How did Florida documentary stamp and intangible taxes apply to a multi-step mortgage refinancing, cross-collateralization, partnership transfer, merger, and assumption plan?

Plain-English summary

Most steps were exempt, but each cross-collateralization mortgage owed documentary stamp tax on its stated recovery amount.

The existing note and mortgage assignments and qualifying refinancing note and mortgage were exempt from both documentary stamp and nonrecurring intangible tax. The cross-collateralization provisions owed documentary stamp tax based on their contractual recovery amounts, but no intangible tax because those obligations were contingent.

Partnership-interest assignments and statutory mergers without deeds were not subject to documentary stamp tax. Assumption agreements executed outside Florida and neither filed nor recorded there were also untaxed.

What this means for you

Each document and step had its own conditions. The ruling assumed the renewal requirements were met, no deed or other instrument was recorded for the mergers, and no additional instruments or obligations existed.

Common questions

Q: Were assignments of the already-taxed notes and mortgages taxed again?
A: No.

Q: How was cross-collateralization documentary stamp tax measured?
A: By the recovery amount stated in each provision.

Q: Did the Department decide whether another state's merger law actually conveyed Florida property?
A: No. It expressly withheld an opinion on that issue.

Citations and references

• Fla. Stat. §§ 201.08 and 201.09 — obligations and renewal exemptions
• Fla. Stat. § 199.145 — assignments and refinancing
• Fla. Stat. § 201.02 and § 620.685 — real-property transfers and partnership interests
• Fla. Admin. Code rr. 12B-4.013, 12B-4.051, 12B-4.053, and 12B-4.054
• West Flagler Associates v. Department of Revenue, 633 So.2d 555 (Fla. App. 1994)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95M-002

Original ruling text

Feb 27, 1995

Re: Technical Assistance Advisement No. 95(M)-002
Documentary Stamp Tax; Assignment of Note and Mortgage;
Renewal Note; Cross-Collateralization Mortgage; Partnership
Transfer and Merger; Assumption Agreement;
Intangible Tax; Assignment of Note and Mortgage; Renewal
Mortgage; Cross-Collateralization Mortgage;
XXX (Company)
XXX (New General Partnerships)
XXX (New Lender)

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 assignment of an existing note and mortgage to
a new lender, the execution of a refinancing note and mortgage
in favor of the new lender, and the cross-collateralization
provisions of the mortgages are subject to documentary stamp tax
under s. 201.08, F.S., and intangible tax under s. 199.145, F.S.
Further, whether the assignment of the partnership interest and
recordation of the certificate of merger are subject to the
documentary stamp tax under s. 201.02, F.S.

Current Structure

The current ownership structure of each Limited Partnership
is as set forth below. Each Limited Partnership consists of
partners from the development group and from an investment
group. The development group typically consists of the managing
general partners and a limited partner. The investment group
includes an administrative general partner and two or more
limited partners. For purposes of illustration, however, you
have collectively designated: (i) the development group managing

general partner as Dl and development group limited partners as
D2; and (ii) the investment group administrative general
partners as Il and the investment group limited partners as I2.

Each Limited Partnership currently has an outstanding
promissory note (the "Existing Note") and a mortgage (the
"Existing Mortgage") executed in favor of the current lender
(the "Current Lender"). Proper documentary stamp tax and
nonrecurring intangible tax was paid on each Limited
Partnership's Existing Note and Existing Mortgage upon
recordation of the Existing Mortgage.

Proposed Series of Transactions

Step 1: Dl and D2 will form a holding entity designated as
D Parent, and Il and I2 will form a holding entity
designated as I Parent.

Step 2: Company, D Parent and I Parent will form ten (10)
general partnerships (the "New General Partnerships") with
a nominal capital contribution.

