STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
HERNANDO COUNTY, A POLITICAL SUBDIVISION OF THE STATE OF FLORIDA,
Petitioner,
vs.
DEPARTMENT OF REVENUE,
Respondent.
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) Case No. 11-2786
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RECOMMENDED ORDER
An administrative hearing was conducted in this case on September 23, 2011, in Brooksville, Florida, before
James H. Peterson, III, Administrative Law Judge with the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Geoffrey Kirk, Esquire
Hernando County Attorney’s Office
20 North Main Street, Suite 462 Brooksville, Florida 34601-2850
For Respondent: John Mika, Esquire
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050
STATEMENT OF THE ISSUE
Whether the "Additional Payment" made by Hernando HMA, Inc., d/b/a Brooksville Regional Hospital to Hernando County pursuant to a document entitled Lease Agreement, as amended,
constitutes "rent" subject to sales tax under section 212.031, Florida Statutes.1/
PRELIMINARY STATEMENT
The Department of Revenue (Department or Respondent) issued a Notice of Proposed Assessment dated December 21, 2010, to Hernando County (County or Petitioner). The County timely filed a petition for formal administrative hearing contesting the assessment.
The petition was referred to the Division of Administrative Hearings (DOAH) on or about May 31, 2011. DOAH Case No. 11-2786 was assigned. By Order dated June 17, 2011, this matter was scheduled for a final hearing to be held on August 10, 2011.
Following an Order granting the parties' Agreed Motion to Continue Final Hearing, an Order Re-scheduling Hearing for September 23, 2011, was entered.
At the hearing, the Department proceeded first to show the factual and legal basis of the proposed assessment. The Department presented the testimony of one witness and submitted two exhibits which were received into evidence as Exhibits R-1 and R-2. Thereafter, the County presented the testimony of four witnesses and submitted 14 exhibits which were received into evidence as Exhibits P-1 through P-14.
The proceedings were recorded and a transcript was ordered. At their request, the parties were given 30 days from the filing
of the transcript within which to file their proposed recommended orders. A one-volume Transcript of the proceedings was filed on October 7, 2011. Thereafter, both the Department and the County timely filed their respective Proposed Recommended Orders, which have been considered in the preparation of this Recommended Order.
FINDINGS OF FACT
Hernando HMA, Inc. (HMA) is a for-profit entity which operates Brooksville Regional Hospital, Spring Hill Regional Hospital, and other entities, as successor to an entity that was in Chapter 11 bankruptcy proceedings from 1993 to 1998, Regional Healthcare, Inc. (RHI).
The Department is an agency of the State of Florida that has been delegated the responsibility to collect sales and use taxes imposed by chapter 212, Florida Statutes.
In 1998, as part of RHI's bankruptcy plan, HMA and the County entered into various agreements, including a lease agreement (1998 Lease), regarding the use and operation of several RHI hospital properties and improvements owned by the County, and leased back to RHI.
Under the 1998 Lease and other agreements, HMA agreed to continue to operate the hospital facilities for 30 years with possession of the real property and improvements to be returned to the County at the end of the lease term.
Section 1.2W. of the 1998 Lease defined "Rental Payment" as follows:
"Rental Payment" means all payments due from Lessee to Lessor or otherwise required to be paid by Lessee pursuant to the terms of this lease.
The 1998 Lease further provided in section 3.3 under the heading "Rent":
The annual rental payment of the Leased Premises for each year of the Lease Term (the "Rental Payment") shall be in the amount of Three Hundred Thousand and 00/100 Dollars ($300,000). This Rental Payment shall be paid to Lessor by Lessee on the Commencement Date and on each anniversary date of the Commencement Date during the Lease Term.
The 1998 Lease also provided that HMA, as Lessee, would pay "all taxes, if any, prior to delinquency."
Under the 1998 Lease, the County agreed to lease the premises in consideration of HMA’s timely payment of rent and timely performance of the other covenants and agreements required under the lease. It was an “event of default” under the lease if HMA failed to observe and perform any covenant, condition, or agreement on its part which could be cured by a payment of money.
Remedies for default under the 1998 Lease included termination of the lease by the County and exclusion of HMA from possession of the leased premises.
