STATE OF FLORIDA, DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA. SCHAEFER ENTERPRISES, INC. Petitioner, CASE NO DOR FOF
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1 STATE OF FLORIDA, DEPARTMENT OF REVENUE TALLAHASSEE, FLORIDA SCHAEFER ENTERPRISES, INC. Petitioner, CASE NO vs. DOR FOF DEPARTMENT OF REVENUE, Respondent FINAL ORDER THIS CAUSE came before the Department of Revenue for the purpose of issuing a Final Order. The Administrative Law Judge assigned by the Division of Administrative Hearings heard this cause and issued a Recommended Order. A copy of that Order is attached to this Final Order. No exceptions to the Recommended order were filed and there are no proposed substituted orders to consider. The Department of Revenue has jurisdiction of this cause. STATEMENT OF THE ISSUE The Department adopts and incorporates in this Final Order the Statement of the Issue in the Recommended Order. PRELIMINARY STATEMENT Department adopts and incorporates in this Final Order the Preliminary Statement in the Recommended Order. FINDINGS OF FACT The Department adopts and incorporates in this Final Order the Findings of Fact in the Recommended Order. CONCLUSIONS OF LAW
2 The Department adopts and incorporates in this Final Order the Findings of Fact in the Recommended Order. Based on the foregoing, it is, ORDERED that the assessment of sales tax, penalty, and interest, and related Chartered Transit System Assessment of tax, penalty and interest for the audit period of November 1, 1989, through October 31, 1994, is hereby upheld. DONE AND ENTERED in Tallahassee, Leon County, Florida this 5th day of November STATE OF FLORIDA DEPARTMENT OF REVENUE L.H FUCHS EXECUTIVE DIRECTOR CERTIFICATE OF FILING I HEREBY CERTIFY that the foregoing Final Order has been filed in the official records of the Department of Revenue, this 5th day of November JUDY LANGSTON AGENCY CLERK JUDICIAL REVIEW Any party to this Order has the right to seek judicial review of the Order pursuant to section , F.S., 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.
3 Attachment: Administrative Law Judge's Recommended Order Copies furnished to: Charles C. Adams Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL William B. McMenamy, Esquire Donahoo, Donahoo, and Ball, P.A. 50 North Laura Street, Suite 2925 Jacksonville, FL Marie A. Mattox, Esquire Mattox and Hood, P.A. 310 East Bradford Road Tallahassee, FL Linda Lettera, Esquire General Counsel Department of Revenue Post Office Box 6668 Tallahassee, FL Eric J. Taylor, Esquire Department of Legal Affairs The Capitol, Plaza Level 01 Tallahassee, FL STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS SCHAEFER ENTERPRISES, INC., Petitioner, vs. Case No
4 DEPARTMENT OF REVENUE, Respondent. RECOMMENDED ORDER Notice was provided and on June 2, 1998, at the offices of the Division of Administrative Hearings, the DeSoto Building, 1230 Apalachee Parkway, Tallahassee, Florida, a formal hearing was held in this case. Authority for conducting the hearing is set forth in Sections (1), and (1), Florida Statutes. The case was presented before Charles C. Adams, Administrative Law Judge. APPEARANCES For Petitioner: Marie A. Mattox, Esquire Mattox and Hood, P.A. 310 East Bradford Road Tallahassee, Florida For Respondent: Eric J. Taylor, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida STATEMENT OF THE ISSUE Does Petitioner owe Respondent sales tax for customer charges associated with the inspection/recertification of fire extinguishers, which activities were reported on invoices involving charges for parts, maintenance, recharge of fire extinguishers, provision of new fire extinguishers, pick-up and delivery, and maintenance, where the latter categories of activities included the payment of sales tax? PRELIMINARY STATEMENT When Respondent ultimately determined, by its Notice of Reconsideration, to deny Petitioner relief from the payment of sales tax, penalties, and interest on transactions involving the
