My company plans to transfer real property to its wholly-owned subsidiary, and then transfer all of that subsidiary's stock up to its own parent corporation. Are both transfers exempt from New York's Real Property Transfer Gains Tax as a mere change of form?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1986 opinion is preserved here for historical and research value, not as current law.

Philip Morris Incorporated, a Virginia corporation wholly owned by its parent Philip Morris Companies, Inc., owned real property in Cayuga County, New York, and also wholly owned Miller Brewing Company, a Wisconsin corporation. Philip Morris Incorporated planned two related transfers: first, transferring the Cayuga County real property down to its wholly-owned subsidiary, Miller Brewing Company; and second, transferring all of its Miller Brewing stock up to its own parent, Philip Morris Companies, Inc.

The Department applied former Tax Law § 1443.5's mere-change-of-form exemption, together with former 20 NYCRR § 590.50(a)(4), which specifically provides that transfers of real property "by a corporation to its wholly owned subsidiary, from a wholly owned subsidiary to its parent, or from one wholly owned subsidiary to another" are exempt as mere changes of form. The Department found the real-property transfer to Miller Brewing squarely fit that regulation, and treated the parallel transfer of all of Miller Brewing's stock up to Philip Morris Companies the same way -- reasoning that moving 100% ownership of a wholly-owned subsidiary up to its 100% parent is likewise just a change in the form of ownership, with no change in beneficial interest. Both transfers were ruled exempt.

What this means for you

Corporations restructuring real estate holdings within a wholly-owned corporate family

Moving real property (or the stock of an entity holding real property) between a parent and its wholly-owned subsidiary, or between two wholly-owned subsidiaries of the same parent, generally qualified as an exempt mere change of form -- there's no beneficial-interest change when ownership stays 100% within the same corporate family.

Corporate and tax attorneys structuring intercompany transfers

This opinion confirms the regulation's specific parent/wholly-owned-subsidiary carve-out applies even when the restructuring involves two SEPARATE transfers happening close in time (a downward real-property transfer followed by an upward stock transfer) rather than a single simple conveyance.

Accountants tracking a multinational or multi-tier corporate group's real estate

The "wholly owned" requirement was strict -- this exemption applied because ownership was 100% at each link in the chain (Philip Morris Companies wholly owned Philip Morris Incorporated, which wholly owned Miller Brewing). Any minority co-ownership at any link would take the transfer outside this specific regulatory carve-out.

Common questions

Q: Does this parent/subsidiary exemption rule still apply today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York real estate transfer taxes have their own separate related-party exemption rules.

Q: Would this ruling have applied if Philip Morris Incorporated owned only 90% of Miller Brewing instead of 100%?
A: Not under the specific regulation applied here (former 20 NYCRR § 590.50(a)(4)), which by its terms was limited to WHOLLY owned subsidiaries -- less-than-100% ownership would have required analysis under the general mere-change-of-form standard instead, without this bright-line safe harbor.

Q: Why did the upward stock transfer to the ultimate parent also qualify?
A: Because Philip Morris Companies already owned 100% of Philip Morris Incorporated, and Philip Morris Incorporated owned 100% of Miller Brewing -- transferring the Miller Brewing stock up the chain didn't change anyone's ultimate beneficial ownership, since the parent already indirectly owned all of it.

Q: Can another wholly-owned corporate family rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, though the underlying regulatory exemption for wholly-owned-subsidiary transfers was of general application while the tax existed.

Citations and references

Statutes and regulations:

• former Tax Law § 1443.5 (exemption for a transfer that is a mere change of identity or form of ownership or organization, with no change in beneficial interest)
• former 20 NYCRR § 590.50(a)(4) (transfers between a corporation and its wholly owned subsidiary, or between wholly owned subsidiaries of the same parent, are exempt as a mere change of form)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a86_3r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (3) R
Real Property Transfer
Gains Tax
June 20, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. M860605A

On June 5, 1986, A Petition for Advisory Opinion was received on behalf of Philip Morris
Incorporated, located at 120 Park Avenue, New York, New York 10017.
The issues raised are whether the proposed transfer by the Petitioner to Miller Brewing
Company of certain real property owned by the Petitioner in Cayuga County, New York, and the
proposed transfer by the Petitioner to Philip Morris Companies, Inc. of all shares of The Miller
Brewing Company stock which the Petitioner owns are exempt from the New York State Real
Property Transfer Gains Tax (hereinafter "the Gains Tax") under section 1443.5 of the Tax Law.
The pertinent facts are as follows. Philip Morris Incorporated (hereinafter "the Petitioner")
is a corporation organized under the Laws of the Commonwealth of Virginia. Miller Brewing
Company (hereinafter "Miller"), a corporation organized under the Laws of the State of Wisconsin,
is a wholly-owned subsidiary of the Petitioner. Philip Morris Companies, Inc. (hereinafter "Philip
Morris Companies"), a corporation organized under the Laws of the Commonwealth of Virginia,
owns all the outstanding stock of the Petitioner.
On June 1, 1986, the Petitioner intends to transfer to Miller certain real property owned by
Petitioner in Cayuga County, New York. On July 1, 1986, the Petitioner intends to transfer to Philip
Morris Companies all shares of Miller stock which the Petitioner owns.
As required by Article 31-B of the Tax Law, the Petitioner and Miller and the Petitioner and
Philip Morris Companies have filed Questionnaires (Forms TP-580 and TP-581) in connection with
each of the proposed transfers.
Section 1443.5 of the Tax Law exempts from the Gains Tax any transfer to the extent that
such transfer "consists of a mere change of identity or form of ownership or organization, where
there is no change in beneficial interest".
Additionally, section 590.50(a)(4) of the Gains Tax Regulations in implementing the
provisions of section 1443.5 of the Tax Law provides that in the case of transfers by a corporation
to its wholly owned subsidiary, from a wholly owned subsidiary to its parent or from one wholly
owned subsidiary to another, such transfers are exempt from the Gains Tax.
It is the contention of the Petitioner that each of the proposed transfers are exempt from the
Gains Tax based on the above cited section 1443.5 of the Tax Law and section 590.50(a)(4) of the
Gains Tax Regulations.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86 (3) R
Real Property Transfer
Gains Tax
June 20, 1986

The transfer of real property by a corporation to its wholly owned subsidiary under
circumstances described herein is deemed to be a mere change of identity or form of ownership or
organization. Similarly, the transfer by a taxpayer to its parent corporation of all of the shares of a
subsidiary of the taxpayer under circumstances described herein is deemed to be a mere change of
identity or form of ownership or organization.
Accordingly, both of the proposed transfers described by Petitioner are exempt from the
Gains Tax pursuant to the exemption created by section 1443.5 of the Tax Law.

DATED: June 20, 1986

s/Frank J. Puccia
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.