On January 3, 2012, the First District Court of Appeals affirmed the trial court’s holding that leasehold improvements constructed under two commercial leases were not subject to sales and use tax. Florida Department of Revenue v. Ruehl No. 925, LLC, 76 So.3d 389 (Jan. 3, 2012). The appeals court succinctly held that the parties to each of the leases did not “intend for the costs of the leasehold improvements to be part of the total rent charged” and therefore the “costs of the leasehold improvements were not part of the total rent and therefore not subject to tax under section 212.031, Florida Statutes.” The Department chose not to appeal the decision to the Florida Supreme Court. It has been a long time coming, but the last word on the taxation of leasehold improvements is likely still yet to be written.
Let’s backup. Prior to the trial court’s ruling in favor of the taxpayer in Ruehl, the Department’s longstanding position was that all leasehold improvements constructed under a commercial lease were subject to sales and use tax. In many respects, the Department’s position rose to the level of an irrefutable presumption. Support for the Department’s stance was found in Florida Department of Revenue v. Seminole Clubs, Inc., 745 So.2d 473 (Nov. 19, 1999). In Seminole Clubs, the tenant was given the option to either remit a cash payment of rent or make leasehold improvements to the property of equivalent value. The taxpayer argued that the amounts spent on leasehold improvements were not properly taxable as “rent.” On appeal, the Fifth District Court of Appeals held for the Department stating that the constructed leasehold improvements were “in lieu of” rent and properly subject to sales and use tax as rent in-kind under section 212.031, Florida Statutes.
The factual distinctions between Seminole Clubs and Ruehl could not have been more obvious. Unlike the clear relationship between the leasehold improvements and the payment of cash rent in Seminole Clubs, the value of constructed leasehold improvements in Ruehl had no impact on the periodic payments of cash rent due under the two commercial leases. Due in part to this key distinction, both the trial court and the First District Court of Appeals concluded in Ruehl that the contracting parties simply did not intend the amounts spent on leasehold improvements to be “rent” under section 212.031, Florida Statutes.
So, what can we glean from the decision in Ruehl? There is both good news and bad news. The bad news is that taxpayers should not blindly rely on the holding Ruehl. Simply put, because the holding in Ruehl was premised on the intent of the parties, whether or not leasehold improvements are subject to tax under section 212.031, Florida Statutes is based on all attendant facts and circumstances. No taxpayer likes to hear that, but it is the unfortunate reality. Now, the good news. The two commercial leases at issue in Ruehl contained boilerplate provisions. In other words, and, again, facts will matter, it would appear that leasehold improvements constructed under most standard commercial leases may avoid sales and use tax under Ruehl.
The Empire Strikes Back? At this time, the Department is carefully reviewing its sales and use taxation of leasehold improvements under section 212.031, Florida Statutes. It is likely that the Department will address this issue through the power of the pen. Taxpayers should expect to see a new rule (or an amendment to the existing rule) in the near future. If you paid sales and use tax on leasehold improvements in the last few years, the clock is ticking on your ability to pursue a refund of tax paid. Just make sure to follow the Golden Ruehl.
On October 21, 2011, President Barack Obama announced the withdrawal of American troops from Iraq, effectively ending the Iraq war. As a result, nearly 40,000 soldiers are returning home, back to their family, friends, and jobs. This resurgence of veterans into American society merits an exploration of the statute that exists to protect their employment rights: the Uniformed Services Employment and Reemployment Rights Act (“USERRA”).
USERRA protects individuals in the armed forces who voluntarily or involuntarily leave their employment to serve in the military or who accept certain positions in the National Disaster Medical System. USERRA provides that qualified individuals must be restored to the job and benefits level they would have achieved had they not left their employment for military service (the so-called “escalator” principle), or if this is not possible, the service member must be provided with a comparable job opportunity. The law also provides that qualified individuals have the right to continue their employer’s health benefits plan for themselves and their dependents for up to twenty-four (24) months while serving in the military. Additionally, USERRA prohibits discrimination based on past or present military service status in decisions regarding: (1) hiring; (2) reemployment; (3) retention in employment; (4) promotion; or (5) any employment benefit.
