STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ANDEAN INVESTMENT COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 76-220

) STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in the above-captioned matter, after due notice to the parties, at Fort Lauderdale, Florida, on March 30, 1976, before the undersigned Hearing Officer.

APPEARANCES

For Petitioner: E. Wilson Crump, II, Esquire

Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303

For Respondent: Allan F. Meyer, Esquire

Zayle A. Bernstein, Esquire

One Financial Plaza, Suite 1500 Post Office Box 14310

Fort Lauderdale, Florida 33302 ISSUE PRESENTED

Respondent's alleged liability for documentary stamp tax, surtax and penalties under Section 201.02(1), 201.021 and 201.17(2), Florida Statutes.

FINDINGS OF FACT

1. On January 15, 1975, Gerardo Benesch, Jitka Benesch, H. Albert Grotte, Regina Grotte, Milorad Dordevic, Catalina Dordevic, Milodrag Savovic and Marina Savovic executed an agreement associating themselves in a general partnership, Andean Investment Company. The stated purpose of the partnership was to engage in the business of real estate development, selling, renting, and dealing generally in real estate of all kinds. It was recited in the agreement that, by forming the partnership, the parties wished to reduce their prior expense of managing separate properties through separate managerial agreements. To this end, they transferred certain real estate by quit-claim deed to the partnership, and these properties represented its capital. The agreement provided in Article IV that the net profits or net losses of the partnership would be distributed or chargeable, as the case might be, to each of the partners in percentage

   proportions based on the amount of their investment in the partnership. The property consisted of warehouses located in Deerfield Beach and Fort Lauderdale, Florida, from which rentals were derived (Petition and Exhibits thereto).

   
   

2. All of the properties were encumbered by mortgages of varying amounts and all but two of the quit-claim deeds transferred title subject to the mortgage thereon. Two deeds provided specifically that the partnership assumed the existing mortgage. Although Petitioner's counsel states that this was not intended and was a "scrivener's error", Petitioner partnership has, in fact, made the mortgage payments on all of the properties since their transfer under the aforesaid deeds (Composite Exhibit 1, Stipulation).

   
   

3. Petitioner paid only minimal documentary stamp tax on the deeds. Respondent thereafter issued four proposed Notices of Assessment of Documentary Stamp Tax, Surtax, and Penalty against the Petitioner on January 6, 1976, in the total amount of $3,797.00. The tax was computed under Rule 12A-4.13(10)(c), F.A.C., based on transfers of realty (Composite Exhibit 2, Testimony of Dahlem).

   
   

4. At the hearing, Petitioner disputed the manner in which Respondent had computed the documentary stamp tax in that each assessment dealt with a husband and wife who held individual percentage interests in the net worth of the partnership. Respondent's computation did not take into consideration the double interest in each assessment. The parties therefore agreed that a recomputation would be made by Respondent and submitted as a late-filed exhibit. This was done and the new computation reflects a total tax liability, including surtax and penalty, in the total amount of $4,053.40 (Composite Exhibit 3).

   
   

   CONCLUSIONS OF LAW

   
   

5. Respondent's proposed tax assessment against Petitioner is asserted under the authority of the following pertinent statutory provisions:

   
   

   "201.02 Tax on deeds and other instruments relating to lands, etc. -

   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, 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."

      
      

      "201.021 Surtax on documents relating to land, Land Acquisition Trust Fund.-

      1. A documentary surtax, in addition to the tax levied in s. 201.02, is levied on those documents taxed by s. 201.02 at the rate of 55 cents per $500 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. If the full amount of the consideration is not shown on the face of the document, then the tax shall be at the rate of 55 cents on each $500 or fractional party thereof of the consideration."

         
         

         201.17(2) Penalties for failure to pay tax required.-

      2. Any document, instrument, or paper upon which the tax under this chapter is imposed and which upon audit or at the 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 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."

      
      

      Additionally, the following rule relates to the assessment of documentary stamp tax in the instant situation:

      
      

      12A-4.13 Conveyances Subject To Tax

      1. Partnerships: A conveyance of realty by a partner in exchange for an interest in a partnership is taxable or not depending upon the circumstances:

         1. The tax is computed on the value of the interest in the partnership received by the grantor plus any other consideration. Where the owners of the property convey the property to a general partnership, of which they are the sole owners, no tax is due even though the property is conveyed subject to a mortgage executed by the owners which is assumed by the partnership.

