2011-174, Say Pease IV, LLC & a. v. New Hampshire Department of Revenue Administration

No. 2011-174 Rockingham

, of Hampton (John J. Ryan

We affirm. LLC (Say Pease) and Say Pease IV, LLC (Say Pease IV). See RSA 78-B:1 (2003). page is: http://www.courts.state.nh.us/supreme. decision assessing a real estate transfer tax against the petitioners, Say Pease, a.m. on the morning of their release. The direct address of the court's home (DRA) appeals an order of the Superior Court (McHugh, J.) that reversed DRA’s reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00 HICKS, J. The New Hampshire Department of Revenue Administration

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

the petitioners. Casassa and Ryan on the brief and orally), for 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 transfer tax did not apply. See

p. 2 “[c]ontractual transfer,” RSA 78-B:1-a, II (2003), and, therefore, the real estate

court reversed DRA’s order, ruling that the transfer at issue was not a

The parties filed cross-motions for summary judgment, and the trial

Say Pease IV appealed to the superior court.

unsuccessfully through DRA’s administrative appeal process, Say Pease and

transfer tax against Say Pease and Say Pease IV. After appealing Based upon this transfer, DRA issued notices assessing the real estate

obtained the $10.5 million mortgage loan.

purpose remote bankruptcy entity, Say Pease held no interest in TIG, and TIG these transactions, Say Pease IV owned a 47.5% interest in TIG as a sole Say Pease IV replaced Say Pease as TIG’s managing member. As a result of

Next, Say Pease’s interest in TIG was transferred to Say Pease IV, and

as [TIG] shall be indebted under any mortgage or other securitized loan.” authorized “to engage in any other activity[,] business or undertaking so long sole purpose of being a Managing Member and Member of [TIG]” and was not

members. Say Pease IV’s LLC agreement provides that it was “formed for the

formed Say Pease IV, a new limited liability company (LLC) with the same To comply with the lender’s requirement, the members of Say Pease

because it held interests in entities other than TIG. party. First Berkshire Bus. Trust the affidavits and other evidence in the light most favorable to the non-moving We review the trial court’s rulings on summary judgment by considering

“[n]oncontractual transfer.” RSA 78-B:1-a, III (2003); see ruled that the transaction was exempt from the transfer tax as a

outcome of the litigation, and if the moving party is entitled to judgment as a reveal any genuine issues of material fact, i.e., facts that would affect the

mortgage loan. Say Pease, holder of a 47.5% interest in TIG and its managing prospective lender would be unable to reach the property securing the (2003). This appeal followed.

moved for reconsideration. The trial court upheld its initial order, and further Hampshire Department of Revenue Administration, 161 N.H. 176 (2010), DRA Following our decision in First Berkshire Business Trust v. Commissioner, New

entities.” This requirement would ensure that creditors other than the

that TIG, and all of its members, be “single purpose bankruptcy remote million mortgage loan. To obtain the loan, TIG’s prospective lender required near Pease International Tradeport that it wanted to use to secure a $10.5

LLC (TIG) is a real estate holding company. It owns a ground lease on property The parties stipulated to the following facts. Two International Group, p. 3 RSA chapter 78-B does not define “bargained-for exchange,” but in First

RSA 78-B:1-a, II. therefore, presumptively taxable. See

bargained-for exchange of all transfers of real estate or an interest therein.” transferred interest in TIG is an interest in a real estate holding company and, directly or indirectly by the other person or entity.” A contractual transfer is “a another person or entity, whether or not either person or entity is controlled Turning to the assessment of the tax, the parties do not dispute that the

that DRA’s position is correct and Say Pease, as an entity, was the transferor.

conclude that the transfer was not taxable, we will assume, without deciding, other property and services, or property or services valued in money for an

