Findings Of Fact On or about January 9, 1974, Petitioners and their partners, Edward Mehler, and Sylvia Mehler, sold certain property located in Broward County, Florida, to Leo Koehler, Pat Manganelli, and Walter Urchison. A copy of the deed was received in evidence as Respondent's Exhibit 1. The Petitioners and the Mehlers took a $50,000 mortgage from the buyers as a part of the purchase price. The mortgage deed was received in evidence as Respondent's Exhibit 2. The face amount of the mortgage is $50,000. The buyers defaulted on the mortgage to the Petitioners and the Mehlers without having made any payments on the mortgage. The Petitioners and the Mehlers were unsuccessful in negotiating any payment from the buyers. The buyers were apparently irresponsible, and were unsuccessful in business. The buyers had given their deed to the property to a Mr. Frank Post. Mr. Post apparently took the deed in payment for a debt. The Petitioners and the Mehlers were unsuccessful in negotiating any payment on the mortgage from Post. The Petitioners and the Mehlers were unsuccessful in locating any market for the mortgage. The mortgage had no market value. Rather than foreclosing one the mortgage, the Petitioners and the Mehlers took a warranty deed from the original buyers and a quitclaim deed from Post. These deeds were received in evidence as Respondent's Exhibits 3 and 4. The deeds were taken in lieu of foreclosure, and the effect of the deeds was to discharge the $50,000 mortgage obligation. Petitioners and the Mehlers placed minimum Florida documentary stamp tax and surtax stamps on each deed, taking the position that the consideration for the deeds was nothing. The Respondent took the position that the consideration for the deeds was the discharge of the mortgage obligation, and assessed $410 in stamp tax, surtax, and penalty obligations upon the Petitioners. The petitioners subsequently commenced this action. The property which is the subject of this matter has very little market value. The property has been on the market for some time, and no buyer has been found. The property has been valued at $12,500, but its market value is less than that.
Findings Of Fact Petitioner Kenneth Blume, an unmarried man, purchased real property in his name on December 19, 1988. Petitioner Kenneth Blume obtained a mortgage on the property in his own name with PNC Mortgage Servicing Company. Petitioner Kenneth Blume married Petitioner Tina Blume on November 3, 1990. Thereafter, Petitioner Kenneth Blume contacted a title company, Advance Title, Inc. to refinance the property and transfer the property from himself, as sole owner, to himself and his wife, Petitioner Tina Blume. On June 19, 1992, as part of the refinancing transaction, Petitioner Kenneth Blume transferred his individual mortgage with PNC Mortgage Servicing Company to Foundation Financial Services, Inc. which paid off Petitioner Kenneth Blume's original mortgage. On June 19, 1992, Petitioner Kenneth Blume gave Petitioner Tina Blume a legal interest in the property by transferring half of the encumbered property to her by quit claim deed. Petitioner Kenneth Blume executed the deed in the presence of Cheryl Scott, a notary public and an employee of Advance Title, Inc. Said deed lists Petitioner Kenneth Blume as grantor and Petitioner Kenneth Blume and his wife, Petitioner Tina Blume, as grantees. On June 19, 1992, as part of the refinancing transaction, Petitioners created a new first mortgage on the subject property in favor of Foundation Financial Services, Inc. This mortgage is the obligation of both Petitioners. The quit claim deed was prepared by Advance Title, Inc. on Petitioners' behalf. The quit claim deed showed that the consideration paid for the transfer of the encumbered property was $10. On June 24, 1992, Advance Title, Inc. went to the Clerk of the Circuit Court's Office to record the quit claim deed. As a condition precedent to the recordation of any deed transferring an interest in real property, Section 201.022, Florida Statutes, requires that the grantor, grantee, or agent for the grantee, execute and file a return with the Clerk of the Circuit Court. The return is identified as a Form DR-219, Return for Transfer of Interest in Real Property. On June 24, 1992, Advance Title, Inc. filled out and signed the Form DR-219, Return for Transfer of Interest in Real Property, as the agent of Petitioners. Advance Title, Inc., as Petitioners' agent, did not disclose the full amount of consideration on Form DR-219 as required by question 3. Instead, Advance Title, Inc. wrote that the property was sold for $10. Advance Title, Inc. did not disclose the extinguished or refinanced mortgage on Form DR-219. In response to the question whether the sale was financed, Advanced Title, Inc. did not check the "yes" box on Form DR-219. Form DR-219 defines the word "consideration", in pertinent part, as follows: the purchase price of the property or the total amount paid or to be paid for the transfer of any interest in real property. Consideration includes: cash; new mortgages placed on the property to finance all or part of the purchase; existing mortgages on the property either assumed or taken subject to; mortgages that are cancelled, satisfied or rendered unenforceable, settled by the sale or transfer or in lieu or foreclosure . . . . This definition is consistent with the Legislature's definition of consideration set forth in Section 201.02(1), Florida Statutes (1991), applicable here. Advance Title, Inc., as Petitioners' agent, stated on Form DR-219 that documentary stamp tax in the amount of $.60 was due on the subject transfer of interest in real property. On June 24, 1992, Advance Title, Inc. presented the quit claim deed to the Clerk of the Circuit Court for recordation together with the Form DR-219. The Clerk recorded the quit claim deed and collected $.60 in documentary stamp tax based on information that Advance Title, Inc. provided on the Form DR-219. The Clerk did not tell Advance Title, Inc. or Petitioners that additional documentary stamp taxes were due on the transfer. Respondent conducted a routine audit of the Clerk's records and determined that additional documentary stamp taxes were due on the deed transferring an interest in the encumbered property to Petitioner Tina Blume. The record contains no competent substantial evidence to show that Petitioners fall within an exception to or exemption from paying the additional documentary stamp tax in question here. Moreover, there is no competent persuasive evidence that an agent of the state of Florida or Santa Rosa County misrepresented a material fact on which Petitioners relied to their detriment. Petitioners have not met their burden of proving by a preponderance of the evidence that they do not owe additional documentary stamp taxes on the real estate transaction at issue here.