SUMMARY The Department held where appropriate amounts of documentary stamp tax and non-recurring intangible tax were paid at the time of the recordation of a mortgage to secure an out of state note, taxpayer could deduct the amount of previously paid taxes from the amount due on the recordation of a new mortgage securing additional property that secured the same out of state note. Taxes would be due only on the increased value of the Florida real property that secures the new mortgage. ********************************************************** Aug 08, 1997 Re: Technical Assistance Advisement No. 97(M)-003 Documentary Stamp Tax and Intangible Tax: New Mortgage Recorded in Florida XXX (Hereafter "Company") XXX ("Affiliate") XXX (the "Agent") Dear : You have petitioned for a Technical Assistance Advisement pursuant to s. 213.22, F.S., and Rule 12-11.003, F.A.C. Issues Whether the Corrective Renewal Mortgage and the Future Renewal Mortgage are taxable for documentary stamp tax under s. 201.08, F.S. Questions Presented Were the appropriate amounts of Florida documentary stamp taxes, calculated pursuant to Rule 12B- 4.053(32)(c), F.A.C., paid at the times of recording the Mortgages and the New Mortgage?
1. Were the appropriate amounts of nonrecurring intangible personal property taxes paid at the times of recording the Mortgages and calculated as due on the New Mortgage? In connection with the calculation and payment of documentary stamp taxes and nonrecurring intangible personal property taxes on the New Mortgage, was the Company entitled to take credits for documentary stamp taxes and nonrecurring intangible personal property taxes previously paid on the Mortgages, and were the appropriate credits taken? Is the Company entitled to a refund for overpayment of non-recurring intangible personal property taxes in the amount of $XX, which represents the difference between the amount of intangible taxes owed on the Mortgages (based on the value of the Florida real property encumbered by those Mortgages), plus the amount of intangible taxes owed on New Mortgage, and the amount of intangible taxes actually paid at the time of recordation of the Mortgages? 5. Was the Company obligated to pay any further documentary stamp taxes or nonrecurring intangible personal property taxes because of the filing and recording of the New Financing Statements? Description of the Transaction as Described by <B><U>the</B></U> Company The Company entered into a Credit Agreement dated XX (the "Credit Agreement") with the Agent for a group of lenders (referred to as the Lenders in the Credit Agreement) (collectively herein, the "Lenders"), pursuant to which the Lenders agreed to extend credit in the form of loans and letters of credit (collectively, the "Original Loans") to the Company in an aggregate principal amount not to exceed $XX. The Original Loans were evidenced by certain term notes, certain revolving notes, and a certain swing line note (collectively, the "Original Notes"). The Credit Agreement, the Original Notes and
other related documents were executed and delivered outside the State of Florida. The Original Notes were secured by certain mortgage liens on real property located in AAA and BBB Counties, Florida, and by mortgage liens on real property located in other states. The Original Notes were also secured by certain security agreements (the "Security Agreements"), each dated as of XX, 199X, by and between the Agent and the Company and the Affiliate. The Affiliate was subsequently merged with and into the Company and its obligations under the Security Agreement were assumed by the Company, granting security interests in personal property located in Florida and outside the State of Florida. The Security Agreements were executed and delivered outside the State of Florida and were not recorded in Florida. UCC-1 Financing Statements were executed by the Company and the Affiliate and filed or recorded with the Florida Secretary of State and in the Public Records of AAA and BBB Counties, Florida (collectively, the "Financing Statements"). The mortgage liens encumbering the Florida real property were evidenced by mortgage agreements which were executed by the Company and the Affiliate. The Affiliate was subsequently merged with and into the Company and its obligations under the mortgage agreements assumed by the Company and which were thereafter recorded in AAA and BBB Counties, Florida. Florida documentary stamp taxes and nonrecurring intangible personal property taxes due in Florida were apportioned and paid on the mortgages recorded in AAA and BBB Counties. The mortgages are referred to in the Credit Agreement as fee mortgages and leasehold mortgages. Legends were placed on the first page of each mortgage recorded in Florida noting that payment of the applicable documentary stamp taxes and nonrecurring intangible personal property taxes was made as set out in Sections of each mortgage. Tax payment information was stamped on the fee and leasehold mortgages recorded in Florida. The AAA County Fee and Leasehold Mortgages and the BBB County Fee Mortgage are sometimes collectively referred to as the Mortgages or the Florida Mortgages.
