Document tax on related party transfers stricken
In a decision that has significant implications for reorganizations and other transfers of realty between related parties, the Florida Supreme Court has held that such a transfer is not subject to the Florida documentary tax when there is no consideration paid for the transfer and the property is not encumbered. Crescent Miami Center, LLC v. Department of Revenue, 30 Fla. L. Weekly S366 (Fla. May 19, 2005). Specifically, the Court rejected the Department of Revenue's position that an increase in the value of one's ownership interest in a related entity, measured by the value of the property conveyed, constitutes consideration. The Department has espoused this position, creating considerable uncertainty and disruption in the business world, despite the language of the statute that applies the tax only to consideration "paid or given" by a "purchaser." Unless a motion for rehearing is filed (by June 3, 2005) and granted, this decision will probably entitle many taxpayers that paid the tax to refunds, and relieve others of this tax expense.
In the Crescent City fact pattern, the ultimate owner of the property remained the same entity (albeit indirectly), and the Court characterized the transaction as "merely a change in the form of ownership by the entities who had owned and continued to own the property." The Court went on to say that the increased value of the ownership interest in the grantee "resulted from the transfer, and was not the consideration for making the transfer." This latter statement, among others concerning the need for consideration, would appear to be a sufficient basis for the decision, irrespective of whether there was any change in the ultimate ownership. However, taxpayers with fact patterns that involve a change in ultimate ownership should be prepared for the possibility that the Department will maintain that the decision does not prevent taxation, even in the absence of consideration.
Posted: 1999-12-30 00:00:00.0
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