Findings Of Fact On or about August 15, 1979, Mead Timber Company and Scott Timber Company conveyed certain property located in Suwannee County, Florida (hereinafter referred to as the "Property"), to Tommy M. Faircloth, Sam L. Rudd, and Alvin C. Futch (hereinafter referred to as the "Original Conveyance"). The warranty deed for the Original Conveyance was recorded on August 15, 1979, at Official Records Book 187, page 444, of the Public Records of Suwannee County, Florida. In connection with said Original Conveyance the closing statement therefor showed a purchase price of Two Million Four Hundred Thousand Dollars ($2,400,000.00), said amount being the actual amount of the purchase and sale. In connection with the deed for said Original Conveyance, the closing statement indicated that Seven Thousand Two Hundred Dollars ($7,200.00) of documentary stamp taxes were paid based upon Thirty Cents ($.30) per One Hundred Dollars ($100.00) of consideration, and said Seven Thousand Two Hundred Dollars ($7,200.00) for documentary stamps was in fact paid. In connection with said Original Conveyance, a first mortgage and security agreement was given by Tommy M. Faircloth, Sam L. Rudd, and Alvin C. Futch, to the Mutual Life Insurance Company of New York, said mortgage dated and filed August 15, 1979, at Official Records Book 187, page 451, of the Public Records of Suwannee County, Florida (hereinafter referred to as "First Mortgage"). The mortgage secured a note with a face amount of Three Million Dollars ($3,000,000.00) dated August 15, 1979. The First Mortgage showed a face amount of Three Million Dollars ($3,000,000.00). In connection with the First Mortgage, pursuant to the loan commitment dated April 13, 1979, only One Million Eight Hundred Thousand Dollars ($1,800,000.00) was disbursed thereunder. The parties thereto anticipated that an additional One Million Two Hundred Thousand Dollars ($1,200,000.00) would be disbursed at some future date, subject to conditions precedent that (a) the Borrowers place all of the Property encumbered thereby into cultivation, after having first cleared and prepared same for cultivation, and (b) that the Borrowers install twenty (20) 12-inch irrigation wells which would be appropriately drilled and equipped, and (c) that the Borrowers install twenty (20) automatic center-pivot irrigation systems thereon. The aforementioned conditions precedent have not been accomplished to date. The time period during which the conditions precedent set forth in paragraph seven (7) above could be completed, and during which time period the Borrowers could require the First Mortgage lender to make the additional disbursement under the First Mortgage, has expired, and the Borrowers have no further legal right to require any additional disbursements under the First Mortgage. The Petitioner has waived any right to seek or obtain the additional One Million Two Hundred Thousand Dollars ($1,200,000.00) from the holder of the First Mortgage. In connection with the First Mortgage for the Original Conveyance, the Borrowers paid Four Thousand Five Hundred Dollars ($4,500.00) as documentary stamp taxes on the promissory note secured by the First Mortgage, and paid Six Thousand ($6,000.00) in intangible taxes. In connection with the Original Conveyance, a second mortgage was given by Tommy M. Faircloth, Sam L. Rudd and Alvin C. Futch to Mead Timber Company and Scott Timber Company in the original principal sum of Three Hundred Thousand Dollars ($300,000.00), said mortgage dated and filed August 15, 1979, at Official Records Book 187, page 461, of the Public Records of Suwannee County, Florida (hereinafter referred to as the "Second Mortgage"). On or about October 1, 1980, Tommy M. Faircloth, Sam L. Rudd, and Alvin C. Futch conveyed a portion of the Property to Timber River, Inc., a Florida corporation, by warranty deed which instrument was filed October 2, 1980, at Official Records Book 203, page 790, of the Public Records of Suwannee County, Florida (hereinafter referred to as the "Second Conveyance"). In connection with the deed for said Second Conveyance, only minimum documentary stamps in the amount of Forty Cents ($.40) were attached and affixed thereto. The Respondent herein has alleged that, since the Second Conveyance was subject to both the First Mortgage and the Second Mortgage, the taxable consideration should be Three Million Three Hundred Thousand Dollars ($3,300,000.00)(the face amount of the two [2] mortgages combined), and therefore the documentary stamps which should have been affixed to the deed would be Thirteen Thousand Two Hundred Dollars ($13,200.00), leaving an additional tax due in the amount of Thirteen Thousand One Hundred Ninety-nine and Sixty One-hundredths Dollars ($13,199.60). Timber River, Inc., the grantee of the Second Conveyance, is a corporation which was wholly owned by Tommy M. Faircloth, Sam L. Rudd, and Alvin C. Futch in equal proportions at the time of the Second Conveyance. Timber River, Inc., in consideration of Tommy M. Faircloth, Sam L. Rudd, and Alvin C. Futch conveying to said corporation the property described in the deed of the Second Conveyance, issued its common stock to said individuals in equal proportions. Timber River, Inc., took the Property subject to the First Mortgage and second Mortgage, and did not assume or agree to assume either the First Mortgage or the second Mortgage. Tommy M. Faircloth, Sam L. Rudd, and Alvin C. Futch, individually, have at all times been or are presently liable to the mortgagee, Mutual Life Insurance Company of New York, and are personally responsible for making all payments under said mortgage. All payments under said mortgage both prior to and subsequent to the Second Conveyance have been made by Tommy M. Faircloth, Sam L. Rudd, and Alvin C. Futch, individually.
The Issue The issue in this case is whether Petitioner is entitled to a refund of nearly $500 thousand on an alleged overpayment of the stamp tax, where Petitioner paid the tax based on the entire undifferentiated consideration it had received, as a lump-sum payment, from the sale of an operating hotel business comprising real estate, tangible personal property, and intangible personal property.
