19-003639RU 1701 Collins (Miami) Owner, Llc vs. Department Of Revenue Status: Closed DOAH Final Order on Tuesday, December 17, 2019.

Summary: Respondent, for purposes of the stamp tax, has formulated an unadopted rule for allocating undifferentiated lump-sum payments made in purchase-and-sale transactions involving joint real estate/personal property transfers.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

1701 COLLINS ( MIAMI ) OWNER LLC ,

Petitioner,

vs. Case No. 1 9 - 3639RU

DEPARTMENT OF REVENUE ,

Respondent.

_______________________________/

FINAL ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing by video teleconference on

September 17 , 20 19 , at sites in Tallahassee and Lauderdale

Lakes , Florida.

APPEARANCES

For Petitioner: Joseph C. Moffa, Esquire

Jonathan W. Taylor , Esquire

Moffa, Sutton & Donnini, P.A.

Trade Center South, Suite 930

100 West Cypress Creek Road

Fort Lauderdale, Florida 33309

Rex D. Ware, Esquire

Mo ffa, Sutton & Donnini, P.A.

3500 Financial Plaza, Suite 330

Tallahassee, Florida 32312

For Respondent: Mark S. Urban, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue in this unadopted - rule challenge is whether

Respondent , in connection with the administration of the stamp

tax, has formulated a statement of general applicability for

allocating undifferentiated, lump - sum payments made in purchase -

and - sale transactions involving joint rea l estate /personal

property transfers ; which meets the statutory definition of a

rule but has not been adopted pursuant to the rulemaking

procedure ; and , as used by Respondent, has the effect of

creat ing an entitlement to collect tax on 100% of the

undifferentiated consideration.

PRELIMINARY STATEMENT

Documentary stamp tax and surtax are due when a deed or

other instrument reflecting the transfer of real estate is

recorded. Stamp taxes are calculated based upon the

consideration exchanged for real estate, not other types of

property. In 2015, Petitioner 1701 Collins (Miami) Owner, LLC,

sold an operating hotel business comprising real estate,

tangible pe rsonal property, and intangible personal property for

an undifferentiated, lump - sum of $125 million. Upon

recordation of the deed, Petitioner paid stamp tax on the entire

$125 million. This, Petitioner later came to believe, was a

mistake, because the lu mp - sum purchase price had included

consideration for tangible personal property and intangible

personal property.

On February 6, 2018, Petitioner timely filed an application

for a documentary stamp tax and surtax refund with Respondent

Department of Revenu e, requesting a refund of about

$500 thousand. On April 2, 2018, Respondent issued a Notice of

Proposed Refund Denial indicating its intent to deny the refund

application. Petitioner filed an informal protest of the denial

on May 31, 2018. Respondent is sued a Notice of Decision of

Refund Denial on January 9, 2019, which sustained the refund

denial.

On February 20, 2019, Petitioner filed its Petition for

Chapter 120 Hearing to protest the intended denial of its refund

application, which Respondent referre d to the Division of

Administrative Hearings ("DOAH"). The proceeding was docketed

under DOAH Case No. 19 - 1879. Simultaneously, a related case

(19 - 1883) was filed with DOAH, which arose from Respondent's

denial of a similar refund request and presented n early

identical issues. As presiding officer, the undersigned

administrative law judge ("ALJ") consolidated DOAH Case

Nos. 19 - 1879 and 19 - 1883 (the "Refund Cases") and set the final

hearing for June 28, 2019.

On June 7, 2019, Petitioner filed a motion to continue

the Refund Cases , urging that the final hearing be postponed so

that Petitioner could (i) bring a rule challenge under

section 120.56(4), Florida Statutes, and then (ii) move for

consolidation of the rule challenge with the pending

section 120.57( 1) proceedings. The undersigned continued the

final hearing to September 17, 2019.

On July 9, 2019, Petitioner filed its Petition to Determine

Invalidity of Agency Statement, which initiated this proceeding.

In due course, this unadopted - rule challenge was consolidated

with the Refund Cases ; DOAH Case No. 19 - 1883 was closed upon the

filing of a Notice of Voluntary Dismissal; and the final hearing

in the remaining consolidated cases, DOAH Case Nos. 19 - 1879 and

19 - 3639RU, was held on Septemb er 17, 2019.

