STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS

R. BARTOW RAINEY, et al., )

)

Petitioners, )

)

vs. ) CASE NO. 75-1949

) STATE OF FLORIDA, DEPARTMENT OF ) REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in the above-captioned matter, after due notice, on October 12, 1976, at Tallahassee, Florida, before the undersigned Hearing Officer.

APPEARANCES

For Petitioner: Edgar M. Moore, Esquire

SMITH & MOORE

300 East Park Avenue Tallahassee, Florida 32302

For Respondent: Edwin J. Stacker, Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 ISSUE PRESENTED

The validity of proposed assessment of documentary stamp taxes and penalty against Petitioners, pursuant to Sections 201.08 and 201.17, Florida Statutes.

The facts of the case are not is dispute. The hearing was conducted on the basis of admission of the pertinent documents involved in the matter (Exhibits 1-4), stipulations, arguments and briefs of counsel.

FINDINGS OF FACT

1. On or about November 13, 1973, R. Bartow Rainey, Velma C. Rainey, J. Howard Nichols, and Barbara M. Nichols executed a

   $1,800,000.00 promissory note to The Commonwealth Corporation, a Florida corporation secured by a mortgage of even date and a leasehold interest on real estate in Leon County, Florida. The note provided for monthly interest payments at varying rates as determined by a formula set forth in the note. The principal was due and payable in full on or before twenty-four months from the date of the instrument, i.e., November, 1975. Documentary stamps under Section 201.08(1), Florida Statutes, in the proper amount of

   $2,700.00, were affixed to the note. (Exhibits 3,4, Stipulation).

   
   

2. On February 28, 1974, The Commonwealth Corporation assigned the aforesaid note and mortgage to Schumacher Mortgage Company, Inc., a Delaware Corporation, said assignment being recorded on June 26, 1974 in O.R. Book 66, Page 800, Public Records of Leon County, Florida. (Exhibit 2)

   
   

3. On May 22, 1975, Petitioners and Schumacher Mortgage Company, Inc. entered into an agreement entitled "Amendment to Note and Mortgage" (hereinafter "Amendment") which was recorded on July 17, 1975, in O.R. Book 725, Page 727, Public Records of Leon County, Florida. Pursuant to this document, the parties agreed that the original note and mortgage be amended to increase the principal sums recited therein from $1,800,000.00 to

   $1,850,000.00. The interest rate specified in the note and the repayment provisions thereof were amended to provide for a fixed rate of interest of 11% per annum and the time for payment of principal and any unpaid interest thereunder was extended to May 1, 1977, with an option of the makers, upon payment of $18,500.00 on or before the due date, to further extend the term of the note for a period of an additional year. The agreement further provided that except as therein modified, the terms and conditions of the original promissory note and mortgage should remain unchanged and in full force and effect. Paragraph 9 of the agreement provided as follows:

   
   

   9. This amendment is made pursuant to an agree- ment between the parties dated August 26, 1974, the remaining terms of which are incorporated herein by reference.

   
   

   Petitioner paid documentary stamp tax on the Amendment under Section 201.08(1), F.S., in the amount of $75.00, representing the amount due on the $50,000.00 in difference between the amount of

   the original note and the amended principal sum shown in the Amendment. (Exhibit 2, Stipulation)

   
   

4. On October 13, 1975, Respondent issued a Proposed Notice of Assessment of Tax-and Penalty against Petitioners in the amount of $5,400.00 representing $2,700.00 in documentary stamp taxes alleged to be due for "notes and written obligations to pay money, Section 201.08, F.S. "and a penalty in a like amount. The tax asserted was in the sum of $2,775.00, less $75.00 tax paid, based on a taxable value of $1,850,000.00 represented by the Amendment. The amount of tax and penalty is correctly computed, assuming that it is due and payable. (Exhibit 1, Stipulation)

   
   

   CONCLUSIONS OF LAW

   
   

5. The taxing statute in question provides pertinently as follows:

   
   

   1. Tax on Promissory notes, written obliga- tions to pay money, assignments of wages, etc. --

      (1) On promissory notes, non-negotiable notes, written obligations to pay money, ... made, executed, delivered, sold, transferred, [illegible] one hundred dollars of the indebt- edness or obligation evidenced thereby, the tax shall be fifteen cents on each one hundred dollars or fraction thereof....

