97-000949 Shy Lurie And Michael Smith, F/K/A Elizabeth Irene Puhn Irrevocable Trust vs. Department Of Revenue Status: Closed Recommended Order on Friday, September 18, 1998.

Summary: Trust must pay 50% of Florida's intangible property tax because the two co-trustees shared equally in the control of the trust estate and one co-trustee was domiciled in Florida.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SHY LURIE AND MICHAEL SMITH as )

Co-Trustees of the ELIZABETH )

IRENE PUHN IRREVOCABLE TRUST , )

)

Petitioners , )

) Case No. 97-0949

vs. )

)

THE FLORIDA DEPARTMENT OF REVENUE , )

)

Respondent. )

___________________________________)

RECOMMENDED ORDER

Pursuant to the request of the parties, no formal hearing

was held in this case.

APPEARANCES

For Petitioners : Nicholas M. Daniels, Esquire

Therrel Baisden, P.A.

SunTrust International Center

One Southeast Third Avenue, Suite 2400

Miami, Florida 33131

For Respondent : Charles Catanzaro

Assistant Attorney General

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

Whether the Elizabeth Puhn Irrevocable Trust is entitled to

a refund of intangible personal property taxes paid to the State

of Florida for the tax years 1993, 1994, and 1995.

PRELIMINARY STATEMENT

In a Notice of Decision of Refund Denial dated January 7,

1996, 1 the Department of Revenue ("Department") indicated its

intent to deny in part and grant in part the request of the

Elizabeth I. Puhn Irrevocable Trust ("Trust") for a refund of

intangible personal property taxes paid by the Trust for the

1993, 1994, and 1995 tax years. The Department found that the

Trust was entitled to a refund of fifty percent of the intangible

property taxes paid for the tax years in question on the grounds

that one of the two co-trustees of the Trust was a resident of

Florida and shared equally with a nonresident co-trustee the

management and control of the Trust. The co-trustees timely

filed a written protest in which they seek a refund of the

remaining fifty percent of the intangible property taxes paid for

the 1993, 1994, and 1995 tax years. The Department forwarded the

case to the Division of Administrative Hearings for assignment of

an administrative law judge.

In a status report filed January 9, 1998, the parties

requested that the affidavits of Shy Lurie and Nicholas M.

Daniels, co-trustees of the Trust, be accepted into evidence and

form the factual predicate for the recommended order to be issued

in this case. The request was granted in an order dated

January 15, 1998, and the parties submitted proposed recommended

orders, which have been duly considered.

FINDINGS OF FACT

Pursuant to the affidavits submitted into evidence in this

case and on the entire record of this proceeding, the following

findings of fact are made:

1. The Department of Revenue ("Department") is the state

agency responsible for administering and enforcing the collection

of the intangible personal property tax in Florida.

Section 199.202, Florida Statutes (1997).

2. Shy Lurie is a co-trustee of the Elizabeth Irene Puhn

Irrevocable Trust dated December 16, 1981 (hereinafter the

"Trust").

3. Nicholas M. Daniels was a co-trustee of the Trust for

the 1993, 1994, and 1995 tax years.

4. Shy Lurie was a resident of North Carolina for the tax

years in question.

5. Nicholas M. Daniels was a resident of Miami, Florida,

for the tax years in question.

Trustees and Domicile

6. The settlor of the Trust is Elizabeth B. Lurie.

7. The co-trustees of the Trust at the inception of the

Trust were Shy Lurie and Nicholas M. Daniels.

8. The settlor, the co-trustees, and the beneficiary,

Elizabeth Irene Puhn, were all residents of Miami, Florida, at

the inception of the Trust.

9. Nicholas M. Daniels was and continues to be an attorney

licensed to practice law in the State of Florida for the tax

years in question and thereafter.

10. On December 20, 1996, Mr. Daniels resigned as a

co-trustee effective as of such date, and Mr. Michael Smith, a

resident of North Carolina, was appointed as a co-trustee

effective as of December 20, 1996.

Terms of the Trust

11. The Trust provides for the income to be accumulated

until the beneficiary, Elizabeth Irene Puhn, attains the age of

thirty and during that period the income may be disbursed to the

beneficiary in the co-trustees' discretion for certain specified

expenses of the beneficiary.

12. After the beneficiary attains the age of thirty, she is

entitled to all net income from the Trust.

