STATE OF FLORIDA DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA

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1 STATE OF FLORIDA DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA BEST DAY CHARTERS, INC., vs. Petitioner, FLORIDA DEPARTMENT OF REVENUE DOR FOF CASE NO (DOAH) Respondent. FINAL ORDER This cause came before me, as Executive Director of the Florida Department of Revenue, for the purpose of issuing a Final Order. The Administrative Law Judge assigned by the Division of Administrative Hearings issued a Recommended Order, sustaining the Department's assessment with a full compromise of the penalty. A copy of the Recommended Order issued on the 22nd day of September, 2005, by Administrative Law Judge Bram D. E. Canter is attached to this Final Order and incorporated to the extent described herein. The Department timely filed exceptions to certain conclusions of law in the Recommended Order, a copy of which is also attached to this Final Order. The Petitioner did not file any exceptions nor did the Petitioner file responses to the Department's exceptions. The Department adopts and incorporates in this Final Order the Conclusions of Law contained in the Recommended Order with the exception of Conclusion of Law 29, which is modified as reflected below. The Department has jurisdiction of this cause. STATEMENT OF THE ISSUE Whether Petitioner's purchase of two vessels in Florida, a thirty-six foot catamaran and a nine foot inflatable, qualified for exemption from sales tax pursuant to Section (1)(a)2, Fla. Stat. The Department determined that Petitioner did not qualify and assessed Petitioner sales tax, interest and penalties. PRELIMINARY STATEMENT The Department adopts and incorporates in this Final Order the Preliminary Statement contained in the Recommended Order as if fully set forth herein.

2 FINDINGS OF FACT The Department adopts and incorporates in this Final Order the Findings of Fact contained in the Recommended Order as if fully set forth herein. CONCLUSIONS OF LAW The Department, in its Final Order, may reject or modify the recommended conclusions of law over which it has substantive jurisdiction. Section (1)(1), Fla. Stat. When rejecting or modifying such conclusions, the Department must state with particularity its reasons for rejecting or modifying each such conclusion. Id. The Department must also find that its substituted conclusion is as reasonable, or is more reasonable than that which was rejected or modified. Id. While the Administrative Law Judge accurately cited to Florida Administrative Code Rule (4), in paragraph 29, he did not provide an important legal conclusion that when there is a finding of reasonable cause based on good faith reliance on erroneous advice, that the penalty can be waived The Department finds its conclusion is as reasonable or more reasonable than that which was modified. The Department modifies Conclusion of 29 to provide: 29. Florida Administrative Code Rule (4) makes good faith reliance on erroneous advice a basis for finding reasonable cause for noncompliance and hence for compromise of penalties. The Department adopts and incorporates in this Final Order the remaining Conclusions of Law contained in the Recommended Order as if fully set forth herein. RULINGS ON RESPONDENT'S EXCEPTIONS Respondent requests that the agency clarify in the Final Order that the Petitioner, in addition to being liable for six percent on the purchase of the two vessels, is liable for paying the local government sales surtax of one percent on those purchases. Paragraph 16 in the Findings of Fact of the Recommended Order correctly states the total tax due, including penalty and interest. The tax referenced in that sentence includes both the applicable six percent state sales tax as well as the local government sales surtax of one percent. While the Administrative Law Judge cited the correct dollar amount due in tax, in his final recommendations, he referenced the state sales tax portion but not the local option surtax part. In support of the request to clarify the recommendation on page nine of the Recommended Order, Respondent cites to the trial transcript where the senior tax specialist in the Boat Enforcement Unit within DOR testified that, "[t]he tax is based on the six percent on the affidavit price. It's six percent of the purchase price plus the applicable local option tax for this county." (TR p. 27 lines 17-19). The two taxes were aggregated together for purposes of identifying the "Total Tax Due" in the Notice of Final Assessment dated February 23, Because all applicable sales taxes were due on the purchase of the two vessels, this final order clarifies that the assessment due includes sales tax of six percent as well as the local government sales surtax. The department finds its substituted conclusion is as or more reasonable than that which was modified. Based on the forgoing, it is,

