Florida Continues Modernization of Merger Laws
October 2000
A recent change in Florida laws has eliminated the imposition of the sometimes onerous documentary stamp tax. Previously, the stamp was required in connection with mergers in which a Florida entity (corporation, limited liability company, general partnership or limited partnership) is the survivor, as well as in connection with conversions of general to limited partnerships and vice versa.
The general rule is that a transfer of real estate ownership in Florida is accomplished by a deed, on which the state imposes a documentary stamp tax. In the most populous county of the state, an additional surtax on deeds for non-residential property also applies. The tax is 70 cents per $100 of fair market value of the property, or any fraction thereof, except in Miami-Dade County where the rate is $1.05 per $100 of fair market value of the property, or any fraction thereof, for commercial property. For example, a deed to commercial property having a fair market value of $5 million would incur a documentary stamp tax of $52,500 in Miami-Dade County and $35,000 elsewhere in the state.
Prior to the most recent change in the law, in the event of a merger in which a Florida entity was the survivor, a conversion of a general to a limited partnership or a conversion of a limited to a general partnership, the state law provided that although title to real estate owned by each predecessor entity vested in the surviving entity by operation of law upon the effectiveness of the merger or conversion, execution and recordation of a deed to the real property to the surviving entity was required¾ thereby incurring the documentary stamp tax and, if applicable, surtax. Because of such expenses, some transactions were structured as mergers of Florida entities into non-Florida entities, solely to avoid the imposition of the tax.
Effective June 15, 2000, various Florida statutes that deal with mergers and conversions of business entities have been amended to eliminate the necessity of execution and recordation of a deed to real property to the surviving entity. This effectively eliminates the imposition of a documentary stamp tax and surtax for such transactions.
Under the revised laws, real property owned by a predecessor entity continues to vest in the surviving entity upon effectiveness of the merger or the conversion. A deed to the surviving entity is no longer required. Only a certified copy of the articles of merger or other evidence of a partnership conversion is required to be recorded. As a result, the entity does not incur the documentary stamp tax or surtax.
Another provision of the new law states that for mergers and conversions that occurred prior to June 15, 2000, the real estate of any predecessor entity vested in the surviving entity upon effectiveness of the merger or conversion, even though no deed formerly required by the applicable laws was executed and recorded. Although not expressly stated in the amending legislation, staff of the Florida Department of Revenue has informally advised that for transactions that occurred prior to June 15, 2000, the department will neither grant refunds of any tax paid on deeds to the surviving entities nor seek assessment of any tax with respect to any deeds that were formerly required to have been executed and recorded but were not filed or recorded.
Clients contemplating mergers or conversions involving Florida corporations, limited liability companies, general partnerships or limited partnerships should carefully consider the effect of the new law on those transactions, including the choice of jurisdictions for the surviving entities.
