Jan 24, Dear : The following is a summary of the transaction described in your letter:

Transcription

1 Jan 24, 1994 Re: Technical Assistance Advisement No. 94(M)-002 Documentary Stamp and Intangible Taxes Notes, Mortgages and Transfers of Real Property under a Confirmed Bankruptcy Plan Sections and , Florida Statutes XXX (Company) XXX (Purchaser) XXX (Seller) XXX (Partners) Dear : Your request for a Technical Assistance Advisement on the application of the Federal Bankruptcy Code to the Documentary Stamp and Intangible taxes has been received by this office. The following is a summary of the transaction described in your letter: The Company, through various wholly owned subsidiaries, is in the business of owning and operating television stations throughout the United States. On XX, four creditors of the Company filed an involuntary petition against the Company for relief under Chapter 11, Title 11, United States Code (`the Bankruptcy Code'), in the United States Bankruptcy Court for the District of Delaware (the `Bankruptcy Court'). On XX, the Company filed its Answer to Involuntary Petition consenting to the relief requested and the Subsidiaries, and Partners, commenced bankruptcy cases by filing voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. On XX, the Company, the subsidiaries, and Partners (collectively called the `Debtors') also filed the Debtors' Joint Plan of Reorganization (the `Plan') under Chapter 11 of the Bankruptcy Code. This Plan was modified in three separate filings and accepted by the Bankruptcy Court.

2 After an analysis of the Company's financial condition, operations, and structure, the Company was restructured pursuant to the Plan. As a part of this restructuring, the Company and the Purchaser enter into an Asset Purchase Agreement with the Seller, pursuant to which the Company and the Purchaser agreed to acquire a television station (Station) from the Seller for XX in cash. Pursuant to the Plan, the Company financed the Station Purchase by making a contribution to the Purchaser of XX cash received by the Company from an investor and XX in aggregate principal amount of the New Senior Notes issued by the Company. The Investors purchased XX of the Company's New Common Stock and Class B Warrants. The additional funds were raised from the sale of New Senior Notes to another investor. The Company's financing of the Station Purchase is secured by a Mortgage, Security Agreement, Financing Statement and Assignment of Rents from the Purchaser to the Company in the amount of XX. On May 6, 1993, the Bankruptcy Court entered its Order containing findings of fact and conclusions of law, approving and confirming the Joint Plan of Reorganization as modified (the `Order'). Under the Bankruptcy Court's Order confirming the Plan, it states at Paragraph III A on page 23 of the order: "The Plan and each of its provisions shall be, and hereby are confirmed in each and every respect pursuant to section 1129 of the Bankruptcy Code." The Order also provides for an exemption from taxation as Follows: Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, distribution, transfer or exchange of New Credit Agreement Notes, New Senior Notes, New Common Stock or New Warrants; the creation, modification, consolidation or recording of any mortgage, deed of trust or other security interest; the securing of additional indebtedness by such means or by other means or the additional securing of existing indebtedness by such means or by other means (whether in connection with the issuance and distribution of the New Credit Agreement Notes, New Senior Notes, the

3 New Common Stock, the New Warrants or otherwise); the making, assignment or recording of any lease or sublease; or the making, delivery or recording of any deed or other instrument of transfer under, in furtherance of, or in connection with, the Plan, including any merger agreements or agreements of consolidation, deeds, bills of sale, assignment or other instruments of transfer executed in connection with the Restructuring Transactions, shall not be subject to any document recording tax, stamp tax, conveyance fee, intangible tax, real estate transfer tax, mortgage recording tax or other similar tax or governmental assessment, and the appropriate state or local governmental officials or agents shall be, and hereby are, directed to forego the collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment. ISSUES The issue is whether the Company is required under sections and , Florida Statutes, to pay documentary stamp taxes on, or to pay intangible taxes under sections , and , Florida Statutes, on the Mortgage, Security Agreement, Financing Statement and Assignment of Rents; and the Warranty Deed. PROVISIONS OF LAW United States Code Under the provisions of Chapter 11, section 1146(c) United States Code the issuance, transfer, exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under Chapter 11, section 1129, U.S.C., may not be taxed under any law imposing a stamp tax or similar tax. A security under Chapter 11, U.S.C., is defined to include a note, bond or debenture. However, as a tax exemption, section 1146(c) is strictly construed and does not extend to transfer documents to which a Chapter 11 debtor is not a party. In re Eastmet Corp., 907 F.2d 1487 (4th Cir. 1990). An affected taxing

