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Legislation to Eliminate Discrimination in Taxation of Family Farm Business Transfers

For years, Pennsylvania has recognized and consistently applied the general principle that families who operate a business partnership should not be burdened with realty transfer tax liability when they try to reorganize their business from a traditional partnership to a limited or limited liability partnership in order to take advantage of the legal benefits provided under those business structures.  Since 2000, courts have ruled that transactions to convey real property held by the family’s general partnership to the family’s “succeeding” limited or limited liability partnership are not “transfers” subject to realty transfer tax if the ownership interests among family members in the “succeeding” partnership are essentially the same as the original partnership.

However, a different and discriminatory principle is being applied exclusively to farm families who attempt to perform the same type of business reorganization.  Regulations issued in 2007 have interpreted realty transfer tax statutes for family farm partnerships in a manner that would cause them to lose their tax exemption status with the termination of the family’s general partnership.  Even though ownership interests among family members have not changed, the regulations would direct that realty transfer taxes be imposed on conveyances of real property to the family’s succeeding limited or limited liability partnership.

House Bill 761 (introduced by Representatives Bryan Cutler and Rick Mirabito) and Senate Bill 746 (introduced by Senator Dominc Pileggi) would amend realty transfer tax laws to eliminate the discriminatory interpretation that is being applied to reorganizations of farm family partnerships.

Pennsylvania Farm Bureau urges support for passage of legislation contained in House Bill 761 and Senate bill 746 to eliminate the discrimination currently applied to families operating farming businesses in partnership and provide farm families the same realty transfer tax exemption for conveyances of farm property in the course of reorganization to a limited or limited liability partnership as provided to families engaged in other businesses.