STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WILLIAM C. KEEBLER, )

)

Petitioner, )

)

vs. ) CASE NO. 76-1376

) FLORIDA DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, G. Steven Pfeiffer, held a public hearing in this case on January 28, 1977, in Daytona Beach, Florida.

The following appearances were entered: Frank D. Newman, of the firm NEWMAN & PETERSON, DeLand, Florida, for the Petitioner, William C. Keebler; and Joseph C. Mellichamp III, Tallahassee, Florida, for the Respondent, Florida Department of Revenue.

On or about August 2, 1976, William C. Keebler ("Petitioner" hereafter) filed a petition and request for hearing with the Florida Department of Revenue ("Respondent" hereafter). In accordance with Florida Statutes, 120.57(1)(b)(3), the Respondent forwarded the petition to the Division of Administrative Hearings for the assignment of a hearing officer and the scheduling of a final hearing.

On August 17, 1976 the Respondent filed its answer to the petition. The final hearing was originally scheduled by notice dated November 8, to be conducted on December 16, 1976. Petitioner filed a Motion for Continuance of the hearing.

The motion was continued and the final hearing was rescheduled by order entered December 16, 1976, to be conducted on January 28, 1977.

Petitioner called the following witnesses at the hearing: William C. Keebler and Bryant Skinner, a businessman from Jacksonville, Florida. The Respondent called no additional witnesses. Hearing Officer's Exhibits 1-5, Joint Exhibits 1-8, Petitioner's Exhibits 1-5, 7 and 8, and Respondent's Exhibits 1-4 were offered into evidence at the final hearing and were received. Petitioner's Exhibit 6 was offered into evidence but was rejected. The parties have submitted Post-Hearing Memoranda of Law.

This case involves an interpretation of the Florida Documentary Stamp Tax and Surtax Laws, Florida Statutes, 20l.02, 201.021. Petitioner had sold certain property that he owned in Putnam County, Florida. As a part of the purchase price, he received a purchase money mortgage. The buyer did not make any payments on the mortgage, and ultimately the buyer reconveyed the property to the Petitioner by quitclaim deed. In exchange for the deed, Petitioner satisfied the buyer's mortgage indebtedness to the Petitioner, and also assumed a mortgage to another party. The Respondent contends that the consideration for the quitclaim deed for purposes of determining the Florida documentary stamp tax, and surtax is the face amount of the mortgages satisfied and assumed, less

any payments that were made on the principal amount of the mortgages.

Petitioner contends that the proper measure of consideration is the actual value of the property at the time the quitclaim deed was executed. When the quitclaim deed was reported the Petitioner paid documentary stamp taxes, and surtaxes based upon an assessed valuation of the property. Respondent is seeking to impose additional taxes based upon its contention as to the determination of the amount of consideration.

FINDINGS OF FACT

1. The Petitioner inherited the property which is the subject of this matter from his uncle who died on June 30, 1971. Petitioner sought to sell the property, and on February 7, 1972 a Mr. Skinner made an offer to purchase the property for $412,000. Petitioner rejected the offer. On July 23, 1973, Petitioner entered into a contract to sell the property for $915,000 to Virgil

   1. Norris and Mavis Y. Norris. The contract called for a $50,000 deposit or binder, $200,000 cash to be delivered at the time of closing, and a $665,000 purchase money mortgage. Just prior to closing the Norrises informed Petitioner that they did not have the $200,000. Petitioner assisted the Norrises in arranging a $200,000 mortgage to the Barnett Bank. Petitioner subordinated his own mortgage to the mortgage with Barnett Bank. On February 7, 1974, the Norris transaction was consummated. Joint Exhibits 1-3 were executed and recorded.

      
      

2. The Norrises were unable to make payments on either mortgage. On January 13, 1975, the Petitioner initiated foreclosure proceedings. In lieu of foreclosure the Norrises executed a quitclaim deed to the Petitioner. The quitclaim deed and an accompanying agreement were received in evidence as Joint Exhibit 4 and 5. When the quitclaim deed was executed the Norrises had made no payments on their purchase money mortgage to the Petitioner, and had paid only interest on the purchase money mortgage to the Barnett Bank. The Norrises' mortgage to the Petitioner was satisfied through the execution of the quitclaim deed. The face amount of the mortgage, and the amount of the mortgage debt extinguished by the quitclaim deed was $665,000. Petitioner also agreed to assume the mortgage to the Barnett Bank. The face amount of that mortgage was

   $200,000 and the amount of debt that was extinguished through the quitclaim deed transaction was $200,000. The total amount of debt extinguished through the quitclaim deed was $865,000.

