Was a mortgage securing a guaranty connected with tax-exempt nonprofit health-facility bonds subject to documentary stamp tax?

Subject

Mortgage Securing Guaranty Issued in Conjunction With Tax Exempt Industrial Revenue Bonds

Plain-English summary

The proposed mortgage was exempt from Florida documentary stamp tax. It secured a guaranty supporting payment of bonds issued for nonprofit health-facility corporations, with repayment also backed by a bank letter of credit and related reimbursement obligations.

Although the mortgage did not directly secure the bonds, it arose out of and was given to secure their payment. The Department treated the broad exemptions for the bonds and related instruments under sections 154.2331 and 159.31 as covering the mortgage.

What this means for you

An instrument did not have to be the bondholder's direct collateral to qualify under this ruling. Its documented connection to repayment of the qualifying bonds was decisive.

Common questions

Q: Was documentary stamp tax due on the mortgage? No.

Q: Did the mortgage directly secure the bonds? No; it secured a guaranty connected to their payment.

Q: Why did the exemption still apply? The mortgage arose out of and was given to secure payment of the qualifying bonds.

Citations and references

• Fla. Stat. § 201.08(1) — documentary stamp tax on mortgages and written obligations
• Fla. Stat. § 154.2331 — Health Facilities Authority Law tax exemption
• Fla. Stat. § 159.31 — industrial-development bond and related-instrument tax exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01B4-003

Original ruling text

SUMMARY

QUESTION: Is documentary stamp tax as imposed under s.
201.08(1), F.S., due on a mortgage given to secure a
guaranty arising out of and given in connection with bonds
issued pursuant to Chapters 159, Part II, and 154, Part
III, F.S.?

ANSWER - BASED ON FACTS BELOW: Section 159.31, F.S.,
provides broad exemption from state taxation of certain
bonds and instruments related thereto. Section 154.2331,
F.S., by implication, also provides broad exemption to
mortgages or other instruments which arise out of or are
given to secure the repayment of bonds issued under the
Health Facilities Authority Law. The mortgage securing the
guaranty, though not directly securing the repayment of the
bonds, arises out of and is given to secure the payment of
the bonds and is therefore exempt from documentary stamp
tax as imposed under section 201.08(1), F.S.

Jan 25, 2001

Re: Technical Assistance Advisement No. 01B4-003
Documentary Stamp Tax - Mortgage Securing Guaranty Issued
in Conjunction With Tax Exempt Industrial Revenue Bonds
Sections 154.2331 and 159.31, F.S.
XXX (the "Guarantor I")
XXX (the "Authority")
XXX (the "Bonds")
XXX (the "Services")
XXX (the "Corporations")
XXX (the "Trustee")
XXX (the "Credit Bank")
XXX (the "Guarantor II")

Dear :

This is in response to your letter dated November 8, 2000,

requesting a Technical Assistance Advisement regarding
application of Florida's documentary stamp tax as imposed under
s. 201.08(1), F.S., upon a mortgage given to secure a guaranty
arising out of and given in connection with bonds issued
pursuant to Chapters 159, Part II, and 154, Part III, F.S.

Facts as Presented by Petitioner

The Authority, pursuant to the Florida constitution and the
laws of the State of Florida, has issued the Bonds in the amount
of $XX at the request of Services, a Florida not-for-profit
corporation that is exempt from federal income taxation pursuant
to IRC Section 501(c)(3), and the Corporations, each also a
Florida not-for-profit corporation that is exempt from federal
income taxation pursuant to IRC Section 501(c)(3). The Bonds
are issued and secured pursuant to a trust indenture, dated as
of XX, by and between the Authority and the Trustee.

The Bonds are payable from loan payments to be made by the
Corporations under a loan agreement dated as of XX (the "Loan
Agreement"), by and among the Corporations and the Authority.
The Corporations' payment obligations under the Loan Agreement
are evidenced by a promissory note dated as of XX, pursuant to
which the Corporations are to make payments to the Trustee, on
behalf of the Authority, in the amounts required under the Loan
Agreement.

As additional security for the Bonds, the Credit Bank
issued an irrevocable, direct-pay letter of credit (the "Letter
of Credit") in favor of the Trustee. The Letter of Credit,
which permits the Trustee to draw thereunder up to an amount
sufficient to pay the principal of the Bonds and interest on the
Bonds when due, was issued pursuant to the terms of a
reimbursement and credit agreement dated as of XX (the
"Reimbursement Agreement") by and among the Corporations and the
Credit Bank.

The payment of obligations of the Corporations to the
Credit Bank under the Reimbursement Agreement and the payment of
the principal of, redemption premium, if any, and interest on
the Bonds, are guaranteed by Guarantor I and Guarantor II,

pursuant to a guaranty agreement (the "Guaranty") dated as of
XX, among Guarantor I, Guarantor II, the Credit Bank and the
Trustee.

The Corporations have agreed to give Guarantor I a mortgage
(the "Mortgage") as collateral for the Guaranty. The Mortgage
would have a nominal face value of $XX with a provision for a
future advance of up to $XX.

Request for Advisement

You have requested an advisement specifying the amount of
documentary stamp tax, as imposed pursuant to s. 201.08(1),
F.S., that would be due on the proposed Mortgage.

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 II of Chapter
159, F.S., are exempt from state taxation. The statutes also
provide for an exemption from state taxation for all bonds
issued under the provisions of Part III of Chapter 154, F.S., so
long as the health facility for whose benefit the bonds were
issued is not organized for profit.

Section 154.2331, F.S., provides in pertinent part:

... Because the operation and maintenance of a project by a
health facility will constitute the performance of an
essential public function, neither the authority nor a
hospital institution shall be required to pay any taxes or
assessments upon or in respect of a project or any property
acquired by the authority under the provisions of this part
or upon the income therefrom, and any bonds issued under
the provisions of this part, their transfer, and the income
therefrom, including any profit made on the sale thereof,
shall at all times be free from taxation of every kind by
the state, the local agency, and municipalities and other
political subdivisions in the state, except that such
income shall be subject to the tax imposed pursuant to the

provisions of chapter 220. Nothing in this section shall
be construed as exempting from taxation or assessment the
leasehold interest of any health facility organized for
profit. If any project or any part thereof is occupied or
operated by any health facility organized for profit
pursuant to any contract or lease with the authority, the
property interest created by such contract or lease shall
be subject to taxation to the same extent as other
privately owned property....

Section 159.31, F.S., provides in pertinent part:

... The bonds issued under the provisions of this part,
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 a project
financed under this part, shall at all times be free from
taxation by the state any local unit, or political
subdivision, or other instrumentality of the state....

Position of the Department

Section 159.31, F.S., provides broad exemption from state
taxation of certain bonds and instruments related thereto.
Section 154.2331, F.S., by implication, also provides broad
exemption to mortgages or other instruments which arise out of
or are given to secure the repayment of bonds issued under the
Health Facilities Authority Law. The Mortgage securing the
Guaranty, though not directly securing the repayment of the
Bonds, arises out of and is given to secure the payment of the
Bonds and is therefore exempt from documentary stamp tax as
imposed under section 201.08(1), 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