5 inspection of customer fire extinguishers, Petitioner petitioned for formal hearing to contest that proposed outcome. The petition was forwarded to the Division of Administrative Hearings for assignment of an administrative law judge to conduct a formal hearing to resolve the dispute between the parties involving contested material facts. After two continuances, the case was heard on the aforementioned date. Petitioner presented the testimony of its owner Louis Schaefer in support of its case. Petitioner's Exhibits 1-3 were admitted. Respondent's Exhibits 1-3 were admitted. Respondent did not present witnesses. A hearing transcript was filed on July 6, By agreement of counsel, the parties were expected to file proposed recommended orders on July 13, Respondent met that deadline. Petitioner, with Respondent's consent, asked that the time for filing Petitioner's proposed recommended order be extended beyond 5:00 p.m., July 13, With the entry of this recommended order the grant of that request is confirmed. Petitioner's proposed recommended order was filed on July 14, The proposed recommended orders have been considered in preparing the recommended order. FINDINGS OF FACT 1. Petitioner does business in northeast Florida. Principally it inspects fire extinguishers at customer locations that must undergo inspection on an annual basis in accordance with Chapter 633, Florida Statutes. Petitioner also sells and services fire extinguishers to and for its customers. 2. When performing an inspection, Petitioner's employee removes the fire extinguisher from its location, makes sure the powder in the fire extinguisher floats, checks the pressure gauge, makes sure that the pressure is acceptable in the extinguisher and examines the hose attached to the fire extinguisher; if these items are in good operating order the fire extinguisher is returned to its location and certified as operable for the upcoming period. The certification is evidenced
6 by a tag placed on the fire extinguisher. That tag reflects a serial-number, the name of the person who inspected and certified the extinguisher as acceptable, the permit number for the certifying person, and the kind of fire extinguisher that is under inspection. Beyond that point, if someone wishes to verify, the status of the fire extinguisher that has been found acceptable, the tag evidences that acceptability. 3. For the basic inspection, Petitioner charges its customers a fee depending on the number of fire extinguishers that are being inspected at a given location. 4. If there is a problem with one of the fire extinguishers that has been inspected, Petitioner's employee will tell the customer the nature of the service that needs to be performed to assure that the fire extinguisher is in proper operating condition. 5. In the event that a fire extinguisher has a problem which the customer wishes fixed, that fire extinguisher is removed from the customer's location and brought back to Petitioner's facility to be repaired. When the defective fire extinguisher is removed, an operable substitute fire extinguisher is provided to the customer pending repairs to the defective fire extinguisher. In effecting repairs, the customer is charged the cost of tangible items involved with the repair and for labor costs associated with the repair. 6. The records which Petitioner maintained in the period in question in this case, reflect charges for the inspections of customer fire extinguishers and other activities and charges but not in the detail that has been set forth in the preceding paragraphs. The records are sales invoices. The invoices produced at the hearing are a fair representation of the experience associated with all invoices under question. 7. In this case, Respondent intends to impose sales tax, penalties, and interest and an affiliated tax charge referred to as the Chartered Transit Systems Assessment, in relation to those items invoiced under the categories fire extinguisher inspected/fire extinguisher recertification/automatic fire
7 extinguishing system inspected. These descriptions all refer to the process of fire extinguisher inspection. The invoices that are examples of this process show that sales tax and the associated charter tax have been collected for those other charges made by the Petitioner to its customers. 8. Petitioner sought the advice of a CPA in establishing the manner in which its invoices reflect the collection of sales tax. This advice was sought through Mr. Schaefer. 