Understanding the Burden of Proof and the
Burden of Persuasion in Tax and Administrative Cases
The best place to start to consider evidentiary issues concerning the burden of proof and the burden of persuasion is the Florida Supreme Court decision in Dep't of Banking & Fin., Div. of Securities & Investor Protection v. Osborne Stern & Co., 670 So.2d 932, 934 (Fla.1996) In this key case, the court emphasized that "while the burden of producing evidence may shift between the parties in an application dispute proceeding, the burden of persuasion remains upon the applicant to prove her entitlement to the license" throughout the proceedings, thus underscoring both the importance and fixed nature of the burden of persuasion. This distinction is important because it transcends the subject matter of the agency involved in the particular appeal and applies consistently in defending against various state agency actions in license decisions, penalty impositions or tax assessments. These comments by the court must also be understood in the context of earlier but still viable evidentiary decisions of Florida's courts. One often cited decision is Florida Department of Transportation v. J.W.C. Company, 396 So.2d 778 (Fla. 1st DCA 1981). In J.W.C. the 1st District made this still valuable comment:
….[the] general rule is that a party asserting the affirmative of an issue has the burden of presenting evidence as to that issue.
In so stating, the J.W.C. decision succinctly tied the burden of presenting evidence to the burden of persuasion. As a rule, the burden of persuasion is with the party who initiates the proceeding, and remains with that party to establish the material elements of recovery. Meneses v. City Furniture, 34 So. 3d 71, 73-74 (Fla. 1st DCA 2010); Smith's Bakery, Inc. v. Jernigan, 134 So.2d 519 (Fla. 1st DCA 1961). Very recently the Florida Supreme Court in Florida Dep't of Children & Families v. Davis Family Day Care Home, No. SC13-1668, 2015 WL 1379920 (Fla. Mar. 26, 2015) approving sub nom.; Comprehensive Med. Access, Inc. v. Office of Ins. Regulation, 983 So. 2d 45, 46 (Fla. Dist. Ct. App. 2008); drew a clear evidentiary demarcation line between cases imposing penalties in contrast to license denials. The court found its decision from the late 50's still applied to license denials by referencing the definition of competent substantial evidence, saying:
While the agency is not required to prove its allegations by clear and convincing evidence, it may not deny a license application unless the decision is supported by competent substantial evidence. Id. at 934 n. 2. Competent substantial evidence is such evidence that is "sufficiently relevant and material that a reasonable mind would accept it as adequate to support the conclusion reached." De Groot v. Sheffield, 95 So.2d 912, 916 (Fla.1957).
Thus the type of substantive issue involved in the litigation is a key to knowing not only who bears the burden of proof but also which evidentiary standard is applicable to the case. While jurisprudence has played a part in drawing these distinctions, largely the standard of proof and the burden of proof is assigned based upon statutory guidelines. Section 120.57 (1)(j)Fla. Stat. speaks to the standard for weighing evidence in the determination of facts. While carving out penal and licensure disciplinary cases, it establishes the preponderance of the evidence as the standard. The statute states in part:
(j) Findings of fact shall be based upon a preponderance of the evidence, except in penal or licensure disciplinary proceedings or except as otherwise provided by statute, and shall be based exclusively on the evidence of record and on matters officially recognized.
Florida's appellate courts have long recognized the legislative role saying " the APA requires that findings of fact shall be based upon a preponderance of the evidence". M.H. v. Dep't of Children & Family Services, 977 So. 2d 755, 762 (Fla. 2d DCA 2008) ; Fitzpatrick v. City of Miami Beach, 328 So.2d 578, 579 (Fla. 3d DCA 1976). A preponderance of the evidence has been expressed by the courts as the greater weight of the evidence. Watson Realty Corp. v. Quinn, 435 So. 2d 950, 950 (Fla. 1st DCA 1983) approved, 452 So. 2d 568 (Fla. 1984)
The Statutory Burden of Proof and the Burden of Persuasion in Taxpayer contest proceedings
In various circumstances, including Florida tax cases, the legislature has enacted additional specific guidelines from Section 120.57. This is not to suggest that a preponderance of the evidence is not applicable, but rather is directed to specific evidence relevant to Florida tax cases. In cases involving an assessment by the Department of Revenue or assessments or denial of refund made by the Department of Motor Vehicles or the Department of Professional Regulation, the legislature has stated the "burden of proof" is limited to certain specific evidence. In such cases, §120.80 (14)(b) contains the following statement regarding the agencies' burden of proof:
In any such administrative proceeding, the applicable department's burden of proof, except as otherwise specifically provided by general law, shall be limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the applicable department made the assessment.
