What Florida documentary stamp, intangible, and sales taxes applied when a mortgage was restructured as a synthetic lease?

Plain-English summary

Florida treated the synthetic lease as mortgage financing, producing different results for three taxes. The existing mortgage was cancelled, the owner deeded the property to a single-purpose entity holding bare title, and that entity leased the property back under documents covering the old principal plus additional improvement financing.

The deed to the title-holding entity was not subject to deed tax because it was part of the financing arrangement. The later deed returning the property after debt repayment was also not taxed because it reconveyed property previously transferred as security.

The synthetic lease itself was taxable under the documentary stamp rules on the acquisition cost—remaining mortgage principal plus additional improvement advances—and was subject to nonrecurring intangible tax because it created a lien on Florida real property. It was not an exempt renewal of the former mortgage.

The payments were not taxable commercial rent because the overall transaction functioned as a mortgage rather than a landlord-tenant lease. That conclusion depended on the lessee ultimately bearing maintenance, property-tax, and insurance costs. If the lessor bore any of those costs, the Department said the rental payments would be taxable.

What this means for you

Recasting mortgage debt as a synthetic lease did not avoid taxes on the secured obligation. It did, however, keep the financing deeds outside deed tax and the financing payments outside commercial-rent tax under the stated economic conditions.

Common questions

Q: Were the deeds subject to documentary stamp tax? No, because one transferred bare title as security and the other reconveyed it after repayment.

Q: Was the synthetic lease itself taxed? Yes, for documentary stamp tax on acquisition cost and nonrecurring intangible tax as a secured obligation.

Q: Were the periodic payments taxable as commercial rent? No, unless the lessor ultimately bore maintenance, ad valorem tax, or insurance costs.

Citations and references

• Fla. Stat. §§ 201.02 and 201.08 — deed and obligation documentary stamp tax
• Fla. Stat. §§ 199.133 and 199.185 — nonrecurring intangible tax
• Fla. Stat. § 212.031(1)(a), (c) — tax on commercial real-property rent
• Fla. Stat. §§ 697.01(1) and 697.04 — mortgage treatment and reconveyance
• Fla. Admin. Code rr. 12B-4.014(1), 12B-4.052(7), and 12B-4.053(2) — deeds and obligations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02M-005

Original ruling text

SUMMARY

DOCUMENTARY STAMP TAX

QUESTION: When a mortgage is cancelled and replaced by a
deed and lease facility (synthetic lease), are the deed or
lease facility subject to documentary stamp tax?

ANSWER - Based on Facts Below: The deed to the entity
holding bare legal title and the lease facility (synthetic
lease) together are considered a "mortgage." The deed to
the entity holding bare legal title during the term of the
synthetic lease is not subject to tax under s. 201.02, F.S.
The Lease facility is subject to tax on the principal
amount of the "mortgage" under s. 201.08, F.S. At the end
of the lease facility when the debt is repaid, the deed
from the entity holding bare legal title back to the former
owner is not subject to documentary stamp tax under s.
201.02, F.S.

INTANGIBLE TAX

QUESTION: When a mortgage is cancelled and replaced by a
deed and lease facility which together are construed to be
a "mortgage," is the lease facility (synthetic lease)
subject to intangible tax?

ANSWER - Based on Facts Below: The lease facility
(synthetic lease) is construed to be a "mortgage." It
creates a lien against the real property, and is subject to
the nonrecurring intangible tax under s. 199.133, F.S.

SALES AND USE TAX

QUESTION: Does the subject Lease Agreement between Taxpayer
and Lessor, when considered with all other relevant
documents to the same transaction, constitute a financing
arrangement, rather than a lease or rental of commercial
real property?

ANSWER - Based on Facts Below: Yes. Crucial factors

contained in the documentation of the transaction indicate
that the transaction is in the nature of a mortgage rather
than an operating lease and as such, payments made by
Taxpayer, pursuant to the Lease Agreement, will not be
subject to sales tax imposed pursuant to section 212.031,
F.S.

