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\,,
STATE OF FLORIDA
DEPARTMENT OF REVENUE
.BRIDGESTONE/FIRESTONE, INC.
Petitioner,
v.
DEPARTMENT OF REVENUE
Respondent.
)))))))
))))
CASE NUMBER 92~2483
DcR Q3-'22.. FoF
FINAL ORDER
This cause came on before the Department of Revenue for
the purpose of issuing a final order. The Hearing Officer
assigned by the Division of Administrative Hearings submitted
a Recommended Order. A copy of the Recommended Order is
attached to this Final Order. Petitioner timely filed
Petitioner's Exception To·Recommended Order. Respondent
timely filed Respondent's Exceptions To Recommended Order And
Supporting Memorandum of Law; DOR's Reply To Petitioner's
Proposed Substituted Order And supporting Memorandum Of Law;
and DOR's Proposed Substituted Order. A copy of these
documents are attached to this Final Order.
Pursuant to Chapter 120, Florida Statutes, the Department
has jurisdiction of this cause.1.
At issue is whether a real property lease in "form," which
constituted part of a sale/leaseback transaction between The
Firestone Tire and Rubber Company, as predecessor to
Bridgestone/Firestone, Inc., and Firestone Real Estate
Leasing corporation (FIRELCO) should be treated as a mortgage
in "substance" not sUbject to the sales and use tax.
The Hearing Officer in his Recommended Order reconmended
that the Department enter a Final Order withdrawing the sales
and use tax assessment against Petitioner.
The Department, after a thorough review of the entire
record in this case, adopts the recommendation of the Hearing~-,
(\ Officer that a Final Order be entered withdrawing the'-......_/
assessment against Petitioner. However, the Department makes
certain rejections and modifications of the Hearing Officer's
statement of the Issue, Preliminary statement, Findings of
Fact, and Conclusions of Law.
statement of the Issue
The Department adopts and incorporates in this Final Order
the statement of the Issue as expressed in DOR's Proposed
substituted Order filed by Respondent.
In rejecting the Hearing Officer's statement of the Issue
the Department is in essence sUbstituting the word "mortgage"
2.
((
(~
for the term "financing statement" as used by the Hearing
Officer.
preliminary statement
Department adopts the Preliminary statement of DOR's
Proposed Substituted Order filed by Respondent. In rejecting
the Hearing Officer's Preliminary statement the Department is
again sUbstituting the word "mortgage" for the term
"financing statement" as used by the Hearing Officer. This
modification is made on the basis that the term "mortgage" is
given a statutory definition as expressed in s. 697.01, F.S.,
whereas the term financing arrangement" has no precise
meaning.
Findings of Fact
The Department adopts and incorporates in this Final Order
all of the Findings of Fact 1 through 12 in the Recommended
Order.
The Department modifies Finding of Fact 13 to correctly
identify FIRELCO rather than Firestone in line 2 as the
entity which had been assessed documentary stamp taxes, and
to identify FIRELCO rather than Firestone in lines 4 and 5 as
the party who received a notice of decision, and entered into
a closing agreement.
3.
The Department adopts and incorporates in this Final Order
Findings of Fact 14 through 29 in the Recommended Order.
Conclusions of Law
The Department adopts and incorporates in this Final Order
Conclusions of Law 30 through 32 in the Recommended Order.
The Department rejects Conclusions of Law 33 in the
Recommended Order and adopts Conclusion of Law 33 as it
appears in DOR's Proposed Substituted Order. The Department
rejects the Hearing Officer's conclusion because of the
interchangeable use of the terms "mortgage" and "financing
arrangement" rather than the use of the term "mortgage" which
is statutorily defined. Also, the Department takes exception
to the phrase "sale/leaseback agreement" finding that no
document was entered into evidence bearing that title.
Further, the Department takes exception to the Hearing
Officer's recommendation that the Department look to federal
income tax case law for additional guidance.
The Department adopts Conclusions of Law 34, 35, and 36 in
the Recommended Order.
The Department rejects Conclusions of Law 37, 38, and 39
in the Recommended Order because these conclusions suggest
the Department look to federal. income tax case law in
4.
()..,~-_./
administering the tax imposed in Chapter 212, Florida
statutes. In sUbstitution, the Department adopts a new
Conclusion of Law 37 as expressed in DOR's Proposed
substituted Order because Chapter 212, F.S., does not
"piggyback" federal income tax law as does Chapter 220,
Florida statutes.
Further, the cases construing what constitutes a
"mortgage" under s. 697.01, F.S., provides a better basis for
determining what constitutes a "lease" under Chapter 212,
F~S., than does federal income tax law. Upon these bases the
Department rejects the Hearing Officer's recommendation of
reliance on the principles, reasoning, and factual analysis
found in federal tax law and adopts the new Conclusion of Law
37 which appears in DOR's Proposed substituted Order.
The Department adopts and incorporates in this Final Order
the Hearing Officer's Conclusions of Law 40.
with the exception of a modification of the second
sentence the Department adopts and incorporates Conclusion of
Law 41 in this Final Order. The second sentence shall read:
While DOR is entitled to rely on such books and records to
the extent as allowed by law, it is apparent in Zero, the
taxpayer's "corporate books" carried an entry reflecting
rental payments to its parent corporation."
5.
RUling on Petitioner's Exception to Recommended Order
The Department rejects Petitioner's exception to the
Hearing Officer's Findings of Fact 13. First, the
Department restates what appears above in the modification of
Findings of Fact 13 that FIRELCO rather than Firestone should
be identified in this finding. Further, the question as to
whether the payment of documentary stamp tax on a document
other than the lease is to be considered as a bar to the same
tax on the lease was not before the Hearing Officer~
RUlings on Respondent's Exceptions to Recommended Order
The Department adopts Respondent's exception to the
Hearing Officer's Finding of Fact 13 and states that this
exception corrects a clerical error in that FIRELCO rather
than Firestone should have been identified as the entity
which had been issued an assessment for documentary stamp
tax. The Department adopts Respondent's exceptions to the
Hearing Officer's Conclusions of Law 33, 37, 38, 39. The
Department adopts Respondent's new Conclusion of Law 37.
conclusion
After a thorough review of the entire record, in which it
is determined that the document at issue was a mortgage, the
6.
Department notes that no finding in this matter concludes
that all similar agreements are to be characterized as
mortgages, and it reserves determination of the taxability
of future sale and leaseback transactions based on the facts
of such transactions and consideration of the applicable law.
Based upon the foregoing, it is ORDERED:
The recommendation of the Hearing Officer that the
assessment against Petitioner be rescinded or withdrawn is
sustained.
Notice of Rights
Any party to this Final Order has the right to seek
jUdicial review of the Final Order as provided in Section
120.68, Florida Statutes, by filing of a Notice of Appeal as
provided in Rule 9.110, Florida Rules of Appellate Procedure,
with the Clerk of the Department in the Office of General
Counsel, Post Office Box 6668, Tallahassee, Florida
32314-6668 and by filing a copy of the Notice of Appeal,
accompanied by the applicable filing fees, with the
appropriate District Court of Appeal. The Notice of Appeal
must be filed within 30 days from the date this final order
is filed with the Clerk of the Department.
7.
~,\. )'--./
o
DONE AND ENTERED IN TALLAHASSEE, LEON COUNTY, FLORIDA
this 5Y day of November ,1993.
certificate of Filinq
I HEREBY CERTIFY that the foregoing FINAL ORDER has beePhfiled in the official records of the Department this ~~=- _day of November, 1993.
copies furnished to:
L.H.FuchsExecutive DirectorDepartment of RevenueRoom 104Carlton BuildingTallahassee, Florida 32399-0100
Donald AlexanderHearing OfficerDivision of Administrative HearingsThe DeSoto Building1230 Apalachee ParkwayTallahassee, Florida 32399-1550
Jeffery M. Dikman, EsquireJarrell L. Murchison, EsquireDepartment of Legal AffairsThe Capitol - Tax sectionTallahassee, Florida 32399-1050
8.
..,. ~ '.-)
Linda Lettera, EsquireGeneral CounselDepartment of Revenue201 Carlton BuildingTallahassee, Florida 32399-0100
Benjamin K. Phipps, EsquireFine Jacobson Schwartz Nash & BlockPost Office Box 1351Tallahassee, Florida 32302
Attachments:
Hearing Officer's Recommended OrderDOR's Proposed Substituted OrderRespondent's Exceptions to Recommended Order and Supporting
Memorandum of LawPetitioner's Exception to Recommended OrderDOR's Reply to Petitioner's Proposed Substituted Order and.
Supporting'Memorandum of Law
9.
\
STATE OF FLORIDADEPARTMENT OF REVENUE
BRIDGESTONE/FIRESTONE, INC.,
Petitioner,
vs.
DEPARTMENT OF REVENUE,
Respondent.
DOAH CASE NO. 92-2483
DOR'S PROPOSED SUBSTITUTED ORDER
Pursuant to notice, the above matter was heard before the
Division of Administrative Hearings by its duly designated
Hearing Officer, Donald R. Alexander, on April 29 and 30, 1993,
in Tallahassee; Florida. The Hearing Officer entered his
recommended "order on August 10, 1993. DOR and Petitioner timely
r-\() took exceptions to the recommended order. This proposed.'-......-0'-
substituted order solely reflects the exceptions taken by DOR.
APPEARANCES
For Petitioner: Benjamin K. Phipps, EsquirePost Office Box 1351Tallahassee, Florida 32302
For Respondent: "Leonard F. Binder, EsquireJarrell L. Murchison, EsquireDepartment of Legal AffairsThe Capitol-Tax SectionTallahassee, Florida 32399-1050
STATEMENT OF THE ISSUE
The ultimate issue is whether a real property lease in
"form," which constituted part of a sales/leaseback transaction
between The Firestone Tire and Rubber Company, as predecessor to
Bridgestone/Firestone, Inc., and Firestone Real Estate Leasing
Corporation should be treated as a mortage in "substance" not
subject to the sales and use tax.
Although DOR has adopted the recommendation of the Hearing
Officer that this particular sales/leaseback transaction is not
subject to the sales and use tax, this order should not be
construed as broadly applying to sales/leaseback transactions in
general. The Hearing Officer's findings of fact were based upon
the unique facts ana circumstances of this case, including
specific provisions contained in the pertinent documentation at
issue. The determination of whether any other sales/leaseback
transaction would be taxable for sales and use tax would
similarly depend upon the unique facts and circumstances in the
particular transaction.
PRELIMINARY STATEMENT
This matter began after an audit was conducted by
o Respondent, Department of Revenue (DOR), of the taxes paid by
Petitioner, Bridgestone/Firestone, Inc., during the period June
1, 1985, through December Xi, 1985-:-The-prLl.cTpaTIs'sue 'in the
,audit is whether a trartsaction between the predecessor of
Petitioner and Firestone Real Estate Leasing Corporation should
be treated as a mortgage or as a true lease. On the premise that
the transaction was a lease, DOR has proposed to make a, ,
substantial assessment on petitioner. After various informal
appeals were unsuccessful, Petitioner filed its petition for
formal hearing challenging the proposed assessment. The parties
have agreed that the total amount of taxe$, interest and
penalties in dispute are $l j 004,848.27.
The matter was referred by respondent to the Division of
Administrative Hearings on April 23, 1992, with a request that a
- 2 -
( hearing officer be assigned to conduct a formal hearing. By
notice of hearing dated May 11, 1992, a final hearing was
scheduled on September 22, 1992, in Tallahassee, Florida. At the
parties' request, the matter was rescheduled to December 1, 1992,
and then again to March 2, 1993. By agreement of the parties,
the matter was again rescheduled to April 15 and 16, 1993, and
finally to April 29 and 30, 1993, at the same location.
At final hearing, Petitioner presented the testimony of Dr.
William A. Hillison, a professor at the Florida State University
(FSU) school of business and accepted as an expert in the
analysis of financial transactions from accounting standards;
Donald J. Weidner, a professor and dean of the FSU school of law
and accepted as an expert in factors to be considered in making a
~ determination as to whether a transaction is a sale or a
mortgage; David F. Seele, petitioner's tax comptroller; and
Donald T. Allen, supervisor of pet~tioner's tax department.
Also, it offered petitioner's exhibits 1-7. All 8xhibits were
received in evidence except exhibit 6. Respondent presented the
testimony of Richard Unen, a DOR tax auditor; Peter J. Steffens,
DOR revenue opportunity research administrator; and Joseph R.
Boyd, a Tallahassee attorney and board certified in real property
law. Also, it offered Respondent's exhibits 1-10 and 11A-11J.
All exhibits were received in evidence.
