Re: Realty Transfer tax on FLP transfer

At present it appears the transfer by the father to the partnership would be a taxable transfer under 72 P.S. § 8102-C.4.
 
Under current enacted legislation, Tax Reform Code of 1971, as amended, 72 P.S. § 8102-C.3(19.1), only a transfer of real estate devoted to the "business of agriculture" to a family farm partnership by a member of the same family, which family directly owns at east seventy-five percent of the interest in the partnership, is an excluded transaction not subject to tax. The statute, 72 P.S. § 8102-C Definitions "Family Farm Partnership" states:
 
    The business of agriculture shall include the leasing to members of the same family of property which is directly and principally used for agricultural purposes. The
    business of agriculture shall not be deemed to include:
 
    (1) recreational activities such as, but not limited to, hunting, fishing, camping, skiing, show competition or racing;
    (2) the raising, breeding or training of game animals or game birds, fish, cats, dogs or pets or animals intended for use in sporting or recreational activities;
    (3) fur farming;
    (4) stockyard and slaughterhouse operations; or
    (5) manufacturing or processing operations of any kind.
 
Kline v. Commonwealth, 899 A.2d 408 (Pa. Cmwlth. 2006) summarizes the law establishing there is no general exemption for transfers from owners individually to their wholly owned partnership, even if there was only one owner.
 
There is a bill currently in the General Assembly, House Bill No. 355, Session of 2005 (Printer's No. 376), sponsored among others by Representative Dally, Chairman of the House Committee on Finance to which it was referred, that would exempt transfers to family partnerships. However, this bill is still in committee and I have not found any other current bill incorporating its provisions. My recent Lexis search indicates the relevant statutory provisions have not yet been amended. In past years the Senate had a similar bill, Senate Bill No. 384, Session of 2001 (Printer's No. 397). Representative Dally also previously introduced this bill, House No. 221, Session of 2003 (Printer's No. 250). This 2003 House Bill was discussed in a legislative update of the Pa. Institute of Certified Public Accountants. My review of the 2006 Acts posted on the General Assembly's website revealed no similar legislation has been enacted. I also checked recently with Representative Dally's secretary who confirmed that it is still in committee and has not been incorporated in any other bill. She also told me that it was introduced last year and "went no where."
 
If and until House Bill No. 355 or similar legislation is enacted, it seems to me the Department of Revenue would oppose the exemption/exclusion of a transfer of the real estate from the father to the partnership where both the partnership and the real estate are not devoted to the "business of agriculture," but you may want to confirm this with the Chief Counsel's Office.
 
 
Arnie
Arnold B. Kogan
Goldberg Katzman, PC
320E Market Street, 3rd Floor
Harrisburg, PA 17101-2225
Phone: (717) 234-4161, Ext. 3159
FAX: (717) 234-6808
Email: abk_at_goldbergkatzman.com
 
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-----Original Message-----
From: realproperty-bounce_at_list.pabar.org [mailto:realproperty-bounce_at_list.pabar.org] On Behalf Of Andrea Bartko
Sent: Wednesday, August 30, 2006 5:08 PM
To: realproperty_at_list.pabar.org
Subject: [realproperty] Realty Transfer tax on FLP transfer

Owner of property (father) sets up a family limited partnership. General partner of the FLP is an LLC, the sole member of which is the father. The limited partners are the father (individually) and his children.
 
Is the transfer of the property from the father into the FLP exempt from realty transfer tax, since a transfer of the father's interest to his children outside the FLP would be exempt? If so, is there special language I should include in the deed or Statement of Value form to ensure that the exemption isn't rejected?
 
Thanks in advance.
 
Andrea M. Bartko, Esq.
Pietragallo, Bosick and Gordon LLP
One Oxford Centre, 38th Floor
Pittsburgh, PA 15219

Phone: (412) 263-4364
Fax: (412) 261-5295

E-Mail: AMB_at_PBandG.com
Received on Wed Aug 30 2006 - 15:13:27 PDT