Did a two-step timeshare receivables securitization trigger documentary stamp or nonrecurring intangible tax on note and mortgage transfers?

Subject

Sale of Notes Receivable and Mortgages

Plain-English summary

The two-step timeshare receivables transaction generally did not trigger documentary stamp or nonrecurring intangible tax. In the first step, the developer's sale of notes and mortgages to its special-purpose subsidiary was a true sale and an assignment of existing instruments, not a wholesale warehouse financing.

In the second step, the Receivables Purchase Agreement was treated for tax purposes as a new loan secured by the receivables. It qualified as a wholesale warehouse mortgage agreement because the receivables were collateral obligations on which documentary stamp tax had already been paid. Nonrecurring intangible tax did not apply because the new debt was secured by personal-property receivables rather than liens on Florida real property.

The reviewed transfer documents could be executed, possessed, delivered to a Florida custodian, and recorded without those taxes. Separate notes or written payment obligations between the companies were different; the ruling specifically excluded the $25 million demand note from the exemption.

What this means for you

The tax result depended on transaction-by-transaction characterization. A true sale of existing instruments and a secured wholesale warehouse financing used different exemption paths, while separate new payment notes kept their own exposure.

Common questions

Q: Was the first receivables sale taxable? No.

Q: Did the second agreement qualify as wholesale warehouse financing? Yes.

Q: Did Florida custody or recording trigger tax? No, for the reviewed transfer documents.

Q: Was every related note exempt? No. The $25 million demand note was excluded.

Citations and references

• Fla. Stat. § 201.08 — documentary stamp tax on obligations
• Fla. Stat. § 201.21 — wholesale warehouse mortgage agreement exemption
• Fla. Stat. §§ 199.133 and 199.145(2) — nonrecurring intangible tax and assignments
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

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

Original ruling text

SUMMARY

QUESTION 1: Are the sale of Receivables from one company to
another subject to documentary stamp tax and nonrecurring
intangible tax?

ANSWER: Based on Facts Below: No. The sale of Receivables
from one company to another are not subject to the
documentary stamp tax or nonrecurring intangible tax, since
such sales constitute assignments of notes and mortgages.
With the exception of any notes or written obligations to
pay money made between the companies, the reviewed
documents prepared in connection with the transfer of the
Receivables executed in Florida, the taking of physical
possession of such documents in Florida, and recording of
documents prepared in connection with the transfer of the
Receivables, would not subject such documents to the
documentary stamp tax or the nonrecurring intangible tax.

QUESTION 2: Is a Receivables Purchase Agreement which is
treated as securitization transaction for federal, state,
and local taxation, subject to the documentary stamp tax
and nonrecurring intangible tax? Alternatively, does such
agreement fall within the parameters of a wholesale
warehouse mortgage agreement, and thus exempt it from
documentary stamp tax under s. 201.21, F.S., and intangible
tax under s. 199.133, F.S.

ANSWER: Based on Facts Below: No. The Receivables Purchase
Agreement qualifies as a wholesale warehouse mortgage
agreement, and is exempt from documentary stamp tax. The
amount "paid" for the Receivables, to be repaid from a
yield from principal and interest collections on the
receivables, represents a new principal obligation; the
Receivables themselves meet the definition of "collateral
obligations" as defined in s. 201.21, F.S.; and Florida
documentary stamp tax has been previously paid on the
collateral obligations. Nonrecurring intangible tax is not
owed on the collateral obligations (receivables), as they
are not liens on real property, as contemplated by s.
199.133, F.S.

Any of the reviewed documents prepared in connection with
the transfer of the Receivables may be executed in Florida
without subjecting such documents to tax, with the
exception of the demand note made between two companies
involved in the transaction. The recording of any of such
documents would also be exempt from the documentary stamp
tax and nonrecurring intangible tax, as would the taking of
physical possession of the documents in Florida.

