UPDATED JUNE 2019
Use of purchase of entity interests to set real property value
While a recent arm’s length sale of the unencumbered fee simple interest is the best evidence of real property value for tax purposes in Ohio, the sale of interests in the ownership entity have not been adopted as readily as indicators of value. Eg. Salem Medical Arts & Dev. Corp. v. Columbiana Cty. Bd. of Revision; Gahanna-Jefferson Pub. Schs. Bd. of Edn. v. Franklin Cty. Bd. of Revision (company’s stock price did not equal real property value because of the ownership of other assets and of the going concern; no evidence in record of transfer of real estate for consideration, the sale of partnership interests in dissolution of one entity or from subsidiary to parent ownership entity was personal not real property).
More recently, tribunals and courts have adopted the sale of ownership interests as reflective of value of the real estate more eagerly. Recent examples are the Ohio Board of Tax Appeals (BTA) decisions in Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision (“Palmer House”) and Orange City Schools Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (“Corporate Circles”).
In Palmer House, the buyer purchased the membership interests of the LLC that owned a 264 unit apartment building. The buyer entity was created solely for the purpose of owning the subject property. Evidence in the record included a settlement statement, recorded mortgage, financing appraisal, and purchase agreement. The BTA concluded based on these factors that the transaction was, fundamentally, the transfer of real property. This case has been appealed and is pending at the Ohio Supreme Court.
The facts are similar in the Corporate Circles decision. The record included the closing statement, purchase agreement, and financing appraisal. The taxpayer argued that the transfer was the sale of member interests in the ownership LLC and therefore, was the exchange of personal, not real property. The BTA determined this transfer did represent real property value. The only purpose of the ownership entity was to own the subject real property, and the entity had no other assets or other going concern business value. It also had no other liabilities other than the note and mortgage connected to the ownership of the real estate. The Eighth District Court of Appeals affirmed the BTA’s decision agreeing that the documents and testimony demonstrated that the sale was of real property and not a truly a membership transfer. This case is also pending at the Ohio Supreme Court with proceedings stayed until the Court rules in Palmer House.
About a year ago, there was a potential change to the current property transfer tax law circulating among county auditors. The legislation has not been formally introduced, but the Ohio Legislative Service Commission analysis can be found here. In short, the law would remove the current exemption to paying the property transfer tax when the transfer of ownership is effectuated through the transfer of the interest in the ownership entity (eg, LLC, partnership, corporation) instead of a direct conveyance of title.
 82 Ohio St.3d 193, 1998-Ohio-248.
 89 Ohio St.3d 450, 2000-Ohio-216.
 Parkland Assoc. v. Mayfield Hts School Dist. Bd. of Edn. (June 25,2014), BTA No. 2011-3893, 4060 (function of owner partnership was solely to own subject property with no other going concern value).
 (July 25, 2018), BTA No. 2016-2365.
 (April 23, 2018), BTA No. 2017-127.
Siegel Jennings Co., L.P.A.
American Property Tax Counsel (APTC)