Florida "stamp tax" for loans(?)

[BG5150]

News to me:  Florida collects a "stamp tax" on 401(k) loans?  How do you apply this?  Is there a 1099 involved?  Or other tax form? 

Is the amount reduce from the loan proceeds, or taken on top of the loan, like a fee?

How is it remitted to the state?  Form and check?  Online?

Your thought are valuable and appreciated.

[RatherBeGolfing]

In Florida we have what is called a "document stamp tax".  

It is an excise tax on certain documents like deeds and promissory notes.  ERISA plans are not exempt and applies to all loans executed in Florida.  

The tax rate is 70.cents per $100, or maximum $350 tax on a $50,000 loan.

You can pay it online, by mail or in person.

Technically, failure to pay the doc stamp tax could mean that the loan is unenforceable, which of course could have a cascading effect on the the loan and the plan.  I have never heard of a loan actually being disqualified due to failure to pay the doc stamp tax.

Very few plans and/or service providers actually comply with the doc stamp tax.  Most service providers will simply inform the plan and participant that they also owe a doc stamp tax to the state but that they do not fill out the paperwork etc, so it is it falls on the plan/participant to make the payment.

We do the doc stamps for some of our clients but the vast majority simply say "ok, I have been informed, I'll roll the dice".

The only service provider I knew of in Florida that did doc stamps for ALL their clients, was recently acquired by a major national provider who to my knowledge does NOT do doc stamps.

 

[MoJo]

Yea.  It's a perpetual problem that I've been involved in dealing with for a good part of my career at a number of service providers.  RBG is right in that it can make the loan unenforceable - but then again, if the participant doesn't pay it according to the terms, the tax consequences are based in FEDERAL law - which some would argue supersedes the unenforceability of the loan under state law.

Our approach is to tell our clients/plan sponsors who have employee participants in Florida of the requirement of the law, and that *we don't undertake any responsibility* for complying - and leave it up to them.

[Larry Starr]

Boy, I remember dealing with this issue YEARS ago on the FIRST pension industry bulletin board system (I was one of the sysops; it was called PIX if anyone still remembers!).  As I remember, we resolved that no one should bother paying the tax because of the penalty.  The penalty is that the State of Florida will not enforce the loan; BFD! (big flying deal!).  When has any ERISA plan loan had to be enforced in state court?  Do you know of any ever?  I think not.  Why, because the loan is 100% collateralized by the participant's account, which is used to offset the loan upon default.

"We don't need no steenking state court" (paraphrase of Alfonso Bedoya from The Treasure of the Sierra Madre).  

I think this issue is equivalent to "how many angels can dance on the head of a pin"; the answer is "who cares"!!!!!

Larry.

[Bird]

Quote

"We don't need no steenking state court" (paraphrase of Alfonso Bedoya from The Treasure of the Sierra Madre).  

Mmm, I thought it was "We don't need no steenking [badges]" from Blazing Saddles.

Quote

I think this issue is equivalent to "how many angels can dance on the head of a pin"; the answer is "who cares"!!!!!

Ah Larry, always taking the practical approach.  Good to have you here.

Ed Snyder

[Peter Gulia]

That a court of Florida might not enforce an obligation (until the tax is paid) is not the only consequence of a failure to pay this tax.  Among others:

 

“[A]ny person who fails or refuses to pay such tax due by him or her is guilty of a misdemeanor of the first degree.”  Fla. Stat. § 201.08(b).

 

“Whoever makes, signs, issues, or accepts, or causes to be made, signed, issued, or accepted, any instrument, document, or paper of any kind or description whatsoever, without the full amount of the tax herein imposed thereon being fully paid . . . is guilty of a misdemeanor of the first degree, punishable [by imprisonment and a fine, in addition to the unpaid tax, penalty tax, and interest] as provided in § 775.082 or § 775.083.”  Fla. Stat. § 201.17(1).

 

While a service provider might decline to offer a service and its client or customer might decide whether to obey Florida’s law, a fiduciary (even one who’s comfortable taking a risk on a civil liability or a tax) might be reluctant to commit a crime.

 

Further, if a plan’s trustee is a bank or trust company, consider whether it might be unwilling to accept a loan agreement if Florida’s tax was not paid.

 

[david rigby]

Any other states with similar provisions?

 

[Belgarath]

I remember PIX. I wasn't on that board, but our EA was. You know you are getting old when you start remembering "history."

[RatherBeGolfing]

23 minutes ago, Fiduciary Guidance Counsel said:

That a court of Florida might not enforce an obligation (until the tax is paid) is not the only consequence of a failure to pay this tax.  Among others:

 

“[A]ny person who fails or refuses to pay such tax due by him or her is guilty of a misdemeanor of the first degree.”  Fla. Stat. § 201.08(b).

