FICPA/DOR Annual Liaison Meeting

State Taxation Issues
This special section reports on the Nov. 15, 1996, liaison meeting in Tallahassee between the FICPA Committee on State Taxation and the Florida Department of Revenue. The information presented here is intended to assist members of the FICPA. The DOR should be contacted for further clarification.

After a year of planning, the 1996 annual liaison meeting between the FICPA Committee on State Taxation and officials from the Florida Department of Revenue (DOR) was set to take place at the FICPA headquarters in Tallahassee. Every seat was occupied as both groups filled the room and gathered around the conference table. DOR Executive Director Larry Fuchs and FICPA Executive Director Lloyd "Buddy" Turman opened the meeting with laudatory remarks on the hard work of FICPA committee members and DOR staff during the past year to make this meeting a productive one. Turman and Fuchs both commented on the groups' successes over the past year and expressed their hopes for continued positive relations into 1997.

The structure of the 1996 meeting marked a notable change for both groups. Following their 1995 annual liaison meeting, the State Tax committee and DOR decided to redesign the meeting format. Both groups agreed that the new format should encourage a more open exchange of ideas and foster problem-solving rather than problem-generating interaction. So, instead of following the traditional question-and-answer format, committee and DOR participants established an agenda of topics deemed equally important to both groups. DOR representatives and committee members were responsible for presenting particular agenda items and leading discussion at the meeting. Each item was introduced and allotted a certain amount of time for discussion. Following is a summation of those discussions as they were presented.

Exchange of FICPA/DOR Legislative Proposals
Both the DOR and FICPA are finalizing their respective legislative proposals for 1997. Bebe Blount, DOR Legislative and Cabinet Services Director, presented the DOR's package, which covered the following areas: department-wide concepts; property tax administration concepts; general tax administration concepts; tax enforcement concepts; motor fuel related concepts; and child support enforcement concepts.

The DOR's proposal on general tax administration would increase the amount of tax that the DOR Executive Director would have the authority to compromise from $100,000 to $250,000. State Tax committee members expressed their approval of this concept and stressed the need to consider an even higher compromise authority.

A second proposal addressed the DOR's ability to deny a new sales and use tax registration to an officer, director or majority shareholder of another corporation who quit the business and failed to file a final return or pay any liability. Committee members expressed concern over this concept and described it as too broad.

Some feared that this provision could unfairly restrict business in the state. Blount explained that the provision was intended as an enforcement tool to be used with discretion on a case-by-case basis. Taxpayers still would be able to appeal if they believed that the denial of a registration was capricious or unfair, Blount said. FICPA committee members responded that specific criteria should be included in the provision to limit its applicability and safeguard innocent parties. The DOR welcomed suggestions from committee members on possible revisions to the language.

The last DOR proposal was discussed at length. It involved a provision that would constrain the statute of limitations to seven years for taxpayers willing to self-disclose tax liabilities. The FICPA's 1997 legislative policies also contain this provision; however, the FICPA policy asks for five years. FICPA committee members believe the statute should be consistent with audits and assessments. Many arguments were made on both positions, seven versus five years. The DOR noted all of the comments and stated that the issue deals more with a nonfiler self-disclosing versus a filer self-disclosing an error.

The FICPA's legislative policies relating to state taxation issues were discussed as well. Discussion primarily related to the policy to oppose any legislation that would tax S corporations, limited partnerships, general partnerships, limited liability partnerships, limited liability companies, or any other flow-through entities. This led to a discussion regarding a position paper issued by The Florida Bar that the committee was reviewing. The position paper proposed the repeal of Florida corporate income tax on LLCs. The DOR's representatives stated they were aware of the position paper and they would not have administrative concerns over the proposed repeal; however, they would neither support nor oppose the repeal proposal put forth by The Florida Bar.

