Case Name: LLOYD ENTERPRISES, INC., Appellant, v. DEPARTMENT OF REVENUE, Appellee
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 1995-03-03
Citations: 651 So. 2d 735
Docket Number: No. 93-1304
Parties: LLOYD ENTERPRISES, INC., Appellant, v. DEPARTMENT OF REVENUE, Appellee.
Judges: PETERSON and DIAMANTES, JJ., concur.
Reporter: Southern Reporter, Second Series
Volume: 651
Pages: 735–743

Head Matter:
LLOYD ENTERPRISES, INC., Appellant, v. DEPARTMENT OF REVENUE, Appellee.
No. 93-1304.
District Court of Appeal of Florida, Fifth District.
March 3, 1995.
Edgar M. Dunn, Jr. of Dunn, Abraham, Swain & Dees, Daytona Beach, for appellant.
Robert A. Butterworth, Atty. Gen., and Lealand L. Mediaren, Asst. Atty. Gen., Tallahassee, for appellee.

Opinion:
PER CURIAM.
Lloyd Enterprises, Inc., ("Lloyd") appeals from a final order issued by the Department of Revenue, ("Department") which determined Lloyd owes the state $106,129.47 for sales taxes, penalties and interest. Approximately $6,004.38 of the assessed tax liability is based on the Department's view that beach concessionaire license and transfer fees paid by Lloyd to Volusia County ("County") during the five-year audit period (November 1, 1985 to December 31, 1990) were taxable pursuant to section 212.031, Florida Statutes (1989), as "leases or rentals of, or licenses of real property." The concession license and transfer fees were imposed pursuant to concession agreements with the County and pursuant to the County's Unified Beach Code, which creates the fees. The concession fee was based upon a concessionaire's gross sales and the transfer fee was imposed when a person sold or transferred the right to operate under a license issued by the county. The balance of the tax assessment ($57,471.43) was levied against Lloyd for the alleged failure to pay sales taxes on goods and services sold to customers pursuant to section 212.10, Florida Statutes (1989), for the audit period November 1, 1985 to May 9,1989, before Lloyd owned and operated the concession stands.
Lloyd argues section 212.031 was erroneously applied to the beach concession fees charged by Volusia County. It also argues section 212.10 is unconstitutional as applied to Lloyd in this case, and that the "projection" method used by the Department's auditors to determine the amount of taxes due was unauthorized, unreasonable and arbitrary. We partially agree and reverse.
Lloyd is a family-owned and operated business, which became incorporated in 1989. In 1985, Harold Lloyd and his wife, Sheila, owned and operated concession spot 119, renting out motorcycles, as a sole proprietorship on New Smyrna Beach. During the "off season" they also helped Harold Lloyd's parents operate their concession at another location on New Smyrna Beach spot 127. Later, the Lloyds purchased this full-service concession from his parents. The other spots (130 and 128) were purchased by the Lloyds from prior owners whose businesses were failing. Number 130 had been out of business one year when the Lloyds bought it from the prior owner's creditors. The Lloyds also acquired spots 129 and 131 in 1989. Both were full-service concessions.
I. Beach Concession Transfer and License Fees
Section 212.031 provides:
(l')(a) It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property unless such property is . [specific list of situations and circumstances not applicable to this case].
The Department argued that the transfer and annual fees charged by the County to beach concessionaires pursuant to its Unified Beach Code and Ordinance constitute rent payments for the various beach locations. Lloyd was assessed sales taxes for all beach concession fees it had paid to the County during the audit period.
The record establishes that the fixed location concessionaires (like Lloyd) had the right to park their vehicles within one hundred feet north or south of an assigned spot during the hours they were permitted to operate on the beach. Other concessionaires were allowed to roam the beach. If any other concessionaire attempted to park or sell goods within an assigned spot, the beach rangers would enforce Lloyd's exclusive right to sell within its assigned two-hundred-foot spot on the beach.
We conclude that the hearing officer erred in deciding that it was proper to impose a sales tax on the fees Volusia County charged Lloyd for the privilege of selling and renting goods and services to the public on public beaches, and that these privileges constituted taxable events under Rule 12A-10.070, Florida Administrative Code, and section 212.031, Florida Statutes. The hearing officer arrived at this ruling simply by deferring to the Department's interpretation of the rule and by noting there was no contrary ease law. The hearing officer correctly pointed out that deference should be given to an agency's interpretation of its rules and the statutes it is charged to administer. However, the agency's interpretation is subject to review and is not conclusive.
None of the numerous subparts of Rule 12A-1.070 applies specifically in the instant case. Nor does the statute under which the Department promulgated its rules. The statute reads rather simply that "[i]t is declared a legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property_" § 212.031, Fla.Stat. We cannot conclude that the County has been engaging in any such business.
In November 1986, the electors of the County approved the Beach Trust Amendment to the Home Rule Charter. It recognized the public's superior right to use the beach and required the County to "define, protect, and enforce" that right. The County was further given the "exclusive authority to regulate the beaches and public beach access and use." Finally, the County was required to adopt a Unified Beach Code to regulate public health, safety, and welfare, and "vendors, concessionaires, and special events."
