97-005908RX Rathon Corporation, F/K/A Diversey Corporation vs. Department Of Revenue
 Status: Closed
DOAH Final Order on Monday, April 20, 1998.


View Dockets  
Summary: Taxpayer was without standing to challenge the rule. Thus, no decision was reached on the validity of the rule.

1STATE OF FLORIDA

4DIVISION OF ADMINISTRATIVE HEARINGS

8RATHON CORPORATION, f/k/a )

12DIVERSEY CORPORATION, )

15)

16Petitioner, )

18)

19vs. ) Case No. 97-5908RX

24)

25STATE OF FLORIDA, )

29DEPARTMENT OF REVENUE, )

33)

34Respondent. )

36___________________________________)

37FINAL ORDER

39Notice was provided and on February 26, 1998, a formal

49hearing was held in this case. Authority for conducting the

59hearing is set forth in Sections 120.569(1), Florida Statutes,

68120.57(1), Florida Statutes. The hearing location was the DeSoto

77Building, 1230 Apalachee Parkway, Tallahassee, Florida. The

84hearing was conducted by Charles C. Adams, Administrative Law

93Judge.

94APPEARANCES

95For Petitioner: H. Michael Madsen, Esquire

101Vickers, Madsen and Goldman, LLP

106Suite 100

1081505 Metropolitan Boulevard

111Tallahassee, Florida 32308-3765

114For Respondent: John N. Upchurch, Esquire

120James McCauley, Esquire

123Department of Legal Affairs

127The Capitol, Tax Section

131Tallahassee, Florida 32399-1050

134STATEMENT OF THE ISSUE

138Does Petitioner have standing to challenge Rule 12A-

1461.091(3), Florida Administrative Code? If Petitioner has

153standing, is Rule 12A-1.091(3), Florida Administrative Code, an

161invalid exercise of delegated legislative authority? See

168Section 120.56, Florida Statutes.

172PRELIMINARY STATEMENT

174On August 8, 1996, Petitioner made application to Respondent

183for a refund of use taxes for the period July 1993 through March

1961995. On December 12, 1996, that refund request was denied

206through a Notice of Proposed Refund Denial For the Refund Claim.

217That preliminary decision was contested through a protest letter

226from Petitioner dated January 14,1997. The protest letter was

236responded to by the Respondent by the issuance of a Notice of

248Decision of Refund Denial dated July 16, 1997. On September 5,

2591997, Petitioner contested the Respondent's decision to deny the

268refund request by petitioning for a Chapter 120, Florida

277Statutes, administrative hearing. On September 22, 1997, the

285case was received by the Division of Administrative Hearings upon

295the request by the Respondent to conduct an administrative

304hearing.

305The case was scheduled to be heard on January 8, 1998. The

317case was re-scheduled and heard on February 26, 1998.

326On December 15, 1997, Petitioner filed a challenge pursuant

335to Section 120.56, Florida Statutes, calling for the invalidation

344of Rule 12A-1.091(3), Florida Administrative Code. That case was

353assigned as DOAH Case No. 97-5908RX. On December 23, 1997, DOAH

364Case Nos. 97-4429 and 97-5908RX, were consolidated for purposes

373of hearing and the consolidated cases were subsequently noticed

382to be heard on February 26, 1998.

389On December 19, 1997, an order was entered which acce pted

400the Petitioner's A mended Petition in DOAH Case No. 97-4429.

410On February 24, 1998, the Petitioner was allowed to amend

420its Petition in DOAH Case No. 97-5908RX to add paragraph 13a.

431Respondent had moved for Summary Final Order directed to

440DOAH Case No. 97-5908RX. The motion challenged the Petitioner's

449standing to contest the validity of Rule 12A-1.091(3), Florida

458Administrative Code, among other grounds supporting the Motion

466for Summary Final Order. No decision was made concerning the

476Motion for Summary Final Order prior to the conduct of the

487consolidated hearing. Ruling was reserved on the matters set

496forth in the Motion for Summary Final Order pending entry of a

508Final Order at the conclusion of the consolidated hearing. The

518Final Order in DOAH Case No. 97-5908RX has been entered separate

529from the Recommended Order in DOAH Case No. 97-4429.

538At hearing Petitioner presented David Van Maele as its

547witness. Petitioner's Exhibits one through ten were admitted.