No Florida documentary stamp taxes or nonrecurring intangible personal property taxes were paid in connection with the filing and recording of the Financing Statements. Florida documentary stamp taxes and nonrecurring intangible personal property taxes were computed using the respective ratio approaches for out-of-state loans that are secured by a mortgage recorded in Florida. Under the ratio method, documentary stamp tax in the amount of $XX was paid on the AAA County Fee Mortgage, documentary stamp tax in the amount of $XX was paid on the AAA County Leasehold Mortgage, and documentary stamp tax in the amount of $XX was paid on the BBB County Fee Mortgage. Intangible personal property taxes in the amount of $XX were paid on the AAA County Fee Mortgage. Intangible tax in the amount of $XX was paid on the BBB County Fee Mortgage. Pursuant to the terms of the Mortgages executed by the Affiliate and recorded in AAA County, Florida (the "AAA County Mortgages") and the Mortgage executed by the Company and recorded in BBB County (the "BBB County Mortgage"), the AAA County Mortgages each secured an aggregate principal amount of indebtedness not to exceed $XX and the BBB County Mortgage Secured an aggregate principal amount of indebtedness not to exceed $XX. In August, 1995, the Company amended and restated the Credit Agreement pursuant to that certain Amended and Restated Credit Agreement dated as of XX, 1995 (the "First Restated Credit Agreement"), under the terms of which the Lenders made additional loans (the "First Restatement Loans") to the Company in an aggregate principal amount of $XX evidenced by certain term notes (the "First Restatement Notes"). The First Restated Credit Agreement and the First Restatement Notes were executed and delivered outside the State of Florida, and were not recorded in Florida. The principal amount of the Original Loans and the Original Notes was not affected by this amendment and restatement. In connection with the execution of the First Restated
Credit Agreement and the First Restatement Notes, the Company and the Agent executed, delivered and recorded a First Amendment to each of the Mortgages providing that the Mortgages continued to secure the Original Loans and also secured the First Restatement Loans under the First Restated Credit Agreement, and further providing that the aggregate principal amount of indebtedness outstanding at any one time and secured by (i) the AAA County Mortgages would not exceed $XX and by (ii) the BBB County Mortgage would not exceed $YY. Because the aggregate principal amount of indebtedness secured by the Mortgages, as modified by the First Amendments, did not increase, no Florida documentary stamp taxes and no Florida nonrecurring intangible personal property taxes were paid in connection with the execution, delivery and recordation of the First Amendments to the Mortgages. In XXX, the Company amended and restated the First Restated Credit Agreement pursuant to that certain Amended and Restated Credit Agreement dated as of XX, 1996 (the "Second Restated Credit Agreement"), under the terms of which the Lenders made additional loans (the "Second Restatement Loans") to the Company in an aggregate principal amount not to exceed $ZZ evidenced by certain term and revolving notes (collectively, the "Second Restatement Notes"). The principal amount of the Original Loans, Original Notes, First Restatement Loans and First Restatement Notes was not affected by this amendment and restatement. The Second Restated Credit Agreement and the Second Restatement Notes were executed and delivered outside the State of Florida, and were not recorded in Florida. In connection with the execution of the Second Restated Credit Agreement and the Second Restatement Notes, the Company and the Agent executed, delivered and recorded a Second Amendment to each of the Mortgages providing that the Mortgages continued to secure the Original Loans and First Restatement Loans and also secured the Second Restatement Loans under the Second Restated Credit Agreement, and further providing that the aggregate principal amount of indebtedness outstanding at any one time and secured by (i) the AAA County Mortgages would not exceed $XX and by (ii) the BBB County Mortgage would not exceed $ZZ. Because the aggregate principal amount of indebtedness
