19-005900 Southeast Petro Distributors, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Monday, October 19, 2020.

Summary: Petitioner did not establish it was entitled to a refund for purchase of dispensing pumps and underground tanks as a new or expanding business.

For Respondent: John Mika, Esquire

Office of the Attorney General

Plaza Level 01

The Capitol

Tallahassee, Florida 32399 - 1050

S TATEMENT OF T HE I SSUE S

The issues to be determined are whether Southeast Petro Distributors,

Inc. ( Petitioner or Southeast Petro) , is entitled to a refund for taxes paid on

its purchases of identified machinery and equipment based upon an

exemption in section 212.08(5)(b), Florida Statutes; and , if so, whether

Southeast Petro is entitled to statutory in terest on the amount of any refund

paid, pursuant to section 213.255, Florida Statutes.

P RELIMINARY S TATEMENT

On August 22, 2018, the Department of Revenue (Respondent or the

Department) issued a Notice of Reconsideration to Southeast Petro. In the

Notice of Reconsideration, the Department notified Southeast Petro that it

was not entitled to a refund as a new or expanding business, for sales and use

taxes paid during the period of May 2014 through April 2017, related to the

purchase of dispensing pumps and underground tanks. Petitioner filed a

Petition for Chapter 120 Hearing on October 19, 2018, and on November 6,

2019, the matter was forwarded to the Division of Administrative Hearings

for the assignment of an administrative law judge. The case was assign ed to

Judge W. David Watkins, and on November 13, 2019, a Notice of Hearing

was issued, scheduling the case for hearing on January 7, 2020.

On December 23, 2019, Southeast Petro filed an Unopposed Motion to

Continue Final Hearing, based on an unexpected d eath in c ounsel’s family.

The continuance was granted, and the case was rescheduled for hearing on

March 20, 2020, by video teleconference. On January 22, 2020, the case was

transferred to the undersigned.

Respondent requested Official Recognition of the House Staff Analysis of

HB 3229 (June 7, 1998), and of the refund application, known as Form

DR - 26, which is incorporated by reference into Florida Administrative Code

Rule 12 - 26.008. On February 26, 2020, both requests were granted.

The parties filed a Pre - Hearing Stipulation on March 10, 2020. The Pre -

Hearing Stipulation included stipulated facts for which no evidence at

hearing was necessary. Those stipulated facts have been incorporated into

the Findings of Fact below.

On March 18, 2020, Respondent filed an unopposed motion to continue the

final hearing, citing the COVID - 19 pandemic that required that public

gatherings cease and non - essential act ivities be delayed nationwide. An

Order Granting Continuance was issued the same day, which directed the

p arties to file a Joint Status Report by April 20, 2020, providing new,

mutually acceptable dates for rescheduling the hearing. The timely response filed requested additional time to provide dates, due to the continued uncertainty rela ted to the spread of C OVID - 19. The request was granted by

Order dated April 20, 2020, giving the parties until June 5, 2020.

After receiving dates from the parties, th e case was rescheduled for

July 30, 2020, by video teleconference, with sites in Tallahassee and

Lauderdale La kes, Flori da. The case commenced but additional time was

required to complete the testimony, so the proceeding resumed using Zoom

technology on August 4, 2020.

At hearing, Summit Shah testified on behalf of Petitioner, and Petitioner’s

Exhibits 1, 22 thro ugh 36 1 , 38 through 44, and 46 through 52 were admitted

into evidence. Kevin Hummel and Alan Fulton testified for the Department,

and Respondent’s Exhibits numbered 1 through 22 and 24 were admitted into

evidence. The Department also renewed its Motion to Dismiss, which had

been denied by Judge Watkins before the case was reassigned. The motion is

denied.

The Transcripts of the proceedings were fi led with the Division on

August 19, 2020. The parties requested and received 30 days from the filing

of the Tra nscripts to file their proposed recommended orders. Both

submissions were timely filed and have been carefully considered in the

preparation of this Recommended Order. However, Southeast Petro had two charts attached to its Proposed Recommended Order that were not identified

as exhibits in this case. Those charts have not been examined or considered

in preparing the Recommended Order. Unless otherwise indicated, all references to Florida Statutes are to those in effect during the refund period. See State ex rel. Szabo Food Svcs., Inc v. Dickinson , 286 So. 2d 529 (Fla.

1973).

F INDINGS OF F ACT

Based on the testimony and documentary evidence presented, the

demeanor of the witnesses, and the stipulations of the parties, the following facts are found:

1. Southea st Petro is a fuel distributor that distributes fuel to customers

in the Southeast ern United States, concentrated mostly in Florida. Southeast

Petro does not operate any of the locations to which it delivers fuel, but the

operators of many of the locations , like Southeast Petro, are affiliate

1 Petitioner’s Exhibit 22 is for demonstrative purpo ses only.

companies of M&R High Point Holdings, Inc. Summit Shah is the President

of Southeast Petro and has been with the company for 22 years. He referred

to these affiliate companies as “disregarded entities,” and testified that the

companies are part of a family business, with all of the same officers and

common ownership under a single federal tax return. Those other than

Southeast Petro are referenced in this Recommended Order as affiliate sites.

Southeast Petro also deli vers fuel to locations in which it has no ownership

interest. For these locations, which are referred to as dealer locations,

Southeast Petro has entered into Dealer Supply Agreements. Under these

agreements, Southeast Petro supplies not only the fuel to t he dealers, but

equipment to store and dispense the fuel, including gasoline tanks and

dispensing pumps. While ownership of the fuel passes to the dealer when it is

transferred to the storage tanks, the storage tanks , dispensing pumps , and

related equipmen t remain the property of Southeast Petro. Southeast Petro is

required to supply fuel to the dealer as necessary to meet customer demand.

2. Southeast Petro purchases the underground tanks and dispensing

pumps for both its affiliate sites and the dealer loc ations that buy its fuel.

Fuel tanks generally last approximately 20 years, and have warranties for

10 - 20 years, while dispensing pumps last about 10 years, with most

warranties lasting for four years. Both the dispensing pumps and the

underground storage tanks have a depreciable life of over three years. As the

pumps age, they become less efficient and the flow of the gasoline slows. This case involves the replacement of dispensing pumps and a few underground storage tanks at gas stations serviced by Sout heast Petro.

3. Most gas stations sell unleaded gasoline with three octane ratings:

premium, with a 93 rating; mid - grade, with an 89 rating; and regular

unleaded, with an 87 rating. Different vehicles require different fuel octane

levels to maximize the pe rformance of the vehicle. For example, a high

performance sports car requires premium gas, while a typical sedan runs just

fine on regular unleaded gasoline.

4. At one time, an underground tank was required for each kind of fuel.

However, within the last approximately 20 years, dispensing pumps have

been manufactured with a blender mechanism that allows for the elimination

of one storage tank and blends percentages of unleaded and premium fuel to

create mid - grade fuel at the dispensing location. With the u se of this type of

dispensing pump, the need to transport and store mid - grade fuel is

eliminated. Reducing the number of tanks required at each location reduces

cost of insurance, as well as the cost related to supplying the tanks, and the

risk of fuel lea ks from the underground tanks.

