Real Estate Industry Tax Rules Vary by State

Steve Ryan, partner with Grant Thornton, a global professional services network that provides assurance, tax and specialist advisory services to privately held businesses, public interest entities and public sector entities, recently spoke about taxes and real estate.

Last month at REITWise 2012: NAREIT's Law, Accounting and Finance Conference in Hollywood, Fla., Ryan participated in a session looking at state and local tax issues. He later sat down for a video interview with REIT.com.

He said that there are a wide range of rates when it comes to transfer taxes and a lot of variances in the definitions. ompanies can transfer property in a state like Colorado, and it probably won't cost them much, Ryan said. However, it will be costlier in states like New York, Pennsylvania and a number of other states.

"A lot of the states are enacting controlling ownership taxes," Ryan said. "We are seeing just a greater range of methodologies on how you define an entity that is going to be subject to tax, a transaction that's going to be subject to tax and the tax base that you're going to be subject to tax."

When it comes to sales tax, Ryan said that within the last five years he's noticed an increase in the number of companies that want to reach compliance. He added that in the real estate industry there are tough, practical issues to address in terms of implementing efficient sales and use tax controls.

"You get into a situation where a lot of the tax decisions are at the property manager level, so you could have the same transaction being viewed by property managers in 18 different states and you might have 18 different answers, whether by state law or just the individual," Ryan said.

As a result he's noticed some companies focusing on trying to implement a more centralized function such as a procurement company. However, Ryan admits that it works better with hotels and certain segments of the industry more than others.