Opinion
Nos. 3D18-2499
09-18-2019
A & S ENTERTAINMENT, LLC, Appellant, v. FLORIDA DEPARTMENT OF REVENUE, Appellee.
DiRuzzo & Company, Joseph A. DiRuzzo, III, and Daniel M. Lader (Fort Lauderdale), for appellant. Ashley Moody, Attorney General, and Randi E. Dincher, Assistant Attorney General, (Tallahassee), for appellee.
DiRuzzo & Company, Joseph A. DiRuzzo, III, and Daniel M. Lader (Fort Lauderdale), for appellant.
Ashley Moody, Attorney General, and Randi E. Dincher, Assistant Attorney General, (Tallahassee), for appellee.
Before LINDSEY, HENDON and GORDO, JJ.
GORDO, J.
This case is a direct appeal pursuant to Florida Statutes section 120.68 from a "Notice of Decision" issued on November 16, 2018, by the Florida Department of Revenue (the "Department") following the Department's audit of Appellant, A & S Entertainment, LLC ("A & S"). The Notice of Decision informed A & S that it owed the State of Florida sales and use tax, penalties and accrued interest totaling $1,925,953.17. A & S argues in this appeal that the Department denied it procedural due process throughout the course of the audit because the Department prepared its tax assessment without considering certain unverified documents untimely submitted by A & S. A & S further contends that the Department misapplied the law in categorizing certain fees as taxable income. As we conclude the Department afforded A & S procedural due process and properly applied the law during its audit, we affirm.
FACTUAL & PROCEDURAL BACKGROUND
A & S is a company that owns and operates adult entertainment establishments. In February of 2016, the Department issued A & S a "Notice of Intent to Audit Books and Records" and commenced an audit of its sales tax liability, for the time period of January 1, 2013, through December 31, 2015. The initial notice advised A & S of the audit commencement date and included an itemized list of required documentation.
Throughout the pendency of the audit, the Department sent numerous correspondences to A & S, requesting federal income tax records, bank statements and other information, in order to assess A & S's outstanding sales taxes. The Department's auditor made written requests for specific documentation on April 7, 2016; May 13, 2016; July 19, 2016; October 17, 2016; November 10, 2016; December 14, 2016; December 23, 2016; January 4, 2017; January 17, 2017; and January 30, 2017.
During the first field visit, A & S's accountant and corporate representative advised the auditor that he was recently hired and was not in possession of the financial records evidencing and supporting the tax returns for the audit period. From April of 2016 to August of 2016, the auditor attempted to meet with A & S's corporate representative an additional five times. The representative cancelled each meeting, stating that he was unavailable or did not have the requisite documents. By the time the auditor and corporate representative finally met at the end of August of 2016, the corporate representative was still not in possession of the requested documents.
A & S failed to provide verifiable bank statements, cash register tapes, cancelled checks, an amended federal tax return for 2013 and filed federal tax returns for 2014 and 2015. On appeal, A & S concedes the records it provided to the Department were incomplete. Further, A & S casts doubt on the accuracy of even the limited records it provided to the Department by questioning the competency of its accountants.
After several months of requesting documentation to no avail, the Department's auditor used the best information available to assess A & S's tax liability, pursuant to Florida Statutes section 212.12(5)(b). The Department's auditor utilized A & S's filed tax return for 2013 and its reported gross sales to estimate A & S's unreported sales for 2014 and 2015. Based on that data, the auditor was able to complete the audit and prepare the Proposed Assessment.
On October 17, 2016, the Department sent A & S a "Notice of Intent to Make Audit Changes" notifying A & S that the audit had been completed. Enclosed with the letter were copies of the audit adjustments and the audit work papers in support thereof. This letter also provided an opportunity for A & S to review the adjustments and contest them within thirty days. The following day, the corporate representative advised the auditor that additional documentation was forthcoming. In the weeks that followed, A & S again failed to provide the necessary documents. Nearly four months later, the corporate representative provided some bank statements and draft federal tax filings. The auditor was unable to reconcile the draft tax filings with either the bank statements provided or A & S's Florida tax returns. Thus, the Department did not make any adjustments based on those unsubstantiated and unverifiable documents.
