Title: Acadia Brandywine Town Center v. New Castle County

State: delaware

Issuer: Delaware Supreme Court

Document:

*Sitting in designation pursuant to Del. Const. Art. IV § 12. 
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
ACADIA BRANDYWINE TOWN 
) 
CENTER, LLC, a Delaware limited )  No. 449, 2004 
liability company, ACADIA  
 
) 
MARKET SQUARE, LLC, a   
)  Court Below:  Superior Court 
Delaware limited liability company, )  of the State of Delaware in 
 
 
and 
 
 
 
)  and for New Castle County 
ACADIA BRANDYWINE  
 
) 
HOLDINGS, LLC, a Delaware  
)  C.A. No. 03C-09-040 
limited liability company, 
 
) 
 
 
 
 
 
 
) 
 
Plaintiffs Below Appellants, 
) 
 
 
 
 
 
 
) 
v. 
 
 
 
 
 
) 
 
 
 
 
 
 
) 
NEW CASTLE COUNTY and  
) 
STATE OF DELAWARE, 
 
) 
DIVISION OF REVNUE, 
 
) 
 
 
 
 
 
 
) 
 
Defendants Below Appellees, ) 
 
 
 
Submitted:  June 8, 2005 
Decided:  July 21, 2005 
 
Before, STEELE, Chief Justice, HOLLAND, BERGER, JACOBS, Justices, and 
NOBLE, Vice Chancellor,* constituting the court en banc. 
 
 
Upon appeal from the Superior Court.  REVERSED. 
 
 
Melvyn I. Monzack (argued), Mary Elizabeth M. Browder and Michael C. 
Hochman of Monzack and Monaco, P.A., Wilmington, Delaware for appellants. 
 
 
Joseph Patrick Hurley, Jr. (argued), Department of Justice, for Division of 
Revenue. 
 
 
Dennis J. Siebold (argued), New Castle County Law Department for New 
Castle County. 
 
STEELE, Chief Justice: 
 
2
 
 
Two groups of limited liability companies effected a reverse merger, with 
one receiving real property and the other cash.  The surviving company paid the 
state and county real estate transfer taxes and then filed an action in the Superior 
Court seeking a declaratory judgment that mergers are not conveyances of real 
property that are subject to the Delaware realty transfer tax.  The issue is whether 
the General Assembly, by legislation enacted in 1986, intended to continue 
exempting mergers from the realty transfer tax, consistent with a 1984 regulation 
that specifically exempted mergers from the tax.  Answering no, the trial judge 
found that the reverse merger transferred real estate and therefore constituted a 
conveyance subject to the realty transfer tax.  We determine that because the 1986 
legislation and its accompanying regulations fail to evidence a clear intent to 
eliminate mergers as one of the putative abuses of the transfer tax, reverse mergers 
involving real estate continued not to be subject to the realty transfer tax.  We 
therefore reverse. 
I. 
 
In 2002, Acadia Realty Trust, a publicly-traded real estate investment trust 
that owns and manages several shopping centers nationwide, expressed an interest 
in commercial property owned by three Rollins family companies – B.T. Center 
Arc LLC, B.T. Center Associates, and Market Square at the Town Center LLC 
(“Rollins Entities”).  Collectively, the Rollins Entities owned the Brandywine 
 
3
Town Center and Market Square, a shopping mall located in New Castle County.  
In late 2002, anticipating a deal with the Rollins family, Acadia Realty formed 
three holding companies – Acadia Brandywine Holdings LLC, Acadia Brandywine 
Town Center LLC, and Acadia Market Square LLC (“Acadia Entities”). 
 
By January 2003, Acadia Realty and the Rollins family had reached an 
agreement to combine their respective entities.  The two effected a reverse merger 
that absorbed the Acadia Entities into the Rollins Entities.  As the survivors of the 
merger, all property and accompanying rights and liabilities remained with the 
Rollins Entities, although the surviving companies (“Acadia Companies”)  
assumed the names of the (now-defunct) Acadia Entities.  Following the merger, 
Acadia Realty “cashed out” the Rollins family’s newly acquired ownership 
interests in the Acadia Companies, thereby eliminating the Rollins family from the 
merged enterprise and leaving the (former) owners of the Acadia Entities as its sole 
owners.  
 
Several months later, the Acadia Companies, with full reservation of rights, 
remitted to the Delaware Division of Revenue and New Castle County amounts 
presumably due under the Delaware Realty Transfer Tax and under a similar 
provision of the New Castle County Code.1  Disputing the payment, the companies 
then filed an action in the Superior Court, seeking a declaratory judgment that real 
                                                 
1  
30 Del. C. §§ 5401-5425; NEW CASTLE COUNTY CODE § 14.10.001(B) (2004).   
 