Jun 05, 2002

Re: Technical Assistance Advisement No. 02M-005
Documentary Stamp Tax, Intangible Tax, Sales and Use Tax;
Whether the Subject Real Property Transaction Creates a
Mortgage Refinancing/Lease Facility
Sections 199.133, 199.185, 201.02, 201.08, 212.031(1)(a),
(c), 697.01(1), and 697.04 F.S.
Rules 12B-4.014(1), 12B-4.052(7), and 12B-4.053(2), F.A.C.
XXX (hereinafter, First Corporation, Seller, Lessee)
XXX (hereinafter New Corporation, Purchaser, Lessor)
XXX (hereinafter Mortgagee Bank)

Dear :

This is in response to your initial request, dated XX,
received XX, closed until receipt of additional requested
information and documentation, and your latest request, dated
XX, for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced parties and
matter. Your letter has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of section 213.22, F.S.

You have asked for an opinion on whether converting the
debt represented by an existing mortgage to a synthetic lease
would entail documentary stamp tax, intangible tax, or sales and
use tax.

FACTS AS PRESENTED BY PETITIONER

Summary of Plan to Restructure Existing Documents:

Because certain religious laws prohibit the direct charging
of interest, the existing mortgage and certain other documents
are to be "restructured" as a synthetic lease to meet these
requirements.

First Corporation (Seller/Lessee) owns fee simple title to
real property located in Florida. The property is presently
encumbered by a first priority mortgage and financing agreement
in favor of Mortgagee Bank.

The plan is to create a new special or single purpose
corporation whose sole purpose is to hold bare legal title to
the real property during the existence of the new Lease Facility
(synthetic lease). New Corporation (Purchaser/Lessor) will
obtain an assignment of the existing mortgage from Mortgagee
Bank. First Corporation (Seller/Lessee) will deed the property
to New Corporation (Purchaser/Lessor). In exchange for the
deed, New Corporation will cancel the existing mortgage and the
attendant promissory notes.

At this point, to replace the debt which was represented by
the first priority mortgage, New Corporation (Purchaser/Lessor)
will lease the property back to First Corporation
(Seller/Lessee) under the conditions of the Lease Facility
(synthetic lease), whereby the lease payments will be made to
New Corporation. The lease instruments will refer to the
payments as principal only to comply with the religious
requirements as determined by certain religious legal scholars.
In addition to the present outstanding principal amount of the
mortgage, an additional amount will be loaned to First
Corporation (Seller/Lessee) to fund certain improvements on the
property and other fees and costs. No promissory note will be
separately prepared to represent the additional amount loaned.
The lease instrument will cover the repayment of all principal
and interest. When the conditions of the synthetic lease have
been met, at the end of the Lease Facility period, New
Corporation will reconvey the real property back to First

Corporation.

Description of the Lease Documents:

The Lease Facility will consist of the following
agreements:

1. Purchase and Sale Agreement;
2. Deed;
3. Registered Master Lease Financing Facility Agreement
   (the "Lease Agreement");
4. Supplemental Agreement;
5. Call Option Letter;
6. Put Option Letter; and
7. Tax Matters Agreement.

The Lease Agreement will cover a three-year period. The
lease will contain an option to buy and a requirement that First
Corporation (Seller/Lessee) must repurchase the property after
the three-year period (subject to a possible mutually agreed
extension by New Corporation and First Corporation for a period
of up to two years). The obligation for repayment of the
additional funded amount will be incorporated into the lease
documents. The proceeds from the Lease Facility will be used to
repay the former mortgage debt owed by First Corporation
(Seller/Lessee) to New Corporation (Purchaser/Lessor) and the
additional amount loaned to finance the improvements on the real
property plus the interest owed on the total debt.

