Would correcting a deed that conveyed only mineral rights instead of the intended fee title trigger Florida documentary stamp tax?

Subject

Reformation of a Deed

Plain-English summary

A new quitclaim deed conveying the omitted fee title would be subject to documentary stamp tax, but a court judgment reforming the original deed would not. The original deed's face conveyed only oil, gas, and mineral rights, even though the parties said they intended to transfer the entire Florida property.

Because stamp-tax liability was determined from the instrument's face rather than outside evidence, a later deed conveying fee title would be a new taxable transfer. The Department said tax would be based on fair market value because the consideration was the increased value of the foreign corporation's stock in the domestic corporation.

If a court instead exercised its equitable power to reform the original deed after finding that the parties originally intended to convey fee title, there would be no new deed and no stamp tax on the judgment, provided the proper tax had been paid on the original deed.

What this means for you

The method used to correct the title defect controlled the result. A corrective deed and a judicial reformation judgment were not treated the same under the ruling.

Common questions

Q: Was a new quitclaim deed treated as a mere clerical correction? No. On its face it would newly convey the omitted fee title.

Q: How was consideration measured for the new deed? By the Florida property's fair market value under the ruling's stock-transfer facts.

Q: Was a court reformation judgment taxable? No, if the court reformed the original deed and the original deed had been properly taxed.

Citations and references

• Fla. Stat. § 201.02(1) — deeds conveying Florida real property
• Fla. Admin. Code r. 12B-4.013(7) — realty transferred to a corporation for stock
• Lee v. Kenan, 78 F.2d 425 (5th Cir. 1935)
• 58 Op. Att'y Gen. 31 (1958)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93B4-022

Original ruling text

Nov 16, 1993

Re: Technical Assistance Advisement No. 93(B)4-022
Documentary Stamp Tax; Reformation of a Deed
XXX (hereinafter "Domestic Corporation")
XXX (hereinafter "Foreign Corporation"

Dear :

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

ISSUE

Whether a quit-claim deed from "Foreign Corporation" to
"Domestic Corporation" to transfer property which was
omitted from the description of an earlier deed would be
subject to documentary stamp tax? Whether a judgment of a
competent court reforming the original deed to include the
omitted property would be subject to documentary stamp tax?

FACTS

According to your request, "Foreign Corporation" owned
property in the state of Florida. As a result of changes to the
Federal Internal Revenue Code, specifically the adoption of the
branch profits tax, "Foreign Corporation" decided to restructure
its real property holdings into a domestic corporation to avoid
the tax.

In XXX, "Foreign Corporation", for the purpose of
transferring the Florida property, executed and recorded a quitclaim deed naming "Domestic Corporation" as the grantee of the
Florida property in exchange for XXX shares of one dollar par
value common stock. It was not discovered until recently that
the quit-claim deed erroneously described only the oil, gas and
mineral rights of the Florida real property and did not describe
the entire fee title as had been intended.

In order to correct this error and provide clear title to
the Florida property to "Domestic Corporation", "Foreign
Corporation" intends to execute a new quit-claim deed describing
the omitted property. It is the taxpayer's position that this
new deed will not transfer the property, but will serve only to
correct an error in the original deed and therefore should be
subject to only minimum stamps.

LAW AND ANALYSIS

Section 201.02(1), Florida Statutes, imposes a tax on
deeds, instruments, or writings whereby any lands, tenements, or
other real property, or any interest therein is granted,
assigned, transferred or conveyed. The tax rate in 1987 at the
time of the transfer described above was $.55 on each $100 of
consideration.

Rule 12B-4.013(7), F.A.C., in effect at the time of the
transfer provided:

Corporation: A conveyance of realty to a corporation in
exchange for shares of its capital stock is subject to tax.
The tax is based upon the value of the stock given or to be
given in exchange for the land plus any other
consideration, such as existing mortgage on property
conveyed. If the stock does not have a market value or
book value, the tax would be based upon the par or fixed
value.

Assuming that the property in question was not subject to a
mortgage or other encumbrances and the only consideration given
in exchange for the transfer was XXX shares of $1 par value
stock, where the stock had no market value or book value at the
time of the transfer, stamps in the amount of $1.10 should have
been affixed to the deed in question.

It is a well established matter of documentary stamp tax
law that the applicability of the stamp tax must be determined
from the form and face of the instrument and not by proof from
extrinsic facts. Lee v. Kenan 78 F. 2d 425 (5th Cir. 1935).
According to the face of the deed executed in XXX, only the oil,

gas and mineral rights of the property were transferred. A deed
now describing the fee title would be deemed to be a transfer of
the fee title and would be subject to documentary stamp tax
based on the consideration given.

In 1990, the Florida legislature amended Section 201.02(1),
Florida Statutes to state:

... If consideration 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.

A deed transferring the Florida property to "Domestic
Corporation" would be taxed pursuant to Section 201.02(1),
Florida Statutes, on the fair market value of the property, the
consideration for the transfer being the increased value of the
stock held by "Foreign Corporation" in "Domestic Corporation."

If instead of executing a quit-claim deed to evidence
transfer of the Florida property, the taxpayer sought
reformation of the original deed in court, the result would be
different. When a document does not accurately reflect the
intent of the parties, a court may, under certain circumstances,
look at extrinsic facts in order to determine the true
intentions of the parties for the purpose of reforming a deed. 9
Fla. Jur 2d, Cancellation, Reformation, and Rescission of
Instruments s. 70. Where a court exercises its equity
jurisdiction to reform a deed and enters a judgment reforming
the original deed there is no new deed given. Judgments and
decrees issued by a court are not documents which are subject to
the documentary stamp tax. 58 Op. Att'y Gen. 31 (1958).

CONCLUSION

Therefore, it is the Department's position that documentary
stamp tax would be due on the fair market value of the Florida
property if a deed is executed conveying fee title to the
property to "Domestic Corporation." If, on the other hand, in
an action for reformation, a court determines that it was the
true intention of the parties that the fee title be conveyed by

the deed given in XXX and the court exercises its equity
jurisdiction to reform the original deed no tax would be due
given that the tax was properly paid on the original deed.

This response constitutes a technical assistance advisement
under Section 213.22, Florida Statutes, which is binding on the
department only under the facts and circumstances described in
the request for this advise as specified in s. 213.22, F.S. Our
response is predicated upon 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 is subject to
disclosure to the public under the conditions of Section 213.22,
Florida Statutes, 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 confidential information, we request that you notify the
undersigned in writing within 15 days of any deletions you wish
made to the request or this response.

Sincerely,

Lisa R. Echeverri
Assistant General Counsel

LRE/mh