Fla. Stat. When real property is sold, the property is typically assessed the following January 1 in part based on the recorded sales price. 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. 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. For purposes of this section, consideration includes, but is not limited to, the money paid or agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed. tax on sales and rentals of many items, a 5% income tax on C corporation income, documentary stamp taxes on real estate transfers and mortgages, and intangible taxes on borrowing. Documentary stamp taxes are calculated at a rate of 70 cents for each $100 of consideration. The rate is equal to 70 cents per $100 of the deed's consideration. The grantor either gratuitously transfers assets to such trusts or sells assets to such trusts. 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. Center, LLC v. Florida Department of Revenue, holding that when unencumbered property is transferred from the owner to a wholly owned legal entity – such as a limited liability company or wholly owned partnership - it is not subject to the Florida documentary stamp tax. ~ From the Rules Regulating The Florida Bar, 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. S and P end up in the same exact place, except that the documentary stamp tax has been avoided. Beginning with Kuro, Inc. v. State, 713 So.2d 1021 (Fla.App. In general, documentary stamp taxes are: Determined based on the consideration given for the transfer. in accounting, J.D., and LL.M. The Florida documentary … Instead, contact this office by phone or in writing. The legislature addressed its stated concerns by amending §201.02 to confirm the essence of the Florida Supreme Court’s opinion in Crescent that a conveyance of unencumbered real property to an entity is not subject to documentary stamp tax. 2d 913 (Fla. 2005), interprets s. 201.02, Florida Statutes, in a manner that permits tax avoidance inconsistent with the intent of the Legislature at the time the statute was amended in 1990.”11. The Emergency Rule provides guidance on indirect transfers of LLC interests by providing an example of an indirect transfer and an example involving successive transfers. Documentary stamps are $5,250 calculated on the mortgage balance amount. Mortgages, liens, and other evidences of indebtedness 3 2009 Fla. Laws Ch. The documentary stamps are determined based upon the proportion of the corporation’s value which reflects the indirect interest in the real estate through the LLC. Most practitioners and real estate investors are familiar with the 2005landmark case Crescent Miami Center, LLC v. Florida Department of Revenue which, at its core, centered on the imposition of documentary stamp tax where an entity transfers property to another entity (where the grantor’s ownership interest in the selling entity is identical to the grantor’s ownership interest in the … Under Crescent, there was no documentary stamp tax due on steps one or three since each of these transfers is a mere book transaction where beneficial ownership of the property has not changed. This makes it difficult for a county property appraiser to determine when the property has been sold. First, it maintains the integrity of the three-year period during which the documentary stamp tax applies to the sale of conduit entities. For over half a century, Florida tax practitioners have struggled to answer a relatively simple question. 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. Prior to July 1, 2009, sellers of unencumbered Florida real estate were able to avoid the documentary stamp tax by first transferring the real estate to a limited liability company wholly-owned by the sellers, then transferring the LLC interests to the buyer. 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. 1 Bernard A. Barton, Jr., David P. Burke & Mitchell I. Horowitz, Kuro and Muben-Lamar in the Eye of the Beholder? Under Florida law, E-mail addresses are public records. 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. 2 Dist. The notification requirement provides the property appraiser with information concerning the sale of real property through entities so that a property’s assessed value for property tax purposes are determined by taking into account recent transactions that change beneficial ownership. The documentary stamp tax as applied to deeds conveying real property is set out in section 201.02(1), Florida Statutes (2003), which states: 79 Fla. B. J. In other words, you can calculate the transfer tax in the following way: (Total Price/$100) x.70 = Doc Stamps Cost So, let's say you live in Key West. 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. 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. 10 The Florida Legislature’s response is discussed later in this article. 2d 913 (Fla. 2005), that such conveyances are not subject to documentary stamp tax. Grantor trusts tax the grantor on trust income as though the grantor had retained the property instead of creating the trust. 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. She later sells the interests in the corporation which holds her interests in the underlying LLC. 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. 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? The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in Crescent. The American Influence on International Commercial Arbitration: Doctrinal Developments and Discovery Methods. On July 10, 2009, Calvin and Sally sold their ownership interests in the LLC. 