Doc Stamps are Still Due on Transfers of Encumbered Property to Wholly Owned Entities
In 2005, the Florida Supreme Court held 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 the documentary stamp tax in section 201.02(1) [F.S].” Crescent Miami Center, LLC v. Florida Department of Revenue, 903 So.2d 913, 919 (Fla. 2005). Thus, the transfer of property to a company wholly owned by the grantor without consideration is generally not subject to documentary stamp tax other than for nominal consideration. Prior to the court’s ruling in Crescent Miami Center transfers of title to a wholly owned Corporation or Limited Liability Company were taxable irrespective of the relationship of ownership between the grantor and the grantee or the consideration exchanged.
But there could still be a catch! Whether documentary stamp taxes are due to the Department of Revenue (DOR) on such transfersdepends on various factors. The DOR interprets the Florida Supreme Court’s ruling to mean no documentary stamp tax is due on a deed when the grantor is directly or indirectly owned in the same proportionate interests in the real property as the grantee is before and after the transfer of title[1]. However, this exemption to documentary stamp tax only applies when the property is not encumbered by a mortgage or lien. Therefore, documentary stamp tax is due on the transfer of a property that is encumbered by a mortgage and/or on the amount of any other consideration paid for the transfer of the property. Furthermore, Florida Statute Section 201.02(1) provides “consideration includes…the amount of any mortgage…whether or not the underlying indebtedness is assumed.” The tax is then calculated based on the outstanding balance of the mortgage.
There is a strong argument to be made that the mortgage should not be consideration when it is assumed by the grantee, but that issue has not yet come before the Court.
In the meantime, if you are transferring real property into an entity or between one entity and another, be well informed of whether documentary stamp taxes are due on your property transfers and ensure your deeds contain the appropriate language the Department of Revenue looks for to exempt a transfer from documentary stamp taxes.
[1] Note: Changes of ownership in the entity following the transfer could trigger tax if not planned properly.
By: Michelle Diaz Cofiño, Esq. Ph: (305) 444-7662 Email: Michelle@AristaLaw.com
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