vs. ) CASE NO. 75-1950
Respondent. )
A hearing was held in the above-captioned matter, after due notice to the parties, at Tallahassee, Florida, on April 21, 1976, before the undersigned Hearing Officer.
For Petitioner: Edgar M. Moore, Esquire
Smith and Moore, P.A. Post Office Box 1169
For Respondent: Patricia S. Turner
Validity of proposed assessment of documentary stamp tax and penalty against Respondent under Chapter 201, Florida Statutes.
On October 29, 1973, R. Bartow Rainey and J. Howard Nichols leased an unimproved parcel of land located in Tallahassee, Florida, from William Welsh Boyd and Patricia Boyd McLain. The term of the lease was for a period of 30 years at an annual base rental and a percentage of annual gross income derived from the property. Article 10.03 provided in part:
"All buildings, alterations, rebuildings, replacements, changes, additions, improvements, equipment and appurtenances on or in the premises at the commencement of the term, and which may be erected, installed or affixed on the premises during the term, shall be deemed
to be and immediately become part of the realty . . ."
Article 15 contemplated the securing of a mortgage on the lease-hold interest by the tenants which would be a first lien upon both the fee and leasehold estates by virtue of the landlord joining therein up to $2,500,000.00 on a loan having a term not in excess of 30 years, and further providing that the mortgage loan must be one where the proceeds were to be used to construct improvements mentioned in the lease. The aforesaid lease was recorded in the public records of Leon County, Florida, on November 14, 1973 (Exhibit 3).
The lessees of the property executed a promissory note on November 13, 1973, payable to the Commonwealth Corporation, Tallahassee, Florida, in the principal sum of$1,800,000.00, secured by a mortgage of their leasehold interest of the same date which also was duly recorded in the public records of Leon County. The lessees thereafter improved the property constructing apartment buildings consisting of 200 to 500 units (Exhibit 4, Counsel for Petitioners).
By an amendment to the aforementioned note and mortgage, dated May 22, 1975, Schumacher Mortgage Company, Inc., a Delaware Corporation, succeeded to the rights of Commonwealth Corporation as mortgagee, and the principal sum of the mortgage was increased to $1,850,000,00 (Exhibit 4).
The lease then was assigned to Petitioners on July 1, 1975, subject to the terms and conditions of the lease which the assignees assumed and agreed to discharge, and they also mortgaged the leasehold estate as security for a promissory note, dated July 1, 1975, in the principal amount of $458,000.00. The mortgage was entered into on June 3, 1975, with R. Bartow Rainey and J. Howard Nichols as mortgagees. Also on July 1, 1975, Rainey and Nichols as "grantor" executed a warranty deed to Petitioners purporting to convey in fee simple the improvements located on the real property in question subject to the existing first mortgage of November 13, 1973 (Exhibit 2, 7, 8).
By Notice of Proposed Assessment, dated October 14, 1975, Respondent seeks to collect from Petitioners documentary stamp tax under Section 201.02(1), Florida Statutes, in the amount of $5,549.70 and a penalty in a like amount for a total of $11,099.40. The tax liability was levied against the aforesaid assignment of lease and warranty deed, based upon consideration of $550,000.00 cash and for the assignment, and $1,850.000.00 under the amendment to the note and mortgage, for a total taxable consideration of $2,400,000.00. The base tax was $7,200.00, less tax previously paid in the amount of $1,650.30, leaving a sum of $5,549.70 as tax due, plus a penalty in a like amount. The parties stipulated that the computation of the tax and the amount of delinquency as assessed are correct assuming that the tax and penalty are due and owing.
CONCLUSIONS OF LAW
The statute under which Respondent asserts documentary stamp tax is Section 201.02(1), Florida Statutes, which provides as follows:
"(1) 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 $100 of the consideration therefor the tax shall be 30 cents. When the
full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 30 cents for each $100 or fractional part thereof of the consideration therefor."
In its Notice of Proposed Assessment, Respondent based the tax under the above-cited statute on both the warranty deed and the assignment of lease to Petitioners. Under the statute, the tax is imposed upon documents which convey an interest in real property based upon the consideration therefor. At the hearing, counsel for Petitioners abandoned the contention as set forth in the Petition that a leasehold estate is not an interest in realty, however, they maintain that the tax must be levied against the document itself rather than the underlying transaction and that the documents sought to be taxed herein are not such that a reasonable determination can be made of the alleged consideration there for nor of the consideration passing from the lessee to the lessor under the original lease agreement that was assigned and which assignment is the subject of this assessment. This argument is not well taken because the language of Section 201.02(1) contemplates that the full consideration must be ascertained from sources other than the document to be taxed when the full amount of the consideration is not shown on the face of such document. Such a procedure was followed in this case, as evidenced by Exhibit A to the Notice of Proposed Assessment, which states that "The consideration was derived from Edgar Moore and Courthouse records."
The amount of $550,000.00 as the consideration given for the lease assignment was not disputed by Petitioner, and the amendment to the note and mortgage covering the property establishes a principal balance thereon of
$1,850,000.00. The assignment of lease was made subject to all provisions of the lease assigned. Rule 12A-4.12(2), F.A.C., provides that the term "consideration" under Section 201.02 includes cash and "Conveyance subject to mortgage debt, lien or encumbrance." Accordingly, it is determined that, although leaseholds normally are not taxable due to their executory nature (De Vore v. Gay, 39 So.2d 796 (Fla. 1949)), this rule does not apply to an assignment of a lease for present consideration and where such assignment is subject to an existing mortgage on the leasehold interest. Persuasive authority for this view is found in Attorney General's Opinion 074-350 wherein it was stated that:
"[T]he initial long-term leases from the Santa Rosa Island Authority to the private lessees, in that they provide, as noted in AGO 060-56, for annual rental payments during the term of the lease, would not be taxable under F.S.
201.02. However, any assignment or conveyance of such existing leases for a present consideration, including the assumption of or taking subject to a mortgage, would require documentary stamps under F.S. Section 201.02 based upon the full amount of such consideration."
It is thus concluded that the tax was correctly assessed against Petitioners under Section 201.02(1).
It having been concluded that the tax lies against the assignment of lease, there need be little discussion concerning the warranty deed. Petitioners contend that the deed merely conveyed personal property consisting of improvements to the land and that therefore it was not taxable as a conveyance of an interest in realty. Certainly, improvements in the form of apartment buildings become a part of the realty not only under general legal considerations, but also as specifically provided in the lease under consideration. However, they were not subject to separate conveyance, title to the realty still being held by the original lessors. Accordingly, it is considered that the warranty deed, standing alone, would not be subject to
documentary stamp tax. However, it is important to note that the deed expresses the intent of the parties that the purported conveyance was subject to the existing first mortgage on the leasehold interest.
The penalty sought by Respondent lies under Section 201.17(2) which provides as follows:
"(2) Any document, instrument, or paper 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:
Purchase of the stamps not affixed; and Payment of penalty to the Department of Revenue equal to the purchase price of the stamps not affixed. This penalty is to be
The penalty is properly assessed under the terms of this statute and taking into consideration the fact that the taxable document did not bear the value of stamps required to be affixed.
That Petitioners be held liable for an assessment of $11,099.40 for delinquent documentary stamp taxes and penalty under Chapter 201, Florida Statutes.
DONE and ORDERED this 17th day of May, 1976, in Tallahassee, Florida.
THOMAS C. OLDHAM
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
Edgar M. Moore, Esquire Smith and Moore, P.A.
P. O. Box 1169
Patrician S. Turner, Esquire Assistant Attorney General Department of Legal Affairs The Capitol