secured by the Mortgages, as modified by the First Amendments and by the Second Amendments, did not increase, no Florida documentary stamp taxes and no Florida nonrecurring intangible personal property taxes were paid in connection with the execution, delivery and recordation of the Second Amendments to the Mortgages. A title report on the AAA County property obtained in XXX, revealed that the Company had released its leasehold interest in the leased property and had accepted a deed to a portion of the leased property. The Second Amendment recorded in AAA County consolidated, spread and amended the AAA County Fee Mortgage. The lien of the AAA County Leasehold Mortgage was released from the original leased property and the AAA County Fee Mortgage lien was spread to the new fee parcel acquired by the Company in 1995. Since the Second Amendment recorded with respect to the AAA County Mortgages complied with all of the requirements under s. 201.09, F.S., and Rule 12B-4.052(12), F.A.C., additional documentary stamp taxes were not due. However, since intangible taxes had not been paid on the AAA County Leasehold Mortgage, pursuant to the provisions of s. 199.133, F.S., additional intangible taxes were paid based on the value of the new fee parcel onto which the lien of the AAA County Fee Mortgage was spread. Documentation of payment of intangible taxes was set out in Section XX of the Second Amendment to the AAA County Fee Mortgage. The Second Restated Credit Agreement was further amended in XXX, pursuant to that certain Second Amendment of Credit Agreement dated as of 1996 (the "Second Amendment"). Pursuant to the terms of the Second Amendment, the Company agreed to grant the Agent and the Lenders a mortgage lien on the real property of the Company located at its mill in BBB County and a personal property lien on the fixtures and personal property of the Company located at the Mill. Accordingly, the Company executed, delivered and recorded a new mortgage on the Mill (the "New Mortgage") and executed and filed or recorded, as appropriate, amendments to the Financing Statements and a new Form UCC-1 Financing Statement in the Official Records of BBB County, Florida (collectively, the "New
Financing Statements"). The New Mortgage secures all of the Company's liabilities under the Second Restated Credit Agreement, now in the aggregate principal amount not to exceed $WWW. In conjunction with the execution and delivery of the Second Amendment, the AAA County Fee Mortgage and the BBB County Mortgage were not amended. Accordingly, the aggregate principal amount of indebtedness outstanding at any one time and secured by (i) the AAA County Fee Mortgage continues to be an amount not to exceed $XX and by (ii) the BBB County Mortgage continues to be an amount not to exceed $ZZ. The New Mortgage secures the Company's current obligations to the Lenders under the Second Restated Credit Agreement and evidences payment of Florida documentary stamp taxes and nonrecurring intangible personal property taxes. Florida documentary stamp taxes in the amount of $XX were paid on the recordation of the New Mortgage. Documentary stamp taxes due on the New Mortgage were calculated comparing the value of all of the Company's mortgaged property in Florida ($XX) to the value of all of the Company's mortgaged property wherever located ($XX), times the portion of the Company's liabilities already secured by the Mortgages ($ZZ), to arrive at a Florida tax base of $XX. With respect to the portion of the company's liabilities additionally secured by the New Mortgage ($XX), taxes were calculated comparing the value of the new mortgaged property ($XX) to the value of all of the Company's mortgaged property wherever located ($XX), times the additional portion of the liabilities secured by the New Mortgage, for a Florida tax base of $XX. To arrive at the amount of documentary stamp taxes to be paid on the New Mortgage, the Company took a credit for documentary stamp taxes previously paid on the Mortgages ($XX). With respect to payment of nonrecurring intangible personal property taxes on the New Mortgage, calculations were made pursuant to s. 199.133, F.S., based on the value of the mortgaged property under the New Mortgage ($XX). The Florida
tax base was calculated comparing the value of all of the Company's mortgaged real property in Florida ($XX) to the value of all of the Company's mortgaged property wherever located ($XX), times the portion of the liabilities already secured by the Mortgages ($XX), to arrive at a Florida tax base of $XX. Then, with respect to the portion of the Company's liabilities additionally secured by the New Mortgage ($XX), the Florida tax base of $XX was obtained by comparing the value of the mortgaged real property under the New Mortgage ($XX) to the value of all of the Company's mortgaged property wherever located ($XX). Since the Florida tax base exceeded the value of the mortgaged real property under the New Mortgage, intangible taxes were paid based on the value of the mortgaged Florida real property ($XX). No additional nonrecurring Florida intangible personal property taxes were actually paid in connection with the recording of the New Mortgage. When the Mortgages were recorded, intangible taxes in the aggregate amount of $XX had been paid based on the same apportionment approach taken for