Findings Of Fact Stewart executed a mortgage note dated February 3, 1972 in the amount of $2,943,400 payable to City National Bank of Miami. This note was secured by a mortgage executed by Stewart as mortgagor to City National Bank of Miami as mortgagee of same date. This mortgage was recorded on February 8, 1972 at which time documentary stamp tax and intangible taxes were paid. The note was designated a mortgage note in the face amount of $2,943,400 and taxes paid were predicated on this sum. The mortgage provided, inter alia, in item 24 thereof: "That the funds to be advanced herein are to be used in the construction of certain improvements on the land herein described, in accordance with a building loan agreement between the mortgagor and the mortgagee dated February 8, 1972, which building loan agreement (except such part or parts thereof as may be inconsistent herewith) is incorporated herein by reference to the same extent and effect as if fully set forth and made a part of this mortgage; if the construction of the improvements to be made pursuant to said building loan agreement shall not be carried on with reasonable diligence, or shall be discontinued at any time for any reason other than strikes or lockouts, the mortgagee, after due notice to the mortgagor or any subsequent owner, is hereby invested with full and complete authority to enter upon said premises, employ watchmen to protect such improvement from depredation or injury, and to preserve and protect the personal property therein, and to continue any and all outstanding contracts for the erection and completion of said building or buildings, to make and enter into any contracts and obligation wherever necessary, either in its own name or in the name of the mortgagor, and to pay and discharge all debts, obligations, and liabilities incurred thereby. All such sums so advanced by the mortgagee (exclusive of advances of the principal of the indebtedness secured hereby) shall be added to the principal of the indebtedness secured hereby and shall be secured by this mortgage and shall be due and payable on demand with interest at the rate of the same rate as provided in the note secured hereby, but no such advances shall be insured unless same are specifically approved by the Secretary of Housing and Urban Development acting by and through the Federal Housing Commissioner prior to the making thereof. The principal sum and other charges provided for herein shall, at the option of the mortgagee or holder of this mortgage and the note secured hereby, become due and payable on the failure of the mortgagor to keep and perform any of the covenants, conditions, and agreements of said building loan agreement. This covenant shall be terminated upon the completion of the improvements to the satisfaction of the mortgagee and the making of the final advance as provided in said building loan agreement;" Prior to the completion of the project for which the note and mortgage were executed and before the full amount stated in the note had been advanced Stewart went into receivership. No advances were made under the note and mortgage subsequent to December, 1974, and only $1,935,378 had been disbursed to Stewart prior to foreclosure. On March 17, 1976 Stewart requested a refund in the amount of $1512 for documentary stamp taxes and $2016 for intangible taxes paid on the difference between $2,943,400 and $1,935,378.29. By letters dated June 16 and 17, 1976, each of the refund requests was denied by the Comptroller on the ground advanced by Department of Revenue that the claims were barred as not being timely filed. Vanguard executed a note in the amount of $2,000,000 payable to the Chase Manhattan Bank secured by a building loan mortgage from Vanguard as mortgagor to Chase as mortgagee. This mortgage was recorded and documentary stamp taxes and intangible taxes were paid on April 19, 1973. Other than the amount of the note and the total advanced prior to Vanguard going into receivership, the basic facts were the same as in Stewart. At the time of the last payment in May, 1975 Vanguard had received $1,388,008 of the $2,000,000 evidenced by the note. Vanguard's application for refund of $1224 for intangible taxes paid was denied by the Comptroller for the same reason Stewarts was denied. Here the application dated April 19, 1976 was postmarked in Miami on April 20, 1976 and received by Respondent on April 22, 1976. Worthington executed a building loan note dated October 25, 1972 in the amount of $2,750,000 payable to Trustees of C. I. Mortgage Group which was secured by a mortgage loan of same date. Worthington also went into receivership in December, 1974 after $1,962,750 had been advanced. Application for refund of documentary stamp taxes in the amount of $1180.80 and intangible taxes in the amount of $1574.50 filed March 17, 1976 was denied by the Comptroller on the grounds that the application was not timely filed. All of the above loans, for which the mortgages were recorded, were construction loans and provided for periodic payments to the mortgagor as the construction progressed. Provided the mortgagor complied with the terms of the building agreement the mortgagee was legally required to advance funds when due. In determining valuation for the purpose of computing the intangible taxes due clerks of the circuit court follow 199.122(7) F.S. which provides that obligations for payment of money secured by a mortgage shall be valued at the principal amount of indebtedness evidenced by such transactions. Accordingly in the cases at hand the clerks would have refused to record the mortgages unless the intangible taxes and documentary stamp taxes computed using the principal amount of the obligation were paid. An application for refund of the intangible tax representing the difference between the face amount of the mortgage to secure future advances, and the amount advanced, will be disapproved by the Department of Revenue so long as advances on the face amount of the loan are still being made.
