vs. ) CASE NO. 77-050
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above styled case on April 27, 1977 at Vero Beach, Florida.
For Respondent: Edwin J. Stacker, Esquire
By Petition filed January 13, 1977 Salvatore and Cecelia Patti seek relief from the Department of Revenue assessment for documentary stamp taxes, penalties, and interest levied against them as a result of a deed recorded from Charles Schwartz to the Pattis. At the hearing Petitioner did not contest the assessment of the tax - only the 100 percent penalty added by Respondent.
Salvatore Patti testified in his own behalf and 4 exhibits were admitted into evidence.
Charles Schwartz, an unlicensed building contractor built several houses in St. Lucie County including the house now owned by Salvatore and Cecelia Patti. In early 1976, Schwartz was in serious financial trouble and after commencing construction of the house here involve and placing a mortgage in the amount of $29,600 on the property on February 20, 1976, found himself unable to make the mortgage payments. This mortgage provided for interest payments only until June 20, 1976 when both principal and interest payments would start.
Patti had done work as a subcontractor for Schwartz and was aware Schwartz was anxious to dispose of the property subject to the above mortgage.
In April, 1976, before the house was completely finished, Patti purchased the house from Schwartz but didn't obtain a deed or assignment of mortgage until a later date. Patti agreed to assume the mortgage and complete the unfinished work as consideration for transfer of the property.
Schwartz advised Patti that he, Schwartz, would record the warranty deed and have it sent to Patti. This deed was recorded on June 1, 1976 and documentary stamp taxes in the amount of $0.30 and surtax stamps in the amount of $0.55 were placed on the deed. When Patti received a copy of the recorded deed he paid no attention to the documentary stamps that had been placed on this instrument.
After recording the warranty deed upon the representation to the clerk that the property consisted of unimproved land, Schwartz left town and numerous creditors "holding the bag". Schwartz had also advised Patti that the ad valorem taxes for 1976 had been paid on the property. Patti learned in late 1976 that these taxes had not been paid and to remove the lien thereby created against the property in January, 1977 he redeemed the tax certificates sold for these taxes.
Patti's first information that proper documentary stamp taxes had not been placed upon his deed was contained in NOTICE OF PROPOSED ASSESSMENT dated November 19, 1976 (Exhibit 1) which showed an assessment for documentary stamps in the amount of $86.70, penalty $86.70 and interest in the amount of $4.48 for a total of $177.88. Since Petitioner acknowledged the accuracy of the assessment of $86,70 this amount is found to be the proper assessment.
CONCLUSIONS OF LAW
Section 201.02 F.S. provides that a tax in the amount of $0.30 per
$100.00 of consideration therefore shall be paid on deeds conveying land. Section 201.021 F.S. provides for the imposition of a surtax on deeds. Section 201.17(2) F.S. provides for the collection of unpaid taxes on documents requiring same and states:
"Any document, instrument, or paper upon 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 in addition to and not in lieu of any other penalty imposed by law."
Here Petitioner only questions the imposition of the penalty - not the assessment for the documentary stamp taxes he acknowledges were due and not placed upon the deed.
Respondent takes the position that, under the provisions of the statute above quoted, it has no discretion in assessing the penalty of 100 percent.
Stated differently the Department takes the position, which it has followed for many years, that the 100 percent penalty provided by the statute is mandatory.
This position is supported by Attorney General opinions and court decisions.
The constitutionality of the penalty provision was considered and upheld by the Supreme Court in Dominion Land and Title Corp. v. Department of Revenue, 320 So.2d 815 (Fla. 1975) wherein the court stated at p. 818:
"As observed by the trial court, the common method for insuring and protecting the collection of excise taxes enacted pursuant to such taxing power is through the imposition of a mandatory penalty upon the performance of the act being taxed without payment of the excise."
The court thereafter stated:
"Obviously the Appellee - Department of Revenue alone cannot determine the amount of the tax or penalty without judicial review; if after such review the court finds that under the law a modified penalty is due,
by strict construction the court has its equitable power to reducee it."
This equitable power to reduce the penalty was exercised by the District Court of Appeals First District in Zuckerman - Vernon Corp. v. Department of Revenue, 339 So.2d 865 (Fla. App. 1st 1976). After finding that the proposed assessment by the Department was proper the court reduced the penalty and stated:
"Though Petitioner's proof failed, it took a substantial position and advanced it in good faith with significant supporting evidence. The question was fairly debatable. If the amount of the penalty assessed pursuant to 201.17(2) F.S. is a matter generally within the discretion of the Department, the record contains no evidence that the Department exercised informed discretion before acting
to assess a $55,649.70 penalty. On the record, we find such a penalty
unconscionable. Therefore in the exercise of our equitable powers, we will permit assessment of a penalty in a lesser and reasonable amount necessary for the protection of the state's interest.
Dominion Land and Title Corp. v. Department of Revenue, 320 So.2d 813, 818 (Fla. 1975). A penalty of no more than $5000 is appropriate."
Here the Petitioner, albeit due to his lack of knowledge, and negligence in attempting to handle a real estate transaction for which he was
not qualified, honestly thought that proper documentary tax stamps had been placed on the deed that Schwartz recorded. Under these circumstances it would be inequitable to require him to pay the full 100 percent penalty if the 100 percent penalty is not mandatory.
The cases cited above do not fully resolve the issue in view of the long standing position of the Department of Revenue that it has no discretion with respect to the assessment of the penalty.
The Dominion Land case indicates that "under the law" a modified penalty may be imposed yet at the same time appears to approve the trial court's opinion that the penalty is mandatory. The latter provision was adopted in the Zuckerman - Vernon decision, supra, in which the District Court of Appeal exercised its equitable powers to reduce the penalty. This court obviously considered the Department had discretion to modify the 100 percent penalty, otherwise, under the plenary power of the legislature to enact excise statutes, if the statute made the penalty mandatory the court would not have jurisdiction to exercise its equitable powers to void the express provision of the statute.
If the Department has discretion to modify the penalty the wording of 201.17(2) F.S. above quoted would also give the Department discretion to modify the amount of tax due. This appears to be in conflict with the other provisions of Chapter 201 F.S. which specifically provides for the tax that is required on the document. This mandatory penalty interpretation is also the position the Department has followed for an extended period of time. This Departmental construction is therefore a great persuasive force and, until specifically reversed by the courts, should be followed. State ex rel. Bennett v. Lee 166 So. 565 (Fla. 1936), State ex rel. Fronton Exhibition Co. v. Stein, 192 So. 82 (Fla. 1940).
From the foregoing it is concluded that the 100 percent penalty provision is mandatory and that the Department of Revenue is without authority to modify the penalty to grant equitable relief to the Petitioner. It is therefore,
RECOMMENDED that the petition of Salvatore and Cecelia Patti be denied. DONE and ENTERED this day of May, 1977, in Tallahassee, Florida.
K. N. AYERS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301
Salvatore & Cecelia Patti 1634 S. E. Sandia Drive Port St. Lucie, Florida
Edwin J. Stacker, Esquire Assistant Attorney General The Capitol
