Could a renewal note remain exempt when its effective date differed from execution or a corrective document fixed the stated balance?

Subject

Renewal Notes

Plain-English summary

A renewal note could remain exempt from additional documentary stamp tax even when its stated effective date preceded its execution date. When the renewal was effective from the original maturity date, the unpaid principal balance on that effective date controlled. Payments that reduced the balance before the later signing date did not defeat the exemption.

The bank also could execute a corrective document to fix a verifiable mistake in the balance recited in the renewal agreement. Although no specific corrective-document exemption applied, correcting the actual balance did not destroy the renewal's exempt status when every other section 201.09 requirement was satisfied.

What this means for you

The controlling balance followed the date from which the renewal actually operated. Records needed to establish the original taxed obligation, the effective-date balance, intervening payments, and the factual error corrected.

Common questions

Which balance controlled when effective and execution dates differed? The effective-date balance, when the instrument renewed the obligation from that date.

Did later principal payments defeat the exemption? No. The Department allowed the exemption even though the balance fell between the renewal date and execution date.

Could an incorrect balance be corrected tax-free? The exempt status continued when the corrective document merely fixed a verifiable error and all other section 201.09 conditions were met.

Citations and references

• Fla. Stat. §§ 201.08(1), 201.09, and 213.22
• Fla. Admin. Code rr. 12B-4.051(1) and 12B-4.054(1)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94B4-021

Original ruling text

Dec 12, 1994

Re: Technical Assistance Advisement No. 94(B)4-021
Documentary Stamp Tax; Renewal Notes
XXX (Bank)
XXX (Borrower)

Dear :

You have petitioned for a Technical Assistance Advisement
pursuant to s. 213.22, F.S., and Rule 12-11.003, F.A.C.

Issue I

Whether a renewal instrument containing an effective date
different from the actual date of execution, when the actual
outstanding principal balance as of the effective date is the
amount renewed, is taxable when the principal balance as of the
execution date had been reduced between the effective date and
the actual date of execution.

Issue II

Whether a corrective note can be issued tax exempt to
correct the outstanding balance on a renewal note where the
outstanding balance on the books and records is a greater amount
than the amount cited on the renewal note.

Facts and Discussion

On or about June 18, 1987, Bank made a loan to Borrower in
the amount of $XX evidenced by a promissory note and secured by
a mortgage on Florida real property. All appropriate
documentary stamp taxes and intangible taxes were paid. On or
about October 21, 1988, the Bank made a future advance to the
Borrower in the amount of $XX. This future advance was
evidenced by a separate promissory note in the amount of $XX and
was thereupon consolidated into that certain Amended and
Consolidated Note dated October 18, 1988, in the amount of $XX.

Appropriate documentary stamp taxes and intangible taxes were
paid in connection with the recording of the Notice of Future
Advance and Mortgage Modification Agreement further evidencing
the above-referenced Future Advance and Consolidation.

The maturity date of the Consolidated Note was June 18,
1993. On January 13, 1994, the Borrower signed a Modification
and Extension Agreement and Waiver which document, pursuant to
its terms, was made effective as of June 18, 1993. A copy of
this Extension Agreement was enclosed for our information.

Paragraph H of the recitals to the Extension Agreement
reflected that the outstanding principal balance due under the
Consolidated Note as of the effective date (i.e., June 18, 1993)
was $XX. On the execution date of the Extension Agreement (i.e.,
January 13, 1994), the outstanding balance of the loan was $XX.
According to the Bank's trial balance, on the effective date of
the Extension Agreement the outstanding balance was actually
$XX. It was not until after the recording of the Extension
Agreement that this error in the reference to the outstanding
principal balance on the effective date was discovered.

Upon discovery of this error, in February of 1994, the
Bank, the Borrower and the Guarantors entered into a
Modification Agreement (a copy of which was also attached to
your letter) correcting the reference to the outstanding balance
as of the effective date.

Issues Upon Which a Technical Assistance Advisement is Requested

Based on the foregoing description of facts, two issues are
presented upon which the Bank requests a technical assistance
advisement. These issues are as follows:

a. Where the renewal instrument contains an effective
date different from the actual date of execution and
if the actual outstanding principal balance as of the
effective date is the amount renewed, will the renewal
be exempt from tax provided all other requirements of
s. 201.09, Florida Statutes, are met even though the
principal balance as of the execution date may have

been reduced by principal payments received between
the effective date and the actual date of execution?

b. Where an unintentional error is made in calculating
the outstanding principal balance as of the date of
renewal and, as a result of such error, the renewal
instrument renews an amount greater than the
outstanding principal amount, if the Bank promptly
corrects such error upon its discovery will the
renewal instrument nevertheless be subject to
documentary stamp taxes under the theory that it
renews more than the outstanding principal balance of
the loan on the effective date of the renewal?

