Judges: MICHAEL P. DODSON
Agency: Department of Revenue
Latest Update: Dec. 28, 1981
Summary: Promissory note attached to trust receipts not eligible for documentary stamp tax.
80-1022.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
EXCHANGE BANK OF OSCEOLA, )
)
Petitioner, )
)
vs. ) CASE NO. 80-1022
) STATE OF FLORIDA, DEPARTMENT OF ) REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
This case is a dispute between the Exchange Bank of Osceola, Petitioner, and thee Department of Revenue, Respondent, over whether or not a documentary stamp tax is owed on certain agreements attached to trust receipts which are part of an automobile dealer's floor plan financing arrangement with Petitioner.
The following counsel appeared in the case:
APPEARANCES
For Petitioner: John B. Ritch, Esquire
Overstreet & Ritch Post Office Box 760
Kissimmee, Florida 32741
For Respondent: Barbara Staros Harmon, Esquire
Assistant Attorney General Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301
PROCEDURAL HISTORY
These proceedings began on May 27, 1980 when Petitioner filed a Petition for Formal Proceedings with the Department of Revenue to dispute a proposed assessment of $1,592.06 for documentary stamps and penalties. On May 30, 1980 the case was forwarded to the Division of Administrative Hearings for the assignment of a Hearing Officer and the scheduling of a final hearing. On June 10, 1980 Respondent filed an Answer to the Petition for Formal Proceedings. A final hearing which was scheduled for November 6, 1980, was continued at the joint request of the parties. The parties subsequently agreed that a fact finding hearing was not necessary as there were no material facts in dispute. A briefing schedule was established which required the filing of briefs or memoranda by June 1, 1981. This schedule was subsequently continued until July 2, 1981 at the request of the Petitioner and with the agreement of the Respondent.
The following Findings of Fact are based upon a Stipulation of Facts entered into by the parties and filed on May 4, 1981 and also on the Petition and Answer thereto.
FINDINGS OF FACT
On May 2, 1978 the Exchange Bank of Osceola and Tomlinson Motors, Inc., (Tomlinson) entered into a financing arrangement known as a floor plan agreement. In essence the agreement provides that the bank establish a line of credit in the amount of $100,000.00 which is represented by a promissory note in that amount. It will be referred to below as the "master note."
Tomlinson then drew against that credit line as necessary to purchase used cars. These draws were secured by trust receipts under which the bank owned each car, but allowed Tomlinson to have possession of them until such time as they were sold.
At the time of sale Tomlinson then paid back against the master note the amount of the initial draw needed to purchase the car. Once the draw was returned to the bank it was again available to be drawn down again for later car purchases; provided however, that at no time could the total outstanding draws exceed $100,000.00.
The trust receipts which Tomlinson periodically executed had attached to them a detachable promissory note form. Each time Tomlinson signed a trust receipt he also executed the note for the amount of the particular draw he was making to purchase cars. For example, if he bought four cars and paid a total of $15,900.00 for them, he would sign the note form in the amount of $15,900.00. No evidence was produced on what was done with each detachable note form after the draw corresponding to that form was paid back to the bank. The execution of the detachable note form was not required of Tomlinson by the bank.
The master note between the bank and Tomlinson had the proper amount of documentary stamps affixed for a $100,000.00 promissory note.
None of the detachable notes had any documentary stamps affixed. The Department of Revenue has proposed assessing a stamp tax of $1,592.06 including penalties on the sum of all the detachable notes less credit for the stamps affixed to the $100,000.00 master note.
Pursuant to the Dealer Floor Plan Agreement 1/ the bank had the authority to fill in the blanks on any of the forms such as the detachable notes, necessary to give effect to the Floor Plan Agreement.
All of the detachable note forms were executed as follows in this example:
PROMISSORY NOTE
March 6, 1979
On demand, the undersigned (jointly and severally, if more than one) promises to pay to the order of Fifteen Thousand Nine Hundred and no/100 DOLlARS ($15,900.00)
with interest at percent per annum after
date. The makers, guarantors, indorsers and any other parties to this note hereby waive presentment, demand, protest and notice of dishonor and protest, and hereby agree that extension or extensions of time of payment of this note or any installment or part thereof may be made before, at, or after maturity by agreement with any maker without notice to and without releasing the liability of any other maker, guarantor, indorser, or other party, and all thereof waive the right to be sued in the county of their residence, and jointly and severally agree to pay all costs of collection, including reasonable attorney's fees, and all makers, guarantors, indorsers and other parties consent that any security for this note may be exchanged or surrendered at any time and from time to time without notice.