Findings Of Fact On February 23, 2015, Petitioner 1701 Collins (Miami) Owner, LLC ("Taxpayer"), a Delaware limited liability company, entered into a Purchase and Sale Agreement ("Agreement") to sell a going concern, namely a hotel and conference center doing business in Miami Beach, Florida, as the SLS Hotel South Beach (the "Hotel Business"), to 1701 Miami (Owner), LLC, a Florida limited liability company ("Purchaser"). Purchaser paid Taxpayer $125 million for the Hotel Business. The Hotel Business comprised two categories of property, i.e., real estate ("RE") and personal property ("PP"). The PP, in turn, consisted of two subcategories of property, tangible personal property ("TPP") and intangible personal property ("ITPP"). It is undisputed that the property transferred pursuant to the Agreement included RE, TPP, and ITPP. The sale closed on June 5, 2015, and a special warranty deed was recorded on June 8, 2015, which showed nominal consideration of $10. Pursuant to the Agreement, Taxpayer was responsible for remitting the documentary stamp tax and the discretionary surtax (collectively, "stamp tax"). Stamp tax is due on instruments transferring RE; the amount of the tax, payable per instrument recorded, is based upon the consideration paid for RE. Stamp tax is not assessed on consideration given in exchange for PP. The Agreement contains a provision obligating the parties to agree, before closing, upon a reasonable allocation of the lump-sum purchase price between the three types of property comprising the Hotel Business. For reasons unknown, this allocation, which was to be made "for federal, state and local tax purposes," never occurred. The failure of the parties to agree upon an allocation, if indeed they even attempted to negotiate this point, did not prevent the sale from occurring. Neither party declared the other to be in breach of the Agreement as a result of their nonallocation of the consideration. The upshot is that, as between Taxpayer and the Purchaser, the $125 million purchase price was treated as undifferentiated consideration for the whole enterprise. Taxpayer paid stamp tax in the amount of approximately $1.3 million based on the full $125 million of undifferentiated consideration. Taxpayer paid the correct amount of stamp tax if the entire consideration were given in exchange for the RE transferred to Purchaser pursuant the Agreement——if, in other words, the Purchaser paid nothing for the elements of the Hotel Business consisting of PP. On February 6, 2018, Taxpayer timely filed an Application for Refund with Respondent Department of Revenue (the "Department"), which is the agency responsible for the administration of the state's tax laws. Relying on a report dated February 1, 2018 (the "Deal Pricing Analysis" or "DPA"), which had been prepared for Taxpayer by Bernice T. Dowell of Cynsur, LLC, Taxpayer sought a refund in the amount of $495,013.05. As grounds therefor, Taxpayer stated that it had "paid Documentary Stamp Tax on personal property in addition to real property." Taxpayer's position, at the time of the refund application and throughout this proceeding, is that its stamp tax liability should be based, not on the total undifferentiated consideration of $125 million given in the exchange for the Hotel Business, but on $77.8 million, which, according to the DPA, is the "implied value" of——i.e., the pro-rata share of the lump-sum purchase price that may be fairly allocated exclusively to——the RE transferred pursuant to the Agreement. Taxpayer claims that, to the extent it paid stamp tax on the "implied values" (as determined in the DPA) of the TPP ($7 million) and ITPP ($40.2 million) included in the transfer of the Hotel Business, it mistakenly overpaid the tax.1/ On February 23, 2018, the Department issued a Notice of Intent to Make Refund Claim Changes, which informed Taxpayer that the Department planned to "change" the refund amount requested, from roughly $500 thousand, to $0——to deny the refund, in other words. In explanation for this proposed decision, the Department wrote: "[The DPA] was produced 3 years after the [special warranty deed] was recorded. Please provide supporting information regarding allocation of purchase price on or around the time of the sale." This was followed, on April 2, 2018, by the Department's issuance of a Notice of Proposed Refund Denial, whose title tells its purpose. The grounds were the same as before: "[The DPA] was produced 3 years after the document was recorded." Taxpayer timely filed a protest to challenge the proposed refund denial, on May 31, 2018. Taxpayer argued that the $125 million consideration, which Purchaser paid for the Hotel Business operation, necessarily bought the RE, TPP, and ITPP constituting the going concern; and, therefore, because stamp tax is due only on the consideration exchanged for RE, and because there is no requirement under Florida law that the undifferentiated consideration exchanged for a going concern be allocated, at any specific time, to the categories or subcategories of property transferred in the sale, Taxpayer, having paid stamp tax on consideration given for TPP and ITPP, is owed a refund. The Department's tax conferee determined that the proposed denial of Taxpayer's refund request should be upheld because, as he explained in a memorandum prepared on or around December 27, 2018, "[t]he taxpayer [had failed to] establish that an allocation of consideration between Florida real property, tangible personal property, and intangible property was made prior to the transfer of the property such that tax would be based only on the consideration allocated to the real property." The Department issued its Notice of Decision of Refund Denial on January 9, 2019. In the "Law & Discussion" section of the decision, the Department wrote: When real and personal property are sold together, and there is no itemization of the personal property, then the sales price is deemed to be the consideration paid for the real property. [2] Likewise, when the personal property is itemized, then only the amount of the sales price allocated for the real property is consideration for the real property and subject to the documentary stamp tax. The first of these propositions will be referred to as the "Default Allocation Presumption." The second will be called "Consensual-Allocation Deference." The Department cited no law in support of either principle. In its intended decision, the Department found, as a matter of fact, that Taxpayer and Purchaser had not "established an allocation between all properties prior to the transfer" of the Hotel Business. Thus, the Department concluded that Taxpayer was not entitled to Consensual-Allocation Deference, but rather was subject to the Default Allocation Presumption, pursuant to which the full undifferentiated consideration of $125 million would be "deemed to be the consideration paid for the" RE. Taxpayer timely requested an administrative hearing to determine its substantial interests with regard to the refund request that the Department proposes to deny. After initiating the instant proceeding, Taxpayer filed a Petition to Determine Invalidity of Agency Statement, which was docketed under DOAH Case No. 19-3639RU (the "Rule Challenge"). In its section 120.56(4) petition, Taxpayer alleges that the Department has taken a position of disputed scope or effect ("PDSE"), which meets the definition of a "rule" under section 120.52(16) and has not been adopted pursuant to the rulemaking procedure prescribed in section 120.54. The Department's alleged PDSE, as described in Taxpayer's petition, is as follows: In the administration of documentary stamp tax and surtax, tax is due on the total consideration paid for real property, tangible property and intangible property, unless an allocation of consideration paid for each type of property sold has been made by the taxpayer on or before the date the transfer of the property or recording of the deed. If the alleged PDSE is an unadopted rule, as Taxpayer further alleges, then the Department is in violation of section 120.54(1)(a). Although the Rule Challenge will be decided in a separate Final Order, the questions of whether the alleged agency PDSE exists, and, if so, whether the PDSE is an unadopted rule, are relevant here, as well, because neither the Department nor the undersigned may "base agency action that determines the substantial interests of a party on an unadopted rule." § 120.57(1)(e)1., Fla. Stat. Accordingly, the Rule Challenge was consolidated with this case for hearing. The Department, in fact, has taken a PDSE, which is substantially the same as Taxpayer described it. The undersigned rephrases and refines the agency's PDSE, to conform to the