2013 Legislation Lowering Recordation and Transfer Taxes

2013 MARYLAND LEGISLATION PASSED LESSENING RECORDATION AND TRANSFER TAXES - IDOTs AND AFFILIATED ENTITY TRANSFERS

April 12, 2013

Two pieces of legislation passed the 2013 Maryland General Assembly that will potentially lessen the burden of recordation and transfer taxes on certain financing transactions and on transfers of property between affiliated limited liability companies and corporations.

HB 1209 / SB 436 - RECORDATION TAXES - EXEMPTIONS. This Bill increases the exemption from recordation tax for indemnity deeds of trust ("IDOTs") that guarantee repayment of a loan or series of loans that are part of the same transaction from the existing $1 million loan amount to $3 million. Further, the Bill confirms that recordation tax is due on the supplemental financing of a loan secured by an existing IDOT (regardless of whether recordation tax was paid on the original IDOT) only to the extent that "new money" is secured in excess of the outstanding principal balance of the guaranteed loan immediately prior to the date of the transaction.

For example, if an existing IDOT securing a guarantee of an outstanding loan which has a principal balance of $2 million is amended to secure a loan of $3,500,000, recordation tax would be owing on $1,500,000 - the amount of the "new money." If, on the other hand, the principal amount of the guaranteed loan were increased to only $2,900,000, there would be no recordation tax owing as the amount secured is less than $3 million.

HB 372 / SB 202 - TRANSFER OF PROPERTY BETWEEN RELATED ENTITIES - EXEMPTION.  This Bill provides an exemption from recordation and transfer taxes for the transfer of real property between a parent business entity and its wholly owned subsidiary or between subsidiaries wholly owned by the same parent business entity. An exemption currently exists for transfers between affiliated corporate entities of this nature; however, the Bill expands the definition of "business entity" to include limited liability companies as well as corporations.

Accordingly, a corporation or a limited liability company which currently owns real property may drop the property, or a portion thereof, into a newly formed limited liability company or corporation without payment of recordation or transfer tax. This should greatly facilitate the refinancing of properties where lenders require the formation of special purpose entities as a condition to financing or refinancing development of properties. Linowes and Blocher attorneys were instrumental in the passage of this Bill.

Assuming signature by Governor O'Malley, each of these Bills will take effect July 1, 2013. If you have any questions concerning either of these Bills, please contact Jack Orrick at 301-961-5213 or jorrick@linowes-law.com or Bill Hoffman at 301-961-5212 or whoffman@linowes-law.com.

  

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