STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

UITERWYK COLD STORAGE )

CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 77-1737

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter came on for hearing in Tampa, Florida, before the Division of Administrative Hearings by its duly designated Hearing Officer, Robert T. Benton, II, on February 2, 1978. The parties were represented by counsel:

APPEARANCES

For Petitioner: Ms. Edna Wilson, Esquire

Dixon, Shear, Brown, Lima & Moffitt 620 Twiggs Street

Tampa, Florida 33602

For Respondent: Mr. Harold F.X. Purnell, Esquire

Assistant Attorney General The Capitol

Tallahassee, Florida 32304

In its amended petition for hearing, petitioner alleged that respondent had assessed a sales tax on account of certain payments, aggregating $903,773.77, which respondent treated as payments of rent but which, according to petitioner, should properly have been treated as repayments of indebtedness.

FINDINGS OF FACT

1. Petitioner was organized because its principals perceived a need for a cold storage facility convenient to docks in Tampa where refrigerated cargoes were loaded on and off ships. Negotiations between petitioner and the Tampa Port Authority (TPA) resulted in EPA's leasing petitioner land suitable for such a facility for a term of 25 years, with options to renew the lease. After entering into a contract with a construction firm for erection of a cold storage facility on the land leased from TPA, petitioner sought to borrow money with which to pay for construction of the facility; but lenders petitioner approached objected that a loan could not be secured by a mortgage in the customary fashion, because petitioner did not own the land on which it proposed to build.

   
   

2. Mortgage bankers in New York suggested an arrangement to meet this objection and petitioner adopted the suggestion. A new corporation, Edward Stephen of Tampa, INC. (EST), was formed. The lease between petitioner and TPA

   was vacated; TPA leased the same land on the same terms to EST. Petitioner assigned all its rights under the construction contract to EST. EST borrowed the money for construction from a bank. When construction was completed, EST borrowed money from John Hancock Mutual Life Insurance Company (John Hancock) with which it repaid the bank loan.

   
   

3. Petitioner guaranteed repayment of John Hancock`s loan to EST. As an additional inducement to John Hancock, petitioner undertook certain obligations for the life of the loan, with respect to maintenance of a minimum ratio of current assets, minimum working capital, and minimum net worth; petitioner made further undertakings which were similarly designed to increase the likelihood of petitioner's being able to repay John Hancock, in the event of EST's default.

   
   

4. Once the cold storage facility was ready for use, EST subleased the property to petitioner. EST used petitioner's payments under the sublease to repay John Hancock, and continues to do so. If petitioner should fail to make the agreed payments under the sublease, EST would he unable to make repayments under its loan agreement with John Hancock, but EST could take possession of the cold storage facility in accordance with Section 30 of the sublease, in much the same way any lessor can dispossess his lessee for a material failure to abide by the terms of the lease.

   
   

5. The sublease by EST to petitioner was entered into in conjunction with an option to purchase, a separate document which was subsequently amended. By virtue of the amended option to purchase, petitioner gained the right to acquire title to the cold storage facility, free of all claims except TPA's title to the fee, by paying EST at specified times an amount equivalent to what EST would have to pay John Hancock as full repayment of the loan, plus incidental sums to make EST whole. In this respect, the transaction resembles a loan by John Hancock to petitioner, with provision for prepayment.

   
   

6. Petitioner carries the cold storage facility on its books as a capital asset against which depreciation is charged. Petitioner treats its payments to EST under the sublease as though they were repayments of the loan from John Hancock, allocating appropriate portions to principal and interest. On advice of counsel, the transaction is treated in the same fashion for federal income tax purposes.

   
   

   CONCLUSIONS OF LAW

   
   

7. Section 212.031, Florida Statutes (1977), levies a tax "in the amount equal to 4 percent of and on the total rent charged for [commercial] real property." Section 212.031(1) Florida Statutes (1977). Although the lessor has a statutory obligation to collect this tax, the rule is that a lessee of commercial property who "cannot prove that the tax . . . has been paid to his

   . . . lessor shall be directly liable to the state for any tax, interest, or penalty due . . ." Section 212.07(9), Florida Statutes (1977). Petitioner does not contend that it has paid the tax.

   
   

8. Originally, petitioner confronted lenders' objections that, in the event of default on repayment of the lien, they would be left to the uncertain remedy of foreclosure on real estate owned by an instrumentality of a sovereign, in no way indebted to them. By creating an intermediary to lease the land from EPA and to sublease the premises to petitioner, a lender who controlled the intermediary in the event of default had available the familiar remedy of eviction or, in the words of the sublease, the right to "enter upon and repossess the leased Property, by force, summary proceedings, ejectment or

otherwise." Joint exhibit No. 2, p. 32. Regardless of whether these considerations or others accounted for petitioner's subleasing from EST, the fact remains that petitioner entered into the sublease and the payments made to EST under the agreement constitute rental payments.

RECOMMENDATION

Upon consideration of the foregoing, it is RECOMMENDED:

That petitioner pay respondent 4 percent of all sums paid by petitioner to Edward Stephen of Tampa, Inc., under the agreement embodied in Joint Exhibit No. 2, together with interest calculated in accordance with the rule laid down in Lewis v. Creative Developers, Ltd., 350 So.2d 828 (Fla. 1st DCA 1977)

DONE and ENTERED this 6th day of March, 1978, in Tallahassee, Florida.

ROBERT T. BENTON, II

Hearing Officer

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

(904) 488-9675

COPIES FURNISHED:

Ms. Edna Wilson, Esquire Dixon, Shear, Brown, Lima

& Moffitt

620 Twiggs Street

Tampa, Florida 33602

Mr. Harold F.X. Purnell, Esquire Assistant Attorney General

The Capitol

Tallahassee, Florida 32304

Docket for Case No: 77-001737

Orders for Case No: 77-001737