Was a motel property's transfer from a partnership to an LLC with the same owners exempt from New Hampshire real estate transfer tax?

Plain-English summary

The New Hampshire Department of Revenue Administration ruled that transferring a motel property and business from A Partnership to a newly formed LLC would qualify for the real estate transfer tax exemption in RSA 78-B:2, XVII. The same two people would own the LLC in the same 50% shares, and the LLC would take on the partnership's same assets and liabilities. The transfer was part of changing the business's form of organization.

The exemption also required both entities' ownership interests to be transferable. The proposed amended partnership agreement removed consent restrictions and satisfied that requirement. The existing agreement appeared to require the other partner's consent, so the Department's conclusion under that agreement was expressly conditional on the interests being legally transferable. The proposed LLC articles did not restrict transfers of member interests.

What this means for you

Keeping the same owners and property does not, by itself, resolve the exemption. This ruling turned on matching assets and liabilities before and after conversion and on the legal transferability of equity interests. The Department did not decide whether a transfer was legally possible under the existing partnership agreement; its approval under that agreement assumed it was.

Common questions

Q: Did the Department exempt the partnership's property transfer to the LLC? A: Yes, under the amended partnership agreement and proposed LLC articles. It also allowed the existing partnership agreement route if transfer of the interests was legally possible.

Q: Did the owners need identical percentages before and after the transfer? A: Yes. The represented facts said both partners held 50% before the change and would retain the same percentages in the LLC.

Q: Why did the partnership agreement matter?
A: Rev 803.03(a) defines a transferable interest by whether the owner can sell, exchange, assign or otherwise transfer all equity interests and ownership rights. The existing agreement appeared to impose consent restrictions.

Q: Can another taxpayer rely on this ruling?
A: No. The official archive says declaratory rulings apply only to the petitioners and facts described.

Citations and source limits

The ruling applies RSA 78-B:2, XVII and Rev 803.03(a) as they stood in the 1997 document. The PDF identifies “Document #6484, eff. 3-28-97” but supplies no separately labeled issue or adoption date, so issued_date is blank. The Department did not attach the partnership agreements or LLC articles to the published PDF; its holding relies on their descriptions in the ruling.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: Document #6484

Original ruling text

IN THE MATTER OF THE PETITION OF "A" PARTNERSHIP

FOR A DECLARATORY RULING

Document #6484, eff. 3-28-97

Pursuant to RSA 541-A:1, IV, 541-A:2, I(d) and Rev 209.01 et seq., "A" PARTNERSHIP, petitioned the Department of Revenue Administration with respect to the real estate transfer tax.

DETERMINATION REQUESTED BY THE PETITIONER

Under a proposed transaction, "A" PARTNERSHIP [partnership] will convey the (business) located in ......, New Hampshire from the partnership to "B", [company] a limited liability company to be formed for the ownership and operation of the motel.

Petitioner requests a response to the following question:

Will the transfer of the real estate owned by "A" PARTNERSHIP be exempt from the real estate transfer tax under RSA 78-B:2 XVII when it is transferred to "B", a limited liability company formed under RSA 304-C?

FACTS PRESENTED BY THE PETITIONERS

The petitioners made the following representations of relevant facts:

The partnership was formed as a general partnership pursuant to an agreement dated
............ , 1990 to acquire and operate a motel;

The general partners of the partnership are:

(names of two partners have been removed)

Each partner has a 50% ownership interest in the partnership;

The purpose of the transaction is to convert the partnership into a limited liability company by transferring the real estate and business activity from the partnership to the company;

The owners and ownership percentages of the company will be identical to the owners and ownership percentage of the partnership;

The assets and liabilities of the company immediately after the transfer will be identical to the assets and liabilities of the partnership immediately before the transfer; and

The partners have an unrestricted right to assign or transfer their interest in the partnership and the company will have transferable interests.

REVISED STATUTES ANNOTATED [RSA] AT ISSUE

RSA 78-B:2 XVII

Page 2

RULES AT ISSUE

N.H. Code Admin. R. Rev 803.03

PETITIONER'S REPRESENTATIONS

To the best of petitioner's knowledge, the issues that are the subject of this petition:

1) Are not under examination by the department;

2) Have not been examined by the department;

3) Are not under consideration by the department in connection with a return of a prior period; and

4) Are not pending in litigation.

FINDINGS

An exception to the applicability of the real estate transfer tax was created by the Legislature during the 1996 session. Chapter 212 of the Laws of 1996 enacted RSA 78-B:2 XVII which exempts a transfer of title from an entity, the ownership of which is represented by transferable shares, to another entity whose ownership is also represented by transferable shares when:

1. The transfer of title is coincidental to a change in the transferor's form of organization;

2. The assets and liabilities of the transferor immediately before the change in form are the
   same as the assets and liabilities of the transferee immediately after the change in form; and

3. The owner or owners of the transferor and transferee are the same individuals with
   identical ownership percentages.

In this matter, the transfer will be the result of a change in the form of organization. The total assets and liabilities of the transferor will become the assets and liabilities of the transferee immediately following the change in form. The partners of the partnership will become the members of the company and the individuals will retain identical ownership percentages following the change.

The remaining issue deals with the transferability of the partnership interests. In accordance with Rev 803.03 (a), a transferable interest is one where all of the equity interests and ownership rights in an organization can be sold, exchanged, assigned or transferred in any manner by the owner of the interest.

The current Agreement of Partnership for the partnership, although it appears to restrict the transferability in Sections 9 and 13 by requiring a consent from the other partner, may provide a transferable interest so long as it is legally possible to transfer the interest. The Amended and Restated Agreement of Partnership for the partnership eliminates the restrictions and would meet the definition of transferable interest as provided in Rev

Page 3

803.03(a). The Articles of Agreement for the company do not contain any restrictions on the transferability of the members' interest.

RULINGS

Based on the facts as represented by the petitioners, the language contained in the partnership agreement, the proposed amended partnership agreement, the proposed articles of agreement for the limited liability company and the statutory and regulatory provisions discussed above, the department makes the following ruling:

The transfer of the real estate from the partnership to the company will be exempt from the real estate transfer tax under the current Agreement of Partnership, assuming it is legally possible to accomplish the transfer, or the Amended and Restated Agreement of Partnership and the proposed Articles of Agreement for the company.

Stanley R. Arnold, Commissioner