Which station-purchase documents under a confirmed Chapter 11 plan escaped Florida documentary stamp and intangible taxes?

Subject

Notes, Mortgages and Transfers of Real Property under a Confirmed Bankruptcy Plan

Plain-English summary

The mortgage, security agreement, financing statement, and assignment of rents were exempt from documentary stamp and intangible taxes. They were transfer documents and security under the confirmed Chapter 11 plan, and the debtor company was a party.

The warranty deed was different because neither the seller nor purchaser was a Chapter 11 debtor, so Florida stated that section 1146(c) did not apply. Even so, the Department declined to impose tax on that deed under the transaction's unique facts, including debtor financing and the cost and uncertainty of seeking relief from the confirmation order.

What this means for you

The ruling did not recognize a blanket bankruptcy-plan exemption. Debtor participation controlled the statutory analysis, while the nontaxation of the deed was a fact-specific enforcement decision.

Common questions

Was every document mentioned in the confirmation order exempt? No.

Why did the security package qualify? A Chapter 11 debtor was a party and the documents were under the confirmed plan.

Did Florida concede that the warranty deed qualified under section 1146(c)? No. It said the exemption did not apply but declined assessment on unique facts.

Citations and references

• Fla. Stat. §§ 199.032, 199.133, 201.01, 201.08, and 213.22
• 11 U.S.C. §§ 1129 and 1146(c)
• Fla. Admin. Code r. 12B-4.051(1)-(2)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94M-002

Original ruling text

Jan 24, 1994

Re: Technical Assistance Advisement No. 94(M)-002
Documentary Stamp and Intangible Taxes
Notes, Mortgages and Transfers of Real Property under a
Confirmed Bankruptcy Plan
Sections 201.08 and 199.133, Florida Statutes
XXX (Company)
XXX (Purchaser)
XXX (Seller)
XXX (Partners)

Dear :

Your request for a Technical Assistance Advisement on the
application of the Federal Bankruptcy Code to the Documentary
Stamp and Intangible taxes has been received by this office.

The following is a summary of the transaction described in
your letter:

The Company, through various wholly owned subsidiaries, is
in the business of owning and operating television stations
throughout the United States. On XX, four creditors of the
Company filed an involuntary petition against the Company
for relief under Chapter 11, Title 11, United States Code
(the Bankruptcy Code'), in the United States Bankruptcy Court for the District of Delaware (theBankruptcy
Court'). On XX, the Company filed its Answer to
Involuntary Petition consenting to the relief requested and
the Subsidiaries, and Partners, commenced bankruptcy cases
by filing voluntary petitions for relief under Chapter 11
of the Bankruptcy Code. On XX, the Company, the
subsidiaries, and Partners (collectively called the
Debtors') also filed the Debtors' Joint Plan of Reorganization (thePlan') under Chapter 11 of the
Bankruptcy Code. This Plan was modified in three separate
filings and accepted by the Bankruptcy Court.

After an analysis of the Company's financial condition,
operations, and structure, the Company was restructured
pursuant to the Plan. As a part of this restructuring, the
Company and the Purchaser enter into an Asset Purchase
Agreement with the Seller, pursuant to which the Company
and the Purchaser agreed to acquire a television station
(Station) from the Seller for XX in cash. Pursuant to the
Plan, the Company financed the Station Purchase by making a
contribution to the Purchaser of XX cash received by the
Company from an investor and XX in aggregate principal
amount of the New Senior Notes issued by the Company. The
Investors purchased XX of the Company's New Common Stock
and Class B Warrants. The additional funds were raised from
the sale of New Senior Notes to another investor. The
Company's financing of the Station Purchase is secured by a
Mortgage, Security Agreement, Financing Statement and
Assignment of Rents from the Purchaser to the Company in
the amount of XX.

On May 6, 1993, the Bankruptcy Court entered its Order
containing findings of fact and conclusions of law,
approving and confirming the Joint Plan of Reorganization
as modified (the `Order'). Under the Bankruptcy Court's
Order confirming the Plan, it states at Paragraph III A on
page 23 of the order: "The Plan and each of its provisions
shall be, and hereby are confirmed in each and every
respect pursuant to section 1129 of the Bankruptcy Code."

The Order also provides for an exemption from taxation as
Follows:

Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, distribution, transfer or exchange of New Credit
Agreement Notes, New Senior Notes, New Common Stock or New
Warrants; the creation, modification, consolidation or
recording of any mortgage, deed of trust or other security
interest; the securing of additional indebtedness by such
means or by other means or the additional securing of
existing indebtedness by such means or by other means
(whether in connection with the issuance and distribution
of the New Credit Agreement Notes, New Senior Notes, the

New Common Stock, the New Warrants or otherwise); the
making, assignment or recording of any lease or sublease;
or the making, delivery or recording of any deed or other
instrument of transfer under, in furtherance of, or in
connection with, the Plan, including any merger agreements
or agreements of consolidation, deeds, bills of sale,
assignment or other instruments of transfer executed in
connection with the Restructuring Transactions, shall not
be subject to any document recording tax, stamp tax,
conveyance fee, intangible tax, real estate transfer tax,
mortgage recording tax or other similar tax or governmental
assessment, and the appropriate state or local governmental
officials or agents shall be, and hereby are, directed to
forego the collection of any such tax or governmental
assessment and to accept for filing and recordation any of
the foregoing instruments or other documents without the
payment of any such tax or governmental assessment.

