Real estate transfer taxes loophole to close
By Sam Spatter
Published: Thursday, July 4, 2013, 12:01 a.m.
Pennsylvania lawmakers believe they have closed the final loopholes that allowed major corporations to avoid paying real estate transfer taxes on the purchase of major office buildings and other properties.
The state Senate on Wednesday approved two changes to the tax code that would eliminate the loopholes. The changes were the second in two years that addressed the nonpayment of transfer taxes for major transactions.
The legislation goes to the governor for his signature.
One change blocks corporations from skirting transfer taxes by structuring deals using holding companies.
A second change will permit the state Revenue Department to tax a transaction when 90 percent or more of a property is transferred, regardless of whether the sale has a definitive closing date. Currently, unless there is a date, no transfer tax is required.
Both changes become effective Jan. 1, once they are signed into law by Gov. Tom Corbett.
They follow the initial changes in the tax code, known as 89-11, which allowed buyers to avoid paying the tax by purchasing 89 percent of a building. After three years, the buyer could buy the remaining 11 percent.
State Sen. Jim Ferlo, D-Highland Park, a proponent of the changes, said that if the legislation had been in effect last year, for example, Highwood Properties of Raleigh would have paid several million dollars in its purchase of the 32-story EQT Plaza, Downtown.
In that sale Highwoods acquired 100 percent of the building owner, Liberty Avenue Mezzanine LLC, a Delaware holding company, for $99.2 million. No tax was paid because there was no deed required since the recorded owner of the building remained unchanged.
That meant a loss to the city of Pittsburgh of $1.98 million (2 percent of $99.2 million), and nearly an equal amount to the city school district. The state loss 1 percent of the sales price.
There were a number of sales similar to this prior to the end of 2012 since the change in the 89-11 did not go into effect until Jan. 1, 2013.
Another sale was the Equitable Resources building on the North Shore. It was acquired by IRA Realty Capital of Newport Beach, Calif., for a reported $37 million. No transfer tax was paid.
Ferlo hasn't been alone in fighting to get the tax code law change to require realty tax payments. Among others joining him have been City Controller Michael Lamb and Allegheny County attorney Ira Weiss.
“This (latest) effort was bipartisan in nature, and I am grateful to Revenue Secretary (Dan) Meuser, and the staffs of Sens. (Jake) Corman, (Joe) Scarnati and (Vincent) Hughes. This teamwork will achieve more equity in the tax code and help both state and local governments collect fair taxes,” Ferlo said.
Local officials believe because the changes don't go into effect until Jan. 1, 2014, there could be a number of office building sales prior to the end of the year.
Sam Spatter is a staff writer for Trib Total Media. He can be reached at 412-320-7843 or firstname.lastname@example.org.
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