555Petitioner's post-hearing Exhibit eleven is admitted. The

562deposition of Milton Harris McKown was also admitted. At hearing

572Respondent presented Linda Bridges as its witness.

579Upon Petitioner's request, these portions of the California

587Revenue and Taxation Code, were officially recognized:

594a. Excerpts from a Table of Contents;

601b. Chapter One, Sections 6001 through 6024,

608General Provisions and Definitions; and

613c. Chapter 3, Section 6201 through 6207,

620the Use Tax.

623On March 6, 1998, a hearing transcript for the consolidated

633hearing was filed. On March 20, 1998, the parties filed proposed

644recommended and final orders directed to the consolidated cases.

653Those proposals have been considered in the preparation of the

663Recommended Order in DOAH Case No. 97-4429, and the Final Order

674in DOAH Case No. 97-5908RX.

679FINDINGS OF FACT

6821. Rathon Corporation, formerly known as Diversey

689Corporation, is a Delaware Corporation authorized to do business

698in Florida. It manufactures various detergents, cleaners, and

706soaps, and the equipment to dispense those products. The

715products are marketed in Florida and other states. The customers

725of the products include hotels, hospitals, factories, and

733restaurants. The devices that dispense the detergents, cleaners,

741and soaps are referred to as "feeders." Those feeders can range

752from simple hand soap dispensers to electronically regulated

760machines that inject soap into commercial dishwashers. The

768feeders are loaned to Petitioner's customers at no additional

777charge for the period of time that the customer continues to

788purchase the product(s) dispensed by the feeder. These

796circumstances existed in the period of July 1993 through March

8061995.

8072. In the period of July 1993 through March 1995, Diversey

818Corporation, now Rathon Corporation, paid the State of Florida

827$58,969.22 in use tax associated with the feeders.

8363. During the period in question, the Petitioner

844manufactured the feeders at a facility in Santa Cruz, California.

854The feeders were not warehoused in the Santa Cruz facility for an

866extended period. They were prepared for shipment and shipped to

876customers in the various states, to include Florida and

885California customers, to be used in the places of business

895operated by the customers. The feeders being shipped were not

905packaged with other products.

9094. During the period July 1993 through March 1995, the

919Petitioner not only paid use tax to Florida for the feeders, it

931paid use tax in forty-four other states and the District of

942Columbia, based upon the costs of manufacturing the feeders.

951California was among the other forty-four states.

9585. During the period in question, Petitioner accrued and

967paid use taxes to Florida and California limited to the feeders

978used by customers in those states, based upon the product sales

989allocation method it used in relation to the forty-three other

999states and the District of Columbia.

10056. The feeders that were provided to Florida customers were

1015shipped by common carrier. Upon their arrival in Florida no tax

1026had been paid to California pertaining to those feeders. When

1036the feeders arrived in Florida during the period at issue, use

1047tax would be remitted to Florida. Subsequently, the Petitioner

1056paid the State of California a use tax associated with the

1067feeders that had been shipped to Florida customers and upon which

1078a use tax had been imposed by the State of Florida and paid. The

1092California payment is described in detail below.

10997. Petitioner had paid Florida use tax on the feeders

1109shipped to Florida customers based on the total manufactured cost

1119of the feeders to Petitioner, including materials, labor, and

1128overhead. The additional use tax paid to California for those

1138feeders was based only on the cost of materials.

11478. The overall costs of feeders allocated to Florida for

1157the refund period was $982,803.00. Petitioner remitted a 6% use

1168tax to Florida totaling $58,969.22 for the period in question.

11799. In 1996, Petitioner was audited for sales and use tax

1190compliance by the State of California. That audit process

1199included the refund period that is in question in this case,

1210July 1993 through March 1995. Following the audit, the State of

1221California issued a Notice of Determination asserting additional

1229liability for tax and interest that totaled $355,753.95.

1238Petitioner paid that assessment.

124210. The California auditor had arrived at the assessment by

1252concluding that Petitioner owed California for 44.57% of all

1261feeders manufactured at Petitioner's Santa Cruz facility. The

126944.57% represented all newly manufactured feeders that had been

1278loaned by Petitioner to its customers during the refund period

1288over the entire United States. As a consequence, the assessment

1298of use tax by the State of California included tax on feeders for

1311which Petitioner had paid Florida $58,969.22 in use tax prior to

1323the California assessment of $355,753.95. Petitioner did not

1332apply for credit in California for the portion of the $355,753.95

1344that would relate to the feeders brought to Florida during the

1355period in question. Petitioner took no action to obtain a credit

1366on the amount paid to Florida as a means to reduce the California

1379tax obligation pursuant to the 1996 audit, because Petitioner had

1389been told that the use tax for the feeders used by Florida

1401customers was legally due in California and not in Florida.