evidence presented at hearing, as follows: In determining the amount stamp tax due on an instrument arising from the lump-sum purchase of assets comprising both RE and PP, then, absent an agreement by the contracting parties to apportion the consideration between the categories or subcategories of property conveyed, made not later than the date of recordation (the "Deadline"), it is conclusively presumed that 100% of the undifferentiated consideration paid for the RE and PP combined is attributable to the RE alone. According to the PDSE, the parties to a lump-sum purchase of different classes of property (a "Lump—Sum Mixed Sale" or "LSMS") possess the power to control the amount of stamp tax by agreeing upon a distribution of the consideration between RE and PP, or not, before the Deadline.2/ If they timely make such an agreement, then, in accordance with Consensual-Allocation Deference, which is absolute, the stamp tax will be based upon whatever amount the parties attribute to the RE. If they do not, then, under the Default Allocation Presumption, which is irrebuttable, the stamp tax will be based upon the undifferentiated consideration. Simultaneously with the issuance of this Recommended Order, the undersigned is rendering a Final Order in the Rule Challenge, which determines that the PDSE at issue is an unadopted rule. This determination precludes the undersigned, and the Department, from applying the PDSE as an authoritative rule of decision in determining Taxpayer's substantial interests. The undersigned concludes further, for reasons set forth below, that the PDSE does not reflect a persuasive or correct interpretation of the applicable law. Rather, because the stamp tax is assessed only against the consideration given in exchange for RE, the law requires that, in determining the amount of stamp tax due on an instrument arising from an LSMS, a pro-rata share of the undifferentiated consideration must be allocated to the RE. The amount of the undifferentiated consideration that is reasonably attributable to the RE conveyed in an LSMS is a question of fact. To prove its allegation that only $77.8 million of the consideration received from Purchaser for the Hotel Business, and not the entire $125 million, is attributable to the RE conveyed in the LSMS, Taxpayer relies upon the DPA and the testimony of Ms. Dowell, who authored that report. The Department did not present any expert testimony to rebut the opinions of Ms. Dowell concerning the allocation of the undifferentiated consideration. Rather, the Department argues that Ms. Dowell's opinions are unreliable as a matter of law and should be disregarded, if not excluded as inadmissible——a position that depends heavily upon the Daubert standard for screening expert testimony, which does not apply in administrative proceedings, for reasons that will be explained in the Conclusions of Law. Alternatively, the Department asserts, based on Taxpayer's 2015 federal income tax return, that the amount paid for the RE component of the Hotel Business was actually $122 million. Although this argument is inconsistent with the Department's main position, because it concedes that the allocation is a disputable issue of material fact, rather than a legal conclusion driven by the Default Allocation Presumption or Consensual-Allocation Deference, as applicable, the Department is correct that the tax return can be viewed as evidence in conflict with Ms. Dowell's testimony; the undersigned will resolve the evidential conflict in favor of Ms. Dowell's testimony, in findings below. Primarily, though, the Department eschews evidence bearing on the pro-rata allocation of the consideration on the grounds that the Default Allocation Presumption conclusively establishes the taxable amount as a matter of law. In other words, the Department considers Ms. Dowell's opinions to be irrelevant, regardless of her credibility as an expert witness—— or lack thereof. In this respect, the Department has made a strategic error because the Default Allocation Presumption, besides being extralegal, is both irrational and arbitrary. It is irrational to assume that the seller in an arm's length transaction would simply give away valuable PP for nothing of value in return. It is arbitrary automatically to assign all of the undifferentiated consideration paid in an LSMS to one category of property transferred, i.e., RE, to the exclusion of the other property types exchanged. Systematically allocating the entire purchase price to any other involved property class, e.g., TPP, would be equally (un)justifiable. Put another way, there is no rational answer to the question: Why not deem the entire purchase price allocable to the personal property? Why not a 50/50 split instead? Or 60/40? The Default Allocation Presumption, in short, is not even a reasonable inference. Without the Default Allocation Presumption to trump the DPA, the Department is left with the representations of value in the Form 4797 attached to Taxpayer's 2015 federal income tax return as its best, indeed only, rebuttal evidence. The form is used to report gain or loss from sales of business property, such as, in this instance, the Hotel Business. In its return, Taxpayer reported gross sales prices of $20 million for the hotel land, $102 million for the hotel building, and $3 million for the hotel's furniture, fixtures, and equipment. In other words, Taxpayer represented to the Internal Revenue Service that $122 million of the undifferentiated consideration for the Hotel Business was attributable to RE, with the balance going towards TPP. Notably, Taxpayer did not list, much less assign value to, any "section 197 intangible" property, such as goodwill, going concern value, workforce in place, business records, operating systems, permits, licenses, trade names, etc. See 26 U.S.C § 197(d). Taxpayer's Form 4797 statements regarding the cumulative sales price of the RE are admissions that, arguably at least, conflict with Ms. Dowell's opinions as expressed in the DPA. See § 90.803(18), Fla. Stat. What is to be made of these admissions? They are not binding, of course. Taxpayer is free to disavow or distinguish the statements in its Form 4797, which is essentially what it has done. Different taxes, different rules, different reasons—— in these general terms, Taxpayer strives to deflect attention from, and dismiss as irrelevant any serious consideration of, its federal income tax filing. Taxpayer's position is not without merit because, in fact, the stamp tax is fundamentally different from the federal income tax, as are the laws governing these noncomparable revenue raising measures. On the other hand, Taxpayer did declare the gross sales prices of the land, building, and TPP to be as described above, and these statements of apparent historical fact would seem to be true regardless of the specific tax purposes that prompted their making. There is more to this evidence than Taxpayer would have it. Ultimately, however, the undersigned finds the Form 4797 evidence to be less persuasive than the DPA, for several reasons. First, it is undisputed that ITPP was conveyed in the LSMS of the Hotel Business, and this ITPP included section 197 intangibles. But: Was Taxpayer required to segregate, and report separately, the gross sales price of these section 197 intangibles on its Form 4797? The undersigned does not know. Or, was Taxpayer allowed (or even obligated) to put the value of the section 197 intangibles onto, say, the building? Again, the undersigned does not know. To evaluate the persuasive force of the Form 4797 admissions, however, one needs to know these things. If Taxpayer were not required, for example, to report separately the value of the section 197 intangibles, and if, further, there were tax advantages in not doing so, then the admissions at issue would not be very probative. There is no evidence in the record regarding how, from May 2012, when Taxpayer acquired the Hotel Business, Taxpayer valued the attendant section 197 intangibles, for federal income tax purposes. It is possible that, for reasons undisclosed in this proceeding, Taxpayer never segregated the cost of the section 197 intangibles but instead allowed the value of the ITPP to be taxed as part of the value of the building. In any event, topics such as the proper classification of business property under the Internal Revenue Code; the different amortization periods applicable to various types of property; the tax planning strategies an owner might cautiously, aggressively, or even illegally employ to minimize its liability; and the common mistakes made, or advantages overlooked, by tax preparers, are complex and beyond the scope of the current record.3/ As a result, the statements