New Jersey-2014-A775-Introduced

An Act exempting the transfer of title to a real property between an individual and a business entity controlled by that individual from the realty transfer fee and the one percent assessment on the transfer of title to certain real property, and amending P.L.1968, c.49 and P.L.2004, c.66.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 6 of P.L.1968, c.49 (C.46:15-10) is amended to read as follows:

6. The fee imposed by this act shall not apply to a deed:

(a) For a consideration, as defined in section 1(c), of less than $100.00;

(b) By or to the United States of America, this State, or any instrumentality, agency, or subdivision thereof;

(d) Which confirms or corrects a deed previously recorded;

(e) On a sale for delinquent taxes or assessments;

(f) On partition;

(g) By a receiver, trustee in bankruptcy or liquidation, or assignee for the benefit of creditors;

(h) Eligible to be recorded as an "ancient deed" pursuant to R.S.46:16-7;

(i) Acknowledged or proved on or before July 3, 1968;

(j) Between husband and wife, or parent and child;

(k) Conveying a cemetery lot or plot;

(l) In specific performance of a final judgment;

(m) Releasing a right of reversion;

(n) Previously recorded in another county and full realty transfer fee paid or accounted for, as evidenced by written instrument, attested by the grantee and acknowledged by the county recording officer of the county of such prior recording, specifying the county, book, page, date of prior recording, and amount of realty transfer fee previously paid;

(o) By an executor or administrator of a decedent to a devisee or heir to effect distribution of the decedent's estate in accordance with the provisions of the decedent's will or the intestate laws of this State;

(p) Recorded within 90 days following the entry of a divorce decree which dissolves the marriage between the grantor and grantee;

(q) Issued by a cooperative corporation, as part of a conversion of all of the assets of the cooperative corporation into a condominium, to a shareholder upon the surrender by the shareholder of all of the shareholder's stock in the cooperative corporation and the proprietary lease entitling the shareholder to exclusive occupancy of a portion of the property owned by the corporation; and

(r) Between an individual and a business entity that is controlled by the individual. If the individual relinquishes control of the business entity following the recording of the deed, the fee imposed by this act shall be applied retroactively to the recording of the deed in an amount equal to 150 percent of the amount that would have been payable at the time of recording the deed but for the exemption granted in accordance with this subsection; except that no retroactive payment shall be due if the change in control is attributable to the death of the individual.

"Business entity" means an organization taxable as a partnership for federal income tax purposes, a corporation, association, trust or other entity that is organized to operate at a profit.

"Control" means "control" as defined by section 2 of P.L.1993, c.171 (C.54:10A-5.17).

(cf: P.L.1999, c.357, s.1)

2. Section 8 of P.L.2004, c.66 (C.46:15-7.2) is amended to read as follows:

8. a. In addition to all other fees imposed under P.L.1968, c.49 (C.46:15-5 et seq.), there is imposed a fee upon the grantee of a deed for the transfer of real property:

(1) that is classified pursuant to the requirements of N.J.A.C.18:12-2.2 as Class 2 "residential";

(2) (a) that includes property classified pursuant to the requirements of N.J.A.C.18:12-2.2 as Class 3A: "farm property (regular)" but only if the property includes a building or structure intended or suited for residential use, and

(b) any other real property, regardless of class, that is effectively transferred to the same grantee in conjunction with the property described in subparagraph (a) of this paragraph;

(3) that is a cooperative unit as defined in section 3 of P.L.1987, c.381 (C.46:8D-3); or

(4) that is classified pursuant to the requirements of N.J.A.C.18:12-2.2 as Class 4A "commercial properties"

that is transferred for consideration in excess of $1,000,000 recited in the deed, which fee shall be an amount equal to 1 percent of the entire amount of such consideration, which fee shall be collected by the county recording officer at the time the deed is offered for recording and remitted to the State Treasurer not later than the 10th day of the month following the month of collection for deposit into the General Fund.

b. (1) The fee imposed by subsection a. of this section shall not apply to a deed if the grantee of the deed for the transfer of real property is an organization determined by the federal Internal Revenue Service to be exempt from federal income taxation pursuant to paragraph (3) of subsection (c) of section 501 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.501.

(2) The fee imposed by subsection a. of this section shall not apply to a deed if the transfer of real property is incidental to a corporate merger or acquisition and the equalized assessed value of the real property transferred is less than 20% of the total value of all assets exchanged in the merger or acquisition. A grantee shall claim this exemption from imposition of the fee at the time the deed is offered for recording by filing with the county recording officer such information, in addition to the affidavit of consideration filed by one or more of the grantee parties named in the deed or by the grantee's legal representative pursuant to subsection d. of this section, as the Director of the Division of Taxation in the Department of the Treasury may prescribe as to constitute a filing of a protest of the assessment of the fee and by paying any other recording fees not exempted pursuant to this paragraph. This additional information shall be forwarded by the county recording officer to the director along with the grantee's affidavit of consideration, and shall be deemed to be and have the effect of a protest of a finding by the director of a deficiency of payment of the fee filed on the date on which the deed is recorded.