B:2.” RSA 78-B:1-a, V defines a sale, grant and transfer as “every contractual presumed taxable unless it is specifically exempt from taxation under RSA 78- Pease’s members, as individuals, made the transfer. Because we ultimately and each sale, grant and transfer of an interest in real estate shall be exchange is an element of “consideration,” which is “the exchange of money, or transferred its interest in TIG to Say Pease IV; the petitioners argue that Say Berkshire Business Trust Under RSA 78-B:1, I(a), “[e]ach sale, grant and transfer of real estate,, 161 N.H. at 181, we said that a bargained-for TIG.” DRA contends that this stipulation means Say Pease, as an entity,

Agreement . . . Say Pease IV, LLC bec[a]me the holder of the 47.50% interest in meaning of RSA 78–B:1-a, II. in the case is whether the transfer is a “[c]ontractual transfer” within the

language in light of their purposes and objectives. Id

stipulation that “through an Assignment and Consent to Assignment intent as expressed in the words of the statute considered as a whole. Id As an initial matter, the parties disagree about the meaning of a

do not strictly construe statutes that impose taxes, but instead examine their statute against the taxing authority rather than the taxpayer. Id. However, we for further indications of legislative intent. Id. We construe an ambiguous tax the language of a statute is plain and unambiguous, we do not look beyond it in the context of the entire statute and the entire statutory scheme. Id. When meaning to the words used. Id. We read words or phrases not in isolation, but examining the language of a statute, we ascribe the plain and ordinary review the trial court’s statutory interpretation de novo. Id. at 180. When

matters of statutory interpretation, we are the final arbiters of the legislature’s Resolving the issues on appeal requires statutory interpretation. In

to the facts de novo. Id. matter of law, we will affirm. Id. We review the trial court’s application of law them as such. See

p. 4 78-B:9, II (2003), here, there is no evidence that the obligations the members

the later transfer. See IV. The LLC and its members are two separate legal entities, and we must view the consideration its members recited in an agreement ostensibly unrelated to exchange for the later transfer between the entities Say Pease and Say Pease exchanged, as individuals, to form a binding LLC agreement was not given in

or series of transactions” to determine if a taxable transfer has occurred, RSA

was impossible for Say Pease to transfer its interest in TIG “in exchange for”

TIG interest. This argument fails because the consideration that the members

Moreover, although DRA must “look to the substance of the transaction

purposes of the real estate transfer tax.

Pease was not a party to the agreement. Since Say Pease received nothing, it LLC agreement, but they gave nothing to Say Pease, as an entity, because Say that formed Say Pease IV, there was consideration for the later transfer of the Say Pease IV, exchanged consideration among themselves to form a binding Say Pease IV exchanged consideration among themselves in the LLC agreement First, DRA contends that, because mutual members of Say Pease and

LLC agreement fails to render transfer of the TIG interest contractual for

In this case, the members of Say Pease, in their capacities as founders of

exchange for the transfer, the mutual consideration recited in Say Pease IV’s

. . . .”), superseded on other grounds by Laws 1992, 203:1. because Say Pease IV provided consideration in other forms. corporation are two separate legal entities, and we must view them as such cf. Petition of Lorden, 134 N.H. 594, 600 (1991) (“[T]he stockholders and the

bargained-for exchange. Id

applied to the extent of the property’s full fair-market value. Id IV replaced Say Pease as TIG’s managing member, the transfer was contractual omitted). DRA argues that, although no money was exchanged when Say Pease

examine whether Say Pease made the transfer in exchange for “money or other To determine whether the transfer of the TIG interest was contractual, we

Moreover, we held that “arm’s length” bargaining is unnecessary to engage in a real estate interest, the parties need not exchange “adequate value.” Id. at 182. noted that, although consideration requires that something be given for the

ellipses omitted). In both transactions, we held that the real estate transfer tax consideration.” First Berkshire Bus. Trust, 161 N.H. at 177-79 (quotation and ownership in exchange for “Ten Dollars and other good and valuable where one company transferred property to another company with the same omitted); see RSA 78-B:1-a, IV (2003). That case involved two transactions interest in real estate.” First Berkshire Bus. Trust, 161 N.H. at 181 (quotation p. 5 Moreover, contrary to DRA’s argument, First Berkshire Business Trust

transaction calculated to enable TIG to obtain the loan.