Step 3: Each Limited Partnership will refinance its
outstanding debt obligations to the Current Lender with a
new lender (the "New Lender"). In this connection, each
Current Lender will assign each Limited Partnership's
Existing Note and Existing Mortgage to the New Lender.
Each Limited Partnership will then execute a renewal note
(the "Refinancing Note") that will satisfy all of the
requirements of a "renewal note" as set out in s. 201.09(1)
F.S. and a renewal mortgage that will satisfy all of the
requirements of a "refinancing mortgage" as set out in s.
199.145(4) F.S. (the "Refinancing Mortgage") in favor of
the New Lender. In addition, each Refinancing Mortgage
will include a provision in which each Limited Partnership
will pledge its Property as additional collateral to secure
the obligations of the other Limited Partnerships to the
New Lender (the "Cross-Collateralization Provision"). The
amount that the New Lender will be able to recover in the
event it elects to enforce a Cross-Collateralization
Provision will be limited to the difference between the

fair market value of each Property and the principal amount
of the Refinancing Note (the "Recovery Amount"). Each
Cross-Collateralization Provision will specifically state
that the amount that can be recovered under each such
provision is limited to the Recovery Amount.

Step 4: Dl and D2 will contribute their interests in each
Limited Partnership to D Parent and Il and I2 will
contribute their interests in each Limited Partnership to I
Parent. The ownership structure of each of the ten (10)
Limited Partnerships will then be as follows.

Step 5: Pursuant to agreements of merger, each of the ten
(10) Limited Partnerships will merge with and into one of
the New General Partnerships pursuant to Civil Statutes,
with the New General Partnerships being the survivor in
each instance. Pursuant to the mergers, Company will
contribute approximately $53,000,000 in cash in the
aggregate to the New General Partnerships in return for a
partnership interest in each New General Partnership, and D
Parent and I Parent of each Limited Partnership will
receive: (i) a partnership interest in one of the New
General Partnerships totaling a 15% interest in each New
General Partnership; and (ii) an aggregate amount of cash
totaling approximately $27,000,000. After the mergers, the
ownership structure of each of the ten (10) New General
Partnerships will be as follows.

After the mergers, each New General Partnership will cause
its certificate of merger to be recorded in the public
records of each respective county where such partnership
owns real and personal property in Florida. The
certificate of merger will contain a legal description of
the real property and a description or inventory of the
personal property of each Limited Partnership, and will
make reference to the conclusion that such property became
the property of each New General Partnership by operation
of law, as the result of such merger.

Step 6: Each New General Partnership will execute an
Assumption Agreement in favor of the New Lender in order to

assume the obligation of the Limited Partnership that was
merged into such New General Partnership under the
Refinancing Note. Each Assumption Agreement will be
executed and delivered by each New General Partnership
outside the State of Florida and will be accepted by the
New Lender outside the state of Florida.

ANALYSIS AND RULINGS REQUESTED

You submit that the proper treatment of each step of the
proposed transactions as set out above for Florida documentary
stamps and intangible tax purposes is subject to the analysis
set out below. Also set out below are the rulings requested by
you from the Department of Revenue in regard to each step of the
proposed transactions.

A. Refinancing Transaction

1. Consequences of Assignment of Existing Note and
   Existing Mortgage by the Current Lender to the New
   Lender.
   (a) Documentary Stamp Tax Analysis.

Florida Administrative Code Rule 12B-4.054(6) provides:

"Assignment of Mortgage where certificate of indebtedness
is otherwise shown in separate instrument is not taxable
under s. 201.08, F.S. (State v Sweat, 113 Fla. 797, 152 So.
432 (1934)). However, the assignment of mortgage as
collateral security for a new loan, when recorded in the
state, is taxable."

Accordingly, your position is that no documentary stamp tax
would be due as a result of the Assignment of the Existing Note
and Existing Mortgage on each Property to the New Lender.

Ruling Requested

You request a ruling that documentary stamp tax will not be
due on the Current Lender's assignment of each Limited
Partnership's Existing Note and Existing Mortgage on each

Property to the New Lender.

(b) Nonrecurring Intangible Tax Analysis.

Florida Statutes Section 199.145(2) provides as follows:

"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 intangible tax has previously been paid."

Accordingly, your position is that no non-recurring
intangible tax would be due as a result of the Assignment of the
Existing Mortgage to the New Lender.

Ruling Requested

You request a ruling that the nonrecurring intangible tax
will not be due upon the Current Lender's assignment of each
Limited Partnership's Existing Note and Existing Mortgage on
each Property to the New Lender.

