Judges: K. N. AYERS
Agency: Department of Revenue
Latest Update: Nov. 14, 1978
Summary: Circumstances surrounding transfer of quitclaim deed to corporation meant it was not received for consideration. No other taxes due.
78-1027.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )
)
Petitioner, )
)
vs. ) CASE NO. 78-1027
)
WILLIAM VICTOR GRUMAN, )
)
Respondent. )
)
RECOMMENDED ORDER
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 August 22, 1978 at Tampa, Florida.
APPEARANCES
For Petitioner: Maxie Broome, Jr., Esquire
Assistant Attorney General
Department of Legal Affairs, The Capitol Tallahassee, Florida 32304
For Respondent: William Victor Gruman, Esquire
Lincoln Center Building
5401 West Kennedy Boulevard, Suite 716
Tampa, Florida 33609
By Notice of Assessment dated January 27, 1978 the Department of Revenue, Petitioner, seeks recovery of $11,432.60 in documentary stamp taxes, penalty and interest alleged to be due on a quitclaim deed transferring certain real property from William V. Gruman to Northwest Liquor Industries, Inc. By Petition for hearing on this assessment filed July 6, 1978, Respondent seeks to have the assessment set aside. As grounds for setting aside the proposed assessment Respondent contends that the conveyance was without consideration.
At the hearing the parties stipulated to the facts and 4 exhibits were admitted into evidence.
FINDINGS OF FACT
In the late 1960's Gulf Standard corporation, a corporation wholly owned by William V. Gruman, constructed the Pine Apartments which is the property involved in this hearing. Gulf Standard remortgaged the property in 1973 and in order to obtain the mortgage it was necessary for William V. Gruman and his wife to guarantee payment of the note secured by the mortgage. This unconditional guarantee agreement was entered into evidence with an accompanying letter dated March 15, 1978, as Exhibit 4.
Without the Grumans, in effect, cosigning the promissory note for $1,849,000 secured by a mortgage on the property the loan would not have been made.
In October 1975 Gulf Standard corporation was dissolved and by quitclaim deed dated October 28, 1975, Gulf Standard corporation transferred the property to William Victor Gruman and Eva Gruman. Minimum documentary stamp tax was placed on this deed.
A proposed assessment dated January 20, 1978 (Exhibit 2) was issued on this transfer in the amount of $6,933.38; however this assessment was withdrawn when evidence was presented to the Department of Revenue that the corporation had been dissolved and the property transferred to the sole shareholders who had primary liability on the mortgage before and after the transfer.
By quitclaim deed dated 30 September 1976 the Grumans transferred this property to Northwest Liquor Industries, Inc. (Northwest), a corporation wholly owned by Gruman. Minimum documentary stamp tax was placed on this deed. It is this transaction upon which Petitioner claims insufficient documentary stamp tax was paid and which is the basis for the proposed assessment. No issue was raised regarding the accuracy of the amounts alleged to be due in the proposed assessment; Respondent contending only that no consideration passed, therefore only the minimum documentary stamp tax that was placed on the deed was required.
At the time of this conveyance the market value of the property was less than the mortgage encumbering the property and the payment of the note secured by this mortgage had been guaranteed by Gruman (Exhibit 4).
Subsequent to the transfer to Northwest no more than one mortgage payment was made by Northwest before the loan was defaulted. Thereafter the lender foreclosed on the property and
obtained a deficiency judgment against the Grumans based upon their guarantee of the note secured by the mortgage.
CONCLUSIONS OF LAW
Section 201.02 Florida Statutes establishes the documentary stamp tax for deeds and other conveyances of real property and provides in pertinent part:
On deeds, instruments, or writings whereby any lands, tenements, or other realty, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, on each $100 of the consideration therefor the tax shall be 30 cents. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 30 cents for each $100 or fractional part thereof of the consideration therefor.
Rule 12B-4.13(7) Florida Administrative Code relates to taxes on conveyances of realty to a corporation and provides in pertinent part:
If a mortgage is on the property conveyed, the unpaid balance of the mortgage is also presumed to be part of the consideration.
The presumption that the mortgage obligation was included in the purchase price to be paid is a rebuttable presumption which may be overcome by competent evidence. AGO 062-299. This Attorney General Opinion further held that in the absence of sufficient competent evidence to the contrary, the mortgage obligation should be included when imposing documentary stamps where the interests of a vendor in a contract to sell and convey real property is conveyed or assigned to a third person where such real property is subject to an outstanding mortgage.
Where the transaction involves a closely held corporation and its shareholders it still involves two distinct legal entities; however, in order to be taxable consideration must flow to the grantor. AGO 073-68.
