STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FIRST NATIONAL BANK OF BIRMINGHAM, )

)

Petitioner, )

)

vs. ) CASE NO. 77-305

) DEPARTMENT OF REVENUE OF THE STATE ) OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter came on for hearing in Tallahassee, Florida, before the Division of Administrative Hearings, by its duly designated hearing officer, Robert T. Benton, II, on April 19, 1977. The parties appeared through counsel, as follows:

For Petitioner: Mr. William Guy Davis, Jr., Esquire 700 Brent Building

Post Office Box 12950 Pensacola, Florida 32576

For Respondent: Mr. E. Wilson Crump, II, Esquire

Assistant Attorney General The Capitol

Tallahassee, Florida 32304

By notice of proposed assessment of tax under Chapter 71-134 Laws of Florida, dated October 1, 1975, respondent Department of Revenue advised petitioner of taxes which respondent maintained that petitioner owed in connection with certain promissory notes. Petitioner attacked the proposed tax assessment as illegal and invalid and sought to have the proposed assessment set aside, by petition dated January 13, 1977. Respondent Department of Revenue answered the petition and counterclaimed, taking the position that, if the notes in controversy are not taxable under Section 199.032(2), Florida Statutes (1975), then they are taxable under Section 199.032(1), Florida Statutes (1975).

FINDINGS OF FACT

1. In 1971, the Okaloosa Island Authority, a governmental agency, leased certain real property on Santa Rosa Island in Okaloosa County to the Okaloosa Development Corporation for a term of 99 years. Certain ultimate sub-lessees under the Okaloosa Island Authority lease mortgaged their leaseholds as security for the payment of promissory notes held by petitioner First National Bank of Birmingham. Two such notes are involved, both of which were executed and recorded in Florida during 1974. Petitioner is the payee on both notes, and kept them both at its headquarters in Birmingham, Alabama. The maker of the larger note is U.R.S., Inc., a Pennsylvania corporation. The U.R.S. note is in the face amount of $2,500,000.00, although only $347,867.91 of the principal

   obligation was still outstanding on January 1, 1975; the note was paid in full on January 27, 1975.

   
   

2. The makers of the second note were Phillip F. Zeidman and his wife, Nancy L. Zeidman. The Zeidman note is in the face amount of $45,000.00. On January 1, 1975, $44,000.00 of the principal obligation remained outstanding; and on January 1, 1976, $29,286.83 of the principal obligation was still outstanding.

   
   

3. No intangible personal property tax was paid when the U.R.S. and Zeidman notes, together with the mortgages which secured their Payment, were recorded by the office of the Clerk of the Circuit Court of Okaloosa County. Statement Required By Stuckey's of Eastman, Georgia v. Department of Transportation, 340 So.2d 119 (Fla. 1st DCA 1976)

   
   

4. Petitioner's proposed fact findings have been adopted, in substance, except as to what the First National Bank of Birmingham relied on, as to which no evidence was adduced.

   
   

5. Respondent's proposed fact findings have been adopted, in substance, except that the face amount of the U.R.S. note was $2,500,000.00, not

   $500,000.00; and the real property leased by the Okaloosa Island Authority is situated in Okaloosa, not Escambia County.

   
   

   CONCLUSIONS OF LAW

   
   

6. This controversy centers on Section 199.032, Florida Statutes (1975), which provides as follows:

   
   

   There is hereby levied, to be assessed and collected as provided by this chapter:

   1. An annual tax of 1 mill on the dollar of the just valuation of all intangible personal property except money as defined in

      s. 199.023(1)(a), and except notes, bonds, and other obligations for payment of money which are secured by mortgage, deed of trust, or other lien upon real property situated in the state;

   2. A nonrecurring tax of 2 mills on the dollar of the just valuation of all notes, bonds, and other obligations for payment of money, which are secured by mortgage, deed of trust, or other lien upon real property situated in the state.

      
      

      Respondent's primary position is that subsection two of the statute should apply in the present case but, in the alternative, respondent argues that subsection one is applicable. Petitioner denies any liability under either subsection.

