Did Florida documentary stamp tax apply to pay-as-cut timber contracts with and without an advance payment?

Plain-English summary

Florida treated both pay-as-cut contracts as conveyances of an interest in Florida real property, but tax depended on consideration. The contracts granted more than a revocable license to enter and cut timber; their language transferred timber and possession rights.

The contract with an advance payment owed documentary stamp tax measured by that payment. The otherwise similar contract without an advance payment owed no tax at that time because it had no consideration with a reasonably determinable monetary value.

What this means for you

The title of a timber agreement does not control. Florida examines the property rights conveyed and then measures documentary stamp tax by money, debt, encumbrances, or other determinable consideration.

Common questions

Q: Was the no-advance contract merely a license? No. The Department found that it also conveyed an interest in real property.

Q: Why was no tax due on that contract? It had no reasonably determinable consideration on which to calculate the tax.

Citations and references

• Fla. Stat. § 201.02(1) — tax on real-property conveyances
• Fla. Admin. Code r. 12B-4.013(9) — timber contracts
• Fla. Admin. Code r. 12B-4.012(2)(a) — consideration
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02B4-012

Original ruling text

SUMMARY

QUESTION: Is Florida's documentary stamp tax, as imposed
under section 201.02(1), F.S., due on certain "Pay As Cut"
contracts, where some contracts have an advance payment and
some do not.

ANSWER - Based on Facts Below: Section 201.02(1), F.S.,
imposes documentary stamp tax on instruments that convey an
interest in Florida real property. The tax is based on the
consideration given or to be given for the conveyance.
Where there is no consideration there is no tax. Each of
the contracts reviewed evidence a conveyance of interest in
Florida real property with each subject to documentary
stamp tax on the consideration for the conveyance. The
contract with an advance payment was a conveyance with
consideration and tax was due on the amount of the advance
payment. The contract with no advance payment was a
conveyance with no consideration and no tax was due.

Dec 10, 2002

Re: Technical Assistance Advisement No. 02B4-012
Documentary Stamp Tax - Pay As Cut Timber Purchase Contract
Section 201.02(1), F.S.
XXX ("Taxpayer")

Dear :

This is in response to your letter dated October 1, 2002,
requesting a Technical Assistance Advisement regarding
application of Florida's documentary stamp tax as imposed under
s. 201.02(1), F.S., upon instruments referred to as Pay As Cut
Timber Purchase Contracts. Two instruments, each titled "PAY AS
CUT CONTRACT," one with an advance payment (hereinafter referred
to as "Contract With Advance Payment") and one without an
advance payment (hereinafter referred to as "Contract Without
Advance Payment") are to be ruled on under this advisement. The

Contract With Advance Payment and The Contract Without Advance
Payment are jointly referred to hereafter as "Contracts."

Facts as Presented by Petitioner

Taxpayer, on a routine basis, purchases cut timber from
landowners and pays on a pay-as-cut basis. The Contracts are
used for that purpose, and fully express the terms and
conditions of the purchase and sale agreement. In each
contract, Taxpayer is the "Purchaser" and the landowner is the
"Seller."

In short, the Seller owns a parcel of real property with
merchantable timber growing upon it. The Seller agrees for his
or her merchantable timber to be cut. Once cut, Taxpayer agrees
to purchase it, remove it from the property, and haul it to a
mill for sale. Taxpayer then pays the landowner for the timber
based upon the quantity or volume of timber weighed at the
mill's scale. The amount paid is based upon the schedule of
values contained within the contract, multiplied by the quantity
or volume of timber weighed. The Seller grants Taxpayer a
license to be upon the landowner's property for the purpose of
Taxpayer completing its activities, if and when conducted.

The only difference between the Contracts relates to the
payment of an advance, which is paid by Taxpayer to the Seller
at the time the Seller signs the contract. One contract, The
Contract With Advance Payment, contains a paragraph that
controls the advance payment, and the other contract, The
Contract Without Advance Payment, is identical with the
exception that the paragraph controlling an advance payment is
not included.

Request for Advisement

Taxpayer requests a Technical Assistance Advisement that
provides that the Contracts do not constitute instruments
subject to tax under s. 201.02, F.S.