Jun 12, 2001

Re: Letter of Technical Assistance No. 01M-003
Documentary Stamp Tax and Intangible Tax
Sale of Notes Receivable and Mortgages
Sections 201.08, 201.21, and 199.133, F.S.
XXX (Company A)
XXX (Company B)
XXX (Company C)
XXX (Company X)
XXX (Conduit Purchaser)
XXX (Alternate Purchaser)

Dear :

This is in response to your recent request for a Technical
Assistance Advisement dated March 21, 2001, regarding
application of documentary stamp tax and intangible tax to the
purchase of timeshare note receivables and mortgages, generally
referred to as a receivables securitization.

FACTS PRESENTED BY PETITIONER

Company A is a Florida corporation which develops and sells
real property interests in timeshare condominium projects in the
state.

Company B is an out-of-state corporation and was
incorporated in XXX, as a bankruptcy-remote wholly owned

subsidiary of Company A.

Company C is an out-of-state corporation and is the sole
shareholder of Company A.

Company X, an unrelated party, is an out-of-state
corporation acting as agent for the Conduit Purchaser and
certain financial institutions, including the Alternate
Purchaser. The Conduit Purchaser is also an out-of-state
corporation. The Alternate Purchaser is a national banking
association.

To summarize the transaction, Company A receives a cash
advance using timeshare note receivables and mortgages as
security. Specifically, Company B will purchase mortgage
receivables from Company A, followed immediately thereafter with
Company B transferring the mortgage receivables to Company X for
cash. The form of the latter transaction reflects a purchase of
the receivables by Company X. This structure achieves the
important purpose of removing the receivables from Company A's
financial statements. On the other hand, the economics of the
transactions reflect a financing because Companies B and A
retain most of the interest rate and default risk (both upside
and downside) associated with the mortgage receivables.
Consistent with this view, the parties have agreed that Company
B and Company X will report the transactions as a financing for
income tax purposes

Transaction # 1 - Petitioner's Statement of Facts

Sale of Receivables by Company A to Company B

Purchasers of real property interests in Company A
timeshare projects often choose to finance their acquisition
with Company A. In those circumstances, purchase money notes are
issued by the purchasers in favor of Company A. The notes are
secured by purchase money mortgages that are recorded at the
time of sale in the county where the resort is located. All
applicable Florida documentary stamp and nonrecurring intangible
taxes are paid at the time the mortgages are recorded based on
the full principal amount of the notes.

On XX, a Sale and Contribution Agreement ("Sale Agreement")
was executed between Company A and Company B. Pursuant to the
terms of the Sale Agreement, Company A will sell to Company B,
on the initial purchase date of XX, and again from time to time,
all of its right, title and interest in and to the purchase
money notes and purchase money mortgages described above ("the
Receivables"). All actions required under the Uniform Commercial
Code as in effect in each applicable jurisdiction to perfect and
continue the perfection of the ownership interest of Company B
in and to the Receivables have been and will be duly made. The
Receivables will be sold to Company B by Company A without
recourse on account of credit problems of obligors under the
Receivables and without any warranty of collectibility or any
other warranty as to the ability of the obligors to make
payments on the Receivables. As set forth in Section 2.04 of
the Sale Agreement, Companies A and B intend that the transfer
of the Receivables constitute an irrevocable and absolute sale
thereof. The Sale Agreement expressly states that the intent of
the parties is that such transactions be true sales from Company
A to Company B, providing Company B will receive the full
benefits of ownership of such notes and mortgages. The Sale
Agreement also provides that Companies A and B do not intend for
these transactions to be characterized as loans from Company B
to Company A. In addition, the transactions will be
characterized as true sales by the parties from Company A to
Company B for federal and state income tax purposes.