During the term of the Lease Facility, the First
Corporation (Seller/Lessee) will be obligated to make quarterly
payments of a fixed amount. At the end of the term of the Lease
Facility, under Article 23 (Call Right and Put Right), provided
all Quarterly Payments and other amounts scheduled to be paid
under the lease have been made, First Corporation
(Seller/Lessee) will have the right and option to repurchase the
Property (in whole but not in part). In addition, New
Corporation (Purchaser/Lessor) will have the right and option to
require First Corporation to repurchase the Property in the
event of certain occurrences or at the end of the term of the
Lease Agreement on the Final Rent Payment Date for a Purchase

Price equal to the Acquisition Cost (See Schedule 1.01) plus an
additional amount determined based upon the number of months
from the commencement of the Lease Facility to the date of
purchase.

Both the quarterly payments and the additional amounts have
been determined based upon the rate of return (6.5% of the
Acquisition Cost on an annualized basis) on the purchase price
given by New Corporation (Purchaser/Lessor) to First Corporation
(Seller/Lessee). The additional amount to be paid represents an
additional 1.5% of the purchase price on an annualized basis.

According to the request, the rent should be considered the
principal amount of the financing plus interest on the
financing. The "interest rate" then, is 8%, consisting of the
6.5% paid as current interest (which takes the form of Quarterly
Payments in Schedule 3.01 of the Lease) and the 1.5% paid as
simple interest accruing during the course of the financing and
payable when the amount of the financing is repaid in full
(which takes the form of the scheduled increases in "Early
Termination Price" in Schedule 3.01). No "principal" is paid
until termination of the financing.

Under the Supplemental Agreement, First Corporation
(Seller/Lessee) assumes responsibility for arranging insurance
and maintenance, and for filing returns and remitting payment
for property taxes with respect to the Property as the "owner"
of the property. First Corporation is responsible for its
negligence if it does not obtain property insurance, etc. The
maintenance of the Property is also the responsibility of First
Corporation. The maintenance responsibilities that the Lease
removes from First Corporation are placed squarely back with
First Corporation (Seller/Lessee) under the terms of the
Supplemental Agreement.

Under the Put Option Letter, New Corporation
(Purchaser/Lessor) may require First Corporation (Seller/Lessee)
to purchase the Property if an event of default occurs under the
Lease Agreement or under certain other conditions.

Under the Call Option Letter, First Corporation

(Seller/Lessee) will have the option to purchase the Property
from New Corporation for an amount equal to the total purchase
price plus a variable amount depending upon the length of time
the Lease Facility lasts until the date of purchase.

The Tax Matters Agreement specifies that both First
Corporation (Seller/Lessee) and New Corporation
(Purchaser/Lessor) agree that for United States tax and
accounting purposes, the Lease Facility will be treated as a
loan, and that First Corporation (Seller/Lessee) will be treated
as the owner of the Property. First Corporation, New Corporation
(Purchaser/Lessor) and each Investor will report the U.S. tax
consequences of the Lease Facility consistent with the agreed
treatment.

REQUESTED RULINGS

Taxpayer has requested that we express our opinion as to
the taxability of a deed and a mortgage which is being
refinanced as a synthetic lease in an increased amount. The
transaction would require a deed to a new corporation as well as
a conformation of the mortgage in an increased amount to be
reissued as a lease with an option to buy.

In regard to your sales tax inquiry, you have requested an
advisement that the subject Lease Agreement between Lessee and
Lessor, when considered with all other relevant documents to the
same transaction, constitutes a financing arrangement, rather
than a lease or rental arrangement. Therefore, payments made in
accordance with the Lease Agreement would not be subject to
sales tax pursuant to section 212.031, F.S.

DISCUSSION AND LAW

Documentary Stamp Tax:

Section 697.01(1), F.S., provides:

All conveyances, obligations conditioned or defeasible,
bills of sale or other instruments of writing conveying or
selling property, either real or personal, for the purpose

or with the intention of securing the payment of money,
whether such instrument be from the debtor to the creditor
or from the debtor to some third person in trust for the
creditor, shall be deemed and held mortgages, and shall be
subject to the same rules of foreclosure and to the same
regulations, restraints and forms as are prescribed in
relation to mortgages.

Section 697.02, F.S., provides:

A mortgage shall be held to be a specific lien on the
property therein described, and not a conveyance of the
legal title or of the right of possession.

