Was documentary tax due when church trustees deeded church realty to the same church after nonprofit incorporation under RR 95-8?

Plain-English summary

South Carolina Revenue Ruling 95-8 concluded that documentary tax did not apply when church trustees transferred the church's real property to the same church upon its incorporation under the South Carolina Nonprofit Corporation Act.

Before incorporation, legal title was held by the trustees, but the church already held the beneficial interest. After incorporation, the property remained with the church. The Department treated the deed as a reorganization or change in legal form rather than a sale to a purchaser.

The ruling explained that former Section 12-21-380 taxed realty sold for consideration. A mere title change without money, property, intangibles, or other consideration was not taxable. It further said documentary tax was not due when the only consideration was the new corporation's assumption of, or taking subject to, an outstanding mortgage or other liability remaining on the property.

This conclusion was narrower than a general rule for property contributed to a corporation. The Department noted that such transfers were generally taxable, but found the church incorporation different because beneficial ownership did not change.

Common questions

Q: Did nonprofit incorporation itself trigger documentary tax on the church's realty? No, under the facts of RR 95-8.

Q: Why was the deed not treated as a taxable sale? The church owned the beneficial interest before and after incorporation, and no consideration changed hands.

Q: Did an existing mortgage make the transfer taxable? No. The ruling said assumption of, or taking subject to, an outstanding liability was not enough by itself.

Q: Did RR 95-8 exempt every property transfer to a nonprofit corporation? No. Its reasoning depended on the same church retaining beneficial ownership through a change in legal form.

Q: Is former Section 12-21-380 current? This page establishes the 1995 ruling only. Current deed-recording-fee and nonprofit law should be checked.

Citations and references

• S.C. Code Ann. § 12-21-380 (former documentary tax on realty sold)
• S.C. Regulation 117-46 (general corporate-transfer treatment discussed)
• United States v. Niagara Hudson Power Corporation, 53 F. Supp. 796 (1944)
• Berkeley Savings and Loan Association of Newark, N.J. v. United States, 301 F. Supp. 22 (1969)

Subject

Incorporation of a Church under the South Carolina Nonprofit Act

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR95-8.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
SC REVENUE RULING #95-08 (TAX)

SUBJECT:

Incorporation of a Church under the South Carolina Nonprofit Act
(Documentary Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCES:

S. C. Code Ann. Section 12-21-380 (Supp. 1994)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1994)
SC Revenue Procedure #94-1

SCOPE:

A Revenue Ruling is the Department of Revenue's official advisory
opinion of how laws administered by the Department are to be applied
to a specific issue or a specific set of facts, and is provided as guidance
for all persons or a particular group. It is valid and remains in effect
until superseded or modified by a change in the statute or regulations
or a subsequent court decision, Revenue Ruling or Revenue Procedure.

Question:
Is the transfer of realty, as described in the facts, from the trustees of a church (or their
successors) to the church upon its incorporation under the South Carolina Nonprofit Corporation
Act subject to the State documentary tax under Code Section 12-21-380?
Conclusion:
The transfer of realty, as described in the facts, from the trustees of a church (or their successors)
to the church upon its incorporation under the South Carolina Nonprofit Corporation Act is not
subject to the State documentary tax under Code Section 12-21-380.
Facts:
In 1994 the General Assembly enacted the South Carolina Nonprofit Corporation Act.
Prior to the enactment of this legislation, it was not in the best interest of many churches to
incorporate. Now, many churches are planning to incorporate.

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The realty of a church is usually vested in the names of the trustees of the church or their
successors. In the process of incorporating, title to the realty will be conveyed from the trustees
to the newly formed nonprofit corporation. In some cases, the church will have a mortgage on
the realty and the newly formed nonprofit corporation will take the realty subject to the mortgage
or will assume the mortgage.
The corporation may or may not have members as defined is the South Carolina Nonprofit
Corporation Act. In addition, the governing boards of these nonprofit corporations might have
different structures or titles in different churches.
The question has arisen as to whether or not the transfer of realty from the trustees of the church
(or their successors) to the church upon its incorporation is subject to the State documentary tax.
Discussion:
Code Section 12-21-380 imposes the State documentary tax and reads in part:
A deed, instrument, or writing whereby any lands, tenements, or other realty sold is
granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or
any other person by the purchaser's direction when the consideration or value of the
interest or property conveyed exclusive of the value of any lien or encumbrance
remaining on the interest or property at the time of sale exceeds one hundred dollars and
does not exceed five hundred dollars must be taxed one dollar and thirty cents and for
each additional five hundred dollars, or fractional part thereof, one dollar and thirty cents.
In United States v. Niagara Hudson Power Corporation, 53 F. Supp. 796 (1944), the U.S. District
Court of New York, in reviewing a now rescinded federal documentary tax statute similar to
South Carolina Code Section 12-21-380, held:... a mere transfer or change of legal title is not a
taxable transaction under Schedule A-8 which, as it now stands, expressly confines taxable
transactions to "realty sold."
In Berkeley Savings and Loan Association of Newark, N.J. v. United States, 301 F. Supp. 22
(1969), the court stated, with respect to the federal documentary tax statute, that:
... whether or not there is a sale depends, in the court's view, on whether or not the
transfer of title was for consideration, and on the intention of the parties and the purpose
for which the "purchasing" party desires the property. (Emphasis added.)
Based on the above, the documentary tax is only imposed when realty has been transferred for
consideration. If property is transferred without the payment of consideration (e.g. money,
property, intangibles), the documentary tax cannot be imposed. However, if the only
consideration paid is the assumption of any outstanding liabilities remaining on the realty at the
time of the transfer, the tax is not due.

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Finally, we must determine if consideration has been given when realty is transferred into a
corporation upon its formation.
Generally, when realty is transferred to a corporation the transfer is subject to the tax. See South
Carolina Regulation 117-46 and 1967 Opinion of the Attorney General, No. 2215. However,
there are circumstances where it has been held such transactions are not subject to the tax.
The court in United States v. Niagara Hudson Power Corporation, supra, again provides
guidance. The court held:
In Cortland Special Co. v. Commissioner of Internal Revenue, 2 Cir., 60 F2d 937, it is
said - "Reorganization, merger, and consolidation are words indicating corporate
readjustments of existing interests. They all differ fundamentally from a sale where the
vendor corporation parts with its interests for cash and receives nothing more." Page 939
In New York Central R. Co. v. Commissioner of Internal Revenue, 2 Cir., 29 F2d 247
certiorari denied Helvering v. New York Central R. Co., 296 U.S. 653, 56 S.Ct. 370, 80
L.Ed. 465, the court said - "The consolidated corporation does not succeed to the rights
and liabilities *** as a purchaser but as a successor by operation of law." Page 249 of 79
F. 2d.
The court concluded that the change of title of real estate effected solely by a certificate of
consolidation was not made for consideration and therefore not subject to the tax.
The transfer of realty from the trustees of the church (or their successors) to the church upon its
incorporation is similar to a corporate reorganization.
Even though the realty is held in trust by the church trustees prior to incorporation, beneficial
title to the realty is vested in the church. After the incorporation, the realty is still vested in the
church. In essence, nothing has changed. There has merely been a change in form, or
"reorganization", of the church. No sale or transfer for consideration has taken place. As such,
the documentary tax does not apply.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director
Columbia, South Carolina
June 6
, 1995
For any questions concerning documentary taxes, contact John P. McCormack at (803) 737-4438
or Gary Heuer at (803) 737-4744.
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