. § 120.80(14)(b)2., Fla. Stat. The Department met its burden of proof. It established that it made

an assessment against Bayfront for sales and use tax for the audit period,

and the Department also demonstrated the factual and legal grounds upon

which it based the assessment.

43. Once the Department meets this burden, the burden shifts to th e

taxpayer who must prove by a preponderance of the evidence that the tax

asses sment is incorrect to prevail. § 120.57(1)(j) , Fla. Stat. This evidentiary

burden is described as "the greater weight of the evidence" and "evidence that

more likely than not tends to prove a certain proposition." §120.57(1)(j), Fla.

Stat.; IPC Sports, Inc . v. Dep't of Rev . , 829 So. 2d 330, 333 (Fla. 3d DCA

2002) ; S. Fla. Water Mgmt. v RLI Live Oak , 139 So. 3d 869, 872 (Fla. 2014).

44. In addition to the assessment, Bayfront protests the Department's

denial of two refund applications. In an admi nistrative p roceeding regarding

a refund claim, a party's burden of proof is not provided by statute. Hence,

Bayfront has the initial burden of proof provided by general law. See

§ 120.80(14)(b)2 . , Fla. Stat. "The general rule is, that as in court proceedings,

the bur den of proof, apart from statute, is on the party asserting the

affirmative of an issue before an administrative tribunal." Balino v. Dep ' t. of

HRS . , 348 So. 2d 349, 350 (Fla. 1st DCA 1977); see also Green v. Pederson , 99

So. 2d 292, 296 (Fla. 1957)("It is well settled that he who would shelter

himself under an exemption clause in a tax statute must show clearly that he

is entitled under the law to exemption.") . Bayfront has the burden of proving

by a preponderance of the evidence that it is entitled to a r efund.

"Used Exclusively As Dwelling Units"

45. B oth the contested assessment and the refund applications stem from

Bayfr ont's commercial lease of 12.57 percent of All Children's Hospital.

Section 212.031 provides in pertinent part:

Tax on rental or licens e fee for use of real property.

(1)(a) It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real

property unless such property is:

* * *

2. Used exclusively as dwelling units.

* * *

(b) When a lease involves multiple use of real

property wherein a part of the real property is

subject to the tax herein, and a part of the property

would be excluded from the ta x under …

subparagraph (a)2 … the department shall

determine, from the lease … and such other

information as may be available, that portion of the

total rental charge which is exempt from the tax imposed by this section. The portion of the premi ses leased or rented by a for - profit entity

providing a residential facility for the aged will be

exempt on the basis of a pro rata portion calculated

by combining the square footage of the areas used for residential units by the aged and for the care of s uch residents and dividing the resultant sum by

the total square footage of the rented premises. For purposes of this section, the term "residential facility for the aged" means a facility that is

licensed or certified in whole or in part under chapter 400 , chapter 429, or chapter 651 or that

provides residences to the elderly.

46. Bayfront entered into a written landlord - tenant lease agreement

requiring it to pay monthly base rent and additional rent, in exchange for the

exclusive right to use a portion of its landlord's real property. The

Department determined Bayfront failed to pay sales and use tax owed on

utilities, maintenance , and other services that are component s of its rent

payments.

47. Bayfront argues it is exempt and excluded from sales and u se tax on

its commercial rent payments because patient rooms and space used

principally by patients are dwelling units excluded from tax under

section 212.031(1)(a)2. Bayfront relies on Beverl y En terprises - Florida, Inc. v.

Department of Revenue , No. 94 - 225 9 - CA - 16 - L (Fla. 18th Cir. Ct. Apr. 30,

1996) for the proposition that nursing homes, which provide medical related

services, are considered "exclusively used as a dwelling unit." 2

48. The terms "dwelling unit" and "used e xclusively" are not defined in

c hap ter 212 or by administrative rule. When construing a statute, the court

must first look to the plain language used by the Legislature. Verizon Bus.

Purchasing, LLC v. Dep't of Rev . , 164 So. 3d 806, 809 (Fla. 1st DCA 2015). If

a statute is clear, "the statu te must be given its plain and obvious meaning."

Id. "When considering the meaning of terms used in a statute, this c ourt

looks first to the term's ordinary definitions [which] may be derived from

dictionaries." Trinidad v. Fla. Peninsula Ins. Co. , 121 So. 3d 433, 439 (Fla.

