• Florida Streamlines Tax Liability Rules for Purchasers of Businesses and Rental Real Estate Projects
  • May 23, 2012 | Author: Marvin A. Kirsner
  • Law Firm: Greenberg Traurig, LLP - West Palm Beach Office
  • Legislation recently signed by Governor Scott will make it easier to determine whether the purchaser of the assets of a business will be subject to transferee liability for the Florida tax obligations of the seller. This should be a relief to purchasers of businesses and commercial and residential real estate projects in Florida.

    Prior to this amendment to Florida's transferee liability law, the only way that a purchaser could be certain to be free from the sales tax obligations accrued by the seller was to ask for the Department of Revenue to audit the seller. This original provision was found in Section 212.10 F.S. To confuse matters, in 2010, Section 213.758 F.S. was put on the books dealing with transferee liability for all Florida taxes (not just sales taxes).

    The 2012 legislature amended the law and repealed Section 212.10, so that transferee liability for the seller's sales tax obligations can be avoided by requesting a certificate of compliance from the Department of Revenue showing that the seller has filed all required returns and paid all tax obligations, and it not under a state tax audit. Obtaining a certificate of compliance will relieve the purchaser of having to go through a full blown sales tax audit. The audit procedure would still be required if the business is being acquired by a related party, or an insider of the selling company. In cases where an audit is required, the amendment requires that the Department of Revenue complete the audit within 90 days.

    This is important news for both corporate M&A acquisitions and real estate acquisitions, because Florida imposes its sales tax on commercial rentals, and for residential rentals under leases of six months or less. In addition to the sales tax on short term residential rentals, there would also be a local tourist development tax, for which there would also be transferee liability. If you are obtaining a tax clearance certificate for sales tax for a short term rental residential property, it is important to remember to also obtain a separate tax clearance certificate from the local jurisdiction, because they administer their local tax independent of the Department of Revenue, so this local tax clearance letter should be an additional item on your checklist when purchasing a residential project.

    To make things easier for some real estate transactions, the new amendment says that the purchaser of:

    i. one to four family residential property;
    ii. property that has not been improved with a building; or
    iii. owner-occupied commercial property, does not have to obtain a tax clearance certificate.

    This should be welcome relief to the purchaser of a condominium unit if the unit has been rented by the seller for periods of six months or less. However, the exemption for owner occupied commercial real property might be a trap for the unwary. For example, if a physician owns his own office, and leases it to his own professional corporation, then this would not qualify as "owner occupied" commercial property, because a separate entity occupies it, and in this case, sales tax would be due on imputed rentals, and the purchaser of the commercial property would be subject to transferee liability for such sales taxes. So, before relying on this owner-occupied commercial property exemption, a purchaser should be certain that the owner of the property and user of the property are the same entity.