5. The Department contends that while Southeast Petro is purchasing

these dispensing pumps with the blender capability, it is the customer, as opposed to Southeast Petro, that is “making” the mid - grade fuel through his

or her selection of mid - grade when making the fuel purchase. However,

unless the dispensing pump is equipped with the mechanism that blends the fuel, the customer cannot access mid - grade fuel.

6. On or about May 22, 2017, Southeast Petro filed a DR - 26S, Applicat ion

for Refund – Sales and Use Tax form (application) , with the Department,

claiming that it was entitled to a refund of $146,846.47 in sales tax paid for dispensing pumps and underground storage tanks it purchased to replace the

dispensing pumps and tanks at several locations. The purchases were for

dispensing pumps for both affiliated entities and for dealer locations. The

replacement of some underground storage tanks was also included in the

claimed purchases. Dispensing pumps were purchased from Central

Industries, Inc. ; Guardian Fueling Technologies, LLC ; and Sunoco, LLC, and

underground storage tanks were purchased from Modern Welding Company

of Florida, Inc.

7. In addition to the application, Petitioner provided a power of attorney

form, a spreadsheet listing job code, invoice date, invoice number, taxable

amount, sales tax, sales tax percentage, and invoice totals for the purchases

at issue; and several invoices for purchases of gasoline pumps, tanks, and

related hardware necessary for installation. T he invoices reflect the different

sites to which pumps were installed. At least some portion of the address for

the site was included on the invoices, such as the street address, although

they did not always identify the cities where the sites were located .

8. The refund period in the application is May 2014 through April 2017.

9. On June 20, 2017, the Department issued a Notice of Intent to Make

Tax Refund Changes. In an attachment to the Notice, the Department stated

that the information provided in the r equest for refund was insufficient, and

requested that Petitioner provide an assignment of rights to refund of sales

tax form; a plant schematic of the manufacturing facility identifying the

location of the equipment included in the refund request; citatio ns to

applicable Florida Statutes and administrative rules upon which Petitioner

was relying for the request for exemption and refund, along with any

documentation (not specified) required to support the exemption/refund

request; and information related to the claimed pollution control exemption,

which is no longer relevant to these proceedings.

10. The Notice of Intent to Make Refund Changes stated, “If you do not

agree with these findings, you may request an informal conference to discuss any factual, st atutory, or regulatory issues related to the above refund denial.

Your request for informal conference must be made, in writing, to the above

referenced office within 30 days of the issuance of this Notice.” It also advised

that if the taxpayer did not req uest an informal hearing within 30 days, a

Notice of Proposed Refund Denial would be issued on or about July 20, 2017.

The attachment requesting additional documents did not expressly state a

deadline for the submission of the documents requested.

11. On July 20, 2017, the Department issued a Notice of Proposed Refund

Denial for the Refund Claim. The attachment to the Notice of Proposed

Refund Denial stated that the request for refund was being denied because

the documentation requested in the Notice of In tent to Make Tax Refund

Changes had not been provided.

12. Southeast Petro timely protested the Notice of Decision of Refund

Denial pursuant to Florida Administrative Code Chapter 12 - 6. Southeast

Petro’s Protest letter, dated August 2, 2017, included the d ocuments

previously provided to the Department. No plant schematic identifying the

equipment included in the refund request was ever provided to the

Department, or produced at hearing, because n o plant is involved. Instead,

Petitioner asserts that each gas station is a fixed site where “manufacturing,

processing, compounding, or producing for sale” is taking place.

13. On November 17, 2017, Alan Fulton, who at that time was a tax law

specialist for the Department, issued a letter to counsel for Petitioner s tating

that the documentation to date was not sufficient to support the claim, and

that the Department needed, for each transaction/refund amount requested,

a properly executed assignment of rights form from each of the selling dealers

to which Petitioner asserts was paid in error; the amount of tax requested for

each transaction in the refund claim; a clear and concise reconciliation of the

invoices/transactions for which Petitioner was seeking a refund ; and proof of

tax paid to the vendor that reconciles to the refund amount. Mr. Fulton also asked for production records or documents to support the claim that the

machinery and equipment purchased is used in a manufacturing process to

produce a new product; and a thorough description of the manufacturing pro cess, including the specific machinery used. Mr. Fulton advised that this

information, as well as any other documentation that may support the protest, needed to be provided to the Department no later than December 12, 2017.

14. On February 28, 2018, the D epartment issued a Notice of Decision

(NOD) of Refund Denial, in which the Department denied the refund in its entirety. In the NOD, the Department noted that it had requested additional

documentation from Petitioner that it did not receive. With respect f or the

claim under the new or expanding business exemption, the NOD stated in

part:

By asserting its purchases qualify for tax

exemption under s. 212.08(5)(b), F.S., Taxpayer implies its purchases are used to manufacture of

process tangible personal prope rty for sale.

However, Taxpayer provides no arguments as to

how its retail gasoline stations are engaged in manufacturing, processing, compounding, or

producing for sale tangible personal property at

fixed locations. Additionally, Taxpayer has failed to su bmit documentation specifically requested, such

as properly executed Assignment of Rights to Refund of Sales Tax, an Application for Temporary

tax Exemption Permit, form DR - 1214; proof of tax

paid to vendors; production records supporting

Taxpayers content ion that the machinery and

equipment purchased is used in a manufacturing

process to produce a new product; a description of

the manufacturing process, including the specific

machinery and equipment used; and documentation received from the Florida Departm ent of Environmental Protection for the

projects.

Nonetheless, in considering Taxpayer’s assertions of tax exemption, it is reiterated, pursuant to Rule 12A - 1.096(1)(d), F.A.C., promulgated to administer

s. 212.08(5)(b), F.S., the phrase “manufacture, pr ocess, compound, or produce for sale” means the various industrial operations of a business where raw materials will be put through a series of steps

to make an item of tangible personal property that

will be sold. The gasoline was previously manufactured by a refinery from crude oil.

Furthermore, it is the Taxpayer’s customers that operate the gasoline dispensing pumps at the retail

stations, and not for the purpose of conducting

industrial operations. As such, the Department does not find that Taxpayer is engaged in

manufacturing operations at its retail gasoline stations with the dispensing pumps and

underground tanks. Instead, it is the Department’s

position, as indicated above, the dispensing pumps and underground storage tanks are more properly classif ied as storage and delivery systems utilized

subsequent to the conclusion of the manufacturing

process by a refinery. Therefore, these items would

not qualify for the exemption from tax provided

under s. 212.08(5)(b), F.S., and Rule 12S - 1.096,

F.A.C. (emph asis in original)

15. On March 21, 2018, Southeast Petro filed a Petition for

Reconsideration contesting the Notice of Decision of Refund Denial. With the

Petition for Reconsideration, Petitioner provided, along with some other documentation, a schedule o f the transactions at issue; the assignment of

rights to refund from each of the selling dealers to which sales tax were paid; the corresponding invoices; the application for temporary exemption permit (DR - 1214); and an explanation of how the refund amount was computed.