141111. In arriving at the determination that 44.57% of the

1421feeders manufactured during the period in question had been

1430loaned to customers within the continental United States, the

1439California auditor took into account that 21.8% of the feeders

1449and feeder parts were sold for export, leaving 78.2% to be used

1461in the United States. Of the 78.2% remaining for the United

1472States, 57% were complete feeders sent to customers within the

1482United States, and 43% were repair parts that were sent to

1493Petitioner's Cambridge Division in Maryland, where those repair

1501parts were being stored for future use. The percentage of 44.57%

1512was arrived at by multiplying 57% times 78.2%, representing the

1522percent of total feeders manufactured for use in the United

1532States that were sent to customers within the United States and

1543not held in inventory as repair parts.

155012. Again, California based its use tax for tangible

1559personal property manufactured in that state to include only the

1569cost of materials. Consequently, when the California auditor

1577computed use tax to be collected by California using the 44.57%

1588of total feeders manufactured to be used in the United States by

1600Petitioner's customers in the United States, the California

1608auditor used a cost factor of 55% of overall costs which was

1620attributable to the cost of materials only.

162713. The total cost of feeders manufactured by Petitioner in

1637California during the period in question, as related in the

1647California tax audit, was $19,028,714.00. The total cost

1657manufactured for use in the United States was $8,481,098.00,

1668representing 44.57% of the overall cost of manufacturing. When

1677the $8,481.098.00 is multiplied by 55%, representing the cost of

1688materials only, the total costs of the goods subject to the use

1700tax for the period in question is $4,664,604.00. A use tax rate

1714of 7% was applied against the amount of $4,664,604.00.

172514. To attribute the portion of use tax paid to California

1736following the 1996 audit associated with feeders that had been

1746sent to Florida during the period in question, the answer is

1757derived by multiplying $982,803.00 by 55% for a total of

1768$540,542.00, and in turn multiplying that amount by 7%, the rate

1780of tax imposed by California. That total is $37,837.91 in use

1792tax that was subsequently paid to California after $58,962.22 had

1803been paid to Florida for use tax on the same feeders.

181415. Diversey Corporation sought a tax refund in the amount

1824of $58,977.00, through an application dated August 8, 1996, in

1835relation to the period July 1993 through March. Eventually

1844through the decision by the Respondent in its Notice of Decision

1855of Refund Denial dated July 16, 1997, Respondent refused to grant

1866the refund of $58,977.00. At present, Petitioner requests that

1876it be given a refund of $37,837.91, which represents the portion

1888of use tax paid to Florida that has been duplicated in a payment

1901of use tax to California.

190616. Respondent, in its Notice of Decision of Refund Denial

1916entered on July 16, 1997, and based upon the facts adduced at the

1929final hearing, premises its proposed agency action denying the

1938refund request upon the language set for in Section 212.06(1)(a)

1948and (7), Florida Statutes. The determination to deny the refund

1958request was not based upon reliance on Rule 12A-1.091(3), Florida

1968Administrative Code. The theory for denying the refund is

1977premised upon Respondent's argument that use tax was due to

1987Florida, "as of the moment" feeders arrived in Florida for use in

1999Petitioner's business operations associated with its customers.

2006Petitioner then paid the use tax to Florida at the time the

2018feeders arrived in Florida. Having not paid California Use Tax

2028prior to paying Florida Use Tax, Respondent concludes, through

2037its proposed agency action, that it need not refund to Petitioner

2048the use taxes it paid to California at a later date.

205917. Petitioner had referred to Rule 12A-1.091, Florida

2067Administrative Code, following receipt of the Notice of Proposed

2076Refund Denial issued on December 9, 1996, possibly creating the

2086impression that Petitioner believed that Rule 12A-1.091, Florida

2094Administrative Code, would support its claim for refund. It

2103later developed that Petitioner did not have in mind reliance

2113upon Rule 12A-1.091, Florida Administrative Code, to support its

2122claim for refund. Instead, Petitioner made reference to that

2131rule and specifically Rule 12A-1.091(3), Florida Administrative

2138Code, as a means to perfect a challenge to Rule 12A-1.091(3),

2149Florida Administrative Code, filed with the Division of

2157Administrative Hearings on December 15, 1997, claiming that the

2166challenged rule was an invalid exercise of authority. That

2175challenge was assigned DOAH Case No. 97-5908RX.

