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Florida Bill Would Exempt Plan Loans from Stamp Tax

Floridians who take loans against their retirement plans have to pay a state tax on those distributions. But the Florida House of Representatives is considering a bill that would change that.

State Rep. W. Gregory Steube (R-73) in January introduced HB 101, a measure that would exempt plan loans from the Florida documentary stamp tax, which is imposed on written obligations to pay money that are made, executed or delivered in Florida. That includes promissory notes made in connection with pension plan loans, 401(k) plan loans and share loans.

Under current law and state regulation, to constitute a taxable written obligation to pay money, the document must contain an unconditional written obligation to pay a sum certain in money and be signed by the obligor. To be taxable, the written obligation must be fixed and absolute at the time of execution. The tax rate on written obligations to pay money is $0.35 for each $100, or fraction thereof, of the obligation the document stipulates.

Penalties and interest could be imposed for failure to pay the tax. In addition, no state court may enforce the provisions of a promissory note if the tax is not paid — which could mean that a 401(k) plan is extending loans that are not adequately secured.

A September 2014 update by Bryan Cave, LLP noted that this law also says that no state court may enforce the provisions of a promissory note if the tax is not paid — which could mean that a 401(k) plan is extending loans that are not adequately secured. It further cautions that this law arguably reaches not only plan loans extended to participants who are Florida residents but also to plans with sponsors or third-party administrators resident in Florida.

HB 101 was referred to the House Finance & Tax Committee on Jan. 8. If the bill is enacted, it would go into effect on July 1.