STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FIRST UNION NATIONAL )

BANK OF FLORIDA, )

)

Petitioner, )

)

vs. ) CASE NO. 95-5124

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Following notice to all parties, Don W. Davis, a Hearing Officer for the Division of Administrative Hearings, held a final hearing in the above-styled case on April 29, 1996, in Jacksonville, Florida.

APPEARANCES

For Petitioner: William W. Gallogly, Esquire

First Union Corporation, Legal Division

225 Water Street Jacksonville, Florida 32202

For Respondent: Scott M. Covell, Esquire

Department of Legal Affairs Tax Section, The Capitol

Tallahassee, Florida 32314-6668 STATEMENT OF THE ISSUE

Whether Petitioner is liable for documentary stamp obligations due and unpaid by the original holder upon a promissory note and mortgage currently held by Petitioner by virtue of assignment of the asset from the Federal Deposit Insurance Corporation (FDIC), the Receiver of an insolvent national bank.

PRELIMINARY STATEMENT

By Petition For Formal Hearing dated October 17, 1995, Petitioner challenged Respondent's assessment of tax and penalty for unpaid documentary stamps.

On October 20, 1995, the matter was referred to the Division of Administrative Hearings for the conduct of formal proceedings.

Following the granting of continuances requested by the parties, final hearing was eventually convened on April 29, 1996, at which time the parties jointly presented 11 exhibits.

Respondent also sought official recognition of an additional exhibit at the final hearing over Petitioner's objection. Ruling upon the request for official recognition of the exhibit, a copy of a certified copy of a document from judicial records of the Dade County, Florida Circuit Court, was deferred. Upon reflection and review, official recognition is granted the exhibit, designated as Respondent's exhibit one, in that the thrust of Petitioner's objection is to the lack of relevance of the entire document, notwithstanding that some portions of the document were jointly stipulated into evidence by the parties as part of other exhibits also admitted at final hearing.

In addition to the joint exhibits, Petitioner presented the testimony of one witness, William W. Gallogly. Respondent also presented testimony of one witness, James Silvey.

A transcript of the final hearing was filed with the Division of Administrative Hearings on May 16, 1996. The parties requested and were granted leave to submit proposed recommended orders more than ten days after receipt of the transcript of the final hearing, thereby waiving provisions of Rule 28- 5.402, Florida Administrative Code. Proposed findings of fact submitted by the parties have been reviewed and are addressed in the appendix to this recommended order.

FINDINGS OF FACT

Stipulated Facts

Findings contained in paragraphs 1-28, were stipulated to by the parties.

1. Gary D. Miller and Katherine A. Miller made a note to Southeast Bank (Southeast) dated March 27, 1990, in the stated amount of $80,000 (the Note).

   
   

2. Gary D. Miller and Katherine A. Miller (the Millers) executed a Future Advance Note, Modification and Cross-Collateralization Agreement (the Mortgage) in favor of Southeast dated March 27, 1990, and recorded in Volume 4178, page 2981, of the official records of Orange County, Florida.

   
   

3. Southeast was doing business and in good standing on March 27, 1990.

   
   

4. The Note was consolidated with a promissory note made by the Millers dated June 7, 1988 in the stated amount of $350,000 and replaced by a Consolidated Replacement Note dated April 9, 1991, in the stated amount of

   $371,250 (the Consolidated Note).

   
   

5. The Consolidated Note was defined and secured in a Mortgage Modification Agreement between Southeast and the Millers dated April 9, 1991 and recorded at volume 4278, page 0065 of the official records of Orange County, Florida.

   
   

6. Southeast was doing business and in good standing on April 9, 1991.

   
   

7. First Union National Bank of Florida (First Union) is the owner and holder of the Note, the Consolidated Note and the Mortgage identified in paragraphs 1,2, and 4 above.

   
   

8. The Department timely assessed documentary stamp taxes on the Note. The assessment covers the Consolidated Note.

9. There is no evidence that documentary stamps are attached or affixed to the Note, the Consolidated Note or the Mortgage.

   
   

10. No documentary stamp tax were paid on the Note, the Consolidated Note or the Mortgage.

    
    

11. The Office of the Comptroller of the currency declared Southeast insolvent and appointed the FDIC as receiver for Southeast on September 19, 1991.

    
    

12. The FDIC, as receiver, became the owner and holder of all of the promissory notes and mortgages formerly held by Southeast.

    
    

13. The FDIC (as Receiver of Southeast, and corporately) and First Union entered into an Assistance Agreement dated September 19, 1991, under which the FDIC, as Receiver, sold and assigned to First Union the Consolidated Note and the Mortgage.

    
    

14. The FDIC, as Receiver, executed an Assignment of Mortgage, subsequently filed in volume 588, page 589, of the official records of Orange County, Florida.

    
    

15. First Union is not the same entity as Southeast (by name or otherwise).

    
    

16. First Union purchased no portion of the stock ownership of Southeast, rather First Union purchased only those assets and liabilities of Southeast detailed in the Assistance Agreement.

    
    

17. Under terms of the Assistance Agreement, First Union expressly assumed only certain specified liabilities.

    
    

18. First Union did not expressly assume any liabilities of Southeast relating to payment of taxes under Chapter 201, Florida Statutes.