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is recommended that Respondent enter a Final Order upholding its assessments as revised in a Notice of Reconsideration dated January 9, 1995, of documentary stamp tax, plus applicable interest and penalties against Petitioners Kenneth and Tina Blume. RECOMMENDED this 23rd day of October, 1995, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD, Hearing Officer Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of October, 1995. APPENDIX The following constitutes the undersigned's specific rulings pursuant to Section 120.59(2), Florida Statutes, on all proposed findings of fact submitted by the parties to this case. Petitioners' Proposed Findings of Fact Petitioners' proposed recommended order for the most part is a memorandum of law and does not designate proposed findings of fact. However, the undersigned rules as follows on statements of fact contained within Petitioners' memorandum: Accept that Petitioner Kenneth Blume chose to sign the quit claim deed. No competent persuasive evidence regarding the Clerk of the Circuit Court's directions to Advance Title, Inc. or Petitioners. Uncorroborated hearsay evidence. Accept that Petitioners were not aware of Respondent's hotline service at the time of the conveyance; however, irrelevant. Reject that Petitioners made prudent and reasonable attempts to learn the requirements of Section 201.02, Florida Statutes. Petitioners had constructive notice of the published statutes and rules which were in effect at the time of the conveyance. Reject that the "system" deceived Petitioners. No competent persuasive evidence to support this fact. Reject that the "system" or "state" failed to disclose the law controlling taxes on real estate transactions. Applicable statutes and rules read together with the definition of consideration set forth on the Form DR-219 constitute sufficient notice to Petitioners. The "system" or "state" did not draft the language in the quit claim deed; therefore, the state was not required to include any language relating to the cost of the transaction. The Form DR-219 included a definition of consideration which is consistent with the language in the applicable statutes and rules. Reject that the state added new terms or changed the terms of the agreement memorialized in the quit claim deed. The state was not a party to the agreement between Petitioners. Reject that the system failed to inform Petitioners of "all" the terms in the contract as "offered" by the state. Respondent's assessment does not involve a contractual relationship between Respondent and Petitioners with the Respondent as a "seller" and Petitioner Kenneth Blume as a "buyer." Respondent's Proposed Findings of Fact The undersigned accepts the substance of Respondent's Proposed Findings of Fact 1-28 as modified in Findings of Fact 1-23 of this Recommended Order. COPIES FURNISHED: Nancy Francillon, Esquire Mark T. Aliff, Esquire Office of the Attorney General The Capitol - Tax Section Tallahassee, FL 32399-1050 Kenneth and Tina Blume 159 W. 29th Court Fayetteville, AR 72701 Linda Lettera, Esquire Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
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
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.
Findings Of Fact At the beginning of the hearing in this cause, it was stipulated and agreed to that certain pleadings and exhibits would constitute the factual basis for consideration of the case. Specifically, the parties agreed that the First Amended Petition and its parts that were admitted by the Respondent; together with interrogatories propounded by the Respondent to the Petitioner and the answers thereto; and Exhibits A and C attached to the First Amended Petition; would be the underlying facts that could be examined in arriving at a statement of the facts, and ultimate conclusions of law. A further refinement in the stipulation and agreement of the parties was their acceptance of the stated amount of $952.05 in surtax owed, if it were concluded that any amount of surtax was properly assessed. Finally, the parties agreed that copies of the aforementioned Exhibits A and C could be utilized in deliberating this case. (Copies of the First Amended Petition, Answer to that Petition, Interrogatories propounded by the Respondent and Answers provided by the Petitioner, and Exhibits A and C attached to the First Amended Petition, are hereby made a part of the record herein and forwarded to the agency head in lieu of a transcript.) The Petitioner in this action is Wisconsin Real Estate Investment Trust, whose address is Marine Plaza, 111 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. On or about April 11, 1975 the Petitioner was a grantee in the certain Warranty Deed from James E. Russell, Jr., as trustee to Wisconsin Real Estate Investment Trust, dated April 11, 1975, and recorded May 20, 1975, in Official Records Book 2620, Page 1812, Public Records of Orange County, Florida (hereinafter referred to as the "Warranty Deed"). A copy of the said Warranty Deed is a part of the First Amended Petition found as Exhibit A. The conveyance of the property as set forth in the Warranty Deed was subject to certain mortgages described in detail upon Exhibit A attached to the Warranty Deed and identified briefly as follows, to wit: A first mortgage to Prudential Insurance Company of America in the amount of three million three hundred thousand dollars ($3,300,000); Four "Second" mortgages to the Petitioner herein, said mortgages being in the total amount of eight hundred sixty five thousand, eight hundred fifty four dollars ($865,854); A "third" mortgage granted by Orlando Quadrant Development Limited to United Associates, Inc. in the amount of five hundred thousand dollars ($500,000). Exhibit A to the Warranty Deed also contained the following provision: "It is the intent of the Grantor and the Grantee that this conveyance shall not cause a merger of the mortgages held by the Grantee which are described above, and the fee simple title of the Grantee received hereby in that said mortgage shall remain in full force and effect and shall continue to be a lien on the property." Documentary stamps were paid with respect to the full amount of the purchase price in the amount of four million, six hundred sixty five thousand, eight hundred fifty four dollars ($4,665,854.) and minimum stamps for surtax in the amount of fifty five cents ($.55) were paid. On or about August 20, 1975, the Respondent delivered to Petitioner a form letter styled "Request for