Download - 01-013 Bayside Market Place Audit Report
c: The Honorable Mayor Joe Carollo Commissioner Tomas Regalado Commissioner Arthur E. Teele, Jr. Commissioner Johnny L. Winton Commissioner Joe M. Sanchez Commissioner Wifredo (Willy) Gort Members of the Audit Advisory Committee Bayside Center Limited Partnership Genaro “Chip” Iglesias, Chief of Staff, City Manager’s Office Dena S. Bianchino, Assistant City Manager, Planning, and Development Robert J. Nachlinger, Assistant City Manager, Finance and Administration Frank K. Rollason, Assistant City Manager, Operations Alejandro Vilarello, City Attorney Laura Billberry, Director, Office of Asset Management Christina Abrams, Director, Conferences, Conventions and Public Facilities J. Scott Simpson, CPA, Director, Finance department Linda M. Haskins, CPA, Director, Management and Budget department Walter F. Foeman, City Clerk File
AUDIT REPORT BASIDE CENTER LIMITED PARTNERSHIP,
(BAYSIDE MARKET PLACE) FOR THE PERIOD JANUARY 1, 1998 THROUGH DECEMBER 31, 2000
TABLE OF CONTENTS
INTRODUCTION .............................................................................................................. 1
SCOPE AND OBJECTIVES.............................................................................................. 2
METHODOLOGY ............................................................................................................. 3
AUDIT FINDINGS IN BRIEF........................................................................................... 4
BAYSIDE CENTER LIMITED PARTNERSHIP ......................................................... 4 THE RETAIL LEASE AGREEMENT IS NOT IN THE CITY’S BEST ECONOMIC INTEREST. .................................................................................................................. 4 ADDITIONAL PERCENTAGE RENT DUE TO THE CITY FROM THE OPERATION OF THE PARKING GARAGE. ............................................................ 6 STATE SALES/USE TAX REFUND DUE TO THE CITY. ......................................... 7
AUDIT FINDINGS AND RECOMMENDATIONS ......................................................... 8
BAYSIDE CENTER LIMITED PARTNERSHIP ......................................................... 8 THE RETAIL LEASE AGREEMENT IS NOT IN THE CITY’S BEST ECONOMIC INTEREST. .................................................................................................................. 8 ADDITIONAL PERCENTAGE RENT DUE TO THE CITY FROM THE OPERATION OF THE PARKING GARAGE. .......................................................... 13
FINANCE DEPARTMENT ............................................................................................. 19
STATE SALES/USE TAX REFUND DUE TO THE CITY. ....................................... 19 Exhibit I ............................................................................................................................ 24
1
INTRODUCTION
On December 7, 1984, the City Commission passed and adopted Resolution No. 84-
1341.3, which authorized the City Manager to execute an Agreement between Bayside
Center Limited Partnership (BCLP) and the City of Miami, for the purpose of developing
a portion of Bayfront Park. On January 14, 1985, the City, and BCLP entered into two
lease Agreements. One of the Agreements leased a portion of Bayfront Park to BCLP for
the development and operation of restaurants, fast-food services, retail stores, markets, and
entertainment facilities. The other Agreement leased another portion of the Bayfront Park
to BCLP for the construction of a parking garage to be used by those visiting Bayfront
Park and BCLP facilities. The initial term of the two lease Agreements is forty-five (45)
years, commencing on the first day of the month after the Possession Date. BCLP was
granted the option to renew the two lease Agreements for two additional terms of fifteen
(15) years each. The two lease agreements have undergone several amendments.
The consideration for the lease Agreement pertaining to the construction and operation of
the retail facilities is the greater of (a) thirty-five percent (35%) of Net Available for
Distribution or (b) the Minimum Base Rental for each Rental year as indicated in Section
2.5 of the Agreement. The consideration for the lease agreement pertaining to the
construction and operation of parking garage is (a) $10,000 annual basic rent, (b) plus
additional $80,000 of rent payable, up to the extent there is Net Income Available for
Distribution, and (c) fifty percent (50%) of the remaining Net income Available for
Distribution, if any, after payment of the Annual Basic Rental, Annual Additional Rental,
and after BCLP has been reimbursed up to $90,000 for any negative cash flow previously
earned by BCLP.
The Office of Asset Management (OAM) is responsible for monitoring the compliance of
the Agreements. This report describes the results of an audit to determine the Lessee’s
compliance with the terms of the agreements.
