The group that bought the U.S. Steel Tower, Downtown, for $250 million last April won't have to pay any deed transfer taxes on the transaction, the state has determined.

Officials at the Pennsylvania Department of Revenue have deemed the sale an "89-11" transaction that is not subject to the 4 percent deed transfer tax levied in the city, said Jim Uziel, deputy manager of the Allegheny County Department of Real Estate.

The determination will cost the City of Pittsburgh $5 million in transfer tax revenue, the city school district $2.5 million and the state $2.5 million. The city gets half of the 4 percent tax, and the school district and state each get 1 percent.

After the U.S. Steel sale last spring to a group led by New York real estate investor Mark Karasick, local officials asked the Department of Revenue to review the transaction to determine if the transfer tax should be paid.

Mr. Uziel said he learned from Dale Lesperance, manager of the Department of Revenue's realty transfer tax division, during a state recorder of deeds association meeting in Harrisburg last month that the sale had been deemed an "89-11" transaction.

In such transfers, the buyer, instead of purchasing the property itself, will acquire 89 percent of the interest in the company that owns it. After three years, the buyer will purchase the other 11 percent.

Under law, such deals are considered property sales subject to the tax only if 90 percent or more of the ownership interest is transferred within three years.

Elizabeth Brassell, a state Department of Revenue spokeswoman, said she could not confirm or deny that a determination has been made on the U.S. Steel Tower transaction because of taxpayer confidentiality rules.

City Controller Michael Lamb and city school district solicitor Ira Weiss said the state ruling further amplifies the need for a change in state law that would make "89-11" transactions subject to the deed transfer tax.

"It's obviously a significant financial impact to the district, and it's further evidence of the fact that the transfer tax legislation needs to be reviewed so as to remove what has become an abused tax avoidance technique by developers and those in the real estate market," Mr. Weiss said.

He added that the law is clear that taxes are to be paid when property is transferred but that the real estate community "has figured out a way, in my view, to exploit the language of the act."