Task Force Update and Intergovernmental Programs
Larry Durrence, Taxpayer Rights and Intergovernmental Relations Advocate, reported on the DOR's activities in this area. The governor and Legislature directed the DOR to participate in several study commissions, committees and task forces created in 1996. They were: the Florida Telecommunications Taxation Task Force; Florida Ad Valorem Task Force; Sale for Resale Exemption Revision Committee; and Tax Collector Transactions Task Force. The DOR also was involved in other study groups, but these - especially the first three - are of most interest to the FICPA.

The Sale for Resale group was finalizing its report in November 1996. The Telecommunications and Ad Valorem reports were due in February 1997. The DOR considers its role in these study groups to provide information and assist with staff support without advocating a policy position.

The Telecommunications Task Force was discussing possibly replacing the current multiple taxes - gross receipts, sales and use, municipal utility tax, and local franchise fees - with a single tax administered at the state level, but shared with local government. The major obstacles would be loss of local home rule authority and the possibility that the proposal might be interpreted as a new tax on the unincorporated areas of most counties since only charter counties and cities currently levy a tax on telecommunications. Other issues are rate equity as it relates to cable versus more traditional telecommunications providers, residential preference, and what services should be taxed.

The Ad Valorem Task Force was studying the processes by which taxable values are determined and how they may be appealed. The group examined an arbitration process used in another state, but it does not appear to have much support. It is not yet clear what recommendations will be made on issues such as presumption of correctness or partial year assessment.

The Sale for Resale Exemption Committee is composed primarily of business representatives. Recommendations considered included a two tiered registration process to separate those businesses that do not purchase for resale; a 24-hour, toll-free phone line for vendors to verify an individual's right to purchase for resale; increased education of dealers regarding their responsibilities; and investigation of the feasibility of developing a "smart" card for verification.

Major intergovernmental activities included participating in discussions between the Federation of Tax Administrators (FTA) and the Direct Marketers Association over collection of tax on sales in Florida by out-of state businesses; working with the FTA on uniform standards for electronic data interchange (EDI); cooperating with the Multi-State Tax Commission on voluntary disclosures and emerging tax issues; and working with the Southeastern Association of Tax Administrators on the exchange of audit information.

EFT/EDI Process Information
Jim Evers, Program Director of Operations & Account Management, and Beth Sisson, Intra-departmental Projects Administrator, explained the DOR's implementation of Electronic Data Interchange (EDI). The DOR's 1996 legislative package included a proposal to have all sales tax filers who currently are required to pay by Electronic Funds Transfer (EFT) to also file sales and use tax returns through EDI. After the legislation passed, the DOR began implementing the project with a goal of being operational in early 1997.

The first phase of the project was to coordinate with Global Payment Systems (GPS) and Barnett Bank, the service providers for the DOR's current voluntary EFT/EDI program. The EDI system has been available to all Florida sales tax filers on a voluntary basis since January 1995, and has approximately 250 taxpayers who file about 2,500 returns each month. The new program will expand those levels to 25,000 taxpayers filing 65,000 returns each month.

Another critical part of the project was to develop the EDI software for 1997. GPS previously made free software available to all participants; they declined to continue this courtesy for 1997. The DOR carefully considered developing the program in-house, but due to the large number of taxpayers who would be participating, the DOR decided private software companies were better suited to provide the necessary programming and customer support. Invitations were extended to many software vendors to develop EDI software packages for the 1997 program. At least two of the vendors offer packages for tax practitioners that charge one licensing fee and can be used to file for multiple clients. The DOR has also worked extensively with several hundred taxpayers who are developing their own EDI software.

The EDI legislation provided some broad categories for deferrals from the electronic filing requirement, such as lack of computer equipment, data system processing changes, and taxpayer operating procedures. A deferral request form (DR-654) was developed to simplify the process. Additionally, a determination was made early in the process that the DOR would never require purchase of computer equipment. Taxpayers will be granted a one-year deferral if they do not have all the necessary hardware, and it can be renewed if they have not purchased equipment for other business reasons. The goal is to work with taxpayers toward full compliance with the EDI program.

The next step was to create a communications plan that would provide all the necessary information to the affected taxpayers. This included dissemination of Taxpayer Information Publications, brochures, and deferral request forms. Tailored communication packages were mailed to the various taxpayer categories, such as those required to both pay and file electronically.

