2009-850, First Berkshire Business Trust & a. v. Commissioner, New Hampshire Department of Revenue Administration & a.

No. 2009-850

Hillsborough-northern judicial district

Properties, LLC (Second LLC), appeal an order of the Superior Court (O’Neill Trust), First Berkshire Properties, LLC (First LLC) and Second Berkshire DALIANIS, J. The petitioners, First Berkshire Business Trust (First

Michael A. Delaney

a

Rath, Young & Pignatelli, P.C. Department of Revenue Administration (DRA). We affirm. that partially affirmed and partially reversed a decision of the New Hampshire

Revenue Administration. general, on the brief and orally), for the New Hampshire Department of

petitioners. THE SUPREME COURT OF NEW HAMPSHIRE Christopher J. Sullivan on the brief, and Mr. Bartholomew orally), for the

page is: http://www.courts.state.nh.us/supreme. a.m. on the morning of their release. The direct address of the court's home reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00 to press. Errors may be reported by E-mail at the following address: editorial errors in order that corrections may be made before the opinion goes Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any Readers are requested to notify the Reporter, Supreme Court of New well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule 22 as p. 2 First LLC to Second LLC) were subject to the real estate transfer tax. See determination that the transfers (from First Trust to First LLC and then from judgment. In ruling on these motions, the trial court upheld DRA’s 2009, was $316,920.00. The parties filed cross-motions for summary that the total amount of taxes, penalties and interest owed through March 31, The petitioners appealed to the superior court, where DRA stipulated

original assessment. and interest owed. Following hearings, DRA issued a final order upholding its Thereafter, the petitioners petitioned DRA to re-determine the taxes, penalties and against First LLC and Second LLC in the amount of $100,556.16. taxes, penalties and interest against First Trust in the amount of $102,271.84 In October 2004, DRA issued notices of assessment, including additional

consideration” to be paid by Second LLC. consideration of the sum of Ten Dollars . . . and other good and valuable The deed states that the property was deeded from First LLC to Second LLC “in from First LLC to Second LLC was executed; it was recorded on July 9, 2003. second refinancing. The other bank approved this. On June 23, 2003, a deed because it anticipated that it would need another single purpose entity for the refinancing to obtain better repayment terms. First Trust formed Second LLC property was refinanced again through another bank. First Trust sought

The second transaction occurred in the summer of 2003, when the

based upon the fair market value of the subject property. See RSA 78-B:9 78-B:1. The trial court further upheld DRA’s decision to tax the transfers

good and valuable consideration” to be paid by First LLC. property was deeded from First Trust to First LLC for ten dollars and “other 2003, a deed from First Trust to First LLC was recorded, stating that the LLC entered into a mortgage with Wells Fargo on the property. On April 11, and (3) First LLC be listed as the borrower of the funds from Wells Fargo. First name; (2) a deed be executed listing First LLC as the property’s legal owner; Wells Fargo required that: (1) title to the subject property be in First LLC’s First Trust to create a single purpose entity, subsequently known as First LLC. of avoiding bankruptcy. As a condition of refinancing, Wells Fargo required refinancing for the property and others through Wells Fargo Bank as a means The first transaction occurred in April 2003, when First Trust obtained

(2000), :33 (Supp. 2009). connection with these transactions. See RSA 78-B:1, :7-a (2003); RSA 21-J:28 DRA’s imposition of real estate transfer taxes, interest and penalties in real property located at 200 John E. Devine Road in Manchester. At issue is subsidiaries of First Trust. This appeal arises out of two transactions involving business organizations. First LLC and Second LLC are both wholly-owned The record reveals the following facts. The petitioners are three separate estate shall be presumed taxable unless it is specifically exempt from taxation p. 3 transfer of real estate, and each sale, grant and transfer of an interest in real transfers by operation of law.” Under RSA 78-B:1, I(a), “[e]ach sale, grant and sale, granting and transfer of real estate and any interest therein including RSA 78-B:1, I(a) provides, in pertinent part: “A tax is imposed upon the

estate transfer tax because the transfers did not constitute “bargained-for The petitioners first argue that the transfers are not subject to the real

(2003), V (Supp. 2009). We disagree.