ten dollar purchase price.” First Berkshire Bus. Trust 5

Restatement (Second) of Contracts transaction created a bargained-for exchange. In First Berkshire Business “actual consideration” for the transfer. Id promise and is given by the promisee in exchange for that promise.” promise is bargained for if it is sought by the promisor in exchange for his

repayment terms” because of the transfer. Id

“exchanged” for the transfer of the interest in TIG, but constituted steps in a

real estate.” First Berkshire Bus. Trust determined that the tangible benefits afforded [by the transfer] far exceeded the

Although the opinion did not explicitly discuss how the owner’s ability to

enabled TIG to obtain a mortgage loan, the “tangible benefits afforded” by the to the transferor company, and that these tangible benefits constituted the We held that the owner’s ability to refinance afforded “tangible benefits” TIG’s lender, not consideration for the transfer. “A performance or return IV’s LLC agreement sought to maintain TIG’s original ownership interest in property. To the contrary, the members who executed Say Pease. at 179. transferor and the recipient of a piece of real property, “obtain[ed] better of the transactions in that case, a parent company, which owned both the undertaken certain obligations to obtain the loan, these obligations were not, 161 N.H. at 183. In one promise in order to secure a loan for TIG. Although the parties may have property and services, or property or services valued in money for an interest in its business. Rather, Say Pease made the transfer and Say Pease IV made the value of the property transferred because “DRA reasonably could have bargained-for exchange because there was no “exchange of money, or other Trust, we held that DRA could assess the transfer tax on the full fair-market transfer. Thus, the substance of the transaction here fails to create a

161 N.H. at 183, does not require us to conclude that, because the transfer

not transfer the property because it wanted Say Pease IV to limit the scope of

of Say Pease IV’s “promise” not to engage in activities other than managing TIG. We also reject DRA’s argument that there was consideration in the form member transfer property to Say Pease IV. The parties here did not employ a interests of the Company,” but made no mention of a requirement that any among the members to use “commercially reasonable efforts to further the, 161 N.H. at 181 (quotation omitted).

it in a suitable financing vehicle; the promises exchanged related to the

the later transfer. The agreement purported to create mutual obligations assumed in Say Pease IV’s LLC agreement were undertaken “in exchange for” case in First Berkshire Business Trust p. 6 the TIG interest to obtain better repayment terms for themselves, as was the

We are not inclined to extend First Berkshire Business Trust

received no direct benefit from the transaction. The members did not transfer

members own an interest in the true “beneficiary” of the transfer, TIG. argues, must be imputed to Say Pease, the transferor company, because its 6

other, as we did in First Berkshire Business Trust

In this case, although Say Pease’s members owned it entirely, they

Pease IV, which in turn benefitted Say Pease IV’s members. This benefit, DRA

given the attenuated relationship between the beneficiary, TIG, and the held that the transferor benefitted as well. See, is supportable. But here, beneficiary and the transferor exists, imputing the benefits one receives to the serve as consideration for the transfer. In First Berkshire Business Trust an original transferor. When a complete identity of interest between a permit DRA to trace the benefits through multiple layers of ownership back to

owner received, and that DRA could assess the transfer tax based upon this Unlike the owner in First Berkshire Business Trust mortgage loan, they did so in their capacities as members of Say Pease IV. the extent that Say Pease’s members benefitted as a result of TIG receiving the TIG benefitted by obtaining a mortgage loan, which in turn benefitted Say N.H. at 183. Here, DRA urges that there is a bargained-for exchange because

because tangible benefits flowed directly to the transferor company’s owner, we

Such an attenuated benefit to the transferee company, however, cannot owner received. See

members in this case arguably received resulted from their ownership of the

members of Say Pease, the transferor entity received no direct benefit at all. To Bus. Trust, 161 N.H. at 179. TIG obtained the mortgage loan, and the

roughly speaking, each transfer was made “in exchange for” the benefit that its

subsidiaries of the original owner of the property. First Berkshire Bus. Trust elements, we held that DRA could reasonably infer that the “substance of the benefitted from the transfer of real property. Presented with these two transferor company and its owner; and (2) the owner directly and tangibly Business Trust: (1) there was a complete identity of interest between the Thus, two elements enabled us to find consideration in First Berkshire

control over each successive transferee, DRA could reasonably infer that, 161 N.H. at 178. Because the owner directly benefitted and exercised exclusive

