DID YOU KNOW that a significant change in Maryland’s tax law impacting real estate transactions will take effect on July 1, 2008. In Maryland it has been possible to transfer real property owned by an entity, such as a limited liability company, corporation, or partnership, without paying transfer or recordation fees, simply by transferringthe entity from one owner to another. For example, if an LLC owns real estate as its sole asset, the LLC members sell their interest to buyers who then become the members. This requires only a document called Assignment of Membership Interest, which is signed by all parties and retained with the LLC operating agreement. No State filing is required, although most times the name and address of the resident agent will have to be changed. And so the real property owned by the LLC is effectively transferred from seller to buyer; no deed is recorded and no transfer and recordation taxes are paid. This same technique has been used for partnerships, bya transfer of the partnership interests, and for corporations by a transfer of the stock.
Beginning July 1, 2008 transfer and recordation taxes will be collected for transfers of a Controlling Interest in a real property entity, just as if a deed is recorded. A real property entity is defined as any type of entity or trust that directly or indirectly owns real property in the state if that real property(a) constitutes at least 80% of its assets, and (b) has an aggregate value of at least $1,000,000.00. A Controlling Interest is defined as more that 80% of total value of all classes of stock in a corporation, of the beneficial interest in a trust, or of the total interest in any other entity.
The new law does not include transfers of interests in farm property. It does not include the admission of new owners, partners shareholders, or members incident to the raising of additional capital so long as the effective management of the real property entity is not substantially changed, and none of the new members is expected to participate in the day-to-day management of the entity.
The entity will be responsible for paying the tax; regulations, reporting, and payment methods will be developed by SDAT.