The New Jersey Tax Court has held that transfers of unencumbered property between commonly owned legal entities, for nominal consideration, are not subject to the realty transfer fee. The court rejected the position taken by the Division of Taxation in its current regulations that such transfers are always subject to the fee and that the consideration should be measured by the assessed value of the property.
In Mack-Cali Realty, LP v. Taxation Div. Director, the taxpayer conveyed its unencumbered properties to its wholly owned limited liability companies in each case for consideration of $10. The taxpayer claimed that the transfers were not subject to the realty transfer fee because the statute specifically exempts transfers for consideration of less than $100.
Although the case involved transfers that occurred before the Division adopted its current regulations, the Division based its assessment on the principles supporting those regulations. The Division asserted that transfers of property between legal entities can never be made for nominal consideration. According to the Division, such transfers always result in some benefit to the grantor and, if that benefit can not be quantified, consideration should be measured by, and the fee should be imposed on, the assessed value of the property.
The court rejected the Division’s position as contrary to the plain language of the statute. The statute specifically exempts transfers for nominal consideration from the realty transfer fee and specifically defines “consideration” to include only the actual amount of money and value of other things paid for the property, including the amount of mortgages on the property assumed or taken subject to. Therefore, consideration does not include the indirect benefits imputed by the Division and such transfers of unencumbered property, for nominal consideration, between commonly owned legal entities are exempt from the realty transfer fee.
The Division has not announced whether it will appeal the decision.
For further information on this decision or the New Jersey Realty Transfer Fee, please contact Kenneth Norcross.
Disclaimer Required by IRS Rules of Practice. The discussion of tax matters contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding any penalties that may be imposed under Federal tax laws.
Excellent read, I just passed this onto a colleague who was doing a little research on transfer tax. He actually bought me lunch because I found it for him. So let me rephrase that: Thanks for the lunch!