Was an investor's deed of real property to his wholly beneficially owned common-law business trust subject to documentary stamp tax?

Subject

Business Trust

Plain-English summary

The deed from the investor to his common-law business trust was subject to documentary stamp tax. The beneficial units received in exchange were personal property with exchangeable value, so they counted as consideration even though the certificate disclaimed a direct legal or equitable interest in the trust's real estate.

The outstanding mortgage also counted as consideration. The taxable amount was the greater of the real property's fair market value or the mortgage balance.

What this means for you

Moving property into a wholly beneficially owned business trust was not treated as a tax-free transfer merely because the investor retained the economic interest through trust units.

Common questions

Q: Was the conveyance taxable? Yes.

Q: Did the beneficial units count as consideration? Yes, because they were personal property with exchangeable value.

Q: What amount controlled the tax base? The greater of fair market value or the outstanding mortgage.

Citations and references

• Fla. Stat. § 201.02(1) — documentary stamp tax on real-property conveyances
• Fla. Stat. ch. 609 — common-law business trusts
• Fla. Admin. Code r. 12B-4.012(2)(b) — property as consideration
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01B4-009

Original ruling text

SUMMARY

QUESTION: Is a conveyance from the investor to a "Common
Law Business Trust" subject to tax?

ANSWER - Based on Facts Below: Yes. The conveyance is
subject to tax based on the greater of the outstanding
mortgage or fair market value of the real property.

Oct 03, 2001

Re: Technical Assistance Advisement No. 01B4-009
Documentary Stamp Tax - Business Trust
Section 201.02, F.S.
Rule 12B-4.012(2)(b), F.A.C.
XXX (hereinafter Investor)
XXX (hereinafter Business Trust)

Dear :

Your letter requesting a Technical Assistance Advisement
has been referred to this office for response. The specific
scenario for which advice has been requested is summarized
below.

Facts as Presented by Petitioner

The question relates to the fact that the subject company
is a "Common Law Business Trust". This type of entity is
created by a written trust agreement. It is not an entity like
a corporation, partnership, etc., and it is not filed with any
Secretary of State. The deed in question is from the investor to
his Business Trust, under which the investor is the only
beneficiary.

The ownership interest in the trust is reflected in a
Certificate of Units of Ownership. You believe the certificate
contains provisions that substantiate that the transfers to this

type of trust agreement are in fact exempt from documentary
stamp tax. Those provisions of the trust are:

(a) that only Units of beneficial interest are conveyed;

(b) that the Units are non-assessable and non-taxable;

(c) that the Certificate conveys no legal or equitable
interest of any kind in the trust assets, management,
or control thereof (which includes the subject real
property);

(d) that the benefits conveyed consist solely of the
distribution of income from the earnings of the trust
assets; and

(e) that the Certificate recites that it is evidence of
love and affection.

Request for Advisement

You request an advisement whether a conveyance from the
investor to a "Common Law Business Trust" is subject to tax.

Provisions of Law

Section 201.02(1), F.S., imposes tax on deeds that convey
real property or an interest in real property. Consideration
for the deed includes money paid or to be paid, mortgage or
other encumbrance on the property conveyed. When the
consideration includes property other than money, the
consideration is presumed to be equal to the fair market value
of the property conveyed.

Rule 12B-4.012(2)(b), F.A.C., provides:

"Property other than money" includes, but shall not be
limited to, property that is corporeal or incorporeal,
tangible or intangible, visible or invisible, real or
personal; everything that has an exchangeable value or
which goes to make up wealth or estate.

The creation of a Common Law Business Trust is authorized
under chapter 609, F.S. The shares, however designated in the
trust, are declared for tax purposes to be personal property and
not an interest in land. The Certificate of Units of Ownership
indicates that the investor owns 100 units of beneficial
interest in the trust, which is personal property.

Position of the Department

The ownership interest in the trust is personal property
and represents an exchangeable value or that which goes to make
up wealth or estate. An ownership interest in the trust
received in exchange for the conveyance of the real property to
the trust is consideration for the conveyance. Also, the amount
of the mortgage on the property is consideration. If the
mortgage is greater than the value of the property, the
consideration is equal to the mortgage. If the value of the
real property is greater than the mortgage, the consideration is
equal to the value of the property. Accordingly, the deed is
subject to tax based on the greater of the fair market value of
the real property or the mortgage on the property.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,

the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Celestine Grantham
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

CG/mh