Even though the leased premises under the 1998 Lease were not subject to ad valorem taxes because they were owned by the County, during public discussions of the proposed 1998 Lease, an issue arose about HMA's responsibility for payment of fire assessments that would have been paid if the property was not immune or exempt from ad valorem taxes. HMA agreed, by separate agreement, to pay the fire assessments and buy a new ambulance to serve the community. The fire assessment agreement was by separate document that was included as part of the closing of the 1998 Lease and other agreements involving the hospital facilities in June 1998. The 1998 Lease was dated
June 1, 1998.
The 1998 Lease terms included a merger clause in section 15.6 entitled “ENTIRE AGREEMENT,” which provided:
This lease may not be modified, amended or otherwise changed orally, but may only be modified, amended or otherwise changed by an agreement in writing signed by both parties. This Lease Agreement and its accompanying guaranty constitute the entire agreement between the parties affecting this Lease.
This Lease Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements, and understandings between the parties hereto with respect to the subject matter thereof, and no such outside or prior agreements shall be used to interpret or to construe this Lease. There are no promises, covenants, representations or inducements in addition to, or at variance with any of the terms of this Lease Agreement except the Guaranty.
In 2001, the County and HMA began negotiations for relocation of the Brooksville Regional Hospital which was part of the leased premises described in the 1998 Lease.
During the negotiations, HMA, through its attorney, Steven Mitchell, prepared a proposed comprehensive relocation agreement in consultation with former County Attorney Bruce Snow. Section 7.3 of the proposed relocation agreement contemplated revising the 1998 Lease and suggested the following preliminarily negotiated language for rental payments under a revised 1998 Lease:
Rental Payments
The Lessee shall pay to Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and no/100 Dollars ($300,000.00) per annum.
The Lessee shall pay to Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of the same sum to be used by Hernando County as it deems appropriate, an amount equal to the ad valorem taxes that would have been paid on the New Facility Site as improved with the New Facility if the New Facility Site were not owned by Hernando County but owned by a for-profit entity. In the event the New Facility Site and the New Facility located thereon are subsequently required by law to pay ad valorem taxes then the obligation to pay the amount described in Section 7.3(b) herein shall immediately terminate and Lessee shall be responsible for the payment of the appropriate ad valorem tax.
The proposed comprehensive relocation agreement was discussed at public meetings held by the Hernando County Board
of Commissioners on September 17 and September 25, 2001. The minutes of the September 25, 2001, meeting indicate that the County Administrator advised that the proposed relocation agreement contemplated that HMA would continue to pay $300,000 annually as rent, and “would make a payment-in-lieu of taxes annually to the County . . . .” The minutes also reflect that, in responding to a question from a commissioner regarding whether there should be language in the agreement that would protect the “payment-in-lieu of taxes” provision in the event the law changed:
[Former County Attorney] Snow replied that it was his recommendation that there should be a provision that to the extent that the organic law of the State provided that facilities, such as the new hospital or other hospital under the lease, were taxable for ad valorem tax purposes, that that provision of the organic law would apply to ensure that that provision superseded. He explained that the lease provision to provide for an ad valorem tax payment was only to the extent that the organic law did not otherwise compel it so that the County would be receiving ad valorem tax under either scenario.
The minutes from the September 25, 2001, meeting further state:
Mr. Snow replied to County Attorney Garth Coller that there had been recent Supreme Court decisions which may have a bearing on the organic law to the extent that a decision of that nature indicated that the facilities were subject to ad valorem tax,
notwithstanding the ownership issue, then they were subject to ad valorem tax and the lease would need to clarify that. He suggested that if the FS or Constitution should change, even in the absence of an interpretation of the Supreme Court decision, the change would obligate the payment of ad valorem taxes pursuant to the constitutional or statutory provisions. He explained that organic law pertained to provisions of FS or the Constitution as opposed to a Court decision.
Mr. Snow’s reported reference to recent “Supreme Court decisions” regarding ad valorem taxes undoubtedly was referring the decision, among others, in Sebring Airport Authority v. McIntyre, 718 So. 2d 296 (Fla. 1998). In that decision, rendered a few months after the County entered into the 1998 Lease, the Supreme Court of Florida stated with regard to municipal (as opposed to county) property:
[T]here is nothing in article VII, section 3 that allows the legislature to exempt from ad valorem taxation municipally owned property or any other property that is being used primarily for a proprietary purpose or for any purpose other than a governmental, municipal or public purpose. To the extent section 196.012(6) attempts to exempt from taxation municipal property used for a proprietary purpose, the statute is unconstitutional.
Id. at 298.
