Subchapter H. SPECIAL SITUATIONS

§ 91.151. Correctional deed.

 A deed made without consideration for the sole purpose of correcting an error in the description of the parties or of the premises conveyed is not taxable. This exclusion only applies if:

   (1)  The property interest in the correctional deed is identical to the property intended to pass with the original deed.

   (2)  The parties treated the property interest described in the correctional deed as that of the grantee from the time of the original transaction.

   (3)  The parties have not treated the property interest described in the original deed as the property of the grantee from the time of the original transaction.

   The provisions of this §  91.151 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.151 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096.

 (a)  A deed made without consideration for the sole purpose of confirming title to real estate under a prior recorded document, including a deed that only asserts a transfer of title to real estate by operation of law as a result of an existing survivorship interest, is not taxable. This subsection only applies if the following apply:

   (1)  The grantee of the deed of confirmation held or holds record title to the property interest described in the deed of confirmation under a prior deed.

   (2)  The deed of confirmation is made solely for the purpose of making the grantee’s record legal title under the prior deed sure and unavoidable.

   (3)  The grantor of the deed of confirmation has no interest in the real estate conveyed or the grantor received his interest by a document that was void from inception.

 (b)  A deed made without consideration for the sole purpose of confirming an entity’s existing real estate ownership following a conversion of the entity is not taxable. This subsection only applies if all of the following occur:

   (1)  The entity holds title to the real estate at the time of the conversion as opposed to its owners. An entity does not hold title to real estate if the entity’s owners have merely made a capital contribution of the real estate to the entity without the conveyance of title to the real estate.

   (2)  Without the making of any document:

     (i)   The entity is vested with all the same property, real, personal and mixed, franchises and debts before and after the conversion.

     (ii)   The entity is subject to all the same obligations before and after the conversion.

     (iii)   Liens upon the property of the entity before the conversion are not impaired by the conversion.

     (iv)   Any claim existing or action or proceeding pending by or against the entity before the conversion may be prosecuted to judgment against the entity after the conversion.

   (3)  The entity is not required to wind up its affairs or pay its liabilities and distribute its assets either because there is no break in the continuity of its existence or because its separate existence ceases with the conversion.

   (4)  Considering all the ownership interests in the entity prior to the conversion, there is no change in proportionate ownership interests resulting from the conversion. Notwithstanding the provisions of §  91.154 (relating to documents involving corporations, partnerships, limited partnerships and other associations), when determining if there is a change in proportionate ownership interests, entities will not be considered to be entities separate from their members, partners, stockholders or shareholders; and when determining if there is a change in proportionate ownership interests resulting from the change to a limited partnership, the interests of the limited partners and general partners will both be considered.

   (5)  Title to real estate would not revert or be in any way impaired by reason of the conversion.

   Example 1. A and B are equal partners in a general partnership known as AB, general partnership. One of the assets of the partnership is real estate that A and B contributed to the partnership but own in their individual names. A and B want to convert their general partnership to a limited partnership known as AB, LP. A and B set up a limited liability company (LLC) to be the 1% general partner in the limited partnership. A and B will have a 99% limited partnership interest in the limited partnership (that is, A and B each have a 49.5% limited partnership interest). In order to effectuate the conversion, A and B merge AB into AB, LP. The limited partnership is the surviving entity of the merger. The general partnership ceases to exist as a result of the merger.

 By way of the merger, AB has changed its business organization form, or converted, from a general partnership to a limited partnership. AB, LP continues the same business as AB and has all the same assets and liabilities as AB. Further, ownership of the business has not changed. A and B were equal owners of AB and are equal owners of AB, LP through their equal ownership of the LLC and their equal limited partnership interests in AB, LP.

 After the conversion, A and B prepare a deed for the real estate from A and B, individually, and AB, general partnership, as grantors to AB, LP as grantee. The deed is taxable because the real estate was in the name of A and B individually. Legal title was never transferred to the general partnership. Therefore, the deed effectuates a transfer of title in the real estate from A and B, individually, to AB, LP. AB, general partnership is merely joining in the deed. A document that transfers title to real estate from individuals to an entity is taxable.

