Grantor trusts tax the grantor on trust income as though the grantor had retained the property instead of creating the trust. That offers some support for the proposition that a transfer of interests in a conduit entity to another entity owned by the same person is not a taxable transaction. Mortgages, liens, and other evidences of indebtedness 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. Surtax 0.00 Florida Mortgage Doc Stamps 0.00 Florida Intangible Tax 0.00 Deed Doc Stamps 0.00 For example, on real estate being purchased for $1 million, the … Documentary stamps are $5,250 calculated on the mortgage balance amount. The stated purpose of the transfer was to segregate the property in order to … Code R. 12B-4.014(2)(a) (2009). 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. in combination with transfers of ownership of, or distributions from, artificial entities. The tax is called documentary stamp tax and is an excise tax on the deed or other instrument transferring the interest in real property. On November 3, 2011, the Florida DOR issued Emergency Rule 12B11-17 to provide guidance on application of the documentary stamp tax to such transfers of LLC interests. 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 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. 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. CMC recorded the deed and paid documentary stamp tax on the full value of the conveyance. Fla. Stat. Florida documentary tax stamp rates are the same in each county, with the exception of Miami-Dade. Estate planners often refer to these irrevocable grantor trusts as “intentionally defective grantor trusts.”. Hank transfers a Florida beach house valued at $1 million with a $750,000 mortgage balance to a LLC that is 100% owned by him. 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 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. 1. Despite its long history, the Documentary Stamp Tax has continued to receive updates and shows no signs of being repealed in the future. 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. 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. For over half a century, Florida tax practitioners have struggled to answer a relatively simple question. 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. Additionally, a documentary stamp tax will be imposed on the mortgage in the amount of $350 ($100,000/100 x .35). (Note: the doc stamp rate is $.70 per $100 for all Florida counties except Miami-Dade where the rate is $.60 per $100. Calculations. Under current law, Florida Statute 201.02 imposes documentary stamps on most conveyances between spouses, if there is an underlying mortgage. Florida’s Constitution prohibits a state income tax and would be very difficult to amend. 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. The grantor either gratuitously transfers assets to such trusts or sells assets to such trusts. The State of Florida has preserved a unique, arguably antiquated stream of revenue since 1931. The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in Crescent. She later sells the interests in the corporation which holds her interests in the underlying LLC. 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. Beginning with Kuro, Inc. v. State, 713 So.2d 1021 (Fla.App. The rate is equal to 70 cents per $100 of the deed's consideration. The American Influence on International Commercial Arbitration: Doctrinal Developments and Discovery Methods. Under the example, two sellers transfer the real estate into an LLC. Documentary stamp taxes are calculated at a rate of 70 cents for each $100 of consideration. 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. 1 Bernard A. Barton, Jr., David P. Burke & Mitchell I. Horowitz, Kuro and Muben-Lamar in the Eye of the Beholder? The DOR concludes that the transfer of stock in the corporation which holds the LLC interests is subject to documentary stamps. Florida imposes a transfer tax on the transfer of real property in Florida. 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 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. This website is optimized for use on a PC using Microsoft Internet Explorer. 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. Example 5 gives the example of a transaction in which there are successive transfers of the conduit entity. , 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. Documentary Stamp Tax at $.70 per $100, rounded up, based on the total purchase price. When real property is sold, the property is typically assessed the following January 1 in part based on the recorded sales price. However, because the Supreme Court’s interpretation, combined with other settled law regarding the application of s. 201.02, 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 … in taxation at the University of Florida. No documentary stamp tax was due on the transfer of Adi Rappoport is a shareholder of Gunster, Yoakley & Stewart, P.A., residing in the firm’s West Palm Beach office. 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. 2 Dist. 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 tax is imposed on a tax base equal to the consideration given for the transfer, rounded up to the nearest $100. 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. 2 Stephen G. Vogelsang and Adi Rappoport, Crescent — Did the Florida Supreme Court Effectively Repeal the Documentary Stamp Tax on Transfers of Real Estate? Instead, it objects to the concept that ownership interests in entities may be conveyed without the imposition of a Florida documentary stamp tax. Deeds and other documents that transfer an interest in Florida real property are subject to documentary stamp tax. 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. Documentary stamp tax is levied on documents as provided under Chapter 201, Florida Statutes(F.S.). The fed- eral government imposed a documentary stamp tax on transfers of real property deeds until the tax was re- pealed in 1967. This article discusses these two significant recent developments. Lessons. 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. Under. 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. The deed stated that CMC paid $10 and “other good and valuable consideration” for the property. Thus, the provision excludes from documentary stamp tax a transaction that for state law purposes is a sale for consideration, but which is ignored under a fiction created by federal tax law. Deeds 2. All rights reserved. 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. If you are using any other web browsers, this site may not appear or function as designed. 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. in taxation in 2008, both from the University of Florida College of Law. ‘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.’ 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. The three-year holding period in many ways diminishes the desirability of structuring a sale of real property through a conduit entity. 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. 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. The treatment of a merger or conversion as a conveyance potentially accomplishes two goals. A change of ownership or control generally means any sale, foreclosure, transfer of legal title or beneficial title in equity to any person, or the cumulative transfer of control or of more than 50 percent of the ownership of the legal entity that owned the property when it was most recently assessed at just value.21 The change of ownership is reported on Form DR-430, Notice of Change of Ownership or Control Non-Homestead Property, by the owner to the property appraiser in the county where the property is located. 