Appeal of Town of Pelham, 143 N.H. 536, 538 (1999). instead examine their language in the light of their purposes and objectives. ordinary meaning to the words used. LaChance (1998). However, we do not strictly construe statutes that impose taxes, but When examining the language of a statute, we ascribe the plain and the taxpayer. Pheasant Lane Realty Trust v. City of Nashua, 143 N.H. 140, 143 We construe an ambiguous tax statute against the taxing authority rather than ambiguous or subject to more than one reasonable interpretation. Id. at 510. LaChance v. U.S. Smokeless Tobacco Co. legislative history to aid our analysis when the statutory language is intent as expressed in the words of the statute considered as a whole. further indications of legislative intent. Franklin, 151 N.H. at 509. We review matters of statutory interpretation, we are the final arbiters of the legislature’s language of a statute is plain and unambiguous, we do not look beyond it for Resolving the issues on appeal requires statutory interpretation. In (2004); Appeal of Ashland Elec. Dept., 141 N.H. 336, 340 (1996). When the the entire statutory scheme. Franklin v. Town of Newport, 151 N.H. 508, 509 words or phrases not in isolation, but in the context of the entire statute and

party. See Brown, 152 N.H. 265, 266 (2005). the affidavits and other evidence in the light most favorable to the non-moving the trial court’s statutory interpretation de novo. Estate of Gordon-Couture v. We review the trial court’s rulings on summary judgment by considering, 156 N.H. 88, 93 (2007). We review

to fact de novo. Id. a matter of law, we will affirm. Id. We review the trial court’s application of law the outcome of the litigation, and if the moving party is entitled to judgment as does not reveal any genuine issues of material fact, i.e., facts that would affect

S. N.H. Med. Ctr. v. Hayes, 159 N.H. 711, 715 (2010). If this review

due. See RSA 21-J:33. This appeal followed. on the petitioners for their failure to pay the real estate transfer taxes when (2003). The trial court ruled, however, that DRA erred by imposing penalties required for a transaction to constitute a “bargained-for exchange.” RSA 78- p. 4 Contrary to the petitioners’ assertions, bargaining at arm’s length is not

RSA chapter 78-B does not define “bargained-for exchange.” In Petition

longer good law. corporation.” Laws 1992, 203:1. Thus, on this issue, Petition of Lorden is no surrender of shareholder or beneficial interest holder rights in liquidation of a upon Petition of Lorden legislature specifically amended the definition of “consideration” to include “the adequate value for the sales. To support these assertions, they mistakenly rely length and the purchasing entities (First LLC and Second LLC) did not pay purchased it from First LLC. Moreover, following Petition of Lorden, the when First LLC purchased the property from First Trust and when Second LLC exchanges” because the parties to the transactions did not bargain at arm’s 600. Here, by contrast, money, or other property and services, were exchanged The petitioners contend that the transactions are not “bargained-for of real estate in money or provide anything else in exchange for it. Id. at 599consideration in exchange for it. Id. at 599. They did not pay for the transfer the tax because even if a “transfer” took place, the stockholders gave no of Lorden, 134 N.H. at 595. We held that the distribution was not subject to dissolution and liquidation was subject to the real estate transfer tax. Petition unencumbered corporate assets to stockholders upon the corporation’s

money” for an interest in real estate. RSA 78-B:1-a, IV. (2003). “money, or other property and services, or property or services valued in delivery; and (c) [i]mmediate relinquishment of control.” RSA 78-B:1-a, III term “bargained-for exchange” as used in RSA 78-B:1-a, II is the exchange of satisfies the 3 elements of a gift transfer: (a) [d]onative intent; (b) [a]ctual RSA 78-B:1-a, II. By contrast, a noncontractual transfer is “a transfer which immediately after the transfer of the real estate.” (Emphasis added.) Thus, the in money which is given in bargained-for exchange of all transfers of real estate or an interest therein.” exchange for real estate, and measured at a time amount of money, or other property and services, or property or services valued directly or indirectly by the other person or entity.” A contractual transfer is “a element of “consideration.” RSA 78-B:1-a, IV defines “consideration” as “the another person or entity, whether or not either person or entity is controlled version of RSA chapter 78-B, we explained that a bargained-for exchange is an transfer of real estate, or any interest in real estate from a person or entity to of Lorden RSA 78-B:1-a, V defines a sale, grant and transfer as “every contractual, 134 N.H. 594, 600 (1991), in the context of interpreting an earlier