 Example 2. Assume the same facts as in Example 1 except that AB purchased the real estate with partnership funds and titled the real estate in the name of AB. Because the general partnership holds title to the real estate and because the deed merely confirms AB’s existing ownership of the real estate following its conversion to AB, LP, the deed is not taxable.

   Example 3. Assume the same facts as in Example 2, except that instead of setting up a limited liability company (LLC) to be the general partner of AB, LP, A becomes the general partner and B becomes the limited partner. Each holds a 50% interest in the partnership’s income. Although A and B each have an equal income interest, A now has sole control over the limited partnership as its general partner and B has only an income interest as a limited partner. In the general partnership, A and B had equal management and income interests. Because there is a change in ownership interests, AB, LP is a different entity than AB. Therefore, the deed is taxable.

 Example 4. X, Y and Z are equal co-partners in XYZ general partnership. XYZ general partnership owns Pennsylvania real estate. X, Y and Z desire to change the form of the general partnership to a limited liability company (LLC). X, Y and Z set up an LLC to take the place of the general partnership. X, Y and Z are equal members in the LLC. To effectuate the conversion, X, Y and Z transfer their partnership interests to the LLC. As a result, the LLC becomes the sole partner of the partnership. By law, the partnership must dissolve. As part of the dissolution, the partnership conveys all its assets, including real estate, and assigns its liabilities to the LLC, the sole partner. Because of the dissolution, the general partnership ceases to exist and the LLC survives with the same owners, assets and liabilities as the general partnership. Because of the dissolution, there has been a break in the continuity of the general partnership. Consequently, the exclusion under this subsection does not apply. Further, the document that conveyed the real estate from the general partnership to the LLC effectuated a direct transfer of real estate from the general partnership to the LLC while they both existed. Because the transfer was from an entity, XYZ general partnership, to its sole member, the LLC, the document is subject to tax under §  91.154(a) (relating to documents involving corporations, partnerships, limited partnerships and other associations), and the exclusion under §  91.193(13) (relating to excluded transactions) does not exclude the document from tax because the LLC has not owned its interest in the general partnership for more than 2 years.

   The provisions of this §  91.152 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.152 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096; amended December 14, 2007, effective December 15, 2007, 37 Pa.B. 6516. Immediately preceding text appears at serial page (233365).

 (a)  Transfers from agent.

   (1)  The transfer of realty without consideration from an agent to the agent’s principal is not subject to tax, if the agent acquired the transferred realty for the exclusive benefit of the principal.

   (2)  The transfer from an agent to a third person of realty acquired by the agent for the exclusive benefit of the agent’s principal is subject to tax to the same extent the transfer would be taxed if made directly by the agent’s principal.

 (b)  Transfers to agent.

   (1)  A transfer without consideration to an agent from the agent’s principal of realty in which the principal retains the beneficial interest is not subject to tax.

   (2)  A transfer to an agent from a third person of realty acquired by the agent for the exclusive benefit of the agent’s principal is subject to tax to the same extent that the transfer would be taxed if made directly to the agent’s principal.

 (c)  Presumption. If the document by which title is acquired by a grantee fails to set forth that the realty was acquired by the grantee from or for the benefit of the agent’s principal, there is a rebuttable presumption the realty is that of the grantee in the grantee’s individual capacity if an exemption from taxation under this section is claimed.

 (d)  Like-kind exchanges. For purposes of this section and §  91.193(b)(11) (relating to excluded transactions), an agent or straw party does not include:

   (1)  A qualified intermediary as defined under Federal Treasury regulation in 26 CFR 1.1031(k)-1(g)(4) (relating to treatment of deferred exchanges) in an Internal Revenue Code §  1031 exchange.

   (2)  An exchange accommodation titleholder or any other accommodation party utilized in a parking transaction as defined under Federal Revenue Procedure 2000-37 (Rev. Proc. 2000-37, 2000-2 C.B. 308) in an Internal Revenue Code §  1031 exchange.

   The provisions of this §  91.153 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.153 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096; amended December 14, 2007, effective December 15, 2007, 37 Pa.B. 6516. Immediately preceding text appears at serial pages (233365) to (233366).