Tomlinson Motors, Inc.(SEAL)By /s/ Billy E. Thomlinson
(Owner, Officer or Partner
--state which) Trustee) On none of them was the name of the payee filled in.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this case. Section 120.57(1), Florida Statutes.
The issue in this case is whether the executed promissory note forms attached to the trust receipts are "promissory notes, nonnegotiable notes, or written obligations to pay money within the taxing scope of Section 201.08, Florida Statutes (1979).
Before a document may be taxed under the statute, it must first be a complete promise to pay. Maas Brothers, Inc. v. Dickinson, 195 So.2d 193 (Fla. 1967). The issue in that case was whether a documentary tax could be imposed on a retail charge account agreement between Maas Brothers and its customers. The amount of the charges could not be determined until a purchase was made and the customer executed a sales slip for the amount of the purchase. When the sales slip and the charge account agreement were construed together they constituted a complete promise to pay. The Court held that no tax was due. Since neither the sales slips nor the charge account agreements were by themselves complete promises to pay, they were not within the scope of Section 201.08, Florida Statutes. The Court applied the hallowed rule that documentary stamp taxes are imposed on the documents themselves and not upon the transactions contemplated by the documents in issue. While there have been some unusual exceptions to this rule, 2/ it is held to be controlling here.
Petitioner argues that the promissory note forms attached to the trust receipts have not matured into complete promises to pay because on none of them is the payee filled in. See Findings of Fact No. 8. The tax statutes give no guidance on what formalities are required before a document becomes a taxable promise to pay. In Landmark Bank of Brevard v. Department of Revenue, 2 FALR
1291A (Florida Department of Revenue, Final Order, August 15, 1980) the Department held that the lack of a signature on a similar detachable note form made the document untaxable. That decision was controlled by the Department's own rule, Section 12B-4.53, Florida Administrative Code, which specifically requires the signature of the obligator or maker before a note can be taxed.
Like the statutes, the rule provides no guidance here.
Some direction on what constitutes a complete promise to pay is found in the Uniform Commercial Code as adopted by Florida. The Code states in section 673.115, Florida Statutes, that:
When a paper whose contents at the time of signing shows that it is intended to become an instrument is signed while still incomplete in any necessary respect it cannot be enforced until completed, but when it is completed in accordance with
authority given it is effective as completed. (Emphasis added)
The several courts which have considered the issue of completeness have found that a paper which says, "Pay to the order of" is incomplete. Gray
v. American Express Company, 34 N.C. App. 714, 234 S.E.2d 621, 623 (1977); Ross
v. Fabacher, 578 S.W.2d 454, 455 (Tex. Ct. App. 1st Dist. 1979); Broadway Management Corp. v. Briggs, 301 I11. App.3d 403, 332 N.E.2d 131 (1975); Hong Kong Importers, Inc. v. American Express Company, 301 So.2d 707, 710 (La. 4th Ct. App. 1974); Moore v. Vaughn, 167 Miss. 758, 150 So. 372 (1933). See also T. Quinn, Uniform Commercial Code Commentary and Law Digest (1978) 3-111 [A] at 3- 39; F. Hart and W. Willier, Commercial Paper Under The Uniform Commercial Code (1981) Section 2.14 [3] at 2-81. Official Comment 2 to U.C.C. Section 3-111 states, "Paragraph (c) is reworded to remove any possible implication to 'Pay to the order of' makes the instrument payable to bearer. It is an incomplete order instrument, and falls under Section 3-115." Section 673.3-I11, Florida Statutes. Annot. (1966).
In Gray v. American Express Company, supra, the Court held that travelers checks were incomplete and unenforceable against their issuer even though the bearer had the authority to fill his own name in as the payee. That is the situation here. The detachable promissory note forms are held by Petitioner. Under the terms of the floor plan agreement between the parties the Exchange Bank has the authority to fill in the payee blanks. See Findings of Fact No. 7 supra; nevertheless, the note forms in their present state are not by themselves enforceable against Tomlinson Motors, Inc.
