Saturday, August 09, 2008

PA transfer tax - new rules for relo & assignment of interest transactions

I just received a memorandum from one of our title underwriters. It’s important info if you are involved in purchase transactions in PA with an assignment of interest or contract. The PA Dept. of Revenue issued an amended rule on transfer tax regulations last December. The effect of that change is just now being fully digested - probably because someone was audited post closing. Yes, our Dept. of Revenue routinely audits transfer tax remittances. We process a few every year.

First, let me say that title insurance does not cover transfer tax so mistakes aren’t a claim issue. I think mortgage originators and title agents all agree, however, that we want happy consumers and that means we want parties to avoid unpleasant post closing audits with payment demands. This is really a big deal because transfer taxes are typically split in PA and post closing, who wants to try to get money from the seller?

Secondly, transfer tax in PA is high. The state charges 1% of the sale price as do most municipalities. Some, like the City of Pittsburgh charge more. In the Burgh, the tax is 3%. So if you have a $200,000 transfer in the City of Pittsburgh, total transfer tax is $8,000.

Now, back to the memo. Let me quote it directly:

“The application of these changes affects transactions where:

  1. a relocation company, as the original contract purchaser, assigns its rights to an ultimate purchase but never acquires record title to the property;
  2. an individual contract purchaser who assigns his or her rights to an entity, whether or not that entity is owned in whole or in part by the individual.”

So, even though there is only ONE deed being recorded, the Department’s position is that TWO taxable transfers have taken place.

Pass the word, because I expect this to be a hot audit stream and those caught - whether they knowingly avoided the tax or not, will have to pay.

Title agents don’t give tax advice but we have a duty to assist consumers and make certain they pay the appropriate tax or if they choose NOT to, that they understand they do so at their own risk.

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