A common approach many businesses take is to create one holding company, and that holding company owns a number of different companies underneath it, usually called subsidiaries, with each subsidiary being a different business venture by the primary holding company. One issue that may arise when transferring properties between subsidiaries is whether documentary stamp taxes are due on those transfers. Documentary stamp taxes were discussed in an article several months back, and a full list of what is subject to documentary stamp taxes can be found in Section 201.01, Florida Statutes (2019). There are several documentary stamp tax considerations to keep in mind when transferring real property between a holding company and any of its subsidiaries.
Many businesses will own property through multiple subsidiaries in order to reduce the liability of the holding company. These subsidiaries are what the State of Florida has defined as “conduit entities.” When property is transferred or conveyed between conduit entities that are owned by the same holding company, there typically are no documentary stamp taxes due on the transaction.
A former loophole to this process was by selling the ownership interests in a conduit entity after a transfer of real property had occurred. For example, Conduit A and Conduit B are both 100% owned by Holding Company A. Conduit A transfers real property to Conduit B. Documentary stamp taxes aren’t due on this transfer because both Conduit A and Conduit B are wholly owned by Holding Company A. Holding Company A then sells the ownership interests in Conduit B to a third party. Are there documentary stamp taxes on this transaction? Under the old statutory regime, the answer was no.
The State of Florida recognized this loophole and has since removed it. Now, when real property is conveyed to a conduit entity, and then all or a portion of that conduit entity’s ownership interests are subsequently transferred within three years after the real property conveyance, documentary stamp taxes are imposed on the transfer of interests in the conduit entity at the usual documentary stamp tax rate.
There are general exceptions to this rule. A gift of an ownership interest in a conduit entity is not subject to the tax. The transfer of shares or similar equity interests in a conduit entity which are dealt in or traded on a public, regulated security exchange or market is not subject to tax. Lastly, there are exceptions when a natural person owns a portion of the interests in the conduit entity and transfers them for estate planning purposes. All of these exceptions have more complicated statutory or case law requirements that are important to understand before claiming an exception.
Documentary stamp taxes can be very technical. If you are engaging in a transaction where you think documentary stamp taxes aren’t due, the best course of action is to consult with an attorney to make sure this is the case.