Would consolidating and renewing debt held by two U.S. agencies trigger Florida documentary stamp or nonrecurring intangible tax?

Subject

Refinancing of Debt

Plain-English summary

The proposed federal-agency debt refinancing was not subject to Florida documentary stamp tax or nonrecurring intangible tax on the stated terms. One U.S. agency would pay the other for part of its debt, receive assigned notes and mortgage interests, and then consolidate the outstanding obligations with the borrower through renewal notes and a restated mortgage.

For documentary stamp tax, the Department relied on three features: the renewed debt would not exceed the unpaid principal balance, the borrower would remain the same, and the consolidation would continue the existing contractual obligations rather than create added principal. The lender's assignment of purchased notes and mortgages to the other lender was also treated as nontaxable.

For nonrecurring intangible tax, the Department cited section 199.185(1)(d) and concluded that the proposed transaction was exempt because of the federal-agency obligations involved. The PDF's opening summary refers instead to section 199.195(1); this page follows the operative analysis, which cites section 199.185(1)(d).

What this means for you

A refinancing that reorganizes existing Florida mortgage debt can receive different treatment from a transaction that adds new debt. Under the provisions applied here, keeping the same obligor and avoiding any increase above unpaid principal were essential to the documentary-stamp result.

The federal-agency status was separately important to the intangible-tax conclusion. A private-lender refinancing should not assume the same result from this advisement.

Common questions

Q: Was the assignment of the mortgages taxable? No. The Department cited the rule treating a mortgage assignment as nontaxable when a new lender purchases the note and mortgage.

Q: Could the borrower consolidate several notes into one or more renewal notes? Yes. The ruling allowed consolidation that continued the existing obligations without increasing principal.

Q: What conditions protected the renewal from documentary stamp tax? The renewed amount could not exceed the unpaid balance, and the obligor had to remain the same.

Q: Did the ruling apply to ordinary private lenders? It did not decide that situation. Both lenders here were agencies of the United States, a fact used in the intangible-tax analysis.

Citations and references

• Fla. Stat. §§ 201.08(1), (4), 201.09(1) — documentary stamp tax on secured obligations, amendments, and renewals
• Fla. Admin. Code r. 12B-4.053(28) — assignment to a lender purchasing the note and mortgage
• Fla. Admin. Code r. 12B-4.054(1)(a) — consolidation of existing notes without increased principal
• Fla. Stat. §§ 199.145, 199.185(1)(d) — nonrecurring intangible tax and the exemption cited in the operative analysis
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98M-003

Original ruling text

SUMMARY

The taxpayer is indebted to joint lenders, who are both
U.S. Agencies. The taxpayer is proposing to refinance its
debt. The proposed transaction will be accomplished by the
second lender paying the first lender for a portion of its
notes. The first lender will assign a portion of its notes
to the second lender, followed by an assignment of the
first lender's interest in the recorded mortgages. The
second lender will then own the first lender's notes and
mortgages. The second lender and the taxpayer will then
execute a series of renewal notes and restated mortgage,
essentially consolidating the prior mortgages into one
recorded document. The proposed transaction will be exempt
from both documentary stamp tax presuming the provisions of
ss. 201.08(4) and 201.09(1), F.S., i.e. the notes will not
be renewed for an amount greater than the unpaid balance
and the obligor remains the same. The proposed transaction
will be exempt from intangible tax under 199.195(1), F.S.,
since notes, bonds, and other obligations issued by the
United States government are not taxable.

Jun 30, 1998

RE: Technical Assistance Advisement No. 98(M)-003
Documentary Stamp Tax and Intangible Tax;
Refinancing of Debt
ss. 199.145, and 201.08, F.S.
XXX (The taxpayer)
XXX (Lender 1)
XXX (Lender 2)

Dear :

This is in response to your letter dated October 10, 1997,
requesting a Technical Assistance Advisement regarding the
applicability of Documentary Stamp Tax and Intangible Tax, under
the facts as set forth herein.

STATEMENT OF FACTS

The taxpayer currently owes approximately $XX in secured
debt to two joint lenders, Lender 1 and Lender 2, both of whom
are agencies of the United States, pursuant to notes executed
from June of 1964 to August of 1996. The notes are secured by
XXX mortgages that have been of record beginning in XXX. The
documents represent the original mortgage followed by
supplemental mortgages that were executed each time the taxpayer
borrowed more funds through the loan program of Lender 2.
Approximately XXX percent of the $XX is owed to Lender 1 and XXX
percent to Lender 2.

The taxpayer is now looking into proposals to refinance its
debt. The net present value to the taxpayer for refinancing is
approximately $XX.

The proposed transaction will be accomplished by Lender 2
paying Lender 1 approximately $XX. Lender 1 will then assign
XXX of its notes to Lender 2, followed by an assignment of
Lender 1's interest in the recorded mortgages. Lender 2 will
then own Lender 1's notes and mortgages. Lender 2 and the
taxpayer will then simultaneously execute a renewal note or
notes and a restated mortgage agreement to consolidate all the
outstanding notes into one consolidated renewal note or notes
and one restated mortgage agreement, essentially consolidating
the prior XXX mortgages into one recorded document. The renewal
note and mortgage will be for an amount less than the
outstanding principal balance and accrued interest due under the
original obligation because of the discount allowed by Lender 1,
and will not allow capitalization of accrued interest. The
obligation owed by the taxpayer to Lenders 1 and 2 prior to the
refinancing is approximately $XX, and after refinancing will be
approximately $XX.

The renewal "note" will likely be a series of notes
staggered over the total term, with varying interest rates
repricing dates and due dates. The restated mortgage agreement
will modify some of the terms of the assigned mortgages to allow
the taxpayer more flexibility in its business activities and

allow more flexibility with Lender 2 in future borrowing.

REQUESTED ADVISEMENT

You are seeking advice to determine if the proposed
transaction is subject to the documentary stamp tax or
nonrecurring intangible tax.

As to the documentary stamp tax, s. 201.08(4), F.S.,
provides that a supplement or an amendment to a mortgage, deed
of trust, indenture, or security agreement, which supplement or
amendment is filed or recorded in this state in connection with
a new issue of bonds, is subject to the tax imposed by s.
201.08(1), F.S., only to the extent of the aggregate amount of
the new issue of bonds or other evidence of indebtedness
previously issued under the instrument being supplemented or
amended. In order to qualify for the tax treatment provided for
in this subsection, the document which evidences the increase in
indebtedness must show the official records book and page number
in which, and the county in which, the original obligation and
any prior increase in that obligation were recorded.

Assuming in this case the requirements of s. 201.08(4),
F.S., have been satisfied, s. 201.09(1), F.S., allows a note to
be renewed tax free provided the amount renewed is not greater
than the unpaid balance of the note and the obligor remains the
same. Rule 12B-4.054(1)(a), F.A.C., exempts a single note given
for the purpose of consolidating two or more notes so as to
continue the existing contractual obligations, as long as the
principal balances are not increased. Rule 12B-4.053(28),
F.A.C., provides that an assignment of a mortgage by a lender to
a new lender who has purchased the note and mortgage is not
taxable. Based on these provisions, the proposed transaction
would not be subject to the documentary stamp tax.

Section 199.145, F.S., imposes a nonrecurring intangible
tax on notes secured by a lien on Florida real property.
However, s. 199.185(1)(d), F.S., provides an exemption for
notes, bonds, and other obligations issued by the United States
government and its agencies. Consequently, the proposed
transaction will not be subject to the intangible 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., 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,

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

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