Administrative Law Judge Brittany O Finkbeiner recommended the Florida Department of Revenue should finalize a $208,287 assessment against a Tallahassee party equipment business in Fun City Inc v. Department of Revenue. According to this finding, Fun City Inc improperly exempted gross sales of more than $820,000 on the unsubstantiated claim it had supplied labor for amusement rides provided by Fun City to customers. This determination was largely based on the company’s inability to produce adequate records for the 3 year period covered by the audit.
Fun City Inc, a Florida S Corporation, provides children’s rides, bounce houses, climbing walls, and equipment rentals to customers for parties and events. After being notified in June 2018 of an audit for the period May 1, 2015, through March 31,2018, Fun City eventually provided incomplete records in December 2018 after a formal notice of demand was issued. The only records provided were federal returns from tax years 2015 and 2016 and copies of sales and use tax returns.
The initial assessment of $120,954 included penalties and interest as well as $98,818 in tax based on sales, consumable purchases, and commercial rent. This number was revised upward to $208,288 after additional invoices were received from Fun City, this time reflecting a tax amount of $172,813 plus the penalties and interest. The final report detailed improperly exempted sales, untaxed consumable purchases, and untaxed commercial rent liability.
Though Fun City chose to challenge the assessment they did not respond to later motions filed by the Florida DOR, appear at the final hearing on the issue, or submit a proposed recommended order.
Based on the facts on hand the ALJ determined the department had created a proposed assessment that was properly based on the best information available. Under Florida Statue Section 212.12(6)(b), the DOR is authorized to conduct audits and make assessments even when only some records are provided by the taxpayer, which ALJ Finkbeiner concluded the DOR had correctly relied upon while determining tax liability for Fun City. Since the records provided were incomplete, the DOR was allowed to proceed under a hybrid application where the auditor can conduct a test or sample of the taxpayer’s available records to determine a final assessment.
This case highlights the importance of records keeping and continued participation in an audit or administrative challenge. If Fun City had been able to provide more thorough records of its activities, the DOR would not have needed to sample and assess based on limited data, which may have lowered the tax burden for Fun City. In addition, better records may have provided concrete proof of the exemptions claimed by Fun City on its original returns. Once Fun City decided to challenge the assessment, they seemed to only reply in the initial proceedings and did not provide a proposed alternative to the DOR’s recommendation to the ALJ. Perhaps a more thorough defense would’ve allowed for the Judge on the case to find a more compromised agreement, rather than to just accept the DOR’s recommendation wholesale. (Fick, Audrey E.P. “No-Fun City: Party Equipment Business Owes $200,000 Florida Sales Tax Tab.” Tax News, Tax Articles and Information – Tax Notes, 25 Jan. 2023.)