Purchasers and sellers of American land and buildings must consider the effects of state and local real property transfer taxes. These taxes can lead to substantial liabilities. Further, the taxes can apply to sales of entities, including non-American entities, that own real property. This is demonstrated by a New York case involving an Israeli citizen who owned and operated a trust from Tel Aviv. The trust sold its interest in a Netherlands Antilles limited liability company that in turn owned a hotel in New York City. The taxpayer argued that the sale was of intangible property having no New York connection. That argument was rejected, and the transfer was held to be subject to New York State taxes on the transfer of New York real property — at a total tax liability of $1.5 million. Further, while the decision addresses only New York State taxes, New York City’s real property transfer tax also likely applied.
Many states and cities impose taxes on the sale or other transfers of land and buildings located within their borders. When they apply, these taxes are imposed at rates of 1%, 2% or more of the property’s gross sales price.