Were promissory notes subject to Florida documentary stamp tax when the principal depended on future advances and could not be fixed or determined before payment?

Plain-English summary

The promissory notes were not subject to Florida documentary stamp tax under section 201.08 because they contained no fixed or determinable principal amount. The amount payable depended on future advances and calculations that could be completed only later.

The parent financed temporary payrolls and related costs, handled customer billing and collections, and advanced operating gross profit. Each note promised repayment of the total future advances, loans, payments, or disbursements plus contractually defined fees, charges, expenses, and interest.

The related license, security, assignment, lockbox, and UCC documents described the relationship and collateral, but the ruling's decisive point was that neither the notes nor incorporated documents stated a sum certain or determinable balance before payment.

What this means for you

A document called a promissory note does not necessarily have a taxable face amount when the obligation is entirely contingent on future activity. The ruling required more than a debt formula tied to advances that had not yet occurred.

The answer was narrow. Adding a fixed principal, determinable maximum, scheduled amount, or another incorporated document establishing a sum could change the analysis.

Common questions

Q: Did the notes promise repayment? Yes, but only of future advances and related amounts that were not yet fixed.

Q: Was the amount calculable when the notes were signed? No. It depended on multiple future factors.

Q: Did security interests in receivables create a taxable stated principal? Not on these facts. The collateral documents did not supply a fixed or determinable sum payable.

Q: What was the Department's holding? No documentary stamp tax under section 201.08 because there was no fixed or determinable sum at execution or before payment.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97B4-010

Original ruling text

Aug 21, 1997

Re: Technical Assistance Advisement No. 97(B)4-010
Documentary Stamp Tax; Promissory Notes, and Other
Documents
Section 201.08, F.S.
XXX (Parent)
XXX (Subsidiary)
XXX (Licensee)

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
promissory notes wherein no determinable amount of money is
stated. Instead the amount of the notes is stated in the
License Agreement, Security Agreement and Assignment and Lockbox
Agreement.

Facts as Presented by Petitioner

XXX. (Paragraph Deleted)
XXX. (Paragraph Deleted)

Documents:

Licensee signed a promissory note as holder in favor of
Parent on XXX. The documents involved are prepared by Parent in
XXX, forwarded to Subsidiary in Florida for signature and then
returned to XXX for counter signature by Parent and maintained
in XXX. The Licensee is the employer of the temporary employees
and the owner of the accounts receivable generated by the
offices. Parent advances the necessary funds to finance the
temporary payrolls, including all wages, payroll taxes,
withholdings required by law and insurance premiums; invoicing
customers, receiving and processing collections and depositing
funds into Parent's bank accounts; and advances the gross profit
derived from the operation of the business. The License

Agreement requires that the Licensee, upon receipt of any
customer remittances, deliver them promptly to Parent in XXX.

License Agreement:

XXX. (Paragraph Deleted)

Security Agreement and Assignment:

Provides that all such advances of funds by Parent as
secured party on behalf of Licensee as debtor shall be secured
by debtor's accrued billings, accounts receivable and other
collateral described in the agreement. The security agreement
provides for the assignment and pledge to Parent of a security
interest in collateral described in a Schedule and evidenced by
the promissory note described below.

Lockbox Agreement:

Pursuant to the provisions of the Lockbox Agreement for
each license agreement, Parent is authorized to invoice
customers, receive and process collections, and deposit funds in
Parent's bank account as a result of Licensee's operations
conducted pursuant to the License Agreement.

Promissory Note:

In the notes for each License Agreement entered into
between Licensee and Parent, maker (Licensee) promises to pay to
Parent a principal sum equal to the total dollar amount of such
advances, loans, payments or disbursements made by or on behalf
of Parent, together with the fees, charges, expenses and
interest as are provided for in the License Agreement, Security
Agreement and Assignment, and Lockbox Agreement. There is no
promise to pay a specific or determinable amount of money in any
of the notes. The amount of the note is contingent upon the
calculations necessary to determine the amount due at the time
of payment.

UCC-1 Financing Statement:

Licensee as debtor executed a UCC-1 Financing Statement in
favor of Parent as secured party with respect to each License
Agreement.

No other document will be filed with the Secretary of State
with the UCC-1 or recorded in any county in the State of Florida
in connection with the UCC-1.

Any document filed with the Clerk of Court will not have a
sum certain stated therein nor will any document incorporated by
reference have a fixed or determinable sum payable by the
debtor.

The principal amount of indebtedness of Licensee to Parent
under the Promissory Notes:

[I]s equal to the total dollar amount of such advances,
loans, payments or disbursements made by or on behalf of
[Parent]... together with the fees, charges, expenses and
interest as are provided for in each License Agreement,
Security Agreement and Assignment and Lockbox Agreement
[between the parties].

In the above description, the promissory notes do not have
a sum certain or a determinable sum payable. At the time of
execution of the notes, the amount payable is contingent upon
multiple factors calculable only in the future.

Requested Ruling

The documents are not subject to documentary stamp tax
under s. 201.08, F.S.

Department's Position

Since there is no fixed or determinable sum certain at the
time of execution or at a time prior to payment, and the amount
is contingent upon future calculations, the promissory notes are
not subject to documentary stamp tax under s. 201.08, F.S.

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
Technical Assistance and Dispute Resolution
Office of General Counsel

ME/mh