 (a)  Entities are separate from their stockholders, shareholders, partners and members. Transfers of title to real estate between entities and their stockholders, shareholders, partners and members, including transfers between a subsidiary and a parent corporation and transfers in consideration of the issuance or cancellation of stock, are fully taxable, unless otherwise excluded.

 (b)  If a person dedicates and sets aside real estate for an entity’s use through a writing without conveying title to the real estate to the entity, the writing is not subject to tax.

 (c)  If a person dedicates and sets aside real estate for an entity’s use through a writing and the writing does not result in a conveyance of title to the real estate to the entity, there is no tax imposed when an entity relinquishes its control over the real estate back to the person through a writing.

 (d)  Examples are as follows:

 Example 1. X owns title to real estate. X transfers title to the real estate to X, Y, Z trading as XYZ partnership or X, Y and Z, copartners. The deed of transfer from X is fully taxable. Partnerships are separate entities from their partners.

 Example 2. D, E and F are partners in both TUV and QRS partnerships. D, E and F, trading as TUV Partnership, transfer real estate to D, E and F trading as QRS Partnership. The deed is fully taxable because TUV Partnership and QRS Partnership are separate entities even though each has the same partners.

 Example 3. Assume the same facts as in Example 1, except that X dedicates and sets the real estate aside for the partnership’s use under the partnership agreement without conveying title to the real estate to the partnership. Because title remains with X, no tax is due.

 Example 4. Assume the same facts as in Example 3. Subsequent to X’s dedication of the real estate to the partnership’s use, X decides to withdraw from the partnership. When X withdraws from the partnership, the partnership relinquishes its control over the real estate as part of the partnership’s purchase of X’s interest in the partnership. The relinquishment is made in writing. Because X has always held title to the real estate, there is no tax liability when the partnership relinquishes its control to the real estate.

   The provisions of this §  91.154 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.154 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096; amended December 14, 2007, effective December 15, 2007, 37 Pa.B. 6516. Immediately preceding text appears at serial pages (233366) to (233367).

 (a)  Except as provided in subsections (b) and (c), a writing transferring interests in standing timber and crops is a taxable document under this chapter.

 (b)  Standing timber is considered nontaxable personal property if the writing provides for severance and complete removal at once or as soon as it can be reasonably done. A writing that conveys an interest in standing timber is a taxable document if any of the following apply:

   (1)  The transferee has discretion as to the time of removal.

   (2)  The writing is indefinite as to the time for removal.

   (3)  The writing provides more time for the removal than is reasonably necessary considering the nature and extent of the land and the number of feet of merchantable timber to be removed.

   (4)  Even if the writing provides a reasonable time for the severance and complete removal of the timber, the transferor concurrently conveys title to the underlying real estate to the transferee, or gives the transferee the right or option to purchase the underlying real estate within the period for severance of the timber.

 (c)  Products of the soil are considered nontaxable personal property if one of the following applies:

   (1)  The products are planted annually and gathered during a single, annual season.

   (2)  The products are propagated for the purpose of being transplanted or grafted.

   (3)  The products require annual pruning, spraying or cultivation.

   (4)  The products are the annual products of shrubs, trees or annual or perennial plants.

   The provisions of this §  91.155 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 (a)  Transfers to ordinary trusts. A transfer of real estate for no or nominal consideration to an ordinary trust is fully taxable unless the transfer of the same real estate would be wholly excluded if the transfer was made directly from the grantor to all of the possible beneficiaries who have a remainder interest or who are otherwise entitled to receive the real estate or the proceeds from the sale of the real estate as a beneficiary under the terms of the trust, whether or not the beneficiaries are contingent or specifically named.

 Example: G transfers real estate to a trust without consideration for the use of B, G’s spouse, for life. Under the trust, the remainder interest is vested in G’s church. As a direct transfer to the religious organization would be taxable, the transfer to the trust is fully taxable.

 (b)  Contingent beneficiaries. A trust provision which identifies a contingent beneficiary by reference to the heirs of the trust settlor as determined by the laws of intestate succession will by itself neither qualify nor disqualify a transfer from the exemption provided by subsection (a).

 (c)  Transfers to living trusts.

   (1)  A transfer for no or nominal actual consideration to a trustee of a living trust from the settlor of the living trust is excluded from tax.