      (c) When the owner of property forms a general partnership with other parties and he conveys the property to the partnership subject to a mortgage for which the partnership assumes the burden of making the mortgage payments, the conveyance to the partnership is taxable under Chapter 201, F.S. The tax should be computed upon the unpaid balance of the mortgage debt

      at the time of the conveyance, plus any other consideration, including the value of the interest in the partnership received by the grantor, less the portion of the unpaid balance represented by the percentage of interest which the grantor acquires in the partnership.

      EXAMPLE: 'A' transfers real property to a partnership which has a net worth of $100,000 for a thirty percent interest in the partnership. The property transferred by 'A' to the partnership has a mortgage executed by 'A' with an unpaid balance of $200,000 at the time of transfer. Consideration upon which tax is computed:

      
      

      Unpaid balance of mortgage Value of 30 percent interest in		$200,000
      partnership (.30 percent x $1000,000	[sic])	30,000
      Subtotal		$230,000
      Less 30 percent of unpaid balance of
      mortgage (.30 percent x $200,000)		60,000
      Basis for computation of tax		$170,000

      
      

6. Petitioner contends that since under Section 201.02(1), tax is is payable only on transfers of realty based upon the consideration therefor, it is not liable since the transfers in question were not based on consideration and were made solely for convenience of the transferors, i.e., the efficient management and administration of the subject properties. It asserts that the conveyances to the partnership were in the nature of mere book transactions inasmuch as no partner owns any more of the properties or is indebted to a greater extent than in his individual capacity before the transfer. Petitioner further claims that Rule 12A-4.13(10)(b) should govern this case because the owners of the property had conveyed it to a general partnership of which they are the sole owners and that, as a consequence, no shifting of ownership interests occurred since each partner remains obligated only on his percentage interest as to the total liabilities conveyed to the partnership, with no partner assuming more or less than the original liability commitment held in his capacity as an individual owner. On the other hand, Respondent asserts that the transactions in question fall squarely within the ambit of Rule 12A-4.13(10)(c) because various owners of property formed a general partnership with other parties and conveyed their property to the partnership subject to mortgages for which the partnership assumed the burden of making the mortgage payments.

   
   

7. The Petitioner is considered to be a "purchaser" as contemplated under Section 201.02(1). Rule 12A-4.12(2)(e) embraces a "Conveyance subject to mortgage debt, lien or encumbrance" as included within the term "consideration" under Section 201.02. The conveyances in question were all subject to mortgage debts and thus there was consideration involved in the transfers. It is clear that the transfers fall within the scope of Rule 12A-4.13(10)(c). Here, various owners of property formed a general partnership and conveyed their respective properties to the partnership subject to mortgages on which the partnership did, in fact, make the payments. The transactions thus fall within the rule of Kendall House Apartments, Inc. v. The Department of Revenue, 245 So.2d 221 (Fla. 1971) as taxable transactions.

   
   

8. Petitioner contests Respondent's method of computing the tax, claiming that since each partner is subject to liability on all the mortgages transferred into the partnership, therefore the formula set forth in Rule 12A-4.13(10)(c) should be modified accordingly. It is determined that the Respondent applied the rule correctly by deducting the portion of the unpaid balance of the mortgage debt only on the property transferred by each partner represented by his percentage of interest in the partnership. The validity of the rule is not a proper subject of consideration in these proceedings.

9. Surtax is payable and correctly computed under Section 201.021 and Rule 12A-4.12 based upon the gross consideration for the transfers less the amounts of existing mortgages on the real estate.

   
   

10. Penalties are properly assessed under Section 201.17(2) for failure of the deeds to bear the appropriate value of documentary tax stamps. Petitioner's arguments in its brief concerning Respondent's abuse of discretion in not waiving penalties are not persuasive; even if administrative discretion in such regard could be deemed permissible. Petitioner's safeguard was to have paid the tax under protest and contested the assessment in a proper forum.

RECOMMENDATION

That Petitioner's request for relief from tax liability be denied, and that Petitioner's liability for documentary stamp tax, surtax, and penalties in the total amount of $4,053.40 be sustained.

DONE and ORDERED this 26th day of May, 1976, in Tallahassee, Florida.

THOMAS C. OLDHAM

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

(904) 488-9675

COPIES FURNISHED:

E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303

Allan F. Meyer, Esquire Suite 1500

Post Office Box 14310

Ft. Lauderdale, Florida 33302

Zayle A. Bernstein, Esquire Post Office Box 14310

Fort Lauderdale, Florida 33302

Docket for Case No: 76-000220

Orders for Case No: 76-000220