Monthly Archives: July 2014

Williams Parker Obtains Tax Ruling: Leases of Nursing Homes and Assisted Living Facilities are Not Subject to Sales Tax

On behalf of a client, Williams Parker recently obtained a Technical Assistance Advisement from the Florida Department of Revenue (the “Department”) that leases of nursing homes and assisted living facilities are exempt from sales tax to a greater degree than currently provided in the Florida Administrative Code. Oftentimes, the operator of a senior living facility leases the real estate from another legal entity, which may or may not be related. In interpreting the statutory exemption for leases of residential facilities for the aged, the Florida Administrative Code provides that only the areas of a senior living facility that are accessed and used by residents (excluding, for example, the kitchen portion of a cafeteria and administrative office areas) are exempt from sales tax. However, a trial court opinion (from the 18th Circuit Court for Brevard and Seminole counties) held that all areas of senior living facilities (not just those areas accessed and used by residents) are exempt, except for those areas leased for separate commercial purposes, such as a portion of the facility leased to a bank or hair salon. The Technical Assistance Advisement obtained by Williams Parker (i) affirms that the Department will follow the holding of the trial court outside of the 18th Circuit, and (ii) extends the holding of the trial court to leases of equipment and other tangible personal property owned by the landlord and used by the operator of the facility, at least where the lease is silent regarding any separate consideration for the tangible personal property.

A copy of the Technical Assistance Advisement can be found here:

If you have any questions regarding the Technical Assistance Advisement or other questions regarding Florida taxes, please contact:

Michael J. Wilson

Applicable Federal Rates for August 2014

The Internal Revenue Code prescribes minimum imputed interest rates and time-value-of–money factors applicable to certain loan transactions and estate planning techniques. These rates are tied formulaically to market interest rates. The Internal Revenue Service updates these rates monthly.

These are commonly applicable rates in effect for August 2014:

Short Term AFR (Loans with Terms <= 3 Years)                                          0.36%

Mid Term AFR (Loans with Terms > 3 Years and <= 9 Years)                     1.89%

Long Term AFR (Loans with Terms >9 Years)                                              3.09%

7520 Rate (Used in many estate planning vehicles)                                    2.2%

Here is a link to the complete list of rates:  RR-2014-19 — APPLICABLE FEDERAL RATES 

E. John Wagner, II

Florida Charities Subject to New Conflict of Interest and Financial Reporting Obligations

Amendments made during the 2014 Legislative Session to the Florida Solicitation of Contributions Act (the “Act”), and which became effective July 1, 2014, increase the oversight and regulation of charitable organization, sponsors, professional fundraising consultants, and professional solicitors.  The Act generally regulates certain persons and organizations conducting solicitation activities.  Among the many changes to the Act are:

  1. Conflict of Interest.  Charities subject to the Act are now required to adopt a conflict of interest policy for transactions between the charity and certain related parties, such as directors, officers, and trustees of the charity.  These persons must annually certify that they are in compliance with the conflict of interest policy, and a copy of such annual certification must be submitted to the Department of Agriculture and Consumer Affairs (the “DACA”) along with the charity’s annual registration statement provided to the DACA.
  2. Annual Financial Statements and Reports.  Charities subject to the Act previously could elect to include audited financial statements with their annual DACA registration statement.  However, the new law now requires most charitable organizations to file a tax return and financial statements.
  3. Supplemental Information.  Charities with more than $1 million in total revenue and that spent less than 25% of their total annual functional expenses on program services costs must file supplemental information with DACA regarding the funding of administrative functions, including salary and travel expense information, identifying the name and sum paid to all employees, consultants, and service providers in excess of $100,000, and reporting transactions between the charity and officers, directors, and trustees (including immediate family members and related entities).

An article on the recent amendments to the Act can be found here:
Amemdments to Chartible Solicitations Act 2014

Michael J. Wilson

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