   (2)  A transfer for no or nominal actual consideration to a trustee of a living trust from a grantor other than the settlor is fully taxable unless the transfer of the real estate would be wholly excluded if the transfer was made directly from the grantor to the settlor.

 (d)  Transfers from ordinary trusts. A transfer from an ordinary trust is fully taxable except for a transfer for no or nominal actual consideration from the trustee to the person who has the vested remainder interest or who is otherwise entitled to receive the real estate or the proceeds from the sale of the real estate as a beneficiary under the terms of the trust.

 (e)  Inter vivos transfers from living trusts.

   (1)  A transfer from the trustee of a living trust during the settlor’s lifetime to a grantee other than the settlor will be treated as if the transfer were made directly from the settlor to the grantee.

   (2)  A transfer from the trustee of a living trust to its settlor is excluded from tax, irrespective of who conveyed the real estate to the trustee. However, if the grantor who conveyed the real estate to the trustee is the settlor’s family member as defined in §  91.193(b)(6) (relating to excluded transactions), the provisions of §  91.193(b)(6)(ii) apply to a subsequent transfer.

 (f)  Transfers from testamentary trusts and living trusts after the death of the settlor. A transfer of real estate from the trustee of a testamentary trust or a living trust after the death of its settlor is exempt from tax only if the transfer is made for no or nominal actual consideration and to the person who, under the governing instrument of the trust, has the vested remainder interest or who is otherwise entitled to receive the real estate or the proceeds from the sale of the real estate as a beneficiary under the terms of the trust.

 (g)  Requirement for exemption. An exemption will not be granted under this section unless the recorder of deeds is presented with a copy of the trust agreement.

   The provisions of this §  91.156 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.156 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096; amended December 14, 2007, effective December 15, 2007, 37 Pa.B. 6516. Immediately preceding text appears at serial page (233367).

 (a)  If cotenants partition realty, whether by agreement or judicial action, so that the property is divided into two or more distinct portions, the value of each resulting portion is not taxable to the extent of the grantee’s prior interest.

 (b)  If the transfer merely changes the undivided proportionate interest of the cotenants, the value of the property is taxable to the extent of the proportionate change in ownership interest.
 Example:

 X, Y and Z each own an undivided one-third interest in Lot 3. X and Y each convey a one-twelfth interest to Z, leaving X and Y each with a one-quarter interest and Y with a one-half interest. As the grantors conveyed a one-sixth interest and the grantee received a one-sixth interest, the transfer is taxable on one-sixth of its value.

   The provisions of this §  91.157 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 A transfer to an industrial development authority or a nonprofit industrial development agency is not taxable. A transfer from an industrial development authority or a nonprofit industrial development agency is taxable unless one of the following applies:

   (1)  The document was delivered after December 19, 1985, and before July 2, 1986, and recorded prior to August 1, 1986.

   (2)  The realty conveyed to the grantee was transferred of record to the authority or agency by the grantee as security for the debt of the grantee under a financing transaction.

   (3)  The transaction meets the following requirements:

     (i)   The authority or agency held record legal title to the realty granted.

     (ii)   At the time the authority or agency and grantee entered into the contract for a deed, sales agreement or lease and option agreement, no person other than the authority or agency had an equity interest in or option to purchase the realty granted to the grantee.

     (iii)   The grantee shall directly use the realty for the primary purpose of manufacturing, fabricating, compounding, processing, publishing, research and development, transportation, energy conversion, energy production, pollution control, warehousing or agriculture.

   The provisions of this §  91.158 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.158 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096.

 (a)  A document which evidences a specific or residuary devise of real estate by will or under intestate law and a document under an orphan’s court adjudication allocating realty to a surviving spouse as part of his exemption or allowance is not taxable under §  91.193(b)(7) (relating to excluded transactions) if the document is without consideration or for nominal actual consideration. A transfer made under the exercise of an option to purchase realty under a will is for consideration and is taxable, whether the transfer is a bona fide sale or not.

