Judges: CHARLES C. ADAMS
Agency: Department of Revenue
Latest Update: Nov. 29, 1977
Summary: Whether or not Ralph Pinkerton was the owner of an account receivable or in the alternative, had made a "gift" by a shareholder's contribution to capital, from and to the corporation known as Pinkerton-Hays Lumber Co., Inc., in the calendar years 1974, 1975 and 1976; and further whether or not Ralph Pinkerton is liable for intangible tax for the calendar years 1974, 1975 and 1976, as determined by the Department of Revenue, premised upon the alleged ownership of an account receivable or "gift" t
Summary: Whether or not Ralph Pinkerton was the owner of an account receivable or in the alternative, had made a "gift" by a shareholder's contribution to capital, from and to the corporation known as Pinkerton-Hays Lumber Co., Inc., in the calendar years 1974, 1975 and 1976; and further whether or not Ralph Pinkerton is liable for intangible tax for the calendar years 1974, 1975 and 1976, as determined by the Department of Revenue, premised upon the alleged ownership of an account receivable or "gift" to Pinkerton-Hays Lumber Co., Inc.Petitioners claim no tax liability for "gift" or account receivable on personal loan made for benefit of corporation. Respondent proved liability.
More
vs. ) CASE NO. 77-996
Respondent. )
Pursuant to notice a hearing was held before Charles C. Adams, a Hearing Officer with the Division of Administrative Hearings, at the Conference Room, Suite 205, 6501 Arlington Expressway, Jacksonville, Florida, at 10:00 A.M., August 26, 1977.
For Petitioner: Horace R. Drew, Jr., Esquire
For Respondent: David K. Miller, Esquire
Whether or not Ralph Pinkerton was the owner of an account receivable or in the alternative, had made a "gift" by a shareholder's contribution to capital, from and to the corporation known as Pinkerton-Hays Lumber Co., Inc., in the calendar years 1974, 1975 and 1976; and further whether or not Ralph Pinkerton is liable for intangible tax for the calendar years 1974, 1975 and 1976, as determined by the Department of Revenue, premised upon the alleged ownership of an account receivable or "gift" to Pinkerton-Hays Lumber Co., Inc.
This cause comes on for consideration based on the petition filed by Ralph Pinkerton and Lillian S. Pinkerton, which challenges the determination made by the Department of Revenue of the State of Florida, that the Petitioner, Ralph Pinkerton is the holder of an account receivable from the corporation, known as Pinkerton-Hays Lumber Co., Inc., a Florida corporation, in the calendar years 1974, 1975 and 1976. The petition further challenges the determination by the Department of Revenue of the State of Florida that the taxpayers Ralph and
Lillian Pinkerton are liable for intangible taxes for the calendar years 1974, 1975 and 1976, in addition to the liability shown on their tax returns for those years. Respondent's Composite Exhibit number 5, admitted into evidence, contains copies of the intangible tax returns of the Petitioners together with the intangible tax audit and input document for those subject years, as prepared by the Respondent. These audits form the basis for the Respondent's claim to additional intangible taxes. The general statutory authority asserted is section 199.232, F.S., and section 199.052(8), F.S. This intangible tax audit for the three years in question, and subsequent assessment is premised specifically on the Respondent's claim that the Petitioners are subject to an annual one mill tax on the interest income of the alleged account receivable.
The Respondent claims that such an account receivable is taxable under the terms of Section 199.023(1)(d) and Section 199.122(5), F.S. The Respondent continued to claim this theory of taxation until the date of the hearing.
At the hearing, the Respondent suggested a second or alternative theory of taxation. That theory was that the Petitioner, Ralph Pinkerton, had made a "gift" to the Pinkerton-Hays Lumber Co., Inc., in the form of a shareholder's contribution to capital. This contribution, according to the Respondent, then becomes the shareholder's equity in the form of capital surplus, which would be subject to tax based upon the value of that equity effective January 1 of each calendar year. This holding, by the Respondent's alternative claim of taxation would be taxable under Section 199.023(1)(b) and Section 199.122(3), F.S.
The Petitioners object to either theory of taxation. They object to the initial theory or taxation under the "account receivable concept" based upon the argument that in substance and actuality the transaction which fostered the funds involved in the alleged account receivable involved a loan from Monticello Production Credit Association to Pinkerton-Hays Lumber Co., Inc., and according to the Petitioners they are not liable for Florida intangible personal property taxes on that transaction. The Petitioners object to the "gift" theory of taxation upon the preceding ground, and upon the ground that they were not duly noticed of any alternative theory of taxation prior to the hearing and should not be called upon to address such a theory. For reasons stated in the conclusions of law section of this recommended order the Respondent is allowed to advance the "gift" theory of taxation in the course of this proceeding.