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 failure to provide the required disclosure results in the ability of the property appraiser to determine for a period of 10 years that the assessed value of the property should have been higher as a result of the change in control transaction. No. No documentary stamp tax was due on the transfer of 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. The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in, . 2 Stephen G. Vogelsang and Adi Rappoport, Crescent — Did the Florida Supreme Court Effectively Repeal the Documentary Stamp Tax on Transfers of Real Estate? 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. If the consideration paid or given in exchange for real property or any interest therein includes property other than money, it is presumed that the consideration is equal to the fair market value of the real property or interest therein.4. ‘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.’ The purpose of this paragraph is to impose the documentary stamp tax on the transfer for consideration of a beneficial interest in real property. All rights reserved. (Note: the doc stamp rate is $.70 per $100 for all Florida counties except Miami-Dade where the rate is $.60 per $100. Florida’s Constitution prohibits a state income tax and would be very difficult to amend. (The Miami-Dade County rate is $.60 on all documents plus $.45 surtax on documents transferring anything other than a single-family residence). Section 201.02 of the Florida Statutes governs certain transfers or conveyances that are subject to documentary stamp taxes. Florida imposes a documentary stamp tax of 70 cents ($1.00 in Miami-Dade) per $100 of the purchase consideration for the sale of real estate located in Florida. CMC appealed the adverse summary judgment to the Third District Court of Appeal, which affirmed the order of the lower court in favor of the DOR. In acquiring the ownership interests of an entity, the buyer assumes all known and unknown liabilities of the entity. 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). In the wake of the Crescent decision, which was published during one of the most active real estate markets in Florida’s history, practitioners began structuring sales of Florida real property to avoid the imposition of Florida documentary stamp tax.8 The benefit of this planning approach is illustrated by the following example: Assume seller S and purchaser P have entered into a purchase and sale contract with a purchase price of $5 million in connection with the sale of real estate. The statute explicitly excludes the following transfers: Where the transfer of LLC interests is 3 years or more from the date that the real estate was contributed to the LLC; Where the transfer of conduit entity interests is a gift; Where the conduit entity is publicly traded; Where the conduit entity is transferred, as part of the estate planning of the grantor, to an irrevocable grantor trust. The three-year holding period in many ways diminishes the desirability of structuring a sale of real property through a conduit entity. The purchase and sale of ownership interests in an entity that owns Florida real estate may result in the imposition of deed tax and change of control disclosure obligations. He is board certified by The Florida Bar in taxation. Lessons. Generally, the grantor will either make an outright gift to such trust or make a small “seed” gift to the trust followed by a larger sale. 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. 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. The Florida Documentary Stamp Tax Florida imposes a documentary stamp tax on transfers of real estate by deed at a rate of $.70 per $100 or part thereof of consideration. 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. Bonds 3. Daniel J. Glassman is an associate in the Tax Practice Group at Gunster, Yoakley & Stewart, P.A. You should consult with your own attorney or other tax advisor before applying any of the content of this website to your individual situation. The second lesson is more taxpayer-favorable - that once documentary stamp taxes are paid on a transfer of interests of a conduit entity, successive transfers are not taxed. In Florida, the Department of Revenue charges “documentary stamp taxes” on real estate transactions. In addition to the payment of any increase in taxes during such 10-year period, the property owner would be required to pay interest at a 15 percent annual rate on such increase in taxes and a penalty of 50 percent of such increase in taxes.22. The provisions of this paragraph are to be construed liberally to effectuate this purpose. However, because the Supreme Court’s interpretation, combined with other settled law regarding the application of s. 201.02, Florida Statutes, allows for the tax-free transfer of ownership interests in real property from one owner to another through the use of artificial entities, it is the Legislature’s intent by this act to impose the documentary stamp tax when the beneficial ownership of real property is transferred to a new owner or owners by the use of techniques that apply the Supreme Court’s decision in Crescent in combination with transfers of ownership of, or distributions from, artificial entities.12. 