Petitioner called five witness during its case - in - chief:

Afshin Kateb, chief financial officer of YDS Investments; Holly

Unck, vice president of Transaction Tax Services for CBRE, Inc.;

Bernice Dowell, president of Cynsur, LLC (an expert in p roperty

valuation and allocation); Charles Phillips, revenue program

administrator I for Respondent (called as an adverse witness);

and Henry Small, tax conferee for Respondent (called as an

adverse witness). In addition, Petitioner's Exhibits 1

through 1 9 were admitted into evidence.

Respondent presented its case through Messrs. Phillips and

Small, during Petitioner's case. In addition, Respondent

offered Respondent's Exhibits 1 through 35, which were admitted

into evidence.

The two - volume final hearing transcript was filed on

October 9, 2019. Each party timely filed a p roposed f inal o rder

on October 29, 2019, in accordance with the deadline established

at the conclusion of the hearing.

Respondent filed a Motion for Attorney's Fees and Costs on

November 4, 2019. The motion is hereby denied.

Unless otherwise indicated, citations to the Florida

Statutes refer to the 2019 Florida Statutes.

FINDINGS OF FACT

1. 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), LL C, a Florida

limited liability company ("Purchaser"). Purchaser paid

Taxpayer $125 million for the Hotel Business.

2. The Hotel Business comprised two categories of

property, i.e., real estate ("RE") and personal property ("PP").

The PP, in turn, consis ted 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.

3. The sale closed on June 5, 2015, a nd 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"). Stam p 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.

4. The Agreement contains a provision o bligating 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 a nd

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

Agreem ent as a result of their nonallocation of the

consideration.

5. The upshot is that, as between Taxpayer and the

Purchaser, the $125 million purchase price was treated as

undifferentiated consideration for the whole enterprise.

6 . 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 th e Agreement —— if, in other

words, the Purchaser paid nothing for the elements of the Hotel

Business consisting of PP.

7. 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 pr operty in addition to

real property."

8. 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 Agre ement. 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 /

9. On Febru ary 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 exp lanation 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."

10 . 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."

11. Tax payer 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 go ing 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.

12. The Department's tax conferee determined that the

proposed denial of Taxpayer's ref und 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 inta ngible 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."

13. The Department issued its Notice of Decision of Refund

Denial on January 9, 2019. In the "Law & D iscussion" section of

the decision, the Department wrote:

[1] 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.

14. 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 A llocation 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 reg ard to the refund

request that the Department proposes to deny.

15. Taxpayer also 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 p ursuant 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 P DSE is an unadopted rule, as Taxpayer further

alleges, then the Department is in violation of section

120.54(1)(a).

16. The questions of whether the alleged agency PDSE

exists, and, if so, whether the PDSE is an unadopted rule, are

common to Taxpayer's s eparate actions under sections 120.57(1)

and 120.56(4), respectively, 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. Acco rdingly, the Rule Challenge

was consolidated with Taxpayer's refund claim for hearing.

17. It is determined that the Department, in fact, has

taken a PDSE, which is substantially the same as Taxpayer

described it. The undersigned rephrases and refines th e

Department'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 distrib ution 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 a ttribute 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.

18 . The Department has not published a notice of

rulemaking under section 120.54(3)(a) relating to the PDSE. Nor

has the Department presented evidence or argument on the

feasibility or practicability of adopting the PDSE as a de jure

rule.

19 . It is determin ed as a matter of ultimate fact that the

PDSE has the effect of law because the Department, if unchecked,

intends consistently to follow, and to enforce compliance with,

the PDSE. Because, in the Department's hands, the PDSE creates

an entitlement to coll ect stamp taxes while adversely affecting

taxpayers, it is an unadopted rule.

CONCLUSIONS OF LAW

20 . Subject to a determination that Taxpayer has standing,

a matter which is discussed below , DOAH has jurisdiction in this

proceeding pursuant to sections 12 0.56, 120.569, and 120.57(1) .

21 . Section 120.56(4)(a) authorizes any person who is

substantially affected by an agency statement to seek an

administrative determination that the statement is actually a

rule whose existence violates section 120.54(1)(a) because the

agency has not f ormally adopted the statement.

22 . In administrative proceedings, standing is a matter of

subject matter jurisdiction. Abbott Labs. v. Mylan Pharms.,

Inc. , 15 So. 3d 642, 651 n.2 (Fla. 1st DCA 2009). To have

standing as a " substantially affected " person to challenge an agency statement defined as a rule, the petitioner generally

must show that he or she will suffer an immediate " injury in

fact " within the " zone of interest " protected by the statute the

alleged unadopted rule is implementing or by other related

statutes. See, e.g. , Fla. Medical Ass ' n, Inc. v. Dep ' t of

Prof ' l Reg. , 426 So. 2d 1112, 1114 (Fla. 1st DCA 1983).

