By George Bobo
Key Point. The penalty for non-payment of Georgia intangibles recording tax bars the lender from collection of its loan.
What Is Georgia Intangibles Tax?
It is a tax on long-term notes secured real estate. The tax rate is $1.50 for each $500.00 or fraction thereof of the face amount of the note secured by the recording of the security instrument, usually a deed to secure debt. A “long-term note secured by real estate” means any note representing credits secured by real estate by means of mortgages, deeds to secure debt, purchase money deeds to secure debt, bonds for title, or any other form of security instrument, when any part of the principal of the note falls due more than three years from the date of the note or from the date of any instrument executed to secure the note and conveying or creating a lien or encumbrance on the real state for such purpose. (1) The tax is imposed on long-term notes only so that notes meeting the definition of short-term notes pursuant to Georgia law are not subject to intangibles tax. Short-term notes are defined as notes which would be long-term notes secured by real estate were it not for the fact that the whole of the principal of the note falls due within three years from the date of the note or from the date of any instrument executed to secure the note.
Anyone drafting a note should be aware that a short-term note (due within three years) with an option to renew or extend by the borrower, where any part of the principal or interest of the note becomes due or may become due more than three years from execution is classified as long-term. (2)
The holder of a long-term note secured by real estate must, within 90 days from the date of the instrument executed by to secure the note (usually a deed to secure debt), record the security instrument in the county in which is located the real estate conveyed or encumbered or upon which a lien is created to secure the note and must pay the tax prior to recording the security instrument. (3) The tax must be paid to a tax collecting officer, who is usually a person other than the clerk of superior court. The collecting officer calculates the amount of the tax from the face amount of the note set forth in the security instrument and its maturity date, collects the tax, and shows the amount of intangibles tax paid on the face of the security instrument. For reasons we will discuss below, it is vital that the holder of a long-term note review the original security instrument on its return from recording to be sure the tax payment is recorded on the security instrument. The tax must be paid before the clerk of superior court will accept the security instrument for recording. Georgia law requires that every instrument conveying, encumbering, or creating a lien on real estate shall set forth in words and figures the correct amount of the note secured by the instrument and the date upon which the note falls due.
Maximum Amount of Intangibles Tax
The maximum amount of any intangibles recording tax payable with respect to any single note is $25,000.
Who Pays It
The tax is the obligation of the holder of the note, but it can be passed on to the borrower or mortgagor. In almost all loan transactions payment of Georgia intangibles tax is part of closing costs paid by the borrower. Intangibles tax isn’t considered or treated as part of any finance charge imposed by the holder in connection with the loan transaction. (4)
No Tax On Short Term Note
Intangibles tax is not due on short-term notes, but some facts that commonly arise cause confusion as to how a short-term note is defined. The Georgia Revenue Commissioner has issued intangibles recording tax regulations which are helpful in understanding when a note is short-term rather than long-term. Under those regulations:
- a note which matures the same month and date as executed only three (3) years later, is a short-term note (5)
- a renewal note in payment of an existing short-term note is to be classified according to its own terms as to whether it is short-term or long-term (6)
Penalty For Non-Payment
Failure to pay intangibles tax may be a disaster for a lender. Failure to pay the tax levied by the intangibles tax law constitutes a bar to the collection by any action, foreclosure, the exercise of any power of sale or otherwise of the indebtedness secured by any instrument required by the intangibles tax law to be recorded, whether the instrument is held by the original party to the instrument or by a transferee. (7). It isn’t uncommon for a deed to secure debt to be accepted by the clerk of superior court and recorded, by clerk’s mistake, without payment of required intangibles tax, for a default to occur in payment of the indebtedness and the lender to be barred thereby from collection of the long-term note. Don’t rely on the fact that the deed to secure debt slipped past the clerk of superior court and was recorded by error without payment of the tax. While late payment may be made, as set forth below, if the borrower files bankruptcy before the intangibles tax is paid, the bankruptcy filing may bar the lender from perfection of its deed to secure debt and the lender may thereby become unsecured.