13. The Trust shall terminate when the beneficiary reaches

the age of forty, at which time the Trust's assets will be

distributed to Elizabeth Irene Puhn or, if she is then deceased,

then pursuant to the alternate dispositive provisions set forth

in the Trust.

14. The beneficiary currently resides in Durham, North

Carolina.

15. The beneficiary has been a resident of Durham, North

Carolina, for approximately five (5) years, which included the

tax years in question.

16. Article VI of the Trust instrument provides that the

trustees are granted the power and authority to do any of the

enumerated powers specified in the Trust in the trustee's

unrestricted judgment and discretion which the trustees deem

advisable for the better management and preservation of the trust

estate.

Books, Records, and Custody of Assets

17. All Trust books and records for the tax years in

question were located at and all business was transacted at Shy

Lurie's office in North Carolina.

18. For the tax years in question, neither the Trust assets

nor the Trust's books and records were located in the State of

Florida.

19. On February 5, 1985, Shy Lurie and Nicholas M. Daniels

entered into an investment management agreement with Montag &

Caldwell, Inc., an Atlanta, Georgia, management company.

20. Such agreement provided that supervision and management

of the marketable securities portion of the trust estate is

vested with Montag & Caldwell, Inc., and that the agreement may

be terminated upon thirty (30) days notice by either party.

21. The balance of the trust estate consists of stock in a

closely held family business which has been under the sole

control and custody of Shy Lurie for the taxable years in

question.

22. On January 17, 1985, Shy Lurie and Nicholas M. Daniels,

as co-trustees, entered into a Custodial Agreement (hereinafter

"Custodial Agreement") with the National Bank of Georgia

(hereinafter the "Bank"), a national bank with its office and

principal place of business in Atlanta, Georgia.

23. In April 1986, the Custodial Agreement was taken over

by NationsBank of Asheville, North Carolina.

24. Such Custodial Agreement provides, in pertinent part,

that the operation of the said account will involve instructions

directed to or from time to time by Montag & Caldwell, Inc.

25. The Custodial Agreement provides in paragraph 14,

section 4, that the Bank is authorized to furnish the State of

Georgia intangible tax section with a statement of the

securities.

26. The Custodial Agreement in paragraph 7 provides that

where permissible all securities shall be registered in the name

of the Bank's nominee and the custodian has the authority to make

information returns and otherwise to furnish any information

regarding this account to any local, state, or federal

governmental authority upon the valid demand therefor.

27. The Custodial Agreement cannot be assigned without the

unanimous consent of the co-trustees and the investment advisor,

Montag & Caldwell, Inc.

Payment of Intangible Tax

28. Shy Lurie, as a co-trustee, paid the State of Florida

intangible tax in the amount of $12,457.00 for the 1993 tax year.

29. Shy Lurie, as a co-trustee, paid the State of Florida

intangible tax in the amount of $14,404.00 for the 1994 tax year.

30. Shy Lurie, as a co-trustee, paid the State of Florida

intangible tax in the amount $16,128.00 for the 1995 tax year.

31. Shy Lurie, as a co-trustee, filed an Application for

Refund from the State of Florida Department of Revenue ( form

DR-26) on or about February 29, 1996.

32. On April 18, 1996, the Florida Department of Revenue

responded with a Notice of Intent (form DR-1200R) indicating a

proposed denial for all three claims.

33. After additional information was submitted to the

Department, the refund claims were granted in part and denied in

part.

34. On or about May 13, 1996, the Department notified Shy

Lurie and the other co-trustee that a partial refund of fifty

percent (50%) was granted for each tax year.

35. Shy Lurie, through his attorney, on or about June 18,

1996, submitted a Memorandum of Law and additional documents to

the Department.

36. On or about July 19, 1996, after reviewing the

Memorandum of Law and accompanying documents the Department

issued a Notice of the Proposed Denial of Refund for the

following tax years and for the following amounts:

a. For tax year 1993 (DTA Number 9601056A and Source

Number 96064010) in the amount of $6,228.50;

b. For tax year 1994 (DTA Number 9601056B and source

Number 96064011) in the amount of $7,202.00; and

c. For tax year 1995 (DTA Number 9601056C and Source

Number 96064012) in amount of $8,064.00.

