Were transfers of real estate between a bank and wholly owned subsidiaries exempt as part of federally tax-free liquidations and a reorganization after July 1, 2001?

Plain-English summary

The New Hampshire Department of Revenue Administration ruled that proposed real estate transfers from Acme Inc. to its parent bank, and from the bank to a newly formed wholly owned subsidiary, were subject to real estate transfer tax. The petitioners described federal tax-free liquidations and a reorganization, and said the bank would control all assets before and after the steps. The Department nevertheless treated the deeds between related entities as contractual transfers.

The Department explained that RSA 78-B:2, XIV and XVII, which had exempted certain reorganizations and changes in business form, were repealed effective July 1, 2001. The repeal applied to transfers on or after that date. A Department rule still on the books at the time, Rev 803.02, could not preserve an exemption contrary to the amended statute. The ruling measures each transfer's consideration by the real estate's fair market value immediately after transfer.

What this means for you

Federal tax-free treatment and complete common ownership did not supply a New Hampshire real estate transfer tax exemption in this ruling. The timing of the transfer mattered: the Department applied the repeal to transactions occurring on or after July 1, 2001. The ruling does not provide specific property values or tax amounts.

The PDF says "Effective 7/16/01" but has no separate signed issue date. Check the current statute and rules before applying this historical decision.

Common questions

Q: Was Acme's transfer of real estate to its parent bank exempt? A: No. The Department's first holding says any such transfer was subject to RSA 78-B.

Q: Was the bank's later transfer to its wholly owned new subsidiary exempt? A: No. The second holding applies RSA 78-B to that transfer too.

Q: Did the existing Department rule preserve the old exemption? A: No. The Department said Rev 803.02 could not contradict the statutory repeal, even though the rule had not yet been repealed at the time.

Q: How was consideration measured?
A: The Department ruled that price or consideration was the fair market value of the real estate immediately after each transfer.

Q: Can another taxpayer rely on this ruling?
A: No. The document confines its holdings to these petitioners and facts, and the official archive says other taxpayers may not rely on declaratory rulings.

Citations and source limits

The findings apply RSA 78-B:1, I(a), RSA 78-B:1-a, II and V, and the repeal of RSA 78-B:2, XIV and XVII by Chapter 158, Laws of 2001. They discuss Rev 803.02 as a rule that could not override the statute. The PDF supplies an effective date but no separate signed issue date.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: Document #7531

Original ruling text

IN THE MATTER OF THE PETITION OF "THE BANK"

FOR A DECLARATORY RULING

Document #7531, Effective 7/16/01

Pursuant to RSA 541-A:1, IV, 541-A:2, I(d) and Rev 209.01 et seq., The Bank, Acme Inc. and C Inc. hereinafter referred to as "Petitioners" petitioned the Department of Revenue Administration with respect to the application of the real estate transfer tax to the transfer of several properties between the related parties through a consolidation and liquidation of Acme Inc. and C Inc..

DETERMINATION REQUESTED BY THE PETITIONER

Under a proposed transaction, property owned by Acme Inc. and identified as:

(1) A's

(a) Foreclosed Lot;

(b) Lot;

(c) B Lot; and

(d) D Lot

(2) E, NH; and

(3) F Street;

would be transferred to the Bank by Acme, Inc. through a liquidation of the subsidiary into its parent, the Bank. The real estate would then be transferred from the Bank into a newly formed wholly-owned subsidiary of the Bank in exchange for all of the voting stock of the subsidiary. The transactions would qualify as a reorganization under Internal Revenue Code ' 368 (a) and a liquidation of a subsidiary under Internal Revenue Code ' 332.

The Petitioners request that the transaction be exempt from the real estate transfer tax
[RSA 78-B] under the exemption provided by RSA 78-B:2, XIV or 78-B:2, XVII.

Petitioner requests a response to the following question:

1. Do the transfers of the realty from Acme, Inc. to the Bank in a liquidation of the
   subsidiary into its parent qualify as a non-taxable transfer under RSA 78-B:2; and

2. Do the transfers of the realty from the Bank to the newly formed and wholly-owned
   subsidiary in exchange for its voting stock qualify as a non-taxable transfer under RSA 78- B:2.