After holding a final audit telephone conference with the corporate representative, the auditor closed the audit and forwarded the file to Tallahassee for further processing. On March 15, 2017, the Department issued the "Notice of Proposed Assessment," which advised A & S of its right to contest the Proposed Assessment and request an administrative hearing before the assessment became final. A & S protested the Proposed Assessment in its entirety based on challenges to the auditor's methodology and classification of certain income, and it asserted that its own 2013 tax returns were inaccurate. After the Proposed Assessment was issued, A & S submitted copies of its federal tax filings for 2014 and 2015. On November 16, 2018, the Department issued its Notice of Decision addressing and refuting each argument raised by A & S in its informal protest. Ultimately, the Department found each basis for protest to be insufficient and upheld the auditor's assessment. This appeal followed.
On appeal, A & S contends that it was denied due process in the administrative proceedings because it was not permitted to participate in the audit. It argues the Department erred in not considering the records submitted to the Department after the assessment had been completed. A & S further argues that the Department misapplied the law in its categorizations of A & S's stage dancer fees and valet parking fees as taxable income.
STANDARD OF REVIEW
The Department's Notice of Decision is a final agency action, governed by and subject to the Administrative Procedures Act. See, e.g., Yes Dear, Inc. v. Dep't of Revenue, 523 So. 2d 1235, 1236–37 (Fla. 1st DCA 1988). "The standard of review of an administrative agency's adjudicative findings is whether those findings are supported by substantial competent record evidence." Rietter v. Fla. Unemployment Appeals Comm'n, 875 So. 2d 808, 808 (Fla. 3d DCA 2004) (citing Gfrorer v. Unemployment Appeals Comm'n, 864 So. 2d 1290 (Fla. 5th DCA 2004) ). Thus, the final agency decision cannot be reversed unless the action taken is not supported by competent, substantial evidence in the record. § 120.68(7)(b), Fla. Stat. (2016). Other grounds for reversing that agency's final action include a material error in procedure or failure to follow proper procedure, an error in interpreting applicable law and an abuse of delegated discretion or violation of constitutional or statutory provisions. Id. § 120.68(7)(c), (d), (e). Absent any such grounds, the administrative action shall be affirmed. Id. § 120.68(8).
LEGAL ANALYSIS
The basic cornerstones of procedural due process are notice of the case and an opportunity to be heard. See, e.g., Fuentes v. Shevin, 407 U.S. 67, 80, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972) (citing Baldwin v. Hale, 68 U.S. 223, 233, 1 Wall. 223, 17 L.Ed. 531 (1863) ). Due process is satisfied where the notice and opportunity to be heard are "granted at a meaningful time and in a meaningful manner." Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 14 L.Ed.2d 62 (1965). "The manner in which due process protections apply vary with the character of the interests and the nature of the process involved." Dep't of Law Enforcement v. Real Prop., 588 So. 2d 957, 960 (Fla. 1991) (citing Hadley v. Dep't of Admin., 411 So. 2d 184, 187 (Fla. 1982) ).
"Generally, due process requirements are met in a quasi-judicial proceeding ‘if the parties are provided notice of the hearing and an opportunity to be heard.’ " Seiden v. Adams, 150 So. 3d 1215, 1219 (Fla. 4th DCA 2014) (quoting Jennings v. Dade Cty., 589 So. 2d 1337, 1340 (Fla. 3d DCA 1991) ). "The proceeding must be ‘essentially fair.’ " Id. at 1219 (quoting Carillon Cmty. Residential v. Seminole Cty., 45 So. 3d 7, 10 (Fla. 5th DCA 2010) ). Thus, where a government entity provides notice and a meaningful opportunity to be heard, satisfying the requirements of procedural due process, a defendant's voluntary failure to meaningfully participate in those proceedings will not vitiate the protections accorded.
Prior to commencing its audit, the Department provided notice to A & S of its intent to audit their books and records. The Department afforded A & S numerous opportunities to provide the required documents—all opportunities to be heard prior to the issuance of both the Proposed Assessment and the Notice of Decision. Indeed, the auditor provided accommodations and extensions for several months but still did not receive verifiable tax returns, bank statements or copies of cancelled checks. On at least ten occasions, the Department's auditor requested documentation in writing from A & S. Still, A & S chose not to meaningfully submit to or participate in the Department's audit proceedings. A & S's voluntary failure does not constitute a denial of procedural due process.
