Was an underwriting agreement for asset-backed certificates subject to Florida documentary stamp tax when payment depended on delivery of the securities?

Plain-English summary

Florida concluded that the reviewed underwriting agreement was not subject to documentary stamp tax because it did not contain an unconditional promise to pay a fixed sum.

The transaction involved a subsidiary selling asset-backed certificates to underwriters. The agreement stated the price, but payment occurred only when the subsidiary delivered the securities. That future delivery condition mattered: Rule 12B-4.054(5) said a written promise to pay that was not fixed and absolute when executed was not taxable.

The Department therefore found the agreement did not meet section 201.08(1)'s requirement for a written, unconditional obligation to pay a sum certain. It described any payment obligation as "conditional" on future events, including delivery of the certificates.

The requester asked six questions about whether the agreement contained a promise and fixed amount and whether different signing or storage patterns caused it to be made, executed, or delivered in Florida. Because this particular agreement failed the unconditional-obligation test, the Department answered all six by concluding that the document itself was not taxable.

What this means for you

Securities issuers and underwriters

Stating a purchase price does not necessarily create a taxable promise to pay. If payment remains contingent on future delivery of the securities, the document may fail the fixed-and-absolute requirement applied in this TAA.

Corporate tax and legal teams

Review the payment condition before focusing only on signature location. Here, one signature could occur in Florida and transaction papers could later be stored in Florida, but the agreement remained nontaxable because it lacked an unconditional payment obligation.

Accountants and tax professionals

Keep the holding document-specific. The Department examined the submitted underwriting agreement and did not announce that every securities underwriting agreement is exempt.

Common questions

Q: Did the agreement state a purchase price? A: Yes, but the underwriters paid upon delivery of the offered securities.

Q: Why was that not a taxable promise to pay? A: Payment was conditional on future events, so the obligation was not fixed and absolute when the agreement was executed.

Q: Did a Florida signature make this agreement taxable? A: No. For the reviewed document, the Department's answer to all six questions was that it was not subject to tax.

Q: Did signing all documents outside Florida make the difference? A: No. The determination rested on the lack of an unconditional obligation, and it covered the all-out-of-state-signature scenario too.

Q: Did keeping a working copy in Florida create tax? A: No, not for this agreement. Final storage in Florida was one of the six scenarios answered by the same nontaxability determination.

Q: Can another underwriting agreement rely on this result? A: Not automatically. A Florida TAA binds the Department only for the requester and the stated facts.

Citations and references

• Fla. Stat. § 201.08(1) — written obligations to pay a sum certain made, executed, and delivered in Florida.
• Fla. Admin. Code r. 12B-4.052(6) — documentary stamp tax as an excise tax on the promise to pay.
• Fla. Admin. Code r. 12B-4.054(5) — a promise not fixed and absolute at execution is not taxable.
• Fla. Stat. § 213.22 — Technical Assistance Advisements.
• Fla. Stat. ch. 119 — public-record disclosure with identifying details deleted.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98B4-014

Original ruling text

Dec 10, 1998

RE: Technical Assistance Advisement No. 98(B)4-014 Documentary Stamp Tax; Promise to Pay Section 201.08, F.S. XXX (Parent Corporation) XXX (Subsidiary One) XXX (Subsidiary Two)

Dear :

This is in response to your recent request for a Technical Assistance Advisement regarding the documentary stamp tax implications of a securities transaction where underwriters sell the securities to the public under an agreement.

FACTS PRESENTED BY TAXPAYER

Parent Corporation is a company specializing in the acquisition, sale and servicing of loans, and is the parent corporation of several wholly owned subsidiaries. Subsidiary One and Subsidiary Two are Delaware corporations currently domiciled and operating in Florida.

Parent Corporation acquires loans originated by third parties in various states. It sells loans to Subsidiary One. Subsidiary One holds the loans originated in the three-month period, packages the loans and sells the packaged loans to Subsidiary Two. Packaging consists of grouping the loans into an identifiable lot based on their characteristics. Subsidiary Two later transfers the packaged loans into a trust, under the control of an independent trustee. Subsidiary Two then sells securities (asset-backed certificates) to one or more third party underwriters.

The underwriters sell the securities to the public. The loans in the trust are owned directly by the trust and indirectly by the purchaser of the certificates, except for any interest retained by Subsidiary Two.

