When the Department of Revenue issues a Notice of Proposed Assessment, taxpayers are given several options, including the filing of a informal protest, a refund claim in Circuit Court, or a Petition for a Chapter 120 Petition for administrative hearing before the Division of Administrative Hearings (“DOAH”).. While informal protests are handled within the agency, a Chapter 120 Petition for Administrative Hearing is meant to take the issue outside of the agency for a determination to be made by an impartial judge. However, Petitions for Administrative Hearings are not the same as the petitions made in circuit court. In fact, there are several distinguishing elements of a Chapter 120 Petition for Administrative Hearing filed against the Florida Department of Revenue that taxpayers should be aware of.
Before we get into the distinguishing elements of Chapter 120 Petition for Administrative Hearing, there is one very important thing to remember. Unless completely unavoidable, a taxpayer wants to file an informal protest before filing a Chapter 120 Petition for Administrative Hearing because Taxpayer can be prevented from submitting new evidence in a Chapter 120 DOAH hearing. The informal protest is the taxpayer’s chance to get the best arguments and evidence into the record to have the most leverage in the latter challenges. If you do have to go to trial, then judges also often frown upon taxpayers that do not exhaust their administrative remedies before taking the matter before court. Of course, if you miss the first 60 day deadline to file an informal protest, then you may not have a choice but to go straight to a Chapter 120 DOAH challenge.
Uncontested Pay-In Amount
In many states, taxpayers are required to pay the full assessment, even if greatly over estimated, before they can contest the assessment. In Florida, taxpayer’s who challenge an assessment in circuit court are similarly required to “pay to play,” or first pay their assessment in full before the court even has jurisdiction to hear the case. However, taxpayers who do not want or are unable to pay the entire assessment prior to challenging it in court can find relief through a Chapter 120 Petition for Administrative Hearing. When filing in DOAH administrative court, taxpayers instead pay only the “uncontested amount,” which is the amount of tax the taxpayer reasonably believes to be due, plus interest.
For example, assume a taxpayer has been assessed $500,000 in sales and use tax on audit. However, the taxpayer believes they only owes $25,000. If the Taxpayer goes the traditional route and files in circuit court, the taxpayer will be required to pay $500,000 before the case can be heard. Meanwhile, if the taxpayer files a Chapter 120 petition for administrative hearing, the taxpayer would only have to pay $25,000 plus interest to challenge the remaining assessment. As you can imagine, not many Florida sales and use tax cases go before Circuit Court unless they are already refund challenges.
Opportunity to Settle
While there are opportunities to settle state tax cases when you go the Circuit Court route, the state already has all the money in hand. So the incentive to settle the case resulting in cutting a check back to the taxpayer is not as lucrative for the state to consider. On the other hand. a Chapter 120 DOAH Petition for Administrative Hearing is filing directly with the Department of Revenue General Counsel’s office, the in-house counsel for the Florida Department of Revenue. Since the taxpayer is paying in only what they taxpayer reasonably believes they owe, there is a lot of incentive on the General Counsel to accept reasonable arguments to settle the case and reduce the back log of Chapter 120 petitions filed against the state. This is one of the best reasons to consider taking your challenge all the way to a Chapter 120 DOAH hearing request, because this is where you are most likely to get the fairest settlement. Chapter 120 cases are also not nearly as expensive in attorney’s fees to file as you might think to at least get your case considered for settlement.
Faster Trial
If you are not able to get your case settled with the Florida Department of Revenue Office of the General Counsel, then you will move towards preparing for a formal administrative hearing. While a Chapter 120 hearing has all the formalities of a Circuit Court case, there are additional advantages to the Chapter 120 DOAH hearings. When a Chapter 120 Petition for Administrative Hearing is filed against the Florida Department of Revenue, the trial generally occurs in a much faster time period than a trial held in Circuit Court. Cases in Circuit Court can drag on for years, incurring higher legal fees and leaving the issue unresolved for a longer period. Meanwhile, cases filed in Florida DOAH administrative court can get a much sooner trial date and the recommended order from the judge can be issue much faster than Circuit Court.
Due to understaffing, the Office of General Counsel for the Florida Department of Revenue will often stall in making the initial determination of whether they would like to pursue settling a case or moving it to trial. In part, this is because they do not have the staff to take every case to trial at the same time. However, taxpayers should know they are entitled to speed the process up and can demand that the Office of General Counsel refer the case over to the Division of Administrative Hearing so that an initial order can be issued, and the case set for trial. If a taxpayer wishes to be highly aggressive in moving their case forward, it can go to trial in less than 3 months from the date the Petition for Administrative Hearing was filed. That is certainly much quicker than Circuit Court!
Authority
One downside to filing a Petition for Administrative Hearing against the Florida Department of Revenue is that the Department will get the final word on your case at the trial level. While an administrative law judge (“ALJ”) has final authority to make findings of fact, the ALJ makes a “recommended order” for conclusions of law. The Florida Department of Revenue has the right to overturn conclusions of law in their “final order.” The basis for this is the position that government agencies should have deference in interpreting their own laws and rules. Meanwhile, a finding of fact is something an impartial judge has the authority to decide definitively.
Procedurally, an impartial ALJ will issue either a Proposed Recommended Order or a Final Order, or both, depending on whether they are making a conclusion of law, finding of fact, or both. The Department then can overturn the Proposed Recommended Order and issue their own Final Order that goes against what the judge concluded. If you think this is unfair, you’re not alone! In a traditional Circuit Court case, the judge makes his or her ruling and that is the end of the issue. However, the DOAH administrative court is unique in that the agency still has the upper hand at the end of a trial in which it disagrees with the outcome. Regardless, both parties have the option of challenging a loss in the Florida District Courts of Appeal.
Ultimately, Taxpayers facing an assessment from the Florida Department of Revenue may not be able to settle their assessment without filing in court. Administrative Court offers an expedited trial and cheaper pay-in amount than Circuit Court, but it does have its own downside. Affected Taxpayers seeking to contest an assessment against the Florida Department of Revenue should consult with an attorney to identify the best path forward. What works for one person does not necessarily work for another. An attorney can help evaluate the unique facts of your case and provide guidance going forward. The stronger your team is at the get-go, the better chance you have a successful outcome.
About the author: Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College.
About the firm: At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
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AUTHORITY
Chapter 120, Florida Administrative Code
ADDITIONAL RESOURCES
Plethora of Sales Tax Litigation in Florida, published June 8, 2015, by James Sutton, CPA, Esq.
Florida – Economic Nexus & Marketplace Facilitator Bill Introduced, published February 20, 2019, by James Sutton, CPA, Esq. (detailed analysis of prior FL economic nexus legislation)
Out-of-State Sales Tax Audit Defense, published June 18, 2019, by Jeanette Moffa, Esq.
Preparing your Online Business for an Out-of-State Sales Tax Audit, published July 2, 2019, by Jeanette Moffa, Esq.
I have nexus. What next? by Jeanette Moffa, Esq., April 4, 2019
What is Economic Nexus? by Jeanette Moffa, Esq., February 25, 2019