16. On August 22, 2018, the Department issued its Notice of

Reconsideration of Refund Denial, fully sustaining its denial of Southeast Petro’s refund claim. In its Notice of Reconsideration of Refund Denial, the

Department reiterated its pos ition stated in the NOD, and added the

following statement:

For both of the exemptions sought by Taxpayer, the

Department acknowledges Taxpayer has submitted

an Application for Temporary Tax Exemption

Permit, form DR - 1213, a reconciliation spreadsheet

of t he refund claimed, proper [ sic ] executed

Assignment of Rights to Refund of Sales Tax, and various invoices for review and consideration.

However, this information is not germane to the refund claim, because the dispensing pumps and underground storage tank s are not qualifying

industrial machinery and equipment under the

provisions of s. 212.051, F.S. and s. 212.08(5)(b),

F.S.

17. On October 19, 2018, Southeast Petro filed its Petition for Chapter 120

Hearing, contesting the Notice of Reconsideration. The c ase was referred to

the Division of Administrative Hearings on November 6, 2019.

18. Southeast Petro paid sales taxes on the purchases of underground

storage tanks and dispensing pumps to the vendors supplying the equipment.

Those vendors then provided to Southeast Petro Assignment of Rights to

Refund of Sales Tax forms, identifying the amount of tax for which they

assigned the rights to Southeast Petro.

19. Central Industries, Inc., sold dispensing pumps to Southeast Petro,

and on August 23, 2017, assigned the rights to Southeast Petro for refund of

the taxes it collected. The amount assigned for transactions occurring from

May 1, 2015, through April 30, 2017, is $52,592.92.

20. Guardian Fueling Technologies, LLC, sold dispensing pumps to

Southeast Petro, a nd on August 23, 2017, assigned the rights to Southeast

Petro for refund of taxes it collected. The amount assigned for transactions

occurring from May 1, 2015 , to April 30, 2017, is $41,593.82. Guardian

Fueling Technologies, LLC, also executed an assignme nt of rights for a

purchase made in March 2015, where the tax paid was $36,269.31.

21. Sunoco, LLC, sold dispensing pumps to Southeast Petro, and on

September 14, 2017, assigned the rights to Southeast Petro for refund of

taxes it collected. The amount ass igned for transactions occurring from

May 1, 2015 , to April 30, 2017, is $8,953.41.

22. Modern Welding Company of Florida, Inc., sold underground storage

tanks to Southeast Petro, and on June 29, 2015, assigned the rights to

Southeast Petro for refund of t he taxes it collected. The amount assigned for

transactions occurring from June 2012 to March 2015 was $16,646.00. It is

noted that this assignment covers purchases that extend back past the

refund period.

23. When Southeast Petro originally filed its app lication for a refund, the

requested amount was over $146,000. Over the course of the litigation,

Southeast Petro withdrew its claim for refund with respect to some of its

sites. The relevant information presented to substantiate the refund claim for

each location for which a refund is still sought is listed below. With each

transaction, the information presented is taken from the records provided, as

opposed to the composite spread sheets. Fractions of a gallon have been

discarded in the calculations, as t hey do not affect the percentages reached.

Site 21

24. Site 21 is an affiliate site located at 5230 University Boulevard,

Jacksonville, Florida. Guardian Fueling Technologies sold Southeast Petro

four Gilbarco dispensing pumps. The invoice dated October 14, 2016,

indicates that it was billed to “M&R Enterprises of Brevard/Southeast Petro. ”

The total amount invoiced was $58,747.76, and the tax paid for the purchase

was $3,585.56. The invoice was paid by M&R United, Inc. The invoice

includes references to a ncillary features, such as a color screen and an HCR

card reader for EMV, but the price s for those items are not listed separately.

25. The dispensing pumps were installed by Petroleum Technicians, Inc.,

on or about December 22, 2016. In the 12 months prio r to the installation of

the new dispensing pumps, Site 21 sold approximately 675,257 gallons of

fuel. In the 12 - month period following the installation, from January 1, 2018 ,

through December 31, 2018, Site 21 sold approximately 754,287 gallons of

fuel, f or an increase in sales of 11.7%. With respect to mid - grade blended fuel,

in the 12 months prior to the installation, Site 21 sold 47,891 gallons, as

opposed to 63,224 gallons for the identified 12 - month period after

installation, for an increase in sales of 32%.

Site 99

26. Site 99 is an affiliate site located at 1600 Aurora Road, in Melbourne,

Florida. Southeast Petro bought new Gilbarco dispensing pumps and related

hardware for Site 99 as part of a bulk purchase from Guardian Fueling

Technologies. The f our dispensing pumps bought as part of the bulk purchase

for Site 99, cost $56,574, with corresponding tax of $3,960.18. The invoice,

dated March 24, 2015, is billed to M&R Enterprise of Brevard/Southeast

Petro.

27. The dispensing pumps were installed by Petroleum Technicians, I nc.,

on or about May 24, 2015. In the 12 months prior to installation, Site 99 sold

approximately 656,820 gallons of fuel. In a 12 - month period following the

installation, from August 2015 through July 2016, Site 99 sold approximate ly

693,009 gallons of fuel, for an increase of 5.51%.

28. With respect to mid - grade blended fuel, from September 2014, through

May 2015, Site 99 sold 16,733 gallons. The records submitted in Petitioner’s

Exhibit 33 identifies gasoline sold for the period comprising May through

August 2014 on a single page. There is no legend for the types of gasoline sold

on this page, and the gas code found in other records corresponding to mid -

grade blended gasoline does not appear, so a total for mid - grade fuel sold

dur ing the 12 - month period cannot be clearly identified. The records are not

sufficient to show 12 contiguous months of production or sale of mid - grade

fuel.

Site 101

29. Site 101 is an affiliate site located at 6842 Wilson Boulevard,

Jacksonville, Florida. Southeast Petro bought four new Gilbarco dispensing

pumps from Central Industries. The invoice, dated January 4, 2017, is billed

to Southeast Petro. The total amount invoiced is $55,813.49, and the tax paid

is $3,157.84. The invoice includes charges for a ncillary items not involved in

the blending process, such as speakers, hybrid card readers, and image/

graphics.

30. The dispensing pumps were installed by Petroleum Technicians, Inc.,

on February 9, 2017. In the 12 months prior to the installation of the new dispensing pumps, Site 101 sold approximately 659,658 gallons of fuel. In the

selected 12 - month period following the installation, from January through

December 2018, Site 101 sold approximately 836,764 gallons of fuel, for an

increase of 26.85%. With respect to mid - grade blended fuel, in the 12 months

prior to the installation of the new dispensing pumps, Site 101 sold 72,575

gallons, as opposed to 86,312 gallons for the period selected, for an increase of

18.93%.

Site 122

31. Site 122 is an affiliate site located at 700 Columbia Boulevard in

Titusville, Florida. Central Industries, Inc., sold Southeast Petro five new

Gilbarco dispensing pumps and related hardw are. The invoice, dated

January 5, 2017, is billed to Southeast Petro. The total amount invoi ced is

$70,806, and the sales tax paid is $4,006.49. Included in the invoice are charges for ancillary items not involved in the blending process, such as

speakers, hybrid card readers, and image/graphics.

