How did documentary stamp tax apply to primary notes and Florida or out-of-state mortgage collateral in a wholesale warehouse arrangement?

Subject

Warehouse Mortgage Agreement

Plain-English summary

A Florida primary obligation incurred no further documentary stamp tax only to the extent it did not exceed Florida mortgage collateral on which the proper tax had already been paid. Any excess of the primary note over that taxed collateral was taxable.

Non-Florida notes and mortgages executed outside Florida and brought into the state only for collection or servicing qualified for the described exemption when no Florida nexus was established. By contrast, collateral obligations executed in Florida were taxable even if secured by out-of-state mortgages. A primary note executed in Florida and backed by untaxed out-of-state collateral was also taxable.

What this means for you

The warehouse label alone did not establish exemption. Florida compared debt to already-taxed collateral and separately examined execution, delivery, property location, servicing, and nexus.

Common questions

What happened when the primary debt exceeded taxed Florida collateral? Tax applied to the excess.

Did Florida custody for servicing alone create tax on out-of-state documents? No, under the represented no-nexus facts.

Did an out-of-state mortgage protect a note executed in Florida? No. The ruling treated the Florida-executed collateral obligation as taxable.

Citations and references

• Fla. Stat. §§ 201.08, 201.21, 201.23(1)(c), and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94B4-001

Original ruling text

Feb 16, 1994

Re: Technical Assistance Advisement No. 94(B)4-001
Documentary Stamp Tax, Warehouse Mortgage Agreement
Sections 201.08, 201.21, F.S.
XXX (hereinafter Florida Lender/Originator)
XXX (hereinafter Originators)
XXX (hereinafter Originators)
XXX (hereinafter Depositors)
XXX (hereinafter Trust)
XXX (hereinafter Trustee)
XXX (hereinafter Indenture Trustee)
XXX (hereinafter Custodian)

Dear :

This is in answer to your inquiry requesting an opinion
from this office on substantially the following question:

1. Where Florida mortgages (on which proper documentary
   stamp taxes have been paid) are pooled pursuant to a
   wholesale warehouse mortgage agreement and transferred
   to the trust who assigns them to an indenture trustee
   for which promissory notes (primary obligations) are
   issued by the trust, are additional documentary stamp
   taxes due under s. 201.21, F.S.?
2. Is the delivery of the non-Florida mortgages and the
   out-of-state notes secured thereby to the Florida
   custodian to be serviced by a licensed mortgage
   lender, exempt from taxation pursuant to the
   provisions of s. 201.23(1)(c), F.S.?
3. Where out-of-state mortgages (on which no Florida
   documentary stamp taxes have been paid) are pooled
   pursuant to a wholesale warehouse mortgage agreement
   and transferred to a trust who assigns them to an
   indenture trustee for which promissory notes are
   executed and delivered outside the State of Florida
   and brought into the State for deposit as collateral
   security pursuant to a wholesale warehouse mortgage

agreement or for inclusion in a pool of non-Florida
mortgages deposited with a custodian to be serviced
for the account of a customer by a mortgage broker
licensed or exempt from licensing under chapter 494,
F.S., are documentary stamp taxes due the State of
Florida?

BACKGROUND

A pool of Florida mortgages and non-Florida mortgages will
be transferred by the Originators as a contribution of capital
to one or more wholly-owned special-purpose corporations
(Depositors). The purpose for the formation of the Depositor
corporations is to insulate the Pooled Loans from the effects of
any potential future insolvency of, or bankruptcy proceedings
against one or more of the Originators. The transactions
involving the Pooled Loans have been structured: (1) to insure
that the voluntary application by any Originator for relief
under the U.S. Bankruptcy Code or under similar state laws will
not result in consolidation of the assets and liabilities of the
Depositors with those of such Originator, and (2) for securities
rating purposes.

The certificates of incorporation of the Depositors will
contain limitations on the nature of the Depositors' business
and restrictions on the ability of the Depositors to commence
voluntary or involuntary cases or proceedings under bankruptcy
laws without unanimous affirmative votes of all of their
directors. The Depositors will not engage in any other
business.

The Depositors will immediately transfer the pooled loans
to a separate trust (Trust). The Trust will be a business trust
created under Title XII of the Corporation Code of the State of
Delaware. The Trust will be a limited-purpose entity and may
not engage in any activity other than acquiring, holding and
managing the Florida Mortgages and Non-Florida Mortgages,
issuing the Securities, offering them for sale to the public,
and making payments on the Securities to the purchasers
(Purchasers).

