Were the lessor's master leases, schedules, or acceptance certificates subject to Florida documentary stamp tax?

Subject

Documentary Stamp Tax on Lease Document Sets

Plain-English summary

Neither the true-lease nor financing-lease document set was subject to Florida documentary stamp tax on the submitted facts. Each master agreement contained a promise to pay but no sum certain. Each schedule supplied transaction amounts and was incorporated into its master agreement.

The customer's payment duty did not begin until it signed a separate certificate accepting delivery and installation. That certificate was not incorporated into the master agreement. Because section 201.08 required taxability to be determined from the document's face and documents expressly incorporated into it, the Department could not use the separate certificate to complete the taxable obligation.

The Department reached the same result for both the true lease and the financing lease, including scenarios where the master agreement was signed outside Florida and the schedule and certificate were signed in Florida.

What this means for you

The ruling turned on document architecture, not simply the transaction's economic label. A master agreement, incorporated schedule, and separate acceptance certificate were examined according to what each said and what was expressly incorporated.

Small drafting changes could change the outcome. Incorporating the acceptance certificate, placing an unconditional payment duty and sum certain in a signed Florida document, or recording another debt instrument could present different facts.

Common questions

Q: Why was the master agreement alone untaxed? It contained a promise to pay but no sum certain.

Q: Did incorporating the schedule make the set taxable? No. Even with the schedule's amounts, the payment obligation remained contingent on the separate acceptance certificate.

Q: Why was the acceptance certificate disregarded? It was not expressly incorporated into the master agreement, so section 201.08(6) barred using it to determine taxability.

Q: Did the true-lease and financing-lease classifications produce different results? No. The Department found neither document set taxable.

Citations and references

• Fla. Stat. § 201.08(6) — taxability determined from the document and expressly incorporated documents
• Fla. Admin. Code r. 12B-4.002(1)(b) — instrument taxability determined by form and face
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98B4-006

Original ruling text

Mar 26, 1998

Re: Technical Assistance Advisement No. 98(B)4-006
Documentary Stamp Tax - Lease Agreements
Section 201.08, F.S., and Rule 12B-4.002(1)(b), F.A.C.
XXX (hereinafter Taxpayer)

Dear :

Your letter requesting a Technical Assistance Advisement
has been referred to this office for response. The specific
scenario for which advice has been requested is summarized
below.

Statement of the Facts

The taxpayer has its principal place of business outside
the State of Florida. The taxpayer is in the business of
leasing equipment and software to parties throughout the United
States. The company uses two sets of lease documents. One type
is characterized for federal income tax purposes as a true or
operating lease ("True Lease"), and the other is characterized
as a financing or capital lease ("Financing Lease").

Regarding the master lease, the taxpayer and customer enter
into a True Master Lease Agreement. The master lease contains a
promise to pay money but does not contain a sum certain. After
the specific equipment is identified by the customer, the
taxpayer and customer enter into a lease schedule. The schedule
shows the original cost of the equipment, the amount of the
monthly lease payment and the option price payable for the
purchase of the equipment at the end of the lease, if such
option is desired. The lease schedule does not contain a
promise to pay money. After the equipment has been delivered
and accepted by the customer, the customer signs a Certificate
of Acceptance acknowledging delivery and installation of the
leased equipment. The execution of this certificate triggers the
obligation of the customer to make lease payments.

The True Master Lease Agreement provides that the schedule
is incorporated by reference and made a part of the True Master
Lease Agreement. The Certificate of Acceptance is not
incorporated by reference into the True Master Lease Agreement.

Regarding the Financing Lease, the taxpayer and the
customer enter into a Financing Master Lease Agreement. The
lease agreement contains a promise to pay but does not contain a
sum certain. After the customer identifies the equipment, the
taxpayer and customer enter into a lease schedule. This form
states the original cost of the equipment and the amount of the
monthly lease payment. At the end of the lease, the option
price payable for the purchase of the equipment is $XX.
However, the lessee may purchase the equipment for a formula
price at any time during the term of the lease. The lease
schedule contains a sum certain but does not contain the promise
to pay. When the equipment has been delivered to the customer,
the customer signs a Certificate of Acceptance acknowledging
delivery and installation of the leased equipment. The execution
of this certificate triggers the obligation of the customer to
begin making lease payments. The lease schedule is incorporated
by reference and made a part of the Financing Master Lease
Agreement. However, the Certificate of Acceptance is not
incorporated by reference into the master lease.

Request for Advisement

Based on the facts, the taxpayer requests an advisement
addressing the following questions:

1. Are Florida documentary stamp taxes due and payable
   upon either the True Master Lease Agreement, the True
   Lease Schedule or the True Certificate of Acceptance
   if the foregoing are executed in Florida?
2. If the True Master Lease Agreement is executed outside
   of Florida but the True Lease Schedule and the True
   Certificate of Acceptance are executed in Florida, are
   Florida documentary stamp taxes due and payable?
3. Are Florida documentary stamp taxes due and payable
   upon either the Financing Master Lease Agreement, the
   Financing Lease Schedule or the Financing Certificate

of Acceptance if the foregoing are executed in
Florida?

4. If the Financing Master Lease Agreement is executed
   outside of Florida but the Financing Lease Schedule
   and the Financing Certificate of Acceptance are
   executed in Florida, are Florida documentary stamp
   taxes due and payable?
5. If the answer to either question number 1 or 2 is yes,
   what is the amount upon which Florida documentary
   stamp taxes are calculated?
6. If the answer to either question number 3 or 4 is yes,
   what is the amount upon which Florida documentary
   stamp taxes are calculated?

Provisions of the Law

Section 201.08(6), F.S., as amended July 1, 1997, states in
part:

Taxability of a document pursuant to this section shall be
determined solely from the face of the document and any
separate document expressly incorporated into the document.
Taxability of a document pursuant to this section shall not
be determined by reference to any separate document
referenced or forming part of the same contract or
obligation unless the separate document is expressly
incorporated into the document....

Rule 12B-4.002(1)(b), F.A.C. provides:

Taxability of Instrument -- The taxability of an
instrument, as well as amount of the tax, is determined by
form and face of the instrument and cannot be affected by
proof of extrinsic facts. (Lee v. Kenan, 78 F.2d 425 (5th
Cir. 1935); 100 ALR 869)

Conclusion

Based on the foregoing facts, neither the True Master Lease
Agreement, the True Lease Schedule, nor the True Certificate of
Acceptance meets the provision of the statute for being subject

to tax.

The Master Lease Agreement is executed outside of Florida
and therefore is not be subject to tax. The True Lease Schedule
is incorporated by reference into the True Master Lease
Agreement. Therefore, the agreement and schedule can be viewed
as one document. However, the obligation is contingent until
the True Certificate of Acceptance has been signed. Since the
certificate is not incorporated by reference into the Master
Lease Agreement, it cannot be used to determine whether an
obligation has been created.

In like manner, neither the Financing Master Lease
Agreement, the Financing Lease Schedule, nor the Financing
Certificate of Acceptance would be subject to tax. As a
consequence, questions 5 and 6 need not be addressed.

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,

Celestine Grantham

Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

CG/mh