Was a standby-letter-of-credit application and agreement subject to Florida documentary stamp tax?

Subject

Standby Letter-of-Credit Application and Agreement

Plain-English summary

The submitted standby-letter-of-credit application and agreement was not subject to Florida documentary stamp tax. The Department said a taxable section 201.08 document required a promise to pay, a sum certain in money, and the borrower's signature.

The form did not promise payment of a sum certain, so it lacked the required elements. If the borrower later executed a promissory note for draws under the credit or gave a mortgage, tax would apply to the note amount or mortgage principal.

What this means for you

The Department analyzed the submitted form itself. A letter-of-credit arrangement was not automatically taxable merely because it could later produce a debt; the written instrument needed the statutory payment features.

Separate financing documents remained independently taxable. The ruling did not exempt a later note or mortgage connected with the standby credit.

Common questions

Q: What three elements did the Department require? A promise to pay, a sum certain in money, and the borrower's signature.

Q: What element was missing? The submitted form did not contain a promise to pay a sum certain.

Q: Would a note for a letter-of-credit draw be taxable? Yes. The Department said documentary stamp tax would be due on the amount of the note.

Q: What if a mortgage secured the arrangement? Tax would be due on the mortgage's principal amount.

Citations and references

• Fla. Stat. § 201.08 — written obligations and mortgages
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98B4-004

Original ruling text

Mar 26, 1998

Re: Technical Assistance Advisement No. 98(B)4-004
Documentary Stamp Tax; Application and Agreement for
Standby Letter of Credit
Section 201.08, F.S.

XXX (Lender)

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 Application and Agreement for Standby Letter of Credit form

submitted.

Proposed Transaction

The form under consideration is the Application and

Agreement for Standby Letter of Credit (No form number).

Requested Ruling

The form is not subject to documentary stamp tax under s.

201.08, F.S.

Discussion and Law

A document containing the following three elements is

subject to documentary stamp tax under s. 201.08, F.S.:

1. A promise to pay.

2. Asum certain in money.

3. The signature of the borrower.

The form submitted does not contain the promise to pay a

sum certain in money.

If a promissory note is executed for draws under the letter

of credit or if a mortgage is given, documentary stamp tax is
due on the amount of the note or on the principal amount of the

mortgage given.

Department's Position

The form submitted does not contain the three elements
required to subject it to documentary stamp tax under s. 201.08,
F.S. If no promissory note is given or if no mortgage is

recorded, there is no documentary stamp tax due on this form.

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,

M.E. Clemens, C.P.A.
Senior Tax Specialist
Technical Assistance and Dispute Resolution

Office of General Counsel

MEC/mh