~
The transcript of hearing (four volumes) was filed on May
26, 1993. Proposed findings of fact and conclusions of law were
originally due on June 26, 1993. By 9greement of the parties,
this time was extended to July 2, 1993, and the parties timely
filed their proposed orders on that date.
- 3 -
o
FINDINGS OF FACT
Based upon all of the evidence, the following findings of
fact are determined. With the exception of certain relatively
minor changes to paragraphs 13 and 29 below, all of the findings
of fact made by the Hearing Officer are adopted verbatim below:
A. Background
1. Petitioner, Bridgestone/Firestone, Inc. (petitioner or
Firestone), is a foreign corporation doing business in Florida.
During the relevant time period, it owned more than one thousand
retail outlets throughout the country, including thirty-nine in
Florida, which sold tires and provided additional automotive
services. Petitioner was then known as The Firestone Tire and
Rubber Compani.
2. Respondent, Department of Revenue (DOR), is the state
agency charged with the responsibility of enforcing the Florida
Revenue Act of 1949, as amended. Among other things, DOR
performs audits on taxpayers to insure that all taxes due have
been correctly paid. To this end, a routine audit was performed
on petitioner covering the audit period from June 1, 1985,
through December 31, 1988.. .
3 .. During th~ course of the audit, a DOR field auditor
reviewed a transaction that had occurred on October 22, 1985,
between Firestone and Firestone Real Estate Leasing Corporation
(FIRELCO) . In very broad terms, the agreement provided for the
usale of a substantial number of assets (land and buildings) to
FIRELCO and a leaseback of the assets ,by Firestone. After
concluding that this agreement was a lease arrangement between
- 4 -
B. The Transaction and its Genesis
4. In 1979 Firestone hired as president an executive from
outside the company for the first time. Previously, only members
of the Firestone fa~ily. or career Firestone employees had.held
that position. Deciding that Firestone should de-emphasize its
manufacturing operat~ons and concentrate on its retail
operations, the ne~ president quickly closed seven tire plants
and opened a number of new retail outlets with an emphasis on
stores in the Sunbelt states. A decision was also made to
,~~ finance this expansion by using the real estate as collateral.
- 5 -
o 5. The first group of stores was paid for by selling them
to a real estate investment trust (REIT) known as One Liberty
Firestone. This form of financing had been recommended for
several reasons by Merrill Lynch, Firestone's investment banker.
First, it gave Firestone "access to the public market". Second,
o
it allowed Firestone to use off-balance sheet financing, that is,
it removed the debt associated with the financing from
Firestone's balance sheet and thus improved its debt-equity
ratio. Finally, Firestone retained operations of the stores
through a lease with the REIT. For financial reporting and state
and federal tax purposes, the transaction was treated as a true
sale. The payments by Firestone to the REIT were treated as rent
on the books of both corporations.
6. Because Firestone had -lost the benefit of the
appreciation of the value of the stores under the REIT form of
financing, it decided to find a better form of financing for its
next acquisition of retail outlets. After considering several
alternatives, Firestone's then treasurer, Jack Rooney, and its
manager of domestic financing, Suzanne Palmer, concluded that the
new financing must meet several objectives, including retaining
of appreciation in value of the new properties, using the lowest
cost of financing available, continuing off-balance sheet
financing so that the assets and debt would not be carried on
Firestone's balance sheet, and using the real estate as security
for the financing. To meet these objectives, Rooney and Palmer
selected a sale/leaseback form of tra~saction to be structured so
that (a) it could be reported off-balance sheet, (b) it would be
- 6 -
(~ financed through the sale of commercial paper (unsecured" -_/
promissory notes), and (c) the control of the properties would be
retained by Firestone. To get the lowest rate possible for the
commercial 'paper, it was necessary to have the issuance of the
paper backed by a letter of credit issued by a bank with a very
high rating. Ultimately, the Canadian Imperial Bank of Commerce
(bank) was chosen. A credit agreement was prepared which set
forth the obligations of the bank with respect to the issuance of
the letter of credit. A depository agreement was also prepared
naming Manufacturers Hanover Trust Company as the depository
agent to handle the issuance and payment of the commercial paper
as it was issued and reissued. The agreement was designed to
protect the interest of the commercial paper note holders.
o 7 . In addition to the foregoing documents, a security
agreement was created which provided the security for the bank by
giving it an interest in the flow of funds to repay the debt, and
ultimately gave it an indirect interest in the real estate. This
was accomplished through the assignment of the lease and all
rents to the bank.
8. To achieve Firestone's goal of off-balance sheet
financing, a separate, independent corporation named Firestone
Real Estate Leasing Corporation (FIRELCO) was created. All of
the stock of the corporation was owned by Case Western Reserve
University, located in Cleveland, Ohio. When initially
established, FIRELCO was a shell company with no assets, it had)
no working employees, and it had only,the minimum number of
directors required by law. It was not controlled by or related
- 7 -
~ to Firestone since any common ownership between the two entities
would have required Firestone to file consolidated financial
statements. As a part of this transaction, Firestone transferred
bare legal title in the properties to FIRELCO in return for cash
(received by FIRELCO from the issuance of commercial paper), and
under a lease agreement between the two, Firestone leased back
the retail outlets from FIRELCO. Since all documents were
executed on the same day, October 22, 1985, Firestone retained
continuous physical possession of the stores.
9. To summarize the transaction in simpler terms, FIRELCO
initially issued $35 million of commercial paper' (short-term
notes of thirty to one hundred eighty days duration) to
investors. The letter of credit issued by the Canadian Imperial
.~ Bank of Commerce provided assurances to .the investors that their
funds would be returned. This was important since FIRELCO had no
assets. The proceeds from the sale of the paper were used to
purchase the properties of Firestone, who then immediately leased
back the properties from FIRELCO pursuant to a lease agreement.
FIRELCO assigned all of its rights to lease payments to the bank,
as collateral agent. Thus, Firestone made periodic payments by
wire transfer to the Canadian Imperial Bank of Commerce (as
assignee of the lease payments), and pursuant to the depository
agreement, the bank provided these funds to Manufacturers Hanover
Trust Company, acting as fiduciary for the investors.
Ultimately, the investors were repaid for their investment in the
commercial paper. Since the transaction was an open ended one,
additional properties were added by Firestone as late as 1987.
- 8 -
:~ .By the end of that year, FIRELCO had issued paper in excess of./
$150 million as a financing tool for Firestone.
10. By structuring the transaction in this manner,
Firestone was able to secure "virtually 100 percent financing"
for an interest rate on the commercial paper of less than that of
passbook savings. Also, it was able to secure off-balance sheet
financing; that is, it ended up with only cash on its books while
transferring the fixed assets (land and buildings) and
substantial debt to the books of FIRELCO, thus improving its
balance sheet. Finally, it was able to retain control of the
retail stores.
11. The sale/leaseback form of financing was fairly common
oin the 1980's and had a number of advantages over other types of
financing. First, it permitted the entity using that type of
financing to maintain a good debt to equity ratio since the debt
was shifted to the lessor. Also, commercial paper enjoyed a
lower interest rate than a long-term mortgage, thus allowing the
entity to realize savings in interest costs. In addition, unlike
the typical mortgage, this type of financing allowed the entity
to obtain 100 percent financing. Finally, the lessee was able to
retain control of all of its assets.
C. DOR's Audit and Conclusions
12. As a part of the audit, a DOR field auditor visited
Firestone's offices and examined all of the relevant documents
pertaining to the lease. At that time, the auditor was told by a
member of Firestone's tax department ~hat the payments made by()Firestone to FIRELCO were "rental payments".
- 9 -
In addition,
i,.:
- 10 -
lease itself. This constituted further evidence to DOR that the
Further, theseindicating the "monthly rent" paid by each store.
after having reached an agreement as to how the total transaction
assessed documentary stamp taxes on the assignment of rent.
Firestone's records contained a monthly rental schedule
14. In further support of its position, DOR relied upon the
was a "mortgage." Based on these considerations, the auditor
payments were characterized as rental payments in handwritten
notes maint.ained in petitioner's "real property files." Finally,
the Firestone representative nevei stated that the transaction
intangible personal property tax or documentary stamp tax on the
Firestone be liable for the sales tax associated with the lease
Tallahassee DOR personnel revealed that while FIRELCO had been
13. A subsequent review of Firestone's records by
payments. These taxes amounted to approximately $680,000.
recommended that the transaction be treated as a lease and that
would be apportioned to Florida, that Firestone had never paid
Exchange Commission (SEC) in which the reports referred to "rent
transaction was a lease and not a financing arrangement since
such taxes would be due on a mortgage.
various Form 10-K's filed by Firestone with the Securities and
as an "operating lease" as opposed to a capital or financing
payments for operating leases" and characterized the transaction
lease. Thus, DOR asserted that the assessment was correct since)
;/ the documents reviewed in the audit spoke of a "lease", "rental
portion of the transaction in 1987, and a notice of decision and~\
~~j ~losing agreement had been entered into by the DOR and FIRELCO
r~ payments" and the like, there was a representation by Firestone
that "rental paYments" were being made under the lease, and
Firestone had paid no documentary or intangible tax on the lease.
15. Finally, DOR offered the testimony of a board certified
real estate attorney who examined the one hundred eight page
lease and noted some twenty provisions which he opined would be
typically found in a lease agreement and not a mortgage. The
expert concluded that the lease in form was also a lease in
substance.
D. The Relevance of FASB 13
16. For financial reporting purposes, Firestone recorded the
transaction on its financial statements and other external
reports in accordance with generally accepted accounting(\~~ principles, the source of which includes, among other things, the
standards issued by the Financial Accounting Standards Board
(FASB). That board establishes accounting standards, which at
last count numbered one hundred fourteen, to be used by the
accounting profession in preparing financial statements. Among
them is FASB 13, which is applicable to this controversy and, at
the time the tra"nsaction occurred, governed. the accounting for
leases. Under FASB 13, a lease must be reported as a debt of the
"lessee" on its balance sheet if anyone of four conditions
exists. Put another way, a lease will not be reported as a debt~r{\,",,~
unless ~rl--fe~~Aof the following tests are met:
a. The lease transfers ownership of theproperty to the lessee.
b. The lease contains a bargain purchaseoption.
- 11 -
C~)
c. The lease term is equal to 75 percent ormore of the estimated life of the leased property.
d. The present value of the minimum leasepayments equals or exceeds 90 percent of thefair value of the leased premises.
As can be seen in the following discussion, none of these
criteria were met. Therefore, Firestone was obliged to report
the transaction as a lease in a footnote to its financial
statements. For Firestone to have recorded the transaction in
any other manner for financial reporting purposes would have
contravened FASB 13 and generally accepted accounting principles.
17. Under the terms of the lease agreement by Firestone and
FIRELCO, Firestone retained the option to repurchase all of the
leased properties at the end of a five year period for $137
million. Since the transfer of properties was not automatic, the
first criterion requiring that "the lease transfers ownership of
the property to the lessee" was not met.
18. Under the second criterion, "the lease (must) contain a
bargain purchase option." Since the purchase option in the lease
agreement was for the unamortized portion of the debt, which was
the book value, and a purchase at book value cannot be a bargain
purchase, this part of FASB 13 was not met.
19. Third, in order for the lease to be reported as a debt
on the books of Firestone, "the lease term (must be) equal to 75
percent or more of the estimated life of the leased property."
In this case, the lease called for a five year term. This is
,I
less than 75 percent of the estimated life of the improved real
\/~) property since new retail stores have a probable useful life of
35 years or more. Therefore, this part of the test was not met.
- 12 -
o
20. Finally, the lease called for the debt to be amortized
at the rate of 3 percent per year or a total of 15 percent over
the five year period of the lease. This left an unamortized debt
of 85 percent at the end of the five year term. This meant that
the minimum (and maximum) lease payments equaled only 15 percent
of the value of the property at the end of the lease term. Since
the fourth criterion requires that "the present value of the
minimum lease payments equals or exceeds 90 percent of the fair
value of the leased premises," the final part of the test was not
met.
21. Because none of the four tests of FASB 13 were met, the
transaction had to be recorded in a footnote, as a lease, rather
than on Firestone's balance sheet as a debt. This was consistent
with generally accepted accounting principles.' Therefore, in its
1984, 1985, 1986 and 1987 Form 10-K's, which are annual reports
filed with the SEC, Firestone reported the lease in footnotes,
and not as a balance sheet debt.
22. In 1988, or after the transaction occurred, FASB 98 was
issued. Had it not had prospective application only, the new
standard would have required this tr~n~action to be reported as a
debt or liability on the balance sheet of the financial
statements of Firestone.
