How did Florida tax SEC-registered interests giving buyers recurring rights to use or rent hotel suites?

Subject

Hotel-Suite Interests: Sales and Documentary Stamp Taxes

Plain-English summary

Florida reached different tax results for different parts of the proposed hotel-interest program. Buyers would acquire SEC-registered securities that gave them eight weeks of annual hotel-suite use, participation in a rental pool, and exchange rights. They also reimbursed common expenses and could pay the purchase price over time.

The sale of an interest and the reimbursed expenses were not subject to Florida sales and use tax. The Department said Chapter 212 did not tax the sale of a security. Because the tourist development tax and discretionary surtax applied only when sales tax applied, those charges also did not apply to the interest sale or reimbursements.

Documentary stamp tax depended on the instrument and transaction. An interest accepted, signed, and issued outside Florida was not taxed as an original security issue under section 201.05. The conditional pay-over promise was not a fixed and absolute obligation and therefore was not taxed under section 201.08 unless the interest was filed or recorded in Florida. Separately, the interest transferred rights in a Florida hotel suite, so the transfer document was taxable under section 201.02.

What this means for you

Calling an arrangement a security did not answer every Florida tax question. It prevented sales tax on the security sale here, but the same instrument still conveyed an interest in Florida real property and triggered documentary stamp tax under a different statute.

The TAA also allowed the licensee to register the holders' suites collectively and collect and remit taxes on their rental charges if it met Rule 12A-1.060. The named county self-administered its tourist development tax, so that tax had to be remitted directly to the county tax collector.

Common questions

Q: Was the SEC-registered interest itself subject to sales tax? No. The Department found no Chapter 212 provision taxing the sale of a security.

Q: Were common-expense reimbursements taxable? No. The TAA treated those reimbursements as outside the combined sales, tourist-development, and surtax charges.

Q: Did issuing the security create documentary stamp tax? Not when it was accepted, signed, and issued outside Florida under the submitted plan.

Q: Was the installment promise taxable? Not at execution because the holder could be relieved of future payments, so the obligation was not fixed and absolute. It became taxable under section 201.08 if filed or recorded in Florida.

Q: Why did section 201.02 still apply? The interest conveyed rights in a Florida hotel suite, which the Department treated as an interest in real property even though the holder did not receive full ownership.

Q: Could the licensee remit rental taxes for all holders? Yes, if it satisfied Rule 12A-1.060; the self-administered county tourist tax still had to go directly to the county tax collector.

Citations and references

• Fla. Stat. § 201.05(1) — original issue of securities in Florida
• Fla. Stat. § 201.08(1) — written payment obligations and instruments filed or recorded in Florida
• Fla. Stat. § 201.02(1) — documents transferring an interest in Florida real property
• Fla. Admin. Code r. 12A-1.060 — collective registration and remittance for rental units
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98M-002

Original ruling text

SUMMARY

A Licensee will obtain the right to sell "Interests" in

hotel suites pursuant to a License Plan with the owner of such suites. The Licensee intends to sell "Interests" to Purchasers. At the time of the purchase of an "Interest", the Purchasers may pay in full or may pay over time. A Purchaser has the right to the use of a hotel suite for

eight weeks a year and also the opportunity to exchange it with other participants at other resorts in a travel plan.

A Purchaser is obligated to assign his or her right to use

a hotel suite to a rental pool arrangement and receive income or, upon proper notice, to use the suite for the Purchaser's own use or rental to others. A Purchaser is responsible for reimbursing the Licensee of his or her share of common expenses incurred. The Securities and Exchange Commission (SEC) ruled that the "Interests" are securities and Licensee has registered the "Interests" with the SEC.

For documentary stamp tax purposes, this TAA determined that tax under s. 201.08, F.S., would be due on the sale of "Interests" deemed by the SEC to be securities, that no tax would be due on the agreement to pay over time since the instrument does not contain a fixed and absolute sum certain, and that tax under s. 201.02, F.S., would be due on the sale of "Interests" since they transfer interest in

Florida real property.

For sales and use tax purposes, this TAA determined that since the above described "Interests" were deemed by the SEC to be securities, no sales and use tax would be due on the sale of the "Interests" because there is no provision

in Chapter 212, F.S., to tax the sale of a security or the associated reimbursed expenses. Furthermore, any tourist development tax or discretionary surtax would not be applicable. This TAA also determined that if the Licensee meets the requirements of Rule 12A-1.060, F.A.C., it may collectively register the Purchaser's suites and collect

and remit applicable sales and use tax on behalf of the

Purchasers.