9. The audit period for which the Respondent has assessed additional tax, penalties, and interest is November 1, 1989 through October 31, The intent to impose tax penalties and interest resulted from an audit performed by the Respondent on Petitioner's business. An audit report was rendered on October 2, 1995; Petitioner objected to the findings in that audit report. Respondent affirmed the assessment in a Notice of Decision dated July 22, Petitioner sought reconsideration of that notice of decision. Respondent again upheld the assessment through its Notice of Reconsideration dated April 18, On June 19, 1997, Petitioner petitioned for formal hearing to contest the decision to impose the tax penalties and interest. 11. The sample invoices by their terms state the following: FIRE DEFENSE CENTERS Invoice 3919 Morton Street JACKSONVILLE, FLORIDA (904) DATE ORDER NO 4/12/ BR TO: Ramada Inn 6237 Arlington Expressway prices per contract Jacksonville, Fl Quantity Description Unit Price Total 24 Fire extinguisher inspected 65.00
8 2 5 lb. abc maintenance Fire extinguisher inspected-unserviceable lb. abc new fire extinguisher lb. abc maintenance Valve repair Handle repair Syphon tube rings Pick up and delivery 8.00 After 15 days pay $ QUADRUPLICATE Thank You Tax on ************************* FIRE DEFENSE CENTERS Invoice 3919 Morton Street JACKSONVILLE, FLORIDA (904) DATE ORDER NO 4/12/ JW TO: Clark Trailer Sales Serv. Mgr Linden Beane 5201 W. Beaver St prices per contract Jacksonville, FL Quantity Description Unit Price Total 10 Fire extinguisher recertification lb. abc hydrotest and recharge Pick up and delivery Tax on After 15 days pay $ QUADRUPLICATE Thank You ********************************
9 FIRE DEFENSE CENTERS Invoice 3919 Morton Street JACKSONVILLE, FLORIDA (904) DATE ORDER NO 4/12/ JW TO: Walmart annual inspection rd St prices per contract Jacksonville, Fl Quantity Description Unit Price Total 25 Fire extinguisher recertification lb. abc maint lb. abc recharge Valve repair Locking pin Syphon tube ring Pick up and delivery 8.00 After 15 days pay $ Tax on QUADRUPLICATE Thank You **************************** FIRE DEFENSE CENTERS Invoice 3919 Morton Street JACKSONVILLE, FLORIDA (904) DATE ORDER NO 4/12/ EF TO: Poultry Health Service 5695 Stuart Ave prices per contract Jacksonville, Fl 32205
10 Quantity Description Unit Price Total 20 Fire extinguisher inspected Fire extinguisher inspected-unserviceable lb. abc maintenance lb. abc recharge /4 lb. abc complete maintenance New 10 lb. abc fire extinguisher Valve repair Syphon tube ring Pick up and delivery Fire extinguisher installed Tax on After 15 days pay $ QUADRUPLICATE Thank you ******************************** FIRE DEFENSE CENTERS Invoice 3919 Morton Street JACKSONVILLE, FLORIDA (904) DATE ORDER NO 4/12/ PV TO: Holiday Inn Duval Rd (I 95 & Airport) Dan Zuhowski Jacksonville, FL Quantity Description Unit Price Total 4 30 lb. automatic fire extinguishing system inspected 1 10 lb. automatic fire extinguishing system inspection 1-hood 1 10 lb. automatic fire extinguishing system inspected 2-hood
11 11 Fusible links lb. abc maintenance F/X's lb. C02 maintenance rings Pick up and delivery Tax on After 15 days pay $ QUADRUPLICATE Thank You 12. Standing alone, the invoices do not sufficiently distinguish which, if any, of the fire extinguishers being inspected are receiving other attention, or whether the invoices refer to an entirely different set of fire extinguishers than those that had been inspected. The distinctions described in prior paragraphs between the inspection process and other business pursuits have been based upon extrinsic evidence, outside the invoices, as offered by Louis Schaefer, Petitioner's owner. 13. More specifically, Mr. Schaefer's description of invoice concerning the entries on that document is extrinsic evidence concerning the meaning of that invoice. Again without the extrinsic evidence one cannot reasonably ascertain the relationship, if any, between the fire extinguishers inspected and other activities involving fire extinguishers for which charges were made on the invoice. Moreover, without extrinsic evidence one cannot ascertain the number of fire extinguishers for which Petitioner has replaced or repaired parts, performed other forms of maintenance, etc., aside from the inspection. The invoice alone does not make clear which of the fire extinguishers described in the inspection line received no tangible personal property which was incorporated or attached to a repaired item, as opposed to those that may have had tangible personal property incorporated into or attached to a fire extinguisher that had been inspected. The same problem exists with other sample invoices.
