If you work with a plan in, or with certain connections to, the state of Florida, you may have a compliance problem with your plan loans.
An update from Bryan Cave, LLP notes that under its revenue laws, Florida imposes a document tax on loan transactions that are made, signed, executed, issued, or otherwise transacted in the Sunshine State. Moreover, lest you think that those plan loans can’t possibly be included in that definition, Bryan Cave explains that the Florida Department of Revenue says that “promissory notes made in connection with pension plan loans, 401K plan loans, and share loans” are specifically included.
Note, however, this is not a new law — in fact, it’s been on the books for a while now. However, it is one that may well have been overlooked by many plan administrators.
Failing payment of the tax, the Florida law further provides that no state court may enforce the provisions of a promissory note if the document tax is not paid — and Bryan Cave says that could mean that a 401(k) plan is extending loans that are not adequately secured, a circumstance that the law firm says creates at least the potential for both prohibited transaction issues and plan operational failure issues.
The update goes on to caution that the Florida statute arguably reaches not only plan loans extended to participants who are Florida residents but to plans with sponsors resident in Florida or third party administrators resident in Florida. Not that we’re talking about a lot of money; the tax rate on written obligations to pay money is $0.35 for each $100, or fraction thereof, of the obligation evidenced by the document.
Have you seen/heard about this “stamp tax?” What, if anything, have you done in response? Feel free to comment below — or email us at [email protected].
An update from Bryan Cave, LLP notes that under its revenue laws, Florida imposes a document tax on loan transactions that are made, signed, executed, issued, or otherwise transacted in the Sunshine State. Moreover, lest you think that those plan loans can’t possibly be included in that definition, Bryan Cave explains that the Florida Department of Revenue says that “promissory notes made in connection with pension plan loans, 401K plan loans, and share loans” are specifically included.
Note, however, this is not a new law — in fact, it’s been on the books for a while now. However, it is one that may well have been overlooked by many plan administrators.
Failing payment of the tax, the Florida law further provides that no state court may enforce the provisions of a promissory note if the document tax is not paid — and Bryan Cave says that could mean that a 401(k) plan is extending loans that are not adequately secured, a circumstance that the law firm says creates at least the potential for both prohibited transaction issues and plan operational failure issues.
The update goes on to caution that the Florida statute arguably reaches not only plan loans extended to participants who are Florida residents but to plans with sponsors resident in Florida or third party administrators resident in Florida. Not that we’re talking about a lot of money; the tax rate on written obligations to pay money is $0.35 for each $100, or fraction thereof, of the obligation evidenced by the document.
Have you seen/heard about this “stamp tax?” What, if anything, have you done in response? Feel free to comment below — or email us at [email protected].
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