Is Florida documentary stamp tax due on a signed small-business line-of-credit addendum that requires a $150 nonrefundable origination fee?

Plain-English summary

The Florida Department of Revenue concluded that the described small-business line-of-credit addendum was subject to 70 cents of documentary stamp tax. The borrower signed the addendum, promised to pay advances under the credit line, and agreed to a nonrefundable $150 origination fee if the line was established.

The Department said a written obligation is taxable under section 201.08 when it contains three elements: a promise to pay, a sum certain in money, and the borrower's signature. The $150 fee supplied the sum-certain element for the addendum.

The separate small-business credit application was not taxable. Although it listed the amount requested and was signed, it contained no promise to pay a sum certain. The ruling assumed that these were the only two documents executed for the loan exceeding $25,000.

What this means for you

Banks and small-business lenders

A line-of-credit document can trigger documentary stamp tax even before focusing on future advances when the signed form itself creates a fixed payment obligation. Here, the $150 origination fee made the addendum taxable if the credit line was established or if bank policy charged the fee even when it was not established.

Small-business borrowers

The ruling separated the initial application from the binding addendum. Merely requesting a stated loan amount did not create the taxable obligation; signing the addendum with its payment promise and fixed fee did.

Accountants and tax professionals

Review all documents executed as part of the financing. This advisement expressly presumed there were no loan documents beyond the application and addendum, so another note, agreement, or obligation could change the analysis and tax base.

Common questions

Q: Was the credit application subject to documentary stamp tax? A: No. The application stated the amount requested but did not include a promise to pay a sum certain.

Q: Why was the addendum taxable?
A: It contained the borrower's signature, a promise to pay, and a fixed $150 nonrefundable origination fee.

Q: How much tax did the Department say was due? A: Seventy cents, based on the $150 sum-certain obligation described in the addendum.

Q: When did the tax apply?
A: The ruling said tax was due if the line of credit was established, or if the bank's policy was to charge the $150 nonrefundable fee whether or not the line was established.

Q: Did the ruling cover other loan documents? A: No. It assumed that only the identified credit application and line-of-credit addendum were executed for the loan.

Q: Can another lender rely on this TAA? A: Not automatically. The advisement states that it binds the Department only under the facts and circumstances described in the request, and later legal changes or court interpretations may produce a different result.

Citations and references

• Fla. Stat. § 201.08 (documentary stamp tax on written obligations to pay money)
• Fla. Stat. § 213.22 (technical assistance advisements)
• Fla. Stat. ch. 119 (public records)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96B4-020

Original ruling text

Dec 20, 1996

Re: Technical Assistance Advisement No. 96(B)4-020 Documentary Stamp Tax; Small Business Line of Credit Addendum Form s. 201.08, F.S. XXX (Lender) XXX Applicant (Applicant/Borrower)

Dear :

This is in response to your recent request for a Technical Assistance Advisement in which you ask if the Florida documentary stamp tax imposed by s. 201.08, F.S., is due upon the Small Business Line of Credit Addendum (Form # P96-29 0896).

Proposed Transaction

The Borrower makes an application for a loan in excess of
$25,000.00 in the State of Florida with Lender. Only two documents are executed in connection with the small business credit application for a loan in excess of $25,000.00:

1. Small Business Credit Application (Form #161896 1195)
   requesting general, financial and miscellaneous applicant information from borrower, and
2. Small Business Line of Credit Addendum(Secured by
   [Lender] CD)(Form #P96-29 0896).

As to the form in number one above, the Small Business Credit Application (Form #161896 1195) lists the total amount applied for. There is no promise to pay any sum certain contained therein. The form requires the signature of the borrower and the guarantors.

As to the form in number two above, the Small Business Line of Credit Addendum (Secured by [Lender] CD) (Form #P96-29 0896) sets forth the line of credit dollar limit. The due date is "upon demand." The "Applicant agrees to pay..., on demand, the

total of all advances under the line of credit and... for which Applicant is responsible under this Addendum. All payments under the line of credit will be automatically debited from Applicant's account when due without notice," although payments may be made by check if made prior to the due date.

The Addendum (#P96-29 0896) sets forth a sum certain in Item

3 a wherein:

Applicant agrees to pay the following fees...: a... non-refundable origination fee equal to $150.00 upon establishment of the line of credit.

The obligation under the line of credit is secured by personal property, a Certificate of Deposit. The form (#P96-29 0896) states the current principal amount of the Certificate of Deposit required as collateral for the Applicant's obligations under this addendum.

Each owner with any interest in the Certificate of Deposit must sign individually as guarantors. The form (#P96-29 0896) requires each of the undersigned owners of the Certificate of Deposit to jointly and severally unconditionally and irrevocably guarantee to Lender the full prompt and unconditional payment and performance of all Applicant's obligations due under or in connection with the Addendum.

Each owner assigns, transfers, pledges and grants to Lender a continuing security interest in and lien on the Certificate of Deposit and other accounts maintained by Applicant with Lender.

Further, in this form, Applicant agrees to pay Lender, on demand, the total of all advances under the line of credit plus other amounts owed under the line of credit.

The form (#P96-29 0896) requires the signature of Applicant (Borrower) and the signatures of the guarantors.

Requested Ruling

Lender requests that the Agreement Form (#P96-29 0896) be found

exempt from the Florida documentary stamp tax.

Department's Position

Section 201.08, F.S., imposes a documentary stamp tax upon written obligations to pay money. The document or documents must contain three elements:

1. A promise to pay,
2. A sum certain in money, and
3. Signature of the borrower.

The form in number one, Small Business Credit Application (Form # 161896 1195), above does not contain the three elements necessary for imposition of documentary stamp tax under s. 201.08, F.S.

The form in question in number two above, the Small Business Line of Credit Addendum (Form # P96-29 0896), sets forth the amount of the line of credit. The borrower agrees to pay the total of all advances under the agreement.

In Item # 3 a, the borrower agrees to pay a sum certain: the
$150.00 origination fee if the line of credit is established.

The form bears the signature of the borrower.

Therefore the form, Small Business Line of Credit Addendum (Form # P96-29 0896), is subject to tax if the line of credit is established based on the agreement to pay a sum certain ($150.00) signed by the borrower. Documentary stamp tax of $.70 is due if the line of credit is established, or if the bank's policy is to charge the nonrefundable fee of $150.00 whether or not the line of credit is established.

This answer presumes that no other documents are executed in reference to this type of loan for an amount in excess of
$25,000.00 except the two forms cited in the beginning of this letter.

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 treatment different from that 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,

M.E. Clemens, C.P.A.
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

MEC/mh