Were mortgage amendments under a confirmed Chapter 11 plan subject to Florida documentary stamp and nonrecurring intangible taxes?

Subject

Instruments and Amendments Executed Pursuant to a Confirmed Bankruptcy Plan

Plain-English summary

The covered amendments to the 1990 and 1992 mortgages did not trigger additional documentary stamp or nonrecurring intangible tax, provided the parties paid the proper tax on the new future advance. The Department relied on the confirmed Chapter 11 plan and order, which contemplated later mortgage supplements and amendments, and also found the unchanged debt qualified as exempt renewal or refinancing apart from the increase.

The taxable increase was the future advance evidenced by the increase note. Its Florida tax base was calculated by multiplying the advance principal by a fraction: the present value of Florida mortgaged real property over the present value of all collateral securing the credit agreements wherever located.

What this means for you

The ruling did not exempt newly advanced money. It separated covered plan instruments and identical-debt renewals from the additional credit and required tax on Florida's apportioned share of that increase.

Common questions

Were all amended credit facilities taxed again? No.

What amount remained taxable? The properly apportioned future advance.

How was the Florida share calculated? Florida mortgaged-property value divided by total collateral value, multiplied by the increase-note principal.

Citations and references

• 11 U.S.C. § 1146(c)
• Fla. Stat. §§ 199.145, 201.09, and 213.22
• Fla. Admin. Code rr. 12B-4.051(1), 12B-4.053(32), 12B-4.054(1), and 12C-2.004(2)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94M-007

Original ruling text

Jun 27, 1994

Re: Technical Assistance Advisement No. 94(M)-007
Documentary Stamp Tax and Intangible Tax; Instruments
and Amendments Executed Pursuant to a Confirmed Plan Under
Chapter 11 of U.S. Bankruptcy Code
XXX (the "Company")
XXX (Mortgagors)
XXX (Mortgagee)

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

In 1990, the 1990 Mortgages were recorded in Florida by the
1990 Mortgagors securing credit extended to the Company under a
1988 credit agreement, loans, and letters of credit (the
Original Credit Agreements). The original Credit Agreements
were also secured by property in other states, with Florida
documentary stamp tax and intangible tax paid based on the value
of the Florida property.

On June 2, 1992, the Company filed a voluntary bankruptcy
petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the

District of Delaware. On July 8, 1992, the bankruptcy court
confirmed the Company's plan of reorganization (the Plan), which
directs the Company and the other Mortgagors to execute amended
and restated credit agreements with the Mortgagee and the other
banks (the 1992 Credit Agreements), which did not change the
principal balance. The plan authorized and directed the
Mortgagors to execute in favor of the Mortgagee, as agent for
itself and the other banks, the Security Documents as defined in
the 1992 Credit Agreements. The 1992 Credit Agreements and the
Plan defined the Security Documents to include the Mortgages as
defined in the Credit Agreements, which further included the
mortgages made by the Mortgagors in favor of the Mortgagee for
the benefit of the banks as they may be supplemented, amended,
or modified from time to time. The Plan and the confirmation
order provides that the exemption under Federal Bankruptcy
applies to the mortgages and all similar instruments delivered
and recorded pursuant to, in implementation of, or as
contemplated by the Plan.

The Mortgages delivered to mortgagee in connection with the
1992 Credit Agreements consisted of: (i) amended and restated
versions of the 1990 Mortgages (on which all Florida stamp taxes
and intangible taxes were paid) from the 1990 Mortgagors; (ii)
new mortgages on other Florida real property from the other
Mortgagors (the 1992 Mortgages); and (iii) new mortgages and
amended mortgages on properties located in other states. As set
forth in the Previous TAA, all of these Mortgages were exempt
based on the Plan; however, even without the bankruptcy, they
were exempt renewals which did not increase the indebtedness and
were executed by the same obligors.

The credit facilities available under the 1992 Credit
Agreements totaled approximately $643,000,000 consisting of term
loans facilities, an unfunded revolving line of credit, and
letters of credit. The 1992 Credit Agreements, the Plan, and
the confirmation order do not contain any provisions for
increasing the credit available, although the Florida Mortgages
have a future advance clause. The total amount that could be
renewed without a future advance is $251,653,969.76, which is
the unfunded revolver, the outstanding balance of the existing
term loans and the outstanding letters of credit.

