|July 19, 2006|
Previously published on July 11, 2006
On July 8, 2006, the New Jersey Legislature passed Assembly Bill No. 4701 as part of a series of last-minute measures to close the state’s multi-billion-dollar budget gap. The bill expands the application of the New Jersey “mansion tax” to sales of commercial property. Purchasers of commercial property for a consideration exceeding $1 million are now required to pay a 1 percent fee on the total purchase price of the property at the time the deed is recorded. Previously, only purchasers of residential property were subject to the mansion tax. The following are highlights of the new legislation:
- The new law takes effect on August 1, 2006, and applies to transfers of commercial property on or after that date. The mansion tax would not apply to property transfers if the conveyance documents are recorded no later than July 31, 2006. For all deeds presented for recording between now and July 31, 2006, proof of receipt from the County Clerk/Registrar or proof of delivery from an overnight courier should be obtained as evidence that the mansion tax is inapplicable to the transaction.
- The new law has a “safe harbor” provision for transactions in which the real estate sales contract is fully executed before July 1, 2006. In these instances, the commercial property’s purchaser must pay the mansion tax if the deed is recorded after August 1, 2006. However, if the deed from the commercial transaction is recorded prior to November 15, 2006, the purchaser is eligible to receive a refund of its mansion tax payment. The safe harbor would not apply to any deed recorded after November 15, 2006, even if the sales contract was fully executed prior to July 1, 2006.
- A complete exemption from the mansion tax applies if the transfer of the real property is incidental to a corporate merger or acquisition, and the equalized assessed value of the real property transferred is less than 20 percent of the total value of all assets exchanged in the merger or acquisition. A new form of affidavit will be created by the New Jersey Division of Taxation for mansion tax exemptions in these situations.
- A Seller’s Affidavit of Consideration still must be attached to the deed for commercial property regardless of the consideration amount. Likewise, a Buyer’s Affidavit of Consideration must be attached to the deed for commercial property regardless of the consideration amount and regardless of whether the transfer may be exempt from the new mansion tax.
Purchasers of commercial property should be aware of this new tax imposition when negotiating contracts.