Florida House Acts to Cut the Cost of Stamp Tax

Florida House Bills 1337 and 153 took effect July 1, 1997, dramatically cutting the cost of filing many types of documents. Here are some of the highlights of these two new statutes:

Home equity loans secured with vacation homes, homes held in trust and certain rental property now avoid recurring taxes. Before the new bill took effect, lines of credit secured by property other than the individual's primary residence were subject to the non-recurring intangibles tax on the initial indebtedness and on each subsequent advance. The bill expands the definition of "residence" to include secondary and vacation homes, as well as primary homes, and includes residences where title is held by a trustee. It also applies the "residence" test at the time the lien is created so borrowers may secure home equity lines of credit with second homes and vacation homes prior to using such homes for rental purposes.

Fewer document modifications are subject to tax as "renewals." Previously, virtually all loan renewals were taxable under Section 201.08, Florida Statutes, regardless of whether the original note or obligation was taxable. For instance, an in-state renewal of a note originally executed and delivered out of state was taxable even though the original note was not.

Now a "renewal" must alter the obligation of the original note or other evidence of indebtedness by adding one or more obligers, increasing the principal balance, or changing the interest rate, maturity date or payment terms. Other modifications to documents which do not change the terms of indebtedness are not renewals and are not subject to the tax.

Fewer Documents are now subject to Documentary Stamp Tax. Section 2 of HB 1337 is intended to reverse Computer Sales International, Inc. v. Department of Revenue and reaffirm the "four corners" doctrine, which limits the determination of taxability of a document solely to the information contained on the form and face of the document. In Computer Sales International, the court abandoned the four corners doctrine in the case of a non-recorded document. The bill provides that the taxability of a document shall be determined solely from the face of the document and any separate document expressly incorporated into the document.

"Double-tax" on collateral mortgages eliminated. When a note is executed by one party and a mortgage securing the note is given by a different party, or given to secure a guarantee of the note, the Department of Revenue used to impose a tax on each document. The new law eliminates the imposition of multiple levels of documentary stamp tax on the same transaction. Now one documentary stamp tax will cover multiple mortgages given by multiple obligers to secure a single obligation, or where a mortgage is given to secure a guarantee of a primary note, where tax has been paid on the primary note or a mortgage securing the primary note.

Lenders no longer need to "fund up" a revolving line of credit in order to qualify for the renewal exemption. The old statute provided an exemption from documentary stamp tax for renewals that extend or continue the identical contractual obligations of the original indebtedness. To get the exemption, lenders typically "funded up" revolving lines of credit to the full principal balance of the original note at the time of renewal, in order to meet the "current principal balance" requirement. Now any renewal note is exempt if it is executed by the original obligor and it renews and extends no more than the face amount of the original contract and obligation. So lenders will no longer be required to fund up revolving lines of credit in order to avoid double documentary stamp tax upon renewal.

Taxpayers can correct previous filing errors and still qualify for a renewal exemption. Before last July, if a documentary stamp tax was not paid in full on a document at the time it was executed or recorded, the document could not be eligible for the renewal exemption. Now Section 4 of HB 1337 states that if the sole reason a document is not eligible for the renewal exemption is because tax was not paid or was underpaid on the original document, then the payment of the deficiency (including tax, penalty and interest) will enable the document to qualify for the renewal exemption.

Banks and savings associations now receive an exemption from annual and non-recurring intangible personal property tax for REMICs. Under House Bill 153, an investment can be directly or indirectly secured by or payable from notes and obligations secured by a mortgage or other lien upon real property situated in Florida or outside of the state and held as investments by banks or savings associations in compliance with regulatory agency guidelines.

Spouses gain an exemption for conveyances of the marital home when made in accordance with a judgment of dissolution of marriage. Currently, the encumbered property is taxable.

Conveyances of real property between financial institutions and their subsidiaries are exempt, in the context of a merger, consolidation, conversion or acquisition. Under current law, such conveyances were subject to the documentary stamp tax.

Provided as an educational service by John Raymond Dunham, III, Esq..

This publication is intended to serve you. If you would like certain topics covered, or have any questions or comments, you are invited to contact Mr. Dunham at: 941.951.1800, Ext. 250, Facsimile: 941.366.1603, E-Mail: jrd@jrdlaw.com, Web site: www.jrdlaw.com or write him at LUTZ, BOBO, TELFAIR, DUNHAM & GABEL, Two North Tamiami Trail, Sarasota, FL 34236.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered and report on issues and developments in the law. It is not intended as legal advice, and should not be relied upon without consulting an attorney.