37. Shy Lurie, through his attorney, contested the denial

of the refund and on or about August 5, 1996, Shy Lurie, through

his attorney, filed a written protest with both the Bureau of

Hearings and Appeals and the Bureau of Audit Standards.

38. On December 16, 1996, Mr. Nicholas M. Daniels, attorney

for the Trust, attended an informal conference with members of

the Department, in an effort to settle this matter.

39. The Department issued a Notice of Decision of Refund

Denial for all three claims by a letter inadvertently dated

January 7, 1996 (the year should have been 1997).

40. Shy Lurie, through his attorney, filed a Petition for

Formal Hearing pursuant to Chapter 120, Florida Statutes, on or

about February 24, 1997.

CONCLUSIONS OF LAW

41. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and of

the parties thereto pursuant to Section 120.57(1), Florida

Statutes (1997).

42. Section 199.032, Florida Statutes (1995), 2 is the

source of the Department's authority to levy a tax on intangible

personal property with a taxable situs in Florida:

An annual tax of 2 mills is hereby imposed on

each dollar of the just valuation of all

intangible personal property which has a

taxable situs in this state, except for notes

and other obligations for the payment of

money, other than bonds, which are secured by

mortgage, deed of trust, or other lien upon

real property situated in the state. This

tax shall be assessed and collected as

provided in this chapter.

43. Section 199.052, Florida Statutes (1995), describes the

manner in which the tax shall be paid and provides in pertinent

part:

(1 ) An annual intangible tax return must

be filed with the department by every

corporation authorized to do business in this

state or doing business in this state and by

every person, regardless of domicile, who on

January 1 owns, controls, or manages

intangible personal property which has a

taxable situs in this state. For purposes of

this chapter, "control" or "manage" does not

include any ministerial function or any

processing activity. . . .

44. Section 199.175, Florida Statutes (1995), defines the

taxable situs of intangible personal property and provides in

pertinent part:

(1 ) Intangible personal property shall

have a taxable situs in this state when it is

owned, managed, or controlled by any person

domiciled in this state on January 1 of the

tax year. Such intangibles shall be subject

to annual taxation under this chapter, unless

the person who owns, manages, or controls

them is specifically exempt or unless the

property is specifically exempt. This

provision shall apply regardless of where the

evidence of the intangible property is kept;

where the intangible is created, approved, or

paid; or where business may be conducted from

which the intangible arises. . . .

(a ) For the purposes of this chapter, "any

person domiciled in this state" means:

1. Any natural person who is a legal

resident of this state.

45. At issue in this case is the taxable situs of the

intangible personal property in the trust estate. At first

blush, Section 199.052(1) and Section 199.175(1) seem not to be

reconcilable with one another regarding the meaning of "taxable

situs"; the focus of Section 199.052(1) is on the location of the

property rather than on the domicile of the person who owns,

controls, or manages it, while the focus of Section 199.175(1) is

on the domicile of the person who owns, controls, or manages the

property rather than on the location of the property. In fact,

Section 199.052(1) and Section 199.175(1), read together,

literally require that an intangible tax return be filed by

"every person, regardless of domicile, who on January 1 owns,

controls, or manages intangible personal property which . . .

["is owned, managed, or controlled by any person domiciled in

this state on January 1 of the tax year"]." The legislative

intent regarding the definition of "taxable situs" is, however,

made clear in Section 199.175(1), which further provides that the

taxable situs of intangible personal property is not dependent on

the location of the property or the location of the business

"from which the intangible arises."

46. Because Section 199.175(1) specifically defines the

"taxable situs" of intangible personal property, the provisions

of that section must be used to give meaning to the term as it is

used both in Section 199.032 and in Section 199.052(1). See

Nicholson v. State , 600 So. 2d 1101, 1103 (Fla. 1992), cert .

denied 506 U.S. 1008, 113 S.Ct 625, 121 L.Ed.2d 557 (1992)("When

a definition of a word or phrase is provided in a statute, that

meaning must be ascribed to the word or phrase whenever it is

repeated in the statute unless a contrary intent clearly

appears."). Therefore, as a co-trustee of the Trust and a

natural person domiciled in Florida on January 1 of the 1993,

1994, and 1995 tax years, Mr. Daniels was required to file an

intangible tax return in Florida and the intangible personal

property in the trust estate was subject to Florida's intangible

property tax if Mr. Daniels " own[ed], control[led], or manage[d]"

the intangible personal property which comprised the trust

estate. 3

47. Article VII, section 1(c) of the Trust Agreement

provides in pertinent part that "[t ]wo trustees shall always act

hereunder." Accordingly, Mr. Daniels and Mr. Lurie, as the two

co-trustees, both had to approve all decisions respecting the

administration of the Trust.

