Parties to real estate transactions frequently use the transfer of limited liability company membership interests instead of a deed to transfer ownership in the underlying real property. This may be done for a variety of reasons, including the avoidance of paying a conveyance fee. Historically, this method has also been used when the purchase price for the realty is greater than the given county’s appraised value for real estate tax purposes. This, because a purchase price is generally the best evidence of fair market tax value. In Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2020-Ohio-353, the Ohio Supreme Court ruled that the price paid for LLC interests did establish the fair market value of the underlying real property for tax purposes.
Evidence produced before the Ohio Board of Tax Appeals made it clear that the true intent of the buyer and seller was the transfer of the underlying real property and the purchase price reflected that. One item of evidence was that the purchase agreement for the LLC interests was very much in the format of a typical commercial purchase agreement for real estate.
With this case, school boards will more closely scrutinize deed transactions transferring ownership of real estate into limited liability companies to see if there is a related transaction showing a transfer of realty control for a purchase price higher than the current tax valuation. If so, the given school board may apply to raise taxes.