3 ORDERED that the Department's assessment as set forth in the Notice of Final Assessment, dated February 23, 2005 for tax including sales tax of six percent and local government sales surtax of one percent, plus interest (accruing at $1.54 per day until date paid), is sustained. The penalty is compromised in full. DONE AND ENTERED in Tallahassee, Leon County, Florida this 18 th day of October, STATE OF FLORIDA DEPARTMENT OF REVENUE JZ JIM ZINGALE EXECUTIVE DIRECTOR CERTIFICATE OF FILING I HEREBY CERTIFY that the foregoing Final 0rder has been filed in the official records of the Department of Revenue, this 19 th day of October, NP NANCY PURVIS AGENCY CLERK Any party to this Order has the Right to seek judicial review of the Order pursuant to Section , Fla. Stat., by filing a Notice of Appeal pursuant to Rule 9.110, Florida Rules of Appellate Procedure, with the Agency Clerk in the Department of Revenue in the Office of the General Counsel, Post Office Box 6668, Tallahassee, Florida , and by filing a copy of the Notice of Appeal along with the applicable filing fees in the appropriate District Court of Appeal. The Notice of Appeal must be filed within 30 days from the date this Order is filed with the Clerk of the Department. Attachment: Administrative Law Judge's Recommended Order. Copies furnished to: Bram D. E. Canter Administrative Law Judge Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, FL

4 Brenda J. Dohring Best Day Charters, Inc. 518 North Tampa Street, Suite 300 Tampa, Florida Jarrell A. Murchison, Senior Assistant Attorney General John Mika, Assistant Attorney General Office of Attorney General The Capitol, Plaza Level 01, Tallahassee, FL Bruce Hoffmann, General Counsel Rick McClure, Assistant General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida ******************************************* STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS BEST DAY CHARTERS, INC. Petitioner, vs. Case No DEPARTMENT OF REVENUE, Respondent

5 RECOMMENDED ORDER On August 23, 2005, a final hearing was held in Tampa, Florida, before Bram D. E. Canter, Administrative Law Judge of the Division of Administrative Hearings. APPEARANCES For Petitioner: Brenda J. Dohring, pro se Best Day Charters, Inc. 518 North Tampa Street, Suite 300 Tampa, Florida For Respondent: John Mika, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida STATEMENT OF THE ISSUE Whether the Petitioner is liable for sales tax, interest, and penalties as alleged by the Department of Revenue (Department). PRELIMINARY STATEMENT On February 23, 2005, the Department issued a "Notice of Final Assessment for Sales or Use Tax, Penalty, and Interest Due on a Boat" (Final Assessment) to the Petitioner, pertaining to the Petitioner's purchase of a catamaran sailboat and an inflatable "tender." The Petitioner protested the Final Assessment and the case was referred to the Division of Administrative Hearings for an evidentiary hearing. At the final hearing, the Department presented the testimony of John Isaacs. The Department's Composite Exhibit 1 was admitted into evidence. The Petitioner presented the testimony of Brenda Dohring, Joshua Dohring, and David Erdman. The Petitioner's Exhibits 1 through 5 and 7 were admitted into evidence. The one-volume Transcript of the hearing was filed on September 8, The Department filed a Proposed Recommended Order on September 16, 2005, and it was considered in the preparation of this Recommended Order. No post-hearing papers were submitted by the Petitioner.

6 FINDINGS OF FACT made: Based on the oral and documentary evidence presented at the final hearing, the following Findings of Fact are 1. The Petitioner is a Florida corporation formed in October The principal office and mailing address of the Petitioner is 518 North Tampa Street, Suite 300, Tampa, Florida The directors of the corporation are Brenda Dohring and Robert Hicks (husband and wife), and Joshua Dohring (their son). 3. Brenda Dohring and Robert Hicks are residents of Tampa, Florida, and registered voters in Hillsborough County. 4. Brenda Dohring and Robert Hicks hold Florida driver's licenses. 5. Joshua Dohring is a resident of the United States Virgin Islands, where he operates a charter boat business. 6. On November 8, 2004, the Petitioner purchased, in St. Petersburg, Florida, a 36-foot catamaran sailboat (hull No. QPQ0000D089) for $113, On November 15, 2004, the Petitioner purchased, in St. Petersburg, Florida, an inflatable tender with outboard motor and accessories (hull No. XMO18119G405) for $4, The catamaran and tender were purchased for the use of Joshua Dohring in his charter boat business in the Virgin Islands. They were to replace his previous boat that was destroyed by Hurricane Ivan. 9. Because Joshua Dohring did not have sufficient financial resources or credit, Brenda Dohring and Robert Hicks decided to make the purchases for him. They created the Petitioner corporation to purchase and own the catamaran and tender because they wanted protection from personal liability that might arise from Joshua Dohring's use of the vessels in the Virgin Islands. 10. At the time of each purchase, Joshua Dohring was provided a Department affidavit form to be completed and filed with the Department to claim exemption from sales tax. Joshua Dohring indicated the name of the Petitioner corporation on the affidavit forms along with the names of the corporation's directors. 11. The Department's affidavit form for sales tax exemption includes several statements that the affiant must attest to, including the following: 4. I represent a corporation which has no officer or director who is a resident of, or makes his or her permanent place of abode in Florida. 12. David Erdman, a licensed yacht broker in Florida who assisted Joshua Dohring in the purchase of the catamaran and tender, believed that the purchases were exempt from Florida sales tax because Joshua Dohring was

