FYI: Comment period for ‘corporate loophole’ regs closes May 27

May 7, 2008

In the current edition of the Maryland Register, the State Department of Assessments and Taxation has published its proposed regulations to implement the recordation and transfer taxes on the transfer of a controlling interest in a real property entity. The comment period ends May 27.

As Robert M. Ercole said in a column last December, the new tax “is one of the ‘corporate loopholes’ sought to be closed by Gov. Martin O’Malley in the recent Special Session of the General Assembly” and will take effect on July 1.

In a nutshell, prior law let corporations and other entities get around the transfer and recordation taxes on real estate by selling not the property, but rather a controlling interest in the subsidiary that owns the property.

The new law, contained in Tax Property Article §12-117(c) and §13-103(b), was supposed to treat both transfers the same, tax-wise. SDAT estimated that would bring in an extra $62 million in Fiscal Year 2009 — $14 million for the state, and $48 million in local recordation and transfer taxes.

However, the lawmakers left a lot of details up to SDAT — and not everyone is happy with the results. Ballard Spahr’s Bruce Benshoof, for example, has qualms about SDAT’s definition of “beneficial ownership” and the treatment of “step transactions,” that is, sales of beneficial interests that occur over the course of time. (Read his comments here.)

Comments may be sent to SDAT Assistant Director Robert E. Young, 301 W. Preston Street, 8th Floor, Baltimore, Md. 21201; or call 410-767-1184, e-mail ryoung[at]dat.state.md.us, or fax to 410-333-5873. A public hearing has not been scheduled.

BARBARA GRZINCIC, Managing Editor/Law

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Posted by The Daily Record | Filed Under business, law, taxes 

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