 (b)  If a joint interest in realty passes to two or more heirs or devisees by will or under intestate law, a subsequent transfer of division in kind between the heirs or devisees is not taxable under §  91.193(b)(5) unless the transfer is for consideration or an heir or devisee takes a share greater in value than his undivided interest. If the transfer is for consideration or an heir or devisee takes a share greater than his undivided interest, the property received by an heir or devisee is taxable to the extent of the value of the grantor’s interest under the will or under intestate law.
 Example 1:

 By will, A, B and C inherited three lots of equal value as tenants in common. A, B and C convey one lot to A, one lot to B and one to C. The deeds are for nominal actual consideration. The three conveyances are not taxable under §  91.193(b)(5), because the value of each party’s share is equal to his undivided interest, the property divided passed by will, and the division was accomplished without additional consideration.
 Example 2:

 Assume the same facts as in Example 1, except that B and C convey their interests in two lots to A for $10,000 and A conveys his one-third interest in the remaining lot to B and C. These conveyances are not wholly excludable under §  91.193(b)(5) or (7). Unless otherwise excludable—familial relationship, and the like—the lots conveyed to A are excludable only to the extent of A’s one-third interest under the will. The interest conveyed by A is fully taxable.

 (c)  If an interest in realty would have passed to an heir or devisee by will or under intestate law but for that heir’s or devisee’s disclaimer of the interest or family agreement, the value of the interest disclaimed is not wholly excludable from tax under §  91.193(b)(5) or (7) unless there is no or nominal consideration passing from the grantee to the heir or devisee for the disclaimer or the conveyance is otherwise excludable from tax.
 Example:

 Assume the same facts as in Example 1 of subsection (b), except that B and C disclaim their interest in the two lots in exchange for A’s renunciation of all of his interest in the remaining lot and $10,000. In this situation §  91.193(b)(5) and (7) are inapplicable. The conveyances would be taxed the same as in Example 2 of subsection (b).

   The provisions of this §  91.159 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.159 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096.

 If parties exchange realty between themselves, the deeds transferring title to each are subject to tax. The tax shall be computed on the basis of the value of the interest in each realty conveyed under §  91.135 (relating to judicial sales and other transactions).

   The provisions of this §  91.160 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 A transfer of realty to or from charitable, religious, educational or other nonprofit organizations is taxable on the same basis as other deeds. See §  91.193(b)(17) (relating to excluded transactions).

   The provisions of this §  91.161 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 A transfer of real estate to a developer or contractor who is required by contract to reconvey the real estate to the grantor after making contracted-for improvements to the real estate is not taxable if no beneficial interest in the real estate is transferred to the developer or contractor. The reconveyance to the grantor is also not taxable.

   The provisions of this §  91.162 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 An instrument creating, transferring or extinguishing ground rent is taxable upon the same basis as other deeds.

   The provisions of this §  91.163 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 A quitclaim deed is taxable upon the same basis as another deed if there is an actual conveyance of real estate. See § §  91.151 and 91.152 (relating to correctional deed; and confirmatory deed).

   The provisions of this §  91.164 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 (a)  The value of a life estate or remainder interest in real estate will be the consideration paid or to be paid for the life estate or remainder interest except as provided for in subsection (b) or (c).

 (b)  When no or nominal consideration or consideration less than actual monetary worth is paid for a life estate or remainder interest in real estate, life estate and remainder factors as provided in subsection (d) are multiplied by the real estate’s computed value in order to calculate the value of a life estate or remainder interest.

 (c)  When consideration that is paid or to be paid for the conveyance of real estate or the computed value of real estate must be apportioned to calculate the taxable value of a life estate or remainder interest that is part of the conveyance, the life estate and remainder factors as provided in subsection (d) are multiplied by the consideration paid or to be paid for the conveyance of the real estate or the computed value in order to calculate the value of the life estate or remainder interest.

 (d)  The Department will publish by notice in the Pennsylvania Bulletin life estate and remainder factors and their effective date to be used for the calculation of the taxable value of a life estate and remainder interest in real estate.

   (1)  Formula. The factors will be based upon tables published by the Internal Revenue Service for calculating the present worth of a life estate and remainder interest. The Department will use the factors contained in the Internal Revenue Service Table using an interest rate equal to the average interest rate for the 36 consecutive months prior to the publication of the factors in the Pennsylvania Bulletin.

   (2)  Updates. The Department will update the factors periodically as needed to account for changes in mortality and interest rates.

