[37 Pa.B. 6516]
[Saturday, December 15, 2007]
[Continued from previous Web Page] § 91.154. Documents involving corporations, partnerships, limited partnerships and other associations.
(a) Entities are separate from their stockholders, shareholders, partners and members. Transfers of title to real estate between entities and their stockholders, shareholders, partners and members, including transfers between a subsidiary and a parent corporation and transfers in consideration of the issuance or cancellation of stock, are fully taxable, unless otherwise excluded.
(b) If a person dedicates and sets aside real estate for an entity's use through a writing without conveying title to the real estate to the entity, the writing is not subject to tax.
(c) If a person dedicates and sets aside real estate for an entity's use through a writing and the writing does not result in a conveyance of title to the real estate to the entity, there is no tax imposed when an entity relinquishes its control over the real estate back to the person through a writing.
(d) Examples are as follows:
Example 1. X owns title to real estate. X transfers title to the real estate to X, Y, Z trading as XYZ partnership or X, Y and Z, copartners. The deed of transfer from X is fully taxable. Partnerships are separate entities from their partners.
Example 2. D, E and F are partners in both TUV and QRS partnerships. D, E and F, trading as TUV Partnership, transfer real estate to D, E and F trading as QRS Partnership. The deed is fully taxable because TUV Partnership and QRS Partnership are separate entities even though each has the same partners.
Example 3. Assume the same facts as in Example 1, except that X dedicates and sets the real estate aside for the partnership's use under the partnership agreement without conveying title to the real estate to the partnership. Because title remains with X, no tax is due.
Example 4. Assume the same facts as in example 3. Subsequent to X's dedication of the real estate to the partnership's use, X decides to withdraw from the partnership. When X withdraws from the partnership, the partnership relinquishes its control over the real estate as part of the partnership's purchase of X's interest in the partnership. The relinquishment is made in writing. Because X has always held title to the real estate, there is no tax liability when the partnership relinquishes its control to the real estate.
§ 91.155. Timber and crops.
(a) Except as provided in subsections (b) and (c), a writing transferring interests in standing timber and crops is a taxable document under this chapter.
(b) Standing timber is considered nontaxable personal property if the writing provides for severance and complete removal at once or as soon as it can be reasonably done. A writing that conveys an interest in standing timber is a taxable document if any of the following apply:
(1) The transferee has discretion as to the time of removal.
(2) The writing is indefinite as to the time for removal.
(3) The writing provides more time for the removal than is reasonably necessary considering the nature and extent of the land and the number of feet of merchantable timber to be removed.
(4) Even if the writing provides a reasonable time for the severance and complete removal of the timber, the transferor concurrently conveys title to the underlying real estate to the transferee, or gives the transferee the right or option to purchase the underlying real estate within the period for severance of the timber.
(c) Products of the soil are considered nontaxable personal property if one of the following applies:
(1) The products are planted annually and gathered during a single, annual season.
(2) The products are propagated for the purpose of being transplanted or grafted.
(3) The products require annual pruning, spraying or cultivation.
(4) The products are the annual products of shrubs, trees or annual or perennial plants.
§ 91.156. Trusts.
(a) Transfers to ordinary trusts. A transfer of real estate for no or nominal consideration to an ordinary trust is fully taxable unless the transfer of the same real estate would be wholly excluded if the transfer was made directly from the grantor to all of the possible beneficiaries who have a remainder interest or who are otherwise entitled to receive the real estate or the proceeds from the sale of the real estate as a beneficiary under the terms of the trust, whether or not the beneficiaries are contingent or specifically named.
Example: G transfers real estate to a trust without consideration for the use of B, G's spouse, for life. Under the trust, the remainder interest is vested in G's church. As a direct transfer to the religious organization would be taxable, the transfer to the trust is fully taxable.
(b) Contingent beneficiaries. A trust provision which identifies a contingent beneficiary by reference to the heirs of the trust settlor as determined by the laws of intestate succession will by itself neither qualify nor disqualify a transfer from the exemption provided by subsection (a).
