How were Florida stamp and intangible taxes apportioned when a $95 million master note was secured by property inside and outside Florida?

Subject

Apportionment of Taxable Base-Financing Transaction Secured By Property In and Out of Florida

Plain-English summary

For the first Florida mortgage, documentary stamp tax was measured by the Florida property's $11.85 million value, while nonrecurring intangible tax was measured by the $9.48 million Florida-allocated share of the $95 million master note. The lender had not limited recovery against the Florida property, and the property's value exceeded the allocated debt share.

The affiliated borrowers acquired properties serially under an 80% loan-to-value arrangement. The Department allowed allocation using the projected completed collateral package: Florida property value divided by the projected value of all collateral, multiplied by the master note's face amount.

For a later Florida mortgage, the documentary-stamp base would likewise be the new Florida property's value when that value exceeded its allocated share and lender recovery was not capped. Nonrecurring intangible tax would be calculated on all Florida collateral's share of the projected total package, multiplied by the 0.002 rate, less intangible tax previously paid on earlier Florida mortgages.

The advisement did not address documentary stamp tax that might apply to the notes themselves independently of the mortgages.

What this means for you

Multistate financing required separate bases for the mortgage tax and the nonrecurring intangible tax. Property value, projected total collateral, loan-to-value terms, recovery limits, later Florida acquisitions, and previously paid tax all affected the computation.

Common questions

Why was the initial stamp-tax base $11.85 million? The Florida property was worth that amount, it exceeded the $9.48 million allocated debt share, and the lender had not limited recovery to a smaller sum.

Why was the intangible-tax base $9.48 million? That was the Florida property's allocated share of the $95 million note using the projected completed collateral values.

How were later Florida mortgages handled? The Department recomputed Florida's aggregate share using then-current projected collateral and loan-to-value terms, then subtracted tax already paid.

Did the ruling decide tax on the master note itself? No. It expressly left that issue outside the advisement.

Citations and references

• Fla. Stat. §§ 199.133, 199.145, 201.09, and 213.22
• Fla. Admin. Code rr. 12C-2.004(2), 12B-4.051(1), and 12B-4.053(32)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94M-012

Original ruling text

Dec 20, 1994

Re: Technical Assistance Advisement No. 94(M)-012
Documentary Stamp Tax and Intangible Tax; Apportionment of
Taxable Base-Financing Transaction Secured By Property In
and Out of Florida
XXX (the Company)
XXX (the Lender)

Dear :

This is in response to your letter of October 12, 1994, in
which 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 recordation of a mortgage in Florida to secure
an out of state master note is taxable for the Documentary
Stamp Tax and Intangible Tax based on the value of the
Florida property or is on the allocated Florida portion of
the face amount of the master note, based on the value of
the Florida property divided by the total value of all
collateral securing the master note.

Taxpayer's Statement of Facts

An affiliated group of limited partnerships related to the
Company (the "Borrowers") has entered into a $95,000,000 loan
agreement with the Lender to finance their proposed acquisition
of new properties from time to time in various states. The
existing Borrowers have executed a master promissory note in
favor of the Lender outside of Florida in the face amount of
$95,000,000, although a lesser amount is presently outstanding
because loan funds are advanced under the master note only when
a new property is acquired. Each time a new property is
acquired, the following happens: (i) a new limited partnership
is formed to hold the title to the new property, (ii) the new

limited partnership becomes a "Borrower" by assuming liability
under the master note, (iii) the Lender makes an advance under
the master note equal to eighty percent of the purchase price of
the new property, and (iv) the new limited partnership Borrower
grants the Lender a mortgage on the new property to secure the
entire master note.

The Company was recently formed to acquire a Florida
property for a purchase price of $11,850,000. Prior to the
Company's acquisition of the Florida property, there were three
"Borrowers" and three mortgaged properties, all located outside
of Florida. The Company has become the fourth "Borrower" in the
series, granting the Lender a mortgage on this Florida property
to secure the entire master note. Eventually, if the Lender and
the Borrowers continue this process under the loan agreement
until the master note is fully funded, then (i) the outstanding
balance of the loan will be $95,000,000, (ii) the Company and
each other Borrower will be jointly and severally liable under
the master note, (iii) all of the properties will secure all of
the indebtedness under the master note, and (iv) the aggregate
value of all of the mortgaged properties in the various states
will be approximately $118,750,000.

