Your client calls you and says that rather than incur a realty transfer fee and a mansion tax upon the acquisition of commercial property, she would prefer to acquire the interests in the entity that owns the real property, thereby avoiding the realty transfer fee and the mansion tax that would be due by the buyer. Her rationale is that as the buyer she would save on the mansion tax and if the seller did not have to pay a realty transfer fee that savings could be passed along to her, as the buyer. Aside from the obvious perils of inheriting the obligations of the entity, be aware that your client may not get what she intended.

If there is a non-deed transfer, it is true that a realty transfer fee will not be incurred. However, the Controlling Interest Transfer Tax (CITT), N.J.S.A. 54:15C-1, was enacted in 2006 to prevent taxpayers from avoiding the 1 percent tax on direct transfers under the mansion tax. The CITT is fairly narrow in its scope, but the ramifications can be very profound. The mansion tax imposes a 1 percent tax on direct transfers of classified commercial real property for a consideration in excess of $1 million. The CITT prevents taxpayers from avoiding the 1 percent tax on direct transfers by instead transferring ownership interests in the entity owning the real property.

Differences Between CITT and Mansion Tax

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