(c) Transfers to living trusts.
(1) A transfer for no or nominal actual consideration to a trustee of a living trust from the settlor of the living trust is excluded from tax.
(2) A transfer for no or nominal actual consideration to a trustee of a living trust from a grantor other than the settlor is fully taxable unless the transfer of the real estate would be wholly excluded if the transfer was made directly from the grantor to the settlor.
(d) Transfers from ordinary trusts. A transfer from an ordinary trust is fully taxable except for a transfer for no or nominal actual consideration from the trustee to the person who has the vested remainder interest or who is otherwise entitled to receive the real estate or the proceeds from the sale of the real estate as a beneficiary under the terms of the trust.
(e) Inter vivos transfers from living trusts.
(1) A transfer from the trustee of a living trust during the settlor's lifetime to a grantee other than the settlor will be treated as if the transfer were made directly from the settlor to the grantee.
(2) A transfer from the trustee of a living trust to its settlor is excluded from tax, irrespective of who conveyed the real estate to the trustee. However, if the grantor who conveyed the real estate to the trustee is the settlor's family member as defined in § 91.193(b)(6) (relating to excluded transactions), the provisions of § 91.193(b)(6)(ii) apply to a subsequent transfer.
(f) Transfers from testamentary trusts and living trusts after the death of the settlor. A transfer of real estate from the trustee of a testamentary trust or a living trust after the death of its settlor is exempt from tax only if the transfer is made for no or nominal actual consideration and to the person who, under the governing instrument of the trust, has the vested remainder interest or who is otherwise entitled to receive the real estate or the proceeds from the sale of the real estate as a beneficiary under the terms of the trust.
(g) Requirement for exemption. An exemption will not be granted under this section unless the recorder of deeds is presented with a copy of the trust agreement.
§ 91.162. Turnkey projects.
A transfer of real estate to a developer or contractor who is required by contract to reconvey the real estate to the grantor after making contracted-for improvements to the real estate is not taxable if no beneficial interest in the real estate is transferred to the developer or contractor. The reconveyance to the grantor is also not taxable.
§ 91.165. Reservations or conveyances of life estates.
(a) The value of a life estate or remainder interest in real estate will be the consideration paid or to be paid for the life estate or remainder interest except as provided for in subsection (b) or (c).
(b) When no or nominal consideration or consideration less than actual monetary worth is paid for a life estate or remainder interest in real estate, life estate and remainder factors as provided in subsection (d) are multiplied by the real estate's computed value in order to calculate the value of a life estate or remainder interest.
(c) When consideration that is paid or to be paid for the conveyance of real estate or the computed value of real estate must be apportioned to calculate the taxable value of a life estate or remainder interest that is part of the conveyance, the life estate and remainder factors as provided in subsection (d) are multiplied by the consideration paid or to be paid for the conveyance of the real estate or the computed value in order to calculate the value of the life estate or remainder interest.
(d) The Department will publish by notice in the Pennsylvania Bulletin life estate and remainder factors and their effective date to be used for the calculation of the taxable value of a life estate and remainder interest in real estate.
(1) Formula. The factors will be based upon tables published by the Internal Revenue Service for calculating the present worth of a life estate and remainder interest. The Department will use the factors contained in the Internal Revenue Service Table using an interest rate equal to the average interest rate for the 36 consecutive months prior to the publication of the factors in the Pennsylvania Bulletin.
(2) Updates. The Department will update the factors periodically as needed to account for changes in mortality and interest rates.
Example 1: In an arm's length transaction for actual monetary worth, L conveys a life estate interest (or remainder interest, as the case may be) in real estate to T for $50,000. The taxable value of the life estate is the consideration paid, that is $50,000.
Example 2: L conveys a life estate interest in real estate to T for less than actual monetary worth. L reserves the remainder interest for himself. The computed value of the entire real estate is $100,000. T is 50 years old. The taxable value of T's life estate interest is the computed value of the entire real estate multiplied by the life estate factor based upon T's age.
