14-000024 Venice Nh, Llc, D/B/A Sunset Lake Health And Rehab Center vs. Agency For Health Care Administration Status: Closed Recommended Order on Friday, July 25, 2014.

Summary: Petitioner did not prove that doc stamp tax on warranty deed was an allowable property cost, as an ad valorem property tax, on Medicaid cost report.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

VENICE NH, LLC, d/b/a SUNSET

LAKE HEALTH AND REHAB CENTER,

Petitioner,

vs. Case No. 14 - 0024

AGENCY FOR HEALTH CARE

ADMINISTRATION,

Respondent.

_______________________________/

R ECOMMENDED ORDER

On June 6, 2014, the final hearing was held in this case by

video teleconference, with sites in Tampa and Tallahassee, before

Elizabeth W. McArthur, Administrative Law Judge, Division of

Administrative Hearings (DOAH).

APPEARANCES

For Pet itioner: Karen A. Brodeen, Esquire

Kristen Bigham, Esquire

Office of the Attorney General

Plaza Level 01

The Capitol

Tallahassee, Florida 32399 - 1050

For Respondent: Peter A. Lewis, Esquire

Law Offices of Peter A. Lewis, P.L.

Suite 101

3023 North Shannon Lakes Drive

Tallahassee, Florida 32309

STATEMENT OF THE ISSUE

The issue in this case is wheth er a tax on a warranty deed

is an allowable property cost, as claimed in PetitionerÓs

Medicaid cost report.

PRELIMINARY STATEMENT

Following an audit of the initial Medicaid cost report filed

by Venice NH LLC d/b/a Sunset Lake Health and Rehab Center

(Venic e or Petitioner ), for the fiscal period ending December 31,

2005, the Agency for Health Care Administration (AHCA or

Respondent ) issued an audit report with proposed adjustments.

Venice timely filed a petition for an administrative hearing

involving dispu ted facts to challeng e 17 proposed adjustments.

AHCA accepted the petition, and after a protracted period

attempting to resolve the dispute, AHCA sent the case to DOAH in

January 2014 to conduct the requested hearing.

The hearing was initially set for Mar ch 14, 2014, by video

teleconference with sites in Tampa and Tallahassee, as requested

by the parties. AHCAÓs unopposed motion for continuance was

granted, and the hearing was rescheduled for June 6, 2014.

Prior to hearing, Venice withdrew its challenge t o all but

one of the proposed adjustments. Remaining in dispute was

whether a certain tax paid by Venice when it purchased the

nursing facility now known as Sunset Lake Health and Rehab Center

(Sunset Lake) is an allowable property cost.

The parties filed a joint prehearing stipulation, in which

they stipulated to a number of facts and statements of law, as

well as to the expertise of their respective expert witnesses and

the admissibility of a number of documents.

At the final hearing, the parties offered Joint Exhibits 1

through 1 3 , which were admitted in evidence. Petitioner

presented the testimony of the following witnesses: AHCA

employee Steven Diaczyk, stipulated as an expert in Medicaid

auditing; and Ronald Swartz, VeniceÓs party representative and

chief financial officer of VeniceÓs parent company, stipulated as

an expert in health care and Medicaid accounting. PetitionerÓs

Exhibits 1 through 3 were admitted.

Respondent presented the testimony of the following

witnesses: Michael Higdon; Petitione rÓs expert, Ronald Swartz;

Roger Beasley; Angela Nicoloso; and AHCAÓs expert, Steven

Diaczyk. RespondentÓs Exhibits 1 through 3 were admitted.

The one - volume Transcript of the final hearing was filed on

June 24, 2014. The filing deadline for proposed rec ommended

orders (PROs) was July 7, 2014. Both parties timely filed PROs,

which have been considered in preparing this Recommended Order.

FINDING S OF FACT

1. Venice operates Sunset Lake, a licensed nursing facility

that participates in the Florida Medica id program as an

institutional provider.

2. AHCA is the agency responsible for administering the

Florida Medicaid program.

3. On or about June 1, 2005, Venice (or an affiliate, which

need not be distinguished from Venice for purposes of this

proceeding) purchased the nursing facility that is now known as

Sunset Lake from Bon Secours - Venice Healthcare Corporation.

