Did documentary stamp tax apply when partners transferred partnership interests and the continuing partnership later renewed its notes and mortgages?

Subject

Transfer of Partnership Interest and Renewal of Promissory Note and Mortgage

Plain-English summary

No deed tax was due on the partners' interest transfers because Florida law classified the partnership interests as personal property, not interests in real property. The Department therefore found section 201.02(1) inapplicable to the purchases described.

The partnership remained the original obligor when renewing its previously executed notes and mortgages. Its amended agreement continued the entity despite partner changes, and the incoming partner received management authority. No additional note tax was due if every other requirement of section 201.09 was met.

What this means for you

The ruling separated ownership of a partnership interest from a deed conveying the partnership's real estate. For renewal treatment, continuity of the partnership entity and the incoming partner's management rights were important, and the statutory renewal conditions still had to be satisfied.

Common questions

Was the result based merely on the partnership owning real estate? No. The transferred interests themselves were personal property.

Did changing partners automatically create a new obligor? No, not under amendments that continued the partnership and gave the incoming partner management rights.

Were all later renewals automatically exempt? No. The ruling required compliance with all other conditions in section 201.09(1) and (2).

Citations and references

• Fla. Stat. §§ 1.01(3), 201.02(1), 201.08(1), 201.09(1)-(2), 213.22, and 620.685
• Fla. Admin. Code r. 12B-4.054(1)
• Andean Invest. Co. v. State, Dept. of Revenue, 370 So. 2d 377 (1978 Fla. App. D4)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94B4-002

Original ruling text

Mar 30, 1994

Re: Technical Assistance Advisement No. 94(B)4-002
Documentary Stamp Tax; Transfer of Partnership Interest and
Renewal of Promissory Note and Mortgage
XXX (hereinafter Partnership)
XXX (hereinafter New Partner)
XXX (hereinafter Retiring Partner)
XXX (hereinafter Continuing Partner)

Dear :

You have petitioned for a Technical Assistance Advisement
pursuant to Section 213.22, Florida Statutes, and Chapter 12-11,
Florida Administrative Code.

Issue

1. Are the transfers of partnership interests held by
   Retiring Partner and Continuing Partner in Partnership
   subject to tax under s. 201.02(1), F.S., when
   purchased by New Partner; and
2. After such transfers of interest, is Partnership still
   the "Original Obligor" under s. 201.09(1), F.S., when
   renewing existing indebtedness made by Partnership?

Background

Prior to December 22, 1993, Partnership was comprised of
two general Partners: Retiring Partner who held a partnership
interest of 45.7265 percent and Continuing Partner which held a
partnership interest of 54.2735 percent. On December 22, 1993,
New Partner purchased all of the 45.7265 percent interest in
Partnership held by Retiring Partner. On the same day New
Partner acquired a 4.2735 percent interest in Partnership held
by Continuing Partner, thus bringing the total interest of New
Partner in Partnership to 50 percent.

Also, prior to December 22, 1993, Partnership executed

various notes and mortgages encumbering Partnership's property.
It is contemplated that Partnership will renew such obligations
after the above transfers of interest are made.

On December 2, 1993, a Third Amendment To Amended And
Restated Partnership Agreement of [Partnership] was entered
into, providing, among other things, that the withdrawal of a
partner by reason of a purchase or the transfer of any partner's
interest in Partnership would not cause an automatic dissolution
of [Partnership], and, after such transfer [Partnership] shall
continue in accordance with the provisions of the agreement with
those partners owning interest in [Partnership] subsequent to
such transfer.

On December 22, 1993, a Fourth Amendment To Amended And
Restated Partnership Agreement of [Partnership] was entered into
between Continuing Partner and New Partner. Section 4.01 of the
amendment provides that Continuing Partner and New Partner shall
be referred to jointly as "Managing Partners", except that New
Partner shall have control over the sale of any partnership
property and any refinancing, provided Continuing Partner shall
be advised in advance of any sale or refinancing.

Discussion and Law

Section 201.02(1), F.S., levies a tax on deeds or other
instruments that transfer real property or any interests in real
property.

Section 620.685, F.S., provides that a partner's interest
in a partnership is his share of the profits and surplus. It is
personal property.

Section 201.08(1), F.S., taxes promissory notes and their
renewals. To be exempt under s. 201.09(1), F.S., the original
note with the stamps showing full payment of the tax must be
attached to the renewal note. The renewal must be executed by
only the "original obligor" and must renew and extend only the
unpaid balance of the original promissory note or mortgage (also
see Fla. Admin. Code Rule 12B-4.054(1)).

Under Florida Statute and case law a partnership is an
entity (see s. 1.01(3), F.S.), not an aggregate (Andean Invest.
Co. v. State, Dept. of Revenue, 370 So.2d 377 (1978 Fla. App.
D4)).

The Department considers as an "original obligor", any
partnership whose original partnership agreement or amended
partnership agreement allows for the continuation of the
partnership, notwithstanding there may be a change of partners,
provided any incoming partner may also manage the business or
affairs of the partnership.

Department's Position

Since by statute the interests that are held in Partnership
by Retiring Partner and Continuing Partner are "personal
property" and not real property, tax would not be due under s.
201.02(1), F.S., when their interests are transferred to New
Purchaser.

Based upon the third and fourth amendments to the
partnership agreement, Partnership is still the "original
obligor" pursuant to s. 201.09, F.S., when renewing previously
executed notes and mortgages. Therefore, if all other
requirements of s. 201.09(1),(2), F.S., are met, no additional
tax under s. 201.08(1), F.S., would be due on the renewal notes
and mortgages executed by Partnership after New Partner acquires
the partnership interests of Retiring Partner and Continuing
Partner.

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,

W.E. Webb
Tax Law Specialist
Technical Assistance

WEW/mh