The Company, the Mortgagors and the Mortgagee propose to
amend the 1992 Credit Agreements as follows: (i) the banks
holding notes under the 1992 Credit Agreements will assign their
notes back to Mortgagee as agent for the banks that will remain
in the 1994 bank group and other new banks will be added to the
bank group as Mortgagees; (ii) the total amount of credit
available to the Company and the Mortgagors will increase by
$48,346,030.24 to $300,000,000 with the increase evidenced by a
new note (the Increase Note) which will be a future advance
under the Mortgages; (iii) the 1992 Credit Agreements will be
amended and restated again (the 1994 Credit Agreements) to
change certain term loan facilities thereunder into revolving
loans and to make other changes; (iii) the Company and the
Mortgagors will issue renewal notes to the banks in the revised
1994 bank group in an aggregate amount equal to $300,000,000;
and the Mortgages would be amended to secure the future advance,
the renewed and increased credit facilities, and the 1994 Credit
Agreements. If some of the departing banks do not assign their
notes, the non-assigned notes will be paid and the amount of the
Increase Note will increase by that amount.

The Company and the Mortgagors propose to pay the Florida
documentary stamp tax and intangible taxes on the amended 1990
Mortgages and the 1992 Mortgages based on the future advance
evidenced by the Increase Note. The taxes will be prorated
based on the present value of the Florida mortgaged real
property divided by the present value of all the collateral
wherever located.

Taxpayer asserts that the taxes do not apply to the other
amended indebtedness governed by the 1994 Credit Agreements and
secured by the proposed amended 1990 Mortgages and 1992
Mortgages. This is based on the confirmation order and the Plan
including any supplements, amendments and modifications of the
Mortgages from time to time in their definition. In addition,
even if there was no bankruptcy, no taxes would be due on
proposed amendment since the amendment would quality as an
exempt renewal (except for the prorated Florida portion of the
Increase Note).

The taxpayer further requests the Department rule that:

1. Provided that the correct amount of taxes were paid on
   the future advance evidenced by the Increase Note,
   then the proposed amendments of the 1990 and 1992
   Mortgages are not subject to additional taxes. This
   is based on 11 U.S.C. s. 1146(c).
2. Provided that the proper taxes are paid on the
   Increase Note, the amendments to the 1990 Mortgages
   are exempt as exempt renewals and refinancing s.
   201.09, F.S. and s. 199.145, F.S.
3. The correct amount for the documentary stamp tax and
   intangible taxes payable on the future advance
   evidenced by the Increase Note is determined by
   multiplying the principal amount of the Increase Note
   by an apportionment fraction, the numerator of which
   is the present value of the Florida mortgaged real
   property and the denominator of which is the present
   value of all of the collateral for the 1994 Credit
   Agreements, wherever located.

Discussion and Law

Intangible 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.

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. In addition, section 199.145, F.S.,
provides that for a mortgage securing an identical debt where
the tax was paid on the original, no additional tax will be due.
Rule 12C-2.004(2), F.A.C., provides that the nonrecurring
intangible tax on a note or obligation for the payment of money
secured by realty located both in and out of Florida is
apportioned based on the value of the Florida property to the
total property secured times the amount of the obligation
secured. Further, future advances are taxable at the time each
advance is made based on the amount advanced.

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.

Florida Administrative Code Rule 12B-4.051(1), 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. 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 that extends or continues the identical
contractual obligations as the original. 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.

Finally, Rule 12B-4.053(32), F.A.C., provides that the
documentary stamp tax applies to mortgages securing out-of-state
notes secured by Florida property. If the mortgage secures only
Florida property, the tax is based on the percentage of the
indebtedness which the value of the mortgaged property located
in Florida bears to the total value of all mortgaged property,
but not less than the value of the Florida property, unless the
amount recoverable is limited. If the mortgage recorded in
Florida, secures the property located in Florida and all other
property wherever located, the tax is due of the prorated
amount.

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 taxes do not apply to the other amended indebtedness
governed by the 1994 Credit Agreements and secured by the
proposed amended 1990 Mortgages and 1992 Mortgages. This is
based on the confirmation order and the Plan including any
supplements, amendments and modifications of the Mortgages from
time to time in their definition. In addition, even if there
was no bankruptcy, no taxes would be due on proposed amendment
since the amendment would qualify as an exempt renewal (except
for the amount of tax due on the Increase Note).

Further, provided that the correct amount of taxes were
paid on the future advance evidenced by the Increase Note, then
the proposed amendments of the 1990 and 1992 Mortgages are not
subject to additional taxes. Also, provided that the proper
taxes are paid on the Increase Note, the amendments to the 1990
Mortgages are exempt as exempt renewals and refinancing s.
201.09, F.S. and s. 199.145, F.S.

As to the intangible tax and documentary stamp tax, the
correct amount payable on the future advance evidenced by the
Increase Note is determined by multiplying the principal amount
of the Increase Note by an apportionment fraction, the numerator
of which is the present value of the Florida mortgaged real
property and the denominator of which is the present value of
all of the collateral for the 1994 Credit Agreements, wherever
located.

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