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Ohio Property Tax Updates

UPDATED september 2019

Entity Transfer Issue before the Supreme Court of Ohio

Entity transfers, often in the form of LLC transfers, have been the topic of interest to Ohio Boards of Revision, Boards of Education and taxpayers in recent years.  Transferring real estate through an entity transfer, rather than a direct transfer of real estate, requires only the filing of an exempt conveyance form and a deed indicating the exempt transfer.  No consideration is reflected on these documents.

When called into question, the Ohio Board of Tax Appeals (BTA) has treated the transfer of a corporate entity whose sole assets are real estate (or real estate related) as the sale of real estate.  The BTA followed this precedent in Palmer House.[1]  The subject property was an apartment building that transferred from LLC to LLC. The local Board of Education (BOE) relied on the publicly available mortgage related to the transfer, along with the deed and exempt conveyance fee statement.  The BOE filed a complaint based on the mortgage but was unable to establish a sale price at the local Board of Revision level.  On appeal to the BTA, the BOE obtained the purchase agreement, settlement statement and a financing appraisal through discovery.  The BOE submitted these additional documents and argued the entity transfer price was equal to the value of the real property.

Palmer House argued the transfer included assets other than real estate, in addition to potential liabilities.  It submitted its own, non-financing appraisal report and testimony to demonstrate the transfer included more than real estate. 

The BTA found that a sale of real estate, and only real estate, occurred.  The Board held that the use of an entity transfer did not alter the underlying intent of the parties to transfer real estate.

On appeal to the Supreme Court, oral argument was recently presented.  No decision has been issued.

Ohio Boards of Education regularly rely upon real estate sales to establish value increases in entity-transfer cases.  BTA decisions turn primarily on a demonstration that only real estate was transferred.  BOE’s have successfully established the transfer of real estate using corroborating sale documents, such as deeds and conveyance fee statements filed contemporaneous to settlement statements submitted as evidence.  Appraisals submitted in conjunction with these documents have also been shown to support value.  Conversely, BOE’s have lost these cases when relying solely on mortgages, deeds showing a $0 transfer, and exempt conveyance fee statements. Bank financing appraisals, on their own, have also been rejected as conclusive evidence that a transfer of just real property occurred.

The decision issued by the Supreme Court in this case will establish the burden of proof on a party seeking to establish an entity transfer as the value of real estate for taxation in purposes in Ohio. 

[1] Columbus City Schs. Bd. of Educ. v. Franklin Cty. Bd. of Revision, 2018 Ohio Tax LEXIS 1574 (Ohio B.T.A. July 25, 2018).


Kristopher Nicoloff
Siegel Jennings Co., L.P.A.
American Property Tax Counsel (APTC)

 

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