96-000937
Kuro, Inc. vs.
Department Of Revenue
Status: Closed
Recommended Order on Tuesday, April 22, 1997.
Recommended Order on Tuesday, April 22, 1997.
1STATE OF FLORIDA
4DIVISION OF ADMINISTRATIVE HEARINGS
8KURO, INC., )
11)
12Petitioner, )
14)
15vs. ) CASE NO. 96-0937
20)
21DEPARTMENT OF REVENUE, )
25)
26Respondent. )
28___________________________________)
29RECOMMENDED ORDER
31A hearing was not held in this case. Pursuant to
41stipul a tion of the parties, a formal hearing was waived and the
54parties agreed that a Recommended Order would be entered by the
65Admini s trative Law Judge based upon a stipulated record.
75Consistent with the stipulation between the parties, this
83Recommended Order is hereby entered, under the provisions of
92Section 120.80(14)(b), Florida Statutes , by Arnold H. Pollock, an
101Administrative Law Judge with the Division of Administrative
109Hearings.
110APPEARANCES
111For Petitioner: C. Samuel Whitehead, Esquire
1172199 Ringling Boulevard
120Sarasota, Florida 34237
123For Respondent: James F. McAuley, Esquire
129Office of the Attorney General
134The Capital - Tax Section
139Tallahassee, Florida 32399-1050
142STATEMENT OF THE ISSUE
146The issue for consideration in this case is whether deeds by
157property owners which convey unencumbered real property to a
166co r poration solely owned by them, are subject to a documentary
178stamp tax imposable under Section 201.021(1), Florida Statutes ,
186and Rule 12B-4.013(7), Florida Administrative Code .
193PRELIMINARY MATTERS
195On November 10, 1994, the Department issued a Notice of
205Intent to Make Documentary Stamp Tax and Discretionary Surtax
214Audit Changes to Petitioner, Kuro, Inc. This was followed, on
224March 27, 1995, by the Departments Notice of Proposed
233Assessment, which denoted the tax, penalty and interest claimed.
242Petitioner thereafter filed a timely protest.
248By Notice of Decision, dated January 11, 1996, the
257Respo n dent herein, Department of Revenue, advised the Petitioner,
267Kuro, Inc., that it had sustained the assessment as proposed and
278advised Petitioner of its right to request formal hearing.
287Thereafter, on February 19, 1996, Petitioner filed its Petition
296for Administrative Hearings and this proceeding ensued.
303After a formal hearing was delayed on several occasions by
313requested continuances filed by the Department, the parties
321agreed that a Recommended Order would be entered in this matter
332by the Administrative Law Judge, without an evidentiary hearing,
341based upon a submittal of a corporate deposition and other
351documentary evidence to be supplemented by written argument by
360counsel. Thereafter, the deposition of Herbert Richard Byrd,
368Secretary of Petitioner corporation, was filed with the Division
377of Administrative Hearings by counsel for the Department on
386February 28, 1997. Counsel for the Department also filed with
396the Division the Departments audit file and work papers. No
406other evidence was presented by either party.
413Subsequent to the filing of all the evidentiary matters,
422both counsel submitted Proposed Findings of Fact which were
431carefully considered in the preparation of this Recommended
439Order.
440FINDINGS OF FACT
4431. By Warranty Deed dated April 30, 1991, W. Dewey Kennell
454sold eight condominium apartments, units 1731, 1733, 1735, 1737,
4631741, 1743, 1745 and 1747, in Baywood Colony Southwood Apartments
473IV, a condominium, to Kurt Rabau and Ronald Rabau, his son,
484residents of Germany. The Rabaus purchased the properties as an
494investment in rental property for income. At the time of the
505sale, the property was subject to mortgages totaling $250,000,
515which the Rabaus paid off on May 24, 1994.
5242. Sometime after the purchase, the Rabaus were advised to
534incorporate and hold title to the properties in a corporate
544capacity to protect themselves against personal liability.
551Thereafter, on September 14, 1994, the Rabaus formed Kuro, Inc.,
561the Petitioner herein, to take and hold title to the properties,
572with Kurt Rabau and Ronald Rabau each owning 50% of the corporate
584stock. There were no other owners of stock in the corporation.
5953. On October 12, 1994, the Rabaus transferred all eight
605properties to Kuro, Inc. Kuro, Inc. had no assets other than the
617eight apartments, and did no business prior to the transfer of
628those apartments to it. Consequently, the stock of Kuro, Inc.
