Considering “consideration” in taxing mortgages, notes and other financial instruments [i]
Part I
History and focus of the tax
Florida imposes a tax on most real estate conveyances. Generally, it is an excise tax on exchange of documents of conveyance. Section 201.02 F.S. was patterned after a federal excise tax, now repealed. See: Gay v. Inter-Cty. Tel. & Tel. Co., 60 So. 2d 22, 23 (Fla. 1952Choctawhatchee Elec. Co-op., Inc. v. Green, 132 So. 2d 556 (Fla. 1961) The key to understanding the scope of the tax is appreciating the concept of “consideration” as it applied in Chapter 201. Section 201.02 imposes the tax and states the following regarding consideration:
“…..deeds or other written documents transferring Florida real property or any interest in the property to a purchaser for monetary consideration or any other consideration that has a reasonably determinable pecuniary value.”
So, therefore the focus of “consideration” is based on an economic value exchanged concept. Tax is payable on instruments which convey an interest in real property to another party for consideration. This consideration must be an actual monetary value, or alternatively, have a reasonably determinable pecuniary (economic) value. The statute employs the terms “{f]ull consideration”. This has been interpreted to mean an amount that would be paid in an arm’s length transaction. Also, there is a presumption that the consideration, when not reported or disclosed on the face of the instrument in full, “[it] is equal to the fair market value of the real property or interest therein.”
Form of the instrument and conveyance
The form of the conveyance of a deed is not relevant to the taxation issue as the tax imposed applies equally regardless of whether it is a warranty deed or quit claim deed. The tax is based on the conveyance of the property, rather than the type of deed. However, apart from taxing deed conveyances, excise tax also applies to conveyance of other forms of financial instruments including promissory notes, assignments to pay money and similar written obligations to pay money, executed, delivered, sold, transferred, or assigned in Florida, as well as any renewals of these financial obligations. See: Section 201.08 Fla. Stat.
Family matters
Deeds between a husband and wife are not subject to the tax and the same provision excludes from tax deed transfers between former spouses for conveyance of the family home at the time of divorce. However, conveyance of a deed for other than the marital home (primary residence) does not meet this exclusion. See: 12B-4.013 (27) F.A.C. Likewise, a gift from a parent to a child, for “love and affection”, is not subject to the tax. Culbreath v Reid, 65 So.2d 556 (Fla. 1953) Gifts in trust which are not subject to a mortgage are exempt as well. Transfer of an encumbered property given in trust is subject to tax based upon the proportionate share of allocation of indebtedness between the respective beneficiaries under the trust. See: 12B-4.013 (28) (c) F.A.C.
A few quirks applying consideration
Consideration, according to DOR, includes money paid or to be paid, indebtedness discharged by the transfer of any interest in real property as well as the amount of mortgages or “other encumbrances which the real property being transferred is subject to, notwithstanding the transferee may be liable for such indebtedness” See: 12B-4.012 (2) F.A.C . Consideration includes any exchange of “property other than money”, when such property is exchanged for an interest in real property. Id. The terms “[p]roperty other than money” is defined as property tangible or intangible, real or personal, everything that has an exchangeable value….” Id. However, a sum that is contingent upon a future event is not taxable consideration. Revenue, TAA No.90B4-002. Florida courts have also rejected a Revenue decision to base taxable consideration on “covenants not to sue” in a case involving notes which were in default as a form of consideration. Chapparal Partners By & Through First Interstate Bank of California v. State, Dep't of Revenue, 662 So. 2d 727, 728 (Fla.1st DCA 1995)
It’s a matter of time
The DOR regulations concerning this tax state payment is due at the time the deed or other written instrument is conveyed or delivered regardless of when the sale is made. See: 12B-4.011F.A.C. Thus, deeds delivered into escrow are not subject tax until delivery to the grantee. Fla. Admin. Code Rule 12B-4.011(1); Dept. of Revenue v. Young American Builders, 358 So.2d 1096 (Fla. 1st DCA 1978), aff'd 376 So.2d 849 ( “… the tax is due when the conveyance is completed which is usually when title passes…… Delivery, then, is the event upon the occurrence of which the tax becomes due.”)