Most of the foregoing cases make a determination of completeness for purposes of negotiability under the Uniform Commercial Code, and not completeness for purposes of Florida documentary taxation. 3/ The cases are, however, highly persuasive here. Just as negotiability is a mechanical test under the Uniform Commercial Code, taxability under Section 201.08 is similarly a mechanical determination. The tax law is replete with the rule already noted in Maas Brothers that the documentary stamp tax is imposed on the instruments themselves and not on the transaction contemplated by the instruments. Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440 (Fla. 1st D.C.A. 1974), cited with approval in the Department of Revenue v. Miami National Bank,
374 So.2d 1 (Fla. 1979); Hialeah, Inc. v. Department of Revenue, 380 So.2d 562, 563 (Fla. 3rd D.C.A. 1980).
While the application of the foregoing rule may at times operate to the detriment of the state treasury as it did in Maas Brothers, Inc. and in Hialeah, Inc., it operates with equal force against the taxpayer as in Miami National Bank and McCoy Motel, Inc. In the present case the value of the transaction between the parties exceeded the face value of the $100,000.00 master note on which taxes were paid, yet when the contents of only the detackable forms are examined they do not constitute a taxable promise under the Maas Brothers holding. This conclusion is fortified by Lee v. Quincy State Bank, 173 So. 909, 910 (Fla. 1937) where the Court held that if there is doubt about the liability of an instrument of taxation, the doubt should be resolved against the tax. On the basis of the foregoing reasoning I conclude that the executed promissory note forms attached to the trust receipts are not subject to taxation under Section 201.08, Florida Statutes (1979).
RECOMMENDATION
Based on the foregoing findings of fact and conslusions of law, it is RECOMMENDED:
That the Department of Revenue enter a final order determining that the excise tax on documents imposed by Section 201.08, Florida Statutes (1979) is not applicable to the executed promissory note forms attached to the trust receipts in this case.
DONE and RECOMMENDED this 22nd day of October, 1981, in Tallahassee, Florida
MICHAEL P. DODSON
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of October, 1981.
ENDNOTES
1/ Attached to the petition for formal proceedings as Exhibit A and admitted by the Department in its answer.
2/ Lewis v. The Florida Bar, 372 So.2d 1121 (Fla. 1979).
3/ The test in issue here is clearly not negotiability as Section 201.08, Florida Statutes, expressly taxes nonnegotiable notes.
COPIES FURNISHED:
John B. Ritch, Esquire Overstreet & Ritch Post Office Box 760
Kissimmee, Florida 32741
Barbara Staros Harmon, Esquire Assistant Attorney General Department of Legal Affairs The Capitol, LL04
Tallahassee, Florida 32301
================================================================= AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF REVENUE
EXCHANGE BANK OF OSCEOLA,
Petitioner,
vs. CASE NO. 80-1022
STATE OF FLORIDA, DEPARTMENT OF REVENUE,
Respondent.
/
FINAL ORDER OF THE DEPARTMENT OF REVENUE
The Executive Director of the Department of Revenue, as authorized by Rules 12-3.02 - 3.05, inclusive, Florida Administrative Code, having considered the Recommended Order, and the parties having waived oral argument, hereby takes final agency action in this cause, adopting the Recommended Order of the Hearing Officer as follows:
This case is a dispute between the Exchange Bank of Osceola, Petitioner, and the Department of Revenue, Respondent, over whether or not a documentary stamp tax is owed on certain agreements attached to trust receipts which are part of an automobile dealer's floor plan financing arrangement with Petitioner.
The following counsel appeared in the case:
APPEARANCES
For Petitioner: John B. Ritch, Esquire
Overstreet & Ritch Post Office Box 760
Kissimmee, Florida 32741
For Respondent: Barbara Staros Harmon, Esquire
Assistant Attorney General Department of Legal Affairs The Capitol LL04 Tallahassee, Florida 32301
PROCEDURAL HISTORY
These proceedings began on May 27, 1980 when Petitioner filed a Petition for Formal Proceedings with the Department of Revenue to dispute a proposed assessment of $1,592.06 for documentary stamps and penalties. On May 30, 1980 the case was forwarded to the Division of Administrative Hearings for the assignment of a Hearing Officer and the scheduling of a final hearing. On June 10, 1980 Respondent filed an Answer to the Petition for Formal Proceedings. A final hearing which was scheduled for November 6, 1980, was continued at the joint request of the parties. The parties subsequently agreed that a fact finding hearing was not necessary as there were no material facts in dispute. A briefing schedule was established which required the filing of briefs or memoranda by June 1, 1981. This schedule was subsequently continued until July 2, 1981 at the request of the Petitioner and with the agreement of the Respondent.
The following Findings of Fact are based upon a Stipulation of Facts entered into by the parties and filed on May 4, 1981 and also on the Petition and Answer thereto.
FINDINGS OF FACT
On May 2, 1978 the Exchange Bank of Osceola and Tomlinson Motors, Inc., (Tomlinson) entered into a financing arrangement known as a floor plan agreement. In essence the agreement provides that the bank establish a line of credit in the amount of $100,000.00 which is represented by a promissory note in that amount. It will be referred to below as the "master note."