32. The new dispensing pumps were installed by Pet roleum Technicians,

Inc., on January 19, 2017. In the 12 months prior to the installation of the new dispensing pumps, Site 122 sold approximately 1,208,313 gallons of fuel. In the selected 12 - month period following the installation, from February

2017 thr ough January 2018, Site 1 22 sold approximately 1,310,010 gallons of

fuel, for an increase of 8.42%. With respect to mid - grade blended fuel, in the

12 months prior to installation of the new dispensing pumps, Site 122 sold 67,918 gallons, as opposed to 58,9 40 gallons for the identified 12 - month

period after installation. As sales of this grade of fuel actually went down,

mid - grade fuel did not see an increase of 5%.

Site 234

33. Site 234 is an affiliate site located at 3860 Highway A1A in

Melbourne, Florida . Central Industries, Inc., sold Southeast Petro six new

Gilbarco dispensing pumps and related hardw are. The invoice, dated

January 4, 2017, is billed to Southeast Petro. The total amount invoiced is

$84,404.90 and the sales tax paid is $4 , 776.22. Included in the invoice are

charges for ancillary items not involved in the blending process, such as

speakers, hybrid card readers, and the Mobil image.

34. Petroleum Technicians, Inc., installed the new dispensing pumps on

January 13, 2017. In the 12 months prio r to the installation of the new

dispensing pumps, Site 234 sold 582,758 gallons of fuel. In the selected

12 - month period following the installation, from January through December

2018, Site 234 sold 639,150 gallons of fuel, for an increase of 9.68%. With

respect to mid - grade blended fuel, in the 12 months prior to the installation

of the new dispensing pumps, Site 234 sold 37,702 gallons, as opposed to

43,842 gallons for the post - installation period selected, for an increase in

sales of 16.29%.

Site 320

35. Site 320 is an affiliate site located at 4353 West Main Street in Mims,

Florida. Central Industries sold Southeast Petro four new dispensing pumps

and related hardware for this site. The invoice, dated January 5, 2017, is billed to Southeast Petro. The total amount invoiced is $54,329.49, and the

sales tax paid is $3,073.84. Additional hardware was invoiced for this site on

January 20, 2017, for $1,484.00, and sales tax paid of $84.00. The total for

the combined invoices is $55,813.49, with total sales tax of $3,157.84. Included in the invoice are charges for ancillary items not involved in the

blending process, such as speakers, hybrid card readers, and the BP image.

36. Petroleum Technicians, Inc., installed the new dispensing pumps on

January 18, 2017 . In the 12 months prior to the installation of the new

dispensing pumps, Site 320 sold 1,135,378 gallons of fuel. In the selected

12 - month period following the installation, from January through December

2018, Site 320 sold approximately 1,200,945 gallon s of fuel, for an increase of

5.77%. With respect to mid - grade blended fuel, in the 12 months prior to the

installation of the new dispensing pumps, Site 320 sold 33,106 gallons, as

opposed to 36,235 gallons for the period selected, for an increase in sale s of

9.45%.

Site 343

37. Site 343 is an affiliate site located at 4090 West Midway Road in Fort

Pierce, Florida. Central Industries, Inc., sold Southeast Petro six Gilbarco

dispensing pumps and related hardware. The invoice, dated January 5, 2017, is bill ed to Southeast Petro. The total amount invoiced for the six dispensing

pumps is $84,404.90, and the sales tax paid is $4,776.22. Included in the

invoice are charges for ancillary items not involved in the blending process,

such as speakers, hybrid card re aders, and image/graphics. There is a second

invoice for Site 343 from Central Industries, Inc., for the purchase of a Gi lbarco diesel dispensing pump. However, this pump does not have the

blending capability of the other pumps purchased, and Petitioner

ac knowledges it would not support the criteria for a new and expanding

business exemption, so it is not included.

38. Petroleum Technicians, Inc., installed the six dispensing pumps on

February 23, 2017. In the 12 months prior to the installation of the new

dispensing pumps, Site 343 sold 1,107,473 gallons of fuel. In the selected

12 - month period following the installation, from January through December

2018, Site 343 sold 1,289,854 gallons of fuel, for an increase of 16.47%. With

respect to the mid - grade bl ended fuel, in the 12 months prior to installation

of the new dispensing pumps, Site 343 sold 47,811 gallons, as opposed to

57,614 gallons for the post - installation period selected, for an increase of

20.5%.

Site 346

39. Site 346 is an affiliate site loca ted at 1595 Island Lane in Orange

Park, Florida. Guardian Fueling Technologies sold Southeast Petro eight Gilbarco dispending pumps and related hardware for Site 346. The invoice,

dated November 25, 2016, is billed to M&R Enterprises of Brevard/Southeast

P etro. The total amount invoiced for the eight dispensing pumps is

$118,047.12, and the sales tax paid is $7,722.72. The invoice includes references to ancillary features, such as a color screen and an HCR card

reader for EMV, but the price s for those items are not listed separately.

40. Petroleum Technicians, Inc., installed the eight new dispensing pumps

for Site 346 on December 29, 2016. In the 12 months prior to the installation

of the new dispensing pumps, Site 346 sold 1,004,375 gallons of fuel. In the

selected 12 - month period following the installation, from January through

December 2018, Site 346 sold approximately 1,084,628 gallons of fuel, for an

increase of 7.99%. With respect to the mi d - grade blended fuel, in the

12 months prior to installation of the new dispensing pumps, Site 346 sold

70,508 gallons, as opposed to 84,059 gallons for the selected post - installation

period selected, for an increase of 19.22%.

Site 349

41. Site 349 is an affiliate site located at 11555 Bonita Beach Road

Southeast , i n Bonita Springs, Florida. Guardian Fueling Technologies sold

Southeast Petro four Gilbarco dispensing pumps and related hardware for

Site 349. The invoice, dated October 14, 2016, is billed to M&R Enterprise of

Brevard/Southeast Petro. The total amount in voiced for the four dispensing

pumps is $56,928.61, and the sales tax paid is $3,474.53. The invoice includes references to ancillary features, such as a color screen and an HCR card

reader for EMV, but the price s for those items are not listed separately.

42. Guardian Fueling Technologies also installed these pumps on

November 18, 2016. In the 12 months prior to the installation of the new

dispensing pumps, Site 349 sold 702,975 gallons of fuel. In the selected

12 - month period following the installation, from January through December

2018, Site 349 sold approximately 815,819 gallons of fuel, for an increase of

16.05%. With respect to mid - grade blended fuel, in the 12 months prior to

installation of the new dispensing pumps, Site 349 sold 66,228 gallons, as

compared to 85,116 gallons for the selected post - installation period, for an

increase in sales of 28.52%.

Site 355

43. Site 355 is an affiliate site located at 2653 Boggy Creek Road in

Kissimmee, Florida. Southeast Petro bought six Gilbarco dispensing pu mps

and related hardware from Guardian Fueling Technologies as part of a bulk

purchase. The invoice, dated March 24, 2015, is billed to M&R Enterprises of

Brevard/Southeast Petro. For the pumps a nd equipment purchased for

Site 355, the cost for the pumps ( pretax) was $83,738.00, and the sales tax

was $5,861.66.

