Did Florida's two-mill nonrecurring intangible tax apply to a synthetic lease or the recording of land and improvements memoranda of lease?

Plain-English summary

Neither the obligation secured by the synthetic-lease interest nor the recording of the lease memoranda was subject to Florida's nonrecurring intangible tax. Section 199.133 applied to payment obligations secured by liens on real property, while a leasehold interest was treated as personal property for this tax.

The land and improvements memoranda merely put third parties on notice of the unrecorded leases and did not expressly incorporate them. Recording those notices did not convert the leasehold collateral into taxable real-property security.

The request did not seek a ruling on annual intangible tax, and the Department said the sales-and-use-tax questions would be answered separately.

What this means for you

The characterization of the collateral mattered more than the transaction's financing economics. A document labeled a synthetic lease was outside the nonrecurring tax only because the stated obligation was secured by a leasehold interest and the recorded memoranda were notice instruments.

Common questions

Q: Was the nonrecurring intangible tax due? No.

Q: Why was the leasehold different from owned real estate? Florida treated the leasehold as personal property for this tax.

Q: Did recording the memoranda trigger tax? No.

Q: Did the ruling decide annual intangible tax? No.

Citations and references

• Fla. Stat. § 199.133 — nonrecurring intangible tax on obligations secured by real property
• Fla. Stat. § 199.032 — annual intangible tax referenced but not decided
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02C2-001

Original ruling text

SUMMARY

QUESTION: Is a synthetic lease and the recording of the
Memoranda of Lease subject to the non-recurring 2 mill
intangible tax?

ANSWER - Based on Facts Below: No. Only obligations for
the payment of money that are secured by a lien on real
property are subject to the non-recurring tax, due 30 days
after the creation of the obligation. A leasehold interest
in real property is considered personal property for nonrecurring intangible tax purposes. No non-recurring tax is
due on an obligation secured by a leasehold interest, and
the recording of the Memoranda of Lease with respect to the
lease in question is not taxable, since a leasehold
interest is personal property.

Jan 03, 2002

Re: Technical Assistance Advisement No. 02C2-001
Intangible Tax - Nonrecurring
Synthetic Lease - Memorandum of Lease
Section 199.133, F.S.
XXX ("Lessor")
XXX ("Lessee")

Dear :

This is in response to your request for a Technical
Assistance Advisement dated September 28, 2001, concerning the
application of the Florida intangible tax as to a synthetic
leasing transaction. The responses to your sales and use tax
questions will be sent under separate cover.

Taxpayer's Facts and Circumstances

The Lessor and Lessee are out-of-state corporations. In
the transaction (financing lease or synthetic lease) in

question, the Lessor acquires a parcel of land and existing
improvements (the "Real Property") located in Florida. The
Lessor will lease the Real Property to Lessee under a Land Lease
and will also lease to Lessee the improvements to be constructed
under the Improvements Lease (collectively referred to as
"Leases"). The Lessor will lend and advance funds to the Lessee
for the improvements to be constructed under the Improvements
Lease, pursuant to a related Construction Agreement.

The operative documents, including the Lease Agreements,
Memoranda of Lease, Purchase Agreements, and related documents
are included with your request.

The Leases state that the Lessee has inspected the
Property, and Lessor essentially makes no representations or
warranties concerning the condition or utility of the property.
The Lessor disclaims all warranties and all responsibility for
any defect or deficiency in the Property.

The Leases have an initial term of five years. The Lessee
may extend and renew the Leases for two successive five-year
terms at its option.

Under the Leases, the Lessee has an absolute obligation to
pay rent to the Lessor. Base rent shall be paid absolutely net
to Lessor or its designee, so that this Lease shall yield to
Lessor the full amount thereof, without counterclaim, deduction,
setoff, or defense. Additionally, the Lessee's inability or
failure to take possession of the Property for any reason
whatsoever does not delay or otherwise affect the Lessee's
obligation to pay rent for the Property under the terms of the
Leases.

The Lessee is required to pay all taxes and utility charges
with respect to the Property.

The Leases are net leases, and the obligations of the
Lessee under the Leases are absolute and unconditional. Under
this provision, the Lessee is not entitled to any abatement,
suspension, deferment, reduction, setoff, counterclaim, or
defense with respect to the payment of rent by reason of the

following occurrences: (1) damage or destruction to the
Property; (2) a taking of the Property; (3) prevention of the
Lessee's use of the Property; (4) any eviction; (5) any default
by the Lessor; (6) any inadequacy of any improvements, fixtures,
or tangible personal property; (7) any latent or other defect of
the Property; and (8) any other cause whether similar or
dissimilar to the foregoing.

Under the Leases, the Lessor and the Lessee agree that for
federal and all state and local income tax purposes, bankruptcy
purposes, commercial law, real estate purposes, and all other
purposes (other than accounting purposes), the Lessee will be
treated as the owner of the Property and will be entitled to all
tax benefits ordinarily available to owners of property similar
to Property for such tax purposes.

Under the Leases, the Lessee acknowledges and agrees that
it is leasing the Property "as is" without representation,
warranty, or covenant by the Lessor.

A Memorandum of Lease (Land) ("Land Memorandum") and a
Memorandum of Lease (Improvements) ("Improvements Memorandum")
have been entered into between the Lessor and the Lessee. These
Memoranda provide notice of the unrecorded Lease Agreements
"pursuant to which [the Owner] leases to [the Lessee] and [the
Lessee] leases from [the Owner]" the land and the improvements.
The Memoranda of Lease have been prepared solely for the purpose
of putting third parties on notice of the respective Leases;
however, the Leases are not expressly incorporated into the
Memoranda of Lease.

Requested Ruling

The Memoranda of Lease are not subject to the nonrecurring
tax imposed under s. 199.133, F.S.

Law and Discussion

Chapter 199, F.S., imposes an intangible tax on all
intangible property having a taxable situs in this state.
Obligations for the payment of money that are secured by a lien

on real property are subject to a non-recurring intangible tax
under the provisions of s. 199.133, F.S. Obligations that are
secured by personal property or that are unsecured are subject
to the annual tax imposed by s. 199.032, F.S. A leasehold
interest in real property is considered personal property for
nonrecurring intangible tax purposes.

Department Response

Applying the provisions stated above to a mortgage
(synthetic lease) given by Lessee (as mortgagor) to Lessor (as
mortgagee), no non-recurring intangible tax would be due on an
obligation secured by a leasehold interest.

The recording of the Memoranda of Lease with respect to the
transaction in question would not be subject to the nonrecurring
intangible tax, since the leasehold interest is personal
property for Florida intangible tax purposes. Your letter
specifically stated that no guidance was being sought concerning
the annual 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 from that
which is expressed in this response.

You are further advised that this response, your request
and related backup 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,

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

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