Was Florida documentary stamp tax due when Maryland and Delaware mergers transferred conduit-entity interests holding Florida real property?

Plain-English summary

The Florida Department of Revenue concluded that documentary stamp tax was not due on documents transferring Florida real property or interests in conduit entities through the Maryland and Delaware mergers described in the ruling.

The Department found those states' merger statutes virtually identical to Florida's rule that property transfers by operation of law. Because the merger itself caused the transfer, the documents did not represent separately taxable conveyances under the facts presented.

The ruling also states that interests in conduit entities received through an exchange of publicly traded acquiring-REIT shares were not taxable under section 201.02(1)(b)4.

What this means for you

REIT and real-estate transaction teams

Document the governing merger law and how title and entity interests pass. The result depended on the merger statutes and execution exactly as presented.

Documentary-stamp practitioners

Separate a property transfer by operation of law from a deed or instrument that independently conveys property. Compare the foreign merger statute with Florida law.

Accountants and tax professionals

The conduit-entity rules and publicly traded share exception both mattered. Do not generalize the result to a differently structured acquisition.

Common questions

Q: Did Maryland and Delaware merger law transfer the property by operation of law?
A: Yes, according to the Department.

Q: Were the presented transfer documents taxable?
A: No.

Q: Did publicly traded acquiring-REIT shares affect the conduit-interest result?
A: Yes.

Citations and references

• Fla. Stat. §§ 201.02(1)(a), (b), 213.22, and 607.1106(1)(b)
• Del. Code Ann. tit. 8, § 259(a)
• Md. Code Ann., Corps. & Ass'ns § 3-114(e)(1)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 16B4-002

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTION: WAS DOCUMENTARY STAMP TAX DUE ON DOCUMENTS THAT
TRANSFERRED INTERESTS IN CONDUIT ENTITIES PURSUANT TO OUT-OF-STATE
LAWS?
ANSWER: NO DOCUMENTARY STAMP TAX WAS DUE ON DOCUMENTS THAT
TRANSFERRED INTERESTS IN CONDUIT ENTITIES, AS LONG AS THE MERGERS
WERE PURSUANT TO THE OUT-OF-STATE LAWS STATED IN THE REQUEST.
August 24, 2016
For the purposes of the Revenue Law Library, the below referenced entities’ names are fictitious.
Re:

Technical Assistance Advisement No. 16B4-002
Documentary Stamp Tax
Sections 201.02(1)(a), (b), 607.1106(1)(b), Florida Statutes (F.S.), Del. Code Ann. Title
8, § 1-259(a), and Maryland Code Ann. Corps. & Ass'ns. § 3-114(e)(1).
Acquirer REIT
ABC, Inc.
ABC Operating Partnership, L.P.
ABC Subsidiary REIT, Inc.
Grantor
ABC 1, LLC, ABC 2, LLC, and ABC 3, LLC (Subsidiary, LLCs)
Acquirer, L.P.
XYZ Sub, LLC
Borrower 1, LLC, Borrower 2, LLC, and Borrower 3, LLC (Florida Borrower, LLCs)
TRS 1, Inc., TRS 2, Inc., and TRS 3, Inc. (Other Acquirer REIT Subsidiaries)
Merger Subsidiary, LLC

Dear Mr. XXXXX:
This is in response to your request dated April 18, 2016, for a Technical Assistance Advisement
(TAA) pursuant to s. 213.22, F.S., and Rule Chapter 12-11, Florida Administrative Code
(F.A.C.), concerning the imposition of documentary stamp tax on documents that transferred
interests in conduit entities that are related to mergers. 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.