4
property changing title by means of the above-described merger did not constitute 
a “conveyance” of real estate and therefore was not subject to the realty transfer 
tax.  Shortly thereafter, the Acadia Companies and the State filed cross-motions for 
summary judgment.2  
 
In September 2004, the trial judge granted summary judgment to the State.3  
Looking to the text of the realty transfer tax statute and its 1984 and 1986 
implementing regulations, the trial judge found that the timing, percentage of 
ownership change, duration of ownership status, and business purpose surrounding 
the merger indicated that “it would be folly to try to argue that this transaction is 
anything more than a legal procedure intended to transfer real estate properties.”4   
As a result, the trial judge found that, “in spite of the 1984 tax regulations,” 
the merger was “properly characterized as a sale of real estate,” and thus subject to 
the realty transfer tax.5  The Acadia Companies now appeal, claiming that the trial 
judge improperly enlarged the scope of the realty transfer tax by failing to give 
effect to a 1984 regulation that exempts mergers from taxation.  We review the 
                                                 
2  
New Castle County, although not a party to the trial judge’s summary disposition, joins 
the State in opposition to the Acadia Companies’ appeal, citing the similarity between its 
ordinance and the state statute.  In its answering brief, the County informs us that “[f]or 
consistency and ease of reference, [it] will refer in this brief to the language of the State statute.”  
We do the same throughout this Opinion. 
3  
Acadia Brandywine Town Ctr. LLC v. New Castle County, 2004 Del. Super. LEXIS 286.   
4  
Id. at *22.   
5  
Id.   
 
5
trial judge’s grant of summary judgment based on judicial construction of a statute 
de novo.6   
II. 
A. 
 
The Delaware realty transfer tax provides that “[e]very person who . . . 
presents for recording any document . . . shall be subject to pay for and in respect 
to the transaction, or any part thereof, a realty transfer tax. . . .”7  The term 
document is broadly defined by statute to include “any deed, instrument, or writing 
whereby any real estate . . . shall be quitclaimed, granted, bargained, sold, or 
otherwise conveyed to the grantee. . . .”8  The term document does not include 
“any conveyance to or from a corporation” where the grantor or grantee owns 
stock of the corporation “in the same proportion as the grantor’s or grantee’s 
interest in . . . the real estate being conveyed. . . .”9   
 
On the authority of this latter provision, the Division of Revenue 
promulgated a regulation in 1984 that imposes a tax on the “conveyance of real 
estate to a corporation in consideration of the issuance by the corporation to such 
                                                 
6  
Colonial Ins. Co. v. Ayers, 772 A.2d 177, 179 (Del. 2001). 
7  
30 Del. C. § 5402(a).   
8  
Id. § 5401(1).   
9  
Id. § 5401(1)(n). 
 
6
grantor of capital stock.”10  By doing so, the Division distinguished that type of 
transaction from the statutorily-identified one wherein the grantor or grantee 
already owns an interest in the corporation proportionate to the value of the real 
property being transferred.  The 1984 regulation further distinguished merger 
transactions between two companies: 
In the case of a merger between two corporations in which there is no 
recording of a document pertaining to real estate, the tax does not apply.  
However, where deeds or documents . . . are filed or recorded in connection 
with a merger, then the conveyance is taxable.11   
 
As a result, the Division of Revenue considered the merger of two companies 
involving unrecorded real estate transfers to be an event conceptually and legally 
distinct from those transfers consummated “in consideration of the issuance . . . of 
capital stock.”  That 1984 regulation has remained in effect at all relevant times. 
With this merger exemption in place, the General Assembly amended the tax 
scheme in 1986 to “close existing loopholes in the realty transfer tax.”12  Under a 
synopsis heading titled “Corporations,” the General Assembly identified as a 
“current abuse” transactions where taxpayers convey real property to a corporation 
of which they own 100 percent of the stock, a tax-free event under the statute in 
                                                 
10  
STATE OF DELAWARE, DIV. OF REVENUE, REALTY TRANSFER TAX REGS., TIM 84-4 (June 
1, 1984), at § 4.2(h) ¶ 1. 
11  
Id. ¶ 2. 
12  
See SYNOPSIS, 65 Del. Laws, Ch. 426 (1986) [hereinafter SYNOPSIS], codified at 30 Del. 
C. § 5401(7).   
 
