Okaloosa County BOCC — March 1, 2016 — Okaloosa County Sales Tax Warren Averett.pdf

Wa rren 45 Eglin Parkway, N.E., Suite 301 Ave rett Fort Walton Beach, FL 32548 CPAs AND ADVISORS 850.244.5121 warrenaverett.com February 19, 2016 Mr. John Hofstad County Administrator Okaloosa County, Florida RE: Sales Tax Audit General Issues: The main issue of the audit is the Florida Department of Revenue (the Department) treating remuneration between Okaloosa County (the County) and its “tenants” as rent, and subjecting these payments to sales and use tax in the state. Some portions of the assessments merely relate to the County not having collected sales tax on rental payments (or parking fees as the case may be), whereas other portions of the assessment relate to charges/fees imposed by the County on its tenants that the Department deemed rent even though not necessarily classified as such between the County and the tenant. General Florida Guidance: ) Fla. Stat. Sec. 212.031 imposes a sales and use tax on the privilege of engaging in the business of renting, leasing, letting, or granting a license to use any real property. There exists two exceptions to this rule that are pertinent to the audit. They are: e Property used at an airport exclusively for the purpose of aircraft landing or aircraft taxiing or property used by an airline for the purpose of loading or unloading passengers or property onto or from aircraft or for fueling aircraft. e Bailments- a contractual agreement, whereby a person (the bailor) delivers tangible personal property to another (the bailee) and relinquishes exclusive possession, control and dominion over the property. For a bailment to exist, there must be a full transfer, so as to exclude the property from the possession of the owner and all other persons so that the bailee has sole custody and control. If the owner's control and dominion over the property is not dependent on the cooperation of the person on whose premises the property is left, then the owner will be a tenant, lessee or licensee of the space and not a bailor. An example of a bailment is a safe deposit box in a bank because the customer cannot obtain access to the box without the cooperation of the bank. In contrast, an airport locker is not a bailment, since the renter has sole access to the locker. For purposes of the tax, the term “rent” is deemed under Fla. Stat. § 212.031(1)(c) as “including payments for the granting of a privilege to use or occupy real property for any purpose and shall include base rent, percentage rents, or similar charges. “ Additionally, Fla. Admin. Code Ann. 12A-1.070(4) states that the sales tax is paid on all considerations due and payable by the tenant or other person actually occupying, using, or entitled to use any real property to his landlord or other person for the privilege of use, occupancy, or the right to use or occupy any real property for any purpose. However, Fla. Stat. § 212.031(1)(c) states the following in pertinent part: “..In the case of a contractual arrangement that provides for both payments taxable as total rent or license fee and payments not subject to tax, the tax shall be based on a reasonable allocation of such payments and shall not apply to that portion which is for the nontaxable payments.” There is an administrative court case addressing this issue, US Cardio Vascular v. Florida Department of Revenue, which although may be persuasive during a NOPA protest, it does not provide any precedential support. Assessment: The initial assessment by the Department issued December 29, 2015 included tax in the amount of $699,960.44 with interest through that date in the amount of $88,889.98 for a total assessment of $788,850. A significant portion of this assessment related to sales tax due on parking income reported by Republic Parking which was not previously collected, or if collected, not remitted. This is a taxable privilege under Fla. Stat. Sec. 212.03(6), and as such tax was due. The assessment (A04) was in the amount of $357,501.86. We advised the County t