The Sebring case did not address tax immunity of county property as distinguished from the issue of tax exemptions for the proprietary use of municipal property. The
proposed “Rental Payments” language for revisions to the 1998 Lease, however, demonstrates that the drafters of the comprehensive relocation agreement were aware of the possibility that the Sebring rationale could be expanded and applied to county property.
The comprehensive relocation agreement was approved by the County, and executed in late 2001. Attached as to that relocation agreement as Schedule C was an unsigned document entitled “First Amendment to Lease Agreement” that was not to be executed until the new facility was completed and transferred to the County. Subsection 3.3 of the First Amendment to Lease Agreement entitled “Rental Payments” provided:
Rental Payments
The Lessee shall pay to the Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and No/100 Dollars ($300,000.00) per annum.
The Lessee shall pay to the Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of an amount (“Additional Payment”) equal to the sum of the following:
An amount equal to that portion of the ad valorem taxes that would have been paid to Hernando County on the Leased Premises (as modified by the substitution of the New Facility Site for the Current Hospital Site) if the Leased Premises were not owned by Hernando County but owned by a for profit entity; and
An amount equal to that portion of the ad valorem taxes that would have been paid to the Spring Hill Fire and Rescue District, the Township 22 Fire District and/or any other special taxing district that may be established pursuant to law; and
An amount equal to all special assessments levied by Hernando County through any Municipal Service Benefit Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes; and
An amount equal to all ad valorem tax levied by Hernando County through any Municipal Service Taxing Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes.
In no event shall the Additional Payments exceed an amount equal to a full ad valorem tax assessment on the New Facility Site as determined annually by the Hernando County Property Appraiser. In the event the Lessee and/or Lessor is required by law to pay ad valorem taxes on the Leased Premises or any portion thereof, the obligation to pay to Lessor the Additional Payment described in this Section 3.3 shall immediately terminate (and/or be adjusted, whichever is applicable), and Lessee shall be responsible for payment of the appropriate ad valorem tax.
The First Amendment to Lease Agreement further provided, “[e]xcept as expressly modified herein, all other terms and conditions set forth in the [1998] Lease Agreement are hereby ratified and confirmed.”
The new hospital facility was completed and transferred to the County in 2005. On November 15, 2005, the
County commission approved documents related to the transfer, including the First Amendment to Lease Agreement in the precise form as attached to the relocation agreement approved in 2001. The approval was obtained on a consent agenda, and the minutes reflect no further discussion by the commission or the public on the documents that were approved.
In 2009, the Hernando County School District sued the County Property Appraiser, alleging that the properties subject to the 1998 Lease as amended by the First Amendment to Lease Agreement should not be exempt from ad valorem taxation. In a 13-page Order dismissing the School District’s action, Circuit Judge Daniel B. Merritt, Jr., distinguished the cases disallowing statutory ad valorem tax exemptions for properties owned by special tax districts or cities from the sovereign immunity against ad valorem taxes enjoyed by real estate owned by the State of Florida and its counties. In his ruling, Judge Merritt noted that Florida law specifically makes leasehold interests in governmental property subject to taxation, noting:
The Legislature defines leasehold interests as intangible personal property and, hence, assessed by the Florida Department of Revenue, when: (1) rent is due; (2) the property is used for commercial purposes;
(3) is not used for agriculture; (4) not financed with revenue bonds, and; (5) the lease is for an initial term of less than
100 years; §§196.199(2)(b), Florida Statutes (2008), 199.023(1)(d), Florida Statutes (2005), specifically preserved in Chapter
2006-312, Laws of Florida (2006). However, see below for further analysis with regard to presumed ownership of property leased for
100 years or more as set forth in
§196.199(7), Florida Statutes.
Judge Merritt also discussed those instances where “leased” property might not qualify as State or county property where lessees are the “equitable owners,” such as leaseholds of
100 years or more or where properties do not revert to the State until the end of a lease term. In his order, however, Judge Merritt noted that the tax immunity of the County was a fundamental attribute of county property and held that “under the terms of the Lease Agreements the Court concludes that HMA has merely the right to use and possession and is not the beneficial owner as a matter of law Hernando County’s immune property and improvements.” Judge Merritt’s Order was affirmed on appeal. School Board of Hernando County v. Mazourek, Case No. H-27-CA-2009-549 (5th Cir. 2009), per curiam aff’d, 2010 WL 4323055 (Fla. 5th DCA 2010)
In December, 2010, the Department notified the County it had been selected for a tax compliance audit under chapter 212, Florida Statutes, Sales and Use Tax. The audit period was from January 1, 2007, through December 31, 2009.