Information and Response" requesting the reason why minimum surtax was paid. Petitioner replied that minimum surtax was paid because the transaction constituted a sale and not a deed in lieu of foreclosure. A copy of the "Request for Information and Response" was attached as Exhibit B to the First Amended Petition. On or about November 20, 1975, the Respondent sent to Petitioner a "Proposed Notice of Assessment" informing Petitioner of a proposed imposition of tax in the amount of nine hundred fifty two and 05/100 dollars ($952.05) and a penalty in the amount of nine hundred fifty two and 05/100 dollars ($952.05), for a total assessment of one thousand nine hundred four and 10/100 dollars ($1,904.10). A copy of the "Proposed Notice of Assessment" was attached to the First Amended Petition as Exhibit C. In response to the Proposed Notice, the Petitioner, through counsel, wrote to Respondent on December 11, 1975, questioning the necessity for surtax charge under the present status of Florida Law. In that letter there was a formal request for conference within thirty (30) days of the proposed assessment to discuss the assessment before it became final. A copy of the letter of December 11, 1975 was Exhibit D to the First Amended Petition. On December 24, 1975, the Petitioner wrote the Respondent with respect to a telephone conference that was held with Respondent wherein the Respondent indicated there was a legal authority for imposition of surtax against Petitioner. The Respondent sent the information to Petitioner under cover of a letter dated January 2, 1976, and the Petitioner responded to said letter by letter dated January 9, 1976 wherein the position of the Petitioner with respect to the imposition of the surtax was set forth in detail. A copy of the Petitioner's letter of January 9, 1976, was made Exhibit E to the First Amended Petition. Subsequent to the letter of January 9, 1976, Respondent requested by telephone that Petitioner provide Respondent with a copy of the Declaration of Trust of Petitioner, which said Declaration of Trust was sent to Respondent under cover letter dated June 7, 1976. On September 8, 1976, Respondent sent Petitioner a notice that a Tax Warrant and Execution had been prepared and would be filed. A copy of said letter of September 8, 1976 was made Exhibit F to the First Amended Petition. Informal efforts to resolve the dispute were not effective and this led to a formal hearing. A closer look at the events involved in the conveyance of the Warranty Deed points out that the first mortgage held by Prudential Life Insurance Company of America was in default at that time, and the institution of foreclosure proceedings was eminent. The Grantee, Petitioner, held three mortgages subordinate to the first mortgage held by Prudential Life Insurance Company, and it was felt that the conveyance from Grantor to Grantee was the best method of protecting Grantee's interest. The conveyance did not provide for merger of the ownership interest and the mortgage interest in favor of the Grantee, on the face of the Warranty Deed. In fact, the Warranty Deed disclaims such merger, as stated before. There was no agreement either in writing or verbally between the Grantor and the Grantee with respect to payment or non-payment of the second mortgages held by the Grantee, subsequent to the transfer. None of the second mortgages held by the Grantee, Petitioner, have been satisfied of record at the time of conveyance or since that time. There has been no payment of principal and interest on the second mortgages in question since the conveyance under the Warranty Deed. The Petitioner advances its argument in opposition to the documentary surtax premised on the assertion that such tax does not apply to amounts of existing mortgages on the real estate sold, and therefore no surtax should be levied, because the four second mortgages at issue are still in existence. In stating this position the Petitioner refers to 201.021, F.S. which states: "(1) A documentary surtax, in addition to the tax levied in s. 201.02, is levied on those documents taxed by s. 201.02 at the rate of 55 cents per $500 of the consideration paid; provided, that when real estate is sold, the consideration, for purposes of this tax, shall not include amounts of existing mortgages on the real estate sold. If the full amount of the consideration is not shown on the face of the document, then the tax shall be at the rate of 55 cents on each $500 or fractional part thereof of the consideration." The Petitioner also makes reference to Rule 12A-4.12(4)(e) pertaining to the definition of consideration as found in 201.021, F.S. The pertinent provision of that rule says: "For Consideration - Surtax: The term "consideration" under 201.021, F.S., includes but is not limited to: (e) Conveyance where outstanding mortgage debt, lien or encumbrance is cancelled, satisfied, or otherwise rendered unenforceable by the conveyance." According to the Petitioner the four subject mortgages are not cancelled, satisfied, or otherwise rendered unenforceable by the conveyance, and consequently there is no taxable "consideration". They rely on the aforementioned language of the Warranty Deed which disclaims the merger of the mortgage debt with the equity of redemption when the conveyance was made. Moreover, under the Petitioner's argument, because it has stated its intention not to have a merger that stated intention should control and no merger should apply. For this proposition the Petitioner cites the case of Friedman v. Pohnl, 143 So.2d 690, (3 DCA Fla. 1962). Within the language of the case is reference to the case of Jackson v. Relf, 26 Fla. 465, 8 So. 184 (Fla. 1890). The Jackson case, supra, states that it is the intention of the person in whom the debt and equity of redemption are united that determines if there is a merger of the mortgage debt and equity of redemption, or if the mortgage debt continues to be in force and effect. The Petitioner also argues that the reason it elected not to merge the debt claim and equity of redemption, was to protect its priority position under the second mortgages over the third mortgage holder in the case of any sale to any third party and assumption of a second mortgage by a third party or in the case of any formal foreclosure. The Respondent counters the Petitioner's argument by claiming that the four subject second mortgages have been extinguished, thereby entitling the Respondent to impose a documentary surtax under the authority of 201.021(1), F.S. and Rule 12A-4.12(4)(e) F.A.C. The Respondent feels that you may look behind the disclaimer statement found in the Warranty Deed and by the facts of the conveyance determine that there is a merger