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 Petitioner is incorporated under the laws of the State of Virginia and is registered to conduct business in the State of Florida. Robinson's of Florida is a Division of Petitioner, and is currently engaged in the sale of merchandise and retail through four Robinson's of Florida department stores situated in the Florida counties of Pinellas, Orange, Hillsborough and Seminole. Respondent is an agency of the State of Florida whose duties include the assessment of taxes and penalties imposed under Chapter 201, F.S. An unspecified portion of Robinson's retail sales in Florida is made pursuant to revolving charge agreements between Robinson's and its customers. These sales are made under retail charge agreements (Petitioner's Exhibit 1) which provide that in consideration of credit to be extended by Robinson's of Florida, the customer agrees to pay the full amount owing on the account within 25 days from the billing date of each monthly statement or monthly payments of not less than the payment required by a table included in the agreement which lists minimum monthly payments based upon the unpaid balance of the account. The agreement further provides that in case of a failure to pay the minimum payment due on the monthly statement, that the amount shown as the new balance on the monthly statement shall at the option of Robinson's become due and payable immediately. It provides that the charge card issued to the customer may be terminated or revoked at any time and must be surrendered to Robinson's upon demand. It states that the agreement constitutes a "revolving account" within the meaning of Section 2 subsection 8 of the Florida Retail Installment Sales Act, Chapter 59-414, Laws of Florida, 1959. Each time a customer purchases merchandise pursuant to a Robinson's revolving charge account, he executes a sales ticket (petitioner's Exhibit No. 2 and Exhibit B to Petition) which includes the following printed statement on the face of the ticket. "I agree to pay the total amount of this sales check in accordance with my credit arrangements with you." During March, 1975, Respondent conducted an audit of all of Robinson's revolving charge account sales records in its Florida stores. As a result of the audit, Respondent issued to Petitioner a proposed notice of assessment of tax and penalty under Chapter 201, F.S., dated March 20, 1975, (Exhibit C to Petition). The proposed notice of assessment requested payment of documentary stamp taxes in the amount of $17,925.00, pursuant to Section 201.08(2), F.S., and a penalty in -- the same amount pursuant to Section 201.17(2), F.S., (Exhibit's C & E to Petition). Petitioner requested and was afforded an opportunity to meet with a representative of Respondent for the purpose of objecting to the aforementioned assessment of taxes and penalty on May 6, 1975, in St. Petersburg, Florida. Subsequent to this conference, Petitioner received a letter dated May 9, 1975, from Respondent reaffirming the proposed total assessment and penalty in the total amount of $35,850.00 (Exhibit E to Petition). No evidence has been presented that documentary tax stamps for the sales in question were purchased, affixed to, or placed on the instruments in question.
Recommendation It is recommended: That the proposed assessment of documentary stamp taxes against the Petitioner in the amount of $17,925.00 under Section 201.08(2), Florida Statutes, be determined valid, and that collection thereof be made in accordance with appropriate law and regulations. That the proposed assessment of a penalty against thee Petitioner in the amount of $17,925.00 under Section 201.17(2), Florida Statutes, be determined invalid and set aside. DONE and ORDERED this 30th day of September, 1975, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Larry Levy, Esquire James D. Beasley, Esquire Assistant Attorney General P.O. Box 391 Department of Legal Affairs Tallahassee, Florida The Capitol For the Petitioner Tallahassee, Florida 32304 For the Respondent ================================================================= AGENCY FINAL ORDER =================================================================
The Issue This case involves the issue of whether the Petitioner, Robert P. Herring, should be required to pay documentary tax and documentary surtax on three quitclaim deeds transferring his ex-wife's interest in jointly owned property to the Petitioner. On May 3, 1982, the Department of Revenue, by letter, notified Mr. Robert P. Herring, through his counsel, Mr. Frank M. Townsend, that the Department intended to make an audit change pursuant to Chapter 201 of the Florida Statutes based upon a mortgage executed by Mr. Herring and recorded at Official Record Book 439, Page 654 of the Official Records of Osceola County. This mortgage was given by Mr. Herring in exchange for his ex-wife's transfer of her interest in the three parcels, which were the subject of the three quitclaim deeds referred to above. In response to the audit report, the Petitioner, on November 1, 1982, filed his request for a formal hearing and his written objection to the audit change. At the formal hearing in this matter, the Petitioner testified on his own behalf and called no other witnesses. The Respondent called as its only witness, Mr. John H. McCormick, a tax auditor for the Department of Revenue. The Petitioner offered and had admitted seven exhibits and the Respondent offered and had admitted nine exhibits. Counsel for the Petitioner and counsel for the Respondent submitted proposed findings of fact and conclusions of law for consideration by the undersigned Hearing Officer. To the extent that those proposed findings of fact and conclusions of law are not adopted in this order, they were considered by the Hearing Officer and determined to be irrelevant to the issues in this cause or not supported by the evidence.
