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Mack-Cali Realty, LP v. Clerk of Bergen County

2009 WL 3756653 (N.J. Tax 2009)

DEEDS; REALTY TRANSFER FEE — Related entities can, in fact, transfer properties from one to another for a nominal amount and, if the transferred property is not encumbered by a mortgage, the transaction can be exempt from the Realty Transfer Fee.

A property owner, organized as a limited partnership, conveyed, by separate deeds, two properties to wholly owned subsidiaries. Each subsidiary was a limited liability company of which the property owner was the sole member. Each deed was submitted for recording, but each was returned by the County Clerk for failure to pay the Realty Transfer Fee. Each deed had been submitted with Affidavits of Consideration claiming an exemption from payment of the fee based upon the conveyances each having been made for less than $100 consideration. The property owner complained to the New Jersey Division of Taxation, but the Division agreed with the County Clerk that the Realty Transfer Fee had to be paid. Specifically, the Division advised that “[t]here can be no conveyance ... between legal entities for a consideration of less than $100.00.” The property owner and its wholly owned subsidiaries filed suit against both the County Clerk and the Division of Taxation to contest the denial of the realty transfer fee exemption.

Under N.J.S.A. 46:15-5(c), “Consideration” means “in the case of any deed, the actual amount of money and the monetary value of any other thing of value constituting the entire compensation paid or to be paid for the transfer of title ..., including the remaining amount of any prior mortgage to which the transfer is subject or which is to be assumed and agreed to be paid by the grantee and any other lien or encumbrance thereon not paid, satisfied or removed in connection with the transfer of title.” Another section of that same statute provides for an exemption from payment of the fee where the consideration for a deed is less than $100.

The Division of Taxation adopted a regulation in 2006 providing that “[a] deed transferring real property from one legal entity to another legal entity that has common ownership is subject to the realty transfer fee.” According to the regulation, when the value of stock or contribution to capital “is indeterminable, the realty transfer fee is calculated on the assessed value of the property ... .” The property owner and its grantee-subsidiaries argued that the regulation violated the statutory definition of “consideration.” It also pointed out, and the Division of Taxation conceded, that full application of the regulation could “be avoided by placing a nominal mortgage on the property before transfer, making for inconsistent and illogical practice.” Nonetheless, the Division contended that “a transfer between commonly owned entities always results in some benefit to the grantor and, if that benefit cannot be directly quantified, consideration should be measured by the value of the property transferred.” The Court held that the definition of consideration did not include “any element not paid by the grantee to the grantor.” It recognized that “[s]tatutory consideration, with the exception of the mortgage balance, comprises only elements that are directly given by the grantee and received by the grantor as part of the exchange.” [Emphasis by the Court.] As a result, the Court held that the consideration for each transfer was the $10 actually stated in the deed and that the transactions were exempt from the Realty Transfer Fee.

The Court was quite clear in its holding and it specifically said, “[t]he Division’s interpretation concerning transfers between commonly owned entities is not merely inconsistent with controlling statute. ... it appears to be applied inconsistently as between transfers where there is [a] mortgage balance and those where there is not.” Further, the Court pointed out that another regulation promulgated by the Division of Taxation exempted “transfers from individuals to wholly owned corporations or partnerships.” The Court summarized its holdings as follows – “a blanket exclusion of any transaction between commonly owned entities from qualifying for the nominal consideration exemption is contrary to the legislative intent expressed in the statute and may not be enforced with respect to the subject transactions.”

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