GT Alert

Florida Supreme Court Holds Transfer To 100% Owned Entity Not Subject To Real Estate Transfer Tax

July 2005

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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.

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 this Alert.

© 2005 Greenberg Traurig

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