Happy New Year everyone. In the first installment of the Tristate Tax Alert for 2022, we have updates on Connecticut’s tax amnesty program, New Jersey’s extended refund deadlines, and a recent New York City tax ruling. transfer of real estate.
Connecticut amnesty program continues through Jan. 31
The Connecticut Department of Revenue has actively reached out to taxpayers, and those it believes to be taxpayers, to encourage them to participate in the state’s amnesty program, which runs through January 31, 2022. As reported in our Tristate Tax Alert here, the program allows participating taxpayers whose tax debts or assessed debts are not disclosed to avoid penalties and 75% interest. Taxpayers must pay all taxes due at the time they apply for amnesty. According to a press release issued in early December, the program generated approximately $12 million and had 3,600 participants in its first weeks. The Department of Revenue’s comprehensive court press suggests the state hopes the program will generate significantly more revenue before the Jan. 31 deadline.
New Jersey Update
Extended repayment terms
New Jersey individual taxpayers were surprised to learn that the Division of Taxation (“Division”) has begun auditing their 2016 Gross Income Tax (“GIT”) returns. Under normal circumstances, a 2016 GIT statement would have been filed between April and October 2017 and the statute of limitations for the assessment would have closed three years later in 2020.
But these are not normal circumstances. The statute of limitations for appraisals is kept open due to legislation passed in 2020 in response to COVID-19. PL 2020, c.19. If the Initial Assessment Period or Consent Period ends on or after April 14, 2020, the statute of limitations is extended an additional 90 days after the end of the state of emergency declared by Governor Murphy in 2020.
As of this writing, New Jersey’s state of emergency related to COVID-19 has not been lifted. Instead, quite the opposite has happened. On January 11, 2022, Governor Murphy issued Executive Order 280, which states that the original emergency declaration “remains in full effect.” Accordingly, the Division is authorized to begin an individual’s 2016 tax year GIT audits at this late date. For business taxpayers, the unlimited statute of limitations is even worse because corporation tax and other business taxes are subject to a longer statute of limitations of four years. So 2015 is still fair game for corporate taxpayers.
Although it’s not perfect quid quo pro, the refund request deadlines have also been extended. Previously, the extended repayment deadline was set to expire on January 1, 2022. But this deadline was recently extended to April 1, 2022 by Governor Murphy’s Executive Order. If the legal deadline to file a refund or credit request was on or after March 9, 2020, and before April 1, 2022, that request can still be filed before April 1, 2022. For individuals, a refund request must be filed no later than: (i) three years after the filing of the return or (ii) two years after the payment of the tax. NJSA 54A:9-8. So, for example, a GIT filer who filed a 2016 statement on October 1, 2017 has until April 1, 2022 to file a refund request for the 2016 statement.
Stay tuned as we will provide updates if there are any further revisions to the New Jersey statute of limitations on tax assessments and refund claims.
New York Update
New York City Real Estate Transfer Tax Recent ALJ Case
In this issue, we highlight a recent decision by an Administrative Law Judge (“ALJ”) of the New York City Tax Appeals Court, Administrative Law Judges Division. In The Park Central Hotel Affair, TAT (H) 15-33 (RP) (October 29, 2021), the ALJ ruled that the countermeasure on which the New York City Real Estate Property Transfer Tax (“RPTT”) on a trust Qualified Real Estate Investment Trust (The transfer of “REITs” is based on Estimated Market Value (“EMV”) as determined by the Commissioner of Finance for property tax purposes, as shown on the most issued by the Commissioner of Finance.The ALJ rejected the argument of the Commissioner of Finance that the consideration for the transfer should be on the actual total consideration.
The claimants, Park Central Hotel (DE) LLC and PCH TIC Owner LLC, collectively the Licensors, have transferred in aggregate 100% of the joint tenancy interest in a condominium unit to PC Festivus LLC, the Beneficiary, which is owned by 100 % to LaSalle Hotel Operating Partnership LP (“LaSalle”). LaSalle Hotel Properties was, at the time of the transaction, a real estate investment trust (“REIT”) as defined in Section 856 of the Internal Revenue Code, and the general partner of LaSalle. On the date of the transfer, LaSalle issued owned Class A limited partnership units to the transferors, who were admitted as limited partners of LaSalle. In exchange for the real estate interest, the Licensors also received $382,792,818 to pay off the remaining mortgage and mezzanine loan balances, plus $13,441,833 for the equity in the property. The equity consideration of $13,441,833 corresponded to the sum of $8,000,100 from the Class A limited partnership units in LaSalle, plus $5,441,733 in cash. Thus, more than 40% of the capital consideration received by the Licensors was in the form of an equity interest in an entity controlled by a REIT, which caused the transfer to constitute a qualifying REIT transfer under the RPTT. , as stipulated by the parties.
The RPTT statements filed by the grantors showed the consideration for the transfer using the EMV of the property, which was $105,808,170, based on the most recent notice of value of the property issued by the Commissioner of Finance. The Finance Commissioner issued two notices of proposed tax adjustment, which stated: “[a]Although the conditions were met to qualify as a REIT transfer and the lower tax rate of 1.3125% pursuant to New York Administrative Code Section 11-2102, the consideration for the REIT transfer was deemed be based on the actual total consideration for the property as per the closing statement of 12/29/11 and the purchase price allocation report of 12/4/1 of $396,234,651. The plaintiffs filed motions for reconsideration of a default by RPTT.
The ALJ began its discussion by stating that since the parties have stipulated that the transaction qualifies as an REIT transaction, the statutory scheme at issue is not complicated or difficult to interpret. The ALJ explained that under the RPTT law, special rules apply to transfers of qualifying REITs, including a reduced tax rate (50% of the rate otherwise applicable) and the following legal provision (Administrative Code §11-2102.e.(3)) governing consideration, which was at issue in the case:
For the purposes of determining the consideration for a transfer of taxable real estate investment trust under this subsection e, the value of the real property or interest therein is equal to the estimated market value determined by the Commissioner of Finance for real estate purposes, as shown on the most recent Notice of Assessment issued by such Commissioner, or such other value as the ratepayer may establish to the satisfaction of such Commissioner.
Rejecting the Finance Commissioner’s argument, the ALJ clarified that “[t]The statutory regime does not impose any other prerequisites for the use of EMV as a counterparty measure for REIT transfers. Nothing in the law indicates that EMV should only be used in special circumstances, such as when the value of the property cannot be established otherwise. There is no language limiting EMV to a fallback position when the general rules of consideration calculation fail. Finally, since the taxpayers did not attempt to establish a value other than the EMV, the ALJ determined that the EMV is the countermeasure on which the RPTT is calculated.
This ALJ determination highlights the specific statutory rules, and therefore distinctions, set forth in the New York City RPTT for particular types of transactions. Often the relevant questions in transfer duties are whether there is a taxable disposal, what is the applicable tax rate and how is the consideration measured for the transfer. New York State, like New York City, also imposes a real estate transfer tax, which has the same complexities. Additionally, the tax treatment of a transaction by the state and city may differ.
As a farewell note, we would like to remind everyone that New York State recently revised its law to include provisions for liability of the person liable for real estate transfer tax for transfers occurring on the 1st July 2021 or later (i.e., by expanding the definition of “person” to include any person who is an officer, employee, director or member of a corporation, partnership, corporation limited liability or a sole proprietorship having a duty to act to comply with the transfer tax provisions, or who acted.) This means that there may now be personal liability on a person liable under state real estate transfer tax. No corresponding changes were made to the City’s RPTT.