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MeanMike
09-02-2007, 07:27
http://www.palmbeachpost.com/business/content/business/epaper/2007/09/02/w1a_taxloophole_0902.html

Creative strategies skirt taxes on real estate deals


By JEFF OSTROWSKI

Palm Beach Post Staff Writer

Sunday, September 02, 2007

In a maneuver to lower their tax bills that is confusing public property appraisers, sellers and buyers of some of Florida's most valuable real estate have low-balled publicly recorded sale prices by at least $1 billion since 2005.

Buyers who have declined to reveal the full price of transactions include such titans of industry as H. Wayne Huizenga (he paid $13.8 million for a home but recorded the price at $10), Sam Zell (his apartment company paid $182 million for two complexes but recorded them at $10 each) and private-equity giant Blackstone Group (whose $367 million purchase of 10 hotels didn't show up in public records).

In one big-dollar example, Minto Builders sold six apartment complexes in Palm Beach and Broward counties in 2005. It told reporters the deal was worth $300 million - but deeds showed a total sale price of only $60, a move that saved documentary stamp taxes of $2.1 million.

For Huizenga, the Miami Dolphins owner, the 2005 purchase was a Fort Lauderdale mansion. His deed cited the price at $10, although he later acknowledged to Broward County officials the full $13.8 million price.

As far as the public is concerned, Blackstone paid nothing last year for hotels in Cocoa Beach, Key Largo, Sanibel and Captiva. The seller, however, put out a news release saying the 10 hotels fetched $367 million.

Deep-pocketed players can afford to pay attorneys to avoid taxes or throw off the property appraiser's office. These legal tax loopholes aren't much use to middle-class homeowners, however - attorney fees would eat up the tax savings.

The issue has begun to raise the hackles of public property appraisers, who rely on sales records to provide an accurate gauge of market activity. Advocates for affordable housing and other causes that rely on the taxes generated by real estate transactions also are crying foul.

"This practice is reprehensible," said Steve Webster of the Florida Workforce Housing Network. "Twisting and torturing court rulings to evade doc stamp fees is a cynical, destructive abuse of the free enterprise system."

Florida, of course, has no state income tax, leaving property taxes and documentary stamp taxes as crucial sources of revenue for schools, public safety and conservation. Some say the maneuvering shifts the burden to everyday taxpayers.

"It's a mess, and it's going to keep getting worse," said Joe Price, a longtime appraiser at the West Palm Beach firm Callaway & Price. "It's just not fair."

State lawmakers are facing a budget shortfall, but so far they have shown little interest in closing the ever-widening loopholes that allow huge transactions to be recorded for a few dollars.

That might change. State Rep. Susan Bucher, D-West Palm Beach, said she'll push for a fix to the loophole during next year's legislative session. She met last week with legislative and regulatory staffers who hope to collect more taxes from large sales.

"We need to fix this," Bucher said. "At a time when we have budget crisis, there is political will to address this problem."

The tax-saving strategies, all legal, take one of three forms:

Corporate entity sales, in which buyers and sellers structure deals as sales of corporate assets rather than as sales of real estate. This maneuver, sanctioned by the Florida Supreme Court, lets seller and buyer pay 70 cents in documentary stamp taxes, rather than the far higher amounts they'd owe if the sale were recorded at full price.

Land trust sales, which cite a documentary stamp tax exemption in the Florida Administrative Code. Sales can be recorded at $10, although sellers secretly can pay documentary stamp taxes directly to the Florida Department of Revenue rather than to the county tax collector.

Deducting the value of furniture, art or other extras from the sale price.

Not all embrace loophole

Some of the biggest deals are being done as corporate entity sales. A Florida Supreme Court ruling in 2005 said such sales aren't taxable, so long as the buyers, sellers and their attorneys clear a few legal hurdles.

The Palm Beach Post in August reported that three recent sales totaling $600 million had avoided the tax. They were the $231 million sale of Las Olas Centre in Fort Lauderdale, the $200 million sale of Phillips Point in West Palm Beach and the $170 million sale of PGA National Resort & Spa in Palm Beach Gardens.

But those aren't the only deals to take advantage of the ruling.