    
    

19. Under the terms of the Assistance Agreement, the FDIC and First Union contractually agreed that the FDIC would indemnify First Union for "costs, losses, liabilities, expenses, judgments, fines and amounts paid in settlement reasonably incurred in connection with claims against" First Union based upon a liability of Southeast that was not expressly assumed by First Union.

    
    

20. A claim entitling First Union to indemnification from the FDIC under the terms of the Assistance Agreement is a claim for a liability for "taxes" of Southeast.

    
    

21. The definition of "taxes" in the Assistance Agreement includes stamp taxes imposed by states, including interest and penalty.

    
    

22. By a Notice dated January 5, 1995, Respondent issued an Official Request for Information to "Southeast Bank, National Association, First Union Bank/Barbara H. Smith."

    
    

23. On March 1, 1995, Respondent issued to "Southeast Bank, NA, First Union Bank, N.A." a Notice of Intent to Make Documentary Stamp Tax and Discretionary Surtax Audit (the Notice of Audit).

    
    

24. The Notice of Audit was received by First Union on March 22, 1995.

25. First Union timely responded to the Notice of Audit by letter dated May 31, 1995, stating that "any transaction prior to September 19, 1991, which might precipitate liability becomes the responsibility of the FDIC."

    
    

26. Respondent treated the May 31, 1995 letter of First Union as a protest of the audit.

    
    

27. On June 20, 1995, Respondent issued to "Southeast Bank, N.A.-First Union Bank, N.A." a Notice of Proposed Assessment of $150.00 representing tax and interest on the original $80,000 note of March 27, 1990, or an assessment of tax and interest on the Consolidated Note.

    
    

28. Southeast Bank remains under the receivership of the FDIC.

    
    

    Additional Facts

    
    

29. FDIC's sale of the Note and Consolidated Note to First Union under terms of the September 19, 1991 Assistance Agreement imbued First Union with ownership rights inclusive of the right to receive payments of principal and interest on the Note and Consolidated Note, as well as the right to foreclose on the makers of the Note and Consolidated Note for nonpayment.

    
    

30. Neither the Note or Consolidated Note qualify for exemption from documentary stamp taxes levied pursuant to provisions of Chapter 201, Florida Statutes.

    
    

31. Documentary stamp taxes constitute an excise tax on documents, as opposed to a tax on the underlying transaction.

    
    

    CONCLUSIONS OF LAW

    
    

32. The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes.

    
    

33. The gravamen of Petitioner's argument is that FDIC receivership of the assets subsequently purchased by Petitioner in the instant case, operated to totally extinguish pre-existing liability for unpaid documentary stamp taxes on the Note and Consolidated Note. Petitioner's argument is unpersuasive.

    
    

34. Although 12 U.S.C.A. Section 1825(b), clearly provides exemption to FDIC, in its capacity of receiver, from state taxes, that exemption does not expressly extend to subsequent asset holders such as Petitioner. Congressional enactment of 12 U.S.C.A. 1823(d)(3)(A) to expressly extend these protections to FDIC in its corporate capacity further emphasizes that omission of such exemption to entities such as Petitioner in the instant case was not a casual oversight.

    
    

35. Property burdened by tax liabilities and penalties attaching before the initiation of receivership (as present in this case) remains subject to such burdens in the hands of an assignee. Carrolton-Farmers Branch Independent School District v. Federal Deposit Insurance Corp., 776 F.Supp. 1180 (N.D. Tex. 1991); affirmed in Irving Independent School District v. Packard Properties, 970 F.2d 58 (5th Cir. 1992).

    
    

36. The Note and Consolidated Note, both covered in the assessment of documentary stamp taxes, are "promissory notes" or "written obligations to pay

    money" made in the state and as such are subject to documentary stamp taxes. Section 201.08, Florida Statutes.

    
    

37. Notwithstanding Petitioner's attempts to argue the rights of FDIC as receiver in this matter, FDIC is not a party and Petitioner is without standing to make such arguments. The sole issue presented is whether Respondent properly assessed Petitioner.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered upholding Respondent's full assessment of tax and penalty against Petitioner.

DONE and ENTERED in Tallahassee, Florida, this 25th day of June, 1996.

DON W. DAVIS, Hearing Officer Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 25th day of June, 1996.

APPENDIX

In accordance with provisions of Section 120.59, Florida Statutes, the following rulings are made on the proposed findings of fact submitted on behalf of the parties.

Petitioner's Proposed Findings

Petitioner's proposed findings (other than the 28 paragraphs of stipulated findings of fact) consisted of seven paragraphs denominated by letters A-G. No citation to the record was included in these proposed findings. Accordingly, the proposed findings, while reviewed and addressed to the extent possible by the foregoing findings of fact, are rejected.

Respondent's Proposed Findings

1.-28. Stipulated facts adopted.

29.-32. Adopted, although not verbatim.

COPIES FURNISHED:

William W. Gallogly, Esquire First Union Corporation Legal Division

225 Water Street Jacksonville, Florida 32202

Scott M. Covell, Esquire Dept. of Legal Affairs The Capitol - Tax Section

Tallahassee, Florida 32314-6668

Linda Lettera, Esquire Department of Revenue

204 Carlton Building Tallahassee, Florida 32399-0100

Larry Fuchs, Executive Director Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 95-005124

Orders for Case No: 95-005124