for purposes of taxation. The Respondent relies upon a series of case decisions in arriving at this position. The first two cases Gay v. Inter-County Tel & Tel. Co., 60 So.2d 22 (Fla. 1952) and Choctawhatchee Electric Corp. v. Green, 132 So.2d 556 (Fla. 1961), it argues, stand for the proposition that the Documentary Stamp Tax Act in Florida is similar to the Federal Act 26 U.S.C.A. 1800 et. seq. and the same construction given to the federal tax cases in the federal courts, may be given to the Florida documentary stamp tax cases in the Florida cases. Using that theory as a basis for the persuasiveness of the federal authority, the Petitioner then cites the cases of Mutual Life Ins. Co. of New York v. United States, 110 F Supp. 606 (1953) and Railroad Federal Sav. & Loan Ass'n. v. United States, 135 F.2d 290. According to the Respondent, the two federal cases were sufficiently close in their facts to be applicable to the case at bar. Furthermore, since these cases required the payment of federal documentary tax, the Respondent believes that the rationale used in those cases would sustain a claim for documentary surtax and penalty in the case sub judice. An examination of the two federal cases shows them to be distinguishable in their facts. Mutual Life, supra, is distinguishable for two reasons. The first reason being that certain mortgage debts spoken of in that case had clauses indicating that the mortgage on the property was not to merge with the fee and that the mortgage would remain with the property notwithstanding conveyance; however, in all those cases a covenant had been given not to sue on the mortgage debt, which extinguished the mortgage debt. No such covenant has been given in the case at bar, and consequently the consideration, constituted of the extinguishment found in Mutual Life, supra, is not found in the case at bar. There is a second distinguishing factor between the Mutual Life case and the present case. That pertains to the fact that the action in Mutual Life involved the laws of the State of New York, which were being applied to a different set of facts. Under the New York Law, consideration was also found to exist notwithstanding a clause which disclaimed any merger of the fee and mortgage. This situation pertained to five mortgage cases in which no covenant not to sue had been given. The New York Law, according to the opinion in Mutual Life, called for the extinguishment of the mortgages in those five cases, due to the statutory statement which prohibited deficiency judgments on the mortgage indebtedness, because the fair market value of the property exceeded the debt claim. Therefore under the statement of the case, the mortgage indebtedness was extinguished as a matter of law, by transferring the interest in the fee to the mortgagee. A tax was placed on that transfer, based upon the extinguishment of the mortgage debt as consideration. The law in Florida does not prohibit a foreclosure suit by the second mortgage holder in the way set forth in the New York Law. In addition, the five mortgages in the Mutual Life case were not surrounded by first and third mortgages as is the case herein. The existence of the first and third mortgages, is a legitimate reason to maintain the second mortgages held by the Petitioner, as a protection against the other mortgagees. The other federal case cited by the Petitioner is the Railroad Federal case, supra. This case involved a deed in lieu of foreclosure and the imposition of a tax on the balance of principal and accrued interest due on the mortgages plus any cash amount paid. These mortgages involved in the Railroad Federal case were later cancelled by the resale or the subsequent purchase subject to the mortgages. The deed also contained an agreement not to seek a deficiency judgment on the part of the mortgagee which made it clear that the mortgagee was taking the property in full satisfaction of the mortgage indebtedness. In fact the mortgagee did not seek a deficiency judgment, nor was any further interest paid or demanded. This is distinguishable from the case at bar, in that the clear intent of the mortgagor and mortgagee herein is to keep active the second mortgages. The Respondent cited several administrative cases namely: Friedman v. State of Florida, Department of Revenue, Case No. 75-1304: Hutner v. State of Florida, Department of Revenue, Case No. 75-1771; and Atico Mortgage Investors v. State of Florida, Department of Revenue, Case No 77-1124. Respondent cited too, Opinion of the Attorney General, 059-203. Without discussing those administrative cases and the Attorney General's Opinion, they are all distinguishable in their facts and would not appear to have application to the case at bar. Based on an analysis of the evidential facts and the argument of the parties, the position of the Petitioner is well founded and the documentary surtax and penalty should not be paid.
Recommendation It is recommended that the subject assessment of documentary surtax and penalty be set aside. DONE and ENTERED this 6th day of October, 1977, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: R. Lee Bennett, Esquire Lowndes, Peirsol, Drosdick & Doster, P.A. Suite 443, First Federal Building Post Office Box 2809 Orlando, Florida 32802 Edwin J. Stacker, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304 John D. Moriarty, Esquire Department of Revenue Division of Administration Carlton Building Tallahassee, Florida 32304
Findings Of Fact On December 27, 1976, Petitioner entered into an Assumption Agreement and Release of Seller, a copy of which is appended to this recommended order as Exhibit "A". The agreement contains, in writing, the obligation of Flagler Hospital, Inc., to pay Petitioner the sum of $238,464,52. The document is not a renewal of an existing obligation. On April 25, 1977, Respondent gave Petitioner notice that a penalty and interest under Section 201.08, Florida Statutes, had been assessed against it in the amount of $729.42 because the agreement constituted a note or written obligation to pay money. The agreement was executed in the State of Florida. No documentary stamp taxes have been paid regarding the agreement. The mathematical computation of the tax, penalty and interest is correct. The agreement represents the assumption of an existing debt between Petitioner and Inter-Medic Health Centers, Inc., by Flagler Hospital, Inc. The original debt is evidenced by a note and mortgage dated February 11, 1976. Documentary stamp taxes in the amount of $360.00 were paid as to the original note. No additional indebtedness was created by the agreement, but the agreement releases the original obligor, Inter-Medic Health Centers, Inc., from liability.