At the closing meeting for the sale of securities, authorized officers of Parent Corporation, Subsidiary Two, and the underwriters gather outside of Florida to execute approximately 20 documents related to the transaction. Approximately one week prior to the closing meeting, the authorized officers sign an underwriting agreement. An officer of Subsidiary Two signs the underwriting agreement either in Florida or outside Florida. Officers of Parent Corporation and the underwriters always sign the underwriting agreement outside of Florida.

At the closing meeting, Subsidiary Two delivers the securities to the underwriters and the underwriters deliver the cash. Parent Corporation, Subsidiary Two, and the underwriters come to terms before the documents are signed at the closing meeting. The execution of the documents, including the underwriting agreements, formalizes the terms that Parent Corporation, Subsidiary Two, and the underwriters agreed to. The sales price of the securities is determined the day the underwriters and Subsidiary Two sign the underwriting agreement. Subsidiary Two receives its set of working documents associated with the transaction in Florida for recordkeeping purposes.

The underwriting agreement contains the date and time when the closing of the transaction will take place. It also indicates the consideration that will be paid by the underwriters at the time of sale, contingent upon the delivery of the offered securities.

The pertinent language in the underwriting agreement states:

... [Subsidiary Two], a Delaware corporation, proposes to sell [$ X of asset-backed certificates.]... Subject to the terms and conditions set forth or incorporated by reference in this Agreement, [the underwriters agree to purchase all of the asset-backed certificates.]... The purchase price, net of underwriting discounts and commissions, at which the Underwriters will purchase [the certificates is X% of the original principal amount thereof.]...

The Underwriters will pay for the Offered Securities in immediately available funds upon delivery thereof at X location, or at such other location as shall be designated by us, at X time, on X date, or at such other time, not later than X date, as shall be designated by the Underwriters.

The Offered Securities shall have the terms set forth in the copy of the Prospectus Supplement attached hereto as Annex A ... and shall conform in all material respects to the description thereof contained in such Prospectus.

REQUESTED ADVICE

Based on the stated facts, technical assistance is requested on these issues:

1. Does the underwriting agreement, in and of itself,
   contain a written "promise to pay"?
2. Does the underwriting agreement contain an amount that
   is fixed and absolute at the time of execution?
3. Does the execution of an underwriting agreement for
   the sale of securities between [Parent Corporation, Subsidiary Two], and the underwriters, whereupon the last signature on the underwriting agreement is executed in Florida, cause the document to be made, executed, or delivered in Florida? If so, based on the above facts and the attached underwriting agreement, is such document subject to Florida documentary stamp tax?
4. Does the execution of an underwriting agreement for
   the sale of securities between [Parent Corporation, Subsidiary Two], and the underwriters, which includes a signature signed in Florida, but also clearly indicates that the final signature was signed outside of Florida, cause the document to be made, executed, or delivered in Florida?
5. Does the execution of an underwriting agreement for
   the sale of securities between Parent Corporation, Subsidiary Two, and the underwriters, where all

signatures on the underwriting agreement are executed outside of Florida, cause the document to be made, executed, or delivered in the state of Florida?

6. Does the final storage in Florida of the underwriting
   agreement for the sale of securities between [Parent Corporation, Subsidiary Two], and the underwriters, cause the agreement to be made, executed, or delivered in Florida?

LAW AND ANALYSIS

Section 201.08(1), F.S., imposes the documentary stamp tax on written obligations to pay a sum certain in money when the written obligation is made, executed, and delivered in this state. Specifically on point are the following rules from the Florida Administrative Code. Rule 12B-4.052(6), F.A.C., "Written Obligation or Promise to Pay Money," states in part:

(a) The tax levied by s. 201.08(1), F.S., is an excise tax on the promise to pay....

Rule 12B-4.054(5), F.A.C., titled "Contingent Obligations," states:

A written promise to pay money, which is not fixed and absolute at the time of execution, is not subject to tax.

To determine the answers to your questions, the underwriting agreement was examined in order to ascertain whether it met all of the aforementioned criteria to qualify as a taxable document under s. 201.08(1), F.S.

DETERMINATION

After careful examination of the underwriting agreement, we have determined it is not a taxable document under s. 201.08(1), F.S. It does not constitute a written, unconditional obligation to pay a sum certain in money. Any obligation to pay is "conditional" upon the occurrence of future events, such as the delivery of the certificates by Subsidiary Two. Based on this determination, the responses to Questions One through Six are

that this particular document, by itself is not subject to Florida documentary stamp tax.

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. 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,

Joy B. Eldred, C.P.A.
Tax Law Specialist
Technical Assistance and Dispute Resolution Office of the General Counsel

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