The transaction referred to in the synopsis of the position of the parties, is a loan made from the Monticello Production Credit Association to Ralph Pinkerton. (The Monticello Production Credit Association is now known as the Big Bend Production Credit Association.) The written note entered into between the Petitioner Ralph Pinkerton and the Credit Association can be found in Respondent's Exhibit number 1, admitted" into evidence. Briefly, the terms are that Ralph Pinkerton will pay $64,000.00 per year beginning May 1, 1973 and ending May 1, 1979 and interest will be determined in accordance with the terms of the note. The total amount of the loan is $448,000.00, subject to appropriate deductions of the lending institution. It is the stated contention that the proceeds of that loan were to be used as financial assistance to operate the Pinkerton-Hays Lumber Co., Inc., which is a sawmill operation. Pinkerton further states that the reason that he approached the Production Credit Association was because he was unable to borrow money from local banks to finance the lumber company's business, due to the poor collateral position of a sawmill. The Monticello Production Credit Association was only allowed to loan money to individuals, and this is why Ralph Pinkerton claims that the Pinkerton- Hays Lumber Co., Inc., was not obligated on the note, in its name.
Intangible personal property taxes were paid on the aforementioned note from Pinkerton to the Monticello Production Credit Association, and those taxes constitute the sole amount of intangible personal property taxes that have been paid to the Respondent under the terms and conditions of the loan obligation and events that transpired subsequent to the loan. Other features of the loan, include a vote by the stockholders and directors of Majet, Inc., to mortgage and put up as security 2,956 acres of land in Taylor and Madison counties, Florida for the loan from Monticello Production Credit Association to Ralph Pinkerton. A condition to this pledge of security was that Pinkerton-Hays Lumber Co., Inc., be willing to guarantee the said mortgage. The minutes of this Board of Directors meeting which occurred on May 18, 1972 is a part of Petitioner's Composite Exhibit "E", admitted into evidence. In fact, the land was mortgaged as security for the loan. (The Majet Corporation has 100 shares of common stock outstanding, 1 share of which is owned by Ralph Pinkerton; 97 shares are owned by Pinkerton-Hays Lumber Company Inc.; 1 share is owned by John H. Parker, Jr., and 1 share is owned by Byron Butler. Pinkerton-Hays Lumber Co., Inc., has 50 shares of stock and Ralph Pinkerton owns 48 of those shares. Lillian Pinkerton owns 1 share of stock in Pinkerton-Hays Lumber Company, Inc.)
On the same date that Majet's, Inc., stockholders and directors met; the stockholders and directors of Pinkerton-Hays Lumber Company, Inc., met and as reflected in the minutes of the meeting which is part of Composite Exhibit "E", admitted into evidence; discussion was entered into on the subject of the loan from the Monticello Production Credit Association to Ralph Pinkerton. The amount stated in the meeting was $400,000.00. It was also stated in the minutes that the Monticello Production Credit Association desired and insisted as a condition of the loan that Pinkerton-Hays Lumber Company, Inc., guarantee the payment of said loan. In reality, as shown by the stipulation filed by the parties after the conclusion of the hearing, (which stipulation is made a part of this record), the Monticello Production Credit Association relied upon this statement in the corporate minutes of Pinkerton-Hays Lumber Company, Inc., dated May 18, 1972, as constituting a guarantee for the loan previously described up to the amount of $400,000.00. However, there was no insistance that this guarantee be made and the Monticello Production Credit Association indicated that such guarantee is not normally required, and in the case of the loan in question will be considered as a circumstance in the borrower's favor, according to the Association.
The proceeds of the loan were taken by Ralph Pinkerton and placed into a special bank account in the name of Ralph Pinkerton and Pinkerton-Hays Lumber Company, Inc. No note or other obligation was signed indicating a loan from Pinkerton to the corporation. The proceeds were however, carried on the corporation's books as a liability. It was shown as a liability in the sense of being reported as a loan from the Monticello Production Credit Association to the Pinkerton-Hays Lumber Company, Inc. The corporation's books and intangible tax returns for the years 1974, 1975 and 1976, which returns are found in Composite Exhibit number 6, admitted into evidence, do not indicate any form of loan from a stockholder to the corporation. Nonetheless, the company used the proceeds of the loan and Ralph Pinkerton made no use of those proceeds, in his individual capacity.
