Did a note secured only by the purchased leasehold interest in a government-owned Florida beach resort owe nonrecurring intangible tax?

Plain-English summary

Florida concluded that the note secured by the purchased beach-resort leasehold did not owe nonrecurring intangible tax. The mortgage attached to a leasehold interest, not to Florida real property for purposes of the tax analyzed.

The Department reviewed the underlying governmental land lease, title commitment, settlement statement, clerk receipt, assignment of sublease, note, and recorded mortgage.

The assignment said the purchaser acquired the seller's leasehold interest in the real property and improvements. The lease required the lessee to surrender both the land and improvements to the governmental lessor when the lease expired or ended earlier.

Nonrecurring tax applied only to debt secured by Florida real property

Section 199.133 imposed the one-time tax only to the extent a note or other payment obligation was secured by a mortgage, deed of trust, or lien on Florida real property.

The ruling explained that governmental leaseholds were generally intangible personal property for intangible-tax purposes. Certain government leases could be classified as real property under section 196.199(7), including specified leases of 100 years or more, but the reviewed documents did not make this leasehold real property for the nonrecurring-tax analysis.

Because the lessor owned the improvements and the mortgage secured only the leasehold, the obligation did not trigger the nonrecurring tax.

Other taxes were outside the ruling

The Department expressly did not decide:

• Potential intangible tax on the governmental leasehold itself.
• Annual intangible tax liability on the note and mortgage.

What this means for you

Leasehold buyers and resort operators

Review who owns the land and improvements, what returns to the lessor, the lease term, and exactly what the mortgage encumbers. A mortgage called a “leasehold mortgage” needs document-level confirmation.

Lenders

Nonrecurring tax follows the extent to which an obligation is secured by Florida real property. Adding fee-owned real estate or different collateral can change the result.

Accountants and tax professionals

Keep the nonrecurring mortgage tax separate from governmental leasehold tax and any annual intangible-tax question. This TAA decided only the first.

Common questions

Q: Was nonrecurring intangible tax due on this leasehold mortgage?
A: No.

Q: Who owned the improvements at the end of the lease?
A: The lease required the lessee to surrender the land and improvements to the governmental lessor.

Q: Are all long-term leaseholds automatically intangible personal property?
A: No. The ruling discussed statutory circumstances in which certain government leaseholds can be classified as real property.

Q: Did the TAA decide annual intangible tax on the note?
A: No. It expressly left that question open.

Citations and references

• Fla. Stat. § 199.023(1)(d) — governmental leaseholds as intangible personal property
• Fla. Stat. § 199.133(1), (2) — nonrecurring tax on obligations secured by Florida real property
• Fla. Stat. §§ 196.001, 196.199(1), (7) — government property and leasehold classification
• Fla. Stat. § 199.032 — annual intangible tax provision discussed but not decided
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04C2-001

Original ruling text

SUMMARY

QUESTION: Are nonrecurring intangible taxes imposed on a
leasehold mortgage securing a note when the leasehold
interest is purchased?

ANSWER - Based on Facts Below: Long term leasehold
interests are generally not considered real property for
purposes of nonrecurring intangible tax. The obligation
secured by a mortgage on this leasehold interest does not
require payment of nonrecurring intangible tax.

Feb 09, 2004

Re: Technical Assistance Advisement No. 04C2-001
Nonrecurring Intangible Tax - Leasehold Mortgages
Sections 199.023(1), 199.032, 199.133(1)(2), and 196.199(1)
F.S.
XXX (Governmental Agency/Lessor)

Dear :

This is in response to your request for a Technical
Assistance Advisement in which you ask us the Florida
nonrecurring intangible tax consequences during the sale of
leasehold interest in a beach resort in Florida.

The following forms are presented for our review:

1. Copy of Underlying Land Lease;
2. Title Insurance Commitment;
3. Settlement Statement;
4. Transaction Receipt Page from County Clerk;
5. Copy of recorded Assignment of Sublease;
6. Copy of Note; and
7. Copy of recorded Mortgage.