See also Rule 12B-4.052(7), F.A.C. The statutes and rule
demonstrate that even though an instrument may not be
denominated as a mortgage, it may nonetheless be treated as
such.

"An instrument must be considered a mortgage regardless of its
form, if, when taken alone or in connection with the surrounding
facts, it appears to have been given for the purpose of securing
the payment of money. First Mortgage Corp. of Stuart v. deGive,
177 So.2d 741, 746 (Fla. 2nd DCA 1965). See also, Watkins et
ux. v. Burnstein, 152 Fla. 828, 14 So.2d 569 (1943) (deed and
lease with option to purchase considered a single transaction
constituting a mortgage). Even though a document may be called
a lease or other document, to properly determine the true nature
of the transaction, the intention of the parties and the
substance of the agreement actually determine what type of
document it actually is. See Bridgestone/Firestone, Inc. v.
Department of Revenue, DOAH Case 92-2483, FALR 4874 (1993), 15
FALR 4874 (1993). Thomas v. Thomas, 96 So. 2d 771 (Fla. 1957)
(absence of a promissory note evidencing debt did not prohibit
transaction from being classified as a mortgage).

The proposed sale/leaseback transaction proposed in this
request is a financing arrangement (rather than a
Landlord/Tenant relationship), to substitute the Lease Facility
in place of the existing mortgage. First Corporation was and is
the "owner" of the property currently being paid for by means of

the Lease Facility. New Corporation is merely acting as a
financing vehicle, and not as a landlord. The existing
promissory notes and mortgage are to be assigned from Mortgagee
Bank (Lender) to New Corporation (Purchaser/Lessor) and then
canceled. If a new document is executed that replaces the
remaining obligation (which is not an exempt renewal of the
primary document), the new document, Lease Facility (synthetic
lease) is considered a mortgage subject to tax under
s.201.08(1), F.S.

The documents presented specify that the elements of
ownership (taxes, maintenance, etc.) remain during the lease
period with the prior owner (First Corporation) and are not the
ultimate responsibility of New Corporation (Purchaser/Lessor).
At the end of the lease period when the last required payment is
made to New Corporation, New Corporation will give a deed
conveying the title to the property back to First Corporation.

Here, both the deed and the Lease Facility (synthetic
lease) to New Corporation (Purchaser/Lessor) together are
considered a mortgage, because they are intended to secure the
payment of money. New Corporation will hold bare legal title
until First Corporation completes paying the total Acquisition
Price of the property. The two documents together (deed and
lease) constitute a new mortgage issued after the original
promissory notes and mortgage were cancelled. Therefore, the
synthetic lease (considered a mortgage) would not constitute a
"renewal" of the original mortgage which was cancelled.
Documentary stamp tax under s. 201.08(1), F.S., would be
calculated on the total amount of "principal" or the remaining
amount due under the original mortgage plus the additional
amount loaned under the lease for the intended improvements to
the real property.

As to the additional amount loaned under the lease, s.
697.04, F.S., states that where a mortgage or other instrument
is given for the purpose of creating a lien on real property, or
on any interest in a leasehold upon real property, may, when so
expressed therein shall, secure not only existing indebtedness,
but also such future advances, whether such advances are
obligatory or to be made at the option of the lender.

The amount comprising the "recharacterized interest" would
not be subject to tax. Interest which is not a sum certain does
not meet the requirements to be subject to the tax under s.
201.08, F.S.

The sale/leaseback was used to effect a mortgage substitute
through the means of a deed with collateral documents. There is
no documentary stamp tax due on the deed to New Corporation
under s. 201.02, F.S., since the deed and lease are considered
under s. 697.01, F.S., to be a mortgage. At the end of the lease
after repayment of the total debt (mortgage represented by the
deed and lease) due to New Corporation, the deed conveying the
property back from New Corporation to First Corporation (where
the original conveyance to New Corporation was to secure the
debt represented by the synthetic lease) is also not subject to
tax. Rule 12B-4.014(1), F.A.C.

