Did deeds transferring three unencumbered rental properties from an individual to separate wholly owned LLCs owe more than minimum Florida documentary stamp tax?

Plain-English summary

The Florida Department of Revenue concluded that each deed was subject only to the 70-cent minimum documentary stamp tax. The individual contributed unencumbered property to a wholly owned LLC without receiving money, added ownership, debt relief, or another benefit.

The taxpayer owned three residential rental properties and planned to place each parcel into a separate LLC. Every LLC would be fully formed and wholly owned by the taxpayer before the contribution. None of the properties had a mortgage, lien, or other encumbrance.

There was no consideration for the deeds

Section 201.02 taxed deeds based on consideration. The statute and rule included money, discharged obligations, mortgage debt, other encumbrances, and property received in exchange.

Here, the taxpayer received no additional LLC interest or other consideration. Because the LLCs were already wholly owned, the contribution did not change the taxpayer's ownership proportion.

The Department followed Kuro and Crescent Miami

In Kuro, individuals transferred unencumbered property to an entity they owned in the same proportions and received no consideration. The court held that documentary stamp tax was not due on the value of the property.

The ruling said Kuro applied only to capital contributions where no other exchange or benefit was received. It also relied on the Florida Supreme Court's May 19, 2005 decision in Crescent Miami.

Applying those cases, the Department imposed only the minimum tax of $0.70 on each deed.

What this means for you

Rental-property owners forming LLCs

A deed to your wholly owned LLC may receive minimum-tax treatment only when the property is unencumbered and you receive no new ownership, cash, debt relief, or other benefit.

Real-estate and closing professionals

Verify mortgages, liens, and every form of consideration before applying this ruling. Even debt not formally assumed can count as consideration under the quoted statute.

Multi-owner entities

Ownership proportions matter. The case reasoning relied on the transferor's economic ownership staying the same after the contribution.

Common questions

Q: How many properties were transferred?
A: Three residential rental properties, each to a separate LLC.

Q: Were the properties mortgaged?
A: No. They were unencumbered by any lien, mortgage, or other encumbrance.

Q: Did the taxpayer receive additional LLC interests?
A: No. Each LLC was already wholly owned, and no added interest or other consideration was issued.

Q: What tax did the Department require?
A: The 70-cent minimum on each deed.

Q: Would the result necessarily apply if the property had debt?
A: No. The ruling depended on the properties being unencumbered, and the cited law treated mortgage debt and other encumbrances as consideration.

Citations and references

• Fla. Stat. § 201.02(1) — documentary stamp tax based on consideration for a deed
• Fla. Admin. Code r. 12B-4.012(1)-(2) — rate and consideration definition
• Kuro, Inc. v. Department of Revenue, 713 So. 2d 1021 (Fla. 2d DCA 1998) — no consideration for a proportionate contribution of unencumbered property
• Crescent Miami, LLP v. Department of Revenue, Florida Supreme Court Case No. SC03-2063 (May 19, 2005) — decision relied on by the Department

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05B4-003

Original ruling text

SUMMARY
QUESTION: Whether deeds conveying unencumbered real property from individual to limited liability companies are
subject to only the minimum tax
ANSWER - Based on Facts Below: The conveyances of unencumbered property from individual to the limited
liability companies were conveyed without consideration and not subject to tax pursuant to Kuro, Inc. v. Department of
Revenue, 713 So2d 1021 (Fla., 2nd DCA, 1998).

June 21, 2005

Re: Technical Assistance Advisement No. 05B4-003
Documentary Stamp Tax - Consideration
Section 201.02(1), F.S.
Rule 12B-4.012(1) and (2), F.A.C.
XXX (hereinafter Taxpayer)
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 Taxpayer, an individual, owns three residential rental properties. It has been determined that it would be
expedient to place ownership of each of the parcels into a separate limited liability company. All the properties are
unencumbered by a lien, mortgage or other encumbrance.
Each limited liability company is wholly owned by the Taxpayer and will have been formed in all respects prior to
the contribution of real property thereto. No additional limited liability company interest or other forms of consideration
will be issued to the Taxpayer in connection with the contribution.
Request for Advisement
A ruling is requested: (a) based upon the facts as set forth above and (b) the case of Kuro, Inc. v. Department of
Revenue, 713 So.2d 1021 (Fla., 2nd DCA, 1998), that the deeds that transfer the properties will only be subject to
minimum tax.
Provisions of Law and Discussion

Section 201.02 (1) F.S., provides:
On deed, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein,
shall be granted, assigned, transferred, or otherwise conveyed to, or vested in the purchaser or any other person by
his or her direction, on each $100 of the consideration therefore the tax shall be 70 cents. When the full amount of the
consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed,
instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the
consideration therefor. For purposes of the section, consideration includes, but is not limited to, the money paid or
agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or
other encumbrance, whether or not the underlying indebtedness is assumed. If the consideration paid or given in
exchange for real property or any interest therein includes property other than money, it is presumed that the
consideration is equal to the fair market value of the real property or interest therein.
Rule 12B-4.012, F.A.C., Rate, Consideration, provides in subsection (1):
Documentary Stamps; Rate, Computation: Effective August 1, 1992, the tax under Section 201.02, F.S., on deeds
instruments, documents, or writings whereby any lands, tenements, or other realty or any interest therein is
transferred or conveyed is 70 cents on each $100 or fractional part thereof of the consideration paid, or to be paid.
When the full amount of the consideration is not shown in the face of such deed, instrument, document, or writing, the
tax shall be at the rate of 70 cents on each $100 or fractional part thereof of the consideration therefor. The 70 cent
rate applies except for any county that has implemented the provisions of Section 201.031, F.S. As of August 1, 1992,
this would apply only to Dade County, where the rate of 60 cents applies.
Rule 12B-4.012 (2), F.A.C., Definitions, provides:
(a) "Consideration" under Section 201.02, F.S., includes, but shall not be limited to, money paid or to be paid, the
amount of any indebtedness discharged by a transfer of any interest in real property, mortgage indebtedness and
other encumbrances which the real property interest being transferred is subject to, notwithstanding the transferee
may be liable for such indebtedness. Where property other than money is exchanged for interests in real property,
there is the presumption that the consideration is equal to the fair market value of the real property interest being
transferred.
(b) "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.
In Kuro, Inc. v. Department of Revenue, 713 So.2d 1021 (Fla., 2nd DCA, 1998), two individuals conveyed
unencumbered real property into an artificial legal entity which they wholly owned. The individuals’ ownership interests
in the real property was in the same proportion as their ownership interests in the artificial legal entity. The court found
that no consideration existed for the conveyance of the real property and that tax was not due on the deed.
Furthermore, Kuro applies only to capital contributions, where no other exchange or benefit is received for the
conveyance of the property.

Position of the Department
Based on the Kuro case, supra, the documentary stamp tax imposed by s. 201.02(1), F.S., will not apply to the
conveyances from the individual to his or her wholly owned limited liability companies, other than the minimum tax of
$.70. This has been established by the decision of the Florida Supreme Count in Crescent Miami, LLP v. Dep't of Rev.
, Case No. SC03-2063, that was issued May 19, 2005.
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
CG/mh