(Editor's Note: GPS decided in December 1996 that it no longer wished to provide the DOR's EDI services. This unanticipated late change has required the DOR to contract with a new provider, and has necessitated a minimal delay in the program. Taxpayers will be notified of specifics and given instructions on when and how to file. The DOR regrets any inconvenience this may cause.)

DOR Reorganization
Steve Hammond, Senior Program Director of General Tax Administration, reported on the DOR's organizational structure. In June 1995, the DOR implemented sweeping reforms that realigned the agency to be more consistent with its core business processes. The DOR's tax administration functions, formerly the purview of four independent divisions with 12 bureaus, are now performed by a single program called General Tax Administration (GTA). Structured around four operational processes - Return & Revenue Processing, Taxpayer Services, Compliance Enforcement, and Compliance Support - and two support processes - Resource Management and Applied Technology - GTA is responsible for administering 38 taxes.

Return & Revenue Processing consists of three functions located in Tallahassee: Central Registration; Revenue Processing; and Records Management.
The Taxpayer Services Process comprises five primary functions: Return Reconciliation; Collection Services; Tax Information; Tax Education; and Refunds.
Compliance Support focuses on the coordination and support of all compliance activities. Five compliance coordinators, assigned to each of the four major tax groups (sales, intangible, fuel and corporate) are responsible for ensuring that all functions related to these taxes are kept running smoothly across process and program lines. In addition to compliance coordinators, the process contains five units that perform various support functions. Case Selection generates leads for Compliance Enforcement; Review, Assessments & Procedures establishes and monitors standards for Compliance Review along with preparing assessments; Case Processing is responsible for oversight and accounting of assessments; Contract Audit oversees the agency's audit privatization efforts; and Program Training develops and delivers audit training.

Compliance Enforcement encompasses all of GTA's field service centers, including six out-of-state service centers and related branch offices. Unlike other GTA processes that are responsible for a specific group of functions, Compliance Enforcement performs the full range of GTA functions, from registration and education to collections, compliance review (audit), and enforcement. This is the largest GTA process, with approximately 1,500 employees.
Resource Management provides analytical, developmental and budgetary support services to the GTA Program. This process has three primary components or functions: Program Development; Program Evaluation; and Budgeting.

Applied Technology provides oversight and coordination of all technical issues in GTA. Located in Tallahassee, this process has three primary components: Systems Development; Systems Coordination; and Technological Integration. The process maintains direct relationships with technology resources in the DOR's service centers, out-of-state offices and the Information Systems Process.

Tax Policy Issues and Discussions
Recap of Recent Decisions and Pending Cases
HMY New Yacht Sales - The taxpayer was a boat broker who removed a boat from the sales inventory to use for demonstrations, sales promotions, and other activities. The taxpayer also started taking depreciation on the boat for federal income tax purposes. The court concluded that these activities constituted a taxable use of the boat for which use tax was due.

Warning Safety Lights of GA - The taxpayer was a subcontractor for Florida Department of Transportation road construction projects. The taxpayer constructed temporary traffic patterns around road construction sites by installing and maintaining barricades, lights, other traffic control devices, and temporary road striping. The DOR issued a declaratory statement determining that proceeds received for road striping were payments for nontaxable services, but proceeds received for the barricades, lights, and traffic control devices were taxable as payments for leases of tangible personal property. The court held that the DOR erroneously concluded that the taxpayer was engaged in the business of renting tangible personal property.

DeCarlo - The taxpayer signed a closing agreement with the DOR to settle a drug tax assessment. When the tax was later declared unconstitutional, the taxpayer requested a refund of monies paid pursuant to the closing agreement. The court upheld the DOR's denial of the refund.

