Did Florida documentary stamp tax apply to a foreign bank's vessel note, unrecorded ship mortgage, and contingent assignments?

Plain-English summary

Florida separated the promissory note from the unrecorded mortgage and contingent assignments. The note was subject to documentary stamp tax if executed or delivered in Florida unless it was executed and delivered as an out-of-state note or qualified for the foreign-note exemption.

The ship mortgage was not taxable if it was not filed or recorded in Florida. The contingent assignments of charter payments and insurance proceeds were treated as mortgages given as security and likewise became taxable only if filed or recorded in the state.

The foreign-note exemption had important limits. Using loan proceeds to repair the vessel in Florida would disqualify the note from that exemption, and the ruling also identified a U.S.-ownership restriction. Merely docking the vessel in Florida did not by itself prevent qualification.

What this means for you

Execution, delivery, use of loan proceeds, ownership, and recording were separate tax triggers or conditions. An unrecorded security instrument could avoid tax even while the related note remained taxable because of where it was executed or delivered.

Common questions

Q: Was the note automatically exempt because both bank and borrower were foreign? No. The foreign-note exemption could fail if the proceeds financed personal property for use in Florida or if the stated U.S.-ownership condition applied.

Q: Did docking the vessel in Florida defeat the exemption? No, not by itself.

Q: What if the proceeds paid for vessel repairs in Florida? The ruling said the note would not qualify for the foreign-note exemption and would be taxable if executed or delivered in Florida.

Q: Were the mortgage and contingent assignments taxed without recording? No. They were treated as mortgage-type security instruments and were not taxable unless filed or recorded in Florida.

Citations and references

• Fla. Stat. § 201.08(1) — notes and recorded security instruments
• Fla. Stat. § 201.23(1)(a), (2)(b)-(c) — foreign-note exemption and limits
• Fla. Admin. Code r. 12B-4.052(7) — instruments deemed mortgages
• Fla. Admin. Code r. 12B-4.053(28) — assignments of mortgages
• Fla. Admin. Code r. 12B-4.054(28)(a) — foreign notes
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99B4-012

Original ruling text

SUMMARY

QUESTION: Is a note and mortgage agreement not recorded in
Florida, a contingent assignment of the borrower's rights
to Charter Hire or Insurance Policy preceeds subject to
documentary stamp tax?

ANSWER - Based on Facts Below: If the note is executed and
delivered in Florida, documentary stamp tax will be due
unless it is executed as an out-of-state note or qualifies
as a foreign note. The mortgage will not be subject to tax
provided it is not filed or recorded in the state. The
contingent assignments of the Charterer payments and
insurance proceeds given as security for the loan would
also be deemed mortgages and not subject to tax unless they
are filed or recorded in the state.

Sep 09, 1999

Re: Technical Assistance Advisement No. 99(B)4-012
Documentary Stamp Tax: Notes and Obligations Held by
Foreign Bank
s. 201.23(1)(a) & (2)(b), F.S.,
Rule 12B-4.052(7), & 12B-4.054(28)(a), F.A.C.
XXX (hereinafter Bank)

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 bank is a non-U.S. lending institution. The bank will
lend funds to the borrower pursuant to the terms of a foreign
preferred ship's mortgage(mortgage). The borrower is also a

non-U.S. corporation. The funds will be used for repairing a
Vessel owned by the borrower. The Vessel is currently under
charter to an out-of-state partnership("Charterer"), pursuant to
the Charter Party Agreement with the borrower. The Charterer
has its principal place of business and operates the Vessel in
the state of Florida. Under the agreement the Charterer is
obligated to the borrower for Charter Hire payments. It is
anticipated that the Vessel will be docked regularly in a
Florida port for cruises into international waters.

The mortgage provides that in the case of default by the
borrower, the bank will be assigned the borrower's rights to the
payments made by the Charterer to the borrower under the Charter
Party Agreement to the extent of the borrower's outstanding
obligation to the bank. Additionally, the bank will be assigned
any rights to insurance proceeds then or thereafter becoming due
and owing to the borrower under an insurance policy. None of
the bank's mortgage documents will be recorded in Florida.
However, the bank will file UCC-1 financing statements.

