Did executing a contingent receivables-purchase agreement and related mortgage in Florida trigger documentary stamp tax when neither document stated a sum certain?

Plain-English summary

Florida concluded that executing the two contingent financing documents did not trigger documentary stamp tax because neither document showed a fixed or readily ascertainable debt amount. The Department determined taxability from the face of each instrument and any document expressly incorporated into it.

The bank purchased receivables from businesses. The agreement covered accounts, notes, contract rights, payment rights, and other receivables that the bank might buy in its sole discretion, including future receivables.

For some businesses, the bank also required a mortgage and security agreement covering a receivables-purchase line and possible repurchase obligations.

The receivables agreement was contingent

The bank was not unconditionally obligated to advance a stated amount, and the business did not make a fixed promise to repay a sum certain. The agreement described purchases and sales of receivables that might occur later at the bank's discretion.

Rule 12B-4.054(4) said a written promise not fixed and absolute at execution was not taxable. The Department therefore found the receivables agreement nontaxable.

The mortgage did not supply a taxable amount

The mortgage and security agreement did not state the amount secured. It also did not expressly incorporate a dollar amount from the receivables agreement.

Section 201.08(6) limited the analysis to the document's face and separate documents expressly incorporated into it. Because no ascertainable debt appeared through either route, the mortgage also was not taxed on execution under the presented facts.

What this means for you

Banks and receivables-finance companies

Contingency and document drafting matter. A discretionary purchase facility without a fixed advance is different from a note or mortgage stating a debt or maximum obligation.

Loan-document teams

An express incorporation clause can bring another document's amount into the documentary-stamp-tax analysis. The absence of incorporation was central here.

Accountants and tax professionals

Do not generalize this result to later advances, amendments, recorded instruments, or documents that state a cap or readily calculable amount.

Common questions

Q: Was the receivables agreement taxable on execution?
A: No. It did not create a fixed and absolute obligation to pay money.

Q: Was the mortgage and security agreement taxable?
A: No under the presented documents, because it stated no ascertainable secured amount.

Q: Could the Department use another related contract to find an amount?
A: Only if that separate document was expressly incorporated, under the rule quoted in the TAA.

Q: Did the ruling decide tax after a later advance or amendment?
A: No. It addressed execution of the submitted contingent documents.

Citations and references

• Fla. Stat. § 201.08(1) — documentary stamp tax on written obligations and recorded security instruments
• Fla. Stat. § 201.08(6) — face-of-document and express-incorporation rule
• Fla. Stat. § 201.08(7) — certain additional-party mortgages or guaranty security instruments
• Fla. Admin. Code r. 12B-4.054(4) — promises not fixed and absolute at execution
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04B4-001

Original ruling text

SUMMARY

QUESTION: Is execution of a contingent Lending Agreement
and Mortgage and Security Agreement within the State of
Florida which does not contain any specific dollar amount
or any other "sum certain" taxable?

ANSWER: Based on Facts Below. No. None of the documents
submitted contain a readily ascertainable amount upon which
documentary stamp tax can be imposed. Therefore, the
execution of the Lending Agreement and Mortgage and
Security Agreement within the State of Florida would not be
subject to the documentary stamp tax.

Feb 09, 2004

Re: Technical Assistance Advisement No. 04B4-001
Documentary Stamp Tax
Execution of a "XXX Agreement" and "Mortgage and Security
Agreement" within the State of Florida
Sections 201.08(1), (6), and (7), F.S.; Rule 12B-4.054(4),
F.A.C.
XXX (hereinafter Bank)

Dear :

This is in response to your request for a Technical
Assistance Advisement in which you ask whether the execution of
a "XXX Agreement" and "Mortgage and Security Agreement" within
the State of Florida would be subject to the documentary stamp
tax under Section 201.08, F.S. The specific facts for which
advice has been requested are presented below. You also enclosed
the XXX Agreement and Mortgage and Security Agreement for our
review.

Facts Presented by Petitioner

Bank purchases receivables from businesses pursuant to the

XXX Agreement. Receivables means all accounts, money, deposit
accounts, chattel paper, documents, instruments (including
without limitation promissory notes), contract rights or rights
to the payment of money, and general intangibles (including
without limitation payment intangibles) arising from the
Business' sale of goods or rendering of services, whether now
owned or existing or hereafter existing or acquired, that are
(in the Bank's sole discretion) purchased by the Bank under this
Agreement, together with all proceeds in any form of any of the
foregoing.

In certain cases, Bank, in addition to the XXX Agreement,
requires that the businesses from which it is purchasing the
receivables pursuant to the XXX Agreement also execute and
deliver a Mortgage and Security Agreement. The language in the
Mortgage and Security Agreement states that it is given in
exchange for the Bank extending to the mortgagor a XXX line for
the purchase of receivables, including the amount of receivables
to be repurchased as part of a repurchase obligation. The
Mortgage and Security Agreement does not state an amount within
it that is being secured by the mortgage, and it does not
expressly incorporate by reference the associated XXX Agreement.

Requested Ruling by the Petitioner

You seek the Department's confirmation that the execution
of the XXX Agreement and the Mortgage and Security Agreement
within the State of Florida would not be subject to the
documentary stamp tax under Section 201.08(1), F.S.

Law and Discussion

Section 201.08(1), F.S., imposes a documentary stamp tax on
promissory notes and other written obligations to pay money
which are made, executed, or delivered in Florida, and upon
mortgages, trust deeds, security agreements, and other evidences
of indebtedness which are filed or recorded in Florida.

Section 201.08(6), F.S., provides that taxability of a
document pursuant to this section shall be determined solely
from the face of the document and any separate document

expressly incorporated into the document. Taxability of a
document pursuant to this section is not determined by reference
to any separate document or document forming part of the same
contract or obligation, unless the separate document is
expressly incorporated into the document. When multiple
documents evidence, secure, or form part of the same primary
debt, tax pursuant to this section is not imposed more than once
on the total indebtedness evidenced, notwithstanding the
existence of multiple documents.

Pursuant to section 201.08(7), F.S., a mortgage, trust
deed, or security agreement filed or recorded in this state
which is given by a taxpayer different than or in addition to
the taxpayer obligated upon the primary note or which is given
to secure a guaranty of a primary note, shall for purposes of
this section be deemed to evidence and secure the primary note,
and such tax shall be paid once.

Rule 12B-4.054(4), F.A.C., states that a written promise to
pay money which is not fixed and absolute at the time of
execution is not subject to tax.

Conclusion

The XXX Agreement is an agreement to purchase receivables.
The revised Agreement continues to state the Bank may purchase
future receivables "in its sole discretion." It involves only
the purchase and sale of receivables. It does not secure an
unconditional obligation to pay a certain amount of money.
Therefore, the XXX Agreement is not subject to documentary stamp
tax.

The revised Mortgage and Security Agreement does not
include within the Mortgage and Security Agreement a readily
ascertainable amount upon which the documentary stamp tax can be
imposed, nor does its language incorporate any amount stated in
the XXX Agreement. Therefore, the Mortgage and Security
Agreement is not subject to documentary stamp 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 interpretation of the
statutes or rules upon which this advise 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
199, 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,

Baldan E. Sulker
Senior Tax Specialist
Technical Assistance & Dispute Resolution
Office of General Counsel

BES/mh