      
      

      Section 199.032(2), Florida Statutes (1975)

      
      

7. Subsection two applies to the notes under consideration only if the notes "are secured by mortgage, deed of trust, or other lien upon real property situated in the state." Section 199.032(2), Florida Statutes (1975)(emphasis supplied). It is therefore necessary to decide whether the mortgaged leaseholds

   in the present case constitute real property, within the meaning of subsection two.

   
   

8. In keeping with the common law, Florida courts have treated leaseholds as personalty, for most purposes, in the absence of a statute to the contrary. Williams v. Jones, 326 So.2d 425, 433 (Fla. 1976) app. dism., 97 S. Ct. 34(1976); Gould, Inc. v. Hydro-Ski International Corp., 287 So.2d 115, 116 (Fla. 4th DCA 1974); Oliver V. Mercaldi, 103 So.2d 665, 668 (Fla. 2d DCA 1958); 20 FLA. JUR. Landlord and Tenant, 4("The interest of a tenant in a term for years is deemed at common law personal property as distinguished from real estate, however long its duration in years") But see Hillsborough County Aviation Authority v. Walden, 210 So.2d 193 (Fla. 1968); State Road Department v. White,

   148 So.2d 32 (Fla. 2d DCA 1962) cert discharged 161 So.2d 828 (Fla. 1964). Conceding that leaseholds between private parties constitute a species of personal property, respondent argues that long-term leaseholds created by governmental lessors like the Okaloosa Island Authority are a kind of real estate, at least for tax purposes, citing Straughn v. Camp, 293 So.2d 689 (Fla. 1974) and Williams v. Jones, 326 So.2d 425 (Fla. 1976) for this proposition. See also Volusia County v. Daytona Beach Racing and Recreational Facilities District, 341 So.2d 498 (Fla. 1976 reh. den. 1977); State Department of Revenue

   v. Gibbs, 342 So.2d 562 (Fla. 1st Dist. 1977). The Straughn v. Camp case and its progeny address the question of the proper treatment for real property ad valorem tax purposes of long-term leases from governmental entities where such leaseholds are devoted to private purposes.

   
   

9. Implementing Article VII, Section 10(c) of the 1968 Florida Constitution, the legislature enacted Section 196.001, Florida Statutes (1975), subjecting to ad valorem taxation "[a]ll leasehold interests in property . . . of the state, or any political subdivision . . . agency, [or] authority." Such leaseholds, when for 99 years or more, are to "be deemed to be 'owned'," Section 196.199(6), Florida Statutes (1975), for real property ad valorem tax purposes, i.e., they "are to be valued as though they were fee ownership and are to be treated like fee ownership in the collection process." State Department of Revenue v. Gibbs, 342 So.2d 562, 564 (Fla. 1st DCA 1977). In considering this matter, the courts have expressed concern that local government not arbitrarily be deprived of real property ad valorem taxes on land devoted to private uses. For example, in connection with a leasehold from the Okaloosa Island Authority that had been given over to commercial use, the Court inquired rhetorically:

If such a commercial establishment operated for profit on Panama City Beach, Miami Beach, Daytona Beach, or St. Petersburg Beach is not exempt from tax, then why should such an establishment operated for profit on Santa Rosa Island Beach be exempt? Williams v.

Jones, 326 So.2d 425, 433 (Fla. 1976)

Respondent argues that this body of ad valorem real property tax law establishes the general proposition, for all tax purposes, that the leasehold created by a lease from a governmental lessor is "real property."

10 Respondent's contention fails to take into account important differences between the statutes governing real property taxes and Section 199.032, Florida Statutes (1975), which governs intangible property taxes. Unlike the real property tax statutes, Section 191.032 makes no distinction whatsoever between leases contracted by private persons, and leases to which governmental entities are parties. Intangible property does not escape taxation

altogether, if it is secured by a lien on personalty, rather than on realty; so that the danger of a windfall exemption, which had been a problem in the real property tax area, does not exist with respect to intangible property taxation. There is no reason, in short, why the clear language of Section 199.032, Florida Statutes (1975), should not be given effect. This conclusion is buttressed by the history of Section 199.032; the original predecessor statute, Chapter 15789, Laws of Florida 1931, explicitly included intangibles secured by leases on realty, but that language has been omitted from subsequent amendments.

