STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, )

DEPARTMENT OF REVENUE, )

)

Petitioner, )

)

vs. ) CASE NO. 79-1226

) ALLSTATE ENTERPRISES, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Thomas C. Oldham, held a public hearing in this cause on October 24, 1979, in Tallahassee, Florida. Subsequently, by Order dated November 5, 1979, Hearing Officer Oldham granted Petitioner's Motion for Disqualification of Hearing Officer, and this cause was reassigned to the undersigned Hearing Officer, William E. Williams. Thereafter, on January 8, 19880, oral argument by counsel of record for the parties was held before the undersigned Hearing Officer, based upon the record made at the formal hearing before the former hearing officer.

APPEARANCES

For Petitioner: Cecil L. Davis, Jr., Esquire

Assistant Attorney General Department of Legal Affairs Office of the Attorney General The Capitol - Room LLO4 Tallahassee, Florida 32301

For Respondent: Zollie M. Maynard, Jr., Esquire

502 East Jefferson Street Tallahassee, Florida 32301

and

Richard C. McFarlain, Esquire 666 Lewis State Bank Building Tallahassee, Florida 32301

and

Patrick L. O'Donnell, Esquire Vice-President, Taxes Allstate Insurance Company Allstate Plaza

Northbrook, Illinois 60062

By Petition for Formal Administrative Proceeding, dated June 4, 1979, Allstate Enterpises, Inc. ("Enterprises" or "Respondent") contests the assessment by the State of Florida, Department of Revenue ("Petitioner") of Florida intangibles tax for the years 1975, 1976 and 1977 in the amounts of

$27,521.14, $23,016.94 and $24,103.78, respectively, plus interest and penalty. By letter dated June 7,1 979. Petitioner requested the assignment of a Hearing Officer to conduct the formal hearing herein in accordance with Section 120.57(1), Florida Statutes. Final hearing in this proceeding was conducted on October 24, 1979, pursuant to a Supplemental Notice of Hearing dated September 12, 1979. At the final hearing, Petitioner called John Windell Powell as its only witness. Respondent called Ed Yawn and Carl Day Link as its witnesses.

Exhibits Numbers 1, 2, 3, 4, 6, 7, 8, and 9 were received into evidence. Both counsel for Petitioner and Respondent waived the requirement of Chapter 120, Florida Statutes, that the Hearing Officer's recommended order be entered within

30 days from conclusion of the final hearing.

FINDINGS OF FACT

1. Allstate Enterprises, Inc. is a Delaware corporation authorized to do business in Florida. Allstate Financial Corporation, ("Financial"), a wholly- owned subsidiary of Enterprises, is a Delaware corporation that is not qualified to do business in Florida. Financial was formed to provide funding for the financial service activities performed by Enterprises as hereinafter described. The principal offices of both corporations are located outside the State of Florida.

   
   

2. Enterprises has two operating divisions, one of which is not involved in this case and the other one of which is in the business of lending money to individuals. The loans enable the borrowers to purchase automobiles and recreation vehicles from unrelated third parties. In exchange for cash, Enterprises receives from each borrower an installment note secured by a lien on the automobile or recreational vehicle which the borrower purchased with the borrowed cash. Respondent's standard form security agreement provides that the debtor shall not ". . . change the principal location of the property from [Florida]. . . without Allstate's written consent . . ." Enterprises sells the installment notes, on a discounted basis, to Financial pursuant to a written agreement. Debtors are not advised that their obligations have been sold, and they continue to make all of their payments directly to Enterprises. The sale from Enterprises to Financial of each takes place as soon as the loan is made to the individual and the note is obtained from him. Enterprises sells all of its rights and interests in all of the installment notes to Financial. The notes are sold to Financial without recourse, and Enterprises cannot use the sold notes as collateral since it retains no right, title, or interest in them. The sold notes are physically transferred to Financial and are maintained by Financial in the State of Delaware, where it maintains all of its financial records. All installment note files that are maintained by Enterprises are marked with the words "Sold to Allstate Financial Corporation."

   
   

3. The activities performed by Enterprises for Financial are as authorized in an agreement between the parties, a copy of which was received into evidence as Exhibit No. 5. In this connection, Enterprises: (1) makes collections on the notes and remits proceeds from those collections to Financial; (2) keeps sufficient records to enable Financial to determine the status of outstanding notes; (3) repurchases notes from Financial in the event of default by the debtor, and conducts any repossession or foreclosure proceedings in its own behalf. The agreement between Enterprises and Financial specifically provides that, in performing its responsibilities under the contract, Enterprises is acting as the "agent" of Financial.

   
   

4. At the time of sale of the installment notes, Financial remits to Enterprises 99.5 percent of the selling price and retains 0.5 percent as a

   reserve. The purpose of the reserve is to give Financial security for bad debts. Then, when Enterprises collects, on behalf of Financial, the payments due on the notes, Enterprises takes a credit for the 0.5 percent held in the reserve (to the extent not needed for bad debts), and remits to Financial the remaining 99.5 percent. Since Enterprises continually sells new installment notes to Financial and continuously makes collection on notes previously sold, for administrative convenience in the transfer of funds, the selling price of the due notes is netted against the collection of the open notes. However, the sale of the new notes is totally independent of the collections on the old notes. Enterprises is contractually obligated to remit all of the proceeds to Financial regardless of whether new notes are sold.