Nonrecurring Intangible Tax:

The nonrecurring intangible tax under s. 199.133, F.S., is
imposed on each dollar of the just valuation of all notes,
bonds, and other obligations for payment of money which are
secured by mortgage, deed of trust, or other lien upon real
property situated in Florida.

The Lease Facility contains language (Article 23, Call
Right and Put Right) which assures New Corporation
(Purchaser/Lessor) that First Corporation (Seller/Lessee) will
repurchase the property during or at the end of the lease on the
Final Rent Payment Date, at which time a special warranty deed,
bill of sale, agreements and other legal instruments and
documents of conveyance reasonably agreed to by both parties
will convey the legal title to the real property back to First
Corporation. First Corporation agrees that the Property shall
be purchased "as is" and "where is" without warranty, express or
implied, by or on behalf of New Corporation.

Since the Lease Facility creates a lien on the real
property, under s. 199.133, F.S., nonrecurring intangible
personal property tax is due upon the obligation secured by the

real property. Under s. 199.135, F.S., the nonrecurring tax
imposed on notes, bonds, and other obligations for payment of
money secured by a mortgage, deed of trust, or other lien
evidenced by a written instrument presented for recordation is
due within 30 days following creation of the obligation. If it
is not so presented within 30 days following creation of the
obligation, then the tax shall be due and payable within 30 days
following creation of the obligation. If the instrument is not
recorded, the tax shall be paid to the Department of Revenue.
See Rule 12C-2.005(2), F.A.C.

Both parties have agreed in the Lease Facility (synthetic
lease) that First Corporation will make the required payments
and that First Corporation will receive a deed on the Final
Payment Date. The Lease Facility documents act as an agreement
for deed, a form of mortgage. See, e.g., State Ex Rel. FourFifty Two-Thirty Corp. v. Dickinson, 322 So.2d 525 (1975 Fla.
SCt 3783).

The Lease Facility will be subject to the nonrecurring
intangible tax under s. 199.133, F.S., on the Acquisition Cost
under Schedule 1.01, which is the total principal amount
financed under the lease.

Sales and Use Tax:

Section 212.031 (1) (a), F.S., provides:

It is declared to be the legislative intent that every
person is exercising a taxable privilege who engages in the
business of renting, leasing, letting, or granting a
license for the use of any real property ....

Section 212.031 (1) (c), F.S., provides:

For the exercise of such privilege, a tax is levied in an
amount equal to 6 percent of and on the total rent or
license fee charged for such real property....

Section 697.01 (1), F.S., provides:

All conveyances, obligations conditioned or defeasible,
bills of sale or other instruments of writing conveying or
selling property, either real or personal, for the purpose
or with the intention of securing the payment of money,
whether such instrument be from the debtor to the creditor
or from the debtor to some third person in trust for the
creditor, shall be deemed and held mortgages, and shall be
subject to the same rules of foreclosure and to the same
regulations, restraints and forms as are prescribed in
relation to mortgages.

Therefore, it must be determined when analyzing the
transaction as a whole, in light of the parties' intentions,
whether the Lessor is engaged in leasing real property to the
Lessee, or whether the transaction is in substance a mortgage
arrangement under which bare legal title to the property is held
by the Lessor as security for repayment.

Under certain circumstances, for tax purposes, a document
structured as a lease may be treated as a mortgage.
Bridgestone/Firestone, Inc. v. Department of Revenue, DOAH Case
Number 92-2483, 15 FALR 4874 (1993). The Administrative Hearing
Officer in Bridgestone/Firestone stated, "Although a document
may be called a lease on its face, this in itself is not
dispositive of the issue. Rather, in order to properly
determine the true nature of the transaction, it is necessary to
examine the intention of the parties and the substance of the
agreement." (Paragraph 23). Additionally, the Hearing Officer
stated: "Initially, it is noted that a taxpayer can treat an
item one way for financial recording purposes and another way
for tax purposes...." (Paragraph 24)

In Bridgestone/Firestone, a sale-leaseback transaction was
examined. In that case, it was determined that the transaction
taken as a whole was a mortgage loan transaction (affirmed by
the Department of Revenue in its final order), rather than a
lease, and that, as a result, payments made under the agreement
were not subject to sales tax.