The Trust will be treated as a partnership for federal
income tax purposes and will not be subject to income tax as an
entity. The Purchasers of Certificates will be deemed partners
and be subject to taxation on their respective distributive
shares of income, gain, loss and deductions of the Trust.

The Securities issued by the Trust will be certificates or
notes which represent beneficial ownership interest in the
assets held by the Trust or debt of the Trust secured by the
Pooled Loans. The Securities will be registered with the
Securities & Exchange Commission and offered for sale to the
public. Certificates issued by the Trust would represent an
undivided equity interest in the Trust. The allocation of the
Securities between debt and equity instruments will in all
likelihood be market driven.

Notes would be issued by the Trust pursuant to an indenture
(Indenture) between the Trust and a separate indenture trustee
(Indenture Trustee). These Notes would be secured by the Pooled
Loans. The Florida Mortgages and Non-Florida Mortgages would be
assigned to the Indenture Trustee as collateral.

The device of the Indenture is used solely because
applicable trust law prohibits the Trust from serving as both
the issuer of notes and the holder of the collateral for those
instruments. The separation of these duties is also required by
the securities rating agencies and insurers of the Securities in
order to provide more protection to the Purchasers. There will
be no separate loan transaction between the Trust and the
Indenture Trustee.

The Indenture Trustee will be responsible for collection,
through the Florida Lender as servicer, of payments on the
Florida Mortgages and Non-Florida Mortgages and for the
disbursement of payments to the Purchasers of the Securities.

DISCUSSION AND LAW

The exemption from tax under s. 201.21, F.S. on promissory
notes, nonnegotiable notes, and other written obligations to pay
money as primary obligations pursuant to a wholesale warehouse

mortgage agreement, applies only if documentary stamp taxes
imposed by Chapter 201, F.S., have already been paid on the
collateral obligations (promissory notes secured by Florida
mortgages).

As to question one, pursuant to s. 201.21, F.S., if the
primary obligations do not exceed the amount deposited as
collateral (on which proper documentary stamp taxes imposed by
Chapter 201 have been paid) pledged pursuant to a wholesale
warehouse mortgage agreement, no further documentary stamp taxes
are due. If the primary obligations exceed the amount of
mortgages deposited as collateral pursuant to the wholesale
warehouse mortgage agreement, documentary stamp tax is due on
the amount of this excess.

As to question two, the non-Florida mortgages pledged
pursuant to a wholesale warehouse mortgage agreement and the
non-Florida notes secured thereby delivered to the Florida
custodian to be serviced by a licensed mortgage lender, are
exempt from the documentary stamp tax pursuant to s.
201.23(1)(c), F.S. Where a document is sent into the State of
Florida merely for purposes of collection and no nexus is
established with Florida, no documentary stamp tax under s.
201.08, F.S., attaches to the transaction.

As to question three, this transaction would be entitled to
the exemption granted under s. 201.21, F.S., if the promissory
notes (pledged under a wholesale warehouse mortgage agreement to
secure a primary obligation) were executed and delivered outside
the State of Florida and are secured with mortgages on nonFlorida property, where no nexus is established with Florida.

DEPARTMENT'S POSITION

If the Florida promissory notes given as primary
obligations pursuant to a wholesale warehouse mortgage agreement
exceed the sum of Florida collateral obligations on which proper
documentary stamp taxes have been paid under s. 201.08, F.S.,
this excess is subject to tax under s. 201.08, F.S.

If the collateral obligations pledged to secure a primary

obligation pursuant to a wholesale warehouse mortgage agreement
are executed outside Florida and brought into Florida only for
servicing, no documentary stamp taxes apply under s. 201.21,
F.S. However, if the collateral obligations pledged to secure a
primary obligation pursuant to a wholesale warehouse mortgage
agreement are executed in Florida even if secured by out-ofstate mortgages, these collateral obligations are subject to tax
under s. 201.08, F.S. at the rate of $.35 per hundred dollars or
fraction thereof.

In addition, if the primary obligation (promissory note) is
executed in Florida pursuant to a wholesale warehouse mortgage
agreement for which out-of-state notes and mortgages are given
as collateral obligations where no Florida documentary stamp
taxes have been paid on these collateral obligations, the
primary obligation (promissory note) is subject to the tax
imposed by s. 201.08, F.S.

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,

M.E. Clemens
Tax Audit Specialist III
Technical Assistance

MEC/mh