7
both 1984 and 1986, and then sell the company’s stock – rather than sell the real 
property directly – to a buyer seeking to purchase the realty.13  The General 
Assembly also identified similar “abusive” transactions involving partnerships and 
trusts.14   
Under the 1986 Amendment, a tax may be assessed even where no 
documents are filed.  The amended statute reads:  
[W]here beneficial ownership in real estate is transferred through a 
conveyance or series of conveyances of intangible interests in a 
corporation . . . , such conveyance shall be taxable under this chapter 
as if such property were conveyed through a duly recorded document  
. . . .15  
  
A later subsection modifies this general rule: 
Where the beneficial owners of real property prior to the conveyance 
or series of conveyances referred to in this subdivision own less than 
80 percent of the beneficial interest in the real estate following said 
conveyance or conveyances, such transfers shall not be subject to tax  
. . . unless . . . such transfer or transfers are properly characterized as a 
sale of real property.16  
  
                                                 
13  
See SYNOPSIS at (a) (“A conveys the property to a wholly-owned corporation (exempt 
from a tax under § 5401(4)(n) [sic] ) and sells the stock of the corporation to B (exempt since the 
sale was of stock, not property).”).  The synopsis erroneously refers to subsection (4)(n), a 
nonexistent provision, then or now.  Based on the substance of the example, we assume that the 
General Assembly meant to refer to subsection (1)(n), which discusses transfers of real property 
to or from companies in which the transferor or transferee already owns stock. 
14  
See id. at (b), (c).   
15  
30 Del. C. § 5401(7)(a) (quotation marks omitted). 
16  
Id. § 5401(7)(c). 
 
8
To “properly characterize” a transaction as a “sale of real property,” the statute 
directs the decisionmaker to take into account the “timing of the transaction,” 
“beneficial ownership prior to and subsequent to the conveyance,” the “business 
purpose of the corporation,” and other factors that may be relevant under the 
circumstances.17  Neither the 1986 Amendment nor its synopsis identifies or refers 
to the 1984 regulation’s specific exemption of mergers that result in a change of 
real-property ownership.  Nor has the Division of Revenue ever rescinded its 1984 
regulations.18 
B. 
 
The Acadia Companies argue that a merger cannot be classified as a 
transaction “where beneficial ownership in real estate is transferred through a 
conveyance . . . of intangible interests in a corporation” because the 1984 
regulation expressly exempts mergers wherein no documents are recorded.  
Accordingly, they claim that because the combination of the Rollins and Acadia 
Entities, while effecting the transfer of real estate, never required the filing of a 
document within the meaning of the statute.  Therefore, no transfer tax is due. 
                                                 
17  
Id.   
18  
See STATE 
OF DELAWARE, DIV. OF REVENUE, REGULATIONS, at http://www. 
state.de.us/revenue/information/tims/Realty_Trans_Tax.shtml (listing revenue regulations in 
effect) (last accessed June 13, 2005).    
 
9
 
In response, the State contends that the 1986 amendment is meant to capture 
any transaction that purports to convey beneficial ownership in real estate through 
a transfer of intangible interests, including interests in a limited liability company.  
According to the State, any transaction that can be properly characterized as a sale 
of real estate, regardless of form, is taxable.  Thus, the State claims that because 
mergers can be used to transfer the beneficial ownership of real property, and 
because the transaction here, despite the 1984 regulation, was structured primarily 
to do just that, the Rollins-Acadia combination is a taxable event. 
C. 
The primary goal of statutory construction is to “ascertain and give effect to 
the intent of the legislature."19  In the case of revenue laws, we follow the well-
settled rule of construction that prohibits extending a taxing statute’s provisions 
“beyond the clear import of the language used” or enlarging its operation to 
“embrace matters not specifically pointed out, although standing in close 
analogy.”20  Thus, if there is doubt regarding the breadth of a taxing statute, we 
must construe the statute against the taxing authority and in favor of the taxpayer.21   
                                                 
19  
Dir. of Revenue v. CNA Holdings, Inc., 818 A.2d 953, 957 (Del. 2003) (citation omitted).   
20  
Arbern-Wilmington, Inc. v. Director of Revenue, 596 A.2d 1385, 1388 (Del. 1991).   
21  
Id.  Cf. United States v. Wigglesworth, 28 F. Cas. 595, 596-597 (C.C.D. Mass. 1842) (No. 
16,690) (“In every case, therefore, of doubt, such statutes are construed most strongly against the 
government, and in favor of the subjects or citizens, because burdens are not to be imposed, nor 
presumed to be imposed, beyond what the statutes expressly and clearly import.”). 
 