In one large deal in 2005, condo converter Prestige Builders Partners paid Minto Builders of Coconut Creek $300.3 million for six apartment complexes in Palm Beach and Broward counties.

If the sale had been recorded at full price, it would have generated $2.1 million in documentary stamp taxes, which is collected at a rate of 70 cents per $100 in property value, or 0.7 percent. Instead, deeds show the properties sold for $60 and paid just $4.20 in documentary stamp taxes.

Barry Somerstein, a Fort Lauderdale attorney who prepared the deeds in the Minto sale, declined to comment except to point to the Florida Supreme Court decision.

That decision also was cited by an investor who sold a Palm Beach mansion to one of the world's richest men.

In that deal, Florenz Ourisman in June sold the home at 703 Island Drive in Palm Beach to ALJ LLC for $15 million. ALJ is controlled by Charles Bartlett Johnson, the billionaire head of Franklin Resources of San Mateo, Calif.

The deed cited the Supreme Court ruling, and the $10 sale avoided $105,000 in taxes. Johnson is worth $4.5 billion, according to Forbes magazine.

The loophole is growing increasingly common, yet not everyone embraces it. When West Palm Beach developer Frank Navarro sold eight buildings at the Centrepark complex near Palm Beach International Airport last year, the $91 million sale was recorded at full price, and the $637,000 in documentary stamp taxes were paid. Navarro said he and the buyer, TA Realty Associates of Boston, decided not to maneuver around taxes.

"We both thought it was the right thing to do," Navarro said. "We made a lot of money, and we didn't mind paying the taxes."

Still, Navarro declined to criticize other developers who have taken advantage of tax loopholes.

"I know what feels right to me, but I don't want to pass judgment on anybody else," Navarro said.

While some sellers who have benefited cite the Florida Supreme Court ruling, that's not the only way sellers can avoid documentary stamp taxes. In another common practice, sellers structure deals as land trust agreements, then cite tax exemptions in the Florida Administrative Code.

The land trust deals mean there's no easy way to end documentary stamp tax avoidance, said William Sklar, a real estate attorney at Edwards Angell Palmer & Dodge in West Palm Beach.

Even if legislators closed the opening allowed by the Supreme Court, Sklar said, "There'd be another loophole to be dealt with."

The land trust loophole gets tricky, however. While deeds for the land trust sales cite an exemption that lets them get out of paying documentary stamp taxes, some sellers say they pay the taxes directly to the Florida Department of Revenue rather than to the county tax collector.

For instance, Huizenga used a land trust to buy the home in Fort Lauderdale in 2005, but he later presented proof that he had paid nearly $100,000 in documentary stamp taxes, said Ron Gunzberger, general counsel for the Broward County Property Appraiser.

"They just wanted to make it hard for us to figure out how much they paid," Gunzberger said.

A number of high-dollar properties have sold as land trust agreements in the past two years. For instance, when developer Ceebraid Signal paid $42 million for the Palm Beach Ocean Club in 2005, the sale of the oceanfront property was recorded at $10.

Equity Residential (NYSE: EQR), the apartment landlord whose chairman is billionaire Sam Zell, in 2006 used land trusts when it bought two apartment complexes in Palm Beach County.

In one deal, Equity Residential paid $96.5 million for an apartment complex in Boynton Beach, although the sale was recorded at $10. In another sale, Equity Residential paid the Kansas Public Employees Retirement System $85 million for an apartment complex in Wellington. It, too, was recorded at $10, although an official at the pension fund confirmed the $85 million price.

Both deeds were prepared by William Shockett, an attorney at City National Bank in Miami, and he insisted that both deals paid documentary stamp taxes, even though deeds in both sales included boldfaced lines stating the sales were "not subject to documentary stamp tax."

"Full doc stamp taxes were paid," Shockett said. "We're a bank, and we would not allow a transfer without full doc stamp taxes being paid."

Confusion common

The Florida Department of Revenue says such payments are confidential, so it wouldn't confirm whether it had received checks in those sales. But Jim Silvey, a former Florida Department of Revenue employee who now works as a private consultant, said land trusts are a commonly used way to avoid documentary stamp taxes.

