Court Opinion

ID: 9750714
Source: CourtListenerOpinion
Date Created: 2023-08-28 15:26:45.917404+00
Date Added: 2024-06-11T07:26:19.743702
License: Public Domain

DALIANIS, C.J.,
dissenting. Because I believe the court’s decision departs from First Berkshire Business Trust v. Commissioner, New Hampshire Department of Revenue Administration, 161 N.H. 176 (2010), and will create unnecessary confusion, I, respectfully, dissent.
First Berkshire Business Trust, 161 N.H. at 182-83, analyzed two transfers. In the first, a parent company transferred property to its wholly-owned subsidiary in exchange for ten dollars, and the parent avoided bankruptcy as a result. First Berkshire Business Trust, 161 N.H. at 178-79. In the second, the subsidiary transferred the same property to another wholly-owned subsidiary for ten dollars because the parent anticipated that such a transfer would be necessary to refinance. Id. at 179. We held that both transfers were bargained-for exchanges and that the consideration included the “tangible benefits” that resulted. Id. at 182-83.
In so holding, we expanded the common law definition of the term “bargained-for exchange” in the context of the real estate transfer tax. This expansion was necessary because the real estate transfer tax clearly permits taxation of transfers involving commonly-controlled business entities and their controllers, which I will refer to as First Berkshire transfers; however, such transfers often involve neither a bargain nor an exchange. Indeed, when a single group or entity controls all parties to a real estate transfer, bargaining is unnecessary.
First Berkshire Business Trust resolved the tension between the transfer tax’s use of the term “bargained-for exchange” and its requirement that First Berkshire transfers be taxed by formulating a simple, predictable rule: Tangibly beneficial First Berkshire transfers are taxable based upon the fair-market value of the transferred property. See id. I believe the majority’s decision today, by focusing upon the degree of attenuation between the transferor entity and the resulting benefit, departs from this rule and will create confusion concerning when the tax applies. More importantly, however, I believe the majority’s interpretation of the relevant *423statutes frustrates the legislature’s intent to tax the type of transfers that occurred in First Berkshire Business Trust. I begin my analysis by interpreting the relevant statutes according to their plain meanings. See ATV Watch v. N.H. Dep’t of Transp., 161 N.H. 746, 752 (2011).
The legislature’s intent to tax First Berkshire transfers is most evident in the “[contractual transfer” and “[noncontractual transfer” definitions in RSA 78-B:l-a, II, III (2003). Contractual transfers are presumed taxable, unless an exemption applies, see RSA 78-B:l, 1(a) (2003); RSA 78-B:l-a, II, V (Supp. 2011), while non-contractual transfers are exempt. RSA 78-B:2, IX (2003). The use of these terms suggests that the legislature intended all transfers to be either one or the other. The prefix “non-” means “not,” “reverse of’ or “absence of.” Webster’s Third New International DICTIONARY 1535 (unabridged ed. 2002). Thus, when the statute says “[noncontractual transfer,” it means “not a ‘[c]ontraetual transfer.’ ” RSA 78-B:l-a, II, III. Likewise, “[contractual transfer[s]” can be defined as “not ‘[noncontractual transfer[s].’” RSA 78-B:l-a, II, III. Transfers falling outside one category simply belong in the other category and vice versa.
The statute defines “[contractual transfer” as “a bargained-for exchange of all transfers of real estate or an interest therein.” RSA 78-B:l-a, II. A “[noncontractual transfer,” by contrast, is a “transfer which satisfies the 3 elements of a gift,” ie., “[d]onative intent,” “[a]ctual delivery” and “[immediate relinquishment of control.” RSA 78-B:l-a, III.
