In November 30, 2012, MST Construction Inc (MST), filed suit against the Department of Revenue in Leon County. MST claimed that it does not owe an assessed sales tax purported to be owed by the Florida Department of Revenue ("FDOR"). As a Florida sales tax attorney, this Complaint, at first glance, seemed to be like a run of the mill assessment case in which the FDOR assessed tax on transactions that may or may not be taxable. It introduces MST as a construction and installation company, which automatically sets off alarms in any state and local tax lawyers head. We have written numerous blogs on the issues that face contractors in Florida. One common predicament is whether the transaction involves taxable tangible personal property ("TPP") or non-taxable real property. If the contractor is selling TPP then it should make its purchases tax free (using a resale certificate) and charge sales tax to the final customer on the resale of the TPP as well as the installation. If, however, the contractor is a real property contractor, then it should pay or accrue tax on its TPP purchases and is not required to charge tax on the sale of the property or the installation. In our practice, we see this issue on almost a daily basis and usually to the detriment of someone other than the state of Florida. It is amazing how gray areas of sales tax law always seem to burn the taxpayer and rarely the state that created the ambiguity.
The Complaint then goes on to describe that MST specializes in the installation of gas and/or petroleum tanks for various commercial customers nation-wide. As an individual who grew up in with a family in the petroleum industry, this caught my attention as well. I have written numerous blogs about potential refund claims for alleged "manufacturing equipment." The hot issue within the industry is whether the mid-grade pumps "manufacture" gasoline by mixing the high and low grades. Maybe that's where this Complaint was going?
As I continued to read, I realized of the myriad of issues I assumed the Complaint was going to touch on, none of them appeared to be the crux of the controversy. While the Taxpayer seems to imply that the equipment purchased should have been tax exempt as it was allegedly used in connection with a business that produces TPP, it does not divulge the specifics of the equipment. Rather the argument seemed to center on the assertion that the FDOR told MST to treat the equipment as exempt for sales tax purposes and then turned around and assessed tax on the same equipment. Is it possible the FDOR would behave in this manner?
Unfortunately, as a Florida sales tax attorney we hear about stories like this all too often. In the FDOR's defense auditors and supervisors change over time and the interpretation of a grey tax law may be interpreted depending on the regime. While it comes down to the burden of proving that the FDOR made such an assertion, this type of detrimental reliance, known as estoppel, is a viable argument. See George W. Davis & Sons, Inc. v. Askew, 343 So. 2d 1329, 1332 (Fla. 1st DCA 1977). However, the detrimental reliance argument most likely will only have a chance to succeed before a court of law because sections 120.565 and 213.22, F.S., provide that a taxpayer may only rely on biding written advice furnished to the taxpayer in the forms of a Technical Assistance Advisement or a prior audit report of the same taxpayer.
While it is unclear as to the nature of the equipment at issue and to why or if other theories will be pursued, this case serves as another potential argument in the tax advocates arsenal. It also serves as a reminder that if the taxpayer can show the FDOR made an assertion and then later changed its position, the defense of estoppel can be asserted.
About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page.
AUTHORITY
Sec. 120.565, F.S.
Sec. 213.22, F.S.
George W. Davis & Sons, Inc. v. Askew, 343 So. 2d 1329, 1332 (Fla. 1st DCA 1977)
ADDITIONAL RESOURCES
MST CONSTRUCTION, INC. v. FLORIDA DEPARTMENT OF REVENUE, Case No. 2012 CA 003624 (2nd Cir. Fla) (Original Complaint)
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