Florida Supreme Court Holds Transfer To 100% Owned Entity Not Subject
To Real Estate Transfer Tax
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The Florida Supreme Court recently decided an important real estate transfer
tax case, holding that the transfer of unencumbered property to a 100% owned
entity is not subject to the documentary stamp tax on the conveyance of
real estate. This will make it much cheaper to transfer unencumbered real
property to a Special Purpose Entity. Clients that have paid the tax on
such transfers within the last three years should file a refund claim with
the Department of Revenue.
|“…the transfer of unencumbered
property to a 100% owned entity is not subject to the documentary
stamp tax on the conveyance of real estate”
In its decision, the Supreme Court reversed Crescent Miami Center
v. Department of Revenue, a case where the Miami Center office complex
was transferred to an SPE that was 100% owned by the fee owner. The property
owner paid the real estate transfer tax, and filed a refund claim, which
was rejected by the Department of Revenue. Litigation followed, and the
Third District Court of Appeals ruled that the transfer to the SPE was subject
to the tax. In the new decision, the Supreme Court reversed, holding that
the Legislature, when amending the law in 1990, did not intend to change
earlier case precedent that such transfers were exempt from tax.
In order for such a transfer to be exempt from the tax, the property
must not be subject to any debt. (Otherwise tax will be due based on the
amount of the outstanding balance on any mortgages encumbering the property).
In addition, the property cannot be transferred to the controlled entity
in exchange for an interest in the entity.
Property owners that have paid the transfer tax conveyances to 100% owned
entities in the last three years can file a refund claim. However, the Department
of Revenue will likely not be in any rush to make the refund. Refund claims
will be carefully scrutinized, so they need to be very detailed, and should
include evidence that the property was not encumbered, and that no interest
in the entity was received for the transfer.
This new decision also might lead some to structure transfers of real
estate to unrelated third parties so that no transfer tax would be due.
This would be done by transferring unencumbered property to a 100% owned
entity. The owner would then transfer the entity (rather than the real property)
to the purchaser. Since there is no real estate transfer tax due on the
transfer of an interest in an entity, such a series of transfers would,
on their face, be exempt from tax. Caution should be exercised, however,
in the event the Department of Revenue takes the position that the step
transaction doctrine is applicable. In such a case, the Department might
argue that the transaction is tantamount to a sale of the fee interest to
the purchaser, and subject to tax. The Department has yet to take this position,
but it is a possibility clients should be aware of. Since all parties to
a transaction are liable for the tax, this potential tax liability is something
for all parties to be wary of, even if the contract requires the other side
to pay any applicable transfer tax. Finally, there is also the possibility
that the legislature could weigh in on this matter as well, enacting legislation
that subjects to tax transfers to 100% owned entities.
This Alert was written by
Marvin A. Kirsner in the
Boca Raton office. Please contact Mr. Kirsner at 561.955.7600 or your Greenberg
Traurig liaison if you have any questions regarding the subject matter of
© 2005 Greenberg Traurig
For more information, please review our Tax Practice description, or
feel free to contact one of our attorneys.
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.