Was a nonprofit's deed to a related nonprofit real estate holding company exempt from New Hampshire real estate transfer tax?

Plain-English summary

The New Hampshire Department of Revenue Administration ruled that Y Inc.'s proposed transfer of real estate to related nonprofit Z Inc. was subject to real estate transfer tax under all three arrangements the petitioner described. Z was to hold the property separately from Y's service operations. Y said no consideration would be paid and characterized the deed as a gift, but the Department found the stated reason for transferring it was to separate operating liabilities from the real estate. That business purpose lacked the donative intent required for a noncontractual gift transfer.

The result covered a transfer without a mortgage, a transfer while Y remained the only obligor on an existing mortgage, and a transfer before Z later guaranteed a Y loan secured by a mortgage on the property. The Department did not calculate tax for any variant.

What this means for you

Nonprofit status and the absence of a cash price did not establish a gift exemption in this ruling. The Department applied the statutory presumption that real estate transfers are taxable unless an exception applies, then examined the actual purpose of the transfer. The mortgage arrangements did not change its conclusion for the three proposals.

Common questions

Q: Why did the gift exception fail?
A: The Department found an asset-protection business purpose rather than donative intent.

Q: Did it matter that both entities were nonprofits? A: That fact did not change the Department's conclusion that the proposed deed was taxable.

Q: What if Y remained the borrower on the mortgage? A: The Department still ruled the second proposed arrangement taxable.

Q: What if Z guaranteed a later Y loan with a property mortgage? A: The Department included that third arrangement in its taxable conclusion too.

Q: Can another nonprofit rely on this ruling?
A: No. The official archive says declaratory rulings concern only their petitioners and facts.

Citations and source limits

The Department quotes RSA 78-B:1, I, RSA 78-B:2, IX, and the noncontractual-transfer definition under RSA 78-B:1-a, along with Rev 802.01. The petition cites Rev 802.06 on gifts of mortgaged property; the Department's stated reason for rejecting all three requests was the absence of donative intent. The PDF labels “Doc. #5302, Eff. December 26, 1991” and gives no separate issue date.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: Doc. #5302

Original ruling text

IN THE MATTER OF THE PETITION OF

"Y", Inc

FOR A DECLARATORY RULING

Doc. #5302, Eff. December 26, 1991

Pursuant to RSA 541-A:1, IV, 541-A:2,I(d) and Rev. 209.01, et seq., the "Y", Inc ,
............. Street, .........., New Hampshire 03103, Federal Identification Number yy- yyyyyyy, through its attorneys, , petitioned the Department of Revenue Administration with respect to the Tax on the Transfer of Real Property, RSA 78-B, consequences of a proposed real estate transfer.

The "Y", Inc. has requested the following determinations:

A. The transfer of real estate by the "Y", Inc., a not-for-profit organization, to "Z", Inc., a not-for-profit corporation, without consideration, qualifies under RSA 78-B:1- a and RSA 78-B:2 as a transfer excluded from the Tax on Transfer of Real Estate.

B. That a transfer of real estate by the "Y", Inc. to "Z", Inc., subject to a mortgage, is an excluded transfer under RSA 78-B:1-a and RSA 78-B:2, so long as the "Y", Inc. will continue to be the only obligor under the terms of the promissory note.

C. That a transfer of real estate by the "Y", Inc. to "Z", Inc., with the intent that "Z", Inc. guaranty, in the future, a borrowing by the "Y",Inc., and securing that guaranty by a mortgage on its real estate, is excluded from the Tax on Transfer of Real Property, pursuant to RSA 78-B:1-a and RSA 78-B:2.

The petitioner has made the following representations (quoted verbatim below):

1. The petitioner in this matter is Y", Inc., .......... Street, .........., New Hampshire
   03103, Federal ID #yy-yyyyyyy.

2. This petition refers to New Hampshire RSA 78-B, Tax on Transfer of Real Property,
   specifically, RSA 78-B:1, 1-a, and 2.

3. The "Y", Inc. is a tax exempt institution, engaged in the business of providing
   .............. services in the ................ area.

4. The "Y", Inc. currently owns several parcels of real estate in the City of ..........,
   which are used solely for furthering the purpose of the corporation. On occasion, the corporation will rent a portion of its facilities to such organizations as Alcoholics Anonymous or the Visiting Nurses Association.