(3) The fee imposed by subsection a. of this section shall not apply to a deed if the transfer of real property is between an individual and a business entity that is controlled by the individual. If the individual relinquishes control of the business entity following the recording of the deed, the fee imposed by subsection a. of this section shall be applied retroactively to the recording of the deed in an amount equal to 150 percent of the amount that would have been payable at the time of recording the deed but for the exemption granted in accordance with this paragraph; except that no retroactive payment shall be due if the change in control is attributable to the death of the individual.

"Business entity" means an organization taxable as a partnership for federal income tax purposes, a corporation, association, trust or other entity that is organized to operate at a profit.

"Control" means "control" as defined by section 2 of P.L.1993, c.171 (C.54:10A-5.17).

c. The fee imposed by subsection a. of this section shall be subject to the provisions of the State Uniform Tax Procedure Law, R.S.54:48-1 et seq.; provided however, that notwithstanding the provisions of subsection a. of R.S.54:49-14, a taxpayer may file a claim under oath for refund at any time within 90 days after the payment of any original fee and that subsection b. of R.S.54:49-14 shall not apply to any additional fee assessed.

d. (1) If a transfer includes property classified pursuant to the requirements of N.J.A.C.18:12-2.2 as Class 4 property of any type, an affidavit of consideration shall be filed by one or more of the grantor parties named in the deed or by the grantor's legal representative declaring the consideration and shall be annexed to and recorded with the deed as a prerequisite for the recording of the deed. The filing of an affidavit of consideration pursuant to this paragraph shall be in addition to the filing, if any, pursuant to paragraph (2) of this subsection.

(2) Whether or not the transfer is exempt, pursuant to subsection b. of this section or any other provision of law, from payment of the fee pursuant to subsection a. of this section, if a transfer includes property otherwise subject to subsection a. of this section, then an affidavit of consideration shall be filed by one or more of the grantee parties named in the deed or by the grantee's legal representative declaring the consideration and shall be annexed to and recorded with the deed as a prerequisite for the recording of the deed. The filing of an affidavit of consideration pursuant to this paragraph shall be in addition to the filing, if any, pursuant to paragraph (1) of this subsection.

(3) An affidavit of consideration filed pursuant to paragraph (1) or paragraph (2) of this subsection shall clearly and entirely state the consideration, the county and municipality in which the property is situate, and the block and lot description of the real property conveyed.

(4) One copy of each affidavit of consideration filed and recorded with deeds pursuant to this subsection shall be forwarded by the county recording officer to the Director of the Division of Taxation in the Department of the Treasury on the tenth day of the month following the month of the filing of the deed.

(cf: P.L.2006, c.33, s.1)

3. This act shall take effect immediately and apply to transfers of title to real property between an individual and a business entity that is controlled by the individual that occur on or after the first day of the third month after the date of enactment.

STATEMENT

This bill creates an exemption from the realty transfer fee and the one percent assessment on transfers of title to certain real property. The exemption is for transfers of title to real property between an individual and a business entity controlled by that individual (control means that the individual must possess at least 50 percent of the total voting power of all classes of a concerned corporation's stock or of the beneficial interest in a concerned trust's principal or income). The exemption applies to transfers of property from the individual to the business and vice versa.

The bill clarifies that the charges are intended to apply only to situations in which sellers give up control of a property. When they merely transfer a property to business entities they control, however, sellers retain possession of the property and should thus not be subjected to the charges.

The legislation also requires a retroactive payment of 150 percent of the amounts that would have been payable at the time of recording the property transfer absent the exemption, if the individual transferring the property ceases to control the business entity for any reason other than the individual's death. This provision is intended to provide a protection so that the exemption will not be abused as a tool to avoid payment of the charges.

Sellers of real property are liable for the realty transfer fee. The fee is based on the property's selling price and calculated in accordance with the applicable gradually increasing rate schedule. In all, there are four distinct rate schedules which vary depending on whether a property's transaction price exceeds $350,000 and whether the seller is a senior, blind or disabled individual. A $750,000 property sale, for example, generates a $6,775 fee liability (0.90 percent of the selling price) under the regular rate schedule.

The state also imposes an assessment equal to one percent of a property's transaction price on buyers of residential and commercial properties transacted for more than $1 million.