Findings Of Fact Prior to June 20, 1979, the Respondent, Robert P. Herring, along with his wife, Patricia L. Herring, owned three parcels of real estate located in Kissimmee, Florida. Those three parcels were held by Mr. and Mrs. Herring as tenants in the entirety. The parcels are more fully described as: A certain lot or parcel of land known as S. Florida RR survey Block 19, beginning at the most Northerly corner of Lot 3 and running South 47 degrees East, 142 Ft. South, 43 degrees West, 25 ft. North, 47 degrees West, 142 Ft. North, 43 degrees East, 25 ft. to the point of beginning, and more particu larly described in that instrument recorded in OR Book 364, Page 340, in the Public Records of Osceola County, Florida. A certain lot or parcel of land known as St. Cloud Block 251, Lots 19 thru 22 and more particularly described in that instru ment recorded in OR Book 339, Page 155 and 158 of the Public Records of Osceola County, Florida. A certain lot or parcel of land beginning at a point 110 ft. West of the Easterly line of Gov. Lot 3, plus 15 ft. at right angle to the center line of the Old Highway South 33 degrees West, 62.3 ft. South, 53 degrees East, 60.9 ft. North, 33 degrees East, 34.3 ft. North, 42 degrees West along the highway to the point of beginning and more particularly described in that instru ment recorded in OR Book 314, Page 391 of the Public Records of Osceola County, Florida. On June 20, 1979, Patricia A. Herring executed three quitclaim deeds transferring all her right title and interest in the above three parcels to the Petitioner, Robert P. Herring. The transfer was part of a divorce settlement and the stated consideration in the three quitclaim deeds was "love and affection". (See Respondent's Exhibits 2, 3, and 4). Prior to the transfer, there was outstanding indebtedness on the three parcels and these debts were secured by mortgages. The Petitioner and his wife were both liable on these debts and mortgages. In exchange for the transfer of Patricia A. Herring's interest in the three parcels, the Petitioner executed and delivered to Patricia A. Herring a promissory note in the amount of $58,800 secured by a mortgage on the three parcels. The Petitioner, Robert Herring, also assumed full liability for the outstanding indebtednesses on the three parcels. The Petitioner is and has been since June, 1979, making monthly payments of $529.05 to Patricia A. Herring, his ex-wife, in payment on the $58,800 promissory note and mortgage. The mortgage executed by Respondent and recorded in Official Record Book 439, Pages 654-656 of the Official Records of Osceola County and the assumption of the outstanding indebtedness on the three parcels were valuable consideration paid by the Petitioner to Patricia A. Herring for her interest in the three parcels. At the time of recording the three quitclaim deeds, the Petitioner paid no documentary tax as defined in Florida Statute 201.02 (1977) and paid no documentary surtax as defined in Florida Statute 201.021 (1977) After an examination of the official records of Osceola County, the Department of Revenue determined that the Petitioner owed documentary tax on the three quitclaim deeds in the amount of $176.40. The Department determined that the Petitioner owed documentary surtax on the three parcels in the amount of $64.90. On April 13, 1982, the Department of Revenue issued its Notice of Intent to Make Documentary Stamp Tax Audit Charges to Petitioner assessing the documentary tax in the amount of $176.40 and documentary surtax in the amount of $64.90. The documentary tax and documentary surtax assessed by the Department of Revenue were based upon the $58,800 promissory note and mortgage as the sole consideration paid by the Petitioner for the transfer of the three parcels. (See Respondent's Exhibit 9). Based upon the consideration of $58,800, the Petitioner owes documentary tax of $176.40 and documentary surtax of $64.90 on the three quitclaim deeds.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Revenue enter a Final Order requiring Petitioner to pay the documentary tax in the amount of $176.40 and documentary surtax of $64.90, plus accrued penalties and interest. DONE and ENTERED this 31st day of May, 1983, in Tallahassee, Florida. MARVIN E. CHAVIS, 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 31st day of May, 1983. COPIES FURNISHED: Frank M. Townsend, Esquire Post Office Box 847 Kissimmee, Florida 32741 Ms. Linda Lettera Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301 Mr. Randy Miller Executive Director Room 102, Carlton Building Tallahassee, Florida 32301
The Issue The issue in this case is whether Petitioner is entitled to a refund of nearly $500 thousand on an alleged overpayment of the stamp tax, where Petitioner paid the tax based on the entire undifferentiated consideration it had received, as a lump-sum payment, from the sale of an operating hotel business comprising real estate, tangible personal property, and intangible personal property.
Findings Of Fact On February 23, 2015, Petitioner 1701 Collins (Miami) Owner, LLC ("Taxpayer"), a Delaware limited liability company, entered into a Purchase and Sale Agreement ("Agreement") to sell a going concern, namely a hotel and conference center doing business in Miami Beach, Florida, as the SLS Hotel South Beach (the "Hotel Business"), to 1701 Miami (Owner), LLC, a Florida limited liability company ("Purchaser"). Purchaser paid Taxpayer $125 million for the Hotel Business. The Hotel Business comprised two categories of property, i.e., real estate ("RE") and personal property ("PP"). The PP, in turn, consisted of two subcategories of property, tangible personal property ("TPP") and intangible personal property ("ITPP"). It is undisputed that the property transferred pursuant to the Agreement included RE, TPP, and ITPP. The sale closed on June 5, 2015, and a special warranty deed was recorded on June 8, 2015, which showed nominal consideration of $10. Pursuant to the Agreement, Taxpayer was responsible for remitting the documentary stamp tax and the discretionary surtax (collectively, "stamp tax"). Stamp tax is due on instruments transferring RE; the amount of the tax, payable per instrument recorded, is based upon the consideration paid for RE. Stamp tax is not assessed on consideration given in exchange for PP. The Agreement contains a provision obligating the parties to agree, before closing, upon a reasonable allocation of the lump-sum purchase price between the three types of property comprising the Hotel Business. For reasons unknown, this allocation, which was to be made "for federal, state and local tax purposes," never occurred. The failure of the parties to agree upon an allocation, if indeed they even attempted to negotiate this point, did not prevent the sale from occurring. Neither party declared