4. Venice filed its initial Medicaid cost report with AHCA

for the fiscal period ending December 31, 2005. The initial

Medicaid cost report fo r a nursing facility is used to set the

per diem rates at which the Medicaid program will reimburse the

facility, both retroactively for the initial period of

operations, and prospectively until the next cost report is filed

and used to set a new per diem rate.

5. AHCA contracted with an outside auditing firm to audit

VeniceÓs initial cost report. The auditing firm produced an

audit report, which identified proposed adjustments to VeniceÓs

cost report. The audit report was reviewed by AHCA analyst

Steven Diaczyk before it was finalized and sent to Venice.

6. Venice initially contested 17 adjustments in the final

audit report. Before the final hearing, Venice withdrew its

challenge to 16 of the 17 adjustments. The only remaining

dispute to be resolved i n this proceeding is whether audit

adjustment number four, which disallowed $49,540.00 of costs in

the category of ÐProperty Taxes Î Real Estate,Ñ should be reduced

by $12,203.80.

7. The disallowed $12,203.80 represents one - half of the tax

assessed pursua nt to section 201.02, Florida Statutes (2005), 1/ on

the warranty deed conveying the Sunset Lake real property

(including the land, land improvements, and the building) to

Venice. Venice claimed one - half of the tax on its cost report

because that is the am ount paid by Venice; the other half was

paid by the seller. Venice contends that this tax is an ad

valorem tax and/or a property tax, 2/ which is an allowable

property cost on the Medicaid cost report. AHCA contends that

the tax on the warranty deed is an excise tax, not a property

tax, and , therefore , not an allowable property cost.

8. The audit report did not explain the reason for

disallowing the $12,203.80 tax, as part of the $49,540.00

adjustment. Instead, the audit report explained the entire

$49,5 40.00 adjustment as necessary to Ðdisallow unsupported

costs,Ñ suggesting a lack of documentation. However, no non -

hearsay evidence was offered at hearing to prove that Venice

failed to give the auditors sufficient documentation of the costs

disallowed in adjustment number four . At least with respect to

the disallowed $12,203.80 item, sufficient documentation was

offered at hearing to support the cost as an actual cost incurred

by Venice. The question is whether the documented cost is

allowable as a n ad valorem tax or p roperty tax, as Venice claim s .

9. Documentation for the $12,203.80 tax on the warranty

deed is found in the buyer/seller closing statement and on the

face of the warranty deed. The closing statement sets forth the

total purchase price of $7,500,000.00, which is also the amount

of a mortgage loan from Bank of America. The closing statement

allocates the total purchase price to the land ($477,000.00),

land improvements ($496,500.00), the building ($2,513,250.00),

FFE -- furniture, fixtures, a nd equipment ($992,250.00), and

personal property ($3,021,000.00).

10. The closing statement also shows a separate category

called credits and/or prorations, to appropriately account for

items accruing over the calendar year. The first line item in

this category is for ÐAd Valorem Taxes.Ñ If ad valorem taxes

were due for calendar year 2005, they would have been prorated.

However, the amount is shown to be zero. As confirmed at

hearing, no ad valorem taxes were due for the Sunset Lake

property in 2005, because as of January 1, 2005, the property was

owned by a not - for - profit entity, making the property exempt from

ad valorem taxes. The second line item in this category, for

ÐNon - Ad Valorem Assessments,Ñ for which there was no exemption,

shows a total am ount for 2005 of $8,235.29, which was prorated to

credit the buyer for $3,270.65. The closing statement proration

had the effect of charging the seller with its share of the

assessments for the part of the year prior to closing. 3/

11. A separate category on the closing statement addresses

ÐRecording Fees.Ñ The first line item in this category is for

ÐTransfer Tax - snf [skilled nursing facility].Ñ The taxable

amount is shown as $3,486 , 800.00. The tax of $24,407.60 is split

equally between buyer and selle r, with $12,203.80 charged to

each. The next line is for ÐStamp Tax on mtg. [mortgage].Ñ The

taxable amount is shown as $7,500,000.00, the amount of the

mortgage loan. The tax of $26,250.00 is charged to the buyer.

Another line item is shown for ÐIntan gible Tax on mtg.Ñ Again,

the taxable amount is shown as $7,500,000.00, and the tax of

$15,000.00 is charged to the buyer.

