How much of a construction loan secured by a 99-year leasehold mortgage was subject to Florida's nonrecurring intangible tax?

Plain-English summary

The Florida Department of Revenue concluded that nonrecurring intangible tax was due only on the portion of the construction note secured by Florida real property. The leasehold mortgage covered both real and personal property, so the obligation had to be apportioned rather than treated as entirely exempt or entirely taxable.

A utility owned former steam-plant land and entered a 99-year lease with a private developer. The developer planned to renovate the property and remaining improvements into residential condominiums and borrowed construction funds from a bank. The promissory note was secured by a leasehold mortgage.

A leasehold can include both personal and real property security

The requester relied on Aurora Group, which treated a lien on a leasehold estate as a lien on personal property. The Department distinguished that case because it involved only personal property.

Here, the submitted mortgage also made land, buildings, fixtures, and other improvements part of the collateral. Those items met the statutory definition of real property.

Section 199.133 required allocation

The statute imposed a one-time tax of 2 mills on obligations secured by Florida real property. When one obligation was secured by both Florida realty and other collateral, tax applied in the same ratio that the Florida real property's value bore to all security.

If the security consisted only of Florida real property and personal property, the taxpayer could elect an allocation based on collateral that law or contract required the lender to pursue first. The ruling said the real-property share remained in the tax base unless the contract required collection from personal property first.

The taxable portion could not exceed the value of the Florida real property securing the note.

What this means for you

Developers using long-term ground leases

Do not assume a leasehold mortgage is personal-property security only. Review whether the instrument also liens buildings, fixtures, land interests, or permanent improvements.

Lenders and closing teams

Value each collateral category and document any contractual first-recourse requirement. That language can affect how the note is apportioned.

Tax and accounting professionals

Separate the Florida real-property share from personal property and out-of-state property before calculating the nonrecurring tax.

Common questions

Q: What was the tax rate stated in the ruling?
A: A one-time 2 mills on the taxable secured amount.

Q: Was the entire note taxable?
A: No. Only the portion secured by Florida real property.

Q: What real property counted?
A: Land, buildings, fixtures, and other improvements included in the collateral.

Q: Why did Aurora Group not control the entire result?
A: That case involved only personal-property leasehold security, while this mortgage also covered real property.

Q: Could a first-recourse clause affect allocation?
A: Yes. The statute allowed an election based on collateral the lender had to look to first when the security consisted of Florida realty and personal property.

Citations and references

• Fla. Stat. § 192.001(12) — definition of real property
• Fla. Stat. § 199.133(1)-(2) — 2-mill nonrecurring tax and allocation among real and personal collateral
• Aurora Group, Ltd. v. Department of Revenue, 487 So. 2d 1132 (Fla. 3d DCA 1986) — leasehold lien involving personal property only

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05C2-002

Original ruling text

SUMMARY
QUESTION: Will nonrecurring intangible tax be owed on the recordation of a leasehold mortgage that is secured by a
99 year lease?
ANSWER - Based on Facts Below: Where a leasehold estate consists of both real and personal property, the
portion of the obligation secured by the real property is subject to the nonrecurring tax. Upon review of the documents
submitted with the request, the leasehold mortgage indicates real property is part of the collateral for the note. Unless
otherwise indicated in the contract that the personal property must be looked to first for collection in the event of a
default on the note, the value of any land, buildings, and other improvements to real property are part of the taxable
base subject to the nonrecurring tax. Tax is due on the leasehold mortgage based on the portion of the note secured
by real property.

March 8, 2005

Re: Technical Assistance Advisement No. 05C2-002
Nonrecurring Intangible Tax - Leasehold Mortgage
Section 199.133, F.S.
XXX ("Developer")
XXX ("Utility")
XXX ("Bank")
Dear:
This is in response to your request for a Technical Assistance Advisement postmarked January 12, 2005, as to the
taxability of a leasehold mortgage which is secured by a 99 year lease.
Facts Presented by the Petitioner
Utility is the owner of a parcel of land that formerly served as the diesel steam plant XXX, hereinafter referred to as
the "Property." The steam plant was decommissioned in XX and has remained undeveloped. Utility desired to have a
private developer renovate and use the Property and some of the remaining improvements thereon to construct
residential condominium units. The Developer was awarded the project by Utility, and Utility entered into a 99 year
lease with the Developer on XX, pursuant to which rental payments will be made. Additionally, Developer was
required to obtain financing adequate to build XX residential condominium units in the building XX on the Property. A
copy of the lease was enclosed with your letter.
Developer obtained financing from the Bank for the construction of the above-referenced condominiums, and
executed a promissory note payable to the Bank XXX. Said note was secured by a leasehold mortgage on the
property.

Requested Ruling
Taxpayer requests the Department's advice whether the recordation of the Bank's leasehold mortgage, which is
secured by the 99 year lease, is exempt from the one-time 2 mill nonrecurring intangible tax.
Law and Discussion
Section 192.001(12), F.S., defines "real property" to mean:
... land, buildings, fixtures, and all other improvements to land. The terms "land," "real estate," "realty," and 'real
property' may be used interchangeably.
Section 199.133(1), F.S., states in part:
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....
Section 199.133(2), F.S., states:
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 in this state. Where a note, bond, or other
obligation is secured by personal property or by real property situated outside this state, as well as by the 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
nonrecurring tax exceed in value the value of the real property situated in this state which is the security. 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.
Department's Position
The case of Aurora Group, Ltd. v. DOR, 487 So.2d, 1132 (Fla. 3rd DCA1986), held that obligations secured by liens
on leasehold estates are obligations secured by liens on personal property, not liens on real property. However, in this
court case, only personal property was involved. As explained below, when a leasehold estate consists of both real
and personal property, the portion of the obligation secured by real property is subject to the nonrecurring intangible
tax.
The leasehold mortgage enclosed with your request indicates real property is part of the collateral for the note. Unless

otherwise indicated in the contract that the personal property must be looked to first for collection in the event of a
default on the note, the value of any land, buildings, and other improvements to the real property are part of the
taxable base subject to the nonrecurring tax. Therefore, in response to your question, since s. 199.133, F.S., requires
the nonrecurring tax to be apportioned between real and personal property, tax is due on the leasehold mortgage
based on the portion of the note secured by the real property.
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,
Joy B. Eldred, CPA
Tax Law Specialist
Technical Assistance and Dispute Resolution
JBE/mh