July 28, 2014 in Real Estate Law
CONCORD — A proposal earlier this month by state revenue officials to extend the real estate transfer tax to ground leases of fewer than 30 years or more has Republicans crying foul and the governor’s office saying the Department of Revenue Administration will work with the Legislature to update existing rules.
DRA Commissioner John T. Beardmore said an attempt to write a “rule” on the tax’s application was “poorly constructed” and he withdrew it July 8.
“The transfer of a lessee interest in a ground lease, including any interest of the lessee in the related improvements, that provides for a term of 30 or more years when all options to renew or extend are included, whether or not any portion of the term has expired,” the proposed rule read.
Beardmore said he believed the rule could be interpreted to apply only to transfers of ground leases and not original leases.
“That’s exactly what we meant by ‘poorly constructed,’” he said Sunday. “And it’s why we withdrew those specific provisions of the rule.”
Ground leases, which involve leased property that can be built upon or improved, are different than traditional leases of commercial property or homes. An example would be a company leasing land to another company looking to build a commercial building, Beardmore said.
The proposal would have applied only to transfers of ground leases of 30 years or more and not to standard leases of commercial property or homes, according to the proposal.
Pamela Walsh, chief of staff for Gov. Maggie Hassan, said the proposal was submitted to the Legislature because existing rules have expired and, by law, must be updated, and she said the DRA will continue to work with the Legislature to draft updated rules regarding real estate transfer taxes.
Beardmore said the DRA plans to meet with real estate professionals to come up with a clearer definition of ground leases. He said the DRA has no timeline to bring a proposal on taxes on ground lease transfers to the Legislature.
State revenue codes
Sens. David Boutin, R-Hooksett, and John Reagan, R-Deerfield, said the DRA came before the Joint Legislative Committee on Administrative Rules for authority to apply the tax on ground leases. According to state Revenue Code 800, the tax, which is 75 cents per $100 of value, applies to standard leases of 99 years or longer. It also applies to shorter-term standard leases but only if renewal rights could extend the lease to beyond 99 years.
The department sought to clarify the statutory authority to tax ground lease transfers, which it says is already state law. The statute reads, in part, that it imposes a tax upon “the sale, granting and transfer of real estate and any interest therein.”
Beardmore said that, unless a transfer of real estate is specifically exempted under the law, RSA 78-B, then it must be taxed. Those exceptions include transfers of real estate to government. Ground leases are not among those exceptions, according to the law.
Reagan said any expansion in connection to that tax structure should be proposed in the form of a bill before legislators. The Joint Legislative Committee on Administrative Rules reviews proposed rules filed by state agencies.
“Bureaucrats cannot and should not expand an existing tax on their own,” Boutin said in a statement. “The law cannot mean whatever Governor Hassan wants it to mean. The law clearly states that the real estate transfer tax doesn’t apply to short-term leases, and the governor knows it. Otherwise, she wouldn’t have pushed to change the rules. Governor Hassan should immediately end her quest to impose a new lease tax on New Hampshire businesses.”
But Beardmore said he does not have the authority to expand a tax on his own. Any proposed rule changes are subject to legislative approval, he said.
“To suggest that the DRA, on behalf of the governor, went in broad daylight … and tried to expand the tax base just simply isn’t what happened,” he said.
William Hinkle, Hassan’s press secretary, said in a statement: “The governor wants to ensure that all taxpayers are treated fairly. As laid out by Commissioner Beardmore, the rule was withdrawn from the legislative process by the department on July 8 because the department understands that it was poorly constructed.”
The tax and political ramifications prompted a quick response from two Republicans running to contest Hassan’s reelection bid this fall.
Walt Havenstein and Andrew Hemingway issued statements accusing Hassan of trying to orchestrate an end-run around the Legislature.
“Maggie Hassan is once again showing no leadership, and must explain to the people of New Hampshire whether she supports the tax increase,” Havenstein said. “If she opposes it, she should explain why her administration is trying to increase taxes without her knowledge or approval.”
“Governor Hassan is looking to take more money from already struggling small businesses at a time they simply cannot afford it,” Hemingway said. “We need to look instead at improving the business climate in N.H. to grow jobs and the economy. This illegal action serves only to stifle that growth.”
Hassan’s campaign called the Republicans’ comments “desperate.”
“Republicans like Walt Havenstein and Andrew Hemingway are launching misleading attacks against Governor Hassan in a desperate attempt to distract from their true … agenda that would hurt middle-class families and take New Hampshire backward,” Aaron Jacobs, the campaign’s spokesman, said in a statement. “Granite Staters support Governor Hassan because she is working to bring people together across party lines to solve long-standing problems and get things done for New Hampshire’s people, businesses and economy.”
New Hampshire Union Leader Staff Writer Dan Tuohy contributed to this report.