12. The top right corner of the warranty deed conveying the

Sunset Lake property contains the following printed or stamped

text in the space marked Ð(Space reserved for Clerk of Court):Ñ

RECORDED IN OFFICIAL RECORDS

INSTRUMENT # 2005117710 7 PGS

2005 JUN 01 05:01 PM

KAREN E. RUSHING

CLERK OF THE CIRCUIT COURT

SARASOTA COUNTY, FLORIDA

MMARSH Receipt#635187

Doc Stamp - Deed: 24,407.60

[ Bar/Scan Code with instrument number]

13. As VeniceÓs representative confirmed, the reference on

the face of the warranty deed to ÐDoc Stamp - Deed: 24,407.60,Ñ

affixed by the clerk of the court in the official records entry ,

means that a documentary stamp tax on the deed in the amount of

$24,407.60 was paid. Because the tax was split between buyer and

seller, Venice actually paid $12,203.80.

14. Although the closing statement shows that the tax at

issue was c a lled a transf er tax and categorized as a Ðrecording

fee , Ñ and not an Ðad valorem tax,Ñ Venice contends here that the

documentary stamp tax on the deed was an ad valorem property tax,

because the tax was assessed on the value of the property. As

Venice summarized its p osition:

That irrespective of whether the transfer tax

is called an excise tax, a doc stamp tax or

any other type of tax, the fact that it is

based solely on the value of the assets makes

it an ad valorem tax, which is considered by

the state of Florida in all cases under

Medicaid cost reporting purposes [sic] as a

property tax. (AHCA Exh. 3, p. 14).

15. AHCA disagrees. AHCA contends that the documentary

stamp tax on the deed is an e xcise tax , assessed on the

consideration for the property transferred b y the deed.

16. The parties do agree that the documentary stamp tax

rate, applied to either the value of the property or the

consideration for the property, was 70 cents per $100.00. 4/

The parties also agree that the ÐpropertyÑ at issue, which was

conve yed by the warranty deed, includes the land, land

improvements, and the building.

17. That being the case, it appears from the closing

statement that the Ðtaxable amountÑ used to determine the

documentary stamp tax on the deed (referred t o as the Ðtransfe r

tax - snfÑ) was the sum of the purchase price allocations for the

land ($477,000.00), land improvements ($496,500.00), and the

building ($2,513,250.00). 5/ The documentary stamp tax on the

warranty deed was based on the consideration for the property

state d in the closing statement. 6 /

18. Venice asserts that the documentary stamp tax was based

on the Ðassessed value of the property (land, land improvements

and the building) [of] $3,486.750.00[.]Ñ (Venice PRO at ¥ 24, n.

1). However, Venice offered no evid entiary support for this

assertion. The amount Venice calls the Ðassessed valueÑ is

actually the amount of the total purchase price allocated in the

closing statement t o the land, land improvements, and the

building. In contrast, the Ð assessed valueÑ for this property in

2005 , according to the Sarasota County Tax CollectorÓs bill, was

$3,724,300.00. The documentary stamp tax on the warranty deed

was not based on the assessed value of the property.

19. Venice also contends that subsequent action by the

D epartment of Revenue supports VeniceÓs position that the

documentary stamp tax on the deed was based on the value of the

property and not on the consideration for the property. Venice

offered in evidence portions of correspondence between

representatives of VeniceÓs parent company with the Department of

Revenue in 2008 that resulted in a determination that Venice owed

additional documentary stamp tax on the Sunset Lake warranty

deed. According to Venice, Ðthe Department [of Revenue] did not

agree with the value of assets that Venice had reported and paid

taxes on.Ñ (Venice PRO at ¥ 32).