2. Consequences of Execution of Refinancing Note and
   Refinancing Mortgage in favor of New Lender.
   (a) Documentary Stamp Tax Analysis. Documentary stamp tax
   is due on the issuance of a promissory note and
   mortgage unless exempt as a "renewal note and
   mortgage" under F.S. s. 201.09(1) and (2). A renewal
   note and mortgage are exempt from documentary stamp
   tax under F.S. s. 201.09(1) and (2) if the specific
   requirements set forth below are met.
   (i)

The total amount of the renewal note does not
exceed the unpaid balance of the original
note(s). Rule 12B-4.054(1), F.A.C.

(ii)

The renewal note and mortgage are executed by
the original obligor. Florida Statutes s.
201.09(1) and (2).

(iii)

All stamp taxes due on the original note(s) and
mortgage(s) have been paid in full and evidence
of payment is affixed to the original documents.
Rule 12B-4.054(1), F.A.C.

(iv)

The renewal mortgage shall state the official
book and page number in which the original
mortgage is recorded and shall indicate prior
payment in full of stamp tax due thereon. Rule
12B-4.054(1), F.A.C.

Your position is that, assuming that all of the foregoing
requirements are met, documentary stamp tax will not be due on
the Refinancing Note and Refinancing Mortgage executed by each
Limited Partnership in favor of the New Lender.

Ruling Requested

You request a ruling that documentary stamp tax will not be
due in the execution or delivery of the Refinancing Note and
Refinancing Mortgage, except for any additional amounts that may
be due based on the Recovery Amount in regard to the Cross
Collateralization Provision.

(b) Nonrecurring Intangible Tax Analysis.

F.S. s. 199.145(4)(a) provides as follows:

"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."

Your position is that, based upon the foregoing, assuming
that the face amount of each Limited Partnership's Refinancing
Note does not exceed the unpaid principal balance of said
Limited Partnership's Existing Note, nonrecurring intangible tax
will not be due on each Limited Partnership's Refinancing Note
or Refinancing Mortgage.

Ruling Requested

You request a ruling that the non-recurring intangible tax
will not be due upon the execution, delivery or recording of the
Refinancing Mortgage.

3. Consequences of Cross-Collateralization Provisions.

a. Documentary Stamp Tax Analysis

Rule 12B-4.051(1)(a), F.A.C., provides that the rate of
documentary stamp tax on written obligations to pay money is
based on the gross amount of the indebtedness evidenced by such
instrument. Since the recovery on the Cross-Collateralization
Provisions will be limited to the Recovery Amount, the gross
amount of the indebtedness evidenced by each CrossCollateralization Provision is the Recovery Amount set forth in
each such Cross-Collateralization Provision. Your position is
that the amount of the documentary stamps due on such CrossCollateralization Provision should be calculated in regard to
the Recovery Amount of each such provision.

Ruling Requested

You request a ruling that the documentary stamp tax due on
each Cross-Collateralization Provision should be calculated
based on the Recovery Amount of each Cross-Collateralization
Provision.

b. Intangible Taxes

In West Flagler Associates v. Department of Revenue, 633
So.2d 555 (Fla. App. 1994), the Third District Court of Appeal
held that the State of Florida intangible tax was not due in
regard to the recording of a mortgage on Florida real property
in order to secure the mortgagor's obligation under a guaranty
of the obligation of an affiliate. The Court held this on the
rationale that the guaranty obligation was contingent on the
default under the affiliate's primary obligation, and because it
was contingent, the intangible tax was not due.

Your position is that as each Cross-Collateralization
Provision will be contingent on the default of the other
obligations that each such Cross-Collateralization Provision
secures, no intangible tax should be due in regard to each
Cross-Collateralization Provision upon recording.

Ruling Requested

You request a ruling that no intangible tax will be due as
a result of the execution, delivery or recording of the Cross
Collateralization Provision included in each Refinancing
Mortgage.

B. Partnership Transactions

Florida Statutes s. 201.02 imposes documentary stamp tax on
the transfer of real property. Florida Statutes s. 620.685
provides that "a partner's interest in the partnership is his
share of the profits and surplus. It is personal property."

