Were letter-of-credit and mortgage documents securing industrial revenue bonds taxable?

Subject

Letter of Credit Documents Issued in Conjunction with Tax Exempt Industrial Revenue Bonds

Plain-English summary

The letter-of-credit and mortgage documents were exempt from Florida documentary stamp and nonrecurring intangible taxes if they arose from or secured repayment of qualifying industrial-development revenue bonds. Section 159.50 covered instruments tied to a project financed under Part III of Chapter 159.

The condition applied to the reimbursement agreement, mortgage, assignment of rents and leases, security agreement, and other related documents reviewed. The Department repeatedly conditioned the exemption on the underlying Series 2000 bonds actually being issued under that statutory part.

What this means for you

The exemption depended on the legal connection between each security document and qualifying Chapter 159 bonds. Merely using bond-related labels would not establish the stated condition.

Common questions

Q: Was the letter-of-credit reimbursement agreement taxable? No, if the bonds were issued under Part III of Chapter 159.

Q: Was the related mortgage taxable? No, if it secured obligations arising from or repaying those qualifying bonds.

Q: Did the ruling give an unconditional exemption? No. The statutory bond-financing condition had to be met.

Citations and references

• Fla. Stat. § 159.50 — tax exemption for qualifying industrial-development bond instruments
• Fla. Stat. § 201.08(1) — documentary stamp tax on obligations
• Fla. Stat. § 199.133 — nonrecurring intangible tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00M-004

Original ruling text

SUMMARY

QUESTION: Is Florida's documentary stamp tax as imposed
under s. 201.08(1), F.S., and nonrecurring intangible tax

as imposed under s. 199.133, F.S., due on several documents
(the "Letter of Credit Documents"), arising out of or

issued in connection with bonds issued pursuant to Chapter

159, Part Ill F.S.?

ANSWER - Based on Facts Below: The Letter of Credit

Documents are not subject to Florida's documentary stamp or
nonrecurring intangible taxes so long as they arise out of

or are given to secure the repayment of bonds issued in
connection with a project financed under Part III, Chapter

159, F.S.

Dec 06, 2000

Re: Technical Assistance Advisement No. 0OM-004
Documentary Stamp and Nonrecurring Intangible Taxes -
Letter of Credit Documents Issued in Conjunction with Tax
Exempt Industrial Revenue Bonds
Section 159.50, F.S.

XXX (Taxpayer 1)
XXX (Taxpayer 2)
XXX (Trustee)
XXX (Commission)
XXX (City)

Dear:

This is in response to your letter dated September 19,
2000, requesting a Technical Assistance Advisement regarding
application of Florida's documentary stamp tax as imposed under
s. 201.08(1), F.S., and Florida's nonrecurring intangible
personal property tax as imposed under s. 199.133, F.S., upon
several documents (the "Letter of Credit Documents"), arising

out of or issued in connection with bonds issued pursuant to

Chapter 159, Part Ill, F.S. The Letter of Credit Documents
include a Letter of Credit Reimbursement Agreement, and a

Mortgage, Assignment of Rents, and Security Agreement.

Facts as Presented by Petitioner

The Commission has arranged to issue and sell certain
Industrial Development Revenue Bonds (the "Bonds"). The
proceeds from the sale of these tax-free Bonds will be lent by
Commission to assist Taxpayer 2 in acquiring, constructing, and
making improvements to its manufacturing facility. The Bonds
are being issued pursuant to Chapter 159, Part Ill, F.S. The
Commission was created to act as the sole industrial development
authority for the City as provided in Chapter 97-339, Laws of
Florida, Special Acts of 1997, and Chapter 24 of the Charter of
the City. Because the Commission is a political subdivision and
body corporate and politic of the City, it qualifies as a "local
agency” and "Authority" under the Act. The use of the Bond
proceeds is contemplated under the statute and fits within the
definition of approved "projects" under ss.159.27(5) and
159.44(2), F.S.

Taxpayer 1 has agreed to issue an irrevocable direct pay
Letter of Credit in an amount of up to $3,088,768 (the "Letter
of Credit") to secure payment of the principal and up to 108
days interest on the Bonds. The Letter of Credit will serve as
collateral to the bondholders to secure payment on the Bonds.
The Letter of Credit Documents are all being issued to secure
repayment of the Bonds. In connection with the issuance of the
Letter of Credit, Taxpayer 2 will execute the Letter of Credit

Documents.

Request for Advisement

You have requested an advisement confirming that none of
the Letter of Credit Documents are subject to the Florida

documentary stamp or nonrecurring intangible tax.

Law and Discussion

The statutes specifically provide that all instruments

arising out of or given to secure the repayment of bonds issued
in connection with any project financed under Part III of

Chapter 159, F.S., are exempt from state taxation.

Section 159.50, F.S., provides in pertinent part:

... The bonds issued under the provisions of ss. 159.44-
159.53, their transfer, and the income therefrom (including
any profit made on the sale thereof), and all notes,
mortgages, security agreements, letters of credit, or other
instruments which arise out of or are given to secure the
repayment of bonds issued in connection with any project
financed under this part, shall at all times be free from
taxation by the state or any local unit or political

subdivision or other instrumentality of the state....

Position of the Department

The documentation provided for review with your letter
includes the resolution that authorizes the issuance of revenue

bonds, under Part Ill of Chapter 159, F.S., by the Commission.

The Letter of Credit and Reimbursement Agreement by and
between Taxpayer 1 and Taxpayer 2 (the "Agreement"), also
included for review, provides that the arrangements under the
Agreement have been made pursuant to a trust indenture dated
September 1, 2000, between the Commission (the "Issuer") and
Trustee for the issuance and sale by the Issuer of its
Industrial Development Revenue Bonds Series 2000. The Agreement
does not specifically provide the section of the statutes the
Industrial Revenue Bonds Series 2000 were being issued under.
The Agreement is not subject to Florida's documentary stamp or
nonrecurring intangible taxes so long as the Industrial Revenue
Bonds Series 2000 referred to were issued pursuant to Part Ill,

Chapter 159, F.S.

The Mortgage, Assignment of Rents and Leases and Security
Agreement ("Mortgage"), also included for review, provides that
it was given to secure the Agreement and the borrower's bond
related obligations under a promissory note dated September 27,

2000, and the Loan Agreement dated September 1, 2000. The

Mortgage is not subject to Florida's documentary stamp and
nonrecurring intangible taxes so long as all documents secured
thereby arise out of or are given to repay bonds issued under

Part Ill, Chapter 159, F.S.

All other documents included as part of the Letter of
Credit Documents are not subject to Florida's documentary stamp
or nonrecurring intangible taxes so long as they arise out of or
are given to secure the repayment of bonds issued in connection

with a project financed under Part Ill, Chapter 159, F.S.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than

expressed in this response.

You are further advised that this response, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department

within 15 days of the date of this letter.

Sincerely,

Charles T. Phillips
Senior Tax Specialist
Technical Assistance and Dispute Resolution

Office of General Counsel

CTP/mh