In order to identify the receivables to be purchased by
Company B, Company A will prepare and deliver a purchaser
request to Company B at least ten business days prior to each
purchase. All purchase documents, including the mortgage
assignments, notes, receivables, contracts, related security and
proceeds are executed by Company B outside of Florida. Upon
completion of the purchase, Company A will deliver to Company B
or its custodian the documents relating to the purchased
receivables outside of Florida. None of the conveyance
documents will be recorded in the public records of the
applicable Florida county, including the Assignments of Mortgage
for purchase money mortgages, but Company B reserves the right
to record the Assignments of Mortgage pursuant to certain

events.

The purchase price for the Receivables, as provided in
Section 2.03(a) of the Sale Agreement, is the outstanding
balance of such receivables as of the applicable purchase date.
Upon such purchase, Company B then assumes the obligations of
enforcement, administration and collection, with the ability to
amend, modify, or waive the terms of any Receivable. It is
intended that 100% of the receivables purchased by Company B
will be sold immediately thereafter (or through) Company X in
the securitization transactions described in Transaction #2
below. This subsequent transaction is governed by the
Receivables Purchase Agreement ("the Receivables Agreement").
Company A is designated as the initial server under both the
Sale and Receivables Agreements.

The Sale Agreement provides that Company B can either pay
the purchase price in full at the time of the purchase or can
elect to pay all or part of the purchase price by borrowing from
Company A under a revolving loan. The Sale Agreement provides
that the revolving loan shall be repaid solely from funds that
Company B receives from Company X under the Receivables
Agreement. Company B's intent is to utilize the revolving loan
for 100% of the purchase price of the receivables.

In the future, unless resultant documentary stamp and
intangible taxes are imposed, the parties would prefer that all
documents be executed (and recorded, if necessary) in Florida
and for Company B to take physical possession of the Receivables
in Florida, instead of executing such documents outside of
Florida.

Transaction #1 - Requested Rulings

1. The sale of receivables by Company A to Company B is
   exempt from Florida documentary stamp taxes and nonrecurring intangible taxes.

2. Regardless of whether the transaction is considered a
   sale or a wholesale warehouse mortgage agreement, any
   document prepared in connection with the transfer of

the Receivables by Company A to Company B, including
but not limited to purchase requests and Assignments
of Mortgages, may be executed in Florida without
subjecting the transaction to Florida documentary
stamp taxes and non-recurring intangibles taxes.
Company B may take physical possession in Florida of
any document prepared in connection with the transfer
of the Receivables without subjecting the transaction
to Florida documentary stamp taxes and non-recurring
intangibles taxes. Additionally, the recording of any
document prepared in connection with the transfer of
the Receivables, including the Assignment of Mortgage
by Company A in favor of Company B, is exempt from
Florida documentary stamp taxes and non-recurring
intangibles taxes.

Discussion and Law

Section 201.08, F.S., imposes the documentary stamp tax at
the rate of $.35 per $100 or fraction thereof on promissory
notes and other written obligations to pay money, based on the
indebtedness evidenced thereby.

Rules 12B-4.053(27) and 12B-4.054(6), F.A.C., provide that
"[a]n assignment of a mortgage by a lender (mortgagee or owner
of the asset) to a new lender who has purchased the note and
mortgage and becomes the holder of the note and mortgage is not
taxable.... However, where the assignment of a mortgage is given
as collateral security for a new loan, the assignment is taxable
(mortgage) when recorded in this state."

Section 199.145(2), F.S., provides that no additional
nonrecurring intangible tax is due upon the assignment of a note
if the nonrecurring tax has been previously paid.

Upon review of the Sales Agreement, Section 2.04 specifies
it is the parties intent that the transfers of the Receivables
from Company A to Company B are to be treated as absolute or
irrevocable sales or contributions of capital, and not as loans
secured by such Receivables. In addition, the transactions will
be treated as true sales from Company A to Company B for federal

and state income tax purposes.