In fulfillment of its obligation, the County adopted a Unified Beach Code. One of its sections deals exclusively with the regulation of concessionaires on the public's beach. This section, which applies to concessionaires having fixed locations and to others that operate from moving vehicles within a zone of operation on the beach, was amended in 1988 by Ordinance No. 88-32. The ordinance uses various terms to describe its purposes, for example: the County is "trustee of the public interest" in exercising its power to regulate private vendors making use of the public beach; vendors are to pay a "franchise fee"; and a "concession license" is required. The term most frequently used to define a business privileged to operate on the beach is "concession." The ordinance is quite detailed as to days and hours a concession is required to operate, the condition of the equipment, transfers, relocation requirements, terminations, and payment of fees (the fee is the same for fixed or roving concessions). While the County and Lloyd executed a contract, there is nothing in the contract, beyond a description of where Lloyd's concession would be located, which is not contained in the ordinance. Therefore, it is the ordinance that must be construed to determine whether the privilege granted to Lloyd constituted a lease or license of real property.
Our view of the ordinance is that it serves multiple purposes, none of which creates a lease or license for the use of real property. As the ordinance relates to concessions, it is concerned with the image that activities on the beach project to visitors (an extreme example is that the ordinance prohibits rental of umbrellas that contain unmended tears), and it is concerned with enhancing the public's enjoyment of the beach through the provision of goods and services. It is concerned with providing those goods and sér-vices so long as "individual peace and quiet is not unreasonably disturbed" and with strictly regulating the vendors to insure that adequate and quality services are provided to the public without disruptive competition. It is also concerned with raising revenue for the County. The great importance of revenue from the concessionaires was conveyed by an assistant county attorney who placed the cost of beach cleanup at $1.5 million annually. She emphasized that most of the cleanup was attributable to products sold by the vendors and that the fees paid by the vendors helped defray that huge cost.
We hold that, in exercising the duties imposed on it by the Unified Beach Code, the County did not enter into the business of renting, leasing or licensing real property. Accordingly, the tax liability assessed on the basis of the concessionaire fees being a license or a lease of land is reversed.
The County's "business" was to regulate the use of the beach in an orderly manner to preserve "individual peace and quiet" and to enhance the public's enjoyment of the beach. This was a requirement imposed upon it by the electors of Volusia County. The County's method of regulation was creative and admirable. The County has preserved and enhanced for the public the peace and enjoyment of the beach while defraying the cost of that regulation through purchases of concessionaire goods and services by the public exercising their historic beach recreational rights. Unfortunately, Lloyd became sandwiched between that creativity and the equally creative assessments by the Department.
II. Unpaid Sales Taxes on Sales to Customers
The largest portion of the assessments at issue in this case relates to sales taxes, penalties, and interest which the Department determined were owed but not paid by the prior owners of the concessions, during the audit period before Lloyd owned and operated those' businesses. Only minor assessments were made for sums owed by Lloyd as a corporation and as a sole proprietorship. Those amounts were paid and are not in dispute on appeal. The Department also found that Lloyd's record-keeping practices and documentation of taxable transactions were generally adequate and sufficient.
The 1989 version of section 212.10 imposed on a purchasing or successor-dealer the sales tax liabilities of a selling dealer under certain circumstances. Section 212.10 provided:
(1) If any dealer liable for any tax, interest, or penalty levied hereunder shall sell out his business or stock of goods, he shall make a final return and payment within 15 days after the date of selling the business; his successor, successors, or assigns shall withhold a sufficient portion of the purchase money to safely cover the account of such taxes, interest, or penalties due and unpaid until such former owner shall produce a receipt from the department showing that they have been paid or a certificate stating that no taxes, interest, or penalty are due. If the purchasers of a business or stock of goods shall fail to withhold a sufficient amount of the purchase money as above provided, he shall be personally liable for the payment of the taxes, interest, and penalties accruing and unpaid on account of the operation of the business by any former owner, owners, or assigns.
Neither Lloyd nor the sellers was aware of this statute at the time Lloyd purchased the concessions and Lloyd concedes it did not comply with the statute.
We do not reach, however, Lloyd's argument that section 212.10 is arbitrary and capricious and therfore unconstitutional. If an issue can be determined without declaring a statute unconstitutional, courts should endeavor to do so. State ex rel. City of Casselberry v. Mager, 356 So.2d 267 (Fla.1978). We agree, however, with Lloyd that under the facts of this case and the statutory framework, the best estimate provisions of section 212.12(5)(b), Florida Statutes (1989), cannot be invoked to impose liability upon Lloyd as a "successor" dealer. Section 212.12(5)(b) provides:
(b) In the event any dealer or other person charged herein fails or refuses to make his records available for inspection so that no audit or examination has been made of the books and records of such dealer or person, fails or refuses to register as a dealer, fails to make a report and pay the tax as provided by this chapter, makes a grossly incorrect report or makes a report that is false or fraudulent, then, in such event, 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 of retail sales of such dealer, the gross proceeds from rentals, the total admissions received, amounts received from leases of tangible personal property by such dealer, or of the cost price of all articles of tangible personal property imported by the dealer for use or consumption or distribution or storage to be used or consumed in this state, or of the sales or cost price of all services the sale or use of which is taxable under this part, together with interest, plus penalty, if such have accrued, as the case may be. Then the department shall proceed to collect such taxes, interest, and penalty on the basis of such assessment which shall be considered prima facie correct, and the burden to show the contrary shall rest upon the dealer, seller, owner, or lessor, as the case may be.
