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L-132-0940
132nd General Assembly
BILL SUMMARY
Applies the real property transfer tax to the transfer of any ownership interest in a
pass-through entity that, directly or indirectly, owns real property.
Continuing law imposes a real property transfer tax on the transfer of any real
property located within the state. The tax is paid by the person who transfers the real
estate and consists of two parts: (1) a statewide, mandatory tax of 1 mill ($1 per $1,000
of the value of the transferred property), which applies in every county, and (2) a
permissive county tax of up to 3 mills.1 Currently, all but one county in Ohio levies a
permissive tax, with rates ranging between 1 mill and 3 mills.2 For almost all transfers,
all the revenue from the statewide and permissive taxes is credited to the general fund
of the county where the property is located.
The bill extends the tax to apply to certain kinds of transfers that currently avoid
taxation. Current law contemplates only a direct conveyance of real property between
two parties, e.g., Seller A and Buyer B. But real property may also be conveyed through
the transfer of ownership of an intermediate entity that itself holds title to the property,
as illustrated by this example:
1
The tax also applies to the transfer of used manufactured and mobile homes. R.C. 319.202, R.C. 319.54,
and R.C. Chapter 322.
2 The only county that does not levy a permissive transfer tax is Ross County. "Survey of Locally
Administered Taxes," FY 2016, Ohio Department of Taxation, available at
http://www.tax.ohio.gov/Portals/0/communications/publications/annual_reports/2016AnnualReport/2016
AnnualReport.pdf#page=148.
Seller A creates Realty LLC, and transfers property to Realty LLC. There is no tax
because Seller A owns Realty LLC, so there is no change of ownership in the
property. Then, Seller A sells its ownership stake in Realty LLC to Buyer B. There
is still no tax, because it is the ownership shares in Realty LLC – not the property
itself – that is being transferred. Now, Buyer B constructively owns the property,
and no tax was applied to the transfer.
The bill applies the transfer taxes to such a transaction and to any transfer of an
ownership interest in a pass-through entity--i.e., a limited liability company (LLC),
partnership, or S corporation--that owns real estate, either directly or indirectly. For
such transfers, the tax is based on (1) the percentage of ownership interest transferred
and (2) the value of the property transferred. Following the example above:
Assume that Seller A sells 60% of its ownership stake in Realty LLC to Buyer B,
and that the property owned by Realty LLC is valued at $100,000. The
mandatory 1-mill state tax will equal $60 (60% of $100,000 = $60,000 * 1 mill =
$60). In a county levying a 2-mill permissive tax, an additional $120 would be
charged.
The tax also applies to transfers of pass-through entities that own property
indirectly, i.e., through another pass-entity:
Assume that Seller A owns 100% of Realty LLC, which itself owns 50% of
Building LLC. Building LLC owns property that is valued at $100,000. Seller A
transfers 75% of its ownership stake in Realty LLC (and, therefore, 75% of its 50%
ownership stake in Building LLC) to Buyer B. The mandatory state tax will equal
$37.50 (75% * (50% of $100,000) = $37,500 * 1 mill = $37.50). A 2-mill county
permissive tax would add $75.3
Under continuing law, there are several exemptions to the real estate transfer tax.
For example, a transfer is exempt if it involves the U.S. government, two spouses, a
nonprofit agency, certain types of leases, or no consideration. The bill applies all of
these existing exemptions to the expanded tax, so that the transfer of an ownership
interest in a pass-through entity that owns real estate will not trigger the tax if it would
otherwise be exempt as a direct conveyance.4
R0940-132.docx/emr
A BILL
To amend sections 319.202, 319.54, 322.01, 322.02, 1
and 322.07 of the Revised Code to apply the real 2
estate transfer tax to transfers of ownership 3
interests in pass-through entities that, 4
directly or indirectly, own real estate. 5
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(c) (iii) That the grantor and the grantee have considered 44
and accounted for the total estimated amount of such reductions 45
to the satisfaction of both the grantee and the grantor. The 46
auditor shall indorse the instrument, return it to the grantee 47
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(b) (ii) To the extent that the property will not continue 67
to qualify for the current agricultural use valuation either for 68
the current or the succeeding year, that the property will be 69
subject to a recoupment charge equal to the tax savings in 70
accordance with section 5713.34 of the Revised Code; 71
(c) (iii) That the grantor and the grantee have considered 72
and accounted for the total estimated amount of such recoupment, 73
if any, to the satisfaction of both the grantee and the grantor. 74
The auditor shall indorse the instrument, forward it to the 75
grantee or the grantee's representative, and provide a copy of 76
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Revised Code and the tax, if any, levied pursuant to Chapter 106
322. of the Revised Code, the reason for such exemption shall be 107
shown on the statement. "Value" means, in the case of any deed 108
or certificate of title not a gift in whole or part, the amount 109
of the full consideration therefor, paid or to be paid for the 110
real estate or manufactured or mobile home described in the deed 111
or title, including the amount of any mortgage or vendor's lien 112
thereon. If property sold under a land installment contract is 113
conveyed by the seller under such contract to a third party and 114
the contract has been of record at least twelve months prior to 115
the date of conveyance, "value" means the unpaid balance owed to 116
the seller under the contract at the time of the conveyance, but 117
the statement shall set forth the amount paid under such 118
contract prior to the date of conveyance. In the case of a gift 119
in whole or part, and in the case of the transfer of an 120