E. An Analysis of the Transaction
23. Although a document may be cflled a lease on its face,
this in itself is not dispositive of the issue. Rather, in order
(~ to properly determine the true nature of the transaction, it is
necessary to examine the intention of the parties and the
- 13 -
substance of the agreement. In this case, the more credible and
persuasive evidence supports a finding that the sale/leaseback
agreement between Firestone and FIRELCO was a financing
transaction rather than a lease.
24. Initially, it is noted that a taxpayer can treat an item
one way for financial reporting purposes and another way for tax
purposes. A common example is depreciation, where a taxpayer can
properly use straight line depreciation for book purposes and
accelerated depreciation for tax purposes. Similarly, in cases
S11Ch as this, a taxpayer can report a transaction as a lease in
its financial statements but as a financing transaction for tax
purposes. Thus, in accordance with FASB 13, Firestone was
obligated to use such terms as "operating lease" and "rental
CJ payments" in its Form 10-K's filed with the SEC and to
characterize the transaction as a lease in the footnotes to its
financial statements. It could, however, treat the matter
C)
differently for tax purposes.
25. Firestone established that its tax returns were
prepared to reflect that no sale had occurred between Firestone
and FIRELCO, and therefore the retail stores continued to be
tieated as depreciable assets of Firestone for all tax purposes.
In doing so, Firestone relied upon advice from its tax counsel.
Further, the monthly payments made to the bank were treated as
principal and interest for all tax purposes, and not as rental
payments. In addition, for internal accounting purposes, the
transaction was treated in exactly th~ same way as for tax
reporting purposes, that is, with the real estate remaining on
- 14 -
(-) Firestone I s books as deprec iable as sets and with the payments
being treated as payments of principal and interest, and not
rent.
26. Although DaR's expert found some twenty provisions in
the agreement which are typically found in a lease, the greater
weight of evidence supports a finding that the sale/leaseback
here was used to effect a mortgage substitute through a deed
absolute with collateral documents. For example, sections 4.1-
4.4, 5.2, 6.1, 7.1, 7.3, 8.1, 8.2, 9.1, 9.2, 10.1, 11.1, 11.3,
11.8, 12.1-12.3, 13.1, 15.1-15.4, 18.1,23.3,24.1, 25.1, 28.1,
28.2,.30.1, 31.1, and 31.2 of the lease ~re clear indicia that in
reality the ~ransaction was a financing arrangement for
Firestone. Indeed, it was Firestone's primary aim in this
o transaction, as well as the intention of the parties, to raise
money so that Firestone could acquire new retail outlets. By way
of illustration, there are provisions in the lease which provide
that the rent is tied to FIRELCO's carrying costs and not a
reasonable return on the fair market of property (s. 4.1),
Firestone bears the burden of making all repairs to the property,
including major structural repairs (s. 5.2), the obligations of
the tenant continue even in the event of termination such as
condemnation (s. 6.2), the tenant must make all reports on the
property required by law (s. 7.1), FIRELCO must grant any
easements that Firestone determines are necessary (s. 8.2), in
the event of an insurable loss, the insurance proceeds go to the
tenant (s. 11.3), the landlord warrants that it will report to
the federal government that the tenant owns the property and
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o
o
hence the tenant receives all federal tax benefits such as
depreciation (s. 17.2), ~pon transfer of title, the landlord's
liabilities are relieved and it has no liabilities under the
lease (s. 23.3), the tenant reserves the right to substitute any
retail properties and the replacement property can be no less
than the unamortized cost of the substituted property (s. 24.1),
and at the end of the lease, any accumulated equity in the
property is paid to Firestone as a management fee (s. 28.1).
27. In determining the practical business substance of the
transaction, it is also necessary to determine if the buyer is a
single purpose financing corporation, if the short and long term
risks and benefits associated with ownership pass to the so
called buyer, and if the seller's aim is to borrow money. In
this regard, the evidence shows that FIRELCO can properly be
called a single purpose financing corporation since it existed
only for the purpose of this transaction. That is, its sole
purpose was to facilitate the issuance of commercial paper, and
it was prohibited by the collateral documents from engaging in
any other business or corporate activity. Further, FIRELCO did
not enjoy any long or short-term benefits associated with
ownership of property, it did not assume possession of the
property, and the risks associated with ownership of the property
did not pass to the lessor but rather remained with Firestone.
Finally, as noted in the preceding paragraph, when it entered
into the transaction, Firestone's principal aim was to borrow
money. All of these considerations support a finding that the
practical business substance of the transaction was that of
financing new acquisitions for Firestone.
- 16 -
28. In summary, FIRELCO was a single purpose financing
corporation totally lacking in economic substance. The various
deeds from Firestone to FIRELCO were "deeds absolute" and the
various other documents, that is, the credit agreement, security
agreement, depository agreement, purchase and sale agreement,
lease, and assignment of rents and lease, were "collateral
documents." In this regard, it should be not.ed that the parties
did not intend for the deeds absolute to embody the whole
agreement but rather for the agreement to include both the deeds
and the collateral documents together. No sale actually occurred
and FIRELCO held naked legal title for the sole purpose of
providing security. There was no economic substance to the lease
beyond insuring amortization of the debt. Further, the
c-J practicalities of the situation and specific provisions of the
lease insure that Firestone was at all times the actual owner of
the property. Firestone treated the transaction as a financing
()
arrangement for federal and state income tax purposes, for ad
valorem tax purposes, for state sales and documentary tax
purposes, and for internal accounting purposes. In compliance
with FASB 13, however, Firestone reported the transaction as a
lease for financial reporting purposes. Therefore, the
transaction is found to be in the nature of a mortgage or
financing arrangement.
F. Estoppel
29. During the field audit phase of this proceeding, a
Firestone employee initially characte~ized the payments made by
Firestone to FIRELCO as rental payments and did not refer to the
- 17 -
C)
document as a mortgage. As noted in an earlier portion of this
order, there. were also several documents shown to the auditor
which contained the words "lease", "rental payments" and the
like. At that point, the DOR auditor was inclined to treat the
"monthly rent" under the lease as constituting rent for sales tax
purposes and to make corresponding audit adjustments. Firestone
disagreed, however, with the auditor's preliminary analysis and
argued that the payments should be characterized as a "financing
arrangement" rather than a true lease. Firestone also furnished
the auditor with a copy of the opinion letter from its tax
counsel which concluded that the transaction was not a lease. In
determining whether to accept this assertion, the field auditor
contacted his .supervisor, and togeth~r they checked with the
assistant bureau chief of multi-state audits. The field auditor
testified at hearing that he knew this was a precedent setting
case, other taxpayers had taken the same position as Firestone,
and at that time he and his supervisor had already decided to
treat the transaction as taxable. That position was approved by
the assistant bureau chief. Based upon substantial competent
evidence, the Hearing Officer concluded that, before the field
audit was concluded and preliminary action taken, DOR was aware
of Firestone's position on this issue. Therefore, DOR does not
claim that during the audit it was misled as to Firestone's
position or that Firestone subsequently changed its position
after the audit was completed. Moreover, DOR suffered no
detriment by virtue of its reliance on Firestone's announced
position.
- 18 -
30.
CONCLUSIONS OF LAW
The Division of Administrative Hearings had
jurisdiction of the subject matter and the parties hereto
pursuant to Sections 120.57 and 120.575, Florida Statutes.
31. As provided for-in Subsection 120.575(2), Florida
Statutes, the agency's "burden of proof ... shall be limited to a
showing that an assessment has been made against the taxpayer
and the factual and legal grounds upon which the (agency) has
made the assessment II • See also, Department of Revenue v. Quotron
Systems, Inc., 615 So.2d 774, 776 (Fla. 3d DCA 1993). Once that
showing is made, the burden shifts to the taxpayer to demonstrate
by a preponderance of the evidence that the assessment is
incorrect.
32. In construing the taxing statutes, the undersigned is
obliged to honor the long-established principle that tax laws are
to be strongly construed in favor of the taxpayer and against the
government. See,~, Maas Brothers, Inc. v. Dickinson, 195
So.2d 193, 198 (Fla. 1967). The statutory authority for the
assessment is found in Subsection 212.031(1)(a), Florida
Statutes. That subsection reads in relevant part as follows:
(1) (a) It is declared to be the legislativeintent that every person is exercising ataxable privilege who engages in thebusiness of renting, leasing, or letting anyreal property .
On the theory that the transaction is a lease within the meaning
of the foregoing statute, and no taxes have been paid, DOR
C) proposed to tax Firestone, as the tenant, since by law a tenant
is liable for any sales tax not paid by its landlord.
- 19 -
33. The central issue in this proceeding is whether the
"lease" agreement executed by the parties is a lease or a
mortgage. In resolving this issue, it is helpful to refer nbt
only to relevant tax decisions, but also to real estate cases
arising un~er Subsection 697.01(1), Florida Statutes, which have
determined whether instruments not denominated as a mortgage are
nonetheles~ treated as such. As to this latter body of law, DOR
initially contended that it was irrelevant since the purpose of a
taxing statute is to raise revenues while section 697.01
ostensibly deals with due process rights in foreclosure and quiet
title actions. The Hearing Officer determined that while not
arising under chapter 212, these cases nonetheless provide
guidance in determining whether an instrument is in the na.ture of
n a lease or a mortgage. Therefore, the undersigned accepts the
o
Hearing Officer's recommendation and deems this body of
substantive law t? be persuasive in resolving the ultimate issue.
34. Subsection 697.01(1) reads in pertinent part as
follows:
(1) All. . instruments in writing convey-ing or selling property, either real orpersonal, for the purpose or with the intention of securing the payment of moneyshall be deem~d and. held mortgages.
In other words, .the statute provides that even though a
transaction is not necessarily denominated as a "mortgage", if it
was executed for the purpose of securing money, it shall be
treated as such. Cases arising under this statute discuss when a
"deed absolute", as was given in 'this case, will be deemed to be
a mortgage, and the facts and circumstances leading to such a
- 20 -
result. In making a determination when a deed absolute should be
considered in conjunction with other agreements, whether written
or oral, parole evidence is admissible and does not violate the
parole evidence rule because the deed absolute does not embody,
and was not intended to embody, the whole agreement of the
parties. In Markell, et al. v. Hilbert, et al., 140 Fla. 842,
o
o
192 So. 392 (1939), the supreme court stated the general rule on
this subject as follows:
It appears that this court, many years ago,. held generally, independent of this
statute (s. 697.01), that parole evidence isadmissible in equity to show that a deed ofconveyance, absolute upon its face, wasintended as a mortgage, and where it is shownthat such a conveyance has been executed tosecure the payment of money, equity will treatit as a mortgage. "The court looks at substancerather than form, makes inquiry and hearsevidence beyond the terms of the instrument tothe very heart of the transaction so as todetermine the intent of the parties and alladmissible evidence bearing upon this equitableprinciple is received and considered by thecourt, whether written or oral, as it is theintention of equity to promote justice andto prevent fraud and imposition.
Id. at 398.
Under the foregoing rule, all of the documents (including the
collateral documents) which have been introduced in this case~
and the relevant testimony of the witnesses, must be considered
in determining how the transaction is to be treated. In doing
so, there is no violation of the parole evidence rule.
35. In determining the facts and circumstances which will
govern whether the transaction is to be deemed a mortgage, the
primary rule of construction is the intention of the parties.
- 21 -
(~\ This intent is established not only from the face of the',--
instruments, but also from the situation of the parties and the
nature and object of the transaction. Boyette v. Carden, 347
So.2d 759 (Fla. 1st DCA 1977). In plainer terms, one must
examine substance rather than form. The rule in Florida is that
an instrument must be considered a mortgage, regardless of its
form, if, when taken alone or in connection with surrounding
facts, it appears to have been given for the purpose of securing
money. First Mortgage Corp. of Stuart v. deGive, 177 So.2d 741
(Fla. 2nd DCA 1965). See also, Watkins et ux. v. Burnstein, 152
Fla. 828, 14 So.2d 569 (1943)(deed and lease with option to
purchase considered a single transaction constituting a
mortgage); Thomas v. Thomas, 96 So.2d. 771 (Fla. 1957) (absence of
(/'1.~ __ a promissory note evidencing- debt did not prohibit transaction
from being classified as a mortgage); Sommer v. Pennisi, 48 Fla.
Supp. 2d 197 (15th Cir. Ct. 1990)(a recitation in a deed that it
represents an absolute conveyance and not a mortgage is not
determinative of the issue); Hialeah, Inc. v. Dade County, 490
So.2d 998 (Fla. 3rd DCA 1986) (where burdens and obligations of
ownership rest with the lessee, a sale/leaseback will be
consider~d a mortgage) .
