Were two Florida funeral and cemetery contracts taxable written obligations when neither contained an unconditional promise to pay a specific amount?

Plain-English summary

Neither funeral contract was a taxable written obligation to pay money because neither promised payment of a specific amount.

Contract A covered pre-need goods and services but allowed the purchaser to cancel the payment obligation. Contract B covered imminent funeral goods and services, but selections, credits, partial payments, and the final balance could change after signing. The Department therefore found no unconditional promise to pay a sum certain in either form.

What this means for you

The document's face and payment terms controlled. The ruling separately warned that recording a mortgage or filing a security agreement could subject the contracts to tax based on the maximum advance or, if none existed, the secured balance outstanding when recorded.

Common questions

Q: Was Contract A taxable merely because it was called an installment contract?
A: No. The purchaser could cancel, so the contract did not contain an unconditional payment promise.

Q: Why was Contract B not taxable?
A: The amount due was not certain when signed because goods, services, payments, and credits could change.

Q: Could related security documents trigger tax?
A: Yes. The ruling said a recorded mortgage or filed security agreement could make the secured obligation taxable.

Citations and references

• Fla. Stat. § 201.08(1) — documentary stamp tax on written obligations
• Fla. Admin. Code rr. 12B-4.051(1)(b) and 12B-4.052(6), (7), and (10)
• Lee v. Kenan, 78 F.2d 425 (5th Cir. 1935)
• Maas Brothers Inc. v. Dickinson, 195 So. 2d 193 (Fla. 1967)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95B4-006

Original ruling text

Mar 16, 1995

Re: Technical Assistance Advisement No. 95(B)4-006
Documentary Stamp Tax; Funeral Contracts
XXX (hereinafter Company)
XXX (hereinafter referred to as Contract A)
XXX (hereinafter referred to as Contract B)

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 contracts submitted are taxable as a written
obligation to pay under s. 201.08, F.S.

Background

Company is engaged in cemetery and funeral service
businesses in Florida. Company sells merchandise and services
to customers in Florida and enters into one of two alternative
contracts with such customers. Both contracts are expressed by
using separate documents described as follows:

The first contract document, Contract A, is used when
cemetery merchandise or funeral services are sold under a
prepayment plan. The purchaser typically makes monthly
advance merchandise or services. Such an arrangement is
known in the cemetery and funeral service industries as
"pre-need". Actually, the use of the term "Installment
Contract" in the heading is not technically accurate,
because the purchaser may unilaterally cancel the contract
and his or her obligation to pay. Further, the purchaser
is entitled to a full refund if the purchaser cancels the
contract within 30 days after executing the contract.

The second contract document, Contract B, is used for the
sale of merchandise and services when the customer is not
entering into a scheduled advance payment arrangement.
Typically, this contract is used when a funeral service is
imminent and the purchaser executes the contract with the
intention of paying for the goods and services
contemporaneously with their delivery.

At the time Contract B is executed the purchaser agrees to
pay for only those goods and services selected. Further,
the purchaser agrees to pay a remaining balance on a
specified date, and any unpaid balance will be subject to a
late charge. Typically, at the time the purchaser executes
Contract B the purchase amount is not certain, because the
purchaser may choose to modify previously selected goods
and services after executing the contract. The final
balance due under Contract B is adjusted for such
modifications. Further, the purchaser may make a partial
payment on the specified payment date leaving a balance due
in an amount not certain at the time Contract B was
executed.

Discussion and Law

Relevant to your petition, s. 201.08(1), F.S., provides
that:

On promissory notes, nonnegotiable notes, written
obligations to pay money... made executed, delivered, sold,
transferred, or assigned in the state, and for each renewal
of same, the tax shall be 35 cents on each $100 or fraction
thereof of the indebtedness or obligation evidenced
thereby. On mortgages, trust deeds, security agreements,
or other evidences of indebtedness filed or recorded in
this state, and for each renewal of the same, the tax shall
be 35 cents on each $100 or fraction thereof of the
indebtedness or obligation evidenced thereby.... [emphasis
added]

Certain requirements are necessary in order for a note or
other written obligation to be taxable, which are:

1. A written promise to pay; and

2. A sum certain in money; and
3. The signature of the borrower.

See Lee v. Kenan, 78 F. 2d 425 (5th Cir. 1935) where it was
held that the liability of instrument to stamp duty, as well as
amount of such duty, is determined by form and face of
instrument and cannot be affected by proof of extrinsic facts.
In Maas Brothers Inc. v. Dickinson, 195 So.2d 193 (Fla. 1967),
it was held that neither a revolving charge account credit
agreement nor individual sales receipts were taxable, since the
credit agreement did not contain a stated sum and the sales
receipts, which contained a stated sum and a borrower's
signature, did not contain a promise to pay. Also see Fla.
Admin. Code Rule 12B-4.052(6).

Taxpayer's Position

Since the purchaser under Contract A has a unilateral and
unqualified right to cancel his or her obligation to pay, there
is no unconditional promise to pay a sum certain. Therefore,
based on the applicable law cited herein, Contract A is
executory on its face. In substance the contract is an
arrangement whereby the purchaser makes advance payments toward
the acquisition of goods or services to be delivered in the
future, but the purchaser reserves the right to cancel his or
her payment obligation. Stated otherwise, Contract A is
conditional based on the purchaser's right to cancel his or her
obligation to pay after Contract A is executed by the parties.
Accordingly, the Taxpayer's position is that Contract A is not a
taxable document for purposes of the documentary stamp tax on
written obligations to pay.

Since the purchaser under Contract B may modify his or her
selection of services after execution of Contract B, the amount
of payment is uncertain, i.e., contingent. Further, the
purchaser may make payments or receive credits for goods and
services not delivered prior to the payment date under the terms
of Contract B. Therefore, at the time Contract B is executed
there is no unconditional promise to pay a sum certain. Stated

otherwise, Contract B is conditional based on the contingent
nature of the amount due under the contract. Accordingly, the
Taxpayer's position is that Contract B is not a taxable document
for purposes of the documentary stamp tax on written obligations
to pay.

Department's Position

Therefore, since neither contract A nor B contains a
promise to pay a specific amount of money, it does not meet the
requirements for taxing purposes under s. 201.08, F.S. However,
the recordation of a mortgage or filing of a security agreement
will act as a mortgage and subject contracts to tax under Rules
12B-4.051(1)(b), and 12B-4.052(7) and (10), F.A.C. The tax will
be based on the maximum amount that will be allowed to be
advanced or, if there is no maximum, the tax will be based on
the outstanding balance secured at the time of recordation.

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