vs. ) CASE NO. 76-1822
Respondent. )
A hearing under subsection 120.57(1), Florida Statutes, was held in the above-captioned matter, after due notice, at Lakeland, Florida, on February 14, 1977, before the undersigned Hearing Officer.
For the Petitioner: D. A. Troiano, Esquire
For the Respondent: David K. Miller, Esquire
Petitioner's liability for documentary stamp tax and penalty under Chapter 201, Florida Statutes.
This case arises from a proposed assessment of documentary stamp tax and penalty, as set forth in revised assessment, dated February 7, 1977, in the amount of $1,831.35. A portion of the proposed assessment, i.e., $94.35, is no longer contested by Petitioner and it was stipulated by the parties that if the tax and penalty are due and owing, the above figures are correctly computed and represent the taxpayer's liability (Exhibit 2).
It was further stipulated that the facts of the case as set forth in Memorandum In Support Of Respondent's Position (Exhibit 1) are correct and may provide the basis for findings by the Hearing Officer, supplemented by the testimony of two witnesses presented by the parties at the hearing.
The case involves ten separate transactions involving the Petitioner which are described below.
LANE TRANSACTION On August 10, 1972, Arnold and Beth Lane executed a
$4,500 note to the Bank. Documentary stamps in the proper amount were affixed. The borrowers paid their obligation down to $2,616 and then on May 4, 1976, executed a new note for $4,100 to the Bank. Documentary stamp taxes of $2.25 were paid, reflecting only the amount due on the $1,483 "new money." The Department has assessed the Bank for taxes on the entire obligation, plus penalties, totaling, $7.80.
WILSON TRANSACTION On April 5, 1975, T. R. Wilson executed a $6,500 note to the Bank. Documentary stamps in, the proper amount were affixed to the note. On April 30, 1975, prior to making the first payment, Wilson executed an
$8,500 note to the Bank. Documentary stamps were affixed to the second note in the amount of $3.00, reflecting the amount due on a $2,000 obligation. The Department has assessed taxes and penalties on this transaction in the amount of
$19.50.
DON HOWELL AUTO SALES INC., TRANSACTION In August (no date specified), 1975, Donald Howell (as president), David Howell (as Vice President and Gladys Howell (as Secretary) of Don Howell Auto Sales signed a floor plan note for a maximum loan amount of $65,000. Documentary stamps were affixed to the note in the amount of $101.25, an overpayment of $3.75.
On August 30, 1975, Donald Howell (as President) and Gladys Howell (as Secretary) signed a new floor plan note for $85,000. Documentary stamps in the amount of $26.25 were affixed to the note. This amount, added to the overpayment previously mentioned, reflected only the taxes due on the $20,000 "new money." The Department has assessed taxes and penalties on this transaction in the amounts of $195.00, reflecting the extra amounts due on the full face amount of the second note.
HARRIS TRANSACTION The Harris transaction was actually a series of transactions. On February 19, 1971, Loy and Susie Harris signed a note for
$7,192.28 to the Bank. Documentary stamps in the proper amount were affixed. This obligation was renewed several times through renewal notes involving no "new money," and the borrowers reduced their outstanding principal balance to
$4,000.
In a second, unrelated loan on December 17, 1973, the Harrises signed a
$50,000 note to the Bank. Documentary stamps in the proper amount were affixed. They made one payment under this obligation, reducing the outstanding principal balance to $45,987.86.
In a third, unrelated loan on June 6, 1974, the Harrises signed a
$7,000 note to the Bank. Documentary stamps in the proper amount were affixed. No payments were made to reduce the outstanding principal balance.
In a fourth, unrelated loan on August 26, 1974, the Harrises signed a
$11,500 note to the Bank. Documentary stamps in the proper amount were affixed. No payments were made to reduce the outstanding principal balance.
On November 27, 1974, the Harrises had a total outstanding principal balance on all four previous transactions of $68,487.86. That date they executed a new note for $100,000, reflecting the previous balance plus
$31,512.14 "new money." In addition, the new loan pledged as security three life insurance policies not appearing as security in any of the previous
transactions. Documentary stamps were affixed to this final note in amounts reflecting only the "new money." The Department has assessed taxes and penalties in the amount of $205.20 reflecting the extra amounts due on the full face amount of the final note.
LOHR TRANSACTION On June 2, 1966, J. Fred Lohr, Emily Lohr, J. A. Lohr, and Maureen Lohr executed a $5,000 note to the Bank. Documentary stamps in the proper amount were affixed to the note. On February 25, 1971, the parties executed a $10,000 note to the Bank reflecting a renewal of the original loan plus $5,000 "new money." Documentary stamps were affixed in the amount of
$7.50, reflecting only the amount due for the "new money." Both of these transactions were secured by an assignment of a savings account.
On November 20, 1975, the same parties executed a renewal note of
$10,000 secured by a U. S. Treasury bill. No "new money" was involved in this transaction. Nevertheless, the Department assessed a deficiency for taxes and penalties in the amount of $15.00 because the renewal note failed to include, as an attachment, a previous note bearing the proper amount of stamps.
