Happy new year to our blog readers! In 2013, we are all hoping for an improved economy and, with it, an increase in the volume of commercial and consumer loans. Remember that Florida has certain transactional taxes for which lenders are the responsible collecting parties including documentary stamp taxes. In case you are new to lending in Florida or are just in need of a refresher, here is a quick review of some of their important characteristics:
Documentary stamp taxes are due on written obligations to pay money executed or delivered in Florida at the rate of 35 cents per $100 of such obligation. “Written obligations to pay money” include promissory notes but, typically, not guaranty agreements. Do not be confused by the fact that documentary stamp tax is due on other instruments also, such as a deed transferring title to real property. In that case, the tax rate is double, or 70 cents per $100 of consideration.
If a note is neither executed nor delivered in the State of Florida and if the note is not secured by Florida real property, documentary stamp tax is not due even though the note may be transferred into Florida for safekeeping. Put another way, if the note is secured by Florida real property, documentary stamp tax will be due regardless of where it was executed and delivered. Consider also the first requirement, that the note be both signed and delivered outside of Florida. I have seen cases where lenders sent borrowers out of state to sign the notes only to have the borrower bring the signed note back to Florida and deliver it there to the lender. The unfortunate result in those cases is that the note was rendered taxable by the in state delivery.
Florida has a cap on documentary stamp tax if the note is not secured by Florida real property. The maximum amount due in that case is $2,450 (based on a $700,000 maximum taxable amount). So, for example, an unsecured note for $5,000,000, executed and/or delivered in Florida, would be subject to the cap and the tax due would be $2,450. If the note is secured by Florida real property, however, the cap does not apply and tax would be due on the full note amount.
A renewal note can be exempt from documentary stamp tax in certain instances. Generally, the renewal must in an amount no greater than the outstanding principal amount of the note being renewed and there can be no new makers or obligors added. Two interesting points to remember: first, revolving lines of credit can be renewed for their original face amount without incurring new tax regardless of the outstanding balance of the line at the renewal date; second, new guarantors can be added via guaranty agreements and they are not considered “makers or obligors” so no additional tax is due.
Of course, this merely scratches the surface of the intricacies of documentary stamp tax. For further information, the State of Florida Department of Revenue is a great source of additional information.