Jerry is the owner of a $5 million company, Red, Inc. Jerry’s company has one subsidiary, Blue, LLC. Jerry is considering transferring interest from his parent entity, Red, Inc., to his subsidiary—which Jerry fully owns—Blue, LLC. However, there is one minor issue; The Florida Documentary Stamp Tax. Florida imposes a documentary stamp tax on transfers of real estate by deed at a rate of $0.70 per $100. Fla. Stat. §201.02(1) (2004). Jerry is no mathematician, but with some division and multiplication, Jerry realizes this conveyance—a mere book transaction—would cost Jerry a staggering $35,000.00! Jerry, being the studious, savvy businessman that he is, knew he needed to speak to an attorney.
Wednesday morning, Jerry visits EPGD law offices, located in the heart of Coral Gables, and enters the office—eager to get his questions answered; can he potentially avoid this $35,000.00 stamp tax?
“$35,000.00 for a stamp,” Jerry explains to Eric, the principle attorney at EPGD Law. Jerry continues, “This transfer is just a mere change in the form of the stockholder’s equity in the corporation. I do not understand why I have to pay this “stamp” tax!” Eric, through countless hours of reading Florida State Statutes, understands that the elements for the application of documentary stamp tax are a conveyance of an interest in real property to a purchaser for consideration. Id. Eric proceeds by questioning Jerry, specifically regarding Jerry’s ownership of Red, Inc. and its subsidiary, Blue, LLC. Eric thinks to himself, during the exchange with Jerry, and Eric ponders whether there is a “purchaser” or “consideration” when a grantor (here Red, Inc.) transfers real estate to a wholly-owned transferee (here Blue, LLC). Nearing the conclusion of the initial consultation, Eric describes to Jerry, “Because beneficial ownership of the real estate did not actually change, we can argue that the transfer of the real property was merely a book transaction, and, therefore, Blue, LLC. should not be considered a ‘purchaser’ as required by the statute. The idea is to argue there was no ‘exchange of consideration.’” Jerry suddenly ecstatic, replies “Do you think that would work?!” At the conclusion of the consultation, Eric tells Jerry he will contact him as soon as his firm completes the research.
Thursday morning, Eric promptly and personally, contacts Jerry and explains the concept of a “Crescent Deed.” There was a decision in 2003, which may result in the Florida Documentary Stamp Tax applying to substantially fewer transfers of Florida real estate. Crescent Miami Center, LLC v. Department of Revenue, 857 So. 2d 904 (Fla. 3d D.C.A. 2003). Eric continues to explain that in this case, the court held that a transfer of real estate from a parent transferor to its wholly owned transferee, absent any exchange of value, is not subject to the Florida Documentary Stamp Tax on deeds. Moreover, even if the parties have to pay the Documentary Stamp tax initially, taxpayers may be able to obtain refunds of Documentary Stamp Tax for real estate transfers for which Documentary Stamp Tax was previously paid. Thus, a taxpayer who makes a tax payment in error may file an application for refund within three years after the right to the refund has accrued or else the right is barred. Fla. Stat. §215.26 (2005).
Jerry is satisfied, and extremely impressed. Jerry explains during the phone conversation with Eric, that he “Frequently conducts varies types of real estate conveyances.” Jerry asks, curiously, “Does this rule potentially apply to other types of conveyances?” Eric, assiduously explained, this exemption of taxation may apply to the four following scenarios, a transfer of real estate from:
- A parent entity to a owned subsidiary or from a subsidiary to its sole parent;
- An owner to a single member limited liability company or from a single member limited liability company to its sole owner;
- A husband and wife as tenants by the entirety to a limited liability company in which the husband and wife each own one-half of the membership interests or a transfer from such limited liability company to the husband and wife;
- An owner of real estate in a joint tenancy to an entity in which the ownership is proportionate to the ownership in the joint tenancy or a proportionate transfer of such real estate from the entity to its owners who received undivided interests in the property.
If you are contemplating transferring property and need more information on avoiding the documentary stamp taxes, please contact EPGDLaw. EPGD law is located in Coral Gables and can be reached by calling (786) 837-6787 or by emailing us to schedule a consultation with you. See more at: https://epgdlaw.com.