Did Florida's tax exemption for project-bond documents continue after the bonds were redeemed and the borrower's mortgage obligations were modified?

Plain-English summary

The original project used bonds issued under Chapter 159 and related loan, letter-of-credit, mortgage, reimbursement, assignment, and swap documents. While the bonds were outstanding, section 159.31 exempted the bonds and instruments arising from or securing their repayment.

After borrower defaults, the bond trustee redeemed the bonds in full. The parties later proposed agreements extending time to repay reduced obligations under the reimbursement and swap agreements and modifying or spreading the mortgage collateral.

Florida ruled that the bond exemption did not extend to documents modified after redemption, cancellation of the loan agreement, and termination of the note. Documentary stamp tax and nonrecurring intangible tax applied to the reimbursement- and swap-agreement obligations when a mortgage, assignment, spreader agreement, or other lien securing them was filed or recorded in Florida.

What this means for you

An exemption tied to outstanding tax-exempt bonds can end when those bonds are redeemed. Later workouts, extensions, and collateral modifications must be analyzed as new or modified taxable instruments rather than assumed to inherit the original exemption.

Common questions

Did the exemption apply while the bonds were outstanding? Yes, to instruments arising from or securing the bond repayment.

Did it continue after full redemption? No.

When did the later obligations incur the stated taxes? When a mortgage or other lien securing them was filed or recorded in Florida.

Citations and references

• Fla. Stat. §§ 159.31, 201.08(1)(b), and 199.133 and Fla. Admin. Code r. 12B-4.054(26), as listed or discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10M-001

Original ruling text

Executive Director
Lisa Echeverri

TAX: Documentary Stamp Tax and Nonrecurring Intangible Tax
TAA NUMBER: 10M-001
ISSUE: Tax-Exempt Bonds - Modification of Mortgage and Related Documents
STATUTE CITE(S): Sections 159.31, 201.08(1)(b), 199.133, F.S.
RULE CITE(S): Rule 12B-4.054(26), F.A.C.
QUESTION: An exemption from taxation is provided for the bonds issued under Part II of Chapter 159, F.S., and
all notes, mortgages, security agreements, letters of credit which arise out of, or are given to secure the repayment of
the bonds issued in connection with a project financed directly or indirectly from the bond proceeds. When funds
are loaned to a Borrower in connection with a project financed through the issuance of bonds under Chapter 159,
F.S., and the bonds are subsequently redeemed in full by the Bond Trustee due to an event of default on one or more
of the Borrower’s obligations given to secure the repayment of the bonds, are documentary stamp tax and
nonrecurring intangible tax due on subsequent modifications to one or more of such obligations once the bonds are
no longer outstanding?
ANSWER: During the period the bonds were outstanding, the exemption from taxation under s. 159.31, F.S., was
applicable to all instruments which arose out of or secured the payment of the bonds. However, the exemption does
not extend to any documents modified subsequent to the redemption of the bonds. In this instance, documentary
stamp tax and nonrecurring intangible tax are due on all obligations owed by the Borrower to the Taxpayer which
are evidenced under the Reimbursement Agreement and the Swap Agreement when the Mortgage and Assignment
of Leases and Spreader Agreement, or any other

November 30, 2010
XXX
XXX
XXX
Re:

Technical Assistance Advisement No. 10M-001
Documentary Stamp Tax and Nonrecurring Intangible Tax
Modification of Mortgage and Related Documents
Sections 159.31, 201.08(1)(b), 199.133, F.S.
Rule 12B-4.054(26), F.A.C.
XXX, (the “Taxpayer”)

Dear XXX:
This is in response to your letter dated XXX, as modified by your letter dated XXX, requesting a
determination regarding the imposition of documentary stamp tax and nonrecurring intangible tax in
connection with a modification of an existing mortgage which will change the repayment terms and
encumber additional property serving as collateral for a loan. Enclosed with your request were copies of
documents issued in connection with the transaction as a whole. When deemed appropriate, additional
facts contained within the documents provided with your request have been included in the following
paragraphs for clarification and explanatory purposes. This response constitutes a Technical Assistance
Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under authority of s.
213.22, Florida Statutes.
Child Support Enforcement – Ann Coffin, Director z General Tax Administration – Jim Evers, Director
Property Tax Oversight – James McAdams, Director z Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 10M-001
Page 2