XYZ LIQUORS, INC. TRANSACTION On May 22, 1975, XYZ Liquors executed an $85,500 note to the Bank. The Bank's records reflect that of the face amount of the note, only $80,955 was actually advanced to the borrower. Documentary stamps reflecting only the amount of this advance were attached to the note.
The Bank's records reflect that the present outstanding principal balance on this loan is $77,581.85. The Department has assessed taxes and penalties of
$13.50 on this transaction, reflecting the extra amounts due on the full face amount of the note.
FLORIDA REFRESHMENT CENTERS, INC., TRANSACTION On May 5, 1975, Florida Refreshment Centers executed a $117,000 note to the Bank, and received an immediate advance under the note of $100,000. The Bank's records reflect that this advance has been paid down to $10,000 and no new advances have been made. Documentary stamps were affixed to the note in the amount of $150, reflecting the taxes payable on the $100,000 advance. The Department has assessed taxes and penalties of $51.00 on this transaction, reflecting the extra amounts due on the full face amount of the note.
LAUGHNER TRANSACTION On September 19, 1969, Norman Laughner executed a $150,000 note to the Bank. This transaction was exempt from documentary stamp taxation at the time by Federal law, and consequently no documentary stamp taxes were paid. (See First Nat'l Bank of Homestead v. Dickinson, 291 F.Supp. 855 (N.D. Fla. 1968), aff'd, 393 U.S. 409, 89 S. Ct. 685, 21 L.Ed.2d 634 (1969). Congress then acted to repeal the exemption from state taxation enjoyed by national banking institutions. (See 12 U.S.C. 548, enacted in Pub. L. 91-156, effective December 24, 1969). Laughner paid his obligation down to $10,000, and then on September 23, 1975, executed a new note for $10,000 in renewal of the original loan. No documentary stamp taxes were paid on the renewal note. The Department assessed taxes and penalties on this renewal note in the amount of
$30.00, because no properly stamped original note was attached.
DICKIE EQUIPMENT COMPANY TRANSACTION On August 5, 1975, David Dickie Equipment signed a floor plan note for a maximum loan in the amount of $60,000 to the Bank. Documentary stamps were affixed to this document in the amount of
$150, $60 in excess of the proper amount. On January 28, 1976, Dickie, in the same capacities as before, signed a floor plan note for a maximum loan amount of
$100,000. No documentary stamps were affixed.
On July 2, 1976, David Dickie as President of the Dickie Equipment Co., Inc. (a corporation, as opposed to the proprietorship which borrowed under the previous notes) and Steve Dickie, as Vice President, signed a third floor plan note for maximum loan amount of $100,000. This note also included the signatures of Steve Dickie, individually, and Shirley Dickie, in an unspecified capacity, as endorsers and sureties. No documentary stamps were affixed to this note. The Department contends that this transaction embodies new promises to pay, and has assessed taxes and penalties in the amount of $300.00.
On or about October 2, 1973, the Bank borrowed $300,000 from the Franklin National Bank, a New York bank. J. Howard Vaughn (as President) and Charles Davis (as Cashier) on the Bank's behalf signed a note for this amount. Although the note states on its face that it is payable in New York, the Department believes that it was actually executed by the Bank's officers in the State of Florida and later mailed to New York, and further that the loan's proceeds were used in Florida. No documentary stamps were affixed to the note. The Department has assessed documentary stamps taxes and penalties in the amount of $900 on this transaction. Parenthetically, it appears that the Franklin National Bank is presently in receivership, and the Federal Deposit Insurance Corporation holds this note. (Exhibit 3)
In a discussion with Respondent's tax examiner in September, 1976, officials of Petitioner were advised that in cases involving renewal notes where "new money" was advanced to the borrower, documentary stamp tax would not be assessed upon the entire principal balance if one note for the principal balance was executed at the date of renewal and a second note for the additional advance of money was also executed. In such a case, only the amount of the second note would be taxable. Petitioner claims that this information was never disseminated to it by written directives from Respondent. (Testimony of Davis, Kloska)
CONCLUSIONS OF LAW
As indicated in Respondent's memorandum, these transactions fall under several categories. One concerns renewal notes in which "new money" was included in the said notes. The transactions with Lane, Wilson, Don Howell Auto Sales, Inc., and Harris are in this category. The transaction with Lohr is also in this category, because "new money" was advanced in a previous loan transaction which was renewed under the terms of the most recent note.
A second category includes master "notes" extending a maximum line of credit, which line of credit has not been fully utilized by the borrower. This category includes the XYZ Liquors transaction and the Florida Refreshment Center transaction.
The third category concerns miscellaneous notes on which no stamps were affixed for reasons peculiar to each transaction. These include the Laughner transaction, the Dickie Equipment Company transaction, and the Franklin National Bank transaction.
