My corporation and two related partnerships (with overlapping but not identical family ownership) plan to swap parcels of undeveloped land, with cash making up any difference in value. Does this land swap trigger New York's Real Property Transfer Gains Tax, and does the mere-change-of-identity exemption help since the same family owns pieces of all three entities?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1991 opinion is preserved here for historical and research value, not as current law.

Nemith Motor Corporation -- owned 45% by Catherine Nemith, 50% by Mark Nemith, and 5% by Walter Riddell -- owned undeveloped land on Route 7 in Latham, New York worth over $1,000,000. Two related partnerships also owned land nearby: Nemith, Nemith & Walfred (owned one-third each by Catherine Nemith, Mark Nemith, and Walfred Associates) and Walfred Associates itself. The plan was for Nemith Motor Corporation to exchange part of its Route 7 land with each of the two partnerships for their respective parcels, with cash making up any difference in relative value.

The Department first confirmed the exchange was squarely a taxable "transfer of real property" -- the statute's definition explicitly lists "exchange" as a covered method of transfer (former § 1440.7). Applying the same consideration-measurement rule used for federal IRC § 1031 like-kind exchanges (former 20 NYCRR § 590.60, extended by the Department to exchanges generally, not just § 1031 ones): in an exchange, each party is BOTH a transferor of the property it gives up AND a transferee of the property it receives, with consideration equal to the fair market value of what's received plus any cash. Since the combined property values exceeded $1,000,000, the exchange was subject to gains tax on both legs -- Nemith Motor Corporation's transfer to the partnerships, and each partnership's transfer to Nemith Motor Corporation. But the Department didn't stop there: citing its own earlier ruling in Long Shadow, Inc. (TSB-A-90(4)R, involving a corporate liquidation distributing subsidiary stock), the Department confirmed that a group of owners is entitled to a PARTIAL mere-change-of-identity exemption to the extent their beneficial ownership interest carries through a transaction unchanged. Applying that principle here, each leg of the exchange qualified for a partial exemption measured by comparing each owner's beneficial percentage interest in the specific property BEFORE the exchange (through their ownership stake in the giving entity) against their beneficial percentage interest in that same property AFTER the exchange (through their ownership stake in the receiving entity) -- only the portion reflecting a genuine net INCREASE in someone's beneficial interest would actually be taxed.

What this means for you

Related businesses and family entities swapping real estate

Under this now-repealed tax, exchanging land between commonly (but not identically) owned entities wasn't automatically fully taxable just because it technically counted as a transfer -- the mere-change exemption applied proportionally, protecting the slice of value that simply mirrored owners' pre-existing beneficial interests.

Real estate and business attorneys structuring land exchanges among related entities

This opinion shows the mere-change doctrine extending naturally from simple transfers to two-way EXCHANGES, and confirms the Department applies the § 1031-style consideration measurement (fair market value received plus cash) to gains-tax exchanges generally, not just formal federal like-kind exchanges.

Accountants calculating gains-tax exposure on a related-party land swap

The core method here -- comparing each owner's percentage interest in the SPECIFIC property before versus after, entity by entity -- is a recurring pattern across this whole line of opinions (see also the corporate merger and condominium-distribution opinions in this same corpus) and is the key calculation to replicate for a historical exchange like this one.

Common questions

Q: Does this exchange/mere-change rule still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York real estate taxes have their own separate rules for property exchanges.

Q: Why did BOTH legs of the exchange (Nemith Motor to the partnerships, AND the partnerships to Nemith Motor) get analyzed separately?
A: Because in a true exchange, each party is simultaneously giving up property (as transferor) and receiving property (as transferee) -- so the gains-tax analysis, including the mere-change exemption, has to be applied independently to each direction of the swap, since the ownership overlap and the property values could differ on each side.

Q: Would 100% of the exchange have been exempt if the SAME people owned all three entities in identical percentages?
A: Based on the mere-change logic applied here, yes in principle -- the exemption exists precisely to avoid taxing a transaction where beneficial ownership doesn't actually change; the PARTIAL exemption here reflected that ownership percentages weren't identical across Nemith Motor Corporation, Nemith Nemith & Walfred, and Walfred Associates.

Q: Can another group of related entities doing a similar land swap rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and the specific taxable/exempt split here depended on the exact ownership percentages of all three entities involved.