2
SCOPE AND OBJECTIVES
As part of our oversight responsibilities, the Office of Internal Audits (OIA) performs
financial and operational audits to determine the extent of compliance with provisions of
contracts, programs, and/or lease agreements between the City and private companies
and/or other governmental entities. The scope of our audit focused primarily on whether
Bayside Center Limited Partnership (BCLP) complied with the contractual provisions of
the lease agreements between the City and BCLP. The audit also included examinations
of various transactions to determine whether they were executed in accordance with
governing provisions of City Codes, and other guidelines. The examination covered the
period January 1, 1998, through December 31, 2000. In general, the audit focused on the
following five broad objectives:
• To review the reliability and integrity of BCLP’s financial accounting records and
the means and/or the basis used to identify, measure, classify, and report Rental
Income and Operating Expenses.
• To determine whether BCLP remitted the correct amount of revenues due to the
City and also whether the amounts remitted to the City were deposited into the
City’s treasury and also properly recorded in the City’s financial accounting
system.
• To determine whether adequate internal control procedures were maintained.
• To determine whether BCLP complied with provisions of the lease Agreements.
• Other procedures as deemed necessary.
3
METHODOLOGY
We conducted our audit in accordance with generally accepted auditing standards and the
Standards for the Professional Practice of Internal Auditing, issued by the Institute of
Internal Auditors. However, our Office has not gone through the required peer review
process. To obtain an understanding of the internal controls, we interviewed appropriate
personnel, reviewed applicable written policies and procedures, and made observations to
determine whether the prescribed controls had been placed in operation. The audit
methodology included the following:
• Obtained sufficient understanding of the internal control policies and procedures
and determined the nature, timing and extent of substantive tests necessary and
performed the required tests.
• Determined compliance with all the objectives noted on page 2.
• Performed other audit procedures as deemed appropriate.
AUDIT FINDINGS IN BRIEF
4
BAYSIDE CENTER LIMITED PARTNERSHIP
THE RETAIL LEASE AGREEMENT IS NOT IN THE CITY’S BEST ECONOMIC INTEREST.
Our review of Bayside Center Limited Partnership’s (BCLP) financial accounting records
disclosed that for the period 1987 through 2000, BCLP had exceeded the total amount of
the Developers Equity Investment accounts to be recouped by $4,549,571. The excess
amount recouped was due to BCLP’s interpretation of how the Developer’s Equity
Investment account should be accounted for. BCLP Vice President and Deputy General
Counsel, contends that the Agreement allows BCLP to deduct ten percent (10%) of its
total cumulative Developer’s Equity Investment Account from “Net Operating Income”
as a “return on its investment”. Additionally, he stated that the concept of
“Amortization” is not provided in the lease Agreement nor in generally accepted
accounting principles as it relates to the lease transactions. However, the Agreement
does not provide for the term “return on its investment” rather uses the term “un-
recouped” as it relates to Developer’s Equity Investment Account. Financial Accounting
Standard Board (FASB) Statement number 13, Accounting for Leases (generally
accepted accounting principle), provides that leasehold improvements be depreciated for
a specific period of time. There is no Section in this Statement or any other official
accounting pronouncement that provides for a “return on its investment” as it relates to
lease transactions. Therefore, the total cumulative Developers Equity Investment should
be recouped from “Operating income” until the total amount invested is fully recouped,
and thereafter, the deduction of the respective equity components should cease.
Although the Net Income Available for Distributions (NIAD) were understated for the
period 1997 through 2000, as a result of the excess amount of Developer’s Equity
Investment account recouped, the City would still not earn additional revenue during
those periods, due to the provisions of Section 2.5 (a) of the lease Agreement. This
Section of the Agreement provides that if 35% of Net Income Available for Distribution
is less than the Minimum Base Rental, the difference shall be credited to the Developer in
an account known as the “Cumulative Credit Balance Account.” The annual rental paid
5
to the City did not exceed the minimum amounts due from the inception of the lease
Agreement through the rental year ended December 31, 2000 because 35% of Net
Income Available for Distribution (NIAD) did not exceed the minimum amounts except
for the rental year, 2000. In the calendar year 2000, 35% of NIAD totaled $1,020,300
compared to the minimum rent of $1 million. In accordance with Section 2.5 of the
Agreement, the Cumulative Credit Balance Account (CCBA) should offset the $20,300
difference. Our calculations/analysis indicate that the CCBA, as of December 31, 2000,
totaled $18,456,000.