the other to be in breach of the Agreement as a result of their nonallocation of the consideration. The upshot is that, as between Taxpayer and the Purchaser, the $125 million purchase price was treated as undifferentiated consideration for the whole enterprise. Taxpayer paid stamp tax in the amount of approximately $1.3 million based on the full $125 million of undifferentiated consideration. Taxpayer paid the correct amount of stamp tax if the entire consideration were given in exchange for the RE transferred to Purchaser pursuant the Agreement——if, in other words, the Purchaser paid nothing for the elements of the Hotel Business consisting of PP. On February 6, 2018, Taxpayer timely filed an Application for Refund with Respondent Department of Revenue (the "Department"), which is the agency responsible for the administration of the state's tax laws. Relying on a report dated February 1, 2018 (the "Deal Pricing Analysis" or "DPA"), which had been prepared for Taxpayer by Bernice T. Dowell of Cynsur, LLC, Taxpayer sought a refund in the amount of $495,013.05. As grounds therefor, Taxpayer stated that it had "paid Documentary Stamp Tax on personal property in addition to real property." Taxpayer's position, at the time of the refund application and throughout this proceeding, is that its stamp tax liability should be based, not on the total undifferentiated consideration of $125 million given in the exchange for the Hotel Business, but on $77.8 million, which, according to the DPA, is the "implied value" of——i.e., the pro-rata share of the lump-sum purchase price that may be fairly allocated exclusively to——the RE transferred pursuant to the Agreement. Taxpayer claims that, to the extent it paid stamp tax on the "implied values" (as determined in the DPA) of the TPP ($7 million) and ITPP ($40.2 million) included in the transfer of the Hotel Business, it mistakenly overpaid the tax.1/ On February 23, 2018, the Department issued a Notice of Intent to Make Refund Claim Changes, which informed Taxpayer that the Department planned to "change" the refund amount requested, from roughly $500 thousand, to $0——to deny the refund, in other words. In explanation for this proposed decision, the Department wrote: "[The DPA] was produced 3 years after the [special warranty deed] was recorded. Please provide supporting information regarding allocation of purchase price on or around the time of the sale." This was followed, on April 2, 2018, by the Department's issuance of a Notice of Proposed Refund Denial, whose title tells its purpose. The grounds were the same as before: "[The DPA] was produced 3 years after the document was recorded." Taxpayer timely filed a protest to challenge the proposed refund denial, on May 31, 2018. Taxpayer argued that the $125 million consideration, which Purchaser paid for the Hotel Business operation, necessarily bought the RE, TPP, and ITPP constituting the going concern; and, therefore, because stamp tax is due only on the consideration exchanged for RE, and because there is no requirement under Florida law that the undifferentiated consideration exchanged for a going concern be allocated, at any specific time, to the categories or subcategories of property transferred in the sale, Taxpayer, having paid stamp tax on consideration given for TPP and ITPP, is owed a refund. The Department's tax conferee determined that the proposed denial of Taxpayer's refund request should be upheld because, as he explained in a memorandum prepared on or around December 27, 2018, "[t]he taxpayer [had failed to] establish that an allocation of consideration between Florida real property, tangible personal property, and intangible property was made prior to the transfer of the property such that tax would be based only on the consideration allocated to the real property." The Department issued its Notice of Decision of Refund Denial on January 9, 2019. In the "Law & Discussion" section of the decision, the Department wrote: When real and personal property are sold together, and there is no itemization of the personal property, then the sales price is deemed to be the consideration paid for the real property. [2] Likewise, when the personal property is itemized, then only the amount of the sales price allocated for the real property is consideration for the real property and subject to the documentary stamp tax. The first of these propositions will be referred to as the "Default Allocation Presumption." The second will be called "Consensual-Allocation Deference." The Department cited no law in support of either principle. In its intended decision, the Department found, as a matter of fact, that Taxpayer and Purchaser had not "established an allocation between all properties prior to the transfer" of the Hotel Business. Thus, the Department concluded that Taxpayer was not entitled to Consensual-Allocation Deference, but rather was subject to the Default Allocation Presumption, pursuant to which the full undifferentiated consideration of $125 million would be "deemed to be the consideration paid for the" RE. Taxpayer timely requested an administrative hearing to determine its substantial interests with regard to the refund request that the Department proposes to deny. After initiating the instant proceeding, Taxpayer filed a Petition to Determine Invalidity of Agency Statement, which was docketed under DOAH Case No. 19-3639RU (the "Rule Challenge"). In its section 120.56(4) petition, Taxpayer alleges that the Department has taken a position of disputed scope or effect ("PDSE"), which meets the definition of a "rule" under section 120.52(16) and has not been adopted pursuant to the rulemaking procedure prescribed in section 120.54. The Department's alleged PDSE, as described in Taxpayer's petition, is as follows: In the administration of documentary stamp tax and surtax, tax is due on the total consideration paid for real property, tangible property and intangible property, unless an allocation of consideration paid for each type of property sold has been made by the taxpayer on or before the date the transfer of the property or recording of the deed. If the alleged PDSE is an unadopted rule, as Taxpayer further alleges, then the Department is in violation of section 120.54(1)(a). Although the Rule Challenge will be decided in a separate Final Order, the questions of whether the alleged agency PDSE exists, and, if so, whether the PDSE is an unadopted rule, are relevant here, as well, because neither the Department nor the undersigned may "base agency action that determines the substantial interests of a party on an unadopted rule." § 120.57(1)(e)1., Fla. Stat. Accordingly, the Rule Challenge was consolidated with this case for hearing. The Department, in fact, has taken a PDSE, which is substantially the same as Taxpayer described it. The