Vanjaria Enterprises - The taxpayer leased real property, a portion of which was used as a hotel and exempt from sales tax. The DOR's audit procedures manual contained a policy instructing auditors to prorate the exempt portion based on a square footage methodology. Evidence at trial supported that the DOR had consistently used this procedure in audits. The taxpayer argued that an ad valorem approach to determining the taxability of the lease payments was a more equitable method. The court held that the DOR's policy was an unpromulgated agency rule and invalidated the assessment. The court did not rule that the methodology was improper in this case, only that such a policy was a "statement of general applicability" and could not be relied upon as a basis for an assessment without drafting a rule in accordance with the Administrative Procedures Act.

Advanced Mobilehome Systems Inc. - The taxpayer failed to charge sales tax to a customer on taxable items. The agreement between the buyer and the seller did not address the issue of taxes. However, the taxpayer's invoice contained language stating that the buyer was liable for taxes. After being audited by the DOR, the taxpayer paid the sales tax and tried to collect it from the customer, arguing that the buyer was liable for the tax by virtue of the language on the invoice. The court, resorting to UCC law, held that the taxpayer could not collect from the customer since there was no contract that was mutually agreed upon regarding taxes on the purchased item.

Share International Inc. - The taxpayer had a mail-order operation located in Texas. During a conference held in Florida by a sister company, the taxpayer brought products to Florida and made sales. The taxpayer registered with the DOR and remitted tax collections on sales made at the conference, but not on orders taken at the conference or on subsequent mail-order sales. The Florida Supreme Court held that the taxpayer did not have a substantial nexus with Florida, which would require the taxpayer to collect and remit tax on its mail-order sales. The DOR has asked the U.S. Supreme court to review the case. In January the Court denied the DOR's request.

Presentation of Completed and
Pending Rule Changes by the DOR
Gratuities - The DOR currently is amending Florida Administrative Code (FAC) Rule 12A-1.011(13) relating to gratuities. In the past, the DOR has taxed, as part of the sales price, any gratuity charge made to a customer for the service of any taxable food or drink product. The gratuity was not considered taxable if the following three events occurred:

The charge was a voluntary gratuity or tip added to or by the purchaser to his bill, or it was money given freely by the purchaser over and above the sales price of such food or drink product;

The charge was separately stated on the purchaser's bill or invoice as a gratuity or tip; and

All such voluntary gratuities must be distributed in full to the employees at least every six months with no part accruing to the benefit or advantage of the dealer.

The amended rule will require that the following two events occur:

The charge be separately stated on the purchaser's bill or invoice as a gratuity or tip; and

All such voluntary gratuities must be distributed in full to the employees at least every 12 months (by business year end) with no part accruing to the benefit or advantage of the dealer.

A rule development workshop was scheduled for January 1997. Meanwhile, the DOR's tax auditors have been instructed to apply the proposed changes when auditing taxpayers.

Real Property Improvement Contracts - Proposed Changes to Rule 12A 1.051 - The DOR plans to hold a public workshop prior to the start of the 1997 legislative session to discuss proposed changes to FAC Rule 12A 1.051, "Sales to or by Contractors Who Repair, Alter, Improve and Construct Real Property." One of the proposed changes is the clarification of section (2)(d) of this rule. If the amendment is adopted, a (2)(d) contract would have to be reduced to writing prior to starting the work and 90 percent of the materials used must be itemized in order to have a contract receive the treatment specified under (2)(d).

Further, the contract must state that title to the materials passes to the property owner before installation. The proposed changes also will address "turn key" contracts, which include a combination of real property and tangible property improvements. Under these changes, the contractor would treat 90 percent of the contract price as the real property portion and the remainder as a sale of tangible personal property. However, the contractor could elect to bifurcate the actual real and tangible portions of the contract.

Additionally, the rule would expand paragraph (19)(b), which deals with sheet metal contractors. Currently, sheet metal fabricators are allowed the option of reporting tax on 50 percent of the contract price instead of computing tax on the fabricated cost. The proposed changes would allow other specifically enumerated industries to compute the tax due based on 50 percent of the contract price rather than computing tax on the fabricated cost.