DETERMINATION - TRANSACTION #1

1. The sales of the Receivables from Company A to Company
   B are not subject to documentary stamp tax or
   nonrecurring intangible tax, since such sales
   constitute assignments of notes and mortgages. Since
   the sales are treated as "true sales" for federal
   income tax purposes, and the books and records of
   Company A and Company B reflect the treatment as
   sales, they would not be entitled to treatment as a
   "wholesale warehouse mortgage agreement."

2. With the exception of any notes or written obligations
   to pay money made between Company A and Company B,
   based on review of documents submitted with the
   request, such documents prepared in connection with
   the transfer of the Receivables by Company A to
   Company B may be executed in Florida without
   subjecting the transaction to Florida documentary
   stamp taxes and non-recurring intangibles taxes.
   Company B may take physical possession in Florida of
   any of the documents submitted for review prepared in
   connection with the transfer of the Receivables
   without subjecting the transaction to Florida
   documentary stamp taxes and non-recurring intangibles
   taxes. Additionally, the recording of any of the
   documents submitted for review which are prepared in
   connection with the transfer of the Receivables,
   including the Assignment of Mortgage by Company A in
   favor of Company B, is exempt from Florida documentary
   stamp taxes and non-recurring intangibles taxes.

Transaction # 2 - Petioner's Statement of Facts

Securitization Transactions (Transfer of Receivables from
Company B to Company X)

On XX, a Receivables Purchase Agreement was executed among
Company B, Company A, Company X, the Conduit Purchaser, and the

Alternate Purchasers. Pursuant to the agreement, Company B will
sell, assign, and convey 100% of its ownership interest in
"eligible receivables" (as defined in Annex A of the agreement)
and the related receivables assets to Company X or the Alternate
Purchasers. The purchase price for the receivables as provided
in Section 2.02(b) of the agreement is the amount requested by
Company B, equaling 100% of the outstanding balance of the
Receivables on the purchase date.

To identify the receivables to be purchased, Company B will
prepare and deliver to Company X a purchase request including
the purchase price and date, a list of each contract, mortgage
note and related receivable together with the outstanding
balance and payment schedule, and a certification that each is
an eligible receivable. Once the purchase request is delivered
to Company X, it is irrevocable by Company B.

When the purchase is completed, Company B will deliver all
of the original Receivables to Company X or its designee (as
custodian). No Assignments of Mortgage will be recorded by
Company B in favor of Company X or the Alternate Purchasers
until an event of termination occurs or when Company C's long
term unsecured unsubordinated debt rating falls below a
specified level.

Certain receivables included in the sale may be determined
to be "defective" (i.e., they are not an eligible receivable) or
may be in default. Pursuant to Section 2.12 of the agreement,
Company B may substitute a new receivable for a defective or
defaulted receivable. If no substitution is made, Company B is
required to repurchase any defaulted or defective receivable at
a price equal to the outstanding balance of the defective or
defaulted receivable plus accrued and unpaid interest.

Pursuant to Section 6.02 of the agreement, Company A will
act as the servicer of the receivables and receive a fee. As
servicer, Company A will perform accounting and recordkeeping
services, and service obligors in the areas of collection and
delinquencies, and information regarding where payments are to
be made, and report all applicable tax information, Company A
will also collect payments from obligors and deposit them in a

concentration account in the name of Company X.

Payments deposited in the concentration account will
include principal and interest collections on the Receivables.
Pursuant to Section 2.04 of the agreement, Company X will
distribute interest collections to the Conduit Purchasers to
provide them a specified yield (as defined in the Receivables
Agreement.) Additional amounts may be paid by Company X from
interest collections from various fees, and interest collections
will be paid to the Conduit Purchasers to the extent of any
unpaid balance due from Company B for repurchased receivables.
Any remaining interest collections are paid to Company B.

Principal collections are distributed by Company X to
Company B to the extent any purchase price for the purchased
receivables remains unpaid, with the remaining principal
collections distributed to the Conduit Purchasers to reduce the
outstanding balance of the purchased receivables.

