Documentary stamp tax: the legislature strikes back.

• Author: Rappoport, Adi
• Position: Tax Law

For over half a century, Florida tax practitioners have struggled to answer a relatively simple question. 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? 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. 2d 913 (Fla. 2005), that such conveyances are not subject to documentary stamp tax.

The Crescent decision resulted in the proliferation of transaction planning that avoided the imposition of the deed tax and caused a headache for property appraisers attempting to determine the valuation of Florida real property for ad valorem tax purposes. (2) In response to the "abuse" of Crescent, the legislature amended [section] 201.02 in 2009 to apply the Florida documentary stamp tax to the sale of ownership interests in an entity that owns Florida real property where such real property was conveyed to the entity within three years of sale. (3) In addition, in 2007, the legislature enacted [section] 193.1556 to require notice to property appraisers upon the change of control of certain entities owning Florida real estate. This article discusses these two significant recent developments.

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. 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. (4)

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). The stated purpose of the transfer was to segregate the property in order to facilitate future unsecured financing. The deed stated that CMC paid $10 and "other good and valuable consideration" for the property. CMC recorded the deed and paid documentary stamp tax on the full value of the conveyance.

After paying the tax, the transferee filed for a refund of the documentary stamp tax. 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. Both parties moved for summary judgment in the circuit court, and final summary judgment was entered in favor of the DOR. 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.

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. 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...