23. Taxpayer is obviously substantially affected by the

Default Allocation Pre sumption , which the Dep artment intends to

apply as grounds for denying Taxpayer ' s refund request. Despite

that, the Department contends that Taxpayer lacks standing to

challenge the PDSE. Because the Department ' s position on

standing is clearly erroneous, the discussion of thi s issue will

be brief.

2 4. The Department argues that Taxpayer has suffered no

injury attributable to the PDSE because it presented no evidence

in support of its contention that $77.8 million represents the

taxable consideration given for the transfer of RE. This goes

to the merits of Taxpayer ' s refund request and, specifically, to

whether Taxpayer has met its burden of proof in th e separate

(but related) section 120.57(1) proceeding , DOAH Case

No. 19 - 1879 . It is irrelevant to Taxpayer ' s standing to

maintain this section 120.56(4) action, however, whether

Taxpayer wins or loses the proceeding in which it seeks a stamp

tax refund. The pertinent question for standing purposes is

whether the Department , unchecked, would grant or deny

Taxpa yer ' s refund c laim based on the PDSE. The answer , clearly,

is yes it would .

25 . T he Department ' s argument on standing , in fact, tells

us so. The reason that Taxpayer , in pressing its refund claim,

has presented no evidence cognizable by the Department is that ,

when the conclusive Default Allocation Presumption applies , the

Department recognizes no evidence presented in support of a

refund claim that might rebut the presumption . Because the

Department believes that section 201.02 , Florida Statutes,

creates the Defaul t Allocation Presumption, however, the

undersigned thinks that what the Department is trying to say is

that it would determine Taxpayer ' s substantial interests based,

not on the PDSE, but on the statute, and therefore , that

Taxpayer is substantially affect ed by the statute, not the PDSE.

26 . This argument must be rejected because it begs the

question on the merits of the rule challenge. If the PDSE

merely reiterates the plain meaning of the statute, then it is

not a " rule " and need not be adopted as such. But the question

of whether the PDSE is a " rule " is the dispute at the heart of

this case. Whether Taxpayer ' s rule challenge bears fruit or not

is irrelevant to its standing to bring the action , because

standing to chall enge a rule does not depend up on the

petitioner's likelihood of success on the merits .

27 . The Department , left to its own devices, would apply

the PDSE to determine Ta xpayer ' s substantial interests,

regardless of whether the PDSE simply restates the un ambiguous

statutory text. For that reason, Taxpayer is substantially

affected by the PDSE and has standing to allege, and attempt to

prove , that the PDSE is not a mere paraphrase of section 201. 0 2,

but a " rule . " If Taxpayer fails to prove this allegation , then

it will lose the rule challenge , not forfeit standing .

28 . Agency rulemaking is not discretionary under the

Administrative Procedure Act. See § 120.54(1)(a), Fla. Stat.;

Dep ' t of High. Saf. & Motor Veh. v. Schluter , 705 So. 2d 81, 86

(Fla. 1st DCA 1997)(The " legislature ' s intention [was] to remove from agencies the discretion to decide whether or not to adopt

rules. " ). Each agency statement meeting the definition of a

rule under section 120.52(16) must be adopted " as soon as

feasible and practicable. " § 120.54(1)(a), Fla. Stat.

29 . The statutory term for an informal rule - by - definition

is " unadopted rule, " which is defined in section 120.52(20) to

mean " an agency statement that meets the definition of the term

' rul e, ' but that has not been adopted pursuant to the

requirements of s. 120.54. "

30 . If the petitioner proves at hearing that the agency

statement is an unadopted rule, the agency then has the burden

of overcoming the presumptions that rulemaking was both feasible

and practicable. In this regard, section 120.54(1)(a)1.

provides as follows:

Rulemaking shall be presumed feasible unless

the agency proves that:

a. The agency has not had sufficient time

to acquire the knowledge and experience

reasonably neces sary to address a statement

by rulemaking; or

b. Related matters are not sufficiently

resolved to enable the agency to address a

statement by rulemaking.

