Recently passed legislation may help to clarify real estate transfer tax rules

Does New Hampshire’s real estate transfer tax (RETT) apply to transfers of property between related entities? In many cases, the answer has been unclear. A provision in the recently passed Senate Bill 243 is expected to bring some clarity to the issue. The provision gives the commissioner of the Department of Revenue Administration authority to include written examples of taxable and nontaxable real estate transactions within the RETT rules. This seemingly minor change is intended to clarify the applicability of the RETT to specific transactions such as related-party transfers. 

New Hampshire imposes a 1.5 percent tax on every transfer of real estate, unless an exemption applies.  The exemption for “non-contractual transfers” has been the basis for some taxpayers to conclude that related-party transfers are not subject to the tax. Such reliance has had varying success, as demonstrated by two New Hampshire Supreme Court cases:

• In First Berkshire Business Trust, the court found that successive transfers of real estate from a parent company to two wholly owned subsidiaries were “contractual” because each was a “bargained-for exchange” that enabled the transferor to refinance.
   
• In Say Pease IV LLC, Say Pease LLC owned a 47.5% interest in TIG LLC, a real estate holding company. Say Pease LLC transferred interests in TIG without monetary consideration to Say Pease IV LLC, an entity with the exact same ownership as Say Pease LLC. The court decided that no bargained-for exchange had taken place because the benefit of the transfer was that TGI, the transferred entity, was able to obtain financing. Say Pease, the transferor, benefited only indirectly because its owners were also the owners of Say Pease IV, the transferee.

The two cases have resulted in a great deal of confusion about whether RETT is owed on related-party transfers. However, thanks to the passage of Senate Bill 243, there may soon be examples of related-party transfers in the RETT rules that will help practitioners and their clients determine with a greater degree of certainty whether the tax applies. 

Nicole Bodoh Jacobson is an attorney in Primmer’s Manchester, New Hampshire office. She is admitted to the bars of New Hampshire and Vermont, and to practice before the United States Tax Court. With an LL.M. in taxation, and as a registered tax preparer, Nicole focuses her practice in the areas of corporate and tax law.