In this way, although the statute does not define “bargained-for exchange,” when read within the statutory scheme, the term means “a non-gift transfer.” Under this definition, transfers among commonly-controlled business entities will normally be contractual because such transfers rarely result in the “relinquishment of control” required to make a gift. RSA 78-B:l-a, III(c). First Berkshire Business Trust provides two examples. The first transfer in that case, from the parent to its wholly-owned subsidiary, lacked a relinquishment of control because the parent company controlled the property both before and after the transfer. See First Berkshire Business Trust, 161 N.H. at 178-79. In that case’s second transfer, from one of the parent’s wholly-owned subsidiaries to another, the parent similarly retained control throughout because it controlled both subsidiaries. See id. The same is true here.
Although the interest in TIG transferred from Say Pease to Say Pease IV, the members of the two entities always controlled the TIG interest. Because none of these transfers involves a relinquishment of control, none “satisfies the 3 elements of a gift transfer.” RSA 78-B:l-a. Therefore, none is non-contractual. Thus, all are, necessarily, contractual and, therefore, taxable.
*424Further evidence that the legislature intended to tax First Berkshire transfers is found in the definition of a taxable “[s]ale, granting and transfer.” RSA 78-B:l-a, V. Those terms specifically include “every contractual transfer of real estate, or any interest in real estate from a person or entity to another person or entity, whether or not either person or entity is controlled directly or indirectly by the other person or entity in the transfer.” Id. The legislature also clarified that it intended to reach these transfers regardless of the form the relationship between the controller and controlled entity assumed. Indeed, the term “[cjontractual transfer” specifically includes “bargained-for exchange^] of all transfers of real estate . . . [f]rom a shareholder to a corporation in which he holds an interest,” “[f]rom a partner to the partnership in which he holds an interest,” and “[f]rom any other interest holder to an organization in which he owns an interest.” RSA 78-B:l-a, II.
Thus, the rule that the transfer tax statutory scheme requires, and the rule that First Berkshire Business Trust impliedly adopted, is that beneficial transfers of property from a controller to a controlled entity or among commonly-controlled entities, i.e., First Berkshire transfers, are contractual. See First Berkshire Business Trust, 161 N.H. at 182-83. Although First Berkshire Business Trust did not expressly apply this analysis, it follows from the case’s application of the rule that “arm’s length bargaining” is not required for a transaction to constitute a bargained-for exchange. See id. at 181-83. Not only were the transfers in First Berkshire Business Trust not arm’s length bargains, they were not bargains at all. “In the typical bargain, the consideration... induces the making of the promise and the promise induces the furnishing of the consideration.” Restatement (Second) of Contracts § 71 comment b at 173 (1981). Obviously in First Berkshire Business Trust, the transferor entities did not furnish the property to the transferees to induce a “promise” that bankruptcy would be avoided or that more favorable financing terms would result. See First Berkshire Business Trust, 161 N.H. at 178-79, 183. The transferees had no power to make such a promise. Nor is it likely that the furnishing of ten dollars induced the transferor entities to transfer the property. See id. at 182.
To the contrary, these transfers were not common law bargained-for exchanges, and we did not analyze them under a common law definition. See id. Rather, we emphasized that statutory language required that these types of transfers be taxed and adjusted the definition of “bargained-for exchange” to make taxation possible. Id. at 181-82. This was the only way to give effect to the statutory language analyzed above. Thus, in my view, the relevant inquiry under First Berkshire Business Trust relates to the *425type of transfer, not, as the majority appears to conclude, the relationship between the resulting benefits and the transferor entity. See id.
Moreover, the rule we adopted, that beneficial First Berkshire transfers are taxable events, was clear, predictable and faithful to the language of the real estate transfer taxation scheme. The rule was also workable because it reduced the practical difficulties that determining whether a First Berkshire transfer was “bargained-for” might entail. In First Berkshire transfers, in which the transferor and transferee are essentially the same people, the parties will seldom create evidence that they formed a contract, or “bargained,” so as to trigger the real estate transfer tax. Rather, they will structure transfers to conceal the consideration exchanged.
