On December 16, 2019, Boston Mayor Martin Walsh signed a home rule petition (Bill) approved by the Boston City Council to petition the Massachusetts Legislature to allow the City of Boston (City) to levy a 2% transfer fee on properties in the City that sold for $2 million or more (Boston transfer fee).¹ If approved by the Massachusetts legislature, the Bill would impose the transfer fee not only on direct asset transfers currently subject to Massachusetts state excise tax on deeds, instruments, and writings (real estate transfer excise tax), but also on transfers of controlling interests of legal entities (e.g., corporations, partnerships, LLCs) that own real property the City.

Currently, the Massachusetts real estate transfer excise tax of 0.456% applies to real estate transfers by deeds, instruments, and writings. Massachusetts generally does not impose this tax on controlling interest transfers.

To become law, the Bill must be introduced, considered, and passed by the Massachusetts Legislature before the current session ends on July 31, 2020, and then signed into law by the Governor. The Boston Herald quoted Representative Kevin Honan, House Chairman of the Joint Committee on Housing, as supportive of the Bill and ready to introduce it in the Legislature.²

If passed without modification, the Boston transfer fee would be effective on the date enacted. The Bill would impose a 1% transfer fee on both the seller and purchaser of any real property interest or controlling interest in an entity that directly or indirectly holds an interest in real property in the City. The Bill does not define a transfer of controlling interest, directing the City of Boston to determine by ordinance what constitutes such a transfer and how the Boston transfer fee would subsequently be calculated.

The Bill would allow the following exemptions to the Boston transfer fee: (1) transfers between family members as may be defined by ordinance, (2) transfers of convenience as may be defined by ordinance, (3) transfers to federal and Massachusetts government entities, and (4) transfers for which the sale price is under $2 million.

As formal opposition to the Bill has yet to materialize, the Legislature may pass Boston's petition before the end of this term.

Implications

Similar bills are in progress in a handful of other Massachusetts localities. Last year, the City of Somerville submitted a home rule petition to impose a 1% transfer tax, which failed to gain traction in the Massachusetts Legislature.

If enacted, Boston and other local transfer tax regimes would mark a significant departure from the current Massachusetts real estate transfer tax landscape. Taxpayers can expect increased transfer tax rates, a broadening of the types of transactions subject to such taxes, and additional compliance complexities due to lack of uniform rules among local jurisdictions and in comparison with the statewide real estate excise tax.

Please contact EY to discuss any current or planned sales or transfers of real property located in Massachusetts, or transactions involving entities that directly or indirectly own real property located in Massachusetts.

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ENDNOTES

¹ Boston, MA City Council Committee on Government Operations, Docket #0187, Petition for a special law re: An Act Authorizing the City of Boston to Establish an Investor and Commercial Properties Transfer Fee.

² Tiernan, Erin, Boston Real Estate Tax 'Penalizes' Investors, Critics Say, Boston Herald (Dec. 16, 2019).