Florida Department of Revenue v. DeMaria, 338 So.2d 838 (Fla.1976) involved the transfer of property from a corporation to its sole shareholder subject to an outstanding mortgage and
where the transferee satisfied the mortgage payments. That was held to be a taxable transaction because
the transfer carried with it a shifting of the economic burden of paying the purchase money mortgage from the grantor corporation to the grantee shareholder. Upon the conveyance from the corporation to the shareholder, the corporation received a benefit to the extent that it was relieved of the obligation to pay the purchase money mortgage and the shareholder incurred a commensurate economic burden. Id. at p. 839.
Here the benefit is less apparent. The grantors, by virtue of their unconditional guarantee to pay the note secured by the mortgage, remained fully liable; and, as a matter of fact, the grantee corporation did not satisfy the mortgage payments. Instead Northwest forthwith defaulted on the mortgage payments, the mortgagee foreclosed and obtained a deficiency judgment against the grantee. Since Northwest failed to make the mortgage payments when due, the consideration found in DeMaria, supra, which flowed to the grantor, is not present here.
The facts of this transaction are more similar to those involved in American Foam Industries, Inc. v. Department of Revenue, 345 So.2d 343 (Fla. 3 DCA 1977). There the sole shareholder of a corporation transferred real property subject to a mortgage to the corporation, but the corporation had made all mortgage payments from the inception of the mortgage. Because the grantor had never made these mortgage payments the court held there was no shifting of the economic burden of making these payments, therefore there was no consideration for the transfer and the transaction was not taxable.
In the instant case the grantee failed to make the mortgage payments so there was likewise no shifting of the economic burden and no consideration for the transfer.
It is difficult to see any real distinction in the consideration involved in the transfer of this property by quitclaim deed from Gulf Standard Corporation to Gruman and from Gruman to Northwest. Under the rationale of the DeMaria case, it is easier to find consideration in the former transfer than in the latter, yet the Department held the former transaction not taxable. Following the conveyance to Gruman the mortgage payments were satisfied by Gruman as grantee of the property.
Yet when Gruman conveyed the property to Northwest, that grantee did not relieve Gruman of the economic burden of satisfying the mortgage payments.
The instant case is sui generis. Normally the grantee of such property does make the mortgage payments and the burden of such payments being removed from the grantor is sufficient consideration to make the transaction subject to documentary stamp taxes.
Where, as apparently existed here, the market value of the property transferred is less than the existing mortgage only a captive (wholly owned) grantee corporation would accept the transfer. Under the special circumstances involved in this case the grantor was not relieved of the economic burden of paying the mortgage and no consideration passed to the grantor.
From the foregoing it is concluded that because Northwest did not make the mortgage payments after the transfer of the property to it by quitclaim deed and grantors were not relieved of their liability on the note and mortgage, no consideration passed and the transfer to Northwest was subject only to minimal stamps. It is therefore
RECOMMENDED that the Notice of Proposed Assessment be dismissed and the case closed.
DONE and ENTERED this 1st day of September, 1978.
K. N. AYERS Hearing Officer
Division of Administrative Hearings
101 Collins Building
MAIL: Room 530, Carlton Building Tallahassee, Florida 32304
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 1st day of September, 1978.
COPIES FURNISHED:
William V. Gruman, Esquire Lincoln Center Building Suite 716
5401 West Kennedy Blvd. Tampa, Florida 33609
Maxie Broome, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32304
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF REVENUE
WILLIAM V. GRUMAN,
Petitioner,
vs. CASE NO. 78-1027
STATE OF FLORIDA, DEPARTMENT OF REVENUE
Respondent.
/
NOTICE
TO: William Victor Gruman, Esquire Suite 716, Lincoln Center Building 5401 W. Kennedy Boulevard
Tampa, Florida 33609 Attorney for Petitioner
Maxie Broome, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32304 Attorney for Respondent
You will Please take notice that the Governor and Cabinet of the State of Florida, acting as head of the Department of Revenue, at its meeting on the 6th day of February, 1979, approved and took final action on the Proposed Substituted Order of the Department of Revenue in the case of William V. Gruman vs State of Florida, Department of Revenue, Case No. 78-1027, which modifies the Division of Administrative Hearing's Recommended Order dated September 1, 1978. A copy of the Proposed Substituted Order dated February 6, 1979 is attached hereto.
This constitutes final agency action by the Department of Revenue.