Law and Discussion

Section 201.02(1), F.S., imposes documentary stamp tax on
deeds or other instruments that convey an interest in Florida
real property. The tax is based on the consideration for the
conveyance and is at the rate of 70 cents for each $100 or
fractional part thereof of the consideration for the conveyance.
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 on the property.

Rule 12B-4.013(9), F.A.C., states:

Timber, Oil, Gas, and Mineral - Contracts or Assignments:
Contracts, agreements, leases, and other documents
conveying any interest in standing timber, pine stumps, oil
or gas leases and assignments or conveyances of oil, gas,
mineral rights or royalty interests affecting lands in this
state are subject to tax....

Rule 12B-4.012(2)(a), F.A.C., states:

"Consideration" under s. 201.02, F.S., includes, but shall
not be limited to money paid or to be paid, the amount of
any indebtedness discharged by a transfer of any interest
in real property, mortgage indebtedness and other
encumbrances which the real property interest being
transferred is subject to, notwithstanding the transferee
may be liable for such indebtedness. Where property other
than money is exchanged for interests in real property,
there is the presumption that the consideration is equal to
the fair market value of the real property interest being
transferred.

Documentary stamp tax is due on any instrument, including
an instrument commonly referred to as Pay As Cut Timber Purchase
Contract, that conveys Florida real property or the standing
timber, pine stumps, oil, gas or mineral rights or royalty
thereon. The tax is due on the total consideration for the
conveyance. No tax is due where there is no consideration for
the conveyance.

Attorney General Opinion 062-114, dated August 29, 1962,
determined that standing trees are real property and that the
conveyance, by a landowner, of resinous dead stumps and timber,
standing timber, and other products of the land, to another,
amounts to a transfer or conveyance of lands, tenements or other
realty within the purview of s. 201.02, F.S. This opinion
provided that "(t)he application of the documentary stamp
statutes of this state to written agreements providing for the
taking of timber and timber products from lands depends largely
upon the nature and context of the agreement or agreements in
question. If the agreement is in law a sale and conveyance of
the timber, and not a mere license to enter and take timber, it
is a conveyance of an interest in land or realty, within the
purview of s. 201.02, and subject to taxation thereunder." This
opinion concluded that a license to cut and remove timber is not
subject to the documentary stamp tax but, as the opinion
provides, "(u)nder a license to take timber... there is no sale
of the timber unless and until it is severed from the land by
the licensee."

An examination of the Contracts reveals that each is not
simply a license to use Florida real property, but instead each
is actually a conveyance of the property. Examples of language
in the Contracts that make each a conveyance of real property
and not just a license include, but are not limited to, "SELLER
hereby sells to the PURCHASER all of the cut timber and trees
located upon the "subject property" (emphasis added)..." (found
on Page 1 under WITNESSETH); "SELLER grants to PURCHASER an
exclusive license... to enter upon the subject property for the
purpose of removing the cut timber and trees thereon, and in so
doing may also cut any timber or trees growing upon the subject
property (emphasis added)..." (found on Page 1 (section 1)); and
"Purchaser shall have the right to cut, use, and remove any
timber, trees ...." (found on Page 2 (section 1)).

AGO 062-114 also provides that "(a) license in real
property may be defined as a personal and unassignable, and
ordinarily revocable, privilege conferred either by writing or
parol to do one or more acts on land without possessing an
interest therein. Indeed the distinguishing characteristic of a
license is that it gives no interest in land and that it may

rest in parol." Each Contract provides, under section 10 on
Page 4, that the Seller "will place and keep PURCHASER in
peaceful possession of the subject property for the full term of
this Contract (emphasis added)...," language that confers upon
the purchaser more than a simple license to take timber.

Position of the Department

A review of the Contracts and other instruments provided
with your request concludes that the Contract With Advance
Payment and the Contract Without Advance Payment are instruments
that convey an interest in Florida real property under the
purview of s. 201.02(1), F.S. Documentary stamp tax is due on
the Contract With Advance Payment based on the advance payment,
since that amount is determinable consideration. No documentary
stamp tax is due on the Contract Without Advance Payment, even
though the instrument conveys an interest in Florida real
property, since there is no consideration with a reasonably
determinable pecuniary value.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department

within 15 days of the date of this letter.

Sincerely,

Charles T. Phillips
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

CTP/mh