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Bar News - May 14, 2010

Tax Law: Recent Decisions on the Real Estate Transfer Tax


Roy W. Tilsley
The application of the real estate transfer tax in transactions in which real estate is sold to a third party purchaser for fair market value is relatively straightforward; the buyer and seller each pay 0.75% of the sales price as their share of the transfer tax. However, the application of the real estate transfer tax in transactions among related parties and/or involving little or no consideration, has challenged attorneys and parties. In two recent decisions, one favoring the taxpayer and one favoring the State, the New Hampshire Superior Court has shed some light on these more challenging situations.

ZBH Realty LLC, et al. v. C. Philip Blastsos (08-E-103)
In an order dated August 26, 2009, the Cheshire County Superior Court ruled that New Hampshire’s Real Estate Transfer Tax (RSA 78-B et seq.) did 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.

On March 22, 2004, Mr. Hagemeyer transferred a 17.7 acre lot located in Rindge, NH to ZBH Realty LLC. In March 2007, the Department of Revenue Administration assessed a Real Estate Transfer Tax on this transaction in the amount of $13,352.00 each against Hagemeyer and ZBH. These assessments were appealed, and after [the parties] exhausted their administrative remedies, the Cheshire County Superior Court action was brought.

The Cheshire County Superior Court (Judge Nicolosi) ruled that a taxable transfer under the Real Estate Transfer Tax must be 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 Real Estate Transfer Tax is assessed on the sale, grant or transfer of real estate. According to RSA 78-B:1-a (V), a "sale, grant, or transfer" is defined as every contractual transfer of real estate. The Court ruled that the definition of "contractual transfer" included the requirement that the transfer be a bargained for exchange.

The Court’s decision clearly establishes that a taxable transfer requires 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 from ZBH. As such, the transfer did not meet the definition of a bargained-for exchange, and therefore was not taxable.

The Court also ruled for Hagemeyer and ZBH on the alternate ground that the transfer was subject to the exemption for a non-contractual transfer. The three-part test for a non-contractual transfer contains the well-established common law requirements for a valid inter vivos gift: donative intent, actual delivery, and immediate relinquishment of control. The Court, recognizing that Mr. Hagemeyer’s obligations and duties as the manager of ZBH are different than his prior obligations and duties as a personal owner of the property, ruled that the transfer met the three-part exemption for a non-contractual gift transfer.

In addressing the donative intent question, the Court again wrestled with the consideration issue. The State had argued that since Hagemeyer received limited liability by transferring the property to the LLC, that he had received consideration in the form of the limited liability protection from the LLC. The Court concluded that limited liability arose by operation of law, and was not the result of any act or forbearance on the part of the LLC.

The Court also rejected the State’s argument that Hagemeyer had retained control over the parcel, since he was the manager of the grantee LLC. Recognizing that as a manager, Hagemeyer, had fiduciary duties to the members of the LLC, the Court found that Hagemeyer had lost the ability to use or alienate the property as he pleased.

The DRA did not appeal the Superior Court’s decision.

First Berkshire Business Trust, et al. v. G. Philip Blatsos, et al. (07-E-357)
In an Order dated September 29, 2009, the Hillsborough County Superior Court – Northern District (Judge O’Neill), the Court ruled that the Real Estate Transfer Tax did apply to transfers from a parent entity to wholly owned subsidiary entities (single purpose real estate holding companies). The Court assessed the tax on the fair market value of the property, rather than on the $10.00 consideration expressed in the deeds.

First Berkshire Business Trust was the grantor for the two transfers at issue. In conjunction with a refinancing, its lender required it to transfer the subject property to a wholly owned single purpose entity, First Berkshire Business Property, LLC. On April 11, 2003, a deed was recorded indicating that it was "In consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration."

On October 6, 2004, the DRA issued notices of assessment, including penalties and interest. After exhausting administrative remedies, the Superior Court action was filed. On appeal, the Petitioners argued that there was no "sale, granting or transfer" of real estate, as there was no bargained-for exchange as the grantees did not exist separately from their parent grantor. Alternatively, the Petitioners also argued that three exceptions to RSA 78-B:1 applied to these transfers.

Once again, the Court looked to the bargained-for exchange element to determine if the transfer was taxable under RSA 78-B. The Court indicated that a bargained for exchange contemplated the exchange of a promise for a promise or a promise for performance, or vice versa. The Court found that a bargained-for exchange occurred as the parties exchanged performances in the transaction. The grantor performed by transferring the property to the grantee, the grantee performed by accepting the property and refinancing the mortgage held by the grantor. The grantor received the benefit of avoiding bankruptcy, and the detriment of no longer owning the property. The grantee received the benefit of owning the property and the detriment of paying the new mortgage on the property. The Court specifically relied on the refinancing of the mortgage in support of its finding of a bargained-for exchange. The grantee received the property under a promise to refinance the property, and did refinance the property.

The Court also rejected the Petitioners argument that the transfer was exempt under RSA 78-B:2(V) as a ‘refinancing transaction" analogous to a correctional or confirmatory deed; and the Petitioner’s argument that the exception for a mortgage or other instrument given to secure payment of a debt or obligation should apply.

Taxpayers have appealed the Superior Court’s decision to the New Hampshire Supreme Court. The appeal is currently pending.


Attorneys dealing with similar transactions should review these two cases before filing transfer tax declarations. At this point, it is unclear whether the DRA will acknowledge the ZBH decision moving forward. Attorneys and clients who have paid the real estate transfer tax in circumstances similar to the ZBH matter may also want to consider filing for refunds of taxes that have already been paid.

Roy W. Tilsley is with Bernstein, Shur, Sawyer & Nelson in Manchester. He has been a member of the NH Bar since 1992.

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