Was documentary stamp tax due when spouses transferred unencumbered property to their identically owned LLCs?

Plain-English summary

No documentary stamp tax was due on the proposed transfers. The spouses owned the unencumbered properties as tenants by the entireties, would own each LLC in the same proportions, and would receive no money, property, or additional membership interests for the transfers.

The Department applied Kuro: because beneficial ownership remained unchanged and there was no other consideration, the fair-market-value presumption was overcome.

What this means for you

An entity transfer is not automatically tax-free. This result depended on unchanged beneficial ownership, unencumbered property, and no other consideration.

Common questions

Q: Would the same result necessarily apply if a mortgage remained on the property? No. This ruling involved unencumbered property, and section 201.02 treats an encumbrance as consideration.

Q: Did the spouses receive new LLC interests for the deeds? No. The stated plan issued the membership interests before the transfers and provided no additional interests for the property.

Citations and references

• Fla. Stat. § 201.02(1) — tax and consideration for real-property conveyances
• Kuro Inc. v. Department of Revenue, 713 So. 2d 1021 (Fla. 2d DCA 1998)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02B4-013

Original ruling text

SUMMARY

QUESTION: Is Florida's documentary stamp tax, as imposed
under section 201.02(1), F.S., due on an instrument
conveying interest in Florida real property from spouses
into a limited liability company of which the husband and
wife are the sole members?

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 consideration is other than money the consideration
is deemed to be equal to the fair market value of the
property conveyed. In Kuro Inc. v. Department of Revenue,
713 So. 2nd 1021 (Fla. 2nd DCA 1998), the court rendered a
decision regarding taxability of an instrument conveying
Florida real property from two individuals into their
wholly owned corporation. The court stated that the
beneficial ownership of the real property was unchanged and
that there was no "purchase" within the meaning of s.
201.02(1), F.S., and therefore, no tax due. Essentially,
the presumption that the consideration was equal to the
fair market value of the property conveyed was overcome.
The Department applies the Kuro decision to certain
conveyance between individuals and artificial entities such
as limited liability companies. An instrument conveying
unencumbered Florida real property from a husband and wife
to a limited liability company, where the interest held by
the husband and the interest held by the wife in the
limited liability company are identical to the interest
that each held in the Florida real property at the time of
the conveyance, is not subject to tax, so long as there is
no other consideration.

Dec 10, 2002

Re: Technical Assistance Advisement No. 02B4-013

Documentary Stamp Tax - Conveyance of Florida Real Property
from husband and wife to a limited liability company.
Section 201.02(1), F.S.
XXX ("Taxpayers")

Dear :

This is in response to your letter dated October 11, 2002,
requesting a Technical Assistance Advisement regarding
application of Florida's documentary stamp tax as imposed under
s. 201.02(1), F.S., upon an instrument to be delivered in the
future that will convey interest in Florida real property from
Taxpayers to a limited liability company.

Facts as Presented by Petitioner

Taxpayers are married individuals and are residents of the
State of Florida. Taxpayers are the sole owners of three
parcels of real property (collectively referred to as the
"Properties") located in the State of Florida. Taxpayers hold
title to the Properties in their individual names, as tenantsby-the-entireties.

The legal descriptions for the Properties are attached to
the TAA request.

Taxpayers have owned the Properties for several years, and
the Properties (which are currently unencumbered by mortgages)
have been leased by Taxpayers to unrelated third-party lessees.
In order to avoid exposure to potential liability arising from
the ownership of the Properties in their individual names,
Taxpayers intend to form three Florida limited liability
companies ("LLCs") and transfer title to the Properties to the
LLCs (one LLC for each of the Properties).

The transfers described above will be made after the LLCs
have been formed and after the membership interests have been
issued. Taxpayers will not receive any consideration for the
transfers in the form of money, tangible property or additional
interests issued in the LLCs. After the transfers, Taxpayers
will own the interests in the LLCs as tenants-by-the-entireties,

and in the same proportions as they owned the underlying
Properties before the transfers to the LLCs.

Request for Advisement

Taxpayers request a Technical Assistance Advisement that
provides that the instruments conveying the Properties to the
LLCs will not be subject to Florida's documentary stamp tax.

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. If the consideration paid or given
in exchange for the real property 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.

In Kuro Inc. v. Department of Revenue, 713 So.2nd 1021
(Fla. 2nd DCA 1998), the court rendered a decision regarding the
application of documentary stamp tax as imposed under s.
201.02(1), F.S., upon an instrument conveying Florida real
property from two individuals into their wholly owned
corporation. In Kuro, the property conveyed was unencumbered
and there was no money paid or to be paid. The court stated
that the beneficial ownership of the real property was unchanged
and that there was no "purchaser" within the meaning of s.
201.02(1), F.S., and, therefore, no tax due. Essentially, the
presumption that the consideration was equal to the fair market
value of the property conveyed was overcome. The Kuro decision
has limited application, since other courts' decisions have
decided that transfers to artificial entities taxable.

The Department applies the Kuro decision to certain
conveyances between individuals and artificial entities such as

corporations, partnerships, and limited liability companies. An
instrument conveying unencumbered Florida real property from a
husband and his wife to a limited liability company, where the
interest held by the husband and the interest held by the wife
in the limited liability company are identical to the interest
that each held in the Florida real property at the time of the
conveyance, is not subject to tax, so long as there is no other
consideration.

Position of the Department

A review of your request concludes that, under the Kuro
case, no documentary stamp tax is due on the conveyances in
question.

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