Crescent - did the Florida Supreme Court effectively repeal the documentary stamp tax on transfers of real estate?

• Author: Vogelsang, Stephen G.

The Florida Supreme Court on May 19, 2005, issued a 7-0 decision in Crescent Miami Center, LLC v. Florida Department of Revenue, 903 So. 2d 913 (Fla. 2005), holding that a transfer of real estate from a parent transferor to its wholly owned transferee, absent any exchange of value, is not subject to the Florida documentary stamp tax on deeds. The Florida Supreme Court's opinion reversed the Third District Court of Appeal's decision in the case. (1)

As described in this article, the Crescent decision may result in the Florida documentary stamp tax applying to substantially fewer transfers of Florida real estate.

Florida Documentary Stamp Tax

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. 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. 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. 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. 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. (Emphasis added.) (2)

The prima facie elements for the application of documentary stamp tax are a conveyance of an interest in real property to a purchaser for consideration.

The Florida Supreme Court granted review of the Third District's decision in Crescent based on a direct conflict with the Second District Court of Appeal's decision in Kuro, Inc. v. State Department of Revenue, 713 So. 2d 1021 (Fla. 2d DCA 1998), appeal dismissed, 728 So. 2d 201 (Fla. 1998). The conflict resulted from each court's differing conclusions regarding whether there is a "purchaser" or "consideration" when a grantor transfers real estate to a wholly-owned transferee. (3)

Second District Opinion in Kuro

In Kuro, a father and son were equal owners of the stock of Kuro, Inc., and were likewise equal owners of eight unencumbered condominium units. The father and son transferred the condominium units by warranty deed to Kuro to avoid exposure to potential personal liability arising from the management of the properties. Each deed recited nominal consideration of $10. Kuro paid the minimum documentary stamp tax on each transaction. On audit, the DOR determined that additional documentary stamp taxes were due. Kuro filed a protest, which resulted in a formal hearing before an administrative law judge, who recommended the assessment of additional documentary stamp taxes. The DOR entered a final order, adopting the recommendation of the administrative law judge, and Kuro appealed the final order. The DOR argued on appeal that the stock issued by Kuro to the transferors constituted consideration of property other than money, which is presumed to be equal to the fair market value of the condominiums. The Second District found that the presumption set forth in the statute is a rebuttable presumption and further determined that Kuro successfully rebutted the presumption. The Second District further concluded that Kuro was not a "purchaser" within the meaning of the statute. The court cited the Florida Supreme Court's decision in Florida Department of Revenue v. De Maria, 338 So. 2d 838 (Fla. 1976), in which the court defined "purchaser" under the statute as "one who obtains or acquires property by paying an equivalent in money or other exchange in value." (4) The Second District noted that Kuro paid nothing for the transfer of the condominiums and the beneficial ownership of the land remained unchanged. The transfers were mere book transactions and were not sales to a purchaser as contemplated in the statute. The Second District reversed the Florida Department of Revenue's final order.

The Crescent Facts

The Crescent case arose from the transfer of a 35-story downtown Miami office building, known as Miami Center. Before the transfer, Miami Center was owned by Crescent Real Estate Equities, LP (Crescent Equities), an affiliate of a publicly traded real estate investment trust. On February 24, 2000, Crescent Equities formed Crescent Miami Center, LLC (CMC). Crescent Equities then transferred 99.9 percent of its interest in CMC to Crescent Real Estate Funding IX, LP (Crescent Funding) and 0.1 percent of its interest in CMC to CRE Management IX, LLC (CRE). On the same day, CRE transferred its 0.1 percent interest in CMC to Crescent Funding, so that Crescent Funding became the sole owner of CMC. Crescent Equities was the sole limited...