Technical Advisory Concerning Real Estate
Conveyance Taxes September 1, 1989
Conveyance Taxes September 1, 1989
This Technical Advisory is intended to summarize for tax professionals recent developments pertaining to the State and Municipal real estate conveyance taxes. Except as otherwise indicated, this Technical Advisory pertains to conveyance made on or after July 1, 1989.
II. 1989 LEGISLATION
Public Act 89-251 imposes the State real estate conveyance tax at several different rates--rather than at the prior uniform rate of forty-five one-hundredths of one per cent (0.45%)--as follows:
|CONSIDERATION RECEIVED FOR||TAXED AT THE RATE OF|
|Unimproved land||one-half of one percent (0.5%)|
|Residential property (other than a residential dwelling)||one-half of one percent (0.5%)|
|Nonresidential property (other than unimproved land)||one percent (1.0%)|
on that portion of the consideration not exceeding $800,000
on that portion of the consideration exceeding $800,000
one-half of one percent (0.5%)
one percent (1.0%)
Residential dwelling means a single-family dwelling, including a condominium unit or a cooperative unit, whether or not owner-occupied.
Residential property (other than a residential dwelling) means and includes apartment buildings or complexes, duplexes and other multi-unit properties, whether or not the owner resides on the premises.
Unimproved land means land that has never been improved.
Consideration means money paid and the fair market value of property (tangible or intangible) other than money transferred, directly or indirectly, to the grantor, whether or not expressed in the deed, and includes the amount of any liability of the grantor assumed by the grantee and the amount of any liability not assumed but to which the land is subject. (See also Part IV.)
Whether property is residential or nonresidential depends on the use to which the property has been devoted by the grantor. If a portion of the property has been used for residential purposes and the remaining portion has been used for nonresidential purposes, the use to which a preponderance of the square footage has been devoted is the use to which the property is deemed to have been devoted. If the square footage devoted to nonresidential use equals the square footage devoted to residential use, the property is deemed to have been devoted to nonresidential use. In no event may the consideration be allocated or apportioned, with one rate applied to a portion of the consideration and another rate applied to the remainder.
Example 2: A physician conducts his medical practice entirely out of a house that he resides in. He conveys the house to a developer who will raze it and build condominiums. It is the use to which the property has been devoted by the grantor that determines the type of property being conveyed. The physician has used the property for residential and nonresidential purposes; however, 1,200 square feet of the building were used for nonresidential purposes and 1,000 square feet were used for residential purposes. A preponderance of the square footage of the building has been used for nonresidential purposes. If the house were conveyed for $1.0 million, then the State tax would apply at the rate of 1.0% to the entire $1.0 million of consideration.
Several identical amendments were made to Conn. Gen. Stat. §12-494 by Public Acts 89-251 and 89-205. The rate of the Municipal real estate conveyance tax was changed from $1.10 per $1,000 (or fractional part thereof) to eleven one-hundredths of one per cent (0.11%). Consideration--rather than full purchase price--is made the measure of the State and Municipal real estate conveyance taxes. The legislative intent was to include in the measure of the taxes property other than money transferred to the grantor. See 32 H.R. Proc., pt._____, 1989 Sess., pp. 131-132 (Remarks of Rep. Cibes). (See also Part IV.)
Public Act 89-205 also amended Conn. Gen. Stat. §12-498, by replacing a provision that made any deed to which the United States is a party exempt from tax with a provision that, in effect, exempts only a deed on which the United States is the grantor. "[D]eeds which this State is prohibited from taxing under the Constitution or laws of the United States"; Conn. Gen. Stat. §12-498(a)(1); do not include deeds on which the United States is the grantee. "[U]nder current intergovernmental tax immunity doctrine the States can never tax the United States directly but can tax any private parties with whom it does business, even though the financial burden falls on the United States ...." South Carolina v. Baker, 485 U.S. 505, 523 (1988).