44. Petroleum Technicians, Inc., removed the old pumps and installed the

new dispensing pumps on April 27, 2015. For the period from September 1, 2014 , through March 31, 2015, Site 355 sold 646,383 g allons of fuel. Only

seven months of data is included because Southeast Petro and its affiliated

companies did not own the site for a full year before the new pumps were

installed, and the gas station was closed before ownership was transferred.

No evidenc e was submitted regarding how long the station was closed prior to

purchase. The evidence presented does not provide 12 contiguous months of

production or sales records prior to installation of the new equipment.

Site 385

45. Site 385 is an affiliate site located at 420 United States Highway 1, in

Vero Beach, Florida. Central Industries, Inc., sold Southeast Petro five new Gilbarco dispensing pumps and related hardware . The invoice, dated

October 28, 2016, is billed to Southeast Petro. The total cost of th e invoice,

including tax, is $69,305.34, and the sales tax paid is $4,457.57. Included in the invoice are charges for ancillary items not involved in the blending process, such as speakers, hybrid card readers, and Exxon graphics. There is

an additional in voice for this site dated October 27, 2016, for hanging

hardware. The total of this invoice is $2,176.69, with sales tax paid of

$127.00.

46. Petroleum Technicians, Inc. , installe d the dispensing pumps on

March 7, 2017. For the 12 - month period prior to ins tallation, Site 385 sold

599,935 gallons of fuel. For the selected 12 - month period following the

installation, January through December 2018, Site 385 sold 630,265 gallons,

for an increase of 5.06%. With respect to the mid - grade blended fuel, for the

12 mo nths prior to installation, Site 385 sold 39,588 gallons, as opposed to

45,098 gallons for the post - installation period selected, for an increase of

13.92%.

Site 403

47. Site 403 is an affiliate site located at 5385 Timuquana Road in

Jacksonville, Florid a. Central Industries, Inc., sold Southeast Petro four

Gilbarco dispensing pumps and related hardware for this location. The invoice, dated January 4, 2017, bills Southeast Petro for the purchase. The total billed is $55,813.49, with sales tax paid of $3,1 57. Included in the

invoice are charges for ancillary items not involved in the blending process,

such as speakers, hybrid card readers, and image/graphics.

48. Petroleum Technicians, Inc., installe d the dispensing pumps on

March 28, 2017. Southeast Petro’ s affiliate owned Site 403 for only nine

months prior to the installation of the dispensing pumps by Petroleum Technicians, so Southeast only submitted sales data for the nine months

prior to the installation that an affiliate owned the location. Unlike Si te 355,

it is not clear whether the site was closed prior to the installation of the new

pumps or simply changed ownership. For the nine months provided, Site 403

sold a total of 139,319 gallons of fuel. Using an average of gallons sold for

that period, it is estimated that a year’s worth of sales would be

approximately 185,759 gallons. For the selected post - installation period,

January through December 2018, Site 403 sold 395,300 gallons of fuel.

However, Petitioner did not provide 12 contiguous months of production or

sales records prior to the installation of the new dispensing pumps.

49. With respect to the mid - grade blended fuel, for the nine months the

affiliated entity owned Site 403 prior to installation, it sold 11,362 gallons.

Twelve contiguous mon ths of records related to mid - grade fuel were not

provided.

JQ Trading

50. JQ Trading is not an affiliate entity. It is an independent dealer

location owned by Mills Chevron, LLC, located at 900 Mills Avenue in

Orlando, Florida, to whom Southeast Petro se lls fuel and has a dealer supply

agreement. Pursuant to that dealer supply agreement, Southeast Petro supplies the pumps and related equipment in addition to delivering fuel to

the site.

51. Central Industries, Inc., sold Southeast Petro two new Gilbarco

dispensing pumps and related hardware for JQ Trading. The invoice, dated

January 5, 2017, is billed to Southeast Petro. The total cost of the invoice is

$28,616.41, and the sales tax paid is $1,618.38. Included in the invoice are

charges for ancillary item s not involved in the blending process, such as

speakers, hybrid card readers, and image/graphics.

52. Petroleum Technicians, Inc., installed the dispensing pumps on

January 30, 2017. Southeast Petro’s records show no gasoline sales for January 2017. For t he 12 months preceding January 2017, JQ Trading sold

270,977 gallons of fuel. For the selected 12 - month period following the

installation, March 2017 through February 2018, JQ Trading sold 291,177 gallons, for an increase of 7.45%. Petitioner did not submi t adequate

documentation to determine the amount of mid - grade gasoline sold or the

percentage of change.

Aahan/Citrus

53. Aahan/Citrus is an independent dealer location owned by Aahan, Inc.,

and located at 9548 North Citrus Springs Boulevard in Citrus Spr ings,

Florida. Sunoco, LLC, sold Southeast Petro one dispensing pump for this

location. The invoice, dated July 15, 2016, is billed to Southeast Petro. The

total billed is $12,041.60, and the sales tax paid is $681.60.

54. Southeast Petro acknowledges tha t it did not submit the invoice for

the installation of the dispensing pump, but Mr. Clark, the owner of Petroleum Technicians, testified credibly that he installed the pump. The

invoice indicates that the ship date for the dispensing pump was July 15, 201 6. Mr. Clark also testified that installation can take place immediately

after dispensing pumps are shipped, or as much as six months later, so relying on the ship date as the installation date is unrealistic. In the end, it does not matter, because regard less of when the dispensing pumps were

installed, the increase in sales compared to the selected 12 - month post -

installation period is more than five percent. More specifically, the selected post - installation period is January through December 2018, and dur ing that

period, Aahan/Citrus sold 334,546 gallons of fuel. Assuming that the

installation occurred within six months of t he invoice, consistent with

Mr. Clark’s testimony, the pre - installation comparators and the percentage

increases are as follows:

Augu st 2015 - July 2016: 203,669 gallons, for a 64.26% increase;

September 2015 - August 2016: 203,675 gallons, for 64.24% increase;

October 2015 - September 2016: 203,960 gallons, for a 64.03% increase;

November 2015 - October 2016: 195,340 gallons, for a 71. 26% increase;

December 2015 - November 2016: 202,772 gallons, for 64.99% increase; or

January 2016 - December 2016: 202,779 gallons, for a 64.98% increase.

55. No records were submitted from which the sales of mid - grade blended

fuel can be identified or the percentage of increase, if any, can be determined.

Snappy Food Mart

56. Snappy Food Mart is an independent dealer location located at

1716 Oceanshore Boulevard in Ormond Beach, Florida. Sunoco, Inc., sold

Southeast Petro three Gilbarco dispensing pumps f or this location. The

invoice, dated November 30, 2015 , with a ship date listed as the same day, is

billed to Southeast Petro. The total cost of the invoice is $35,189.73, with

sales tax paid of $2,147.73.

57. Like Aahan/Citrus, the installation invoice c ould not be located,

although Mr. Clark testified that his company installed the pumps. As noted above, since pumps are sometimes installed up to six months after purchase, using the ship date (or the day after) as the installation date is unrealistic.