In analyzing the instant transaction in its entirety, an
analogous determination is made. A Landlord/Tenant relationship

does not exist between Lessee and Lessor. There is no "total
rent or license fee" paid by the Lessee. The Lessor is not the
landlord, because the transaction represents a financing
arrangement rather than a lease. This is based upon the
following factors:

(1) The Lessee's principal aim in entering into this
complex transaction is to secure financing for the acquisition
of the subject property. The Lessor is created solely to serve
as a single purpose financing entity. As a consequence, the
Lessor is not in the business of engaging in the conveyance of a
lease or the grant of a license to use real property. Rather,
the Lessor is created to serve as an integral part of the entire
financing arrangement. The Lessor is not a landlord but serves
more in the capacity of an administrator of the transactions.
The following language from the Tax Matters Agreement clarifies
the purpose of the transaction:

Section 1. (a), Tax Matters Agreement, provides:

It is expressly agreed that [Lessor] and the [Lessee] have
entered into the Overall Transaction and the Transaction
Documents intending such agreements to accomplish a single
transaction, and intending such transaction to be
characterized as a mere financing in the amount of the
Acquisition Cost bearing simple interest at the rate of 8%
per annum (of which 6.5% is payable on a current basis each
quarter and 1.5% is payable when the principal amount of
the financing is repaid) for all income tax and accounting
purposes and intending for [Lessee] to be considered the
owner of the Property for such income tax and accounting
purposes....

(2) There is no economic substance to the Lease Agreement
beyond insuring amortization of the debt. The Lessor does not
receive a rental or license fee in the ordinary sense of the
economic owner of property attempting to maximize income from an
investment by charging a rent or fee determined by the market
value of the improvements. Rather, the "rent" payments here are
equal to the interest on the Loan. See Schedule 3.01 Rent, Tax
Matters Agreement section 1 (a).

(3) Finally, unlike the typical Landlord-Tenant
Relationship, here Lessor may require Lessee to purchase the
property upon the occurrence of specific events. Lessor may
require Lessee to purchase the property if an event of default
occurs under the Lease Agreement. See Lease Agreement, Article
17, section 23.02. Lessor may require Lessee to purchase the
property for other events, such as the taking of the property by
a governmental authority or termination of the Lease Agreement.
See Lease Agreement, sections 6.01, 23.02, Put Option Letter.
Additionally, in the event that the property is damaged or
destroyed, constituting Total Loss, Lessee is obligated to pay
casualty insurance proceeds to Lessor in an amount equal to the
Purchase Price of the Property. See Supplemental Agreement,
section 3 (c).

Furthermore, Lessee is not a tenant of Lessor for the
following reasons:

(1) As noted earlier, as rent, Lessee pays monies the sum
of which is directly equal to the interest on the Loan
rather than a sum that is representative of fair market
rent.

(2) Any monies received by Lessee through a sublease of the
property are assigned to Lessor and serve as additional
security for the transaction. This requirement is
delineated in section 13.03 of the Lease Agreement, which
provides:

[Lessee] hereby assigns to [Lessor], and grants to [Lessor]
a security interest in, all of its right, title and
interest in each of the End User Leases and all rents and
other amounts payable to the [Lessee] thereunder, as
security for the obligations of the [Lessee] hereunder.

(3) Lessee has control over the granting of easements on
the property. See Lease Agreement, section 13.01.

(4) Upon the expiration of the Lease Agreement, or any time
before, Lessee shall have the option to purchase the property

from Lessor for an amount equal to the principal and interest
owed on the loan. See Call Option Letter, Tax Matters
Agreement, section 1 (a), Lease Agreement, section 23.01,
Schedule 3.01, Rent.

(5) Furthermore, Lessee agrees to purchase the Property "as
is" without warranty, express or implied, by or on behalf of
Lessor. See Lease Agreement, section 23.03 (d).

