ALJ holds NYS Real Estate Transfer Tax Cannot Be Imposed on Sale of 45% Membership Interest in LLC -

In an issue of first impression under the New York State real estate transfer tax, a New York State Administrative Law Judge has held that the transfer tax cannot be imposed on a member’s sale to its comember of a 45% membership interest in a limited liability company (“LLC”) owning real property in New York State, where both members previously owned the real property as tenants-in-common. Matter of GKK 2 Herald LLC, DTA No. 826402 (N.Y.S. Div. of Tax App., May 26, 2016). At issue was the scope of the Department of Taxation and Finance’s authority to aggregate acquisitions of minority economic interests in real property.

Facts. The facts in the case were undisputed. In 2007, GKK 2 Herald LLC (“GKK”) and an unrelated party (“Co-Owner”) acquired an office building located in Herald Square (the “Office Building”). Upon acquisition, GKK and Co-Owner held undivided 45% and 55% tenantin-common fee interests respectively in the Office Building. New York State real estate transfer tax (“RETT”) was paid on that acquisition.