In that case, the two successive transferee companies were wholly-owned refinance tangibly benefitted the transferor company, the reason is self-evident. p. 7 Affirmed

controllers, which I will refer to as First Berkshire taxation of transfers involving commonly-controlled business entities and their expansion was necessary because the real estate transfer tax clearly permits

78-B:2, IX. separate, non-contractual transfer exemption under RSA 78-B:1-a, III and RSA 7 departs from First Berkshire Business Trust v. Commissioner, New Hampshire DALIANIS, C.J., dissenting. Because I believe the court’s decision

bankruptcy as a result. First Berkshire Business Trust

“bargained-for exchange” in the context of the real estate transfer tax. This

“tangible benefits” that resulted. Id not a contractual transfer, we need not address whether it also falls within the

transfers often involve neither a bargain nor an exchange. Indeed, when a

First Berkshire Business Trust In so holding, we expanded the common law definition of the term

transfers were bargained-for exchanges and that the consideration included the transfer would be necessary to refinance. Id Because we uphold the trial court’s finding that the transaction here was. at 179. We held that both owned subsidiary for ten dollars because the parent anticipated that such a In the second, the subsidiary transferred the same property to another wholly- transfer tax does not apply.

transfers. In the first, a parent company transferred property to its wholly-

unnecessary confusion, I, respectfully, dissent. Department of Revenue Administration, 161 N.H. 176 (2010), and will create

that, if there is no direct benefit to the party controlling a transferor entity, the

Thus, we reject DRA’s argument that, in light of First Berkshire Business

constitute consideration, and DRA can tax the transfer. Here, we simply say directly benefits the owner of a subsidiary transferor company, the benefit may Berkshire Business Trust, 161 N.H. at 182-83, held that if a transaction result. There is nothing absurd about the distinction we draw today. First Trust, upholding the trial court’s decision in this case leads to an absurd

received to the other. transferor, Say Pease, there is no reason to assign the benefits that one entity elements of a gift,” i.e. p. 8 “[n]oncontractual transfer,” by contrast, is a “transfer which satisfies the 3 of all transfers of real estate or an interest therein.” RSA 78-B:1-a, II. A

The statute defines “[c]ontractual transfer” as “a bargained-for exchange III(c). First Berkshire Business Trust result in the “relinquishment of control” required to make a gift. RSA 78-B:1-a, business entities will normally be contractual because such transfers rarely

transfer.” Under this definition, transfers among commonly-controlled

relinquishment of control because the parent company controlled the property

category and vice versa. a, II, III. Transfers falling outside one category simply belong in the other transfer[s]” can be defined as “not ‘[n]oncontractual transfer[s].’” RSA 78-B:1- exchange,” when read within the statutory scheme, the term means “a non-gift In this way, although the statute does not define “bargained-for

of.” Webster’s Third New International Dictionary either one or the other. The prefix “non-” means “not,” “reverse of” or “absence

in that case, from the parent to its wholly-owned subsidiary, lacked a

‘[c]ontractual transfer.’” RSA 78-B:1-a, II, III. Likewise, “[c]ontractual

relinquishment of control.” RSA 78-B:1-a, III. legislature’s intent to tax the type of transfers that occurred in First Berkshire, “[d]onative intent,” “[a]ctual delivery” and “[i]mmediate I believe the majority’s interpretation of the relevant statutes frustrates the The use of these terms suggests that the legislature intended all transfers to be create confusion concerning when the tax applies. More importantly, however, exemption applies, see 78-B:1-a, II, III (2003). Contractual transfers are presumed taxable, unless an

The legislature’s intent to tax First Berkshire

Thus, when the statute says “[n]oncontractual transfer,” it means “not a

2011), while non-contractual transfers are exempt. RSA 78-B:2, IX (2003). transferor entity and the resulting benefit, departs from this rule and will RSA 78-B:1, I(a) (2003); RSA 78-B:1-a, II, V (Supp.