218218. In summary, notwithstanding Petitioner's argument to

2189the contrary, Respondent has never relied upon Rule 12A-1.091(3),

2198Florida Administrative Code, or any other part of that rule in

2209its proposed agency action denying the refund request. Absent

2218Petitioner's affirmative reliance upon Rule 12A-1.091(3), Florida

2225Administrative Code, the rule has no part to play in resolving

2236this dispute.

2238C ONCLUSIONS OF LAW

224219. The Division of Administrative Hearings has

2249jurisdiction of the subject matter and the parties to this action

2260in accordance with Sections 120.56, 120.569(1), and 120.57(1),

2268Florida Statutes.

227020. Petitioner sought repayment of funds paid into the

2279State Treasury for use taxes for the period of July 1993 through

2291March 1995. See Section 215.26(1), Florida Statutes.

2298Respondent, in defending its decision to deny the repayment, has

2308consistently relied upon provisions within Chapter 212, Florida

2316Statutes, as well as the language within Section 215.26(1),

2325Florida Statutes. In particular, Respondent has relied upon the

2334language at Section 212.06(7), Florida Statutes, in defending its

2343proposed agency action. Petitioner did not look to the

2352provisions of Rule 12A-1.091(3), Florida Administrative Code, to

2360assist the Petitioner in its refund claim. Instead, Petitioner

2369claims that an inference has been created that Respondent

2378utilized Rule 12A-1.091(3), Florida Administrative Code, to

2385determine the refund question adverse to the interest of

2394Petitioner. Petitioner believes this creates the opportunity to

2402challenge the rule. Given that Respondent did not rely upon Rule

241312A-1.091(3), Florida Administrative Code, to defend against the

2421Request for Repayment of Funds, Petitioner is not substantially

2430affected by the rule and is not entitled to seek an

2441administrative determination of the invalidity of the rule.

2449Upon consideration, it is

2453ORDERED:

2454That Petitioner's challenge to the validity of Rule

246212A-1.091(3), Florida Administrative Code, is DISMISSED. 1

2469DONE AND ORDERED this 20th day of April , 1998, in

2479Tallahassee, Leon County, Florida.

2483CHARLES C. ADAMS

2486Administrative Law Judge

2489D ivision of Administrative Hearings

2494The DeSoto Building

24971230 Apalachee Parkway

2500Tallahassee, Florida 32399-3060

2503(850) 488-9675 SUNCOM 278-9675

2507Fax Filing (850) 921-6847

2511Filed with the Clerk of the

2517Division of Administrative Hearings

2521this 20th day of April, 1998.

2527ENDNOTE

25281/ Copies of the exhibits entered in the consolidated hearing

2538for DOAH Case No. 97-4429 and DOAH Case No. 97-5908RX, are

2549maintained as part of the file for DOAH Case No. 97-5908RX.

2560The originals of those exhibits and hearing transcript have been

2570transmitted to the Department of Revenue in relation to DOAH

2580Case No. 97-4429.

2583COPIES FURNISHED:

2585H. Michael Madsen, Esquire

2589Vickers, Madsen,

2591and Goldman, LLP

2594Suite 101

25961705 Metropolitan Boulevard

2599Tallahassee, Florida 32308-3765

2602John N. Upchurch, Esquire

2606Department of Legal Affairs

2610The Capitol, Tax Section

2614Tallahassee, Florida 32399-1050

2617Linda Lettera, Esquire

2620Department of Revenue

2623204 Carlton Building

2626Tallahassee, Florida 32399-0100

2629Larry Fuchs, Executive Director

2633Department of Revenue

2636104 Carlton Building

2639Tallahassee, Florida 32399-0100

2642Carroll Webb, Executive Director

2646Administrative Procedure Committee

2649120 Holland Building

2652Tallahassee, Florida 32399-1300

2655NOTICE OF RIGHT TO JUDICIAL REVIEW

2661A party who is adversely affected by this Final Order is entitled

2673to judicial review pursuant to Section 120.68, Florida Statutes.