Separate classes of property in one financial exchange treated improperly as all taxable
Because the tax is imposed on the conveyance or transfer of real property, when both real and personal property are exchanged in a purchase and sale transaction the parties to the transaction are entitled to attribute value to the personal property or other intangible value involved in the transaction ( such as goodwill) so as to limit the tax under Section 201.02. See: Technical Assistance Advisement No. 83(B)4-003; 1983 WL 15013 (“amount of present consideration will be based on the amount attributable to the real property and not to the value or consideration attributable to the personal property. * * * can allocate the total consideration among each respective asset proportionately”) However, Revenue has decided (through its denial of an application for refund of tax for over-payment of this excise tax ) that such an attribution of monetary value between the different classes of exchanged property is not appropriate when the attribution occurred after the conveyance date. There is no rule or statute which addresses the timing of such evaluation. The agency decision to deny a refund for overpayment attributed to personal property was in litigation before the state Division of Administrative Hearings until a Final Order and Recommended Order issued on December 17, 2019. See: 1701 Collins Miami Owner, LLC v Department of Revenue, Case Nos. 19-1879 and No. 19-3639 RU. In these cases, just decided, ALJ Van Landingham found DOR had acted pursuant to an unadopted rule based upon what was described in the ALJ opinion in Case No. 19-3639 RU, as a “Default Allocation Presumption” in its decision making. The ALJ found this “Default Allocation Presumption” created an irrebuttable presumption that tax will be applied to the “undiffentiated consideration” in a transaction in which the parties had not, at the time of the deed transfer, explicitly differentiated (identified) consideration paid for real property versus personal property also transferred under an agreement. Further discussion of implications related to this decision will be addressed in a separate article, denominated as Part II of “Considering Consideration “.
End of Part I of this 2 part article.
About the Firm: Formed in 1991, the Law Offices of Moffa, Sutton, & Donnini, P.A. is a law firm with a primary practice area of Florida tax controversy and a heavy emphasis on Florida sales and use tax. With offices in Fort Lauderdale, Tampa, and Tallahassee, the firm defends business owners against the Florida Department of Revenue from the initial audit notice through administrative protest and litigation as well as collections, revocations, and criminal investigations. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
About the Author: James (Jim) F. McAuley is an experienced attorney, joining the firm in 2015 after an exemplary career with the state of Florida. Holding the Florida Bar board certification as a specialist in State and Federal Administrative Law, Mr. McAuley represented the State of Florida for more than 20 years in the area of state and local taxation and administrative law with an emphasis on litigation. Mr. McAuley is Board Certified by the Florida Bar in the area of State and Federal Government Administrative Practice. Mr. McAuley holds the highest rating given to lawyers by Martindale Hubbell (Av) and has maintained that rating for more than 15 years. He is also a published legal author in both State taxation and Administrative law. He is an alumni & author of the Nova Law Review (Fall 2007). You can read more about Mr. McAuley in his firm bio.
Interested in learning more about Florida Sales Tax? See a list of our SPEAKING ENGAGEMENTS HERE!
AUTHORITY
1701 Collins (Miami) Owner, LLC vs FL Department of Revenue, Case No 19-1879, Recommended Order filed December 17, 2019.
ADDITIONAL RESOURCES
New Taxpayer Favorable Doc Stamp Case - Part II, published January 9, 2020, by James McAuley, Esq and Rex Ware, Esq.
Burden of Proof & Persuasion in FL Tax Cases, published May 31, 2015, by James McAuley, Esq.
Florida Doc Stamp Taxes on Short Sales – TAA 08B4-006, published August 10, 2017, by Amanda Levine, Esq.
FL Doc Stamps Due on Bankruptcy Trustee Deeds, published February 15, 2014, by James Sutton, CPA, Esq.
FL Dor Targets Home Owners After Foreclosure, published February 5, 2013, by Jerry Donnini, Esq.
- [i] James F. McAuley is a Senior Attorney with the firm. He is Board Certified as an expert in Administrative law by the Florida Bar and is Av rated by Martindale Hubbell.