undersigned rephrases and refines the agency's PDSE, to conform to the evidence presented at hearing, as follows: In determining the amount stamp tax due on an instrument arising from the lump-sum purchase of assets comprising both RE and PP, then, absent an agreement by the contracting parties to apportion the consideration between the categories or subcategories of property conveyed, made not later than the date of recordation (the "Deadline"), it is conclusively presumed that 100% of the undifferentiated consideration paid for the RE and PP combined is attributable to the RE alone. According to the PDSE, the parties to a lump-sum purchase of different classes of property (a "Lump—Sum Mixed Sale" or "LSMS") possess the power to control the amount of stamp tax by agreeing upon a distribution of the consideration between RE and PP, or not, before the Deadline.2/ If they timely make such an agreement, then, in accordance with Consensual-Allocation Deference, which is absolute, the stamp tax will be based upon whatever amount the parties attribute to the RE. If they do not, then, under the Default Allocation Presumption, which is irrebuttable, the stamp tax will be based upon the undifferentiated consideration. Simultaneously with the issuance of this Recommended Order, the undersigned is rendering a Final Order in the Rule Challenge, which determines that the PDSE at issue is an unadopted rule. This determination precludes the undersigned, and the Department, from applying the PDSE as an authoritative rule of decision in determining Taxpayer's substantial interests. The undersigned concludes further, for reasons set forth below, that the PDSE does not reflect a persuasive or correct interpretation of the applicable law. Rather, because the stamp tax is assessed only against the consideration given in exchange for RE, the law requires that, in determining the amount of stamp tax due on an instrument arising from an LSMS, a pro-rata share of the undifferentiated consideration must be allocated to the RE. The amount of the undifferentiated consideration that is reasonably attributable to the RE conveyed in an LSMS is a question of fact. To prove its allegation that only $77.8 million of the consideration received from Purchaser for the Hotel Business, and not the entire $125 million, is attributable to the RE conveyed in the LSMS, Taxpayer relies upon the DPA and the testimony of Ms. Dowell, who authored that report. The Department did not present any expert testimony to rebut the opinions of Ms. Dowell concerning the allocation of the undifferentiated consideration. Rather, the Department argues that Ms. Dowell's opinions are unreliable as a matter of law and should be disregarded, if not excluded as inadmissible——a position that depends heavily upon the Daubert standard for screening expert testimony, which does not apply in administrative proceedings, for reasons that will be explained in the Conclusions of Law. Alternatively, the Department asserts, based on Taxpayer's 2015 federal income tax return, that the amount paid for the RE component of the Hotel Business was actually $122 million. Although this argument is inconsistent with the Department's main position, because it concedes that the allocation is a disputable issue of material fact, rather than a legal conclusion driven by the Default Allocation Presumption or Consensual-Allocation Deference, as applicable, the Department is correct that the tax return can be viewed as evidence in conflict with Ms. Dowell's testimony; the undersigned will resolve the evidential conflict in favor of Ms. Dowell's testimony, in findings below. Primarily, though, the Department eschews evidence bearing on the pro-rata allocation of the consideration on the grounds that the Default Allocation Presumption conclusively establishes the taxable amount as a matter of law. In other words, the Department considers Ms. Dowell's opinions to be irrelevant, regardless of her credibility as an expert witness—— or lack thereof. In this respect, the Department has made a strategic error because the Default Allocation Presumption, besides being extralegal, is both irrational and arbitrary. It is irrational to assume that the seller in an arm's length transaction would simply give away valuable PP for nothing of value in return. It is arbitrary automatically to assign all of the undifferentiated consideration paid in an LSMS to one category of property transferred, i.e., RE, to the exclusion of the other property types exchanged. Systematically allocating the entire purchase price to any other involved property class, e.g., TPP, would be equally (un)justifiable. Put another way, there is no rational answer to the question: Why not deem the entire purchase price allocable to the personal property? Why not a 50/50 split instead? Or 60/40? The Default Allocation Presumption, in short, is not even a reasonable inference. Without the Default Allocation Presumption to trump the DPA, the Department is left with the representations of value in the Form 4797 attached to Taxpayer's 2015 federal income tax return as its best, indeed only, rebuttal evidence. The form is used to report gain or loss from sales of business property, such as, in this instance, the Hotel Business. In its return, Taxpayer reported gross sales prices of $20 million for the hotel land, $102 million for the hotel building, and $3 million for the hotel's furniture, fixtures, and equipment. In other words, Taxpayer represented to the Internal Revenue Service that $122 million of the undifferentiated consideration for the Hotel Business was attributable to RE, with the balance going towards TPP. Notably, Taxpayer did not list, much less assign value to, any "section 197 intangible" property, such as goodwill, going concern value, workforce in place, business records, operating systems, permits, licenses, trade names, etc. See 26 U.S.C § 197(d). Taxpayer's Form 4797 statements regarding the cumulative sales price of the RE are admissions that, arguably at least, conflict with Ms. Dowell's opinions as expressed in the DPA. See § 90.803(18), Fla. Stat. What is to be made of these admissions? They are not binding, of course. Taxpayer is free to disavow or distinguish the statements in its Form 4797, which is essentially what it has done. Different taxes, different rules, different reasons—— in these general terms, Taxpayer strives to deflect attention from, and dismiss as irrelevant any serious consideration of, its federal income tax filing. Taxpayer's position is not without merit because, in fact, the stamp tax is fundamentally different from the federal income tax, as are the laws governing these noncomparable revenue raising measures. On the other hand, Taxpayer did declare the gross sales prices of the land, building, and TPP to be as described above, and