Because of the 80% loan-to-value ratio required under the
loan agreement, the amount of funded debt allocable to each
state from time to time will be approximately 80% of the value
of the mortgaged property located in that state. Until the
master note is fully funded, however, the allocation of its
$95,000,000 face amount among the various states based on the
relative value of the then existing collateral will produce a
Florida tax base far in excess of the Florida property's
relative share of the funded debt (and, in the early stages, far
in excess of the actual property value). For example, this
Florida acquisition will represent slightly less than ten
percent of the value of the contemplated total collateral and
its pro-rata share of the face amount of the master note is
roughly $9,480,000. But because this Florida property is only
the fourth acquisition in the series, it represents roughly
twenty five percent of the present total collateral value.
Twenty-five percent of $95,000,000 is $23,750,000: more than
double the acquisition price of the Florida property.

This disproportionate allocation results from the serial
acquisition of the properties and serial borrowings under the
master note. If all the properties were acquired and financed
at the same time with a fully advanced $95,000,000 loan, the
allocation would be simple: the value of the Florida collateral
($11,850,000) would be divided by the value of all the
collateral ($118,750,000) and then multiplied by the face amount
of the master note, producing a Florida percentage of 9.98% and
an allocated Florida indebtedness of $9,480,000. The intangible
tax base would be this $9,480,000 amount and, because the Lender
has not agreed to limit its recovery against the Florida
property to a specified sum, the stamp tax base would be
$11,850,000 (the value of the Florida collateral).

Rather than overpay the Florida taxes using a
disproportionate allocation when the first Florida mortgage is
recorded and then apply for refunds as other properties are
acquired and mortgaged for the master note, it is more logical
and efficient for the Company and the Lender to allocate the
face amount of the master note for Florida tax purposes as if
the $118,750,000 series of acquisitions were completed. This
method produces the final amount of Florida tax on the Florida
mortgage the first time, without further recalculations for
subsequent acquisitions.

It is possible that some of the subsequent property
acquisitions and mortgages may be located in Florida also. In
that case, the tax on each subsequent Florida mortgage would be
calculated on the same completed-transaction basis, using the
same formula based on the $118,750,000 value of all the proposed
acquisitions. Again, the total amount of Florida tax paid by
this method will be the same as if all the properties were
acquired and mortgaged at once, but without the inconvenience of
overpaying the Florida taxes with each acquisition and then
recalculating them and applying for refunds with every
subsequent acquisition.

It is also possible (although not likely) that the Lender
might agree in the future to increase the loan-to-value ratio
under the loan documents and to advance more than eighty percent

of the price of each subsequently acquired property. If the
ratio were increased, then the projected value of the total
collateral package would decrease (assuming the same total
$95,000,000 loan amount) and the percentage represented by the
Florida collateral would increase slightly. However, unless the
Lender agreed to advance more than one hundred percent of the
value of all the collateral (which is even less likely), the
Florida stamp tax base (i.e., the Florida property value) would
still be correct and would not require any adjustment, because
the reallocated amount of Florida indebtedness would always be
less than the Florida property value.

Similarly, no additional Florida non-recurring intangible
tax would be required if the Lender subsequently increases the
loan-to-value ratio for acquisitions outside of Florida because
the amount paid on the previous Florida mortgage was sufficient
based on the full face amount of the master note and the
prevailing loan-to-value provisions of the loan agreement when
the mortgage was recorded. On the other hand, if the loan-tovalue ratio is changed and additional Florida property is
thereafter acquired and mortgaged by a Borrower, then the
intangible tax formula for that additional Florida mortgage
would revise the total projected value of all the real property
security by using the modified loan-to-value provisions of the
loan agreement. Depending on whether the loan-to-value ratio is
increased or decreased, the Florida real property may then
represent a greater or lesser proportion of the total real
property security, so that the amount of intangible tax produced
by the formula for a subsequent Florida mortgage might be
different than a previous Florida mortgage on a property of
equal value. In such a case, the Florida intangible tax paid on
the previous Florida mortgage would be deducted from the total
Florida intangible tax due on the revised aggregate Florida
share of the master note, in order to determine the net amount
of intangible tax due on the subsequent Florida mortgage.