   
   

3. When the quitclaim deed from the Norrises to the Petitioner was executed the actual market value of the subject property was $450,000. Documentary stamp tax and documentary surtax stamps were affixed to the quitclaim deed based upon the consideration for the deed being the actual market value of the property.

   
   

4. Petitioner contends that the consideration for the quitclaim deed which was taken in lieu of a foreclosure action was the actual market value of the property. Respondent contends that the consideration for the quitclaim deed was the amount of mortgage debt extinguished as a result of execution of the deed.

   
   

   CONCLUSIONS OF LAW

   
   

5. The Division of Administrative Hearings has jurisdiction over the subject matter of this case and over the parties. Florida Statutes, 120.57(1).

   
   

6. A documentary stamp tax, and a documentary surtax are imposed on deeds, instruments, or writings whereby any interest in realty is transferred in accordance with Florida Statutes, 201.02, 201.021. The amount of the taxes is

   determined based upon the consideration given for the document. The Respondent's rules provide that deeds given in lieu of foreclosure are subject to the taxes. Rule 12A-4.12(2)(f), 12A-4.12(4)(e). In a 1959 Opinion the Attorney General likewise concluded that such conveyances are subject to the tax. Op. Atty. Gen. 059-203 (1959). The Attorney General concluded that consideration would be determined as follows:

   
   

   "In the absence of a showing that the consideration for the release or satisfaction is otherwise, the tax should be computed on the unpaid portion of the obligation secured by said mortgage."

   
   

   The same issues were before the court in Indian River Groves v. Dickinson, 238 So.2d 125 (1 DCA Fla. 1970). The trial court had held that deeds to real estate executed in satisfaction of a mortgage debt are subject to the documentary stamp tax. The First District Court of Appeal affirmed, quoting with approval the following language from the trial court's decision:

   
   

   "When a deed to real estate is executed by a mortgagor to the mortgagee in satisfaction and discharge of the mortgage debt, the deed is subject to taxation under Section 201.02, Florida Statutes, the tax to be based upon the value of the debt discharged. In the

   absence of proof to the contrary, the mortgage debt will be presumed to have its face value."

   
   

7. When the Norrises executed the quitclaim deed to Petitioner (Joint Exhibit 4) they received as consideration a satisfaction add discharge of the mortgage debt that they had incurred in purchasing the property. At the time of execution of the quitclaim deed the Norrises owed Petitioner $665,000 for a purchase money mortgage. The Norrises also owed the Barnett Bank $200,000 on a first mortgage. Petitioner satisfied the $665,000 mortgage and assumed the

   $200,000 mortgage in return for the Norrises executing the quitclaim deed. The fact that the actual market value of the property at the time the deed was executed was less than the amount of mortgage indebtedness outstanding has no bearing on this case. The consideration for execution for the quitclaim deed was the discharge of the mortgage debt.

   
   

8. Documentary stamp taxes, documentary surtaxes, and penalties should be imposed upon the Petitioner on the quitclaim deed received in evidence as Joint Exhibit 4 based upon the consideration for the deed being $865,000, the total mortgage indebtedness discharged through execution of the deed.

RECOMMENDED ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED:

That the Respondent assess documentary stamp taxes, documentary surtaxes, and penalties against the Petitioner on the quitclaim deed received in evidence as Joint Exhibit 4, based upon the consideration for the deed being $865,000.

RECOMMENDED this 22nd day of March, 1977, in Tallahassee, Florida.

G. STEVEN PFEIFFER 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 22nd day of March, 1977

COPIES FURNISHED:

Frank D. Newman, Esquire Post Office Box 1870 DeLand, Florida 32720

Joseph C. Mellichamp, III, Esquire Assistant Attorney General Department of Legal Affairs

The Capitol

Tallahassee, Florida 32304

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

AGENCY FINAL ORDER

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

STATE OF FLORIDA DEPARTMENT OF REVENUE

WILLIAM C. KEEBLER,

Petitioner,

vs. CASE NO. 76-1376

FLORIDA DEPARTMENT OF REVENUE,

Respondent.

/

FINAL ORDER OF THE DEPARTMENT OF REVENUE

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, G. Steven Pfeiffer, held a public hearing in this case on January 28, 1977, in Daytona Beach, Florida.