these statements of apparent historical fact would seem to be true regardless of the specific tax purposes that prompted their making. There is more to this evidence than Taxpayer would have it. Ultimately, however, the undersigned finds the Form 4797 evidence to be less persuasive than the DPA, for several reasons. First, it is undisputed that ITPP was conveyed in the LSMS of the Hotel Business, and this ITPP included section 197 intangibles. But: Was Taxpayer required to segregate, and report separately, the gross sales price of these section 197 intangibles on its Form 4797? The undersigned does not know. Or, was Taxpayer allowed (or even obligated) to put the value of the section 197 intangibles onto, say, the building? Again, the undersigned does not know. To evaluate the persuasive force of the Form 4797 admissions, however, one needs to know these things. If Taxpayer were not required, for example, to report separately the value of the section 197 intangibles, and if, further, there were tax advantages in not doing so, then the admissions at issue would not be very probative. There is no evidence in the record regarding how, from May 2012, when Taxpayer acquired the Hotel Business, Taxpayer valued the attendant section 197 intangibles, for federal income tax purposes. It is possible that, for reasons undisclosed in this proceeding, Taxpayer never segregated the cost of the section 197 intangibles but instead allowed the value of the ITPP to be taxed as part of the value of the building. In any event, topics such as the proper classification of business property under the Internal Revenue Code; the different amortization periods applicable to various types of property; the tax planning strategies an owner might cautiously, aggressively, or even illegally employ to minimize its liability; and the common mistakes made, or advantages overlooked, by tax preparers, are complex and beyond the scope of the current record.3/ As a result, the statements regarding asset prices in Taxpayer's 2015 federal income tax return, which sit in the record practically devoid of meaningful context, are consistent with too many alternative possibilities to be credited as persuasive admissions about the respective values of the land and building in question.4/ Second, as mentioned, Taxpayer did not state, on the Form 4797, that ITPP was sold for a price of $0, in which case one might expect Taxpayer also to have reported a loss on the sale of section 197 intangible property. Rather, Taxpayer did not disclose the sale of any ITPP in the LSMS at issue. This is important, from a weight-of-the-evidence standpoint, because it is an undisputed historical fact that valuable ITPP was conveyed to Purchaser in the subject transaction, which makes it unreasonable to infer a gross sales price of $0 for the ITPP. Imagine, however, the probative force the Form would have had if Taxpayer had listed a gross sales price of, say, $1 million for the ITPP, together with corresponding reductions in the prices of the RE and TPP; in such a hypothetical situation, the Form 4797 admissions would have been much more persuasive as an apportionment of the undifferentiated consideration. As it stands, however, the reasonably inferable likelihood is that Taxpayer did not report the sales price of the ITPP because it did not report the sale of ITPP——not because there was no sale (for there was) or because the sales price was $0 (which is unlikely), but for other reasons, unknowable on the instant record. Third, for purposes of levying Taxpayer's 2015 real estate property taxes, the Miami-Dade Tax Collector appraised the RE at $39 million. (This figure is the higher of two contemporaneous assessments by the local taxing authority.) This is less than one-third of $122 million——but, in contrast, constitutes 50% of Ms. Dowell's pro-rata allocation of consideration to the RE. There is no evidence in the record regarding the reliability of the local tax collector's appraisals of hotel property, or specifically the percentage of fair market value such assessments are reasonably likely to reflect. Therefore, the undersigned does not place too much weight on the 2015 ad-valorem tax assessments. Still, one cannot help but notice that Ms. Dowell's opinions on the RE's implied value are much closer to the Miami-Dade County Tax Collector's appraisal than the Form 4797 admissions.5/ Having found that the Form 4797 admissions possess some, but not much, probative value regarding the allocation of the undifferentiated consideration, the DPA emerges largely unscathed. As fact-finder, the undersigned has the discretion, nevertheless, to reject, as not credible, the expert testimony of Ms. Dowell. But he credits her opinions, both because Ms. Dowell is a qualified authority on the subject matter, and because the opinions she has expressed are objectively reasonable and logically supported. As for Ms. Dowell's credentials, she has a bachelor of science degree and a master of science degree, both in finance. She has worked in the field of property valuation for around 30 years. Working for major hotel companies, Ms. Dowell routinely performed the sort of allocation of value between asset classes that she has conducted in this case. In 2007, Ms. Dowell formed Cynsur, Inc., which performs value allocations for hospitality industry clients, predominately for taxation purposes, as here. Ms. Dowell has conducted approximately 1,000 deal pricing analyses for clients around the country. In the niche of implied value allocations between the categories of property transferred in LSMS transactions involving hotel operations, Ms. Dowell is clearly an experienced, knowledgeable, and credible expert. The DPA that Ms. Dowell prepared is not an independent appraisal of the hotel property per se, but an allocation of the undifferentiated consideration, which uses estimates of value as the basis for dividing the lump-sum purchase price into three shares, each representing an amount reasonably attributable to a type of property conveyed in the LSMS. The estimates of value that provide the grounds for determining the implied price-per- category are a kind of appraisal, but the DPA is not designed or expected to produce a total valuation that might exceed, or fall short of, the $125 million lump-sum purchase price that is being apportioned. Again, to be clear, the goal of the DPA is to divide the $125 million into asset classes, not to verify whether $125 million was the fair market value of the Hotel Business in 2015, because the stamp tax applies, not to fair market value as such, but to that portion of the undifferentiated consideration fairly attributable to the RE conveyed. Ms. Dowell's approach to apportionment is to determine the "implied values" of the RE and TPP by analyzing the income an owner would expect to receive