Your position is that the transfers of interests in the
Limited Partnerships will not result in the imposition of State
of Florida documentary stamp tax on transfers of real estate.

Ruling Requested

You request a ruling that the assignment by Dl, D2, Il and
I2 of their interests in each Limited Partnership to a newly
formed holding entity will not be subject to the State of
Florida documentary stamp tax.

C. Partnership Merger

Rule 12B-4.013(31), F.A.C., pursuant to an amendment that
was adopted on October 7, 1994, provides as follows:

"The transfer of real property to a surviving corporation,
partnership, limited liability company, or other business
entity resulting from the operation of an applicable
statute governing the merger or consolidation of such
business entities is not taxable unless a deed is given, in
which case the consideration is presumed to be equal to the
fair market value of the real property interest being
transferred. Cross Reference - Rule 12B-4.013(7) and Rule
12B-4.014(8), F.A.C."

Each New General Partnership will be formed under law which

permits the merger of a foreign limited partnership into a
general partnership. That state's civil statutes also
specifically provide that all real property held by such foreign
limited partnership will be transferred to the general
partnership by operation of law of another state pursuant to
said merger.

Your position is that, assuming the Limited Partnerships
will not record deeds or any instruments other than the
Certificates of Merger of the Properties to the New General
Partnerships, there will be no State of Florida documentary
stamp tax on real estate transfers upon the recording of the
Certificates of Merger.

Ruling Requested

Based upon the foregoing, you are requesting a ruling that
no documentary stamp tax will be due on any transfer of the
Properties from each Limited Partnership to each New General
Partnership which might be effected by operation of law alone
pursuant to the statutory mergers, or as a result of the
recording of the Certificates of Merger in the public records of
the respective counties in Florida where each New General
Partnership owns a Property.

D. Assumption Agreement

Rule 12B-4.053(19), F.A.C., imposes documentary stamp tax
on Assumption Agreements. However, it is the Department of
Revenue's position that Assumption Agreements are to be
considered promissory notes for purposes of application of the
exemptions to the imposition of documentary stamp tax. Your
position is that, as long as the Assumption Agreements to be
signed by the General Partnerships are not executed, delivered,
accepted or recorded in Florida, there will be no documentary
stamp tax due, pursuant to Rule l2B-4.053(35), F.A.C., which was
adopted on October 7, 1994 (Florida Administrative Weekly,
Volume 20, No. 40).

Ruling Requested

You request a ruling that pursuant to Rule 12B-4.053(35),
F.A.C., the Assumption Agreements will not be subject to
documentary stamp tax.

Discussion and Law

Your Florida Statute and Florida Administrative Rule
analyses are generally correct and appropriate for the rulings
requested as to whether the documentary stamp tax and intangible
tax are due on the transactions described.

Department's Position

Therefore, the refinancing transaction, the assignment of
the existing note and existing mortgage by the Current Lender to
the New Lender, is exempt from both the documentary stamp tax
and intangible tax under s. 201.09, F.S. and s. 199.145, F.S.
In addition, the execution, delivery or recording of the
refinancing note and mortgage in favor of the New Lender is
exempt from the documentary stamp tax and intangible tax under
s. 201.09, F.S. and s. 199.145, F.S. Further, the recordations
of the cross-collateralization mortgages are taxable for
documentary stamp tax based on the Recovery Amount set forth in
the cross-collateralization provisions of each mortgage. The
intangible tax, under Ch. 199, F.S., is not due on the crosscollateralization provisions.

As to the partnership transactions, neither the assignment
of the partnership interest nor the partnership merger are
taxable for the documentary stamp tax under Ch. 201, F.S.
Finally, since the assumption agreements will be executed out of
Florida and will not be recorded or filed in Florida, the
documentary stamp tax will not be due under Ch. 201, F.S. Note,
however, that no opinion is rendered as to whether any interest
in Florida property is conveyed by operation of the law of
another state, and that this advisement expressly assumes that
no other instruments or obligations are involved, concurrently
or subsequently.

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