STATE OF FLORIDA, DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA. COMMODITY CONTROL CORPORATION, d/b/a INDUSTRIAL EQUIPMENT & SUPPLIES, Petitioner,

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1 STATE OF FLORIDA, DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA COMMODITY CONTROL CORPORATION, d/b/a INDUSTRIAL EQUIPMENT & SUPPLIES, Petitioner, vs. DOR CASE NO FOF DOAH CASE NO STATE OF FLORIDA DEPARTMENT OF REVENUE, 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 submitted a Recommended Order to the Florida Department of Revenue ("Department"). A copy of that Recommended Order, issued on November 22, 1999, by Administrative Law Judge Linda M. Rigot ("ALJ"), is attached to this order and incorporated to the extent described herein. Petitioner, Commodity Control Corporation, and Respondent, Department of Revenue, filed exceptions to the Recommended Order. The Department has jurisdiction of this cause. STATEMENT OF THE ISSUE The Department adopts and incorporates by reference in this Final Order the Statement of the Issue contained in the Recommended Order as if fully set forth herein. STATEMENT OF THE FACTS

2 The Department adopts and incorporates by reference in this Final Order the Stipulated Facts contained in the Recommended Order as if fully set forth herein. EXCEPTIONS TO THE CONCLUSIONS OF LAW The Petitioner and the Department filed exceptions to the Conclusions of Law stated in the ALJ's Recommended Order. RULINGS ON EXCEPTIONS BY PETITIONER Petitioner's First Exception - Taxes Imposed by Statute and Not by Rule Petitioner excepts to the ALJ's conclusion in paragraph 19 that Petitioner's liability for sales and use tax on the perchloroethylene tax derives from the Department's rule and not from Section Fla. Stat., or Chapter 212, Fla. Stat. The Petitioner cites Art. VII, Section 1(a), Fla. Const., which states in part, "[n]o tax shall be levied except in pursuance of law..." and various Florida cases as support for the proposition that the power to tax is vested solely in the Legislature, subject to any controlling constitutional limitations. Petitioner suggests that paragraph 19 of the Recommended Order should state that neither Section nor Chapter 212, Fla. Stat., imposes the sales and use tax on the perchloroethylene tax. Accordingly, Petitioner suggests that paragraph 18 be modified to state that Petitioner's assertion that neither Section nor Chapter 212, Fla. Stat. imposes sales and use tax on the perchloroethylene tax is legally correct. part: Section (16), Fla. Stat. (1995), reads in pertinent "Sales price" means the total amount paid for tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the costs of the property sold, the

3 cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever. (e.s.) Petitioner's exception to paragraph 19 is granted in part as to the general proposition that the authority to impose taxes is granted by statute and not by rule and as to the conclusion that Section , Fla. Stat., does not impose sales and use tax on the perchloroethylene tax. Petitioner's exception to paragraph 19 is rejected in part as to Petitioner's assertion that Chapter 212, Fla. Stat., does not impose sales and use tax on the perchloroethylene tax. Chapter 212, Fla. Stat., imposes sales and use tax on the "sales price" paid, which includes the amount of the perchloroethylene tax. Petitioner's exception to paragraph 18 is granted. Section , Fla. Stat., does not impose sales and use tax. Petitioner's Second Exception - The Entire Assessment (tax, penalty, and interest) Should be Abated Petitioner suggests that the tax and interest should be abated in addition to the abatement of penalty as recommended by the ALJ. Consistent with the ruling on Petitioner's first exception, this second exception is rejected. DEPARTMENT'S EXCEPTIONS Department's First Exception - ALJ's Recommendation is Correct, but Analysis of Authority to Impose Sales and Use Taxes is Incorrect The Department agrees with the ALJ's recommendation "that a final order be entered sustaining the assessment against Petitioner, together with interest, but compromising the entire penalty amount." However, the Department excepts in part to portions of paragraphs 17, 18, 19, and 20 regarding, the authority under which sales and use taxes are levied. The Department cites Art. VII, Section 1(a), Fla. Const., which states in part, "[n]o tax shall be levied except in pursuance of