Example 3: L conveys a remainder interest in real estate to T for less than actual monetary worth. L retains a life estate interest in the real estate. The computed value of the entire real estate is $100,000. L is 50 years old. The taxable value of T's remainder interest is the computed value of the entire real estate multiplied by the remainder factor based upon L's age.
Example 4: X sells real estate to X's friends Y and Z. The sale consists of a life estate to Y and the remainder to Z. Y is 60 years old, and Z is 45 years old. X sells the real estate to Y and Z for a total, arm's length purchase price of $100,000, but the agreement of sale does not apportion the purchase price between the price to be paid for the life estate and the remainder interest. To calculate the taxable value of the life estate and remainder interest, the life estate and remainder factors based upon Y's age are multiplied by the total purchase price.
§ 91.166. Life maintenance.
A transfer of real estate as consideration for life maintenance is a taxable transaction. The tax base will be computed based on the value of the real estate as determined under § 91.135 (relating to judicial sales and other transactions).
§ 91.168. Sale and leaseback transactions.
If title to real estate is conveyed on the condition that the real estate be leased back to the grantor the document of conveyance is taxable and the lease is taxable if it is for a term of 30 years or more, unless the conveyance and lease are executed together as part of an excluded financing transaction under § 91.193(b)(23) (relating to excluded transactions).
§ 91.170. Rule in Baehr Bros. v. Commonwealth, 487 Pa. 233, 409 A.2d 326 (1979).
(a) General rules.
(1) A document will be excludible from tax if each of the following requirements is satisfied:
(i) The document stands in the place of two or more other writings.
(ii) Each of the writings for which the document stands would be excludible from tax under this article and effective notwithstanding the insolvency, bankruptcy or other legal disability of the signatories thereto.
(iii) Title to the affected real estate would not revert or be in any way impaired or encumbered by reason of the recordation of the writings described in subparagraphs (i) and (ii).
(2) Separate transfers of a greater estate and a lesser estate in real property will be taxed as a single transfer of both estates if the transactions are entered into in contemplation of a merger thereof.
(3) Separate transfers of an interest in timber, coal, oil, gas or other appurtenance to real estate and the real estate to which the interest is appurtenant will be taxed as a single transfer of both interests if the transactions are entered into in contemplation of their coinciding and meeting in the same person.
(b) Combining transactions. When a single document represents, in substance, two or more transfers of title to real estate, the document will be viewed as a series of separate transfers and documents.
(1) The tax due on the single document will be the same as the sum of tax that would be due had each transfer been effectuated by a document. The tax liability for the single document will be allocated among the parties as if each transfer had been effectuated by a document.
(2) If each separate transfer in the series is excluded from tax, the single document is excluded from tax. This rule only applies if the following apply:
(i) Each transfer and document in the series could have been accomplished and executed individually under the laws of the Commonwealth or the United States.
(ii) Completing the series of transfers and documents would result in the same transfer accomplished by the single document.
(iii) The series of transfers and documents have not been reduced to one transfer and document in order to avoid a legal, contractual, economic or personal detriment associated with completing the series of transfers and documents.
(iv) The series of transfers and documents would have been completed without the benefit of this rule.
(v) The application of § 91.193(b)(6)(ii) (relating to excluded transactions) will not be avoided by the application of this rule.
Example 1. X enters into an agreement of sale with Y for the conveyance of real estate for $100,000. Y subsequently assigns the sales agreement to Z for $1 million. X executes a deed for the conveyance of the real estate to Z and receives $100,000. Y receives $1 million from Z for the assignment. The taxable value of the deed from X to Z is $1,100,000. X and Y are jointly and severally liable for the tax on $100,000 (See § 91.132(c)). Y and Z are liable for the remaining tax on $1 million.