Findings Of Fact Ken La Pointe was predecessor in interest to Petitioner, KANAPHA MEADOWS, INC, in a number of land transactions. Mr. La Pointe sold 15 lots in "1000 Oaks Subdivision" to third parties. These sales generated 13 deeds and 15 mortgages. The deeds given by La Pointe reflect that they are subject to two prior mortgages. La Pointe sold these 15 lots without getting a release on a prior mortgage held for the same property by C. L. Brice, individually and C. L. Brice, Trustee (apparently operating in some capacity as "Kanapha Ranch"), and also without getting a release on another prior mortgage held by Peoples' Bank. However, there is no contention by the parties that La Pointe did not place the proper documentary tax stamps on these deeds. La Pointe continued collecting on the 15 mortgages generated by the 13 deeds and in turn paid interest payments on his mortgage to Peoples' Bank but did not pay anything on the mortgage to Kanapha Ranch, Inc. Accordingly, C. L. Brice (operating through Kanapha Ranch) demanded, with the leverage of threatened foreclosure, that La Pointe assign these 15 mortgages to Kanapha Ranch, Inc. for collection and that all such collections would be applied to the Kanapha Ranch, Inc. mortgage as long as La Pointe continued to owe Kanapha Ranch, Inc. Thereafter, by an Assignment of Mortgages dated June 12, 1980 La Pointe assigned these mortgages to Kanapha Ranch, Inc. for collection only. Thereafter, La Pointe and Brice negotiated a deal, this time with Brice operating through Petitioner, KANAPHA MEADOWS, INC., whereby La Pointe provided a deed to KANAPHA MEADOWS, INC. for the balance of unsold property in "1000 Oaks Subdivision" and assigning to KANAPHA MEADOWS, INC. all mortgages due La Pointe (including the ones already assigned to Kanapha Ranch for collection) and whereby KANAPHA MEADOWS, INC., was to release La Pointe from all debts regarding the "1000 Oaks Subdivision." There were 39 lots in "1000 Oaks Subdivision." Thirty three of these deeds were transferred with proper documentary stamps. Six of these lots deeded to KANAPHA MEADOWS, INC. form the fulcrum of the issue between the parties to this proceeding. La Pointe and KANAPHA MEADOWS, INC. resorted to an elaborate percentage basis formula to determine the value of the property and the debts being assumed. After applying the mortgage amount against the indebtedness, $53,529.86 of the indebtedness was calculated as applicable to the six lots conveyed. This was the amount upon which documentary stamps of $214.40 were calculated and affixed to the Warranty Deed from La Pointe to KANAPHA MEADOWS, INC. for Lots 5, 6, 15, 16, 17, and 21, which deed was dated October 15, 1980 and recorded July 17, 1981 in Official Record Book 1359, pages 522-533 of the Public Records of Alachua County, Florida. No money changed hands at that point and apparently the executed deed was not delivered to KANAPHA MEADOWS, INC. until later. When the exact data and balance due on each mortgage was collected, approximately February 21, 1981, the parties were ready to close. On February 24, 1981, La Pointe assigned all 15 mortgages (most of them third mortgages because they had not been released from La Pointe's liability of the first two mortgages to Kanapha Ranch and Peoples' Bank) to KANAPHA MEADOWS, INC. At that time, La Pointe received an Assumption Agreement with Release from KANAPHA MEADOWS, INC. assuming the Peoples' Bank mortgage and also an Assumption Agreement with Release assuming the Kanapha Ranch mortgage. The 6 lots were received then and are now indicated on the KANAPHA MEADOWS, INC. books at an evaluation of $17,600.94. The October 15, 1980 Warranty Deed, the Assignment of Mortgages, and both Assumptions/Releases were recorded July 17, 1981. Petitioner contends that the $214.40 in tax stamps affixed thereto was appropriate based on the difference between the liabilities assumed and the assets received by KANAPHA MEADOWS, INC. from La Pointe. Respondent's position is that additional tax is due in the amount of $1,199.80 based upon the mortgages to which the deed was subject, which mortgages are reflected on the face of the deed and were specifically assumed by Petitioner.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Revenue enter a Final Order ratifying its assessment of an additional documentary stamp tax owed by Petitioner of $1,198.80 plus appropriate penalties and interest to date of that Final Order. DONE and ENTERED this 19th day of March, 1985, in Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer 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 19th day of March, 1985. COPIES FURNISHED: William Townsend, Esquire Department of Revenue Carlton Building Tallahassee, Florida 32301 C. L. Brice 6500 S. W. Archer Road Gainesville, Florida 32608 Edwin A. Bayo Assistant Attorney General Department of Legal Affairs Room LL04, The Capitol Tallahassee, Florida 32301 Randy Miller Executive Director 102 Carlton Building Tallahassee, Florida 32301
Findings Of Fact The instant proceeding arises over the application of the Florida documentary stamp tax law, Chapter 201 of the Florida Statutes, to transactions in which customers bought lots from Sandy Development Company and homes from Shubert Construction Company. Documentary stamp taxes and surtaxes have been paid on these transactions reflecting only the price of the lot. The Petitioners assert that the amounts already paid are the proper amounts due. The Respondent, Department of Revenue, asserts that the taxes and surtaxes are due upon the price of the home and lot together. The Department has issued a proposed notice of assessment against the Petitioners which reflects the amount due for additional taxes and surtaxes if the Department's position is upheld, plus an amount levied as a tax penalty, which amounts total $2,449.70. This Proposed Notice of Assessment and the schedule by which it was computed are included as Exhibit "A" to this stipulation. The mathematical computations underlying this assessment are not in dispute. The Petitioner Jerome Parker is the sole stockholder and sole employee of the Petitioner Sandy Development Company (hereinafter "Sandy"). Sandy is engaged in the business of buying vacant land and selling parcels of that land to individuals to use as home building sites. This land is located