4 authority has a due process right to notice of and opportunity to object to any proposed bankruptcy court action which purports to apply the section 1146(c) exemption to transactions not within the statute. See In re Bel-Aire Investment, Inc., 142 B.R. 992 (Bkrtcy. M.D.Fla. 1992). Documentary Stamp Tax Section (1), Florida Statutes, levies a tax on promissory notes and other written obligations to pay money that are signed or delivered in Florida, and on mortgages that are filed or recorded in Florida. When there is both a promissory note and mortgage, the tax is to be paid on the mortgage and a notation made on the promissory note that tax was paid and affixed to the mortgage. [Section (1), Florida Statutes; Rule 12B-4.051(1),(2), F.A.C.] Section , Florida Statutes, provides that if the United States, the State or any political subdivision is a party to a document taxable under Chapter 201, Florida Statutes, any nonexempt party to the document must pay the tax, unless the document itself is exempt under section , Florida Statutes, or unless the document itself is exempt under a state or federal law. Intangible Tax Section , Florida Statutes, imposes a tax of 2 mills upon obligations for the payment of money which are not secured by real property. Section , Florida Statutes, imposes a nonrecurring tax of 2 mills upon obligations for the payment of money which are secured by a lien on real property located in Florida. DEPARTMENT'S POSITION Your request for Technical Assistance Advisement seeks only the Department's position with respect to (1) the Mortgage, Security Agreement, Financing Statement and Assignment of Rents; and (2) the Warranty Deed. These are the only documents specifically referenced in your letter of October 19, 1993, and

5 the only documents potentially subject to tax in the compilation of Exhibits submitted with your request. Accordingly, no opinion is expressed on the taxability of any other documents. Pursuant to Bankruptcy Code section 1146(c), the Mortgage, Security Agreement, Financing Statement and Assignment of Rents is exempt from documentary stamp tax and intangible tax by virtue of the fact that it is a transfer document and security under a confirmed Chapter 11 Plan of Reorganization to which a Chapter 11 Debtor, Company is a party. However, the Warranty Deed by Seller, to Purchaser is problematical in that neither party to the deed is a Chapter 11 debtor. To the extent that the Order Confirming Plan purports to encompass the deed within the section 1146(c) exemption, there is a serious question under In re Eastmet Corp., supra, as to the Bankruptcy Court's authority to do so. Based on the lack of notice that such relief was being requested, it appears that the Department has a basis for seeking relief from the Order Confirming Plan under Fed. R. Civ. P. 60(b) (relief from judgment). However, the underlying facts of the total transaction suggest that such relief might be difficult and costly to obtain, since (1) a Chapter 11 debtor, Company has been instrumental in providing and obtaining financing for its subsidiary, the grantee on the deed, and could be viewed in the equitable bankruptcy forum as a de facto party to the deed; and (2) the Bankruptcy Court is out-of-state, and the time and expense in seeking relief would be substantial. Accordingly, Your are advised that the Department of Revenue takes the position that the section 1146(c) exemption does not apply to any transfer document to which a Chapter 11 debtor is not a party, and that the Department must be given notice and an opportunity to be heard whenever a bankruptcy court purports to apply the exemption to documents outside the scope of the statute. However, in the unique factual circumstances of this transaction, and in view of the discussion above, the Department will not seek to impose documentary stamp tax or intangible tax on the Warranty Deed. This response constitutes a Technical Assistance Advisement

6 under section , Florida Statutes, which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in section , Florida Statutes. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response. You are further advised that this response and your request are public records under Chapter 119, Florida Statutes, which are subject to disclosure to the public under the conditions of section , Florida Statutes. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response. Sincerely, J.V. Parramore, Jr. Tax Law Specialist Technical Assistance JVP/mh