Did a California merger that automatically vested mortgaged Florida property trigger documentary stamp tax, and would a later renewal note trigger new stamp or intangible tax?

Plain-English summary

Florida concluded that no documentary stamp tax was due when California merger law automatically vested the mortgaged Florida property in the surviving limited partnership. The transfer occurred by operation of law without a deed, and the Department found that the relevant California merger provisions paralleled Florida's treatment.

The disappearing entity owned Florida property subject to a mortgage and planned to merge into a joint-venturer limited partnership. After the merger, a certificate of merger would be recorded in the county where the property was located.

The merger itself was not a taxable conveyance

California law automatically vested title in the survivor. Florida said the entities' out-of-state status did not change the result because the supplied California requirements were the same as the Florida merger provisions the Department analyzed.

The ruling therefore imposed no deed documentary stamp tax on the statutory transfer.

A true renewal could avoid additional mortgage taxes

The surviving entity could modify the existing note and mortgage without additional documentary stamp or nonrecurring intangible tax only if the transaction satisfied the renewal requirements, including:

• The original note and mortgage were not satisfied.
• No obligor that had not signed the original documents joined the renewal, other than the surviving merger entity.
• The renewal did not add principal beyond the existing unpaid balance.
• The recorded mortgage modification identified the merger and the claimed statutory treatment.

If a term-note renewal added principal, documentary stamp tax applied to the increase over the unpaid principal balance. For a revolving line of credit, the ruling described tax on borrowing above the note's face amount. New money also triggered nonrecurring intangible tax under the cited refinancing provision.

Satisfaction and replacement meant full taxation

The Department distinguished a renewal from a refinancing. If the existing note and mortgage were satisfied and replaced with a new note and mortgage, both documentary stamp tax and nonrecurring intangible tax applied to the entire new obligation.

What this means for you

Merger and real-estate teams

Confirm that the governing merger statute truly vests property automatically and determine whether recording involves only a merger certificate or a separate conveyance.

Lenders and closing attorneys

Do not treat every post-merger modification as a tax-free renewal. Trace the obligors, unpaid principal, satisfaction status, added money, and required document notation.

Accountants and tax professionals

Separate three events: the statutory property transfer, a qualifying debt renewal, and a refinancing that replaces satisfied documents. The ruling assigned different tax results to each.

Common questions

Q: Did the out-of-state merger trigger deed documentary stamp tax?
A: No, because title vested in the survivor by operation of the supplied California merger law without a deed.

Q: Could the surviving entity renew the debt without new tax?
A: Yes, if all section 201.09 conditions described in the ruling were met and no additional principal was borrowed.

Q: What if the renewal added money?
A: Documentary stamp and nonrecurring intangible tax applied to the added amount under the rules described in the ruling.

Q: What if the old note and mortgage were satisfied?
A: The Department treated that as refinancing, with both taxes due on the entire new obligation.

Citations and references

• Fla. Stat. § 201.02(1) — documentary stamp tax on real-property transfers
• Fla. Stat. §§ 201.08(1)(a) and 201.09(1) — notes and qualifying renewals
• Fla. Stat. §§ 199.133(1) and 199.145(4)(b) — nonrecurring intangible tax and refinancing
• Fla. Stat. §§ 620.201(2) and 620.204(1) — limited-partnership mergers
• Cal. Corp. Code §§ 16901-16917, including § 16914 — supplied California merger provisions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04M-001

Original ruling text

SUMMARY

QUESTION: Are documentary stamp taxes due a merger of two
out-of state entities where the laws existing in the state
of the merging entities parallel the Florida statutes?
Would the "surviving entity" be subject to documentary
stamp taxes and intangible taxes on future loan
modifications entered into?

ANSWER - Based on Facts Below: No documentary stamp taxes
would be required by the "surviving entity", as the
property would be conveyed by operation of law. The fact
that the two entities involved in the merger are nonFlorida entities is not a factor in the merger treatment,
as the statutory requirements in the state where the merger
is taking place are identical to the requirements in
Florida. No additional documentary stamp taxes or
intangible taxes would be due on subsequent modifications
of a note and mortgage by the "surviving entity" resulting
in a renewal note, provided all other requirements of s.
201.09, F.S., met. This assumes no other obligors that did
not execute the original documents (other than the
surviving entity) execute the renewal documents, and none
of the documents have been satisfied.

