The legislature was probably aware of this dynamic in requiring a three-year holding period. The documentary stamp tax as applied to deeds conveying real property is set out in section 201.02(1), Florida Statutes (2003), which states: This column is submitted on behalf of the Tax Section, Guy E. Whitesman, chair, and Michael D. Miller and Benjamin Jablow, editors. Although this has been included to facilitate “estate planning,” it is not entirely clear what this provision accomplishes. Documentary stamp taxes are due on the transfer of 50% of the LLC interests to the second person. Bonds 3. 2009-131, §4. The examples provided by Emergency Rule 12B11-17 illustrate how the Florida DOR intends to apply the documentary stamp tax to indirect and successive transfers of conduit entities. 3 2009 Fla. Laws Ch. The documentary stamp tax, sometimes called transfer tax, is assessed on the amount of the consideration paid for the transfer of any interest in real property located in Florida. Outside of Miami-Dade County, the transfer tax rate is 70 cents per $100 of the deed's consideration. S and P end up in the same exact place, except that the documentary stamp tax has been avoided. Instead, contact this office by phone or in writing. The initial transfer of unencumbered real estate to the LLC as a capital contribution was not subject to documentary stamp taxes under, Effective July 1, 2009, the “drop-and-transfer” strategy was eliminated. the transfer was $30,000. Florida imposes a documentary stamp tax on transfers of real estate by deed at a rate of $0.70 per $100 or part thereof of consideration. Documentary stamp tax of $210 was paid on the document that transferred the real property to the LLC. Absent any documentary stamp tax planning, the sale of the real estate would generate a documentary stamp tax of $35,000. The deed was recorded, and CMC paid $1,212,750 in documentary stamp tax, which was comprised of the state documentary stamp tax and a Dade County documentary surtax. Notes and other written obligations to pay money 4. The tax is called documentary stamp tax and is an excise tax on the deed or other instrument transferring the interest in real property. 44 (Oct. 2005). You should consult with your own attorney or other tax advisor before applying any of the content of this website to your individual situation. Mortgages, liens, and other evidences of indebtedness Section 201.02 of the Florida Statutes governs certain transfers or conveyances that are subject to documentary stamp taxes. Rappoport & Glassman, Documentary Stamp Tax: The Legislature Strikes Back, 48 Fla. Bar. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the consideration therefor. The provisions of this paragraph are to be construed liberally to effectuate this purpose. He earned his B.S. For over half a century, Florida tax practitioners have struggled to answer a relatively simple question. One of the sellers subsequently transfers her LLC interests to a corporation that she owns. The opinions expressed in this are the opinions of the author, and cannot be attributed to the law firm of Johnson, Pope, Bokor, Ruppel & Burns, LLP and its attorneys. Does the Florida documentary stamp tax on deeds (the deed tax) apply to the conveyance of unencumbered Florida real property from a grantor to a wholly owned entity? Generally, a transfer tax is imposed on documents that convey an interest in real property from one person or legal entity to another person or legal entity. CMC recorded the deed and paid documentary stamp tax on the full value of the conveyance. DOCUMENTARY STAMP TAX: Add to MyFLRules Favorites: View Chapter: 12B-4. Step two would not be subject to the documentary stamp tax because there is no conveyance of real estate, since S is assigning a membership interest in a limited liability company. The Florida Documentary Stamp is a tax levied in Florida on documents that transfer a property interest in Florida. It resolves the quandary created for property appraisers where the transfer of real property is accomplished through the sale of an ownership interest in an entity. In Florida, the Department of Revenue charges “documentary stamp taxes” on real estate transactions. The Florida documentary stamp tax statute provides in pertinent part: On deeds, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or any other person by his or her direction, on each $100 of the consideration therefor the tax shall be 70 cents. Additionally, there would be no public record of the consideration for the transfer of the membership interest for the property appraiser to consider in assessing the value of the property.10, The 2009 Documentary Stamp Tax Legislation In its 2009 amendment to §201.02, the Florida Legislature clearly articulated its disdain for the use of the Crescent decision as a deed tax avoidance device, stating: “The Legislature finds that the Florida Supreme Court opinion in Crescent Miami Center, LLC v. Florida Department of Revenue, 903 So. The law is effective where the first transfer to a “conduit entity” occurred after July 1, 2009. Thus, a potential buyer would be hesitant to acquire