regarding asset prices in Taxpayer's 2015 federal income tax return, which sit in the record practically devoid of meaningful context, are consistent with too many alternative possibilities to be credited as persuasive admissions about the respective values of the land and building in question.4/ Second, as mentioned, Taxpayer did not state, on the Form 4797, that ITPP was sold for a price of $0, in which case one might expect Taxpayer also to have reported a loss on the sale of section 197 intangible property. Rather, Taxpayer did not disclose the sale of any ITPP in the LSMS at issue. This is important, from a weight-of-the-evidence standpoint, because it is an undisputed historical fact that valuable ITPP was conveyed to Purchaser in the subject transaction, which makes it unreasonable to infer a gross sales price of $0 for the ITPP. Imagine, however, the probative force the Form would have had if Taxpayer had listed a gross sales price of, say, $1 million for the ITPP, together with corresponding reductions in the prices of the RE and TPP; in such a hypothetical situation, the Form 4797 admissions would have been much more persuasive as an apportionment of the undifferentiated consideration. As it stands, however, the reasonably inferable likelihood is that Taxpayer did not report the sales price of the ITPP because it did not report the sale of ITPP——not because there was no sale (for there was) or because the sales price was $0 (which is unlikely), but for other reasons, unknowable on the instant record. Third, for purposes of levying Taxpayer's 2015 real estate property taxes, the Miami-Dade Tax Collector appraised the RE at $39 million. (This figure is the higher of two contemporaneous assessments by the local taxing authority.) This is less than one-third of $122 million——but, in contrast, constitutes 50% of Ms. Dowell's pro-rata allocation of consideration to the RE. There is no evidence in the record regarding the reliability of the local tax collector's appraisals of hotel property, or specifically the percentage of fair market value such assessments are reasonably likely to reflect. Therefore, the undersigned does not place too much weight on the 2015 ad-valorem tax assessments. Still, one cannot help but notice that Ms. Dowell's opinions on the RE's implied value are much closer to the Miami-Dade County Tax Collector's appraisal than the Form 4797 admissions.5/ Having found that the Form 4797 admissions possess some, but not much, probative value regarding the allocation of the undifferentiated consideration, the DPA emerges largely unscathed. As fact-finder, the undersigned has the discretion, nevertheless, to reject, as not credible, the expert testimony of Ms. Dowell. But he credits her opinions, both because Ms. Dowell is a qualified authority on the subject matter, and because the opinions she has expressed are objectively reasonable and logically supported. As for Ms. Dowell's credentials, she has a bachelor of science degree and a master of science degree, both in finance. She has worked in the field of property valuation for around 30 years. Working for major hotel companies, Ms. Dowell routinely performed the sort of allocation of value between asset classes that she has conducted in this case. In 2007, Ms. Dowell formed Cynsur, Inc., which performs value allocations for hospitality industry clients, predominately for taxation purposes, as here. Ms. Dowell has conducted approximately 1,000 deal pricing analyses for clients around the country. In the niche of implied value allocations between the categories of property transferred in LSMS transactions involving hotel operations, Ms. Dowell is clearly an experienced, knowledgeable, and credible expert. The DPA that Ms. Dowell prepared is not an independent appraisal of the hotel property per se, but an allocation of the undifferentiated consideration, which uses estimates of value as the basis for dividing the lump-sum purchase price into three shares, each representing an amount reasonably attributable to a type of property conveyed in the LSMS. The estimates of value that provide the grounds for determining the implied price-per- category are a kind of appraisal, but the DPA is not designed or expected to produce a total valuation that might exceed, or fall short of, the $125 million lump-sum purchase price that is being apportioned. Again, to be clear, the goal of the DPA is to divide the $125 million into asset classes, not to verify whether $125 million was the fair market value of the Hotel Business in 2015, because the stamp tax applies, not to fair market value as such, but to that portion of the undifferentiated consideration fairly attributable to the RE conveyed. Ms. Dowell's approach to apportionment is to determine the "implied values" of the RE and TPP by analyzing the income an owner would expect to receive on a separate investment in the RE or TPP, as the case may be, apart from the Hotel Business as a whole. She starts with a discounted cash flow analysis of the Hotel Business as a going concern, using the Purchaser's pro forma projections as developed at the time of the LSMS. In this instance, Purchaser had presented a five-year projection of cash flow to analyze the investment, which assumed that the Hotel Business would be sold at the end of year five. Using Purchaser's assumptions, Ms. Dowell determined that the hotel acquisition would yield an implied rate of return on (and of) investment of 11.99%. With this in mind, Ms. Dowell sought to quantify the present value of the income that an owner would expect to receive on an investment in the hotel RE alone, based on a hypothetical or proxy rent for this asset in isolation. To determine the hypothetical rent, Ms. Dowell needed to make certain assumptions, which are set forth in the DPA. She determined, ultimately, that 12% of gross operating revenue represents a reasonable approximation of the proxy rent for the RE assets in question. Of course, the assumptions underlying this determination are not necessarily, or even probably, the only reasonable assumptions that could have been made. The Department, however, did not offer any expert opinion evidence that challenged Ms. Dowell's assumptions, nor did it present alternative rental scenarios. Ms. Dowell discounted the projected, five-year RE income stream at 10%, reflecting the more conservative nature of a pure RE investment as compared to an investment in the Hotel Business as a going concern. The Department did not offer any expert opinion testimony disputing this discount factor. Ms. Dowell concluded that the net present value of the RE at issue was $77,803,500 ($77.8 million when rounded), which represents about 62% of the undifferentiated consideration for the Hotel Business. The undersigned credits this opinion and finds that $77.8 million is a reasonable allocation of consideration to the RE component of the Hotel Business. Ms. Dowell performed a similar analysis of a hypothetical standalone investment in the hotel TPP and calculated a net present value of $7 million, using a discount rate of 11%. This left the remainder of $40,196,500 to be allocated to ITPP. For present purposes, the breakdown between TPP and ITPP is relatively unimportant because the stamp tax is not payable on consideration given for PP of any stripe. Indeed, the ultimate factual determination that $77.8 million of the undifferentiated consideration is reasonably attributable to RE is the material finding; from that, it follows mathematically that the remaining balance of $47.2 million reflects consideration for the PP, however that figure might be allocated between TPP and ITPP. Thus, having found that $77.8 million is a reasonable allocation of consideration to the RE component of the Hotel Business, the undersigned is bound to determine that $47.2 million is a reasonable allocation of consideration to the PP. Because Taxpayer paid stamp tax on $125 million instead of $77.8 million, it overpaid the tax and is due a refund. It is undisputed that the amount of the stamp tax that Taxpayer paid on the excess consideration above $77.8 million is $495,013.05.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order approving Taxpayer's claim and authorizing payment of $495,013.05 to Taxpayer as a refund of overpayment of the stamp tax, plus statutory interest if and to the extent section 213.255, Florida Statutes, requires such additional compensation. (If a dispute of material fact arises in connection with the payment of interest, the Department should return the matter to DOAH for a hearing.) DONE AND ENTERED this 17th day of December, 2019, in Tallahassee, Leon County, Florida. S JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of December, 2019.