in Pasco County, Florida. Sandy has been engaged in this business since its incorporation in 1973, and has engaged in no other type of business. The Shubert Construction Company (hereinafter "Shubert") employs the Petitioner Jerome Parker as its Assistant Secretary and Branch Manager. Parker runs the Shubert branch office in Pasco County, with the help of one secretarial employee. Parker is Shubert's authorized agent for soliciting customers, negotiating and signing construction contracts, and arranging for financing for prospective home buyers. All of Shubert's construction business in Pasco County is conducted through Parker's office. Shubert maintains one other office, located outside Pasco County. Customers wishing to purchase a home and lot have come to Parker's office, which is located at the Shubert Construction Company, 1520 1st Street, Zephyrhills, Florida. Some of these customers already have lots selected, and Parker makes no attempt to sell lots to those customers. Customers who do not already have lots selected are solicited by Parker to consider purchasing a lot from listings maintained by him. Parker keeps at his office listings and maps of lots which are available for sale to home buyers by Sandy, Shubert, and certain third parties. If the customer expresses an interest in a lot or subdivision owned by Sandy or Shubert, Parker proceeds with the initial steps in selling that customer a lot (i.e., a credit check). If the customer expresses interest in a lot or subdivision owned by a third party, Parker refers the customer to that third party. All of the sales by Sandy, with a few exceptions, originated in this manner at Parker's office. Customers buying lots from Sandy return to Parker's office at the Shubert Construction Company after the credit check is completed. The purpose of this second visit is to have the customer sign a loan application to finance both the home and the land, and an option and acceptance of option for the land, conditioned upon the lender's extension of credit. These papers, copies of which appear as Exhibit "B" to this stipulation, are then routinely forwarded to the lender by Parker, acting as agent for both Shubert and Sandy. The Exhibit reflects that the loan application is for a single sum covering home and lot. The customers sign one note and one mortgage for both home and lot and make lump sum installment payments to the lender without dividing those payments into separate accounts for home and lot. It is the practice of the lender, however, to issue separate checks to Sandy and Shubert for the lot and home, respectively. Although persons buying lots from Sandy are not legally obligated to buy a home from Shubert, they have nevertheless done so in every case. Some 38 individual customers have purchased lots from Sandy, and all have contracted for the purchase of a home from Shubert built upon the land purchased from Sandy. In the course of selling a lot belonging to Sandy along with a home from Shubert, Jerome Parker normally identified Sandy as the seller of the lot, but this information was not emphasized to the customer. The enclosed affidavits from customers of Parker's indicate whether they sought to purchase a home, a lot, or both, and whether they believed the seller to be a single enterprise or two enterprises. Upon learning of a customer who wished to purchase both a lot and a home, Jerome Parker formed the intent to sell, through his two agency capacities, both a lot and a home to that customer. Shubert owns no interest in Sandy, and Sandy owns no interest in Shubert. The only link between the companies is through their mutual agent and employee Jerome Parker. Parker owns no interest in Shubert Construction Company. This Stipulation includes Exhibits "A" and "B" referred to above, and in addition Exhibit "C" consisting of affidavits relating to the intentions and beliefs of Sandy's customers, and Exhibit "D" consisting of copies of notes and mortgages signed by Sandy's customers, and/or affidavits relating to the handling of the notes and mortgages by the Farmers Home Administration. The parties do not waive objections on the grounds of relevancy or materiality to the materials included in the Exhibits. The only question remaining to be resolved is whether the transactions described above are taxable under Florida Statutes, sections 201.02 and 201.021 based on the price of the lot alone, or upon the price of the lot and the home. Petitioner and Respondent reserve the right to introduce testimony not inconsistent with the foregoing. All documents used in the transactions here under consideration are prepared on forms provided by Farmers Home Administration (FHA) of the Department of Agriculture. These include the Option to Purchase, Construction Contract, and all notes and mortgages. The Option to Purchase provides it is given to enable buyer to obtain an FHA loan and such offer is void if buyer is unable to obtain a loan from FHA. At the time of closing purchaser executes a note for the full amount of the loan for home and lot secured by a mortgage on the lot. At this time the construction of the home has not commenced although the buyer has in effect borrowed funds to purchase the lot and pay for the construction of his home. Construction funds are disbursed to the builder by FHA in draws as the construction of the home progresses. Upon completion of the home the final draw is paid to the builder and buyer presumably takes possession. No evidence was presented regarding the payment to the seller for the price of the lot, which is separately stated on documents forwarded to FHA, however nothing was presented to indicate the seller was not paid at the time of closing, which would be the normal procedure. From the testimony that after closing Sandy Development had no claim to the lot, it would be presumed that Sandy had been paid for the lot.
The Issue The issue here concerns the propriety of the Respondent, State of Florida, Department of Revenue's assessment of tax under authority of Sections 201.01 and .08, Florida Statutes, in the amount of $11,557.20 and penalty of $577.86 against the Petitioner, Landmark Bank of Brevard. The specific nature of the assessment is one pertaining to items identified as detachable "Promissory Notes" which are attached to documents entitled "Trust Receipts."