638was valueless prior to the receipt of the transferred apartments.
6484. The corporations federal tax form relating to transfer
657of property to a corporation, the Corporations Statement on
666Transfer of Property Under Code Section 351 reflects that the
676Rabaus transferred the jointly owned property [described
683therein] for which Kuro Inc. issued the stock. From the
693evidence presented it is clear that the Kuro Inc. stock was
704issued in exchange for the contribution of the apartments to the
715corporation.
7165. Other documents in the corporations 1994 tax return
725indicate that the property was valued at fair market value at the
737time of transfer to the corporation, and the transferees,
746(corporations) adjusted basis was identical after the transfer.
754Each of the Rabaus received 500 shares of the corporations stock
765which was valued at $618,642. Of that amount, $617,642 was
777considered additional paid-in capital. There was no additional
785property received or possessed by the corporation.
7926. A minimal documentary stamp tax was paid by the parties
803at the time the eight Warranty Deeds for the apartments were
814transferred to the corporation. The consideration reflected on
822the face of each deed was ...the sum of $10.00 and other
834valuable consideration.
8367. Subsequent to the transfer, the Department conducted an
845audit of the Clerk of Circuit Court in Sarasota County and, on
857November 10, 1994, issued a Notice of Intent to Make Documentary
868Stamp Tax and Discretionary Surtax Audit Changes, by which it
878indicated its intent to impose a documentary tax of $4,207.00 on
890the transfers, a 50% penalty of $2,103.50, and interest totaling
901$38.73 through November 10, 1994, with additional interest to
910accrue at the rate of 1% per month, prorated daily ($1.38), until
922date of payment. Thereafter, on March 27, 1995, the Department
932issued a Notice of Proposed Assessment to Kuro, Inc., and
942Petitioner timely filed a protest. Subsequent to that action, on
952January 11, 1996, the Department issued its Notice of Decision
962sustaining the proposed assessment, penalty and accrued interest,
970and Petitioner requested formal hearing.
975CONCLUSIONS OF LAW
9788. The Division of Administrative Hearings has jurisdiction
986over the parties and the subject matter in this case. Section
997120.57(1), Florida Statutes .
10019. The Department of Revenue seeks to impose an assessment,
1011penalty and interest on the Petitioner herein, Kuro, Inc.,
1020contending its failure to pay appropriate documentary tax stamps
1029upon deeds of real estate from the Rabaus to the corporation.
1040The First District Court of Appeal has determined that tax
1050assessments such as these must be considered prima facie correct,
1060with the burden of proof resting on the party against whom the
1072assessment is made. Department of Revenue v. Nu-Life Health and
1082Fitness Center , 623 So.2d 747, 751-752 (Fla. 1DCA 1992). The
1092burden in such a case is a preponderance of the evidence.
110310. The Rabaus gave up their interest in real property for
1114stock in a corporation, which is intangible personal property.
1123They formed a corporation for the purpose of limiting their
1133personal liability related to the ownership of the real property
1143and the business uses to which it was put. This is a perfectly
1156legitimate tactic, but once the incorporators elect to form the
1166limited liability entity, they must accept the ramifications of
1175that election and may not disavow the existence of the
1185corporation for a tax advantage. Regal Kitchens, Inc. v Fla.
1195Dept. of Revenue 641 So.2d 158 (Fla. 1DCA 1994).
120411. Section 201.02(1), Florida Statutes , provides, in
1211pertinent part:
1213On deeds, instruments, or writings
1218whereby any lands, tenements, or other real
1225property, or any interest therein, shall be
1232granted, assigned, transferred, or otherwise
1237conveyed to, or vested in, the purchaser or
1245any other person by his direction, on each
1253$100 of the consideration therefore the tax
1260shall be 70 cents.
126412. The term consideration is further defined in the
1273statute as including but not being limited to:
1281... the money paid or agreed to be paid;
1290the discharge of an obligation; and the
1297amount of any mortgage; purchase money
1303mortgage lien; or other encumbrance, whether
1309or not the underlying indebtedness is
1315assumed. If the consideration paid or given
1322in exchange for real property or any interest
1330there include property other than money, it
1337is presumed that the consideration is equal
1344to the fair market value of the real property
1353or interest therein.