The total gallons of fuel sold for the selected post - installation period of

January through December 2018 is 251,355 gallons. Using the scenarios

outlined below, the percentage increase for each is still over five percent.

December 2014 – November 2015: 205,1 42 gallons,, for a 22.53% increase;

January 2015 – December 2015: 200,807 gallons, for a 25.17% increase;

F ebruary 2015 - January 2016: 201,664 gallons, for a 24.64% increase;

March 2015 – February 2016: 198,116 gallons, for a 26.87% increase;

April 20 15 – March 20 16: 214,614 gallons, for a 17.12% increase; or

May 2015 – April 2016: 212,416 gallons, for an 18.33% increase.

58. No records were submitted from which the sales of mid - grade blended

fuel can be identified or the percentage of increase, if any , can be determined.

Zack’s

59. Zack’s is an independent dealer location owned by Zack’s Oil

Enterprises, LLC, and located at 4201 Southwest 64th Avenue, in Davie,

Florida. Southeast Petro purchased four dispensing pumps and related

hardware for Zack’s from Sunoco, LLC, at a total cost of $45,444.32, with tax

paid of $2,572.32. The invoice, dated October 6, 2014, is billed to Southeast

Petro.

60. Unlike other vendors for dispensing pumps, Sunoco issues its invoices

after it ships the pumps, so, accordi ng to Summit Shah, pumps purchased

from Sunoco are sometimes installed prior to the date on the invoice. In this

case, the invoice from Petroleum Technicians, Inc., indicates that the

dispensing pumps were installed August 24, 2015.

61. Petitioner submitte d gasoline sales records from September 2014

forward. The Dealer Supply Agreement for this location was assigned to

Southeast Petro in July 2015, shortly before the installation of the new

dispensing pumps. For the period beginning September 1, 2014, throu gh

August 30, 2015 (with no sales in August 2015), Zack’s sold 697,198 gallons of

fuel. For the selected 12 - month post - installation period, January through

December 2017, Zack’s sold 743,104 gallons of fuel, for an increase of 6.58%.

62. No records were su bmitted from which the sales of mid - grade blended

fuel can be identified or the percentage of increase, if any, can be determined.

BAM

6 3 . BAM is also an independent dealer location to whom Southeast Petro

supplies fuel, and is located at 500 Highway A1A, in Satellite Beach, Florida.

Southeast Petro purchased three dispensing pumps and related hardware for

BAM from Sunoco, Inc. The invoice, dated July 1, 2013, is billed to Southeast Petro and lists a total of $35,024.52, with sales tax paid of $1,982.52.

H owever, the assignment of rights from Sunoco, LLC , only covers sales tax

paid from May 1, 2015 , to April 30, 2017. Without an assignment of rights for

the time period when these dispensing pumps were purchased, they cannot form the basis for a refund of th e taxes paid.

6 4 . All of the records regarding fuel sold at each location described above

were submitted for the purpose of establishing “ production. ” However, the

records do not reflect production of any product, but rather, the volume of

sales experience d at each location prior to and after the installation of the new dispensing pumps. While it is clear that overall sales at each location

increased more than 5%, sometimes markedly so, the records submitted d o

not establish changes in production. Moreover, inasmuch as Petitioner is not

contending that it “manufactures, processes, compounds or produces”

premium or regular unleaded gas, sales records related to these products that

Southeast Petro distributes, as opposed to manufacturing, processing,

compoundi ng, or producing, cannot establish production increases. Based

upon all of the evidence presented, the more persuasive and compelling

evidence is that the dispensing pumps provide a valuable improvement in the

delivery of fuel to the customer, but are not a part of the production of the

fuel itself.

6 5 . Petro also purchased two storage tanks from Modern Welding, for

which they paid a total of $95,529.50 and sales tax of $5,454.50. However,

unlike the dispensing pumps, storage tanks do not contribute to the “making”

of a different octane - rated fuel. The evidence presented indicates that the

storage tanks’ primary purpose is to store the gasoline held at each fuel location until the fuel is purchased by a customer. The tanks, like the dispensing pumps, are par t of the delivery system for fuel as opposed to its

production.

6 6 . Both tanks were installed at locations that were new business es at the

time of installation. Therefore, no prior production records for these locations

were submitted.

C ONCLUSIONS OF L AW

6 7 . The Division of Administrative Hearings has jurisdiction over the

subject matter and the parties pursuant to sections 120.569, 120.57(1), and 120.80(14).

6 8 . The Department is the agency responsible for administering the

revenue laws of the State of F lorida, including the imposition and collection

of the state’s sales and use taxes, pursuant to section 213.05.

6 9 . As the taxpayer seeking a refund, Southeast Petro has the burden of

proving that the tax sought through this refund application is not owed . Dep’t

of Transp. v. J.W. C. Co. , 396 So. 2d 778 (Fla. 1st DCA 1981). The burden of

proof is measured by a preponderance of the evidence standard. § 120.57(1)(j),

Fla. Stat. In order to show that the tax at issue here is not owed, Petitioner

must demonstr ate that it is a new business or expanding business as defined

by section 212.08(5) and Florida Administrative Code R ule 12A - 1.096, and

that the equipment purchased meets the definition of machinery or

equipment used for the purpose of manufacturing, proce ssing, compounding,

or producing items of tangible personal property for sale.

70 . A widely recognized rule of statutory construction is that exemptions

to taxing statutes are strictly construed against the taxpayer. Asphalt Pavers,

Inc. v. Dep’t of Rev . , 584 So. 2d 55, 57 (Fla. 1st DCA 1991)(an exemption is a

tax statute that is strictly construed against the person claiming the

exemption); Green v. Pederson , 99 So. 2d 292, 296 (Fla. 1957)(“he who would

shelter himself under an exemption clause in a tax s tatute must show clearly

that he is entitled under the law to exemption, and the law is to be strictly

construed as against the person claiming the exemption and in favor of the

taxing power”); United States Gypsum Co. v. Green , 110 So. 2d 409, 413 (Fla.

1 959).

7 1 . This case turns on the interpretation of section 212.08(5)(b),which

creates an exemption for new and expanding businesses, and r ule 12A - 1.096,

which implements the exemption created by section 212.08(5)(b). Section

212.08(5)(b) p rovides:

(5)(b) Machinery and equipment used to increase

productive output. ---

1. Industrial machinery and equipment purchased

for the exclusive use by a new business in spaceport activities as defined in s. 212.02 or for use in new businesses that manufacture, process, compound,

or produce for sale items of tangible personal

property at fixed locations are exempt from the tax

imposed by this chapter upon an affirmative showing by the taxpayer to the satisfaction of the

department that such items are used for a new

busi ness in this state. Such purchases must be

made before the business first begins its productive operations, and delivery of the purchased item

must be made within 12 months after that date.

2. Industrial machinery and equipment purchased for exclusive use by an expanding facility which is

engaged in spacep ort activities as defined by

s. 212.02 or for use in expanding manufacturing

facilities or plant units which manufacture,

process, compound, or produce for sale items of tangible personal property at fixe d locations in this

state are exempt from any amount of tax imposed

by this chapter upon an affirmative showing by the

taxpayer to the satisfaction of the department that such items are used to increase the productive output of such expanded facility or bu siness by not

less than 5 percent.

