LORD CHUMLEY'S OF STUART, INC., ) LORD CHUMLEY'S OF JUPITER, INC., ) FLAME MEATS, INC., FLAME OF ) NORTH PALM BEACH, INC., )
) CASE NO. 77-489
) 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 the above case on September 19, 1978, in West Palm Beach, Florida.
The following appearances were entered: Gerald Z. Rossow and Linda Albritton, of the firm Haines and Rossow, North Palm Beach, Florida, for the Petitioners; and Joseph C. Mellichamp, Tallahassee, Florida for the Respondent.
On or about January 10, 1977, the Respondent, Florida Department of Revenue, issued revised notices of assessment of taxes, penalties and interests against four corporations: Flame Meats, Inc.; Flame of North Palm Beach, Inc.; Lord Chumley's of Jupiter, Inc.' and Lord Chumley's of Stuart, Inc. The four corporations petitioned for an administrative hearing, and by letter dated March 15, 1977 the Department of Revenue forwarded the matter to the office of the Division of Administrative Hearings for the assignment of a Hearing Officer and the scheduling of a hearing. The Department filed a Motion for More Definite Statement which was denied by Order entered April 1, 1977, and an Answer to the petition. The final hearing was originally scheduled to be conducted on June 16, 1977. The parties requested a continuance of that and other scheduled hearing dates, and the final hearing was ultimately scheduled to be conducted on September 19, 1978 by notice dated July 10, 1978.
At the final hearing the parties submitted Joint Exhibit 1, which resolves most of the factual issues that exist between the parties. The Department of Revenue called no witnesses. Judy Kurtz, the former office manager and head bookkeeper of the four corporations, appeared as witnesses on their behalf. In addition to Joint Exhibit 1, Respondent's Exhibits 1-5 were received into evidence. A deposition which was to have been taken subsequent to the hearing was designated as petitioners' Exhibit 1. Petitioners later opted not to take the deposition, and Petitioners' Exhibit 1 is not a part of the record in the case. The parties have submitted post-hearing legal memoranda, and the Petitioners have submitted a Post-Hearing Proposed Recommended Order.
FINDINGS OF FACT
In accordance with Joint Exhibit 1, the parties have stipulated to the following facts:
That Lord Chumley's of Stuart, Inc., a corporation for profit, was incorporated on November 14, 1973.
That in December, 1973, the corporation applied for a certificate of registration from the State of Florida, Department of Revenue and was issued such a certificate under sales tax number 53-07-034130-08.
That Lord Chumley's of Stuart, Inc., did not hold title to the real property on which it conducted its business at 52 U.S. No. 1, Stuart, Florida, during the audit period. The corporation had exclusive occupancy of the premises described above on which it conducted its business during the audit period.
That as to Lord Chumley's of Stuart, Inc., the real property on which it conducted its business was owned by Peter G. Makris, Trustee, recorded in OR Book 358, Pages 1283 and 1284, the records of the clerk of the circuit court of Palm Beach County, Florida.
That Lord Chumley's of Stuart, Inc., had not made itself liable for the payment of any encumbrances on said real property on which it conducted its
business by either signing, co-signing, endorsement or guarantee during the audit period.
That Lord Chumley's of Stuart, Inc., made payments on the mortgage which encumbered the real property as set forth in (34) above during the audit period in the monthly amounts of $4,923.70 for a total amount of $132,939.90.
That Lord Chumley's of Stuart, Inc., paid the ad valorem real property tax on said property as described in the deed in (34) above for the tax years 1974 and 1975 in the yearly amounts respectively of $9,680.49 and $10,519.85 for a total amount during the audit period of $20,200.34.
That Lord Chumley's of Stuart, Inc., paid insurance premiums monthly to Home Indemnity Company, P. O. Box 1685, Jacksonville, Florida 32216, Policy Number BOP8307328, for a total amount of $4,274.91 during the audit period.
That Lord Chumley's of Stuart, Inc. received the sales tax assessment dated October 27, 1976.
That Lord Chumley's of Stuart, Inc., received the sales tax revised assessment dated January 10, 1977, after an informal conference held in the West Palm Beach Area Office on January 6, 1977.
The parties have further stipulated that there were no formal trust agreements between the Makrises and any of the four corporations respecting these transactions.
