Did converting a partnership and then completing two statutory mergers to move Florida real estate to a sister corporation trigger documentary stamp tax?

Subject

Conversion of Partnership and Statutory Merger

Plain-English summary

The Department concluded that the proposed partnership conversion, two statutory mergers, and the overall transaction did not trigger Florida documentary stamp tax. The general partnership owned real estate in about ten states, including Florida, and planned to place all properties in a sister corporation through a three-step restructuring.

First, the general partnership would convert to an out-of-state limited partnership. Florida's conversion statute treated the converted partnership as the same entity that existed before conversion, preserved creditor rights and liens, and required title to partnership real property to be transferred by deed to the converted entity. The Department nevertheless concluded that no documentary stamp tax was due on that conversion transfer.

Next, the limited partnership would merge into a foreign corporation, and that corporation would merge into the sister corporation. Under the applicable merger statutes, the surviving entity would receive the real property by operation of law without a deed.

The no-tax result for the mergers depended on that statutory transfer method. The cited rules said a merger transfer by operation of law was not taxable unless a deed was given. If a deed were used, consideration would be presumed equal to the fair market value of the real-property interest transferred.

What this means for you

Under the law applied in this 1997 ruling, entity continuity and transfer mechanics controlled the documentary-stamp result. A statutory merger that vested title automatically was treated differently from a deeded conveyance.

The Department also considered the steps together and did not impose tax on the restructuring as a whole after finding each stated conversion and merger step nontaxable.

Common questions

Q: Was the general-to-limited partnership conversion taxable? No, under the facts and statutes applied in the ruling.

Q: Were the two merger transfers taxable? No, because title passed to the surviving entities by operation of the applicable merger statutes and no deeds were required.

Q: What if a deed were given for a merger transfer? The ruling said the transfer would no longer fit the no-deed merger rule, and consideration would be presumed equal to fair market value.

Q: Did combining the steps create tax even though each step was nontaxable? No. The Department expressly concluded that the transaction taken as a whole was not taxable.

Citations and references

• Fla. Stat. § 201.02 — documentary stamp tax on deeds
• Fla. Stat. §§ 620.8902 and 620.8904(1), (2)(a), and (4) — partnership conversion and property consequences
• Fla. Stat. § 620.90 — application of the revised partnership act for 1996 and 1997
• Fla. Stat. § 607.1101 — corporate merger statute cited for the second merger
• Fla. Admin. Code R. 12B-4.013(31) and 12B-4.014(8) — statutory-merger transfers by operation of law and deed consequences
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97B4-006

Original ruling text

Apr 07, 1997

Re: Technical Assistance Advisement No. 97(B)4-006
Documentary Stamp Tax; Conversion of Partnership and
Statutory Merger
Section 620.8904, F.S., and Rule 12B-4.014(8), F.A.C.
XXX (hereinafter Sister Corporation)
XXX (hereinafter General Partnership)
XXX (hereinafter Foreign Corporation)

Dear :

This is in response to your recent request for a Technical
Assistance Advisement in which you ask if the Florida
documentary stamp taxes imposed by s. 201.02, F.S., are due on
deeds upon conversion of a general partnership to a limited
partnership, followed by a merger to a corporation.

Proposed Transaction

General Partnership is the owner of numerous parcels of
real property located in approximately ten states, including
several properties in the State of Florida. It intends, through
the series of transactions described below, to ultimately vest
title to each of the properties in its Sister Corporation. The
proposed structure of the transaction is as follows:

1. General Partnership will convert to an out of state
   limited partnership pursuant to Section 620.8902,
   F.S., and out of state statutes.
2. Subsequent to the conversion, the limited partnership
   will merge into a Foreign Corporation. Foreign
   Corporation will become the owner of all real property
   of the Limited Partnership by operation of law. Out
   of state statute does not require that title to real
   property owned by the parties to the merger be
   transferred by deed to the surviving entity.
3. Subsequently, Foreign Corporation will merge into
   Sister Corporation pursuant to Section 607.1101, F.S.,

and out of state statutes. Sister Corporation will
become the owner of all real property of Foreign
Corporation by operation of law. Out of state statute
does not require that title to real property owned by
the parties to the merger be transferred by deed to
the surviving entity.

Requested Ruling

Under these circumstances, each of the individual
transactions set forth above is not taxable. Does the
transaction taken as whole require payment of the documentary
stamp tax?

Discussion and Law

Pursuant to the provisions of these statutes, the
partnership that has been converted is for all purposes the same
entity that existed before the conversion. Subsection
620.8904(1) states as follows:

A partnership or limited partnership that has been
converted pursuant to s. 620.8902 or s. 620.8908 is for all
purposes the same entity that existed before the
conversion.

The statute further provides in paragraph 620.8904(2)(a)
that when a conversion takes effect, title to all real property
owned by the converting partnership shall be transferred by deed
to the converted entity. The statute further states in
subsection 620.8904(4) as follows:

Neither the rights of creditors of a converting partnership
or limited partnership nor any liens upon the property of a
converting partnership or limited partnership are impaired
by a conversion.

Section 620.90, F.S., states that, for 1996 and 1997, the
revised Uniform Partnership Act governs a partnership formed
before 1996 if it so elects pursuant to subsection 620.90(3),
F.S.

Rules 12B-4.013(31) and 12B-4.014(8), F.A.C which became
effective on February 13, 1991, each provide as follows:

Statutory Merger: The transfer of real property to a
surviving corporation, partnership, limited liability
company or other business entity resulting from the
operation of an applicable statute governing the merger or
consolidation of such business entities is not taxable
unless a deed is given, in which case the consideration is
presumed to be equal to the fair market value of the real
property interest being transferred. Cross Reference Rules 12B-4.013(7) and 12B-4.014(8), F.A.C.

Department's Position

Based on the foregoing authorities and the facts presented,
it is the current position of the Department that no documentary
stamp tax is due in connection with the transfer of real
property from the general partnership to the limited
partnership.

The statutory merger is not taxable if the real property is
transferred by operation of an applicable merger statute unless
a deed is given. If a deed is given, it is presumed that the
consideration is equal to the fair market value of the real
property interest being transferred.

The transaction taken as a whole also is not taxable for
purposes of Florida documentary stamp tax.

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,

Baldan E. Sulker
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

BES/mh