20. Contrary to VeniceÓs characterization, the portions of

correspondence with the Department of Revenue in evidence confirm

that the documentary stamp tax on the Sunset Lake warranty deed

was based on the consideration for the real property (i.e., the

land, land improvements, and the building). The Department of

Revenue sought additional information from Venice to establish

what the consideration was. The Department of Revenue ÐOfficial

Request for InformationÑ form asked for ÐTotal Consideration

(Purchase/Transfer Price)Ñ for the property conveyed by warranty

deed. The form completed on VeniceÓs behalf reported that the

consideration was $3,486,750.00 -- the purchase pri ce allocat ion in

the closing statement to the land, land improvements, and the

building. Along with the completed form, a letter of explanation

on VeniceÓs behalf (with attachments not offered in evidence)

went into great detail in an attempt to justify t he se purchase

price allocations , and ended on the following note:

We are hopeful that the enclosed

documentation and the foregoing explanation

of the purchase price allocations will

provide sufficient information for the

Department to determine that the co rrect

amount of documentary stamp taxes was paid on

each of the deeds, based in each case on the

agreed consideration paid for the respective

real estate assets.

21. Thus, from the evidence offered by Venice, the focus of

the Department of Revenue inquir y, as well as the Venice response

to the inquiry, was entirely on the consideration paid for the

property. The fact that the Department of Revenue ultimately

determined that Venice owed more documentary stamp tax es on the

warranty deed than was paid is no t evidence that the tax was

assessed on the ÐvalueÑ of the real property, as Venice argues.

Instead, the material suggests that the Department of Revenue

disagreed with what Venice contended was the total consideration

and/or with VeniceÓs allocation of t he total purchase price to

the real property ( the land, land improvements , and the building)

and to the other assets acquired in the transaction , including

f urniture, equipment, and personal property.

22. Venice also takes the position that the tax on th e

warranty deed is an allowable cost pursuant to two provisions in

the federal Provider Reimbursement Manual ( PRM ), which is one of

the sources used to determine allowable costs. First, PRM

section 2122.1 provides the Ðgeneral ruleÑ that Ðtaxes assessed

a gainst the provider, in accordance with the levying enactments

of the several States and lower levels of government and for

which the provider is liable for payment, are allowable costs.Ñ

Next, PRM section 2122.2 provides in pertinent part:

Certain taxes . . . which are levied on

providers are not allowable costs. These

taxes are:

* * *

C. Taxes in connection with financing,

refinancing, or refunding operations, such as

taxes on the issuance of bonds, property

transfers, issuance or transfer of sto cks,

etc. Generally, these costs are either

amortized over the life of the securities or

depreciated over the life of the asset. They

are not, however, recognized as tax expense.

23 . Venice contends that the documentary stamp tax paid on

the warranty deed must be allowed because it is a tax that meets

the general rule in section 2122.1, and it is not an excluded tax

under section 2122.2(C).

24. The documentary stamp tax paid by Venice on the

warranty deed sa tisfies the general elements of section 212 2. 1;

AHCA does not contend otherwise. Instead, AHCA contends that the

documentary stamp tax must be considered an excluded tax under

section 2122.2(C).

2 5 . AHCA is correct that the documentary stamp tax on

warranty deed s transferring real property is es sentially a

transfer tax. However, it is not a tax in connection with

financing, refinancing, or refunding operations. An example of

such a tax would be the documentary stamp tax that Venice paid on

the mortgage on Sunset Lake, because it was a tax in co nnection

with the financing for the property.

26. Venice correctly points out that , grammatically ,

section 2122.2(C) su ggests that the only taxes excluded under

that subsection are taxes in connection with financing,

refinancing, or refunding operations. The use of the phrase

Ðsuch asÑ suggests that everything that follows that phrase must

be considered an example of what precedes the phrase.

2 7 . AHCA acknowledges that consideration of the grammatical

structure of section 2122.2(C) alone would suppor t VeniceÓs

interpretation. However, AHCAÓs expert testified, reasonably and

without contradiction, that VeniceÓs interpretation would render

the phrase Ðproperty transfersÑ meaningless. As AHCAÓs expert

explained, a tax on a property transfer is not a ta x on

financing, refinancing, or refunding operations. Therefore,

despite the grammatical structure, taxes on property transfers

must be considered a separate type of excluded tax under section

2122.2(C). As further support for this interpretation, AHCAÓs

expert pointed to the second sentence, providing that the

excluded costs referred to in the first sentence Ðare either

amortized over the life of the securities or depreciated over the

life of the asset.Ñ AHCAÓs expert explained that taxes on

financing, refinancing, or refunding operations would all be

amortized, whereas taxes on property transfers would be

depreciated over the life of the depreciable assets transferred

(i.e., the land improvements and the building).