Jan 07, 2004

Re: Technical Assistance Advisement No. 04M-001
Documentary Stamp Tax and Intangible Tax
Merger of Out-Of State Entities & Subsequent Mortgage
Modification
Sections 201.02, 201.08, 199.133, 620.201, 620.204, F.S.
XXX ("Taxpayer")
XXX (collectively the "Property")
XXX ("LP")

Dear :

This is in response to your letter sent by facsimile dated
November 6, 2003 requesting a Technical Assistance Advisement
regarding a merger of two out-of-state artificial entities
owning property in Florida, as it relates to documentary stamp
tax and intangible tax. You also desire confirmation that the
"surviving entity" would not be subject to documentary stamp tax
or intangible tax on future loan modifications entered into.

FACTS AS PRESENTED BY PETITIONER

The facts in your letter state that Taxpayer currently owns
title to Property in Florida. Pursuant to California law,
Taxpayer desires to merge with LP. LP, which is currently a
joint venturer of Taxpayer, will be the surviving entity after
the merger. Under California law, namely, California
Corporations Code 16901-16917 (included with your fax dated
November 14, 2003), title to the Property will vest
automatically by operation of law without a deed (California
Code 16914). The Property is encumbered by a mortgage and will
remain encumbered by a mortgage at the time of merger of
Taxpayer with LP. Subsequent to merger, Taxpayer will enter
into a new loan whereby the existing mortgage will be assigned
to a new lender and the mortgage modified by the new lender to
reflect the new loan amount.

REQUESTED ADVISEMENT

You request a determination on behalf of Taxpayer that the
proposed merger of Taxpayer and LP will be exempt from
documentary stamp tax.

Further, once the merger is complete and a certificate of
merger is recorded in the county where the Property is located,
you request a determination that Taxpayer will not be required
to pay mortgage documentary stamp tax and intangible tax on the
entire balance of the modified note and mortgage to be executed
subsequent to the merger. You seek confirmation that Taxpayer
will only be required to pay mortgage documentary stamp tax on
the amount of the indebtedness or obligation evidenced which
exceeds the aggregate amount on which the tax was previously
paid on the original mortgage and note under s. 201.08, F.S.,

and that Taxpayer will only pay intangible tax on the excess of
the principal balance of the new obligation over the principal
balance of the original obligation plus accrued but unpaid
interest, as of the refinancing, under s. 199.145(4)(b), F.S.

LAW AND DISCUSSION

Section 201.02(1), F.S., imposes the documentary stamp tax
on deeds and other instruments transferring an interest in
Florida real property. The tax is based on the consideration
given at the rate of $.70 per $100 or fraction thereof.
Consideration includes, but is not limited to, monies paid or to
be paid, discharge of indebtedness, and any mortgages or other
outstanding encumbrances on the property.

Section 201.08(1)(a), F.S., states in part:

On promissory notes, nonnegotiable notes, written
obligations to pay money, or assignments of salaries,
wages, or other compensation made, executed, delivered
sold, transferred, or assigned in the state, and for each
renewal of the same, the tax shall be 35 cents on each $100
or fraction thereof of the indebtedness or obligation
evidenced thereby....

Section 201.09(1), F.S., states in part:

When any promissory note is given in renewal of any
existing promissory note, which renewal note only extends
or continues the identical contractual obligations of the
original promissory note and evidences part of all of the
original indebtedness evidenced thereby, not including any
accumulated interest thereon and without enlargement in any
way of the original contract and obligation, such renewal
note shall not be subject to taxation under this chapter if
such renewal note has attached to it the original
promissory note with the proper notation thereon as
required by s. 201.133. In order to be exempt from
taxation under this section, a renewal note evidencing a
term obligation shall be not be executed by any person
other than the original obligor and must renew and extend

only the unpaid balance of the original contract and
obligation.... A renewal note... which increases the
unpaid balance of the original contract and obligation but
which otherwise meets the exemption criteria of this
section is taxable only on the face amount of the
increase....