The Issue The issue for consideration in this case is whether deeds by property owners which convey unencumbered real property to a corporation solely owned by them, are subject to a documentary stamp tax imposable under Section 201.021(1), Florida Statutes, and Rule 12B-4.013(7), Florida Administrative Code.
Findings Of Fact By Warranty Deed dated April 30, 1991, W. Dewey Kennell sold eight condominium apartments, units 1731, 1733, 1735, 1737, 1741, 1743, 1745 and 1747, in Baywood Colony Southwood Apartments IV, a condominium, to Kurt Rabau and Ronald Rabau, his son, residents of Germany. The Rabaus purchased the properties as an investment in rental property for income. At the time of the sale, the property was subject to mortgages totaling $250,000, which the Rabaus paid off on May 24, 1994. Sometime after the purchase, the Rabaus were advised to incorporate and hold title to the properties in a corporate capacity to protect themselves against personal liability. Thereafter, on September 14, 1994, the Rabaus formed Kuro, Inc., the Petitioner herein, to take and hold title to the properties, with Kurt Rabau and Ronald Rabau each owning 50% of the corporate stock. There were no other owners of stock in the corporation. On October 12, 1994, the Rabaus transferred all eight properties to Kuro, Inc. Kuro, Inc. had no assets other than the eight apartments, and did no business prior to the transfer of those apartments to it. Consequently, the stock of Kuro, Inc. was valueless prior to the receipt of the transferred apartments. The corporation’s federal tax form relating to transfer of property to a corporation, the “Corporation’s Statement on Transfer of Property Under Code Section 351” reflects that the Rabaus “transferred the jointly owned property [described therein] for which Kuro Inc. issued the stock”. From the evidence presented it is clear that the Kuro Inc. stock was issued in exchange for the contribution of the apartments to the corporation. Other documents in the corporation’s 1994 tax return indicate that the property was valued at fair market value at the time of transfer to the corporation, and the transferee’s, (corporation’s) adjusted basis was identical after the transfer. Each of the Rabaus received 500 shares of the corporation’s stock which was valued at $618,642. Of that amount, $617,642 was considered additional paid-in capital. There was no additional property received or possessed by the corporation. A minimal documentary stamp tax was paid by the parties at the time the eight Warranty Deeds for the apartments were transferred to the corporation. The consideration reflected on the face of each deed was “...the sum of $10.00 and other valuable consideration.” Subsequent to the transfer, the Department conducted an audit of the Clerk of Circuit Court in Sarasota County and, on November 10, 1994, issued a Notice of Intent to Make Documentary Stamp Tax and Discretionary Surtax Audit Changes, by which it indicated its intent to impose a documentary tax of $4,207.00 on the transfers, a 50% penalty of $2,103.50, and interest totaling $38.73 through November 10, 1994, with additional interest to accrue at the rate of 1% per month, prorated daily ($1.38), until date of payment. Thereafter, on March 27, 1995, the Department issued a Notice of Proposed Assessment to Kuro, Inc., and Petitioner timely filed a protest. Subsequent to that action, on January 11, 1996, the Department issued its Notice of Decision sustaining the proposed assessment, penalty and accrued interest, and Petitioner requested formal hearing.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Revenue enter a final order imposing a tax in the amount of $4,207.00 with interest from date of filing at 1 percent per month based on the amount of tax not paid to date of payment. DONE and ENTERED this 22nd day of April, 1997, in Tallahassee, Florida. ARNOLD H. POLLOCK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6947 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of April, 1997. COPIES FURNISHED: C. Samuel Whitehead, Esquire 2199 Ringling Boulevard Sarasota, Florida 34237 James F. McAuley, Esquire Office of the Attorney General The capitol - Tax Section Tallahassee, Florida 32399-1050 Linda Lettera General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 Larry Fuchs Executive Director Department of Revenue Tallahassee, Florida 32399-1011
The Issue Whether the petitioners are entitled to a refund of the documentary stamp taxes paid on a Special Warranty Deed conveying real property from the Federal Home Loan Mortgage Corporation to one of the petitioners.