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

FACTS AS PRESENTED BY PRACTITIONER
In your letter, you presented a series of transactions that relate to a merger between ABC, Inc., a
Maryland corporation, and Merger Subsidiary, LLC, a Delaware limited liability company.
Merger Subsidiary, LLC, is owned by Acquirer REIT, Inc., a Maryland corporation. This
merger was pursuant to Maryland and Delaware law. Acquirer REIT’s shares are publicly
traded. ABC, Inc., indirectly owned Florida real property through ABC Operating Partnership,
L.P., a Delaware limited partnership, of which ABC, Inc., is a general partner. ABC Operating
Partnership, L.P., owned ABC Subsidiary REIT, Inc., a Delaware corporation, which in turn
owned the Grantor. Grantor within the past three years contributed real properties, some of
which were located in Florida, through the Grantor’s wholly-owned entities to the Subsidiary,
LLCs. The Florida real properties were unencumbered when the Grantor contributed the
properties, and there was no other consideration for the transfers. After the transfer of the
properties into the Subsidiary, LLCs, equity in the Subsidiary, LLCs, was pledged as collateral in
securitization transactions. Since the transfer of the properties into the Subsidiary, LLCs by the
Grantor were transferred without full consideration, the Subsidiary, LLCs, were conduit entities
pursuant to section 201.02(1)(b), F.S.
Acquirer REIT, through its 100 percent interest in Acquirer, L.P., indirectly owns Florida real
properties. Acquirer, L.P., has indirect ownership interests in limited liability companies
(Grantor 2, LLCs) that own Florida real property. Grantor 2, LLCs within the last three years
contributed real properties, some of which are located in Florida, to XYZ Sub, LLC, wholly
owned by Acquirer REIT as part of a securitization transactions credit facility borrowing
structure. Other parties involved in the credit facility borrowing structure were the Florida
Borrower, LLCs. In addition to the properties contributed by XYZ Sub, LLC, the Florida
Borrower, LLCs, purchased Florida real property independently and or contributed properties
among themselves. Other Acquirer REIT Subsidiaries also owned Florida real property through
contributions from entities other than XYZ Sub, LLC. Regarding the above contributions, the
properties were unencumbered when they were transferred, and there was no other consideration
for the transfers. After the contributions of the properties into the Florida Borrower, LLCs,
equity in the Florida Borrower, LLCs, was pledged as collateral in securitization transactions.
You explained that some preliminary steps were executed prior to the merger. Namely, ABC
Operating Partnership, L.P., liquidated and distributed its shares of ABC Subsidiary REIT, Inc.
to its partners, which included ABC, Inc., as general partner, based upon their partnership
interests. ABC Subsidiary REIT, Inc. then merged into ABC, Inc., under Delaware and
Maryland law. In connection with this merger, ABC Subsidiary REIT, Inc.’s, shares were
exchanged for ABC, Inc., common shares and ABC Subsidiary REIT, Inc.’s, preferred
stockholders received cash.
The next step was ABC, Inc.’s merger into Merger Subsidiary, LLC, under Delaware and
Maryland law, with Merger Subsidiary, LLC, surviving the merger. Pursuant to the merger,
shares of ABC, Inc. were exchanged for Acquirer REITS shares such that ABC, Inc., owns 60
percent of Acquirer REIT’s shares.

Technical Assistance Advisement
Page 3

REQUESTED RULING
You requested that the Department confirm that no documentary stamp tax was due on the
following transactions as described above:

1. ABC Operating Partnership, L.P.’s, liquidation, and the subsequent distribution of ABC
   Subsidiary REIT, Inc.’s shares.
2. ABC Subsidiary REIT, Inc.’s, merger into ABC, Inc.
3. ABC, Inc.’s, merger into Merger Subsidiary, LLC.
   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 transferred to, or vested in, the purchaser or any other person
   by his or her direction. In all counties except Miami-Dade, the rate of tax is $.70 per $100 of
   consideration or portion thereof, for the property interest transferred. In Miami-Dade County,
   the rate of tax is $.60 per $100 of 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.
   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.
   Section 201.02(1)(b)4., F.S., provides in part that the transfer of shares or similar equity interests
   in a conduit entity which are dealt in or traded on public, regulated security exchanges or
   markets is not subject to tax under paragraph (b).
   Section 607.1106(1)(b), F.S., provides that “the title to all real estate and other property, or any
   interest therein, owned by each corporation party to the merger is vested in the surviving
   corporation without reversion or impairment.”
   Delaware Code Ann. Title 8, § 1-259(a), provides in part that when any merger or consolidation
   shall have become effective under this chapter, for all purposes of the laws of that state the
   separate existence of all the constituent corporations, or of all such constituent corporations

