Petrogram - Winter 2009 - (Page 24)

FEATURE Drop and Swap, Fishing and Dogs From Tax Stamps to Liability, See How Florida’s Suits are Solved Claude Walker e have the privilege of living in a state that constitutionally prohibits personal income tax. Florida is one of only seven states in the country that does not have a state personal income tax. But, Florida makes up for this “gift” by taxing us in other areas: • Florida is in the top tier of states for sales taxes charged, at 6 percent minimum and up to 7.5 percent, currently. Colorado charges the lowest at 2.9 percent and California charges the highest at 7.25 percent. • Florida is also ranked ninth out of the 50 states for taxes imposed on real estate transfers. The transfer tax is paid through the state documentary stamp tax. The documentary stamp tax rate is 0.7 percent of the selling price and is paid when the deed is recorded in the county’s public records. So, for every $100,000 of real property purchased, the seller or buyer owes $700 in documentary stamp tax. Seems simple, doesn’t it? But, in the world of taxes, there is always someone looking for a way to beat out the tax man. It seems that for every loophole someone discovers, there is legislation enacted to plug the hole. Once a new tax law is passed, the cycle starts all over again. W Drop and Swap This has been the case with documentary stamp taxes. Prior to 1990, the law evolved to the point where a transfer of unencumbered real property between an individual and his wholly owned company was not subject to documentary stamp 24 | Petrogram tax. Further, on property that was encumbered by a mortgage, documentary stamps were only due on the amount of the mortgage debt. However, in 1990 the Florida Legislature changed the language in the documentary stamp tax statute to make a transfer of real property between an individual and his wholly owned company subject to the documentary stamp tax. This new legislation went unchallenged until 1998 when a father and son sued the Department of Revenue over documentary stamps charged on a transfer of ownership in condominiums they owned into their wholly owned corporation. The Florida courts (trial and appellate level) ruled that there was no real change in ownership and held there was no documentary stamp tax due on the transfer. However, the Department of Revenue continued to collect documentary stamp tax on transfers of real property between individuals and their wholly owned companies. In 2003, the issue was once again in front of the Florida courts. However, this time an appellate court in Miami sided with the Department of Revenue and ruled that a transfer of real property between a corporate grantor to its wholly owned subsidiary was subject to documentary stamp taxes. This created a conflict among the appellate courts, and the Florida Supreme Court was called on to resolve the conflict between the Florida courts. In 2005, in a case known as Crescent Miami Center, the Florida Supreme Court resolved the conflict in Florida and decided that a transfer of unencumbered real property between a company and its wholly owned subsidiary is not subject to the documentary stamp tax. After 15 years can this debate over documentary stamp tax finally be put to rest? Unfortunately, the Florida Supreme Court’s ruling is not the end of the story. Following the Supreme Court’s ruling in the Crescent Miami Center case, real estate attorneys devised a method to transfer property between a buyer and a seller that would have normally been subject to documentary stamps. The new | Winter 2009 www.fpma.org http://www.fpma.org

Table of Contents for the Digital Edition of Petrogram - Winter 2009

Petrogram - Winter 2009
Contents
President’s Perspective
2010 FPMA Patron Members
Enviro Corner
Danger Ahead: Hometown Democracy
Out & About the Industry
Insurance Issues
Drop and Swap, Fishing and Dogs
Barrister’s Counsel
Index of Advertisers/Advertiser.com

Petrogram - Winter 2009

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