Florida Documentary Stamp Tax and Loans from ERISA Plans

[Guest scr]

Florida charges $.35 on eah $100 for a promissory note executed in FL. My client is a FL company which has its trust located in Florida. Its plan administrator is a Massachusetts company. When individuals want to borrow money from their 401(k) Plans, will the plan be required to pay the documentary stamp tax because the note will be executed in Florida and repaid using payroll deductions from a Florida company. The Florida DOR says yes but it seems to me that this would place an extra burden on 401(k) funds because individuals would have trouble getting there own money -- it seems like it would be preempted by ERISA. Anyway, does the FL documentary stamp tax apply or is it preempted by ERISA? Does anyone know where I can find something in writing that says this. I found a technical advice memo from 1997 which seems to say it does apply, has this been changed?

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Sarah

[M R Bernardin]

Florida doc stamps would apply under the Florida statutes, since the notes are being executed in Florida. I believe the TAA you apparently found is all there is specifically on point, and that it clearly says that it applies to ERISA employee benefit plans. This is consistent with the Florida DOR's position on audit as well. If you want to take a contrary position, there will obviously be risks.

[Guest MichaelM]

are there any other states that have similar rules?

[Guest hank]

Florida's stamp tax is imposed on notes, nonnegotiable notes, written obligaitons to pay money or assignments of salaries, wages or other compensation which are "made, executed, delivered, sold, transferred, or assigned in the state" of Florida.

The Forida DOR tech advice ( No. 97(B)4-008 )issued in June, 1997 makes it clear that (k) loans made from a plan which is located outside Florida to Florida participants are subject to the documentary tax if the loans are executed or delivered within Florida.

A number of Florida benefits practitioners who have discussed this issue have concluded that the tax is not preempted by ERISA. Failure to collect and remit the tax may not be a plan qualification issue (although there are criminal penalties in Florida for failing to do so!), but the validity of the loan may be questionable under Code section 72(p) because it cannot be enforced in Forida's courts.

We make the tax a cost of the loan to the Florida participant and disclose it in the TIL statement. You can get the form for remitting the tax to Florida DOR right from the Florida DOR's website.

As far as I know, no other state has a similar tax.

[Scuba 401]

the responses in this thread lead you to believe that this is well settled method of handling loans in florida. from discussions with other attorneys in florida i dont get the feeling that the issue is as clear as this thread would lead you to believe. does anyone else have any opinions on this or can anyone discuss how they handle loans in florida?

[mbozek]

Q- Who is the tax assessed against? the plan admin / plan or the participant for the amount borrowed. There is ample precedent that state taxes are preempted if they apply to the plan or plan admin. e.g., NY state UBIT tax on VEBAs, CT ins premium tax on self fund health plans.

[Scuba 401]

the florida statute says there shall be a tax on notes, etc. made, delivered or assigned in florida. thus, they are really applicable to the note, not necessarily one party. i feel that the preemption clause would apply. simply b/c the state of FL does not think their statute is preempted is certainly not dispositive of the issue. this would not be the first time a state or state court thought it could enforce a statute or order over the provisions of ERISA.

[mbozek]

State tax authorities do not give up revenue without a fight (e.g. NY UBIT tax on VEBAS was determined to be preempted by NY Ct of Appeals after about 10 yrs of litigation). While the tax is applicable to the note someone must be responsible for paying the tax, e.g., who is liable under the criminal provisions? I cant see how a state law that requires that the plan admin/trustee remit a tax on plan assets would not be preempted since the loan is not a distribution. By the way how does the state know that the loan has been entered into? I dont see how the purchase of stamps is required to enter into a valid loan. At one time plan admin used to file a UCC-1 to record the loan with the county clerks in the belief that such a document was required in order to enforce the the ms of the loan in state court. No one does that any more.

[Scuba 401]

I agree that the state would never know there was a loan and that is probobly why there is no authority on this issue absent the FL DOR Tech Advice. There is actually a provision in the statute that requires the stamps prior to recording of the note but of course that really is not relevant here. essentially, the stamps are a condition precedent to enforcing a note under florida law. however, since you never would need to enforce the note because it is secured by the participants account balance i dont see that as an issue.

the answer to your question on the criminal provisions is that "whoevever makes, signs or accepets, or causes to be made, signed, issued etc. etc. any instrument without the full amount of the tax is guilty of a misdemeanor.