The County’s personnel were cordial and receptive during the audit process and the Department’s auditor determined that the books and records kept by the County had adequate
internal accounting controls in place and sufficient data integrity.
Out of the approximately 19 tax registration accounts the County has with the Department, the Department’s auditor found exception with only tax account #12445797, the tax collected and remitted under its lease with HMA.
In her record review, the Department’s auditor noticed invoices and worksheets from the County to HMA, titled “Payment in lieu of taxes.”
In examining the First Amendment to the Lease Agreement, Section 3.3 “Rental Payments,” the Department’s auditor determined that the County was not collecting sales tax on a portion of the rent received under that section.
The monthly tax return filed by the County under account # 12445797 reflected that it was collecting and remitting the sales tax calculated on the $300,000.00 annual rent payment, but was not collecting and remitting sales tax calculated on the additional payments in lieu of taxes.
The Department’s auditor determined the additional payments, required under the lease and made as a condition of occupancy, constituted a taxable transaction as additional rent consideration. The amount of the additional payments, made January 2007 and March 2008, as revealed on the County’s “Payment in lieu of taxes worksheets,” was multiplied by 6.5
percent to arrive at the additional tax amount due of
$78,710.17.
On December 9, 2010, the Department issued a Notice of Intent to Make Audit Changes, Form DR 1215, advising the County of its audit findings, which included $78,710.17 in taxes due,
$14,526.37 in accrued interest through December 9, 2010, and a
$19,677.55 late payment penalty.
On December 21, 2010, the Department issued its Notice of Proposed Assessment, Form DR 831, showing an assessment of
$78,710.17 in tax and $14,707.51 in accrued interest, for a total of $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem. All penalty amounts were waived.
At the final hearing, the County argued that the additional payments from HMA under the First Amendment to Lease Agreement were not rent, but rather separate payments to pay for County services. While the actual language used in the First Amendment to Lease Agreement appears to unambiguously indicate that the additional payments were rent, the County offered additional evidence of facts and circumstances beyond the terms of the lease itself in support of its argument that the additional payments were not rent. That evidence was admitted, without objection, and has been considered in determining the
intention of the parties to the lease with regard to the additional payments.
In addition to evidence that the lease drafters were aware of certain cases decided on the issue of whether the leased premises would be subject to ad valorem taxes, the County offered the testimony of Mr. Mitchell regarding the “Rental Payments” language found in the First Amendment to Lease Agreement. When asked whether there had been much negotiation over the format or wording of the First Amendment to Lease Agreement, Mr. Mitchell recalled:
No, there really wasn’t other than, you know, the concept – what this amendment does is what we had agreed to pay rental payment. The rental payment was $300,000. And then, we also had agreed independently just to go ahead and pay the County for certain services that they were providing to us.
And then we specified those. Those were independent payments, not part of the rental payment.
Mr. Mitchell further testified:
[B]asically, this property is free of ad valorem tax. That is why the school board filed their lawsuit because, of course, they were not getting any of the ad valorem taxes. So, the property is free of payment of ad valorem taxes. We’re paying our 300,000. It was very, very clear.
However, HMA felt that the County was providing certain services, the fire districts and whatnot. So, independent of the rent, we paid this amount. If you read the section dealing – it’s 3.3.[2], or whatever it is, which I’ll read it to you,
it talks about, at the very end – and they did it for whatever reason the property became taxable, you know, it effectively became taxable and we had to pay full ad valorem taxes on the property, then the specialties – these additional payments we called, you know, would go away and they, effectively, be part of rent. That's why it talks about it as such, and it was either additional payment and/or rent.
Contrary to Mr. Mitchell’s recollection, section 3.3.2 of the First Amendment to Lease Agreement does not speak in terms of “additional payment and/or rent” but rather states that another payment would be made “either as rent or by virtue of a payment to Hernando County of an amount ('Additional Payment') .
. .".
Mr. Mitchell makes a valid point regarding the fact that HMA was concerned about having to pay both the additional payment and ad valorem taxes. Consistent with this concern, the lease amendment made it clear that HMA would not have to pay the additional amount if the property ever became subject to ad valorem taxes.
Mr. Mitchell’s testimony in support of the County’s contention that HMA’s payment in lieu of taxes under the First Amendment to Lease Agreement was not rent, however, is unpersuasive.
