Was documentary stamp tax due on an LLC-interest assignment made before the LLC bought Florida real property?

Plain-English summary

The Florida Department of Revenue concluded that no documentary stamp tax was due when one member assigned all of her LLC interest before the LLC acquired Florida real property. At the assignment date, the LLC owned only a purchase contract, not an interest in the real property, so it was not a conduit entity.

The LLC later bought the property from an unrelated estate in a short sale. The tax paid on that deed was proper if the statutory short-sale requirements were satisfied and no other consideration existed. The forgiven mortgage debt would not count as consideration under the short-sale rule when those conditions were met.

The later property purchase also did not make the LLC a conduit entity on these facts because the estate transferring the property held no membership interest in the LLC.

What this means for you

LLC members and real-estate buyers

The timing and sequence of an equity transfer and a property acquisition can determine whether Florida's conduit-entity rule applies.

Closing professionals and tax advisors

For a short sale, verify every statutory condition and identify any additional consideration before calculating documentary stamp tax.

Common questions

Q: Was tax due on the LLC membership-interest assignment?
A: No, because the LLC did not own Florida real property at that time and was not a conduit entity.

Q: Was the deed tax necessarily correct in every short sale?
A: No. The conclusion depended on satisfying section 201.02(11) and having no other consideration.

Q: Did the estate make the LLC a conduit entity by transferring the property?
A: No, because the estate did not own a membership interest in the LLC.

Citations and references

• Fla. Stat. §§ 201.02(1)(a), 201.02(1)(b), 201.02(11), and 213.22
• Fla. Admin. Code r. 12B-4.060

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 15B4-002

Original ruling text

Executive
Director
Marshall Stranburg

QUESTION: WAS THE PROPER DOCUMENTARY STAMP TAX PAID ON A DEED THAT
TRANSFERRED FLORIDA REAL PROPERTY PURSUANT TO A SHORT SALE FROM AN
ESTATE TO A LIMITED LIABILITY COMPANY?
ANSWER: THE PROPER AMOUNT OF DOCUMENTARY STAMP TAX WAS PAID PROVIDED
THAT THE REQUIREMENTS PURSUANT TO 201.02(11), F.S., WERE MET AND THAT THERE
WAS NO OTHER CONSIDERATION.
QUESTION: WAS DOCUMENTARY STAMP TAX DUE ON A TRANSFER OF MEMBERSHIP
INTEREST IN A LIMITED LIABILITY COMPANY.
ANSWER: NO DOCUMENTARY STAMP TAX WAS DUE ON THE TRANSFER OF THE
MEMBERSHIP INTEREST BECAUSE THE LIMITED LIABILITY COMPANY WAS NOT A
CONDUIT ENTITY AS IT DID NOT OWN AN INTEREST IN FLORIDA REAL PROPERTY WHEN
THE MEMBERSHIP INTEREST WAS SOLD. ADDITIONALLY, THE LIMITED LIABILITY
COMPANY DID NOT BECOME A CONDUIT ENTITY WHEN THE PROPERTY WAS
TRANSFERRED BECAUSE THE ESTATE DID NOT HAVE A MEMBERSHIP INTEREST IN THE
LIMITED LIABILITY COMPANY.
May 6, 2015
Re:

Technical Assistance Advisement No. 15B4-002
Documentary Stamp Tax - Transfer of membership interest of a limited liability company and
transfer of real property between unrelated parties
Sections 201.02(l) (a), (b) and 201.02(11), Florida Statutes (F.S.)
XXXXX (Member 1)
XXXXX (Member 2)
XXXXX (LLC)
XXXXX (Estate)
XXXXX (Lender)

Dear XXXXX:
This is in response to your request dated XXXXX, for a Technical Assistance Advisement (TAA)
pursuant to s. 213.22, F.S., and Rule 12-11, Florida Administrative Code (F.A.C.), regarding whether
documentary stamp tax is due on a transfer of membership interest in a limited liability company and
whether the proper amount of tax was paid on a deed between unrelated parties. An examination of your
letter has established that you have complied with the statutory and regulatory requirements for issuance
of a TAA. Therefore, the Department is hereby granting your request for a TAA.
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Sue Harlan, Interim Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

FACTS AS PRESENTED BY PRACTITIONER
On XXXXX, you explained, Member 1 formed the LLC, for the sole purpose of purchasing a single
family residence. You stated that Member 1 was the sole member of the LLC. In XXXXX, the LLC
entered into a contract to purchase the property for $XXXXX. You further explained that prior to the
LLC’s purchase of the property, Member 1 sold all her membership interest in the LLC for $XXXXX to
Member 2. No documentary stamp tax was paid on the sale of the membership interest. After the sale of
Member 1’s membership interest in the LLC, the LLC purchased the property from the Estate, gaining
ownership via a personal representative’s deed, for the contracted sale price of $XXXXX. Documentary
stamp tax of $XXXXX was paid on the deed that transferred the property to the LLC.
Additionally, you stated that the Estate had no membership interest in the LLC, and documentary stamp
tax on the deed was paid based on the full $XXXXX consideration for the property.
The documents presented for examination are as follows:
1.
2.
3.
4.
5.
6.

