Category Archives: Stamp Tax

11th Circuit Rules Indian Tribes Not Subject to Sales Tax on Commercial Real Estate Rentals

The 11th Circuit Court of Appeals recently ruled that leases of commercial real estate within casinos owned by the Seminole Tribe of Florida to non-Indian corporations are not subject to Florida sales tax. Florida imposes sales tax on commercial rent payments. However, the Court of Appeals upheld the decision of the federal district court and found that Florida’s commercial rental tax when applied to land on Indian reservations is preempted by federal law. More specifically, the court ruled that the Indian Reorganization Act of 1934 prohibits state taxes on indian land rights, including a tax on the lease of indian land rights. The full opinion can be found here:
http://media.ca11.uscourts.gov/opinions/pub/files/201414524.pdf

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043

Is an Unintended Documentary Stamp Tax Loophole Depriving Florida of Tax Revenue?

A recent newspaper account presents evidence and concludes that a loophole in Florida’s real estate transfer documentary stamp tax deprives the state of substantial revenue it should collect. But the account reaches the conclusion without considering all the data. Why? The state collects this tax revenue in two ways, but the newspaper’s review appears to consider only one of them. Here is a question-and-answer formatted explanation:

What is the Florida documentary stamp tax on real estate transfers?

Documentary stamp tax is imposed on the consideration paid on Florida real estate transfers, such as cash paid for a transfer by deed. Taxable transactions also include indirect real estate transfers through sales of interests in trusts and business entities (such as corporations and LLCs) holding real estate. A change in the law several years ago required that documentary stamp tax be paid on the sale of an interest in a business entity if the business entity’s real estate was acquired in an exempt transaction within the three years prior to the sale. Sales of interests in land trusts holding real estate are taxable without regard to the length of time the trust held the real estate.

Documentary stamp tax is imposed at the rate of $700 per $100,000 of consideration. For example, the documentary stamp tax on a $300,000 sale transaction is $2,100.

Are there legitimate exceptions to the tax?

Yes. For example, a deed of unencumbered property transferred between spouses, as a gift, by a trust to the trust beneficiary, or by a business entity to an affiliate with the same ownership in a reorganization is not subject to the tax. These transfers are exempt by statutory and regulatory design, not because they are part of an avoidance scheme the Legislature or Department of Revenue did not intend to allow.

How is the tax paid?

When documentary stamp tax is due, it is paid one of two ways.

Usually, when the consideration is given directly for a deed, the tax is delivered to the county Clerk of Court when the deed is recorded in the county real estate official records. The Clerk of Court then remits the tax to the Department of Revenue in Tallahassee. When this procedure is followed, anyone can view the deed in a publicly accessible database and see the tax amount delivered to the local Clerk of Court.

When the consideration is given for an interest in a trust or business entity holding real estate, the tax is paid differently. No tax is shown on the deed because the deed initially transferring the property to the trust or business entity is not subject to tax. However, when the trust or business entity interest is later sold, the taxpayer delivers the tax directly to the Department of Revenue in Tallahassee. The Clerk of Court does not receive or remit any payment, and the documentary tax stamp payment does not appear in any publicly accessible database.

How was the newspaper account incomplete?

The newspaper’s reviewer analyzed deeds recorded in the local Clerk of Court’s office. In that analysis, the reviewer found deeds to trusts and business entities upon which no documentary stamp tax was paid.

The reviewer appears to have assumed that the failure to pay the tax to the local Clerk of Court on the initial deed meant that the documentary stamp tax was never paid on subsequent sales of trust and business entity interests. However, since tax on sales of trust and business entity interests is delivered to the Department of Revenue in Tallahassee rather than the local Clerk of Court, there was no reason to find evidence of documentary stamp tax paid in the Clerk of Court’s office. The newspaper account seems to have not taken this procedure into account, and to have assumed taxpayers were not paying the tax just because the evidence of payment is not publicly available.

The reviewer also appears to have assumed that all the transfers were connected to sales of trust or business entity interests shortly following recording of the initial deeds.Some of the transactions may not have been sales, but rather legitimately exempt transactions. A deed could have been between business entities with identical ownership as a part of an internal reorganization, without a subsequent sale of an entity ownership interest. Such a transfer is supposed to be exempt, because beneficial ownership of the real estate does not change.

Without public review, how does the state know the tax is paid when it should be paid?

Few tax collection processes are open for inspection by the general public. It is the Florida Department of Revenue’s job to audit these transactions.

In our experience, the documentary stamp tax audit rate is high. Auditors can easily identify the initial deeds upon which no tax is paid. The auditors then require the taxpayers to prove they paid the tax directly to the Department of Revenue in Tallahassee on a subsequent indirect non-deed transfer. So even though the citizenry cannot independently confirm documentary stamp tax has been paid, there should be no greater concern about tax fraud in these transactions than there is for tax collection generally.

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037