New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter IV - Sales And Use And Other Miscellaneous Taxes › Subchapter B - Real Estate Transfer Tax › Part 575 - General Provisions › Section 575.6 - Controlling interest

Current through Register Vol. 46, No. 28, July 10, 2024
Tax Law, § 1401
(a) In the case of a corporation which has an
				  interest in real property, the transfer or acquisition of a controlling
				  interest in the corporation, as defined in section
				  575.1(b) 
				  of this Part, occurs when a person, or group of persons acting in concert,
				  transfers or acquires a total of 50 percent or more of the voting stock in such
				  corporation. In the case of a partnership, association, trust or other entity
				  having an interest in real property, the transfer or acquisition occurs when a
				  person, or group of persons acting in concert, transfers or acquires a total of
				  50 percent or more of the capital, profits or beneficial interest in such
				  entity.
(b)
Acting in
				  concert.
(1) Persons are acting in
				  concert when they have a relationship such that one person influences or
				  controls the actions of another. For example, if a parent corporation and a
				  wholly-owned subsidiary each sell or purchase a 25 percent interest in an
				  entity, the two corporations will be considered to have acted in concert to
				  transfer or acquire a controlling interest (
i.e.,
50 percent)
				  in the entity.
(2) Where the
				  individuals or entities are not commonly controlled or owned, persons will be
				  treated as acting in concert when the unity with which the sellers or
				  purchasers have negotiated and will consummate the transfer of ownership
				  interests indicates they are acting as a single entity. If the transfers or
				  acquisitions are completely independent, each grantor selling or grantee buying
				  without regard to the identity of the other grantors or grantees, then the
				  transfers or acquisitions will be treated as separate transfers or
				  acquisitions. The grantors or grantees may be required to provide a sworn
				  statement that their transfers or acquisitions are independent of each other.
				  Factors that will indicate whether persons are acting in concert include the
				  following:
(i) The transfers or acquisitions
				  are closely related in time.
(ii)
				  There are few grantors or grantees.
(iii) The contracts of sale contain mutual
				  terms.
(iv) The grantors or
				  grantees have entered into an agreement in addition to the sales contract
				  binding themselves to a course of action with respect to the transfer or
				  acquisition.
Example 1:
A owns 100 percent of X corporation, the only asset of
					 which is real property. B, C, D and E as a group, negotiate to buy all of A's
					 interest with B, C, D and E each buying 25 percent of A's interest. The
					 contracts of B, C, D and E are identical and the purchases are to occur
					 simultaneously. B, C, D and E have also negotiated an agreement binding
					 themselves to a course of action with respect to the acquisition of X
					 corporation and the terms of a shareholders, agreement which would govern their
					 relationship as owners of X Corporation. The acquisitions by B, C, D and E
					 would be treated as a single acquisition which is subject to the real estate
					 transfer tax.
Example 2:
Partnership X, which owns real property, is composed of
					 partners A and B, each having a 50 percent partnership interest. In November,
					 1989, A and B, decided to raise more capital by agreeing that they each will
					 sell a percentage of their partnership interest. On November 20, 1989, A and B
					 each sold a 121/2 percent partnership interest to C. On October 11, 1990, A and
					 B each sold a 15 percent partnership interest to D. Since A and B have acted in
					 concert and transferred a 55 percent interest (121/2 + 121/2 + 15 + 15) within
					 a three year period (see subdivision (d) of this section for the three year
					 aggregation rule), the transfers are subject to the real estate transfer tax. A
					 and B would each owe transfer tax on the respective transfers of their 121/2
					 percent and 15 percent interests.
Example 3:
Corporation X has 2 stockholders. Individual A owns 90
					 shares of stock (90 percent) and individual B owns 10 shares of stock (10
					 percent). Corporation X owns 60 percent of the stock of corporation Y, which
					 owns real property. Individual A, by virtue of owning 90 percent of the stock
					 of corporation X, has a 54 percent interest in corporation Y (90 percent
					 interest in corporation X multiplied by the 60 percent interest corporation X
					 has in corporation Y equals the 54 percent interest individual A has in
					 corporation Y). Individual A sells his 90 shares of stock in corporation X to
					 individual G. Individual A, by selling his 90 shares of corporation X stock,
					 has transferred a controlling interest (54 percent) in an entity that owns real
					 property (corporation Y) which transfer is subject to the real estate transfer
					 tax. The consideration used to determine the transfer tax due would be equal to
					 54 percent of fair market value of the real property owned by corporation
					 Y.
Example 4:
Assume the same facts as in example 3 except that
					 corporation X owns 50 percent of the stock of corporation Y. Since A has not
					 transferred nor has G acquired a controlling interest in corporation Y (90
					 percent × 50 percent = 45 percent), the tax would not apply. If, however,
					 corporation X had transferred its 50 percent interest in corporation Y, the
					 transfer would be subject to tax.
Example 5:
Corporation X is a publicly held corporation, the stock of
					 which is owned by many unrelated shareholders. X owns an interest in real
					 property. D, E, F and G pursuant to a plan to gain control of X, make a tender
					 offer of $100 per share to the public shareholders to acquire such control. As
					 a result of the tender offer, D, E, F and G acquire, in total, 80 percent of
					 the stock of X with each getting 20 percent. D, E, F, and G would be treated as
					 acting in concert to acquire a controlling interest, and the tax would apply to
					 this transaction as an acquisition of a controlling interest.