All payments due to the Conduit Purchasers are guaranteed
by a $XX demand note made by Company C payable to Company B that
was pledged by Company B to Company X under a Pledge Agreement.

Section 2.10 of the agreement provides that Company B,
Company A, Company X, and the Conduit Purchasers agree to report
the securitization transactions for the purposes of all taxes in
a manner consistent with the "intended characterization."
Section 1.01 of the agreement defines "intended
characterization" as the intention of Company B, Company A,
Company X, and the Conduit Purchasers, with respect to all
state, federal, and local taxes, to treat each purchase and any
outstanding capital as indebtedness of Company B to the
Purchasers secured by the receivables assets.

The initial purchase by Company X on behalf of the Conduit
Purchasers occurred on XX. All documents relating to the
transaction, including but not limited to the Receivables Sale
Agreement and Assignment of Mortgages (not recorded) were
executed outside of Florida. Physical possession of the
Receivables was taken by Company X or its designee (as
custodian) outside of Florida. However, for all future sales,

all documents relating to purchases will be executed (and
recorded if needed) in Florida and a newly appointed custodian
(rather than Company X or its designee) will take physical
possession of the Receivables in Florida, unless such actions
result in the imposition of Florida documentary stamp taxes.
Additionally, all Receivables currently held by Company X or its
designee outside of Florida will be transferred to a newly
appointed custodian in Florida.

Transaction #2 - Requested Rulings

1. The sale of receivables by Company B to the Conduit
   Purchasers is exempt from Florida documentary stamp
   taxes and non-recurring intangible taxes under Rule
   12B-4.053(28) and 12B-4.054(6), F.A.C., which provide
   that the assignment of a mortgage to reflect a new
   owner who has purchased the mortgage is not taxable;
   or, alternatively, the Receivables Purchase Agreement
   qualifies as a wholesale warehouse mortgage agreement
   exempt from documentary stamp tax under s. 201.21,
   F.S.

2. The sale of receivables by Company B to the Conduit
   Purchasers is exempt from Florida nonrecurring
   intangible tax under s. 199.145(2), F.S., which
   provides that no additional nonrecurring tax is due
   upon the assignment of a note if the nonrecurring tax
   has been previously paid.

3. Regardless of whether the transaction is considered a
   sale or a wholesale warehouse mortgage agreement, any
   document prepared in connection with the transfer of
   the Receivables by Company B to the Conduit
   Purchasers, including but not limited to, purchase
   requests and Assignments of Mortgages, may be executed
   in Florida without subjecting the transaction to
   Florida documentary stamp taxes and non-recurring
   intangibles taxes.

4. Regardless of whether the transaction is considered a
   sale or a wholesale warehouse mortgage agreement,

Company X, its designee or other custodian, may take
physical possession in Florida of any document
prepared in connection with the transfer of the
Receivables without subjecting the transaction to
Florida documentary stamp taxes and non-recurring
intangibles taxes.

5. Regardless of whether the transaction is considered a
   sale or a wholesale warehouse mortgage agreement, the
   recording of any document prepared in connection with
   the transfer of the Receivables, including an
   Assignment of Mortgage by Company B in favor of
   Company X, is exempt from Florida documentary stamp
   taxes and nonrecurring intangibles taxes.

6. Regardless of whether the transaction is considered a
   sale or a wholesale warehouse mortgage agreement, the
   delivery of the Receivables currently held by Company
   X or its designees outside of Florida to a newly
   appointed custodian located in Florida is exempt from
   Florida documentary stamp taxes and non-recurring
   intangibles taxes.

