The DOR's Controversial and Potentially Incorrect Practice to E-Z Exemptions and Credits Should Be More Heavily Scrutinized
In February 2011, a taxpayer filed a claim for refund based on an Enterprise Zone (EZ) Credit. As it does in many cases, the DOR promptly denied the refund claim. It has long been a theory of mine that once a EZ exemption or credit is approved by the Coordinator of the program the DOR lacks authority to review or audit the transaction.
Consider the following example. ABC, Inc. applies for an EZ exemption or credit under section 212.08, Florida Statutes, based on the requisite percentage of employees living within the EZ. Pursuant to section 212.08, F.S., and rule 12A-1.107, F.A.C., the information is submitted to the Program Coordinator of the DOR and the Coordinator approves the EZ status. Following the EZ approval the DOR commences an audit and determines that not only does the exemption or credit not apply but rather the taxpayer now has a deficiency and owes tax to the DOR. Contrary to its position, does the DOR actually have any authority to engage in this practice?
Interestingly the Florida Administrative Code, the DOR's own set of guidelines, prescribes a process to qualify for an EZ exemption or credit. Under rule 12A-1.107, F.A.C., it seems the DOR lacks authority to audit a previously approved EZ exemption. In Angler Resorts LLC, Case No. DOR-08-17-FOI (DOAH March 16, 2008) and Epic Hotels LLC, Case No. 10-1679 (DOAH Aug. 2, 2010) the DOAH court held that the DOR lacks authority to impose tax based on post certification information. It seems to me that what the DOR doing is incorrect. Further, I am unable to find any authority that supports the DOR's position. This practice should and needs to be challenged as it happens with some degree of regularity to EZ applicants in Florida.
It is also noteworthy that in this particular case the DOR settled with the taxpayer in the amount of the refund claim due to "controversy hazards."