STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SIGNAL DEVELOPMENT CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 77-655

)

DEPARTMENT OF REVENUE, )

STATE OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in the above-captioned matter, after due notice, at Tallahassee, Florida, on August 23, 1977, before the undersigned Hearing Officer.

APPEARANCES

For Petitioner: Larry B. Dunn

President, Signal Development Corporation 2042 Capital Circle, Northeast Tallahassee, Florida 32303

For Respondent: Patricia S. Turner

Assistant Attorney General The Capitol

Tallahassee, Florida 32304 ISSUE PRESENTED

Whether Petitioner is liable for documentary stamp tax, penalty and interest under Chapter 201, Florida Statutes.

Petitioner elected to contest the proposed tax assessment in this case without benefit of legal counsel at the hearing. Accordingly, Larry B. Dunn, President of Signal Development Corporation, was advised of the nature of the proceedings and the rights accorded to individuals thereunder pursuant to Chapter 120, Florida Statutes.

FINDINGS OF FACT

The facts of this case are undisputed and derived from documentary evidence and the testimony of Larry B. Dunn.

1. At an undisclosed time in 1976, Russell E. Schlitter and Nena Schlitter, his wife, of Tallahassee, Florida, informed petitioner that they wished to have a home built in that city. Dunn advised them to first find a lot for the prospective residence. The Schlitters found a lot they desired in the Betton Hills section of Tallahassee. The lot in question was deeded to

   petitioner by J. Lamarr Cox and Jewel R. Cox, his wife, on September 17, 1976. (Exhibit 2, Testimony of Dunn)

   
   

2. On September 28, 1976, petitioner, "as seller" or "contractor," entered into a contract with the Schlitters, as "buyer," which provided that the seller had contracted to purchase a lot selected by the buyer and that the seller would purchase the said lot in the buyer's name and thereafter sell the lot to the buyer and construct a dwelling thereon within 180 days from the date that the buyer secured a construction loan, for a total price of $70,085.00. The contract recited receipt of $4,000.00 from the buyer as a "binder" toward the purchase of the lot and as a "deposit toward the total purchase price of this contract." The contract was conditioned upon the buyer being able to obtain a firm commitment for the construction loan on specified terms. (Exhibit 3)

   
   

3. On September 29, 1976, petitioner executed a mortgage deed and note to Cox and his wife in the principal sum of $8,000, plus 10 percent interest, the total to be paid on obtaining a permanent mortgage on the real estate or within nine months. The mortgage recited that it was subordinate and inferior to a construction loan mortgage to be executed in the future by petitioner or successors. Dunn is the controlling shareholder of petitioner corporation. He testified that he took title to the lot to hold it until the Schlitters secured a construction loan. (Exhibit 4, Testimony of Dunn)

   
   

4. On November 1, 1976, petitioner's mortgage to Cox and his wife was satisfied and extinguished. On November 11, petitioner executed a warranty deed to the Schlitters on the property in question. State documentary stamp tax and surtax in the sums of $33.00 and $13.20 respectively were paid when the deed was recorded. On the same day, the Schlitters executed a note and mortgage on the property to Tallahassee Federal Savings and Loan Association in the amount of

   $54,900.00. A Notice of Commencement of Construction of the residence was executed by the Schlitters also on November 11 and recorded on November 12 in the public records of Leon County. (Exhibits 5-8)

   
   

5. Respondent issued a Notice of Proposed Assessment under Chapter 201, Florida Statutes, on March 14, 1977, to Schlitter in the amount of $465.68. The proposed assessment on the deed was based on a taxable consideration of

   $66,900.00 which included $12,000.00 cash and $54,900.00 representing the purchase money mortgage. After crediting the taxpayer for taxes already paid, respondent's proposed assessment is for $167.70 for documentary stamp tax under Section 201.02 and a penalty in a like amount under Section 201.17, plus interest in the amount of $6.82. It further asserts a balance due for documentary surtax in the sum of $60.50 under Section 201.021 and a penalty in a like amount, plus interest in the amount of $2.46. The parties stipulated that the sums in question are correct and payable in the event liability on the part of petitioner is established. (Exhibit 1, Stipulation)

   
   

   CONCLUSIONS OF LAW

   
   

6. Respondent bases its proposed assessment on Section 201.02 and 201.021, as implemented by its Rule 12A-4.13(22), Florida Administrative Code. The rule reads as follows:

   
   

   "12A-4.13 Conveyances Subject to Tax.