(6) At the closing of such purchase, Lessor shall convey
its title to the Property to Lessee and shall execute a bill of
sale transferring to Lessee all property, including cash, owned,
held or thereafter received by Lessor in connection with the
Property, including any tax, insurance, or other reserves or
escrows being held by Lessor in connection with the Property and
any insurance or condemnation awards payable in relation to the
Property. See Lease Agreement, section 23.03 (b).

(7) Typical obligations of ownership, risk, and maintenance
belong to Lessee, rather than to Lessor. Section 7.01 (a) of
the Lease Agreement places the obligation of ordinary
maintenance on Lessee, and provides:

[Lessee] shall, at its sole cost and expense, take good
care ... of the Property, and the alleyways, passageways,
sidewalks, curbs and vaults adjoining the Property and keep
the same ... in good order and condition, ... and make
necessary nonstructural repairs thereto ... (hereinafter
called "Ordinary Maintenance")....

Lessee also appears to be responsible for the payment of ad
valorem taxes, insurance, and structural maintenance. Pursuant
to our telephone conversations and the additional information
submitted, you state that ultimately the economic responsibility
for these items belongs to Lessee. You note that, for religious
reasons, Lessee cannot be responsible for these items on the
lease but that Lessee can and does assume responsibility for
such items under the Supplemental Agreement. In such regard, it
should be noted that the Preliminary Statement of the
Supplemental Agreement originally places this economic burden on
Lessor but goes on to provide that the parties have agreed that

Lessee will undertake responsibility for performance of these
items. The following paragraphs of the Supplemental Agreement
are pertinent to this issue:

Section 1 of the Supplemental Agreement provides:

Agreement. [Lessor] and [Lessee] hereby agree that [Lessee]
shall undertake responsibility for the matters described in
Sections 2, 3 and 4 below (the "Obligations"), and [Lessee]
hereby agrees to perform the Obligations, all on the terms
and conditions of this Supplemental Agreement.

Section 2 of the Supplemental Agreement provides:

Structural Maintenance. [Lessee] agrees that, during the
Term, it shall at all times (I) determine whether any
portion of the Property requires any Structural Maintenance
and (ii) perform and provide all such Structural
Maintenance. [Lessee] shall keep accurate, complete and
current records of all Structural Maintenance performed or
provided on the Property and shall provide copies thereof
to [Lessor] promptly on demand.

Section 3 of the Supplemental Agreement provides:

Insurance and Restoration. (a) [Lessee] agrees that during
the Term, it shall at all times obtain and maintain in
effect fire and extended coverage property insurance (and
such other insurance as Lessor may reasonably request) on
an "all risk" replacement cost basis ....

(b) Upon the occurrence of damage or destruction to the
Property not constituting a Total Loss, [Lessee] agrees to
undertake such restoration and repair of the Property to
its value ... immediately prior to such damage or
destruction. [Lessee] shall arrange for insurance proceeds
equal to the cost of such restoration and repair ("Required
Proceeds") to be used for such restoration and repair.
[Lessor] relinquishes any interest in any insurance
proceeds other than the Required Proceeds....

(c) Upon the occurrence of a Total Loss, [Lessee] shall
arrange for insurance proceeds equal to the aggregate Early
Termination Price of the Property to be paid to [Lessor],
and [Lessor] relinquishes any interest in any other
insurance proceeds....

Section 4 of the Supplemental Agreement provides:

Property Taxes. [Lessor] hereby authorizes [Lessee] to
prepare and file, on behalf of [Lessee], all property tax
reports and filings required to be made in relation to the
Property. [Lessor] further authorizes [Lessee] to pay and
remit to the taxing authorities all property tax payments
required to be made in relation to the Property.

