The Wisconsin Court of Appeals affirmed the Department of Revenue’s denial of the taxpayers’ request for refund of real estate excise tax (“REET”) paid in connection with the sale of a controlling interest in an LLC. The taxpayers owned 50.01 percent of an LLC that owned 19,400 acres of farm land. In 2008, the taxpayers sold their interest in the LLC, paid REET based on the fair market value of all the farm property owned by the LLC, and filed for a refund, contending that they should pay tax on only 50.01 percent of the property owned by the LLC. The court rejected the taxpayers’ argument that the REET violated the Uniformity Clause of the Washington Constitution because the Uniformity Clause applied only to property taxes, and the REET was imposed on the transfer of property, making it an excise tax. The taxpayers also argued that the REET was invalid because the taxpayers did not voluntarily act to transfer the minority portion of the property. The court noted, however, that the taxpayers voluntarily transferred their controlling interest and the tax applied to their voluntary act of selling property rather than mere ownership. Watts v. Wash. Dep’t of Rev., Wash. Ct. App., Dkt. No. 42159-3-II (June 29, 2012) (unpublished opinion).
Co-author - Patrick Smith, Director Baker Tilly Virchow Krause, LLP
Mr. Ely is a partner and Messrs. Thistle and Rhyne are associates with the multistate law firm of Bradley Arant Boult Cummings LLP in its Birmingham, Alabama office. Mr. Ely is Chair of the firm’s State & Local Tax Practice Group. Messrs. Ely, Thistle, and Rhyne co-author a chapter on the state taxation of PTEs in the treatise “Keatinge, Conaway and Ely on Choice of Business Entity” (West). Mr. Smith is the Tax Director at Baker Tilly Virchow Krause, LLP and is head of State & Local Tax Services for the firm’s Chicago office. Mr. Smith is a co-author of “State Taxation of Pass-Through Entities and Their Owners,” a treatise published by Warren Gorham and Lamont/West since 2005. Messrs. Ely and Smith have co-presented on this topic at NYU’s Institute on Federal Taxation, as have Messrs. Thistle and Smith for a webinar hosted by Strafford Publications in early June.