12 14. Related to invoice 49217, Mr. Schaefer points out that twenty-four fire extinguishers were inspected at a charge of $ Two five-pound fire extinguishers needed maintenance. That maintenance was the recharge of the two five-pound fire extinguishers at the cost of $ Three fire extinguishers were found to be unserviceable following the inspection. For the determination of the unservicability the customer was charged $9.00. The next line refers to the provision of three five-pound abc new fire extinguishers. The charge for the new fire extinguishers was $ Mr. Schaefer explained that the new fire extinguishers were sold to the customer to replace the unserviceable fire extinguishers. Two fire extinguishers needed valve repairs. The invoice shows a $10.40 charge for the valve repairs. One of the fire extinguishers had a bent handle that had to be replaced. The charge on the invoice for the handle repair was $3.95. One fire extinguisher had a siphon tube repair. The invoice reflects that the charge for that repair was $3.10. Three 0 rings were replaced for a charge to the customer of $2.70. Mr. Schaefer explains that seven fire extinguishers were picked up and delivered for a cost of $8.00 that was in relation to removal, repairing, and returning fire extinguishers and hanging them back in place at the customer's business. Mr. Schaefer pointed out what can be ascertained by a mathematical exercise, that is, that all charges, with the exception of the $65.00 for inspecting twenty-four fire extinguishers, had sales tax imposed as part of the charges. That tax is in relation to the $ for items other than inspection of the fire extinguishers. The total of the tax is $ Mr. Schaefer explained that the inspection process itself involved an estimate of whether the fire extinguisher was serviceable and whether it met the date codes required. 16. Further, in relation to invoice 49217, Mr. Schaefer explained the total number of fire extinguishers that received some service or were replaced. The two five-pound abc maintenance for $20.00 referred to two of the twenty-four inspected. The three fire extinguishers inspected unserviceable and the three five-pound abc new fire extinguishers refers to the removal of three fire extinguishers and replacement of those three fire extinguishers with new ones. The total of the two
13 five-pound maintained and the three replaced brings the count to a subtotal of five fire extinguishers of the twenty-four inspected. The reference to two ten-pound abc maintenance brings the total to seven fire extinguishers repaired or replaced. The two valve repairs, the handle repair, and the 0 rings described in the invoice, according to Mr. Schaefer, were in relation to the two five-pound abc maintenance and the two ten-pound abc maintenance mentioned earlier in the invoice. The seven pick-up and delivery refers to three fire extinguishers that had to be replaced as unserviceable by the provision of new fire extinguishers and four fire extinguishers that could be repaired and returned to the customer by Mr. Schaefer's explanation. Therefore, seven of the twenty-four fire extinguishers inspected needed to be repaired or replaced. In summary, without Mr. Schaefer's explanation one can not reasonably discern the meaning of invoice 49217, whether the fire extinguishers inspected were part of the fire extinguishers repaired or replaced, and beyond that consideration how many fire extinguishers were repaired and replaced. CONCLUSIONS OF LAW 17. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action, in accordance with Sections (1) and (1) Florida Statutes. 18. In this case Respondent intends to impose sales and use tax, a penalty and interest, together with a tax in relation to a Chartered Transit System Assessment, penalty and interest for the period November 1, 1989 through October 31, In particular, Petitioner intends to impose those taxes, penalties and interest in relation to transactions between Petitioner and its customers involving fire extinguisher inspection/recertification. 19. Pursuant to Section (14), Florida Statutes, Respondent has shown the assessment made against the Petitioner and the factual and legal grounds that underlie that assessment. Respondent having made a prima facie showing, Petitioner must prove by a preponderance of the evidence that the assessment is
14 incorrect. See also Department of Revenue v. Nu-Life Health and Fitness Center, 623 So.2d 747 (Fla. 1992). 20. The basis for the tax assessment at issue was pursuant to the authority that Respondent has to audit and examine the accounts, books, or records of Petitioner who is subject to revenue laws in Florida. See Section (1), Florida Statutes. Through that audit process, as exemplified by the findings in the invoices described in the fact finding, it was determined that Petitioner failed to pay sales tax on some items reflected in the invoices. Specifically, tax was not paid for that portion of the invoices that related to fire extinguisher inspection/recertification. 21. Petitioner's records that were subject to the audit process were required to be maintained to reflect the administration of any tax enumerated in Section , Florida Statutes. The requirement for maintenance of books and records is set forth in Section , Florida Statutes. The need to maintain suitable books and records contemplated the maintenance of invoices, among other documents. Those records had to be maintained until the expiration of the time within which the Respondent could make an assessment under Section (3) Florida Statutes. The tax assessment in this case is within the time frame allowed by that section. Petitioner's invoices that have been examined in arriving at the assessment correspond to the time frame allowed for audit and examination by Respondent. 22. Section , Florida Statutes, imposes a sales, storage, and use tax on: every person (who] is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state... or who... furnishes any of the things or services taxable under this chapter, The taxes under consideration are constituted of a six percent sales tax under Section (1)(a)1.a, Florida Statutes, and the related Chartered Transit System Assessment tax. The sales tax is in relation to each item or article of tangible personal property sold at retail, as computed on each