Tomlinson then drew against that credit line as necessary to purchase used cars. These draws were secured by trust receipts under which the bank owned each car, but allowed Tomlinson to have possession of them until such time as they were sold.
At the time of sale Tomlinson then paid back against the master note the amount of the initial draw needed to purchase the car. Once the draw was returned to the bank it was again available to be drawn down again for later car purchases; provided however, that at no time could the total outstanding draws exceed $100,000.00.
The trust receipts which Tomlinson periodically executed had attached to them a detachable promissory note form. Each time Tomlinson signed a trust receipt he also executed the note for the amount of the particular draw he was making to purchase cars. For example, if he bought four cars and paid a total of $15,900.00 for them, he would sign the note form in the amount of $15,900.00.
No evidence was produced on what was done with each detachable note form after the draw corresponding to that form was paid back to the bank. The execution of the detachable note form was not required of Tomlinson by the bank.
The master note between the bank and Tomlinson had the proper amount of documentary stamps affixed for a $100,000.00 promissory note.
None of the detachable notes had any documentary stamps affixed. The Department of Revenue has proposed assessing a stamp tax of $1,592.06 including penalties on the sum of all the detachable notes less credit for the stamps affixed to the $100,000.00 master note.
Pursuant to the Dealer Floor Plan Agreement 1/ the bank had the authority to fill in the blanks on any of the forms such as the detachable notes, necessary to give effect to the Floor Plan Agreement.
All of the detachable note forms were executed as follows in this example:
PROMISSORY NOTE
March 6, 1979 On demand, the undersigned (jointly
and severally, if more than one) promises
to pay to the order of
Fifteen Thousand Nine Hundred and no/100 Dollars ($15,900.00) with interest at percent per annum after date. The makers, guarantors, indorsers and any other parties to this note hereby waive pre- sentment, demand, protest and notice of dishonor and protest, and hereby agree that extension or extensions of time
of payment of this note or any install- ment or part thereof may be made before, at, or after maturity by agreement with any maker without notice to and without releasing the liability of any other maker, guarantor, indorser, or other party, and all thereof waive the right to be sued in the county of their resi- dence, and jointly and severally agrce
to pay all costs of collection, including reasonable attorneys' fees, and all makers, guarantors, indorsers and other parties consent that any security for this note
may be exchanged or surrendered at any time and from time to time without notice.
Tomlinson Motors, Inc. (SEAL) By /s/ Billy E. Tomlinson
(Owner, Officer or Partner
--state which) Trustee) On none of them was the name the payee filled in.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this case. Section 120.57(1), Florida Statutes.
The issue in this case is whether the executed promissory note forms attached to the trust receipts are "promissory notes, nonnegotiable notes, or written obligations to pay money" within the taxing scope of Section 201.08, Florida Statutes (1979).
Before a document may be taxed under the statute, it must first be a complete promise to pay. Maas Brothers, Inc. v. Dickinson, 195 So.2d 193 (Fla. 1967). The issue in that case was whether a documentary tax could be imposed on a retail charge account agreement between Maas Brothers and its customers. The amount of the charges could not be determined until a purchase was made and the customer executed a sales slip for the amount of the purchase. When the sales slip and the charge account agreement were construed together they constituted a complete promise to pay. The Court held that no tax was due. Since neither the sales slips nor the charge account agreements were by themselves complete promises to pay, they were not within the scope of Section 201.08, Florida Statutes. The Court applied the hallowed rule that documentary stamp taxes are imposed on the documents themselves and not upon the transactions contemplated by the documents in issue. While there have been some unusual exceptions to this rule, 2/ it is held to be controlling here.
Petitioner argues that the promissory note forms attached to the trust receipts have not matured into complete promises to pay because on none of them is the payee filled in. See Findings of Fact No. 8. The tax statutes give no guidance on what formalities are required before a document becomes a taxable promise to pay. In Landmark Bank of Brevard v. Department of Revenue, 2 FALR 1291A (Florida Department of Revenue, Final Order, August 15, 1980) the Department held that the lack of a signature on a similar detachable note form made the document untaxable. That decision was controlled by the Department's own rule, Section 12B-4.53, Florida Administrative Code, which specifically requires the signature of the obligator or maker before a note can be taxed.
Like the statutes, the rule provides no guidance here.
Some direction on what constitutes a complete promise to pay is found in the Uniform Commercial Code as adopted by Florida. The Code states in Section 673.115, Florida Statutes, that:
When a paper whose contents at the time of signing shows that it is intended to become an instrument is signed while still incomplete in any necessary respect it cannot be enforced until completed, but when it is completed in accordance with authority given it is effective as com- pleted. (Emphasis added)
The several courts which have considered the issue of completeness have found that a paper which says, "Pay to the order of " is incomplete. Gray v. American Express Company, 34 N.C. App. 714, 234 S.E.2d 621, 623 (1977); Hoss v.