are specifically exempt from taxation pursuant to RSA 78-B:2 (2003). under RSA 78-B:2.” The petitioners do not argue that the transactions at issue market value. They argue that DRA may impose the real estate transfer tax p. 5 impose the real estate transfer tax based upon the subject property’s fair The petitioners next assert that the trial court erred by allowing DRA to

the reasons set forth above. obtained, we conclude that the transactions were “bargained-for exchanges” for that the old mortgages were not assumed and that new mortgages were mortgage, we need not decide this issue. Even if the petitioners are correct First LLC assumed First Trust’s mortgage and Second LLC assumed First LLC’s found that the transactions constituted “bargained-for exchanges” because While the petitioners argue that the trial court erred to the extent that it

within the meaning of the statute. property. Accordingly, both transactions constitute “bargained-for exchanges” In both transactions, money was exchanged for an interest in the subject became the owner of the property in exchange for giving First LLC ten dollars. the subject property in exchange for giving First Trust ten dollars; Second LLC RSA 78-B:1-a, II, IV. In the first transaction, First LLC became the owner of or property or services valued in money” for an interest in the subject property. because they involved the exchange of “money, or other property and services, Here, the transactions at issue constituted “bargained-for exchanges”

of an obligation by the transferee.” . . . the forgiveness of an obligation owed to the transferee, or the assumption enumerated circumstances, such as when “the property exchanged includes of the property to be the consideration exchanged in certain statutorily Additionally, RSA 78-B:1-a, IV requires DRA to consider the fair market value actual price or consideration by the fair market value of the real estate.” value is not exchanged, RSA 78-B:9, III authorizes DRA to “determine the consideration by the fair market value of the real estate.” Thus, if adequate barring specific proof to the contrary, to determine the actual price or “bargained-for exchange.” RSA 78-B:9, III specifically gives DRA the “power, Nor is payment of adequate value required for a transfer to constitute a

other person or entity in the transfer.” (Emphases added.) whether or not either person or entity is controlled directly or indirectly by the interest in real estate from a person or entity to another person or entity, sale, grant or transfer “means every contractual transfer of real estate, or any partners, see RSA 78-B:1-a, II(f). Additionally, RSA 78-B:1-a, V specifies that a shareholders, see RSA 78-B:1-a, II(e); or (4) a transfer from a partnership to its interest, see RSA 78-B:1-a, II(b); (3) a transfer from a corporation to its II(a); (2) a transfer from a partner to the partnership in which he holds an shareholder to a corporation in which he holds an interest, see RSA 78-B:1-a, that do not involve bargaining at arm’s length, such as: (1) a transfer from a B:1-a, II gives as examples of “bargained-for exchange[s]” numerous transfers proportional. See p. 6 the constitutional command that taxation be just, uniform, equal and refinancing and to decline to impose this tax when they are not used violates to p. 5 impose the real estate transfer tax when special purpose entities are used in Part II, Articles 5 and 6 of the New Hampshire Constitution. They assert that estate transfer tax upon the transactions at issue violates Part I, Article 12 and Finally, the petitioners contend that to allow DRA to impose the real

imposed did not violate RSA 78-B:9. the property’s fair market value as a basis for the real estate transfer taxes the exchanges. Therefore, contrary to the petitioners’ assertions, DRA’s use of fair market value more accurately reflected the actual consideration given for transaction far exceeded the ten dollar purchase price and that the property’s benefits afforded First Trust in the first transaction and First LLC in the second B:9, III. In so doing, DRA reasonably could have determined that the tangible was the “actually paid or required to be paid price or consideration.” RSA 78audit under RSA 78-B:9 to determine if the stated ten dollar purchase price to “other good and valuable consideration” gave DRA occasion to conduct an ten dollars “and other good and valuable consideration.” The vague reference was the property’s fair market value. The stated price for each exchange was B:9, III to determine that the actual consideration for the exchanges at issue We agree with the trial court that DRA reasonably relied upon RSA 78-