Page 2

FACTS PRESENTED BY THE PETITIONERS

The petitioners made the following representations of relevant facts:

1. The Bank is located in NH and is a NH chartered mutual savings bank with a wholly-
   owned first tier subsidiary, Acme Inc. and a wholly-owned second tier subsidiary, C, Inc..

2. Acme Inc. owns the following properties:

(a) A's

I. Foreclosed Lot;

II. Lot;

III. B Lot

IV. D Lot;

(b) E, NH; and

(c) F Street.

3. Acme, Inc. and C, Inc. will be liquidated under Internal Revenue Code ' 332 into its
   respective parent corporation with no gain or loss being recognized for federal income tax purposes.

4. The Bank will form a new wholly-owned subsidiary and will contribute the various
   properties identified in 2. above to the subsidiary in exchange for all of the voting stock of the new subsidiary.

5. The tax and book basis for the properties will not change as a result of these
   transactions.

6. The Bank will control 100% of the assets in these corporations both before and after the
   transactions occur.

REVISED STATUTES ANNOTATED [RSA] AT ISSUE

1. 78-B:1, I. (a)

2. 78-B:1-a, II. (a)

3. 78-B;1-a, IV;

4. 78-B:1-a, V

5. 78-B:2, XIV; and

6. 78-B:2, XVII

Page 3

RULES AT ISSUE

1. N.H. Code Admin. R. Rev 802.01 (a); and

2. N.H. Code Admin. R. Rev 803.02

OTHER LAWS OR RULES

Chapter 158, Laws of 2001 , Paragraphs 27 and 110, XI.

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

RSA 78-B:1, I. (a) imposes a tax upon the sale, granting and transfer of real estate and any interest therein including transfer by operation of law. The statute presumes that every transfer is taxable unless it is specifically exempt from taxation under the exceptions provided in the statute. RSA 78-B:2 provides the exemptions authorized by the Legislature.

The statutory language, RSA 78-B:1-a, V., defines "sale, granting and transfer" as including every contractual transfer of real estate from a person or entity to another person or entity whether or not the person or entity is controlled directly or indirectly by the other person or entity in the transfer. A contractual transfer, defined at RSA 78-B:1-a, II., includes any bargain-for exchange of all transfers of real estate from a corporation to its shareholder or from a shareholder to its corporation.

Prior to July 1, 2001, RSA 78-B:2 contained an exception to a taxable transfer that applied to the scenario contemplated by the Petitioners. RSA 78-B:2, XIV, exempted " ...a transfer of title pursuant to a merger, consolidation or other reorganization qualifying as a tax-free reorganization as defined under the United States Internal Revenue Code of 1986, section 368, as amended".

The Legislature repealed the provisions of RSA 78-B:2, XIV and XVII under Chapter 158, Laws of 2001. The effective date of the repeal is July 1, 2001. The statutory change applies to transfers occurring on or after July 1, 2001. The result of this change is to make the transfers involved in mergers, consolidations or other reorganizations subject to the provisions of the real estate transfer tax.

Page 4

Since department rules cannot contradict statutory provision, the provisions of Rev 803.02 will not provide an exemption from the tax although the provision has not yet been repealed by the department. The rule will be repealed to be in conformity with the statutory change.

RULINGS

Based on the facts as represented by the petitioners and the statutory provisions discussed above, the department makes the following rulings:

1. Any transfer of real estate between Acme, Inc and the Bank shall be subject to the
   provisions of RSA 78-B;

2. Any transfer of real estate between the Bank and a newly-formed and wholly-owned
   subsidiary shall be subject to the provisions of RSA 78-B;

3. The transfers of property between the related entities shall be a contractual transfer as
   defined in RSA 78-B:1-a, II;

4. The transfer tax shall be computed on the price or consideration given for the real estate;
   and

5. The price or consideration shall be the fair market value of the real estate at the time
   immediately after the transfer of the real estate.

Stanley R. Arnold, Commissioner