Was documentary stamp tax due when a partnership distributed property to a partner who had not contributed it, even if no mortgage appeared of record?

Subject

Conveyance of Real Property to a Limited Partner Who Did Not Contribute the Property

Plain-English summary

Documentary stamp tax was due on the consideration for the partnership's conveyance to the limited partner, including mortgages whether recorded or not. The partner receiving the property had not been the partner who originally contributed it.

For a conveyance after July 1, 1990, the ruling said consideration included money paid or agreed to be paid, discharge of an obligation, and any mortgage, lien, or other encumbrance. If the property was taken subject to a mortgage, the mortgage and accrued unpaid interest counted even without a recorded mortgage and even if the grantee did not formally assume the debt.

What this means for you

Describing property as unencumbered "of record" did not establish zero consideration. The Department looked beyond recording status to the actual mortgage or economic burden attached to the property.

Common questions

Q: Did an unrecorded mortgage count as consideration? Yes.

Q: Did the partner have to formally assume the mortgage? No. The statute quoted in the ruling included the encumbrance whether or not the underlying debt was assumed.

Q: Would a truly unencumbered, no-payment conveyance necessarily have the same tax base? No. The ruling tied tax to the consideration actually present.

Citations and references

• Fla. Stat. § 201.02(1) — documentary stamp tax and consideration for real-property conveyances
• Abramson v. Straughn, 348 So. 2d 1172 (Fla. 1977)
• DeVore v. Gay, 30 So. 2d 796 (Fla. 1949)
• State Department of Revenue v. Zuckerman-Vernon Corp., 354 So. 2d 353 (Fla. 1977)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93B4-015

Original ruling text

Jun 16, 1993

Re: Technical Assistance Advisement No. 93(B)4-015
Documentary Stamp Tax; Conveyance of Real Property to a
Limited Partner Who Did Not Contribute the Property Chapter
201.02, F.S.
XXX (hereinafter Partnership)
XXX (hereinafter General Partner)
XXX (hereinafter Trustee)
XXX (hereinafter Original Limited Partner)
XXX (hereinafter New Limited Partner)

Dear :

This is in response to your request for a Technical
Assistance Advisement on substantially the following question:

Are documentary stamp taxes due on a deed where encumbered
property was contributed to a partnership prior to July 1,
1986 and is currently being distributed unencumbered by any
mortgage of record to a partner who did not convey it to
the partnership?

BACKGROUND

In XXX a Florida limited partnership received from sole
General Partner contributions of encumbered Florida real estate
and assignments of General Partner's interest in Purchase and
Sale Contracts on other encumbered Florida real estate. At this
time Partnership was composed of two partners: General Partner
(50%) and Old Limited Partner (50%).

Subsequently a number of mortgages were placed on the
properties for purposes of developing the property or
constructing buildings thereon. Some of the property has been
sold to third parties. The remaining property is still
encumbered by mortgages. A new limited partner is to be admitted
to the partnership by the transfer of a 1% limited partnership
interest to New Limited Partner by Old Limited Partner who would

assign the remaining 49% of its limited partnership interest
back to Partnership in exchange for some type of payment for its
49% interest.

After this is done, a conveyance to Old Limited Partner of
XXX of the remaining unimproved vacant land now owned by
Partnership will be recorded "unencumbered of record."

DISCUSSION AND LAW

As presented in the case Abramson v. Straughn (348 So.2d
1172 (1977)), prior to July 1, 1986, a conveyance of encumbered
property from a partnership to a partner who did not convey the
property in hinged upon whether there was a "shifting of
economic burden" from the partnership to the partner receiving
the property.

Consideration included any amount paid or to be paid for
the property as well as the amount of any mortgages for which
the grantee acquired the burden of making the mortgage payments.
Prior case law Devore v. Gay, 30 So.2d 796 (Fla. 1949),
illustrates that where there was no amount paid or to be paid
for the conveyance, and the property was not encumbered by any
mortgages, liens, or other encumbrances, there was no
consideration for documentary stamp tax purposes. See also
State, Department of Revenue v. Zuckerman-Vernon Corp., 354
So.2d 353 (Fla. 1977).

Effective July 1, 1990 s. 201.02(1), F.S., was amended to
more adequately define what is meant by consideration:

"... 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. 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."

This portion of s. 201.02(1), F.S., does not say "... and
the amount of any RECORDED mortgage. It merely says "... and
the amount of any mortgage, purchase money mortgage lien, or
other encumbrance..." without regard to whether the mortgage is
of record. If the property is taken subject to a mortgage, the
mortgage plus any accrued but unpaid interest is consideration
whether the mortgage is recorded or not. If the mortgage is
assumed, the mortgage would still be consideration for the
conveyance under s. 201.02, F.S.

DEPARTMENT'S POSITION

Therefore where the question posed refers to a mortgage
"... of record...", the answer is that where property
contributed to a partnership prior to July 1, 1986 which is
conveyed to a partner (who did not convey it in to the
partnership) after July 1, 1990, documentary stamp tax is due on
the consideration for the conveyance including any mortgages on
the property (whether recorded or not.)

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 and your request
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 by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

M.E. Clemens
Technical Assistant
Technical Assistance

MEC/mh