Findings Of Fact The facts in this case reveal that the Petitioner Landmark Bank of Brevard, hereafter referred to as the "Bank," made loans to several motor vehicle dealers in Brevard County. The borrowers were Carl Schmidt Motors, Inc.; Bennie C. Chapman, who does business as Chapman Auto Sales; and Harley Davidson of Melbourne, Inc. The arrangements for the loans were on the basis that the dealers would apply with the Bank to receive moneys which would be used to "floor plan" automobiles and motorcycles being sold through their retail outlets. The applications were processed through the loan committee and when the loans were approved a Promissory Note was signed by the appropriate persons acting in behalf of the dealers. (Copies of the notes executed were attached to the Petition for Formal Hearing and acknowledged to be correct through the answer filed in behalf of the Respondent and the notes as attached to the Petition are being provided with this Recommended Order together with those exhibits offered in behalf of the parties.) The notes allow for the single disbursement of a stated amount of money, with the repayment of principal and payment of interest being due by one payment for which demand is made within a period as short as several months or as long as one year depending on the note conditions. Collateral is provided, according to the terms of the notes, either by the lease and rental autos listed on separate documents entitled "Trust Receipts," which Trust Receipts are held by the Bank or otherwise described as such motor vehicles as were then owned by the dealers at the time the execution of the note or as would thereafter be acquired. These notes, meaning the initial Promissory Notes, had Documentary Stamps placed and canceled in the monthly journal of the Bank at the time of the execution of the Promissory Notes, in an effort by the Petitioner to comply with Section 201.08, Florida Statutes. The amount of Documentary Stamps utilized was in keeping with the face amount of the loan proceeds reflected on the Promissory Notes. Therefore, when the Promissory Notes are examined an impression is created that a single disbursement of loan proceeds has been made for which Documentary Stamp tax has been collected. In reality, the arrangement between the dealers and the Petitioner was to the effect that the full amount of the loan proceeds would not be assigned to the account of the dealers upon execution of the note. What would happen, is that the dealers would be allowed to make "draws" against the loan proceeds on the basis of surrendering the title of a used motor vehicle which they had acquired or having the manufacturer of a new motor vehicle submit the Manufacturer's Certificate of Origin to the Bank. In turn, moneys were advanced to the dealer equal to the value of the used unit or commensurate with the amount reflected on the Manufacturer's Certificate of Origin if a new unit. These titles and Manufacturer's Certificates of Origin were held as collateral and the dealers would take possession of the actual vehicles to be placed in the dealer's inventory until a retail purchase had been made. The vehicles for which the Petitioner had received title or the Manufacturer's Certificate of Origin were then listed on documents called "Trust Receipts." The "Trust Receipts" would show the vehicle description, make, serial number and price as described in the Manufacturer's Certificate of Origin or title. These descriptions were placed on individual "Trust Receipts" based upon the date the evidence of ownership was submitted from the dealer of the Bank. That is to say, if four Manufacturers' Certificates of Origin or titles were submitted to the Bank at one time, then four of the vehicles would be listed on a single "Trust Receipt" as opposed to listing the four new units on a "Trust Receipt" that already had a unit or units listed from another visit by the dealer. Examples of the various "Trust Receipt" documents may be found in the Respondent's Composite Exhibit 3 admitted into evidence which contains copies of the "Trust Receipt" examples. The "Trust Receipt" documents had attached to them an item entitled "Promissory Note," which item could be detached from the body of the "Trust Receipt." Some examples in the Respondent's Composite Exhibit 3 have the "Promissory Note" affixed, reflecting a date and money amount equal to the amount arrived at by totaling the value related to the various units shown in the "Trust Receipt." These examples also list the borrower's name and are signed by Margy Driggers, the Assistant Cashier of the Petitioner. Some are signed by Margy Driggers, with the initials "P.O.A." placed in front of or after her title as Assistant Cashier. One other example is the same as above but without the initials "P.O.A." There is also an example signed by Bennie C. Chapman, one of the dealers who borrowed money. The Chapman example reflects the amount of value shown in the "Trust Receipt," to which the "Promissory Note" is attached and it has a date, but does not reflect the amount of interest to be paid if this is indeed a Promissory Note. There was another category of "Trust Receipt" and attached "Promissory Note" reflecting motor vehicles for which money had been loaned and this was a type in which no entries had been made on the "Promissory Note"; however, an example of this type was not provided through the Respondent's Exhibit 3. Both parties acknowledged that the initials "P.O.A." stand for power of attorney. They disagree on the question whether a power of attorney had been granted to the Petitioner to act in behalf of the subject dealers. The Petitioner through its witnesses claim that the designation "P.O.A." is simply an extension of a long standing policy of the Bank which predates the current Assistant Cashier and has no meaning. Therefore, no power of attorney has ever been granted from the dealers to the Bank to execute promissory notes on behalf of the dealers. The Respondent through its auditor, whose investigation led to the assessment in dispute, claims that Margy Driggers, the Assistant Cashier, told him that "P.O.A." means power of attorney and that she had the ability to sign for Carl Schmidt. (Carl Schmidt Motors, Inc.) None of the dealers were presented in the course of the hearing to state their position on the granting of power of attorney to the Petitioner for purposes of executing the item known as "Promissory Note" attached to the various "Trust Receipts," and there are no written documents which would demonstrate the granting of a power of attorney to the Bank. Moreover, nothing in the original Promissory Notes executed by the dealers leads to the conclusion that the item known as "Promissory Note" attached to the "Trust Receipt" may be executed by a Bank official through power of attorney for the dealer. Consequently, no power of attorney has been shown to be granted from the dealers to Margy Driggers or any other employee of the Petitioner, on the subject of executing "Promissory Notes" attached to