The following appearances were entered: Frank D. Newman, of the firm NEWMAN & PETERSON, DeLand, Florida, for the Petitioner, William C. Keebler; and Joseph C. Mellichamp, III, Tallahassee, Florida, for the Respondent, Florida Department of Revenue.

On or about August 2, 1976, William C. Keebler ("Petitioner" hereafter) filed a petition and request for hearing with the Florida Department of Revenue ("Respondent" hereafter). In accordance with Florida Statutes, 120.57(1)(b)(3), the Respondent forwarded the petition to the Division of Administrative Hearings for the assignment of a hearing officer and the scheduling of a final hearing.

On August 17, 1976 the Respondent filed its answer to the petition. The final hearing was originally scheduled by notice dated November 8, to be conducted on December 16, 1976. Petitioner filed a Motion for Continuance of the hearing.

The motion was continued and the final hearing was rescheduled by order entered December 16, 1976, to be conducted on January 28, 1977.

Petitioner called the following witnesses at the hearing: William C. Keebler and Bryant Skinner, a businessman from Jacksonville, Florida. The Respondent called no additional witnesses. Hearing Officer's Exhibits 1-5, Joint Exhibits 1-8, Petitioner's Exhibits 1-5, 7 and 8, and Respondent's Exhibits 1-4 were offered into evidence at the final hearing and were received. Petitioner's Exhibit 6 was offered into evidence but was rejected. The parties have submitted Post-Hearing Memoranda of Law.

This case involves an interpretation of the Florida Documentary Stamp Tax and Surtax Laws, Florida Statutes, 201.02, 201.021. Petitioner had sold certain property that he owned in Putnam County, Florida. As a part of the purchase price, he received a purchase money mortgage. The buyer did not make any payments on the mortgage, and ultimately the buyer reconveyed the property to the Petitioner by quitclaim deed. In exchange for the deed, Petitioner satisfied the buyer's mortgage indebtedness to the Petitioner, and also assumed a mortgage to another party. There was testimony at the hearing which alleged that the grantor was insolvent. The Respondent contends that the consideration for the quitclaim deed for purposes of determining the Florida documentary stamp tax, and surtax is the face amount of the mortgages satisfied and assumed, less any payments that were made on the principal amount of the mortgages.

Petitioner contends that the proper measure of consideration is the actual value of the property at the time the quitclaim deed was executed. When the quitclaim deed was reported the Petitioner paid documentary stamp taxes, and surtaxes based upon an assessed valuation of the property. Respondent is seeking to impose additional taxes based upon its contention as to the determination of the amount of consideration.

FINDINGS OF FACT

1. The Petitioner inherited the property which is the subject of this matter from his uncle who died on June 30, 1971. Petitioner sought to sell the property, and on February 7, 1972 a Mr. Skinner made an offer to purchase the property for $412,000. Petitioner rejected the offer. On July 23, 1973, Petitioner entered into a contract to sell the property for $915,000 to Virgil

   R. Norris and Mavis Y. Norris. The contract called for a $50,000 deposit or binder, $200,000 cash to be delivered at the time of closing, and a $665,000 purchase money mortgage. Just prior to closing the Norrises informed Petitioner that they did not have the $200,000. Petitioner assisted the Norrises in arranging a $200,000 mortgage to the Barnett Bank. Petitioner subordinated his own mortgage to the mortgage with Barnett Bank. On February 7, 1974, the Norris transaction was consummated. Joint Exhibits 1-3 were executed and recorded.

2. The Norrises were unable to make payments on either mortgage. On January 13, 1975, the Petitioner initiated foreclosure proceedings. In lieu of foreclosure the Norrises executed a quitclaim deed to the Petitioner. The quitclaim deed and an accompanying agreement were received in evidence as Joint Exhibit 4 and 5. When the quitclaim deed was executed the Norrises had made no payments on their purchase money mortgage to the Petitioner, and had paid only interest on the purchase money mortgage to the Barnett Bank. The Norrises' mortgage to the Petitioner was satisfied through the execution of the quitclaim deed. The face amount of the mortgage, and the amount of the mortgage debt extinguished by the quitclaim deed was $665,000. Petitioner also agreed to assume the mortgage to the Barnett Bank. The face amount of that mortgage was

   $200,000 and the amount of debt that was extinguished through the quitclaim deed transaction was $200,000. The total amount of debt extinguished through the quitclaim deed was $865,000.

