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