      
      

      Petitioners contend that since they paid the proper amount of documentary stamp tax on the original obligation of $1,800,000.00 and the proper amount of tax on the additional sum of $5,000.00 represented by the Amendment, no further tax is due. They base their argument on the theory that the Amendment, standing alone, does not constitute a new, independent obligation to pay the original 1,800,000.00 and that even if considered in conjunction with the original note, this would still be only one promise to pay that sum, as to which tax has already been paid.

      
      

6. Respondent, on the other hand, asserts that the Amendment contains an unconditional promise to pay $1,850,000.00 at a fixed and definite time and therefore is a taxable note pursuant to Section 201.08, and that the exemption provision of Section 201.09, relating to renewal notes is not applicable.

7. Section 201.09 provides as follows:

   
   

   1. Renewal of existing promissory note; exemption. -- When any promissory note is given in renewal of any existing promissory note, which said renewal note only extends or continues the identical contractual obli- gations of the original promissory note and evidences part or all of the original indebt- edness evidenced thereby, not including any accumulated interest thereon and without enlargement in any way of said original con-

   tract and obligation, such renewal note shall not be subject to taxation under this chapter if such renewal note has attached to it the original promissory note and cancelled stamps affixed thereon showing full payment of the tax due thereon. (Emphasis supplied)

   
   

8. The taxes imposed by the documentary stamp tax statute on promissory notes and written obligations to pay under Chapter 201, Florida Statutes, are excise taxes on the documents themselves and not upon the transaction contemplated by the documents themselves and not upon the transaction contemplated by the documents. Maas Brothers, Inc. v. Dickinson, 195 So. 2d 193 (Fla. 1967). In Maas Brothers, the Supreme Court approved the principle that if the holder of a contract may recover a judgment by pleading and proving the contract and non payment, then such contract constitutes a promise to pay as to bring it within the terms of the documentary stamp tax statute. Here, the Amendment agreement cannot stand by itself with respect to enforcement of any undertakings contained therein, but must be determined by an examination of the original note and mortgage and the agreement of August 26, 1974, in addition to the Amendment itself. However, the Maas Brothers case also affirmed the principle that two or more documents, when construed together, may create a valid contract that determines the rights and obligations of the parties. Thus, the issue is faced as to whether the Amendment, together with the above-mentioned related documents, constitutes a new obligation in the total amount of $1,850,000.00 with tax due on the full amount, or a new obligation only to the extent of the additional $50,000.00 embraced within the terms of the Amendment agreement, with tax payable only thereon.

   
   

9. Like other contracts, a note is subject to subsequent modifications, the most frequent of which are an extension of the time for payment and a renewal of the instrument, although not all

   extensions of time involve a renewal. Any such modification, however, is a new contract and to be enforceable must contain all the elements of a valid contract. Extensions of payment may be made by the original parties or by the maker and subsequent holder. While ordinarily this is accomplished by a renewal note, it is possible to extend the time of payment by agreement without giving a renewal note. 4A Fla Jur, Bills, Notes, Etc. S189.

   Additionally, notes may be varied by subsequent agreements to change the terms of payment, such as the medium, amount, and place thereof, and such changes are strictly speaking neither extensions or renewals in the usual sense of such terms.

   
   

10. The term "renewal" as applied to a note, means the establishment of the particular contract for another period of time. An extension of a promissory note is a contract to merely delay the enforcement of the instrument. It does not necessarily involve the execution to a new note.

    
    

11. The Amendment agreement not only extends the time for payment of the original obligation, but also enlarges the principal sum due. The document in question, however, is not considered a "renewal" of the note as contemplated under Section 201.08(1). The original note remains in force and was not satisfied by the execution of the Amendment agreement. Although such agreement is a contract, it does not manifest the intention to discharge the original obligation or otherwise constitute a new promise to pay the original $1,800,000.00. It is a "written obligation to pay "only insofar as the [sic] 50,000.00 in concerned, upon which tax was paid. It is therefore concluded that Petitioners have fully satisfied their tax obligations in this respect. It should be noted that Respondent's reliance on State, Department of Revenue v. McCoy Motel, Inc., 302 So. 2d 440 (Fla. 1st DCA 1974) as authority for Petitioners' liability is misplaced. That case is considered inapplicable because it involves the execution of a new promissory note which, though in a larger amount, included the obligation of a prior note under a type of financial arrangement known as a "wraparound" mortgage. The Court held that the maker of the notes who had paid documentary stamp tax on the principal sum of the first note was also obligated for the total amount of the second note because Section 201.08(1) requires that tax be paid on such a renewal note and the one in question did not fall with the exemption of Section

    201.09. In the instant case, however, no such renewal note was executed. On the contrary, the clear language of the Amendment agreement manifests the intent of the parties only to amend the pre-existing obligation contained in the first promissory note and contains no new promise to pay that sum.