2013), citing Metro. Cas. Ins. Co. v. Tepper , 2 So. 3d 209, 214 (Fla. 2009).

49. Among the definitions for the term "use" is "to put into service or

employ for a purpose." The American Heritage Dictionary of the English

Language, 5th Edition, see "use," www.ahdictionary.com/word/

search.html?q=use (last visited February 5, 2020) . The term "exclusively" is

defined as " not allowing something else ; not di vided or shared with

others … ; not accompanied by others; single or sole." Id. at "exclusively,"

www.ahdictionary.com /word/search.html?q=exclusively (last visited

February 5, 2020) . "Dwelling" is defined as "a place to live in; an abode."

Id . at "dwelling," www.ahdictionary.com/word/ search.html?q =dwelling (last

visited February 5, 20 20) . Hence, a common understanding of the phrase

"used exclusively as dwelling units" is a facility intended to be used solely as

a place to live.

50. However, the term "used exclusively," in the property context, refers to

the "dominant use of property" a nd does not necessarily mean a use which

excludes all others. Exclusive Use, USLEGAL, www.definitions.uslegal.com/

e/exclusive - use - property/ (last visited February 5, 2020) . In fact, t he

Department admits s ection 212.031(1)(a)2. applies to assisted living facilities

2 Beverl y was decided before nur sing homes were give n the pro rata exclusion under

section 212.031(1)(b).

("ALFs"), inpatient substance abuse facilities, and inpatient psychiatric units.

Each of these facilities unquestionably provide s medical care in addition to

sleeping accommodations.

51. Bayfront's provision of sleeping accommodations for inpat ient care is

distinguishable from ALFs, inpatient substance abuse facilities, and

psychiatric units.

52. While the Department acknowledge s that certain taxpayers that offer

nursing services at their facility receive the section 212.031(1)(a)2. tax

exempti on, the leased space for the qualifying taxpayers are factually and

legall y distinguishable from Bayfront. Bayfront's reliance on the

Department's advisory letters are misplaced because not only are those

taxpayers materially different from Bayfront, by st atu t e and rule, the

advisory letters are not legal precedents nor legal authority for other

taxpayers. § 213.22(1), Fla. S tat., Fla. Admin. Code R. 12 - 11.007(1) - (2) .

53. Nursing homes and ALFs are specifically designated as residential

facilities under cha pters 400 and 429 , Florida Statutes . Individuals who

reside in nursing homes and ALFs are considered "residents" under Florida

law. Whereas "residents" reside in nursing homes and ALFs, Bayfront's

customers are patients. A patient at a regional perinatal f acility is defined as

a woman experiencing a high - risk pregnancy or a medic ally eligible newborn

infant. § 383.16(3), Fla. Stat. Bayfront has a patient - medical provider

relationship with its customers, not a residential relationship.

54. Bayfront leases th e space as a place of business to provide obstetric

medical care. No common person refers to a hospital as a dwelling unit,

home, or abode solely or even primarily to live and reside. Patients who use

the Bayfront space are not leasing a bed or a room with the intention of

"dwelling" or staying. Additionally, living and residing is a key to the care

offered at ALFs, inpatient substance abuse, and inpatient mental health

facilities. In contrast the care provided by Bayfront includes 50 - 60 percent

outpatient services.

55. Unlike residents of an ALF, inpa tient substance abuse facility , and

inpatient psychiatric unit , who either chose to be, or are placed, at these

facilities to reside short or long - term while receiving assistance with personal

care and medical needs, obstetric patients are placed in a fully - equipped

medical room and their overnight stays are incidental to the child - birth

process. Bayfront is not used as a home or a residence. The fact that sleeping

may occur at Bayfront does not alter its sole use or dominant purpose. In

fact, Bayfront's own witnesses admit that the facility is used exclusively for

medical services. Bayfront cannot be use d "exclusively" or predominantly

both as a labor and delivery medical facility and as a residential facility .

56. The fact that section 212.031(1)(a)2. is applied to exclude certain

residential care facilities does not make the provision ambiguous. The space

leased by Bayfront is not used "exclusively as dwelling units" and is,

therefor e , taxable. 3

Lease for Re - Lease

57. In the prehearing stipulation , Bayfront argues its "re - lease of the

space to its patients is excluded from tax as a sale for resale" and cites to

rule 12A - 1.039(1)(b). In essence , Bayfront claims it subleases Bayfront Baby

Place to its patients and is somehow exempt from tax on that basis. However,

since Bayfront maintains sole control and full use of its leased space and there is no applicable tax exemption under Florida law, Bayfront's claim has

no factual or legal basis.