 Example 1: In an arm’s length transaction for actual monetary worth, L conveys a life estate interest (or remainder interest, as the case may be) in real estate to T for $50,000. The taxable value of the life estate is the consideration paid, that is $50,000.

 Example 2: L conveys a life estate interest in real estate to T for less than actual monetary worth. L reserves the remainder interest for himself. The computed value of the entire real estate is $100,000. T is 50 years old. The taxable value of T’s life estate interest is the computed value of the entire real estate multiplied by the life estate factor based upon T’s age.

 Example 3: L conveys a remainder interest in real estate to T for less than actual monetary worth. L retains a life estate interest in the real estate. The computed value of the entire real estate is $100,000. L is 50 years old. The taxable value of T’s remainder interest is the computed value of the entire real estate multiplied by the remainder factor based upon L’s age.

 Example 4: X sells real estate to X’s friends Y and Z. The sale consists of a life estate to Y and the remainder to Z. Y is 60 years old, and Z is 45 years old. X sells the real estate to Y and Z for a total, arm’s length purchase price of $100,000, but the agreement of sale does not apportion the purchase price between the price to be paid for the life estate and the remainder interest. To calculate the taxable value of the life estate and remainder interest, the life estate and remainder factors based upon Y’s age are multiplied by the total purchase price.

   The provisions of this §  91.165 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 A transfer of real estate as consideration for life maintenance is a taxable transaction. The tax base will be computed based on the value of the real estate as determined under §  91.135 (relating to judicial sales and other transactions).

   The provisions of this §  91.166 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 Except as provided in §  91.193(b)(27) (relating to excluded transactions), easements represent a taxable interest in real estate. The tax base in these instances is the actual consideration or the actual monetary worth thereof.

   The provisions of this §  91.167 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 If title to real estate is conveyed on the condition that the real estate be leased back to the grantor the document of conveyance is taxable and the lease is taxable if it is for a term of 30 years or more, unless the conveyance and lease are executed together as part of an excluded financing transaction under §  91.193(b)(23) (relating to excluded transactions).

   The provisions of this §  91.168 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.168 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096; amended December 14, 2007, effective December 15, 2007, 37 Pa.B. 6516. Immediately preceding text appears at serial page (233374).

 Instruments evidencing an interest in all or a fixed amount of unremoved coal, oil, natural gas or minerals in place are taxable if the interest conveyed, transferred, released, demised, vested or confirmed thereby is an estate in fee simple or approximates an estate in fee simple.

   The provisions of this §  91.169 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of this §  91.169 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096.

 (a)  General rules.

   (1)  A document will be excludible from tax if each of the following requirements is satisfied:

     (i)   The document stands in the place of two or more other writings.

     (ii)   Each of the writings for which the document stands would be excludible from tax under this article and effective notwithstanding the insolvency, bankruptcy or other legal disability of the signatories thereto.

     (iii)   Title to the affected real estate would not revert or be in any way impaired or encumbered by reason of the recordation of the writings described in subparagraphs (i) and (ii).

   (2)  Separate transfers of a greater estate and a lesser estate in real property will be taxed as a single transfer of both estates if the transactions are entered into in contemplation of a merger thereof.

   (3)  Separate transfers of an interest in timber, coal, oil, gas or other appurtenance to real estate and the real estate to which the interest is appurtenant will be taxed as a single transfer of both interests if the transactions are entered into in contemplation of their coinciding and meeting in the same person.

 (b)  Combining transactions. When a single document represents, in substance, two or more transfers of title to real estate, the document will be viewed as a series of separate transfers and documents.

   (1)  The tax due on the single document will be the same as the sum of tax that would be due had each transfer been effectuated by a document. The tax liability for the single document will be allocated among the parties as if each transfer had been effectuated by a document.

   (2)  If each separate transfer in the series is excluded from tax, the single document is excluded from tax. This rule only applies if the following apply:

     (i)   Each transfer and document in the series could have been accomplished and executed individually under the laws of the Commonwealth or the United States.

     (ii)   Completing the series of transfers and documents would result in the same transfer accomplished by the single document.

     (iii)   The series of transfers and documents have not been reduced to one transfer and document in order to avoid a legal, contractual, economic or personal detriment associated with completing the series of transfers and documents.

