Did CDD bond assessments count as consideration when 185 lots were sold for a nominal cash price?

Plain-English summary

The CDD assessments were part of the taxable consideration. The developer proposed selling 185 lots to an unrelated buyer for $1 while the buyer accepted the lots subject to community development district bond financing.

Although the bonds themselves were exempt from state tax, the conveyance was not exempt. Passing the special-assessment liability to the buyer counted as consideration, so documentary stamp tax applied to the purchase price including the balance of the CDD bond debt.

What this means for you

A nominal cash price does not necessarily create a nominal documentary-stamp-tax base. Mortgages, special assessments, and other encumbrances transferred with real property can count as consideration even when the buyer does not formally assume the underlying debt.

Common questions

Q: Did the bonds' tax exemption make the lot transfer exempt? No. The Department distinguished the exempt bonds from the taxable real-property conveyance.

Q: Why did the assessments count? The buyer took the lots subject to them, shifting the associated liability from the seller to the buyer.

Citations and references

• Fla. Stat. § 201.02(1) — consideration for real-property conveyances
• Fla. Stat. ch. 190 and § 190.021(6) — CDD authority and bond exemption
• Fla. Admin. Code r. 12B-4.012 — documentary stamp tax on deeds
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02B4-011

Original ruling text

SUMMARY

QUESTION: What amount of documentary stamp tax, if any,
will be imposed on the proposed bulk transfer of Lots.

ANSWER - Based on Facts Below: The documentary stamp tax is
imposed on the purchase price including the non-ad valorem
special assessments associated with the Bond financing.

Dec 06, 2002

Re: Technical Assistance Advisement No. 02B4-011
Documentary Stamp Tax - Transfer of Lots Encumbered by Bond
Financing
Section 201.02(1), F.S., and Rule 12B-4.012, F.A.C.
XXX (hereinafter Grantor)
XXX (hereinafter CDD)
XXX (hereinafter Subdivision)
XXX (hereinafter Third Party)

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 CDD was established as a local unit of special purpose
government in accordance with the Uniform Community Development
District Act of 1980, Chapter 190, F.S. The CDD was established
to provide the necessary infrastructure, including, by way of
example, a surface water management system, collector roadway
and intersection improvements, and water and sewer improvements,
for the Subdivision being developed by the Grantor.

In accordance with the Act, the CDD issued and sold capital

improvement revenue bonds (the "CDD Bond Financing" or "Bonds")
to finance the above referenced infrastructure. The Bonds are
issued in three Series. Two are short term bonds, and one is a
long term bond. Principal and interest on the Bonds is payable
solely from and is secured by a lien upon and a pledge of the
revenues derived from special assessments levied ratably by the
CDD on all taxable real property within the District.

The short term bond assessments are paid by the lot owner
directly to the CDD semi-annually. In addition, the short term
bonds are subject to "mandatory prepayment", which requires
payment of the principal allocated to each benefitted lot within
the subdivision at the time the lot is subject to a real estate
closing to a retail buyer. This provision does not apply to the
sale in question because it is a bulk, not retail sale. The
long term bond assessments are payable annually and appears on
the property tax bill as a non-ad valorem special assessment.

The Developer, who is also the Grantor, has now entered
into a purchase Contract (the "Contract") with an unrelated
Third Party. The Third Party is to purchase 185 lots (the
"Lots") in the Subdivision for the purchase price of $1.00,
provided the Third Party accepts the Lots subject to the CDD
Bond Financing.

Although the Contract is atypical in that the Grantor is
receiving only nominal consideration, it is believed this is a
reflection of the economic reality that the financial burden of
the Bonds, when passed through to the retail lot/home purchaser,
exceeds what the Grantor may expect as a return on the sale of a
lot/home package in the local market area.

Request for Advisement

You request an advisement specifying the amount of
documentary stamp tax, if any, that will be imposed pursuant to
Section 201.02, F.S., and Rule 12B-4.012, F.A.C., on the
proposed bulk transfer of the Lots, pursuant to the Contract.

Provisions of Law

Pursuant to Section 201.02(1), F.S., and Rule 12B-4.012(1)
and (2), F.A.C., tax is imposed on deeds or instruments that
convey real property or an interest in real property. For the
purpose of s. 212.02, F.S., consideration includes, but is not
limited to, money paid or to be paid, and mortgages, or other
encumbrances on the property, whether or not the underlying
indebtedness is assumed. Where the consideration given is other
than money, it is presumed that the consideration is equal to
the fair market value of the real property conveyed.

The CDD Bonds are specifically authorized by Chapter 190,
F.S., and are exempt from all state taxes pursuant to Section
190.021(6), F.S. The Bonds provide the CDD with the funds for
the infrastructure of the district being developed. The
principal and interest of the Bonds are paid from special
assessments on the taxable property in the district. One
hundred eighty five of the Lots in the district are being sold
to the Third Party for a consideration of $1.00, and are taken
subject to the Bond financing.

Position of the Department

While the Bonds are exempt from tax, the conveyance of real
property subject to the Bond financing is not exempt from
documentary stamp tax. Section 201.02(1), F.S., provides that
consideration for a conveyance includes any encumbrance on the
property, whether or not the underlying indebtedness is assumed.
The Lots are conveyed subject to the non-ad valorem special
assessments associated with the Bond financing. Part of the
consideration for purchase of the real property is the passing
of the liability for the special assessment from the Grantor to
the buyer. The Purchase Contract states that the purchase price
includes the balance of the CDD bond debt. Therefore, this
liability is to be included as part of the total consideration
for the conveyance of the Lots, subject to documentary stamp
tax.

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