Were a nonprofit mortgage bank's warehouse notes and collateral assignments exempt from Florida documentary stamp tax?

Plain-English summary

Florida exempted the mortgage-banking corporation's notes and collateral assignments from documentary stamp tax as obligations under a wholesale warehouse mortgage agreement.

The nonprofit corporation financed affordable-housing developers with mortgage loans. Its member lenders funded those loans through a revolving credit arrangement, and each advance was documented by a corporation note secured by the matching developer note, mortgage, and related loan documents.

Documentary stamp and nonrecurring intangible taxes had already been paid on the full face amount of each recorded developer mortgage. The aggregate corporation debt could not exceed the matching developer debt. The Department therefore treated the corporation notes as principal obligations secured by qualifying collateral obligations under section 201.21 and exempted both the notes and collateral assignments from documentary stamp tax.

What this means for you

• The underlying developer obligations had already borne the required Chapter 201 excise tax.
• The mortgage bank's principal debt did not exceed the collateral debt.
• The exemption covered the corporation notes and recorded collateral assignments under the described warehouse structure.

Common questions

Q: Were the corporation notes subject to documentary stamp tax? A: No.

Q: Were the collateral assignments taxable? A: No.

Q: Why did the wholesale warehouse exemption apply? A: The notes were principal obligations secured by taxed collateral obligations, and the principal debt did not exceed the collateral debt.

Citations and references

• Fla. Stat. § 201.21 — wholesale warehouse agreement exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96B4-007

Original ruling text

May 13, 1996

RE: Technical Assistance Advisement No. 96(B)4-007 Documentary Stamp Tax; Collateral Assignments of Notes and Mortgages; Wholesale Warehouse Mortgage Agreement XXX (Corporation) XXX (Members)

Dear :

This is in response to your recent request for a Technical Assistance Advisement.

Facts

Corporation, a non-profit mortgage banking corporation, offers financing for affordable housing developments. Corporation is composed of Members who each provide loans to Corporation, which then makes mortgage loans to real estate developers. One of the Members is appointed Agent to act on the Members' behalves. Each mortgage loan is evidenced by a promissory note from the developer to Corporation and is secured by a mortgage on the developer's project. The developer mortgages are recorded in the local Clerk of Court's office and documentary stamp taxes and non-recurring intangible taxes are paid on the full face amount of the developer note secured thereby.

To obtain funds to extend the developer loans, Corporation has entered into a Credit and Security Agreement dated as of XXX with each of its Members pursuant to which the Members have committed to advance $XX to Corporation. The Credit Agreement contemplates a revolving line of credit pursuant to which Corporation may borrow, prepay and reborrow sums to fund the developer loans. The Credit Agreement also contemplates that Corporation may sell the developer loans in the secondary market.

Each advance to Corporation is evidenced by a promissory

note from Corporation to the Agent in an amount equal to the corresponding developer note, and is secured by a Security Agreement and Collateral Assignment and Pledge of Note, Mortgage, etc. The Corporation Collateral Assignment, which is to be recorded in the same county as the underlying developer mortgage, pledges the corresponding developer loan documents to secure payment of the Corporation Note secured thereby. The Credit Agreement provides that the Agent, as secured party on behalf of the Members, has a security interest in all developer loan documents "to secure all obligations of [Corporation] under which or arise from any [Corporation] loan whether now or hereafter existing."

The amount of the developer loans and the corresponding advances to Corporation may be for as much as $XX. However, in practice, the developer loans are for amounts in the range of
$XX to $XX. While the Members' commitment could theoretically be exhausted by XXX developer loans, each for the $XX maximum, it is more likely that the Members will be financing as many as XX to XX developer loans. As a developer loan is repaid, Corporation will repay the corresponding Corporation Note, thereby reducing the aggregate amount outstanding under the Credit Agreement. Thereafter, Corporation can enter into new developer loan agreements and obtain additional advances under the Credit Agreement.

Pursuant to the loan structure established under the Credit Agreement, the aggregate of the various Members' percentage interests in each developer loan equals one hundred percent. The principal obligation under Corporation notes cannot exceed the aggregate amounts due under the developer notes (the collateral obligation). The aggregate debts under both the developer notes and Corporation notes are always identical.

Law and Discussion

Section 201.21, F.S., states in part:

There shall be exempt from all excise taxes imposed by this chapter all promissory notes, nonnegotiable notes, and other written obligations to pay money..., hereinafter

referred to as "principal obligations," when the maker thereof shall pledge or deposit with the payee or holder thereof pursuant to any agreement commonly known as a wholesale warehouse agreement, as collateral security for payment thereof, any collateral obligation or obligations as hereinafter defined, provided all excise taxes imposed by this chapter upon or in respect to such collateral obligation or obligations shall have been paid. If the indebtedness evidenced by any such principal obligation shall be in excess of the indebtedness evidenced by such collateral obligation or obligations, the exemption provided by this section shall not apply to the amount of such excess indebtedness; and, in such event, the excise taxes imposed by this chapter shall apply and be paid only in respect of such excess of indebtedness of such principal obligation. The term "collateral obligation" as used in this section means any note, bond, or other written obligation to pay money secured by a mortgage, deed of trust, or other lien upon real or personal property. The pledging of a specific collateral obligation to secure a specific principal obligation, if required under the terms of the agreement, shall not invalidate the exemption provided by this section.... (Emphasis Supplied)

Determination

Based upon statutory provisions and close examination of the documents at hand, the advances extended by the Members to Corporation under the Credit Agreement satisfy the requirements of a "wholesale warehouse mortgage agreement" since Corporation notes are "principal obligations" under s. 201.21, F.S., secured by the developers' pledges pursuant to the Collateral Assignment. Therefore, Corporation notes and Corporation Collateral Assignments are exempt from documentary stamp taxes.

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,

Joy Eldred, C.P.A.
Tax Law Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

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