What deed-tax and sales-tax registration results followed a partnership's conversion to an LLC and later transfers to subsidiary LLCs?

Plain-English summary

The statutory partnership-to-LLC conversion did not trigger deed tax, but later transfers to subsidiary LLCs did. Florida law vested the partnership's real and personal property in the converted LLC by operation of law. A deed was no longer required for a qualifying conversion, and recording one anyway did not create documentary stamp tax.

The next step was different. Deeds from the new parent LLC to one or more subsidiary LLCs were taxable based on the transferred property's fair market value. The Department treated the parent's received or increased membership value as consideration.

The converted LLC also could not continue using the general partnership's Florida sales-tax registration number because the registration was valid only for the person or entity to which it had been issued.

What this means for you

A statutory conversion and a later intercompany transfer are separate events. Operation-of-law vesting protected the first; consideration and separate entity ownership made the second taxable.

Common questions

Q: Was a conversion deed taxable? No, when it merely documented property already vested by operation of law.

Q: Were later deeds to subsidiary LLCs tax-free? No. The ruling used fair market value as the tax base.

Q: Could the LLC retain the partnership's sales-tax registration number? No.

Citations and references

• Fla. Stat. § 201.02(1) — documentary stamp tax on real-property conveyances
• Fla. Stat. § 608.439(6) — partnership-to-LLC conversion by operation of law
• Fla. Stat. § 212.18(3) — dealer registration not assignable
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02M-002

Original ruling text

SUMMARY

QUESTION 1: Is the deed from the General Partnership to the
Limited Liability Company following conversion taxable only
for the minimum tax documentary stamp tax and is not
taxable based on the fair market value of the real property
transferred?

ANSWER 1 - Based on Facts Below: Effective June 15, 2002, a
requirement to record a deed when a conversion of a General
or Limited Partnership to a Limited Company is eliminated.
Even though a deed is recorded, no documentary stamp taxes
would be due, since the property is conveyed by operation
of law.

QUESTION 2: Are any subsequent deeds from the Limited
Liability Company to one or more subsidiary limited
liability companies subject only to minimum documentary
stamp tax and not taxable based on the fair market value of
real properties being transferred?

ANSWER 2 - Based on Facts Below: The properties transferred
from the Limited Liability Company to one or more
subsidiary limited liability companies would be subject to
tax based on the fair market value of the property. Once
the property is transferred from the parent to subsidiary,
consideration would flow back to the parent in the form of
membership interest, or as an increase in the exchangeable
value of membership interest owned.

May 03, 2002

Re: Technical Assistance Advisement No. 02M-002
Florida Documentary Stamp Tax and Sales and Use Tax
Conversion of General Partnership to a Limited Liability
Company
Sections 201.02, 212.18(3), and 608.439, F.S.
XXX (General Partnership)

XXX (Limited Liability Company)

Dear :

This is in response to your request for a Technical
Assistance Advisement in which you ask if the Florida
documentary stamp taxes imposed by s. 201.02, F.S., are due on
deeds upon conversion of a general partnership to a limited
liability company, as provided by Section 608.439, F.S.

Facts and Circumstances Presented by Petitioner

General Partnership was organized on or before 1983 and has
continuously operated in the State of Florida. The two general
partners have reported income, commingled income, paid expenses
and otherwise dealt with various parcels of real property
located in the State of Florida as partnership property. The
receipt and reinvestment of periodic condemnation proceeds have
likewise been reported as partnership income and all property
taxes were paid by the partnership. Various lease agreements
have been entered into by the partnership in that capacity and a
written partnership agreement exists between the general
partners.

General Partnership desires to convert to a Florida limited
liability company pursuant to s. 608.439, F.S., by submitting to
the Department of State the appropriate certificate of
conversion and articles of organization. Subsequent to that
conversion and the organization of Limited Liability Company,
the current general partners will likewise be the equal owners
and members pursuant to the terms of a limited liability company
operating agreement.

Following the establishment and filing of the Limited
Liability Company, the General Partnership contemplates the
execution and recording of various transfer deeds within a
number of counties located in the State of Florida and in order
that all real property belonging to the General Partnership
shall be vested in the Limited Liability Company, as provided in
Section 608.439(6), F.S. The General Partnership likewise
contemplates that the current federal tax identification number,

Florida sales tax registration number and all existing ad
valorem real estate tax account numbers shall remain the same.

Based on the advice received from this request, the General
Partnership and Limited Liability Company are further
contemplating the formation of one or more subsidiary limited
liability companies. The original Limited Liability Company
resulting from the conversion would intend to divide titles
between one or more subsidiary limited liability companies, but
it would in all other respect operate as a single entity for
income tax, accounting and ownership purposes.

Requested Ruling by the Petitioner

The General Partnership requests a binding opinion as
follows:

1. That the deed from the General Partnership to the Limited
   Liability Company following conversion is taxable only for
   the minimum documentary stamp tax and is not taxable based
   on the fair market value of the real property transferred;
   and

2. That any subsequent deeds from the Limited Liability
   Company to one or more subsidiary limited liability
   companies will likewise be taxable for only the minimum
   documentary stamp tax and not taxable based on the fair
   market value of the various parcels of real property
   divided between and transferred to such subsidiaries.

Law and Discussion

Section 201.02(1), F.S., imposes tax on deeds, instruments,
or writings that convey, grant, or transfer real property or
interest in real property.

Section 608.439(6), F.S., provides that when any conversion
becomes effective under that section, for all purposes of the
laws of this state, all of the rights, privileges, and powers of
the other entity that has converted, and all property, real,
personal, and mixed, and all debts due to such other entity, as

well as all other things and all debts due to such other entity,
as well as all other things and causes of action belonging to
such other entity, shall be vested in the domestic limited
liability company and shall thereafter be the property of the
domestic limited liability company.

Department's Position

Effective June 15, 2000, s. 608.439, F.S., eliminates the
requirement to record a deed when a conversion of a general or
limited partnership to a limited liability company takes place.
Even though a deed is recorded, no documentary stamp taxes would
be due, since the property is conveyed by operation of law.
Therefore, your first question is answered in the affirmative.

In the second phase of your proposed transaction, the
properties transferred from Limited Liability Company to one or
more subsidiary limited liability companies would be subject to
tax based on the fair market value of the property. Once the
property is transferred from the parent to subsidiary,
consideration would flow back to the parent in the form of
membership interest, or as an increase in the exchangeable value
of membership interests owned. We recommend that you consider
the case of Seminole Racing, Inc. v. Department of Revenue, Case
No. 92-187, 2nd Jud Cir.(1993), per curiam affirmed, Case No.
93-1954 (1st DCA). In that case, the court found that Section
201.02(1), F.S., created a presumption that the consideration
given in a transfer between two corporations was equal to the
fair market value of the real property or interest transferred.
Therefore, the court determined that the Department's assessment
upon the fair market value was appropriate. Therefore, your
second question is answered in the negative.

Section 212.18(3), F.S., requires each person desiring to
do business in Florida to register as a dealer. Paragraph (b)
states that a certificate of registration "... is not assignable
and is valid only for the person, firm, copartnership, or
corporation to which issued...." As such, Limited Liability
Company will not be able to use General Partnership's Florida
sales tax registration number.

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 interpretation of the
statutes or rules upon which this advise 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,

Baldan E. Sulker
Senior Tax Specialist
Technical Assistance & Dispute Resolution
Office of General Counsel

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance & Dispute Resolution
Office of General Counsel

BES/SFmh