2 8 . Venice relies solely on the gram matical structure of

section 2122 .2 (C) , offering no response to AHCAÓs reasoning for

interpreting the subsection in a way that is contrary to the

meaning suggested only by grammatical structure. Venice did not

explain how a tax on property transfers could be considered a tax

on financing, refinancing, or refunding operations (so as to give

meaning to the phrase Ðproperty transfersÑ), nor did Venice

ex plain when taxes on financing, refinancing, or refunding

operations would be depreciated over the life of t he asset (so as

to give meaning to that phrase in the second sentence ).

CONCLUSIONS OF LAW

2 9 . The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter of this

proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2013 ).

30 . Petitioner has the burden of proving by a preponderance

of the evidence that the $12,203.80 it paid in documentary stamp

taxes on the warranty deed conveying the Sunset Lake real

property is an allowable property cost, as claimed in its initial

M edicaid cost report. See Balino v. DepÓt of Health & Rehab.

Servs. , 348 So. 2d 349, 350 (Fla. 1st DCA 1977) (Ð[T]he burden of

proof, apart from statute, is on the party asserting the

affirmative of an issue before an administrative tribunal.Ñ);

§ 120.57 (1)(j), Fla. Stat.

3 1 . In Courts v. Agency for Health Care Administration , 965

So. 2d 154, 155 - 156 (Fla. 1st DCA 2007), the court drew on

various sources to provide a concise, useful description of the

Medicaid program:

ÐThe Medicaid Act, Title XIX of th e Social

Security Act, 42 U.S.C. § 1396, is a

cooperative federal - state program designed to

allow states to receive matching funds from

the federal government to finance necessary

services to qualified low - income individuals.Ñ

Esteban v. Cook , 77 F. Supp. 2d 1256, 1259

(S.D. Fla. 1999); see also Russell v. Agency

for Persons with Disabilities , 929 So. 2d 601,

602 (Fla. 1st DCA 2006); Harris v. McRae , 448

U.S. 297, 308 - 09, 100 S. Ct. 2671, 65 L. Ed.

2d 784 (1980). Ð[T]he purpose of Congress in

enacting Titl e XIX was to provide federal

assistance for all legitimate state

expenditures under an approved Medicaid plan.Ñ

Harris , 448 U.S. at 308 - 09 (citations

omitted). The guidelines for the Medicaid

program are set forth in the federal statutes

and regulations a nd are adopted into specific

state laws and rules in each state. 42 U.S.C.

§ 1302. In each state, a "single state

agency" is responsible for administering the

Medicaid program. 42 C.F.R. § 431.10. In

Florida, AHCA is designated as the Florida

state age ncy authorized to make payments to

qualified providers for medical assistance and

related services on behalf of eligible

individuals. See § 409.902, Fla. Stat.

(2005); see generally , Russell , 929 So. 2d at

602 - 03.

3 2 . AHCA reimburses Medicaid providers Ðin accordance with

state and federal law, according to methodologies set forth in

the rules of the agency and in policy manuals and handbooks

incorporated by reference therein.Ñ £ 409.918, Fla. Stat.

3 3 . Section 409.908(2)(b) requires AHCA to establish and

implement a Florida Title XIX Long - Term Care Reimbursement Plan

(Plan) for nursing home care in order to provide care and

services in conformance with applicable state and federal laws,

rules, regulations, and quality and safety standards.

3 4 . AHCA adopted and periodically has amended the required

Plan, which is incorporated by reference in Florida

Administrative Code Rule 59G - 6.010. The Plan in effect at the

time the cost report at issue was filed was not offered in

evidence; the version that is in corporated by reference in the

current rule took effect on July 1, 2012. The current version of

the Plan provides that cost reports are to be prepared

in accordance with generally accepted

accounting principles as established by the

American Institute of Certified Public

Accountants (AICPA) as incorporated by

reference in Rule 61H1 - 20.007, F.A.C., the

methods of reimbursement in accordance with

Medicare (Title XVIII) Principles of

Reimbursement, the Provider Reimbursement

Manual (CMS - PUB.15 - 1) incorporate d herein by

reference except as modified by the Florida

Title XIX Long Term Care Reimbursement Plan

and State of Florida Administrative Rules.

