Was documentary stamp tax due on a nonprofit's deed transferring mortgaged real estate as part of a program merger?

Plain-English summary

Documentary stamp tax was due on the deed transferring the real estate. Two nonprofit corporations combined similar program activities, but both corporations continued to exist. One transferred mortgaged property to the other by special warranty deed, and the grantee supplied the funds used to pay off the mortgage at closing.

The Department treated that mortgage payoff as consideration furnished by the grantee. Under the rate applied in the ruling, the deed tax was 70 cents per $100 of the mortgage balance encumbering the property.

What this means for you

Calling a transaction a program merger and using nonprofit entities did not by itself remove deed tax. The Department focused on the real-property conveyance and the consideration supplied at closing.

Common questions

Q: Was the deed taxable even though the entities were nonprofits? Yes, on the facts presented.

Q: What counted as consideration? The funds the grantee provided to pay off the mortgage at closing.

Q: What amount did the ruling use as the tax base? The balance of the mortgage encumbering the transferred property.

Citations and references

• Fla. Stat. § 201.02(1) — tax on deeds and consideration
• Fla. Admin. Code r. 12B-4.012(1), (2) — deeds and consideration
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02B4-004

Original ruling text

SUMMARY

QUESTION: Will tax be due on the deed conveying real estate
pursuant to the Program Merger?

ANSWER - Based on Facts Below: Based upon the provision of
the Program Merger Agreement two ongoing corporations have
agreed to merge a similar activities of each corporation
into one program. Real property has been transferred as a
result of the agreement. Tax will be due on the deed
transferring the real property based on the money paid at
time of conveyance.

Jul 11, 2002

Re: Technical Assistance Advisement No. 02B4-004
Documentary Stamp Tax - Program Merger Agreement
Section 201.08, F.S., and Rule 12B-4.012(1), (2), F.A.C.
XXX (hereinafter Corporation I)
XXX (hereinafter Corporation II)

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 and Merger Agreement

The two corporations in the transaction are not-for-profit
corporations. Corporation II will transfer real property by
Special Warranty Deed to Corporation I in connection with a
certain Program Merger Agreement ("Agreement"). The real
property is currently encumbered by a mortgage which will be
paid off at the closing on the property. Under the Agreement,
the parties desire that Corporation I assume responsibility for
the operation of the Program. The transfer of the property

being conveyed in conjunction with the Program merger contains
an express reverter of title back to Corporation II if for six
consecutive months commencing within five years of the closing
date, Corporation I does not use the real estate for its
intended purpose. Corporation I will assume the mortgage debt
on the property. Although the Program is being merged, both
Corporation I and Corporation II will continue to exist
subsequent to the merger. Pursuant to the Agreement,
Corporation II, which is transferring the Program, is required
to exist for at least five years from the closing date of the
Agreement.

Request for Advisement

You requested a Technical Assistance Advisement advising
whether documentary stamp tax will be payable on the conveyance
of real estate pursuant to the Program Merger Agreement.

Provisions of Law

Pursuant to s. 201.02(1), F.S., and Rule 12B-4.012(1) and
(2), F.A.C., deeds conveying or transferring real property or
interest therein are subject to tax based on 70 cents per $100
of the consideration or portion thereof. Consideration
includes, but is not limited to, money paid or to be paid, plus
the amount of any mortgages, or other encumbrances on the real
property being conveyed.

Position of the Department

The deed is a document subject to the tax. The grantee is
providing funds to pay off the mortgage at closing.
Accordingly, the Special Warranty Deed will require tax based on
$.70 per $100 of the balance of the mortgage encumbering the
real property, that is, the amount of consideration provided by
the grantee.

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