Electricity Exemption for Manufacturing and New and Expanding Business Exemption - A presentation was given by Jeffery Soff, Tax Law Specialist, Tax Policy and Dispute Resolution. Soff handed out a five-page paper titled, "Sales and Use Tax Exemption on Machinery and Equipment Used By New or Expanding Businesses; FS Section 212.08(5)(b) (1996); FAC Rule 12A-1.096." With time at a premium, Soff then spoke briefly on the highlights of this subject without touching on the electricity exemption.

The bulk of the discussion centered on the distinction between "new" and "expanding" businesses. The distinction is important since the law places different requirements on the two categories. Expanding businesses must show a 10 percent increase in productive output after expansion in order to qualify. Soff pointed out that there is a difference between starting a new business and merely moving the site of an old business. He also noted the distinction between manufacturing a completely new product and manufacturing a product that is similar, but not exactly like the old product. This "physical comparability" problem seems to be the most troubling aspect in applying the law to a new versus an expanding business.

Soff used the hypothetical example of a company that produced a cookie product and then began producing corn chips. They are dissimilar in many ways and yet they are both snack foods. Is this a new business? The answer is not immediately determinable because several factors first would have to be considered concerning the products and their use.

Soff also briefly touched on the subject of manufacturing a "good" versus providing a "service." For example, a business that buys old engines, refurbishes them and offers them for sale is a manufacturer that may qualify for the exemption, whereas a business that rebuilds old engines for the customer/engine owner is providing a service and cannot qualify.
Finally, Soff noted that among the July 1996 revisions to the law is the provision that printers and certain publishers are now considered qualified industries.

Transient Rental and Tourist Development Taxes - The DOR is in the process of completing rule changes that affect the Transient Rentals and Tourist Development Tax. The proposed changes will amend FAC Rules 12A-1.060 and 12A-1.061. The DOR, Local Tourist Development Tax Administration counties, and industry representatives have participated in a series of workshops aimed at providing guidelines to taxpayers and tax administrators for businesses that offer living, sleeping, or housekeeping accommodations.

The rule changes will include definitions clarifying the deposits, fixtures, furnishings, etc. Additionally, the rule will define transient accommodations, transient facility, and transient guest. The DOR has provided some examples of items that are included as taxable rental charges and items that are statutorily excluded from classification as taxable rental charges.

Other important changes or clarifications concern the tax reporting responsibilities of property management companies and owners of transient rental property. The DOR also places several parameters on the requirements for exemption from the tax when there is a written bona fide lease for periods longer than six months of continuous residency.

Telecommunications - In September 1995, the DOR issued a Technical Assistance Advisement (TAA) indicating that sales and gross receipts taxes were due on the access charges to the Internet. This advisement was based on the broad definition of telecommunication services in the Florida Statutes. However, the DOR decided to delay taxation of Internet charges until after the 1996 Legislature met.

The DOR intended to begin taxation on July 1, 1996, if the Legislature did not specifically exempt Internet access charges. Instead of creating this exemption, the Legislature formed a special task force to study, on a broader basis, the taxation of all telecommunication services. At the direction of Gov. Lawton Chiles, the DOR has again suspended the taxation of the Internet access charges until after the 1997 Legislature meets. The DOR, which is one of many sources of information to the task force, indicated that it is neutral concerning the positions the task force ultimately may take. The report from the task force was scheduled to be released in February.

Audit and Enforcement Issues
Audit Selection
Georgia Chapman, Compliance Support Process Manager, General Tax Administration, updated committee members on audit selection in the following areas: sales tax; income tax; and intangible tax.

Chapman explained that leads for sales tax audit selection are generated from the DOR's central taxpayer database, DOR field auditors who are conducting other audits, the IRS database (i.e., matching federal returns with state returns), and Very Large Taxpayers who remit more than $100,000 annually and are audited at least every five years. Leads for corporate income tax are generated when exceptions such as the following are noted: discrepancies between federal and state income tax returns; state income tax is not an adjustment on the federal income tax return; and line 1 of the state return does not agree with line 30 of the federal return.

Intangible tax leads are generated by comparing an individual's intangible return to reports filed by stockbrokers and information from IRS data.