Plan, S ection I.C.

3 5 . The experts testifying in this case were in agreement

that the hierarchy of legal author ities applied to cost reports

is generally as follows: at the top of the hierarchy is the

Plan, followed by the P RM (CMS - PUB.15 - 1), followed by generally

accepted accounting principles (GAAP).

3 6 . The P RM is called a ÐguideÑ that contains explanations

an d annotations interpreting federal regulations. Accordingly,

the parties agree that the PRM must be interpreted in a manner

that is consistent with the federal regulations themselves.

3 7 . Starting with the top of the hierarchy, Venice asserts

that the ap plicable Plan specifically identifies Ðproperty taxesÑ

as allowable property costs. Venice also points to the federal

regulations that include as an allowable cost Ð[t]axes on land or

depreciable assets used for patient care.Ñ 42 C.F.R.

§ 413 .130(a)(2). The corollary is that the following taxes are

excluded from allowable costs: Ð T axes other than those assessed

on the basis of some valuation of land or depreciable assets used

for patient care.Ñ 42 C.F.R. § 413.130(i)(5).

3 8 . From these aut horities, Venice argues that the tax paid

on the warranty deed qualifies as an allowable property cost

because it was a tax on land and depreciable assets used for

patient care, and it was assessed on the basis of some valuation

of land and depreciable ass ets used for patient care.

3 9 . Venice failed to meet its burden of proving that the

tax it paid was a tax on land and depreciable assets; instead,

the evidence established that the tax at issue was a tax on a

document, the warranty deed. Venice also fail ed to meet its

burden of proving that the tax it paid was assessed on the basis

of some valuation of land and depreciable assets; instead, the

evidence established that the tax at issue was assessed on the

basis of the consideration for the property transf erred by the

warranty deed.

40 . In addition, V eniceÓs attempt to categorize the

documentary stamp tax it paid on the warranty deed as a n ad

valorem property tax must be rejected because it is contrary to

the law authorizing the tax, as recognized in decis ional law

interpreting the law.

4 1 . As a starting place, the nature of documentary stamp

taxes is suggested by the title of Chapter 201, Florida Statutes:

ÐExcise Tax on Documents.Ñ As explained in Dominion Land and

Title Corp. v. Department of Revenue , 320 So. 2d 815, 817 (Fla.

1975) : ÐThe purpose of Chapter 201, Florida Statutes, is to

raise additional revenue for the State by placing a tax on

certain types of documents commonly recorded in the public

records in the various counties throughout Florid a.Ñ See also

Choctawhatchee Electric Cooperative, Inc. v. Green , 132 So. 2d

556, 558 (Fla. 1961) (holding that the documentary stamp tax Ðis

not a property tax. It is an excise tax.Ñ).

4 2 . The documentary stamp tax at issue here was imposed

pursuant to the authority in section 201.02, Florida Statutes,

which authorizes a tax Ðon deeds and other instruments relating

to real property or interests in real propertyÑ at the rate of 70

cents Ðon each $100 of the consideration therefor[.]Ñ

§ 201.02(1), Fla. Sta t.

4 3 . Venice does not effectively refute the fact that the

tax at issue is a documentary stamp tax imposed pursuant to

section 201.02, and indeed, acknowledges that the tax was imposed

pursuant to section 201.02. 7 / Instead, Venice argues only that

the ÐlabelÑ of a tax is not controlling, and so it does not

matter that it may be called a documentary stamp tax, or that it

was called a Ðtransfer taxÑ in the closing statement. However,

it is more than a matter of labeling to recogniz e the nature of a

tax b y reference to the authority pursuant to which the tax i s

imposed. See, e.g. , Nicolai v. Federal Housing Fin. Ag. , 928

F. Supp. 2d 1331 (M.D. Fla. 2013) (using the ter m Ðtransfer taxÑ

as a descriptive reference for the tax on warranty deeds imposed

by se ction 201.02, and describing the tax as an excise tax, not a

tax on the real property conveyed by deed).

4 4 . Indeed, as AHCA correctly notes, under Florida law it

would be unconstitutional for the Legislature to impose a state

ad valorem tax on real prop erty. Art. VII, § 1(a), Fla. Const.

