Was Florida documentary stamp tax due when unencumbered real estate moved between sister subsidiaries through a new conduit entity and out-of-state statutory merger?

Plain-English summary

The parent planned five linked steps to move unencumbered Florida real estate from one subsidiary to another: capitalization of a new wholly owned corporation, contribution of property without consideration, two no-consideration stock transfers, and a statutory merger of the new corporation into the destination subsidiary.

The Department found no documentary stamp tax on the cash-for-stock formation because no real-property interest moved, or on the property contribution because the wholly owned subsidiary received unencumbered property without consideration. The later stock dividend and capital contribution also produced no tax because no consideration was received.

The final merger was not taxable even though the corporations were not Florida entities. The property vested in the survivor by operation of Mississippi merger provisions substantially similar to Florida law. The overall no-tax result also required that no direct or indirect interest in the surviving subsidiary be transferred for consideration within three years.

What this means for you

The conclusion followed the precise sequence and no-consideration facts. Documentary stamp tax analysis must separately test each property, stock, and merger step and the later conduit-entity ownership period.

Common questions

Was the deed to the new subsidiary taxable? No, because the unencumbered property was contributed to a wholly owned entity without consideration.

Did the out-of-state merger trigger tax? No, because substantially similar merger law vested the property by operation of law.

What three-year condition applied? No direct or indirect ownership interest in the surviving subsidiary could be transferred for consideration within three years.

Citations and references

• Fla. Stat. §§ 201.02(1) and 607.1106 and Crescent Miami Center, LLC v. Department of Revenue, 903 So. 2d 913 (Fla. 2005), as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12B4-004

Original ruling text

Executive Director
Lisa Vickers

QUESTION: Will any documentary stamp tax be imposed on the conveyance of Florida real
estate pursuant to the following transaction:
As part of a transfer of assets between subsidiaries (“YYY” and “ZZZ”) of the same parent
company (the “Taxpayer”), the business operations of YYY, (including real estate) will be
transferred to ZZZ. Pursuant to a transaction designed to accomplish the movement of the Florida
assets from YYY to ZZZ, YYY forms a wholly owned subsidiary corporation (“NewCo”) by
exchanging cash for NewCo stock. Subsequent steps taken pursuant to the transaction result in
NewCo receiving title to the Florida real estate and other business assets of YYY for no
consideration, and ZZZ becoming the owner of the NewCo stock. As a final step, NewCo is
merged with and into ZZZ, with title to all real estate owned by both entities vesting in ZZZ, as the
surviving entity.
ANSWER: Documentary stamp tax is not due on the deed from YYY to NewCo because the Florida
property conveyed is without full consideration; the lack of consideration results in NewCo becoming a
conduit entity pursuant to s. 201.02(1)(b), F.S.
Pursuant to the merger, although NewCo and ZZZ are non Florida entities, the documentary stamp tax
imposed under s. 201.02(1), F.S., would not be due on the conveyance of interest in the Florida property
to the surviving entity, ZZZ, since the conveyance will be made by operation of similar laws in the state
where each entity is incorporated.

June 27, 2012
XXX
XXX
XXX
Re:

Technical Assistance Advisement 12B4-004
XXX (hereinafter “Taxpayer”)
Documentary Stamp Tax
Transfer of Real Property to Conduit Entity; Statutory Merger
Sections 201.02(1), 607.1106, F.S.

Dear XXX:
This is in response to your request dated XXX, for a Technical Assistance Advisement (TAA) pursuant to
section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the conveyance of real estate to a newly
formed wholly owned corporate entity as part of a transfer of assets between subsidiaries of the same
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 12B4-004
Page 2

parent company. An examination of your letter has established that you have complied with the statutory
and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your
request for a TAA.
DESCRIPTION OF PROPOSED TRANSACTION
The Taxpayer and XXX (“AAA”), which are both publicly traded companies, were parties to a statutory
merger, resulting in the Taxpayer as the surviving corporation. The Taxpayer continues to be a publicly
owned and traded company. The merger resulted in the Taxpayer becoming the parent of various
corporations, including XXX (“YYY”) and XXX (“ZZZ”), both of which own commercial real estate in
Florida from which they conduct their respective businesses.
The Taxpayer, YYY’s new parent company, is contemplating a transaction whereby the business
operations of YYY (including real estate), will be transferred to ZZZ. In order to move the Florida assets
from YYY to ZZZ, the following five steps are anticipated:

1. YYY will contribute cash to a new wholly owned subsidiary corporation, XXX
   (“NewCo”), incorporated under the laws of Mississippi, solely in exchange for NewCo
   stock.
2. At a later dated, YYY will contribute unencumbered Florida real estate and other
   associated business assets to NewCo as a contribution to capital. No stock or any other
   form of consideration will be provided to YYY for the contribution of assets to NewCo.
3. All of the NewCo stock will be distributed to the Taxpayer in the form of a dividend.
   NewCo will not receive any consideration in exchange for the dividend of its stock from
   YYY to the Taxpayer.
4. The Taxpayer will contribute its NewCo stock to ZZZ as a contribution to capital, and will
   not receive any consideration from ZZZ for its capital contribution of the NewCo stock.
5. NewCo, including the real estate and associated assets it now holds, will be merged with
   and into ZZZ, resulting in NewCo ceasing to exist. Title to all real estate owned by each
   corporation that is a party to the merger will vest in ZZZ as the surviving corporation.
   Steps #2 through #5 will take place immediately in succession. No direct or indirect ownership interest in
   ZZZ will be transferred or sold within three years, and there is no intent that NewCo exist for a period of
   time longer than to complete the transfer of the business operations to ZZZ.
   REQUESTED ADVISEMENT
   Whether the above transaction will result in the imposition of Florida documentary stamp tax on the
   transfer of real estate to a newly formed wholly owned corporate entity as part of a transfer of assets
   between subsidiaries of the same parent company.

