2013 End of Session Wrap Up: Tax and Revenue – Recordation and Transfer Tax Legislation

This post summarizes the status of tax and revenue bills related to recordation and transfer taxes that MACo either considered or took a position on.

Transfer of Property Between Related EntitiesHB 372/ SB 202 would exempt from the recordation and transfer tax the transfer of real property between parent business entities and wholly-owned subsidiaries if the transfer of real property is for no consideration, nominal consideration, or consideration that comprises only the issuance, cancellation, or surrender of the ownership interest of a subsidiary business entity. “Business entity” is defined as a partnership, limited partnership, limited liability company, or corporation. MACo opposed the bills expressing concern that the application of this overly broad exemption would substantially limit the number of transactions subject to the recordation and transfer tax without proper verification. In response to these concerns, the Senate Budget and Taxation Committee amended the bill to narrow its focus to only incorporate limited liability companies, in addition to corporations which are already eligible for the exemption under current law. The bill has also been amended to be effective for a period of 5 years and terminate on June 30, 2018. The House Ways and Means Committee voted the bill in its original form.

Final Status: Both bills passed the General Assembly with amendments to only expand the exemption to limited liability companies and remove the 5 year sunset. The amendments address MACo’s main concern.

Indemnity Deeds of Trust (IDOT): HB 1209/ SB 436, as introduced, would have grandfathered all IDOTs indefinitely and imposed no limit on the successive refinancing.  The bill would have also increased the threshold for taxation from $1 million to $5 million. MACo opposed the bill stating it would have an unfair, sweeping, negative effect on local taxing authority and revenues. With the assistance of county attorney and finance staff, MACo was able to work with the industry representatives and the Committee to reach a fair resolution of the issues. The bill as amended would impose the recordation tax on an IDOT or a commercial deed of trust that is amended or refinanced on any additional money borrowed over the unpaid principal balance at the time of the refinance.This same criteria would also apply to IDOTs recorded prior to July 1, 2012 effective date that are amended or refinanced. IDOTs valued at up to $3 million would be exempt from the recordation tax. Lastly, language has been added to the bill to ensure that commercial borrowers can’t record serial loans in amounts under the threshold to avoid paying the recordation tax.

Final Status: Both bills passed the General Assembly with amendments supported by MACo. MACo dropped its opposition to the bill as amended. 

Housing Projects – Transfer of Controlling Interest: HB 1236 / SB 730 specifies that the recordation and transfer tax payable for the transfer of a controlling interest in a low-income housing project would be based on the actual payment made by the purchaser to the seller instead of the value of the real estate.  MACo supported the bill stating that it would preserve affordable housing in communities across the state. MACo, working with the proponents, offered an amendment to further clarify what was meant by “actual payment” in the bill.  After working with the Committee and staff, MACo’s concerns have been addressed.

Final Status: Both bills passed the General Assembly with amendments supported by MACo.