Considering the extrinsic evidence offered by the County, especially evidence of the parties concern that the
subject County property might someday be subject to ad valorem taxes, together with the 1998 Lease, language negotiated for the proposed relocation agreement, and the actual terms of the First Amendment to Lease Agreement, it is found that the parties intended the language under the "Rental Payments" section to assure that HMA did not have to pay the additional amount twice. The extrinsic evidence offered by the County, however, was insufficient to support a finding that the parties intended to differentiate between “rent” and the “additional payment” or that, however characterized, the payment in lieu of taxes was not rent subject to assessment by the Department.
If the parties had wanted to provide language that designated the payment in lieu of taxes as a payment for services instead of rent they could have, as they did in the Second Amendment to Lease Agreement entered into on
September 13, 2011, just ten days prior to the final hearing in this case.2/ That Second Amendment to Lease Agreement changed the name of section 3.3 from “Rental Payments,” as found in the First Amendment, to “Rent and Additional Payment for County Services.” Pertinent subsections of the Second Amendment further provided:
3.3.2 Additional Payment for County Services. The Lessee shall pay to Lessor on an annual basis, as an additional payment (“Additional Payment”) for services provided by Hernando County [in its role as a service
provider and local taxing authority], . . .
* * *
The Additional Payment is not intended to constitute “rent” and is not intended to create an event subject to Florida sales tax
– but rather is intended to constitute a separate payment for the provision of services, payable to the local taxing authority, as provided in § 212.031(1)(c), Florida Statutes (which allow parties by contractual arrangement to distinguish between payments which are intended to be taxable and payments which are intended to be nontaxable), as this section may be amended or renumbered from time to time.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding pursuant to sections 72.011(1), 120.569, 120.57(1), and 120.80, Florida Statutes.
Section 120.80(14)(b)(2) provides that the Department’s evidentiary burden in taxpayer-contest proceedings, as in this case, is “limited to a showing that an assessment has been made against the taxpayer and the factual and legal grounds upon which the applicable department made the assessment.”
Section 212.031(1)(c), Florida Statutes, imposes tax on the “total rent or license fee charged" and includes “base rent, percentage rents, or similar charges."3/
Florida Administrative Code Rule 12A-1.070(4)(b), provides that the tax is paid upon “all consideration due and
payable” by the tenant or person occupying, using, or entitled to use any real property “for the privilege of use, occupancy, or the right to use or occupy.”
The contractual requirements for payments by HMA as lessee to the County as lessor under the lease for the use or occupancy of the premises are found in section 3.3 entitled "Rent" in the 1998 Lease and section 3.3 of the First Amendment to Lease Agreement, entitled "Rental Payments."4/
Pursuant to section 3.3 of the First Amendment to Lease Agreement, for each of the years at issue, two separate payments were made by HMA -- a fixed payment in the amount of
$300,000.00 annually, and an annual payment (the “additional payment”) which varied in amount as calculated on the total amount of ad valorem taxes and special assessments that would have been due if the leased premises were not owned by the County.
Arguably, the fact that the payments made under the lease were made pursuant to a section entitled "Rental Payments" would end the inquiry on the grounds that, under the plain terms of the contract, the parties unambiguously agreed that those payments were rent. As noted in Duval Motors Co. v. Rogers, 73 So. 3d 261, 266-67 (Fla. 1st DCA 2011):
Interpretation of a contract begins with its plain language. [citation omitted] As a general rule, evidence outside the contract
language, which is known as parol evidence, may be considered only when the contract language contains a latent ambiguity. [footnote and citations omitted] Parol evidence includes a "verbal agreement or other extrinsic evidence where such agreement was made before or at the time of the instrument in question." [citation omitted] The parol evidence rule precludes consideration of such evidence "to contradict, vary, defeat, or modify a complete and unambiguous written instrument, or to change, add to, or subtract from it, or affect its construction." [citations omitted]
Moreover, the fact that there is a merger clause in the 1998 Lease ratified and confirmed by the First Amendment to Lease Agreement5/ is a persuasive indicator that the parties intended the terms of the lease to be integrated.6/
"A latent ambiguity exists 'where the language employed is clear and intelligible and suggests but a single meaning, but some extrinsic fact or extraneous evidence creates a necessity for interpretation or a choice among two or more possible meanings.'" Duval, 73 So. 3d at 266, n. 2 (quoting Barnwell v. Miami-Dade Sch. Bd., 48 So. 3d 144, 145-46 (Fla. 1st DCA 2010)).