5. The corporation has recently undertaken a corporate restructuring, resulting in a
   parent not-for-profit corporation known as the "X" Foundation (the "Foundation"), which acts as the parent corporation of the "Y", Inc. (the "Center"), and "Z", Inc. The Center continues to carry out its purpose of providing mental health services; the

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purpose of "Z", Inc. is to act solely as a not-for-profit real estate holding company, qualified under Section 501(c)(2) of the Internal Revenue Service Code.

6. The proposed transaction is the transfer of real estate currently owned by the
   Center to "Z", Inc. One purpose of the transfer will be to separate potential liabilities arising from operations of the Center from the operation of the real estate.

7. The Center is negotiating financing with various lenders for a line of credit. In
   connection with this possible financing extension, the Center may be requested to secure the financing with a mortgage on its real estate.

8. The transfer from the Center to "Z", Inc. of its real estate will be a "non-
   contractual transfer" pursuant to RSA 78-B:1-a and RSA 78-B:2. A deed will be drawn and the assets will merely be removed from the books of the transferor and placed in the books of the transferee. The transfer from the Center will be a gift to "Z", Inc., and will satisfy the three elements of the donative intent, actual delivery, and immediate relinquishment of control.

9. Chapter 800, Rev. 802.06, Transfer With an Outstanding Mortgage, states that,
   "Real estate, which has an outstanding mortgage, and is transferred as a gift, shall be subject to tax as defined in RSA 78-B:1."

10. If the property is transferred with a mortgage is already in place securing the
    line of credit financing, the obligor under the loan documents will still be the Center. The transfer will not relieve the Center of its obligations to pay the financing bank nor will it obligate "Z", Inc. to pay those obligations.

11. If, however, the property is transferred prior to the placing of mortgages on the
    property, then the realty corporation will act as a guarantor of the line of credit, and that a mortgage to secure the guaranty will be placed on the real estate after the transfer.

12. To the best knowledge of the "Y", Inc. the issues which are the subject of this
    petition are not under examination by the department, nor have they been examined by the department, nor are under consideration by the department in connection with the return of a prior period, nor are pending in litigation.

13. The "Y", Inc. is undergoing a corporate reorganization, the purpose of which is to
    create a separate, not-for-profit, 501(c) corporation for the purpose of holding real estate assets separate and apart from the "Y", Inc. itself. Since this reorganization involves charitable corporations qualified under Internal Revenue Code Section 501, the reorganization falls outside of the reorganization requirements of Section 368 of the Internal Revenue Code.

In view of the foregoing representations and specifically based upon them, the Department of Revenue finds the following:

1. The tax on transfer of real property is imposed on all real estate transfers except
   those specifically exempt from tax. The law, RSA 78-B:1, I, states:

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(a) A tax is imposed upon the sale, granting and transfer of real estate and any interest therein including transfers by operation of law. Each 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 .
[emphasis added]

The corresponding Administrative Rule reads:

Rev 802.01 All Transfers . The tax shall apply to all transfers whether sale or grant, and whether or not the transfer is recorded with the register of deeds, unless specifically exempted under RSA 78-B:2 and PART Rev 803 of this chapter.

2. The petitioner has asserted that the transfer will be a non-contractual transfer.
   The law is clear in exempting and defining non-contractual transfers.

The law states:

78:B:2 Exceptions. The tax imposed by this chapter shall not apply:

IX. To noncontractual transfers.

78:B:1 (a) Definitions. In this chapter:

III. "Noncontractual transfer" means a transfer which satisfies the 3 elements of a gift transfer:

(a) Donative intent;

(b) Actual delivery; and

(c) Immediate relinquishment of control.

3. The department finds that the transfer as presented does not qualify as a non-
   contractual transfer. The requirement that there be "donative intent" is not present in the proposed transfer. The stated purpose of the transfer is to " separate potential liabilities arising from the operations of the center", therefore the clear intent of the transfer is to preserve the assets of the corporation, a business intent.

4. The department finds that the Tax on the Transfer of Real Property applies to all
   three of the determinations requested.

Stanley R. Arnold, Commissioner