ADDITIONAL PERCENTAGE RENT DUE TO THE CITY FROM THE OPERATION OF THE PARKING GARAGE. Our review of BCLP’s financial accounting records for the parking garage operation
disclosed that for the period 1987 through 2000, BCLP had exceeded the total deduction
of the Developer’s Equity Investment account by $429,387. The excess deduction was
6
due to BCLP’s interpretation of how the Developer’s Equity Investment account should
be accounted for, as noted on page 4. The Net Income Available for Distributions were
understated as a result of the excess deductions, during the period 1997 through 2000,
and therefore, the City will be entitled to $214,692 in additional annual percentage rent.
FINANCE DEPARTMENT
STATE SALES/USE TAX REFUND DUE TO THE CITY.
Our audit disclosed that during the period February 1998, through March 2001, the City’s
Finance department remitted 6.5 percent of Rental Income collected from Bayside Center
Limited Partnership (BCLP) as sales/use tax. The amount of sales/use tax remitted
7
totaled $143,067. However, BCLP had already assessed, collected, and remitted all
applicable sales/use tax from its tenants. Therefore the amounts remitted to the City were
solely rental income exclusive of applicable taxes.
We also noted that the State of Florida Department of Revenue (SFDOR) auditors
assessed the City additional taxes and interests totaling $243,881.87 during a tax audit of
the City. However, our review disclosed that $51,439.54 of the $243,881.87 of
additional sales tax and interest paid by the City was for ticket surcharge at the Orange
Bowl and for charges relating to cleaning services at the Coconut Grove Convention
Center. Those transactions are exempt from sales/use tax, pursuant to Sections
212.04(1)(b) and 212.03(10) of the Florida Statutes. Additionally, we noted that
$192,442.33 of the $243,881.87 of the additional sales/use tax and interest paid to the
State was for sales/use tax due from those who leased and used City facilities for certain
events/shows but failed to remit the applicable sales/use tax due from the revenues
collected from the events/shows to the State. The appropriate exemption forms, which
would have relieved the City of this sales/use tax obligation, were not obtained.
AUDIT FINDINGS AND RECOMMENDATIONS
8
BAYSIDE CENTER LIMITED PARTNERSHIP
THE RETAIL LEASE AGREEMENT IS NOT IN THE CITY’S BEST ECONOMIC INTEREST.
Section 2.5 of the Lease Agreement pertaining to the operation of the retail stores
provides that Bayside Center Limited Partnership (BCLP) shall pay to the City as rental
during the term of the lease an annual sum equal to the greater of:
• Thirty-five percent (35%) of Net Income Available for Distribution; or
• The Minimum Base Rental for each Rental Year, as follows:
Full Rental Year Minimun Base Rental 1 - 2 325,000$ 3 - 6 650,000
7 - 35 1,000,000 36 - 45 As stipulated in Section 2.5
We noted that BCLP computes “Net Income Available for Distribution” by subtracting
the following transactions from the “Operating Income” for the applicable or pertinent
period:
• Operating Expenses for the same period
• Debt Service Payments for the same period and
• An amount equal to ten percent (10%) of the total cumulative Developers Equity
Investment made from the inception of the Agreement up to the period for which
“Net Income Available for Distribution” is being calculated. This cumulative
total is not adjusted for the developer’s costs that had already been recouped in
the prior years. Section 1.1 of the Agreement defines the term “Developer’s
Equity Investment” as the “Sum of (i) Development Cost, (ii) an amount equal
9
from time to time to any un-recouped and un-financed cost of Capital
Improvements made and paid for by Developer after initial construction of the
Developer Improvements, and (iii) Operating Losses (except to the extent
recouped under Section 2.5a(3) less (iv) the net proceeds actually received by
Developer from any and all Leasehold Mortgage or Sale-Leaseback Transactions
of the Developer’s estate in the Leased Property and the Improvement.”
The Agreement stipulates that all financial lease transactions relating to this lease
Agreement, including the calculation of “Net Income Available for Distribution” and the
“Developer’s Equity Investment Account” be accounted for in accordance with generally
accepted accounting principles (GAAP). Financial Statement Standard Board (FASB)
Statement number 13 provides guidance on how to account for lease transactions.
Practitioner’s Publishing Company (PPC) provides reference guides to Financial
Statement Standard Board and Governmental Accounting Standard Board Statements.