JOHN D. MORIARTY
Attorney, Department of Revenue State of Florida
Division of Administration Room 104, Carlton Building Tallahassee, Florida 32304
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing Notice has been furnished by mail to William Victor Gruman, Esquire, Suite 716, Lincoln Center Building, 5401 West Kennedy Boulevard, Tampa, Florida 33609, Attorney for Petitioner, Maxie Broome, Jr., Esquire, Assistant Attorney General, Department of Legal Affairs, The Capitol, LL04, Tallahassee, Florida 32304, Attorney for Respondent and K. N. Ayers, Esquire, Hearing Officer, Division of Administrative Hearings, Room 530 Carlton Building, Tallahassee, Florida 32304 this 6th day of February, 1979.
JOHN D. MORIARTY, ATTORNEY
STATE OF FLORIDA DEPARTMENT OF REVENUE
WILLIAM V. GRUMAN,
Petitioner,
vs. CASE NO. 78-1027
STATE OF FLORIDA, DEPARTMENT OF REVENUE
Respondent.
/
PROPOSED SUBSTITUTED ORDER
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 August 22, 1978, at Tampa, Florida.
APPEARANCES
For, Petitioner: William Victor Gruman, Esquire
Suite 716, Lincoln Center Building 5401 West Kennedy Boulevard
Tampa, Florida 33609
For Respondent: Maxie Broome, Jr., Esquire
Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32304
By Notice of Assessment dated January 27, 1978, the Department of Revenue, Respondent, seeks recovery of $11,432.60, in documentary stamp taxes, penalty and interest alleged to be due on a quitclaim deed transferring certain real property from William V. Gruman to Northwest Liquor Industries, Inc. By Petition for hearing on this assessment filed July 6, 1970, Petitioner seeks to have the assessment set aside. As grounds for setting aside the proposed assessment, Petitioner contends that the conveyance was without consideration.
At the hearing, the parties stipulated to the facts and four exhibits were admitted into evidence.
FINDINGS OF FACT
In the late 1960's, Gulf Standard Corporation, a corporation wholly owned by William V. Gruman, constructed the Pine Apartments which is the property involved in this hearing. Gulf Standard remortgaged the property in 1973 and in order to obtain the mortgage it was necessary for William V. Gruman and his wife to guarantee payment of the note secured by the mortgage. This unconditional guarantee agreement was entered into evidence with an accompanying letter dated March 15, 1978, as Exhibit 4.
Without the Grumans, in effect, consigning the promissory note for $1,849,000 secured by a mortgage on the property, the loan would not have been made.
In October, 1975, Gulf Standard Corporation was dissolved and by quitclaim deed dated October 28, 1975, Gulf Standard Corporation transferred the property to William Victor Gruman and Eva Gruman. Minimum documentary stamp tax was placed on this deed.
A proposed assessment dated January 20, 1978 (Exhibit 2), was issued on this transfer in the amount of $6,933.38; however this assessment was withdrawn when evidence was presented to the Department of Revenue that the corporation had been dissolved and the property transferred to the sole shareholders who had primary liability on the mortgage before and after the transfer.
By quitclaim deed dated 30 September, 1976, the Grumans transferred this property to Northwest Liquor Industries, Inc. (Northwest), a corporation wholly owned by Gruman. Minimum documentary stamp tax was placed on this deed. It is this transaction upon which Respondent claims insufficient documentary stamp tax was paid and which is the basis for the proposed assessment. No issue was raised regarding the accuracy of the amounts alleged to he due in the proposed assessment; Petitioner contending only that no consideration passed, therefore only the minimum documentary stamp tax that was placed on the deed was required.
At the time of this conveyance, the market value of the property was less than the mortgage encumbering the property and the payment of the note secured by this mortgage had been guaranteed by Gruman (Exhibit 4).
Subsequent to the transfer to Northwest, no more than one mortgage payment was made by Northwest before the loan was defaulted. Thereafter the lender foreclosed on the property and
obtained a deficiency judgment against the Grumans, based upon their guarantee of the note secured-by the mortgage.
CONCLUSIONS OF LAW
Section 201.02, Florida Statutes, establishes the documentary stamp tax for deeds and other conveyances of real property and provides in pertinent part:
On deeds, instruments, or writings whereby any lands, tenements, or other realty, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, on each $100 of the consideration therefor the tax shall be 30 cents. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 30 cents for each $100 or fractional part thereof of the consideration therefor.
Rule 12B-4.13(7), Florida Administrative Code, relates to taxes on conveyances of realty to a corporation and provides in pertinent part:
If a mortgage is on the property conveyed, the unpaid balance of the mortgage is also presumed to be part of the consideration.
