august 2006

Buyers of a Commercial Property will have to pay a New Jersey Transfer Fee

BACKGROUND

Commencing August 1, 2006, subject to certain limitations, New Jersey will impose a transfer fee on a buyer of “commercial property” exceeding $1,000,000. “Commercial property” means any kind of income producing real property, other than vacant land or industrial, residential or farm properties or apartments.

The transfer fee imposed by New Jersey will be equal to 1% of the entire amount of consideration. For example, if a commercial property is purchased for $3,000,000, the transfer fee payable by the buyer at the closing will be $30,000.

The transfer fee will also be applicable to a buyer paying over $1,000,000 for the “controlling interest” in any type of entity which directly or indirectly possesses a controlling interest in commercial property. “Controlling interest” means ownership of more than 50% of voting power of a corporation or more than 50% of the capital, profits or beneficial interest in a partnership, association, trust or other organization. However, if the entity owns assets in addition to Commercial Property, the transfer fee applies only if the equalized assessed value of the commercial property, set by the New Jersey Division of Taxation, exceeds $1,000,000.

WE RECOMMEND

When contemplating the purchase of commercial property or the controlling interest of an equity owning commercial property, determine the transfer fee impact and consider the structure of the transaction.

If you have any questions concerning the transfer fee, please contact Regina E. Schneller or Robert A. Stout.