Was a Florida simple-interest automobile retail installment contract subject to documentary stamp tax, and did its tax base include a loan processing fee?

Plain-English summary

The Florida Department of Revenue concluded that the submitted simple-interest automobile retail installment contract was subject to documentary stamp tax. The document contained the three required elements: a promise to pay, a sum certain in money, and the borrower's signature.

The tax base was the portion of the contract financed over the life of the loan and not paid at inception. The form labeled its loan processing fee as a prepaid finance charge. If that fee was truly paid up front, it was excluded from the amount financed. If it was instead financed over the contract term, it had to be included.

The ruling applied the then-stated rate of $0.35 for each $100 or fraction of $100. Its examples rounded $10,900.01 up to an $11,000 tax base and produced $38.50 of tax, while $10,890.06 produced a $10,900 base and $38.15 of tax.

The official text begins with a status notice directing readers to revised TAA 97B4-002R, dated January 12, 1998. This page therefore describes the original 1997 advisement, not the revision.

What this means for you

Automobile lenders and dealers

The labels on the form were not conclusive. The Department looked at whether a charge was actually paid at inception or financed over the loan term.

Loan-document and accounting teams

The taxable amount depended on the contract's real use. If the loan processing fee was financed, line 7 should include it; if it was actually prepaid, line 7 could exclude it.

Tax professionals

Check the official revised TAA 97B4-002R before applying this analysis. The source itself identifies that later document as the revision of this advisement.

Common questions

Q: Why was the contract taxable?
A: It contained a promise to pay, a sum certain in money, and the borrower's signature.

Q: Was the loan processing fee always excluded? A: No. It was excluded only if actually paid in advance. If financed over the life of the contract, it formed part of the taxable amount financed.

Q: How were fractions of $100 handled? A: The ruling applied the stated $0.35 rate to each $100 or fraction of $100, rounding the taxable base up to the next $100 increment.

Q: Is this the final version of the Department's answer? A: No. The official text says to see revised TAA 97B4-002R dated January 12, 1998.

Citations and references

• Fla. Stat. §§ 201.08 and 213.22
• Fla. Admin. Code r. 12B-4.052(1)(a)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97B4-002

Original ruling text

Status: See TAA 97B4-002R (Revised) dated January 12, 1998

Feb 10, 1997

Re: Technical Assistance Advisement No. 97(B)4-002 Documentary Stamp Tax on Florida Simple Interest Retail Installment Contract and Security Agreement Form XXX (hereinafter Lender); XXX (hereinafter Borrower);

Dear :

This is in response to your recent request for a Technical Assistance Advisement on behalf of XXX in which you ask if the Florida documentary stamp tax imposed by s. 201.08, F.S., is due upon a "Simple Interest Retail Installment Contract and Security Agreement" form.

Issue

The issue is whether the form submitted is subject to documentary stamp tax under s. 201.08, F.S., and what the basis for the tax is.

Statement of Facts

The form is used for the purchase of retail automobile simple interest installment contracts from automobile dealers. A filled-in form requires calculation of the "Principal Amount" to be financed on line 6. The signature of the borrower is required. The form states in paragraph 2 on the back of the form "The Debtor agrees to pay the outstanding principal balance hereof...."

The form contains several lines pertaining to the amount financed:

Line 1 Cash price
Line 2 Downpayment

Line 3 Unpaid Balance of Cash Price (Line 1 minus 2) Line 4 Other charges Line 5 "Prepaid" finance charges (including the loan processing fee) Line 6 Principal Amount (Line 3 plus 4 plus 5) Line 7 Amount Financed (Line 6 minus 5)

A box at the top of the form summarizes the credit purchase amounts. It repeats the Annual Percentage Rate, Finance Charge, Amount Financed, and Total Sales Price. The loan processing fee (described as "prepaid finance charges") is not included in the Amount Financed on Line 7 on the filled-in form submitted.

Discussion and Law

A document with the following three elements is subject to documentary stamp tax under s. 201.08, F.S.

1. A promise to pay.
2. A sum certain in money.
3. The signature of the borrower.

The document submitted contains all three elements.

The basis for the tax under Rule 12B-4.052 (1)(a), F.A.C., is "... the amount financed or principal indebtedness... Miscellaneous charges... which are included in the amount financed or principal indebtedness are not contingent obligations at the time the note is executed and are taxable."

The rate of the tax due under s. 201.08, F.S., is $.35 per hundred dollars or fraction thereof. For example, to determine the correct amount of documentary stamp tax on a document whereby the amount of $10,900.01 is financed, the figure must be rounded up to the next $100.00. In this case, the taxable base is $11,000.00. The tax is $11,000.00 divided by $100 times $.35, or $38.50. If the amount financed was $10,890.06, the taxable base would be $10,900.00. The tax is $10,900.00 divided by $100 times $.35, or $38.15.

If the amount on line 5, titled "Prepaid Finance Charges-

Loan Processing Fee," is not actually prepaid, but is financed over the life of the contract, then the amount financed on line 7 should include the line 5 finance charges. "Principal Amount" (Line 6) and "Amount Financed" (line 7) would be the same amount in this instance.

If the Finance Charges are in fact paid up front and are not financed, the amount upon which tax would be due on "Amount Financed" (line 7) is the amount of line 6 minus line 5.

The actual use of the form would dictate whether the "Prepaid Finance Charges-Loan Processing fee" charges should be included in the amount subject to tax. If the form is used as the titles indicate, the amount financed would exclude the amounts which are actually paid in advance before the final amount financed is calculated.

Department's Position

The contract submitted contains each of the three elements required for the imposition of documentary stamp tax. The tax is computed on the amount of the total contract that is the amount financed over the life of the loan but not paid at inception. This is the figure stated on line 7 and in the box titled "Amount Financed" if the "Prepaid Loan Processing Fee" amounts on line 5 are indeed paid in advance.

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