Did a partnership's proposed conversion to an LLC trigger New Hampshire real estate transfer tax on its property, including property titled in a deceased partner's name?

Plain-English summary

The New Hampshire Department of Revenue Administration ruled that a general partnership's proposed statutory conversion into an LLC would not create a taxable real estate transfer. The Department applied the business organization conversion exemption in RSA 78-B:2, XXI. The petitioner represented that the converted LLC would have the same assets, liabilities, owners, and ownership percentages as the partnership, and that no consideration would be exchanged for the transfer of title.

One property was titled in the name of a deceased former partner. The petitioner said it owned the property and that the former partner had held title as nominee and agent. The Department included that property in its exempt-transfer holding, but expressly assumed, without deciding, the petitioner's title and that the transfer would be legal, valid, and effective.

What this means for you

For the exemption described here, a conversion must satisfy the statute's conditions: no consideration for a transfer coincident with the change in business form, matching assets and liabilities before and after conversion, and identical owners and ownership percentages at the time of transfer. The Department found those conditions met on the petitioner's representations. Its property-title assumption matters if an entity's real estate is held in another person's name.

The published PDF says "Effective 12-12-2017" and leaves the signature date blank. That effective date is not recorded here as an issue date. Check current law before using this older ruling to plan a conversion.

Common questions

Q: Did converting the partnership to an LLC trigger RETT under this ruling? A: No. The Department held that the corresponding transfer of title was exempt under RSA 78-B:2, XXI on the represented facts.

Q: Was the property in the deceased partner's name included?
A: Yes, subject to an express assumption. The Department assumed, without deciding, that the partnership held title and that transfer to the converted LLC would be legally effective.

Q: Can ownership percentages change during a conversion and still fit this ruling? A: This ruling does not answer that. It relies on the petitioner's representation that the owners and their percentages would be identical immediately before and after conversion.

Q: Can another taxpayer rely on this ruling?
A: No. The document states that its holding applies only to this petitioner and its circumstances, and the official archive says other taxpayers may not rely on declaratory rulings.

Citations and source limits

The discussion quotes RSA 78-B:1, I(a) and applies RSA 78-B:2, XXI(a). The conversion procedure is described as RSA 304-A:56 and 58 and RSA 304-C:147-149. The Department's footnote expressly reserves the ownership and legal-effect questions for the property titled in the former partner's name. The PDF supplies an effective date but no signed issue date.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: Document # 12433

Original ruling text

STATE OF NEW HAMPSHIRE
DEPARTMENT OF REVENUE ADMINISTRATION

IN THE MATTER OF THE PETITION OF

ABC Associates

FOR A DECLARATORY RULING

REDACTED DOCUMENT

Document #12433
Effective 12-12-2017

Pursuant to RSA 541-A:1, V and RSA 541-A:16, II(b), and N.H. Code of Admin. Rules Rev 209.01, the Petitioner requests a declaratory ruling with respect to Real Estate Transfer Tax.

Pursuant to N.H. Code of Admin. Rules Rev 209.02, this declaratory ruling is issued to the Petitioner with respect to the particular circumstances and facts discussed herein and represents a holding of the department on those circumstances and facts for the Petitioner only.

FACTS PRESENTED BY THE PETITIONER

ABC Associates (“Petitioner”) was organized as a New Hampshire general partnership at first between certain individuals. However, at the time of the petition, because the partners gifted and otherwise transferred their partnership interests over the years, the Petitioner consisted of other and additional partners holding different ownership percentages.

The Petitioner intends to convert the Petitioner’s form of organization from a general partnership to a limited liability company (“Converted LLC”) pursuant to RSA 304-A:56 and 58, and RSA 304- C:147-149. The Petitioner represents that, in accordance with that procedure, after the statutory conversion takes effect, the Converted LLC will be the same business entity that existed before the statutory conversion. Specifically, the Petitioner represents that the Petitioner’s assets, liabilities, and owners, and the owners’ respective ownership percentages immediately before the statutory conversion will be identical to those of the Converted LLC immediately after the statutory conversion.

The Petitioner also intends for the estate of Partner 1, a former partner, now deceased, to transfer real estate located in New Hampshire (“NH Property”) to the Converted LLC pursuant to the statutory conversion. The Petitioner represents that the Petitioner owns the NH Property, not Partner 1 or his estate, and that the NH Property is only held in his name as nominee and agent for the Petitioner, for the Petitioner’s business purposes. The Petitioner exercises the rights and obligations incident to ownership of the NH Property, and the profits, expenses, and losses from the NH Property are shared by the partners in proportion to their respective ownership percentages.

