Rappoport & Glassman, Documentary Stamp Tax: The Legislature Strikes Back, 48 Fla. Bar. 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 first lesson to be drawn is that the DOR purports to reach the use of tiered structures to make indirect transfers of conduit entities. 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. Florida documentary tax stamp rates are the same in each county, with the exception of Miami-Dade. 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. She later sells the interests in the corporation which holds her interests in the underlying LLC. 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. When real property is sold, the property is typically assessed the following January 1 in part based on the recorded sales price. 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. 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. He is board certified by The Florida Bar in taxation. The documentary stamp tax as applied to deeds conveying real property is set out in section 201.02(1), Florida Statutes (2003), which states: The legislature was probably aware of this dynamic in requiring a three-year holding period. Deeds 2. This column is submitted on behalf of the Tax Section, Guy E. Whitesman, chair, and Michael D. Miller and Benjamin Jablow, editors. 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. 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. 2 Stephen G. Vogelsang and Adi Rappoport, Crescent — Did the Florida Supreme Court Effectively Repeal the Documentary Stamp Tax on Transfers of Real Estate? For example, on real estate being purchased for $1 million, the … The Documentary Stamp Tax also applies to documents executed or delivered in the state of Florida. Calculations. According to the court, there was no consideration or purchaser with respect to the transfer of the property to CMC, since “nothing was exchanged by CMC for the grant of property from [the transferor]; [and] thus, there was no consideration or purchaser in the transaction, just a ‘mere change in form of the stockholder’s equity in the corporation.’”5 Furthermore, the court stated “[t]he argument that the increase in the value of [the transferor’s] interest in CMC constituted consideration is not persuasive, as this increased interest resulted from the transfer and was not the consideration for making the transfer.”6 The Florida Supreme Court quashed the Third District Court of Appeal’s decision and remanded the case to the district court for further consideration consistent with the Florida Supreme Court’s opinion.7. Instead, it objects to the concept that ownership interests in entities may be conveyed without the imposition of a Florida documentary stamp tax. 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. 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. Example 5 gives the example of a transaction in which there are successive transfers of the conduit entity. Despite its long history, the Documentary Stamp Tax has continued to receive updates and shows no signs of being repealed in the future. The Florida documentary stamp tax applies to transfers of interests in Florida LLCs which hold real estate acquired on or after July 1, 2009 if the real estate was acquired by the LLC without the payment of documentary stamp taxes. 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. In addition, the statute borrows the federal income tax concept of “grantor trusts” to define a nontaxable transfer. 2d 913 (Fla. 2005), that such conveyances are not subject to documentary stamp tax. 79 Fla. B. J. © 2011-2016 Vitauts M. Gulbis Contact Me. This article discusses these two significant recent developments. 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. Outside of Miami-Dade County, the transfer tax rate is 70 cents per $100 of the deed's consideration. 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. Florida’s Constitution prohibits a state income tax and would be very difficult to amend. One of the sellers subsequently transfers her LLC interests to a corporation that she owns. The DOR concludes that the transfer of stock in the corporation which holds the LLC interests is subject to documentary stamps. 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 Florida Supreme Court held that the documentary stamp tax did not apply to the conveyance to CMC because the transaction lacked “consideration” and a “purchaser” as required by the statute. 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. 10 The Florida Legislature’s response is discussed later in this article. 18 Fla. Admin. The fed- eral government imposed a documentary stamp tax on transfers of real property deeds until the tax was re- pealed in 1967. 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. Florida imposes a transfer tax on the transfer of real property in Florida. Transfers her LLC interests to a corporation that she owns with the exception of Miami-Dade county the... 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