This statutory burden of proof is applicable to all administrative proceedings designated as "Taxpayer contest proceedings". Section 120.80 (14)(b) specifies this statute is applicable to the following Chapters: 1) cases authorized by s. 72.011(1); 2) chapter 207 (Division of Highway Safety and Motor Vehicles); and 3) chapters 210, 550, 561, 562, 563, 564, and 565 ( Business and Professional Regulation administered laws). Notwithstanding this statutory limitation as to the burden of proof, this guideline does not mean that such a showing equates to a successful defense of the tax assessment. Instead, it establishes specific evidentiary criteria for "Taxpayer contest proceedings" as the initial burden of proof. "Once the Respondent has met this initial burden of proof, the burden shifts to the taxpayer to demonstrate by a preponderance of the evidence that the assessment is incorrect." IPC Sports, Inc. v. State, Dep't of Revenue, 829 So. 2d 330, 332 (Fla.3rd DCA 2002).
What is important for taxpayers, given the statute, is the burden of persuasion. A very recent example of this circumstance is found in a case handled by our law firm. American Import Car Sales, Inc.v Department of Revenue, DOAH Case No. 14-3115. The ALJ found that the statutory burden of proof required of the Department had been supplied in evidence, yet the Administrative Judge ruled against the Department on the merits of the case. In doing so, the Recommended Order stated the Petitioner demonstrated by the preponderance of the evidence the assessment was flawed saying:
The Department met its initial burden demonstrating that an assessment was made against Petitioner, and the factual and legal grounds upon which the Department made the assessment. The undersigned concludes, however, that Petitioner demonstrated by a preponderance of the evidence that the assessment is flawedin that the Department either: 1) proceeded under section 212.12(5)(b), which is clearly inapplicable as Petitioner provided certain books and records; 2) proceeded under a hybrid application of sections 212.12(5)(b) and (6)(b), which is inappropriate as the subsections are mutually exclusive; or 3) assuming, arguendo, that the Department correctly proceeded only under section 212.12(6)(b), the assessment failed to give appropriate consideration to Petitioner's available records, i.e., the general ledger, contrary to section 212.12(6) (b)
In this DOAH decision, handled by our firm, the statutory limitation of the agency (initial) "burden of proof" did not ultimately result in a successful defense by the Department because the taxpayer was able to describe why Revenue's audit procedures were either mistaken or deficient. This was observed by the ALJ in reasoning why, despite Revenue having met its initial grounds for the assessment, nevertheless lost. It lost because the taxpayer was able to meet the burden of persuasion. A link to the entire case opinion can be found at the end of this article. Naturally, knowing where to look for the deficiencies in a tax audit makes a difference in representing a taxpayer facing an unexpected assessment. As this DOAH opinion reveals, finding deficiencies or oversights in the audit process and thereafter presenting the taxpayer's side of the story met the burden of persuasion. This is the standard which must be met in each "Taxpayer contest proceeding" under Section 120.80(14) Fla. Stat.
About the Firm: Formed in 1991, the Law Offices of Moffa, Sutton, & Donnini, P.A. is a law firm with a primary practice area of Florida tax controversy and a heavy emphasis on Florida sales and use tax. With offices in Fort Lauderdale, Tampa, and Tallahassee, the firm defends business owners against the Florida Department of Revenue from the initial audit notice through administrative protest and litigation as well as collections, revocations, and criminal investigations.
About the Author: James (Jim) F. McAuley is an experienced attorney, joining the firm in 2015 after an exemplary career with the state of Florida. Holding the Florida Bar board certification as a specialist in State and Federal Administrative Law, Mr. McAuley represented the State of Florida for more than 20 years in the area of state and local taxation and administrative law with an emphasis on litigation. Mr. McAuley is Board Certified by the Florida Bar in the area of State and Federal Government Administrative Practice. Mr. McAuley holds the highest rating given to lawyers by Martindale Hubbell (Av) and has maintained that rating for more than 15 years. He is also a published legal author in both State taxation and Administrative law. He is an alumni & author of the Nova Law Review (Fall 2007). You can read more about Mr. McAuley in his firm bio.
AUTHORITY
Section 120.80 Fla. Stat.
Dep't of Banking & Fin., Div. of Securities & Investor Protection v. Osborne Stern & Co., 670 So.2d 932, 934 (Fla.1996)
Florida Department of Transportation v. J.W.C. Company, 396 So.2d 778 (Fla. 1st DCA 1981).
American Import Car Sales, Inc. v Department of Revenue, DOAH Case No. 14-3115 (Recommended Order)
ADDITIONAL RESOURCES
FL 1ST DCA: VERIZON APPEALS PROPOSED ASSESSMENT NOT FINAL, published May 25, 2015, by James Sutton, CPA, Esq.
WHEN SALES TAX AUDITORS MAY NOT PICK AND CHOOSE RECORDS TO USE, published April 19, 2015, by Joseph C Moffa, CPA, Esq.
FLORIDA DBPR ABT LOSES BLUNT WRAPS TAXABILITY CASE, published March 15, 2015, by Jerry Donnini, Esq.
2015 – FLORIDA BAR / DEPARTMENT OF REVENUE LIAISON MEETING, published January 17, 2015, by James Sutton, CPA, Esq.