All of the transactions involved notes or written obligations to pay money. Florida imposes a documentary stamp tax on notes and written obligations to pay money, as well as on renewals thereof, under Section 201.08, Florida Statutes, which provides in part as follows:
"201.08 Tax on promissory notes, written obligations to pay money, assignments of wages, etc. --
On promissory notes, nonnegotiable notes, written obligations to pay money,
. . . made, executed, delivered, sold, transferred, or assigned in the state, and for each renewal of the same on each one hundred dollars of the indebtedness or obligation evidence thereby, the tax shall be fifteen cents on each one hundred dollars or fraction thereof "
"201.09 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 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 of said original contract 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 with canceled stamps affixed thereon showing full payment of the tax due thereon."
In view of the language of Section 201.09, it is apparent that the exemption from taxation provided therein applies only to a narrowly-defined class of documents, i.e., a promissory note that renews an existing note by extending or continuing the identical obligations of the original note. Further, the renewal note must have attached to it the original note with caneeled stamps showing full payment of the tax due. In the instant transactions of this category, the second notes enlarged the obligation of the first notes in all but the Lohr transaction. Accordingly, by the terms of the statute, none of the second notes is exempt under Section 201.09 and they are taxable for the full amounts of the obligations reflected thereon. As to the Lohr situation, a renewal note involving "new money" was executed in 1971 and stamps were affixed reflecting only the amount of the additional sum. Although this resulted in a tax deficiency, Respondent failed to make an assessment. In
1975, the obligation was renewed a second time with no "new money;" however, the exemption provision in Section 201.09 is not available to Petitioner because that provision specifically provides that the exemption applies only if the renewal note has "attached to it the original promissory note with canceled stamps affixed thereon showing full payment of tee tax due thereon." Because the proper amount of stamps was not affixed to the 1971 renewal, the 1975 renewal fails to meet the conditions necessary for exemption and remains taxable as a renewal under Section 201.08(1). Petitioner's contention that it should have been informed by Respondent as to a possible alternate method of renewing and enlarging existing notes without being taxed thereon is without merit. It is not the duty of the sovereign to provide information for the avoidance of taxes.
The next category of transactions are those with XYZ Liquors, Inc. and Florida Refreshment Centers, Inc. which involve the extension of credit in a maximum amount of which the borrower may borrow all or part. The face of the note shows the maximum loan amount or "line of credit," but not the borrower's actual obligation. In both transactions, documentary stamps were affixed reflecting only the amount advanced to the borrower. These transactions are
taxable on the full-face of the note under Section 201.08 under Sun First National Bank of Orlando v. Department of Revenue, Case No. 75-2033 (Department of Revenue, filed July 21, 1976).
Laughner Transaction Here the borrower signed a renewal note containing a promise to pay $10,000. No documentary stamps were affixed to either the original note or the renewal. The original note was tax exempt by virtue of federal law, but the exemption was repealed by Congress and does not extend to the subsequent renewal. This transaction is also controlled by Sun First National Bank of Orlando v Department of Revenue, supra, wherein the Department ruled:
"With respect to extensions of those promissory notes executed when the notes were exempt from taxation by reason of Petitioner's status as a national bank, the same statutes above quoted are applicable and the same rules of statutory construction apply. In order for these renewal notes to be exempt from taxation pursuant to Section 201.09, F.S., they must meet all the requirements of that section. One of these requirements is that the renewal note (to be
exempt from taxation) "has attached to it the original promissory note with canceled stamps affixed thereon showing full payment of the tax due thereon." Since documentary stamp taxes were never paid on these original notes they can hardly have cancelled stamps affixed thereon. Had the legislature intended to exempt these notes from taxation when and if renewed, provision for such exemption could easily have been made. Absent such provision on the part of the legislature, renewal notes replacing those tax exempt notes are subject to the documentary stamp tax provided by Section 201.08, F.S."
Dickie Equipment Company Transaction In this instance, Petitioner loaned money to Dickie as an individual and as president of a proprietorship in the original loan. In the renewal note, the bank loaned money to Dickie as president of a corporation, the Dickie Equipment Company. Additionally, the second note contained promises by two additional persons as endorsers and sureties. There are, therefore, new promises to pay by independent obligors and the renewal accordingly does not constitute "the identical contractual obligations of the original promissory note" under the exemption provision of Section 201.09.
Franklin National Bank Transaction A note for $300,000 was signed by officers of Petitioner payable in New York at the offices of the Franklin National Bank. However, it is asserted and not denied that the note was executed in Florida. The transaction therefore falls under Section 201.08 as a promissory note "made, executed, delivered, sold, transferred, or assigned in the state" and under Rule 12A-4.53(3), F.A.C., which provides that a note mailed to a bank in another state and payable there is taxable if the note was made in Florida, the loan was used in Florida, and it was in all essential factors a Florida transaction.
That Petitioner be held liable for documentary stamp tax and penalty under Chapter 201, Florida Statutes, as set forth in revised assessment Number 63-94, February 7, 1977, in the amount of $1,831.35.
DONE and ENTERED this 14th day of March, 1977 in Tallahassee, Florida.
THOMAS C. OLDHAM
Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304
Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 1977.
David K. Miller, Esquire Assistant Attorney General The Capitol
D. A. Troiano, Esquire Post Office Box 829 Lakeland, Florida 33802