36. Based upon the established facts that the
sale/leaseback was executed solely for the purpose of securing
money to finance Firestone's acquisitions, the parties intended
the transaction to be a financing arrangement for taxing
()purposes, and the burdens and obligations of ownership rested_
with the lessee, it is concluded that the sale/leaseback here was
- 22 -
(----"\ used to effect a mortgage substitute through a deed absolute with.. )"-/
collateral documents. In other words, when stripped of all legal
titles and denominations, the transaction must be deemed to be a
mort.gage.
37. Although the Hearing Officer recommended reliance upon
federal income tax law for additional guidance, DOR rejects this
recommendation of law. Chapter 212, Fla. Stat., does not
"piggyback" federal income tax law, as does Chapter 220, Fla.
Stat. The case law construing what constitutes a "mortgage"
under §697.01, Fla. Stat. provides a better basis for determining
what constitutes a "lease" under Chapter 212 than federal income
tax law.
38. DOR initially cited Greenhut Construction Co. v. Knot~,
!:-J 247 So.2d 517 (Fla. 1st DCA 1971) and its progeny. DOR initially
raised the issue of estoppel and argued that Firestone was
equitably estopped from denying that the document in question was
a lease. For estoppel to apply in this case, the following facts
must be present:
(a) Firestone must have made a representationto DOR that the transaction was a lease;
(b) DbR relied on th~t repr~sentation;and
(c) Firestone later made a change in positionas to the nature of the transaction which wasdetrimental to DOR, caused by the representation and reliance thereon.
The evidence showed that during the course of the field audit,
and before any prelim~nary action was taken, DOR was fully aware
of Firestone's position as to the nature of the transaction.
Since no change in position occurred after the audit was
- 23 -
:~ completed and the assessment made, and DOR suffered no detriment,
the Hearing Officer determined that the claim of estoppel would
not lie. DOR accepts this recommendation.
EECOMHENDATION
Based on the foregoing findings of fact and conclusions of
law, it is
ORDERED that the sales and use tax assessments discussed
herein, which issued against petitioner are now withdrawn.
DONE AND ENTERED this
1993, in Tallahassee, Florida.
day of
(JLARRY H. FUCHSExecutive Director
CERTIFICATE OF FILING
I HEREBY CERTIFY that the foregoing Final Order has been
filed in the official records of the Department of Revenue I this
____day of ___________ 1 1993.
JUDY LANGSTONAGENCY CLERK
NOTICE OF RIGHTS
Any party to this Order has the right to seek judicial
review of the Order pursuant to Section 120.68, Fla. Stat., by
the filing of a Notice of Appeal pursuant to Florida Rule of
Appellate Procedure 9.110, with the Clerk of the Department in
(~ the Office of the General Counsell P.O. Box 6668, Tallahassee,
Florida 32314-6668, and by filing a copy of the Notice of Appeal
- 24 -
/~ accompanied by the applicable filing fees with the appropriate-"~~
District Court of Appeal. The Notice of Appeal must be filed
within 30 days from the date this Order is filed with the Clerk
of the Department.
COPIES FURNISHED:
Donald AlexanderHearing OfficerDivision of Administrative HearingsThe DeSoto Bldg.1230 Apalachee ParkwayTallahassee, FL32399-1550
(~
Linda Lettera, EsquireGeneral CounselRobert G. Parsons, EsquireAssistant General CounselDepartment of Revenue204 Carlton BuildingTallahassee, FL 32301
Benjamin K. Phipps, EsquireP. O. Box 1351Tallahassee, FL 32302
Jeffrey M. Dikrnan, EsquireJarrell L. Murchison, EsquireDepartment of Legal AffairsThe Capitol-Tax SectionTallahassee, FL 32399-1050
- 25 -
STATE OF FLORIDADIVISION OF ADMINISTRATIVE HEARINGS
BRIDGESTONE/FIRESTONE, INC.,
Petitioner,
vs.
DEPARTMENT OF REVENUE,
Respondent.
CASE NO. 92-2483
RECOMMENDED ORDER
Pursuant to notice, the above matter was heard before the
Division of Administrative Hearings by its duly designated
Hearing Officer, Donald R. Alexander, on April 29 and 30, 1993,
in Tallahassee, Florida.
APPEARANCES
For Petitioner:
For Respondent:
Benjamin K. Phipps, EsquirePost Office Box 1351Tallahassee, Florida 32302
Leonard F. Binder, EsquireJarrell L. Murchison, EsquireDepartment of Legal AffairsThe Capitol-Tax SectionTallahassee, Florida 32399-1050
STATEMENT OF THE ISSUE
The. ultimate issue .is whether a sales/leaseback agreement
between The Firestone Tire and Rubber Company, as predecessor to
Bridgestone/Firestone, Inc., i and Firestone Real Estate Leasing
Corporation should be treated as a. financing a.greement and is
thus not subject to the sales and use tax.
PRELII1INP-..Rf STATE:r.:rr.:J.'TT
This matter began after an audit was conducted by
respondent, Department of Revenue (DOR), of the taxes paid by
petitioner, Bridgestone/Firestone, Inc., during the period June
1, 1985, through December 31, 1988. The principal issue in the
audit is whether a transaction between the predecessor of
petitioner and Firestone Real Estate Leasing Corporation should
be treated as a financing arrangement or a lease. On the premise
that the transaction was a lease, DOR has proposed to make a
substantial assessment on petitioner. After various informal
appeals were unsuccessful, petitioner filed its petition for
formal hearing challenging the proposed assessment. The parties
have agreed that the total amount of taxes, interest and
penalties in dispute are $1,004,848.27.
The matter was" referred by respondent to the Division of
Administrative Hearings on April 23, 1992, with a request that a
hearing officer be assigned to conduct a formal hearing. By
notice of hearing dated May II, 1992, a "final hearing was
scheduled on September 22, 1992, in Tallahassee, Florida. At the
parties' request, the matter was rescheduled to December 1, 1992,
and then again to March 2, 1993. By agreement of the parties,
the matter was again rescheduled to April 15 and 16, 1993, and
finally to April 29 and 3D, 1993, at the same location.
At final hearing, petitioner presented the testimony" of Dr.
William A. Hillison, a professor at the Florida State University
(FSU) school of business and accepted as an expert in the
analysis of financial transactions from accounting standards;
Donald J. Weidner, a professor and dean of the FSU school of law
and accepted as an expert in factors to be considered in making a
determination as to whether a transaction is a sale or a
2
(~) mortgage; David F. Seele, petitioner's tax comptroller; and
Donald T. Allen, supervisor of petitioner's tax department.
Also, it offered petitioner's exhibits 1-7. All exhibits were
received in evidence except exhibit 6. Respondent presented the
testimony of Richard Unen, a DaR tax auditor; Peter J. Steffens,
DaR revenue opportunity research administrator; and Joseph R.
Boyd, a Tallahassee attorney and board certified in real property
law. Also, It offered respondent's exhibits 1-10 and 11A-11J.
All exhibits were received in evidence.
The transcript of hearing (four volumes) was filed on May
26, 1993. Prop?sed findings of fact and conclusions of law were
originally due on June 26, 1993. By agreement of the. parties,
this time was extended to July 2, 1993, and the parties timely
c) filed their proposed orders on that date. b ruling on each
proposed finding has been made in the Appendix attached to this
Recommended Order.
FINDINGS OF FACT
Based upon all of the evidence, the following findings of
fact are determined:
A. Background
1. . Petitioner, Br idgestone IF ires tone , Inc. cpeti tioner or
Firestone), is a foreign corporation doing business in Florida.
During the relevant time period, it owned more than one thousand
retail outlets throughout the country, including thirty-nine in
Florida, which sold tires and provided additional automotive
Rubber Company.(Jservices. Petitioner was then known as The Firestone Tire and
3
"-""I./
2. Respondent, Department of Revenue (DOR), is the state
agency charged with the responsibility of enforcing the Florida
Revenue Act of 1949, as amended. Among other things, DOR
performs audits on taxpayers to insure that all taxes due have
been correctly paid. To this end, a routine audit was performed
on petitioner covering the audit period from June I, 1985,
through December 31, 1988.
3. During the course of the audit, a DOR field auditor
reviewed a transaction that had occurred on October 22, 1985,
between Firestone and Firestone Real Estate Leasing Corporation
(FIRELCO) . In very broad terms, the agreement provided for the
sale of a substantial number of assets (land and buildings) to
FIRELCO and a leaseback of the assets by Firestone. After
(J concluding that this agreement was a lease arrangement between
,the two corporations, DOR issued a notice of decision on February
19, 1992, wherein it proposed to assess petitioner $1,233,942.67
in unpaid taxes, interest and penalties. Of this amount,
Firestone did not contest $229,094.67. Therefore, $1,004,848.27
is in dispute. In the notice of decision, DOR concluded that
"the "sale/leaseback agreement between Bridgestone/Firestone, Inc.
and Firestone Real Estate Leasing Corporation is a lease of real
property rather than a mere financing arrangement, and the
transaction is subject to the sales and use tax." Petitioner
then filed its request for hearing contending generally that DOR
had misunderstood the true nature of the transaction, the
agreement was a financing arrangement rather than a leasing
(~ arrangement for both federal and state tax purposes, and the
4
._---------------_._----
payments under the lease should not be subject to the commercial
rental tax as DOR has proposed. Accordingly, petitioner has
asked that the assessment be rescinded or withdrawn.
B. The Transaction and its Genesis
4. In 1979 Firestone hired as president an executive from
outside the company for the first time. Previously, only members
of the Firestone family or career Firestone employees had held
that position. Deciding that Firestone should de-emphasize its
manufacturing operations and concentrate on its retail
operations, the new president quickly closed seven tire plants
and opened a number of new retail outlets with an emphas is on
stores in the Sunbel t states. A decision was also made to
finance this expansion by using the real estate as collateral.
to a real estate investment trust (REIT) known as One Libertyo 5 . The first group of stores was paid for by selling them
Firestone. This form of financing had been recommended for
several reasons by Merrill Lynch, Firestone's investment banker.
First, .it gave Firestone "access to the public market". Second,
it allowed Firestone to use off-balance sheet financing, that is,
it removed the debt associated with the financing from
Firestone's balance sheet and thus improved its debt-equity
ratio. Finally, Firestone retained operations of the stores
through a lease with the REIT. For financial reporting and state
and federal tax purposes, the transaction was treated as a true
sale. The payments by Firestone to the REIT were treated as rent
on the books of both corporations.
6. Because Firestone had lost the benefit of the
appreciation of the value of the stores under the REIT form of
5
financing, it decided to find a better form of financing for its
next acquisition of retail outlets. After considering several
al ternatives, Firestone's then treasurer, Jack Rooney, and its
manager of domestic financing, Suzanne Palmer, concluded that the
new financing must meet several objectives, including retaining
of appreciation in value of the new properties, using the lowest
cost of financing available, continuing off-balance sheet
fincmcing so that the assets and debt would not be carried on
Firestone's balance sheet, and using the real estate as security
for the financing. To meet these objectives, Rooney and Palmer
selected a sale/leaseback form of transaction to be structured so
that (a) it could be reported off~balance sheet, (b) it would be
financed through the sale of commercial paper (unsecured
(~ promissory notes), and (c) the control of the properties would be,,-,-./
retained by Firestone. To get the lowest rate possible for the
commercial paper , it was necessary to have the issuance of the
paper backed by a letter of credit issued by a bank with a very
high rating. Ultimately, the Canadian Imperial Bank of Commerce'
(bank) was chosen. A credit agreement was prepared which set
forth the obligations of the bank with respect to the issuance of
the letter of credit. A depository agreement was also prepared
naming Manufacturers Hanover Trust Company as the depository
agent to handle the issuance and payment of the commercial paper
as it was issued and reissued. The agreement was designed to
protect the interest of the commercial paper note holders.
,7. In addition to the foregoing documents, a security
agreement was created which provided the security for the bank by
6
---_._--~-~~~---~----~~~~~_. -~~----~--~------
giving it an interest in the flow of funds to repay the debt, and
ultimately gave it an indirect interest in the real estate. This
was accomplished through the assigrunent of the lease and all
rents to the bank.
8. To achieve Firestone's goal of off-balance sheet
financing, a separate, independent corporation named Firestone
Real Estate Leasing Corporation (FIRELCO) was created. All of
the stock of the corporation was owned by Case Western Reserve
University, located in Cleveland, Ohio. When initially
established, FIRELCO was a shell company with no assets, i thad
no working employees, and it had only the minimum. number of
directors required by law. It was not controlled by or related
to Firestone since any common ownership between the two entities
~) would have required Firestone to file consolidated financial\ .