Employers must also notify covered individuals of their rights, benefits, and the employer’s obligations under USERRA. Importantly, an employer may not retaliate against anyone who assists in the enforcement of USERRA rights, including situations where an employee provides testimony or makes a statement in connection with a USERRA proceeding, even if the individual is not in the military. Employers must also be aware that liability for discrimination under USERRA may occur where a supervisor, based on the military status of an individual, acts in a way that ultimately causes an adverse employment action — even if the decision to take that action is made by someone else. See Employers Beware of the “Cat’s Paw:” Discriminatory Animus Within the Chain of Command. “If the supervisor performs an act motivated by anti-military animus that is intended by the supervisor to cause an adverse employment action, and if that act [causes] the ultimate employment action, then the employer is liable under USERRA.” See Staub v. Proctor Hosp., 131 S. Ct. 1186, 1195. (2011)
On November 21, 2011, President Obama signed into law the VOW to Hire Heroes Act of 2011. Among other provisions, the law’s USERRA amendment specifically provides for claims of harassment and hostile work environment based on military status. In this law, Congress explicitly refuted some court decisions, which had held that USERRA, unlike Title VII, did not provide for a hostile work environment claim, because the statute did not include the phrase “the terms, conditions, or privileges of employment” in its definition of benefits of employment. Employers should therefore make sure that employee handbooks or policies include military status as a protected category and create a reporting procedure for those who believe they have witnessed or been subjected to military status harassment or discrimination. Of course, employers must also have compliant USERRA leave policies in place.
Now is the time to voice your opinion to Centers for Medicare & Medicaid Services (CMS) if you wish to oppose a new proposed rule which will require that providers and facilities who become aware of a potential Medicare overpayment investigate going back 10 years in determining how far back the overpayment goes and how much money needs to be returned to CMS. The proposed rule, which was published on February 16, 2012 in the Federal Register, implements Section 6402(a) of the Affordable Care Act, which has already been in effect since March 23, 2010. The Affordable Care Act makes a number of changes to the Medicare program which enhance CMS’ efforts to recover overpayments and combat fraud. One of those changes requires that known overpayments be reported and returned to the Secretary, the applicable federal, state, or contracted payor by the later of – (1) the date which is 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due, if applicable. Failure to return an overpayment within this time frame subjects the provider to False Claims Act liability, including trebel damages and civil money penalties in addition to returning the overpayment. The Affordable Care Act does not, however, dictate how far back a provider must look at the billing in question to determine the amount of the overpayment.
The 10-year look back period in the new rule is quite onerous, both in terms of the amount of the overpayment which may have to be returned, as well as the amount of investigative work the provider will incur. If you would like to voice your opinion to CMS on this proposed rule, you have until April 16, 2012 to do so. Submit your electronic comments to http://www.regulations.gov and follow the “Submit a comment” instructions. Please refer to file code CMS-6037-P.
The EB-5 program has received growing attention in recent weeks. In these days of tight credit, particularly for commercial real estate development, the EB-5 Program provides an attractive alternative to conventional real estate finance for a wide variety of projects. The program creates foreign investment by allowing a person, with qualifying immediate family members, to obtain permanent resident (green card) status by investing in a new U.S. commercial enterprise, and creating or saving 10 full time U.S. jobs. The usual required investment is $1 million, but this amount is reduced to $500,000 if the investment is made in a rural area or area of high unemployment. The EB-5 Regional Center Pilot Program permits the U.S. Citizenship and Immigration Services (USCIS) to designate qualified applicants as regional centers eligible to accept EB-5 investments from foreign investors to generate job creating economic development within the United States. Through the Regional Centers, the job creation requirement can be met either directly or indirectly, through the establishment of sufficient economic activity to permit USCIS to conclude that the job creation requirement will be met. After the investment is approved by USCIS, the investor receives conditional residence status for a period of two years. This conditional status is removed and the unconditional permanent resident status is awarded, if the investor shows at the end of such period that the investment has been maintained and that the required jobs have been created or saved. The time to attain this status is relatively short compared to other green card application options.
