Was a Florida automobile retail installment contract taxable, and did financed loan-processing charges belong in the documentary-stamp tax base?

Plain-English summary

The automobile retail installment contract was subject to Florida documentary stamp tax, and every dollar actually financed belonged in the tax base.

The form required the borrower to sign and promise payment of the outstanding principal balance. It listed the cash price, down payment, unpaid cash-price balance, other charges, purported prepaid finance charges, principal amount, and amount financed.

A loan-processing fee was labeled a prepaid finance charge even though borrowers did not necessarily pay it in advance. The Department said the label did not control. If the fee was financed, it had to be included in the documentary-stamp tax base. An amount could be excluded only when it was actually prepaid and not financed.

The ruling's example applied the stated rate of 35 cents per $100 or fraction: $10,900.01 financed produced an $11,000 tax base and $38.50 tax.

What this means for you

Lenders and dealers should calculate the tax from the money actually financed, not merely from a disclosure label. A charge shown as prepaid can still be taxable when the lender advances it and the borrower repays it through the contract.

Common questions

Q: Was the retail installment contract taxable? A: Yes. It was a signed written obligation to pay money.

Q: Was the loan-processing fee automatically excluded because the form called it prepaid? A: No. It was excluded only if the borrower actually paid it in advance and it was not financed.

Q: What did the Department include in the tax base? A: Every dollar financed by the lender under the contract.

Q: How were fractions of $100 handled? A: The ruling rounded the financed amount up to the next $100 for applying the stated 35-cent rate.

Citations and references

• Fla. Stat. § 201.08 — documentary stamp tax on written obligations to pay money
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

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

Original ruling text

Status: Revised version of TAA 97(B)4-002 dated February 10,
1997

               Jan 12, 1998

Re: Technical Assistance Advisement No. 97(B)4-002 REVISED Documentary Stamp Tax on Florida Simple Interest Retail Installment Contract and Security Agreement Form Section 201.08, F.S. 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 is the basis for the tax.

              STATEMENT OF FACTS

The form is a retail automobile purchase simple interest installment contract. 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

Page 2

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 Amount Financed on Line 7 on the filled-in form submitted.

In our telephone conversation of XXX, you stated that the debtor does not actually sign a promissory note for the amount financed in the Simple Interest Retail Installment Contract and Security Agreement. In addition, you stated in your letter of XXX, Regulation Z requires calculation of the amounts on various lines of the agreement in a manner which does not use the plain and ordinary English language meaning of the titles on the form. For example, you stated that even though most borrowers do not actually "prepay" these loan processing fee finance charges, the amount of the finance charges is still listed on Line 5 as being prepaid.

              CONCLUSION

Section 201.08, F.S., imposes tax on a written obligation to pay money signed by the borrower. The document submitted is such a taxable written obligation.

Following is an example of how to compute the amount of the tax.

The tax 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 when the amount of
$10,900.01 is actually financed, the figure must be rounded up to the nearest $100.00. In the example, the tax base is
$11,000.00. The tax base is divided by $100 and multiplied by

Page 3

$.35. The tax is $38.50. If the amount financed had been
$10,890.06, the tax base would have been $10,900.00.

If the "prepaid finance charges" are not actually paid in advance before the final amount financed is calculated, they must be included in the basis for calculation of documentary stamp tax. (Any amount actually prepaid and NOT financed is to be excluded from the calculation.) Every dollar financed by the lender in the Simple Interest Retail Installment Contract and Security Agreement is included in the tax base.

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