Findings Of Fact Based on the facts alleged in the petition for administrative hearing, the responses to requests for admission, and the facts stipulated to at the hearing on the motion for recommended summary final order, the following findings of fact are made: On September 27, 1994, Freddie Mac conveyed to Abe Saada by a Special Warranty Deed real property located in Dade County, Florida. Regina Saada is not a party to the Special Warranty Deed. The U.S. Department of Housing and Urban Development Settlement Statement prepared for the closing on the property showed that $9,600.00 in "state tax/stamps" was owed on the deed, of which $4,800.00 was to be paid from the funds of the seller, Freddie Mac, and $4,800.00 was to be paid from the funds of the borrower, Abe Saada. Pursuant to its agreement with Mr. Saada, Freddie Mac paid $9,600.00 to the Clerk of Court as the documentary stamp tax on the deed on or about September 28, 1994. The deed was recorded in the Dade County Official Records at Book 16525 at pages 3583-3585. Abraham Saada is not exempt from the documentary stamp tax.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a Final Order dismissing the Petition for Chapter 120 Administrative Hearing to Contest Denial of Stamp Tax Refund filed by Abraham Saada and Regina Saada. DONE AND ENTERED this 8th day of May, 1997, in Tallahassee, Leon County, Florida. PATRICIA HART MALONO Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 8th day of May, 1997.
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
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 Prior to the hearing the parties jointly moved to consolidate the two (2) above styled cases and stated the stipulation would cover both 76-2197, D.O.A.H., and 77-604, D.O.A.H. The former involved six (6) deeds and the latter three (3) deeds. The following facts were stipulated to by the parties: The Respondent, Department of Revenue, imposed a documentary stamp tax upon six (6) deeds which transferred the title to properties from individual persons to Petitioner Corry. The transfer came about as a result of the following: In each of the six (6) transfers under question, Petitioner Corry sold property to certain individuals. The Petitioner gave to the individuals a deed and took back a purchase money mortgage. The purchasers made essentially no payments on the mortgage to Petitioner Corry and ultimately the purchasers deeded the property back to the Petitioner. The deeds were recorded in the courthouse records. In one of the deeds there is a specific statement that the deed is executed in lieu of foreclosure and that the purchaser is released from all liability. There is no such specific statement in the other deeds. By a Proposed Notice of Assessment dated August 3, 1976, the Respondent, Department of Revenue, sought to impose a documentary stamp tax upon the six (6) deeds. The consideration upon which the tax is based in cases like the instant case is usually the amount of mortgage debt forgiven but in the instant case no such information was provided and the tax was based on the assessed values of the property. Petitioner Corry is contesting the legal liability of Petitioner for the assessment and is not contesting the legal liability of Petitioner for the assessment and is not contesting the mathematical computation of the amount allegedly due. It is Petitioner's contention that the six (6) deeds are not subject to documentary stamp taxation inasmuch as the Petitioner paid nothing for the deeds and were signed by the mortgagors at the request of the Petitioner to clear title of the equitable owner. It is the Respondent Department of Revenue's contention that the six (6) deeds are subject to documentary stamp taxation since they are deeds in lieu of foreclosure or are deeds given when debts are rendered unenforceable. At the time the six (6) deeds were recorded on December 22, 1975, in Taylor County, the Deputy Clerk asked Petitioner how much he paid for the six (6) deeds in question and when he responded that he paid nothing for the deeds the Deputy Clerk advised him that he owed no documentary stamp tax or surtax thereon. Relying on the Deputy Clerk's advice, the deeds were recorded and no taxes were paid, only the recording fees. The Hearing Officer further finds: The deeds in question were secured for the purpose of clearing title to the equitable owner. The Petitioner paid nothing to the mortgagor for the deeds. The stipulation controls both cases No. 76-2197 and 77-604.