The Department invoked this section against Lloyd, not because Lloyd's records were inadequate or had not been tendered to the Department, but because the Department did not have the prior concessionaire's sales tax records. The prior owners of spots 129 and 131 had partial sales tax records which were offered to the auditor, but they were rejected as inadequate. Lloyd tried to subpoena some of the other prior owners' records and tender them to the Department. However, Lloyd was not successful in obtaining enough of the prior dealers' records to satisfy the Department's auditors. The Department maintains that the responsibility to obtain adequate records of the predecessor is upon Lloyd. But there is no statutory authority for such a procedure during the audit stage of the tax proceedings and it is unlikely that a predecessor would voluntarily turn over those records to one without authority— especially if the predecessor understated sales as the Department has alleged.
Although the Department rejected the proffered prior concessionaires' records as "inadequate," it made no attempt to obtain the adequate records from the prior owners or any other source. In calculating the sums the prior owners (including Harold and Sheila Lloyd while operating as a sole proprietorship) should have paid to the state, the Department relied solely on the business records of Lloyd, after it was incorporated in 1989. The Department's assessment was premised solely on a projection method using Lloyd's own records, projected backward in time, and prorated to provide an estimated income and sales tax liability for the concession spots later operated by Lloyd.
Tax laws should be construed strongly in favor of the taxpayer and against the government with all ambiguities or doubts resolved in the taxpayer's favor. Maas Bros., Inc. v. Dickinson, 195 So.2d 193 (Fla. 1967); Florida S & L Services, Inc. v. Department of Revenue, 443 So.2d 120 (Fla. 1st DCA 1983); Rainey v. State, Dept. of Revenue, 353 So.2d 207 (Fla. 1st DCA 1977), cert. denied, 365 So.2d 715 (Fla.1978), citing, State ex rel. Seaboard Air Line R. Co. v. Gay, 160 Fla. 445, 35 So.2d 403 (1948). These courts explain:
This salutary principle is found in the reason that the duty to pay taxes, while necessary to the business of the sovereign, is still a duty of pure statutory creation and taxes may be collected only within the clear definite boundaries recited by statute
Maas Brothers, Inc., 195 So.2d at 198.
Section 212.12(5)(b) allows the Department to assess by guesstimates based upon selected available data, and then be afforded the presumption of correctness. These are rather Draconian provisions, to say the least. It seems clear from the language of section 212.12(5)(b) that its best estimate provisions should not come into operation unless the dealer or person to be charged has done something wrong or obstructive to prevent the Department from making a fair or ordinary audit. The statute provides for a best estimate when the dealer or other person charged fails to make "his records" available, fails to make a required report, or makes a false or grossly incorrect report. None of those circumstances occurred in this case and therefore the statutory provisions could not be invoked.
The Department's estimate relied solely on Lloyd's own, adequate, records for the more current years after Lloyd purchased the concessions. Records like these are not even listed in section 212.12(5)(b) as usable, even if that section were applicable. Section 212.12(5)(b) provides that the information used for the assessment must be based on "information then available to [the Department] for the taxable period of retail sales of such dealer_" (Emphasis supplied). The Department made no effort to obtain or project — or estimate' — sales tax liabilities of the prior concessionaires on the basis of their own records which would have been for the relevant taxable period.
Accordingly, we reject the Department's sales tax assessment because, Lloyd not having been guilty of any default listed by the statute, the Department was not entitled to invoke section 212.12(5)(b). The Depart- merit's audit was based on improper data and improper reliance on section 212.12(5)(b) and therefore the assessment of the predecessor's allegedly unpaid sales taxes against Lloyd is also reversed. See Southpointe Pharmacy v. Department of Health and Rehabilitative Services, 596 So.2d 106 (Fla. 1st DCA 1992); Department of Revenue v. Potamkin Dodge, Inc., 442 So.2d 287 (Fla. 3d DCA 1983), rev. denied, 451 So.2d 847 (Fla. 1984).
REVERSED.
PETERSON and DIAMANTES, JJ., concur.
W. SHARP, J., concurs, and concurs specially with opinion.
. Volusia County Ordinance 88-32.
. The administrative code rule is not set forth in this opinion since it tracks the statute and is of little aid in determining the issues raised in this appeal.
. The title to the beach area occupied by Lloyd in its operation of its concessions was not an issue in these proceedings. Use of Florida beaches customarily used by the public is discussed in City of Daytona Beach v. Tona—Rama, Inc., 294 So.2d 73 (Fla.1974).
. The Department's principal auditor, Mr. Sey-forth, testified:
Well, where the [prior owner's] records are not available to us, we use the best guessed estimate, which — I mean, without anything else, I mean to just pull numbers out of the air, I used what was available.