Did refinancing a partnership's notes and mortgage through a corporate agent qualify as a tax-exempt renewal?

Subject

Renewal of Note and Mortgage

Plain-English summary

The Department treated the refinancing documents as a qualifying renewal for documentary stamp tax because the added corporation acted solely as the partnership's agent, not as a new borrower acting in its own right. The corporation had no operations, no meaningful assets, provided no security, was not liable for repayment, and acted under a written agency agreement. The bonds were also to state that agency role.

The intangible-tax result was different. No additional nonrecurring intangible tax applied to the renewal of the existing indebtedness, but the Department said tax was due on a $298 million increase: the $537 million principal represented by the new first-mortgage bonds less the approximately $239 million outstanding loan balance.

What this means for you

The identity and legal capacity of the obligors mattered. Adding a named co-issuer did not destroy renewal treatment here only because the ruling found a genuine agency relationship and no independent repayment or security role for the corporation. The documentary-stamp and intangible-tax calculations also followed different previously taxed amounts.

Common questions

Did the corporate co-issuer make the renewal fully taxable? No. On the stated agency facts, the corporation acted for the partnership rather than as a new obligor in its own right.

Was additional documentary stamp tax due? The Department said no under the stated renewal and agency structure.

Was the refinancing free of all additional intangible tax? No. The ruling imposed nonrecurring intangible tax on the stated $298 million increase over the outstanding balance.

Citations and references

• Fla. Stat. §§ 201.09(1), 199.145(2)-(4), and 213.22
• Fla. Admin. Code r. 12B-4.054(1)
• 1958 Fla. Att'y Gen. Op. 058-342 and 1962 Fla. Att'y Gen. Op. 062-139, as quoted in the advisement

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94M-011

Original ruling text

Nov 16, 1994

RE: Technical Assistance Advisement No. 94(M)-011
Documentary Stamp and Intangible Taxes
Renewal of Note and Mortgage
XXX (Partnership)
XXX (Corporation)

Dear :

Your letter requesting a Technical Assistance Advisement
has been received. The specific request is for technical advice
on the application of the documentary stamp and intangible taxes
to a refinancing as described below.

Statement of Facts

The Partnership was formed to develop, construct, test and
operate a coal-fired cogeneration facility. The facility will
supply electric power pursuant to a long-term power purchase
agreement and steam pursuant to a long-term energy services
agreement.

The partnership received initial financing for the
construction of the facility from a consortium of commercial
banks (collectively the Original Lenders) pursuant to the terms
of an amended and restated Reimbursement and Loan Agreement and
four separate notes having a combined face amount of
$675,000,000. These notes have been renewed pursuant to s.
199.145(4), F.S., and Rule 12B-4.054(1), F.A.C., and now consist
of over 20 separate notes (Original Notes).

The Loan Agreement provides for three types of financial
accommodation (collectively the Loans): (1) a construction loan;
(2) letters of credit; and (3) a working capital line of credit.
The Loan Agreement and Partnership's obligation thereunder are
secured by a mortgage on the Facility (the Original Mortgage).

The initial construction and development of the project

were also funded in part through the sales of tax exempt revenue
bonds issued by an industrial development authority in the
amount of approximately $113,000,000. The tax exempt bonds are
backed by a letter of credit issued by the Original Lenders.
The tax exempt bonds are not secured by the mortgage, but
payment of the letter of credit is secured by the Mortgage.

Documentary stamp tax was paid on the entire $675,000,000
secured by the Mortgage, and intangible tax has been paid on
each draw under the loans. The outstanding balance of the loan
is approximately $239,000,000.

The Partnership proposes to refinance the loans through the
issuance of approximately $537,000,000 of First Mortgage Bonds.
The Partnership will also enter into new letter of credit
agreements and a new working capital agreement to replace the
letters of credit and working capital line of credit agreement
provided under the Loan Agreement as described above (New
Obligations). As part of the refinancing, the letters of credit
backing the tax exempt bonds will be canceled and the tax exempt
bonds will be directly secured by the same mortgage that will
secure the New Obligations. The total amount of obligations
secured by the modified mortgage ($617,000,000) represent the
original monies lent under the letters of credit, working
capital line of credit, and construction loan and will not
exceed the original $675,000,000 debt secured by the Original
Mortgage.