Recommendation Hold the assessments as valid assessment. DONE and ORDERED this 6th day of July, 1977, in Tallahassee, Florida. COPIES FURNISHED: Caroline C. Mueller, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 William W. Corry, Esquire Post Office Box 527 Tallahassee, Florida 32302 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 6th day of July, 1977.
Findings Of Fact Upon consideration of the stipulation of the parties and documents attached thereto, the following relevant facts are found: On or about October 9, 1979, Dade County, a political subdivision of the State of Florida acting for the use and benefit of its Department of Housing and Urban Development, a public housing authority ("PHA"), entered into a Contract for Project Dade 8-10 ("Contract") with Irbye Giddens, Inc. and Cohen- Ager, Inc., a joint venture, for the construction of Project Dade 8-10, a/k/a Singer Plaza, a housing development for the physically handicapped. The Contract was granted to Cohen-Ager, Inc. and Irbye Giddens, Inc. pursuant to competitive negotiations based on a document titled Dade 8-10 Request for Proposals. Cohen-Ager, Inc. and Irbye Giddens Inc. were selected on the basis of their bid submission as modified by the agreement of the parties due to delay in commencing construction. As indicated by the original bid submission of Cohen-Ager, Inc. and Irbye Giddens, Inc. the original price of the project was $2,576,000; but at the request of Cohen-Ager Inc. and Irbye Giddens, Inc., the contract price was eventually raised to the amount found in Part II of the Contract, $2,970,000. On or about October 10, 1979, Dade County deeded the subject undeveloped property to Cohen-Ager Inc. and Irbye Giddens Inc., the joint venture, by "Quit-Claim County Deed Subject to Possibility of Reverter," ("Quit- Claim Deed"). The Quit-Claim Deed, which incorporated by reference the Contract described in paragraph "1," provided for automatic reverter to Dade County of all of the right, title, and interest of Cohen-Ager, Inc., in the property upon, among things, the termination, rescission or complete performance of the Contract. Cohen-Ager, Inc., and Irbye Giddens, Inc. having obtained title to the property by virtue of the Quit-Claim Deed, rightfully used the property as collateral to obtain financing to cover the cost of construction of project 8- 10. Cohen-Ager, Inc., and Irbye Giddens, Inc., were legally obligated under the Contract and the Quit-Claim Deed to complete construction of project 8-10 and to reconvey clear title to Dade County when the project was completed. Cohen-Ager, Inc., and Irbye Giddens, Inc., fully performed under the terms of the Contract and Quit-Claim Deed, and reconveyed the property to Dade County by Warranty Deed dated February 12, 1981, and recorded March 12, 1981 ("Warranty Deed"). The Warranty Deed is the instrument on which the State of Florida Department of Revenue seeks to impose the documentary stamp tax at issue here. The Warranty Deed was one step in a multi-step transaction used to finance the development and construction of project 8-10. Under this method of financing development of its property, Dade County transfers title to undeveloped property and "repurchases" developed property. Pursuant to the terms of the Contract, Dade County transferred title to the undeveloped property site to Cohen-Ager, Inc. and prohibited the transfer of the contract or property except (1) to an entity to which the contract is assigned with the written prior approval of the PHA and (2) to a mortgagee for the purpose of obtaining financing of the completion of the property. Dade County paid for the development of project 8-10 with the proceeds of Special Housing Revenue