Residential Contract for Sale and Purchase between the Estate and LLC (Contract).
Short Sale Approval (dated XXXXX) from the Lender (Approval Letter).
Agreement for Purchase and Sale of Membership Interests of LLC.
Assignment of Membership Interests of LLC from Member 1 to Member 2 (Assignment).
U.S. Department of Housing and Urban Development Settlement Statement.
Personal Representative’s Deed recorded XXXXX, in Official Records of XXXXX Book/Page
XXXXX/XXXXX (Deed).
REQUESTED RULING

You requested that the Department confirm that the documentary stamp tax paid on the Deed in the
amount of $XXXXX was the proper amount of tax due. You also requested that the Department confirm
that no documentary stamp tax was due on the Assignment.
LAW AND DISCUSSION
Section 201.02(1)(a), F.S., imposes documentary stamp tax on deeds, instruments, or writings whereby
any lands, tenements, or other real property, or any interest therein, shall be granted, assigned, transferred,
or otherwise transferred to, or vested in, the purchaser or any other person by his or her direction. The tax
rate is 70 cents on each $100 of the consideration or portion thereof, for the property interest transferred.
For purposes of this 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. 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.

Technical Assistance Advisement
Page 3

Section 201.02(11), F.S., provides that the taxable consideration for a short sale transfer does not include
unpaid indebtedness that is forgiven or released by a mortgagee holding a mortgage on the grantor’s
interest in the property. For purposes of this subsection, the term “short sale” means a purchase and sale
of real property in which all of the following apply:
(a) The grantor’s interest is encumbered by a mortgage or mortgages securing
indebtedness in an aggregate amount greater than the consideration paid or given by the
grantee.
(b) A mortgagee releases the real property from its mortgage in exchange for a payment
of less than the total of the outstanding mortgage indebtedness owed to the releasing
mortgagee.
(c) The releasing mortgagee does not receive, directly or indirectly, any interest in the
property transferred.
(d) The releasing mortgagee is not controlled by or related to the grantor or the grantee.
The documentary stamp tax paid on the Deed at the time of recordation was the tax due based on the
consideration of $XXXXX. The $XXXXX was the price agreed upon in the Contract and in the Approval
Letter. The cancellation of any debt by the Lender owed by the Estate would not be consideration for the
transfer if the requirements of s. 201.02(11), F.S., were satisfied. Pursuant to the Approval Letter, the
Lender agreed to accept an amount less than the total amount the Estate owed as payment of the
indebtedness in full. The Lender would release the property from the lien if all the conditions in the
Approval Letter were met. The requirement of paragraphs (a) and (b) of s. 201.02(11), F.S., were satisfied
if the conditions in the Approval Letter were met and the indebtedness was discharged or released in full.
The requirements of paragraphs (c) and (d) are also met as long as the releasing mortgagee, the Lender,
did not receive any interest in the property transferred and is not controlled by or related to either the
grantor or the grantee, the Estate or the LLC.
Based on the information provided, at the time of the Assignment, the LLC only owned a contract to
purchase the Florida real property and did not own an interest in Florida real property. Also, the LLC did
not become a conduit entity as a result of its purchase of the real property from the Estate, as the Estate
did not own a membership interest in the LLC. Thus, the LLC is not a conduit entity according to section
201.02(1)(b), F.S.
Effective July 1, 2009, s. 201.02(l)(b), F.S., and Rule 12B-4.060, F.A.C., provide that an entity that
acquires Florida real property on or after July 2, 2009, from a grantor who owns an interest in the entity,
for consideration less than the property’s fair market value, is a conduit entity. If the grantor of the
property transfers a membership interest in the conduit entity within three years of the entity acquiring the
property that caused it to become a conduit entity, documentary stamp tax is due on the transfer of the
membership interest, based on the consideration attributable to the property. A mortgage encumbering the
property at the time of the membership transfer is consideration.

Technical Assistance Advisement
Page 4
DEPARTMENT’S POSITION
As to the requested advisement, the proper documentary stamp tax was paid on the Deed, as long as the
short sale was made pursuant to the Approval Letter, the requirements of s. 201.02(11), F.S., were met,
and there was no other consideration for the property transferred. No documentary stamp tax was due on
the Assignment, because the LLC was not a conduit entity at the time the membership interest in the LLC
was sold.
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 documents are public records under
Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details, which might lead to identification of the taxpayer, must be
deleted before disclosure.
In an effort to protect the confidentiality of such information, we request you provide the undersigned with
an edited copy of your request for Technical Assistance Advisement, backup material and response within
fifteen days of the date of this advisement.

Sincerely,

Henry Small
Tax Law Specialist
Technical Assistance and Dispute Resolution
HJS/
Record ID: 189304