Per Tenn. Code Ann. § 67-4-409, an indebtedness tax is imposed on the public recordation (or in the case of a UCC1, the filing) of any instrument evidencing indebtedness. The deed of trust must contain the following statement on the face of the instrument or in an attached sworn statement: “Maximum principal indebtedness for Tennessee recording tax purposes is $__________.” (§ 67-4-409(b)(6)A)(C)(i).) The dollar amount to be entered in the blank is typically the total indebtedness/original principal amount of the loan secured by the collateral property, all of which is located in Tennessee. (See Id.) The dollar amount stated shall be the basis of assessing the tax imposed. (Id.)
As the dollar amount may be dependent on factors such as the location of the collateral property, GoDocs requires its customers to enter the applicable dollar amount manually in the loan documents after they are generated. Customers should be sure to amount in the blank on the first page of the deed of trust, if a CRE transaction, and if included in the loan document package, the UCC documents, all prior to the closing of the loan. The dollar figure entered by the customer will be used to calculate the tax owed to the State of Tennessee in connection with the recording/filing of said documents. Please consult with your title company and/or your local counsel to determine the dollar amount to be entered if you are unsure.
What if part of the collateral property is in Tennessee and part is in another state?
If the collateral property securing the maximum principal indebtedness is partially located in Tennessee, an optional method of computing the tax is set forth in § 67-4-409(b)(8)(A)(i).No evidence of the calculation or statement of tax shall be required in addition to a recitation of the “Maximum principal indebtedness for Tennessee recording tax purposes is $__________,” with the dollar amount entered in the blank being the amount resulting from said calculation (§ 67-4-409(b)(8)(A)(ii).)
What if all of the collateral property is located in a state other than Tennessee?
If none of the collateral is “Tennessee collateral” then the dollar amount entered in the blank would also be less than the original principal amount of the loan.Of note, in addition to CRE, this scenario could also arise when a C&I loan is ordered on our system and Borrower resides in Tennessee or the entity Borrower is formed in Tennessee. As defined, “Tennessee collateral” does not include “personal property physically located outside of Tennessee, including goods, other than mobile goods, and any property that is a type in which a security interest could be perfected by possession under Tennessee law if such property were located in Tennessee, such as certificated securities, chattel paper, documents, instruments and money; or any intangible property and mobile goods, unless, in the case of an entity Borrower, Borrower’s chief executive office is also located in Tennessee (See § 67-4-409(b)(8)(B)(iv)(a), (b).)There appears to be no statutory requirement that evidence of the calculation be included along with the recitation of the “Maximum principal indebtedness for Tennessee recording tax purposes is $__________” in the financing statement.That said, in either instance, i.e., part of the collateral property is in Tennessee and part is in another state, or all of the collateral property is in another state, it is wise to include a statement (e.g., an affidavit) acknowledging and justifying why the dollar amount entered is less than the original principal balance of the loan. As a courtesy, GoDocs includes such an affidavit in its loan document package, in draft form, for finalization and use by the customer when the data entry for the order reflects either scenario.
What if a deed of trust is recorded in the local land records and a financing statement is subsequently filed with the Secretary of State?
Guidance published by the Tennessee Department of Revenue and UCC servicing companies, note that if the recording tax on the stated indebtedness has been paid at the county level, i.e., upon recording the deed of trust, no additional tax obligation appears to be due in connection with the filing of the financing statement. However, it is incumbent on Lender to note the same “Maximum principal indebtedness for Tennessee recording tax purposes is $__________” reference with the applicable dollar amount, but also include a statement declaring that the recording tax on the stated indebtedness has been paid at the county level in connection with the recording of the deed of trust. In addition, the Lender must also attach a tax receipt to the financing statement if filing a hard copy with the Secretary of State; if filing online or preparing online, then the Lender must note the tax receipt details (i.e., County, date paid, receipt number and amount paid). The foregoing applies in connection with both purchase and refinance transactions.