Section 199.133(1), F.S., levies a one-time nonrecurring
tax of 2 mills on each dollar of the just valuation of all
notes, bonds, and other obligations for payment of money which
are secured by a mortgage, deed of trust, or other lien upon
real property situated in this state.

Section 199.145(4)(b), F.S,. states:

Additional nonrecurring tax is due if the principal balance
of the new obligation exceeds the principal balance of the
original obligation, plus accrued but unpaid interest, as
of the refinancing. If the original obligor is not liable
to the obligee under the new obligation, the additional
nonrecurring tax shall be computed on the entire principal
balance of the new obligation; otherwise, the additional
nonrecurring tax shall be computed on the excess of the
principal balance of the new obligation over the principal
balance of the original obligation, plus accrued but unpaid
interest, as of the refinancing.

Section 620.201(2), F.S., allows for a domestic limited
partnership to merge into one of more business entities, which
by definition includes artificial entities formed in other
states.

Section 620.204(1)(b), F.S., provides that when a merger
becomes effective, the "title to all real estate and other
property, or any interest therein, owned by each domestic
limited partnership and other business entity that is a party to
the merger is vested in the surviving entity without reversion
or impairment. The surviving entity shall record a certified
copy of the articles of merger in any county in which a merging
entity holds an interest in real property".

Section 620.204(1)(c) F.S., provides that when a merger
becomes effective, the "surviving entity shall thereafter be
responsible and liable for all the liabilities and obligations
of each domestic limited partnership and other business entity
that is a party to the merger, including liabilities arising out
of the rights of dissenters with respect to such merger under
applicable law".

DISCUSSION AND CONCLUSION

In response to your request regarding the merger, no
documentary stamp tax would be required by LP as a result of the
proposed merger, as the property is conveyed by operation of
law. The California statutes parallel the Florida Statutes with
respect to mergers of other business entities with limited
partnerships, treating mergers in the same manner as Florida
law. The fact that the two entities involved in the merger are
not Florida entities is not a factor in the treatment of the
merger, as the statutory requirements in California and Florida
are the same.

As to the modification of the note and mortgage by Taxpayer
once the merger is complete, no additional documentary stamp
taxes will be due on the renewal note resulting from the merger
and the recorded mortgage securing the renewal note, provided
all other requirements of s. 201.09, F.S., are met. This
assumes no other obligors that did not execute the original
documents (other than the surviving entity) execute the renewal
documents, and none of the documents have been satisfied.

The recorded mortgage modification should include a
notation that the modification is a result of a merger per s.
620.201, F.S., and that documentary stamp tax imposed per s.
201.08, F.S., is not due pursuant to s. 620.204(1), F.S.
However, if an additional amount has been borrowed in excess of
the unpaid principal balance as of the date of the execution,
documentary stamp tax would be due only on the amount borrowed
that exceeds the unpaid principal balance (in the case of a term
note), and on any amount borrowed that exceeds the face amount
of the note in the case of a revolving line of credit.

No additional nonrecurring intangible tax will be due when
the mortgage is recorded, securing the renewal note, provided no
additional amounts have been borrowed in excess of the principal
balance as of the date of the execution of the renewal note.
This assumes no other obligors that did not execute the original
documents (other than the surviving entity) execute the renewal
documents. Also, if Taxpayer is "refinancing" an obligation (as
opposed to renewing an existing obligation), resulting in the
existing note and mortgage being satisfied and a new note and
mortgage being issued, intangible tax is due on the entire
amount of the new obligation, as is documentary stamp tax. Any
new money borrowed in excess of the unpaid principal balance of
the obligation will be subject to the nonrecurring intangible
tax, per s. 199.145(4)(b), 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 the
confidentiality, we request that 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 within 15 days of this letter

Sincerely,

Joy B. Eldred, CPA

Tax Law Specialist
Technical Assistance and Dispute Resolution

JBE/mh