Taxpayers that paid Pennsylvania or Philadelphia real estate transfer tax on certain transactions involving real property located in Philadelphia during the period July 1, 2012 through January 5, 2012 may be entitled to refunds.
Pennsylvania publishes a common level ratio (“CLR”) for each county in the Commonwealth, effective from July 1 until June 30 of the following year. In certain instances (e.g., taxable leases or acquisitions of real estate holding companies), the real estate transfer tax triggered by a transaction is based on a “computed value.” This value is the product of the assessed value of the property and the reciprocal of the county CLR (the “CLR Factor”) in effect at the time of transfer.
Because of ongoing litigation regarding the amount of the Philadelphia County CLR, the CLR Factor for Philadelphia County that was initially published by the Pennsylvania Department of Revenue for the period July 1 2012 through June 30, 2013 was subject to change. On January 5, 2013, the Pennsylvania Department of Revenue published a corrected CLR Factor for Philadelphia County. This corrected CLR Factor applies retroactively to all transactions on or after July 1, 2012. Because the effective date of the corrected CLR Factor is retroactive, any transfer tax paid with respect to real property located in Philadelphia County based on the tentative CLR Factor during the period July 1, 2012 through January 5, 2013 was overpaid.
For illustration purposes, if state and local transfer tax was paid on a transfer of Philadelphia real property occurring on August 1, 2012, which had an assessed value of $5 million, at that time the computed value of the property would have been $19.85 million (based on the tentative CLR Factor of 3.97), resulting in a transfer tax of $794,000. With the revised CLR Factor of 3.27, the computed value for the same property would be $16.35 million, resulting in a transfer tax of $654,000. The total refund due would be $140,000.
Taxpayers who paid real estate transfer tax on any transaction where the tax was based on a computed value determined using the tentative Philadelphia County CLR factor from July 1, 2012 through January 5, 2013 must file refund claims to reclaim any overpayment. Because the use of the tentative CLR would have resulted in an overpayment of both state and city transfer tax (assuming transfer tax was due at both the state and city level), it will be necessary to file separate state and city refund petitions.
Reed Smith State Tax and Real Estate attorneys are ready to assist with the determination of any overpayment and any resulting refund petitions. Please contact the authors or any other attorney at Reed Smith if you have any questions regarding this matter.
Client Alert 2013-031