135613. Consistent therewith, the Department of Revenue has
1364promulgated Rule 12B-4.012(2), Florida Administrative Code ,
1370wherein it states:
1373Property other than money includes, but
1379is not limited to, property that is corporeal
1387or incorporeal, tangible or intangible,
1392visible or invisible, real or personal;
1398everything that has an exchangeable value or
1405which goes to make up wealth or estate.
141314. Rule 12B-4.013(7), Florida Administrative Code
1419provides:
1420A conveyance of realty to a corporation
1427in exchange for shares of its capital stock,
1435or as a contribution to the capital of a
1444corporation, is subject to tax. There is a
1452presumption that the consideration is equal
1458to the fair market value of the real
1466property.
1467The taxability of an exchange of stock for property was also
1478provided for in the 1983 version of the above-cited Department
1488rule. (See Rule 12B-4.13(7) Florida Administrative Code , 1983
1496Ed.) Since each rule was lawfully promulgated by the Department
1506it is presumed valid. City of Palm Bay v. State, Dept. of
1518Transportation , 588 So.2d 624 (Fla. 1DCA 1991). In addition, the
1528taxability of a conveyance to a corporation in consideration of
1538corporate stock of the corporation is considered a taxable
1547transaction. (See Attorney General Opinion 63-18).
155315. It is the transfer of an interest in real estate which
1565is subject to the tax. It matters not who the parties to the
1578transfer are. In the instant case, the Kuros transferred real
1588property they owned to a corporation in which they were the only
1600shareholders, and this transfer was paid for by the issue of
1611stock in that corporation of a value equal to the value of the
1624property conveyed. As such, the transfer is taxable.
163216. Section 201.17(2)(a),(b) and (c), Florida Statutes ,
1640provides that whenever a document tax due under the statute is
1651not paid timely, the person liable for the tax is subject to
1663payment of the tax not paid, payment of a penalty equal to 50
1676percent of the tax not paid, and payment of interest. However,
1687consistent with subsection (3) of the statute, the Department may
1697settle or compromise any interest or penalties pursuant to
1706Section 72.011, Florida Statutes . At subsection (3)(a), it
1715provides:
1716A taxpayers liability for penalties
1721under any of the chapters specified in s.
172972.011(1) may be settled or compromised if it
1737is determined by the department that the
1744noncompliance is due to reasonable cause and
1751not to willful negligence, willful neglect,
1757or fraud. In addition, a taxpayers
1763liability for penalties under any of the
1770chapters specified in s. 72.011(1) in excess
1777of 25 percent of the tax shall be settled or
1787compromised if the department determines that
1793the noncompliance is due to reasonable cause
1800and not to willful negligence, willful
1806neglect, or fraud.
180917. In the instant case, Kuro, Inc. received the property
1819as a transfer for stock in the corporation. The deeds were
1830subsequently recorded in the office of the Clerk of Circuit
1840Court, and a tax based on the token consideration paid. There
1851appears to be no evidence of fraud, willful concealment or
1861willful misconduct on the part of the Rabaus or any of their
1873employees or advisers. At worst, what appears to be an erroneous
1884interpretation of the law is involved. That being so, it would
1895appear that a compromise of the amount due from the corporation
1906is appropriate. Clearly the tax is due and payable, as is the
1918interest on the amount of tax. However, the penalty as assessed
1929by the Department should be compromised and waived.
1937RECOMMENDATION
1938Based on the foregoing Findings of Fact and Conclusions of
1948Law, it is recommended that the Department of Revenue enter a
1959final order imposing a tax in the amount of $4,207.00 with
1971interest from date of filing at 1 percent per month based on the
1984amount of tax not paid to date of payment.
1993DONE and ENTERED this 22nd day of April, 1997, in
2003Tallahassee, Florida.
2005ARNOLD H. POLLOCK
2008Administrative Law Judge
2011Division of Administrative Hearings
2015The DeSoto Building
20181230 Apalachee Parkway
2021Tallahassee, Florida 32399-3060
2024(904) 488-9675 SUNCOM 278-9675
2028Fax Filing (904) 921-6947
2032Filed with the Clerk of the
2038Division of Administrative Hearings
2042this 22nd day of April, 1997.
