February 22, 2018
City of Pittsburgh increases Realty Transfer Tax rate
On December 19, 2017, Pittsburgh, Pennsylvania Mayor Bill Peduto signed into law an ordinance increasing the rate of the Home Rule Realty Transfer Tax from 1% to 1.5% starting February 1, 2018 and to 2% starting January 1, 2020. When fully phased in, Pittsburgh will have the highest total combined real estate transfer tax rate in the US at 5%,1 surpassing the City of Philadelphia, currently at 4.1%.2
Before the new law's enactment, the combined state and local transfer tax rate in Pittsburgh was either 3.5% or 4%, made up of a 1% Realty Transfer Tax rate imposed by the Commonwealth of Pennsylvania,3 a 1% Realty Transfer Tax rate imposed by the City of Pittsburgh,4 a 1% Home Rule Realty Transfer Tax rate imposed by the City of Pittsburgh,5 and, depending on the school district, a Realty Transfer Tax rate of 0.5% (Baldwin-Whitehall School District) or 1% (Pittsburgh School District).6
Transfer tax in Pennsylvania
In the Commonwealth of Pennsylvania and in the City of Pittsburgh, transfer tax is imposed for the privilege of recording an instrument, such as a deed, that transfers an interest in real property.7 In addition, transfer tax also applies when a "real estate company" becomes an "acquired company," a so-called transfer of a "controlling interest."8 A "real estate company is defined as an entity primarily engaged in the business of holding, selling or leasing real estate, in which 90% or more of the ownership interests are held by 35 or fewer persons, and which either derives 60% or more of its gross receipts from real property, or 90% of whose total tangible asset holdings are made up of real estate."9 The definition also includes an entity with a direct or indirect ownership interest in a real estate entity if such interest constitutes 90% or more of the fair market value of the entity's assets.10 A real estate company becomes an "acquired company" if 90% or more of the company is transferred, directly or indirectly, within three years.11 The Commonwealth provides very few exemptions for transfers, both through deed transfers and transfers of interests in entities, even within a wholly owned corporate structure. Therefore, even an internal reorganization may trigger transfer tax liability in the Commonwealth.
The transfer tax is imposed on the value of the real property interest that is transferred. For real property transferred by a recorded document, the value is the amount of consideration paid for the property, including any liens or other encumbrances on the property not removed by the transfer.12 For an acquired real estate company, however, the transfer tax is imposed on an amount determined by multiplying the assessed value of the real estate for property tax purposes by a common level ratio established by the State Tax Equalization Board.13
Please contact EY to discuss any current or planned sales or transfers of real property located in the City of Pittsburgh, or transactions involving entities that directly or indirectly own real property located in the City of Pittsburgh.
1 Total 5% combined rate is made up of 1% Commonwealth rate, 1% Pittsburgh School District rate, 1% Pittsburgh Realty Transfer Tax rate, and 2% Pittsburgh Home Rule Realty Transfer Tax rate (commencing January 1, 2020).
2 Total 4.1% combined rate is made up of 1% Commonwealth rate, and 3.1% City of Philadelphia rate. 72 Pa. Stat. Ann. Section 8102-C; Philadelphia Code Section 19-1403(1)(h). When fully phased in, Pittsburgh will actually tie Reading, Pennsylvania for having the highest real estate transfer tax in the US.
3 72 Pa. Stat. Ann. Section 8102-C.
4 Pittsburgh Code Section 255.02(a).
5 Id. Section 256.02(a).
6 See Municipality and School District Tax Rates (last visited February 20, 2018).
7 72 Pa. Stat. Ann. Section 8102-C.
8 Id. Section 8102-C.5.
9 Id. Section 8101-C.
11 Id. Section 8102-C.5.
13 72 Pa. Stat. Ann. Section 8101-C.