To enable institutional investors to purchase the First
Mortgage Bonds, the Partnership formed Corporation, as its
wholly owned subsidiary, in July 1994, for the sole purpose of
acting as co-issuer and co-obligor for the First Mortgage Bonds.
Corporation will not conduct any operations and will not provide
any security for the First Mortgage Bonds. Corporation will
have no operational assets, and other assets of Corporation will
be nominal. In serving as a co-issuer and co-obligor,
Corporation will be acting solely as agent of the Partnership
pursuant to the terms of a written agency agreement.

The existing notes and Original Mortgage will be acquired
from the Original Lenders for an amount equal to the unpaid

balance of such notes. Corporation, acting as agent of the
Partnership, would enter into a modification agreement for the
existing notes and Original Mortgage with the Bond Trustee and a
collateral agent, pursuant to which the Original Notes would be
converted into the First Mortgage Bonds and new notes with
respect to the other New Obligations. The Partnership and
Corporation would be joint and several obligors on the First
Mortgage Bonds, and the Partnership would be the sole obligor on
the other New Obligations. The mortgage would be modified to
secure the First Mortgage Bonds, the other New Obligations and
the tax exempt bonds.

Requested Rulings

It is requested, based upon the statements above, that the
Department find that:

1. Corporation is the agent of Partnership and is not a
   new obligor with respect to the New Obligations and
   the Modified Mortgage and, accordingly, the New
   Obligations and Modified Mortgage are exempt from
   documentary stamp and intangible taxes; and
2. The acquisition of the Original Notes and Original
   Mortgage from the Original Lenders and their
   modification into the First Mortgage Bonds and new
   notes and Modified Mortgage will constitute a renewal
   within the meaning of s. 199.145(4), F.S., and Rule
   12B-4.054(1), F.A.C. thereby making the New
   Obligations and the Modified Mortgage exempt from the
   documentary stamp and intangible taxes.

Provisions of Statues and Rules

Section 201.09(1), F.S., states:

When any promissory note is given in renewal of any
existing promissory note, which renewal note only extends
or continues the identical contractual obligations of the
original promissory note and evidences part or all of the
original indebtedness evidenced thereby, not including any
accumulated interest thereon and without enlargement in any

way of the original contract and obligation, such renewal
note shall not be subject to taxation under this chapter if
such renewal note has attached to it the original
promissory note with canceled stamps affixed thereon
showing full payment of the tax due thereon. In order to
be exempt from taxation under this section, a 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.

Rule 12B-4.054,F.A.C. contains the following provisions for
exempting renewal documents:

(1) Renewal Notes, Mortgages, Trust Deeds, Security
Agreements, or Other Evidences of Indebtedness: When any
note, mortgage, trust deed, security agreement, or other
evidence of indebtedness is given in renewal of the note,
mortgage, trust deed, security agreement, or other evidence
of indebtedness, the document shall not be subject to stamp
tax provided all of the requirements under s. 201.09, F.S.,
have been met. A renewal note shall have attached to it the
original note, showing full payment of tax due. A renewal
mortgage, trust deed, security agreement, or other evidence
of indebtedness shall state the official book and page
number of the original mortgage or other security document
being renewed which evidences prior payment in full of
stamp tax due, or shall have attached to it for recording
the original note or a copy thereof with evidence of proper
stamp tax affixed....
(a) Where a single note is given which consolidates two or
more notes, so as to continue the existing contractual
obligations, without enlargement of the existing principal
balances, the consolidated note is exempt as a renewal
note. (1958 Op. Att'y. Gen. Fla. 058-342 (Dec. 29, 1958))
(c) Where two or more notes are substituted for an original
note, without enlargement of the existing principal
balance, the renewal notes are not taxable. (1962 Op.
Att'y. Gen. Fla. 062-139 (Oct. 23, 1962))
(d) The insertion of the name of a new payee, who has
become holder of the original note and is entitled to
receive payment of the obligation, does not make the note