the “[c]ontractual transfer” and “[n]oncontractual transfer” definitions in RSA

161 N.H. 746, 752 (2011). according to their plain meanings. See First Berkshire Business Trust ATV Watch v. N.H. Dep’t of Transp., Business Trust. I begin my analysis by interpreting the relevant statutes

decision today, by focusing upon the degree of attenuation between the market value of the transferred property. See id. I believe the majority’s Tangibly beneficial First Berkshire transfers are taxable based upon the fair- Berkshire transfers be taxed by formulating a simple, predictable rule: tax’s use of the term “bargained-for exchange” and its requirement that First

unnecessary. single group or entity controls all parties to a real estate transfer, bargaining is rule that First Berkshire Business Trust

p. 9 Thus, the rule that the transfer tax statutory scheme requires, and the

owns an interest.” RSA 78-B:1-a, II.

terms would result. See

the furnishing of the consideration.” Restatement (Second) of Contracts 9

Further evidence that the legislature intended to tax First Berkshire interest,” and “[f]rom any other interest holder to an organization in which he property. See

“promise” that bankruptcy would be avoided or that more favorable financing

consideration . . . induces the making of the promise and the promise induces

holds an interest,” “[f]rom a partner to the partnership in which he holds an for a transaction to constitute a bargained-for exchange. See id. at 182. contractual. Thus, all are, necessarily, contractual and, therefore, taxable. all transfers of real estate . . . [f]rom a shareholder to a corporation in which he that the furnishing of ten dollars induced the transferor entities to transfer the term “[c]ontractual transfer” specifically includes “bargained-for exchange[s] of 183. The transferees had no power to make such a promise. Nor is it likely

indirectly by the other person or entity in the transfer.” Id transferor entities did not furnish the property to the transferees to induce a person or entity, whether or not either person or entity is controlled directly or comment b at 173 (1981). Obviously in First Berkshire Business Trust, the of real estate, or any interest in real estate from a person or entity to another § 71

bargains, they were not bargains at all. “In the typical bargain, the Not only were the transfers in First Berkshire Business Trust not arm’s length

the case’s application of the rule that “arm’s length bargaining” is not required 3 elements of a gift transfer.” RSA 78-B:1-a. Therefore, none is non- Berkshire Business Trust did not expressly apply this analysis, it follows from none of these transfers involves a relinquishment of control, none “satisfies the relationship between the controller and controlled entity assumed. Indeed, the See First Berkshire Business Trust, 161 N.H. at 182-83. Although First the members of the two entities always controlled the TIG interest. Because commonly-controlled entities, i.e., First Berkshire transfers, are contractual. transfers of property from a controller to a controlled entity or among

RSA 78-B:1-a, V. Those terms specifically include “every contractual transfer

clarified that it intended to reach these transfers regardless of the form the Although the interest in TIG transferred from Say Pease to Say Pease IV,. The legislature also

because it controlled both subsidiaries. See owned subsidiaries to another, the parent similarly retained control throughout transfers is found in the definition of a taxable “[s]ale, granting and transfer.”

N.H. at 178-79. In that case’s second transfer, from one of the parent’s whollyboth before and after the transfer. See First Berkshire Business Trust, 161 p. 10 Under First Berkshire Business Trust

assessment of the tax.

property would be “too attenuated” from the transferor-controller to warrant interpretation, benefits that resulted from the corporation’s receipt of the produce no evidence of its true nature. Further, under the majority’s declare a dividend in the owner’s favor. See simply “give” the property to the corporation and compel the corporation to

fact, consideration for the transferred property, and such a transaction would

and to receive money in return, in order to avoid the tax, the owner could

obtain. The controller would have no reason to admit that the dividend was, in somehow tangibly benefitted the transferor. Such proof could be hard to shareholder and director, wished to transfer real property to the corporation actually bargains or, under the majority’s interpretation, that the transfer For example, if an owner, who controls a corporation as its sole

and frustrate the legislature’s intent to tax First Berkshire Controllers could employ numerous variations on this theme to defeat the tax result – the owner receiving money and the corporation getting the property.