Apr 13, 1998

Re: Technical Assistance Advisement 98(M)-002 Sales and Use Tax and Documentary Stamp Tax - Sale of an Interest ss. 201.05(1), 201.08(1), 201.02(1), F.S.

Rule 12A-1.060, F.A.C.
XXX ("Owner")

XXX ("Hotel")

XXX ("Licensee")

XXX ("Travel Plan")

Dear:

This letter is a response to your petition dated January 7, 1998, for the Department's issuance of a Technical Assistance Advisement ("TAA") concerning the above referenced parties and matter. Your petition has been carefully examined and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you under the

authority of s. 213.22, F.S.

I. FACTS PRESENTED

Owner owns Hotel located in XX, Florida. Licensee will obtain the right to sell "Interests" in Hotel suites pursuant to

a License Plan with Owner.

Licensee intends to sell an Interest to a purchaser ("Holder") pursuant to a Subscription and Purchase Agreement ("Agreement") and an accompanying License Plan which gives the Holder the right to the use of a Hotel suite for eight weeks a year (until XX), and also the opportunity to exchange it with other participants at other resorts in the Travel Plan. The Holder will be "obligated" to assign his or her right to use a

Hotel suite for eight weeks (two consecutive weeks for each

season) to a rental pool arrangement and receive income or, upon proper notice, to use the suite for one or more weeks for the Holder's personal use or rental to others. At the time of

purchase of the Interest, the Holder may pay in full or may pay over time ("Pay Over Term" payments). The Securities and Exchange Commission (SEC) has given the opinion that the Interest is a security and Licensee has registered the Interests with the SEC.

A Holder must also reimburse Licensee for expenses which will be assessed as his or her share of common expenses. If the Holder fails to reimburse Licensee for the expenses or fails to make the Pay Over Term payments as they become due, the Holder will be denied revenue from renting a suite, denied the right to use the suite, and also be denied exchanging the right to use of the suite in the Travel Plan. If the Holder's default continues for the period described in the Agreement, the Agreement and accompanying License Plan may be cancelled by Licensee and the Holder will forfeit all payments made and will have no further payment obligations. In addition, the Holder may cancel his or her Interest at any time. Licensee will have the right to proceed against a Holder in default at law or equity for unpaid

common expenses.

Il. REQUESTED ADVISEMENTS

A. Advisement No. 1

Whether the sale of an Interest by Licensee will be subject to Florida documentary stamp tax pursuant to section 201.05, F.S., when the sale of the Interest is accepted, signed and

issued in XX.

1. Statutory Authority

Section 201.05(1), F.S., provides the following:

On each original issue, whether organization or

reorganization, of certificates of stock or shares however

designated issued in the state or of certificates of

profits or of interest in property or accumulations, by any

corporation or by any joint stock company or other association as set forth in subsection (2), on each $100 of face value or fraction thereof the tax shall be 35 cents; provided that when a certificate is issued without face value, the tax shall be 35 cents on each $100 of actual value or fraction thereof. The tax imposed by this section shall be shown on the stock books and not on the certificates issued. The provisions of this section do not apply to any stock or share issued in this state of an open-end or closed-end management company or a unit investment trust registered under the Investment Company

Act of 1940, as amended. (Emphasis supplied)

2. Discussion

The SEC has given the opinion that the Interests under review are securities, and Licensee has registered them with the SEC. The above cited statute taxes original issues of

securities which are issued in this state.

The information you have provided in the petition indicates that the Interests will be issued and sold in XX. You have also cited Florida Supreme Court case Florida Power and Light Co.,

State ex rel., v. Green, 166 So.2d 146 (1964), as support for

your position that the Interests sold and issued in XX would not

be taxable under s. 201.05, F.S.

The Department agrees with your analysis and acknowledges

that the issue of the Interests will not be taxable when

accepted, signed and issued in XX.

B. Advisement No. 2

Whether the written promise to pay created when a Holder agrees to pay for the purchase of the Interest over time will be subject to Florida documentary stamp tax pursuant to s. 201.08,

F.S., when it is executed, delivered or recorded in Florida.