   * * *

   (22) Joint Venture Contracts, Package Deals: Where corporations engaged in business of land development for residential purposes conduct

   their operations in conjunction with sister corporations (or even same corporation) engaged in building homes, and one individual is controlling shareholder and principal officer of all corporations, tax is required on the deeds based upon the total price that home purchaser pays for house and lot and not limited to portion of consideration attri- butable to the lot. The tax attaches at the time the deed or other instrument of convey- ance is delivered, irrespective of the time the sale is made or the instrument is re- corded. The critical factor is the intention of the parties. (Emphasis supplied)

   
   

7. The petition herein alleges that the aforesaid rule exceeds delegated authority under Section 201.02 and 201.021 by imposing a tax on the value of improvements to property that are not in existence at the time of land conveyance but to be constructed at a later time. Petitioner claims that the rule therefore unconstitutionally deprives its of its property. Prior to the hearing in this case, the Hearing Officer issued an order providing petitioner an opportunity to file a proper rule challenge with the Director, Division of Administrative Hearings, under Section 120.56, but petitioner elected not to do so. Accordingly, any purported invalidity of the questioned rule is not in issue in these proceedings.

   
   

8. Petitioner further claims that the rule is inapplicable because the corporation is not a "developer" within the meaning of the rule. Although there is no evidence that petitioner engages in large-scale land development, the fact remains that it is in the business of building residences and, in this case at least, purchased the land and thereafter constructed the dwelling. It is therefore considered that petitioner is engaged in the business of land development for residential purposes and the size or scope of his business is immaterial. It is also noteworthy that the very name of the corporation includes the word "development."

   
   

9. The terms of the contract in this case show that the parties intended a "package deal," i.e., the purchase of a house and lots. Although the deed to the land was delivered prior to the construction of the residence, such fact cannot serve to change the nature of the transaction which was based on one total price and not separate purchases of the lot and house by the buyer. This is evidenced by paragraph 1 of the contract which provides that the binder of

   $4,000.00 was to be applied toward the purchase of the lot and as a deposit toward the total purchase price set forth in the contract. The instant case is similar to and controlled by First Development Corporation of America v. State of Florida Department of Revenue, Case Number 70-1974 (Fla. 12th Cir. 1972), which was affirmed by the Second District Court of Appeal in First Development Corporation of America v. Florida Department of Revenue, 286 So.2d 233 (Fla. 2d DCA 1973). In that case, the Court held that the delivery of a warranty deed subsequent to the execution of a contract conveying to the purchasers a unit site unimproved with residence, but controlled by certain provisions of the contract, did not alter the intention of the parties that existed at the time the contact was executed by them, and that therefore the documentary stamp tax was properly computed on the total price of the contract. It is also significant that here the buyer was obligated to purchase a home from the petitioner provided he was successful in obtaining financing. Under the

   circumstances, it is concluded that petitioner is responsible for the payment of the asserted taxes.

   
   

10. As to the 100 percent penalties proposed to be assessed under the provisions of Section 201.17, F.S., the State Legislature recently amended that provision to provide for a maximum 25 percent penalty (Chapter 77-281, Laws of Florida, 1977). Although this act did not take effect until July 1, 1977, it is further provided therein that respondent may compromise any penalty that had not become final on the effective date of the act if it was revealed that the penalty would be too severe or unjust. It is considered that under that authority the maximum amount of the penalty imposed herein should be limited to

25 percent of the stamps not affixed to the deed.

RECOMMENDATION

That the proposed assessment against Signal Development Corporation under Chapter 201, F.S., be upheld except for the penalties therein which should be reduced to 25 percent of the stamps not affixed to the deed.

DONE and ENTERED this 4th day of November, 1977, in Tallahassee, Florida

THOMAS C. OLDHAM

Hearing Officer

Division of Administrative Hearings

530 Carlton Building Tallahassee, Florida 32304

COPIES FURNISHED:

Patricia Turner

Assistant Attorney General The Capitol

Tallahassee, Florida 32304

Larry B. Dunn, President Signal Development Corporation 2042 Capital Circle, Northeast Tallahassee, Florida 32303

Docket for Case No: 77-000655

Orders for Case No: 77-000655