Request for Advisement

You request an advisement that:

1) Documentary stamp tax will not be required to be paid on
the loan and accompanying security agreement (mortgage
agreement), because the mortgage documents will not be
recorded or held in Florida.

2) Documentary stamp tax is not required to be paid on the
contingent assignment of borrower's rights to the Charter
Hire, because the assignment is not an unconditional
promise to pay.

3) Documentary stamp tax is not required to be paid on the
contingent assignment of the borrower's rights to the
Insurance Policy proceeds, because the assignment is not an
unconditional promise to pay.

Provisions of Law

Section 201.08(1), F.S., provides 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. On mortgages, trust deeds, security
agreements, or other evidences of indebtedness filed or
recorded in this 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....

Rule 12B-4.052(7), F.A.C., provides:

Instruments Deemed Mortgages: "All conveyances, obligations
conditioned or defeasible, bills of sale or other
instruments or writing conveying or selling property,
either real or personal, for the purpose or with the
intention of securing the payment of money... shall be
deemed and held mortgages...."

Rule 12B-4.053(28), F.A.C., provides:

Assignment of Mortgage: An assignment of a mortgage by a
lender (mortgagee or owner of the asset) to a new lender
who has purchased the note and mortgage and becomes the
holder of the note and mortgage is not taxable....
However, where the assignment of a mortgage is given as
collateral security for a new loan, the assignment [of
mortgage] is taxable when recorded in this state....

Regarding foreign notes and other written obligations, Section
201.23, F.S. provides:

(1) There shall be exempt from all excise taxes imposed by
this chapter:

(a) All promissory notes, nonnegotiable notes, and other
written obligations to pay money bearing date on or after

July 1, 1977, if the makers thereof or the obligors
thereunder, at the time of the making or execution thereof,
are individuals residing outside the United States or
business organizations or other persons located outside the
United States....

(2) The exemptions provided in this chapter shall not
apply:...

(b) If the purpose of the financing evidenced by any
instrument described in paragraph (1)(a) is to finance all
or any part of the purchase of real estate located in
Florida or personal property for use in Florida. However,
the obligee under any such instrument shall be entitled to
rely on a written certificate by the makers thereof or the
obligors thereunder that no part of the proceeds of such
financing is intended for any such purpose.

(c) If, at the date of any instrument described in the
paragraph (1)(a) or at the date of acceptance of any
instrument described in paragraph (1)(b), a majority of the
equity securities of any maker of any instrument described
in paragraph (1)(a) or of any obligor thereunder, or of any
drawer or person for whose benefit the financing referred
to in paragraph (1)(b) is conducted, are owned by
individuals residing within the United States or business
organizations or other persons located within the United
States....

Rule 12B-4.054(28)(a), F.A.C., provides in part:

Notes and other written obligations to pay money are exempt
from stamp tax if the makers or obligors are individuals
residing outside the United States or business
organizations or other persons located outside the United
States, at the time of making or execution of the note or
written obligation....

Position of the Department

If the note is executed or delivered in Florida,

documentary stamp tax will be due. This does not apply if it is
executed and delivered as an out-of-state note or if it
qualifies as a foreign note. Docking the vessel in Florida will
not preclude the note, even if it is executed and delivered in
Florida, from qualifying for the exemption provided for in s.
201.23, F.S. However, if the funds issued under the note are
used to make repairs to the vessel in Florida, the note will not
qualify for exemption under s. 201.23, F.S., and the note will
be taxable if it is executed or delivered in this state.
Additionally, the note will not qualify for exemption as a
foreign note if the majority of the equity securities of any
maker, obligor, or other person for whose benefit the financing
is conducted, are owned by individuals residing within, or
business organizations located within, the United States.

The mortgage will not be subject to tax provided it is not
filed or recorded in the state. The contingent assignments of
the Charterer payments and insurance proceeds given as security
for the loan would also be deemed mortgages and subject to tax
if they are filed or recorded in the state.

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