Your Discussion of Issues Presented

a. I am unaware of any statutes, regulations, court
decisions or Technical Assistance Advisements which
address the first issue set forth above. It would
appear only logical, however, that if a promissory
note is executed and is to be effective as of a date
other than the date of execution, the date upon which
the note is effective should be the date used for
testing whether the promissory note satisfies the
requirements of s. 201.09. In other words, the balance
outstanding on the effective date should be the
balance renewed under the renewal instrument. If the
promissory note is effective as of a certain date, and
the parties desire to evidence the Borrower's
obligations as of that date, then the outstanding
amount on that date must be used. Based on the
foregoing, it is my belief that if a renewal
promissory note is executed which contains an
effective date other than the date of execution, then
the renewal note should only renew the outstanding
balance as of the effective date and not the
outstanding balance on the date of execution.

b. With respect to the second issue presented above, I am
not aware of any regulations, court decisions or
Technical Assistance Advisements which address this

issue. To impose a tax, however, based on an error as
described above, would be to impose a tax upon a
taxpayer due to a mistake of fact. In my view, the
Department of Revenue should not be so stringent in
its interpretation of the statute so as to impose a
tax in the case where an honest error is made in
calculating the outstanding principal balance and
immediately upon discovery of that error, the taxpayer
takes steps to correct its own mistake and modify the
note and/or mortgage to reflect the correct amount.
Florida Administrative Code Rule 12B-4.014(3) exempts
from documentary stamp taxes deeds which are executed
to correct a deficiency in a previous deed on which
the tax has been paid. While I acknowledge that this
regulation addresses the tax imposed under s. 201.02
rather than the tax imposed under ss. 201.08 and
201.09, I think it is instructive on how this issue
should be resolved. This regulation introduces the
concept that a taxpayer should not be penalized for a
mistake of fact where such mistake of fact is later
corrected.

c. The above-referenced factual situation and issues have
previously been presented by the Bank to the
Department of Revenue. Mr. James E. Silvey responded
to such request by informal letter of technical advice
dated June 24, 1994, a copy of which is also enclosed
for your information. With this request for Technical
Assistance Advisement, we are trying to receive a
binding determination from the Department of Revenue
on these issues.

Discussion and Law

The tax levied by s. 201.08(1), F.S., is an excise tax on
promissory notes, nonnegotiable notes, written obligations to
pay money made, executed, delivered, sold transferred, or
assigned in Florida and for each renewal of the same. Section
201.09, F.S., exempts the renewal of notes and mortgages that
renew the identical contractual obligation.

Rule 12B-4.051(1), F.A.C., provides that tax is required on
a note executed in Florida with the tax measured by the amount
of the note. In addition, a document executed or recorded which
renews or extends an existing obligation is subject to tax,
unless it meets the requirements of s. 201.09, F.S. Further,
Rule 12B-4.054(1), F.A.C., provides that an original note may be
renewed for the unpaid balance of the amount which was
previously disbursed provided all other requirements of s.
201.09, F.S., are met without additional tax due. Section
201.09, F.S., provides that a note may be renewed without tax
due if it only extends or continues the identical contractual
obligations of the original note and evidences part or all of
the original indebtedness evidenced thereby. In order to be
exempt, the renewal note shall not be executed by any person
other than the original obligor and must renew and extend only
the unpaid balance of the original contract and obligation.

Department's Position

Section 201.08, F.S., taxes all renewals. Section 201.09,
F.S., provides an exception for renewals of the identical
contractual obligation. In the first case, the renewal
instrument contained an effective date different from the date
of execution. In addition, the actual outstanding principal
balance as of the effective date was the amount renewed, and the
principal balance was reduced between the effective date and the
date of execution. Since the tax applies to all notes and their
renewal unless the identical obligation is renewed and as the
renewal instrument in this case only renews the outstanding
balance as of the effective date of the renewal, the renewal is
exempt from additional documentary stamp tax under s. 201.09,
F.S., if all other requirements under s. 201.09, F.S., are met.
The exemption under s. 201.09, F.S., does not require that the
renewal date and execution date of a renewal be the same.
Further, the exemption may apply when the outstanding balance
has been reduced between the renewal date and the execution date
of the renewal.

When the renewal instrument renews the original note from
the maturity date and is effective from the maturity date and
not the execution date, the balance of the renewal instrument on

the maturity date controls. If the renewal renews the original
note from the date of execution, and is effective on the
execution date, the balance at the time of execution would
control.

The other situation consisted of executing a corrective
document to correct an error whereby the wrong balance was
recited in the renewal agreement. The question is whether a
corrective document can be executed and the documentary stamp
tax exempt status continued?

There is no specific provision for allowing a corrective
document to be exempt. However, as the document is exempt under
certain conditions, and as the original document was incorrect
and the corrective document merely corrected a verifiable error
as to the actual balance on the renewal date, the exempt tax
status would continue if all other requirements under s. 201.09,
F.S., are met.

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,

James E. Silvey
Tax Law Specialist
Technical Assistance

JES/jes