When real property is transferred in the state of Michigan, both state and county transfer taxes are assessed based on the purchase price of the property. Transfer taxes are imposed when a deed transferred the ownership of land from one entity to another. However, until recently, the transfer tax did not apply if the buyer simply bought the entity that owned the land. This was perceived as a loophole for single-purpose real estate entities to avoid paying the transfer tax.
On January 9, 2009, the State Real Estate Transfer Tax Act (MCL 207.521, et seq.) was amended to impose the state real estate transfer tax (“SRETT”) on transfers of a “controlling interest” in an entity, if the entity has 90% or more of its value in real estate. “Controlling interest” is defined to include ownership of 80% of the stock of a corporation, or 80% of the membership interests of a limited liability company.
The amended Act includes the same exemptions as the original SRETT statute, but adds new exemptions for (i) transfers made to effectuate a dissolution of the corporation, limited liability company, partnership or trust, and (ii) transfers from an entity to another where the ownership remains the same.
The amendments do not apply to the county property transfer tax. Therefore, an entity purchase still does not trigger an obligation to pay the county transfer tax.
This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.
