Did a successor LLC owe documentary stamp or nonrecurring intangible tax on a consolidated renewal note and mortgage after a merger?

Plain-English summary

The merger successor did not owe documentary stamp tax again on the unchanged outstanding debt when all renewal requirements were satisfied. By operation of Florida merger law, the predecessor companies' obligations became the surviving LLC's obligations. The Department therefore did not treat the survivor as a new obligor.

The exemption required the original note showing proper tax payment to be attached to the renewal and only the unpaid balance to be renewed. No person who had not signed the original documents could sign the renewal, except for the surviving entity. The recorded mortgage modification also had to identify the merger and the statutory basis for no documentary stamp tax.

For nonrecurring intangible tax, no additional tax was due unless the consolidated renewal increased the principal above the outstanding balance on the execution date.

What this means for you

A statutory merger can preserve renewal treatment, but it does not erase the documentary requirements. Prior tax payment, the attached original note, unchanged principal, the identity of signers, and the recorded mortgage language all mattered.

Common questions

Q: Did the surviving LLC count as a new obligor? No. The ruling treated the predecessor liabilities as transferred to it by operation of merger law.

Q: When would documentary stamp tax apply to the renewal? Among other possibilities, an increase in unpaid principal would be taxable to the extent of the increase.

Q: When was additional nonrecurring intangible tax due? Only on amounts borrowed above the outstanding principal balance, assuming the original tax had been properly paid.

Citations and references

• Fla. Stat. §§ 201.08(1) and 201.09(1) — documentary stamp tax and renewal-note exemption
• Fla. Stat. § 199.133(1) — nonrecurring intangible tax on real-property-secured obligations
• Fla. Stat. §§ 608.438(2) and 608.4383(3) — LLC mergers and successor liabilities
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02M-007

Original ruling text

SUMMARY

QUESTION: Is documentary stamp tax, as imposed by s.
201.08(1), F.S., or nonrecurring intangible tax, as imposed
by s. 199.133, F.S., due on the entire amount of the
Consolidated Renewal, Amended and Restated Promissory Note
executed by Borrower and payable to the order of Lender, a
Delaware corporation, as Lender and the Consolidated
Renewal, Amended and Restated Mortgage, Assignment of
Leases and Rents and Security Agreement executed by
Borrower in favor of Lender where the Borrower is the
successor by merger of Companies 1, 2, 3, and 4, pursuant
to Articles of Merger filed with the Florida Secretary of
State on May 29, 2002, or only on the increase in principal
amount (in excess of the outstanding principal amount as of
the date of the execution of the renewal note)?

ANSWER - Based on Facts Below: The renewal note resulting
from the merger and the recorded mortgage securing the
renewal note do not require documentary stamp tax so long
as all other requirements of s. 201.09(1), F.S., are met
(i.e., the original note evidencing proper tax paid is
attached to the renewal, and only the unpaid balance is
renewed). This assumes that no obligors that did not
execute the original documents (other than the surviving
entity) execute the renewal documents. The recorded
mortgage modification should note that the modification is
the result of a merger under s. 608.438(2), F.S., and that
documentary stamp tax, as imposed under s. 201.08(1), F.S.,
is not due pursuant to s. 608.4383(3), F.S.

No additional nonrecurring tax will be due when the
mortgage is recorded securing the renewal note, provided no
additional amounts have been borrowed in excess of the
outstanding principal balance as of the date of execution
of the renewal note.

Jul 03, 2002

Re: Technical Assistance Advisement No. 02M-007
Documentary Stamp Tax and Nonrecurring Intangible Tax
Taxes Due on Renewal Note and Mortgage - Successor by
Merger
Sections 201.08, 201.09, and 199.133, F.S.
XXX (Borrower)
XXX (Company 1)
XXX (Company 2)
XXX (Company 3)
XXX (Company 4)
XXX (Lender)
XXX (Assignor 1)
XXX (Assignor 2)
XXX (Assignor 3)

Dear :

This is in response to your request for a Technical
Assistance Advisement dated June 6, 2002, as to the taxability
of a consolidated renewal note executed by Borrower who is the
surviving entity pursuant to a merger where all of the assets
and liabilities of each of the merged companies were transferred
pursuant to the merger to Borrower.

Facts Presented by the Petitioner

Companies 1, 2, 3 and 4 were merged into the Borrower, a
Florida LLC, as the surviving entity under s. 608.438, F.S.
Pursuant to the Plan of Merger filed May 29, 2002, all of the
assets and liabilities of Companies 1, 2, 3, and 4 were
transferred pursuant to merger to Borrower. Among the
liabilities of Companies 1, 2 ,3 and 4 were certain loans
secured by mortgages and other loan documents as follows:

1. Assignment of Mortgage and Note made by Assignor 1 to
   Lender, regarding a certain Second Mortgage dated July
   20, 2002 made by Company 2;

2. Assignment of Mortgage and Note made by Assignor 1 to
   Lender, regarding a certain Second Mortgage dated July

20, 2002 made by Company 3;

3. Assignment of Mortgage and Note made by Assignor 2 to
   Lender, regarding a certain Mortgage made by Company 2
   and Company 3, dated November 22, 2000; and

4. Assignment of Mortgage and Note made by Assignor 3 to
   Lender, regarding Mortgages made by Company 1 and
   Company 4, dated December 16, 1999 and September 1,
   2000 respectively.

