STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MYRON FRIEDMAN, )

)

Petitioner, )

)

vs. ) CASE NO. 75-1304

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice and following an assignment of this matter to the Division of Administrative Hearings, Department of Administration, by the Respondent, Department of Revenue, upon Petition of the Petitioner, Myron Friedman, this cause came before Delphene C. Strickland, Hearing Officer, Division of Administrative Hearings, Department of Administration, in the Sarasota County Court House, Courtroom "E", Sarasota, Florida, February 25, 1976, at 11:00 a.m.

APPEARANCES

For Petitioner: Robert H. Carr, Esquire

Post Office Box 3798 Sarasota, Florida 33578

For Respondent: Patricia Turner, Esquire

Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 ISSUE

Whether the conveyance of mortgaged property by warranty deed from mortgagor, a closed corporation, to mortgagee, said corporation's sole share holder is subject to documentary stamp taxation pursuant to Chapter 201, Florida Statutes.

FINDINGS OF FACT

In time sequence, the following transactions took place:

1. a. Petitioner, Myron Friedman, executed a contract with Willow Industries, Inc., a New York corporation, on August 14, 1973, for the purchase of properties located in Manatee County, Florida.

   
   

   1. Conquistador Estates, Inc., a Florida corporation, for profit, was incorporated under the laws of the State of Florida on September 25, 1973.

   2. Petitioner, Myron Friedman, borrowed $650,000 from Franklin National Bank of Long Island, New York, on October 29, 1973. Mr. Friedman executed a personal note to the Florida National Bank on October 29, 1973. Myron Friedman made a loan to Conquistador Estates, Inc. in the amount of

      $400,000 to purchase the Manatee County property on October 30, 1973.

      
      

   3. Conquistador Estates, Inc. purchased the properties described in the contract from Willow Industries, Inc. to Myron Friedman on October 30, 1973.

      
      

   4. Conquistador Estates, Inc. executed a mortgage to Myron Friedman in the amount of $400,000 on October 30, 1973, in exchange for the herein before mentioned loan of $400,000 on October 29, 1973.

      
      

   5. Myron Friedman assigned the herein before mentioned mortgage to Franklin National Bank as security for the personal loan of $650,000 on October 30, 1973.

      
      

   6. Conquistador Estates, Inc. deeded the properties acquired by it from Willow Industries, Inc. to Myron Friedman on May 28, 1974.

      
      

2. Additional facts:

   1. The notes and the mortgage herein described are still in existence.

      
      

   2. Conquistador Estates, Inc. is still a viable corporation although it owns no property and Myron Friedman is the sole stockholder.

      
      

   3. There were no payments made to Petitioner, Myron Friedman, as required by the terms of the promissory note of Conquistador Estates, Inc. to Myron Friedman.

   
   

3. In an Audit of documents recorded in the office of the Circuit Clerk in and for Manatee County, Florida, Respondent, Department of Revenue, determined that insufficient documentary stamps and documentary surtax stamps were affixed to the warranty deed dated May 28, 1974, between Conquistador Estates, Inc. and Petitioner, Myron Friedman, an individual. Subsequent to the audit, the Respondent issued a "Proposed Notice of Assessment of Tax and Penalty Under Chapter 201, Florida Statutes, documentary surtax in the amount of $439.45, pursuant to Section 201.021, Florida Statutes, and penalties in the amount of

   $1,639.14 pursuant to Section 201.17, Florida Statutes. Attached to the said notice was "Schedule A," an explanation of the basis for the demand for additional documentary stamp tax and documentary surtax. It explained that the warranty deed to Petitioner, Myron Friedman, individually, from Conquistador Estates, Inc., satisfied the existing mortgage and which rendered the mortgage unenforceable as to the original mortgagor, Conquistador Estates, Inc., and cited Department of Administration Rule 12A-4.13(2) Florida Administrative Code.

   
   

   "Defaulting Mortgagor: Where a mortgagor, in full or partial satisfaction of the mortgage indebtedness, conveys the mortgaged premises to the mortgagee, documentary stamp taxes are due on the transaction."