Section 120.54(1)(a)2. provides as follows:

Rulemaking shall be presumed practicable to

the extent necessary to provide fair notice

to affected persons of relevant agency

procedures and applicable principles,

criteria, or standards for agency decisions

unless the agency proves that:

a. Detail or precision in the establishment

of principles, criteria, or standards for

agency decisions is not reasonable under the

circumstances; or

b. The particular questions addressed are

of such a narrow scope that more specific

resolution of the matter is impractical

outside of an adjudication to determine the

subst antial interests of a party based on

individual circumstances.

The Department made no attempt to prove (or even to argue) that

it would have been infeasible or impracticable to adopt the PDSE

at issue as a rule. Thus, feasibility and practicability are

p resumed.

31 . The term " rule " is defined in section 120.52(16) to

mean " each agency statement of general applicability that

implements, interprets, or prescribes law or policy or describes

the procedure or practice requirements of an agency and includes

an y form which imposes any requirement or solicits any

information not specifically required by statute or by an

existing rule. " As the First D istrict Court of Appeal

explained:

The breadth of the definition in Section

120.52(1[6]) indicates that the legis lature

intended the term to cover a great variety

of agency statements regardless of how the

agency designates them. Any agency

statement is a rule if it " purports in and

of itself to create certain rights and

adversely affect others, " [State, Dep ' t of

Ad min. v.] Stevens , 344 So. 2d [290,] 296

[(Fla. 1st DCA 1977)], or serves " by ( its )

own effect to create rights, or to require

compliance, or otherwise to have the direct

and consistent effect of law. " McDonald v.

Dep ' t of Banking & Fin. , 346 So. 2d 569, 581

(Fla. 1st DCA 1977).

State Dep ' t of Admin. v. Harvey , 356 So. 2d 323, 325 (Fla. 1st

DCA 1977); see also Jenkins v. State , 855 So. 2d 1219 (Fla. 1st

DCA 2003); Amos v. Dep ' t of HRS , 444 So. 2d 43, 46 (Fla. 1st DCA

1983). Accordingly, to be a rule:

[A] statement of general applicability must operate in the manner of a law. Thus, if the statement ' s effect is to create stability and predictability within its

field of operation; if it treats all those

with like cases equally; if it requires

affected perso ns to conform their behavior

to a common standard; or if it creates or

extinguishes rights, privileges, or

entitlements, then the statement is a rule.

Fla. Quarter Horse Racing Ass ' n, Inc. v. Dep ' t of Bus. & Prof ' l

Reg. , Case No. 11 - 5796RU, 2013 Fla. Div . Admin. Hear. LEXIS 558,

at *37 - 38 (Fla. DOAH May 6, 2013), aff ' d , Fla. Quarter Horse

Track Ass ' n v. Dep ' t of Bus. & Prof ' l Reg. , 133 So. 3d 1118

(Fla. 1st DCA 2014).

32 . Because the definition of the term " rule " expressly

includes statements of general applicability that implement or

interpret law, an agency ' s interpretation of a statute that

gives the statute a meaning not readily apparent from its

literal reading and purports to create rights, require

compliance, or otherwise have the direct and consis tent effect

of law, is a rule, but one which simply reiterates a statutory

mandate is not. Id. at *39 - 40; see also Grabba - Leaf, LLC v.

Dep ' t of Bus. & Prof ' l Reg., Div. of Alcoholic Bevs. & Tobacco ,

257 So. 3d 1205, 1208 (Fla. 1st DCA 2018)(simple reitera tion of

what is " readily apparent " from the text of a law falls within

rulemaking exception); State Bd. of Admin. v. Huberty , 46 So. 3d

1144, 1147 (Fla. 1st DCA 2010); Beverly Enters. - Fla., Inc. v.

Dep ' t of HRS , 573 So. 2d 19, 22 (Fla. 1st DCA 1990); St. Francis

Hosp., Inc. v. Dep ' t of HRS , 553 So. 2d 1351, 1354 (Fla. 1st

DCA 1989).

33 . This is a critical precept , which must be scrupulously

observed to curb executive encroachment upon legislative power.

The constitutional separation of powers is deformed when a

bureaucrat legislates from his or her desk, no less so than when

a judge legislates from the bench. In each instance, an

employee or official of one branch of government exercises power

that belongs to another branch. Critics of judicial activism

should be as ready to call out the excesses of the

administrative state, which, unlike the least dangerous branch,

has at its disposal an impressive arsenal of executive powers

that can be used to implement and enforce its preferred policies

and whims. T o be sure, a gencies are authorized to exercise

legislative power as delegated by statute , but only insofar as

the legislature specifies and only in accordance with the

rulemaking procedure.