the "Trust Receipts." When the items were filled out, copies of the "Trust Receipts" and attached "Promissory Notes" were forwarded to the several dealers. When a dealer sold one of the automobiles for which the Petitioner held the title or Manufacturer's Certificate of Origin as security, then the dealer paid an amount equal to that amount reflected in the "Trust Receipt" document and an entry was made in the date paid column of that document which showed that amount of debt had been satisfied by the dealer. During the operative period of the initial Promissory Note, meaning that period between the time of the execution of the note and the time the note was due as reflected on the face of the note, the dealer could borrow an amount not to exceed the face amount of the loan proceeds and if some portion of that amount was retired, then an additional amount could be borrowed, which effectively meant that in the active life of the loan as shown by the initial Promissory Note more money could be borrowed during the life of the note than the amount reflected on the face of the Promissory Note. For example, hypothetically the Promissory Note could entitle the dealer to borrow $19,959.00 on May 10, 1976, to be repaid by May 10, 1977. That dealer could then borrow $19,959.00 between those dates and pay back that amount of money with interest and borrow an additional $5,000.00 to be paid back before the expiration date of the loan and in actuality would have borrowed $24,959.00, ostensibly under the terms and conditions of the initial note. These additional amounts of loan proceeds cannot be seen by examining the initial Promissory Notes; they can only be discovered by adding the individual amounts reflected in the "Trust Receipts" and comparing the total to what is shown by adding the loan amounts depicted in the initial Promissory Notes. This is in fact what was done by the auditor in conducting the audit and it is the differential between the amounts shown in the "Trust Receipt" aggregate as contrasted to the initial Promissory Note aggregate for which the Respondent claims Documentary Stamp tax is owed. The Respondent would have the Documentary Stamp tax applied to some combination of the so-called "Promissory Notes" attached to the "Trust Receipts" equal to an amount representing the differential spoken to before. The Respondent did not establish which "Trust Receipts" with attached "Promissory Notes" would be subject to the assessment of Documentary Stamp tax. Through this process, the Respondent in its Revised Notice of Assessment is claiming tax of $11,557.20 and a penalty of $557.86. (A copy of this notice may be found as Respondent's Exhibit 4 admitted into evidence.)
Recommendation It is RECOMMENDED that the proposed assessment for Documentary Stamp tax and penalty made by the Department of Revenue, State of Florida, against the Petitioner, Landmark Bank of Brevard, a banking corporation organized and existing under the laws of the State of Florida, formerly Landmark Bank of Melbourne, N.A., be DISALLOWED. 1/ DONE AND ENTERED this 9th day of April 1980 in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of April 1980.
Findings Of Fact On October 29, 1973, R. Bartow Rainey and J. Howard Nichols leased an unimproved parcel of land located in Tallahassee, Florida, from William Welsh Boyd and Patricia Boyd McLain. The term of the lease was for a period of 30 years at an annual base rental and a percentage of annual gross income derived from the property. Article 10.03 provided in part: "All buildings, alterations, rebuildings, replacements, changes, additions, improvements, equipment and appurtenances on or in the premises at the commencement of the term, and which may be erected, installed or affixed on the premises during the term, shall be deemed to be and immediately become part of the realty . . ." Article 15 contemplated the securing of a mortgage on the lease-hold interest by the tenants which would be a first lien upon both the fee and leasehold estates by virtue of the landlord joining therein up to $2,500,000.00 on a loan having a term not in excess of 30 years, and further providing that the mortgage loan must be one where the proceeds were to be used to construct improvements mentioned in the lease. The aforesaid lease was recorded in the public records of Leon County, Florida, on November 14, 1973 (Exhibit 3). The lessees of the property executed a promissory note on November 13, 1973, payable to the Commonwealth Corporation, Tallahassee, Florida, in the principal sum of$1,800,000.00, secured by a mortgage of their leasehold interest of the same date which also was duly recorded in the public records of Leon County. The lessees thereafter improved the property constructing apartment buildings consisting of 200 to 500 units (Exhibit 4, Counsel for Petitioners). By an amendment to the aforementioned note and mortgage, dated May 22, 1975, Schumacher Mortgage Company, Inc., a Delaware Corporation, succeeded to the rights of Commonwealth Corporation as mortgagee, and the principal sum of the mortgage was increased to $1,850,000,00 (Exhibit 4). The lease then was assigned to Petitioners on July 1, 1975, subject to the terms and conditions of the lease which the assignees assumed and agreed to discharge, and they also mortgaged the leasehold estate as security for a promissory note, dated July 1, 1975, in the principal amount of $458,000.00. The mortgage was entered into on June 3, 1975, with R. Bartow Rainey and J. Howard Nichols as mortgagees. Also on July 1, 1975, Rainey and Nichols as "grantor" executed a warranty deed to Petitioners purporting to convey in fee simple the improvements located on the real property in question subject to the existing first mortgage of November 13, 1973 (Exhibit 2, 7, 8). By Notice of Proposed Assessment, dated October 14, 1975, Respondent seeks to collect from Petitioners documentary stamp tax under Section 201.02(1), Florida Statutes, in the amount of $5,549.70 and a penalty in a like amount for a total of $11,099.40. The tax liability was levied against the aforesaid assignment of lease and warranty deed, based upon consideration of $550,000.00 cash and for the assignment, and $1,850.000.00 under the amendment to the note and mortgage, for a total taxable consideration of $2,400,000.00. The base tax was $7,200.00, less tax previously paid in the amount of $1,650.30, leaving a sum of $5,549.70 as tax due, plus a penalty in a like amount. The parties stipulated that the computation of the tax and the amount of delinquency as assessed are correct assuming that the tax and penalty are due and owing.
Recommendation That Petitioners be held liable for an assessment of $11,099.40 for delinquent documentary stamp taxes and penalty under Chapter 201, Florida Statutes. DONE and ORDERED this 17th 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: Edgar M. Moore, Esquire Smith and Moore, P.A. P. O. Box 1169 Tallahassee, Florida 32302 Patrician S. Turner, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304