Findings Of Fact By Deposit Receipt dated June 12, 1975 (Exhibit 1) Kenneth H. Maxwell and Janet A. Maxwell contracted to purchase a lot for $7,000 from D & D Builders of Ft. Lauderdale, Inc. (D & D) with house to be built thereon for $29,900 in accordance with described plan. $3,690 was paid as earnest money deposit on this contract. It was intended that Maxwell would obtain a construction loan from the lending institution and before making the loan the lender required the value and plan number of the house to be included on the deposit receipt contract. The property was deeded to the Maxwells by Warranty Deed dated July 14, 1975 (Exhibit 2) and documentary stamp taxes in the amount of $21 was attached thereto. This is the correct amount for a $7,000 consideration for such a transfer. On July 15, 1975 a mortgage deed was executed by the Maxwells to the First Federal Savings and Loan Association of Highlands County to secure a loan in the amount of $33,200 and intangible taxes were paid thereon. At the time D & D and the Maxwells entered into their contract it was intended that Maxwell, who taught construction at a local junior college, would build his own house. When Maxwell attempted to get a building permit the county would not issue one because he was not a licensed contractor. He then arranged for D & D to pull the permit and for the bank to make the draws payable to D & D who would disburse the funds to the subcontractors, suppliers, and Maxwell. On July 15, 1975 the lender disbursed a check to D & D for $3,310 which, when added to the $3,690 initially paid by the Maxwells, completed the $7,000 payment for the lot to the seller D & D. Thereafter Maxwell constructed his house. D & D made the draws and disbursed the funds to suppliers, subcontractors, and to Maxwell. Exhibit 5 shows 8 checks were made payable to Maxwell totaling some $4,400. D & D did not supervise construction, received no compensations for its services, and acted only as a conduit for the construction loan.
Findings Of Fact This case comes on for consideration based upon the request of the Petitioner, Fanpac Corporation, for a formal administrative hearing on the question of the propriety of the December 8, 1976 assessment, A-54, of the Respondent, State of Florida, Department of Revenue. The claimed assessment pertains to an assignment of lease, recorded at Book 4182, Page 562, Public Records, Duval County, Florida. The assessment states that documentary stamp tax is owed in the amount of $5,404.50, together with accrued interest and a penalty in the amount of the claimed documentary stamp tax. The assessment also states that documentary surtax is owed in the amount of $370.15, together with accrued interest and a penalty in the amount of the claimed documentary surtax. In furtherance of the consideration of the case, the parties have submitted a factual stipulation to be examined by the undersigned in arriving at the terms of the recommended order. Quoting from the stipulation it states:
Recommendation It is recommended that the compromise agreement entered into by the parties, that the Petitioner pay documentary stamp tax and documentary surtax and interest on those amounts in the aggregate of $6,519.06 be accepted. It is further recommended that penalties in the amount of 25 percent of $5,404.50, documentary stamp tax, together with a penalty in the amount of 25 percent of $370.15 documentary surtax, be imposed. DONE AND ENTERED this 7th day of November, 1977, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Paul M. Harden, Esquire Smith, Davenport, Peek and Bloom 2601 Gulf Life Tower Jacksonville, Florida 32207 Daniel C. Brown, Esquire Assistant Attorney General Department of Revenue The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32304 ================================================================= AGENCY FINAL ORDER =================================================================
Findings Of Fact The Petitioner inherited the property which is the subject of this matter from his uncle who died on June 30, 1971. Petitioner sought to sell the property, and on February 7, 1972 a Mr. Skinner made an offer to purchase the property for $412,000. Petitioner rejected the offer. On July 23, 1973, Petitioner entered into a contract to sell the property for $915,000 to Virgil Norris and Mavis Y. Norris. The contract called for a $50,000 deposit or binder, $200,000 cash to be delivered at the time of closing, and a $665,000 purchase money mortgage. Just prior to closing the Norrises informed Petitioner that they did not have the $200,000. Petitioner assisted the Norrises in arranging a $200,000 mortgage to the Barnett Bank. Petitioner subordinated his own mortgage to the mortgage with Barnett Bank. On February 7, 1974, the Norris transaction was consummated. Joint Exhibits 1-3 were executed and recorded. The Norrises were unable to make payments on either mortgage. On January 13, 1975, the Petitioner initiated foreclosure proceedings. In lieu of foreclosure the Norrises executed a quitclaim deed to the Petitioner. The quitclaim deed and an accompanying agreement were received in evidence as Joint Exhibit 4 and 5. When the quitclaim deed was executed the Norrises had made no payments on their purchase money mortgage to the Petitioner, and had paid only interest on the purchase money mortgage to the Barnett Bank. The Norrises' mortgage to the Petitioner was satisfied through the execution of the quitclaim deed. The face amount of the mortgage, and the amount of the mortgage debt extinguished by the quitclaim deed was $665,000. Petitioner also agreed to assume the mortgage to the Barnett Bank. The face amount of that mortgage was $200,000 and the amount of debt that was extinguished through the quitclaim deed transaction was $200,000. The total amount of debt extinguished through the quitclaim deed was $865,000. When the quitclaim deed from the Norrises to the Petitioner was executed the actual market value of the subject property was $450,000. Documentary stamp tax and documentary surtax stamps were affixed to the quitclaim deed based upon the consideration for the deed being the actual market value of the property. Petitioner contends that the consideration for the quitclaim deed which was taken in lieu of a foreclosure action was the actual market value of the property. Respondent contends that the consideration for the quitclaim deed was the amount of mortgage debt extinguished as a result of execution of the deed.
The Issue The issue in this unadopted-rule challenge is whether Respondent, in connection with the administration of the stamp tax, has formulated a statement of general applicability for allocating undifferentiated, lump-sum payments made in purchase- and-sale transactions involving joint real estate/personal property transfers; which meets the statutory definition of a rule but has not been adopted pursuant to the rulemaking procedure; and, as used by Respondent, has the effect of creating an entitlement to collect tax on 100% of the undifferentiated consideration.