4 law...." and supporting Florida cases for the proposition that the Legislature levies taxes by adopting, statutes and delegates to the Department the authority to adopt rules to implement and enforce taxes. Consistent with the ruling regarding Petitioner's First Exception as to paragraph 19, this exception is granted. Department's Second Exception - Petitioner's Arguments are not Compelling and are not Dispositive The Department excepts to the last sentence of paragraph 17 and asserts that Petitioner's arguments are not compelling and are not dispositive because they are incorrect. The Department cites Section (16), Fla. Stat. (1995), "`sales price' means the total amount paid for tangible personal property... without deduction therefrom... of the costs of property sold... or any other expense whatsoever..." and notes that $5.00 per gallon tax on perchloroethylene provided for in Section , Fla. Stat., and the $.059 per gallon water quality tax on pollutants provided for in Section (2), Fla. Stat., are costs of the Petitioner which should be included in the sales price upon which sales and use tax is imposed. The Department's second exception is granted. Department's Third Exception - Petitioner's Argument Fails to Consider the Imposition by Statute The Department excepts to the first sentence in paragraph 18 and asserts that Petitioner's arguments fail to properly consider the imposition of sales and use taxes pursuant to Chapter 212, Fla. Stat., and that the Court is correct in its statement that Petitioner's argument does not consider the Departments Rule. The Department's third exception is granted. Department's Fourth Exception - Rule Correctly Implements Statutory Imposition of Tax

5 The Department excepts to the analysis of law in paragraph 19. The Department asserts that Chapter 212, Fla. Stat., imposes sales and use tax upon the sale price of perchloroethylene, which includes the perchloroethylene tax imposed on the seller. The Department further asserts that the Department's rule correctly interprets the inclusion of the perchloroethylene tax in the sales price of the perchloroethylene for purposes of computing the sales tax due. The Department's fourth exception is granted. Department's Fifth Exception - Perchloroethylene Tax Included in Sales Price The Department takes exception to the first and third sentences of paragraph 20 in which it asserts that the ALJ misconstrued the Department's argument and law. The Department asserts that perchloroethylene is tangible personal property subject to sales tax upon its total sales price which includes as one of its components, the perchloroethylene tax. The Department's fifth exception is granted. CONCLUSIONS OF LAW Conclusions of Law contained in paragraphs 16, 21, and 22 set forth in the Recommended Order are adopted and are incorporated by reference as if specifically incorporated by reference as if fully set forth herein. Conclusions of Law paragraphs 17, 18, 19, and 20 are modified to state as follow: 17. Section (16), Fla. Stat. (1995), reads in pertinent part: "Sales price" means the total amount paid for tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the costs of the property sold, the cost of materials used, labor or service cost, interest

6 charged, losses, or any other expense whatsoever... (e.s.) 18. Under Section , Fla. Stat. (1995), it is the specific intent of the Florida Legislature to impose a sales or use tax on "every person... who engages in the business of selling tangible personal property at retail in this state." The Legislature further provided in Section (3) that "[t]he tax so levied is in addition to all other taxes, whether levied in the form of excise, license, or privilege taxes, and in addition to all other fees and taxes levied." The $5.00 per gallon tax on perchloroethylene provided for in Section , Fla. Stat., is a component part of the overall price for the sale of perchloroethylene and therefore is subject to taxation for sales and use tax purposes pursuant to Chapter 212, Fla. Stat. 19. The Legislature has delegated the power to implement the state tax laws via administrative rulemaking to the Department. See Sections (2), Fla. Stat. (1993), (8)(b), Fla. Stat. (1994 Supp.), and (9), Fla. Stat. (1994 Supp.) Where lawful rule making authority is clearly conferred or fairly implied and it is consistent with the general statutory duties of an agency, a state agency is accorded wide discretion in the exercise of such authority. State ex rel. Railroad Commissioners v. Atlantic Coast Line Railroad Company, 60 Fla.465, 54 So. 394 (1911) The courts should defer to the agency's interpretation of the statute if the agency's interpretation is within the range of permissible interpretations of the statute. Escambia County v. Trans Pac, 584 So.2d 603 (Fla. 1st DCA 1991). See Asphalt Pavers, Inc. v. Department of Revenue, 584 So.2d 55 (Fla. 1st DCA 1991). 24. The Department's interpretation of the applicability of Section (16), Fla. Stat. (1993), to Section (1), Fla. Stat. (1994 Supp.), is reasonable and presumed valid as it is reflected in the Department's emergency Rule 12BER94-2, effective October 1, 1994 and Florida Administrative Code rule 12B-12, effective February 19, Moreover, Petitioner has failed to show that the Departments interpretation is erroneous or unreasonable under the clear language of the applicable state statutes.

