DRA loses on transfer tax interpretation
In an Aug. 26 order, the Cheshire County Superior Court ruled that New Hampshire’s real estate transfer tax does not apply to the transfer of real estate by an individual to a limited liability company in which the transferor and his wife were the only members and the transferor was the only manager.The ruling came in the case of ZBH Realty LLC and Mark Hagemeyer v. Commissioner, New Hampshire Department of Revenue Administration.On March 22, 2004, Hagemeyer transferred a 17.7-acre lot located in Rindge to ZBH. In March 2007, the DRA assessed a real estate transfer tax on the transaction amounting to $13,352 each against Hagemeyer and ZBH. After assessments were appealed and administrative remedies exhausted, the court action was brought.The court ruled that a taxable transfer under the real estate transfer tax must include a bargained-for exchange of promises between the transferor and transferee, with the transferor receiving some benefit or consideration in exchange for the transfer of real estate.The court ruled that Hagemeyer gave the real estate to ZBH without receiving any promises, money, property or services in return. As such, the transfer was not a bargained-for exchange, and therefore was not a taxable contractual transfer.The court also ruled for Hagemeyer and ZBH on the alternate ground that the transfer was also subject to the exemption for a noncontractual transfer, as the transfer met the three elements of a gift — donative intent, actual delivery and immediate relinquishment of control.The court’s decision represents a significant defeat for the DRA, which has routinely audited recorded deeds and assessed the real estate transfer tax on property transfers between individuals and business entities closely held by the same individuals.The DRA previously maintained that such transfers were automatically taxable regardless of whether a bargained-for exchange took place, and that such transfers were not gifts as the same individuals supposedly retained “control” over the property. Individuals or business entities contemplating or have already made a transfer of real estate to a closely held entity, may want to review this decision with legal counsel prior to determining whether the real estate transfer tax or refund will be due on such transfer.Roy Tilsley, a Manchester-based shareholder of the law firm of Bernstein Shur, can be reached at 603-623-8700 or email@example.com.