Did future interest under an adjustable-rate note increase the amount subject to Florida documentary stamp tax at execution?

Subject

Adjustable Rate Note and Mortgage

Plain-English summary

The adjustable note's future interest did not increase the documentary stamp tax base at execution. The later interest was unaccrued, unearned, and contingent—not an absolute obligation or computable sum certain when the note and mortgage were signed.

The documents contained no future-advance or interest-capitalization clause and no provision deferring already accrued interest. The principal indebtedness shown on the recorded mortgage was therefore the taxable amount, and the Department found the tax on that amount had been properly paid.

What this means for you

An adjustable rate did not by itself make all possible future interest taxable up front. The Department looked for a fixed, existing obligation at execution.

Common questions

Q: Was unaccrued future interest included in the tax base? No.

Q: Why not? It was contingent and not a computable sum certain when the documents were executed.

Q: What amount was taxed? The principal indebtedness stated on the recorded mortgage.

Citations and references

• Fla. Stat. § 201.08(1) — documentary stamp tax on written obligations to pay money
• Fla. Admin. Code r. 12B-4.052(9) — interest and tax base
• Fla. Admin. Code r. 12B-4.052(11) — future advances
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01B4-007

Original ruling text

SUMMARY

QUESTION: What amount would be the base for documentary
stamp tax as imposed by s. 201.08(1), F.S., on an
adjustable rate note that provides for an increase in the

interest rate after the first year of the obligation.

ANSWER - Based on Facts Below: Yes. Documentary stamp tax

is due on the amount to be paid under a note or other
written obligation to pay money executed, signed or
delivered in Florida. Unaccrued and unearned interest
agreed to be paid at the time of the execution of an
adjustable rate note is not an absolute obligation and is

not to be included in the amount subject to the tax. To be
subject to tax the interest accrued must be a computable
sum certain when the document is executed. The interest
promised to be paid, a contingent obligation, was not to be
added to the original obligation as a sum certain and
therefore was not subject to documentary stamp tax. The
amount of documentary stamp tax owed was evidenced by the
amount on the first page of the recorded mortgage and was

properly paid.

Sep 11, 2001

Re: Technical Assistance Advisement No. 01B4-007
Documentary Stamp Tax - Adjustable Rate Note and Mortgage
Section 201.08(1), F.S., and rules 12B-4.052(9) and 12B-
4.052(11), F.A.C.

XXX ("Lender")
XXX ("Borrowers")

Dear:

This is in response to your letter dated July 14, 2001,
requesting a Technical Assistance Advisement regarding
application of Florida's documentary stamp tax as imposed under

s. 201.08, F.S., upon an adjustable rate note and mortgage.

Facts as Presented by Petitioner

Lender is a Florida corporation which owns a note anda
mortgage that are being foreclosed upon in the XXX County
Circuit Court. The principal indebtedness of the obligation is
$XX, and documentary stamp tax was paid on this amount upon
recordation of the mortgage. The interest rate during the first
year of the note was at X% ($XX per month interest payment).
Following the first year, the interest rate increased to X% for
the remainder of the life of the note. Neither the note nor
mortgage contain Future Advance or Interest Capitalization
clauses, and there is no provision for deferred interest to be

paid at a later date.

Request for Advisement

You have requested an advisement as to the amount of
Florida's documentary stamp tax due under the subject note and
mortgage. Copies of the note and mortgage were provided with

your letter for review.

Law and Discussion

Section 201.08(1), F.S., provides in pertinent part:

On promissory notes, nonnegotiable notes, written
obligations to pay money, or assignments of salaries,
wages, or other compensation made, executed, delivered,
sold, transferred, or assigned in the state, and for each
renewal of the same, the tax shall be 35 cents on each $100
or fraction thereof of the indebtedness or obligation
evidenced thereby.... Notwithstanding the aforestated
general rule, any increase in the amount of original
indebtedness caused by interest accruing under an
adjustable rate note or mortgage having an initial interest
rate adjustment interval of not less than 6 months shall be
taxable as a future advance only to the extent such
increase is a computable sum certain when the document is

executed....

Rule 12B-4.052(11), F.A.C., provides in pertinent part:

Tax is due at the time of recordation or execution on an
adjustable rate mortgage based upon the principal amount of
the note it secures, which may include accruing interest
added to the principal if the increased amount is a stated

or computable amount at the time of recordation or

execution....

Rule 12B-4.052(9), F.A.C., states:

Where borrower promises to pay both the amount financed and
interest during the term of the note, the borrower's only
absolute obligation or indebtedness at the time he signs

such note is for the amount financed and not for unearned

interest.

Florida's documentary stamp tax, as imposed under s.
201.08(1), F.S., applies to notes or other written obligations
to pay money that are made, executed, and/or delivered in this
state. To constitute a taxable obligation, the document must
contain an unconditional written obligation to pay a sum certain
in money. Unaccrued and unearned interest agreed to be paid at
the time of the execution is not a sum certain and is not an
absolute obligation and is not treated as part of the amount
upon which the tax is calculated. The portion of s. 201.08(1),
F.S., cited above, provides that tax would be due on the
increase of the original indebtedness caused by interest
accruing under an adjustable rate note or mortgage only if the
increase is a computable sum certain when the document is
executed. An increase in the original indebtedness typically
occurs in an adjustable rate note and mortgage when the borrower
does not pay all of the interest accrued and owed for a set
period and such nonpayment is known at the time of the execution
of the note. The shortfall in the amount of interest to be paid
is accrued but unpaid interest and is added to the original
indebtedness, essentially increasing the principal amount owed

under the note.

Position of the Department

A review of the note and mortgage in question concludes
that the interest to be paid was not an absolute obligation at
the time of execution. There is no language in either document
that provides for interest to accrue and not be paid until a
later date. The interest promised to be paid, a contingent
obligation, was not to be added to the original obligation as a
sum certain and therefore was not subject to documentary stamp
tax. The amount of documentary stamp tax owed on this
indebtedness was $XX and was, as evidenced by the notation on

the first page of the recorded mortgage, properly paid.

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
Tax Law Specialist
Technical Assistance and Dispute Resolution

Office of General Counsel

CTP/mh