§ 91.137. Construction contracts.
The value of realty also includes the value of contracted-for improvements to the realty, such as a building to be made as a permanent addition if under the construction agreement the grantor or grantor’s affiliate is contractually obligated to the grantee to make the contracted-for improvements to the realty granted upon payment of the agreed consideration or a contractor is contractually obligated to the grantor and to the grantor’s successors in interest to make contracted-for improvements to the realty granted upon payment of the agreed consideration and the contractual obligation is effective with the transfer or was effective prior to the transfer and not removed thereby.
Example 1:O’Brien Land Company sells a lot to B for $10,000. Prior to the transfer of the lot, B enters into a contract with O’Brien Construction Company for the construction of a home on the lot for the contract price of $50,000. O’Brien Construction Company and O’Brien Land Company are subsidiaries of O’Brien Development Company. Tax is based on $60,000.
Example 2:After entering into an agreement with Acme Construction Company to have a home constructed on his lot for the contract price of $50,000, D sells the lot and assigns his interest in the construction contract to B for $25,000. The balance due on the construction contract is $35,000. As $15,000—$50,000 less $35,000—of the sales price is attributable to the contracted-for improvements, tax is based on $10,000 for the lot and $50,000 for contracted-for improvements for a total of $60,000.
Example 3:D, a developer who routinely sells options to purchase unimproved lots in his development to Acme Construction Company, agrees to sell one of the option lots to B for $10,000. Acme Construction Company requires B to enter into a construction agreement with it to build a home for $50,000 as consideration for the release of its option to purchase the lot. Tax is based on $60,000.
Example 4:D, a developer, having agreed with Acme Construction Company that Acme Construction Company will be the exclusive builder for D’s development, requires as a condition of sale that all buyers use Acme Construction Company as their builder. B buys a lot from D for $10,000 and enters into a contract with Acme Construction Company for the construction of a home for the contract price of $50,000. The tax is based on $60,000.
Example 5:D agrees to sell a lot to B for $10,000. Prior to the transfer of the lot, B enters into a contract with Acme Construction Company for the construction of a home on the lot. There is no relationship between D and Acme Construction Company. Tax is based on the $10,000 consideration for the lot.
Authority The provisions of this § 91.137 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. § 8107-C).
Source The provisions of this § 91.137 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096.
Notes of Decisions Construction Contract Price Taxable
For purposes of the realty transfer tax, the value of the conveyance of land from developer to purchaser included not only the price of the property listed on the deed, but also the price executory house construction contract on the property that purchaser executed on the same day as the deed. Harmon Homes, Inc. v. Commonwealth, 898 A.2d 1200, 1204 (Pa. Cmwlth. 2006).
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