As noted in the Findings of Fact above, extrinsic evidence was considered in this proceeding without objection. Considering that evidence, as well as language actually employed by the parties both before and after execution of the First Amendment to Lease Agreement, it is concluded that the payments
made by HMA pursuant to section 3.3 of the First Amendment to Lease were rent subject to the tax imposed by the assessment challenged in this proceeding.
Parties to a contract are bound by the tax consequences of their choice in structuring the transaction. See, eg., Dep't of Rev. v. McCoy Motel, Inc., 302 So. 2d 440,
443 (Fla. 1st DCA 1974)("We may not concern ourselves with what might have been have been had appellee handled this transaction in a different way."). Under the facts and law in this case, including consideration of extrinsic evidence introduced at the final hearing, the “total rent or license fee charged” and taxable under section 212.031(1)(c), Florida Statutes, includes all payments required by section 3.3 of the First Amendment to Lease Agreement.7/
In sum, the Department demonstrated the factual and legal basis for its assessment, and the County failed to prove that the assessment was wrong.
WHEREFORE, it is RECOMMENDED that Respondent enter a final order sustaining the Notice of Proposed Assessment challenged in this proceeding.
Based on the foregoing Findings of Facts and Conclusions of Law, it is
RECOMMENDED that, consistent with the Notice of Proposed
Assessment dated December 21, 2010, and this Recommended Order, the Department of Revenue enter a final order finding that Petitioner owes tax and interest due totaling $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem, without penalties.
DONE AND ENTERED this 30th day of December, 2011, in Tallahassee, Leon County, Florida.
S
JAMES H. PETERSON, III
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 2011.
ENDNOTES
1/ Unless otherwise indicated, all references to the Florida Statutes or Florida Administrative Code are to those versions in effect in 2010.
2/ Whether the Second Amendment to Lease Agreement is effective in avoiding future taxation is beyond the scope of this proceeding.
3/ The state tax rate under section 212.31(1)(c) is 6%. The 6.5% tax rate used in the assessment is composed of 6% state tax and 0.5% county tax. See Exhibit R-1, p. 5. The County has not challenged the 6.5% rate utilized by the Department.
4/ References to section 3.3 of the First Amendment to Lease Agreement include its subsections 3.3.1 through 3.3.2.4.
5/ See Findings of Fact 11 and 19, supra.
6/ "Although the existence of a merger clause does not per se establish that the integration of an agreement is total, . . . a merger clause is a highly persuasive statement that the parties intended the agreement to be totally integrated and generally works to prevent a party from introducing parol evidence to vary or contradict the written terms." Duval, 73 So. 3d at 267-68 (quoting Jenkins v. Eckerd Corp., 913 So. 2d 43, 53 n.1 (Fla.
1st DCA 2005)).
7/ Notably, "[a]d valorem taxes paid by the tenant or other person actually occupying, using, or entitled to use any real property to the lessor or any other person on behalf of the lessor, including transactions between affiliated entities, are taxable." Rule 12A-11.070, Fla. Admin. Code. In other words, whether payments are characterized as rent or as ad valorem taxes paid by a lessee, they are taxable. Petitioner argues that the parties to the lease created a third category -- a non- taxable payment for county services characterized as payments in lieu of taxes. The distinction defies logic, given the fact that ad valorem taxes are for county services, and the County contends that the payments in lieu of taxes are to pay for County services. While the question of whether a payment in lieu of taxes by separate agreement would avoid taxation is beyond the scope of this proceeding, the language employed under the First Amendment of Lease Agreement and the extrinsic evidence surrounding that transaction presented in this case are inadequate to support a conclusion that the parties to the First Amendment to Lease Agreement intended a third category of payments that were not subject to taxation.
COPIES FURNISHED:
John Mika, Esquire
Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050
Jon Aaron Jouben, Esquire Hernando County Attorney`s Office
20 North Main Street, Suite 462 Brooksville, Florida 34601
Nancy Terrel, Acting General Counsel Department of Revenue
The Carlton Building, Room 204
501 South Calhoun Street Tallahassee, Florida 32399
Lisa Vickers, Executive Director Department of Revenue
The Carlton Building, Room 104
501 South Calhoun Street Tallahassee, Florida 32399
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Apr. 10, 2012 | Agency Final Order | |
| Dec. 30, 2011 | Recommended Order | Additional payments made by a lessor of county property to Hernando County pursuant to a document entitled Lease Agreement, as amended, constitutes "rent" subject to sales tax. |