FACTS PRESENTED BY PRACTIONER
On XXX, XXX County, Florida (the “County”) issued tax-exempt bonds (the “Bonds”) in the principal
amount of $XXX, under Part II of Chapter 159, F.S., for the financing of an XXXl project (the “Project”)
on behalf of XXX (the “Borrower”). The Project consisted of (a) the refinance of an existing loan used to
pay for a portion of the construction of the Project, and (b) the completion of the Project. The Bonds were
issued pursuant to the terms and conditions of a trust agreement (the “Trust Agreement”) executed by
XXX (the “Original Bank”), the XXX predecessor-in-interest to the Taxpayer, as trustee for the
bondholders (the “Bond Trustee”), and the County, dated as of XXX. Pursuant to the terms and conditions
of a loan agreement (the “Loan Agreement”), the County loaned the Borrower $XXX (the “Loan”), the
same being the aggregate principal amount of the Bonds. The Borrower was obligated to repay the Loan
to the County under the terms and conditions of a promissory note dated XXX (the “Note”), and pursuant
to Article III of the Loan Agreement. With the Borrower’s consent, the County pledged and assigned to
the Bond Trustee, as security for the Bonds, all of the County’s right, title, and interest in the Note and the
Loan Agreement, permitting the Bond Trustee to enforce and benefit from the terms and conditions of the
Loan Agreement relating to the Bond Trustee. As required, the Borrower made the loan repayments (the
“Loan Repayments”) directly to the Bond Trustee for deposit into the bond fund. The Borrower was
required to make the Loan Repayments in installments at the times and in the amounts set forth in XXX of
the Loan Agreement. The Loan Repayments were required to be sufficient in the aggregate to repay the
Loan, together with interest thereon, and to pay in full the Bonds issued under the Trust Agreement,
together with the total interest and redemption premium, if any, and the purchase price therefore.
In addition, the Loan Agreement required that the Borrower (simultaneously with the Bond issuance) to
obtain a letter of credit (the “Letter of Credit”) with a credit facility in favor of the Bond Trustee. Pursuant
to the Trust Agreement, the Borrower was required to grant authorization to the Trustee to make draws
under the Letter of Credit to the extent necessary to pay any principal and interest on the Bonds if and
when due. An irrevocable Letter of Credit was issued on XXX for $XXX by the Original Bank, in favor of
the Bond Trustee. Pursuant to the tax exemption stated in s. 159.31, F.S., no documentary stamp tax or
nonrecurring intangible tax was paid on the Bond, the Loan, the Note, or the Letter of Credit.
To evidence the Borrower’s obligation to repay the Original Bank the amounts drawn under the Letter of
Credit, the Borrower and the Original Bank executed a reimbursement agreement dated XXX, as amended
on XXX, and XXX (the “Reimbursement Agreement”). XXX of the Reimbursement Agreement sets forth
the circumstances constituting an event of default (the “Event of Default”) under the Bonds, and it further
provides that upon the occurrence of an Event of Default, all obligations of the Borrower, at the option of
the Bank, are immediately due and payable in accordance with the provisions of XXX of the Loan
Agreement.
To secure repayment of the Borrower’s obligations under the Reimbursement Agreement pursuant to any
amounts drawn by the Bond Trustee under the Letter of Credit, a mortgage and security agreement dated
XXX, and amended XXX (collectively the “Mortgage”), and assignment of leases and rents (the
“Assignment”) dated XXX, were executed and recorded by the Borrower in favor of the Original Bank.
The Mortgage encumbered a portion of the real property then owned by the Borrower. Pursuant to s.
159.31, F.S., no documentary stamp tax or nonrecurring intangible tax was paid upon execution of the
Reimbursement Agreement, or upon the recordation of the Mortgage and Assignment.

