Loans - Florida Stamp Tax

Florida imposes a document tax on loan transactions that are made, signed, executed, issued in the state.  Before you ask, why would a Plan Sponsor care, the loan is under a Qualified Plan ( and ERISA), the Florida statue  specially states that  "promissory notes made in connection with a pension plan loan, 401(k) loans and share loans"  ARE specially included. 

Failure to pay the stamp tax, could result in a state courts inability to  enforce provisions of the promissory note. It has been suggested failure to pay the tax  could mean the 401(k) is extending loans that are not adequately secured and could result in prohibited and/or operational failures.

Seems everyone I have spoken to about this matter is aware of it but no one is enforcing the stamp tax.  Obviously the recorkeepers are not doing anything on their end and TPAs processing loans, state it is not their responsibility. Ironically, the TPAs I have spoken with do not address the stamp tax with their clients.

Since the loan is issued under the regulation set by ERISA, could the State of Florida come in and challenge the loan? While the plan followed  ERISA guidelines with issuing the loan, not sure why some feel there is a prohibited/operation issue if the stamp tax is not paid.

For group who deal with Florida clients, are you recommending they file the payment and have the loan recorded with the state? Or is everyone just sweeping this under the carpet until the first major blow up occurs!!

23 minutes ago, 52626 said:

Ironically, the TPAs I have spoken with do not address the stamp tax with their clients.

Florida TPA here.  We DO address this with our clients, as do several of our "friendly competitors".  We do not require that they pay the doc stamp, but we make them aware of it and explain the state requirement. 

The state of Florida has been very clear that 401(k) loans are included, but it really isn't enforced at all.  I haven't heard of them actually going after anyone for not having the doc stamps on loans.  My guess is that they will collect from people who pay it rather than actually going after the "uncollected tax" and getting into the preemption issue (they are well aware that it is ignored).  I know plenty of industry experts who dismiss the doc stamp requirement as unenforceable should Florida decide to go after all the plans with loans that have the required Florida connection. 

We have clients who pay the doc stamp tax, not many, but some.

As a practitioner her in Florida, there isn't much we can do other than address the issue and leave it up to the client to make the payment. 

We also address it with our Florida clients. The Florida TPAs that I know of all address it with their clients. Very small or solo TPA may not know about it, but otherwise I think it's a known issue to Florida TPAs.

As a practitioner in Florida, is it your opinion failure to pay the stamp tax does not result in a prohibited transaction and or operational  issue? 

12 minutes ago, 52626 said:

As a practitioner in Florida, is it your opinion failure to pay the stamp tax does not result in a prohibited transaction and or operational  issue? 

My understanding is that the way the requirement is written is that it is the responsibility of the participant (not the plan as lender) to report and pay the tax. Though I have had plans ask how do they go back and pay it on behalf of their participants because it is being brought to the plan's attention for the first time. 

I think for other types of loans the lender(such as the bank) takes care of the stamp tax as part of the paperwork. But it's actually the responsibility of the other party. 

Since it isn't the plan that is responsible, it wouldn't actually be a plan issue. 

I know there have been long threads in the past on this forum regarding this topic.  

Just looked at this again recently.  The statutory language in my view seems to limit non-enforcement to mortgages and similar documents -- not to a loan of this type.  So, I don't believe there is an enforcement issue, which in turn means there isn't really a plan qualification issue.  Florida made clear back in 1997 that it did not believe ERISA plans were exempt from the tax.  But even if plans are exempt, the statute provides the non-exempt party would then be responsible for the tax (i.e., the participant).

We landed on the same page as most of the other commenters -- we'll make sure the documentation makes residents of Florida aware that they may owe stamp taxes on the value of the note, and that payment is the participant's responsibility.

We've looked into this as well and have come to the conclusion that the only downside to not paying the tax is the inability to use the state courts to enforce the obligation.  OK, well, so what?  The loan is properly secured at the time of it's issuance by using the participant's account balance to fund the loan and the appropriate means of enforcing the loan should the participant default is to simply deem a distribution, and at the appropriate time, offset the loan.  No court intervention needed.  We "advise" about the tax stamp obligation (or at least we're supposed to), and let the plan sponsor decide what to do (or not do).

Sorry for this late response!  I've worked for just about every Florida TPA (seems like it anyway!).  Only 2 that I worked for mailed the DR-228 form to the participants to let them know they had to pay.  The rest said they were aware of the requirement but didn't bother with it. 

A few years ago, Empower started deducting it from participants accounts when they took loans and remits it themselves.