Example 2. D dies leaving a will that devises real estate to D's two sons, X and Y. D is also survived by another son, Z. Z wants the real estate. X and Y do not want the real estate. X and Y agree to sell the real estate to Z. D's estate could execute a deed for the real estate to X and Y as tenants in common without the imposition of tax. See § 91.193(b)(7). X and Y could then sell and transfer their interests in the real estate to Z without the imposition of tax. See § 91.193(b)(6)(i)(C). Therefore, assuming the criteria in subsection (b)(2)(i)--(iv) are met, D's estate could sell and transfer the real estate to Z without the imposition of tax on the deed of transfer even though the deed from D's estate to Z would otherwise be taxable.
Example 3. X and Y are siblings. X has a child, Z (Y's niece/nephew). Y conveys title to real estate to Z by a document. Documents that convey title to real estate from a person's sibling to the person's child are subject to tax. Therefore, the document from Y to Z is taxable. This rule does not prohibit the imposition of tax. Although Y could have transferred the real estate to X by a document without the imposition of tax, see § 91.193(b)(6)(i)(C), and X could then, by a separate document, have transferred the same real estate to Z without tax, see § 91.193(b)(6)(i)(B). The document from Y to Z is still subject to tax because the two-step transaction would violate the rule under § 91.193(b)(6)(ii) regarding family transfers made within 1 year.
Example 4. X conveys title to real estate to an industrial development authority (IDA) as security for a loan of $1 million in a financing transaction in which the IDA is the lender. In turn, the IDA enters into an installment land contract with X for the real estate. The total installment payments serve as the debt service on the loan. During the term of the installment land contract, X enters into an agreement of sale with Y for the real estate. The purchase price for the real estate is $5 million. At the end of the installment sales contract, X directs the IDA to convey the real estate directly to Y. In this case, the deed from the IDA to Y will be viewed as two transfers and documents: a transfer from the IDA to X in satisfaction for the repayment of the $1 million loan and a subsequent deed for the sale of the real estate from X to Y for $5 million. The taxable value of the deed from the IDA to Y is $5 million. The taxable value is calculated by adding the taxable value of the transfer from the IDA to X and the transfer from X to Y as if each transfer had been effectuated by a document. The transfer from the IDA to X is excluded as the second leg in a financing transaction. See § 91.193(b)(23). Neither the IDA or X are liable for tax on this transaction. The transfer from X to Y is taxable on the sale value of $5 million. X and Y are jointly and severally liable for the tax on the $5 million sale value.
Example 5. Same facts as in Example 4 except that there is no sale between X and Y. Rather, X is the sole owner of a subsidiary business entity. At the end of the installment sale term between the IDA and X, X directs the IDA to convey the real estate to the subsidiary business entity. The conveyance is for no or nominal consideration. Under this set of facts, the deed to the subsidiary will also be seen as a two step transaction. As in Example 4, the first step of the transaction will be the transfer of the real estate from the IDA to X. That transaction is excluded from tax. The IDA and X have no liability for that transaction. The second step of the transaction is the transfer from X to its subsidiary business entity. The second step is taxable; and because the transaction is for no or nominal consideration, the taxable value is the computed value of the real estate. X and the subsidiary business entity are jointly and severally liable for the tax on that transfer.
(c) Splitting transactions. If a series of two or more transactions and associated writings, one or more of which would not be subject to tax if considered separately, are completed instead of a single transaction and taxable document, the series of transactions and writings will be considered as if completed by the single transaction and document. Therefore, each individual writing in the series of transactions and writings will be subject to tax upon a portion of the value of the title to real estate conveyed in respect of the transactions and writings. If it is not possible to determine how to apportion all or part of the taxable value between two or more of the writings, the value for which apportionment cannot be determined shall be divided equally among all writings that do not have an apportioned value. This rule only applies if:
(1) The parties to the single transaction and document are identical to the parties to the series of transactions and writings. For purposes of this section, parties are identical if they are the same person or the person's affiliate. The term ''affiliate'' in this section has the same meaning as the term ''grantor's affiliate'' in § 91.131 (relating to definitions).
(2) Completing the series of transactions and writings results in the same outcome that would have resulted from completing the single transaction and document.