7 20. Although Section (3)(b), Fla. Stat. (1995), is an antipyramiding provision in Chapter 212, Fla. Stat. which prevents the "pyramiding or duplication of excise taxes levied by the state under this chapter," there is no corresponding antipyramiding provision which is contained in or applies to Section , Fla. Stat (1995). The perchloroethylene tax is a tax, which is levied by Section (1), Fla. Stat. (1995). It therefore is not levied by Chapter 212, Fla. Stat., and the imposition of sales tax on the sales price of perchloroethylene which includes the $5.00 per gallon tax is not a prohibited pyramiding or duplication of tax pursuant to Section (3)(b), Fla. Stat. (1995). Accordingly, it is hereby ORDERED: That the ALJ's recommendation, that the Department's assessment of tax and interest be sustained is adopted. DONE AND ENTERED in Tallahassee, Leon County, Florida this 15th day of February, 2000 STATE OF FLORIDA DEPARTMENT OF REVENUE JIM ZINGALE EXECUTIVE DIRECTOR Any party to this Order has the right to seek judicial Review of the Order pursuant to Section , Fla. Stat., by the filing of a Notice of Appeal pursuant to Rule 9.110, Florida Rules of Appellate Procedure, with the Clerk of the Department in the Office of the General Counsel, Post Office Box 6668, Tallahassee, Florida , and by filing a copy of the Notice of Appeal accompanied by the applicable filing fees with 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. CERTIFICATE OF FILING I HEREBY CERTIFY that the foregoing Final Order has been

8 filed in the official records of the Department of Revenue, this 16th day of February JUDY LANGSTON AGENCY CLERK Attachment: Hearing Officer's Recommended Order Copies furnished to: Clerk Division of Administrative Hearings The Desoto Building 1230 Appalachee Parkway Tallahassee, FL Fred A. McCormack, Esquire Landers & Parsons, P.A., 310 West College Avenue Tallahassee, FL Jarrell L. Murchison John Mika Assistant Attorneys General Office of Attorney General Tax Section PL 01 The Capitol Tallahassee, FL Counsel for Respondent Rick H. McClure Assistant General Counsel Department of Revenue P.O. Box 6668 Tallahassee, FL STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS COMMODITY CONTROL CORPORATION, d/b/a INDUSTRIAL EQUIPMENT AND SUPPLIES,

9 Petitioner, vs. Case No DEPARTMENT OF REVENUE, Respondent. RECOMMENDED ORDER Pursuant to Notice, this cause was scheduled for final hearing on August 30, During a telephonic pre-hearing conference conducted on August 27, the parties stipulated that there remain no disputed issues of material fact. The parties agreed that the final hearing should be cancelled and further agreed to a schedule for filing their exhibits and proposed recommended orders. The stipulated facts are contained in the Joint Prehearing Stipulation filed August 23, 1999, and in the Supplemental Prehearing Stipulation filed August 27. Those Stipulations, the record in this cause, Petitioner's Exhibits numbered 1 and 2, the Department's Exhibits numbered 1-7, and the proposed orders filed by both parties have been considered in the entry of this Recommended Order. STATEMENT OF THE ISSUE The issue presented is whether the $5.00 per gallon tax on perchloroethylene provided for in Section , Florida Statutes, is subject to Florida sales and use tax pursuant to Chapter 212, Florida Statutes. STIPULATED FACTS 1. Petitioner is a for-profit Florida corporation that sells perchloroethylene and other dry-cleaning supplies to the dry-cleaning industry. It is a "wholesale supply facility" as that term is defined in Section (17), Florida Statutes. 2. Petitioner is a member of the Florida Drycleaners'

