Pennsylvania Transfer Tax on Relocation Transactions
By Marc Shaw
The “unusual transaction” always creates questions on what the applicable amount of transfer tax is or whether it applies at all. We receive calls into our PA Title Company office weekly in regards to transfer tax and its applicability on various “unusual transactions”. Today we will start a series of blog posts that discuss the applicable Transfer Tax given certain “unusual transactions”. Today’s post will be based on when a home is being purchased via an Assignment with a Relocation Company as the equitable owner/seller.
The Department of Revenues regulations make it clear that the “PA Realty Transfer Tax is imposed at the rate of 1 percent of the actual consideration paid, or to be paid, for the transfer of an interest in real estate.” This section §91.170 was specifically added to demonstrate the relocation deed situation:
§91.170(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.
Pennsylvania Title Insurance Companies have been informed that the Revenue Department considers a bona fide sale to have taken place between a seller and a Relocation Company when:
- The Relocation Company has paid the seller in full for the transfer;
- The seller has signed a deed; and
- The seller is no longer responsible for the property (IE- the seller has cancelled the home owners insurance policy).
When the relocation company sells the property to a 3rd party for good and valuable consideration, there is another taxable transfer notwithstanding the fact that the deed from the original seller is the only deed to be recorded. Hence, this transaction is considered not an assignment of a sales agreement but a double transfer completed by a single document and taxable under §91.170(b).
Supposedly the Commonwealth of Pennsylvania is actively auditing recorded deeds and demanding the full payment of transfer taxes on deeds from Relocation Companies. Even though the transfer tax lien would be a post-policy event that is not covered by a Pennsylvania Title Insurance policy, as a PA Title Company we take the brunt of any blame when it comes a mistake like collecting to little transfer tax. If the Department tries to collect transfer tax after the event has closed and disbursed we like to make sure all parties knew how much was applicable well prior to closing. So making sure all parties understand what their Pennsylvania Transfer Tax obligations is paramount to the settlement of the transaction.
More Pennsylvania Transfer Tax posts to come…