Was documentary stamp tax underpaid on a recorded mortgage that allowed unpaid principal to grow to 115% of the original loan amount?

Plain-English summary

The Florida Department of Revenue concluded that documentary stamp tax had been underpaid on a recorded mortgage with a negative-amortization clause.

The note allowed unpaid interest to be added to principal, subject to a maximum unpaid balance of 115% of the amount originally borrowed. Because documentary stamp tax on a recorded mortgage is calculated on the maximum amount of indebtedness secured, including contingent obligations, the tax base was 115% of the original principal rather than only the initial loan amount.

The underpayment and accrued interest remained payable by either the borrowers or the lender. The Department declined to decide the nonrecurring intangible-tax issue because the borrower requesting the ruling neither owned the obligation nor represented its owner. It also stated that the ruling did not address the enforceability of the note or mortgage in a pending foreclosure case.

What this means for you

Borrowers and lenders

Review the maximum secured balance, not merely the amount advanced at closing, when a mortgage permits principal to increase through negative amortization.

Closing and title professionals

A private agreement about which party will pay documentary stamp tax does not relieve the other parties if the tax is not paid.

Accountants and tax professionals

The ruling answered the documentary stamp-tax question only. It gave no opinion on the nonrecurring intangible tax because the requester was not the liable owner or that owner's representative.

Common questions

Q: What amount was used as the documentary stamp-tax base?
A: The maximum amount secured by the mortgage—115% of the original principal.

Q: Who remained liable for the underpayment?
A: Either the borrowers or the lender, plus accrued interest.

Q: Did the Department decide the nonrecurring intangible-tax issue?
A: No.

Q: Did the ruling decide whether the note or mortgage was enforceable?
A: No.

Citations and references

• Fla. Stat. §§ 199.133, 199.155, 201.08(1)(b), and 213.22
• Fla. Admin. Code rr. 12-11.003(1)(a), 12B-4.002(1)(a), and 12B-4.052(1)(b), (10)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 15B4-003

Original ruling text

ExecutiveDirector
Marshall Stranburg

QUESTION: WERE THE CORRECT AMOUNTS OF NONRECURRING INTANGIBLE
PERSONAL PROPERTY TAX AND DOCUMENTARY STAMP TAX PAID ON A
MORTGAGE WITH A NEGATIVE AMORTIZATION CLAUSE RECORDED IN FLORIDA?
ANSWER:
DOCUMENTARY STAMP TAX WAS UNDERPAID, AND THE
UNDERPAYMENT IS STILL DUE, AND PAYABLE, BY EITHER PARTY TO THE
TRANSACTION. THE DEPARTMENT DECLINES TO ADDRESS THE APPLICATION OF
THE NONRECURRING INTANGIBLE PERSONAL PROPERTY TAX, SINCE THE
QUESTION WAS NOT SUBMITTED BY THE TAXPAYER LIABLE FOR THE TAX.
September 14, 2015
Re: Technical Assistance Advisement No. 15B4-003
Documentary Stamp Tax – Promissory Notes and Written Obligations to Pay Money
Section 199.133 and Section 201.08, Florida Statutes (F.S.)
XXXX (“Taxpayer”)
Dear XXXX:
This is in response to your letters dated XXXX, and XXXX, requesting a Technical Assistance
Advisement regarding the application of Florida’s intangible personal property tax as imposed
under s. 199.133, F.S., and documentary stamp tax as imposed under s. 201.08(1)(b), F.S., on an
obligation secured by a mortgage on Florida real property that is recorded in Florida.
Facts as Presented by Petitioner
On XXXX, you and your wife (“Borrowers”) executed and delivered a promissory note (“Note”)
and mortgage (“Mortgage”) to XXXX (“Lender”). Mortgage was recorded XXXX, in XXXX
County, Florida, Official Records Book XXXX Page XXXX.
XXXX of Mortgage provides that Borrowers signed a promissory note on XXXX, and
Borrowers owe Lender $XXXX plus interest.
XXXX of Note provides, that the principal amount (“Principal”) borrowed was $XXXX.