* * *

d. If a qualifying business entity fails to apply for a temporary exemption permit or if the tentative

determination of the department required to obtain

a temporary exemption permit is negative, a qualifying busin ess entity shall receive the exemption provided in subparagraph 1. or

subparagraph 2. through a refund of previously

paid taxes. No refund may be made for such taxes unless the criteria mandated by subparagraph 1. or subparagraph 2. have been met and comme ncement of production has occurred.

* * *

6. For the purposes of the exemptions provided in subparagraphs 1. and 2., these terms have the

following meanings:

a. “Industrial machinery and equipment” means tangible personal property or other property tha t

has a depreciable life of 3 years or more and that is

used as an integral part in the manufacturing, processing, compounding, or production of tangible

personal property for sale or is exclusively used in

spaceport activities. . . .

b. “Productive outp ut” means the number of units

actually produced by a single plant, operation, or

product line in a single continuous 12 - month

period, irrespective of sales. Increases in productive output shall be measured by the output for 12 continuous months selected by the expanding

business after completion of the installation of such machinery or equip ment over the output for the 12 contiguous months immediately preceding such

installation. However, in no case may such time period begin later than 2 years after comple tion of

the installation of the new machinery and equipment. The units used to measure productive input shall be physically comparable between the two periods, irrespective of sales.

7 2 . In its Notice of Reconsideration of Refund Denial, the Department d id

not indicate that its decision was made based upon a lack of documentation

by Petitioner. The Department acknowledged that it had received additional

information from Petitioner, but found it not to be germane because the

dispensing pumps and undergroun d storage tanks are not qualifying

industrial machinery and equipment under the provisions of s ections 212.051

and 212.08(5)(b).

7 3 . As a preliminary matter, the Department contends in its Proposed

Recommended Order that the entities that operate the vari ous gas

stations/convenience stores are the proper parties to seek refunds in this

case. However, the definition of “fixed location” in rule 12A - 1.096(1)(a) does

not support the Department’s argument, and the separate entities neither

own the dispensing pu mps nor paid the tax on their purchase. Further, the

Department did not deny the application for refund because Petitioner was the wrong entity. It denied the refund because the Department rejects the

contention that the dispensing pumps and underground ta nks are equipment

or machinery that manufacture, process, compound, or produce for sale items

of tangible personal property at fixed locations in this state.

7 4 . The Department also relies upon the language in rule 12A -

1.096(5)(c)1., which states in part, “only the qualified business entity that

will use the qualifying machinery and equipment at a fixed location in this

state in manufacturing, processing, compounding or producing tangible personal property for sale … is entitled to request a refund. ” The m ore

persuasive evidence presented is that Petitioner is responsible for supplying

the gas pumps and tanks but is not the entity at each location that is “using”

the equipment at each location to increase the output of fuel. Southeast Petro

does not manage the gas stations, i.e., actually sell the fuel or operate the

convenience stores . Rather it supplies, provide s , and maintain s the

equipment so that it will deliver the gasoline for each affiliate site and dealer

location .

7 5 . Rule 12A - 1.096 provides exten sive guidance in determining whether a

taxpayer is entitled to a refund. After careful consideration of all of the

factors discussed in the rule, and comparison of those factors to the

information provided, it is concluded that the purchases here are not

a ppropriate for a refund as purchases of a new or expanding business.

7 6 . Rule 12A - 1.096(2)(e) states that the Executive Director will determine

whether a business qualifies for an exemption as a new business based on the facts of each particular case. The rule then gives three examples: 1) a newly

formed company that opens a facility or plant at a fixed location in this state;

2) an addition to, or enlargement of , an existing facility or plant, or the

installation of additional machinery or equipment to pr oduce a product that

represents a distinct and separate activity from that already produced at that

location; and 3) opening a new facility or plant at a fixed location. The rule

also identifies situations that do not constitute a new business, including t he

following:

(2)(e)2. ... A new business does not mean an

addition to, or the enlargement of, an existing facility or plant, or the installation of additional

machinery or equipment at an existing facility or

plant, for the purpose of manufacturing, proce ssing,

compounding or producing component parts that were previously purchased from, or fabricated by,

outside sources for inclusion in that business’

finished items of tangible personal property for sale.

* * *

4. A new business does not mean the chan ge of ownership of an existing facility or plant, at a fixed location, in this state, that manufactures, processes, compounds, or produces items of tangible

personal property for sale, … by a purchase

arrangement, merger, or some other similar means, unles s such facility or plant ceased doing

productive operations for a period of not less than

12 months.

7 7 . Here, there was no evidence presented that Southeast Petro, as

opposed to some of the affiliated entities, is a newly - formed company. To the

contrary , Mr. Shah testified that he has wor ked with Southeast Petro for

22 years. Similarly, the new dispensing pumps at issue here were not the

installation of additional equipment or machinery. The evidence presented

demonstrated that the dispensing pumps and m achinery were the

installation of replacement equipment.

7 8 . There was some testimony that some of the gas stations were new

acquisitions, which was the reason a full year of prior sales could not be

produced. There was evidence that at least one location was closed prior to its

purchase by an affiliated entity. Petitioner did not know w hether those

facilities were closed for a full year prior to being purchased and the

dispensing pumps being installed.

7 9 . Based on the totality of the evidence presented, Southeast Petro did

not establish that it was entitled to a refund as a new business.

80 . Rule 12A - 1.096(3) also identifies what constitutes an expanding

business, stating:

(a) The purchase of industrial machinery and

equipment, parts and accessories, an d the

installation thereof, is exempt from tax when

purchased by an expanding business that uses such

machinery and equipment at a fixed location in this state to increase the productive output of tangible

personal property that is manufactured, processed,

compounded, or produced for sale by not less than 5

percent, or for exclusive use in spaceport activities.

(b) The Executive Director or the Executive

Director’s designee will determine whether a

business qualifies for exemption as an expanding business, based upon the facts of each case using

the following guidelines:

1.a. An expanding business means an addition to, or the modernization or enlargement of, an existing

facility, or the installation of additional machinery and equipment to manufacture, pro cess, compound

or produce an item of tangible personal property that is already produced at that fixed location in this state or is similar to an item of tangible personal property that is already being produced at that fixed location.

b. An expanding bus iness means an addition to, or

the modernization or enlargement of, an existing facility or the installation of additional machinery and equipment to begin manufacturing, processing,

compounding, or producing a component item of

tangible personal property that will be incorporated into a finished item of tangible personal property that is already being produced at that fixed location. …

* * *

2. An expanding business means closing an existing

plant or an operation in a plant in this state and moving it to a new location in thi s state within

12 months of the closing.

3. An expanding business means the purchase of an existing facility to manufacture, process,

compound, or produce an item of tangible personal

property that is already being produced at that f acility or is similar to an item of tangible personal

property that is already produced at that facility.

8 1 . Petitioner did not establish that the dispensing pumps and

underground tanks were an addition to, the modernization of, or an

enlargement of exis ting facilities or the installation of additional machinery

or equipment to manufacture, process, compound, or produce an item of

personal property that is already produced at that fixed location or is similar

to tangible personal property that is already produced at that fixed location.

