Did an obligation secured by a Florida leasehold mortgage owe annual or nonrecurring intangible tax?

Plain-English summary

The note was subject to nonrecurring intangible tax rather than annual intangible tax. Its mortgage lien attached to a leasehold estate classified as Florida real property.

The advisement did not decide the treatment of the accompanying assignments of leases and rents, which it described as personal property.

Common questions

Q: Did annual intangible tax apply? No.

Q: Did the ruling cover assignments of rent? No. It expressly excluded them.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.133 — nonrecurring intangible tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99C2-004

Original ruling text

SUMMARY

It is the position of the Department that an obligation
secured by a mortgage upon a leasehold estate classified as
real property is subject to the nonrecurring intangible
tax. Annual intangible tax will not apply.

Jul 23, 1999

Re: Technical Assistance Advisement No. 99(C)2-004
Intangible Tax Type - Leasehold Mortgage
ss. 199.032 and 199.133, F.S.
XXX (hereinafter taxpayer)
XXX (hereinafter bank)
XXX (hereinafter agency)

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.

Facts as Presented by Petitioner

On XXX, the taxpayer executed a promissory note in favor of
the bank. The note was secured by a Florida Leasehold Mortgage,
Assignment of Leases and Rents and Security Agreement (the
"mortgage"). The Florida documentary stamp tax and nonrecurring
intangible tax were paid when the mortgage was recorded.

Construction had not yet occurred on the leased premises at
the time the note and mortgage were executed. When the cost of
the construction was estimated, the expected cost was in excess
of the note and mortgage.

Request for Advisement

You request that the Department rule that no additional
Florida intangible tax will be due in connection with the note
and mortgage; specifically that the annual intangible tax
imposed by s. 199.032, F.S., will not be payable because
nonrecurring intangible tax imposed by s. 199.133, F.S., was
properly calculated on the note and mortgage.

Scope of Advisement

The document given to secure the note includes assignments
of leases and rents, which are clearly personal property.
Nevertheless, this advisement is limited to application of the
nonrecurring intangible tax to the recording of the leasehold
mortgage of real property. It does not address the assignment
of leases and rents.

Provisions of Law

Section 199.032, F.S., imposes an annual tax of 2 mills on
each dollar of the just valuation of all intangible personal
property which has a taxable situs in this state, except for
notes and other obligations which are secured by a mortgage on
real property.

Section 199.133, F.S., provides in part:

(1) A one-time nonrecurring tax of 2 mills is hereby
imposed on each dollar of the just valuation of all notes,
bonds, and other obligations for payment of money which are
secured by mortgage, deed of trust, or other lien upon real
property situated in this state....

(2) The nonrecurring tax shall apply to a note, bond or
other obligation for the payment of money only to the
extent it is secured by mortgage, deed of trust, or other
lien upon real property situated in this state...; however,
if the security is solely made up of personal property and
real property situated in this state, the taxpayer may
elect to apportion the taxes based upon the value of the
collateral, if any, to which the taxpayer by law or
contract must look first for collection.... The portion of

a note, bond, or other obligation which is not subject to
the nonrecurring tax shall be subject to the annual tax
unless otherwise exempt.

"Intangible personal property", as it relates to
leaseholds, is defined in part by s. 199.023(1)(d), F.S., as
follows:

Except for any leasehold or other possessory interest
described in s. 4(a), Art. VII of the State Constitution or
s. 196.199(7), all leasehold or other possessory interest
in real property owned by the United States, the state, any
political subdivision of the state, any municipality of the
state, or any agency, authority, and other public body
corporate of the state, which are undeveloped or
predominantly used for residential or commercial purposes
and upon which rental payments are due.

Thus, a leasehold interest in real property is considered
intangible personal property for intangible tax purposes.
However, pursuant to ss. 196.001 and 196.199, F.S., a leasehold
may be reclassified as real property under certain
circumstances. One situation in which a leasehold interest is
classified as real property is when real property owned by the
United States, the State, or any of its several political
subdivisions, or of municipalities, agencies, authorities, and
other public bodies corporate of the State is leased for 100
years or more. According to s. 196.199(7), F.S., the property is
deemed to be owned by the "lessee", and is classified and taxed
as real property.

A mortgage of a leasehold classified as real property that
is given as security for a note or other obligation for payment
of money, is subject to intangible tax as imposed by s. 199.133,
F.S., upon recordation of the mortgage encumbering the lease.
First National Bank of Birmingham v. Dept. Of Revenue, 364 So.2d
38 (Fla. 1st DCA, 1978), which addresses leasehold estates that
have been reclassified as real property, supports the position
that real property which bears a tax burden for ad valorem
property tax purposes, is also subject to intangible tax as
imposed by s. 199.133, F.S., upon recordation of the leasehold

mortgage.

Position of the Department

It is the position of the Department that an obligation
secured by a mortgage upon a leasehold estate classified as real
property is subject to the nonrecurring intangible tax. Annual
intangible tax will not apply.

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, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

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

CG/mh