Technical Assistance Advisement 12B4-004
Page 3

LAW AND DISCUSSION
Documentary stamp tax is imposed on certain deeds and other instruments whereby any lands, tenements,
or other real property, or any interest therein, shall be granted, assigned, transferred, or otherwise
conveyed to, or vested in, the purchaser or any other person by his or her direction at the rate of $.70 per
$100 (or fraction thereof) when such deeds are given in exchange for “consideration.”
Therefore, documentary stamp tax is an excise tax imposed by the legislature on the privilege of, among
other things, executing or delivering any document that conveys any interest in Florida real property. For a
deed that is subject to tax (that is, a deed that conveys an interest in real property), it is necessary to
compute the amount of tax due, which is figured at the rate of $.70 per $100 (or fraction thereof) of the tax
base. The base is set by statute as the amount of any consideration received in exchange for the real
property interest conveyed.
Effective July 1, 1990, s. 201.02(1), F.S. was amended, by adding, in pertinent part, the following
nonexclusive examples of consideration, including:
(1)(a) . . . 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, whether
or not the underlying indebtedness is assumed. If the consideration paid or given in
exchange for real property or any interest therein includes property other than
money, it is presumed that the consideration is equal to the fair market value of the
property or interest therein. (e.s.)
In Crescent Miami Center, LLC v. Department of Revenue, 903 So.2d 913 (Fla. 2005), the court
concluded that the transfer of property between a grantor and its wholly owned grantee, absent any
exchange of value, is without consideration or a purchaser in the case where a transfer of interest in
unencumbered real property resulted in no change in beneficial ownership of the property.
However, transfer(s) of real property to a “conduit entity,” as contemplated by s. 201.02(1)(b), F.S., where
all or a portion of the grantor’s direct or indirect ownership interest in the conduit entity is subsequently
transferred for consideration within three years of the conveyance, are subject to documentary stamp tax at
the applicable rate based on the amount of consideration paid for the interest transferred. In order to be
considered a conduit entity, real property must be conveyed to such entity without full consideration (as
would be paid in an arm’s-length transaction between unrelated parties) by a grantor who owns a direct or
indirect interest in the entity or a successor entity, as in the Crescent case. As pointed out in the request in
Step #2, NewCo will be a conduit entity, since the property conveyed to it by YYY is without full
consideration.
With regard to the proposed merger in Step #5, there is no specific provision found in the Florida Statutes
that exempts from documentary stamp tax a document that conveys an interest in Florida real property
pursuant to a merger where neither of the artificial entities merging is a Florida entity, nor is there a
provision which states that the conveyance occurs by operation of Florida law.

Technical Assistance Advisement 12B4-004
Page 4

CONCLUSION
As contemplated in Step #1, the cash contribution from YYY to its wholly owned corporation, NewCo, in
exchange for NewCo stock, is not subject to tax, since there is no interest in real property being
transferred as a result of the intended transaction. In Step #2, the contribution to capital from YYY to
NewCo, consisting of the Florida real estate and other associated business assets, is not taxable pursuant to
the Crescent ruling, since YYY is contributing capital to its wholly owned subsidiary for no consideration
in exchange. In Step #3, the stock of NewCo, the conduit entity, that is transferred from YYY as a
dividend to its parent company, the Taxpayer, will not result in any tax due under s. 201.02(1)(b), F.S.,
since neither YYY nor NewCo will receive any consideration in return 1. As to Step #4, the transfer of
NewCo’s stock from its owner, i.e., the Taxpayer, to ZZZ as a contribution to capital will not result in any
tax due, since the Taxpayer will not receive any consideration from ZZZ in exchange.
With regard to Step #5 of the contemplated transaction, even though NewCo and ZZZ are not Florida
entities, the documentary stamp tax imposed under s. 201.02(1), F.S., would not be due on the conveyance
of interest in the Florida property to the surviving entity, ZZZ, pursuant to the merger, since the
conveyance will be made by operation of similar laws in Mississippi, which are alike in substance to the
applicable provisions governing corporate mergers in the Florida law under s. 607.1106(1)(b),(c),(d), and
(e), F.S. The relevant citation provided in accordance with Mississippi law specifically states that all
property owned by each corporation that merges into the survivor is vested in the survivor without
reversion or impairment, and this same provision is contained in the Florida statutes.
Based on the foregoing, no documentary stamp tax is applicable to the transaction as presented in Steps #1
through #5. In addition, providing there is no direct or indirect ownership transfer of ZZZ itself for
consideration within three years of the transaction, no tax will be due under the provisions of s.
201.02(1)(b), F.S.
This response constitutes a Technical Assistance Advisement under Section 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 Section 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 documents are public records under
Chapter 119, F.S., which are subject to disclosure to the public under the conditions of Section 213.22,
F.S. Your name, address, and any other details, which might lead to identification of the taxpayer, must
be deleted before disclosure. In an effort to protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for Technical Assistance Advisement, backup
material and response within fifteen days of the date of this advisement.

1

In steps #2 and #3, the property was unencumbered.

Technical Assistance Advisement 12B4-004
Page 5

Sincerely,

Joy B. Eldred, C.P.A.
Tax Law Specialist
Technical Assistance and Dispute Resolution
ID #: 122791