STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE CITIZENS AND PEOPLES ) NATIONAL BANK OF PENSACOLA, a )

National Banking Corporation, )

)

Petitioner, )

)

vs. ) CASE NO. 76-1341RX

) STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )

)

Respondent. )

)

FINAL ORDER

This matter has come before the undersigned Hearing Officer on the petition of The Citizens & Peoples National Bank of Pensacola filed under Section 120.56, Florida Statutes. The Petitioner challenges the validity of Rule 12A- 4.54(1)(d), Florida Administrative Code.

For Petitioner: Robert L. Stone, Esquire

Harrell, Wiltshore, Stone Swearingen,

201 East Government Street Pensacola, Florida 32501

For Respondent: Caroline C. Mueller, Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

1. This rule was promulgated and adopted by the Respondent Department of Revenue and deals with the taxability of advances to promissory notes. The facts which underlie this dispute can best be described in a hypothetical situation which was presented at the hearing held on this matter August 25, 1976 in Pensacola, Florida. This hypothetical is as follows:

   
   

   "Bank loans of $10,000 to Borrower and Borrower signs promissory note for $10,000. Documentary stamp taxes are paid on the

   $10,000 found on the document. Borrower pays back $2,000 to bank.

   Bank makes an additional advance to Borrower in the amount of $5,000. Borrower signs a new promissory note for $13,000 (the sum of she

   $8,000 still owing from the old note and the advance of $5,000)."

2. The Petitioner in this case contends that only the amount advanced to the Borrower should be subject to documentary stamp taxes and not the part of the original note which was renewed. The Respondent, Department of Revenue, maintains that the second promissory note in the amount of $13,000 is taxable at the full rate (its face amount) regardless of the circumstances surrounding the execution of that note. The Department of Revenue has made a demand for back taxes claimed due on this note and as part of the authority for this claim the department has cited its rule above noted, 12A-4.54(1)(d), F.A.C. This rule states in pertinent part:

   
   

   "Taxes due on additional advances, whether or not such additional advances increase the current obligation beyond the original mortgage, and promissory notes used in connection with the original obligation and the additional advances are taxable."

   
   

3. Section 201.08, Florida Statutes, is the general statute relating to documentary stamps on indebtednesses. Section 201.09, F.S., contains an exception for advances on existing obligations.

   
   

4. At the hearing held on this case it was noted that the rule in question is not what would be called artfully drafted. Since the department uses the above referenced rule as authority for its claim, it is unquestioned that the Petitioner is substantially affected by the above rule and has adequate standing to challenge its validity under Section 120.56, F.S. The Petitioner's challenge to the validity of this rule is based on several grounds. First, it is claimed the rule is confiscatory in that it results in a double taxation. The Petitioner points out that had the parties to the note engaged in the simple fiction of preparing a separate note for the advance and then renewed both the note for the advance and the original note, the same result could have been reached by consolidating those separate notes into a single note thereby avoiding the higher rate of tax imposed by the position taken by the Department of Revenue. Further, Petitioner maintains that the rule is so vague and ambiguous it is not susceptible to a clear understanding. A "void for vagueness" argument is therefore extended by the Petitioner. Finally, the Petitioner states that the rule as interpreted by the department is in conflict with Section 201.09, F.S., and therefore void for exceeding the department's statutory authority. It should be noted, as mentioned above, that Section 201.09, F.S., states:

   
   

   "Renewal of existing promissory note: exemption.-- when any promissory note is given in renewal of any existing promissory note, which said renewal note only extends or continues the identical contractual obligations of the original promissory note and evidences part or all of the original

   indebtedness evidenced thereby, not including any accumulated interest thereon and without enlargement in any way of said original contract and obligation, such renewal note shall not be subject to taxation under this chapter if such renewal note has attached to it the original promissory note with canceled

   stamps affixed thereon showing full payment of the tax due thereon."

   
   

5. The Petitioner claims that the above quoted section permits the department only to tax that part of the second promissory note which contains the $5,000 advance as was described in the hypothetical situation.

   
   

6. The Respondent, Department of Revenue, argues that although the challenged rule is somewhat ambiguous the interpretation given to it by the Department of Revenue should be given weight in construing its meaning. Further, it is well known that documentary stamp taxes are excise taxes which tax the face amount of the instrument and which are not computed by taking extrinsic facts into account. Here the department argues the second promissory mote was in the amount of $13,000 and since that was in excess of the original promissory note the whole $13,000 amount is taxable.

   
   

7. It should be noted that this Hearing Officer is not concerned with whether the computation of the tax is correct, but only, under 120.56, F.S., with the validity of the above referenced rule. After carefully reading and evaluating the rule in question, it is the finding of this Hearing Officer that the above referenced rule is not so vague and ambiguous as to be incapable of a reasonable interpretation. The rule quite clearly states that:

"Tax is due on additional advances . . . and promissory notes used in connection with . . . the additional advances are taxable."

Although there is other extraneous language in this rule which makes it somewhat confusing, the rules does clearly state that promissory notes used in connection with additional advances are taxable. Florida Statutes and numerous court decisions indicate that the amount of tax payable is computed by the face amount of the promissory note regardless of the underlying circumstances which led to the execution of that note. The case of State Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440 appears to be exactly on point. Although the type of financial transaction described in that opinion was somewhat different than that in the instant case, the general principle of law is equally applicable. As that court stated, taxes imposed by documentary stamp taxes are excise taxes computed on the face of the instrument and not upon the transaction. Therefore, the tax liability springs from the bare face of the instrument regardless of what private arrangements between the parties created the obligation. Also, the McCoy Motel case discussed the question of whether the Petitioner could have lessened the tax liability by simply renewing the obligation in a separate note and then consolidating the two obligations. The court did not discuss whether a different arrangement would have actually resulted in the avoidance of additional tax, but the court quoting from the case of North American Company v. Greene, 120 So.2d 603, stated:

"We are not privileged to make the taxability of a transaction dependent upon any consideration of some alternative procedure which might not have been taxable."

It appears, therefore, that the rule in question does no more than that allowed by Florida Statutes and decisions of the Florida courts. It is, therefore, decided that the petition challenging Rule 12A-4.54(1)(d), F.A.C., is denied.

DONE and ORDERED this 15th day of September, 1976, in Tallahassee, Florida.

KENNETH G. OERTEL, Director

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

(904) 488-9675

COPIES FURNISHED:

Robert L. Stone, Esquire Harrell, Wiltshore,

Stone & Swearingen

201 East Government Street Pensacola, Florida 32501

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

Tallahassee, Florida 32304

Docket for Case No: 76-001341RX

Orders for Case No: 76-001341RX