on a separate investment in the RE or TPP, as the case may be, apart from the Hotel Business as a whole. She starts with a discounted cash flow analysis of the Hotel Business as a going concern, using the Purchaser's pro forma projections as developed at the time of the LSMS. In this instance, Purchaser had presented a five-year projection of cash flow to analyze the investment, which assumed that the Hotel Business would be sold at the end of year five. Using Purchaser's assumptions, Ms. Dowell determined that the hotel acquisition would yield an implied rate of return on (and of) investment of 11.99%. With this in mind, Ms. Dowell sought to quantify the present value of the income that an owner would expect to receive on an investment in the hotel RE alone, based on a hypothetical or proxy rent for this asset in isolation. To determine the hypothetical rent, Ms. Dowell needed to make certain assumptions, which are set forth in the DPA. She determined, ultimately, that 12% of gross operating revenue represents a reasonable approximation of the proxy rent for the RE assets in question. Of course, the assumptions underlying this determination are not necessarily, or even probably, the only reasonable assumptions that could have been made. The Department, however, did not offer any expert opinion evidence that challenged Ms. Dowell's assumptions, nor did it present alternative rental scenarios. Ms. Dowell discounted the projected, five-year RE income stream at 10%, reflecting the more conservative nature of a pure RE investment as compared to an investment in the Hotel Business as a going concern. The Department did not offer any expert opinion testimony disputing this discount factor. Ms. Dowell concluded that the net present value of the RE at issue was $77,803,500 ($77.8 million when rounded), which represents about 62% of the undifferentiated consideration for the Hotel Business. The undersigned credits this opinion and finds that $77.8 million is a reasonable allocation of consideration to the RE component of the Hotel Business. Ms. Dowell performed a similar analysis of a hypothetical standalone investment in the hotel TPP and calculated a net present value of $7 million, using a discount rate of 11%. This left the remainder of $40,196,500 to be allocated to ITPP. For present purposes, the breakdown between TPP and ITPP is relatively unimportant because the stamp tax is not payable on consideration given for PP of any stripe. Indeed, the ultimate factual determination that $77.8 million of the undifferentiated consideration is reasonably attributable to RE is the material finding; from that, it follows mathematically that the remaining balance of $47.2 million reflects consideration for the PP, however that figure might be allocated between TPP and ITPP. Thus, having found that $77.8 million is a reasonable allocation of consideration to the RE component of the Hotel Business, the undersigned is bound to determine that $47.2 million is a reasonable allocation of consideration to the PP. Because Taxpayer paid stamp tax on $125 million instead of $77.8 million, it overpaid the tax and is due a refund. It is undisputed that the amount of the stamp tax that Taxpayer paid on the excess consideration above $77.8 million is $495,013.05.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order approving Taxpayer's claim and authorizing payment of $495,013.05 to Taxpayer as a refund of overpayment of the stamp tax, plus statutory interest if and to the extent section 213.255, Florida Statutes, requires such additional compensation. (If a dispute of material fact arises in connection with the payment of interest, the Department should return the matter to DOAH for a hearing.) DONE AND ENTERED this 17th day of December, 2019, in Tallahassee, Leon County, Florida. S JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of December, 2019.
Findings Of Fact 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 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.
The Issue Whether American National can litigate its entitlement to a documentary stamp tax refund pursuant to Section 120.57, Florida Statutes (1987)? If so, whether American National is entitled to a refund of some or all of the $5,475 it paid in recording the first modification and consolidation of notes, mortgages and assignment of leases and rents executed by American National and General Electric Credit Corporation (GECC) on July 11, 1986?
Findings Of Fact Real estate in Escambia County which petitioner American National now holds as trustee (the property) once belonged to U.S.I.F. Pensacola Corporation (USIFP). On September 1, 1969, USIFP gave Town and Country Plaza, Inc. (T & P) a note for $1,500,000 and executed a mortgage on the property in favor of T & P as security for payment of the note. A separate $300,000 note was promptly repaid. On July 5, 1973, U.S.I.F Wynnewood Corporation (USIFW), USIFP's successor in title, gave U.S.I.F. Oklahoma Corporation (USIFO) a note for $625,000, and executed a mortgage on the property in favor of USIFO as security for payment of its note. On July 8, 1982, shortly after Trust No. 0008 acquired the property, Jacksonville National Bank, as trustee, gave First National Bank of Chicago (FNBC) two notes, each secured by a separate mortgage. One note was for $767,481.98, and the other was for $2,000,000. These two notes, along with the two notes originally given to T & P and USIFO, which were both subsequently assigned to FNBC, were the subject of the July 8, 1982, consolidation, modification and extension agreement. Documentary stamp tax owing on account of these notes (the consolidated notes) was eventually paid in its entirety. All four mortgages with which the property was encumbered when petitioner American National succeeded Jacksonville National as trustee were duly recorded, intangible tax having been fully paid upon recordation. In January of 1984, FNBC assigned the consolidated notes and the mortgages securing their payment to VPCO Properties, Inc., which itself assigned them later the same month to VPPI TCH, Inc. In July of 1986, GECC, the present holder of the consolidated notes acquired the notes and became the mortagee on the mortgages securing their payment. As of July 11, 1982, when American National, as trustee of Trust No. 0008, borrowed an additional $1,150,000 from GECC, the outstanding principal balance on the consolidated notes aggregated $3,650,000. On that date, GECC and American National, as trustee, executed the so- called first modification and consolidation of notes, mortgages and assignment of leases and rents, Petitioner's Exhibit No. 1, which recited the parties' understandings both with respect to the new borrowing and with regard to the existing indebtedness the consolidated notes reflected. In addition to signing