7 not a Florida resident and was going to remove the vessels from Florida. Mr. Erdman did not understand that, because the purchaser was not Joshua Dohring, but a Florida corporation, the sales tax exemption did not apply. Mr. Erdman advised Joshua Dohring that the purchases were exempt from Florida sales tax. 13. There is no evidence in the record, and the Department did not allege, that the Petitioner intended to defraud the State. On this record, it is clear that the Petitioner's directors were simply mistaken in their belief that the purchases of the boats were exempt from Florida sales tax, based primarily on the erroneous advice of Mr. Erdman. 14. The Department made a routine investigation after its receipt of the sales tax exemption affidavits signed by Mr. Dohring and determined that the exemption did not apply because the Petitioner is a Florida corporation with directors who are residents of Florida. 15. In January 2005, the Department notified the Petitioner of its billing for the sales tax due on the boat purchases, plus penalty and interest, totaling $8, An informal conference regarding the billing was requested by the Petitioner, and a conference was held in an attempt to resolve the matter. 16. Subsequently, the Department's Final Assessment was issued on January 23, 2005, indicating tax, penalty, and interest totaling $9, Because of the circumstances indicating that the Petitioner's failure to pay was due to a mistake and bad advice, the Department proposes to eliminate the penalty. CONCLUSIONS OF LAW 18. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to Sections and , and Subsection (1)(a), Florida Statutes (2004).(FN 1) 19. Subsection (14)(b), Florida Statutes, provides in pertinent part: 1. In any administrative proceeding brought pursuant to this chapter as authorized by s (1), the taxpayer shall be designated the "petitioner" and the Department of Revenue shall be designated the "respondent" In any such administrative proceeding, the applicable department's burden of proof, except as otherwise specifically provided by general law, shall be limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the applicable department made the assessment. 20. The Legislature has declared its intention in Subsection (2), Florida Statutes, to tax each and every sale of tangible property in Florida, subject only to the specific exemptions within Chapter 212, Florida Statutes. 21. Subsection (1)(a)1.a., Florida Statutes, imposes a six percent sales tax on the sales price of each article of tangible personal property when sold in retail in this state, unless specifically exempt. Subsection (1)(a)2., Florida Statutes, creates an exemption from sales tax for the sale of boats to nonresident purchasers, when other specific statutory criteria for the exemption are met.