34 . To be generally applicable, a statement ' s level of

generality must be such as to constitute an abstract principle,

but it need not apply universally to every person or activity

within the agency ' s j urisdiction. It is sufficient that the

statement apply uniformly to a category or class of persons or

activities over which the agency may properly exercise

authority. See Schluter , 705 So. 2d at 83 (policies that

established procedures pertaining to police officers under investigation were said to apply uniformly to all police

officers and thus to constitute statements of general

applicability); see also , McCarthy v. Dep ' t of Ins. , 479 So.

2d 135 (Fla. 2d DCA 1985)(letter prescribing " categoric

requirements " for certification as a fire safety inspector was a

rule) .

35 . In this case, the subject PDSE reflects the

Department ' s understanding or interpretation of section 201.02.

It is generally applicable because (like the statute itself) it

applies to every LSMS , the parties to which have not apportioned

the consideration by mutual agreement. 3 / Thus, the PDSE under

consideration is, at a minimum, a statement of general

applicability ( " SGA " ). The remaining questions are (i) whether

the challenged SGA gives section 201.02 a meaning not readily

apparent from its plain meaning , and, if so, (ii) whether the

interpretive statement has the direct and consistent effect of

law.

3 6 . The starting point for answering the first question is

s ection 201.02 , which provides in relevant part as follows :

(1)(a) On deeds, instruments, or writings

whereby any lands, tenements, or other real

property, or any interest therein, shall be

granted, assigned, transferred, or otherwise

conveyed to, or vested in, the purchaser or

any other person by his or her direction, o n

each $100 of the consideration therefor the

tax shall be 70 cents. When the full amount

of the consideration for the execution,

assignment, transfer, or conveyance is not

shown in the face of such deed, instrument,

document, or writing, the tax shall be at

the rate of 70 cents for each $100 or

fractional part thereof of the consideration

therefor. For purposes of this section,

consideration includes, but is not limited

to, the money paid or agreed to be paid; the

discharge of an obligation; and the amou nt

of any mortgage, purchase money mortgage

lien, or other encumbrance, whether or not

the underlying indebtedness is assumed.

3 7 . In applying taxing statutes, courts must be careful

not to subject to tax anything which has not been clearly so

burdened. "Taxes cannot be imposed except in clear and

unequivocal language. Taxation by implication is not

permitted." Fla. S & L Servs., Inc. v. Dep't of Rev. , 443 So.

2d 120, 122 (Fla. 1st DCA 1983). The "authority to tax must be

strictly construed." Dep't of Rev. v. GTE Mobilnet , 727 So. 2d

1125, 1128 (Fla. 2d DCA 1999). As the Florida Supreme Court explained,

It is a fundamental rule of construction

that tax laws are to be construed strongly

in favor of the taxpayer and against the

government, and that all ambiguities or

doubts are to be resolved in favor of the

taxpayer. This salutary principle is found

in the reason that the duty to pay taxes,

which necessary to the business of the

sovereign, is still a duty of pure statutory

creation and taxes may be col lected only

within the clear definite boundaries recited

by statute.

Maas Bros., Inc. v. Dickinson , 195 So. 2d 193, 198 (Fla. 1967);

see also Mikos v. Ringling Bros. - Barnum & Bailey Combined Shows ,

497 So. 2d 630, 632 (Fla. 1986)("The courts are not taxin g

authorities and cannot rewrite the statute.").

38 . The SGA in question rests upon the Department ' s

interpretation of the term " consideration " as used in

section 201.02 . The Department reads the term " consideration "

in section 201.02(1)(a) as mean ing the bargained - for product of

mutual assent between contracting parties , given in exchange for

promised performance . This is a correct understanding of the

statute ' s literal meaning . As a legal term of art,

" consideration " is that bargained - for " something , " which, under

the law of contracts, is essential to the formation of a legally

binding agreement; the statute uses the term " consideration " in

this sense. For clarity, this type of consideration will be

referred to as " contractual consideration. "

39 . S ection 201.02 clearly and unambiguously (i) imposes a

stamp tax on any deed or other instrument whereby a grantor

conveys RE, or an interest therein, to a grantee, and

(ii) specifies that the tax shall be assessed against the

"consideration therefor," mean ing the contractual consideration

for the RE. The amount of contractual consideration given for

RE, and subject to the stamp tax under section 201.02, will be

called "taxable consideration."

