What documentary stamp tax applied when a partnership deeded unencumbered property to its wholly owned LLC before selling LLC interests?

Plain-English summary

The Florida Department of Revenue concluded that only nominal documentary stamp tax applied when a limited partnership transferred unencumbered Florida real estate to an LLC it wholly owned, with no other consideration and no change in beneficial ownership.

That initial transfer made the LLC a conduit entity. When the partnership later transferred 51 percent of its LLC interest to unrelated parties within three years, documentary stamp tax applied to the consideration given for that interest. The consideration included cash and the value of services or intangibles contributed by the new members, allocated using the rule's real-property-to-total-assets fraction.

A mortgage the LLC planned to obtain after the membership transfer was not consideration for either transfer under the represented facts because its proceeds did not go to the partnership or pay prior property debt.

What this means for you

Related-party real-estate restructurings

An identical-ownership deed may receive nominal treatment while a later equity transfer triggers conduit-entity tax. Model the entire three-year sequence, not just the deed.

Transaction teams

Value cash, services, intangibles, and any debt or mortgage consideration, and document when each item enters the transaction.

Common questions

Q: Was the initial deed taxed on fair market value?
A: No, because the property was unencumbered, ownership was identical, and there was no other consideration.

Q: Was the later 51 percent LLC-interest sale taxable?
A: Yes, under the conduit-entity rules.

Citations and references

• Fla. Stat. §§ 201.02(1)(a) and (b), 201.0201(3), and 213.22
• Fla. Admin. Code r. 12B-4.060(1)-(3)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14B4-003

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: IS DOCUMENTARY STAMP TAX DUE ON A PROPOSED DEED THAT WILL
TRANSFER UNENCUMBERED FLORIDA REAL PROPERTIES FROM AN LP TO AN LLC?
ANSWER: DOCUMENTARY STAMP TAX OF $XXXX WILL BE DUE PROVIDED THE LP
HOLDS THE SAME PERCENTAGE INTEREST IN THE LLC AFTER THE TRANSFER AS IT HELD
IN THE LLC PRIOR TO THE TRANSFER (I.E., THERE WILL BE NO TRANSFER OF A
BENEFICIAL INTEREST IN THE PROPERTIES), AND THERE WILL BE NO OTHER
CONSIDERATION FOR THE PROPERTIES TRANSFERRED.
March 27, 2014
Re:

Technical Assistance Advisement – TAA 14B4-003
Documentary Stamp Tax - Transfer of real properties from a Limited Partnership to a Limited
Liability Company
Sections 201.02(1)(a), (b) and 201.0201(3), Florida Statutes (F.S.)
Rules 12B-4.060(1),(2), and (3), Florida Administrative Code (F.A.C.)
XXXXX (Taxpayer)
XXXXX (LLC1)
XXXXX (LLC2)
XXXXX (LLC3)

Dear XXXXX:
This is in response to your request dated XXXXX, for a Technical Assistance Advisement (TAA)
pursuant to s. 213.22, F.S., and Rule 12-11, F.A.C., regarding the amount of documentary stamp tax due
on a proposed deed that will transfer unencumbered Florida real properties between related entities. 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.
FACTS AS PRESENTED BY PRACTITIONER
In your letters you state that the properties are to be transferred by a deed from Taxpayer to LLC1. At the
time of the transfer, Taxpayer will be the sole owner of LLC1, i.e., there will be no transfer of beneficial
ownership in the properties, and the property will be free and clear of any mortgages or other
encumbrances. No other consideration will be paid or given for the properties.

Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement
Page 2

You state that following the transfer, 51 percent of Taxpayer’s membership interests in LLC1 will be
transferred to LLC2 and to LLC3 or LLC3’s affiliates (LLC3 Members), which are not related to
Taxpayer.
Additionally, following the transfer of the properties and the transfer of the membership interest in LLC1,
LLC1 will obtain a loan of up to $XXXXX that will be secured by a mortgage on the properties.
You presented the following documents for examination:

1. LLC1 Amended and Restated LLC Operating Agreement.
2. Proposed Special Warranty Deed.
3. Term Sheet.
   Additionally, in a phone conversation of XXXXX, you stated that the $XXXXX procured under the loan
   secured by the mortgage placed on the properties following the transfer to LLC1 will not be given to
   Taxpayer in exchange for the properties, will not pay off any mortgages that encumbered any of the
   properties prior to the transfer and will not be used in any other manner as consideration for the properties.
   REQUESTED RULING
   You requested that the Department confirm that documentary stamp tax would be due on the proposed
   deed, based on the properties’ fair market value multiplied by the percentage of beneficial interest
   transferred.
   LAW AND DISCUSSION
   Section 201.02(1)(a), F.S., imposes documentary stamp tax on “deeds, instruments, or writings 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 ….” The
   tax rate is 70 cents on each $100 of the consideration or portion thereof, for the property interest
   transferred. “For purposes of this section, 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, whether or not the underlying indebtedness is assumed.” Where
   property other than money is exchanged for interests in real property, there is the presumption that the
   consideration is equal to the fair market value of the real property interest being transferred.
   In Crescent Miami Center, LLC v. Dep't of Revenue, 903 So. 2d 913 (Fla. 2005), the Florida Supreme
   Court stated that " ... the transfer of property between a grantor and its wholly owned grantee, absent any
   exchange of value, is without consideration or a purchaser and thus not subject to documentary stamp tax
   in section 201.02(1)."
   Section 201.0201(3), F.S., states in pertinent part that the Legislature recognizes that the Supreme Court's
   opinion in Crescent is limited to the facts of the case and accepts the court's interpretation of s. 201.02,
   F.S., that no consideration exists when owners of real property unencumbered by a mortgage convey an

Technical Assistance Advisement
Page 3

interest in such property to an artificial entity whose ownership is identical to the ownership of the real
property before the conveyance. The Legislature expressly rejected any application of the court's
interpretation where the facts are not comparable to the facts in Crescent.
A deed that transfers an interest in Florida real property between artificial entities is subject to
documentary stamp tax. The tax is due on the total consideration for the property interest transferred. As
a result of the Crescent ruling, no documentary stamp tax is due on a deed that transfers unencumbered
property where there is no other consideration and there is no resulting transfer of a beneficial interest in
the property.
DEPARTMENT’S POSITION
As to the requested advisement, based on the facts presented, documentary stamp tax of $.70 will be due
on the proposed deed, based on the nominal consideration evidenced thereon.
Please note, however, that effective July 1, 2009, s. 201.02(l)(b), F.S., and Rules 12B-4.060(1) and (2),
F.A.C., provide that an entity that acquires Florida real property on or after July 2, 2009, from a grantor
who owns an interest in the entity, for consideration less than the property’s fair market value is a conduit
entity. If the grantor of the property transfers a membership interest in the conduit entity within three
years of the entity acquiring the property that caused it to become a conduit entity, documentary stamp tax
is due on the transfer of the membership interest, based on the consideration attributable to the property.
A mortgage encumbering the property at the time of the membership transfer is consideration.
Rule 12B-4.060(3), F.A.C., provides that, where the assets of the conduit entity include property other
than the real property that caused the entity to become a conduit entity, tax is calculated by multiplying the
consideration for the interest in the conduit entity by the tax rate and then multiplying the result by a
fraction, the numerator of which is the value of the real property and denominator of which is the value of
all assets owned by the conduit entity.
Based on the facts presented, LLC1 will become a conduit entity on the date the properties are transferred
to it. Documentary stamp tax will be due on the subsequent transfer of 51 percent of Taxpayer’s interest
in LLC1 to LLC2 and LLC3 Members. The tax is due on the consideration paid or given by the LLC2
and LLC3 Members in exchange for the LLC1 interest gained. The $XXXXX mortgage obtained by
LLC1 to be placed on the properties following the transfer of the membership interest is not consideration
for the transfer of the properties or the transfer of the membership interests. However, LLC3 Members
will contribute up to $XXXXX, and LLC2 will contribute services and/or certain intangibles for the 51
percent interest it is to gain in LLC1. As such, documentary stamp tax will be due on the transfer of the
51 percent interest in LLC1, based on the total consideration ($XXXXX and the value of the services
and/or intangibles) given by LLC2 and LLC3 Members using the calculation formula provided in the
above quoted Rule 12B-4.060(3), 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.

Technical Assistance Advisement
Page 4

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 s. 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.
Sincerely,

Henry Small
Tax Law Specialist
Technical Assistance and Dispute Resolution
HJS
Record ID: 161656