Discussion and Law - Transaction #2

Section 201.21, F.S., states:

There shall be exempt from all excise taxes imposed by this
chapter all promissory notes, non-negotiable notes, and
other written obligations to pay money . . . hereinafter
referred to as "principal obligations," when the maker
thereof shall pledge or deposit with the payee or holder
thereof pursuant to any agreement commonly known as a
wholesale warehouse mortgage agreement, as collateral
security for the payment thereof, any collateral obligation
or obligations, as hereinafter defined, provided all excise
taxes imposed by this chapter upon or in respect to such
collateral obligation or obligations have been paid. If
the indebtedness evidenced by any such principal obligation
shall be in excess of the indebtedness evidenced by such
collateral obligation or obligations, the exemption

provided by this section shall not apply to the amount of
such excess indebtedness; and in such event, the excise
taxes imposed by this chapter shall apply and be paid only
in respect to such excess of indebtedness of such principal
obligation. The term "collateral obligation" as used in
this section means any note, bond, or other written
obligation to pay money secured by mortgage, deed of trust,
or other lien upon real or personal property. The pledging
of a specific collateral obligation to secure a specific
principal obligation, if required under the terms of the
agreement, shall not invalidate the exemption provided by
this section....

In Transaction #2, pursuant to the Receivables Purchase
Agreement, Company B will sell, assign, and convey all of its
ownership interest in the receivables to Company X or the
Alternate Purchasers. Company B will receive an amount equal to
100% of the outstanding balance of the Receivables on the
purchase date. Further, Section 1.01 of the agreement defines
"intended characterization" as the intention of Company B,
Company A, Company X, and the Conduit Purchasers, with respect
to all state, federal, and local taxes, to treat each purchase
and any outstanding capital as indebtedness of Company B to the
Purchasers secured by the receivables assets. This intended
characterization treats the described securitization
transactions as new loans made to Company B secured by the
receivables. Therefore, the Receivables Purchase Agreement
falls under the parameters of a wholesale warehouse mortgage
agreement.

DETERMINATION - TRANSACTION #2

The following determinations are based on the premise that
the Receivables Purchase Agreement falls under the definition of
a wholesale warehouse agreement, pursuant to s. 201.21, F.S.

1. The Receivables Purchase Agreement qualifies as a
   wholesale warehouse agreement exempt from Florida
   documentary stamp tax. The amount "paid" for the
   Receivables, to be repaid with a yield from principal
   and interest collections on the receivables,

represents a new principal obligation (i.e. a written
obligation to pay money from Company B); the
Receivables themselves meet the definition of
"collateral obligations" as defined in s. 201.21,
F.S.; and Florida documentary stamp tax has been
previously paid on the collateral obligations at the
time the purchase money mortgages were recorded by
Company A.

2. Since the transaction is considered a wholesale
   warehouse mortgage agreement, the nonrecurring
   intangible tax imposed under s. 199.133, F.S., would
   not apply. The indebtedness of Company B is secured
   by the receivables (collateral obligations) which
   constitute personal property, and not liens on Florida
   real property, as contemplated by s. 199.133, F.S.

3. Any of the documents provided for examination with the
   request which are prepared in connection with the
   transfer of the Receivables by Company B to the
   Conduit Purchasers may be executed in Florida without
   subjecting such documents to the Florida documentary
   stamp taxes and nonrecurring intangibles taxes.
   However, this does not include the $25,000,000 demand
   note made by Company C payable to Company B that was
   pledged by Company B to Company X under the Pledge
   Agreement.

4. Company X may take physical possession in Florida of
   any of the documents provided for examination with the
   request which are prepared in connection with the
   transfer of the Receivables without subjecting such
   documents to the Florida documentary stamp taxes and
   nonrecurring intangibles taxes.

5. The recording of any of the documents provided for
   examination with the request which are prepared in
   connection with the transfer of the Receivables are
   not subject to the documentary stamp tax and
   nonrecurring intangible tax.

6. The delivery of the Receivables currently held by
Company X or its designee outside of Florida to a
newly appointed custodian located in Florida is exempt
from documentary stamp taxes and nonrecurring
intangible tax.

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. 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 from that
which is expressed in this response.

You are further advised that this response, your request
and related backup 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,

Joy B. Eldred, C.P.A.
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office of the General Counsel

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