Findings Of Fact On February 23, 2015, Petitioner 1701 Collins (Miami) Owner, LLC ("Taxpayer"), a Delaware limited liability company, entered into a Purchase and Sale Agreement ("Agreement") to sell a going concern, namely a hotel and conference center doing business in Miami Beach, Florida, as the SLS Hotel South Beach (the "Hotel Business"), to 1701 Miami (Owner), LLC, a Florida limited liability company ("Purchaser"). Purchaser paid Taxpayer $125 million for the Hotel Business. The Hotel Business comprised two categories of property, i.e., real estate ("RE") and personal property ("PP"). The PP, in turn, consisted of two subcategories of property, tangible personal property ("TPP") and intangible personal property ("ITPP"). It is undisputed that the property transferred pursuant to the Agreement included RE, TPP, and ITPP. The sale closed on June 5, 2015, and a special warranty deed was recorded on June 8, 2015, which showed nominal consideration of $10. Pursuant to the Agreement, Taxpayer was responsible for remitting the documentary stamp tax and the discretionary surtax (collectively, "stamp tax"). Stamp tax is due on instruments transferring RE; the amount of the tax, payable per instrument recorded, is based upon the consideration paid for RE. Stamp tax is not assessed on consideration given in exchange for PP. The Agreement contains a provision obligating the parties to agree, before closing, upon a reasonable allocation of the lump-sum purchase price between the three types of property comprising the Hotel Business. For reasons unknown, this allocation, which was to be made "for federal, state and local tax purposes," never occurred. The failure of the parties to agree upon an allocation, if indeed they even attempted to negotiate this point, did not prevent the sale from occurring. Neither party declared the other to be in breach of the Agreement as a result of their nonallocation of the consideration. The upshot is that, as between Taxpayer and the Purchaser, the $125 million purchase price was treated as undifferentiated consideration for the whole enterprise. Taxpayer paid stamp tax in the amount of approximately $1.3 million based on the full $125 million of undifferentiated consideration. Taxpayer paid the correct amount of stamp tax if the entire consideration were given in exchange for the RE transferred to Purchaser pursuant the Agreement——if, in other words, the Purchaser paid nothing for the elements of the Hotel Business consisting of PP. On February 6, 2018, Taxpayer timely filed an Application for Refund with Respondent Department of Revenue (the "Department"), which is the agency responsible for the administration of the state's tax laws. Relying on a report dated February 1, 2018 (the "Deal Pricing Analysis" or "DPA"), which had been prepared for Taxpayer by Bernice T. Dowell of Cynsur, LLC, Taxpayer sought a refund in the amount of $495,013.05. As grounds therefor, Taxpayer stated that it had "paid Documentary Stamp Tax on personal property in addition to real property." Taxpayer's position, at the time of the refund application and throughout this proceeding, is that its stamp tax liability should be based, not on the total undifferentiated consideration of $125 million given in the exchange for the Hotel Business, but on $77.8 million, which, according to the DPA, is the "implied value" of——i.e., the pro-rata share of the lump-sum purchase price that may be fairly allocated exclusively to——the RE transferred pursuant to the Agreement. Taxpayer claims that, to the extent it paid stamp tax on the "implied values" (as determined in the DPA) of the TPP ($7 million) and ITPP ($40.2 million) included in the transfer of the Hotel Business, it mistakenly overpaid the tax.1/ On February 23, 2018, the Department issued a Notice of Intent to Make Refund Claim Changes, which informed Taxpayer that the Department planned to "change" the refund amount requested, from roughly $500 thousand, to $0——to deny the refund, in other words. In explanation for this proposed decision, the Department wrote: "[The DPA] was produced 3 years after the [special warranty deed] was recorded. Please provide supporting information regarding allocation of purchase price on or around the time of the sale." This was followed, on April 2, 2018, by the Department's issuance of a Notice of Proposed Refund Denial, whose title tells its purpose. The grounds were the same as before: "[The DPA] was produced 3 years after the document was recorded." Taxpayer timely filed a protest to challenge the proposed refund denial, on May 31, 2018. Taxpayer argued that the $125 million consideration, which Purchaser paid for the Hotel Business operation, necessarily bought the RE, TPP, and ITPP constituting the going concern; and, therefore, because stamp tax is due only on the consideration exchanged for RE, and because there is no requirement under Florida law that the undifferentiated consideration exchanged for a going concern be allocated, at any specific time, to the categories or subcategories of property transferred in the sale, Taxpayer, having paid stamp tax on consideration given for TPP and ITPP, is owed a refund. The Department's tax conferee determined that the proposed denial of Taxpayer's refund request should be upheld because, as he explained in a memorandum prepared on or around December 27, 2018, "[t]he taxpayer [had failed to] establish that an allocation of consideration between Florida real property, tangible personal property, and intangible property was made prior to the transfer of the property such that tax would be based only on the consideration allocated to the real property." The Department issued its Notice of Decision of Refund Denial on January 9, 2019. In the "Law & Discussion" section of the decision, the Department wrote: When real and personal property are sold together, and there is no itemization of the personal property, then the sales price is deemed to be the consideration paid for the real property. [2] Likewise, when the personal property is itemized, then only the amount of the sales price allocated for the real property is consideration for the real property and subject to the documentary stamp tax. The first of these propositions will be referred to as the "Default Allocation Presumption." The second will be called "Consensual-Allocation Deference." The Department cited no law in support of either principle. In its intended decision, the Department found, as a matter of fact, that Taxpayer and Purchaser had not "established an allocation between all properties prior to the transfer" of the Hotel Business. Thus, the Department concluded that Taxpayer was not entitled to Consensual-Allocation Deference, but rather was subject to the Default Allocation Presumption, pursuant to which the full undifferentiated consideration of $125 million would be "deemed to be the consideration paid for the" RE. Taxpayer timely requested an administrative hearing to determine its substantial interests with regard to the refund request that the Department proposes to deny. Taxpayer also filed a Petition to Determine Invalidity of Agency Statement, which was docketed under DOAH Case No. 19-3639RU (the "Rule Challenge"). In its section 120.56(4) petition, Taxpayer alleges that the Department has taken a position of disputed scope or effect ("PDSE"), which meets the definition of a "rule" under section 120.52(16) and has not been adopted pursuant to the rulemaking procedure prescribed in section 120.54. The Department's alleged PDSE, as described in Taxpayer's petition, is as follows: In the administration of documentary stamp tax and surtax, tax is due on the total consideration paid for real property, tangible property and intangible property, unless an allocation of consideration paid for each type of property sold has been made by the taxpayer on or before the date the transfer of the property or recording of the deed. If the alleged PDSE is an unadopted rule, as Taxpayer further alleges, then the Department is in violation of section 120.54(1)(a). The questions of whether the alleged agency PDSE exists, and, if so, whether the PDSE is an unadopted rule, are common to Taxpayer's separate actions under sections 120.57(1) and 120.56(4), respectively, because neither the Department nor the undersigned may "base agency action that determines the substantial interests of a party on an unadopted rule." § 120.57(1)(e)1., Fla. Stat. Accordingly, the Rule Challenge was consolidated with Taxpayer's refund claim for hearing. It is determined that the Department, in fact, has taken a PDSE, which is substantially the same as Taxpayer described it. The undersigned rephrases and refines the Department's PDSE, to conform to the evidence presented at hearing, as follows: In determining the amount stamp tax due on an instrument arising from the lump-sum purchase of assets comprising both RE and PP, then, absent an agreement by the contracting parties to apportion the consideration between the categories or subcategories of property conveyed, made not later than the date of recordation (the "Deadline"), it is conclusively presumed that 100% of the undifferentiated consideration paid for the RE and PP combined is attributable to the RE alone. According to the PDSE, the parties to a lump-sum purchase of different classes of property (a "Lump—Sum Mixed Sale" or "LSMS") possess the power to control the amount of stamp tax by agreeing upon a distribution of the consideration between RE and PP, or not, before the Deadline.2/ If they timely make such an agreement, then, in accordance with Consensual-Allocation Deference, which is absolute, the stamp tax will be based upon whatever amount the parties attribute to the RE. If they do not, then, under the Default Allocation Presumption, which is irrebuttable, the stamp tax will be based upon the undifferentiated consideration. The Department has not published a notice of rulemaking under section 120.54(3)(a) relating to the PDSE. Nor has the Department presented evidence or argument on the feasibility or practicability of adopting the PDSE as a de jure rule. It is determined as a matter of ultimate fact that the PDSE has the effect of law because the Department, if unchecked, intends consistently to follow, and to enforce compliance with, the PDSE. Because, in the Department's hands, the PDSE creates an entitlement to collect stamp taxes while adversely affecting taxpayers, it is an unadopted rule.
