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