Ruling Requested

Based on the foregoing facts of the transaction and the
relevant authorities, the taxpayers respectfully request the
Department's ruling that:

1. The taxable base for Florida documentary stamp taxes
on the initial Florida mortgage is the value of the
Florida real property ($11,850,000), because the
Lender has not limited its recovery and because the
value of the Florida real property is greater than the
allocated Florida portion of the face amount of the
master note, based on the value of the Florida real
property divided by the total projected value of all
the collateral to be granted as security for the
master note when fully funded.

2. The taxable base for Florida nonrecurring intangible
   taxes on the initial Florida mortgage is the allocated
   Florida portion ($9,480,000) of the face amount of the
   master note, based on the value of the Florida real
   property divided by the total projected value of all
   the collateral to be granted as security for the
   master note when fully funded.
3. The taxable base for Florida documentary stamp taxes
   on any subsequent Florida mortgage securing the master
   note will be the value of the subsequent Florida real
   property encumbered by that subsequent mortgage
   (assuming that the Lender does not limit its recovery
   to a lesser sum), if the value of that subsequent
   Florida real property is greater than the portion of
   the face amount of the master note allocated to that
   mortgage, based on the value of that subsequent
   Florida real property divided by the total projected
   value (projected from the then applicable loan-tovalue requirement in the loan agreement) of all the
   collateral to be granted as security for the master
   note when fully funded.
4. The amount of Florida nonrecurring intangible taxes
   required on any subsequent Florida mortgage securing
   the master note will be determined by (i) multiplying
   the face amount of the master note by a fraction, the
   numerator of which is the value of all the Florida
   real property then securing the master note (both the
   new acquisition and any previously mortgaged Florida
   real property) and the denominator of which is the
   total projected value (projected from the then

applicable loan-to-value requirement in the loan
agreement) of all the collateral to be granted as
security for the master note when fully funded, (ii)
multiplying the resulting Florida intangible tax base
by the non-recurring intangible tax rate (.002), and
then (iii) subtracting the amount of intangible tax
previously paid on any previous Florida mortgage(s)
included in the foregoing apportionment fraction.

Discussion and Law

Intangible Tax

Section 199.133, F.S., levies a nonrecurring intangible tax
on all obligations for the payment of money which are secured by
a lien on Florida realty. In addition, s. 199.145, F.S.,
provides that when a mortgage secures 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

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-4.053(32), F.A.C., provides that the documentary
stamp tax on mortgages securing out-of-state notes secured by
Florida property is taxable. If the mortgage secures the notes
with 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, but not less than the value of the Florida
property.

Department's Position

Therefore, the taxable base for Florida documentary stamp
tax on the initial Florida mortgage is the value of the Florida
real property ($11,850,000), based on the fact that the Lender
has not limited its recovery and since the value of the Florida
real property is greater than the allocated Florida portion of
the face amount of the master note.

As to the Florida nonrecurring tax, the taxable base on the
initial Florida mortgage is the allocated Florida portion
($9,480,000) of the face amount of the master note.

Further, the taxable base for Florida documentary stamp
taxes on any subsequent Florida mortgage securing the master
note will be the value of the subsequent Florida real property
encumbered by that subsequent mortgage (assuming that the Lender
does not limit its recovery to a lesser sum), if the value of
that subsequent Florida real property is greater than the
portion of the face amount of the master note allocated to that
mortgage, based on the value of that subsequent Florida real
property divided by the total projected value (projected from
the then applicable loan-to-value requirement in the loan
agreement) of all the collateral to be granted as security for
the master note when fully funded.

In addition, the amount of Florida nonrecurring intangible
taxes required on any subsequent Florida mortgage securing the
master note will be determined by (i) multiplying the face
amount of the master note by a fraction, the numerator of which
is the value of all the Florida real property then securing the
master note (both the new acquisition and any previously
mortgaged Florida real property) and the denominator of which is
the total projected value (projected from the then applicable

loan-to-value requirement in the loan agreement) of all the
collateral to be granted as security for the master note when
fully funded, (ii) multiplying the resulting Florida intangible
tax base by the non-recurring intangible tax rate, and then
(iii) subtracting the amount of intangible tax previously paid
on any previous Florida mortgage(s) included in the foregoing
apportionment fraction.

This advisement does not address documentary stamp taxes to
which the notes might themselves be subject without regard to
the mortgages.

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