1. Statutory Authority

Section 201.08(1), F.S., provides in pertinent part:

On promissory notes, nonnegotiable notes, written obligations to pay money, or assignments of salaries, wages, or other compensation made, executed, delivered, sold, transferred, or assigned in the state, and for each renewal of the same, the tax shall be 35 cents on each $100 or fraction thereof of the indebtedness or obligation evidenced thereby. On mortgages, trust deeds, security

agreements, or other evidences of indebtedness filed or

recorded in this state, and for each renewal of the same,

the tax shall be 35 cents on each $100 or fraction thereof of the indebtedness or obligation evidenced thereby....

(Emphasis supplied)

2. Discussion

The above statute taxes written obligations to pay money that are made, executed or delivered in Florida. These instruments are taxable to the degree the obligation is not conditional. A written promise to pay money which is not fixed and obsolete at the time of execution is not subject to tax. There is a written obligation to pay on page 3 of the Subscription and Purchase Agreement for those Holders who wish to pay over time. However, paragraph 6 on page 6 provides that under certain circumstances the purchaser can be relieved of all

obligations.

The above statute also provides that mortgages, trust deeds, security agreements, or other evidences of indebtedness

filed or recorded in Florida are subject to the tax.

Therefore, because the written promise to pay is not fixed and absolute at the time of execution, the instrument is not

subject to tax unless filed or recorded in Florida. If an

Interest is filed or recorded in the State of Florida, it would

be subject to tax pursuant to s.201.08, F.S.

C. Advisement No. 3

Whether the sale of the Interests will be subject to

Florida documentary stamp tax pursuant to s. 201.02, F.S.

1. Statutory Authority

Section 201.02(1), provides:

On deeds, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or any other person by his or her direction, on each $100 of the consideration therefor the tax shall be 70 cents. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the

tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the consideration therefor. For purposes of this section, consideration includes, but is

not limited to, the money paid or agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed. If the consideration paid or given in exchange for real property

or any interest therein includes property other than money, it is presumed that the consideration is equal to the fair

market value of the real property or interest therein.

2. Discussion

Documents that transfer any interest in real property are taxable. Even though the sale of the Interest does not transfer full ownership of a Hotel suite to the Holder, the sale of the Interest does transfer an interest in a Hotel suite to the Holder. Therefore, the Interest is a taxable document pursuant to s. 201.02, F.S.

D. Advisement No. 4

Whether the sale of an Interest or the collection of the reimbursed expenses will be subject to the Florida sales and use tax, the XX County tourist development tax, and the XX County

discretionary surtax (hereafter "Combined Taxes").

1. Discussion and Law

The above described Interests are securities and have been registered with the Securities and Exchange Commission. As stated in Technical Assistance Advisement 96M-003, there is no provision in Chapter 212, F.S., to tax the sale of a security. Therefore, the sale of an Interest by Licensee is not subject to sales and use tax. Furthermore, the XX County tourist development tax and the XX County discretionary surtax are only imposed when sales and use tax is applicable. Since the sale of the Interest is not subject to sales and use tax, such sale is also not subject to the tourist development tax or discretionary surtax. Likewise, the reimbursement of the expenses would not

be subject to the Combined Taxes.

E. Advisement No. 5

Whether Licensee can collect and report the Combined Taxes on behalf of the Holders for their rental charge for the use of

a Hotel suite.

1. Discussion and Law

If Licensee meets the requirements of Rule 12A-1.060, F.A.C., herewith enclosed, Licensee may collectively register the Holders’ suites, and collect and remit the Combined Taxes on behalf of the Holders. Please note that XX County continues to self administer the tourist development tax and that tax would have to be remitted directly to the county tax collector. Please contact the county tax collector for county registration

requirements.

lll. MISCELLANEOUS

You have inquired about other taxes that may be triggered by the transactions described. Since Licensee is a new Florida corporation doing business in Florida, it is probable that the Florida corporate income tax will be applicable. Also, it is probable that the promises to pay created in the Subscription

and Purchase Agreement will create receivables for Licensee that

are taxable for the Florida intangible tax.

Florida residents owning Interests are subject to the annual intangible personal property tax based upon the fair market value of the asset as of January 1 of each year if the stock may be valued separate and apart from the right to occupy a suite. No tax is due if the stock is tied to the suite rights

and the ownership of one cannot be separated from the other.

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 upon 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 from that

which is 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 that 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 this response.

Sincerely,

Charles T. Phillips
Senior Tax Specialist

Technical Assistance and Dispute Resolution

Leigh L. Ceci
Tax Law Specialist

Technical Assistance and Dispute Resolution

CTP/LLC/mh

Enclosure