(3) The primary purpose for completing the series of transactions and writings rather than completing the single transaction and document is the avoidance of tax.
Example 1. X agrees to sell and convey real estate to Z for $2 million. The conveyance can be accomplished by one, taxable document based upon the sale price of $2 million. To avoid paying tax on the full sale price of the transfer, X and Z agree to divide the conveyance into four separate transactions: D--G. Transaction D involves a deed of conveyance for a portion of the value of the real estate. Z pays $100,000 for the deed. Transactions E--G are effectuated by separate writings that each, by appearance, is nontaxable. Z pays $400,000 for transaction E and its respective writing and a total of $1.5 million for transactions F and G and their respective writings. The four transactions and writings effectuate the same outcome as would have been accomplished by the single transaction and document. Therefore, all four transactions are considered as accomplished by the single transaction and document, and each writing is taxable upon the portion of the value of the real estate that it represents. The deed of conveyance for transaction D represents the conveyance of a portion of the real estate. Z paid $100,000 for the deed. Therefore, its taxable value is $100,000. Transactions E, F and G and the associated writings effectuated the transfer of the remaining portion of the real estate. Because Z paid $400,000 for the writing under transaction E, the taxable value of the writing is $400,000. There was no allocation of the purchase price for transactions F and G and the associated writings. Therefore, the remaining portion of the real estate value that has not been allocated, that is $1.5 million, is divided equally, $750,000 each, between the writings for transactions F and G.
Example 2. X is a land developer and is the sole owner of business entity 1 and 2.
X has business entity 1 purchase vacant real estate. Realty Transfer Tax is paid on the document of transfer for the real estate. X then has business entity 1 lease the real estate under a short term lease (less than 30 years) to business Entity 2. Business entity 2 makes $10 million worth of improvements to the real estate. Business entity 1 remains the owner of the underlying real estate and business entity 2 remains the owner of the improvements.
X then enters into an agreement with Y for the sale of the real estate and improvements for $15 million. The agreement provides that X will have business entity 1 convey its ownership in the underlying real estate to Y for a sale price of $2 million. Business entity 1 and Y effectuate the transfer of the underlying real estate and pay realty transfer tax on the deed of conveyance based upon the $2 million sale value.
The agreement also provides that X will have business Entity 2 assign its lessee interest in the short term lease to Y for the remaining $13 million sale price. No tax is paid on the assignment of the lessee interest. Y then terminates the lease resulting in a merger of the real estate and improvements in Y. Y has, in substance, purchased both the underlying real estate and improvements. By breaking the simple sale of the underlying real estate and improvements into multiple transactions, X and Y have attempted to avoid paying tax on the full sale price of $15 million. In this case, the multiple transactions will be viewed as a single transaction. Therefore, the total taxable value of the single transaction is the $15 million sale price.
§ 91.171. Transfers by operation of law.
Except as provided in §§ 91.152(a) and 91.193(b)(1)(i), (7), (12) and (13) (relating to confirmatory deed; and excluded transactions), any writing that satisfies the requirements of the Statute of Frauds and confirms or evidences a transfer of title to real estate that is accomplished by operation of law is taxable on the same basis as a document that effectuates a conveyance or transfer or vests title to real estate.
Subchapter I. EXCLUDED PARTIES AND TRANSACTIONS § 91.193. Excluded transactions.
* * * * * (b) Additional exclusions. Other transactions which are excluded from tax include:
(1) A transfer to the United States or the Commonwealth or to an instrumentality, agency or governmental body of either if the transfer is:
(i) In lieu or confirmation of a taking by eminent domain. To qualify for the exclusion, the deed shall be made under a prior statute, ordinance, resolution, plan or order for the condemnation, appropriation or acquisition of the real estate transferred by condemnation or in lieu thereof. The statement of value accompanying a document that effectuates such a transfer shall contain a specific reference to the ordinance, resolution or other official action by which the grantee was authorized to file a declaration of taking of the transferred real estate.
