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This entry was published on 2020-04-24
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SECTION 1402
Imposition of tax
Tax (TAX) CHAPTER 60, ARTICLE 31
§ 1402. Imposition of tax. (a) A tax is hereby imposed on each
conveyance of real property or interest therein when the consideration
exceeds five hundred dollars, at the rate of two dollars for each five
hundred dollars or fractional part thereof; provided, however, that with
respect to (A) a conveyance of a one, two or three-family house and an
individual residential condominium unit, or interests therein; and (B)
conveyances where the consideration is less than five hundred thousand
dollars, the consideration for the interest conveyed shall exclude the
value of any lien or encumbrance remaining thereon at the time of
conveyance. The rate of this tax shall be: (1) two dollars for each five
hundred dollars or fractional part thereof on all conveyances of real
property or interest therein; plus (2) an additional one dollar and
twenty-five cents for each five hundred dollars or fractional part
thereof of consideration on each conveyance of real property or interest
therein within any city in this state having a population of one million
or more (i) when the consideration for the entire conveyance of
residential real property is three million dollars or more, and (ii)
when the consideration for the entire conveyance of any other property
is two million dollars or more. For purposes of this section,
residential real property shall include any premises that is or may be
used in whole or in part as a personal residence, and shall include a
one, two, or three-family house, an individual condominium unit, or a
cooperative apartment unit.

(b) (1) Notwithstanding the provisions of subdivision (a) of this
section, in the case of any real estate investment trust transfer
occurring on or after the effective date of this subdivision, the tax
imposed under subdivision (a) of this section shall be imposed at the
rate of one dollar for each five hundred dollars or fractional part
thereof of consideration.

(2) (A) For purposes of this subdivision, the term "real estate
investment trust" (hereinafter referred to as a "REIT") shall have the
same meaning as in section 856 of the internal revenue code.

(B) For purposes of this subdivision, the phrase "real estate
investment trust transfer" shall mean any conveyance of real property or
an interest therein to a REIT, or to a partnership or corporation in
which a REIT owns a controlling interest immediately following the
conveyance, which conveyance (I) occurs in connection with the initial
formation of the REIT, provided that the conditions set forth in clauses
(i) and (ii) of this subparagraph are satisfied, or (II) in the case of
any real estate investment trust transfer occurring on or after July
thirteenth, nineteen hundred ninety-six and before September first, two
thousand twenty-three, is described in the last sentence of this
subparagraph.

(i) The value of the ownership interests in the REIT, or in a
partnership or corporation in which the REIT owns a controlling
interest, received by the grantor as consideration for such conveyance
must be equal to an amount not less than forty percent of the value of
the equity interest in the real property or interest therein conveyed by
the grantor to the grantee and such ownership interests must be retained
by the grantor or owners of the grantor for a period of not less than
two years following the date of conveyance; provided, however, that in
the case of the death of the grantor or an owner of the grantor within
such two year period, this two year retention requirement shall be
deemed to be satisfied notwithstanding any conveyance of such ownership
interests held by such individual as a result of such death. The value
of the equity interest in such real property or interest therein shall
be computed by subtracting from the consideration for the conveyance
(determined in accordance with paragraph three of this subdivision) the
unpaid balance of any loans secured by mortgages or other encumbrances
which are liens on the real property or interest therein immediately
before the conveyance. For purposes of this computation, in the case of
a conveyance of real property or interest therein other than a transfer
or an acquisition of a controlling interest, the amount of the unpaid
balance of any loans secured by mortgages or other encumbrances to be
subtracted from consideration is determined by multiplying the total
unpaid balance of any loans secured by mortgages or other encumbrances
on the real property or interest therein by the percentage of the
ownership interest in the real property or interest therein being
conveyed to the grantee. In the case of a conveyance which is a transfer
or an acquisition of a controlling interest, such amount to be
subtracted is equal to the sum of the following amounts: (I) a
reasonable apportionment to the interests in real property owned by the
entity of the amount of any loans secured by encumbrances on the
ownership interests in the entity which are being transferred or
acquired and (II) the amount of any loans secured by mortgages or other
encumbrances on the real property of the entity multiplied by the
percentage interest in the entity which is being transferred or
acquired. Provided, however that, for purposes of this computation, any
mortgages or other encumbrances on the real property or interest therein
which are created in contemplation of the initial formation of the REIT
or in contemplation of the conveyance of such real property or interest
therein to the REIT or to a partnership or corporation in which the REIT
owns a controlling interest immediately following the conveyance shall
not be considered.

(ii) Seventy-five percent or more of the cash proceeds received by
such REIT from the sale of ownership interests in such REIT upon its
initial formation must be used: (I) to make payments on loans secured by
any interest in real property (including an ownership interest in an
entity owning real property) which is owned directly or indirectly by
such REIT; (II) to pay for capital improvements to real property or any
interest therein owned directly or indirectly by such REIT; (III) to pay
costs, fees, and expenses (including brokerage fees and commissions,
professional fees and payments to or on behalf of a tenant as an
inducement to enter into a lease or sublease) incurred in connection
with the creation of a leasehold or sublease pertaining to real property
or any interest therein owned directly or indirectly by such REIT; (IV)
to acquire any interest in real property (including an ownership
interest in any entity owning real property), apart from any acquisition
to which a reduced rate of tax is applicable pursuant to this
subdivision (without regard to this clause); or (V) for reserves
established for any of the purposes described in subclause (I), (II) or
(III) of this clause. For purposes of this clause, the term real
property shall include real property wherever located.

If a conveyance otherwise described in this subparagraph occurs other
than in connection with the initial formation of a REIT, the condition
set forth in clause (ii) of this subparagraph shall be disregarded and
such conveyance shall constitute a "real estate investment trust
transfer" if the condition set forth in clause (i) of this subparagraph
would be satisfied if "fifty percent" were substituted for "forty
percent" therein.

(3) For purposes of measuring consideration under this subdivision,
the fair market value of the real property or interest therein being
conveyed shall be calculated by dividing (i) the net cash flow from
operations with respect to such real property for the twelve-month
period ending on the last day of the second month preceding the date of
the conveyance by (ii) the sum of (A) the federal long-term rate
compounded semi-annually that is determined by the United States
secretary of the treasury under section 1274(d) of the internal revenue
code in effect thirty days prior to the date of the conveyance and (B)
two percentage points. Provided however, if the commissioner of taxation
and finance determines that either the amount in clause (i) of this
paragraph or clause (ii) of this paragraph does not result in an
accurate representation of the fair market value of such real property
or interest therein as such value is to be determined under this
paragraph, the commissioner may adjust either of such amounts. In lieu
of utilizing the method prescribed in this paragraph for determining
fair market value, the taxpayer may utilize any method for determining
fair market value that the commissioner of taxation and finance has
prescribed in rules or regulations or otherwise.