Bonds issued for that project pursuant to Chapters 159 and 166, Florida Statutes, Dade County Ordinance No. 79-49, and Dade County Board of County Commissioners' Resolutions R-1270-79 and R-1423-79. The Special Housing Revenue Bonds were issued under a Trust Indenture. When the property was reconveyed to Dade County by the Warranty Deed, Dade County paid to Cohen-Ager, Inc., and Irbye Giddens, Inc. the contract price, $2,970,000, from the proceeds of the bonds. The Department of Revenue seeks to impose the documentary stamp tax on the total amount of the contract price as the consideration for the Warranty Deed. The documentary stamp tax on $2,970,000 is $11,880.00, or $.40 per $100 of consideration. Article VII, paragraph (c), of the contract of Sale, attached to and made a part of the Contract, specifies in part that the Contractor (herein Cohen-Ager, Inc.) "shall pay all documentary stamps and taxes applicable to" the coveyance of the property to Dade County by warranty deed.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law it is RECOMMENDED that the Department of Revenue enter a Final Order assessing Cohen-Ager, Inc., for the documentary stamp tax due on the Warranty Deed to Dade County in the amount of $11,880.00, plus penalties and interest. DONE and ORDERED this 16th day of January, 1986, in Tallahassee, Florida. DIANE K. KIESLING Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of January, 1986. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 84-1425 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Rulings on Proposed Findings of Fact Submitted by Petitioner and Intervenor Adopted in Finding of Fact Adopted in Finding of Fact 2. Adopted in substance in Finding of Fact 3 as regards the first two sentences of the proposed finding of fact. The last three sentences of the proposed finding of fact are rejected as unnecessary, as not supported by the evidence, as beyond the scope of the facts stipulated by the parties, and as being commentary. Adopted in Finding of Fact 4. Adopted in Finding of Fact 5. Adopted in Finding of Fact 6. Adopted in Finding of Fact 7. Adopted in Finding of Fact 8. Adopted in Finding of Fact 9. Adopted in Finding of Fact 10. Rulings on Proposed Findings of Fact Submitted by Respondent Rejected as unnecessary and irrelevant. It is simply a recap of part of the history and issues in the case and is therefore unnecessary to a determination of the issues. Adopted in substance in Findings of Fact 1, 6, and 7. Adopted in substance in Findings of Fact 5 and 6. There is an apparent typographical error in that the last two lines of Proposed finding of fact 3 are incomplete and the subject of the incomplete sentence is omitted. However it may be that the substance intended by Respondent is adopted in Finding of Fact 13. There is no proposed finding of fact 4. It may be that the incomplete sentence referred to above was intended to be proposed finding of fact 4. If so, the ruling on it is incorporated above. 5. Adopted in substance in Findings of Fact 2, 11 and 12. COPIES FURNISHED: Lewis R. Cohen, Esquire 1428 Brickell Avenue Eight Floor Miami, Florida 33131 Linda Lettera, Esquire Department of Legal Affairs Room LL04 The Capitol Tallahassee, Florida 32301 Joni B. Armstrong Assistant County Attorney 16th Floor 73 West Flagler Street Miami, Florida 33130 Randy Miller Executive Director 102 Carlton Building Tallahassee Florida 32301 William D. Townsend General Counsel 104 Carlton Building Tallahassee, Florida 32301 =================================================================
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 a tax on a warranty deed is an allowable property cost, as claimed in Petitioner’s Medicaid cost report.
