Are Assignments of Contracts In PA Subject to Additional Transfer Tax
The simple answer is YES. The Pennsylvania Department of Revenue issued a Realty Transfer Tax Bulletin titled 2008-01 which was in accord with the Rule in BAEHR BROS, (61 PA.Code 91.170). The bulletin sets out several real estate transfer scenarios and describes the tax implications of each one. It can be found at www.revenue.pa.gov.
The pertinent information for Wholesellers is Assignment of Agreements of Sale are subject to double taxation. When a party assigns a Contract of Sale to a business entity prior to closing, the assignment and the Deed from the original owners are considered to be "two separate transactions" each subject to realty transfer tax. Prior to this amendment, only the actual Deed transfer was taxed. So currently, even though there be no consideration for the assignment, the double tax will be based on the property's actual monetary value
The example provided by the PA Department of Revenue follows:
S and B enter into a Contract for the sale of real estate for $1,000,000. B gets certain approvals and then assigns the Contract to C for $2,000,000 for a total purchase price to C of $3,000,000. C gets approvals and then assigns the Contract to D for $5,000,000. for a total purchase price of $6,000,000. In this scenario, S ultimately sells the property to D and only receives $1,000,000, and the Realty Transfer Tax was only assessed on that amount. Under the new amended rules, each assignment will be subject to Realty Transfer Tax, resulting in tax being imposed on (a) the $1,000,000 transfer from S to D, (b) the $3,000,000 transfer from B to C and (c ) the $6,000,000 assignment from C to D.