Farda v. Com.

• Decision Date: 11 May 2004
• Citation: 849 A.2d 297
• Court: Pennsylvania Commonwealth Court
• Parties: Joseph FARDA and Ann Farda, Petitioners v. COMMONWEALTH of Pennsylvania, Respondent.

849 A.2d 297

Joseph FARDA and Ann Farda, Petitioners v. COMMONWEALTH of Pennsylvania, Respondent.

Commonwealth Court of Pennsylvania.

Submitted on Briefs April 2, 2004.

Decided May 11, 2004.

George W. Westervelt, Jr., Stroudsburg, for petitioners.

Ronald H. Skubecz, Harrisburg, for respondent.

BEFORE: PELLEGRINI, Judge, and COHN, Judge, and FLAHERTY, Senior Judge.

OPINION BY Judge PELLEGRINI.

Joseph Farda and Ann Farda (Fardas), who are husband and wife, petition for review of the order of the Board of Finance and Revenue sustaining the Department of Revenue's (Department) imposition of a realty transfer tax in the amount of $52,233.20 on the conveyance of real estate from them to Farda Realty Associates, LP (Farda Realty), a limited partnership.

The parties have stipulated to the following facts. On February 13, 2001, the Fardas, as husband and wife, conveyed certain real estate situated in Pocono Township, Monroe County, Pennsylvania, to Farda Realty, a Delaware limited partnership which was formed on May 22, 2000. Joseph and Ann Farda are each limited partners of Farda Realty with a 49.5% interest individually and are general partners with a 1% interest as tenants by the entireties.¹

At the time of recording, the Fardas filed an attendant "Statement of Value" that based on the Monroe County real estate tax exemption, the fair market value of the property was $5,223,320.20. The statement of value claimed a 100% exemption from the realty transfer tax because:

The grantors each own fifty percent of the grantee limited partnership. This is not a document which conveys a real interest in real estate to someone other than the grantor. See Exton Plaza Associates v. Commonwealth of Pennsylvania, 763 A.2d 521 (Pa.Cmwlth.2000)

.

(See Statement of Value, Exhibit B, Stipulation of Facts.)

After review, on June 1, 2001, the Department issued a realty transfer tax notice of determination that the property was subject to that tax under Section 1102-C of the Realty Transfer Tax Act (Act)² and that on the declared value of $5,223,320.20, $52,233.20 with interest was owed.³

The Fardas appealed the notice of determination to the Department's Board of Appeals, which sustained the Department's determination on April 22, 2002. The Fardas then appealed to the Board of Finance and Revenue (Board), which, after concluding that Exton Plaza Associates was not analogous because it involved the transfer from a general partnership to a limited partnership and not from tenants by the entireties to a general partnership and, as such, the Department's imposition of realty transfer tax in the amount of $52,233.20 was proper, sustained the decision of the Board of Appeals. This appeal followed.⁴

Citing to Exton Plaza Associates, the Fardas argue that the transfer tax does not apply in this case because the deed did not transfer a beneficial interest in land to anyone other than to themselves, the grantors. In Exton Plaza Associates, a general partnership held title to a shopping center with each partner owning 50%. For the purposes of becoming a single purpose and bankruptcy remote entity, the general partnership converted itself into a limited partnership of the same name with each limited partner owning 49.5% (the same partners in the general partnership) and 1% being owned by the general partner, Exton Plaza G.P., LLC (made up of the two limited partners). The conveyance was from an association which had decided to change its business form to a newly formed association of another kind which continued to carry out the very same activities. In that case, we recognized that, "transfers between partnerships are fully taxable, as are transfers between partnerships and their partners or members, unless the transaction is excluded; however, the first inquiry must be whether the deed affects a real transfer of an interest in property to someone other than the grantor." Exton Plaza Associates, 763 A.2d at 523. Because we characterized the transfer as merely the "memorialization" of "the conversion from a general partnership to a limited partnership," we concluded that the transfer under those circumstances was "analogous to the exclusion for correctional or confirmatory deed that does not change the beneficial interest in the property," and, as such, we reversed the imposition of the realty transfer tax. Exton Plaza Associates, 763 A.2d at 524. However, unlike Exton Plaza Associates, the Fardas, as grantors, were individuals, and not a business partnership wishing to change its business form under Pennsylvania law. The deed in this case conveyed legal title to "someone other than the grantors" because the Fardas, as tenants in the entirety, are not Farda Realty, the partnership, an entity governed by the laws for foreign registered limited liability partnerships. See 15 Pa.C.S. § 8211(a).

Moreover, this transfer is governed by Section 1102-C.4 of the Act, 72 P.S. § 8102-C.4. That provision provides that documents which transfer realty between associations and their members are subject to the 1% state transfer tax unless one of the enumerated exclusions listed in Section 1102-C.3 of the Act can be claimed. It states:

[A]ny transfer or devise of title to real estate between associations or corporations and the member partners, shareholder or shareholders thereof are fully taxable. For the purposes of this article, corporations and associations are entities separate from their members, partners, stockholders or shareholders.

72 P.S. § 8102-C.4. The deed in this case transferred...