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In this Issue
Business Trust Enhances Flexibility In True Lease Transaction Syndications Use A Synthetic Lease To Finance Equipment Under A Local Government Tax Incentive Program Maryland Exempts Equipment from UCC Recordation Tax
Banking and Commercial Financing and Equipment Finance Groups |
Maryland Exempts Equipment From UCC Recordation Tax
Maryland has been one of a handful of states imposing recordation taxes on financing transactions. In its most recent session, the Maryland Legislature passed a bill exempting from the State's recordation tax most security agreements filed as a central filing with the Maryland State Department of Assessments and Taxation (SDAT). Under current Maryland law, a recordation tax is imposed on, among other things, security agreements/financing statements filed with the SDAT under Article 9 of the Maryland Uniform Commercial Code. Already exempted from this tax, however, are financing statements filed to perfect security interests in collateral consisting of inventory, general intangibles, accounts, farm products and farm equipment, and security interests taken by a seller of collateral to secure the payment of its price (purchase money security interests). As a result, equipment is the primary collateral currently subject to recordation tax. The applicable recordation tax varies from county to county (depending on the location of the equipment) but ranges from $1.65 to $5.00 per $500 of the indebtedness secured, based upon the ratio of non-exempt collateral (generally equipment) to all the collateral located in the county, and the amount of the indebtedness. In transactions involving significant equipment collateral and indebtedness, the resulting recordation tax can often be prohibitive. This has led financing parties to avoid certain transactions in Maryland or to restructure them to minimize the recordation tax impact. The effective date of the new law is July 1, 2001. The law specifically exempts security agreements/financing statements filed with the SDAT under Section 9-501(a)(2) of the Maryland Uniform Commercial Code from the recordation tax. Section 9-501(a)(2) provides that all financing statements are to be filed with the SDAT unless the collateral consists of extracted collateral or timber to be cut or the financing statement is a fixture filing covering fixtures. Accordingly, effective July 1, 2001, the only non-real property collateral that should be subject to recordation tax will be extracted collateral, timber to be cut, fixtures and collateral of a transmitting utility. With the change in law, Maryland joins the majority of states in exempting most personal property transactions from recordation tax. The result should benefit financing parties and borrowers in Maryland that have not been able to engage in certain transactions because of the prohibitive tax consequences. Copyright© 2000, Ober, Kaler, Grimes & Shriver | ||