The Supplemental Agreement continues to provide that Lessor
agrees to pay Lessee the actual costs of performing the
obligations specified in sections 2, 3, and 4 above and
estimates this cost at XX, to be made on each rent payment date.
See Supplemental Agreement, section 5 (b). However, Schedule
3.01, Rent, provides that Lessee will pay Lessor the amount of
XX on each rent payment date for the estimated costs incurred by
Lessor for the property taxes, property damage insurance and
structural maintenance. See Schedule 3.01, Rent, section 1 (a),
(b). You note the result is that payments made by Lessor to
Lessee pursuant to section 5 of the Supplemental Agreement and
payments for the same amount made by Lessee to Lessor pursuant
to Schedule 3.01, Rent, result in a monetary payment netting
zero; and Lessee is left with the responsibility for payment of
the property taxes, insurance, and structural maintenance costs
as indicated in sections 1, 2, 3, and 4 of the Supplemental
Agreement. Thus, it would appear that Lessee is initially
paying for these items itself as the items become due, and the
subsequent exchange of XXX by the parties is merely to satisfy
religious requirements, but does not alter the fact that Lessee
is ultimately responsible for the payment of these items. Please
be advised, if this is not the case, and the Lessor is in any
way bearing the ultimate costs of these items, it is the
Department's position that a Landlord-Tenant Relationship exists
and the rental payments are subject to the sales tax imposed
pursuant to section 212.031, F.S.

All risk of loss for the property belongs to Lessee. If,
during the term of the Lease Agreement, the property is damaged
or destroyed, constituting total loss (i.e., damage or
destruction of more than two-thirds of the buildings), Lessee is
obligated to pay casualty insurance proceeds to Lessor in an
amount equal to the Purchase Price of the Property. See
Supplemental Agreement, section 3 (c).

Lessee's payment obligations under the Lease Agreement are
"absolute and unconditional." Section 3.02 (a) of the Lease
Agreement provides:

...[T]his Agreement is a net lease, and [Lessee]
acknowledges and agrees that [Lessee's] obligations
hereunder, including without limitation its obligation to
pay all Rent and all amounts payable hereunder, shall be
absolute and unconditional under any and all circumstances
and shall be paid without notice or demand, and without any
abatement, reduction, diminution, setoff, defense,
counterclaim or recoupment whatsoever, including without
limitation... counterclaim or recoupment due or alleged to
be due to, or by reason of, any past, present or future
claims which [Lessee] may have against [Lessor] ....

Finally, for United States tax and accounting purposes,
Lessor and Lessee agree that the subject transaction will be
treated as a loan. Lessee will be treated as the owner of the
Property. Lessee, Lessor, and each Investor will report the U.S.
tax consequences of the transaction consistent with this agreed
treatment. See Tax Matters Agreement, section 1.

DEPARTMENT'S POSITION

Documentary Stamp Tax:

The deed to New Corporation is not subject to documentary
stamp tax under s. 201.02, F.S., because it is considered with
the Lease Facility as a part of the financing arrangement. The
deed from New Corporation back to First Corporation is not
subject to documentary stamp tax under s. 201.02, F.S., because

it is the reconveyance of realty conveyed to secure a debt after
payment of the debt.

The Lease Facility is subject to documentary stamp tax
under s. 201.08, F.S., based on the Acquisition Cost defined in
Schedule 1.01 (original remaining principal balance of the
mortgage plus the additional amount advanced for improvements on
the property). The Lease Facility represents a lien on real
property as security for the debt. The Lease Facility does not
represent an exempt renewal of the previous mortgage.

Intangible Tax:

The Lease Facility is subject to nonrecurring intangible
tax under s. 199.133, F.S., because it is an obligation secured
by a lien on real property.

Sales and Use Tax:

Based on the facts, law, and analysis as presented, a
determination is made that the subject transaction is in the
nature of a mortgage rather than a lease and, as such, payments
made by Lessee, pursuant to the Lease Agreement, will not be
subject to sales tax imposed pursuant to section 212.031, F.S.
However, please be advised, as indicated earlier, if the Lessor
rather than the Lessee is ultimately bearing any of the costs
for maintenance, ad valorem taxes, and insurance, the rental
payments are subject to the sales 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, 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 this letter.

Sincerely,

M.E. Clemens, C.P.A.
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

Shehla A. Milliron
Senior Attorney
Technical Assistance and Dispute Resolution
Office of General Counsel

MEC/SAM/mh
Control #'s 47933 & 49024