STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RALPH MONROE, JOHN ELOIAN, ALLEN ) WOLFSON AND 6804 MOTEL, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 78-800

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard pursuant to notice on May 23, 1978, in room 335, Hillsborough County Courthouse, Tampa, Florida, by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioners: Ralph Monroe

7211 North Dale Mabry Tampa, Florida 33613

For Respondent: Maxie Broome, Jr., Esquire

Assistant Attorney General The Capitol

Tallahassee, Florida 32304 ISSUE

This case was presented upon a petition by Ralph Monroe, John Eloian, Allen Wolfson and 6804 Motel, Inc. controverting the proposed tax assessments as presented in tax assessments M-65 and M-66. Both assessments relate to documentary stamp taxes assessed pursuant to the provisions of Sections 201.02, Florida Statutes. Evidence was presented at hearing regarding the transfer of an interest in real property from Ralph Monroe, John Eloian and Allen Wolfson (hereafter referred to as individual taxpayers) to 6804 East, Inc. and the subsequent transfer of the same interest in real property from 6804 East, Inc. to 6804 Motel, Inc. The proposed assessment of documentary stamp taxes is upon the conveyances in these two transfers. It was agreed by the parties there was no monetary consideration recited in either conveyance and that the proposed assessment of documentary stamp taxes is based upon the assumption of the mortgage indebtedness on the interest in the property assumed by the grantees.

It was further agreed that the total amount of the mortgage indebtedness was

$192,500 and that the taxes, if due, were upon $96,250. The taxpayers controverted the tax assessment of the documentary stamp taxes on the basis that there was no consideration in actuality because the two corporations were wholly owned by the individual taxpayers, who they assert remained at all times responsible for the indebtedness. The factual issue upon which a determination

in this case turns is whether there was consideration, as that term is used in Section 201.02, Florida Statutes.

FINDINGS OF FACT

1. The individual taxpayers purchased a motel giving not secured by a mortgage on the motel as a portion of the consideration paid to the grantors.

   
   

2. The individual taxpayers subsequently conveyed an undivided one-half interest in the motel to 6804 East, Inc., a corporation wholly owned by the individual taxpayers. Although no consideration was recited in the conveyance, the corporation assumed responsibility for 50 percent of the mortgage indebtedness which was stipulated to have been $96,250.

   
   

3. Subsequently, 6804 East, Inc. transferred the property to 6804 Motel, Inc., another corporation wholly owned by the individual taxpayers. Again, no consideration was recited in the conveyance; however, 6804 Motel, Inc. assumed responsibility from 6804 East, Inc. for 50 percent of the indebtedness on the property.

   
   

4. The Department of Revenue asserts that documentary stamp taxes are due on both of the transfers pursuant to Section 201.02, Florida Statutes, there having been only nominal documentary stamp taxes placed on the documents.

   
   

5. The individual taxpayers and 6804 Motel, Inc., controvert the assessment of taxes on the basis that there was no consideration because the individual taxpayers were never relieved of any responsibility for the debt because they fully owned the two corporations and because they had such an equity investment in the purchase that they could not stand aside and see the corporations default. 6804 Motel, Inc. also questions the assessment of the taxes against it as the grantee in the transfer from 6804 East, Inc.

   
   

6. In support of their arguments, the taxpayers introduced evidence that the individual taxpayers intended, prior to purchase, to convey an interest in the motel to 6804 East, Inc., and that after the transfer to 6804 Motel, Inc., the individual taxpayers paid all deficit operating expenses for the motel.

   
   

   CONCLUSIONS OF LAW

   
   

7. The ultimate question presented is whether there was consideration in the transfers made by the conveyances upon which the taxes are assessed. Section 201.02, Florida Statutes, provides for a documentary stamp tax on deeds and other writings transferring any interest in real property to a purchaser or other person at the purchaser's direction. The stamp tax is based upon the

   consideration given for the transfer at a rate of thirty cents for every $100 of consideration paid. When the full consideration is not shown on the face of the conveyance, the documentary stamp tax is at a rate of thirty cents for every

   $100 or fractional part thereof of the actual consideration. This has been interpreted by the courts to mean the actual value of the interest and real property without any deduction for the assumption of any liens or encumbrances on the property. See Rasberry v. Dickinson, 243 So.2d 236 and Kendall House Apartments, Inc. v. Department of Revenue, 245 So.2d 221.

   
   

8. Therefore, if there was a transfer and if there was a consideration given for the transfer, documentary stamps would have to be attached to the conveyances. Central to the discussion of the existance of consideration is the legal status of the parties to the transfer, specifically, the legal rights and

   the status of 6804 East, Inc. This corporation is a legal entity separate and apart from those of its individual directors and stockholders. A corporation has the status of a person for the purpose of owning property, transferring property, contracting, incurring debt, and paying debt. See 7Fla Jur Corporations, Section 208. Although 6804 East, Inc. was wholly owned by the individual taxpayers, the corporation was a separate legal being which could and did assume legal responsibility for one-half of the indebtedness on the motel which the parties agree was $96,250. 6804 East, Inc. was able to and did receive an undivided one-half interest in the motel and assumed responsibility for said indebtedness. Similarly, 6804 Motel, Inc. was a separate legal entity capable of transferring and receiving an interest in property and assuming and paying debts.

   
   

9. Consideration is the price bargained for and paid for a promise. In this instance, the assumption of 50 percent of the encumbrance on the motel is asserted by the Department to have been the consideration for the transfer. A test of whether consideration is sufficient is whether the act, the forbearance, or return promised results in a benefit to the promisor or a detriment to the promisee. Clearly agreeing to pay $96,250 worked a detriment to 6804 East, Inc. and subsequently to 6804 Motel, Inc. The individual taxpayers, as the only shareholders in the two corporations, assert that the responsibility for the debt did not shift and that they remained actually responsible. The laws of the state would insulate the taxpayers as shareholders of the corporations from corporate indebtedness unless it was shown that the corporation was formed for a fraudulent purpose. Therefore, in the absence of any fraud, the corporations legally assumed the indebtedness. As to the argument that the individual shareholders would rationally not prevent the default by their corporate alter egos because of their larger equity in their initial purchase, these relationships cannot be judged from the extrinsic facts surrounding the transaction but must be judged from the face of the conveyances. See State Department of Revenue v. McCoy Hotel, Inc., 302 So.2d 440 at 442. In addition, this argument is highly conjectural in that it is equally possible that the individual taxpayers might default on their share of the indebtedness but that revenues from the motel would be sufficient for the corporation to maintain payments on its share of the indebtedness.

   
   

10. Section 201.02, Florida Statutes, does not state who shall be responsible for payment of documentary stamp taxes. Therefore, the courts have determined that the tax may be assessed against either the grantor or the grantee. Consequently, 6804 Motel, Inc. may be assessed for the documentary stamp taxes due on the conveyance to it by 6804 East, Inc. of the undivided one- half interest in the motel.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law the Hearing Officer recommends that the petition of the taxpayers in this case is denied and that the documentary stamp taxes, as proposed in assessments M-65 and M-66, together with a 25 percent penalty and 1 percent interest per month on the unpaid tax be assessed.

DONE AND ORDERED this 3rd day of August, 1978, in Tallahassee, Florida.

STEPHEN F. DEAN

Hearing Officer

Division of Administrative Hearings 2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of August, 1978.

COPIES FURNISHED:

Ralph Monroe

7211 North Dale Mabry Tampa, Florida 33614

Maxie Broome, Jr., Esquire Assistant Attorney General The Capitol

Tallahassee, Florida 32304

Docket for Case No: 78-000800

Orders for Case No: 78-000800