'---_.. /
statements. As a part of this transaction, Firestone transferred
bare legal title in the properties to FIRELCO in return for cash
(received by FIRELCO from the issuance of commercial paper), and
under a lease agreement between the two, Firestone leased back
the retail outlets from FIRELCO. Since all documents were
executed on the same day, October 22, 1985, Firestone retained
continuous physical possession of the stores.
9 • To summarize the transaction in simpler terms,
FIRELCO initially issued $35 million of commercial paper (short-
term notes of thirty to one hundred eiahtv- ... days duration) to
investors. The letter of credit issued by the Canadian Imperial
Bank of Con®erce provided assurances to the investors that their
(~ funds would be returned. This was important since FIRELCO had no
7
assets.
-------_.,-.--_._----------~
The proceeds from the sale of the paper were used to
purchase the properties of Firestone, who then immediately leased
back the properties from FIRELCO pursuant to a lease agreement.
FIRELCO assigned all of its rights to lease payments to the bank,
as collateral agent. Thus, Firestone made periodic payments by
wire transfer to the Canadian Imperial Bank of Commerce (as
assignee of the lease payments), and pursuant to the depository
agreement, the bank provided these funds to Manufacturers Hanover
Trust Company, acting as fiduciary for the investors.
Ultimately, the investors were repaid for their investment in the
commercial paper. Since the transaction was an open ended one,
addit.ional properties were added by Firestone as late as 1987.
By the end of that year, FIRELCO had issued paper in excess of
I~ $150 million as a financing tool for Firestone.
10. By structuring the transaction in this manner,
Firestone was able to secure "virtually 100% financing" for an
interest rate on the commercial paper of less than that of
passbook savings. Also, it was able to secure off-balance sheet
financing; that is, it ended up with only cash on its books while
transferring the fixed assets (land and buildings) and
substantial debt to the books of FIRELCO, thus improving its
balance sheet.
retail stores.
Finally , it was able to retain control of the
11. The sale/leaseback form of financing was fairly common
in the 1980's and had a number of advantages over other types of
financing. First, it permitted the entity using that type of
financing to maintain a good debt to equity ratio since the debt
8
was shifted to the lessor. Also, commercial paper enjoyed a
lower interest rate than a long-term mortgage, thus allowing the
entity to realize savings in interest costs. In addition, unlike
the typical mortgage, this type of financing allowed the entity
to obtain 100% financing. Finally, the lessee was able to retain
control of all of its assets.
c. DaR's Audit and Conclusions
12. As a part of the audit, a DaR field auditor visited
Firestone's offices and examined all of the relevant documents
pertaining to the lease. At that time, the auditor was told by a
member of Firestone I s tax department that the pa.yments made by
Firestone to FIRELCO were "rental payments". In addition,
Firestone's records contained a monthly rental schedule
payments were characterized as rental payments in handwritten() indicating the "monthly rent" paid by each store. Further, these
notes maintained in petitioner's "real property files." Finally,
the Firestone representative never stated that the transaction
was a "mortgage." Based on these cons idera tions, the auditor
recommended that the transaction be treated as a lease and that
Firestone be liable for the sales tax associated with the lease
payments. These taxes amounted to approximately 5680,000.
13. A subsequent review of Firestone's records by
Tallahassee DaR personnel revealed that while Firestone had been
assessed documenta.ry ste.mp taxes on the assignment of rent
portion of the transaction in 1987, and a notice of decision and
closing agreement had been entered into by the parties after
I~) having reached an agreement as to how the total transaction would
9
be apportioned to Florida, it had never paid intangible personal
property tax or documentary stamp tax on the lease itself. This
constituted further evidence to DOR that the transaction was a
lease and not a financing arrangement since· such taxes would be
due on a mortgage.
14. In further support of its position, DOR relied upon the
various Form 10-K' s filed by Firestone with the Securities and
Exchange Commission (SEC) in which the reports referred to "rent
payments for operating leases" and characterized the transaction
as an "operating lease" as opposed to a capital or f inanc ing
lease. Thus, DOR asserts the assessment is correct since the
documents reviewed in the audit spoke of a "lease", "rental
payments" and the like, there was a representation by Firestone
that "rental payments" were being made under the lease, and
Firestone had paid no documentary or intangible tax on the lease.
15. Finally, DOR offered the testimony of a board certified
real estate attorney who examined the one hundred eight page
lease and noted some twenty provisions which he opined would be
typically found in a lease agreement and not a mortgage. The
expert concluded that the lease in form was also a lease in
substance.
D. The Relevance of FASB 13
16. For financial
the transaction on its
reporting purposes,
financial statements
Firestone
and other
recorded
external
reports in accordance with generally accepted accounting
principles, the source of which includes, among other things, the
c=~\ standards issued by the Financial Accounting Standards Board
10
(FASB.) . That boa;rd establishes accounting standards, which at
last count numbered one hundred fourteen, to be used by the
accounting profession in preparing financial statements. Among
them is FAS~ 13, which is applicable to this controversy and, at
the time the transaction occurred, governed the ac'counting for
leases. Under FASB 13, a lease must be reported as a debt of the
"lessee" on its balance sheet if anyone of four conditions
C)
exists.
unless
Put another way, a lease will not~ reported
all four of the following tests are met:!'
a. The lease transfers ownership of theproperty to the lessee.
b. The lease contains a bargain purchaseoption.
c. The lease term is equal to 75% or more ofthe estimated life of the leased property.
d. The present value of the minimum leasepayments equals or exceeds 90% of the fairvalue of the leased premises.
as a debt
As can be seen in the following discussion, none of these
criteria were met. Therefore, Firestone was obliged to report
the transaction as a lease in a footnote to its financial
statements. For Firestone to have recorded the transaction in
any other manner for financial reporting purposes would have
contravened FASB 13 and generally accepted accounting principles.
17. Under the terms of the lease agreement by Firestone and
FIRELCO, Firestone retained the option to repurchase all of the
leased properties at the end of a five year period for $137
million. Since the transfer of properties was not automatic, the
first criterion requiring that "the lease transfers ownership of
the property to the lessee" was not met.
11
-----~--~~- ~- -- - ----- -------~--~-----~------
18. Under the second criterion, "the lease (must) contain a
bargain purchase option." Since the purchase option in the lease
. agreement was for the unamortized portion of the debt, which was
the book value, and a purchase at book value cannot be a bargain
purchase, this part of FASB 13 was not met.
19. Third, in order for the lease to be reported as a debt
on the books of Firestone, "the lease term (must be) equal to 75%
or more of the estimated life of the leased property." In this
case, the lease called for a five year term. This is less than
75% of the estimated life of the improvedieal property since new
retail stores have a probable useful life of 35 years or more.
Therefore, this part of the test was not met.
20. Finally, the lease called for the debt to be amortized
(~ at the rate of 3% per year or a total of 15% over the five year
period of the lease. This left an unamortized debt of 85% at the
end of the five year term. This meant that the minimum (and
maximum) lease payments equaled only 15% of the value of the
property at the end of the lease term. Since the fourth
criterion requires that "the present value of the minimum lease
payments equals or exce.eds 90% of the fair value of the leased
premises," the final part of the test was not met.
21. Because none of the four tests of FASB 13 were met, the
transaction had to be recorded in a footnote, as a lease, rather
than on Firestone's balance sheet as a debt. This was consistent
with generally accepted accounting principles. Therefore, in its
1984,1985,1986 and 1987 Form 10-K's, which are annual reports
filed with the SEC, Firestone reported the lease in footnotes,
and not as a balance sheet debt.
12
22.
issued.
In 1988, or after the transaction occurred, FASB 98 was
Had it not had prospective application only, the new
standard would have required this transaction to be reported as a
debt or liability on the balance
statements of Firestone.
E. An Analysis of the Transaction
sheet of the financial
23. Although a document may be called a lease on its face,
this in itself is not dispositive of the issue. Rather, in order
to properly determine the true nature of the transaction, it is
necessary to examine the intention of the parties and the
substance of the agreement. In this case, the more credible and
persuasive evidence supports a finding that the sale/leaseback.
agreement between Firestone and FIRELCO was a financing
transaction rather than a lease.
24. Initially, it is noted that a taxpayer can treat an
item one way for financial reporting purposes and another way for
tax purposes. A common example is depreciation, where a taxpayer
can properly use straight line depreciation for book purposes and
accelerated depreciation for tax purposes. Similarly, in cases
such as this, a taxpayer can report a transaction as a lease in
its financial statements but as a .financing transaction for tax
purposes. Thus, in accordance with FASB 13, Firestone was
obligated to use such terms as "operating lease" and "rental
payments" in its Form 10-K's filed with the SEC and to
characterize the transaction as a lease in the footnotes to its
financial statements. It could, however, treat the matter
(--) differently for tax purposes."..~
13
25. Firestone established that its tax returns were
prepared to reflect that no sale had occurred between Firestone
and FIRELCO, and therefore the retail stores continued to be
treated as depreciable assets of Firestone for all tax purposes.
In doing so, Firestone relied upon advice from its tax counsel.
Further, the monthly payments 'made to the bank were treated as
principal and interest for all tax purposes, and not as rental
payments. In addition, for internal accounting purposes, the
transaction was treated in exactly the same way as for tax
reporting purposes, that is, with the real estate remaining on
Firestone I s books as depreciable assets and with the payments
being treated as payments of principal and interest, and not
rent.
26. Although DaR's expert found some twenty provisions in
the agreement which are typically found in a lease, the greater
weight of evidence supports a finding that the sale/leaseback
here was used to effect a mortgage substitute through a deed
absolute with collateral documents. For example, sections 4.1-
4 . 4, 5. 2, 6. 1, 7. 1, 7. 3 , 8. 1, 8. 2, 9. 1, 9. 2, 10. 1 , 11. 1 , 11. 3 ,
11.8, 12.1-12.3, 13.1, 15.1-15.4, 18.1, 23.3, 24.1, 25.1, 28.1,
28.2 1 30.1, 31.1, and 31.2 of- the lease are -clear indicia that in
reality the transaction was a financing arrangement for
Firestone. Indeed, it was Firestone's primary aim in this
transaction, as well as the intention of the parties, to raise
money so that Firestone could acquire new retail outlets. By way
of illustration, there are provisions in the lease which provide
C-\ that the rent is tied to FIRELCO' s carrying costs and not a
14
()
(J
reasonable return on the fair market of property (s. 4.1),
Firestone bears the burden of making all repairs to the property,
including major structural repairs (s. 5.2), the obligations of
the tenant continue even in the event of termination such as
condem~ation (s. 6.2), the tenant must make all reports on the
property required by law (s. 7.1), FIRELCO must grant any
easements that Firestone determines are necessary (s. 8.2), in
the event of an insurable loss, the insurance proceeds go to the
tenant (s. 11.3), the landlord warrants "that it y.,rill report to
the federal government that the tenant .owns the property and
hence the tenant receives all federal tax benefits such as
depreciation (s. i7.2), upon transfer of title, the landlord's
liabilities are relieved and it . has no liabilities under the
lease (s. 23.3), the tenant reserves the right to substitute any
retail properties and the replacement property can be no less
than the unamortized cost of the substituted property (s. 24.1),
and at the end of the lease, any accumulated equity in the
property is paid to Firestone as a management fee (s. 28.1).
27. In determining the practical business substance of the
transaction, it is also necessary to determine if the buyer is a
single purpose financing corporation, if the short and long term
risks and benefits associated with ownership pass to the so
called buyer, and if the seller's aim is to borrow money. In
this regard, the evidence shows that FIRELCO can properly be
called a single purpose financing corporation since it existed
only for the purpose of this transaction. That is, its sale
purpose was to facilitate the issuance of commercial paper, and
15
it was prohibited by the collateral documents from engaging in
any other business or corporate activity. Further, FIRELCO did
not enjoy any long or short-term benefits associated with
ownership of property, it did not assume possession of the
property, and the risks associated with ownership of the property
did not pass to the lessor but rather remained with Firestone.
Finally, as noted in the preceding paragraph, when it entered
into the transaction, Firestone I s principal aim was to borrow
money. All of these considerations support a finding that the
practical business substance of the transaction was that of
financing new acquisitions for Firestone.
