STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOSEPH SLOANE, SYLVIA YEDLIN ) LASKOWITZ, BERNARD YEDLIN, ) FLORENCE PATO and JACK GOLD, )

)

Petitioner, )

)

vs. ) CASE NO. 76-618

) DEPARTMENT OF REVENUE, STATE ) OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a hearing was held before Charles C. Adams, Hearing Officer with the Division of Administrative Hearings, at State Office Building, Room 272, 1350 Northwest 12th Avenue, Miami, Florida at 10:00 A.M., January 25,

1977.

APPEARANCES

For Petitioners: Lewis M. Kanner, Esquire

Williams, Salomon, Kanner & Damian 1003 DuPont Building

169 East Flagler Street Miami, Florida 33131

For Respondent: Caroline C. Mueller, Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 ISSUE

Whether or not the Respondent, State of Florida Department of Revenue, is entitled to documentary stamp tax in accordance with 201.02 F.S. in the amount of $326.10 and penalty in the like amount of $326.10 in accordance with 201.17 F.S., for a transaction between Petitioners in an assignment of interest of Gallagher's of Miami, Inc. to the Petitioners.

FINDINGS OF FACT

1. The Petitioners were the stockholders of Gallagher's of Miami, Inc. Among the assets of Gallagher's of Miami, Inc., were the rights under a sublease undertaken between B.G.L. Corporation and Gallagher's of Miami, Inc. dated September 25, 1976 and recorded in Official Record Book 5663, at page 261 of the Public Records of Dade County, Florida. This sublease was an amendment to a sublease which was dated June 1, 1976, recorded in Official Record Book 4768,

   Page 176 of the Public Records of Dade County, Florida, between B.G.L. Corporation, a Florida corporation as lessor, and KSJ Corporation, a Florida corporation as lessee. One of the conditions of Gallagher's lease obligation was responsibility for the payment of a mortgage dated May 1, 1965, recorded in Official Record Book 4592, at Page 161, of the Public Records of Dade County, Florida, from KSJ Corporation, a Florida corporation to Joseph Z. Lipsky and Evalyn Lipsky, as amended by agreement dated August 30, 1965 between KSJ Corporation and Joseph Z. Lipsky and Evalyn Lipsky.

   
   

2. Pursuant to a plan of liquidation of Gallagher's of Miami, Inc. that corporation executed and delivered to Petitioners an assignment of the lessee's interest in the aforementioned lease to which Gallagher's of Miami, Inc. was a party. The assignment of lease can be found as Exhibit A to the Petition filed by the Petitioners. The contents of such assignment are found to be fact. By letters of July 30, 1975 and March 10, 1975, the Respondent indicated its intention to assess tax in the amount of $326.10 upon the document representing the assignment between Gallagher's of Miami, Inc. and the Petitioners. The amount of documentary stamp tax was premised on the aforementioned mortgage which at the time of the proposed assessment was valued at $108,750. In addition the Respondent indicated its intention to impose a penalty in a like amount of $326.10. The assignment was in fact executed, pursuant to a plan of liquidation, which plan is shown as Petitioners' Exhibit C attached to the petition. The Petitioners' Exhibit C is established as fact.

   
   

3. Petitioners in receiving the assignment in liquidation of Gallagher's of Miami, Inc. received such assignment in proportion to their stock holdings in that corporation.

   
   

4. The assessments of $326.10 for documentary stamp tax and $326.10 in penalty on such assessment, and the challenge to the assessments are the subject matter in this cause.

   
   

5. Subsequent to the assignment of leases and agreement between Gallagher's of Miami, Inc. and the Petitioners a further assignment was made between the Petitioners and Stan-Mil, Inc. of the same property which took place on December 16, 1974.

   
   

   CONCLUSIONS OF LAW

   
   

6. The Division of Administrative Hearings has jurisdiction in this cause.

   
   

7. It is the contention of the Respondent, State of Florida, Department of Revenue, that leases are taxable as interest in real property under 201.02 F.S. They cite as authority for this contention the case of DeVore v. Lee, 30 So.2d 924, (Fla. 1947). If it is true that leases are taxable as interest in real property, then the Respondent further contends that the case of DeMaria v. Florida Department of Revenue, 338 So.2d 838 (Fla. 1976) would require the payment of documentary stamp tax, pursuant to 201.02 F.S. in a penalty pursuant to 201.17 F.S. on the amount of the mortgage spoken of in the Findings of Fact in the case sub judice.