In the year 1974 when the payment to Big Bend Production Credit Association came due, Pinkerton-Hays paid Ralph Pinkerton and he in turn paid Big Bend Production Credit Association. These payments were by separate drafts. In 1975 and 1976, Ralph Pinkerton paid Big Bend Production Credit Association when the annual payment came due and in turn was paid by Pinkerton-Hays for the amount of the loan due in that year, without the benefit of any interest which
had accrued between the time that Pinkerton had paid the Association and Pinkerton-Hays had paid him. The individual Income tax returns of Ralph and Lillian Pinkerton for the years 1974, 1975 and 1976 found consecutively as Respondent's Exhibits number 2, number 3, and number 4, admitted into evidence, reflect the interest paid by Ralph Pinkerton to Big Bend Production Credit Association and the interest income received from Pinkerton-Hays Lumber Company, Inc., for those three years. It is he alleged interest income which the Respondent seeks to place an intangible tax against for the years 1974, 1975 and 1976.
Under these facts the Petitioners assert that there has been only one transaction in which Ralph Pinkerton acted to borrow money in his Individual name for the benefit of Pinkerton-Hays Lumber Company, Inc. Furthermore, they state that it is only because of the special circumstances that Pinkerton-Hays did not enter into its own loan agreement. The Petitioners go on to assert that the Pinkerton-Hays carried the loan on its books and records as a loan directly from the Production Credit Association, and because of this no debtor account as payable to Ralph Pinkerton exist. The loan proceeds by their view have been used by Pinkerton-Hays and not by Ralph Pinkerton individually. Under this circumstance the Petitioners are of the persuasion that Ralph Pinkerton acted as an accommodation maker for Pinkerton-Hays and they offer as authority the case of Coast National Bank v. Bloom, 174 A. 576, 578, 579; 113 N.J. law 597; 95
A.L.R. 528. For further authority they cite, Section 673.415(5), F.S. which states:
"An accommodation party is not liable to the party accommodated, and if he pays the instrument has the right of recourse on the instrument against such party."
Under the Petitioners' view since he is an accommodation maker, Ralph Pinkerton has not made a loan to the corporation. Finally, because the intangible tax was paid on the recording of the note from Ralph Pinkerton to Monticello Production Credit Association, to the Petitioners this is a non-reoccurring tax. No further tax is due, by their rationale.
As stated before the Respondent's theory of taxation resides under alternative theories of treating the loan proceeds as an account receivable or gift. The Respondent perceives the treatment of the loan proceeds as a two step transaction, whereas the Petitioner treats the matter as a loan from Monticello Production Credit Association to Pinkerton-Hays Lumber Company, Inc., from the Respondent's point of view the first step of the transaction is the loan made from Monticello Production Association to Ralph Pinkerton and the second step is the loan or gift from Ralph Pinkerton to Pinkerton-Hays Lumber Company, Inc. To the Respondent, there is no accommodation maker because Section 673.401(1), F.S., reads that:
"No person is liable on an instrument unless his signature appears thereon."
therefore Ralph Pinkerton is the sole obligor on the note. In addition says the Respondent, Section 673.415(1), F.S., states:
"An accommodation party is one who signs the instrument in any capacity for the purpose of lending his name to another party to it."
On that basis, under the argument of the Respondent, Ralph Pinkerton can not be an accommodation maker, unless the company also is the maker of the note.
Examining the "conduit" position of Ralph Pinkerton, the Respondent argues that the Petitioners appear to be attempting to act as the alter ego of the corporation and to "pierce the corporate veil" in an inverted sense. By the Respondent's view point, you can note disregard the existance of Ralph Pinkerton as an entity and the existance of Pinkerton-Hays Lumber Company, Inc., as an entity. As an individual entity, Ralph Pinkerton is responsible for the actions of his individual existance to include the payment of intangible taxes on property owned, whether they be in the form of accounts receivable or equity in stock, according to the Department of Revenue. For this proposition, the Respondent cites the cases of Marks v. Green, 122 So.2d 491 (Fla. 1st D.C.A.
1960); Moline Properties, Inc. v. Comm'r of Internal Revenue, 319 U.S. 436 (1943) and Dept. of Revenue v. DeMaria, 338 So.2d 838 (Fla. 1976).