   
   

5. Enterprises is not now, nor has it ever been, involved in the sale, leasing, or servicing of automobiles or recreational vehicles. Except for limited repossession activities, Enterprises does not now have, nor has it ever had, ownership or control of the vehicles which secured the notes.

   
   

6. The Florida Department of Revenue has assessed Enterprises for Florida Intangible Tax for the years 1975, 1976, and 1977 in the amounts of $27,521.14,

   $23,016.94 and $24,103.78, respectively, plus interest and penalty. The assessments were based on the amount of the installment notes receivable for Florida residents as of December 30, 1975, 1976 and 1977, respectively. The amounts assessed were based upon figures furnished by Respondent, and the accuracy as to these assessments has not been questioned. It is clear, however, that these notes were all sold to Financial prior to the applicable dates for assessment of the tax.

   
   

   CONCLUSIONS OF LAW

   
   

7. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties to this proceeding. Section 120.57, Florida Statutes.

   
   

8. Section 199.112, Florida Statutes, provides that:

   
   

   All bills, notes or accounts receivable, obligations, or credits, wheresoever situated, arising out of, or issued in connection with, the sale, leasing, or servicing of real or personal personal property in the state are subject to taxation under this chapter, it being the legislative intent to provide that such intangibles shall be assessable regardless of

   where they are kept, approved as to their creation, or paid. This provision shall apply to any person representing business interests in the state that may claim a domicile elsewhere, the intent being further that no nonresident, either by himself or through an agent, shall transact business in the state without paying the same tax which the state would impose on residents transacting the same business. Sales of tangible personal property

   are in this state if the property is delivered or shipped to a purchaser within this state, regardless of the fob point or other conditions

   of the sale. The provisions of this section shall in no way be construed to alter the tax status of intangibles not connected with the sale, leasing,

   or servicing of real or personal property in the state. (Emphasis added).

   
   

9. Respondent's argument against taxation of the notes is twofold: (1) that the notes did not rise from or issue in connection with the sale of personal property, and (2) that Enterprises neither owned, controlled, managed nor had custody of the notes. Both of these contentions are without merit.

   
   

10. There is no requirement in Section 199.112, Florida Statutes, that the taxpayer be the seller of personal property in order for intangibles tax liability to attach. For intangibles tax purposes it is enough that a note "arise out of" or be "issued in connection" with the sale of personal property. In the instant case, each of the notes were issued in a transaction which also resulted in Enterprises obtaining a security interest in the personal property which was the subject of the sale. As such, the notes were ". . . issued in connection with . . .the sale. . . of . . . personal property . . . " Within the meaning of Section 199.112, Florida Statutes.

    
    

11. Respondent's argument that the sale of the notes to Financial, and their subsequent physical removal from the State of Florida precludes the imposition of the Florida intangibles tax is equally without merit. As indicated above, Financial is a wholly-owned subsidiary of Enterprises, and furnishes to Enterprises the funds which Enterprises uses to engage in installment loan activities. Further, the debtors to whom the loans are made are Florida residents; collateral for the loans is required by the terms of the security agreements to be maintained in Florida; and enforcement of the obligations evidenced by the notes and security agreements upon default by the debtor must occur in Florida. In short, every possible contact, save for the actual physical location of the notes, is in the State of Florida. To hold that these notes, under the facts of this case, are not subject to taxation would be to ignore the clear legislative intent of Section of 199.112, Florida Statutes. The close affiliation of Enterprises and Financial, together with the provisions of the agreement by which the generation, sales and enforcement of the notes occurs clearly falls within the statutory mandate that ". . .no nonresident, either by himself or through an agent, shall transact business in the state without paying the same tax which the state would impose on residents transacting the same business." Respondent's argument that Enterprises retains no control over notes in the hands of its wholly-owned subsidiary is a fiction which logic and the facts of this case simply do not support.

RECOMMENDED ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED:

That a Final Order be entered by the State of Florida, Department of Revenue, assessing intangibles taxes against Respondent in the amounts of

$27,521.14, $23,016.94, and $24,103.78, for the years 1975, 1976, and 1977, respectively, together with the applicable amount of interest through the date of entry of said Final Order.

RECOMMENDED this 24th day of March, 1980, in Tallahassee, Florida.

WILLIAM E. WILLIAMS

Hearing Officer

Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

COPIES FURNISHED:

Cecil L. Davis, Jr., Esquire Assistant Attorney General Department of Legal Affairs Office of the Attorney General The Capitol-Room LL04 Tallahassee, Florida 32301

Zollie M. Maynard, Jr., Esquire

502 Each Jefferson Street Tallahassee, Florida 32301

Richard C. McFarlain, Esquire 666 Lewis State Bank Building Tallahassee, Florid 32301

Patrick L. O'Donnell, Esquire Vice-President, Taxes Allstate Insurance Company Allstate Plaza

Northbrook, Illinois 60062

Docket for Case No: 79-001226

Orders for Case No: 79-001226