|Real Changes to the Real Estate Transfer Tax Signed Into Law||Author
Suzanne Brunelle, Esq.
On June 21, 2016, Governor Hassan signed House Bill 1656, which seeks to clarify existing law regarding exceptions to payment of the Real Estate Transfer Tax (“RETT”), codified as New Hampshire Revised Statute 78-B:2 (“Statute”). See Chapter 288, Laws of 2016. The new law amends the Statute by providing additional exceptions to the payment of the RETT.
The Statute defines the RETT as a . . . “tax on the sale, granting, and transfer of real property or an interest in real property” and only applies to “contractual transfers.” The tax imposed, on both buyer and seller, is currently set at the rate of $.75 per $100 of the price or consideration for the sale, granting, or transfer.Prior to the law, examples of contractual transfers which triggered the tax included transfers between a business entity and its owners, transfers between related businesses, and the transfer of interests in a holding company, as well as a grant of an easement or right of way, leases for 99 years or longer and transfers by deed as a result of a sheriff’s sale. The statute contains a presumption that every transfer of real estate or an interest in real estate is presumed taxable unless there is a specific provision in RSA 78-B:2 to exempt it from taxation. Broadly speaking, the RETT applies to every contractual transfer unless there is a statutory exception.
Previously, the Statute recognized only sixteen exceptions to the RETT including non-contractual transfers, transfers between spouses due to final divorce decree, corrective documents, transfers to the State of New Hampshire or other county, municipal or political subdivision of the State of New Hampshire, and the like, cemetery plots and transfer by devise, intestate succession, or death of a joint owner. However, despite the numerous exceptions and broad language of the Statute, the question of when a payment of the RETT was required and what constituted an exception to such payment was unclear and the subject of much angst among the taxpaying community, especially after the issuance of two Opinions by the New Hampshire Supreme Court cases which left many questions unanswered. The Opinions reach opposite results on similar but not identical facts and circumstances such as Say Pease IV where no RETT was determined to be due and First Berkshire Business Trust where a RETT was due and payable.
The new law makes three (3) substantive changes to the RETT. First, the law provides for exemption from the RETT in situations where the transfer of title is coincidental to a change in the taxpayer’s form of organization, no consideration is exchanged, the assets and liabilities of the parties to the transfer remain the same and the owners of the parties remain the same and their ownership percentage in the entity must not change. An example, often times a corporation with an S-election in place will elect to convert to a limited liability company with an S-election for various business purposes. Under the law, this type of transfer should be exempt from the RETT.
Second, the law provides for exemption from the RETT in situations where the transfer of property is made from an entity to an owner or from an owner to an entity. In such a situation, there must be no consideration, the parties must remain the same, the ownership percentage in the entity must not change and the combined assets and liabilities must remain the same except with respect to the real estate. A common example of this is real estate transferred by the owner(s) of the real estate to an entity owned by the owner(s), or, alternatively, real estate transferred from an entity to the owner(s) of the entity. A transfer of real estate from one entity to another entity does not appear to be permitted by the express terms of this provision. However, it is possible that passing title from an entity to the owner(s) of the entity and then from the owner(s) to a new entity would satisfy this provision, so long as the other conditions are met.
Further, the law clarifies and provides that a beneficial interest in a trust is considered an ownership interest in the trust; thereby allowing a married couple transferring title from themselves as joint owners of real property into their revocable trust for estate planning purposes, where each party is retaining the same percentage of beneficial interest in the trust as the previous percentage interest in the real estate and with no consideration changing hands to be exempt from the RETT. The reverse of this fact pattern is also exempt from the RETT, so that if the trustees of the revocable trust transferred title to real property to themselves individually, in the same percentage interest as under the terms of the revocable trust with no consideration being paid, no RETT would be due. No longer do we need to wrestle with the idea that zero (0) consideration being paid between the married couple and the married couple’s revocable trust, or the reverse, is less than the Four Thousand Dollars ($4,000.00) minimum consideration threshold of the New Hampshire Department of Revenue resulting in a minimum transfer tax being due in the amount of Forty Dollars ($40.00).
Third, the law amends the definition of “price or consideration.” The Law specifically excludes a transfer made solely to obtain financing or refinancing as required by a lending institution and that is accomplishing no other business purpose from the definition of “price or consideration.”
These new additions to the exemption to the RETT provide much needed clarification for the business, financial, and legal communities which will allow more freedom of movement by the citizens and businesses of New Hampshire. However, the practical effects of the Law remain to be seen. Regardless, it is commendable that the Legislature has been successful in passing these welcomed changes in a climate where legislative changes are increasingly hard to come by.
Suzanne Brunelle is Of Counsel at Devine, Milllimet & Branch, Professional Association in Manchester, NH, where she practices with the Real Estate and Banking & Commercial Finance groups. She is licensed to practice in New Hampshire, Massachusetts, and Maine.
 Say Pease IV, LLC v. Commissioner, New Hampshire Department of Revenue, 163 N.H. 415 (2012)
 First Berkshire Business Trust v. Commissioner, New Hampshire Department of Revenue, 161 N.H. 176 (2010)