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

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