Form 84 0001be (A) - Real Estate Excise Tax Affidavit Controlling Interest Transfer Return Page 3

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(4) Measure of the tax. The measure of the tax is the "selling price." For the purpose of this rule, "selling price" means the true and fair value

of the real property owned by the entity at the time the controlling interest is transferred.

(a) If the true and fair value of the property cannot reasonably be determined, one of the following methods may be used to determine the

true and fair value:

(i) A fair market value appraisal of the property; or

(ii) An allocation of assets by the seller and the buyer made pursuant to section 1060 of the Internal Revenue Code of 1986, as amended

or renumbered as of January 1, 2005.

(b) If the true and fair value of the property to be valued at the time of the sale cannot reasonably be determined by either of the methods

in (a) of this subsection, the market value assessment for the property maintained on the county property tax rolls at the time of the sale

will be used as the selling price.

(i) A partnership owns real property and consists of two partners, Amy and Beth. Each has a 50% partnership interest. The true and fair

value of the real property owned by the partnership is $100,000. Amy transfers her 50% interest in the partnership to Beth for valuable

consideration. The taxable selling price is the true and fair value of the real property owned by the partnership, or $100,000.

(ii) A corporation consists of two shareholders, Chris and Dilbert. The assets of the corporation include real property, tangible personal

property, and other intangible assets (goodwill, cash, licenses, etc.). An appraisal of the corporation's assets determines that the values

of the assets are as follows: $250,000 for real property; $130,000 for tangible personal property; and $55,000 for miscellaneous

intangible assets. Chris transfers his 50% interest to Ellie for valuable consideration. The taxable selling price is the true and fair value

of the real property owned by the corporation, or $250,000.

(iii) An LLC owns real property and consists of two members, Frances and George. Each has a 50% LLC interest. Frances transfers her

50% interest to George. In exchange for the transfer, George pays Frances $100,000. The true and fair value of the real property owned

by the LLC is unknown. There is no debt on the real property. A fair market value appraisal is not available. The market value

assessment for the property maintained on the county property tax rolls is $275,000. The taxable selling price is the market value

assessment, or $275,000.

(5) Persons acting in concert. The tax applies to acquisitions made by persons acting in concert, as defined in subsection (2)(f) of this section.

(a) Where persons are not commonly controlled or influenced, factors that indicate whether persons are acting in concert include: (i) A

close relation in time of the transfers or acquisitions;(ii) A small number of purchasers; (iii) Mutual terms contained in the contracts of

sale; and (iv) Additional agreements to the sales contract that bind the purchasers to a course of action with respect to the transfer or

acquisition.

(b) If the acquisitions are completely independent, with each purchaser buying without regard to the identity of the other purchasers, then

the persons are not acting in concert, and the acquisitions will be considered separate acquisitions.

(c) Example. Able owns 100% of Emerald Corporation, which owns real property. As a group, Baker, Charlie, Delta, and Echo negotiate

to acquire all of Able's interest in Emerald. Baker, Charlie, Delta, and Echo each acquire 25% of Able's interest. The contracts of Baker,

Charlie, Delta, and Echo are identical and the purchases occur simultaneously. Baker, Charlie, Delta, and Echo also negotiated an

agreement binding themselves to a course of action with respect to the acquisition of Emerald and the terms of the shareholders agreement

that will govern their relationship as owners of Emerald. Baker, Charlie, Delta, and Echo are acting in concert and their acquisitions from

Able are treated as a single acquisition of a controlling interest that is subject to the real estate excise tax.

(6) Date of sale.

(a) When the controlling interest is acquired in one transaction, the actual date control is transferred is the date of sale. Examples of when

an interest in an entity is transferred include when payment is received by the seller and the shares of stock are delivered to the buyer, or

when payment is received by the seller and partnership documents are signed, etc. However, if the parties enter into an agreement to

acquire or transfer a controlling interest over time through a series of transactions, the date of sale is deemed the date of the agreement

arranging the transactions. The agreement results in the transfer of both a present interest and a beneficial interest in the entity, the sum of

which results in a controlling interest, regardless of whether the first of the successive transactions is more than twelve months prior to the

final transaction.

(b) Examples.

(i) Andrew owns 100% of the voting shares of Topaz Corporation. Andrew signs a binding agreement to transfer 51% of his shares in

the corporation to Ted. The agreement states that the transfer will occur as follows: 49% of the shares will be transferred on January

1st, and the remaining 2% of the shares will be transferred on February 1st of the following year. Andrew has contractually agreed to

sell 51% of the voting shares in Topaz within a twelve-month period, even though the shares will not actually be transferred to Ted

until later. The date of sale is the date of the agreement, and REET is due upon the true and fair value of the property as of the date of

the agreement.

(ii) Matt acquires a 10% interest in an entity which owns an apartment building under construction worth $500,000 from Simon on

January 30th. On July 30th Matt acquires a 30% interest in the same entity from Mary, but the building is now worth $900,000. On

September 30th Matt acquires a 10% interest in the same entity from Ruth, but the building is now worth $1,000,000. These are three

separate and completely independent transfers. The final transfer allowed Matt to acquire, within twelve months, a controlling interest

in an entity that owns real property. September 30th is the date of sale.

To determine the sellers' proportional tax liability in the example above, the series of transactions is viewed as a whole. Note both the

individual and the total interests transferred. Here, Simon and Mary each conveyed 10% interests, while Ruth conveyed a 30% interest,

with a total of a 50% interest being conveyed. To determine the liability percentage for each seller, divide the interest each conveyed by

the total interest conveyed (Here, Simon and Mary: 10/50 = 20%; Ruth: 30/50 = 60%). This results in tax liability percentages here for

Simon and Mary of 20% each and for Ruth, 60%.

To determine the amount of tax owed, the percentage is applied to the value of the property at the time of conveyance. In the example

above, the value of the property to which the percentage applies is dependent on the time of each transfer (i.e., Simon's 20% on the

$500,000; Mary's 60% on the $900,000; Ruth's 20% on the $1,000,000).

(7) Tax liability. When there is a transfer or acquisition of a controlling interest in an entity that has an interest in real property, the seller of

the interest is generally liable for the tax.

(a) When the seller has not paid the tax by the due date and neither the buyer nor the seller has notified the department of the sale within

thirty days of the sale, the buyer is also liable for the tax.

(b) When the buyer has notified the department of the sale within thirty days of the sale, the buyer will not be held personally liable for any

tax due.

REV 84 0001Be (a) (12/29/06)