Crescent‚Did the Florida Supreme Court Effectively Repeal the Documentary Stamp Tax on Transfers of Real Estate?

The Florida Supreme Court ruled that transfers of real estate from a parent company to its wholly owned subsidiary, without any money changing hands, are not subject to the Florida documentary stamp tax. This means that fewer transfers of Florida real estate will be taxed. According to Florida law, the tax applies to deeds for transfers of real estate at a rate of $0.70 per $100 of consideration. The tax is based on the amount of money paid or agreed to be paid for the property. The Florida Supreme Court is reviewing a case because two lower courts disagreed on whether a company should pay taxes when it gets property from its owners. The first court said the company should pay taxes, while the second court said it shouldn’t. The second court said the company didn’t pay anything for the property, so it wasn’t considered a “buyer” and didn’t have to pay taxes. We’ll have to wait and see what the Florida Supreme Court decides. Crescent Equities owned a building in Miami and wanted to change how it was owned to make it easier to get a loan. They transferred the building to a new company they made, called CMC. They said the transfer was just on paper and didn’t really change who owned the building. They asked for a tax refund but were denied. They took the case to court, but the court said they still had to pay the tax. Before 1990, the Florida Supreme Court made decisions that supported CMC’s argument. In 1956, the court ruled that people who received interests in property from a company were not “purchasers” because they didn’t pay a clear amount of money for the transfer. In 1976, the court said that a shareholder of a company was considered a “purchaser” for the part of the property that had a mortgage on it.
In 1990, the law was changed to include three definitions of “consideration” for tax purposes, including money paid, obligations discharged, and mortgages on property. If property is part of the payment, its fair market value is used to determine the tax. Before 1990, transfers of real property to corporations by their shareholders were not taxed if it wasn’t for money. But after a 1990 change, the rule changed to say that transfers to corporations for stock or as a contribution to capital are taxed. The Third District Court said that the transfer from Crescent Equities to CMC was subject to tax because it was a change of ownership in exchange for something valuable, and the tax could be determined by the value of the property transferred. They said that CMC met the definition of a “purchaser” and refused to make an exception for transfers between related companies. The Florida Supreme Court disagreed with the Third District’s decision about changes to a law from 1990 and how it affects previous cases. The court said that the 1990 changes didn’t get rid of the requirement for “consideration” and a “purchaser” when transferring property. The court also said that the previous cases could still be taxed even before the 1990 changes because there was no consideration involved in the transactions. The 1990 changes didn’t change the court’s decisions in those cases. The court ruled that when Crescent Equities transferred the Miami Center property to CMC, there was no exchange of anything in return, so it wasn’t considered a purchase. This decision overturned previous rulings and clarified the rules for taxing these kinds of transfers. Crescent is a new law in Florida that affects how real estate transactions are taxed. People who paid too much tax in the past can apply for a refund within three years. There are specific types of transfers that could be eligible for a refund. The new law also gives people a way to plan future real estate transfers to avoid paying too much tax. Seller and purchaser want to sell some real estate for $5 million. Normally, this would come with a $35,000 tax. But they can avoid the tax by setting up a special company, selling membership in the company, and then dissolving the company. It’s not clear if the tax department would have a problem with this plan, but it’s something that other people are also considering after a recent court decision. People might ask the tax department for official advice on how this plan fits with the law. In 2004, Florida’s documentary stamp tax brought in about $2.6 billion for the state, the second highest amount of money after sales tax. This money helps pay off state debt. But a recent court decision might lower the amount of tax money collected. People who overpaid the tax will want refunds, and future real estate deals might be set up to avoid paying the tax. The Florida Legislature might have to change the law because of the lower tax money coming in. Crescent Miami Center, LLC v. Department of Revenue was a court case about a tax dispute. The Florida Supreme Court analyzed a statute that was important to the court’s decision. The case involved a partnership and a transfer of real estate, and there were conflicting opinions from different district courts. Ultimately, the Florida Supreme Court ruled in favor of Crescent Miami Center, LLC, and they were able to get a refund of the documentary stamp tax they had paid.

Source: https://www.floridabar.org/the-florida-bar-journal/crescentdid-the-florida-supreme-court-effectively-repeal-the-documentary-stamp-tax-on-transfers-of-real-estate/