Findings Of Fact Venice operates Sunset Lake, a licensed nursing facility that participates in the Florida Medicaid program as an institutional provider. AHCA is the agency responsible for administering the Florida Medicaid program. On or about June 1, 2005, Venice (or an affiliate, which need not be distinguished from Venice for purposes of this proceeding) purchased the nursing facility that is now known as Sunset Lake from Bon Secours-Venice Healthcare Corporation. Venice filed its initial Medicaid cost report with AHCA for the fiscal period ending December 31, 2005. The initial Medicaid cost report for a nursing facility is used to set the per diem rates at which the Medicaid program will reimburse the facility, both retroactively for the initial period of operations, and prospectively until the next cost report is filed and used to set a new per diem rate. AHCA contracted with an outside auditing firm to audit Venice’s initial cost report. The auditing firm produced an audit report, which identified proposed adjustments to Venice’s cost report. The audit report was reviewed by AHCA analyst Steven Diaczyk before it was finalized and sent to Venice. Venice initially contested 17 adjustments in the final audit report. Before the final hearing, Venice withdrew its challenge to 16 of the 17 adjustments. The only remaining dispute to be resolved in this proceeding is whether audit adjustment number four, which disallowed $49,540.00 of costs in the category of “Property Taxes – Real Estate,” should be reduced by $12,203.80. The disallowed $12,203.80 represents one-half of the tax assessed pursuant to section 201.02, Florida Statutes (2005),1/ on the warranty deed conveying the Sunset Lake real property (including the land, land improvements, and the building) to Venice. Venice claimed one-half of the tax on its cost report because that is the amount paid by Venice; the other half was paid by the seller. Venice contends that this tax is an ad valorem tax and/or a property tax,2/ which is an allowable property cost on the Medicaid cost report. AHCA contends that the tax on the warranty deed is an excise tax, not a property tax, and, therefore, not an allowable property cost. The audit report did not explain the reason for disallowing the $12,203.80 tax, as part of the $49,540.00 adjustment. Instead, the audit report explained the entire $49,540.00 adjustment as necessary to “disallow unsupported costs,” suggesting a lack of documentation. However, no non- hearsay evidence was offered at hearing to prove that Venice failed to give the auditors sufficient documentation of the costs disallowed in adjustment number four. At least with respect to the disallowed $12,203.80 item, sufficient documentation was offered at hearing to support the cost as an actual cost incurred by Venice. The question is whether the documented cost is allowable as an ad valorem tax or property tax, as Venice claims. Documentation for the $12,203.80 tax on the warranty deed is found in the buyer/seller closing statement and on the face of the warranty deed. The closing statement sets forth the total purchase price of $7,500,000.00, which is also the amount of a mortgage loan from Bank of America. The closing statement allocates the total purchase price to the land ($477,000.00), land improvements ($496,500.00), the building ($2,513,250.00), FFE--furniture, fixtures, and equipment ($992,250.00), and personal property ($3,021,000.00). The closing statement also shows a separate category called credits and/or prorations, to appropriately account for items accruing over the calendar year. The first line item in this category is for “Ad Valorem Taxes.” If ad valorem taxes were due for calendar year 2005, they would have been prorated. However, the amount is shown to be zero. As confirmed at hearing, no ad valorem taxes were due for the Sunset Lake property in 2005, because as of January 1, 2005, the property was owned by a not-for-profit entity, making the property exempt from ad valorem taxes. The second line item in this category, for “Non-Ad Valorem Assessments,” for which there was no exemption, shows a total amount for 2005 of $8,235.29, which was prorated to credit the buyer for $3,270.65. The closing statement proration had the effect of charging the seller with its share of the assessments for the part of the year prior to closing.3/ A separate category on the closing statement addresses “Recording Fees.” The first line item in this category is for “Transfer Tax-snf [skilled nursing facility].” The taxable amount is shown as $3,486,800.00. The tax of $24,407.60 is split equally between buyer and seller, with $12,203.80 charged to each. The next line is for “Stamp Tax on mtg. [mortgage].” The taxable amount is shown as $7,500,000.00, the amount of the mortgage loan. The tax of $26,250.00 is charged to the buyer. Another line item is shown for “Intangible Tax on mtg.” Again, the taxable amount is shown as $7,500,000.00, and the tax of $15,000.00 is charged to the buyer. The top right