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A & S Entertainment, LLC v. Florida Department of Revenue

Florida Court of Appeals, Third District

September 18, 2019

A & S Entertainment, LLC, Appellant,
v.
Florida Department of Revenue, Appellee.

         Not final until disposition of timely filed motion for rehearing.

          An Appeal from the State of Florida, Department of Revenue Lower Tribunal No. AUDIT# 200199515, BPN:0003398990.

          DiRuzzo & Company, Joseph A. DiRuzzo, III, and Daniel M. Lader (Fort Lauderdale), for appellant.

          Ashley Moody, Attorney General, and Randi E. Dincher, Assistant Attorney General, (Tallahassee), for appellee.

          Before LINDSEY, HENDON and GORDO, JJ.

          GORDO, J.

         This case is a direct appeal pursuant to Florida Statutes section 120.68 from a "Notice of Decision" issued on November 16, 2018, by the Florida Department of Revenue (the "Department") following the Department's audit of Appellant, A & S Entertainment, LLC ("A & S"). The Notice of Decision informed A & S that it owed the State of Florida sales and use tax, penalties and accrued interest totaling $1, 925, 953.17. A & S argues in this appeal that the Department denied it procedural due process throughout the course of the audit because the Department prepared its tax assessment without considering certain unverified documents untimely submitted by A & S. A & S further contends that the Department misapplied the law in categorizing certain fees as taxable income. As we conclude the Department afforded A & S procedural due process and properly applied the law during its audit, we affirm.

         FACTUAL & PROCEDURAL BACKGROUND

         A & S is a company that owns and operates adult entertainment establishments. In February of 2016, the Department issued A & S a "Notice of Intent to Audit Books and Records" and commenced an audit of its sales tax liability, for the time period of January 1, 2013, through December 31, 2015. The initial notice advised A & S of the audit commencement date and included an itemized list of required documentation.

         Throughout the pendency of the audit, the Department sent numerous correspondences to A & S, requesting federal income tax records, bank statements and other information, in order to assess A & S's outstanding sales taxes. The Department's auditor made written requests for specific documentation on April 7, 2016; May 13, 2016; July 19, 2016; October 17, 2016; November 10, 2016; December 14, 2016; December 23, 2016; January 4, 2017; January 17, 2017; and January 30, 2017.

         During the first field visit, A & S's accountant and corporate representative advised the auditor that he was recently hired and was not in possession of the financial records evidencing and supporting the tax returns for the audit period. From April of 2016 to August of 2016, the auditor attempted to meet with A & S's corporate representative an additional five times. The representative cancelled each meeting, stating that he was unavailable or did not have the requisite documents. By the time the auditor and corporate representative finally met at the end of August of 2016, the corporate representative was still not in possession of the requested documents.

         A & S failed to provide verifiable bank statements, cash register tapes, cancelled checks, an amended federal tax return for 2013 and filed federal tax returns for 2014 and 2015. On appeal, A & S concedes the records it provided to the Department were incomplete. Further, A & S casts doubt on the accuracy of even the limited records it provided to the Department by questioning the competency of its accountants.

         After several months of requesting documentation to no avail, the Department's auditor used the best information available to assess A & S's tax liability, pursuant to Florida Statutes section 212.12(5)(b). The Department's auditor utilized A & S's filed tax return for 2013 and its reported gross sales to estimate A & S's unreported sales for 2014 and 2015. Based on that data, the auditor was able to complete the audit and prepare the Proposed Assessment.

         On October 17, 2016, the Department sent A & S a "Notice of Intent to Make Audit Changes" notifying A & S that the audit had been completed. Enclosed with the letter were copies of the audit adjustments and the audit work papers in support thereof. This letter also provided an opportunity for A & S to review the adjustments and contest them within thirty days. The following day, the corporate representative advised the auditor that additional documentation was forthcoming. In the weeks that followed, A & S again failed to provide the necessary documents. Nearly four months later, the corporate representative provided some bank statements and draft federal tax filings. The auditor was unable to reconcile the draft tax filings with either ...


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