OCGA §48-6-77 is specific as to non-payment of intangibles tax, and the possibility of late payment, and is quoted here as follows:
“(a) Failure to pay the tax levied by this article shall constitute a bar to the collection by any action, foreclosure, the exercise of any power of sale, or otherwise of the indebtedness secured by any instrument required by this article to be recorded, whether the instrument is held by an original party to the instrument or by a transferee. However, failure to pay the tax levied by this article shall not affect or discharge the indebtedness and other obligations secured by such instrument or the debtor’s liability on account thereof and , subject to the bar, such instrument shall continue to secure the indebtedness and other obligations secured thereby and shall continue to encumber the collateral described therein. The bar may be removed by the payment of the required tax, plus interest at the rate specified in Code Section 48-2-40 from the time the tax was due, plus a penalty of 50 percent of the amount of the tax, after which the process to collect the indebtedness, including foreclosure, may proceed as if no bar ever existed. However, if an instrument required to be recorded fails to reflect on its face that the tax levied by this article is due and after a foreclosure has taken place it is discovered that the instrument securing the indebtedness is in fact subject to the tax, any deed given pursuant to the foreclosure or deed in lieu of foreclosure shall be imperfected but may be perfected by the payment of the required tax, plus interest at the rate specified in Code Section 48-2-40 from the time the tax was due plus a penalty of 50 percent of the amount of the tax. Once the tax, interest and penalty are required in this subsection have been paid, the perfection of the deed will revert back to the date of the deed, and the deed shall retain its priority over any and all intervening liens or conveyances except those conveyances and liens made or created by the grantee, its successors, and assigns named in the foreclosure deed or deed in lieu of foreclosure. Those provisions shall have no effect on any instrument subject to the tax on which the statute of limitations has expired.
(b) The failure to pay the tax shall not constitute a bar to the collection of the indebtedness as provided in subsection (a) of this Code section when the commissioner has determined that the tax is not payable.
(c) The commissioner may waive the penalty provided for in subsection (a) of this Code section if he determines that the failure to pay the tax was through ignorance of the law or inadvertence and that the failure did not occur out of bad faith.
(d) This Code section shall not apply to instruments acquired at a time when the holder of the instrument was otherwise exempt from the payment of the tax imposed by this article.”
Exemptions For Georgia Intangibles Tax Payment
Rule 506-11-8-.14 of the Rules and Regulations of the State of Georgia provides that any mortgage, deed to secure debt, purchase money deed to secure debt, bond for title or any other form of security instrument is not subject to intangibles recording tax where any of the following applies:
“(a) Where any of the following is a party: The United States, the State of Georgia, any agency, board, commission, department or political subdivision of either the United States or this state, any public authority, any non-profit public corporation, or any other publicly held entity sponsored by the government of the United States or this state.
(b) Where any of the following is a Grantee: a federal credit union, a state of Georgia chartered credit union, or a church.
(c) Where the instrument is given as additional security, to correct a previously recorded instrument, or to substitute real estate; provided that the body of the new instrument identifies the existing instrument and specifically states the purpose of the new instrument.
(d) Where the instrument does not secure a note (e.g., guaranty agreement; bail bond; performance agreement; bond issue; indemnity agreement; divorce decree; letter of credit).
(e) In case of a transfer or assignment, where the original note or the holder of the original note was exempt.
(f) Where the instrument is recorded pursuant to a plan of reorganization confirmed under Chapter II of U.S. Code and where the instrument is accompanied by documentation verifying confirmation of the plan of reorganization.”
Commercial transactions often involve questions as to payment of intangibles tax that are not clearly answered by the Department of Revenue Rules and Regulations. Those Regulations allow the lender to submit a request to the Georgia Revenue Commissioner for a determination as to the requirement and amount of tax. (10)
Intangibles recording tax is not required to be paid on any instrument that modifies by extension, transfer, assignment or renewal, or gives additional security for an existing note, when the intangibles recording tax has been paid on the original instrument or the original note or holder of the instrument was exempt. (8). Note that this provision does not mention modification to increase the loan in excess of the original loan amount.
Intangibles recording tax is not required to be paid on that part of the face amount of a new instrument securing a long-term note secured by real estate which represents a refinancing by the original lender and original borrower of unpaid principal of an existing instrument securing a long-term note secure by real estate still owned by the original lender, if the intangibles recording tax was paid on the original instrument or the original holder of the instrument. The new instrument must contain a statement of what part of the face amount represents a refinancing of unpaid principal. (9)
Footnote 1 – Official Code of Georgia (“OCGA”) §48-6-60
Footnote 2 – Rules and Regulations of the State of Georgia, Rule 560-11-8.03 Definitions 4(d)
Footnote 3 – OCGA §48-6-61
Footnote 4 – OCGA §48-6-61
Footnote 5 – Rules and Regulations of the State of Georgia, Rule 560-11-8.03 Definitions 4(f)
Footnote 6 – Rules and Regulations of the State of Georgia, Rule 560-11-8.03 Definitions 4(c)
Footnote 7 – OCGA §48-6-77
Footnote 8 – Rules and Regulations of the State of Georgia, Rule 560-11-8-.04
Footnote 9 – Rules and Regulations of the State of Georgia, Rule 560-11-8-.05
Footnote 10 -Rules and Regulations of the State of Georgia, Rule 560-11-8-.15.
Copyright 2020 Closing Toolbox LLC. All rights reserved.