Petitioner's Exhibit No. 1, American National, as trustee, also executed and delivered to GECC a promissory note in the amount of $1,500,000. This note, which was not offered in evidence, has never been recorded, nor have documentary stamps ever been affixed to it. At GECC's insistence, American National paid a documentary stamp tax of $7,920 at the time Petitioner's Exhibit No. 1 was recorded in Pensacola. Of this sum, $5,475 was paid on account of the indebtedness the consolidated notes evidenced; $1,725 was paid on account of the new borrowing; and $720 was paid because of the provisions in Petitioner's Exhibit No. 1, contemplating an increase in the principal amount of indebtedness. Under the agreement certain interest payments can be deferred, not to exceed $480,000, any such deferments being added to principal. The agreement provides: Notwithstanding the foregoing, so long as Borrower is making all payments on this Note when due, without giving effect to grace periods or requirements of notice, if any, and is otherwise not in default, taking into account, applicable grace periods, if any, under the Mortgage and other Security Documents Borrower shall be entitled to defer payment, in any month, of interest in excess of interest computed at the "Applicable Base Percentage Rate" (hereinafter defined) so long as the total interest deferred under this paragraph ("Deferred Interest"), including any and all Deferred Interest which has been added to the principal balance hereof, as hereinafter provided, does not exceed the lesser of ten percent (10 percent) of the outstanding principal balance hereof, excluding any and all Deferred Interest which has been added to the principal balance hereof, or $480,000. Such Deferred Interest, including any and all Deferred Interest which has been added to the principal balance hereof, shall be due and payable when and to the extent that, in any subsequent month, the Contract Index Rate is less than the "Applicable Base Percentage Rate", with the balance of such Deferred Interest being payable as provided below or on the maturity hereof, whether by lapse of time, prepayment or acceleration. The "Applicable Base Percentage Rate" shall mean the following per annum rates of interest, computed as aforesaid, for the periods indicated: Applicable Base Period Percentage Rate Date of This Note June 30, 1987 10.0 percent July 1, 1987-June 30, 1988 10.5 percent July 1, 1988-June 30, 1989 11.0 percent July 1, 1989-June 30, 1990 11.5 percent July 1, 1990-Maturity Date (hereinafter defined) 12.0 percent Unless previously paid by Borrower, the outstanding balance of Deferred Interest not previously added to principal in accordance herewith, if any, shall be added to the principal balance hereof on the first day of each calendar quarter beginning with October 1, 1986, and shall accrue interest thereafter at the Contract Index Rate provided for principal, which interest shall be payable in the same manner as is applicable to interest on the original principal balance hereof. Notwithstanding the foregoing, Borrower may pay Deferred Interest at any time without penalty. Of the documentary stamp tax American National paid, $720 was on account of future advances that Petitioner's Exhibit No. 1 was designed to secure, in the event GECC made them.
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 The facts in this case are undisputed. On April l6, 1976, petitioner Arthur J. Coyle and his wife Katie Coyle, became the sole shareholders of Sara- Wolf, Inc., a Florida Corporation, whose assets consisted of an apartment building in Miami Beach, Florida. Thereafter, the Coyles decided to transfer the corporate assets to themselves as individuals. They were advised by their attorney that, in view of the 1975 decision of the First District Court of Appeal in Florida Department of Revenue v. DeMaria, 321 So 2d 101 (Fla. 1st DCA 1975) in a similar factual situation, no state documentary stamp tax would be due on the transaction. Therefore, relying upon that judicial decision, petitioner and his wife proceeded to execute a quit claim deed of the corporate real estate to themselves on May 13, 1976, and file the same in the public records of Dade County, Florida, on May 18, 1976, with payment of only nominal documentary stamp tax. The decision of the District Court of Appeal had been stayed by the Supreme Court on December 8, 1975. Subsequent to the decision of the Supreme Court in the DeMaria case on October 14, 1976, which quashed the lower court's decision, respondent issued a notice of proposed assessment of documentary stamp tax in the amount of $526.50 based on a taxable consideration of $175,500, less 30 cents tax paid, for a total tax due of $526.20 plus a like amount as a penalty, and $42.00 in interest, for a total asserted liability of $1,094.40. (Testimony of petitioner, Exhibits 1-3)
Recommendation That the proposed assessment of $1,094.40 against petitioner Arthur J. Coyle and Katie Coyle is valid and should be enforced. DONE and ENTERED this 31st day of May, 1977 in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Robert A. Glassman, Esquire 903 Biscayne Building 19 West Flagler Street Miami, Florida 33130 Edwin J. Stacker, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304
Findings Of Fact The parties in the person of their counsel have stipulated to the evidential facts which shall serve as the basis for the determination of the matters in dispute. The stipulation of facts and its attendant exhibits are attached to this Recommended Order and made a part thereof. As can be seen in the examination of the stipulated facts and supporting exhibits, the amount of $940.80 tax due and $940.80 for penalty is the total amount pertaining to certain notes, including notes in the names of Newth and Smith, copies of which notes appear as Exhibits C and D to the stipulated facts. A review of the total audit, Exhibit A in the stipulated facts, reveals that the amount in issue on the notes of Newth and Smith totals $885.75 alleged tax due and $885.75 alleged penalty due. The balance of the $940.80 documentary stamp tax and $940.80 in penalty pertaining to notes of other named individuals have been conceded by the Petitioner as due and owing and are not in controversy through this hearing process. The original notes on the accounts of Newth and Smith were issued in 1969. The Newth note was drawn on September 17, 1969, and the Smith note on April 14, 1969. At the time the notes were issued, national banks were immune from state and local taxes whose categories were not within the purview of Section 5219 of the Revised Statutes (12 USCA Sec. 548). Documentary stamp taxes were not one of the classes of taxes enumerated in Section 5219. Consequently, no documentary stamp taxes could be imposed against the notes drawn on accounts