Citations and references

Statutes and regulations:

• former Tax Law § 1441 and § 1443.1 (the gains tax: 10% of gain on NY real property transfers with consideration of $1 million or more)
• former Tax Law § 1440.7 (definition of "transfer of real property," explicitly including a transfer by exchange)
• former Tax Law § 1443.5 (exemption for a transfer that is a mere change of identity or form of ownership, with no change in beneficial interest)
• former 20 NYCRR § 590.60 (a tax-free exchange under IRC § 1031 is nonetheless a taxable gains-tax transfer; each party is both transferor and transferee, with consideration equal to the fair market value of the property received plus cash and other property; the Department applies the same principle to exchanges generally, not just § 1031 exchanges)
• Long Shadow, Inc., Adv. Op. Comm. T&F, May 11, 1990, TSB-A-90(4)R (in a corporate liquidation distributing subsidiary stock, the acquiring shareholder group receives a partial mere-change-of-identity exemption to the extent of the ownership percentage it already held in the distributing corporation before the distribution)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a91_6r.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91 (6) R
Real Property
Transfer Gains Tax
July 16, 1991

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M910507A

On May 7, 1991, a Petition for Advisory Opinion was received from Nemith Motor
Corporation, 962 Loudon Road, Latham, NY 12110.
The issue raised by Petitioner, Nemith Motor Corporation, is whether an exchange of real
property between Petitioner and two related partnerships qualifies for exemption from the Real
Property Transfer Gains Tax (hereinafter the "gains tax") as a mere change of identity or form of
ownership or organization where there is no change in beneficial interest under Section 1443.5 of
the Tax Law.
Petitioner, a New York corporation, owns a tract of undeveloped real estate on Route 7,
Latham, New York. Two related partnerships each own another tract of land in Latham, New York.
Petitioner proposes to exchange part of its interest in its land on Route 7 to each partnership in
exchange for interest in land in Latham which is owned by partnerships. Any difference in value of
the properties would be made up in cash. The market value of Petitioner's land is in excess of
$1,000,000.
The respective ownership interests of the parties involved are as follows:
Owners

Nemith Motor Corp. Nemith, Nemith
(Petitioner)
& Walfred

Walfred
Associates

Catherine Nemith

45%

33 1/3%

43.3428%

Mark Nemith

50%

33 1/3%

56.6572%

Walter Riddell

5%

0

0

33 1/3%

N/A

100%

100%

Walfred Associates
Totals

100%

Pursuant to Sections 1441 and 1443.1 of the Tax Law and Section 590.1 of the Gains Tax
Regulations a ten percent tax is imposed on the gain derived from the transfer of real property where
the property is located in New York State and where the consideration for the transfer is $1,000,000
or more.
Section 1440.7 of the Tax Law defines the term "transfer of real property", in part, to mean
the transfer or transfers of any interest in real property by any method, including but not limited to
sale, exchange (emphasis added)
TP-9 (9/88)

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TSB-A-91 (6) R
Real Property
Transfer Gains Tax
July 16, 1991

Section 590.60 of the Gains Tax Regulations states as follows:
Q.

Is a tax-free exchange of property under section 1031 of the Internal Revenue
Code subject to the gains tax?

A.

Yes. In such an exchange of property, each party is the transferor of
the property he is giving up, as well as the transferee of the property
received in the exchange. The consideration received is equal to the
fair market value on the date of exchange of the property received in
exchange, plus any amount of cash and the value of any other
property received in the exchange. The gain is the difference between
the consideration received and the original purchase price of the
property exchanged." (emphasis added)

Although the above regulation specifically deals with Section 1031 tax-free exchanges, the
principle established by said regulation would apply to all types of exchanges.
Section 1443 of the Tax Law provides, in part, as follows:
Exemptions. -- A total or partial exemption shall be allowed in the following cases:

5.

*
*
*
If a transfer of real property, however effected, consists of a mere change of
identity or form of ownership or organization, where there is no change in
beneficial interest.

Moreover, in the distribution of shares of stock of subsidiaries in the liquidation of a
corporation, the acquiring shareholder group would receive a partial mere change of identity
exemption to the extent of the 50% interest it held in corporation prior to the distribution. Long
Shadow, Inc., Adv Op Comm T&F, May 11, 1990, TSB-A-90(4)R.
Accordingly, pursuant to Section 1440.7 of the Tax Law and Sections 590.1 and 590.60 of
the Gains Tax Regulations the exchange of property from Petitioner to the two related partnerships
is a transfer of real property and subject to gains tax since the consideration for the transfer is in
excess of $1,000,000. However, pursuant to Section 1443.5 of the Tax Law and TSB-A-90(4)R,
Petitioner is entitled to a partial mere change of identity exemption to the extent there is no change
in the beneficial ownership interest the owners of Petitioner held in the property prior to the transfer
and the interest such owners will hold in the property in the partnerships following the transfer. In
addition, the transfer of real property from the two related partnerships to Petitioner will be subject
to the gains tax if the consideration for the transfer is in excess of $1,000,000. A partial mere change
of identity exemption will apply to the transfer to the extent there is no change in the beneficial

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TSB-A-91 (6) R
Real Property
Transfer Gains Tax
July 16, 1991

ownership interest the owners of the partnerships held in the property they transferred and the
interest such owners will have in such property in Petitioner following the transfer.

DATED:

July 16, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.