 

“Whoever makes, signs, issues, or accepts, or causes to be made, signed, issued, or accepted, any instrument, document, or paper of any kind or description whatsoever, without the full amount of the tax herein imposed thereon being fully paid . . . is guilty of a misdemeanor of the first degree, punishable [by imprisonment and a fine, in addition to the unpaid tax, penalty tax, and interest] as provided in § 775.082 or § 775.083.”  Fla. Stat. § 201.17(1).

 

While a service provider might decline to offer a service and its client or customer might decide whether to obey Florida’s law, a fiduciary (even one who’s comfortable taking a risk on a civil liability or a tax) might be reluctant to commit a crime.

 

Further, if a plan’s trustee is a bank or trust company, consider whether it might be unwilling to accept a loan agreement if Florida’s tax was not paid.

 

It is worth pointing out that ALL parties to the document are liable for the tax.  The state doesn't care who pays it, so if the participant refuses, the plan is still on the hook. 

 

[RatherBeGolfing]

37 minutes ago, Bird said:

Mmm, I thought it was "We don't need no steenking [badges]" from Blazing Saddles.

Indeed it is

[Peter Gulia]

I don't know whether other States impose a similar tax.  No client has asked me to do that research.

 

[Belgarath]

Might be a good reason not to allow participant loans in the plan!

[ESOP Guy]

This law firm raises the issue if a state court can't enforce the loan is the loan adequately secured?  If not, do you have a technical PT and operational failure.  If that happens then it would be a serious repercussion.  

http://benefitsbryancave.com/florida-stamp-tax/

 

[jpod]

If this is a well known issue in Florida, have any ERISA attorneys opined on whether the stamp tax as applied to ERISA plans is preempted by ERISA?  It seems to me if the tax is preempted than there is no criminal exposure either.  

[CuseFan]

RBG, you made my day!

[RatherBeGolfing]

11 minutes ago, jpod said:

If this is a well known issue in Florida, have any ERISA attorneys opined on whether the stamp tax as applied to ERISA plans is preempted by ERISA?  It seems to me if the tax is preempted than there is no criminal exposure either.  

Pretty much every opinion I have heard or read has said it is NOT preempted. I have talked to many ERISA attorneys who will outline the possible implications of non-compliance and many who take Larry's approach of "who cares, nothing is going to happen".  That said, I have never talked to one who can mention a single example where non-compliance has actually become a problem. 

 

[david rigby]

Quote

We don't need no steenking badges.

Blazing Saddles was a brilliant parody of many other movies.  The Treasure of the Sierra Madre (1948) is the origin of that line.  Give credit where credit is due.  (BTW, it's a very good movie.)

 

[Tom Poje]

Turns out it was really from the Monkees

[RatherBeGolfing]

The line "we don't need no stinkin' badgers" was also used in the 1989 Weird Al Yankovic classic "UHF"

Popular line to parody 

 

[Bill Presson]

2 hours ago, Belgarath said:

I remember PIX. I wasn't on that board, but our EA was. You know you are getting old when you start remembering "history."

Two things:

1. I "liked" your post and got a message that I wasn't allowed. Odd.

2. I spent a lot of time on PIX in my early years. Incredible resource during the early days of the internet. My screeching 2400 baud modem was a welcome sound. Got to know, Larry Starr, Derrin Watson, Jim Norman, Rick Block, Lou Filliger, Rich Bednarski, Doug Jolley, etc, etc.

Great group to learn from

[Belgarath]

Ah, but did you get to know Ned Ryerson? And I haven't heard the word "baud" for at least 25 years!

[cheersmate]

On 7/19/2017 at 10:55 AM, RatherBeGolfing said:

It is an excise tax on certain documents like deeds and promissory notes.  ERISA plans are not exempt and applies to all loans executed in Florida.  

The tax rate is 70.cents per $100, or maximum $350 tax on a $50,000 loan.

I believe it is $0.35 per $100 for participant loans... and the 70 cents per $100 applies to transfer of property like a mortgage. See For DR 228.

http://floridarevenue.com/Forms_library/current/dr228.pdf

 

[K2retire]

On 7/19/2017 at 5:31 PM, Larry Starr said:

Boy, I remember dealing with this issue YEARS ago on the FIRST pension industry bulletin board system (I was one of the sysops; it was called PIX if anyone still remembers!).  As I remember, we resolved that no one should bother paying the tax because of the penalty.  The penalty is that the State of Florida will not enforce the loan; BFD! (big flying deal!).  When has any ERISA plan loan had to be enforced in state court?  Do you know of any ever?  I think not.  Why, because the loan is 100% collateralized by the participant's account, which is used to offset the loan upon default.

I think this issue is equivalent to "how many angels can dance on the head of a pin"; the answer is "who cares"!!!!!

Larry.

A couple of thoughts with varying degrees of relevance.

How are they ever going to know about the existence these loans?

The State of Florida's assorted taxes are annoying! We own a vacation home there that we used to allow friends to rent from time to time. They expect us to collect sales tax if we rent it. They also want to penalize us if we forget to file a report showing that we didn't rent it out every single month. Way more hassle than the little bit of income it used to generate!