Technical Assistance Advisement 10M-001
Page 3

Subsequently, in connection with any of the Borrower’s repayment obligations under the Reimbursement
Agreement, the Borrower and the Original Bank executed an ISDA Master Agreement dated as of XXX,
including the Schedule thereto, followed by a swap transaction confirmation dated XXX, issued by XXX
(the “Successor Bank”), as successor-in-interest to the Original Bank, which evidenced an interest rate
swap transaction. The ISDA Master Agreement and interest rate swap transaction are collectively referred
to as the “Swap Agreement.”. As contemplated by the provisions of the Mortgage, repayment of the
Borrower’s obligations under the Swap Agreement is secured by the Mortgage.
The Taxpayer (who purchased the Successor Bank), issued a letter dated XXX, advising the Borrower that
a financial covenant contained in the Reimbursement Agreement had been breached (the “Financial
Covenant Default”). By written acknowledgement, waiver, and consent, dated XXX, the Borrower
acknowledged the continuing existence of the Financial Covenant Default and that the Financial Covenant
Default constituted an Event of Default under the Swap Agreement, resulting in the occurrence of an
Event of Default under the Reimbursement Agreement. Following written notice from the Taxpayer to
the Bond Trustee of the occurrence of the Event of Default under the Reimbursement Agreement and
pursuant to XXX of the Loan Agreement, following written notice from the Bond Trustee to the County,
the Bond Trustee declared the entire unpaid principal and accrued interest on the Bonds due and payable
and presented the Letter of Credit for payment. Thereafter, the Bond Trustee received payment in the
amount of $XXX under the Letter of Credit, whereupon the Bonds were redeemed in full. By letter dated
XXX, the Bond Trustee confirmed there was no outstanding balance on the Bonds; consequently, the
Trust created by the trust indenture was terminated, and the trust indenture was discharged, resulting in
termination of the Loan Agreement and cancellation of the Note (XXX).
The Borrower failed to honor its repayment obligation under the Reimbursement Agreement for the
amount drawn by the Bond Trustee under the Letter of Credit, which consisted of the unpaid principal of
the Bonds together with accrued but unpaid interest, plus any other amounts owed. The Borrower has
acknowledged that its failure to repay the amount due resulted in a default under the Reimbursement
Agreement, the Mortgage, and the Assignment. In addition, the Borrower has also acknowledged that a
default has occurred under the Swap Agreement, and that the outstanding interest rate swap transaction
would be terminated effective XXX. In connection with such termination, the Borrower is responsible for
the payment of a fee under the Swap Agreement, the repayment of which is still secured by the Mortgage
and Assignment.
The Borrower has acknowledged that due to the subsequent events of default under the Mortgage, the
Assignment, and the Swap Agreement, the Taxpayer has the right to exercise any and all remedies
provided under any or all of these documents in order to accelerate the payment of all indebtedness due
and payable by the Borrower. Such rights and remedies include foreclosing on any collateral securing
repayment of amounts due and payable to the Taxpayer. However, to accommodate the Borrower, at its
request, the Taxpayer has agreed, provided certain conditions are met, to forbear from exercising its
available rights and remedies under the Mortgage, Assignment, and Swap Agreement pursuant to the
terms and conditions set forth in a document dated XXX, titled “Forbearance and Loan Modification
Agreement.” The document is made up of two agreements (hereinafter “Agreement #1” and “Agreement

2”). Agreement #1 provides for a time period (the “Forbearance Period”) whereby the Taxpayer agrees to

not foreclose on any collateral securing repayment of the indebtedness due under the Mortgage,
Assignment, Reimbursement Agreement, and Swap Agreement. The Forbearance Period will be in effect
until its expiration date (the “Forbearance Expiration Date”). The Forbearance Expiration Date is