in the First National Hank of Pompano Beach because in 1969 it was a national bank, a status which it has continued to hold through the time of these proceedings. The prohibition against documentary stamp taxes being imposed by a state government on transactions between a national bank and its customers existed until December, 1969, at which point Public Law 91-156 was enacted, on December 12, 1969, and it amended Section 5219 of the Revised Statutes (12 USCA Sec. 548) and subsequent to that amendment, Title 12 USCA Sec. 3548 allowed state governments to tax national banks. In particular, the language of that latter provision provided: For the purpose of any tax law enacted under the authority of the United States or any State, a national bank shall be treated as a bank organized and existing under the laws of the State or other jurisdiction within which its principal office is located. This meant that transactions between the customers of a national bank and that bank with took place subsequent to the implementation of Title 12 USCA Sec. 3548 could be taxed pursuant to Chapter 201, Florida Statutes, by the process of a documentary stamp tax being levied. (The exhibits attached to the statement of facts show that Newth renewed his note with the Petitioner on April 20, 1971, and again on December 31, 1975. Smith renewed his note on June 12, 1973, and on December 31, 1975. Through the renewal process, documentary steep taxes were not paid on $683,000.00 involving the note of Newth and on $15,500.00 involving the note of Smith.) The Petitioner claims that it need not pay the documentary stamp tax and penalty on the Newth and Smith notes, because it is except from the payment of such tax. While the Petitioner agrees with the Respondent that Subsection 201.08(1), Florida Statutes, calls for the payment of documentary taxes on promissory notes and the renewal of those promissory notes, Petitioner believes that Section 201.09, Florida Statutes, exempts it from the necessity to pay documentary stamp taxes and related penalties in the matter of the renewal of the Newth and Smith notes which took place on December 31, 1975. The provision of Section 201.09, Florida Statutes, states: 201.09 Renewal of existing promissory note; exemption.--Then any promissory note is given in renewal of any existing promissory note, which said renewal note only extends or continues the identical contractual obligations of the original promissory note and evidences part or all of the original indebtedness evidenced thereby, not including any accumulated interest thereon and without enlargement in any way of said original contract and obligation, such renewal note shall not be subject to taxation under this chapter if such renewal note has attached to it the original promissory note with canceled stamps of fixed thereon showing full payment of the tax due thereon. Petitioner reads this provision to mean that the prohibition against the State of Florida levying taxes on the transactions that took place on the Newth and Smith notes in 1969, under the protection afforded by Section 5219 of the Revised Statutes (12 USCA Sec. 548); was tantamount to a declaration that full payment of the tax due thereon had been rendered and when the State attempted to impose the documentary stamp tax on the renewals which took place on December 31, 1975, Section 201.09, Florida Statutes, exempted the Petitioner from the payment of that tax. Under this theory, it was only necessary to attach the original promissory note issued in the Newth and Smith matters in 1969 to the renewal notes of December 31, 1975, and even though canceled stamps were not affixed to the 1969 notes, this could be analogous to attaching promissory notes with canceled stamps to renewal note documents. The analogy is supported in the mind of the Petitioner because both in the instance of the latter promissory notes with documentary stamp taxes attached and in the cases of Newth and Smith where original promissory notes were attached without canceled stamps attached; the key point was that under the hypothetical situation of documentary stamp taxes affixed to the original notes or the actual situation in the Newth and Smith cases, both had the real effect or effect in law of providing full payment of taxes due thereon. The perception of the Petitioner does not comport with the basis for the exemption created by Section 201.09, Florida Statutes. That exemption only applies when tax has actually been paid on the original promissory note, which did not occur here, and that failure to pay tax on the original promissory notes precludes any claim for exemption when the notes were renewed. There exists one further possibility open to the Petitioner in its efforts to resist the payment of the documentary stamp tax rate penalty on the notes of Newth and Smith. That possibility resides in the idea that the prohibition against taxing the notes when they were drafted in 1969, such prohibition appearing in the guise of Section 5219 of the Revised Statutes (12 USCA Sec. 548); it would continue to exist for the life of the note making all renewals exempt from taxation. That interpretation does not pass muster when viewed in the light of Title 12 USCA Sec. 3548, which removed future transactions from their exempt status and made them subject to tax by the Respondent. This change in position allowed Subsection 201.08(1), Florida Statutes, to be imposed on the renewals to the promissory notes, which occurred on December 31, 1975. In summary, Petitioner having failed to demonstrate its entitlement to the exemption set out in Section 201.09, Florida Statutes, it is liable in the lull amount claimed for the payment of documentary stamp taxes and penalties in a like amount in accordance with the provisions of Chapter 201, Florida Statutes, on all transactions addressed in the audit, which is Exhibit A to the statement of facts.
Recommendation It is recommended that the Petitioner, First National Bank of Pompano Beach, be required to pay documentary stamp taxes in the amount of $940.80 and penalties in the amount of $940.80 related to the transactions on these promissory notes set out in the stipulation of facts offered by the parties. DONE AND ORDERED this 15th day of June, 1979, in Tallahassee, Florida. CHARLES C. ADAMS, 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 15th day of June, 1979. COPIES FURNISHED: Bruce Culpepper, Esquire 716 Barnett Bank Building Tallahassee, Florida 32301 Barbara Staros Harmon, Esquire Assistant Attorney General The Capitol Tallahassee, Florida 32301 John D. Moriarty, Esquire Department of Revenue Room 104, Carlton Building Tallahassee, Florida 32301 ================================================================= AGENCY FINAL ORDER =================================================================