Language that was added to Conn. Gen. Stat. §12-494 by Public Act 85-480 was repealed, with the tax being imposed once again on deeds, instruments or writings conveying an interest in real property, rather than on the privilege of making a sale of an interest in real property.
Public Act 89-205 pertains to conveyances made on or after October 1, 1989.
III. CONVEYANCES BY A TRUSTEE IN A CASE UNDER CHAPTER 7
Chief Judge Robert L. Krechevsky, United States Bankruptcy Court (D. Conn.), concluded that conveyances made by a chapter 7 trustee liquidating a debtor's estate were subject to State and Municipal real estate conveyance taxes, construing the provisions of 28 U.S.C. §960 as applying to the activities of a liquidating trustee. Hoffman v. R & E Builders, Inc. (in re Woodland Builders, Inc. (Bankr. Case No. 2-87-00660)) (Bankr. Ct. D. Conn. July 1, 1988). On March 2, 1989, United States District Court Judge Alan H. Nevas affirmed the decision. In the recently decided Calif. St. Bd. of Equalization v. Sierra Summit, Inc., 490 U.S. ____, 104 L. Ed. 2d 910 (1989), the United States Supreme Court rejected an argument that a bankruptcy trustee was an arm of the government and interpreted the provisions of 28 U.S.C. §960 in the same manner as Judge Krechevsky had. Subsequently, the appeal to the United States Court of Appeals, Second Circuit, from Judge Nevas's decision by the trustee in Woodland Builders, Inc. was dismissed. Because the Department notified Town Clerks of Judge Krechevsky's decision on August 11,1988, the decision is applicable to conveyances made by trustees in cases under chapter 7 on or after that date.
The Department's position is that conveyances made by a debtor or trustee in a case under chapter 13 are subject to State and Municipal real estate conveyance taxes. (For conveyances made in certain cases under chapter 11, see Conn. Agencies Regs. §12-494-2(b)(2).)
IV. ATTORNEY GENERAL OPINION
The Commissioner requested an opinion from the Attorney General on the taxability of four types of conveyances. In an opinion issued August 15, 1989, the Attorney General has advised the Commissioner that, "[b]ecause the intent of Connecticut's real estate conveyance tax remains essentially the same as that of the repealed federal Documentary Stamp Tax, ... the approach taken by the federal regulations is of continuing validity and should be followed in administering the Connecticut act ... [T]he four categories of transactions ... are taxable to the same extent as provided in the federal regulations [26 C.F.R. §47.4361-1 et seq.]." Accordingly, the following types of conveyances are subject to State and Municipal real estate conveyance taxes:
1. A conveyance to a corporation in exchange for shares of its capital stock, whether or not such shares are exchanged. 26 C.F.R. § 47.4361-2(a)(7). (Not uncommonly, such a conveyance is also a transfer described in 26 U.S.C. § 351.)
2. A conveyance by a partner to a partnership as a contribution of partnership assets. 26 C.F.R. §47.4361-2(a)(12).
3. A conveyance of partnership realty to a partner, in consideration for partner's withdrawal or where there is a termination of the partnership. 26 C.F.R. §§47.4361-2(a)(12) and 47.4383-1.
4. A conveyance of corporate realty to a shareholder, upon liquidation or dissolution of the corporation, provided Conn. Gen. Stat. §12-498(a)(8) is not implicated. 26 C.F.R. §47.4361-2(a)(8). Such a conveyance, if subject to the debts of the corporation, is taxable; however, if there are no debts and the conveyance is made solely for the cancellation and retirement of the stock, the tax does not apply.
The Attorney General Opinion is applicable to conveyances made on or after the date of this Technical Advisory.
V. TAX RETURNS AND INFORMATION
Call (860) 541-3225 for the State Real Estate Conveyance Tax Return (Form OP-236 (Rev. 6/89)). The 6/89 revision of the return must be used for conveyances made on or after July 1, 1989.
LSN-98 (NEW 9/1/89)