40 . Of course, not all contractual consideration is

taxable con sideration. Contractual consideration given for

anything other than RE is "nontaxable consideration." Thus,

when a contract has nothing to do with real property, the

contractual consideration is 100% nontaxable consideration.

Conversely, when a contract involves nothing but the transfer of

real property, the contractual consideration is 100% taxable

consideration.

41 . In contrast to these all - or - nothing situations, the

contractual consideration in an LSMS transaction is not

necessarily either 100% taxab le or 100% nontaxable. Where, as

here, the contracting parties do not itemize the lump - sum

purchase payment by specifying the respective prices - per - item,

the contractual consideration is "undifferentiated

consideration," that is, a mixture of taxable cons ideration and

nontaxable consideration in non - negotiated measures. (If, in

contrast, the contracting parties to an LSMS itemize the

purchase payment, then the contractual consideration is

"consensually allocated consideration.") To determine the

correct amount of stamp tax payable on undifferentiated

consideration requires a division or apportionment of the

undifferentiated consideration, so that the nontaxable

consideration is separated from the taxable consideration and

not included in the cost basis.

4 2 . W hether the contracting parties agree upon an amount

of taxable consideration depends , not on contract law, but on

whether reaching an agreement as to consensual ly allocated

consideration is a deal point for one or both parties . Nothing

in section 201.02 require s agreement upon consensually allocated

consideration. The statute , as a matter of fact, says nothing

whatsoever about either undifferentiated consideration or

consensually allocated consideration .

43. In " interpreting " section 201.02 as requiring not only

(i) that th e contracting parties must agree upon an

apportionment of any lump - sum payment made in exchange for RE

and PP conveyed as a package in a single transaction ; but also

(ii) that, in the absence of consensually allocated

consideration, the stamp tax must be imposed on the whole

undifferentiated consideration , the Department has given the

statute a meaning that goes way beyond a literal reading of the

statutory text. Indeed, what the Department is doing here

cannot fa irly be called statutory construction ; it is

legislating.

44 . It is concluded, therefore, that the challenged SGA

gives section 201.02 a meaning not readily apparent from its

plain meaning.

4 5 . As for whether this agency interpretation of

sectio n 201.02 has the direct and consistent effect of law, it

is worth mentioning that , in light of the relatively recent

adoption of Amendment Six to the Florida Constitution , 4 / which

nullified the doctrine of judicial deference in this state , 5 / the

only way a n agency currently can make an authoritative statement

hav ing the d irect and consistent effe ct of law is to promulgate

a rule. See Kanter Real Estate, LLC v. Dep ' t of Envtl. Prot. ,

267 So. 3d 483, 487 (Fla. 2019)( " Amendment Six declares that

appellate courts may no longer defer to an agency ' s statutory

interpretation, and must instead apply a de novo review. " ).

Before Amendment Six, in contrast, " [w]ith the deference

doctrine behind them, agencies expect[ed] compliance with their

statutory interpretati ons (and [would] take action to enforce

compliance if necessary), and persons under agency jurisdiction

[were] practically compelled to comply. At bottom, because

courts appl[ied] and enforce[d] all reasonable agency

interpretations, such interpretations carr[ied] the force of

law. " See John G. Van Laningham, When Courts Bow to

Bureaucrats: How Florida ' s Deference Doctrine Lets Agencies Say

What the Law Is , 45 Fla. St. U. L. Rev. Online 1, 16

(2018)(available at http://www.fsulawreview.com/online/). No l onger can agencies circumvent the rulemaking procedure in this

fashion.

4 6 . The time has come to bid farewell to the concept of

the " incipient " or " nonrule " policy as a sort of quasi rule

having almost, but not quite, the same force as a properly

adopted, de jure rule . It was the deference doctrine, not the

Administrative Procedure Act, which gave " nonrule policies "

their putative authority. Without deference, a " nonrule policy "

is just a policy that is not a rule. A " policy " that is no t a

rule is only an argument or position , lacking the coercive force

of law, but enjoying the persuasive force of logic and reason. 6 /

No court, judge, or party needs to (or should) submit to an

agency argument or position, i.e., any statement other than a de

jure rule, unless he, she, or i t is persuaded thereby. 7 /

Naturally, a n agency ' s arguments and positions are entitled to

the same respect and consideration as any other party ' s

arguments and positions. After Amendment Six, however, a gencies

no longer enjoy the tremendous advantage over private parties of

being able simply to speak the law into existence.