ownership interest in a pass-through entity that, directly or 121
indirectly, owns real property, "value" means the estimated 122
price the real estate or manufactured or mobile home described 123
in the deed or certificate of title would bring in the open 124
market and under the then existing and prevailing market 125
conditions in a sale between a willing seller and a willing 126
buyer, both conversant with the property and with prevailing 127
general price levels. No person shall willfully falsify the 128
value of property conveyed. 129
(D) The auditor shall indorse each conveyance on its face 130
to indicate the amount of the conveyance fee and compliance with 131
this section and if the property is residential rental property 132
include a statement that the grantee shall file with the county 133
auditor the information required under division (A) or (C) of 134
section 5323.02 of the Revised Code. The auditor shall retain 135
the original copy of the statement of value, forward to the tax 136
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commissioner one copy on which shall be noted the most recent 137
assessed value of the property, and furnish one copy to the 138
grantee or the grantee's representative. 139
(1) On the first one hundred thousand dollars, two and 157
one-half per cent; 158
(2) On the next two million dollars, eight thousand three 159
hundred eighteen ten-thousandths of one per cent; 160
(3) On the next two million dollars, six thousand six 161
hundred fifty-five ten-thousandths of one per cent; 162
(4) On all further sums, one thousand six hundred sixty- 163
three ten-thousandths of one per cent. 164
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(B) For the purpose of reimbursing county auditors for the 180
expenses associated with the increased number of applications 181
for reductions in real property taxes under sections 323.152 and 182
4503.065 of the Revised Code that result from the amendment of 183
those sections by Am. Sub. H.B. 119 of the 127th general 184
assembly, there shall be paid from the state's general revenue 185
fund to the county treasury, to the credit of the real estate 186
assessment fund created by section 325.31 of the Revised Code, 187
an amount equal to one per cent of the total annual amount of 188
property tax relief reimbursement paid to that county under 189
sections 323.156 and 4503.068 of the Revised Code for the 190
preceding tax year. Payments made under this division shall be 191
made at the same times and in the same manner as payments made 192
under section 323.156 of the Revised Code. 193
(1) For payments made after June 30, 2007, and before 203
2011, the following percentages: 204
(a) On the first five hundred thousand dollars, four per 205
cent; 206
(b) On the next five million dollars, two per cent; 207
(c) On the next five million dollars, one per cent; 208
(d) On all further sums not exceeding one hundred fifty 209
million dollars, three-quarters of one per cent; 210
(a) On the first five hundred thousand dollars, four per 215
cent; 216
(b) On the next ten million dollars, two per cent; 217
(D) Each county auditor shall receive four per cent of the 224
amount of tax collected and paid into the county treasury, on 225
property omitted and placed by the county auditor on the tax 226
duplicate. 227
(1) Four per cent on the first one hundred thousand 233
dollars; 234
(G) The county auditor shall charge and receive fees as 246
follows: 247
(1) For deeds of land sold for taxes to be paid by the 248
purchaser, five dollars; 249
utility property and the general duplicate of real and public 281
utility property to the initials of the current owner as 282
prescribed in division (B)(1) of section 319.28 of the Revised 283
Code; 284
that section, the greater of one dollar or ten cents for each 366
one hundred dollars or fraction of one hundred dollars of the 367
value determined by calculating the sum of the following 368
amounts: 369
The auditor shall compute and collect the fee. The auditor 391
shall maintain a numbered receipt system, as prescribed by the 392
tax commissioner, and use such receipt system to provide a 393
receipt to each person paying a fee. The auditor shall deposit 394
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(A) "Value" means, in the case of any deed not a gift in 416
whole or part, the amount of the full consideration therefor, 417
paid or to be paid for the real estate described in the deed, 418
including the amount of any liens thereon, with the following 419
exceptions: 420
(F) "Mobile home" has the same meaning as in division (O) 451
of section 4501.01 of the Revised Code. 452
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Sec. 322.02. (A) For the purpose of paying the costs of 453
enforcing and administering the tax and providing additional 454
general revenue for the county, any county may levy and collect 455
a tax to be known as the real property transfer tax on each upon 456
both of the following: 457
The rate of the tax shall not to exceed thirty cents per 464
hundred dollars for each one hundred dollars or fraction thereof 465
of the value of the real property or interest in real property 466
located within the boundaries of the county granted, assigned, 467
transferred, or otherwise conveyed by the deed, or owned 468
directly or indirectly by a pass-through entity in which an 469
ownership interest is transferred. The tax shall be levied 470
pursuant to a resolution adopted by the board of county 471
commissioners of the county and, except as provided in division 472
(A) of section 322.07 of the Revised Code, shall be levied at a 473
uniform rate upon all deeds as defined in division (D) of 474
section 322.01 of the Revised Code and transfers of ownership 475
interest. Prior to the adoption of any such resolution, the 476
board of county commissioners shall conduct two public hearings 477
thereon, the second hearing to be not less than three nor more 478
than ten days after the first. Notice of the date, time, and 479
place of the hearings shall be given by publication in a 480
newspaper of general circulation in the county once a week on 481
the same day of the week for two consecutive weeks or as 482
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