    
    

12. In view of the foregoing, it is considered unnecessary to address the validity of the proposed tax penalty against the Petitioners.

RECOMMENDATION

That Petitioners be relieved from payment of proposed assessment of documentary stamp tax and penalty as set forth in Proposed Notice of Assessment, dated October 13, 1975.

DONE AND ORDERED in Tallahassee, Leon County, Florida, this 12th day of November.

THOMAS C. OLDHAM

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

(904) 488-9675

COPIES FURNISHED:

Edgar M. Moore, Esquire SMITH & MOORE

300 East Park Avenue Tallahassee, Florida 32302

Edwin J. Stacker, Esquire Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

================================================================= AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF REVENUE

R. BARTOW RAINEY, et al., Petitioner,

vs. CASE NO. 75-1949

STATE OF FLORIDA, DEPARTMENT OF REVENUE,

Respondent.

/

FINAL ORDER

This cause comes before the Department of Revenue after hearing having been held pursuant to Chapter 120, Florida Statutes, before a Hearing Officer of the Division of Administrative Hearings. The facts of the case are not in dispute. The hearing was conducted on the basis of admission of the pertinent documents involved in the matter (Exhibits 1-4), stipulations, arguments and briefs of counsel. Said Hearing Officer has heretofore submitted to the Department a Recommended Order dated November 12, 1976. Appearances at the Administrative Hearing were:

APPEARANCES

For Petitioner: Edgar M. Moore, Esquire

Smith & Moore

300 East Park Avenue Tallahassee, Florida 32302

For Respondent: Edwin J. Stacker, Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Pursuant to Section 120.57(1)(b)9, Florida Statutes, the Department of Revenue, after careful analysis of the Recommended Order elects to modify the conclusions of law contained in said Recommended Order.

The Department of Revenue adopts the following as the Final Order of the Department of Revenue:

ISSUE PRESENTED

The validity of proposed assessment of documentary stamp taxes and penalty against Petitioners, pursuant to Sections 201.08 and 201.17, Florida Statutes.

FINDINGS OF FACT

1. On or about November 13, 1973, R. Bartow Rainey, Velma C. Rainey, J. Howard Nichols, and Barbara N. Nichols executed a

   $1,800,000.00 promissory note to the Commonwealth Corporation, a Florida corporation, secured by a mortgage of even date on a leasehold interest on real estate in Leon County, Florida. The note provided for monthly interest payments at varying rates as determined by a formula set forth in the note. The principal was due and payable in full on or before twenty-four months from the date of the instrument, i.e., November, 1975. Documentary stamps under Section 201.08(1), Florida Statutes, in the proper amount of

   $2,700.00, were affixed to the note. (Exhibits 3, 4, Stipulation).

   
   

2. On February 28, 1974, the Commonwealth Corporation assigned the aforesaid note and mortgage to Schumacher Mortgage Company, Inc., a Delaware Corporation, said assignment being recorded on June 26, 1974 in O.R. Book 66, Page 800, Public Records of Leon County, Florida. (Exhibit 2)

   
   

3. On May 22, 1975, Petitioners and Schumacher Mortgage Company, Inc., entered into an agreement entitled "Amendment to Note and Mortgage" (hereinafter "Amendment") which was recorded on July 17, 1975, in O.R. Book 725, Page 727, Public Records of Leon County, Florida. Pursuant to this document, the parties agreed that the original note and mortgage be amended to increase the principal sums recited therein from $1,800,000.00 to

   $1,850,000.00. The interest rate specified in the date and the repayment provisions thereof were amended to provide for a fixed rate of interest of 11 percent per annum and the time for payment of principal and any unpaid interest thereunder was extended to

   May 1, l977, with an option of the makers, upon payment of

   $18,500.00 on or before the due date, to further extend the term of the note for a period of an additional year. The agreement further provided that except as therein modified, the terms and conditions of the original promissory note and mortgage should remain unchanged and in full force and effect. Paragraph 9 of the agreement provided as follows:

   
   

   9. This amendment is made pursuant to an agreement between the parties dated August 26, 1974, the remaining

   terms of which are incorporated herein by reference.

