Title Talk Archive
Realty Transfer Fee: Related-Entity Transfers
     One of the most frequently-asked questions regarding the Realty Transfer Fee [“RTF”] imposed by N.J.S.A. 46:15-5 et seq. is whether deeds between “related entities” are exempt. In 2006, the Treasury Department promulgated regulations, N.J.A.C. 18:16-1.1 et seq., which govern payment of the RTF. These regulations replaced earlier versions which had [inadvertently] been allowed to expire in 2003.So for the most part, they simply codify existing practice.  However, there are a few sections to which close attention should be paid, particularly N.J.A.C. 18:16-6.1, which governs transfers between related entities.  
     The rule begins by reminding us that no exemption exists per se for related-entity transfers. Deeds made in lieu of capital contributions to corporations, LLCs, etc., are thus subject to RTF, based on the value of the stock or interest in the grantee business entity received by the grantor. The section concludes: “When a value is indeterminable, the RTF is calculated on the assessed value of the property being conveyed ...”. 
     Does the preceding statement refer only to deeds where (e.g.) the value of stock received by the grantor in the grantee corporation cannot be determined (because the corporation is not publicly traded)? Or does it refer to deeds where (e.g.) a corporation conveys to its subsidiary for nominal consideration and there are no existing mortgages on which to base the RTF? In such cases, will RTF be imposed based on the assessed value of the realty? The answer is unclear, but if the latter interpretation is adopted, the regulation would seem to be at odds with N.J.S.A. 46:15-10(a), which exempts from payment of RTF deeds “... for a consideration, as defined in [N.J.S.A. 46:15-5(c)] of less than $100.00”. In one recent transaction, a deed for nominal consideration between related entities was rejected by the recording  
officer on the grounds that the regulation quoted above required payment of RTF in accordance with  the assessed value. 
     However, a recent decision by the New Jersey Tax Court may have resolved the issue in favor of the grantor. In Mack-Cali Realty v. Bergen County Clerk, 25 N.J. Tax 243 (Tax Ct. 2009), the parties, by way of cross-motions for summary judgment, sought a judicial determination of whether deeds between related entities, each of which contained stated consideration of $10.00, were exempt from payment of RTF under N.J.S.A. 46:15-10(a), notwithstanding the provisions of N.J.A.C. 18:16-6.1. The Tax Court determined that the deeds were in fact RTF-exempt. It reasoned that the interpretation of the regulation advanced by the County Clerk and the Division of Taxation was inconsistent with the statutory exemption, and hence unsupportable. In reaching its conclusion, the court found decisions relied upon by the defendants, Zimmerer v. Clayton, 7 N.J. Tax 15 (Tax Ct. 1984) and EWH 1979 Dev. Co. v. State, 10 N.J. Tax 321 (Tax Ct. 1989) to be factually distinguishable. Thus, it seems the phrase “when a value is indeterminable” as used in the regulation is not intended to include automatically all deeds which recite nominal consideration.  
     On the other hand, it is important to recall that the definition of “consideration” found in N.J.S.A. 46:15-5 (c) includes “…the actual amount of money and the monetary value of any other thing of value … including the remaining amount of any prior mortgage…”. Thus, even in cases where the deed recites nominal consideration, RTF may be payable if (for example) the grantee assumes or takes subject to an existing mortgage, or if the grantor receives payment in a form other than money, such as stock certificates.
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