48. On the basis of the facts found herein, Mr. Daniels and

Mr. Lurie equally shared the responsibility for controlling and

managing the trust estate in the 1993, 1994, and 1995 tax years.

This is so regardless of the fact that they entered into

custodial and investment management agreements by which they

delegated to others the management and control of the intangible

personal property in the trust estate. Mr. Daniels and

Mr. Lurie, as co-trustees, entered into the agreements, and,

during the tax years in question, Mr. Daniels and Mr. Lurie, as

co-trustees, could have terminated the agreements. Mr. Daniels

and Mr. Lurie did not relinquish the ultimate power to control

and manage the intangible personal property in the trust estate.

Furthermore, the fact that some of the intangible personal

property in the trust estate is stock of a closely-held

corporation which has been in the actual control of Mr. Lurie,

who was a resident of North Carolina during the tax years in

question, has no effect on the taxable situs of the property.

49. The Petitioners' reliance on the rule of law stated in

Florida National Bank of Jacksonville v. Simpson , 59 So. 2d 751

(Fla. 1952) is misplaced. The rule stated by the court, quoting

Bogert on Trusts and Trustees , is as follows:

"Where there are two or more trustees

residing in different states, the courts are

in fairly general agreement, where a

different rule is not established by statute ,

that the property will be taxable in the

state of residence of the trustee who has

actual custody or control of it." (Italics

supplied.)

Id. At 767. In Simpson , the corporate trustee, which had its

principal place of business in Florida, not only had actual

custody of the intangible personal property, it also had actual

control of the property pursuant to a provision of the will

creating the trust which provided that the corporate trustee's

ruling would be final in any case in which there was no majority

decision of the four trustees. In the instant case, the Trust

Agreement specifically provides that the two co-trustees must act

together, and Section 199.175(1) specifically provides that the

physical location of the "evidence of the intangible property" is

not relevant to a determination of the taxable situs of the

property.

50. The Department has provided in Rule 12C-2.006(3)(e),

Florida Administrative Code, that, with regard to liability for

payment of Florida's intangible personal property tax, "[w ]hen

there are two trustees, one is a resident and one a nonresident

and they share equally in the management and control of the

trust, the assessment of property shall be apportioned between

them." Applying this rule, the Trust must pay to the State of

Florida the intangible personal property tax on fifty percent of

the assessed value of the intangible personal property in the

trust estate.

51. The Department has refunded fifty percent of the

intangible personal property tax paid to Florida by the Trust in

the 1993, 1994, and 1995 tax years. Consequently, the

Petitioners are not entitled to a further refund.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Revenue issue a

final order dismissing the Petition for Formal Hearing filed by

the Petitioners in this case and denying all relief requested by

the Petitioners therein.

DONE AND ENTERED this 18th day of September, 1998, in

Tallahassee, Leon County, Florida.

___________________________________

PATRICIA HART MALONO

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488- 9675 SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 18th day of September, 1998.

ENDNOTES

1 / The date was actually 1997.

2 / The pertinent portions in Chapter 199, Florida Statutes

(1993), are identical to those in Chapter 199, Florida Statutes

(1995).

3 / The Petitioners do not claim that either Mr. Daniels or the

Trust property were exempt from the intangible property tax.

COPIES FURNISHED:

Nicholas M. Daniels, Esquire

Therrel Baisden, P.A.

SunTrust International Center

One Southeast Third Avenue, Suite 2400

Miami, Florida 33131

Charles Catanzaro

Assistant Attorney General

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Larry Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, FL 32399-0100

Linda Lettera, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, FL 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this R ecommended O rder. Any exceptions to

this R ecommended O rder should be filed with the agency that will

issue the F inal O rder in this case.

1 The date was actually 1997.

2 The pertinent portions of Chapter 199, Florida Statutes (1993)

are identical to those in Chapter 199, Florida Statutes (1995).

3 The Petitioners do not claim that either Mr. Daniels or the

Trust property were exempt from the intangible property tax.