An important component of the EB-5 Program, the ability to submit applications on the basis of indirect job creation through a Regional Center, is subject to expiration under current law on September 30, 2012. The National Government Affairs & Public Policy Practice Group at Akerman Senterfitt has been following the legislative efforts to renew this important aspect of the program.
Legislative Update to Status of EB-5 Program
Over the last six weeks, members of Akerman’s Government Affairs & Public Policy team have monitored discussions on the legislation to reauthorize the regional center portion of the EB-5 law. The visa allocation component of the EB-5 program is permanent law, and allocates 10,000 visas for immigrants that make job-creating investments in the U.S. However, the legislation that created the regional center part of the program is separate, and the regional center program is set to expire on September 30, 2012 unless a legislative extension is adopted.
On March 17, 2011, Senator Leahy, the Chair of the Senate Judiciary Committee, introduced S.642, which would reauthorize the regional center program permanently. Over the course of the year, both the House and the Senate Judiciary Committees held hearings on the issue. The Senate hearing occurred in December.
During the Senate hearing several objections to the bill were raised by Senator Grassley, the ranking Republican on the Senate Judiciary Committee. He is the clear voice of the opposition.
In January, our team met with the Republican staff of the House Judiciary Committee, as well as with the Republican staff of the Senate Subcommittee on Immigration, Refugees, and Border Security, the committee with jurisdiction over S.642. The only change that the House of Representatives intends to make, is to limit the authorization to five years. The Republicans on the Committee favor the bill and have reached out to the Democrats and found more support. The staff has also been working with the office of the Speaker. The House leadership has indicated that it too will support the bill. In the words of one staff member, “I would bet my paycheck that it will get out of the House successfully.”
As a point of caution on this optimism, the House is currently waiting for the Senate to act. Once the Senate passes the bill, some opposition may surface in the House. There is no need for opponents to raise their heads while the bill is still bogged down in the Senate.
In the Senate, Senator Grassley is preparing a list of changes he would like to see in the bill. We have been told those changes may include:
increasing the amount that must be invested from $500,000 to up to $1 million, even through the regional center program
tightening the rules on overseas promoters
requiring that projects use E-verify to guarantee that all the jobs created go to legal workers
transferring the administration of the business sides of the EB-5 process from the Department of Homeland Security to the Department of Commerce
In addition, Senator Grassley may push to add other major immigration bills to S.642. Such an effort would be vigorously opposed by both Senator Leahy and other Republicans on the Judiciary Committee. Everyone understands that if the bill becomes an open debate on overall immigration policy, it will fail.
Regarding Senator Grassley’s list of specific changes to S.642, it remains to be seen what his final list will include. If it is reasonable, and the changes will increase the support for the bill by conservative Republican Senators, Senator Leahy will most likely accept them.
The bottom line is that the bill currently has overwhelming support in Congress. However, there is a key member of the Senate that is insisting on changes, and we cannot determine how much damage these potential changes can do to pending legislation.
On March 2, 2012, Judge Amy Berman Jackson of the United States District Court for the District of Columbia held that the National Labor Relations Board (“Board”) lawfully promulgated Subpart A of its Rule, “Notification of Employee Rights under the National Labor Relations Act” which requires employers to post a notice of employee rights. However, the Board exceeded its authority under the NLRA by promulgating the two provisions under Subpart B of the Rule that permit the Board to deem failure to post an unfair labor practice and to toll the statute of limitations for claims against employers who fail to post the notice.
