Did a dissolving partnership owe documentary stamp tax when it distributed unencumbered Florida properties to its partners in their ownership proportions?

Plain-English summary

A Florida partnership owned two townhouses, each estimated at $200,000 and free of mortgages or other encumbrances. Four partners collectively held 50% of the partnership and a fifth partner held the other 50%. Under the dissolution agreement, the fifth partner would receive one townhouse while the other four would receive the other townhouse, matching their corresponding partnership interests.

Florida ruled that no documentary stamp tax was due on the deeds. The properties were unencumbered, the dissolution distribution followed the partners' ownership proportions, and beneficial ownership did not change as a result of the transfers.

The Department relied on Kuro, Inc. v. Department of Revenue. It described that case as holding that where unencumbered real property is held in the same proportions before and after a transfer involving an artificial entity, the transfer does not create a purchaser or change beneficial ownership for purposes of section 201.02.

What this means for you

Exact ownership proportions mattered

The ruling did not announce a blanket exemption for every partnership liquidation. Its result depended on distributing the properties to the partners according to their existing partnership interests.

The properties had to be unencumbered

The Department expressly noted that neither townhouse had a mortgage or other encumbrance. Section 201.02 treats mortgages and other encumbrances as consideration, so different debt facts can change the result.

Trace beneficial ownership before and after the deeds

The central reasoning was that the economic owners remained the same in the same proportions; only the form of ownership changed through the dissolution.

This is a fact-specific 2008 ruling

Confirm the current statute, case law, and treatment of any debt, cash, unequal allocations, or other consideration before applying this result to a present transaction.

Common questions

Q: How much documentary stamp tax did Florida impose on these deeds?
A: None under the facts stated in the advisement.

Q: Why did the transfers avoid tax?
A: The properties were unencumbered and were distributed in the partners' existing ownership proportions, so beneficial ownership did not change.

Q: What property was distributed?
A: Two Florida townhouses, each estimated at $200,000 in the ruling.

Q: Would the same answer necessarily apply if a property had a mortgage?
A: The ruling does not say so. Its no-tax conclusion expressly relied on the absence of mortgages or other encumbrances.

Citations and references

• Fla. Stat. § 201.02(1) and (5) (documentary stamp tax and consideration for real-property transfers)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Kuro, Inc. v. Department of Revenue, 713 So. 2d 1021 (Fla. 2d DCA 1998), as discussed in the advisement

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08B4-004

Original ruling text

SUMMARY
QUESTION: Are documentary stamp taxes due on real property transfers out of a partnership to
the respective partners pursuant to dissolution in proportion to their interests held in the partnership?
ANSWER: No, such transfers are not taxable since the properties are not encumbered by any
mortgages and are being done according to the partnership dissolution agreement.
September 10, 2008
Re:

Technical Assistance Advisement No. 08B4-004
Documentary Stamp Tax
Transfer of Partnership’s Real Properties to Partners upon Dissolution
Sections 201.02(1) and 201.02(5), F.S.
XXX (“Partnership”)
XXX (“Partner A”)
XXX (“Partner B”)
XXX (“Partner C”)
XXX (“Partner D”)
XXX (“Partner E”)

Dear :
This is in regard to your request for a Technical Assistance Advisement dated June 11,
2008 requesting a ruling as to whether documentary stamp taxes would be due on a transfer of
unencumbered properties from a Partnership pursuant to dissolution.
FACTS PROVIDED BY TAXPAYER
The Partnership owns two townhouses in Florida (Parcels A and B). Both townhouses are
free and clear of any encumbrances and each has an estimated market value of $200,000.
Partners A through D each have a 12.5% interest in the Partnership, or collectively a 50%
interest. Partner E has a 50% interest in the Partnership. The Partnership is in the process of
being dissolved pursuant to a dissolution agreement. Pursuant to the agreement, Parcels A and B
will be conveyed to Partners A though E in proportion to their corresponding partnership
interest. Partner E would receive title to Parcel A, and Partners A through D would receive title
to Parcel B.

Page 2
REQUESTED RULING
Based on the ruling in Kuro, Inc. v. Department of Revenue, 713 So.2d 1021 (Fla. 2d
DCA), 1998, you are of the opinion that documentary stamp taxes do not apply to the transfers,
because the townhouses are unencumbered, there is no consideration for the transfer of title and
the Partners are not “purchasers” of the real property for purposes of s. 201.02(1), F.S.
DEPARTMENT’S RESPONSE
Sections 201.02(1) and 201.02(5), F.S., impose the documentary stamp tax on transfers of
interest in real property at the rate of $.70 per $100 based on the consideration given, which
includes any mortgages or other encumbrances on the property. In this case, there are no
mortgages or other encumbrances on the property. The court ruled in Kuro when unencumbered
real property is owned in the same proportion prior to and after being transferred into an artificial
entity, the percentage ownership in the artificial entity is the same as the percentage ownership of
the property by the individuals. Thus, like the Kuro case where the beneficial ownership in the
property did not change as a result of the transfer, no tax is due on the deeds 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.
If you have any further questions with regard to this matter and wish to discuss them, you
may contact me directly at (850) 922-4844.
Sincerely,

Joy B. Eldred, C.P.A.
Tax Law Specialist
Technical Assistance & Dispute Resolution
JBE/mh
Record ID: 46963