N.H. CONST. pt. I, art. 12, pt. II, arts. 5 and 6. estate.”

determine the actual price or consideration by the fair market value of the real consideration,” DRA has “the power, barring specific proof to the contrary, to stated price or consideration is the actually paid or required to be paid price or occurred.” Under RSA 78-B:9, III, “[i]f there is occasion to determine if the transactions to determine if a sale, grant or transfer of real estate has requires DRA to “look to the substance of the transaction or series of consideration paid” for the transfer. RSA 78-B:9, I. RSA 78-B:9, II specifically of real estate,” and to “verify[ ] and determin[e] the amount of the price or state to “verify[ ] and determin[e] the existence of a sale, granting or transfer 78-B:9, which grants DRA the “power to audit all real estate transfers” in the 78-B:1-a, IV are not present here. Accordingly, we confine our analysis to RSA We assume, without deciding, that the circumstances set forth in RSA

value. authority to base the real estate transfer tax upon the property’s fair market evidence of the actual price paid for the property (ten dollars), DRA had no circumstances set forth in RSA 78-B:1-a, IV exist and because there is property, see RSA 78-B:9, III. Here, they contend, because none of the 78-B:1-a, IV, or when there is no evidence of the actual price paid for the based upon fair market value only under the circumstances set forth in RSA p. 7 Affirmed

DUGGAN, HICKS and CONBOY, JJ., concurred.

transfer tax applies whenever purpose entity in order to obtain refinancing for that property. The real estate the real estate transfer tax when an entity has transferred property to a single We hold that it does not violate these constitutional commands to impose.

another entity, does not render the tax unconstitutional. when an entity refinances a property without transferring the property to apply when a contractual transfer of real estate has not occurred, such as owner. Id involved in a contractual transfer of real estate. The fact that the tax does not property’s kind or use, but not based upon a classification of the property’s applies uniformly to all similarly situated taxpayers, that is, all taxpayers property to be taxable or non-taxable based upon a classification of the interest in real estate. See RSA 78-B:1, :1-a, V. The real estate transfer tax Third, Part II, Article 6 grants the legislature broad power to declare there is a contractual transfer of real estate or an

rate, and just.” Id all taxes be proportionate and reasonable, equal in valuation and uniform in inhabitants of, and residents within, the . . . state.” This section requires “that levy proportional and reasonable assessments, rates and taxes, upon all the manner. Id. at 687. Second, Part II, Article 5 authorizes the General Court “to impose and value of the property subject to tax, and it must operate in a reasonable uniform, equal, and proportional. Id. A tax must be in proportion to the actual

. These three constitutional provisions require that taxation be just,

. (quotation omitted).

situated taxpayers be treated the same. Id. at 686 (quotation omitted). “according to the amount of his taxable estate” and requires that similarly requirement of proportionality of a taxpayer’s portion of the public expense, (quotation and brackets omitted). This provision literally imposes a each individual’s just share, and no more, shall fall upon him.” Id. at 685-86 that “taxes must be not merely proportional, but in due proportion, so that requires that a given class of taxable property be taxed at a uniform rate and bound to contribute his share in the expense of such protection.” This article protected by it, in the enjoyment of his life, liberty, and property; he is therefore Article 12 establishes that “[e]very member of the community has a right to be Smith v. N.H. Dep’t of Revenue Admin., 141 N.H. 681, 685 (1997). First, Part I, to ensure the fairness of any scheme of taxation enacted by our legislature. Three provisions of the New Hampshire Constitution work in conjunction