2009-131, §4. While the legislature voiced its endorsement of the opinion issued by the Third District Court of Appeal in Crescent, which the legislature stated interpreted §201.02 in a manner that prevented tax avoidance, it also stated that it does not intend to overturn the Florida Supreme Court’s decision in Crescent with respect to the conveyance of unencumbered Florida real property to artificial entities. Regardless of where the deed or other document is signed and delivered, documentary stamp tax is due. For example, on real estate being purchased for $1 million, the … However, because the Supreme Court’s interpretation, combined with other settled law regarding the application of s. 201.02, Florida Statutes, allows for the tax-free transfer of ownership interests in real property from one owner to another through the use of artificial entities, it is the Legislature’s intent by this act to impose the documentary stamp tax when the beneficial ownership of real property is transferred to a new owner or owners by the use of techniques that apply the Supreme Court’s decision in. Under the grantor trust provisions, a grantor is taxed on trust income if the grantor retains a reversionary interest whose value is initially greater than five percent of the value of the trust or specified rights to control beneficial enjoyment of the corpus or income or if the grantor retains or vests in a nonadverse party certain administrative powers. Documentary stamp taxes are due on the transfer of 50% of the LLC interests to the second person. Documentary stamp tax (“doc stamps”) are important for Florida asset protection planning because this tax is potentially assessed whenever a person conveys property titled in his individual name into an asset protection entity wholly owned by the same transferor. After paying the tax, the transferee filed for a refund of the documentary stamp tax. He earned his B.S. Rappoport & Glassman, Documentary Stamp Tax: The Legislature Strikes Back, 48 Fla. Bar. CMC recorded the deed and paid documentary stamp tax on the full value of the conveyance. This example illustrates how the application of Crescent effectively repealed the documentary stamp tax for a significant number of real estate transactions. The buyer would typically prefer to acquire the real property outright. The State of Florida has preserved a unique, arguably antiquated stream of revenue since 1931. — The 10-cent tax increase in the documentary stamp tax levied by s. 2, chapter 92-317, does not apply to deeds and other taxable instruments relating to real property located in any county that has implemented the provisions of chapter 83-220, Laws of Florida, as amended by chapters 84-270, 86-152, and 89-252, Laws of Florida. 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. 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. Code R. 12B-4.014(2)(a) (2009). However, if the second person later sells her LLC interests to a third person, no documentary stamp taxes are due on the transfer to the third person, since documentary stamp taxes were paid on the transfer to the second person. This article discusses these two significant recent developments. The statute contains three notable exceptions from the application of documentary stamp tax on the conveyance of ownership interests of conduit entities within three years of the conveyance of real property to such entities. in taxation in 2008, both from the University of Florida College of Law. If the consideration paid or given in exchange for real property or any interest therein includes property other than money, it is presumed that the consideration is equal to the fair market value of the real property or interest therein, The Legislature recognizes that the Supreme Court’s opinion in, 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. © 2021 The Florida Bar. Instead, it objects to the concept that ownership interests in entities may be conveyed without the imposition of a Florida documentary stamp tax. DOCUMENTARY STAMP TAX: Add to MyFLRules Favorites: View Chapter: 12B-4. The stated purpose of the transfer was to segregate the property in order to … 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. 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. As an initial matter, it is difficult to properly define “a transfer for purposes of estate planning,” as estate planning itself is an extremely broad concept. the transfer was $30,000. Despite its long history, the Documentary Stamp Tax has continued to receive updates and shows no signs of being repealed in the future. The treatment of a merger or conversion as a conveyance potentially accomplishes two goals. The potential liabilities associated with real property can be significant, including environmental exposure and premises liability. The tax is imposed on a tax base equal to the consideration given for the transfer, rounded up to the nearest $100. He received his J.D., summa cum laude, in 2006 and his LL.M. 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. One of the sellers subsequently transfers her LLC interests to a corporation that she owns. Florida imposes a documentary stamp tax on deeds and other documents that transfer an interest in Florida real property. 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. 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. Ways diminishes the desirability of structuring a sale of real property through a conduit entity ” occurred after 1. 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