Technical Assistance Advisement
Page 4

except the one into which the other or others of such constituent corporations have been merged,
as the case may be, shall cease and the constituent corporations shall become a new corporation,
or be merged into one of such corporations, as the case may be, possessing all the rights,
privileges, powers and franchises as well of a public as of a private nature, and being subject to
all the restrictions, disabilities and duties of each of such corporations so merged or consolidated;
and all and singular, the rights, privileges, powers and franchises of each of said corporations,
and all property, real, personal and mixed, and all debts due to any of said constituent
corporations on whatever account, as well for stock subscriptions as all other things in action or
belonging to each of such corporations shall be vested in the corporation surviving or resulting
from such merger or consolidation; and all property, rights, privileges, powers and franchises,
and all and every other interest shall be thereafter as effectually the property of the surviving or
resulting corporation as they were of the several and respective constituent corporations, and the
title to any real estate vested by deed or otherwise, under the laws of this State, in any of such
constituent corporations, shall not revert or be in any way impaired by reason of this chapter; but
all rights of creditors and all liens upon any property of any of said constituent corporations shall
be preserved unimpaired, and all debts, liabilities and duties of the respective constituent
corporations shall thenceforth attach to said surviving or resulting corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
Maryland Code Ann. Corps. & Ass'ns. § 3-114(e)(1), provides that the effect of the
consummation of a consolidation or merger is that the assets of each corporation, partnership,
limited partnership, limited liability company, and business trust party to the articles, including
any legacies which it would have been capable of taking, transfer to, vest in, and devolve on the
successor without further act or deed.
DEPARTMENT’S POSITION
Documentary stamp tax is an excise tax due on certain documents, including deeds that transfer
Florida real property based upon the consideration for the transfer. Tax is also due on the
transfer of interests in a conduit entity based upon the consideration for the transfer. In the above
referenced contributions of properties in which the properties were transferred without full
consideration, the entities that received the properties were conduit entities pursuant to s.
201.02(1)(b), F.S.
In the merger scenarios presented above, the liquidation of the ABC Operating Partnership, L.P.,
and subsequent distribution of shares in ABC Subsidiary REIT, Inc., to ABC Operating
Partnership, L.P. ’s partners would not be considered a transfer of an interest in a conduit entity,
so long as the partners did not receive any direct or indirect ownership in the Florida properties
other than what they already owned.
The merger of ABC Subsidiary REIT, Inc., into ABC, Inc., and of ABC, Inc., into Merger
Subsidiary, LLC, took effect under laws other than those of the state of Florida. There is no
specific provision found in the Florida statutes that exempts from documentary stamp tax a
document that transfers an interest in a conduit entity pursuant to a merger where neither of the

Technical Assistance Advisement
Page 5

artificial entities merging is a Florida entity, nor is there a provision which states that the transfer
occurs by operation of Florida law. The Department currently holds the position that properties
transferred pursuant to Florida merger laws are transferred by operation of law and, thus, are not
subject to documentary stamp tax.
The Department also takes the position that if a merger takes effect under another state’s law that
is virtually identical to Florida law, (i.e., that transfers real property by operation of law), no tax
would be due on any document, such as a deed, that purports to transfer Florida real property.
The Department agrees that Maryland and Delaware merger laws are virtually identical to
Florida merger statutes and that any merger under Maryland and Delaware law would transfer
real property by operation of law. Therefore, the Department determines that no documentary
stamp tax was due on documents that transferred Florida real property or that transferred
interests in the conduit entities pursuant to the mergers presented in the above scenario, as long
as the mergers were pursuant to Maryland and Delaware merger law and executed as presented
with this request.
Additionally, since Acquirer REIT’s shares are publicly traded, any interests in conduit entities
obtained by ABC, Inc. through the exchange of Acquirer REIT’s shares would not be subject to
documentary stamp tax pursuant to s. 201.02(1)(b)4., F.S.
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 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: 210546