On December 27, 2011, we reported that in National Association of Manufacturers, et al. v. National Labor Relations Board, et al., Civil Action No. 11-1629 (ABJ) (D.D.C.), the court was considering plaintiffs’ legal challenges to the Rule under the Administrative Procedures Act (“APA”) and the First Amendment to the United States Constitution. Regarding the argument that the Board had violated the APA, Judge Jackson found that the Board had not exceeded its authority under the NLRA and that its Rule was reasonable and neither arbitrary nor capricious. In addition, the Rule did not violate the First Amendment, because the required notice poster is clearly a communication from the Board. Therefore, it is compelled “government speech,” which is not subject to free speech scrutiny.
However, Judge Jackson held that the remedial provision in the Rule stating that a failure to post a notice is an unfair labor practice was an invalid “blanket determination.” Instead, the Board must consider the circumstances of each failure to post claim and make specific findings before it can find an unfair labor practice. Judge Jackson reasoned that Congress had specifically defined unfair labor practices under the NLRA, which limit the Board had exceeded in its Rule. Similarly, Judge Jackson found that universal tolling of the statute of limitations for unfair labor practice claims against noncompliant employers was invalid. Again, the Board must make an individualized determination as to any tolling claim.
Judge Jackson specifically declined to make a determination as to whether President Obama’s January 4, 2012 recess appointments of new NLRB members were void. She concluded that the Rule was promulgated by the proper quorum, a three-person board. Therefore, plaintiffs’ challenge that the Board now only consists of two validly serving members did not persuade the court.
Based on Judge Jackson’s ruling that the Board’s notice posting requirement is valid, all employers should plan to comply on April 30, 2012. Although the ruling from Judge Jackson states that a failure to post a notice cannot be considered a per se unfair labor practice and that tolling of the statute of limitations must be made on a case-by-case basis, these remain possible remedies that the Board may impose against a violating employer. The Board will need to revise Subpart B of its Rule, but it is fully expected that Subpart A will be effective as of April 30, 2012.
The topic of tax procedure can be about as exciting as waiting in line at the grocery store. Yet, every once in a while an issue is raised that is so significant that we question our knowledge of the most fundamental topics. The case of Verizon Business Purchasing, LLC v. Florida Department of Revenue, Case No.: 2011-CA-1498, raises just such an issue. The crux of the dispute in Verizon relates to the legal significance of Form DR-831 – “Notice of Proposed Assessment”. Specifically, the issue before the court in Verizon is whether a “Notice of Proposed Assessment” is an “assessment” for statute of limitations purposes.
As a general rule, the Florida Department of Revenue (the “Department”) must issue an assessment to a taxpayer within three years from the later of the date a tax return is due or filed. But, under Florida tax law, what actually is an “assessment”? Astonishingly, Florida law does not expressly define the meaning of the term “assessment” for statute of limitations purposes. Despite this lack of guidance, it has long been assumed by both taxpayers and the Department that a Notice of Proposed Assessment was an “assessment”. In Verizon, the taxpayer argues that a Notice of Proposed Assessment is just what it says it is – a proposal. After all, Verizon argues, the form language on the face of the Notice of Proposed Assessment provides that it does not become a “final assessment” until sixty days from the issue date and, since a taxpayer is free to appeal the Notice of Proposed Assessment within the sixty days, the deficiency reflected on the Notice of Proposed Assessment lacks the finality of an “assessment” as that term is commonly understood.
The facts in Verizon are not unlike those experienced by most taxpayers. Verizon was audited for sales and use taxes. The audit took time to complete and Verizon and the Department entered into consent agreements to extend the statute of limitations on assessment. The final such agreement provided that the Department had until March 31, 2011 to issue an assessment. On February 8, 2011, the Department issued a Notice of Proposed Assessment to Verizon. As a result, by its terms, the Notice of Proposed Assessment received by Verizon did not become a final assessment for sixty days, or April 9, 2011. If, as Verizon argues, the Notice of Proposed Assessment is simply a proposed assessment, the Department missed the March 31, 2011 assessment deadline by nine days.