     (iv)   The series of transfers and documents would have been completed without the benefit of this rule.

     (v)   The application of §  91.193(b)(6)(ii) (relating to excluded transactions) will not be avoided by the application of this rule.

 Example 1. X enters into an agreement of sale with Y for the conveyance of real estate for $100,000. Y subsequently assigns the sales agreement to Z for $1 million. X executes a deed for the conveyance of the real estate to Z and receives $100,000. Y receives $1 million from Z for the assignment. The taxable value of the deed from X to Z is $1,100,000. X and Y are jointly and severally liable for the tax on $100,000 (See §  91.132(c)). Y and Z are liable for the remaining tax on $1 million.

 Example 2. D dies leaving a will that devises real estate to D’s two sons, X and Y. D is also survived by another son, Z. Z wants the real estate. X and Y do not want the real estate. X and Y agree to sell the real estate to Z. D’s estate could execute a deed for the real estate to X and Y as tenants in common without the imposition of tax. See §  91.193(b)(7). X and Y could then sell and transfer their interests in the real estate to Z without the imposition of tax. See §  91.193(b)(6)(i)(C). Therefore, assuming the criteria in subsection (b)(2)(i)—(iv) are met, D’s estate could sell and transfer the real estate to Z without the imposition of tax on the deed of transfer even though the deed from D’s estate to Z would otherwise be taxable.

 Example 3. X and Y are siblings. X has a child, Z (Y’s niece/nephew). Y conveys title to real estate to Z by a document. Documents that convey title to real estate from a person’s sibling to the person’s child are subject to tax. Therefore, the document from Y to Z is taxable. This rule does not prohibit the imposition of tax. Although Y could have transferred the real estate to X by a document without the imposition of tax, see §  91.193(b)(6)(i)(C), and X could then, by a separate document, have transferred the same real estate to Z without tax, see §  91.193(b)(6)(i)(B). The document from Y to Z is still subject to tax because the two-step transaction would violate the rule under §  91.193(b)(6)(ii) regarding family transfers made within 1 year.

 Example 4. X conveys title to real estate to an industrial development authority (IDA) as security for a loan of $1 million in a financing transaction in which the IDA is the lender. In turn, the IDA enters into an installment land contract with X for the real estate. The total installment payments serve as the debt service on the loan. During the term of the installment land contract, X enters into an agreement of sale with Y for the real estate. The purchase price for the real estate is $5 million. At the end of the installment sales contract, X directs the IDA to convey the real estate directly to Y. In this case, the deed from the IDA to Y will be viewed as two transfers and documents: a transfer from the IDA to X in satisfaction for the repayment of the $1 million loan and a subsequent deed for the sale of the real estate from X to Y for $5 million. The taxable value of the deed from the IDA to Y is $5 million. The taxable value is calculated by adding the taxable value of the transfer from the IDA to X and the transfer from X to Y as if each transfer had been effectuated by a document. The transfer from the IDA to X is excluded as the second leg in a financing transaction. See §  91.193(b)(23). Neither the IDA or X are liable for tax on this transaction. The transfer from X to Y is taxable on the sale value of $5 million. X and Y are jointly and severally liable for the tax on the $5 million sale value.

 Example 5. Same facts as in Example 4 except that there is no sale between X and Y. Rather, X is the sole owner of a subsidiary business entity. At the end of the installment sale term between the IDA and X, X directs the IDA to convey the real estate to the subsidiary business entity. The conveyance is for no or nominal consideration. Under this set of facts, the deed to the subsidiary will also be seen as a two step transaction. As in Example 4, the first step of the transaction will be the transfer of the real estate from the IDA to X. That transaction is excluded from tax. The IDA and X have no liability for that transaction. The second step of the transaction is the transfer from X to its subsidiary business entity. The second step is taxable; and because the transaction is for no or nominal consideration, the taxable value is the computed value of the real estate. X and the subsidiary business entity are jointly and severally liable for the tax on that transfer.

