Earlier this week, the First DCA issued an opinion in favor of our client, GBR Enterprises, Inc.  The case is Department of Revenue v. GBR Enterprises, Inc.  The order on appeal was a final administrative order, appealable under section 120.68(1), Florida Statutes.

The case began with a Department audit against GBR for sales and use tax.  During the audit, the Department became interested in bid agreements GBR had with various South Florida schools.  Under the bid agreements, GBR contracted with the schools to service vending machines on school campuses.  GBR typically provided and serviced the vending machines, and GBR and the schools each received a percentage of sales revenue from the machines.  The Department ultimately determined GBR’s relationship with the schools was a license to use real property, and GBR had to pay tax on the revenue received by the schools.

The Department relied on Florida Administrative Rule 12A-1.044(5)(a) to support its determination.  The Rule, at the time, imposed a mandatory tax:  payments between the owner and operator of a vending machine and the owner of the property where a vending machine is placed, are taxable as a license to use real property.

GBR challenged the assessment, arguing it was providing services to the schools, not licensing the use of real property.  GBR also filed a petition under section 120.56(3), Florida Statutes, challenging the Rule as an invalid exercise of delegated legislative authority.  The proceedings were consolidated in DOAH.

In DOAH, the Administrative Law Judge sided with GBR on both issues.  The ALJ issued a Recommended Order, finding GBR was providing nontaxable services.  And the ALJ issued a Final Order concluding the Rule was invalid.

In determining that the Rule was invalid, the ALJ analyzed the statutes cited in the Rule for its rulemaking authority and statutes cited in the Rule for its law implemented.  Importantly, the cited statutes did not confer the Department with authority to impose a mandatory tax simply because a vending machine is placed on another’s property.  By imposing such a tax under the Rule, the ALJ concluded the Department exceeded its rulemaking authority and the Rule enlarged the statutes being implemented.

The Department appealed this portion of the Final Order.  On appeal, the First DCA affirmed the Final Order, issuing a per curiam affirmance.  The affirmance reaffirms a general principle of administrative law:  an agency can enact rules only when specifically authorized by the legislature.  § 120.52(8), Fla. Stat.; § 120.536(1), Fla. Stat.  If an agency has acted against you, and relied on a rule that violates this principle, then consider filing a rule challenge against the agency.

Jonathan Taylor is an associate attorney with The Law Offices of Moffa, Sutton, & Donnini, P.A.  Mr. Taylor concentrates in the areas of Florida tax appeals and general administrative appeals.  Mr. Taylor also volunteers with Guardian ad Litem to handle appellate matters.  Mr. Taylor can be reached at 954-234-2884 or jonathantaylor@floridasalestax.com.