   
   

   Petitioner paid documentary stamp tax on the Amendment under Section 201.08(1), Florida Statutes, in the amount of $75.00, representing the amount due on the $50,000.00 difference between the amount of the original note and the amended principal sum shown in the Amendment. (Exhibit 2, Stipulation)

   
   

4. On October 13, 1975, Respondent issued a Proposed Notice of Assessment of Tax and Penalty against Petitioners in the amount of $5,400.00 representing $2,700.00 in documentary stamp taxes alleged to be due for "notes and written obligations to pay money, Section 201.08, Florida Statutes" and a penalty in a like amount. The tax asserted was in the sum of $2,775.00, less $75.00 tax paid, based on a taxable value of $1,850,000.00, represented by the Amendment. The amount of tax and penalty is correctly computed, assuming that it is due and payable. (Exhibit 1, Stipulation)

CONCLUSIONS OF LAW

1. Section 201.08, Florida Statutes, levies the documentary stamp tax, in pertinent part as follows:

   
   

   201.08 Tax on Promissory notes, written obligations to pay money, assignments of wages, etc. --

   
   

   (1) On promissory notes, non-negotiable

   notes, written obligations to pay money, . . . made, executed, delivered, sold, transferred,

   or assigned in the state, and for each renewal of the same . . .

2. Section 201.09, Florida Statutes, provides a limited exemption from the 201.08 tax:

   
   

   When any promissory note is given in renewal of any existing promissory note, which said renewal note only extends or continues the identical contractual obligations of the original promissory note and evidences part or all of the original indebtedness evidenced thereby, not including any accumulated interest thereon and without enlargement in any way of said original contract and obliga- tion, such renewal shall not be subject to taxation under this chapter if such

   renewal note has attached to it the original promissory note with canceled stamps affixed thereon showing full payment of the tax due thereon. (Emphasis supplied)

   
   

3. A promissory note under the law of commercial paper is an unconditional promise to pay a sum certain in money which note is signed by the maker and payable at a definite time. See 4A Fla. Jur. 44, Bills and Notes, s. 20. Under such definition, the Amendment to Note and Mortgage clearly contains an unconditional promise to pay $1,850,000.00 at a fixed and definite time and is signed by the makers. It is a taxable note pursuant to Section 201.08, Florida Statutes, unless the exemption provisions of Section 201.09, Florida Statutes, apply.

   
   

4. In the case State, Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440, the First District Court of Appeal, discussed the relationship between Sections 201.08 and 201.09, Florida Statutes, and stated in pertinent part, as follows:

   
   

   It was clearly the legislative intent of s. 201.08(1), supra, to tax a renewal note for the full amount

   of the obligation if it included the obligation of another note and was not covered by the exemption of

   s. 201.09, supra, and is therefore taxable for the full amount of its obligation. . .

   
   

   The Amendment to Note and Mortgage not only extends the time for payment of the original obligation, but also enlarges the

   principal sum due, and therefore Section 201.09, Florida Statutes is inapplicable.

   
   

5. The Division of Administrative Hearings has consistently ruled in identical or similar factual situations that such documents are taxable pursuant to Section 201.08, Florida Statutes. D. I. Rainey, Jr., et al., Mortgagors; Thomas County Federal, Thomasville, Georgia, Mortgagee vs. Department of Revenue, DOAH Case No. 75-1899; Henry & Buchanan, P.A. vs. State of Florida, Department of Revenue, DOAH Case No. 76-023; Sport- Craft, Inc. vs. Department of Revenue, DOAH Case No. 75-1986.

   
   

6. Section 201.17, Florida Statutes, 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, with- out 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 recor- dation, does not bear the proper value of stamps shall subject the person or persons liable for the tax upon the document, instru- ment or paper to:

1. Purchase of the 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.

The above-described penalty has been held constitutional by the Supreme Court of Florida in Dominion Land & Title Corp. v.

Department of Revenue, 320 So.2d 815 (Fla. 1975). Thus, it is

apparent that the Petitioners are liable for the tax on the subject documents and to the penalties under the section.

CONCLUSION

The assessment of the Department of Revenue in the amount of

$2,700.00 under Section 201.08, Florida Statutes, for delinquent documentary stamp taxes on the Amendment to Note and Mortgage and the assessment for penalty under Section 201.17, Florida Statutes, in the amount of $2,700.00, are valid.

CERTIFICATION

I certify that the foregoing is the Final Order of the Department of Revenue adopted by the Governor and Cabinet on January 25, 1977.

Ed Straughn, Executive Director State of Florida,

Department of Revenue Room 102, Carlton Building Tallahassee, Florida 32304

Dated this 25th day of January, 1977.

Docket for Case No: 75-001949

Orders for Case No: 75-001949