Were farmers' notes and mortgages held by agricultural credit associations exempt from Florida intangible tax after the Farm Credit entities merged?

Plain-English summary

The revised ruling drew a line between new agricultural credit association loans, which were exempt, and certain older Production Credit Association obligations, which remained taxable. The result depended on which Farm Credit entity originated the note or mortgage and whether the obligation existed before the entities merged.

Five federally chartered agricultural credit associations made short-term and long-term loans directly to Florida farmers. The loans were evidenced by promissory notes and, for long-term loans, real-estate mortgages. The request asked whether the associations' federal-instrumentality status exempted those obligations from Florida's annual or nonrecurring intangible taxes.

New association-originated obligations were exempt

The Department cited 12 U.S.C. § 2077, which treated Production Credit Associations as federal instrumentalities and exempted their notes, debentures, and other obligations from state and local taxation, subject to listed exceptions.

Based on that federal provision, the Department concluded that short-term notes and long-term notes and mortgages currently originated and owned by the agricultural credit associations were exempt from the Florida intangible taxes imposed under Chapter 199.

Some premerger Production Credit obligations stayed taxable

Before the merger authorized by the Agricultural Credit Act of 1987, mortgages associated with Production Credit Associations were not exempt from state and local taxation. The ruling concluded that those previously issued mortgages remained subject to Florida intangible tax after transfer to the new agricultural credit associations.

Future advances under the same premerger notes and mortgages also remained taxable. The merger did not convert an already taxable obligation into an exempt one.

Federal Land Bank obligations kept their exemption

The ruling contrasted the Production Credit obligations with obligations of Federal Land Bank Associations. Those associations were federal instrumentalities under the Farm Credit Act, and their notes, bonds, debentures, other obligations, and future advances were exempt before the merger and remained exempt afterward.

What this means for you

Agricultural credit associations

Classify obligations by origin and date, not merely by the entity that currently holds them. A post-merger holder's exempt status did not erase the prior tax character assigned in this ruling.

Farmers and loan-document teams

For an older or modified loan, identify the original lender, the original note and mortgage, the merger history, and whether later funds were advanced under that same instrument.

Tax and accounting professionals

Do not apply the ruling's broad exemption sentence without its premerger exception. The official summary and analysis specifically kept certain Production Credit Association obligations taxable.

Common questions

Q: Were all farm-credit notes and mortgages exempt?
A: No. New obligations originated and owned by the agricultural credit associations were exempt, but specified premerger Production Credit obligations remained taxable.

Q: Did a future advance under an old taxable mortgage become exempt after the merger?
A: No. The ruling said future advances under those existing obligations remained subject to intangible tax.

Q: What happened to Federal Land Bank Association obligations?
A: Their exemption continued after the merger.

Q: Did it matter that the loans were federally guaranteed or insured?
A: The facts said they were not guaranteed or insured by the federal government or the associations; the ruling analyzed the status of the obligations and lending entities.

Q: Is this the original or revised advisement?
A: The official source identifies it as "TAA 05C2-004 REVISED."

Citations and references

• Fla. Stat. §§ 199.032 and 199.133 — Florida intangible taxes addressed by the ruling
• 12 U.S.C. § 2077 — federal exemption for obligations of Production Credit Associations quoted in the ruling
• 12 U.S.C. § 2091 — Federal Land Bank Association instrumentality provision cited in the ruling
• Agricultural Credit Act of 1987 — merger authority for the Farm Credit entities discussed in the analysis

Source

• Landing page: Florida Tax Law Library
• Revised advisement: TAA 05C2-004

Original ruling text

SUMMARY
QUESTION: Are short-term notes and mortgages issued to the Agricultural Credit Associations exempt from Florida
intangible taxes?
ANSWER - Based on Facts Below: Production Credit Associations and Federal Land Bank Associations merged as
permitted by the Agricultural Credit Act of 1987 to become Agricultural Credit Associations. Notes and mortgages
issued to borrowers by the Production Credit Associations prior to the merger including any future advances made to
date are still subject to the Florida intangible tax.
Under U.S. Code s. 2077 of Title 12, Chapter 23, Subchapter II, new notes and mortgages issued by the Agricultural
Credit Associations are exempt from the Florida intangible taxes imposed under s. 199.032, F.S., and s. 199.133, F.S