   
   

3. When the quit claim deed from the Norrises to the Petitioner was executed the actual market value of the subject property was $450,000. Documentary stamp tax and documentary surtax stamps were affixed to the quitclaim deed based upon the consideration for the deed being the actual market value of the property.

   
   

4. Petitioner contends that the consideration for the quitclaim deed which was taken in lieu of a foreclosure action was the actual market value of the property. Respondent contends that the consideration for the quitclaim deed was the amount of mortgage debt extinguished as a result of execution of the deed.

   
   

   CONCLUSIONS OF LAW

   
   

5. The Division of Administrative Hearings has jurisdiction over the subject matter of this case and over the parties. Florida Statutes, 120.57(1).

   
   

6. A documentary stamp tax, and a documentary surtax are imposed on deeds, instruments, or writings whereby any interest in realty is transferred in accordance with Florida Statutes, 201.02, 201.021. The amount of the taxes is determined based upon the consideration given for the document. The Respondent's rules provide that deeds given in lieu of foreclosure are subject to the taxes. Rule 12A-4.12(2)(f), 12A-4.12(4)(e). In a 1959 Opinion the Attorney General likewise concluded that such conveyances are subject to the tax. Op. Atty. Gen. 059-203 (1959). The Attorney General concluded that consideration would be determined as follows:

   
   

   "In the absence of a showing that the consideration for the release or satisfaction is otherwise, the tax should be computed on the unpaid portion of the obligation secured by said mortgage."

   
   

   The same issues were before the court in Indian River Groves v. Dickinson, 238 So.2d 125 (1 DCA Fla. 1970). The trial court had held that deeds to real estate executed in satisfaction of a mortgage debt are subject to the documentary stamp tax. The First District Court of Appeal affirmed, quoting with approval the following language from the trial court's decision:

   
   

   "When a deed to real estate is executed by a mortgagor to the mortgagee in satisfaction and discharge of the mortgage debt, the deed

   is subject to taxation under Section 201.02,

   Florida Statutes, the tax to be based upon

   the value of the debt discharged. In the absence of proof to the contrary, the mortgage debt will be presumed to have its face value."

   
   

7. When the Norrises executed the quitclaim deed to Petitioner (Joint Exhibit 4) they received as consideration a satisfaction and discharge of the mortgage debt that they had incurred in purchasing the property. At the time of execution of the quitclaim deed the Norrises owed Petitioner $665,000 for a purchase money mortgage. The Norrises also owed the Barnett Bank $200,000 on a first mortgage. Petitioner satisfied the $665,000 mortgage and assumed the

   $200,000 mortgage in return for the Norrises executing the quitclaim deed. The fact that the actual market value of the property at the time the deed was executed was less than the amount of mortgage indebtedness outstanding has no bearing on this case. The consideration for execution for the quitclaim deed was the discharge of the mortgage debt.

   
   

8. Documentary stamp taxes, documentary surtaxes, and penalties should be imposed upon the Petitioner on the quitclaim deed received in evidence as Joint Exhibit 4 based upon the consideration for the deed being $865,000, the total mortgage indebtedness discharged through execution of the deed.

CONCLUSION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is, ORDERED:

That the Respondent's assessment of documentary stamp taxes, documentary surtaxes, and penalties against the Petitioner on the quitclaim deed received in evidence as Joint Exhibit 4, based upon the consideration for the deed being

$865,000 is valid.

That the total taxable amount for documentary stamp taxes is $865,000, making a total tax due of $2,595 less the tax paid by the Petitioner of

$1,350.30, making a total tax due of $1,244.70, plus penalty of $1,244.70, for a total documentary stamp tax and penalty due of $2,489.40.

That the total taxable amount for surtaxes would be $665,000 with a tax due of $731.50 less the tax paid by the Petitioner of $275.55, making the total tax due from the Petitioner of $455.95, plus penalty of $455.95, for a total surtax of $911.90.

That the total amount due the Respondent by the Petitioner is $3,401.30.

CERTIFICATION

I CERTIFY that the foregoing is the Final Order of the Department of Revenue adopted by the Governor and Cabinet on the

21st day of June, 1977.

HARRY L. COE, JR.

Executive Director

State of Florida, Department of

Revenue

Room 102, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

Dated this 24th day of June, 1977.

Docket for Case No: 76-001376

Orders for Case No: 76-001376