Did a cooperative member's mortgage on a membership certificate and proprietary lot lease trigger Florida's nonrecurring intangible tax?

Subject

Property Subject to Tax - Mortgage -Secured by Personal Property

Plain-English summary

The member's mortgage did not trigger the nonrecurring intangible tax when recorded, because it did not create a lien on the cooperative's real estate. The cooperative owned the land. The member owned only a membership certificate and a proprietary lease giving the right to use a particular lot.

The Department treated those member-owned interests as intangible personal property. Although the mortgage referred to a specific lot, the member could not place a lien on land owned by the cooperative. The separate obligation secured by the mortgage was instead subject to the annual intangible personal property tax, payable by the owner of the note.

What this means for you

The tax treatment followed the property the borrower could legally encumber, not the real-estate appearance of the document. This is a historical ruling under Florida's 1993 intangible-tax provisions.

Common questions

Q: Did recording the member's mortgage trigger the nonrecurring tax? No.

Q: Why was the proprietary lease not treated as a mortgage on the cooperative's land? The member did not own that land and could grant a lien only on the membership certificate and lease interests the member owned.

Q: Was the secured obligation entirely free of intangible tax? No. The ruling said the note owner owed annual intangible tax on the obligation.

Citations and references

• Fla. Const. art. VII, § 2 — limits on intangible taxation
• Fla. Stat. § 199.133 — nonrecurring tax on obligations secured by Florida real property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-032

Original ruling text

Dec 10, 1993

Re: Technical Assistance Advisement 93(C)2-032
Intangible Tax - Property Subject to Tax - Mortgage Secured by Personal Property
XXX (Co-op)

Dear :

Your letter requesting a Technical Assistance Advisement
has been referred to this office for response.

At issue is the question of the proper tax levy to be
applied to mortgages given, by purchasers of certificates of
membership in a mobile home cooperative, to secure their
purchase of certificates of membership in the mobile home
cooperative and the accompanying proprietary lease of a lot
within the mobile home park. In considering the question this
office has examined Co-op's Articles of Incorporation, Bylaws,
Purchase Agreement, Master Form Members' Lease, Memorandum of
Proprietary Lease, Mortgage and Note. From these documents the
following synopsis of the transaction has been developed:

A mobile home cooperative development is established by the
purchase of land and the filing of articles of
incorporation as a co-op organized under Florida law.
Certificates of membership are sold and a proprietary lease
is granted for a specific lot within the mobile home park.
The purchaser grants a mortgage to the cooperative to
secure the purchase of the certificate of membership. The
collateral given as security is the certificate of
membership and the proprietary lease. The member of the
co-op is then allowed to place his mobile home upon the lot
for which the proprietary lease is given.

Provisions of Law

The Constitution of the State of Florida under Article VII,
Section 2. provides:

All ad valorem taxation shall be at a uniform rate within
each taxing unit, except the taxes on intangible personal
property may be at different rates but shall never exceed
two mills on the dollar of assessed value; provided, as to
any obligation secured by mortgage, deed of trust, or other
lien on real estate wherever located, an intangible tax of
not more than two mills on the dollar may be levied by law
to be in lieu of all other intangible assessments on such
obligations. (Emphasis Supplied)

Section 199.133, F.S., levies a nonrecurring tax of 2 mills
on notes and obligations for the payment of money which are
secured by a written specific lien upon real property located in
this state.

Discussion of Law

Under the provisions of Co-op's Articles of Incorporation,
Bylaws, Purchase Agreement, Master Form Member's Lease and
Memorandum of Proprietary Lease each member of the Co-op
purchases a Certificate of Membership and an accompanying
proprietary lease. The member if not making the purchase for
cash, finances the purchase price. As collateral for the amount
financed the member grants a mortgage lien on the certificate of
membership in Co-op and the accompanying proprietary lease. The
mortgage document references that the mortgage is on a specific
lot within Co-op. This gives the appearance of a mortgage on
real estate. However, when analyzed it is revealed that the
member can not grant a mortgage on the real estate. The member
can mortgage only that property which is owned by him. The
property which is owned by the member is the certificate of
membership and the proprietary lease. The certificate of
membership when coupled with the proprietary lease serves to
create a beneficial ownership in lands owned by Co-op. However,
because the member can not cause a lien to be attached to lands
owned by Co-op the lien created under the member's mortgage can
only be upon the member's property which is classified as
intangible personal property because it derives its value from
what it represents, the right to use and occupy a lot within
lands owned by Co-op.

Conclusion

The mortgage given by a member to Co-op and secured by the
certificate of Membership and the Proprietary Lease is not
subject to the non-recurring intangible personal property tax
upon the recording of the mortgage. The obligation which is
secured by the mortgage is subject to the annual intangible
personal property tax and is taxed to the owner of note on its
annual intangible tax return.

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 and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

J.V. Parramore, Jr.
Tax Law Specialist
Technical Assistance

JVP/mh