Requested Ruling by the Petitioner

You seek the Department's confirmation that no nonrecurring
intangible taxes should be imposed on a leasehold mortgage
securing a note when the leasehold interest is purchased.

Law and Discussion

Section 199.032, F.S. provides:

An annual tax of 1 mill is imposed on each dollar of the
just valuation of all intangible personal property that has
a taxable situs in this state, except for notes and other
obligations for the payment of money, other than bonds,
which are secured by mortgage, deed of trust, or other lien
upon real property situated in the state. This tax shall be
assessed and collected as provided in this chapter.

Section 199.133, F.S., provides in part:

(1) A one time nonrecurring tax of 2 mills is hereby
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 this state....

(2) The nonrecurring tax shall apply to a note, bond or
other obligation for the payment of money only to the
extent it is secured by mortgage, deed of trust, or other
lien upon real property situated in this state....
[H]owever, if the security is solely made up of personal
property and real property situated in this state, the
taxpayer may elect to apportion the taxes based upon the
value of the collateral, if any, to which the taxpayer by
law or contract must look first for collection.... The
portion of a note, bond, or other obligation which is not
subject to the nonrecurring tax shall be subject to the
annual tax unless otherwise exempt.

"Intangible personal property," as it relates to
leaseholds, is defined in part by s. 199.023(1)(d), F.S., as
follows:

Except for any leasehold or other possessory interest
described in s. 4(a), Art. VII of the State Constitution or
s. 196.199(7), all leasehold or other possessory interests
in real property owned by the United States, the state, any
political subdivision of the state, any municipality of the
state, or any agency, authority, and other public body
corporate of the state, which are undeveloped or
predominantly used for residential or commercial purposes
and upon which rental payments are due.

Thus, a leasehold interest in real property is considered
intangible personal property for intangible tax purposes.
However, pursuant to ss. 196.001 and 196.199, F.S., a leasehold
may be reclassified as real property under certain
circumstances. One situation in which a leasehold interest is
classified as real property is when real property owned by the
United States, the State, or any of its several political
subdivisions, or municipalities, agencies, authorities, and
other public bodies corporate of the State is leased for 100
years or more. According to s. 196.199(7), F.S., the property
is deemed to be owned by the "lessee" and is classified and
taxed as real property.

Section 196.199(1), F.S., states that property owned and
used by the following governmental units shall be exempt from
taxation under the following conditions:

(a) All property of the United States shall be exempt from
ad valorem taxation, except such property as is subject to
tax by this state or any political subdivision thereof or
any municipality under any law of the United States.

(b) All property of this state which is used for
governmental purposes shall be exempt from ad valorem
taxation except as otherwise provided by law.

(c) All property of the several political subdivisions and
municipalities of this state or of entities created by
general or special law and composed entirely of
governmental agencies, or property conveyed to a nonprofit

corporation which would revert to the governmental agency,
which is used for governmental, municipal, or public
purposes shall be exempt from ad valorem taxation, except
as otherwise provided by law.

Conclusion

One of the documents reviewed with this request,
specifically identified as Assignment and Assumption of Lease,
states in paragraph 2, the following: "Whereas, Purchaser is
purchasing from Seller and Seller is conveying to Purchaser the
Seller's leasehold interest in and to real property with all
improvements thereon and appurtenances thereto...." The lease
document, in paragraph 11, states that upon expiration or sooner
termination of the lease, the lessee shall surrender the land
and improvements to the Lessor.

Long term leasehold interests are generally not considered
real property for purposes of nonrecurring intangible tax.
Pursuant to the lease documents, the Lessor owns the
improvements to the land. The obligation secured by a mortgage
on this leasehold interest does not require payment of
nonrecurring intangible tax.

This advisement does not address the potential intangible
tax on the governmental leasehold, nor annual intangible tax
liability on the note and mortgage.

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

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,

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

BES/mh