Which deeds and notes were taxable when an intermediary handled a buyer-funded installment real-estate sale?

Plain-English summary

A buyer paid the full real-estate purchase price to an intermediary. The intermediary deposited the buyer's funds, gave the seller a promissory note so the seller could receive installments, took a deed from the seller, and then deeded the property to the buyer.

Florida imposed documentary stamp tax on the seller-to-intermediary deed based on the entire sales price. The intermediary's promissory note to the seller was also subject to documentary stamp tax.

The second deed, from the intermediary to the buyer, was not taxable. The buyer-principal's funds had been used to acquire the property, and the intermediary transferred it to the buyer for no consideration under the agent-to-principal rule.

What this means for you

An intermediary's participation does not automatically tax both deeds. The source of the acquisition funds and whether the second transfer has consideration determine how the agent-to-principal rule applies.

Common questions

Was the first deed taxable? Yes. The seller-to-intermediary deed was taxable on the full sales price.

Was the promissory note taxable? Yes. Florida treated the intermediary's note to the seller as subject to documentary stamp tax.

Why was the second deed not taxable? The intermediary used the buyer-principal's funds to acquire the property and conveyed it to the buyer for no consideration.

Citations and references

• Fla. Stat. § 201.02(1) (documentary stamp tax on deeds)
• Fla. Stat. § 201.08(1) (documentary stamp tax on promissory notes)
• Fla. Admin. Code r. 12B-4.014(5) (conveyances through an agent)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06B4-008

Original ruling text

SUMMARY
QUESTION: Will both deeds, the one from the seller to the agent and the one from the agent to buyer, be subject to
documentary stamp tax under an installment sale agreement?
ANSWER - Based on Facts Below: In accordance with Rule 12B-4.014(5), F.A.C., the funds of the principal are
used by the agent to acquire the desired property. The funds are deposited in a separate account with only periodic
installment payments from the sales funds going to the Seller. The first deed from the Seller to the agent is subject to
documentary stamp tax on the entire sales price. The second deed transferring the property from the agent to the
Buyer is therefore not subject to tax because the funds of the Buyer were used to effect the purchase and there was
no consideration for this second transfer.

August 22, 2006

Re: Technical Assistance Advisement No. 06B4-008
Documentary Stamp Tax
Re: 1031 Exchange
Sections 201.02(1), 201.08(1), F.S.
Rule 12B-4.014(5), F.A.C.
XXX (hereinafter, Taxpayer Intermediary)
Dear:
This is in response to your request for a technical assistance advisement asking for an opinion on whether
documentary stamp tax is due on a deed conveying real property from the intermediary back to the buyer.
FACTS AS PRESENTED BY PETITIONER
Installment Sale:
Taxpayer is acting as agent intermediary between the Buyer and Seller of real property under a mutually agreed
upon installment sale arrangement. The Buyer pays over the entire purchase price for the property to Taxpayer
Intermediary. Taxpayer Intermediary then deposits the Buyer's purchase funds into a financial institution and delivers
a promissory note (instead of the sales proceeds) from the Taxpayer Intermediary made payable to the Seller in the
amount of the full sales price for the property. This is because Seller does not wish to receive from the Buyer the full
sales price immediately, but wishes to receive periodic payments on the note. When Taxpayer Intermediary deposits
Buyer's funds into the financial institution, the purpose, in addition to facilitating an installment sale, is for safekeeping,
the gaining of interest, etc., on the deposited funds to be paid periodically to Seller.
Deeds:

The Seller accordingly delivers a deed to the property to Taxpayer Intermediary in exchange for the promissory
note in payment of the property's sales price. Taxpayer Intermediary then delivers a deed to Buyer (same type of deed
as Seller gave to Taxpayer Intermediary). The Buyer is now out of the picture, having made full payment for the
property in exchange for the deed to the purchased property.
Advantage of Installment Sale:
The payment to the Seller was in the form of a promissory note made payable from Taxpayer Intermediary to
Seller. This procedure for the handling of the sales proceeds will, it is hoped, qualify as an installment sale (under IRC
Section 453) for the Seller, to allow Seller's federal income tax liability for the gain on the sale to be paid over a long
period of time instead of all at one time for that tax year.
The Taxpayer Intermediary (for a fee) then continues to make periodic payments (from the financial institution
deposit account) on the promissory note to the Seller until the entire sales price of the property has been received by
the Seller in exchange for the paid off promissory note.
The Taxpayer Intermediary is acting as an intermediary conduit for the completion of the transaction and is not
adding to or changing the nature or form of the interest in the real property conveyed between the Buyer and Seller in
the original sale agreement. The request letter stated that all parties to the transaction are independent parties and
are operating on an arms-length basis, as defined by the Internal Revenue Service.
REQUESTED RULING
You request the Department's determination that only the first deed from the Seller to the Taxpayer Intermediary is
subject to tax. The second deed from the Taxpayer Intermediary to the Buyer in exchange for the payment of the
funds from the Buyer is not subject to documentary stamp tax under the agent to principal rule.
LAW AND DISCUSSION
In the case at hand, the Taxpayer Intermediary has to handle two deeds:

1. Deed from the Seller to the Taxpayer Intermediary (agent)
2. Deed from the Taxpayer Intermediary (agent) to the Buyer (principal).
   Where a transaction involving a deed from the Seller is designed to be carried out by an agent (Taxpayer
   Intermediary) for the principal (Buyer), and completed by a second deed from the Taxpayer Intermediary back to the
   Buyer, the transaction must be accomplished in a certain manner by the parties.
   The funds of the principal (Buyer) must be used by the agent (Taxpayer Intermediary) to acquire the property in
   order for the transaction to be accomplished in accordance with Rule 12B-4.014(5), F.A.C.

The first deed from the Seller to the agent (Taxpayer Intermediary) is subject to tax on the entire sales price of the
property being purchased by the principal (Buyer). The second deed transfers the property from the agent (Taxpayer
Intermediary) back to the principal (Buyer) for no consideration.
The promissory note is also subject to documentary stamp tax under s. 201.08 (1), F.S.
DETERMINATION
Although the first deed is subject to documentary stamp tax, the second deed, from the Taxpayer Intermediary, is
not subject to tax under s. 201.02, F.S., where the funds of the principal (Buyer) were used to effect the purchase
under Rule 12B-4.014(5), F.A.C.
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,
M. E. Clemens, C.P.A.
Senior Tax Specialist
Technical Assistance and Dispute Resolution
MEC/mh
Record ID: 22125