* * * * * (2) A document which the Commonwealth is prohibited from taxing under the Constitution or statutes of the United States, including:
(i) A transfer under a bankruptcy plan confirmed under section 1129 of the act of November 6, 1978 (Pub. L. No. 95-598) (92 Stat. 2549), known as the Federal Bankruptcy Act (Bankruptcy Act) (11 U.S.C. § 1129) and exempt under section 1146(c) of the Bankruptcy Act (11 U.S.C. § 1146(c)). To claim this exclusion, a copy of the order and confirmed plan highlighting the specific provision in the plan authorizing the transaction and proof that the deed to be recorded was executed by the parties to the transaction subsequent to the plan confirmation shall accompany the statement of value. Transfers made prior to plan confirmation do not qualify for tax exemption. A transfer is made under a plan confirmed under section 1129 only when the transfer is authorized by the specific terms of a previously confirmed Chapter 11 plan.
(ii) A transfer under a bankruptcy plan confirmed under section 1225 of the Bankruptcy Act (11 U.S.C. § 1225) and exempt under section 1231(c) of the Bankruptcy Act (11 U.S.C. § 1231(c)). To claim this exclusion, a copy of the order and confirmed plan highlighting the specific provision in the plan authorizing the transaction and proof that the deed to be recorded was executed by the parties to the transaction subsequent to the plan confirmation shall accompany the statement of value. Transfers made prior to plan confirmation do not qualify for tax exemption. A transfer is made under a plan confirmed under section 1225 of the Bankruptcy Act only when the transfer is authorized by the specific terms of a previously confirmed Chapter 12 plan.
(iii) Transfers made under the authority of sections 363 or 365 of the Bankruptcy Act (11 U.S.C. § 363 or § 365) and occurring before the confirmation of a plan will not qualify for exemption under this paragraph. However, transfers pursuant to sales authorized under these sections of the Bankruptcy Act may qualify for other exclusions. See paragraph (16).
* * * * * (6) Transfers between certain family members:
* * * * * (iii) The estate of a deceased family member is not a family member for purposes of claiming the familial exemption under this paragraph.
* * * * * (8) A transfer to a trustee of an ordinary trust as provided in § 91.156(a) (relating to trusts).
(9) A transfer from a trustee of an ordinary trust as provided in § 91.156(d).
* * * * * (12) A transfer under the statutory merger or consolidation of a corporation or statutory division of a nonprofit corporation if:
(i) The document merely confirms that an interest in real estate passed by operation of law to a nonprofit corporation under a statutory division of a nonprofit corporation. See 15 Pa.C.S. § 5957(b) (relating to effect of division).
(ii) The document merely reflects that the corporation changed from a business corporation to a nonprofit corporation, or vice versa. See 15 Pa.C.S. § 5966 (relating to effect of conversion).
(iii) The document merely confirms that an interest in real estate passed by operation of law to a new or surviving corporation under a statutory merger or consolidation, unless the primary intent for the merger or consolidation is avoidance of the Realty Transfer Tax. See 15 Pa.C.S. §§ 1929 and 4127 (relating to effect of merger or consolidation; and merger, consolidation or division of qualified foreign business corporations) and 15 Pa.C.S. § 5929(b) (relating to effect of merger or consolidation). In determining whether a merger or reorganization is undertaken to avoid tax, the Department will consider the following factors:
* * * * * (18) A transfer to a conservancy, a transfer from a conservancy to the United States, the Commonwealth or to any of their instrumentalities, agencies or political subdivisions, or a transfer from a conservancy if the real estate is encumbered by a perpetual agricultural conservation easement as defined by the Agricultural Area Security Law (3 P. S. §§ 901--915) and the conservancy has owned the real estate for at least 2 years immediately prior to the transfer.
* * * * * (23) A financing transaction evidenced by a deed of trust, defeasible deed or other instrument of like character given as a security for a debt, a lease to the debtor or a deed of release.