In considering the arguments of both parties, and in view of the underlying facts, it is apparent that there are two separate transactions. The first transaction involves a loan from Monticello Production Credit Association to Ralph Pinkerton, solely. This created a liability on the part of Ralph Pinkerton to Monticello Production Credit Association. In spite of the action that Pinkerton-Hays Lumber Company, Inc., stockholders and directors took and the fact that Pinkerton-Hays Lumber Company Inc., owns 97 out of 100 shares of the stock of Majet, Inc., which gave the security on the loan; Pinkerton-Hays Lumber Company, Inc., is not legally responsible for the repayment of the loan. Moreover, even though the loan proceeds were used for the benefit of Pinkerton- Hays, there was no legal obligation to use the money for those purposes. Ralph Pinkerton could have used the proceeds for any purpose desired. Under the circumstances, he placed the money into an account in his name and that of Pinkerton-Hays and in effect loaned those proceeds to the lumber company in the years 1974, 1975 and 1976 in return for payment of principle and interest. By his action he has not acted as an accommodation maker within the meaning of Section 673, F.S., but had made a loan to Pinkerton-Hays. This loan was a separate and distinct transaction from the loan from Production Credit Association to Ralph Pinkerton. The facts which show that the money was tendered to Pinkerton-Hays from the account of Ralph Pinkerton and Pinkerton- Hays, and that subsequent repayment was made in the subject years in the amount of principle and interest, negates the alternative "gift" theory advanced by the Respondent. To be a gift, Ralph Pinkerton would have had to advance the proceeds of the loan to Pinkerton-Hays; continued to be obligated to the lender, Production Credit Association, and not received any payment from Pinkerton-Hays in like amounts to his obligation to the lender. This is not what occurred in view of the facts, as evidenced by the clear treatment of the interest income received by Ralph and Lillian Pinkerton from Pinkerton-Hays, that is reflected in their income tax returns for the years 1974, 1975 and 1976.
Therefore Ralph and Lillian Pinkerton are liable for payment of intangible taxes in the years 1974, 1975 and 1976 in accordance with Section 199.023,(1)(d) and Section 199.122(5), F.S.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction in this cause.
In the course of the hearing, the Respondent, Department of Revenue of the State of Florida, attempted to advance a possible alternative theory of taxation, which they referred to as the "gift" theory. It was contended that
the Respondent was entitled to intangible tax premised upon the fact that the proceeds given to the Pinkerton-Hays Lumber Company, Inc., might constitute a shareholder's contribution to capital therefore becoming shareholder's equity and in accounting terms capital surplus. If the proceeds were so characterized, according to the Respondent, this equity would be subject to intangible tax at the value on January 1 of each year in accordance with Section 199.023(1)(b) and Section 199.122(3), F.S. This attempt at advancing the theory was objected to by the Petitioner, because the Petitioner felt that he was not duly noticed about the theory prior to the hearing. It is the ruling of the undersigned that the "gift" theory was duly joined in the proceeding and was a proper subject for consideration in the course of the hearing.
The Respondent objected to the admission of the Petitioner's Exhibit's A" through "E". These exhibits are admitted subject to the correction found in the Written stipulation entered into between the parties which pertains to Exhibit "E".
The Petitioner objected to the admission of Respondent's Exhibits number 2, number 3, number 4 and number 6. These exhibits are admitted.
Based upon an examination of the facts in this cause it is concluded as a matter of law that the Petitioners, Ralph and Lillian Pinkerton, are liable for the payment of intangible taxes in the years 1974, 1975 and 1976 as set forth in the Respondent's Composite Exhibit number 5, which establishes the tax audit and are further liable for the penalties and interest that pertain, all in accordance with Section 199.023(1)(d), Section 199.052(8), Section 199.122(5), and Section 199.232, F.S.
It is recommended that the Petitioners, Ralph and Lillian Pinkerton, be required to pay the intangible taxes as assessed for the years 1974, 1975 and 1976 reflected in the tax audit of August 24, 1977 which is part of Respondent's Composite Exhibit number 5.
DONE AND ENTERED this 20th day of September, 1977, in Tallahassee, Florida.
CHARLES C. ADAMS
Horace R. Drew, Jr., Esquire 1120 Florida Title Building Jacksonville, Florida 32202
David K. Miller, Esquire Assistant Attorney General Department of Legal Affairs The Capitol