28. In summary, FIRELCO was a single purpose f inanc ing
corporation totally lacking in economic substance. The various
C~)deeds from Firestone to FIRELCO were "deeds absolute" and the
various other documents, that is, the credit agreement, security
agreement, depository agreement, purchase and sale agreement,
lease, and assignment of rents and lease, were "collateral
documents." In this regard, it should be noted that the parties
did not intend for the deeds absolute to embody the whole
agreement but rather for the agreement to include both the deeds
and the collateral documents together. No sale actually occurred
and FIRELCO held naked legal title for the sole purpose of
providing security. There was no economic substance to the lease
beyond insuring amortization of the debt. Further, the
practicaliti p 5 of the situation and. specific provisions of the
lease insure that Firestone was at all times the actual owner af
(/ the property.". .•.. _/-
Firestone treated the transaction as a financing
16
arrangement for federal and state income tax purposes, for ad
valorem tax purposes, for state sales and documentary tax
purposes, and for internal accounting purposes. In compliance
wi t.h FASB 13, however, Firestone reported the transaction as a
lease for financial reporting purposes. Therefore, the
transaction is found, to be in the nature of a mortgage or
financing arrangement.
F. Estoppel
29. During the field audit phase of this proceeding, a
Firestone· employee initially characterized. the payn1ents made by
Firestone to FIRELCO as rental pa}~ents and did not refer to the
document as 'a mortgage. As noted in an earlier portion of this
order, there vlere also several .documents shown to the auditor
C~) which contained the words "lease", "rental pa}~ents" and the
like. At that point, the DOR auditor was inclined. to treat the
"monthly rent" under the lease as constituting rent for sales tax
purposes and to make corresponding audit adjustments. Firestone
disagreed, however~ with the auditor's preliminary analysis and
argued that the pa~ents should. be characterized as a. "financing
arrangement" rather than a true lease. Firestone also furnished
the auditor with a copy of the opinion le~ter from its tax
counsel which concluded that the transaction was not a lease. In
determining whether to accept this assertion, the field auditor
contacted his supervisor, and togethe!:' they checl~'2cl. "ri t.h ths-
assistant bureau chief of multi-state audits. The field auditor
CJtestified at hearing that he knew this was a preced.ent setting
case, other taxpayers had taken the same position as Firestone,
17
and at that time he and his supervisor had already decided to( \
treat the transaction as taxable. That position was approved by
the assistant bureau chief. Thus, be fore the field audit was
concluded and preliminary action taken, DOR was aware of
Firestone's position on this issue. Therefore, DOR cannot claim
that during the audit it was misled as to Firestone's position or
that Firestone subsequently changed its position after the audit
was completed. Moreover, DOR suffered no detriment by virtue of
its reliance on Firestone's announced position.
CONCLUSIONS OF LAW
30. The Division of Administrative Hearings has
jurisdiction of the subject matter and the parties hereto
pursuant to Sections 120.57 and 120.575, Florida Statutes.
Statutes, the agency's "burden of proof ... shall be limited to a
~ ..•I I\ /,,~/
31. As provided for in Subsection 120.575(2), Florida
showing that an assessment has been made against the taxpayer
and the factual and legal grounds upon which the (agency) has
made the assessment". See also, Department.of Revenue v. Quotron
Systems, Inc., 615 So.2d 774, 776 (Fla. 3d.DCA 1993). Once that
showing is made, the burden shifts to the taxpayer to demonstrate
by a preponderance of· the evidence that the assessment is
incorrect.
32. In construing the taxing statutes, the undersigned is
obliged to honor the long-established principle that tax laws are
to be strongly construed in favor of the taxpayer and against the
government. See, e. g., Maas Brothers, Inc. v. Dickinson; 195
C-) So.2d 193, 198 (Fla. 1967). The statutory authority for the
18
That subsection reads in relevant part as follows:
r--\\, Ii
',------
assessment
Statutes.
is found in Subsection 212.031(1) (a), Florida
(1) (a) It is declared to be the legislativeintent that every person is exercising ataxable privilege who engages in the businessof renting, leasing, or letting any realproperty
On the theory that the transaction is a lease within the meaning
of the foregoing statute, and no taxes have been paid, DOR
proposes to tax Firestone, as the tenant, since by law a tenant
is liable for any sales tax not paid by its landlord.
33. The central is sue in this proceeding is whether the
sale/leaseback agreement €xecuted by the parties is a lease or a
financing agreement. In resolving this issue, it is helpful to
refer not only to relevant tax decisions, but also to real estate
cases arising under Subsection 697.01(1), Florida Statutes, which
have determined whether instruments not denominated as a mortgage
are nonetheless treated as such. As to this latter body of law,
DOR contends it is irrelevant since the purpose of a taxing
statute is to raise revenues while section 697.01 ostens ibly
deals with due process rights in foreclosure and quiet title
'actions. . While not arising under chapter 212, these cases
nonetheless provide guidance in determining whether an instrument
is in the nature of a lease or a mortgage, and they utilize the
same type of reasoning as the federal courts have used in
confronting this same issue in federal tax disputes. Therefore,
the undersigned deems this body of substantive law to be
persuasive in resolving the ultimate - -'lssue.
34. Subsection 697.01(1) reads in pertinent part as
follows:
19
(1) All. . instruments in writing conveying or selling property J) either real orpersonal, for the purpose~6r with the intention of securing the payment of moneyshall be deemed and held mortgages.
In other words, the statute provides that even though a
transaction is not necessarily denominated as a "mortgage ", if it
was executed for the purpose of securing money , it shall be
treated as such. Cases arising under this statute discuss when a
"deed absolute", as was given in this case, will be deemed to be
a mortgage, and the facts and circumstances leading to such. a
result. In making a determination when a deed absolute should be .
considered in conjunction with other agreements, whether written
or oral, parole evidence is admissible and does not violate the
parole evidence rule because the deed absolute does not embody,
(~) and was not intended to embody, the whole agreement of the
parties. In J.I1arkell, et al. v. Hilbert, et al., 140 Fla. 842,
192 So. 392 (1939), the supreme court stated the general rule on
this subject as follows:
It appears that this court,' many years ago,held generally, independent of this
statute (s. 697.01), that parole evidence isadmissible in equity to show that a deed ofconveyance, absolute upon its face, wasintended as a mortgage, and where it is shownthat such a conveyance has been executed tosecure the payment of money, equity willtreat it as a mortgage. The court looks atsubstance rather than form, makes inquiry andhears evidence beyond the terms of theinstrument to the very heart of thetransaction so as to determine the intent ofthe parties and all admissible evidencebearing upon this equitable principle isreceived and considered by the court, whether\tIrr i tten or oral, as it is the intention ofequity to promote justice and to preventfraud and imposition.
20
Id. at 398.
Under the foregoing rule, all of the documents (including the
collateral documents) which have been introduced in this case,
and the relevant testimony of the witnesses, must be considered
in determining how the transaction is to be treated. In doing
so, and contrary to respondent's assertion, there is no violation
of the parole evidence rule~
35. In determining the facts an,d circumstances v,rhich will
govern whether the transaction is to be deemed a mortgage, the
primary rule of construction is the intention of the parties.
This intent is established not only from the face of the
instruments, but also from the situation of the parties and the
nature and object of the transaction.
o So.2d 759 (Fla. 1st DCA 1977).
examine substance rather than form.
Boyette v. Carden, 347
In plainer terms, one must
The rule in Florida is that
Cj
an instrument must be considered a mortgage, regardless of its
form, if, when taken alone or in connection with surrounding
facts, it appears to have been given for the purpose of securing
..money. First Mortgage Corp. of Stuart v. deGive, 177 So.2d 741
(Fla. 2nd DCA 1965) . See also, Watkins et ux. v. Burnstein, 152
Fla. 828, 14 So.2d 569 (1943) (deed. -and. lease V>ri th option to
purchase considered a single transaction constituting a
mortgage); Thomas v. Thomas, 96 So.2d 771 (Fla. 1957) (absence of
a promissory note evidenc ing debt did. not prohibit transaction
from being classified as a. mortgage); Sommer v. Pennisi, 48 Fla.
Supp. 2d 197 (15th Cir. Ct. 1990)(a. recitation in a. d.eed that it
represents an absolute conveyance and not a mortgage is not
21
-------
o
determinative of the issue); Hialeah, Inc. v. Dade County, 490
So.2d 998 (Fla. 3rd DCA 1986) (where burdens and obligations of
ownership rest with the lessee, a sale/leaseback will be
considered a mortgage).
36. Based upon the established facts that the
sale/leaseback was executed solely for the purpose of securing
money to finance Firestone's acquisitions, the parties intended
the transaction to be a financing arrangement for taxing
purposes, and the burdens and obligations of o\oJnership rested
with the lessee, it is concluded that the sale/leaseback here was
used to effect a mortgage substitute through a·deed absolute with
collateral documents. In other words, when stripped of all, legal
titles and denominations, the transaction must be deemed to be a
mortgage.
37. The same result is reached when applying principles
from relevant federal tax decisions. DOR asserts, however, that
federal case law is irrelevant since chapter 212 (unlike chapter
230) does not "piggyback" federal income tax law. That is to
say, since there is no federal sales tax, federal tax decisions
would be of no assistance in resolving a state sales tax dispute.
But no matter what type of tax is involved, be it state or
federal, the same basic principles should apply in determining
whether a sale/leaseback transaction is a true lease or a
financing arrangement. Since the federal courts have been faced
with the identical issue presented here, and those decisions
oconstitute the only judicial precedent on this
undersigned deems the federal cases to be helpful
this dispute.
22
issue, the
in resolving
\
38. In the case of Frank Lyon Company v. United States, 435
U. $. 561, 98 S. Ct. 1291, 55 L.Ed.2d 550 (1978), the court was
required to determine whether a sale/leaseback transaction was a
lease or a financing arrangement for tax purposes. Among other
things, the court recognized the general rule that a transaction
may be treated one way for financial accounting pu.rposes and
another way for tax purposes. More specifically, the court held:
we are mindful that thecharacterization of a transaction forfinancial accounting purposes, on the onehand, and for tax purposes, on the other neednot necessarily ,be the same. [citationsomitted] Accounting methods or descriptions,without more, do not lend substance to thatwhich has 'no substance.
435 U. S. at 577.
In that case, and unlike the factual scenario presented here, the
o court found the lessor retained significant and genuine
attributes of the traditional lessor status, and thus the form of
the transaction governed for tax purposes. The cases of Hilton
v. Commissioner of Internal Revenue, 74 T.C. 305 (1980), aff'd
per curiam, 671 F.2d 316 (9th Cir. 1982), cert. denied, 459 U.S.
907 (1982), and Sun Oil Company v. Commissioner of Internal
Revenue, 562 F.2d 258 (3rd Cir. 1977), cert. denied, 436 U.S. 944
(1978), are of particular assistance since they provide an
analysis of factors to be considered in determining whether a
transaction is a true sale/leaseback or a financing transaction.
In both cases, the courts used an analysis similar to that used
by the Florida courts in determining whether the underlying
transaction, in substance, is really in the nature of a mortgage.
The courts also focused on the business substance of the buyer-
23
lessor to determine if it is a single purpose financing
corporation whose sole purpose is to act as a conduit through
which the funds flow to the seller-lessee.
comes closest factually to the case at bar.
The Sun Oil case
In that case, the
taxpayer entered into a sale/leaseback agreement with an
unrelated exempt trust wherein it conveyed 320 parcels of
unimproved service station sites at cost to the trust and
simultaneously leased them back. Unlike DOR's position here, the
government there contended the transaction was a financing
transaction and not a true sale and thus the taxpayer could not
deduct rental payments as a business expense.
transaction, the court noted that:
In analyzing this.
We deem much more significant therelationships of the partie~ after thetransfer of the properties as a result of theburdens, benefits, and risks imposed on eachof them by the terms and conditions of theirlease agreements. In determining whether thesale/leaseback transactions in the instantcase created the traditionally bargained forbusiness relationships between the owner andlessee or whether Sunray in fact retained anequity in the real estate despite theconveyances, we look to the economicrealities of the leases and not to the labelsapplied by the parties.
Id. at 263.
Although the court found some provisions in the lease which when
viewed independently would not brand the transaction as a
financing arrangement, it found a number of other important
features which had the cumulative effect of depriving the lessor
of any significant ownership interest. Finding that the lessee
"bore the burd~ns, risks, and. responsibilities for the
properties, (t)he lessee also controlled important benefits
24
traditionally reserved to the owner of the property, the
rents (had) no visible connection with the economic value of the
property but (were) evidently related to a fixed interest return
on the advances, (and) the options to acquire the property
at the end of the primary term at the value to the lessor (was) a
form of equity", the court found the sale/leaseback to be in
substance a financing arrangment for tax purposes. Id. at 269.
39. Under the factual analyses of the federal decisions,
this transaction would be deemed to be one in which FIRELCO was a
single purpose financing corporation totally lacking in economic
substance, that no sale actually occurred and FIRELCO held naked
legal title for the sole purpose of providing security, that
there was no economic substance to the lease beyond insuring
o amortization of the debt, and that the practicalities of the
situation and specific provisions of the lease insure that
Firestone is the actual owner of the property. Therefore, it
CJ
must be concluded that the transaction is a financing arrangement
and not a lease. The assessment should accordingly be withdrawn.
