Did Florida documentary stamp tax apply when a loan check and note-and-security agreement were separate and did not expressly incorporate each other?

Plain-English summary

The reviewed automobile-loan packages were not subject to Florida documentary stamp tax. The check and the note-and-security agreement performed different functions: after negotiation, the check showed the fixed amount, while the agreement contained the promise to repay.

The Department determined taxability from the face of each document and any document expressly incorporated into it. Because the check and agreement were separate and did not expressly incorporate each other, their terms could not be combined to create a taxable written obligation.

What this means for you

Merely using related documents in one loan package does not necessarily combine them for documentary stamp tax. The actual words matter. The ruling lists language that can expressly incorporate another document and contrasts it with phrases such as “subject to,” “pursuant to,” or “as set forth in,” which do not do so by themselves.

Common questions

Q: Did the negotiated check alone create a taxable promise to pay? No. It contained the fixed sum but not an unconditional promise to pay.

Q: Did the agreement alone qualify? No. It contained the promise to repay but not a sum certain, and it was not signed by the customer.

Q: Why could the Department not read the two documents together? Neither expressly incorporated the other.

Citations and references

• Fla. Stat. §§ 201.08(1) and 201.09(6) — written obligations and document-face analysis
• Fla. Admin. Code rr. 12B-4.002(1)(b), 12B-4.052(6)(b), and 12B-4.054(4) — incorporation and fixed obligations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02B4-006

Original ruling text

SUMMARY

QUESTION: Will the use of certain loan packages with a
customer in the state of Florida be subject to Florida
Documentary Stamp Tax?

ANSWER - Based on Facts Below: No. The specific loan
packages are not subject to the tax because the Check and
Note and Security Agreement are separate documents and do
not contain language of incorporation.

Jul 18, 2002

Re: Technical Assistance Advisement No. 02B4-006
Documentary Stamp Tax - Note and Security Agreement
Section 201.08 (1), F.S., and Rule 12B-4.052(6)(b), F.A.C.
XXX (Grantor/Taxpayer)
XXX (other parties, Documents)

Dear :

Your letter requesting a Technical Assistance Advisement
has been referred to this office for response. The specific
scenario for which advice has been requested is summarized
below.

Facts as Presented by Petitioner

The taxpayer is a limited liability company with its
principal place of business located outside the state of
Florida. The taxpayer makes loans for automobile purchases.
All the loan documents are received and processed by the
taxpayer outside the state. The loan and documents are also
prepared by the taxpayer outside the state.

The loan packages identified as Exhibit B, Exhibit D and
Exhibit E, which were presented for review, use the same
essential documents. The Check and Note and Security Agreement

("Agreement") are the two material documents that, taken
together, evidence the customer's obligation to repay the loan.

Upon approval of the loan application, the taxpayer mails
to the customer a Welcome or Approval Letter along with the
Check, Agreement and collateral documents. The Check is blank
and the customer is authorized to negotiate the Check in any
amount (up to a maximum sum) payable to the seller of the
vehicle. Once the Check is negotiated, it contains a fixed sum.
However, the Check does not contain an unconditional promise to
pay, nor does it expressly incorporate the Agreement. The
promise to repay all advances is contained in the Agreement,
which is contingent upon the negotiation of the Check. Although
the Agreement contains the promise to repay, it does not contain
the sum certain in money. Additionally, the Agreement is not
signed by the customer, nor does it expressly incorporate any
other loan document, including the Check. Upon negotiation of
the Check, it is given to the seller of the vehicle and
processed through the normal banking channels and presented to
the taxpayer for approval of payment. The taxpayer approves
payment, provided the loan documents are in order, and sends the
Welcome Package confirming the exact amount of the loan and
repayment terms. There are no documents in the Welcome Package
that are signed by the customer or expressly incorporate the
Check or Agreement.

Request for Advisement

You request a Technical Assistance Advisement with respect
to whether the use of any of the loan documents with a customer
in the state of Florida will be subject to Florida documentary
stamp tax.

Provisions of Law

Section 201.08(1), F.S., imposes documentary stamp tax on
promissory notes nonnegotiable notes and written obligations to
pay money that are made, executed or delivered in Florida. Rule
12B-4.054(4), F.A.C., provides that a written promise to pay
money that is not fixed and absolute at the time of execution is
not subject to tax. Section 201.09(6), F.S., and Rule 12B-

4.002(1)(b), F.A.C., support that the taxability of an
instrument must be determined by the face of the document.
Unless expressly incorporated, separate documents or proof of
extrinsic facts generally cannot affect the determination of the
document's taxability as a written obligation to pay money. Rule
12B-4.052(6)(b), F.A.C., also provides that the taxability of a
written obligation to pay money is determined by the form and
face of the instrument and sets forth the following examples
that will help determine the taxability of the document:

1. Whether a document is taxable is determined by
   reference to that document and any other document or
   documents expressly incorporated therein.
2. A document does not expressly incorporate another
   document by implication or by mere reference and
   description of the other document.
3. Express incorporation occurs when words in a document
   under examination provide that another document or
   documents are incorporated into the document under
   examination.
4. Following are examples of terminology whereby a
   document is expressly incorporated into the document
   under examination.
   a. [document] is incorporated herein
   b. [document] the terms of which are incorporated
   herein
   c. [document] is made a part hereof
   d. [document] is a part of [this document]
   e. the agreement consists of [this document] and
   [separate document] the same as if it were
   fully set forth herein
   f. [document] shall become a part of [document]
   g. [document and document] constitute a single
   document.
5. Following are examples of terms in a document under
   examination that do not expressly incorporate another
   document, unless the document under examination
   otherwise contains language that meets the criteria of
   subparagraphs (b)3. or (b)4. above.
   a. in the attachment hereto
   b. is subject to

c. is subject to the terms of
d. pursuant to
e. pursuant to the terms of
f. as set forth in
g. reference is made to
h. governed by

6. An integration clause or a default remedy clause, does
   not by itself expressly incorporate another document,
   unless the clause contains language that meet[s] the
   criteria of 12B-4.052(6)(b)3. or 4. above.

Position of the Department

The Note and Security Agreement presented with this request
for advisement contains a promise to pay. The Check, once
negotiated, contains the fixed sum. Under the loan packages
reviewed with this request, specifically identified as Exhibits
B, D and E, the Check and the Note and Security Agreement are
separate documents and do not contain language which expressly
incorporate the documents.

Since these are separate documents and do not contain
express incorporation, documentary stamp tax would not be due.

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,

Celestine Grantham
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

CG/mh