The foregoing notes and mortgages were then consolidated
into the Consolidated Renewal, Amended and Restated Promissory
Note executed by Borrower and payable to Lender in the principal
amount of $XX and secured by Consolidated Renewal, Amended and
Restated Mortgage, Assignment of Leases and Rents and Security
Agreement executed by Borrower. The Borrower, as successor by
merger to Companies 1, 2, 3 and 4 is the signatory and sole
obligor of the Consolidated Renewal, Amended and Restated
Promissory Note and mortgagor under the Renewal, Amended and
Restated Promissory Note referred to above.

Requested Ruling

The first part of your letter asks if documentary stamp
tax, as imposed by s. 201.08(1), F.S., or nonrecurring
intangible tax, as imposed by s. 199.133, F.S., are due on the
Consolidated Renewal, Amended and Restated Promissory Note
executed by Borrower and payable to the order of Lender, a
Delaware corporation, as Lender and the Consolidated Renewal,
Amended and Restated Mortgage, Assignment of Leases and Rents
and Security Agreement executed by Borrower in favor of Lender
where the Borrower is the successor by merger of Companies 1, 2,
3, and 4, pursuant to Articles of Merger filed with the Florida
Secretary of State on May 29, 2002?

You request a ruling that documentary stamp tax and the
nonrecurring intangible tax shall be due only on the increase in
the principal amount of the Consolidated Renewal Amended and
Restated Promissory Note (in excess of the outstanding principal
amount as of the date of the execution of said renewal note).

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....

Section 201.09(1), F.S., provides in pertinent part:

When any promissory note is given in renewal of any existing
promissory note, which renewal note only extends or continues
the identical contractual obligations of the original promissory
note and evidences part or all of the original indebtedness
evidenced thereby, not including any accumulated interest
thereon and without enlargement in any way of the original
contract and obligation, such renewal note shall not be subject
to taxation under this chapter if such renewal note has attached
to it the original promissory note with the proper notation
thereon as required by s. 201.133. In order to be exempt from
taxation under this section, a renewal note evidencing a term
obligation shall not be executed by any person other that the
original obligor and must renew and extend only the unpaid
balance of the original contract and obligation.... A renewal
note... which increases the unpaid balance of the original
contract and obligation but which otherwise meets the exemption
criteria of this section is taxable only on the face amount of
the increase.

Florida's documentary stamp tax, as imposed under s.
201.08(1), F.S., applies to all notes or other written
obligations to pay money, and all renewals of obligations to pay
money, that are made, executed, and/or delivered in this state
and on mortgages, trust deeds, security agreements, or other
evidences of indebtedness filed or recorded in this state.
Pursuant to s. 201.09(1), a renewal note is not subject to
documentary stamp tax if tax was paid on the original note and

the original note is attached to the renewal, there are no new
obligors, and only the unpaid balance is renewed (for a term
note). A renewal of a note resulting in an increase to the
unpaid principal balance of the obligation is subject to the
documentary stamp tax on the increased principal amount of the
obligation.

Section 608.438(2), F.S., allows for a limited liability
company to merge with or into one or more other business
entities, which by definition includes limited liability
companies formed or organized in any other state.

Section 608.4383(3), F.S., provides that when a merger
becomes effective the "surviving entity shall thereafter be
responsible and liable for all the liabilities and obligations
of each limited liability company and other business entity that
is a party to the merger, including liabilities arising out of
the rights of dissenters with respect to such merger under
applicable law."

Section 199.133(1), F.S., levies a one-time nonrecurring
tax of 2 mills on each dollar of the just valuation of notes,
bond, and other obligations for the payment of money which are
secured by mortgage, deed of trust, or other lien upon real
property situated in this state. Since the tax is on the
obligation itself, assuming proper tax was paid on the original
note, additional nonrecurring tax is due on a renewal note only
on amounts borrowed in excess of the outstanding principal
balance of the original note, whether or not the obligors on the
renewal note are identical to the obligors on the original note.

Position of the Department

It is the Department's position that obligations of an
entity merging under s. 608.438, F.S., become by operation of
law the obligations of the surviving entity. Therefore, the
renewal of the Consolidated Renewal Amended and Restated
Promissory Note and the modification of a mortgage securing that
note by the surviving entity under such merger, are not deemed
to be a change of obligors and are not subject to documentary
stamp tax as imposed under s. 201.08(1), F.S., so long as all

other requirements of s. 201.09(1), F.S., are met.

As to the nonrecurring intangible tax, providing all of the
provisions of s. 199.133(1), F.S., have been met and the
required tax remitted to the Department, tax would be due on the
increase in the principal amount (in excess of the principal
amount as of the date of execution of the renewal note) of the
Consolidated Renewal Amended and Restated Promissory Note.

Department's Position

Based upon the above cited statutes, it is the Department's
position that the renewal note resulting from the merger
provided in your facts, and the recorded mortgage securing the
renewal note, do not require documentary stamp tax so long as
all other requirements of s. 201.09(1), F.S., are met (i.e., the
original note evidencing proper tax paid is attached to the
renewal, and only the unpaid balance is renewed). This assumes
that no obligors that did not execute the original documents
(other than the surviving entity) execute the renewal documents.

The recorded mortgage modification should note that the
modification is the result of a merger under s. 608.438(2),
F.S., and that documentary stamp tax, as imposed under s.
201.08(1), F.S., is not due pursuant to s. 608.4383(3), F.S.

No additional nonrecurring tax will be due when the
mortgage is recorded securing the renewal note, provided no
additional amounts have been borrowed in excess of the
outstanding principal balance as of the date of execution of the
renewal note.

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,

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

JBE/mh