These Statements are authoritative sources of generally accepted accounting principles.
Section 304.46 of the PPC’s Guide to Preparing Financial Statements (Guide) states that,
“If a company leases land and constructs a building on the land, the lessee’s costs of the
buildings should be charged to leasehold improvement unless the land lease is a capital
lease. However, under SFAS (FASB) No. 13, a land lease may only be considered to be
a capital lease if it passes title or contains a bargain purchase option.” Section 304.47 of
the PPC’s Guide further states, “Accordingly, leasehold improvements should be
depreciated over the shorter of the lease term or their estimated useful lives.” Please note
that the terms of the Agreement already provides that ten percent (10%) of the total
cumulative Developers Equity Investment (which constitute initial development costs,
subsequent un-financed capital improvement costs, and operating losses) be recouped
from “Operating Income.” Therefore, if ten percent (10%) of this account is to be
recouped annually to compute the “Net Income Available for Distribution,” each item
comprising this account should be fully recouped over a ten-year period.
We contend that ten percent (10%) of the total cumulative Developers Equity Investment
be deducted from “Operating Income” until the total amount invested is fully recouped,
and thereafter, the deduction of the respective equity components should cease. A legal
10
opinion obtained from the City Attorney’s Office concurs with our understanding and
interpretation of the terms of the Agreement as it relates to the accounting for the
Developers Equity Investment account.
However, a review of BCLP’s financial accounting records disclosed that for the period
1987 through 2000, BCLP had exceeded the total amount of the Developers Equity
Investment accounts to be recouped by $4,549,571 ($37,696,246 - $33,146,675) as
shown below:
Total Developers Total Developers Equity Total Developers Equity
Equity Investment Accrued Allowed Per Audit Deducted by BCLP
For the Period 1987 Thru 2000 For the Period 1987 Thru 2000 For the Period 1987 Thru 2000
37,285,106$ 33,146,675$ 37,696,246$
The excess amount recouped as noted above was due to BCLP’s interpretation of how the
Developer’s Equity Investment account should be accounted for. BCLP Vice President
and Deputy General Counsel, contends that the Agreement allows BCLP to deduct ten
percent (10%) of its total cumulative Developer’s Equity Investment Account from “Net
Operating Income” as a “return on its investment”. Additionally, he stated that the
concept of “Amortization” is not provided in the lease Agreement nor in generally
accepted accounting principles as it relates to the lease transactions. However, the
Agreement does not provide for the term “return on its investment” rather uses the term
“un-recouped” as it relates to Developer’s Equity Investment Account. FASB Statement
number 13, Accounting for Leases (generally accepted accounting principle), provides
that leasehold improvements be depreciated for a specific period of time. There is no
Section in this Statement or any other official accounting pronouncement that provides
for a “return on investment” as it relates to lease transactions. Therefore, the total
cumulative Developers Equity Investment should be recouped from “Operating Income”
until the total amount invested is fully recouped, and thereafter, the deduction of the
respective equity components should cease.
11
Although the Net Income Available for Distributions (NIAD) were understated for the
period 1997 through 2000, as a result of the excess amount of Developer’s Equity
Investment account recouped, the City would still not earn additional revenue during
those periods, due to the provisions of Section 2.5 (a) of the lease Agreement. This
section of the Agreement states “If in any given Rental Year, 35% of Net Income
Available for Distribution is less than the Minimum Base Rental, the difference shall be
credited to the Developer in an account known as the “Cumulative Credit Balance
Account” which credit shall accrue interest at eleven (11%) percent, compounded
annually. The maximum amount to be credited in any Rental Year shall be no greater
than the Minimum Base Rental for that Rental Year. In any subsequent Rental Year for
which a credit balance exists in the Cumulative Credit Balance Account, the Rental due
to the City, shall be reduced, to not less than that Rental Year’s Minimum Base Rental,
by an amount applied from the remaining credit balance in the Cumulative Credit
Balance Account.”
The annual rental paid to the City did not exceed the minimum amounts due from the
inception of the lease through the rental year ended December 31, 2000 because 35% of
Net Income Available for Distribution (NIAD) did not exceed the minimum amounts
except for the rental year, 2000. In the calendar year 2000, 35% of NIAD totaled
$1,020,300 compared to the minimum rent of $1 million. In accordance with Section 2.5
of the Agreement, the Cumulative Credit Balance Account (CCBA) should offset the
$20,300 difference. Our calculations/analysis indicate that the CCBA, as of December
31, 2000, totaled $18,456,000. Therefore, in subsequent rental years, the rental due to the
City will be reduced to the Minimum Base Rental until the $18,456,000 is fully
exhausted. Given the material amount of CCBA balance currently available, the City
should not expect to earn rental revenue in excess of the basic minimum of the $1 million
annually for quite sometime to come. The provisions of Section 2.5 of the Agreement, as
noted above, are clearly not in the City’s best interest.