Flame Meats, Inc. operates a retail meat market, a butcher shop, and a liquor store. The other three corporations operate restaurants. There are no formal rental or lease agreements between the Makrises and any of the corporations. Peter G. Makris purchased the properties upon which each of the corporations do business. He purchased the properties for the sole purpose of establishing the businesses. It was never his intention to undertake the business of renting or leasing the property to the corporations. Although he took legal title to the properties, and held legal title during the entire period that is the subject of the instant audits, he did not personally enjoy any of the benefits of ownership. The corporations occupied and controlled the properties. They paid no rent to Makris. They did make payments on outstanding mortgages, which were the obligation of Peter G. Makris, and they paid real property taxes and insurance premiums. These payments did not amount to rental payments, but rather reflected the fact that Makris purchased the properties for the corporations. A further reflection of this relationship is the fact that subsequent to the instant audits, Makris conveyed each of the properties to the respective corporations through quitclaim deeds. He received no consideration for the quitclaim deeds, as he had received no consideration for permitting the corporations to do business on the properties while he held legal title.
Makris, either in his personal or trustee capacity, never received any compensation or consideration of any kind for owning the properties.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter of this proceeding and over the parties. Section 120.57(1), Florida Statutes (1977).
Section 212.031, Florida Statutes (1977) provides in pertinent part:
(1)(a) It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of renting, leasing, or letting any real property ...
* * *
For the exercise of such privilege a tax is levied in the amount equal to four percent of and on the total rent charge for such real property by the person charging or collecting the rental.
Where the rental of any such real property
is paid by way of property, goods, wares, merchandise, services or other things of value, the tax shall be
at the rate of four percent of the value of the property, services, or other things of value.
The issue in this matter is whether Peter G. Makris was engaged in the business of renting, leasing, or letting real property to the four corporations; and whether mortgage payments, real property tax payments, and insurance payments made by the four corporations with respect to the properties constituted rent payments. It is concluded that Makris was not engaged in the business of renting the properties, and that the payments were not rent payments. The corporations have contended that Makris held bare legal title to the properties, and that a trust relationship existed between him and the corporation under a "resulting trust" theory. Whether a trust relationship such as could have been enforced between the corporations and Makris actually existed is not crucial in this case. It is apparent that Makris never intended to engage in the business of renting the properties to the corporations. He purchased the properties so that the corporations could establish businesses on them. He neither requested nor received compensation from the corporations, and never so intended. The term "business" for the purposes of Section 212.031 is defined at Section 212.02(9) as follows:
"Business" means any activity engaged in by any person, or caused to be engaged in by him, with the object of private or public gain, benefit, or advantage either direct or indirect ...
In connection with ownership of the properties upon which the four corporations did business, Makris was not engaged in an activity with the object of private or public gain, benefit, or advantage.
The Department has pointed out that the closeness of Makris' relationship with the four corporations does not preclude the establishment of a rental or lease arrangement between him and the corporations. See Zero Food Storage Division of American Consumer Industries, Inc. v. Department of Revenue,
330 So.2d 765 (1 DCA Fla. 1976). The Department has also pointed out that a formal rent agreement, and monies paid that are actually designated rent payments need not exist. See E.G. Quick v. Department of Revenue, Case No. 72-
363 in the Circuit Court of the Second Judicial circuit in and for Leon County, Florida (Order entered December 5, 1974); and Seaboard Coastline Railroad Company v. Askew, Case No. 72-15 in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida (Order entered November 28, 1972). These cases, however, do not resolve the instant matter. In Zero Food Storage, a subsidiary corporation occupied a building owned by its parent corporation.
Monies were paid by the subsidiary to the parent and were carried on the corporate books of each as rental payments. In the Quick and Seaboard Coastline cases, questions were presented respecting whether certain payments made by parties who concededly were in a lessor-lessee relationship constituted a part of the rents. In the instant case, payments made by the corporations on the mortgages, and for taxes and insurance were not carried as "rental payments" on the books of the corporations. None of the money was paid to Makris. No formal rental or lease agreement existed between the parties and none was established as a matter of law. It was established that Makris was not engaged in the "business" of renting property to the four corporations.
The revised notices of assessment of taxes, penalties, and interests issued by the Department of Revenue against the four corporations on January 10, 1977, should be set aside.
That the Florida Department of Revenue enter a final order setting aside the revised notices of assessment of taxes, penalties, and interest issued on January 10, 1977 with respect to Flame Meats, Inc.; Flame of North Palm Beach, Inc.; Lord Chumley's of Jupiter, Inc.; and Lord Chumley's of Stuart, Inc.
RECOMMENDED this 4th day of December, 1978, in Tallahassee, Florida.
G. STEVEN PFEIFFER Hearing Officer
Gerald Z. Rossow, Esquire 1220 U. S. Highway One
Joseph C. Mellichamp, III, Esquire Assistant Attorney General Department of Legal Affairs
The Capitol, Rm. LL04 Tallahassee, Florida 32304