So, why is Verizon so important? As most Florida taxpayers know, the Department routinely issues a Notice of Proposed Assessment near the end of the applicable statute of limitations deadline. Further, the Department’s use of the Form DR-831 or Notice of Proposed Assessment is ubiquitous. It is used for almost every tax administered by the Department. As a result, if Verizon prevails in its civil action, it would not be an overstatement to suggest that countless Florida taxpayers would be affected. A hearing in trial court is scheduled for late April to decide the issue.
Now what? If you have recently received a Notice of Proposed Assessment, take note of the issue date. If the time gap between the issue date and the final day in the statute of limitations for assessment period is less than sixty days, you should consider challenging the purported assessment. Likewise, if you were issued a Notice of Proposed Assessment under these circumstances and paid the tax claimed due, you should consider filing a refund claim. In sum, each taxpayer should ask themselves, is a Notice of Proposed Assessment an “assessment” or merely an indecent proposal.
This year’s edition reflects relative consistency of national trends with the prior year. While aggregate transaction activity nationally in 2011 was only marginally higher than in 2010, we are pleased that our clients successfully closed significantly more transactions during 2011. While some commentators predicted that the decrease in transaction activity nationally during the second half of 2011 was an indicator of decreased transaction activity for 2012, we remain relatively optimistic that 2012 transaction activity levels will improve. Our optimism is based in large part on increasingly accommodating credit markets, the continued growth of the domestic economy, gains in the equity markets, record cash available for acquisitions from strategic and financial buyers, and the feedback that we receive from our clients.
As economic and policy uncertainty continues, we remain committed to providing counsel that meets the particular business and transaction objectives of our clients. If you would like to discuss any aspect of this M&A Update, please call your Akerman contact.
Click here to view this publication.
The State Legislature in Florida recently concluded its annual 60 day Session on Friday, March 9, 2012. Akerman’s Government Affairs & Public Policy Practice Group in Florida had a banner year in both the number of clients represented and number of legislative successes accomplished on behalf of Akerman clients.
The legislature’s preoccupation with the once per decade redistricting as well as the annual balancing of the state budget made client advocacy that much more difficult as very little attention was paid to other issues. This meant Akerman’s Policy team had to be aggressive, assertive and act quickly in a highly competitive environment in which almost 3,000 pieces of legislation were introduced and only 200 were ultimately passed.
The variety of issues covered in the following list of clients further demonstrates the incredible achievement of the State Policy Practice during the 2012 Session of the Florida Legislature.
In a year of budget cuts, none of Akerman’s numerous appropriation clients received any reductions. In fact, two programs, Citrus and Camillus House, received increases and Jackson Memorial Hospital, which was looking at a potential loss of up to $200 million at the outset of the Session, was held harmless;
Akerman ended a long-standing closed process on bidding on State information technology contracts. Now our client, a Florida company, will have for the first time ever the opportunity to bid on State contracts;
Succeeded in getting a $5 million dollar appropriation for public infrastructure in Miami Design District’s project;
Greatly expanded our gaming practice, led by the addition of Magic City Casino.
City of Doral – Monitored all legislation affecting local government;
Florida Association of Housing and Redevelopment Officials – Introduced legislation allowing Florida’s Public Housing Authorities to use their land for commercial enterprises for the purpose of generating income to rehabilitate deteriorating housing units;
Miami-Dade County – As part of the county’s lobbying team, helped on major health care issues facing the county as well as port related issues;
One Watermark – Passed legislation removing the residential condominium from the City of West Palm Beach’s Downtown Development Authority;
Palm Beach County – As part of the county’s lobbying team, helped on major health care issues facing the county;
Port of Palm Beach – Passed legislation defining “Inland Ports” as they pertain to sea-based cargo. Negotiated for over $20 million in infrastructure funding from the Florida Department of Transportation on behalf of the Port.
