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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