Additionally, under Florida law, where a dealer "fails or refuses to make his or her records available for inspection ... it shall be the duty of the department to make an assessment from an estimate based upon the best information then available to it for the taxable period." § 212.12(5)(b), Fla. Stat. (2018). The Department is entitled to collect the estimated taxes, interest and penalty based on the auditor's assessment. Id. These amounts "shall be considered prima facie correct, and the burden to show the contrary shall rest upon the dealer." Id.
"Evidence that is confirmed untruthful or nonexistent is not competent, substantial evidence. Competent, substantial evidence must be reasonable and logical." Wiggins v. Fla. Dep't of Highway Safety & Motor Vehicles, 209 So. 3d 1165, 1173 (Fla. 2017) (citing Gonci v. Panelfab Prods., Inc., 179 So. 2d 856, 858 (Fla. 1965) ). Additionally, "evidence that is unreliable is not competent, substantial evidence." Id. at 1170.
The Department's auditor properly prepared an assessment based on the reliable documentation it had. Using the best information available in September of 2016 and the months that followed, the auditor made a sales tax assessment. Specifically, the auditor utilized the 2013 federal income tax returns that A & S filed and A & S's reported gross sales to assess the unreported sales for 2014 and 2015—evidence that the Department obtained from A & S and was able to verify and cross-reference. This evidence was reliable, reasonable and logical. Because the Department's assessment is prima facie correct as a matter of law, it was A & S's burden to show that the assessment was incorrect. See § 212.12(5)(b), Fla. Stat. A & S has failed to do so in this appeal. Thus, we affirm the Department's assessment, which was based on competent, substantial evidence. See id. § 120.68(7)(b).
The auditor was not required to consider evidence that the Department was unable to substantiate within the records and information that A & S provided. Indeed, unsubstantiated and unreliable evidence is neither competent nor substantial. See Wiggins, 209 So. 3d at 1170. Finally, we note that because the record on appeal is confined to the information that was available to the administrative agency, it would be improper for this Court to consider any documentation submitted by A & S after completion of the Department's assessment and administrative proceedings. See § 120.68(4), Fla. Stat. ("Judicial review of any agency action shall be confined to the record transmitted ....").
A & S also contends that the Department's assessment was improper, as it contained misapplications of law. More particularly, A & S argues that the Department's classifications of the stage dancer fees and valet parking fees were erroneous. According to A & S, the dancer fees cannot be rental income because payment thereof does not give the dancers any property rights. The fees qualify as income because the dancers pay the fees to A & S for a license—the fee gives the dancers use of A & S's establishments for their performances. See id. § 212.02(10)(i) (defining a license as "the granting of a privilege to use or occupy a building ... for any purpose"); id. § 212.031 (providing that licenses to use real property are subject to sales tax). We find the Department properly categorized the stage dancer fees as taxable income pursuant to Florida law and its own precedent. See id. §§ 212.02(10)(i), 212.031; see also U.F., Inc. v. Dep't of Revenue, No. 02-0686, 2002 WL 1592381 (Fla. DOAH June 14, 2002) (deeming taxable fees received for granting areas designated for lingerie modeling).
As for the valet parking fees, A & S states that the valet company, an outside vendor, is responsible for payment of the sales and use tax connected with that income. However, A & S failed to provide the Department with documentation evidencing this third-party's existence. Assuming that a third-party vendor was responsible for parking the cars, the valet parking fees are taxable as rental charges for parking paid to the operator by the one parking the vehicles. See Fla. Admin. Code R. 12A-1.073(2). Further, A & S did not provide any evidence that the valet fees were for a valet service rather than a taxable charge for rental of parking spaces. Under Florida Statutes section 212.03(6), the valet fees are taxable if patrons of an establishment are required to use and pay for valet services and parking. On the record before us, we find no misapplication of law in the Department's categorization of valet parking fees as taxable income pursuant to section 212.03(6).
CONCLUSION
The Department did not violate A & S's due process rights in conducting the audit based on an assessment of the records it was given after months of requests for clarification and additional evidence. The Department adhered to Florida law and its own precedent and procedures in categorizing the stage dancer fees and valet parking fees as taxable income. The Department's findings are supported by competent and substantial evidence, the essential requirements of law were observed and procedural due process was accorded.
Affirmed.