   
   

4. Petitioner, Myron Friedman, contends:

1. That Conquistador Estates, Inc. was just a nominee used for the purpose of securing a mortgage loan;

2. That he is the sole owner of the corporation;

   
   

3. That there was no conveyance in full or partial satisfaction of the mortgage since he is the sole owner of the corporation, and he is the grantee and that, therefore, no documentary stamp tax or surtax or penalty is due;

   
   

4. That the mortgage itself is assigned and is still in existence.

   
   

5. The Respondent contends:

   
   

   1. That the clear wording of statute, Section 201.02(1), F.S., controls the transaction which was a conveyance by warranty deed;

      
      

   2. That because the corporation, Conquistador Estates, Inc. has no assets and made no payments to Petitioner, the conveyance by warranty deed was in full satisfaction of the mortgage indebtedness and canceled the written obligation of the corporation to pay $400,000, the unpaid portion of the obligation secured by the mortgage.

      
      

   3. The Respondent further contends that the partial indebtness of the corporation itself to Petitioner was canceled.

      
      

      CONCLUSIONS OF LAW

6. Section 201.02(1), F.S., states in pertinent part: "On deeds, instruments, or writings whereby

   any lands, tenements, or other realty, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in the purchaser, or any other person by his direction, on each one hundred dollars of the consideration therefor the tax shall be thirty cents. . ."

   
   

7. Conquistador Estates, Inc. conveyed by deed the mortgage interest to a mortgagee, Petitioner. Thus, documentary stamp tax is due for that amount. cf. State, Department of Revenue vs McCoy Motel, Inc., Fla. Appl, 302 So.2d 440.

   
   

8. Section 201.021(1), F.S., states in pertinent part:

   
   

   "A documentary surtax, in addition to the tax levied in 20l.02, is levied on those documents taxed by 20l.02 at the rate of fifty-five cents per five hundred dollars of the consideration paid; provided, that when real estate is sold, the consideration, for purposes of this tax, shall not include amounts of existing mortgages on the real estate sold."

9. Since the mortgage premises were conveyed to another party, thus effectively canceling the outstanding mortgage debt to the corporation, documentary surtax is due and payable, as indicated by Attorney General Opinion 059-203 and under the requirements of the following Department of Revenue Rule 12A-4.12(4), F.A.C.:

   
   

   "Consideration - Surtax: the term 'consideration' under Section 201.021, F.S., includes but is not limited to:

   "(e) Conveyance where outstanding mortgage debt, lien or encumbrance is cancelled, satisfied, or otherwise rendered unenforceable by the conveyance."

   
   

   There is no enforceable encumbrance against the corporation, Conquistador Estates, Inc., it having deeded the property to the Petitioner, Myron Friedman, for the obvious purpose of releasing the obligation secured by the mortgage.

   
   

10. Section 201.17, F.S., states:

    
    

    "Penalties for failure to pay tax required.--

    1. Whoever makes, signs, issues, or accepts, or causes to be made, signed, issued, or accepted, any instrument, document or paper of any kind or description whatsoever, without the full amount of the tax herein imposed thereon being fully paid, or whoever makes use of any adhesive stamp to denote any tax imposed by this chapter without canceling or obliterating such stamps as herein provided, shall be guilty of a misdemeanor of the second degree, punishable as provided in s. 775.082 or s. 775.083.

    2. Any document, instrument, or paper upon which the tax under this chapter is imposed and which, upon audit or at time of recordation, does not bear the proper value of stamps shall subject the person or persons liable for the tax upon the document, instrument or paper to:

       1. Purchase of thee stamps not affixed; and

       2. Payment of penalty to the Department of Revenue equal to the purchase price of the stamps not affixed. This penalty is to be in addition to and not in lieu of any other penalty imposed by law."

          
          

11. It is apparent that the Petitioner, Myron Friedman, is subject to the tax on the subject documents and to the penalties under the section.

RECOMMENDATION

Assess the documentary stamp and the documentary surtax against Petitioner, Myron Friedman. Do not assess penalties for failure to pay tax required, inasmuch as it is apparent that the taxes which were paid were paid in good

faith and that the taxes which were due and owing were not paid because of a misunderstanding of the requirements of Chapter 201, F.S.

DONE and ORDERED this 28th day of May, 1976.

DELPHENE C. STRICKLAND

Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 28th day of May, 1976.

COPIES FURNISHED:

Robert H. Carr, Esquire Post Office Box 3798 Sarasota, Florida 33578

Patricia Turner, Esquire Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Docket for Case No: 75-001304

Orders for Case No: 75-001304