Changes to Florida’s Documentary Stamp Tax
On June 10, 2009, Florida Governor Charlie Crist signed a bill amending the Florida documentary stamp tax (the “transfer tax”) to close a tax loophole for certain real property transfers.
In the 2005 case, Crescent Miami Center, LLC v. Florida Department of Revenue, the Florida Supreme Court announced that a transfer of unencumbered property (property not subject to a mortgage) to a wholly owned subsidiary where nothing of value is exchanged is not subject to Florida’s transfer tax. This decision allowed taxpayers to transfer a property to a wholly owned L.L.C. then transfer the interest in the L.L.C. to a buyer without ever paying the transfer tax. This has been referred to as a “drop and swap” technique to avoid the Florida transfer tax. The effect on transfer tax collection in the wake of this decision was profound.
The new law eliminates this “drop and swap” technique. The law provides that where a property is transferred without full consideration (payment of money, property or mortgage) to a wholly owned entity, the entity will be considered a “conduit entity”. If an interest in the conduit entity is transferred within three years of the original transfer, the transfer tax will be due at the customary rate. The new law only applies to transfers to a conduit entity after July 1, 2009.
The new law exempts out transfers for estate planning purposes, such as gifts of an interest in a conduit entity or a transfer of an interest in a conduit entity to an irrevocable grantor trust for estate planning purposes.
The transfer tax laws have changed drastically over the last few years. The new law is the latest incarnation to apply to the transfers of real property.
If you would like more information on the Florida Documentary Stamp Tax, please call or email Hoffman & Associates today.
404.255.7400
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