Example. A transfers title to real estate to B in exchange for a cash payment. As part of the same transaction, B immediately leases back the real estate to A for 30 or more years. A's rental payments under the lease are sufficient to allow B to recoup his entire cash payment to A plus interest on the cash payment. A has the right to repurchase the real estate from B for a nominal amount at the end of the lease term. Neither the sale nor the lease is subject to tax.
* * * * * (26) The rescission, cancellation or abandonment of an existing lease or contract for a deed if the rescission, cancellation or abandonment is for no or nominal consideration or the remaining term of the lease or contract is less than 30 years. The remaining term of the lease or contract shall be determined under paragraph (24)(v).
* * * * * (32) Transfers to the trustee of a living trust as provided in § 91.156(c).
(33) Transfers from the trustee of a living trust as provided in § 91.156(e).
(34) Transfers from the trustee of a testamentary trust or living trust after the death of the settlor as provided in § 91.156(f).
(c) Documents that convey or evidence the transfer of real estate between the parties involved in the transactions enumerated in subsection (b) are excluded from tax. Subsection (b) has no application to acquisitions of real estate companies as provided in § 91.202 (relating to acquired real estate company).
§ 91.195. State-related universities and public charities.
(a) For purposes of §§ 91.192 and 91.193(a) (relating to excluded parties; and excluded transactions), institutions that are part of the State System of Higher Education and the following State-related universities constitute excluded parties:
(1) Lincoln University.
(2) The Pennsylvania State University and its affiliate, the Pennsylvania College of Technology.
(3) Temple University and its subsidiaries, Temple University Hospital, Inc. and Temple University Children's Medical Center.
(4) The University of Pittsburgh.
(b) Transfers to the institutions enumerated in subsection (a) by gift or dedication are excluded transactions.
(c) Transfers of real estate to an institution enumerated in subsection (a) other than by gift or dedication and all transfers by those institutions are taxable upon the same basis as other transfers to or from excluded parties.
(d) Transfers by gift, dedication or otherwise to or from public charities are taxable upon the same basis as transfers between private parties.
Subchapter J. REAL ESTATE COMPANY § 91.202. Acquired real estate company.
(a) A real estate company becomes acquired upon a change in the ownership of the company, if the change in the ownership interest:
(1) Does not affect the continuity of the company.
(2) Together with prior changes within the preceding 3 years, has the effect of transferring, directly or indirectly, 90% or more of the total capital and profits ownership interest in the company.
(b) An ownership interest may be changed by any of the following:
(1) A member's or shareholder's sale, exchange, gift, bequest or other transfer of the ownership interest.
(2) A member's withdrawal or the addition of a new member.
(3) An issuance or cancellation of stock.
Example 1:
A and B are equal partners in their partnership. Over a period of 2 years, the partnership adds 18 new equal partners. As A and B own only 10% of the total ownership interest at the end of the 2-year period, the addition of the new members has the effect of transferring 90% of the total ownership interest in the partnership. The partnership, therefore, became an acquired company upon the admittance of the 20th partner.
Example 2:
C and D are equal partners in their partnership. C transfers her 50% partnership interest to E. One year later, E transfers the 50% partnership interest to F. The partnership does not become acquired as a result of these changes. As D still retains his 50% interest, 50% of the total ownership interest remains the same. The series of transactions relating to C's interest has the effect only of transferring 50% of the total ownership interest.
(c) A transfer of ownership interest between members of the same family is not considered a change in ownership interest.
Example: C and D each own all of the stock of a corporation in equal shares. C and D transfer their stock to E, C's son, over a 3-year period. As C and E are members of the same family, the transfer between C and E is not a change in ownership interest. Thus, the stock transfers have the effect of transferring only 50% of the total ownership interest in the corporation and the corporation is not acquired.
(d) An acquired real estate company can become acquired again upon a change in ownership interest in the company, if the change:
(1) Does not affect the continuity of the company.
(2) Together with prior changes within the preceding 3-year period commencing with the date that it became acquired, has the effect of transferring, directly or indirectly, 90% or more of the total capital and profits ownership interest in the company.