interests in an entity that was funded with real estate and has been operating for more than three years. Previous posts in this Blog discussed the recent Florida Supreme Court decision on the documentary stamp tax in the Crescent case. There is no maximum tax on these documents. It is interesting to note that the example assumes that the transfer of the LLC interest by one co-owner to her wholly-owned corporation was not subject to documentary stamp taxes. Thereafter, it is conceivable that in the future P would sell its membership interest in S LLC and that this pattern would continue for all future sales. The amendment to the statute accomplishes this result by creating the concept of a “conduit entity,” which is defined as a legal entity to which real property is conveyed without full consideration by a grantor who owns a direct or indirect interest in the entity, or a successor entity.13 The term “full consideration” means the consideration that would be paid in an arm’s length transaction between unrelated parties.14, The amended statute provides that when real property is conveyed to a conduit entity and all or a portion of the grantor’s direct or indirect ownership interest in the conduit entity is subsequently transferred for consideration within three years of such conveyance, then tax is imposed on each such transfer of a conduit entity interest for consideration at the rate of $.70 for each $100 or fraction thereof of the consideration paid or given in exchange for the ownership interest in the conduit entity.15, When an ownership interest is transferred in a conduit entity that owns assets other than the real property conveyed to the conduit entity, the tax is prorated on the percentage the value of such real property represents of the total value of all assets owned by the conduit entity.16. An exception is Miami-Dade County, where the rate is $.60 per $100 (or portion thereof) when the property is a single-family residence. Documentary Stamp Tax at $.70 per $100, rounded up, based on the total purchase price. Conclusion The 2007 and 2009 statutory revisions described in this article create new requirements and issues for Florida practitioners that deal with the conveyance of Florida real estate. After paying the tax, the transferee filed for a refund of the documentary stamp tax. in combination with transfers of ownership of, or distributions from, artificial entities. Another provision in the legislation addresses trust conversions and mergers. Example 5 gives the example of a transaction in which there are successive transfers of the conduit entity. The potential liabilities associated with real property can be significant, including environmental exposure and premises liability. Florida documentary tax stamp rates are the same in each county, with the exception of Miami-Dade. J. The first lesson to be drawn is that the DOR purports to reach the use of tiered structures to make indirect transfers of conduit entities. Lessons. In acquiring the ownership interests of an entity, the buyer assumes all known and unknown liabilities of the entity. © 2011-2016 Vitauts M. Gulbis Contact Me. The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in, . The Crescent decision resulted in the proliferation of transaction planning that avoided the imposition of the deed tax and caused a headache for property appraisers attempting to determine the valuation of Florida real property for ad valorem tax purposes.2 In response to the “abuse” of Crescent, the legislature amended §201.02 in 2009 to apply the Florida documentary stamp tax to the sale of ownership interests in an entity that owns Florida real property where such real property was conveyed to the entity within three years of sale.3 In addition, in 2007, the legislature enacted §193.1556 to require notice to property appraisers upon the change of control of certain entities owning Florida real estate. Otherwise, property must be inspected every five years.9 If a membership interest in a limited liability company is sold instead of the underlying real estate, the property could conceivably escape reassessment for a number of years following the transfer of the membership interest, because a new deed would not be recorded upon such transfer. Because there is a separate exception for gifts, the “estate planning” exception in the amendment likely refers to a sale to an irrevocable grantor trust that completes the transfer for estate tax purposes, but which is ignored for income tax purposes by application of the grantor trust rules. Fla. St. § 201.02 provides:This provision essentially piggybacks on the Internal Revenue Code grantor trust rules by treating transfers to grantor trusts as nontaxable events. The Emergency Rule implements Chapter 2009-131, Laws of Florida, which imposes a documentary stamp tax at the rate of 70¢ per US$100 (or fraction thereof) on any transfer of an ownership interest in a so-called "conduit entity" when the transfer occurs within three years of a post-July 1, 2009 transfer of Florida real property into the conduit entity. Therefore, the payment of the deed tax and the change of control disclosure should be addressed in due diligence checklists and in purchase and sale agreements, so that these items do not slip through the cracks when Florida real property is directly or indirectly conveyed as part of a transaction. ‘To inculcate in its members the principles of duty and service to the public, to improve the administration of justice, and to advance the science of jurisprudence.’ © 2021 The Florida Bar. Estate planners often refer to these irrevocable grantor trusts as “intentionally defective grantor trusts.”. Section 212.02(c) provides that the conversion or merger of a trust that is not a legal entity that owns real property in Florida into a legal entity is treated as a conveyance of real property. An interesting consequence of the Crescent decision is its impact on ad valorem taxes and the ability of property appraisers to determine the value of Florida real estate. 79 Fla. B. J. 2 Dist. Finally, the amendment to §201.02 provides that a transfer for purposes of estate planning by a natural person of an interest in a conduit entity to an irrevocable grantor trust as described in subpart E of part I of subchapter J of chapter 1 of subtitle A of the United States Internal Revenue Code is not subject to documentary stamp tax.20 There is no requirement that the transfer to such irrevocable grantor trusts be without consideration. Documentary stamp tax is levied on documents as provided under Chapter 201, Florida Statutes(F.S.). This makes it difficult for a county property appraiser to determine when the property has been sold. 76 Fla. B. J. at 42 (May 2002). In the state of Florida, when property is transferred, documentary stamp tax is assessed on any outstanding mortgage debt at a rate of 70 cents per every 100 dollars. On this point, the legislature stated: The Legislature recognizes that the Supreme Court’s opinion in Crescent is limited to the facts of the case and accepts the court’s interpretation of s. 201.02, Florida Statutes, that no consideration exists when owners of real property unencumbered by a mortgage convey an interest in such property to an artificial entity whose ownership is identical to the ownership of the real property before conveyance. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the consideration therefor. Irrevocable grantor trusts are frequently used in estate planning to create a vehicle that holds assets that are not included in the grantor’s estate for estate tax purposes, but treated as owned by the grantor for income tax purposes. There are a few exceptions to the 2009 Documentary Stamp Tax law, including an exception for transfers to grantor trusts. May 15, 1998), and as finally confirmed by the Florida Supreme Court in Crescent Miami Center LLC in 2005, transfers of Florida real property from owners to wholly-owned entities are not subject to Florida documentary stamp taxes, at least when the property is unencumbered. Documentary stamp tax is levied at the rate of $.70 per $100 (or portion thereof) on documents that transfer interest in Florida real property, such as warranty deeds and quit claim deeds. However, the subsequent sale of the ownership interest in such entity within three years of the conveyance of the Florida real property would be subject to the documentary stamp tax. If you do not want your E-mail address released in response to a public records request, do not send electronic mail to this entity. The provision in Section 689.071(4), F.S., which defines the interest of a beneficiary under a trust agreement to be personal property only, does not exempt a transfer of the beneficial interest in the trust from documentary stamp tax. in taxation at the University of Florida. Second, the transfer of shares or similar equity interests in a conduit entity which are dealt in or traded on public, regulated security exchanges or markets is not subject to tax.19 This provision apparently contemplates a conveyance of real property to a conduit entity, which becomes a public company within three years of transfer. 8 Jeff Ostrowski, Critics Push to Plug Hole in Tax Loophole, Palm Beach Post, August 12, 2007. The State of Florida has preserved a unique, arguably antiquated stream of revenue since 1931. He is board certified by The Florida Bar in taxation. First, a gift of an ownership interest in a conduit entity is not subject to tax to the extent that there is no consideration.17 This exception is consistent with the general rule that the documentary stamp tax does not apply to gifts of unencumbered realty.18. Example 4, gives the example of a transaction in which sellers make an indirect transfer by using a tiered structure to hold the real estate. , an entity which acquires Florida real property without payment of a documentary stamp is classified as a “conduit entity.” Transfers of interests in conduit entities within 3 years after the date on which the entity received the Florida real estate are subject to the documentary stamp tax. A documentary stamp tax will be due on the deed transferring the property in an amount equal to $1,400 ($200,000/100 x .70). 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