Commerical Property Tax Loophole

Ohio Supreme Court Deals Blow to Sales Designed to Take Advantage of a Property Tax Loophole

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On Thursday, the Ohio Supreme Court ruled that evidence of a commercial real estate transaction depends on the intent of the parties and the building transferred, not the structure of the sale. The court invalidated the "drop LLC" sale of 4121 Palmer Park Circle East, which would have deprived public coffers of about $273,000 a year in tax money, based on a lower valuation of the property. Eye on Ohio featured the case in its August 2019 investigation of the commercial property tax loophole in Ohio, which costs the median Franklin County commercial business property owner an average of at least $4,893 per year. A property owner with a $100,000 property in Columbus' tax district 10, where Palmer House is located, pays at least $1,800 extra. In December 2014, Palmer Square sold an apartment building to PPG Manhattan Real Estate Partners LLC.

entity sales

How Much are you Overpaying in Property Tax?

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Commercial Property Sales Loophole Costs Small Business Owners Thousands

This investigation made possible via a grant from the Pulitzer Center for Crisis Reporting. 

When Palmer Square, LLC recently wanted to sell their apartment building at 4121 Palmer Park Circle East in Columbus, they went through all the usual hoops that most homeowners are familiar with: they executed a purchase contract with the buyer, Manhattan Real Estate Partners, LLC, they ordered an inspection, and they obtained title insurance. 

But selling the property outright would have cost $65,000 in conveyance fee taxes, and annual property tax would bump up an additional $309,000 dollars per year, with the property now valued at the agreed to purchase price of $35.25 million instead of the auditor’s value of $24.5 million. So instead, Palmer Square formed Palmer House Borrower, LLC. That new business received the property at 4121 Palmer Park Circle and its mortgage. Then they technically sold the business, and not the property. Conveyance tax due to Franklin County: $0. 

Palmer Square is one of hundreds of such property deals taking place throughout the state of Ohio every year, and they are legal.