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Section XXXX of Note provides, “For each month that I pay a monthly payment that is less than
the interest owed, the Note Holder will subtract the amount of my monthly payment from the
amount of interest portion and will add the difference to the my unpaid Principal.”
XXXX of Note provides, “My unpaid Principal can never exceed the Maximum Limit equal to
115 percent of the Principal amount I originally borrowed.”
When Mortgage was recorded, $XXXX documentary stamp tax was paid, and $XXXX
intangible personal property tax was paid.
You provided a copy of Mortgage and Note to the Department of Revenue for review.
Request for Advisement
You request a determination by the Department as to whether the correct amounts of
documentary stamp tax and intangible personal property tax were paid on Note and Mortgage.
Law and Discussion
Section 199.133(1), F.S., provides that a one-time nonrecurring tax of two 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. This tax shall be assessed and collected as provided by this chapter.
Section 199.155, F.S., provides that subject to the provisions of s. 199.133(2), F.S., all notes,
bonds, and other obligations for payment of money subject to the nonrecurring tax shall be
valued at the principal amount of indebtedness evidenced by such obligation.
Section 201.08 (1)(b), F.S., provides that on mortgages, trust deeds, security agreements, or other
evidences of indebtedness filed or recorded in this 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. Mortgages, including, but not limited to, mortgages executed without the state and
recorded in the state, which incorporate the certificate of indebtedness, not otherwise shown in
separate instruments, are subject to the same tax at the same rate. When there is both a
mortgage, trust deed, or security agreement and a note, certificate of indebtedness, or obligation,
the tax shall be paid on the mortgage, trust deed, or security agreement at the time of recordation.
A notation shall be made on the note, certificate of indebtedness, or obligation that the tax has
been paid on the mortgage, trust deed, or security agreement.

Rule 12B-4.002(1)(a), Florida Administrative Code (F.A.C.), provides that unless a party is
statutorily exempt from paying documentary stamp tax, then the tax is payable by any of the
parties to a taxable transaction. The parties to the transaction may agree among themselves as to
who shall pay the tax, but such agreements do not relieve the others from their liability in the
event the agreement is not followed.
Rule 12B-4.052(1)(b), F.A.C., provides that the tax required to be paid on mortgages and other
evidences of indebtedness filed or recorded in this state is calculated on the indebtedness or
obligation secured by the mortgage, regardless of whether the indebtedness is contingent.
Rule 12B-4.052(10), F.A.C., confirms that the amount of the tax base is the maximum amount of
indebtedness secured.
Position of the Department
The calculable basis for documentary stamp tax is the maximum amount of indebtedness secured
by Mortgage. Pursuant to Rule 12B-4.052(1)(b), F.A.C., this would include any contingent
obligations secured by Mortgage. In the present case, Mortgage secured 115% of $XXXX, or
$XXXX. The correct amount of tax due and payable when Mortgage was recorded was
$XXXX. There was an underpayment of $XXXX, which, along with accrued interest, is still
due and payable by either Borrowers or Lender pursuant to Rule 12B-4.002(1)(a), F.A.C.
Section 199.133(1), F.S. imposes tax on intangible personal property, namely an obligation to
pay money that is secured by a mortgage on Florida real property. The owner of the obligation is
liable for the tax unless statutorily exempt. Since you are not the owner of the obligation secured
by Mortgage, nor do you represent the owner, then pursuant to Rule 12-11.003(1)(a), F.A.C., the
Department elects not to render an opinion here as to the applicability of the intangible personal
property tax.
You have indicated that the issue you present may be raised as an affirmative defense in a
pending foreclosure lawsuit. This letter is provided only to respond to your question. The
Department does not by this letter intend to participate in the lawsuit. Neither should this letter
be used to suggest any inference of any comment by the Department concerning any statutes,
rules, and/or case law that might relate to enforceability of the note and/or 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 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 that 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,

Roger L. Beasley
Tax Law Specialist
Technical Assistance and Dispute Resolution
Record ID: 201598