Drop-Down LLC Transaction Constitutes Value for Real Estate Tax Purposes

By Drew Emmert, DBL Law

A recent Ohio Supreme Court case recognised that the price paid for the transfer of a 100% equity interest in the LLC owning a 264-unit apartment complex in Columbus, Ohio, should be presumed to constitute the ad valorem tax value of the real estate owned by that entity. See Columbus City Schools Bd. of Edn. v Franklin Cty. Bd. of Revision, Slip Opinion No. 2020-Ohio-353.

For years in Ohio, experienced real estate investors have been utilising a tool known by various names, such as a “drop and swap” or an “entity purchase,” to acquire commercial real estate in an effort to maintain a lower real estate tax valuation on the county tax records and, simultaneously, to keep the new sale price of the transaction from the scrutiny of county taxing authorities.

This latter step would often keep taxing authorities from noticing a new transaction at a price that might be two or three times greater than the current tax valuation. Such steps were popular with CRE investors since it helped to keep real estate taxes, which in Ohio can range from about 1.0% to 4.0% of the tax assessed value, artificially low.

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Drew Emmert

Drew Emmert

GGI member firm
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Dressman, Benzinger LaVelle psc (DBL Law) provides a complete range of services to meet legal needs in a wide variety of industries. With cross-industry collaboration, DBL Law attorneys offer comprehensive service on complex matters that transcend simple categorisation in many areas of law.

Drew Emmert is a Partner in DBL Law’s real estate, corporate, business and tax areas. He assists individuals, privately-held businesses, and real estate owners, investors, tenants, and developers, focusing on general business, real estate, construction, probate, estate planning, and intellectual property.

Published: Real Estate Newsletter, No. 12, Autumn 2020 l Photo: Paul - stock.adobe.com

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