Findings Of Fact Respondent married Barbara Hannon on October 31, 1970. On November 5, 1975, Barbara G. Reilly, as she was sometimes known during her marriage to respondent, executed a petition for dissolution of marriage and other relief in which she alleged that she "wishe[d] to resume her former surname of HANNON." On January 14, 1976, the marriage between respondent and Barbara Hannon was dissolved. Petitioner's exhibit No. 4. Effective October 1, 1973 through October 4, 1975, inclusive, respondent was registered as a real estate salesman in the employ of King's Point Realty, Inc. From October 5, 1975, to March 31, 1977, respondent was registered as a real estate broker at the same office. By deed dated May 1, 1975, Harry and Evelyn Litwin conveyed "CONDOMINIUM PARCEL NO. 508, KINGS POINT BRITTANY K" to "BARBARA HANNON, a single woman. Petitioner's exhibit No. 14. This deed reflects payment of documentary stamp tax in the amount of $49.50 and of documentary surtax in the amount of $1.65. By deed dated June 20, 1975, "BARBARA HANNON, a single woman" conveyed the same parcel to Robert and Meredith Nisenbaum. This deed reflects payment of documentary stamp tax in the amount of $52.50 and of documentary surtax in the amount of $19.25. Petitioner's exhibit No. 14. By deed dated September 29, 1975, Dorothy I. Fox, an un-remarried widow, conveyed "CONDOMINIUM PARCEL NO. 702, KINGS POINT SAXONY `O'" to "BARBARA HANNON, a single woman. Petitioner's exhibit No. 15. This deed reflects payment of documentary stamp tax in the amount of $34.50 and of documentary surtax in the amount of $2.20. By deed dated November 6, 1975, "BARBARA HANNON, a single woman," conveyed the same parcel to B & M Realty Trust II. This deed reflects payment of documentary stamp tax in the amount of $45.00 and of documentary surtax in the amount of $6.05. Petitioner's exhibit No. 15. By deed dated October 31, 1975, Myron and Sonia Spergel conveyed "Condominium Parcel No. 237 of FLANDERS `E'" to "BARBARA HANNON." Petitioner's exhibit No. 16. This deed reflects payment of documentary stamp tax in the amount of $45.60 and of documentary surtax in the amount of $17.05. By deed dated March 12, 1976, "BARBARA HANNON" conveyed the same parcel to Harry and Evelyn Tuckman. Petitioner's exhibit No. 8. This deed reflects payment of documentary stamp tax in the amount of $57.00 and of documentary surtax in the amount of $4.40. Mr. and Mrs. Tuckman, who still lived in the condominium at the time of the hearing, dealt with respondent when they acquired the property. In conversations with respondent, a price was agreed upon. The Tuckmans did not know who the seller was at the time they agreed to buy. By deed dated June 10, 1976, Ida Ellman, a widow, conveyed "Condominium Parcel No. 202 of Valencia `I' CONDOMINIUM" to "BARBARA HANNON, a single woman." Petitioner's exhibit No. 17. This deed reflects payment of documentary stamp tax in the amount of $57.00 and of documentary surtax in the amount of $8.25. On this deed, the grantee's post office address is stated as "P.O. Box 994, Delray Beach, Fl. 33444." According to post office records, respondent George F. Reilly rented Post Office Box 994 at the Delray Beach Post Office from on or about November 4, 1975, until on or about June 21, 1977. By deed dated August 4, 1976, "BARBARA HANNON, a single woman" conveyed the same property to Natale and June V. Lisi. Petitioner's exhibit No. 9. This deed reflects payment of documentary stamp tax in the amount of $69.00 and of documentary surtax in the amount of $25.30. Respondent represented the seller when Mr. and Mrs. Lisi purchased the condominium. Respondent never disclosed to Mr. and Mrs. Lisi that he and Barbara Hannon had been married. By deed dated September 30, 1976, Sidney and Jean Kessler and Charles and Sandra Bondar conveyed "Parcel No. 159 of TUSCANY `C' Condominium" to "BARBARA HANNON, a single woman. Petitioner's exhibit No. 5. The grantee's address appears on this deed as "P.O. Box 994, Delray Beach, Florida 33444." This deed reflects payment of documentary stamp tax in the amount of $67.50 and of documentary surtax in the amount of $7.70. Respondent asked John W. Hooker, Jr., to handle the transaction from the Kesslers and Bondars to Barbara Hannon. Mr. Hooker received a cashier's check drawn on the Barnett Bank of West Delray Beach in the amount of $6,305.37, petitioner's exhibit No. 6, and closed the transaction by mail. He never met Barbara Hannon and only learned afterwards that she and respondent had been married. Respondent never disclosed to the Kesslers or to the Bondars that he had been married to Barbara Hannon; and he later admitted this to Floyd M. Stevens, an investigator in petitioner's employ. The money used to purchase the cashier's check given to Mr. Hooker, petitioner's exhibit No. 6, came from respondent's savings account at the Barnett Bank of West Delray Beach. Petitioner's exhibit No. 19. By deed dated December 16, 1976, "BARBARA HANNON, A SINGLE WOMAN" conveyed "Parcel No. 169, of TUSCANY `C' CONDOMINIUM" to John L. Schmieder and James A. Schmieder. Petitioner's exhibit No. 10. In anticipation of the conveyance, John Schnieder had placed a deposit with respondent in the form of a money order in the amount of $1,000, payable to "GEORGE REILLY-KING'S POINT REALTY." Petitioner's exhibit No. 21. The seller's closing statement prepared on December 15, 1976, contains the item: "Brokerage Commission Kings Point Realty . . . [$]1,000.00." Petitioner's exhibit No. 11. According to the same closing statement, the balance due seller amounted to $9,200.64. Id. On December 16, 1976, respondent deposited $10,200.64 (1,000.00 + 9,200.64) to his savings account at the Barnett Bank of best Delray Beach. Petitioner's exhibits Nos. 20, 21 and 22. According to the Bank's records, respondent's mailing address was "P.O. Box 994, Delray Beach, Fla. 33444." Respondent never mentioned to the Schmieders that he and Barbara Hannon were in any way related. Respondent deposited the money order he had received from the Schmieders to his own savings account on December 16, 1976; and never earlier deposited the money order to any escrow account. On October 14, 1976, The Keyes Company mailed a check drawn in favor of Kings Point Realty, Inc. (Kings Point) in the amount of $500, to the offices of Kings Point in Delray Beach. This check never reached Kings Point's supervisor of accounts payable and was not processed through Kings Point's ordinary banking channels, although it was paid.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner revoke respondent's registration as a real estate broker. DONE and ENTERED this 19th day of July, 1979, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of July, 1979 COPIES FURNISHED: Kenneth M. Meer, Esquire Post Office Box 1900 Orlando, Florida 32802 George F. Reilly 8671 Sunset Strip Sunrise, Florida 33322 George F. Reilly Post Office Box 4525 Old San Juan Station Puerto Rico 00905