ISSUES

The issue is whether the Company is required under sections
201.01 and 201.08, Florida Statutes, to pay documentary stamp
taxes on, or to pay intangible taxes under sections 199.032, and
199.133, Florida Statutes, on the Mortgage, Security Agreement,
Financing Statement and Assignment of Rents; and the Warranty
Deed.

PROVISIONS OF LAW

United States Code

Under the provisions of Chapter 11, section 1146(c) United
States Code the issuance, transfer, exchange of a security, or
the making or delivery of an instrument of transfer under a plan
confirmed under Chapter 11, section 1129, U.S.C., may not be
taxed under any law imposing a stamp tax or similar tax. A
security under Chapter 11, U.S.C., is defined to include a note,
bond or debenture. However, as a tax exemption, section 1146(c)
is strictly construed and does not extend to transfer documents
to which a Chapter 11 debtor is not a party. In re Eastmet
Corp., 907 F.2d 1487 (4th Cir. 1990). An affected taxing

authority has a due process right to notice of and opportunity
to object to any proposed bankruptcy court action which purports
to apply the section 1146(c) exemption to transactions not
within the statute. See In re Bel-Aire Investment, Inc., 142
B.R. 992 (Bkrtcy. M.D.Fla. 1992).

Documentary Stamp Tax

Section 201.08(1), Florida Statutes, levies a tax on
promissory notes and other written obligations to pay money that
are signed or delivered in Florida, and on mortgages that are
filed or recorded in Florida. When there is both a promissory
note and mortgage, the tax is to be paid on the mortgage and a
notation made on the promissory note that tax was paid and
affixed to the mortgage. [Section 201.08(1), Florida Statutes;
Rule 12B-4.051(1),(2), F.A.C.]

Section 201.01, Florida Statutes, provides that if the
United States, the State or any political subdivision is a party
to a document taxable under Chapter 201, Florida Statutes, any
nonexempt party to the document must pay the tax, unless the
document itself is exempt under section 201.24, Florida
Statutes, or unless the document itself is exempt under a state
or federal law.

Intangible Tax

Section 199.032, Florida Statutes, imposes a tax of 2 mills
upon obligations for the payment of money which are not secured
by real property. Section 199.133, Florida Statutes, imposes a
nonrecurring tax of 2 mills upon obligations for the payment of
money which are secured by a lien on real property located in
Florida.

DEPARTMENT'S POSITION

Your request for Technical Assistance Advisement seeks only
the Department's position with respect to (1) the Mortgage,
Security Agreement, Financing Statement and Assignment of Rents;
and (2) the Warranty Deed. These are the only documents
specifically referenced in your letter of October 19, 1993, and

the only documents potentially subject to tax in the compilation
of Exhibits submitted with your request. Accordingly, no
opinion is expressed on the taxability of any other documents.

Pursuant to Bankruptcy Code section 1146(c), the Mortgage,
Security Agreement, Financing Statement and Assignment of Rents
is exempt from documentary stamp tax and intangible tax by
virtue of the fact that it is a transfer document and security
under a confirmed Chapter 11 Plan of Reorganization to which a
Chapter 11 Debtor, Company is a party.

However, the Warranty Deed by Seller, to Purchaser is
problematical in that neither party to the deed is a Chapter 11
debtor. To the extent that the Order Confirming Plan purports
to encompass the deed within the section 1146(c) exemption,
there is a serious question under In re Eastmet Corp., supra, as
to the Bankruptcy Court's authority to do so. Based on the lack
of notice that such relief was being requested, it appears that
the Department has a basis for seeking relief from the Order
Confirming Plan under Fed. R. Civ. P. 60(b) (relief from
judgment). However, the underlying facts of the total
transaction suggest that such relief might be difficult and
costly to obtain, since (1) a Chapter 11 debtor, Company has
been instrumental in providing and obtaining financing for its
subsidiary, the grantee on the deed, and could be viewed in the
equitable bankruptcy forum as a de facto party to the deed; and
(2) the Bankruptcy Court is out-of-state, and the time and
expense in seeking relief would be substantial.

Accordingly, Your are advised that the Department of
Revenue takes the position that the section 1146(c) exemption
does not apply to any transfer document to which a Chapter 11
debtor is not a party, and that the Department must be given
notice and an opportunity to be heard whenever a bankruptcy
court purports to apply the exemption to documents outside the
scope of the statute. However, in the unique factual
circumstances of this transaction, and in view of the discussion
above, the Department will not seek to impose documentary stamp
tax or intangible tax on the Warranty Deed.

This response constitutes a Technical Assistance Advisement

under section 213.22, Florida Statutes, which is binding on the
Department only under the facts and circumstances described in
the request for this advice as specified in section 213.22,
Florida Statutes. 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, Florida Statutes, which
are subject to disclosure to the public under the conditions of
section 213.22, Florida Statutes. 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