For example, if an owner, who controls a corporation as its sole shareholder and director, wished to transfer real property to the corporation and to receive money in return, in order to avoid the tax, the owner could simply “give” the property to the corporation and compel the corporation to declare a dividend in the owner’s favor. See RSA 293-A:6.40 (2010) (discussing corporate rights to declare dividends). By forcing the corporation to pay a dividend, the controller would avoid bargaining, but still achieve the desired result — the owner receiving money and the corporation getting the property. Controllers could employ numerous variations on this theme to defeat the tax and frustrate the legislature’s intent to tax First Berkshire transfers.
To close this loophole, DRA would have to prove that such transfers were actually bargains or, under the majority’s interpretation, that the transfer somehow tangibly benefitted the transferor. Such proof could be hard to obtain. The controller would have no reason to admit that the dividend was, in fact, consideration for the transferred property, and such a transaction would produce no evidence of its true nature. Further, under the majority’s interpretation, benefits that resulted from the corporation’s receipt of the property would be “too attenuated” from the transferor-controller to warrant assessment of the tax.
Under First Berkshire Business Trust’s rule, however, the transfer would be taxable as long as one of the parties benefitted in some way. See First Berkshire Business Trust, 161 N.H. at 182-83. Thus, the increase in the corporate value resulting from the transfer would tangibly benefit the transferor as sole shareholder because the transferor’s equity would also increase in value. The technical distinctions among the layers of ownership would not prevent assessment of the tax.
I believe that the majority replaces this clear, predictable and workable rule with a technical doctrine that focuses upon the very distinctions that First Berkshire Business Trust disregarded. Rather than facilitating taxation of First Berkshire transfers, the majority enables commonly-*426controlled entities to avoid the tax by structuring transfers to include additional layers of ownership. This distinction, in my view, lacks a basis in the text of the real estate transfer tax.
Instead, it seems to be derived by parsing First Berkshire Business Trust’s language and inserting analysis that did not appear in the opinion. The relevant fact in First Berkshire Business Trust was not the degree of attenuation between the transferor entity and the “beneficiary” of the transfer, but the presence of transfers upon which the statute imposes a tax. Language in that opinion suggesting that the transferors benefitted from the transactions did not impute benefits that other parties received to the transferors, but was simply shorthand for the fact that the transfers were tangibly beneficial overall. See id. at 183. Indeed, all of the parties in both transactions were essentially the same “people,” i.e., the controllers of the parent that, in turn, controlled both subsidiaries. Id. at 178. Therefore, I fail to understand why assessment of the tax turns upon technical distinctions concerning which of the controllers’ “identities” ultimately benefitted and the closeness of relationship between the “beneficiary identity” and “transferor identity.”
Moreover, since the majority offers no guidance as to the degree of “attenuation” necessary to avoid the tax, this new rule will, I believe, complicate matters for parties wishing to engage in First Berkshire transfers. Under the First Berkshire Business Trust rule, these parties could anticipate the assessment of the transfer tax and fold additional expenses into whatever refinancing or reorganization they planned. Now, they must guess whether the tax will apply and the number of additional ownership layers they must create to circumvent the tax. This lack of predictability will, in my view, create new costs in First Berkshire transfers that our previous rule would avoid.
Therefore, rather than analyzing the degree of attenuation, I would simply apply the rule enunciated by First Berkshire Business Trust and hold that, because the transfer at issue here involved commonly-controlled entities and created tangible benefits, it was “bargained-for.” The members of Say Pease and Say Pease IV benefitted from the transfer at issue because the transfer enabled TIG to obtain a $10.5 million mortgage loan. This loan benefitted not only TIG, but also Say Pease’s members, who still held interests in TIG through Say Pease IV. As a result, just as in First Berkshire Business Trust, 161 N.H. at 179, 181, a tangible benefit in the form of a financing option provided consideration for the transfer of an interest in real property, and the transfer, I believe, constituted a bargained-for exchange.