Florida Senate Bill 2430 Drastically Alters Documentary Stamp Tax Provision

Recently, Governor Crist approved Florida Senate Bill 2430 which amended Florida Statute 201.02 effective July 1, 2009. This newly enacted bill has drastically altered the documentary stamp tax provision of Florida Statute 201.02 by providing that effective July 1, 2009 conveyances of interests in “conduit entities” that occur within three years after the conveyance of real property to that conduit entity shall now be subject to documentary stamp tax at a rate of $.70 cents for each $100.00 dollars of consideration paid. The statute defines a “conduit entity” as a legal entity to which real property is conveyed without full consideration by a grantor who owns a direct or indirect interest in the entity, or a successor entity (for example: transferring property at less than full consideration from yourself as an individual into your LLC which you have control).

The intent of the bill was essentially created to close the tax loop hole created by the decision in Crescent Miami Center, LLC v. Florida Department of Revenue, and does so by effectively eliminating the benefit of drop and swap transactions in which a grantor would set up a wholly owned entity and transfer unencumbered real property to that entity (a non-taxable event). The entity would then sell its membership interest to a third party, which would avoid documentary stamp tax because the membership interests were being conveyed rather than the conveyance of real property. The change in Florida Statute 201.02 will now tax that conveyance of membership interest if done within three years of the initial transfer, thus preventing the tax savings previously associated with a drop and swap transaction. Given the recent change in the law, it is now essential to be even more cognizant of the possible tax ramifications involved with the transfer of property. While the transfer of unencumbered real property into a wholly owned entity may provide numerous tax and liability advantages, one must now be aware of the subsequent documentary stamp tax implications which may arise from subsequent transfers. While we don’t attempt to offer investment advice, we can assist you in navigating the tax implications involved in the transfer of your property, and make sure that you understand the transaction, including its risks. If you have any questions regarding Florida Senate Bill 2430, or any other real estate issues, please call our office. We are dedicated to providing sound legal advice, and are here to assist you in all of your real estate matters.