10
Although the 1986 Amendment purports to apply to any “conveyance or 
series of conveyances of intangible interests in a corporation” without limitation, 
the legislation is ostensibly designed to close only “existing loopholes” in the 
realty transfer tax.  As evidenced by the synopsis and the Division of Revenue’s 
later regulations,22 the 1986 Amendment sought to subject to tax those transactions 
where individuals seek to use their wholly-owned corporations as a vehicle to 
effect a sale of real estate through the safe harbor provisions of Section 5401(1)(n), 
a provision the bill’s drafters explicitly referenced.  Nowhere in the 1986 
Amendment or its synopsis, however, does the General Assembly identify mergers 
of entities that own realty and where no document transferring title to realty is 
recorded as a “current abuse.”  Similarly, the Division of Revenue remains 
deafeningly silent about any intended change in the tax treatment of such mergers 
in its 1986 regulations.23   
The existence of the 1984 merger exemption sheds light on the reach of the 
1986 Amendment.  Once promulgated, that exemption established an unequivocal 
standard, applicable to certain combinations, that enabled businesses owning real 
estate to know, in advance, which business combinations would or would not be 
                                                 
22  
See STATE OF DELAWARE, DIV. OF REVENUE, TIM 86-9 (Dec. 18, 1986), at I (“This 
Technical Information Memorandum sets forth the Regulations for implementation of [the 1986 
Amendment].”). 
23  
See id. at II (reiterating corporation, partnership, and trust examples in 1986 Amendment 
synopsis). 
 
11
taxed.  Thus, at the time the General Assembly drafted the 1986 Amendment, 
mergers unaccompanied by recorded documents were categorically outside the 
reach of the realty transfer tax.  If the General Assembly wished to alter that state 
of affairs, it easily could have done so by identifying mergers that entailed changes 
of ownership in real property – a high-profile, widespread form of business 
combination – as a “current abuse” of the realty transfer tax scheme. 
Instead, by identifying a different form of corporate “abuse” of the tax 
statutes, the General Assembly chose to focus on taxpayer transfers of property to 
wholly-owned corporations via Section 5401(1)(n).  The 1986 regulations, 
consistent with the legislature’s view, describe similar transactions relating to 
individuals who use corporations solely as middlemen to effect sales of real estate 
to other individuals.  Focusing on an existing statutory safe harbor, the General 
Assembly determined that allowing an individual to transfer real property to a 
wholly-owned corporation shortly before selling the stock ownership interest in the 
company, and thereby to escape an assessment of the realty transfer tax, 
constituted an abuse.  Nowhere did the General Assembly address the merger of 
two preexisting companies, however. 
Nor could it have without expressly repealing the existing 1984 regulations 
under which mergers were exempt.  Identifying mergers legislatively as an 
example of abuse would evidence an intent to undo those transactions’ well-
 
12
established and predictable tax-exempt status.  Unlike the purported “abuse” the 
General Assembly identified by reference to Section 5401(1)(n) – where 
individuals use the safe harbor as a first step to effecting a two-step transaction that 
amounts to a sale of real property – mergers entail only a single step.  Because of 
this structural distinction, and the corresponding silence about the current practice, 
neither the 1986 Amendment nor its implementing regulations give a clear notice 
that the General Assembly sought to repeal the 1984 merger exemption when it 
passed the 1986 legislation.24 
We recognize that the Rollins and Acadia Entities here carried out a 
transaction that, once completed, resulted in the indirect exchange of real estate for 
cash.  Acadia Realty, through the Acadia Companies, received an interest in 
property beneficially owned by entities controlled by the Rollins family.  Once the 
survivor gained title to the property, it immediately cashed out the Rollins’ newly-
acquired ownership interest, leaving Acadia Realty as the sole beneficial owner.   
Despite these features, the transaction in issue is also undeniably a merger 
between two preexisting companies.  There is no evidence that the merger of two 
companies was legislatively regarded as an “abuse” of an established, preexisting 
tax exemption.  Therefore, the State’s position can be sustained only if the General 
                                                 
24  
See, e.g., Giuricich v. Emtrol Corp., 449 A.2d 232, 239 (Del. 1982) (“A Legislature is 
presumed to be aware of existing law.”); DuPont v. DuPont, 87 A.2d 394, 399 (Del. 1952) 
(“Laws are assumed to be cumulative, not destructive of other laws.”). 
 
13
Assembly had expressly stated that it desired to undo its previously expressed and 
sanctioned status quo.  But because the General Assembly focused on a 
structurally- and statutorily-distinct type of transaction, we cannot read the 1986 
legislation to encompass mergers, particularly where, as here, the 1984 regulation 
continues to expressly exempt them.  To do otherwise would be to import an 
altering provision into the statute that finds no explicit support in the text and 
contravenes our policy of interpretive restraint in construing taxing statutes. 
III. 
 
For these reasons, the judgment of the Superior Court is REVERSED.