corporate value resulting from the transfer would tangibly benefit the Berkshire Business Trust, 161 N.H. at 182-83. Thus, the increase in the To close this loophole, DRA would have to prove that such transfers were be taxable as long as one of the parties benefitted in some way. See First

dividend, the controller would avoid bargaining, but still achieve the desired

corporate rights to declare dividends). By forcing the corporation to pay a reduced the practical difficulties that determining whether a First Berkshire RSA 293-A:6.40 (2010) (discussing

Moreover, the rule we adopted, that beneficial First Berkshire

under First Berkshire Business Trust will seldom create evidence that they formed a contract, or “bargained,” so as to which the transferor and transferee are essentially the same people, the parties transfer was “bargained-for” might entail. In First Berkshire transfers, in

real estate transfer taxation scheme. The rule was also workable because it are taxable events, was clear, predictable and faithful to the language of the

and the transferor entity. See id. majority appears to conclude, the relationship between the resulting benefits

the statutory language analyzed above. Thus, in my view, the relevant inquiry make taxation possible. Id. at 181-82. This was the only way to give effect to transfers be taxed and adjusted the definition of “bargained-for exchange” to id. Rather, we emphasized that statutory language required that these types of exchanges, and we did not analyze them under a common law definition. See To the contrary, these transfers were not common law bargained-for in TIG through Say Pease IV. As a result, just as in First Berkshire Business

p. 11 benefitted not only TIG, but also Say Pease’s members, who still held interests transfer enabled TIG to obtain a $10.5 million mortgage loan. This loan Pease and Say Pease IV benefitted from the transfer at issue because the complicate matters for parties wishing to engage in First Berkshire “attenuation” necessary to avoid the tax, this new rule will, I believe,

costs in First Berkshire to circumvent the tax. This lack of predictability will, in my view, create new tax will apply and the number of additional ownership layers they must create

See

and created tangible benefits, it was “bargained-for.” The members of Say

Moreover, since the majority offers no guidance as to the degree of simply apply the rule enunciated by First Berkshire Business Trust Therefore, rather than analyzing the degree of attenuation, I would

refinancing or reorganization they planned. Now, they must guess whether the

simply shorthand for the fact that the transfers were tangibly beneficial overall.

that, because the transfer at issue here involved commonly-controlled entities

“beneficiary identity” and “transferor identity.” “identities” ultimately benefitted and the closeness of relationship between the transfers that our previous rule would avoid. Instead, it seems to be derived by parsing First Berkshire Business

the assessment of the transfer tax and fold additional expenses into whatever Under the First Berkshire Business Trust rule, these parties could anticipate did not impute benefits that other parties received to the transferors, but was transfers. rule with a technical doctrine that focuses upon the very distinctions that First

of the tax turns upon technical distinctions concerning which of the controllers’ both subsidiaries. Id. at 178. Therefore, I fail to understand why assessment distinction, in my view, lacks a basis in the text of the real estate transfer tax. the same “people,” i.e., the controllers of the parent that, in turn, controlled id. at 183. Indeed, all of the parties in both transactions were essentially

in that opinion suggesting that the transferors benefitted from the transactions I believe that the majority replaces this clear, predictable and workable but the presence of transfers upon which the statute imposes a tax. Language attenuation between the transferor entity and the “beneficiary” of the transfer, would not prevent assessment of the tax. relevant fact in First Berkshire Business Trust was not the degree of Trust ’s language and inserting analysis that did not appear in the opinion. The

the tax by structuring transfers to include additional layers of ownership. This Berkshire transfers, the majority enables commonly-controlled entities to avoid Berkshire Business Trust disregarded. Rather than facilitating taxation of First

increase in value. The technical distinctions among the layers of ownership transferor as sole shareholder because the transferor’s equity would also p. 12 12

transfer, I believe, constituted a bargained-for exchange.

provided consideration for the transfer of an interest in real property, and the Trust, 161 N.H. at 179, 181, a tangible benefit in the form of a financing option