58. Sections 212.031(1 )(a) and (c) impose sales and use tax on the total

rent fee charged for the renting or leasing of real property. Section 212.031 (3)

3 Both parties wrote extensively in their proposed recommended orders on the issue of

whether section 212.031(1)(a)2 . , provides a tax exemption or a tax exclusion. If the phrase

"use d exclusively as dwelling units" is considered a tax exclusion, any ambiguity is reso lved

in favor of the taxpayer. Drum Service Co. v. Kirk , 23 4 So. 2d 358, 359 (Fla. 1970).

Conversely, if the phrase is meant to create an exemption from tax, it is constru ed against

the taxpayer. Alachua Cty. v. Dep't of Rev . , 466 So. 2d 1186, 1187 (Fla. 1st DCA 1985).

Because the language is not ambiguous, it is unnecessary for the undersigned to address

whether this provision is an exclusion or exemption.

holds landlords responsible for charging tenants, collecting , and remitting

commercial rent tax to the Department. Rule 12A - 1.070(4)(b) requires the tax

due to be paid by the tenant to its landlord. Rule 12A - 1.070(7)(a) provides

that when a tenant sublets a portion of its taxable leased property, the tenant

is required to register as a dealer and collect and remit the tax on al l sublet

rentals. Rule 12A - 1.070(9) requires the tenant that assigns its interest, or

retains only an incidental portion of the leased premises, to collect sales tax

on the sub rentals and pay tax to the landlord on the portion retained. The

rule also provi des that when a tenant sublets all, or substantially all, of its

interest in the leased premises, the tenant may register with the Department

as a dealer and provide a resale certificate to its landlord in lieu of paying the

tax to the landlord, hence reli eving the landlord of the duty to remit the tax

to the s tate on its prime lease.

59. However, when a tenant retains its interest in the leased space, an

assignment of the leased space (for the avoidance of tax obligations) does not

occur, and the tenant co ntinues to be responsible for the tax owed on all

consideration paid on the prime lease. Bayfront's control of the leased

premises is superior to that of its patients and it does not sublet or assign its

interest in the leased premises to its patients. Bec ause Bayfront does not

assign its interest in the facility to its patients, Bayfront is responsible for the

sales and use tax pursuant to section 212.031(1)(a). 4 See Fla. Admin.

Code R. 12A - 1.070(7) , (8) , and (9).

Unadopted Rule

60. Agency action that deter mines the substantial interests of a party

cannot be based on an unadopted rule. § 120.57(1)(e)1., Fla. Stat. An

unadopted rule is any agency statement of general applicability t hat is a

4 In its inform al protests Bayfront also relie d on section 212.08(7)(i) as support for its claim

that the c ommercial lease is tax exempt. Section 212.08(7)(i) provides that hospital room and

meal charges to patients are exempt from tax. This exemption does not apply to B ayfront's

commercial lease because the taxpayer, Bayfront, is not a patient.

"rule," as defined in s ection 120.52(16), without going through the

r ul emaking process required under s ection 120.54 . § 120.52(20), Fla. Stat.

61. The Department is required to promulgate rules on "those statements

which are intended by their own effect to create rights, or to require

compliance, or otherwise to have the di rect and consistent effect of law."

Coven try First v. Office of Ins. Reg . , 38 So. 3d 200, 203 (Fla. 1st DCA 2010). If

the effect of the Department's statement is to "create certain rights or

adversely affect other rights, it is a rule." Id . at 203.

62. No t all agency statements are required to be promulgated as rules.

Agency statements that only apply under specific circumstances are not

statements of general applicability when the statements are merely

guidelines and the application of the statement is su bject to the discretion of

an agency employee. Id. at 204.

63. Bayfront argues:

The Department testified that hospitals do not

qualify under Section 212.031(1)(a)2, because medical treatment is provided. The Department

has previously issued a ruling with a similar

position that hospitals do not qualify because of medical treatment [PE 16, Letter of Technical Advice ("LTA") 96A - 011].

See Petitioner's Proposed Recommended Order ¶¶ 115 - 116.

64. However, this is a mischaracterization of the testimony. The testimony

offered by Charles Wallace on behalf of the Department was that if the sole

purpose of a medical facility is to provide medical care, that is a factor taken

into consideration in determining whether the structure is a " dwelling unit"

under sectio n 212.013.