Enforcement Operations (formerly Special Programs)
Enforcement Operations/Investigations staff currently are looking at new ways to perform their job, which is to identify specific industries and taxpayers with problems in the compliance area. For example, a joint program between the DOR and the Department of Agriculture and Consumer Services is designed to improve compliance with the sales and use tax law on goods purchased out-of-state and trucked into Florida. The agriculture department currently stops trucks at highway weigh stations at key Florida entry points and copies bills of lading to identify out-of-state purchases on which no sales tax has been collected. These bills are then reviewed by the DOR to determine if tax is due. The DOR is looking at alternative methods of accomplishing the same goals with less interference to the trucking industry. Additionally, the DOR will attempt to relay to the FICPA problems identified within specific industries so that the Institute may assist its members in achieving compliance with the tax laws.

The DOR's investigators also have spent much of their time watching used car dealers who collect and fail to remit sales tax. Another area of concern for the investigators is the failure of some fuel dealers to remit the local option tax on the sale of motor fuels.

Contract Audit Program
A brief discussion on this subject was provided by Larry Surles, Revenue Program Administrator II, General Tax Administration. His discussion came on the heels of comments by members of both the FICPA and the DOR that the Contract Audit Program (CAP) was inferior to the Certified Audit Program. Surles stated that the CAP was ongoing and that the program creates a good return on investment for the state. The Florida Legislature appropriated $2 million for the program in 1996, and the DOR currently has 28 contracts. Although the program is generally going well, Surles noted that funding was an inherent problem with the program because it sometimes runs out during an audit.

Certified Audit Program
Proposed legislation would create a Certified Audit Program, thus creating FS Sections 213.285, 213.21(7) and 213.053(7)(o). Last year, similar legislation was passed by the Florida Legislature, but the legislation was attached to a bill (tax train) that was vetoed by the governor.

The proposed Certified Audit Program is similar to the current DOR Contract Audit Program, except that the CPA is hired by a taxpayer rather than the state to conduct the certified audit. The taxpayer's incentive to pay for the audit is that all penalties, the first $25,000 of interest, and 25 percent of any interest in excess of $25,000 would be waived by the state.

Glenn Bedonie said he believes the Certified Audit Program is a natural progression and improvement upon the Contract Audit Program. The fees are set by the CPA and his or her client rather than the state through a cumbersome competitive bid process. CPAs participating in the current CAP should not need any additional training. New CPAs can join the Certified Audit Program by completing the proper training. The Certified Audit Program would allow CPAs to audit their own clients, which is not the case with the current Contract Audit Program.

DOR Executive Director Fuchs stated that he believes the Certified Audit Program is a partnership between CPAs and the state. The state is foregoing penalties and interest in return for a larger audit coverage. CPAs receive larger fees, a more flexible audit schedule, and the ability to audit their own clients.

The audit will be conducted under the CPA attestation function using agreed-upon procedures set by the DOR. Every CPA working on the audit engagement must be qualified (i.e., must have completed the state approved training), and the CPA must follow the Yellow Book standards. Random audits will be checked by the DOR, and substandard work will be reported to the Florida Board of Accountancy.

During the discussion, Fuchs stated that the Certified Audit Program is intended for use by "good corporate citizens" who want to comply with Florida's tax requirements. Taxpayers selected by the DOR for audit, or who attempt to use the Certified Audit Program in an abusive manner, will not be eligible to participate.

Self Audits
Over the last two months, the DOR has been defining the audit approach to encourage full reporting of tax due. Last year, 7,000 audits were performed. The goal of the work plan for audits is to conduct 50,000 audits by fiscal year 1997-98. Sales tax audits now comprise 70 percent of all audits.

The goal is to audit Very Large Taxpayers every four years rather than the current cycle of an audit every five years. In terms of small taxpayers, the DOR is planning to assign the audits of 10,000 intangible tax returns to the agency's regional offices.