Recommendation
12
We recommend that the total cumulative Developer’s Equity Investment be deducted
from “Operating Income” until the total amount invested are fully recouped, and
thereafter, the deduction of the respective equity components should cease. We also
recommend that the Office of Asset Management closely monitor the accounting for
Developer’s Equity Investment Account and the computation of the Cumulative Credit
Balance Account.
Auditee Response and Action Plan
See auditee's written responses on pages 16 though 18.
ADDITIONAL PERCENTAGE RENT DUE TO THE CITY FROM THE OPERATION OF THE PARKING GARAGE. Section 2.5 (a) of the parking garage parcel Agreement between the City and the Bayside
Center Limited Partnership (BCLP) states that, “During each Rental Year during the
Original Term and each Renewal term hereof, Developer covenants and agrees to pay the
City annually as rental for the Lease Property, the following:
• The annual sum of Ten Thousand Dollars ($10,000) (Annual Basic Rental).
• To the extent there is Net Income Available for Distribution, the annual sum of
Eighty Thousand Dollars ($80,000) (Annual Additional Rental).
• Fifty percent (50%) of the remaining Net Income Available for Distribution, if
any, after payment of the Annual Basic Rental, Annual Additional Rental, and
13
after Developer has been reimbursed up to Ninety Thousand Dollars ($90,000) for
Negative Cash Flow previously paid by Developer (Annual Percentage Rental).”
As noted in the preceding finding, BCLP computes “Net Income Available for
Distribution” by subtracting the following transactions from the “Operating Income” for
the applicable or pertinent period:
• Operating Expenses for the same period.
• Debt Service Payments for the same period.
• An amount equal to ten percent (10%) of the total cumulative Developers Equity
Investment made from the inception of the Agreement up to the period for which
“Net Income Available for Distribution” is being calculated. This cumulative
total is not adjusted for costs amortized in the prior years.
Section 1.1 of the Agreement defines the term “Developers Equity Investment” as noted
on page 9. The Office of Internal Audits contends, as noted on page 10 and 11 that 10%
of the Developer’s Equity account be deducted annually to compute the “Net Income
Available for Distribution.” Each item comprising this account should be fully recouped
over a ten-year period. A legal opinion obtained from the City Attorney’s Office concurs
with our understanding and interpretation of the terms of the Agreement as it relates to
the accounting for the Developers Equity Investment account.
However, a review of BCLP’s financial accounting records disclosed that for the period
1987 through 2000, BCLP had exceeded the total deduction of the Developer’s Equity
Investment account by $429,387 ($2,979,293 - $2,549,906) as shown below:
Total Developers Total Developer' s Equity Total Developer' s Equity
Equity Investment Accrued Allowed Per Audit Deducted by BCLP
For the Period 1987 Thru 2000 For the Period 1987 Thru 2000 For the Period 1987 Thru 2000
2,957,520$ 2,549,906$ 2,979,293$
14
The excess deduction as noted above was due to BCLP’s interpretation of how the
Developer’s Equity Investment account should be accounted for. BCLP Vice President
and Deputy General Counsel, contends that the Agreement allows BCLP to deduct ten
percent (10%) of its total cumulative Developer’s Equity Investment account from “Net
Operating Income” as a “return on its investment.” Additionally, he stated that the
concept of “Amortization” is not provided in the lease Agreement nor in generally
accepted accounting principles. However, the Agreement does not provide for the term
“return on it investment” rather uses the term “recoup” as it relates to Developer’s Equity
Investment Account. FASB Statement number 13 (generally accepted accounting
principle) provides that leasehold improvements be depreciated for a specific period of
time. Therefore, the total cumulative Developers Equity Investment should be recouped
from “Operating income” until the total amount invested is fully recouped, and thereafter,
the deduction of the respective equity components should cease.
The Net Income Available for Distributions were understated as a result of the excess
deductions, during the period 1997 through 2000, and therefore, the City will be entitled
to $214,692 in additional annual percentage rent. Please see exhibit I, on page 24.