In some cases, it's unclear exactly how buyers and sellers are cutting their tax bills. For instance, the Esperante Building in downtown West Palm Beach sold in late 2005 for $104.5 million. But according to the deed, buyer ING Clarion Partners paid only $43.97 million.

The sale generated $307,794 in documentary stamp taxes - $424,000 less than a sale recorded at full price. What happened to the other $60.5 million?

No one's saying. ING Clarion spokesman Mike MacMillan said he was unable to reach anyone at the company who could discuss the sale price. Larry Alexander, the West Palm Beach attorney who prepared the deed, said he couldn't discuss the matter because of a confidentiality agreement.

Price, the appraiser, said he heard the buyer and seller claimed that personal property such as furniture, fixtures and equipment led to the difference.

Therein lies the third practice, in which buyers pay sellers one amount for a property, but a lower amount is recorded on the deed. The explanation? The difference is the amount items such as furniture and artwork that stays with the property.

Underreporting sale prices has been especially common in Palm Beach, appraisers and Realtors say. For instance, the $12.3 million sale of 101 Dunbar Road was recorded at $11.52 million, $780,000 less than the true price, said Art Manikas of the Palm Beach County Property Appraiser's Office.

Joy Hearn, a former appraiser at the county property appraiser's office, said she often saw high-end buyers and sellers reducing their sale prices for phantom furniture and artwork.

In some cases, she said, "There was not a stick of furniture. They claimed things such as air conditioning ducts."

Hearn, who unsuccessfully ran against county Property Appraiser Gary Nikolits in 2004, said county and state officials should crack down on such maneuvers.

"Can we all do that?" Hearn asked. "If everybody can't do it, nobody should be able to do it."

Common strategies

Buyers and sellers of mansions and high-end commercial properties increasingly are using loopholes to avoid documentary stamp taxes, which in turn confuses county property appraisers.

Three oft-used strategies:

Strategy 1: The corporate entity transfer

How it works: Real estate doesn't technically change hands. Instead, a paper shuffle makes the property part of a corporate entity - and avoids documentary stamp taxes. The Florida Supreme Court ruled in favor of the loophole in 2005.

The example: Minto Builders' 2005 sale of six apartment complexes, including Spring Harbor in Delray Beach, to Prestige Builders Partners.

The savings: By recording the $300 million sale at only $60, seller and buyer avoided $2.1 million tax bill.
Who has used it: In addition to Minto's apartment sale, Phillips Point in West Palm Beach, PGA National Resort & Spa in Palm Beach Gardens, Las Olas Centre in Fort Lauderdale and at least one mansion in Palm Beach. Those five sales total $916 million.

Strategy 2: The land trust

How it works: The sale is structured as a land trust, and an exemption in the state's administrative code means no documentary stamp taxes are due.
The example: The Kansas Public Employees Retirement System's 2006 sale of a Wellington apartment complex to Equity Residential.

The savings: Unclear. By recording the $85 million sale at $10, seller and buyer could have avoided $595,000 in documentary stamp taxes. However, the attorney who prepared the deed said the taxes were paid.

Who has used it: Equity Residential also used a land trust to buy a $96.5 million apartment complex in Boynton Beach. Condo converter Ceebraid-Signal likewise recorded its $42 million purchase of the Palm Beach Hilton in 2005 for $10. Wayne Huizenga used the structure when he paid $13.8 million for a mansion.

Strategy 3: The underreported sale price

How it works: Buyer pays seller one price, but a lower amount is recorded on the deed. The explanation? The value of furniture, art and other personal property make up the difference.

The example: The oceanfront home at 101 Dunbar Road in Palm Beach sold in 2004 for $12.3 million. However, the sale was recorded at $11.52 million.

The savings: Reducing the price by $780,000 cut documentary stamp taxes by $5,460. It also might have convinced the county property appraiser to value the home for less than its true worth.

Who has used it: Numerous high-end homes throughout the county have sold for more than the price on the deed.

thoughts?

noway
09-02-2007, 09:34
thoughts ...none, that's how big business and poeple with money been doing for years, nope make it decades.


Taxes break aren't going to git a bluecollar worker any advantages and when the governer tax relief bill, it's only going to make other areas go up in costs and fees.