For audits of intangible tax returns, the DOR has been using information from stockbroker sources to select returns for audit. The DOR plans to increase its audit scope on intangible returns by also using information from federal tax returns. This information includes foreign transactions in excess of $100,000, large investment interest expenses on tax returns, and rents and royalties reported on federal S corporation returns.

A question was raised regarding the DOR's position on the use of book value versus fair market value when valuing a closely held corporation for intangible tax purposes. DOR's Bedonie stated that the department is required by statute to use fair market value for valuation purposes, but that in small, closely held corporations, book value is one factor that is useful in determining the fair market value of the corporation.

Voluntary Disclosures
The DOR Voluntary Disclosure Program is for taxpayers who have an unreported and unpaid tax liability. The incentive for voluntary disclosure is that all penalties will be waived, unless tax has been assessed and not remitted. In this case, a minimum 5 percent penalty will be assessed.
Following is the procedure for voluntary disclosure:

1. Mail a letter to the DOR Voluntary Disclosure Program explaining the circumstances.
2. The DOR will respond by sending the taxpayer the Terms and Conditions for Voluntary Disclosure and the tax compliance requirements.
3. The tax returns are filed directly with the Office of the General Counsel, Voluntary Disclosure Program, using their P.O. Box. Please note that if returns are filed directly with the DOR, penalties and interest will be assessed.

If a subsequent audit reflects additional liability, penalties will not be waived unless reasonable cause has been established.

DOR Process Concerns
Protest Process for Audits
Cass Vickers, (then) DOR Tax Policy & Dispute Resolution Director, discussed trends regarding the adjudication process of audit cases and the issuance of technical advisements to auditors and taxpayers alike. Vickers indicated that the protested cases in inventory have declined from more than 3,500 to 963 as of Sept. 30, 1996. In turn, the total dollar value of amounts in controversy declined from approximately $230 million in October 1995 to $125 million currently.

Vickers also reported that refund denial cases were being handled three times faster than just a year ago, down from 306 days in July 1995 to 101 days in September 1996. The number of cases being referred to the Attorney General was down as well. Less than 7 percent of cases were referred to litigation.

Timeliness of Responses
The DOR's goal was to close out the majority of old cases by year end. The number of protested cases decreased steadily over the last year. In addition to the number of protests being filed, the value of the inventories also declined. The total value of protest cases in inventory declined from more than $200 million in July 1995 to approximately $125 million as of Oct. 31, 1996. Also, the protested dollars were collected more quickly.

The DOR set a priority to increase the speed at which it resolved protest cases. In July 1995, it took an average of 284 days to close a case. As of September 1996, the DOR averaged 146 days - a significant reduction in the amount of time to resolve cases. Only 100 cases that are more than 150 days old remain in inventory (some are more than two years old.) The DOR is targeting these 100 cases to resolve them in the near future. The DOR's goal on protests is to average 90 to 120 days without a decrease in the number of cases.

With respect to technical advisements, the DOR is distributing Requests for Technical Advice (newly renamed Internal Technical Advisement, or ITA) to auditors more quickly. Turnaround time for ITAs is down from 230 days to approximately 110. TAAs take approximately 110 days to issue while a Letter of Technical Assistance takes between 30 and 35 days. The DOR expects to reduce TAA turnaround time to an average of 60 days within the next 12 to 18 months.

A DOR rule previously prohibited taxpayers under audit from getting TAAs. The DOR rule has been amended to allow taxpayers access to TAAs while under audit, provided the taxpayer discloses the request to the auditor. The auditor then has 10 working days in which to submit any facts, arguments, documents, etc., that he or she believes should be considered in the ruling. An extension on the 10-working-day rule can be requested. TAAs cannot be submitted after an assessment is issued. Also, if ITA and TAA requests are submitted on the same subject, the one received first will be processed; the other one will be denied at this level.

The ITA would parallel the TAA's procedure with regard to allowing the taxpayer 10 days to respond. By requiring each side to notify the other, the DOR is hoping that all facts, circumstances and documents will be available at the time the decision and interpretations are made in Tallahassee, thus reducing time and avoiding misunderstandings in the decision process.

