Conveyances from Parent to Wholly Owned Subsidiary and from Wholly Owned Subsidiary to Parent

SUMMARY

QUESTION: Will a substitution of collateral (where proper tax has been paid on the original documents and there is no increase in the amount of the indebtedness) give rise to additional documentary stamp tax or nonrecurring intangible tax?

ANSWER – Based on Facts Below: Where proper documentary stamp tax has been paid on the original documents, where there is no change in the amount of the mortgage(s), a substitution of collateral will generally not result in additional tax liability. No additional nonrecurring intangible tax is due, provided the principal balance of the mortgage(s) remains the same.

February 12, 2007

Re: Technical Assistance Advisement No. 07M-002

Documentary Stamp Tax and Nonrecurring Intangible Tax on Conveyancesfrom Parent

to Wholly Owned Subsidiary and from Wholly Owned Subsidiary to Parent

Sections 201.02, 201.08, 199.133, F.S.

XXX (hereinafter,Parent)

XXX (hereinafter, General Partner)

XXX (hereinafter, Limited Partner)

XXX (hereinafter, Subsidiary)

XXX (hereinafter Parent Parcel)

XXX (hereinafter Subsidiary Parcel)

XXX (hereinafter Subsidiary’s Mortgagee)

XXX (hereinafter Parent’s Mortgagee)

Dear:

This is in response to your request for a technical assistance advisement asking for an opinion on whether a conveyance from a parent to its wholly owned subsidiary and a conveyance from a wholly owned subsidiary to its parent are subject to documentary stamp tax and nonrecurring intangible tax.

FACTS AS PRESENTED BY PETITIONER

Parent is composed of General Partner and Limited Partner. Subsidiaryhas only one member, Parent. Subsidiary, Parent, General Partner and Limited Partner all have properties which are encumbered by certain mortgages. The collateral for these mortgages includes theSubsidiary Parcel. Subsidiary’s Mortgagee (because of certain requirements of this lender) has agreed to releasethe Subsidiary Parcel from the current mortgages. After the Subsidiary Parcel is released from the lien of the mortgages, the unencumbered Subsidiary Parcel will be conveyed to Parent.

Parent will then pledge the Subsidiary Parcel as additional security for a certain existing second mortgage and security agreement executed by the Parent to Parent’s Mortgagee.

Then, due to requirements of Parent’s Mortgagee, certain encumbered real property owned by Parent will be released from its existing first mortgages. Thereafter, the unencumbered Parent Parcel will be conveyed to Subsidiary. Subsidiary will then pledge the Parent Parcel as additional security under Subsidiary’s existing mortgages to Subsidiary’s Mortgagee.

REQUESTED RULING

You request the Department’s determination that the documents conveying the Subsidiary Parcel to the Parent, and the Parent Parcel to Subsidiary, will be subject to only the minimum documentary stamp tax as imposed under s. 201.02, F.S.

You also request a determination that neither the Subsidiary Parcel Release nor the Parent Parcel Release, nor the subsequent pledging of the Subsidiary Parcel as collateral for the existingParent’s Mortgage,nor the pledging of the Parent Parcel as collateral for theexisting Subsidiary’sMortgage, will result in any documentary stamp taxes or nonrecurring intangible tax liability under s. 201.08, F.S., or s. 199.133, F.S., respectively.

LAW AND DISCUSSION

Under s. 201.02, F.S., consideration is the basis for computing the amount ofdocumentary stamp tax:

201.02 Tax on deeds and other instruments relating to real property or interests in real property.

(1)On deeds, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or any other person by his or her direction, on each $100 of the consideration therefor the tax shall be 70 cents. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the consideration therefor. For purposes of this section, consideration includes, but is not limited to, the money paid or agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed. . . . (e.s.)

In the present situation, the conveyances of unencumbered real property are made between related entities, one conveyance of real property from the wholly owned subsidiary to

the parent, and one conveyance of a different parcel of real property from the parent to that same

wholly owned subsidiary. Thereafter, each of these parcels willbe pledged as additional collateral for each recipient’s existing mortgages.

Under the decision of the Florida Supreme Court in Crescent Miami Center, LLC v. Department of Revenue, 903 So.2d 913 (Fla. 2005), the conveyances of unencumbered real property between the parent and its wholly owned subsidiary would not be subject to documentary stamp tax under s. 201.02, F.S., since there was no change in beneficial ownership.

What occurs following these transfers is, in substance, a substitution of collateral, which is generally exempt from documentary stamp tax under s. 201.08 (5), F.S.:

. . . Modifications to documents which do not modify the terms of the indebtedness evidenced such as those given or recorded to correct error; modify covenants, conditions, or terms unrelated to the debt; sever a lien into separate liens; provide for additional, substitute, or further security for the indebtedness;consolidate indebtedness or collateral; add, change, or delete guarantors; or which substitute a new mortgagee or payee are not renewals and are not subject to tax pursuant to this section. . . . (e.s.)

When the mortgages involved have had proper tax paid on the original documents, a substitution of collateral will not cause additional documentary stamp or additional nonrecurring intangible tax to be due, provided, as in this case, the principal balance of the mortgages involved is not increased. (Seess. 199.145 (4), (6) and 201.09, F.S.)

DETERMINATION

A deed of unencumbered real property which does not create a change in the beneficial ownership of the property is not subject to documentary stamp tax, when there is no other consideration. We find that the transaction following the deeds constitute, in substance, a substitution of collateral. Where proper documentary stamp tax has been paid on the original mortgage(s), and where there is no change in the amount of the mortgage(s), a substitution of collateral will generally not result in additional tax liability. No additional nonrecurring intangible tax is due, provided the principal balance of the mortgages remains the same. Therefore, other than the minimum documentary stamp tax on the deeds, no additional documentary stamp tax is due on the deeds or mortgages. In addition, no additional nonrecurring intangible tax is due upon the substitution of collateral where the amount of the mortgages remains the same.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S.,which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response, your request and related backup documents are public records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your response should be received by the Department within 15 days of the date of this letter.

Sincerely,

M. E. Clemens, C.P.A.

Senior Tax Specialist

Technical Assistance and Dispute Resolution

MEC/mh

Record ID: 27411