documentary stamp taxes on the Mortgages. Intangible taxes in the amount of $XX were paid on the Second Amendment to the AAA County Mortgages recorded in AAA County, Florida. The Company took a credit for nonrecurring Florida intangible personal property taxes previously paid on the Mortgages to offset the intangible tax obligations otherwise due on the New Mortgage pursuant to s. 199.133, F.S.,in the amount of $XX. Therefore, no additional intangible taxes were paid on the recordation of the New Mortgage. Furthermore, since the aggregate value of the real property encumbered by the Mortgages was only $XX ($XX for the AAA County fee property and $XX for the BBB County fee property), which was less than the calculated Florida intangible tax base on the AAA County Fee Mortgage ($XX) and less than the calculated Florida intangible tax base on the BBB County Fee Mortgage ($XX), under the statutory provisions of s. 199.133, F.S., only $XX in intangible taxes should have been paid on the Mortgages. This represents an overpayment in the amount of $XX. No documentary stamp taxes or nonrecurring intangible personal property taxes were paid on the New Financing
Statements. Discussion of Applicable Law as Described by <B><U>the</B></U> Company Section 201.08, F.S., imposes a tax on promissory notes and written obligations to pay money made or executed in Florida and on mortgages filed or recorded in Florida. The tax is $0.35 for each $100.00 or portion thereof of the indebtedness or obligation evidenced thereby. If the note or written obligation to pay money is executed and delivered outside Florida, the loan is considered an out-of-state loan for Florida documentary stamp tax purposes and no tax is due. However, if a mortgage is recorded in Florida as security for an out-of-state loan, Florida documentary stamp tax is due based on a ratio contained in the rules promulgated under s. 201.08, F S. Rule 12B-4.053(32), F.A.C., provides the method for determining the taxable base for Florida mortgages securing out-of-state loans. The taxable base for a mortgage recorded in Florida that encumbers only the Florida portion of collateral made up of both Florida and non-florida collateral is calculated according to Rule 12B-4.053(32)(c), F.A.C. This rule provides as follows: Where a mortgage describing and pledging only the Florida property is recorded in Florida which only partially secures an out-of-state loan and the loan is also secured by mortgages on out-of-state property, only a prorata portion of the indebtedness secured by the Florida mortgage is taxable. The tax will be based upon the percentage of indebtedness which the value of the mortgaged property located in Florida bears to the total value of all mortgaged property, unless the value of the Florida property exceeds this amount. Then the tax will be based upon the value of the Florida property... Thus, if the loan is an out-of-state loan but the mortgage securing it encumbers only the Florida property and not all the property pledged, the documentary stamp tax due on the Florida mortgage is the greater of (i) the tax determined to be due under the ratio method described in the Rule; or (ii) an amount equal to the tax rate multiplied by the value of the Florida
property encumbered by the Florida mortgage. If the Florida mortgage limits the lender's recovery to less than the amount of the indebtedness secured, under Rule 12B-4.053(32)(c), F.A.C., the documentary stamp taxes are calculated only on the amount to which recovery is limited. Rule 12B-4.053(32)(c), F.A.C., was amended in 1994 to incorporate the provisions of original paragraph (c) and paragraph (e) of the previous Rule 12B-4.053(32), F.A.C. Prior to 1994, the requirement that taxes be paid on the value of the Florida property if that value exceeded the taxable base was expressed in paragraph (e), which applied specifically to paragraph (c). By paying Florida documentary stamp taxes in accordance with the provisions of Section XX of the Mortgages, proper Florida documentary stamp taxes were paid at the time of recording the Mortgages. Furthermore, by paying Florida documentary stamp taxes in accordance with the provisions of Section XX of the New Mortgage, proper Florida documentary stamp taxes were paid on the New Mortgage. With respect to non-recurring intangible personal property taxes, s. 199.133(2), F.S., states as follows: Where a note, bond, or obligation is secured by personal property or by real property situated outside this state, as well as by mortgage, deed of trust, or other lien upon real property situated in this state, then the nonrecurring tax shall apply to that portion of the note, bond, or other obligation which bears the same ratio to the entire principal balance of the note, bond, or other obligation as the value of the real property situated in this state bears to the value of all of the security; 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. In no