The Petitioner also represents that no consideration will be given in exchange for the transfer of title pursuant to the statutory conversion, including the transfer of the NH Property.

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DETERMINATIONS REQUESTED BY THE PETITIONER

Petitioner requests the following ruling:

1. The Petitioner’s statutory conversion from a general partnership to a limited liability company pursuant to RSA 304-A:56 and 58, and RSA 304-C:147-149, as described above, will not give rise to a taxable transfer of real estate for purposes of the Real Estate Transfer Tax.

2. The Petitioner’s transfer of the NH Property from the estate of Partner 1 to the Converted LLC pursuant to the statutory conversion, as described above, will not give rise to a taxable transfer of real estate for purposes of the Real Estate Transfer Tax.

REVISED STATUTES ANNOTATED (RSA) AT ISSUE

The following New Hampshire statutes are relevant to the Petitioner’s request for a declaratory ruling:

RSA 78-B:1, I (1999)
RSA 78-B:2 (2016)

OTHER LAWS OR RULES

N.H. Code of Admin. Rules, Rev 209.01
N.H. Code of Admin. Rules, Rev 209.02

PETITIONER’S REPRESENTATIONS

To the best of the Petitioner’s knowledge, the issues that are the subject of the petition:
a. Are not under examination by the department; b. Have not been examined by the department; c. Are not under consideration by the department in connection with a return of a prior period; and d. Are not pending in litigation.

DISCUSSION

RSA 78-B:1, I(a) provides, in pertinent part: “[The Real Estate Transfer Tax (“RETT”)] is imposed upon the sale, granting and transfer of real estate and any interest therein including transfers by operation of law.” Additionally, under RSA 78-B:1, I(a), “[e]ach sale, grant and transfer of real estate, and each sale, grant and transfer of an interest in real estate shall be presumed taxable unless it is specifically exempt from taxation under RSA 78-B:2.”

The relevant exemption here is RSA 78-B:2, XXI, concerning conversions of business organization forms. Specifically, under RSA 78-B:2, XXI(a), the RETT does not apply to a transfer of title provided that:

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(1) The transfer of title, where no consideration is exchanged, is coincidental to a change in the transferor’s form of organization to that of the transferee;

(2) As a result of the change in the transferor’s form of organization, the assets and liabilities of the transferor immediately preceding the change in form of organization and the assets and liabilities of the transferee immediately following the change in form of organization are the same; and

(3) At the time of the transfer of title, the owner or owners of the transferor and the owner or owners of the transferee, and the respective ownership percentages of each, are identical.

The Petitioner represents that it will change to the Converted LLC, and that, in accordance with the procedure in RSA 304-A:56 and 58, and RSA 304-C:147-149, the Petitioner’s assets, liabilities, owners, and the owners’ respective ownership percentages immediately before the statutory conversion will be identical to those of the Converted LLC immediately after the statutory conversion. The Petitioner also represents that although the NH Property is held in the name of Partner 1, the Petitioner owns the NH Property, and that no consideration will be given in exchange for the transfer of title pursuant to the statutory conversion, including the transfer of the NH Property.

Assuming the facts as represented by the Petitioner (including that the Petitioner owns the NH Property),1 after the statutory conversion takes effect, the Converted LLC will be vested by operation of law with title to all the Petitioner’s assets, including the NH Property. This transfer of title pursuant to the statutory conversion, from the Petitioner to the Converted LLC, including the transfer of the NH Property, “is coincidental to a change in the transferor’s form of organization to that of the transferee,” and otherwise satisfies the requirements of RSA 78-B:2, XXI.

Accordingly, the transfer of title pursuant to the Petitioner’s statutory conversion, including the transfer of the NH Property, is not subject to the RETT.

RULING

Based on the facts represented by the Petitioner, and the statutory provisions discussed above, the department makes the following ruling:

The Petitioner’s statutory conversion from a general partnership to a limited liability company will not give rise to a taxable transfer of real estate subject to the RETT, because the corresponding transfer of title, including the transfer of the NH Property (assuming the Petitioner owns the NH Property), is exempt pursuant to RSA 78-B:2, XXI.

______
___________
Date
Lindsey M. Stepp, Assistant Commissioner

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For purposes of this declaratory ruling, the department assumes without deciding that the Petitioner holds title to the NH Property, and that the transfer of the NH Property will be a legal, valid, and effective transfer to the Converted LLC.

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