(ÐNo state ad valorem taxes shall be levied upon real estate or

tangible personal property.Ñ). In Florida, an Ðad valorem taxÑ

is defined as Ða tax based upon the assessed value of property.Ñ

§ 192.001(1), Fla. Stat. (also providing that the term Ðproperty

taxÑ may be used interchangeably with Ðad valorem taxÑ). The

documentary stamp tax paid by Venice on the warranty deed was not

an ad valorem tax or a property tax as those terms are used in

Florida law. 8 /

4 5 . AHCA Ós interpretation of its governing statutes and

rules, including the PRM, which is incorporated by reference into

the Plan that is promulgated as a rule, is entitled to deference

and great weight, unless clearly erroneous. See Suddah Van Lines

v. DepÓt of Envtl. Prot. , 668 So. 2d 209, 213 (Fla. 1st DCA

1996); Pan American World Airways, Inc. v. Fla. Public Serv.

CommÓn , 427 So. 2d 716, 719 (Fla. 1983). While VeniceÓs contrary

interpretation of the PRM is supported by rules of grammar,

AHCAÓs interpretatio n, which sacrifices grammar rules to salvage

meaning of phrases that would otherwise be rendered meaningless,

was not shown to be clearly erroneous.

46. Indeed, AHCAÓs interpretation of the PRM provisions on

taxes i s the only interpretation that is consi stent with the

applicable federal regulation discussed above, as required by

Medicaid laws and rules. See, e.g. , Fla. Admin. Code R. 59G -

1.001 ( p roviding that Ð[a]ll rules in Chapter 59G, F.A.C., must

be read in conjunction with statutes, federal regulati ons, and

all other rules and regulations pertaining to the Medicaid

program.Ñ). Ultimately, then, as Venice recognizes, the tax at

issue c ould only be an allowable property cost as claimed on the

Medicaid cost report if it were shown to be an ad valorem t ax, or

property tax. This Venice failed to do.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Agency for Health Care

Administration enter a Final Order disallowing $12,203.80 claimed

as a property tax expense in Venice Ós initial Medicaid cost

report .

DONE AND ENTERED this 25th day of July , 2014 , in

Tallahassee, Leon County, Florida.

S

ELIZABETH W. MCARTHUR

Administrative Law Judge

Division of Administrative Hearin gs

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

t his 25th day of July , 2014 .

ENDNOTE S

1/ Refer ences to statutes and rules are to the 2005 codifications

in effect when the cost report at issue was prepared, unless

otherwise indicated. With regard to section 201.02, Florida

Statutes, the 2005 version in evidence as a joint exhibit was, in

all materi al respects, the same law in effect earlier in 2005

when the tax on the warranty deed at issue was assessed and paid.

2/ VeniceÓs PRO offers the following proposed findings: that the

$12,203.80 tax paid was a Ðproperty taxÑ (¥¥ 10, 13); that Ðad

valore m taxes are included in the property tax section of the

Chart of Accounts and Cost Report as property taxesÑ (¥ 26); that

because the tax at issue was Ðbased upon the value of the real

property, the tax is an ad valorem taxÑ (¥ 33); and that the tax

paid b y Venice in dispute Ðis a property tax which is calculated

as an ad valorem tax.Ñ (¥ 34).

3/ T he Sarasota County Tax Collector billed Venice for the 2005

non - ad valorem assessments for the Sunset Lake property. The

total assessment amount was $8,235.29 if paid by March 31, 2006.

AHCA allowed VeniceÓs share of this cost in the category for

Property Taxes Î Real Estate, except that AHCA reduced the amount

to $4,612.00, which represents VeniceÓs share of the discounted

assessment due if paid by November 30, 2005. Venice does not

dispute AHCAÓs treatment of this cost.

4/ VeniceÓs expert misspoke when he testified that the tax rate

was 70 cents per $1,000 . He apparently was confusing the

documentary stamp tax rate in section 201.02 with millage rates,

whic h are expressed as dollars and cents per $1,000 of assessed

property value. See § 200.001(6), Fla. Stat. Without referring

to the error or citing the erroneous testimony, Venice corrected

the error in its PRO, by acknowledging that the tax rate is 70

cen ts per $100. (Venice PRO, ¶ 11 and ¶ 24, n. 1) .