Fabacher, 578 S.W. 2d 454, 455 (Tex. Ct. App. 1st Dist. 1979); Broadway
Management Corp. v. Briggs, 301 I11. App. 3d 403, 332 N.E. 2d 131 (1975); Hong Kong Importers, Inc. v. American Express Company, 301 So.2d 707, 710 (La. 4th
Ct. App. 1974); Moore v. Vaughn, 167 Miss. 758, 150 So. 372 (1933). See also T. Quinn, Uniform Commercial Code Commentary and Law Digest (1978) 3-111 [A] at 3- 39; F. Hart and W. Willier, Commercial Paper Under The Uniform Commercial Code (1981) Section 2.14[3] at 2-81. Official Comment 2 to U.C.C. Section 3-111 states, "Paragraph (c) is reworded to remove any possible implication to 'Pay to the order of ' makes the instrument payable to bearer. It is an incomplete order instrument, and falls under Section 3-115." Section 673.3-111, Florida Statutes, Annot. (1966)
In Gray v. American Express Company, supra, the Court held that travelers checks were incomplete and unenforceable against their issuer even though the- bearer had the authority to fill his own name in as the payee. That is the situation here. The detachable promissory note forms are held by Petitioner. Under the terms of the floor plan agreement between the parties the Exchange Bank has the authority to fill in the payee blanks. See Findings of Fact No. 7, supra; nevertheless the note forms in their present state are not by themselves enforceable against Tomlinson Motors, Inc.
Most of the foregoing cases make a determination of completeness for purposes of negotiability under the Uniform Commercial Code, and not completeness for purposes of Florida documentary taxation. 3/ The cases are, however, highly persuasive here. Just as negotiability is a mechanical test under the Uniform Commercial Code, taxability under Section 201.08 is similarly a mechanical determination. The tax law is replete with the rule already noted in Maas Brothers that the documentary stamp tax is imposed on the instruments themselves and not on the transaction contemplated by the instruments. Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440 (Fla. 1st D.C.A. 1974) cited with approval in the Department of Revenue v. Miami National Bank, 374 So.2d 1 (Fla. 1979); Hialeah, Inc. v. Department of Revenue, 380 So.2d 562, 563 (Fla. 3rd D.C.A. 1980).
While the application of the foregoing rule may at times operate to the detriment of the state treasury as it did in Maas Brothers, Inc. and in Hialeah, Inc., it operates with equal force against the taxpayer as in Miami National Bank and McCoy Motel, Inc. In the present case the value of the transaction between the parties exceeded the face value of the $100,000.00 master note on which taxes were paid, yet when the contents of only the detachable forms are examined they do not constitute a taxable promise under the Maas Brothers holding. This conclusion is fortified by Lee v. Quincy State Bank, 173 So.
909, 910 (Fla. 1937) where the Court held that if there is doubt about the liability of an instrument of taxation, the doubt should be resolved against the tax. On the basis of the foregoing reasoning, I conclude that the executed promissory note forms attached to the trust receipts are not subject to taxation under Section 201.08, Florida Statutes (1979).
Based on the foregoing findings of fact and conclusions of law, it is ORDERED:
That it has been determined that the excise tax on documents imposed by Section 201.08, Florida Statutes (1970) is not applicable to the executed promissory note forms attached to the trust receipts in this case.
DONE AND ENTERED THIS 17th day of December, 1981.
RANDY MILLER EXECUTIVE DIRECTOR DEPARTMENT OF REVENUE STATE OF FLORIDA
I HEREBY CERTIFY that the foregoing Final Order has been filed in the official records of the Department of Revenue, this 17th day of December, 1981.
MARY L. FORD, SECRETARY TO GENERAL COUNSEL
Agency Clerk
ENDNOTES
1/ Attached to the petition for formal proceedings as Exhibit A and admitted by the Department in its answer.
2/ Lewis v. The Florida Bar, 372 So.2d 1121 (Fla. 1979).
3/ The test in issue here is clearly not negotiability as Section 201.08, Florida Statutes, expressly taxes nonnegotiable notes.
Docket for Case No: 80-001022
Orders for Case No: 80-001022
| Issue Date |
Document |
Summary |
|
Dec. 17, 1981 |
Agency Final Order
|
|
|
Oct. 22, 1981 |
Recommended Order
|
Promissory note attached to trust receipts not eligible for documentary stamp tax.
|