4 7 . If an agency statement is not a de jure rule, it does

not —— cannot —— have the force and effect of law, no matter how

authoritative it sounds. Ther efore, w hether an SGA has the

effect of law is ultimately a questi on of fact regarding the

agency ' s intent , which boils down to whether the agency , if

unchecked, intend s to be bound by, and to enforce compliance

with , the SGA . Where the agency, as here, a ctually has taken

preliminary agency action determining a party ' s substantial

interests based on the SGA, the requisite intent to enforce is

most easily shown . Actual enforcement, however, is not

necessary to prove that the agency intends to require bilat eral

compliance with its SGA , if unhindered . In the absence of

actual enforcement, the petitioner in a section 120.56(4)

proceeding has a more difficult task , from an evidentiary

standpoint, but not an impossible one. If, for example, the

agency has take n a firm position on a matter of statutory

interpretation, the n the intent to obey, apply, and enf orce the

statute as the agency understands it may be reasonably inferred .

4 8 . This case does not present a close question in regard

to the effect - of - law criterion . One of the seminal unadopted -

rule challenge cases, Department of Revenue v. Vanjaria

Enterprises , Inc. , 675 So. 2d 252 (Fla. 5th DCA 1996), is

practically on all fours. Vanjaria arose out of a disputed

assessment of sales tax on commercial ren t. The taxpayer,

Vanjaria, leased multiple - use commercial property on which were

situated several businesses, including a motel. The lessee ' s

rental payments were subject to sales tax except to the extent

attributable to the motel , because the statute ex empted from

taxation properties being used as dwelling units. Id. at 254.

The lessee paid the tax based on its allocation of 73% of the undifferentiated monthly rent payments to the motel, which meant

that it paid tax on 27% of the rent. Id.

4 9 . The Department determined, after conducting an audit,

that the lessee had over - allocated the rent to the hotel and

hence underpaid the tax. At the time, the Department ' s policy ,

as set forth in a Training Manual, was to apportion

undifferentiated comme rcial rent for mixed - use properties by

taking the ratio of the square footage of the dwelling units to

the square footage of the entire property as the means of

calculat ing the tax - exempt share (the " presumed nontaxable

percentage " ). The Department treated the presumed nontaxable

percentage as conclusive and beyond dispute. In Vanjaria ' s

case, the Department found that the presumed nontaxable

percentage was 24.81%, not 73% , and therefore , that the tax was

payable on 75% of the rent as opposed to 27%. Id.

50 . The court agreed with the trial judge that the

Department's use of the square - footage ratio to calculate the

presumed nontaxable percentage followed an established

assessment procedure, which constituted an unadopted rule. The

court explained that the assessment procedure had the effect of

law because it "create[d] [the Department's] entitlement to

taxes while adversely affecting property owners." Id. at 255.

The procedure was generally applicable because auditors had no

d iscretion to depart from the formula , which was consistently

used in all audits. Id. at 255 - 56. Because the assessment

procedure was an illicit, unpromulgated rule, the court held

that the tax could not be based on the portion of the rent that

exceeded t he presumed nontaxable percentage.

5 1 . Here, the Department apportions undifferentiated

monetary consideration exchanged in connection with an LSMS

based on the Default Allocation Presumption or Consensual -

Allocation Deference, whichever applies, followin g an assessment

procedure that its employees do not have the discretion to

ignore. As the Department acknowledges, it "had to deny the

[Taxpayer's refund] claim" because, under the irrebuttable

Default Allocation Presumption, "the DPA is not evidence of the

[taxable] consideration ." Like the unadopted rule in Vanjaria ,

in the Department's hands, the SGA under review creates the Department's entitlement to collect taxes while adversely

affecting taxpayers.

5 2 . It is concluded that the SGA under discussio n , and in

particular the Default Allocation Presumption, is an unadopted

rule, and thus , that the Department is in violation of

section 120.54(1)(a).

ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is ORDERED that:

A . The PDSE as described in paragraph 17 hereinabove

constitutes an unadopted rule in violation of

section 120.54(1)(a).

