Were the notes, mortgages, credit-enhancement agreements, and related documents for higher-education revenue bonds subject to Florida taxes?

Plain-English summary

The specified higher-education bond-financing documents were exempt from Florida documentary stamp and nonrecurring intangible taxes. A public authority issued Series 2002A and 2002B revenue bonds and loaned the proceeds to a nonprofit university. A bank letter of credit and a municipal bond insurance policy enhanced the two series, with reimbursement agreements and mortgages securing the university's obligations.

The Department applied statutory exemptions to the trust indentures, loan agreements, letter-of-credit agreement, reimbursement agreements, and bank and insurer mortgages. Because the exemptions arose by statute, payment of those taxes was not required before the bank could enforce the instruments.

What this means for you

The exemption followed the particular public-authority bond statutes and the documents arising from or securing those bonds. It was not a general exemption for university borrowing.

Common questions

Q: Were the mortgages subject to documentary stamp tax? No, for the specified bond financings.

Q: Did nonrecurring intangible tax apply? No.

Q: Did the bank have to pay either tax before enforcing the documents? No, because the instruments were statutorily exempt.

Citations and references

• Fla. Stat. §§ 159.31 and 243.33 — tax exemptions for specified bond-financing instruments
• Fla. Stat. § 199.133(1) — nonrecurring intangible tax
• Fla. Stat. § 201.08(1) — documentary stamp tax on obligations
• Fla. Stat. §§ 199.282(5) and 213.22 — enforcement and Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02M-003

Original ruling text

SUMMARY

QUESTION: Are documents in connection with Series 2002A
Bonds and Series 2002B Bonds subject to the Florida
Documentary Stamp and Intangible taxes.

ANSWER - Based on the Facts Below: No. The documents in
connection with Series 2002A Bonds and Series 2002B Bonds
are not subject to the Florida Documentary Stamp and
Intangible taxes.

May 08, 2002

Re: Technical Assistance Advisement No. 02M-003
Documentary Stamp Tax and Intangible Tax
Sections 159.31, 199.133(1), and 201.08(1), F.S.
Tax Exemption, Chapter 243, F.S.
XXX (hereinafter University)
XXX (hereinafter Authority)
XXX (hereinafter Bank)
XXX (hereinafter Insurer)

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

The University is a Florida not-for-profit corporation.
The Authority is a public body, corporate and politic, duly
created and organized pursuant to Chapter 243, Part II, Florida
Statutes. The Authority is also a local agency pursuant to
Chapter 159, Part II, Florida Statutes. The authority assists
institution of higher education in the financing of certain
projects by issuing revenue bonds and loaning the proceeds of

such bonds to institutions of higher education, such as the
University. The Authority is planning to issue Series 2002A
Bonds ("Bonds") pursuant to an Indenture of Trust between the
Authority and Bank as trustee. The proceeds of the Bonds are to
be loaned by the Authority to the University pursuant to a Loan
Agreement.

As further security for the repayment of the Bonds, the
Bank has agreed to issue an irrevocable letter of credit
("Letter of Credit"). This is a common method of "credit
enhancement" enabling the bonds to obtain a higher credit
rating, thereby lowering the interest rate on the Bonds. The
University has agreed to reimburse the Bank for any payments
made by the Bank under its Letter of Credit, pursuant to the
Letter of Credit Agreement between the University and Bank. As
additional security for the obligations of the University under
the Letter of Credit Agreement, the University has executed a
Mortgage Deed and Security Agreement (the "Bank Mortgage") and
related documents in favor of the Bank.

The Series 2002B Bonds ("B Bonds") will be issued pursuant
to an Amended and Restated Trust Indenture, as supplemented by
the Second Supplemental Trust Indenture, each between the
Authority and the Bank, as trustee. The proceeds of the B Bonds
are to be loaned by the Authority to the University pursuant to
an Amended and Restated Loan Agreement, as supplemented by a
Second Supplement to Loan Agreement. As further security for
the repayment of the B Bonds, the Insurer has agreed to issue a
municipal bond insurance policy (the "Insurance Policy"). This
is a common method of credit enhancement enabling the B Bonds to
obtain a higher credit rating, thereby lowering the interest
rate of the B Bonds. In the event there are insufficient funds
available to the Authority to pay the principal and interest in
the B Bonds when due, the Insurance Policy shall be drawn to
make such payments. The University has agreed to reimburse the
Insurer for any payments made by the Insurer under its Insurance
Policy, pursuant to the Reimbursement and Trust Agreement among
the University, the Insurer and the Bank, as trustee. As
additional security for the obligations of the University under
the Reimbursement and Trust Agreement, the University has
executed a Mortgage Deed and Security Agreement (the "Insurer

Mortgage") in favor of the Bank.

Request for Advisement

The taxpayer requests a Technical Assistance Advisement
that:

(a) No documentary stamp taxes or intangible taxes are due
in connection with the execution or recording of the
Indenture of Trust, the Loan Agreement, the Letter of
Credit Agreement, the Bank Mortgage, the Reimbursement and
Trust Agreement and/or the Insurer Mortgage, with respect
to the Series 2002A Bonds, or the Amended and restated
Trust Indenture and Second Supplemental Trust Indenture,
the Amended and restated Loan Agreement and Second
Supplement to Loan Agreement, the Reimbursement and Trust
Agreement and/or the Insurer Mortgage with respect to the
Series 2002B Bonds, and accordingly;

(b) No payment of Florida documentary stamp taxes or
intangible taxes shall be required as a requisite for the
Bank to enforce any of its remedies under and of the
foregoing documents to which the Bank is a party.

Provisions of Law

Section 159.31, F.S., provides in part:

...The bonds issued under the provisions of this part,
their transfer, and the income therefrom (including any
profit made on the resale thereof), and all notes,
mortgages, security agreements, letters of credit, or other
instruments which arise out of or are given to secure the
repayment of bonds issued in connection with a project
financed under this part, shall at all times be free from
taxation by the state or any local unit, political
subdivision, or other instrumentality of the state....

Section 243.33, F.S., provides in part:

... [A]ny bonds issued under the provisions of this part,

their transfer, and the income therefrom, including any
profit made on the sale thereof, shall at all times be free
from taxation of every kind by the state, the county and
the municipalities and other political subdivisions in the
state....

Position of the Department

Based on the language contained within ss. 159.31 and
243.33, F.S., it is the determination of the Department that the
documentary stamp tax imposed on notes, mortgages and other
written obligations to pay money under s. 201.08(1), F.S., is
not applicable to the Indenture of Trust, the Loan Agreement,
the Letter of Credit Agreement, the Bank Mortgage, the
Reimbursement and Trust Agreement and/or the Insurer Mortgage,
with respect to the Series 2002A Bonds, or the Amended and
restated Trust Indenture and Second Supplemental Trust
Indenture, the Amended and restated Loan Agreement and Second
Supplement to Loan Agreement, the Reimbursement and Trust
Agreement and/or the Insurer Mortgage with respect to the Series
2002B Bonds.

The same exemption would apply as it pertains to the
nonrecurring intangible tax imposed by s. 199.133(1), F.S.
Since exemptions from both the documentary stamp tax and
nonrecurring intangible tax are provided by statute, the payment
of such taxes would not be a requisite to the enforcement of
such instruments, as would otherwise be required in s.
201.08(1), F.S., or s. 199.282(5), F.S.

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