There was a time, not too long ago, when you could buy a business that included real estate, and documentary stamp transfer tax (“Doc Stamp Tax”) did not have to be paid. Why? Because ownership of the real estate did not change, i.e. the limited liability company or corporation that owns the real estate remained the same after the business sale. The real estate technically did not change ownership so no tax was imposed. Times have changed.
Today when there is a change of control, or a change in the majority ownership of your LLC, corporation, or other legal entity that owns Florida real estate, the Property Appraiser in the Florida county where the real estate is located must be notified in writing of all the sale details, just as if the ownership of the real estate had changed. Doc Stamp Tax is calculated on the “full consideration” that would be paid in an arm’s length transaction between unrelated parties. When determining what “full consideration” is, include outstanding mortgage debt or other debt which the party pays or agrees to pay in exchange for the real estate.
When there is a transfer of ownership in an LLC, corporation, or other entity which owns Florida real estate, Doc Stamp Tax is calculated at a rate of $0.70 for each $100, or fraction thereof, of the consideration paid or given in exchange for the ownership interest in the entity.
Most businesses have many other assets besides real estate. So, when an ownership interest in an LLC or corporation that also owns assets other than real estate is transferred, the value reasonably attributable to the real estate is prorated based on the percentage of value of the real estate to the total value of all assets owned by the LLC or corporation involved in the sale and Doc Stamp Tax is calculated on that prorated amount.
Are there exceptions to the payment of Doc Stamp Tax on the consideration attributable to the real estate? Yes, but for many business sales that include real estate, the exceptions will probably not apply.
The payment of Doc Stamp Tax on real estate owned by a legal entity is an example of the many elements of a business sale or purchase. When buying or selling a business, your attorney and CPA should be involved from the beginning of your decision to sell through closing and after closing. We would be pleased to talk with you about the sale or purchase of a business by contacting us at (813) 852-6500.