15 taxable sale derived from the imposition of six percent of the sales price. 24. "Sales price" is defined at Section (16) Florida Statutes, as: "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 cost of the property sold, the cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever. `Sales price' also includes the consideration for a transaction which requires both labor and material to alter, remodel, maintain, adjust, or repair tangible personal property Rule 12A-1.006, Florida Administrative Code, which is entitled "charges by dealers who adjust, apply, alter, install, maintain remodel, or repair tangible personal property" further addresses the taxation of labor and services in the instance where items of tangible personal property are involved in the transaction. Moreover, Rule 12A-1.006,(1)(a), Florida Administrative Code states: Where parts are furnished by the repairer, the entire charge the repairer makes to a customer for adjusting, applying, installing, maintaining, remodeling, or repairing tangible personal property is taxable, except as otherwise provided in paragraph (b) of this subsection. 26. Section (1)(a), Florida Statutes, makes it incumbent upon Petitioner as the dealer transacting business with its customers to collect the sales tax owed. 27. Other than in instances which are not relevant to this case, should Petitioner fail to collect the taxes due from its customers, in relation to retail sales in association with tangible personal property or services subject to taxation, Petitioner is liable for and must pay the taxes due. See Section
16 212.07(2), Florida Statutes. 28. For the amount of the transactions between Petitioner and its customers, in the period in question, that relate to fire extinguisher inspection/certification as described in the invoices, that activity is perceived as part of the sales event in relation to tangible personal property or services unless Petitioner can prove the unrelated exception to paragraph (b) of subsection (1) set forth in Rule 12A-1.006(4), Florida Administrative Code, which states: Except as otherwise provided in paragraph (b) of subsection (1), charges for repairs of tangible personal property which require labor or service only are taxable unless the repairer (dealer) can establish by evidence in the dealer's records that the dealer furnish no tangible personal property which was incorporated into or attached to the repaired item. It is immaterial that the cost of the material furnished is insignificant when compared to the cost of the labor involved. 29. Petitioner has not established within the invoices which constitute its records, that it furnished no tangible personal property which was incorporated into or attached to the items reflected as fire extinguishers inspected/certified. The Invoices are not sufficiently detailed to demonstrate that the Petitioner did not furnish tangible personal property which was incorporated into or attached to the fire extinguishers inspected/certified. The inspection of a fire extinguisher standing alone is a service transaction that is exempt from taxation. However, when that transaction is described in a document, an invoice, with other transactions which are taxable but in a manner that does not clearly segregate the inspection performed from other activities, in relation to the fire extinguishers described in the invoice, all items reflected in the invoice must be treated as part of a process involving tangible personal property as part of the labor or service activity and every item on the invoice is subject to this sales tax and related Chartered Transit System Assessment. Petitioner may not look to extrinsic evidence to explain the invoices. The invoices must be reasonably susceptible to understanding the
17 distinction, if any, between the instances where tangible personal property was incorporated or attached to a repaired item, and those in which that incorporation or attachment was not found. The invoices constitute the only records presented by Petitioner to establish its defense against the assessments. Those records are inadequate to establish the defense against the assessments for reasons described in the fact finding. Mr. Schaefer's oral explanation at the hearing concerning the contents of the invoice and the general sales and service practices of his company does not constitute evidence in Petitioner's records. The explanation is extrinsic evidence not available to provide the explanation necessary to establish the subject exception to taxation found in Rule 12A-1.006(4), Florida Administrative Code. 30. Petitioner is liable for the assessments and should be required to pay the tax, penalty and interest. Concerning the payment of penalty, Petitioner did not have reasonable cause to believe that its records were adequate to differentiate the treatment of the transaction referred to as fire extinguisher inspection/certification from other transactions reflected in the respective invoices. See Section (3)(a), Florida Statutes. 31. With this outcome, Petitioner is not entitled to the collection of legal costs. See Sections and (14) Florida Statutes. RECOMMENDATION Upon consideration of the facts found and the conclusions of law reached, it is, RECOMMENDED: That a final order be entered upholding of sales tax, penalty, and interest, and related Chartered Transit System Assessment of tax, penalty, and interest. for the audit period November 1, 1989, through October 31, DONE AND ENTERED this 3rd day of August, 1998, in
18 Tallahassee, Leon County, Florida. CHARLES C. ADAMS 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 3rd day of August, COPIES FURNISHED: Eric J. Taylor, Esquire Department of Legal Affairs The Capitol, Plaza Level 01 Tallahassee, Florida William B. McMenamy, Esquire Donahoo, Donahoo, and Ball, P.A. 50 North Laura Street, Suite 2925 Jacksonville, Florida Marie A. Mattox, Esquire Mattox and Hood, P.A. 310 East Bradford Road Tallahassee, Florida Linda Lettera, General Counsel Department of Revenue 104 Carlton Building Tallahassee, Florida Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida
19 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.
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