Florida Arcade and Bingo Association – Preserved the exemption from the gambling statutes which allows the operation of amusement arcades;
Diamond Games – Introduced legislation allowing for table top lottery games to be included within the Department of Lottery vending machine expansion;
Florida Council for Compulsive Gambling – Secured $600,000 in annual funding for the program which includes the 1-888-ADMIT-IT hotline;
International Internet Technologies – As part of a larger coalition, helped to defeat legislation which would have outlawed internet cafés in Florida;
Magic City Casino – Monitored all gaming issues affecting pari mutual facilities and Racinos from Destination Casinos to decoupling of live racing requirements.
Florida Alliance for Renewable Energy – Introduced legislation to allow commercial entities to install renewable energy devices on their property for the purpose of supplying electricity to their tenants. Passed legislation that will allow local governments through referendum to use a portion of their local option sales tax to fund renewable energy projects.
Camillus House – Protected their annual allocation of $250,000 and secured a second non-recurring allocation of $250,000 to double their state contribution for 2012;
Citrus Health – Protected their annual allocation of $455,000 and secured a second non-recurring allocation of $455,000 to double their state contribution for 2012;
Epilepsy Foundation – Held harmless their annual allocation of $3.5 million;
Jackson Memorial Hospital – Passed legislation that allowed JMH to recover overpayments to the government and qualify for additional funding, which completely offset a 5.64% Medicaid rate cut;
Shands – Protected their $5 million dollar allocation for the Shands Cancer Hospital and helped secure an additional $2.5 million as well as $500,000 for the Brain Tumor Registry Program.
AT&T – As part of a lobbying team, helped to pass new terms and definitions within the taxing statutes regulating communication services;
Florida East Coast Railroad – Introduced legislation clarifying the railroad’s right to erect communication towers within the railroad’s right of way;
Ford Motor Company – Negotiated a clarification of the Rental Car Surcharge statute with the Department of Revenue;
Fortress – As part of a lobbying team, worked on legislation to strengthen the secondary market for life insurance policies;
Metro Traffic Schools – Introduced legislation to ensure traffic school referrals must go to independent entities;
Veolia – Monitored all local rail transit issues statewide as well as oversight issues pertaining to the South Florida Regional Transportation Authority;
Vertex – Introduced legislation to create a viral hepatitis awareness program in the State of Florida;
Vology – Passed legislation which will open the state purchasing bid process to include re-sellers of original IT equipment.
Regulation of Professions
American Society of Interior Designers – Prevented the introduction of legislation to deregulate the profession of Registered Interior Designers;
National Electrical Contractors Association – Drafted and secured House and Senate Sponsors for the introduction of legislation to regulate the use of electricians on large commercial construction projects;
Association of Professional Communication Officers – Fought efforts to water down the licensing requirements for 9-1-1 emergency dispatchers;
Florida Association of Cosmetology & Technical Schools – Monitored all legislation introduced affecting cosmetology schools as well as efforts to reduce continuing education requirements.
Early Childhood Initiative – Passed legislation establishing and mandating pre- and post-assessment examinations for voluntary prekindergarten students;
Florida Guardian ad Litem Association – Protected their annual allocation and secured an additional $1.5 million; Foster Care Review – Protected their annual allocation of $392,160;
Voices for Children – Protected their annual allocation of $892,656.
CAMP2012 – Helped defeat condominium and homeowner association legislation which would have increased assessments to unit owners in cases of foreclosure;
Jackson YES! – Introduced legislation allowing Jackson County to go to referendum to determine the voter’s choice for allowing liquor sales by the drink.
All accomplishments are subject to Gubernatorial veto at the moment. Appropriation achievements were led by the strong leadership of the Miami-Dade delegation.