Recommendation
We recommend that the total cumulative Developer’s Equity Investment be deducted
from “Operating Income” until the total amount invested are fully recouped, and
thereafter, the deduction of the respective equity components should cease. We also
recommend that the Office of Asset Management closely monitor the accounting for
Developer’s Equity Investment Account.
Additionally, we recommend that the Finance department request the payment of the
additional $214,692 due to the City. The Attorney’s Office should assist in the recovery
of the amount due to the City.
15
Auditee Response and Action Plan
See auditee's written responses on pages 16 through 18.
16
17
18
19
FINANCE DEPARTMENT
STATE SALES/USE TAX REFUND DUE TO THE CITY.
Section 2.6 of the Agreement between the City and Bayside Center Limited partnership
(BCLP) stipulates that: “Developer, in addition to the Rental, covenants and agrees to pay
and discharge, before any fine, penalty, interest or cost may be added, all real and
personal property taxes, all ad valorem real property taxes, all taxes on rentals payable
hereunder and under sublease ……..” Chapter 212 of the Florida Statutes imposes 6.5
percent sales/use tax on certain business transactions. A memorandum dated October 8,
1990, and signed by the District Five Administrator for the State of Florida Department
of Revenue (SFDOR) stated that the City (lessor) should not assess and collect sales/use
tax on rental income received from a lessee, if the lessee had already assessed and
collected the applicable taxes from sub-lessees, and also if the taxes collected were
remitted to SFDOR.
We noted that BCLP had assessed, collected, and remitted all applicable sales/use tax
since the inception of the Retail and Garage lease Agreements, as required. However,
our audit disclosed that during the period February 1998, through March 2001, the City’s
Finance department remitted 6.5 percent of Rental income collected from BCLP, during
this period, as sales/use tax due from the Rental Income earned from BCLP, to the
SFDOR, as noted below:
Sales/UseYear Taxes Remitted
Prior to 1998 29,460$ 1998 36,475 1999 53,741 2000 23,391
TOTAL 143,067$
20
BCLP had already assessed, collected, and remitted all applicable sales/use tax from its
tenants. Therefore the amounts remitted to the City were solely rental income exclusive
of applicable taxes.
Upon audit inquiry, we were informed that a routine sales tax audit performed by SFDOR
also identified the duplicate payments of sales tax to the SFDOR. The City was granted
$52,169.63 credit to offset additional tax liability, which was due from other rental
transactions. The $52,169.63 credit granted was the excess tax paid to the State during
the SFDOR audit period. The City applied for the refund of the $90,898.41
($143,067.04-$52,168.63) balance, which was the excess sales tax paid subsequent to
SFDOR audit period on May 18, 2001.
We also noted that SFDOR auditors assessed the City additional taxes and interests
totaling $243,881.87 during its audit period, as stated below:
City Facilities Amount DueCoconut Grove Convention Ctr - Rent * 11,921.60$ Coconut Grove Convention Ctr - Untaxed Cleaning ** 12,318.71 Manuel Artime Rent 4,146.09 Miamarina-Dockage Rental 2,796.17 Dinner Key Marina-License to use from Coca Cola 858.12 Orange Bowl-Improperly Exempted Rent *** 65,542.61 Orange Bowl-Untaxed Utlities 5,381.43 Other Leases-Improperly Exempted Rent 2,543.43 Monty' s Construction Credit 97,500.00 Bayside Garage-Reimbursement sales tax paid (52,168.63) Subtotal 150,839.53$ Interest Due 93,042.44 Total 243,881.97$ * Ticket surcharge $ 1,945.36** Cleaning Services 12,318.71*** Ticket Surcharge 37,175.45
CITY OF MIAMISALES/USE TAX AND INTEREST DUE TO THE STATE
AS OF SEPTEMBER 28, 2000
21
The total amount ($243,881.97) assessed as noted above was remitted to the SFDOR in
two separate checks. Section 212.04(1)(b) of the Florida Statutes states that surcharge,
which is imposed and retained by a local government are exempt from the assessment of
sales tax. Sections 212.03(10) of the Florida Statutes also state that charges by a
convention hall for cleaning services are tax-exempt. However, our review disclosed
that $51,439.54 of the $243,881.87 of additional sales tax and interest paid by the City
was for ticket surcharge at the Orange Bowl and for charges relating to cleaning services
at the Coconut Grove Convention Center. Those transactions are exempt from sales/use
tax as note above. Additionally, we noted that $192,442.33 of the $243,881.87 of the
additional sales/use tax and interest paid to the State was for sales/use tax due from those
who leased and used City facilities for certain events/shows but failed to remit the
applicable sales/use tax due from the revenues collected from the events/shows to the
State. The appropriate exemption form, which would have relieved the City of this
sales/use obligation, was not obtained.