   
   

8. It is not necessary for the purposes of this hearing to determine whether a leasehold is in fact an interest in real property. It can be assumed arguendo that a leasehold is an interest in real property and the result would be that no tax liability accrues to the Petitioners under these facts. The liability is not there because DeMaria, supra, contemplates a documentary stamp tax against the encumbered real property which has been assigned by a

corporation to its stockholder. In the case sub judice, the leasehold which is being assigned is not encumbered by the mortgage, rather the real property is encumbered by the mortgage. The condition of the payment of the mortgage or responsibility of the mortgage is a collateral condition of the leasehold, but is not a direct encumbrance on the lease. Moreover, DeMaria, supra, places the burden of paying a documentary stamp tax on the theory that persons who take property subject to a mortgage would normally pay the indebtedness represented by the mortgage to prevent the loss of property. In the case at bar the lease and obligations under lease, were transferred to a third party purchaser within five days of the assignment of that lease and its obligations between Gallagher's of Miami, Inc. and the Petitioners. Therefore, the theory that payments would be made on the mortgage obligation to avoid the loss of the property so encumbered could be distinguished between DeMaria and the case sub judice, in that the property was not held for sufficient length of time to establish the "normal custom." Finally, the shifting of the economic burden and benefit which might conceivably supply the necessary consideration to have a taxation is missing in view of the immediate transfer of the property from the Petitioners to Stan-Mil, Inc. within five days of the initial transfer between Gallagher's of Miami, Inc. and the Petitioners. The real shifting of the economic burden and benefit which would supply the consideration, if any, was the shifting which took place at the time of the transfer between the Petitioners and Stan-Mil, Inc.

RECOMMENDATION

It is recommended that the assessment of documentary stamp tax under 201.02

F.S. in the amount of $326.10 and the penalty in the amount of $326.10, as a penalty pursuant to 201.17 F.S. be set aside.

DONE and ENTERED this 28th day of February, 1977, in Tallahassee, Florida.

CHARLES C. ADAMS

Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 28th day of February, 1977.

COPIES FURNISHED:

Lewis M. Kanner, Esquire

Williams, Salomon, Kanner & Damian 1003 DuPont Building

169 East Flagler Street Miami, Florida 33131

Caroline C. Mueller, Esquire Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF REVENUE

JOSEPH SLOANE, SYLVIA YEDLIN ) LASKOWITZ, BERNARD YEDLIN, ) FLORENCE PATO and JACK GOLD, )

)

Petitioners, )

)

vs. ) CASE NO. 76-618

)

DEPARTMENT OF REVENUE, )

STATE OF FLORIDA, )

)

Respondent. )

)

FINAL ORDER

This cause comes before the Department of Revenue after hearing having been held pursuant to Section 120.57, Florida Statutes, before a Hearing Officer of the Division of Administrative Hearings. Said Hearing Officer has heretofore submitted to the Department of Revenue a Recommended Order dated February 28, 1977. Appearances at the Administrative Hearing were:

For Petitioners: Lewis M. Kanner, Esquire

Williams, Salomon, Kanner & Damian 1003 DuPont Building

169 East Flagler Street Miami, Florida 33131

For Respondent: Caroline C. Mueller, Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Pursuant to Section 120.57(1)(b)9, Florida Statute, the Department of Revenue, after careful analysis of the Recommended Order elects to modify the conclusions of law contained in said Recommended Order.

The Department of Revenue adopts the following as the Final Order of the Department of Revenue:

ISSUE

Whether or not the Respondent, State of Florida, Department of Revenue, is entitled to documentary stamp tax in accordance with Section 201.02, Florida Statutes, in the amount of $326.10 and penalty in the like amount of $326.10 in accordance with Section 201.17, Florida Statutes, for a transaction between Petitioners in an assignment of interest of Gallagher's of Miami, Inc., to the Petitioners.

FINDINGS OF FACT

1. The Petitioners were the stockholders of Gallagher's of Miami, Inc. Among the assets of Gallagher's of Miami, Inc., were the rights under a sublease undertaken between B.G.L. Corporation and Gallagher's of Miami, Inc., dated September 25, 1967, and recorded in Official Record Book 5663, at page 261 of the Public Records of Dade County, Florida. This sublease was an amendment to a sublease which was dated June 1, 1965, recorded in Official Record Book 4768, at page 176 of the Public Records of Dade County, Florida, between B.G.L. Corporation, a Florida corporation, as lessee. One of the conditions of Gallagher's lease obligation was responsibility for the payment of a mortgage dated May 1, 1965, recorded in Official Record Book 4592, at page 161 of the Public Records of Dade County, Florida, from KSJ Corporation, a Florida corporation, to Joseph Z. Lipsky and Evalyn Lipsky, as amended by agreement dated August 30, 1965, between KSJ Corporation and Joseph Z. Lipsky and Evalyn Lipsky.