August 19, 2005

Re: Technical Assistance Advisement No. 05C2-004 REVISED
Intangible Tax: Short-Term Notes and Mortgages to Agricultural Credit Associations
Sections 199.032, 199.133, F.S.
XXX (hereinafter, farm credit #1)
XXX (hereinafter, farm credit #2)
XXX (hereinafter, farm credit #3)
XXX (hereinafter, farm credit #4)
XXX (hereinafter, farm credit #5)
Dear :
This is in response to your request for a technical assistance advisement asking for an opinion on whether the
short-term notes and notes and mortgages made by farmers and given to agricultural credit associations are subject
to Florida’s annual or nonrecurring intangible tax.
FACTS AS PRESENTED BY PETITIONER
According to your letter, the above farm credit entities are agricultural credit associations, federally chartered
instrumentalities of the United States Government, which lend money directly to farmers in Florida. The loans are
short-term loans evidenced by, for example, promissory notes and other documents referred to herein as short-term
promissory notes. Some of the loans are long-term loans evidenced by promissory notes and real estate mortgages.
The short-term promissory notes and long-term promissory notes and mortgages are not guaranteed or insured by the
federal government or by the agricultural credit associations.
REQUESTED RULING

You request the Department's determination that the farm credit associations named above are exempt parties by
reason of their being federally chartered instrumentalities of the United States Government, and therefore not subject
to nonrecurring intangible tax on the notes and mortgages given to them by farmers needing loans. (These loans are
not obtained from banks or other entities where the notes and mortgages are merely guaranteed by the farm credit
associations.)
LAW AND DISCUSSION
As a result of the amendments to the Farm Credit Act by the Agricultural Credit Act of 1987, the Production Credit
Associations and Federal Land Bank Associations merged to become the Agricultural Credit Associations. The
Agricultural Credit Associations were given the lending authority formerly held by the Farm Credit Banks. As a result of
this merger, Florida notes and mortgages existing in these two entities were transferred to the new Agricultural Credit
Associations.
The Federal Land Bank Associations were chartered instrumentalities of the United States Government under the
Farm Credit Act of 1971 s. 2.10; 12 U.S.C. s. 2091. The notes, bonds, debentures, and other obligations and any
future advances under these instruments issued by the association were exempt from all taxes imposed by a state,
municipality, or local taxing authority and remained so after the merger.
However, prior to the merger, the mortgages issued to borrowers by the Production Credit Associations were not
exempt from state and local taxing authorities. After the merger discussed above, the Production Credit Associations'
mortgages, previously issued, remained subject to Florida intangible tax. Therefore, any future advances made under
these notes and mortgages existing when the merger took place are still subject to the intangible tax.
At the present time, U.S. Code s. 2077 of Title 12, Chapter 23, Subchapter II, Part A, provides that Production
Credit Associations:
are instrumentalities of the United States and as such, any and all notes, debentures and other obligations issued by
these associations are exempt as to principal and interest from all taxation (except surtaxes, estate, inheritance, and
gift taxes) now or hereafter imposed by the United States or any State, territorial, or local taxing authority, except that
interest on such obligations shall be subject to Federal income taxation in the hands of the holder.
Any short term promissory notes and long-term notes and mortgages currently issued by the Agricultural Credit
Associations are now exempt under the U.S. Code.
DETERMINATION
The promissory notes and mortgages that originated with and are owned by the Agricultural Credit Associations
are exempt from intangible taxes imposed under Ch. 199, 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 this letter.
Sincerely,
M.E. Clemens, C.P.A.
Senior Tax Specialist
Technical Assistance and Dispute Resolution
MEC/mh