B . The Department shall pay reasonable costs and

reasonable attorney's fees to Taxpayer as required under

section 120.595(4)(a). Taxpayer shall have 45 days from the

date of this Final Order within which to file a motion for

attorney ' s fees and costs, to which motion (if filed) Taxpayer

shall attach : (i) proof that, at least 30 days before the

filing of the petition, the Department receive d notice that the

statement may constitute an unadopted rule, see § 120.595(4)(b),

Fla. Stat.; (ii) appropriate affidavits (attesting, e.g., to the

reasonableness of the fees and costs) ; and (iii) the essential

documentation supporting the claim, such as t ime sheets, bills,

and receipts.

DONE AND ORDERED this 1 7 th day of December , 20 19 , in

Tallahassee, Leon County, Florida.

___________________________________

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 1 7 th day of December , 20 1 9 .

ENDNOTES

1 / The numbers in the text have been rounded for ease of

discussion. The actual figures arrived at by Ms. Dowell for the

implied values of the several property types making up the Hotel

Business, as stated in the DPA, are $77,803,500 (RE); $7,000,000

(ITP P); $40,196,500 (TPP), which total $125 million.

2 / The Deadline is the date of recordation, by default. The

Department has reserved the right to enlarge the Deadline but

apparently has not developed criteria for limiting its exercise

of discretion in t his regard.

3 / Consensual - Allocation Deference, which is the flip side of

the Default Allocation Presumption, complements the PDSE at

issue and, in conjunction therewith, makes an integrated

interpretive statement that embraces all LSMSs. Taxpayer,

howe ver, did not specifically challenge the Consensual -

Allocation Deference component of the Department's overall

construction of section 201.02.

4 / Article V, section 21, of the Florida Constitution provides

as follows:

In interpreting a state statute or r ule, a

state court or an officer hearing an

administrative action pursuant to general

law may not defer to an administrative

agency's interpretation of such statute or

rule, and must instead interpret such

statute or rule de novo.

5 / Before Amendment Six , under the then prevailing doctrine of

judicial deference, "courts . . . held that an agency decision

construing a statute within its substantive jurisdiction should

not be reversed unless it is clearly erroneous." Brown v.

Comm'n on Ethics , 969 So. 2d 5 53, 557 (Fla. 1st DCA 2007). "An

agency's interpretation of an ambiguous statute or rule that it administer[ed] [would be found] not clearly erroneous if 'it [were] within the range of possible and reasonable

interpretations .'" Soc'y for Clinical & Med. Hair Removal, Inc.

v. Dep't of Health , 183 So. 3d 1138, 1145 (Fla. 1st DCA 2015).

6 / Again, if an agency wants its statement to be normative, in

the sense of prescribing law or policy, then all it needs to do

is adopt the statement as a rule in accordanc e with section

120.54, whereupon the statement will become law.

7 / A party must obey a final agency order, but an order qua

order is not an SGA (although it might be proof of one).

Nonparties, in other words, do not need to follow an order.

COPIES FURNISHED :

Joseph C. Moffa, Esquire

Jonathan W. Taylor, Esquire

Moffa, Sutton & Donnini, P.A.

Trade Center South, Suite 930

100 West Cypress Creek Road

Fort Lauderdale, Florida 33309

(eServed)

Jeanette Moffa, Esquire

Moffa, Sutton & Donnini, P.A.

Trade Center South, Suite 930

100 West Cypress Creek Road

Fort Lauderdale, Florida 33309

(eServed)

Rex D. Ware, Esquire

Moffa, Sutton & Donnini, P.A.

3500 Financial Plaza, Suite 330

Tallahassee, Florida 32312

(eServed)

Mark S. Urban, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

(eServed)

Mark S. Hamilton, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

James A. Zingale, Executive Director

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314 - 6668

(eServed)

Ernest Reddick, Program Administrator

Anya Grosenbaugh

Florida Administrative Code and Register

Department of State

R. A. Gray Building

500 South Bronough Street

Tallahassee, Florid a 32399 - 0250

(eServed)

Ken Plante, Coordinator

Joint Administrative Procedures

Committee

Room 680, Pepper Building

111 West Madison Street

Tallahassee, Florida 32399 - 1400

(eServed)

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original notice of adminis trative appeal with the

agency clerk of the Division of Administrative Hearings within

30 days of rendition of the order to be reviewed, and a copy of

the notice, accompanied by any filing fees prescribed by law,

with the clerk of the District Court of App eal in the appellate

district where the agency maintains its headquarters or where a

party resides or as otherwise provided by law.