5/ The closing statementÓs allocation s of the total purchase

price to the land, land improvements, and the building add up to

$3, 486,750.00; the taxable amount used to determine the Ðtransfer

tax - snf,Ñ acc ording to the closing statement, wa s $3,486,800.00,

a difference of $50.00 that was not explained in the record.

Venice ignores the $50.00 difference and acknowledges that the

tax on the warranty deed was based on the amount of

$3,486,750.00. See, e.g. , Venice PRO, ¶ 24, n. 1 . As described

in Finding of Fact 20 below , in defending the amount of

documentary stamp tax paid on the warranty deed to the Department

of Revenue, Venice identified this amount ($3,486,750.00) as the

purchase price for the property conveyed by the warranty deed .

6 / The undersigned is not persuaded by VeniceÓs argument that the

documentary stamp tax on the warranty deed could not have been

based on the consideration for the property, because if it had

been based on the consideratio n, Ðthe tax would have been based

upon the purchase price for the facility which was established as

$7,500,000.00.Ñ (Venice PRO ¥ 24). Venice acknowledged that the

ÐpropertyÑ at issue for purposes of the tax on the deed includes

only the land, land improv ements, and the building. Therefore,

the documentary stamp tax was based on the consideration for the

property conveyed by the deed, as shown by the purchase price

allocated to those three components. The $7.5 million total

purchase price for the Ðfacili tyÑ included amounts allocated to

furniture, equipment, and personal property, none of which were

part of the ÐpropertyÑ conveyed by the warranty deed.

7 / Venice acknowledges that a separate documentary stamp tax on

the mortgage securing the loan for the Sunset Lake acquisition,

authorized by section 201.07, was properly disallowed as an

excise tax on the mortgage document based on the amount of

indebtedness. Both sections 201.02 and 201.07 authorize

documentary stamp taxes on documents that are properly

categorized as excise taxes, not property taxes, even though they

may be related to real property transactions.

8 / The undersigned is not persuaded by VeniceÓs argument that the

tax at issue must be considered an Ðad valorem taxÑ under AHCAÓs

ÐChart of Accounts,Ñ which assigns account numbers to various

cost categories for use in preparing Medicaid cost reports.

Account number 930920 is assigned to ÐProperty Taxes Î Real

Estate, Ñ which is described as the Ð [c] ost of ad valorem taxes

imposed by a city, cou nty, or other governmental unit on real

property.Ñ Venice seizes on testimony by AHCAÓs expert loosely

describing ad valorem taxes as taxes on property levied by the

county tax collectorÓs office based on the assessed value by the

county property appraise r. Since the AHCA Chart of Accounts

recognizes that ad valorem taxes are imposed by other units of

government besides the county, VeniceÓs argument is that ad

valorem tax is a very broad term that can apply to the state tax

on deeds authorized by section 201.02. However, as an

examination of Florida law makes clear, ad valorem taxes are not

as broad as Venice suggests, although not strictly a county -

levied tax as characterized by AHCAÓs witness. This form of

taxation is restricted by the Florida Constitu tion and subject to

many chapters of Florida Statutes that detail the role of the

county property appraiserÓs office and county tax collectorÓs

office to assess property, bill for, and collect property taxes

on behalf of the levying taxing authorities. Se e, e.g. , ch. 197,

Fla. Stat.; § 200.069, Fla. Stat. Ad valorem taxes are levied by

a myriad of governmental units, such as community development

districts (§ 190.021, Fla. Stat.), and independent special fire

control districts (§ 191.009, Fla. Stat.), jus t to name two.

COPIES FURNISHED:

Peter A. Lewis, Esquire

Law Offices of Peter A. Lewis, P.L.

Suite 101

3023 North Shannon Lakes Drive

Tallahassee, Florida 32309

Karen A. Brodeen, Esquire

Kristen Bigham, Esquire

Office of the Attorney General

Plaza Leve l 01

The Capitol

Tallahassee, Florida 32399 - 1050

Elizabeth Dudek, Secretary

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 1

Tallahassee, Florida 32308

Stuart Williams, General Counsel

Agency for Health Care Administration

2727 Maha n Drive, Mail Stop 3

Tallahassee, Florida 32308

Richard J. Shoop , Agency Clerk

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit wr itten exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.