florida documentary stamp tax transfer to llc

Posted: January 10, 2021 By:

(Note: the doc stamp rate is $.70 per $100 for all Florida counties except Miami-Dade where the rate is $.60 per $100. However, the transaction could alternatively be structured as follows: 1) S contributes the real estate to a wholly owned, special purpose limited liability company formed solely for the transaction, S LLC; 2) S then sells the membership interests in S LLC to P for the $5 million purchase price; 3) P then dissolves S LLC and takes title to the real estate. 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. 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. Under the example, two sellers transfer the real estate into an LLC. 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. 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 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 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. Surtax 0.00 Florida Mortgage Doc Stamps 0.00 Florida Intangible Tax 0.00 Deed Doc Stamps 0.00 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. in accounting, J.D., and LL.M. Both parties moved for summary judgment in the circuit court, and final summary judgment was entered in favor of the DOR. 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. Although this has been included to facilitate “estate planning,” it is not entirely clear what this provision accomplishes. 44 (Oct. 2005). , 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. The Florida documentary … 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. 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 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. 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. 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. The County Clerk collects this tax when the document transferring property is recorded. DOCUMENTARY STAMP TAX: Add to MyFLRules Favorites: View Chapter: 12B-4. Estate planners often refer to these irrevocable grantor trusts as “intentionally defective grantor trusts.”. Florida imposes a documentary stamp tax on deeds and other documents that transfer an interest in Florida real property. the transfer was $30,000. 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. The fed- eral government imposed a documentary stamp tax on transfers of real property deeds until the tax was re- pealed in 1967. . in taxation in 2008, both from the University of Florida College of Law. 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. 10 The Florida Legislature’s response is discussed later in this article. Documentary stamp taxes are due on the transfer of 50% of the LLC interests to the second person. 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 tax is imposed on a tax base equal to the consideration given for the transfer, rounded up to the nearest $100. 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. 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. Lessons. 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. 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. For example, on real estate being purchased for $1 million, the … 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 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. When real property is sold, the property is typically assessed the following January 1 in part based on the recorded sales price. 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. In Florida, the Department of Revenue charges “documentary stamp taxes” on real estate transactions. Cancellation of Indebtedness; Debt for Equity Exchange, Voluntary Worker Classification Settlement Program. In general, documentary stamp taxes are: Determined based on the consideration given for the transfer. In such case, the documentary stamp tax would not apply to the grantor’s sale of ownership interests in such public company. No attorney-client relationship is established through the use of this site or any e-mail or other communication to the author. ‘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.’ 2 Dist. 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. 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. 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. Beginning with Kuro, Inc. v. State, 713 So.2d 1021 (Fla.App. 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. The stated purpose of the transfer was to segregate the property in order to … No documentary stamp tax was due on the transfer of For over half a century, Florida tax practitioners have struggled to answer a relatively simple question. 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. Documentary stamp tax is levied on documents as provided under Chapter 201, Florida Statutes(F.S.). 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. 2009-131, §4. The deed stated that CMC paid $10 and “other good and valuable consideration” for the property. A taxpayer cannot avoid the result by conveying Florida real property to a trust, which then converts or merges into a Florida entity. Example 5 gives the example of a transaction in which there are successive transfers of the conduit entity. There are a few exceptions to the 2009 Documentary Stamp Tax law, including an exception for transfers to grantor trusts. He earned his B.S. 2 Stephen G. Vogelsang and Adi Rappoport, Crescent — Did the Florida Supreme Court Effectively Repeal the Documentary Stamp Tax on Transfers of Real Estate? Absent any documentary stamp tax planning, the sale of the real estate would generate a documentary stamp tax of $35,000. Instead, contact this office by phone or in writing. 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. 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. 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 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. Regardless of where the deed or other document is signed and delivered, documentary stamp tax is due. in combination with transfers of ownership of, or distributions from, artificial entities. She later sells the interests in the corporation which holds her interests in the underlying LLC. 79 Fla. B. J. Under Florida law, E-mail addresses are public records. Under current law, Florida Statute 201.02 imposes documentary stamps on most conveyances between spouses, if there is an underlying mortgage. Under. 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. 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. Fla. Stat. 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. 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. Deeds 2. Calculations. 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. After paying the tax, the transferee filed for a refund of the documentary stamp tax. 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 rate is equal to 70 cents per $100 of the deed's consideration. 18 Fla. Admin. 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. The law is effective where the first transfer to a “conduit entity” occurred after July 1, 2009. Documents subject to the tax include: 1. 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 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. If you are using any other web browsers, this site may not appear or function as designed. In acquiring the ownership interests of an entity, the buyer assumes all known and unknown liabilities of the 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 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. 201.02. 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