65. It is clear from Mr. Wallace's testimony that the Department's

determination of whether taxpayers qualify for an exemption under

section 212.031(1)(a)2. is based upon the application of the plain language of

the statute to the facts of each individual case and is not based upon a

general statement by the Department. There is no evidence to establish that

the Department instructs its auditors that hospitals do not qualify for the

sought - after exemption. In fact, as stated by Bayfront in its P roposed

Recommended O rder, "the Department determines what real property

qualifies for the exclusion on an ad hoc basis." See Petitioner 's Proposed

Recommended Order ¶ 51; and Tr . Vol. II, p . 218; lines 1 - 15.

66. Bayfront's reliance on the 1996 Letter of Te chnical Advice ("LTA") is

similarly misplaced. 5 Nowhere in the LTA does the Department suggest that

hospitals do n ot qualify under s ection 212.031 (1)(a)2. because medical

treatment is provided. Rather, this LTA states:

With respect to the applicability of the "dwelling

unit" exclusion to hospitals, it must be ascertained

whether or not a hospital room can be considered as

being used exclusively for dwelling. Unlike the case

of a hotel, motel, boarding house, or other similar

structure, whose sole purpose is to provide sleeping

and, perhaps, housekeeping, facilities to its customers, a hospital provides its customers with a place to sleep only as a method of accomplishing its sole purpose of providing treatment, cure, mitigation or amelioration of illness or disease

The hospital does not make exclusive use of hospital

rooms to simply provide sleeping accommodations to the public. In fact, a primary goal of the hospital

is to discharge patients as soon as possible, unlike a

motel or hotel, where the objective is to retain the

guests for as long as possible.

5 / An LTA is a Department advisory position on the taxa bility of a given transaction. An LTA

is informal and non - binding on the Department. See Fla. Admin. Code. R. 12 - 11.003(1)(b ).

See also Chapter 9, § 9.3 , Florida Administrative Practice (2019) .

67. An agency statement that merely reiterates a law or declares what is

"readily apparent" from the text of a law, is not considered a rule. Grabba -

Leaf v. D ep't of Bus. & Prof'l Reg. , 257 So. 3d 1205, 1 208 (Fla. 1st DCA 2018).

It is readily apparent from the statute , that the L egislature intends that

every person who rents real property is exercising a taxable privilege, unless

the "property" qualifies for an exemption. § 212.031(1)(a), Fla. Stat. Here, the

claimed exemption applies to property "used exclusively as dwelling units"

under section 2 12.031(1)(a)2 .

68. Because Bayfront is not used exclusively or predominately to provide

dwelling units for patients , the Department concluded it did not have the

legislative authority to provide Bayfront with the claimed exemption. The

effect of the Department's decision is not a rule because it is an application of

the statute to the facts of the se case s . In making this decision , the

Department did not apply a gen eral statement which , in and of itself, creates

certain rights or adversely affects other rights.

R ECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is

R ECOMMENDED that the Department of Revenue enter final order s in these

c onsolidated cases sustaining the assessment and denying Bayfront HMA

Medical Center, LLC's , refund applications.

D ONE A ND E NTERED this 7th day of February, 2020 , in Tallahassee, Leon

County, Florida.

M ARY L I C REASY

Administrative Law Judge

Division o f Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 7 th day of February , 20 20 .

C OPIES F URNISHED :

Mark S. Hamilton, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

Joseph C. Moffa, Esquire

Moffa, Sutton & Donnini, P.A.

Trade Center South, Suite 930

100 West Cypress Creek Ro ad

Fort Lauderdale, Florida 33309

(eServed)

Randi Ellen Dincher, Esquire

Office of the Attorney General

Revenue Litigation Bureau

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

(eServed)

Rex D. Ware, Esquire

Moffa, Sutton & Donnini, P.A.

3500 Financial Plaza , Suite 330

Tallahassee, Florida 32312

(eServed)

Jonathan W. Taylor, Esquire

Moffa, Sutton & Donnini, P.A.

Trade Center South, Suite 930

100 West Cypress Creek Road

Fort Lauderdale, Florida 33309

(eServed)

James A. Zingale, Executive Dir ector

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

N OTICE OF R IGHT T O S UBMIT E XCEPTIONS

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 agency that will issue the Final Order in this

case.