10 Coalition, a state-wide trade association whose members consist of the owners/operators of dry-cleaning facilities and wholesale supply facilities. In 1993 and prior to and during the 1994 Florida legislative session, the Florida Drycleaners' Coalition employed lawyers-lobbyists to suggest and seek passage of amendments to Chapter 376, Florida Statutes, commonly known as the Florida Dry-Cleaning Solvents Cleanup Program. 3. In 1994, the Florida Legislature enacted Chapter , Laws of Florida, which amended Chapter 376, Florida Statutes. Chapter created Section (2)(a), Florida Statutes, which provides that: All penalties, judgments, recoveries, reimbursements, loans, and other fees and charges related to the implementation of this section and the tax revenues levied, collected, and credited pursuant to ss and , and registration fees collected pursuant to s (1)(d), shall be deposited into the Water Quality Assurance Trust Fund, to be used upon appropriation as provided in this section. Charges against the funds for dry-cleaning facility or wholesale supply site rehabilitation shall be made in accordance with the provisions of this section. 4. Chapter , Laws of Florida, also created Section , Florida Statutes, which provides, in part, as follows: (1) Beginning October 1, 1994, a tax is levied on the privilege of producing in, importing into, or causing to be imported into the state perchloroethylene (tetrachloroethylene). A tax of $5.00 per gallon is levied on each gallon of perchloroethylene when first imported into or produced in the state. The tax is imposed when transfer of title or possession, or both, of the product occurs in this state or when the product commingles with the general mass of this state. 5. Petitioner's corporate secretary and 50 percent shareholder is David J. Pilger. He contributed financially to the employment by the Florida Drycleaners' Coalition of lawyers-

11 lobbyists charged with seeking passage of amendments to Chapter 376, Florida Statutes, and met several times with those lawyerslobbyists in Tallahassee. He was assured during those meetings that it was the opinion of those lawyers-lobbyists that there was no danger of Florida sales tax being applied to the $5.00 per gallon tax on perchloroethylene. 6. The Department conducted an audit of Petitioner for the period of January 1, 1993, through January 31, At no time prior to the Department's audit of Petitioner's financial records did Petitioner receive from the Department materials of any kind indicating that Florida sales and use tax would apply to the $5.00 per gallon tax on perchloroethylene. The Department had, however, adopted emergency Rule 12BER94-2, effective October 1, 1994, and Rule 12B (2)(b), Florida Administrative Code, effective February 19, The 1998 Florida Legislature amended Section , Florida Statutes, by enacting Chapter , Laws of Florida, effective July 1, 1998, which added a sentence regarding the $5.00 per gallon tax, as follows: "This tax is not subject to sales and use tax pursuant to ch. 212." 9. The Department has assessed and/or collected from certain taxpayers Florida sales and use tax on the sales price of perchloroethylene and the $5.00 per gallon tax on perchloroethylene. The sales and use taxes are deposited into the general revenue fund pursuant to Section (1), Florida Statutes. The $5.00 per gallon tax on perchloroethylene is deposited into the Water Quality Assurance Trust Fund, pursuant to Section (2)(a), Florida Statutes. 10. The Department issued its Notice of Proposed Assessment to Petitioner on October 22, 1998, assessing sales and use tax of $39,098.66, penalties of $19,549.64, and interest of $11, through October 22, 1998, with interest of $12.85 to accrue per day. 11. The Department issued its Notice of Proposed Assessment