Technical Assistance Advisement 10M-001
Page 4

dependent on whether the Borrower satisfies certain obligations within the Forbearance Period.
Agreement #1 provides for an extension of the maturity date and an amendment to the terms governing the
repayment of the indebtedness due and payable by the Borrower under the Reimbursement Agreement and
Swap Agreement during the Forbearance Period. In return for the Taxpayer’s execution of Agreement #1,
the Borrower has simultaneously executed and delivered to the Taxpayer a Mortgage and Assignment of
Leases and Spreader Agreement (“Agreement #2”), to be recorded with the Clerk of the Court, in order to
spread the liens of the Mortgage and Assignment over additional collateral owned by the Borrower as
additional security for the Borrower’s indebtedness due and payable under the Reimbursement Agreement
and Swap Agreement.
REQUEST FOR ADVISEMENT
Whether the documentary stamp tax and nonrecurring intangible tax are due on the Reimbursement
Agreement and Swap Agreement pursuant to (a) Agreement #1, which extends the maturity date and
amends the terms governing the repayments due under the Reimbursement Agreement and Swap
Agreement; or (b) Agreement #2, the Mortgage and Assignment of Leases and Spreader Agreement,
designed to provide additional security for the Borrower’s indebtedness under the Reimbursement
Agreement and Swap Agreement.
LAW AND DISCUSSION
Under the Florida Industrial Development Financing Act (Part II of Chapter 159, F.S.), “Bonds” or
“revenue bonds” are defined in s. 159.27(1), F.S. as “the bonds authorized to be issued by any local
agency under this part .…” Under s. 159.27(4), F.S., a “local agency” includes a county.
In accordance with the Trust Agreement, the County issued its revenue bonds for the sole purpose of
lending the bond proceeds to the Borrower, who wished to finance a Project constituting an educational
facility as defined under s. 159.27(22)(b), F.S. The amount of the Loan to the Borrower equals the
aggregate principal amount of the Bonds, and the Borrower is required to make the required loan
repayments directly to the Bond Trustee for deposit into the Bond Fund.
Pursuant to the Trust Agreement, the Bonds do not constitute general obligations of the County, but are
limited and special obligations payable solely from amounts payable under the Loan Agreement and other
amounts specifically pledged under the Trust Agreement.
Section 159.31, F.S., provides in pertinent part: “… The bonds issued under the provisions of this part …
and all notes, mortgages, security agreements, letters of credit, or other instruments which arise out of or
are given to secure the repayment of the bonds issued in connection with a project financed under this
part, shall be at all times be free from taxation by the state, any local unit or political subdivision, or other
instrumentality of the state….”
Accordingly, the exemption from taxation under s. 159.31, F.S., is clearly applicable to the revenue Bonds
issued in connection with the financing of the Project, and to any and all instruments arising out of or
given to secure the repayment of the bonds. As such, during the period the Bonds were outstanding, the

Technical Assistance Advisement 10M-001
Page 5

exemption was applicable to all of the instruments which arose out of or secured the payment of the
Bonds.
The Trustee was authorized to draw any monies needed under the Letter of Credit to pay principal and
interest on behalf of the holders of the Bonds. The Letter of Credit was issued by the Original Bank on
behalf of the Bond Trustee, and it is deemed to be the only instrument which directly secured the payment
of the Bonds. Pursuant to the Loan Agreement, all of the Loan repayments were required to be made
directly to the Bond Trustee for deposit into the Bond fund. The Bond Trustee used the proceeds from the
Bond fund to make the principal and interest payments to the holders of the Bonds. However, if the
Borrower failed to repay any or all of the required payments due under the Loan Agreement, the Letter of
Credit was the mechanism that provided the necessary funds to make the required Bond payments.
The additional documents securing amounts due by the Borrower under the Reimbursement Agreement,
i.e., the Mortgage, Assignment, and Swap Agreement, provide the Original Bank with remedies to recoup
any amounts owed through foreclosure or other prescribed methods. The documents do not secure any
payment due under the Bonds themselves.
CONCLUSION
The obligation under the Swap Agreement resulted from the Borrower’s failure to honor its repayment
obligation to the Original Bank under the Reimbursement Agreement. The obligation under the Swap
Agreement is secured by the Mortgage and Assignment, and the Taxpayer can institute the legal remedies
necessary to accelerate the payment of the Borrower’s obligation under the Reimbursement Agreement.
Simply the fact that the Taxpayer and the Borrower may opt to enter into Agreement #1 and Agreement

2 in order to grant the Borrower an extension of time to repay a reduced amount for its obligation due

under the Reimbursement Agreement and Swap Agreement does not make either document exempt from
tax under s. 159.31, F.S. The exemption does not extend to any documents modified subsequent to the
redemption of the Bonds, the cancellation of the Loan Agreement, and termination of the Note.
Therefore, documentary stamp tax and nonrecurring intangible tax are due on all obligations evidenced
under the Reimbursement Agreement and the Swap Agreement when the Mortgage and Assignment of
Leases and Spreader Agreement, or any other mortgage or lien, is filed or recorded in Florida.
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 based on those facts and specific situation summarized above. You are
advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes
or rules upon this advice is based may subject 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.

Technical Assistance Advisement 10M-001
Page 6

Sincerely,

Joy B. Eldred
Technical Assistance and Dispute Resolution
Record ID: 85273