2048COPIES FURNISHED :
2051C. Samuel Whitehead, Esquire
20552199 Ringling Boulevard
2058Sarasota, Florida 34237
2061James F. McAuley, Esquire
2065Office of the Attorney General
2070The capitol - Tax Section
2075Tallahassee, Florida 32399-1050
2078Linda Lettera
2080General Counsel
2082Department of Revenue
2085204 Carlton Building
2088Tallahassee, Florida 32399-0100
2091Larry Fuchs
2093Executive Director
2095Department of Revenue
2098Tallahassee, Florida 32399-1011
2101NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
2107All parties have the right to submit written exceptions within 15
2118days from the date of this recommended order. Any exceptions to
2129this recommended order should be filed with the agency that will
2140issue the final order in this case.
- Date
- Proceedings
- Date: 10/23/1997
- Proceedings: Record on Appeal (filed with the 2nd DCA) filed.
- Date: 07/18/1997
- Proceedings: Second DCA case number 2-97-3021 filed.
- Date: 07/14/1997
- Proceedings: Notice of Appeal filed. (filed by: )
- Date: 06/16/1997
- Proceedings: Final Order filed.
- Date: 04/23/1997
- Proceedings: Ltr to L. Lettera from AHP enclosing deposition of H. Byrd that was inadvertently left out of the Recommended Order sent out.
- Date: 04/04/1997
- Proceedings: Petitioner`s Proposed Recommended Order filed.
- Date: 03/31/1997
- Proceedings: Order Granting Extension of Time to File Proposed Recommended Orders sent out. (PRO`s due by 3/31/97)
- Date: 03/31/1997
- Proceedings: Respondent`s Notice of Filing Proposed Recommended Order; Respondent`s Proposed Recommended Order filed.
- Date: 03/24/1997
- Proceedings: Renewed Agreed Motion for Extension of Time to File Proposed Recommended Orders filed.
- Date: 03/11/1997
- Proceedings: Defendant`s Notice of Filing Audit File and Work Papers filed.
- Date: 02/28/1997
- Proceedings: Defendant`s Notice of Filing Original Transcript of the Deposition of Herbert Richard Byrd filed.
- Date: 02/20/1997
- Proceedings: Order sent out. (parties shall file their proposed recommended orders on or before 3/24/97)
- Date: 02/12/1997
- Proceedings: (Respondent) Notice of Taking Corporate Deposition Duces Tecum filed.
- Date: 02/12/1997
- Proceedings: (Respondent) Notice of Taking Corporate Deposition Duces Tecum (filed via facsimile).
- Date: 12/23/1996
- Proceedings: Amended Notice of Hearing (As to Location of Hearing Only) sent out. (hearing set for 3/4/97; 10:00 a.m.; Sarasota)
- Date: 11/22/1996
- Proceedings: Order Granting Third Continuance sent out. (hearing rescheduled for 3/4/97; 10:00am; Sarasota)
- Date: 11/15/1996
- Proceedings: (Respondent) Unopposed Motion for Continuance (filed via facsimile).
- Date: 08/21/1996
- Proceedings: Order Granting Second Continuance sent out. (hearing rescheduled for 12/4/96; 10:00am; Sarasota)
- Date: 08/16/1996
- Proceedings: (Respondent) Unopposed Motion for Continuance filed.
- Date: 06/25/1996
- Proceedings: Order Granting Continuance sent out. (hearing rescheduled for 9/4/96; 10:00am; Sarasota)
- Date: 06/19/1996
- Proceedings: (Respondent) Unopposed Motion for Continuance filed.
- Date: 05/31/1996
- Proceedings: Respondent`s First Request for Admissions; Respondent`s Notice of Serving Second Set of Interrogatories to Petitioner filed.
- Date: 04/05/1996
- Proceedings: Respondent`s Notice of Serving First Set of Interrogatories to Petitioner; Respondent, Department of Revenue`s Request for Production of Documents filed.
- Date: 03/12/1996
- Proceedings: Notice of Hearing sent out. (hearing set for 7/9/96; 10:00am; Sarasota)
- Date: 03/08/1996
- Proceedings: Parties` Joint Response to Initial Order filed.
- Date: 03/08/1996
- Proceedings: Respondent, Department of Revenue`s Answer filed.
- Date: 02/27/1996
- Proceedings: Initial Order issued.
- Date: 02/22/1996
- Proceedings: Agency referral letter; Petition for Chapter 120 Hearing; Agency Action letter filed.
Case Information
- Judge:
- ARNOLD H. POLLOCK
- Date Filed:
- 02/22/1996
- Date Assignment:
- 02/27/1996
- Last Docket Entry:
- 10/23/1997
- Location:
- Sarasota, Florida
- District:
- Middle
- Agency:
- ADOPTED IN TOTO