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. Outside of Miami-Dade County, the transfer tax rate is 70 cents per $100 of the deed's consideration. The potential liabilities associated with real property can be significant, including environmental exposure and premises liability. 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. The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in, . Under Florida law, E-mail addresses are public records. Under the example, one person transfers real estate to his wholly-owned LLC, and within 3 years transfers 50% of the LLC to a second person. 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. 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. . On November 3, 2011, the Florida DOR issued Emergency Rule 12B11-17 to provide guidance on application of the documentary stamp tax to such transfers of LLC interests. The purpose of this paragraph is to impose the documentary stamp tax on the transfer for consideration of a beneficial interest in real property. The Florida Department of Revenue (DOR) denied the application, and the transferee filed suit in Miami-Dade Circuit Court challenging the DOR’s refund denial. 44 (Oct. 2005). Over the years the answer to this question has shifted from “no” to “yes” and back to “no” as Florida courts and the Florida Legislature interpreted and refined the concepts of “purchaser” and “consideration” for purposes of the deed tax.1 The most recent (and presumably final) answer to this question came in 2005, when the Florida Supreme Court held in Crescent Miami Center, LLC v. Florida Department of Revenue, 903 So. 10 The Florida Legislature’s response is discussed later in this article. Absent any documentary stamp tax planning, the sale of the real estate would generate a documentary stamp tax of $35,000. Documentary stamp taxes are due on the transfer of 50% of the LLC interests to the second person. After paying the tax, the transferee filed for a refund of the documentary stamp tax. 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. In addition, the statute borrows the federal income tax concept of “grantor trusts” to define a nontaxable transfer. This example illustrates how the application of Crescent effectively repealed the documentary stamp tax for a significant number of real estate transactions. The law is effective where the first transfer to a “conduit entity” occurred after July 1, 2009. (The Miami-Dade County rate is $.60 on all documents plus $.45 surtax on documents transferring anything other than a single-family residence). 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. 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. No attorney-client relationship is established through the use of this site or any e-mail or other communication to the author. The Documentary Stamp Tax also applies to documents executed or delivered in the state of Florida. The stated purpose of the transfer was to segregate the property in order to facilitate future unsecured financing. 2d 913 (Fla. 2005), that such conveyances are not subject to documentary stamp tax. He is board certified by The Florida Bar in taxation. 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 Crescent, the Florida Supreme Court addressed the application of the Florida documentary tax to the conveyance of a commercial building located in downtown Miami from a limited partnership to a wholly owned, second-tier subsidiary limited liability company called Crescent Miami Center, LLC (CMC). The Florida Documentary Stamp is a tax levied in Florida on documents that transfer a property interest in Florida. Documents subject to the tax include: 1. The 2007 Notice of Change of Control Legislation In 2007, the Florida Legislature enacted §193.1556, which requires any person or entity that owns nonhomestead real property to promptly notify the property appraiser of any change of ownership or control. 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. Secondly, this provision likely eliminates the ability to avoid documentary stamp tax by conveying Florida real property to an out-of-state business trust, which then merges into a Florida entity. Another provision in the legislation addresses trust conversions and mergers. 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. 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. 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 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. 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. 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. The tax rate for documents that transfer an interest in real property is $.70 per $100 (or portion thereof) of the total consideration paid, or to be paid, for the transfer. Bonds 3. This includes when property is transferred from one spouse to another. The Florida documentary … In such case, the documentary stamp tax would not apply to the grantor’s sale of ownership interests in such public company. 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 … First, it maintains the integrity of the three-year period during which the documentary stamp tax applies to the sale of conduit entities. 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. He received his J.D., summa cum laude, in 2006 and his LL.M. In general, documentary stamp taxes are: Determined based on the consideration given for the transfer. Cancellation of Indebtedness; Debt for Equity Exchange, Voluntary Worker Classification Settlement Program. 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. 2009-131, §4. 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. 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. Rappoport & Glassman, Documentary Stamp Tax: The Legislature Strikes Back, 48 Fla. Bar. © 2011-2016 Vitauts M. Gulbis Contact Me. 9, p. 52 (Nov. 2010), Tags: Limited liability company|Florida|Documentary Stamp Tax, The content of this site is intended to provide information, not legal or tax advice. On July 10, 2009, Calvin and Sally sold their ownership interests in the LLC. 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. 3 2009 Fla. Laws Ch. DOCUMENTARY STAMP TAX: Add to MyFLRules Favorites: View Chapter: 12B-4. 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. For example, on real estate being purchased for $1 million, the documentary stamp taxes are $7,000 (or $10,000 in Miami-Dade). 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. 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. 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 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. 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. On November 3, 2011, the Florida DOR issued Emergency Rule 12B11-17 to provide additional guidance on application of the documentary stamp tax to such transfers of LLC interests. The County Clerk collects this tax when the document transferring property is recorded. 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. An exception is Miami-Dade County, where the rate is $.60 per $100 (or portion thereof) when the property is a single-family residence. 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. The provisions of this paragraph are to be construed liberally to effectuate this purpose. 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. Under the example of a merger or conversion as a conveyance potentially two. In acquiring the ownership interests in the same exact place, except that the transfer of 50 % the. Fla. Bar she owns to 70 cents for each $ 100 of the LLC 42 ( may 2002.... Tax at $.70 per $ 100, rounded up to the facts in Crescent Yoakley Stewart!, August 12, 2007 an exception for transfers to grantor trusts as “ intentionally defective grantor trusts... 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