Did substituting Florida mortgages as collateral for notes issued under a confirmed Chapter 11 plan trigger documentary stamp or intangible tax?

Subject

Substitution of Collateral on Exempt Notes; Bankruptcy Confirmed Plan

Plain-English summary

The substitute, replacement, or additional Florida mortgages were exempt from documentary stamp and intangible tax. They secured notes already issued tax-free under a confirmed Chapter 11 plan, fulfilled the plan's collateral-maintenance provisions, and did not renew or modify the notes.

The ruling also states that no future advance was involved. Its official text cross-references later TAA 95M-005.

What this means for you

The exemption followed the confirmed plan and unchanged exempt notes. New money, a note modification, or collateral outside the plan's contemplated structure would present different facts.

Common questions

Did recording a Florida mortgage alone trigger tax? No, under the confirmed-plan facts.

Were the exempt notes changed? No.

Was new credit advanced? No.

Citations and references

• 11 U.S.C. § 1146(c)
• Fla. Stat. ch. 199 and § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94M-006

Original ruling text

Status: Cross Reference - TAA 95M-005 dated May 17, 1995

Jun 02, 1994

Re: Technical Assistance Advisement No. 94(M)-006 Documentary Stamp Tax and Intangible Tax on Substitution of Collateral on Exempt Notes; Bankruptcy Confirmed Plan XXX (hereinafter Borrower)

Dear :

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

Issue

Whether the execution and recordation from time to time of mortgages encumbering Florida real property as substitute collateral securing exempt notes previously issued by Borrower pursuant to a plan of reorganization as confirmed by the U.S. Bankruptcy Court (Confirmed Plan) under Chapter 11 of the U.S. Bankruptcy Code (Code) are subject to the documentary Stamp Tax or the Intangible tax.

Statement of Facts

On March 31, 1992, the Borrower, the reorganized debtor under the Confirmed Plan, delivered certain Secured Cash Flow Notes (Notes), secured by a lien and security interest against various assets pursuant to the Confirmed Plan. The Notes were and are exempt from documentary stamp tax and intangible tax pursuant to 11 U.S.C. s. 1146(c) of the Code. A Technical Assistance Advisement, No. 92(M)-006 (Previous TAA), confirmed this s. 1146(c) exemption for the notes.

The credit documents previously executed by the Borrower under the Confirmed Plan require the Borrower to maintain a

certain minimum level of collateral to secure the Notes, and the Borrower's failure to do so would be a default. The holder of the Notes agreed to allow the Borrower to comply by granting mortgages on real property as substitute, replacement or additional collateral to secure the Notes.

The borrower has requested the holders of the Notes to release portions of the existing collateral from time to time and to accept from the borrower, as substitute collateral for the exempt Notes, mortgages encumbering other real property owned by the Borrower. The Notes were not originally secured by real property, the Plan does not specify real property as security, and the holders are willing to accept the mortgages as replacement security. The Plan allows substitution of collateral in order to obtain any releases of a portion of the existing collateral.

The exempt Notes will not be renewed or modified in connection with the substitution. However, the Plan and the previous TAA both provide that subsequent renewals and modifications of the varies notes, mortgages and other security documents as part of the Plan would be exempt from both the Documentary Stamp Tax and Intangible Tax under 11 U.S.C. s. 1146(c). This transaction does not involve future advances which would be taxable.

Discussion and Law

Intangible Tax

Chapter 199, F.S., imposes a nonrecurring tax of two mills on obligations for the payment of money which are secured by Florida real property.

Documentary Stamp Tax

Where deeds, mortgages, notes, or other instruments are issued under a Chapter 11, s. 1146(c) plan of the Bankruptcy Code which has been confirmed, no taxes are due.

U.S. Bankruptcy Code

Chapter 11, s. 1146 (c), U.S.C., provides that the issuance, transfer or exchange of a security or the making of or delivery of an instrument of transfer under a confirmed plan is exempt from a stamp tax or similar tax.

Department's Position

Based on the provisions of Chapter 11 of the Bankruptcy Code, the Borrower's execution and recordation of substitute, replacement or additional collateral from time to time and the renewal or modification of the original notes and mortgages by the debtor are exempt from both the Documentary Stamp Tax and Intangible Tax.

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