Process Issues
One process concern was raised regarding the field officer receiving a case under protest. Protests initially are filed with the DOR's Compliance Support section in Tallahassee. That section's personnel review the case. At no time does a protested case get sent back to the original field auditor. The only time the field auditor is contacted in a protest is for clarification of facts related to the taxpayer.

Another issue was raised regarding the DOR's out-of-state auditors. Committee members expressed concern that the auditors were not aware of the current issues and procedures, and they lack experience with current cases when compared to an in-state auditor. Committee members stated that this can cause delays during an audit. The DOR acknowledged that problems with communication do exist at times. One of the steps the DOR is taking to improve communication between Tallahassee and all field workers (in-state as well as out-of-state) is that when a revision on a case is made, the person working in Tax Policy contacts the auditor by telephone to explain the revision and to determine if the auditor concurs. Improvement should be seen by implementation of this policy.

Conclusion
As time ran short for the few remaining agenda items, the FICPA State Tax committee members and DOR officials decided to adjourn. Both groups expressed positive reactions to the discussions held during the full-day meeting, and both agreed that relations between the FICPA and the DOR benefited greatly.

Participants
FICPA Committee on State Taxation: Kevin J. Lockwood, chairman; Susan S. Williams, vice-chairman; Michael K. Ake; Glenn A. Bedonie; Sharon K. Bishop; Mitchell K. Dauerman; David B. Dougherty; Joan L. Eckert; Mark A. Fenaughty; Deborah Garringer; Lane J. Genet; Edward M. Hanna; Randy D. Haynes; Kevin J. Herzberg; Ray P. Jefferies; Cheri L. Jones; David L. Karian; Odalys B. Lara; Aleda J. Marshall; Joseph C. Moffa; Michael E. Niles; Patricia R. Plank; Paula D. Popovich; C. Sue Shore; Gregory R. Tait; John J. Ustica; Jose E. Valiente; Scott T. Wiles; Scott R. Willick; and Kenneth E. Wilson.

Florida Department of Revenue: Larry Fuchs, Executive Director, Florida Department of Revenue; Donna O'Neal, Taxpayer Education Director; Bebe Blount, Legislative & Cabinet Services Director; Larry Durrence, Taxpayer Rights & Intergovernmental Relations Advocate; Jim Evers, Program Director, Operations & Account Management, General Tax Administration; Beth Sisson, Intra-departmental Projects Administrator, General Tax Administration; Steve Hammond, Senior Program Director, General Tax Administration; Linda Lettera, General Counsel; Lisa Echeverri, Senior Attorney, General Counsel; Marshall Stranburg, Senior Attorney, General Counsel; Charles Strausser, Revenue Program Administrator II, Tax Policy & Dispute Resolution; Dee Overcash, Senior Tax Specialist, Tax Policy & Dispute Resolution; Buzz McKown, Revenue Program Administrator I, Tax Policy & Dispute Resolution; Dan Wagner, Tax Law Specialist, Tax Policy & Dispute Resolution; Jeffrey Soff, Tax Law Specialist, Tax Policy & Dispute Resolution; Janet Young, Tax Law Specialist, Tax Policy & Dispute Resolution; Paul Chmielewski, Attorney, Tax Policy & Dispute Resolution; Bruce Williams, Senior Tax Specialist, Tax Policy & Dispute Resolution; Georgia Chapman, Compliance Support Process Manager, General Tax Administration; Jim Johnson, Compliance Enforcement Process Manager, General Tax Administration; Larry Surles, Revenue Program Administrator II, General Tax Administration; Glenn Bedonie, Program Director, General Tax Administration; Kathi Marsh, Tax Law Specialist, Tax Policy & Dispute Resolution; Cass Vickers, (then) Tax Policy & Dispute Resolution Director; Mark Zych, Revenue Program Administrator I, Tax Policy & Dispute Resolution; Clay Brower, Tax Law Specialist, Tax Policy & Dispute Resolution; and Amanda McAdams, Revenue Program Administrator I, Tax Policy & Dispute Resolution.