Rather, the most persuasive evidence shows that the dispensing pumps and

underground tanks replaced existing equipment that served the same purpose. Moreover, Petitioner did not establish mid - grade gasoline was

produced at the locations without the use of the dispensing pumps.

8 2 . Petitioner did not establish that the dispensing pumps and

underground tanks are an addition to, or the modernization of, an existing facility or the installation of machinery or equipment to begin manufacturing,

processing, compounding, or producing a component item of tangible personal

property that will be incorporated into a finished item of tangible personal

property for sale that is already being produced at that fixed location.

Instead, the p ersuasive evidence indicates that premium and unleaded

gasoline is incorporated to make blended mid - grade gasoline, but the

unleaded and premium gas are not manufactured at each site. Rather, they

are delivered to each site by Southeast Petro.

8 3 . Likewise , Petitioner did not establish that it purchased an existing

facility to manufacture, process, compound, or produce an item of tangible

personal property that is already being produced at that facility or is similar

to one already produced there.

8 4 . In su m, Petitioner did not establish that it meets the definition of an

expanding business.

8 5 . Had Petitioner established that it met the definition of a new or

expanding business, its problems do not end there. Section 212.08 (5) (b)1.

requires that the industr ial machinery and equipment be used in expanding

manufacturing facilities or plant units which manufacture, process ,

compound, or produce for sale items of tangible personal property at fixed

locations. Petitioner is correct that the four terms -- manufactur e, process,

compound, or produce -- are used in the disjunctive. “The use of a disjunctive

in a statute indicates alternatives and requires that those alternatives be

treated separately.” Ellenwood v. Bd. of Architecture and Interior Design , 835

So. 2d 1269, 1270 (Fla. 2003); Osceola Cty. Sch. Bd. v. Arace , 884 So. 2d 1003,

1005 (Fla. 1st DCA 2004); Dep’t of Bus. & Prof’l Reg. v. Salvation Lmtd., Inc.,

452 So. 2d 65, 67 (Fla. 1st DCA 1984). Petitioner is also correct that absent a statutory definition, the de finition contained in rule 12A - 1.096(1)(d) injects a

requirement for use of raw materials where the statute does not. The

Department cannot inject new requirements the statute does not include. Salvation Lmtd. ; § 120.52(8)(b), Fla. Stat. However, as Petiti oner suggests,

the terms “manufacture,” “process,” “compound,” and “produce” should be

given their plain and ordinary meaning. Verizon Fla., Inc. v. Jacobs , 810 So. 2d 906, 908 (Fla. 2002); Burgess v. State , 198 So. 3d 1151, 1155 (Fla. 2d DCA

2016). As dis cussed below, the rule incorporates the dictionary definition for

the term “manufacture.”

8 6 . Applying the dictionary definitions provided by Petitioner,

“manufacturing” is “something made from raw materials by hand or by

machinery, or to make a product su itable for use.” Merriam - Webster Online

Dictionary, www.merriam - webster.com/manufacture (l ast visited October 11,

2020). The dispensing pumps do not use raw materials, and do not make

anything suitable for use, as the premium and unleaded gas is already

su itable for use. “Processing” is “to treat or make by a special process

especially when involving synthesis or artificial modification.” Id . at

www.merriam - webster.com/process (last visited October 11, 2020). The

gasoline here is not treated by the blenders, and there is no synthesis or

artificial modification. It is most similar to “compounding,” that is, “form[ing]

by combining parts, or the union of separate elements, ingredients, or parts.” Id . at ww w.merriam - webster.com/compound (l ast visited October 11, 2020).

However, the blenders are not combining parts, but rather, mixing two finished products that are produced elsewhere, each sellable alone. Finally, if

they were to “produce,” under any definiti on, the application for refund fails

because both section 212.08(5) (b) 5. and rule 12A - 1.096(7) expressly exclude

oil and gas exploration or production operations from the exemption for new and expanding businesses.

8 7 . Additionally, rule 12A - 1.096(4) provi des:

(4) Manufacturing Business Classification Factors.

(a) When an additional product is made at an

existing fixed location, the determination whether

that business is classified for the exemption as a

new business or as an expanding business will depend upon whether the additional product

represents an economic activity that is distinct and

separate from a product, or a group of products,

that is already being manufactured, processed, compounded or produced at that location.

* * *

(d) Additional produ cts that merely differ in size,

color, flavor, style, packaging, or model line, or existing products that merely incorporate newer technology, are not considered to be distinct and

separate economic activity.

8 8 . The blending of fuel to produce mid - grade fuel is not, based on the

evidence presented, the production of an additional product that was not

already sold at each of the sites involved, whether an affiliate or an

independent store. In each case, the equipment is providing a different

delivery meth od for a gasoline octane rating sold there previously. Further,

the “additional product,” i.e., blended mid - grade fuel, is not an economic

activity that is distinct and different from what is already manufactured,

processed, compounded, or produced at each location. It cannot be, because no

product was manufactured, processed, compounded, or produced at any of the

locations. They sold gasoline. The only difference here is that the blended

pumps deliver the gasoline to the customer more efficiently.

8 9 . Fin ally, section 212.08(5) (b) 6.b. requires that production output be

demonstrated by production records, not sales records. Here, Southeast Petro is not producing the unleaded and premium gasoline, it is delivering it for

sale, on an as - needed basis. If Petit ioner did meet the definition of an

expanding business, only those records related to mid - grade fuel would be

relevant, because only those records could arguably represent a change in

something produced at each location.

90 . At bottom, the dispensing pum ps improve the delivery method for fuel.

While their function is valuable and improves the efficiency of fuel delivery,

the installation of replacement dispensing pumps that blend unleaded and

premium fuel are not entitled to a refund pursuant to section 2 12.08(5).

R ECOMMENDATION

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

R ECOMMENDED that Petitioner’s Application for Refund as a new or

expanding business be denied, and its Petition for Chapter 120 Hearing be dismissed.

D ONE A ND E NTERED this 19 th day of October , 2020 , in Tallahassee, Leon

County, Florida.

L ISA S HEARER N ELSON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

F ax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 19th day of October , 2020 .

C OPIES F URNISHED :

Gerald J. Donnini, II, Esquire

Moffa, Sutton & Donnini, P.A.

Trade Center South, Suite 930

1 00 West Cypress Creek Road

Fort Lauderdale, Florida 33309

(eServed)

Mark S. Hamilton, General Counsel

Department of Revenue Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

John Mika, Esquire

Office of the Attorney General

Plaza Level 01

The Capitol

Tallahassee, Florida 32399 - 1050

(eServed)

Rex D. Ware, Esquire

Moffa, Sutton & Donnini, P.A.

Suite 330

3500 Financial Plaza

Tallahassee, Florida 32312

(eServed)

Paula Antonovna Savchenko, Esquire

Moffa Sutton & Donni, P.A.

Suite 930

100 W est Cypress Creek Road

Fort Lauderdale, Florida 33309

(eServed)

James A. Zinga l e, Executive Director

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.