   
   

2. Pursuant to a plan of liquidation of Gallagher's of Miami, Inc., that corporation executed and delivered to Petitioners an assignment of the lessee's interest in the aforementioned lease to which Gallagher's of Miami, Inc., was a party. The assignment of lease can be found as Exhibit A to the Petition filed by the Petitioners. The contents of such assignment are found to be fact. By letters of July 19, 1975, and March 19, 1975, the Respondent indicated its intention to assess tax in the amount of $326.10 upon the document representing the assignment between Gallagher's of Miami, Inc., and the Petitioners. The amount of documentary stamp tax was premised on the aforementioned mortgage which at the time of the proposed assessment was valued at $108,750.00. In addition, the Respondent indicated its intention to impose a penalty in a like amount of $326.10. The assignment was in fact executed, pursuant to a plan of liquidation, which plan is shown as Petitioner's Exhibit C is established as fact.

   
   

3. Petitioners in receiving the assignment in liquidation of Gallagher's of Miami, Inc., received such assignment in proportion to their stock holdings in that corporation.

   
   

4. The assessments of $326.10 for documentary stamp tax and $326.10 in penalty on such assessment, and the challenge to the assessments are the subject matter of this cause.

   
   

5. Subsequent to the assignment of leases and agreement between Gallagher's of Miami, Inc., and the Petitioners a further assignment was made

   between the Petitioners and Stan-Mil, Inc., of the same property, which took place on December 16, 1974.

   
   

   CONCLUSIONS OF LAW

   
   

6. Section 201.02, Florida Statutes, provides in pertinent part as follows:

   
   

   201.02 Tax on deeds and other instruments relating to lands, etc.--

   (1) 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 one hundred dollars of the consideration therefor the tax shall be thirty cents . . .

   
   

7. Leases are taxable as an interest in real property under Section 201.02, Florida Statutes. See DeVore v. Gay, 39 So.2d 796 (Fla. 1949), DeVore v. Lee, 30 So.2d 924 (Fla. 1947), Dundee Corporation v. Lee, 24 So.2d 234 (Fla. 1945), and AGO 074-350.

   
   

8. The taxability of transfer in the instant case of the interest in real property from the corporation to the shareholder Petitioners is governed by a recent Florida Supreme Court case, Florida Department of Revenue v. Joseph A. DeMaria, 338 So.2d 838 (Fla. 1976). In DeMaria, supra, a transfer of property from a corporation to a shareholder subject to a mortgage was held to be subject to the documentary stamp tax pursuant to Section 201.02, Florida Statutes. The Court in DeMaria, supra, relied on Kendall House Apts., Inc. v. Department of Revenue, 245 So.2d 221 (Fla. 1971) and Rasberry v. Dickinson, 243 So. 2d 236 (Fla. 1st DCA 1971), and distinguished Palmer-Florida Corp. v. Green, 88 So.2d 493 (Fla. 1956).

   
   

9. The instant facts are governed by DeMaria, supra, in that an interest in land was transferred from a corporation to shareholders subject to a mortgage. As in DeMaria, supra, there was a shifting of the economic burden in that the corporation received a benefit to the extent that it was relieved of the obligation to pay the mortgage and the shareholders incurred a commensurate economic burden. This shifting of the economic burden and benefit supplies the consideration required by Section 201.02, Florida Statutes. See DeMaria, supra. The fact that in the instant case the interest in land is a leasehold interest does not change the economic result.

   
   

10. The documentary stamp tax is imposed upon each document. Circumstances surrounding the execution of the document are not to be considered. See State Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440 (Fla. 1st D.C.A. 1974); Choctawhatchee Electric Corporation, Inc. v. Ray E.

    Green, 132 So.2d 556 (1961); Lee v. Kenan, 78 F.2d 425 (5th Cir. Ct. App. 1935). In the instant case the fact that the shareholder Petitioners subsequently transferred the leasehold interest to another party is not to be considered.

    That subsequent transfer is a separate transaction and does not affect the taxability of the first transfer.

    
    

11. The penalties in the instant case were properly applied pursuant to Section 201.17(2), Florida Statutes. The constitutionality of this statute has

been upheld in Dominion Land and Title Corporation v. Department of Revenue, 320 So.2d 813 (Fla. 1975).

CONCLUSION

It is ordered that the assessment of documentary stamp tax and penalty in the instant case pursuant to Chapter 201, Florida Statutes, be upheld as a valid assessment.

CERTIFICATION

I CERTIFY that the foregoing is the Final Order of the Department of Revenue adopted by the Governor and Cabinet on the 3rd day of May, 1977.

HARRY L. COE, JR.

Executive Director Department of Revenue State of Florida

Room 102, Carlton Building Tallahassee, Florida 32304

Dated this 3rd day of May, 1974.

Docket for Case No: 76-000618

Orders for Case No: 76-000618