event shall the portion of the note, bond, or other obligation which is subject to the non-recurring tax exceed in value the value of the real property situated in this state which is the security... Evaluating these statutory requirements using the same ratio approach as that applied in the above-referenced calculations for documentary stamp taxes, but considering the figures contained in Section XX of the AAA County Fee Mortgage, and the detailed calculations, it becomes clear that the Florida tax base exceeds the value of the real property serving as security for the Original Notes, the First Restatement Notes and the Second Restatement Notes under the Credit Agreement. Therefore, in connection with the recordation of the New Mortgage, nonrecurring intangible personal property taxes should be calculated based on the value of the real property ($XX). Applying the statutory two mill tax rate to this value, the resulting tax would be in the amount of $XX, which would have been payable upon recordation of the New Mortgage. However, as described above, intangible personal property taxes were overpaid on the Mortgages in an amount which exceeds the amount of intangible taxes due on the New Mortgage. Therefore, no additional intangible personal property taxes were due and payable on the New Mortgage. Company asserts that, since the intangible taxes on the Mortgages were overpaid in the amount of $XX, subtracting the amount of intangible taxes which would have been due on the New Mortgage, the Company should be entitled to a refund of $XX. Determination Requested For the reasons stated, the Company requests a determination that (i) the Company has paid the correct Florida documentary stamp taxes and intangible personal property taxes on the Mortgages and on the New Mortgage; that (ii) in computing its documentary stamp and intangible tax liabilities on the New Mortgage, the Company was entitled to take a credit for the documentary stamp tax and nonrecurring intangible tax payments it made at the time of recording the Mortgages; (iii) that the
Company is entitled to a refund for a portion of the nonrecurring intangible taxes which the Company paid when it recorded the AAA County Fee Mortgage; and (iv) that no further documentary stamp taxes or nonrecurring intangible personal property taxes were due on the filing and recording of the New Financing Statements. Recognizing that $XX of this overpayment has now been applied as a credit against the intangible taxes due on the New Mortgage, the Company is inquiring whether it is entitled to a refund of the remaining $XX which had been overpaid because of the apparent failure in 1994 to adhere strictly to the requirements of s. 199.133, F.S., contemplating that in circumstances like these the intangible tax obligations should be based on the value of the Florida mortgaged real property rather than on the ratio-calculated Florida tax base. Conclusion By following the regulations set forth in Rule 12B- 4.053(32)(c), F.A.C., and by calculating the documentary stamp taxes as set forth in Section XX of the Mortgages and the New Mortgage, deducting (in the case of the New Mortgage) for documentary stamp taxes previously paid on the Mortgages, proper documentary stamp taxes were paid upon the recordation of the Mortgages and the New Mortgage. By calculating non-recurring intangible personal property taxes in accordance with s. 199.133(2), F.S., and by deducting the overpayment made by the Company on recordation of the Mortgages, proper nonrecurring intangible personal property taxes were calculated and no additional non-recurring intangible personal property taxes were due on the recordation of the New Mortgage. This Technical Assistance Advisement does not address the refund issue for non-recurring intangible tax. I have enclosed an application for refund, DR-26, that the Company may use to file for a refund. The refund application must be properly completed and timely filed with all required documentation attached. The application will be reviewed and a determination
made whether a refund is due. Because all required documentary stamp taxes were paid at the time the related mortgages were recorded, and because no non-recurring intangible taxes are required to be paid in connection with the filing or recording of UCC financing statements, the Company was not obligated to pay any further documentary stamp taxes or non-recurring intangible personal property taxes because of the filing and recording of the New Financing Statements. 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, James E. Silvey Tax Law Specialist Technical Assistance and Dispute Resolution Office of General Counsel JES/mh
Enclosure: Application for Refund DR-26