taxable if all other provisions of s. 201.09, F.S., are
met. (1962 Op. Att'y. Gen. Fla. 062-139 (Oct. 23, 1962))
(f) A note renewing an original note which is undisbursed,
either in whole or in part, may be renewed for the
undisbursed amount together with only the unpaid balance of
the amount which was previously disbursed provided all
other requirements of s. 201.09, F.S., are met.
(g) After June 30, 1990, a renewal note will be exempt if
it is executed only by the original obligor of the original
promissory note and all other requirements of s. 201.09,
F.S., are met.

Section 199.145, F.S., contains the following provisions:

(2) No additional nonrecurring tax shall be due upon the
assignment by the obligee of a note, bond, or other
obligation for the payment of money upon which a
nonrecurring tax has previously been paid.
(3) No additional nonrecurring tax shall be due upon the
assumption of a note, bond, or other obligation for the
payment of money if a nonrecurring tax has previously been
paid and the amount of the indebtedness remains the same,
whether or not the original obligor is released from
liability.
(4) Where a note, bond, or other obligation upon which a
nonrecurring tax has previously been paid is refinanced
with the original obligee or its assignee:
(a) No additional nonrecurring tax is due if the principal
balance of the new obligation is less than or equal to the
unpaid principal balance of the original obligation, plus
accrued but unpaid interest, as of the refinancing.
(b) Additional nonrecurring tax is due if the principal
balance of the new obligation exceeds the principal balance
of the original obligation, plus accrued but unpaid
interest, as of the refinancing. If the original obligor is
not liable to the obligee under the new obligation, the
additional nonrecurring tax shall be computed on the entire
principal balance of the new obligation; otherwise, the
additional nonrecurring tax shall be computed on the excess
of the principal balance of the new obligation over the
principal balance of the original obligation, plus accrued

but unpaid interest, as of the refinancing.

Discussion of Law

Under the provisions of s. 201.09, F.S., a note and
mortgage may be renewed if the same contractual obligation has
been continued. This means that the same borrower and the same
lender or its assignee must be the parties to the renewed note
and mortgage. If these persons are not a party to the renewal
then documentary stamp tax is due on the entire amount. In the
transaction presented, the question of having an exempt renewal
must be raised because of the addition of Corporation as coobligor and co-issuer. However, in response to this question
one must look to the agency agreement between Partnership and
Corporation. By the terms of the agency agreement Corporation
is acting only as agent for Partnership, for the sole purpose of
issuing the First Mortgage Bonds. Corporation will not be
liable for repayment of any debt and will provide no security
for the bond issue. The bonds will state that Corporation is
acting solely as agent for Partnership. Because of the agency
(trust) relationship, Corporation is acting for Partnership in
the execution of the new documents. Therefore, Corporation is
not acting in its own right but on behalf of partnership in
renewing Partnership's existing indebtedness. Based upon the
statutory provisions, the provisions of the Florida
Administrative Code and the reasons cited above no documentary
stamp tax is due.

The intangible tax provisions allow an obligation, secured
by real property in Florida, to be assigned, assumed and
refinanced without payment of additional nonrecurring intangible
tax provided the original obligation was properly taxed and has
not been satisfied. Corporation, acting as agent for
Partnership and not in its own right, will be executing new
documents that extend, modify and renew the existing
indebtedness of Partnership. Based upon the provisions of s.
199.145, F.S., no additional tax is due on the renewal of the
existing indebtedness. However, nonrecurring intangible tax is
due on the $298,000,000 increase on the principal balance of the
new obligation calculated by subtracting the outstanding balance
of the loans $239,000,000) advanced under the original loan

agreement ($675,000,000) from the principal balance of the new
obligation of $537,000,000 represented by the first mortgage
bonds issued.

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,

J.V. Parramore, Jr.
Tax Law Specialist
Technical Assistance

JVP/mh