8 22. Subsection (1)(a)2., Florida Statutes, provides in pertinent part: This paragraph does not apply to the sale of a boat or airplane by or through a registered dealer under this chapter to a purchaser, who, at the time of taking delivery, is a nonresident of this state, does not make his or her permanent place of abode in this state, and is not engaged in carrying on in this state any employment, trade, business, or profession in which the boat will be used in this state, or is a corporation none of the officers or directors of which is a resident of, or makes his or her permanent place of abode in, this state. The statements in the Department's sales tax exemption affidavit forms are derived from this statute. 23. Florida Administrative Code Rule 12A-1.007(9) provides that Florida residency in this context can be established by place of abode in Florida, voter registration in Florida, or by possession of a Florida driver's license. 24. Exemptions to the taxing statutes are to be strictly construed against the taxpayer. State ex rel. Szabo Food Service of North Carolina, Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973). 25. Because the Petitioner is a Florida corporation with two directors who reside in Florida, are registered voters in Florida, and possess Florida driver's licenses, the Petitioner did not qualify for the statutory exemption from sales tax on the purchase of the catamaran and tender. 26. Pursuant to Subsection (4), Florida Statutes, when interest and penalty are imposed, they are payable in the same manner as if they were part of the tax imposed. 27. A taxpayer's liability for interest can be "compromised" if there are grounds for doubt as to the liability for the tax, or if there is a delay in the determination of the amount due attributable to the action or inaction of the Department. s (3)(a), Fla. Stat. No circumstances exist in this case for compromising the interest imposed. 28. A taxpayer's liability for a penalty may be settled or compromised if noncompliance is due to reasonable cause and not to willful negligence, willful neglect, or fraud. Id. 29. Florida Administrative Code Rule (4) makes good faith reliance on erroneous advice a basis for finding reasonable cause for noncompliance. 30. Although the Petitioner's directors were mistaken in their belief that the purchases of the catamaran and tender were exempt from sales tax, there is no statutory basis for excusing the tax. The directors realized a benefit from the use of a corporation to purchase and own the vessels, and the value of that benefit could easily exceed the sales tax. RECOMMENDATION Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department issue an final order:

9 1. finding that the Petitioner's purchases of the catamaran and inflatable tender are subject to sales tax; and 2. assessing sales tax of six percent on the purchases; and 3. imposing interest on the taxes until paid; and 4. imposing no penalty. DONE AND ENTERED this 22nd day of September, 2005, in Tallahassee, Leon County, Florida. BRAM D. E. CANTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida (850) SUNCOM Fax Filing (850) Filed with the Clerk of the Division of Administrative Hearings this 22nd day of September, FOOTNOTE (FN 1) All references to the Florida Statutes are to Florida Statutes (2004). COPIES FURNISHED: John Mika, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida Brenda J. Dohring Best Day Charters, Inc. 518 North Tampa Street, Suite 300 Tampa, Florida 33602

10 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida NOTICE OF RIGHT TO SUBMIT EXCEPTIONS All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case. ************************************ STATE OF FLORIDA DEPARTMENT OF REVENUE BEST DAY CHARTERS, INC., v. Petitioner, DEPARTMENT OF REVENUE, DOR Case No. DOAH Case No Respondent. RESPONDENT'S EXCEPTIONS TO RECOMMENDED ORDER Respondent, Florida Department of Revenue, by and through its undersigned counsel, in accordance with Section (1)(k), Florida Statutes, submits its Exceptions to the Recommended Order. 1. In the Recommended Order, Administrative Law Judge Bram D. E. Canter, recommended that sales tax of six

11 percent be assessed on the purchases at issue, but did not address the surtax. 2. During the final hearing, the Department's witness, John Issacs testified both the state sales tax and surtax are imposed on purchases of tangible personal property in the state. TR p.15, line When preparing the Department's Enforcement Operations Tax Billing, John Issacs included both the state sales tax and the surtax in his calculations. TR p.27, lines 15-17; Respondent's Exhibit No. 1, tab Petitioner testified the closing on the purchase took place in St. Petersburg, Florida. TR p.62, lines Findings of Fact No. 6 and No. 7 in the Recommended Order state that the vessels were purchased in St. Petersburg, Florida. 6. Section (2) Florida Statutes, authorizes the appropriate governing body to levy a discretionary sales surtax entitled Local Government Infrastructure Surtax of one-half or one percent of the sales price. 7. The applicable surtax rate in St. Petersburg, Florida (Pinellas County) at the time of purchase of the vessels was one percent. Wherefore Respondent requests, based on the grounds stated above, the Final Order include an assessment for surtax at the applicable rate. No other exceptions to the Recommended Order are noted. Respectfully submitted, CHARLES J. CRIST, JR. ATTORNEY GENERAL JM JOHN MIKA Florida Bar No ASSISTANT ATTORNEY GENERAL Office of the Attorney General The Capitol - Revenue Litigation Tallahassee, FL (Facsimile) Section ATTORNEY FOR RESPONDENT CERTIFICATE OF SERVICE

12 I HEREBY CERTIFY that a true and correct copy of the foregoing was furnished by U.S. Mail to: Brenda J. Dohring, 518 North Tampa Street, #0300, Tampa, Florida 33602, this day of October, JM JOHN MIKA ASSISTANT ATTORNEY GENERAL