1. Inasmuch as subsection two does not apply in these circumstances, there is no necessity for reaching petitioner's argument that the statute of limitations would preclude collection of tax under subsection two.

   
   

   Section 199.032(1), Florida Statutes (1975)

   
   

2. Subsection one applies to "all intangible personal property," with only two exceptions, viz, money and intangibles to which subsection two applies. For the reasons set forth above, subsection two does not apply to the promissory notes involved here. Neither are these promissory notes money, within the meaning of the statute.

   
   

3. Petitioner contends that subsection one does not reach these promissory notes because petitioner is not a resident of Florida, and kept the notes outside the state. The legislature addressed this issue, in enacting Section 199.112, Florida Statutes (1975), which provides in part:

   
   

   All . . . notes . . . wherever situated, arising out of or issued in connection with the sale, leasing, or servicing of real or personal property in the state are subject to taxation under this chapter . . . the intent being . . . that no nonresident . . . shall transact business in the state without paying the same tax which the state would impose on residents transacting the same business . . .

   
   

   If a Florida bank, rather than a foreign bank, had made the loans evidenced by the notes in the present case, and encumbered leaseholds in Florida realty to secure repayment, there could be no question but that Section 199.032, Florida Statutes (1975), would require payment of tax. Section 199.112, Florida Statutes (1975) is well within constitutional boundaries. In any event, argument to the contrary should be addressed to the judiciary, rather than to the executive branch.

   
   

4. Petitioner argues that respondent is estopped from collecting any tax under Section 199.032, Florida Statutes (1975), because petitioner was entitled to rely on Rule 12-B-2.06(7), F.A.C.; on certain attorney general's opinions, e.g., No. 060-56; and on the failure of the clerk of the circuit court to require payment of tax upon recordation of the mortgages. The cited rule excludes leaseholds from the definition of real property, and the attorney general's opinions are to the same effect. Like the clerk's failure to require payment upon recordation, the rule and attorney general's opinions might offer some logical basis for estoppel as to subsection two, but cannot be said to afford a basis for estoppel as to subsection one. The very things petitioner argues it was justified in relying on in not paying the tax levied by subsection two should have put it on notice of its tax liability under subsection one.

5. Petitioner points out that Section 199.052, Florida Statutes (1975), does not explicitly require nonresidents to file tax returns. It is nonetheless clear, considering the chapter as a whole, that nonresidents are to file tax returns covering intangible property of the kinds specified by Section 199.112, Florida Statutes (1975). Tax liability under Section 199.032, Florida Statutes (1975) is , moreover, in no way contingent on the filing of a return.

   
   

6. In short, the notes in controversy are taxable under Section 199.032(1), Florida Statutes (1975).

RECOMMENDATION

Upon consideration of the foregoing, it is RECOMMENDED:

1. That petitioner's substantive tax liability for 1975 and 1976 be set, with respect to the Zeidman note, at seventy-three and twenty-nine hundredths dollars ($73.29 = 44.00 + 29.29).

   
   

2. That petitioner's substantive tax liability for 1975 and 1976 be set, with respect to the U.R.S. note, at three hundred forty-seven and eighty-seven hundredths dollars ($347.87 = 347.87 + 0.00).

DONE and ENTERED this 15th day of June, 1977, in Tallahassee, Florida.

ROBERT T. BENTON, II

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 15th day of June, 1977.

COPIES FURNISHED:

E. Wilson Crump, II, Esquire Assistant Attorney General The Capitol

Tallahassee, Florida 32304

William Guy Davis, Jr., Esquire Beggs and Lane

700 Brent Building Post Office Box 12950

Pensacola, Florida 32576

Docket for Case No: 77-000305

Orders for Case No: 77-000305