According to a member of the Florida Institute of CPA’s, State Taxation Committee, the
City may be precluded from obtaining a refund from the SFDOR for those sales/use tax
relating to surcharge and cleaning services because a “Florida Department of Revenue
Closing Agreement” was executed. This document states: “Accordingly, the Florida
Department of Revenue and the Taxpayer accept the settled Liability reflected in this
agreement as the lawful amount due the State of Florida with respect to this liability.” If
this agreement had not been signed, the City may have been entitled to a refund.
Recommendation
We recommend that the Finance department establish the necessary procedures to ensure
that all the City departments responsible for the renting of City facilities assess and
collect the appropriate sale/use tax from those who rent City facilities. Alternatively, the
appropriate exemption form, which would relieve the City of this sales/use obligation,
should be executed at the time the lease Agreement is signed by the parties.
22
Additionally, the Finance department should identify all tax-exempt transactions and
ensure that those transactions are not assessed sales/use tax.
Audited Response and Action Plan
See the auditee’s response on page 23.
23
24
Exhibit I
BAYSIDE
GARAGE PARCEL
RECOMPUTATION OF RENT DUE CITY
Per Per Per Per Per Per Per Per Per Per
Bayside Audit Bayside Audit Bayside Audit Bayside Audit Bayside Audit
Parking Revenues 4,235,364$ 4,235,364$ 4,061,163$ 4,061,163$ 4,676,944$ 4,676,944$ 4,305,995$ 4,305,995$ 17,279,466$ 17,279,466$
Operating Expenses 1,315,038 1,315,038 1,343,815 1,343,815 1,323,525 1,323,525 1,594,450 1,594,450 5,576,828 5,576,828
Subtotal 2,920,326 2,920,326 2,717,348 2,717,348 3,353,419 3,353,419 2,711,545 2,711,545 11,702,638 11,702,638
Ground Rent (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (40,000) (40,000)
Bond Principal (540,000) (540,000) (564,996) (564,996) (590,000) (590,000) (620,000) (620,000) (2,314,996) (2,314,996)
Bond Interest (809,373) (809,373) (785,326) (785,326) (759,038) (759,038) (730,285) (730,285) (3,084,022) (3,084,022)
Subtotal 1,560,953 1,560,953 1,357,026 1,357,026 1,994,381 1,994,381 1,351,260 1,351,260 6,263,620 6,263,620
10% of the Developers Equity Investment *** (247,407) (232,722) (241,752) (149,650) (232,752) (72,295) (223,752) (46,519) (945,663) (501,186)
Net Income Available for Distribution 1,313,546 1,328,231 1,115,274 1,207,376 1,761,629 1,922,086 1,127,508 1,304,741 5,317,957 5,762,434
Calculation of Ground Rents Payable
First $80,000 is Additional Ground Rent (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (320,000) (320,000)
Next $90,000 as Recovery of Developer' s
Operating Losses (90,000) (90,000) (90,000) (90,000) (90,000) (90,000) (90,000) (90,000) (360,000) (360,000)
Amount Subject to 50% Percentage Ground Rent 1,143,546 1,158,231 945,274 1,037,376 1,591,629 1,752,086 957,508 1,134,741 4,637,957 5,082,434
50% Percentage Ground Rent Payable to the City 571,773 579,116 472,637 518,688 795,815 876,043 478,754 567,371 2,318,979 2,541,218
50% Percentage Ground Rent Received by the City (571,773) (571,773) (472,637) (472,637) (795,815) (795,815) (478,754) (478,754) (2,318,979) (2,318,979)
Additional 50% Percentage Rent Due to the City -$ 7,342$ -$ 46,051$ -$ 80,228$ -$ 88,616$ -$ 222,237$
Deduction Shortage - Prior Year (15,090)
Percentage Rent Due to the City X 50% (7,545)
Additional Percentage Rent Due to the City 214,692$
*** Bayside did not adjust the cumulative total of Equity Investment for those costs already recouped in the prior years.
TOTAL1997 1998 1999 2000
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