(e) Changes in ownership interests which occurred prior to July 1, 1986, shall be taken into account in determining whether a real estate company becomes acquired.
Subchapter K. FAMILY FARM CORPORATION AND FAMILY FARM PARTNERSHIP
CORPORATIONS § 91.211. Family farm corporation.
(a) A corporation shall meet the following requirements to constitute a family farm corporation:
(1) In the aggregate, the book value of the corporation's assets that are primarily devoted to the business of agriculture continuously comprise at least 75% of the book value of all of the corporation's assets.
(2) At least 75% of each class of stock of the corporation is owned by individuals who are members of the same family.
(b) To qualify as an asset devoted to the business of agriculture for the purpose of subsection (a), the assets must be:
(1) Owned and either used directly by the corporation claiming the exemption or leased to, and used directly by, a member of the same family that owns at least 75% of each class of stock of the corporation claiming the exemption.
(2) Principally devoted by the corporation to the business of agriculture or used by the member for agricultural purposes.
(3) Property of the sort commonly used in the business of agriculture principally for agricultural purposes.
(4) Used by the member principally for agricultural purposes or set apart and directly used by the corporation primarily for commercial:
(i) Cultivation of the earth to produce food products suitable for human or animal consumption, seeds, tobacco, turf or sod.
(ii) Rearing, feeding, breeding and management of livestock.
(iii) Raising and harvesting of orchards and vineyards.
(iv) Beekeeping.
(v) Rearing, feeding, breeding and management of fish or other aquatic animals for use as a food or food product.
(c) For the purposes of subsection (a), an asset does not qualify as an asset devoted to the business of agriculture if it is set apart and directly and principally used in:
(1) Recreational activities such as hunting, fishing, camping, skiing, boating, show competition or racing.
(2) Raising, breeding or training game animals or birds, fish, cats, dogs or an animal intended to be used in sporting events or for recreational activities.
(3) Fur farming.
(4) Stockyard and slaughterhouse operations.
(5) Manufacturing or processing operations.
(6) The business of holding property for rental income.
(d) For the purposes of subsection (a), § 91.201(b) (relating to real estate company) applies.
(e) For the purposes of this section, the business of agriculture includes a leasing of property to a member of the family having the ownership of at least 75% of each class of its stock if the property is used by the member directly and principally for an agricultural purpose.
PARTNERSHIP § 91.221. Family farm partnership.
(a) An entity constitutes a family farm partnership only for so long as the following requirements are satisfied:
(1) In the aggregate, the book value of the partnership's assets that are primarily devoted to the business of agriculture continuously comprise at least 75% of the book value of all of the partnership's assets.
(2) At least 75% of the shares of the profits and surplus of the partnership are continuously owned by members of the same family.
(3) The entity is a general or common law partnership.
(b) Whether an asset is devoted to the business of agriculture shall be determined using the same rules as apply to the assets of family farm corporations. See § 91.211(b) (relating to family farm corporation).
§ 91.222. Acquired family farm partnership.
A family farm partnership becomes an acquired family farm when one of the following occurs:
(1) Because of the acquisition or disposition of a partnership asset (including a transfer to a family member), the book value of the partnership's assets that are primarily devoted to the business of agriculture becomes less than 75% of the book value of all of the partnership's assets.
(2) Because of the assignment of an interest in profits or surplus or the death, retirement, bankruptcy, expulsion or addition of a partner, less than 75% of the shares of the profits and surplus of the entity is continuously owned by members of the same family.
(3) The partnership voluntarily or involuntarily dissolves or otherwise ceases to operate in the form of a general partnership or common law partnership.
§ 91.223. Declaration of acquisition.
A declaration of acquisition shall be filed in accordance with § 91.203 (relating to declaration of acquisition) with respect to family farm real estate held on the date the family farm partnership became acquired.
[Pa.B. Doc. No. 07-2306. Filed for public inspection December 14, 2007, 9:00 a.m.]
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