12 to Petitioner on October 22, 1998, assessing indigent care surtax of $2,128.98, penalties of $1,064.48, and interest of $ through October 22, 1998, and interest of $.70 to accrue per day. 12. Petitioner charged its customers and remitted to the Department the $5.00 per gallon tax on perchloroethylene provided for in Section , Florida Statutes, but neither collected from the customer nor remitted to the Department sales and use tax on this $5.00 per gallon tax. The $5.00 per gallon tax collected by Petitioner from its customers was reflected at the bottom of Petitioner's invoices as "the ENVRN TAX." 13. Petitioner charged its customers and remitted to the Department the excise tax provided for in Section (2), Florida Statutes, but neither collected from its customers nor remitted to the Department sales and use taxes or indigent care surtax on this excise tax. This tax was reflected at the bottom of Petitioner's invoices as "PERC TAX". 14. Petitioner does not contest the Department's assessment of sales and use taxes and indigent care surtax on the water quality tax provided for in Section (2), Florida Statutes. 15. Petitioner does not dispute that its sales to its customers during the audit period were paid for by its customers. CONCLUSIONS OF LAW 16. The Division of Administrative Hearings has jurisdiction over the subject matter hereof and the parties hereto. Sections and (1), Florida Statutes. 17. Petitioner argues that Section (1), Florida Statutes, has not been interpreted by the Department in the light most favorable to the taxpayer and strictly against the taxing authority, that the statute represents the imposition of taxes upon taxes in contravention of Florida and federal case law, that the statute contains no unequivocal language requiring

13 the pyramiding of taxes, and that, therefore, the $5.00 per gallon tax on perchloroethylene provided for by the statute is not subject to Florida sales and use tax. While Petitioner's arguments are compelling, they are not dispositive of this proceeding. 18. Petitioner's arguments as to the interpretation to be given the statute, while legally correct, do not consider the Department's rule. Rule 12B (3)(a)2, formerly Rule 12B (2)(b), Florida Administrative Code, provides that the perchloroethylene tax is to be included in the price upon which sales and use tax is computed, even if the perchloroethylene tax is listed as a separate item on the invoice. Petitioner has not challenged the validity of the Department's rule. 19. Accordingly, the statute itself does not impose sales and use tax on the perchloroethylene tax nor does Chapter 212, Florida Statutes, impose a tax upon this tax. Petitioner's liability for sales and use tax derives from the Department's rule, which imposed the tax until the Legislature amended the statute to specifically forbid the result created by the Department's rule, i.e., a tax upon a tax. 20. The Department's argument that the perchloroethylene tax is tangible personal property is contrary to the statutory definition of tangible personal property. Section (19), Florida Statutes, defines tangible personal property as property which "may be seen, weighed, measured, or touched or is in any manner perceptible to the senses... The perchloroethylene tax is not perceptible to the senses. 21. Section (3), Florida Statutes, authorizes the Department to settle or compromise a taxpayer's liability for penalties under a chapter specified in Section (1) if the noncompliance is due to reasonable cause and not willful negligence, willful neglect, or fraud. That Section also mandates the Department to settle or compromise any penalty exceeding 25 percent of the tax for the same reason. Chapters 212 and 376 are specified in Section (1). 22. Here, Petitioner and the Department have stipulated

14 that Petitioner's representative participated in the process which resulted in the enactment of the perchloroethylene tax, that Petitioner's representative obtained legal advice that the perchloroethylene tax was not subject to sales and use tax, and that the Department did nothing to notify Petitioner that it was enacting a rule which would result in the tax being taxed. Accordingly, it is uncontroverted that Petitioner's noncompliance was due to reasonable cause and was not due to willful negligence, willful neglect, or fraud. It would be unjust for the Department to collect any penalty from Petitioner. RECOMMENDATION Based on the foregoing Findings of Fact and Conclusions Law, it is RECOMMENDED that a final order be entered sustaining the assessment against Petitioner, together with interest, but compromising the entire penalty amount. DONE AND ENTERED this 22nd day of November, 1999, in Tallahassee, Leon County, Florida. LINDA M. RIGOT Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida (85O) SUNCOM Fax Filing (850) Filed with the Clerk of the Division of Administrative Hearings this 22nd day of November, COPIES FURNISHED: Jarrell L. Murchison, Esquire

15 John Mika, Esquire Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida Fred McCormack, Esquire Landers & Parsons, P.A. 310 West College Avenue Tallahassee, Florida Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida Joseph C. Mellichamp, III, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida Larry Fuchs, 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.