The presumption that the mortgage obligation was included in the purchase price to be paid is a rebuttable presumption which may be overcome by competent evidence. AGO 062-299. This Attorney General Opinion further held that in the absence of sufficient competent evidence to the contrary, the mortgage obligation should be included when imposing documentary stamps where the interests of a vendor in a contract to sell and convey real property is conveyed or assigned to a third person where such real property is subject to an outstanding mortgage.
Where the transaction involves a closely held corporation and its shareholders it still involves two distinct legal entities; however, in order to be taxable, consideration must flow to the grantor. AGO 073-68.
In Lee v. Kenan, 78 F.2d 425, 100 A.L.R. 869, it was held that the liability of an instrument to the documentary stamp tax duty, as well as the amount of such duty, is determined by
the form and face of the instrument and cannot be effected by proof of extrinsic facts.
It is clear that the subject conveyance from Mr. Gruman to Northwest Liquor Industries, Inc., was a taxable transaction at the time it was entered into. On September 30, 1976, Mr. Gruman conveyed the title to the encumbered real property to Northwest Industries, Inc., which Corporation took said real property "subject to" the outstanding mortgage. As stated in Kendall House, supra:
It is an economic fact that persons who acquire property 'subject to' a mortgage normally pay the indebtedness represented by the mortgage in order to prevent the loss of the property to the same extent as those persons acquiring property 'assuming and agreeing to pay' the mortgage.
Prior to the conveyance from the individual to the corporation, the primary obligation to pay the outstanding mortgage indebtedness was with the individual.
After the conveyance, the Corporation assumed the primary obligation, replacing the individual and thus suffering a detriment. Ackley v. Noggle, 121 So. 882 (Fla. 1929). The individual, having been relieved of the primary obligation to pay the outstanding indebtedness, incurred a benefit. The amount of the outstanding note and mortgage was the consideration that flowed between the parties. So that the conveyance here carried with it a shifting of the economic burden of paying the purchase money mortgage from the grantor individual to the grantee Corporation. See Florida Department of Revenue v. DeMaria, 338 So.2d 838 (Fla. 1976).
It was Petitioner's own testimony that at least one mortgage payment was made after the transfer of real property from himself to the Corporation, but the Petitioner would have the Department believe that he, rather than the Corporation, made that payment without showing the Department definitive proof of his having done so, e.g. cancelled checks. The Petitioner had several opportunities, as evidenced by the numerous informal conferences granted him by the Department, to submit such definitive proof and there is no reason whatsoever not to believe that had the Petitioner provided to the Department such proof, this assessment would have been cancelled just as the previous assessment had been cancelled.
It is the Petitioner's contention that the unconditional guarantee (Exhibit 4) serves as definitive proof
that he actually made the mortgage payments after the transfer. The unconditional Guarantee only shows, to the extent that it shows anything, that the Petitioner was ultimately liable on the mortgage. In no way does that document show that the Petitioner was obligated to make the mortgage payments after the transfer. The Gulf Standard Gruman transfer, on which the assessment was cancelled by the Department, was an entirely different kind of transaction. There, the unconditional Guarantee did show that the Petitioner was previously liable for all the debts of Gulf Standard. Insofar as that transfer was made to him individually, he remained so liable after the transfer. That guarantee, though, does not show the same thing insofar as the Gruman- Northwest Liquor transfer is concerned. Specifically, as to that transfer, the conditional guarantee does not show that the mortgage payments were made individually by Gruman after the transfer. This is the point. As the quitclaim deed is drawn up and as the transaction was set up, i.e., Northwest Liquor Industries taking "subject to"--all indications are that Northwest Liquor Industries took over the mortgage payments from the Petitioner. To the extent that the Petitioner has not rebutted these indications, the tax applies to that transfer.
From the foregoing, it is concluded that because Northwest made at least one mortgage payment after the transfer of the property to it by quitclaim deed before it defaulted, consideration passed and the transfer to Northwest was subject to the documentary stamp tax.
It is therefore
RECOMMENDED that the Notice of Proposed Assessment be upheld.
DONE AND ENTERED this 6th day of February, 1979.
Harry L. Coe, Jr. Executive Director Department of Revenue
COPIES FURNISHED:
William V. Gruman
Suite 716, Lincoln Center Building 5401 West Kennedy Boulevard
Tampa, Florida 33609
Maxie Broome, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Tallahassee, Florida 32304
Docket for Case No: 78-001027
Orders for Case No: 78-001027
| Issue Date |
Document |
Summary |
|
Nov. 09, 1978 |
Agency Final Order
|
|
|
Sep. 01, 1978 |
Recommended Order
|
Circumstances surrounding transfer of quitclaim deed to corporation meant it was not received for consideration. No other taxes due.
|
