Pennsylvania closes property transfer tax loophole
Share with others:
It no longer will be possible for real estate buyers Downtown -- or anywhere else in the state -- to avoid paying deed transfer taxes by exploiting a loophole in state law.
Gov. Tom Corbett has signed into law an amendment to the state tax code that prohibits property buyers from setting up so-called "89-11" transactions to avoid paying the tax.
State Sen. Jim Ferlo, D-Highland Park, sponsored the amendment to close the loophole after the group that bought U.S. Steel Tower last year for $250 million used the technique to avoid paying $10 million in deed transfer taxes to the city, the city school district and the state.
"We must not tolerate overt tax avoidance policies in the tax code that let big business off the hook and leave everyone else holding the bag," Mr. Ferlo said in a statement. "By closing this one loophole we've made Pennsylvania a fairer state to live in and will help to reduce the burden on taxpayers."
In "89-11" transactions, a 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.
Until now, such deals were considered property sales subject to the tax only if 90 percent or more of the ownership interest was transferred within three years.
The state Department of Revenue determined last year that the U.S. Steel sale to a group led by New York real estate investor Mark Karasick was an "89-11" transaction that was not subject to the 4 percent deed transfer tax levied in the city.
First Published July 12, 2012 2:26 pm