 (c)  Splitting transactions. If a series of two or more transactions and associated writings, one or more of which would not be subject to tax if considered separately, are completed instead of a single transaction and taxable document, the series of transactions and writings will be considered as if completed by the single transaction and document. Therefore, each individual writing in the series of transactions and writings will be subject to tax upon a portion of the value of the title to real estate conveyed in respect of the transactions and writings. If it is not possible to determine how to apportion all or part of the taxable value between two or more of the writings, the value for which apportionment cannot be determined shall be divided equally among all writings that do not have an apportioned value. This rule only applies if:

   (1)  The parties to the single transaction and document are identical to the parties to the series of transactions and writings. For purposes of this section, parties are identical if they are the same person or the person’s affiliate. The term ‘‘affiliate’’ in this section has the same meaning as the term ‘‘grantor’s affiliate’’ in §  91.131 (relating to definitions).

   (2)  Completing the series of transactions and writings results in the same outcome that would have resulted from completing the single transaction and document.

   (3)  The primary purpose for completing the series of transactions and writings rather than completing the single transaction and document is the avoidance of tax.

 Example 1. X agrees to sell and convey real estate to Z for $2 million. The conveyance can be accomplished by one, taxable document based upon the sale price of $2 million. To avoid paying tax on the full sale price of the transfer, X and Z agree to divide the conveyance into four separate transactions: D—G. Transaction D involves a deed of conveyance for a portion of the value of the real estate. Z pays $100,000 for the deed. Transactions E—G are effectuated by separate writings that each, by appearance, is nontaxable. Z pays $400,000 for transaction E and its respective writing and a total of $1.5 million for transactions F and G and their respective writings. The four transactions and writings effectuate the same outcome as would have been accomplished by the single transaction and document. Therefore, all four transactions are considered as accomplished by the single transaction and document, and each writing is taxable upon the portion of the value of the real estate that it represents. The deed of conveyance for transaction D represents the conveyance of a portion of the real estate. Z paid $100,000 for the deed. Therefore, its taxable value is $100,000. Transactions E, F and G and the associated writings effectuated the transfer of the remaining portion of the real estate. Because Z paid $400,000 for the writing under transaction E, the taxable value of the writing is $400,000. There was no allocation of the purchase price for transactions F and G and the associated writings. Therefore, the remaining portion of the real estate value that has not been allocated, that is $1.5 million, is divided equally, $750,000 each, between the writings for transactions F and G.

 Example 2. X is a land developer and is the sole owner of business entity 1 and 2.

 X has business entity 1 purchase vacant real estate. Realty Transfer Tax is paid on the document of transfer for the real estate. X then has business entity 1 lease the real estate under a short term lease (less than 30 years) to business entity 2. Business entity 2 makes $10 million worth of improvements to the real estate. Business entity 1 remains the owner of the underlying real estate and business entity 2 remains the owner of the improvements.

 X then enters into an agreement with Y for the sale of the real estate and improvements for $15 million. The agreement provides that X will have business entity 1 convey its ownership in the underlying real estate to Y for a sale price of $2 million. Business entity 1 and Y effectuate the transfer of the underlying real estate and pay realty transfer tax on the deed of conveyance based upon the $2 million sale value.

 The agreement also provides that X will have business entity 2 assign its lessee interest in the short term lease to Y for the remaining $13 million sale price. No tax is paid on the assignment of the lessee interest. Y then terminates the lease resulting in a merger of the real estate and improvements in Y. Y has, in substance, purchased both the underlying real estate and improvements. By breaking the simple sale of the underlying real estate and improvements into multiple transactions, X and Y have attempted to avoid paying tax on the full sale price of $15 million. In this case, the multiple transactions will be viewed as a single transaction. Therefore, the total taxable value of the single transaction is the $15 million sale price.

   The provisions of this §  91.170 adopted under section under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

 Except as provided in § §  91.152(a) and 91.193(b)(1)(i), (7), (12) and (13) (relating to confirmatory deed; and excluded transactions), any writing that satisfies the requirements of the Statute of Frauds and confirms or evidences a transfer of title to real estate that is accomplished by operation of law is taxable on the same basis as a document that effectuates a conveyance or transfer or vests title to real estate.

   The provisions of this §  91.171 adopted under section under section 1107-C of the Tax Reform Code of 1971 (72 P. S. §  8107-C).

   The provisions of the §  91.171 adopted December 14, 2007, effective December 15, 2007, 37 Pa.B. 6516.