Findings Of Fact In time sequence, the following transactions took place: a. Petitioner, Myron Friedman, executed a contract with Willow Industries, Inc., a New York corporation, on August 14, 1973, for the purchase of properties located in Manatee County, Florida. Conquistador Estates, Inc., a Florida corporation, for profit, was incorporated under the laws of the State of Florida on September 25, 1973. Petitioner, Myron Friedman, borrowed $650,000 from Franklin National Bank of Long Island, New York, on October 29, 1973. Mr. Friedman executed a personal note to the Florida National Bank on October 29, 1973. Myron Friedman made a loan to Conquistador Estates, Inc. in the amount of $400,000 to purchase the Manatee County property on October 30, 1973. Conquistador Estates, Inc. purchased the properties described in the contract from Willow Industries, Inc. to Myron Friedman on October 30, 1973. Conquistador Estates, Inc. executed a mortgage to Myron Friedman in the amount of $400,000 on October 30, 1973, in exchange for the herein before mentioned loan of $400,000 on October 29, 1973. Myron Friedman assigned the herein before mentioned mortgage to Franklin National Bank as security for the personal loan of $650,000 on October 30, 1973. Conquistador Estates, Inc. deeded the properties acquired by it from Willow Industries, Inc. to Myron Friedman on May 28, 1974. Additional facts: The notes and the mortgage herein described are still in existence. Conquistador Estates, Inc. is still a viable corporation although it owns no property and Myron Friedman is the sole stockholder. There were no payments made to Petitioner, Myron Friedman, as required by the terms of the promissory note of Conquistador Estates, Inc. to Myron Friedman. In an Audit of documents recorded in the office of the Circuit Clerk in and for Manatee County, Florida, Respondent, Department of Revenue, determined that insufficient documentary stamps and documentary surtax stamps were affixed to the warranty deed dated May 28, 1974, between Conquistador Estates, Inc. and Petitioner, Myron Friedman, an individual. Subsequent to the audit, the Respondent issued a "Proposed Notice of Assessment of Tax and Penalty Under Chapter 201, Florida Statutes, documentary surtax in the amount of $439.45, pursuant to Section 201.021, Florida Statutes, and penalties in the amount of $1,639.14 pursuant to Section 201.17, Florida Statutes. Attached to the said notice was "Schedule A," an explanation of the basis for the demand for additional documentary stamp tax and documentary surtax. It explained that the warranty deed to Petitioner, Myron Friedman, individually, from Conquistador Estates, Inc., satisfied the existing mortgage and which rendered the mortgage unenforceable as to the original mortgagor, Conquistador Estates, Inc., and cited Department of Administration Rule 12A-4.13(2) Florida Administrative Code. "Defaulting Mortgagor: Where a mortgagor, in full or partial satisfaction of the mortgage indebtedness, conveys the mortgaged premises to the mortgagee, documentary stamp taxes are due on the transaction." Petitioner, Myron Friedman, contends: That Conquistador Estates, Inc. was just a nominee used for the purpose of securing a mortgage loan; That he is the sole owner of the corporation; That there was no conveyance in full or partial satisfaction of the mortgage since he is the sole owner of the corporation, and he is the grantee and that, therefore, no documentary stamp tax or surtax or penalty is due; That the mortgage itself is assigned and is still in existence. The Respondent contends: That the clear wording of statute, Section 201.02(1), F.S., controls the transaction which was a conveyance by warranty deed; That because the corporation, Conquistador Estates, Inc. has no assets and made no payments to Petitioner, the conveyance by warranty deed was in full satisfaction of the mortgage indebtedness and canceled the written obligation of the corporation to pay $400,000, the unpaid portion of the obligation secured by the mortgage. The Respondent further contends that the partial indebtness of the corporation itself to Petitioner was canceled.
Recommendation Assess the documentary stamp and the documentary surtax against Petitioner, Myron Friedman. Do not assess penalties for failure to pay tax required, inasmuch as it is apparent that the taxes which were paid were paid in good faith and that the taxes which were due and owing were not paid because of a misunderstanding of the requirements of Chapter 201, F.S. DONE and ORDERED this 28th day of May, 1976. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of May, 1976. COPIES FURNISHED: Robert H. Carr, Esquire Post Office Box 3798 Sarasota, Florida 33578 Patricia Turner, Esquire Department of Legal Affairs The Capitol Tallahassee, Florida 32304
Findings Of Fact On January 15, 1975, Gerardo Benesch, Jitka Benesch, H. Albert Grotte, Regina Grotte, Milorad Dordevic, Catalina Dordevic, Milodrag Savovic and Marina Savovic executed an agreement associating themselves in a general partnership, Andean Investment Company. The stated purpose of the partnership was to engage in the business of real estate development, selling, renting, and dealing generally in real estate of all kinds. It was recited in the agreement that, by forming the partnership, the parties wished to reduce their prior expense of managing separate properties through separate managerial agreements. To this end, they transferred certain real estate by quit-claim deed to the partnership, and these properties represented its capital. The agreement provided in Article IV that the net profits or net losses of the partnership would be distributed or chargeable, as the case might be, to each of the partners in percentage proportions based on the amount of their investment in the partnership. The property consisted of warehouses located in Deerfield Beach and Fort Lauderdale, Florida, from which rentals were derived (Petition and Exhibits thereto). All of the properties were encumbered by mortgages of varying amounts and all but two of the quit-claim deeds transferred title subject to the mortgage thereon. Two deeds provided specifically that the partnership assumed the existing mortgage. Although Petitioner's counsel states that this was not intended and was a "scrivener's error", Petitioner partnership has, in fact, made the mortgage payments on all of the properties since their transfer under the aforesaid deeds (Composite Exhibit 1, Stipulation). Petitioner paid only minimal documentary stamp tax on the deeds. Respondent thereafter issued four proposed Notices of Assessment of Documentary Stamp Tax, Surtax, and Penalty against the Petitioner on January 6, 1976, in the total amount of $3,797.00. The tax was computed under Rule 12A-4.13(10)(c), F.A.C., based on transfers of realty (Composite Exhibit 2, Testimony of Dahlem). At the hearing, Petitioner disputed the manner in which Respondent had computed the documentary stamp tax in that each assessment dealt with a husband and wife who held individual percentage interests in the net worth of the partnership. Respondent's computation did not take into consideration the double interest in each assessment. The parties therefore agreed that a recomputation would be made by Respondent and submitted as a late-filed exhibit. This was done and the new computation reflects a total tax liability, including surtax and penalty, in the total amount of $4,053.40 (Composite Exhibit 3).
Recommendation That Petitioner's request for relief from tax liability be denied, and that Petitioner's liability for documentary stamp tax, surtax, and penalties in the total amount of $4,053.40 be sustained. DONE and ORDERED this 26th day of May, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs Tax Division, Northwood Mall Tallahassee, Florida 32303 Allan F. Meyer, Esquire Suite 1500 Post Office Box 14310 Ft. Lauderdale, Florida 33302 Zayle A. Bernstein, Esquire Post Office Box 14310 Fort Lauderdale, Florida 33302
