18 Fla. Admin. 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. For example, on real estate being purchased for $1 million, the documentary stamp taxes are $7,000 (or $10,000 in Miami-Dade). In such case, the documentary stamp tax would not apply to the grantor’s sale of ownership interests in such public company. 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. 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. 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. The law is effective where the first transfer to a “conduit entity” occurred after July 1, 2009. This article discusses these two significant recent developments. Estate planners often refer to these irrevocable grantor trusts as “intentionally defective 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. Florida imposes a documentary stamp tax on deeds and other documents that transfer an interest in Florida real property. This includes when property is transferred from one spouse to another. 10 The Florida Legislature’s response is discussed later in this article. 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. 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. Although this has been included to facilitate “estate planning,” it is not entirely clear what this provision accomplishes. 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. Instead, it objects to the concept that ownership interests in entities may be conveyed without the imposition of a Florida documentary stamp tax. , 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. S and P end up in the same exact place, except that the documentary stamp tax has been avoided. 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. 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. 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. 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. The tax is called documentary stamp tax and is an excise tax on the deed or other instrument transferring the interest in real property. Fla. Stat. Florida documentary tax stamp rates are the same in each county, with the exception of Miami-Dade. In general, documentary stamp taxes are: Determined based on the consideration given for the transfer. 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. The Crescent Case and Its Aftermath 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). He received his J.D., summa cum laude, in 2006 and his LL.M. 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. Bonds 3. Documentary stamp taxes did not apply to the transfer of the LLC interests. Absent any documentary stamp tax planning, the sale of the real estate would generate a documentary stamp tax of $35,000. 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. 2009-131, §4. Since documentary stamp tax must be of concern in every conveyance of Florida real property, let's take a closer look at what it is and how it is assessed. 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. Despite its long history, the Documentary Stamp Tax has continued to receive updates and shows no signs of being repealed in the future. 2 Stephen G. Vogelsang and Adi Rappoport, Crescent — Did the Florida Supreme Court Effectively Repeal the Documentary Stamp Tax on Transfers of Real Estate? No attorney-client relationship is established through the use of this site or any e-mail or other communication to the author. Regardless of where the deed or other document is signed and delivered, documentary stamp tax is due. Surtax 0.00 Florida Mortgage Doc Stamps 0.00 Florida Intangible Tax 0.00 Deed Doc Stamps 0.00 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. 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. 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. There are a few exceptions to the 2009 Documentary Stamp Tax law, including an exception for transfers to grantor trusts. — 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. . 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. 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