corner of the warranty deed conveying the Sunset Lake property contains the following printed or stamped text in the space marked “(Space reserved for Clerk of Court):” RECORDED IN OFFICIAL RECORDS INSTRUMENT # 2005117710 7 PGS 2005 JUN 01 05:01 PM KAREN E. RUSHING CLERK OF THE CIRCUIT COURT SARASOTA COUNTY, FLORIDA MMARSH Receipt#635187 Doc Stamp-Deed: 24,407.60 [Bar/Scan Code with instrument number] As Venice’s representative confirmed, the reference on the face of the warranty deed to “Doc Stamp-Deed: 24,407.60,” affixed by the clerk of the court in the official records entry, means that a documentary stamp tax on the deed in the amount of $24,407.60 was paid. Because the tax was split between buyer and seller, Venice actually paid $12,203.80. Although the closing statement shows that the tax at issue was called a transfer tax and categorized as a “recording fee,” and not an “ad valorem tax,” Venice contends here that the documentary stamp tax on the deed was an ad valorem property tax, because the tax was assessed on the value of the property. As Venice summarized its position: That irrespective of whether the transfer tax is called an excise tax, a doc stamp tax or any other type of tax, the fact that it is based solely on the value of the assets makes it an ad valorem tax, which is considered by the state of Florida in all cases under Medicaid cost reporting purposes [sic] as a property tax. (AHCA Exh. 3, p. 14). AHCA disagrees. AHCA contends that the documentary stamp tax on the deed is an excise tax, assessed on the consideration for the property transferred by the deed. The parties do agree that the documentary stamp tax rate, applied to either the value of the property or the consideration for the property, was 70 cents per $100.00.4/ The parties also agree that the “property” at issue, which was conveyed by the warranty deed, includes the land, land improvements, and the building. That being the case, it appears from the closing statement that the “taxable amount” used to determine the documentary stamp tax on the deed (referred to as the “transfer tax-snf”) was the sum of the purchase price allocations for the land ($477,000.00), land improvements ($496,500.00), and the building ($2,513,250.00).5/ The documentary stamp tax on the warranty deed was based on the consideration for the property stated in the closing statement.6/ Venice asserts that the documentary stamp tax was based on the “assessed value of the property (land, land improvements and the building) [of] $3,486.750.00[.]” (Venice PRO at ¶ 24, n. 1). However, Venice offered no evidentiary support for this assertion. The amount Venice calls the “assessed value” is actually the amount of the total purchase price allocated in the closing statement to the land, land improvements, and the building. In contrast, the “assessed value” for this property in 2005, according to the Sarasota County Tax Collector’s bill, was $3,724,300.00. The documentary stamp tax on the warranty deed was not based on the assessed value of the property. Venice also contends that subsequent action by the Department of Revenue supports Venice’s position that the documentary stamp tax on the deed was based on the value of the property and not on the consideration for the property. Venice offered in evidence portions of correspondence between representatives of Venice’s parent company with the Department of Revenue in 2008 that resulted in a determination that Venice owed additional documentary stamp tax on the Sunset Lake warranty deed. According to Venice, “the Department [of Revenue] did not agree with the value of assets that Venice had reported and paid taxes on.” (Venice PRO at ¶ 32). Contrary to Venice’s characterization, the portions of correspondence with the Department of Revenue in evidence confirm that the documentary stamp tax on the Sunset Lake warranty deed was based on the consideration for the real property (i.e., the land, land improvements, and the building). The Department of Revenue sought additional information from Venice to establish what the consideration was. The Department of Revenue “Official Request for Information” form asked for “Total Consideration (Purchase/Transfer Price)” for the property conveyed by warranty deed. The form completed on Venice’s behalf reported that the consideration was $3,486,750.00--the purchase price allocation in the closing statement to the land, land improvements, and the building. Along with the completed form, a letter of explanation on Venice’s behalf (with attachments not offered in evidence) went into great detail in an attempt to justify these purchase price allocations, and ended on the following note: We are hopeful that the enclosed documentation and the foregoing explanation of the purchase price allocations will provide sufficient information for the Department to determine that the correct amount of documentary stamp taxes was paid on each of the deeds, based in each case on the agreed consideration paid for the respective real estate assets. Thus, from