40. Finally, citing Greenhut Construction Co. v. Knott, 247
So.2d 517 (Fla. 1st DCA 1971) and its progeny, DOR has raised the
issue of estoppel and argues that Firestone is equitably estopped
from denying that the document in question is a lease. For
estoppel to apply in this cas.e, the following facts must be
present:
(a) Firestone must have made a representationto DOR ~hat the transaction was a lease;
(b) DOR relied on that representation; and
(c) Firestone later made a change in positionas to the nature of the transaction which was
25
I/~)
.,"-----_/
detrimental to DaR, caused by the representation and reliance thereon .
The evidence shows that during the course of the field audit, and
before any preliminary action was taken, DaR was fully aware of
Firestone's position as to the nature of the transaction. Since
no change in position occurred after the audit was completed and
the assessment made, and DaR suffered no detriment, the claim of
estoppel will not lie.
41. In conjunction with the estoppel argument, DaR has also
relied heavily on the case of Zero Food Storage v. Department of
Revenue, 330 So.2d 765 (Fla. 1st DCA 1976) for the proposit.ion
that DaR is entitled to rely on a taxpayer I s books and records
presented during audit. In Zero, the taxpayer 's"corporate
books" carried an entry reflecting rental payments to its parentr-'\\ !'--/ corporation. The taxpayer contended, however, that no tenancy
relationship existed between it and the parent corporation and
that the payments were actually cash contributions rather than
rent. Even so, the trial court found the monthly payment made by
Zero to its parent was rent. While the appellate court affirmed
the trial court's decision, there is no language in the opinion
which cites the proposition urged by DaR. Even if such a blanket
rule could arguably be inferred from that opinion, the facts in
this case are distinguishable from Zero for at least two reasons.
First, the more credible and persuasive evidence shows that
Firestone did not treat the transaction as a lease for tax or
internal accounting purposes but instead treated it as a
financing arragnement. Second, ".c.lL is a well-established
principle that a taxpayer can treat
26
a transaction one way for
financial reporting purposes and another way for tax purposes.
This is especially true where as here a sale/leaseback is
involved. Therefore, Zero does not prohibit Firestone from
taking the position, as it rightfully has, that the transaction
is a mortgage substitute for tax purposes.
RECOMMENDATION
Based on the foregoing findings of fact and conclusions of
law, it is
RECOMMENDED that respondent enter a final order rescinding
in1993,thisENTEREDANDDONE
or withdrawing the assessment against petitioner.
1('; t-irI day 0 f_u August,
Tallahassee, Florida.
DONALD R. ALEXANDERHearing OfficerDivision of Administrative HearingsThe DeSoto Building1230 Apalachee parkwa.yTallahassee, FL 32399-1550(904) 488-9675
Filed with the Clerk of theDivision of Administrative Hearingsthis /I~ day of August, 1993.
(
.'"
27
APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-2483
Petitioner:
l. Partially accepted in finding of fact 3.2 . Covered in preliminary statement.3 . Partially accepted in finding of fact 3.4. Partially accepted in finding of fact 1-5-6. Partially accepted in finding of fact 29.7. Partially accepted in finding of fact 3 .8-9. Partially accepted in finding of fact 4.10. Partially accepted in finding of fact 5.11-14. Partially accepted in finding of fact 6 .15. Partially accepted in finding of fact 7.16. Partially accepted in finding of fact 8 .17. Rejected as being unnecessary.18-20. Partially accepted in finding of fact 10.21-28. Partially accepted in findings of fact 16-22.29. Partially accepted in finding of fact 9 .30. Covered in preliminary statement and finding of fact 26.31-40. Partially accepted in findings of fact 23-28.41- Rejected as- being unnecessary.42. Partially accepted in finding of fact 25.43. Partially accepted in finding of fact 0-' .44. Partially accepted in finding of fact 28.r-, 45-47. Partially accepted in finding of fact 25.
'..~, 48. Partially accepted in finding of fact 13.
Respondent:
1. Partially accepted in finding of fact 3.2. partially accepted in findings of fact 3 and 8.3. ~artially accepted in finding of fact 3.4. partially accepted in findings of fact 6 and 7.5-9. Partially accepted in finding of fact 12.10-11. partially accepted in finding of fact 29.12. Partially accepted in finding of fact 13.13. Partially accepted in finding of fact 14.14. Partially accepted in finding of fact 12.15. Partially accepted in finding of fact 3.16-22. Partially accepted in finding of fact 13.23. Partially accepted in finding of fact 6.24-25. Rejected as being unnecessary.26. Partially accepted in finding of fact 14.27. partially accepted in findings of fact 14 and 22.28. Partially accepted in finding of feet 24.29-31. Rejected as being contrary to the more credible andpersuasive evidence.32. Rejected as being unnecessary.33. Rejected as being irrelevant.34. Rejected as being a conclusion of law.35. Rej ected as being contrary to the more credible andpersuasive evidence.
28
36-37. Rejected as being unnecessary.38-41. Rejected. See finding of fact 26.42. Rejected as being unnecessary.43. Re j ected as being contrary to the more credible andpersuasive evidence.44-49. Rejected. See finding of fact 26.50. Partially accepted in finding of fact 27.51-53. Rejected as being unnecessary.
Note _ Where a proposed finding has been partially accepted, theremainder has been rej ected as being unnecessary, irrelevant,cumulative, subordinate, contrary to the evidence, or aconclusion of law.
(',I, /~
29
!). COPIES FURNISHED:'~-"
Mr. Larry FuchsExecutive DirectorDepartment of Revenue104 Carlton BuildingTallahassee, FL 32399-0100
Linda Lettera, EsquireGeneral CounselDepartment of Revenue204 Carlton BuildingTallahassee, fL 32399-0100
Benjamin K. Phipps, EsquireP. O. Box 1351Tallahassee, 'FL 32302
Leonard F. Binder, EsquireJarrell L. Murchison, EsquireDepartment of Legal AffairsThe Capitol-Tax SectionTallahassee, FL 32399-1050
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit to the agency writtenexceptions to this Recommended Order. All agencies allow eachparty at least ten days in which to submit written exceptions.Some agencies allow a larger period within which to submitwritten exceptions. You should contact the agency that willissue the Final Order in this case concerning agencv rules on thedeadline for filing exceptions to this Reconunended Order. Anyexceptions to this Reconunended Order should be filed with theagency that will issue the Final Order in this case.
30
I,
STATE OF FLORIDADEPARTMENT OF REVENUE
.'~ ; .
I ; ~
. :;~:: :\.~;~;]1993 ..,.
BRIDGESTONE/FIRESTONE, INC.,
Petitioner,
OFr:;ilil:. ~r\- Gf;:h.:h::\~. Ct..:~..~i\~:;~;:~ ..DE.i::l'JiTl'~!;Er{i Ut~ ~iSVr:t~U.;;
vs.
DEPARTMENT OF REVENUE,
Respondent.
DOAH CASE NO. 92-2483
RESPONDENT'S EXCEPTIONS TO RECOMMENDED ORDERAND SUPPORTING MEMORANDUM OF LAW
Respondent, the Florida Department of'Revenue ("DOR"),
through its undersigned attorneys, submits the attached Proposed
Substituted Order and takes the following exceptions to the
Recommended Order, for the reasons set forth below:
EXCEPTIONS TO STATEMENT OF THE ISSUE
DOR intends to adopt the Hearing Officer's ultimate
recommendation that the sales and use tax assessments against
Petitioner be withdrawn. DOR also intends to adopt most of the
legal analysis contained in the recommended order. Nevertheless,
DOR takes exception to the phrasing of the issue in the
Recommended Order.
Specifically, DOR maintains that the term "mortgage," which
is defined by § 697.01, Florida Statutes, is more precise than
the term "financing agreement," which is not so defined.
Therefore, DOR has framed the issue in terms of whether the
document in question was a "mortgage" rather than a "financing
agreement. "
The Reconunended Order used the various terms "mortgage,"
"financing agreement," and "financing arrangement"
interchangably, ultimately finding that the document in question
was "in the nature of a mortgage or financing arrangement." See,
Recommended Order, Finding of Fact #28, last sentence. DOR's
statement of the legal issue is more precise but is nevertheless
consistent with the findings of fact in the reconunended order.
The Proposed Substituted Order, attached hereto, also
clarifies that any withdrawal of the assessments at issue will be
premised on the Hearing Officer's Findings of Fact in the instant
case. The Hearing Officer found, as a question of fact, that the
document at issue was a mortgage or financing arrangment. The
Hearing Officer made no conclusion of law that all sale/leaseback
.~ arrangements are to be treated as financing arrangements. DOR's
future treatment of sale/leaseback arrangements is dependent upon
the facts of the particular situation. The Proposed Substituted
Order futher clarifies this.
DOR'S EXCEPTION TO FINDING OF FACT #13
With one minor exception, DOR intends to adopt the Hearing
Officer's Findings of Fact. A minor exception is taken to
paragraph 13· of the ReCOITmlended Order to correct what appears to
be a typographical or clerical error. Specifically, paragraph 13
of the Reconunended Order erroneously states that DOR had issued a
documentary stamp tax assessment against Firestone and had
subsequently entered into a closing agreement with Firestone.
The competent substantial eviden~e included a copy of a
(~) notice of decision to which the Hearing Officer referred. That
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Notice of Decision clearly stated that DOR's assessment of
documentary stamp tax issued against FIRELCO, not Firestone.
Similarly, the closing agreement was entered with FIRELCO, not\
Firestone. No other exception to paragraph 13 is taken.
Although the Proposed Recommended Order makes minor
modifications to paragraph 29, these modifications are not
substantive. DOR's changes consist solely of clarifications that
it no longer asserts an estoppel defense.
DOR'S EXCEPTIONS TO CONCLUSIONS OF LAW
Exceptions to Paragraph 33.· For the reasons set f6rth
above, DOR.takes exception to the interchangeable use of the
phrases "mortgage" and "financing agreement." DOR's Proposed
Substituted Order uses the term mortgage, whlch is statutorilyroO,~/,J defined, rather than "financing agreement," which is not so
defined. DOR also takes exception to the phrase "sale/leaseback
agreement" since no document was entered into evidence bearing
this title. DOR uses the term "lease" to refer to that document
which was determined to constitute a mortgage.
The only other exception to paragraph 33 concerns the
underlying basis or rationale for accepting the Hearing Officer's
recommendation. DOR accepts the proposition that § 697.01,
Florida Statutes, provided proper guidance in this case.
However, DOR takes exception to the Hearing Officer's
recommendation that DOR look to federal income tax case law for
guidance. The Proposed Substituted Order 'contains reference to
(j§ 697.01, Florida Statutes, but deletes all reference to federal
income tax cases.
- 3 -
Exceptions to paragraphs 37, 38 & 39:
DOR takes exception to these recommended Conclusions of Law
which suggest that DOR should look to federal income tax case law
in administering the tax contained in Chapter 212, Florida
Statutes. The Proposed Substituted Order, atached hereto,
deletes these paragraphs in their entirety. A new paragraph 37
was included in the proposed Substituted Order explaining why DOR
took exception to the recommendation that federal income tax law
should provide guidance.
Exception to paragraph 41:
DOR takes exception to the Hearing Officer's Conclusion of
Law concerning Zero Foods Storage v. Department of Revenue, 330
So. 2d 765 (Fla. 1st DCA.1976). Although DOR intends to accept/~\
'''--.// the Hearing Officer's recommendation that Zero is
distinguishable, DOR disagrees that it may never rely upon a
taxpayer's books and records presented during an audit.
Therefore, the Proposed Substituted Order, attached hereto,
deletes this paragraph entirely.
SUPPORTING MEMORANDUM OF LAW
The standards for agency modification of a recommended order
depend upon whether the modification concerns a finding of fact
or a conclusion of law. Except for correction of scrivener's
errors, an agency is bound by the Hearing Officer's findings of
fact unless it can demonstrate that the findings were unsupported
by substantial competent evidence. See, § 120.68(10), Fla. Stat.
(1991); Manasota Osteopathic Gen. Hosp. v. DHRS, 523 So. 2d 710
(Fla. 1st DCA 1988); Clay County Sheriff's Office v. Loos, 570
So.2d 394 (Fla. 1st DCA 1990).