2682Review proceedings are governed by the Florida Rules of Appellate

2692Procedure. Such proceedings are commenced by filing one copy of a

2703notice of appeal with the Clerk of the Division of Administrative

2714Hearings and a second copy, accompanied by filing fees prescribed

2724by law, with the District Court of Appeal, First District, or with

2736the District Court of Appeal in the Appellate District where the

2747party resides. The notice of appeal must be filed within 30 days

2759of rendition of the order to be reviewed.

Select the PDF icon to view the document.
PDF
Date
Proceedings
PDF:
Date: 04/20/1998
Proceedings: DOAH Final Order
Date: 04/20/1998
Proceedings: Case No/s: unconsolidated. 97-004429
PDF:
Date: 04/20/1998
Proceedings: CASE CLOSED. Final Order sent out. Hearing held 02/26/98.
Date: 03/20/1998
Proceedings: (Respondent) Notice of Filing Proposed Recommended Order; Respondent`s Proposed Recommended Order and Proposed Summary Final Order (for judge signature) filed.
Date: 03/20/1998
Proceedings: Proposed Recommended Order (Case No. 97-4429) and Proposed Final Order (Case No. 97-5908RX) of Petitioner, Rathon Corporation filed.
Date: 03/12/1998
Proceedings: (Petitioner) Agreed Motion for Enlargement of Time of Four Days to File Proposed Recommended Order (filed via facisimile) filed.
Date: 03/06/1998
Proceedings: Notice of Filing; DOAH Court Reporter Final Hearing Transcript filed.
Date: 02/27/1998
Proceedings: (From J. Upchurch, H. Madsen) Stipulation for Filing of Omitted Hearing Exhibit; Exhibit filed.
Date: 02/26/1998
Proceedings: CASE STATUS: Hearing Held.
Date: 02/25/1998
Proceedings: Petitioner`s Request for Official Recognition filed.
Date: 02/24/1998
Proceedings: Order sent out. (motion to amend petition for 97-5908RX is granted)
Date: 02/24/1998
Proceedings: Petitioner`s Memorandum of Law in Opposition to Respondent`s Motion for Summary Final Order Regarding Rule Challenge filed.
Date: 02/24/1998
Proceedings: Petitioner`s Response to Department`s Request for Production of Documents filed.
Date: 02/24/1998
Proceedings: Respondent, Department of Revenue`s Prehearing Brief filed.
Date: 02/24/1998
Proceedings: Petitioner`s Memorandum of Law in Opposition to Respondent`s Motion for Summary Final Order Regarding Rule Challenge (filed via facisimile) filed.
Date: 02/20/1998
Proceedings: (Petitioner) Notice of Taking Deposition filed.
Date: 02/16/1998
Proceedings: Respondent, Department of Revenue`s Motion for Summary Final Order Regarding the Rule Challenge filed.
Date: 02/13/1998
Proceedings: Agreed Motion for Leave to Amend Rule Challenge Petition; Petitioner`s Motion to Compel Production of Documents filed.
Date: 01/29/1998
Proceedings: (Petitioner) Notice of Change of Address filed.
Date: 01/26/1998
Proceedings: Respondent, Department of Revenue`s Request for Production of Documents filed.
Date: 01/20/1998
Proceedings: Petitioner`s First Request for Production of Documents filed.
Date: 01/07/1998
Proceedings: Amended Notice of Hearing sent out. (hearing set for 2/26/98; 9:00am; Tallahassee)
Date: 12/23/1997
Proceedings: Order of Consolidation sent out. (Consolidated cases are: 97-4429 & 97-5908RX). CONSOLIDATED CASE NO - CN002851
Date: 12/19/1997
Proceedings: Order Of Assignment sent out.
Date: 12/17/1997
Proceedings: Ltr. to Liz Cloud from Marguerite Lockard w/cc: Carroll Webb and Agency General Counsel sent out.
Date: 12/15/1997
Proceedings: Petition For Determination Of Invalidity Of Existing Agency Rule; Agency Action Letter filed.

Case Information

Judge:
CHARLES C. ADAMS
Date Filed:
12/15/1997
Date Assignment:
12/19/1997
Last Docket Entry:
04/20/1998
Location:
Tallahassee, Florida
District:
Northern
Agency:
Department of Revenue
Suffix:
RX
 

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Related Florida Statute(s) (6):

Related Florida Rule(s) (1):