the evidence offered by Venice, the focus of the Department of Revenue inquiry, as well as the Venice response to the inquiry, was entirely on the consideration paid for the property. The fact that the Department of Revenue ultimately determined that Venice owed more documentary stamp taxes on the warranty deed than was paid is not evidence that the tax was assessed on the “value” of the real property, as Venice argues. Instead, the material suggests that the Department of Revenue disagreed with what Venice contended was the total consideration and/or with Venice’s allocation of the total purchase price to the real property (the land, land improvements, and the building) and to the other assets acquired in the transaction, including furniture, equipment, and personal property. Venice also takes the position that the tax on the warranty deed is an allowable cost pursuant to two provisions in the federal Provider Reimbursement Manual (PRM), which is one of the sources used to determine allowable costs. First, PRM section 2122.1 provides the “general rule” that “taxes assessed against the provider, in accordance with the levying enactments of the several States and lower levels of government and for which the provider is liable for payment, are allowable costs.” Next, PRM section 2122.2 provides in pertinent part: Certain taxes . . . which are levied on providers are not allowable costs. These taxes are: * * * C. Taxes in connection with financing, refinancing, or refunding operations, such as taxes on the issuance of bonds, property transfers, issuance or transfer of stocks, etc. Generally, these costs are either amortized over the life of the securities or depreciated over the life of the asset. They are not, however, recognized as tax expense. Venice contends that the documentary stamp tax paid on the warranty deed must be allowed because it is a tax that meets the general rule in section 2122.1, and it is not an excluded tax under section 2122.2(C). The documentary stamp tax paid by Venice on the warranty deed satisfies the general elements of section 2122.1; AHCA does not contend otherwise. Instead, AHCA contends that the documentary stamp tax must be considered an excluded tax under section 2122.2(C). AHCA is correct that the documentary stamp tax on warranty deeds transferring real property is essentially a transfer tax. However, it is not a tax in connection with financing, refinancing, or refunding operations. An example of such a tax would be the documentary stamp tax that Venice paid on the mortgage on Sunset Lake, because it was a tax in connection with the financing for the property. Venice correctly points out that, grammatically, section 2122.2(C) suggests that the only taxes excluded under that subsection are taxes in connection with financing, refinancing, or refunding operations. The use of the phrase “such as” suggests that everything that follows that phrase must be considered an example of what precedes the phrase. AHCA acknowledges that consideration of the grammatical structure of section 2122.2(C) alone would support Venice’s interpretation. However, AHCA’s expert testified, reasonably and without contradiction, that Venice’s interpretation would render the phrase “property transfers” meaningless. As AHCA’s expert explained, a tax on a property transfer is not a tax on financing, refinancing, or refunding operations. Therefore, despite the grammatical structure, taxes on property transfers must be considered a separate type of excluded tax under section 2122.2(C). As further support for this interpretation, AHCA’s expert pointed to the second sentence, providing that the excluded costs referred to in the first sentence “are either amortized over the life of the securities or depreciated over the life of the asset.” AHCA’s expert explained that taxes on financing, refinancing, or refunding operations would all be amortized, whereas taxes on property transfers would be depreciated over the life of the depreciable assets transferred (i.e., the land improvements and the building). Venice relies solely on the grammatical structure of section 2122.2(C), offering no response to AHCA’s reasoning for interpreting the subsection in a way that is contrary to the meaning suggested only by grammatical structure. Venice did not explain how a tax on property transfers could be considered a tax on financing, refinancing, or refunding operations (so as to give meaning to the phrase “property transfers”), nor did Venice explain when taxes on financing, refinancing, or refunding operations would be depreciated over the life of the asset (so as to give meaning to that phrase in the second sentence).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a Final Order disallowing $12,203.80 claimed as a property tax expense in Venice’s initial Medicaid cost report. DONE AND ENTERED this 25th day of July, 2014, in Tallahassee, Leon County, Florida. S ELIZABETH W. MCARTHUR 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 25th day of July, 2014.