- 4 -
As to conclusions of law, however, the agency is free to
reject the Hearing Officer's recommendations. Dyer v. Department
of Ins. and Treasurer, 585 So. 2d 1009 (Fla. 1st DCA 1991); Munch
v. Dept. of Pro. Regulation, 592 So.2d 1136 (Fla. 1st DCA 1992.).
In fact, an agency is not even required to state with
particularity why it is modifying or rejecting a hearing
officer's conclusion of law. Munch, 592 So. 2d at 1142.
With the exception of correcting a scrivener's error to
reconcile the order with the only competent substantial evidence,
DOR has adopted the Hearing Officer's findings of fact in their
entirety. The conclusions of law were also accepted for the most
part.
However, DOR should reject the Hearing Officer's
(,,__) recommendations concerning the applicability of federal income
tax case law. DOR is entitled to administer Florida sales tax
without regard to the manner in which federal income tax laws are
administered by the IRS. Chapter 212, Florida Statutes does not
"piggyback" federal income tax law, as does Chapter 220, Florida
Statutes. For this reason, all reference to federal income tax
law is rejected in the Proposed Substituted Order.
DOR~s Proposed Substituted Order also rejects Recommended
Conclusion of Law, paragraph 41. This paragraph of the
Recommended Order could be misconstrued to suggest that DOR may
not rely on a taxpayer's books and records presented during an
audit. DOR rejects this proposition as erroneous and as
unnecessary to the ultimate recommendation of the Hearing
Officer.
- 5 -
)WHEREFORE, these exceptions and supporting memorandum of law
are submitted, together with the attached Proposed Substituted
Order.
Respectfully submitted,
ROBERT A. BUTTERWORTHATTORNEY GENERAL
/ff,nA~
J~ey M. DikmanFla. Bar #274224Jarrell L. MurchisonFla. Bar #0182894Assistant Attorneys GeneralDepartment of Legal AffairsThe Capitol-Tax SectionTallahassee, FL 32399-1050(904) 487-2142
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the
foregoing has been furnished by.regular U.S. Mail to Benjamin K.
Phipps, Esq., P.O. Box ,1351, Tallahassee, Florida 32302 thisJ
] l )1 '-I d f /J c·r· 1993ay .0 11"\( ''\. ,.
oJ
.~~.,/~~YM. Dikman ..................Ass~stant Attorney General
- 6 -
)
STATE OF FLORIDADIVISION OF ADMINISTRATIVE HElJ.RINGS
BRIDGESTONE/FIRESTONE, INC.,
Petitioner,
v.
DEPARTMENT OF REVE~~E,
Respondent.
-------------_/
CASE NO.: 92-2843
PETITIONER I S EXCEPTION TO RECOl11>l:ENDED ORDER
1'. The Petitioner, accepts and endorses all of the Findings
of Fact and Conclusions 'of Law contained in Hearing Officer
Alexander's Recommended Order \yith the exception of paragraph 13.
of his Findings of Fact. That Finding of Fact states:
13 . lJ. subseauent revieYl of Fires tone's records bvTallahassee DOR per~onnel revealed that while Firestone ha~been assessed documentary stamp taxes on the assignment ofrent portion of the transaction in 1987, and a notice ofdecision and closing agreement had been entered into by theparties after having reached an agreement as to how the totaltransaction would be apportioned to Florida, it had never paidintangible personal property tax or documentary stamp tax onthe lease itself. This constituted further evidence to DORthat the transaction was a lease and not a Llnancingarrangement since such taxes would be due on a mortgage.
Petitioner obj ections to this particular Finding of Fact are
twofold: First, this Finding implies that DOR, in examining whether
an assessment for the commercial rental tax should apply in this
case, specifically examined the Notice of Decision issued in 1989
(relating to the documentary stamp tax) and determined that the
Pe,t;.itioner had not paid either intangible taxes or documentary
stamp taxes on the lease, itself. Second, the Finding implies that
a documentary stamp tax can be imposed upon a lease, separately,
when a transaction (involving the lease) already has been taxed as
a mortgage or financing arrangement.
2. In making the determination to treat the financing
arrangement as if it were an ordinary commercial lease, DOR gave no
consideration to the fact that it had already characterized the
transaction as a "mortgage". In fact, the sales tax auditors were
not even aware that such a tax previously had been imposed. TR 40
et seq. While the record does not reflect how the earlier Notice
of D~cision was brought to ttie atteneion of the Department, counsel
for both sides are aware that the Taxpayer advised DOR counsel that·
it had already paid documentary stamp taxes on the transaction,
after this DOAH litigation was initiated.
3. The Department has argued that the documentary stamp tax
on mortgages can be imposed on more than one instrument as part of
the same financing or mortgage arrangement. TR l36 et seq. Here
they say this tax could (or should) have been imposed on the Lease
as well as on the Assignment of the Lease. This is untrue and is
equivalent to arguing that the mortgage tax is imposed on both the
recorded mortgage and the unrecorded note.
4. The mortgage tax is imposed on the recorded instrument
representing an obligation to pay money, and is measured by thE
amount of the obligation. In this case, the recorded instrument
was the Assignment and the obligation was the entire amount
financed for all the stores located in Florida. The transactior
was taxed because, even though there was no mortgage as such, thE
transaction was deemed to be a mortgage. Having taxed the entirE
transaction, the tax is not reimposed on the Lease, nor the Credi:
STATE OF FLORIDADEPARTMENT OF REVENUE
BRIDGESTONE/FIRESTONE, INC.,
Petitioner,
vs.
DEPARTMENT OF REVENUE,
Respondent.
DOAH CASE NO. 92-2483
()
DOR'S REPLY TO PETITIONER'S PROPOSED SUBSTITUTED ORDERAND SUPPORTING MEMORANDUM OF LAW
Respondent, the Florida Department of Revenue ("DOR"),
through its undersigned attorneys, replies to Petitioner's
Proposed Substituted Order as follows:
1. Petitioner essentially submitted its Proposed Substituted
Order on 8/20/93, by reciting a proposed change to finding of
fact #13, as set forth in Petitioner's Exception to Recommended
Order.
2. Petitioner's Exception should be rejected because it is
largely unsupported by the record. Also, the Hearing Officer's
express finding that Petitioner had failed to pay documentary
stamp tax on the lease was supported by competent substantial
evidence and should be accepted by DOR.
3. Petitioner's argument that payment of documentary stamp
tax on a different document is tantamount to payment of
documentary stamp tax on the lease is purely a legal argument,
not a statement of fact. Moreover, t0e legal issue of whether
payment of documentary stamp tax on a different document
/ l precludes an assessment of documentary stamp tax on the lease was~-~
not pending before the Hearing Officer and is not pending before
DOR.
4. If and when DOR chooses to issue an assessment of
documentary stamp tax on the lease, Petitioner can and should be
afforded a new point of entry at that time to challenge such an
assessment. However, unless and until such a documentary stamp
tax assessment issues, the issue of whether other-assessments on
other documents precludes an additional documentary stamp tax
assessment on the lease is not before DOR.
SUPPORTING MEMORANDUM OF LAW
The standards for agency modification of a recommended order
C)
o
depend upon whether the modification concerns a finding of fact
or a conclusion of law. Except for correction of scrivener's
errors, both parties are bound by the Hearing Officer's findings
of fact unless they can demonstrate that the findings were
unsupported by substantial competent evidence. See,
§120.68(10), Fla. Stat. (1991); Manasota Osteopathic Gen. Hosp.
v. DHRS, 523 So. 2d 710 (Fla. 1st DCA 1988); Clay County
Sheriff's Office v. Loos, 570 So.2d 394 (Fla. 1st DCA 1990).
With the exception of correcting a scrivener's error to
reconcile the order with the only competent substantial evidence,
DOR has adopted the Hearing Officer's findings of fact, including
paragraph #13, in their entirety. These findings of fact were
supported by competent substantial evidence. DOR should reject
Petitioner's exception because it seeks to argue, under the
pretext of disputing the clear facts, that it can not be assessed
- 2 -
'~\
() documentary stamp tax in the future. The Petitioner is not/
entitled to declaratory relief in this order as to whether the
Department can or cannot issue new and different assessments in
the future.
WHEREFORE, DOR submits this reply to Petitioner's Proposed
Supstituted Order.
Respectfully submitted,
ROBERT A. BUTTERWORTHATTORNEY GENERAL
Jeffrey M. DikmanFla. Bar #274224Jarrell L. MurchisonFla. Bar #0182894Assistant Attorneys GeneralDepartment of Legal AffairsThe Capitol-Tax SectionTallahassee, FL 32399-1050(904) 487-2142
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the
foregoing has been furnished by regular U.S. Mail to Benjamin K.
Phipps, Esq., P.O. Box 1351, Tallahassee, Florida 32302 this
day of ___________ , 1993.
Jeffrey M. DiY~an
Assistant Attorney General
-.3 -
or';::i0t; !~..J\' ,·.\~i .. .:..;.~··;,:,·\:". U·.~,: ..·I '\.'~::~"
D::Pl;J~.TM~I'~:·Ci~~ {::~:'V'Ci~~j.;::,
STATE OF FLORIDADEPARTMENT OF REVENUE
19S1j
.... ( ~:
'. ~ ~.
:~ ~"j
DEPARTMENT OF REVENUE,
.BRIDGESTONE/FIRESTONE, INC.,
DOAH CASE NO. 92-2483
Respondent.
Petitioner,
vs.
)))))))))
---------------)
DOR'S REPLY TO PETITIONER'S PROPOSED SUBSTITUTED ORDERAND SUPPORTING MEMORANDUM' OF LAW
Respondent, the Florida Department of Revenue (" DOR" ) ,
through its undersigned attorneys, replies to Petitioner's
Proposed Substituted Order as follows:(-")\~ 1. Petitioner essentially submitted its Proposed Substituted
Order on 8/20/93, by reciting a proposed change to finding of
fact #13, as set forth in Petitioner's Exception to Recommended
Order.
2. Petitioner's Exception should be rejected because .it is
largaly unsupported by the record. Also, the Hearing Officer's
express finding that Petitioner had failed to pay documentary
stamp tax on the lease was supported by competent substantial
evidence and should be accepted by DOR.
3. Petitioner's argument that payment of documentary stamp
tax on a different document is tantamount to payment of
documentary stamp tax on the lease is purely a legal argument,
r- not a statement o~ fact. Moreover, t~e legal issue of whether
payment of documentary stamp tax on a different document
precludes an assessment of documentary stamp tax on the lease was
not pending before the Hearing Officer and is not pending before
DOR.
4. If and when DOR chooses to iisue an assessment of
documentary stamp tax on the lease, Petitioner can and should be
afforded a new point of entry at that time to challenge such an
assessment. However, unless and until such a documentary stamp
tax assessment issues, the issue of whether other assessments on
other documents precludes an additional documentary stamp tax
assessment on the lease is not before DOR.
SUPPORTING MEMORANDUM OF LAW
The standards for agency modification of a recommended order
depend upon whether the modification concerns a finding of fact
() or a conclusion of law. Except for correction of scrivener's\--.----
errors, both parties are bound by the Hearing Officer's findings
of fact unless they can demonstrate that the findings were
unsupported by substantial competent evidence. See,
§120.68(10), Fla. Stat. (1991); Manasota Osteopathic Gen. Hasp.
v. DHRS, 523 So. 2d 710 (Fla. 1st DCA 1988); Clay County
Sheriff's Office v. Laos, 570 So.2d 394 (Fla. 1st DCA 1990).
With the exception of correcting a scrivener's error to
reconcile the order with the only competent substantial evidence,
DOR has adopted the Hearing Officer's findings of fact, including
paragraph #13, in their entirety. These findings of fact were
supported by competent substantial evidence. DOR should reject
Petitioner's exception because it seeks to argue, under the
pretext of disputing the clear facts, that it can not be assessed
- 2 -
documentary stamp tax in the future. The Petitioner is not
entitled to declaratory relief in this order as to whether the
Department can or cannot issue new and different assessments in
the future.
WHEREFORE, DOR submits this reply to Petitioner's Proposed
Substituted Order.
Respectfully submitted,
ROBERT A. BUTTERWORTHATTORNEY GENERAL
~/;:;~j~J~~~ M. DlkmanFla. Bar #274224Jarrell L. MurchisonFla. Bar #0182894Assistant Attorneys GeneralDepartment of Legal AffairsThe Capitol-Tax SectionTallahassee, FL 32399-1050(904) 487-2142
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the
foregoing has been furnished by regular U.S. Mail to Benjamin K.
Phipps, Esq., P.O. Box,1351, Tallahassee, Florida 32302 this
__~ J '1'1 day 0 f ---'-~"-v~'5+-'_'1_r'_+- , 1993.
M. Dikmantant Attorney General
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